Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.:. 19402

IMPLEMENTATION COMPLETION REPORT

PAKISTAN

TRANSPORT SECTOR PROJECT(Ln. 3241 - PK)

June 25, 1999

Infrastructure UnitSouth 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 without WorldBank authorization.

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CURRENCY EQUIVALENTS

Currency Unit - Pakistan Rupee (Rs)

Appraisal year, 1990 US$ 1.00 Rs 21.5 (at appraisal)Original closing year, 1996 US$ 1.00 Rs 36.1 (annual average)Completion year, 1998 US$ 1.00 Rs 45.8 (annual average)

WEIGHTS AND MEASURESMetric System

FISCAL YEAR OF BORROWERJuly I -June 30

ABBREVIATIONS AND ACRONYMSCIMP Core Investment and Maintenance ProgramFDRP = Flood Damage Restoration ProjectFHP = Fourth Highway ProjectFHWA = Federal Highway Administration (USA)FIDIC = Federation Intemationale des Ingenieurs-ConseilsGDP = Gross Domestic ProductGOP = Government of PakistanICB = International Competitive BiddingICR = Implementation Completion ReportLCB = Local Competitive BiddingMBRP = Maintenance Backlog Reduction ProgramMIL = Maintenance Intervention LevelMIS Management Information SystemMMS = Maintenance Management SystemMOC = Ministry of CommunicationsMOF Ministry of FinanceMOR = Ministry of RailwaysNHA National Highway AuthorityNHB = National Highway BoardNLC = National Logistics CellNTRC = National Transport Research CentrePC = Planning CommissionPC-i = Planning Commission, document #1PPIB = Private Power and Infrastructure BoardPR = Pakistan RailwaysPSO Public Service ObligationRECO Rail Equipment CompanyRSP Resurfacing and Strengthening ProgramSAR Staff Appraisal Reporttkm = tonne-kilometreVOC = Vehicle Operating Cost

Vice President Mieko NishimizuCountry Director Sadiq AhmedSector Director Frannie HumplickTeam Leader John TillmanTask Team Leader Navaid Qureshi

FOR OFFICLAL USE ONLYTable of Contents

Preface .......................................................... iv

Evaluation Summary .......................................................... vIntroduction. vProject Objectives ........................................................... vImplementation Experience and Results .............................. ............................. vSummary of Findings, Future Operations, and Key Lessons Learned ........................... vii

Part I Project Implementation AssessmentA - Background .......................................................... 1lB - Project Objectives ........................................................... IC - Achievement of Objectives .......................................................... 2D - Major Factors Affecting the Project ........................................................... 6E - Project Sustainability ........................................................... 7F - Bank Performance .......................................................... 8G - Borrower Performance ........................................................... 9H - Assessment of Outcome ......................... , 10I - Future Operation ......................... 12J - Key Lessons Learned ......................... 13

Part II Statistical TablesTable 1: Summary of Assessments ......................... 14Table 2: Related Bank Loans/Credits ......................... 17Table 3: Project Timetable ......................... 18Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual ..................... 19Table 5: Key Indicators for Project Implementation ................................................... 20Table 6: Key Indicators for Project Operation ................................................... 22Table 7: Studies Included in Project ................................................... 24Table 8A: Project Costs ................................................... 26Table 8B: Project Financing ................................................... 27Table 9: Economic Costs and Benefits ................................................... 28Table 10: Status of Legal Covenants .................................................... 30Table 11: Compliance with Operational Manual Statements ........................................ 33Table 12: Bank Resources: Staff Inputs ................................................... 34Table 13: Bank Resources: Missions ................................................... 35

AnnexesA. Highway mission aide-memoireB. Railway mission aide-memoireC. National Highway Authority's contribution to the ICRD. Revised Economic and Financial Evaluation of Pakistan RailwayE. Map

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.

iv

IMPLEMENTATION COMPLETION REPORT

PAKISTANTRANSPORT SECTOR PROJECT

(Ln. 3241- PK)

PREFACE

This is the Implementation Completion Report (ICR) for the Transport Sector Project in Pakistan, forwhich Loan 3241-PK in the amount of US$ 184.0 million was approved on June 28, 1990 and madeeffective on February 26, 1991. The project included three components: railways (US$ 105 million),highways (US$ 77.5 million) and transport sector reform (US$ 1.5 million). The initial projectidentification, preparation, appraisal, earliest supervision, and final drafting of the ICR were undertakenas a unified project. However most of the supervision of the loan including the fieldwork for two draftICRs was undertaken separately for each component.

The project closed on June 30, 1998, after two 12 month extensions granted beyond the original closingdate of June 30, 1996. An amount of US$ 22,657,602.62 had been cancelled on October 31, 1996. Afurther amount of US$ 11,097,674.94 had been cancelled on November 16, 1998. The finaldisbursement transaction took place on January 12, 1999, when the special account balance was refundedand the remaining undisbursed balance of US$ 9,171.92 was cancelled. A total of US$ 150,235,550.52(82%) was disbursed from the Loan.

The project was restructured in June 1996 and loan amounts were reallocated. The railway componentwas revised down to US$ 93,500,000, of which ultimately US$ 63,095,592.21 (67%) was disbursed. Thehighway component of the loan was increased to US$ 89,000,000, of which US$ 87,101,053.80 (98%)was disbursed. Only US$ 38,904.51 (3%) of the Sector Reform Component was disbursed.

The ICR was prepared by William Denning (TWUTD) from January to June, 1999, with help from LilianMacArthur (SASIN) and Dr. Khalid Rashid (Consultant), and was reviewed by Navaid Qureshi (SASIN),John Tillman (SASIN) and peer reviewers Chris Hoban (SASIN), and Yash Pal Kedia (AIFTT1). It isbased on the draft ICRs prepared for each component, discussions with Bank staff, and material from theproject and correspondence files and consultants in the field.

Material for the highway component was taken from a draft ICR prepared by Hasan Masood, Consultant,in March 1997 and April 1998. Preparation for this component of the ICR was begun during the Bank'sfinal highway component supervision/completion mission, in June 1997. It is based on material on theproject file, periodic management reports prepared by the borrower and several technical and end-of-assignment reports prepared by the consultants who worked on this project. The Borrower contributed topreparation of the ICR by preparing its own evaluation of the project implementation (included as AnnexC of the ICR), and reviewing and commenting on the draft ICR.

Material for the railway component was taken from a draft ICR prepared by Jerry Pinkepank and KhalidRashid, Consultants, in May 1997 and June 1998. The railway component draft was prepared during andafter a supervision/completion mission in May, 1997. Presentation of the draft ICR to the Borrower tookplace March 8, 1999. The Borrower was not able to contribute to preparation of the railway componentby commenting on the draft ICR. The Borrower has not prepared an evaluation report

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PAKISTANTRANSPORT SECTOR PROJECT

(Ln. 3241- PK)

EVALUATION SUMMARY

Introduction

1. The Transport Sector Project was an evolution of previous Bank lending operations in the sector.The project funded sector and institutional reforms and priority maintenance work for the highwaynetwork and railway operation. It was not simply a traditional project loan as it focussed on bothphysical and institutional development objectives. There were three components to the project: highway,railway, and sector reform.

Proiect Obiectives

2. The objectives of the highway component were to assist in: (a) bringing the National HighwayAuthority (NHA) to a size, structure and level of professional competence reflecting its responsibilities;(b) instituting a sustainable core investment and maintenance program (CIMP) for national highways;and (c) removing a substantial portion of the backlog of maintenance, rehabilitation, and resurfacing sothat a sustainable maintenance program could be established. These objectives were to be pursuedthrough: (a) technical assistance and training for the reorganization of NHB, (b) a Maintenance BacklogReduction Program (MBRP), and (c) a pavement Resurfacing and Strengthening Program (RSP).

3. The objectives of the railway component were to assist Pakistan Railways (PR) in: (a)implementing railway restructuring and establishment of a strong business department in order todevelop commercial orientation of railway management, (b) implementing an operational improvementprogram and supporting it with selective investments to enhance its effectiveness, and (c) ensuringadequate locomotive utilization by removing the maintenance backlog. The objectives were to beachieved by: (a) institutional development, (b) an Operational Improvement Program, and (c) aLocomotive Maintenance Backlog Reduction Program.

4. The objective of the sector reform component was to assist GOP effectively to implement andmonitor a sector reform program. The project components were well linked to the project objectives,relevant to the country's needs and consistent with the Bank's strategy in the transport sector.

Implementation Experience and Results

5. The highway component achieved its objectives, reduced transport costs, and strengthened thedomestic contracting industry. The NHA was transformed to an autonomous highway authority andrestructured. As part of the institutional strengthening effort, the NHA staff were provided with training,the financial system was improved, and standardized policies and procedures were adopted on trial basis.These improvements in NHA experienced significant delays. Compared to the ambitious appraisalestimate of 31 March 1991, NHA reorganization and staffing was only substantially completed inDecember 1994.

6. The GOP's Core Investment and Maintenance Program (CIMP) was regularly reviewed andcommented upon by the Bank. To address inadequate annual GOP funding for road maintenance, studieswere conducted to develop detailed off-budget arrangements for road maintenance through road usercharges and a Road Maintenance Fund managed by a public/private board. Inadequate engineering onlarge rehabilitation works and in one case poor ICB contractor pre-qualification led to constructiondelays and cost overruns. Unusual floods resulted in localized damages which required additional costs,as well as a one year extension of the project. Security considerations affected the implementation ofproject activities in Sindh and Balochistan. RSP contracts in Sindh could not be adequatelysupervised/monitored by the consultants following an attempted kidnapping in which one of the

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expatriate engineers was killed. Local gangs in Balochistan interfered with the work during early stagesof contract MBRP 7005 and may have been linked to the murder of the consultant's Resident Engineer.

7. The Bank's role in identification and preparation of the project was satisfactory. The projectfocused on the GOP need to reform and strengthen the prime highway development institution andreduce the backlog of maintenance. The project was in line with the Bank's sub-sector strategy at thetime of developing a sustainable national highway system and lowering transport costs. The Bank's roleduring implementation was effective and led to successful conclusion of the project. Bank missionsclosely monitored the project activities and took a firm stand on various occasions to ensure transparencyin staffing, institutional reforms, selection of MBRP/RSP sections and quality of the road improvementworks. The Bank continued its advisory role during the project which NHA and MOC greatly valued.

8. The NHA's performance was generally satisfactory as they worked jointly with the Bank duringidentification and preparation. During preparation, NHA worked closely with the consultant in puttingtogether the program. However, inadequate engineering for major rehabilitation contracts affected theroad improvement program and resulted in delays and cost overruns. Preference of MBRP works overRSP due to higher Bank financing some time led to expensive solutions for relatively simple overlayworks. During implementation, GOP's performance was largely effective except for inadequate pre-qualification on earlier rounds of RSP which led to quality issues, and non-professional administration ofICB contracts which was in part the result of regional management of construction works. NHA'sperformance in terms of complying with the covenants was generally satisfactory.

9. The railway component of the project was directly influential in GOP's 1996 and 1997decisions to reform PR (Open Access Policy and Privatization, respectively) , and in beginning toimplement those decisions. Training programs in modem business and management were delivered bylocal and international consultants in cooperation with the railway. International consultants assisted thePrivate Power and Infrastructure Board (PPIB), in preparing Open Access Policy bidding documents, andin providing bid evaluation advisory services. International consultants assisted PR and the PrivatizationCommission in providing privatization advisory services.

10. The physical objectives were not achieved, because GOP did not provide the complementarybudget support and because the unreformed PR prior to early 1997 was not focussed on efficientoperation. Under the Operations Improvement Program the Roller Bearings sub-component to speed upequipment turnaround was only half complete by June 1998. To date there has been little or no overallimprovement in equipment turnaround times. The Telecommunications sub-component was droppedwhen the proposal to increase capacity by rerouting trains was discarded as unneeded. The ManagementInformation System (MIS) sub-component was not disbursed in the expectation that freight moves wouldsoon be primarily unit trains and not require specialized tracking. Under the Locomotive MaintenanceBacklog Reduction Program the Recommission 46 Locomotives sub-component completed 42 unitsthrough 1996/97. The Unit Exchange Spares sub-component procured the necessary initial inventory ofunit exchange kits. However, in contravention of a loan covenant GOP did not keep up its funding ofregular maintenance recurring spares. The Traction Motor sub-component decreased the number oflocomotives running with less than their full complement of traction motors from 154 in 1990 to 81 as ofMarch 31, 1997. However the overall trend of improvement conceals that the problem has beentransferred from one model of traction motor to another, more important, model. The result is thatdespite 18 new locomotives, the recommissioning of 42 locomotives, reducing the number of unitsneeding traction motors, and discontinuing some passenger trains, the available freight locomotivesdeclined from 131 in 1992/93 to 104 in 1996/97.

11. The railway component was mainly affected by GOP's failure to provide its agreed support in:(a) locomotive spares funding, (b) tariff increases, and (c) funding through a Public Service Obligation(PSO) to pay for uneconomic passenger trains operated at GOP request. Bank performance wassatisfactory in project identification and preparation. Appraisal was deficient. The economic analysis ofthe railway sub-components used simple calculations based on very broad averages and assumptions.

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Analysis of the sensitivity of the financial projections or economic evaluations to changes in traffic levelswas not performed. In supervision Bank performance was deficient. With the major failure to satisfyproject covenants over a prolonged period of time, supervision missions recommended suspension of theloan. This did not occur and the Bank did not effectively challenge PR or GOP to live up to theircommitments. Risk assessment and management by the Bank was not satisfactory. Key risks ofachieving policy reforms were not appropriately identified and managed. A degree of optimismpermeated the project design.

12. In preparation PR' s performance was satisfactory. The project was premised on strong supportfrom PR and GOP for the major changes required. In light of the subsequent history of the loan, PRoverstated its capacity to support the required changes. Implementation was deficient. The physicalobjectives of the locomotive maintenance backlog reduction assistance were not achieved because GOPfailed to provide PR with an adequate budget for locomotive spares, the implementation of the rollerbearings component was delayed, and the accounting study and modernization of the accounts was notcompleted. For much of the loan GOP was in default of two major covenants, (1) recurrent maintenancebudget for locomotive spares, and (2) tariff increases.

13. The GOP has preferred to use grant financing for many of the initiatives for which the sectorreform component was to provide assistance. Trucking industry studies were completed by NTRC.USAID assisted GOP with extensive work on bulk commodity logistics. UNCTAD undertook aTransport and Trade facilitation program with the Pakistan Shippers Council and Ministry of Planning.Resource mobilization from road users was extensively studied by NHA with consultant assistance underthe Highway component of the project. GOP's environmental efforts were focussed on establishingoverall policies and agencies, and on toxic industrial effluents. In sector planning GOP decided to useJICA funds for the preparation of a Transport Master Plan to assist in preparation of the Eighth Plan.

Summary of Findines, Future Operations, and Key Lessons Learned

14. Despite the achievements of highway and railway institutional components, the project overall israted unsatisfactory. The GOP remained in default of loan covenants and the physical investmentcomponent of the Railway loan (the largest single original component) did not achieve its objectives.This is summarized in the following table:

Overall Railway Highway Sector Reform

Overall assessment Unsatisfactory Unsatisfactory Satisfactory Satisfactory

Overall sustainability Uncertain Uncertain Uncertain Uncertain

15. The overall assessment of the highway component is satisfactory. The objectives of the projectwere substantially achieved. Institutional improvements were successfully carried out in NBA and arelikely to be sustainable. The backlog of maintenance was substantially reduced and the remainingservice life of the network and highway safety were significantly improved. The domestic constructionindustry benefited from the road improvement works under the project. All road sections and structureshave been taken over by NHA. An Operations Plan has been prepared and is included in Annex C. Itsimplementation is dependent on the effectiveness of the NHA's maintenance division and the availabilityof adequate recurrent resources to carry out the maintenance works. To improve quality assurance ofmaintenance operations, the NBA is now considering use of local consultants to monitor the maintenanceundertaken through contracts. Current budget arrangements are inadequate and uncertain and sosustainability is rated uncertain. An economic evaluation using the HDM model was completed andgives, for all LCB contracts, an average ERR of 81 % for the RSP and 76% for the minor MBRP works.This compares well with the ERR of 51% calculated for a sample road in the Staff Appraisal Report(SAR, now known as the Project Appraisal Document - PAD). For the two major MBRP contractsawarded under ICB procedures, the revised ERR for MBRP 7004 is 54%, and for the two sections ofMBRP 7005 it is 31% and 23% respectively.

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16. The overall assessment of the railway component is unsatisfactory. While the institutionalreform achieved by the end of the project in 1998 was significant, the physical objectives were not met.The project was successful in providing enough locomotives to keep PR operational but this success isnot sustainable as GOP failed to fund spares for locomotives. GOP has announced its strategy toprivatize PR. The railway has been unbundled into three core businesses (infrastructure, passenger, andfreight), plus a residual entity, the Railway Resettlement Agency. The core businesses will becorporatized and are expected to be privatized. A revised ERR has been calculated for the roller bearingsprogram as 7%, compared with the SAR calculation of 24%. A revised ERR has been calculated for thelocomotive maintenance component as 48%, compared to the SAR calculation of 27%. However thefigure by itself is misleading because the availability of the fleet decreased during the project period.

17. The overall assessment of the sector reform component is satisfactory. Sustainability isuncertain. In both the highway and railway sub-sectors changes are under discussion but have yet to takeon the convincing shape of true reform.

18. The key lessons learned from the project are as follows (the paragraph numbers below refer toPart I - Project Implementation Assessment):

• A permanently reliable source of maintenance funding is the single most important factor indetermining the success of highway or railway operations (paragraphs 11, 21, 28, 34, 35).

* Fundamental institutional reforms in the implementing agency have to be required up-front as a pre-condition for project approval. For example, in NHA, these reforms include: effective financialcontrols, streamlined processes, a defined maximum period for approving payments to consultantsand contractors, a defined maximum period for issuing completion or defect liability certificates, andagreement to use supervisory consultants as the Engineer. Consultants acting as Engineer must haveclearly stated responsibilities, including those related to satisfying reasonable governmental auditrequirements (paragraphs 9, 17, 24, 26).

* Highway contract administration, particularly of major ICB contracts, needs to be significantlyimproved to avoid costly claims against the employer (paragraph 26). Simplified constructionadministration procedures should be adopted. There is a need for a rigorous assessment of theimplementing agency's technical and contract administration capacity at the time of appraisal and ifnecessary technical assistance to train the Borrower's audit staff on Bank procurement guidelines,procedures and standard bidding documents. Local auditing procedures need to be updated to avoidconflict with modern contract documents (paragraphs 26, 39).

* Vehicle overloading must be effectively addressed to minimize damage to the network. The recentlyspecified legal axle load limits should be effectively enforced. There should be Bank involvementhere, perhaps by enforcing these limits through partnership with the trucking industry once axle loadcharges are included in a road fund, along with road safety initiatives (paragraph 56).

• Preparation of railway projects with an operational component must consider freight traffic issueswithin the context of an overall logistics chain. Shipper's facilities, activities, and requirements mustbe integrated with the line haul or common carrier operation (paragraph 19).

* There is a need to take effective action against defaults on loan covenants. Stronger leverage,applied earlier could have salvaged more of the railway operations component, or may have allowedmore of the loan to be reallocated into productive uses (paragraphs 19, 20, 28).

* In this project, application of the Bank policy of no railway assistance (other than TA) until railwayreforms have been implemented, may not have been appropriate since the Bank would not have beenable to maintain a dialogue with MOF and reform minded parties in GOP and the private sector. Asit was, Bank was able to be a catalyst to assist GOP adopt an open access policy for private railfreight development and on overall railway privatization policy. However this is a high riskapproach and requires a long run view of sector reform process (paragraph 57).

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PAKISTANTRANSPORT SECTOR PROJECT

(Ln. 3241- PK)

PART I - PROJECT IMPLEMENTATION ASSESSMENT

A - Back2round

1. The transport sector accounts for about 8% of Pakistan's GDP and is growing at 5% annually.Bottlenecks have developed in the transport system and the level of service, which hinders thedevelopment of a modem integrated supply chain economy. Road transport dominates the transportsector and presently carries over 85% of the inland passenger and freight traffic over a 200,000 km ofroad network. The National Highway Authority (previously National Highway Board) is responsible forabout 7,000 km of national highways. A 1989 condition survey indicated that only 50% of the networkwas in maintainable condition while the other half required major rehabilitation and reconstruction.

2. This project was the fifth intervention by the Bank in the highway sub-sector since 1964. Duringthe Third Highway Project (Credit 974-PAK, US$ 50 million, 1980-1986) efforts were initiated formaintenance of the national highways. The Fourth Highway Project (FHP) (Ln. 2814-PAK, US$ 152million, 1987-1995) went further and included a major component for development of a roadmnaintenance system and institutionalizing maintenance in NHA.

3. Pakistan Railways is responsible for an 8,800 km railway, where 95% of the traffic is carried on50% of the system. Shipments of petroleum, wheat, and fertilizer are the only freight traffic with aconsistent degree of profitability. The railway is a department of the GOP and is dependent on GOPappropriations for its capital and operating expenses. This project is the twelfth railway project inPakistan (the ninth in the former West Pakistan). The Railway XI Project (Ln. 1278-PAK) wascompleted in 1986.

B - Proiect Obiectives

4. Highway Component. The objectives were to assist in: (a) implementing an institutionalReform Program by bringing the National Highway Board to a size, structure and level of professionalcompetence reflecting its responsibilities; (b) instituting a Core Investment and Maintenance Program(CIMP) for national highways that was both appropriate to the nation's needs and sustainable; and (c)removing a substantial portion of the backlog of highway and bridge maintenance, rehabilitation andresurfacing so that a normal and sustainable level of periodic and routine maintenance would besufficient to keep the national highway network at an adequate standard. These objectives were to bepursued through: (a) technical assistance and training for the reorganization of NHB, (b) a MaintenanceBacklog Reduction Program (MBRP), and (c) a pavement Resurfacing and Strengthening Program (RSP)each with a target of 400 km of road. The objectives were relevant, in line with the country's needs, andsupported the Bank strategy in the highway sub-sector.

5. Railway Component. The objectives were to assist PR in: (a) implementing a railwayrestructuring and establishment of a strong business department in order to develop commercialorientation of railway management, (b) implementing an operational improvement program andsupporting it with selective investments to enhance its effectiveness, and (c) ensuring adequatelocomotive utilization by removing the maintenance backlog. The objectives were to be achieved by: (a)Institutional Development, consisting of: technical assistance, training, office technology, andcommercial orientation of PR, (b) an Operational Improvement Program, consisting of: equipping freightwagons with roller bearings, providing additional telecommunications links, and adoption ofmanagement information systems (As a result of these operational improvements PR were expected to:make increased use of blocked and, where possible, unit trains on closed cycles, reduce en-route wagoninspections, avoid crowded single track segments by use of alternate lines, and plan freight operations

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more efficiently), and (c) Locomotive Maintenance Backlog Reduction by the provision of spare parts torecommission 46 locomotives, provision of locomotive unit exchange spares, and the rebuilding oftraction motors. The objectives for the railway component were clearly laid out. For PR the project wascomplex and risky, because it required radical cultural and institutional change, in a mature organization,in a tradition-bound, public sector industry.

6. Sector Reform Component. The principal objective of this component was to assist GOPeffectively to implement and monitor a sector reform program. The objective was to be achieved by, (a)providing office technology to monitor implementation of the sector programs, and (b) technicalassistance for undertaking studies in the Sector Action Plan and a National Transport Policy study.

C - Achievement of Obiectives

7. Highway Component. In summary and following the format of Table 1, the achievement ofobjectives (explicit or implicit) of this component was: (a) institutional development objectives weresubstantially achieved, (b) physical objectives were substantially achieved, (c) public sector managementobjectives were partiallv achieved, and (d) private sector development objectives were partially achieved.

8. The objective to implement an institutional reform program was addressed by institutionalcomponents of the project and was substantially achieved. The NHA was created by the NationalHighway Act 1991, as an independent agency mandated to develop policies, initiate legislation andmobilize resources for developing and sustaining the national highway network. The reorganization ofthe NHA was carried out in January 1992 and included the creation of regional offices. It is autonomousregarding decisions on engaging and paying contractors and consultants. The National Highway Councilunder the chairmanship of the Prime Minister was established to provide policy guidance and oversight.NHA remains dependent on (inadequate and unreliable) budgetary allocations to finance its developmentand maintenance programs (see paragraph 11).

9. Key positions were filled with capable and qualified staff after delays. Detailed job descriptionswere developed along with a transparent selection procedure. NHA staff benefited from trainingprograms funded under the project. These were effective in introducing modem highway engineeringconcepts and practices to the organization. The project assisted NHA in developing an agency-wideaccounting system to replace the fragmented accounting system of the former NHB, which only hadindividual project accounts, but no consolidated agency level accounts. Based on a review of the NHA'sfinancial systems and internal controls, a program of Financial System Strengthening was implementedincluding improved accounting policies and computer based standard general accounting system. ThePolicies and Procedures developed during the project preparation stage were revised and improvedsubsequently to conform with the NHA reorganization, local regulations and practices so as to make iteasier to introduce and implement, These were adopted on a trial basis in 1996, and are being reviewed.

10. The objective to institute a Core Investment and Maintenance Program (CIMP) for nationalhighways was addressed by institutional and operational components of the project and was substantiallyachieved. Under the project a three-year CIMP (FY90/91 to 92/93), was implemented to maintain abalance between maintenance, rehabilitation and improvements/capacity expansion on the nationalhighways. The Bank reviewed the CIMP annually with the GOP and provided comments as necessary.The core program covering priority expenditures on the national highway system continues to beprepared and implemented annually. and is reviewed and commented upon by the Bank. A MaintenanceIntervention Level (MEL) system developed under the FlIP was upgraded into a more comprehensiveMaintenance Management System (MMS). The MMS is described further in the NHA Operational Planin Annex C

11. Funding for maintenance remains an issue. As a short-term measure, NHA agreed to divert itsannual toll revenues from a NHA general revenue account into a maintenance account. These areestimated to be about Rs 100 million or US$ 2.7 rnillion (at Rs36.1/$1, the 1996 annual exchange rate).

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A Road User Charges and Road Fund Study was completed by NHA using international consultants andrecommended establishment of a commercially managed Road Maintenance Fund, financed from roaduser charges, which are currently being reviewed by GOP. As part of an effort to identify futureinvestment needs in the highway sub-sector and investigate possible sources of fund, a study (entitledArterial Highway Network of Pakistan to the Year 2015) identified a number of areas for resourcegeneration to fund future improvements and expansion of the national highway network. Details formaintenance funding are provided Table 5a.

12. The objective to remove a substantial portion of the backlog of highway and bridge maintenance,rehabilitation and resurfacing was addressed by physical components of the project and was substantiallyachieved. The Maintenance Backlog Reduction Program (MBRP) and Resurfacing and StrengtheningProgram (RSP) were based on the Maintenance Intervention Level (MEL) system for implementing astructured and systematic program of works. The backlog of highway and bridge maintenance,rehabilitation and resurfacing has been reduced under the project. A total of 397 km of roads have beenre-paved and strengthened under RSP, compared with 400 km estimated at appraisal. A further 301 kmof roads, 14 bridges and 16 drainage structures were reconstructed under MBRP, compared with 400 kmestimated at appraisal. The reduction of 100 km from the appraised level of work resulted from NHA'sdecision to consolidate investments to upgrade 158 km of the strategic N-25 Highway (which providesaccess from Central Asia to Karachi). The scope of work for this section was expanded after appraisal toinclude major reconstruction and improvements to bring it to international standards.

13. In response to severe 1992 floods, and in addition to the stand alone Flood Damage RestorationProject (FDRP, Credit 2468-PAK), Bank management agreed to let ongoing projects in various sectors(roads, irrigation, education, and health) with broadly similar infrastructure rehabilitation objectives beused for reconstruction of damages caused by the floods. Project funds were used to provide someassistance for the repair of national highways damaged by these floods. In addition to the economic re-evaluation (see paragraph 53) a technical study carried out in 1996 showed a general improvement inroad roughness and some capacity expansion under the project, which confirms the achievement of theobjective of lowering transport costs.

14. The domestic contracting industry also benefited from the project. Except for two major ICBcontracts (7004 & 7005), all works under MBRP and RSP were awarded to intermediate and smallnational contractors following LCB procedures, significantly developing the domestic contractingindustry. The decision to use LCB was made during appraisal because of the small size, wide geographicspread, and annual nature of the programs, which meant that the composition of the later year's programswould not be known in advance.

15. Railway Component. In summary and following the format of Table 1, the achievement ofobjectives (explicit or implicit) of this component was: (a) institutional development objectives weresubstantially achieved, (b) physical objectives were not achieved, and (c) public sector managementobjectives were partially achieved.

16. The objective to implement railway restructuring and the establishment of a strong businessdepartment in order to develop the commercial orientation of railway management was addressed byinstitutional components of the project and was ultimately substantially achieved. The project funded alarge TA component up to project closure in June 1998 which was directly influential in GOP's 1996 and1997 decisions to reform PR (Open Access Policy and Privatization, respectively), and to begin toimplement those decisions. The organization chart was changed on January 1, 1991 to create anAdditional General Manager-Business, which was an effectiveness condition of the loan. Trainingprograms in modern business and management were delivered by local and international consultants incooperation with the railway. In addition the international consultants prepared a draft reorganizationplan for PR to operate on a commercial basis. International consultants assisted the Private Power andInfrastructure Board (PPIB), in preparing Open Access Policy bidding documents, and in providing bid

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evaluation advisory services. International consultants assisted PR and the Privatization Commission inproviding privatization advisory services. Finally, international consultants provided the planning anddocumentation necessary for PR's unbundling in fall 1998. The Corporate Planning Division wascreated to replace an existing ad hoc corporate planning group which had created Pakistan Railways' firstCorporate Plan for Fiscal Year 1990/91. It took considerable time to establish the mandate, staffing andresource commitment to this Division. In addition, as part of the project initiatives, the GOPmnanagement services division studied the extent of railway surplus labor, which provoked a usefuldebate and controversy between MOR, PR and the Ministry of Finance, and justified the PR hiring freezeand staff attrition policy.

17. Only partly successful was an accounting study which was to include: (1) a separation ofaccounts of the manufacturing units from the operational units, (2) development of a modern accrualsbased accounting system, and (3) creation of a Public Service Obligation (PSO). The manufacturingfacilities and Property Board were established as separate units in July, 1990. Separate accounting forthese functions was to be established in conjunction with item (2), but PR decided not to proceed with(2). On item (3) the railway, with assistance from international consultants, did its own PSO calculationand made a claim for PSO every year. From FY 90/91 to Y 94/95 GOP made a payment for PSO,although always less than that claimed by the railway. PR submitted claims for 95/96 and 96/97 but hasnot been paid. The goal of having GOP curtail cross-subsidized services once their cost was highlightedhas been partially achieved.

18. The objective to implement an Operational Improvement Program and supporting it withselective investments to enhance its effectiveness, was addressed by operational and physicalcomponents of the project. This objective was not achieved, in part because GOP did not provide thecomplementary budget support and because the unreformed PR prior to early 1997 was not focussed onefficient operation. The institutional culture did not encourage most PR staff to be innovative and seekways to improve operations.

19. The Roller Bearings sub-component was to speed up equipment turnaround by reducing thenumber of inspections between terminals. By June 1998 the number of wagons which have beenconverted to roller bearings is 4,090 or 53% of the program of 7,785 wagons. There was discussion ofre-allocating funds intended for roller bearings to the purchase of high capacity wagons. Ultimately thiswas not pursued because by the time the PR had decided that they wanted to go ahead, the loan covenantswere in serious default (so amending the loan agreement was not possible) and the expected Open AccessPolicy would result in private wagons coming into service. Nevertheless a number of positiveaccomplishments accompanied the process of evaluating high capacity wagons, which are likely to carrythrough to a privatized operation. First, business-led thinking in two branches led a reluctant civilengineering group to accept higher (20 tonne) axle loads. Secondly, bid specifications were developedwhich liberalized what would be accepted from a Rail Equipment Operating Company (RECO, a privateoperator of trains on PR lines). As roller bearing equipped wagons were to come into service, PR was tomake greater use of block and, where possible, unit trains. Apart from the slow introduction of thisequipment, there are not receivers of sufficient volume to make closed-cycle unit trains practical (asidefrom five inland locations at electric power plants or bulk oil terminals). To date there has been little orno overall improvement in equipment turnaround times.

20. The Telecommunications sub-component was to provide telecommunications to selected sectionsof existing track, in conjunction with a proposal to re-route additional goods trains on these lines forcapacity reasons, and in lieu of PR's desire to construct double track. Bank missions expressedskepticism about PR's continued desire for double tracking. Computer simulations indicated no need fordouble tracking or for any other line capacity improvements. When the proposal to reroute trains wasdiscarded, the rationale for including expanded teleconmmunications in the project was removed and thissub-component was dropped. The Management Information System (MIS) sub-component was to enableinformation on train and wagon movements, a passenger reservation system, and an administrative

5

information system. However, the operating data base necessary for the tracking of train and wagonmovements was deleted under the expectation that freight moves would soon be primarily unit trains andnot require specialized tracking. Ultimately, the loan closed with the MIS portion undisbursed.

21. The objective to ensure adequate locomotive utilization by removing the maintenance backlogwas addressed by physical components of the project. This objective was not achieved, because GOP didnot provide the agreed maintenance funds. Under the Locomotive Maintenance Backlog ReductionProgram the sub-component to Recommission 46 Locomotives completed 42 units of the 46 planned(91 %). The Unit Exchange Spares sub-component procured the necessary initial inventory of unitexchange kits. However, in contravention of a loan covenant GOP did not keep up its funding of regularmaintenance recurring spares (which includes, among others, keeping up the inventory for unit exchangekits). There was a shortfall of the covenant in each year of the loan. The Traction Motors sub-component was to replace missing traction motors. The SAR had identified 154 locomotives in 1990running with less than their full complement of traction motors. The project had reduced the count to 81locomotives as of March 31, 1997. However the overall trend of improvement conceals a problem. Theloan focused on the four types of motors in short supply in 1990. PR also has locomotives using othermotors, comprising a total of 153 units (28% of fleet), which are heavier duty and used for profitablefreight moves such as unit oil trains. With insufficient funding for regular maintenance on these motorsthe problem has been transferred from one model of traction motor to another. The result is that despite18 new locomotives, the recommissioning of 42 locomotives, reducing the number of units needingtraction motors, and discontinuing some passenger trains, the available freight locomotives declined from131 in 1992/93 to 104 in 1996/97.

22. Sector Reform Component. Sector policy objectives were partially achieved. The objective toassist GOP to implement and monitor a sector reform program was addressed by six technical assistancecomponents of the project and were partially achieved. After effectiveness, GOP preferred to use grantfinancing for these initiatives. (1) Trucking Industry Development. Trucking industry studies completedby NTRC indicated that the deregulated private sector trucking industry was responsive to marketdemands and was evolving towards a more diversified fleet to meet the growing needs of Pakistan'sindustry and commnerce. Accordingly GOP decided to include trucking issues in overall transport andtrade facilitation matters rather than in a separate workshop. (2) Resource Mobilization From RoadUsers. This was extensively studied by NHA with consultant assistance under the Highway componentof the project and has contributed to the development of the road fund proposals awaiting GOP approval.(3) Trade Logistics. USAID assisted GOP with extensive work on bulk commodity logistics, and PortQasim determined that bulk foodgrain facilities were feasible and is seeking private sector participationto establish them. PAKPRO was established by Karachi Port but it proved ineffective and GOP invitedUNCTAD to undertake a Transport and Trade facilitation program with the Pakistan Shippers Counciland Ministry of Planning (1992-94). This developed a consensus on an extensive agenda of proceduraland documentation reforms. The Bank expects shortly to negotiate a TA credit to assist in theimplementation of these reforms. (4) Environmental Aspects. GOP's environmental efforts werepreoccupied in establishing overall environmental policies and agencies, and addressing the problem ofuntreated toxic industrial effluent was decided to be a higher priority than the accident risks from thetransport of hazardous cargoes. The Bank is working with GOP to improve the quality of refineryproducts which would lessen the extent of automotive pollution. (5) Sector Planning. GOP decided touse JICA funds for the preparation of a Transport Master Plan to assist in preparation of the Eighth Plan.(6) National Transport Policy Study. The MOC following discussions with Bank missions in 1992prepared a Transport Policy Paper which recommended that the private sector should play a much largerrole in railways, ports, national registered shipping and aviation, thus beginning the continuing process ofadoption and implementation of the privatization policy.

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D - Maior Factors Affecting the Proiect

23. The original loan closing date of June 30, 1996 was extended twice. The first extension to June30, 1997 was given to allow, (1) Railway: technical assistance for implementing the GOP's 1996 policyfor the development of modem rail freight services, (2) Highway: restoration of unprecedented flooddamage (June 1995) to a 160 km section of N-25 being rehabilitated under the project, and for technicalassistance for supervision and for institutional strengthening of the NHA. The second extension to June30, 1998 was given, on the GOP's request, to continue technical assistance for implementing railwayrestructuring and privatization and to enable additional studies critical to the preparation and appraisal ofthe proposed Highway Rehabilitation Project.

24. Highway Component. Although NHB was transformed into NRA in 1991, significant delayswere encountered in the reorganization and recruitment of staff, due to the political situation which led toa change in Government in 1993. A set of "Policies and Procedures" were developed during projectpreparation and were to be adopted as part of the NHA institutional reforms. This was adopted on trialbasis in 1996, but was not fully implemented. The lack of implementation adversely affectedinstitutional strengthening of the NHA. An NHA Code (covering basic policies) was subsequentlyadopted in early 1999. The provision for training and technical assistance under the project forreorganization was not fully utilized owing to delays in NHA reorganization and recruitment as well asNRA's inability to bring on board four long term senior advisors through the FHWA, due to changingPakistan-USA political relations. The implementation of improvements in financial management systemsand financial controls through the Accounting Assistance Study in 1994 was only partly completedduring project period. Not until late 1998 did NHA make staff changes in key positions in the FinanceWing. A new Financial Manual was adopted in early 1999 to guide operations.

25. A major problem affecting the MBRP works was inadequate initial engineering of the two largeICB contracts, which had been added after appraisal. Bids were invited based on standardized cross-sections (appropriate for the smaller MBRP/RSP contracts) without detailed survey and analysis of thesespecific roads. Bank supervision had advised NHA to do detailed engineering before seeking bids butthis was not done. The Bank gave its "no objection" to the bidding documents. During implementationthese deficiencies became apparent and the projects had to be re-engineered. Revisions resulted in delaysand cost over runs.

26. Weak contract administration on the large ICB contracts resulted in unnecessary delays, claims,and cost overruns. This was due to NHA staff not being able to apply well established FIDIC(Federation Intemationale des Ingenieurs-Conseils) contracting principles. Local audit procedures do notallow an FIDIC-type payment process and instead require the manual filling in and signing of a"measurement book" by departmental staff before a contractor can be paid. This delays the paymentprocess and introduces another layer in the clearance. Inadequate prequalification led to the award ofcontracts to inexperienced contractors, during the first two rounds of bidding for RSP works. (there werefive rounds of bids). This led to inadequate quality of works and delays in contract completion. Thecontracts awarded during these early rounds of RSP did not include a provision for field testing facilitieswhich resulted in quality control problems. This was addressed in subsequent contracts. Only one bidwas received for each of the two ICB contracts (MBRP 7004 & 7005). This lack of response resulted inindecision and delays in awarding the contracts. This was exacerbated by land acquisition issues andmajor changes in the scope of work. The poor financial condition of the contractor for MBRP 7004required the operation of an Escrow Account by NRA to complete the works, which delayed the project.

27. Security considerations affected the implementation of project activities in Sindh andBalochistan. RSP contracts in Sindh could not be adequately supervised/monitored by the consultantsfollowing an attempted kidnapping in which one of the expatriate engineers was killed. Local gangs inBalochistan interfered with the work during early stages of MBRP 7005 and may have been linked to themurder of the consultant's Resident Engineer.

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28. Railway Component. The single greatest factor affecting this component was the complete lackof support for PR from GOP. As made formal through effectiveness conditions and loan covenants, theGOP undertook to provide several types of continuing support for the railway. The three major elementswere: (a) locomotive spares funding, (b) tariff increases, and (c) funding through PSO to pay foruneconomic trains operated at GOP request. Although some PSO payments were made during the1990/91 to 1994/95 period they have not been maintained. Locomotive spares funding has been far toolow. An initial estimate of this requirement at US$30 million per year was subsequently revised to US$25 million per year. On average over the 1990/91 to 1996/97 period only US$15 million per year or 60%of the US$25 million required has been made available.

29. The SAR over-estimated the freight tonne-km base from which its projections were made. Thiswas the result of a catastrophic (32%) drop in freight traffic in two years, from the actual level of 8.4billion tkm in 1988/89 (and a projected 9.1 billion tkm in 1990/91) to an actual level of 5.7 billion tkm in1990/91. It is not clear how much of this represents a lack of available locomotives as opposed to a lackof traffic to be moved. Over the same period the number of trains operated fell by 25% and the payloadper train by 8%. The radical decline in freight was attributed in supervision to three factors, (a) loss ofexport rice traffic, down 0.5 billion tkm, (b) loss of import wheat traffic, down 0.4 billion tkm, and (c)the deteriorating locomotive situation. There were 161 locomotives available for freight in 1988-89 and138 in 1990/91, which further declined to 124 in 1991/92. It has since declined to 104 in 1996/97.

30. The one-third loss of rail traffic in two years was very damaging because of the cost/density taperin railroad costs. PR was faced with very serious cost control problems and, given the severe limnitationson what could be done (staff reductions only by attrition; political restrictions on service reductions),handled it very well. Staffing has been reduced from 133,300 in 1989/90 to 96,100 in 1997/98.Inevitably, however, a major avenue for cost control was deferral of maintenance, for both track andequipment. In retrospect this loss of a third of the goods traffic added to the overall failure of themaintenance-related elements of the loan.

E - Proiect Sustainability

31. Overall sustainability is summarized in the following table:

Overall Railway Highway Sector PolicyReform

Overall sustainability Uncertain Uncertain Uncertain Uncertain

32. Highway Component. Sustainability is uncertain. There has been tremendous progress made inthe NHA and its sustainability as a productive institution is likely. However, sustainability of results andquality in the road sub-sector is dependent on GOP for either large increases in funding or carrying outfurther substantial reform to allow for new sources of funds. While there are indications that GOP ismoving in this direction, this is incomplete and remains uncertain.

33. Sustainability has been increased through major institutional improvements in NHA. The agencywas upgraded to an autonomous authority through legislation. Improvements in policies and procedures,accounting, and uniform construction administration procedures has made the organization moreeffective and professional. Sustainability was also increased through recruitment of qualified andexperienced staff, staff training, and staff interaction with international consultants and experts. Thecreation of the Private Sector Cell to attract private sector financing for construction, maintenance andoperations of the highways is positive. However, the rapid turnover of senior NHA management andstaff over the past year, if continued, could dilute some of the institutional gains achieved through theproject.

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34. The CIMP and annual reviews by the Bank and GOP has allowed setting priorities forinvestments in an appropriate mix of new construction, rehabilitation, and maintenance. The physicalworks completed under the project have been handed over to the maintenance wing for inclusion underthe annual maintenance program. However, the current institutional arrangements for financingmaintenance, relying exclusively on budgetary transfers from GOP, are inadequate and unreliable. GOPallocations are consistently short of NHA's estimnated needs (see Tables 5a, 6a). Actual expenditures inconstant value averaged over the last three years of available data (1994/95 to 1996/97) are Rs 264million per year compared to the preceding three year period (1991/92 to 1993/94) of Rs 334 million peryear (Table 5a), a decline of 21%. To overcome this, the NHA has submitted to GOP detailed proposalsto ensure adequate financing of priority road maintenance expenditures, independent of the budget(establishment of a road maintenance fund financed by road user charges and managed by apublic/private representative board). These reforms will be supported under the proposed (Bank assisted)Highway Rehabilitation and Maintenance Project.

35. Railway Component. Sustainability overall is uncertain. By its final years, the projectcontributed substartially to institutional reform in PR. The development of the Open Access Policy(1996) with the possibility of private operation through RECOs and the unbundling of PR business units(1998) are permanent changes in PR's approach. GOP adopted a Privatization policy in April 1997 andpreparations are proceeding. hisufficient tariff increases have kept revenues low. Operationalimprovements have not been made (see Table 6b). With the failure of the GOP to fund locomotivespares, the number of usable locomotives will continue to decline. The progress made in the one area ofsubstantial disbursement, for locomotive availability, is not sustainable. There is a need for privatecapital to develop modem rail services which, could achieve traffic levels well beyond those currentlyexperienced.

36. Sector Reform Component. Sustainability is uncertain. In both the highway and railway sub-sectors changes are under discussion but have yet to take on the convincing shape of true reform.

F - Bank Performance

37. Project Identification. For the Highway component project identification was satisfactory. Theinitial Bank mnissions ensured that the focus of policy dialogue with the GOP remained in conformitywith the Bank's strategy for sustainable development in the highway sub-sector. The project designincluded major reorganization of NHA, to ensure efficient management and effective implementation ofthe policy reforms. In addition the CIMIP, with periodic intervention by the Bank, had put in place aframework for the sustainable development of the national highways. For the Railway componentproject identification was satisfactory. During preparation of the project in 1987-89, various Bankmnissions had worked with PR and GOP to identify a medium-term investment program for themodernization of Pakistan Railways through institutional and managerial reform.

38. Project Preparation. For the Highway component project preparation was satisfactory. TheBank effectively used available resources during project preparation. The reorganization of NHA wasbased on a study carried out by the US Federal Highway Administration (FHWA) under fundingprovided by USAID. The road construction and maintenance program carried out under the FourthHighway Project (FHP) going on at that time, was fully utilized for preparation of this project. For theRailway component project preparation was satisfactory. As the loan was originally not focused oninvestment projects, there was no requirement to subject the medium-term investment program of PR todetailed feasibility studies and the program was not appraised for possible bank lending. The focus ofproject preparations was on institutional, managerial, and financial restructuring of the railway in orderto develop a cormnercial approach and on improving operational efficiency. For the latter task Bankrnissions included a railway operations specialist.

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39. Appraisal. For the Highway component appraisal was satisfactory. The SAR documents thefull details of the investment program and its analysis. Conservative assumptions for vehicle operatingcosts and value of time savings were used in estimating project benefits. The technical review of theproject was sufficiently detailed. On the negative side, the Bank appears to have overlooked thefragmented accounting system the NHA inherited from the former NHB. This prevented the NHA fromfulfilling its covenant obligation to provide annual audited financial statements until a program forstrengthening financial systems and controls could be implemented (FY 1993-95). For the Railwaycomponent appraisal was deficient. The SAR provides considerable detail on the action plans that PRwas expected to undertake. On the negative side, the economic analysis of the railway sub-componentsused simple calculations based on very broad averages and assumptions. Analysis of the sensitivity ofthe financial projections or economic evaluations to changes in traffic levels was not performed. Limitedsensitivity analysis was done only for the productivity assumption in the roller bearings evaluation.

40. Supervision. The SAR estimated that 25 staff weeks per year would be needed for supervision,resulting in 150 staff weeks over the six years of the project. The actual time spent on supervision was292 staff weeks. After the October 1992 highway mission was delayed due to flood conditions, thehighway and railway components of the loan were, in effect, treated as two projects. Supervisionmissions were no longer combined. There was a reduction in visits per year per component in the laterperiod of the loan. However supervision discussions did take place during other Bank missions for boththe highway and railway components. For the Highway component supervision was satisfactory.Through regular supervision missions the Bank played a proactive role in overseeing projectimplementation. With the on-going FBP, missions could review both projects simultaneously. This wasappropriate as the project area and the executing agency were the same for both projects. However, thisaffected the level of supervision needed by the project to a certain extent, as the large constructioncontracts under the FHP required more attention for their complex contractual and technical problems.Due to reallocation of Bank resources to appraise the Flood Damage Restoration Project (FDRP) on anemergency basis during 1993, the mid-termn review of the project scheduled 1993 was delayed. This alsodelayed the implementation of the Policies and Procedures and Financial System strengthening. TheBank showed flexibility by agreeing to the extension of the closing date to allow NHA to undertakerehabilitation of the 1995 flood damages on contract MBRP 7005. On the negative side, Banksupervision had advised NHA to do detailed engineering before seeking bids for the two large ICBcontracts which had been added after appraisal, but this was not done. Despite this the Bank gave its "noobjection" to the bidding documents. For the Railway component Bank supervision was deficient. Withthe major failure to satisfy project covenants over a prolonged period of time, supervision missionsrecommended suspension of the loan. This did not occur and the Bank did not effectively challenge GOPto live up to their commitments. Documentation of supervision details from 1995 onwards wascomplicated by having much of the supervision discussions taking place in conjunction with othermissions and thus not being fully documented in the project file.

G - Borrower Performance

41. Highway Component. Project Identification and Preparation Overall, NHB's performance wassatisfactory. Project identification and preparation was carried out jointly with the Bank. TheMaintenance Directorate worked closely with consultants and the Bank in identifying program needs.On the negative side, the organizational plan was not adequately reviewed and analyzed by NHB duringpreparation, leading to repeated changes and revisions during implementation. In addition, the designstandards for MBRP and RSP were not developed in significant detail to cater for the large variety ofconditions encountered on the national highway network.

42. Implementation Although satisfactorv overall, NHB/NHA performance during the early periodof implementation was not too effective as it went through a major restructuring. As the reorganizationwas completed the NHA' s performance significantly improved. In particular, the NHA' s efforts wereoutstanding in successfully completing (to high quality) the two fairly difficult major MBRP contractsthat were initially poorly prepared. In one case (7004 - N5 Sahiwal-Okara) NHA had to set up an escrow

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account to ensure contract completion, in view of serious financial problems faced by the contractor. Inthe second case, (7005 - N25 Wadh-Surab) the work was a in an inaccessible and inhospitable area withmajor logistical challenges. It also suffered major damage by unprecedented flooding just as the workwas approaching completion.

43. The contractors' performance on MBRP/RSP LCB contracts improved significantly over projectduration and was satisfactory. Aside from the two major ICB contracts, 40% of RSP and 17% of MBRPworks faced completion delays. Major cost overruns were experienced on 17% of RSP and 7% of MBRPcontracts. Project consultants (prime as well as local associates) made significant contributions to thesuccess of the project. Though there were initial deficiencies in preparation of standard designs for theRSP and MBRP works, particularly for the large ICB contracts, these were overcome during theimplementation phase as the improvement needs were more clearly identified. Performance ofconsultants was satisfactory.

44. Project Covenants NRA's performance in complying with the project covenants wassatisfactory. Operation NHA's performance was satisfactory, see Section I, Future Operation.

45. Railway Component. Preparation. PR's overall performance was satisfactory. During the late1980's the Bank had extensive discussions with PR and GOP regarding the need for comprehensiveinstitutional, financial, and management restructuring of the railway to permit it to operate effectively ina competitive transport environment and to realize its potential. The resulting project was premised onstrong support from PR and GOP for the major institutional and management changes required. Howeverit turned out that the institutional set up, as of 1990, meant that the support was not there. Only in thelater part of the loan period, did the needed support materialize. In light of the subsequent history of theloan, PR overstated its capacity to support the required changes.

46. Implementation. Deficient. The physical improvements envisioned under the locomotivemaintenance backlog reduction assistance were not achieved because GOP failed to provide PR with anadequate recurrent budget for locomotive spares, and because GOP spread out the 3 year program to 6-7years, thus lowering its net benefit in the initial years. Late PC approval also delayed the operationalimprovement items (wagons, teleconmnunications, and MIS), but changing circumstances, includingGOP's stronger support for private sector development of rail freight services, reduced the priorities forthese items. Implementation of the roller bearings component was delayed. The accounting study andmodernization of the accounts was not completed although preliminary work on this, funded under theproject, was underway in 1997/98. Tables 5b and 6b provide details on project implementation andoperation indicators.

47. Covenant Compliance. Deficient For much of the loan GOP was in default of two majorcovenants, (1) recurrent maintenance budget for locomotive spares, and (2) tariff increases. Anotherimportant covenant, regarding PSOs comnmitments for operating uneconomic services was also generallynot met. Operation. PR's performance was deficient. By the end of the project institutional reform wasbeginning, however overall PR's performance on operations over the life of the project was inadequate.See Section I, Future Operation.

H - Assessment of Outcome

48. Despite the achievements of highway and railway institutional components, the project overall israted marginally unsatisfactory. The MOR/GOP remained in default of legal/financial covenants and thephysical investment component of the Railway loan (the largest single original component) did notachieve its objectives.

49. The most recent supervision ratings show the project as satisfactory despite the lack ofcompliance with the loan covenants (Table 13). Once the Bank had decided not to suspend the loan due

I1

to covenant non-compliance (since 1993) the covenant indicator automatically showed unsatisfactory.Despite this covenant rating the project achievements in the highway components and the railwayinstitutional component were satisfactory, particularly in the last few years of the project when start-upproblems at NHA had been resolved and railway institutional reform had begun to progress.

50. Highway Component. The overall assessment of the highway component can be rated assatisfactory. The objectives of this component were substantially achieved. Institutional improvementswere successfully carried out and the NHA's role as an autonomous institution was established. TheNHA is now able to attract qualified and experienced staff. A modem accrual based agency-wideaccounting system has been developed and is under implementation. An NHA (Policy) Code, a FinancialManual and a policy framework for private sector investments has been prepared and adopted. It hasembarked upon major policy initiatives to sustain the existing network through user based roadmaintenance programs, it has enhanced its institutional and technical capacity to implement a majormotorway program, and it is exploring private sector financing options to meet investment needs.

51. The maintenance backlog reduction and resurfacing and strengthening programs were successfulin improving the condition of the network and reducing transport costs. Construction quality has beensatisfactory and pavement strengths have been significantly improved. The recurrent part of the CIMPwas not sufficient, and increased maintenance funding levels are needed to arrest further deterioration ofthe network. As proposed and developed by NHA staff, the MIL was improved through the project into acomprehensive maintenance management system (MMS), which is more responsive to maintenanceneeds. Maintenance program management and implementation needs to be improved. Proposals areunder consideration for more effective central programming and quality control through the use of localconsultants to monitor the maintenance undertaken through contracts.

52. The project was completed within the original period, except for an initial one year extension tocomplete the major damages due to flooding (a 1 in 380 year flood) on contract MBRP 7005. A secondone year extension was allowed to continue institutional strengthening and sector work related to thepreparation of the proposed Highway Rehabilitation and Maintenance Project. All highway componentproject funds were disbursed and US$ 11.5 million was transferred from the railway component to payfor flood damages on contract MBRP 7005.

53. Recalculation of Economic Rate of Retur (ERR. An economic evaluation using the HDMmodel was completed based on: 1996 VOCs, NHA traffic counts, and using 25% of construction cost assalvage value. This gives, for all LCB contracts, an average ERR of 81% for the RSP and 76% for theminor MBRP works. This compares well with the ERR of 51% calculated for a sample road in the SAR.The high return on completion is attributed to the significant benefits in VOC savings with relativelysmaller investment under the RSP and MBRP in comparison with major improvement or reconstruction.For the major MBRP contracts awarded under ICB procedures, the revised ERR for the 30 km Sahiwal -Okara road section under N-5 (MBRP #7004) is 54%. For the 60 km Wadh - Khuzdar section and the 98km Khuzdar - Surab sections on N-25 (MBRP #7005) it is 31% and 23% respectively. The lower ERRvalues compared to the average for minor MBRP works is due to a much larger scope of construction,with unit costs averaging Rs 12.42 million/km or US$ 340 thousand/km (at Rs36.1/$1, the 1996 annualexchange rate). Table 9 and Annex C provide additional detail.

54. Railway Component. The overall assessment of the railway component of the project isunsatisfactory. In the broad perspective of the Pakistan transport sector and its future prospects, it maybe argued that the disbursements made under the TSP supported and preserved an operating railway inPakistan through a time, when for lack of government support, it might have effectively ceased operation.The institutional reform achieved by the end of the project in 1998 was significant. In building up aclimate of change it left PR ready for the move towards a private railway which now has significantgovernment support. In the Operations Improvement Program the Roller Bearings sub-component wasonly half achieved, although the remaining installation is going on. The MIS and Telecomnmunications

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subcomponents were not disbursed. The Locomotive Maintenance Backlog Reduction program wassuccessful in providing enough motive power to keep PR operational but this success was neutralized bythe failure of GOP locomotive spares funding and the resulting unsustainable situation for locomotivemaintenance.

55. Recalculation of Economic Rate of Return (ERR). Details of the ERR calculations are providedin Annex D. A revised ERR for the MIS and Telecommunications sub-components cannot be calculatedas the funds were not used. A revised ERR has been calculated for the roller bearings program as 7%compared with the SAR calculation of 24%. The main reason for the lower return is the early purchaseof the new bearings, incurring the cost, but their very slow installation, and hence their delayed ability toearn benefit. The locomotive related sub-components: recommission 46 locomotives, inventory of unitexchange of spares, and traction motor repair have been put together into one figure of total additionallocomotives attributable to the project. The SAR calculation of the ERR was 27%. A revised ERR hasbeen calculated for this component as 48%. However the figure by itself is misleading because theoverall availability of the fleet decreased during the project period.

56. Sector Reform Component. The overall assessment of the sector reform component can berated as satisfactory. The objectives of this component were substantially achieved. Studies, reviews,and policy discussions were successfully carried out.

I - Future ODeration

57. Highway Component. NHA has developed an Operation Plan for the assets created under theproject (Annex C). As described in Section E above, the current institutional arrangements for financingmaintenance, relying exclusively on budgetary transfers from GOP, are inadequate and unreliable.Substantially increased maintenance funding levels are required to preserve the overall network. NHAproposes to achieve this through the establishment of a Road Maintenance Fund financed from road usercharges. The matter is currently under GOP consideration. All RSP and MBRP works were taken overby the NHA maintenance sections after contract completion. However, there were some delays in takingover the Wadh-Surab section of N25 due to some outstanding contractual issues on MBRP 7005. Theroad has now been open to traffic for over two years, but has started showing some signs of lack ofmaintenance and pavement settlement in localized areas. This requires careful attention. The monitoringindicators (see Tables 5a and 6a) identified for the operation plan are adequate to evaluate itsperformance and are sustainable as they rely on information routinely collected. NHA is now proposingto move towards privatization of maintenance management with a related quality assurance programinvolving private highway engineering consultant services and the transport industry. On a morepermanent and long-term basis, a commercially managed Road Maintenance Fund from enhanced roaduser charges and mnanaged by an independent Road Fund Board has been proposed.

58. Railway Component. The GOP has announced its strategy to privatize PR. The railway hasbeen unbundled into three core businesses (infrastructure, passenger, and freight), plus a residual entity,the Railway Resettlement Agency (RRA). The core businesses will be corporatized and are expected tobe privatized. A Railway Regulatory Authority will be established under a new regulatory framework forthe restructured private rail industry. The Taskforce on Railway Restructuring and Privatization,comprising key members from the MOR, PR, and the PC is overseeing this process. The success of thisproposal is still uncertain as several steps remain before the privatization can go ahead. These include:corporatization under the Company's Act; approval of a railway industry regulatory framework; labourredundancy issues, formulation of a PSO policy for passenger services, and approval of amendments tothe Railway Act to provide for the establishment of a new regulatory framework and to permit thetransfer of PR assets to corporatized entities.

59. Sector Reform Component. The project supervision discussions led to a consensus emergingin Pakistan concerning the need for greater private sector participation in the transport sector. The Bank

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is assisting in the preparation of a railway privatization project, in a project to transform Karachi Portinto a landlord port, and a user managed road fund is a key aspect of a planned future highway project.In addition the transport focus of the project enabled the Bank to maintain a dialogue about overalltransport logistics and facilitation matters with the Pakistan Shippers Council (representatives of theprivate users of the transport system) and not be limited to sub-sector transport suppliers such as PR andNHA. This has led to preparation of a TA credit to assist the implementation of the transport and tradefacilitation reform agenda and to strengthen the concerned public/private partnership in this area.

J - Key Lessons Learned

60. The key lessons learned from the project are as follows:

* A permanently reliable source of maintenance funding is the single most important factor indetermining the success of highway or railway operations (paragraphs 11, 21, 28, 34, 35).

* Fundamental institutional reforms in the implementing agency have to be required up-front as a pre-condition for project approval. For example, in NHA, these reforms include: effective financialcontrols, streamlined processes, a defined maximum period for approving payments to consultantsand contractors, a defined maximum period for issuing completion or defect liability certificates, andagreement to use supervisory consultants as the Engineer. Consultants acting as Engineer must haveclearly stated responsibilities, including those related to satisfying reasonable governmental auditrequirements (paragraphs 9, 17, 24, 26).

* Highway contract administration, particularly of major ICB contracts, needs to be significantlyimproved to avoid costly claims against the employer (paragraph 26). Simplified constructionadministration procedures should be adopted. There is a need for a rigorous assessment of theimplementing agency's technical and contract administration capacity at the time of appraisal and ifnecessary technical assistance to train the Borrower's audit staff on Bank procurement guidelines,procedures and standard bidding documents. Local auditing procedures need to be updated to avoidconflict with modern contract documents (paragraphs 26, 39).

- Vehicle overloading must be effectively addressed to minimize damage to the network. The recentlyspecified legal axle load limits should be effectively enforced. There should be Bank involvementhere, perhaps by enforcing these limits through partnership with the trucking industry once axle loadcharges are included in a road fund, along with road safety initiatives (paragraph 56).

* Preparation of railway projects with an operational component must consider freight traffic issueswithin the context of an overall logistics chain. Shipper's facilities, activities, and requirements mustbe integrated with the line haul or common carrier operation (paragraph 19).

* There is a need to take effective action against defaults on loan covenants. Stronger leverage,applied earlier could have salvaged more of the railway operations component, or may have allowedmore of the loan to be reallocated into productive uses (paragraphs 19, 20, 28).

* In this project, application of the Bank policy of no railway assistance (other than TA) until railwayreforms have been implemented, may not have been appropriate since the Bank would not have beenable to maintain a dialogue with MOF and reform minded parties in GOP and the private sector. Asit was, Bank was able to be a catalyst to assist GOP adopt an open access policy for private railfreight development and on overall railway privatization policy. However this is a high riskapproach and requires a long run view of sector reform process (paragraph 57).

14

PART II - STATISTICAL TABLES

Table la: Summary of Assessments (Overall Loan)

A. Achievement of Objectives Substantial Partial Negligible Not applicable

Macro Policies E E i:iSector Policies E E El

Financial Objectives a V E EInstitutional Development I E E EPhysical Objectives I a EPoverty Reduction l l ElGender Issues EEl ElOther Social Objectives E E ElEnvironmental Objectives E ] ,

Public Sector Management E E []Private Sector Development E E El

B. Project Sustainability Likely Unlikely Uncertain

HighlyC. Bank Performance Satisfactory Satisfactory Deficient

Identification El []Preparation Assistance E E/Appraisal E El

Supervision E ElHighly

D. Borrower Performance Satisfactory Satisfactory Deficient

Preparation

Implementation Each Implementing Agency is rated individually on the following

Covenant Compliance component specific tables.

Operation (if applicable)Highly Highly

E. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory

a El E/

15

Table lb: Summary of Assessments (Highway Component only)

A. Achievement of Objectives Substantial Partial Negligible Not applicableMacro Policies U U USector Policies U U ,

Financial Objectives U U U Institutional Development V U U UPhysical Objectives / U UPoverty Reduction U U UGender Issues U U UOther Social Objectives U U UEnvironmental Objectives U UPublic Sector Management U U UPrivate Sector Development U U El

B. Project Sustainability Likely Unlikely Uncertain

rIighlyC. Bank Performance Satisfactory Satisfactory Deficient

Identification U UPreparation Assistance U ,

Appraisal E lSupervision U V U

HighlYD. Borrower Performance: Highway Satisfactory Satisfactory Deficient

Preparation U UImplementation i: U Covenant Compliance U V lOperation (if applicable) U U

Highly.. HighlyE. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory

U1VI U- U

16

Table Ic: Summary of Assessments (Railway Component only)

A. Achievement of Objectives Substantial Partial Negligible Not applicableMacro Policies E EaSector Policies E E ElFinancial Objectives ] E ElInstitutional Development I U ElPhysical Objectives E E , EPoverty Reduction E E EGender Issues Cl E El

Other Social Objectives E El ElEnvironmental Objectives El E EPublic Sector Management E E ElPrivate Sector Development I E El

B. Project Sustainability Likely Unlikelv Uncertain

E] El Hlighly

C. Bank Performance Satisfactory Satisfactory DeficientIdentification E EaPreparation Assistance El Appraisal E El

Supervision El l V

D. Borrower Performance: Railway Satisfactorv Satisfactory DeficientPreparation E EImplementation E ECovenant Compliance E ElOperation (if applicable) E E

Highly HighlyE. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory

El El El

17

Table 2: Related Bank Loans/Credits

Loan/Credit Title Purpose Year of Statusl . ~~~~~~~~~~~Approval

Preceding Operations1. First Highway Construction of new 142 km 1964 CompletedProject (Cr. 54-PAK) Karachi-Hyderabad section of

N-5 highway. ll

2. Second Highway Reconstruction of Sahiwal- 1968 Canceled due toProject (Ln. 578-PAK) Lahore and Lahore-Sargodha- very high bids

Mianwali sections (270 kin) ofN-5.

3. Third Highway Rehabilitation of three major 1980 CompletedProject (Cr. 974-PAK) sections (269 km) of N-5, and

improvement of a provincialroad (29 km) in NWFP.

4. Fourth Highway Rehabilitation and 1987 CompletedProject (Ln. 2814-PAK) reconstruction of 650 km of N-

5, develop NHA capacity formaintenance, improve trafficsafety, and mobilize revenuesfor road maintenance. ll

5. Flood Damage Repairs, restoration and 1993 CompletedRestoration Project (Cr. reconstruction of roads, cross2468-PAK) - Road drainage structures andComponent bridges damaged by 1992

flood. l

6. Karachi Port IV 1974 CompletedProject (Cr. 492-PAK) l

7. Karachi Port 1991 CompletedModernization Project(Ln. 3335-PAK)

8. Railway IX Project 1969 Completed(Ln. 621-PAK)9. Railway X Project 1977 Completed(Ln. 1372-PAK, Cr.684-PAK) X

10. Railway XI Project 1982 Completed(Ln. 1278-PAK) _ l

Following Operations l

1. Highway ProposedRehabilitation andMaintenance Project(PK-PE-10556) l

2. Karachi Port ProposedPrivatization &Development Project(JPN-2929-PAK) I

3. Pakistan Railways ProposedRestructuring andPrivatization Program(PK-PE-60053) l

18

Table 3: Project Timetable

Steps in Project Cycle | Date Planned Date Actual/l____________________________________________ l [ Latest Estimate

Identification (Executive Project Summary) February 9, 1990

Preparation

Appraisal February 21, 1990 February 21, 1990

Negotiations May 25, 1990 May 29, 1990

Board Presentation June 28, 1990 June 28, 1990

Signing July 27, 1990

Effectiveness February 26, 1991

Mid-term review - railway component October 1992 October 1992

Mid-term review - highway component October 1992 February 1993

Project Completion June 30, 1996 June 30, 1998

Loan Closing June 30, 1996 June 30, 1998

19

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

Bank Fiscal Appraisal Formally Actual Actual as % Actual as %f Year Estimate Revised of Estimate of Revised

FY91 (1990/91) 7.40 0.00 0 l

FY92 (1991/92) 33.10 31.86 96 l

FY93 (1992/93) 71.80 47.25 66FY94 (1993/94) 106.70 76.88 72FY95 (1994/95) 149.00 -- 108.73 73 --

FY96 (1995/96) 184.00 126.47 126.45 69 100FY97 (1996/97) -- 141.48 140.65 76 99

FY98 (1997/98) 161.34 148.72 81 92FY99 (1998/99) 150.24 82 93

Date of final disbursement: November 16, 1998

20

Table 5a: Key Indicators for Project Implementation (Highway Component only)

SAR Estimated Actual

1. Priority Improvement Programsa) Maintenance Backlog 400 km 301 km

Reduction MBRP (km) lb) Resurfacing & Strengthening 400 km 397 km

RSP (km)c) Total Expenditure (Rs million) 2,968 n/a

2. Recurrent Maintenancea) GOP Funding (Rs million) SAR estimated NHA demand Actual Actual

Need, based on Rs based on Expenditures Expenditures300 million constant estimated (Current Rs) (Constant Rs)

expenditure needs1989/90 474 2691990/91 300 600 281 2811991/92 323 795 378 3461992/93 345 930 410 3451993/94 1,097 430 3101994/95 1,317 452 2791995/96 457 2531996/97 522 260

b) Network Condition based on 1989 1994MIL Score l

% Routine Maintenance 48 % 51 %% Periodic Maintenance 31 % 30% %

% Reconstruction 21 % 19 %

c) Number of qualified 1988 1992contractors

81 1,310

3. Recurrent Maintenance (GOP (US$ million) (US$ million) (US$ million) (US$ million)funding) shown as US$ million

Period Exchange rate1989/90 21.44 22.1 12.51990/91 22.41 13.4 26.8 12.5 12.51991/92 24.84 13.0 32.0 15.2 14.01992/93 25.94 13.3 35.9 15.8 13.31993/94 30.12 36.4 14.3 10.31994/95 30.85 42.7 14.7 9.01995/96 33.53 13.6 7.51996/97 38.96 13.4 6.7

21

Table 5b: Key Indicators for Project Implementation (Railway Component only)

1. Key implementation indicators in SAR SAR Estimate Actual

1990/91 1996/97 1990/91 1996/97

PR Financial Performance (all in Rs billion)Total Operating Revenue 7.61 14.78 6.77 9.80

Including Public Service Obligation of 1.28 1.60 1.00 0.00Total Working Expense 6.61 9.93 6.76 11.79Depreciation Reserve Fund 1.03 1.92 0.99 0.99Net Revenue -0.03 2.92 -0.98 -2.98Interest Expense 0.53 1.12 0.63 2.31Improvement Reserve Fund 0.12 0.25 0.13 0.06Net Income -0.69 1.55 -1.74 -5.35

PR Operating Performance lPassenger km (million) 21.1 25.5 20.0 19.1Freight (billion tkm) 9.1 10.8 5.7 4.6

22

Table 6a: Key Indicators for Project Operation (Highway Component only)

I. Key operation indicators in SAR SAR Actual (1998)

1. Average Road Condition for overall Avg ADT all Cracks Rutting RoughnessNHA network (%) (mm) (IRI)

Highway N-5 (existing) N/A 6,642 37 8.3 6.0Iighway N-5 (Additional carrigeway) _ 8,374 19 8.2 3.3

Highway N-25 3,387 28 1.9 6.4IHighway N-35 2,336 27 3.2 8.5l Highway N-40 758 20 1.0 6.7IEgway N-50 _ 681 21 2.3 6.6Highway N-55 2,777 20 1.8 4.8

_ _Highway N-65 3,188 31 2.0 6.8

_ _Highway N-70 3,290 38 4.6 8.62. Annual Recurrent Maintenance NHA Demand GOP Allocation

Funding (Rs million) (Rs million)

1995/96 1,554 4571996/97 1,760 5221997/98 2,010 6001998/99 . 2,200 605

23

Table 6b: Key Indicators for Project Operation (Railway Component only)

I. Key operation indicators in SAR SAR Current statusEstimate Cretsau

Railway Action Plan (SAR, Annex 2.3)

All Karachi-Lahore freights use only 3000 hp Yes Only partiallocomotivesCancel 90 poorly used passenger trains Yes YesBlock loading and unloading of oil trains Yes Expected to start in April 1999 at

Pipri. Original plan for Dec 96, gotdelayed due to PSO.

Lengthen wheat terminal sidings Yes NoUnit trains for cement, fertilizer, wheat & Yes Only for fertilizer, cement has droppedcontainers due to problems with Zealpak cement

factory.

Operate 72 car freight trains Yes Only 60 - 65 being used.Scrap over aged wagons 5,000 Ban on scrap by GOP. About 3000

scrapped and about 2000 standcondemned but not scrapped.

Close redundant marshalling yards, incl. Yes No.Chaklala

Operating Improvement Program(SAR, Annex 2.8)

Wagon turnaround time (days) 13 16.8 days in 1997-98. (max 18.6 in1990-91, min 15.1 in 1993-94)

Freight Locomotive utilization (kmnloco/day) 400 276 based on locos online in 96-97337 based on locos in use in 96-97

Separate freight and passenger corridors I Yes NoAverage speed of freight trains (kn/hr) 26 19.9 in 1996-97Freight traffic capacity, annual growth rate 2% pa 91-92 4.4%

92-93 3.7%93-94 -3.9%94-95 -4.7%95-96 -10.3%96-97 -9.2%(Based on annual tonne-km)

Passenger capacity, annual growth rate 2% pa 91-92 -9.0%92-93 -5.9%93-94 -4.1%94-95 7.1%95-96 7.7%96-97 1.1%97-98 -1.8%(Based on annual passenger-km)

24

Table 7a: Studies Included in Project (Highway Component only)

Study Purpose as defined at Status Impact of StudyAppraisal/redefined

1. Arterial To provide a vision of Completed Provides a long term (20Highway Network the highway network through M/S Haas year) highway investmentStudy requirements through Consult strategy and plan

___ _ vyear 2015

2. Accounting (1) To upgrade NHA Phase- 1 Unified Chart of AccountsAssistance Study accounting practices Completed and Modem Computer based

based on modem through Local Accounting Systemcomputerized accrual Chartered developed and implementedbased accounting Accountant Firm. in Islamabad and Lahore.procedures and prepare Phase - 2 Deferred Commercially auditedagency-wide financial financial statementsstatements; (2) to prepared for 1995/96.improve financialcontrols, budgeting andmanagement informationsystems

3. N-5 To study the technical Completed (June Results of Study indicatedPrivatization and and financial feasibility 1998) through M/s that at present traffic levelsEngineering pre- of rehabilitating/ LBI N-5 rehabilitation andfeasibility Study upgrading and upgrading cannot be carried

maintaining sections of out through PS concessionsthe Highway N-5 though without significant Govt.Private Sector financial support.Concessions, based ontolls.

4. Road User To establish the structure Completed (June A rationalized structure ofCharge Study and level of road user 1998) through road user charges proposed

charges needed to MIS WSA (based primarily on a fuelfinance national and levy plus axle load charges).provincial level road Endorsed by NHA.sector investments and Currently under review bymaintenance on a GOP.sustainable basis. I

5. Road Fund To propose the legal and Completed (June Detailed structure and draftStudy institutional framework 1998) through legislation proposed.

for establishing and MIS WSA Endorsed by NHA.operating a dedicated Currently under review byRoad Maintenance Fund GOP.managed by aRepresentativePublic/Private Board

6. HDM based To identify a prioritized Completed (May A six year Rs. 36 billionNHA network medium term 1998) with Bank prioritized maintenancelevel maintenance maintenance plan to Staff assistance improvement plan identified.prioritization improve the condition of The first phase to be takenStudy the NHA network. up under the proposed

Highway Rehab Project.

25

Table 7b: Studies Included in Project (Railway Component only)

Study Purpose as Defined at Status Impact of StudyAppraisallRedefined

1. Institutional Instill a business-led Completed "A sizeable majority ofDevelopment/ attitude among officers of Railway officers now feel thatManagement all departments they have to work asTraining Phase I businessmen and not just as& II railway officers". Corporate

Plan 1995,/96 p. 472. Institutional Prepare an organization Completed Not itself adopted but itDevelopment/ plan for a business provided a starting point for theManagement oriented railway Unbundling Study (#8 below)Training Phase Im3. Locomotive Improve shop practices Completed Despite the finding thatRebuild Study and stores management, rebuilding was not the

evaluate relative merit of preferred approach, bilateralheavy rebuild versus new funding permitted PR topurchase undertake a rebuild program.

4. Container Improve Dry Port Completed Recommendations disregardedStudy methods and utilization of due to ineffective management

container equipment of Dry Ports and of equipmentturns by railway

5. Accounting Align accounts with Not carried out. Lack This work was later begun in aStudy business-led organization of interest by railway. preliminary way by the

of accounts branch Unbundling Study (#8 below).6. Railway Produce more business Not carried out. LackManufacturing like "make or buy" of interest by railway.Study choices by railway7. Property Realize value of Railway Not carnied out due toDevelopment real estate land title issuesStudy8. Unbundling Assist Pakistan Railways Completed June 1998 Used to guide PR'sand unbundling. Resulted in a setCorporatisation of very detailed analyticStudy reports (45 volumes).9. Privatization Assist Privatization Completed January Used by PC to guideBusiness Plans: Commission (PC) 1998 privatization discussion.Freight Unit,Passenger Unit,and InfrastructureServices Unit

26

Table 8a: Project Costs(US$ million)

Item Appraisal Estimate Actual/Latest Estimate

Local Foreign Total Local Foreign TotalCost Costi Cost Cost I

I. Highway Component

1. MBRP 34.8 34.8 69.5 28.6 71.9 100.52. RSP 16.7 25.1 41.9 14.4 7.3 21.73. TA, Training & 5.3 2.9 8.2 0.0 } ISupervision }7.9 17.94. Advisers & Equipment 0.0 2.5 2.5 0.0 } }5. Price Contingencies 8.2 7.8 16.0

Sub-Total Highway 65.0 73.1 138.1 43.0 87.1 130.1

II. Railway Component

1. Institutional 2.8 4.5 7.3 0.7* 4.9 5.6Development and Studies2. RollerBearings 14.3 21.5 35.8 11.6 10.0 21.63. Signal and 3.0 4.0 7.0 not disbursedCommunication4. MIS 1.4 5.6 7.0 not disbursed5. Locomotive Spares 28.9 53.5 82.4 25.4 48.2 73.6

Recommission 46locomotives 5.3 10.9 16.3 lunit exchange 10.3 23.2 33.5 l

traction motors 10.8 15.4 26.2 lMaintenance equip. 2.4 4.0 6.4 l

6. Physical 2.5 4.5 7.0Contingencies7. Price Contingencies 6.3 8.3 14.6 l

Sub-Total Railway 59.2 101.9 161.1 37.7 63.1 100.8

III. Sector Reforms 0.2 1.3 1.5 0.0 0.04 0.04Program l

TOTAL [ 124.41 176.3 ] 300.7 80.7 150.2 | 230.9]

Notes: Exchange rate at Appraisal: US$ 1.00 = Pak Rs 21.5 (March 1990)Sources for local costs in actual/latest estimate are: (a) TSP Final Report, June 1997, NHA. Annex VII,(exchange rate used: US$ 1.00 = Pak Rs 45.2, 30 June, 1997), and (b) *provides partial data only, otherdata from consultants in field (Dr. Rashid) using exchange rate of each year of expenditure.

27

Table 8b: Project Financing(US$ million)

Source Appraisal Estimate Actual/Latest Estimate

Local CForeign [ Total Local Cost Foreign TotalCost i Cost l Cost

IIBRD 7.7 176.3 184.0 0.0 150.2 150.2

GOP Contribution 116.7 0.0 116.7 80.7 0.0 80.71

TOTAL [ 124.4 176.3 300.7 80.7 150.2 230.9

N.B. See notes to previous table.

28

Table 9a: Economic Costs and Benefits (Highway Component only)

Contract Number Highway Segment SAR EIRR Re-estimated Re-estimated ERR with BenefitsEIRR B/C Ratio Reduced 20%

LCB ContractsMBRP 51 % 76.4 % 4.36RSP 51 % 81.2 % 4.19 -

ICB Contracts l

MBRP 7004 & Sahiwal - Okara * 54.1 % 17.21 49.3 %7004A ll

MBRP 7005-I Wadh - Khuzdar 31.1 % 4.12 27.4 %MBRP 7005-11 Khuzdar - Surab * 23.4 % 2.45 20.2 %

NOTES:* - not evaluated at appraisal1. Economic analysis of LCB contracts was carried out by the Borrower. These were selectively testedusing HDMII and found to be on the conservative side.2. EDMIII has been used for economic analysis of ICB contracts. All traffic figures are drawn from datapublished by NTRC.3. Construction costs are based on the Borrower's Final Report4. Sensitivity of the re-estimated EIRR is tested by reducing benefits by 20% to account for trafficuncertainty.

29

Table 9b: Economic Costs And Benefits (Railway Component only)

Item SAR EIRR Re-estimatedEIRR

Roller Bearings 24 % 7 %

Locomotive Spares 27 % 48 %

Telecommunications 23 % Not required

MIS 18 % Not required

NOTES:1. The Telecommunications, MIS, and Additional Wagons sub-components were not disbursed, so arecalculation of ERR is not possible or required.2. Although the Locomotive Spares sub-component shows a higher ERR than at appraisal, it should benoted that data availability has limited the calculation to a system-wide average revenue per locomotivebasis. Overall locomotive availability has declined during the course of the project.3. See Annex D for detailed calculations.

30

Table 10a: Status of Legal Covenants (Highway Component)

Agreement Section Covenant Status Original Revised Description of Covenant Commentstype Fulfillment Fulfillment

Date Date l

LA 3.01(a) 4, 10 C Provide promptly as needed the funds and other The level of ADP funding provided has32410 resources required for the project. generally been adequate for the project

implementation.3.01(b) 10 CD Carry out the project in accordance with the Generally complied with.

Implementation Program set forth in Schedule 5.4.01 01 CD 12/31/95 Provide the Bank annually NHA's audited 95/96 ProjectVSOE and special account audits

accounts, not later then six months after the end received in June 97 after a 6 month delay.of the fiscal year (end June). 95/96 consolidated agency accounts prepared.

Commercial audit completed.6.01 03 C Effectiveness conditions. Conditions met and loan made effective in

February 1991.

Schedule 04 C 06/30/96 For civil works contracts awarded by NHB after The level of PSDP funding has generally been1, Para. 3 June 30, 1991, a condition of disbursement is that adequate to ensure uninterrupted

GOP has provided satisfactory funds required to implementationcarry out program during such fiscal year. l

Schedule 1 C 03/31/96 GOP and Bank to review annually by March 31, NHA's draft ADP reviewed annually as part of5, A-2 beginning in 1991 the implementation of the the PSDP review. Recommendations provided

Project, the CIMP and the funding requirements on core investment plan. Annual maintenancefor the following fiscal year. funding continues to fall short of needs, on

account of overall resource constraints.Schedule 02 C (a) GOP to continue practice of transferring to GOP now has an agreement with IMF which5, A-3 consumers all increases in prices of petroleum links domestic fuel prices to international

products. market prices.Schedule 02 CD NHB to prepare annually for Ministry of NHA has levied tolls on several bridges and the5,. A-3 Finance/Govemment proposals to enhance Lahore-Islamabad motorway. The April 97

mobilization of resources for road users. NHA country workshop on Road Maintenance,co-sponsored by MOF, recommendedestablishment of a Road Maintenance Fundfinanced from road user charges and managedby a joint pubhc/private Road Fund Board.NHA has completed a Road User Charge andRoad Fund Study that developed detailedproposals. Currently under review by GOP.

LA, 05 CD 09/30/90 NHB to be reorganized in accordance with NHB turned into an autonomous NHA in earlySection 8 principles agreed at negotiations, and principals to 1991. Revised organization structure, service

be formally approved by GOP by September 30, rules and delegation of financial powers1990. approved by NH Council in early 1995. Staff

now regularized. New Policies and Proceduresadopted in Februamy 1996 on pilot basis. Furtherwork in progress.

LA 10 C NHA to select the road sections to be rehabilitated Rehabilitation and strengthening done asSection or strengthened annually in accordance with agreed. NHA's annual maintenance program,D-l technical and economic criteria satisfactory to the based on the MtL system up to 1995, now

Bank, and to carry out its maintenance programs upgraded into a more advanced MMS.in accordance with the MIL system. Hlowever, annual maintenance funding remains

far short of the network requirements.

31

KEY:

Covenant Type:I= Accounts/audits complied with2 = Financial performance/revenue generated from beneficiaries3 Flow and utility of project funds4 Counterpart funding5 = Management aspects of project/executing agency6 Environmental covenants7 Involuntary resettlement8 Indigenous people9 Monitoring, review and reporting10 - Project implementation not otherwise covered by 1-91 l= Sectorallcross-sectoral budget/allocations12 = Sectoral/cross-sectoral policy regulatory/institutional action13 = Other

Status:C = Covenant complied withCD = Compliance after delayCP = Complied with partiallyNC = Not complied with

32

Table 10b: Status of Legal Covenants (Railway Component)

Agreement Section Covenant Status Original Revised Description of Covenant CommentsType Fulfillment Fulfillment

l__________ Date Date3.03 4 NC Recurrent Budget for Locomotive This covenant was in default throughout the

Maintenance Spares The Borrower shall enable project with amounts ranging from 47.64PR to acquire, in a timely manner, the foreign percent to 75.17 percent of the $25 millionexchange required for the procurement of spare determined to be needed being actuallyparts needed for the proper operation and fumished. In addition, the intent of the covenantmaintenance of its locomotives.. was further frustrated by the failure to allocate

rupee funds to move the material off the docksin Karachi after the foreign exchange was spent

4.01 1 CD Audited Accounts PR annually to provide Although the accounts were eventuallyaudited accounts 6 months after the end of the furnished each year, they were generally monthsFiscal Year (June 30). late.

4.03 2 NC Financial Performance The Borrower, the Bank The tariffs of Railway have not been raisedand PR shall review, during the month of March equal to inflation and deficits have increasedeach year, the levels of PR's tariffs with a view to over the term of the loan. The Railwayagreeing on the annual adjustments required to contended it could not raise its tariffs more thansuch tariffs so as to ensure: (a) that the rate of such it did for competitive reasons, due to incursionsadjustments shall be above the inflation rate in of road transport into its market sharePakistan; (b) so that the operating deficits of PRshall be progressively reduced; and (c) that PRshall be able, not later than FY 1994-95, to finance

L______________ .a reasonable portion of its capital expenditures.5.02 4 C Material changes in project Until the Changes were substantial but all affirmative

completion of the Project, the Borrower shall changes were made in consultation with theensure that (a) any material changes in the Bank. Negative changes (decisions not to spendcomponents of the Program, or (b) increases in money, or delay spending, were made overexpenditures under the Program by more than the Bank objection).equivalent of $5,000,000 above currentexpenditures estimates for any given fiscal year,shall be made only after consultation with theBank.

33

Table 11: Compliance with Operational Manual Statements

Not applicable in this project

34

Table 12: Bank Resources: Staff

Stage of Project Cycle Planned Revised ActualWeeks US$ (000's) Weeks US$ (000's) Weeks US$ (000's)

Preparation to Appraisal 247.3 462.9Appraisal - Board 47.4 111.5Negotiations through Board Approval 8.2 19.6Supervision 150* 292.4 598.4

Completion 22.3 56.4TOTAL 617.6 1248.8

* - Based on SAR estimate (paragraph 3.42, page 28) of 25 staff weeks per year, times the projected sixyear life of the project.

35

Table 13: Bank Resources: Missions (All Components, Highway plus Railway)

Performance RatingStage of Component Month/ Number Days in Specialized Skills Implementation Development Covenants Types of Remarks

Project Cycle Addressed Year of Persons Field Represented Status Objectives ProblersThrough Appraisal A February 1985 2 15 EC

A March 1986 4 18 ECA August 1986 2 3 FA, PEA January 1987 1 14 REA April 1988 3 18 EC, RSA July 1988 2 5 EC, RSA December 7 20 EC, RS, LOC,

1988 WCS, TS, MISA May 1989 6 18 EC, RS, PA, HE,

. _ PE, POA March 1989 1 3 ECA October 1989 6 15 EC, RS, HE, PE

Appraisal through A February-March 9 16 EC, RS, HS, PE, HEBoard Approval 1990Board Approval A September- 4 30 EC (tm), RS, HE, I I I I AM #1through Effectiveness October 1990 PASupervision A April-May 1991 6 40 EC (tin), RS (2), 2 2 2 I AM #2

PA, FA, HEA November- 6 20 EC (tm), PA, FA, 2 2 3 1, F, C AM #3

December 1991 HA, HE, POA April-May 1992 5 30 EC (tm), RS, PS, 2 2 3 1, P, F, T, AM #4

HE (2) CTS June-July 1992 5 11 EC, RS, TS, A not not not AM #5

______________________available available available Not in OISR October- 6 EC(ml), RS (2), not not not 1, F Mid-Term Review

November 1992 FA,TS,PS available available available Railway Component, AM #6,590 with AM# 7

H January- 4 10 EC, PA, HE (2) 2 1 2 1, P, T Mid-Tern ReviewFebnuary 1993 _Highway Component, AM #7

R October 1993 1 13 RS 2 2 3 1, F, C AM #8A December 5 3 RE, PA, HE, RS 1, F

1993 1H February 1994 3 18 PA, EC, HS 2 1, P, F No BTOR May-June 1994 3 13 EC, RS, FA S S 3 C AM#10

Told in default on two covenantsH December 3 9 ENG, HE (2) S S 3 1, T Labelled as AM #10, really is

1994 AM#1IR March-April 3 12 FA, EC, RS S 1 3 I,F Labelled as AM #11, really is

1995 __AM #12

36

H October- 2 8 HE (2) S S 3 F, 1, P Labelled as AM #11, really isNovember AM #131995 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

R March-April 3 20 EC, RS, FA S S 3 L F No label given, AM #14_ _ _ _ _ _ _ _ _ _ _ ~~~~1996_ _

H July 1996 4 11 EC, HE (2), PS S S 3 1, F Labelled as AM #12, really is

Completion R May 1997 2 14 ICR, FA L,F Labelled as AM #13 draft; reallyis AM #16. No BTO

Completion H June 1997 6 6 HE (2), DISB, EC, S S U I,F labelled as AM #13, really isPROC, ICR AM #17

Supervision of H May 1998 4 HE,PS,FAextension _

Supervision of R June 1998 2extension

KEYStaff Skills (column six): Tyves of Problems (column ten)A = Aviation Specialist PA = Project Adviser C = CovenantEC = Economist PE =Port Engineer F =FinancialENG = Engineer PO = Project Officer I = InstitutionalRS = Railway Specialist PROC = Procurement Specialist P = PhysicalRE = Railway Engineer PS = Privatization Specialist T = TechnicalRM Railway Marketing Specialist TS = Trucking SpecialistHE = Highway Engineer FA = Financial AnalystHA = Highway Adviser DISB = Disbursement SpecialistHS = Highway Specialist MIS = MIS ExpertWCS = Wagon and Coach Specialist ICR = ICR ConsultantLOC = Locomotive Expert

ANNEX A

Highway Mission Aide-Memoire

June.20, 1997

PAKISTAN

TRANSPORT SECTOR PROJECT - (LOAN 3241-PAK)(Highway Component Only)

Supervision Mission, June 1997

PROPOSED HIGHWAY REHABILITATION & MAINTENANCE PROJECT (PK-PE-10556)

Preparation Mission, June 1997

Aide Memoire(TSP No. 13)

1. During the period from June 2 to 14, 1997, a World Bank mission comprising Messrs. Navaid A.Qureshi (Mission Leader), A. Ali, A. Bhatti, H. Mukhtar, (SA1PK) and H. Masood and B. P. Kennedy(Consultants) carried out a final supervision of the highway component of the Transport Sector Project toassess the project's overall implementation performance, discuss the lessons learned, review the stepsneeded to ensure an orderly completion of the project, initiate the preparation of the ImplementationCompletion Report (ICR) and agree on the project's Operational Plan. Loan 324 1-PAK closes on June 30,1997. The mission also reviewed the progress in the preparation of the proposed Highway Rehabilitationand Maintenance Project and held discussions with government on the proposed Road Maintenance Fund.The Aide Memoire records the findings and recommendations of the mission and the agreements andunderstandings reached with officials of the relevant government departments and National HighwayAuthority (NHA). It is subject to confirmation by Bank management.

2. The World Bank Mission members wish to record their appreciation for the courtesies andcooperation extended to them by the Federal and Provincial govemments and by the officials of the NHA inheadquarters and in the regions and for the excellent field trip arrangements (the field trip itinerary appearsas Annex. 1).

3. This combined Aide-Memoire is arranged as follows:

I. Transport Sector Project (TSP)II Proposed Highway Rehabilitation and Maintenance Project (HR&MP)

Annexes

I. TRANSPORT SECTOR PROJECT (Ln. 3241-PAK)(Aide Memoire No. 13)

Project Objectives and Desciption

1. The over-all objectives of t;he highway component of the Transport Sector Project were to assist in:

a) bringing the National Highway Authority, (formerly the National Highway Board), to asize, structure and level of professional competence reflecting its responsibilities;

b) instituting a sustainable core investment and maintenance program for national highways;and

c) remomAng a substantial portion of the backlog of highway and bridge rehabilitation andresurfacing.

2. The objectives were to be achieved by i) providing Technical Assistance and training of NHA'sstaff in the preparation and implementation of a road maintenance program and to improve NHA throughthe adoption and the implementation of the Policy and Procedures and ii) implementing a MaintenanceBacklog Reduction Programn (BRP) covering the reconstruction, rehabilitation or major improvementworks on about 400 km of roads and a Resurfacing and Strengthening Program (RSP) to prevent thefuirter deterioration of anGther 400 km of road pavements. The original Closing Date of June 30, 1996was oostponed to June 30, 1997 on a selective basis, to allow the completion of flood damage repair workon one of the major roads in the prciect.

Overall ImplemenLtaion Performance

3. The overall project objectives of the highway component have been substantially achieved and themain project components have been completed within the extended project period. Despite NHA's pre-occcupation -with GOP's ambitious highway expansion program since 1991, it has made progress towardsbec*ming a professional agency. It was reorganized along functional lines in early 1992. In early 1995 theNational Highway Council approved the revised NHA organizational structure, service rules, staff strengthand job descriptions for senior staff. However, implementation of the Policies and Procedures remainsoutstanding. T-he institutional strength and capacity of NHA has been adversely affected in recent years byfrequent changes a-' the "Member" level and more recent changes at General Manager level. Modemaccounting policies and a uniform chart of accounts have been introduced and consolidated financialstaterments and agency vwide accounts have been prepared for 1995-96 using the new computerizedaccounting system installed at headquarters and project offices at Islamabad and Lahore. NHA is currentlyin the process of undertaking a commercial audit of these financial statements through a private sectorchartered accountant i=m.

4. Tae MIvL systerr for identifying road maintenance needs under the Fourth Highway Project (FHP)has been upgraded and incorporatei into a new Maintenance Management System (MMS). NHA is nowproposing to move towards privatization of maitenance planning and management with a related qualityassuIrance program. A core investent and maintenance program (CMP) for priority expenditures on theNational Highway System is being prepared and implemented annually and reviewed and comnmented on bythe Bank. However, annual maintenance allocations still remain significantly short of system needs. Acomrnercially managed Road Maintenance Fund financed from enhanced road user charges is nowproposed to overcome this problem.

TSP Aide memoire No. 13 2

5. The backlog of highway and bridge maintenance, rehabilitation and resurfacing has been reducedunder the project. A total of 301 kan of roads, 14 bridges and 16 drainage structures have beenreconstructed under the MBRP program. A further 397 km of roads have been repaved and strengthenedunder the RSP program. These two programs have helped develop the domestic contracting industry. Theproject has also assisted NHA in organizing its road maintenance programs.

6. The completed MBRP and RSP programs have contributed significantly to the project's overalldevelopmental objective of reducing road transport costs. The shortfall of about 100 km in the total lengthcompleted under the MBRP program resulted from the NHA's decision to reallocate funds to improve a158 km length of the strategic N25 highway connecting Karachi port to the CIS countries and to provide anadditional new carriageway over 30 km of the main north-south highway N5, where the existing road wasdisintegrating.

7. The NHA staff, consultants and contractors deserve commendation for the preparation andcompletion of the MBRP and RSP programs. In particular, the mission wishes to recognize andacknowledge the achievement in completing the major MBRP 7005 contract despite the remote location andresulting logistic problems, the very difficult and sometimes hostile environment and the technical problemsarising from the severe monsoon floods. The contractor, the consultant's Chief Resident Engineer and theNHA staff involved are to be highly commended.

Lessons Learned

8. The main lessons learned from the project are:

a) Major rehabilitation works need to be meticulously investigated and prepared, to miniimizecostly variations during implementation.

b) Contract administration, particularly of major ICB contracts, needs to be much imnprovedto avoid costly claims against the Employer.

c) The local auditing procedures need to be updated to avoid conflict with modem contractdocuments.

d) Highway sector investmnents should be carefully prioritized to ensure timely availability ofcounterpart funds.

e) Alternative off-budget arrangements are needed to provide an adequate and reliable sourceof highway maintenance funding.

f) Vehicle overloading must be effectively addressed to minimize damage to the network.g) Fundamental institutional changes and effective financial controls should be required up-

front as a condition for project approval.h) To ensure continuity, key permanent senior staff should be directly involved with

consultants throughout the development and implementation of improvement programs.

Progress on Agreed Actions.

9. Most of the actions agreed during the July 1996 mission have been taken. These relate to theprovision of additional counterpart funds for completion, investigation of pavement settlements on contract7005, submission of TSP project audit for 95-96, preparation of NHA financial statements for 95-96,providing details of the 96-97 road condition survey and road maintenance quality assurance program and

TSP Aide memoire No. 13 3

the preparation of a draft completion report. However, there has been little progress on the implementatonof the new Policies and Procedures. Also, full implementation of the computerized accounting system andthe finalization of the NHA agency-wide audit for 1993-95 has moved slowly.

Completion Status and Project Costs

10 . The project physical works are now substantially complete, with the exception of 2 RSP and 5minor MBRP bridge contracts which are being completed using GOP's own resources. The overall projectfinancial position estimated as of June 14, 1997 is given in Annex 3. Details are contained in NHA's June15, 1997 Progress Report. Actual expenditures are Rs 3,836 million which represent 92% of the projectcompletion cost. Disbursements have reached US$ 79.5 million (89% of the revised Loan allocations forthe highway component).

Issues, Agreements and Recommendations

Counterpart Funds

11. GOP has allocated Rs 250 million in counterpart funds for the TSP during 97-98. NHA confirmedthat the project, being part of the core program, will be given priority in the provision of additionalresources if required, to complete the remaining works and to clear all liabilities.

Contract Administration

12. The contractor on MBRP 7005 is on record about delays in certified payments. A review of thecontractor's claims during the site visit revealed that approximately Rs 85 million are being claimedbecause of lack of timely action under the contract. The mission emphasized that all outstanding certifiedamounts should be promptly paid and clarified that claimns related to delayed payments etc. would not befinanced under the loan and that such costs must be borne by NHA/GOP. This highlights the importanceof improved contract administration. NHA agreed to streamline and speed-up its payment procedureswith immediate effect.

Closing of Contract MBRP 7005.

13. Although the civil works on the major MBRP 7005 contract have been completed, certain actionsare needed by NHA to bring the contract to an orderly conclusion before the Chief Resident Engineerleaves the site. There may therefore be a need to extend the CRE's services for some short period.Financing of his services could come from the loan if extended, or otherwise from NHA's resources. Thefollowing actions were agreed:

a) completion of final measurement jointly with the contractor by June 30, 1997;b) detailed review of contractor's claims and Engineer's decision thereon by Aug. 31, 1997;

(Review meeting held at NHA, Islamabad on June 12 to initiate the resolution of theseissues)

c) completion of final account for the contract by Aug. 31, 1997; andd) submission by NHA of all reimbursement applications in respect of expenditures for work

done prior to June 30, 1997 by Sept. 30, 1997.

TSP Aide memoire No. 13 4

Accounting Assistance Study

14. Consultants commenced work in mid 1995, and have helped NHA in the preparation of accountingpolicies, a uniform chart of accounts, formats for financial statements and implementation of acomputerized general accounting system at NHA headquarters, project offices in Islamabad, regional officeLahore and the Lahore-Islamabad Motorway office for 1995-96 accounts. Draft agency-wide financialstatements for 1993-95 were prepared earlier. The draft financial statements for 1995-96 have now beenprepared using the new computerized accounting system installed at headquarters and project offices atIslamabad and Lahore.

15. The new system has not been installed so far in the remaining regional offices, partly for lack ofappropriate hardware. There are also some concerns about the lack of competent and trained personnel tooperate the new system after the completion of the consultants' assignrment on June 30. Since July 1996,entry of data under the new computerized system has been largely discontinued. These matters werediscussed with the Member Finance, who provided the mission an implementation plan to address theseissues shortly before the wrap-up meeting. It was agreed that the plan will be reviewed by the Bank andcomments provided to NHA following the mission.

Audits

16. Audited financial statements for Ln. 3241 (TSP) and Ln. 2814 (Fourth Highway Project) for theyear 1995-96 which were due on Dec. 31, 1996 were provided to the mission.

17. The DG Audit (Works) carried out a Certification Audit of the NHA agency wide financialstatements for 1993-95 and raised a number of issues which are currently being attended to by NHA. Theauditor has indicated that since the financial statements provided by NHA are not approved by the Board orany competent authority, this may give rise to a qualified report. Following the conclusion of this missionthe Task Manager and the Bank's financial consultant (Mr. Morshed) plan to meet the Deputy AuditorGeneral, along with NHA Member Finance, to discuss problems faced by the project related to the audit,delays in finalization of audit reports, the precedence of World Bank's procedures and NHA's proposalsfor strengthening its financial systems.

18. NHA is currently in the process of contracting a private sector chartered accountant firm forundertaking a commercial audit of NHA financial statements for 1995-96. The audit is expected to becompleted by end October 1997. The mission emphasized that the Bank considers the satisfactorycompletion of this commercial audit as a major milestone in NHA's transition towards a professionallymanaged entity.

Institutional Strengthening of NHA.

19. It was agreed that the institutional strengthening of NHA will need continued attention, particularlyin view of recent staff changes. The shared goal is to make NHA a center of technical excellence for thehighway subsector of Pakistan. NHA/GOP must ensure that high quality staff are placed in key positions.The delay in implementing the Policies and Procedures, adopted in February 1996, has hindered the furtherdevelopment of the institution. NHA indicated that they are contracting an independent consultant to

TSP Aide memoire No. 13 5

undertake a one month review of the Policies and Procedures Manual, in order to identify shortcomingsand recommend improvements by Aug. 1997. This will be followed by implementation by Dec. 1997.

20. The contractual problems faced on contract MBRP 7005 highlight the need having NHA stafffully trained in the management of international contracts based on the FIDIC Conditions of Contract.

21. The mission was informed that of the approximately 700 staff inducted into NHA on contract since1995, about 500 have been retrenched recently. The concerned staff are contesting this decision in courtand a final decision is expected shortly.

Road Maintenance Funding

22. Of the Rs 522 million allocated during 96-97 t against a demand of Rs 1.7 billion) only Rs 184million has been released by GOP (including Rs 106 million released in May) for NHA's annualmaintenance program. As a result, the agency now has accumulated arrears amounting to approx. Rs 180million. No routine or periodic maintenance contracts could be awarded in some regions (e.g .NWFP)during 96-97. For 97-98 NHA has been allocated Rs 600 million for maintenance, against a request for Rs2.01 billion.

23. During the July 1996 mission NHA had agreed to divert its own toll revenue (approx. Rs 46 millionduring 95-96) to supplement recurrent budget allocations for maintenance. However, this was not done. Themission raised this issue, and at the wrap-up meeting Chainnan NHA confirmed that all toll revenues collectedby NRA during 97-98 (estimated to exceed Rs 100 million) would be used for maintenance. The missionregards this as an important interim measure, until the Road Maintenance Fund arrangements come into effect.

Road Maintenance.

24. The NHA's Pavement Management Cell (PMC) completed the road condition survey of the entirenetwork during Feb./Mar. 1997. The roughness survey is planned to be completed by July 97. However,the results of these surveys have apparently not been used to develop and prioritize NHA's 97-98annual maintenance program. NHA confirmed that this omission will be immediately rectified.

25. The mission also observed certain implementation problems during.its discussions and the fieldtrip. The maintenance systems and controls set up in NHA appear to have weakened. An example was thefailure to attend to the routine maintenance of the median drainage system on the important Karachi-Hyderabad highway, where dualization was financed under the Bank assisted Fourth Highway Project.This is endangering the structural integrity of the pavement which is already showing signs of distress.Early implementation of the new maintenance quality assurance program is expected to prevent suchlapses.

Disbursement and Special Accounts

26. The mission's review indicated that no applications were submitted on the basis of Statement ofExpenditure (SOE) during the current FY. Recovery of the initial deposit is underway, and an amount ofUS$159,903 is presently outstanding. TheNHA Special Account has a credit balance of US$51,121. NHA

TSP Aide memoire No. 13 6

has been advised to refund the difference of US$108,781, or to provide equivalent eligibledocumentation from its own resources. NHA indicated that this will be done by July 15, 1997.

Deadline for filing Withdrawal Applications

27. The current Loan Closing Date is June 30, 1997. The mission stressed that in accordance with theBank's current practice, further disbursements from the loan will only be made for withdrawalapplications received at the Bank's headquarters by October 31, 1997, in respect of eligibleexpenditures made before the Closing Date. Proceeds of the Loan remaining unwithdrawn afterdisbursements have been made in respect of these withdrawal applications will be canceled. It was agreedthat to ease cash flow, NHA will file withdrawal applications for direct payment of the Bank's share, as faras possible.

Implementation Completion Report

28. Transfer of Completed Works: The schedule for substantial completion and transfer of completedassets created under the project is shown in Annex 4. Most of the completed MBRP/RSP contracts havebeen taken over by NHA and are reported to be part of their maintainable network. The improved roadsections under MBRP-7004 & 7005 will be transferred to the NHA maintenance division by June 30,1997.

2 9. Preparation of Operation and Maintenance Plan: As part of the Implementation CompletionReport preparation, NHA is to develop and present an acceptable Operation Plan for the maintenance andoperation of the assets created under the project. The plan should include:

a) The required institutional arrangements and additional staffing needs, compliance status,or the target dates by which these will be in place;

b) Estimates of the additional operation and maintenance (O&M) costs resulting from theoperation of such works/assets, the agency's proposed strategy and the manner in whichfunding will be phased into the maintenance schedule, and the source of such funding; and

c) The key physical, operational and financial indicators for monitoring the performance ofthese assets and assessing their development impact.

30. Based upon the guidelines provided by the Mission, NHA agreed to submit a draft OperationPlan by June 30, 1997 for the Bank's review. NHA will finalize the Plan after incorporating theBank's comments by Aug. 1, 1997.

31. Implementation ComRletion Report (ICR): The Mission explained to NHA the format andguidelines for the preparation of the ICR and identified the data/information to be provided by NHA whichwill include current traffic data on project roads, econormic analysis of the MBRP/RSP completedcontracts, financial and other tables attached to the ICR etc. As part of the ICR procedures, the borroweris also required to submit its own evaluation report. NHA submitted a draft report on TSP to the Bank inApril 1997. The Mission explained the additional areas that need to be covered in the borrower's report.

TSP Aide memoire No. 13 7

32. The following timetable has been agreed:

a) NHA to provide input/data for the ICR Aug. 1, 1997

b) Borrower completes its evaluation reportand transmits it to the Bank, Aug. 1, 1997

c) Bank sends draft ICR to borrower for comments: Sept. 15, 1997

d) Borrower provides comments on Bank's draft Oct. 15, 1997

e) Task Manager reviews comments andprepares grey cover ICR: Nov. 15, 1997

Request for extension of Technical Assistance Component

33. The mission received a request from NHA/MOC for a one year extension of the TechnicalAssistance component of the TSP. This has been passed on to Bank management. A formal request fromEAD is awaited.

NASHARED\QURESHITSPAM697.DOC

7

ANNEX B

Railway Mission Aide-Memoire

PAKISTAN

RAILWAY RESTRUCTURING AND PRIVATIZATION PROGRAMand

TRANSPORT SECTOR LOAN, RAILWAY COMPONENT (LN. 3241-PAK)

June 15-27, 1998

AIDE MEMOIRE

1. A World Bank rnission' visited Pakistan to continue the dialogue with the Government ofPakistan (GOP) on the railway restructuring and privatization program and to review its status. At therequest of GOP, the Bank provided technical assistance under the Transport Sector Loan (Ln. 3241-PAK) to support this program. During its visit, the mission met with officials of the PrivatizationCommission (PC), Pakistan Railways (PR), and Ministry of Railways (MOR). The mission would like tothank the above for their courtesies. This aide memoire was revised following the wrap-up meeting toreflect the agreed position of the mission and PC, PR and MOR. This is subject to confirmation by Bankmanagement.

I. Status of Railway Restructuring and Privatization

2. The GOP' s announced strategy for restructuring and privatizing PR is to unbundle the railwayinto three core businesses (freight, passenger and infrastructure), plus a residual entity -- the RailwayResettlement Agency. The core businesses will be corporatized and privatized; and the ResettlementAgency, residing in the public sector, will retain all surplus assets and liabilities, including surplus andscrapped equipment, redundant labor, debt and enviromnental cleanup obligations. It will manage anddispose of all residual assets and settle outstanding liabilities. A Railway Regulatory Authority will beestablished under a new regulatory framework for the restructured, private sector rail industry. TheTaskforce on Railway Restructuring and Privatization, comprising key members from the MOR, PR, and thePC, is overseeing this process.

3. Over the last year, much of the unbundling into separate business units has been completed: assetshave been identified and assigned to each business, managing directors for the four entities have beennominated and in general the top three layers of staff have been identified, and the basis for separatecommercial accounts has been established. The unbundled businesses are targeted to begin operating asseparate business units on July 15, 1998 with corporatization targeted for October 31, 1998, but not laterthan January 1, 1999. The mission held in-depth interviews with each of the four managing directors andwas impressed with the progress made to date and the enthusiasm for beginning commercial operations onJuly 15 as separate business units, despite certain decisions that need to be made and despite tight railwaybudget constraints. The mission strongly supports the start-up of operations as separate business units onJuly 15 and the achievement of corporatization by the target date.

4. Critical Next Steps: Despite significant progress made on restructuring the railways, manydecisions need to be taken to enable the core businesses to operate on a commercial basis and to preparefor corporatization. The mission discussed the key next steps with PR, PC and MOR and the followingtarget dates were agreed:

I The mission comprised: J. Fraser (Task Leader), R. Kopicki and J. Tillman (Bank) and J. Broadley(consultant). K. Rashid (consultant) provided the financial analysis of PR.

(a) Notification of the managing directors for each of the four business units and transfer ofauthority to the MDs for operating their business units which may involve finance,administration, operational authority and accountability. Issuance of an Executive Orderto allow PR to be divided into three separate business units during the interim periodbefore corporatization. The mission would like to stress the critical nature of theseinitiatives and to recommend that they receive absolute priority. (June 30, 1998).

(b) Appointment of financial support teams (consisting of chartered and cost accountants,MBA and lawyer) for each business unit by the Railway Board/MOR. (July 15, 1998)

(c) Implementation of a new accounting system and preparation of commercial accounts foreach core business which will be done in parallel with the current accounts system untilcorporatization. (begin immediately and continue through corporatization)

(d) MOR to request the Auditor General to engage consultants to value assets for each corebusiness unit. (completed, June 24, 1998)

(e) Re-notification of the lapsed Ordinance No. I of 1998 which allowed for the separationof the Railway Board from the Ministry. (complete as soon as possible).

5. Proposed Bank Assistance: As noted earlier, the Bank has been engaged in a policy dialogue withMOR/PRIPC on railway reform for several years. These agencies have expressed interest in receiving Banksupport for the Govemment's railway privatization program, approved in April 1997, through a loan whichwould (i) help finance severance payments and emergency rehabilitation and (ii) provide technicalassistance for the privatization of the core businesses and the newly created Railway Resettlement andRailway Regulatory Authorities. The project would support the implementation of GOP' s policy forrailway reform and privatization. (Annex 1 provides a project summary and Annex 2 provides the agreedBorrower Action Plan for project preparation.)

6. In response to issues raised by the Secretary Railways regarding use of funds under the emergencyrehabilitation component, the mission would like to clarify the following. The investment component foremergency rehabilitation could include items to remedy safety critical deficiencies, including infrastructureand passenger and freight equipment, and to remedy immediate operational deficiencies to allow thebusiness units to meet their contractual obligations. The mission pointed out that any investments under thiscomponent should be limited to correct short term safety and operational shortfalls prior to privatization andis not a wide ranging rehabilitation component. We suggest that the content for investments under thiscomponent be furnished by the individual business units and should be justified on grounds of safety andremoval of critical short term operational deficiencies.

7. The mission concurs with the Secretary's suggestion to support each of the MD' s with a core groupof experienced business professionals (e.g. chartered and cost accountants, MBA and corporate lawyer) asthe most effective way to transfer business management skills into the new organizations. In addition, themission agrees that investment in management capability and further skills development is desirable for thebusiness success of the new enterprises. To this end, we agree with the recommendations made to use someportion of a project preparation facility for short-term training for the new managing directors and their keystaff to fill any gap in fundamental commercial skills. The mission pointed out that a longer-term trainingrequirement exists for the management and staff of the new Railway Resettlement Authority and theRailway Regulatory Authority that will remain in the public sector. It was agreed that this need can befinanced through technical assistance under a Bank-supported project/loan.

8. The mission appreciates the difficulty in implementing wide-scale reform in the sector and isprepared to move in tandem with the pace of the Government's program. The mission has shared a draftProject Concept Document with the Government and has received broad agreement on the project concept.In the mission's view, project preparation could begin as early as October/November 1998 if the followingsteps in the GOP' s Action Plan are completed:

* Corporatization of three core business units (passenger, freight and infrastructure) under theCompany's Act.

* Cabinet approval of Railway Policy and Regulatory Framework (subject to incorporation ofcomments provided by the mission).

* Mobilization of consultants for the labor redundancy study which would recommend aframework for severance pay and the estimated cost.

* Formulation of a public service obligation (PSO) policy by the Passenger Business Unit andthe Ministry of Railways for passenger services that are non-remunerative andrecommendation on the PSO policy sent to the Ministry of Finance.

* Cabinet approval of amendment to the Railway Act to provide for the establishment of a newregulatory framework and to permit the transfer of PR assets to corporatized entities.

During the wrap-up meeting, MOR noted that when corporatizing the three core business units under theCompany's Act, they would seek a provision that the existing fiscal and taxation concession available atthis time (PR does not pay income taxes, etc.) shall continue for five years as in the case of PTC.

II. Key Railway Reforms and Government Policy

9. Private Sector Rail Opportunities (Annex 3). The mission concurs with GOP's decision tointroduce private train service on the lines of Pakistan Railways prior to privatization. Technical bids foran oil transportation contract with PSO are due on July 15, 1998, and financial proposals are expected bySeptember 21, 1998. The PC expects this Oil RECO, which is the first implementation of the OpenAccess Policy announced in January 1996, to reach financial closure by December 31, 1998. Otherprivate train service proposals are under consideration. One involving the operation of air-conditionedpassenger express trains will be based on a negotiated track access agreement and contemplates the saleby PR of equipment to the new entity for rehabilitation. MOR noted that each business unit of PR willendeavor to better utilize their assets and to seek investment from the private sector. While the missionsupports the concept of introducing additional private train operations on PR lines, such support ispredicated upon any contractual arrangements between PR and the private train operating company beingnegotiated on an arms length basis and being fully compensatory to PR. (Annex 3, Attachment Aprovides a checklist for the development, licensing and approval of new RECO operations).

10. Track Access Regime Issues (Annex 4). A workable track access regime should be implementedas quickly as possible. Much of the underlying analysis has been completed and PR's work on a trackaccess regime will be finalized by the time of corporatization through negotiations among the corebusiness units. The track access regime is the core commercial interface between the infrastructurecompany and the train operating companies and also a critical component of the Public ServiceObligation ("PSO") process. Because the infrastructure company will have to recover its fixed andcommon costs (including cost of capital and administration costs), as well as the variable costs of thetraffic, through the track access agreement, the design of track access charges presents a significantchallenge. This challenge is further complicated by the infrastructure company's need to catch up ondeferred maintenance. The mission believes that in designing the track access regime the infrastructurecompany should recognize that, as a general matter: (i) long run variable costs should always berecovered, (ii) users should pay only for the infrastructure they use, (iii) different traffic segments havedifferent capabilities to contribute to fixed and common costs, and (iv) the pricing regime should be both

transparent and workable. The mission recognizes that any track access regime will be a compromisebetween strict economic rationality and commercial practicability. The principal responsibility forreaching this compromise lies with the infrastructure company, on the one hand, and the train operatingcompanies on the other. Regulatory intervention should be limited to the case where parties cannot reachan agreement and affirmatively seek regulatory intervention.

11. Railway Policy and Regulatory Issues (Annexes 5 and 6). The mission strongly recommends thatthe MOR/PC refine the new Railway Policy and the Scope and Framework for the Railway RegulatoryAuthority in order to eliminate discrepancies within and between the two documents prior to Cabinetapproval. This is necessary in order to reflect the "minimalist" approach to regulation which takes intoaccount the pervasive competition that exists in the transportation market in Pakistan. A successfulprivatization of Pakistan Railways is dependent on the establishment and implementation of a regulatoryframework for the privatized railway industry that is consistent with successful commercial operation ofthe railway and that does not convey to potential investors the perception of significant regulatory risk.Specific comments on the two documents have been provided to the PC and are included in Annexes 5and 6.

12. Because the freight transportation market in Pakistan is intensely competitive, there is no needfor economic regulation to protect shippers. In the case of passenger transportation, with the exceptionof certain narrowly defined markets, alternate mode transportation is available and, as in the case offreight, there is no need for economic regulation to protect passengers. Economic regulation ofpassenger fares may be necessary in limited cases where the only access to a remote area is provided bythe railway, or in certain socially desirable cases where part of the costs of the transportation service arebeing met by the government through a Public Service Obligation ("PSO") payment.

13. Economic regulation of access charges and access conditions may be necessary and appropriate.Imposition of appropriate economic regulation on railways operating in an intensely competitiveenvironment nevertheless presents a serious risk of adversely affecting their ability to compete byadjusting rates or changing service levels or quality with the same speed as their competitors. Thus,economic regulation should be structured to minimize this interference. As a general matter, reactiveeconomic regulation that responds to complaints and disputes is to be preferred over economic regulationthat requires regulatory pre-approval of business decisions that reduces the railway's competitiveflexibility. Annex 6 addresses these issues in greater detail.

14. The safety regulatory arrangements have been developed separate from the economic regulatoryregime. The mission concurs that the establishment of a modern and appropriate railroad safetyregulatory regime. The strengthening of the Federal Inspector General of Railway (FGIR) Office shouldproceed in parallel with the establishment of the Railway Regulatory Authority. FGIR should bestrengthened in terms of technical expertise, discipline and necessary logistical resources. The newlyfashioned FGIR should be charged with the establishment and enforcement of safety standards and rulesfor the operation of railways in Pakistan and with responsibility for resolving disputes relating to safetyissues, such as those that might arise between the owner and operator of the infrastructure and the varioustrain operating companies using or wishing to use the infrastructure.

15. Arrangements for a Public Service Obligation (PSO) Payment. If the Government wishes topreserve passenger or freight services that are not economically viable, it will be necessary to enter into apublic service obligation agreement with one or more of the corporatized entities (or a private company)to provide the service. The agreement will specify the service to be provided and the correspondingfinancial arrangements. The Govermment will have several tasks to accomplish in the next severalmonths: (i) to identify those services that the railway operating companies can run in an economicallyviable manner and those which they plan to discontinue, (ii) to determine the subsidy cost of preservation

for uneconomic services, (iii) to determine which of the services (if any) the government wishes tocontinue, and (iv) to negotiate acceptable public service obligation agreements to provide forcontinuation of the selected services. Some of the work required under (i) and (ii) already has beencompleted by the Passenger Unit and their consultants. MOR noted that additional work is required toevaluate the passenger services on a commercially viable manner.

16. The mission confirmed that MOR will identify non-economic services to be subsidized through aPSO agreement and will formulate the PSO policy for review and approval by the Ministry of Finance bythe date of corporatization. It will be important to the success of the privatization program that thesePSO agreements be reached at arms length with the independent business units and/or the corporatizedbusiness units. In the mission's view, long-term PSO agreements that do not fully compensate the trainoperator for the cost of service could seriously impair the marketability of the business unit, and willraise serious concerns in the mind of potential investors regarding the government's future commitmentto pay for non-economic services it wishes the private railway to provide.

17. Labor Redundancy Scheme. Development of a coherent framework for managing the surpluslabor which is both affordable by the government and acceptable to the employees is a critical item forsuccessful privatization. The mission expressed its concern about the lack of progress on thedevelopment of a labor redundancy scheme given that the initial study which was due to be completed byJune 30, 1998 has yet to be started. MOR/PR has agreed to mobilize consultants to undertake this studyby July 15, 1998. Given the potential number of surplus workers (30,000 to 40,000) and the desire toprovide "comfort" to employees that their needs and rights will be respected, the mission stronglyreconmmends a process of involving employees and labor unions in designing the redundancy scheme.This early consultative process should help align the government's need to keep a firm grip on the overallaffordability of the scheme with realistic expectations by the employees. In addition, the missionrecommended to the designated managing directors that they communicate with their staff at all levelsconcerning the change process and their vision for their business's futures to address the uncertainties inthe minds of their staff.

18. Although the Bank could help finance severance pay and retrainingloutplacement under apossible Bank project, it is anticipated that this component will require significant counterpart funding.MORIPC shall explore the possibilities of such counterpart funding or other resources, in consultationwith the Planning Commission and MOF, and communicate to the Bank by the time of projectpreparation.

19. The Resettlement Authority will have many complex tasks to accomplish, including theliquidation of surplus assets, the pay-down of outstanding liabilities, the provision of severance benefits,and the retraining, regrouping and redeployment of surplus labor. The accomplishment of these tasks ina systematic and business-like fashion is essential to the overall success of the privatization program.Steps for early establishment of the Railway Resettlement Authority have already been initiated with thenomination of the MD. MOR noted that funding for the necessary preparation for the establishment ofprocess, procedures, and functions will be included in the Project Preparation Facility being sought fromthe Bank.

20. Need for Financial Advisers/Market Soundings. The PC has received both financial andtechnical proposals from three qualified groups to provide financial advisory services in support of theprivatization of PR's three core business units. Technical bids have been opened but not evaluated andfinancial bids remain sealed. Bid validity expires on July 10, 1998. The PC sought the mission's adviceon how to proceed on the engagement of a financial adviser given the changed investment climate, thelack of current financing, and the status of preparatory work. The timing for the engagement of afinancial advisor was originally designed to interconnect with key supporting work which has not been

accomplished. This includes completion of a study on the railway's environmental clean up liability anda study of its liability for employee pensions, early retirements, separations and social benefits. Inaddition, the necessary work on drafting the new legal and regulatory framework, including economic,environmental and safety regulation, is likewise lacking. Without these complementary efforts, financialadvisors would be significantly handicapped in their efforts to prepare and sell the core businesses of PR.

21. The mission discussed with the PC various options regarding how to proceed with theengagement of a financial advisor given the current circumstances and the potential changes in the timingand scope of work. Based on these discussions, the mission requested the PC to provide the Bank withits specific recommendation on how to proceed, i.e. proceeding with evaluation or cancellation and re-tendering, etc. for Bank review and no objection. The PC agreed to provide this to the Bank by July 1,1998.

22. The mission recommends that the PC undertake market soundings to assess potential interest ininvesting in the core business units of an unbundled PR. This work is typically done by financialadvisors. Market soundings provided before corporatization can materially assist with determiningwhether three separate enterprises are more valuable than a vertically integrated rail enterprise. Much ofthese soundings can be done informally by the PC's staff through interaction with the management ofrailway enterprises who are involved in global diversification of their holdings and through thepresentation of "road shows" in several regional markets, including North America and Britain. Theupcoming Asian Privatization Conference in Singapore presents a unique and valuable opportunity forthe PC to "showcase" the PR offering. The hiring of the financial adviser will be congruent with thecorporatization of the three business units.

23. Adequacy of PC staffing and MOR/PR arrangement to complete preparation for privatization.The mission recognizes the complexity of restructuring, corporatizing and privatizing the railway. TheTaskforce set up last year provides a good vehicle to coordinate the many activities to reachcorporatization and privatization. The PC has taken the lead on managing the day-to-day coordinationefforts which will intensify in scale over the next several months. In order to meet the demand, themission supports the PC's desire to include on their railway privatization team a member with relevantrailway experience. It is our understanding that a suitable candidate has been identified, and the missionrecommends early action on this matter. The mission strongly supports the Railway Chairman'sinitiative to provide financial and legal support teams to each business unit and understands thatmobilizing funding of these teams is underway.

24. Funding of Preparation Activities (Annex 7). Previous commitments from Japanese donoragencies to fund preparation activities and provide technical assistance have now been frozen as a resultof the recent sanctions. (A PHRD grant for $920,000 was sought to fund preparation activities, includingthe labor redundancy study and JICA had committed to providing technical assistance to the RailwayResettlement Authority.) The PC should follow up with DFID to assess whether they are still willing toprovide technical assistance for the Railway Regulatory Authority. The Bank's Project PreparationFacility (PPF) could be used to fund preparation activities of up to US$2 million which could then berefinanced under the proposed loan. A formal request from EAD would be required for such an advance.MOR agreed to prepare the necessary documentation for "concept clearance" by GOP by August 10,1998. Annex 7 provides a recommended set of activities to be funded through the PPF.

25. Railway Cultural Heritage (Annex 8). Pakistan's railway cultural heritage needs protectionduring the modernization and privatization process, and PR is commissioning a review so that the newrailway legislation could establish procedures for classifying critical cultural heritage items and forensuring preservation or reuse. Critical steps include: (i) protect heritage equipment from prematurescrapping; (ii) PR complete the heritage policy review; (iii) establish railway museums at Peshawar and

Bostan; (iv) develop business plans for autonomous heritage railway operations at both locations; and(v) hold workshop to develop civil society awareness and support. MOR noted that this study would beundertaken in the latter half of 1999, but agreed to advance this date if resources become available.

III. Transport Sector Loan

26. The Transport Sector Loan, which was twice extended from its original closing date of June 30,1996, will close on June 30, 1998. The remaining railway component provided technical assistance forpreparing PR for privatization, including consultants to the PC (Hickling Transcom) and to assist PR(CIE Consult) with the organization and operation aspects of the restructuring needed for privatization.CIE Consult has worked closely with concerned PR staff to bring PR to a point where the new unbundledcore businesses are ready to become operational on July 15, 1998. It was agreed by PC/MORIPR that thetarget date for corporatization of the core businesses would be targeted for October 31, 1998, but notlater than January 1, 1999 -- beyond the period where GOP would be reimbursed under the Loan for CIEConsult services.

27. Although the systems for re-orienting the financial accounting system were developed andconsiderable training of PR staff undertaken by CIE Consult, the new parallel accounts for each of thecore businesses could not be implemented because new accounting codes were not applied by PR.Similarly, it should be noted that GOP's 1990 decision to develop parallel conmmercial accounts for PRwas not implemented, and the project's original TA component for such work was not undertaken.

28. The mission reviewed PR's financial performance. A detailed report is given in Annex 9. Since1992-93, PR losses have been increasing and reached a record high of Rs. 6.6 billion in 1995-96.Operational inefficiencies and declining traffic levels contributed to increased losses and these problemswere exacerbated by the following:

(a) PR has been unable to increase its tariffs in line with inflation. Cumulative tariffincrease during 1990-98 has been only 43% against 127% cumulative inflation for thisperiod.

(b) PR is forced to operate its inherently loss making PSO services under GOP instructions,and GOP has stopped providing PSO payments to PR which are estimated around Rs. 2billion;

(c) PR is incurring heavy interest payments on its overdraft with the State Bank. (Rs. 1.5billion in 1996-97)

(d) PR has not been receiving adequate grants to meet incidence of post budgetary taxation.The cost of high speed diesel was increased six times during the period July 1996 andDecember 1996 resulting in additional expense of Rs 732 million.

(e) Heavy pension liabilities were incurred during the year 1995-96 resulting in Rs 1.4billion of additional expenditure with no supplementary grant provided.

29. A key objective of the project was railway restructuring and establishment of a businessdepartment to develop the commercial orientation of PR. During 1990-1996, it became clear that despitethe efforts of concerned business department staff, and the useful institutional strengthening workundertaken during this period, the objective of commercial orientation was not achievable as long as PRremained a government department. However during 1997-1998, the institutional reorganization of PRwas initiated and when unbundling is implemented on July 15 and later corporatized this project

objective will be achieved. The financial objective of financial profitability was not met for the reasonsdiscussed in para 25 above. The investment component was intended to enable PR to improve itsoperational performance. However this could not be achieved because: (a) GOP did not comply with thecovenant to provide adequate revenue budget spares, thus nullifying the project assistance for building upa stock of unit exchange spares; (b) inadequate implementation of the core investment program; (c) latecompletion of the roller bearing program which has slowed the improvement of wagon performance; and(d) slow PC-I clearance and inadequate Annual Development Program allocations which resulted inabout US$40 million of the railway component being unused when the equipment category closed inJune 30, 1998.

30. With the closure of the project, an Implementation Completion Report (ICR) needs to be written.Bank guidelines on preparing the ICR have been provided to PR. Part of the requirements of the ICR isthe preparation by the Borrower of a Project Completion Operation Plan. The following schedule wasagreed:

* Draft the Post Completion Operation Plan by July 30, 1998

* Project completion cost data to Bank by July 30,1998

* Borrower contribution to ICR (Part II) including the final Operation Plan incorporating theBank's comments by September 15, 1998

e Bank provide draft ICR for Borrower's comments by September 15, 1998;

e Borrower's comments received by Bank by October 15, 1998

- ICR finalized and distributed by November, 30 1998

List of Annexes

Annex 1: Project SummaryAnnex 2: Project Preparation PlanAnnex 3: Private Sector Rail Opportunities and Checklist for RECOsAnnex 4: Track Access RegimeAnnex 5: Comments on the Railway PolicyAnnex 6: Comments on Railway Regulatory FrameworkAnnex 7: Recommended Activities to Be Funded Under the PPFAnnex 8: Railway Cultural HeritageAnnex 9: PR Financial Performance

NOTE: For the purpose of the Transport Sector Project Implementation CompletionReport (ICR), Annex 9 of this aide-memoire (PR Financial Performance) is presented in anupdated form in Annex D of the ICR.

ANNEX C

Borrower's Contribution

National Highway Authority

I

NATIONAL HIGHWAY AUTHORITYMINISTRY OF COMMUNICATIONS

Government of Pakistan

yxGHWA/-

4

1SLAMAT-\AD

TSP FINAL REPORT

Transport Sector ProjectLoan No. 3241 PAK

MBRP/RSP CELLJune, 1997

TSP Loan Final Report

TABLE OF CONTENTS

1.1 History of the Project.1.2 Introduction.

CHAPTER ~22.1 Project Identification and Implementation.2.2 Maintenance Intervention Level System (MIL).2.3 Project Identification for MBRPIRSP Projects2.4 Design Features.2.5 Construction Sequence.2.6 Pre-qualification and Tendering2.7 Composite Schedule of Rates and Material Studies Report.2.8 Quality Assurance Program.

CHAPTER 33.1 Technical Assistance as Management Consultant.3.2 Management Consultant's Works Program.

CHAPTER 44.1 Justification of Projects.4.2 Projects Details with Financial Status.4.3 Impact & Achievement of M9BRP/RSP Projects.

LIST OF ANNEXURES

AVNEXURE I Details of RSP Projects (Upro June 30, 1997)ANNEXURE 11 Details of MBRP Projects (Upto June 30, 1997)ANNEXURE III Details of 1992-FDRP Projects (Upto June 30, 1997)ANVEXURE IV : NHA Organization Chartfor MBRPIRSP ProjectsANNEXURE V Kamnpsar Organization Chart for MBRP/RSP ProjectsA.ANEXURE 17: Financial Status for TSP Loan (Pak Rupees)AMNEXURE VII Financial Status for TSP Loan (Pak Rs. & US Dollars)AiVNEXURE VIII Physical Achievement of .SP ProjectsA.NNEXURE IX Physical Achievement of .'BRP ProjectsANVEXURE X Typical Cross-Section - A ;ohal WorksANNEXURE XI Typical Cross-Section - k'BMand TSTANVVEXURE XII Typical Cross-Section - 4IBRP 7004ANVAEXURE XIH : Typical Cross-Section - AJBRP 7005

TSP Loan Final Report

. tE :;-:E-7'-:-i:'5 "i5:'CHAPTERi .--i1 '' ':'' ' " i

1.1 HISTORY

In 1986, the National High wa,v Authority NHA. (at that time National High say Board NHB), as part of the

\orld Bank funded Third Highwvay Project (1982-85), undertook a study to identifv the scope and

rLquirements for maintenance on the national high way network in Pakistan. The 3rd Hgway Project was

one of the operations assisted bv the World Bank for highway infiastructure development in Pakistan. As part

of this study, a ten-year maintenance progrnam under fiscal constraints and an organizational structure was

developed to meet the maintenance requirements of the national highway netwvork.

In earls 1987. and again in 1988. as part of the ongoing Maintenance by Contract program, an analvsis of the

national highway network was carried out using a siunplfied manual methodology to predict those segments

of the network which were in need of pnroritv maintenance, rehabilitation or reconstruction. This methodologyN3as based on assessment of network due to pavement condition, traffic volumes and environmental factors

and was called Mlaintenance Intervention Level (MIL) system.

The analysis suggested that a significant percentage of the netvork is in need of prioritv maintenance, thelevel of which is beyond the scope of routine and periodic maintenance programs.

The representatives of the World Bank during a Transport Sector Adjustment loan visit, reviewed the resultsof the preliminan, analysis undertaken in 1987 and 1988 and after discussion Nwith INHB determined that it%sould be of significant benefit to re-adjust the loan in order to utilize some of the loan funds for the roadwaysegnents requiring an extraordinary level of maintenance. It was believed that a program to reduce thebacklog of maintenance ivould rehabilitate the poor sections of the hi2hwav network to a level wvhere thev

could be maintained via routine and periodic maintenance contracts which were within the fiscal limitatonsof the NHB.

In July 1989. the PMU cell (Pavement Monitoring Unit) of the Maintenance Directorate of the NTHB wsith the

assistance of its consultants, commenced a study to evaluate and update the preliminarv analysis done in1987 and 1988. The major objectives of the study wvere

* Identification and Prioritization of road segments requiring immediate extraordinar maintenance:

* Evaluation of the economic benefits of undertaking the required extraordinary maintenance; and

* Recornmendation of a program of maintenance contract packages to reduce the outstanding backlogin maintenance works.

In the context of the study, Extra ordinars Maintenance was defined as the reconstnrction rehabilitation or

major imProvement of a segment of roadway, required to strengthen a pavement structure and/or to attai a

road,, av condition that can be adequatelv maintained through routine and periodic maintenance.

TSP Loan Final Report

Id[t&fication and appraisal by the World Bank for the Transport Sector loan was commenced in early 1990.

Lcan negotiations for US S 77. 5 million were concluded on 27th July, 1990. The loan amount was split into

two types of improvement programs, MBRP and RSP:

;) M.\aintenance Backlog Reduction Programr (iMBRP) This program covered those road sections

which had deteriorated to a point where they required reconstruction, rehabilitation or major

improvement to return them to maintainable condition.

ii) Resurfacina and Stren-thening Programs (RSP). This programn covered those road sections

whose strength w-as irproved bv surface treatments and overlays, thus reducing further

deterioration.

For this purpose, services of expatriate Danish consultants Mv/s Kampsax International A/S were acquired to

prepare. manage and monitor the progrars under the guidelines of the World Bank. The principal consultants

".ere assisted by the counterpart NaHB stff and local associate consultants on various projects.

1.2 INTRODUCTION

The Transport Sector Loan. TSP Loan No. 3241 PAK *-as signed bet-een the Government of Pakistan and

the World Bank on 27th July. 1990. The total amount of the loan is US S 184 million. The loan is primarily

divided between Munistrv of Railways and National Highway Authority. The National Highway Authonrv

portion of the loan amounting to US S 77.5 nillion is to be utilized wvith matching Government of Pakistan

(GOP) funds. Later on. in 1996 an additional amount of US $ 11.5 million has been transferred from

Railway component to NL-IA under re-appropriation to cover the force majure Flood Damages works on

MIBRP 7005 (WVadh-Surab section on N-25). Thus. the total loan value for highwav component is LS S 89

million.

The financial sharing portion of the World Bank and Government of Pakistan (GOP). as decided in the loan

agreement, is as under:-

World Bank | GOP

MBRP Program 70 % 30 %

RSP Program L991-92 60 % 40 %

RSP Program 1992-93 40 % 60 %

RSP Program 1993-94 20 % 80 %

The particulars of the loan are:-

Loan effective date February, 1991

Original Completion date 30th June, 1996

Revised Completion date 30th June, 1997

1TSP Loan Final Repore

The break up of the loan is as under:

||Original IBRD | Projected Actual

Finan__ng IBRI) Financinga

i) Maintenance Backlog Reduction US $ 52 Million US S 72.4 MillionProgram (MBRP) ._ _

ii) Resurfacing & Strengthening US S 15 Million US $ 8.1 MillionProgram (RSP)

iii) Technical Assistance (TA) US $ 10.5 Million US S 8.5 Nfillion

iv) Funds transferred from Rail-av IS.s 9IlioComponent to NHA by Re-appropriation. l

TOTAL US S 89 Mfillion US S 89 Million

The cost of GOP component. as on June 30. 1997 is Rs. 1604 million for MBRP and Rs. 665 million forRS P.

Ever since the sanction of loan from the World Bank in US dollars, Pakistani currencv has undergone variousfluctuations. %vith the resulting devaluation of Rupee in each instance. Consequendt, the Pak Rupeeequivalent of this foreign loan increased in nunerical value, as compared to the initial estimates prepared forTSP loan projects.

In order to utilize the increased amounts due to devaluation. inclusion of more projects became necessarythereby requiring that additional portion as matching funds for the projects should be provided. GOP/NHAagreed to provide the necessary counter-part funding to complete the additional projects and fully utilize theloan amoumt.

Loan CompletionThe original Loan closing date was June 30, 1996. Howvever. the World Bank has agreed to a one vearpostponement of the loan closing date up to June 30, 1997. to enable NHA to complete the additional workon contract MIBRP-7005 (N-25 Wadh-Surab Section) arising from the damages caused bv the unprecedented1995 floods and rains in and around Khuzdar.

Re-.AllocationAs part of the seiective extension of Loan 3241-PAK, the Bank has reallocated US S 11.5 million from thesavings on the Railway Component of the TSP to finance the additional works related to the 1995 flooddamages on contract MBRP-7005 (N-25. Wadh-Surab section).

TSP Loan Final ReDort

- -: :: --CHAPTER -2 .--- -

2.1 PROJECT IDENTIFICATION AND IMPLEMENTATIONFor the whole national highway network, a detailed technical study was done to prioritize the roadsections which were beyond the scope of normal maintenance and required majorrehabilitationlreconstr-uction. Each project under MBRP and RSP category was identified based on thepavement condition survey. This condition survey data along with the data from the pavement roughnessand the strength surveys. topographical plans. traffic counts and clirmatic data was used as input in theNMaintenance Intervention System (MIL).

2.2 MAINTENANCE INTERVENTION LEVEL (MIL) SYSTEM.MIL system is a rating system used to determine the maintenance requirements of a road segment basedon the evaluation of road characteristics. MIL is used to develop accurate maintenance budgets enablinga highway authority to make best use of limited funding.

For a roadway segment of five kilometers. a comprehensive set of data is gathered for eighteen differentfaciors. These data are broadly divided into two categories; a) conditions which may be improved bymaintenance; and b) factors which influence how much maintenance is needed e.g. climate, terrain,traffic etc.

Each data is given .a certain score for each one kilometer section based on severity, all the scores areadded together to obtain a final intervention score, which indicates the level of maintenance needed byeach road segment. These scores, called Intervention scores, are then categorized into following ranges.

MIL Score Recommendation< 40 : Routine Maintenance needed.40 - 49 : Preferential Status of Periodic Maintenance.50 - 59 : Localized Periodic Maintenance.60 - 69 : Major Improvement, Periodic Overlays.> 70 : Reconstruction/Rehabilitation.

The above ranges of NIIL score or Pavement Condition Index (PCI) , as defined in the PC-I , werealso used to define the projects to be included in MBRP and RSP package. Based on the different rangesof PCI, following road serviceability categories were adopted

Cate,,orv 1Any segrnent of road with a surface roughness value exceeding 5000 mm/Km and with potholes/patches <15%. but othenvise in g,ood condition. Pavement condition Index (PCI) = 40 to 49.

Cate-orv 2Any segment of road meeting the requirements of category 1, but with potholes and/or patches exceeding15% and belowv 60% (15 - 60 %) of the roadway surface area. Pavement condition Index PCI = 50 to 59.

at-ry 3An segment of road where the roadway surface area is more than 60% Xo cracked and the surface is beginningto disintegrate. Pavement condition Index PCI = 60 to 69.

Cate-orv 4AnY segp-nlt of the road Nshere a paved roadway surface is nonexistent or is in an advanced state of

dlsTlttyrr;o /.7lvmut} osSi<>nSnerP(- r71)

TSP Loan Final Renort

2.3 PROJECT IDENTIFICATION FOR MBRP & RSP PROJECTS

The Pavement Condition Index (PCI) survey of 1989-90 projected the following classes of national highwaynetwork:

Route - Length Category 1 Category 2 1 Category 3 Category 4

N-5 1762 22.65 % 19.93 % 15.40 % 25.07 %N-25 J 817 15.07% 22.22 % 12.69 % 28.57 %N-35 806 8.10 % 18.91 % 16.21 % 35.13 %

N -40 625 18.39 % 16.09 % 13.79 % 26.43 %N-50 531 29.50 % 13.11 % 11.47 % 29.50 %N -55 1265 23.88 % 13.36 % 7.69 % 17.00 %N -65 385 19.71 % 9.85 % 9.85 % 14.08%N-70 430 11.90 % 11.90 % 16.66% 32.14 %

The purpose of TSP loan was to address the critical parts of network and put the netvwork in easilymaintainable condition. The loan vsas subdivided into three components:

* MBRP - To address those pavement sections with PCI of Category 3 and 4.* RSP - To address those pavement sections wlith PCI of Category 2 and 3.X TA - Technical Advisory and trainring.

(NVote T Ihe category 3 is common both in .MBRP and RSP. as if was envisaged that a pavementf category 3. if required only strengthening or overlav will be RSP project: but a section of

category 3 requiring major reconstrucnton will be placed as MBRP project.)

RSP Proiects

The RSP program covers those road sections which fall under the Category 2 and 3 of the pavementcondition survey. The objective was to improve the structural stability and strength of pavement by means ofoverlay or surface treaturient along vith shoulder rehabilitation. This program was done in five phases i.e.Rounds 1. IL. Il. IILA and IV. As a result, a total of 59 projects covering 400 kms on different routes andprovinces were prepared as is showvn in Annexure VIII. The details of RSP contracts in the three rounds isattached in Annexure 1.

MBE,RP Proiects

For IMIBRP projects, in addition to pavement condition survey, the existing condition of bridges, culverts andprotectionldrainage works were also assessed. For all the defined sections and structures, economic analvsiswas also carried out.

MBRP project were consequently divided into three phases I, [I and III for which No Objection Certificate(NOC) from the World Bank was obtained prior to floating of the tenders. Under MBRP contract packages,a component was also reserved to address the reconstruction of structures and repair of drainage systems,amounting to 15 % of loan amount. During the course of implementation, 14 nu-nber of bridges wereconstructed along with 16 number of structure repair schemes i.e. culverts. causeways, drains etc. to fulfillthe requirement of loan agreement. In total, 32 LCB and 2 ICB contracts were awarded the impact of whichcan be seen in Annexure IX. The details of MlBRP contracts in the three rounds is attached in Annexure 11.

TSP Loan Final Report

2.4 DESIGN FEATURES

As mentioned-earlier, the initial rounds of hBRP and RSP schemes were defined on the basis of surveysand studies carried out in 1989-90 and prelirninary design was done by management consultants based onNHA recommended design codes and practices. The later stages of contracts were designed throughlocal consultants. In the initial rounds, a number of studies on Transport sector in Pakistan were used asreference and background material which include the following:

* A National Transport Plan, The Islarnic Republic of Pakistan. by the Japan InternationalCooperation Agency (JICA), May 1983.

* Vehicle Operating Costs, NTRC - 79, January 1986. The relationships used in the study arebased on Transport Road Research Laboratory (TRRL), Kenya study.

• The Data Reference Book, National Highway Board. March 1987.

• The Study of National Transport Plan. JICA, March 1988.

Desisn feature for MIBRP Packages

In addition to pavement condition survey. DCP test (Dynamic Cone Penetrometer) and IRI (InternationalRoughness Index) surveys were also carried out. The DCP tests were done @ 5 kilometer, whereas IRIsurvey was done on each I kilometer. Based on these surveys, different sections of highways weredefined in MBRP schemes. For selected sections. tests survey of Benkleman Beam were also carried out.The result from the tests were used to asses the existing structural strength of pavement and sub-gradestrength.

Traffic studies from NTRC (National Transport Research Center) were needed for traffic projections andanalysis. The Vehicle Operating Costs (VOC) were based on VOC sub-routine of the World BankHighway Maintenance & Design Model (HDM-III). The design of pavement was based on AASHTOGuide for Design of Pavement Structures (1972 & 1986). The pavement design is based on 10 yeardesign life. A number of reports were published by PMU & NHB which were also used as basis forengineering judgment. These reports were based on field experience of pavement behavior of alreadyconstructed sections.

Design features for RSP Packaaes

The RSP package included:-

a) Periodic overlays of asphaltic concrete;b) Pavement strengthening consisting of aggregate base course plus TST; andc) Resurfacing consisting of double and triple surface treatments.

RSP is continuation of periodic maintenance projects and also include such sections which need asphalticoverlay, with base course already laid. For overlay design, 10 year design life has been adopted. Trafficstudies from NTRC were used for traffic projections and analysis. The design of pavement was based onAASHTO guide for design of Pavement Structures (1972 & 1986). All the asphaltic overlays werepreceded by regulating course in those sections where the existing pavement roughness exceeded 5000mm/krn.

TSP Loan Final Report

Design Feature of iVIBRP 7004

The MNIBRP 7004 project covers construcion of 30 Kms of additional carriageway on N-5 between Sahiwvaland Okara, from Km 1113 to 1143. The alignment of the additional carriageway is such that it is northboundcarriageway for 1st 6 kmis, then covers the existing carriageway and is southbound for 12 kilometers, afterwhich it switches back to southbound direction. The project also includes construction of two bridges ondistributories. which were sub-let in a separate contract MBRP 7004A.

The project site consists of water logged area in which special treatnent was done by laving a granularmaterial platform of 300 mm thickness below the embankmnent lavers. The actual pavement constructionconsisted of 100 mm granular sub base. 200 mm aggregate base course, 190 mm asphaltic base course and90 mm asphaltic measuring course. 2.0 meter %vide shoulder was provided on one side, and a median wasplaced on the side of existing carriagevay. In the other case, 1.0 meter shoulder was provided in front of themedian and barrier. The shoulder are covered by DST in each instance.

T%pical crosssection of the construction is attached in the annexure ,.

Desi2n Features of MtBRP 7005

Thc contract INIBRP 7005 is one of the two contract of MBRP progranmne for which International ContractsBidding (ICB) vas carried out. For these projects. the World Bank financing portion is 70% and that of GOPis 30%. The original project of cost Rs. 588 mnillion, consisted of 160 kms of individual road lengths betweenWadh(320) and Kalat(550) on N-25. The road w%as to be 6.1 meters wvide with 1.5 m. shoulder on both sides.No particular detail was given to structures.

The adjacent project of road from Surab(478) to kalat(550) was awarded to Iranian contractors which mainlyconsisted of rehabilitation of existing road to intemational standard of 7.3 m wide pavement and 2 m.shoulders on both sides. It was decide in a review by GOP and the World Bank that the contract MBRP 7005will be a rehabilitation project of 160 kms continuos stretch between Wadh and Surab. For this purpose, amajor variation Xwas carried out through V.0. No. 2 amounting to Rs. 1265 million. Other variation orderscovered soil investigations. X idening of structures and reconstruction of about 200 culverts w ith new bridgesat some locations after hydrological studies were carried out. Thus the revised contract value to date is Rs.1847 million.

The initial design of overlay w,as replaced by newv asphalt pavement wvith wide surface and shoulders. An axleload survey and traffic count wias carried out in April, 1993. Pavement was designed for 10 year design lifebased on AnalMtical Empirical Method. The 5 year design traffic was 2.9 milLion ESAL. The top boundlavers were designed for 5 year design life and lower unbound layers wvere designed for 10 year period. Theactual construction consists of tvpicallv 150 mm natural subbase layer, 150 mm of aggregate base laver, 70mm of asphaltic base course and 40 mm of asphaltic wearing course. The typical cross section is attached inannexure XIII.

2.5 CONSTRUCTION SEQUENCE

The concept of stage construction (planned rehabilitation) was adopted for rehabilitation of pavementstructures on national network where applicable. This concept is most suitable in minimizing the severedamaging effects of:-

* Un-regularized heavy truck traffic.* Climatic conditions of southem regions of Punjab and Sin&h. and* Enhancing the life cycle and economic returns.

TSP Loan Final Report

Further. the stage construction is also adopted to avoid the premature failures of pavements common inPakistan. The planned rehabilitation comprises of following tvo stages:-

STAGE IThis consists of placement of crushed aggregate base course or water bound macadam with application oftriple surface treatments and shoulder rehabilitation and strengthening OR placement of Asphaltic Basecourse after pavement shaping.

STAGEIIConstruction will be carried out after the pavement has been subjected to truck n-affic loading in all climaticconditions for 3-5 years w%ith rectification of localized failures like settlements, damaged structure failures,erosions etc. This construction consists of asphaltic layer and shoulder strengthening with sub-base class Bmaterial.

Triple surface treatment (TST) was also recommended in pavement construction wherever aggregatelbasecourse *was laid on existing pavements. This resulted in enhancement of the performance period of pavement,due to the fact that aggregate basefWBM in combination with TST makes strong laver of bitumenpenetration macadam. Further, the placement of asphaltic laser in stabilized roads, after 3-5 vears of initialconstruction. vill produce the desired results of riding qualitv.

A few projects were aimed at stage construction with stage II construction to be executed in later vears.Ho\%ever. on some of these projects, the increasing traffic load and high axle loading caused increase inpavement in pavcment deterioration. Consequently, these projects were revised and scope of works xxasextended to proVide adequate pavement by overlays etc.

2.6 PRE-QUALIFICATION AND TENDERING

One of the objectives of the MBRP and RSP works was to imnprove and upgrade the construction capabilitiesof local contracting industrv. Most of the contractors had experience with provincial departments and reliedmainly on labor intensive construction. Since the NIBRP and RSP works required construction standardsconforming to international specifications and material suitabilitv requirements, Qualitv Assurance svstems"xere established and it wvas intended to bring the working capabilit of contractors in tune wvith stringentquality standards of construction.

It was considered essential that different contractors be prequalified and shortlisted in such a manner that,depending on their capabilitv and experience, are able to perform contracts of different monetarv values i.e.prequalification based on ability to take up contracts of the value of Rs. 10. 15. 20, 25. 30 and above 40million. For assessment and evaluation of contractors, folloring. informration was required:

* Overall experience as Contractor.* Machinery available.* Financial Capabilitv.* Classification with Pakistan Engineering Council.* Experience wkith NHA as contractor.* Engineers and other technical staff.* Maximum arnount of works executed in firmn's historv.

TSP Loan Final Report

Each of the above information was received and scoring was done to categorize the contractors. In thefolloving tables is the summarv of prequalified contractors in each province and financial capability in thesear 1990-91 and 1995-96, which highlights the improvements in local contracting industry.

Pre-Qualified Contractors in 1990-91Upto Upto Upto Upto > Sub

Province Rs. 10 Rs. 20 Rs. 25 Rs. 30 Rs. 30 Totalmillion miUion million million million

Punjab 6 6 5 5 Is 37Sindh 7 6 6 0 3 22NNFP 10 2 1 0 6 19Balochistan 13 4 4 3 4 28

GranadTotal 36 I& X 1 Et6 J77s.',; C,2 -7t- Q

Pre-Qualified Contractors in 1995-96Upto Upto Upto Upto > Sub

Province Rs. 10 Rs. 20 Rs. 25 Rs. 30 Rs. 30 Totalmillion million million million I miUion l_ __

Punjab 32 22 9 10 27 100Sindh 6 8 5 4 3 26.NVFP | 27 4 5 0 1 1 47

Balochistan 31 16 10 6 10 73

Gr!andTotl | 96 ' T 2- 20 t'; 246

2.7 COMPOSITE SCHEDULE OF RATES AND MATERIAL STUDIES REPORT

One of the major components for contract preparation is engineering estimates for civil works. In order topresent a realistic estinmte based on local rates for material, manpower and machinerv, it was envisaged toestablish guide line rates for works.

For this purpose, the local consultant firm Mls SAMPAK Intemational (Pvt.) were engagred to prepareComposite Schedule of Rates (CSR) for all types of highway works i-e maintenance and constructionand/or rehabilitation. These rates were prepared for the four provinces and for each district in province andpresented in four volumes. The first four volumes of CSR were prepared in 1990 and revised in 1991. Afterelapse of about three years, due to major changes in market prices of labor, materials and other constructionrelated commodities, it was decided to revise the CSR. Consequently, the contract for revision was awardedto M/s SANMPAK in August. 1994 and the CSR was published in 1995 under the title "Composite Scheduleof Rates - 1995".

For the main road construction building materials i.e. sand and aggregate, a materials survey was alsoconducted by Mls SAMPAK. The purpose of the this survey was to investigate the availability of suitablematerials in all regions of Pakistan and highlight the location of main quarries in each province. For thispurpose all regions wvere investigated and data regarding each material and logging was collected. Thesereports were prepared in nine volumes and were published in 1990, covering all four provinces. These reports%vere not reVised afterwvards as the revised CSR also incorporated the availability of materials in each districtand this was illustrated by the varning rates.

TSP Loan Final Report

2.8 QUALITY ASSURANCE PROGRAM

As per the World Bank requirements. NHA appointed local consultants in each region for the qualityassurance of executed projects under TSP Loan. The main services as required from these consultantsincluded :_

a) To provide independent testing services for qualitv assurance during pre-construction andconstruction phase according to the specifications.

b) To provide technical advice and support to NHA field staff and contractors in approving the rnaterialquarries and sources of material manufacture.

c) To provide technical advice and support to NHA field staff in conducting routine qualitv tests atproject site.

M4aterials Testing Laboratories:In order to monitor the qualitv of works and for providing independent testing facilities to both the contractorand the consultants, field materials testing laboratories were initiated in December, 1991 for a period of oneX ear initiallv. Aftenvards, an extension of two vears w as also awarded for services upto December. 1994. Forthis period. the staff services were charged to TSP loan and the actual laboratory fees were chargeable to thecontractors through the running bills.

The consultants were instructed to base the equipment at such locations, from where it wvas convenient toexercise the quality control program for all MBRP and RSP projects scattered all over the national highwvaynet\ork. Initiallv. Iaboratories at followsing stations were established.

* Quetta (Balochistan) * D.G.Khan (Punjab) * Hderabad (Sindh)Ravalpindi (Punjab) Lahore (Punjab) * Bahawalpur (Punjab)

The execution of MBRP/RSP projects was strengthened by frequent check testing of construction materials,thcrcbv upgrading the construction sklls of the contractors and valued works. In addition, these laboratoriesalso aided in irmprovement of the know-how and technical capabilities of staff. whether it be from client.consultant or contractor.

Local Resident EngineersIn the four provinces. four (04) Resident Engineers(R.E) were engaged to supervise the works in eachprovince. Their services engaged in May. 1991 and after the completion of a rrmajor portion of projects i.e.first three rounds of MBRP and RSP projects. were terminated in December, 1994. After that pericd, theNHA field staff consisting of Deputy Directors, Assistant Directors and Inspectors supervised the works. Forsome of structural contracts, consisting of piled foundations and prestressed girders, local consultants wvereengaged on case to case basis, in order to assist the NHA field staff. The services of all these consultants werecharged to Technical Assistance component of the loan.

TSP Loan Final Repor

CHA PTR 3 - .

3.1 TECHNICAL ASSISTANCE AS MANAGEMENT CONSULTANT

During the implementation of the Highway Maintenance Improvement Program, it became very apparent thatthe deferred maintenance on sections of the national highway network had to be the subject of an extensivereconstruction. re-strengthening and rehabilitation works program.

The maintenance improvement consultants had identified each and every section that was beyondmaintenance through the application of the Maintenance Intervention level system (MIL). This identificationprocess had become very necessary when it w as apparent that insufficient maintenance allocations wererendered far less effective by being utilized more and more for necessary, new or reconstruction works.Consequently, the quantum of deferred maintenance increased manifold w,ith increasing kilometers of suchsections which were bevond maintenance scope of works.

The management of the program was under a separate combined team of consultants (both foreign and local)with NI-A key project staff. The team and programn was coordinated under the nominated incharge of NHA

The staff organization chart of NHA management team. responsible for execution of MfBRP/RSP projects isplaced at Anncxurc IV. The staff organization chart of primary consultant Ni/s Karmpsax Intemational A/S isplaced at Annexure V.

ObiectivesTIhe objectives of the Management Consultants was to give effect to the NHA desire to carrv out a one-timeprogram of reconstruction. rehabilitation. resurfacing and strengthening of those sections of nationalhimhwaavs. that are deteriorated beyond ordinary or periodic maintenance by:

a) Utilizing the currently pre-qualified indigenous NHA contractors to carry out all * orks ofreconstruction and rehabilitation identified as part of the MBRP and RSP package.

b) Ensuring that the local contractors perform satisfactorilv and increase their capabilities byplacing all the smnaller localized works in an overall contract package under the control andresponsibility of principal consultant. M/S Karnpsax International A/S.

c) Identif.ing all the sections for the program on a yearly basis using the MBRP/RSPprioritization study recommendations as a guideline to select links for detailed analysis andthen using accepted pavement evaluation techniques, including the NMIL svsterm, to identifyspecific works and calculating the Benefit/Cost ratio of these. works.

d) Ensuring that the necessarv field organization is in place at the end of the reconstructionphase to carrv out the normal routine and periodic naintenance program which will enableNHA to maintain the rehabilitated sections in the new re-built condition.

3.2 MANAGEMENT CONSULTANTS WORKS PROGRAM

Consultants services were confined to the following activities.

Phase I -Construction Contract'Startup.* Review the Contractor's work schedule and planned activities for conformance with the NHA's objectives

and propose revisions as required.

TSP Loan Final Report

* Review contractor's prepared lists of proposed plant sites, disposal sites, storage sites, site offices,facilities to be provided for the local contractor, Adminisaion Consultants' staff and the narnes andcontractor information of the local Sub-Contractor staff responsible for each site. Propose revisions asnecessary.

* Review the Contractor supplied laboratory facilities to determiine their capability to carry out thespecified mnaterials testing requiremnents. Propose revisions as necessary.

* Prepare an overatl construction supervision program outlining staff designations, lines of responsibility.reporting procedures and duties of all NTHA local Consultant and Management Consultant staff involvedin the program.

Phase 11 - Construction Supervision* Assist the local Contractor Administration Consultants in developing procedures for checking the

contractors' setting out of the wvorks

* Review and evaluate the local Contract Administration Consultants' procedures and performance interms of the requirements of the contract specifications and accepted engineering practices forconstruction supervision. quality control testing and contract administration of civil and highwayengineering cworks.

Provide sufficient financial and phvsical progress monitoring and controls through reporting procedureswhich follow accepted practices for civil and highw-ay engineering Nvorks.

Phase III - Planning of Succeeding Years Proeram* Assist NHA in selecting network links of detailed review based on the priorities established in the

MBRPIRSP Prioritization Study. distribution of work within the country. viable contract packages andother ongoing road and structure rehabilitation program.

* Assist the PMU cell of the NHA in planning and executing a pavement evaluation study of all links to beincluded in the subsequent sear's priorities.

* Assist NI-HA in the preparation and evaluation of a planned program of works for the subsequent years.based on the pavement evaluation study data and accepted pavement evaluation and analvsis techniquesincluding the MIL system.

TSP Loan Final Report

r .; i --- i -i. -...... --; --:-: --....... -.- --; -i .---;i-i.i -i--- -. .....CHPTER 4`-~~_- .. . . .--. NV4.

4.1 JUSTIFICATION OF PROJECTS

For the RSP and MBRP projects, the econornic analysis focused mnainly on the benefits accrued to the roaduser in terms of reduction in vehicle operatng costs (VOC) and travel timne For thiis purpose, in the initialstudv. a number of documents were used as reference which included the JICA Study (Japanese IntemationalCooperation Agency) of 1983, VOC Tables published by NTRC(National Transport Research Center) from1979 to 1986: and JICA Studc of 1988.

For calculation of VOC. the subroutine from the third version of World Bank Highway Design andMNlaintenance model (HDM-III) was used. For the purpose of conformity of various features of I)ID-IIImodel. the composition of traffic -was armended to conform to the existing traffic patterns in Pakistan. Thevehicles were divided into Light. Medium and Heavy categories. For the other components i.e. vehicle load,utilization, interest rate and value of passenger time were based on the JICA study of 1988.

For development of road maintenance costs, the findings of Kampsax were used to define the four categoriesto calculate the cost of upgrading each category . These categories have been explained in section 2.2 earlier.Tihese are again described delow.

C;ite<-orN Any seg,nent of road vith a surface roughness value exceeding 5000 mm/Krn and vith potholes/patches < 15%. butothernise in good condition. Pavement condition Index (PCI) = 40 to 49.CatC'_9o 2.Am segment of road meeting the requirements of category 1. but ixith potholes and/or patches exceeding 15% andbelow 60% (15 - 60 %) of Lhe roadway surface area. Palveent condition Index PCI = 50 to 59.Ctezonr3Any segment of road where the roadway surface area is more than 60% cracked and the surface is beginning todisintcgrate. Pmaement condlition Inldex PCI = 60 to 69.Citc,_ory 4Ain segment of the road wNhere a paved road-'ay surface is nonexistent or is in an advanced state of disintegration.Pmvemient condition Indleex PCI 70.

Thle analvsis investment period was set at ten years and salvage values calculated for this period. Forprnoritization of roadway links, a two step process was followed.

First step: Economnic analysis of each segment was done to calculate the reduction in VOCresulting due to the upgrading of that segmnent. The primary criterion used to prioritize the segmentwvas that of Beneftt/Cost ratio. In addition, Internal Rate of Return alRR) w-as also calculated but,was given the secondary criteria status. For calculation of B/C ratio and IRR, 10 vear analyvsisperiod and 14% interest rate wNas used.

Second Step: Non-economic factors were used to indicate the importance of highway links. Thesefactors mainly reflect the relative importance of a road segment and are given below.

* Travel desire lines and trends:* lntemational links for trade:* Access to major communities:* Benefits by improving the geometry and safety of roads e.g. vvider shoulders.

TSP Loan Final Repon

Both of these steps were used for ranking of highNways without breaking the highways into links. Table 4.1(below) shows the links on national highways determiined to be most economical for consideration in MBRPand RSP projects with B/C ratios exceeding 1.5 or more.

Recommended Ranlirie of Hi2hwav Links

Combined Highway Link Economic OtherRanking Ranldng Factors

I __________ __________ _______________ __________ R ankingI N-5 Km 0 to 1698 2 I

2 N-25 Km 0 to 740 1.8 2

3 N-55 Krn to 178 3 5

4 N-70 Km 0 to 115 4 8

5 N-55 Km 936 co 1253 5 5

6 N-65 Km 0 to 380 6 5

7 N-50 Km 0 to 161 7 5

8 N-40 Km O to 78 10 4

9 N-55 Km 717 to 795 9 5

to N-SO Km 463 to 528 11 5

11 N-55 Km 178 to 445 12 5

12 N-70 Km 360 to 430 13 8

Table 4.1

4.2 PROJECTS DETAILS WITH FINANCIAL STATUS

The activities in the 59 Resurfacing and Strengthening Program (RSP) contracts - 34 Nlaintenance BacklogReduction Program (iMfBRP) contracts - and 17 contracts for 1992 Flood Restoration Project are detailedas per Annexures 1. 11 & III.

Summary(cis on June 30. 1997)

All RSP Contracts Rs. 890.762 Million

All MfBRP Contracts R: s 2,839.-83 MVillion

All 1992 - FDRP Contracts PRs. 148.234 iAlfllion

Total Rs. 3,878.234 ?r'illion

TSP Loan Final Report

RSP Proiects

A total of 59 projects were awarded under RSP package initially and were prepared in three phases. Later,due to availabilitv of Pakistan Rupee component resulting from devaluation of Rupee against US dollar, twofurther rounds of contracts were awarded. as per following details

Round Total Cost RemarksContracts (Rs. Million)

Round 1 17 297.554 14 contracts completed. 3 contracts terminated.Round II 18 284.600 17 contracts completed. I contract terminated.Round III 10 167.461 10 contracts completed.Round 111-A 9 41.231 9 contracts completed.Round IV 5 99.916 5 contracts awarded and work is ongoing.

Total 59 890.762

The details are all rounds of RSP are placed at Annexure I.

NIBRP Proiects

A total of 32 projects were awarded under MBRP package and were prepared in three phases. Of these, twocontracts \were tendered internationally and wNere underaken by international contractors. The details areattached belo.-

Round Total Cost RemarksI_____________ LContracts (Rs. Million) LRound I 1 83.901 9 contracts completed. I contract terminated.[ourld 11 _ 200.189 9 contracts completed.| Round III I 1l 214.555 3 contracts completed and work is ongoing on 8

l l l l ~~~~~~~~~~~contracts._ICB Contracts 2 2.340.838 Both contracts completed.

Total 32 2,839.483

The details are all rounds of 19LBRP are placed at Annexure II.

1992 - Flood Damaaes Restoration Proiects - TSP Loan Utilisation

During the seasonal monsoon rains of 1992. Pakistan experienced exceptionally heavv rains resulting inw\idespread floods all over the countrv. Tnis flood peak resulted in considerable loss to crops, life, roadinfrastructure and public property. National Highway Authority immediatelv launched highway restorationprogrammes to repair the damaged sections of national network.

After the floods. the Govemment of Pakistan was also assisted by donor agencies for financing ofrehabilitation schemes, under separate loan agreements from IDA and Asian development bank (ADB). Theretroactive period for these loan financed projects was fixed as September 10, 1992. Some of theexpenditures on the national highways were incurred iumediately after the 1992 rains and fell out of the loaneffective period. It wmas, thus. agreed by the World Bank that these expenditures can be financed through on-going loan agreement TSP LN-324 1.

For this purpose. 17 projects wvere included in RSP and 2 projects(comprising of 3 bridges) were included iniNIBRP scheme. The summnarv of these projects is given below and details are placed in Annexure Ill.

TSP Loan FLnal Reporf

Description No. of CostContracts (Rs NMillion)

1992 - FDRP Schernes financed under RSP 17 39.045

1992 - FDRP Schernes financed under MBRP 2 109.189

Total 19 148.234

PROJECT STATUS

The funancial status of civil works for MBRP. RSP and 1992 - FDRP contracts is attached at Annexure VI.

FINANCIAL STATUS

The financial status of MBRP and RSP contracts including the civil works, claims submitted,reimbursements in US dollars along with allocation for technical assistance and committed funds is attachedat Annexure VII.

LOAN UTILIZATION

a) Original loan amount : US $ 77.5 Million

Additional from Railway Component US $ 11.5 MillionTotal . US S 89.0 Miflion i

b) Loan Utilized upto 30.06.1997 US5 79.53 Million

c) Perccntage Utilized : 89.4 %

d) Allocation for 5th Highw%ay Project US S 2.10 Million

c) Allocation for Equipment : US S 1.13 Million

4.3 IMPACT & ACHIEVEMENT OF MBRP/RSP PROJECTS

The main essence of formulating a project of road rehabilitation was to bring the national highway network tothe as-built condition, so that the recurrent maintenance are rendered effective and wvithin the financialcapability of INHA. On the other hand, the road user benefits will occur, which include savings in VOCs,increase in cargo. passenger and traffic safet and saving in travel time of the road user.

Another main impact of NMBRP/RSP project has been employment generation. Except for two majorInternational ICB contracts, all contracts under MBRP and RSP schemes were implemented through localcontractors of medium to high repute and capability.

As the contracts were both machinery operated as well as labor intensive, this resulted in direct impact oncreation of job opportunities. The overall impact of raising the standards of contracting industrv isappreciable. as can be seen from the development of contracting industr, in far flung areas of Pakistan as N-40. N-O0 etc.

TSP Loan Final Report

The physical achievements under the RSP and MBRP programs have been substantial. Of the 392.5kilometers of the national highways in the four provinces included in the RSP program, about 384.5kilometers have been repaired and strengthened. A total of 59 RSP contracts have been awvarded andcompleted. The costlkm of the RSP program is estimated at about Rs. 2.01 million. The details of lengdh ofroad improved in RSP contracts is attached in Annexure Vm, including the route-wise and province-wisebreakdown.

30 minor MBRP (LCB) contracts for about I1 kilometer pavernent plus several bridges with an estimatedcompletion cost of about Rs. 498.6 million have been awarded and are now 82% complete. All II1 km ofroads in the minor MBRP program have been rehabilitated by June 30, 1996 at a cost/lan estimated to beabout Rs. 2.15 million. Rehabilitation of 16 drainaae related structures . mostly bridges of medium size hasbeen completed.

2 maior NIvBRP (ICB) contracts for reconstruction and nexv construction of about 190 kilometer pavementith an estimated completion cost of about Rs. 23 40 million have been awarded and are now 100% complete.

All 190 km of roads in the major ICB MBRP program have been rehabilitated by June 30, 1996 at a costlanestimated to be about Rs. 12.30 million. The details of length of road improved and structures improved orrehabilitated in MIBRP contracts is attached in Annexure [X. including the route-wise and province-wisebreakdown.

T'he impact of the RSP and MBRP projects has been significant in saving and extending the life of badlvdeteriorated sections of national highway pavements and in reducing road transport costs. In Punjab-South,%%here the existing single carriage-way wvith daily traffic of some 9.000 vehicles were on the point of totalfailure. under the RSP the existing pavement was strengthened and can be overlaid and further strengthenedwith Asphaltic Concrete when the bearing capacity and strength of the pavement has been much improved.The completed MERP bridges on the N-5 in Punjab North have increased road capacity and improved roadsafety.

Since the RSP and minor NIBRP contracts were done by local contractor. the project has given aconsiderable boost to the development of the domestic contracting industry. It has also helped in raising theconstruction standards. and familiarization wsith internationally accepted contracts conditions and materialspecifications.

Annexure I

Details of RSP Contracts

RSP Round I Contracts*__________ _ June, 1

Contract No. Route Reaches Contractor Contract Completion Payment Date of Original Revised

No. Km/Km Amount Cost Todate Award Date of Date of RemarO(Rs) (Rs) (Rs) Completion Completion

RSP 7101 N-5 1291/1298 M/s Moderate Builders 11.208,544,00 43.916,498.78 43,916.498.78 04-07-91 25-07-92 31-12-93 Complet

RSP 7102 N-5 1307/1320 M/s Khalid Rauf & Co. 18,196,600.00 67,598,158.35 67.598.158.35 15-05-91 05-06-92 20-07-93 Complet

RSP 7103 N-5 1550/1565 M/s Sadduilah Khan & Bros. 17,698,950.00 20.482,470.34 20,482.470.34 15-05-91 30-04-92 30-04-93 Complet,

RSP 7104 N-5 982/1006 M/s Sarwar & Co. 11,537,000.00 3,054,298.66 3,054.298.66 11-04-91 30-04-92 Terminati

1045/1063 _

RSP 7105 N-5 205/215 M/s Sachal Engg. 11,405,892.00 18.445,617.22 18,445,617.22 15-05-91 05-06-92 30-06-92 Complelt

RSP 7106 N-5 215/220 M/s Altaf Hussain Bhughio 5.385,200.00 6,390,233.00 6,390,233.00 07-05-91 27-05-92 27-05-92 Complet

RSP 7107 N-5 240/245 M/s Nek Mohd. & Co. 5,782,740.00 6,304,204.50 6.304,204.50 15-05-91 04-06-92 04-06-92 CompletE

RSP 7109 N-55 4/19 M/s Al-Hussainy 9,954.428.00 7,074.760.35 7,074,760.35 20-05-91 10-06-92 . Terminat8

RSP 7109T N-55 4/19 M/s Niaz Mohd, & Co. 12,768,677.00 10,642,246.40 10,642,246.40 17-02-92 06-06-92 30-06-93 Completr

RSP 7110 N-65 10/25 M/s Qalandri Const. 8,013,540.00 2,576,308.60 2,576.308.60 07-05-91 28-05-92 Terminate

RSP 7111 N-25 690/708 M/s Qasim Khan 11.004,750.00 12,325,935.45 12,325.935.45 27-04-91 16-04-92 30-06-93 Complete

RSP 7112 N-65 350/380 M/s Liaqat Ali Kurd 12,966,440.00 8,118,553,60 8,118,553.60 19-05-91 10-06-92 31-12-93 Complelt

RSP 7113 N-40 190/200 M/s Bashir Ahmed 4,835,100.00 10,879,524.51 10,879,524.51 11-04-91 01-05-92 30-10-92 Completr

RSP 7114 N-40 200/230 M/s Rakshani Builders 7,129,800.00 18,868,829.01 18,868,829.01 09-05-91 30-05-92 30-04-93 Complete

RSP 7115 N-40 230/240 M/s Haii Wadera Yaqoob 4,966.400.00 4,644,944.09 4,644.944.09 05-05-91 26-05-92 25-07-92 Complete

RSP 7116 N-50 485/531 M/s Gul Const. Co. 14,732,080.00 21,494,390.48 21,494,390.48 15-05-91 06-06-92 04-09-92 Complele

RSP 7117 N-55 914/926 M/s Mian Nisar Gul 16,819,660.00 34,737,154.11 34,737,154.11 15-05-91 06-06-92 04-09-92 Complete

TOTAL (Rs) 184 405,801.00 297,554,127.45 297,554,127.45

RSPROUND.wq I

RSP Round 11 ContractsJune, 19'

Contract No. Route Reaches Contractor Contract Complet on Payment Date of Original RevisedNo. Km/Km Amount Cost Todate Award Date of Date of Remarks

(RAs) (Rs) (Rs) Completion Completion

RSP 7108 N-5 457-483 M/S IMAM BUX AND CO 24.698,129.00 28,183,927.80 28,183,927.80 22-6-92 13-07-93 10-05-94 Completec

RSP 7119 N-5 1670-1690 M/S NASRULLAH JAN & INAMUL 12,381,528.00 13.372,283.00 13,372,283.00 23-05-92 22-05-93 30-04-94 Completed

RSP 7123A N-5 563-585 M/S ANWAR & CO. 15.925,370.00 14,013.260.90 14,013.260.90 02-12-93 23-06-94 23-06-94 Completed

RSP 7123B N-5 585-606 M/S ABDUL HAFEEZ AND CO 34,083,178.00 38.201,318.57 38,201.318.57 22-09-93 13-04-94 30-06-94 Completed

RSP 7124 N-5 608-940 M/S ZAKRIA CONST, 12,577,407.00 1,189,540.00 1,189,540.00 26-04-92 30-05-93 30-05-93 Terminated

RSP 7124T N-5 608-940 M/S RAZA AND CO. 13,298.855.00 13,751.238.13 13,751,238.13 28-04-93 31-12-93 31-12-93 Completed

RSP 7125 N-5 735-745 M/S FARAN ENTERPRISES 12.146,830.00 11,240,330.39 11,240,330.39 18-10-92 31-12-93 11-04-94 Completed

RSP 7126A N-50 28-46 M/S HAJI NOOR MOHD. 8,886,169.00 8.165,831.66 8,165,831.66 28-06-93 09-04-94 20-08-94 Completed

RSP 7126B N-50 59-93 M/S HAJI ASMATULLAH 14,796,285.00 14.536,322.00 14,536,322.00 25-04-93 09-04-94 31-10-94 Completed

RSP 7126C N-50 132-162 M/S GULLA KHAN 15,096,159.00 17,008,407.80 17,008,407.80 17-04-93 09-04-94 30-08-94 Completed

RSP 7127 N-55 1101 M/S SAJJAD AND CO. 5,243,098.00 7.527,081.00 7,527,081.00 30-08-92 29-08-93 29-11-93 Completed

RSP7128 N-55 1121 M/SSAJJADANDCO. 17.043,530.00 18,959,618.20 18,959,618.20 11-10-93 31-07-94 31-12-94 Completec

RSP 7129 N-65 270-350 M/S AHMED JAN BANGELZAI 8,758,502.00 7,824,199.08 7,824,199.08 18-10-92 18-10-93 18-10-93 Completec

RSP 7130 N-65 72 M/S SH.HAJI ALI MOHD. 2.920.500.00 3,504,637.50 3,504,637.50 29-11-93 20-09-93 15-12-93 Complelec

RSP 7133 N 70 89-92 M/S NAWAZ AND CO. 15,175,966.00 13,463,630.09 13.463,630.09 04-08-91 31-10-92 30-10-92 Completec

RSP 7136 N-5 708-725 M/S ITTEHAD ENTERPRISES 37,257,056.00 41.137,955.35 41.137,955.35 02-11-92 01-11-93 31-12-94 Completec

RSP 7137 N-5 580-603 M/S ABDUL SATTAR BAHIO 28,223.334.00 23,620,233 10 23,620,233.10 26-04-93 24-04-94 15-07-94 Completec

RSP 7139 N-50 28-160 M/S MUNAWAR KHAN JOGEZAI 9.996.288.00 8,900,528,10 8,900,528.10 03-10-92 31-12-93 31-12-93 Completec

TOTAL (Rs) 288,508,184.00 284,600,342.67 284,600,342.67 ___

RSPROUND.wql

RSP Round III ContractsJune, 19!

Contract No. Route Reaches Contract Completion Payment Date of Original RevisedNo. Km/Km Contractor Amount Cost Todale Award Date of Date of Remarks

(Rs) (Rs) (Rs) Completion Completion

RSP 7111A N-25 712-724 M/S QASIM KHAN 19,694.449,00 19,653,392.00 19,653,392.90 11-11-93 15-06-94 15-06-94 Complew

RSP 7130A N-65 72 M/S SH. HAJI ALI MOHAMMAD. 3,100,523.00 5,334,249.89 5,334,249.89 23-11-94 14-04-94 14-07-94 Complewe

RSP 7131A N-65 355-360 M/S ABDUL KARIM MENGAL 9,644.542.00 9,602,223.00 9,602,223.00 29-01-94 16-01-95 16-01-95 Complete(

RSP 7131B N-65 360-365 M/S ABDUL HAMEED BANGELZA 12,553,842.00 12,553,811.00 12,553,811.00 29-01-94 28-12-94 28-12-94 Complete(

RSP 7131C N-65 365-370 M/S LIAQAT ALI KURD 12,108,772.00 13,537,186.50 13,537,186.50 27-06-94 18-01-95 18-01-95 Complete(

RSP 7140 N-5 768-778 M/S HUSSANI CONSTRUCTION 33,884.280.00 27,165.101.69 27,165,101.69 02-02-94 22-10-94 30-09-96 Complete(

RSP 7141 N-5 725-735 M/S NADEEM & CO. 28,550.957.22 28,550,957.22 28,550,957.22 21-02-94 12-12-94 30-06-96 Completec

RSP 7142 N-5 639-643 M/S NASEER AHMED 11,822,947.00 11,822.947.00 11.822,947.00 02-02-94 23-08-94 31-12-94 Complete(

RSP 7143A N-70 121-130 M/S HABIB CONSTRUCTION CO. 18.939,147.43 19,106,943.43 19,106.943.43 20-02-94 12-09-94 30-06-96 Completec

RSP 7143B N-70 130-138 M/S MOHAMMAD NAWAZ 20,133,716.45 20,133,716.45 20,133,716.45 02-02-94 23-10-94 30-06-96 Completec

TOTAL (Rs) 170,433,176.10 167,460,528.18 167,460,529.08

RSPROUND.wql

RSP Round lll-A ContractsJune, 11

Contract No. Route Reaches Contract Completion Payment Date of Original RevisedNo. Km/Km Contractor Amount Cost Todate Award Date of Date of Remark

(Rs) (Rs) (Rs) Complelion Completion

RSP 7148 N-55 1108-1117 M/S MOHD. SULEMAN _ BROS. 9,405,680.00 8,755,09 85 8,755,099.85 25-12-94 24-06-95 . Complete

RSP 7151A N-5 1540-1565 M/S J & F CONST. CO. 3.045.230.00 3.045,230.00 3,278,237.90 28-12-94 28-05-95 30-06-96 Complelt

RSP 71518 N-5 1570-1578 M/S HIGHWAY CONSTRUCTION 3.037.530.00 3,317,566.30 3,317,566.30 28-12-94 28-05-95 30-06-96 Complete

RSP 7151C N-5 1578-1580 M/S TAMOOR SHAH CONST. CO. 4,524.110 00 4,588.333.00 4,588.333.00 28-12-94 28-05-95 30-06-96 Complete

RSP 7151D N-5 1581-1590 M/S MALIK MOHD. IOBAL & CO. 3,955,362.80 3,955,362.80 3,955,362.80 28-12-94 28-05-95 30-06-96 Complete

RSP 7151E N-35 80-104 M/S SAJJAD & CO. 4.183,978.00 4,805,667.72 4,805,667.72 17-01-95 16-07-95 Complete

RSP 7151F N-35 104-115 MS/ OALANDAR KHAN LODIll 3.350,600.00 3,723.047.59 3,723,047.59 17-01-95 16-07-95 Complete

RSP 7166 N-5 1585-1588 M/S FARAI-i TRADERS 5,462,099.89 6,110,893 00 6.110,893.00 18-07-95 17-01-96 30-06-96 Complete

ARSP 7167 N-5 1599-1630 M/s CONST. PROFESSIONALS 2,929,545.27 2,929,545.27 2,351,069.45 18-07-95 17-12-95 30-06-96 Complele

TOTAL (Rs) 39,894,135.96 41,230745.53 40,885,277.61

RSPROUND.wq1

RSP Round IV Contracts

June, 1'Contract No. Route Reaches Contract Completion Payment Date of Original RevisedNo. Km/Km Contractor Amount Cost Todate Award Date of Date of Remarki(Rs) (Rs) (Rs) Completion Completlon ProgrestRSP 7161 N-65 370-378.9 M/s AL-SARWAR JAN ENT. 25,837,647.55 25,837.647.55 8.749,780.00 28-09-95 27-05-96 01-10-96 65RSP 7162A N-65 248-250 M/s HAJI NOORULLAH BALOCH 15.788,274.24 15.788,274.24 14,118,409.00 28-09-95 27-05-96 01-10-96 CompleteRSP 7162B N-65 237-241.5 M/s ABDUL HAKIM BROHI 13.832,607.21 13.832,607.21 11.004,154.00 28-09-95 27-05-96 Q1-10-96 CompleteRSP 7165A N-65 188-194 M/s A.K.B CONST. CO. 26,805.813.03 26.805,813.03 11,307,794.00 08-11-95 07-08-96 01-10-96 60ASP 7165B N-65 194-200 M/s HAJI HASSAN KHAN 17,651,963.87 17,651,963.87 8,769,993.00 28-09-95 27-05-96 01-10-96 60

TOTAL (Rs) 99S916 305.90 99,916,305 90 53,950,130.00 . . --

RSPROUND.wq 1

Annexure II

Details of MBRP Contracts

MBRP ROUND I CONTRACTS

JuContract Route Reaches Contract Completion Payment Date of Original Revisod

No. No. Km-Km Contractor Amount Cost Todate Award Date of Date of R(Rs) (Rs) (RA) Completion Completion

MBRP 7002A N-25 0-320 M/s AL-SARWAR JAN 17,571,858.00 16,259.239,64 , 16,259.239,64 05-08-91 26-08-92 30-03-93 Co

MBRP 70028 N-25 320-550 M/s FATEH MOHAMMAD 7,570,632.00 3.263,934.00 3,263.934.64 06-10-91 27-10-92 . Ter

MBRP 7003A N-35 78-142 M/s HAKAS 33.472,034.00 27,879,869.59 27,879.869.59 22-09-91 12-10-92 15-03.93 Co.

MBRP 7003B N-35 80-180 M/s HAKIM SONS 7,728,340.00 8,859.78000 8,855,970.68 15-11-91 09-11-92 14-11-92 Co

MBRP 7035A N-25 117-165 M/s SHAM LAL 6,383,900.00 6,986.827 75 6,986.827.75 15-08-91 22-07-92 24-07-92 Coi

MBRP 70358 N-25 234-335 M/s KORA KHAN 6,205,465.00 1,603.426.50 1,603,426.50 15-08-91 22-07-92 24-07-92 Cor

MBRP 70350 N-25 385-467 M/s SADATZEHRI 5,761,750.00 4,656,312.55 4,656,312.55 15-08-91 22-07-92 24-07-92 Cor

MBRP 7035E N-25 467-552 M/s TAJ BROTHERS 5.949,000.00 6,365,807.20 6,365,807.20 15-08-91 22-07-92 24-07-92 Cor

MBRP 703SF N-25 552-610 M/s HAMEED BANGALZAI 5,877,800.00 3,473,762.72 3,473,762,72 15-08-91 22-07-92 24-07-92 Cor

MBRP7035G N-25 610-675 M/s RAKHSHANI BUILDERS 5,768,000.00 4,552,128.22 4 552,128,22 .15-08-91 22-07-92 01-08-92 Cor

TOTAL (Rs) 102,2888779.00 83,901,088,17 83,897.279.49

MBRROUND.WQI

MBRP ROUND II CONTRACTS (LCB)

JulContract Route Reaches Contract Completion Payment Date of Original Revised

No. No. Km-Km Contractor Amount Cost Todate Award Date of Date of Re

(Rs) (Rs) (Rs) Completion Completion

MBRP 7004A N-5 1100-1130 M/s STRONG BUILT ENT 6,021.630.00 6,28840874 6,288,408.74 07-08-93 28-02-94 28-01-94 Cor

MBRP 7006 N-35 93-160 M/s HUSNAIN CONST. CO. 53,223,864 00 57,785.319 19 57.785,319 19 21-05-93 11-06-94 30-04-95 Cor

MBRP 7006A N-35 84-160 M/s MALIK IOBAL 8,750,140.00 10.169.462 63 10.169,462 63 18-05-93 08-06-94 07-06-94 Cor

MBRP 7011 N-5(SB) 1555-1565 M/s GHULAM RASOOL 30,615,854.00 23,962 425 50 23.962.425 50 23-11-92 31-12-93 30-06-93 Cor

MBRP 7011A N-5(SB) 1562 M/s HAKIM SONS Pvt. Ltd. 1,923,407.00 1.808.11032 1.80811032 23-11-91 13-01-92 28-02-92 Cor

MBRP 7011B N-5(SB) 1555-1565 M/s NAZIR & CO. 630,000 00 634.671.00 634.671 00 24-08-92 14-09.92 31-10-92 Con

MBRP7012 N-5(NB) 1570-1585 M/s KHOKHAR BORS. 48.607.03400 55.876.20300 58711 66900 09-11-92 08-07-93 31-03-96 Con

MBRP 7013 N-5(NB) 1585-1590 M/s HAIDER CONST. CO 16.349,007 00 16,349.007 00 12,757,725 85 18-10-92 07-05-93 29-02-96 Con

MBRP 7014 N-5 275-292 M/s NAIK MOHAMMAD 28,903,430.00 27,315.342 09 27,315.342 09 05-06-93 26-12-93 03-01-94 Con

TOTAL (Rs) [ 195,024,366.00 200,188,949.47 199,433,134.32

MBRP ROUND II CONTRACTS (ICB)

Jurf Contract Route Reaches Contract Completion Payment Date of Original RevisedNo. No. Km-Km Contractor Amount Cost Todate Award Datr. of Date of Rai

(Rs) (Rs) ___s) Completion Completion

MBRP 7004 N-5 1100-1130 M/sE.C.LC 469,662,436.00 493,837,85700 493,837,857.00 19-07-92 19-07-94 01-10-96 Con

MBRP 7005 N 25 325-485 M/sJ& P (0) Ltd. 588,906,546.00 1,847,000 000 00 1,720,551.410.00 16-10-92 07-11-94 30-03-97 Con

i _ _ _ _ _ _ _ _ _ _ _ ,__ _ .__ _ ._ _______TOTAL (Ra) 1,058,568,982.00 2,340,837,857.00 2,214.369,267.00

MBRROUND.W01

MBRP ROUND III CONTRACTS

JunrContract Route Reaches Contract Completion Payment Date of Original Revised

No. No. Km-Km Contractor Amount Cost Todate Award Date of Date of Rer

___________ (Rs) (Rs) (Rs) Completion Completion

MBRP 7016 N-5 1282/2 M/s SHIABDUR RAZZAQ & CO. 19,998,230.00 19,998,230.00 19,014,466.00 18-07-95 17-07-96 01-09-96 On-

MBRP 7017 N-55 115611 Mls MIAN NISAR & CO. 2.991,870.00 2.991,870.00 2,991,870.00 28-12-94 27-06-95 01-09-96 Con

MBRP 7018 N-5 1192/2 M/s GUL2AR CONST. CO 22,851,560 00 22,851.560 00 12,400,164.00 19-09-95 18-06-96 01-10-96 6

MBRP 7019 N-5 1273/2 M/s DHANI BUILDERS 13,446,360.00 13,446,360.00 12,362,756.00 26-09-95 25-06-96 01-10-96 7

MBRP 7020 N-5 1291/3 Mis GHULAM HABIB CONST.C 7.338,034.00 7,338,034.00 3.691,559.85 21-06-95 20-03-96 30-06-96 9

MBRP 7021 N-5 1611/2 M/s MIAN NISAR & CO. 2,259,760.00 2,259,760 00 2,979,681.00 07-12-95 07-05-96 30-06-96 Con

MBRP 7022 N-5 1667 M/s NAJEEB ULLAH KHAN 2,020,350.00 2.020.350.00 310,000 00 28-09-95 27-03-96 30-06-96 Con

MBRP 7025 N-70 92 M/s ASIF CONST. CO. 27,406,386.00 27,406,386.00 6,496.572.00 16-10-95 15-10-96 15-10-96 e

MBRP 7026 N-40 88 Mis AGHA MOHD. & BROTHER 11,244,299.56 11,244,299.56 5.595,308.00 16-02-96 15-09-96 15-09-96 e

| MBRP 7052 N-65 325 M/s HIGHWAY BRIDGES & CO 37,064,262.00 34,138.000 00 47,789,520.00 14-06-95 05-07-96 01-10-96 9

MBRP 7144 N-25 675-681.2 Mls QASIM KHAN 70.860.350.42 70.860,350 42 33,9068732.00 15-05-95 15-06-96 01-10-6 On

___________ TOTAL (Rs) 217,481,461.98 . 214,555,199.98 149,538, 628.85

MBRROUND.WQ1

List of 1992 Flood Damages Projects

a) RSP Schemes

S., Contract Route Location Contractor Contract Completion RemarksNo: No. No. Km - Km Cost Cost

Million Rs. Million Rs.

I EMS-1 1 1 N - 5 325-333 M/S NAIK MUHAMMAD 4.780 4.458 Completed

2 EMS-1 12 N - 5 333.3-334 M/S KHAIR MUHAMMAD 2.681 2.520 Completed

3 EMS-1 13 N - 5 340.6-343 M/S MUNIR SHAIKH 8.440 8.419 Completed

4 EMS-1 14 N - 5 347.4-348 M/S JAGIRANI 3.335 3.153 Completed

5 EMS-1 15 N - 5 348.5-352 M/S ATTA MUHAMMAD 3.148 3.144 Completed

6 EMS-1 16 N - 5 356.9-357 M/S MUNIR SHAIKH 0.826 0.692 Completed

7 EMS-1 17 N - 55 20-133 M/S MUNIR SHAIKH 3.187 2.922 Completed

8 EMS-1 18 N - 55 26 2-54 M/S OAMIR-UL-DIN 0.651 0 614 Completed

9 EMS-1 19 N - 55 49 M/S QAMIR-UL-DIN 0.239 0.107 Completed

10 EMS-120 N - 55 155-182 8 M/S QAMIR-UL-DIN 0.504 0.464 Completed

11 FD-102 N - 25 15-220 MIS SHAMLAL 5.460 5.520 Completed

12 FD-103 N - 25 73-74/145-155 M/S S,M.C CONST.CO 4.220 4.216 Completed

13 FD-104 N - 25 334-340 MIS SADAT AKHTER 0 310 0.307 Completed

14 FD-105 N - 25 363-372 M/S M.YAQOOB 0.460 0.454 Completed

15 FD-106 N -65 281-282 M/S QURBAN ENGR. 1.170 1.175 Completed

16 FD-107 N - 25 226-500 MiS M.YAQOOB 0 310 0 278 Completed

17 FD-108 N - 25 318-331 M/S HAJi ABDUL HAMEED 0.600 0.602 Completed

Total (Million Rs) 40.321 39.045

b) MBRP Schemes

S Contract Route Location Contractor Contract Completion RemarksNo. No. No. Km - Km Cost Cost

Million Rs. Million Rs.

1 FD-150 N - 65 Nari Bridge M/S S.K.B 59.246 53.849 Completed

(Km -240)

Kumbri Bridge

(Km-248)

2 FD-151 N-25 Koshak Bridge M/S SHAIKH ALI MOHD 55.717 55.340 Completed

I I I (Km-382)

Total (Million Rs) 114.963 109.189

TSPFLOOD.WQ I

Annexure - IV

NHA Project Management(MBRP/RSP)

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FINANCIAL STATUSUPTO 30th June, 1997

________ ____ __ _______ Page I of I

S. Contract Award Original . Revised Value of Value of Financial

No. . Nos. Period Contract Contract Work Remaining Status/

Amount Amount done Works Progress

(Mill. Rs) (Mill. Rs) (Mill. Rs) (Mill. Rs)

RSP Projects

I Round 1 17 1991-92 184.406 297.554 297.554 0.00 100%

2 Round il 18 1992-93 288.508 284.600 284-600 0.00 100%

3 Rouind Iti 10 1993-94 770,433 167.461 167.461 0.00 700%

4 Round III A 9 1993.94 39,894 41 231 40.885 0.35 100%

5 Rournd IV 5 1995-96 99.916 99.916 53.950 45.97 54%

6 RSP 1992-Flood 17 1992-93 40.321 39.045 39.045 0.00 100%

Total RSP (Rs. Million) 823.478 929.807 883.495 46.31 95%

MBRP (LCB) Projects

I . ARound I 10 1991-92 102.289 83.901 83.897 0.00 100%

2 Rousnd 11 9 1992-93 & 94 195.024 200.189 199.433 0.76 100%

3 Round III 11 1995-96 217.481 214.555 149.539 65.02 70%

4 flood Damages 2 1994-95 714.963 109.189 109.189 0.00 100%

Total LCB MBRP (Rs. Million) 629.757 607.834 542.058 65.7 8 89%

MBRP (ICB) Projects

t Sahiwal - Okara, N-5 (Mls ECLC) 1991-92 469.662 493.838 493.838 0.00 100%

2 Wadh - Surab, N-25 (Mls J&P) 1991-92 588.906 1847.000 1720.551 126.45 93%

Total ICB (Rs. in million) 1058.568 2340.838 22t4.389 126.45 95%

TOTAL MBRP (ICB+LCB) 1688.325 2948.672 2756.447 192.22 93%

GRAND TOTAL (MBRP & RSP) 2511.803 3878.479 3639.942 238.54 94%(Rs. in million) _ _ _ _ _

The World Bank is assisting the two programmes by Financing with a sharing portion of 640% and 20% respectively for RSP three year programme and 70% for MBRP.

PROJSTAT.WQ1

TRANSPORT SECTOR PROJECT Annexure VIl

FINANCIAL STATUS UPTO 30th JUNE, 1997A: Works Awarded

DESCRIPTION SAR BUDGET COMPLETION PAYMENTS COMMITTED Plojected ALLOCATED

IBRD Finance Table 3.1 PC-I COST (Actual) (but not yet paid) Utilisation (IBRD Loan Funds)

Total payments Rs U.S $ Possible Total amount Rs U.S $ U S $ U S $

made on all cont- Millions Escalation committed Millions

racts upto 30-06-97 G.O P IBRD as of 30-06-97 G.O.P IBRD IBRD IBAD

Rs (Millions) Rs (Millions) Rs. (Millions) Rs Million Claimed Rs (Millions)

(1) (2) (2a) (2b) (3) (4) (5) (5A) (6) (7) (8) (9) (10)

MBRP 1694 00 1489 00 2,948.672 2.756.447 885 78 65.77 311.26 503 49 407 04 6 87 72.64 72.40

($52)

a) 7004 493.838 493.838 0.00 0.00 0,00 0

b) 7005 1,847.000 1,720.551 300.00 426.45 330.00 6.87

c) Minor 607.834 542.058 11.26 77.04 77.04

RSP 1023.00 853 00 929.807 883 495 58643 7 28 15.00 61 31 61 31 7.28 8.10

($15)

Tech Assist 252 00 110 00 272.810 202.200 648 8.36 78.97 1.60 8 08 8.30

($5.50)

Equipment 4 00 7.600 7.60 1.00 1 00 0.20

($0.20)

Unailocated 96.00 0.00 0 00 |

($4 80) _

TOTALS 2969.00 2552.00 4,15e.889 3,842.142 1,474.21 79.53 334.62 651.37 468.35 9.47 89.00 89.00($77 50) 1

The sum of U.S $ 7.341 million has been recovered on account of special accountOutstanding intial deposit as of 14-06-97 U.S. $ 0.159 million

tsplil wql

TSP LOAN PROJECT (LN 3241 PAK)

Length of Roads Improved (Kilometers)

Round I

Province N-5 N-25 |N-35 N-40 N-50 N-55 j N-65 N-70 ,TotalPunjab 25 - 1 = _ 25

Sindh 20 - 20 7 - 47NWFP - - 4 30 10 -6 40Balochistan X 40() _ 6 54

Total 45 8 = 40 3 30 ____|

Round 11Province N-S N-25 N-35 N-40 N-5O N-55 N65 N-70 Ti

Punjab 20 2.5 22.5Sindh 50 - 50

NWFP 6 - 6Balochiistan - 6)0

Total 76 60 .25 =.

Rotiiid Il1 _ .

Province N-S N-25 N-35 N-40 N-50 N-55 N-65 N-70 TotalPunijab 29 16 45Sindh - | |

NWFP - --

Balociiistan -15 15

Totail 29 | - - 15

Rounid Ill-A

PProvince N-5 N-25 N-35 N-40 { N-50 N-55 N-65 N-70 D Total 11INWFP I I I I I I9 I |9 ,

Total - ' I - - I -.

Round IV

Province N-5 N-25 N-35 N-40 N-SO N-55 N-65 N-70 TotalBalochlistan 19 1 119

!Total - - (-1--I-I',i 1Ig

N-5 N-25 [ N-35 N-40 | N-50 | N-55 N-65 | N-70 | Total

Tot;{.al1j 1501 8 j ;-: -t0 4-0 j 0 3 7 1.5 325

Total Cost Rs. 791 Million (Pavement Contracts only)

Cost/Km Rs. 2.01 Mlillion/km

PHYRSP. DOC

Physical Achievement of NIBRP Proiects

A: Roads Improved

Round I

Province N-S N-25 N-35 N-40 N-50 N-55 N-65 N-70 TotalPunjab 13) 1 30NWFP - IX 18

Balochistai - I 99() 190

Total 30 190 18 - -i______1 __

Round 11

Province lN-5 N-25 N-35 N-40 N-50 N-55 N-65 N-70 TotalPunjab 3o - 30

Sindh 15 :i I 6NWFP I X 1 Balochistail I

Total 45 18 . -- - - _ - 6:I - |

Grand Total 301 Kilomiieters

Total Cost (LCB,) Rs. 239 Million (Pavements Contracts only)Total Cost (IC,) : Rs. 2,341 Million (Pavements Contracts only)

Cost/Km (LCB) Rs. 2.15 Million/Knm (111 Kms)Cost/Km (ICB) Rs. 12.30 Millioni/Km (190 Kn7m)

[B: Structur es Improved (Round T, 11 and H1I)

Province Bridges Others*Ptinjab 7 7Sindh -

NWFP 5 5Balochis.ial 2 4

Total 14 16

* Rehabilitation oJ 'Culverts ('ause,Iav s, retaining structures andi dIraining structures

Total Cost for Structtires Rs. 189 Million

PI'IYMBRI' DO)C

CROSS SECTIONN-S

KM 170+00(1 TO KM !85-(s00CONTRACT NO-M0. 7Rf 012

S H.UD E PALVE W71

i ErA._ ___ __ _ _ _ _ _ _ _ _ _ _ _

1.Item 114 dressing ai,d compacto of berjs.

2.litem 106a removal o existing AsphalL approx. 1 _ cn.

_Item 106a existino wate bound macadam approx. 12 cm to be shfiftd to th s shoulder area fo, efficient drainaje.

4. Item 106a subgrade preparation.

Item 201 Granular subbase material for carra2ewav 30 cmn thick,etss shioulders cm thick-ness com)acted in 2 cm, lavers r-o 9-%

NIDD.

6. Item 202a Cr-ushed Ag-revate base- course Class A 25. cm thickness compacted iitwo lavers to l00%c MIDID.

7. Item 3)0a Bitumious Prime Coat.

8 Item 203c, Ashaltc basel i course Class A o kb/m

6 Item 305a Asphaltic concrete weanne course Ciass A 90k/rn 2 (cFciLdire mPfiivl

TYPICAL CROSS SECTION An .SL.RSP 7140 - 7141 and 7142

SHOU -DEF PAVEM NEZ- SHDU_ DE P

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i I~~~~~~~~~~~~~~~~EX'S-HNC- RO-' S SJRrACE I EXISTINS-' ShOU -DE;7

0 0 0 0 0 0 10 !i SE E7D E I A!' Ok KC :-.L

1. Item 114b Dressing and compaction of berms

2. Item 10Bc Formation of embankment

3. Item 201 Granular subbase material for shoulders 15cm thickness compacted to 98% MDD.

4. Item 202a Crushed aggregate base course Class-A 37 cm thickness compacted in two layers to 100% MDD

5. item 302a Bituminous prime coat (non pay item)

6. Item 304c Triple surface treatment

7. Widening up to 7.7 width (2 x 75 cm) by providing granular subbase material in the extended potpavement (thickness = 30 cm).

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_______________________ ~~XN-27 - . b-71r-a>t s!; )V

.ICALAE_ ,a.L

DEWIiL ~ ~ ~ ~ ~ ~ ~ ' ' Z- t ; *^-: ;R-- <'s 1'- tE _w__

2000 3650 3650 2000 A kLl

1 50

5% 2~5% 2.5% j 5%

, _ 4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 , ,

/ 93% MOID L t M rSUB BASE (CLASSB)

Nt= 90e_ ~~~~~~BENCHING 1 4 cm A C Wearing Couse - 97% Marsha\/NATURAL GROUND 7 cm Asphaltc Base (Class B) 500

15 cm Crushed Agg. Base (Class A) -100% MOD. AASHTO

y 15cm SUBBASE (Class A) -98%Existng Pavement

30 cm SUB GRADE -95%

NotesPAVEMENT STRUCTURE_(STAGE-1) 1 EMBANKMENT TO BE WIDENED ACCORDING TO SPECIFICATIONS.

TOTAL DESIGN SUB AC. WEARING A.C BASE CRUSHED SUB EXISTING EMBANKMENT MATERIAL IS CONSIDERED SUITABLE AS

PAY GRRADE CBR COURSE COURSE AGG. BASE BASE FILL MATERIAL FILL MATERIAL TO BE USED FOR WDENING OR

AT 95% MDD STAGE 1 RISING OF EMBANKMENT SHALL COMPLY WtTH RELEVANT SPECIFICATIONS.

BrE cm 10-15 4 cm 7cm 15 cm 40 cm 2 EXISTING BITUMEN PAVEMENT TO BE SCARIFIED AND SUITABLE SCARIFIED

46 cm 15-25 4 cm 7cm 15 cm 20cm MATERIAL TO BE SPREAD AS FILL OR SUB GRADE AND COMPACTED BY

41 cm > 25 4cm 7cm 15cm 15cm HEAVY VIBRATOR EQUIPMENT TO SPECIFIED DENSITY

3 FOR PAYMENT OF ASPHALT BASE ALLOW ROLLING WIDTH AS PER

CLAUSE 203A4 1 OF THE NHA SPECIFICATION

Note: Wadh Surab Road N-25, Contrract MBRP - 7005

DESIGN C B R: (2 x CBR SOAKED + 10 * CBR UNSOAKED) /12 TYPICAL PAVEMENT DETAILS FIGURE FIGURE 9.1

ISLAMIC REPUBLIC OF PAKISTANMINISTRY OF COMMUNICATlIONSNATIONAL HIGHWAY AUTHORITY

fSLANWAaA

OPERATIONAL PLAN

TRANSPORT SECTOR PROJECT(HIGHWAY SECTOR)

TSP LOAN NO. 3241 - PAK

NATIONAL HIGHWAY AUTHORITY

Operational Plan

Transport Sector Proiect (Loan No. 3241-Pak)(Highwav Component Onlv)

.0- INTRODUCTION"--

During the Period from 2nd to 14th June, 1997, a World Bank Mission Carried out a

final Supervision of the Highway component of the Transport Sector Project to assess

the over all Project's performance. As a part of the Implementation Completion Report

preparation World Bank mission asked NE-AL to develop and present an acceptable

Operational Plan for the maintenance and operation of the assets created under the

project.

The Operation Plan as enclosed describes in detail Operational Activities which will be

carried out in fu-ture to take care of the assets as developed under the TSP loan. It

includes the institutional arrangements made to maintain the assets, the detail of

maintenance Operational methodology, the financial impiication of the Project and the

level of Mlaintenance required. The plan can best be described as an indicator for

monitoring & evaluating the performance for the project. The maintenance program

proposed has already been discussed in detail by the iBRD M'Vfission with the key

personnel's of NHA and it was decided that a Draft proposal for the new

Mfaintenance Management System which will involve private sector for the

implementation of Maintenance Management Programme. The Maintenance

Programme intends to facilitate and help NHA in achieving best performance during

the design life of the asserts developed under the MBRP/RSP Programme.

... ......

The Transport Sector Loan, TSP Loan No.3241-PAK was signed between

Government of Pakistan and the World Bank on 27th July, 1990. The total amount of

Loan was US $ 184 Million. The loan was primarily divided between Ministry of

Railways and National Highway Authority, Ministry of Comrmnunications. The highwaycomponent was about US $ 77.5 Million and latter on an amount of US S 11.5MAillion was transferred from Railway component to Highway component, thus making

the total loan value for i-ghway Component UfS S 39 Mvillion. The original loanclosing date was June 30th 1996 which was however extended for one year duration

till 30th June 1997 so as to enable NHA to compiete the additional work arising due todamages caused by unprecedented floods and rains.

For the whole National Highway Network a detailed technical srudy was carried out toprivatize the road sections which were beyond the scope of normal maintenance and

because of non availability of maintenance funds which created huge maintenancebacklog. Each project taken up under the MBRP/RSP Programme was identified onthe basis of Pavement Condition Survey, Pavement Roughness Survey, DCP Test,Traffic Count and Climatic Data which were used as inputs in the MIL System.

The RSP Package included Periodic Overlay of Asphaltic Concrete, Pavement

Strengthening by Aggregate Basecourse and TST, while for MvBRP/RSP Project thedesign consisted cf %sphaltic Wearing Course, Asphaltic Base Course, AggregateBase Course with Granular Sub-base and also improvement of Pavement Structures,Bridges and Culvt:rts. The design of pavement was based on AASHTO Guide fordesign of pavement structures (1986 ) with a pavement design life of 10 years.

The Project selected under the MBRP/RSP Programme were prioritized on the base of-%llL Scoring. The main objective of RSP was to improve the structural stability andstrength of pavement, while MBRP Projects were total rehabilitation/re-construction

projects for which detail Pavement Condition Survey, Economic analysis focus mainlyon the benefit cost ratio occurring to the road users in terms of reduction in vehicleoperating cost VOC and travel time. In addition to benefit cost ratio, internal rate ofreturn for Projects were also calculated.

1.2 NEED FORF EE O---,,,X I

Regardless of a size and type of project, all highway assets which are developed underthe Maintenance Backlog Reduction Programnme and Resurfacing & StrengtheningProgramme (MBRP/RSP) are national assets and requires detail maintenance plan toensure that these assets are utilized in the best possible manner. For maintenance of allprojects a comprehensive plan is required which should include Planning, Surveying,Data Collection, Finances, professional expertise, manpower, equipment's, materialsetc. for its maintenance. Further maintenance protects the investment and utilize it tothe expected design life extent with minimum operating cost. The comprehensiveoperation and maintenance plan adopted by the National Highway Authority hasalready been enlisted above.

W t3 ---. -.. '.:.LST,. OR S. TS..';: .CRE. AT.- -- HPROJECT .'.." t-:J.M - .' -

A total no of 76 Projects were awarded as LCB (Local Contractor Bidding) under theRSP Package. The detail is given as below

Round Total Cost Remarks

Contracts (Rs. Million)

RouLnd-I 17 297.55 14 Completed, 3 terrninated

Round-l 1 8 284. 67 1 7 Completed One Terminated

Round-IllI 0 1 74.01 1 0 completed

Round-Ill A 9 41.23 9 Completed

Rounld-IV 5 99.92 5 Completed

Flood 1 7 39. 10 All completed

Package

Total 76 936.48

4 The detail of each contract executed under all RSP/NIBRP projkect is in

the Final report.

A totai no of 34 Projects were awarded as LCB (Local Contractor Bidding) under the.MBRP Package. The detail is given as below:-

Round Total Cost Remarks

Contracts (Rs. Million)

Round-I 10 83.90 9 Completed, I terminated

Round-II 9 200.18 All completed

Round-IE 13 241.37 3 Completed 2 terminated

Flood 2 103.19 All completed

Package

Total 34 628.64

Two Numrrber of MyBRP Contracts were awarded on ICB (Internrational ContractualBidding) which are as follows:-

Contract Route Reach Contractor Contract Physical

No No Km - Km Amount Progress

MBRP N-5 1100-1130 M/s 533,109,244.00 100 %

7004 E.C.L.C

MBRP N-25 325485 M/s 1,977,170,000.00 100 %

7005 J& P

Total 2,510,279,244.00

LUAN TSP ;3:41

LIST OF COMPLETED PROJECTS

Sr. PROJECTS AWARD COMPLETIO SCHEDULE OFNo PERIOD N TRANSFER OF

PERIOD COMPLETEDI______________ .______ PROJECTS

LCB Transfered to RegionalI RSP ROIND-I 1991-92 1992-93 Maintenance Units

2 RSP ROUND-ll 1992-93 1993-94 -do-

3 RSP ROUND-Ill 1993-94 1994-96 -do-

4 RSP ROUND-llA 1993-94 1995-96 -do

5 RSP ROUND-lV 1995-96 1997-98 30.12.97

6 MBRP ROUND-1 1991-92 1992-93 Transfered to RegionalI_________________ _________ _ _____M aintenance Units

7 MBRP ROUND-II 1992-93-94 1994-96 -do-

8 IBR P ROUND-Ill 1995-96 1996-97 | 30.6.98

lCB MBRP 7004 1991-92 30.6.96 31.12.97g \ !4BRP 7004 l

10 MBRP 7005 1991-92 30.3.97 J 04.7.97

The Maintenance Division of National Highway Authority is responsible for carrying

out all maintenance activities on the National IHighway Network since March, 1987.

The National Highway Network comprises of Eight National Highways with a length

of 6600 Krns which include bridges and structures. lThe National Highway Authority

works as a centralized organization with Five (05) Regional offices headed bv General

For example: filling of potholes, patches using surface treatment/asphalt, bringing

shoulders to required level, clearing of drains/culverts, painting of parapets, etc.

Those ordinary maintenance activities which are required once every second or more

years only to reinstate the pavements, structures, shoulders, drains and verges to the

conditions they were in at the time of construction or subsequent reconstruction.

For example: minor overlays in surface dressing, major overlays in asphaltic concrete

on those sections not requiring the base structure to be repaired, shoulder leveling,minor bridge/culvert/drain repairs etc.

2. Li .3 EMERGE.N.CY M4AINTEN...N.....

These are the activities carried out to deal with emergencies and problems calling forimmediate attention, when any delay may cause blockage of road i.e. land slide,structure failure, very severe road erosion. Emergency Maintenance can also bedefined as " When safe and smooth flow of traffic is not possible due to certainunforeseen problem".

2.LL4 REHAB1TATION1 ~ J

Rehabilitation is the term covering extraordinary maintenance activities which may berequired intermittently to catch up with any backlog of 'scheduled routine and periodicmaintenance activities.

For example: major pavement and structural works, like complete strengthening ofbases, sub-bases and overlaying. Rebuilding of very badly damaged or collapsedstructures.

Improvements are those extraordinary maintenance (minor improvement), ordevelopment (major improvement) activities, which may be required intermittently to

strengthen or widen those roads and structures which have been rendered underdesigned due to increases in traffic or axle loads. This can also involve modifying the

geometric layout of the road to suit the modern conditions.

The Pavement Maintenance Management System has been defined as the effectiveand efficient directing of various activities involved in providing and sustaining

pavements in a condition acceptable to the traveling public at the least life-cycle cost.Pavement decisions are frequently based on the judgment and experience of engineersand administrators in different organizational units . Furthermore, there is markedabsence of factual inforrnation on the consequences of previous pavement managementdecisions, and the need to assess network trends and needs and demonstrate the impactof altemative funding programmes.

To determiine the Remaining Service Life of the pavement we have to carry outPavement condition survey and Pavement structural evaluation survey. These

surveys are carried out on Regular as well as on Periodic basis and includeinformation's such as evenness and skid resistance.

Pavement deterioration factors such as Potholes Depressions, Rutting.Cracking, Bleeding, Crazing, Raveling, Edge step, Edze Erosion, Poor

drainaze etc. are assessed by conducting Pavement condition or distress survey.

In order to develop an comprehensive Pavement Maintenance Management System

we carry out following type of surveys

* Pavement Condition Survey

* Pavement Roughness Survey

* Dynamic Cone Penetrometer Survey

* Benklemen Beam Survey

* Traffic Count

* Annual Rainfall Survey

National Highway Authority with the help of IMaintenance Consultants MJs KampsaxInternational developed a Pavement Management System (PMS) commonly known

as Maintenance Intervention Level (MW). The Maintenance Intervention Levels arenumerical rating assigned to each pavement deterioration factor and give certain

severity levels. The severity levels identifies the extend of damage/deterioration to the

pavement life cycle and helps us in estimating the remaining service life of thepavement. The range of levels which identify different severity levels are as below:-

> 70 Rehabilitation/Re-construction

60-69 Major periodic overlay/re-strengthening.

50-59 Periodic Maintenance.

40-49 Routir e Maintenance.

The Pavement Maintenance Management Model "MJ L" uses the recommended

surveys. The type and the methodology adopted by the Model is described as below

with two basis Inventories, which are

1. Pavement Condition Survey

2. Prevailing Environmental Conditions

order to analyse the pavement defects and deterioration facts certains interventiongels are assigned to each pavement distress. Under the Pavement Condition Survey,

following criterias are taken into consideration.

E tSEg!_RMB540aL _e

The Maintenance Intervention Level model specially aimed at measuring the

condition of the road by recording its defects, where they are located, and the extent

and severity of deterioration.

strengthen or widen those roads and structures which have been rendered underdesigned due to increases in traffic or axle loads. This can also involve modifying thegeometric layout of the road to suit the modern conditions.

2d.2 VA" AVMN-T MANEANE NAGEP.T tZ~ ~ ~ ~ ~~~~~~~~. .. .......

The Pavement Maintenance Management System has been defined as the effectiveand efficient directing of various activities involved in providing and sustainingpavements in a condition acceptable to the traveling public at the least life-cycle cost.Pavement decisions are frequently based on the judgment and experience of engineersand administrators in different organizational units . Furthermore , there is markedabsence of factual information on the consequences of previous pavement managementdecisions, and the need to assess network trends and needs and demonstrate the impactof alternative funding programmes.

To determine the Remaining Service Life of the pavement we have to carry outPavement condition survey and Pavement structural evaluation survey. Thesesurveys are carried out on Regular as well as on Periodic basis and includeinformnation's such as evenness and skid resistance.

Pavement deterioration factors such as Potholes Depressions, Rutting,Crackin2, Bleeding, Crazing, Raveling, Edge step, Edge Erosion, Poordrainage etc. are assessed by conducting Pavement condition or distress survey.

In order to develop an comprehensive Pavement Maintenance Management System

we carry out following type of surveys

* Pavement Condition Survey

* Pavement Roughness Survey

* Dynamic Cone Penetrometer Survey

* Benklemen Beam Survey

* Traffic Count

* Annual Rainfall Survey

National Highway Authofity with the help of Maintenance Consultants M/s KampsaxInternational developed a Pavement Management System (PMS) commonly knownas Maintenance Intervention Level (MIL). The NMaintenance Intervention Levels arenumerical rating assigned to each pavement deterioration factor and give certainseverity levels. The severity levels identifies the extend of damageldeterioration to thepavement life cycle and helps us in estimating the remaining service life of thepavement. The range o£levels which identify different severity levels are as below:-

> 70 Rehab&ation/Re-construction

60-69 Major periodic overlay/re-strengthening.

50-59 Perodio Maintenance.

40-49 Routine Maintenance.

The Pavement Maintenance Management Model "MTh" uses the reconmmended

surveys. The type and the methodology adopted by the Model is described as below

with two basis Inventoies, which are

1. Pavement Condition Survey

2. Prevailing Environmental Conditions

In order to analyse the pavement defects and deterioration facts certains interventionlevels are assigned to each pavement distress. Under the Pavement Condition Survey,

following criterias are taken into consideration.

,v.M E..The Maintenance Intervention Level model specially aimed at measunrng the

condition of the road by recording its defects, where they are located , and the extent

and severity of deterioration.

The Pavement ConMem Survey identifies locations where deterioration is occuring,

measure the problemmd the MIL model defines the action needed.

1. Carriageway CMifcation.

2. Wheel track rutuig depth mm.

3. Wheel track rut&g length 1 km.

4. Wheel track craking.

5. Centre line craeRg

6. Wheel track crack:length I Km.

7. Erosion from edge

8. Edge step

9. Pot Holes.

2.1.2.2- PRMLLG ENVIRONMENTA

The Prevailing Enviroomental conditions taken into consideration in NIL model are

as follows

1. Category of Road

2. Road Width avenge meter

3. Roughness mmlk

4. A.A.D.T (Traffic Volume)

5. Equivalent Axle Load ( Daily)

6. Sub-grade C.B.R

7. Pavement Structure number.

8. Rainfall Average mm

9. Drainage

2.1.3 PRo NCE 7o m /

' ESTLNIATIO

The pavement deterioation factor or Mlg. score assigned to each pavement is the

combination of above and reflects the total deterioration of the pavement with

reference to its life cyle.

Under the current nmutenance management setup the Deputy Director Maintenance

Field Units is responsible for certain National Highway Sections prepares engineer

estimates for all types of maintenance required on that road section. Tk.e PMS Cell of

National Highway Azahority (Previously a part of Maintenance Division and now

working under Design Section) is responsible for carrying out all types of Field

Surveys which include Pavement Condition Survey, Road Roughness Survey, Falling

Wei-ht Detlecto Meter Survey (to know the structural condition of the pavement). All

these surveys are uised to estimate the need of each pavement and what sort of

Mlaintenance Level and how much quantity is required to keep the pavement in a state

which help the road user to move safely and smoothly.

The field estimates prepared and submitted the Deputy Director Ntaintenance Field

L'nit are compared vvith the %MIL Data so as to evaluate the level of.NMaintenance and

its extent for that particular road section.

2.1.4 AWARD OF CONTRACTS

The budgetary demand for the maintenance of National Highway Network is obtained

after evaluating both the Engineer Field Estimates as well as MIL Scores assi-ned to

each road section.

Based upon the budget received by the Maintenance Directorate from Mtinistry of

Finance once again prionty is assigned for each type of maintenance activity. Different

type of maintenance contracts are awarded in all the regional offices.

During the execution of Maintenance Management Programme it was observed thatMIL System as well as the Maintenance Management Programme has certaindeficiencies and needs a new Maintenance Management Systerm The NHA plans todevelop a new model for operating Maintenance Management which will assure qualitycontrol as well as optimization of Maintenance Funds. The proposal envisages :-1. Placing a simple in-line management structure under the direct control of a high

level committee to run the NHA annual maintenance Programme;2. Contracting the private highway engineering services industry as consultants forquality assurance and technical detailing .3. Ensuring that all institutional objectives and guiding principals of NHA areaddressed.

The proposed Operational Plan operates as follows:-

_Step ICondition Surveys MlL Ranking

Step 2

System Oranization p 3 Prepare AnnualChecks Estimates

Step 4

Prioritizing and SOr a 5Recommendation based Operations Organizationon analysis of conditions places contracts inplus available budgets. prioritised order

Step 6

Maintenance Committeeapproves maintenance

contract package.

The Maintenance Directorate with its central head office in Islamabad and 23 fieldoffices perform the all maintenance activities on the National highway network. Thecentral office is the core of planning, budgeting nad overall management of themaintenance activites.

NAINTENANCE ORGANIZATIONCHART

1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

A ; <~~~~~~~~~~A

.~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ --------

-- ---- - - ---------------- --------- .----- t ------ -

2.2.2 EA..-NE RATIOv.N,

The NMaintenance Division of National Highway Authority working n the

Headquarters at Islarnabad is headed by General Manager Maintenance. The

Maintenance Division works under the supervision of Chairma, National Highway

Authonrty and Member (Operations), NHA

2.23 - I A ...L...

The Regional Organization of Maintenance consist of General Manager Maintenance,

Director Maintenance, Deputy Director Maintenance incharge of Maintenance Field

Unit under which Assistant Director and Inspectors perform their respective jobs as

define in the job descnription-

2.2.4-- -JOBDESCRIPTIONSTAFFREOUIREMEN

The organization chart of maintenance staff is enclosed. This organization chart which

will look after the assets develop under the MBRP/RSP Projects are the same as that

of NHA Maintenance Division and no separate additional staff is required.

DIRECTOR (MAlNTENANCE)

* To inform G.M (Region) with all maintenance problems.

* To supervise maintenance works within jurisdiction.

* To maintain full record of maintenance works and payments thereon.

* To ensure that all National Highways are in proper conditions and there is no

hindrance for traffic.

* To prepare and submit progress reports on maintenance works as directed by theSeniors.

* To ensure quality control at site.

* To ensure proper attendance of Consultants/Contractors and NHA staff at site.* To ensure completion of maintenance works within the scheduled time and

approved estimates.

* To ensure proper utilization of machinery at site as per contract conditions.

* To ensure supply of material at site in due course of time, so that work may not

suffer.

* To ensure payment of bills to consultants/contractors as early as possible after its

submission.

* To check the completion of MfB's for claims by Contractors/Consuitants.

* To prepare replies on audit observations pertaining to respective area of

maintenance work.

DEPUTY DIRECTOR (MAINTENANCE)

* To supervise maintenance works within the allocated jurisdiction.

* To prepare annual maintenance works program, regarding routine and periodic

maintenance contracts.

* To maintain full record of maintenance works and payments thereon.

* To ensure that all National Highways are in proper conditions and there is no

hindrance for traffic.

* To prepare and subrnit progress reports on maintenance works as directed by the

Seniors.

* To ensure quality control at site.

T To ensure proper atterdance of Consultants/Contractors and NRA staff at site.

= To ensure completion of maintenance works within the scheduled time and

approved estimates.

- To ensure proper utilization of machinery at site as per contract conditions.

3 To ensure supply of material at site in due course of time, so that work may not

suffer.

* To ensure payment of bills to consultants/contractors as early as possible after its

submission.

* To check the completion of OfMB's for claims by Contractors/Consultants.

* To prepare replies on audit observations pertaining to respective area of

maintenance work.

ASSISTANT DIRECTOR (MAINTENANCE)

* To be physically present/supervise the maintenance works of the area allocated to

them.

* To ensure quality and completion of work in due course of time.

* To check/certify the claims of consultants and contractors.

* To ensure punctuality of NHA/Contractors staff at site.

* To ensure proper functioning of National Highway under his supervision.

* To ensure that no one is trying for illegal encroachments in the right of way of

National Highway.

* To ensure proposals for maintenance works and road condition reports to the

Msaintenance Engineer.

a To coilect progress report ,construction works and submit to seniors.* To ensure smooth f Ti;dEc on National Highways.e To maintain recora of and construction works of the region.

INSPECTOR MAiETENANCE-)

* To watch the o&s of maintenance at site.

* To ensure quality of works at maintenance sites.

* To ensure that the contractors are using required equipment's properly. -

* To ensure timely completion of works. -

* To ensure deployment of qualified personnel by contractors at site, as perEtidract

conditions.

* To watch the condition of roads within particular jurisdiction and submit rep6rWto

senior for necessaxy action.

* To ensure proper attendance of NHA staff at site.

* To ensure smooth running of traffic on the highways.

2.2JT... TG- PROURA EEDS

The regular future of INHA policies towards staff development training is provided toall NHA officials, consultants and contractor's Representative (Engineers). Some ofthe major subjects which are covered under the trainining sessions/seminars are asfollows: -

* Pavement Management System.

* Maintenance Management System

* Design of bridges

* Pavement design

* Standard Specification & Contract Documents

* Construction Matenrals

* Highway Safety

* Traffic Analysis & Management

* Axle Load Study

* Maintenance Funds

* Involvement of Private Sector in Highway Lnfrastructure.

As a regular future the above mentioned training/seminars are held in NHA, thereforeno special training is required for MBRP/RSP Project, however a special trainingpackage is included in the Highway Rehabilitation Project i.e. 5th Highway Project

under which detail invesation as well as training will be given to NHA Officials

under the Pak Pave Proymnme.

The budgetary demand fi the maintenance of National Highway Network is obtainedafter evaluating both the Egineer Field Estimates as well as MIL Scores assigned toeach road section. The MIL model pays the most vital part in the whole system as itprovides the us with tir priority list of all the sections of the road which needimmediate attention. Wii MIL model applying the same parameters and input criteriathroughout the network, we get a accurate prediction of the maintenance program..

In order to distribute the curtailed budget NHA Maintenance Division has to prioritizethe maintenance needs i each road section by taking into consideration the benefitcast ratio, traffic level, irnal rate of return and MIL Score.

,0,',,.,.,,,,.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ., 113.0' KEYOEAONLADINNILNDATSI

............~ ~ ~ ~ ~~.......,.. ~ ~ .......

The MIL system or the.hbintenance Management System adopted by NNHA is a rating

system used to determine the maintenance requirement of a road sigment based on the

evaluation of road charactsistics. MIL is used to develp accurate maintenance budgets

enabling a highway auth&ity to make best use of limited funding. For all National

Highway Network a comprehensive detail surveys are carried out and set of different

pavement deterioration ftors are gathered from these surveys for each Kilometer of

National Highway Netwxk. The MIL score defines the severity of deterioration and

the level of maintenance fequired to bring back the road to a smooth flow condition.

4 The different suveys and working of MIL system is already described

above at 2.1.2

Since 1986 the National Highway Network has been expended and significant changesin traffic volume has occured. The National Transport Research Centre has carried outdetailed traffic surveys on National Highway Network and has also established numberof permanent traffic count stations which enables us to know the traffic flow onNational Highway Network. The average traffic growth projection taken from 1994NTRC study carried out on the whole National Highway Network reveals that anannual growth of traffic is about 7%, -but in certain area unprecedented traffic growthhas been witnessed during the last few years.

The Ministry of Communications places the NHZA demand before the Ministr ofFinance for their consideration. T he Ministry of Finance aRter detailed review allocatescertain budget on yearly basis. It has been observed that duning the last Seven to EightYears NHA receives about 35 to 50% of its actual demand.A comparison of demand verses allocation made during the last 10 years is enclosedfor informnation.

_~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.... ..... . ...

YEAR DEMAN@D ALLOCATION

... _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.....

RS. MILLION~~~~~~~..... RS. .... MILLION

1988-89 423 201

1989-90 475 269

1990-9 1 600 282

1991-92 796 378

1992-93 930 -410

1993-94 1097 431

1994-95 1317 452

... .. .. .. .. .... .. . .. .. .. ..... .

1995-96 1554 475

.~ ~~~~~~~~~~~~~~~ ............

1996-97 1760 522_- 8 . . .

1997-98~~~~~~~~~~~~~~~~~~~~~~........ . ..... ....

ANNEX D

Revised Economic and Financial Evaluationof Pakistan Railway

1

PAKISTANTRANSPORT SECTOR PROJECT

LOAN 3241 - PKANNEX D - Revised Economic and Financial Evaluation of PR

PART I. REVISED ECONOMIC EVALUATION

General comment. The SAR analysis was based on broad averages and assumptions aboutproductivity. These assumptions cannot be tested nor calculated from currently available data.In their absence the analysis used here will take the productivity assumptions from the SAR asgiven, in order to re-calculate the ERRs as best possible, based on the most recent actual cost andoperational data. The data gathering which has been done in March and April 1999 has not beenable to resolve these gaps. The analysis here remains questionable without significant additionalfieldwork.

MIS and Telecommunications A revised ERR for the MIS and Telecommunications sub-components cannot be calculated as the funds were not used.

Roller Bearings A revised ERR has been calculated for the roller bearings program as 7%. Themain reasons for the lower return are (1) traffic volumes substantially reduced from what wasexpected and (2) the early purchase of the new bearings but their slow installation. The SARcalculation of the ERR at 24%, was estimated using broad averages for the source of the benefitsand an assumption of a 15% productivity increase. Using the same methodology andrecalculating the ERR based on actual expenditures, SAR projected benefits, but with thereduced traffic volumes which did transpire, yields an ERR of 17%. Recalculating based on theactual expenditures, actual (slow to be implemented) benefits, and with the reduced trafficvolumes yields the ERR of 7%. Table D-1 shows the details of this calculation.

The preceding analysis is based on using the same foreign exchange rate as was used at the timeof the SAR (25.1 Rs/$). As such it allows an examination of the accuracy of the SAR estimateunclouded by movements in the exchange rate, for which a forecast was not attempted in theSAR. If the exchange rate at the time of actual purchase is used (Rs 29.0/$), the two ERRs asshown above decline to 14% and 6% respectively. This is a measure of the value of theinvestment to the country. Table D-2 shows the details of this calculation.

The roller bearing calculation is highly dependent on the improved productivity assumed.Referring again to Table D-1, if productivity increased only by 10% instead of the 15% assumedthen the ERR is 3%. The switch value at which the ERR is zero is 8%. Any productivityincreases below this level result in a negative ERR. The productivity increases also depend onall the wagons in a train being fitted with roller bearings. It is early to quantify any benefitsbecause, only because a very small proportion of the wagon fleet have been fitted with the rollerbearings and it is only quite recently (1998/99) that PR has segregated about six rakes where allwagons are fitted with roller bearings.

Locomotives The locomotive related project sub-components; to reconmmission 46 locomotives,build up unit exchange spares, and traction motor repair have been lumped together in one figureof total additional locomotives due to the project. The SAR calculation of the ERR was 27%. Arevised ERR has been calculated for this component as 48%.

2

The SAR treated locomotives used for freight traffic and locomotives used for passenger trafficseparately. The productivity assumptions for freight locomotives were 45 million tonne-kilometres per year per locomotive and an economic benefit of using rail compared to hauling bytruck of Rs 0.20 per tonne-kilometre. The equivalent figures for passenger traffic were 150million passenger kilometres per locomotive per year and Rs 0.06 per passenger kilometre. If thetwo figures are multiplied then the result is the Rs value of a locomotive per year. In both casesthis value per year figure is the same, Rs 9 million. So the SAR, although treating both types oflocomotive separately, was in effect using one figure of locomotive value per year. The benefitsfigure is equal to the total number of freight and passenger locomotives times Rs 9 million.Table D-3, attached, replicates the SAR calculations.

Data on the detailed operational effect of the various locomotive programs has been particularlydifficult to obtain. The specific use of the incremental locomotives provided by the projectcannot be identified. In other words, it is not possible to say whether the availability of projectlocomotives has been used to enhance the freight or the passenger services and thus separatecalculations based on the different values of these two services are not possible. Table D-4 usesaverage figures for the value of a locomotive to recalculate the ERR as 48%

The horizon year for the SAR's ERR calculation was quite short, only six years of benefits wereevaluated. A short time horizon may have been used because of the overall age of the PRlocomotive fleet, which was not addressed by this loan, forces so many locomotives to be retiredthat as you push the horizon year out, the total fleet starts to diminish. With the age of the fleetthis may be the case even when the GOP fulfills its obligation to keep foreign exchange of sparesconstant. The SAR provides an analysis that focuses only on the immediate, short-term benefitof the specific locomotive investment. It did not consider the question of a longer term,sustainable railway operation, if much of the rest of the fleet becomes unusable.

RE-EVALUATION OF ERR FOR ROLLER BEARINGS INVESTMENT

EXAMPLE: SAR EXAMPLE: IRC #1 - lower traffic than expected EXAMPLE: IRC #2 - lower traffic AND slower adoption

Traffic & Savings Traflic & Savings Traflic & SavingsWagons in service 30,600 Wagons in service 25,815 Wagons In service 25,815

Freight moved (tonne/km), 1989/90 8,364,000,000 Freight moved (tonnelkm), 1995/96 5,077,000,000 Freight moved (tonne/km), 1995/96 5,077,000,000Freight moved per wagon 273,333 Freight moved per wagon 196,669 Freight moved per wagon 196,669

Number of W with beanings (ultimate) 15,000 Number of W with beanngs (ultimate) 7,785 Number of W with beanngs (ultimate) 7,785

tkm moved with bearings (calc) 4,100,000,000 tkm moved with bearngs (calc) 1,531,065,078 tkm moved with bearings (calc) 1,531,065,078

Reconcilliafion factor 0.0999 0.1000 0.1000

tkm moved with bearings (input) 409,500,000 tkm moved with bearings (input) 153,106,508 tkm moved with bearings (inout) 153,106,508

saving per tkm (RsAtkm, 10% inc) 0.20 saving per tkm (Rs/tkm, 10% inc) 020 saving per tkm (Rstkm, 10% inc) 0.20

annual saving 81,900,000 annual saving 30,621,302 annual saving 30,621,302saving per tkm (Rs/tkm, 15% inc) 0.30 saving per tkm (Rsttkm, 15% inc) 0.30 saving per tkm (Rs/tkm, 15% inc) 0.30

annual saving 122,350,000 annual saving 45,931,952 annual saving 45,931,952

Costs Costs Costs f S

Bearngs Bearings 151,302,800 Bearings 151,302,800 25.1 6,023,000

Axles Axles 62,750,000 Axles 62,750,000 25.1 2,500,000

Machinery Machinery 27,610,000 Marhinery 27,610,000 25.1 1,100,000

Total 500,000,000 Total 241,662,800 Total 241,662,800 25.1 9,628,000

ERR: 24% ERR: 17P ERR: 7-^b

Year-byer detail Yerby-yeardei Year byyealr detait # wagons chg in

Year Csts Bennefls e ear ts Benefits NeL a Costs B e.^,entfs NeL insernv wagons FY

500.0 % 122.9 % 241.7 % 45.9 % 241.7 % 45.9 %

0 250.0 50 0.0 0 -250.0 0 120.8 50 0.0 0 -120.8 0 0.0 0 0.0 0 0.0 0 90t91

1 250.0 50 61.4 50 -188.6 1 120.8 50 23.0 50 -97.9 1 0.0 0 0.0 0 0.0 0 0 91/92

2 0.0 0 122.9 100 122.9 2 0.0 0 45.9 100 45.9 2 241.7 100 0.0 0 -241.6 6 6 92193

3 122.9 100 122.9 3 45.9 100 45.9 3 0.0 0 2.4 5 2.4 407 401 93/94

4 122.9 100 122.9 4 45.9 100 45.9 4 0.0 0 7.6 17 7.6 1294 887 94/95

5 122.9 100 122.9 5 45.9 100 45.9 5 0.0 0 11.6 25 11.6 1973 679 95/96

6 122.9 100 122.9 6 45.9 100 45.9 6 0.0 0 15.7 34 15.7 266S 695 96/97

7 122.9 100 122.9 7 45.9 100 45.9 7 0.0 0 24.1 53 24.1 4090 1422 97/98

8 122.9 100 122.9 8 45.9 100 45.9 8 0.0 0 33.0 72 33.0 5600 1510 98/99

9 122.9 100 122.9 9 45.9 100 45.9 9 0.0 0 42.5 92 42.5 7200 1600 99/OO

10 122.9 100 122.9 10 45.9 100 45.9 10 0.0 0 45.9 100 45.9 7785 585 OW01

11 122.9 100 122.9 11 45.9 100 45.9 11 45.9 100 45.9 7785 0 01/02

12 1229 100 122.9 12 45.9 100 45.9 12 45.9 100 45.9 7785 0 0203 W13 122.9 100 122.9 13 45.9 100 45.9 13 45.9 100 45.9 7785 0 03/04 m14 122.9 100 122.9 14 45.9 100 45.9 14 45.9 100 45.9 7785 0 04/05 M

15 122.9 100 122.9 15 45.9 100 45.9 15 45.9 100 45.9 7785 0 05/06

16 122.9 100 122.9 16 45.9 100 45.9 16 45.9 100 45.9 7785 0 06/07

NOTES:Sources: Staff Appaisat Report (SAR), 11 June, 1990.bold figures indicate key source data

RE-EVALUATION OF ERR FOR ROLLER BEARINGS INVESTMENT

EXAMPLE: SAR EXAMPLE: IRC #1 - lower traffic than expected EXAMPLE: IRC #2 - lower traffic AND slower adoption

Traffic & Savings Traffic & Savings Traffic & SavingsWagons in service 30,600 Wagons in service 25,815 Wagons in service 25,815Freight moved (tonnelkm), 1989/90 8,364,000,000 Freight moved (tonne/km), 1995/96 5,077,000,000 Freight moved (tonne/km), 1995/96 5,077,000,000Freight moved per wagon 273,333 Freight moved per wagon 196,669 Freight moved per wagon 196,669Numberot Wwith bearings (ultimate) 15,000 Number of W with beanngs (ultimate) 7,785 Number of W with bearings (ultimate) 7,785tkm moved with bearngs (calc) 4,100,000,000 tkm moved with bearings (calc) 1,531,065,078 tkm moved with bearings (calc) 1,531,065,078

Reconcilliation factor 0.0999 0.1000 0.1000

tkm moved with beanngs (input) 409,500,000 tkm moved with bearings (input) 153,106,508 tkm moved with beanngs (input) 153,106,508saving per tkm (Rs/tkm, 10% inc) 0.20 saving per tkm (Rs/tkm, 10% inc) 0.20 saving per tkm (Rs/tkm, 10% inc) 0.20annual saving 81,900,000 annual saving 30,621,302 annual saving 30,621,302saving per tkm (Rsltkm, 15% inc) 0.30 saving per tkm (Rs/tkm, 15%inc) 0.30 saving per tkm (Rs/tkm, 15% inc) 0.30annual saving 122,850,000 annual saving 45,931,952 annual saving 45,931,952

Costs Costs Costs a aBearings Bearings 174,812,000 Bearngs 174,812,000 29.0 6,028,000Axles Axles 72,500,000 Axles 72,500,000 29.0 2,500,000Machinery Machinery 31,900,000 Machinery 31,900,000 29.0 1,100,000Total 500,000,000 Total 279,212,000 Total 279,212,000 29.0 9,628,000

ERR: 24% ERR: 14% ERR: 6%

Yeaerbytearaderl Year-bymyear detai Year-"ar detail # wagons chg inYeaL Costs Benefits NeL Year Costs _Beneftts .sL -Year Costs Benefits .NeL inservice wagons FY

500.0 % 122.9 % 279.2 % 45.9 % 279.2 % 45.9 %

0 250.0 50 0.0 0 -250.0 0 139.6 50 0.0 0 -139.6 0 0.0 0 0.0 0 0.0 0 90/911 250.0 50 61.4 50 -188.6 1 139.6 50 23.0 50 -116.6 1 0.0 0 0.0 0 0.0 0 0 91/922 0.0 0 122.9 100 122.9 2 0.0 0 45.9 100 45.9 2 279.2 100 0.0 0 -279.2 6 6 92/933 122.9 100 122.9 3 45.9 100 45.9 3 0.0 0 2.4 5 2.4 407 401 93/944 122.9 100 122.9 4 45.9 100 45.9 4 0.0 0 7.6 17 7.6 1294 887 94/955 122.9 100 122.9 5 45.9 100 45.9 5 0.0 0 11.6 25 11.6 1973 679 95/966 122.9 100 122.9 6 45.9 100 45.9 6 0.0 0 15.7 34 15.7 2668 695 96/977 122.9 100 122.9 7 45.9 100 45.9 7 0.0 0 24.1 53 24.1 4090 1422 97/988 122.9 100 122.9 8 45.9 100 45.9 8 0.0 0 33.0 72 33.0 5600 1510 98/999 122.9 100 122.9 9 45.9 100 45.9 9 0.0 0 42.5 92 42.5 7200 1600 99/00

10 122.9 100 122.9 10 45.9 100 45.9 10 0.0 0 45.9 100 45.9 7785 585 0010111 122.9 100 122.9 11 45.9 100 45.9 11 45.9 100 45.9 7785 0 01/0212 122.9 100 122.9 12 45.9 100 45.9 12 45.9 100 45.9 7785 0 02/03 m13 122.9 100 122.9 13 45.9 100 45.9 13 45.9 100 45.9 7785 0 03/0414 122.9 100 122.9 14 45.9 100 45.9 14 45.9 100 45.9 7785 0 04/0515 122.9 100 122.9 15 45.9 100 45.9 15 45.9 100 45.9 7785 0 05/0616 122.9 100 122.9 16 45.9 100 45.9 16 45.9 100 45.9 7785 0 06/07 1

NOTES:Sources: Staff Appaisal Report (SAR), 11 June, 1990.bold figures indicate key source data

RE-EVALUATION OF ERR FOR LOCOMOTIVE INVESTMENTS TABLE D-3

EXAMPLE: repeat SAR89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97

Loco Fleet Without ProjectAvailable Locos

Freight 156 42.5%Passenger - long dist 119 32.4%Passenger - other 80 excludedShunting 92 25.1%

Total available 447 429 409 389 369 349 329

Locomotives in fleet 564 564 564 564 564 564 564% availability 79% 76% 73% 69% 65% 62% 58%

Loco Fleet With Projectavailable by recurrent exp 447 447 447 427 407 387 367recommissioned 17 33 28 23 19 16

Total available 447 464 480 455 430 406 383% availability 79% 82% 85% 81% 76% 72% 68%

Net Locomotive Gain 0 35 71 66 61 57 54Freight 15 30 28 26 24 23Passengers 11 23 21 20 18 18Shunting 9 18 17 15 14 14

Loco Productivity (tkm and pkm, million)Freight 45 669 1,358 1,262 1,167 1,090 1,033Passengers 150 1,702 3,453 3,210 2,967 2,772 2,626

Cost Savings from Road Transport (Rs/tkm or pkm)Freight 0.20 134 272 252 233 218 207Passengers 0.06 102 207 193 178 166 158Total 236 479 445 411 384 364

Rate of Return CalculationCosts 750 347 52Benefits 236 479 445 411 384 364Net -750 -111 427 445 411 384 364

IRR: 27.3%

NOTES:Sources: Staff Appaisal Report (SAR), 11 June, 1990.

RE-EVALUATION OF ERR FOR LOCOMOTIVE INVESTMENTS TABLE D-4

EXAMPLE: ACTUAL RESULT89/90 90/91 91/92 92/93 93/94 94/95 95196 96/97 97/98

Net Locomotive Gain 0 0 12 20 44 53 59 75

Rate of Retum CalculationCosts 3 545 249 349 323 352 332 38Beneffts 0 0 204 348 780 992 1,327 1,763Net -3 -545 -44 -1 457 640 995 1,726

IRR: 48.0%

April 1999 data (Khalil Rashid)Cumulative Project Locomotives 0 0 12 20 44 53 59 75Project Costs 2.66 544.98 248.51 348.90 323.49 351.67 332.15 37.85

Total Earnings Freight + Passenger 5,236 5,316 6,502 7,070 7,092 7,163 7,559 8,931 9,099Eamings per loco (current dollars) 11.90 12.60 15.63 17.04 17.38 17.73 18.71 22.50 23.51Locos from project 12 20 44 53 59 75Earnings from project (current dollars) 204.43 347.65 780.13 991.65 1,327.28 1,763.37

Actual trafficFreight (tkm million) 5,708 5,962 6,180 5,939 5,661 5,077 4,607 4,447Passengers (pkm million) 20,400 19,900 18,200 17,100 16,400 17,600 18,900 19,100 18,800

Freight Earnings (Rs million) 3,275 2,962 3,823 4,287 4,270 4,059 3,957 4,414 4,519Annual Inflation 12.7% 9.6% 9.3% 11.2% 12.9% 10.9% 11.8% 7.8%Inflation Adjustment 1 0.87 0.79 0.72 0.64 0.55 0.49 0.44 0.40Freight Eamings, constant price 3,275 2,586 3,017 3,068 2,714 2,247 1,952 1,920 1,813

Passenger Eamings (Rs million) 1,961 2,354 2,679 2,783 2,822 3,104 3,602 4,517 4,580Annual Inflation 12.7% 9.6% 9.3% 11.2% 12.9% 10.9% 11.8% 7.8%Inflation Adjustment 1 0.87 0.79 0.72 0.64 0.55 0.49 0.44 0.40Passenger Eamings, constant price 1,961 2,055 2,114 1,992 1,794 1,718 1,777 1,965 1,837

NOTES:Sources: Staff Appaisal Report (SAR), 11 June, 1990Additional PR data collected by Dr. Khalid Rashid in April 1999

7

PART II. ANALYSIS OF FINANCIAL PERFORMANCE OF PAKISTANRAILWAYS

1. Financial Analysis Since beginning of the Project

1.1 The physical and institutional components planned in the Project, envisaged that PR wouldbe able to improve its financial performance based on efficient operations and increasedproductivity and could be transformed into a profitable venture. The financial projections made atthe stage of the Project appraisal indicated that by the end of 1994-95, i.e. after five years of thecommencement of the Project, PR would start showing profits. Analysis of the past financialperformance indicates that PR did show a sign of improvement in the first three years of theProject and its losses dropped from Rs. 2.8 billion in 1988-89 to Rs. 0.9 billion in 1992-93.However, since 1992-93 PR is incurring continually increasing losses every year and reached anever high figure of 6.6 billion in 1995-96. The Profit & Loss statement has been summarized intable 1. The figure below shows the trends of deterioration of PR financial performance since1988-89.

PR financial losses

7.0

6.0

5.0

4.0

3.0

.42.0

1.0

88-89 89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98

Financial Year

Figure 1: PR financial losses during 1988-89 to 1997-98

81.2 The reasons for PR losses can be attributed to the following factors:

(a) Reduction in earnings due to reduced traffic volume, partly due to non availability oflocomotives;

(b) Non adjustment of tariffs according to the annual inflation rate; and(c) Increased financial charges due to additional overdraft.

1.3 PR losses would have been much higher, had PR not been able to restrain these losses asdue to successful implementation of the following steps:

(i) Reduction in staff due to attrition program; and(ii) Introduction of the PSO concept

Cash Generation

1.4 The analysis of PR finances (Table 1) shows that although cash generation in 1992-93 waspositive, however PR has not been able to achieve positive cash generation since then. Article IVSection 4.03 of the Loan Agreement requires that from 1994-95 PR should be able to generateenough cash to finance a reasonable portion of its capital expenditure. Financial position for FY97-98 indicates that PR will be in default of this covenant of the agreement for the consecutive fourthyear.

2. Traffic Analysis

Freight Traffic

2.1 The commodity wise analysis of goods traffic in terms of Thousands of Tons and Millions ofTKm carried since 1989-90 is given in the table below.

Cernent - Tons 533 415 297 388 283 230 95 43- TKn 459 385 294 282 165 167 80 22

Coal -Tons 235 211 161 189 169 115 96 70-TKm 270 244 194 217 192 130 105 76

Fertilizer Tons 917 814 825 665 572 777 630 384TKm 754 729 748 568 411 572 408 197

Rice Tons 392 294 331 659 257 200 3 2TKm 290 199 165 796 307 139 2 1

Wheat Tons 824 888 1,046 962 990 509 567 686TKm 819 1,033 1,299 974 1,162 525 661 806

P.O.L Tons 1,595 1,648 2,225 2,452 2,319 2,375 2,125 2,216TKm 853 1,192 1,624 1,750 1,770 1,838 1,582 1,685

Departmental Tons 1,000 1,072 840 807 1,028 820 926 658TKm 186 371 268 257 321 284 280 215

Others Tons 2,221 2,218 2,044 1,914 1,738 1,828 1,971 1,941TKm 2,077 1,809 1,588 1,095 1,333 1,422 1,502 1,445

Total Tons 7,717 7,560 7,769 8,036 7,356 6,854 6,380 5,977TKm 5,708 5,962 6,180 5,939 5,661 5,077 4,607 4,447

Table 2: Comparison of freight traffic (Tons in Thousands and TKm in Millions)

9

2.2 Table 2 shows that apart from POL and wheat, both of which are government sponsoredbusinesses, PR has been losing its freight traffic for all other commodities. Apart from this loss infreight volume, the profitability of various commodities has dropped as well. During 1995-96 onlyPOL white oil business registered profits and all other commodities made over all losses. Analysisof PR freight services profitability shows that the number of profitable commodities has droppedfrom seven in 1990-91 to five commodities making profit in 1997-98. The table 3 below gives suchcomparison.

Profi keMdg cmedte1988-89 1: POL - white oil

2: POL - furnace oil3: Wheat

1989-90 1: POL - white oil2: POL - funace oil3: Wheat

1990-91 1: POL - white oil2: POL - furnace oil3: Wheat4: Fertilizer5: Phosphate6: Iron scrap7: Cotton

1991-92 1: POL- white oil2: POL- funace oil3:. Wheat4: Rice5: Fertilizer6: Phosphate7: Iron scrap

1992-93 1: POL - white oil

2: POL - furnace oil3: Wheat4: Rice5: Fertilizer6: Phosphate7: Iron scrap

1993-94 1: POL - white oil2: POL-furnace oil3: Wheat4: Fertilizer5: Phosphate

6: Iron scrap1994-95 1: POL - white oil

2: POL - furnace oil

1995-96 1: POL - white oil

10

1_96.97 1: POL - white oil2: POL - furnace oil3: Wheat4: Fertilizer5: Sugar

1997-98 1 : POL - white oil2: POL - fumace oil3 : Wheat4: Fertilizer5 : Sugar

Table 3: Year wise profit making commodities

2.3 Earnings from goods traffic since 1989-90 is summarized in table 4 below and adjusted forinflation to analyze the real trends over the Project period. When converted into 1989-90 values, thereal earnings in the freight sector shows a drop of 44.6% during 1989-90 to 1997-98 period.

1989-90 3,275 Base year 1.00 3,275

1990-91 2,962 12.7% 0.87 2,586

1991-92 3,823 9.6% 0.79 3,017

1992-93 4,287 9.3% 0.72 3,068

1993-94 4,270 11.2% 0.64 2,714

1994-95 4,059 12.9% 0.55 2,247

1995-96 3,957 10.9% 0.49 1,952

1996-97 4,414 11.8% 0.44 1,920

1997-98 4,519 7.8% 0.40 1,813

Table 4: Inflation adjusted freight earnings

11Passenger Traffic

2.4 The analysis of the passenger traffic since 1989-90 is given in the table below and comparedwith the assumptions made in the Staff Appraisal Report (SAR) prepared in July 1990.

Yar . rs Pag.rm Atalper SAR 1(Million) (Billio> ,PK ,R,,) - r-f-(ji 'AR)

1989-90 84.6 20.4 0.10 N.A.

1990-91 84.9 19.9 0.12 0.10

1991-92 73.3 18.2 0.15 0.11

1992-93 59.0 17.1 0.16 0.12

1993-94 61.7 16.4 0.17 0.14

1994-95 66.5 17.6 0.18 0.15

1995-96 73.6 18.9 0.19 0.17

1996-97 68.8 19.1 0.23 0.18

1997-98 64.9 18.8 0.24 N.A.

Table 5: Passenger traffic since 1989-90

2.5 Passenger earnings, since 1989-90 are summarized in table below and adjusted for inflationto analyze the real trends over the project period. When converted into 1989-90 values, the realearnings in the passenger sector shows a drop of 6.3% during 1989-90 to 1997-98 period.

-Year -- M= -tiiuaIl-fl~tii_ - u a ~aAl .- in- 9. ; .. ,~Eanl V--. .U ---;;;::. --.M...... ....... -s

1989-90 1,961 Base year 1.00 1,961

1990-91 2,354 12.7% 0.87 2,055

1991-92 2,679 9.6% 0.79 2,114

1992-93 2,783 9.3% 0.72 1,992

1993-94 2,822 11.2% 0.64 1,794

1994-95 3,104 12.9% 0.55 1,718

1995-96 3,602 10.9% 0.49 1,777

1996-97 4,517 11.8% 0.44 1,965

1997-98 4,580 7.8% 0.40 1,837

Table 6: Inflation adjusted passenger earnings

12

3. SAR Assumptions Vs Actual Trends

3.1 Various assumptions made at the start of the Project and the actual trends for the period 1990- 1996 are given in table 7 below:

Inflation - SAR 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 60%-Actual 12.7% 9.6% 9.3% 11.2% 12.9% 10.9% 11.8% 101%

Tariff Increase - SAR 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 95%- Actual 12.0% 5.0% 5.0% 0.0% 0.0% 5.0% 10.0% 43%

Staff Reduction SAR 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 19%- Actual 1.8% 4.9% 3.4% 3.5% 2.4% 7.9% 7.2% 35%

Salary Increase- SAR 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 60%- Actual 6.4% 20.0% 17.0% 3.3% 17.5% 6.6% -3% 87%

Table 7: SAR assumptions Vs actual trends

3.2 One of the major assumptions to effect PR profitability was that PR would be ableto increaseits tariffs by 10% annually which will give a real increase of 3% based on the 7% annual inflationassumed in the SAR. However the actual figures show that not only that PR was not able to increaseits tariffs, but the annual inflation was also about 3% - 4% higher than that assumed in the SAR. Thecumulative net effect of increase in inflation after adjusting various tariff increases has been 58%during the Project period, which is the main contributing factor for PR ever increasing losses.

4. Tariff Analysis

4.1 Pakistan Railways has been operating under continual loss for almost quarter of a centurynow. There are many factors which can be attributed to PR losses, however the basic fact is PRhas not been able to increase its revenues in line with the associated increase in expenses. Apartfrom poor and inefficient service levels which resulted in loss of traffic to its road competitors,PR has not been able to increase its tariffs in line with the prevailing inflation in the country.There was no tariff increase between July 1985 to April 1991, a period of about six years havingannual inflation rate around 10%. Similarly, there was no tariff increase between September 1992and October 1995, a period of three years.

13

4.2 The tariff increases implemented since 1990-91 along with the inflation are given in -table 8below for comparison:

Year PR Tariff Increase Annual InflationPassenger G~oos

1990-91 12% 15% 12.7%

1991-92 5% 5% 9.6%

1992-93 5% 5% 9.3%

1993-94 - - 11.2%

1994-95 - - 12.9%

1995-96 5% 10% 10.9%

1996-97 10% 10% 11.8%

1997-98 - - 7.8%

Cumulative 1990-98 43% 53% 127%

Table 8: Comparison of PR tariff increase with the prevailing inflation.

4.3 The above table shows that the compound effect of inflation since 1990-91 to 1997-98 isabout 127% whereas the cumulative tariff increase during this period has been only 43% forpassengers and 53% for freight traffic. Had PR been able to increase its revenues to cover theannual inflation, PR would have been in a much better financial position.

4.4 However, this would have been only possible if the competitive road transport industry hadalso increased its fares regularly with inflation. Since over the past ten to fifteen years, roadtransport has become more efficient in terms of bigger lorries and cheaper spare parts comingthrough smuggling channels via Afghanistan transit trade facilities. This has resulted in efficiencygains to the truck operators and even if they do not increase their fare to cover for full inflation, theycould still operate profitably.

4.5 PR has been comparing tariffs of road transport and some selected rates are reproducedbelow in table 9 and table 10 for comparison purposes. The analysis of the data collected by PR, interms of tariff comparative for two different periods reveals that the tariff increase in bus fare for theperiod 1994 - 1998 has been more than the corresponding tariff increase by PR for the Economyclass fare. PR fares were higher than the road fares in 1994, whereas in 1998 PR fares were lowerthan the corresponding road fares.

Passengersecor b Ordinarybusi re PR enomycais fare.1994 - 1998 Incrase 1994 1998 IcreaseRs. - 'v)' . _ . -. (Rs) (Rs.)

Lahore - Faisalabad 21 40 90% 28 35 25%

Rawalpindi - Karachi 230 425 85% 245 315 28%

Lahore - Karachi 180 300 67% 200 255 27%

Karachi - Hyderabad 21 35 67% 32 40 25%

Table 9: Comparison of ordinary bus fare with PR economy class fare

14

1994 1998~ 1-994 198 Iree

Fertilizer (Karachi - Lahore) 550 975 77% 638 840 31%

Wheat (Karachi - Peshawar) 725 1225 69% 872 1036 18%

Furnace Oil (Karachi -Lahore 880 1325 50% 9;16 1176 28%/7

Table 10: Comparison of PR freight rates with road transport

5. Financial Charges

5.1 One of the major impacts of PR financial losses is increase in its borrowings (over draft)from the State Bank of Pakistan. Most of the overdraft is utilized in covering the shortfall inearnings for the previous years and excess expenditure during the current year. Mostly GoP fundsreleases are not received in time and PR has to resort to overdraft facility from the State Bank tomake its urgent payments, which results in heavy financial charges. The table 11I and the figure 2below show overdraft position on 30 June of each year and the financial charges for that period.

1989-90 103 8

1990-91 284 25

1991-92 300 48

1992-93 613 64

1993-94 1,453 289

1994-95 2,014 547

1995-96 6,553 796

1996-97 9,322 1,506

1997-98 11,740 2,069

Table 1 1: PR overdraft position since 1989-90

15

PR overdraft position

14.00

12.00

10.00

:i 800

600

4.00

200

1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98

Year

Figure 2: PR overdraft position since 1989-90

6. PR Profitability Analysis

6.1 PR profitability of passenger and freight services is summarized in the table 12 below. PRprofitability of passenger sector has deteriorated over the past nine years. PR has not been able toattract much passenger traffic during this period as the PKm has dropped from 20,373 in 1989-90 to18,774 in 1997-98. Although earning per PKni increased by about 154% but the corresponding costper PKm increased by 158%. The train wise profitability statement produced by PR for the year1994-95 shows that all the Intercity and Passenger trains are operating at loss based on both thevariable cost recovery as well as full cost recovery. Only two Mail and Express trains are operatingat profit based on full cost recovery and six trains are operating at profit based on variable costrecovery.

Passenger Sector

Total Earnings 1,961 2,354 2,678 2,783 2,822 3,104 3,602 4,517 4,580

Total PKm 20,373 19,964 18,158 17,082 16,385 17,555 18,905 19,114 18,774

Earnings Rs/PKm 0.096 0.118 0.147 0.163 0.172 0.177 0.190 0.236 0.244

Costs Rs./PKm 0.199 0.268 0.310 0.348 0.393 0.427 0.470 0.495 0.513

Contribution/PKm -0.103 -0.150 -0.163 -0.185 -0.221 -0.250 -0.280 -0.259 -0.269

Pofit /(Loss) % (1 07%) (127%) (I I I) (113%) (1 28%) (1 4 1 %) (147%) ( I 0%) (1 I 0%)

16

Freight Sector

Total Earnings 3,275 2,962 3,823 4,287 4,270 4,059 3,957 4,414 4,519

Total TKm 7,226 5,708 5,962 6,180 5,939 5,661 5,077 4,607 4,447

Earnings Rs/TKm 0.453 0.519 0.641 0.694 0.719 0.717 0.779 0.958 1.016

Costs RsAfKrn 0.441 0.553 0.551 0.541 0.624 0.767 0.880 1.015 1.058

Contribution /PKm 0.012 -0.034 0.090 0.153 0.095 -0.050 -0.101 -0.057 -0.042

profit/ (Loss) % (3%/6) (6%) 14% 22% 13% (7%) (13%) (6%) (4%/o)

Table 12: Profitability of passenger and freight services

6.2 The freight sector however had been operating under profit for three years i.e from 1991-92to 1993-94, but the profit margins are too low to compensate for the losses in the passenger sector.The profitability analysis show that during the period 1989-97 the freight carried in terms of TKmdropped by 38%. PR did show some improvement in its operations from 1990-91 up to 1992-93 andthe TKm carried increased from 5,708 million to 6,180 million, an increase of about 8%. This is alsoclear from the PR annual Revenue Statement where PR losses dropped from 2,754 million in 1989-90 to 897 million in 1992-93. However since 1992-93, PR losses has been increasing as is clearfrom the above table as the freight carried in 1997-98 dropped to 4,447 TKm which is an 28% dropfrom 1992-93.

6.3 The reduction in TKm and PKm resulted in PR fixed costs being borne by a smaller trafficbase. This resulted from the GOP decision to (a) inadequately fund recurrent budget oflocomotive spares and (b) delay the Project's locomotive backlog reduction program from being athree year scheme to more than six years which has also reduced the size of the program due tolone closure in June 1996. The Project had intended to enable PR to quickly recover itslocomotive capacity and hence traffic potential, but the above decisions nullified the Project'simpact.

7. Staff Strength

7.1 One of the success of the Project is control of staff costs. In 1989-90, PR employed133,261 employees which were reduced to 104,888 in 1997-98. The reduction in staff strengthhas been achieved by natural attrition and PR is likely to continue this policy in future as well.

17

Year NofSt£f

1989-90 133,261

1990-91 130,884

1991-92 124,436

1992-93 120,209

1993-94 116,026

1994-95 113,186

1995-96 104,281

1996-97 96,768

1997-98 96,111

Table 13: Staff strength of PR

7.2 However, one of the factors for success of the attrition program was the fact that during thisperiod GoP has banned any new recruitment for all departments unless needed for technical reasons.There is a risk that once the GoP lifts the ban, most of these vacant post may be filled due topolitical pressures. It is important that PR deletes most of these surplus posts and reduce thesanctioned strength of its personnel as well.

8. Public Service Obligations

8.1 One of the major successes has been to introduce the business approach in PR. Although notpurely commercialized as yet, but still a significant shift in management's approach towardshandling its operations on business lines is clearly visible. One of the concepts introduced by theProject was to separate PR commercially viable services and those services which are inherentlyloss making due to low tariffs and relatively higher fixed costs, but PR is obliged under GoPinstructions to operate these services to serve Public Service Obligations (PSO). In order to operatePR on purely commercial basis, the cost recovery has been split into two major streams:

(a) Loss making services which PR has to operate to serve Public Service Obligations(PSO)

(b) Other services

8.2 One of the major contribution of the Project was to make GoP recognize the fact that PRshould be financially compensated by GOP for rendering those loss making services and facilitieswhich are being maintained under PSO due to GoP instructions.

8.3 GoP has been contributing annually about Rs.1.3 billion to Rs. 1.7 billion towards PRfinances under PSO since 1990-91. PR however feels that the compensation under PSO is very low.PR consultants (CIE Consult) carried out a detailed study in 1996 to work out the actual lossesincurred by PR under PSO services. CIE Consult recommended Rs. 6 billion under PSO to be paidto PR by GoP. However during 1995-96 GoP did not remit any amount to PR under PSO which

18

resulted in higher overdraft from State Bank of Pakistan an incurred heavy financial charges andincrease in the overall loss for the year 1995-96. Similarly for the years 1996-97 and 1997-98, PRhas not received any funds from GoP under PSO.

8.4 In order to make PR a commercially viable entity, PR should not be operating any lossmaking service. In a competitive transport market, it is no longer possible for financially viablerailways to cross subsidize its annex services out of economic services. The profitability analysis forordinary passenger trains for the period 1995-96 is given in the table 14 below:

1995.9@s6\ Perce( n t_ o tota

Passenger Km generated 1.4 billion 7.3%

Revenue earned Rs. 0.2 billion 5.7%

Full cost Rs. 2.7 billion 30%

Contribution to loss Rs. 2.5 billion 45%

Table 14: Profitability analysis of ordinary passenger trains during 1995-96.

8.5 The above analysis shows that ordinary passenger trains contribute 30% to cost, recoveronly 5.7% revenues and account for almost half of passenger losses. Inspite of such a lowprofitability, PR is obliged to operate these services due to GOP instructions. Ordinary passengertrains cost Rs. 1.96 per PKm and earns only Rs. 0.15 per PKm. GOP needs to examine whetherthere really is a valid case for operating such services at a loss when financial resources availableto the country are scarce. Many of these ordinary passenger services could easily be replaced bythe parallel bus services.

8.6 PSO was a pre-condition for the World Bank loan, but GoP has withdrawn PSO paymentsto PR since 1995-96 and PR is still not allowed to close down its loss making services.

199. Loan Disbursements

1. Recommissioning of 46 D.E. Locos. 14.000 11.370 2.630

2. Traction motors 19.542 17.106 2.436

3. Roller bearings 10.544 10.013 0.531

4. Unit Exchange 21.000 16.144 4.856

5. MIS 3.000 3.000

6. UHF and VHF 6.600 6.600

7. Workshop Machinery 5.800 1.821 3.979

8. High capacity wagons 13.300 13.300

9. Wagon movers 2.000 0.947 1.053

10. Air brake equipment 0.442 0.442

11. Recommissioning of 2 GMUs 0.500 0.500

12. Supervisory control of Lahore - 2.000 2.000Khanewal

13. Technical Assistance, Studies 6.180 2.719 3.461

14. Miscellaneous unidentified 0.092 0.092Total (Million US$) 105.000 60.562 44.438

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