Dommsa of

The World BankFOR OmCIAL USE ONLY

Report No. 6107-PNG

STAFF APPRAISAL REPORT

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

June 3, 1986

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

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CURRENCY EQUIVALENt

Currency Unit - Papua New Guinea Kina (K)

US$1.00 = K 1.00K 1.00 = US$ 1.00

(As of December 1985)

ABBREVIATIONS

AADT - Annual Average Daily TrafficADAB - Australian Development Assistance BureauADB - Asian Development BankBPC - Budget Priority CommitteeBRRP - Bridge Rehabilitation and Replacement ProgramDCAT - Department of Civil Aviation and TourismDT - Department of TransportDW - Department of WorksEER - Economic Rate of ReturnFA - Force AccountICB - International Competitive BiddingLCB - Local Competitive BiddingNPO - National Planning OfficePMFA - Project Managed Force AccountPNG - Papua New GuineaPMU - Program Management UnitPTB - Plant and Transport BranchPWMO - Provincial Works Manager OfficeRMS - Road Maintenance StudyRMU - Road Maintenance UnitRWHO - Regional Works Manager OfficeSDTS - Staff Development Training SectionTIPS - Transport Investment Program StudyTOPS - Transport Operation Policy StudyVOC - Vehicle Operating CostVPD - Vehicle Per Day

FISCAL YEAR

January 1 to December 31

FOR OMCLPAL USE ONLY

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

Loan and Project Summary

Borrower: Independent State of Papua New Guinea

Amount: US$45.5 million equivalent

Terms: Repayable in 20 years, including five years of grace, at thestandard variable rate.

ProjectDescription: The objectives of the project are to: (a) improve land trans-

port through reconstruction, upgrading and maintenance ofnational roads; (b) enhance improvement of air transportthrough equipment replacement, improved safety standards andperiodic maintenance; (c) improve efficiency of road mainte-nance through provision of road maintenance equipment andmaterials; and (d) strengthen institution building andimprove the domestic construction industry through provisionof technical advisory services and training of local staff.

The project includes: (a) reconstruction and upgrading ofabout 80 km of national roads; (b) rehabilitation andreplacement of about 50 bridges totaling about 1,100 linearmeters; (c) regravelling of about 500 km of national gravelroads; (d) provision of road maintenance equipment andmaterials; (e) replacement of navigational, meteorologicaland communication equipment at 14 national airports andresealing/regravelling of runways, taxiways and aprons at16 airports; (f) technical assistance to Department of Works(DW), Department of Transport (DT) and Department of CivilAviation and Tourism (DCAT) to implement the proposed projectand prepare economic and engineering studies for futureprojects; and (g) on-the-job, local and overseas training ofDW, DT and DCAT staff.

The project will reduce vehicle operating costs, improvesafety at airports and strengthen DW, DT and DCAT. The mainproject risks are possible delays in imptementing civil workscomponents because of land acquisition problems and delays inmeeting policy and institutional objectives because of slowrecruitment of necessary e-.patriate staff. To reduce theserisks, the Government agreed to make available the right-of-way prior to the bid invitation. The project coordinator wasappointed prior to negotiations to ensure the timely appoint-ments of technical assistance staff and counterparts to betrained.

This document has a restricted distribution and may be used by recipients only in the performanceof their offcial dutie. Its contents may not otherwise be disclosed without World Bnlk authortion.

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Estimated Costs Local Foreign Total--- US$ million--

A. Civil Works-National road constructionand upgrading 4.6 8.7 13.3

Bridge rehabilitation and replacement 2.1 4.9 7.0National road regravelling 2.0 3.0 5.0Resealing/regravelling ofrunways, taxiways and aprons 0.8 2.0 2.8

R. Equipment and MaterialsRoad maintenance equipment and materials - 5.3 5.3Airport navigation, meteorologicaland communication equipment /a - 3.1 3.1

C. Technical Assistance and Training 1.5 7.3 8.8

D. Right-of-Way 0.4 - 0.4

Project Base Cost 11.4 34.3 45.7

E. CoatingenciesPhysical contingencies 1.4 4.2 5.6Price contingencies 3.3 10.1 13.4

Total Project Cost lb 16.1 48.6 64.7

Financing PlanIBRD 45.5 45.5ADAB - 3.1 3.1Government 16.1 - 16.1

Total 16.1 48.6 64.7

Estimated Disbursements:Bank FY 1987 1988 1989 1990 1991 1992

---- (MS$ million) - -

Annual 2.7 7.8 13.4 12.4 7.0 2.2Cumulative 2.7 10.5 23.9 36.3 43.3 45.5

Rate of Return: 34X

Staff AppraisalReport No. 195533 dated June 3, 1986

Mbp: IBRD 19553

/a To be financied by ADAB.

/b As of January 1986, and include US$6.6 million for taxes and duties.

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PAPiUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I* TRANSPORT SECTOR .............................................. 1A. Economic Setting .................. * 1Bo Transport System 2.................. ,. 2C. Government Expenditures on Transport Infrastructure ....... 4D. Policy, Planning and Coordination ......................... 4E. Sector Issues and Bank Strategy ........................... 5P. Previous Bank Financed Projects ........................... 6

II. THE ROADS .......... ee@99..9990999**ege*9999.9*9ee999*eee9e@e 7A. Tref Network ...... .......................... .. .............. 7Be Traffic s¢*+*****s*sv****^*es*¢e 8C. The Road Transport Industry 8............. 8D. Administration, Staff, Training ........................... 8E. Planning and Financing ... .................................F. Engineering ............ ................................... 10C, Construction ......... .................................... 10HS Maintenance . 12

III* THE PROJECT ........... 14 ..........................0 14A. Background and Rationale ... ............................... 14B. Objectives ......... . .................................. 14C* Main Features *.. ...... .e99,e99999'e9o9ee' ....... 15D. Detailed Description and Status of Preparation ............ 15E. Estimated Project Costs .................................... 18F. Financing .......... . 20C. Auditing ........... ............. * 20H. Project Implementation 9******9******. ..................... 20I. Procurement and Right-of-Way Acquisition .................. 21J. Disbursements ............ ........... ............... 24K. Environmental Aspects .99*e9........................... 24

IV. ECONOMIC EVALUATION ......................... 24A. Main Benefits and Beneficiaries ......... 24B. Economic Analysis ....................................... .. 25C. Overall Economic Evaluation ............................... 27D. Risks ...... . 27

The report is based on the findings of the Appraisal Mission consisting ofMessrs. B. Bjelogrlic (Engineer), G. Trnka (Engineer) and M. Le Blanc(Economist) who visited Papua New Guinea in October/November 1985.

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Page No.

V. AGREEMENTS REACHED AND B 28

TABLES TO THE MAIN REPORT

1. List of Road Maintenance Equipment.............................. 302. Airport Equipment Replacement Program .................... 313. Program for Rese"ling/Regravelling of Runways,

Taxiways and Aprons........................................... 324. List of Consultant Services....... ...................... ....... 335. List of Technical Assistance and Training...................... 346. Detailed Project Cost Estimates................................. 357. Estimated Schedule of Disbursements............................. 36

ANNEXES1. Action Program for Project Implementation..o..... o .... o .......... 1372. Project Implementation Schedule. ..........e..e......*X***..e.... 412. Related Documents and Data Available in the Project Filpe........ 42

MAPS

1 IBRD 195533

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

I. THE TRANSPORT SECTOR

A. Economic Setting

1.01 gapua New Guinea (PNG) consists of over 600 isiands with an ares of461,700 km . The mostly uninhabited islands are spread over 2 million km ofthe South Pacific Ocean. The mainland consists of the eastern half of-New Guinea island bordering with Indonesia. It comprises some 85% of the landsurface. PNG has an extremely rugged topography. The central mountain rangecompletely divides the north and south. It consists of numerous ranges andisolated valleys at altitudes between 1,500 and 3,000 m, known as the CentralHighlands. Unstable soil conditions reflect the relatively young geologicalage of the highland mountains. The foothills have been deeply cut by riversystems, which has created swamps near the coast, especially in the southwestand northwest of the mainland. Rainfall averages about 2 m per year; someareas get more than 4.8 m with a high intensity (up to 200 mm/hour) causinglandslides and constantly changing river patterns. Natural vegetation variesfrom dense jungle to bushland. Only about 10% of the land, in small scatteredpockets, is suitable for agriculture. The land is rich in minerals, but forthe most part they are difficult to access.

1.02 Population centers are small, dispersed and isolated; there are morethan 700 tribal groups speaking different languages. Settlements are concen-trated on the better agricultural lands on the mainland. About one third ofthe 3 million inhabitants live in the Central Highlands which occupies about14X of the land surface. Population densities there reach some 30 persons perkm , about saturation level considering that livelihood depends on small scalefarming. Another third lives on the fertile northern coast of the mainlandwhere the main city and former capital, Lae, is located. The western swampyareas of the country are the poorest. Emigration has been steady from bothhigh density and low economic potential areas to the major islands, wheremining and plantations offer employment, or to main citier, particularly thenew capital, Port Moresby. Still, only some 13% of the population isconsidered "urban." As a result of migration, regional population growthrates vary widely; '-he 1966-1980 censuses imply a 2.3% average growth ratep.a., but it is believed to have increased, further adding to populationpressure on good land.

1.03 The economy is dependent on imports and .exports, yet due to thetopography, transport is difficult and expensive. The country was largelydeveloped by air, initially to serve gold fields; the air network is wide-spread and in some areas is still the only means in and out or the maintransport mode for long distance travel. Many small ports were developed toserve immediate hinterlands, and shipping remains the main means for longdistance freight. However, roads have been built in the more densely populatedand developed areas. It is estimated that about two-thirds of the populationis now within reach of a road. Roads form isolated sub-networks with the

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recently built 400 km Highlands Highway the exception, alone in serving longdistance traffic.

B The Transport System

1.04 Most transport takes place in the relatively few richer areas,converging on the main ports of Lae and Port Moresby on the mainland, and onthe plantation and mineral rich islands. In other areas transport flows areso low that they can hardly justify the provision of even minimum standardinfrastructure; when provided, the infrastructure remains underutilized for along time and proves to be costly. However, this is unavoidable if thescattered populations are not to be cut off.

1.05 Each transport mode is best suited for certain services but theygenerally complement each other. Transport volumes remain low: not consider-ing copper and timber exports, which move through specialized ports, overseastonnage totals some 1.4 million tons, of which almost one half is fuelimports. Coastal shipping carries some 350,000 tons of freight and26,000 passengers annually. Annual air travel involves about 1.2 millionpassengers but only 22 tons of freight. There are no data on traffic volumesand distances by small boats and trucks, but they would not be as important asother traffic flows. However, other modes lost freight to road transport asncw roads were opened, while passengers continued to prefer air travel.During the 1980s fuel import volumes have remained relatively stable and wouldreflect a stable traffic volume, except for some increase enabled by betterroads or more efficient vehicles or their utilization. The charpcteristics ofeach mode are described below.

(a) Road Transport

1.06 Roads and road transport are discussed in detail in Chapter II.

(b) Air Transport

1.07 The infrastructure comprises some 450 aerodromes: 160 are smallprivate airstrips; 20 at main towns, have runways longer than 1,400 m, aregenerally 30 m wide and can handle small jets; 3 are customs airports; and 3,at Port Moresby, Wewak and Kieta, are international airports although only theJackson airport at Port Moresby can handle international long- and medium-haulaircraft. The airport equipment is rudimentary and in many cases is more than20 years old. For safety reasons, this equipment urgenly needs to bereplaced, and the project addresses this issue.

1.08 The commercial aircraft fleet consists of about 200 aircraft, mostlysmall, suited to the small airfields and low traffic flows. They carried some800,000 passengers in domestic flights (1983), 600,000 in scheduled flights onaain routes and 200,000 by charter. Four airlines offer scheduled services,and 20 carriers operate in the charter market. Air Niugini, the nationalairline, has 60Z of the market. While tonnage carried has decreased steadilyto about half its 1975 levels, especially where alternative roads wereimproved, passenger traffic has increased slightly. iir Niugini has scheduledservices to the 20 main airports but overall densities are low.

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1.09 Despite Air Niugini'a monopoly on high density trunk routes (whichis not fully enforced) and on larger aircraft and the requirement that otherairlines be licensed for scheduled routes, the system is competitive. Faresare regulated on scheduled routes; despite high load factors on some routes,even private airlines are not always able to cover their costs. Air Niuginiexperiences heavy losses, partly because it uses larger aircraft expensive tooperate. Air fares are not unduly high considering the flying conditions,high labor cost, seasonal variations in demand and low traffic flows.International Air Niugini flights carry fewer than 15,000 passengers peryear. These flights became profitable when Air Niugini acquired a wide-bodiedaircraft to operate them.

1.10 A Transport Investment Program Study (TIPS) financed under a BankRoad Improvement Project (Loan 2265-PNG), identified a number of aerodromeswhere equipment was critically deficient and posed a major safety risk as wellas those aerodromes where runways, taxiways and aprons required urgent reseal-ing and/or regravelling to maintain flight operations. The project willassist the Government by financing the more urgent of these needs (para 3.09and 3.10).

(c) Maritime Transport

1.11 PNG has 18 relatively well equipped sea and river ports, 16 managedby the Papua New Guinea Harbors Board and 2 by mining companies, and some 400small ports. Forestry companies are also developing their own ports. Eachport serves different hinterlands and cannot easily substitute for eachother. They also handle different products whose exports show differenttrends; the great variability in traffic flows is not reflected in totaltraffic statistics. Two thirds of the overseas traffic corresponds to importsand the lack of cargo balance and empty returns is likely to persist. In the1970s imports accounted for practically the full traffic growth; traffic hasdeclined in recent years reUlecting the world -ecession and loss of traffic toprivate ports, especially at Lae, Rabaul and Madang. Overseas traffic(excluding mine-related traffic) currently is about 1.5 million tons, withPort Moresby and Lae handling 70X; containerization is rapidly increasing,even for coastal traffic.

1.12 Coastal shipping volumes also vary considerably over time, butoverall have not decreased in the 1980s: volumes represent some 400,000 tonsper year. The 1983 statistics by the Maritime Division show that some 23,000passengers and 280,000 tons moved between main ports, 562 originated at Lae,11% at Port Moresby and 8% at Rabaul. Some 28,000 passengers and about200,000 tons moved between main and feeders ports with Port Moresby shippingtwo thirds due to the Ok Tedi mine development. Only a limited tonnage,estimated at 2000 tons per year, moves between feeder ports. Some 55% of thecargo consists of beer and empty bottles, 20% of foodstuffs and 25% ofmanufactures.

(d) River Transport

1.13 Small boat services still dominate transport in eight provinces, andare as important as road transport in another five. It is estimated that

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there are some 4,000 small boats less than 10 meters long. Their use is notregulated although their regulation is now a function of the provincialgovernments which are themselves major small boat operators. Only minimuminvestments have been made in landing and other small boat facilities.

C. Government Expenditures on Transport Infrastructure

1.14 Of central government's past expenditures on transport infrastruc-ture, excluding administration roads have absorbed on average some 60%-70% ofthe funds. Except for a decrease in 1982, expenditures on roads have steadilyincreased, from K30 million in 1980 to K51 million in 1985, with about 601going towards capital investments. Foreign assistance-has financed theequivalent of 85Z of capital costs. Aerodromes, their civil works, equipmentand subsector administration, absorbed some 20X. Expenditures in civilaviation infrastructure decreased in 1983, and have not yet recovered previouslevels; in 1984 they amounted to some K12 million. Expenditures are notreadily split into categories; the subsector received no foreign assistance.Wharves accounted for only about 5% of central government expenditures, or K2million in 1984, all domestically financed. Central administration absorbedbetween 4% and 10%.

1.15 The National Government's overall expenditures on transportincreased from some K32 million in 1979 to K58 million in 1985. Theseexpenditures averaged about 1OZ of the total annual Government budget duringthis period. Annual costs for the maintenance of the national road networkduring this time have varied between K 11 million and K 21 million for thisperiod depending on funds available rather than requirements. While thehighway system had not increased substantially over this period, DW reportsthat maintenance budget requirements are rising appreciably due to increasingcosts. Budgetary allocations for maintenance of airports have increased fromK 1.0 million to K4.4 million , with an average increase of about 30%, andpresent allocations are considered adequate.

D. Policy Planning and Coordination

1.16 Various departments are responsible at the national level fortransport organization, policy and infrastructure: The Department ofTransport (DT), the Department of Works (DW) and the Department of CivilAviation and Tourism (DCAT). Investment proposals are submitted to andfinalized by the National Planning Office (NPO) from which they are submittedto the National Priority Committee and the National Executive Council forfinal approval. The Price Controller in the Ministry of Finance confirms orsets freight tariffs and fares. However, in practice this control onlyapplies to shipping and aviation and the Highlands Highway. The 19 provincialgovernments are responsible for transport matters in their own jurisdictionsand the Police Department is responsible for enforcing the road transportregulations.

1.17 Planning for the transport sector is the joint responsiblity of DTand DCAT and NPO which compiles annual investment programs for each sector.Investments in the transport sector are part of the National Public Expendi-ture Plan (NPEP). Apart from the NPEP, the Government does not have an

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explicit transport development program. The DT and DCAT carry out reconnais-sance studies of exsisting facilities, identify shortcomings and assessimprovements required to meet transport demand. In addition, DT and DCAT mayincorporate into their submissions to the NPO justifiable projects identifiedby other agencies of the National Covernment and may evaluate projects putforward by provincial governments that seek financial assistance.

E. Sector Issues and Bank Strategy

1.18 At the urging of the Bank and with the assistance of consultantsfinanced under the ongoing Road Improvement Project (Loan 2265-PNG) theGovernment carried out a Transport Operations Policy Study (TOPS), to identifythe sector issues, and a Transport Investment Program Study (TIPS) to preparea sector investment strategy and assist in the preparation of a 5-yearNational Investment Program. The TIPS was completed in late 1984. The TOPSreport was completed in mid-1985. From these two reports, the Governmentprepared its own Transport Development Strategy which identified the followingmajor issues:

(a) Transport Policy. The lack of a clear transport policy has hamperedthe development of the sector, and, as such, the Government has found itselfwith a far more pervasive role than it feels should be required to ensureadequate levels of service. In addition there is considerable disparity inthe treatment of the different modes, especially aviation and coastal shippingwith regulations varying greatly resulting in inefficiencies and higher costsfor consumers.

(b) Cost Recovery. In the past, subsidies have been allocated tovarious modes either directly or indirectly and on unequal terms. Air trans-port, with about 30% cost recovery has benefitted the most while road trans-port revenues covered about 70% of total expenditures by the central govern-ment of which roughly one half were allocated to maintenance. Port charges onthe other hand more than fully covered total costs of the Harbours Board.

(c) Investment Criteria. Low production levels, low populationdensities and high construction costs will continue to make it difficult tojustify large, high standard infrastructure projects, based on traditionaleconomic criteria. However, the use of social criteria to allocate prioritiesis not acceptable.

(d) Localization of Transport Posts. Many senior- and middle-managementposts in Government agencies are held by expatriates employed under short-termconracts (2-3 years), resulting in a lack of staff continuity. TheGovernment, concerned about this issue, is attempting to develop a policy oflocalizing staff. However, its approach to date has been uncoordinated,yielding poor results.

1.19 The Government has recently reached a consensus on a strategy totackle the above four issues (para. 1.18) that involves deregulating thetransport industry, stimulating competition and reducing its own involvementin the provision of transport services as proposed by the consultants underTOPS. The implementation of the new strategy is expected to focus on thefollowing:

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(a) Investment Criteria. Capital wi l be allocated to earn the ma'imumrate of return and should be targeted at supporting regional developmentprograms and encouraging private investment. Additional efforts will be madeat properly managing and maintaining the infrastructure as well as ensuringthat appropriate safety standards are met.

(b) Government Involvement in Transport Services. The Government willseek to reduce its direct involvement in providing transport services byencouraging competition and private investment through deregulation of entryand prices. The major impact of this policy direction will be on aviation andcoastal shipping.

(c) Cost Recovery. More emphasis will be placed on ensuring that usersand beneficiaries of transport services meet all the costs incurred on theirbehalf including operating and maIntenance costs. Air transport will have thelargest gap to fill. Therefore, the Government intends that all subsidies bemade explicit, be quantified and be subject to periodic review to ensure thattheir purpose is still valid.

1.20 The Bank has encouraged and supports this strategy. The expansionof the transport network will be supported where feasible, and emphasis willbe placed on the maximization of efficiency of the transport system throughpolicy changes favoring increased competition and private sector participationin the provision of transport services. The issue of staff localization willrequire long term efforts beginning with the basic education system. The Bankis supporting the Government's effort through technical assistance and train-ing both formal and on the job, to gradually increase local narticipation.The major changes proposed in the new regulatory policy are expected to beimplemented over a period of several years in order to reduce the shock of anabrupt change.

F. Previous Bank Financed Projects

1.21 The Bank Group has assisted the transport sector through four high-way and two port projects totaling US$101.7 million. only the Road Improve-ment Project (Lcan 2265-PNG 1983) is still under implementation, all othershaving been completed. A project performance audit report dated June 16,1977, for the First Highway Project (Credit 204/Loan 693-PNG) found that theBank Group's refusal to provide supplementary financing for the 90% projectcost overrun was unnecessarily harsh and that international competitivebidding (ICB) *mder the conditions prevailing in PNG during 1970 may havecontributed to the cost escalation. The Second Highlands Road ImprovementProject (Cr. 677-PNG in 1977), completed in 1983, also suffered from an under-estimation of costs by 75%, and the project scope was subsequently reduced.

1.22 The Third Highway Project (Credit 1030 Loan 1856-PNG in 1980) wascompleted in June 1985 and provided for improvement and paving of 138 km ofthe Highlands Highway between Kassam and Daulo Passes and for technical assi-stance, for road maintenance, rural transport, detailed engineering, construc-tion supervision and training; and for procurement of traffic counting equip-ment. The project completion was delayed by about 12 months due to civilunrest and increases in the amount of earthworks required because of unstable

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slopes. The ongoing Road Improvement Project (Loan 2265-PNG) provides forrehabilitation and upgrading of 277 km of provincial roads; rehabilitation andreplacement of 25 bridges; improvement of 54 km of the Highlands an; EngaHighways; and consultant services and technical assistance for: (i) feasibi-lity studies, detailed engineerin8 and 'onstruction supervision; (ii) trans-port policy studies and the preparation of a transport sector development planand associated investment programs; and (iii) strengthening of DTCA and DWSincluding training. Project implementation is proceeding satisfactorily,albeit with some delays. Construction of project provincial roads and bridgesis progressing on schedule. Out of four national road sections one is underconstruction, one is under bidding procedure, one is under redesign and bidsare expected to be invited in July 1986, and one financed by the Kuwait Fundhas yet to start. All project studies have been satisfactorily completed.

1.23 While all of the projects to date have been completed successfully,the experience gained raises several points of special interest:

(a) land acquisitien remains a long and troublesome process and islikely to continue affecting project implementation in the future;

(b) the recruitment and training of PNG nationals for professional postsis difficult due to the insufficient number of qualified candidatesfor the engineering school. This is likely to be a long-termproblem; and

(c) the need to have detailed design completed rather than preliminarydesign before bidding is important to avoid problems at theimplementation stage.

II. ROADS

A. The Network

2.01 PNC has a road network of about 19,740 km of which about 1,280 kmare seaLed and the remaining 18,460 km are gravel/earth roads. About 4,870 kmof the network are national roads under responsibility of the National Govern-ment. In fact the road system consists of a number of separate regionalsubnetworks which are located primarily in and near main coastal towns and inthe Central Highlands. The absence of an integrated road network results fromthe low population density, the mountainous terrain, difficult soil and harshclimatic conditions which lead to high construction costs. Road conditionsvary from one region or provinces to another.

2.02 The roads, particularly provincial roads, are generally in poorcondition due to inadequate uiaintenance and overloaded vehicles. In addition,weak or missing bridges and lack of access roads diminish the usefulness ofthe existing network. Also, dany existing bridges are below standard loadcapacity, made of temporary materials, without permanent abutments or piersand often overflow during regular flooding. Some of the bridges are either inimminent danger of collapse, have extremely low load restrictions (up to

1.0 ton) or require abnormally high maintenance expenditures. To correct thissituation, the Government in 1983 started a bridge rehabilitation and replace-ment program with assistance provided under the ongoing Roads ImprovementProject (Loan 2265-PNC). aese efforts will be expanded under the proposedproject (para. 3.07).

B. Traffic

2.03 There are an estimated 49,600 vehicles in PNG of which 35X are carsand station wagons, 392 light commercial vehicles, 142 trucks, 62 buses, 3Xmotorcycles and 32 other vehicles. New registrations have averaged about11,0l0 p.a. during the past five years, but the proportion of commercialvehicles has increased steadily during the past ten years, especially in theCentral Highlands where most economic activity is concentrated. However,annual scrap rates for the vehicle fleet are high because of poor road condi-tions, inadequate vehicle maintenance and overloading of both passenger andfreight vehicles.

2.04 Road traffic volumes are generally low, reflecting seasonalvariations and short distances. Travel demand peaks just after the annualcoffee, copra and cocoa sales. With the exception of the Highlands Highway,which carries an average traffic volume of about 600 vehicles per day, mostlong distance traffic is by air for passengers and by sea for freight.Approximately 402 of the traffic on the Highlands Highway is comprised ofheavy trucks and buses.

C. Road Transport Industry

2.05 Several large expatriate managed companies dominate the for-hireroad transport operations, especially in the areas served by the HighlandsHighway. In contrast to companies run by locals which lack entrepreneurshipand managerial staff and operate mainly as subcontractors, the expatriate-managed companies provide an efficient, reliable and well-supported service.Overregulation of routes, tariffs and licensing has resulted in unnecessarilyhigh freight tariff rates especially in the Highlands Highway area. Awarenessof this problem led the Covernment to introduce a new transport policy basedon consultants proposals under TOPS (para. 1.18). Technical assistance wouldbe provided under the project to assist the Government in implementing thisnew policy.

2.06 Passengers and freight on roads other than the Highlands Highway aremostly carried by Public Motor Vehicles. These are privately owned minibusesand light commercial vehicles, often the property of community groups.Operators and clients normally negotiate the rates and sometimes withmediation by local government councils or by provincial authorities.

D. Administration, Staffing and Training

2.07 Responsibility for policy, planning, construction and maintenance ofthe road network is divided between the National Government and the provincialgovernments. The DT and DW administer the national roads and the provincesand municipalities handle the provincial and local roads, respectively.

2.08 The DT, with its four divisions (land transport, policy and planningand maritime services and management services), handles all policy and plan-ning matters. The DW, with its two divisions (operations and technical), isthe Government's executive agency and handles the major externally financedprojects. Country wide, there are two regions (Southern and Northern) and the19 provinces. Each region has a Regional Work Manager Office (RWMO) respon-sible for coordinating and monitoring execution of capital and maintenanceworks financed by the National Government and providing technical assistanceto the provinces. Each province has a Provincial Work Manager Office (PWMO)responsible for executing minor capital works and maintaining all NationalGovernment fixed assets including the national road network, airports, watersupply and buildings.

2.09 Most senior- and middle-management posts in DW, DT and DCAT are heldby expatriates engaged on short-term contracts (2-3 years). Qualified PNGnationals are in extremely short supply in most government agencies. About75Z of DWs professional staff are expatriates and many positions remain vacantin both field and headquarters. At present only 190 engineering and super-visory positions are filled, compared to 253 approved positions. The numberof national students entering civil engineering is too low given that thefailure rate is high (86X). For example, only 11 civil engineering studentswere expected to be graduated in 1985, just four of them will be available onthe open market, and most likely only two young graduates are expected to joinDW. It is acknowledged that it will take many years to train local staff forall professional positions. The Government is aware of this situation and hasinitiated reforms at the national and provincial levels in order to rationa-lize the public sector and to-design an improved and vastly expanded trainingprogram for middle and senior local officials. In 1984 a Program ManagementUnit (P1U) was created to analyze management performance in key governmentagencies and provinces and on behalf of the Budget Priorities Committee makerecommendations on how to strengthen management performance. The Bank issupporting and participating in this activity through provision of advisorystaff being financed under an ongoing project. The PMU is making progress inreviewing the Government's administrative structure, and its final recommenda-tions are expected in the second half of 1986.

2.10 The Staff Development and Training Section (SDTS) of DW continues tooffer courses at two training centers (Boroko and Madang) to acceleratestaffing with qualified nationals. Training facilities are adequate buttraining has been hampered by a shortage of national instructors and trainees.Training efforts have centered on fellowship programs and on courses forsemiprofessionals, technicians, foremen and clerical staff. The proposedproject would make provision for teaching aides and would also includeoverseas training.

E. Planning and Financing

2.11 The DT Policy and Planning Division is responsible for preparing andevaluating projects in the transport sector, coordinating investments withinDT and the National Planning Office (NPO), preparing feasibility studies andtraffic surveys and preparing capital investment plans and annual programs.

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2.12 The TIPS, carried out by consultants and a Ports Development Study,financed by the ADS and completed also by consultants, reviewed transportneeds and identified the highest priority roads, aerodromes and ports to beimproved. These studies formed the basis for DT's Five-Year Development Planwhich is included in the draft of the First National Development Plan (1986-90). In the road subsector, the plan aims to sustain and improve that portionof the road network that carries a significant volume of traffic and to expandthe road network in those areas with good development potential. For the roadsubsector, the program established amounts to about K128 million over 1986-90period for which over 90Z of the external financing has been identified. Thesources of funding include: ADB-47%, IBRD-30%, EEC-1ll and Kuwait Fund-4%.About 8% of the required funding remains to be identified. In the civilaviation subsector, the plan includes improvement of important nationalairports through replacement of existing airport equipment and through reseal-ing and regravelling of runways, taxiways and aprons. The airport programtotals about K13.5 million of which about K5.5 million is included in theproposed project. No other sources of external financing have been identi-fied. In addition, the Plan aims to strengthen sector institutions anddevelop policies to enhance transport efficiency. During negotiations, it wasagreed that the annual consultation between the Government and the Bank on thedraft investment program be done in context of the annual consultation on thetotal public expenditure program in PNG.

2.13 Financing for construction, improvement and maintenance of nationalroads and airports is provided in the National Government's annual budget. Inaddition, the provincial governments' fund provides for provincial roadsthrough their untied grants and other internal funds or through grants appro-priated through the National Public Expenditure Plan (NPEP). Some provincialgovernments make bulk allocations to district councils or communities formaintenance or minor improvements of local roads. Provincial governments alsohave some revenue generating authority and may obtain additional funds forroadworks through the levy of local taxes.

F. Engineering

2.14 The DW is responsible for detailed engineering of all civil works,including road and airports. Most large projects are designed by consultantsmost of which are subcidiaries of Australian and New Zealand firms, only smallprojects are designed by DW and its PWMOs. Recently, road and bridge designstandards were revised and updated to reflect various types of terrain andtraffic volumes. During negotiations it was agreed with the Government thatdesign standards would be continuously reviewed and the most economical stan-dards used.

G. Construction

2.15 Since domestic construction capacity remains limited, most majorconstruction works on national roads have been carried out by foreign contrac-tors, especially for externally financed projects. Some construction works onnational roads have also been carried out by force account (day labor) or byits variant, Project Managed Force Account (PMFA), which involves the use ofsubcontractors, labor and plant hired under a construction management team of

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consultants engaged by DV. Sections of the Highlands Highway, provincialroads and bridges were built through PMFA under the Second Highlands RoadImprovement Project (Credit 677-PVC) and the Road Improvement Project (Loan2265-PNC).

2.16 Provincial governments often employ DW on an agency basis either toexecute or call contracts for the construction of small projects on provincialand village roads. Roadworks on village roads are carried out largely bymanual labor but sometimes with equipment, usually supplied by DW, which alsoprovides technical assistance to the local government councils.

2.17 Construction costs in PNC are high and in mountainous terrain mayreach up to US$0.6 million per km of two-lane national road and US$120,000 perkm of provincial road. Despite high costs, civil engineering contracts in PNCare not of a magnitude, either in scale or frequency, to support a comprehen-sive domestic contracting industry. Local contracting firms can be generallydivided into three categories: (a) expatriate companies or subsidiaries ofoverseas companies; (b) medium size domestically owned companies; and(c) small domestically owned companies. In category (a), some six expatriatecompanies can execute contract works in excess of K 5 million; in addition,one domestically owned and managed company could qualify in this category. Incategory (b) some six or seven domestic companies have now been involved incontract works up to K 300,000. In category (c), 30 to 40 domestic companiesoperate mainly on a plant hire basis but they can also occasionally performsubcontract works. In additiont there are many owner-drivers in the country,who usually operate a single truck or plant. At present, sufficient roadconstruction equipment is available in the country to cater to its likelyneeds. The domestically owned contracting companies face many problems. Eachof the category (b) and (c) firms lacks the ability to manage its projects,both in construction techniques and in administrative/financial skills. More-over, they have difficulties in obtaining work on a continuous basis.

2.18 Since the Government wishes to promote the domestic road construc-tion industry, the Second Highlands Road Improvement Project (Credit 677-PNC)included a component providing technical assistance to domestic road construc-tion contractors. Under this component, a consultant drafted a contractor'smanual in 1978 and later concentrated on field training of six or seven domes-tically owned and managed firms that had the basic equipment fleet and theentrepreneurial spirit necessary for further development. However, therelative shortage of suitable small road construction or maintenance contractshampered the success of these training efforts. Under the Third HighwayProject (Loan 1856/Credit 1030-PNG), the Government undertook to investigatefurther ways of promoting the domestic road construction industry and reportedto the Bank Group on any measures taken. Under the Road Improvement Project(Loan 2265-PVG), DW was to supply work to domestic contractors by carefullyapportioning of small roadworks. Through these projects, the Governmentrealized all problems and difficulties in developing the domestic constructionindustry and has now reaffir~.ed its commitment to revive and continue theprevious efforts and to take corrective measures to develop the domestic con-struction industry. During appraisal of the proposed project, DV agreed on anAction Program that would immediately assist the industry by: (a) providingtechnical assistance in professional skills to medium-size domestic

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contractors in order to enable them to bid competitively for projects in theDw program; (b) reviewing the DW program for 1986 and structuring someprojects to make them suitable for these contractors; and (c) encouragingthese contractors to form joint ventures with larger companies. It was agreedthat the technical assistance services needed for the implementation of theabove Action Program be financed under the ongoing Road Improvement Project(Loan 2265-PNG). In addition, the proposed project would provide such activi-ties as further technical assistance and training to the domestic contractors(paras. 3.13) in order to develop the industry.

2.19 Major construction projects which are externally financed areusually supervised by the foreign consultants who carried out the detailedengineering. Smaller or locally financed contracts are supervised from DWheadquarters or by PWMOs, sometimes with assistance from consultants. Thequality of supervision is generally satisfactory.

H. Maintenance

2.20 Maintenance of national roads and bridges is the responsibility ofDV and is performed through the 19 PWMOs. The technical standards ofmaintenance are satisfactory but the level of maintenance has been inadequateand particularly routine maintenance is poor. The major reasons forinadequate maintenance were: (a) the lack of a separate road maintenancebranch within DW and staff solely employed on road maintenance till veryrecently; (b) the lack of planning, programming and monitoring of road main-tenance operations; (c) the distribution of maintenance allocations amongPWMOs without consideration of road conditions, traffic volume and climaticand geological conditions; (d) the diversion of maintenance funds to roadimprovements; (e) the high cost of plant and vehicles handled by the Plant andTransport Branch (PTB) of DV (para. 2.25); and (g) the lack of routine main-tenance equipment. In the past, budgetary allocations provided by theNational Government for maintenance of the national road network were adequateand the Government is expected to continue to provide sufficient funds duringproject implementation and thereafter. During negotiation it was agreed thatannual consultation between the Government and the Bank on road maintenanceprogram be done in context of the annual consultation on the total publicexpenditure program in PNG.

2.21 Road maintenance in PNG was reviewed in depth under the Road Main-tenance Study financed under the Third Highway Project (Loan 1856/Credit 1030-PNG). The study was carried out by consultants, and was completed in June1985. Under the study, consultants made recommendations for improvement ofthe existing organization at all levels, road maintenance management andfinancial procedures, and they identified road maintenance requirements interms of equipment, materials and manpower for various road maintenanceoperations. The consultants also prepared guidelines for road maintenanceplanning, programming, costing, and monitoring as well as for execution of allmajor road maintenance operations. To improve road maintenance throughimplementation of these guidelines, the consultants identified staffingrequirements and training needs. In accordance with consultants proposals,about 460 supervisory and clerical staff would be trained at the two existingtraining centers (para. 2.10). The program for 1986 was reviewed and

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discussed with the Government and found satisfactory but the selection cri-teria should be firmed up. During negotiations it was agreed that theGovernment will (a) spell out criteria for selection of staff to be trained by!)ecember 31, 1986; and (b) furnish to the Bank for comments by September 30 ofeach year during project implementation a staff training program for thefollowing year.

2.22 In line with the consultants' proposals, the Road Maintenance Unit(RMU) was created within DW. The RMU is headed by the Principle Road Main-tenance Engineer who was appointed as of March 1, 1985. Other posts need tobe filled. The DW is making progress in this regard. At the regional level,DW is expected to appoint regional road maintenance engineers and techniciansduring 1986. Similarly, at the provincial level, DW plans to appoint roadmaintenance engineers and technicians during 1987, after RMU finishes itsproposal on provincial reorganization.

2.23 The RMU, with the study team's help, updated the inventory of roadsand bridges and collected other relevant data such as traffic volumes, avail-ability of materials, climatic conditions, etc., so for the first time thel9A6 road maintenance budget levels will be based on real needs as opposed tohistorical demand levels. Based on these updated road and bridge inventories,DW prepared five-year resealing, regravelling and bridging programs. Theregravelling and bridging programs are available in the project file. TheAsian Development Bank (ADB) has agreed to finance a resealing/sealingprogram, and, in order to economize on maintenance expenditures by avoidingfrequent regravelling, DW decided to gradually seal heavily trafficked shortroad sections near and within urban areas starting in 1986. Regravelling andbridging 5-year programs include about 2,700 km of national gravel roads to beregravelled and 86 bridges and 21 river crossings to be rehabilitated andreplaced. To improve routine maintenance, and in line with consultantsrecommendations, DW is planning to establish three groups of routine mainte-nance units for: (a) general maintenance operations (cleaning culverts,bridges and ditches, grass and bush control, etc.); (b) grading and reshapingof gravel roads; and (c) patching potholes of bituminous roads. The proposedproject would assist the Government in implementing the regravelling andbridging programs and would include procurement of road maintenance materialsand specific equipment needed for routine maintenance.

2.24 Maintenance of provincial and local roads is the responsibility ofthe provincial governments. Certain provinces allocate a reasonable amount ofmoney for maintenance while others allocate very little and concentrate onbuilding new roads. Except for two provinces (Western Highlands and NorthSolomons), maintenance of provincial and local roads is being carried out byDW as an agent of the provincial governments. However the extent of mainte-nance works and the provision of funds depend entirely on the provincialgovernments.

2.25 The PTB is responsible for procurement, servicing, repairs andmaintenance of equipment used by government departments including the police,health, hospitals and provincial governments. The PTB hires out plant andvehicles to the _.aer departments, on the basis of individual hourly, daily ormonthly hire rates. Operators and fuel are usually provided by the user. The

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hire rates appear to be substantially above hire rates in the private sector,however. Therefore DW hires plant and vehicles from the private sector ratherthan use PTB's. As a result the plant and vehicles allocated to roadmaintenance and construction are currently underutilized. This problem isbeing addressed in the Study of DW Heavy Plant and Equipment financzd by theADS. The objectives of the study are: (a) to determine minimum plantrequirements and appropriate hire rates; (b) identify possible courses ofaction to improve existing plant procurement, disposal policies, maintenanceand procedures; and (c) identify possible courses of action to implementpractical management information systems including staffing and training. Thestudy will be completed by the end of 1986 and based on consultants recommen-dations, the Government should prepare an action program to improve presentpoor performance at PTB. During negotiations, it was agreed that theGovernment will furnish to the Bank the action program for review and commentsby June 30, 1987. Although the-DW has a great many plant and vehicles, thereis a shortage of specific equipment particularly for routine road maintenancesuch as pavement breakers, bitumen hand sprayers, premix spotmixers,vibrators, and hand operated rollers, grass cutters, etc. which would befinanced through the proposed project.

III. THE PROJECT

A. Backround and Rationale

3.01 The Bank Group has been actively involved in the transport sectorsince 1969. Since then, three highway projects and the two port projects havebeen completed, improving the transport sector. These efforts are continuingunder the ongoing Road Improvement Project (Ln 2265-PNG). In February 1984,upon completion of the TIPS financed under this project, the Government pre-pared its Transport Sector Plan in the context of the National Medium-TermDevelopment Plan (1986-90). To implement the sector plan, the Governmentapproached several financing agencies including the World Bank for assistancein financing the highest priority projects in the road and civil aviationsubsectors. The proposed project would assist the Government in implementinga new transport policy which evolved with Bank's assistance and whichemphasizes application of new investment criteria, greater role by the privatesector and greater cost recovery. In addition, Bank involvement in theproposed project is designed to further institutional strengthening in thevarious subsectors.

B. Project Objectives

3.02 The global objectives of the project are to: (a) improve landtransport through the reconstruction, upgrading and mainteaance of nationalroads, and to reduce vehicle operating costs; (b) enhance air transportthrough equipment replacement, improvement of safety standards and resealingand regravelling of airstrips, taxiways and aprons; (c) improve efficiency ofroad maintenance through provision of road maintenance equipment and materi-als; (d) strengthen the institution building and improvement of the domesticconstruction industry through the provision of technical advisory services andtraining of local staff.

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C. Main Features

3.03 The project would be implemented over a period of five years andwould consist of:

(a) reconstruction and upgrading of three national road sectionstotalling about 80 km.;

(b) rehabilitation and replacement of about 50 bridges totaling about1,100 linear meters;

(c) regravelling of about 500 km of national gravel roads and provisionof road maintenance equipment and materials;

(4) replacement of navigational, metereological and communicationequipment at 14 national airports and resealing or regravelling ofrunways, taxiways and aprons at 16 airports;

(e) consultant services for economic and engineering studies andconstruction supervision; and

(f) technical assistance to aid DW, DT, and DCAT in (i) implementing anew transport policy; (ii) establishing a gravel pit inventory,(iii) researching possible uses of coronous materials for roadmaintenance; (iv) developing the domestic construction industry; and(v) training of local staff and institution building.

D. Detailed Description and Status of Preparation

(a) Reconstruction and Upgrading of National Roads

3.04 Mai-Bavusi (13 km). The proposal for this section of highway on NewBritain Island is to upgrade it to bitumen standard. The existing gravel roadhas an adequate alignment over flat to rolling terrain and serves an area ofthe country which has been developing rapidly over recent years. The maineconomic activities are timber and oil palm production. Detailed engineeringis being carrietd out by DW and is expected to be completed by September 1986.

3.05 Togoba-Kaupena-Ialibu Turn Off (50 km). This road forms the firstpart of the Southern Highlands Highway which links Mt. Hagen, the center ofthe Western Highlands Provinces, with Mendi, center of the Southern HighlandsProvince. Most of the existing road from Togoba to Mendi, via Kaupena and theIalibu Turn Off, was constructed in the first half of the 1970s, reachingMendi in 1974. The Kaupena-Ialibu section (14.3 km) was constructed in 1973as a part of the Kaupena - Assissi road financed under the-First HighwayProject (Loan 693/Credit 204-PNG). In general, the existing road has adequatehorizontal and vertical alignments, but inadequate drainage and the pavementhas deteriorated and became deformed to the extent that regular maintenancecannot restore it. In November 1985, the preliminary engineering was preparedby consultants. The consultants proposed improvements to the existingdrainage system and the provision of a base course and bituminous seal overlayto the existing pavement. Road construction is scheduled to start in 1988,

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and necessary details on pavement and drainage improvements will be preparedby consultants in 1987.

3.06 Alotau-Gurney (17 km). This section is part of the Magi Highwaybetween the warf at Alotau, the capital of the Milne Bay Province and Gurney,the province's principal airport. The first 8 km of the existing road isbitumen coated and the existing alignment is adequate. However, drainage ispoor and existing pavement is deformed and deteriorated to the extent thatregular maintenance cannot restore it. Daily traffic volumes recorded inApril 1985 ranged from 400 vpd near the town to below 100 vpd beyond theairport. Main developments in palm oil, cocoa and timber production are nowunderway and are expected to generate significant traffic increases, particu-larly in heavy commercial vehicles during the next five years. Preliminaryengineering was completed by DW and field detailed survey, and materialsinvestigation and testing are being finalized. Detailed engineering will beprepared in-house in 1987, one year ahead of the construction start.

(b) Bridge Rehabilitation and Replacement Program.

3.07 The project would include about 50 highest priority bridges out ofthe 109 bridges and wet crossings included in the five-year program(para. 2.03), for a total of about 1,100 linear meters. In addition, rivertraining work would be included when and where required. The first yearbridges scheduled for construction in 1987 were identified by DW and evaluatedby DT and reviewed by the Bank during the appraisal. Detailed engineering forthese bridges is expected to be prepared by consultants and DW during 1986 andwill be financed under the ongoing project (Loan 2265-PNG).

(c) Road Maintenance Program.

3.08 Of 2,700 km of national roads included in the five-year regravellingprogram, about 500 km of highest priority gravel roads would be regravelledduring the first three years (1987-1989). The project also includes procure-ment of the most essential road maintenance equipment (Table 1) and materials(Bailey bridges, culvert pipes, gabions, guard rail, etc.) mainly needed forroutine and emergency maintenance operations.

(d) Improvement of Airports

3.09 Replacement of Airport Equipment. Most of the existing naviga-tional, telecommunications and meteorological equipment was purchased andinstalled for the most part 20 years ago and has reached the end of its econo-mic and technical life. In addition, it is no longer produced and spare partsare not available. Therefore the consultants under TIPS proposed, and theGovernment agreed to a five-year equipment replacement program for 14 airpo-tsstarting in 1986 (Table 2). During negotiations it was agreed wtih theGovernment that this project component would be financed by AustralianDevelopment Assistance Bureau (ADAB).

3.10 Resealing/Regravelling of Runways, Taxiways and Aprons. A detailedinventory of the national airports carried out by DCAT ani DW indicates thatthe surface of some airstrips, taxiways and aprons are substant-4ally worn to

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the extent that routine maintenance cannot restore them. In addition,drainage is poor at some airports and requires immediate attention. Tocorrect this situation DCAT and DW prepared a four-year resealing/regravellingprogram (1986-1990) including drainage and fire station improvements (Table3). The proposed project would assist the Government in implementing itsprogram and ensure safety of flight operations.

(e) Consultant Services.

3.11 The proposed project would provide a total of 686 man-months ofconsultant services (Table 4). Consultant services for detailed engineeringof the roads and bridges would total 150 man-months; anothir 310 man-months ofservices would be provided for construction supervision of roads, bridges andairports. Also, the project would provide 226 man-months of consultantservices to prepare feasibility studies and detailed engineering needed forpreparation of future projects.

(f) Technical Assistance and Training.

3.12 As continuing shortages of qualified national staff impede theGovernment's localization policy, assistance is needed in the transport sectorto strengthen DT, DW and DCAT by financing technical assistance totaling308 man-months (Table 6). Technical assistance would be provided to DT total-ing 112 man-months to assist in setting up a more effective administration inimplementing and monitoring the new transport policy. The tasks involvedwould include: (a) assisting and advising the senior managers in the Depart-ment of Transport; (b) extending the work programme of the Policy and PlanningDivision of the Department of Transport to include policy evaluation and datamanagement; (c) strengthening the technical and administrative functions ofthe Land Transport Division; (d) assisting in the establishment of a ShippersCouncil; (e) re-establishing data management collection and analysis; and(f) development of performance indicators to monitor the implementation of thenew policies. The project would also provide 92 man-months to DW for prepara-tion of a gravel pit inventory and research on the possible uses of coronousmaterials for road maintenance. In addition, 56 man-nonths would be providedto DCAT to support its policy planning function and provide short-termtechnical experts. Technical assistance would also provide on-the-jobtraining to local staff and would prepare them to eventually take over theexpatriate positions upon completion of their contracts (para. 2.21). Inaddition, the project would provide for overseas training of nine local middlemanagement staff totaling 18 manyears and for procurement of teaching aids.

3.13 Following the action program to assist the construction industry(para 2.19) the project would provide for: (a) continuation of the technicalassistance to medium size domestic contractors; (b) technical assistance andtraining of small domestic contractors; and (c) technical assistance to DW toimprove their contracting procedures. Technical assistance services tomedium-size contractors would include project management and administration oftheir projects, cost monitoring, and estimating and preparation of bids inorder to make these contractors more competitive in bidding for DW programcontracts. Technical assistance services to small contractors would includetraining in principles of construction site management, cost estimating and

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bid preparation in order to prepare them for undertaking their small con-tracts. The technical assistance to DW would prepare .he commercial condi-tions of contracting based on FIDIC General Condition, and suitable to PUG.It has been agreed that a single consulting firm would provide these technicalassistance services using 2 civil engineers, 1 mechanical superintendent and1 supervisor, for a total of 48 man-months. The terms of reference for allabove technical assistance services have been agreed with DW and are attachedin the project file.

E. Estimated Project Costs

3.14 The total project cost, including land acquisition, is estimated atKina or US$64.7 million (US$1 = K 1). This includes: (a) the estimated basecost as of January 1986; (b) physical contingencies of 20X for the bridgerehabilitation and replacement program, 15% for upgrading of national roadsand 10% for all the remaining project items; (c) price contingencies of 7.2%for 1986, 6.8% for 1987, 6.8X for 1988, 7% for 1989, 7.12 for 1990 and 4%thereafter for local and foreign exchange components. Overall physical andprice contingencies combined represent 29Z of the total project cost. Theforeign exchange cost is estimated at US$48.6 million, or about 752 of thetotal project cost; the remaining US$16.1 rzillion represent local cost, ofwhich US$6.5 million, or about 10% of total project costs are local taxes andduties. Detailed cost estimates are shown in Table 6 and are sunmmarized inthe Table 3.1 below.

3.15 The average construction cost per km of national roads (excludingcontingencies) is estimated at about US$166,000 including bridges. These costestimates are based on preliminary and detailed engineering and are consideredreasonable in comparison to recent bids for similar works in the country. Thecost estimates of bridge construction, regravelling of gravel roads, andresealing and regravelling of runways, taxiways and aprons are based on actualcosts of recent similar works in the country.

3.16 Consultant services for detailed engineering and constructionsupervision of project roads and bridges and supervision of regravelling andresealing works will require about 460 man-months estimated at about 13% oftotal construction cost. The project also includes 226 man-months for feasi-bility studies and detailed engineering for future projects. The cost esti-mates of consultant services are based on similar work being performed in thecountry and, as shown in Table 4, the costs are on the high side because mostconsultant services will be carried out by foreign consulting firms which alsoprovide expatriate supporting staff ftechnicians, surveyors, etc.). In addi-tion, the project includes 308 man-months of technical assistance to DW, DTand DCAT.

3.17 The cost estimates for road maintenance and airport equipment androad maintenance materials are based on suppliers recent quotations. Thequantities of road maintenance materials are based on the annual requirementsduring the past five years.

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Table 3.1: SUMMARY OF PROJECT COST ESTIMATES(K million or US$ million)

ForeignLocal Foreign Total Exchange

as 2 oftotal

A. Civil Works- Improvement of 80 km of

national roads 4.6 8.7 13.3 65- Bridge rehabilitation and

replacement program 2.1 4.9 7.0 70- Regravelling of about 500 km

of national roads 2.0 3.0 5.0 60- Resealing/regravelling of runways,

taxiways and aprons 0.8 2.0 2.8 70

B. Equipment and Materials- Road maintenance and

laboratory equipment - 3.1 3.1 100Road maintenance materials - 2.2 2.2 100

- Airport navigational, meteorologicaland telecommunications equipment/a - 3.1 3.1 100

C. Technical Assistance and Training- Engineering and economic studies

and construction supervision 1.0 4.5 5.5 83- Technical advisory staff to DW, DT

DCAT including training 0.5 2.8 3.3 85

D. Right-of-way 0.4 - 0.4 -

Base cost /b 11.4 34.3 45.7 75

E. Contingencies /c- physical 1.4 4.2 5.6 75- price 3.3 10.1 13.4 74

Total Project Cost 16.1 48.6 64.7 75

Project cost excluding taxes /d 9.6 48.6 58.2 84

/a To be financed by ADAB.7i January 1986 prices.7 Details given in Table 13.Td Total taxes and duties estimated at US$6.5 million.

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F. Financing

3.18 The proposed Bank loan of US$45.5 million would finance the pro-ject's foreign exchange, including US$2.0 million for retroactive financing ofresealing, regravelling of runways, taxiways and aprons and feasibilitystudies (paras. 3.10 and 3.19). The loan would thus finance 70X of the totalestimated project cost or 78X of the total project costs excluding taxes andduties. Procurement of airport equipment estimated at US$3.1 million would befinanced by ADAB and the Government would finance the remaining US$16.0 mil-lion equivalent through budgetary allocations to DW, DT and DCAT.

3.19 Because of the safety considerations, the resealing program fornational aerodromes is due to start in 1986. The Government is also keen tostart with the preparation of feasibility studies by mid 1986 and terms ofreference and the short list of consultants have been agreed with the Bank.In line with the Government's request, it was agreed during appraisal thatretroactive financing up to US$2.0 million equivalent be proposed for theseitems.

C. Auditing

3.20 The UW's, DT's and DCAT's accounting procedures are broadly satis-factory and subject to a continuous external review by the Covernment's Com-mission on Audit (COA). During negotiations it was agreed that the Borrowerwill furnish to the Bank, within six months after the end of each year, acertified copy of the audit report of the project expenditures.

H. Project Implementation

3.21 The project would be implemented by three Government agencies: DW,DT and DCAT. DV would be responsible for detailed engineering of projectroads and bridges, improvement of national roads, rehabilitation andreplacement of bridges, road maintenance, resealing/regravelling of runways,taxiways and aprons, and technical assistance to DW; DT would be responsiblefor feasibility studies and preliminary engineering for future projects andtechnical assistance to DT; and DCAT would be responsible for procuring andinstalling the airport equipment and for technical assistance to DCAT. Sincethe project would be implemented by three implementing agencies there is anobvious need for coordination among these agencies. During appraisal it wasagreed that a project coordinator will be appointed from one of the threeagencies to ensure necessary cooperation, monitor the progress of implementa-tion, procurement* project costs and expenditures and prepare progress reportsfor regular submission to the implementing agencies and to the Bank. Durirgnegotiations the Government provi ed the Bank with evidence that the projectcoordinator has been appointed.

3.22 Following the Government's Natonal Development plan, the projectwould be implemented over a five-year period. The project implementationwould start in 1986, immediately after loan effectiveness, because detailedengineering is not required for regravelling of national roads and resealing/regravelling of runways, taxiways and aprons, and detailed engineering forupgrading of one project road (Mai-Bavusi) is about to be completed. Also,

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procurement of road maintenance equipment and materials can start immediately.Contractors would be responsible for maintaining their road construction worksfor a 12-month period and for the remaining civil works-for a 6-month periodafter completion, after which DW would assume this responsibility. Duringappraisal the implementing agencies prepared a detailed action program andsummarized it in the project implementation schedule (Annex 1). In summary*the action program calls for preparatory works including bidding for the firstyear civil works and starting work on the national airports by the end of1986. Procurement of the most urgent airport equipment and resealing/regravelling of runways, taxiways and aprons and preparation of feasibilitystudies for future project would start in 1986. Road construction would startin early 1987 and would be completed by October 1990. Regravelling ofnational roads would start in late 1986 and would be completed by the end of1988, and road maintenance equipment and materials would be procured anddelivered by the end of 1988. The remaining civil works and equipment pro-curement and delivery would be completed by mid-1990. Institutionalstrengthening and training would start in late 1986 and will continue through-out the project implementation. During negotiations assurance was obtainedthat the Government would adhere to the agreed action program and implementa-tion schedule.

3.23 Improvement of national roads would be carried out by internationalcontractors, and the remaining works would be carried out by local contractorsand PMFA. Consultants would supervise the larger civil works projects; thePWMOs would supervise only the small projects. During negotiations a list ofroads, bridges and airports included in the first year work program was agreedand assurance was obtained that the Government will: (a) submit to the Bankfor comments by September 30 of each year a list of roads, bridges andairports to be included in the next year's work program; and (b) include inthe program only roads and bridges with an ERR of 121 or higher.

3.24 In order to assist the domestic construction industry the Governmentagreed during appraisal that road maintenance works would be reserved toselected domestic contractors. DW would thus select a few small domesticcontractors in a province or in neighboring provinces and invite them to bidamong themselves for road maintenance contracts valued at less than K 300,000;only these selected contractors would be allowed to participate in the biddingduring 1987 and 1988. This temporary arrangement should provide the smalldomestic contractors with sufficient work to facilitate their training undertechnical assistance services. After the initial period these contractorsshould be able to operate independently. This would not only develop theconstruction industry but would in the long term also provide more opportuni-ties for labor employment. During negotiations, assurance was obtained fromthe Government that work totaling at least US$3.5 will be offered to the smallcontractors selected for training during 1987 and 1988.

I. Procurement and Right-of-Way Acquisition

3.25 Civil Works. International Competitive Bidding (ICB) would be usedto procure improvements to the three national roads estimated at US$16.0 mil-lion equivalent, in accordance with the Bank's "Guidelines for Procurementunder IBRD Loans and IDA Credits" May 1985. Procurement of remaining civil

22 ̂

works through ICR would not be appropriate because the contracts involved willbe relatively small (up to US$300,000) and scattered all over the country andwill be phased over a period of four years. Therefore, these works, includingrehabilitation and replacement of bridges, regravelling of national roads andresealing/regravelling of runways, taxiways and aprons totaling US$19.5 mil-lion will be awarded to prequalified contractors on the basis of local compe-titive bidding under procedtures satisfactory to the Bank. The remainingbridging and regravelling w.3rks estimated at US$4.3 million equivalent wouldbe carried out by PMFA. All procurement documents for civil works overUS$0.5 million equivalent would be subject to the Bank's prior review whichwill cover about 72Z of the proposed loan. Table 3.2 below summarizes the keyprocurement information.

3.26 Equipment and Materials. Road maintenance equipment and materialsand airport laboratory estimated at US$7.5 million equivalent would be pro-cured on the basis of ICB in accordance with the Bank's "Guidelines for Pro-curement under IBRD Loans and IDA Credits." Contracts for equipment andmaterials estimated to cost more than US$0.5 million equivalent each would besubject to the Bank's prior review. Procurement of off-the-shelf small itemscosting less than US$10,000 equivalent would be done by shopping in accordancewith the Baiik Guidelines. The total amount of such purchase should not exceedUS$400,000 equivalent.

3.27 Consultant Services and Technical Assistance. Consultant servicesfor detailed engineering, construction supervision, studies and technicalassistance estimated at US$12.5 million equivalent would be obtained in accor-dance with the relevant Bank Guidelines. The short list of consultants andterms of reference for feasibility studies have been agreed with the Bank.

3.28 Right-oZ-Wa. The Government acquires right-of-way through theDepartment of Land and provincial governments by negotiations as far inadvance as possible. There have been cases in the previous projects wheredelay in acquiring right-of-way has caused disruption of scheduling. However,under the proposed project, acquisition of right-of-way would be minimal andwould be limited only to drainage improvements of the national roads andreplacement of existing bridges. Therefore this is not now considered as amajor problem and during appraisal and it was agreed that acquisition ofright-of-way would be completed during the detailed engineering stage. Duringnegotiations, assurance was obtained that the Government will take timelyaction to make available right-of-way on each project road section and bridgeprior to bid invitation or about six months before contract award.

-23 -

Table 3.2: PROCUREMENT SUMMARY /a(US$ million)

Procurement Method TotalProject elements ICB LCB Other NIA cost

Civil Works- Improvement of national roads 16.0 2.8 18.8

(10.2) (1.8) (12.0)- Bridge rehabilitation and 7.4 2.5 9.9

replacement program (4.7) (1.6) (6.3)- Regravelling of national roads 5.3 1.8 7.1

(3.4) (1.2) (4.6)- Resealing/regravelling of 4.0 4.0

runways, taxiways and aprons (2.6) (2.6)

Subtotal 16.0 19.5 4.3 39.8(10.i) (r2-.5) (2.8) (25.5)

Equipment and MaterialsRoad maintenance and laboratory 4.2 0.2 4.4

equipment (4.2) (0.2) (4.4)Road maintenance materials 3.1 3.1

(3.1) (3.1)

Subtotal 7.3 0.2 7.5(7.3) 0.)(7.5)

ServicesConsultant services, technical 12.5 12.5

assistance and training (12.5) (12.5)

Right-of-way 0.5 0.5

Total 23.3 19.5 17.0 0.5 60.3(17.5) (12.5) (15.5) (45.5)

/a Excluding airport equipment to be financed by ADAB.

Notes: 1. Amounts shown for each project component include contingencies.2. Figures parentheses are the respective amounts financed by the

Bank Loan.

- 24 -

J. Disbursements

3.29 Disbursements would be made on the following bases:

(a) 64% of the total expenditures for civil works including:(i) improvement of national roads; (Hi) rehabilitation andreplacement of bridges; regravelling of national roads; andresealing/regravelling of runways, taxiways and aprons;

(b) 100% of the c.i.f. cost of all equipment and materials procureddirectly from abroad and 65% of the total expenditures for importedequipment and materials procured locally; and

(c) 1001 of total expenditures on consultant services technicalassistance and training.

3.30 Disbursements for expenditures on road construction carried out bycontract would be fully documented. Disbursements for civil works contractsunder US$100,000 equivalent, small equipment items procured by shopping andworks executed by force account will be made on the basis of withdrawalapplications supported by statements of expenditures on work performed andduly certified by DW. Reimbursement applications for these works and forsmall equipment items procured by shopping would be submitted when aggregateamount reachs US$100,000 or equivalent or every three months which ever comesfirst. DW will maintain and make available to the Bank's representatives allrelevant documentation in support of the statements of expenditures, whenrequired. Table 7 shows a schedule of estimated disbursements which followsessentially the country profile but it takes into account the fact that theproject will start in 1986 and retroactive financing is involved. Paymentswill be subject to internal audit by DW and by the Government Auditor-General's Office.

K. Environmental Aspects

3.31 The project is not expected to cause any environmental or ecologicalproblems. No major changes in the alignment of project roads will be made andtherefore the requirements for additional land and disturbance to propertywould be minimal. The improvement works include such features as bridge anddrainage improvements. Raising embankments would improve not only environmen-tal conditions along the roads but also road safety.

IV. ECONOMIC EVALUATION

A. Main Benefits and Beneficia-es

4.01 The project will have a wide ranging impact on the transport systemof Papua New Guinea with various components affecting all of the provinceseither in the road or air transport subsectors. The economic case for thephysical ccponents of the project rests on a reduction in vehicle operatingcosts (VOCs), a decrease in repair and rehabilitation costs of the road net-

- 25 -

work, and a reduction in freight damage, travel time and other economic andsocial costs associated with the existing condition and use of the roadnetwork. The critical factor justifying the airport improvements is opera-tions safety.

4.02 The reconstruction and upgrading of national roads will have adirect impact on the areas in which they are located. The three roadsincluded in the project play a vital role in some of the most important areasof the country which are emerging as growth oriented :enters.

4.03 The regravelling, bridge rehabilitation and replacement programscover all of PNG comprising the most important roads in the country, providingaccess for evacuation of agricultural products, the supply of goods to remoteareas and better health and social services.

4.04 The resealing and regravelling of airport runways, taxiways andaprons will benefit the areas served by each airport and ensure that vitallinks to other parts of the country are maintained. Since air transport isthe most important mode of transport for passengers and is likely to remain sofor the foreseable future. it is very important to ensure that adequateservice levels and safety are maintained for flight operations.

4.05 The direct benefits of the program will accrue in the first instanceto the traders and transport operators in the form of reduced operating costs.Although officially tariffs are controlled, in practice they are competitive.In addition, the Government is now moving towards full deregulation of thetransport sector, which will ensure that reduced transport operating costs arepassed on to the producers and/or consumers, through greater competition.Furthermore. to the extent that better road conditions will reduce importationof vehicles and spare parts by lessening the wear and tear of existingvehicles, the economy will benefit for there will be less demand for foreignexchange. For certain areas, the improved and expanded network of all-weatherroads will stimulate agricultural production in the long run and will yieldbenefits of better integration in the market economy. The beneficiaries ofairport improvements will ultimately be the transport users as competitionamong the airlines is expected to have a beneficial impact on fares.

R. Economic Analysis

4.06 With the exception of the runways improvements, airport equipmentand technical assistance and training programs, all other major physical com-ponents have been evaluated to assess their benefits. The components include(a) the improvement of national roads; (b) the bridge replacement and rehabi-litation program; and (c) the regravelling of national roads. Economic costsare based on detailed engineering in the case of the Mai-Burusi Road and onpreliminary engineering for the Alotau-Gurney and the Togoba-Ialibu roads.The benefits, depending on the specific subproject being analyzed, consist ofsavings in VOCs and maintenance cost savings. Time savings are not included,nor are reductions in freight damage and in vehicle accidents. The evaluationof benefits is therefore conservative. The VOC savings are based on varyingterrain types and on the vehicle composition and traffic growth established bya system of traffic counts carried out by UT.

- 26 -

4.07 Reconstruction and Upgrading of National Roads. The road stztionsto be reconstructed and/or upgraded have wearing courses well past their ser-vice life. The economic analysis of this investment is based on: (a) X 20-year economic life of the investment; (b) annual maintenance cost savingsranging from K600/km to Kl,900/km, depending on the level of deterioration ofeach major section of each road subcomponent and the corresponding trafficvolumes; and (c) traffic volumes ranging from 110 to 600 vehicles per day in1985 with a proportion of heavy vehicles varying between 26Z and 40Z and agrowth rate varying between 31 and 6Z throughout the period. Based on theseassumptions, the three components have economic rates of return ranging from13X to 28X.

4.08 Regravelling Program. Of the 2,700 km of national roads included inthe Government's five-year regravelling program, about 500 km of the mostheavily trafficked roads are to be regravelled over a three-year period. Theroads included in the program have traffic volumes ranging from 200 to450 vehicles per day with a regravelling cycle of once every five years. Theprogram will have a direct impact on VOCs, and it is estimated that these willincrease by 51 annually on the roads on which no maintenance is done. For thethree years following these operations, regravelling would bring about a 151reduction in VOCs. Based on these assumptions, the estimated ERR forregravelling operations is expected to be 74X for the first year regravellingprogram. During negotiations it was agreed that second and third year projectroads would be evaluated on the basis of the same methodology and be requiredto yield a 121 minimum ERR.

4.09 Bridge Rehabilitation and Replacement Program. The program includesthe rehabilitation and/or replacement of about 50 bridges or river trainingworks over a four year period. Most of the bridges are more than 20 years oldand have reached or are about to reach the end of their economic life. Inaddition, their design is such that weight restrictions have to be inposed,thereby limiting the type of vehicles which can use them. The major impact ofthe bridge program is expected to be on the mix of vehicles in the totaltraffic using them and reductions in maintenance costs for the bridges them-selves. With weight restrictions, the number of smaller commerical vehicleswould increase substantially and thus result in higher transport costs. Thefirst year program, includes four bridges to be replaced and five rivertraining schemes. For the river training schemes, the proposed works willprevent the existing servicable bridges from imminent collapse as a result ofthe meandering pattern of the river. These works are deemed to be justifiedon the basis that the incremental cost of the proposed works is far less thanthe replacement cost of the bridges. In addition, the benefits would includesubstantial savings resulting in having to airlift supplies while temporarycrossings are built in the event of washouts. The four bridges to be replacedhave ERRs in the 40-43Z range and are thus amply justified.

4.10 Airport Improvement Program. The project includes the replacementof navigational, meterological and communications equipment at 14 aerodromesand resealing or regravelling of runways, taxiways and aprons at 16 air-ports. The equipment is old and no longer produced and as such spare partsare difficult to locate. In many cases the safety of operations will bejeopardized unless the equipment is replaced in the near future. The reseal-

- 27 -

ing and/or regravelling of runways, tauiways and aprons is also linked to thesafety of operations. The runways are pitted or rutted and many have weightrestrictions which curtail the type of aircraft that can be used. withoutprompt resealing or regravelling, flights will have to cease. Such acondition theoretically would yield an infinite rate of return. In additionsince it is almost impossible to quantify the safety aspects of this programsno specific ERR has been calculated.

4.11 Construction and Maintenance Costs. Construction costs have beencalculated net-of-tases for the economic evaluation. The foreign exchangecomponent has not been shadow priced. The construction costs for the rehabi-litation and upgrading program have been split equally over a two year periodwhile regravelling and bridge work costs have been allocated to specificyears. The maintenance costs were used as estimated by DW and consultants.

C. Overall Economic Evaluation

4.12 The overall economic rate of return is estimated at 34X for thosecomponents included in the economic evaluation which amounts to 572 of projectcosts. Benefits have not been quantified for the purchase of road maintenanceequipment, materials, laboratory equipment, consultant services and technicalassistance and training, although they are expected to improve operations inthe DT, DW and DCAT. The bridge replacement and rehabilitation program aswell as the road regraveling program yield rates of return which are notespecially sensitive to reductions in benefits or increases in costs. For thereconstruction and upgrading of national roads, sensitivity tests carried outindicate that a 15X increase in costs or 152 decrease in benefits still yieldacceptable results in all cases but for the Kaupena-Ialibu section. In thisparticular case, it was agreed at negotiations that final acceptance of thiscomponent will be subject to review by the Bank of bid prices and that therate of return should not be lower than 112.

D. Risks

4.13 Two major types of risk affect the project. Che first is the possi-bility of delays in implementation, which were also experienced under previousprojects because of difficulties over right-of-way acquisition, caused bycustomary land ownership. The second risk is that the project policy andinstitutional objectives would not be met because necessary expatriate staffwould not be recruited according to schedule or because the Government wouldnot assign sufficient numbers of national officers to work with foreignexperts. To reduce these risks, the Government agreed to take timely actionfor acquisition of the land needed for civil works, to make available right-of-way prior to bid invitation or about six months before contract award andthat a project coordinator will be appointed to ensure the timely appointmentsof technical assistance staff and coun.erpart to be trained.

- 28 -

V. AGREEHETS REACHED AND RECOMMENDATIONS

5.01 During loan negotiations agreement was reached with the Governmenton the following:

(a) Bank's review of annual investment program for roads and airports(par&. 2.12);

(b) continuously review design standards and use the most economicalstandards (pars. 2.14);

(c) Bank's review of annuat program for road maintenance (para. 2.20);

(d) Selection criteria for staff to be trained to be furnished to theBank for coments by December 31, 1986 (para. 2.21);

(e) Staff training program to be furnished to the Bank for comments bySeptember 30, each year (para. 2.21);

(f) action program for improvement of PTB to be furnished to the Bankfor comnents by June 30, 1987 (para. 2.25);

(g) submission of audit reports on the project within six months of theend of fiscal year (para. 3.20);

(h) action program and project implementation schedule (para. 3.22);

(i) list of first year roads to be regravelled and bridges to berehabilitated and replaced (paras. 3.23);

(j) list of roads to be regravelled, bridges to be rehabilitated andrunways, taxiways and aprons to be resealed/regravelled in lateryears to be furnished to the Bank for comments by September 30 ofeach year (para. 3.23);

(k) only roads and bridges with an ERR of 12% or higher to be includedin the program (para. 3.23);

(1) civil works amounting US$3.5 million to be offered to domesticcontractors selected for training during period 1987 and 1988(para. 3.24);

(m) timely acquisition of right-of-way for each road section and bridgeto be arranged prior to bid invitation (awarding constructioncontracts) (para. 3.28);

(n) expenditures on road regravelling and bridge rehabilitation andreplacement would be made on after the site and scheduling of thesubsequent year's program has been reviewed by the Bank and agreedupon with the Government (para.3.30); and

- 29 -

(o) final acceptance of the Keupena-Ialibu road section for upgrading tobe subject to receipt of bids and minimum 11X rate of return(para. 4.12).

5.02 It is recomended that resealing/regravelling of runways, taxiwaysand aprons and feasibility studies be financed retroactively up to US$2.0million (paras. 3.19).

5.03 The project is suitable for a Bank loan of US$45.5 millionequivalent (representing about 70X of the total project cost) for a period of20 years, including a five-year grace period. The borrower would be theIndependent State of Papua New Guinea.

Table 1

- 30 -

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

List of Road Maintenance Equipment

Item Quantity Unit cost Total cost(Y'000) -

Premix spot-mixer (1 M3) 13 20.0 260Mobile bitumen heater 13 18.0 234Hand-held bitumen sprayer 13 6.0 78Tractor-mounted front loader 32 6.0 192Pavement breaker 31 4.0 124Hand emulsion sprayer 31 5.0 155Pedestrian vibrator pavement compactor 31 1.5 45Two-drum surfacing roller 31 5.0 155Compressor and 4 jackhammers 19 13.0 247Generator and 4 floodlights (10 KVA) 19 5.5 105Hand-operated vibrating drum compactor 19 4.0 76Tractor-mounted grass cutting equipment 19 3.0 57Tractor-drawn sprayer 19 3.0 57Concrete mixer 19 2.5 48Vibrator pokers 19 1.5 29Turfor winch and 15-ton Jack 167 0.5 84Hand-held motorized grass slashers 167 1.2 200Water pump 214 1.0 214Chain saw 167 1.2 200Pavement breaker 167 1.3 217Sledge vibrator compactor 167 1.0 167Walkie-talkie set 47 1.0 47Miscellaneous 70

Total 3,061

Source: DW/mission.

January 1986

- 31 - Table 2

PAPUA NEW GUINIA

TRANSPORT IMPROVEMENT PROJECT

AMrpoi.. Equipment Replacement Progtram and Cost Es timates /a(K'000)

Cost estimatesAirport Item 1986 1987 1988 1989 Total

Madang NDB 30 - - - 30DME - - - 140 140HF transmitters AFTH 40 - - - 40ARO 2n - - - 20Multi-CH recorders - 20 - - 20

Kieta NDB - 30 - - 30Remote VHF - 40 - - 40Runway end indicator lights - 60 - - 60

Manus DME - - - 140 140

Gurney DME - - - 140 140Remote ViHF - - 60 - 60

Wewak nME - - - 140 140HDB 30 - - - 30HF transmitters AFTH 35 - - - isARQ 40 - - - 40Multi-CR recorders 20 - - - 20

Mount Hagen DME - - - 140 140CVOR - - 320 - 320Remote VHF 60 - - - 60

Kerema DUF - - - 140 140

Goroka Control tower - - - 150 150RDB - 30 - - 30DME - 140 - - 140

Kirivina TIME - - - 140 140CVOR - 140 - - 140

Nadzab DME - 140 - - 140

Port Moresby HF transmitters AFTH - 7B - - 78ARO - - 80 - 80Multi-CH recorders 40 - - - 40

Lae DME - 140 - - 140

Rabaul CVOR - 140 - - 140TME - 140 - - 140HF transmitters AFTH - 20 - - 20ARQ - 20 - - 20

Daru Remote VHF - - 60 - 60

Total 280 1.173 520 1,1aO 3,103

/a To be financed by ADAB.

Source: DCAT/Missio*.

January 1986

Table 3-32- -

PAPUA NEW GUINEA

TRANSPORT IMPROVENENT PROJECT

Program for Resealing/Regravelling of Airstries, Taxiways and Aprons

Cost estimatesType of work/airport Quanity 1986 1987 1988 1989 Total

(in) (K#OOO)

Resealing of Runwayst,Taxiways and ApronsDaru 57,000 - 207 - - 207Chimbu 38,000 - - - 100 100Karieng 53,000 300 - - - 300Kerema 20,000 150 - - - 150Lae 119,000 - 295 - - 295Mendi 56,000 - - - 220 220Rabaul 60,000 - 132 - - 132Wewok 61,000 - - 170 - 170Kiunga 56,000 300 - - - 300

Subtotal 520,000 750 634 170 320 1,874

Regravelling of Runways,Taxiways and ApronsBialla 21,000 - 50 - - 50Buka 25,000 - 127 - - 127Kiriwina 54,000 100 - - - 100

Subtotal 100,000 100 170 - - 277

Improvement of Fire Sta-tions, Control Towersand DrainagesMadang - - 20 12 - 32Kieta - - - 314 - 314Goroka - - - 35 182 217Mount Hagen - - 80 - - 80

Subtotal - 100 361 182 643

Total 620,000 850 911 531 502 2,794

Source: DW/Mission.

January 1986

Table 4- 33 --

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

List of Consultant Services

Estimated CostItem man-months (KOOO)

Detailed EngineeringTogoba-Kaupena-Ialibu Turn-Off road 75 550Bridge rehabilitation/replacement program 75 550

Subtotal 150 1,100

Construction SupervisionMai-Buvusi road 23 140Togoba-Kaupena-Ialibu Turn-Off road 110 650Alotau-Gurney road 30 182Regravelling of national roads 42 250Bridge rehabilitation and replacement program 82 490Resealing of runways, taxiways and regravellingof national airports 23 140

Subtotal 310 1,852

Preparation of Future ProjectFeasibility studies and preliminary engineeringfor national roads in Port Noresby includingBurns Peak road and, if feasible, engineering 90 1,000

Feasibility studies, preliminary engineering anddetailed engineering for other project items 136 1,500

Subtotal 226 2,500

Total 686 5,452

Source: DW/Mission.

January 1986

34 - Table 5

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

List of Technical Assistance and Training

Estimated CostItem man-months (K'OO0)

Technical Assistance to the Department of TransportStage one advisory staUt to assist in setting upmore effective administration for transportoperations and new policy implementations:Four advisors 14 154

Stage two advisory staff to assist the implement-ing and monitoring of the new transport opera-tion policy and to train local staff:One administrative and one data managementadvisor 18 208

Three land transpcrt advisors 48 528Three marine advisors 32 352

Subtotal 112 1,242

Technical Assistance to the Department of WorksPreparation or gravel vit inventory (one engIneer,one geophysicist, one driller) 62 560

Coronous aggregate research (one engineer, onetechnician) 30 270

Program to promote domestic construction indus-try:Stage one (two civil engineers) - /aStage two (two civil engineers, one mechani-cal engineer, one project supervisor) 48 528

Subtotal 140 1_t358

Technical Assistance to the Department of CivilAviation and TourismOne aviation economist and one policy planner 48 440Data compilation advisor 6 66Two aviation technical experts 2 20

Subtotal 56 526

Training and Assistance to the Existing TrainingCenters 200

Total 308 3,326

/a Ten man-months, estimated at K 0.14 million, will be financed under Loan2265-PNG during 1986.

Source: DT, DV, DCAT/Mission.

January 1986

-35 - Table 6

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

Detailed Project Cost Xatimates(K million w US$ 5illion)

Estimated cost Foreign com-Project item Local Taxes Foreign Total ponent (2)

Improvement of National RoadsMai-Buvusi (13 ki) 0.4 0.3 1.3 2.0 65Alotau-Curney (17 kml) 0.6 0.3 1.7 2.6 65Togoba-Kaupena (36 km) 1.4 0.9 4.4 6.7 65Kaupena-Ialibu Turn-Off (14 km) 0.4 0.3 1.3 2.0 65

Subtotal 2.8 1.8 8.7 13.3 65

Bridge Rehabilitation and Replacement Program 1.2 0.9 4.9 7.0 70

Road Maintenance ProgramRegravelling of 500 km of national roads 1.2 0.8 3.0 5.0 60Road maintenance equipment - - 3.0 3.0 in0Laboratory equipment - - 0.1 0.1 to0Road maintenance materials - - 2.2 2.2 100

Subtotal 1.2 0.8 8.3 10.3 80

Improvement of National AirportsProcurement of equipment - - 3.1 3.1 100Resealing/regravelling of runways, taxiway.and aprons 0.4 0.4 2.0 2.8 70

Subtotal 0.4 0.4 5.1 5.9 Rs

Consultant ServicesDetailed engineering 0.1 0.1 n.9 1.1 R5Construction supervision 0.1 0.3 1.5 1.9 sOOther studies for future projects 0.2 0.2 2.1 2.5 Y5

Subtotal 0.4 0.6 4.5 5.5 83

Technical Assistance and TrainingFor Department of Transport (112 man-months) 0.1 0.1 1.0 1.2 R5For Department of Works (140 man-months) 0.1 0.1 1.2 1.4 85For Department of Civil Aviation and Tourism

(56- man-months) 0.1 - 0.4 n.s R5Training - - 0.2 0.2 90

Subtotal 0.1 0.2 2.8 3.3 85

Right-of-Way 0.4 - - 0.4 -

Project Base Cost /a 6.7 4.7 34.3 45.7 75

ContingenciesPhysical /b o.R n.6 4.2 5.6 75Price /c 2.0 1.3 10.1 13.4 75

Subtotal 2.R 1.9 14.3 19.n 7S

Total Project Cost 9.6 6.5 48.6 64.7 75

/a In constant January 1986 prices.7-b Twenty percent for 'Bridge Rehabilitation and Replacement Program," 152 for ToRoba-

Raupena and Kaupena-Ialibu roads, 102 for all remaining items./c Price contingencies: 1986 - 7.2X; 1987 - 6.8%, 19R8 - 6.RX, 1989 - 7.0%, 1990 - 7.1X.

SourCes: DW, DT, DCAT/Mission.

January 1986

Table 7-36 -

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

Schedule of Estimated Disbursements

Cumulative dis- Countrybursements at disbursement

the end of quarter profileFiscal year and quarter (US$ million) X (X?

1987Sept. 30, 1986Dec. 31, 1986March 31, 1987 2.0 2.0/a 4June 30, 1987 0.7 2.7 6 6

1988Sept. 30, 1987 1.2 3.9 9Dec. 31, 1987 1.7 5.6 12March 31, 1988 2.3 7.9 17June 30, 1988 2.6 10.5 23 23

1989Sept. 30, 1988 2.8 13.3 29Dec. 31, 1988 3.0 16.3 36March 31, 1989 3.6 19.9 43June 30, 1989 4.0 23.9 52 45

1990Sept. 30, 1989 3.7 27.6 60Dec. 31, 1989 3.3 30.9 68March 31, 1990 2.9 33.8 74June 30, 1990 2.5 36.3 80 65

1991Sept. 30, 1990 2.4 38.7 85Dec. 31, 1990 2.2 40.9 89March 31, 1991 1.4 42.3 93June 30, 1991 1.0 43.3 95 81

1992Sept. 30, 1991 0.8 44.1 97Dec. 31, 1991 0.6 44.7 98March 31, 1992 0.5 45.2 99June 30, 1992/b 0.3 45.5/b 100 92

/a Including $2.0 million of retroactive financing./b Closing date - June 30, 1992.

Source: DW, DT, DCAT/Nission.

- 37 - ANNEX 1Page 1

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

Action Program for Project Implementation

Government agency/Action Target dateStart Completion

A. DEPARTMENT OF WORKS

Road ConstructionMai-Bavusi:Finalize detailed engineering and tenderdocuments Sept. 1986

Prequalify contractors and call bids,evaluate bids and contract award Nov. 1986 Dec. 1987

Prepare short list of consultants, inviteproposals, and appoint consultants forconstruction supervision June 1987 Dec. 1987

Road construction Feb. 1988 Dec. 1988

Alotau-Gurney:-Prepare short list of consultants, inviteproposals, evaluate proposals andappoint consultants for preparation ofdetailed engineering, bidding documentsand construction supervision July 1986 Feb. 1987

Prepare detailed engineering and biddingdocuments March 1987 Dec. 1987

Prequalify contractors, call bids,evaluate the bids and contract award Jan. 1988 Dec. 1988

Road construction Feb. 1989 Dec. 1989

Togoba-lalibu:Prepare short list of consultants, inviteproposals, evalute proposals and appointconsultants for detailed engineering,bidding documents and constructionsupervision June 1986 Aug. 1986

Prepare detail engineering and biddingdocuments Sept. 1986 May 1987

Prequalify contractors, call bids,evaluate the bids and contract award May 1987 April 1988

Road construction May 1988 Dec. 1990

-38- ANNEX IPage 2

Government agency/Action Target dateStart Completion

Bridge Rehabilitation and Replacement ProgramPrepare short list of consultants, inviteproposals, evaluate proposals and appointconsultants for detailed engineering,bidding documents and constructionsupervision June 1986 Dec. 1990

Prepare detailed engineering and biddingdocuments Jan. 1987 June 1990

Prequalify contractors, call bids,evaluate bids and contract award Jan. 1987 Dec. 1990

Construction and improvement works June 1987 Dec. 1991

Road MaintenancePrepare specifications and bidding documentsfor regravelling of gravel roads June 1986 Dec. 1986

Prequalify contractors, call bids andcontract award on annual bases Dec. 1986 Dec. 1988

Regravelling works Jan. 1987 Dec. 1989Prepare specifications and bidding

documents for procurement of roadmaintenance and laboratory equipmentand materials Aug. 1986 Dec. 1986

Call bids, evaluate bids and contract award Jan. 1987 June 1987Delivery of road maintenance equipment

and materials Sept. 1987 Dec. 1988

Improvement of National AirportsCivil Works:

Prepare detailed engineering and biddingdocuments for remedial works Sept. 1986 Dec. 1986

Call bids, evaluate the bids andcontract award Jan. 1987 May 1987

Construction works June 1987 Dec. 1987Periodic Maintenance:

Prepare specifications and biddingdocuments for resealing/regravelling ofairstrips, taxiways and aprons June 1986 August 1986

Call bids, evaluate the bids and contractaward on annual bases Aug. 1986 Sept. 1990

Execution of resealing/regarvelling workson annual bases Sept. 1986 Sept. 1990

39 -

Government agency/Action Target dateStart Completion

Consultant Services and TrainingFinalize TOR and appoint consultants forpreparation of a comprehensive gravelpit inventory June 1987 Dec. 1987

Finalize TOR and appoint consultants tocarry out program of coronous agregateresearch June 1987 Dec. 1987

Preparation of gravel pit inventory andcompletion of coronous agregate research June 1987 Dec. 1988

Finalize TOR and appoint consultants toprovide technical assistance to thedomestic contractors Jan. 1987 June 1987

Technical assistance works Jan. 1987 Dec. 1988Prepare detailed overseas training programfor DW and appoint candidates Jan 1987 June 1987

Overseas training on annual bases Aug. 1988 July 1990Prepare detailed requirements for technicalassistance to develop and improve civilengineering training capabilities ofthe Staff Development Training Sectionof DW and execute training program Jan. 1987 Dec. 1988

B. DEPARTMENT OF CIVIL AVIATION AND TOURISM

Technical Assistance and TrainingPrepare TOR, short list of consultants andappoint consultants to provide technicalassistance June 1986 Dec. 1986

Technical assistance works Jan. 1987 Dec. 1988Prepare overseas traing program and appointcandidates Sept. 1986 Dec. 1986

Overseas training March 1987 June 1990

- 40 -- 1Page4

Governmont agency/Action Target dateStart Completion

C. DEPARTMENT OF TRANSPORT

Prepare TOR, short list of consultants, inviteproposals, evaluate proposals and appointconsultant to prepare feasibility studiesfor future project March 1986 July 1986

Preparation of feasibility studies Aug. 1986 Aug. 1987Prepare short list of consultants, inviteproposals, evalute proposals and appointconsultants to provide technical assistance Sept. 1986 Dec. 1986

Technical assistance Jan. 1987 June 1989Prepare overseas training program and

appoint candidates Sept. 1986 Dec. 1986Overseas training Jan. 1987 Dec. 1988

- 41 -

ANNEX 2

PAPUA NEW GUINEATRANSPORT IMPROVEMENT PROJECT

ImplementatIon Schedule

49W 4979 49 69 990 .9 41992

412314 4 2 131234 21314 *121314 4121314 34

EARLY ACTVMEfS

1. oarci Uftesntaollaon 07111S8 6

2 LOW Effecttyth09)14#wIO)

A. DEPARTMENT OF WORW.

Lmprovement of Nadtnd Qods Ro

SC - -T T ll .i ..Toba-4upn- G I I II' I I I I I

Am 4 Brdge b Rt IIIIt a IiI-

D.k* m abOkMh oW SC llll fj4987 6aL 4 | | GP

I ;9P8 IO II I II LB P 'C

| gIGV. In o natIo al rqo IIDads 1 11

198O7 -| Bj GP,

I 49B8 1 I I I I I I I~~~U BDI BP 1O

4989 1I49890iym

M.V Technial Asswnce I in1 I

| D EPARTMToFaOvn AVIATiON I DI IP OIII A 1 1 DI ProCuremeItofAroomllert E 4Beup * BP I I OI OA II

I~ ~ ~~~~~~~~~~0 PreparatS ndDe EI Io oC UIdn I ouet IS -IesbW Stud II IIIeI

IP- SBidn Peod -Guarantee PerbodC- C antijt Period and Consruton Supansro SC - Selechion ot Consul?ontr

-~ ~ ~ ~ ~ ~ ~~~~~ ~O E- Detailed Enginering STC -Sedleton ot Training Condild3tesRW-Deeof Pe8dd TA -Technical Assistonce

TP -aTraining PeFiod

sOuice DLO, OT, O C N 49SS ~~~~~~~~~~~~~~~~~~~~World Bcnk-30541

ANNEX 3

PAPUA NEW GUINEA

TRANSPORT IMPROVEMENT PROJECT

Project-Related Documents and Date Available in the Project File

A. General Reports and Studies on the Transport Sector

A-1 Transport Investment Program Study, 1484 by BCSOMA-2 Transport Operation Policy Study, 1985, by T. P. O'Sullivan and PartnersA-3 Medium Term Development Program (1986-90) by the Government.

B. General Reports and Studies Relating to tie Project

B-1 Feasibility Study and Preliminary Engineering of the Togoba-Kaupena andKaupena-Talibu Roads, 1985, by Beca International Consulting Ltd.

B-2 Road Maintenance Study, 1985, by Crown AgentsB-3 Bridge Rehabilitation Program, 1985, by DWB-4 Road Regravelling Program, 1985, by DWB-5 Rational Airoport Improvement Program, 1985, by DCAB-6 Road Design Manual

C. Other Documents

C-1 Staff Training Program, 1985, by DWC-2 Courses and Syllabus, 1984, by Works Training CenterC-3 Staffing and Organization of DW and DCA, 1985, by DV and DCAC-4 Staffing and Organization of DT, 1985, by DTC-5 Technical Assistance to DW, DT, DTCA, Draft Terms of Reference and

Overseer Training, 1985, by DT, DW and DCAC-6 Technical Assistance to Domestic Construction Industry, 1985, by

L.L. Ekert, Consulting EngineerC-7 Action Plan for Project Implementation, 1985, by DV, DT and DCAC-8 Statistic Data, 1985C-9 Other Project Supporting Documents, 1985, by DV, DT and DCAC-l0 Materials Laboratory Investigation, May 1984, by DW

144

PAPUA NEW GUINEAWEST TRANSPORT IMPROVEMENT

SE P/K AEAsr sEPIf/

3- Astope

i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- .L ~~~~~~~~t i _ ~~~~~~~~~~~~M A IV 6

I MA A N G

- - _ _ v * > 'RC S Madong I

,0 KiuflgN h

SOUTHEPENSi _ IHl/GH AN/DS _ ~W HIGH.A/

.6- 7~~~-

-- r ~~~~~X.XJASTERN) to Le< ,'71~~~~/G/-/AAtDS/ M ORO8f }

N NI mytq tB4loIo

kori >\*u

WESTERN

\ > ~~~~~~~~Kerem o.

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IAAS/ ma?Bere0n :pondetta

OOTU~~~~~~~~~~~~~Y

Doru | ! < K e-~~~~~Keem

--

./~~~ N..- CL/G IZF A ww PA,,

0" iPORT MORESBY A

NATIONAL HIGHWAYS 0CENITRAL() HIRITANO HIGHWAY ® ENGA HiGHWAY

M AAGI HIGHWAY ® HIGHLANDS HIGHWAY 0 40 80 120 160 Kupcono( NORTHERN IORO) HIGHWAY ® RAMU HIGHWAY KI.5METRS

® NATIONAL HIGHWAY 9 COASTAL HIGHWAY MILES® SOUTHERN HIGHLANDS HIGHWAY 6 NEW BRITAIN HIGHWAY ° 20 40 60 80 100

147'

(BRO 195

r PROJECT tAVONAI+4 KoZvieriq

l ~~~~~~~~~~~~~~~ISlANDStliHIR GROUP

NEW IREt ND

TANGA ISLANDS

S IV Nf W I/R E I A IN Nomotao,o

,__1. ......... \ ) FENI ISLANDS

- .. , RoBaul ! ,BOUGAINVILLE

ES r N E W BR/TA-/ \ N i I

Talosec J B~~~~~~~~~~~~~~~~~~EukaoM osk,ns |/ J ua

Klmbe_- >_ Kieta 0

t'^? e < -'6

NEW BRITAIN

PROPOSED PROJECTE A S Tr Highways Sections

/VNF W 8kR / rAI/ AirportsPREVIOUS PROJECTSRoad Construction and Improvement*

FIRST PROJECT LOAN 693 CREDIT 204 PNG* SECOND PROJECT CREDIT 677 PNG

THIRD PROJECT LOAN 1856 CREDIT 1030 PNGRoad Improvement Project Loan 1265 PNG

......... Projects by Other Agencies

NORrHERN Future Major Roads (National)- National Roads

Kirivina0 Maior Provincial Roads

M ILNE BA Y Rivers! L BYMountainous Areas f 2,000 -3,000 Meters)>Oo BIy - - Province Boundories 9'-

OBYt- - Internationol Boundaries

-i~~~~~~~~~~~~~~~~~~~~~~~~~f,}~~~~~~~~~~~~~~~~~~~o i11 '& ^0 .

A tou, Alwftu .o _<jb' vgl d~~~~~~~~~~~O thef Jff SW hW VW O ES,

:* -- t5 p*vt 0I re M hr* Ue Gurney A*fbol UFoce COJ

Of f*V wm"o a C150- ___ __ __ __a_a_ _e_ _ _ __of_ _ _ _ __A

FErBUARY 1986