ASIAN DEVELOPMENT BANK

PPA: LAO 18112

PROJECT PERFORMANCE AUDIT REPORT

ON THE

THIRD ROAD IMPROVEMENT PROJECT (Loan No. 866-LAO[SF])

iN TIlE

LAO PEOPLE'S DEMOCRATIC REPUBLIC

September 1997

CURRENCY EQUIVALENTS Currency Unit - Kip (KN) Appraisal (October 1987) KN1.00 $1.00 = $0.01 05 KN95 .00 Project Completion (October 1994) $0.0014 KN720.00 Postevaluation (March 1997) $00010 KN989.00

ABBREVIATIONS

EA EIAR HDM Ill IRI LAO PDR MCTPC MOTP NR PCR PEM PMU PPAR RAD SDR SOE TA UNDP VOC

Executing Agency Economic internal Rate of Return Highways Design and Maintenance Model III International Roughness Index Lao People's Democratic Republic Ministry of Communication, Transport, Post and Construction Ministry of Transport and Post National Road Project Completion Report Postevaluation Mission Project Management Unit Project Performance Audit Report Road Administration Division Special Drawing Rights State-owned Enterprise Technical Assistance United Nations Development Programme Vehicle Operating Cost

NOTES (i) (ii) The fiscal year (FY) of the Government ends on 30 September. In this Report, "$" refers to US dollars.

PE - 487

CONTENTS Page BASIC PROJECT DATA EXECUTIVE SUMMARY PHOTOGRAPHS MAP BACKGROUND A. B. C. 0. E. F. II. Rationale Formulation Objectives and Scope at Appraisal Financing Arrangements Completion Postevaluation
III

k'A

1 1 I 1 2 2 2 3 3 3 4 4 5 5 6 6 6 8 9 10 11 11 12 12 14 14 14 15 16

IMPLEMENTATION PERFORMANCE A. B. C. D. E. F. G. Design Contracting, Construction, and Commissioning Organization and Management Actual Costs and Financing Implementation Schedule Technical Assistance Compliance with Loan Covenants

LII.

PROJECT RESULTS A. B. C. D. E. F. G. Operational Performance Institutional Performance Economic Reevaluation Socioeconomic and Sociocultural Results Women in Development Environmental Impacts and Control Gestation and Sustainability

IV. V.

KEY ISSUES CONCLUSLONS A. B. C. Overall Assessment Lessons Learned Follow-up Actions

APPENDIXES

BASIC PROJECT DATA Third Road Improvement Protect - Loan No. 866-LAO(SF)

PROJECT PREPARATION/INSTiTUTiON BUILDiNG: TA No. TA Name Type PP AO AO As per Bank Loan Documents Personmonths 14 16 60 Amount $250000 $225,000 $1 000,000 Approval Date 29 Aug 1984 24 Nov 1987 24 Nov 1987

621-LAO Second Road Improvement Project 923-LAO Read Maintenance Training 924-LAO Implementation of the Third Road mprov.

KEY PROJECT DATA (Smillion): Total Prolect Cost Foreign Currency Cost Bank Loan Amount/Utilization Bank Loan Amount/Cancellation KEY DATES: Fact-finding Appraisal Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (Effectiveness to Completion) KEY PERFORMANCE INDICATORS (9): Economic Internal Rate of Return (EIRR): Financial Internal Rate of Return (FIRR) BORROWER: EXECUTING AGENCY: MISSION DATA: Type of Mission Fact-finding Appraisal Protect Administration: - Review - Special Project Administration Disbursement - Project Completion Postevaluation

Actual

23.8 26.3 18.0 20.5 19,0 a 19.8 nil Expected Actual 12-29 Jun 1987 23-31 Aug 1987 24 Nov 1987 27 Nov 1987 25 Mar 1988 22 Nov 1988 Sep 1994 30 Jun 1994 78 PCR PPAR 29.4 not calculated

Feb 1988 . 30 .Jun 1992 30 Jun 1993 52 Appraisal 22.7 not calculated

24.7 not calculated

Lao People's Democratic Republic Ministry of Communication, Transpbrt, Post & Construction

No. of MissIons 1 1 8 1 1 1 1

Person-days 54 27 91 16 10 7 7

The loan of SDR 14.752 million was equivalent to $19.0 million at appraisal and to $19.8 million at Project completion in September 1994.

EXECUTIVE SUMMARY

The Project aimed at supporting the Government's development objectives to increase the production of agriculture, natural resources, and small-scale industries through rehabilitating 162 kilometers of National Foad No. 13 between Vientiane and Vang Vieng (including the replacement of 39 bridges) and strengthening domestic capabilities in road design, construction, and maintenance. The scope of the Project also included (i) procurement of equipment, materials, and spare parts; (ii) establishment of a base field workshop; and (iii) provision of consulting services for detailed engineering, construction management, and assistance in training. The Project was approved by the Bank on 24 November 1987 and completed in September 1994, 26 months later than was envisaged at appraisal. Implementation closely followed appraisal arrangements and benefited from the experience gained on the Bank's preceding Vientiane Plain Road Improvement Project. 1 The quality of performance by consultants and contractors was satisfactory. The overall delay was caused primarily by a decision to replace the bridges with prestressed permanent concrete structures. This decision necessitated the establishment of a prestressed concrete manufacturing plant, an extension of the engineering consulting services, and training in prestressed bridge construction. The change in scope was approved by the Bank. The final Project cost of $26.26 million exceeded the appraisal estimate by 10.6 percent. The cost overrun is attributable to the additional foreign exchange costs needed to establish the prestressed concrete plant and to finance the extension of consulting services. The favorable Special Drawing Rights (SDR)/dollar exchange rate enabled the additional import costs for plant, materials, and a technical expert to be met from the Bank loan. The United Nations Development Programme (UNOP) met the increase in consultants' costs. The actual local currency costs of $5.63 million were in line with the appraisal estimate of $5.75 million. Total disbursements under the Bank's loan amounted to $19.81 million equivalent, which was $40,000 Less than the approved loan amount of SDRI4.752 million. The Bank's loan represented 76 percent of the total Project cost; the Government's contribution, 15 percent; and UNDP's grant, 9 percent. The Project is rated generally successful. The improved Project road generated significantly higher traffic volumes than were estimated at appraisal and for the PCR, and the overall Project economic internal rate of return of 29 percent was also higher. Vehicle operating costs per kilometer were halved, and the travel time between Vientiane and Vang Vieng was reduced from a minimum of 12 hours to 2.5 hours. The Project's maintenance training increased the technical competence of new and existing contractors through supervised onthe-job experiences, and thereby helped strengthen the domestic capabilities of construction and maintenance operators. With rehabilitation, considerable strip development has occurred, including improvements in the kind and type of farming. Many farms now produce two rice crops per year instead of one. Fish farming has been introduced, and diversification to cattle, goats, tree-type crops, and vegetables is strongly evident. Alongside the Project road several externally sponsored projects are under implementation, which will accelerate development. At Km 150, a cement factory has been completed for which the Project road provides the only access. Electricity has also been extended with Bank assistance between Phone Hong and

Loan No. 643-LAO(SF). for 5 miilion, approved on 11 October 1983.

Iv y ang

Vieng. With these developments, significant unquantifiable socioeconomic benefits have ensued. These include (L) improvements in the quality of life of rural residents, many of whom have immigrated from less-developed areas; (ii) improved access to other provinces and to health care and education services; (iii) savings in travel time between centers; (iv) opportunities for paid employment; and (v) improved farm incomes resulting from access to irrigation schemes and production diversification as a result of improved access arid the opening of new markets. During implementation, it is estimated the Project created about 10,000 personmonths of employment for both skilled and unskilled Laotian labor. The decision to establish a prestressed concrete plant not only enabled wider and more cost-effective bridging to be constructed along the Project road, but also sustainable benefits for other construction projects. The direct environmental impacts were minimal, as improvements followed existing alignments and required little or no earthworks to realign sections. The crushed rock used for construction of the sealed pavement was imported from either outside the Project road's zone of influence or from alongside river beds. The Project highlights the accelerated development benefits that derive from supporting road construction projects. The key lessons learned from the Project are primarily those involving refinement in design and implementation. They include the need (i) at Project design to specify the level of road improvement to be achieved in terms of international benchmark standards; and (ii) at Project implementation to ensure that civil works are monitored against the Project's design specifications. From the executing agency's (Ministry of Communication, Transport, Post and Construction {MCTPC]) perspective, there is a need to strengthen funding commitments towards road maintenance and to remove practices that result in funds being used for construction improvements. There is also a need to strengthen the management and information systems of MCTPC as well as the administrative and planning systems at the provincial level.

PROJECT ROAD WITH IMPROVEMENT (Representative Sections)

:'

At Km 60 (before Phone Hong)

At Km 157 (near Vang Vieng)

TH

1 845N

16OON

0 -

-. Kilometers 1O3O0E 97-1072 HR

102130E

I. BACKGROUND A. Rationale

1. The Lao People's Democratic Republic (Lao PDR) Government's Second Fiveyear Development Plan (1986-1990), in following a strategy to increase the production of agriculture, natural resources, and small-scale industries, recognized the need to give high priority to improving the country's transport infrastructure. The Plan gave emphasis to developing a road network that could be maintained economically and to improving maintenance operations. The Third Road Improvement Project was designed as part of the Bank's overall strategy for assisting the Government in achieving its development objectives. B. Formulation

2. The Project was identified under a technical assistance (TA) grant approved in August 1984 to prepare road improvement projects for the Second Road Improvement Project. 2 The TA included a feasibility study for the proposed road improvements. Further TA was provided in September 1986 for studying road maintenance requirements. 3 The Project was appraised during August 1987, and the Bank's loan amount of SDR14.75 million (equivalent to $19.0 million) was approved on 24 November 1987. In addition, the Bank approved in conjunction with the Project (1) a TA grant funded by the Bank to cover the cost of consultant services for road maintenance training and the procurement of maintenance equiprnertt,4 and (ii) a TA grant funded by the United Nations Development Programme (UNDP) and administered by the Bank to cover the cost of consultant services relating to detailed engneering and construction management and to assist with on-the-job maintenance training in the provinces.5 C. Objectives and Scope at Appraisal

3. The main objectives of the Project were to assist the Government in its efforts to rehabilitate the country's road system and to strengthen domestic capabilities for designing, constructing, and maintaining the country's road network. The scope of the Project envisaged at appraisal comprised (i) rehabilitation and upgrading of 162 kilometers (km) of National Road No. 13 (NR13), including replacement of all 39 existing bridges; (ii) procurement of supplementary equipment and spare parts for road construction and a workshop near Phone Hong; (iii) provision of road maintenance equipment, spare parts, and imported materials to support a three-year time slice (1989-1991) of the Government's road maintenance program for Bank-financed roads in four pilot areas, namely the Municipality of Vientiane and the provinces of Vientiane, Champassak, and Saravane; (iv) establishment of a base field workshop near Phone Hong; and (v) provision of consulting services covering 108 personmonths for detailed engineering, construction management, and assistance in training for road and equipment maintenance.

The generally poor condition of the road network was seen to generate high costs for both freight and passenger movements, particularly during the rainy season. TA No. 621-LAO: Second Road Improvement, for $250,000, approved on 29 August 1984. TA No. 796-LAO: Road Maintenance Study, for $285,000, approved on 16 September 1986. TA No. 923-LAO: Road Maintenance Training, for $225,000, approved on 24 November 1987. TA No. 924-LAO: implementation of Third Road Improvement, for $1.0 miUion, approved on 24 November 1987.

2 4. The road improvement component was expected to improve the reliabHity of transport, and to lower vehicle operating costs. The maintenance component was expected to preserve the design characteristics of the road and thereby help sustain the reliability and cost of transport services, alleviate the identified shortage of private skilled operators in road construction and maintenance, and meet equipment requirements. The overall improved reliability and reduced cost of transport services was expected to lead to an increase in freight and passenger movements, thereby supporting socioeconomic development and in particular increased agricultural production. 0. Financing Arrangements

5. The total cost of the Project at appraisal was estimated at $23.75 million equivalent, including a foreign exchange component of $18.0 million (see Appendix 1). The Bank's loan of $1 9.0. million equivalent from its Special Funds resources was to cover foreign exchange costs amounting to $16.87 million and 37 percent of the local currency costs, amounting to $2.13 million. The balance of the foreign exchange component amounting to $1.13 million was to be funded by UNDP, and the remaining local costs were by the Government. In addition to the appraisal provisions for the total cost of the Project, the Bank agreed to provide a TA grant amounting to $225,000 to cover the cost of consultant services (see para. 2). Prior to the Bank's loan for the Project, the Executing Agency (EA) had received two Bank loans totalling $20 million and seven TA grants totalling $2.94 million. Subsequent to the Bank's loan for the Project, the EA has been the recipient of 4 additional loans totalling $166 million and 15 TA grants totaling $5.55 million. E. Completion

The project completion date envisaged at appraisal was 30 June 1992, and the 6. closing date for the loan was to be 30 June 1993. 7. The Project Completion Report (FOR) prepared by the Bank's Infrastructure Department2 in February 1995, discusses the design, scope, implementation, and operational aspects of the Project. The PCR covers the Project's implementation in adequate detail, and in its overall assessment considered the Project to have successfully contributed to the improvement of the country's road infrastructure and to have improved maintenance organization and quality in the four pilot areas. The quantifiable benefits in terms of vehicle operating and road maintenance cost savings were greater than expected, and an overall Project economic internal rate of return (EIRR) of 24.7 percent was estimated, compared with the forecast estimate at appraisal of 22.3 percent. The quaLity of road construction and bridges was considered to be of a high standard. F. Postevaluation

8. This Project Performance Audit Report (PPAR) issesses the Project's effectiveness in terms of appropriateness of formulation and design, progress and quality of implementation, and achieving its objectives. The PPAR presents the major findings of a

The TAs included two kjnded by UNDP amounting to $1.69 million. Now called Infrastructure, Energy, and Financial Sectors Department (West).

3 Postevaluation Mission (PEM) that visited the Project from 24 February to 4 March 1997. The Report is based on the findings of the PEM; a review of the PCR, the Appraisal Report, and material in Bank files; discussions with Bank staff, senior officials of the Ministry of Communication, Transport, Post and Construction (MCTPC) and other agencies of the Borrower; and interviews with industry experts. Copies of the draft PPAR were provided to the Government, the Executing Agency (MCTPC), and Bank staff concerned for review and comments. The comments were considered in the preparation of the PPAR.

II. IMPLEMENTATION PERFORMANCE A. Design

The implementation arrangements envisaged at appraisal were closely followed 9. apart from changes in scope, modifications to construction specifications, and delays in the availability of equipment and materials. The changes in scope and specifications followed detailed preparation, taking into account new traffic projections, increased axle load requirements, and least-cost considerations. The principal changes involved decisions to (1) widen the carriageway widths for double bitumen surface treatment, (ii) provide the road shoulders with a single bitumen surface treatment, and (iii) replace all of the bridges except one with permanent two-lane prestressed concrete girder type bridges. 1 Specification for the carriageway width within urban Vientiane was widened to 12 meters (m) from 7 m, and the road shoulders were reduced from 1 .5 m to 1 m for 11 km. Specification for the carriageway width up to yang Vieng (approximately 144 km) was widened from 6 m to 7 m. Up to the Nam Lik river (80 km) the road shoulders were widened from 1 .5 m to 2 m, and for the next 64 km to Vang Vieng they were reduced from 1 .5 m to 1 m. A bar chart of principal activities (appraisal versus actual) is shown in Appendix 2. The change to prestressed concrete bridges necessitated the establishment of 10. a precasting yard in Vientiarie, importation of plant and laboratory equipment, and the engagement of a precast concrete expert. Except for the decision to replace the bridges with prestressed concrete structures, all the changes in scope and design specifications were in keeping with conceptual bounds for flexibility before detailed engineering. 2 All the changes in scope and design specifications were approved by the Bank. There were no changes to the scope and design of the maintenance component, and the scope and design of the Project were overall well conceived. B. Contracting, Construction, and Commissioning

11. An Australian firm was recruited by the Bank to provide consulting services for detailed engineering; construction management; and the procurement of equipment, plant, spare parts, and materials. As a result of the firm's earlier involvement in the Vientiane Plain

Repiacement of the Bailey bridge at Nam Lik was deferred. Before confirmaton from detailed engineering, it was expected that it would be necessary to replace all nine Bailey bridges between Vientiane and Phone Hong with reinforced two-lane concrete girder type bridges and to replace the thirty deteriorated Bai'ey bndges beyond Phone Hong with new single-lane steel truss Bailey bridges. At the time of appraisal, the possibility of building prestressed concrete bridges was not an option, as the country was without a prestressed concrete plant and there were no proposals to buiLd one.

4 Road Improvement Project, the consultants were familiar with local requirements for detailed engineering and implementation administration. The designs of the Project road sections and bridges, and the preparation of prequalification and bid documents were thorough and well prepared. The consultant's contract was extended from 60 person-months to 102 personmonths because of the change in bridge construction technology and time overruns in the schedule for civil works (see paras. 17-19). 12. All civil works were contracted out as force account works to the State-owned Road and Bridge Construction Enterprise No. 10 established under Loan No. 643-LAO(SF). However, subcontracts were also extended to other State-owned construction enterprises so as to speed up the rate of progress on construction. The arrangements and performance of the contracting enterprises were generally satisfactory. 2 While the overall quality of construction was satisfactory, the PEM observed variations in the actual width of carriageway that are not consistent with the Project's revised specifications. Although the variations are few and have no significant bearing on the economic benefits evaluated for the road, closer monitoring of the progress of work is recommended on future Projects (see para. 49). 13. The road maintenance component of the Project focused on building maintenance awareness and the Project's objective to assist the Government in implementing its road maintenance program. The procurement of maintenance equipment, spare parts, and materials3 provided under the Bank loan was facilitated without problems. The training in road and equipment maintenance was implemented under the supervisory assistance of consulting services engaged under the Bank's attached TA (see paras. 17-19). C. Organization and Management

14. The organization and management structure for the Project proved appropriate, and implementation arrangements, including the appointment of personnel to the Project, were closely followed. The Ministry of Transport and Post (MOTF) wa the appointed EA for the Project and for the Bank's TA. 4 The Project Management Unit (PMU) established within MCTPC under Loan No. 643-LAO(SF) was used for the Project and benefited from the experience gained. Road and Bridge Construction Enterprise No. 10 was made responsible for carrying out the civil works construction, and the equipment used under Loan No. 643LAO(SF) was transferred to the Project. The Project Manager, under the overall guidance of the Vice Minister for Communications, was responsible 'for day-to-day implementation of the Project together with some 24 PMU staff and consultants. The EA's working relationship with the Bank was satisfactory. Between March 1988 and August 1994 there were nine Bank review missions, one special loan administration mission, and one disbursement mission. D. Actual Costs and Financing

The final Project cost of $26.26 million exceeded the appraisal estimate of 15. $23.75 million by 10.6 percent. The overrun was entirely attributable to additional foreign

Loan No, 643-LAO(SF), Second Forestry Development, for $8.0 million, approved on 11 October 1983 and completed in December 1988. Following inspection by a Bank mission in August 1993, minor remedial works were requested in Vientiane Municipality. Including fuel, bitumen, and sealants. MOTP was renamed the Ministry of Communication, Transport, Post and Construction in 1993.

5 exchange costs resulting from the extension in consulting services and the need to establish a prestressed concrete plant. UNDP met the increase in consultants costs, and the favorable SDR/$ exchange rate enabled the additional import costs for plant, materials, and a technical expert to be met from the Bank loan. The actual local currency costs of $5.63 million were in tine with the appraisal estimate of $5.75 million. Total disbursements under the Bank loan amounted to $19.81 million equivalent, which was $40,000 less than the approved loan amount of SDR1 4.752 million. The Bank loan represented approximately 76 percent of the total Project cost, UNDP's grant of $2.25 million represented 9 percent, and the Government's contribution of $3.77 million was 15 percent. ln addition, the amount of $201 000 was met by the Bankfunded TA on a grant basis to cover the consultants' fees for road maintenance training. Further details of Project costs and financing are shown in Appendix 1. E. Implementation Schedule

16. The Project was deemed complete with the last bridge construction in September 1994, 26 months later than was scheduled at appraisal. The overall delay was caused by (i) a delay in the signing of the UNOP Project Document, which affected the commencement of detailed engineering by 9 months; (ii) the decision to replace all bridging except at Nam Lik with prestressed permanent concrete bridges; and (iii) funding constraints on the Government, which affected the timely implementation of activities. There was one extension on the closing date for the Bank loan from 30 June 1993 to 30 June 1994. F. Technical Assistance

The Banks feasibHity study and study of road maintenance requirements (see 17. para. 2) provided the basis for the appraisal mission. The feasibility study gave emphasis to fact-finding for the rehabilitation and upgrading of NR1 3 from Vientiane to yang Vieng as part of a proposal for the Second Road Improvement Project, but which made the Second Project too large to complete with the manpower resources then available in Lao PDR. The study of road maintenance requirements enabled the maintenance component for the Project to be appropriately identified and formulated. The Bank's attached TA for road maintenance training covered responsibilities for (i) assistance with the procurement of maintenance equipment, spare parts, and materials provided under the Bank loan; (ii) on-the-job training in road and equipment maintenance executedas part of the Bank's support for the Government's Five-year Road Maintenance Program (1 988-1 992); and (iii) developing a maintenance management reporting system. The procurement of construction equipment and spare parts was facilitated without problems. On-the-job training was imparted largely through the consultant-supervised experiences gained from a periodic maintenance program covering 600 km of Bank-financed roads (see Appendix 3). Training was for the benefit of administrators, engineers, construction 18. contractors, and local staff in the provincial and municipality road maintenance enterprises. The PEM met with one administrator and two operators, who confirmed that the approach to training was beneficiaL and that they had benefited from the experience and advice given. The consultant for the Bank's TA-supervised activities was allocated two trainers to assist him. 1 The training covered laterite/gravel mixing, regravellirig techniques, premix patching, and

The trainers were sponsored by UNDP under TA No. 924-LAO.

6 appltcation. Training in routine maintenance was also given,a useful manual for routine maintenance was prepared in the Lao language, and a series of maintenance workshops were held. However, while the training achievement in periodic road maintenance was considered useful and very effective, some reservations were expressed by the consultant concerning the effectiveness of training in routine maintenanceS The consultant felt those involved generally lacked motivation and interest, and that awareness of the importance of routine maintenance was still low. 1 Attention was also paid to developing a management maintenance reporting system including an inventory for maintenance equipment and spare parts held at the maintenance depots in the provinces and the municipality. The basics of this reporting system are currently being adopted for use on a national scale with Swedish assistance. Although details of the numbers of persons trained under the Project were not 19. monitored, and practical Limitations prevailed on the type of maintenance training generally conducted, the training overall is nevertheless considered to have gone well, particularly for the provinces of Champassak and Vientiane. The major benefit of the training was the contribution to the pool of skilled contractors in road maintenance and construction.
G. Compliance with Loan Covenants

20.

The Borrower and the EA complied with all loan covenants.

HI. PROJECT RESULTS A. Operational Performance

The operational performance of the Project is assessed in terms of the volume 21. of traffic carried, the technical impacts of the traffic on road pavements, and the benefits from maintenance training. In addition, the PEM reviewed the design standards for the rehabilitated and upgraded road sections and examined their appropriateness relative to actual operating speeds, axle bads, and traffic volumes being experienced. A framework analysis for the Project is shown in Appendix 4.
1. Traffic Carried

Traffic volume on the Project road is substantially in excess of that projected at 22. appraisal. In June 1987, daily traffic volumes ranged from 60 vehicles/day at Km 150 to 3,155 vehicles/day at Km 7. Surveys undertaken in March 1993, when Project improvements (except for some bridges) were substantially complete, showed traffic had increased at the same locations to 325 and 9,520 vehicles/day, an increase of 20 and 35 percent per annum, respectively. Official traffic counts undertaken along the Project road at Km 64 in March 1995 and March 1996 show an increase of 29.6 percent. These increases compare with the PCR's projections of between 3.1 and 6.2 percent per annum, which were dependent on vehicle type and location on the Project road. The rapid growth in traffic between 1993 and 1996 reflects

Specific provision for routine maintenance is provided in MCTPC's Five-year Road Maintenance Plan, 1997 to 2001.

7 (I) the importance of NR13 as an export-import road link to the northern regions; and (ii) the result of additional infrastructure improvements along the road, including irrigation development, electricity extension, urbanization, and private enterprise expansion. 2. Technical Impacts

Before the Project and during the dry season, it to took up to one day to travel 23. the 158 km from Vientiane to y ang Vieng. During the rainy season, the Project road was often impassable, but otherwise took two days. Because of the Project, the journey can now be travelled all year round in 2.5 hours. The decision to cover the shoulders of the road with a single bitumen seal induced the slower light vehicles (motorcycles and bicycles) to use the shouldersthereby enabling good travel speeds to be achieved by the faster and heavier motor vehicles. The average driving speed of vehicles is 60-80 km/hr, which is consistent with appraisal expectations. Notwithstanding the generally very good condition of the Project road, and the 24. known technically conservative design considerations, the pavement was observed by the PEM to be unacceptably rough in a few places. This appeared to be the result of subgrade deformation due to overloading when the subgrade is saturated (see para. 40). Roughness was also a factor near the approaches to bridges, where civil works were completed after the road sections had been completed by the main construction enterprise and after the new bridges were installed. 3. Maintenance

The PEM visited the Project's maintenance workshop near Phone Hong and 25. discussed with the manager his recall of the Project's effectiveness in maintenance operations. The manager reported positively on the training experience and advice given, and pointed to the current worn state of much of the equipment. It was the PEM's impression that all road equipment had been used extensively, and that appropriate engineering and management skills were in place to effect equipment repairs and the ongoing management of operations.2 ln looking to the quality of maintenance work completed, the PEM inspected 26. spot improvements and emergency repairs along the Project road and adjoining feeder roads. It was concluded that the maintenance for these had been carried out satisfactorily, except where subgrade deformation due to poor drainage was evident (see para. 24). However, attendance to routine maintenance for the purpose of ensuring proper drainage and therefore maintenance of the subgrade had either not been attended at all, or was inadequate. 3 There

The traffic counts along the Project road at Km 64 in March 1996 comprised 30 percent pick-up vehicles, 27 percent buses, 24 percent trucks, and 19 percent cars. Of these traffic counts, about 17 percent represent heavy buses and trucks with a tare weight (unloaded) of more than 4 tons. Almost 50 percent of all traffic movements represent through traffic between Vientiane Municipality and Luang Prabang Province. Less than 1 percent of all traffic movements originate or are destined beyond the south of Vientiane Municipality. At postevaluation the mechanical engineering capability of the depot's staff continued to be led by one of the UNDP consultant experts to the Project. The focus of the sank's participation related to periodic maintenance only. However, the terms of reference for the advisor dictated a wider scope for training local staff to cover routine maintenance needs.

8 is a need to routinely clear drainage obstructions and to ensure that platforms (to new buildings) erected across main side drains do not interfere with drainage design provisions. B. institutional Performance

The emphasis of the Project was on physical road reconstruction, strengthening 27. domestic capabilities of construction and maintenance operations, and building a stronger awareness of maintenance needs. Subsequent Bank projects have also focused on building institutional capacity including maintenance capability. This has taken the form of establishing a management information system within MCTPC to better plan, implement, monitor, and coordinate activities and to provide MCTPC with regulations and a framework for procurement, contract management, accounting, and audit, and extending maintenance training to additional provinces. 1 Other assistance has aimed at deepening the process of commercialization and privatization of State-owned construction enterprises. At the time of appraisal, MOTP was responsible for the administration, planning, 28. construction and maintenance of national roads. The provincial authorities, through their respective provincial departments, were responsible for provincial and local roads, and operated under the jurisdiction of MOTP for technical guidance, financial support, and the implementation of externally assisted projects. In January 1993, MOTP was renamed MCTPC and strengthened by separating the policy functions from operations and by placing more emphasis on planning and budgeting functions. An evolving process was initiated toward decentralizing responsibilities from MCTPC to the provincial departments and district administrations. For road infrastructure and maintenance a bottom-up' approach is followed, with the Administration and Planning divisions of MCTPC (see Appendix 5) collecting the relevant information, and the provincial departments administering the inputs for infrastructure construction. The decentralization plan reduced the 36-person professional staff of MCTPC's Road Administration Division (RAD) to 9 persons and placed responsibility for implementation of construction and maintenance work in the hands of the maintenance enterprises and road superdisors in the provinces.2 As envisaged at appraisal, the State construction unit established under Loan 29. No. 643-LAO(SF) was made responsible for carrying out civil works construction for the Project through force account. There were then 11 State-owned enterprises (SO Es) engaged in construction and maintenance contracts. The contract remuneration terms were set using centrally fixed unit prices. Over time, these prices have proved to be not reflective of the different conditions encountered, and the majority fell below real costs. The pricing system resulted in undercapitalized enterprises and, in recognition of the ineffectiveness of the system, the Government opted for a policy of commercialization, which conferred autonomy on the enterprises and enabled the introduction of competitive bidding. The commercialization process was strengthened in 1993 with the announced intention to privatize the State and

TA No. 2389-LAO: Management Information System, for $350,000, approved on 31 August 1995 (the TA is to be extended under a second phase); TA No. 1494-LAO: Road Maintenance and Equipment Training. for $600,000, approved on 13 March 1991; TA No. 1494-LAO: Road Maintenance and Equipment Training (Supplementary) for $400,000 approved on 2 March 1993, TA No. 2388-LAO: Feeder Roads Maintenance Tr-ining. for $350,000, approved on 31 August 1995. Many of whom are not yet in place, and when found may be hard to retain on Government salaries, which are present'y not competitive with the private sector.

9 provincial construction enterprises. There are currently 11 SOEs (2 national and 9 provincial) that operate in the road construction and maintenance sector, and about 30 private enterprises. The Government has initiated steps to privatize 8 of the 11 SOEs by 1998. At the time of the PEM's visit, contractual arrangements were concluded for the privatization of the workshop facilities and maintenance equipment near Phone Hong. To date the programmed periodic maintenance of roads in the national network 30. has been of a limited scale and largely confined to the municipality of Vientiane and the three pilot provinces under the Project. Under the Government's Five-year Maintenance Plan (1 9972001) the Government intends to expand maintenance provisions and to progressively give more emphasis to routine maintenance. All periodic maintenance is to be by way of contracts awarded on the basis of competitive bidding, while the majority of routine maintenance is expected to be carried out through negotiated contracts, Present resource and implementation capacity constraints suggest the need for further development and expansion of technical contracting, and management skills, There is also evidence of a need for executing agencies to adhere to the Government's maintenance programs.1 C. Economic ReevaluaUon

The Appraisal Report provided estimates of the EIRRs for (i) the road section 31. between Vientiane and Phone Hong, (ii) the road section between Phone Hong and Vang Vieng, (iii) the periodic maintenance component, and (iv) the overall Project. The economic benefits were quantified in terms of savings in vehicle operating costs (VOCs) and avoided maintenance costs by comparing the "with Project" and "without Project" situations. The VOC savings were calcUlated based on a model developed under the feasibility study in 1985 and VOC studies for different vehicles and makes. The model caLculated VOCs for each vehicle type, taking into account, among other factors, surface condition, maintenance regime, type of pavement surface, vehicle load, road gradient, operating speeds, and road restrictions. The EIRRs obtained ranged from 16.2 to 31.1 percent and gave an overall Project EIRR of 22.7 percent. The PCR and PPAR updated the appraisal approach using actual construction 32. costs and traffic volumes (based on surveys of traffic counts undertaken along the Project road) up to March 1996. The VOC savings were calculated using the Highways Design and Maintenance Standards Model Ill deveLoped by the World Bank. However, for reevaluation purposes the road improvement component was divided into three sections: Section I covering 16km within the city limits of Vientiarie Municipality, Section II from Km 15 north to Km 70 north, and Section III from Km 70 north to. Km 158 north. The EIRRs obtained for each section are shown in the following table. The higher PPAR results are attributable entirely to the higher traffic volumes using the road. The PPAR results take into account the reduced economic life of the road pavement as a consequence of the higher traffic volumes and deterioration impact on the pavement surface. 2 The FPAR reestimates are confirmation of the success of the Project in achieving its objectives. A detailed summary of the results is presented in Appendix 6.

Past provisions for road maintenance have been prone to reallocation for road construction Improvements. The econoimc life uf the road sections is protected to be 12 years from 1996. At appraisal, the economic life of the Project road was projected to be 1 Q years from 1992. The same projection applied or the PCP.

10 EIRR Estimates (percent)

Road Section Section 1 Section II Section III OVERALL PROJECT

Appraisal 29.1 16.2 22.7

PCR 35.9 22.4 23.0 24.7

PPAR 44.1 25.3 35.4 29.4

D.

Socioeconomic and Sociocultural Results

33. At the time of appraisal, the Project road was the only road access from Vieritiarie to the country's northern provinces and was in such a deteriorated state that there was little through traffic. The poor condition of the bridges severely limited the axle loadings that could be safely carried. The alternative transport system used was the Mekong River, with barges carrying up to 50 metric tons. However, time considerations and navigational hazards limited the advantages of using the Mekong. 1 The immediate zone of influence for the Project road covered predominantly agricultural districts within Vientiane Province and Municipality. Over 95 percent of the cultivated area was planted to paddy. Other crops included corn, legumes, rootcrops, fruits and sugar cane. With the improved Project road, cattle raising, forestry, and logging in Phone Hong and Vientiane were expected to increase significantly. There were also known to be proposals for a cement plant at yang Vieng, which would provide supplies for the whole country, and proposals employing external assistance for irrigation, rural electrification, forestry, and the rapid urbanization of Phone Hong. Improvement of the Project road was integral to achieving accelerated development of the area. 34. Since completion of the Project road, considerable strip development has occurred. Between Km 5 and Km 11 there are new gas stations, and many small service industries including outlets for mechanical repairs and building supplies. New food markets, restaurants, and shop front housing have also been established. Beyond the Vientiane city fringe the farming area begins, but there also exist several new factories, a new vehicle assembly plant, new housing, and several new commercial establishments. At Km 20 there is a new school and housing, and two new rice mills. Thereafter, new commercial development and housing, though more sporadic, are evident through to yang Vieng. Tourist attractions and accommodations have been developed at Km 45 and Phone Hong. There are also notable changes in the kind and type of farming. While paddy farming still predominates, the introduction of irrigation has led to considerable tracts of farmland producing two rice crops per year instead of one. Fish farming has been introduced, and diversification to cattle, goats, tree-type crops, and vegetables is strongly evident. Several externally sponsored projects are under implementation. These include King of Thailand projects involving irrigation with integrated development at Km 18 and Phone Hong, the World Bank's UpLand Agricultural

The trip between Luang Prabang and Vientiane by barge dunng the dry season took 7-14 days compared with 2 days by truck, and during the wet season 3-8 days compared with 3-5 days by truck.

11 Project at Km 90, and the Koon Xang Irrigation Project at Km 158, At Km 150 the cement factory run under a joint venture consortium between the Governments of Lao PDR and the People's Republic of China has been completed, and limestone rock is mined for use in the cement factory and also for decorative purposes. Electricity has been extended between Phone Hong and yang Vieng, and further on to Luang Prabang. 35. With these developments, significant but unquantifiable socioeconomic benefits have ensued. These include (1) improvements in the quality of life of rural residents, many of whom have immigrated from less developed areas; (ii) improved access to other provinces and to health care and education services; (iii) savings in travel time between centers; (iv) opportunities for paid employment; and (v) improved farm incomes resulting from access to irrigation schemes and production diversification as a result of improved access and the opening of new markets. 36. During implementation, it is estimated that the Project created about 10,000 person-months of employment for both skilled and unskilled Laotian labor. At least seven new operators in contracting and periodic maintenance benefited from the training component, thereby increasing the feasibility of the Government's intentions to move towards competitive bidding contracts for construction and periodic maintenance. The decision to build a prestressed concrete plant enabled not only wider and more cost effective bridging to be constructed along the Project road, but also sustainable benefits for other construction projects. The concrete precast plant has recently been privatized and has a permanent workforce of 60 persons. E. Women in Development

37. The Project did not specifically focus on woman as beneficiaries. There were, however, significant indirect benefits generated for women in terms of (i) increased employment opportunities; (ii) improved access and transport to markets, education, health, and community facilities; and (iii) expanded farm production. F. Environmental Impacts and Control

38. As improvements to the Project road followed the existing alignments and required little or no earthworks to realign sections, the direct environmental impact of the Project was minimal. There was no additional land acquisition and almost no removal of vegetation. Only minor cutting of hillside faces was required. The crushed rock used for construction of the sealed pavement was drawn mostly from alongside river beds so that there was no obvious destruction within the Project road's zone of influence.1 39. In recognition of the general need for environmental controls with road projects, the Government established the Ministry of Environment in 1995, and has issued "Guidelines For Reducing Environmental Effects of Road Projects." Further to the issue of these guidelines, the MCTPC Communication Department's Planning Division established in December 1996 an environment section through which all development projects are vetted for the purpose of

Some rock for crushing was also imported from south of Vientiane.

12 addressing potential environmental disturbances. The controls initiated by the Government are considered appropriate. G. Gestation and Sustainability

As the life of the Project road is primarily an inverse function of axle loads and 40. the volume of traffic, and as both factors have increased, the projected life of the road has been reduced and periodic maintenance requirements have been brought forward. Because the subgrade and pavement design was conservatively designed, little or no impact on the life of the Project road is expected from raising the maximum legal axle load limit from 8 tons to 9.2 tons. 1 However, overloading beyond the current limit will severely reduce the Project's pavement life and adversely impact on the economic value of the Project. The increased volume of traffic over appraisal estimates and the PCR observations hastens the deterioration impact but also means that the benefits measured in terms of VOC savings are realized earlier. The long-term sustainability of the Project, therefore very much depends upon satisfactory resolution of the emerging problem of vehicle overloading (see para. 45) and attention to maintenance (see paras. 43 and 44). Against these concerns, the Government's annual nationwide expenditure on 41. road maintenance is increasing as a percentage both of Government road expenditure and of gross domestic product (see Appendix 7). This trend is reflective of the growing awareness of the importance that is attached to preserving the life of the country's road pavements. Within planned expenditure provisions it is also of note that the need to attend to routine maintenance requirements is recognized. Based on MCTPC's planned maintenance program, the satisfactory status of road maintenance workshops and equipment, and the available expertise of construction and maintenance operators in the area, the PEM considers that, with appropriate management, the benefits of the Project should remain sustainable.

IV. KEY ISSUES The Need For Benchmark References. During the course of the PEM's 42. evaluation, different perceptions were received as to the smoothness of pavement expected after construction. Perceptions varied from those who had the benefit of comparing the Project road situation with achievements on national highways in adjoining developing countries to those who could only make a comparison with the state of the Project road before improvement. The PEM was surprised to find that nowhere is it documented in the appraisal or consultant's terms of reference as to the evenness and smoothness of pavement required. The PEM therefore had some difficulty in its own evaluation as to how to objectively compare the riding characteristics arid smoothness with what was expected and agreed to at appraisal. The PEM found as a holdover from the Vientiane Plain Road Improvement Project, which was designed, managed, and supervised by the same consultants, that the Project road was to be designed to a "good quality seal" and to the same standard. Even so, the term is vague and

The life of the Project road would have been reduced by about 40 percent if the Project improvements had been truly designed to the maximum legal limit of 8 tons. Such a reduction would have reduced the design life of the Vientiane-Phone Hong section from 12 years to 7 years, and the Phone Hong- yang Vieng section from 17 years to 10 years. The current permissible axle loadings were legalized in 1996,

13 means something different to different persons. For future projects it is recommended that the quality of finish be specified in terms of the International Roughness Index. Other considerations relating to ride factors and safety should also be specified. Road Maintenanc. The decentralization of RADs maintenance role, whereby 43. responsibility for contracting and supervising road maintenance work is transferred to the provincial governments and district level management units, should create a system more responsive to local maintenance needs. However, unless there is established a compelling interest to adhere to a maintenance program, not only at MCTPC but also at the provincial and district levels, there is a danger that decentralization will undermine the progress and achievements to date. There is a need, therefore, to ensure that reforms aimed at strengthening the management and information systems of MCTPC and developing administrative and technical competencies and accountability at the central level are also transferred to the provincial and district levels. The existing road contracting industry comprises about 26 recently privatized 44. State enterprises and some 30 small private enterprises. These are typically undercapitalized. with obsolete equipment and limited financial and management skills. The present situation is exacerbated by maintenance contractors' lack of access to commercial finance and their need for sufficient collateral. 1 Contributing to the weak industry that prevails are holdovers from the Government's operations before privatization: These include the absence of a competitive contracting process, centrally fixed prices too low to cover equipment upkeep, and slow contract payments. These considerations point to a need for (i) ongoing support for commercial finance mechanisms to address enterprise needs for equipment purchases, and (ii) a commitment from the Government and provincial administrators to enter into timely and obligatory contract payments. Vehicle Overloading. Unless overloading is effectively controlled, the Project 45. road pavement will break from the bottom up and require unnecessary reconstruction well before its design life is reached. During the PEM's inspection several logging trucks were seen carrying axle loads well in excess 2 of the maximum legal axle load limit of 9.2 tons. Other heavy load-bearing vehicles seen included heavy trucks carrying quarry materials and cement. The consequences of allowing overloading are not only a disproportionate and adverse impact on the design life of the pavement (see para. 40) but also high periodic maintenance and reconstruction costs.3 In raising the issue of overloading, the PEM recognizes that there is presently 46. a lack of control stations, weigh bridges, and scales for enforcing the Government's loading regulations. Even so, the seriousness of the problem of overloading cannot be overemphasized. Repeated experiences show that the economic value in pavement structure

Current interest rates are also prohibitive at around 25 percent per year. Estimated between 12 and 15 tons. On the assumption that 30 percent of the trucking movements carry loads on average of 13 tons (Le., 50 percert overloading), the design life of the pavement is reduced by three years to 2005. At this date, major reconstruction of the road would be required to sustain vehicle operating benefits. mputing into the model cost of reconstruction required to maintain the vehicle benefits to 2008, the Project EIRR faUs from 29.4 percent to 23.3 percent.

14 is sustainable only where overloading is effectively controlled, routine maintenance occurs, and there is effective monitoring of road conditions to ensure that pavement failing is anticipated and prevented through timely structural overlays. Studies should be initiated on how effective controls can be put in place leading to cost recovery on enforcement, capital, and maintenance costs associated with overloading. Effective controls may also include driver awareness programs to make drivers/owners of heavy trucks aware of the economic costs, and of the penalties to be imposed, if overloading is detected.

V. CONCLUSIONS A. Overall Assessment

47. Project formulation and design were consistent with the Bank's guidelines for justification. Implementation followed closely the arrangements envisaged, including recognition of the need to make modifications to specifications and scope after detailed engineering. Implementation also benefited from the experience gained on the Bank's Vientiane Plain Road lmprovement Project, and the quality of performance by consultants and contractors was generally satisfactory. in terms of Project outcomes, the maintenance training component increased the technical competence of new and existing contractors through supervised on-the-job experiences and provided an important contribution towards ensuring the availability of sufficient qualified operators to participate in competitive bidding contracts. The improved individual road sections generated much higher traffic volumes than estimated at appraisal and in the POR, and the reestimated Project EIRR of 29 percent was correspondingly higher. Taking into account the satisfactory formulation, design, implementation, and Project outcomes, and assuming that the benefits of the Project are sustainable with appropriate attention to maintenance and the issue of overloading, the Project is rated generally successful. B. Lessons Learned

48. Other nearby infrastructure developments helped accelerate the volume of traffic over the Project road and underlined the importance of supporting road projects where there exist with mutually supportive development proposals. The key lessons learned from the Project are the need (I) at project implementation to ensure that civil works are monitored against the project's design specifications, and where deviations apply that these are documented and approved under the authority of the Bank and the executing agency (see para. 12); (ii) to st?engthen funding commitments towards road maintenance and to remove practices that result in funds being reallocated for construction improvements (see para. 30); (iii) to strengthen the management and information systems of MCTPC and the administrative and planning systems at the provincial level (see para. 43); and (iv) at Project design to specify the level of road improvement to be achieved in terms of international benchmark standards (see para. 42).

Where drainage maintenance is inadequately carried out, as is usually provided for under routine maintenance, there s a tendency, with overloading, for these parts of the road to break up rapidly.

15 C. Foflow-up Actions 1. Bythe Bank

49. The Bank should continue to support road improvement projects but should (i) ensure that progress on civil works is monitored and in keeping with the Project's design specifications (see para. 12); and (ii) specify, in accordance with accepted international benchmark standards, the finishing characteristics to which road pavement constructions and improvements are expected to be built (see para. 42). 2. By the Government

50. The Government should ensure that reforms aimed at developing administrative and technical competencies and accountability at the central level are also transferred to the provincial and district levels. The reforms should include a commitment from the Government and provincial administrators to enter into timely and obligatory contract payments (see para. 44). In addition, it is recommended that studies be initiated for (i) cost recovery on enforcement, capital, and maintenance costs associated with overloading (para. 46); and (ii) the ongoing support of commercial finance mechanisms to address construction and maintenance enterprise needs for equipment purchases (see para. 44). 3. By the Executing Agency

51. In the interests of sustaining the design life of the Project road pavement, MCTPC is encouraged to take measures to ensure that drainage obstructions are routinely cleared and that platforms erected across main side drains do not interfere with drainage design provisions (see para. 26). In addition, MCTPC is encouraged to (i) place increased emphasis on routine maintenance along the Project road, and (ii) promote additional training to technical staff and administrators (see para. 30).

16 APPENDIXES

Number

Title

Page

Cited On (page, para.) 2, 5 3, 9

1 2 3

Project Costs Project Implementation Schedule Program for On-the-Job Periodic Maintenance Training Project Framework Analysis Organization Charts EIRR Reevaluation Maintenance Expenditures

17 19

20 21 24 26 31

5, 17 6, 21 8, 28 9, 32 12, 41

4 5 6 7

PROJECT COSTS Table 1. Project Costs Summary AtAppraal Total Local Cost With Reved Scpe - Local Total Foreign Exchan Currency Cost Actual Total Foreign Local Exc hanc Currenc y Cost

Foreign

Road Improvement. 6.17 4.30 11.00 6.70 6.70 Civil Works 3.75 3.98 0.23 3.75 Construction Equipment 0.18 0.06 0.24 0.18 Workshop 1.02 2.02 a 0.92 0.10 Consulting Services 4.69 16.24 12.65 11.55 Subtotal Periodic Road Maintenance Civil Works Maintenance Equipment Consulting Services Subtotal 1.00 3:45 0.08 4.53 0.34 0.15 0.49 1.34 3.60 0.08 5.02 1.00 3.45 0.08 0.34 0.15 0.49 1.34 3.60 0.08 5.02 1.15 3.31 0.36 C 4.82 1.62 0.15 0.02 1.7894 2.77 3.46 0.38 6.61 4.30 0.23 0.06 0.10 4.69 11.00 3.98) 0.24) 2.12 17.34
b

6.98

2.87 0.90 0.07 3.84

9.04 7.88 2.17 19.09

2.10 15.25

Contingencies Interest during Construction TOTAL ___

1.52 0.40 18.00

0.57 - 5.75

2.09 0.40 23.75

1.52 - 14.17

0.57 - 5.75

2.09 - 24.45

0.43 20.50

- 5.63

0.43 26.13
-o 0 is J 0.

= magnitude zero. Represeritrig additional consulting services for construction of the prestressed concrete bridge plant, funded by UNDP for $400000 under TA No. 1494 (supplementary) and by the the Bank ($570000) under TA No. 1 495-LAO. Represented in Controllers Department accounts as expenditure on equipment, spare parts, tools, and vehicles. Expenditure for consuLting services includes provision of $225,000 funded by the Bank under TA No. 923 -LAO, and $20,000 funded by the Government.

0 (0 'p

Accounted for in actual expenditures. 2 Postevaluation Mission estinate. Sources: ADB Controllers Department, MCTPC, and Staff estimates.

Table 2: Costs by Year of Disbursement and Source ($ million) TOTALS

Funding Source

1968

1989

1990

1991

1992

1993

1994

1995

The Bank under Loan Funding FOreign Exchange Expenditures Local Currency Expenditures The Bank under TA Funding UNDP TheGovemment IriterestduringConstruction TOTAL
0.218

- -

6.401 0.212 6.613 0.049

3.733 0.349 4.083 0.101 0.710 0.813 0.066

5.773

4.086 0.328 4.414 0.051 0.339 0.879 0.093

5.776

2.556 0.446 3.002 - 0.245 0.598 0.112

3.957

0599 0.374 0.913

0.141 0.061 0 202 -

0.096 0.096 -0003 0,019

17.613

1.769 19.383 0.201 2.252 3.86 1 0.430

0.218

0.645 1.317 0.041

8.664

0.092 0.194 0.118

1.377

0.006 0.040 0.249

0.113

26.126

- = magnitude zero; UNDP United Nations Development 'rogrw'nme, PEM = Postevaluation Mission
Represents an adstm ant to subcontractors account. Funding provided by tha Bank under TA No. 923-LAO: Road Maintenance Training Funding pruvided by UNOP under TA No. 924- LAO: Implementation of Third Road Improvement and TA No. 1494-LAO: Road Maintenance and Equipment Training (Suppla'nenlary). Sources: ADB Controllers Department, MCTPC, and PEM estimates

Table 3: Costs by Year ot Disbursement at Constant 1997 Prices ($ million) Project Expenditures Nominal 0.148 4.611 4.569 0.218 7.135 Foreign Exchange 1.163 1.207 - 1.529 Local Currency 5773 5.776 0.218 8.664 Constant 1997 Prices Foreign Exchange Local Currency 8.893 5.460 0.271 . ..i---------?...J1?.L 7180 0.271 11.376 5.293 1 8856 3 235 1.261 4.496 0.901 0.645 1546 0.159 0.107 0.266 0.093 0.019 0112 24.304 7.798 32.102 2.913 1.044 3.957 0.809 0565 1.377 0.101 0.249 0.093 0.019 0.113 20.496 5.630 26.126
1988 1989 1990 1991 1992 1993 1994 1995

Totals

-o
(0

a -o

0)

(0 1\)

Sources: ADB Controflers Department. MCTPC. and PEM estimates..

PROJECT IMPLEMENTATION SCHEDULE

________________

Activities

1987 II Ill

IV

1988 II III

IV

1989 11 III

IV

1990 LI III

IV

1991 II III

IV

1992 II Ill IV

1993 II III

IV

1994 II III

IV

A. ROAD CONSTRUCTION COMPONENT

II 9 2. DetaiLed Engineer ing I I U.. ...........

1.Recruitment of Consultants 5. Procurement of Equipment

5. Construction Management 6. United Nations Volunteer Services B. ROAD MAINTENANCE COMPONENT 1.Recruitment of Consultants 2. Procurement of Equipment 3.CIvilWks 4. Consulting Services 5. United Nations Volunteer Services

I I ___ - ...: ., I I .:.. :ft.::

I I

ft

3'

-a .0 g

II I I U I U U I .
ft.

.. PU1...

.uui.

U U.I U
. .

II. I I I.I. I . . . . ....

Legend: _____ - Appais.al - Actuei

-o -c CD J 0 I)

20

Appendix 3

PROGRAM FOR ON-THE-JOB PERIODIC MAINTENANCE TRA1NINGa

Province! Municipality

Pavement Surface

Road Length (km)

Vientiane Province NRI3 Vangvieng - Phoukhoune PR1O Phonehong - Dam PR5 Houy Mo-Houy Kham Vientiane Municipality NRI3 and PRs within city limits PR2 Vientiane - Thadeua PR2B Chomphet-Kenggnang-NongHeo PRIO DoneNoune - Tha Ngon PR Sikeut - DongOok - Thanaleng PR Kaoleo - Pakthon Champassak Province NR13 Pakse -Veunekham NR1O Pakse - Mg Cao NRI8 Pathoumphon - Sekhampho PR23 Paksong - Thateng PR14 Phapine - Donetalat Saravane Province PR13B Napong - Saravane PR16 Khongsedone - LaoNgam PR To Ban Thaphan regravelling regravell i ng regravelling 50 31 19 700 reseal i ng reseali ng regravel ling regravelling resealing 100 20 30 40 20 resea ling resealing regravelling resealing regravelling regravelling 80 20 25 13 30 32 regravelli ng reseal ing reg ravelling 110 20 60

Total Road Length Under Maintenance Program

a Program of Bank-financed projects from which it was intended that 600 km would be selected for on-thejob periodic maintenance training using maintenance equipment, materials, and consultant supervisors engaged under the Project. The Bank s Loan No. 1009-LAO: Fourth Road Improvement Project for $39.0 million, approved on 21 December 1989. extended the length of NRI3 improved under the Third Project and completed the program schedule above. Sources: Consultant's Final Report. TA No. 923-LAO; MCTPC.

PROJECT FRAMEWORK ANALYSIS Project Targets Design Summary ______________________- ______________________________ 1 SectorlArea Goal Improve transport infrastructure essential to attainment of the country's development objectives of increasing productivity in agriculture, natural resources, and smaIlscale industries, Facilitate (I) movement of rice and other agriculture products from surplus to deficit areas, (ii) flow of consumer goods and agricultural inputs to the rural areas, (iii) marketing and export of cash crops and other produce, (iv) . development of a national market for major commodities, and (v) effective participation in regional and international trade. Government economic and socioeconomic data Accelerated realization of benefits expected from agricultural and other investments in the Project area Accelerated socioeconomic development in the form of employment opportunities, commerciaL outlets, housing, new markets, welfare facilities, and improved Project services Visibly enhanced degree of commercial and agricultural development Significant unquantifiable improvements in: quality of tire of rural residents - access to health and education centers - opportunities for employment - farm incomes Project Monitoring Mechanisms Risks/Assumptions ______________ Expected Outcomes and Impacts Actual Outcomes and Impacts

Increase agricultural production and raise incomes. 1) 2. Purgse Alleviate transport constraints in Vientiane Province and Municipality and develop road network to allow for more efficient and less costly transport of goods and passengers, and improve road maintenance operations Travel time savings: Vientiarie to yang Vieng, from minimum 2 days 102.5 hours (route often impassable during wet season) Savings in vehicle operating costs per km ranging from 1 ito 58 percent, depending on vehicle type Total traffic volumes forecast in 2011: Vientiarre-Phone Hong - 3,850 vehicles per day, or an average annual increase of 4.7 percent per annum Phone Hong- yang Vieng - 260 vehicLes per day, or an average annual increase of 4.1 percent per annum Government economic data Project Completion Report - by supervision consultant - by Bank alter loan closing EIRR analysis Benefit monitoring and evaluation - with assistance from supervising consultants Increased traffic volumes Avaability of adequate counterpart funds Adequate funds and capacity in MQTP to implement road maintenance programs Reduced travel time; road passable in all weather Average travel time for journey from Vientiane to yang Vieng: 2.5 hours

Reliable transport provided at reduced cost

Savings iii vehicle operating costs per krn, ranging from 50 to 53 percent Actual traffic 1996 Vientiane-Phone Hong: 2,317 vehicles per day Phong Hong-yang Vieng: 961 vehicles per day Expected Traffic in Year Vientiane-Phone Hong: 6,055 vehicles per day, or 11.6 percent per annum Phone Hong-yang Vieng: 4,395 vehicles per day, or 16.5 percent per annum 'j r (P

> '0

2:

Design Summary

Project Targets

Project Monitoring Mechani5ms

Risks/Assumptions

Expected nes and Ii

Actual Outcomes and Impacts As per appraisal targets 102 person-months (extension to cover supervision, design, and training in prestressed concrete bridges)

Strengthen domestic capabilities for designing, constructing, and maintaining the country's road network

Provide about 60 staffmonths of con5UItiflg services covering: (i) detailed engineering and construction management, (ii) road maintenance programming and operations, and (iii)on-the-job training of Project personnel.

Consultants report Bank review missions Bank PCR Bank PPAR

Improve provincial authorities' capacity for maintenance programming, operations, and techniques

3. Proiect Components/ Outiuts Road Improvement Rehabilitate and Improve bitumen pavement over 71 km of National Road No. 13 from Vientiane to Phone Hong Monthly progress reports MOTP project completion report Upgrade gravel section to paved standard of about 91 km of the same road from Phone Hong to yang Vieng Provide construction and workshop equipment and establish base field workshop along Project road for service and repair of construction and maintenance equipment procured under the Project. Replace all existing bridges. ProvIde periodic maintenance on 700 km of national and provincial roads, including resealing of bitumen surfaced roads with extensive patching, regravelling, major repairs of bridges, improvements to drainage structures Bank review missions Regular review by Government of maintenance funding allocations Support and improve regular maintenance programs and practices initially in the areas. Increase capabilities of construction and maintenance operators. Enhance awareness for maintenance requirements. Increased construction and D maintenance skillS from program of supervised on- a >< the-job contracts covering 600kmofroads . Additional trained operators P in management and technical skills relating to construction and maintenance Bank review missions Safety concerns Iron increased operating speeds resulting from road improvements Improvements carried out under the Project may not be adequately maintained after completion Delays in procurement Stow progress in civil works component Improve the environment of the Project area by reducing dust and improving access to market, school, and health facilities.
U

Project road improved to a good quality seal with maximum axle toad capacity of 80 tons Sealed surface to edges of road including shoulders Strip development including schools, new markets, some outlets, shops Vehicle operating costs halved (see no. 2 above)

By enabling road users to drive at more fuel efficient speeds, the related savings will have positive effect on energy consumption for the economy as a whole,

Periodic Road Maintenance

- Project Targets Design Summary ________________________ ______________________________

Project Monitoring Mechanisms

Risks/Assumptions ______________________

Expected Outcomes and Impacts

Actual Outcomes and Impacts

Provide light road maintenance equipment; spare parts; and materials (fuel, kibricants, bitumen, cement, reinforcing steel, etc.)

Develop reporting system for monitoring status and locating equipment and roads maintained in the pilot provinces or Champassaic, Saravane, Vientiane, and Vientiane Municipality

Computerized management reporting system developed including inventory for maintenance equipment and spare parts

4, Activities Detailed engineering and preparation of tender documents Procurement Civil works (road improvement) Construction supervision TechnicaL assistance Training Financing Plan - Bank Iitiancicig, $19.0 million Coflnancing, $1.13 million - Government resources, $3.62 million Project costs - civil works, consuLting services and equipment $23.75 million Consultant supervision Bank review missions . Bank PCR Bank PPAR Government audit As per Project targets Actual Project costs $26.26 million Financing. Bank - $19.61 million UNDP - $2.25 mtlion Government - $3.77

-o -o CD J 0>c -D CD c)

ORGANIZATION CHARTS Figure 1. Ministry of Communications, Transport, Post and Construction (MCTPC)

MINISTER
(Two Vice Ministers)

Cabinet (General Office)

Personnel De p artm en!

Finance Department

1\)

Communications Department

I I I

Transport Department

Post & TeleI communications I Department Schools and Institutes

Building & Urban Planning Department

Railway Development Committee

Rural Development Committee

Provincial Departmentsb

-c
CD

From 1 January 1993 b The responsibility for road infrastructure development and maintenance rests with the Communications Department The Department has four line divisions: the Planning and Technical Division, Waterways Division, Road Construction Division, and Road Administration Division (RAD) The organization of the provincial departments under the Department of Communication, Transport, Post and Construction (IDCTPC) is the same as for MCTPC. Source: MCTPC.

(U CD -&

Figure 2: Communications Department

MCTPC

Communication Department
N) (TI

Administration Division

Disbursement Division

Planning & Technical Division

Construction Division

Road Administration Division (RAD)

Waterways Division

Provincial DCTPC

Regional RAD North

Regional RAD Central

Regional RAD South

Communication Subdivision

-o
0 CD 0

'C (TI

Communication Department within MCTPC (see Appendix 5, page 1). Source: MCTPC.

cr
CD

Appendix 6, page 1

EIRR REEVALUATION

A.

Methodology

1. The economic internal rate of return (EIRR)was reestimated using the Highways Design and Maintenance Model Ill (HDM Ill) developed by the World Bank. The same program was used to recalculate the Project Completion Report (PCR) estimate. The model calculates the vehicle operating costs (VOCs) for the "with" and "without" Project situations and estimates the savings in VOCs and reductions in road maintenance costs after taking into account traffic volumes, traffic loadings, surface condition, terrain, VOCs, maintenance requirements, and maintenance costs (see Table 1). The economic costs are arrived at by deducting transfer payments from the financial costs, and together with the benefits (savings) are valued at constant 1997 prices. 1 The World Bank's manufacturer's unit value index and the gross domestic product for the Lao People's Democratic Republic were used to revalue nominal investment (see Appendix 1, Table 3) and maintenance expenditures at 1997 prices. Further details of the reevaluation methodology and the HOM 111 model are discussed in Appendix U of the PCR. B. Economic Reevaluation

The PCR reestimated the EIRR for the Project road over three sections. The 2. resulting EIRRs varied from 22.4 to 35.9 and showed an overall EIRR of 24.7. The corresponding estimates or this Project Performance Audit Report (PPAR) vary from 25.3 to 44.1 and provide an overall EIRR of 29.4 (see Table 5). The higher estimates of the PPAR are attributable to the higher than expected traffic volumes covering 1993-1996 and the subsequent higher traffic growth projected (see Table 2). The PPAR reevaluation takes into account the impact of increased utilization of the pavement and anticipates a reduction in the economic life of the Project from 2012 to 2008 before reconstruction of the pavement is necessary. Reflecting also the need for accelerated periodic maintenance associated with increased traffic volumes, maintenance expenditures are brought forward on average about three years. Higher maintenance costs necessary to sustain the pavement life of the Project to 2008 were also applied and in constant 1997 rates represented an increase of around 40 percent. Tables 1- 4 provide details of the VOCs, traffic volumes, and capital expenditures assumed in HDM Ill. For the purpose of the road conditions it was assumed that the road was 3. improved to a "good seal" corresponding to an initial international roughness index (IRI) of 2.5. Maintenance costs are based on maintenance requirements required to maintain the road pavement at IRI 2.5 and allow vehicles to travel at an average speed of 60 kilometers per hour.

For the PCR, the economic costs and benefits were vakied at constant 1995 prices.

27

Appendix 6, page 2

Table 1: Economic Vehicle Operating Costs (1997: KN/km) With Project Without Project a Road Condition a VOC Savings Road Condition KNIkm IRI 10 IRI = 2.5 158 252 378 404 38 83 126 201 215 19

Vehicle Type

75 Car/Jeep 126 Van/Pickup 177 Bus Truck b 189 19 Motorcycle

RI International Roughness Index for pavement surface roughness and strength. The index range from soft bad earth (lRI14) to smooth, high-strength sealed pavement (1R11).
b

Weighted average VOC for light, medium, and heavy vehicles. Weightings used are based on traffic survey counts of vehicle mix. Source: PEM.

Table 2. Average Daily Traffic Volumes and Projections

Road Work Section I

Road Length 16.0 km 55.2 km

1987a 2,461 585 112

Average Daily Traffic Volumes 1996b 2001b j993a 7,683 1,410 9,081 2,317 961 13,972 3,731

2008b 22435 6,395 3,301

Section II

Section III

88.0km

408

1,694

a b

Based on traffic counts. Projected. After 2008, major reconstruction will be necessary.

Source: PEM.

28

Appendix 6, page 3

Table 3: Indicative Trends in Vehicle Mixa

-
Location on NRI3 Km 7 South Car/Jeep Van/Pickup June '87 b)

Vehicle Mix. (%) March '96 March '93 (C) (d)

Bus
Truck

Motorcycle

19.5 13.3 2.7 29.0 35.5

22.0 12.4 1.6 8.0 56.1 26.1 5.5 13.4 37.7

no estimates
undertaken

Between Km 35 and Km 37 North 17.3 Car/Jeep no estimates Van/Pickup undertaken Bus

Truck
Motorcycle Between Km 67 and Km 73 Ca i/Jeep Van/Pickup 13.3 31.6 5.1 27.6 22.4

23.1 38.4 15.4 15.4 7.7

Bus
Truck Motorcycle

16.0 28.3 5.1 11.4 39.2

15.1 30.2 5.5 39.2 10.0

Between Km 64 and Km 110 North 4.2 Car/Jeep 12.5 Van/Pickup 8.3 Bus 62.5 Truck 12.5 Motorcycle 8.3 8.3 Van/Pickup 8.3 Bus 58.3 Truck 16.7 Motorcycle Km 150 North Car/Jeep

12.2 25.7 5.4 40.5 16.2 13.8 26.2 4.6 32.3 23.1

7.3 15.0 2.9 44.9 29.9

9.2 14.1 4.7 42.4 29.6

Vehicle mix measures the daily traffic volumes for each vehicle type as a percentage the total average annual daily traffic. b Feasibility estimates. Traffic suriey counts undertaken by MCTPC. PEM estimates based on MCTPC's traffic counts undertaken at Km 64 in March 1995 and March 1996, MCTPCs original destination survey of trade and traffic flows in 1995 and REM traffic counts at selected intervals along the Project road.

Table 4: Average Daily Traffic Counts and Projections

Average Annual Average Daily Traffic a Increase b Volumes June 1987 March 1993 March 1996 (%) Location on NRI3 Section I KmlSouth Km 6 North Section II Km 35- Km 52 Km 64 - Km 73 Km 94-Km 110 Section III Km 119 Km 136 Km 150 3155 2,045 - 490 120 9520 6,580 11,338 7,727 3,168 1,455 962 576 2,304 794 15.3 1 5.9 24.4 12.9 26.0

Projected Increase 1997-2001 2002-2008 (%/yr) (%Iyr) 7

1,645 1,185 370

r')

(0

10

60

325

- 33.2

12

10

Based on traffic counts taken at Km locations on NR1 3 between June 1 987 and March 1996. The average annual rate of increase between June 1987 and March 1996 where counts are available, otherwise from March 1993 Source: MCTPC suivey estimates, PEM estimates.

-D CD 0

x
0)

-o
Co CD

30

Appendix 6, page 5

Table 5: EIRR Benefit/Cost Streams for Project Road ($ '000)

Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Benefits Maintenance VOC Costs Savings Capital a Mair ttenance b Savings 271.0 11,375.8 7,180.5 6,856.1 4,495.8 1,545.7 265.6 112.0

Net Benefit Stream -271.0 -11,375.8 -7,180.5 -6,856.1 -4,495.8 8,774.4 9,6955 11,962.2 14,920.2 16,415.7 18,163.7 20,029.5 19,659.5 30,263.2 32,731.5 34,823.5 37,061.3 39,024.6 41,052.3 43,141.4 44,871.1 29.4%

2,113.5

1,488.5

158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6 158.6

7730.1 9327.5 11440.6 14286.6 15782.1 17530.1 19395.9 21139.4 29629.6 32097.9 34189.9 36427.7 38391.0 40418.7 42507.8 45726.0

792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 792.2 EIRR a =

a See Appendix 1, Table 3 for Project costs at constant 1997 prices.

Routine maintenance. Anticipated periodic maintenance.

31 Appendix 7, page 1

MAINTENANCE EXPENDITURES Table 1. Past and Planned Road Construction and Maintenance Expenditures ($ million)

Expenditure Type a Construction b Maintenance Year Past 1992 1993 1994 1995 Planned 1996 1997 1998 1999 2000 2001

Maintenance! Construction Ratio (%)

Maintenance! GDP Ratio C (%)

34.1 43.1 53.0 55.1

3.030 3.796 3.488 6.622

8.9 8.8 6.6 2.0

0.26 0.29 0.23 0.38

80.1 102.9 98.4 92.3 86.7

9.717 6.949 10.316 11.856 13.290 14.115

12.3 6.8 10.5 12.9 15.3

d

0.52 0.43 0.59 0.64 0.67 0.66

Fiscal year. Excludes budget for provincial roads not in core network and district roads. After 1996, gross domestic product (GOP) is projected to increase in dollar terms at 7 percent per annum. The increase in planned expenditure from 1996 to 2001 represents an average annual increase of 8.9 percent. Between 1990 and 1995, GDP increased by an average annual increase of 17.9 percent.

Source: MCTPC, Five-year Road Maintenance Plan, 1997 to 2001; ADO, Economic Indicators: LAO People's Democratic Republic.

32

Appendix 7, page 2

Table 2. Planned Road Maintenance Expenditure (1996-2001) ($ million)

Year a Routineb 1996 1997 1998 1999 2000 2001 Average Annual Increase (%) 1.798 2.823 3.171 3.539 3.378

Periodic C

Maintenance Category Urgent Spot

Subtotal 9.046

Bridging d 0.671 0.250 0.250 0.250 0.250 0.250

Total e 9.717 7.876 10.972 12.514 13.947 14.274

2.351 6.772 8.194 9.414 9.933

3.306 0.803 0.522 0.312 0.230

0.171 0.324 0.377 0.432 0.483

7.626 10.722 12.264 13.697 14.024

17.1

43.4

--

29.6

16.5

--

16.0

Fiscal year. Includes provision for maintenance expenditure on national and provincial roads in the core network, provincial roads not in core network and district roads. Includes provision for maintenance expenditure on national and provincial roads in the core network only.

includes provision for maintenance expenditure on bridges along national roads only.

Includes budget for provincial roads in core network. Source: MCTPC, Five-year Road Maintenance Plan, 1997 to 2001.