Document of

The World Bank

Report No: 22274-PNG

PRKUJ CT APKPAISAL DCU-UMMENT

ON A

PROPOSeD LOAN

I.N TE AMOUNT OF US$40 MILLION

TO THE

INDEPENDENT STATE OF PAPUA NEW GUINEA

FOR THE

ROAD MAINTENANCE AND REHABILITATION PROJECT

May 10, 2002

Transport Sector UnitEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 2002)

Currency Unit = Kina (K)K1.0 = USS0.27

USS1.0 = K3.703

FISCAL YEARJanuary I -- December 31

ABBREVIATIONS AND ACRONYMSAGO Auditor Generals OfficeAusAID Australian Agency for Intemational DevelopmentAWP Annual Work Program

B.u Asia.DenUvelopmentI OdrMBIBMS Bridge Inventory and Bridge Management SystemCAS Countr, Assistance StrategyCPA Country Procurement AssessmentCSTB Central Supply and Tenders BoardDNPM Department of National Planning and MonitoringDoTI Department of Trade and IndustryDoWT Department of Works and TransportEATA Executing Agency Trust AccountEPM Employer's Project ManagementERR Economic Rate of ReturnL.E11UVI1 AM;PEIrVL-1U11V1L a11U JU. enal UiAind LVMoeil LV rpicsLAssInIL ar.dU irVILUUWig P1lar1

GoPNG Government of Papua New GuineaMOA M morandn.m of Agreem ent between National GovertmmPnt and the Project

Provincial GovernmentsMoWTCA Ministry of Works, Transport, and Civil AviationMTDS Medium-Term Development Strategy (1997-2002)NCD National Capital DistrictNEC National Executive CouncilNPV Net Present ValueOEC Office of Environmnent and ConservationPAD Project Appraisal DocumentPEPM Lro-iniUV al EL.I.PAloyJrs rxojctUL Ivial-agu

PIP Project Implementation PlanPNCT Panpua New Gn,ine.PNGV Papua New Guinea VolunteerPWM Provincial Works ManagerRAMS Road Asset Management SystemRFP Request for ProposalRMRP Road Maintenance and Rehabilitation ProjectSIA Social Impact AssessmentSBD Standard Bidding DocumentTSM Training Support ManagerTTX^Anl T Ur.e Nau, Volr.;ee,^su1J4 V U11JLcu 1N1duu11b VU1i1

UNESCAP United Nations Economic and Social Commission for Asia and the PacificVAT Value Added Tax

Vice President: Jemal-ud-din KassumCountry IvIarager,irt 'D 'V CRohlar.

Sector Manager/Director: Jitendra N. BajpaiTakTa edrassk iA__ , T4atL- KA T-ni

PAPUA NEW G-UINEAROAD MAINTrENANCE AND REHABILITATION PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key perfonrnance indicators 2

B. Strategic Context

1 cc + 1+. -- , C - - - +- -+,1. .JA.Vil 1UAA I.4 U.fU flO.fl -LajU.% LJUaIL, 5 k.fljJ r1a -FF-J I.U UJy uP' F-lJJ..'

2. Main sector issues and Govemrnment strategy 33. Sector issues to be addressed by the project and strategic choices 5

C. Proect D'escrLiJtiVLI OULIU-nry

1. Pr-oject comp,oneAn.ts 72. Key policy and institutional reforms supported by the project 93. Benefiis and' trget populaii-n I04. Institutional and implementation arrangements 10

D. Project Rationale

1. Project alternatives considered and reasons for rejection 11-1 iA 4- - - 12.,AL,*L -,-- + -2. ivIajL related p.-UJects finan;dU by the B,a.JU anU oUtU.l Udc',.jIentUL agencIes lo

3. Lessons learned and reflected in the project design 144. indications of borrower conmaitment and ownership 165. Value added of Bank support in this project 16

E. Summary Project Analysis

1. Economic 172.r Firaricial I83. Technical 194. Institutional i9

5. Environmental 216. Social 237. Safeguard Policies 26

F. Sustainability and Risks

1. Sustainability 26

2. Critical risks 273. Possible controversial aspects 28

G. Main Loan Conditions

1. Effectiveness Condition 282. Other 2R

H. Readiness for Inplementation 29

I. Compliance with Bank Policies 29

Annexes

Annex 1: Project Design Summary 37Annex 2: Detailed Project Description 43Annex 3: Estimated Project Costs 52Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 57Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 65Annex 6: Procurement and Disbursement Arrancements 68Annex 7: Project Processing Schedule 89AUIHCx U. VOCULM. eI ir. , t IUJ%I I LeV 79

Annex 9: Statement of Loans and Credits 93Annex i0: Country at a Glance 95Annex 11: Summary of Environmental and Social Safeguard 99Annex 12: Land Acquisition and Compensation Framework 109

MAP(S)1. IBRD 28960 Papua New Guinea - Road Maintenance and Rehabilitation Project - RMRP2. IBRD 28961 East New Britain - RMRP3. IBRD 28962 West New Britain - RMRP4. IBRD 28963 Oro - RMRP5. IBRD 28968 Manus - RMRP6. IBRD 29366 Central - RMRP7. IBRD 29367 Morobe - RMRP

PAPUA r'NEw GUIREARoad Maintenance and Rehabilitation Project

Project Appraisal Document

East Asia and Pacific RegionEASTR

Date: May 10, 2002 Team Leader: Hatim M. HajjC 1~.U, ix,unLJL Sector Manauger'Direct.a N . a

|Project ID: P004397 Sector(s): TH - Highways

Lending instrument: Specific Investmenit Loan (SIL) T neme(s):Poverty Targeted Intervention: N

Project Financing Mata[X1 Loan [ Credit f ] Grant [ ] Guarantee [ Other:

For Loans/Credits/Others:A- ... l~ AA AA

Borrower Rationale for Choice of Loan Terms Available on File: 0 Yes

Proposed Terms (IBRD): Fixed-Spreadl Loan (FSL)Commitment fee: 0.85% on unaisbursed balances for

the first 4 years, 0.75%/o thereafter.

Initial choice of Interest-rate basis: Auto. Rate Fixing by period 6 months

Type ot repayment scheduie:[X] Fixed at Commitment, with the following repayment method (choose one): customized[ 3 LinKed to Disbursement

Financi*a Plan (US$m): ^Source Local Foreign TotalBORROWER 19.18 0.00 19.18IRRT 0.00 40.00 40.00Total: 19.18 40.00 59.18

Borrower: iiz DiN) DEPENDEIN JN1 TIA.TIEr, r rFNuResponsible agency: DEPARTMENT OF WORKS AND TRANSPORTPOBox 1ii08Boroko, New Capital Districtrapua INew uiumeaTelephone: + 675 324 1190Fax: + 675 324 i264Contact Person: Roy Mumu, Deputy Secretary- TechnicalTel: + 675 324 1190 Fax: + 675 324 1264 Email: roymumu(adaltron.com.pg

Estimated Disbursements ( Bank FYIUS$m):- - FY 1: -20pQ2 2003 2004 2005 2006 2007

Annual 0 o0oo I 6=R0) 10.70 1030 I 9=70 ? 2so

Cumulative 0.00 6.8) 17.50 27.80 37.50 40.00…~~~ A C . A_- WI 1AA'1 -_ I 1AProIJ"cL .mp:ementationdLVI perOU od:t.5 ye-sb August 30 2002 - Juiv .e , 30 200

Expected effectiveness date: 09/19/2002 Expected closing date: 12/31/2006CXUI WAD FADT FlW~lh ~WD

A. Project Development Objective

1. Project development objective: (see Annex 1)

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%..1II4LS iUL I llllaIA1n1 WdL0lWALULy lUaU I. ULIULID Will lVLjUIIL OUaLaULLU

attention by the Government of Papua New Guinea (GoPNG) over an extended period, particularly duringUiV, U4jJ.biUUiI LUWaLUO UULULLUaLLIA,U IUaU 1ImLLiLL;LdI.V UPULaLlUllb. OUL41 d rU4I Lb UCVYULU Ul LHU LbLlIQ

expectations of any single project. Thus, the primary goal of the proposed Road Maintenance andRsehauillitaut rULj ^JUL W1vi 11, which iUIllb d pdarL Ul a pUoblUet senUesof Ul aik iLLLLr[VUnUf1US, is LU P[uIIloLe

an efficient, safe and reliable roads transport system in the participating provinces through: (a) theirnprovemnenL oI selUL'U roIau vgxemnts; bV) strengthening strategic planning and rnanagement of te roadusector, and (c) strengthening the institutional arrangements for road maintenance, including private sectorparticipation. Tne project will also support efforts for contracting road maintenance operations in line withGoPNG policy and will promote the reform of road management.

The key objectives of the project are therefore to:

a. Restore satisfactory physical condition and safety to parts of the network of national and provincialroads and bridges in six of the country's 19 Drovinces based on priority needs

b. Strengthen strategic Dlanning and management of road sector assets

c Strengthen institutional arracrnements for road maintenance, includinog thromih an exynandinorprovincial government role in line with the Government's decentralization policy and the NewOrganic Law

d IncrPeasc nrivate -^r.tnr .nnntrantinr of radn maintenance work-, innhnliinr thralith ' trenothpnina

of small and medium-sized contractors and participation by village communities.

2. Keyperfomar4n cane indmicators: (ep Arnnev I

Key performance indicators for the first objective of the project (l.a. above) include the percentage ofnational roads in the six project provinces that are in fair condition or better, and the percentage ofprovincial roads in the six project provinces that are in fair condition or better.

The indicators for the second objective of the project (l.b. above) consist of: expenditures for roadmaintenance and preservation as a percentage of total budget for roads, and the percentage of the budgetedannual work programs (AWP) that is based on the Road Asset Management System (RAMS).

The indicators for the third objective of the project (l.c. above) include the number of provinces that submitthe AWP by June 30 each year, the number of unified central/provincial management units, and the numberof Department of Works and Transport (DoWT) and provincial works manager (PWM) staff who aretrained under the project.

The indicator for the fourth objective of the project (1 .d. above) is the percentage of maintenanceexnenditures bid comnetitivelv in the proiect provinces.

B. Strategic Context

'. tLU1 S r aL~n tedJUUIL.J C ntry AsssaLrnce Strate (CASlo) gual suppU d L yu Lth piUJLPR . (see. uL-A I)

Document number: 19590-PNG 13ate of latest CAS discussion: October 21, 1999

The latest CAS, which was discussed by the Bank's Board on December 9, 1999 has the overarching goalof supporting a concerted effort to reduce poverty and improve the quality of life of Papua New Guineans.There are two strategies for pursuing this goal:

*UI pLVUving UVrldII rUVVIIL4UlI II sLupporL 0 bUoL usI'UIC UdeVeIoIpImIIL Uy UIrerIUICIiWl5 MiUMl darU

monetary management systems and institutions and properly funding institutions entrusted withoverseeing uh fui vioUULUIUng o1 gUV[IUhICIL dian fighting Corruptionl

* Focusing development assistance to better support rurdl development tlrougn improved deiivery ofbasic services to the pooiest and most vulnerable, maintaining and building appropriateinfrastructure and building capacity in critical areas of human and resource management.

Tntis project supports the second strategy and the CAS Objective to -improve the quality and reliabiiity otthe country's infrastructure, particularly the provincial and rural road network, to allow for morecost-effective movement of goods and services and promote economic development in rural areas."

2. Main sector issues and Government strategy:

Main sector issues

Thp. nrAvsiAnn and maintenance of road tran flArt infirni,tnhwtirep in PNC -re verv --nmn-ir2tPd 2nd P.(npPnsive

because of the country's rugged, nountainous topography, unstable geology, wide dispersal of population'pnterc a.nei iiniannnerted roaId netwnrkL Morenvpr ,aC ic crnmmnl f.r i;nfrActncrhirP in enepral, thp rmnnld

sector suffers from weak institutional structures and performance, inadequate funding for crucial functions,lan.d acquisition difficulties, law-ar.do^vrder problems;. a s ! base of p ont,1, 1--.d li.ted

private sector and community participation. These circumstances, in the past, have worked againstopport.J ti L . for cost -,n. - A l'*. h -gh the f'. A-L- tof--A -Ap'nd LU ,L -n -he roa -4..i newroad construction is a legitimate one, it has caused a serious misallocation of resources between roadr-terr.ce l r.- -. .- -A ' ir.-.bA.c needs +A. e1 corrcted. if+-he *.-- Y UIr-._r 1 Ie t.

preserved.

Infrastructure Service Provision. PNG has experienced a severe decline in the condition of itsh-ras-ctvr..,__A -Atcu&l roads- &dbr.ge ._ Thes nonal assets Lhave been_ nele.e .. _ bcaseoIIaOLUt.L.Lt. jJ~It.L Ivaub -J11AO I ulJl*ut.. ILL..a laLl IAI GIIt.O IIdCL; UCtVil IIVrIVt.LVU UIl jJaLL uv%.aua~t. U'

inadequate funding for maintenance. At the same time, within the road sector, scarce public resources haveUbeen allcatLeU LU UIV %t.IULtUVIL VI ofr.w iUaduo aL LUI VAeperseV of mrlIL41ainir. VexilLu:n U^dsu, WLULAI ahV VILe i

to the country's economic perfo rmance. Inadequate maintenance of road infrastructure increases internaluW-W-p0J U costs-, .-educes 1If.ULVMaILIULdal %..IL1peVUtiVVUVII a.U ApoUILrt, Uilasebus UVeiUdU fo1 fovireig VALAHaIdIU,curtails domestic income and weakens accessibility to domestic markets and services. While neglect of.a.inten ance is not LUU4Ui LU r'oPNJ, iLs PrIvabivullubb aLrU uey,ree Hir r a'4 is[ec ser.ius colicem.

its-tiurWnl' rrum urwKme LwUoirny, l1c Selu-gUVrIlUUVL and early post-muepenUence pen-od, pUDlC SCerVIce

delivery was effective and expanding. Local communities participated in the planning, provision andfunding of local public services. National agencies helped set the direction and siandards for these servicesand provided technical support and coordination through extensive outreach programs at the village level.During the past two decades, until the recent enactment of the New Organic Law, which came into force

.,,, 1

for all provinces except North Solomons and the National Capital District (NCD) in July 1995, centralgovernment priorities, delivery mechanisms and personnel policies increasingly dominated the provision o fessential services. The Department of Works had a large heavy plant fleet and labor force and undertooksubstantial parts of work by force account. District development councils and community organizations(both formal and informal) became marginalized.

The New Organic Law reestablished the importance of the provincial and local levels of government anddevolved responsibility for a wide range of functions to provincial governments, subject to policy directive-sfrom the national government. These functions included maintenance of roads, bridges and otherinfrastructure.

Road maintenance responsibilities are now divided into a three-layer structure including DoWT andprovincial and local-level administrations (a total of 86 local administrative units are already reported to bein place). A large proportion of infrastructure maintenance and construction activity that used to beimplemented by the DoWT was transferred to provincial administrations. PNG nationals with technicalqualifications are still in short supply and only a limited number of technical posts are still held byexpatriates engaged on short term (2-3 year) contracts. DoWT has become less effective in what it does - aprohlem that is comnounded by lack of funding and the continuing lack of effective cormmunication andsystematic support between DoWT head office and its provincial offices. Most provincial administrationsalso lack adeauatelv experienced management and technical staff to manage infrastnicture maintenance=

The lack of capacity and appropriate skills, as well as a fragmented and duplicative administrativefram.wnrk rp.mi1ts in hicrh overhead cost,s Crreater cnnqnlintirin nfnnPervitions at the nrovinrial level wouild

improve results on the ground by deploying the limited resources more effectively.

Financing Arrangements. Total annual expenditures for investment and maintenance in the transport sectoraverage-di snrme K 160 million ( JS$ 115 million equivalepnt) per year in the f rst five years of the 1 9Q90 (all

dollar figures in this document are in US$). Of this, the total for roads accounted for some K 110 million,arn amount barely aliffirignirt fnr reqniredt mrinternnce on national roarc alone. n fact only, about K 35

million was spent annually on maintenance, explaining the poor condition of a large and increasing

Fm, pouw .JLm nv,y,a,o,.Aauan,LL4Ua,u£1LAOoLaJJ u. t ,ta1 I ,,r4J i,LJt vy I darntu

for an average of about K 117 million per year for road maintenance and restoration. This amount isco,sstn with-- - the r1.ed -- Almae -;-ri +te p A\tI4. Y,owever +S,e au.,on zpp.-ovedAi 4u^, budgetA_LAI IUM,I, vu t,-t ,,,,. ,atLcv.IUr,u `Ix .r~vjxJ. hauw1,vt,1I) LIlt, aLULuIJ.ai, C,jpUV~ Ul~ U11; UUr~L

averaged about K 43 million (37 percent of the estimated needs) and the amount actually made availableA _t__-A T7.. V) ^, '1AA{ A -r.U s1A .. XsAA A...A -_A -3 _AAA,A£sA A__ TT_J _ I---

ave7LagQU 4UUUL -. * GlUILJII IJt jL UII k aILVLL VI UL UlUU1,UU dilULIL L.I UU pvIPIIL VI UI ICUb). UHU1 Uibiz

conditions and the associated uncertainties of funding, it becomes difficult to undertake meaningfulplaiUIUi5 of roadU driU ULIe morole oI VI JUVV I Lslf atL UULII UI' 4;Ul I c te U pIUVuIcIalI levels

suffers.

Funding for provincial and local level government services declined sharply in the late 1 980s and early1990s with the share of the national budget transferred to provinces dropping from 30 to 20 percent duringthat period. Worse, dwindling fiscal transfers have been accompanied by the atrophying of local revenues,which vary considerably from province to province depending on the level of natural resource extractionactivity. Revenue sharing has increased to match expanding service responsibilities transferred under thedecentralization policy, but the timeliness of transfers has been affected by budgetary constraints in recentyears. Moreover, the provincial sales tax, a major revenue source for many provinces, was abolished onJuly 1, 1999, with the creation of the Value Added Tax (VA1) administered by the central Government. Inshort, provincial governments face an increase in expenditure responsibilities with decreasing and uncertain

- 4 -

revenue sources. Also, many provincial and local-level governments do not have the capacity to carry outtheir increased responsibilities.

Land Acquisition and Clan Issutes. Land compensation disputes in PNG are among the most contentious,time-consuming, and expensive issues in infrastructure development. Because almost all the land in PNG iscommunally owned, acquisition of clan-owned land and settlement of claims for damages for land andcrops is inherently difficult and substantially increases costs and prolongs the implementation time for roadconstruction, especially new roads and bridges.

Law and Order/Personal Safetv. In many areas of PNG, force is sometimes used to resolve conflicts. Overtime, traditional frameworks that control and regulate such conflicts have weakened. Rural-urban drift anda rising unemployment rate among young males have contributed to a significant law-and-order problemthat has worsened in recent years. The problem has affected the quality of life of rural and urban residents,imposed substantial costs on conducting business in PNG and created another impediment to servicedelivery. It has a direct impact on infrastructure and its current level of deterioration and cost ofrehabilitation. Also, frequent highway holdups and pilferage of cargo have led to increases in the cost oftransport services.

Contracting. The lack of a broad-based contracting industry limits the options for institutional reform anddecentralization of infrastructure management and maintenance, particularly in the less-developed regionswhere the provincial govemmenents are also administratively weak

Tn snite of ongoing govenmment training programs, the cnntracting industrv remains concentrated inrelatively few larger firms based in relatively few provinces. This has helped perpetuate the tradition offorce acoun.t a-nd ha-s resiilted in limited coTmrpetition and high prir.e fnr the smrln amunnt of mnintenlfnce

work that has been contracted out to date. Large contractors charge for costly security and incomepnoteti,- h1fnrp hiM,ina Rmnll rnnftrntnrc arp nftpn iinni2nlifitP and l,ilk even hInir Pniiinmpnt anal

sufficient working capital for any but the smallest jobs. Delays in payments to contractors have undercutefforts to e-xpar.d the n *rnber o:1 r.ntractorst oPeratmig iM t1he public ,h1ror-r sec0tr.

11^vernment Stralte

GUoVPNG.J lrCALliLLZ U4laL pJoL r raU condUILIon, I1 IVL uIadLLVUULUV, Will ,ontLUIUe UJ toIqJU" 3ig1Uia.villL c

the economy and undercut economic recovery efforts. In addition, recent difficulties in transportingdr- o.-reI,+ splishv t h-_ 1'''I;gh.A +thesoia -;z..p o_+f poor aces - es _-I+._ -- +-A., ...de eleto

the road network. There is broad agreement that the quality of local services must be improved, that scarceresources mUustMV UbdpoUyVU eld L ar piroUU%iLVVeiy Vy redUUcing dA UIIjt4Uo aauu overhe-ad cUa

these improvements require radical reform of the centralized delivery systems. In the Medium-TermlDevelopmient 'a [egy, 17YY-2i)02, A Bridge ILU UIC 2I1sL %-,LILUy, GUoPNG4. cIalls a st.LLoguel iuroileprovincial and district governments in the provision of public services including infrastructure, in line withmle UecenmauizaUi poUlicy UndUer uwe New vrganic iaw Uo 19YJ. iNTtuii4 ager.cies Will iiremain lrespuhlible

for sector planning, technical support, supervision and quality assurance functions. The Government istrying to strengthen the i9 prov%incial administrations. Provincial and local authorities have produceddevelopment plans in which road infrastructure features prominently.

The Government, in cooperation with the Bank, UNESCAP, and the Asian Development Bank (ADB) helda workshop in Port Moresby February 28-29, 2000, on reform of road management and finance that wasattended by about 70 persons representing the main stakeholders (private and public) in road transport.There was widespread support for reform and a task force representing key stakehoiders was established to

- 5 -

follow up on implementation steps.

A study on cost recovery in the road sector (financed by ADB) was completed in June 2000, and afunctional and expenditure review of the DoWT was substantially completed in October 2001. In addition,a proposal for private sector participation in maintaining the Highlands Highway was proposed in 1999 bythe Transport and Infrastructure Sector Committee of the Consultative Monitoring Council. This proposalwas endorsed by the subsequent annual National Development Forum.

ADB is preparing to launch a study on establishing a road authority. It is evident that there is some supportto establish a road fund managed by an independent board and separate the functions of road fundmanagement, road network maintenance planning, and execution of road maintenance works. Theindependent board should draw a majority of its members from the private sector and would be supportedby a small secretariat to provide administrative, management and technical support. A draft policy paperhas been prepared to seek the approval of the National Executive Council for a strategy to secure adequateand sustainable funding for road maintenance and rehabilitation, and to make the management of roadsmore accountable and responsive to the needs of road users. While no formal final decision has been takenby GoPNG, it is likely that a road fund will be established in 2002 or 2003 (see Annex 5).

3. Sector issues to be addressed by the nroiect and strategic choices:

The Bank's assistance strategy for PNG involves a broad range of support for the Govemment'sdevelopment objectives, covering macroeconomic and structural reforms, donor co-ordination, partnershipwith NGOs and a lending program oriented to improving private sector activity, public sector reform andservice delivery. In the road transport subsector, the strategy calls for assisting the Government withtechnical, economic, social, environmental, financial and institutional issues relating to policy formulation,implementation and performance evaluation.

A key element of the Bank's assistance strategy is improving the condition of existing roads through basicsupport for road maintenance, its effective management and its efficient delivery. This is complemented bya commitment to sustainable natural resource management and a series of institutional reforms, includingfor improved accountability and decentralization in the delivery of govermment services.

The RMRP addresses the sector issue of improving the quality and reliability of the country'sinfrastructure, particularly the national and provincial road network, to allow for more cost-effectivemovement of goods and services and promote economic development in rural areas. The project alsocontributes to:

* Reestablishing the integrity of budget and financial management policies and procedures toenhance operational effectiveness and streamline decentralization efforts

* Stimulating the private sector by expanding the contracting of road maintenance works, includingto rural communities, and implementation of a technical assistance to strengthen the small andmedium-sized contractors

* Strengthening the institutions responsible for road maintenance delivery at national and provinciallevels through improved sector planning at the national level, increased responsibility and moreeffective involvement of provincial govemments, and traininz of staff.

Following Bank discussions with the Govemment and other donor agencies. the project has been limited to

-6 -

six provinces-Central, East New Britain, Manus, Morobe, Oro, and West New Britain-to concentrateplanning and management efforts and to reduce the potential for duplication. Other donor agencies,particularly Australian Agency for International Development (AusAID), and ADB have agreed that theywill no longer fund road infrastr.cture maintenance in these provinces but will address road maintenance inother provinces. The six provinces included under the project contain two of the largest port cities (PortMoresby and Lae), 57 percent of the national roads and 38 percent of the provincial roads and account forabout 27 percent of the populaticn of PNG. Those provinces display a wide range of road density (percapita and per square kilometer) as well as a heavy dependence on roads for access.

Those provinces have been selec:ed because of:

* The important role that the road transport system plays in the regional economy

* The relative scale of maintenance and rehabilitation needs

* The importance of implementing improved road maintenance practices, including at the provinciallevel

* Tne prospects for the dil ect and beneficial involvement of small domestic contractors and villagecommunities in maintenmce works in these provinces.

Road maintenance efforts will concentrate on national roads, which make up the primary road network ineach province, but also will give attention to maintenance on the more important provincial roads. Byinvolving provincial roads, the project will assist PNG in achieving the objectives of strengtheningprovincial government capabilities in inrrastructure management and service delivery.

C. Project Description Summary

1. ir ucj comUponens 1(se A -- ,nex '2 fr a de :led duio and iex 3 fo[ a ue-aueu costbreakdown):

componen ,~ ..r . '' . I -, .,| Indicative I , |' ofI l- m nt- e Costs % f . fih nal Bank-

|______________________ _ 2 | -(US$M2) | Totai |-7(OS$I) jT financlngMaintenance and restoration of IHiThwavs I 38. I 13.84 1 34.6national roads

Maintenance and restoration oi |Highways 6.37 10.8 3.48 8.7provincial roads I I

Maintenance, restoration and |Highways 5.63 9.5 3.94 9.9replacement of national bridges I

Maintenance, restoration and lHighways 4.78 8.1 3.34 8.4replacement of provincial bridges I

Emergency bridges, decking, and parts |Highways 1.70 | 2.9 | 1.70 | 4.3 |

Implementation support, including |lnstitutional 6.65 | 11.2 | 5.99 | 15.0 |

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Employer's Project Manager (EPM) Developmentand Provincial Employer's ProjectManager (PEPM)

Road sector support Institutional 1.93 3.3 1.92 4.8Development

Physical contingencies 4.96 8.4 3.42 8.6

Price contingencies 4.24 7.2 1.97 4.9

Loan front-end fee U l 0.40 [ 0.7 0.40 1.0Total Project Costs | 59.18 | 100.0 | 40.00 100.0|

Total Financing Required l 59.18 l 100.0 J 40.00 | 100.0

Civil Works

The project will consist mainly of the GoPNG's road maintenance and rehabilitation program for nationalroads and a portion of the road maintenance and rehabilitation program for provincial roads from 2002 to2004 in the six project provinces. The project includes mainly rurl roads; urban roads, such as those inPort Moresby-NCD, are excluded.

The physical works included in the proiect consist of

* Annual routine maintenance on about 2.200 km and restoration and rehabilitation of about 440 kmof national roads

* Annu Al routine maintenance on about 900 krn and restoration of ahout 200 km of prmvincial roads

* Maintenance and rehabilitation of about 35 bridges and replacement of about 9 bridges on national

* Maintenance and rehabilitation of about 25 bridges and replacement of about 6 bridges onprorninpiaI ,rnaAc

* Acquisition of about 6 Bailey-type bridges (one bridge per province) to meet emergency needs in- -ne,ta na--iVift, nn .key rnutes ar. urrhkse nfh br.dge nar. br.dge noflc tn help

maintain bridges in bridges on national roads.

The road maintenance programs are expected to be executed fully. The extent of the execution of the roadsrestVwmtion -an _reh Aii-in r< wl eenA or the- sv_e -frepai ofL -Ae +odsIlie cost of works1, arndlMUL4UIl aiLU LL;11V1~UlLa4LULV jJLalUl.ll Wlil 4L.LJJU Uul U1aLaI~ UI 'Lj)GL Ul ul1. lUWJ., u1~.lh UI I"f~ (JU

the priorities at the time of bidding.

The engineering studies and preparation of bid documents for restoration works on roads and bridgereplacerierit wil be 'cailied ouL by LUIILUiLdiLu w itUU Ule e bupe vLiiUrU uo le ErMIV.

1 ne project wiii oe Unplernented over uieC couLVrse ofullree A's: 200L, LUV3 aniU L20u4. Al requireu

activities to prepare this program for implementation have been started by DoWT/EPM, so that physicalworKs can be expected to start in May 2002 and disbursements from the proposed ioan can be made inOctober 2002. Details of the first-year 2002 program are given in the Project Implementation Plan (PIP).The criteria for a subproject (road or bridge) to be included in an AWr are as follows:

(a) civil works for roads and bridges are included in the Road Asset Management System andthe Bridge Inventory and Bridge Management System, respectively, with updated data, as

- 8 -

required, on the condition of the roads and bridges, traffic volumes on the roads and bridges andcost estimates;

(b) except works for road routine maintenance works, the works for roads and bridges havean estimated economic rate of return of twelve nercent (1 2%) or more- calculated in a manneracceptable to the Bank; works for national and provincial roads or segments of national andprovin.cial roads are locat.ed ir each of the Participating Province, ar.d wIill be c-ried out xvviuitn

the existing rights-of-way. In the event that taking of land is required to implement such works,incIluing *he U eplaIJcIIedLL of 1)IIUrU, sucu Ling shall Rlt exccedu L0%o VI Ulu total laduu area Uo

the Displaced Person, and the taking shall not entail the physical relocation of people nor thedestruction of houses and structures thereon;

(c) necessary counterpart funding from the Borrower and each Participating Province for theirrespective proposed works, goods and services is available in amounts acceptable to the Bank;

(d) appropriate engineering, social and environmental nractices and standards that wouldminimize any acquisition of land and avoid involuntary resettlement of Project Displaced PersonsonA mi-vstino ,-IX lnlalrnnmpnlol harm houp h,,on - nos;A roA ; .hn Ath mn d ^p ohnrnro-A h,worl-o Jn

dit.. ig _ _., em-om. e. .v fl ... in hn. - it. eo ed, il Virt. - dsipVV. .tA, F1 s iV .- O ...

accordance with the Environmental and Social Impact Assessment Management and MonitoringPlanis;

(e) the provisions of the Land Acquisition and Compensation Framework have been compliedwith, and, where the taking of land or assets is unavoidable under proposed works, a landacquisition and compensation action plan acceptable to the Bank has been prepared in accordance withthe Land Acquisition and Coinpensation Framework and in consultation with Displaced Persons andcompensation has been made available to the Displaced Persons in accordance with the Land Acquisitionand Compensation Framework, and prior to the signing of the contract for the carrying out of said works;and

(f) an environmental impact assessment has been completed and recommended measuresadopted in accordance with the provisions of the Environmental and Social Impact AssessmentManagement and Monitoring Plans.

Support of Implementation

The support of implementation component comprises:

* Services of an EPM at DoWT headquarters and PEPMs in the provinces to help manage thenr,w,Pt'f onni thp cirnprvici.in nfuuw.rkc (Thp PPM tAo , lptipr aint thA PPPM fnr Cpnti-l Prnnc,n,

commenced activities in February 2001.)

* Strengthening the capacity of DoWT in the carrying out of the design of roads to be restored andbridges to. be -replaced and ofD--t 5115, s--Vi -- -provsio of tecltniI aOOtO.A.

iT , - ,liA V~,fL 1 05,T L.t ,ilOO i .iLVL3, -A,,V,C1, Cit,, -A U..,1 tflJ17t a*~~~~~~~~~~~~SS Lnrret!oeai. ot,zvhcritof co-+ of sevie -ob AAvie yDo.vz

headquarters and at the provincial levels and by the provincial administrations. These compriselocal tu aLSPo ILastLLVIIVOOL ar.d Fer U&nIsL VoI I LUJ-VIA bL uiaL WVULU ILUL U%eI UIVU if LLIh pjectJIVIL

-9-

did not exist, but excluding salaries.

* Provision of laboratory equipment to help improve the quality of works, traffic-counting equipmentto provide up-to-date traffic volume data and environmental monitoring equipment to nelp monitorthe provisions of the project's ESLvMMPs.

* Provision of accounting and auditing services including an intemal financial control system for themanagement of DoWT and the participating provinces- project accounts; and

* Strengthening the financial management and operationai capacity of Dow 1, including thepreparation and implementation of a time-bound action plan to address the weaknesses identified inthe special review of the Auditor-General's Office (AGO) dated July 26, 200i, through theprovision of technical assistance.

Support of the Road Sector

The support of the road sector component consists of:

* Strengthening small and medium-sized contractors for road and bridge maintenance operationsthrough the provision of technical assistance and training on management, preparation of bids,quality control and site planning.

* Strengthening the capacity of DoWT (at headquarters and at the provincial level) and provincialadministration agencies in the carrying out of works for road maintenance including the provisionof technical assistance and training.

* Updating and improving the BIBMS of national and provincial roads to make it a usefulmanagement tool for DoWT; including the provision of technical assistance; and

* Carrying out a study of the socioeconomic impacts of road and bridge improvements under theproposed project, including the provision of technical assistance.

The terms of reference (TOR) for the B1BMS, socioeconomic impacts study, EPMIPEPM, support of theconstruction industry, training, audit of accounts, and local consultants for preparation of detailed designand bid documents and supervision of construction of the road and bridge subprojects are included in theBorrower's PIP.

2. Key policy and institutional reforms supported by the project:

Tne project will support key policy and institutional reforms by supporting the following efforts:

* Assist in alleviating poverty by improving accessibility for people in some of the poorest areas ofthe country to village markets and basic health and education services. Community participation,including women and youth, in routine maintenance will increase incomes of poor rural famnilies.

* Sunnort the Government policy outlined in the Medium-Term Development Strategy to expandoverall road maintenance activity and expenditures at this time of severe budgetary constraints.

* Provide an incentive for provincial governments to increase funding towards warranted levels tomee.t their exi-ting and exnandinv road maintenance remnonqihilities Thic will therehv heln

- 10 -

facilitate implementation cf the Government's decentralization policy in this sector.

* Strengthen private enterprise's role in the economy by increasing the contracting of roadmaintenance activities.

* Support Government financial management reforns by demonstrating the use of road and bridgeinventory and condition infornation together with the Bank's Highway Development andManagement Model (HD-4M) to develop rational and justified maintenance and rehabilitationprograms for both national and provincial roads and bridges. Provision of traffic-countingequipment will help provide up-to-date traffic volume data, which is a key input to RAMS andBIBMS. Also, the provision of laboratory equipment will help improve quality control of worksand increase their useful life.

* Support public sector reforms by rationalizing the role of DoWT and provincial administrations inthe planning, managemeni and execution of road maintenance.

3. Benefits and target populationa:

I I iiiaui jJecJsAt UbLX,L1iU1 LU 11e to J:VV1lW.1W UIL Ull, '.1pys.iaI coIUILLVII ao U dafeLy ofUl .nIetworUIN

of national and provincial roads and bridges in rural areas. The benefits are a reduction in vehicleoperatinLg cvstzs (of wicuhi a riiajui pair is ir. i giuir.i eAxcatr,g), i1PlVVVllIVllL il accibilili.y, and uie

contribution these make to increased livelihood (particularly for poor rural communities), economicrecoveiy aridU g-0WLWU. IiupI VCU all-W4LUlCV MAcsbliU,yLf is padoUuiiarly UinPlW.LIL Ul rinJ uccause

there are very few substitute routes or modes of travel in many areas to provide access to healthservices, schools, social anieniies, mnarkets, and emnplo-ym--ent opportunities.

I ne tiuta anecteu pupupauun in tne six provinces is estumated at aoout 13 rimiiion (L2 percent oi lnecountry's population).

Because road services (haulage and public passenger transport) are reasonably competitive, thebenefits of improved road maintenance can be expected to be passed on to users.

Rural communities, including women and youth, will benefit by being employed on routine roadmaintenance work.

Non-quantitiable benefits include strengthening the capabilities of DoWT and the six provincialadministrations, which are responsibie for the planning, design, financing, supervision, construction,operation and maintenance of roads and bridges. Furthermore, the proposed project is expected tostrengthen small and medium-sized contractors and reduce the amount of works done through forceaccount. The project will also foster improved practices in environmental protection, landacquisition, and participatory approaches to project preparation and implementation.

- 11 -

4. Institutional and implementation arrangements:

About 75 percent of maintenance and rehabilitation works under the project will be carried out on nationalroads and bridges for which DoWT is responsible. DoWT will, therefore, be the lead agency for the projectoverall and for national roads. DoWT will also be responsible for purchasing emergency bridges, deckingand bridge parts and laboratory, traffic-counting, and environmental monitoring equipment. DoWT alsowill be responsible for training activities, the development of BEBMS, carrying out the study on the socialimpacts of road and bridge subprojects. and strenpthening small and medium-sized contractors-

The Denartrnent of Trade and Industrv (DoTfl will be resnonsihle for the imnlementatinn of thecomponents of the project dealing with training and support of the small and medium-sized contractors. Itwvill coordinate vetr closelv wi:th DoWTr

-owevepr on the hbasi of lPssonsm lerned in nrev:ousiinroipets rpcrogriir.g the deprlli.nonc mr.nfgympnt

capacity in DoWT, and in order to minimize implementation problems, the DoWT has contracted anr!fpeSSinala nraje t m, ragem..pnt tpn,m, u7itP. qqllificantions ar.d pvPTper. erresaifactory to th.e Brk-the

EPM--to provide key management support services throughout implementation. The approach is consistent,.t the §ove,renrn,t's policy to increoas thes pr.vat sector ro.le ir, the 0del.vr Of~ inh ast,vr'h,rar services.

At.t the Do5,l.T he-A-qetter level, the EPA ' w,i!! be --sonsbl f_r: (z)peaigarul N- rgam utI tnS tliVVnS...jLi- -.k i. V. LI. L'.t "... tuf V%l.jUIOIL . . ikaj } iaun W Ia YL JUilJ,I

preparing cash-flow requirements; (c) making recommendations on the selection of design and supervisingenrees (AN ,- 4- .-r a i-un b,id,iAAr,g A--cn^-+.et (e) 1biAAdi bid evalua-tion andA ec nA-

S.15

f0,., 3 1-9

rf -.jJf 15 -f iOt±15

-iflff5

tkSLlll.l10 ~. Iv A11,II .VaIti - -&LU IS.CIILnnienUaLIUons

for award of contracts; (f) the timely execution of procurement and implementation of the project; and (g)Superviasin, er.4IvUUJl^.Lr.clauaS.ases Ul Uhe ULU uVVU.IIILLtZ +I^ c.IVIl Works.

The EPM also will assist DoWT in the administrative aspects of project supervision and monitoring,including critically reviewing performance of contractors and consultants, implementing the financialcontrol system for project-related expenditures, and ensuring that reports and project audits are submittedon a timely basis.

ToU ensure satisfactory project Ui~lnplIIulerLztiUI onI Ll1e gro-un bULi HLLUi'il aUn proviniLJi Uroads,afield

presence--a PEPM-will be provided in all six provinces except Manus, which has a relatively small____ LLI I L .t 2ll TU …ra X ny-., T rs nr X - nn . .Iprogradml aud wIllUll Will uC veru uy UeC rr-riVi il 1aLt iNew 1nn1I. I ne rnrivis will report drectly To

the EPM, who in turn will report directly to the Project Manager, who is assigned by the Deputy Secretary(Tecnnical) of DoLw'T. A qualified project manager acceptable to the Bank nas aiready been assigned to theproject.

Investigations, design, preparation of tender documents and assistance in supervision of road and bridgeworks (especially restoration of roads and replacement of bridges) wiii be provided by nationai consuitantsresponsible to the DoWT through the EPM and PEPMs. However, the available engineering resourceswithin DoWT and the provincial administrations will also be used according to their capability andavailability.

Even so, responsibility for key decisions will be retained by the DoWT and participating provincialgovernments. In particular, the DoWT and provincial governments will, in consultation with the EPM andPEPMs, identify priority works for inclusion in the annual maintenance program for national andprovincial roads respectively. Subsequently, DoWT will review and approve the annual maintenanceprogram on national roads and will submit an annual budget.

- 12 -

D. Project Rationale1. Project a-U te r n a 'a -;ves t cons- 1-eidered and reasor.s .'orreeti

Consideration was given to including a larger number of provinces in the project, but discussions with otherdonors, particularly AusAID and ADB, showed that these donors were attending to the needs of otherprovinces. Also limiting the work to six provinces of the country's 19 allows a concentration of effort forboth project management and physical works.

In framing the strategy for the RMRP a number of options were considered for the type and scope of worksto be covered by the project.

Option A

Based on the present poor conditicin of many of the roads in the proiect provinces, there is some call formajor upgrading and sealing of gravel roads and major reconstruction of sealed roads so that futuremaintenance is minimized. This capital-intensive strategv has been used in the nast in PNG. Roads havebeen constructed or reconstructed, usually with donor assistance, and then not maintained until majorreconstruction is again called for. The 1995 Road Lnventory and Road ManaLrement Study, and the RAMS

in 2000 demonstrated that this is riot the most economic strategy. Similarly, sealing a gravel road ise.nnnrmni onny in certain cirCnumStaneq i15 inllv in steen tprrin where traffiG' vo1IImes Arp re!2tive!v hiah(more than 200 vehicles per day).

This option was rejected because it does not represent the best use of limited resources over the longerterm. PNG has a pressingneda to n nrp,dpr a he of reguilar routfne r.r nten^arce of p1ii^ifraich te assets

instead of relying on capital invesument. Upgrading and reconstruction may be required on certain roadecpt:onne hint thFe need fnr thee rtntmntc r bd oh hnip,i cn somund nconmic n"n1-C

Op+:on B

A+4+U +Ue,+.- oP+ a, sta e- -LiL u1e ouxcr IJU1I e fl Ji u L9 l1Q. 3jA.&LU Ui a ;UaLvary V1 CUvIlUIUIIu *V paCIh yav 1iUC1kL UV1LLvL.

The DoWT and provincial admin strations have been using this "firefighting" approach because of a lackoi auequa.e fLu1dUg fir iri UL.aLumLL,ace anU rehabiltaLiLoU. YVII;,en 4 rUdU UdeIMIMUo UasbyonUd a LVIL41ir pUHIL,

this approach is no longer the least-cost means of maintenance, and some rehabilitation or reconstruction isneeded t ho restor-e road to a co,,Ation that re-'.,zr rou+.e +nten ,.c can '^ astandard. The same consideration applies to bridges, which can reach a point where replacement is the

attention on all road sections, it is not the most economic strategy.

Option C

The option chosen for the RMRP is to use a mix of routine maintenance (regravelling of gravel roads andrepairing and resealing of paved roads) and sealing gravel roads and reconstructing seaied roads, which wiiibe restricted to sections where thi; is clearly the most economic long-term solution. Similarly, bridges arereplaced only where necessary.

A slice of the maintenance needs of the six provinces over three years (AWrs 2002-2004) was chosen to

r1VG s LUIVIVI LUUV &U Vw eb L4Uish bLiLbl1U1U pilUl1Uilg, pIroUedures ad4U 9.ALLudL dI1di1-rCLg U11LN WiliC a.iiUU1rg

to most of the justifiable restoration needs in the selected provinces. The amount of work planned each yearis expecced to be wiutlin tue C ctiuuOn capacily. However, the location and the amount of jusufiablerestoration work may change with the continued deterioration of road sections that were not considered fortreatment earlier ini thie program. This means tnat an extension of tie project ror a furtner year mignh beconsidered near the end of the project, depending on the availability of funding.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

1 1 Latest SupervisionSector Issue Project (PSR) Ratings

| (Bank-flnanced: projects only)

Implementation Development

Bank-financed Progress (IP) Objective (DO)

Infrastructure improvement First Highway Project S S(conmleted)

Safety Second Highlands Road S UITlmnrovernent (Comnleted)

Institutional strengthening and training Third Highway Project S UIStrengthening conntnictiAn industrv lRnai Tmnrnvement Project S S

(Completed)Transnort Tmnrnxrnnt Pro-Ject U T(Com-pleted)

sT,-rtolarl r &lWa - ".I

Rehabilitation Proj. (Planned)Second G-le1 Restorauvi a

Project (Ongoing)Pori Project (Completed)2nd Port Project (Completed) S S

utner aeveiopment agenciesAusAID National Roads Regravelling &

Sealing Proj. & ProvincesAusAID Bridge Replacement and

Upgrading Project (18

Iprovinces) I I IAusAID Road Asset Maintenance

Project (6 provinces, not thosecovered by RMRP)

AusAID |Bridge Replacement andRehabilitation Project (6provinces as above)

ADB Fourth ADB LoanI ADB IRoad UDfradinz and

Maintenance Project (5I Hi4hlands nrovince)I

EU Rama Highway ReconstructionJ CA I JJ rnTri T'r,Aae IRP1y mInt I I I

- 14 -

Sn1 e. IYI , five yVear UbeUo, iUIUPeV1lUUVUL, Uti DdfLk has dassiMU LUedi U.anpJUL sector W ILUl sVVel project:..

four road projects; two port projects; and one broad transport improvement project. All are completed. The- - ~~~~~~~-- 91i1r flTrf AXAt nn, I. i- --1~-1 --

Roau improvemeni rroject vc1an LLOJ-rlN), wmucn was coUmpleLu m IY;F, mcIUUeU 1Ul1IPUVCL1IULS Ht

maintenance management and the broad-based Transport lmprovement Project (Loan 2742-PNG) included,among otner Things, the periodic maintenance and upgrading oI national roads.

The early road projects focusecl on extending and improving the Highlands Highway - the SecondHighlands Roads Improvement Project (Credit 677-PNG) and the Third Highway Project (Loan 1856-PNGand Credit 1030-PNG).

The only current Bank-financed project in the six provinces covered by the RMRP related to roadinfrastructure is the Second Gazelle Restoration Project in East New Britain.

Donor agencies, including AusAID, ADB, the European Union (EU) and JBIC, are providing financing forinfrastructure improvement similar to that covered by RMRP. These donor agencies have agreed toconcentrate their efforts in nrovinces other than those covered by the RM4RP.

3. Lessons learned and reflected in the project design:

Experience with past Ba nk-financed highway and trqnsport proiects in PNG shows that implementAtion ofphysical components has been generally satisfactory to marginally satisfactory, but sustainability has beennncertain to nnsltisfactorv. An OED evahintinn of road and high.wavy -rniect in PN§ (report no. 12003

dated June 30, 1993) rated the Second Highway Project (Credit C-677) and the Third Highway Project(Credit C-1030) as unsatisfactory and unsustainable, xith rtpes of return ofA4 percent and 8 percentrespectively (much lower than 16 percent and 17 percent shown in the PCRs). These ratings were ascribedtn nnct ^-,prnmnc in iyi nnrlvc lnxi,Pr th-on pAnprtpA fref{F; -Anl,mac on

4Aslx rnln ctartin" n'A rnnmnlptir,

works. OED stressed the need for good project preparation, allowing physical contingencies different fromthe 10 percent nr.orr, ar.d can-ing out good nisk ,anal'yses.

T.he cos+ - -expt.er.enceA I I the TRoad D1 ------ T -v&;17 2265) wasW. ft - to-l aa_;AS-.* L. .. A ,V -i W. L.Aj.J% fl4L't -V .L. - ~ a -W ijU% I.OUILOAAwL IIJL.Lj kLAJOL ~4..9V VO LO15

Sl1 Sf..Y LU" U-I.-rfll1

detailed engineering design from preparation to implementation stages. In the case of the Transport1IIij9IUV IIU~UI JLIAe.VL kLAJGU L 1?L-), IUL1-ivuavu 5ii waa- UL vtaLIialaL4ULY, 1 1iiiiaiaLal i.&JIUUI aIiuIU%.UL1111provemlent P;ojetT (Lo I'MIN) ir-ho desig A was not _ai+atr;fnnia o ladcs

management were not effective and senior management's attention to contract negotiation and managementwas miaddeaqate. LTn .addifion, pojfr cont-racftor jJ%forlh c.- &nd dafici.en sup-si by LonslkLUs,

persistent problems in land acc[uisition and security, and disputes over rights-of-way (common for allprojects -1-1VUIl new coUstrUiI or mJU Uh v i of esting roads) ll hUgh cost oves on a

major project component involving a section of the Highlands Highway. OED noted (report no. 15289) thecrIucal UpUlHWuI.c1VV Uf dsseUi, UI, iIer.k LV Ulre IJLVJVt IeLUI5 11r, 11 III I rall ic eva u4LiVI VI Util 14p4ilUILy

of the implementing agency.

The Gazelle Restoration Program (I and H) is rated as satisfactory because of the competency of theGazelle Restoration Authority (GRA), which was established by an act of Parliament to direcuy superviseimplementation of the works aad the establishment of a special supply and tenders board that couldapprove contracts of up to of K 1.5 million. Other aspects of project management have facilitatedsuccessful project implementation.

The review report on the AusAID National Roads Regravelling and Resealing Project and the BridgeReplacement and Upgrading Project (Project Review - National Roads Regraveiling and Sealing Project

- 15 -

and Bridge Replacement and Upgrading Project: Final Report, October 1999) identifies noteworthy issuesrelevant to the RMRP. Both these projects concentrated on national rural roads with works limited to theexisting right-of-way. If land issues arose, the section was deleted from the project. However, both projectssuffered from very long lead times to establish systems, procedures, strategies and plans. GoPNG inputs,defined in the memoranda of understanding, were not fully provided and this also caused a delay in theproject. The review notes that the capacity of the DoWT is severely restricted and recommends thatinstitutional strengthening be limited to capacity building for staff actively involved with project activities.DoWT's capacity to conduct surveys, testing and environmental management at the provincial level is saidto be weak. Tendering processes through the Central Supply and Tenders Board (CSTB) lackedtransparency and resulted in delays in tender award and the dissatisfaction of AusAID and DoWT with theappropriateness of the selection of contractors. The AusAID-appointed project manager lacked sufficientdirect control over the work in the provinces.

Although the Govemment has taken administrative actions to address a number of Droblems exnerienced inprevious projects and no significant land acquisition is expected to be needed under the RMVRP, adequatefiunding and effertive proiect manageme t are nrereqniiites for a sua.ceqsful nroiect outcome and -imrnrovedsector performance. Thus, the project will seek to secure agreement on funding targets for the Government'soverall road maintenance nro-am over the nroiect imnlementntion neriod ANo a nrofessiona! nroient

management team has been contracted, similar to that used successfully for the ongoing GazelleRestoration Proiect to manage the proiect Other project management aspects of the Ga7zelle Promram have

been adopted for the RMRP.

To help reduce cost overruns and delays, subprojects (road and bridge) will be packaged into AWPs thatuiill he annroved by the Bannk the year be.fore implermernttion stnrt. Detniled desiorn and bid driim.entc of

the approved subprojects will be prepared by consultants from the private sector under the guidance andsuperisionof the-EPM and PEPPMs Preparation of subprojects for the 2002 AWP hac been completed.Supervision of construction will be managed and supervised by the EPM and PEPMs and will use theexissdr.g resources of Dof T ano d "V" "rid,pr-ovinci& , road adn. ni-s+uattions a as sosil as well aspos"l" csul-

as needed.

It has been difficult to address the institutional weakness and the deficiencies of staff (in terms of bothquaInti.Y anlitU uofILLYJ at LflJ V& A anL oafit Ie LLLIc goIVVuIIV1 aOU VA L..i t LIV VL1 LLII1L3

works offices (PGWO). The appointment of the EPM and PEPMs and consultants will help overcomeUiUos capJaVIIILty pJrob~leI. IsL.. prUJectL UIV r UInclude L[4htrULUro VIky suWi vf ai 1t%iL1U I IVUIvVU WILUL

the project, in the administrative and managerial aspects of project implementation, cost estimation,conr-act UCeilg, bIdU vluLLULIIU qvitILy LOUUUUi, pUJ1CUML [f CIdUeII L, supClVivUUlu tlC1UUqUCS, 1L[CtUUI1with private sector consulting and construction firms, and financial management. This helps support thedecentralization policies of GoPNG and bolsters tLe role of Do'w-X as setter of tecnnical, supervision, andquality assurance standards and regulator.

Contractors will be encouraged to hire unskilled labor from communities in the areas in which they work.Also, routine maintenance activities such as vegetation control and cleaning of drains will be contracted toparticipating community village groups. Also, PNG volunteers will work with the PEPMs at the subprojectlevel in each of the six provinces. These volunteers will establish channels of communication anddissemination of information to affected landowners and communities and help reduce social conflictsurrounding implementation of road and bridge subprojects.

- 16 -

4. Indications of borrower commitment and ownership:

With sunpport from the ADR and AusAiDA the Govemnment is already taking measuires to preserve theexisting road network in the prcvinces not covered by the RMRP. The Bank is also helping the Governmentdetpermine the requirements to r':habilitate the -ighlanrds H-ighway and intends to extend a loan for thisproject in FY 2003. Further, in the Medium Term Development Strategy (1997-2002) the Government hasconmmmitfPA itself to irnnmrovincy tlh nroniuirn of m,hlir 'eprt-tcs inAl,,rna infrnct,nctiirp TI,n adv-ition ai

transport plan has been completed by the Department of Works and Transport and has been approved bythe Governmernt.

On the institu-tiona front, DoWCA has esttablished RAM1 S -i,t AnB T- n,+,..- to- e-nhar.c t apacity of

DoWT and provincial authorities to maintain an accurate road inventoly and condition database, prioritizeroadI raL-hu-i'aUnnI anlt.un:,^n,e an^ accorng to netwui a perforlla.^Lce and LULIUAIUc viabity.,,

and help determine optimum and minimum maintenance budget requirements. The BEBMS, to be extendedaun umpvroved UICIU tIhe pFLpUosedU FLrJettL, will accompAis I II-ill e fotriiit bulurides. I 11, SML113 UI Liu vv I Udl

the provincial authorities are being strengthened through fornal and on-the-job training provided under___..A TED A-.. A YTO MTDT- -- T^T T A_ .. 1 __ _-I __ AX -_l ---- A projects ofU1aB ALv KusAB), JB1_ anlU AU as well a U1t pLUruseu BaIL prujecUt.

DUring thle workshop on road flnunce and mlu anlagefzmernt held in POrt MVIoreSby FebruFary 28-29, 2000,GoPNG and the major stakeholders (private and public) in the road sector expressed strong support foradequate and stable ftunldinlg ful road -ui-ea-c- us wel asf increasing uit efiectiveness and efficiencyof road maintenance work. It is likely that a road fund with an independent road board will be establishedu tLe enu ol LUUV (see St;iUon B 2 anU Annex I. lums snould nelp aadress the proDlem oI roaa finance.Reform of the management of xoads is being studied to determine the best arrangements for ensuringefficiency and sustainability. ADB has provided assistance to GoPNG in this regard and the Bank is doingthe same under the ongoing preparatory studies for the Highlands Highway Rehabilitation Project.

Despite the above, DoWT is a weak organization and commitment to the project has not always beenstrong, mainly because of frequent organizational changes that combine and split the Department of Worksand the Department of Transport and Civil Aviation, high tumover of staff in key positions, anddeficiencies in the number and quality of staff. Further, problems are expected in the timely availability ofcounterpart funds. Engagement of the EPM will help ameliorate those problems. Also, the Bank isrequiring, prior to loan effectiveness, that the national Government establish an Executing Agency TrustAccount (EATA) and deposit amounts to cover needs for a three-month period and that each of theparticipating six provinces establish a provincial EATl A (PEALT A) and deposit amounts to cover thefunding needs of the provincial component of the project for a period of six months.

5. Value added of Bank support in this project:

In addition to helping preserve roads and bridges in the six project provinces, Bank support for this projectwill help establish 2 numher of hibildinrg blocks for effec-tive planning an.d mnanagpe.n.nt of the road transportsector. These include, in particular:

* Institutionalizing RAIM/S at DoWT and provincial administrations by requiring that it be used todevelop annual work programs and budgets

* Improving the BIBMS, completing the bridge inventory and condition-assessment studies, andmaking these the basis for expenditure policy and programs for bridge maintenance and

- 17 -

replacement

* Clarifying functional responsibilities in DoWT and merging road maintenance activities withcounterpart works offices in provincial administrations in response to the newly transferred roadmaintenance responsibilities

* Strengthening the contracting industry, including small and medium-sized contractors that theGovernment considers to be of crucial importance in reducing road maintenance costs and infacilitating decentralized road maintenance operations

* Increasing awareness on the part of road agencies of the environmental and social aspects of roadsand bridges by establishing an environmental unit at DoWT and employing a qualifiedenvironmentalist develoning an environmental management and monitoring nlani develoDing apolicy framework for land acquisition and resettlement, development of a framework formommimnitv conviltation tainingr for nerfinent nersonnel at the centra! and nrovincisl levelsn ndconducting studies on the socioeconomic impacts of road projects

* Introducing consultation with the people affected as an integral part of the process of roadnlnninga deig-n nnti coristnitionn

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):* Cost benefit NPV=US$38. 1 million; ERR = 28 % (see Annex 4)O Cost effectivenessOT Other (snecifv)

A cost-benefit analysis was used to evaluate the national road subprojects that will require periodic andspecific maintenance or restoration as well as bridges that require replacement. It excluded routinemaintenance and emergency maintenance because those are considered the least-cost treatments to maintainroad accessibility. Neither did the analysis include provincial roads because they have not yet beenspecified. Those roads are expected to be known by June 2002 and will be included in the respective AWPsafter being subjected to economic analyses. In the case of national roads and bridge replacement, thequantified benefits included vehicle operating cost savings and personal time savings and took intoconsideration the existing road conditions including roughness and traffic volumes. For bridgereplacements, benefits also included reductions in traffic accidents and the analysis took into considerationthe length of altemate routes in case of floods and loss of the bridge. Costs consisted of the capital cost forconstruction of the treatment and the associated annual maintenance costs.

Under the most likely traffic growth scenario. the net present value (NPV) for the national roads is S36.5million and the corresponding economic rate of return (ERR) is 30 percent. The rate of return for the roadsubproiects ranges from 14 nercent to over 100 nercent. These rates were calculated hy comparing the moqsteffective treatment with the do-minimum case.

An economic analysis was conducted for 18 candidate bridges (for which adequate data was available) toconrfir, Lfoe iAhilitu nf thpir reria_.pmnrit Of the 12 rirIcrpc 13 wue-re fndin- .inhhp arl are irnl,uePA in the

first batch of bridges to be replaced under the project. The NPV for the viable bridges totalled $1.6 millionand varied fro. $20,000 to $400,000. The total NDV for national roads and bridges is esti.ated at. $38.1

- 18 -

million.

Sensitivity tests were performed on six typical road subprojects and all 13 viable bridges to be replaced.The impacts of a decrease of 20 percent in traffic (and consequently 20 percent increase in vehicleoperating costs), an increase in capital costs of 20 percent and the combined impact of the two on theeconomic viability of the various subprojects were analyzed. The analysis found that the road subprojectsare relatively robust to these chEnges and that all subprojects with an ERR of 20 percent or more remaineconomically viable even with the combination of a 20 percent increase in capital costs and a 20 percentreduction in vehicle operating costs. In the case of bridges, the sensitivity analyses indicated that theselected bridges are robust for a 20 percent decrease in traffic and are reasonably robust for a 20 percentincrease in costs.

The traffic volumes used in the e conomic analyses are generally old. To address this problem, the proposedproject includes the purchase of traffic-counting equipment and the initiation of periodic traffic countingprograms in each of the project provinces. The index of economic viability for each road and bridgesubproject will be recalculated as a part of the preparation of the AWP of roads and bridges in eachprovince. This program will be based on up-to-date road condition data and traffic volume data as well ascost estimates based on engineeiing investigations and designs.

The program of road and bridge maintenance and rehabilitation (to be implemented during 2002-2006)included under the project was developed on the basis of minimizing the total agency and user costs overthe life cycle. The program inclu[des a mix of specific maintenance and major works that offer the mostcost-effective treatment of each road section within the constraint of available funding.

Periodic and snecific maintenanc e was determined from the RAMS network model in a coarse screeningprocess for subprojects based oD! the NPV divided by cost (this ratio should be greater than zero).I Unprading nf vravel roads to Reniled madr- and navement reconstruction were determined from a nroiectmodel in a fine screening process. RAMS was developed by Finnish consultants (using an ADB grant) toprepare prioriti7ed maintennrae wrks programn and uses the F1DM-4as an analytiral tool for e.ngineeningand economic analyses of maintenance strategies and road investment. HDM-4 was used for the economiceval,latiOn nf Peih rond ci,hnrnis-t incrldprI indpr the nproject

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)

Fiscal Impact:

The financial analyses for the project focused on two aspects, the availability of counterpart funds and theqiict.inahilitv of the nroiect.

Coiinternart Fndqs Resides the proposed Bank loan of $40 million imnlementntion of the project wonlldrequire a contribution by the Government of about $25.1 million, of which $5.9 million is in taxes. Thissup' -,' I be shared hy the ce.ntr[ govIermnmmernt anrd thie provincial governments, with the mnjority to comefrom the central govemment. The provincial contribution for work on provincial roads and bridges is beingaddessed throuh a memoradu. of agreement (,Af hft1.,,ppn the fral r -o + -A fha.s

project provinces. The Bank has commented on several drafts of this MOA. Expressions of intent by theprojec+ pr-r- ncs t -ir the WAr A have been rece-ivedA W--,-ir, adoption of oan MOA satisl+nfl, io t+i.e

Bank is a condition of effectiveness.

- 19 -

Retroactive Financing. Retroactive funding of about US $0.9 million for EPM services and civil workscarried out on or after September 1, 2001, will be required. These services and works will be procured inaccordance with Bank requirements. GoPNG will provide in the budget for 2002 the amount required tocover its share of the project cost.

The timely availability of sufficient counterpart funds was a problem in the past and had adversely affectedimplementation of projects. To reduce the probability of this happening in the case of RMRP, GoPNG, as acondition of effectiveness, will establish an EATA and deposit K 5.0 million to cover the full projectfunding needs for the first quarter of implementation and thereafter, will deposit quarterly, in advance, itsshare of project funding into the EATA.

To ensure the timely availability of funds to meet the cost of the provincial roads and bridges component,each of the six project provinces will establish, prior to loan effectiveness, a PEATA and will deposit anamount eauivalent to 6 months of disbursements. Establishment of these six accounts and the deposit ofK200,000 for Central Province, K400,000 for the province of East New Britain, K 140,000 for ManusProvince, K 270,000 for Morobe Province, K 140.000 for Oro Province and K 200,000 for the nrovince ofWest New Britain constitutes a condition of effectiveness of the Bank loan to this project. According to thedraft MOA between the national Government and the six project provincial governments; the Denartmentof Finance and Treasury is authorized to deduct the required amount from the grant for road infrastructureallocated for the nrovince and make arrangements to denosit the same amount in the PEATA if theprovincial administration fails to contribute on time.

Furthermore, to help ensure that village communities are paid on time for contracted routine maintenancewnrks *under the nrAiectt an 1rmnrest crrnunt tA firnd rAiutine rAnd mnintennnGe works will he est2hlished ineach of the six project provinces. The amount in each account is to be 50 percent of the annual value of theCnmn.nitv onen-trt in eac-h nrnvine.FT To fhcilitnte disbursement to village groups, the DoWT muay open alocal-currency special account and deposit a 30-day advance of the Bank's share of the villageepPen d itures. Est-abichms.ent of the above-ment:oned s_ix TIm.prst or.tc ar.posit of K -,n -frCentral Province, K 200,000 for the province of East New Britain, K 60,000 for Manus Province, Kl0,0n0 fo XA- 0. provin e, K60,000 for ro, Pro"rce, and1A VI n0 for 4k, p, o-tf Wes-t Mew

Britain will be a condition of loan effectiveness.

Post-Project Financing. About $4.0 million (about K 15 million) will be required annually for routine andernergericy mairnt-erlarce toV preserve the projec rodsi the r-.st-e In -addition abo.;t $1 nrllineya~l1i~I~L~lt,y ll4U1LVLl4lL,LU ULjJUJ, IVaUb UIL ULV ULLU-,. ill alUULLL01I, aIUUUL 40 IV LIUIIIUII jJJ%I Y,al

will be required for periodic maintenance (such as overlays and regravelling). Availability of such sumsWO.~4 jLUUILIIUI U~ IL~iL adUU LUU1U V PIUMUILMUL, IUl U1C IULUIC. -L'IIC bU1UUU1I LU U1L,N Jluvivul UJAL 1was a probulerli ill thLe ,-ecent pabs; n ol - e prblmai in 'uLI lau.u-e.Ul -ouir '.o A-:s rblmuLti

being pursued by the Government is the establishment of a road fund to be run along conmmercial lines,w i'u I an iu dependenL mIiaragCeiinai board aud iUstng represeunatiI ifron1 'ue pri vatVe sPecLtr, anU a strict

relationship between the fee paid and the service received.

3. Technical:

There are no significant technical issues raised by the project. The road work is essentially restoration ofthe pavement component of previously constructed roads. Road widening and drainage restoration andimprovement will be required on some sections of road, and this may involve removing material from cutslopes or depositing material. on fill slopes. Slope stability can be a problem in PNG but no major problemsare expected with the scale of work proposed.

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Bridge replacements require adequate attention to foundation details. However, the problems are notepect.ed to be beyond the -xer.ence expected of br.lap design cAn iilttn1tc to be m.nuplnyed on tbe proiPct.

4. Ins+ttution,:

4.1 Executing agencies:

The project. including work on provincial roads, will be implemented by the DoWT with the assistance of ateam of experts for project management at the central level (the EPM), and the provincial level (PEPM).Provincial governments will be directly responsible for decidingz on restoration works on provincial roadsunder the Project. The DoTI will be responsible for the components of the project dealing with training anduipport of small and mediiim--si7id contract or

4.2 Project management:

The project will be managed by a small team of experienced civil engineers and a qualified accountant withfinancial management skills to be established within the DoWT for the duration of the project. The leaderof this team, the EPM, will reporr to the Deputy Secretary (Technical) through a DoWT-assigned projectmanager and will coordinate with other senior DoWT managers. The nroiect manager has been approvedby the Bank and has been working since October 2000. PEPMs will be located at the provincial level andwill ronnrt dire.t1v to thef EPM The PE.PMs will ohtain advice and assistanrce from the lDoWT nrovincialworks manager and the person in the provincial administration responsible for road and bridgemaintenance. The EPM and PEPM will ensQure that bnth the Bank and GoPNG requiirePments or mret Thisproject management arrangement has been accepted by the DoWT and no significant problems areevnect.er The EPM'sc tei.m leadei ninA the PPPM fnr (

1enfra1 Prnvinn,e hvlue heen uIArIe-na since IP nry

2001. The remaining PEPMs will be employed by the time of loan effectiveness and will constitute acnnditinn nf In, effcrtivene. c F,rthar fnnT Arrn--A a ni uolinfiA knirnmpntg t arr ntohs ftn thA

Bank in March 2002 to follow up, on the environmental, social, land acquisition, and resettlement issuesL%.lL.Lt .ed L.a. yfliprjet.t.

4.3 Procurement issues:

The main problems with procuremnent in PNG are: limited capacity to manage procurement, limitedcomfupetition M Aly- du to +e n,.ifeA -rn,1-r of- q;4ed cr.trlc -Ars 0 d the ncorsequnt need-Ai to use

force-account procedures, absence of financial instructions to accompany the Public Finances ManagementAct of 1995 (which govems plublic procr-enent) 1irrited transparency in thse proc% ent processes poor

financial monitoring practices and lack of accountability for results, weak audit systems and unevenfb!!oxw-up i,n cow-M and _icpiisprsAr-r f *hos four.d _;ilt- .- A -,,4 oiisan o,pin n

political interference in the awar(d of contracts.

The Bank carried out a Country Plrocurement Assessment (CPA) in 1999. The final report (not published)

accepted. But, the implementation of those recommendations has been slow. This assessment is scheduled'.o bem -up4datued inl 210102.

rrOject proc-uaremnen for the national roads, goods, and all studies anud iecLLnical assisaunce under thUe project(except for training and experts to support the smnall and medium-sized contractors, which will be handledby DoTi) wil le cUreu oUL Oy I)'wu 1, assisted by the EMrVI afiU rPrivis. ProIuremenUi U wUrks Ifrprovincial roads will be carried out by the provincial administrations assisted by the PEPMs. Aprocurement assessment of Doow'T anau its extensions to tne provinces was carrieu oui in rebruary andMarch 2000 and reexamined in March 2001. This assessment benefited from the 1999 CPA. It concluded

-21 -

that in view of the declining management and implementation capacity of DoWT and the weak procurementregulations and procedures in PNG, the capacity of DoWT to implement procurement under the RMRP isin the high-risk category. Further, in view of the high priority accorded to the RMRP, its implementationcannot wait till the public procurement system in PNG (which DoWT has to follow) is fixed.

The main actions to reduce nrocurement risks and nroceed with imnlementation are to emnlov anEPM/PEPM team to manage the project, including procurement and payments to the contractors (seeAnnex 6 for actin nplan) and set low thre-hnrdi for nrinr review hv the RBnkc andl carrv olut sPeletivp npot

review of I in 10 contracts not subject to prior review, which will result in a large number of contractsrPviPwP,d hv the Bank which w.ill in thr l[ead to a lower likelih.ood of misprocurmrmPent The EPM andPEPMs will review and make recommendations on all procurement decisions from planning stages to

GoPNG has engaged a alliwhfied constnt for reviewA of the F;nar.cial Tn,struct4ons of 1986 'aQ t accom--.

the Public Finances Management Act and to prepare new Financial Instructions that will govern them W- lem.enAta-4;o- of tuhe P,; V;- Fina.ce M&aere. Ac of - 1995I. 'M.US A-t -an relate f-_ancialflIa*f. 114U 0. V. - I - -AII I UICAOIflta. Ivan

5.AI,I L4 VI I 770. A& III ntC aLLu 1Ld 1A1U I CIaiiia

instructions govem public procurement of works, goods and services. Agreement was reached atri-egoiUaUU11n WILtIL uy GoPNJ is.. wuu WV eLp4aJ ar.d U- u.r IL .oIU3u L Ula L1 fu1r iVt LviVw dIlU Wun11uu1 by J- uue

30, 2003 these draft financial instructions.

There are aspects of the PNG procurement system which are not satisfactory to the Bank. These relate toresUrLA.LUr, UiUUddin LU 11a4L111 nal lipa.iu and givUirLg prefer1eUcV to ciLi1en VI 14LUiW.ljs. UU17ING IC4ui.ncu

to the Bank in September 2001 that all decisions in NG 66/92 and NEC 41/95 will not apply toDLN1U&1UflUI%,UU L,ulUM.Lb. IIIU3V UV%lILU1I-J UU11,UHIJIOUVI piuyii LULdLULY, Lu I~V LfZr,VUg1,,LuUU LUUU idutb U1

a certain value to citizen or national companies and requiring joint ventures with national companies forlarger con-ucts'L but 1lUi9lr,g Ulu shair Uo Ulu overseds pMau1ui Lu a iuiaxuiiun Uo Dv percent.

Fur-Llermore, oecause rPN' nas no biduing uocumenis ior iNCB proceaures ior civii works contractscosting $54,000-$1.0 million, agreement was reached during negotiations to include an Annex to Schedule4 (Procurement) to the Loan Agreement wnereby GorPN would use the Bank's guidelines for !CB andrelated standard bidding documents for small works (SBD) with the following exceptions: (a) Publication inthe intemational press wiii not be required, and publication in the local media of national circulation withcopies to embassies in Port Moresby will suffice; and (b) The CSTB can issue the letters of invitation andnotice of award to contractors on its own forms.

4.4 Financial management issues:

The East Asia Region completed the report, Review of Financial and Fiscal Management Systems of theGovernment of Papua New Guinea, in i996-i997, the only World Bank report that can be considered closeto a Country Financial Accountability Assessment (CFAA). A copy of this report is included in the projectfile. The ADB published a similar report, Financial Management and Govemance Issues in Papua NewGuinea, in 2000.

For this project, a consultant has performed a detailed assessment of the FMS and the DoWT's financialmanagement capacity, in accordance with the Bank's OP/BP 10.02 and project financial managementprocedures. A summary of the detailed assessment and proposed financial management arrangements isprovided in Annex 6. The World Bank's certified financial management specialist reviewed the assessmentand concurred with the findings and recommendations.

During the finalization of the PAD in early 2002, an investigative report into the financial management

- 22 -

oDerations of the DoWT was released by the AGO. The report. which is included in the Droject file.identifies major deficiencies and weaknesses in the financial management and procurement systems of theDoWT and nrovides annronriat, recommendations to ensure accountability and transparency in thedepartment's operations. According, DoWT acknowledged the usefulness of this report and agreed toreqtnre financial discinline and vnnd mRnnsament nr2trtices in the denartment The A11O spnecial auditindicated that there are weaknesses and high fiduciary risks within DoWT's existing financial managementsystem which resuilt in incnmnIpete captuire of all transactonsi n the computPrized system and could lead tocontractor payments not being adequately checked, funds not diligently protected upon transfer toprvilnt-iIkl banl- ncr-rninte nr hbnl- nkacciint r,pnnriAiation _totem.nts not rPrPiupA nn time hu the

headquarters. Further, the capabilities of the government accounting staff are limited.

The AGO special audit indicated that there are weaknesses and high fiduciary risks within DoWT'sfinr.arcial m.,a.an system that h swdlt in the incomrpleote capth, r of ! tran.sactiofr,s in, th-e corput.rized

system. These weaknesses could lead to payments for contractors not being adequately checked, funds notbe;.g1 Aiietl1tIy potecte+A upon , Lt pria --- 1a aLS.4tU.---, or bt,& a--- reconci._liatio

statements not being received on time by headquarters. Furthermore, the capabilities of the GovernmentaS.,S.,UUflL 5 aali zre IluilLvu. xnnes., Uaasi w-Oaxutiess Ui un, iuo..cal Caglttlll Cni SJLd Lo l sytswill

be addressed through the employqment of the EPM and PEPM (see Sections 4.1 and 4.2) and the controlsUVb1rsiU spJci.clIally fIo prIJectL fiUIWlWan c II1ia. YgVIIIVIL. FUR LHVIIlVLV, It Was agrLeeU UULUI r IICVLL4aLUII ULIaL

the Borrower will prepare and aclopt a time-bound action plan satisfactory to the Bank to implement the-,, -A il'%' -.C.L- Tr -iIr,'J i J. TL.l. 'I-' 'SISAl TL.- 1recor.arnendatiOULnS of Ulu tJAwJ irview of u*le jVVw I TdaLtu July LU, 200UI. illis will w consfi,ute a C0UdLi10-Ui of

effectiveness of the proposed Bank loan for this project.

Adequate consideration must be given to the wide geographic area covered by the project, the nature of theworks, goods and services to be carried out under tLe project, Ute tripanrite fUnding rradngeMents (Bank,national government, and provincial governments), and the need to design a single set of procedures that iscapable of providing information on all donor agency-funded road projecis in accordance with eachagency's requirements. To this end, the project will be using almost all of the procedures currently beingused by DoWT to manage other donor-funded projects.

The conirols being put in place to protect ute project's finances cuilprise:

* Employment of an EPM aiandi PEPM to directiy supervise provinciai staff in terrns or cneciKngcontractor claims and payment voucher preparation.

* Requiring the PEPM and EPM to endorse cash transfer requests and calculate relative shares ofcosts between cofnanciers for each batch of claims (which wiii vary because of the different ratesof IBRD's share of costs for various categories of expenditure) before funds are transferred toprovincial bank accounts.

* Assigning responsibility fDr the preparation of withdrawal applications and project managementreports to the EPM.

* Providing a detailed opere.tional manual to the EPM on the procedures to be followed to managethe project finances and to prepare such documentation. The draft of this manual was received inMarch 2002. This manual will be finalized before Board presentation.

* An independent auditor (private firm) will in addition to the annual audit of the project accountscarry out the semi-annual review of the internal control system of the project implementing agency,

- 23 -

and submit the results to the Bank within two months from the end of the six-month period underreview. The first semi-annual audit report will be submitted by August 31, 2003.

The EPM will also be required to take the opportunity to work with an AusAID-funded financialmanagement systems adviser to optimize training of DoWT staff in accounting procedures, including forEBRD-funded projects, as well as provide advice on ways to improve the DoWT financial accountingsystem. DoWT comnleted the amendments to the existing departmental accounting system and finalized thefinancial management system to the Bank's satisfaction on May 10, 2002.

Separate bank accounts will be established to hold funds received from the IBRD, the national government,and e.c.h of the partiipating prornvinial governments. Trnst instruments establishing these ancno1nts willneed to be executed by the Minister of Finance. The accounts will be held by DoWT and the EPM willhavp tnipfAorep in .writncr anv withbriwa! of flintAs A snpeianl accolrnt with an initi.a tipnngoit of IIS1.Imillion for the proposed Bank loan will be established. This deposit will be increased to $1.5 million whendiseb--sn,erntA reach It R riin. -An, APATA Al,th ar. nrttdn denpit of K 5 A rri!!ion ,vi!also e1. eCtabisQhed

to receive counterpart funds from the national government. Contributions to be made by the six provinces-xIfI OS; be dpst A - e. resc-v 1.P AT.A sT. The% 1 -f-al r-;- of each of f fLese provin.ces wit II 50k lpercent of the annual cost of the works on provincial roads and bridges. An Imprest account will beesIJllAs.A -1n -eac poic +. ftL . pa -_...et to cL,.4a.L,+ ---.- tnnit groups fr- routn.. tene-.

The initial deposit will be 50 percent of the annual cost of this type of maintenance. These accounts will befunded frorr. te EATA-s in ihe st ans.ce. A local-c.urrency specia! account vJL ll L- --e o d far a 30-dayadvance of the Bank's share of community expenditures will be deposited.

The intemal controls and financial management statements for the project will be reviewed semi-annuallyar,U auuiteu each fiscal year Ub'y anI aUUILUI 4%AVp14V1Z LU ULLe Bar'-. PiUUiL rVpUlts Will Ub rLeJUUvU on1 Uil

annual project financial statements, operation of the special account, EATAs, and Imprest accounts as wellas on any staLer4erits of1expVendiure usedu In support ofVW -wLiU 1U11drWdL apc UiUiLLtteU LU L*e IDILJJ

during the course of the year. The semi-annual report will be made available to the Bank within 60 daysaiter uhe enu o1 Lhe six-iilOnui pernod; the audited statements win be rnaue availaIe to the BanK wiuun uireemonths (March 31) after the end of each fiscal year. The audit will be carried out in accordance with TORsacceptable to the Bank. The cost of the audits will be covered unuer tue BanK loan to uns project. Tneselection of private auditors will be in accordance with the Bank's guidelines (the TOR are included in thePIP) in consultation with the Auditor General's Office.

5. Environmental: Environmental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analvsis.

The RMRP will carry out prinarily maintenance and rehabilitation of existing roads within the existingright-of-way. Thierefore the environmental impact of the project is expected to be minor and limited mainlyto the effects associated with rehabilitation works such as dust and noise control, use of bitumen, disposalof solid or hazardous waste, erosion control, quarry siting, and labor camp management. T1hese impacts arecommon in road rehabilitation works and can be mitigated with proven management techniques. Theproject involves no realignment of existing roads and does not require any land conversion for constructionpurposes. The project will also achieve important environmental benefits through reduced erosion andimproved drainage along existing road alignments. No significant land acquisition and resettlement isforeseen. Consequently, the project is classified as Category B for the purposes of the requirements of OP4.01. The categorization is consistent with guidance provided in GP 4.01 Annex C and is consistent withprevious Bank-supported road rehabilitation projects.

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A Sectoral Environmental Assessment (SEA) and an Environmental Management and Monitoring Plan(FMMP) were nrenared in 1997 using Danish trust fiinds to fulfill the environmental reoiuirements of boththe Bank and of PNG's Environmental Planning Act of 1978 and the Office of Environment andConse-rvation (OEC) envirnnmental guidelines for roads and bridges. The SEA and EMMP were approvedby OEC and were found satisfactory to the Bank. However, due to the delay in processing of the loan forthis project an.d co-nsqp^ue-nt c.h.anpges in the civil wo.rks incrlldedu inder theproject as well as channges in the

requirements of the Bank regarding safeguard policies, the SEA and EMMP were revised using AusAIDfunds d-ing TIAfcernlvr 200A - Tiin I0!. Thisc rPevisin aoln covnered snoal assccsr.rpnt a fr..mpu,rlk fnr

land acquisition and resettlement, and comnmunity participation. The resulting docunent is the ESIAMMP.A summary of the ESLAYI^M&P isspresented inA nex 11.

TL-*rauacnA anA1^rArw,mrAnnl nnA e.onn-l v,eeA^rn,nn nt,.^c nnrri^aA Alt i, ,Z nAcranAa^nf nAnno,+c.lt ileana on

environmental screening methodology to identify any subprojects with significant impacts requiring a fullLAAVUUILIIrI;iLO.^ta L LI-.^.pact A se ( ) 4UFIUJects were ide1nifidU a. 1CAULui1r. a full ETA_A. III UlC

unlikely event that any new alignments that could have more serious environmental implications arereq-uueu (WHiLAh WoULU OCUCu Uorl y LI 4 oadU WaLshe oUL or ls LbUl1plLJly destroyedU Uby VW UhqU4ake, vlci.1iLc

eruption, or landslide), the technical design work will be accompanied by specific environmental and socialassesslillelLt U1 sUalMI acquiMlltons, lUogU1l1 WIUI bUdLUg1 LU W 1L1irMV, 4liy pUalUls 4UVcIr, IILaU. aUwl

assessments will be reviewed and cleared by the Bank. However, such sub-projects have been excludedi0u1 ULe IUpro.jL. ctIA agrLVU ULuil1 lUoa negoULl4iatUoii Lle 4IlUli WUok P1Uld111h Will iLnlude oUU rl)y bugH1lleL

of national and provincial roads to be carried out within the existing rights-of-way, and if taking of land isit ~ 1ffi<± - - , r. - - --, -1 1--I r~t_ AV - V--IA_ _ _ I --- -unavoidable, iwo'uWldU be limited Lo 20 or less of Ule oLai l anU of inu Uispiaced persons, anU woWiU noL

entail physical relocation of people nor the destruction of houses and structures thereon.

Although no serious environmen;al or resettlement issues relating to the project are foreseen, the projectwill require access to extract local road aggregates from quarries and rivers. The present governmentprocedures to obtain access to local road repair materials by negotiating with villagers and paying for thegravel extracted are considered satisfactory. While the ease of access may vary from place to place, it isnormally not problematic except when the land in question is disputed by different groups, in which casematerials are brought to the site from other quarry sites where arrangements are agreed.

The provincial works managers and the provincial administrations responsible for the project will consultthe public through the proposed ]'apua New Guinea Volunteers (see Section 6.3) to ensure that the public'sconcems are properly addressed. Tne persons affected by each subproject will be notified of the intent tocommence with the project and thle name of each contact person in DoWT, PWM and the provincialadministrations or the Department of Lands responsible for the subproject. This person will maintaininvolvement throughout the subproject and will be available for discussions with the local people.

5.2 What are the main features cf the EMP and are they adeauate?

The ESLAMMP defines preventive and mitigation measures for all potential adverse impacts that mightarise during the implementation Of the road and bridge subprojects inciuded under the project. hneESIAMMP provides contract clauses together with notes on supervision and monitoring covering allsignificant environmental issues. 'rne mitigation measures will be refiected in the engineering designs andbid documents for each subproject. Further, the Bank will review the initial contracts for restoration worksand bridge replacements in each province to ensure that these clauses and measures are incorporated asproposed. This activity will be supervised by the EPM. The compliance of contractors in carrying out theprovisions of the bid documents will be supervised during construction by the PEPMs. 'The provisions ofthe ESLAMMP together with the above-mentioned actions are considered adequate.

- 25 -

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft:

Date of receipt of final draft: I June 28, 2001

As indicated in Section 5.1, the final draft of the ESIAMvMP was received in June 2001 and was approvedby both the Government (OEC and DoWT) and the Bank. The ESIAMMP was sent to the Bank's PublicInformation Center in January 2002.

5.4 How have stakehoiders been consulted at the stage of (a) enviromnentai screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

During the environmental screening that was carried out in 1997 and again in December 2000-January2001, field visits to each province were carried out by environmental and social consultants. Meetings wereheld with the provincial government agencies concemed, the main business interests along the road, andselected villages. A summary of the ESIAMMP was translated into the most conmmonly used locallanguages (Hiri Motu and Tok Pisin) and will be widely distributed along the roads where main restorationwork or bridge replacement will take place. Further, a complete ESIAMMIP (in English) will be kept atDoWT headquarters in Port Moresby and at the Drovincial works managers in each province and at theprovincial administrations for review by interested parties.

5.5 'What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

The ESIAMMP contains detailed environmental compliance-monitoring requirements, including parametersand indicators for all activities relating to the recommended mitigation measures. Implementation of thesemeasures will be supervised by the PEPMs. Their terms of reference require them to report on compliancewith the provisions of the ESIAMMP through the regular progress reports that they are required to submitto the DoWT and the Bank. They will be assisted in this task by the local provincial environmentalspecialists who were given special Bank-approved training (funded by Danish consultant tru=st funds) inJune 2000. Those programs included a one-week training course in Port Moresby and a two-day trainingcourse in Oro and Morobe nrovinces_ The programs were onen to the private sector (connsitant, And

contractors) in the road subsector.

DoWT has established a small envirornmental unit and assigned a qualified and committed environrmentalspec-ialist who is acc-eptalhe to the Bank. Rpe-ntlu the German government has offered to firnish aqualified environmentalist to support this unit. DoWT and the Bank have agreed in principle to this expert.T.se ,,nit wxlWll nrrn o rn%nrdina-ic,n o civecrht anr. mnoitnr-ncr fnr e-Amv-o. ntal anA -s;.I^ -,vor related to

DoWT activities, including this project. The proposed project provides for environmental monitoringaa,nnnipar,t andA tr,nrn;n of ctnff at the natinolona ar.d,pr.0l levels in ana,rnnentl a soci . issues.

.LJO.LLL%. OUjIIlJ V lOlVII AflflOflfl;P I3 -t S .lU WAlu VV IL .llUlLUv U ln. Va1 F 1 UIv pI J l At Vll LIA. v s l V UUvIILLvl L.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

The project is expected to have many positive social impacts. As designed, the project does not involve any

- 26 -

resettlement because no land acqluisition is anticipated. No adverse impacts on indigenous peoples areforeseen under the project in relation to the provisions of OD 4.20. Rather, the project will help indirectlyin the alleviation of poverty by improving accessibility to markets, social services and other activities forvillage communities and also is expected to provide some needed additional livelihood in road maintenancefor these communities (including poor rural women).

Because the project focuses on road maintenance and rehabilitation, most of the resulting works will beimplemented within the existing right-of-way width. The need for additional land and disturbance toproperty are expected to be minimal. The design for the various road and bridge subprojects to be includedunder the project will avoid or riinimize land and asset acquisition. In the unlikely event that additional landis required, the Government will obtain all land and assets, including rights to land, required forimplementation on a timely basi, in accordance with the Bank's policy on involuntary resettlement (OD4.30). The Govenmuent's land acquisition procedures, compensation rates, and processes for resolvinggrievances have been assessed as satisfactory and in compliance with the Bank's policy. Annex 12 presentsa summary of the framework for land acquisition and compensation to be applied to this project. Moredetails can be found in the ESIAMMP. As stated earlier under section E.5. 1 of this PAD. sub-proiectswhich require the taking of more than 20% of the land of displaced persons or which require physicalrelocation of neonle or the destnuction of houses and structures thereon will be excluded from the nroiect.

Resettlement and comnen-ation nians- if needed ore necesqarv for a s hproiect to he included in the AWPapproved by the Bank. Acquisition of land, resettlement of any affected persons, and payment ofnnnrnnirite pem.nrnnrV2t0!i! in nonirdinne With the frimenwnork in Annex !2 mn,ct he co.mnpleted hefore the

contract with the selected contractor can be signed for any subproject. This will help reduce delays andmonetary lrainms hby contrators dut e to land problems.

The land acquisit;on anrd resettiement process takes at least a year; acquisition of la.nd therefore should startas soon as the Bank's approval for including a subproject in the AWP has been obtained. This policy is to

rr ;r.n cm_vQroino dear. nAidib, peoptle n,n A didnot rntra p c!c at npnnhta'.l.or or by, farhr.ers ,vho

have encroached on the acquired land with new plantations.

Land acquisition and resettlemert constitute potentially the most important social issue to be addressed by,uhe project. ILand compl-ensation l;r [ngs r nonn-a- gain -o94-..unte u a uge oi' o.lc iuIV iUJ~L L,dI1u a~i1jLWuU Iimaur Ui WUUWY barn LU %AJL11U11LUUU%0UL~ 1)11 LaU Xrl,,i uLaV%I aJlU WIUULI

and between communities. The process for land acquisition is known to be complex and time-consuming.

6.2 Participatory Approach: How are key stakeholders participating in the project?

A iod.aI s;-ti,. wh roo+ DKl)l ... -(4 tin.,p oA 1- A- ArA1% ...- ..A a rqr-A -- oott,1.itAl 3iJLflh ;aStflt,UtfL VTs itli X ,a.f, lii _AapWs_ ftahi~~~Lnis., ribs li} , t.CJ14ib tJAt .atnt atn. ant..

in the six project provinces and raet with the provincial and central agencies concerned as well as withselectedA -i"1- .-A .nd o b neinres -l-n, canto ofh praojet roadAs Difl1 fi'lc % s-v+- h 1nd o-,,mAr- are

expected to be the most serious risk affecting the implementation of civil works.

Village conmmunities (including wvomen's and youth groups) will participate in routine maintenance financeduLLder uiv project I all six plU-Vlnces. I es. ptic:.pat:.on is s as uavmg a positive i,-Jda.4 or. er.ger.de

local ownership, protecting infrastructure assets, and respecting community traditions. Road users andvillagers w"ii be s-rvye as 1.o us-oca ina t- of- ue wok(eeScio .) Alo 1-- rorvi 11er WilU~ 5LL1VrYU 1b LUJ UIV, bV1ULWL iLAW~ VI UIU WULI't kNU,LlU1UU U..)). tidbO, L.uudu1AU1

employing local people to the exient feasible will help reduce friction that could arise during construction.

6.3 How does the project involvi consultations or collaboration with NGOs or other civil societyorganizations?

- 27 -

Difficulties with land will be managed and eliminated or minimized by the adoption of a CommunityConncltot..n lFrnrame.rl (CCF). Th. rhe .,;I rvl b nlornnt.e --y PapuaN,v C-1nea \Jnl.trc ,vorking

with the PEPMs at the subproject level in the six provinces. The function of the volunteers will be to ensureuhat a.,Pt.-+.- 1a.,- ,vV-l fl.,flif fDDt-A are fu hlll flh .Afl abou 0Le pAtk'%S s.ubp .- ts .d 0 t4. er,

implementation, and landowner and villager opportunities for participation in the work of the subprojects.The- volwntleersa w-ill serve as contractor la-bor liaison anA wMl help --ur the -aidation -an -atifaction of

community interests. In addition PNG Volunteers will provide institution-building input by promoting theconcept of roads -an assocAt --age. rights as l.-eUio L.on jJ1Uer.1 ar estser_.ti S..UpUIILts for

regional economic growth and the growth of villagers' cash incomes. The CCF includes components thatareUVIL1-,U LU IIULJesUne to %.o1JictL WIULI IlUVWLIVIV1 ar.U bUpJUI[L UVUNMPmIUCHI, UULw.Ior,e ULUaL Will IIep realmr

villager interests.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

The PNG volunteers are expected to help reduce social conflict surrounding the implementation of road andL _'JA .._ _ A I_w I 1 . _ _5'f _J 1I___l -- - rL TnXTj- T --- UIlUgU NuIJpLUJvLLa. tGUIJA II JJIVbCIILb a aUUlLuIdly Ul Ul '. dIlU Ulu IUVI U0 UlU rlsN' VUIUIntCCes l

establishing channels of communication and disseminating information about the subproject as well as theirrole 'H rlnauers uitat iray cl.wil for tegouUuilg I.AJILIIpOSULIUI paiyni-eiits or meuiating landowner disputes. Moredetails can be found in the ESIAMMP.

Specific land-use and purchase requirements will not be known with confidence until a subproject has beendesigneud. Negotiauutns witU landowners ana communities snouwa Degm at uns point and De concluaedbefore actual work commences. The CCF makes specific recommendations regarding communications andnegotiations witl the aIIected communities. wnen disputes cannot be resolved easily with the heip of thePNG Volunteer, the dispute should go to land mediators or provincial land offices. After the work of a roador bridge subproject is completed, the PNG Volunteer should make return visits to the viiiages concernedand ensure that all payments have been completed correctly and that there are no outstanding claims ormajor issues requiring resolution. Ttne volunteer should make a report on this final meeting to the PEPM.

To execute their work properly the PNG Volunteers should be supported by the Lands Acquisition Unit atDoWT's head office. PNG Volunteers should also establish informal relationships with provincialDepartments of Lands and customary land officers.

6.5 How will the Droiect monitor nerformance in terns of social develonment outcomes?

The effect of the subprojects on the population served by the roads involved will be assessed periodicallythrough social studies to be undertaken under the project. Because the lack of year-round accessibility is amajor constraint to social and economic integration and development, the broader impacts of improved roadmaintenance and rehabilitation on the livelihood and quality of life of the population served will bemeasured. The assessments will be designed to detect changes in household income; cash crop/commodityproduction and sale; prices of commodities imported from other regions; changes in school attendance anddrop-out rates; health benefits from improved access to aid posts, clinics and hospitals; and othersocioeconomic indicators. The PIP contains the TOR for the study on the socioeconomic impacts on theaffected population and communities.

- 28 -

7. Safeguard Policies:7.1 Do any of the following safUguard policies apply to the project?

11 s : n; k i$|[Poli'y ApplicabilityI Environmental Assessment (OP 4.01, BP 4.0i, GP 4.01) * Yes O No

Natural Habitats (OP 4.04, BP 4.04, GP 4.04) O Yes 0 NoForestry (OP 4.36, GP 4.36) u Yes W NO

Pest Management (OP 4.09) 0 Yes 0 NoCultural Property (OPN 11.03) u Yes w NoIndigenous Peoples (OD 4.21)) _J Yes * NoInvoluntary Resefflement (OP/BP 4.12) w Yes U NoSafety of Dams (OP 4.37, Bl' 4.37) 0 Yes 0 NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 NoProjects in Disputed Areas IOP 7.60, BP 7.60, GP 7.60)* J 0 Yes 0 No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

An ESIAvMP was prepared (see Section 5.1). The ESIAMLP defines preventive and mitigatingm.leasures. A r for T -A Ac--A a Dr. Resttern (An 12) was -p-a to -uid +tu, little1-l i laiiivvuWULK v ~LCU 1.A.UW5L1U1 ULIaiu k,L1ILL4L IVrUA IZJ waa ~, F.jJLU LV rUIU,,LJL. JLI

land acquisition expected under the project. Also, a framework for community consultation was developedLU Uir,Vrve c.,-mLjuu%I.uunjaL WILLI LL aIctIeu CO.l1UhWtuies adiu rUCduc prublueL1s caudu uy ldIlU aLLJuiJLIUII.

INU UUVVIbU UHp4dLOL V11 U1UIrrL4-'LLb jJJUVFIW dULL 1UrebVV11 UIIUCVI UIV IpLUJULA Li UI114L1U1l LU UIl; PLUV1sUons 01' 'I D

4.20.

F. Sustainability and Risks

1. Sustainability:

For the works, sustainability will be determined by the quality achieved and the availability of funds formaintaining the works. The EPMA and PEPMs will help ensure adequate supervision and quality control ofthe works and selection of competent contractors to carry out the works. The sustainability of roadrestoration achieved under the PIMRP depends on the level and stability of Government funding of roadmaintenance in the years following completion of the project. Although the Government's Mediumn-TermDevelopment Strategy recognizes the need to restore existing infrastructure and maintain it, the financialresources required for road maintenance have not been provided in the past. More visible new constructionprojects could continue to crowd out needed expenditures on maintenance and undercut the sustainability ofthe effort.

Therefore, the medium-term to long-term sustainability of road maintenance activities remains insecure.Cost recovery levels for the road sector measured against actual expenditures have been low, and evenlower in terms of maintenance needs. This situation has worsened in the past 10 years.

Similarly, sustainability of the capacity building in DoWT depends on support from the Government,which has been volatile. Senior ;taff in the department, including the secretary, change frequently,particularly when a new ministe.c is appointed. This means that institutional knowledge is rapidly lost. Thenumber of active donor projects, coupled with staffing losses in the DoWT, has produced difficulties forthe department in providing appropriate counterpart staff. The proposed project helps address these issuesby providing the services of an F1PM and PEPMs to help manage the implementation of the project and the

- 29 -

training of pertinent staff at the central and provincial levels.

For support of the small and medium-sized contractors, sustainability will depend on the level of ownershipand buy-in by the central Government and provinces, the availability of work opportunities suited to thesize of these contractors, and the overall business environment, including transparency of procurementprocesses. The proposed project addresses these issues by providing the services of experts in theconstruction industry and training for contractors and pertinent staff of national and provincialgovernments. The project also has many small contracts that are suitable for bidding by small andmedium-sized contractors.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Ratih | Risk Mitigation MeasurelFrom Outputs to Objectivea) Inadequate and/or late counterpart H a) Establishing EATAs for the nationalfndis uovernneni anrt six provinciai govermmenis ana

making initial deposits

b) Political interference in the drawing up S b) Use of RAMS, including the Bank's HDM-4on Avlwrs IUUl, a.LU Ld1BMV'o LU IUdnLiAj piIULILY W.jwrkI

c\ T ack- nf lcl sniinpport for nrnnnozpd M l c Tnuv,lvu rnirt of vill!ag groiups in rniitinl

works maintenance and social impact studies

d) Knowledge drain from DoWT and H d) Training programs and implementation ofnrovincial administrations svstems

From Components to Outputs a

additional land required Employment of PNG volunteers when land mustl l I~~~~~~~~~~be acqred-

h) Selecrtinn nf inannprnriate. contractors S h) F.mnlovment of a comnetent FPM nriorand/or not awarding contracts in a timely Bank reviews and improvements to CSTB,mnner

c) Inability to recruit competent works M c) Authority of EPM to reject works andsupervisors I I supervisors assigned by pw s and provincia

administrations and recruit replacements

d) Inability to get participating M d) Competent works supervisors withcommunnities doing routine maintenanne to appronarate communication 5killscomply with contract conditions

e) Possibility of inappropriate H e) Involvement of EPM in the procurementprocurement and misuse of funds process with the authority to endorse vouchers

for payments under the proposed loan

_ _ __ R s _a__ng _

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

Previous projects in the transport sector have suffered major delays and cost overruns because ofcoUipHLex ad 4 nlUsud4vLel, UuUg4y, projectL UFij,II au reveI w procedesLF, alrk VI otUIc1%AIILe

- 30 -

counterpart funds and financial control, land disputes and law-and-order problems.

Management of these risks has become a feature of the Bank's overall Country AssistanceO mgevy. GJ-oNG.-J sULIUjiAiHVU 4aU1 lUuaiive prucedu-.ures by:

* Abolishing most of the sectoral committees and reducing the number of required reviewand approval stages; raising the level of award of the CSTB.

* Having the CSTB meet fortnightly instead of monthly.

* Establishing EATAs for all ongoing Bank projects into which GoPNG will deposit projectfunds as required by the executing agency's monthly or quarterly cash-flow forecasts.

Unavailability of counterpart funds and/or counterpart funds being provided late is the highest riskto the project. The Government has had severe budgetary problems in recent years, with delays inreleasing appropriated funds becaLise of cash flow nroblems. To minimize fiunding prahlems,procurement actions and implementation delays for the RMRP, a number of actions are proposed,including.

* Establishing a start-up deposit of K5.0 million in the EATA, which will reduceuncertainties about Government counterpart financing for the project.

* Programming bridge replacement and road reconstruction to conmmence after the firstquarter of the financial year when adequate funding will be available.

* Using a professional proj,ect management team (EPM and PEPMs) with proven experiencein DoWT headquarters and in each province.

* An annual program reviewv by the Bank, in June or July to synchronize with the start ofthe annual budget preparation cycle, to ensure sufficient road maintenance funding for thefollowing year.

There is some risk that the projeci. will be used to achieve political rather than economicobjectives. This risk can be reduced by using RAMS and BIBMS together with updated roadcondition surveys and traffic counts to select the road and bridge subprojects for treatment and thetype of treatment for inclusion in the annual work programs. Even with these mitigation measures,there is a high risk that other pressures will be brought to bear on the program.

There is a high risk that knowledge and skills on road maintenance gained by DoWT andprovincial administration staff as a result of the project will not be retained within theorganizations because of staff policies and high tumover. This will be mitigated to some extent bysystemizing procedures and providing training to as wide a group of staff as possible.

There is a substantial risk of comiption in procurement of civil works, goods, and consultingservices. Limited transparency of procedures as well as political interference in the selection of thewinners exacerbate this problem. This will be mitigated to some extent by the employment of EPMand PEPMs, training in procurement activities and project management, more frequent supervisionby the Bank, and revision and imnprovement of the public procurement system including financialinstructions.

- 31 -

3. Possible Controversial Aspects:

There could be some controversy over the priorities for restoring road sections and replacinghridges and nossible exnectations of standards higher than nronosed. Also. land acquisition(expected to be minimal) is always complex and time-consuming in PNG and could trigger socialconflict Fi rther, desnite the emnlovment of an EPM who will hav.e a significant role inprocurement activities, cases of preceived or real corruption during implementation of the projectcould result in ricl for the Bank's reputation. Other than this, the project fioculses on themaintenance of existing assets and meets a critical need and should therefore be welcomed by allConnern.ed

f. Main I ow Conditions

1. Effectiveness Condition

a. GoPNG has established an EATA and deposited K5.0 million to cover the full project fundingneeds for tle fiSt quarter of uieniIentatioI.

b. Each of the six project provincial governments has establisned and tnereafier maintain untilcompletion of the project a PEATA and deposited an amount to cover the funding needs for sixmonths (Central: K 200,000, East New Britain: K 400,000, Manus: K i40,000, Morobe: K270,000, Oro: K 140,000, and West New Britain: K 200,000).

c. The GoPNG has established and thereafter maintains until completion of the project an Imprestaccount in the name of each of the six provinces to make timely payments to community groupsto be contracted for routine maintenance works. The amount in each account is to be 50% of theannual value of the community contracts in each province (K 100,000 for Central; K 200,000for East New Britain; K 60,000 for Manus; K 130,000 for Morobe; K 60,000 for Oro, and K100,000 for West New Britain).

d. Fhe Borrower has entered into arrangements with the Employer's Project Manager to retainconsultant services till completion of the project.

e. The GoPNG has adopted a financial management system acceptable to the Bank for the projectwithin DoWT and within each participating province. This system should provide arrangementsacceptable to the Bank to enable the EPM and the PEPMs, as part of their supervisory tasks, toendorse the vouchers for payment to suppliers and contractors in conjunction with goods, worksand services provided under the project.

f. The Borrower has furnished evidence of actions taken and a time-bound action plan of theoutstanding actions, if, any, to be taken, all satisfactory to the Bank to implement therecommendations of the AGO special review of the intemal control system for the operations ofDoWT, dated July 26, 2001.

g. The MOA satisfactory to the Bank has been entered into between GoPNG and eachparticipating province. The MOA would define the roles and responsibilities of the national andprovincial governments for the successful implementation of the RMRP, including the provisionof counterpart funds.

1.1. Conditions of Negotiations:

- 32 -

None.

1.2. Conditions of Board Presentation:

a. Furnish to the Bank the final Procedures Manual for the Financial Management System in the.olull and V subsV.c disc~ussed UUrilrrg sheU 11UrVUa,-s andU duIy approved; by 1_'V VY .

U. IuLLiLLsI LV UIV lBaInk a L,andu AcLquiLsition andU s.U1I1perlsaLEU1 FrIaivWuIk appruVeU uy *uhi

Borrower's National Executive Council.

2. Other [classify according to covenant types used in the Legal Agreements.)

2.1. Covenants on Proiect Management

a. DoWT shall retain until comrpletion of the Project the services of the EPM/PEMP under termsof reference, and headed by a qualified and experienced manager assigned with qualified staff inadeauate numbers, including at least an accountant with financial management skills allsatisfactory to the Bank and enter in to arrangements with the EPM, satisfactory to the Bank toassign nualified and exnerienced staff in adeouate numbers; to each nartiicinating province withterms of reference acceptable to the Bank.

b. DoWT shall maintain until completion of the project an enviromnental unit within DoWTheaded hya q ulified and exr,r enned mtnager and assigned writh qualified staAff in adeqrintenumbers including at least one qualified environmentalist, and provided with such powers,rpesponei.ilitipe andi fiindina asz chnll hp requiired tot cor-nr%nate ar.d rn.orit.rw tArnvrorm..ra ar.dsocial works related to DoW 1 in carrying out of the Project.

c. The Borrower shall establish and thereafter maintain until completion of the project, a financialr. ar.age...ent syster. for thae Dooject ,,tiflnUYT A I r.d h PIrIrnticipa_.r,g Provir.e acepa

to the Bank.

d. The Borrower shall prepare and adopt a time-bound action plan satisfactory to the Bank to-rnmplem-nt any, outsn, dinmg anctfions nreeded to bee t ken ino umnple,mnel-to rnecom nAnrlonn- nf- il-

Auditor-General's Office special review of the intemal control system for the operations of- dat ,u Ily 26, 2001, :-u'.i uLlraILl UL1J1V1AV1p1L such action plaIn *U a IAUaMuI aud

substance satisfactory to the ]3ank.

e. The Borrower shall not amend, waive or abrogate the provisions of the Environmental andLIocia-I mpact~ Assr------ - ;4 ;llel -Arl -- Atlll Pl4sU_f T -- A Acqiiir -- Aau .La1iUJLL JU111JaLL 1V1,U1a6V111V11L aIlU IV1VUmLU1Uir, rIJ LaLlj U UJ UI1Z JL,dU f-ML.4jMUUi1 WIUU

Compensation Framework without the prior concurrence of the Bank.

f. The Borrower shall have the intemal control system for the management of the Borrower'sproJect accounts establislued 0d lr the project, Lthose f JOW 1, r O olW -o-nl and eacn of theparticipating provinces, reviewed every six months by independent auditors acceptable to theBank, furnish to the BaniK the report of suchn review oy not iater than two months after itscompletion August 31, 2003 .md thereafter take corrective actions, if required, in a manner and

- 33 -

substance satisfactory to the Bank.

g. The Borrower, by December 31, 2002, shall employ an independent auditor acceptable to theBank to carry out the services in (f) above and to audit the Project's accounts and funnish to theBank not later than three months after the end of each fiscal year commencing March 31, 2003the report of such audits, of such scope and in such detail as the Bank shall have reasonablyrequested.

2.2. Covenants on Project Implementation

a. DoWT shall: (a) furnish to the Bank for its approval not later than June 30 mi each calendaryear, cormnencing on June 30, 2003, and until completion of the project a draft Annual WorkProgram (AWP) for all components to be implemented in the following year; (ii) by December31 in each calendar year commencing on December 31, 2003, will adopt the said AWP as soapproved; and (iii) thereafter, implement and cause each participating province to implementsaid AWP in a manner acceptable to the Bank. However the AWP for 2003 shall be preparedand furnished to the Bank for its approval not later than October 31, 2002 and thereafter theBorrower shall adopt and implement and cause each Participating Province to implement, as thecase may be, said Annual Work Program in a manner acceptable to the Bank.

b. The Borrower shall by May 31 in each calendar year, commencing on May 31, 2003, and untilcompletion of the project, cause each participating province to furnish to the Borrower and theBank, the draft Provincial AWP for the following year, for their inclusion into the AWP for theproject as a whole. However, for the AWP for 2003 the Borrower shall have the participatingprovinces to furnish to the Borrower by not later than September 30, 2002, its respective draftAWP for 2003 for inclusion in the AWP 2003 for the project as a whole.

c. For a subproject to be included in the AWP it should meet the criteria shown in Section C. 1 ofthe PAD.

d. For the purposes of carrying out the provincial roads and provincial bridges components of theproject, the Borrower shall enter into a Memorandum of Agreement that is acceptable to theBank with each of the participating provinces.

e. The Borrower, by December 31, 2002, shall employ and retain in its DoTI until completion ofthe pertinent components of the project, a qualified and experienced Training and SupportManager to support the strengthening of DoWT and provincial administration agencies, andfive qualified and experienced individual experts to support the small and mediurn-sizedhighway maintenance contractors in the participating provinces, all acceptable to the Bank.

f. The Borrower, by December 31, 2002, shall establish and thereafter maintain until completionof the nroiect. a Steering Committee headed by a oualified staff from the DoTI withrepresentatives from DoWT, DNPM, and National Training Council and provided with suchnnwers rnpnnnsihi1itip s and fiinii as shall b hl hp niired tn reYvirw and mnnitor thph triningprograms developed by the Training Support Manager and activities by the experts to supportthe sm. >l nn.d MP.d 1M-si7Pd icon -tntr-.

g. The Borrower shall prepare,under term of reference acceptable totheBn t and .rnish to theBank for its review and comments by June 30, 2003, draft Financial Instructions that shall

supersede i Fn rMIiniaIl IlSLUILAo [CILCU LU Uln. r*ule u1ic ir e MUU0b IVIdI1an UL lxLt VI 16ou

(PFMA-1986) and govern the implementation of the Borrower's Finances Management Act ofi n . . I - 1lr 1X ….- ..r - -- J.r. t--- t... 1995 -rrvItA-19J) rIla1Un5g LU ue prucuLeIULerLio gouosu, wuOl. U and ivlu by . ue Bor-ower's

public service including a manual for the carrying out of procurement under the Borrower'sdepartments and agencies, sutnuard biuding documents, procedures for I roi sp4IeI-Iy uil uiuIig

and award of contracts, including the requirement to open bids in public and to notify thebidders as to contract award, a timely and effective bid protest procedure, and prohibition ofnegotiation with bidders on the bids.

2.3. Monitoring, Evaluation and Reporting

a. DoWT shall furnish to the Bank a quarterly Project Management Report for the whole projectnot later than 45 days after the end of each calendar quarter, commencing February i5, 2003.This report describe physical progress in Project implementation, both cumulatively and for theperiod covered by said repor., summanze procurement under the project, expenditures undercontracts financed out of the proceeds of the loan, estimated cost of the project versus availablefunding, and projection of fbiancing needs by quarter for the next six months; explain variancesbetween the actual and previously forecast imnplementation targets.

b. DoWT shall furnish to the Bank a report on the monitoring indicators for the project during thepreceding calendar year by March 31 of each calendar year, commencing March 31, 2004. Thisreport shall be reviewed with the Bank by June 30 of each year, commencing June 30, 2004.The Borrower shall thereafter take all measures required to ensure the efficient completion ofthe project and the achievement of the objectives thereof, based on the conclusions andrecommendations of the said report and the Bank's views on the matter.

c. DoWT shall furnish to the Bank for its review and comments by December 31, 2004, a reportintegrating the results of the study on bridge inventory and the bridge management system,including recomnended actions to be taken to make said results sustainable in the future, andthereafter finalize such report taking into consideration the comments of the Bank.

d. DoTI shall furnish to the Bank for its review and comments by December 31, 2005, a reportintegrating the results of the activities by the experts for support of the small and mediun-sizedcontractors as well as the work of the Training Support Manager, including an action plan forthe implementation of the recommendations of such report, and, thereafter finalize such report,taking into account the comrments of the Bank on the said report.

e. DoWT shall furnish to the Bank for its review and comments by December 31, 2005, the draftfinal report integrating the ressults of the study of socioeconomic impacts of road and bridgeimnprovements under the pro iect, and thereafter finalize such report taking into consideration thecomments of the Bank.

f. DoWT shall fumish to the Bank the annual audit of accounts not later than three months fromthe end of the fiscal year, that is by March 31 of each year, starting March 31. 2003.

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H. Readiness for Implementation

iOi i. a) i ne engineeiing uesign udumennts lu[ Lae ifirs years acuvities arc complete and ready ior uie starcof project implementation.

Oi. b) Not applicable.

izi 2. Tne procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

I 3. The Project implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

0 4. The following items are lacicng and are discussed under loan conditions (Section G):

i. Compliance witn Bank Pomicies

1r1 1 Thie nrniprt rnmrn1iPg with n1I 2nn1irnhIp Rnlnr nnliriPc

0I 2. The following exceptions to Bank policies are recommended for approval. The project complies witha!! other applicable pnnl policies.

A. .3 Jg m 4.Pt7

Hatim M. Hajj Jitendra N. Bajpai Klaus RohlandTeam Leader Sector Manager/Director Country Manager/Director

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Annex 1: Project Design SummaryPAPUA NEW GUINIEA: Road Maintenance and Rehabilitation Project

1 - i ~'~ Kr~8;'.'' ' ~,' 1 - . 1. -Kay:Performance - DaCollectibn Strateay 1 .

Hierarchy of Objectives | .IndidatWrs , --< v Critical AssumptionsI Sector-related CAS Goal: Sector Indicators: ISector/ country reports: (from Goal to Bank Mission) |To improve the quality and 1. Budget allocation to road 1. CAS and CEM report 1. Sound governance andreliability of the country's maintenance and development policies including adoptioninfrastructure, particularly the is consistent with stated 12. Reports on annual runs of and implementation of aprovincial and rural road strategy of enhanced road the Road Asset Management budget and financialnetwork, to allow for more asset management. System (RAMS) and the monitoring system at thecost effective movement of Bridge Inventory and Bridge national and provincial levelsgoods and services and Management System and improvement of fiscalpromote economic (BIBMS) planning and financialdevelopment in rura areas. fiiangr iiiuiiuiupuiLir.g in *II

provinces.

ProJect Development /torts from Objective to Goal%Objective: Indicators:a) Restnre satisfactorv 1 Peri,entage of roads in fair 1. Renorts on annual work I - Continuing dialogue onphysical (See Annex 1-A) or better condition. programs and their review by contribution of roadcondition and safety to parts the Bank. maintenance to GoPNGof the network of national and 2. RAMS and BIBMS reports Economic Reform Program.provincial roads and b) 2. RAM an B i MS re p rbridges in six selected. co v tion as.essment 2. Continuing consensus byprovinces, based on priority well a GoPNG and donors onneeds. sre- as wla priority of maintenance in

current/recent traffic counts. road funding.

3. Reports by the consultants 3. Law and order problems

for studying the no ......socioeconomic impacts of implementation.improvement of roads andbridges under the project.

b) Strengthen strategic sector 1. Improved expenditure 1. National budget reports. 1. political pressures do notplanning and management of balanc-: less on new road interfere with selection ofroad assets. constnrction and more on 2. RAMS and BIBMS reports. projects for inclusion in

preser-ation. I I annual work programs.13. Reports of Bank's 2. RAMS at the central and

2. Percentage of annual work economic and supervision provincial levels as well as theprogra&ns wnicn are based on missions. WIBMS are operationai andRAMs. I used as planning and

A DX1 .-1. i 14 JIaFMJ* PC . *au maag.nn.ant toos.l

(2001-2010) and updates. 3. The PNG Transport Plan2(001901rn i use a_

effective guide for annualIbudget allocations amongtransport modes and betweenpreservation and new

cl Strengtheninstitutional |construction.! c) Strengthen institutional !1. Timeliness: Number of 1. Quarterly reports from 1. Timely hiring of Training

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arrangements for road project provinces which DoWT, EPM and from the and Support Managerm,,aintpna,",c inilulAina siihmit annmn I wnrlr nrnm-.n. T-rainin -A r.dSupo-t

through an expanding by June 30 in each year. Manager.provincial government role inline with the Government's 2. BIBMs is operational. 2. Reports of Bank's 2. Implementation of thedecentralization policy and Supervision missions. training under the project forthe New Organic Law. 3. Number of unified national and provincial staff.

maintenance units.d) Increase private sector 1. % of maintenance 1. Reports by DoWT, EPM 1. High turnover of key staffcontracting of road j expenditure bid competitively and the UN Volunteers for is arrested to promotemaintenance works, including in the project provinces. road construction. continuity and some stabilitythrough the strengthening of at DoWT.smaii ana mecium-sized 2. Reports o0 Bfanik'scontractors and participation Supervision missions

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|iUs,,iy Perfor r n e |ata Collection Strategyj gkiWiara'rchv- Obiective Indicators- Critical Assumptions

Output from each Output Indicators: ProJect reports, (from Outputs to Objective)Comnonent: IltsoCivil Works (See Annex l-a) 2.a Kins of provincial roads- National roads. that a)-e maintained

- Bridges 2.b kbns of provincial roadsthat are restored

3.a Number of bridgesmaintained/rehabilitated

3.b Number of bridges0 r~~~~~~~eplaed.i

Implementation SuRROrt- Proiect Management

1. Training and Support 1. Procurement reviews andManager (TSM) is hired. disbursements by the Bank

including contracts for EPM2. United Nations Volunteersa d . .(UNV) hired and retained in andsves.gn and supervisionprojei;t provinces.

2. Quarterly progress reportsby Dol .r WT"/PM.

3. Reports of Bank'ssupervision missions.

Quarterly progress reports byDoWT/EPM, TSM and UNV.

Procurement reviews anddisbursements by Bank.

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Reports of Bank's supervisionmissions.

Training of staff at DoWT Number trained EPM/PEPM Progress reports byHeadquarters PwM Offices and UN volunteers. DoWT/EPM and TSMand Provincial Works Offices. 2. Number of training courses Reports of Banks Supervision

developed and uelivereud missions

- Management of Bridge 1. Reports for study of Bridge 1. Clearance of contract forworks BIBMS. inventory and bridge BIBMS consultant by Bank.

management system aresubmitted on time and staff to 2. Quarterly progress reportsrun BIBMS are trained. and reports by BIBMS

consultants.

I 1 3. P~~~~~~~~epow1 w - of Bank.supervision missions.

Monitoring of impacts of road 1. R2.eports of consultart for l. Cleair of rontract forand bridge improvements, study of socioeconomic consultant by Bank

impacts of poiect aresubmitted on time. 2. Quarterly reports and main

reports by consultants.

3. Reports of Bank'ssupervision missions.

Project Components / Inputs: (budget for each ProJect reports: (from Components toSub-components: component) Outputs)Maintenance and $33.4 million 1. Monthly and quarterly 1. Planning: annual workRehabilitation of National progress reports by programs are developed byRoads. DoWT/EPM. EPM/RAMS on basis of

RAMS and BiBMS.Maintenance and $5.7 million 2. Study reports byRehabilitation or Provincial l011lUIlbu;lfr 101B1IBMS, IL. rFinLaning. lil1le y dlU

Roads. Socioeconomic impacts study, sufficient counterpart funds.| | I ~~~~~~~~~~~~~~training, 0an repnrac by, TM

Bridge Maintenance, $14.1 million Volunteers 3. Procurement: timelyRehahilitatinn and I I appointment of design andReplacement. 3. Special reports supervision consultants;

procurement of works andInstitutional Support. $7.0 million 4. Reports of Bank's equipment; timely contract

I I | supervision missions. award by Secretary (DoWT)Road Sector Support. $2.3 million and Central Supply and

Tenders Board.

4. Implementationmanagement: closc

supervision, cost control and

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monitoring of outputs by

Pi%'VrErI vmuL,vv I.ruirP

5. Barnk and DoWTfor supervision are adequate.

6. Land, if needed, is

acquired on time.

Annex I-a: Performance Indicators

| Project Objectives/Outputs Performance Indicator T Ba 200 Medi 1 200 ] Comp FullI Indicator Type as 2 um 5 lete Impac

eli Term 2006 t 2008ne ___ _ _ _ _ _ 2004

A Restore satisfactory physical I Percentage of national Outcome 2 21t25 40 50 60conditions and safety to parts of i I roads in fair or betternational and provincial roads conditions.based on priority needs.

Percentage of2 provincial roads in Outcome 10 1 2 14 16 1 8 20

fair or better

__ __ |][ conditions

B t Strengthen strategic sector I Percentage of Impact 30 32 40 50 60 170planning & management of road expenditures onassets. tnaintenance &

preservation.

2 Percentage of Impact 70 85 95 100 100 100budgeted work

II ~ ~ ~ ~ ~ ~ ~ I ~~program based onII II_ _ _ _|_ 1RAMS. _ _ _ _ _

i Strenrheninstitutional TiMelines m I t r 1 n 100

arrangements for road of providence whomaintenance submit Annual Work

Programs in eachyear.

2 Numberofunified Imrpact 0 1 2 2 3 3

PWM/Provinci almaintenance.

3 1 Numbertrained 1 Output j2 5 10 [15 1 25 ! 30

Project Objectives/Outputs Performance | Indicator B 200 Medi 200 Comp FullIndicator I Tye as 12 -*.m I I lete I !mnpaeI

eli | Term 2006 t2008

i Inc 1 __ 20041 1 __ne 200

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|D Increase private sector I Percentof Impact 40 70 75 180 185 90cwniracuing of road mai-ttuice *main eLar,ceworks. expenditure

bid competitively inthe project provinces.

|E |Physical Outputs. I Cumulative | Output 0 20 200 ] 320 400 7001;!ometers ofnational roadsreceiving specificmaintenance orrestorationcu-ulative.

2 Kilometers of Outout 0 20 100 180 200 250provincial roadsreceiving specificmaintenance orrestoration.

3 Cumulative number Output 0 0 5 12 17 22of bridges replaced.

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Aninex 2: Detailed Proiect DescriptionPAPUA NEW GUINEA. Road Maintenance and Rehabilitation Project

The project will consist mainly of' a discrete portion of the GoPNG's road maintenance and rehabilitationprogram in the six project provinces covering the 4.5 years from August 2002 to December 2006. Theproject would focus on national roads with some allowance for routine maintenance and restoration ofprovincial roads.

The Government and the Bank have agreed that the project would focus on six provinces, out of thecountry's 19: Central, East New Britain (EN13); Manus. Msrobe. Oro; and West New Britain (W)NBThese provinces cover two of the largest port cities, (Port Moresby and Lae) 57 percent of the nationalroads and 38 nercent of nrovinciEtl roads. Thev have heen Relected herain.e nf

a) the important role that the road transpart systerm plays in thpe regional econnamy and the wide ranngeof road density (per capita and per square kilometer);

b) the relative scale of maintenance and rehabilitation needs;

c) the importance of impleraenting improved road maintenance practices, including at the provincial

A) the prospetC for v -nefic al;.nIv l of -... 11! tAULf-. c contracto-U -- A v11-age t.LJi.UUUs

directly in maintenance works in these provinces.

By Component:

Project Component I - US$26.70 million

(all following costs included comiingencies but exclude VAT)

Road Maintenance and Rehabilitation of National Roads

This component consists of annmal routine maintenance on about 2,200 km and restoration of about 440km of national roads.

Routine maintenance consists of: vegetation control; clearing ditches (to be executed through communitynarticination); re-excavating drain; cmilvert mraintenance; m,inntFn2rnP nof rmad firn-ntirPe pothleb repna,r

patch graveling and grading (to be executed through small works contracts).

Restoration includes: regravelling; seal repairs; resealing; pavement reconstruction and upgrading fromgravel to seal.

The Road Asset Management System (RAMS) developed in 1999/2000 was used to determine the programfor national roads, as discussed in Annex 4.

Details of road sections requirinlyg restoration are shown in the Project Implementation Plan (PIP). Asummary of the total length of national roads for each of the six provinces by type of work/regravellingreseal and patch, upgrade to seal, and pavement reconstruction is shown in Table 1 of this annex.

- 43 -

This program will be updated annually based on the runs of RAMS which would utilize latest roadcondition survey information, traffic volume data, and costs of maintenance and restoration works.

Project Component 2 - US$7.55 million

Maintpnaan nnfd 1ephqhilitt-inn nfPrncinpia! Rnode

Thic crpnronPnt conrn..pe arnui!1 rniitirnp mintp.nnrnp on ahlut 900 Irn arn. rectno..nn ofabout 200 I-m

of provincial roads. The RAMS has been extended to the provincial level in 2001 through a grant from theA &an floptrnlnnnpt BRonl (ATYM T. It ,l, be mse to def.ne nrnor.tiAM, tr-.tr-..nts A an.d cfi. r-oAd to be

included under the provincial roads starting in 2002. An allowance for this work was provided in the cost

Project Component 3 - US$ 8.70 million

National Bridges

This component consists of bridge maintenance and rehabilitation and replacement of bridges on nationalroads as well as purchase of emergency bridges and bridge parts.

Bridge Maintenance and Rehabilitation. This sub-component consists of civil works for maintenance andrehabilitation of about 35 bridges.

Maintenance and rehabilitation includes: clearing waterways; replacing missing parts of Bailey and othertypes of bridges; replacing timber decks with steel decks; and constructing river protection works.

Bridee Replacement. The bridges to be rehabilitated or replaced were selected on the basis of a fieldinvestigation in the six provinces by DoWT and AusAID work in the vear 2000 in West New Britain.Further, the bridges to be replaced were justified on safety grounds (insufficient hydraulic cross section ofexisting bridges or unsafe foundations) and the need to increase axle and truck loads. A total of about 9bridges on national roads are expected to be replaced under the project. Details of bridges to bemaintained or rehabilitated or bridges to be renlaced are shown in the Proiect Imolementation Plan- Thisprogram will be updated annually based on the latest bridge condition survey data and the results of theRri:de TnvPntcrv vnd Brirdge M2narnment Syvstem (RTRMSA) RTRMS. wll he divweInnpd inder the nrniectcl- --_~ --------- ---- ~and is expected to become available in 2004.

Emergency Bridges and Parts. This sub-component consists of the acquisition of: (a) bridge parts torea-- -ra micnn An a on-A ones, -rb) se c.lAng, to repla. -cto-r.AorA tirn-l,-r Ad.en,] , A (cN abo1 ut 6

bailey-type bridges to be used in emergencies.

D,it- rn--nnt A - I ICCtg R:7 niIi,n

Provincial Bridges

This component consists of maintenance and rehabilitation and reDlacement of bridges on Drovincial roads.

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Bridee Maintenance and Rehabilitation. This sub-component consists of civil works for maintenance andrehabilitation of about 25 bridges. The details of the repairs and cost estimates will be finalized during thereview of the 2003 AWP.

Bridge Replacement. A total of about 6 bridges will be replaced, one bridge per province. These wereselected based on provincial priorities and were justified on the basis of the existing condition of the bridge,the imnortance of the road on which the bridge is located, and existing economic activity and proposedfuture developments in the area o-F influence of the bridge.

Criteria for Selection of Nation:l and Provincial Road and Bridge Sub-projects

The PIP contains the overall program of road and bridge sub-projects to be implemented under the project.This program covers a neriod of three years and it is to he implemented through annial work nroorams(AWP) which should be cleared by the Bank. The AWP for 2002 was reviewed by the Bank and foundsat:ifactary. The rest of the program shuIld he viewed as preliminary and subject to annual reviewsSome sub-projects could be deleted, new ones could be added, and some could be modified. However, thernninr,tu of the ilh-.nroierts in thfe nnnsd nromr m continied in the PIP is not exnec-ted to chnane. The

criteria for inclusion of a road or bridge sub-project in an annual work program are shown under SectionC=1 fDr.vjet Tl-cnrr,tinn Sn vr...;- Prru..t mor.pnmnnnptc\ of tbic Prn;eAt Appraisal Tnnimn..nt

Project Component 5 - US$7.88 mlillion

ImDlementatlon Support

This component covers the following consulting services and purchase of equipment to support theimplementation of the project.:

a) project management (Employer's Project Manager - EPM);h) designs of roads to be restored and bridges to be renlaced. and sunervision of road and bridgesub-projects;c) incremental onerating cosis by DoWT and Provincial Work Managers and ProvincialAdministration Staff for management of the project including supervision of the civil works;el) labratArv eqinpment- traffic counting eouinment- and environmental monitarino efliinment:

e) provision of auditing services for DoWT and Participating Provinces project accounts; andf) strengthening the financial management and operationnl canacitv of DoWT=

a. Em vr Proiet Manaer RBased on lessos learneA in previinis nroiects reCo-ni7ing the declining

management capacity in DoWT, and in order to minimize problems during implementation of this project,DoWT selected a professiona! project management team ,vith qualifications a.d e.xpeence satisfactory tothe Bank - an Employer's Project Manager (EPM) - to provide key management support services

o h i.-!erner.twti, The~, A,d,.# ,.rsr contr fthe EPMV ser,;ices was- cleared by the Bar,ikn Oct.ober

2000 and the team leader commenced services in February 2001. The National Executive Council (NEC)(w. hich .-.. IWU fbe .0. mili-AJust approve a!! jJ contracls vI-alued- ,.A zvK 0arehe contr ini J,t,2A00,l -hich

was thereafter signed by the Govemor General in August 2001. The scope of services including the termsof .-. e-e-c zre avanauKe;r the ,iI5 AIL cotrUlLact. The. oservices consiist of zbout 280s pes.otnf-hin.uor. by ai

intemational team consisting of a team leader and five provincial EPMs (one in each province except that

-45 -

the manager in East New Britain will also look after Manus, which has a relatively small work program)and a qualified accountant with financial management skills and about 85 person-months of local supportpersonnel (an account clerk and a secretary). The services include development, prioritization, andprogramming of the annual work programs, assisting in the procurement of consulting services andcontractors, supervision of the works, training of DoWT staff at headquarters and the six provinces andprovincial administrations technical and administrative staff, maintaining project and detailed contractdocumentation and records for procurement as well as financial and physical implementation data,preparing cash flow projections for the project, and progress reports, arranging for semi-annual reviews ofthe internal financial controls for the project, annual audits and a final audit of all project financial records,and preparation of the project implementation completion report.

b. Design. Bridges that require replacement as well as roads that will be upgraded from gravel to sealedstatus or sealed roads which require reconstruction will need the services of consultants to prepare therelated designs and bid documents. Similar documents for the remaining works (routine maintenance,periodic and specific maintenance) are expected to be prepared by the EPM with the assistance of DoWTand provincial administration staff. The terms of reference for these services have been develoned and areavailable in the Project Implementation Plan.

c. Incremental Operating Costs. These include the services provided by DoWT and its provincial officestaff aS well as staff of the provincial admininktrntinn works 1denarlmentq to the proposed nroiect whiGh Are

beyond the normal working conditions, such as local transport services and, per diems.

d. Purchase of Epuipment These include:

Laboratory Eauipment. This includes purchase of laboratory equipment where such facilities donot exist at present (such as i. Oro and Ma.nus) ad essential equipm.et to strengthen thelaboratories in the remaining four provinces. DoWT/EPM submnitted to the Bank in May 2001 listsof needed Aequ-A-.e.t, 3pe.iAi.atUUEio z.-.dOLuA.eA cost. T 'he t;.rr.e -sheA-d Vle fo;. -h 1--che of LVL

equipment has not been finalized pending the arrangements on the training of technicians andprovisiU01 U1 aUUquaL_ bMjd lUI uC1 ilUUlaUily uiyU.IPjJ11IIi1L.

ira iiii %o.unfig Eq-uiL IrUentUi. i`lese con11sist 01 Ule purLchase 01 abUoUL 15i UIIafic coW-unie. S-uch

equipment will be used to carry out annual traffic counts on the road network in each province..1_ - A.. . .. … -r : .rn* n n rr AA tX.X90 1 .1

up-to-dae uaIIIic vou ILL UdLat is ncessariy Ior riLUn1Ig Ul APiiviS. IJUVW I/LrVI SUUIIULLCU Lu the

Bank in March 2002 a revised report on the number and type of traffic counters needed,^~~ ~ ~~~~ ~ . I* -. I -I - -. -r. I .r .- - I . Ispecifications, estimatea costs, recommenuea meutod of procurement and ute tme scnedule for

purchase of such equipment. Those were found satisfactory by the Bank.

Environmental Monitoring Equipment. This includes purchase of equipment for each province formonitoring the provisions of the ESLArVMP. The lists as well as their specifications, estimatedcosts, and the time schedule for purchase of such equipment were prepared by AusAID fundedconsultants and are included in the PIP. T he preliminary lists were submitted to the Bank in June,2001. However, these need updating and DoWT/EPM are to submit a revised report on theseequipment by June 2002.

e. Audit Services. This comprises the provision of accounting and auditing services including an internalcontrol system for the management of DoWT and the participating provinces' project accounts. The auditswill consist of an annual audit and a semi-annual report on the internal controls and remedial actions taken,

- 46 -

if any.

f. StrenLthenina the Financial and Onerational Capacitv of DoWT. This includes provision of technicalassistance to DWOT to prepare and implement a time-bound action plan to address the weaknessesidentified in the special review of the Auditor's General Office dated July 26, 2001.

Project Component 6 - US$2.23 million

Road Sector SupDort

This component involves provision of consulting services and training for:

a) strengthening of small and medium-sized contractors for road maintenance operations;

b) institutional strengthening of DoWT (Headquarters and Provincial level) and provincial administrationsfor road maintenance;

c) updating and improving the bridge inventory and bridge management system to make it a usefulmanagement tool for DoWT; wnd

d) carrying out a study of the socio-economic impacts of roads and bridges under the proposed project.

a. Strengthening Small and Medium-Sized Contractors. One of the key development objectives for theRMRP is to increase private sector contracting of road and bridge maintenance works. Because of therelatively small size of road and bridge maintenance and rehabilitation contracts in many provinces and theremoteness of some of the work, contracting this work reouires a cadre of comnetent domestic contractorswho are available to work in temote areas. It has been agreed that the Department of Trade and Industry(ToTi) will tAke a lead role in managing the entire training program on hahl1f of the GoPNG incoordination with DoWT and the EPM. DoTI has traditionally taken care of this activity.

A detailed program for strenglhening small and medium-sized domestic contractors is included in the PIP.T.he support to be provided under the project consists of: (I ) fermial training courses; 2) assisance to thecontractors on bid preparatior; (3) assistance to the contractors during the duration of the contract on workmannagment r'nqtinp nililit-v cntrnl Sitc.t ninnincr rnncnwtnintin tprhninu,-p nnd f,nntrnrt 2d1minict r,tinn

The program involves the appointment of a Training and Support Manager (TSM) to manage the variousa,ities ,nAdr thic onmn n,tT o Tp,.s ofPVf-nPuno r tlu T0 M o,. inc1udedin tePTD It i ;4Zant

that the TSM is appointed by e nd of 2002 to manage the development of training materials and makeorronna,,,anta i'm? VItflff fi', tof .nng connres

L.aditotofr c se,i.vi exrs o- b engge '.5r.o asis with the u n &ndtoprvidon-the-job training and assistance to small and medium-sized domestic contractors. Terms of Reference forULhes eA1.1 &ei Ui.cAluAed in lL I PIP. W.1J eAxpLe woLu Ub beloca'eu eac b oC 1UVILnCC, with 1 Uthe eAlp.LU oI

Manus, which will be handled by the expert to be stationed in East New Britain.

Some civil work packages, under the project e.g. regravelling, bridge rehabilitation and some routine11I41UILWj1L'UI- WUIZ VF1 Ou1La4J1, I IA iiaiui aluU 1UVU1UII~IWLVU UU1JJVDU%l WL..IAUMUj1b. rlUWV VVli, a bIrIUu1t..41IL

proportion of the work program involves upgrading and sealing of gravel roads and pavementreconustuction. It 1is propUsred uIUkL tenderers IU[ SULc WUorK Luse sIIIUIl dIIU iRCnuIiiu-SIZeU UUmestic

contractors as sub-contractors.

- 47 -

Some small and medium-sized domestic contractors have problems in raising the bid bond and contractperfomnance bond. This would be a major obstacle in such contractors bidding for RMRP work. It isrecommended that Department of Trade and Industry (DoTI) take a lead in organizing a meeting ofcontractors, insurers, banks and Government officials to find a solution to this problem.

b. CaPacity Buildin2 of the DoWT and Provincial Administrations. Formal training courses in projectmanagement, supervision, quality control, costing, environmental management and monitoring, etc. will beorganized through the TSM. Further, capacity building for DoWT at headquarters (and provincial level)and Provincial Administration staff is partially addressed by placing DoWT and Provincial Administrationsupervisors involved with the project under the control of the provincial employer project managers(PEPMs). This will provide on-the-job training in project preparation and management and project related

processes. The preparation of contract documentation for routine and periodic maintenance of roads andmaintenance and rehabilitation of bridges will be carried out by staff of DoWT Provincial Work Managersand Provincial Administration staff with assistance from the PEPM. The PEPM will also ensure thatproject management is carried out to appropriate standards and in accordance with World Bankrequirements.

To maximize the benefits, supervisory staff could be rotated through the project over its 4.5 years ofimplementation. It is important that Government and Provincial Administration staff and private sector

consultants, who may be involved with supervision and management of contracts, are subject to the sametraininig as the contractors to minimize differences in approach. Staff from DoWT (at headquarters andprovincial level) and Provincial Administrations will, therefore, be provided with the same formal trainingcorses on contract management and control as are provided to contractors, with the addition of formaltraining in subjects specific to the client side of contracting.

Monitoring and Reporting. The GoPNG will need to establish by December 31, 2002 and thereaftermaintain until completion ofthe project a Steering Committee headedby a cnli1ified Staff from DoTI to

review and monitor the training strategy and program and the work of the TSM and the individualconstruction instry experts. The Steering Cor. mmittee is expected to include DoWT, DoTi, DNPM,

National Training Council (NTC). The World Bank and the GoPNG should hold a review meeting aroundend of 2003 on the wvork of the coi r t str on i i- s- expe- -n the TSM.

c. Bridue Inventors and Bridue Management Svstemr (BMMS). T.here is no comprehensive in-vento,y

of bridges in PNG. An inventory is essential for developing a bridge management system. The proposedproject ,..cl-udar, inver.tory of bidges Ui Ue s project prov a the ftther devel t of BBMSx

into a nationwide bridge management system linked to RAMS. AusAID carried out an inventory of bridges

in all provinces covereu by its acivii ( St L East , MV=1.g, New Irelar.d, Mvilne Bay, Vvest

New Britain). The terms of reference for the consulting services required for the BIBMS are available inthe Project implementation Plan PIP.

d. Study of Socio-economic impacts of Road and Brid_e improvements. Tne effect of the road andbridge sub-projects on the population served by the roads involved will be assessed periodically throughsocial studies to be undertaken under the project. Since lack of year-round accessibility is a majorconstraint to social as well as economic integration and development, the broader positive and negativeimpacts of improved road maintenance and rehabilitation on the iivelihood and quality of life of thepopulation served will be assessed. The terms of reference for this study is available in the PIP.

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PNG ! Road Maintenance and Rehabilitation Prolect

A.nnex 2 - TARLE I SUMMARY OF SPECIFIC MAINTENANCF AND MAJOR WORKS

Regraveling (length kmn) (mnillon Kma)we'>Parv.- ,_ .4mrL IL^X3t 4200'4%i I i-T6Ul - Is Pi ^'f L e. VflJL ':A 2004 . row3

Centr l 3S 0. 278 714 1 It I Al I . - ) h'

rrsrcx~~~ ~~~~ I n nnf I IM 3

[Manus S00 10.88 15 88 0.71 1.48 219Moro 3n3 17.29 50.75 1.12 0.65 i 77tOro 4.381 26.03 30.411 0.231 1.361 1 59IWNB | 23.01 7.21 30.211 1.20 1 13 254

IT nt n S 8..861 105.10 14.391 200351 3.88 6.16 1.721 11.76

lReseal+Palching_ _ ,_ .| T 1|Ceniar. 6 1 1391 600 i999SI |J a" 'YIIEIB I 1_ _ 12 35i 9 iY 216ii I 1901 '111 4111|Ma^nus o l 0.vl I 0.0| Mo b e I 0. I3 | |1| 13. 2|.3 01| | 2. 30°0.^0 1J _ _ _ I 2 1U.2Y 2U.LZYI I jZ Z

IWNjB I 12.181 T 1 12.181 2.821 1 2.821Total 2231 26.33|_ 35.591 84.231 5.121 3-83_ 7.7116.66

|UpgradetvSeal | A , | rJrbr5TS71s r\ftlUIgl-n, 1_1 _sv -K71 7 1 _, m I ''I l_

lCentral 1 920 2202 | .51 3._81 5-031|ENB I| 9.531 9.531 | | 1.601 1.601|Manus I 1 10.031 10-031 1 1 1.361 1.36|ILMoobe l l 1 5.521 5.521 1 1 1.311 1.31

LWNF3B1 j 3.9d 5.431 9.___ 1 1.081 1.41 2.53ITotal ° 13.10 43.33 56.43 0.00° 2.231 9.60 11.83

|Pazemen 'eonsirucdon||

|t.entr.l 1 01 '8 021 PA8i .5 1 1 7. ,1 2 s 1 ,t,,,

|ENLB I| 12.7 12.071 2.741 1 | 2.741IManus 1 ] 12.331 1 123J1 1 .3 ___ 1 __ IImo obe i | oool i .ooi-O_ I _ I o.00d I i 0.00|IWNB I 18.4 18.80i i 1 5.311 5.31ITS | 1 2314 40351 35.611 99.101 4.441 8911 a071 21.42

U LM atP ... I I I I

L . >Prin& ce <^ *20G1fi2'w^2 }1_-Al03t ~ll2004l'|! .'-Toil' 1,z'20iJ2 .: | ' 1..e .~2I~1zt|-'I |

ICenftal l 3A49 . 79. 42.$2[ l7l.00 3 52, 10.29 8.0L__ 21.81IEN I 1207 12.35 18.831 43.21 2.74 1.901 3.711 8.35]p!tm | 23.21 10.01 38.21 0.711 4.651 1.31 6.721

'r1 Al51 1 7 Idl C c( 1 Afil ^ A^l n. ^1 Ili 53 I

tII I I...3 26.03 20.2 50.d7 oil 1.361 4.6 62-2.8i 26.91 31.4AI 70.51 2.81 2.281 8.1 13.20

ITotal j 126.31 1 184.88 1 128.92 1 440.11 j 13.44 I 21.13 I 27.10 j 61.67

- 49 -

Annex 3: Estimated ProJect CostsPAPUA NEW GUINEA. Road Maintenance and Rehabilitation Project

The total project cost is estimated at K218 rnillion (US$ 58.8 million) including physical and pricecor.i-ece bu.tA-- -livlue ,adde txA. ( IA, A sm-,^+A at abou,t -+ VY l S., ITQ4 i 0

No significant land acquisition costs are foreseen. Physical contingencies are included at 10 percent ofIUA*A -AA A_-_- A AASS - A A- .- A -- A~ - A A- -- A - - -- -AP- A_A -o+s A; A-__ I MMEva;a' wvaJ3t U-lI-0 V1. 5S'u.La GU.lu %I.axrL. IU auRpl V5IaO.1V 1311,11 l V ,. IaJCL wLa aLL; 3LI1uL4a.U aL /41I1 I (UV,

prices. Price contingencies were estimated on the basis of the time schedule for implementation of thepLJ.-oeL and UJby asLs.JLaLLn (. CLLILWJ piLcL escalaLtUII VI ofUUL ao ..) /O. IL sLhUoU be poULL.eU oUL UIaL shouud

costs differ from the assumptions made in this Annex the scope of civil works can be easily changed to fitsuhe avalLable; fiundUI..

Project Unit Costs

The present high incidence of road-base failure, particularly on unpaved national roads, requires a level ofmaintenance ranging from regular routine maintenance to major reinstatement of entire road sections. Thelevel of treatment is aimed at restoring roads to levels where regular routine maintenance alone couldsustain the improved condition for a number of years. Periodic maintenance, such as regravelling andresealing, will still be needed from time to time but the need should be determined by road conditioninformation rather than a predetermined cycle.

Routine maintenance, at April 2002 prices, has been allowed for at average unit rate of Kl,840/kln/year(US$550/km/year) for all sealed roads and all gravel roads. The additional annual cost of 3 cycles ofgrading of gravel roads plus road furniture (averaged at K3x400 + 180 = K1,380/km/year), was detachedfrom the community participation contracts, since the communities don't have the equipment. For the samereason, the routine maintenance of patching and sealing, similarly estimated at K1,380/km/year, wasdetached from the community narticination contracts. Both works will be nrocured as Small WorksContracts on an annual basis. Quotations would be received from a minimum of 3 qualified contractors .Over 60 nercent of this cost for ifravel roads and nearlv 70 nercent for sealed rnads i; for off-nvpvementactivities (vegetation control, drainage and road furniture). The cost/km allowances are averages of theamounts reniiired to maintain a road in satisfartory condition. Once R AMS iS filly finctional, it isintended to assess more exactly the cost of routine maintenance for individual road sections. Emergencymnintpnnnnp hs hbeen nlinwiPA for it 10 np-rcpn.t of raiitinP m.intp nnnc

TheLnrllOxxr;%r inomit rsxtpc an- icoA fnr n%xzpmant rPc nctiren ulrnt-

a) regravelling - K45,000/km;b) pavement edge and shoulder repairs - K15,000/km;c) patching plus edge and shoulder repairs - K50,000/km;d) repair and reseal - K150,000/km;e) pavement reconstruction - K200,000/km;f) upgrading from earth to gravel - KI 10,000/km;g) upgrading from gravel to seal - K230,000/km.

The restoration work includes allowance for road safety such as road markings, signs, safety barriers, andguard rails, etc., and for bridges, approach and side guard rails, alert marking, etc.

- 50 -

Pavement restoration costs under the project are higher than for comparable work in other countries, suchas Indonesia, but are in line with current contract prices for similar work under the ongoing GazelleRestoration Program in PNG (which the Bank is also supporting) as well as similar works financed underAusAID and ADB.

The cost of bridge parts and bridge maintenance and rehabilitation are based on similar costs from recentwork done under AusAID in PN4G. As for equipment for laboratories, traffic counting, and environmentalmonitoring, costs were based on international prices for similar equipment.

The cost of the services for the Employers Project Manager were based on the signed contract with theconsultant. Costs for other consulting services are based on recent costs for foreign and local experts fromthe contract for consulting services for the Rehabilitation of the Highlands Highway Project, and similarservices financed by ADB and AusAID.

- 51 -

PNG / Road Maintenance and Rehabilitation Project

REVISED PROJECT COST ESTIMATE BY COMPONENT

Component Kina million IFinancingl US $ millionI lLnal IlFnralan ITtal 1 bhv Rank [Lncal IFnrpinn Tnt.

National Roads - ' -, I - --- 1- -------IRoutne Maintenance 1 3.671 8.031 21.701 37%I 3.691 2.171rRe-storation 18.51j 43.191 61.70k 700/01 5.00 11.661=

Provincial RoadsRoutine Maintenance 1 6.93 4.07 11.00 37% 1.87_ 1.101Restoration 3.781 8 .81j 12.59 70% 1.021 2.38[=

National Bridges I IlMaintenance and Rehabilitation (National RI 0.901 2.101 3.00C 70%1 0.241 0.571'Replacement (National Rds) 1 5.361 12.501 17.851 7041 1.451 3.371lEmergency Bridges Deckin and Parts | 6.30 6 301 100%1 0.00u 1.701

MProvinceal Brid es f .6.. 1 70% 0i9| 0.43

|Replacement (Prov Rds) | 4.621 10.791 15.411 70%1 1.251 2.91

I~ ~~~~~~~~~~~~~~a..r60 C L , m C c I T A IYA rI 2

lmnlamantna$in Surarn,t I I I I I I I

|Laborato Equipment 1 0.001 0331 0.331 100%| 0o001 0.09oITraffic Countinn Enuinment I 0=001 0.191 0.191 100%1 1 0=051|Environmental Monitoring Equipment |1 oool 0.221 0.221 100% 0.001 0.0611EPM/PEPM I 2.061 10.051 12.111 83%1 0.561 2.711|Desin, Bid Documents and Supervision I 0.00o 7.41| 7.411 100% 0.00! 2.001IAccounting & Auditing j 0.001 0.631 0.631 100%| 0.001 0.171[Stren thening DoWT FMS o0.o00 1.85 1.851 100%1 0.00° 0.50

|Incremental Operating Costs 1 0.381 1.517 1.891 80%1 0.10| 0.4111 Sub-Totall 2.441 22.191 24j631 1 0.66! 5-991

lRoad Sector Support I IJIIII.|Training and Support of Construction lndustr _ 0.041 3.961 4.00 99%1 0.011| 1.0741Bridge Inventory and Management System j j 1.741 1.741 100%1 0.001 0.471|Socio-economic Impact Study 1 A 1.411 1 411 100%| 0.° ° 0.381

u- I OA'i_l U.Utl I.l- D I A l II Uldl DdbtfIlillW "Ul I O.V3j IO.f U 103.031 1 13.31 3'4.2 1 _

Physical Contingencies 1 5.701 12.671 18.361 1 1.541 3.421Im.rc Con:ingencies I .A41 -7 -36i .4 70I I 2.27 .1 n7Jr1%V11I11. 11Iv U.N I I t..jU I .J. I V C.d L I I.0I I

ivi %PrOJW CO I U, W7 f 74 14 Ai 217.7f 1 V1 ,el WJ V J.VVI

|VAT I ;e 21.77* 21.771 1 5. 88|I1lnnn C:rnnf-F=nr Pao I 1 ASIR 1 ARI I n Ani

Total Pro ect COSt [ 92.811 148.14 24.40.00

- 52 -

Table A3.2: Project Costs by Expenditure Type

Local Foreign TotalProject Cost by Component US$ US$ US$

million million million

Goods 1.90 1.90Works 14.69 24.61 39.30Services 0.67 6.63 7.30Training 0.01 1.07 1.08Contingencies 3.81 5.39 9.20Loan Front-End Fee - 0.40 0.40

Total Project Costs 19.18 40.00 59.18

I ,AT I 5.88 10.00 1 5.8

Total Financing Required j 25.06 40.00 | 65.06

- 53 -

Annex 4: Cost Benefit Analysis SummaryPAPUA NEW GUINEA: Road Maintenance and Rehabilitation Project

1. The objective of a program of maintenance and improvement works is to minimize the total cost overdle alle; cycle lU[ ai ruou lUl UUUI auguetuy auu mvS[Z cotis weil cunsvueliuig tne e,Xistinlg trafilc VOLtUteC uu

condition of a road section. Therefore preparation of a works program requires a mix of maintenance andmajor works mat oiier tue mrost cost efiective treatment oi eacn road secuon wiuimn ie consiraint of tnefunding available. The works program was developed by DoWT and its consultants (F1NNRA) usingRAMS checked by theBank and subjected to economic analyses by consultants funded under AusAiu grant(Egis Consultants). The economic analyses presented in this Annex is based on the report by EgisConsultants dated March 2001.

National and ProvinciaI Roads

2. All national roads were considered in the analysis except National Institutional roads as they aretypically minor access roads leading to and within govemment facilities or other major private concems.The Highlands Highway in Morobe Province was not considered in the economic analysis forperiodic/specific maintenance or major works, given the current condition is considered fair by the DoWIand should sustain use until the proposed World Bank project commences to maintain and rehabilitate theHighlands Highway (starting second half of 2002). However, the Highway will receive routinemaintenance under the RMvRP. Data on Provincial roads was not sufficient to allow economic analysis ofthose roads. The first-year program will include routine maintenance of those roads only. The length andcost of provincial roads receiving restoration and specific maintenance will be detemined on the basis ofthe RAMS which was completed by end of 2001 and after completion of road condition and traffic volumesdata. This is expected to be completed by June 2002.

3. Routine maintenance procured through Community Participation and Small Works Contracts wasestimated at 2001 proces. The need for emergency maintenance varies each year and an allowance of 10%of the routine maintenance costs was included therein.

4. Periodic and specific maintenance were determined from the Road Asset Management System (RAMS)network model in a coarse screening process for sub-projects based on the net present value divided by cost(NPV/C). This ratio should be greater than zero. Upgrading of gravel roads to sealed roads and pavementreconstruction were determiined from a project model in a fine screening process.

5. RAMS Network Model. RAMS was developed to prepare prioritized maintenance works programs anduses the Highway Development and Management (HDM) Model as an analytical tool for engineering andeconomic analysis of maintenance strategies and road investments. HDM-4 is the current version and wasused in the economic analysis. In working with the RAMS system, it was found to be robust and to selectsub-projects that are cost effective.

6. The network analysis used a program approach to test many altemative maintenance activities for everyroad section. Activities are triggered by the condition of the road. Each activity is analyzed to detectnrinority maintenance works that are economically viable dirinng the four year progrnm when rompared with

deferring the activity until after the end of the program in Year 5.

- 54 -

7. The network model inputs weie provided from the RAMS database with road characteristics and trafficvolumes as key inputs. Existing road characteristics were deternined during the field work for RAMS insecond and third quarters of 1999. The input data has not been updated since then to accommodate anymaintenance or major works, or unusual changes in the condition of the roads, but at least represent aconsistent data set. Traffic volumes used in RAMS generally were collected before 1996 unless trafficcounts for recent studies have been incorporated in RAMS.

8. Project Model. The project model was designed to allow appraisal of many individual roadsub-projects. The HDM-4 ProjecL Option was used to calculate cost and benefit streams over 10 years,and to derive the economic indica.ors which support justification of the projects on an economic basis. Theproject model developed allowed more accurate calculation of the economic viability than the networkmodel, as a longer period could be used to assess the costs and benefits of individual sub-project activitiesfor upgrading and pavement rehabilitation. The project model used the same information as in the networkmodel, in addition to inputs for the calculation of travel time savings costs. Also, improvements to theexisting calibration of HDM-4 were made.

9. Sensitivity of Key Factors in FDM. The HDM model which was developed for this project, isparticularly sensitive to three major factors, namely: traffic volumes, road condition, and cost ofmaintenance and major works. Each factor may impact the costs and benefits accrued to each road sectionanalyzed for the various treatments, and therefore could affect the quality of decisions based on theeconomic analysis. Tht traffic volumes and road condition in RAMS are historical but provide a basis fordetermining treatments across the road network. Lower traffic volumes than that provided in RAMS willreduce the benefits. Further deterioration of roads since the condition survey could increase the cost of thetreatment selected or allow a less efficient treatment to be implemented. The costs of the actual works ifsignificantly higher than that used in RAMS will reduce the funding available for other projects in theprogram, but also could lead to adoption of treatments that are not the most cost effective.

10. A program of traffic counting has been incorporated in the project to allow accurate and regular trafficvolumes to be collected in each province and used when preparing future work programs. The traffic datashould be analyzed and the traffic data in RAMS should be updated accordingly. An allowance foreon.inment of about US $ 50,000 has been provided in the project cost estimate to allow purchase andinstallation of permanent and temporary traffic counting devices.

11. Before a sub-project (road or bridge) can be listed in an annual work program, it will be subjected toeconomic analyses based on up-to-date condition data. traffic volume data, and cost estimate. Eachsub-project should have an EIRR o)f 12% or more. The analyses will be carried out by the EPM/DoWI.The annnul wnrk nrograms will be reviewed and cleared by the Bank hefore they are imnlementedt

Bridgec on National and Provincial oads

12. The list of brhitges conciderpd for replaem.nt on national and provincial roads initially inrluided ahniit40 bridges which were based on suggestions from the provinces and the bridge section in DoWT as well asa nilmL9ber of addition-al bridgess -iuac.in.tina imrnrnu,mPn.t .uhirh wPrP pnhtfied in the AluwATf PBr.dg,eCondition Inspection Report for West New Britain. The cost of these bridges was high and the list wasreduced to ab ut 18 bridges based on analyses of existing co.n.ditiors and traffic volimes carri.ed as well nepriorities as set by the provinces.

13. DoWT provided limited data on the 18 bridges mentioned in the preceding paragraph (9 on NationalD-AO -A 0*1 a A D-4-1t{; D-AO{'\t _b -. Yl., r. ;-sIs,,A- 1-4A_ -An lAoan ccioent F+ipI%uaua aLOU 7 Ull 1 XV I ul-ll 1VXJU LV VW -UfUJ *U,. Vw. file Ua

- 55 -

in the past five years, characteristics and condition of the existing bridge, deficiencies related to trafficcapacity, structural capacity, inadequate load capacity, insufficient hydraulic section, length of diversion incase of bridge replacement, and construction and maintenance costs. The consultants' analysis showed thatonly 13 bridges (9 on National and 4 on Provincial Roads) had an ERR of 12% or more at the estimatedcosts (March 2001 prices). The other bridges will have to be constructed at a lower cost possibly asnot-all-weather crossings (such as gabion protected box culverts). However, the measured benefits did notinclude the social impacts of bridge replacements.

Works Program

14. Based on the above, a 4-year Works Program with a value of about 173.8 million (US$52.1 million) inMarch 2001 prices including allowance for EPM implementation support (design plus BIBMS) andphysical contingency was developed. Routine maintenance for National Roads and Provincial Roads isselected upgrading or pavement rehabilitation sub-project precluded the need for periodic or specificmaintenance. However, due to weakening of the Kina against the US Dollar and the resulting increase incosts (expressed in Kinas), the works program was cut in November 2001 from 4 years to 3 years.

15. Table 1 of Annex 2 shows the Summary of Specific Maintenance and Major Restoration Works onNational Roads, as per type of treatment to be included in the AWPs - staring the last 6 months of 2001 tothe first half of 2005. The works foreseen for the first 18 months of project implementation are notexpected to changecan be considered as final (barring unforseen emergencies). The works beyond 2002would be reviewed in conjunction with the prevailing road conditions at that time together with the RAMSevaluation. Table I of this Annex shows list of roads by nrovince. road name and lennth of sectionsrequiring restoration, together with the NPV divided by cost and the ERR (for restoration works) and thenronosed year for imnlementation.

16. Table 2 of this Arnex presents the list of bridges to he renlaced by province, pronosed type of newbridge and construction cost, and proposed priority year for implementation.

17. The project will be implemented through 3 annual works programs (2002, 2003, 2004). Thosenrnoamm will hp rdpnrpd hv thp Rink Ac indirnntpri in nnrn 1 l r^h Q1,h nrnip&' (rnote nr rvizcr p in nnvi nf

these programs will be subjected to economic analyses and must have an EIRR of 12% or more before itcan bee mnhjaA An a -,rrc nrnn-rn

Summary of Benefits and Costs:

18. A cost-benefit analysis was used to evaluate the national road sub-projects that will require periodicand specific maintenance or restoration as well an bridges that require replacement. It excluded routinemaintenance and emergency maintenance since those are considered the least cost treatments to maintainroad accessibility. Also, it did not include provincial roads since those have not yet been defined. Thoseroads are expected to be included in the annual work program for the second half of 2002 and succeedingyears once the provincial level Road Asset Management System has become fully operational. In the caseof national roads and bridge replacement the quantified benefits included savings in vehicle operating costsand savings in personal time savings and took into consideration the existing road conditions includingroughness and traffic volumes. However in the case of bridge replacements, benefits also includedreductions in traffic accidents and took into consideration the length of altemate routes in case of floodsand loss of the bridge. Costs consisted of the capital costs for construction of the treatment and the annual

- 56 -

maintenance costs.

19. Under the most likely traffic growth scenario the net present value (NPV) for the national roads is$36.5 million and the corresponcling economic rate of return (ERR) is 30%. The rate of return for thesub-projects ranges from 14% to over 100%. Those rates were calculated by comparing the most effectivetreatment with the do minimum case.

20. As stated in paragraph 13 of this Annex only 13 of the 18 brudges to be replaced were found to beviable. The net present value for the viable bridges varied from $20,000 to $400,000. The total NPV forall 13 viable bridges is estimated at $1.6 million. The toal NPV for national roads and the viable 13bridges is estimated at $38.1 mill ion.

Main Assumptions:

21. The main assumptions used .n the development of the work program and the economic analyses arestated in the previous paragraphs.

Sensitivity analysis / Switching values of critical items:

22. Sensitivity tests were perfonned on six typical road sub-projects and all 13 viable bridges to bereplaced. The impact of a decrease of 20% in traffic (and consequently 20% increase in vehicle operatingcosts), an increase of capital costs of 20% and the combination of the two on the economic viability of thevarious sub-prjects was analyzed. It was found that the road sub-projects are relatively robust to theabove-mentioned changes and that all sub-projects with an ERR of 20% or more remain economicallyviable for even the combination of 20% increase in capital costs and 20% reduction in vehicle operationcosts. In the case of bridges, the sensitivity analyses indicated that the selected bridges are robust for a20% decrease in traffic and are reasonably robust for a 20% increase in costs. However, it should bepointed out that the traffic volumes used in the economic analyses are generally old and rather unreliable.To address this problem the proposed project includes purchase of traffic counting equipment and initiationof periodic traffic counting programs in each of the project provinces.

PNG I Road Maintenance and Rehabilitation Project May 11.2002

Annex 4 -TABLE 1 ECuduONOMI A ILYSI FORK FORK SPEC .IFIC J' M iN LENANCE A.ND RESTI UAIION FOR SU PR(UjEC I O N NA.I INAL ROUADS

I I 1 1 B~~~~~~~~~~~~~11-1. id IDesignI'IStatus of IDate7ofitemi ProvilSectloe MghAADTf Surface Wors-l Nov.20011 NPV* IIRR' Package INeeded Bid Cmin

t ~~~~~~~~Coxt (K) No Yes/No emenFIJ,LLYEAR 2002 I 1]I I I II~

I WNB Koimumu ND4901/10 0 - 12184 I 12.11i 8361 BitumInouis IPatching Resealn) 2.821 114(2.31) I16.7(27.6) 11 NoI I10 g SD0I 2lCentral IPorebada ND3310/10 0- 4079 14.081 4I641 LJminos I Pavement Recont 0.55 0.71 (.71) 124 (36) 2 1N 10gd S

IJCanta 1-1itano-NIR011/140 0- 12216 I12.221 14Gravel Recqravellin 08621 1.04 (52) 1428128.9) 34 1No I 100%g So141ENB8 Tokua NM4802J10 4500 -9566 I .07 2268Bftumirnous Pavemnnt Reco II 1

IJ ENB ITokua NM4802/20 0 -7004 17.0 2078J Bituminrous iPacni,i ngoo 2741 5.86(3.47) 143.6(227) 4 No 0% e1

U ifS~a vols NM4IvUe l hAI 1--- 01 ':I~fVI r'oevun 2 21(1.84) 116.5(103.1) 5 No 60% corn e-0Mrs a-WBasNIV46O4I0 0- 2494 2.8I8rvl Rgavin 3 __ _I8 Mambo lWau NROOO4/90 0-10128 10.13 2641 Bitumiinous lRe-seal)n + PatcrI 2.301 1185(1.48) 22.5(39.6) 1 N 60% Corn

10 Cntral olakaND3313/50 0 -300 3.00 29 Grve 1R.%veil 0.4.41 41 O.38) 88.1 61. o 6%Cr Sep0dICnr)Klrkwa ND3313/50 3000 -8254 15251 2868 Gravel I ervelig 68 (.19) 91.3L60.610 c

19(2t-.nfo Ifi-J.-l 0 IitMqanwin n.Rcno Ir 6.99 1n02IRiho.dias2 I Psvon,o,D-on I 1.15 A.n(92) IA.2(1101 I9 I~ In _AA __4 __A

IlCnta I;eoD3OIlO871 7 72 Grve4e6 o 0.32(13) 34.5(20.3) 1 0 1N.a 160% CcmnI Sep-014CnrlBebeooND3303(20 0- 3322 13.321 721 Gravel lRe velli. 0.11(.04) 33.5(19.5 10

1I Control lWoa ND3308140 0- 5439 15.441 74IGravel IReco-avefilno 0.321 0 02 (-.02) 114.8(79) -N 160% Camd Seo-021i6 Mamob !Aseld NM4201/10 184286-51893 33.465 512 Gravel Rgrvelin 1.121 0.12(0.02) 118.94(152) 1 21oI 10 oiS"

I I... 12002Y6TOTA 126.31 13.451 I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Flgumes in brckt ore Irn DAM l 20011

I FULL YEAR 2003I I II1I2enM! I Goidle.NM3303/10 0- 600 10601 Bdu I usPaemetI

lo4.naJIi.eIl NM33U3I1U 6WJ -ltJ " I W oiosnnu KaorensIconswn4

'19RCnto GodeM33110-30 I10 8 rv) U eael I 1101 0 05 14.20 13 No Feb)-03I201 Central IGokitie NM3303/10 2300 -580 3 3501 584Gravel U eaSa

22WB NwBtit NR001O/23 0 0-810 8,0 52Gae el I 0.421 0 04 121 80 114 1No Fe-0

I23 ENB lVudat ND4803/1O00- 12346 112.351 576 Bituminous IRe-sealin + Patchni 1.901 1.64 127.00 115 1No F I I 241WNR INo R.iIs N1R00ifylftln 1-.Iqm I 00 01 Cs ILnararlo nd Oet q Ii nAO 'A 4A I100I0 Ii0 1 IV- I ri-ml I..hJ

i25 Conto Hiitno NR0001170 0 -2400 240 286Btminous PavementF Recn .4 0.4 217 1 I I.Fe26IContra) Hidtano NR0001I/80 4225 -987 14751 256BiftumInous IPavement B2gLi 0.971 0.14 121 60 1 o 1 e-327ICentra) I MacNR0002J90 0-4400 14401 5l2Gravel IUtxiracoetoaSeat I 1151 1.49 1 4.10 I I.-- I

28Cnr)Ma NR02940-50 11.01 5112 Bitumninous !PavetR 0 251 0.13 118.50 1 ~~O-J ~ ~ v~29 onra Etdeldna ND3312/20 1600 -7058 15.45 36IGravel lR veUii 0.341 0.06 123.60 19 r a ._ _ _ Fb0

i301Contra) H1-11tanoNRO01O/10 0- 10463 110501 1024 Bitumninous IRe-sealin + Patcbr 1451 1.87 123.50 120 1No I 1___[Fb0 I 31 Contra iHirtno NRO0O1/90 100 -160 161 147 Gavl eoavltl na 0~.82 1 .15 52~.50 IIl

I_31Cnr)Hirttano NROOOl/130 0- 6121 I 612 1491 Grve R elF.1 04 49 90 2 o 1 e-3~~ MamoteNM46Ol/100~- 10535 110:4 2842 BItumidnous IPavemient Recon§ 21 81 -1.20 2 Feb03

S'- VVSS N1V1 .svo u1u nous IIavMe Reo 0.4 3.8 205.9.0 J J I e-0 135Mans as- W-esNM4604/30 0-846 8A7 2886Grel lR veir 1.~15f 1.17 1'27.00 23tot if36Marnus last- Wes NM4604/50 0- 2412 12A41 286~Gravell iR veuic 1 0.331 0.37 1123 60 23 o 1 Ju- 3

38arobe Wau .NR0OO4/160 0- 7783 7.809Gavl Rerveo0 75 60.20 24 N. Jul-0390 WaNROD04/160 0 -783 19.801 37IGravel yRe oVUin 0.51 0.0 17 1

Afl AlA ~~~Af-o ND36D11/2 n - 707n o ni7 .,t Ro o- n2 ln 00 25 Na Jul-3

IVI 410iw ND36o2ro20-95Ms 9.53 3lGrIve R Iei 05 0.1 1N24. 2 N 1 1 iJ'I421WNB I Now BOW NR00110/200 0- 14911 I14.911 256IGrovel iRe rvetlim 0781 1.15 121.30 1 2 1o I I LJ"-31

4.3 Contra) I Sooeii NM3301/20 0 -6932 16.931 512 Bituminokus IPavement R cnsA 1141 1.00 120 20 I I44 Contra) ~~NM3301/30 0 -3483 13.485 588 Bituinous IRe-soetln + Patch) 047 0.39 118.00 8 N J10

45 Cotra) NM3301/40 0 -5790 5.801 512 Bituminous IPavemnent Recan§ 08951 0 22 8 NI46lCentral I Sogei NM3301/50OO- 5051 I 5.051 2941 Bituminous IPavement RewnsbiL. 083 0.25 115.30 __ __

Fgore in brackets or Ira RAMS lPee 2001)

147ITCent r al FILBarur NM421004 4636 {14.401 1276113iturnnoua Pavemnent Rwsi 0,721 3.41 144.2 29N_ Fb0I qe i.~ensai Banird NM340~ewe ur33oo u~Btmnu avement Keoon§E 1.05 241.18s I1o iu [ JI I__ I__ I

I50 Contra) Mcl NR00021100 00 -6015 16.011 51211Bitumninous IPavement Recon§!E 0.90 1.0 41 I ~ Ys~g3-I4-IL I- 0IND4I0IIOC4- 2701.U4 i000l4..I] CI 410 4I l 2 t1

04 tK,O flt. .Ar,A0fl014n n flOrA nIn 042 OC..~~~~l.. =.t.;.I H IA 12040ND4201/20 7788-13ea3Se081.3 0.0 204 32 Ye !A..-I Fe-0

I5310w NorthernNROO03/10 0 -10347 110371 5121 BitumInous IRe-sea)ic + Patddo 2.361 0.0 112.20 3 1N. IRAdtCln lFr-*h.-NF00RV=qAO n- 00I Itt QQ 19 i I Ir Ro-nIii- . Pthibi nw ne 1 I IA in II eb0

56 WNB New Bum)NR0O1O/240 0 -8300 8301 5212 B inu Pavmen Rec= 250 1.

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Annex 4: Table 2-a: Economic Analyses: Bridge Replacement

|Province 0Bridge Name Government Traffic vpd | NOW Bridge Cost - rK million [i] j

| [il| [1]f [iii ['il Span - m (1] Amount ;Total/province Base Case with Emerc

. , ,, j . ^ g - 2,000/m/5 yrsCentral ;Ekiekina National 100 (5 yrs ago)j 30 1.35[ NA

',^!mond ,NatIonna 400 t 30 I>in 10,Q7 in 9,24

fUpulima National 200 1.35, 4.41 4,766 4,649

East Kerevat National 500 '01 2.75 12,578 1 12,400New |Marabu iProvincial 50 1 50 1.831 1,067 798

lRritsin Sinute Prnvinciai 5n |I 6 i 8R5 750

|Manus !liii ai IProvincial . 50 | 301 1.351 | 898 773,igou Provincia5 1.35 1,153 4Worei PProvincial 75 60 1 i. 7 1,744

Morobe !Bubu National 20090 2.31 4,395 4,171jGau Provincial 200 30 i.4 4,3S8 4,226

FMonyi rrVinCial i 200 30 1.35; 5.03j 4,358 4,226,

loro 1Ononda Provincial o50 24 1.291 877 i 697iPongani 'Provinciai j 50 f 50 i.83' 684 f 529IB reji -National 55 55 1.91i 5.03 234i 71

West Sabala National 620 251.291 22,610 22,388New Big Navo National i 620 25 i.29g 22,623 | 22,401Britain dGavuvu National M1022 25 I.291 3.7 53,330 52,743

!TOTAL j 29.47

Notes fli EM = Em ergency m aintenance required to keep the existing b ridge openI

|TABLE 2-b: Maximum Expenditure for Bridges Not Recommended for Replacement

Province ,Bridge Name Governmentl Traffic vpd New Bridge | Cost - K million_ _

Span mA mount ITotal/province Base Case with Emercf~~Pan ota province ~~~~~- F2.0001m15 yrs

East Marabu Provincial I 50 150 ,.3 1,067

iew . _ L _ _ _ 912|Britain iSigute iProvincial , 50 1 o 1.831 3.66| 885

Annex 5: Financial SummaryPAPUA NEW GU!N EMA Road Main+enannc and4 Rehnhalioi*4n Droecnt

Years EndingTable A5.1: Project financing - Implementation Period, US$million

I S. . . ,!IMP lFMFINITATflNk01pFRflf1 - -

Year 1e arar 2 Year 3 Year4 Year 5 Year 6 |T Year7I otai FinancingRequired

Projec, Costs

Investment Costs 3.0 14.2 16.5 15.1 11.1 10.0 10.5Recurrent Costs .2 1.4 i.5 1.8 2.U 4.U 4.1

Total Project Costs 4.2 15.6 18.0 16.9 13.1 14.0 14.6jTotal Financing 4.2 15.6 18.0 16.9 13.1 14.0 14.6

FinancIng

IBRD/IDA 2.0 9.5 11.0 10.1 7.4 0.0 0.0Gouvernment 2.2 0.1 7.0 6.8 5.7 14.0 14.0

Central 1.8 5.0 5.7 5.6 4.7 11.3 11.7Provincial 0.4 1.1 1.3 1.2 1.0 2.7 2.9

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Project Financing 4.2 15.6 18.0 16.9 13.1 14.0 14.6

Other 0.0 00 0 0 0.0 0.0 0.0 0=0

Main assumptions:1. Year 1 is calendar year_2U002V, yearl2 is callendar year 200, year 3 s calendar year2004, year4

is calendar year 2005, year 5 is calendar year 2006, and year 6 is calendar year 2007 and year 7 isc-alendar vyar 2n08.2. The Bank loan is expected to be effective by end of September 2002, implementation of theproject is estimated to be completed by June 30, 2006 and the loan closing date is December 31,2006.3. The investment costs include the loan front end fee of US $0.40 million in 2002, thecommitment fees and interest on Bank loan.4. The investment costs for year 6 (2007) and year 7 (2008) are set at the periodic maintenance ofone eighth of the national roads (about 275 km) and the provincial roads (about 115 km)maintained under the project.

AvailaDility of Counterpart Funds

Availability of funds for road maintenance has been a problem in the recent past. Aiso, in case offoreign-funded projects the timely availability of counterpart funds in the proper amounts was also aproblem. To address those issues, the proposed RviR requires that an Executing Agency Trust Account(EATA) be established and the required funds to be deposited ahead of time to meet the government's shareof the cost for 3 months. It is expected that an initial deposit of K 5.0 million wili be made into thisaccount. Also, the provincial share of the cost will be deposited in a provincial EATA (one for eachprovince). The Bank's share of the cost of the project is to be channeled through a special account into

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which an initial deposit of US $1.0 million is made, and can be increased to US $1.5 million whendisbursements reach $8.0 million. This account will be replenished monthly. Monies from the specialaccount can be used only if the accompanying necessary funds from the EATAs are also available. Theseprovisions are believed to be suflicient to ensure that the required funds to meet the cost of the project areavailable when needed. However, if the government does not make the necessary payments into the EATAon time, implementation will be adversely affected and contractors, consultants and vendors are likely tosubmit claims for additional payrnent.

The GoPNG has started implemcntation of the project before the Bank loan would become effective. Thismeans that the Government has to meet the full cost of the project till the Bank loan becomes effective.This may involve about K 6 million of which about K 4 million are for the Bank share till September 2002.Unavailability of counterpart funding, especially at the provincial level, was encountered in the past. Toreduce the likely problems, the Central Government (represented by DNPM, DoWT and Department ofFinance) have finalized a draft memorandum of Agreement regarding counterpart funding. According tothis agreement, if a province fails to deposit its share on time in the Provincial Government EATA, theDepartment of Finance and Treasury would be authorized to deduct the required amount from the Grant forRoad Infrastructure for that province. Adoption of a MOA with each of the six project provinces which issatisfactory to the Bank is a condition of loan effectiveness.

Post-Project Financing

It is estimated that following connpletion of the project in June 2006, about US $ 4.0 million per year wouldbe required for the routine and emergency maintenance of the project roads in the six provinces. Also,since works for periodic maintenamce have a useful life of 5-8 years, about $10 millions are neededannually for this purpose. No allowance was made for restoration work, as it is assumed that thoseshould be funded from other sources besides the maintenance budget for each province. This order ofexnenditure is reauired to sustain the gains nut in nlace by the project. GoPNG and nrovincialgovernments must make a firm commitment to providing this financing.

Provincial government funding for on-going road maintenance could present a problem in some provinces.The re.mr.oval of prOvincial sales t-x with the introdulcition of VAT in July 1999 means that, on average,central government transfers will finance well over 90 percent of all provincial expenditures. From 2000,

~ nni,rnm,pi,tc nrp tjn rpro-ixp n ch,ar. nfXJAT ,~Prpnr, hmadivlx in, Iinp uAth tl.,p ,nmniint nf VATviig,.re- -r to re_.- ve a share of V A ceipts No, i. li wth th ___ of vAT

generated in the province (known as the "destination principle"). Thus provincial governments areextremely dependent on the disbursement of vAT revenues. The ahility of provinces to estbhlh new

revenue sources is now unclear uider the New Organic Law. For example, the new Sales and Services Taxir.trduce on 1 Ap.il 1998 b1 1,x, hArobee P.rovi,.ce has ,l.spnup.ntl, beer. r,,lo " b iho P.covincialAffairs Minister. However, Section 89 of the New Organic Law provides that a provincial government"rny im-.ose other a fes, fees or charges ...... pron, edrr ,rttpn a p prov al has F.---n o btained l theCommnissioner General of Internal Revenue".

A provincial road tax is among a number of options under consideration by provincial governments. Therear-e s-Ong Uindiations of w i.L n., ;s pay by r users -- - re pre senty su1e - .g high LZ.-I, - repair

and other transport costs due to the poor and deteriorating road conditions.

Another option being considered is a national set of road user charges. There are sound reasons for theGoPNG 'to ,v hs pror, '.o -t est- biLrto all_ -xpicit~ poic --- ,-oad usrcar _r rel`ton t'.JvrJ2'NJ Lu r1vv, 1UL91I FJIULILY LU UAFL UbLaU11MJLIVUL VA1 4U1 FAiLbjU11L.y VUl LVaU UO L~14~ Ul a~1L1U LV

the costs vehicles impose on road infrastructure. Users are presently subject to a range of fees and taxes, aswell as import du-ies on most vellicle types. However, Uiplemllentioi of new user charges shorud be

- 61 -

considered in the context of overall road financing and more efficient delivery of road maintenance services.The poor condition of the road network and the additional security problems are already increasing roaduser costs well beyond license fees and fuel taxes, etc., as indicated by the prohibitive insurance cover fortraffic on some sections of the Highlands Highway. Indeed, road-users are incurring private costs of from 2to 8 times the attributable maintenance cost. As road conditions improve, and extraneous costs decline,prospects for increasing road-user charges should improve. Increased road-user charges would, in turn,improve the prospects for sustaining adequate maintenance levels. The full development of this incrementalapproach is best considered in the context of incorporating the private sector and reshaping the role of thenublic sector and increasin2 the application of commercial principles to the provision of road services. Aform of institutional arrangement to facilitate these reforms, and which has gained increased acceptance, isthe establishrnent of a "road fund" with an independent body, which includes a strong participation by roadusers, responsible for the management of roads and their maintenance operations. Such an arrangementwarrants serious consideration as an appropriate approach to address the nroblems of road managementand financing. The burden of increasing cost recovery should not be placed entirely on increasing revenuesfrnmn mad users. There is considerable scone for reducing maintenance costs by imnroving efficiency in themanagement and delivery of road maintenance. Moreover, in framing a policy of cost recovery for the roadsectnr it ic imnort$nt recogni7pe that mTnny vromf cartv relatively lOw volimnes of traffic (less than v.av 100vehicles per day) and, in most cases, would be unable to cover the cost of maintenance from anyck+f,r.hiitnh1P le ..ret iuser chargpes

Rload Fund. The Governrnent has expressed st.orng interest in estaoblishng a road f -nA ar. r-fnrrn A;- +1-

management of the road sector (see sections B.2 and D.4 of the PAD). Both topics are being subjected to;-4Ant

, ofi,A..Adi, 4 nfnr.anc by thb AT nB A A,Rt poliN- paper has been pr- red-A to seek th. approal of 'th,

National Executive Council for a strategy to secure adequate and sustainable fuinding for road maintenancear,d rehabilitatin, and to rlmalk tim rnar,3nrner.t of rnoad rnore aonw tol,lnd o.-espomns to th. r ofthe road users. It is likely that a road fund might be established by end of 2003. The impact of this

A- a,ono the prmroposed ,,-,ect (D?UAD wol ioe reiee s.ho11.4l fa-..-A~~ 1-,+ ,,+ 1,+_,. A1,,,+,

mid-term review of the project tentatively scheduled for the end of 2003.

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Annex 6: F'rocurement and Disbursement Arrangements

PAPUA NEW GUINiEA: Road Maintenance and Rehabilitation Project

Procurement

Assessment of Capacity to Implement Project Procurement

The Department of Works and Transport (DoWT) is the government's implementing agencyresponsible for the implemeritation of some 50 - 70% of all government projects, and will be the mainexecuting agency for the RM4RP. The assessment of the capacity to implement project procurementfocussed on DoWT and its extensions to the provinces through the Provincial Works Managers. Thisassessment was carried out in February/March 2000 and re examined in March 2001. The results ofthis assessment are contained in a senarate renort. dated Januarv 2002 which is available in the proiectfiles (Annex 8). This assessment benefited from the general findings of the Country ProcurementAssessment Renort (CPAR'i nrenared in 1993/1994 And in particular from the findings of thefollow-up CPAR of 1999.

There is a number of impon ant factors which hinder effective implementation of project procurementin PVJC. Th c ;nrI,11Ip:

* Procu.remet planning is fa- d -ith organational difflcuties, management deficiencies ar.d resourceshortages.

* T nf 0.e A ar. o-.,;ci ntailability of fur.ds ,,,r.Lih often resuilt i.. delay o-f ctari up, ofproc-rerr.ent

activities. Further, budget allocations frequently are shifted from project to project thereby resulting indelays ;,r. payLSfltWsLI OpF&. spl U,s andL a. Even if budgeted, fundsm Suay not be available a.d

disbursements cannot be made.* Puui finlancial L1uiLU1itor,rl pjac.Lces aud lack ui aI.AUUILtauilUy ivr rsts.

* Inadequate documentation fir audit purposes which in the past has caused suspension ofUdbUUb-r,se1VnL. FiULerM, 'Ule 1W'LUdI, UVIVlea' Ofic %JisU Z UrLUVrbutlfed.

* Lack of qualified staff to supervise the activities of consultants compounded by difficulties to recruitsWii, .oul n1doinlal ndlU oLUligil.

* Land mobilization and "Law and Order" issues affecting road and bridge construction; and often resultin claims and cost overruns and appreciable lengthening of thie i-plementaion period.

ut,. ~ ~ 1 LI t...... L.r...- - -. T TC' C-'7' AAA iN IT 1 Ni ArAC\

resenuly, Wiie OcULUuay Uf WVorl i1db UapproUVaI 11UUULLy 1V1 oUnIUtac uLU to U DI. I,000 (K 10i,000U).

Tenders for goods, works awad services above this amount must be invited through the Central Supplyand Tenders Board (CSTB) which can invite tenders without liniit, but can award contracts only up toUS $1.35 million (K 5.0 million). Above this amount, the CSTB recommends the award and requeststhe Client Department, through its Minister, to submit a request to the National Executive Councii(NEC) to approve the award. This is a lengthy process with substantial political pressures.

DoWT's Provincial Supply and Tenders Boards (PSTB) can, after clearing with headquarters, invitetenders and award contracts up to US $54,000 (IS 200,000). Any tenders and contracts above thislimit must be directed through the CSTB.

Public procurement is governed by the Public Finances Management Act of 1995 (PFMA - 1995)which replaced the PFMA of 1986. But, the Financial instructions (Fr) to cover the PFMA - 1995have not yet been issued, hence the FI covering PFMA - 1986 still apply. GoPNG is aware of the

- 63 -

detrimental effect of the lack of these Fl on implementing officially laid-own procedures. Experts havebeen working on these FL for the past three years. Presently, an advisor to the CS rB funcied byAusAID is working on improvements to the Govenmment Procurement System. In November 2001 hecompleted a preliminary review on reforms to the procurement system. This was submitted to theNational Executive Council and was approved on December 3, 2001. The NEC endorsed reforms tothe Legislative Framework, the Operation of National Supply and Tender Boards, the ManagementControl Processes and the need to Improve Commercial Practices to establish "Value for Money"contracts. Further a time bound action plan was approved. Accordingly, promulgation of newFinancial Instructions is expected to be completed by June 2002. It was agreed at negotiations that theGoPNG will complete and issue the Fl (which should be satisfactory to the Bank) by June 30, 2003.

The absence of Fl has resulted in a procurement system which is based on practice, local knowledgeand convention and not on a legal framework which establishes a level playing field for all bidders.The existing system as applied by DoWT has many aspects which are not acceptable to the Bank.These includes:

* Depending upon the size of the contract, bidding is often restricted to national companies and oftengives preference to national bidders and local manufacturers even if not announced in the tenderdocuments. NG 66/92 reserves contracts valued from K100,000 to K5.0 million for citizens ornationals and contracts valued K5.0-10.0 million to joint ventures and consortium groups where theoverseas partner holds a maximum of 50%. NEC 41/95 provides for increase in contracts to PapuaNew Guineans from the present level of KO.5 million to K1.0 million.

* With the Minister's authorization, the Secretary of DoWT may request the CSTB to issue a Certificateof Inexpediency (COI) which eliminates all normal tendering procedures; and may use a Certificate ofWaiver in order to by-pass all requirements necessary prior to making payment for any type ofprocurement.

* The Secretary of DoWT can currently seek verbal quotations for goods and works with a value up toK100,000 (US$27,000); open tendering is required for contracts valued above K200,000(US$54,000); for contracts valued K100,000 - 200,000 (US$27,000 - 54,000 equivalent), theSecretary will decide whether procurement will be through "request for quotations" or through"direct shopping".

* Negotiations with bidders as part of the evaluation are common practice.

* The competitive nrocess for selection of conniultqnts is largely based on cost, much like procuremnt ofgoods.

* There are no standard bidding and contract documents for domestically financed procurementw1hiih includie basic procedures reunired to foster transparency i.n procurement and which wold beacceptable to the Bank.

Based on the preceding, and the Bank's long experience in PNG in general and procurement atDoWT in particlar, it ,-as c-ncluded that.

:rl,'s raen ..ager.t anA i ..... peiapi h b .si 1 AOA .......I.,n..

due to the retirement of most of its qualified national and expatriate staff.

- 64 -

* mne capacity of Do'w 1 impiement procurement undaer thme RlUV¶i-rP is 'm -ie high risK ca-tegWry.

* Fixing the procurement ieguiations and procedures in PNG (whicn Do'WT1 must follow) is a loungterm process. The RMRP is a high priority project which focuses oni maintenance of the existing roadsand bridges and its implementation can not wait till a satisfactory procurement system is developed forPNG.

Action Plan

1. In the immediate and near term future the following actions must be taken to address the previouslymentioned problems and issues:

(a) Employment of a team of expert consultants to manage the project on behalf of DoWT as the"Employer's Project Manager (EMP)" became the only way to somehow ensure completion of the RMRP inrespect of quality, cost and time. This action has already been taken and the team leader and the provincialEmployer's Project Manager (PEPM) for Central Province have started work. The remaining PEPMs anda qualified project accountant with skills in financial management and qualifications acceptable to the Bankwould be employed by loan effectiveness. Further, DoWT has already appointed one of its staff as amanager for RMRP which the Bank found satisfactory.

(b) GoPNG reaffirmed to thte bank in September 2001 that all decisions in NG66/92 and NEC41/95will not apply to Bank-financed contracts. Those decisions contain provisions relating to reservingconstruction contracts of a certain value to citizen or national companies and requiring joint ventures withnational companies for larger contracts but limiting the share of the overseas partner to a maximum of 50percent.

(c) For procurement under NCB procedures for civil works contracts costing US$ 54,000 - 1.0 millionper contract, the Bank's guidelines for ICB and related Standard Bidding Document for small works (SBD)would be used with the following exceptions:

(i) Publication in the intemational press will not be required - publication in the local media ofnational circulation with copies to embassies in Port Moresby will suffice; and

(ii) The CSTB can issue the letters of invitation and notice of award to contractors using itsown forms. Provisions of this p2magraph were included in an Annex to Schedule 4 (Procurement) of theLoan Asreement.

(d) All procurement of works, goods and services will be carried out in accordance with theProcurement Methods detailed in the following section of this Annex. This includes adoption of lowthresholds for prior review of contracts and carrying out of selective post review of 1 in 10 contracts notsubject to pnrior review. which will result in a relatively large number of contracts being reviewed by theBank.

(d) A Project Launch Worik;hop would be conducted shortly after the loan for the RMRP becomeseffective. Empha-is would be placed at the worrkshon on exnlaining and disseminating the SBDs to allparticipants and presenting the procurement procedures which will apply to the project with the objective ofrediiCn.ea dAlaue Au-~ to ,%rn imn.t an. miriEmvi7in the ":sk of miSprnnre.m-nt6

-65 -

2. In the medium future, the following actions would be taken:

(a) As part of the training under the project, a Training Specialist will be employed to train DoWTPsheadquarter staff and staff from the offices of the Provincial Works Managers (PWM) and the ProvincialAdministrations Work offices in project management and procurement planning. It is envisioned thatprocurement experts from the Bank would participate in some of those training programs.

(b) The EPM and PEPMs will involve and train the technical staff of DoWT headquarters, PWMofficers and Provincial Administrations' work offices in day-to-day practical aspects of preparation oftender documents, bidding, bid evaluation, and supervision of works.

(c) The Bank would dispatch supervision missions to PNG at an average of one every six months toreview the overall progress of the project and help solve problems facing the project and to steer it in theright direction. Those missions would also review procurement issues and carry out selective ex-postprocurement reviews in accordance with the pertinent provisions in the procurement plan for the project.

(d) GoPNG would revise and issue the public procurement system including financial instructions byJune 30, 2003.

Procurement Methods - see Table A

Procurement of works and goods under the RMRP will follow the World Bank's "Guidelines forProcurement under IBRD Loans and IDA Credits" dated January 1995 and revised in January and August1996, September 1997 and January 1999 for Works and Goods.

For works of small value (below US$54,000 equivalent to about K200,000) both DoWT's standarddocuments for minor works or for contracts with participating communities will be used. These documentswere used in Bank projects and found satisfactory.

Procurement of consultant services will follow the "Guidelines for Selection and Emplovment ofConsultants by World Bank Borrowers" dated January 1997, revised in September 1997 and January1999. All requests for proposals for Consultants' Services will be carried out in accordance with theWorld Bank's "Standard Request for Proposals: Selection of Consultants" dated July 1997, revised inAnril 1998 and July 1999. Bank's standard Contract forms will be used; as anplicable; for consultantselection. A Procurement Plan, providing a timeline for each stage of the procurement process is includedin the PIP and will he upndted annunlly

Cihvil W.rk,i

The capc-ity anrd resoulrces of dominestic contractors Vary ronsiderably firom provirnce to provin.e And areweak or nonexistent in some areas.

Depending upon the location of the works, contracts for specific road maintenance and road reconstruction-AUV F.V,rA U J t *- V I n- 5 - ., ev. lVSJ t-ljI, WV-a SALtVL O WV tt v '- =X f. t %jU q 1u JWA nt

equipment. Small and medium-sized contractors will be encouraged to participate competitively in routiner__a --------c -orks -uch as -OAd A-adn o; s_ealin -an neso nw.-,as a mrearns of exanirg hLiIWUILVLMI4i,,~ WULMO, OUVI1 aa tW LVa rauit, vt av.a.iLmr aliu LIU L'.aLU aLIVII WUII'AZ , a ~ainU uAP4aiuu1ir utr

contractor base for road maintenance. Small contractors are defined as nationally owned companiesopujIuiri 1ka1UUy Plain IL ire UIraUL4ZaLtIIM, vIlVULVVU ir WUL-k Uf valueL up US$135,0DIJJ,U0U 0,.5. nLUIILII).

Medium-sized contractors are nationally owned companies involved in work of a value of US$135,000

- 6

-US$1.35 million (KO.5 -5.0 million).

ICB Procurement (totaling US$6.4 million)

Road reconstruction contracts valued at above US$1 million (none are yet foreseen) and for construction oflarge (complex structures) bridges, estimated to cost US$0.5 million or more per contract (total of US$6.4million) under 6 contracts, are expected to attract foreign contractors and will be procured throughInternational Competitive Bidding (ICB) and using the Bank's SBD. Preference for domesticallymanufactured goods would apply.

NCB Procurement (totaling US$29.3 million)

NCB Procurement will be used fbr road works contracts estimated to cost less than US$1.0 millionequivalent per contract and for replacement of bridges costing less than US$ 0.5 million per contract. Thetotal number of these contracts is about 55 and are estimated to cost about $ 29.3 million. The Bank'sguidelines for ICB and Bank's laxest Standard Bidding Documents for Procurement of Works for SmallContracts adapted appropriately for NCB procurement of works will be used. The roads and bridge worksare scattered over six provinces and within the provinces and are expected to be too small to attract foreigncontractors. However, all bidding will be open to foreign contractors.

Small Works (totaling US$ 5.2 million)

Works estimated to cost less than $54,000 equivalent per contract under about 250 contracts with a totalestimated cost of about US$ 5.2 million will be procured through "small works". This involves thecomparison of at least three responsive bids for each contract. These works are generally for grading ofgravel roads, patching, and sealing of paved roads and maintenance of road furnishings as well asmaintenance and rehabilitation of bridges and are executed as under Minor Works Contracts. For NationalRoads a total of about 47 annual contracts are foreseen for the 6 provinces or 140 contracts over threeyears with a total value of US$ 3.3 million (K12.2 million). For Provincial Roads a total of about 35annual contracts are foreseen for the 6 nrovinces or 105 contracts over project implementation period witha total value of US$ 1.7 million (K 6.3 million). Further, a total of about 6 contracts for bridgemaintentnce costtn8 about $0.2 nillion are foreseen to use this method of procurement- DOWT will use itsstandard "Conditions of Contraci: for Minor Works", revised July 1995 which have earlier been used onBank nroiects and found satisfactorv The limit of K200-000 (US$54,000) was set to be in par with theDoWrTs Provincial Supply and Tender Board's limit of K200,000.

Community Particivation (totaling US$ 6.1 million)

By tradition village communities have been participating in the routine maintenance (vegetation control,drA^in anrId Ciulvprt nhienina arnti hTiiagp uriatPrnu2 mn;intprnn.ce)p' nn the rnoai secitinns a,tcepnt tn thpir vui!aPges

Because of the clan rivahies ther. is no joint work between neighboring communities. Communityno.inotion L^s nr,pmen success. is la, - r-int nc,- ,x,n-th both r-pn and wor-n participatnir, and wi!! becontinued through the project. The Provincial Works Manager (PWM) would contract directly with therelevrant nnrnrniinity by pin, on g,, , ,-nit r-+.e afwarv-.nnA ln, by.n, i-- cne-+wodon -4v,* th0. A Seci- re'

for Maintenance Coordination at DoWT. The unit rates will be reviewed by the PEPM for reasonablenessprio to thei -ubicaio. ,t,__ ^.e*tras will be- publshe re- l- _ -1-y ;u^ +1[e s.ai P',lrZlA Offlce -- A AFJLU Lv l eu Fr.U uum.C"ufl. .A. 11 li *atoTIUUWUL L&awA ~ FlUOW.. *V.. 5 U.L. "I ua. OG1u I IV III ~1V *..LI .u. W .a.

Provincial Administrations. In the event that more than one group in a given community wishes to-_1-_An AIA44- As 1 1A U_A - A, U_Aa A_..< _A 1 + AAAsa _AS - . -L t PAAA. -.1-A A +1 fA

PaLUIvC1jJmO 0a'.v.lUVI1 WIlL Uv lMAUlt UaVUuF VUVU JlljUUL1i OiVVU.Lr, U- 4UaUall.vu 51UUJ WIUviL 3UUI"L3 Ulv

lowest priced and responsive bid. The size of contract depends on the length of road per commnunity and the

- 67 -

number of contracts per province depends on the number of communities involved. Generally, thesecontracts cost less than K30,000 ($8,000 equivalent) each. The total number of contracts using thismethod is about 790 contracts costing $6.1 million equivalent. For National Roads a total of 175 annualcontract are foreseen for the 6 provinces or about 525 contracts over the project implementation periodwith a total value of US$ 4.0 million (K14.9 million). For Provincial Roads a total of 88 annual contractsare foreseen for the 6 provinces or 264 contracts over the project implementation period with a total valueof US$ 2.1 million (K7.6 million). The contract document to be used has been cleared by the Bank.

Force Account works (tentative amount - up to US$1.1 million)

A key objective of the project is to move from a "force account" tradition towards competitive contractingfor road maintenance. Well over 90 percent of the civil works under the project will therefore be procuredby contract. DoWT managed force Account work will be used only in case of emergency where workcannot be defined in advance such as landslides, wash-outs, earthquakes or volcanic outbreaks or in case ofsmall works located in remote or relatively inaccessible areas. The cost of such works would be equivalentto $100,000 or less per contract. In these circumstances qualified contractors are unlikely to bid atreasonable prices. The total value of works to be executed using force account is limited to 10% of theallocations for routine maintenance (community participation and small works, i.e. up to US$1.1 million).Except in emergencies, Bank approval must be secured before this method of procurement is allowed.

Procurement of Goods (totaling US$2.3 million)Al. o d otn S' 1 000 0 -o *w To- -el p AAr AA - .- _. - -- _ ___ _ ___j .__ E T -s_*____ _. All goods costing USAlUU,UUU or above per contract will be procured uirougi 1uB. Ius consisi uscontract packages, one for each of: (a) emergency bridges and bridge decks, and (b) bridge parts. Goodscosting less mhan $i00,000 equivalent per contract up to a ceiling o $200,0000 equivaient wouiud e

procured using international shopping. This involves the comparison of at least three responsive bids foreach contract. international shopping wiii be used for three contracts, one for each of traffnc countuingequipment, laboratory equipment, and equipment for environmental monitoring. It is not advisable tocombine these equipment into one package because of the specialized nature of the equipment.

Procurement of Consultants' Services (totaling US$9.3 million)

Consulting services for EPM/PEPM, bridge inventory and bridge management system (BIBMS), study ofsocio-economic impacts of roads and bridges, design and supervision of roads and bridges, audits ofaccounts, and strengthening of the financial and operational capacity of DoWT will be procured usingquality cost based selection method (QCBS). The selected consultants for the study of the socio-economicimpacts of roads and bridges must use the PNG Volunteers (PNGV) as a nominated sub-consultant. Thisis due to the fact that PNGV is the only indigenous NGO in PNG which operates in this field of concem tothe project. PNG Volunteers will help in the implementation of this study as well as in consultation withthe affected local communities concerning land acquisition and resettlement issues.

TL te case of the selectin on. ard lnx.-.t -f- an - -nAp-nA-t ai,eltnr fnr the Prnojnt anornnit, fh.e chnrt listLI U.L '. O.'UIL'.O At'A.f - -'. -'l AJ.JIf.* tf 1 -~J -'j 14%' -'.J - ~ 1

of audit firms to be invited to submit proposals would be approved by the Auditor General's Office and theB3ud I- Fuxher uthe audit reo^S to be prepared b.y th eefe uio olb aeaalbet h

Auditor General's Office for review.

Individual Consultants A full time Training Support Manager (TSM), based in Port Moresby (cost $0.20million) will manage the staff training program at DoWT and in the six project provinces. Five individualexperts, one in each province (except that the one in East New Britain would also cover Manus) willsupport the construction industry. The cost of the services of these experts including housing and transportis expected to be about $1.3 million equivalent. The TSM and the 5 construction industry experts will be

selected through advertisement Di the local press and distribution of copies to embassies in Port Moresby.Foreign and local qualified individuals may apply for t"ese jobs. Tne TSM will coniract up to 20individual specialists to prepare ihe training material and deliver the actual training (cost about $0.1milion).

Miscellaneous (Incremental Operating Costs)

Selected qualified DoWT, PWM, and Provincial Administration staff will assist in the management of theproject and supervision of construction of the civil works. Tne associated incremental cost of about $0.60million would cover local transport and per diem of project staff, but excluding salaries which expenditureswould not have been incurred absent the project.

Procurement Administration

Administration of procurement cf civil works, goods and consultancy services (except for experts for theconstruction industry and TSM7) will be the responsibility of Do WT, assisted by the EPM. Experts for thesupport of the construction industry and TSM will be contracted by DoTI. Final decision on award will restwith the authority designated in GoPNG's procurement regulations that define different levels depending onthe contract value.

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Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

1 r | Procurement Method'

Expenditure Category ICB NCB .Other N.B.F; Total Cost1= Works 6.43 290 A II11.75 000 474R

(4.38) (19.37) L (4.44) 0 (28.19)

.UI U.J '.'3. Seooices (2.01) (0.00 (0.24 0.00 2.25_ . (~~~~ ~ ~ ~~~2.01 (0.00 (0.24 (0.00) (.5

3. services U.UU U.UU 9.33 U.UU 9.33Consulting Services & (0.00) (0.00) (8.67) (0.00) (8.67)Training I4. Miscellan./3 0.00 0.00 0.60 0.00 0.60

_________________________ _ | (0.00) j (0.00) J (0.49) j (0.00) j (0.49)

Total | 8.44 | 29.30 | 21.92 | 0.00 59.66(6.39) J (19.37) J (13.84) 1 (0.00) J (39.60)

It Figures i parentfesis are te amo--ts tobe financerd by tfe B- ank LoaTn All rnctc inriludA rcntingPnric

2t Includes civil works to be procured through contracts with Community Participation and Small Works;force account, consulting services and training.

3/ Incremental operating costs incurred by DoWT (Headquarter and Provincial Works Manager) and ProvincialAdministrations related to managing the project and auditing its accouints.

Note: Cost of works under other method of procurement ($1 1.75 million) is less than the sum of the amountsshown in the text ($13.0 million) because the amounts for "Small Works" and Community Participation containthe provisions for force account ($1.2 million).

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Table Al:: Consultant Selection Arrangements (optional)Umillion equivalent)

H ' I - -' ' J~~~~~~~~~- -CQnsIltant Serviczes I.. t4xCeK,,;sJt'.T E;xpenlture Category QCEiS. iS ,--SFB _ _ -_ S C Other N.b.F Total Cost

A. Firms 8.05 0.00 0.00 1 0.00 | 0.00| 10.00 0.00 8.05_7 __ _ I__n nn_ I__n nn_ __n nnI I"{n nn '"I za V I (7 'AQ

B. Individuals 001). 0.00 |0.00 |0.00 | 0.00 |1.30| 0.00 1.30I (u.0;)) I 0.00) I (0.00) I (0.00) I (0.00) I (1.30) (0.00) I (1.30)V

Totalj 8.0:5 0.00 0.00 0.00 0.00 1.30 0.00 9.35 (7.39) (0.00) J (0.00) J (0.00) 1 (0.00) J (1.30) (0.00) 1 (8.69)

1\ Including contingencies

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines),Commercial Practices, etc.114.0.F - 11'o Birnk-financed

Figures in parenthesis are the amounts to be financed by the Bank Loan.

Prior review thresholds (Table El)rriur Rneview Th-reshlduu

Table B indicates the: thresholds for the various types of procurement for civil works,goods, and consulting services as well as prior review thresholds. In case of civil works allcontracts estimated to cost the equivalent of $US$300,000 (Kl.1 million) or more (37 contracts)are subject to prior review by the Bank. In addition, prior review will be carried out for: (a) thefirst contract in each provino. for works for national and provincial roads and for bridgemaintenance works estimated to cost less than $300,000 equivalent (24 contracts); (b) the firstcontract for works in each province valued at less than $54,000 equivalent per contract, procuredusing "Small Wnrtics" fow natina!n rnatis ar.nA r,r;ne.a1 roa,4s (1 'l n -racts; and (c) t^he first

Community Participation contract in each province valued at less than $8,000 equivalent percorntr-act f'ur national road-s (6"f contractstb), and provincial roads (6 contractzs). Ther totual val-ue of

civil works contracts subject to prior review is about $ 30.4 million or about 64% of the totalvalue of works.

In case of goods, all contracts estimated to cost the equivalent of $100,000 or more willbe subject to prior review by the Bank. This results in two contracts with a total cost of $2.01million being subject to prior' review.

In case of services, a]l contracts with individual consultants costing $50,000 or more andwith firms costing $100,000 or mr.ore will be subject to pronr rrPview. A tAta nf n uhmit 17 cnntracts

with firms costing about $8.0 million and 6 contracts with individual consultant (training support

- 71 -

manager - TSM and five construction industry experts) with a cost of about $ 1.2 mnillion will beprior reviewed.

The total number of contracts for works, goods. and services which will be subiect toprior review is about 1 10 contracts, representing $ 41.0 million, or about 70% of the total valuenf the rAntrcrtq finnnrptd hv the In.n

ThIe .JVIlN..i GoaPG has1U LU ,Uto UULcL a PUrJVec Launcllh YvUirksiup wiherv all prIULUe.IiUlt

procedures applicable to the project would be explained and all SBDs to be used under the projectwould be disseminated to all participants to strengthen the quality assurance and reduce delaysdue to procurement and minimize the risk of misprocurement.

Post Review

Selective "ex-Dost" reviews will be carried out in about 1 in 10 contracts not subject toprior review in each province. The total number of such contracts is about 1100 over about 3years. This translates to ahout 6 contfrac-ts per province per v..nr

1 Contract-Value. CoL - : Contracts Subject toThreshold I ProjijremPmnt Prior Review

Expenditure Citegory (US$ thousands) Method (US$ millions)1. Worksa) Civil Works - Roads US$1.0 million or above ICB All - none are presently

I I I I foreseen

b) Civil Works US$500,000 or above ICB All (6); total value US$ 6.4million

c) LV, Works US$30)0-O- or more hut NCB Aii (3i) contracts; TotaiRoads and Bridge less than 1,000,000) valueUS$21.0millionRep!ace~ment

d) Civil Works US$54,000 or more (but NCB The first contract in eachRoads and Bridge less than US$300,000) province for roaa worksMaintenance and bridge maintenance on

tme nationai roads anaprovincial roads; total 24

contracts. Totai value $2.0million.

e) Routine Maintenance - US$8,000 or more (but less Small-OI Bma" Wrks L-4U US$J4,000) Works

The first small worksrn"....tt to be issuePd in

each province for national

i.e 12 contracts out of 250

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f) Routine Maintenance Less than US$8,000 Community Participation contracts. Total valueCommunity Contracts approx. US$0.3 million

The first communitycontract to be issued in

each province for a nationalroad and a provincial roadi.e.12 contracts out of 790

contracts. Total valueI I l l ~~~~~~~~~~~~~~~~~~~US$0.1 mnillion l

12. Goods f U lUS$100,000 or more ICB 2 contracts; total value

$2.0 million3. Services

US$100,000 or more, for QCBS 17 contracts; value $8.0firms million

6 contracts; value $1.2

US$50,000 or more for |Other millionindividuals Total 23 contracts; value

l ________________________________ l _____________________________ l l___________________________________ [ $ 9 .2 m illio n

* US$41.0 million (1 10) contract packages or 69.8% (by value) of contracts funded under the loan.

Total value of contracts subje!ct to prior review:

Overall Procurement Risk Assessment

High

V I . Ut paU.UiIiU1I U piu pu3vu. v.IK %v.Ay U mIuInuJ kIIIuIaUU'. bpjLeiai

procurement supervision for post-review/audits).

Overall Procurement Risk Assessment

Even with the proposed low thresholds for prior review by the Bank and the employment of then 7 , Arfn nAX _- _nAn g _ I. _ _ . _ ..._AAa. _ 1,- . -_ I _l, - ,____t___ 2r1ivi/r- rivi ILv I UI g uI pLUjVUL Li Ul.Iur, uvIudauUll VIl UlIU 1 41Ub a fUU u aLLUIg ab UUbs1VUI III UIl

sessions of the CSTB and PSTE;), the risk of inappropriate procurement is still considered to be high. Thisis m'aily due to politica_l in awar o - i .o lu:.i c of Do1w'l to hanl

procurement and project management. In addition there is still a significant risk that the procurement-process miiay be slowed UUWII U)'b pUUMLeii regrdLinlg 'uIe U11iMy Uvailabiiity of curlLtleparL iiiiUS Ui ule

proper amounts.

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Disbursement

Allocation of loan proceeds (Table C)

| Exponditure Category |Amountfih US$million1 |, Financing Percentige6

-Routine Maintenance of National | 2.18 37%xD-Aq I to

|-uRestoration of National Roads 11.66 70%

- Koutine iviainienance OI rrovincial A J .i/lRoads

- Restoration of Provincial Roads 2.38 70%

- Bridge Maintenance and 0.57 70%Rehabilitation on National Roads l l_l

- Bridge Replacement on National Roads| 3.37 1 70%

- Bridge Maintenance and 0.43 1 70%

IRehabilitation on Provincial Roads I l__

-Bridge Replacement on Provincial 2.91 70%L-.AeGoods and Equipment 1.90 100% of foreign expenditures, 100% of local

expenditures (ex-factory I an, 65% nf

local expenditures for other items procuredlocallY.

ITraining and WorkshopsITraining, workshops, seminars and I 0.10 190%

lconferences l l_lI.Rprvie-bc I

- EPM 2.71 j83% for foreign firms and 75% for local

Design and Supervision 2.00 100% for foreign fuims and 75% for local

-Training and Support of 0.97 70% for individualsConstruction industry I

- Bridge Inventory and Bridge 0.47 100% for foreign firms and 75% for localIManagement System firms

Socioeconomic Impact Study 0.38 1100% for foreign firms and 75% for local

I j ~~~~~~~~~~~~~~~~~~firms- Capacity building on financial 0.50 1100% for foreign firms and 75% for local|mnangement and operations of DoWT Ifirns and 70% for individuals jI- Audits of project accounts | 0.17 100% for foreign firms, 75% for local firms Il ____________________ _ l |and 70% for individuals

I Incremental ODerating Costs 1 0.41 180%

oan Front-end Fee 0.40 __l

IJnaTiocated I.39I

Total Cost 40.00

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Note: The financing percentages for services are based on cost including taxes.

B. Disbursement

Allocation of Loan Proceeds (Table C)

Table C shows the allocation of loan proceeds by Category, and the disbursement percentage proposed foreach category. The estfimatpd 1icburcenertsmper year &ndc,..ulativeare shoh as na-t of th.e Poject

Financing Data in the cover page for this PAD. Table D shows the estimated disbursements by quarter. Itis bas on t*. acC,u,-tinne that- (a) +h.e 1-nt man n^ n ... -1A e-- b4T, y. y 1- Qant-r.-r I 0 2002, (b) th.

loan would close on December 31, 2006, and (c) retroactive financing of about $0.9 million and 1% frontend loan fee ($0.4 m 1iir. wouk! be paid fro,, tem loan in Octber 202

It shuIAl be noted-+S.a pres-e.l- sever-e GoPNGXJ'J 1-uAgey - ostir.tsd-L- are likely LU l e high

risks in terms of the adequacy and timeliness of counterpart funding.

U-se of statem.ents of epnluA SE)

Disbursements under the project will be made against full documentation of expenditures for all priorreview contracts. Statements of Expenditure for expenditures will be used for: (a) works under contractscosting less than $300,000 equivalent per contract; (b) goods under contracts costing less than $100,000equivalent per contract; (c) training, workshops, seminars and conferences; (d) contracts for theemployment of consulting firms valued at less than $100,000 equivalent per contract; (e) contracts for theemployment of individual consultants valued at less than $50,000 equivalent per contract; and (f)incremental operating costs. SOE records would be made available for inspection by Bank staff, asrequired during supervision.

Special account:a) in order to expedite and facilitate disbursements, GoPNG will establish in the Bank of Papua NewGuinea (BPNG) a Special Accoint (SA), for which DoWT would have direct access, with an initial depositof US$ 1.0 million equivalent, and can be increased to US$ 1.5 million equivalent when disbursementsreach US$ 8.0 million. These levels take into consideration the weak financial capabilities and system atDoWT.

b) To facilitate disbursement to community groups, the DoWT may open a local currency SpecialAccount and deposit a thirty day advance of the Bank's share of said community expenditures.This account should only be r eplenished upon DoWT receipt and approval of documentation forthe previous advance. DoWT will forward withdrawal applications for such claims upon receipt ofdocumentation from communities after clearance by EPM, i.e. within one month.

c) GoPNG will establish, prior to Loan Effectiveness, an Executing Agency Trust Account (EATA) andwill deposit an amount of K 5.0 mnillion, (US$1.35 mnillion equivalent) to cover the full project fundingneeds for the first quarter of implementation and, thereafter, will deposit quarterly, in advance, itsrespective share in project funding into the EATA.

d) Each of the six proiect provinces will establish, prior to loan effectiveness, a Provincial ExecutingAgency Trust Account (PGEATA) and will deposit an amount equivalent to 6 months disbursements. Theinitial deposit in these accounts was agreed at negotiations to be: K 200.000 for Central. K 400.000 for

- 75 -

East New Britain, K 140,000 for Manus, K 270,000 million for Morobe, K 140,000 for Oro, and K200,000 for West New Britain. According to the draft memorandum of agreement between the NationalGovermnent and the six project provincial governments the Department of Finance and Treasury isauthorized to deduct the required amount from the Grant for Road infrastructure allocated for the provinceand make arrangements to deposit the same amount in PGEATA, if the Provincial Administration fails tocontribute on time.

e) An imprest account to fund payments to contracted community groups for routine road maintenanceworks in each province will be established in each of the 6 project provinces prior to Loan effectiveness.The arnount in each account is to be 50% of the annual value of the village contracts in each province. Theinitial deposit in these accounts was agreed at negotiations to be K 100,000 for Central, K 200,000 for EastNew Britain, K 60,000 for Manus, K 130,000 for Morobe, K 60,000 for Oro, and K 100,000 for WestNew Britain. These deposits reflect the low budget allocations to the project in 2002.

Retroactive Financing:

GoPNG has requested the Bank to agree to retroactive payment of US$ 0.9 million (2 % of loan amount),to reirnburse for project expenditure since September 1, 2001 as follows: US$ 0.4 million for works andUS$ 0.5 million for consultants services. Agreement to this request is recommended, subject to DoWTcompleting all Bank requirements, including those for procurement and safeguard policies. This requestwas agreed during loan negotiations.

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Table D: Estimated Disbursemenit Schedule(in US$ miilion)

Bank Fiscal QuarterYear No. Ending Da te Disbursements Cumulative rcent

2003 2 December 31, 2002 2.0 2.03 March 31, 2003 2.3 4.34 June 30, 2003 2.5 6.8 17

2004 1 Septem ber 30, 2003 2.5 9.32 December31,2003 2.2 11.5

3 March 31, 2004 3.0 14.54 June 30, 2004 3.0 17.5 44

2005 1 September 30, 2004 2.7 20.22 December 31, 2004 2.3 22.5

3 March 31, 2005 2.6 25.14 June 31), 2005 2.7 27.8 70

2006 1 September 30, 2005 2.6 30.42 December 31, 2005 2.2 32.6

3 March 31, 2006 2.6 35.24 June 31), 2006 2.3 37.5 94

2007 1 September 30, 2006 1.5 39.02 December 31, 2006 1.0 40.0 100

Notes: (1) Project Completion D)ate: June 30, 2006(2) Loan Closing Date: :December 31, 2006

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C. FINANCIAL MANAGEMENT

Financial Management Assessment

The East Asia Region has completed a report on the "Review of Financial and Fiscal Management Systemsof the Government of Papua New Guinea," in 1996-1997, the only World Bank report that can beconsidered close to the "Country Financial Accountability Assessment (CFAA)." The CFAA is adiagnostic tool to enhance the Bank's knowledge of public financial accountability arrangements in clientcountries. It supports both the exercise of the Bank's fiduciary responsibilities and the achievement of itsdevelopment objectives. A copy of this report is included in the Project File. The Asian DevelopmentBank also published a similar report, "Financial Management and Govemance Issues in Papua NewGuinea" in 2000, which describes financial management and governance arrangements in Papua NewGuinea, identifies deficiencies in those arrangements, and presents recommendations to address thosedeficiencies.

For this project, a consultant has performed a detailed assessment of the FMS and the DoWT's financialmanagement capacity, in accordance with OP/BP 10.02 and World Bank's Project Financial Managementprocedures. The World Bank's certified Financial Management Specialist reviewed the assessment andconcurred with the findings and recommendations.

The FM assessment acknowledged the susceptibility of the project financial management system to weakgovernment financial management practices, which the Auditor General characterized to be outdated,lacking policies and procedures resulting in ineffective tracking of funds and unreliable, non-transparentfinancial report system. This risk is exacerbated by the lack of effective enforcement that would supportAGO in enforcing GoPNG departments to implement its recommendations.

During the finalization of the PAD in March 2002, an investigative report into the financial managementoperations of the DoWT was released by the Auditor- General's Office (AGO). The report, which isincluded in the project files, identifies major deficiencies and weaknesses in the financial management andprocurement systems of the Department and provides appropriate recommendations to ensureaccountability and transparency in the Department's operations. Accordingly, DoWT acknowledged theusefulness of this report and agreed to restore financial discipline and good management practices in theDepartment. The AGO special review indicated that there are weaknesses and high fiduciary risks withinDoWT's existing financial management system which result in incomplete capture of all transactions in thecomputerized system and could lead to contractor navments not being adequately c.hkerd, finds notdiligently protected upon transfer to provincial bank accounts, or bank account reconciliation statementsnot received on time by the headquarters F rther, the capabilities of the government accounting staff arelimnited. As the current critical weaknesses in the department's accounting system could adversely impacton the World Bank's developm ent ohiective on good governance for this Project, it w1.ol1d be agr,eed wviththe Government that as a condition of effectiveness, DoWT would prepare and adopt a timebound actionplan acceptable to the Bank, addressing the issues raised by the AGO's report.

Based on this report annd the Bark's own assessment, it has been ass-ued that the c,.ent cl-ifical

weaknesses and high fiduciary risks in the department's accounting system have not been rectified, andcannot be........ relied upo ,vituh.out I;ngcor.trols. The wealonesses a erieve 'o resut t inLthat contractor claims will not be adequately checked, funds will not be diligently protected upon transfer top lrorA, I ' , 't LUIly vaICIcialU bab account or t I.y accoun,t reconI, a-4ionia s rece--Lve by central o'IU ce. TIt s alsoconsidered that the preparation of Bank documentation and reports is beyond the capabilities of government

accountants. A more comprehensive discussion of thie uinherent and control risKs found uinte Bank's"Review of Financial and Fiscal Management Systems of the GoPNG" and the Auditor-General Office'sinvestigation report on DOWT is included in the FM Assessment section of the PIP.

Thiese basic weaknesses in the financial management and control systems will be addressed through theemployment of the EPM and PEPM. (paras. 4.1 and 4.2) and the controls designed specifically for projectfinancial mianagement. Furthermiore, it was agreed during negotiations that the Borrower would prepareand adopt an action plan, satisfactory to the bank, to imnplement the recommendations of the AuditorGeneral's Office special review of the DoWTi dated J-uly 2-6, -20- 0 1. This will constitute a condition ofeffectiveness for this project.

A small team of experienced civil engineers and an accountant are responsible for project management, ledby the Employer's Project Manager (EPM), who reports directly to the Deputy Secretary (Technical)through a DoWT assigned proj ect manager and will coordinate with other senior DoWT managers. Theproject mianager has been approvred by the Bank and has been working since October 2000. A ProvincialEmployer's Project Manager (PHPM) will be located at the provincial level and will report directly to theEPM. The PEPM will obtain ad-vice and assistance from the DoWT Provincial Works Manager and theperson in the provincial administration responsible for road and bridge maintenance. The EPM and PEPMwill ensure that Bank requirements are met as well as meeting GoPNG requirements. This projectmanagement arrangement has be!en accepted by the DoWT and no significant problems are expected. TheEPMJs team leader and the PEPM for Central Province have been working since February 2001. Theremaining PEPMs and a qualified accountant with financial management skills will be employed by loaneffectiveness and will constitute a condition of loan effectiveness.

Utilization of Existing System Features

Notwithstanding the difficulties of using the existing financial system, attempts have been made to utilizethe existing computerized accounting system and project cash and management procedures as far aspossible to avoid generating coniplicated multiplex accounting systems withiin the one department. Thiswill be achieved by using established donor-funded proiect cash management procedures.

Cash Managemnent Controls

T'he DoWT has an institutionalized cash management system which can provide secure controls over thevetting of contractor claims prelpared within provinces prior to release of funds to make payments. Theprocedure entails the nrovincial works unit p3reparingr a navment voucher with attendant scrutinyprocedures, preparing batches of claims specific to the project, and generating the attendant batch detailsand control report which includes the tpre-printing of checks. The hatch details and control rep)ort alongwith a cash trasfer request are,submitted to headquarters for approval and release of the reported amnountof funds to the provincial bank account so that the checks may be distributed to the contractors in payment.

To ensure the quality and integrity of the vetting system which has been found to be weak in practice, thePEPM will be required to intervene at a number of steps in the process to ensure accuracy, completenessand validity and, should this vetting show the proposed payments to be satisfactory, the PEPM wouldendorse the cash trasfer request. This procedure has successfully worked for projects funded by AusAIDand the ADB.

The PEPM will, however, also be required to make the calculations for cost sharing between cofmanciers

- 7Q

for each payment batch due to the differing rates of Bank financing for the various categories ofexpenditure. His calculations will be included in the documentation forwarded to the EPM for approvalbefore cash transfers from the various accounts are made. This is a departure from other donor-fundedprojects which, to date, have a fixed percentage share for all expenditures. (See procedures manual fordetailed flow chart on provincial cash flow and payment of village contractors).

Accounting System

Whilst the DoWT accounting system has available to it a seven digit code field that could be used tocapture the additional information required for Bank Project Management Report (PMR) reporting, itbecame evident that attempting to use this field would prove clumsy and high risk-mainly because the codefield appears at different places between the HQ and provincial ledgers, the relevant code field in theprovincial ledger is currently inaccessible to provincial staff and would need to be reorganized to allowsuch access, and doubts were expressed by DoWT whether provincial data entry staff would have thecapacity to accurately key in an extra three attributes about which they have no experience orunderstanding.

Accordingly, a simple independent Project Accounting System has been designed for operation by the EPMand PEPMs to run in parallel with the DoWT system and provide a means for capturing the additionalinfornation required for PMR reports.

Although this adds additional workload to the PEPM, given the weak accounting system and internalcontrols, the management of a parallel project accounting system by the PEPMs would also provide animmediate independent means of reconciling the financial records produced by the DoWT system.

Mitigating Controls

The mitionting cnontrok to ensiire thit an apprnpriatep nmrect financial mnnnrerment svystem will h*:b in nlace

comprise:

1/ employment of an EPM and PEPM to directly supervise provincial staff in terms of checking contractorcl2irng m nd npvrnent vonicher nrenprb:inn

2/ requiTing the PEPPM nd PM to endorse cash trnsfefr requests and caculate i relative shares of costsbetween cofinanciers for each batch of payments before funds are transferred.

3/ assigning responsibility for the preparation of withdrawal applications and project management reportsto +t'-eEM

It/ pvuviuirn a dueailedu ratUuaira IiJaiuaI LU Ulef EVM U"U p1rocedUUres LU Ube IUIIfWeU LU UIWlarage Ule

project finances and to prepare such documentation.

5/ an independent auditor (private firm) will carry out the semi-annual financial audit of the projectacco-uanis as wei as review of Use iiitemdil' cUnirUo bYSLUIll ofI uL pIUJ4.cL 1iipIeIenLu16g agenIcuy, anU wil

submit the results to the Bank within two months from the end of the six-months period under review. Thisis in addition to tne required annual audit described beiow. Tne first semi-annual audit report wiii be dueon August 31, 2003.

Notwithstanding these arrangements, it will be imperative that the EPM closely monitor the claim

preparation process, the issue of checks to contractors, and the timely reconciliation of the bank accountsand DoWT transaction reports. This crosscheck wilil be a specific matter for scrutiny by Bank supervisionmissions.

Accordingly, the following financial management action plan has been agreed with the DoWT for thefinancial management of the proj ect.

Actions to be taken Responsible Group Completed by

I. Organization and Staffing

a. Employment of all staff of the EPM GoPNG Effectiveness(Team Leader and 5 Provincial ],mployer (Team leaderProject Managers) and PEPM for

Central Provincealreadyemployed)

b. Appointment of Project Manager GoPNG Completed

c. Employment of Project Accountant with GoPNG Effectivenessqualifications acceptable to the Bank

II. Accounting System and Procedures

a. Improvement of DoWT financial GoPNG Effectivenessmanagement system for the project satisfactoryto the Bank

b. Issuance of Financial Manageanent Manualsatisfactory to the Bank: Crnn-iltntq/GnPNWC

1= Draft Manual Completed

2 Final Manual RV May 10, 2002

m £.rni.. f ana ud iA*- f ccept -jable t.J UL0 7KTri. D.ece-h- I 1 .J ' P -- V.V wV.WV- -w -}9llX J -, ...

the Bank to carry out semi-annuwd reviews ofthe .int_rn.l controlv sys.,s rn-d ;,n.1laudits with a TOR acceptable to the Bank.

IV. Adoption of a time-bound Action Plan to implement GoPNG EffectivenessULSLa11UUIr, L,UL1WA.~U%aLAVIAZI aj IJL11r. LLVILA UL-, ILIUUlLV

General's Office report (July 26, 2001)satisfac4trUj LU Uthe I3aL11%.

V. OUUbiiauon L. uilipieriient ulv oUUve-nUcUuuoeu

time-bound action plan, satisfactory to the Bank. GoPNG Covenant

- 81 -

Bank Accounts

Cofinancier Bank Accounts

A GoPNG counterpart account will be established to receive the central government contribution to theproject for Fiscal Year 2002, while an IBRD Special Account will be established upon commencement ofthe loan. These accounts will be held in DoWT HQ.

Funds will be received into the GoPNG Counterpart Account from the Department of Finance based uponexpected cash flow requirements, the amount appropriated for the year in the Budget, and cash availabilityeach month (PNG experienced severe cash shortages in FY 2001). Some funds will also be received fromthe IBRD Special Account for part-reimbursement (37%) of eligible expenditure paid out of the VillageContract Trust Account (see below).

Funds will be received into the IBRD Special Account by way of withdrawal applications submitted to theIBRD. PMR-based disbursements are not envisaged. This decision will be subject of a review 24 monthsafter loan effectiveness.

Contributions to be made by participating provinces will also be housed in separate Provincial Governmentcounterpart bank accounts (one for each participating province) at DoWT HQ from which cash transferswill be controlled in the same manner as for GoPNG contributions.

To effect payment of contractors in the participating provinces, existing provincial Office of WorksDrawing Account vill be utilized in each province to receive the respective shares of funds from the IBRDSpecial Account and GoPNG (and Provincial Government) Counterpart Accounts needed to honor checksthat have been raised for payment of services or goods already received, certified and authorized by thePEPM and EPM.

Transfers from the IBRD, GoPNG and Provincial Government accounts into the respectiveProvincial Office of Works Drawing Accounts will be controlled by DoWT headquarters using the cashmanagement procedures described above. These transfers will only be effected after the claims have beenchecked by the PEPM and EPM and the check preprinted, and hence do not entail the co-mingling of Bankand GoPNG/provincial government monies before the relevant amounts have been crystallized for payment.

Community Participation- Imprest Account

In addition to the proposed arrangements for controlling disbursements within provinces, the financialarrangements will also provide for an imprest account to be established in the provinces to fund paymentsto contracted village groups for routine road maintenance works.

The imprest account will only be funded from the GoPNG and Provincial Government CounterpartAccounts to ensure that a second-generation advance of IBRD special advance monies does not evolve.The GoPNG and resnective PG Counterpart Accounts will be reimbursed from the LBRD Snecial Accountat a rate of 37% of eligible expenditures, following vetting of the transactions by the PEPM and EPM. Aspresented earlier in this annex, in order to facilitate disbursements to village groups (CommunityParticipation Contracts) a local currency Special Account may be opened and a thirty day advance of theRank-' qhare af -sid exnenditures denpoited in it

-82 -

It will be essential that the check book will be held in custody of the PEPM and that the issue of checksfrom the account be tightly controlled. It will also be necessary to ensure that there is a timely bankaccount reconciliation and financild statement prepared at the end of each month for submission toheadquarters and the EPM who will use the information to prepare the reimbursement from the IBRDSpecial Account and subsequent replenishment request to the iBiw to top up the speciai account as partof the monthly withdrawal application arrangements.

Audit Arrangements

For Bank reporting purposes, the annual and semi-annual financial statements of the project will beprepared in accordance with Intemnational Accounting Standards (IAS) and audited by independentauditors, acceptable to the Bank in accordance with International Standards on Auditing (ISA) and WorldBank guidelines on auditing and f inancial reporting such as the Financial Accounting Reporting andAuditing Handbook (FARAH) and the World Bank's Project Financial Management Manual The cost ofthe audits are to be financed from the Loan.

Audited project financial statements (PFS) would be submitted to the World Bank. PFS would include: (a)summary of funds received( showing funds received from the MOF and World Bank separately) and asummary of expenditures shown umder the main project headings (i.e., project components) and by maincategories of expenditures; and (b) a balance sheet showing accumulated funds of the project, bankbalances, other assets of the project, and liabilities, if any.

Terns of Reference (TORs) for the auditor are included in the Project Implementation Plan. These TORsinclude both a semi-annual and an annual audit of financial transactions, and a "management letter" - anassessment of the financial nmnagement system, including the adequacy of internal controls. Allimplementing entities would provide the auditor with access to project-related documents and records, asrequired by the auditor.

Readiness for Implementation

Steps are being taken to ensure a. satisfactory financial management system will be in place in the DoWTHQ's Snecial Account as well as the provincial operations. For the Special Account managed by theDoWT HQ, its financial manageraent and accounting system will follow that of the DoWT supported by anindenendent project financial management system managed by the EPM.

Sunervision Plans

This FMS of the proiect reauires close monitoring and will be closely monitored by the team, providingreasonable time for financial management staff to conduct supervision at least three times a year, which

nould be revi:ed depending on the implementation of the action plan aereed upon with the Borrower.

-83 -

Annex 7: Project Processing SchedulePAPUA NEW GUINEA: Road Maintenance and Rehabilitation Project

|Proje6t'Schedule Plainne - ActualITlme taken lo prepar. the proJect (months)1 15 82

First Bank mission (identification) 10/01/1994 10/01/1994Appraisai mission departure 10/01/2000

Negotiations 04/15/2002 04/29/2002

[Planned Date of Effectiveness | 09/19/2002

Prepared by:

Department of Works and Transport (Do w 1)

Preparation assistance:

1. Japanese PHRD grants to prepare the project and to study organizational altematives to the Department

of Works.

2. Danish Trust Fund for the preparation of the environmental management plan and environmental

training.

3. Australian Trust Fund for technical and institutional aspects, financial management systems, economic

analyses, and environmental and social issues.

Bank staff who worked on the project Included:

Name SpeciaiityProject Update 2000-2002

Hatim Hajj Task Team Leader/Lead Transport Specialist, EASTR

ICarlos Escudero Chief Counsel, LEGEA

Glenn Morgan Environmental Specialist, EASESnTJ'__ 1? X __AA T A. T Tf'T Ar4Lliula4 yvajiua L4awyrI, LffiJr2

Rosa Muleta Disbursement, LOAG3

H-uiig A-Ul PLIuLg ,isour-SiUMVe-i, LOUAG3

Robin Carruthers Quality Assurance, EASTR

William Paterson Engineer and rujiiDMPavement Management Speciaist, EAS TIR

Emmanuel James Peer Reviewer, LCSFT

Antti Talvitie Peer Reviewer, ECSIN

lBehdad Nowroozi Financial Management Specialist, EAPCO

Bruce Harris Social Issues, (EASES)

Note: The project was fully prepared and ready for negotiations in May 1998. However, the negotiations

did not materialize and the project was in abeyance till February 2000, when updating of the project was

started including description, cost and finance, procurement arrangements, institutional set-up, financial

management systems, and environmental and land acquisition and resettlement aspects.

- 84 -

Annex 8: Documents in the Project File*

PAPI IA MEW -1 11KIEA. RoadRA M.ntenance anA Rehabl'ltaon PrJect

A. Project Implementation Plan

Project Preparation Plan was received in April 2001 and was updated in January 2002, and again in May

2002.

B. Bank Staff Assessments

1. Aide memoires from the Bank missions covering the period from late 1994 till November 2001. Theon-e f-cused n the updatingo^f the nroject rplafte tn Anri 1040 misionn, Frhniary_March 2001 nreparattin

v- vw- v ra, of ^ - rv-k r --- --r-

mission, June 2000 follow-up mission, October 2000 follow-up mission, February-March 2001 follow-up

2. -Agn -Vcflremr.Aent Assessraent ( o'.MJ, T-.- 2002

r A*kor ~ ~ ~ ~ DA 1202

C. _t.. .

1. Country Performance Review and Improvement Plan, February 2000.

2. 1998 Procurement assessment report for PNG.

3. Road Asset Management System (Draft Final Report), Finnish National Road Administration, October

2000.4. RAMS (Provincial) Interim Report, Finnish National Road Administration, October 2001.

5. National Transport Development Plan: 2001-2010, October 2000, PNG Department of Transport andCivil Aviation, 2 volumes.6. Study of Australia's Assistance to Infrastructure in Papua New Guinea, Draft final Report- Volume

1-Main Report, May 2000.7. Road Sector Cost Recovery Improvement Project in PNG (Draft Final Report), W.D. Scott

Intemational Development Consultants Pty Ltd, June 2000.8. PNG Bridge Inventory and Bridge Management Study (Draft Final Report- Volume 1), Works

Consultancy Services Limited in association with Beca Gure (PNG) Pty Ltd, July 1996.9. Project review of National Roads Regravelling and Sealing Project and Bridge Replacement andUpgrading Project in PNG (Final Report), AusAID, October 1999.10. Supply of Bailey Bridge Palrts for Maintenance, Job No. 1512/29, AusAID, June 1998.

11. Updated Strategy for Department of Transport and Works incorporating Infrastructure Sector Studyand Provincial review, OPUS Consultants, October 1997.

12. PNG Infrastructure Sector Study- Provincial Review, OPUS Consultants, June 1997.13. PNG National Monitoring Authority Publication, Handbook on the Roles and Responsibilities ofDifferent Levels of Government under the Reforms, Volume 1- ISBN, March 1998.

Feasibilitv Studies

Road Maintenance and Rehabililation Project (RIvRP) Economic Analyses, Egis Consulting Australia,

April 2001.

Environmental and Social Assessments

1. Sectoral Environmental Assessment and Environmental Management Plan for RMRP, Carl Bro

- 85 -

International a/s, October 1997.2. Environmental and Social Impacts Assessment Management and Monitoring Plan for RMRP, JohnDuguman and John River, June 2001.3. Proposal for Implementation of an Environmental Training Course in the Road Transport Sector inPNG, Carl Bro International a/s, January 2000.4. Short training Course in Environrnental Management in the Road Transport Sector in PNG, Carl BroInternational a/s, June 2000.5. Training Manual in Environmental Management in the Road Transport Sector in PNG, Carl BroInternational a/s, June 2000.

Financial Management

1. Financial Managemnent System Procedures Manual for RMRP, Robert Cohen, March 2002, revised andl .lnteil May 2002.2. Report by the Auditor - Gereral's Office on Investigations into allegations of financial mismanagement,frniid nnd misiu-s of reqa11rcIs in tht- de-nnrtment nf Wnrks lnd Lm. TmnmPntnt1in 26 TJuil 200!1

Constiugtion yIdust.v

Project Proposal for Small Domestic Contractors Training Project, PNG Department of Commerce andIndustry, Construction Industry Unit, June 1997.

*Including electronic files

- 86 -

Annex 9: Statement of Loans and Credits

PAPUA NEW GUINEA: Road Maintenance and Rehabilitation Project02-May-2002

Difference between expectedand actual

Original Amount In USS Millions Asburse n

Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'dP004398 2002 FORESTRY AND CONSERVATION PROJECT 17.36 0.00 000 17.36 0.52 000

P066954 2000 PG-GAS DEV TA 7.00 0.00 0.00 5.04 0.37 0.00

P060330 2000 Mining Sector Inst. StrengthenngTA 10.00 000 0.00 6.71 2.21 0.00

P0o4238 2000 PNG-GAZELLE RESTORATION 11 25.26 0.00 0.00 2056 17.00 0 00

P055446 1998 EMERGENCY ELNINO 5.00 0.00 350 020 3.70 0.20

P004399 1993 PG-POPULATION PROJECT 6.90 0.00 0 00 1 98 1.98 0 00

Total: 7152 0.00 3.50 53.84 2577 0 20

- 87 -

PAPUA NEW GUINEASTATEMENT OF IFC's

Held and Disbursed PortfolioJan - 2002

In Millions US Dollars

Committed DisbursedIFC IFC

FYAvppval Corr.par.y L-oar EquityTQasi Partc Loan quity Qusi

Total Portfolio: 0.00 .00 0 0 00 0 000 0.00 0.00 0.00 0.00

Approvals Pending Conmutment

FY Approval Company Loan Eq Quasi Partic

Total Pending Comnitment: 0.00 0.00 0.00 0.00

- 88 -

Annex 10: Country at a Glance

PAPUA NEW GUINIEA: Road Maintenance and Rehabilitation ProiectPapua East Lower.

POVERTY and SOCIAL New Aisi a middle-Guinea Pacific Income Oavlspmsnt diamond

Population, mid-year fmillionsi 5.1 1.853 2 046 Life expectancyGNI per capita (Atias method. US$S 690 1.060 1.140GNI1Atias method. USS billiona) 3.5 1.964 2.327 T

Average annual growth. 1994-00

Population 2 7 1 1 1 0 Labor lorce (16 2 3 1 4 1 3 GNI Gross

per pri~~~~~~maryMost recont estimalo (latest ypar available. 1994-001 capita " . enrollment

Poverty (1 of oooiation beloa national Oovertb line) 38Urban population (1 of total ooulation) 17 35 42Life expectancy at birth (years) 58 69 69Infant mortairty (aor 1,000 live birthso 5a 35 32Child malnutriltion (9 of children under 5) 30 13 11 Access to Improved water sourceAcc.n. to an im.oprvd watar o-urc /X of DLptqtnitn) 42 75 Rnillieracy (1 of n ioDuation axe 95.1 35 14 t5Gross primary enrollment ff of scxhool-aae pooulallon) 60 119 114 - Papu Noew Guinea

Malt 87 121 116 Lower-middle-income groupFemrale 7:1 1.21, 14

KEY ECONOMIC RATIOS and LONG-TERM 7RENDS

1980 1990 ieee 2000

GDP IUS$ bililonsl 2.5 3.2 3.7 3 a

Grosa domeatic InGeatmaniiODP 25.2 24.4 17.4 15 4 TradeExporto oi gooda and i eroiln- GOP 43 2 40.6 44 5 47 7

Gross national savinaa/GDP 19 0 9 0 15.8 15 8

Current account balanca/GDP -12,2 -9 8 -5,0 1 1 DomesticInterast .yavantsiGDP 2 n 4 1 5 2 3 InugsimanTotal debt/G1P 28,2 80 5 73 2 69 7

Total debt servicole.poris 13.8 35.5 99 17.3Present value of debt/GDPP!eresent velve of debt!expor!Inde biendss

1980690 1990-00 1999 2000 2000-04(averaxo annual Drowlh)

GDP~~~~~~~~~~~ ~ ~~~~~~ 15 94 1 6 -1 9 1:Ppua Now GuineaGDP per capita -0.4 1.4 2.40 -4.4 -1i. 3 ;.Lowo-m1ddle-lnconie group

Export of ooods and services 3 3 2.8 -4 4 -7 6 -4.3

STRUCTURE of the ECONOMY

1980 1990 1999 2000 [Growth oa Innvitment and GOP I%)(X of GOP) Agriculture 33.1 29.0 29.4 25 9Industry 26.8 30 4 38.4 43 6 2oManufacturing 9 S 9 0 64 7 8 .m

Services 40.0 40 6 32 2 30.5 c _ 9_ __

Private consumption 60 9 59.0 614 5 63.2 -20 General overnment consumptlon 24 1 24.6 21 0 19 4 _GDI *_ _ _GDPImports of goods and services 53 3 48.9 47 3 45 7

(everex. a-nuai ro,othi 19i0 90 1990-00 loi: 2000 Growth of .. perta end teport. t%)

Avri.ult-ro 1.' 36 5 1 3 S ax .lvdustry 1.9 5.6 2 5 0.9 to

Manufacturing 0.1 5 3 1.9 -7.0 |Services 2 0 3 1 8.7 -7.1

Private connumption 0 4 6 2 17.1 -09General government consumption -0.1 2.6 0 9 3.9 .1'Groso domestic investment -0 9 -0.7 -10.4 -6 1 | - Eporas eImo-rn. jImports ol goods and services -1.3 2.4 1.4 -06

Note. 2000 data are preliminary estimates

The diamonds show four key Indicators In the :ountry (in bold) compared with Its Income-group average If dalt are missia n the d..mvnd willbe Incomplete

=89

Papua New Guinea

PRICES and GOVERNMENT FINANCE1980 1990 1999 2000 lnflatl Uor.

Domeslic prices(% change)Consumer prices .. 7.0 14.9 156 1ImilicitGDPdeflator 7.1 4.1 13.8 10.1 is ./ %fGovwnment flnance f

Current revenue 32.1 22.6 243 ss 04 97 9s 99Current budget balance .. 1.7 0.9 2.4 - GDP deflatDr CPIOverall surmlus/defidt 3.3 -35 -15

TRADE1980 1990 1999 2000 6_ . .. .. .... __ _

(USS mllions) expon Orn impor MP vias tuS, ireILj

Totalexports(fob) . 1,196 2,019 2,214Gold .. 412 639 627 T Copper 3b6 283 281Manufatures 400 581 LLL

Total imports (dIf) 1,363 1.525 1.502 1'L _L 11 1Food 222 272 250Fuel and enerny 147 126 124Capital ooods .. 442 515 499 o

Export price index (1995=100) 68 77 80 9 97 98 ss aJImport price index (1995=100) 102 94 a Exports * ikrortsTerms oftrade (199°=00A). . 75 B

BALANCE of PAYMENTS1980 1990 1999 2000 1C vuntuanw tGDF(7;

(US$ mfllions)iExport.i ofg,,oocls and seivce 1,029 1.402 2.019 2.214Importsofgoodsandservices 1.322 1,510 2,140 2,111Resource balnce -293 -108 -121 103

Net income -179 -103 -237 -240 IK ENetcurrenttransfrs 161 -107 173 178

Current account balarn -312 -317 -185 41 | °in 4 ± ± ÷Financina items (nati 243 418 190 100 5 4

Changes in net reserves 69 -101 -5 -141 Lio 1RMeSeves iduduwng gmw tuS miibusi; .. . 205 296Conversion rate (DEC, locaYJUSS) 0.7 1.0 2.5 2.7

Ei -cNAL DEBT and RESOuRCE FLu-WS1980 1990 1999 2000

(USS mil.ions) Compositon of 2000 debt (USS rril.)da' , r disbuWV rse ^ 7, ........9 v 2.6594 2,696 2,S2

IBRD 55 235 241 244G 203 244IDA 55 115 97 92 20 s 92

Total debt service 150 553 211 407 .0IBRD 6 28 46 44IDA 0 2 3 3I

Compositlon f net resource flows D Officalagrants 279 304 95 F:1013 \ 5 IOifidal creditors 34 186 -26 32Private creudtrs 30 49 -30 -109Foreign direct Investment 76 155 297 IPortfooeo,ulty 0 0 232 . E 498

Worid Bani progkram _I

Comnitments 30 67 0 107 A -6BRD E - ileale |Disbursements i 16 64 8 &A3 IB-IDA D- Other mati0atbr F -Pdvate

Princpal reavments 2 15 34 31 CIcl G-Shont- |f

Net flows 12 49 -26 12Interestpavrents 5 15 16 16Net bansfers 8 33 -42 -4

evebp.ent Eco S!301 9! -

- 90 -

AdditionalAnnex 11

SUMMARY OF ENVIRONMENTAL AND SOCIAL SAFEGUARDSPAPUA NEW GUINEA: ROAD MAINTENANCE AND REHABILITATION PROJECT

Introduction

The road network in Papua New Guinea consists mainly of isolated road systems comprising a trunklinkage to a port with a small number of terminating feeder distributaries. In 1990 the national roads wereestimated at 7,397 km and provincial roads at about 15,000 km. Nationally it was estimated that 42% ofthe population ( 2 rnillion) have access to national trunk roads, 33 % (1.5 million) have access to feederroads and 25% (1.25 million) have no access to roads.

There has been a marked deterioration in the road transnort infrastructure since 1985. All roads in PapuaNew Guinea are affected and sorne have become seasonally impassable. Road transport operators haveceased commercial operations on some routes. The restoration of the road network by the RMRP will grivethe estimated 1,000,000 people w,ho live adjacent to and within two hours walking distance from a highwayor distributor road significantly irnroved access to basic social services and iirhan services-

To addflress th-es conn-ems, the R.MRP has four main objectives:

* PafotRe th- nbwrei -o -nnriitrnn -nA .. fohr to -+e ^ftbh nPl-nrU nfn-tc,n-l anti -rA-rinr;.l rnoAe

and bridges in the provinces of Central, Manus, Morobe, Oro, East New Britain and West New Britainbhed o-n p,iori,t needs;

* strengthen strategic planning and management of road sector assets;* strenghen i-stutu'iounal aaiyrge nents Pls for rd nair1'enarc inciudirig an expanded pro-virlcialgovernment role in line with the PNG Government's decentralisation policy and the New Organic Law; and* increase private sector contracting of road maintenance works through the use of smaii andmedium sized contractors and to increase participation by village communities in project implementation.

The RMRP will be implemented in six provinces, Central, Oro, Morobe, West New Britain, East NewBritain and Manus. Population access to tunk roads, feeder roads and no roads within these provinces isrespectively, Central 46%, 28% and 26%, Oro 55%, 10%, 35%, Morobe 39%. 41%, and 20%, West NewBritain 58%, na, 42%, East New Britain 42%, 31% and 26% and Manus na, 55% and 45%.

Implementation of the Ri%vi is i ikely to bring benefits in terms of improved business opportmities,improved market access for rural tree crops (coffee, cocoa, and copra) and to stimulate rural cash cropproduction and raise export receipts. Cash cropping in Papua New Guinea is dominated by landownerbased smalUholdings utilizing household labour. The RMRP will improve the market conditions for cashcropping and raise rural household incomes. Further, RMRP will improve access to schools, medicalfacilities and social facilitites.

Summary of Expected Environiment Impacts

- 91 -

Road consuITUU.UL u U and rain.enLaLr,V Ifaces kilway chduralrges l HI rr4.ier,llli1r,g orun ulu pi,ysical

characteristics of the landscape. The climate and topography of Papua New Guinea raise significantenvironrena lhazard and risks in relaiion to the road transport system. Tne risks are the ouicome o0volcanism, earthquakes, excessive rainfall, drought, landslips, flooding and tsunamis. Other cyclicalphenomena sucn as tme Ei Nino/Sou'mern Oscillation also pose intermittent operationai challenges.

Tne country's rich biological heritage requires careful route selection and pianning and tne country's steepslopes, high rainfall, active volcanic landscapes pose numerous challenges relating to management oferosion, landslides, and even lava fiows. In the absence of good road maintenance programs theenvironmental impacts of existing roads will likely get worse. Most existing roads are in serious disrepairand due to poor drainage are experiencing serious soil erosion problems.

The RMRP does not include the construction of new roads and all work planned will be carried out withinthe existing right of way. Thus, the project is expected to present low risks from an environmentalperspective and the environmental impact of the project is expected to be limited. Most significantly, theproject will have no incremental effect on route alignments.

Nevertheless it is reasonable to expect certain impacts associated with maintenance works such as laborcamp management, dust and noise control, quarry siting and management, management of solid waste orhazardous materials. These and other potential impacts are sumnarized in the Sectoral EnvironmentalAssessment (SEA) report (see next section). The impacts associated with maintenance works are temporaryand manageable with known mitigation techniques. There is a strong likelihood that road maintenance willgreatly reduce the adverse environmental effects of a deteriorating road network. No significant landacquisition and no resettlement is foreseen. Thus, the project is classified as category "B" for the purposesof the requirements of Operational Directive OP 4.01.

Domestic EA Requirements

The project's SEA has been prepared together with an Environmental Management and Monitoring Plan(EMMP) to fulfill environmental assessment requirements of both the World Bank and the Papua NewGuinea Environmental Planning Act of 1978 and the Office of Environment and ConservationEnvironmental Guidelines for Roads and Bridges of 1997. The SEA and the EMMP prepared for theproject have been reviewed and approved by Office of Environment and Conservation and were foundsatisfactory by the Bank.

Sectoral Environmental Assessment

Because the project site works implementation activities would be virtually identical across eachsub-project, a sectoral environmental assessment (SEA) approach was adopted for this project. The SEAprovides an analysis of expected impacts of each sub-project and provides a detailed set of expectedimpacts, mitigation measures for specific impacts. The SEA reviewed general issues of road maintenance,prepared and applied screening criteria to determine if additional detailed EA would be reauired for anysections, and adopted road maintenance guidelines for specific issues to be expected under the maintenanceprogram. The Environmental Management and Monitoring Plan identifies the key antivities tn he

implemented under the sub projects, lists the expected impacts from each of these activities, andreconmmends envimrnmental mitigation measpres tn reduce these imnacts.

As indicated earlipr the EFA and FMMP were nrepnaredr in 1997 iusing Danish Tnust Piunds T-Au,pvpr ulilp

to the delay in processing of the loan for this project and consequent changes in the civil works included

- 92 -

under the project as well as changes in the requirements of the Bank regarding safeguard policies, the SEAand EMMP were revised using AusALD funds during December 2000 - June 2001. lhe tinal docunententitled "Environmental and Social Impacts Assessment Management and Monitoring Plan" - ESIAMMPwas issued in June 2001.

The sectoral environmental assessment was conducted by (a) critical review of the available KRMlFP projectdocuments, (b) scrutiny of DoVWT data on roads and bridges, (c) inspection visits to selected roads andbridges in five provinces, (d) coasultation with regional DoWT engineers, foremen and workers, (e)assessment of data from the Papua New Guinea Resource Information System database, (f) assessment ofdata from the National Mapping Bureau, (g) consultation with the Office of Environment andConservation, and (h) comparison with recent best practice such as the AusAID) Papua New Guinea BridgeReplacement and Upgrading Program and the Gazelle Restoration Authority practice. The approachconforms to the World Bank's OP 4.01 which recognizes the validity of the sectoral approach as analtemative to site specific EAs.

The ESIAMMP recommends a numnber of specific operational environmental protection measures for theRMRP. These are based on consultation with: (a) DoWT engineers, foremen and workers; (b) villagersliving close to RMRP sub-projects; (c) local level govemment councilors and council executive officers; (d)lands department officials; (e) provincial govenmment statisticians; (f) provincial govermment communitydevelopment officials and workers; (g) NGOs; and (f) comparison with evolving community developmentbest practices in the mining, petroleum and logging industries in Papua New Guinea.

In addition to the ESIAMMP, diaft environmental guidelines that were developed by AusAID incollaboration with DoWT and the OEC, are already in use for regravelling and sealing of roads as well asfor new construction in PNG ani to cover disaster-prone areas (OD 4.0 Annex A). The requirement tocomply with these guidelines will be included in all contract documents for physical works.

Sub-Project Screening

In addition to the treatment of expected impacts and associated management measures, each sub-projectwas evaluated using a simnle environmental screening methodologv to identifv any notential significantimpacts which would trigger a fill Environmental Impact Assessment (EIA). Each proposed sub-projectwas scre-ened according to 7 Gr:teria to ascertain whether an in-depth analysis was required. This analysiswas supplemented by field visits by the independent EIA consultants. The analysis determined that none ofthe road sections would reouire a separate EA. The screeninu focused on the 'tvne' of suh-oroject and thesensitivity of the environment in which it was located. All sub-projects were found to have only minor sitesp^cific im.pacte

In the evunt that any rewalignnk arp rpniirpei which could have mnore eri.ousi Pnv,rnnrnPntalimplications technical design work would be accompanied by specific environmental and social assessmentsof such acquisitions, together Wixh stat.tg,ies to mitigate aniy psns.ihlp div^prsp imnpcts. Such assessments

would be reviewed and cleared by the World Bank. However, during loan negotiations it was agreeed thatfhe laDT R ,,t,, v3 nnld *chAp orlysee 4'nnts of tbe na,nonl and nrnovit.cil roads I to be cr..Anout nlrithin the

existing rights-of-way and if taldng of land is unavoidable it would be lirnited to 20% or less of the totalland of the displaced persons anrd would not entail physical relocation of people nor the des-IFction ofhouses and structures thereon.

The screening process identified a number of road sections which would pass near protected areas or other__A_+ L4. AIM- t A+U -AA ;s AA_~_ AA_ AA "_ Av A+A + 1 Z nAA-A; Pni LilrpoUlauuL iiauLLaL. I IiUU&i L116i iuau i1JltallVu, L IaL %lAj LALi.,U [U hay,' ally 316LUIL.d11L ui,allb

- 93 -

project will ensure that careful monitoring is undertaken for those sites where the potential exists forinpacts. The ESIAMAMP acknowledges that an in-depth assessment of environmental impact of threatenedor endangered habitats is difficult because the biological knowledge database is insufficient to accuratelyidentify all potential endangered habitats that might be affected by a wide ranging project such as theRMRP.

Environmental and Social Imnpacts Assessment Managem-ent and Mitigation Plan (FiSLAMMh)

Imnlompntation Arrangements

The ESL.TAMMP c-nnt,inq dptnilpI erlnurnAmPnt1 comnliancen monitoring renqirememnts inlhulincpr n2m,et,erv

and indicators for all activities relating to the recommended mitigation measures. Implementation of thesemPeciirPe Sullb p nprvip^A hv thp Prnuinrui,, rmn1nxypr'c Prniprt MrnianPrV (P1P Thpir tprn- nf

reference require them to report on compliance with the provisions of the EMMP through the regularpro-ress reports Aw,hich they are ren ,Aed to suimit to the DoWT -.d +1t-h .- I, Ty W11 i-l!b ac,e,,+

this task by the local provincial environmental specialists who were given special Bank-approved training(ir, -A-A 1- f._ q (-4_ T...-+ Th-A&IX , T,,rn. ')A1AA 'M-, - - -LAA -I(UULSLU- by A.Ui Consu Tt L .tuy) in1 Je 2000. Ths FlSrJ^. SA-.LavAO U UA .acourse in Port Moresby and a two-day training course in the provinces of Oro and Morobe. The programswer open VA +1 AU e piva- -nAtA+A_ -A : +_ +U- "_--1AA -A_ AA A L ------W91LI UjJLI*V UUV LLL VV p i UVLVL kLJ1LVUOLAI4LLO UQAIU V1u1LIakVLvO) Uk UIlI IUaU UV-aV%,LuL1.

Pr- ojet AWA En,reo,.e.ta -id.e and Co. act-Cause

A1 IX LEST^ IPVUVI_ I gnizes uLat sULImU e1VVLUIiVLZ^Irt1 <IUIVIIm mlay be assoiaedLU WiUt rUdU HIaULULIrltICU.

Mostly, these relate to management of drainage design, labor camp management, handling and disposal ofWasLVt, 4ULULy sitIe, soil erosion contUrL, dUUs Uldnoise conLtrol etc. lO- ESIAi.LIl deiins specific

measure to be undertaken to address such concems and details institutional responsibility for ensuring1.coLup,li.unWUI v uie s . lluse miifziure were based Un i ui A-us, guiuelie prepared in I;99.

Tne ESiANvir deiines preventive and mitigation measures for all potential adverse impacts that mightarise during the implementation of the road and bridge sub-projects included under the project. TheESIAMMTAP provides contract clauses together witn notes on supervision and monitoring covering aiisignificant environmental issues. The mitigation measures will be reflected in the engineering designs andbid documents for each sub-project. Further, the Bank will review the initial contracts for restorationworks and bridge replacements in each province to ensure that these clauses and measures are incorporatedas proposed.

Tlhis activity will be supervised by the Employeres Project Manager. The compliance of contractors incarrying out the provisions of the bid documents will be supervised during construction by the PEPMs.The provisions of the ESLAMMP together with the above-mentioned actions are considered adequate.Most of the proposed management measures will be directly incorporated into construction contracts andwill be the responsibility of the construction managers. The recommended mitigation measures are to beimplemented either through alterations to design, contractual clauses or as individual items in the Bill ofQuantities.

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DOWT Environmental Unit, Staff Training, Equipment and TA

DoWT has established a small environmental unit and assigned a qualified and committed environmentalistwho is acceptable to the Bank. This unit will provide coordination, oversight, and monitoring forenvironmental and social work related to DoWT activities including this project.

The ESIAMIP makes some recoramendations on institutional needs within the Department of Works andTransport (DoWT). It shows training needs as well as needed environmental mnitoring equipment tosupport the environmental unit at the centr and environmental activities in the provinces.

Additional support for the development of an in-countrv capacity for environmental impact assessmentshould be closely coordinated with the on-going Australian Aid (AusAID) support prograrn and other donorfunded projects. The proposed prcject provides for environmental monitoring eauipment and training ofstaff at the central and provincial levels in the areas of environmental and social issues.

Disclosure and Consultation Arrangements

In-country disclosure

The draft of the ESIAMMP has been distributed to the Office of Environment and Conservation andDoWT. OEC was re-ently ipgr2dPd tn a Depannrtment of Environment and Conservation. DoWT, asthe implementing agency, is responsible for the public consultations. Copies of the ESLAMMP were madeauailable te fli public at t Uhe provincia T r urr offices -An C-1e D- A-J AW

-ng ALS = n sa.S.nU5 .vhich v- zs A -.; -u: In C197 and a5au in Decer.ber 2000 - J,,ne

2001, field visits by environmental and social consultants were carried out to each province. Meetingsv ere '.eld -ith tu'.e corcene prvnilgvren+g.lIe,_ _uhe mJU-n -busines ineetsaog'era-- SfS ll.lf VVLf -SlS - lflU.TSjJVr.JV PUt, rVV,11ULIFIIL ar~1~talwCa ULI~ uuIaui Uu&3Luq1aa UILLacab Lu 4iUi uir, roa4

and selected villages. The summary of the ESIAIvMiP was translated into the most commonly used locallangtagcs , *-i mt,, adLu IVA KialUj alou WILL Luviy UivLuLU ir,;g Ulu roadu Wi sin restoraionwork or bridge replacement will take place. Further, a complete ESIAMMIvP (in English) will be kept at them1aI qua,,ers of ,he i'U in eHIai pUvinx IU iL and ra tL Provinci'al tAuniuisu-dirtions ior review by interestedparties.

Bank Disclosure

A draft of the sectoral environmeni assessment and environmental management plan was submitted to theBaun iii wvemoer 1997 yand was ;eniE o me ruDiic miormauion Center (iC n March 2000. TheESLIviMMP (June 2001) updates this draft and includes additional Social Impact Assessment (SIA)material. Tne ESiAMviMP was sent to the PIC on january 7, 2002. This document was made public in eachof the six project provinces as well as at DoWT in Port Moresby.

Consultation

Though no serious environmental or resettlement issues relating to the project are foreseen, the project willrequire access to extract local road aggregate from quarries and rivers. The present govemment proceduresto obtain access to local road repair materials through negotiation with villagers and payment for the gravelextracted are considered satisfactoty. While the ease of access may vary from place to place, it is normallyunproblematic except in cases where the land in question is disputed by different groups, in which case

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materials are brought to the site from other quarry sites where arrangements are agreed.

The Provincial Works Managers (DoWT's branches in the provinces) and the Provincial Admninistrationsresponsible for the project will through lhe proposed Papua New Guinea Volunteers - PNGV consult thepublic to ensure that their concerns are properly addressed. The public affected by each sub-project will benotified of the intent to commence with the project and the name of the contact person within PWM or theProvincial Administration or the Department of Lands responsible for the sub-project. This person willmaintain involvement through-out the implementation of the sub-project and be available for discussionswith the local people.

Monitoring and Supervision Arrangements

Detailed supervision and monitoring activities are outlined in order to ensure that recommended mitigationmeasmres are followed The sUnervi-inn nf these will he the retnAnnihilitv of the EPM The PM w:illdelegate to the PEPM who will liaise with environmentally trained PWM and Provincial AdministrationnprS nnp1 in Peah Prnvinre. A arouin nfPw.M ann Prnvinciul Admin.ictrnfnn engineers were given h,ic,

environmental training in June 2000.

Contractors, whose compliance will be monitored by the consultants supervising the construction and byt re Prorninninl EPmnIAvp,r PNrneit Manacer (PrPMUM), :l! inplienent nrovisionn nf the STAN.P These

responsibilities have been included under the terms of reference of the design and supervision consultantsaTid the EPM. The SP.ZAMUP rt-nt2ine detqi!iedi eninrnnmcntor. ri-nmnlinre mnnnitmrncr rpniiirpmep,tc

including parameters and indicators for all activities relating to the recommended mitigation measures.

DoWT, through its newly established environmental unit, will provide coordination, oversight andmoniorinags for enrivrorn,,n+al and social impract o,acoernon,t relaedor to th.a^ irrlr^itA ,Ntlho ,TVP1

The World Bank, through its supervision missions, would also monitor the impact of the project on the1Liv i.Jf.ILJAL...t

Social Safeguards

Social Impact Assessment

About 97% of land in Papua New Guinea remains under customary title and ownership. In the latecolonial period, when much of the present road system was ouilt, landowners willingly gave up iand forroads in return for a promise of economic development by the state. The last decade has seen the retractionof govemrnment services, such as health and road maintenance, from rural districts and given rise to thepopular perception that the national and provincial governments have failed in their development tasks.Any revisiting of earlier land purchases by the govemment, or suggestions of new purchases, is likely tolead to substantial compensation demands from affected landowners. Although it is intended that theRiirP be implemented within existing rights-of-way, with no new land purchases or forced resettlementrequired, similar road maintenance projects attempted in the 1990s encountered serious landownerdifficulties and brought on large landowner compensation claims against the Papua New Guineagovernment.

Any project that is likely to impinge on customary landowner sensitivities in Papua New Guinea mayexperience implementation difficulties and become engaged in strident negotiations and, sometimes, violent

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co+fUct. lhep needi tor roadi rpaligrnm..er atrtd phana.oe m lar.d ise Ic not PefnWihpl..d infl] m;tp late m flip

sub-project design stage. Even when a road is realigned within its right-of-way landowners may perceivesuch chan.ges as war A- ntin-g negot.ition a.d possible compensation. T - (ST ̂ )recommends that community consultation processes be supported at the level of RMIRP sub-project,n,nlpne.ntord

4non ar. that Inn,-

1Ipol -= An lAovnI- A- r groups be ,1 oa ft.lrhnldArc, n tha.

SIA monitoring process.

Social Impact Assessment components are also included in the ESLAMP. A main focus of attention hereis uie ermphlli o019 -Le need fio c.'UJIiwIUy conIIsuliLo IMMWO.MSw MCI. c '.1YwLlly ap1jJul Ujale land use

acquisition procedures, the encouragement of community participation in the implementation of RMRPsU-I.. -J__Ct --AS +L-LAepoo,no corr ---- i s+w'_1A-ehode-i+ers+-i +LAe DXAPxP 'M- S1 A ---I.- -iuuVl v~J-SJA.t Gilt -it plilSili S uit4.ixlu '-VU11 L7 1aAt.%A.LiUUt* 1UV A IDL~O t lG LIVJ.L.L~ . i. itt bUL 0.00173L3

recommends a Community Consultation Framework (CCF) for the mediation and resolution of conflicta4111ir, ilSll l.uUownrLd issues. tL i3 IV,.U1iJAX-L1UU ULIdL LjatJPaua 1New GUU1in Vouter V1 rLCI INU V) be

employed in each of the six project provinces for carnying out this essential role. The SIA analysis definesapp,-opliate gwui,esfor 11 -laUr da.JLu1 U aUU in r LUW11tm L UlaL Xliy Ub 1eq-4LU IU1 'uhe uipeiiLeInIaUUII Ul

the RMRP. These guidelines are in conformity with the policy of the World Bank for land acquisition and_~~~~~~~~~~~~~~~~~~~~ - - I - __ - - - -A L_ _ ___ I___ T _ T__r - - P - -' I__ ___ _ I

resetuenrieiTt auu u'i CvntisuLuuon an-u laws ol rapua INow uunea. Ine ;Lti anmaysis recomninenus a sociai

impact monitoring process that will strengthen the perception of a public and community stakeholders inthe road system both witL locai conmmunities and witi the D' Tw e social impact monitoring processwill also provide data on the effects of the RMRP on local communities to the World Bank.

Participating communities (including women's and youth groups) will undertake routinle maintenancefinanced under the project in all siu provinces. nhis is seen as to have a positive impact in terms ofengendering local ownership and protecting these infrastructure assets as well as respecting communitytraditions. Road users and viliageis will be surveyed as to the social impact of the work. Also,employment of the local people, to the extent feasible, by contractors would help reduce friction that couldarise during construction.

The function of the PNG-Vs will be to ensure that affected landowner communities are fully informed aboutthe RMRP, sub-projects and their implementation, landowner and villager opportunities for participation inthe work of the sub-projects, contnrctor labor liaison and the validation and satisfaction of communityinterests. In addition, PNGVs will provide an institution building input by promoting the concept of roadsand associated usage rights as regional common property and as essential components for regionaleconomic growth and the growth of villager cash incomes. The PNG volunteers are expected to go a longway towards reducing social conflict surrounding implementation of road and bridge sub-projects. TheCCF includes components that are designed to minimize conflict with landowners and support developmentoutcomes that will help realize villager interests.

The effect of the sub-projects on the population served by the roads involved will be assessed periodicallythrough social studies to be undertUken under the project. Since lack of year-round accessibility is a majorconstraint to social as well as economic integration and development, the broader positive and negativeimpacts of improved road maintenance and rehabilitation on the livelihood and quality of life of thepopulation served will be measured. The assessments will be designed to detect changes in: householdincomes; cash crop/commodity prodluction and sale; prices of commodities imported from other regions;changes in school attendance/reduced drop-out rates; health benefits from improved access to aid posts,clinics and hospitals; etc. The PIP contains the terms-of-reference for the study of socio-economic impactson population.

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LTtf - lt -Sf&&' 4 .,4

'A rd-Acqisti,.- Ar one-sto" 1--Aw,t

~~ u~~A. F-J .., - U - V L.JAL- -. J',LW11L41,L OuLA~ ZIJV ICULU M1Ua,. LU IVUII LO) CXILU'AjJaL. . OUUIA. Uk'

project focuses on road maintenance and rehabilitation, generally most of the resulting works arefill W1li1lLA WIUJU U A3U- 51~1a 11L_ IIWVU IUI -AA:UI4. --- I 1-A -AAU UIU U4UL- -U _1_VLirLpVlcii,L-.^ ULe^lte wi+': theexistr.g r,LI^.-of-way. &l--^le need fr auudi.<;o.> |larLdaLd dist^. oL nce to roper.-j areUI

expected to be minimal. The design for the various road and bridge sub-projects to be included under theprUJec.4 WUU'U aVUiU Uo LLXULv1411ZU LaJld alU4 aL3 aIAisUiLIUiI. 1L1lLUIV UnHJI'-uly eVeIIL WLIer addiUIUUl41 IWlaU lb

required, the Govemment will obtain all land, including rights to land, required for implementation on a.. ,Z+U~~~~~ ~~~ IL A_A - T- A If% \ n~_

LUUiiVy U4:zla LU a4'LIxUIIaW WIUtlC LLUrW ILIN 0 ljJUiWy Ull 1UVULU1aIdY LUZICWLUV111VUL -LL't.JU.JU 111W

Government's land acquisition procedures, compensation rates, and processes for resolving grievances havebeenl asstesse as s4UMiW y and ailUU o111mLUpIAr WiUI UIe DBarik' policy. C11k ipL. [ 8 of uie U rUu tvuVV

describes in detail the issues likely to arise, the basic principles of land acquisition and compensation andthe gnievance and consuauu ion measures U we fiuolowea under the project. rurther, Annex i2 1 ihus RApresents the framework which was included in a supplemental letter to the loan negotiations. Thisframework was approved by the National Executive Councii on May i0, 2002.

Land acquisition and compensation pians are necessary for a sub-project to be included in the annual workprogram to be approved by the Bank. Physical completion of acquisition of land, and payment ofappropriate compensation in accordance with Bank policies and guidelines are a condition of signing acontract with the selected contractor for a given sub-project. This would help reduce time delays andmonetary claims by the contractors due io iand problems. it should be pointed out that the time required forland acquisition and resettlement consumes at least a year. Acquisition of land should start as soon asBank's approval for inclusion ot a sub-project in the annual work program has been obtained in order toreduce further compensation demands by people who did not make claims at negotiations or by farmerswho have encroached on the acquired land with new plantations.

Land acquisition and compensation are the single most important social issue to be addressed by theproject. Land compensation brings monetary gains to communities but may also trigger social conflictwithin and between communities. The process for land acquisition is known to be complex and timeconsuming. A social scientist with recent PNG experience (financed under AusAID) carried out a rapidsocial assessment in the six provinces and met with the concerned provincial and central agencies as well asselected villages and main business interests along some of the project roads. Again, he identifieddifficulties with land owners to be the most serious risk affecting implementation of civil works.

The specific land use and purchase requirements will not be known with confidence till the sub-project hasbeen designed. Negotiations with landowners/communities should begin at this point and be concludedbefore actual work commences. The Community Consultation Framework provided specificrecommendations regarding communications with the affected communities and negotiations. Wheredisputes cannot be easily resolved with the help of the PNGV, the dispute should be handed over to LandMediators or Provincial Land Offices. After completion of the work of a road or bridge sub-project, thePNGV should make return visits to the villages concemed and ensure that all payments have beencompleted correctly and that there are no outstanding claims and major issues requiring resolution. Areport on this final meeting should be made by the PNGV to the PEPM. To execute their work properly thePNGVs should be supported by the Lands Acquisition Unit at DoWT head office. PNGVs should alsoestablish informal relationships with Provincial Departments of Lands and Customary Land Officers.

Indigenous People

No adverse impacts on indigenous peoples are foreseen under the project in relation to the provisions of OD

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4.0 Rt htpr the nroiect woniid help indirentiv in the. 2 nf nnvprtv hv mnrnvina thP .qrreqihiJitv

to markets, social services and other activities for village communities and should also provide some neededwdditinnvil livelihnnd fnr thesej c-n,mrnipg (in1hi ina tn n-^r ninral wnmin) in ronai mrintpn2nre.

PnrtiCinntnr A nnrnn.-ch

It is RUDDpv that R11xP sub project impl..n,e.lntot,nn d 1tb .,no a..d 0,,A ;rted or ,- -;-;-;,.A

by the adoption of a Community Consultation Framework (CCF). The CCF (ESIAMMP-Section 8) willbe K., b P z , C 5,Zlf n (PN ' w-rIAY\ -+]. +4,.. DPEDPA zt,h DRAADD

sub-project level in the six provinces. The design of the CCF helps minimize conflict with landowners andsupport devellopm.erit out.comees +th,,- tr.1 1.! hep 'Al7 llag:-.trss

A L.A_ n- A A- -44f-A+- IS__ A_- _ P_A ; _ _ +I A + I 1_A-_ +U- SDIL T TTv;n: +U1Av4UvV Uj5 OGU3VA.J XLw IuuVWLwP UUVLA%IW,0 la LILIjJUILMIL 1 UVI VUIV1 3W&u IIu LLI% 1'.VI . 1 la UIL Ul

interests of the GoPNG that the development needs of the regions are met by funding and supporting theIIIIIJUd-, LtiLaU VA UlI DUXYVI. DI1.JLi1, DV 1S a WILLUVL' IIUr,daUVIo o1 gUVw-lllIVUL suIJJVIrL 1o1 wiulU1lWUUV

interests and an exemplar of good governance. Participation of the DoWT, the leading government agencyLrVUolVU UI LUVh XIPdTX-, Will hlpv1 buLVguleu u1,e uivIUIU sLlU V1 LDuvv I pelrusnl aWn help resLor-e 'U'l-

credibility of government agencie s in rural districts. The joint participation by the World Bank may alsoAA_ .~~~~~~~~- - _._ 1C_. .. . r. _1 IT l* AA ___s_---- ------ Xt-|gve luauy jUpIv d VIVW Ul UIC VVUIIU DaL aa a 5UPPUlLMI U1 riui5 IUUl: U;U1IIl1U1UU MLCr SLS rniu Ucip

dispel some of the popular myths encouraged by the World Bank's association with the Land MobilizationAct wonsuiLiuon of 1995 -when imany rurad people in Papua iNew Guinea were persuaded to the view tiatthe World Bank was going to take their land from them by trickery and deceit.

Because of failure at the provincial government level to adequately fund rural infrastructure the WorldBank has recently supported the application of Parliamentary rural development funds to iocai govemmentprojects. This initiative is being Itd and implemented by the Department of Rural Development and islikely to considerably strengthen iocal level government by its support for "bottom up" project initiativesand funding support. The extension of the RMRP to feeder roads is likely to further assist local levelgovernment take on the role of stakehoiders and development initiators at the "grass roots" level. The CCFwill actively involve local level government councillors and executive officers in the consultation processand in facilitating the impiementalion of the RMRiP sub-projects.

Collaboration with NGOs and lo,cal groups

Tie CCF will be implemented by Papua New Guinea Volunteers. These persons will actively consult withLocal Level Govemment Councilors, Council Executive Officers, clan leaders, Provincial Governmentpoliticians, community based chwuch groups, women's groups, other community based groups, and anyother group that seeks an involvement with the RMIRP.

Monitoring Performance

A social impact monitoring process has been devised that will extend throughout the duration of the project.The purpose of the monitoring is to ensure that (a) the RMRP is implemented in a socially acceptablemanner, and that potential community conflicts and dissatisfactions are identified at the earliest possiblestage and (b) that reporting on the effectiveness of the RMRP for improving particapating communitiesincomes and access to services is provided to the DoWT, the OEC and the World Bank.

The effect of the sub-projects on tdwe population served by the roads involved will be assessed periodicallythrough social studies to be underwaken under the project. The assessments will be designed to detect

- 99 -

changes in: household incomes; cash crop/commodity production and sale; prices of commodities importedfrom other regions; changes in school attendance/reduced drop-out rates; health benefits from improvedaccess to aid posts, clinics and hospitals; etc. The Project Implementation Plan (PIP) contains the terms ofreference of the study for monitoring the socio-economic impacts of road and bridge improvements underthe RMRP.

The PNGVs will collect basic social mapping data and the SIA component will supplement this withsurveys designed to villager satisfaction with the implementation of the RMRP sub-projects and gatherinformation about the poverty alleviation effects and any adverse impacts. Baseline studies will beconducted before implementation, at mid-point and at the end of the RMRP. SIA reports will be furnishedto the DoWT, the OEC, and the World Bank.

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Addiitinnal Annex 12: LAND AGOUIISTlON AND G-OMPFNSAT!ON FRAMFWORKPAPUA NEW GUINEA. Road Maintenance and Rehabilitation Project

Article I

The Project, Definitions

Section 1.01. The objective of the Project is to assist the Borrower in promoting an efficient, safe and-reliable roads -rnpo . -sse ;-n flkp P-&.--4p-a;. P.ovunce 4--r.;g- (z) sh i-. .po-1r--e o -eetdradV.nunn.nh -- F-~U OY OU%flJ.. U. ua I U V..tFpLU1r5 I LVVUIV%&a UILUrUU5 . kaj U,LID.uLIJI UVY 1AL VI.J SURA3LL.LtkU l uau

segments; (b) strengthening strategic planning and management of the road sector; and (c) strengthening theinsULItL.tIona aa11,~ LI.g 1L. for road rai.-.tenar.ce, LinLLu.gUprivt, setIV4LE r p4LaLI..UcII.

Section 1.02. (a) The Project consists of the following parts, subject to such modifications thereof asThe Independent State of Papua New Guinea (the Borrower) and the Intemational Bank for Reconstructionand Development (the Bank) may agree upon from time to time to achieve such objectives: (i) Part A onMaintenance and Restoration of National Roads; (ii) Part B on Maintenance and Restoration of ProvincialRoads; (iii) Part C on Maintenance, Restoration and Replacement of National Bridges; (iv) Part D onMaintenance, Restoration and Replacement of Provincial Bridges; (v) Part E on Implementation Support;and (vi) Part F on Road Sector Suipport, and as further described in Schedule 2 to the Loan Agreement tobe entered into between the Borrower and the Bank for the Road Maintenance and Rehabilitation Project.

(b) Project components which may require land acquisition ana resetuement mcluae: (1) restorauonof about 440 Km of national reads under Part A of the Project; (ii) restoration of about 200 Km ofprovincial roads under Part B of the Project, (iii) replacement of about 9 bridges on national roads underPart C of the Project; and (iv) about 6 bridges on provincial roads under Part D of the Project, which worksare implemented within the existing right-of-way. Thie design for said components under the Project shallavoid or at least minimize land aoquisition and resettlement. No Annual Work Programs will include roadscausing the taking of land of mc,re than 20% of the total land holding of the Displaced Person, nor noperson or persons would be physically displaced, nor houses or structures would be taken.

e5finn 1 03 Unless the contnxt shall otherwiise rpeuire, the followin,g tprms have the follo wxin,gmeanings:

"Land Investigating Reports" means a field survey carried out to identify land and landowners inar.ardaflnce with nrmnedlires, satisfactnrv to thp R,naL inrl,uliina keria fnr Pli,h;ilitv t land andl

improvement compensation;

"Compensation" means the payment in cash given in exchange for the taking of land and improvement(including crops);

"Cut-off date for eligibility to entiilements" means the date of the commencement of the Land InvestigatingReports;

"Displaced Persons" means persons who, on account of the involuntary taking of land and other assetsunder the Project resulting in a direct economic and social adverse impact, whether or not said DisplacedPersons must physically relocate, liad or would have their: (i) standard of living adversely affected, whetheror not the Displaced Person must move to another location ; (ii) right, title, interest in any house, land

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(innhidiincr nrPmiq-, nrTilllhltlM and r.ina Innand) or anv nther fiypA or mnvahbl asspt rqnhlired or

possessed, temporarily or permanently, adversely affected; (iii) access to productive assets adverselyaffpreted te-mnnrnri1v or npermnentlvy nr (iv) hiibiness Arunpntijnn wori or nlIa_P of r6idpnr-p or h2hit-,t

adversely affected; and "Displaced Person" means any of the Displaced Persons;

"DOWT" means the Department of Works and Transport of the Borrower and any successor thereto;

"TmnnlxYpr'c P.rnn'et ,A,rM,capr" and the anrroninum rPPtX mAnS, rs,. ntr firm cted and rptqnme hv

DOWT on August 23, 2001, in accordance with the Quality-and Cost-based Selection Procurement methodset L-rtu-inAflI.f"GWdel-f-s- Sfi4M matd Am.loymeritt ofl C,a E [V V V . WV 'b I .AA TI-W VJ o-vveV¢Yr

published by the Bank in January 1997 and revised in September 1997 and January 1999, for purposes ofassistigDO Tin;.p-mr,ig -Aoord;--ng rr;+.4rtoin -Aupri +1,. Prj_tsp rtto-e

of reference satisfactory to the Bank;

"Land acquisition" means the taking of land and crops thereon from Displaced Persons for purposes of ther __jectLagdi-t prviio ofCo__lti171UJL 4aIIJ.L PLVOV S1011 vi %0LfivalUplaU01u1,

"ariucipiaug r[uv1ule" miiea.li, collec-uvely, Uue DBI1wUWci ' pluvulcu Uo Cel%-lulI, East INew DiainuI,

Manus, Morobe, Oro and West New Britain; and "Participating Province" means singularly any one of thesaia ProvMices

rouject" miears the Rodu lViVidlLCrIUILc 4nU IterlldO-adUUn roujeci inCIUUdLg dal rroject cwil-puuemb anu Li-

activities as set forth in Schedule 2 to the Loan Agreement to be entered into between The IndependentState of Papua New Guinea and the Bank;

"Replacement cost" means the meuiod oI valuation oI assets whicn assists in determining the amountsufficient to replace lost assets and cover transaction costs, as follows: (i) "Replacement cost foragriculturai land" means the pre-project or pre-dispiacement, whichever is higher, market value of land ofequal productive potential or use located in the vicinity of the affected land, plus the costs of: (A) preparingthe land to levels similar to those of the affected land; and (B) any registration and transfer taxes; (ii)"Replacement cost for houses and other structures" means the market cost of the materials to build areplacement structure with an area and quality similar to or better than those of the affected structure, or torepair a partially affected structure, plus the costs of: (A) transporting building materials to theconstruction site; (BE) any labor and contractors' fees; and (C) any registration and transfer taxes; and (iii)"Replacement cost for land in urban areas" means the pre-displacement market value of land of equal sizeand use, with similar or improved public infrastructure facilities and services and located in the vicinity ofthe affected land, plus the cost of any registration and transfer taxes. Following these criteria, valuationwill be done by the Valuer General's Office, Department of Lands and Physical Planning.

Article II

Principles and Objectives

Section 2.01. The principles and objectives outlined in the Bank's Operational Policy 4.12 have beenadopted in preparing this Framework. In this regard, the following principles and objectives shall apply:

(a) Involuntary Displacement shall be avoided where feasible, or minimized, exploring all viablealternative project designs;

- 102 -

(b) where Involuntary Dispilacement is not avoidable, Involuntary Displacement activities shall beconceived and executed as sustainable development programs, providing sufficient investment resources toenable the Displaced Persons tc share in Project benefits. Displaced Persons shall be meaningfullyconsulted and have opportunities to participate in planning and implementing Involuntary Displacementactivities:

(c) Disnlaced Persons shahI be:

(i) provided with infornnalion relating to the. valiation of land and impro^v.emet done in accnrdancewith this Framework by the Valuer General's Office, Department of Works and Transports;

(ii) provided prompt and effective compensation at full replacement cost for losses of land and,mnrnuPmPnfe t!ikPn hv thp Prniprt

(iii) provided aven,ues to determ.ne oInership of land and improvements thereon ther bedisputes; and

(d) lack of legal rights to the land and improvements on the land taken by the Project shall not preventL1pI4L U IClIDULJa IUILI eUUILL;ICLlL LU L_UjJp1J1Uii,

(eW) laiu andU ill bJIyLVVL11CLILy UhIVUIV silaL UV WAvI ulu 'IUJect ULLy v .uY a"veU IIaao Dhas been u

to Displaced Persons.A - I 1-TTT

Land Acquisition and Com01pensation Plans

Section 3.01. Tne actions described under this Article shall be carried out by: (a) the Provinrciai 'W'orksManagement, for national roads; and (b) Provincial Administrations, for provincial roads. To assist theProvincial Works Managemeni and the Provincial Administrations in this undertaking, the ProvinciaiWorks Management and the Provincial Administrations shall employ and retain consultants withqualifications, termis of referencz and terms and conditions of employmnent satisfactory to the Bank. If thecost of such consultants is to be financed out of the proceeds of the Loan, then the selection process of saidconsultants should follow the provisions set forth in Section il of Schedule 4 to the Loan Agreement.

Section 3.02 Land Investigaiing Reports shall: (i) be carried out to identify Displaced Persons inaccordance with procedures, satisfactory to the Bank, including criteria for eligibility to Compensation; and(ii) include an inventory of assets lost which shall form the basis for planning and implementation of a landacquisition and compensation action plan.

The Land Investigating Reports will include all Displaced Persons as follows:

Project Displaced Persons LossesName of Job Lost Marital Monthly Loss ofFamily Status Income PropertyU.ead I _ |(Kina) [(Kina)

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Section 3.03. The Land Investigating Reports shall be accompaned by infornation to the DisplacedPersons about the entitlements regarding Compensation to be provided, together with a time schedule forprovinsion of Compensation.

Section 3.04. Based on the Land Investigating Reports and inventory of losses, and in consultation withthe Displaced Persons, a time bound action plan with a budget will shall be prepared. All Compensationmust shall be provided to the Displaced Persons before road construction or rehabilitation activities workscausing said displacement commence.

Section 3.05. To ensure transparency of procedures, Displaced Persons shall be informed of the methodof valuation of their assets being applied and all payments of Compensation should shall be made in thepresence of the Displaced Person in question.

Article IV

Eligibility Criteria

Section 4.01. The procedures, satisfactory to the Bank, for the carrying out of the Land InvestigatingRenprts, shall includie criteria for eligibilitv to Comnensation, nd Displaced Persons shall he classified inone of the following three groups:

(a) those who have formal legal rights to land, building or fixed assets on the land and buildings takenhy the Projict (inrliidirnc mcltomarv and traidit-innt, ricyhtz rpmo-ni7pd lindpr the lasc of thp Borrowupr)

(b) thnose w-ho do not have fnrm, n liegal ricyhtc to lanid hi,ildinct or fixed asetc on th. lnnid nid hllifdncyctaken by the Project at the time the Land Investigating Reports begins but have a claim to such land,building or fixed assets on the lanrd and bildings taken by the Project, provided t-at such claims arerecognized under the laws of the Borrower or become recognized through a process identified in the landa-cquisition ard, cormpensation action plan;or

(c) -. V.' who have no 4,recgrle I lega l r t o;I claum tI Uh LlanI, UbIUUid VL IoAIU as3seL VIo Ui1n iaiiu

and buildings being occupied by Displaced Persons and taken by the Project.

(a) Section 4.02. Displaced Persons classified under Section 4.01 (a), (b) and (c) shall each beprovide o,esto fo; vLe l-ar, -an t--.veer uLsreo Tn y -.e -- rXoec i coa-ceW'L-'pUViuu %-.uiiipJV'iiaUUu1 IVA WI;; IaLu anlU 1U1piUVvUv1IiLb LUVIZVU1 La&L1 UY ULU 7IUJV,~L Hi 4WlAUUdIIIx WILLI LHU

provisions of this Framework.tidL CC V

iviethos of valuing arfecied assets

Section 5.U1. assets (land and improvements) snall be valuea at their replacement cost pursuant to themethodology provided for in this Framework.

Article VI

Organizational Procedures

Section 6.01. Compensation shall be made: (a) in an open forum, provided, however, that, where

- 104 -

appropriate and when requested, agreement as to how Displaced Persons intend to divide saidCompensation amongst themselves shall be obtained and said Compensation shall be paid directly to eachDisplaced Person; (b) to a grou.p leader, provided, however, that Displaced Persons of said group shall bepresent and co-sign receipt ol said Compensation with their leader; and (c) to an Displaced Person,provided, however, that the agreed Compensation shall be paid directly to said Displaced Person, and said

avyment shall be witnessed bv the Local Councilor who shall certifv that the respective Displaced Personhas been compensated.

Article VII

Implementation Process

Section 7.01. The Land Acquisition and Compensation Action Plan shall be developed and implementedbu thie Dep.r.tent of Wnrows nnd TrnnQnnrt with the ncisct2nrp nf the 1Pmnlnu,r's Proijet Minac,er inaccordance with this Framework;.

Article VmI

Grievance redress mechanisms

Section 8.01. (a) The Provincial Government District Lands Officer shall be responsible for the

(U) IV1LatL-,13 not eaLeu tv a ladu aCu4.LLs1IUII shall ube 'A'-e ny L'h J-isplJaj1aIed fI0UI Lu Uhe "UvH1lt'a1Employer's Project Manager attention or may be dealt with by an independent committee which shall*nclude 'le riesiu ofi u L e Loc £ le-vel eUrUVIUIRUIeL, a 'w'ardU uUILU IViCMmer IUr w'e aUvcteu arUea adfl MU

Village Court Magistrate.

Section 8.02. Complaints shall be addressed in accordance with the following process:

(a) the Displaced Person shill address his/her complaints to the Provincial Employer's ProjectManager or to the independent committee;

(b) in case the independent committee is unable to address the compiaint to the Displaced Person'ssatisfaction, the Displaced Person may request a formal Village Court hearing;

(c) if no decision satisfactoty to the Displaced Persons has been reached at the Village Court, saidDisplaced Person may appeal to the Magistrates Court for a hearing.

Section 8.03. The Provincial Employer's Project Manager shall cooperate on a transparent basis withthe independent committee and ihe Village Court, and shall provide all information required to assist themon reaching a decision.

Article IX

Funding

Section 9.01. The Department of Works and Transport shall bear the costs for Compensation, in respectof national roads and bridges with its own resources, and the Provincial Administrations shall bear similar

- 105-

costs in each of the Participating Provinces in respect of provincial roads and bridges with its ownresources.

Article X

Mechanisms for consultation

Section 10.01. The DeDartnent of Works and Transnort. and the Provincial Works Manager Offices andProvincial Administrations in each Participating Province, shall notify Displaced Persons of thecommencement of works ahead of time but not less than 90 davs. with Comnensation to be nrovided notlater than 30 prior to the taking of land and improvements.

Article Xl

Monitoring and Reporting

Section 11.01. Progress of implementation and outcomes of the relocation and compensation action planssho! for.,, pat of the regular quarterly reportmg, by the wrD.n,.a,4 WA.n-na-r

- 106-

IBRD 28960

- - '9 - Se- 29368 PAPUA.NEW GUINEAj-- fardeail . ROAD MAINTENANCE AND REHABILITATION PROJECT

r-----------------i-------------:--- Mann n b ZJj . . .n-a ELEVATIONS: , O R 0 PROJECT PROVINCES

WES SPI,I*) _ J WEST SEPiK. 1 - ! , t Krvi eng .o METERS 2134 7000 FEET NATIONAAL ROADS

I I Ny ~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~Kanieng91 3r000 - MAJOR PROVINCIAL ROADST!m j-!,2$M ul5 e4.jIrelrTnd _ _°__N_ [ ' SECONDARY ROADS

!AI hpe j > EAES SEPIK. S e a ELECTED TONS AND VILLAGES

i & 9 t< , ~ -.<. i ! N E W I R E L A N D . -< S S . . 6E PROVINCE CAPITALSNEW IRELAND ¾ NAT1ONALCAPRrAL

i' K 1 -, DANG J - i . M 62 Dna 28961 f or -__ PROVINCE ONTIN DARIES

o iK r' W S l :i - HI:HL~He; --1- - - I 4 -) ^C\--X-t Et s , < ST fi E BRI fTN i 8rug invilleI. *i*,~~~~~~~~~~~~~~~~~~S.286

J~ ~ ~ ~ ~~ L'ItIP n-'~. s B rI f ;aIn I te

Kf W HIrEllN NL4RIL)JI \ \tf zj: \ 4 , S o 1 o m o n 5 e o t 5 OUANL

_;, -- oX~74T7 , 1,

~~~~ / CD~~~~~~~~~~~~~~~~~~~Kn~~~~iaina

) ~~~~~~G lf. of K LMTRSr na 928 3 \ ELANDQ;

TUSTRALIS S- 29-367M_ .01 I; - C a r o l S e a R t7 , E

- 'I I. ( 145, * J _ + s s | 150> r 120> 150> AA 2no

2 _ _ _ _ _~~~~~~~~~~~~~~~~~~~~~~~~-- -- -P Q jtE _ __-. N ""-cC' gn PACIFIC ~AIFICOCEA

AJAJ5~~~~~~A~ '7 * * * - Coral Sea C ''~~~~~~~~~~~~~ ZEALANS>dta14ET ____________________________________________~~~~~~~~~~~~~~~~~~~~~~~~~~~-W01

SOTLOMON

152°00' 152°15' 152330' IBRD28961PAPUA NEW GUINEA PROJEC-

ROAD MAINTENANCE AND RIiIWi - [PAVEMENT RECONSTRUCTION

I.* . . RE-SEALING AND PATCHINGREHABILITATION PROJECT |RESEALINGI

Mok~~~~~~~do I ~ ~ ~ ~ ~~ UPGRAE DO SEALEAST NEW BRITAIN PROVINCE BREGREPLANT

TOW POM S4Ln , 1/uXNk,I IBIDGE REPLACEMENT1~~~~~~~~~ ~~~EXISTING

NATIONAL ROADSBismarck Sea I. ,,,,u Duke of York i PROVINCIA ROARS: - . ~~~~~~~~~~~~~~~~ISland EN BILT-UIP AREAS

R N~~~~~~~~~~~~~~~~~~~&p ~~~~~~~~~~~~0 SELECTED DOWNS AND ViLLAGESSN'2C'~~~~~~~~~~ IA,, CT ~~~~~~~~~~~-- = RIVERS

VNNN,NN,IM N K9 'b&bS VNXSNNNN,g S R#k~ - -K- INTERNATIONAL BOUNDARIES (INSET)

T.,L,,,,,d LZ.-95j ŽS ELEVATIONS IN METERS-

4'lS f Atoliklikun Ro,, i r, ) NW N TOflTNM CAd-rJ,, , d 200

Day~~~~~~~~~~~~~~~~~~~~a

TNNiIN ~~~~~ C,NNU NNNWN,N 'NOTE* IN NfltS IN 50065 001) brISgNS 500~~~~~~~~~~~~~~~~~~'N TE.1,

tS Q X {; ; ; t t _ v / i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ININiI,od r otsonSchoNI NT ,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~)BN50NS ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ I

,-" W~~~~~~~~ Es,d~~~~~~~~o NJNPNPN~~~~~~~~~~~~~ RNINNS. I KILOMETERS~~~~~~~~~~~~~~~~~~~KLOETR

2 C - X ' X X X f ' - i ( S 5 > rAcsc ,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 1 10s V; V,,6N V ffRNPANI TN,nNNN gi ) - - I-EC I f PACFI OCEANO

ENSONO, N~~~~~~~~~~~~~~~~5 K6Solomon HNSS'N

: CE <~ - <tr xS gPAPUTIA D5'

, c= > * ,; X f 0 ; .;f 0 *r :;" t? -<-@ / ' N l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t - N E -G U J N E

/1 _E S- ,, IA,~ ,,, N~ -. TI

M SOLOMON- ,, ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,~~~~~~~,ISLANDS

I - S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-0

A' ~~~~~~~~~VANUATUVi FILlI

I ~~~~~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AI,STRALIA IF) SOLTH~~~~~~ ~~~~~~~~~~~ K PACIFiC~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3PCII 0 So ~~~~~~~~OCEAN 3

N

ZEALANŽ7

-15DU I} ~ 1521 5 1ST' I18W

MAY 2002

IBRD 28962

15000D 150!15 150130' 15045' 151!00'1 5 1515'

PAPUA NEW GUINEA 5ooT-

ROAD MAINTENANCE AND |REHABILITATION PROJECT

WEST NEW BRITAIN PROVINCE

PROJECT EX STING ELEVATIONS IN METERS FPAVEMENT RECONSTRUCTION - NATIONAL ROADS w11RE'SEALING AND PATCH NG PROVINCIAL ROADS -1,00H

**|***REGRAVELLING |UILT-UP AREAS 6- 500

UPGRADE TO SEAL SELECTED TOWNS AND VILLAGES I 200 /

- - PROVINCE BOUNDARYJNOTE. I-srodd baJdyas aINTERNATIONALIROUNDARIES (INSETI

Wagcnakri ra'(I n ncgnsnict nulrnF s Larprasan-t Sc "rNtfMaunn Ion national was cimreoe# an rown. ms ;ISL A J t / 2 SI'Lids / ,n"9 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i

_5ISE 5' MoUnt Galo aElOnnds Plassstio n 2\R tll\ .'

V 5 10 15 20 256

Mis an m KILOMETERS gKEERS

Ni tabk9 nd'%@ .'%

5>f-39 _, K i imbe Bay

WrrnA I J04 tN'b

, _ . . ' Pcr.kr VoloDrC

Ktnrba MaGLsInE I > / ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PACIFIC OCEAN~~~~~~~~~~~~~~~~~IS 80

AMoral a K ~~~~MolW.

NMnnnsdnFco Dci . 'a,> 5 a .- . PAPLA , | V .N D ; P

A, SOLOMIN

"a' n''5 AUSTRALIA lEd SOEJTI'I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A1TAI F' OTN' z-PACIFICk!ntJjj2 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 OCEAN so~~~~~~~~~~~~~~~~~~~~~~~~3OEA43-

CY ~ ~ ~ ~ ~ ~ ~~~~~~S/ZEALAND

(cr 15000 OTIS lOOSE~~~~~~~~~~~~~~~~~~~~~~~~~~3' 150415'S -05, 120- 15c ais

MAT 2002

I2S~ 150r 180° \\da 1T8o00' S / 148o15' 14B°30' 1BRD 2896312 1. 18G

148. Gno

30r'tPACIFIC OCEAN G )

IS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~od~nPAPUA NEW GUINEA

S _ NEWPVAGUUIANEA ;t V 8 f B-uruG R ROAD MAINTENANCE ANDIFN D E - SOLOMON N D X' I A REHABILITATION PROJECTofNUATUi FIJo,a W V < ) $4 ))g C> = X X ORO PROVINCEVANUATU'` a

| Q AUSTRALIA S E- 50DIII X SOUjTH 31, ah45PACIFIC 45

k ; --- t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~---- -^~~~~~~~~~~ :H k'k .- ilS A-.^B* L ?-'Y X W

3JD OCEA Ho we -o ondett a Dj\,d > -r' LeR PoinT

_9 00 t/!9 ; C ( p)-

A 2 E..t )9°

NEW~~~~~~~~~~~~~~~~~~~~~W

PROJECT' EXISTING ELEVATIONS IN METERS A - r Af r _ PAVEMENT RECONSTRUCTION - NAT ONAL POADSt

h/ \S RE-SEALINGANDPATCHING PROVINCIA LROADL)_

...... REGRAVELL NG B UILT-UP AREAS 1,000 0 5 I 10 IS 5 U >>{ UPGRADE TO SEAL O SELECTED TO-NS AND V1ILLAGES _ o ILMTRS0\0 BRIDGE REPLACEMENT _ RIVERS 20D __ILOMETERSSi\

'* HINTENATIONAL B 0UNDARI ES IINSET) 0;

'NOTE: Imprcm - srododnge=sbr/nnn=riw v -- ; _ , <

Ip.--mef5 ..d - vnltr=d =r = h-w I, ..8,=.-115' < - \ 1 S D \ zMr22

cO,obe, 000 ~ ~ ~ WY 00

IBRD 293681 46'30' 14 45'I4 147'TO I47'15'

PAPUA NEW GUINEA

ROAD MAINTENANCE ANDREHABILITATION PROJECT

MANUS PROVINCE

2'00' MOA o2'00

21 5D 12T L 150° 180-2-15 ' ) 2I15' PHIP NES

a LAS STE igPACIFIC OCEAN

PROJECT.: ELEVATIONS IN METERS,PAVEMENT RECONSTRUCTION

-NE P AP0AEU RE-SEAUNG AND PATCHING NEWV Bism arck Sea N D'< ! GUINEA 0OI.***.*REGRAVELLING 7 OLOM ONUPGRADE TO SEAL 2

I BRIDGE REPLACEMENT L

EXISTING. VAN,ATjb FIJI

- NATIONAL ROADS I 'PROVINCIAL ROADS

CUTA A I_ SOUTHRIVERS AUSTRA L SOUTHPACIFIC

----- INTERNATIONAL BOUNDARIES (INSETI O CE A N-Ifotnn tao mdS -od bfId9Rs ,

0 ZEALAND

t. p-i-id _d~~~~~~~~~~~~~~~~~~~~ - 1 7'D'15'- lT

140'30 146'45' AA

700' a12 150-1

MkAY 2002

IBRD 29366

-8°30' I 9 | X 14630' %- _; '' "' l\ <g 1W0 ) 8°30'- PAPUA NEW GUINEAROAD MAINTENANCE AND

REHABILITATION PROJECT

I= w =bul g,)1 o~- ~~~ 1' S ° CtvSt'o9;'t ='g-- -o)tX t CENTRAL PROVINCEPROJECT'

PAVEMENT RECONSTRUCTION

***RE5SEALING AND PATCHING

---*REGRAVELLING

K.i U~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PGRADE TO SEAL

4 BRIDGE REPL-ACEMENT

EXISTING

- NATtONAL ROADS

NOD' q~~~~~~~~~~~~~~~~~~~~~~. PROVINCIAL ROARS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- POVNIL OD9 00 x0 SELECTED TOWNS AND V=L_ES E

(I) NATIONAL CAPITAL

R-d,,co, -3 M , P ° - _ _ - - --- RIVERSRodscop - V~~~~~~~~~~~~NP~~~~ 14 - - - - PROVINCE ROUNSARIES~~~~~~~~~~~~~~~~ROINE OUDAIE

G: mb0 , _ o J | OM EjDgi . , 4> ...... ELEVATIONS IN METERS

Kido --7 X; ; | | g O N=ow \ ird; > l _ __- 2,000

L.. N715*1 '' <> D[- -600

200

C SO r a * -

-~, 1,yIoLo) NOV PoodsAndhPid ArXsu:e -nPACIFICeI O

Ylsmapw=symidLylh54=pL>sinUmYdlhuWoddLl=nt~~~~~~ ~~~~ <{X / eE~ prvcAIo SOHf -s o| wn.<

;e l' ;l' X I I I I < e7/ \ ] + < *L o a U~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~15 lN

AXo0 4'Y 463 4'0 ( 2415°APUA PACIFICUOCEA

P~~~~~~~~~~~~~~~~~Eod~~~~~~~~~~~~~~~~~~~~~~ SOLOMONNATIONAL( I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -. ~~~~~~~~~~~~A ~~~ISLANDSCAPITAL - LkI T.

ROVINCE A -N.No M, OOLOOdN

PORT MCRSY o

AUSTRiALIA (F,)I SOUTH10-00, ~ ~ ~ ~ ~ ~ ~ -APACIFIC

IOWa' LAbo.,oio 10 AS OCEAN~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~100, CAN 3-

- , -.. ,,. .'--.. ~~ ~~~ ~~0 10 20 30DKiO-otoL N'I I I I Z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~EALAND~4

146230' 1470W 1417301 1460010 ID E20 50 lED~~~~~~~~~~~7 20

IBRD 29367

"0 \1ADSN P6V J7 7,-.1 4MD 6-00'-

O; -O - EP $:: 'XV! PAPUA NEW GUINEA7 .Ont \ 0 << s s >> t-M- - -. , . -' % nX - . ,- t 9 \; ROAD MAINTENANCE ANDREHABILITATION PROJECTMOROBE PROVINCE

PROJECT

'> '.XJ) P

ye a '' '' ? t * t tAVEMENT RECONSTRUCTION

RE-SEALING AND PATCHINGS *M****~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~REGRAVELLINGYo k UPGRADE TOSEAL~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~UGAE OSA

-KAlilOEEIA BRIDGE REPLACEMENT~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RDG EPAEMN

~~~~~~~~~~~~~~~~~~~~~. 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'OE ~- . Mbig

U IA0 20 KILOMETERS

*__, >, 0 0

OImon~ -S .OA,OT-AoAod' - .-,NVW0AoKo H Huon NATICA1HnEII:

'i ' - ' - - -''G U I! C P POANCI A L R O A D S P . -IN E S7'W v < Z gZ , i ; p 4.A ,, , o

PROMNOA ROADS 12 15 eIEU/ oeCiZZD T DUlLS-P AREAS-7W C00' 0 SELECTED TOWNS AND VILLAGES 7V0SU PACII0CA~~~~ ~~~~~-2L ~~~~~~~~~-] ~~RIVERS

o KLAn L~~~~~~~~~~~~~~~ ~~~V\ - -- PE~~~~~~~~~~~~~~~~OVINCE BOUNDARIESPA A

0 Bobodo C'~~ 'yS.'-SnL~no.. ----- ITRNATIONAL BOUNDARIES (INSET) T D~

F ~~~~~~~~~~~~~ELEVATIONS IN METERS: IA 'IAND

~~~~~~~~~ ~ ~ ~ ~~'.VANUATUA PFJlo

050 I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 0 PACIFICRoR -~~~~~~~~~~~~~~~ 1K 3D O~~~~~~~~~~~~~~~~~CCEAN 30-

- r ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ZEALAND

IA6j0,0' l~~~~- 4i700' 12W I0'SD

MAT 2002

IMAGING

Rport No.: 22274 PNGType: PAD