1MA%oof2. THE WORLD BANK POLICY PLANNING AND RESEARCH STAFF Infrastructure and Urban Development Department Report INU 12 TRANSPORTATION SECTOR FY87 ANNUAL REPORT INUTD February 1988 GENERAL OPERATIONAL REVIEW This is a document published informally by the World Bank. The views and interpretations herein are those of the author end should not be attributed to the World eank, to its affiliated organizations, or to any individual acting on their behalf. Copyright 1988 The World Bank 1818 H Street, N.W. All Rights Reserved First Printing February 1988 This is a document published informally by the World Bank. In order that the information contained in it can be presented with the least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The World Bank does not accept responsibility for the views expressed herein, which are those of the author(s) and should not be attributed to the World Bank or to its affiliated organizations. The findings, interpretations, and conclusions are the results of research supported by the Bank; they do not necessarily represent official policy of the Bank. The designations employed, the presentation of material, and any maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concerning the delimitations of its boundaries or national affiliation. TRANSPORTATION SECTOR FY87 ANNUAL REPORT INUTD Table of Contents Page I. INTRODUCTION 1 II. SECTORAL ISSUES IN TRANSPORTATION 1 Changes in Demand for Transport Inadequate Maintenance of Infrastructure Inefficient Transport Parastatals Slow Adaptation to Technological Change Sub-Saharan Africa Environment III. BANK RESPONSE TO THE ISSUES 5 Shifting Policy Emphasis Provision and Maintenance of Infrastructure Improvement of Transport Pricing and Operational Policies Response to Changing Demand Patterns Response to Technological Change Sub-Saharan Africa Environment Application of New Lending Instruments to Transport Regional Emphasis IV. FY87 PROGRAM 11 Lending Program Innovative Projects Colombia, Second Highway Sector Project Yugoslavia, First and Second Highway Sector Loans Kenya, Second Railway Project Brazil, FEPASA Railway Rehabilitation Project Madagascar, Port Rehabilitation Project Guinea, Transport Sector Loan Sector Work V. EMERGING TRENDS AND FUTURE DIRECTIONS 17 ii ANNEXES 1 -- Transportation Projects Approved in FY87 20 2 -- Trends and Patterns in Current Lending 21 Lending volume Transport in adjustment lending Regional distribution Sectoral distribution Components Size of projects and loans Rates of return Cofinancing Appendix 1 - Expected and Actual Economic Rates of Return in FY87 Project Completion Reports 27 Appendix 2 - Official Bilateral Cofinancing for Transportation Projects, by Source, FY80-87 28-29 3 -- Transport Sector Reports Issued in FY87 30 This report was prepared by J. Gutman and F. Johansen; H. Mattheisz provided statistical inputs and INUTD staff some background notes. February 1988 I. INTRODUCTION 1. The continuing sluggishness of the international economy through the 1980s, the declining terms of trade for much of the developing countries and limited net flows of capital to such countries have had substantial repercussions on the transport sector. The adjustment of the developing countries to this situation has affected the level and pattern of transport demand as well as the structure and provision of transport services and related infrastructure. As the Bank has had to adapt its assistance in general to more effectively address overall economic conditions, so the Transport Sector is also striving to adjust and adapt its traditional forms of assistance and advice to ensure that sectoral policies are consistent with macroeconomic objectives. The following report summarizes the current issues and problems in the sector and assesses the effectiveness of the Bank's response. It then goes on to describe emerging trends and issues and directions for future Bank efforts. While this report excludes urban transport (to be reviewed with urban lending in general), it is expected that it will be included in future years. 2. The following discussion focuses on the "problems" of the transport sector and is not presented as a comprehensive description of the state of the sector. While these problems are significant, one should not lose sight of the significant advances made in the sector and, in particular, in the relatively rapid development of the primary transport network of road, rail, port and aviation infrastructure and the generally rapid response to demand in providing transport services. The incidence of the problems detailed below varies from region to region and even within regions. They are also not unique to developing countries. Finally, the lack of comparable data on which to measure progress in the sector is striking and illustrates the need to develop a series of basic indicators for the sector to help guide such reports. II. SECTORAL ISSUES IN TRANSPORTATION Changes in Demand for Transport 3. The level and pattern of demand for both international and domestic transport by much of the developing countries have been substantially affected by macroeconomic events. As terms of trade deteriorated, demand for exports from these countries, mainly primary commodities, also declined or stagnated. Reduced earnings, not compensated by increased capital transfers, further reduced imports to those countries. It was only the successful export-oriented growth developing countries, mostly in Asia, that have managed to thrive based 2 on "non-traditional" exports. As a result, infrastructure built to serve traditional exports may be in excess in some countries. Also competition remains stiff in shipping as excess fleet capacity by developing and developed countries, caused by technological change as well as lack of demand growth, continues to bring pressure on existing operators. 4. Changes in domestic industrial and agricultural policies have also affected the pattern of transport demand. Industrial restructuring, especially when it concerns the scaling down of previously protected non-competitive industrial enterprises has obvious- effects on transport demand. More importantly, agricultural policy changes which result in dramatic shifts from imported to domestic food production reduce the need for port infrastructure and related rail facilities and put more pressure on road transport to serve diffused locations. 5. The modal shift, especially from rail to road, continues. Economic recession has pushed even some of the most regulated trucking environments to become aggressively competitive. That coupled with trucking efficiency improving at a faster pace than railways have accelerated the shift, with substantial financial and operational implications for railway enterprises and the governments which must meet the resultant deficits. 6. It is not clear whether passenger transport demand has been greatly affected by stagnant growth in income per capita or changing relative price of transport. In some countries, particularly the highly indebted middle income countries, interurban traffic growth rates has slowed from its late 1970s levels. In general, however, passenger demand, particularly for roads, continues to increase. Inadequate Maintenance of Infrastructure 7. The transport sector, representing from 10-25Z of public expenditure budgets and as high as 40% in some African countries, has been particularly affected by the cuts in government expenditure required to reduce public sector deficits. With the exception of Asia, the cuts in transport and communications were generally above the average for the public sector. The pattern was especially evident in low income countries. With ongoing investment contracts supported by external financing, some countries, in order to meet their commitments, even had a greater reduction in maintenance budgets. Even where maintenance outlays were reduced to a lesser extent than construction, this was often to meet wage costs leaving little else for materials and supplies to effectively carry out maintenance. The problem, however, is more than a financial concern. More intractable have been the institutional problems concerning the planning and execution of maintenance and the lack of accountability. 3 8. The road subsector illustrates well the problem. The maintenance of the road networks which expanded quite rapidly over the past 20 years has been neglected throughout the developing countries. As these roads age and the traffic over them grows heavier, the rate of deterioration is accelerating. Not only is this resulting in the loss of valuable capital assets which will be more expensive to repair as deterioration worsens, but the effect on the costs of operating vehicles over such roads represents a substantial loss to the economy. As the cost of road rehabilitation increases and budgets remain constrained, some countries, especially in Africa, must face the difficult decision of reducing their networks. Other transport subsectors face similar problems, if not as dramatically as roads. Rail lines, even high traffic density lines, are facing heavy maintenance and rehabilitation requirements. Even more critical, however, is the lack of appropriate maintenance of equipment leading to unacceptably low availability for railway locomotives and, in ports, the poor utilization of expensive container equipment. Inefficient Transport Parastatals 9. The inefficiency of transport parastatal enterprises continues to be a primary concern for the sector. The concern is now magnified by the financial pressures on governments and by the competitive pressures of international trade as adjustment takes hold. Inappropriate government intervention and conflicting objectives have resulted in enterprises with ineffective management and a lack of financial control and overall accountability. This has in turn led to inadequate pricing, excess labor and poor operational performance in many of the Bank's client countries. It is not uncommon for the combined deficits of state-owned parastatal enterprises (ports, railways, airlines and airports) to reach 5-10Z of a government's revenue budget. 10. Railways best illustrate the scope of the problem. Such parastatals are often used as a means for public employment, their staff representing more than what is required and mainly comprising unskilled labor earning minimum wages. Strong vested interests arise and restrict the enterprise and the government from responding to changes in technology and demand. Incentives to promote better performance are virtually nonexistent and costs cannot be recovered as trucking competition increases and governments act to protect certain key industries. With the changes in demand patterns and modal split mentioned above as well as in technology, the problems become exacerbated. In the highly indebted middle income countries, the railways have often borrowed to meet operational deficits and have now accumulated an untenable debt structure. 11. In other subsectors, although the financial problems may be less severe, the issues of management, operational efficiency, accountability and excess labor are also prevalent. Port operations and the introduction of technological change or just straightforward improvement of operational practices are hampered by the factors 4 mentioned above. In a number of countries, although trucking is provided by the private sector, government regulation and intervention restricts the industry's ability to react in a timely fashion with a wide range of services to meet diverse demands. Slow Adaptation to Technological Change 12. While there have not been revolutionary technological advances affecting the sector in recent years, certain improvements in shipping and in general computer technology have important implications for developing countries. Given the increasingly competitive nature of international trade and the shift to higher value non-traditional exports, there is a growing emphasis on transport, its level of service and cost. In an effort to reduce inventories and overall distribution costs, industry is demanding "just-in-time" "door-to-door" transport service. This has been facilitated by the introduction of containerization and intermodal transport operations. New around-the- world services and line haul hub-and-spoke shipping routes have been organized in order to maximize ship loading and the use of larger new generation ships while minimizing the number of ports of call. In adapting to this situation developing countries have had to rethink the role of their principal ports which may now be considered as feeder ports to a small number of regional transhipment ports. This also affects country strategies with regard to ship fleets and the types of vessels required by this new routing pattern. Lastly, regulatory and customs procedures which inhibit the most efficient use of containers and the ability to move a container inland need to be reconsidered. 13. Computers are also affecting transport and provide opportunities for improved management through the timely compilation and processing of data, whether it be for railway yards to keep track of rail cars, for highway authorities to monitor the condition of the road network or for ports to minimize freight related paperwork. One problem has been the fast pace of change in computers such that in the time it takes to install and make operational an information system in a country, the technology quickly becomes obsolete. Sub-Saharan Africa 14. The Sub-Saharan Africa region, comprising most of the poorest countries of the world, faces some of the more difficult transport problems. Low population densities spread over large areas make even minimal road networks very costly to provide on a per capita basis and particularly onerous to maintain as tax sources are limited. Shortage of employment results in swollen civil service ranks, especially in transport, and substantial deficits. Management resources are thin. Transport is generally inefficient and even at acceptable levels of efficiency would tend to have a high incidence in the final cost of goods compared to other countries. 5 15. Over the 1980s much effort has already been devoted to improve the situation and some progress has been made, albeit well below desired results. With scarce resources available, even when including foreign assistance,there is a need to reassess optimal infrastructure development, including feeder roads in light of what countries can "afford". There is also a need for updating tax and regulatory systems and for overall improvement of efficiency. Indeed, transportation services need to be able to respond flexibly and promptly if they are to support macroeconomic reforms, especially with regard to the liberalization of agriculture and trade and exchange regimes. Environment 16. Although transport has not been one of the main target areas in redressing environmental concerns, the increasing attention being given to such issues throughout the Bank and some recently publicized cases in the sector have raised the awareness of such concerns in the selection and design of transport infrastructure. Both the natural and human environment deserve attention with regard to transport. Road.and rail alignments have significant implications for settlement patterns in ecologically sensitive areas. Port development can affect the marine environment. Moreover, traffic safety is a substantial issue as accident rates in developing countries are up to 10 times the rates in developed countries. III. BANK RESPONSE TO THE ISSUES Shifting Policy Emphasis 17. The Bank's policy work as well as its lending to the sector traditionally focussed on the provision of infrastructure and the development of local government and contractor capabilities to design, supervise and carry out works in accordance with appropriate professional standards. That focus reflected the major sectoral objective of establishing an adequate primary transport network. During the last 10 years, with the primary network of most countries in place, the emphasis has shifted to the utilization of that infrastructure and to the issues of pricing, transport services, maintenance and related government policy. It is not that such issues are necessarily new, but that their relative importance has increased. Today's economic situation makes it imperative for developing countries to get the most from existing infrastructure, minimizing the need for new investments. Prior Bank efforts in this regard have been largely disappointing as discussed in Ian Heggie's "Transport Policy Reform: Review of Experience and Development of an Analytical Framework for Designing Policy Reform". As a result, Bank-supported research in the sector is moving into new areas of policy reform to provide a more profound analytical framework; sector work in the regions has become more directed at key issues in 6 order to better serve as a basis for country dialogue (paras. 47-50); and new lending instruments are being tried which focus more appropriately on these issues (paras 26, 34-35, 44-45). It is too early to judge the results because many of the efforts are relatively new, but a discussion of where we stand and a summary of the FY87 Bank program is provided below. Provision and Maintenance of Infrastructure 18. The Bank's analytical work in the transport sector has been mainly directed at issues relating to the provision and maintenance of infrastructure. Investment analysis techniques, design and construction methods and, more recently, assessment of maintenance strategies have been the subjects of Bank research; the results of which have been incorporated in Bank and government operations. New lending instruments such as sector loans have also been developed which reflect the capabilities of governments to handle the specific investment projects while Bank intervention and dialogue focuses on overall investment plans, their composition and the balance between maintenance and construction. Similarly, maintenance and subsectoral rehabilitation loans have proliferated to address more directly the issue of maintenance (para. 33) It is apparent that while the Bank has been successful in understanding the technical aspects and is having increasing success in convincing governments of the financial requirements and economic benefits, the more intransigent problem has been institutional; what is the most appropriate organizational/management arrangement which will ensure the efficient use of budgetary resources? Various approaches, including private contracting, are being tried by governments with and without Bank support and the results will be important to future operations. While most of these efforts have been in highways, the other subsectors require similar attention. Improvement of Transport Pricing and Operational Policies 19. Bank work on transport pricing and operational policies has been more variable. Much of the analytical work has been directed at pricing and taxation issues, trying to resolve problems of establishing cost-related tariffs and user charges in an industry where the high proportion of joint costs makes for complex accounting problems. In addition, the Bank has investigated technical issues relating to railway and port operations in particular. Lending operations have attempted to apply the results of this analytical work but have consistently fallen short of expectations. There are many reasons, among them: (a) Inability of the Bank to prove the importance of certain policy reforms and to answer questions such as, what are the specific effects of not following cost-related pricing? What are the benefits of deregulation? 7 (b) Inattention to the political costs and benefits of sensitive policy reforms and lack of understanding of the appropriate time-frame for reform. (c) Dialogue with the wrong agency of government for taking the necessary policy decisions. (d) Lack of appropriate techniques to help governments implement reform policies, such as how to resolve labor redundancy or how to deal with the private sector. 20. The results of recent experiments should give us a better understanding of how to resolve these deficiencies. Various railway projects are being developed around contracts and actions being agreed between the enterprise and the government which clearly delineate each one's objectives and responsibilities. Efforts at decentralization and enhanced autonomy are being tried in the ports subsector (as well as in road maintenance). Deregulation of trucking and bus operations is also being implemented. Lastly, areas for increased private participation such as in port operations, railway locomotive maintenance and highway maintenance are being explored. Alternative lending approaches to these issues are also being tried in an effort to obtain the commitment of the appropriate government entity. Response to Changing Demand Patterns 21. The issue of changing demand patterns (paras 3-6) illustrates the organizational problem in the Bank, as well as in the countries, in which transport is managed relatively independently of the sectors which it must serve. A ton of goods becomes an anonymous flow across the network and planning is based on the accumulation of gross tonnage with some general growth factor applied. National transport planning exercises often exacerbated this problem as the comprehensive planning schemes gave up detail in exchange for broad coverage. Recent Bank efforts in sector work and lending have focussed on transport corridors and/or on the movement of specific commodities (para. 49). Also Public Expenditure Reviews and multisectoral missions have helped to improve the dialogue both within the Bank and within the countries. The development of appropriate methodologies for such exercises are required and the use of cross-sectoral teams to enhance these efforts. Response to Technological Change 22. Bank staff in transport have had to weigh carefully the benefits of promoting technological improvements such as container technology in ports or locomotive technology in railways, with the ability of countries to adapt and absorb such technology. Often the benefits are in terms of labor savings which cannot be realized unless management has the ability to restructure its labor force. Yet, the countries often find themselves in a surplus labor situation with high general unemployment. Other problems encountered include the inability 8 to obtain spare parts and maintain such technology. Moreover, to realize the benefits of investments such as in containerization requires appropriate freight management regulatory policy within the country with regard to intermodal handling and customs. Bank expertise is limited in this area and a number of projects, particularly in Asia, are attempting to address such issues. It is clear that more research and practical guidance on these issues is needed. Sub-Saharan Africa 23. To better address the more difficult transport problems in Sub- Saharan Africa (paras. 14-15). the Bank is trying to develop a more comprehensive regional approach with a number of facets. Better coordination between donors is being sought through a consistent policy strategy such as for road investment versus maintenance. In addition, high level policy seminars with government officials have been organized by EDI and the Region to provide an open forum for discussing the major issues and chief concerns and the alternative options. Follow-up seminars within Africa are being planned to address specific issues such as road maintenance and railways under the Sub-Saharan Africa Transport Program. A broad range of lending instruments are also being prepared including multimodal sectoral loans, public enterprise reform loans and SALs which are more tailored to the specific issues. Lastly, research and sector work is planned on pricing and taxation, the relationship between infrastructure and agricultural development and export corridors. Environment 24. A number of projects have incorporated environmental concerns but the efforts are still relatively limited. It has been difficult to find the appropriate modus operandi to raise the priority of environmental issues within the client countries. Efforts on traffic safety have had a similar fate. Within the Bank, guidelines are being developed for transport and training of Bank staff has been initiated to enhance awareness. Application of New Lending Instruments to Transport 25. Although the bulk of transport lending is carried out under traditional investment loans, there have been a growing number of new style loans in the sector as well as the incorporation of transport policy reforms within broader lending instruments such as SALs and PERLs. Increasing use has been made of modal sector loans, principally in highways. Unlike Bank sector loans outside transport, the highway sector loans have not focussed on policy reform but rather have been used as a means to broaden Bank influence on overall investment and maintenance programs in countries where traditional project lending was not effective. By covering a time slice of the overall investment program rather than the execution of specific projects, modal sector lending also reduces the time required to disburse loan funds. By 9 contrast, railway lending, while not referred to as sector lending, has followed this broad investment program format and has focussed on substantial non-investment policy issues. 26. While the early structural adjustment programs included few transport policy components, since 1983 these have become regular features, dealing with issues which could not be resolved at the sectoral level because of their broader implications, requiring non- transport agencies' agreement. Conditionalities have related to raising vehicle license fees, railway and airline tariffs, and maintenance allocations; reducing staff and deficits of public sector transport enterprises; revising port statutes to increase management autonomy; privatizing public trucking companies. Of the 79 non-project loans approved between FY80-87, 13 SALs and 19 other non-project loans contained significant transport conditionalities. 27. While it is still too early to assess the effectiveness of the expanded sector lending and the use of SALs to address transport issues, the PPR review of Bank efforts in transport policy reform (Ian Heggie's "Transport Policy Reform: Review of Experience and Development of an Analytical Framework for Designing Policy Reform") suggests that weaknesses in the design of transport policy reform and in its implementation, rather than the type of lending instrument, are more responsible for the limited success of such efforts. It is apparent that sector/subsector and project lending will continue to represent the bulk of transport lending. The long time frame required for achieving improvements on the operational, institutional and policy issues are better suited to such lending with slower disbursing characteristics as compared with adjustment lending, often with a series of loans. To more effectively apply sector lending, however, will require changes in the Bank's approach to supervision of transport projects with more time required from economists and financial analysts than under standard project loans and higher supervision coefficients in general. Regional Emphasis 28. The responses of the regions to the issues described above and the utilization of the new lending instruments, has obviously varied depending upon the importance of a particular type of issue and the role of the Bank in a given country. Substantial macroeconomic adjustment has been initiated in the Latin America and Caribbean Region, as many countries faced the problems of excess indebtedness. Although the sectoral issues that were being faced have been of concern to the Bank in its dealings with the LAC countries for some time, the overall economic crisis raised governments' interest in taking the necessary but difficult measures. The Region moved quickly to establish a dialogue with the new administrations which took office over the last five years in Mexico, Colombia, Brazil, Uruguay, Costa Rica, Peru and Bolivia. High level policy seminars in 1985 and 1986, and issue-oriented sector work set the basis for the dialogue, and the lending pipeline, after some years of contraction, began a substantial expansion focussing on 10 road maintenance and railway restructuring (Mexico, Brazil and Chile); road pricing and taxation, and port investment rationalization (Mexico and Colombia); and to enhance the competitiveness of primary exports through improvement of port facilities (Argentina). There are still areas where, despite a number of operations, progress has been frustratingly difficult, as with the railways of Colombia and Argentina. The question is whether the countries will be able to sustain these initiatives in the face of continuing economic difficulties and how transport can best serve recovery efforts. 29. The African Region, as discussed in paragraph 23, faces a more difficult situation because governments there were more reluctant to adopt the adjustments required, which would be even more difficult than in LAC given the lower levels of resources generally available. Nevertheless, the then two African Regions were able to develop cogent lending strategies and invested considerable resources in disseminating their approaches to African policy-makers and to other lending agencies, including high level round tables held in Rome. They increased awareness of the urgent need for the development and adoption of systematic road maintenance programs, including a network retrenchment process in some countries. The Regions have been able to engage many countries on this path, both through their own technical advice and financial assistance, and through systematic aid coordination and cofinancing efforts which have had good results. The Regions also adopted innovative lending approaches, including multimodal coverage, and even assistance to private trucking industries; for instance, the export and import rehabilitation projects in Ghana provided much needed foreign exchange to import, inter alia, spare parts and other materials for the rail, port and road transport subsectors. The Region also focussed on transit problems of landlocked countries; a project for Malawi for the first time includes improvements in another country, of the port of Tanzania, for which cofinancing was mobilized. The Region had the highest number of SALs (for instance, more than half of those approved in FY87) and the transport sector was assisted through most of them. However, some countries remain to be converted; for instance, Kenya is slow in admitting an emerging maintenance problem; Niger and Burkina-Faso are still proceeding with uneconomic network expansions such as the Agades-Zinder road and the Tambao railway, to the detriment of highly justified maintenance expenditures. 30. The situation is generally quite the opposite in Asia, where the countries are largely enjoying an economic expansion and credit is widely available. The largest country, China, has become the largest single borrower in the transport sector. Its infrastructure is insufficient, considering both standards and size, and a vast modernization program in all modes has been started. The Bank's assistance is valued more for its technical input and know-how transfer than for its loan amounts and policies. A similar approach has also been developed for India, whose networks are equally deficient. In other countries, where networks are developed and the Region focuses more on policy and operational improvements, the dialogue is slow in 11 evolving and lending has greatly decreased. Nevertheless, the Region has been successful in a number of countries; for instance in Malaysia, it helped introduce privatization in a port and rationalization of road maintenance, and pointed out the deficiencies of a road toll financing scheme which was subsequently abandoned. The Region is advancing its dialogue in most countries, covering, inter alia, road user charges, railway tariffs and land transport regulations, and changes are slowly being realized. At the same time, the Region has very poor countries for which it has also developed ad hoc strategies: developing the network in Laos, and looking at transit problems of Nepal (Nepal is the only Asian country to have received a SAL since 1984). 31. The EMENA Region has been able to promote the reorientation of expenditures in the transport sector in the wake of overall economic recession. Projects evolved from mainly financing network expansion, until recently, to financing maintenance and modernization, for which hitherto sufficient local funds became insufficient; increased know-how and technological transfer also figure prominently among the reasons these countries ask for Bank assistance. This is a difficult order, given that borrowers are sophisticated and their problems are fairly complex. This also limits the responsiveness to policy dialogue started a few years ago, but which is improving. Indeed, there are signs of evolution toward sector lending and results should become more visible in a few years. While some countries are near graduation, others just recently joined the Bank; the Region has quickly expanded lending to Hungary, and is preparing a program for Poland. IV. FY87 PROGRAM Lending Program 32. The Regional efforts culminated in the approval of loans and credits totalling US$1.7 billion for 25 transport projects with a total cost of US$5.1 billion; transport represented 10% of total Bank lending. The projects approved in FY87 are listed in Annex 1; discussion of trends and patterns in current lending is provided in Annex 2. In summary, lending for the sector has declined both in absolute and relative terms since 1984, when it peaked at US$2.6 billion and 17Z of Bank lending. East Asian countries account for about one-third of the lending; Latin American countries for one-fourth; South Asian and EMEMA's for 15Z each; and East and West African countries for 7-8Z each. IDA countries were the beneficiaries of about one-third of the lending. Reflecting relative modal importances, the road subsector share averages 55%; railways, 24%; and ports, 16%. Less than five percent is lent through sector loans. In turn, civil works account for about one-half; equipment, a third; technical assistance and training, 10%; and contingencies, the remaining 10%. The average project cost is US$200 million, with an average Bank financing of US$70 million; in FY87 no loan was less than US$10 million or more than US$200 million. Cofinancing, although only some seven percent of Bank financing, has 12 ensured a coordinated approach in the beneficiary countries. Expected rates of return are commonly in the 20-30% range, and such rates are generally confirmed upon project completion. Innovative projects 33. A sample of "innovative" projects is provided below, drawing on projects from each mode and Region, starting with highways, continuing with railways and ports and ending with a transport sector project, each of them addressing adjustment and policy issues. It can be said, though, that the bulk of the FY87 projects focus on road maintenance and rehabilitation, making a much needed contribution to the tight fiscal resources available. For instance, the Pakistan Fourth Highway Project is relatively simple, mainly assisting modernization of 650 km of the main road connecting the port to the capital; in addition, it does include measures to strengthen highway agencies' capabilities in road management, to assist development of domestic contractors and to reduce the high incidence of road traffic accidents. On the other hand, some innovative transport operations or assistance to the private sector are not reported under the sector as they were part of public enterprise reform projects, comprising restructuring of railway, bus or aviation state-owned companies such as in the Morocco PERL, or were part of more general country adjustment operations. 34. Colombia, Second Highway Sector Project (US$180.3 million) The Second Highway Sector Project is the culmination of an extensive dialogue with the Colombian government, based on the Bank-prepared Transport Sector Strategy Paper of August 1985. This paper identified the main sector policy issues, of which the following directly related to highway subsector management: road user charges, road transport regulation, sector expenditures and funding, transport facilitation, and institutional efficiency. A First Highway Sector Project, after a long hiatus in the lending for highways in Colombia, addressed these issues, particularly those pertaining to sector management, sector priorities including planning procedures and budget allocations. However, the attainment of objectives, both physical and institutional, remained elusive. 35. The Second Project emphasizes institutional objectives not achieved thus far. The accent is on technical assistance to: i) strengthen the Ministry of Public Works highway management capabilities, including planning, financial control, safety, personnel training, vehicle weight control and a country-wide implementation of pavement and equipment management systems; ii) adjust sector policies, covering road user charges, the trucking industry and trade facilitation; and iii) improve the budgetary process of the Ministry of Public Works. The program is incorporated in a comprehensive Action Plan, which clearly sets out actions required, who is responsible for them, and by when they shall be taken. Progress on the attainment of objectives will be monitored and semi-annual reviews and consultations held between the Bank and the Ministry; satisfactory progress is a requirement for 13 continuing disbursements under the loan. Conditionalities have been agreed upon to promote policy targets, and the loan funds serve as a lever to motivate Government to reach those targets, as much as to the obvious purpose of supporting physical investments. The loan funds predominantly support a time-slice of the Ministry's 1987-93 highway program, including civil works, maintenance equipment and a sizeable road safety component. 36. Yugoslavia, First and Second Highway Sector Loans (US$121.5 and 68.0 million) The Bank's involvement in Yugoslavia's highway sector was considerable in the 1960s and 1970s, through 11 loans mainly for road construction. The early 1980s saw a hiatus, largely due to the economic stringencies then experienced by the country, which also led to severe curtailment of funding for road maintenance and a consequent deterioration of the road network. The Highway Sector Project (FY86) and the Second Highway Sector Project (FY88) represent a new beginning, covering a 4-year and a 3-year time-slice respectively, of the road investment and maintenance programs of all the republics and provinces of Yugoslavia. 37. Major emphasis is put on continuing the long-term strategy to assist and foster sound, planned development of the highway network, to consolidate institution-building efforts and inter-republic coordination, and to establish appropriate road user charges. Investment and maintenance programs have been tailored to available financial resources and will be reviewed annually. All components are subject to economic evaluation according to agreed criteria; in addition, a pavement management system is being developed to improve cost-effectiveness of road maintenance and rehabilitation operations. Further to strengthening the respective Republic and Province institutions, interagency coordination will be strengthened through the creation of a Federal Association of road organizations. The local funding issue is linked to road user charges, which are being adjusted periodically for inflation. Detailed programs, financing plans and implementation schedules have been developed and incorporated into an Action Plan under the Second Project. 38. Kenya, Second Railway Project (US$28 million) The Kenya Railway is vital not only to Kenya but also to the landlocked countries in its hinterland. The First Railway Project provided the seeds for the Second through study components. The studies demonstrated the need to improve the overall policy framework within which the railway operates and to increase its commercial orientation. 39. The primary initiative of the Second Railway Project is the Action Plan and a resulting Corporate Plan. Recently approved by the Kenya Cabinet, these plans clarify the relationship between the railway and the Government, and the responsibilities and authority of each. Specifically, the plans call for the Railway to adopt a commercial attitude and provide only cost-covering services; if the Government wishes to intervene for "social" reasons, then provisions call for 14 Government compensation. In principle, freight is to be a fully commercial activity, while certain branch lines and passenger services will continue to be subsidized, but at a decreasing rate. To help achieve these broad objectives, the project calls for a revision of the management structure which would simplify decision-making on day-to-day matters and free time to consider longer-range matters; establishment of a new business function to improve marketing and investment planning; introduction of modern operational and financial control tools aimed at reducing costs and making better use of capital investments; and human resource development, including training facilities. Almost 20% of the project cost corresponds to institutional components, an unusually high percentage for such "software" efforts. 40. Brazil, FEPASA Railway Rehabilitation Project (US$100 million) Over the past two decades, Brazilian railways have undergone the transition from general carriers to increasingly specialized carriers of bulk over long distances. Unfortunately, Government control over tariffs and intervention in operations and investments, combined with the railways' institutional shortcomings in many areas, have led to recurrent deficits, inappropriate investments and excessive borrowing. The Railway Project will assist one of Brazil's two railways, FEPASA, to begin the process of reversing these trends. 41. Several key policy initiatives have been agreed. The metropolitan passenger services, socially justified but operating at a loss, have already been separated from FEPASA in a recent organizational restructuring. This change should permit FEPASA management to focus efforts on services which could become commercially self-supporting. A new "normalization" scheme will identify other uneconomic services, subject them to evaluations as to need and efficiency, and permit the Government to reassess its subsidy decisions annually. Thirdly, a tariff, marketing and cost control action program will lead to a review of FEPASA's tariffs along commercial lines and financial goals; will develop and implement a traffic costing, cost-accounting system, and improve sales planning. These policy initiatives should permit FEPASA to overcome its past problems. 42. Madagascar, Port Rehabilitation Project (US$16 million) This project is perhaps one of the most interesting port projects. At preparation, the principal port of Madagascar, Toamasina (ex Tamatave), had one of the worst records for poor productivity, poor labor relations resulting in frequent strikes, very inadequate management. It was also an example of the problems created when port infrastructure is the responsibility of one ministry (Public Works) and operations that of another (Transport). 43. The Bank tackled the problem of improvement by starting a dialogue with the Head of State, as it was clear that his support for needed changes was essential for their implementation. As a result of this dialogue, and prior to project effectiveness, all ports were brought under the control of one ministry (Transport); some union 15 prerrogatives were abolished, prompting change; and the management team at Toamasina was replaced. Considerable technical assistance was provided both by the Bank and bilateral agencies under the project. The changes brought about have included: tariffs being increased to permit a positive return on investment; turn-around times decreasing; and foreign exchange being made available as necessary for imported inputs. It is to be expected that further productivity and efficiency gains will continue during project implementation. 44. Guinea, Transport Sector Loan (US$55 million) Three highway projects and one port project had already been implemented in Guinea, aiming at widespread institutional improvements in addition to improving the run down infrastructure. However, further improvements needed in those areas, as well as in the railway and road transport sectors, called for a broader approach taking advantage of the very good relationship developed with the government agencies. The result is the Transport Sector Loan. 45. Considerable policy improvements were introduced before loan effectiveness and many more were agreed upon for later introduction. Some of the measures are: annual reviews of maintenance and investment allocations; review of road maintenance funding mechanisms for agreement on a course of action; road user charge and railway tariff revisions; changes in regulations for road transport services; privatization, restructuring or the granting of autonomy to a number of public transport companies, such as the Conakry Urban Transport Company and Air Guinea, and the privatization of some functions of the port agency, such as maintenance of port facilities and of navigation aids, and ship and cargo handling. The project finances technical assistance to help achieve most of these objectives, such as deregulation of the road transport industry, improved planning, pricing policies and manpower development. Disbursements are tied to progress in specific areas, and will help finance road rehabilitation, expansion and modernization of the port, and airport improvements, as well as the technical assistance mentioned above. Four agencies cofinance the project, which should promote a more coordinated approach in the sector. Sector work 46. During FY87, 20 Bank transport sector reports were carried through to yellow (8), green (7) or grey (4) cover (Annex 3). The number of such reports was about the same as in previous years; FY87 has been the year with the largest number of staffweeks (745) devoted to economic and sector work so far. The reports cover increasingly complex areas, continuing the trend of analyzing both the framework and the operational side of transport services, in addition to the more traditional infrastructure investment analysis. Given the complexity and diversity of issues that can arise in this multimodal sector, the coverage however was restricted in each case to the more important questions, and the analysis was undertaken mostly with the help of consultants specialized in them. Furthermore, much sector work was done 16 through studies included in projects or by government staff as part of their own programs; available results were utilized in Bank work. All the reports include a series of recommendations, were discussed with the governments concerned, and are being used to prepare future lending operations and define policy objectives and changes required to achieve them. 47. The sectoral issues highlighted earlier in this report are recurring topics. Two studies are devoted to an area relatively new in Bank analysis but of increasing importance, even though not requiring Bank financing: shipping, as opposed to port, aspects. A report on the shipping fleet in Turkey analyzed the adequacy of its size and composition and made recommendations for its adaptation to meet expected demand. A more detailed study on container shipping on the west coast of South America identified institutional obstacles, such as those created by procedures and customs requirements, and looked into the possibilities of developing coastal shipping and feeder ports, the adequacy of the shipping fleet, and of port infrastructure and equipment to meet such transport reorientation. The report also offers a number of recommendations to the Government. 48. Two other reports look into making land transport operations more efficient, through changing practices or regulations, in the context of well-developed infrastructures. One, the sector report on Korea, focussed on the railways' operational efficiency and the possibilities of improving carrying capacity through management, maintenance, marketing and scheduling improvements, with only marginal investments in modern equipment and removal of localized network bottlenecks. The other, the sector strategy report on Hungary, focussed on ways to improve competition in the sector; on railway tariffs and road user charge policies to reduce subsidies, especially for public passenger transport; and on the regulatory and technological changes conducive to improve efficiency within the overall economic orientation of the country. 49. Corridor studies were made for two African countries, Ethiopia and Mozambique, torn by a civil war which has disrupted connections to the main port in each of them, to the extent of transport having become an obstacle to economic activities. In these countries, infrastructure rehabilitation and related investment are important considerations and were, therefore, analyzed in detail along with the analysis of the working of the system. Investments are risky and improvements in services will remain dependent on changes in the overall country context. The Mozambique study was done in response to a specific request by the Government, that the Bank participate in donor coordination meetings and analyze the program that had been put forward. 50. China, which has become one of the most important borrowers in the sector, was the subject of many studies, given that so much remains to be learnt in order to identify the best ways to change its vast but relatively outmoded and insufficient transport sector into an efficient 17 and competitive one, able to cope with the explosive growth and adapt to deregulation trends of the economy. Only one of the studies, on water transport, was undertaken as a Bank sector study, given the shortage of Bank resources. 51. Two reports had a relatively narrow coverage: pricing (for Mexico) and the aviation subsector (for Turkey), while most others were of a global, strategy paper nature. Strategy papers are increasingly taking into account the macroeconomic context and including specific recommendations on both investment and policy matters in the sector, and their usefulness has thereby been enhanced. Increasingly, additional sector analyses were incorporated into economic memoranda or prepared for public enterprise restructuring loans. These, as well as those carried only through the white cover report stage, are not counted in the 20 reports mentioned above. IV. EMERGING TRENDS AND FUTURE DIRECTIONS 52. With little prospect for major changes in the rate of international economic growth in the near term, the issues of limited budgets, resource mobilization, parastatal deficit reduction, operational efficiency and investment rationalization will continue to dominate. Furthermore, the efforts at macroeconomic structural adjustment and the complementary initiatives taken in the transport sector will require time to implement and will probably face intermittent interruptions as political objectives conflict with economic prescriptions. Finally, institutional reform is a long process as is the process of human resource development, all of which is important in resolving the principal issues in the sector. 53. The implications for Bank sectoral efforts are that the shift towards a more policy-oriented program in transport will continue and more research and regional and country level sector work will be required to provide the basis for policy initiatives and for effective institutional reform. Transport staff must continue to closely analyze the macro-linkages of sectoral policy and strive to broaden country dialogue beyond the traditional areas of infrastructure development. Among the questions which the Bank must answer are the following: (a) What is the marginal impact of transport and related infrastructure on urban and rural productivity and development? What is the utility of improved mobility? What level of service is really required? (b) What is the impact of inappropriate pricing practices and regulatory policy? What tangible improvements can governments expect from applying efficiency prices or from deregulating private and parastatal services? To what extent can infrastructure be used as a fiscal instrument to enhance general revenues? 18 (c) What management and institutional structures are most effective for operating transport services and infrastructure? What is the appropriate role of the state? How much autonomy is to be given to parastatal enterprises and to what extent can private enterprise resolve efficiency problems? (d) How should labor redundancy of a particular entity be handled when dealing with labor surplus economies? What are the implications for technological improvements in such situations? How can future redundancies be avoided? (e) What criteria should be applied to allocate limited funds between modes; between urban and non-urban transport? (f) What advice can the Bank provide with regard to aviation and shipping which represent a major element of government budget deficits? 54. The macro-linkage, however, is not limited to structural adjustment. Transport in many countries is a key element in economic recovery and growth. Liberalized trade policies will not succeed if appropriate infrastructure, services and sector-related regulatory policies are not in place. Cost remains important and good port, road, rail and other facilities which reduce costs are essential. Of growing importance, given the emphasis on non-traditional exports, is the level of service, reliability and security which relate more to institutional and regulatory policy. This represents a relatively new area for Bank involvement requiring special expertise and the use of new types of lending instruments. Bank efforts will have to be directed at obtaining a better understanding of the present institutional structure of the domestic and international industries involved in freight management. Also, because of the multiplicity of factors to observe, the Bank will need to explore the relative importance of different factors and policy areas to help governments focus their efforts. 55. Another trend which is emerging in the transport sector in a number of countries, is the growth of transport infrastructure expenditure by provincial, state, local and municipal authorities. In many countries such as Mexico, Brazil, India, Nigeria, China the level of non-federal expenditures far surpass federal expenditures. This raises a number of issues for the Bank in terms of investment selection and design capabilities, maintenance and finance. Public expenditure reviews and lending by the Bank have traditionally covered federal programs only; there is a growing concern with lower-level government programs by infrastructure staff. Several regions have initiated state transport projects and more are planned. 56. The implications for lending are significant. While we should expect the continuance of traditional project lending where network insufficiencies are still prevalent and infrastructure maintenance 19 projects should increase, particularly with regard to state and local authorities, the principal growth in lending should be for sectoral projects covering both broad investment and/or policy issues. The use of SAL's and other forms of quick-disbursing loans will probably continue on a selective basis to address many of the issues which require decisions by ministries other than the ministries of transport. To effectively handle the trade issues, transport staff will have to work with other divisions dealing with trade and industrial and agricultural restructuring in order to better understand the specific needs as well as to interact with the constituencies within the countries who would most benefit from the needed trade-related transport reforms. Finally, with the combining of the urban and non-urban transport staff, there should arise some synergies releasing more resources to address the pressing problems of urban transport. 20 ANNEX 1 Transportation Projects Approved in FY87 --tJSS i lions-------- 8our,trv Project IBRD IDA Total Ken ya Ra iilway II 28. 228. Madagascar Ports Rehabilitation 16.0 16.0 Sonalia Port Modernization 22.6 22.6 Uganla Fourth Highway 18.0 1'83'j Zaire Navigation i provement 27.6 27.6 Eenin Tr. IntrasiRehab./Mainft. 1.5 IR.5 Ca,,,erosn Hinhway VI 1/ 20.0 2o.0 Chad Highway Maintenance 20.0 2.0' Suinea Transport Sector 55.0 55.f 8hi,na Deijing-TianJin Expressway 25. I 125.0 15C.0 Philippires Provincial Ports 32.0 32.0 Papua New GSuinea Transport IDprovement 45. Baniladesh Road Rehabil. I Mainten. If2.0 1Q2.:; Initia Gujarat Rural Roads ll?.b 119.b Pali stan Highway IV 15I i52.i. Algiria H, tI 1U Fo,rtysil H w,hia- IIi ;}f. !! Tu ael Fa ihwa II 1O eaen r A. R. Ma ri -Sdafir Road I10. 0 I . i Vemen, PD.C.R. Hi;hway V 16.8 16.8 Argentina Bahia Blanca, Port I 50.0 50.0 BraZil State Hwy Mot . - Sao Paulo 174.0 174.0 Brazil FEPASA, Pwy Rehabilitat. 100.0 100.0 ColIom;bia 2nd Nitional Hwvs Sector 180.3 180.3 Haiti Iransport VII 20.0 20. 0 Total 1,145.8 600Q.1 1,745.? 21 ANNEX 2 TRENDS AND PATTERNS IN CURRENT LENDING 1. Lending volume The Bank (including IDA) lent US$11.5 billion for transportation projects during the period FY82-87. The lending amount peaked in FY1984 with US$2.6 billion; in FY1987 it was US$1.7 billion, not much more than in FY1982 but nevertheless higher than in the previous year. Lending for transportation as a percentage of total lending also peaked in FY1984, with an unusually high 17Z; the average over the period was 13%, down to 1O0 in FY1987. Lending amounts in constant terms show a decline, the sharpness depending on the index used. The number of new transport projects has shown a decrease since 1983. From 30 to 32 projects annually from FY81 to FY83, the number declined to 27 in FY85 and 26 in FY86 and FY87. Transport components were also financed under non-transport projects, mainly feeder roads under agricultural development projects, which added to some US$1.9 billion over the FY82-87 period. 2. Transport in adjustment lending Most adjustment lending for transport has been made under projects with traditional names; so far no specifically-called transport sector adjustment loan has been made although some are now in the pipeline. However, program loans and structural adjustment loans include lending for transport, some specifically so (eg. Ghana Import and Export Rehabilitation Credits), others not. The type of good financed is of course different; under traditional projects it is mostly civil works and equipment for public agencies while under program or adjustment lending, intended to assist the balance of payments, it is mostly vehicles, spares, equipment and fuels for the private and the public sectors. The exact amounts disbursed for transport elements under program-adjustment loans are not known, but orders of magnitude were estimated based on the following assumptions: a) that the proceeds under the loans were disbursed for various categories in the same proportion these have in overall imports; and b) that the transport sector accounts for about one half of the fuel and of the machinery and transport equipment imports. The resulting yearly amounts are shown below together with totals of specific transport projects: 22 FY82 FY83 FY84 FY85 FY86 FY87 Trpt loans 1614 1924 2599 2139 1498 1746 Trpt under SALS 303 345 289 34 126 147 Total 1917 2269 2888 2173 1624 1893 Adjustment lending as 1 of direct transport loans: 19% 18% 11% 2% 8% 8% It can be seen that adjustment loans would have added between 2% (in FY1985) and 19% (in FY1982) to transport lending; given that overall adjustment lending amounts decreased considerably in FY1985 and still stayed at only about half the amount of earlier years in FY86-87, their consideration leads to an even greater decrease in lending to the sector. 3. Regional distribution Over the FY82-87 period, the regional distribution of transport lending was as follows: 29% for East Asia; 25% for LAC; 15% for South Asia and for EMENA; and 7-8% for West Africa and for East Africa. The distribution is quite variable year by year (eg. an exceptional 65% for East Asia in FY1986) and does not show particular trends: Transportation Lending, by Region, FY82-87 (US5 millions: - ) FY82 FY83 FY84 FY85 FY86 FY87 Regio,n US$ mill. % 1US3 mill. % 1USS mill. % 1USS niII. 1 1USS mill. X 1USS mill. X I …-------- --- --I - - - - - - - - _I … … … _ -I--------…--I- --…-… … ---I E. & S. Africa 83.2 5 | 169.3 9 3 375.3 14 134.9 6 78.5 5 | 112.2 6 1 w. Africa 115.5 7 1 96.8 5 I 88.4 3 1 275.0 13 1 114.8 8 a 114.5 7 1 EMENA 397.8 25 1 116.0 6 1 309.4 12 | 356.9 17 | 193.5 13 | 393.8 23 | A.;., E..t 286.0 18 1 586.2 31 1 792.0 30 1 420.6 20 1 970.8 65 227.5 13 1 Asia, South 80.0 5 I 506.0 26 5 530.7 20 | 289.3 14 - [ 373.6 21 | LAC 651.7 40 1 447.3 23 1 501.1 19 1 662.0 31 I 140.6 9 1 524.3 30 1 …--------------_ - -- …-----------_ - ----- …--------_ - --------… -----I…--------------I--------------- Totl I 1,614.2 100 1 1,923.6 100 1 2,596.9 100 1 2,138.7 100 1 1,498.2 100.0 1 1,745.9 100 1 ---------------…- --------------…- --------------…- --------…- --I- --------------…- - ------------- Tot Project Costs 1 & % Bank- I I I fia-ced 6,875.1 23 1 6,304.1 31 1 9,382.9 28 1 6,446.2 3- : ;68.1 30 5 5,112.1 34 1 23 The Bank/IDA lending distribution by Region in FY1987 is shown below; about one third of the total was provided by IDA. While IDA constituted 10OZ of lending to East Africa, it was only 4Z in LAC, with other regions in between: Distribution of Transportation Lending by Region: FY87 (USS mill ions) Total Total No. of Project Bank IDA 8ank/IDA % of Total Region Projects Costs Lending Credits Lending Lending E. & S. Africa 5 174.4 -- 112.2 112.2 6.4 West Africa 3 211.8 20.0 94.5 114.5 6.6 E. Asia 3 387.1 102.5 125.0 227.5 13.0 S. Asia 3 613.1 152.0 221.6 373.6 21.4 EMENA 5 1,326.4 367.0 26.8 393.8 22.6 LAC 5 1,173.9 504.3 20.0 524.3 30.0 Total 24 3,886.7 1,145.8 600.1 1,745.9 100.0 4. Sectoral distribution Over the FY82-87 period, the road sector absorbed by far the largest lending share, more than 55%; railways came second, with 24%, then ports, with 16%. Only an average of less than 5Z was devoted to sector loans, the bulk of which was concentrated in FY83, the first year in which such operations took place. (Adjustment lending has been discussed above). As with other distributions, there are considerable fluctuations from year to year, without trends, as shown below: Transportation Lending, by Sub-Sector, FY82-87 (US3 millions; X) R.gi-on FY62 F FY83 F FY84 I FY85 F FY86 F FY87 I USS mill X FUSS mill i FUSS mill X FUSS mill X FUSS mill % FUSS mill X I Highways I 1055.3 65 F 1007.7 52 l 1582.6 61 l 889.5 42 I 766.7 51 f 1217.7 70 1 Ports F 330.9 20 F 257.7 13 l 333.8 13 F 390.3 18 F 384.6 26 F 148.2 8 F Railways F 228.0 14 l 450.0 23 l 676.7 26 l 755.0 35 l 329.9 22 1 325.0 19 I Airports -- -- -- -- -- -- I -- --__ -- -- I -- --_ Sector Loans F __ __ I 208.2 11 F 3.8 0 F 103.9 5 F 15.0 1 F 55.0 3 l Other . - --F -- --_ -- --FI -- --F 2.0 0 F -- -- --------…F …F …F-…---------------_ - --------------F---------------…---------------F- -------F------ Total F 1,614.2 100 F 1,923.6 100 F 2,596.9 100 F 2,138.7 100 F 1,498.2 100 F 1,745.9 100 F F … … … F … … F … … F … … F … … … F ……F----------_ --------------- _______________ _______________ _______________ 24 5. Components During the period FY82-87 transport loans were allocated on average as follows: about 50Z (US$ 6 billion) for civil works; 30% (US$ 3.5 billion) for equipment; 8Z (US$0.8 billion) for training and technical assistance; and slightly more than 1OZ for contingencies, which normally are disbursed against civil works. To some extent equipment and civil works are substitutes under road projects; for instance, support of road maintenance can be reflected as purchases of equipment if the activity is performed by a public agency, or as civil works if performed under contract. Allocations fluctuated widely but without showing a clear trend; the yearly amounts are shown below: Tran-portation Lending, by Compon-nt (USS millions; X) Region FY82 I FY83 I FY84 I FY85 I FY86 FY87 - ---- IUSS L mi I I X USS mill I % USS mi I I % USS mi I I % US$ mill I 1US$ mi I I % CiviI Works I 794.0 49 I 739.0 38 I 1,804.0 62 I 869.0 41 I 941.0 63 I 989.0 57 1 Eq.Fip-nt I 453.0 28 j 839.0 44 I 672.0 26 | 900.0 42 264.0 18 | 402.0 23 Training/T.A. | 113.0 7 | 122.0 6 | 155.0 6 | 117.0 5 I 118.0 8 154.0 9 Contingencies I 254.0 16 I 223.0 12 I 165.0 6 I 253.0 12 I 175.0 12 I 201.0 12 I -- -- - -- --- -- -- - - - - - -- -- - - - - - -- -- - - - - - -- -- - - -- - - -- - - -- - - - Total I 1,614.0 100 I 1,923.0 100 I 2,596.0 100 I 2,139.0 100 I 1,498.0 100 I 1,746.0 100 I I -------------------------------…---------------…------I… … _ I … … ---I… … --------I… 6. Size of projects and loans During the FY82-87 period the average project total cost exceeded US$200 million; the average loan amount was about US$70 million. Very small loans (below US$10 million) and the largest (above US$200 million) have decreased in numbers to none in FY1987. The most common sizes of loans are between US$10 and 29 million (56 of the 164 projects in the period) but loans exceeding US$100 million are quite common (46 projects, of which 15 exceeding US$200 million). IDA credits are of course generally smaller. The size distribution of loans is shown below: 25 Size Distribution of Transportation Projects Approved in FY82-87 Bank/IDA Lending FY82-84 FY85 FY86 FY87 (USS mill.) No. of Projects 1 No. of Projacts % No. of Projects % No. of Projects % Below 10 11 12 3 11 3 13 0 0 10-29 31 35 7 26 8 33 10 42 30-49 9 10 4 15 4 17 2 8 50-69 5 6 2 7 3 13 3 13 70-99 10 11 2 7 1 4 0 0 100-199 14 16 5 19 3 13 9 38 200+ 9 10 4 15 2 8 0 0 Total 89 100 27 100 24 100 24 100 7. Rates of return Expected rates of return of transport projects increasingly exceed 20%, the most common range being between 20 and 30Z although higher rates are becoming more frequent. It is not unusual that ERRs of road maintenance components exceed 50Z, and such components have affected the trends. The distribution of estimated rates of return is shown below: Distribution of Eatimated Economic Rate of Return of Transportation Projects Approved in FY82-87 Economic Rate Average of Return i-Y82-84 FY85 FY86 Fas/ Not applicable available 3 4 4 0 Below 207 18 30 8 13 20-30X 40 30 46 42 30-40% 13 15 25 21 40-50% 8 7 17 21 Above 50X 17 15 0 4 The expected rates of return are generally confirmed upon completion of project implementation. The project completion reports issued in FY1987 included the following estimates, largely confirming the range of the ex-ante estimates: (Appendix 1) 26 8. Cofinancing Over the FY82-87 period 30 cofinancing agencies contributed a total of US$767 million towards financing Bank-assisted projects. While still only less than seven percent of Bank financing, the significance is much larger: cofinancing ensured a coordinated approach in the countries assisted. Eighty-three cofinancing agreements were signed, for a smaller number of projects, providing anywhere between US$0.3 and US$41 million equivalent, or an average slightly above US$9 million. During FY1987, however, both total cofinancing (US$61.6million) and average per agreement (US$4.4million) were much smaller than in previous years, although not so the number of agreements (14). Cofinancing commitments by agency and by year since FY1980 are shown in Appendix 2. 27 APPENDIX 1 Expected and Actual Economic Rates of Return in FY87 Project Completion Rieports ERR ERR Original/Appraisal Actual or Estim,ate X1 Current Estimate Highways AIgeria, Highways III 80 160 3elize!, Road aiIntenance 17 27 Botswana, Roads V 1 26 Breazil, Highways VI 60 a! Congo, Highways III 24 -11 to k68 bD Gambia, Highway Mainten. I 67 23 Ghana, Highway Nainten. 3 I00 60 Morocco, Highways III 39 72 Papua New Guinea, iHighways III 18 16.9 Tanzania, Highways V 70 10 Togqo, Feedler Roasds 21 17 Tunisia, Highways III 11-27 11-27 Yemlen, D.P.! Highwa ys III 1-l Yemen. D .P,, Roads 1ood R. econst. 20 20 India, sRailway Moderni7ation I? Madagascar. Railways II 17 12 :~erai Ra' il ways I 11 22 1 a! No overall ex-post rate of return was estimated: economic reevaluation ot each individual project component was carried out. t/ No overall ERR was donei E.Rs oIr individual roads avil Iabie. Source: Project Crmplati:n Reports 2& aX I * _I o_ .0 -X ow Zm ' - ow_ IA I- .C a O * , _* . - a - w C~~ ~ ~ _ -- ~ 1 ' A C - o e.** .D. IC O A * .. .. _~~~~~ ~ Iz - oC a a.- a C .- , It ....I) - CI c n 0o.a *.~~ ~ ~ r_ a- - a IC O a .I = 0 - _ APPENDIX 2 (cont 'd.) Total EY50 FY11 FY1 rY83 F114 FMY FYM4 FYI? FTIO-t7 Aaount Amount Amaout Amount Amount Amount Amount Amoot Amount itlitero! Aoenco No US mill No USS mill No US3 sill No USi mill No USS mill Ho USS mill NK U5S mill. No. U sit l No USt mill. houweno in Aeenc c: !nterna ni Ioal feloTolnont I 4 1 4.I OGerseas Develoomen: Administration 1 4 1 0 l0 0 3 1321 7 41,7 GOeireoo £coocma ...eration Fund 3 34 l t 2 I 1 2 0 1 2t.1 1 i7.4 Saudi Fund tor Oevelanme l3 C 2 41 5 2 20 5 5 83.8 3re:roIl Joint F:nancino ol on 2 8 4 t 25 i 3 34.2 Sce. ia; Joinz inaacinc ierzln7 1 13 0 1 13.8 Swedish oierrn:ovina: t evolaument Authority Il 1 2 2 18.2 Swiss Eeveicoment Coaceiatc iIn 1 0 1 48 2 14 i -clernsent cI Belliom t I t 7 4 7 3 10.3 Govlnmoerl a :otai 1 3 8 1 3.1 Coverrment ot Nethelrlnds I 10 4 1 104 Gcvernsent of Ncrwa, 2 3 7 t 6 1 18O vvernsent ol Portuoal 82 1 .1 Goaeinment ef Gata; i t 1 4.0 14 149 6 p 73 ii 2157 3 1t2 4 3 7 11 It 20 140 1 14 tSiS 11 11i4 6 lt.II 1 0 Note The ttact number of oDeritiors in this tatle is oreater thin the totit number ci oriiects siane smny nrniects are co-lirriced tror more one ctf:::o! socure Annex 3 Transport Sector Reports Issued in FY87 Title CouLItry Cover Date Title I. Eastern & Southern Africa 1. Ethliopia Grey 06/87 Transport corridor analysis: operational imiprovenments and investment options 2. Mozambique Yellow 03/87 Beira transport corridor program 3. Zaire Green 08/86 Transport sector mienmor andunm 4. Zimbabwe Yellow 06/87 Tranisport sector miemrorandumni: selected issues IT. Western Africa 1. Clhad Yellow 03/87 Transport sector strategy note 2. Ivory Coast Green 08/86 Transport sector mtemorandum III. East Asia and Pacific C 1. China Grey 02/87 Water transport sector study 2. Korea Grey 06/87 Korean nationial rail-road: review of operational efficierncy 3. Laos Yellow 09/86 Transport sector note IV. Soutlh Asia 1. Pakistan Green 03/87 Issues and options in thje transport sector V. Europe, Middle East & N.Africa 1. Fgypt. Green 05/87 Transport sector strategy paper 2. Hungary Yellow 05/87 Transport sector strategy paper 3. Turkey Yellow 09/86 Shipping subsector study 4. Tuirkey Yellow 02/87 Aviation subsector actior, plan VI. Latin Amiierica and Caribbean 1. Southi America Green 05/87 West coast container shippirng study 2. Mex-ico Yellow 01/87 Transport pricing study 3. Mexico Green 02/87 Transport sector strategy paper 4. Uruguay Green 05/87 Transport sector strategy papel 5. Colombia Grey 05/87 Transport sector strategy paper 6. Bol ivia Yellow 06/87 Transport sector strategy paper Source: Informiati on, Technology & Fac i1;ti.es, Inform1ation Services , World Bank