11'OOO%THE WORLD BANK

POLICY PLANNING AND RESEARCH STAFF

Infrastructure and Urban Development Department

Report INU 8

Transport Lending and Structural Adjustment:

Operational Features

Victor Wouters

February 1988

Discussion Paper

This is a document published informally by the World Bank. The views and interpretations herein are those of the authct andshould not be attributed to the World Bank, to its affiliated organizations, or to any individual acting on their behalf.

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Copyright 1988The Wodd Bank1818 H Street, N.W.

All Rights ReservedFirst Printing February 1988

This is a document published informally by the World Bank. In order that theinformation contained in it can be presented with the least possible delay, the typescript has notbeen prepared in accordance with the procedures appropriate to formal printed texts, and theWorld 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 affiliatedorganizations. The findings, interpretations, and conclusions are the results of researchsupported by the Bank; they do not necessarily represent official policy of the Bank. Thedesignations employed, the presentation of material, and any maps used in this document aresolely for the convenience of the reader and do not imply the expression of any opinionwhatsoever on the part of the World Bank or its affiliates concerning the legal status of anycountry, territory, city, area, or of its authorities, or conceming the delimitations of its boundariesor national affiliation.

The principal author is Victor Wouters, consultant to the Infrastructure and UrbanDepartment, The World Bank.

I I

ABBREVIATIONS AND ACRONYMS

B-LOANS A BANK PROJECT INVOLVING COMMERCIAL COFINANCING

FY FINANCIAL YEAR (July 1st to June 30)

ICB INTERNATIONAL COMPETITIVE BIDDING

LCB LOCAL COMPETITIVE BIDDING

OHS OPERATIONAL MANUAL STATEMENT

PERL PUBLIC ENTERPRISE REFORM LOAN

RMSM REVISED STANDARD MINIMUM MODEL

SAL STRUCTURAL ADJUSTMENT LOAN

SAR STAFF APPRAISAL REPORT

SSAL SECTOR STRUCTURAL ADJUSTMENT LOAN

TRP TRANSPORTATION DEPARTMENT1 /

1 / This department was absorbed by the Infrastructure andUrban Development Department when the Bank wasreorganized on July 1, 1987.

I I I

TRANSPORT LENDING AND STRUCTURAL ADJUSTMENT

OPERATIONAL FEATURES

SUMMARY

(1) Following the world-wide slow-down in economic growth in theearly 80s -- caused by depressed commodity prices, high interest ratesand high external indebtedness -- , Bank lending has increasinglyattempted to help developing countries adjust to these external shocksand recapture their growth momentum. This trend is also evident in Banklending for the transport sector. Of the 65 structural adjustment andsector structural adjustment loans (SALs and SSALs) approved betweenFY80 and FY85, about half contained components and loan conditionsrelating to transport. Moreover, many standard transport lendingoperations during this period, were also designed to support structuralreform.

(2) The increase in adjustment lending has had a major impact onthe preparation and design of the Bank's lending operations. Theobjective of this Paper is to elucidate the operational effects andimplications of transport lending for structural adjustment, primarilyon the basis of lessons learned from a sample of recent lendingoperations. In particular, the Paper is intended to acquaint Bankstaff, especially those responsible for operations in the tranpsortsector, with the implications for sector work, project preparation, theBank's assistance strategy, the selection of lending instruments andloan design.

(3) A review of recent operations shows that their focus hasincreasingly shifted away from the financing of specific investmentstowards supporting sub-sector wide investment programs and multiple modeprojects; operations also have a greater policy content, since theygenerally support structural reforms. New lending instruments have beendeveloped (in particular, SALs and SSALs), while standard lendinginstruments have adopted many of the features first used in SAL's (e.g.annual reviews, conditionalities and tranching).

(4) Lending in support of structural reform has significantimplications for transport sector work. The coverage of this sectorwork is generally satisfactory, although more attention needs to be paidto the shipping and civil aviation sub-sectors, since they contributesignificantly to the governments' overall deficit and are a significant

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source of cross-subsidization. The quality of sector work, on the otherhand, needs to be strengthened in several respects to: (a) provide abetter linkage between the sectoral reforms and the country's macro-economic prospects and its overall reform program; (b) elaborate onlinkages with other sectors (especially with the energy and agriculturesectors); (c) tailor sector work to support the Bank's overall SALprogram; and (d) shift the focus of sector work from individual modes tointegrated delivery and distribution systems.

(5) Sector work should culminate in the preparation of a sectordevelopment strategy, focussing on the principal issues to be resolvedin the sector and indicating the main thrust of the government'sdevelopment effort. The preparation of such a strategy deserves moreattention when structural reform is being considered. This is needed toinform and demonstrate to the government that the reforms areworthwhile; to ensure consistency in sector wide policies; to ensurebalanced development of the separate modes; to ensure coordinationamongst modes (in particular when integrated delivery systems are to bedeveloped); to ensure that the costs of reform are minimized (orcompensatory measures are taken); to ensure that some components yieldquick results to demonstrate to hostile constituencies that the reformprogram is working; and to provide an appropriate basis for developingthe Bank's assistance strategy.

(6) Seven operational aspects, closely related to structuraladjustment operations, need to be addressed when developing the Bank'sassistance strategy. First, individual operations need to be timed toensure that substantive progress has been made in implementing thereforms before appraisal takes place. Second, with the introduction ofSSALs, a decision needs to be taken on whether to finance imports orinvestments. Third, projects need to be designed for flexibility toallow adjustments to be made and also to minimize possible risks byadapting stage construction, or implementing the development program inphases. Fourth, Bank assistance in the sector needs to be programmedover a number of years to match the timescale of reform and to ensurethat it complements all other lending operations planned for thecountry. Fifth, co-financing should be used to widen the impact of thereform program by mobilizing additional support for the sector and tofacilitate better coordination among lenders, in eliciting their supportwithin an agreed expenditure program. Sixth, due attention needs to bepaid to the selection of lending instruments (see (vii) below). Lastly,sufficient and appropriate resources should be committed to ensureeffective supervision.

(7) Transport lending has primarily relied on Specific Investmentloans and Sub-sector Investment loans. With the introduction of SALsand SSALs, a wider range of lending instruments is now available; inaddition, SAL features can also be incorporated into traditional lendinginstruments. To facilitate selection of an appropriate lendinginstrument, the paper attempts to clarify the principal features ofSALs, and of traditional lending instruments.

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(8) Briefly, SALs and SSALs should be used when the loan needs tobe quick disbursing (and achieves this by financing imports) or whenmajor policy reforms cannot be dealt with adequately under sub-sectorinvestments loans, either because the issues extend beyond the sector,or decisions on them have to be taken at the highest level ofgovernment. Investment and Sub-sector investment loans are moreappropriate when there is a need to remain closely in touch with theplanning, preparation and implementation of the sector investmentprogram, when the loan need not be quick disbursing and when decisionson reform can be taken at the sectoral level; in such cases the sectoragencies should be the beneficiaries of the loan. When a SSAL isselected for financing imports, the benefits of the reform programshould outweigh the disadvantages related to some loss of leverage overthe planning, preparation and implementation of the investment program.

(9) The design of transport lending operations in countries withstructural adjustment programs has changed considerably. Major policycomponents are being built into the operations and the physical elementsof the project are increasingly being designed to support theimplementation of the reform program. Some of the important changesinclude:

- a shift in the content of major operations to cover majorpolicy reforms and investments; this is reflected in achange in the standard format of the SAR (the Project isreplaced by the Government's policy reform and investmentprogram);

- the operation should aim to ensure that a few selectedmajor elements of the reform program are in place by thetime of appraisal to give the reform program maximum chanceof success;

- preparation of the reform program requires careful designand the physical components of the lending operation shouldbe designed to support implementation of the reforms and ofthe sector development strategy;

- selection of the agency to be designated as the Borrowermay depend on whether the decisions on reform are takenwithin, or outside the sector and whether theirimplementation requires that sector agencies bebeneficiaries of the loan;

- procurement under SSALs could be for general imports -- orimports for the sector -- or a combination of imports andinvestments;

- procedures for Bank approval of sub-projects and contractsunder Sector Investment loans need to be pragmatic to avoiddelaying implementation by being overly restrictive andbureaucratic;

(iv)

the decision will have to consider whether the time-slicebeing financed under Sector Investment loans -- andassociated disbursements against these investments --relate to the period during which expenditures orcommitments are incurred;

conditionalities require careful attention and can bepresented in different ways (including conditionalitymatrixes); loan conditions should preferably be supportedby an Action Plan;

tranching should be considered, particularly with regard toensuring adequate funds for maintenance and procurement ofspare parts as well as adequate implementation of th reformprogram, including the expenditure program;

the timing of periodic reviews of the reform andexpenditure programs need to be chosen carefully, tominimize the amount of Bank staff time involved, ensureadequate monitoring of implemenitation and to facilitatepreparation of follow-up operations;

SSALs financing imports need to include provisionsgoverning the use of counterpart funds;

most, if not all, projects need to be designed to includeco-financing; and

the design of all operations--. especially SSALs, SectorInvestment loans and multiple-mode projects -- should coversupervision arrangements to ensure they are properlyfocused (such operations increasingly focus on expenditureprograms, management and operational issues, and policyreform) and are cost-effective.

TRANSPORT SECTOR LENDING AND STRUCTURAL ADJUSTMENT

TABLE OF CONTENTS

Page No.

I. INTRODUCTION ......................................... 1

II. RECENT TRENDS IN BANK LENDING ........................ 3Structural Adjustment Lending and Transport ...... 3Transport Lending and Structural Adjustment ...... 4

III. SECTOR WORK .......................................... 6General ....... ... . 6Macro-economic setting ........................... 7Inter-sectoral Linkages .......................... 8World Developments ............................... 8Sector Work and Structural Adjustment ............ 9Sector Development Strategy ...................... 17

IV. BANK ASSISTANCE STRATEGY AND LENDING INSTRUMENTS ..... 19Assistance Strategy .............................. 19Lending Instruments .............................. 23

VI. LOAN DESIGN ......................................... 35Definition ...................................... 35Report Format ..................................... 36Government Reform Program ........................ 36Sector Reform Program ............................ 38Selection of the Borrower ........................ 41Identification of Loan Beneficiaries ............. 42Procurement Arrangements ......................... 43Disbursement Arrangements ........................ 46Conditionalities ................................. 48Tranching Arrangements ........................... 51Annual Reviews ................................... 53Counterpart Funds ................................ 54Co-financing Arrangements ........................ 55Project Supervision .............................. 56

ANNEXES

Annex 1: List of Projects Selected for ReviewAnnex 2: Structural Adjustment Loans (FY1980-85):

Policy Areas and TopicsAnnex 3: Policy MatrixesAnnex 4: Range of Lending InstrumentsAnnex 5: SAR Chapter OutlinesAnnex 6: Action PlansAnnex 7: Counterpart Funds

This report has been prepared by Mr. Victor Wouters, consultant.

I

TRANSPORT LENDING AND STRUCTURAL ADJUSTMENT1

OPERATIONAL FEATURES

I. INTRODUCTION

1. Bank lending has evolved rapidly in recent years: the focushas shifted from standard investment projects towards sub-sector, sectorwide or multiple-mode investment programs. The policy content ofoperations has received more attention, new lending instruments havebeen developed, while customary instruments have adopted some of thefeatures of the newer instruments. This evolution is partly areflection of earlier trends, but is mostly attributable to the Bank'sattempt to help its developing member countries to adjust to thedifficult economic conditions of the early 1980s. The period wascharacterized by a world-wide slow-down in economic growth andinternational trade, declining primary commodity prices, high interestrates and an accumulation of high external debts.

2. To assist macro-economic or sector adjustment programs, Bankoperations had to be tailored to suit the specific objectives of theseprograms. This Discussion Paper is intended to acquaint Bank staff, andtransport staff in particular, with those aspects of recent Bankoperations designed to support adjustment and reform programs. Inparticular, it aims to explain the implications for sector work, projectpreparation, the Bank's assistance strategy, the selection of lendinginstruments and loan design. The paper does not provide a comprehensiveanalysis of the Bank's operational procedures; it assumes Bank staff arefamiliar with the OMS and other guidelines and merely disseminatesexperience on the operational aspects of recent lending operations inthe transport sector supporting structural adjustment.

3. The paper is based on a brief review of TRP Reports and,especially, on more detailed reviews of eleven recent Bank operations (afull list of these operations is attached as Annex 1). The operationsinclude: three structural adjustment loans (SALs); two energy sectoradjustment loans (SSALs); one Transport Sector Credit to Zimbabwe; andfive project operations in the transport sector. The three SALs havebeen included as examples of basic instruments for supporting thestructural adjustment process; they also include some transport sector

1/ This report has substantially benefitted from reviews by severalBank staff in Transport, and especially from extensive discussionswith Ian G. Heggie, who has also devoted considerable effort toediting the report.

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components. The Credit to Zimbabwe has been listed as a sector typeoperation, although its design is primarily that of an import loan andis, therefore, only of minor relevance to this paper. Since thetransport sector has not yet formulated any specifically designatedsector adjustment loans, two Energy SSALs have been included as examplesof such loans to an infrastructure subsector with many of the featuresof the transport sector. The five project operations in the sector havebeen selected to illustrate the different approach adopted in support ofmajor reform programs.

4. The paper first outlines recent trends in Bank lendingoperations and then follows the sequential steps involved in the projectcycle. Although these steps are described separately, they aregenerally not discrete and need to be dealt with jointly during theproject cycle.

II. RECENT TRENDS IN BANK LENDING

Structural Adjustment Lending and Transport

5. Since 1980, the number and share of structural adjustment loans(SALs) and sector structural adjustment loans (SSALs) in total Banklending has been increasing; they accounted for about 202 of total Banklending in FY86. A significant number of these lending operationsincluded transport components. A review by the former TransportationDepartment (TRP)2 shows that, during the period FY80-FY85, the Bankapproved 35 structural adjustment operations, of which thirteencontained significant transport conditionalities. Moreover, of the 30non-project loans approved during this period in other sectors, nineteencontained some transport components/ conditionalities. In total, of the65 structural adjustment and other non-project operations approvedbetween FY80-FY85 about half included transport components. Thetransportation conditionalities covered such issues as: allocatingadequate funds for road maintenance; reviewing the statutoryrelationship between Government and various public sector authoritiesand enterprises; restructuring the railways; privatizing and adjustingrailway tariffs and road-user charges. This development clearly hasmajor implications for the work of Bank staff.

Transport Lending and Structural Adjustment

6. Support for structural adjustment, or other major reforms isnot confined to structural adjustment operations. An increasing numberof specific investment, sector, and sub-sector type investmentoperations are now being designed to support maLjor reform programs. Infact, all five project operations in the sample reviewed in this paper

2/ TRP Information Paper by Ian G. Heggie: Instruments for PromotingPolicy Change, to be published.

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support major policy and other reforms in the sector. As a result thecharacter of these standard operations is becoming more complex -- andtheir design more difficult -- as the remainder of this paper will show.

7. Projects designed to support structural and other reforms mustclearly address the formulation and implementation of the reformprogram. As a result, these projects contain substantial policycomponents, specifically designed to support the agreed program ofreforms. In many projects, this element in operational design deservesas much attention, if not more, than the design of the physicalcomponents of the project.

8. The scope or size of the physical components in Bank projectsis also increasing and the tendency now is to focus on sector-wide orsubsector - wide expenditure programs, rather than on specificinvestments. Recent examples of this trend are: (i) the highway sector-type projects in Colombia, Mexico, Niger, Turkey and Yugoslavia; (ii)the recent port project in Indonesia (covering the country's major portsin four regions); and (iii) the on-going and proposed railway projectsin Yugoslavia (covering a time-slice of their entire investmentprograms). Other examples include the recent multiple-mode operationsin Guinea, Hungary and Jordan.

9. In countries with structural reform programs, the physicalcomponents of the operation are also more difficult to design, sincethe economic environment in which the projects must operate is generallyless stable and- the impact of the reform programs are difficult toforecast accurately. For example, the response of farmers in Tanzaniato recent reforms in agriculture was much greater than anticipated; thecountry had previously had to rely on substantial imports of foodgrains, but now has significant reserves. This shift from imports todomestic production has had a major impact on traffic flows and on theneeds of the transportation sector; the response of farmers, and theensuing impact on traffic flows, would have been difficult to forecastaccurately. In other countries, impacts have often been less thanexpected. Projects in countries with structural reform programs shouldtherefore be designed for flexibility to enable the project to beadjusted as the situation develops. Projects should furthermore alsoaim to minimize the risks associated with uncertain forecasts by forexample, using stage construction or implementing the developmentprogram in phases.

10. Last, but not least, the Bank's lending instruments have becomemore varied. Structural adjustment lending operations were added in1980 and, more recently, the older lending instruments have adopted someof the principal features of the SALs. For example, project operationsoften include policy conditionalities, tranching and annual reviews; arecent example of this can be seen in the proposed Highway Sector Loanto Nigeria.

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III. SECTOR WORK

General

11. Lending operations supporting major reform programs intransport should ideally be preceded by comprehensive sector work, donewell in advance of project preparation. Sector work coverage intransport is reasonably good although the aviation and shipping sectors,including coastal and river transport are only dealt with in selectedcountries. However, some improvements in the depth of analysis aredesirable, particularly in countries undergoing structural reform. Thefollowing section deals primarily with the operational aspects of sectorwork related to Bank assistance for structural reform. 3

Macro-economic Setting

120 OMS 1.13 requires that sector work be undertaken within theframework of the country's overall macro-economic setting. Forconsistency, SARs should do the same. The BoDard, Bank management, andespecially the Borrower, need to know how the reform program and theproposed operations in each sector support the overall adjustmentprocess. The proposed Highway Sector Loan in Nigeria illustrates verywell how a specific sector operation can be designed to support thegovernment's overall macro-economic reform program -- taking account ofthe expected budgetary resources and the irnpact of proposed currencyreform -- as well as supporting the Government's objective of achievingfood-self-sufficiency to reduce food imports. For countries withstructural reform programs, transport sector work and other projectpreparation activities should therefore make full use of the Bank'smacro-economic country analyses, including the analyses of alternativegrowth scenarios using the Revised Minimum Standard Model (RMSM) (Seefootnote 5 for further details on this model.

Inter-Sectoral Linkages

13. Sector work should pay due attention to the linkages betweentransport and other sectors -- such as industry and agriculture --particularly in countries undergoing structural reforms, or which areheavily dependent on agriculture. For example, in Tanzania, the shiftfrom being a net importer of food grains towards being self-sufficientis having a major impact on the country's traffic patterns (see para.9). A recent Sector Report on Pakistan likewise shows that theGovernment, by paying-the full cost of transport of major agriculturaland industrial commodities, irrespective of the efficiency of thetransport operator, weakens the incentive to reduce transport costs and

3/ A more comprehensive overview of transport sector work is presentedin the TRP Information Paper by Ian G. Heggie: Review of the Bank'sTransport Sector Work, June 1987.

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to modernize the sector. 4

World Developments

14. Sector work should also pay close attention to world-widedevelopments especially in trade and maritime transport. One of thereasons for doing this is that a lot of countries have embarked onambitious export-drives and many are hoping to export the samecommodities (e.g. rice, cement and cotton) to the same countries. Theseproposed trades -- and their related transport requirements -- may notmaterialize. In shipping it may be noted that seatrade expanded by 30Zbetween 1970 and 1985, while fleet capacity expanded optimistically by100Z and this has resulted in overcapacity and depressed freight rates.In this situation a country may be better off to rely on charters thanexpanding its own fleet.

Sector Work and Structural Adjustment

15. Focus. Sector work supporting structural adjustment operationsshould address those areas likely to be of interest to SAL and SSALoperations in other sectors (e.g. several past SAL operations haveincluded reform of publicly owned airlines as a means of reducing theoverall budget deficit and the recent SAL to Zaire included measures: torestructure selected transportation agencies, including theirprogressive disengagement from certain activities; to restore theirfinancial situation; to improve transport planning and to commence aprogram to improve rural roads). Sharply focussed sector work-in theseareas would enable the transport sector to provide a more systematicinput into SALs and SALLs in other sectors, or to use them selectivelyas vehicles for supporting Bank objectives in the transport sector. Toidentify areas where transport sector work might make a more significantcontribution to adjustment operations -- as well as to related IMFlending stabilization programs -- it may be helpful to describe brieflythe main objectives and principal focus of these operations.5

41 A more comprehensive overview of government intervention, especiallyin agriculture, and the impact this has on transport, is presentedin a TRP Discussion Paper by Henri Beenhakker, Issues inAgricultural Marketing and Transport due to Government Intervention,May 1987.

5/ A more detailed explanation of the IMF and Bank's approaches ispresented in a Discussion Paper in the Development Policy IssuesSeries, No. VPERS8, by M.S. Khan and others, Adjustment with Growth:Relating the Analytical Approaches of the World Bank and the IMF,October 1986.

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16. The IMF's primary objective is to promote an orderly foreignexchange rate regime. Towards this end the Fund aims to achieve asustainable balance in international payments; to achieve this it reliesprimarily on restoring and maintaining reasonable monetary balances inthe economy, and by preventing undue expansion of the money supplythrough credit creation. Consequently, the Fund's approach is to reachagreement with the Government on credit ceilings, in total and withparticular regard to the public sector, where credit expansion hasgenerally been a major component of money supply. More recently,however, the IMF's analyses have been extended to analyze the underlyingfactors leading to credit creation (e.g. principal causes of budgetary,or public enterprise deficits). Some recent IMF agreements havetherefore contained specific understandings about matters such as tariffincreases to control railway deficits, or increases in road-user taxesto strengthen domestic resource mobilization. These are clearly areaswhere Bank staff have considerable expertise.

17. The Bank's primary objective is to promote economic growth and,since its inception, this has led it to concentrate on programs andpolicies critical to development. These areas extend well beyond themonetary sector and include the soundness of public investment programs,performance of public enterprises, performance of major sectors, tradeprotection policies and export performance. A major underlying thrustof the Bank's approach has been to make the best use of existing assets,whereas governments have often put the emphasis on new investments. Thefollowing sections review the main policy areas and topics covered inthe Bank's SAL operations between FY80-FY85 (a complete list of theseprojects is attached as Annex 2).

18. Resource Mobilization. Countries with adjustment programsgenerally need to promote economic growth. In many countries, themarginal savings rate required to achieve the government's stated growthtargets is high. To achieve such rates, additional resources have to bemobilized, while expenditure programs must be rationalized. Resourcemobilization is difficult in developing countries with a narrow taxbase, widespread evasion and high administrative costs. Within thisenvironment the transport sector may, however, play a significant partby raising user fees, increasing rates and fares, and raising othercharges for transport services provided by Government and publicenterprises.

19. The implication is that pricing and other user charge policiesin transport need to take macro-economic considerations into account.This approach was adopted in the recent Transport Project for Guinea,which recommends a major increase in road-user charges to facilitatemobilization of additional revenue and to establish parity with fuelprices in neighboring countries. Many SARs focus solely on efficiencyprices defined as variable maintenance costs (excluding congestioncharges), even though such prices yield low revenue and contributelittle towards achieving the government's overall savings target.

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20. Gross under-valuation of assets by public sector transportagencies is widespread. This, in turn, leads to price levels whichcannot yield a reasonable real return on assets. This can be of majorimportance in capital intensive ventures such as ports, railways,shipping and aviation. General sector work addresses this issueunevenly; most SARs on the other hand do so more systematically withinthe context of the project's financial analysis.

21. In countries with debt rescheduling programs, or where anoperating agency's debt burden is an obstacle to restoring financialviability, recovery measures may have to include price adjustments andcapital restructuring. This latter task is one of the primaryobjectives of the Second Electric Power Sector Loan in Brazil (FY87),which aimed at a major financial restructuring of power agencies.

22. Some recent sector work -- for example, the Issues and Optionsreport on the transport sector in Pakistan -- pays due attention to thetotal financial burden of transport on the budget. This issue was alsodeemed sufficiently important in Egypt for the Bank to prepare aspecific report. This approach should be adopted more systematically,since transport sector deficits are relevant to the Ministries ofFinance and Planning, as well as to the Transport Coordination Agencieswhich are responsible for the overall development of the sector.

23. Expenditure Programs. Most SALs contain an overall evaluationof public sector investment programs, or at least, of core investments.Indeed, several SALs have been supported by Public Sector InvestmentReviews undertaken by Bank staff. Such reviews have recently beenexpanded to cover current expenditures as well (e.g. in Nigeria andSierra Leone), at least for the first year of the investment program.Ideally, the review should cover the same time-period for currentexpenditures as for investments. The expenditure review should becarried out within the context of the country's macro-economic andsector constraints; this approach is not being reflected systematicallyin SARs, with the result that recommended expenditure programs appear tobe conceived in isolation and this weakens their credibility.

24. In the absence of clear criteria and a reasonably firmmethodology, the process of allocating available public sector resourcesamongst the different sectors and expenditure categories is somewhatarbitrary. The allocation process therefore has to be based onjudgement and consensus. However, experience suggests that this processoften tends to reduce expenditure on infrastructure more severely thanother expenditure categories. While this tendency may be justified onseveral grounds, the allocation process should nevertheless strive forbetter balance: if privatization or major rate and tariff increases arepursued in transport, parallel attempts should be made in other sectorsas well (and vice versa).

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25. In the evaluation of expenditures, attention needs to be paidto the balance between salaries, and operational/material expenditures.In many countries, the wage bill is excessive and leaves insufficientresources available to meet other expenditures; as a result there areoften acute shortages of fuel, and insufficient spare parts andmaterials to carry out the works for which wages were paid. The mostcommon cause of high wage bills is overstaffing and Bank staff may haveto advocate suitable manpower reduction plans to address this issue.The issue of labor redundancy is particularly important when SALs focuson public sector manpower issues.

26. Sector Management. The overall management of the economy andof individual sectors within it is a primary concern of SALs. Transportlending has traditionally incorporated suitable components to strengthensector management. An area where Bank support has achieved mixedresults is with regard to the role played by Transport CoordinationAgencies, or similar entities. Initial expectations regarding thelikely effectiveness of these institutions were probably unrealistic,especially in countries where Ministries of Public Works enjoy highstanding. The present emphasis in sector management concentrates onstrengthening the planning and implementation capabilities of thevarious modal agencies and on strengthening the overall coordination andmonitoring capabilities of the Ministries of Finance and Planning. Inthis connection, it may be noted that, particularly in the highwaysector, increasing attention is being paid to overall management of thenetwork as a whole, including the management/administration ofprovincial and local roads.

27. One area of sector management which has received considerableattention in recent years is deregulation, decentralization andprivatization of transport enterprises. Several countries have relaxedroad transport regulations: on rates and fares, route and entryrestrictions, or have closed or privatized parastatal bus-and truckingenterprises. Quite a number of railways have also been granted greaterautonomy -- for example in Brazil, Chile and Morocco -- while Indonesiais decentralizing management of ports. Several countries arefurthermore shifting from use of force account to private contractorsfor construction and maintenance of selected civil works and -- in someports -- even for some elements of port operations.

28. Foreign Trade. One of the major objectives of structuraladjustment is to strengthen the balance-of-payments, primarily bypromoting exports. This aspect deserves more attention in transportsector work and lending operations. Transport sector work tends tofocus on the overall cost and performance of the sector, rather than tosystematically analyze the relationship betwe!en transport and tradefacilitation with a view to supporting the enhanced trade possibilitiespermitted by trade liberalization measures and exchange raterealignment.

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29. Transport and distribution activities account for a substantialpart of the cost of exports and the retail price of imports; it may beas high as 50Z in a number of developing countries with long transportroutes. In Pakistan, for example, the distance between Karachi port andLahore is about 1200 km and, on long routes like this, a relativelysmall reduction in unit transport and distribution costs can result in asignificant reduction in the total economic cost of transport. Thetransport of major export and import commodities as well as of domesticproducts, over long distances thus deserves special attention.

30. Trading practices and transport technology in industrializedcountries are changing rapidly and due attention needs to be paid to thedevelopment of door-to-door delivery systems for containers. Many ofthe Bank's developing member countries still lack the up-to-dateequipment, organization and procedures, including through- bills oflading, to benefit from developments in containerization and multi-modaltransport. Recent transport projects have started to address thisissue. Trade facilitation nevertheless deserves more attention in termsof simplification of customs procedures; the processing of -- andliabilities under--through-bills of lading; the role of the freightforwarding industry; the facilities for intermodal transport; and theestablishment of inland trucking terminals and distribution centers.

Sector Development Strategy

31. General. Sector work should culminate in the elaboration of astrategy for the development of the sector as a whole and for eachtransport mode within it; this task has received less attention fromBank staff than it deserves, especially in countries with structuraladjustment programs. The reason is that it is easier to identify sectorissues than to propose feasible alternatives for their solution. Untilrecently, Bank lending in transport has also focussed on the individualtransport modes and this has tended to discourage a sector-wideapproach.

32. Sector-Wide Focus. The sector strategy should be designed toprovide as much support as possible to the country's adjustmentprograms. The strategy should therefore focus on the principal sectorissues and provide a clear indication of the principal short and long-term objectives which the reform program proposes to achieve. Thesector strategy should take account of the country's overall economicsituation and prospects, the sector's growth potential, as well as thepolitical, social and administrative constraints likely to beencountered when implementing the reforms and supporting the country'sinvestment program.

33. One of the principal objectives of preparing a developmentstrategy is to explain clearly to the government the likely benefits of

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reform. Such an analysis is necessary, since policy and other reformsare likely to incur significant political and social costs. To theextent possible, these benefits and losses should be identified andquantified and the strategy should aim to minimize the costs of reform,for example, by improving roads in the catchment area of a railway linewhich is being closed, or by compensating losers, for example, byreducing route restrictions on trucking to compensate for higher licencefees. Since the government also needs to demonstrate to itsconstituents that the reforms are worthwhile, the strategy should alsoinclude operational measures (or investments)!, which produce short termvisible benefits.

34. The strategy should strive for a balanced development of thedifferent modes to ensure that each mode attracts and handles thetraffic for which it is suited. It should also coordinate thedevelopment of each mode, particularly with regard to development ofintegrated delivery systems. Last, but not least, the strategy shouldprovide for flexibility which minimizes the risks associated with anunstable economic environment (e.g. in some cases, down-sizinginvestments and planning for their implementation in an incrementalway).

35. Current Strategies. For most countries with stabilization andadjustment programs, the sector strategy will probably include: slowergrowth in the medium term; a shift in the pattern of production,consumption, trade and transport; a shift in expenditure away fromproviding new capacity and enlarging investments towards the protection,modernization and more efficient utilization of existing assets;increased resource mobilization; and the promotion of exports. In manycountries, the emphasis in the transport sector is likely to be on:bulk cargo movements; containerization; trade-facilitation; deregulationof transport industries; privatization of related services; and/orclosure of uneconomic activities.

IV. BANK ASSISTANCE STRATEGY AND LENDING INSTRUMENTS

Assistance Strategy:

36. Current Approach. Bank assistance strategies have improvedconsiderably in recent years. In transport, extensive strategy papershave been prepared for several countries. What follows are someobservations on the operational aspects involved in developing anassistance strategy to support structural reform.

37. Focus. Since the sector's development strategy may involvemultiple reforms, it will generally be desirable to focus the Bank'sassistance strategy on the most critical areas of reform. Such focus isneeded to give the government (and the Bank) a clear indication of themain thrust of Bank assistance. Less important reforms should be givenless prominence.

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38. Integrated Approach. The assistance strategy is likely toinvolve a number of lending and other assistance operations. Within thebasic framework outlined above, each operation should support a limitednumber of reforms, and should be interrelated and consistent with theother operations. This approach is more likely to ensure that thereform effort is compatible with the government's administrativecapacity.

39. Timing. An important step in developing the Bank's assistancestrategy, involves scheduling the different steps in each operation overtime. In operations supporting policy reform the timing of appraisal isparticularly important, since by then, the Government should havedemonstrated its commitment to the reform program by implementing theinitial parts of the adjustment program. Most of the substantive policyactions (together with establishment of necessary implementationarrangements) should be completed prior to Board Presentation.6 Thisapproach is also operationally sound in that it goes a long way towardsensuring that the policy reforms will be implemented. Moreover, it alsoreduces the need for project conditionalities, so that the loan designcan focus on implementation of an agreed package of reforms andinvestments. This approach has been adopted in a number of recentoperations; for example, under Indonesia: National Ports DevelopmentProject, the decentralization policy had become law and the new portcorporations had been established, prior to appraisal. As a result, theIndonesian project was designed to assist the new port corporationsdevelop their new role and to support the reform program with anappropriate package of investments (see Annex 3 for selected examplesillustrating the way in which actions completed, and those still to betaken under the project, can be recorded in the SAR).

40. Imports or Investments. With the advent of structuraladjustment lending, new instruments have been developed to promotepolicy reform. Since the newer instruments -- in the form of SALs andSSALs -- can finance general imports, a decision needs to be taken onwhether a specific operation should finance imports, investments orboth. This decision may hinge on several factors, as explained below.

41. If a country's development program, including development ofthe transport sector, is threatened by a shortage of foreign exchange,higher priority may have to be accorded to financing imports. Thishappened in Turkey when the Energy Sector Adjustment Loan was beingprepared after SAL lending had stopped. At that time the government'sobjective, with which the Bank agreed, was to obtain a quick disbursingloan to finance general and sector imports as a means to help stabilizethe economy and to ensure that the sector development plan was beingsupported by satisfactory import levels. The Sector Loan wasconsequently designed to achieve this objective.

6/ OMS of January 5, 1987 from Mr. Stern on 'Procedures for ProcessingAdjustment Operations".

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42. Financing imports may conflict, however, with Bank objectiveswith regard to investments. In many countries, the Bank has attemptedto improve the planning, preparation and execution of projects and hasdone this by financing investments. This concern was evident in Guineaand Nigeria, where the Bank wished to strengthen the capacity of sectorinstitutions to plan, evaluate and implement development projects; as aresult, Bank lending concentrated on financing investments. However,under the recent Energy Sector Adjustment Loans to Brazil and Turkey --where the Bank, under its regular project operations, had already agreedon medium-term investment programs for the sector -- it was decided thatthe SSALs could be used to finance imports.

43. Import financing may also conflict with other Bank objectives.Imports could support operation of parastatal trucking and buscompanies, which the Bank may wish to see closed or privatized, or maybe used to provide construction equipment for inefficient force accountoperations. Recognizing the possible drawbacks of import financing, theBank generally insists that the benefits from structural adjustmentlending should be substantial and that they should outweigh the cost ofany draw-backs associated with financing imports.

44. Co-financing. Transport projects have attracted considerableco-financing and this operational aspect is best considered during theearly stages of project preparation. Some countries may request bidswith financing, either as an option or as part of the bid. Experiencein the Bank indicates that -the interests and practices of bilateraldonors do not necessarily coincide with those of the Bank. Furtherefforts therefore need to be made to reach a consensus, either throughConsultative Group or Donor meetings, on outstanding issues. This wasthe approach pursued under the Transport Project in Guinea, in whichseveral donors agreed to participate- in the ]3ank project, rather thanprovide funds for several smaller projects on their own.

Lending Instruments

45. Range of Instruments. The Lending Strategy needs to select thelending instrument which best suits each proposed operation. Atpresent, there is a wide choice with the addition of the structuraladjustment lending instruments -- SALs and SSALs -- together with theadditional options of incorporating selected features of SALs intoconventional instruments. Some of the principal characteristics ofthese instruments are explained below; their use in recent operations isalso explained in the following section on Loan Design.

46. The Bank's Lending Instruments can be described in terms offour key characteristics: objectives; focus and content; use of loanproceeds and disbursement period, (see list of loan instruments attachedas Annex 4)e7

7/ See Note from Mr. Stern to all operational staff, January 29, 1985.The note also gives typical disbursement periods for each type oflending operation.

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The instruments can be classified into seven principalcategories as follows:

(1) Specific investment loans.

(2) Sector operations:(a) Sector investment and maintenance loans;8

(b) Financial Intermediary loans;(c) Sector adjustment loans;

(3) Structural Adjustment loans.

(4) Technical Assistance loans.

(5) Emergency Reconstruction loans.

This classification is used in the Bank's management information systemand in the operations coding system.

47. One of the principal reasons for the absence of any sectoraladjustment loan in transport probably is that the responsibility forsector planning, policy development, investments and operations isfragmented in most countries and divided among a number of keyministries, public agencies and the private sector. This situationmakes it difficult to coordinate the different parties likely to beinvolved in an adjustment loan. To facilitate loan preparation it maybe worthwhile considering establishment of a coordinating committee atan early date under the auspices of, say, the Planning Office or theMinistry of Finance, since they are likely to be major beneficiaries ofthe loan. Another reason for the absence of SSAL in the transportsector is that it has been possible to achieve substantive policy andinstitutional reforms under regular sector operations. As a result,there has been less need in transport to achieve the above objectivesthrough adjustment lending. However, recent experience indicates thattransport has been relying on SALs to support policy and institutionalreforms being promoted through regular sector operations and that recentInvestment Loans and Sector Investment Loans in the sector have adopteda number of the features normally associated adjustment loans. Thefollowing sections attempt to shed some light on the distinguishingfeatures of the principal lending instruments.

48. While the principal features of each instrument are clear, inpractice it is difficult to choose between the merits of a sectorstructural adjustment loan and of a sector investment loan and theexperience in recent operations indicates that demarcation lines havebecome less clear.

8/ Hereafter referred to as Sector Investment Projects, or SectorInvestment Loans.

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49. Historical Background. To understand the evolution of theseinstruments, a brief explanation of the historical background in Banklending may be helpful. The Bank's Articles of Agreement attempted tomake a clear distinction between project lending and non-projectlending, the former covered loans to be disbursed for specificinvestments in projects, while the latter were expected to providesupport for the balance of payments by financing general imports. Thelatter were referred to as Program Loans, while the former were termedProject Loans. The first Bank loan was in fact a Program loan made toassist reconstruction in France after World War II. An essentialfeature of this loan, which was subsequently adopted for all similaroperations, was that the Bank sought agreement: with the Government on amacro-economic framework to support the reconstruction effort. Afterthese earlier reconstruction loans, the emphasis in Bank lending shiftedtowards Project Loans.

50. In the late 1960s and early 197Cis, as borrowers gainedexperience in the preparation, planning and implementation of projectsthe emphasis shifted from financing specific investments by means ofProject Loans, towards supporting sub-sector wide investment programs bymeans of Sector Investment Loans. Under such loans the Bank couldfinance a time-slice of the investment programs, either directly, orindirectly by financing the imports associated with these investments.The focus with respect to policy and institutional issues likewiseshifted from specific project issues towards sub-sector wide issues.

51. Principal SAL Features. The SALs and SSALs originated from theearlier Program Loans; they were developed in the early 1980s to enablethe Bank to assist borrowers embarking on major structural adjustmentprograms. Their principal features are that thiey should include:

(i) a substantive policy content, summarized in aDevelopment Policy Letter;

(ii) an agreed public sector expenditure program, an agreedcore program, or both;

(iii) conditionalities;

(iv) tranching;

(v) expenditure reviews, carried out annually or atspecified dates;

(vi) funds that disburse quickly, e.g. by financing imports;

(vii) agreement for use of counterpart funds;

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(viii) documentation for Board Presentation within theframework of a President's Report; and

(ix) provision of a complementary Technical AssistanceProject, if such assistance cannot be completed withinthe SAL disbursement period.

52. The above instruments focus primarily on promoting policyreform and supporting the balance of payments by financing imports.These two principal features distinguish structural adjustment lendingfrom Specific Investment Loans and Sector Investment Loans. Thefollowing sections discuss these two aspects.

53. Policy Content in SALs. Structural adjustment loans need toaddress major policy reforms, since the purpose of the loan is onlyloosely connected with the financing of investments. While SALs andSSALs may address the overall public investment program, or individualsector investment programs, they only do so in broad terms and not interms of the detailed approach generally used for project lending.

54. Import Content. One of the principal objectives of a SAL isto support the balance of payments; they are therefore designed to bequick-disbursing and this generally involves financing imports. Quickloan disbursement is desirable in countries where import shortagesimpede productive capacity and where an increase in production andimport supplies will strenghten work incentives and help restore betterbalance in the economy. However, part of some SALs and SSALs arenevertheless being disbursed against investments, even though the needto comply with Bank guidelines and approval procedures will generallyslow down disbursements. The current trend is to avoid using part ofthe loan proceeds to finance investments.

55. Policy Content in Project Lending. The introduction ofadjustment lending does not mean that project lending cannot promotemajor reforms at the sub-sectoral level. For example, the TransportSector project in Guinea supports major reforms in road transport,ports and airports; the National Ports Development Project in Indonesiasupports a major decentralization of port administration; while theSecond Highway Sector Project in Colombia addresses deregulation ofroad transport, adjustment of road-user charges, institutionalimprovements for better highway sector management, and the size andcomposition of the transport expenditure program.

56. Sector Investment Loans. These loans differ from sectoradjustment loans in that they primarily finance investments, ratherthan imports. Sector Investment Loans usually cover a time-slice of anagreed Investment Program and individual investments are prepared andevaluated according to an agreed methodology and criteria; usually theyneed to meet a minimum rate of return, although some exemptions have

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been made e.g. for social or other considerations. As a result, theyhave a major advantage over sector adjustment loans, in terms ofproviding considerable leverage over the size and composition of thesector expenditure program, as well as over its preparation, planningand implementation. However, by financing investments, such loansdisburse more slowly than SSALs.

57. SAL and SSAL Selection Criteria. These lending instrumentsshould generally be used when one, or both of the following conditionsapply:

(i) macro-economic conditions are such that the loan needs tobe quick-disbursing and, therefore, must probably be usedto finance general imports; and

(ii) needed sector policy reforms; cannot be addressedadequately under project lending, when sector issuesextend beyond the sector, or need to be decided at thehighest level of government.

In both cases, the benefits from non-project lending should outweigh theloss of Bank leverage over the investment process which is normallyprovided under a project loan.

58. Disbursement Period. Project loans in transport tend to have alonger disbursement period than the customary period used in SALs andSSALs. The Second Electric Power Sector Loan to Brazil is expected tobe disbursed within one year, whereas the disbursement period under theproposed Highway Sector Loan in Nigeria -- which is one of the shortestin transport -- is 4-1/2 years. However, this period is about the sameas the longer disbursement periods under other SALs and SSALs. In thisconnection, Bank staff in transport have striven to shorten the standarddisbursement profile for sector investment loans, in two main ways: (i)by supporting a time-slice of the investment program (this enablesdelayed components to be replaced by others already prepared); and (ii)the project may be specifically designed to speed-up disbursements (thecivil works contracts in the Nigerian Highway Sector Loan have beendesigned to be completed within one-and-a half years; all contracts areto be let within three years, while the uncommitted balance of the loanaccount will be cancelled at the end of the three-year period.9 Anotherprocedure is to allow for advance contracting with retro-activefinancing, or to finance supplies of spare parts and other inputs earlyin the project period.

9/ This approach is possible in Nigeria, since the constructionindustry is both competitive and underutilized.

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59. Issues Beyond the Sector. Selecting SALs and SSALs, or relyingon a lending operation in another sector, may be necessary whenever theissue to be addressed extends beyond the sector. Examples of suchissues discussed in Section III include: reform of planning andbudgetary processes; salary and manpower policies; reform of publicenterprises; industrial protection policies affecting sectordevelopment, etc.

60. Audience. Another major factor in selecting SALs foraddressing sector issues, is the process of decision making in thecountry. The reason is that SALs generally involve political andeconomic decision makers at the highest levels of Government and majorsector reforms may have to be dealt with at this level. However, thesituation differs from country-to-country. In Nigeria, for example, theinitiative and support of the Minister of Public Works is needed topromote reform of the highway sector. Reform of the railways, on theother hand usually requires support at the highest levels of government.In these circumstances, reliance on a SAL -- involving the Ministry ofFinance and/or for the Ministry of Planning -- may be the onlyalternative. When major policy reforms are at stake, selection of themost appropriate lending instrument may therefore require a detailedunderstanding of the decision making process within a country.

61. Loan Beneficiaries. While the SAL format may have beenessential to reach overall agreement on a reform program, the detailedpreparation and implementation of the reforms is likely-to be handled bythe individual sector agencies. This creates a dilemma when the SALfinances general imports, which are of little direct benefit to thesector agencies. To enlist their support may require that they be madebeneficiaries of the loan. This appears to be the case in Turkey underthe Energy Sector Loan, where more than 15 sector agencies are to bemade loan beneficiaries (by disbursing half the loan to support thesector investment program). As an alternative, the government couldalso use its control over budgetary and foreign exchange allocationsand/or borrowing authority to support the reform programs of sectoragencies.

62. Selection Matrix. To facilitate the selection of appropriatelending instruments it may be useful to classify the issues to beaddressed in two main ways: (i) according to major categories oflending instrument; and (ii) in accordance with their scope (e.g.country-wide, inter-sector, sector-wide, sub-sector wide and projectrelated) (see Box 1). Macro-economic issues usually have to depend onSALs; inter-sectoral issues on lending operations in other sectors;sector wide issues under SALs, or SSALs; while sub-sector and projectrelated issues must usually be dealt with under standard lendinginstruments. The matrix could furthermore identify the issues where thetransport sector should make use of SALs and where it might contributeto SALs (even though the latter issues could be handled under standardlending operations).

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63e SAL Selection Criteria in Transport. The areas where SALs orSSALs, are likely to be the most appropriate lending instrument can nowbe summarized as follows:

the issues extend beyond the sector and cannot be handledthrough sub-sector lending;

for macro-economic reasons, the loan needs to be quick--disbursing; and

- government agreement on reform is dependent on decisionstaken at the highest level of gcivernment.

64. Investment Loan Criteria. It is also possible to summarize theprincipal reasons for choosing a project lending instrument (e.g. SectorInvestment Loan, specific Investment Loan, or Multiple-Mode InvestmentLoan) as follows:

- the reforms do not affect other sectors;

- the loan need not be quick-disbursing;

- the reforms program can be agreed by decision-makerswithin the sector;

- there is a need to maintain leverage over the expenditureprogram; and

- sector agencies will only support the reform program ifthey also benefit from it.

65. Transport and Other Operations. Final]Ly, the selection processshould consider what use the transport sector could make of lendingoperations outside the sector, or what contribution transport could maketo support such operations. The following examples illustrate somepossibilities:

(i) The most desirable contributions to SALs would be onissues where SAL support would promote transport sectorobjectives: increased allocations for road maintenanceand foreign exchange for the procurement of spare partsand essential materials; tariff and rate increases;reform of cumbersome, or ill-conceived budgetary andplanning procedures; improved public sector salary andmanpower policies, etc. Reliance on SALs for these issuescould support existing covenants under project loans, byeliciting support for them at the highest level ofGovernment.

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(ii) One critical contribution which transport could make toSSALs attempting to promote exports is by providing atrade-facilitation component.

(iii) In countries considering public enterprise reform,transport could participate as part of a PERL.

(iv) Finally, when transport issues arise due to distortionsin other sectors (e.g. industrial protection policieshampering development of larger trucks, or inefficienttrucking and pricing policies of agricultural marketingboards) transport may have to rely on operations in othersectors to resolve them.

V. LOAN DESIGN

Definition

66. For the purposes of this paper, loan design has been given abroad interpretation, encompassing the principal operational aspectsinvolved in developing a loan package supporting structural adjustment(whether through a SSAL, Sector Investment Loan, specific InvestmentLoan, or Multiple-Mode Investment Loan). It refers only incidentally toSALs, since preparation of these is the responsibility of CountryDivisions. The operational aspects cover the report format, thegovernment reform program, the sector reform program, selection of theBorrower, identification of loan beneficiaries, procurement anddisbursement arrangements, Loan conditions, tranching arrangements,annual reviews, use of counterpart funds, co-financing arrangements andproject supervision.

Report Format

67. Recent examples of transport project loans in support ofstructural adjustment have adopted the SAL format in presenting the loanin the SARs. In particular, the usual presentation in chapters III andIV of the SAR have changed: the Project Description has been replacedby the Government's Program and the remaining sections of the SAR by theproposed Loan (Annex 5 shows the chapter outline for two recentoperations). This new approach to presenting the SAR is significant,since it illustrates the importance of the policy reforms and the way inwhich the physical components and other features of the loan aredesigned to support implementation of the policy reforms.1 0

10/ The processing of SALs and SSALs should follow the proceduresoutlined in the note from Mr. Stern to all Operational Staff on theProcedures for Processing Adjustment Lending Operations, January 5,1987.

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Government Reform Program

68. Any operation designed to support structural adjustment has tofocus on policy and other reforms. It may therefore be desirable, as iscustomary under SALs, to present the Government's Reform Program first,followed by the Investment or Expenditure Program. This Program isusually summarized in a "Development Policy Letter' from the Government(signed by a high official) addressed to the Bank, outlining the plannedreforms according to a specified timetable. Such a letter appears to bemandatory under a SSAL, but is optional under project lending. Whenproject loans support major reforms, such a letter may neverthelessrepresent a useful way of obtaining the government's formal commitmentto the reforms; such letters were obtained in recent transport lendingoperations to Colombia, Korea and Nigeria. Under the Second ElectricPower Sector Loan in Brazil, the Government issued an officialpublication outlining the intended reform program, together with theplanned sector investment program; this publication was accepted in lieuof a full Development Policy Letter, which simply confirmed thegovernment's intention to carry out the published reforms and requestingBank assistance to support of the reforms.

69. The need to present the Program as a whole under the projectdescription in the Legal Loan Documents cannot be overemphasized. Thiswas not done under the Energy Sector Adjustment Loan, in Turkey; insteadit employed the usual concept of a "Project" and "Project Costs," ratherthan referring to the Program and its cost. This created confusion,since the Project Description only covered part of the InvestmentProgram -- the foreign exchange gap. Instead of referring to theProgram as a whole, (including both policy and expenditure components),the Project Description was confined to the items against which the loanwas to be disbursed. Disbursement issues should not dictate thedescription of the Project; instead they shcould be handled separatelyunder the section on disbursement arrangements.

Sector Reform Program

70. The development and presentation of this Program will requireas much attention, if not more, than presentation of the ExpenditureProgram. 11 These programs should be based on in-depth sector work,carried out up-stream to ensure early and close Government/Bankcooperation in program preparation. In particular the Government shouldbe expected to show its commitment to the reforms by undertaking someinitial steps before the loan is approved. This not only simplifies thedesign of the loan but strengthens the case for Bank support. Indeed,

ll/ See the Discussion Paper by Ian Heggie: Transport Policy Reform -Review of Experience and Development of a Framework for DesigningPolicy Reform, April 1988.

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under such circumstances, loan conditions can be kept to a minimum andthe loan package can be designed to simply support implementation of thereforms. This approach has been adopted under the National PortsDevelopment Project in Indonesia and in the Energy Sector AdjustmentLoan in Turkey. Under these operations, the reforms were decreed inadvance and basic institutional arrangements were established for theirimplementation.

71. The Sector Program should be selective to be within theimplementation capabilities of the country and should include a set ofmonitorable specific actions, to be taken within one to three years, toimplement the reforms. Since program implementation will requirecapable "intermediaries", the reform program should ensure that theyhave adequate authority to carry out the program, to monitor itsprogress and to prepare possible follow-up actions. Bank operationsshould include technical assistance as necessary for the intermediariesto discharge their responsibilities.

72. It is desirable to present the Reform Program clearly. To thisend, the following features, may be worth considering:

(i) the reform program should focus on a limited number ofprimary objectives, while minor objectives should berelegated to the background;

(ii) whenever possible, the benefits of reform should beexplained and quantified;

(iii) the reform program should clearly distinguish betweenmeasures already taken and actions still to be taken;

(iv) actions subject to monitoring should be dated clearly;

(v) the extent to which each operation supports the overalladjustment program should be clearly explained (supportexpected under future operations should also bementioned);

(vi) measures taken to minimize the losses/costs attributable-to the reform program should be explained;

(vii) where possible, the reform program should include specificmeasures expected to show short-term results;

(viii) time-scale for implementation of the reform program shouldbe realistic and achievable, (and should contain someleeway for slippages); and

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(ix) implementation of the reform program should includearrangements to enable the program to be adjusted in thelight of the developing economic situation.

73. Similarly, the Expenditure Program should be designed along thefollowing lines:

(i) the program should be tailored to the availability ofresources and should reflect the government's overallinvestment priorities and should strive for balancebetween operational, investment and maintenanceexpenditures;

(ii) it should be designed to support implementation of thereform program (by supporting the agencies selected toimplement the reforms);

(iii) it should focus on sub-sector or sector-wide investments,rather than on specific projects;

(iv) it should include some quick yielding components to showthat the reform program is working;

(v) it should include compensation, as appropriate, to offsetthe losses/costs associated with the reform program;

(vi) it should emphasize actions to be taken (further studiesshould be limited to preparing reforms to be includedunder follow-up operations);

(vii) it should be flexible, with a relatively shortimplementation period, to enable adjustments to be made asthe economic situation develops;

(viii) since general economic conditions are uncertain,investment risks should be minimized;

(ix) it should be quick disbursing, since resource constraintsare likely to be significant; and

(x) it should pave the way for subsequent reform programs, ortheir consolidation, under follow-up operations.

74. The reasons why it is desirable to aim for a relatively shortimplementation period (item 73 (vii), above) are:

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(i) the Program may include studies on sensitive issues to becompleted within one or two years of loan approval and --since it is not reasonable to request governmentcommitment to implement unknown study recommendationsahead of time -- a timely follow-up is best assured by asubsequent operation shortly thereafter;

(ii) in a rapidly evolving economic situation, it is difficultto specify feasible conditionalities extending beyond oneor two years;

(iii) by its very nature, structural adjustment is a dynamicprocess with unforseen effects and slippages, whichrequire continuous up-dating, if only to take into accountnew developments in the world economy.

For these reasons, a 3-year time- horizon seems reasonable in that itprovides time for a full review and any necessary up-dating of thereform program.

75. Few of the operations reviewed in this paper consider thelosses/costs associated with the program, even in countries where theyare likely to be substantial such as in the form of labor redundancy.This is an issue in which the Board and Bank Management have expressedconsiderable interest and every effort should be made to deal with it,including provision of necessary compensation.

Selection of the The Borrower

76. Under SALs the Borrower is usually specified as the Ministry ofFinance, or the Ministry of Planning; under the two energy sectoradjustment loans reviewed, the Ministry of Finance was the Borrower.Under these operations, the ministries were also the primarybeneficiaries of the loan in that either all, or most of the loanfinances general imports and that the counterpart funds generated bythese imports is available for use by the Ministries in the generaldevelopment budget. A sector adjustment loan in transport is likely toinvolve several ministries and other public sector agencies. In suchcases it may be desirable to make the loan to the Ministry of Finance,to maintain balance and to avoid conflicts between the individualagencies (e.g. over reallocation of loan proceeds). However, incountries where an individual sector agency is the prime mover of sectorreforms -- and its support depends on it being a primary beneficiary ofthe loan -- it may be necessary to specify this sector agency as theBorrower.

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Identification of Loan Beneficiaries

77. The number of agencies which benefit under Sub-SectorInvestment and specific Investment operations is usually limited.However, their number increases under multiple-mode projects and couldbe even higher under a sector structural adjustment loan. A recentexample is the Energy Sector Adjustment Loan in Turkey which benefittedabout 15 agencies. When beneficiaries are numerous, on-lendingagreements tend to increase and due attention needs to be paid toestablishing suitable arrangements for monitoring, coordinating andreporting on loan implementation. For example, under the above EnergySector Adjustment Loan, the Ministry of Energy was designated to ensureoverall coordination, while the other Ministries and Agencies wererequired to establish separate units for monitoring, coordinating andreporting on the various actions undertaken by the various units undertheir jurisdiction.

Procurement Arrangements

78. SALs usually finance general imports: the Second ElectricPower Sector Adjustment Loan to Brazil finances general imports, whilethe Energy Sector Adjustment Loan to Turkey finances both generalimports and specific imports for the sector's investment program. Somestructural adjustment operations also finance investments. However,hybrid operations present some problems: investments may be delayed andthis may defeat the quick-disbursing feature of the loan, while sectorimports may finance items for less desirable operations in the sector.Financing sector imports has the advantage of providing directassistance to those agencies responsible for implementing the reforms.As a rule, imports of certain luxury items and military and para-military equipment are excluded from the irmports eligible for Bankfinancing, together with imports financed by others (by using a negativelist). Under the Energy Sector Adjustment Loan in Turkey the list ofitems to be imported for the sector was made subject to Bank approval(by using a positive list).

79. The procurement conditions under the above SSALs permit generalimports, up to specified limits, to be made on behalf of the privatesector through regular commercial channels and on behalf of publicsector agencies using customary procedures. The Bank needs to besatisfied that the procurement procedures used up to these limits arereasonable. Beyond these specified limits, procurement has to be byICB. The Central Bank is usually required to certify that these ruleshave been followed when submitting withdrawal applications. Under theAdjustment Loan to Turkey, domestic manufacturers were permitted tocompete for the list of goods associated with the sector's investmentprogram and the loan therefore provides for 10OZ financing of their ex-factory cost.

80. The procurement procedures under recent Transport SectorInvestment Loans require:

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(i) Bank-approval of all sub-projects, which need to beprepared in accordance with an agreed methodology andacceptable criteria;

(ii) procurement to be in accordance with Bank guidelines;

(iii) Bank approval of contracts, in some case ex post, and anyamendments thereto.

81. These requirements need to be applied in a pragmatic way, toavoid being unduly restrictive and overly bureaucratic. For example,under the Third Highway Project in Portugal, which financed a three-yeartime slice of the medium-term -expenditure program, only major civilworks were required to be subject to full feasibility studies, whilemore modest works -- such as periodic maintenance and roadrehabilitation -- are to be evaluated in terms of an abbreviatedeconomic methodology. The inclusion of new works, or the exclusion ofothers, was to be decided during annual reviews of the medium-term plan(in March and September each year), or at the Government's request.Civil works contracts below US$5 million could be let under LCBprocedures; above this ceiling they were to be let under ICB procedures.Only contracts let under ICB procedures require prior Bank approval; LCBcontracts require Bank approval only after the contracts have beensigned (except for the first three contracts, where prior Bank approvalis needed to ensure that the type of contract is acceptable to theBank). Copies of all contracts had to be submitted to the Bank beforedisbursements were approved. Similar procedures have been adopted underthe Second Highway Sector Project in Colombia. It is desirable that allsub-project and contract approvals be recorded officially (e.g. bytelex) to avoid misunderstanding and for possible audit purposes.

82. There are occasions when the cost estimate set out in theoriginal feasibility report turns out to be significantly lower than thesubsequent cost estimate based on detailed engineering. To deal withthis issue, the Second Highway Sector Project in Colombia requires theBorrower to up-date the feasibility report whenever the detailedengineering cost estimate exceeds the original cost estimate by morethan 20Z.

83. Finally, since contract amendments can be costly, arrangementsneed to be worked out for their approval and monitoring. The approvalprocess may be simplified by allowing the Borrower to approve amendments-- subject to ex-post Bank approval -- within specified limits (e.g. upto 202 of the contract value, or less than a specified amount, whicheverfigure is lower). To facilitate the monitoring of numerous contracts(including their amendments) several Bank Regional Offices havedeveloped special-purpose computer programs, which are increasinglybeing used by the Borrowers themselves. Effective monitoring isrequired to account for the use of loan proceeds.

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Disbursements Arrangements

84. The Central Bank usually opens a special account to facilitateloan disbursements under SALs. Upon tranche release, the loan proceedsare deposited in this account. Withdrawals from the special account aregenerally made against payments for eligible imports under contractsabove a specified minimum; this minimum is designed to simplify theaccounting and disbursement arrangements. This approach was used underthe Second Electric Power Sector Adjustment Loan in Brazil. A specialaccount was also established for the Energy Sector Adjustment Loan inTurkey, but it operated as a revolving fund with an initial deposit ofUS$50 million, out of the total loan amount of US$ 325 million. Thisapproach is being increasingly adopted under Sector Investment andInvestment Loans in transport. The Bank requires adequate documentationbefore withdrawals can be made, including the receipt of copies ofcontract documents prior to the first withdrawals made under suchcontracts.

85. The above two Energy Loans to Brazil and Turkey provide forwithdrawals to be made against payments for eligible expenditures as ofthe date of the Loan Agreement; they also provide for retro-activefinancing up-to a specified date. This approach was also adopted underthe Second Highway Sector Project in Colombia. This feature acceleratedloan disbursements, since a number of civil works contracts had been letaccording to Bank procedures before the loan was signed and weretherefore eligible for retro-active Bank financing.

86. Under the above approach, disbursements end when the loanproceeds are exhausted, or at a specified Loan Closing Date, whichevercomes first. This could be a disadvantage in countries withinsufficient local resources to complete all contracts by the end of theproject period; contractors may furthermore have submitted bids on theassumption of continued Bank Financing. This disadvantage may also berelevant when contracts for imported equipment have long deliveryperiods. Under these circumstances, the interruption of disbursementscould delay payments and contract completion dates with their attendantprice escalation. To avoid such difficulties,, the Highway Sector Loanto Nigeria relates disbursements to contract cormmitments during a three-year period; disbursements will thus continue for about one-and-a halfyears after the end of the commitment period. The uncommitted balanceat the end of the three-year commitment period will then be cancelled.The term "contract commitments" needs to be clearly defined in legalterms -- probably as contracts approved by the Bank --to be in line withthe Bank's documentation requirements for Bank withdrawal applications.

Conditionalities

87. Loan conditions are at the heart of SALs and SSALs. Theconditions to be met for tranche release are particularly important andare usually stated explicitly in a separate schedule in the LoanAgreement. In addition, critical actions for the success of the

- 27 _

operation are set out in specific convenants under the Loan Agreementand non-compliance would be considered a default. About half the SALsand SSALs made between FY80 and FY86 contain some conditionalitiesand/or components relating to the transport sector. A brief review ofexperience with these components indicates that some conditions couldnot be met, at least not according to the specified time-scale, so thatgreater care needs to be taken to establish realistic conditions with afeasible time-scale.

88. Conditionalities in Investment Loans in the sector have rangedfrom conditions to be met by appraisal, to conditions linked todisbursement and tranching. The approach has varied greatly from oneoperation to another. National Ports Development Project in Indonesiawas prepared after the government had already decreed a majordecentralization of ports administration and the Project could thereforebe designed to assist the new organizations discharge theirresponsibilities efficiently; the loan consequently contained a minimumof conditions. The Transport Sector Project in Guinea likewisecontained a minimum of conditions, since significant reforms had beenimplemented prior to Board Presentation; the loan included a number ofspecific covenants governing loan effectiveness and the start ofdisbursements.

89. The Highway Sector Project in Colombia and the Highway SectorLoan in Nigeria, which finance a time-slice of the government'sExpenditure Program, had both reached agreement with the government onthe size and composition of the Expenditure Program before Boardpresentation. Both operations nevertheless contained extensiveconditions regarding future actions as follows:

in Colombia deregulation of road transport; revisions toroad user charges; and extensive institutionalstrengthening;

in Nigeria the gradual introduction of economic analysisin project preparation; revisions to road-user charges;institutional strengthening; and the efficientimplementation of the expenditure program, together withallocation of sufficient public sector resources tosupport it.

90. The design of loan conditions requires great care. Briefly,they should be designed along the following lines:

(i) they should be kept to a minimum by focussing onessential reforms; details should be relegated to ActionPlans;

_ 28 -

(ii) policy reforms -- and their implementation arrangements-- should ideally be in place by the time of appraisal;

(iii) conditions for tranching should be stated clearly andshould relate to dated, monitorable actions;

(iv) conditions should have realistic implementationschedules, with a reasonable margin to accommodateunforseen slippages;

(v) conditions should be complemented by appropriate ActionPlans to support their implementation;

(vi) essential conditions should be covered by specificcovenants in the Loan Agreement; and

(vii) conditions should address actions to be taken within arelatively short time-horizon.

91. The format for presenting loan conditions has not beenstandardized, other than that conditions for tranching are included in aseparate schedule under the Loan Agreements (Annex 6 gives recentexamples of the Action Plans used under various operations). Thefollowing features may be noted:

(i) under the Third Structural Adjustment Loan to Jamaica,the matrix separates the actions taken under previousSALs from the actions already taken and the actions stillto be taken under the Third Adjustment Program, this is aprocedure to be recommended;

(ii) the Schedule of Actions under the Draft Statement ofEnergy Policy by the Government of Turkey does notindicate which actions had already been taken, butspecifies a clear timeframe for the actions still to betaken under the Loan, their relevance for loaneffectiveness or tranching, and whether or not they areto be treated as a dated covenant;

(iii) the Highway Sector Loan in Nigeria contains a PolicyMatrix specifying conditions for Board Presentation andtranching together with a complementary Action Plan; and

(iv) the Second Highway Sector Project in Colombia combinesconditions and actions into a single Action Plan; animportant feature in this operation is that it also setsa number of operational targets.

- 29 -

The Action Plan for Colombia, included in full in Annex 6, shows anexample of how substantive issues might be addressed. It should also benoted that implementation of the productivity targets involvesignificant manpower reductions to be achieved; stating this sensitiveobjective implicitly made it more acceptable to the government.

92. Although there is no standard format for handling loanconditions, a single conditionality matrix is generally insufficient;where possible, it should therefore be supported by an Action Plan,indicating the actions to be taken, by which agency, and by which date.Action Plans can also be extended to cover other reforms which are not acondition for tranche release. Normally, tranching should relate to thesub-sector wide investment program rather than only to the investmentseligible for Bank financing.

93. Tranching Arrangements

Although tranching is principally used in SALs and SSALs, somerecent Transport Sector Investment Loans have also used it. Tranchingcan either be related to disbursements, as is customary under SALs, orto contract commitments when it is desirable to ensure continued Bankfunding of civil works or equipment contracts (para 86). Under theproposed Highway Sector Loan in Nigeria, tranching is primarily used toachieve satisfactory progress in project preparation and implementation.Tranching may also be a convenient way of achieving reasonable annualbudget allocations for maintenance or resources for the procurement ofspare parts. Tranching appears to be more suitable for relatively quickdisbursing operations involving short-term contracts; they are lesssuitable for major investments financed under longer-term contracts,especially if they are mostly signed at the beginning of the loan.

94. Instead of tranching, the Second Highway Sector Project inColombia used a different approach:

(i) the Financing plan and the Expenditure Program are up-dated annually and have to be made consistent with eachother and with the macro-economic stabilization program;

(ii) the Bank's participation in financing the ExpenditureProgram is expressed as an average percentage of annualcommitments; the percentage is adjusted annually tocompensate for variations from the average in thepreceding year (disbursements are also conditional onsatisfactory progress in implementing the ExpenditurePlan and the Action Plan; this is covered under thegeneral provision in the Loan Agreement and not under thestandard convenant required under a SAL).

- 30 -

Annual Reviews

95. A number of operations require periodic reviews of the reformprogram and/or the expenditure programs. Such reviews are needed whenthe expenditure programs are part of a rolling three-year program. Thetiming of these reviews needs to be carefully chosen and specifiedclearly. For most SALs, the reviews take place shortly before the timespecified for tranche release. For most sector type operations intransport, the timing is generally just before, or after, the beginningof the fiscal year. The problem is to set the time late enough in thecurrent year to ascertain progress made during the year, but still earlyenough to enable the Bank to make a meaningful input into preparation ofthe expenditure program for the following year. This latter objectiveis more important than the retrospective review. To meet these dualobjectives, the Highway Sector Project in Colombia and the Third HighwaySector Project in Portugal specify two review dates: one in March forthe retrospective review and another in September for reviewing thefollowing year's program. This involves two staff intensive missionsper year which is expensive. To reduce staff input, the Highway SectorLoan in Nigeria specifies one date: January of each year. The choiceof a suitable date requires a good understanding of the Borrower'sbudgetary process.

Use of Counterpart Funds

96. If a Sector Adjustment Loan finances imports which generatecounterpart funds, provision will have to be made for the use of suchfunds by the Borrower, in line with the OMS on Procedures for AdjustmentLending Operations. The Bank generally takes a flexible view on the useof these funds and usually agrees that thiey can help finance thegover.nment's development budget (Annex 7 shows the provisions of theCredit Agreement on the Second structural Adjustment Credit to Senegalgoverning use of counterpart funds).

Co-financing Arrangements

97. A number of recent operations have been designed to accommodateparallel co-financing, with commendable results. This requires that theoperation be designed in close cooperation with the other donorsinvolved.

98. A less frequent form of co-financing is by means of B-loans.The requirements of this type of loan are less well known. Briefly,these loans are usually quick-disbursing and use of the loan proceedsdoes not have to be limited to financing foreign exchange costs; theycan also be used to finance local costs. The Bank's role is usuallylimited to approving sub-projects eligible for financing under the loan;the Bank does not normally get involved in the procurement process,except that procurement of goods and services under the Bank portion ofthe Loan have to follow Bank guidelines. The Borrower is generally

- 31 -

required to report annually on the use of the loan proceeds (and theresults achieved), to comply with the audit requirements ofparticipating banks.

Proiect Supervision

99. Since current operations focus on sub-sector expenditureprograms and policy and other reforms -- or cover investments in morethan one mode -- project design should attempt to make the Borrowerresponsible for monitoring and reporting on the progress of the loan toreduce the amount of supervision done by Bank staff. The design shouldalso ensure that adequate steps are taken to avoid implementation delaysand to ensure compliance with the Bank's procurement guidelines.Adequate attention to these matters during the design stage isessential, if input by Bank staff is to be within reasonable limits.Indeed, Regional experience suggests that the staff input associatedwith the supervision of multiple-mode projects far exceeds the highestBank-wide averages for single-mode transport projects; these averagesare also far exceeded when procurement issues arise in the manycontracts that have to be awarded under sub-sector type operations.

100. Bank staff have responded to these concerns by providingtechnical assistance to support project implementation and by organizingseminars on the Bank's procurement guidelines. Several recentoperations have also provided for the establishment of projectmonitoring and coordinating units. Such units are nevertheless nopanacea, particularly when several donors insist on the establishment ofoverlapping units dealing with their individual operations. To avoidduplication and waste the Bank should aim to strengthen the agency'soverall capacity to implement projects. This approach was adopted underthe Second highway Sector Project in Colombia.

101. It is also clear that the focus and character of thesupervision effort is shifting away from the hardware aspects ofindividual investments towards sub-sector wide issues related toexpenditure programs, management, policy and other reform issues. Onthe technical side, it will be impractical for Bank staff to superviseall aspects of the investments being financed under a time-slice of thesector's development program and the supervision effort will have to belimited to a sample of works and will have to concentrate on proceduresrather than projects (e.g. arrangements for procurement, workssupervision, contract management, cost accounting, etc). On the policy-side, the supervision effort will have to concentrate on the supervisionof studies and the annual review of expenditure programs, action plansand conditionalities. Consequently, for operations supportingstructural and other reforms, the primary focus of the supervisioneffort will be on the periodic reviews and the missions planned for thispurpose should be staffed accordingly.

I

- 32 -

ANNEXES

I

I

Anne-x 1

LIST OF PRJECTS SELECI't FOR REVI7.M

Structural Adiustnent Operations ate Cover

Jamaica Third Structural Adjustnent Loan 10/84 Grey

Senegal Sccond Structural Adjustment Credit 02/86 Grey

Togo Second Structural Adjustment 05/85 Grey

Sector Adiustnent Operati-ons

Turkey Energy Sector Adjustment Loan 06/87 Grey

Zimbabwe TransDort Rehabilitation Imports Program 04/81 Grey

Brazil Second Electric Power Sector Loan 04/87 Yellow

Transport Operations

Colombia Second National Hignisay Sector Project 0 2/87 Grey

Guminea Transzort Sector Project 03/87 Yellow

Indonesia Nlational Ports Developrent Project 06/85 Grey

Korea Highway Sector Project 03/84 Grey

Nigeria : Highway Sector Loan 11/86 Green

Source: TDD

STl8UC1IJEA AJSX LON f 906:HWVAAS AND lrWjCS

COUNTIV SAL/SAC lio --- -S- -- -----r"-- ----------- _- - _ C-

SAC 1404 l^Sr VAR orvi. tasty t sr Soil CIP ta11 IBM AG ads IN IND 1MM To UAMI

Costs Sic, SAL A SAC ila r15CC lap vVro 1M? 15CM mo, gm CiI gust lolm go *lo 1MMcGps.% S1AL/SAC A SAC Via Pago TA0 DcVi fear 16CM 104ir £t0F gir 11 gas AG Cu &ANY

e*'iV Coat SAL I ISAC el" TAIL liEvi 1CM? ISIS no top too AG CO S U

Swoop Coast SAL Ii SC I,CVi IMr tilt Cit 906 t G to U401M

Jaaco SAL t oo TAR 1Sir rISI P Lan r 88 GC CMI)

Jsmaica SAL is 4AC FIN TAP DCvf tsar 1581 ago gap AuS AC AG

Ja*oce SAL 81 tAP o.vn *F.t *? S Irn COi I 805 AG to IWo to UWS

Roofs SAL I SAC 150 thP PENT SIP ri gAr CLi gas I1Ola-mp SAL/SAC II SAC flo DOCVD p1M tSMll lost ClAM ai tCli Ago AG CM IND #MM

S0es.. Pep ON SAL A MAC iiiX Isll DeSw Mt Sir too AG Lo I0slaRuls., pap .1 SAL el CVIS roe Io la1salaw SAL I SAC ritN 5cCc rhA OeVN rt1r 1s5 a aii eIr Cle AG go

Salowl SAC if J1AC Fc" taeC lap OeLv 8M?T tsar to "aN a c nJGna&"ulAtas SAL I bAC DOW PEVi PtCM PSIM 151 Cat C A to" CfrGM li' StoS

H&l IlAue SAL iI AlT IM4 TAP DeIV P"eC *sr1e rs1t £1 air fUl Apo AG 54,

Pakistan SAL I "At' lo uCvn 1ClM 1581 AG to) CM too tolfu TA

Panama SAL I low 100CC Thm UCWn 9CM? &Sir st Cie rful sued AG CM OW 1 MM UWss

Fhllppln.e SAL I Fas tAm *Ct i? 151 tip tn BII I)N

tCil4pel.f.e SAL II SAC VAS N nIv CSet CIr too AG Add IWSeneqel SAL/SA' S RAC f1C emru; nUeV 1CfM ISlE adn tif rum loll aC

thal..I..d SAL f dAC VAN oUsrt 11 CIfr lo" Cop AG CM 1"D

164iloLln SAL $I SAC FIN i.0 lo fV PLaIT PS1r Croo fa r5 AC. ol ends U"S

P..q SAC I MA4 TAS OfV0 1ecM?t rs3r Lon AG t.o 1041)tIgq SAC $I &AC 10`4 *lwVn ecEt &Sir uAG on toLuealo SAL I Mat Iii VAP p*Ci 5001 For I Llio " INN 104 I

i..h-la SAL 6I tl14 o TA P*lt PS1F tip Co" laid AC I0Old

tIa aI SAL Ill "AC Ill rap DCvn PENT tSiE fClm t Co" fll lop AG * 4

?wtkey SAL IV MAC IN YAP dEWSt Prde 51st Cl" ter to" ill AG fi

tulepo SAL V FAS 04 WCm. PCMY P5I1 Coltip I to" 1am AG 104

IMeOsiava SAL I Flo talc. 1511 CbS CCrI C0 ful ISO AG to4 0Lb

Explanatory NotesCode Code

f1a1LSY-A&S"S Domestic Res(eo,rce HobilizatIon DRN Potiy_ Ara rd n EXCh-i# If [es TERTopics: Budget AdulnIstratlii J Control SAC Topics: Internal Debt Management EON

Financial Karkets FIN Eaport Incentives and Promotion EIPPrice Regime PIEC Exchange Rate management (incl.Taxes and Revenue TAR foreign exchange allocation) (RN

foreign Direct Investment FDIlaport egtime Reform IRA

Policy Area: Public Sector: Planning and Policy Area SectorsKanagement PSI" Agriculture and Rural Development AC

Topics: Development Planning and Uducation EDKanagement DEVH Energy EN

Public Enterprlsee: itanagemenl PENT Industry (Incl. mining, tourism. 1 D

Public Sector; Eaployment and and small-scale enterprises) INDxWages PSEW Population, lhealth & Nutrition PHN o

Public Sector Investmcnt Transportation TRProgram PSIP Urban Development and Water

Supply UWS

W * x *^.s I;*np,0l9v rokolditioli (0o;)

Annex 3Page 1 oF 5

OSSIA

U ,TIOWL NiHiO S SECIt ^CT

Acgtio. Airew T ~ erlm_PM_JWP ftrlnttON

TimingScope

march 1987 y 19W7

I. Sector Policy

(l) Road Uer Casrges - Increse to1 15 In lIneno wt - Ih piinntation Of syltineavy construction price for analysis and nittor-

Indx Ing of road nCOts and user

chargn

(i11) Transort Regulation - Selection of list of - Abolishent Of tl ltional

nnd Trade faci- products for direct Bill of Ladinglitation contracting In roed

transport

- Terms of reference for - Short list of consultants

studies to review te Codesof Cmrca and Transpwrt,and truck d,ntic nsewbilyend lmprt policy

- Work Progrm for Transport - Crestlon of t". Transeort

and Troad Facilitation and Trad FacilitationWesuries Task Fiarce

(ii}) investment - Review of existing sector - Terms of reference for

studies National Transport Plan

- ECOnonlc eWvIuatIon of tho Highway progrm 19t7-1990

second group of roads (physical)

2. Institutional Efficiency

(Ii) Pnaer lal and - Tw_A of Reference for pre- Short list of ConsultantsBudget Ing Proesse paretion of computerized

systm for tho mnitorIngof subroject portfolio,plurIannual ependitureprogrm, and Wtormenceof sor paretatals.,

- Review of criteria for - Creatlon of Teak Force tocntract esca lt Ion prere rece_.ndat ionsclauss, reschedulIng, and

suwvIsIon COsts

- Functional review ot sector - Proposal for sntrengtheningplanning sector planning office

- Oefinition of Internal - Tim table for lmpln-

control m.clnois for tatlon of the accounting

specIal account and suditIng mnuaIs

1111 Road Malntenance - Strategy to adjust force - initiatlon of iPI n-Mn Ag_nt account ml Intenance tat ion

persnne I

- Conclude data gathering for - Analysis of Districtanalysis of Oistrict _In- IWlntenonce lEpandituras

tonance epeWndituros In In 19S619116

Annex 3Page 2 of,

Atlaa_ AlI 1t _ imsk Ow rl elibt PruWItit (it'd)

Timing

Scopeitrch I9"? fty 1967

(111) Road Maintnence - eudqot a1location tFr fifst - Initiation of first stagemanagemant cantd4) stage Of eQUI Dnt Purchase of procurement o equip-

nt. and of c_omuter-

Ization of central spares_enag_ent

- Initi*tion of pr Deratory - Subdirectorsto de tacto

arrangent tar the cre. oprat IlaneIatian of a Maintenance

Suild I rectorate

- Preparation of technical - Invitations for bidding

speciticatlons for Dort-ble vehicle weighing scleti

Hit) CIVII Works Contreet - Proearation ot Terms of Short list of ConsultantsAdmimistration Reference tar assistanct an

supervision of studies end

preoaration of designstandards, for materials

sources study end far studyon unconventional materialstar road works

- Work Program tor contflnu- Approval of program

ation ot slopI studiesend traffic engineerInggraduate courses

- CompIetion ot contract tor - initiation of technIcsIthe roew end updating ot assistanestechnical spocifications

- Initiation of leroyemmnts - Implementstion ot nme

In Public torks RegistryContractors Registry

- Program to expedite bidding - Imtpntatlon ot programand oontracting procdiuresand preparation oat smplebidding docuw_nts

_ lssulng oa Contract Super - Strategy for retlioneil-vIsIon Manuel zatIon of contracted

supervision(iv) Personnme rrinlng

- Progress reort on 1956 - Assigning ot training

training program end caordinators to theInitiation ot next 5-year Oistrlcts

program

- Policy statwamnt on - Identification of foreign

training and new agreement sources for technicalNCPT/SENA asslstance program

- Terms ot Reference far Terms of Reference tarscholarship program study to update occupa-

tional analysis and Job_escriptln

May 1987

REPUBLIC OF GUINEA

7RANtSPORt SECTOR fROJECT

Policy Meaures and Acttons under the Tr.nsport Sector Credit

Recent Actions and

Policy/Structurai issues Actions under the Project Areements Negottitions h,onitorble Targets

A. rticing Policy Fuel price cover border prices Use fuel taxation s Important source of additional Study on road user taxation. including the

but (I) remin aubstant:olly below fiscal revenues. structure and approprite levels of ftelthose of neighboring countries; taxes. a consultant sill be hired by Ju-and (11) do not mobilize enough ly 1, 1987, and the study completed by No-fiscal revenues to finance, inter vember IS, 1987.sIts, road rehabilltation, which

1s an urgent Coverntint priority.

Appropriate port tariffs Agreeoent on: (I) tariff levels (minimum to matn- fe. tariff tstctttre has been ap- (f) fie. tariffs In effect by Credit

tain a financial rate of return at 6% on revalued proved by SFT; the decree lmple- Effectiveness.

net fixed assets); (1il tariff structure and timing menttng them Is being introduced.

of revilion(s). 111) Tariff structur. and level to be re-

vlewvd at the time of putting new

container terminal In operation.

I. Public Investment level and composition of transport (i) Annual agreement on a 3-year rolling invest- (0) The pro 5 ri vill be examinedati sector Investment and maintenance xnt nd expenditure program for the period annully with IDA by December 31 atExpeniture Proiram enpenditure progrm. 1968-1993. latest,

(11) Agreements ow nnual mintenance budgets for (ti) 13nly projects with minimu 10i ERA

rosds, ports, railways and civil aviation, to be included.

(fil) atilway investments to be limited

to essentials for safety reasons,

and to studies; budgetary tranafers

to railways not to exceed present

Inv levels.

Adequste and tlmely financing of Study of financing mechni*sms for road maintenance Doubling of 1987 road maintenance Submission of conclusions of study onroad meintenance nd rehtbilita- progra-m for period 19d8-91. budget compared with that for financing mchonisma by November 15, 197;

tion. 1986. Implementation of approved mechanism by

January 1, 1988. (Condition of disbur se-

rsent on road component).

(D (D

C)

Recent Act tons and

Pollcy/Structural Issues Actlits under rhe Project Agreements at Negotiations Monitorable Targets

C. Institutional Refort Th role of the State in the liberalization of transport services and adoption See belou. SET (t) will submit by lirch 1 1988, at

tran.port sector of appropriate regulatfIns the latest, draft regulatIns that take

IDA's coments Into account and ore condo-cive to coepetitton. efficiency and safety

of ser"Ice. Including, In particular, reg-

ulations liberalizing access to the Indus-

try, on sale load limits and controls, and

Improvement of road safety; and (1i) Gol-

rnment will, pot the net regulations Intoeffect by June 30, 19H8.

-- Road MaIintenance Ii) Participation of prllate sector In highlay

maintenance:

s- ubcontracting of all future periodic Agreed

highway maintenance by SCTP;

-- privatiation of OPR Agreed To be Implemented by December 31, 1988.

-- L.ng-dIstance road .nd freight (if) (a) AbolItIon an1d preventIon of any *onopoly CaTRA dlssolved, transit

transport (COTRA and ENTRAT) on long distance road transporf; activities formally opened to

private sector on April 1, 1987.

(b) Abolition of ENTRAT monopoly oni Decree Ko. 013 privatizing trans-

-- freight handling port auxaliaries published Febru-

-- customs clearance cry 12, t901. privatizatton effec-

tive as of April 1, 1987.

-- Conakry urban tr-nsport (TiJC) (lit) Abolitton of urban and interurban bus be facto schieved since the entry Converaion of TUC itto joint venture byand interurban passenger companies' monopolies; Into the sector of GutnAe Express lme 30, 1988 at the latest.

transport (private company) and SOCETRAC

(joint venture) 19(S. A frork.

agreement for formation of a joint

venture co Ptny with Noroccan

partners for restructuring TUC

slgnad January 1987.

-- Port Autonum de Conairy IPAC) (tv) (al Privatitstimo of PAC's cargo handling Privatisation effective as of Adoption of new PAC statutes and port

activities April 1 1987. regulatIon by Credit Effectiveness.

(b) Subcontrscttng by PAC of cleaning and Contract to be sig* d by January 1. 19dS1 1.

maintenance of port infrastructure and (D (D

navigational aids. X

Societe Naaale Cuin#enne (SNC) (v) Abolition of SNC monopoly on consignment. Done effective Aprtl 1, 1987. Full licensing of private handling and 0

(Creation of joint venturA cotny formardlng agents by October 1, 198?. hSOdICIM slth SNC and three pri-

sate partners.)

Recent Actions andPolicy/Structural lssues Actionm under the Project Agrements at Megotiations ronitorsble Targets

C. Inatttetionae Rofors ffticiency and structure of civil (t) Reorganization of civil aviation Creation of a joint venture Cul- Establishment of an autonoous agency forkno t) viation. neon and French airport management sir navigatimon nd management of the sec-

comny (SOCEAC) for Conakry sir- ondary airports (ANA). Draft proposal toport. IDA by March 11, 1988. Creation of agency

by June 30, 1968.

(it) Restructuring of Atr Cuinke based on reaults Continuation of the study to dev- Presentation of study results no laterof ongoing study elop a detailed action plan. than October 31, 1987; conaultation with

IDA for tiplemotation of detaoled plan ofaction by June 30, 198t at latest.

Strengthening the Covernent s tn- (t) Reorganiation and retraining of SET Presentatton of reorganization proposalsatttutional and aministrative ca- (Ministry of Transport) and SEm (Ninistry by June 30, 1988 and implemntation by Oc-pability to deal with transport of Public Ibrks) personnel tober 31, 1988 at latest.policies and invstments

(It) Medium-term manpower development program for (I) Appointment of consultant bythe transport sector Decoer 31 1987;

(it) Consultation on study receeomnda-tnon by Septemer 30, 198;

(tii) Implementation of progrem startingJanuary I 199.

WAPIt. April 1967

U1 W

U)

Produces obcjs .d ecv ^c tCootent Use of Loon Profeed4 blo.*oeat period

I. Stlsptura A ue t Lon T euport. through a ceieo Pocueee on major acrconomlc is.e* ase woll at e Joe CGenral Imports ubject to aegvite 1_w yes

of loa", specific policy ocetornl issues covering several sectors. especially trAde list of negative list of pohlbiltedchoages sad i4eaitwtioOaI policy (e.g.. toglff refoso, Impact libecalisation. neport Imort*.

gzale. to achleve *ffieac*A lsetivees) res"ource abllaio8 n (ezg., role of parse stol

se of resources an4 conieS- "godt policy, 1.t.ra.e rates, Aobt _aa.#g.mt). lf icloet use

We to a susiainable Not to my re.owrcee .g. tt public lovestmet program crIterima pricsl,gedSow bad long (term while lsce.iivo system). *ad Ioalgitlobnl rfform ecoaomy-wf4e sad

_c1ssints g growtb. la specific sectors. aqulrea agreamet on effective

stbilisllon progres with coait.rablo policy modifications isabve areas as *pecifli schedule.

4. lechiCal LASt.. Loam To etreoglhre local aine- Pocus.. as capacity (e.g. * orgensation, aagemat. staffing. Specialized consultants sad 2-4 year.

tutiose coocrned with metho4s. phyoicel Or finsciall renouee) of lnettutlien *eeri-ea stuaies and trrain...

(I) aensig"eg s. ndoptiag directly coACeOre4 with sector or econeom-wide policies cnd

policies, otrateslee en4 strnteglee or with lve-etmato. an4 og spetieic move (et-dies

laetirttiomal epprotchee pro- and perone"l) prevestig eff*iciset leoveet"ao. Requiresagltag farther developmet in agreemat n specilfle tim-beed egtion pirog"rs ti stwe.gtghe

a sector or Is the economy ao o iotitletion throuh techlcl aesietenca ca4 irsiasieg. on

whole. or (Ill p1repring. I_k appolatmet *f local coucterparts. or es the csrrylag et ofpinceotiag or operat ing studia wich agreed term of referoece.

-c *i to

reiated is the *trepsrtios.

do.*.&Obte.o r t^at-ispimaitiom ccoesis.

5. graey *Econstrutlon to eppoct rehu1iding Pacusees soiely on iretoarig pra-diester elte t tisa with grond ponitiva list relate4 to 2-S years

toon activileei ned rapid apelsiam o etrs tcheelag leetitutlonms te hedie rscoatrwctiea recometruction Needs.

reeternln of phlyscal alfoit sad prepae. tshe tor tftero.

strectesa e4 productive

*ctivities statr 4d0i0sere.

Y Ibls the so* res mego af epected diaborsemts.' Toere my he a mail a-*bet of necpitiol cease wher, the diabwrs.mmat period st shorter or longer theaew-a hel.

(PD (D

0tt t

Source: Mr. Stern, Note on the Bank's Lending Instruments, January 29, 1985

t-iu9 t Ao"Feeu.. sd Cootest U*e of Loan Facea,ld bishmi-e_ at" remind

. !Saaci.urai AdU.aI_" L .ome T. S.P.ppo. throva. a *sail. Psecwes *s maj-o smeiam-n0.lc 10eue as well of majOr Cenral Ioise .buj lc to sare are s-- ,

of lo* specific policy *ectotol Iu too ering xm.alai *.cloes, *epeclily Iced*. lit of Rgelativ lot of pisWblsdchag. *a Red lmsel.lo10081 policy N.gp.. lsofie ufoase Impose 1ibe1Wi*lsi,. *aw°Ot iepoWI.

nI.W, is achieve -tal -I i t i1Ce-tir .. 4). ie -sbliis.-is- (e... g a fe- at paisaila

.I0 of e ,c.o sad ConSul- "Set Vallecy folaresa iese. debt mssagamat). sIllrla-I is.b..i ta a a..sealabls SO? is of #00eolcas (e.g.. 0.1.blcseasia pio;gs e ala4 PrICIn...dIwap .Ruid lag saer. 1Whoe I.3e3 . vl, mosie&). Red Sstl£t.ional rtef.,. Cacosey old4 *nd_1it-ai a aow -r 2sg *nh - *geilit ..ci.is.. 1109.tea a1,a.mal, s. .sn., l.

* ablloasle" progrs.* wit 1 solotabla policy od f tcat6one In

above *Vome on speclfi echedole.

t. tecnlncl hAs,. Loan To al-* gh. A .. ocal mil- Po*tas-. oa cap.clir (e.. .. a.g.al.atl- . Rlag . ii Spoulsl. ad . taa am - yersiwilsaS tcnc"A. with sesho.d phyalts) of floasrial ,550'01ca) of amlas.fetioo seu.ic.. maA .. n ical lag.s.

is) 4d4esnn0g sad &dotP41ag dUtsttly toratmad Wish Sacs.ot os acoaay-wlde Polits* andPollcIesa. ateesta.glaa se sas e Or ilab Iseasisslan. Red as Specific fare s (aid..i&S114.iianal aPProacliea pfe- and Pausnts"e) Paseamliag offI$.n. lmesae E.- re-

noting bie d.sf r.inis agr.eement os sp*tcfjC slo-bkoftd sasl.o lpiaga a so at,xsihea &*.ger a; to the ecanoary N a Ieotleotion abrough tachaical Soalseasre *sA aaspalsg OftWhole. of I ) prapegtn. Ie- 00poisalovt of loncl c0..arports. or a. the tarrylag oat ofpiSm*s lAdga Of peratinog 0i..d155 wIth agreed teens as rfsfesoco.ap-ecIic Ieesa4s l* or to

Carry e.a spoecfic teasbrelated to Cho prepr leaia.IsPle.at484oa at operallsa .1

lerailmanie.

1. mraeecy sac aseiucalo. To O..Pp.tt cbldn Vac..eeee aselalan os eorlng ceo-diaasasu 0liosalasa w*ab gro*, polln. is .l0Ai to re arsLasste act ifetll Re d ralid SOWbee os 0s1rogalw4sis leailltoans toasldi got,asarocloon oreoeic.ca on m-n*a.d

roteore*1 *of ph1.

o1

il *ffoct 4nd Prepare abe. for lea....

flenclacee soad Prad..CaleactvitesXv- tfeet Ressireel ellea lea ter d-aeaaere.

itfI. le * the *-ral rang. at eq.cia daabe-rz s.aaa linra my be a asl a.b-e .1 *sCaptiioma ace.. ai |bet,- te db.cea.. asi1I haro l onger aa *fws bela..

(1 J_1919

rt 1

TUtRKEY FEllERAL REPUBLIC OF NICERIA

ENERGY SECFOR ADJllSTMENT l.OAN IlIGiiWAY SECTOR LOAN

TABLE OF CONTENTS TABLE OF CONTENTS

Paxe Pap No

PART 1. THE ECONOMY I DOCUHENTS IN PROJECT FILE .......................................

Background I LOAN AND PROGRAN SUMMARY ........................................ vii

Recent Economic Developments 2

Medium Term Prospects and Policies 7 I. INTRODUCTION ......... I

PART II. B.EacENERGY SECTOR 8 ......... Background.................... I

The Economy ........................................ I

Sector Profile8Trnpt3 8 Transport......................... 3

Energy Resources a

Energy balances 8 II. THE ROAD SECTOR ........................ 4

Institutional Arrangements 12

The Development of Energy Policy in Turkey 12 Introduction. 4

Energy Policy in the 1970s 12 The Road Network. 5

Energy Policy since 1984 13 The Road Transport Industry. 6

The Longer Term Policy Outlook 14 Planning and Design ...................................... 6

The Impact of International Oil Prices 15 Construction and Maintenanco .7

on Energy Policy Road Safety .......................... .......

An Overview of the Policy Issues 15 Federal Road Administration .............................. 9

State Roads . . 9

PART III. THE SECTORAL ADJUSTMENT PROGRAM 16 Road Financing .. 10

User Charges and Cost Recovery .10

Background 16 Bank/IDA Financed Transport Projects ..................... .I

Energy and the Macro Framework 16

The Policy Framework and Government Objectives 16 III. THE SECTOR PROGRAM AND LOAN .12

The Program 18

Tne institutional Framework 18 Introd uct1on =. .. ............... -.12

Economic Investment 24 Program Objectives .12

Efficiency in the Supply and Consumption of Energy 31 Program Components .13

The Action Program - A Summary 35 Road Improvements .13

Environmental Considerations 35 Road Maintenance .15Road Safety .15

PART IV. THE PROPOSED LOAN 38 Institutional Development .16

Program Costs .18

Background 38 Benefits and Risks ......................... 18

Project Objectives 38 Rationale for Bank Support .20

Project Description 39 Implementation ............. 21

Project Cost and Financing Plan 39 Procurement .22

Procurement. Disbursement and Administration 42 Disbursement .23

Monitoring and Reporting 43 Accounting and Auditing .24

Benefits and Risks 44

PART V. BANK GROUP OPERATIONS IN TURKEY 46 IV. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS .24

PART VI. BECOMMMATION 47 >

n) J(D (b

C)

Annex 6

Page 1 of 23

JA4ACA: n= SXURAML AgMeMr taA PROMM

SECIM AMD PLCY ISASCNS MOMN UIWXR FVIUS SALS Aau Y ALM -I 1 Tom

I 2MANI (iF PAlS MUGM

1. Foreig E,chwm ALlocar IFL previcu wotir et rate - furthtr attio. n mu rate______ widi operted under SAL II wa LJMJ i cortpl.ted at the

abanxon ard replad y a mftei p1'er! tis. rbewr, tt vill beexdmt3 mate. 1re mte is r*=earY Co mXtor tte exipedeterinl b e3a*et caitiom mad syten to emire thet it tohaebt at a leel a&bo the eratirg effidemly. Inprevious p ralIl rate. ation, the Go'.er-re vj4d be

required to enreu the misfacoryperforwnce of the ExportOewelent Futi.

2. I1port Lic - 9ystm Atcic:U*ir SAL II the lituig rjse A add hle h tn prprt for the Prior to relea f the

w motzd, with the IWnete reoal of ULceait ty Jm3ry trerre, and at the me tim gmirMtiCUtiaM cf a qunA a)utein 1987, in 1rA with the rmval of (Pa, the t gram of ^ is rz , aHewr. liemsi wv ratat-Ad cn The revlaid qes Is opemting grcup of irm wld be rewdmOt t ion. Priom to ecd saisfactorily. fra Iictamira ti line with thet u ral..e unier SAL II, it sdule e at neoiations.w aF that the pr_trelicatirg sytem woid hta w, with mcnas trativecrtrsl reatiAd only for item anche rmtrictc Ult (QRe) ancertaln emur pxd.

II. SAVIMS AND fl5VDhActim n ProgreJ Daaegr

1. Pubttc Sector Svir Under the SAL II, a vaiety of TafIffo hI ve baraie by 69X for J_mics Rd-Wy C-rp,ran: Priortains taer. to itnra the waer ad see. to sW1y with the to relee of the _-xn1 trrche,vin q±ty of fac ejor omxditior of the Water Supply and tete fri*t rte vwld hsveenterpriae; the Public Service Sem .a Te&ci A_iste 0d bee r Lcrted. A revised actionC,y, the NMia' l Water RdeLitattcm Project. prclrr ld h been wardC43AeIcI, J eCA Ocnib wd nW other ste eeary toServics. x Jamica Railway Electricity tariffs he been raiseS by eliOte the ce q dditct inCorpoation, incliS.g tariff anr lOO. F1985/86 hiu4 hew bee ttan.icrem, et ffirU riamiom, uic4zrm. lm davaualtji he ltSc talph races h ben Nltiel "Cer Co. n: Alldfsted DivwLy the itDCme by 5UN, an Lntrnational actios n(Uiey to cly witheMerprimsa se he direct rte by l00.. the aultiga Ad atAe of theforaigp . amndnpo. &a*'s War il emd S.urse4

PFmer ral fas hew been raied br TodScsl Asistanc art372 ad nr-Rite freirt mateby . ErWiL.rmszi low Mad htew beneaIX. t....................... tan prior to reisee of the

ert t,dS.Television dwrtinirg Wrate have bxeninceed by 5L.* Ure D sl o raic n AM

ceary actians to amaue thetFInancia targt for ach af the the MC con cover * deft ervsieselected public enterpriew have been to ic rcial UratioCU andectblehed for FY1984/85 to M986/87. cOCtX12" At ]2mt 30X to the cciCdoigmd to mre their savLa oaer the cf futue Inu tta wld hew

perihe by 5.7X of GCP. beo tn prtor t OD1a I of"ol crze.

Nmacrul ltad mind Prer

AM noesy aotio s to ethiat NH can cehi its flzuailtarg of cwri 427 of Mf985/6dabt e rvcidr oa of ite cpetirgearpLi emai he'.w tC priorto raiae of th_e mw tracu.

Annex 6?age 2 of 23

S:i:)S kQ LYM ~ i1LJ~ tABAP* U -NM AL AD XM l m M W A

.innica Brogmeasinu C;ot~~

PriOr to rs.m of ch dCCOW-M. rMUo ainrtiig tartffs-OJ]4h ban 1xur.. co a1AW-1 not l tti tha of J:'sCatitcc. A mdmr ajit

w redtw i cMi tad1t and anynsy aions tr to -

dt trcr 19S5/86 oaXs: a cmar a13 t operarjnj cts a

ssv1- c*arn fro its orat±rg- I.IA Ua bms n.

Da setac PBhil E _:uvpiam:

Pri- to rIm of the srt , tes eioIAi tipcs fcc

t al uenrpriss wd brwerevima an revia., an ay

ystd~t to gtrat, as * , tas satsMcrapriains Wai34 porar. aoxqe operatin iazveuvln to 5.6Z of W inL1985/86.

4. i.CAn tM Uksa ire p t-.o SAA trn k-iJ Ac t ti=eisctor 1znrsct k0t^ ad fist draft of an eSIF forwnioring sysim t bea refine 85/d6-67I8d, prior to a , PSU'mnd 1ito- sigaLfrmmly. A rVi tlmis L Ao rb.tr L984.

uts-e rolJJM pcog is erio to rnsa, of Utr ssow1in pl. :h, tik ruvisd d IP 94

fioakllmd wiitr a roviad - tO tbra wthvt cti But, ad am

first )W of t. PWSIP 'M±i Ml.-tkai with tra capital mx*t

fcw Fftl*/86.

4. t'riwra N Ln¶mB ~ r pr.vI~.u 5YJ, - A fin±ai ctor muvah bw _ t ysr 31, i9J the f w ordrw4alt finac inriirriw started, ttsi p litrizy -1i j f,nd fran& for _i )-k2 -i4

wein estalish, a ut sSa t n it at a wio& CrMI td. andt a programw " M iqaow un P for Its c=J&ti eablished. for its frurthr vaipir ant ±titiuaL frurm for priva La aitio, a fkv of fxnS mzciLse apcm as a pl o tol arsryi~. n u starr.. di.tn c_-t to eik with trn Bank.

NB±IMl NIV ot Bur, -dalitfc its futur rw tam -gnd, depmd Om usr simnti,= of trn Prior to raln of tne senp ;i pdriVaz sor loValit ., tke (bw.rnrmt wmal s

witan M* Ca a prcp offirici refform in tra rwse ftin crucy M t, ia inaratt

rfui syr.eai n

1. simi±atiw deatriciicnrSti r prr4oJs SAf.o, CM s4c raw Prior to rensina of tan sctLit fura ic a rm ric m m trara , tre cm m g of 6 a

list asi a acrnu r~ __ .aenl law bm w, Xi llnePrnJszm for ita remvai of aLL withaie bow sarnf.in lOcus, o imsry 19tt

Anne:-: bPage 3 of 23

JNAICA; 5 MVn& Axsneir LOAN PXlRM'

g1JCWMAL AlEh SECIh AMO PMLCr ISSJE AKnISE tM U PREV95W S SM.S AnlI AJEAU tAM z m BWZ

2. Export Inowat Uer previacu SALa, an export Gornmt ha adc a study i the By D r 31, 198., theLncrntiv prcgrm w developed Lmmtivo sye n comparative Gover,tr wold subt to the SBn

urer whidc exorter muld retain aivsaW. wiidc will be *T to danig & PrOP£ai fnr a ta drawba5(3 of their rwrd urarcy erings he next pome a structural d)JtscEr sheu for porters, a thead saLI them ci the parallel of the Ji cn apue sda I w,a4 he idmplemetdmarket. il incrrtie disapwed prior to releme af the secondwith the unUiftilm of the trme,.

emhs rte in or 1983.Pra DrylopentSetiafactory prcrgs of theinetives st*y wIld he a

cgidition for th releo.e of thea~d trwdwh.

3. T drfical AsstWA to U*r previms SAL&, aciao A furd h1 1w eablished to fnrdkno Prior to re]em of the sardE4=rar prr hew Irenr dinwlopsd to tuxricsl mistam to ortem in the tr , the BK wiu. review gd

crn port dalpsmt fru as of irket dawvlnt, mret he to be atsfied with ttesevn priority ssectoo, with -rch, product drwlopme. qcc. prss cf the Fund.parti-Iar -i i on garva,foetww nd fur:ziaru.

4. Tax Rdomf A mjor ta reform prp v Thk Goent ha anncd its Prior to its infr,micto theI-Ird In 1983. It is eipacte L-±etion to revin pertIonal iz Governt w1ul ree its taxtha this vI lead to a major t e ed iLdrt t in the ram reform prgr with the 1 Edreform pwkAp for i.'trrduction in &AMSt, -I-ltzIW the introduction o a the prgrm wIld be finallzedthe April 1985 t4gac. G,sral Coruttio T, prior to relase at the ard

tV. ~QOLlR

1. External M.xtic Undr pruVg SMAl, a rufot. A tetoble h_ heL doawlopmi for the Fdry 28, 1985, theprtg for th MU S dlopd cactraLizatond ci all resrth, credit, Gover t .mjld hew s withEd do. TDs consste Ed d lon fauctioi. All gorair the M* Ed gmzsi co fau repri.ily of thO dls_ car projects Idch he not so far heff pridcn formlia for cofee, ,tin of a rnW af m-unesti drdlt_tda hFa bow fln-,ally sepdatei c W, pMEo, mW ad b .fuions, ad the Lcrcduction of from the S prior to theirL dtal c dition, div_twn. A prqgre to dwalop Acti::

PrMid. formlm for the six Mn a rt Prior to relea . at te ieawzcros hi b auef. In the c nF , tcr, iatisfactmoy proenafa pricu hew bow furher rid woiI he rquired in the prqmto pao am the h alts of the m resc Ed eUio, - wildeIaLgaelon. a di t_ c a dedrUIAtIon,

d at neftiatigx.

cien:2. S Undr previa SALa, a rwr of Thre factodui hw b closed, Ewd a Prior to relea e of Cte snd

iu_z hsew hee takn in the scsO co t h1b *tneid for tranvt, prlgz_s in the fiinclsr sector, Iinu±rg sr the r_innlg the Gowrt-ama End at isicin of theriluctla, pric incras_, factori d intat with a forel& Gowra_nend ai r inctor wmado_c refor. staXt±ig dam priwt COr MPaY. be ruNireld, in lr with

faod cc d1 the c]rirg c the queitai tapts to be lEdanoperAtw. Dupc the Wi het GowunrOC t ad the BlnkEd the benficial ivct lf tie duirW the QF&ial of thedheluele, the sector irane poatbke s Sugarto zequtre sunljes. Fhlitstion Projct.

1I P11 S

I B.

|a§}giR 0Xi1¢ tWollt 0

5 9 i $ | i -~~~~~~~~~~~~~~~~~~N

'5YS97XlTj W[;FlYl0Kl,X5 -in1xi!ii 1E1~ ~ ~~~U

Wg iX [ T i ¢ 'a8tt 83

ii 31i izi: aIx^

Annex 6Page 5 of 23

SC4IOULE Or ACT?MS

Issue _ Action T1rtng7

Institutional rinrkEfficiency Isrovmnts

Electricity 1. impirnt the Systis Operations 1. AS Per schedules in SystemsProject. Operattoens Project.

Lignite 2. C_lete study of TlI. 2. Study to be sent to Bank on orZ1#l8 ennt findings. before May. )9"a.

Refineries 1. Introduce nfw rmwneratien formula. I(t) Establish Steering Committeeunder MEM* by June 1987.

1(b) Prepare action plan forimlmntation by December 1987.

2. tolment findings of refinery 2. To be reflected in 1988insterplan. investiant program.

Energy Pricing:

(a) Principles (a) Pritnciple of economic priting (a) Established in policy statemnt.established.

(b) Lignite (b) Eliminate subsidies. (b) Operating subsidies to beeliminated from 1987 onwards.

(c) Electricity (c) Ipal mnt plan to establish new (c)(i) New structure to be Introducedtariff structure. starting in 19s8.

(c)(ii) 1ini1m 3S% internal cashgeneration ratio to be met in19. 1969.

(d) Gas td) Sat gas price equivalent to (d) Reflected in policy statement.border price plus cost ofdistribution and transmission.

(e) Petroleum Products (e) Prices not to fell below landed (a) Continue existing policies andC*ir tstanbul price plus internal reflect In policy statement.transportation.

Energy Conservatimn 1. Prepare tSE Law for passage l. To be presented during 1987.through Parlimt.

2. Ipl~nt energy audits in about 2. Set against agreed timwtable.21 key industrial plants.

3. Train E1E staff. 3. Program and agenda Dreopared onother sources.

4. Provide finance for iplalintinl 4. Through DYI.rec_nedations of audits.

S. mlement electricity demnd S. Study to be cowleted by_na-g_nt study. ODcenber 197.

Page 6 of 23

TURKEY

SCHEDULE OF ACTIONS

Isue Action Timino

Institutional Fraffwork

Regulatory Framework 1. Establish Regulatory Body within 1. Body established in 1986.MENR.

2. Prepare regulations for private 2. Program prepared and consultantsinvestors and operators. selected.

Public Accountability 1. Restructure TEK Board. l(a) Senior officials and chairmanappointed.

2. Hire independent auditors to audit 2(a) Short list of firms prepared.TEK. 2(b) Hire auditors -by October 1l

1987.

Eco ic n

Energy Planning. 1. Strengthen Planning Department of 1. Work agenda for 1987 through 1989MENR. prepared by MENR. TORs agreed.

2. Prepare national energy plan. 2. Plan prepared and submitted toMinister of Energy by December 31,1989.

medium-Term Investment Program 1. Implement and fully fund high 1. Joint review with Government andpriority investment program. Bank by October 31 of 1987 and 1988

of the public investment program andassociated financing plan for theenergy sector.

Long-Term Investment Program 1. Revise least-cost electricity plan. 1r(a) First revision incorporating ValorAgua to be completed by March 1,1988.

lr(b) Second revision to be agreed byDecember 31. 1988 and completed byDecember 31. 1989.

2. Complete and implement refinery 2(a) Findings of refineries sector studymasterplan. discussed with Government.

2(b) Complete Petroleum Products SupplyOptions study on or beforeDecember 31. 1987 and discuss withBank. On basis of study TUPRAS toprepare by June 1988 masterplan forrefineries subsector.

3. Implement Iz"ir distribution :Va) Investments for ILzmir includedmasterplan. Complete Ankara and in 1987 Public Investment program.Istanbul masterplans.

3(b) Masterplans to be prepared byDecember 31. 1987 and investmentsincluded in 1988 Public InvestmentProgram.

4. Natural Gas Utilization Plan. 4(a) Steering Committee under Minister ofPetroleum Affairs established.

4(b) Prepare gas plan by December 1987.

HIGHWAY SECTOR LOANSPECIAL CONDITIONS AID PROGRA ACTIONS

- Spcitfic Condition of Board freaentation; a - Specific Condition of Loa etffectiven.aa;* Coaditiea flr Tranbce b laene; *aimnag Actioes are ferformance Targets) IJ/

bard Pre*estetiom by First Review (119) By Second evi.ow (1/90) S Third Review (1/91)

Loa anctiv.neaa

Road leprovesentn

_emletteu ef dtetiled C 501 oe all rdDs c apitol expenditur-e oft 1/U- a)a 152 of all FID' capital expenditurea of a) All FND1 ecpital *apendituraa of J/90-1/-Igad Dnd *eeonic 1/69 have firct bees aebjected to economic aaaelyse 1189-1/90 have tiret beec subjected to economic have first ben subjected to *eonomic *am-lysr.J asub-projocta to be to ccoldrdese with the eriterie and methodology of analyoa in accerdasce with the criteris sad in accordance with the criteria and

_*eteJ froe 1/lb- Lamas 3-4. Usleoo otharwine approved by Sank. *11 methodology of Andes 1-4. UViale othervti metbodology ot Aonea 3-4. Unlear otherwise

g5. related road LpeoV_nrtn haVe tOMoM te ratuAsn Ot approved by lank. oll related goad Improvements approwed by the sank. all related road impro-

at least 202. have economic rature Of at loeat I02. veente havo economic returne of at least 2D1

b)* Detailed doetans of all *1 ID' road iprtovemeat bl& Detailed designe of all FHD road tmprovemewt b) Detailed design* of sil FHD road Improve-

works have bees prepaed ta accordane e with dealga worka hawv been prepared to accordance with tbe ment works have been prepare4 in accordance

*toedJrdo of ame. 3-5 before b pla_s utia the designoe*tndardo ef Anme 3-5 before lapleant- with the design otand-rdo ot Annea 3-S bhaloe

work., lag thb work. laplem_ntins tbe workn.

c)a YO and Sank agra_eat by 7/U a*n lIt of 0)A nlD and sank *areeeent by 1/89 on liat of r) FID and Sank agreement by 1/90 on lioe Ossub-projectn proposed fot 4apemetati.. durulg aub-projecta tor Inpla _a*oteio during I/90 - sub-projects for lopl-emntation during 1/91-

ISg9-1/90. and *s Indicative progras lor thb 1191 sad *n Indicative program for the 1/92 and en indicative prosgra fox the

followiag two yeare. followiag two yaera. tollowing two year.

Moad hal tessce

a) 111 erd Sank agreemont on thoe mneer of imple- a) Adequate maintenanca perforance and a) Adequatt maintenance perfor-mnce end prog

sentiag the rocseo datioec of the monitoring study programing by coatrect and by force account sing by contract and by force account during

of routine maintenance by contract and by torce dwrslg 1/S9-1/90. IS90-1191.

"tcoast (paro. 3.10).

b) Adequate ealatenacce ?rformeacs and progra- bC FMD and Sank sgrema-t ea routine maintenan- b) rHD and bank aSreenent on routinge &ins.,

miag by cotrect *d foerce accoust during 1/i5- ce to be Implemented durias 1/90 - 1/91 sad ce to be tmple_mnted during 1/91-1/92 Sad an

1169.ea nldicative program for the following two Indicative proglam for the following two yea.

years.

c)a D SPAnd Snok agre_mnat On routine maintenanc

to be ialam_nted durgig 1/S9-1/90, and as

indicagive progra_ for th- thelowlta two yoroe.

Soad Safety

Adoquate Implementation of read sofety program dequate iaplementatio of road safety progra Adequate implomentatton of good oeafty progr.

(Annex 3-5) compoe-atc during 1l/7-1i/9. (Amer 3-5) components duting 1/89-1/9 (Annex 3-5) conponente during 1/S0-1/91,

All detee of thie annex aa.'" a date tor loan eftectivenegd ot 01-01-8U; if tho date of effectiveness io earlier or later than 01-01-SB. the datee of th annex have to be brought for,

r *oto-odd accordingly.

(D~

fD 'lX

* tr~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

S5At- SL CjdlA51J1 IIut AMI, kIAs.t..t

-Specific Cam,4dltlof c 900d Vt t~ta pticCoadleloo ON Loant Flqecklvmnqsa*Coaglalas tog Trancho Sale...; bea.eitiaa Actions are Peltasmeace Targets) I/

badPraoeetallsla Frest SceIOs (5/9) Si Second Sse.(/0 ytidSve.(/1

*atlituttmel isSoas

i Blepmet el toe- age lbaggoys,st ofci seuleat bad two CORoutrparte *) Ipgqeslelo of adequate .upelul*lsg *nsbll@taw. a) 1r`9lvlos00 Ofdequate supairvl.tng esglseoei.

ltaste fell eapervilels trate. 3.94) in lpP6n. as late. lb". sea mathS elibal no ag co.aultmast stall. low toad lapse- lithat PUS off (oagit.uIat stall. lot good image-

owed wapsovmwa coat- Stier tke dat* .t loam *Ilactivereaa. wOseget. cacrried out doullog a/a,-a/,, comet.e Cattled cut doffing 1,90-1/91.cgs Eras IMAM-5 hi.

a inaplwaput .1 teas- b) employment ON rasasltaates to &eal. with lacir.- b P.WOlalaa of adequate auperwialag .messst.ra. i) Provielo. Of adequate asspr*WvGimg esglndear.

iastel to ctery out 4ciss dAsia prorsealag ned seaa9a.eet apaa ia *liter no at caoueltast stall. low soutise eIther fliP off co"G.116"t stall. N ot ro.utlaa

eaneltc eaNGlyse cad the IPlaNMaaG Divisive (pete. 3.16). a. later lbea .el.ta.aace carrfIed ouL dugl.g I/s9-1190. *.aea Ckfcrrid .. d.g.gfa 1/90-1191.

nalled deas..s of corn- *la cesiha alter the date of loans electl,aa.aa..aosit* to be SepIa-bsaed dartag S/B9-li90pass. 3.1S3. by Alp111

In fapleysset me cesel- cis Iaqslyaat el camesstatent to corry Out an Sol* C) AJ*quate *rreug~beta fr, ampo,eieoo a nd r) Adequato ergaoiemeslot fo upervaiJon andboaslot Ia. earvelel of lead0 alady (pasa,. 3.14). se latet thas ala seatha ceordliastle, al coaauitanta employed dol ing coogdisalico of consultants *aplayed dolting.ad saisase"ce roatrarta *toer the date. atSeas aiiertleoeaee. 1/69-1/90. IMAM-/9.

d)& Maplaynagat of ceeaultasta to carry out eaconomi d)a teploymmat of coaaulta.ta to carry out d)teployment of con.ultante to cattfy out *acno-

eskelpaaae sd detailed deals..a of raapeaate to he eteumlc meetlpeea od detailed desIssa of ITc asepoiage sod detailed deelgaa of componenstfoiaplmi*d duulag 1/9-1/91 fpete. 3.15). by bps-Il Cometpasats to be Iaplemeated defrlag l/9l-I/91. to ha Isplesonted during Ii/9U1/9) by AptIl 8990.

I10114. by Apgil 1969.

a)A tragedies of adequate euperelelag seegeaers. W) ftployuast of raos.aultant for superveision a) ftploymw.nt of Consultants lair supervision oe

04thes noS at ceaeultaat steel., log teed of toad isproeeaent contiacto firo. Ii90-191. road laprovessIt cosstlada Irfa. h19I-l/112.

Isptawemeate toalsed 4et duties I/IS-I/I'

106 Pooselal of .1 adquate auperclslag aslklneera. iba Emloyment of consultants tog supecvi.loak 1) employmant of consaultante for ouporvlalow of

elaltal to as c.aeiltsot ,taff. for rovets Saint.- gt oad aalateaance contracee Is-s 19-l9I road salslenssare roosracta Igoe fl/l-l/12.

peace ceusled out duiesra 1/416-1/69 (page. 3.16).

g) ftloyuest of assaultaste aeccsery fot Cho cots-leasing edvertlos preegra fpret. 3.199). me eagerthae ala emasha alteir the data o less seffective-"Soa.

h)b boplopuast ef caseullasta on PIlE (pare. 3.20)so 1lelat Im *la methae after date af teas ellec-

I) ftployacat of caosaslista te determine the man-set sod laseietiele to leplaseat ead coatlS, uDork*to be dose amseatst resed., by Janwary 1960

(page. ).18).

j)* ftimplymet of coolgdlmsetls coaulta4at aed twolocal stall (Parae. 3.23) by Ies" ellectveastea.

b), taplqpmt of cesaultesta for aupes-clalos oe

M') amplopsear of comawltests fog Wapetwsllon ofrr i

road Usalte%ssece coerriacte flow 1690-1190.

I,APF( deeroa ftIstaoe sc -assose a dote0 (OR leas ealictl.eneva of 01-01-66; If Ihe date el eflectiven*as he eale o A,ter than Cl-Cl-bA. thet dates el this annex 5

55rc go be bgo.p,I.5 icrud Go

ex otended acce,dlr.tnly. 1

Adgutft B3uATFI

Annex 6Page 9 of 23

NIGERIA

HIGHWAY SECTOR LOAN

ACTION PLAN

This annex describes: (a) the necessary actions to be taken forthe investment, maintenance and consulting programs, (b) procedures forsubproject processing, and (c) who is responsible for these actions.

Road Improvement Program

1. Requests for proposals from consultants to carry out the economicanalysis and detailed design, and to prepare bidding documents for 14subprojects to be included in the first year of the program, have alreadybeen sent out. The following actions shall be cozpleted by the datesspecified below for the first year of the program.

ACTION DAT! RESPONSIBILITY

Evaluate proposals 08-22-86 FHDApprove evaluation 09-05-86 BankSign contracts with consultants 10-06-86 FHDComplete economic analysis, datailed design 04-06-87 Consultantsand bidding documentsApprove economic analysis, detailed design 04-20-87 Bankand bidding documentsAdvertise and complete prequalification 05-20-87 FHDReceive bids 08-31-87 FHDEvaluate and award contract 10-30-87 FHDApprove evaluation 11-11-87 BankStart construction 1/ 01-01-88 ContractorPrepare TOR 2/ for supervision consultants 02-02-87 FHDApprove TOR 02-16-87 BankSend requests for proposals for supervising 03-02-87 FHDconsultantsEvaluate proposals 06-01-87 FHDApprove evaluation 07-01-87 BankSign contracts with supervising consultants 3/ 09-01-87 FHDStart supervision by consultants 01-01-88 ConsultantsRecruit engineers for FHD 11-01-87 FMDEmploy additional engineers for FED 01-01-88 FHDReview the list of subproj.cts proposed 11-01-87 Bank & FHDfor implementation the folloving year andand an indicative program for the following.three years

A similar timetable will be followed each year thereafter.

1/ Throughout this annex dates of completion assume a date for loaneffectiveness of 01-01-88; dates of completion have to be brought forvardor extended if the date of loan effectiveness is oarlier or later than01-01-88.

(Footnotes continued)

Annex 6Page 10 of 23

Road Maintenance Program

2. Thc following actions shall be completed by the dates specifiedbelow: -

ACT ION DATE RESPONSIBILLTY

Prepare TOR for technical assistance (T.A.) 10-15-87 FHDto direct labor brig-des

Approve TOR 11-03-86 BankSend requasts for proposals for T.A. 11-14-86 FHDEvaluate proposals 01-15-87 FHDApprove evaluation 01-27-87 BankSign contracts with T.A. 02-27-87 FHDStart T.A. 04-30-87 T.A.Prepare TOR for consultants to monitor and 04-01-87 FPicompare routine maintenance by contractand by direct laborApprove TOR 04-15-87 BankSend requests for proposals for consultants 04-30-87 FEDEvaluate proposals 08-03-87 FHDApprove evaluation 08-28-87 BankSign contracts with consultants 10-29-87 FIDStart monitoring of routine maintenance 01-01-88 Consultantsby direct labor and contractPrepare TOR for routine maintenance 02-01-87 FHDsupervising consultantsApprove TOR 02-16-87 BankSend requests for proposals for supervising 03-02-87 FHD

consultantsEvaluate proposals 06-01-87 FHDApprove evaluation 07-01-87 BankSign contracts with supervising consultants 09-01-87 FHDStart supervision by consultants 01-01-88 ConsultantsRecruit Engineers for FHD 11-01-87 FHDEmploy additional engineers for FED 01-01-88 PHWReview maintenance performance and program-ing 11-01-87 Bank & FEDby direct labor and contract

A similar timetable vill be followed each year thereafter for the la_.t 12aforementioned actions.

Continued Footnotes

2/ Throughout this annex the prepartion and approval of TOR includes alsothe preparation and approval of related cost estimaes, short list,selection procedure, and letter of invitiation.

3/ Throughout this annex the time between "approve evaluation" and "signcontract" also allows for FHD negotiating contract and Bank approval ofdraft contract.

Annex '6Page LI of 23

State Roads

3. The following actions shall be completed by the dates specifiedbelow:

ACTION DATE RESPONSIBILITY

Prepare TOR for consultant services to FHD 02-01-87 FHDto determine the manner and institution toimplement and monitor works to be done onstate roads

Approve TOR 02-15-87 BankSend requests for proposals for consultant 03-04-87 FHDsarvicesEvaluate proposals 06-01-87 FHDApprove evaluation 07-01-87 BankSign contracts with consultants 09-01-87 FhuStart consultant services 01-02-88 Consultants

Road Safety

4. The following actions shall be completed by the dates specifiedbelow:

ACTION DATE RESPONSIBILITY

Prepare TOR for road safety consultants 02-02-87 FEDApprove TOR 02-20-87 BankSend requests for proposals for consultant 03-06-87 FHD

servicesEvaluate proposals 06-08-87 FEDApprove evaluation 07-01-87 BankSign contracts with consultants 09-01-87 FEDStart consultant services 01-04-88 ConsultantStart treatment of hazardous locations 04-04-88 FMGive one week safety course 09-09-88 FGive one week safety course 09-08-89 FEDGive one woek safety course 09-07-90 FMPrepare TOR for road safety researchspecialists 03-02-88 FHD

Approve TOR 03-21-88 BankSend requests for proposals for research 04-06-88 FEDspecialist servicesEvaluate proposal 06-08-88 rEDApprove evaluation 07-04-88 BankSign contracts with research specialists 09-05-88 FHDStart specialist services 01-02-89 Research

Specialist

Annex 6Page 12 of 23

Consulting Services

5. The following actions shall be completed by the dates specified

below:

ACTION DATE RESPONSIBILITY

Prepare TOR for consultant services to prepare 10,15-86 FHD

economic analyses and detailed designs for sub-

projects of the 2nd year of the road improve-ment program.Approve TOR 11-03-86 Bank

Send requests for proposals for consultant 11-14-86 FHD

servicesEvaluate proposals 01-15-87 FED

Approve evaluation 01-27-87 Bank

Sign contracts with consultants 02-27-87 FE3

Start consultant services 04-30-87 Consultant

A similar timetable will be followed each year thereafter.

6. The following actions shall be completed by the dates specified

below for the employment of the coordinating consultant and the recruitment

of two local staff members.

ACTION DATt RESPONSIBILITY

Prepare TOR for coordinating consultant 03-30-87 FHDApprove TOR 04-27-87 BankSend requests for proposals for consultant 05-11-87 FXDservices

Evaluate proposals 07-13-87 FXDApprove evaluation 08-03-87 Bank

Sign contracts with consultants 09-07-87 FHDStart consultant services 11-02-87 ConsultantsRecruit local staff (two) 11-23-87 FHD

Employ local staff (tvo) 12-01-87 FHD

Annex 4Page 13 o' 2

7. The following actions shall be completed by the dates specifiedbelow for the employment of consultants other than those described aboveand the recruitment of a FHD economist:

ACTION DATE RESPONSIBILTY

Prepare TOR for consultant services to FHD 06-17-87 FHDApprove TOR 07-03-87 BankSend requests for proposals for consultant 07-14-87 FHDservices

Evaluate proposals 10-15-87 FHDApprove evaluation 11-02-87 BankSign contracts with consultants 12-01-87 FHDStart consultant services 02-01-88 ConsultantsRecruit economist 12-01-87 FHDEmploy economist 02-01-88 r-n

WAFT2July 1986SAR-A7 :NZRIA

L M .IA

Objectives l Instrumnnt Actions RePSonsibilttv be ct envissoed

1. Sector Policy

I) RoPds-User Chrges

- Improve equity Tolls In the - Increase tolls for all vehlclo categorles HOT December of Redu * the partIcipatlon

In recovery national highway In lim wIth hbevy construction price * cf year of hevy two-ablo trucks In

from users of network. Index and abowe that, It required, for long-haul transport.

road costs. hevy two-oWlo trucks.

- Ensure that all fuel taoes and - NMnitor road costs, tuel costs and prices, MOTS/Guerantor Decebr of Maintain users' contrlbu-

vehicle catego- roainin"g ale- ad other usr Charges and adjust as each year lion to road cost recoervy

ries are ncbrged rmnts of t" requirsd. at recommended levels.

for at least tYe road user Char-

asociated road gas system.

routlin and

prlodic min-t _nace ats.

11 TransIort Regulatlon and Trade Facilitation

- AdjustmaetF In NMr Statutos of - l.loementetloa of recommnodatlons of road HOPT/Guareator July 1909 DOcrease role of Govern-

Oa .r:fif fi :.1*.. a;&CEt -- ,; 'h -…-- th r transpo

trw_ork atf ct- role of IMRA *way from ecooic r-gula- m_rket.

Ing road trans- tlon.

port serwvlos.

- lInroa tff l- Revlw policy for Appolntment of Inter-oinlsterial task forco. MOPT/Guwrantor December 1907 Redoe transport costs

clancy of road domestic astsIy on maln coxwrdors.

flost. nd Imports oftrucks.

lapli_nt reco ndations MOPT/Guaraentor December 199

'IO

4> aD0r :

U-v)

Obejctivas instrument Actions R.alonsibillity Timing I*%ct onvlasegd

(11) Transport Requlation and Tre faciilitation (cent.)

Promoto the Sloplitication of Rationalization of controls affecting MOPT Oecebe 1967 Decrees, the number of

ulwdr use of control mechs- storage. handling and traffic of Inspections In containercontainers. nisem. containers. traffic.

Standardisation Ncr_lisatlon of truck bodies. platforms OPT Decembor 1987 Incroeso avilaIbillty of

of equlpmnt. end other transport equipment trucks for contalner trans-

port.

Procedural Operational coordination among FNC, NOfT December 1967 Improve railway loading and

gul4lines COLPUERTOS end OGhP unloading at the ports.

Training Program for trolning of personnol In NOPT June 196 Rationalize container

contalner handling techniques operation.

Promot- Croetion of the Revisw for adoptlon ot the UN Convention HwPT December 1988 Legalizatlon of Intermodcl

Iuitiomdol Juridic and on International witimodal Transport of transport.Transport. AdaInistrative Goods.

frameork.

- Dacrease the Insurance Implment compulsory Insurance policy. MOPT June 1989 Generallze risk coverage.

risk oftransport.

Transport Revise Coda of Com nrc. MOPT/Guarantor December 1989 loprove equity In tho

contract transport contract. amonqshipper. transporter and

Insuranc ccopany

- Institution- Transport and Annual report of legl, administrative and HOPT January of Monitoring of Impact and

ai*ze coordi- Tra" FocilI- operational measures undertaken, and work each yar followup.

nation of tetlon Task program.

tacilltation Force.

_ sures.

(D (DOQx

0 a

Objectives Instrument Actions RespoesIbillty Timing impact en'dsaged

till) Public Investment

inprovo resource National Transport - Approval and Initiation of mploementation. MOPT/Guarantor DOceabor 1988 Greater rosponsivenessallocation. Plan of Investment planning to

*acro-acono.Ic objectives

and liocreasing fiexibi-

lity in funding mache-

nises.2. institutIonal Efficiency

(1) Managerial and Budgetary Aspects

Iwprove coordi- Set up a complete - Design of system and discussion. 1WT August 1988nation bDtween system for monI-budgeting pro- toring of sub- - Definition of Indicators. MOPT October 1988 Ctrrection of problemsgrm_ing and projects.*w cutlon.

- Development of registration system. MOPT October 1988 Reduction of executlonslippages.

- PIlot exper lant. MOPT January 1989

- Incorporation Into the system of projects MOPT Nay 1989 Oemonstratlon Oeffct forat execution stage. other sector agenclis.

- Training. iNPT July I1969

- lIplamentation. "OPT October 1999

- Traininq. MOPT Nove_er 1989

- Evaluation, readjustment and roview of "OPT Deceober 198Sreporting systems.

Review procedures - Review of Indexes. IOPT August 1987 Expedited works ax,-for price *sca- cution, reduced costs.lotlon and forrescheduling of - investigation of reasons for delays and MOPT August 1987works. rescheduling attributable to MOPT and

foreulation of recommendatlons forcorrection.

OIQ :i(D D

)o

IJ)

OblJctiv s Instrument Actlons Responstbillty luimng §mpact envisaged

tl) anaerall and Budletary Aspects (cont'd)

- RevisIon of Indexes: redefilltlon of IDPT Decumber 1987

components.

- ROvIew of delays. implemntation of IMPT February 1988

reconmndations.

- Reviw of Indexes: data collectlon. IWT february 1988

- Dratting of loplementation norms. IOPT April 1968

Achieve further Adoptlon of a - Internal task force. hlWT/Guarantor August 1987 Selection of projectsintegratlon rolilng. pluri- according to sectoralbetween the annual budget prior tis.planning and

the budgeting - Systes design and pilot experlm_nt. loPT July 1988processes.

-Development ot compuiteried system. MDPT September 1988

- Incorporatlon of data and Integration with "GOPT January 1989

other COMputerlited IntforMtion Sst*s.

- Evaluation and adjustment. WPT April 1989

Systemtize the Preparatlon of - Task force. MPT/Guarantorbudgeting eand financlal pro- August 1987 Reductlon of uncertain-

flnanclal re- jection models tles and allowance for

lationships and pr-peratlon tlmely decIslon-iaking.

between Central of balanceGovernmnt and statemnts.the prastatals. - DOvelopment of models. MOPT Hey 198S

- Testing of models. MOPT July 1988

- Drafting Instructions. MOPT September 1988

- Drafting of nloros and testing of formats MOPTfor monthly balances. Oacemr 1988

u >

OQ .

(D t

Oblective Instrum_nt Actions Rosponsibility Tlming Impact envi5s8ed

(t) lnanrlnl and 8ud4ptery Aspects (connt'4DeOlopment and - Task forces. )PT/Guarentor tDcember 1987 Continuous progr_aing of

ad4ptlon of an actlons to incres, the

afoticiony efficiency of ali

Indicators agencls.

system.

- Data collction "OPT June 1968 Nonit-ring of agencyperformance without

Interfering In thelr

operations.

-Taiting of Indicators. "OPT Nbvember 1988

- Orafting of norms. "OPT December 1968 DOmonstratlon to other

Government agonclis.

- Seminars March 1989

lmprove wlthin Strengthening - Restructured Planning Office Operational. NOPT December 1987 Improved sector

and Inter-tub- EOPWrs Sector coordination.

soctoral Planning Office. - Mew structure institutionalized. MOPT/Guarantor December 1989

coordination.

Praparation and - Rowlew of targets: reexsamintion of MOPT/Guorentor February 1988 improved knowiedge of

review of Sector policies. each sector's role.

Operations Plan.- Preparatlon of updatod version. HOPT/Guarantor DOcember 1968 Opportunitls to

oaord i,nat actions.

Iprove Review of ttee - Task forces. MOPT December 198 R ductlon of direct and

adlnistrstlv role of *ech Indirect costs for thO

and budgeting agency In the pubilc and private

procedoures sector. sectors.

within each - Revlw of operational procedures. MOPT June 1918 Influence on other

sactoril agenc. sectors,

- Formulatlon of r dcomndtItons. "OPT August 1968

- Adoption of recomondtlons. Oecomber 1988

(D (D

0IT

Objectives instrum_nt Actions ResponsIbilit Inpact envisaged

111 ManngerIal and Budoetery Aspects (cont'dl

Adoption of a - Task forces. MOPT/Guarantor O c b.r 1987 Establishment of * pro-

budgetlng cedure Seeding to

system based frequent review ofupon discus- administrative pro-

tlons betw-n cedures.

technical areas,

budget end - Budget preparatlon. "OPT February 1988 Resource savings.

plannlng.- Drafting of a document sumearlilng MOPT June 198 Demonstrations to other

experience. Government agencies.

Improv MOPT s Up4dte and - Completion at accounting end auditing MOPT Deceebor 1987

accounting consolidote mnuals.

and auditing accounting and - laplamentation of computerized accounting NOPT Dnceeber 1988 Incroesed effectivenessprocedures. auditing systoe of control and facili-

procedures tation o t managraldecisions based upon

better informatlon.

(il1 Rood Maintenance Managent

Strengthen Establish a - Institutionalize the Maintenance IOPT/Guarantor December 1988 Uhification of smin-

meintenence Central Unit Sub-Directorate . tenance adinistration.

organization responsible for

and planning. planing.

execution and - Incorporation of mintennnce planning Into MOPT Deceeber 1988

mnmitoring of the Sub-OIr-ctorat-.

maintenance.

Establish a - Approval of rncocmendatlons for establish- NOPT August 1967 Permanent policy on

pavement mnn- mant of a pavownt manag_emnt system constructlon, periodic

gement system. (P.1.S.). m_ nten-nce and rehabi-litation of pavemets.

ou

(DrD

o

Objectives Instrumnt ActIons ResponsibilIty Timono Impact envlsaged

(tl) Rac nt (cant'd

- Gradual Introduction of PJG.S. In ccordance WOPT Oecmber 1981/89wIth targets.

Improve Set up a - Trainitg of malntenance management HIOPT August 1987 lmproved technical level

technical technical personnel. of maintenance end ensured

level of Improvement quality control.

m_Intenaoe and qualityexacution control system. - Review of quality norms and setting up of IWPT December 1908and establIsh a system for their lmplementatIon.quality

control.

Achlave Adjust staff - Program to increase contracted mintenance MOPT December 1987/greoter and Increase and force account productivity In accordance Decemar 1993

efilclncy contracting, with targets.an betteruse ofresources.

improve Control of - Systeatization of acoDunts to perform ItOPT August 1988 Better control of the use

coating and expenditure analysis regularly. of available resources.

accounting of distribution bymaintenance objective. - Reductlon of relationship between MIOPT Oecember 198B

operations. expenditures for labor plus adolnlstratlonversus total maintenance expenditures Inaccordance with agreed targets.

Systematic - Program to expand systematization of spare "OPT August 1987 Better control ot spare

cntrol of parts to ali districts. parts and facilltation of

spare parts. cost control.

0Q ntD rb

o ri

NJ

Fh

0tl LctIvas instruent Actions Responsibility Timing Inpact *nvisaoed

(111 Rod gaIntenanco Manag_emnt tcont d)

- Systematization of spare parts to June 398sbe established In ofi districts.

Iterovo Systematic - orik program to increse systematization MOPT August 1967 Better equlpmnt control,oqulpment control of of control of availability. utilization establishment of operating_enagmnt equipmnt. and cost of equipment Irom 50% to 100%. costs.systm.

- Systemtization of equipment control EvTto be Introduced In accordance with D r 1981targets.

Programing ot - Completion ot first phase of oquipment fOPT Decmbar 1988 Rationalizatlon ot theequipment procurment. tflet.procuremnt.

Vehicle weight lopleontation - Portable scales operational. "O1PT June 1988control of approved

weighing scales - installation of dynamic scalos. SMPT D ca_br 1988 Decrease of overloading andprogram. pav_nt deterioration rate.

(iii) Civil Works Contract Administration

lIprove Diftfrent types - Complate contracting of consultants. MWT December 1907 Improvement of engineeringquality of of studies, studies and decrease ofengineering assistanco on constructlon costs.studies and of suwprwlslon oftechnical studies,specifications. preparation

of doslgn norms.

yt >

aq :j(D XD

Oblctiv es Instrun_ t Actlons ResponsibilIty Tilong lpkct

Illtl Clvil Works Contract Adminlstration (cont'di

Followup of Cowplet contracting of consultants. MCPT Deconber 1987 Improve use of available

IntorIal Sources atarils and developmnt of

Study and Study on new technologies.

tme use ofUnlonvantlonel

-Mterials for

Rood Works.

Technical - Startup of technical asslstance. MOPT August 1966 lmproa*d quality of works

Specificatlons *excution.

for Works.

Expediting of Analysis of - Streamllning of bidding nd contracting OPT April 1907 Greeter effectiveness In

Bidding e*d prooe4weo. procedures. cantracting works and guods.

Co tracting

StrengtbmnImg DefsInition of lmplementtion of a policy for ration- "OPT Agust 1967

of Works p oedures. all ation of the uM of oantractedSuw lsion surwvlslon.

Liv) 5!rEggMI Iraising

lxp!-!_tlm Pr_grsa Od - Eecution in arwoac with. Weed 14PT OLcembar of lmroved pwsonnel cap iltv.

of Tralning corses targets. each Yer

F'roVam

Physical - Reodeling Bogota Tralning Center. "OPT September 19" Adequate tralning facilitles

Faclitles ensured.

- Installing tralning equipmnt. Deoedbor 1968

Soure *OPT ond Mlsslon

April 1967

0

Annex 6.Page 23 of 23

S 00La.~~~~~~~& IA

- 5TIOL W1 W SE n rJT

PT'fs PrelIgl Twwml. 1`11117-191111

1967 196 1909 t990 1991 1992 1993

Financlal Taro_tsAnnual Increen In 11in with havV constructlon price Index

Rosd ToIlsSalae 505

Fores Account Mini ntnance Ratil /

investwent Taroets

Ka of Paving of Gravel Roads 450 420 450 430 420 390 380Km of Pvd Poad %habilitation 400 390 410 400 420 450 470Km of Gravel Road Rehabliitatlon - 260 550 550 550 550 620Km of PerIodIc MeInt.anue "60 635 670 620 910 970 I,080Km of Contracted Routine Malntenanco / 6.300 7,700 6,900 10,200 11,700 13,500 15,600Km of Hcrlzontal Marking 500 1,000 1,000 1,000 1,000 1,000 1,000Km of Vertical Signalizatlen 400 600 600 600 600 600 600Km of Safety SBrriers 20 20 20 20 20 20 20

OrganIZactloni Taraets

Contracted Maintenance Ratlo (5) 0 26 26 26 50 31 31 33Productivity !/ 1.7 1.9 2.1 2.3 2.6 2.6 2,6Introduction of Pavemnt Managent System () 10 33 67 100 100 100 100Introduction of Equlpment Managemnt System (15) 40 80 100 100 100 100 100Tralning Coursee (No.) 25 50 75 100 130 135Trainees (No.) 31t 637 950 1,265 1,550 1,580

1 1

Instructors Upgraded (N4o.) I -

Training Technical Coopetion (No. of staff nt_hts) 36 36 24 12 - _ _Training Foilowships 7 9 9 6 5 5Training Studies I - 3 - I I

1/ Expenditures for labor plus edminltrqtlin versus routine and perlodlc mintenance expendItures for torc accountoperations.

2/ Using labor-absorving *lcro_enterpr sIs.

3/ Contracted routine and pe1odic maintenance over total.

4/ Kas of routine Intenance-vaor per employee In the force account organ latlon.

Source: MOPT and Mission

April 1987

Annex 7Page I uf 2

TRANSPORT SECTOR LENDING

Senegal: Second Structural Adjustment Credit-

Counterpart Funds and Audit:

Section 3.03. The Borrower shall:

(a) open a counterpart furds account in the Central Sankand make deposits in *aid account of che local currency obtainedby the borrower fro-i .ne sale of foreign exchange provided under

the Credit;

(b) use such counterpart funds for priority financing ofthe local currency costs of maintenance and rehabilitation of key

Infrastructure and public services, acceptable to the Associa-tion, and o: settlement of the borrower's net arrears in payments

due to parapublic and privatc creditors, in accordance with cri-terta acceptable to the Association; and

(C) furnish co the Association for its review and comment,

quarterly reportr on the use of said couniterpart funds in suchdetail as the Association shall rcasonably request.

Se:tion 3.04. (*) The Borrower shall maintain or cause to be

maintained records and accounts adequate to reflect in accordancewith consistently maintained sound accounting practices the

expenditures financed out of the proceeds of the Credit.

(b) The Borrower shall:

(1) have the records and accounts referred to in para-graph (a) of this Section including the SpecialAccount for each fiscal ycar audited. In accor-dance wich appropriate auditing principles con-

ststently applied, by independent Auditors accept-AhLe to the Association;

(ii) furnish to the Association as soon as available,h,t in any casre nnt later than fotr months af:erthe end ni each such yeer, a certified 'py of che

1/ February 26, 1986.

Annex 7rage 2 cf 2

report of such audic by sa1i suditors, of suchscope and ir such detaL! an the Association shaLlhave reasontSly requested; and

(iii) furnish to the Association such other informationconcerning said accounts and the audit thereof asthe Association shall from time to time reasonablyreq4esC.

(c) For all expenditures with respect to vhLe.h vithdraValsfrom the Credit Account were made on the basis of statements ofexpenditure, the borrower shall:

rl) maintaLn or cause to be maintained, in accordancewith paragraph (a) of this Seetion, separaterecords and accounts reflecting such expenditures;

(ii) retain, until at least one year after the Associa-tion has received the audit report for the f:scalyear in which the last withdrawal from the CreditAccount was made, all records (contracts, orders,invoices, bills, receipts and other docuaents).evidencing such expenditures;

- (ili) enable the Association's represartatives toexaain* such recoris; and

(iv) ensure that such separate accounts are included in-the annual 3udits referred to in paragraph (b) ofthis Section and that the report thereof contains,in respect of such separate accounts, a separateopinion by said auditors as to whether the pro-ceeds of the Credit withdrawn in respect of suchexpenditures were used for the purposes for whichthey were provided.