Document of The World Bank

Report No:ICR0000252

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-32390 IDA-3239A JPN-27009)

ON A

CREDIT

IN THE AMOUNT OF SDR 22.2 MILLION (US$30 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MALAWI

FOR A

ROAD MAINTENANCE AND REHABILITATION PROJECT

March 29, 2007

Transport Africa Region

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CURRENCY EQUIVALENTS

(as of November 30, 2006 ) Currency Unit = Malawi Kwacha (MK)

MK 1.00 = US$ 0.00716 US$ 1.00 = MK 138.9686

Fiscal Year

July 1 -- June 30

ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DDLGA Department of District and Local Government Administration (Office of President

and Cabinet (OPC) DFlD Department for International Development (UK) EMU Environmental Management Unit ERR Economic Rate of Return EU European Union GDP Gross Domestic Product GoM Government of Malawi ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Association IMT Intermediate Means of Transport IRAP Integrated Rural Access Planning KfW Kreditanstalt fur Wiederaufbau MLGRD Ministry of Local Government and Rural Development MoTPW Ministry of Transport and Public Works MRTTP Malawi Rural Travel and Transport Program NCIC National Construction Industry Council NDF Nordic Development Fund NRA National Road Authority NRSC National Road Safety Commission PDOs Project Development Objectives PVHO Plant and Vehicle Hire Organizations (PHVO) RA Road Authority RAMPA RF

Rural Accessibility and Mobility Pilot Activity Road Fund

RMTI Road Management Transport Initiative SATCC Southern Africa Transport and Communications Commission SIDA Swedish International Development Corporation Agency TA Technical Assistance

Vice President: Hartwig Schafer Country Director: Michael Baxter

Sector Manager: C. Sanjivi Rajasingham Project Team Leader: Tawia Addo-Ashong

ICR Team Leader: Tawia Addo-Ashong

Malawi MW-Road Maintenace & Rehabilitation Project (FY99)

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................... 72. Key Factors Affecting Implementation and Outcomes ............................................ 103. Assessment of Outcomes .......................................................................................... 144. Assessment of Risk to Development Outcome......................................................... 195. Assessment of Bank and Borrower Performance ..................................................... 196. Lessons Learned ....................................................................................................... 227. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 23Annex 1. Project Costs and Financing.......................................................................... 24Annex 2. Outputs by Component ................................................................................. 25Annex 3. Economic and Financial Analysis................................................................. 30Annex 5. Economic and Financial Analysis (including assumptions in the analysis) . 30Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 35Annex 6. Bank Lending and Implementation Support/Supervision Processes..............39Annex 5. Beneficiary Survey Results ........................................................................... 38Annex 6. Stakeholder Workshop Report and Results................................................... 39Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR..................... 40

1. Carrying out a program of rehabilitation and reconstruction of main, secondary, tertiary, urban and district roads; .................................................................... 422. Carrying out a program of upgrading of selected main, secondary, tertiary, urban and district roads; and ............................................................................................. 423. Provision of engineering and supervision services for the above-mentioned roads.................................................................................................................................. 424. ASSESSMENT OF PROJECT OBJECTIVES ............................................ 435. ACHIEVEMENT OF PROJECT OBJECTIVES AND OUTPUTS ............ 436. MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME4

6.1 Factors outside the control of Government or the implementing agency: ...... 457. SUSTAINABILITY...................................................................................... 468. BANK AND BORROWER PERFORMANCE ........................................... 47

8.1. BANK ............................................................................................................. 478.2. BORROWER .................................................................................................. 48

9. PERFORMANCE OF CONTRACTORS AND CONSULTING FIRMS ... 499.1 Contractors ...................................................................................................... 499.2 Suppliers .......................................................................................................... 4910. LESSONS LEARNT ....................................................................................... 49Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders....................... 50Annex 9. List of Supporting Documents ...................................................................... 51

MAP

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A. Basic Information Country: Malawi Project Name:

MW-Road Maintenace & Rehab (FY99)

Project ID: P001666 L/C/TF Number(s): IDA-32390,IDA-3239A,JPN-27009

ICR Date: 04/30/2007 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENTOF MALAWI

Original Total Commitment:

XDR 22.2M Disbursed Amount: XDR 22.0M

Environmental Category: B Implementing Agencies: Ministry of Transport and Public Works National Construction Industry Council National Roads Authority Cofinanciers and Other External Partners: Nordic Developmen Fund B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 02/06/1997 Effectiveness: 11/19/1999 11/19/1999 Appraisal: 09/21/1998 Restructuring(s): Approval: 06/10/1999 Mid-term Review: 03/08/2003 Closing: 03/31/2005 06/30/2006 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

Yes Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central government administration 9 6 Other industry 5 14 Roads and highways 86 80

Theme Code (Primary/Secondary) Other urban development Primary Secondary Rural services and infrastructure Primary Primary Small and medium enterprise support Secondary Secondary E. Bank Staff

Positions At ICR At Approval Vice President: Hartwig Schafer Callisto E. Madavo Country Director: Michael Baxter Barbara Kafka Sector Manager: C. Sanjivi Rajasingham Yusupha B. Crookes Project Team Leader: Tawia Addo-Ashong Stephen J. Brushett ICR Team Leader: Tawia Addo-Ashong ICR Primary Author: Ephrem Asebe Tawia Addo-Ashong Farida Khan F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project's goal was to bring about sustainable improvements in the quality of Malawi's road infrastructure through

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(a) Strengthening and restructuring of the road sector institutional framework with a view to improving the effectiveness of sector management and enhancing planning and programming of road works (b) Reform of road sector financing to put the funding of future road maintenance onto a firm, sustainable footing, and (c) Addressing the backlog of road maintenance and rehabilitation through the financing of economically viable, but currently unfunded, subprojects in line with implementation and financing capacity. Revised Project Development Objectives (as approved by original approving authority) There were no changes in the project goal, objectives or key performance indicators. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : By end of 2004, for the public roads network, the road network condition will have improved

Value quantitative or Qualitative)

(a) 25% in good condition (b) 35% in fair condition and c) 40% in poor condition

(a) 50% good (b) 30% fair (c) 20% poor

(a) 31% good condition; (b) 39% in fair condition; and (c) 30% in poor condition.

Date achieved 04/30/1999 03/31/2005 06/30/2006 Comments (incl. % achievement)

Modest achievement, condiditon of good and fair roads rose from 60% to 70% of entire network

Indicator 2 : Road user revenues deposited into the Road Fund annually. Value quantitative or Qualitative)

$9.5million $15.3 million $13.8million

Date achieved 04/30/1999 03/31/2005 06/30/2006 Comments (incl. % achievement)

90% achievement. Depreciation of value of local currency over life of project had an impact on this target. Appraisal US$1 = 44.20 MK at completion 138.96 MK

Indicator 3 : Operational functions of the Ministry of Transport and Public Works to be transferred to the National Roads Authority (NRA) and training centers to be transferred to National Construction Industry Council (NCIC)

Value quantitative or Qualitative)

Ministry responsible for all operational issues and in charge of training centers

achieved

Date achieved 04/30/1999 04/30/2001 Comments All transfers completed as envisaged

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(incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Adminstrative costs as a percentage of Road Fund revenue decreases by 50%

Value (quantitative or Qualitative)

10%

5 5%

7%

Date achieved 04/30/1999 03/31/2005 06/30/2006 Comments (incl. % achievement)

60% achievement

Indicator 2 : 900 km of roads periodically maintained over project life Value (quantitative or Qualitative)

0 900km 803km

Date achieved 04/03/1999 03/30/2005 06/30/2006 Comments (incl. % achievement)

90% achievement

Indicator 3 : 450 km of roads resealed with Credit financing Value (quantitative or Qualitative)

0 450 km 450 km

Date achieved 04/30/1999 03/30/2005 06/30/2006 Comments (incl. % achievement)

100% achievement

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Indicator 4 : 230km of roads rehabilitated with Credit financing Value (quantitative or Qualitative)

0 230km 38 km

Date achieved 04/30/1999 03/30/2005 06/30/2006 Comments (incl. % achievement)

13% achievement.

Indicator 5 : 60 local maintenance contractors trained by end of project Value (quantitative or Qualitative)

0 60 38

Date achieved 04/30/1999 03/30/2005 06/30/2006 Comments (incl. % achievement)

63% achievement

Indicator 6 : 10 Medium scale contractors upgraded by end of project Value (quantitative or Qualitative)

0 10 0

Date achieved 04/30/1999 03/30/2005 06/30/2006 Comments (incl. % achievement)

Not achieved.

Indicator 7 : 10 local consultants trained annually Value (quantitative or Qualitative)

0 30 4

Date achieved 04/30/1999 03/30/2005 06/30/2006 Comments (incl. % achievement)

Not achieved. Focus on consultant training did not commence until the final year of the project

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 07/02/1999 Satisfactory Satisfactory 0.49 2 11/19/1999 Satisfactory Satisfactory 0.49 3 06/05/2000 Satisfactory Satisfactory 2.63 4 06/28/2000 Satisfactory Unsatisfactory 2.76 5 11/29/2000 Satisfactory Satisfactory 3.67 6 05/04/2001 Satisfactory Satisfactory 6.14 7 06/27/2001 Satisfactory Satisfactory 6.14 8 12/20/2001 Satisfactory Satisfactory 10.94 9 04/26/2002 Satisfactory Satisfactory 14.42

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10 08/15/2002 Satisfactory Satisfactory 15.51 11 10/01/2002 Satisfactory Satisfactory 15.78 12 04/22/2003 Satisfactory Satisfactory 15.85 13 11/05/2003 Satisfactory Satisfactory 16.38 14 02/25/2004 Satisfactory Satisfactory 16.38 15 07/31/2004 Satisfactory Satisfactory 16.74 16 11/12/2004 Satisfactory Satisfactory 18.40 17 06/15/2005 Moderately Satisfactory Satisfactory 22.84 18 07/30/2005 Moderately Satisfactory Satisfactory 23.44 19 03/14/2006 Satisfactory Satisfactory 28.33

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Sustained poverty reduction was central to Government's development objectives and was the ultimate objective of the Bank's assistance. The CAS document of 1998 set out four main themes: creating broad-based, labor-intensive growth; fostering environmental sustainability and human development; improving public sector management and capacity; and strengthening policy dialogue and implementation and donor coordination. The CAS underlined the need for structural change in key sectors to complement the macroeconomic policy reforms undertaken to date. More specifically the CAS made mention of the deteriorating quality of economic infrastructure as an impediment to growth and put this down to delayed reforms and inadequate expenditure prioritization. The Bank’s report “Accelerating Malawi’s Growth: Long Term Prospects and Transitional Problems” outlined the main challenges faced by the Government in the realization of its objectives in the near and medium term and, in particular, set out detailed strategic considerations for raising the sustainable rate of economic growth to 6% per annum. The report established that one of the main threats to Malawi's ability to generate new domestic and foreign investment was the internal transport constraint (high cost and poor access). The report also indicated that the infrastructure maintenance needs, including roads, exceeded likely available domestic resources over the medium term, placing a premium on the need for both better expenditure prioritization and enhancing domestic resource mobilization in the road sector. The Road Maintenance and Rehabilitation Project (ROMARP) was designed to meet the requirements for the full sector investment approach. Malawi had already gone a considerable way towards putting in place a strategy in the road sector to address these economy wide concerns. The project design took advantage of a series of reforms already in place. These related to the Road Maintenance Initiative (RMI) since 1995, the Rural Travel and Transport Program (RTTP), the establishment of National Road Authority (NRA) and Road Fund (RF) in 1997. The design also took into account the series of priority road sector issues addressed in workshops including: institutional development, financing mechanisms, axle load control, private public partnerships, staff training, alternatives for the Plant and Vehicle Hire Organization (PVHO) and road safety. The major issues at project inception were: High Transport Costs: transport costs were very high. Average domestic transport costs by road were 2-3 times higher than in Zimbabwe or South Africa. Weak Management of Road Sector Agencies: The Government's ability to carry out effective management of the road sector was hampered by limited financial resources and capacity constraints. Inadequate Local Financing for the Road Sector: Up until 1995/96, resources allocated to road maintenance expenditure were well below what was needed to assure the quality of the network, e.g. in 1994/95 MK24 million (US$3.2 million) was allocated, less than 15% of requirements. Sustainability of the Existing Road Network: Malawi's total designated road network amounts to about 15,100. Quality had deteriorated over the last ten years such that over 50% of the network was believed to be in poor condition. Lack of Development of the Local Construction Industry: Although progress had been made in

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this area through the establishment of a National Construction Industry Council in 1997, the level of participation and performance of local firms continued to be poor. Poor Accessibility in Rural Areas: Malawi’s economic growth prospects depend largely on the smallholder agricultural sector. Over the years, rural roads and bridges had been allowed to deteriorate, reducing accessibility and increasing costs for farmers. Weak Traffic Management and Poor Road Safety Record: Malawi had one of the worst road safety records in the world and the highest road accident rate among the countries in the Southern African Regions. This road sector agenda was fully endorsed by the government in its sector policy letter at the time of decision to undertake the project. The Bank’s assistance of US$30 million was designed to address these sectoral issues through support to the Ministry of Transport and Public Works (MoTPW) and National Road Authority (NRA). The Nordic Development Fund (NDF) provided an additional US$6.8 million equivalent and the GoM another US$2.7 million bringing the total project cost at appraisal to US$39.5 million. The implementing agencies were the NRA, MoTPW and the National Construction Industry Council (NCIC). The project was approved by International Development Association (IDA) Board June 10, 1999 and was signed September 16, 1999. A Mid-term Review mission was held from March 3-11, 2003. The project’s original closing was March 31, 2005 and final closing date was June 30, 2006, an extension of one year and quarter. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) As stated in the Credit Agreement, the Project's goal was to bring about sustainable improvements to the quality of Malawi's road infrastructure through (i) the strengthening and restructuring of the institutional framework for the road sector, with a view to improving the effectiveness of sector management and enhancing planning and programming of works; (ii) supporting the reforms of road sector financing to ensure sustainability, and (iii) addressing the backlog of road maintenance and rehabilitation. These goals were measured by the following indicators: (i) Transfer of operations from MoTPW to NRA; transfer policy and regulatory functions from Ministry of Works to Ministry of Transport; transfer of training centers to NCIC; and transfer of axle load control from MoTPW to NRA; training of local contractors and consultants. (ii) Measured by: Road Fund (RF) allocation of US$15.3 million in FY 03/04; administrative cost reduced from 10% to 5% of RF revenues; increase in funding of routine maintenance from RF to 100% of the public network. (iii) Measured by: quality of road network improved to 50% good, 30% fair; and poor 20% from 25% good; 35% fair and 40% poor condition; 450km of roads resealed and 900km rehabilitated with Credit fund and; 900km of road periodically maintained and 800km of road rehabilitated over the life of the project.

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1.3 Revised PDO and Key Indicators (as approved by original approving authority), and reasons/justification There were no changes in the project goals, objectives or key performance indicators. 1.4 Main Beneficiaries, original and revised The PAD envisaged the following beneficiaries:

• Road users, producers of goods, and local communities; These were the wider beneficiaries of the outputs of the maintenance and rehabilitation components. More efficient maintenance was expected to reduce vehicle operating costs, travel time and accidents.

• The local consulting/contracting industries; the training component instituted by

NCIC was specifically focused on building the capacity of the local industry.

• The District Assembly technical staff were later beneficiaries of training in procurement and contract management as well as the development of planning tools to assist in the development of district plans

• The Ministry of Transport, NRA and the people of Malawi, were to be beneficiaries

of the policy reform, the creation of a more efficient road management system and strengthening of regulations for management and financing of the sector.

1.5 Original Components (as approved) The total project cost was US$39.5 million including counterpart funding and co-financing. The project consisted of four components and subcomponents as presented in the Project Appraisal Document (PAD) as follows: (i) Strengthening the Road Sector Institutional Framework. This component was focused on achieving the first objective of the project and had five subcomponents: (a) road sector policy development; (b) sector institutional reform and development; (c) framework for management and financing of rural roads; (d) establishment of NRA; and (e) framework for policy and regulation; (ii) Development of the Construction and Consulting Industries. This component supported the establishment of the NCIC as the principal stakeholder representative body responsible for the development of the local industry and supported the development and implementation of the actions and plans to address the constraints still faced by the industry. The component had three subcomponents as follows: (a) Establishment of NCIC; (b) Contractor and consultant training; (c) Equipment and financing provision for contractors; (iii) Support to Sustainable Periodic Maintenance. This component covered priority

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maintenance requirements of the core network to assure no further deterioration in the quality of road infrastructure. The periodic maintenance program covered 450 km of roads; (iv) Support to Selective Rehabilitation and Upgrading of Roads. This component was to cover from the second year of the project onwards, a limited amount of rehabilitation of the paved road network and limited earth to gravel or gravel to paved road upgrading. 1.6 Revised Components All four components of the project remained through out the project cycle. However, in the course of implementation two changes were made. Following a Quality Supervision of Risky Projects (QSR) in FY2000, the project was rated satisfactory. However it was agreed to amend the scope of component 4, (Support to selective rehabilitation and upgrading of roads). This was reduced by removing all sections which dealt with main roads and focused on township, urban and class D roads. The Borrower upon advice from IDA revised the procurement implementation schedules of ROMARP on May 31, 2001. Subsequent to the mid-term review in 2003, and upon the recommendation of the needs assessment study for rural transport services, the sub-components (i) Rural Accessibility and Mobility Pilot Activity (RAMPA) and (ii) Capacity Building for District Technical Staff were included under component 1 (Strengthening of the road sector institutional framework). 1.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) No other significant changes took place. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The preparation of the project was based on extensive background analysis and a detailed review of the constraints caused by transport to the sustainable development of Malawi’s economy. It also incorporated some of the lessons learned from previous Bank financed projects, in particular, institutional reforms preceding project preparation and the design of the project focusing on effective institutional capacity building and financial sustainability through the enhanced road fund. The lessons learned and reflected in the design of the project. The design of the project components was well linked to achieving the project objectives. The procurement and disbursement procedures as well as the project monitoring, supervision and financial reporting requirements, were presented in workshops at the start of the project, and were at the time, deemed to be of high quality.

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The project supported the CAS in three areas: environmental sustainability - supporting improvements in environmental review and management in the road sector; sustaining dialogue with local stakeholder interests on road sector reform, and donor coordination through close collaboration with the donor community, notably with the Nordic Development Fund (NDF), European Union (EU) and Kreditanstalt fur Wiederaufbau (KfW). Project risks due to institutional capacity were realistically assessed and appropriate mitigation measures proposed. The list of possible risks, ratings and mitigation as set out in the appraisal document reflects most of the implementation issues raised later on. However, the underlying assumptions regarding the future macroeconomic performance of Malawi on which the performance of the Road Fund and Government contribution to the project financing were based,was, in retrospect, too optimistic. The expectation of the amount of rehabilitation (230 km) that could be completed under the Credit was also an over-estimation, given the amount of available funds. Project appraisal was delayed for almost a year as the Bank team waited for the outcome of EU initiated studies. 2.2 Implementation

Most beneficiary agencies had been created only shortly before appraisal, so there was initially a weak capacity and lack of familiarity with Bank guidelines. The project therefore suffered from a reduced implementation pace at the early stages, resulting in an extension of the closing date by a year and a half. Adjustments in project activities were made in response to a host of interrelated factors which arose during implementation noted below:

Factors outside the control of government or implementing agency:

Drought shock. Malawi, a landlocked country with undiversified agricultural economy experienced shocks related to drought. Its exports and imports were seriously affected leading to inflation and fluctuation in the exchange rate. This adversely impacted the funding available for road maintenance as the increase in fuel levy did not match the rate of growth of inflation. It also affected the cost of the civil works projects as there were high increases in the price of bituminous products and fuel, major components of the cost of the works.

• Low capacity/institutional weakness. Nascent institutions formed in the late 1990s such

as NCIC and NRA took more time than anticipated to be fully operational. Delays in startup caused by problems in establishing a well functioning management structure for NRA, poorly prepared tender documents for the first year implementation and in developing the financial management for Project Management Report (PMR) disbursement meant that NRA’s first year projects were not started until a year later. There were also associated delays in disbursement. Execution of procurement and disbursement functions improved over time.

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• Local contractors had limited capacity and struggled to deliver quality projects in a timely manner.

Factors generally subject to government control:

• Government commitment. Despite institutional weaknesses, adverse macroeconomic

situation and delayed execution, in the big picture, the Government remained committed to the reforms and development of the institutions created.

• Relocation of Utilities in Urban Areas. The extensive time taken by the service utilities

companies to relocate services from the right of way was a serious cause of delay. This inhibited the timely execution of the rehabilitation of urban roads in Lilongwe and Blantyre and the construction of Likuni bride in Lilongwe.

Factors generally subject to implementing agency control:

• Road sector institutions: The significant institutional and policy reforms were possible due the strong leadership of the participating agencies. The forward looking plans of the road sector institutions are examples of the changing environment which led to the achievements under adverse condition.

• Dispute with international consultant. The delay in receipt of detailed engineering

designs for the inter-urban roads contracted to an international consultant, due to a dispute over the consultant’s outputs, did not allow enough time for the designs to be implemented.

• Under estimation of construction cost and period. The appraisal over-estimated the

amount of rehabilitation that could be feasibly funded out of the credit proceeds available, making the output target unachievable. The agency also under-estimated the amount of time required to complete the urban road contracts, which had major issues due to slow relocation of utilities. The contractors took advantage of this lapse and completion of works was delayed, leading to the extension of project.

• Timely submission of Project Management Repor. Financial Management Report based

disbursement was agreed on January 26, 2001 Audited Accounts for 1998/99 and 1999/00 were not submitted until April 19, 2001. Reporting initially had shortcomings but progressively was improved. The poor quality of reporting, monitoring and evaluation has been rated unsatisfactory and was remedied only through the capacity building activities in the NRA and the Ministry.

• Inadequate, monitoring and evaluation. The initial poor quality reporting, monitoring

and evaluation was rated unsatisfactory and was remedied only through the capacity building activities for the NRA and the Ministry.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

M& E Design: The indicators as defined in the PAD were adequately linked to the main components of the project. Targets for the indicators, with the exception of the indicator relating to rehabilitation under Bank financing, were realistically set. The monitoring

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framework was adequate and should have enabled the Bank to monitor and track implementation progress and achievement of the project objectives. The indicators would also have assisted the Borrower in monitoring its sector performance and making adjustments in planning and programming. M& E implementation: There were initial difficulties in reporting of data in the first years of the project. Compliance with DO and output targets were not systematically recorded in PSR/ISR until after the mid-term review. M & E Utilization: The physical indicators were a useful tool to assess implementation progress and the achievement of objectives.

2.4 Safeguard and Fiduciary Compliance

In general, disbursements were in line with Bank procedures and the management of the Special Account was satisfactory. Apart from the first two years, annual reports were submitted on time and were satisfactory. Procurement procedures were in general handled satisfactorily throughout project implementation. No major procurement problems occurred; however, some contracts had to be re-bid due to unsatisfactory preparation of bidding documents. NRA strengthened their procurement capacity through training and recruitment of staff, and was able to assist the other agencies in carrying out their procurement functions. Some issues were raised by supervision staff during project implementation. These were flagged and corrective action was taken by the responsible implementing agencies for subsequent resolution of the issues. These included:

• Timely submission of PMR. Report-based disbursements were agreed on January 26,

2001. However, Audited Accounts for 1998/99 and 1999/00 were not submitted until April 19, 2001. Reporting initially had shortcomings but progressively improved.

• Entity Audit report. Whilst audit report of the project was always satisfactory, earlier

NRA audit reports indicated weakness in their internal audit management systems. The issues included a negative balance and non-adherence to procurement guidelines. These ceased after the change of government in 2004, where there were more robust internal checks instituted.

The project was rated as a category B environmental project. The NRA set up an environmental department with competent staff and prepared and implemented environmental management plans for its rehabilitation projects in line with Bank and national safeguard policies. Under the project, the Unit prepared Environmental Review and Best Practice Guidelines and a Resettlement Policy Framework for the Malawi Road Sector. These have served as the basis for the environmental and social safeguards component of the new Infrastructure Services Project and the Road Sector Programme currently under preparation by the Government. This also served as good practice examples to be replicated in other projects in Malawi. 2.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by

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present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) Substantial institutional reforms and capacity building efforts have been undertaken under the project and are at early stages. This needs follow up. By the end of the project, parliamentary approval for the separation of the Road Fund from the Roads Authority was given. Lessons learned from earlier projects indicate the necessity of investments as a follow up to institutional reforms as undertaken in this project and adequacy of funding as a critical factor for sustainability. A delay in follow-up project could risk reversal of the achievements. The Government has competing demands and limited budgetary resources. However, they have committed themselves to and are leading the preparation of a sectoral program, inclusive of all transport sub-sectors and key development partners. A consultative transport forum has been formed, ensuring government led coordination of the sector and communication between all major stakeholders. A draft road sector program document is under discussion. This is also a challenge for the Bank, given the competing demands and the limited budget. In light of the Bank’s commitment to sustainability, a follow-on project in the road sector should be a priority and sectoral dialogue must be sustained. The new grant approved for the Infrastructure Services Project will meet some of the investment need and continue the capacity building effort at the district assembly level. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The project objectives, design and implementation are fully consistent with current priorities as expressed by both the Government of Malawi and the Bank. The Malawi’s current Growth and Development Strategy, describes infrastructure as critical to achieving the growth and social objectives of the government. The government’s goal for transport is to provide an environment that fosters a safe and competitive operation of transport services that are viable, sustainable and environmentally friendly. Its key strategies as outlined included the provision of an adequate network, undertaking of road maintenance, building of the local capacity participate in provision of services. The Bank’s CAS (2004-2006) presents a transitional program that aims to assist the Government to address the urgent development issues that presently confront Malawi. Of the three pillars of the Bank CAS, infrastructure service financing, under the second pillar, is aimed at establishing a platform for sustainable poverty reducing growth through the provision of infrastructure. The project design and implementation allowed for substantial institutional reform and strengthening to be achieved. The project made significant progress in the development of the Road Agency, the Road Fund and the local construction industry. Their ability to plan, implement and monitor increased. 3.2 Achievement of Project Development Objectives

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This project has contributed significantly towards advancing the government agenda expressed in its sector policy of including private sector participation. The project put in place most of the road sector institutional and policy reforms, significantly strengthened and restructured sector institutions and the road fund necessary for a full road sector investment approach in Malawi. The project's overall outcome/impact in relation to each of the project objectives is substantiated below. (a) Achievement of the objective of strengthening and restructuring of the road sector institutional framework with the view of improving the effectiveness of the sector management and enhancing planning and programming of road works is rated Satisfactory. This was an ambitious agenda for significant institutional reform in the sector. Substantial progress was made in the development of the road sector institutions and in the development of a framework for institutional strengthening. The nascent sectoral institutions established in the latter half of 1990s including NRA, NCIC, NRSC and MRTTP have been strengthened and nurtured during the project implementation period. They have now forward looking business plans and qualified staff in key positions. The staff, who participated in the project design and implementation, gained deeper awareness of the opportunities and obstacles facing their respective institutions. A paradigm shift in thinking about issues in the road sector appears to have gained acceptance. This has led to rethinking of old assumptions and wider awareness of new approaches in several aspects of road sector, particularly related to maintenance of existing assets as a priority. The series of studies completed under the project have impacted the participants to change their views regarding: the importance of road safety and road maintenance; the key issues leading to high transport costs in Malawi, the high benefits of investment in accident control; the importance of strong institutional capacity in timely execution of projects, effective control of vehicle loading to minimize road damages; etc. In addition, progress in the development of local capacity for the construction sector has been achieved; options for future of Plant and Vehicle Hire Organizations (PHVO) have been considered. The new sector program under preparation encompasses the lessons learned during this period. With the approval of the legislation for the sector reform and creation of a new Road Fund Agency (RFA) and Road Authority (RA) by Parliament, conditions have opened up for a sustainable road sector. The road reclassification has been completed and Malawi's road network stands at 28,000 km. A road data management system of the road inventory has been established at NRA which has the capacity of generating reports with direct interface to HDM allowing for proper analysis and planning for the maintenance and development of the network. The data management system (Road Data Management) is a tool which manages Malawi’s network data, on which sound decisions can be made on road maintenance intervention levels. The system was set up with the assistance of external consultants and stores data on road inventory, network condition, network classification and traffic counts. A new unit was set up within NRA, to manage and analyze the data collection and is now supplying the planning department with criteria for their annual maintenance plans and budgets.

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Available data shows that accident losses appear to have declined from 3.3% to 1.6% of GDP or by 47% over a three year period from an estimated US$469.7 million in 2002 to US$ 247.7 in 2004. The base line of accident data developed focuses on accident components (over speeding, drunk and driving, geometric function of the road), legislation component, and cost of damages. Strengthening the Road Safety Commission, through the baseline survey and road safety database developed under the project has led to identification of black spots and resulted in timely interventions to minimize road accidents. The statistics collected in the last four years had helped identified interventions with high economic rate of return. Road safety initiatives through public information and education enforcement and control and physical improvement to the road environment have been made, resulting in a reduction of 47% in road accident costs over a three year period. In the rural transport infrastructure sector, the road selection criteria for low cost roads has helped refocus on the preservation and upkeep of a core network of existing roads rather than the construction of new ones. The new approach has produced a shift from a narrow focus on technical issues to a much broader approach in which all dimensions of sustainability are addressed at the planning stage of Road Management Transport Initiative (RMTI). Training of district technical staff in contract management and basic road design and pilot activity in the Ntchisi district which set up the GIS database for the planning of infrastructure development and also set up and trained community level contractors was commendable and is easily replicable. Of the seven small firms set up, 4 are continuing to work with the Ntchisi District Assembly under other contracts. The GIS database is being expanded under the new Infrastructure Services Project approved by the Bank in July 2006. Training programs under the NCIC achieved modest successes with fewer numbers of contractors and consultants being trained than anticipated at project preparation. In retrospect, these targets were overambitious given the fact that NCIC was a new institution and the first years of project implementation were used in establishing the secretariat, preparation of a business plan and design of the appropriate training programs. However, NCIC has become self –sustaining, (support from the project to the secretariat was provided on a declining basis) through fees and levies and is expected to build on its achievements. An Environmental Monitoring Unit has been established with responsibility for environmental and social management of all NRA executed projects. Sectoral Guidelines have been completed. Through the project, the sectoral HIV/AIDS policy and strategy documents were prepared. Continued activities under the strategy are expected to be funded under the national MAP project. NRA has a coordinator who works in conjunction with the Ministry. HIV/AIDS prevention strategies were mainstreamed into transport investments. Clauses for HIV/AIDS activities are now part of tender documents for major development partner funded projects and are to be included in their term maintenance contracts in the near future. (b) The achievement of objective of putting the funding of future road maintenance on to a firm,

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sustainable footing is rated Moderately Unsatisfactory. The Act for the separation of the Road Fund administration from NRA has been prepared and enacted resulting in their separate administration. An independent RF will lead to greater efficiency in the sector. The road users' revenue deposited into the road fund annually was US$9.5 million at the start of the project (4/30/1999). It grew to US$13.8 million by 03/31/2004 and was expected to be US$15.3 million by the closing date. However, adverse macroeconomic conditions prevented the government from reaching the agreed targets. The exchange rate for the Malawi Kwacha to the US dollar went from 44.5MK at the start of project, to 138MK at project closure. Levy increases were consistent, but inadequate to reach the projected targets. The other indicator relevant to this objective was a 50% reduction of administrative costs as a percentage of total Road Fund revenue. With the Road Fund not bringing in the projected revenue, this target was also not achieved. Government is looking to other sources for augmenting the RF through user charges, but this has not yet been implemented. (c) The objective of addressing the backlog of road maintenance and rehabilitation through the financing of economically viable, but unfunded subprojects, in line with implementation and financing capacity, is rated Moderately Satisfactory. The backlog of road maintenance needs estimated at appraisal have been addressed, with funding from IDA, EU and KfW and GoM. By the end of the project implementation period, there was a modest increase in access and quality of the national road network. The road condition which stood at 25% good; 35% fair, and 40% poor on 4/30/1999 was improved to 31% good, 39% fair and 30% poor by the closing date of 6/30/2006. The share of good and fair roads increased from 60% to 70%. Targets for periodic maintenance activities were substantially achieved. Targets for rehabilitation were not met largely for two reasons. Costs for rehabilitation were under-estimated at the project preparation stage, the funds available in the credit were not sufficient to achieve the targets set. The high prevailing inflationary situation in Malawi during project implementation also led to escalating costs of materials especially bitumen and fuel, all imported from South Africa, where there was a strong Rand. The designs for the highway network were significantly delayed due to a dispute between the design consultant and the Road Agency. The eventual resolution, with the assistance of an international arbitrator did not leave sufficient time to procure the contracts. However, the post construction economic analysis undertaken clearly shows the viability of the projects, completed with the highest rates of return coming from the rehabilitation of the urban road network. 3.3 Efficiency The post-construction economic analysis shows that the return on investments for both the periodic maintenance and rehabilitation component is robust and much higher than the estimate at appraisal despite cost increases, because of the significant rise in traffic volumes and higher savings in vehicle operating costs. The post-construction ERR aggregate is estimated 103% and NPV is US$114.6 million. A sensitivity analysis carried out with no traffic growth after 2006, demonstrated a robust Economic Rate of Return at 96% and NPV US$100.5 million. The periodic maintenance ERR estimate provided in the PAD was 33.9% which is much lower than the calculated post-construction ERR of 113%. The post-construction high ERR is attributed due

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to traffic diversion and significant VOCs savings resulting from anticipated higher fuel prices. 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall outcome rating based on the combined assessment of relevance, achievement of PDOs and efficiency is rated Moderately Satisfactory. This assessment is based on the outcomes as stated above. ROMARP remains relevant to Malawi’s current objective of achieving economic growth. Infrastructure, especially roads is one of the key factors. This project has played a role in supporting Government’s effort to improve sectoral performance and institutional capacity is now strong enough to develop and manage a sectoral program. Government showed clear commitment to institutional reform and strengthening, maintenance funding and sectoral plans and implemented these adequately. The outcome of this component is substantial. The capacity of the local industry has been developed. Although some physical targets were not met, the high rates of return and increased traffic on completed projects are justification to the soundness of investments made. The moderately satisfactory rating is attributed to the pending reforms in the sector and the less than expected increase in maintenance funding through the fuel levy. The financial status of the sector will need careful monitoring. Clear commitments to increase the fuel levy and/or budgetary allocations to maintenance funding will ensure sustainability. 3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development The National Transport Policy prepared under the project includes a statement on gender issues, reporting that most of the rural transport burden is borne by women and gender imbalance remains a problem in the rural transport sector. Despite the training of some female contractors during the RAMPA pilot, the construction industry continues to be male dominated and improvements will only result from changing attitudes and culture. The NRA are developing gender sensitive strategies. Under consideration are appropriate clauses that can be inserted into tender documents in support of the National Gender Policy. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The probability that the project will maintain the institutional and physical achievement generated in relation to its objectives over the economic life of the project is likely. The main factors favoring such an outcome include: government commitment, enhanced institutional capacity, the progress made in establishing increased fuel levy for road maintenance, and transparency and accountability of the administration of the road fund. The formation and strengthening of the road sector institutions such as the NRA is a positive achievement of the project. Staff have remained in place and their capacity to plan, implement and monitor have been strengthened. The legal approval for the establishment of a separate Road Fund and Road Agency at closing of the project is also expected to strengthen the road maintenance program through the dedicated maintenance fund and a separate implementing

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agency, creating greater accountability for funds spent. Training programs established by the NCIC, for the local constructing and consulting industry, with support from the project, are now self-sustaining. The NCIC secretariat is being supported from local resources. District Assemblies have been strengthened in the areas of contract management and procurement and will be playing a greater role in these areas in the newly approved Infrastructure Services Project. Under the Rural Accessibility Pilot Program, four of the seven community contractors trained are now registered with the NCIC and have been given additional works by the Ntchisi District Assembly. On the other side, poor performance of Malawi’s economy could still seriously affect the financing of the road maintenance fund endangering the size of the road fund and thereby the sustainability of the benefits of the project. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) Not applicable 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) Not applicable. 4. Assessment of Risk to Development Outcome Rating: Moderate The main risks to development outcome depend on the effective use of the road fund and strengthening of the institutional changes that the project has effected. The adequacy of the road maintenance funding depends as much on the macroeconomic sector performance as the policy stance of the Government of Malawi. The strengthening of the institutions will depend on the commitment of the government to follow through on the substantial reforms undertaken, and to the establishment of an incentive regime with respect to key staff in these institutions. The economy of Malawi will play a role in the continued development of the local industry. The economy being agrarian is subject to seasonal shocks such as drought and flood which affects both economic growth and the basic infrastructure such as roads, bridges, etc. For all these reasons, the risk to development outcome is assessed as moderate. Furthermore, recent developments indicate an urgent need for an overall economically justified priority program of investments in the transport sector to be put together by Government to the satisfaction of stakeholders and Development Partners. The tradeoffs among various modes of transport (road, rail and inland water) will need to be carefully examined in light of Malawi’s landlocked situation. An undue overemphasis on any one particular mode will needlessly divert scarce resources to a suboptimal program. 5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5.1 Bank (a) Bank Performance in Ensuring Quality at Entry

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(i.e., performance through lending phase) Rating: Moderately Satisfactory Overall, IDA's lending performance is assessed as Moderately Satisfactory. The IDA staff helped the GoM in a diagnostic evaluation of the transport sector issues facing Malawi through a series of road sector and macroeconomic reviews. Assumptions made for future macroeconomic performance, although overly optimistic, led to sector institutional and policy reforms consistent with the government strategy/priority. These were also consistent with the Bank CAS as well as the lessons of experience of previous Bank financed road sector projects. The Bank helped ensure that reforms were further developed and supported by the project. The Bank paid special attention to its donor coordination effort to ensure a balanced and an optimal size of investment program. Based on sector study, attention was given to: (i) selecting priority projects for the first five years of the program from among the paved roads indicated for periodic maintenance; (ii) developing packages for consultancy services for the paved and unpaved roads identified for rehabilitation and upgrading; and (iii) establishing broad targets (both physical and financial) on an annual basis for the next five year period for road maintenance and rehabilitation. Much attention was also given to procurement including simplified documents for carrying out routine maintenance for works up to a contract value of US$200,000 equivalent. The preparation of the physical investment program for 450 km of paved road maintenance were well advanced at the time of presentation of the project to the IDA Board. At appraisal, institutional start-up problems were identified as potentially risky. The overall risk of the project was correctly assessed as moderate or low at entry. The only exception rated high risk was the one related to local consulting and construction industry capacity development. Subsequent implementation outcomes have validated most of the assessment of risks. However, assumptions made for future macroeconomic performance, the output from relatively newly formed institutions and targets for rehabilitation from project funds was probably too optimistic. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory Bank supervision was Satisfactory. The skill-mix of the Bank supervision team was well balanced. The team followed appropriate strategy throughout the project implementation phase. Recognizing that the goal of the project was to bring about sustainable improvements in the quality of Malawi's road infrastructure, the project team was rightly focused on monitoring the performance of the Road Fund resources. The supervision team identified problems early as they emerge and took appropriate measures. The project team helped facilitate client resolutions of initial start-up problems related to management structure of NRA, re-bidding of five contracts, accelerating the financial management system of PMR disbursement increases in road fund revenues for the complex project. The team throughout project implementation provided timely

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advice and follow-up action on procurement, financial management, disbursement, legal and environmental aspects and risk assessment. The project implementation progress reports were detailed and had timely and realistic performance ratings in the PSRs/ISRs. The project also had the advantage of having only two task team leaders throughout its lifetime, allowing for continuity of dialogue and smooth implementation. The project team was focused on sustainability, development effectiveness, taking action and follow up. During implementation there was sufficient and regular dialogue between the project team and the government counterparts. Advice was provided on technical and institutional issues and ensured the coordination between the differing implementing agencies was adequate. The Midterm review mission was substantive and the team used the opportunity to refocus the government on the project objectives. Financial monitoring reports for the project being submitted regularly were reviewed by the supervision team. The supervision team also effectively monitored the implementation of the policy measures proposed. Field supervision of civil works and detailed review of the actions agreed on the institutional front were undertaken in relation to NRA, NCIC and road safety. Bank relations with other development partners were collaborative and led to the encouragement of the GoM taking the lead in preparation of a sector program for the next five years. The project team also benefited from the critical input provided by Bank senior staff in addressing key issues raised in the course of project implementation. Such concerted effort of the project supervision team has helped to achieve the project objectives. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank overall performance is also rated satisfactory. Both lending and implementation phase were executed with due diligence as noted above. 5.2 Borrower (a) Government Performance Rating: Moderately Satisfactory Government performance in the preparation phase was satisfactory. The Borrower had demonstrated strong commitment in the preparation phase including the establishment of institutions that would be called on to implement the project and the policy framework for the sector development. The design of the project was reflective of the government road sector policy. GoM, with the assistance of the Bank, put in place macroeconomic reform creating a favorable environment to enhance its outcome. The reforms undertaken by the government in line with its Letter of Sector Policy were fully supported by its development partners for addressing key institutional issues facing the road sector. During implementation phase, the government performance was moderately satisfactory. They worked to strengthen the institutions established and subsequently passed the laws enabling the separation of the road sector, financing and

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management functions. Although not always sufficient, the fuel levy was consistently applied to the Road Fund, providing available resources for the maintenance of the network. The National Transport Policy and other key sectoral studies were prepared, dialogue with development partners and other stake holders was government led. (b) Implementing Agency or Agencies Performance Rating: Satisfactory Implementing Agency

Performance

Ministry of Transport and Public Works National Roads Authority

The performance of the Implementing Agencies is rated as satisfactory. The staff of NRA exclusively managed project coordination through a steering group consisting of agencies such as the Ministry, NCIC and MRTTP. There were neither consultants nor a project implementing unit. NRA managed areas of planning, procurement, work and contract execution, payments and environmental management on behalf of the steering committee. NRA ensured environmental compliance through the preparation of the relevant assessments, obtaining of licenses and adequately supervising work implementation. NRA was the main implementer of the physical components of the project. The Ministry managed aspects dealing with overall policy direction, institutional change and strengthening. NCIC managed well the local industry training programs and led dialogue on the strengthening of contractor capacity. Fiduciary aspects of the project were adequately managed. Except for the initial slow bidding process, there were no major procurement problems.

National Construction Industry Council

Communication with and between the agencies and Bank was timely and adequate.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory. This is in consideration of the overall ratings for government and agency performance as outlined above. 6. Lessons Learned (both project-specific and of wide general application)

• With upfront agreement of core policy and regulatory reforms, sector institutional development can be successfully carried out, even in a weak country environment provided there is a long term support to implementation of second order reforms generated through project activities. There were substantial institutional impacts within this project. The government commitment and the general consensus at project

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preparation stages for reform was evident in the steps that had already been taken to set up the road sector institutions. This was maintained throughout the project leading to the final step of the parliamentary approval of the separation of the functions of finance and management.

• With newly established institutions, caution needs to be exercised in estimation of

implementation capacity and there needs to be greater pro-activity on part of the Bank and the Borrower to adjust to the realities on the ground.

• Effective government ownership and support from the development partners, can lead to

initially weak institutions being challenged to deliver more than average results even under adverse macroeconomic environment.

• Continuity of task team leadership and ensuring an adequate skill mix, contributes

positively to the outcomes of a project. • For successful monitoring and use of indicators, there needs to be a periodic review of

indicators to reflect current country and Bank objectives. This is critical for projects such as this where there is a long period (10 years) between appraisal and project closing.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower informed the Bank team that aside from their contribution, they had no comments on the Bank’s Implementation and Completion Report. (b) Co financiers The Bank team did not receive any comments from the co financiers. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Not applicable

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal

Estimate (USD M)

Actual/Latest Estimate (USD M)

Percentage of Appraisal

STRENGTHENING INST. FRAMEWORK 5.70 7.01 19.12

DEV. CONSULTING & CONSTR. INDUSTRIES 4.70 7.43 278.09

PERIODIC MAINTENANCE 8.30 13.63 164.22 SELECTIVE REHABILITATION AND UPGRADING 14.70 9.22 62.72

PPF REFINANCING 1.50 1.08 72.00 Total Baseline Cost 34.90 38.37

Physical Contingencies 0.00 Price Contingencies 0.00

Total Project Costs 34.90 0.00 0.00 0.00 0.00 0.00 0.00

Total Financing Required 34.90 38.37

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate (USD M)

Actual/Latest Estimate (USD

M)

Percentage of Appraisal

BORROWER 2.70 1.43 52.96 INTERNATIONAL DEVELOPMENT ASSOCIATION

30.00 31.64 105.47

NORDIC DEVELOPMENT FUND

6.80 5.30 77.94

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Annex 2. Outputs by Component Component 1: Strengthening the Road Sector Institutional Framework Initial progress of the institutional reform component was slow, but by the end of the project, it had substantially achieved all its projected outputs. A series of studies were undertaken as part of this component to guide the Ministry in

(a) Road Sector Policy Development (Ministry of Transport and Ministry Public Works) • Preparation of the National Transport Policy. The National Transport Policy Document

was supported under the project and prepared through a consultative process that was validated by Cabinet in 2006. Key legislation designed for the separation of the management and financing activities in the road sector received parliament approval in April 2006 and the Presidential Approval in May 2006.

• Road Reclassification Study. This study examined the extent of the Malawi road network

and recommended responsibility for maintenance for the different classes of roads be divided between the Roads Authority and the District/City Assemblies. The total network increased from 15,000 to about 25,000.

• Transport Cost Study. The study was completed. The finding of the study informed that

Malawi’s transport costs were the highest in Southern Africa and well above the average for Africa. This was mainly due to lack of competition from other sectors apart from roads, poor road condition and the need to improve regulatory instruments and procedures.

• Development of Selection Criteria for Low Volume Roads. A well documented selection

criterion for low volume roads was completed in July 2003. DfID, NDF and SIDA provided TA for the development. These are done at the regional level and are adopted locally. The standards were designed to meet current local conditions where traffic is low.

• Road Reclassification Study. The completed road classification study put Malawi’s road

network at an estimated 28,000 km. The majority of these roads are district and community roads and the responsibility for the management rests with MLGRD and the communities themselves. NRA will continue to manage the core network and provide the necessary technical assistance to the district assemblies as their capacity levels are still fairly low.

• Rural Accessibility and Mobility Pilot Activity (RAMPA). The RAMPA was conceived

during the Mid-term review in 2003 after rural transport service needs assessment was undertaken. Malawi Rural Travel and Transport Program (MRTTP), operating with three professional staff prepared a socio-economic profile, district development plan (with data base organized around accessibility) and transport needs/gap, intervention plans and a monitoring system assessment for the Ntichsi district assembly. Discussions with the district assembly executives indicate that this plan has been invaluable in assisting the district to prioritize infrastructure development and was the basis for identifying new health infrastructure to be provided by the Red Cross._ The experiment undertaken to

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open up Ntichsi, a small district in Malawi with an area of 1,555 sq. km and population of 212,000 under a labor based rural maintenance rehabilitation program was exemplary. The district has seven traditional authorities and twenty six wards. The access roads were constructed through the participation of local community contractors who received both theoretical and practical training. Out of the total local contractors trained, 8 were women and 11 men. To ensure sustainability of RAMPA unit, improved transport related statistics, and holding sensitization workshop for senior management in the sector was undertaken. Plans for the pilot Intermediate Means of Transport (IMT) lagged behind the rest of the component. The delay was caused by slow process of import arrangements for donkeys from Mozambique.

• Road Fund: The annual inflows into the Road Fund are summarized in the table below.

During 1999, 2001 and 2005 the funds available in the road fund was higher than the programmed annual maintenance expenditure. The fuel levy allowed for depositing of US$12.36 million into the road fund for 2004/2005. This figure was lower than anticipated at appraisal due to the devaluation of the Malawi Kawcha over the years. The Road Fund and Policies and Procedure study focused on potential resources to be tapped to augment the RF and on proposals on adjustments to be made on fuel charges taking into account of road maintenance, sustainability and inflation and currency adjustments. The sources of revenue proposed were–road user charges fuel levy, road license fee based on the weight of the vehicle. Commercial permit fee for domestic commerce and for foreign registered vehicles transit fees of US$10 per vehicle km. The implementation of recommendations is to be done alongside the process of separation of the fund from the Roads Authority.

Annual Road Fund Inflows 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 Target (US$m)

9.5 12.0 12.9 13.8 15.3

Actual (US$m)

10.2 9.8 14.5 12.5 13.4 12.36

• Road Safety. The National Road Safety Commission (NRSC) functioned as a partnership

of consultants, recruits, and traffic police. Malawi has about 105,000 vehicles and its estimated annual losses due to road accidents are between 1.6 to 3.3 % of its GDP. The commission was supported by a consultant who assisted them in establishing baseline data of the road safety situation in Malawi. Training was undertaken for both the Commission and the Traffic Police in data collection and analysis. Since January 2005, upon departure of the consultant team, NRSC continued to maintain a complete set of records of accidents, quarterly, bi-annually and annually based at Malawi police service. From the statistics gathered, it has been established that 61% of accidents were caused by over speeding and 24% by driving under the influence of alcohol. NRSC has targeted these two areas. It has purchased speed traps, breath analyzers and a highway patrol vehicle for Malawi Traffic Police. The data has also helped to identify black spots and to make interventions. NRSC appear to be on a sustainable path. It has developed a business plan estimated to cost US$1.45 million. The RF has earmarked 2% of its revenue for activities aimed at enhancing safety, and local insurance companies contribute 0.75% of their premium, an amount of about MK4.5 million. The insurance companies, after dialogue with the NRSC agreed to raise their contribution to 1% and this agreement has been gazetted at the Ministry of Justice. With the support of the European Union, a

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consultant has been engaged to explore the feasibility of setting up of a Road Traffic Authority which would comprise NRSC and the Road Traffic Directorate. Draft legislation is under preparation.

(b) Sector Institutional Development (Ministry of Transport and Public Works):

Establishment of the National Road Authority (NRA). With the support of the project, NRA has transformed itself into a viable road authority (see Annex for Training and HIV/ADS mainstreaming Report). NRA was established in 1997 covering road authority and road fund activities. Following the transfer of operational functions and axle control from MoTPW to NRA, significant institutional capacity building activities had been built under the project in NRA. NRA with its key officers in place have corrected its start-up problems, re-tender documents which necessitated re-bidding of five contracts, established financial management system for PMR disbursements, etc, Project design, periodic, rehabilitation works were contracted out although routine maintenance works are still mostly implemented under force accounts.

It has enhanced its capacity by updating its financial management and accounting systems; improving its procurement management and monitoring systems; building environmental management capacity; elaborating of policies and procedures for the management of the RF, (including collections, allocation and disbursement of road user revenues; instituting monitoring and evaluation systems. Despite initial shortcomings, the Five Year Strategic Planning Framework it put in place, RF was useful in addressing issues of effective utilization of road fund resources. A study of options for private sector in contract management was accepted.

• NRA undertook studies on road user charges, review and adjustment and on development of tools for operations and human resource management. They developed an Environmental Monitoring Unit (EMU), responsible for all environmental and social management of NRA executed projects. The Sectoral Environmental Guidelines were finalized. This document serves as a basis for monitoring and creating awareness for all involved in the sector. Over 600 copies have been distributed and training programs for contractors and consultants working with the Authority have been carried out. An Environmental Management Task Force has been set up. This oversees the work of the EMU. NRA also undertook data collection on HIV/AIDS and transport related statistics, and held a sensitization workshop for senior management in the sector. The transport policy, after review incorporated poverty, gender and HIV/AIDS into its final document. Special attention was given particularly in creating awareness of HIV/AIDS. Two workshops were organized for focal points and transport sector senior officials on mainstreaming the HIV/AIDS agenda.

• Development of a medium term framework for road sector management, including the

role of a Central Roads Authority and other road agencies was completed. The relevant legislation was provided through the passing of the Roads Authority Act and the Road Fund Administration Act in 2006. This is a modern legislation taking care of many of the concerns of previous legislation. However, the Board may still have less power than desired, and may be somewhat vulnerable to the attitude of the Ministers. Much of the success of the legislation will rest with the design of procedures and guidelines. So far, the legislation itself is considered one of the most clear in terms of avoiding overlapping responsibilities between the Authority and the Fund. The risk with a legislation that is

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relatively open whose level or autonomy will be to some extent be defined later is that much will depend on the intention and attitude of the Boards and the Ministers involved.

• Sector Institutional Development related to periodic assessment of impact of institutional

reforms were carried out; development of a medium term framework was limited. Assessment of institutional requirements for rural roads management has been completed.

• Study of options for private sector participation in contract management was completed.

However, little implementation was achieved.

(c) Framework for management and financing of rural roads (Ministry of Transport and Department of District and Local Government Administration)

Through RAMPA, pilot support to one District Administration’s (DA) efforts in planning and managing rural transport issues have been carried out. Capacity building at district assembly level was undertaken through the MRTTP. MRTTP conducted training exercises for district staff focusing on contract management and basic road design. It also conducted workshop to disseminate and finalize the transport policy document. Manuals for planning, construction management of rural roads were produced and finalized after a stakeholders’ workshop.

(d) Framework for policy and regulation

• Support for restructuring and down sizing of Roads Department was successful. • Support to Capacity building for sector policy development and regulation and oversight

of road sector institutions including NRA were completed. Project Component 2- Development of the Construction and Consulting Industries This component has satisfactorily contributed to the achievement of the project objectives, particularly objectives 1&3. The implementation of the project helped strengthen the NCIC as the principal stake holder body responsible for the development of the local construction industry and addressed some of the constraints faced by the industry. The outputs of the three subcomponents are as follows:

• National Construction Industry Council (NCIC): The Act establishing NCIC was passed in 1996. It was not, however, that until December 2000 a full time executive secretary was established with fund provided by the Credit. NCIC also received financial support from the Government, and NDF. IDA assistance to the NCIC Secretariat came to an end in November 2004 and NCIC is now being supported under NCIC’s own budget, mainly from registration fees of member contractors and consultants; construction levies collected from treasury on government contracts; and training fees- a good sign of sustainability. NCIC has formulated a business plan which expected to enhance coordination of all NCIC management parties and aids in sourcing external funding. NCIC has gained from the project acquiring training equipment, computers, vehicles, and refurbished classroom facilities. The international training experts assisted NCIC in planning and implementing training programs which have continued after their departure. NCIC has been able to retain the highly skilled staff hired.

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• Contractor and consultant training: Training programs at the NCIC were slow to commence, as it took time to hire the appropriate staff. The project implementation period was mostly focused on building institutional capacity. NCIC staff visited SADC countries to observe how contractors and consultant registration and survey functions are being carried out. Approximately 1000 road, building, water contractors and consultants and material suppliers and electrical contractors have been registered. Some 38 local maintenance contractors were trained by the end of the project compared to the target of 60. However, none of the medium contractors were qualified to be upgraded to unlimited category by 2004. Four local consultants were trained out of target of ten consultants. The survey function was completed. Training material has been prepared for use by the Council and it is expected that the training programs will grow in the coming years.

• Equipment and financing requirements: Local contractor faces difficulties in hiring

equipment needs equipment pool. A budget of US$2.4 million was allocated of which US$2.2 was for training and the balance for equipment. The limited resources available are used in refurbishing class rooms to entice users; developing curriculum etc. Because procurement issues were raised by the Bank most procurement were completed towards the closing of the project. Study for setting up of plant and equipment pool was completed. The level of knowledge is limited. Study of outstanding constrains with regard to access to finance and light equipment and transport. The NDF financed study on equipment need assessment and setting up of plant and equipment pool was completed. However, given that MoTPW was in the process of procuring consultancy services for the commercialization of the governments plant and vehicle hire department, NCIC agreed to drop the proposal for setting up of a plant pool.

Project Component 3- Support to Sustainable Periodic Maintenance This component, within the limit of the funding available, has satisfactorily contributed to the achievement of objective three of the project. All periodic maintenance projects included in the PAD were completed. This involved the resealing of 450 km of main roads including shoulder rectification, patching of potholes and edge breaks, crack repairs surface reshaping and restitutions or improving of the road markings and road signs at a total cost of US$ 12.8 million. The roads included: (i) M1-Lionguwe–Airport–Bunda T/O (35.8 km); (ii) M3-Mangochi-Mbalula (11.9 km); (iii) M5-Nkhotakhota-Salima (114.2 km); (iv) M12-Lilongwe-Mchinji (119.3 km); (v) M14-Lilongwe-Salima (114.2 km); (vi) M30-Lilongwe Airport Access (3.9 km); (vii) S122-Salima-Grand Beach (23.8 km); (viii) S125-Lilongwe-Bunda (16.4 km); (ix) S131-Liwonde-Naminga (24.3 km); (x) S143-Zomba-Ndege (3.6 km); (xi) S146-Limbe-Chiradzulu (0.14 km). All works have been certified including the M5-Nkhotakota-Salima road which was repaired for defect. About 803 km of roads were periodically maintained. This was slightly lower of the anticipated target of 900 km. Project Component 4- Support to selective Rehabilitation and Upgrading A tentative list of projects for financing from IDA funds in the second and third year of the program were identified in the project. These included selected urban roads in Blantyre (total 10.9 km) and Lilongwe (total 7.1 km) and three inter-urban roads with a total length of 187 km: (i) Zomba-Blantyre (57 km); .(ii) Jenda-Chingawa (83 km); and (iii) Mzuzu-Nkhata Bay (47 km). The implemented urban road works included: (i) Industrial roads in Blantyre (4.6 km) ; (ii) Kenyatta Drive in Blantyre (4.5 km); (iii) Chilambula road in Lilongwe (3.6 km); and (iv) Likuni bridge in Lilongwe; (v) Mahatma Gandhi ( 2.2 km); and (vi) Churchill road (2.4 km) in Blantyre.

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All the above civil works were completed as designed except Mahatma Gandhi Road where heavy patch works was undertaken due to limited available credit balance. The inter-urban roads design was not completed on time as a result of dispute with consultants. Meanwhile the government and the Bank agreed to reallocate the funds to other components. The dispute, however, was finally settled by an international arbitrator. Work was undertaken by a mix of local and foreign contractors. The urban contracts were completed over longer periods than initially proposed, due to delays in relocation of utilities. NRA with hindsight, should have allowed for longer contract periods due to the complexity of working in an urban environment. However, the quality of all work undertaken was deemed satisfactory. Environmental and social management of ROMARP: Implementation of Environmental and social management of ROMARP was satisfactory. An Environmental management capacity study was completed. With the hiring of an environmental planner at EMU the borrower carried out the projection conformity with the environmental and social safeguard policy. During the construction, the EMU provided monthly progress reports to NRA to ensure timely effective intervention by NRA. EMU has been both proactive and effective in bringing environmental and social issues to the table. The Malawi example has been considered good practice and the Unit is sharing its experiences with counterparts in neighboring countries. HIV/AIDS . Considerable work has been done under the project to assist the government and implementing agencies to develop appropriate workplace policies. Focal points in the Ministry and NRA were identified, trained and worked together with counterparts in other countries to exchange experiences. Through the project, the sectoral HIV/AIDS policy and strategy documents were prepared. A series of workshops were held to create awareness for the new policy guidelines. HIV/AIDS prevention strategies were mainstreamed into transport investments. Clauses for HIV/AIDS activities are now part of tender documents for major development partner funded projects and are to be included in their term maintenance contracts in the near future. Continued activities under the strategy are expected to be funded under the national MAP project.

Annex 3. Economic and Financial Analysis Economic and Financial Analysis (including assumptions in the analysis) Economic Analysis 1. This Annex is comprised of two Parts. Part I deals with the economic evaluation of the periodic maintenance and rehabilitation; and Part II with the sensitivity analysis. Part I: 2. The Economic evaluation of the periodic maintenance covers a total of 416 km, while the rehabilitation covers 16 km (see below). Approach 3. The economic analysis is based on the re-evaluation of the traffic data , operation performance, costs and benefits of the project components. The methodology used was similar to that employed by the PAD and is summarized as follows:

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(a) Capital investment and maintenance costs were revised to reflect June 30, 2006 and are included in the cost stream;

(b) The benefit streams (June 30, 2006) were included, and consist of savings in vehicle operating

costs. To be consistent with the PAD, benefits from travel time savings, reduced traffic congestion on existing roads, enhanced road safety (although major benefits have been achieved in accident reduction due to the project) are not included. The estimated ERR and NPV are therefore conservative estimates;

(c) The economic life of periodic maintenance and rehabilitation sub-projects (measured in variation

of IRI, poor to good) is respectively 6 and 15 years. 4. The economic analysis reflects the costs and benefits at end of the project economic life of the incremental investments. 5. The periodic maintenance sub-projects were open to traffic between 2001 and 2004; while the rehabilitated roads were open to traffic mainly in the 2005-06. Traffic projections 6. The normal average traffic growth is 5.2% per year. The figure for the coming several years is

assumed to be reasonable despite lower GDP growth during the period of implementation. The relatively high average traffic growth was probably due to diversion of heavy traffic and its relative high contribution to the overall benefits.

Economic costs 7. Financial VOC have been converted to economic costs excluding taxes and subsidies. Vehicle Operating Costs Estimates (Cost per Km (USD))

Vehicle class Without Project With Project Savings

Cars & Pick-up 0.27 0.16 0.11 Minibuses 0.60 0.37 0.23 Light Trucks 0.47 0.23 0.24 Buses 0.74 0.55 0.19 Medium Tracts 0.74 0.55 0.19 Heavy Trucks 1.23 0.86 0.37 Heavy Trucks Articulated 1.23 0.86 0.37

Economic Evaluation 8. The aggregate economic rate of return (ERR) of the periodic maintenance is estimated to be

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113% which is significantly better than the appraisal average estimate of 33.9 %. The Post –implementation NPV is estimated at US$72.0 million. The PAD did not estimate the NPV. The increase in traffic due to traffic divergence and the high cost of fuel has led to corresponding high savings in VOCs. As a result the resealing of the roads have led to much higher return than was estimated at appraisal. 9. The Rehabilitation sub-component has an estimated ERR of 62% and the NPV is US$ 33.7 million. The same factors - traffic divergence and high saving in VOCs due to higher fuel costs - that affected the periodic maintenance component also explains the significantly high return.

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Basic with Traffic growth

With no Traffic growth from 06 on

Periodic Maintenance component Contract #

Completed Length (km) Cost (US $)

Type of Treatment ERR NPV (US$) ERR NPV (US$)

Lilongwe -- Chinju (M12) 25/98 120 2,150,292 Periodic 184% 30,681,723 184% 27,119,161 Lambadi -- Chitsome (M1) ; Lilongwe airport road (M30), Chitsime -- Bunda (S125) 26/98 58 2,626,233 Periodic 221% 35,398,668 207% 31,242,153 Lilongwe – Salima (M14, M5) -- Grand Beach (S122) Senga Bay 30/98 88 1,994,194 Periodic 114% 11,031,181 110% 9,616,908 Salima -- Nkhotakota (M5) 27/98 106 2,375,222 Periodic 66% 7,468,233 62% 6,350,184 Mangochi -- Mbalula (M3) 28/98 1.7 112,808 Periodic 11% -3,362 7% 14,840 Liwonde -- Naminga (S131) 28/98 24.4 1,619,130 Periodic 114% 1,126,808 107% 568,798 Zomba -- Airwing Road (S143) 28/98 3.9 258,795 Periodic 4% -64543 -10% -119218 Limbe -- Chiradzulu (S146) 28/98 14 2,919,741 Periodic 26% 430625 18% 158958 Total 416 12,065,683 Total 118% 82,782,006 113% 72,016,478 Rehabilitation Component

Industrial Roads in Blantyre NRA/002/02 2.2 1,125,964 Rehab. 72% 7,229,830 70% 6,056,337

Kenyatta Drive in Blantyre NRA/001/02 4.5 1,865,384 Rehab. 55% 7,045,714 54% 5,659,435

Chilambula Road in Lilongwe NRA/003/02 3.6 2,267,233 Rehab. 62% 9,344,633 61% 9,097,874

Mahatma Gandhi & Churchill Roads in Blantyre

NRA/005/02 4.6 1,533,053 Rehab. 77% 7,598,233 74% 5,831,499

Mzimba -- Lubani Street NRA/006/02 1.4 1,067,672 Rehab. 60% 5293041 58% 4123055

Total 16.3 7,859,306 Rehab. 62% 33,718,025 61% 28494887 Grand Total 103% 114624464 96% 100511366

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Part II Risk and Sensitivity Analysis Sensitivity analysis was carried out. The base case represents average traffic growth of 5.2% during the economic life of the project which is 6 years for periodic maintenance and 15-years for rehabilitation with periodic maintenance at 6-year interval. The alternative was based on no traffic growth after 2006. Both the post-construction ERR and NPV estimates appear to be somewhat sensitive to such changes in traffic and yet robust.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/Specialty Lending Stephen Brushett Lead Transport Specialist LCSFT Team Leader Farida Khan Operations Analyst AFTTR Operational Aspects Sally Burningham Sr. Transport Specialist EASTE Infrastructure

Nina Chee Sr. Environmental Specialist

AFTS3 Environment

Subhash Seth Sr. Highway Engineer AFTTR Technical Aspects George Banjo Sr. Transport Specialist AFTTR Rural Transport

Thor Wetteland Consultant, Transport Specialist

AFTFM Technical Aspects

Ajay Kumar Sr. Transport Economist AFTTR Economist Anna Ternell Transport Economist AFTTR Economist Subhash Dingra Sr. Procurement Spec. AFTPC Procurement

Brian Facolner Financial Management Specialist

AFTFM Financial Management

Elizabeth Adu Principal Legal Counsel LEGAF Legal Supervision/ICR Stephen Brushett Lead Transport Specialist LCSTR Team Leader up to 10/03 Tawia Addo-Ashong Sr. Transport Specialist AFTTR Team Leader

Ephrem Asebe Consultant AFTU1 Economic Analysis and ICR

Farida Khan Operations Analyst AFTTR Operational Aspects Nina Chee Sr. Environmental Spec. AFTS3 Environmental Aspects Davies Bwalya Makasa Transport. Spec. AFTTR Technical Aspects Donald Herrings Mphande

Sr. Financial Management Specialist

AFTFM Financial Management

Kofi Awanyo Sr. Procurement Specialist

AFTPC Procurement

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Elias Teggai Sr. Rural Transport Specialist

AFTTR Rural Transport

Subhash C. Seth Sr. Highway Engineer AFTTR Technical Aspects/ Institutional/ Road Safety

Esther Lozo Program Assistant AFMMW Support and supervision processes

Jocelyne Do Sacramento Operations Analyst AFTTR HIV/Aids

Ntombie Z. Siwale Program Assistant AFTTR Support and supervision processes

Pascal Tegwa Sr. Procurement Specialist

AFTPC Procurement (b) Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD M)1 07/02/1999 Satisfactory Satisfactory 0.49 2 11/19/1999 Satisfactory Satisfactory 0.49 3 06/05/2000 Satisfactory Satisfactory 2.63 4* 06/28/2000 Satisfactory Unsatisfactory 2.76 5 11/29/2000 Satisfactory Satisfactory 3.67 6 05/04/2001 Satisfactory Satisfactory 6.14 7 06/27/2001 Satisfactory Satisfactory 6.14 8 12/20/2001 Satisfactory Satisfactory 10.94 9 04/26/2002 Satisfactory Satisfactory 14.42 10 08/15/2002 Satisfactory Satisfactory 15.51 11 10/01/2002 Satisfactory Satisfactory 15.78 12 04/22/2003 Satisfactory Satisfactory 15.85 13 11/05/2003 Satisfactory Satisfactory 16.38 14 02/25/2004 Satisfactory Satisfactory 16.38 15 07/31/2004 Satisfactory Satisfactory 16.74 16 11/12/2004 Satisfactory Satisfactory 18.40 17 06/15/2005 Moderately Satisfactory Satisfactory 22.84 18 07/30/2005 Moderately Satisfactory Satisfactory 23.44 19 03/14/2006 Satisfactory Satisfactory 28.33 See comment on the above table

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(c) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks

USD Thousands (including travel and

consultant costs) Lending

FY95 17.39 FY96 51.13 FY97 123.02 FY98 157.63 FY99 126.26 FY00 4 17.01 FY01 0.00 FY02 0.00 FY03 5 12.77 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00

Total: 9 505.21 Supervision/ICR

FY95 0.00 FY96 0.00 FY97 0.00 FY98 0.00 FY99 0.00 FY00 40 106.61 FY01 32 95.42 FY02 14 99.98 FY03 15 91.23 FY04 29 118.47 FY05 32 121.90 FY06 32 133.21 FY07 2.04

Total: 194 768.86

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Annex 5. Beneficiary Survey Results (if any)

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Annex 6. Stakeholder Workshop Report and Results

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

ROAD MAINTENANCE AND REHABILITATION PROJECT IDA Credit 3239

IMPLEMENTATION COMPLETION REPORT

1. INTRODUCTION

The Republic of Malawi is small agricultural and landlocked country with 118,140 Km2 land area of which 20% is water. Being a landlocked country, the government's development policies have reflected the need to develop and maintain a road network that keeps all routes to the sea including the local road network open for the ease of movement of goods and services into and out of Malawi. As a follow up to this policy the government of Malawi developed a Road maintenance and Rehabilitation Project to address issues of improving the road network by undertaking a number of periodic, rehabilitation and upgrading of main, secondary and urban roads. The project also included capacity building for the various institutions in the transport sector. In 1997/98, the Bank financed feasibility and preliminary engineering design of the project. This was followed by signing a credit agreement in 1999, of about US$30 million to fund ROMARP project activities. This Implementation Completion Report (ICR) is based on project appraisal report, project files, progress reports, mid-term review and discussions with the various stakeholders and implementing agents. This report will finally be the Borrower's contribution to the final ICR to be produced by the Bank. 2. ASSESSMENT OF DEVELOPMENT OBJECTIVES AT BEGINNING OF THE PROJECT 2.1 Original Objectives The project objectives as stated in Project Appraisal Document (PAD) were to bring about sustainable improvements in the quality of Malawi's road infrastructure, which would help economic growth and diversify the Malawian economy by reducing transport costs and improving access. This goal translated into three interrelated objectives. The project would support: (a) Strengthening and restructuring of the road sector institutional framework with a view to improving the effectiveness of sector management and enhancing planning and programming of road works; (b) Reform of road sector financing to put the funding of future road maintenance expenditure onto a firm, sustainable footing; and (c) Process of addressing the backlog of road maintenance and rehabilitation through financing of economically viable, but currently un funded, subprojects in line with implementation and financing capacity. More generally, the project was expected to contribute towards putting in place the conditions for a full sector program approach for roads.

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2.2 Revised Project Objectives The project objectives remained the same throughout the life of its implementation, but there were changes in scope that occurred which will be discussed in each component. The scope of the project was revised during the mid-term review, which took place in 2003, to include Rural Accessibility and Mobility Pilot Activity (RAMPA). 3. ORIGINAL PROJECT COMPONENTS The project components as given in the Development Credit Agreement (DCA) were as follows: Component 1. Strengthening the Road Sector Institutional Framework. 1. Strengthening the capacity of NRA, DDLGA and selected local authorities to undertake road sector activities through the provision of training, technical advisory services and the acquisition of equipment; 2. Development of financial management systems, procurement systems, monitoring and evaluation procedures and development of environmental review and management capacity in NRA, DDLGA and selected local authorities through the provision of technical advisory services and training; 3. Formulation of appropriate road sector policies, including updating the national transport policy framework, carrying out a study on vehicle operating costs, carrying out a study on reclassification of roads and carrying out an analysis of sources of revenue for Road Fund, adjustment formulae and collection and accounting procedures; 4. Development of the road sector institutional framework, including the carrying out of periodic assessments of the impact of institutional reforms, development of a medium-term framework for road sector management and options for private sector participation in contract management, through the provision of technical advisory services; 5. Development of a framework for the management and financing of rural roads, including an assessment of the institutional requirements for the management of rural roads, development of cost sharing and financing options for rural road maintenance and a rural transport needs assessment, through the provision of technical advisory services; and 6. Restructuring MOWS and MOT and the development of their capacity for regulation and policy making in the road sector through the provision of technical advisory services and training. Component 2. Development of the Construction and Consulting Industries 1. Strengthening the capacity of NCIC to develop local contractors and consultants through the provision of technical advisory services and training, and acquisition of equipment; 2. Carrying out training of local constructors and consultants, including the acquisition of equipment and refurbishment of facilities for training activities, development of training materials and curricula, and the provision of technical advisory services for training needs assessments and carrying out the training activities; and 3. Carrying out studies into the financing and equipment constraints faced by local contractors, and

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the development of options and pilot schemes to address these constraints. Component 3. Carry out Periodic Maintenance of Roads. 1. Carrying out a program of periodic maintenance of selected main, secondary, tertiary, urban and district roads, including resealing and resurfacing of paved roads and re-gravelling of gravel roads and minor spot repairs; and 2. Provision of engineering and supervision services for the above-mentioned roads. Component 4. Carry out Rehabilitation and Upgrading of Roads.

1. Carrying out a program of rehabilitation and reconstruction of main, secondary, tertiary, urban and district roads;

2. Carrying out a program of upgrading of selected main, secondary, tertiary, urban and district roads; and

3. Provision of engineering and supervision services for the above-mentioned roads. 3.1 Revised Project Components 3.1.1 Component 1 No major changes were made to the original project component. All projects planned under this component were implemented. 3.1.2 Component 2 No major changes were made to the original project component except that phase II of the refurbishment of training center has not been carried out due to non-availability of funds. 3.1.3 Component 3: Periodic Maintenance No major changes were made in the project component only that no re-gravelling of gravel roads was carried out under this component, as all the project activities were concentrated on paved roads. 3.1.4 Component 4: Rehabilitation, Upgrading and Construction of Roads Changes were made to the original project component; the project was delayed and extended twice for a number of reasons. The first was poor performance an engineering consulting firm that led to delays in finalizing the detailed engineering designs for four road projects such as the Zomba – Blantyre, Mzuzu – Nkhata Bay, Jenda – Chikangawa, and the Dwangwa – Nkhotakota. The second was the engineering estimates for the rehabilitation projects, which were over and above the initial projects estimates. This resulted in most of the main road rehabilitation projects having no funding. Moreover, the cost of design projects for the urban areas of Lilongwe and Blantyre were also way above the original cost estimates, hence a number of projects were left and only a few were selected for implementation. 3.1.5 Component 5: Rural Accessibility and Mobility Pilot Activity (RAMPA) and Capacity Building for District Assembly Technical Staff The RAMPA was conceived during the mid-term review, which took place in 2003. This activity was a recommendation of the needs assessment study for rural transport service. The aim was to institutionalize integrated rural access planning (IRAP) into the district planning system, increase mobility through access

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to intermediate means of transport and also pilot community contractors for sustainable improvement of local transport infrastructure. With respect to capacity building for Local Assemblies (LA) the main objectives were to carry out training for technical staff concerned with management of roads under the local assemblies. The Malawi Rural Travel and Transport Programme under the Ministry of Local Government and Rural Development implemented this component. 4. ASSESSMENT OF PROJECT OBJECTIVES Major developments that have taken place are: (a) Malawi rail network was concessioned in 1999 for a period of twenty years and is now managed by a private operator, the Central East African Railways Company Ltd. (CEAR): (b) the commercial activities on Lake Malawi including the provision of ship services have been concessioned in 2002; (c) private operator provides regular passenger and freight services on Lake Malawi connecting with rail at Chipoka, about 26 km south of Salima. In the road sector, the Ministries of Transport & Communications and that for Works and Supplies have been merged into one ministry of Transport and Public Works. The Roads Department had been down sized and road management services have been conferred on a commercially oriented National Roads Authority (NRA), and a Road Fund (financed by a fuel levy) has been established to fund a comprehensive road maintenance programs. These important achievements do not reduce the continued relevance of the project interventions, nor have eliminated the need to address some outstanding issues. The main sector issues led to the preparation of the project were: (a) high transport costs; (b) weak management of road sector agencies; (c) inadequate local financing for the road sector; (d) sustainability of existing road network; (e) lack of development of the local construction industry; (f) poor accessibility in rural areas; and (g) weak traffic management and lack of road safety reflect essential priorities for improvements in economic infrastructure in the roads sector in order to reduce transport costs and inefficiencies. The project supported reforms in the institutional framework for the management and financing of roads, which in turn supported the CAS objectives of improving public sector management and capacity. Commercialization of the sector management supported by the project was also critical in reducing rehabilitation and maintenance backlogs in the sector. 5. ACHIEVEMENT OF PROJECT OBJECTIVES AND OUTPUTS 5.1 Overall Assessment The Credit covenant/ conditions were reasonable and appropriate and proved valuable to the execution of the project. The success of the project itself is evidence that the credit conditions were sensible and no more additional conditions were necessary. The government had not difficulty in fulfilling the stipulated conditions for the credit to be effective. 5.2 Strengthening of road sector institutional framework. Substantial progress has been made with the effective establishment of the NRA, that has also achieved the original objective of separating operations from funding through the creation of the Road Fund Administration (RFA) separate from the Road Authority (RA) in June 2006 when parliament passed legislation creating the two organizations. Furthermore, reforms have taken place supported by the restructuring of the core ministry responsibilities for road policy and programming as well as the concrete progress made on decentralization and the reestablishment of effective capacity at urban and district level. However, there is still need for capacity building issues that need to be addressed in the various implementing agencies such as the MoTPW, MLGRD, RA, RFA, and NCIC and most especially at Local Assembly level. Road sector programming has been improved, but it is still not comprehensive at various organizational levels. However the prioritization of maintenance has been evident since the establishment of the National Roads Authority in 1997. There is now a better balance between routine maintenance, periodic maintenance, rehabilitation and construction.

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More specifically, a number of subcomponents as envisaged at planning stages have been achieved. The studies that were carried out by various consultants have addressed the various issues such as Road sector Policy development, sector institutional development i.e. reform of NRA separating funding from operations, framework for management and financing of rural roads, and establishment of a framework for policy formulation and regulation such as separation of policy formulation by MOTPW and MLGRD and management of the road network operational issues by NCIC, NRA, City Assemblies and District Assemblies. 5.3 Reform of Road Sector Financing. The National Roads Authority and a Road Fund were set up with the objectives of financing the cost of maintaining public roads, sharing in the cost of maintaining other roads, contributing to the cost of donor-funded periodic, rehabilitation and construction programmes and administering the NRA Secretariat. The main resource for the Road Fund is the fuel levy through which routine maintenance is funded. Periodic maintenance, rehabilitation and new construction are funded mainly by donors. Road maintenance has been contracted out to the private sector since 1995/96 on a road-by-road yearly contract basis. Domestic resources in the Road Fund are approaching the level at which most core network routine maintenance needs were reasonably being met between 2001 and 2003. However, in the years between 2003 and 2006 the Road Fund has been unable to meet the target revenues in US Dollar terms because of poor performance of macroeconomic fundamentals such as the exchange rates which have been unstable and have continued to deteriorate, and fuel prices on the world market that have tripled over the last three years and have reached levels beyond projections at project conception in late 1990's. Furthermore, GoM has still not approved the inclusion of other road user charges into the Road Fund. It is expected that with the further reforms that have seen the separation of functions of the NRA, that government would reconsider its decision and might increase the road levy on fuel to more acceptable levels of at least US $0.10 per liter; and also release some road user charges to be part of the Road Fund. 5.4 Support to selective Periodic Maintenance Under this programme it was intended to cover about 450 Km for resealing works for five projects that were identified during project preparation. Minor delays were experienced in starting work for periodic maintenance of the identified projects due to a number of reasons that included the relatively new NRA organization, which was in its formative years and was busy building capacity. But once the contracts were awarded in 2001 work started and was completed by end 2002. These projects included resealing works for Lilongwe – Mchinji, Lumbadzi – Chistime, Chitsime – Bunda, Linthipe – Nkhotakota, Mangochi – Mbalula, Liwonde – Naminga, Limbe – Chiradzulu, Zomba Airwing Lilongwe – Salima, and Salima – Grand Beach roads. 5.5 Support to selective Rehabilitation and Upgrading This programme was designed to limited amounts of rehabilitation of the paved road networks and also limited amounts of earth to gravel and from gravel to paved upgrading commensurate with implementation capacity, economic viability of projects and adequate financial resources. These were programmed for implementation as second year projects following the periodic maintenance projects. These projects were identified through a preliminary economic feasibility and design study financed through a Project Preparatory Facility (PPF). The projects (total of about 200 Km) were subjected to further detailed economic analysis and design during the first year. The detailed engineering designs were done by two separate consulting firms i.e. the highways of Zomba –

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Bantyre, Jenda – Chikangawa, Mzuzu – Nkhata Bay and Nkhotakota were awarded to Delcan International in association with Bua Consulting Engineers a Canadian and Malawi firm respectively, whereas the Designs for the Urban roads of Lilongwe and Blantyre including the Likuni bridge were awarded to BKS Group a South African company. The contract for designs of main selected roads conducted by Delcan International were not completed on time and a dispute arose which was finally sorted out by an international arbitrator. This lead to delays in finalizing the design work and with the passage of time financial resources originally allocated to these projects were re-allocated to other projects. Not all projects for rehabilitation of urban roads in Lilongwe and Blantyre were implemented, as the costs for the projects at design and at submission of bids were much higher than originally estimated. Furthermore, the works were delayed in completion due to a number of reasons that arose during implementation. 5.6 Rural Accessibility and Mobility Pilot Activity (RAMPA) and Capacity Building for District Assembly Technical Staff The RAMPA was a success in that it has assisted to establish a multi-sector database, which has been instrumental in improving the district planning system. Under this the GIS has been established for physical location of socio economic services. The project has also established mechanisms for increase access to intermediate means of transport (IMT) and sustainable provision of local level transport infrastructure. 6. MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME

6.1 Factors outside the control of Government or the implementing agency: Exchange rate. The project was signed in 1999 at a point when the exchange rate between the SDR and the US Dollar was SDR 1=US$1.35 (January 1, 1999). At the closure of the project the SDR had gained in value as the Dollar lost value and exchange rates were SDR 1=US$1.4613 on April 4, 2006. The original credit was worth SDR22.2 million equivalent to US$30 million, however near the end of the project the government had lost about US1.67 million dollars due to exchange losses. Thus the exchange losses contributed to the low funding levels available under the credit for project implementation. 6.2 Factors generally subject to government control: Orderly completion of civil works. The project was originally scheduled to be completed by September 2004, but was extended twice to December 2005 then to June 2006. Some projects under the credit were extended for completion from March 31, to June 30, 2006. This had been for a limited number of specific projects implemented by Fargo Limited who delayed to undertake the projects within the stipulated time periods. The other project is the Mzimba –Lali Rubani road, which is under construction by Malbro/Forita Joint Venture, was also extended from March 31, to June 30, 2006. This would lead to somewhat disorderly completion of the project as all other sub-projects will be completed on one date whereas on these two projects will be completed on a different date. This has implications with regard to maintenance liability periods and payment of retention and closure of the credit. Traffic Management and Road Safety. The government passed in 1997 a new Road Traffic Act which provided for appropriate regulation and management of road traffic, including: registration and licensing of vehicles and drivers; requirements on fitness of vehicles; road traffic signs; control of speed limits and other rules of the road. The government undertook to put in place an action plan and a pilot programme on how traffic safety might have been improved to reach Sub-Saharan African levels and later SADC levels. To this end a monitoring and evaluation system would have been established in the Ministry of Transport. It might be noted that not all the action plans and pilot road safety programmes have materialized, nevertheless speed traps and breathalyzers have been bought and were introduced for the first time on July 1, 2006.

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The government also agreed to handover the responsibility for axle load management to NRA. The transfer was to take place by December 2000. Management of axle load control eventually was transferred to NRA on October 1, 2003. How ever, with the separation of functions whose acts were passed in May 2006, the management of axle load control is planned to be handed over back to Road Traffic Directorate contrary to the agreed principle under the project. 6.3 Factors generally subject to control of implementing agency Assumptions for traffic forecast studies. The feasibility study made very optimistic traffic forecasts especially for the roads plying rural areas. Traffic counts conducted in April 2006 have revealed that in general traffic growth in rural areas has in fact gone down in most cases due to poor economic performance. However, the economic evaluation results are still very good and are over and above those worked out during the feasibility stage. The main cause of this apparent contraction is due to changes in the composition of traffic that has seen a rise in the number of heavy vehicles using the public road network. VOC's savings from heavy vehicles are much larger compared to those of lighter vehicles, hence the increase in the EIRR for economic evaluation after project completion. On the other hand traffic on urban roads has grown much more than was predicted at feasibility stage. Even though the macroeconomic environment has been less ideal, vehicle population and the number of trips made within urban areas has increased tremendously. This has lead to increase EIRR's for urban roads that have been rehabilitated under the project. Project selection criteria. One of the objectives was for the NRA to establish a basis for appropriate project selection criteria as well as road design specifications and maintenance standards are used to ensure scarce financial resources are applied to the highest priority projects. Priorities would be established on the basis of economic rates of return for main and secondary roads and for other high traffic volume roads; and a multi-criteria analysis for district and other low volume roads. The acquisition of HDM IV and other analytical tools for evaluation of alternatives for road rehabilitation and maintenance, training of staff in the use of tools would be done. A system of carrying out regular road inspections and traffic surveys for data input and eventual development/ adoption of road and bridge management system would be established. The NRA and government have carried out some of these requirements and are partially using them for the management of roads. However, very few copies of HDM IV have been purchased and very little training in its use and other tools has been done, hence there is great need for intensive training in use of HDM IV, which would also need to be calibrated for Malawi. The establishment of a Road and Bridge management tool is under way and making some progress. Under the RAMPA the IRAP was used for selection and prioritization of low volume roads however, it is not an appropriate tool. 6.4 Costs and Financing

The estimated cost of the project at appraisal was US$30 million, comprising a total baseline cost of US$26.1 million, a physical contingency of US$2.0 million and price contingency of US$1.9 million. However, at project completion the cost of the project had deteriorated by US$1.67 million because of foreign exchange losses due to the weak US Dollar (Appraisal (October 1999) SDR1=US$1.35 and SDR1.00=US$1.45 at completion (April 2006). This meant that the project lost almost all its price contingency due to low Dollar value in the intervening period. Furthermore, prices quoted for works were much higher than those envisaged at feasibility, which resulted in a number of projects, being left out mainly those for rehabilitation and upgrading.

7. SUSTAINABILITY

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The completion of the project and its sub-projects has lead to improved road condition for the main road network and most especially for urban areas where problems of congestion of traffic have been relieved and had improved the efficiency of road transport system. The outputs of the project are likely to be sustainable on the following grounds:

1. The economic re-evaluation has demonstrated the robustness of the economic returns which are much higher than at appraisal stages;

2. At institutional level the Ministry of Transport and Public Works has been formed out of the

former Ministries of Transport & Communications and Works & Supplies; making it more efficient in dealing will issues on transport;

3. All implementation issues for road maintenance, rehabilitation and upgrading have been transferred

from the Roads Department to the National Roads Authority. The Ministry of transport and Public works is now left with policy formulation, enforcement of standards and overall supervision of NRA activities;

4. The NRA Board have taken over implementation of road programmes and is much more efficient

than the former Roads Department because its management decisions are made easily taking into account commercial and financial effectiveness and accountability;

5. The establishment of the Road Fund has assured the NRA of dedicated funds for road maintenance

and rehabilitation;

6. The operations of the NRA Board are taken by road users who also decide on the use of funds for road programmes, thereby enhancing effectiveness in management of road programmes;

7. The local construction industry is also on a right footing and has somewhat improved and expanded

in order to meet the needs of the construction industry; and

8. Activities under RAMPA will be sustained at local assembly level through the Decentralization program, which is under way.

8. BANK AND BORROWER PERFORMANCE

8.1. BANK 8.1.1. Lending

Identification of the project was satisfactory. The project team focused on relevance, making sure that the project objectives were in line with the Bank's Country Assistance Strategy and met the Government's priorities.

Bank assistance to project preparation was highly satisfactory. The Bank assigned a highly qualified team with appropriate skill mix in the areas of engineering, planning, highway maintenance, institutional development and training, contributing to the soundness of the design. Performance at appraisal was satisfactory, with focus on clarification of outcomes and agreement on performance indicators. Special attention was paid on identifying and assessing key risks such as implementation delays, counterpart funding and institutional capacity to deal with fiduciary and safeguard

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aspects. Reviews of technical designs by international consultants were undertaken, and implementation arrangements were duly refined.

8.1.2. Supervision

Bank performance in supervision was overall satisfactory. The quality of supervision was also satisfactory and highlighted the good approach in the identification of problems and the constructive advice offered to the borrower.

Over the life of the project two task team managers were assigned on supervision of the project. There was adequate overlap and no major issues arose due to lack of continuity. Key contributions from the Bank supervision team were in the areas of promoting quality of civil works, attention to proper operation and maintenance of completed infrastructure, staff training, and critical review of studies that significantly enhanced the transfer of knowledge and capacity building.

8.1.3. Overall Performance

Overall the Bank's performance was satisfactory. The assistance provided by the Bank ensured quality at entry, supported implementation through responsive supervision, and ensured adequate transition arrangements for regular operation of the project. 8.2. BORROWER

8.2.1. Preparation

Borrower commitment was satisfactory. It assigned a dedicated team to prepare the project, with experience gained from involvement from previous projects. At an early stage of the project it submitted feasibility studies to the Bank, allowing for ample time to discuss and refine the designs. As a result, the project was ready for implementation within the stipulated three months after Board approval.

8.2.2. Government Implementation Performance

Government performance was overall satisfactory. The government was also supportive of the institutional development objectives that have seen the establishment and growth of the NCIC and the NRA. The government also urged the two institutions to work together by improving their coordination for better attainment of their objectives of improving the performance of contractors and consultants in the management of road programmes.

8.2.3. Implementing Agency

At appraisal the Government through the Ministry of Works was both the implementing and policy formulating agency. The NRA, which was created in 1997, was still in the process of building up capacity to take over the implementation of road programmes from the Roads Department. At project completion the NRA was fully established and had effectively taken over all responsibilities for the management of the public road network. In addition to managing urban and district roads, the NRA also support capacity building at local assembly level for eventual devolution of the management of urban and district roads to local assemblies.

The performance of the NRA and NCIC was satisfactory. Management of the project was flexible and relatively quick to adapt to new conditions and take appropriate measures. With regard to the implementation of periodic maintenance, rehabilitation and upgrading, it was indeed the commitment of the

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NRA that this component became a success story with lasting effects.

8.2.4. Overall Borrower Performance Overall borrower performance may be rated as satisfactory. The borrower assumed ownership and responsibility to ensure quality of preparation and implementation, and complied overall with covenants and agreements. It demonstrated commitment towards the achievement of all development objectives and sustainability.

9. PERFORMANCE OF CONTRACTORS AND CONSULTING FIRMS 9.1 Contractors

The ROMARP was procured using both ICB and NCB. Most contractors performed their duties to the satisfaction of the donor and the borrower. However, some contractors did not perform to the satisfaction of the clients; which led to a number of problems including delayed completion and cost escalation of the particular projects. 9.2 Suppliers

The performance of suppliers was satisfactory. Most of the suppliers performed to the satisfaction of the clients. 9.3 Consulting Firms Most of the consulting firms performed their duties satisfactory. However, one International Consultant who was responsible for detailed designs and preparation of tender documents for rehabilitation and upgrading of some selected main roads did not perform to the satisfaction of the client. This contributed to the delays in implementation of road rehabilitation and upgrading component. 10. LESSONS LEARNT

Highlighted below are some of the lessons and observation that the project implementation team encountered: 1. Strong and effective institutional coordination is paramount for the successful execution of complex projects like ROMARP; 2. The project has demonstrated the need, in future for the appointment of a project coordinator in each of the implementing agencies for better coordination of similar projects; 3. During implementation, it appears that the Bank was cooperative in agreeing to the changes in the project. While a cordial relationship is welcome, the lesson being that the Bank should adopt this flexibility in appropriate circumstances; 4. For future project, as far as possible consider retaining the same consultant who carried out the detailed designs to continue with supervision of works, in order to avoid additional costs and delays in project completion; 5. Inadequate institutional capacity for the review of designs and monitoring of the project during the

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implementation resulted in cost over-runs. This highlights the need for capacity building in implementing agencies; 6. For continued planning purposes, there is need to commit and conduct on an annual basis collection of road data such as road condition data and national traffic counts for efficient road planning and project evaluation; 7. At appraisal the project had very ambitious plans to carry out a number of project activities, but the project did not secure adequate funding for all project activities. In future it would be prudent to ensure that all projects identified at appraisal secure adequate funding for implementation; and 8. The RAMPA assisted establishing a multi-sector data base which improved on the district planning system and develop methodologies for provision of rural transport services.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

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Annex 9. List of Supporting Documents Economic and Technical Feasibility Study of the Road Maintenance and Rehabilitation Program Mission terms of reference, Aide-Memoires and Back-to-Office reports. Project Appraisal Document Legal Documents and Amendments Project Implementation Plan Project Status Reports (PSRs)/Implementation Status Reports (ISRs). Aide-Memoires of supervision missions. Progress Reports Mid Term Review Report