Public Disclosure Authorized

Report No.

Project Name

Papua New Guinea-RD MAINT/REHAB.

Region

East Asia and Pacific Region

Sector

Highways

Project ID

PGPE4397

Borrower(s)

GOVERNMENT OF PNG

PID705

Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

Implementing Agency Address DEPARTMENT OF WORKS AND IMPLEMENTATION P.O. Box 1108 Boroko, New Capital District Papua New Guinea Telephone: + 675 324 1190 Fax: + 675 324 1264 Environment Category

B

Date PID Prepared

April 16,

Projected Appraisal Date

May 23,

Projected Board Date

June 26,

2001

2001 2001

1. Country and Sector Background Country Background. PNG is endowed with a rich natural resource base, including major gold and copper deposits, large oil and natural gas reserves, extensive forests and maritime fisheries. Although PNG is classified as a middle income country (per capita income approximately US $1,000 per annum), it has a dualistic economy in which capital-intensive enclave oil, mineral, and forestry sectors dominate, but about 85 percent of the population derive their livelihood from agriculture, mainly low-productivity, labor intensive farming and tree crops, and have barely been affected by developments in the rest of the economy. Economic growth has been uneven over the past two decades, driven by fluctuations in primary exports.2. Following the unprecedented financial crisis Papua New Guinea's economy experienced in 1994, the Government set in place, with assistance from the World bank, the International Monetary Fund and other donors, an Economic Recovery Program designed to: (a) restore and maintain a stable economic environment by sharply lowering fiscal deficits and improving fiscal management, including public expenditure management and budgeting procedures, to enhance the efficiency and accountability in the use of public resources; (b) implement a broad array of policy and institutional reforms to enhance PNG's competitiveness and restore business confidence, and thus bring about a recovery in private investment, especially in the non-mining sectors; (c) move commercial exploitation and development of the forestry sector onto a sustainable basis, while improving the equity situation of local communities and enhancing government revenues; (d) substantially improve public service delivery through a fundamental restructuring of public expenditures and increasing private sector participation in delivery of services, and increase public investment. 3. Substantial progress has been made on the economic front and, for the period 1997-2002, the Government's Medium-Term Development Strategy seeks, in particular, to: a) adhere to, and in some aspects, strengthen the policies begun under the Structural Adjustment

Program; b) target expenditures on priority areas including i) primary health and education; ii) maintenance of infrastructure; iii) private sector growth; and iv) improving peace and order; b) tighten the review criteria of public sector investment projects; c) enhance government revenues; d) clarify and rationalize the respective roles of government, communities and the private sector; and e) carrying through of provincial reforms to decentralize delivery of public services.4. Sector Background. Road transport plays a strategic role in national development. It is the dominant mode for freight and passengers. However, rugged terrain, a dispersed pattern of settlement and a lack of effective infrastructure, impose substantial constraints on development.5. The road sector suffers from weak institutional structures and performance; inadequate funding for crucial functions; land acquisition difficulties; law and order problems; a small private contractor base; and limited private sector and community participation. These circumstances have, in the past, militated against opportunities for cost savings. Whilst legitimate, the desire to expand and interconnect the road networks with new road construction has caused serious misallocation of resources between road maintenance and road investment. This imbalance needs to be redressed if the existing network is to be preserved.6. Although public expenditure levels in the recent past have been high, especially on public sector wages and salaries, social and physical capital has been seriously neglected. Not only has public expenditure been directed away from capital investment but, within recurrent expenditure, allocations to preserve valuable assets (i.e., maintenance) have been decreased. This neglect has been acute for basic road maintenance such that, overall, only 27 percent of the existing road system (national and provincial), is now in good condition and about 15 percent of the Country's 2,000 bridges on the national and provincial network require urgent rehabilitation or maintenance.7. Road maintenance responsibilities are now divided into a three-layer structure including the national Department of Transport and Civil Aviation (DoTCA), the national Department of Works and Implementation (DoWI) and provincial and local level administrations. A total of 86 local administrative units are already reported to be in place. A large proportion of infrastructure maintenance and construction activity that used to be implemented by the DoWI was transferred to provincial administrations. As a result DoWI lost technical staff. PNG nationals with technical qualifications are still in short supply and only a limited number of technical posts are still being held by expatriates engaged on short term (2-3 year) contracts. DoWI has become less effective in what it does - a problem that is compounded by the high turnover of staff in key positions and continuing lack of effective communication and systematic support between DoWI head office and its provincial offices. Most provincial administrations also lack adequately experienced management and technical staff to manage infrastructure maintenance. The lack of capacity and appropriate skills, as well as a fragmented and duplicative administrative framework results in high overhead costs. Greater consolidation of operations at the provincial level would improve results on the ground by using the limited resources deployed more effectively. 2. Objectives 8. The primary goal of the proposed project is to help address the immediate need to stem the serious decline in road conditions in several selected provinces that cover a significant proportion of the

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overall road network. The key objectives of the project are therefore, to: a) restore satisfactory physical condition and safety to parts of the network of national and provincial roads and bridges in selected provinces, based on priority needs;b) strengthen strategic planning and management of road sector assets;c) strengthen institutional arrangements for road maintenance, including through an expanding provincial government role in line with the Government's decentralization policy and the New Organic Law; andd) increase private sector contracting of road maintenance works, including through the strengthening of small and medium-sized contractors and participation by village communities. 3. Rationale for Bank's Involvement 9. In addition to helping preserve roads and bridges in the six project provinces, Bank support for this project will help establish a number of key building blocks for effective planning and management of the road transport sector. These include:a) institutionalizing RAMS at DoWI and Provincial Administrations by requiring that it be used to develop annual work programs and budgets; b) improving the BIBMS and completing the bridge inventory and condition assessment studies and making these the basis for expenditure policy and programs for bridge maintenance and replacement; c) clarifying functional responsibilities in DoWI and merging road maintenance activities with counterpart works offices in provincial administrations in response to the newly transferred road maintenance responsibilities; d) strengthening the contracting industry including small and medium-sized contractors that the Government considers to be of crucial importance in reducing road maintenance costs and in facilitating decentralized road maintenance operations.e) increasing awareness of road agencies of the environmental and social aspects of roads and bridges through establishment of an environmental unit at DoWI, development of an environmental management and monitoring plan and a policy framework for land acquisition and resettlement, training pertinent personnel at the central and provincial levels and conduct of studies regarding social impacts of road projects.f) introduction of consultation with the affected people as an integral part of the process of road planning, design and construction. 4. Description 10. The project consists of a four-year portion of the Government's road maintenance and rehabilitation program in the six provinces of Central, East New Britain, Manus, Morobe, Oro, and West New Britain. It includes: a) Maintenance and restoration of national roads: which involves annual routine maintenance of about 2240 km and restoration of about 600 km of national roads.

b) Maintenance and restoration of provincial roads: this includes annual routine maintenance of about 915 km and restoration of about 100 km of provincial roads. c) Maintenance and rehabilitation and replacement of bridges: this consists of maintenance and rehabilitation of about 50 bridges, replacement of about 18 bridges, and purchase of a stock of Bailey-type bridge sections to meet emergency needs in maintaining passability on key routes.

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d) Implementation support, including, EPM/PEPM: this includes (i) services of an employer's project manager at the center (EPM) and the provinces (PEPM) to help manage the project and supervise construction works; (ii) engineering investigations, designs and bid documents for roads and bridge sub-projects; (iii) incremental supervision to be provided by DoWI; and (iv) provision of laboratory equipment, traffic counting and weighing equipment and environmental monitoring equipment to provide up-to-date traffic volume data as well as data on vehicle weights and overloading, and help monitor the provisions of the project's Environmental Management and Monitoring Plan. e) Road sector support: this component consists of consulting service for: (i) strengthening of small and medium-sized contractors for road and bridge maintenance operation; (ii) institutional strengthening of DoWI (Headquarters and Provincial level) and provincial administrations for road maintenance; (iii) updating and improving the bridge inventory and bridge management system (BIBMS) to make it a useful management tool for DoWI; and (iv) carrying out a study of the socio-economic impacts of roads and bridges under the proposed project.

5. Financing Total ( US$m) Total Project Cost 63.0 11. The total project cost is estimated at US $ 63.0 million, excluding taxes and duties of about $ 6.3 million. No land acquisition costs are foreseen. The proposed bank loan of US $40.0 million will finance about 64 W of the total project costs. Counterpart funds totalling K97.4 million (equivalent to about US $ 29.3 million including $ 6.3 million in taxes and duties)would be provided by the National Government and the participating six provincial governments. However, the share of the provincial governments has not yet been finalized. 6. Implementation 12. Institutional Arrangements. Almost 85 percent of maintenance and rehabilitation works under the project relate to national roads and bridges for which DoWI is presently responsible. DoWI will, therefore, be the lead agency for the project overall and for national roads. Provincial governments will be directly responsible for deciding on restoration works on provincial roads under the project. DoWI will also be responsible for the purchase of parts for emergency bridges and environmental, monitoring equipment, as well as for training activities, development of BIBMS system, carrying out of study of social impacts of road and bridge sub-projects and strengthening of small and medium-sized contractors.13. Employer's Project Manager. However, based on lessons learned in previous projects, recognizing the declining management capacity in DoWI, and in order to minimize implementation problems, the DoWI has contracted a professional project management team with qualifications and experience satisfactory to the Bank - an Employer's Project Manager (EPM) - to provide key management support services throughout implementation. A similar arrangement has functioned effectively under the Gazelle Restoration Program and the approach is consistent with the Government's - 4 -

policy to increase the private sector role in the delivery of infrastructure services. To ensure satisfactory implementation on the ground for both national and provincial roads, a field presence - a provincial EPM (PEPM) - will be provided in all six provinces except Manus (with a relatively small works program) which will be covered by the PEPM in East New Britain.14. The EPM/PEPM would be responsible for: (a) assistance in preparation of the annual work programs and preparation of cash-flow requirements; (b) timely execution of procurement and implementation of the project, including recommendations on the selection of design and supervising engineers, preparation and issue of bidding documents, bidding, bid evaluation and recommendations for award of contracts; (c) implementing financial control system for project-related expenditures; (d) ensuring that reports and project audits are submitted on a timely basis; (e) project monitoring; and (f) on-the job-training for DoWI and provincial works staff. Investigations, design, preparation of tender documents and assistance in supervision of road and bridge works will be provided by national consultants responsible to the DoWI through the EPM/PEPMs.15. Even so, responsibility for key decisions will be retained by the DoWI and participating provincial governments. In particular, the DoWI and provincial governments will, in consultation with the EPM/PEPM, identify priority works for inclusion in the annual maintenance program for national and provincial roads respectively. Subsequently, DoWI will review and approve the annual maintenance program on national roads and will submit an annual budget. The Department of National Planning and Monitoring would assist in ensuring adequate annual funding through the development budget for the project and for the Government's overall road maintenance program, in line with MTDS targets. 16. Implementation Arrangements. The project will be implemented through five annual work programs (AWP): 2001-2005. The first for 2001 would cover the second half of the year and the last for 2005 would cover the first half of that year. Preparation of the AWPs would be tied to the planning and budgeting cycle of PNG. The AWPs would be reviewed annually and approved by the Bank.17. Implementation Period. The project is expected to be implemented over a 4.5 year period, from July 2001 to December 2005. The loan is expected to close on June 30, 2006. 7. Sustainability 18. Sustainability of road restoration achieved under the RMRP is dependent on the level and stability of Government funding of road maintenance in the years following completion of the project. While the Government's MTDS recognizes the need to restore existing infrastructure and maintain it, the financial resources required for road maintenance have not been provided in the past. More visible new construction projects could continue to "crowd out" needed expenditures on maintenance and undercut the sustainability of the effort. For this reason, an annual program review by the Bank of each annual work program will be timed to synchronize with the annual budget preparation cycle to ensure sufficient road maintenance funding for the following year. To help resolve this problem, the Government is giving serious consideration to establishing a road fund to be run along commercial lines- independent board of directors with majority representation from the private sector and a strong relationship between fee paid and service received. It is likely that such a fund might be established in 2002/2003. The Government's enthusiasm was based on a workshop on reform of road management and finance held in Port - 5 -

Moresby during February 28-29, 2000 with strong support from the Bank and other donors and follow-up technical assistance funded by the Asian Development Bank to increase cost recovery in the road sector and to establish a road fund. 19. Similarly, sustainability of the capacity building in DoWI is dependent on support from the Government, which to date has been volatile. Senior staff in the department, including the Secretary, change frequently, particularly when a new Minister is appointed. This means that institutional knowledge is rapidly lost. The number of donor projects currently active coupled with the rundown of staffing in the DoWI has produced difficulties for the department in providing appropriate counterpart staff. 20. The Government has implemented measures to reduce the complex and lengthy administrative, budgetary and project review procedures that caused serious delays and cost overruns on earlier projects. To minimize funding problems, procurement actions and implementation delays for the RMRP, the Government proposes to fund the project through the more secure Development Budget. Further, it has agreed to establish a Trust Fund to consolidate government financing for the project and to deposit its share in that fund. Moreover, the government has already retained the services of a professional project management team (EPM/PEPM) with proven experience. Whilst risks remain and are rated as "medium", taken together, the policy decisions and measures noted above demonstrate government commitment to the sector and the project. 8. Lessons learned from past operations in the country/sector 21. Experience with past Bank-financed highway/transports project in PNG shows that implementation of physical components is generally satisfactory to marginally satisfactory but sustainability is uncertain to unsatisfactory. Many projects suffered from poor contractor performance and deficient supervision by consultants, persistent land acquisition and security problems and disputes over rights-of-way (common for all projects involving new construction or major widening of existing roads), high cost overruns, and longer than planned implementation periods. OED reports on evaluation of road and highway projects in PNG have indicated low rates of return (mainly due to less than forecasted traffic volumes and cost overruns), poor prospects for sustainability (particularly for road construction and improvements, partly because of lack of adequate maintenance), and institutional weaknesses , particularly with implementation agencies at the national and provincial levels. 22. The proposed Road Maintenance and Rehabilitation Project addresses the above issues by:a) seeking agreement on annual funding targets for the Government's overall road maintenance program as well as for the project;b) contracting a professional project management team (EPM/ PEPM);c) providing institutional strengthening to road maintenance operations;d) strengthening small and medium-sized contractors and generally increasing the role of the private sector in the design, construction, supervision, and maintenance of roads;e) preparation of the designs and bid documents in the case of works and the request for proposal, including the terms of reference, in the case of consulting services for the first year annual work program prior to loan negotiations. This process will be repeated for succeeding annual work programs. This would help reduce delays as well as cost overruns; and f) the project does not include sub-projects which will require land acquisition. In addition, some of the routine maintenance will be contracted to village groups and contractors will be encouraged to hire - 6 -

local labor. Further, a community consultation framework has been devised whereby Papua New Guinea Volunteers (NGO) will work with the PEPMs at the sub-project level. Those volunteers would establish channels of communication and disseminate information to affected landowners/communities and help reduce social conflict surrounding implementation of the project. 9. Program of Targeted Intervention

(PTI)

N

23. The project supports five of the Bank's program objectives categories: economic management and productivity (40 percent); participation (10 percent) and poverty reduction (30 percent); private sector development (20 percent). Training is also being provided in assessment of environmental and social issues of road transport projects will also help ensure environmentally sustainable development. The improved passability which results will improve access for poor rural villagers to markets and basic public services. Their participation in routine maintenance works will enhance incomes in these villages, particularly for women and youth, as well as the sustainability of road maintenance operations. 10.

Environment Aspects (including any public consultation) Issues : 24. The RMRP is predominantly concerned with maintenance and rehabilitation of existing roads within the existing right-of-way. Therefore the environmental impact of the project is expected to be minor and limited mainly to the effects of exploitation for road aggregates and dust and noise and contamination of waterways or gardens from construction activities. No significant land acquisition and no resettlement is foreseen. Consequently, the project is classified as category "B" for the purposes of the requirements of Operational Directive OP 4.01.25. A Sectoral Environmental Assessment (SEA) and an Environmental Management and Monitoring Plan (EMMP) was prepared in 1997 using Danish Trust Funds to fulfill the environmental requirements of both the Bank and PNG's Environmental Planning Act of 1978 and the Office of Environment and Conservation (OEC) environmental guidelines for roads and bridges. The SEA and EMMP were approved by OEC and were found satisfactory to the Bank. However, due to the delay in processing of the loan for this project and consequent changes in the civil works included under the project as well as changes in the requirements of the Bank regarding safeguard policies, the SEA and EMMP were revised using AusAID funds during December 2000- February 2001.26. The environmental assessment was carried out by using a simple environmental screening methodology to identify any sub-projects with significant impacts requiring full Environmental Impact Assessment (EIA). No sub-projects were identified as requiring a full EIA. In the event that any new alignments are required, which could have more serious environmental implications, (but would occur only if a road washes out or is completely destroyed by earthquake, volcanic eruptions, or land slides), the work would be accompanied by specific environmental and social assessments of such acquisitions, together with strategies to mitigate any possible adverse impacts. Such assessments would be reviewed by the Bank. For the sub-projects which do not require a full EIA, the EMMP identifies the key activities to be implemented under the various types of work, lists the expected impacts from each of those activities, and recommends environmental mitigation measures to reduce these impacts. Most of those - 7 -

measures consist of good construction practices which can be reflected in the bid documents. 27. Though no serious environmental or resettlement issues relating to the project are foreseen, the project will require access to extract local road aggregate from quarries and rivers. The present government procedures to obtain access to local road repair materials through negotiation with villagers and payment for the gravel extracted are considered satisfactory. While the ease of access may vary from place to place, it is normally unproblematic except in cases where the land in question is disputed by different groups, in which case materials are brought to the site from other quarry sites where arrangements are agreed. However, despite the above, land acquisition even in small quantities, is the single most important social issue to be addressed by the project.28. A novel community consultation framework was devised to help reduce the impact of problems related to land acquisition. The framework would be implemented by Papua New Guinea Volunteers- PNGVs (NGO) working with the PEPMs at the sub-project level in each of the six provinces. The PNGVs would for each sub-project notify the public of the intent to commence with the sub-project and the name of the contact person within DoWI or the provincial offices or the Department of Lands responsible for the sub-project. This person will maintain involvement through-out the life of the sub-project and be available for discussions with the local people. The PNGVs would try to resolve land disputes and compensation using tribal traditional means. If they do not succeed the formal channels can be followed. 29. Monitoring. The PEPMs, as a part of their assignment, would supervise the works from an environmental point of view to ensure compliance and would report on environmental issues in the progress reports they are required to submit to the Bank and DoWI. Further, the DoWI has established an environmental unit and will assign a qualified environmentalist to it, acceptable to the Bank, to provide oversight, coordination, and monitoring of environmental and social issues related to the project. The Bank, through its supervision missions, would also monitor the impact of the project on the environment including land and social issues. Moreover, the social and economic impacts of the project will be assessed through a study to be carried out by consultants as a part of the project. 11.

Contact Point: Task Manager Hatim M. Hajj The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202)458-4037 Fax: (202)522-3573

12.

For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop

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Note: This is information on an evolving project. not be necessarily included in the final project.

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Certain components may