Document of

The World Bank IFOR OFFICIAL USE ONLY

Report No. 2838a-PNG

PAPUA NEW GUINEA

STAFF APPRAISAL REPORT

THIRD HIGHWAY PROJECT

April 24, 1980

Transportation DivisionProjects DepartmentEast Asia and Pacific Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Papua New Guinea Kina (K)

US$1.00 = K 0.71

K 1.00 = US$1.41K 1 million = US$1,410,000

ABBREVIATIONS

AADT - Annual Average Daily TrafficAWM - Area Works ManagerBPC - Budget Priority CommitteeDTCA - Department of Transport and Civil AviationDTWS - Department of Transport, Works and SupplyDWS - Department of Works and SupplyERR - Economic Rate of ReturnNEC - National Executive CouncilNPC - National Planning CommitteeNPEP - National Public Expenditures PlanNPO - National Planning OfficePNGHB - Papua New Guinea Harbours BoardPWM - Provincial Works ManagerPMV - Public Motor Vehicle

VOC - Vehicle Operating CostsUNDP - United Nations Development Programme

WEIGHTS AND MEASURES

Metric British/US Equivalent

1 meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 mile (mi)1 square kilometer (km2) = 0.386 square mile (sq mi)1 kilogram (kg) = 2.205 pounds (lbs)1 metric ton (m ton) = 2,204 lbs or 1.102 US short ton (sh ton)

FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLYPAPUA NEW GUINEA

STAFF APPRAISAL REPORT OF A THIRD HIGHWAY PROJECT

Table of Contents

Page No.

I. TRANSPORT SECTOR

A, Geographic, Demographic and EconomicBackground * 9 9 9 9 9 9 I 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 1

B. The Transport System . . . . . . . . . . . . . . . . . . . 3C. Transport Administration . . . . . . . . . . . . . . . . 7 . . 7D. Transport Planning and Coordination ..T . . . . . . . . . . 17

2. HIGHWAYS

A. The Network. 9 ....... *..***. . . 15B. Traffici. . . . . . . . . . . . 10C. Highway Administration, Staff and Training...... .. .. .13D. Highway Planning . . . . . .. . . . . . . . . . . 15E. Financing. . .. . . .*o . .. . . . a . . 16F. Enginieering .. . . .. . ... ..* ... 0.#. 1

G. Construction . . . . . . . .. . . . . . . . 17He Maintenance. . . . . .. .. . . . . . . . . . . . 19I. Previous IDA/Bank Financed Projects. . . . . . .* . 20

3. THE PROJECT

A. Description. . . . . . . . . . . . . . . . . . . . . . . . . . 22B. Cost Estimates and Foreign Exchange Component. . . . . . . . . 25C. Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . 27D. Implementation, Procurement and Environmental Aspects . . 28E. Disbursements . 9 . . . . . . * . . . . * . * 29

4. ECONOMIC EVALUATION

A. General. . . . . . . . . . . 29B. Development Potential and Traffic . 30C. Benefits of the Project .o. . . ...... .. .. .. .. . 33

5. AGREEMENTS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . 35

This Report was prepared by Messrs. R. Rafloski (Economist), G. Trnka(Engineer), E. H. Chittleburgh (Training Advisor) and edited by ChristineMorgan.

Tbe document ha a muicted distributon and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authoriation.

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ANNEXES

1. Description of Highlands Highway2. Technical Assistance for Maintenance: Outline Terms of Reference3. Technical Assistance to Provincial Governments for Rural

Transport: Outline Terms of Reference4. Project Related Documents and Data Available in the Project File

TABLES

1. Vehicle Fleet2. Road Transport Statistics by Provinces3. PNG Harbours Board Administered Ports4. Volume of Major Exports5. New Transportation Projects Proposed in NPEP6. Expenditures on Roads7. Central Government Expenditure by Function8. Road Infrastructure - Composition of Expenditure and Revenue9. Design Standards for Rural Roads10. Estimated Cost of Project11. Project Implementation Schedule12. Schedule of Estimated Disbursements13. Traffic Projections on the Highlands Highway14. Vehicle Operating Cost on the Highlands Highway (Unpaved road)15. Vehicle Operating Costs on the Highlands highway (Paved Road)16. Net Benefit and Cost Flows17. Sensitivity Analysis of Costs and Benefits on Economic Rate of Return

CHARTS

1. World Bank 21086 - Organization of the Department of Transport and CivilAviation

2. World Bank 21018 - Organization of the Department of Works and Supply

MAP

IBRD 11428R2

1. TRANSPORT SECTOR

A. Geographic, Demographic and Economic Background

1.01 Panua New Guinea (PNG) is an island country located in the tropicsabout 100 miles to the north of Australia. It comprises the eastern half ofthe island of New Guinea (the mainland) and some 600 smaller islands ofwhich about half a dozen are of major importance. PNG has a land area ofabout 462,000 sq km (about the size of Spain) spread over some 2,000,000 sqkm of the Western Pacific Ocean. Both the mainland (comprising about 85% ofthe land area) and the major islands are dominated by massive mountains.The central mountain range of the mainland, which forms a complete dividebetween north and south, is not a single chain but a complex system ofranges separated by broad upland valleys. These valleys, with altitudes of5,000-10,000 feet, form the Central Highlands./l The foothill zones havebecome deeply cut by river systems resulting in an intensely ruggedtopography. Volcanic areas of the mainland, which are limited to relativelysmall zones, have also produced difficult formations.

1.02 In addition to limitations imposed by the mountains, extensiveswamps cover large areas. On the southwest coast of the mainland, the greatdelta plain of the Daru coast is one of the most extensive swamps in theworld. There are also large swamps on the northwest coast. From themountains of the hinterland, the river systems carry heavy loads of alluviumwith which they are building their deltas. There are extensive mangrove andnipa palm swamps at the mouths of most of the rivers. In addition, thelarge Sepik and Ramu Rivers flow for hundreds of miles through extensiveriverine swamps of sago, bamboo and forest. Scattered settlements are foundin the swamplands but the numbers are small.

1.03 The main consequence of the rough, broken topography and theswamps is to make a very large proportion of the land virtually unusable foragriculture and forestry. These topographic conditions, the extensiveswamps and the numerous islands have created small pockets of widelydispersed population centers, often difficult to access. These featuresexplain the extremely high cost of providing transport facilities to manyparts of the country, and the high cost of their maintenance. Over 40% ofPNG's population of approximately 2.9 million is concentrated in the CentralHighlands and less than 15% of the total population is urban./2 Althoughthe Government has instituted a program of localization expatriates, whoform about 1% of the population, still play a vital role in technical,administrative and business functions.

/1 Comprising the provinces of Eastern Highlands, Western Highlands,Southern Highlands, Enga and Chimbu.

/2 Urban Center populations (1977) are: Port Moresby 105,900; Lae 62,500;Rabaul 33,200; Madang 21,500; Wewak 20,500; Kieta-Arawa-Panguna 19,700;Mt. Hagen 14,900, and Goroka 12,500.

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1.04 PNG's economy is characterized by relatively small employment in

the modern monetary sector; the majority of the productive population is

engaged in the traditional, largely subsistence, agricultural sector. The

modern sector, dominated by a large open-pit copper mine on Bougainville,and the expatriate community, which predominates in the government sector

and a variety of small manufacturing and service establishments, contributes

about 70% of GDP. Agriculture, forestry and fishing which employ 85% of the

labor force, provide the remainder, with over half of the sectoral output

coming from subsistence agriculture. Cash agriculture is growing fairly

rapidly, with production concentrated in three crops (coffee, cocoa and

copra) for export:

MAJOR EXPORTS

Annualgrowth

FY68 FY71 FY74 FY77 FY68-77…(K Million) --------- %

Copper - - 311.9 191.4 -

Coffee 14.3 20.6 28.8 132.6 28.0

Cocoa 11.8 13.6 23.3 55.1 18.7

Copra /a 21.3 22.9 38.4 32.6 4.9

Timber 4.9 8.9 20.3 21.9 18.1

Total exports /b 59.1 77.4 459.3 484.5 26.0

/a Includes copra oil and oil pellets.

/b Including other exports such as fish, palm oil, tea, rubber and gold.

1.05 Barring major oil discoveries, future growth of the economy is

likely to be moderate (3%-4% per annum or less than 1% faster than

population growth). Although the Government wishes to increase economic

growth, strong emphasis is put on avoiding rapid, disruptive changes in

traditional modes of living. The prospects for mining appear good, but much

less so for manufacturing, where markets are small and transport costs high.

Consequently, an unusually high proportion of consumer goods will continue

to be imported. Australia currently provides a large budgetary grant (some

K 180 million or US$254 million, for 1979) equivalent to about 40% of

exports, which has enabled the Government to subsidize some services,particularly transport.

1.06 The latest (1978) available estimate of per capita GNP of all

persons resident in Papua New Guinea, including nonnationals, is US$560 p.a.

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The Central Highlands

1.07 The Central Highlands consists of five provinces; EasternHighlands, Chimbu, Western Highlands, Enga and Southern Highlands withprovincial administratons located at Goroka, Kundiawa, Mount Hagen, Wabagand Mendi. Approximately 40% of PNG's total population is concentrated inthese provinces. Coffee is the main cash crop of the Central Highlands,which produce some 84% (40,000 tons) of total PNG coffee production (48,000tons in 1978/79). Of this 84%, which is produced in the area of influenceof the Highlands Highway, smallholder production accounted for about 70%.Tea and pyrethrum are other, less important, cash crops which have developedin the area since the completion of construction of the Highlands Highway in1966. It is important to note that coffee, next to copper concentrates, isthe country's major export earner. In 1977, total domestic exports werevalued at K 484.5 million (about US$675 million). Copper concentrates wereK 191.4 million (US$268.0 million) or 40% of total and coffee was K 132.6million (US$186.0 million) or 27% of total. Excluding copper concentrates,coffee accounted for 45% of export earnings. In 1965, the year before theHighway was opened, indigenous growers (smallholders) from the Highlandsaccounted for just over 60% of the coffee produced in the Highlands. By1977, production by the indigenous growers had increased over four fold (a14% p.a. increase) and their share of production had grown to 70% of thetotal produced in the Highlands.

1.08 The Highlands Highway runs 600 km from Lae to Mendi via MountHagen, and connects the administrative centers of the Central Highlands withLae, which is the administrative capital of the Morobe Province and, also,the second most important port in PNG. The Highlands Highway plays animportant role in the economy of the region. The population of the regionrelies almost entirely on agriculture, only a small percentage being wageand salary earners, and the continued expansion of diversified agriculturalproduction can be helped by a reliable, lower cost road transport link.

B. The Transport System

General

1.09 The transport system reflects the country's geography, topography,and early stage of economic development. Thus, air services have longplayed a larger role than in other countries with easier land travel. Thereis no railway in the country and roads do not yet reach a majority of thepopulation, many of whom remain isolated and inaccessible, except by foot orair. Coastal and interisland shipping is important for deliveringagricultural production to exporting ports, as well as for distributing theimported goods on which the country relies so heavily. The country's twolargest cities, which are Pt. Moresby and Lae both on the main island, areonly 300 air km apart and are not yet connected by road, because of theintervening mountains and good air and shipping connections. The small

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population scattered on numerous islands and separated by high mountainranges on the mainland results in high capital and operating costs in alltransport modes.

1.10 With the country's heavy dependence on foreign trade, it is notsurprising that imports and exports generate much the larger volume offreight traffic for both road haulers and coastal and interisland shippers.Since imports account for nearly three times as much tonnage as exports (not

counting copper and timber which move through special ports) substantialincreases in production for export can easily be handled by the presentsystem.

1.11 A green cover report on the transport sector (World Bank Report No.2819a-PNG dated January 29, 1980) has been sent to the Government for its

review and comments. The main findings of the Report were: (a) there is aneed by Government to recover a significantly higher share of costs from theusers of the nation's road system; (b) the need to make greater use of compe-tition to reduce costs and to improve services in all three major transportmodes (road haulage, air transport, and coastal and interisland shipping);(c) the development of the domestic capacity for building and maintainingroads needed to be accelerated; and (iv) the need to develop data andguidelines that will permit the selection of the most economical road-designstandards, taking into account not only shortrun construction costs butsubsequent operation and maintenance costs. The Bank's position on the policyissues is that the Government should recover the maintenance and operatingexpenses for each mode and that the modes should be completely deregulatedexcept for regulations concerning safety and damage to the system assets.

1.12 Assurances were obtained from the Government during negotiationsthat a proposal for increasing transport user changes (including road usercharges progressively to a level sufficient to cover maintenance and admin-istration costs by December 31, 1986 would be submitted to the NationalExecutive Council (NEC) for consideration and possible adoption by June 30,1981 and by that same date it would submit a proposal to the NEC for thederegulation on the trucking industry (paras. 2.09 and 2.24). For civilaviation and coastal and intercoastal shipping the Government agreed tocontinue its review of these industries and report to the Bank Group themeasures, if any, it intended to take to increase competition in civilaviation and to deregulate the coastal and intercoastal industry (paras.1.17 and 1.20). The technical problems relating to maintenance and designstandards are dealt with in the proposed project by providing consultantassistance (paras. 3.09-3.12); for the domestic road contracting industrythe Government agreed it would continue to investigate ways to promote thisindustry (para. 2.28).

Highway Transport

1.13 The provision of motorable roads in PNG has stimulated both local(intra-provincial) and long distance (inter-provincial) traffic. In 1976,the whole country was serviced by some 18,000 km of road (of which over 500

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was sealed) and 43,800 vehicles (Table 1). However, the supply of highwayvehicles among the provinces varies greatly - in the Central Province thereare 98 vehicles per 1,000 population whereas in the Gulf Province there isonly one per 1,000 population (Table 2). For local use the most popularvehicles are the multi purpose "Public Motor Vehicle" (PMV) which areusually owned by villagers but operate to and from urban centers carryingpassengers and freight.

Civil Aviation

1.14 Air transport has long played an important role in providingaccess to PNG's hinterland. In the 1920's PNG led the world in pioneeringthe movement of freight by air and until 1965, the development of theCentral Highlands was almost entirely dependent on air transport. Althoughthe importance of air freight has declined in recent years, civil aviationwill continue to make a significant contribution in terms of passenger andfreight traffic to and from the more isolated parts of the country, and inproviding their local populations with essential services.

1.15 There are 414 airports and airstrips in PNG. Only the inter-national airport at Port Moresby can handle jets up to the size of theBoeing 747. Seventeen of the airports are served by Air Niugini (theNational Airline) and are constructed primarily to the International CivilAviation Organization standards. The remaining airports do not meet anyinternational criteria and have been built or improved essentially to meetminimum aircraft operations requirements.

1.16 Air Niugini, established under the National Airline CommissionBill of 1973, has exclusive rights to the regional traffic under its chartergiving it a virtual monopoly in domestic civil aviation. In addition, theConmission can engage in any transport activity it desires and may set faresand charges with approval of the Minister for Transport and Civil Aviation.Its autonomy is only limited by the fact it must seek government guaranteesfor any loans; thus the cabinet has a strong control in any capital spend-ing. The "third level" /1 operators are obliged to operate small aircraft,and are not allowed to compete directly with Air Niugini or with each other.There is some evidence that this monopoly of Air Niugini and the regulationof third level air services raises air transport costs and inhibits theeconomic development of the industry.

1.17 The Government needs to examine the role of Air Niugini in thecivil aviation system and the market for air transport in PNG. From thisexamination the Government should develop a rational and affordable aviationplan for the country. This plan should be based on a thorough assessment oftechnical, economic and financial factors with clear objectives and reason-able goals. Strong consideration should be given by the Government, in viewof the successful development of air transport in PNG under competitiveconditions, to de-restrict its air transport industry, subject only to the

/1 First level operators operate on international routes, second levelon trunk routes and third level comprises general aviation.

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compliance by operators to appropriate safety standards. An assurance wasobtained from the Government that it would continue its review of the civilaviation system (in particular, air freight) and inform the Bank group byJune 30, 1981, of proposed measures, if any, to increase competition incivil aviation for the Bank Group's comments.

Ports and Shipping

1.18 PNG relies heavily on water transport for interisland and coastaltraffic. Of some 50 ports of various size in the country, 16 are managed byPNG Harbours Board (Lae, Port Moresby, Kieta, Rabaul, Madang, Wewak,Kavieng, Kimbe, Samarai, Alotau, Lorengau, Daru, Oro Bay, Aitape, Buka andVanimo) of these only the first 10 handle overseas trade. All cargo handledat the major ports totalled 1.9 million tons in 1978 (Table 3). Thesevolumes do not include the exports of copper concentrates or timber whichare shipped from special ports at Bougainville and Madang and Morobe. Thevolume of these two commodities is practically equal to the total volume ofall imports and all other exports combined (Table 4).

1.19 The main ports have adequate overseas shipping services which areprovided by 15 companies. Secondary coastal and interisland ports areserviced by some 210 locally-owned small vessels exceeding ten meters inlength. About half of these vessels are less than 15 meters in length.Coastal traffic is divided into two general trades: the intermain porttrade of larger craft (25 m and over) and the feeder trades which operateinto very small coastal and island harbors from the main coastal ports wherecargoes are transferred. Distributive services between villages and feederports are undertaken by small open boats of about 10 m length. The coastalfleet also includes a few tankers, tugs, fishing vessels and several smallliquid petroleum gas tankers.

1.20 Government regulations require these coastal and interislandservice vessels to have "trading licenses" and annual surveys. The licensesare valid for one year and set limits to the route and volume of cargo to becarried. Shipowners who wish to increase their licensed capacity mustjustify that the demand exists for the increased capacity. To obtain alicense the shipowner must have his ship surveyed - which is an inspectionof the hull structure, navigation and radio aids, and other safety aspectssuch as life saving devices. This survey is required for all vessels of10 m and over engaged in coastal trading. However, the Maritime Divisionhas concluded that many regulations cannot be applied to vessels under 15 m.One of the recommendations in the DTCA's tentative transport policy state-ment is that the Maritime Division review these regulations and recommendnecessary changes such as requiring surveys for vessels 15 m and over andwhether the legislation is efficient and/or desirable for the development ofthe shipping industry in PNG. An assurance was obtained from the Governmentthat it would continue its review of the coastal and intercoastal shippingregulations, especially those covering trading licenses, and inform theBank Group by June 30, 1981, of proposed measures, if any, to deregulate thecoastal and intercoastal shipping industry for the Bank Group's comments.

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C. Transport Administration

1.21 The Department of Transport and Civil Aviation (DTCA) was estab-lished in 1977, based on recommendations by a UNDP study of the transportsystem completed in 1969, for which the Bank was the executing agency. DTCA

is responsibile for transport planning, policy and administration, includingregulating the several modes of transport (Chart 1). These include:

(a) Civil Aviation Division, responsible for the licensing of internalair service operations, for approving airline timetables and forsetting fares and freight rates;

(b) Maritime Division, responsible for provision and maintenance of

navigation aids and the administration of shipping regulations;

(c) the Division of Land Transport, responsible for the regulation and

licensing of road traffic;

(d) the Civil Aviation Agency (CAA), an autonomous agency whose oper-ating expenses are paid for by a tied grant from the AustralianGovernment, provides for aircraft control, electronics, airworthi-ness, and other safety related operations.

The Department of Works and Supply (DWS) has the responsibility for theexecution of all capital civil works and their maintenance. The DWS doesnot have a policy role in planning infrastructure. The autonomous PNGHarbours Board is responsible for the administration and maintenance ofports including the provision of infrastructure. Since January 1, 1980 thesemiautonomous Government Ships Authority has taken over management of theGovernment fleet and will hire out its vessels to official national andprovincial bodies. Air Niugini must only seek DTCA's approval of fareincreases and approval for capital expenditures by the NEC.

D. Transport Planning and Coordination

1.22 The DTCA, through its Policy and Planning Division in conjunction

with the National Planning Office (NPO), plans for the provision of trans-port infrastructure other than ports and the national airline. The DTCA hasstrengthened the capability of its Planning Division to more effectivelycoordinate development of infrastructure and services in the transportsector. DTCA has prepared a draft ten year (1979-1988) National transport

program at the request of the National Planning Council (NPC) for public

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expenditure in PNG. The Plan also recognizes the lack of an explicittransport policy, particularly on pricing and regulation. It recommendscorrective action and proposes that a program be drawn up for pricing andthat studies be undertaken of current regulations governing transport,particularly the Licensing of Heavy Vehicles Act 1977 and the MerchantShipping (Coasting Trade) Act 1977. The Plan proposes that the two chiefobjectives of government control should be safety and the avoidance of unduewear and tear on the infrastructure. However, this plan has not as yet beenapproved by the Government and the current official plan for transport iscontained in the NPEP 1980-83.

National Public Expenditure Plan 1980-1983

1.23 Transport is expected to play a substantive role to achievetargets in three of the eight strategic areas in the NPEP:

(a) increasing rural welfare;

(b) helping less developed areas; and

(c) economic production.

TRANSPORTATION PROJECTS PROPOSED IN THE NATIONAL PUBLICEXPENDITURE PROGRAM 1980-1983

(K million )

1980 1981 1982 1983 Total

Total NPEP projects 117.8 119.2 89.2 73.5 399.7

Transport projects 19.8 19.2 13.7 13.4 66.1

Transport as a % of total 17% 16% 15% 18% 16%

Source: Table 5.

Transport projects comprise about 16% of the total estimated new projectexpenditures for 1980-83. Transportation projects in the rural welfareobjectives have been allocated 20% of the overall budget for transportprojects; those in the less developed areas 6%; and economic production 70%.The budget for transport is K 66.1 million (US$102.3 million) out of thetotal of K 399.7 million (US$839.6 million) for the four years.]j

/1 The NPEP is updated annually and new projects are expected tobe added at each updating. The figures in Table 7 show only the amountsfor projects approved by the NEC for 1980 funding and not the projectscoming into the pipeline.

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1.24 Six projects almost all roads comprise K 52.6 million (US$73.6 mil-lion), about 80%, of the transport budget; with the exception of the RuralTransport Sectoral Program (a program designed to provide provinces withfunds to extend transport services to rural areas) K 13.0 million (US$18.2million). All these projects are for upgrading existing facilities.Included in this is the funding for the proposed project, some K 23.5million (US$32.9 million) or 36% of the total budget for new transportprojects in the NPEP. The largest portion is for sealing existing highways.There are two reasons for this:

(a) Most of the roads that fall in the access and feeder roadcategory will be funded out of the allocations to the provincialgovernments' budgets - one exception to this is the RuralTransport Sectoral Program for which funds will be distributed astied grants to provinces on a joint-funding basis for ruraltransport projects expected to be mainly rural roads; and

(b) Traffic on several existing roads is now sufficiently heavy tojustify sealing - these costs are high and will take a substan-tial portion of the budget over the four year period 1980-83,e.g. the proposed Third Highway Project - Kassam Pass-DauloPass - will take 36% of the total budget for transport.

1.25 The thrust of the proposed investments is for the preservation andimprovement of the existing road system, largely to reduce maintenancecosts, rather than an expansion of the system. At present levels of localcontractor capacity, this program is realistic (para. 2.28). However, this1.4% p.a. rate of growth of the road system is low, about one-half the 2.9%rate of population growth. If the present system of transport is inadequatefor the population, the problem will be even greater in later years. TheBank could assist in financing the expansion of the rural transport systemand this project proposes including a technical assistance component whichwould inter alia, identify and prepare rural transport projects (para 3.12and Annex 3).

2. HIGHWAYS

A. The Network

2.01 The road network in PNG comprises just over 18,300 /1 km ofvehicular roads (of which 500 km are sealed), of which approximately1,000 km are in urban areas. Of this 18,300 km, about 5,000 km are maintainedby specific allocations from the Central Government, and the remainder arethe responsibility of the provincial and local governments. The roads are

/1 Based on the 1975 road network inventory.

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primarily located in the areas containing the bulk of the population, thatis, in and near the main coastal towns, and in the Central Highlands.Because of the high costs associated with the extremely mountainous terrain,difficult soil and harsh climatic conditions, the road system is not linkedand consists of a number of regional networks.

2.02 The Government has classified the roads in three categories byfunction:

(a) arterials which are highway and trunk roads, mainly servicingregional transport numbering about 4,800 km;

(b) collectors which provide transport between main populationand/or commercial activities and connect to arterials; and

(c) locals, which serve a local area sometimes connecting into thecollector roads. Collectors and locals number about 12,600 km.

The roads are classified into National and Provincial Roads for purposes ofadministering consruction, improvement and maintenance programs. Despiteregionalization, the Central Government will continue to provide a majorportion of the funding for maintenance and construction of the road system,through budgetary allocations to the provincial governments (paras. 2.26and 2.30).

B. Traffic

2.03 Because of the low level of development and the concentration ofpopulation in isolated pockets, particularly around the coast, road trafficvolumes are generally low, both for passengers and freight. Most roadtraffic is short distance; long distance passenger traffic between maincenters is chiefly by air, and by sea for freight. An important exceptionis the Highlands Highway which runs for a distance of about 600 km from themain port at Lae through Mt. Hagen to Mendi providing an essential facilityfor the Central Highlands, where 40% of the population of PNG live. Onebranch of this Highway connects to Wabag, the center of the importantagricultural district in the Enga Province. The Highlands Highway carries asubstantial average traffic volume in excess of 600 ADT, of which over 40%are trucks and buses. Because of the improvements to the road there hasbeen a gradual shift from trucks of 5 to 7 tons capacity to 12 ton truckswith 10 ton tailers, used particularly on the long distance runs.

Road Transport Industry

2.04 The main constraints on the development of the road transportindustry is the state of the road network consisting mainly of gravel orearth roads, small unconnected regional networks and low populationdensities (paras. 2.01 and 2.03). Another important constraint isrestrictive regulation.

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2.05 There are no data on the number of firms providing transport

services in PNG. The industry is flexible, in that the same vehicles are

used for the carriage of passengers and freight, and there is no clear

demarcation between private and public use. Since there are few economies

of scale to be obtained from operating large numbers of trucks. the industry

is fragmented and consists mainly of one-vehicle firms. However, there are

economies in the bulking and scheduling of loads and this has led to the

emergence of firms usually controlled by expatriates that are essentially

freight forwarders. Through its Licensing of Heavy Vehicles Act (1977) the

Government had hoped to assist indigenous vehicle owners in providing more

efficient, less costly transport. It has, however, resulted in expatriates

dominating the major long-haul market and subcontracting the peak loads to

indigenous operators. While efficiency can be said to have increased or,

at least, not diminished, the indigenous owner-operators who have invested

in the vehicles are subject to greater risks in that they are used during

the busy season and laid off when demand slackens. Further the expatriate

controlled firms give preference to their own vehicles for remumerative

return loads.

Regulation of Road Transport

2.06 Licensing of road transport in PNG is controlled by the Land Trans-

port Board, which is required under the Passenger Transport Control Board

Act (1968) to "exercise general supervision over licensing of Public Motor

Transport in Papua New Guinea in the interest of the Public, with a view to

its greater integration, safety, efficiency and economy." More importantly,

the Board, aside from examining procedures in the licensing of hire vehicles

and their accident and safety records, must also assess the supply of, and

demand for, the services of such vehicles and review the conditions of

their operation.

2.07 There is considerable question whether the board, or any delegated

body, can ascertain the effects on the "public interest" (which is not

defined) of the granting or withholding of a particular license. The board

has delegated some of its powers to the provincial authorities and transport

licensing will become a provincial government responsibility. There is no

evidence that interprovincial commercial traffic has been hindered by this

delegation. However, there is a possibility that each province could exclude

vehicles that do not bear their license thus restricting the free flow of

commerce. An assurance was obtained from the Government that it would

promote interprovincial commerce, free from undue regulatory interferences

or restrictions except for those resulting from regulations concerning safety

and damage to the system.

2.08 Under the Act the Board must also carry out the provisions of the

Licensing of Heavy Vehicles Act 1977. The Heavy Vehicles Act was discussed

with the Association prior to its passage and the Government representatives

assured the Association that the intention was not to inhibit competition

but rather to promote the sound development of an efficient and competitive

industry within certain administrative regulations. The Act favors the

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indigenous truckers by permitting them, but not expatriates, to upgrade theirvehicle capacity. It also restricts vehicle entry by requiring new truckowners to present a bank approved loan for their truck purchase and/or astatement on the contracts they have obtained for haulages prior to issuinga license. The licenses must also be reissued by the authorities every 12months. The Act, inter alia, controls entry, routing and freight. Thesecontrols result in public transport services that are both highly priced andinadequate in quantity thus lending to excessive development of privatetransport. The free entry system for heavy vehicles does not exist andthere appears to be only limited competition for the bulk of the cargomoving in and out of the Highlands. As volumes grow, the transport supplywill be restrained by the number of licenses and freight charges will riseto what the market will bear. These volumes are already being achievedduring the peak coffee season. Further, tariffs which range from 40% to200% above resource cost, are indexed to a formula based on costs of fuel,spares, tires, etc. The formula does not consider road improvement savings,i. e., even if road improvements brought about a 10% reduction in costs, butthe noted costs went up 10% due to higher prices for fuel, spares, etc., thetruckers would get a tariff increase reflecting the higher costs. Ineffect, road improvements would provide windfall profits to the truckers.It is unlikely, therefore, that the users of the tranport services willreceive the benefits from the proposed improvements due to these regulationsand the price increase formula.

2.09 The DTCA is aware of the deficiencies in the existing regulationsand in its tentative transport policy paper has recommended a review ofregulations concerning the operations of carriers for hire. The purposesof the review would be to:

(a) examine the aims of the legislation to determine whether theyare desirable not only from the standpoint of carriers orshippers but also from the viewpoint of the consumers;

(b) ascertain whether the arrangements for implementation can beefficiently achieved; and

(c) to decide, based on points (a) and (b) what changes (if any)in the legislation are required.

For the project under consideration, the chief concern with respect toderegulation is that the substantial user cost savings will not be passedon to the farmers and consumers in the form of lower trucking rates giventhe oligopolistic nature of the trucking industry. For this specificreason and for the more general considerations that free entry will promoteadditional employment as well as permit the long range development of thetrucking industry, the Government has been advised that the Bank's positionis that the trucking industry should be completely deregulated within areasonable time except for those regulations required in the interest ofsafety and of preventing damage to the road network. During negotiations

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the principals and timing for submission of the proposal for deregulation was

agreed between the Government and the Bank Group and an assurance was

obtained from the Government that it would submit, by June 30, 1981, a

proposal, as approved by the Bank Group, for the deregulation of the

trucking industry, to the National Executive Council (NEC) for consideration

and possible adoption.

2.10 The Land Transport Division of DTCA has been strengthened to

include a full time traffic counting unit. However, the demand for traffic

statistics outweighs the unit's ability to supply time. Most of the unit's

work is on an ad hoc basis and there is a need to increase its capacity and

equipment to carry out a careful systematic program of traffic counts for

road programs including maintenance. The project would therefore include a

technical assistance component for maintenance, and the traffic counting

equipment needed to initiate the program. An assurance was obtained from

the Government that it would, by not later than June 30, 1981, establish a

system of regular traffic counting, such system to be adequate to render

regular service to DWS, DTCA and the provincial authorities in need of it.

C. Highway Administration, Staff and Training

2.11 Under the reorganization in 1977 (para. 1.21) DTCA and the

Department of Works and Supply (DWS) were established each represented by

separate Ministers.

2.12 DTCA under the Minister for Transport and Civil Aviation is

responsible for national transport policy and planning as well as for the

administration and regulation of transport activities. Specific duties

involve the assessment of transport demand, including undertaking traffic

surveys, and preparing statistics and forecasts. DTCA is also responsible

for economic studies and the preparation of projects for funding through

NPEP. Under the present Government organization DTCA, through its Division

of Policy and Planning is specifically responsible for planning the national

road system. DTCA also advises the Government concerning national financial

assistance to rural transport development, although the provincial govern-

ments will assume responsibility for planning their road systems when they

have the capability.

2.13 DWS (Chart 2) under the Minister for Works and Supply is responsi-

ble for the technical investigation, design and construction of national

road projects as well as the maintenance of national roads. All other road

construction and maintenance activities come under the authority of the

various provincial governments and town councils although these bodies

generally engage DWS, on an agency basis, to carry out the required work.

Except for technical assistance for rural transport and procurement of

traffic counting equipment which are to be handled by DTCA, DWS will be

responsible for the execution of the project, as it was for the Second

Highlands Road Project Credit (CR677-PNG). DWS is a general purpose works

organization which deals with water supplies and sewerage, government

buildings and aerodromes, in addition to roads. It directly handles all

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major works, both capital and recurrent, through its field organizationwhich consists of five Area Works Manager (AWM) offices (Port Moresby,Madang, Lae, Rabaul and Mt. Hagen) and twenty subordinated Provincial WorksManager (PWM) offices (one in each province).

2.14 DWS remains largely dependent on expatriate staff to fill itstechnical positions; its Works Division has 154 professional posts of which98 are filled, 86 by expatriates. The Government is continuing activerecruitment overseas, including the UK, New Zealand and Australia but sincethe introduction at the beginning of 1979, of revised salary scales andterms of contract, results have been disappointing. The deficit in skilledpersonnel has been made up by short-term engagement of consultant staff forkey positions. DWS continues to pursue a comprehensive training program toaccelerate staffing with qualified nationals. However, it is acknowledgedthat it will take many years to train local staff for all senior positions.An assurance was obtained from the Government that it will continue theexisting program of road works and administration training of its DWS withsuch modifications as shall be satisfactory to the Bank Group.

2.15 Through its local government branch, DWS provides an engineeringadvisory service to many local government councils throughout the country.This branch also conducts training programs for council staff which teachthe basics of low cost road construction and maintenance, bridge construc-tion and water management.

2.16 In July 1974 the Government set up a Plant and Transport Authoritywhich assumed responsibility for the procurement, maintenance and operationof all Government transport and mobile equipment. The Plant and TransportAuthority has since become the Plant and Transport Branch of DWS. There hasbeen considerable progress to date in the efficiency of this organizationwhich operates on a full cost recovery basis, charging national orprovincial clients for services provided.

2.17 The total number of staff employed by DWS is about 6,300, plus avarying number of unskilled casual laborers. Since 1973, DWS has beenactively supporting the national apprenticeship program operated by theMinistry of Labor and is currently the largest employer of technical man-power in the country. In providing further assistance for staff training,the continuing need to carry out the day-to-day responsibilities of thedepartment efficiently should be balanced against the desirability ofreducing the dependence on expatriate personnel as expeditiously as possible.The present policy, which seems to be achieving this balance reasonably wellshould be continued and the training element included in the project willassist DWS to increase the number of local staff in supervisory positions inthe provincial workshops and in road maintenance operations.

2.18 DWS set up a training organization in 1973, to be mainly respon-sible for participation in the national apprenticeship program and tocoordinate the various fellowship programs being offered to national staff

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by the Australian Government. Since that time the training function unithas expanded within DWS to such an extent that it now embraces all manpower

development-related activities and is headed by an Assistant Secretary forStaff Development and Training who is directly responsible to the Secretaryof DWS. The organization now carries out the training of:

(a) heavy equipment maintenance mechanics at New Town Training Centerin Port Moresby;

(b) road maintenance crews and equipment operators at the CivilEngineering Training Center in Madang;

(c) middle and upper management staff at DWS headquarters in PortMoresby;

(d) administrative and clerical staff in Port Moresby; and

(e) accounting personnel at a small center in Lae.

In addition, the staff development and training section handles thein-service training of the 600 or so apprentices employed in DWS as well as

the orientation work experience for newly-recruited engineers, architectsand surveyors from the Technical University in Lae. Various up-gradingtraining courses are also conducted on an ad hoc basis in the trainingcenters. Although training enjoys the full support of the DWS managementand is allocated an adequate budget, it will take a long time to produceresults which could improve the current situation. The main problems facingthe organization are:

(a) the need to identify and train national instructors;

(b) the need to up-date training curricula and improve the supply oftraining equipment, and;

(c) the need to introduce new courses aimed at developing supervisoryand middle-management skills of selected DWS personnel engaged inthe workshops and in road maintenance.

The training element under the project will assist the Staff Development andTraining Section of DWS to meet these objectives (para. 3.10).

D. Highway Planning

2.19 Transport planning, including highway planning,is the responsibilityof the DTCA under the Minister of Transport and Civil Aviation and is carriedout by DTCA through its Policy and Planning Division. Responsibility for co-ordinating all economic and social planning, including transport, rests withNPO which presents the annual investment programs to the Budget PriorityCommittee (BPC). BPC reviews the program and submits the full program with

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its recommendations to the National Planning Committee (NPC) who, in turn,submit the program, together with their own recommendations, to the NationalExecutive Council (NEC). NPC and NEC review the program, giving considera-tion to the Government's policy issues in the context of available funds.With the receipt of a long-range commitment on aid from Australia, economicplanning is now on a rolling four-year basis. The provision of theAustralian guarantee of K 180 million (US$ 254 million) for 1979 decliningby 2% in real terms through 1981 then by 2.5% p.a., has permitted long-rangeplans to be prepared in consultation with the provincial governments.

2.20 DTCA has been planning projects which are a continuation ofprevious development programs, and preparing other projects of obvious highpriority. In general these are for:

(a) connecting, with all weather roads, the major population, produc-tion and resource areas to the ports and, in some cases, to eachother e.g., the Highlands Highway; and

(b) gradually improving in stages, access roads to smallerpopulation centers and rural areas initially through the"Rural Improvement Program" and more recently through a seriesof integrated rural development programs and a rural transportsector program.

The DTCA Policy and Planning Division carries out reconnaissance of existingtransport facilities and assesses improvements required to meet transportdemand. In addition, it incorporates into its program projects identifiedby other government agencies, both central and provincial. Expenditures onroads for the period 1968-78 and estimated expenditures for the year 1978/79are given in Table 6.

E. Financing

2.21 Financing for the construction, improvement and maintenance ofnational roads is provided through general revenues from the Government'sannual budget. In addition, provincial governments fund works on majorprovincial roads through their untied grants and other internal funds orthrough tied grants appropriated through the NPEP. In some provinces,provincial governments make bulk allocations to district councils orcommunity governments for maintenance or improvement to minor roads.Provincial governments have some revenue generating authority and may obtainadditional funds for road works through the levy of local taxes.

2.22 In 1979, the Government's allocation for road works was about K 30million (US$42.3 million), which is exclusive of provincial untied grantfunds used for such activities. Of this total about K 17 million (US$24.0million) was for capital and about K 13 million (US$18.3 million) formaintenance works of national and some provincial roads. No figures areavailable for provincial expenditures.

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2.23 The Government's annual expenditures on roads increased substan-tially during the period 1968/69 - 1974/75 from some K 12.0 million(US$17.0 million) to about K 32.0 million (US$45.0 million). As a percentof total current expenditures these expenditures have averaged about 14%p.a. (Table 7). Since 1974/75 total expenditures on capital improvementsand maintenance have ranged from K 30.0 million (US$42.3 million) to K 36.0million (US$50.8 million). Maintenance costs for the national system haveremained at about K 17.0 million (US$24.0 million) p.a. Although thehighway system has not increased substantially over this period, DWS reportsthat maintenance costs are rising appreciably (on some sections aboutK 6,000/km, US$8,500/km). This consideration and the fairly steadyexpenditure pattern would indicate that some roads may not be receivingadequate maintenance.

2.24 Revenues from the use and ownership of vehicles (road usercharges)are low and amount to less than 20% of the total national expendi-ture on roads and about 30% of the administration and maintenance cost(Table 8). Since the subsidy for road transport is so high, there arequestions of efficiency (overuse of underpriced goods) and diversion ofresources from the productive sectors. An assurance was obtained from theGovernment that it would prepare a proposal on a general transport pricingpolicy to increase transport user charges (including road user charges)progressively to a level sufficient to cover, by December 31, 1986, thecost of maintenance and administration of the transport infrastructure.Further, that the Government will submit, by not later than June 30, 1981,the above mentioned proposal to the NEC for consideration and possibleadoption and furnish to the Bank Group, by not later than December 31, 1981evidence that the proposal had been submitted. The Government may also wantthe road users to share in the cost of expanding the system which wouldeventually require recovering the full cost of road services.

F. Engineering

2.25 DWS is responsible for the engineering of roadworks, and hasformulated design standards (Table 9) for various types of roads andterrain conditions, which are currently under review. A large proportion ofdesign work on roads is carried out for DWS by consultants, most of whom aresubsidiaries of foreign, mainly Australian, firms. In the past two yearsthe Roads and Bridges Section of DWS undertook the design of some majorprojects, namely the section of the Highlands Highway between Erap andKassam Pass (112 km), and the New Britain Highway (48 km), in addition toother minor projects. Some minor road and bridge works are designed in AWMoffices. In general, the quality of engineering is satisfactory.

G. Construction

2.26 All major road construction works have previously been carried outby foreign contractors, especially externally financed projects. Some roadconstruction works have recently been carried out by force account, namely,

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the Poroma - Tari Road (K 7.6 million, US$10.6 million) which is beingimplemented by the Australian Army, as part of the Southern Highlands RuralDevelopment Project (Credit 841-PNG), and some agriculture roads (K 4.0million, US$5.6 million) in the Popondetta Smallholder Oil Palm DevelopmentProject (Loan 1333-PNG) which are being built with the use of labor andplant hired under the supervision of consultant staff seconded to DWS. An8.5 km section of the Highlands Highway near Kundiawa and some remedialworks were also built by departmental forces, and managed and supervised byconsultants, under the Second Highlands Road Improvement Project (Credit677-PNG). After 1978, the provincial governments have employed DWS on anagency basis either to construct, or call contracts for the construction ofprovincial and village roads in all but a few provinces. Improvement ofvillage roads is carried out largely by manual labor but sometimes withequipment, usually supplied by DWS, which also provides technical assistanceto the local government councils. Minor improvements to roads are usuallyexecuted by force account on both national and provincial roads eitherdirectly by DWS or on an agency basis for provincial governments.

2.27 Civil engineering contracts in PNG are not of a magnitude, eitherin scale or frequency to support a comprehensive domestic contractingindustry. Local contracting firms can be divided into three categories:(i) domestically owned and managed; (ii) domestically owned and managed byexpatriates; and (iii) subsidiaries of overseas contracting companies. Thefirms in category (i) tender only for plant-hire contracts, while the firmsin category (ii) are able to bid for smaller civil engineering contracts.Only firms in category (iii) would have the capacity to execute majorconstruction works, such as the Highlands Highway component of the project.All contractors tendering for construction contracts are required to haveregistered offices in PNG. Payments under construction contracts are madeexclusively in local currency, whether the project is externally financed ornot.

2.28 The Second Highlands Road Improvement Project (Credit 677-PNG)includes a component providing technical assistance to domestic road con-struction contractors. Under this component, a consultant started work in1978. He drafted a contractor's manual and concentrated on field trainingfor a small number (6-8) domestic firms of category (i) which had beenidentified as already owning a basic equipment fleet and having the entre-preneurial spirit necessary for their further development. However, therelative shortage of small civil engineering or maintenance contracts(K500,000, US$700,000 and less), which were suitable for these contractors toundertake, did not allow sufficient opportunity for training. DWS wishes topromote the domestic road construction industry: however, it does not havethe authority to provide works for the domestic contractors. DWS can onlyaward contracts to the lowest bidder; also, because there is no agreedcriterion for identifying genuine domestic contractor versus domestic con-tractors controlled by expatriate interests, DWS cannot select genuine domes-tic contractors for bidding as a group. An assurance was obtained that theGovernment would continue to investigate ways of promoting the domestic roadconstruction industry and developing experience amongst the domestic roadcontractors, that it would furnish to the Bank Group by December 31, 1980,

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a report on the status of these investigations and thereafter furnish to theBank Group an annual report for comments each year until 1984 on themeasures taken, if any, for the promotion of this industry.

2.29 Major construction projects which are externally financed areusually supervised by the consultants who designed them. Otherwisecontracts are supervised from DWS Headquarters, AWM or PWM offices. Thequality of supervision is normally satisfactory.

H. Maintenance

2.30 Maintenance of national roads is carried out by DWS through itsAWM and PWM offices. So far, DWS has not established a MaintenanceOperations Section at its Headquarters. DWS has agreed to establish such asection at its headquarters and the proposed project will provide technicalassistance to DWS for this purpose. The technical standard of maintenanceon nat _onal roads is on the whole satisfactory and the roads are being keptpassable all the year round. Emergency situations such as landslides,culvert washouts, and bridge abutment erosion receive prompt attention.However, the cost of road maintenance in PNG is high, due to extremelyadverse topographic and climatic conditions, and to some extent, due to thepast choice of road design standards. Most of the 5,000 km of national andprovincial roads were built in stages, some were started as tracks; and only500 km are paved. Maintenance requirements are also increasing as a resultof traffic growth. So far, adequate funds have been provided by the CentralGovernment for maintenance of the national road network. However, someminor improvement works are also being undertaken under the maintenanceprogram. It is understood that the Central Government intends to continueallocating sufficient funds for maintaining national roads to a satisfactorystandard. It is also committed to a program of sealing selected roads toreduce maintenance costs.

2.31 As mentioned above (para. 2.30), DWS has not yet established theMaintenance Section at its Headquarters which would plan, direct and mDnitorthe road maintenance operations and their cost. Under current practiceactual maintenance expenditures are not properly monitored and verifiedagainst budgets; they are often inflated by cost of minor new construction,upgrading and reconstruction of roads, and are not recorded or analyzed evenon a sample basis, by road standards and conditions, or traffic levels andcomposition. Lack of these data limits the scope for well-conceivedpolicies on maintenance spending levels, road standards and roadrehabilitation.

2.32 Maintenance of provincial and local village roads is the responsi-bility of the provincial governments. Except for two provinces (Chimbu andBougainville), it is being carried out by DWS as an agent of the provincialgovernments. The situation on the maintenance of provincial and localvillage roads varies from province to province. Some provinces haveallocated sufficient funds for the purposes of road maintenance whilst

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others allocate none at all and concentrate on building new roads. Thus thestandard of maintenance on provincial roads is not controlled by DWS and itdepends on the attitude of the provincial governments. The technicalassistance component under the proposed project will assist DWS and theprovincial governments to build the maintenance information system(including cost accounting and traffic data) needed to develop a strategyfor maintenance of national, provincial and village roads.

I. Previous IDA/Bank Financed Prolects

2.33 The Bank Group's assistance in the transport sector has includedacting as executing agency for the UNDP-financed Transport survey of1968-69, and financing the First Highway Project, the Second Highlands RoadImprovement Project, and the First and Second Port Projects. The UNDPTransport Survey provided the framework for the subsequent reorganization oftransport administration and for the preparation of initial investmentprograms. The First Highway Project was financed under Credit 204/Loan693-PNG in 1970. It provided US$9.0 million for construction andimprovement of sections of the Highlands Highway totalling 150 km betweenKundiawa and Mendi, at the western end of the highway. The work wassatisfactorily completed at the end of 1973, but there was a cost overrun ofabout 90%, due chiefly to bid prices being 60% higher than estimated, butalso because greater than expected quantities of unsuitable soil had to bereplaced. After refusal of the Bank Group to provide supplementary finance,the overrun was financed by the Government. The Project Performance AuditReport of June 16, 1977, finds that (a) the Bank Group's refusal to providesupplementary finance was unnecessarily harsh and; (ii) internationalcompetitive bidding under the conditions prevailing in PNG during 1970 mayhave contributed to cost escalation. Lessons learned from these mainfindings led to arrangements during processing of the Second Highlands RoadImprovement Project which enabled bids to be received prior to negotiatingthe credit, and also included execution of about 30% of the work by forceaccount. Finally, the audit concludes that the Bank should furtherinvestigate the effects of the road works on the transport industry becausethe inward-outward trade imbalance and back haulage arrangements distort thecompetitive basis which may give larger firms an advantage.

2.34 The Second Highlands Road Improvement Project is financed underCredit 677-PNG of January 25, 1977. The credit provides US$19.0 million forconstruction and improvement of 68 km of the Highlands Highway between Asaroand Garnigl, road engineering and feasibility studies, rural developmentstudies, and assistance to domestic contractors. The Government originallyproposed that the project include improvement and paving of all the 302 kmlength of the Highlands Highway between Kassam and Togoba and this wasincluded in the appraisal in 1974. However, it was agreed that beforenegotiating the credit, bids would be obtained for the works. When bidswere received in March 1975 they were found to exceed the cost estimates by75%, and re-bidding in July 1975 failed to obtain lower prices. The

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Government rejected the bids and decided, in consultation with theAssociation in Mlarch 1976, to re-formulate a reduced project to coverinitially only the most urgent section, as described above. It was agreedalso that new bids should be obtained before negotiating the credit forabout 50% of the works, including the most difficult sections near Kundiawaand Asaro. Accordingly, after new international advertisement and prequali-fication of contractors, the Government received bids in October 1976, whichwere about 10% lower than those received in 1975 and were considered reason-able. In addition, it was agreed that about 30% of the works would becarried out by department forces under a management team provided byconsultants. The implementation of the project, which is now about 65%complete, is proceeding satisfactorily and is expected to be completed inAugust 1981. During the time of tendering for the First and Second HighwayProjects, PNG was a new, high risk market to international contractors whopriced their bids accordingly. Also, DWS had little experience in tenderingand cost estimating at that time.

2.35 The First Port Project in 1972 (Credit 326-PNG) provided US$9.2million for improvements at the ports of Kieta, Lae and Port Moresby and for anew overseas port at Alotau. Work on the First Port Project was satisfac-torily completed at the end of 1976, except for a barge ramp at Alotau andadditional work at Kieta and Port Moresby. The Association agreed to thisadditional work after the original works had been substantially completed at asignificant cost saving. The work was completed in July 1977, and includedreclamation of additional land at Port Moresby to increase the land availablefor stacking the growing number of containers. PNGHB's performance has beensatisfactory; however, it has not met the full requirements of the covenant inthe Project Agreement for Credit 326-PNG which required the completion of acosting study which is now being undertaken, and in addition has not achievedthe required 8% rate of return on net fixed assets because the tariffadjustment was insufficient to keep pace with increased operating costs.

2.36 The Second Port Project (LN1551-PNG) of April 18, 1978, providesUS$3.5 million for port development. The Kuwait Fund is also providingUS$3.5 million. The project comprises a new container berth at Port Moresbywith additional stacking area, dredging alongside the berth, an improvedcontainer freight station and improvement of an access road, also a coastalberth at Samari, 3 pilotage launches, and consulting services and technicalassistance.

2.37 Work on the new container berth is proceeding satisfactorily andwill be completed by May 1980. The contractor, Pearson Bridge (NSW) Pty.Ltd. (Australia), submitted the lowest bid amounting to K 4.8 million(US$6.8 million); the number of firms prequalified was 23 and 11 tenders werereceived. Final cost of the works is currently estimated to be K 5.3 million(US$7.5 million) including variation of contract items of about K 0.6 million(US$0.9 million) and escalation costs of some K 0.25 million (US$0.35 mil-lion). One of the pilot boats has been delivered under a contract let to alocal firm, the lowest bidder of a number of international tenders received.A tender has been let for the work at Samari.

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3. THE PROJECT

A. Description

Project Objectives

3.01 The first and main objective of the project is to promote furtherdevelopment of the Central Highlands region. It will do this by assistingthe Government in completing its program to improve and pave the lifeline ofthe region which is the Highlands Highway, from the main port of Lae throughthe region up to Togoba. Second, the project will help strengthen centraland provincial governments by assistance in formulating a strategy formaintenance of national, provincial and village roads; and third, byassistance in budgeting, planning and project identification, preparationand implementation at the provincial level.

3.02 A section of the Highlands Highway will be improved between KassamPass and Daulo Pass (137 km). This section is presently of low gravelstandard, steep and subject to slides causing interruption to traffic. Theworks, which will complete the improvement and paving of this section willallow heavy vehicles to operate faster on paved surfaces and thus furtherreduce transport costs. The section of the highway between Lae and KassamPass is being reconstructed, and parts of the other section from Daulo Passto Togoba have already been paved or are now being improved, except for twoshort stretches which are scheduled for sealing in 1980/81. Thus, theimprovement of the Kassam Pass to Daulo Pass section will complete thesealing of the highway from Lae up to Togoba (475 km).

3.03 In line with the national development strategy with its focus onrural developmenit, the project will also assist at national and provinciallevels to improve road maintenance throughout the country by introducingnew organization methods and intensifying training. The project's assis-tance in strengthening the existing training will help the provincialgovernments, in line with political decentralization, to improve the qualityof their staff. While shortage of trained and experienced staff is one ofthe main problems facing the provincial governments, another problem istheir need to develop the capability for budgeting, planning, and identify-ing and preparing projects. To assist in this the project will providetechnical assistance for rural transport and funds for simplifiedengineering and rural roads.

Project Scope

3.04 The project consists of:

(a) improvement and paving of the Highlands Highway section betweenKassam Pass and Daulo Pass (137 km), including supervision of thework by consultants, technical assistance to DWS in contractmanagement and training of PNG engineers on the works;

(b) improvement to road maintenance, including technical assistancetraining of DWS and provincial government staff;

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(c) improvement to rural transport, including technical assistance andengineering of priority roads;

(d) engineering of the Togoba-Wapenamanda road; and

(e) procurement of traffic counting equipment.

Improvement and Paving

3.05 The Highlands Highway and the work to be carried out under theproject are described in detail in Annex 1. The highway descends from thetop of Kassam Pass (elevation 1,485 m) through mountainous and hilly terraininto the open grasslands of the Ramu River valley (elevation 1,250 m),climbs a mountain ridge up to a maximum elevation of 1,910 m, and thendescends again through hilly terrain to cross the Asaro River, ending atelevation 1,540 m near the foot of Daulo Pass. Much of the region throughwhich the road passes is geologically young and movement of the existingground is still taking place. In several areas the road crosses steepslopes which are subject to land slides. The existing road has a gravelcarriageway 5.0 to 6.0 m wide and its horizontal alignment is fair,considering the difficult terrain it passes through in some stretches. Inthe mountains, steep gradients of up to 15% are quite frequent and theexisting drainage facilities are poor. From the Kassam Pass to Daulo Passthe road crosses 32 single-lane bridges in varying conditions.

3.06 The proposed works consist of improvements to the existing roadto DWS Rural Road One Design Standard (Table 9) and of paving a 6.5 mcarriageway with 0.5 m shoulder on both sides. The proposed horizontalalignment will accommodate design speeds of 60 km/hour for flat/rollingterrain, reduced to 50 km/hour in hilly terrain and 30 km/hour in themountains. The new center-line will follow essentially the existingalignment except for a few minor realignments, mainly at bridge crossings.The carriageway will have double bituminous surface treatment while theshoulder will be provided with a single coat. Of' the 32 existing.,single-lane bridges on the highway, eight bridges, which are in poorcondition and unsuitable for repairs, will be replaced by new two-lanestructures, while the other structures will be repaired.

3.07 Detailed engineering for the Highlands Highway section betweenKassam Pass to Daulo Pass was originally prepared in 1974 when consultantsValentine, Laurie and Davies (Australia) carried out the engineering for thewhole stretch between Waterais and Togoba under the Second Highlands RoadImprovement Project (Credit 677-PNG). Because of insufficient field survey,this original engineering work has been of use only as preliminary engineer-ing. Therefore, in 1979 the Government engaged local consultants Cardno andDavies, PNG, Pty, Ltd., in association with Scott, Wilson and Kirtpatrick &Partners, UK, to complete the engineering for the Kassam Pass to Daulo Passsection in greater detail. This work, funded by the Government, is nowcompleted.

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3.08 The project provides for consulting services to supervise theimprovement and paving works and the Government intends to engage the sameconsultants, Scott, Wilson and Kirkpatrick & Partners, UK, as principalpartners in association with Cardno and Davies, PNG, Pty, Ltd., to carry itout. The project also provides for specialized consulting services (claimsevaluation, etc.) of up to six man-months to assist DWS in contractmanagement. Furthermore, this component will provide for training of PNGengineers on the contractors' site. It is envisaged that four or five PNGengineers, employed by DWS, would be placed in the supervising team toreceive training on the works, under guidance of the consultants.

Improvement to Road Maintenance, including Technical Assistance andTraining of DWS and Provincial Government Staff

3.09 Technical assistance by consultants will be provided to DWS andprovincial governments to help improve the efficiency of road maintenanceoperations. The consultant will provide two road maintenance engineers toassist DWS in establishing a Maintenance Operations Section at its Headquar-ters. After a review of the current status of DWS and provincial govern-ments' maintenance operations, the road maintenance engineers will prepareproposals for improvement in planning, programming, executing, monitoringand cost accounting of the operations. Later, they will assist andsupervise the implementation of their proposals.

3.10 In addition, the consulting services under the project willprovide for two training officers, one in the field of heavy equipmentmaintenance in provincial workshops, and one in road maintenance andequipment operation. The former will be based at the Mechanical MaintenanceTraining Center in Port Moresby, but will be responsible for the training,both in the Center and in the workshops, of experienced local staff inworkshop organization and management, and in workshop preventive maintenancesystems. The second training officer will be based at the Civil EngineeringTraining Center in Madang and will be responsible for preparing supervisoryand middle-management training programs aimed at upgrading more local staffto foremen and road maintenance supervision levels.

3.11 Funds are also included in the project to enable DWS to procuremuch needed training aids and equipment for the Port Moresby trainingcenter. It is envisaged that consultant services will total 140 man-monthsover a period of four years. Outline terms of reference for these servicesare given in Annex 2.

Improvement to Rural Transport including Technical Assistance toProvincial Governments and Engineering of Priority Roads

3.12 The project includes a component for technical assistance for ruraltransport, to be carried out by consultants, to assist about four to six pro-vincial governments in the preparation of future transport projects. Theeffort is intended to: (i) assist the provincial governments in developing a

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process for screening transport infrastructure projects based on developmentpotential and (ii) meet an urgent priority of the provincial governments todevelop the capacity for planning and project identification, preparation andexecution. One purpose of technical assistance will be to help determine thefeasibility of using staged transport, initially aircraft and/or coastalshipping, to develop isolated areas with economic potential prior toinstituting road programs. It will also assess the feasibility of initiatingroad programs in those areas of high potential. Outline terms of referencefor the technical assistance are given in Annex 3. This component alsoprovides for simplified engineering of some 300 km of high priority ruralroads which will be executed by DWS with the use of local consultants.

Engineering of the Togoba-Wapenamanda Road

3.13 Funds for the study and design of the Togoba-Wapenamanda Road(67 km) were included in the Second Highlands Road Improvement Project(Credit 677-PNG). Due to the cost overrun of that project, the Government hasrequested that the Bank Group finance the engineering of this road in theproposed project. The feasibility study has shown that the road, whichprovides the main access to the Enga province, is justified with an economicrate of return of 16% based on preliminary engineering. The Government iswilling to seek other external financing for construction of this road, if theBank Group does not include it in the proposed Enga Rural Development Project,but would like to have the engineering prepared.

Procurement of Traffic Counting Equipment

3.14 The project will also provide for procurement of 24 trafficcounters.

B. Cost Estimates and Foreign Exchange Component

3.15 The cost of the project, including contingency allowances, isestimated at about US$42.4 million. The foreign exchange component is esti-mated at about US$30.1 million or about 71%. Estimated costs are shown inTable 10 and are summarized on page 26. The estimated average per kilometercosts (including physical contingency) of the improvement and paving workson the Highlands Highway are US$214,000 at March 1980 prices and US$257,000,taking into account price escalation during the contract period. Thesecosts do not include the costs of supervising the work and training PNGengineers on the site, which represent 8.5% of construction costs and arereasonable. A total of 430 man-months is estimated for supervision, with anaverage cost per man-month of about US$5,300 excluding contingency allowances.This man-month cost includes salaries, social costs, firm's overhead andprofit, subsistence and other allowances, and reimbursable items such asinternational travel. In addition, another six man-months are provided in thecost of supervision for assistance to DWS in contract management, at aboutUS$10,000 per man-month plus travel.

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COST ESTIMATE /a

Kina (million) US$ (million) % ForeignProject item Foreign Local Total Foreign Local Total component

A. Improvement and pavingof Highlands Highwaybetween Kassam andDaulo Pass (137km) 13.230 5.670 18.900 18.654 7.995 26.649 70

B. Supervision of A /bincluding Assistancein Contract Manage-ment and Training 1.327 0.332 1.659 1.872 0.467 2.339 80

C. Technical Assistancefor Maintenance andTraining 0.680 0.170 0.850 0.959 0.240 1.199 80

D. Technical Assistance forRural Transport andRoad Engineering 0.590 0.160 0.750 0.831 0.227 1.058 80

E. Engineering of Togoba-Wappenamanda Road 0.400 0.100 0.500 0.564 0.141 0.705 80

F. Traffic CountingEquipment 0.050 - 0.050 0.071 - 0.071 100

Subtotal A-F 16.277 6.432 22.709 22.951 9.070 32.021 72

G. Contingency Allowances:

a) Physical /c 1.628 0.643 2.271 2.295 0.907 3.202 72b) Price I4 3.424 1.378 4.802 4.829 1.944 6.773 71

Subtotal C 5.052 2.021 7.073 7.124 2.851 9.975 71

TOTAL COST OF WORKS 21.329 8.453 29.782 30.075 11.921 41.996 72

H. Land Acquisition - 0.300 0.300 - 0.423 0.423 0

TOTAL COST OF PROJECT 21.329 8.753 30.082 30.075 12.344 42.419 71

/a Prices as at March 1, 1980.lb 8.5% of Item A and Assistance and Training./c 10% on all Items./d Price increases on Items A, B, C and part of D with physical contingencies estimated

rate of 10.5% for 1980; 9% for 1981, 8% for 1982, 7% for 1983 and onwards./e Kina 1.00 = US$1.41.

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3.16 Cost estimates for the improvement and paving works on the Highlands

Highway are based on the lowest evaluated bid in an international competitive

tender, submitted by a prequalified contractor, Dillingham Corporation of New

Guinea, Pty, Ltd. (PNG and Australia). This lowest evaluated bid is about 1%

higher than the appraisal cost estimates, and is reasonable.

3.17 The cost estimates for technical assistance for road maintenance and

training are based on a forecast of about 140 man-months required to carry out

the work, an average cost of about US$8,000 per man-month (excluding contin-

gency allowances), and on the cost of similar services carried out on other

Bank projects. A sum of about US$71,000 is provided for procurement of

training aids and equipment.

3.18 The cost estimates for the technical assistance for rural transport

are based on the cost of similar consultants' services provided under the

Bank's projects in other countries; a total of 50 man-months has been

estimated, and a cost of about US$9,200 per man-month (excluding contingency

allowances). The cost estimates for simplified engineering of about 300 km of

rural roads are based on an average per km cost of US$2,000 (excluding

allowances).

3.19 The above man-month costs include salaries, social costs, firm's

overhead and profit, subsistence and other allowances, and reimbursable

items such as international travel.

3.20 The cost estimates for the engineering of the Togoba-Wapenamanda

road (67 km) are based on the cost of similar consultant's services in

PNG; the cost estimates average about US$10,500 per km (excluding contin-

gencies) and are reasonable.

3.21 The cost estimates for traffic counting equipment provide for

procurement of 24 traffic counters at an average cost of about US$3,000

each.

3.22 The consultants Cardno & Davies, PNG Pty, Ltd., and Scott, Wilson

and Kirkpatrick & Partners estimate that the foreign exchange component for

the improvement and paving works on the Highlands Highway is about 70%, if

carried out by international contractor. The foreign exchange component of

the consulting services is estimated at 80%, based on experience in recent

contracts with consulting firms. The cost of procurement of imported

equipment, materials, vehicles and spares is estimated to be 100% in foreign

exchange, or 65% of the total expenditures for item procured locally.

C. Financing

3.23 The total cost of the project is estimated at about US$42.4 mil-

lion. The foreign exchange component of the project, estimated to be about

US$30.1 million, is to be financed, up to a total of US$30.0 million, by a

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credit of US$13.0 million and a loan of US$17.0 million. The remainingproject cost of about US$12.4 million will be financed by the Government. TheGovernment has promptly provided the funds needed for expenditures under theFirst Highway Project and the Second Highlands Road Improvement Project. Theimplementation of the project works is scheduled to start by mid-1980, forwhich an allocation of Government budgetary funds of about K 5.0 million(US$7.0 million) is needed. At present, the Government has only allocated K0.5 million (US$0.7 million) for the project in its NPEP budget for 1980. Thematter was discussed with the Government and an assurance was given that anecessary increase in the allocation would be made by mid-1980.

D. Implementation, Procurement and Environmental Aspects

3.24 DWS will be responsible for the execution of the project, with theexception of the technical assistance for rural transport and procurement ofthe traffic counting equipment which the DTCA will handle. Consultants willassist DWS in supervising the improvement and paving works on the HighlandsHighway, in providing technical assistance and training in maintenance, inexecuting the rural road engineering, and in carrying out engineering of theTogoba-Wapenamanda road. Consultants will also assist DTCA in providingtechnical assistance to provincial governments for rural transport. Theequipment, materials, vehicles and spares (about US$71,000 before contin-gencies) will be procured by international shopping following the Bank Group'sguidelines or, in the case of small items whose value is less than US$10,000each, by local procurement procedures acceptable to the Bank Group. Domesticmanufacturers for the purposes of bid evaluation will be given a preference of15% of the c.i.f. price or the customs, duties and tax prices, whichever isless.

3.25 The improvement and paving works on the Highlands Highway will becarried out through a single contract to be awarded after internationaltendering. The Government completed, after international advertising, theprequalification of contractors for the works; 12 contractors from 9 countrieswere prequalified. The Government called tenders on December 3,1979, andopened them on February 29, 1980; five contractors submitted competitive bidswhich remain valid until May 30, 1980. The Government expects to award thecontract to the lowest evaluated bidder, Dillingham Corporation of New GuineaPty, Ltd. in late May 1980; the contract award will be made subject to theapproval of the proposed loan and credit by the Bank Group Board of ExecutiveDirectors. The works are scheduled to start in June 1980, and would last forthree years. The project also provides for training of PNG engineers who willbe attached to the consultants' supervising team on the works.

3.26 The Government has already acquired the land for the right of wayin varying widths from 20 m to 40 m, and DWS prepared a report on the currentstatus of land acquisition in view of the new requirements. It has beenagreed that the Government will take the necessary steps to complete the

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land acquisition in time prior to awarding the contract. The Governmentconfirmed at negotiations that necessary arrangements to acquire the landneeded were well under way.

3.27 A project implementation schedule (Table 11) has been agreed withthe Government. Procedures for reporting progress will be similar thoseused for the Second Highlands Road Improvement Project (Credit 677-PNG).

3.28 In executing the construction, the contractor is free to choosehis own methods, including the most economical use of mechanical equipmentand labor, subject to his work complying with the technical specifications.It would be impracticable to stipulate that contractor should carry out thework largely by labor because of the relative shortage of construction laborin the area, and because it would be technically difficult to achievesatisfactory quality. Also,the works would take much longer to complete andcost would be greatly increased. Nevertheless, it is expected that theworks will give direct employment, on average, to about 500 workers over aperiod of 36 months.

3.29 The project is not expected to have any significant adverseecological effects. Care has been taken in the design to minimize the riskof slips by avoiding unstable soil areas as far as practicable, and byproviding adequate drainage. Paving the road will of course eliminate thepresent danger and nuisances caused by dust, slippery and muddy surfaces.

E. Disbursements

3.30 Disbursements from the loan/credit will disburse the credit first,and the loan will follow. Disbursements will be against normal document-ation on the basis of: (i) 70% of the total cost of improvement and pavingworks; (ii) 80% of the cost of consultants'services; and (iii) (a) 100% ofthe foreign exchange cost of the imported equipment, materials, vehicles andspares and (b) 65% of total expenditures for items procured locally. Onthat basis, and on the schedule for execution of the project (para. 3.25), aSchedule of Estimated Disbursements has been prepared (Table 12); this wasreviewed with the Government during negotiations. The quantities of workperformed by the contractor will be measured monthly and certified by thesupervising consultant. Payments will be subject to internal audit by theDWS and to audit by the Government Auditor-General's Office.

4. ECONOMIC EVALUATION

A. General

4.01 The Central Highlands Region has a mild climate (ecologicallyhaving close affinities to the temperate rain forests of Australia),relatively fertile soils which are suitable for growing coffee, tea,

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tobacco, and other upland crops such as pyrethrum (an insecticide),vegetables and fruits and extensive grasslands suitable for livestockraising. Having been opened up to the outside world only a generation or soago, the region is just beginning to be developed.

4.02 The region's development has been hampered by, among otherfactors, the difficult conditions for providing transport. The maincorridor of the Highlands is now served by the Highlands Highway, the mostimportant and most heavily trafficked road in the region. The proposedproject will provide a paved road from Lae, the major seaport, through toGarnigl less than 90 km from Mt. Hagen, the entrepot for the Highlands areaand will permit a reduction in vehicle operating costs, particularly forheavy trucks.

B. Development Potential and Traffic

Development Potential

4.03 The majority of the people in the Central Highlands Region areengaged in subsistence agriculture. The major commercial production iscoffee and tea and, recently, helped through past transport improvements,has extended to cattle and minor crops, mainly vegetables and pyrethrum.The people have been responsive to cash cropping and the region haspotential to expand productive activities but this is, however, constrainedby the following:

(a) disregard of local population for cash. Since the basic needs ofthe people are obtained through subsistence agriculture, cash isrequired mainly to fill a specific, usually social, objective andwith the exception of some demand for substitute staples, i.e.,rice, is not required to maintain their normal consumptionpatterns;

(b) limited extension services, particularly for the main crop,coffee. Although the Government has undertaken a training programfor additional services, it will be some years before the resultswill be seen in increased production;

(c) the land tenure problem. Land ownership is complicated due to theconcept of communal ownership and lack of surveys and arable landmay lie fallow because there is a jurisdictional dispute overownership or the owners simply have no incentive to cultivate theland; and

(d) low population in some potentially productive areas (cultivableland remains uninhabited due to severe endemic malarialconditions).

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The nature of these problems suggest that incentives for developmentshould consider needs not necessarily directly related to economic

production. The proposed Technical Assistance for Rural Transport willconsider these factors (Annex 3).

4.04 The Government has done much to encourage increased agriculturalproduction particularly in the provision of infrastructure. Throughimproved communications additional assistance has been given by increasingextension services. As noted above, the people are responsive to cashcropping. This can be seen by comparing the production figures byindigenous and nonindigenous growers for coffee between 1965 and 1977:

PRODUCTION OF COFFEE IN THE HIGHLANDS BY INDIGENOUSAND NONINDIGENOUS GROWERS VERSUS TOTAL PRODUCTION

Year Indigenous Nonindigenous Total production

(Tons)1965 4,718 3,087 9,1431972 17,287 7,641 29,0151977 21,652 9,532 37,188

(p.a. growth rate)

1965-77 14% 10% 12%1965-72 20% 14% 18%1972-77 5% 4% 5%

Source: Bureau of Statistics, Rural IndustriesPublications 1965, 1972, 1977 and missionestimates.

4.05 The Highlands Highway has had an important impact on thedevelopment of the region. Although tll initial inducement to cash croppingin the Highlands was civil aviation, the building of the Highway has actedas a catalyst to promote increased development through better communicationsamong the growers and potential growers and less costly access to marketsand easier access to extension services. As noted in the table in para.4.04, the rate of growth of coffee production declined substantially between1972 and 1977. A major reason for this was that PNG was reaching its coffeequota limit and the Government simply stopped its extension services to thearea. However, there are some indications that the population is reaching abalance in the provision of labor for subsistence and cash cropping. Theproportion of the economically active population available for cash croppingappears to be diminishing and large increases in production due to expansionof the area under coffee production are unlikely. If more people were made

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available for cash cropping it would probably mean a reduction in traditionalfarming and an increase in import substitutes. Improvements to the Highwayitself will lead to some production increases even without the Governmenttaking complementary actions to promote additional development. The studiesfinanced under the Second Highlands Road Improvement Project in the Enga andChimbu provinces did address the question of development potential. Theinitial findings (the Enga study is not yet completed) indicate thatpositive, though limited, increases in production are possible, e.g., betterhusbandry, i.e., provision of increased extension services, would increaseproduction of the cash crops in the region by about 10% p.a. According tothe studies, small-scale industries are possible, but the markets for suchindustry are limited and the costs may outweigh the benefits. Theconclusion to date is that the present production base, i.e., agriculture,will remain the most important regional income earner for some time.

4.06 The importance of coffee to the regional economy can be seen bythe decline in the proportion of government expenditures to total regionalincome from 1965 to 1917. In 1965, government expenditures accounted for52% of total regional income. In 1977, government expenditures were only29% of total regional income supplanted largely by the increase in coffeeproduction. Income in the Highlands is dominated by agriculture and withinthe agricultural sector coffee is by far the most important cash crop. In1965, in constant prices, coffee contributed 86% of the total agriculturaloutput of K 7.1 million (US$10.0). Further, of the major income generators,forestry, manufacturing and agriculture, agriculture accounted for 83% ofincome generated. Thus coffee contributed 73% of the main sources of incomein 1965. In 1977 the equivalent figure was 77%, with tea, which wasintroduced into the region between 1965 and 1977, amounting to 7%. Thus,growth of income through 1984 based on coffee production is estimated to bebetween 5 and 7% p.a.

Traffic

4.07 Due to the lack of consistent traffic counts it is not possible togive precise trends in growth rates for traffic on the Highway. The datawhich are available show that traffic on the Highway has been growing from10% p.a. to 30% p.a. and on some sections over 35% p.a. These figures arenot unrealistic considering the low initial levels of traffic and thehigh growth rates of coffee production (para. 4.04).

4.08 The low level of development and the dependence on imports arereflected in the Imbalance of cargo movements between the port of Lae andthe Central Highlands, i.e. more inbound traffic than outbound. Based onestimates from data collected at the Lae station weigh bridge, imports areabout four times as much in volume as exports. The capacity demand fortransport will probably be controlled by inbound movements for some time.As evidenced by increasing incomes in the Highlands area and the lack ofconsumer-oriented production in the area, it is likely that import volumeswill continue to grow, at least in the immediate future. The growth in

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traffic will therefore be directly related to increases in income to pay forthe imports and the increases will largely be due to largest export earner,coffee, estimated to grow from 5% to 7% p.a.

4.09 1979 traffic volumes on the project section ranged between some370 to 1,000 vehicles per day (ADT). The proportion of bus and heavy trucktraffic varies between 30% and 50%, with an actual average for the foursegments of 40%. Based on regional growth (expected to average 3% to 3.5%p.a.), growth in coffee production and the available traffic statistics itis likely that traffic will grow about 7% p.a. over the next several yearsdeclining to about 5% p.a. as more processing is undertaken in theHighlands. The traffic growth rates for the Highway were estimated for theperiod 1984-1987 to be 7% and declining to 5% beginning in 1988 through theuseful life of the proposed improvements (20 years) (Table 13).

C. Benefits of the Project

4.10 The immediate effect of the proposed project will be to lowertransport costs by reducing vehicle operating costs for vehicle operators onthe road and reducing the now very high road maintenance costs. Since theproposed investment is for the improvement of an existing road, there islittle likelihood that there would be substantial generated traffic. Also,since the present road tariffs, even under existing conditions, aresubstantially lower than the alternative, civil aviation, no divertedtraffic is expected. Under the conditions prevailing in the road transportindustry, there is some question whether the vehicle operating cost savingswill be passed on to farmers and other users in the form of reducedtransport rates (para. 2.08). Should the relaxation of these regulationsincrease competitiveness, then the expected benefits of the services wouldaccrue to the users, such as subsistence farmers with smallholdings in cashcrops, and consumers, either through reduced tariffs or by retaining presenttariffs for a longer time during a Deriod of inflation. The benefits in thereduction of maintenance costs would result in either additional funds forroad maintenance or additional funds to general revenue.

4.11 Vehicle operating costs (VOC) and, hence, savings, were estimatedby consultants (Rendel Economics, Australia) to Government using theTransport and Road Research Laboratory, UK, approach and compared withactual vehicle behavior on the Highway. The VOC from the change from agravel (the present condition) to a bitumen road (the proposed condition)are summarized below:

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VEHICLE OPERATING COSTS ON GRAVEL AND BITUMEN ROADS(Kina/km)

Small Medium HeavyMotor car commercial commercial commercial Bus

Gravel 0.1040 0.2110 0.4300 0.8202 0.6487Bitumen 0.0792 0.1605 0.3473 0.6962 0.5805VOC saving 0.0248 0.0505 0.0827 0.1240 0.0682

Source: Department of Transport and Civil Aviation, Tables 14 and 15.

Commercial vehicles range from 50% to 60% of the total traffic on the dif-ferent sections of the road. The small commercials are light four-wheeldrive vehicles carrying up to one ton. The medium commercials are lighttrucks with a cargo capacity up to 6 tons. The heavy commercials are allheavy trucks over 6 tons, including semi-trailers. The average capacity forthese latter vehicles was estimated by the consultants to be about 10 tons.Although the sensitivity of maintenance cost savings to the economic returnfor the proposed investment is negligible (see below), the concern of theGovernment over the prevailing high cost of maintenance is considerable.Present maintenance costs on the sections proposed for improvement areestimated by DWS to be about K 6,000/km (US$8,400/km)./L As traffic growsthese costs are estimated to increase to about K 8,600/km (US$12,040/km) by1984 and K 13,400 with the proposed improvements, maintenance costs shouldaverage K 2,000/km (US$2,800/km). The Government is rightly concerned sinceits proposed plan for sector expenditures allocates about K 15.0 million(US$21.0 million) for maintenance in 1984 for all 5,000 km under itsresponsibility. The sections of the Highway to be improved under theproject represent some 3% of the system being maintained by the CentralGovernment and would take about 10% of the 1984 allocation if not remedied.Based on the vehicle operating cost savings and maintenance cost savings,the average economic rate of return (ERR) for the project is 18% with theERR for individual sections ranging from 21% to 14% (Table 16). This ERR isbased on the most cost effective investment, since the improvements proposedby DWS are the effective minimum required to carry the existing and futuretraffic and no reduction in costs are sensibly possible. Further, given theGovernment's budget limitation, it is not practical to consider improvementswhich are more extensive than proposed.

LI The precise cost is difficult to ascertain due to the lack of cost databy different types of operations, i.e. rehabilitation, routine andperiodic maintenance.

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4.12 The calculated ERR was tested for its sensitivity to variations incosts and benefits. A 20% increase in costs decreased the ERR to 16%. Theelimination of maintenance cost savings decreased the ERR to 15% (Table 17).The results of these sensitivity analysis indicate that the risk isminimal in that neither overall cost increases nor benefit decreaseshas an impact on the ERR that would put into question the proposedimprovements to the Highway.

4.13 While the benefit estimates, based on transport cost savings alonefor normal traffic only and maintenance cost savings, undervalue the fullextent of the benefits in that marginal increases in production of each

crop will likely occur as well as other changes in the level and structureof regional activities which are expected to be positive but are notpossible to quantify, these estimates do illustrate the economic viabilityof the investment. Furthermore, the improvement of existing transportfacilities normally lead to some production increases even without othergovernment measures and the proposed improvement is therefore consistentwith the Government's aim of increasing economic production as well asaiding rural welfare by improving communications.

5. AGREEMENTS REACHED AND RECOMMENDATIONS

5.01 During negotiations, agreement was reached with the Government that

it shall:

(a) continue its review of the civil aviation system and Inform the BankGroup by June 30, 1981 of proposed measures, if any, to increasecompetition (para. 1.17);

(b) continue its review of the coastal and intercoastal shipping regula-tions, especially those covering trading licenses, and inform theBank Group by June 30, 1981, of proposed measures to deregulate thisindustry (para. 1.20);

(c) promote interprovincial commerce, free from undue regulatory inter-ferences or restrictions except for those resulting from regulationsconcerning safety and damage to the system (para. 2.07);

(d) submit by June 30, 1981, a proposal as approved by the Bank Group,for the deregulation of the trucking industry, to the NationalExecutive Council (NEC) based on the principals and time agreedduring negotiations for the NEC's consideration and possible adop-tion (para. 2.09);

(e) establish by June 30, 1981, a system of regular traffic counting,such system to be adequate to render regular service to DWS, DTCAand the provincial authorities in needs of it (para. 2.10);

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(f) continue the existing program of road works and administrationtraining of its DWS with such modification as shall be satisfactoryto the Bank Group (para. 2.14);

(g) submit to NEC, by June 30, 1981, a proposal on a general transportpricing policy to increase transport user charges progressively to alevel sufficient to cover, by December 31, 1986, the cost of mainte-nance and administration of transport infrastructure, and further,submit to the Bank Group, by December 31, 1981, evidence that theproposal had been submitted (para. 2.24); and

(h) continue to investigate ways of promoting the domestic road con-struction industry and developing experience among the domestic roadcontractors; furnish to the Bank Group by December 31, 1980, areport on the status of these investigations and thereafterfurnish to the Bank Group an annual report for comments each yearuntil 1984 on the measures taken, if any, for the promotion ofthis industry (para. 2.28).

With the above assurances the project is suitable for a Bank loan ofUS$17.0 million for a period of 20 years, including a grace period of 5 years,and for an IDA credit of US$13.0 million for a period of 50 years, including agrace period of 10 years.

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ANNEX 1Page 1

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Description of Highlands Highway SectionBetween Kassam Pass and Daulo Pass

To be Improved and Paved

General

1. The Highlands Highway extends for about 600 km from the port of Lae

to Mendi via Waterais, Goroka, Kundiawa, Mount Hagen and Togoba. It is theonly means of transport, apart from air transport, for the entire CentralHighlands Region. The highway has been gradually upgraded since World War II

from a primitive track, but is still inadequate for some of its length.

2. The Government's Seven-Year Road Program (1976-82) includes improv-ing and paving the Highlands Highway from Lae through the Central HighlandsRegion up to Togoba, a total length of 475 km. The existing road between theport of Lae has a bituminous pavement up to Erap (16 km). The next sectionbetween Erap and the start of Kassam Pass (112 km) is under reconstructionwith ADB financing; it is being improved to bituminous standard with a 6.5 mcarriageway and shoulder 1.5 m on both sides. The contract works are nowabout 50% complete and are scheduled to be finished in 1981. The sectionthrough Kassam Pass (10 km) is paved and its condition is satisfactory. Thefollowing section is that between the end of Kassam Pass, via Henganoffi

and Goroka to Daulo Pass; the length of the existing road is 143 km of which137 km will be improved and paved under the proposed project. In the nextstretch between Daulo Pass (Asaro) and Garnigl (83 km), the current SecondHighlands Road Improvement Project (Cr. 677-PNG) provides for constructionand improvement of 68 km of the existing road; a short section betweenWatabung and Chuave (15 km) is scheduled for improvement by departmentalforces in 1981 for which DWS is preparing the detailed engineering. FromGarnigl the highway is paved up to Togoba (111 km), except for a shortsection between Minj and Kudjip (13 km) which is to be sealed by DWS forcesin 1980. Thus, the improvement and paving under the proposed project of thesection from the Kassam Pass to Daulo Pass section will complete paving of

the Highlands Highway from Lae up to Togoba.

3. Under the First Highway Project (CR204/LN93-PNG), three sectionstotalling 150 km were reconstructed between Kundiawa and Mendi: (i) Kundi-awa-Minj; (ii) Kudjip-Mount Hagen-Togoba; and (iii) Kaupena-Assissi. TheGovernment improved the remainder of the road between Mendi and Togoba fromits own resources. All these sections received a gravel surface except for7 km of bituminous surfacing in Mount Hagen and an access road to the town'sairport near Kagamuga.

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ANNEX 1Page 2

4. As mentioned above, the Second Highlands Road Improvement Project(Cr. 677-PNG) included the construction and improvement, includingbituminous paving, of high priority sections, totalling about 68 km betweenAsaro and Garnigl. The design standards for the road are generally "RuralClass 1" (Table 6). The total width is 7.5 m, consisting of a 5.5 mbituminous pavement and 1 m shoulders. The construction contracts are nowabout 71% complete; the works are proceeding satisfactorily and arescheduled to be finished by mid-1981.

5. The Third Highway Project will improve the section of the highwaybetween Kassam Pass and Daulo Pass which is presently of low gravelstandard, steep and subject to slope slides causing interruption to traffic.The works, which will complete the improvement and paving of this sectionwill allow heavy vehicles to operate faster and thus further reducetransport costs. The proposed works consist of improvements to the existingroad for a length of 137 km to DWS Rural Road One Design Standard'(Table 9)and of paving a 6.5 m carriageway with 0.5 m shoulder on both sides. Theproposed horizontal alignment will accommodate design speeds 60 km/hour forflat/rolling terrain, reduced to 50 km/hour in hilly terrain and 30 km/hourin the mountains. The new center-line will follow essentially the existingalignment except for a few minor realignments, mainly at bridge crossings.The carriageway will have double bituminous surface treatment while theshoulders will be provided with a single coat. Of the 32 existing bridgeson the highway, eight will be replaced by new two-lane permanent structures.

6. Detailed engineering for the Highlands Highway section betweenKassam Pass to Daulo Pass was originally prepared in 1974 when consultantsValentine, Laurie and Davies (Australia) carried out the engineering for thewhole stretch between Waterais and Togoba under the Second Highlands RoadImprovement Project (Cr. 677-PNG). Because of insufficient field survey, thisoriginal engineering work has only been of use as preliminary engineering.Therefore, in 1979 the Government engaged local consultants Cardno and Davis,PNG, Pty, Ltd., in association with Scott, Wilson and Kirkpatrick & Partners,U.K., to complete the engineering for the Kassam to Daulo Pass section ingreater detail. This work, which was funded by the Government, is nowcomplete. A description of the Highlands Highway section included in theproject, and the work to be carried out, follows.

7. The existing road is 137 km long and passes through mountainous andhilly country. West to Kassam Pass it crosses the south western flanks ofthe Bismarck Range. These flanks are strongly dissected in the eastern halfby the tributaries of the Ramu River. From the top of Kassam Pass(elevation 1485 m) the road descends into the open grasslands of the RamuValley and crosses it at elevation 1250m. It then rises oversemi-mountainous terrain to an elevation of 1675m before descending into thegentle terrain of the Ramu Valley at Kainantu. Between Kainantu (elevation1565m) and Henganoffi the road ascends gradually across the flank of thevalley and water streams of the Ramu River to a maximum elevation of 1910 mbefore dropping steeply along narrow river terraces at Henganoffi. From

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ANNEX 1Page 3

Henganoffi the road traverses hilly terrain into the Asaro Valley and descendsgradually to low terraces of the Asaro River at elevation 137 jLu beforeascending gradually along high terraces through Goroka. The road crosses theAsaro River at elevation 1540 m near the foot of Daulo Pass.

8. The predominant base geological units crossed by the highway areMesozoic and Tertiary metamorphic, sedimentary and igneous units which aredeeply weathered. Large basins of pleistocene sediments are recent alluvialterraces comprising silty sands and gravels. Although the region throughwhich the road passes is generally in a phase of relative stability, much ofthe region is geologically young and some movement of the existing ground isstill taking place.

9. Slopes along the highway are grass covered. Natural forest isconfined to high steep slopes of the mountainous sections. Alluvialterraces are intensively cultivated for subsistence and cash crops. Thenature of the soil mantle depends on the geological rock origin andcomprises residual and some colluvial soils.

10. The existing road has a gravel carriageway 5.0 to 6.0 m wide.Its horizontal alignment is fair, considering the difficult terrain itpasses through in some stretches. In the mountains, steep gradients of upto 15% are quite frequent and the existing drainage facilities are poor.Along this section the road is provided with 32 single-lane bridges invarying conditions.

11. The 137 km project route from the end of Kassam Pass to Daulo Passwill be constructed mainly on the existing alignment, except for realignmentsto new bridge structures. Eight of the existing bridges will be replaced bynew permanent two-lane structures; DWS will carry out necessary maintenanceand repair works on the remaining existing bridges. The present trafficvaries from 400 to about 900 ADT.

April 1980

- 40 -

ANNEX 2Page 1

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Technical Assistance for Maintenance

Outline Terms of Reference

Background

1. Although the technical standard of DWS maintenance on the nationalroads is satisfactory, its costs are extremely high and its degree of effi-ciency is not known since supporting data are lacking. On provincial andlocal village roads, the standard of maintenance varies from province toprovince but it is in general, poor. Since January, 1979, the provincialgovernments are responsible for maintaining provincial and local villageroads, and their concept of maintenance is unclear.

ObJectives

2. The main objective of this technical assistance is to improveefficiency of maintenance operations on national, provincial and local

village road networks, and some airfield strips. Also, it should assist theGovernment in developing policies on maintenance spending levels, roaddesign standards, and road rehabilitation requirements.

Scope of Consultant Services

3. After review of the current status of maintenance activities at

national and provincial levels, the consultant should prepare proposals on:

(a) build up of a maintenance information system at the nationaland provincial levels, which includes road inventory and trafficdata, records on maintenance works and results, and maintenancecosts;

(b) methods of executing maintenance works (departmental units andcontractors);

(c) financing arrangements, programming and budgeting of maintenanceoperations;

(d) interrelationship between road design and maintenance standardsincluding the economics of sealing as opposed to continuing unsealedroad maintenance;

- 41 -

ANNEX 2Page 2

(e) feasibility of placing local road maintenance under Local VillageCouncils; and

(f) identification of current manpower limitations in DWS and provin-

cial organizations both in equipment and road maintenance activi-ties.

Staff and Training

4. It is envisaged that the consultant would provide services of two

road maintenance engineers and two training officers in two stages. In thefirst two years, the consultant engineering staff would establish a Mainten-ance Operations Section at DWS Headquarters, review the current status ofmaintenance activities by DWS, provincial governments and local villagecouncils, and prepare proposals for improvement of maintenance activities.The two training officers (one for road maintenance and the second for workshops) would start their training activities at the beginning of the firststage and will continue for about two years. In the second two years, theconsultant engineering staff would assist in the implementation of theirproposals, as approved or modified by the Government. It is envisaged thatthe scope of the consultant's services would total about 140 man-months.Subject to availability of suitable local staff, the Government wouldprovide counterparts to the consultant's engineering staff.

- 42 -

ANNEX 3Page 1

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Technical Assistance to Provincial Governments for Rural Transport

Introduction

1. It is well understood that in Papua New Guinea the impact of roadsupon social and economic development is considerable, and with significantproportion of the population yet to be integrated into the national economy,the pressures for road access by rural populations are strong. The size ofthe total population in relation to the country's land mass, however, isgenerally small. Moreover, the terrain is mountainous, the geology young, andthe rainfall high. In many cases the physical isolation of pockets of therural population is difficuit to overcome in an environment in which the costsof normal road construction and maintenance are high in comparison with othercountries at a similar stage of development.

2. The Government of Papua New Guinea has decided, in consultation withthe International Bank for Reconstruction and Development (IBRD) that a com-ponent of the Third Highway Project would be a provision for a study into thepossibility of improving and increasing access into rural areas. Although thelocal demands for road access are great, rural populations may be too smallfor roads to be justifiable in economic terms at current levels fo productionand consumption, and at current road construction and maintenance costs.Accordingly, it is intended to review various ways in which design and imple-mentation procedures can be better filled to the particular situations inPapua New Guinea. Also the study would examine the possibilities of providingor improving access by means of other modes of transport, at least to thestage where economic activity and income levels allow road access to beeconomically justified. Another very important part of the transport studywould be to identify steps and measures to be taken in each province so thatover time capabilities be created to plan, construct and maintain simple ruralinfrastructure projects. The maintenance element is being carried out byseparate consultants to the Department of Works and Supply. An outline oftheir terms of reference is attached. The two consultant services would beexpected to coordinate their activities through their respective DepartmentProject Officers.

3. For the rural transport study, several projects have already beenidentified by provincial governments which might be suitable for inclusionand would help formulate the basis for the screening process. They are:

- 43 -

ANNEX 3Page 2

Project Status Km Province

Daga Area Access New 50+ Milne BayJimi Valley Access Upgrade 50 Western HighlandsGaulim - Open Bay Upgrade 50 East New BritainSlate Creek - Aseki - ReconstructionMenyamya & New 100 MorobePongani - Afore Upgrade & New 50 Northern

Consideration should be given to other types of access, i.e. air strips,feeder roads to airstrips, and jetties (para. 3.14).

Obilectives

4. The principal objectives of the Rural Transport Study are: (a) toassist a few selected Provincial Government agencies in building up thecapacity for the identification, preparation and implementation of transportprojects; (b) to assist with the improvement of accessibility of selectedrural areas in those provinces; and (c) to prepare a transport investmentprogram for the selected provinces which will, while considering all modes,will identify at least 300 km of rural roads for consideration forconstruction or rehabilitation. The time frame will be for five years withconstruction beginning in 1982. These principal objectives will be carriedout by:

(a) investigating alternative routes of access and modes of transport,assessing their social and economic viability, proposing a programof investment in appropriate modes for a particular area, and suchcomplementary investments as may be required;

(b) developing a simple method of screening transport infrastructureprojects proposed by provincial governments which would help rankthem considering their potential for development and their responseto the basic needs, i.e. health, education and communications, ofthe community and recommending a practical method for provincialgovernment agencies to carry out the preparation of projects withlimited or no use of outside assistance.

(c) undertaking engineering studies necessary to assess the cost ofinvestments, and to enable construction work to be carried out.These works would include small investments such as bridge or jettyrepairs;

(d) recommending standards of design sufficient to gain appropriateaccess;

- 44 -

ANNEX 3Page 3

(e) recommending methods and/or organization of construction compatiblewith Government's aims of (rural) development; and

(f) based on the findings, prepare practical design and implementationprocedures which may be followed by the provincial government agen-cies on a country-wide basis and the perceived training needs.

Scope and Methodology

5. Consultants will carry out all work necessary to obtain the objec-tives set out above. They will approach their tasks in the following manner:

(a) Economic evaluation. Carry out such investigation as required toestablish the demand for transport based on the present and futurelevels of social and economic activity in an area. They will reviewthe adequacy of existing access and transport services, and whetherthese are sufficient to meet existing and estimated future demand.

(b) Assess the benefits of improved access on the present and futurelevels of social and economic activity in the area. It will benecessary to identify possible increases in productive capacity andsocial improvement resulting from improved access. Nontransportinvestment required to realize productive potential must beidentified and their magnitude indicated.

(c) Assess the most appropriate type of transport investment to reachany given level of increased activity. It is anticipated thatall (possible) modal types will be investigated as technicallyappropriate. In difficult terrain, Consultants should pay parti-cular attention to the feasibility of different means of transport(aerial ropeways, for example, Attachment 1) as well as phasedinvestments._/

/1 Included where appropriate, phased investments for improved accessconsidering the duration of each phase, the cost of each investment, andthe benefits to flow from it. An example of such a program might be:

Phase I - Improved air services together with extended/upgraded feederroads and/or walking tracks to airstrips.

Phase II - Access by ropeway over difficult terrain, by basic road overeasier terrain.

Phase III - Continuous basic road access.

Phase IV - Upgraded road access.

- 45 -

ANNEX 3Page 4

(d) Investigate the possibilities of initial improvement of existing(air) services with regard to infrastructure and equipment; indicatethe amount, duration, and manner of any subsidy of air operationsrequired to achieve the phasing of transport improvement.

(e) Indicate the distribution amongst regions and sections of the com-munity of benefits accruing from each transport investment.

(f) Indicate the sensitivity of the benefits of the investments tochanges in the determinants of transport demand, and to variationsin capital and maintenance costs of each appropriate investment.The consultants will use their discretion as to the degree ofsensitivity testing required, since it is felt that this area canbecome better known during the course of the study.

Specific Areas

6. The consultants should, inter alia, review and make recommendationson the following:

(a) means of using or increasing the capacity of the domestic contract-ing industry for the construction of rural roads in their program;

(b) the feasibility of limiting vehicle sizes and weights to reducerural road costs in project areas; and

(c) information on costs to relate charges to the resources consumedin providing the transport infrastructure.

In addition, the consultant will comment on the present regulations concern-ing civil aviation, commercial road transport and coastal shipping todetermine their impact on rural development, particularly civil aviationcargo transport capability.

Engineering

7. The scope of possible engineering investigations is set out inAttachments 2 and 3 and they are to be undertaken bearing in mind thatconstruction of any engineering works will be by methods which allow amaximum of benefits to accrue to the local population.

General

8. The executing agency in Government for this study will be theDepartment of Transport and Civil Aviation. In 1977, however, many of thefunctions of government were decentralized, with provincial governmentsassuming regulatory and financial control in a number of areas and sharepower with the central government in other areas. Provincial governmentsare being financed through Central Government by conditional and unconditional

- 46 -

ANNEX 3Page 5

grants, Central Government refunds of certain revenues, and by their owntaxation measures. The degree of preparedness among the provinces toassume their new responsibilities is varied. There are critical shortagesof qualified personnel and an absence in many provinces of the essentialinstitutions that would assist the provincial leadership in identifyingdevelopment investment priorities and planning their implementation. As aprincipal objective of the assistance is, therefore, as far as is practic-able, to assist provincial staff in identification, preparation and imple-mentation work. It is anticipated that consultants will carry out theirassignments, again as far as is practicable, from a suitable base or bases inthe respective province or provinces.

9. The Government shall provide the consultant with all availableinformation and reports relevant to the study. In connection with work bythe consultant which requires the cooperation of Government or other publicagencies, the Department of Transport and Civil Aviation and the Departmentof Works and Supply will provide liaison, and will ensure that the consult-ant has access to all available information necessary for completion of thestudy.

10. Consultants shall:

(a) present data and recommendations in a form which can be checked andreworked at suitable intervals by DTCA;

(b) present engineering costs in a form suitable for economic analysis;

(c) update their findings based on the final engineering estimates forthe projects. The update will include all relevant economic dataespecially traffic counts and commodity production. This update isexpected to occur six months after completion of the Draft FinalReport (below).

11. Reports. The consultant will indicate in the Inception Report,which is due within one month of the commissioning of the study, any changesin the terms of reference required to fulfill the principal objectivesparticularly those regarding working arrangements with the selected provincialgovernments for consideraticn by DTCA. The Interim Report will describe allprojects which have been identified by type, timing and estimated cost as wellas their preliminary recommendations for design and implementation proceduresto be carried out by provincial government agencies and for training. Thisreport will be due within five months after go-ahead and will be submitted tothe selected provinces as well as DTCA for their comments. At this stage theGovernment may give the go-ahead to commence with the limited engineering forthe selected roads. The Draft Final Report, which is to include all findingsand recommendations, will be due within seven months after commissioning. TheFinal Report will be due within three months after submission of the draftfinal report to the Government or one month after receipt of comments fromGovernment whichever is earlier.

- 47 -ANNEX 4Page 1

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Project-Related Documents and Data Available in the Project File

A. General Reports and Studies on the Transport Sector

A-1 The National Public Expenditure Plan 1978-1981, Project Design List,

Government of PNG.

A-2 The National Public Expenditure Plan, 1982-1984, Government of PNG

A-3 Transport Policy & Programmed Expenditure 1979-1982, DTCA.

A-4 Transport Projects for International Finance 1980's, 1977, DTCA.

B. General Reports and Studies Relating to the Project

I. Studies and Reports

B-1 Feasibility Study of the Togoba - Wapenamanda Road, 1979, by

Rendels and Partners (Australia).

B-2 Appraisal of the Highlands Road Improvement Project in PNG, 1977,

Asian Development Bank.

B-3 Technical Assistance to Local Civil Engineering Contractors, Final

Report 1979, Rendels and Partners (Australia).

B-4 The Highlands Highway, Kassam to Daulo Pass, Economic Re-evaluation,

1979, Economic Studies Group (UK).

B-5 Vehicle Operating Costs, 1979, Rendels Economics (Australia).

B-6 Highlands Highway Project Kundiawa, Intensive Construction Group,

Final Report, 1979, Snowy Mountains Eng. Corp. (Australia).

B-7 Rural Industries, 1965, 1969, 1971/72, 1972/73, 1976/77, Bureau of

Statistics, Port Moresby

II. Detailed Engineerying Reports

B-7 Detailed Engineering for the Highlands Highway Between Waterais

and Togoba, 1974, Valentine, Laurie and Davies (Australia).

B-8 Detailed Engineering and Tender Documents for the Highlands Highway

Between Kassam to Daulo Pass, 1979, Cardno & Davies PNG Pty. Ltd.,

and Scott, Wilson, Kirkpatrick and Partners (PNG and UK).

B-9 Highlands Highway, Bridge Investigation Report, 1979, Cardno & Davies

PNG Ltd., and Scott, Wilson, Kirkpatrick and Partners (PNG and UK).

- 48 -ANNEX 4Page 2

B-10 Highlands Highway, Kassam to Daulo Pass, Prequalification ofContractors, 1979, Cardno & Davies PNG Ltd., and Scott, Wilson,Kirkpatrick and Partners (PNG and UK).

III. Government Reports

B-11 Highlands Highway, Erap River to Kassam Pass, Final EngineeringReport, 1977, DWS.

B-12 Highlands Highway, Erap River to Kassam Pass, Tender EvaluationReport, 1978, DWS.

B-13 Planning, Engineering and Construction of Penetration Roads, 1979,DWS.

B-14 Department of Works and Supply, General Information, 1979.

B-15 Highlands Highway, Kassam to Daulo Pass, Draft Tender EvaluationReport, 1980, DWS.

C. Selected Working Papers

C-1 Parameters for Price Contingency Calculations.

C-2 Cash Flow Analysis and Contingency Calculations for ProjectComponents.

C-3 Economic Rate of Return and Sensitivity Analysis Calculations.

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Vehicle Fleet - Number of Vehicles on Register, 1963-78

Vehicle 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

Motor Cars

Highlands 218 248 N/A 341 512 669 892 1,034 1,144 1,283 1,263 1,084 1,089 1,008 1,023 N/A

Other provinces 4,712 5,269 N/A 6,547 7,865 9,454 10,651 13,600 13,773 14,390 13,550 12,261 12,819 12,472 11,913 N/A

Subtotal 4,930 5,517 6,072 6.888 8,377 10,123 11,543 14.634 14,917 15,673 14,813 13,396 13,908 13.480 12,936 N/A

Station Wagons &Jeeps

Highlands 63 107 N/A 182 232 313 328 348 453 530 531 490 524 564 555 N/A

Other provinces 809 1,020 N/A 1,468 1,923 2,499 2,641 2,532 3,595 3,854 3,696 3,424 3,491 7,149 3,737 N/A

Subtotal 872 1,127 1,460 1,650 2.155 2,812 2.969 2,880 4,048 4,3R4 4,227 3,914 4,015 7,713 4,292 N/A

MotorcyclesHighlands 177 183 N/A 258 278 348 418 552 580 531 528 618 627 668 760 N/A

Other provinces 381 501 N/A 878 1,242 1,687 1,813 2,305 2,414 2,516 2,421 2,790 3,188 3,198 2,676 N/A

Subtotal 558 684 896 1,136 1,520 2,035 2,231 2.857 2,994 3.047 2,949 3,395 3.815 3,R66 3,436 N/A

TractorsHighlands 82 109 N/A 175 296 313 397 462 487 547 560 496 381 415 513 N/A

Other provinces 348 414 N/A 524 694 798 1,013 1,255 1,262 1,374 1,380 1,328 1,405 1,338 1,299 N/A

Subtotal . 430 523 598 699 990 1,111 1,410 1.717 1.749 1,921 1,940 1,863 1,786 1,753 1,812 N/A

Commercial VehiclesHighlands 534 637 N/A 966 1,309 1,819 2,209 2,598 2,797 2,921 3,150 3,165 3,479 3,747 4,868 N/A

Other provinces 4,208 4,562 N/A 5,922 6,345 7,559 8,874 9,981 11,658 11,752 11,752 13,174 14,427 15,483 16,419 N/A

Subtotal 4,742 5,199 6,286 6888 7,654 9,378 11,083 12,579 14.455 14,673 15,077 16,398 17,906 19,230 21,287 N/A

Total VehiclesHighlands 1,074 1,284 N/A 1,922 2,627 3,462 4,244 4,994 5,461 5,812 6,032 5,853 6,100 6,402 7,719 N/A

Other provinces 10,458 11,766 N/A 15,339 18,069 21,997 24,992 29,673 32,702 33,886 32,974 32,977 35,330 39,640 36,044 N/A

Total 11,532 13,050 15,312 17,261 20,696 25,459 29,236 34,667 38.163 39,698 39,006 38,966 41,430 42,575 43.763 N/A

Sources: Department of Transport and Civil Aviation and Bureau of Statistics.

October 1979 I

- 50 -

Table 2

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Road Transport Statistics by Provinces, 1976-77

Motor Km ofvehicles roadsper per

Province Population Motorized Km of 1,000 1,000('000) vehicles roads people people

Western 81 115 1,066 1.4 13.2

Gulf 86 61 278 0.7 3.2Central (includingnational capital) 148 14,455 1,540 97.7 10.4

Milne Bay 133 227 405 1.7 3.0

Northern 73 450 504 6.2 6.9Southern highlands 252 469 1,385 1.9 5.5Enga 186 347 773 1.9 4.2

Western highlands 210 2,636 1,043 12.6 5.0

Chimbu 224 583 754 2.6 0.8

Eastern highlands 282 2,367 1,366 8.4 4.8

Morobe 307 6,780 1,291 22.1 4.2

Madang 207 2,287 1,099 11.0 5.3

East Sepik 245 2,090 1,220 8.5 5.0

West Sepik 116 309 537 2.7 4.6

Manus 27 422 123 15.6 4.6

New Ireland 63 770 1,377 12.2 21.9East New Britain 114 3,787 1,146 33.2 10.1

West New Britain 81 906 817 11.2 10.1

North Solomons 100 3,514 1,327 35.1 13.3

Total 2,837 42,575 18,351 15.0 6.5

Source: Department of Transport and Civil Aviation.

- 51 -

Table 3

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

PNG Harbours Board Administered Ports(Revenue '000 tons)

1973/74 1974/75 1975/76 1976/77 1977(1/2) 1978

Overseas Cargo

Imports 717 849 655 749 435 896

Exports 283 302 279 286 134 299

Subtotal 1,000 1,151 934 1,035 569 1,195

Overseas unitized 87 82 89 110 57 130

Oil tonnages n.a. n.a. 320 300 110 215

Coastal Shipping

Discharge 196 222 214 231 125 265

Loaded 157 180 160 189 100 217

Subtotal 353 402 374 420 225 482

Total 1,430 1,635 1,717 1,865 961 1,922

Source: PNG Harbours Board.

November 1979

* 52 -

Table 4

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Volume of Major Exports(m tons)

1973/74 1974/75 1975/76 1976/77 1977P

Copra 123.5 113.8 137.1 136.6 124.7

Coffee 31.2 32.7 36.8 37.2 49.8

Cocoa 22.1 28.7 35.5 30.4 28.0

Fish 12.7 38.6 ,1.6 19.9 31.8

Palm oil 8.1 8.7 18.4 27.1 26.9

Tea 2.8 4.0 4.5 4.9 6.0

Rubber 5.6 6.1 5.5 5.0 4.4

Subtotal 206.0 232.6 259.4 261.1 271.6

Copper concentrates 495.1 717.1 623.7 530.2 552.9

Timber 468.2 703.6 427.3 418.3 546.7

Total 1,169.3 1,653.3 1,310.4 948.5 1.099.6

P = Preliminary

Source: Bureau of Statistics.

November 1978

- 53 -

Table S

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Nev Transportation Prolects Pro2wsed in the

National Public Expenditure Program. 1980-83(r'000)

1980 1981 1982 1983 Total

Total NPEP projects 117 800 119.200 89 200 73.500 399.700

Transport projects 19.851 19 159 13.733 13.441 66.148

ObJective 1: Rural Welfare3 x 25 meter barges 420 - - - 420

Village-level low technology ship-ping advisor 20 20 - - 40

Rural transport sectoral program 2,500 3,500 3,500 3,500 13,000

ObJective 2: Less Developed AreasHuon Peninsula regional program 1,155 908 938 996 3,997

ObJective 4: Economic ProductionRamu dist. transp. & rural dev. 200 - - - 200

Hudrographic survey consultant 250 - - - 250

Backup vessel to MV Agilani 345 - - - 345Navigational aids vessel 105 695 - - 800

New lights structure - marine 100 - - - 100

Upgrading maintenance of nationalairports 54 21 - - 75

Fire fighting & safety equipment 420 420 - - 840

Air navigation & radio networkimprovement 330 136 - - 466

Baiyer River-Ruti road 50 - - - 50Minj-Ganiger highlands highway 765 - - - 765

Finschhafen-Wasu road 296 - - - 296

Sowan River bridge 50 - - - 50

4 bridges - north coast roads,Madang 55 - - - 55

Goilala access road 300 - - - 300

Hiritano highway - Kerema-Malalaua 1,000 1,260 - - 2,260

Wewak-Aitape road 250 250 400 - 900Rumginae-Ningerum road, stage I 90 - - - 90

Waterais-Usinon road 400 400 400 1,450 2,650Mai/Luni Sepik highway 500 - - - 500

Sepik highway - liewak Passamsealing 700 400 - - 1,100

Garnigl Chuave - Highlands Highway 1,775 - - - 1,775

Highlands highway - Markham Valleysealing 4,950 2,213 - - 7,163

Rigo road sealing 690 - - - 690

Rigo road bridges 200 200 - - 400

Highlands highway - Kassam-Daulosealing 500 8,000 8,000 7,000 23,500

Aerodrome improvements - Momote 350 200 - - 550

New terminal - Kieta 50 - - - 50

Fire station & access road -Jackson's airport 223 - - - 223

Lorengau Wharf 50 - - - 50Drainage & pavements - Bewani 37 - - - 37

Upgrading Rabaul to F-28 standard 130 - - - 130

Objective 6: TrainingMarine engineering lecturers 116 - - - 116

Nautical training equipment - 91 7 7 99

Oblective 8: Effective Administra-tionPolicy & planning division 88 88 88 88 352

Transport economist (UNDP-financed) 37 - - - 37

Transport inspectorate branch - 57 100 100 257

National government aircraft 300 300 300 300 1,250

Source: NPEP, 1980-83.

November 1979

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Expenditures on Roads. 1968-79(K million)

Estimated

Type of project 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79

Capital

Highway 1.3 2.4 3.5 8.2 7.9 7.5 9.3 9.7 13.5 14.70 16.1

Trunk 2.1 1.3 2.3 2.3 1.9 - - 4.3 3.2 3.00 -VI-

Development, agri-

culture & resource 0.4 0.7 0.4 0.8 1.1 - - - 1.6 1.60 -

%0

Rural improvement 0.4 0.9 1.0 1.1 1.0 1.9 4.2 6.0 6.2 0.30 -

Urban 1.7 1.5 1.6 3.6 1.5 - - - - 0.05 -

Unclassified - - 0.1 0.2 - - - - - - -

Subtotal 5.9 6.8 8.9. 16.2 13.4 9.4 13.5 20.0 24.5 19.65 16.1

Haintenance

Roads & bridges 6.0 6.9 8.5 9.6 9.9 13.2 18.9 16.3 18.9 16.30 17.0

Total 11.9 13.7 17.9 25.8 23.3 22.6 32.4 36.3 43.4 35.95 33.1

Source: Department of Transport and Civil Aviation, October 1979.

- 55 -

Table 7

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Central Government Expenditure by Function, FY73-1978(K million)

1977 LaFY73 FY74 FY75 FY76 FY77 Jul-Dec 1978 lb

General public services 50.0 57.1 82.2 96.7 104.8 54.1 111.4

Social services 66.0 73.6 90.8 106.3 116.0 68.6 116.5

Economic services 77.1 90.8 126.5 132.6 133.1 74.3 141.8Transportation 29.7 41.9 65.4 65.3 55.3 33.0 58.5

Unallocable JC 57.3 86.0 74.4 79.6 55.5 14.1 94.5

Total 250.4 307.5 373.9 415.2 409.4 211.1 464.2

Transport as % of total 12 14 17 16 14 16 13

/a Preliminary actuals.

lb Budget estimates.

/c Excludes interest on government securities paid to the National Debt SinkingFund.

Source: Department of Finance.

November 1978

- 56 -

Table 8

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Road Infrastructure - Composition of Expenditure andEstimated Revenue from Road User Charges in 1976/77

(K million)

Estimated revenue ExpenditureSource of revenue Amount Type of expenditure Amount

Automotive gasoline tax 3.33 Capital 24.2

Automotive distillate(diesel fuel) tax 0.58 Maintenance 17.5

Motor vehicle registra-tions and other fees 1.89 Administration 5.6

Import duties and mis-cellaneous charges 2.40 Policing 1.8/a

Total 8.20 Total 49.3

/a One-tenth of total police costs.

Source: Department of Transport and Civil Aviation.

November 1978

PAPUA IJEI ClINEA

TRIRD PIG1WAY PROJECT

Design Standards for Rural Roads

Maximumliax. speed Absolute Desirable length at 1axiuum Overall

Class of road Terrain Design for sight minimum minimum General Absolute absolute length width Pavementspeed distance radius radius maxlmum elaximus maximum desirable between vidth

benching curve curve gradient gradient grade grade shoulders(km/hr) ('Kmhr) (n) (in) (a/W) (a/ ) (a) (a) (a) (m)

Primary Flat/P.lling 80 100 200 paved 350 .04 .07 No limit 12 /I 6.5250 gravel 10.5

Hilly 60 80 125 paved 250 .06 .08 600 1,2Q0 11 /I 6.5

130 pravel 10Hountainous 40 60 50 paved 90 .08 .10 250 500 8.5 6.n

60 gravel

Rural Flat/Rolling 60 80 125 paved 250 .06 .nR 6n0 1,2nO I0.5 6.0

class 1 130 gravel R.5Hilly 50 60 95 paved 150 .Ot .10 300 600 8.0 6.0 I

95 Fravel

Mountainous 30 50 30 paved 50 .10 .12 250 50n 7.5 5.5 -.

30 pravel

Rural Flat/Rolling 60 80 130 gravel 250 .06 .08 600 1,20n 8.5 3.6

class 2 Hilly 40 so 60 gravel 75 .10 .12 25t 50O 7.0 3.6Nountalnous 25 40 20 gravel 30 .12 .14 150 300 7.0 3.6

Rural Flat/Rolling 50 60 95 gravel 150 .08 .10 500 1,000 7.0 3.6

class 3 Hilly 30 40 30 gravel iO .10 .12 250 500 6.0 3.6mountainous 25 30 20 gravel 30 .12 .14 150 300 6.0 3.6

Accessclass I As for rural class 3 5.0 3.6

Access As for rural class 3 3.6 Full widthclass 2 as required

Bridge Loadlng, National Asaociation of Australian State road Authorities (HAASRA), Pridge Design Specification (1476): Standard Vehicle Loading Claas T 44.

Pavement: Axle load 18,000 lbs (design based on projected ntmber of repetitions of "equivalent IP,000 lba axle loads").

/1 The higher is to be adopted where traffic voluse Is between 2,500 and 5,000 v.p.d.

/2 The higher is to adopted in rolling terrain where sight distances are limited.

Source: Depart ent of UDrks and Supply.

December 1979

58

Table 10

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Estimated Cost of Project /a

Kina (million) US$ (million) % ForeignProject item Foreign Local Total Foreign Local Total component

A. Improvement and pavingof Highlands Highwaybetween Kassam andDaulo Pass (137km) 13.230 5.670 18.900 18.654 7.995 26.649 70

B. Supervision:

1. Supervision of worksincluding training /b 1.285 0.321 1.606 1.812 0.452 2.264 80

2. Assistance in con-tract management 0.042 0.011 0.053 0.060 0.015 0.075 80

Subtotal B 1.327 0.332 1.659 1.872 0.467 2.339 80

C. Technical Assistance

for Maintenance andTraining1. Consulting services 0.630 0.170 0.800 0.889 0.240 1.129 792. Training aids and

equipment 0.050 - 0.050 0.070 - 0.070 100

Subtotal C 0.680 0.170 0.850 0.959 0.240 1.199 80

D. Technical Assistancefor Rural Transportand Road Engineering1. Study services 0.260 0.065 0.325 0.366 0.092 0.458 802. Road engineering 0.330 0.095 0.425 0.465 0.135 0.600 78

Subtotal D 0.590 0.160 0.750 0.831 0.227 1.058 80

E. Engineering of Togoba-Wappenamanda Road 0.400 0.100 0.500 0.564 0.141 0.705 80

F. Traffic CountingEquipment 0.050 - 0.050 0.071 - 0.071 100

Subtotal A-F 16.227 6.432 22.709 22.951 9.070 32.021 72

G. Contingency Allowances:1. Physical (10Z)/c 1.628 0.643 2.271 2.295 0.907 3.202 722. Price (20%)/d 3.424 1.378 4.802 4.829 1.944 6.773 71

Subtotal G 5.052 2.021 7.073 7.124 2.851 9.975 71

TOTAL COST OF WO0RKS 21.329 8.453 29.782 30.075 11.921 41.996 72

H. Land Acquisition - 0.300 0.300 - 0.423 0.423 0

TOTAL COST OF PROJECT 21.329 8.753 30.082 30.075 12.344 42.419 71

/a Prices as at March 1, 1980./b 8.5Z of Item A./c On all Items./d Price increases on Items A, B C, and D2, with physical contingencies at estimated rate

of 10.5% for 1980; 9% for 1981, 8% for 1982, 7% for 1983 and onwards./e Kina 1.00 = US$1.41.

Sources: Estimates by Department of Works and Supply, and Department of Transport and CivilAviation.

April 1980

- 59 -

Table 11

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Project Implementation Schedule

Action ImplementationStart Complete

A. Improvement and Paving ofHighlands Highway

1. Appoint consultants andsupervise improvementand paving works May 1, 1980 June 30, 1983

2. Award of contract May 30, 1980

3. Improvement and paving works June 1, 1980 May 31, 1983

B. Technical Assistance for RoadMaintenance

1. Invite and evaluateconsultant's proposals,appoint consultant March 1, 1980 July 1, 1980

2. Technical assistance program:(a) Stage I (Review and Proposals) August 1, 1980 July 31, 1982(b) Stage II (Implementation) August 1, 1982 July 31, 1984

3. Training August 1, 1980 July 31, 1982

C. Technical Assistance for RuralTransport and Road Engineering

1. Invite and evaluate consultant'sproposals, appoint consultant forrural transport study April 15, 1980 July 31, 1980

2. Execution of technical assistancefor rural transport(a) Stage I (Interim Report) Sept. 1, 1980 Dec. 15, 1980(b) Stage II (Technical Assistance) Dec. 15, 1980 June 30, 1981

3. Simplified engineering for sample January 1, 1981 Sept. 1, 1981priority roads

4. Simplified engineering for other January 1, 1981 June 30, 1982priority roads

D. Engineering of Togoba-WapenamandaRoad

1. Invite and evaluate consultant'sproposal, appoint consultant June 15, 1980 Oct. 15, 1980

2. Detailed engineering November 1, 1980 Dec. 31, 1981

Source: Department of Works and Supply, and Department of Transport and CivilAviation.

April 1980

- 60 -

Table 12

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Schedule of Estimated Disbursements

Cumulative disbursementsFiscal year at end of quarterand quarter (US$ '000)

IBRD Loan IDA Credit

1981December 31, 1980 5,300March 31, 1981 7,300June 30, 1981 9,300

1982September 30, 1981 11,400December 31, 1981 500 13,000March 31, 1982 2,800June 30, 1982 5,000

1983

September 30, 1982 7,000December 31, 1982 9,000March 31, 1983 11,000June 30, 1983 13,000

1984September 30, 1983 14,000December 31, 1983 15,500March 31, 1984 16,000June 30, 1984 16,500

1985September 30, 1984 16,800December 31, 1984 17,000

Source: Estimates by Department of Works and Supply,Department of Transport and Civil Aviation and Bank Group

April 1980

- 61 -Table 13

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Traffic Projections on the Highlands Highway, 1979-2003

Annual Average Daily Traffic Volume

I II III IVSection Daulo Pas- Goroka- Henganofi- Kainantu-

Goroka Henganofi Kainantu Kassam PassYear and composition (22 km) (45.5 km) (38 km) (32.3 km)

1979 (Actual)Car 497 385 172 117Small commercial 195 196 79 55Medium commercial 87 89 61 43Heavy commercial 137 188 130 121Bus 49 27 18 14

Total 965 885 460 350

1984 (Estimated)Car 730 564 250 173Small commercial 286 289 115 81Medium commercial 128 131 88 63Heavy commercial 201 276 189 178Bus 72 39 27 20

Total 1,417 1,299 669 515

1987 (Estimated)Car 894 691 306 212Small commercial 350 354 141 99Medium commercial 157 160 108 77Heavy commercial 246 338 231 218Bus 88 48 33 24

Total 1,735 1,591 819 630

2003 (Estimated)Car 1,952 1,508 668 463Small commercial 764 773 308 216Medium commercial 343 349 236 168Heavy commercial 537 738 504 476Bus 792 105 72 52

Total 3,786 3,473 1,788 1,375

Source: Department of Transport and Civil Aviation and mission estimates.

October 1979

- 62 -

Table 14

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Vehicle Operating Costs on the Highlands Highway

Total Operating Cost ('000 kms) on Unpaved Roads (1979 prices)

Motor Small Medium HeavyComponent car comm. comm. comm. Bus

Fuel: Liters consumedFlat terrain (56% of road length) 39.3 66.2 58.0 147.0 125.7Hilly terrain (44% of road length) 65.0 107.7 135.3 243.3 189.1Per 1,000 kms of road length 104.3 173.9 193.3 390.3 314.2Cost/liter 0.25 0.25 0.21 0.21 0.21Cost 26.08 43.45 40.59 81.96 66.11

Maintenance parts: Cost 6.91 26.15 28.12 71.28 24.65

Maintenance labor: Quantity 1.03 2.41 10.24 10.24 1.91Cost/hour 11.0 11.0 11.0 11.0 11.0Cost 11.33 26.51 112.64 112.64 21.01

Tires: Quantity 0.21 0.21 0.10 0.28 0.20Cost/tire 50 50 140 160 160Cost 10.5 10.5 14.0 44.8 32.0

Crew hours: Quantity 0 44 100 67 67cost/hour 0 0.50 1.00 3.75 3.75Cost 0 22.00 100.00 251.25 251.25

Lubricating oil: Quantity 2.4 3.6 8.0 8.0 8.0Cost/liter 1.33 1.33 1.33 1.33 1.33Cost 3.19 4.78 10.64 10.64 10.64

Depreciation: Cost 36.56 25.27 17.41 44.14 82.05

Total running cost/1,000 kms 94.57 158.66 323.24 616.71 487.71Overhead cost factor 0.10 0.33 0.33 0.33 0.33Overhead cost 9.46 52.36 106.72 03.51 160.94

Total Operating Cost/1,000 kms 104.03 211.02 429.96 820.22 648.68

Cost/km (Kina) 0.1040 0.2110 0.4300 0.8202 0.6487

Source: Department of Transport and Civil Aviation.

October 1979

- 63 -Table 15

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Vehicle Operating Costs on the Highlands Highway

Total Operating Cost ('000 kms) on Paved Roads (1979 prices)

Motor Small Medium HeavyComponent car comm. comm. comm. Bus

Fuel: Liters consumedFlat terrain (56% of road length) 45.2 58.6 57.0 141.8 121.8Hilly terrain (44% of road length) 61.3Per 1,000 kms of road length 106.5 166.8 187.4 362.6 305.4Cost/liter 0.25 0.25 0.21 0.21 0.21Cost 26.63 41.70 39.35 76.15 64.13

Maintenance parts: Cost 3.50 12.40 16.98 43.05 11.02

Maintenance labor: Quantity 0.72 1.60 6.61 6.61 1.02Cost/hour 11.00 11.00 11.00 11.00 11.00Cost 7.92 17.60 72.71 72.71 11.22

Tires: Quantity 0.07 0.07 0.07 0.20 0.14Cost/tire 50 50 140 160 160Cost 3.50 3.50 9.80 32.00 22.4

Crew hours: Quantity 0 44 100 67 67cost/hour 0 0.50 1.00 3.75 3.75Cost 0 22.0 100.0 251.25 251.25

Lubricating oil: Quantity 1.2 1.8 4.0 4.0 4.0Cost/liter 1.33 1.33 1.33 1.33 1.33Cost 1.60 2.39 5.32 5.32 5.32

Depreciation: Cost 28.86 21.06 16.96 42.99 71.11

Total running cost/1,000 kms 72.01 120.65 261.12 523.47 436.45Overhead cost factor 0.10 0.33 0.33 0.33 0.33Overhead cost 7.20 39.81 86.17 172.75 144.03

Total Operating Cost/1,000 kms 79.21 160.46 347.29 696.22 580.48

Cost/km (Kina) 0.0792 0.1605 0.3473 0.6962 0.5805

Source: Department of Transport and Civil Aviation.

October 1979

PAPUA NEW1 GUINEA

THIRD HIGHWAY PROJECT

Set Benefit and Cost Flown(R'000)

Section 0 (22 ki) Section II (45.5 k1) Section III (38 km) Section IV (32.3 km)Total proiect (all four sections) Daubl Pass - Goroka Goroka - He.sanofi Henganofi - Kainantu Kainantu - Kassam Pass

Vehicle Minte- Total Vehicle Mainte- Total Vehicle Mainte- Total Vehicle Mainte- Total Vehicle Hainte- TotalCivil operating nance net Civil operating noses net Civil operating nance net Civil operating sance net Civil operating nance netYear works cost savings savings flow weeks cost savings savings flow worhs cost navisgs savings flow works cot savings savings flow works cost savings savings flow

1980 -5,331.5 -5,331.5 -853.0 -853.0 -1,759.4 -1,759.4 -1,492.8 -1,492.8 -1,226.3 -1,226.31981 -6,356.9 -6,356.9 -1,017.1 -1,017.1 -2.097.8 -2,097.8 -1,779.9 -1,779.9 -1,462.1 -1,462.11982 -5,536.6 -5,536.6 -885.9 -885.9 -1,827.1 -1,827.1 -1,550.2 -1,550.2 -1,273.4 -1,273.41983 -3,281.0 -3,281.0 -525.0 -525.0 -1,082.7 -1.082.7 -918.7 -918.7 -754.6 -754.61984 2,907.7 909.0 3,815.9 585.9 145.0 730.9 1,267.2 300.9 1,567.3 618.1 251.0 869.1 436.5 213.0 649.5 o1985 3,111.2 965.0 4,076.2 626.9 154.0 780.9 1,355.9 319.0 1,674.9 661.4 266.0 927.4 467.0 226.0 693.0 c1986 3, 329.0 1,048.0 4,377.0 670.8 167.0 837.8 1,450.8 346.0 1,796.8 707.7 289.0 996.7 499.7 246.0 745.71987 3,562.1 1,130.0 4,692.1 717.8 180.0 897.8 1,552.4 373.0 1,925.4 757.2 312.0 1,069.2 534.7 265.0 799.71988 3,740.1 1,199.0 4,939.1 753.6 191.0 944.6 1,630.0 396.0 2,026.0 795.0 331.0 1,126.0 561.5 281.0 842.51989 3,927.1 1,268.0 5,195.1 791.3 202.0 993.3 1,711.5 419.0 2,130.5 834.8 350.0 1,184.8 589.5 297.0 886.51990 4,123.6 1,336.0 5,459.6 830.9 213.0 1,043.9 1,797.1 441.0 2,238.1 876.6 369.0 1,245.6 619.0 313.0 932.01991 4,329.7 1,405.0 5,734.7 872.4 224.0 1,096.4 1,886.9 464.0 2,350.9 920.4 388.0 1,308.4 650.0 329.0 979.01992 4,546.2 1,488.0 6,033.7 916.0 238.0 1,154.0 1,981.3 491.0 2,472.3 966.4 410.0 1,376.4 682.5 349.0 1,031.01993 4,773.4 1,571.0 6,344.4 961.8 251.0 1,212.8 2,080.3 519.0 2,599.3 1,014.7 433.0 1,447.7 716.6 368.0 1,084.61994 5,012.1 1,571.0 6,583.1 1,010.0 251.0 1,261.0 2,184.3 519.0 2,703.3 1,065.4 433.0 1,498.4 752.4 368.0 1,120.41995 5,262.7 1,571.0 6,833.7 1,060.4 251.0 1,311.4 2,293.6 519.0 2,812.6 1,118.7 433.0 1,551.7 790.0 368.0 1,158.01996 5,525.9 1,571.0 7,096.9 1,113.5 251.0 1,364.5 2,408.2 519.0 2,927.2 1,174.7 433.0 1,607.7 829.5 368.0 1,197.51997 5,802.1 1,571.0 7,373.1 1,169.1 251.0 1,420.1 2,528.6 519.0 3,047.6 1,233.4 433.0 1,666.4 871.0 368.0 1,239.01998 6,092.4 1,571.0 7,663.4 1,227.6 251.0 1,478.6 2,655.1 519.0 3,174.1 1,295.1 433.0 1,728.1 914.6 368.0 1,282.61999 6,396.9 1,571.0 7,967.9 1,289.0 251.0 1,540.0 2,787.8 519.0 3,306.8 1,359.8 433.0 1.792.8 960.3 368.0 1,328.32000 6,716.7 1,571.0 8,287.7 1,353.4 251.0 1,604.4 2,927.2 519.0 3,446.2 1,427.8 433.0 1,860.8 1,008.3 368.0 1,376.32001 7,052.6 1,571.0 8,623.6 1,421.1 251.0 1,672.1 3,073.6 519.0 3,592.6 1,499.2 433.0 1,932.2 1,058.7 368.0 1,426.72002 7,405.1 1,571.0 8,976.1 1,492.1 251.0 1,743.1 3,227.3 519.0 3,746.3 1,574.1 433.0 2,007.1 1,111.6 368.0 1,479.62003 7,775.5 1,571.0 9,346.5 1,566.8 251.0 1,817.8 3,388.6 519.0 3,907.6 1,652.9 433.0 2,085.9 1,167.2 368.0 1,535.2

Ec-nonic rate of -etaco = 181 21% 21Z 15% 14%

Soure: Nlission estimateso

April 1980

- 65 -

Table 17

PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT

Sensitivity Analysis of Costs and Benefits on Economic Rate of Return(%)

All Section Section Section Sectionsections I II III IV

Best estimate of ERR 18 21 21 15 14

Increase constructioncosts by 20% 16 18 19 13 12

Decrease vehicles operatingcosts by 10% 17 19 20 14 13

Eliminate maintenance savings 15 17 18 12 10

Decrease maintenancesavings by 50% 16 19 20 14 12

Increase construction costsby 20% and eliminatemaintenance savings 13 15 16 10 8

Source: Mission estimates.

April 1980

.

PAPUA NEW GUINEA: THIRD HIGHWAY PROJECTDEPARTMENT OF TRANSPORT AND CIVIL AVIATION

ORGANIZATION CHART

STATUTORY SOD IES : ItAATO I

El IO

POLICY& PLANNING MANAGEMENT SERVICESDIVISION

ASST SeCRETA8Y~ ~ ~ ~ ~~~~DGDCFEO ACONS |DTODLJDO INEDNALf

COORDINATION 0 |ONEARO~ DEGT_E I J

.1-1-ION E--TIE P- ENGAGT ERITIO STR ITENL ERON-OL OFIEUFDOFFICER FNENOR'CERITRN

CIV|LAVIAT)ONDIVISiON MATITIMEEIVISION TAISTFC OIR LKRR FCRR D FI

,LI- I II IN PA -

.1 RC.TPIOLLeR ] [ DIRE .TOR | | WIEEAC R L A O

CIOILAVIATION DIVISION +MRTM IIIN <+ L:TASOTDVSO

ENRS CLONE

I

Chart 2

PAPUA NEW GUINEA: THIRD HIGHWAY PROJECTDEPARTMENT OF WORKS AND SUPPLY

ORGANIZATION CHART

MINISTER FOR WORKS & SUPPLY

SECRETARY FOR WORKS& SUPPLY

FIRST ASSISTANT FIRST ASSISTANT

SECRETARY SECRETARY

WORKS SUPPLY

ARCHITECTURE L ROADS& GOVERNMENT|

l l i ~~~~BRIDGES STORES

GENERAL GOVERNMENT~~E =ER NER.D G E

MECHANICAL& PROPERTY

ELECTRICAL SUREY ADMIN

PLANNING L | OCAL I LAFNIN GOVERNMENT|

ILABORATORY L GUANTITY |l l l l l ~~SURVEY

CONTRACTS

= e = | l ASSISTANT SASSSTANESECETARASSISTANT SECRETARY ASSISTANT SECRETARY] ASSISTANT SECRETARY A STAF TSEVE L AMN

OPERTIONS PLANT & TRANSPORT MANAGEMENT SERVICES SA TRAINING

_|HEAVY PLANT | -| ACCOUNTS | q TRAINING

TCLERICAL]

-| IGHPLNT_| STAFF l _|TRAINING

-| FIXED LANT | l SLARIES l jLOCALIZATION|

ARVIEIS POLICY

-|AUDIT

| OFFICE SERVICES

PROVINCIAL|SERVICES|

COMPUTERS|

A ~~~AREA=ORSMANAGERS OROKO LAE MAANG MT.HAGEN RAAUL

PROVINCIALWORKS NAT. CAP GIST.

MANAGERS BOROKO LAE MADANG MT. HAGEN RABAUL

S CENTRAL . I W k2I

-| BOROKO _POPONDETTA |_ WEWAK MENDI l t KIMBE

O ARU l |GOROKA VANIMO l |KUNDIAWA | KAVIENG

KEREMA LORENGAU | | WABAG KIETA

ALOTAU |

Sou,oe- Department of Works and Supply. World Eask-2101 B

IBRD 11428R2

543 44 145 ~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~14~ 5470 DECE-MBER 1979

' 143° \ 144o 1 0 145° ' al30 PAPUA NEW GUINEA

THIRD HIGHWAY PROJECT-, ~~~~~~~~~-~~~~~'- ~~~~~~Existing Roads

F A S T E P K Constructionand improvement P FirstProject

W ES P - NI A - A Feasibiity Study I Lo r,n693/Credit2 O4

SEP{K, W1? ' M A D A N G Construction and improvement 1Credit 677 s.

- -v- Improvemrentand Paving- Third Highway Project

-v8>%, >" ' ~ ~ ~~~~ \ ~ > t__-.> -S$ Mountainous ArannM2,0003000n30

X-< g xk ,.' ez,y, < ~ tMADANG M- untainous Areas)Over 3,000m)

t_, %>~ -----A -- Provincial Boundaries

o Lake Kopiuge 9 0

-> -- o Lakesptaurt E N O ,ABAG ; /ES- Her--4kumbu KILOMETERS

< ~~- /8eneesmanda tIGHLXbS Ci . - > Said B i s m a cak

tiz T ~~ ~~~~ ( >9 \> I" Kf~TO f WLM E .,I, Se

0->Tigibi Mar-rima

[ '>0 'll~~~~~~~Mrganma - Y--.--',-- -. '

W/ESTERN \<%7u 'for I ¢ rX+ $ 0 0

SAC/EEC OCEAN > M5g , S/UO7

[ 1 ! MANUS , tz ~~~NEW IRELAND \ 'S,t/O RO<BE\,

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Gulf of Pau~~~~~~~ »--- Q 1400~H o AUST~IA~IA ~ I CRAL SEA P '- KEEMA .-- OC-AN a