SCCD: G .G.

CONFIDENTIAL AFRICAN DEVELOPMENT FUND ADF/BD/WP/2006/141 08 November 2006 Prepared by: OINF Original: English

Probable Date of Board Presentation

TO BE DETERMINED FOR CONSIDERATION

MEMORANDUM TO : THE BOARD OF DIRECTORS FROM : Modibo I. TOURE Secretary General SUBJECT : ETHIOPIA: PROPOSAL FOR AN ADF LOAN OF UA 65,000,000 TO FINANCE THE JIMA-MIZAN ROAD UPGRADING PROJECT * Please find attached a copy of the Appraisal Report on the above-mentioned project.

The Loan agreement is being negotiated. The Outcome of Negotiations and draft Resolution will be submitted to you, for approval,

once the negotiations are completed.

Attach: Cc: The President

* Questions on this document should be referred to:

Mr. G. MBESHERUBUSA Director OINF Extension 2034 Mr. J. RWAMABUGA Manager OINF.2 Extension 2181 Mr. M. O. AJIJO Principal Transport Economist OINF.2 Extension 3110 Mr. N. KULEMEKA Principal Social Economist OINF.2 Extension 2336 Mr. A. BABALOLA Senior Transport Engineer OINF.2 Extension 2525 Mr. E. ALEMSEGED Infrastructure Specialist ETFO Extension 3863

SCCD: G .G.

AFRICAN DEVELOPMENT FUND Language: English Original: English Distribution: Limited

CONFIDENTIAL

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

JIMA-MIZAN ROAD UPGRADING PROJECT

APPRAISAL REPORT

This report is made available to staff members to whose work it relates. Any further release must be authorized by the Vice-President for Operations.

INFRASTRUCTURE DEPARTMENT OINF TRANSPORT DIVISION.2 AUGUST 2006

TABLE OF CONTENTS Page PROJECT INFORMATION SHEET, CURRENCY AND MEASURES, (i-xi) LIST OF TABLES, LIST OF ANNEXES, LIST OF ABBREVIATIONS, BASIC PROJECT DATA, PROJECT LOGICAL FRAMEWORK, EXECUTIVE SUMMARY 1. ORIGIN AND HISTORY OF THE PROJECT 1 2. THE TRANSPORT SECTOR 2

2.1 Sector Overview 2 2.2 Transport System 2 2.3 Bank Group Contribution to Transport Sector 3 2.4 Transport Policy, Planning and Coordination 4

3. THE ROAD SUB-SECTOR 5

3.1 Road Network, Vehicle Fleet and Network Traffic 5 3.2 The Road Transport Industry 5 3.3 Road Administration and Training 7 3.4 Road Planning, Financing and RSDP 8 3.5 Road Engineering and Construction 9 3.6 Road Maintenance 10

4. THE PROJECT 13

4.1 Project Concept and Rationale 13 4.2 Project Area and Project Beneficiaries 14 4.3 Strategic Context 16 4.4 Project Objectives 16 4.5 Project Description 16 4.6 Traffic and Road User/Agency Unit Prices 17 4.7 Environmental and Social Impact 19 4.8 Project Costs 22 4.9 Sources of Finance and Expenditure Schedule 23

5. PROJECT IMPLEMENTATION 25

5.1 Executing Agency 25 5.2 Institutional Arrangements 26 5.3 Supervision and Implementation Schedule 27 5.4 Procurement Arrangements 27 5.5 Disbursement Arrangements 29 5.6 Monitoring and Evaluation 29 5.7 Financial Reporting and Auditing 29 5.8 Aid Co-ordination 30

6. PROJECT SUSTAINABILITY AND RISKS 30

6.1 Recurrent Costs 30 6.2 Project Sustainability 30 6.3 Critical Risks and Mitigation Measures 31

7. PROJECT BENEFITS 32

7.1 Economic Analysis 32 7.2 Social Impact Analysis 33 7.3 Sensitivity Analysis 33

8. CONCLUSIONS AND RECOMMENDATIONS 34

8.1 Conclusions 34 8.2 Recommendations and Conditions of Loan Approval 34

This Appraisal Report was prepared by Messrs. M.O. AJIJO (Principal Transport Economist, Ext. 3110), A. BABALOLA (Senior Transport Engineer, Ext. 2525), and N. Kulemeka (Principal Social Economist, Ext. 2336) and E. Alemseged (Infrastructure Specialist, ETFO) following their mission to Ethiopia in August 2006. Any inquiries relating to this report may be referred to either the authors or to Mr. J. RWAMABUGA, Manager, OINF.2, Ext. 2181 or to Mr. G.MBESHERUBUSA Director, OINF, Ext. 2034.

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AFRICAN DEVELOPMENT FUND Temporary Relocation Agency

BP 323 1002 Tunis Belvedere, Tunis, Tunisia

Tel: (216) 7110 2040 Fax: (216) 7133 3680

PROJECT INFORMATION SHEET

The information given hereunder is intended to provide some guidance to prospective suppliers, contractors and consultants and to all persons interested in the procurement of goods and services for project approved by the Board of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Recipient. 1. COUNTRY : Ethiopia 2. PROJECT TITLE : Jima-Mizan Road Upgrading Project 3. LOCATION : Oromiya Regional State and Southern Nations, Nationalities and Peoples (SNNP) Regional State of Ethiopia 4. BORROWER : Federal Democratic Republic of Ethiopia 5. EXECUTING AGENCY : Ethiopian Roads Authority (ERA) P.O. Box 1770 Addis Ababa - Ethiopia Tel: (251) 1 156603 Fax: (251) 1 514866 E. Mail: era@ethionet.et 6. DESCRIPTION : The project consists of:

(a) Construction works for upgrading the existing 227.18-km gravel road to asphalt concrete surfaced standard with a 7.0-m carriageway and 1.5-m shoulder on either side from Jima in Oromiya Region State to Mizan in the Southern Nations, Nationalities and Peoples Region State.

(b) Consultancy services for i) supervision of the civil works and ii) Project Audit. (c) Resettlement/payment of compensation to affected population.

7. TOTAL COST : UA 101.53.million i) Foreign Exchange : UA 75.16 million ii) Local Cost : UA 26.37 million

ii 8. BANK GROUP LOAN ADF : UA 65.00 million 9. OTHER SOURCE OF FINANCE GOE : UA 36.53 million 10. DATE OF APPROVAL : December 2006 11. ESTIMATED STARTING : January 2008 – 36 months DATE OF PROJECT AND DURATION 12. PROCUREMENT OF : The civil works contract will be packaged in GOODS AND WORKS two lots to be procured under International Competitive Bidding (ICB) procedures, with Prequalification of contractors, and a regional preference margin. 13. CONSULTANCY SERVICES : Consultancy services for supervision of civil REQUIRED AND STAGE works will be acquired on the basis of two

OF SELECTION shortlists of qualified consulting firms one for each lot of civil works.

: Project audit services will be procured on the

basis of a Short list of auditing firms 1 SDR = UA 1 1 UA = US$ 1.45480 (August, 2006) 1 UA = ETB 12.5182 (August, 2006)

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CURRENCY AND MEASURES

Currency Equivalents (August 2006 Exchange Rates)

Currency Unit = Ethiopian Birr (ETB) 1 UA = ETB 12.5182 1 UA = US$ 1.45486 1 USD = ETB 8.6044 Weights and Measures 1 metric tonne (t) = 2,205 lbs. 1 kilogram (kg) = 2.205 lbs. 1 metre (m) = 3.281 ft 1 foot (ft) = 0.305 m 1 kilometre (km) = 0.621 mile 1 square kilometre (km2) = 0.386 square mile 1 hectare (ha) = 0.01 km2 = 2.471 acres 1 quintal = 100 kg FISCAL YEAR July 7- July 6

LIST OF TABLES Table 3.1 : Road Sector Maintenance & Capital Expenditure Table 3.2 : Road Fund Revenue and Regular Budget Allocation Table 3.3 : RSDP II – Physical Accomplishments by Type of Intervention Table 3.4 : Road Sector Maintenance and Capital Expenditures Table 3.5 : Road Fund Revenue and Regular Budget Allocation Table 3.6 : Road Maintenance Needs Versus Road Fund Revenue Table 4.1 : Base Year (2005) Motorized Traffic Table 4.2 : Summary of Project Cost Estimates by Components Table 4.3 : Summary of Project Cost by Category of Expenditure Table 4.4 Summary of Category of Expenditure by Sources of Finance Table 4.5 : Sources of Finance for ADF Component Table 4.6 : Expenditure Schedule by Components Table 4.7 : Expenditure Schedule by Source of Finance Table 5.1 : Summary of Project Implementation Schedule Table 5.2 : Summary of Procurement Arrangements

LIST OF ANNEXES ANNEX Titles 1. Project Location Map 2. Ethiopian Roads Authority Organization Chart 3. Project Implementation Schedule 4. Provisional List of Goods and Services 5. Summary RSDP Financing and Project Economic Analysis 6. Summary of Bank Group Operations as of August 2006 7. List of Annexes in Project Implementation Document

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LIST OF ABBREVIATIONS

AADT = Annual Average Daily Traffic ADB = African Development Bank ADF = African Development Fund BADEA = Arab Bank for Economic Development for Africa BCR = Benefit Cost Ratio CAA = Civil Aviation Authority CBO = Community Based Organization CBR = California Bearing Ratio CSP = Country Strategy Paper DCI = Development Cooperation Ireland DED = District Engineering Division DfID = Department for International Development (U.K.) DMO = District Maintenance Organization DRMC = District Road Maintenance Contractor EAL = Ethiopian Airlines EDF = European Development Fund EIRR = Economic Internal Rate of Return EMSB = Environmental Monitoring and Safety Branch EPA = Environmental Protection Authority ERA = Ethiopian Roads Authority ERTTP = Ethiopian Rural Travel and Transport Program ESAL = Equivalent Standard Axle Load ESL = Ethiopian Shipping Lines ETB = Ethiopian Birr EU = European Union FE = Foreign Exchange FTA = Ethiopian Transport Authority FYRR = First Year Rate of Return GER = Gross Enrolment Rate GOE = Government of Ethiopia (Federal Democratic Republic of Ethiopia) GPN = General Procurement Notice GTZ = Deutsche Gereuschraft fur Technische Zusammenarbeit HDM IV = Highway Management and Development Tool (IV) HIV/AIDS = Human Immuno Virus/Acquired Immune Deficiency Syndrome ICB = International Competitive Bidding IDA = International Development Association (World Bank) IEC = Information, Education and Communication IFAD = International Fund for Agricultural Development IRI = International Roughness Index JICA = Japanese International Cooperation Agency kph = Kilometres Per Hour MDG = Millennium Development Goals MoFED = Ministry of Finance and Economic Development MoTC = Ministry of Transport and Communication MoWUD = Ministry of Works and Urban Development MTR = Mid-term Review NDF = Nordic Development Fund NGO = Non-Governmental Organization NMT = Non Motorized Transport NPV = Net Present Value OPEC = Organization of Petroleum Exporting Country PASDEP = Plan for Accelerated and Sustained Development to End Poverty PER = Public Expenditure Review

v PID = Project Implementation Document PLWHA = People Living With HIV/AIDS ROW = Right-of-Way RRA = Rural Roads Authority RSDP = Road Sector Development Program RTA = Road Transport Authority SDPRP = Sustainable Development and Poverty Reduction Programme SIP = Sector Investment Program SNNPRS = Southern Nations, Nationalities and Peoples Region State. SPN = Specific Procurement Notice STI = Sexually Transmitted Infections TA = Technical Assistance TAF = Technical Assistance Fund TCDSC = Transport Construction and Design Share Company TRRL = Transport Road Research Laboratory VOC = Vehicle Operating Costs

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vii

ETHIOPIA: JIMA – MIZAN ROAD UPGRADING PROJECT RESULT BASED PROJECT MATRIX

Designed by Messrs. M.O. Ajijo/A. Babalola/N. Kulemeka Hierarchy of Objectives Expected Results Reach Performance Indicators

Source/Method Indicative Targets

Timeframe Assumptions/ Risks

1.Sector Goal 1.1. To improve the efficiency and the

capacity of the transport system to support economic and social development in Ethiopia on a sustainable basis.

Long Term Outcomes

1.1 Improved transport services and safety on the classified road network 1.2 Improved access to markets and social services. 1.3 Job creation and increased income opportunities

1.1 Ethiopia Population, transporters shippers, exporters, and Business community 1.2 Rural population in remote areas of the country. 1.3 Road side communities and skilled Ethiopian labor

1.1 Share of road network in fair to good (satisfactory) condition

1.2 Fatalities per 10,000 vehicles 1.3.Connectivity of the road network to provincial capitals, commercial centres, ports and other important nodes. 1.4 Proportion of inhabited land area within 5km from an all weather road

1.4 Number of local labour employed

Sources : Country Economic and Sector Data Base; National Statistics

1.1 Inventory of classified road network in fair to good condition to increase from 65% in 2006 to 84% by the end of 2015. 1.2 Fatalities rate in 2006 at 155/10,000 vehicles reduced to 60/10,000 vehicles in 2015 1.3 Road density increased from 33.6 km/1000 sq.km in 2006 to 59 km/1000 sq.km in 2015 1.4 Rural Accessibility Index to an all weather road at 27% in 2006 increased to 48% in 2015 Total employment/income’ for local labour per annum in road works grow at 5.0% from the 2005 base of 18,000/ETB 406.7 million

2. Project Objective 2.1 To improve road transport service levels between the towns of Jima and Mizan and to facilitate market integration with the rest of the country and foreign markets.

Medium Term Outcomes 2.1 Reduction in cost of transport on the project road corridor

Beneficiaries 2.1 Road users 2.2 Population in zone of influence, road users, shippers, exporters, producers and consumers and businesses in the project zone of influence.

Indicators 2.1 Vehicle Operating Costs (VOC) per vehicle kilometre (veh-km)

Target Indicators 2.1 Average annual composite VOC reduced from USD 0.75/veh-km in 2008 to USD 0.34/ veh-km in 2011.

Assumptions GOE commitment to RSDP as a pillar for achieving the objective of PASDEP Effective Donor coordinated support to the RSDP

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2.2 Reduction in journey time between major economic and social centres 2.3 Increased transport capacity for socio and economic activities in project zone of influence 2.5 Improved fiscal balance for the road sector

2.3 Shippers, businesses, producers and passengers in road zone of influence 2.4 Producers, Road Users, businesses and rural communities 2.5 Road Agency and Government of Ethiopia

2.3 Ratio of land transport cost to farm gate prices/FOB for export produce/CIF for imports 2.4 Passenger tariffs 2.2 Average annual travel time between Project zone of influence and key economic and social centers. 2.4 Increased traffic levels on the project road 2.5 Decrease in recurrent cost for project road

2.3 Ratio of transport cost to farm gate/cif/fob prices reduced by 30% from 2006 levels in 2011 for specific local and export produce Passenger tariff reduced from ETB 0.115/person/km in 2006 to ETB 0.092/person/km in 2011 2.2 Average travel time between Jima and Mizan reduced from 5 hours in 2008 to 3 hour in 2011; 2.3 Average annual travel time cost per composite veh-.km reduced from USD 0.128 in 2008 to USD 0.04 in 2011 when project road is completed 2.4 Traveled vehicle-km increased by 40.0% from 22.34 million in 2008 to 31.27 million in 2011 on completion of project

2.5 Annual recurrent maintenance cost needs decreased from USD 440.7/km in 2006 for gravel to USD 60.8/km in 2011 for asphalt surfaced standard.

Effective mobilization of resources for maintenance of the road network by RFA. Effective axle loan control system in place to ensure road asset preservation from pre-mature damage; Domestic construction industry strengthened to carry on required routine and period maintenance of the road network.

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3. Activities A. Civil Works 3.1 Pre-qualification of contractors 3.2 Issue and receipt of tenders 3.3 Evaluation, negotiation and award of

contracts. 3.4 Upgrade 227.18 km from gravel to A/C surfaced standard. B. Consultant Services 3.5 Approval of TOR and Short-list 3.6 Issue and receipt of RFP 3.7 Evaluation, approval and award of

contracts 3.8 Commencement of services C. Resettlement/Compensation 3.9 Relocation of public utilities 4.0 Payment of compensations to PAPs

Inputs

Inputs- million UA Civil Works 81.67 Supervision 2.86 Resettlement 0.93 Audit services 0.10 Base Cost 85.55 Contingencies Physical 8.46 Price 7.52 Total 101.53

SOURCES OF FINANCING (MILLION UA)

Source F.E L.C. Total

ADF 65.00 0.00 65.00

GOM 10.16 26.37 36.53

TOTAL 75.16 26.37 101.53

Short Term Outputs 3.1 Asphalt Concrete Standard Road with 7.0 metre carriageway and 1.5 m shoulders on either side from Jima to Mizan including of repairs/ and rehabilitation of bridge structures.

Beneficiaries 3.1 Road Users, producers, consumers and the communities in project zone of influence 3.2 Regional States of Southern Nations and Oromiya and district governments of zone of influence. 3.3 Road side communities and local Contractors and shippers.

Indicators 3.1 Number of km of road constructed and bridges repaired/rehabilitated. 3.2 Employment generation for road side communities market for local contractors. Source/Methods: Quarterly Reports, Bank Supervision reports, Audit reports, Mid-term review.

Target Indicators 3.1 227.18 km upgraded between Jima and Mizan from gravel to asphalt concrete surface standard. 3.2 Number of local labour employed and value of subcontracts to local contractors

Assumptions 3.1 Resettlement Action Plans implemented on schedule ; 3.2 Government Utility Agencies relocate utilities on schedule to avoid delays in possession and hand over of Right of way to contractor . 3.3 Stable polity with out tension and civil strife that can affect contractors’ work program. 3.4 Government timely payment of counterpart funds as per implementation schedule

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EXECUTIVE SUMMARY Project Background Ethiopia’s Agriculture Development Led Industrialisation Strategy (ADLI) launched in 1994 to guide socio-economic development and the successive socio-economic development programs - Sustainable Development and Poverty Reduction Program –(SDPRP) of 2001/02 – 2004/05 and the follow on Plan for Accelerated and Sustained Development to End Poverty – (PASDEP) for the period 2005/06-2009/10 have a common overarching objective of reducing poverty by enhancing broad based and pro-poor economic growth. The constraint posed to the success of these development efforts by absence of adequate, reliable and efficient road transport infrastructure and services has made the Government to launch its ten-year Road Sector Development Program (RSDP) in 1997 with donors’ support including the Bank Group. The RSDP I – (1996/7-2001/02) had a revised program size of USD 1.05 billion (ETB 8.0 billion) of which USD 0.834 billion (ETB 7.17 billion) was disbursed before its roll over to the RSDP II (2002/03–2006/07) in July 2003. The RSDP II has a program size of USD 2.1billion by mid term review in April 2005 of which USD 1.45 billion is for the trunk road network, and the rest for link and regional roads to areas of agricultural potentials to specifically address the problem of food insecurity, deficiencies in access in rural areas and poor rural-urban market integration to support evacuation of agricultural produce and high value crops to boost exports. The Bank Group has responded with other development partners in financing the RSDP and had among others financed the studies of seven trunk/link roads from ADF/TAF resources in an amount of UA 3.62 as part of project preparation support in the RSDP. The studies included the economic feasibility and detail engineering design studies of Jima-Mizan trunk road that were finalized in January 2003. Government further commissioned an international consultant to update the ADF financed studies in December 2005 in order to connect two major towns (Gimbo and Bonga) on the corridor bypassed by the chosen road alignment. The project road is included in the core programme of the RSDP II (2002/03 – 2006/07) and in the PASDEP (2005/06-2009/10). The road is strategic for the export of coffee and other agricultural produce from its zone of influence and its upgrade would complement the Addis Ababa – Jima road under upgrading/rehabilitation to asphalt concrete surfaced standard with EU funding. It implementation will lead to the opening up of Addis Ababa – South Western Road Corridor to the Border of Northern Kenya and Southern Sudan. The project will promote effective market integration of the zone of influence to the national economy and to foreign markets. Purpose of the Loan The ADF Loan of UA 65.0 million will be used to finance 86.5% of the foreign exchange cost of the project. Sector Goal and Project Objective(s) The sectoral objective of the project is to improve the efficiency and the capacity of the transport system to support economic and social development in Ethiopia on a sustainable basis. The objective of the project is to improve road transport service levels between the towns of Jima and Mizan and to facilitate market integration of the zone with the rest of the country and export markets.

xiBrief Description of Project Outputs: The project comprises the following components: i) Construction/upgrading works of the 227.18-km Jima – Mizan road from gravel road to

Asphalt Concrete standard;

ii) Consultancy Services for (a) supervision of construction works of (i) above and (b) project audit services; and

iii) Resettlement/Payment of Compensation to affected population Project Cost The estimated cost of the project is UA 101.53 million (net of taxes) of which UA 75.16 million (74.02%) will be in foreign exchange and UA 26.37 million (25.98%) will be in local currency. The estimated cost is based on July 2006 prices with 10% physical contingency and a price escalation per annum of 3% and 8% on foreign and local costs respectively. Source of Finance ADF and GOE will jointly finance the project. The proposed financing plan is a loan amount of UA 65.00 million from the ADF representing 64.02% of the project cost to finance a portion of the foreign exchange cost. The GOE contribution will finance a portion of the foreign cost amounting to UA 10.16 million and all the local cost amounting to UA 26.37 million that together will cover 35.98% of the project cost. Project Implementation The Ethiopian Roads Authority will be responsible for the execution of the project. The project construction will be implemented over a period of 36 months commencing January 2008 and ending in December 2010 followed by 12 months defect liability period. Conclusions and Recommendations The project will reduce transport costs and travel time to road users, improve social services coverage to the population in the zone of influence, support increased agricultural production by facilitating access to inputs, extension services and urban markets with consequent increase in farm gate prices. The project will in addition provide easy access to the ports for high value agricultural products for export; give rise to other socio-economic benefits and have a significant impact on poverty reduction in the Oromiya and SNNP Regional States of Ethiopia. The project is consistent with the Bank Group's assistance strategy for Ethiopia as reflected in 2006-2010 result-based CSP, which highlights infrastructure including the roads as one of the three pillars of support by the Bank Group in the GOE Plan for Accelerated and Sustained Development to End Poverty The project is well conceived with an Economic Internal Rate of Return estimated at 20.5%, which is higher than the opportunity cost of capital of 10.0% in Ethiopia, technically feasible, socially justified and environmentally sustainable. It is recommended that a loan not exceeding UA 65.00 million from ADF resources be extended to the Government of Ethiopia for the purpose of implementing the project described in this report subject to the conditions specified in the Loan Agreement.

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1. ORIGIN AND HISTORY OF THE PROJECT 1.1 Ethiopia’s Sustainable Development and Poverty Reduction Program (SDPRP) of 2001/02 – 2004/05 and the follow on Plan for Accelerated and Sustained Development to End Poverty (PASDEP) of 2005/06 – 2009/10 have in common the overarching objective of reduction of poverty by enhancing broad based and pro-poor economic growth, both deepening the predecessor Agriculture Development Led Industrialization (ADLI) Strategy initiated in 1994. The success of the programs however continued to be constrained by lack of adequate, reliable and efficient road transport infrastructure and services to support the growth process. The Government’s ten year Road Sector Development Program (RSDP) launched in 1997 (RSDP I: 1996/7 – 2001/02 and RSDP II: 2002/03-2006/07) prepared with wide consultation and support of Ethiopia’s development partners and other stakeholders was in response to removing this constraint. The RSDP I mainly focused on network maintenance, upgrading and rehabilitation of existing road network to reduce transport cost, institutional reform and strengthening of road agencies for efficient management of the network. However, the road infrastructure deficit still remained huge and has resulted in weak spatial integration with predominance of rural settlements in isolation from one another, poor rural urban market integration and low economic density. The RSDP II launched in March 2003, while still continuing with rolled over projects under implementation, focused on network expansion particularly the construction and upgrading of trunk/link roads to specifically address the deficiencies in access to potentially rich agricultural areas and rural mobility as part of a broad-based rural development strategy. (More details on the RSDP are in Chapter 3). 1.2 The Jima – Mizan trunk road was selected for upgrading from gravel to paved standard and included in the RSDP based on the in-house pre-feasibility assessment taking into account level of potential traffic in its major coffee growing zone of influence, road condition and access problem and other indices which were used to prioritise the road links to be included in the program. The project economic feasibility, environmental/social impact and revised detailed engineering studies were done under the ADF/TAF projects preparation support of UA 3.62 million approved in 1998 for the RSDP. The final study reports for the project were submitted to the Bank in December 2002. Following an Infrastructure Sector Identification Mission in March 2003, the project was identified for Bank Group Pipeline. The project Bank mission noted that the project will complement the rehabilitation works to asphalt standard on Addis Ababa to Jima under EU funding and would serve as an important link in opening up the Addis Ababa - South Western Ethiopia Road Corridor under development eventually up to the border of Northern Kenya and Southern Sudan. 1.3 An official letter for its financing under ADF X was forwarded to the Bank in December 2004 and the project was included in the 2005 Indicative Lending Program. The Bank undertook a preparation mission to Ethiopia in May 2005 to prepare the project. The Government after the preparation mission expressed desire to realign the road in two sections to provide access to two major towns (Gimbo and Bonga) on the corridor. This resulted in update of project documentation that was finally submitted to the Bank in July 2006. The Bank thereafter undertook the project appraisal mission in August 2006 and re-affirmed the project’s continued priority in the RSDP II (2002/03 – 2006/07) and PASDEP (2005/06 – 2009/10). This report is based on the updated project reports, discussion held with the Government agencies and other development partners including Non-Governmental Organisations (NGOs) /Community Based Organisations in the project zone of influence and additional information collected by the Bank Appraisal Mission.

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2. THE TRANSPORT SECTOR 2.1 Sector Overview

Ethiopia's land area of 1.10 million km2 is one of the largest countries in Africa. However, the low road density of 33.6 km/1000 square km compared to the Africa region average of over 50 km/1000 square km has resulted in poor social service coverage and lack of effective support to the productive sectors of the economy particularly to the agricultural sector for internal distribution of inputs and marketing of produce as well as export of cash crops. The transport system consists of about 37,018 km of classified roads; one railway line (780 km) connecting Addis Ababa with Djibouti; two international airports (Addis Ababa and Dire Dawa), twelve local airports and 38 air strips, river and lake transport of relatively little significance and marine shipping. The sector contribution to GDP at constant factor cost has been on the average at a level of 6.1% per annum over the last three years. The Government has launched in 2005 with EU funding a Transport Sector Master Plan Study to guide the strategic and coordinated development of the sector. 2.2 Transport System 2.2.1 Road Transport: Ethiopia’s classified road network increased on the average by 5% per annum from its 1997 base of about 26,500km to 37,018 km up to 2005 of which about 13.0% is paved. Roads are the country's dominant mode of transport with more than 95 percent of motorised tonne-km and passenger-km carried by road. In 1996, it was estimated that 82% of the classified roads were in a fair/poor condition and penalized agricultural activity through its effect on vehicle operating costs, delayed evacuation and damage to crops. The ten-year Road Sector Development Program (RSDP) launched in 1997 has continued to address both the past neglect and the present capacity constraint in the road sector. Further details of the road sub-sector and the RSDP are given in Chapter 3. 2.2.2 Rail Transport: Rail transport operations are undertaken by the Chemin de Fer Djibouto - Ethiopien (CDE) jointly owned by the governments of the two countries under the provision of a treaty signed in 1981. It is a 780 km single-track rail built over a century back with aging track and rolling stock coupled with weak management. This has made it difficult to maintain its original operational efficiency and safety standards. As part of GOE’s external transport strategy, efforts are currently directed at restoring the annual lifting capacity of the rail at a low of 140,000 tons in 2004/05 to it 1986 level of 350,000 tons per year. An investment program of about US$ 205 million had been estimated to meet CDE's needs until 2012. Emergency measures estimated at 31.7 million Euros with part financing to the tune of 8.385 million Euros from France is currently being implemented. This involves renewal of track, rehabilitation and procurement of locomotives/rolling stock, training and technical assistance support. The EU has also committed 50 million Euros for track renewals. The two Governments have in addition successfully concluded in 2006 with a South African Company, a 25 years concession plan to improve the operational efficiency of the railway. 2.2.3 Air Transport: Ethiopia’s airports and air strips are administered directly by the Ethiopian Airport Enterprise while the Ethiopian Civil Aviation Authority (CAA) is responsible for traffic control, aeronautical and regulatory function of the sub-sector, both under the supervision of the Ministry of Transport and Communication (MoTC). The Government has embarked on upgrading of the existing airports infrastructure facilities and its related systems. This included the transformation of Addis Ababa International Airport with a new runway, five taxiways, a new international terminal, and upgraded communication and safety facilities completed in 2003 as per ICAO standard and co-financed on parallel basis by several donors including the ADF. Government in support of development of tourism has invested about Birr 302.0 million in construction of runways, terminal buildings and upgrading of facilities in five of the twelve domestic airports of Arba Minch, Axum, Gondar, Lalibela and Mekele. Government in addition has

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recently launched the construction of new airports at Humera (known for its agricultural produce) and Jijiga capital of the Somali Region. Further investment to upgrade the facilities of Dire Dawa, Mekele and Bahir Dar Airports to international standard is also envisaged for 2006/07. A new maintenance hangar and a cargo terminal with the state of the art facility were built by the EAL in 2005 in partnership with the private sector with the initial studies financed under ADF/TAF resources. 2.2.4 Air transport services are provided by Ethiopia Airlines (EAL), which services 49 destinations in its international operations. Ethiopian Airlines (EAL) is still the dominant provider of domestic scheduled services to 32 domestic airports and airstrips. Ten other international airlines operate regional and international flights into and out of Addis Ababa. The demand for EAL's services is high with average passenger load factor of about 66 percent on all routes and 68 percent in the domestic market sector. Passenger traffic at Addis Ababa Airport grew from 682,491 in 2000/01 to 1.245 million in 2005/06 while cargo uplift increased from 21,346 ton to 49,563 ton over the same period. As per Proclamation No 37/1996, the domestic air transport services have been opened to domestic private investors but their participation limited to using aircraft with seat capacity of 20 passengers, or with cargo capacity of up to 2700 kg. At present, five private national operators have been licensed out of which two have started operation of chartered flights. 2.2.5 Maritime Transport: Ethiopia is currently served mainly by the port of Djibouti in the Republic of Djibouti that provides the gateway for its foreign trade although some operations have began to use the port of Barbera in Somalia and Port-Sudan in Sudan. The Government has also planned to construct dry ports in all import-export corridors to avoid customs bureaucracy at neighbouring ports. Ethiopia’s import/export traffic in 2004/05 amounted to about 3.1 million tons of which only about 140,000 tons were exports. The Ethiopian Shipping Lines (ESL), owns 8 ships with total lifting capacity of 79,000 Gross Registered Tons (GRT) and has already placed a firm order for acquiring two new ships. The total tonnage lifted by the ESL was 1,154,703 ton in 2004/05 accounting for a third of seaborne trade, thus playing an important role in the development of the country’s external sector. The Government has negotiated with the Government of Djibouti to implement Through Bill of Lading Procedures that will allow Ethiopian Shipping Lines to handle the land transportation of imports up to the dry port in Ethiopia as from 2007. The Government in 1997 liberalized freight forwarding and shipping agency with 36 companies including the state owned Maritime and Transit Services Enterprise (MTSE) involved. 2.3 Bank Group Contribution to the Transport Sector 2.3.1 The Bank Group has since its first sector intervention in 1997, financed fourteen operations for a total amount of UA 246.17 million consisting of twelve projects and two studies of which eleven had been successfully completed and one terminated/cancelled. Only two operations approved after year 2000 are still on going. The Sector Portfolio distribution among the transport modes indicated a substantial amount of UA191.61 million for the road sub-sector, UA 45.98 million for the air transport infrastructure and the balance of UA 8.58 million for maritime transport (Assab Port), cancelled following Eritrea independence. Disbursement performance net of cancellation was in the order of 78.53% . 2.3.2 The intervention in the sector has been significant and involved construction of 1,890 km of rural roads in four regions, construction of 386km of link roads, maintenance of 2485km of district roads and rehabilitation of 143 km section of the Addis Ababa – Djibouti Port Road Corridor. Post evaluation report on the rehabilitation of the Addis Ababa – Djibouti Port Road Corridor indicated that land transport cost was reduced from the USD0.076 per ton-km before rehabilitation to USD 0.049 per ton-km after rehabilitation thus reducing land transport costs to its external trade. Post evaluation undertaken on one of the completed gravel roads (Chida – Sodo Road) in 2000 after

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two years of completion indicated the tripling of the yield per hectare in major food crops (teff yield increased from 5 to 12 qt/ha; maize from 15 to 60 qt/ha; and wheat from 7 to 24 qt/ha.). There was also improved social service delivery in the respective projects’ zone of influence, and facilitation of timely delivery of relief materials during drought to famine prone regions of the country and contributed to the food security program by unlocking areas of agricultural potentials. The Bank’s intervention in the Ethiopian Air Transport sub-sector has resulted in the transformation of the Addis Ababa Airport into a major hub in East Africa and strengthened the Ethiopian Airlines infrastructural base. The development of the horticulture and floriculture industry from nothing in the past three years to over USD 20.00 million in 2004/2005 has been facilitated by these interventions. 2.4 Transport Policies, Planning and Coordination 2.4.1 The Government of Ethiopia's economic policy as enunciated in November 1991 and as reflected in the Letter of Sector Policy calls for a greater role for the private sector and a change to market determined decisions. The policy limits the role of the state to policy formulation, sector regulations and their enforcement in order to improve the efficiency of the sector. GOE has within this context introduced sector reforms since 1997, among which are streamlining the role of public enterprises and private participation in the sector. Institutional strengthening and policy studies have been and are being financed in the sector by donors for which action plans are being implemented for the deregulation and privatization of the sector. Government also recognized the need to mainstream environmental concerns and gender issues in sector investment programs. Government has further commissioned in 2006 with the EU funding a comprehensive National Transport Master Plan and Development Policy/Strategy Study to inform future strategic and coordinated development of all transport modes and is scheduled for completion in 2007. 2.4.2 The Ministry of Finance and Economic Development (MoFED) is responsible for the overall planning of the economy and the preparation of PASDEP with consultation with all stake holders. Within the framework of PASDEP, the MoFED is responsible for giving directives and reviewing investment plans from the sector Ministries/agencies, which are submitted for approval to the Cabinet and the Council of Representatives. The overall co-ordination of sub-sector plans of the transport sector is coordinated by two Ministries; the Ministry for Transport and Communications (MOTC) and the Ministry for Urban Development and Works (MOUDW). The Ethiopian Roads Authority (ERA) reports to the MOUDW and is responsible for the overall expansion, maintenance and management of the Federal Roads while also giving technical assistance to Rural Road Authorities (RRA) of the regional state governments and municipalities for urban roads. The Ministry of Transport and Communications is responsible for planning of all other transport modes, as well as regulation of the road transport services. The Civil Aviation Authority, Airports Enterprise, Shipping Lines, and Federal Transport Authority report to the MOTC. MoFED plays important role in helping to co-ordinate transport strategies, providing guidelines for sectoral development plans, and setting overall levels of investment for each of the sub-sector plans to ensure that expenditure ceilings are within the Medium Term Expenditure Framework.

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3. THE ROAD SUB-SECTOR 3.1 Road Network, Vehicle Fleet and Network Traffic 3.1.1 The Ethiopian classified road network of about 37,018 km consists of 18,612 km of federal roads that function as the primary road system, connecting important economic centres and regional capitals under the direct responsibility of the Ethiopian Roads Authority (ERA), and 18,406 km owned by the RRA of regional states which provide the inter-village tertiary road network. Included in the classified network are some 2000 km of improved low class roads overseen by communities. Of the classified network, 4972 km are paved while 32,046 are gravel. The condition of the federal road network in 2004/05 was estimated at about 38% rated as good, 26% rated as fair and 36% in poor condition while for the regional roads about 36% are found to be in good condition. This results in 64% of the whole road network in fair to good condition in 2004.05. The current situation still indicates an apparent poor level of service. The network has however expanded considerably since 1996/97 as indicated by road density data, increasing from 21.7 km/1000 km² in 1997 to 33.6 km/1000 km² in 2005 though still below the average of 50 km/1000 km² for Africa. Given effective implementation of the RSDP II, it is programmed to increase road density to 54.1 km/1000 km² by 2009/10 and to 59km/1000 km² in 2015 . Much of the increase in the network (80 percent) has been in regional roads that have further integrated isolated rural agricultural communities into the market economy and enabling improved social service delivery for the rural poor. 3.1.2 An estimated fleet of 170,000 vehicles (2005/06) provides transport services in Ethiopia resulting in current rate of motorization of 2.2 vehicles per 1000 people . The level of motorization is still low compared to current level in Kenya of 18 vehicles/1000 people. As a result, non motorized transport mode is the predominant in rural areas, with motorized vehicles used only for long distance freight/passenger services. At an average rate of motorization of 8.8% over the last six years, the level would only reach 2.8 vehicles per 1000 people in 2009. Traffic flows on the main network as of 2004 are high with 26 percent of the main network having an average daily traffic greater than 500 vehicles, 59 percent between 500 & 100 vehicles, and the rest 15% less than 100 vehicles. Composite ERA traffic data series for main road sections indicated rapid traffic growth rate of an average of 11.4% per annum over the period 1990 – 2004, considerably above forecast levels and about doubling the trend growth rate of GDP of about 6.0%. The most striking feature is the continuing increase in total vehicle kilometers traveled particularly for heavy vehicles. This high rate of traffic growth is supported by data on fuel consumption and sales, which has been growing in the region of 7 – 9% per annum. Evidence from recent national trends suggests an elasticity of traffic growth with respect to GDP growth of 1.4 to 1.6. 3.2 The Road Transport Industry 3.2.1 The Federal Transport Authority has responsibility for the regulation of all surface modes of transport. The Government in 1992 introduced the Transport Regulation Proclamation that allowed the establishment of non-government transport undertakings as associations, companies and private operators out of the aegis of Government Corporations. Deregulation of the road freight and passenger transport sector has resulted in a competitive market for the movement of goods and people. The influence of parastatal companies has diminished over years with growing strength of the private operators. In the freight transport and inter-city passenger transport services, the share of parastatal companies is limited to fewer than 5% share of the market.. The Government has indicated its intention to further refine policy, legal and regulatory framework and its policy implementation given the findings of the Road Transport Regulation Study with EDF funding so that competition between operators is further intensified. Current actions taken in this regard is the disbanding of bulk fuel transport associations that operate in a way that hampered widespread distribution of fuel throughout the country.

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3.2.2 There is however high preponderance of over aged vehicles that have resulted in low availability and high spare parts requirements resulting in high vehicle operating costs. The tax regime is still prohibitive for private vehicle ownership in Ethiopia encouraging many to buy old vehicles; though recently in order to match the transport supply with demand, the private sector has received assistance from the government through credits and other incentives that include tax exemptions to enable the expansion of the capacity of both freight and passenger transport fleet. Transport Authority revealed that a new regulation restricting the importation of old vehicles has been tabled for the Government’s approval in 2007. 3.2.3 Road safety: Ethiopia is extremely poor with accident fatalities of 155/10,000 motor vehicles compared to 60/10,000 motor vehicles in Kenya and 17/10,000 motor vehicles in South Africa, ranking among the highest in Africa. Government in response is implementing the recommendations of the Sectoral Road Safety Study of 2001 funded by the EU which recommended action plans and safety programs that include among others, the creation of a Road Safety Board and a Road Safety Office. The Federal Transport Authority (FTA) has now been nominated as the responsible body at national level for the coordination of road safety activities. A National Road Safety Coordination Office (NRSCO) has been established within the FTA with responsibility for day-to-day coordination of road safety issues and already operational. Draft legislation for the Road Safety Board is before parliament for approval. On the basis of the recommendations of the study, an Interim Working Group (IWG) has been established in the short term, and currently staffed by representatives from key organizations including ERA, FTA, the Road Fund and Federal Police. The National Road Safety Coordination Office (NRSCO) has conducted activities like road safety education for school children, drivers with training syllabus strengthened and harmonized for use by all regions, road safety awareness seminars in all the ten regions and established regional committees, and City Administrations. At the level of Regional Transport Bureaus, guideline for technical vehicle inspection are being improved and strengthened. In addition NRSCO has produced a map of black spot areas along some major road corridors. The Road Fund Administration office (RFAO) has exclusively dedicated 3% of the fund revenue to road safety and related activities. ERA has established Traffic Safety Engineering unit with respect to black spot identification and to ensure safety audit at different stages of the project cycle. ERA has recently issued and distributed Road Safety Audit Manual to all stakeholders for use. 3.2.4 Excessive Axle Loading: There is also the issue of excessive axle loading on the network resulting in pre-mature damage of road assets. ERA has to this effect started the implementation of the action plan recommended in the Axle Load Control Study. Currently ERA has started the enforcement of the axle load limits through nine stationary weighbridges located at different places and additional three mobile scales for spot checks. The data collected at the stations show that, the extent of overloading, though high has shown improvements in the last few years. The tender for the procurement of additional weighbridges and ancillary equipment for modernization and rehabilitation of the existing weighbridges has been finalized with EU support. Moreover the revised regulation on axle load limits and scales of penalty, which is expected to improve the enforcement, is at the point of finalization by the Federal Transport Authority and is expected to be approved in 2007. Meanwhile ERA’s action since March 2004 to offload excess loads and to embark on public awareness campaign has brought a significant improvement in the enforcement effort.

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3.3 Road Administration and Training Road Administration 3.3.1 Ethiopian Roads Authority (ERA) is responsible for overall planning, construction, maintenance and management of the country's trunk and major link roads with a Board of Directors appointed by the Government to oversee the authority and guide its strategic management of the road network to meet the priority needs of the economy and the social demands of a large and widely dispersed rural population. As per Proclamation in 1997, ERA has been restructured as an autonomous agency. The Board has authority to approve the award of all contracts. The responsibilities for the construction and maintenance of rural/regional roads have been decentralized and are administered by the Regional Government's Rural Roads Authorities (RRA), that function as autonomous agencies under management boards. ERA has a Rural Roads Technical Support Branch within its structure to provide the needed technical assistance and training support to RRAs. The relationship between ERA and the region states’ RRAs is mainly with respect to network planning and technical support facilities. Training 3.3.2 ERA has its own in-house and on-the-job training programmes for all levels of its personnel. The existing training center at Alemgena (established in 1956) is capable of training personnel engaged in building and maintenance of trunk and major link roads, equipment operation, trade and crafts, engineering, financial management etc. Another training institute was established in 1981 at Ginchi to train in modern labour-based techniques suitable to the country's needs. These training centers also train for the RRAs and the private sector. In order to strengthen the institutional capacity of Road Agencies, advanced training courses in foreign institutions with assistance from World Bank, JICA, EU, DFID and the Government of Germany (GTZ) are also arranged. Since the inception of RSDP, about 58 professionals have so far received overseas training additional to short-term training as counterparts by Consultants. Overseas training for 36 professionals of the regional states’ in the field of photogrammetry, road design, hydrology, bridge design and material testing have also been undertaken. 3.3.3 Technical assistance under donors’ funding in different fields has been in place to compliment the in-house training activities of ERA and the RRAs which include contract specialist, transport economist, rural roads co-ordinator and RSDP adviser assigned by EU and bridge specialist by JICA. Three other staff working in the newly established Road Inspectorate Unit for strengthening capacity for technical monitoring and supervision of works, has also been trained under World Bank financing. The NDF has extended its finance for institutional strengthening of the RRAs in transport planning and contract administration while GTZ and Development Cooperation of Ireland (DCI) have been actively involved in capacity building for the RRAs. DCI has also been involved in capacity building for labour-based routine road maintenance/labour-based contracting system, legal/policy framework, and standardization of design of rural roads for the RRAs. The effective utilization of the technical assistance program is critical to the sustainability of the projects under the RSDP. The ongoing technical assistance programs financed by the World Bank and ADB are also providing extensive on job trainings in ERA, overseas short term training and long term training at Masters Degree overseas to enhance capacity of ERA in human resource management, contract administration, design review, project planning and procurement. The DFID financed District Maintenance Organization Capacity Building Project also provided extensive trainings to staff at the ERA Districts now restructured into Districts Road Maintenance Contractors (DRMC) and District Engineering Departments (DED)

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3.4 Road Planning, Financing and RSDP 3.4.1 Road planning and programming is undertaken by ERA's Planning and Programming Division (PPD), in consultation with RRAs for the overall classified road network that have been consolidated under the Road Sector Development Programme (RSDP). The sector program are based on over all GOE policy directions and guidelines issued by MoFED. The program proposals are reviewed by the Board of ERA and submitted to MoFED for review and submission to the Government for approval. In 1997, the ten year RSDP with support from donor partners was launched in order to address the limited coverage and poor state of road infrastructure and services which has been recognized as constituting a major constraint on the country’s development program. Prioritization of road projects included in the program is set according to the following criteria: i) access to ports; ii) access to existing resource areas; iii) access to potential resource areas and markets; iv) access to food deficit areas; and v) balancing distribution of road infrastructure among regions. The RSDP is being parallel financed by IDA, ADF, EU, OPEC, BADEA, NDF, Governments of Germany, Italy, Japan, Ireland, United Kingdom, Sweden, Saudi Fund, Kuwait, NGOs, the Road Fund and the Government. 3.4.2 The RSDP has some of the characteristics of a sectoral Medium Term Expenditure Framework in that it provides details of sectoral policy for the road sector, it is comprehensive and shows the details of capital investment of three tiers of Government, donor partners, output focused, reflect action plans for implementation and has political endorsement of the Government. The RSDP I (1997 – 2002) with a revised program size of ETB 8.0 billion (USD 1.05 billion) achieved a disbursement level of ETB 7.1 billion (US$ 0.8 billion) before it was rolled into the second phase in July 2002. The RSDP II, estimated to cost ETB 18.2 billion (USD 2.1 billion) achieved a disbursement level of ETB 7.821 billion at mid term review in April 2005. The overall disbursement from inception in 1997 until July 2005 has been estimated at Birr 15 billion (USD 1.73 billion) resulting in an overall disbursement rate 57.25% over the eight years. (See Annex 5 on disbursement performance by source of funding) 3.4.3 The physical accomplishment under the RSDP II has been rated at 147.% at mid term review in April 2005 broken down into type of intervention as in Table 3.1 below. Overall, the classified road network has increased by about 39% over the two phases of the RSDP and the proportion of farms that were more than 5 km from an all weather road had been reduced from 79% in 1997 to 73.0% in June 2005.

Table 3.1: RSDP II Physical accomplishment by Type of Intervention (July 2002 – June 2005)

Plan km Actual km

% Target

Rehabilitation of Trunk Roads 574 615 107.2

Upgrading of Trunk Roads 592 903 152.6

Upgrading of Link Roads 126 53 41.9

Construction of New Link Roads 202 208 102.9

Federal Roads Heavy Maintenance 1343 2360 175.7

Construction & Maintenance of Regional Roads

1127 1687 149.7

TOTAL 3964 5827 147

3.4.4 The RSDP II has continued with the momentum to achieve the road condition revised targets of 83%, 62% and 65% of paved, gravel and regional roads respectively in acceptable condition in 2007 and provide a sustainable level of essential road infrastructure to the rural population. Proportion of inhabited area within 5 km from all weather road would be increased from 27% in 2006 to 48% in

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2009/10 and projected reach 69% in 2014/15 while average distance to all weather road would be reduced from 16 km to 13.5 km over the RSDP II period. An ERTTP sub-component is included in the RSDP II to specifically address the construction of rural roads and rural mobility at village and community levels. The ERTTP implementation in eight pilot districts (weredas) with funding from DCI and DFID started in July 2004 and study for 82 weredas, IEC and capacity building formulation with the support of World Bank, ADB and NDF are at take off stage. The RSDP II by component and sources of funding are as indicated in Annex 5. 3.4.5 Out of the total RSDP II investment requirement, an amount of USD 1,403.9 million is expected from the GOE, the Road Fund and the communities, accounting for over 67.0% of program financing. There is still a financing gap of ETB 401.9 million (USD 46.6 million). Financing requests are being addressed to donors to fill the gap. Road Sector Donors have agreed on 19 Performance Monitoring Indicators of the RSDP II, which are to be prepared annually to provide a basis to assess the development impact of the program. 3.5 Road Engineering and Construction 3.5.1 Most of the studies and designs for large and complex projects are undertaken by foreign consultants. Transport Construction and Design Share Company (TCDSC), a Government owned consulting firm and local consulting firms undertake detailed engineering of minor roads and bridges. The engineering operations of ERA is devoted mainly to the supervision and review of feasibility studies and detailed engineering carried out by consultants. ERA’s capacity for detail engineering design review is weak and the branch is being strengthened through ADF/TAF funding approved in 2003 and the contract administration is being strengthened through the assistance of the World Bank Prior to 1992, the force account units of ERA and RRAs undertook construction of all main roads. In order to construct more access roads in the remote areas which provide the market for domestic contractors, Government has continued to rely mainly on foreign contractors for construction of major roads financed by donors. 3.5.2 The Government has embarked on the implementation of recommended measures contained in the Domestic Construction Industry Study financed by the IDA to encourage the development of the private sector. ERA has also started to introduce domestic preference margin of 10.0% for donor financed projects to create enabling environment for local contractors. There are twenty eight domestic contractors with capacity to handle civil works contracts of over ETB 20 million and are participating mainly in Government funded projects. Among the elements in the action plan to promote the DCI are the selling-off of government owned equipment on a long-term interest free credit basis, an adjudication board for settling disputes, licensing construction equipment as bank collateral, the provision of mobilization advances, etc. The Government has now re-instated payment of mobilization advance up to 30% of contract values. It has also started registering and issuing construction equipment licenses which are accepted as collateral by Banks for providing financial services. Various trainings in the fields of project management, contract costing and plan management have been provided to the private contractors. Government has indicated its keen interest to promote the establishment of private sector leasing companies with various incentives. Government in addition has recognized the absence of a legal framework for formation of joint venture to execute a specific project. Initial discussions between pertinent Government bodies and stakeholders have started to find solutions. 3.5.3 The issue of possession and hand over of sites have become a major problem affecting implementation progress of road works contracts in Ethiopia. Relocation of obstructions, by public utilities, on road alignments is usually over delayed thus affecting contractors work programs and providing basis for claims by contractors. The GOE has, following dialogue with donors, recognized the need for an effective and pro-active Right of Way (ROW) branch to deal with these issues.

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Consequently, the ERA organizational structure has been revised and the ROW Branch has been shifted from the Legal Services Division to the Construction Contract Implementation Division for better co-ordination. The new ROW Branch is staffed with more Agents and currently on-going projects have their own ROW Agents who follow the day-to-day tasks of right of way problems. In spite of these efforts, the speed in relocation of public utilities has not been encouraging. The evidence of access to right of way and payment of compensation to project affect people (PAPs) before the commencement of the road works in line with the RAP shall be made a condition of the loan. 3.6 Road Maintenance Organization 3.6.1 ERA undertakes the maintenance operations of the federal road network through its ten-maintenance district offices spread throughout the country. The responsibility for maintenance of regional/rural roads has been delegated to the Regional Government's Rural Roads Authorities. All maintenance districts have established capability for maintenance of gravel and paved roads using own force and private contractors. Government, as a matter of policy and in addition to other incentives, has currently awarded about 40.0% of periodic road maintenance works to private contractors (2004) and the share of private contractors expected to increase progressively to 100.0% over the next five years in tandem with development of the domestic contracting industry and in line with the DCI development strategy that intends to create a more conducive environment for the private sector. 3.6.2 A five-year DMO Capacity Building Project with support from DFID UK to cover ERA’s ten District Maintenance Organizations (the DMO project) was launched in 2001. The overall objective of this project is to strengthen and transform the DMOs so that they can undertake cost effective road maintenance and thus be able to compete with the private sector on equal commercial terms. In this context, ERA’s Head Office services concerned with equipment leasing, central garage, Management Information Systems and Human Resource Management are also being reviewed to make the project successful 3.6.3 To achieve this objective a series of steps were envisaged and currently under implementation: - a) Firstly, the DMOs were organized to operate as Cost Centres in July 2003. This was aimed at encouraging effective asset utilization and management, the elimination of waste, better cost control and productivity. From this, new performance targets were defined and agreed; b) Secondly, the Cost Centres are to be changed into Profit Centres. This will change the management emphasis from controlling costs to making a profit. The operation of Profit Centres was scheduled to start in July 2005 but yet to take off; c) the Profit Centres will be turned into Commercial Entities by July 2006. The stage of moving to Profit Centres has not been achieved but each of the ten DMOs manage its own business strategy and decision-making, though still following rules and procedures given by ERA’s head office.

3.6.4 In carrying out these three stages, the ‘client’ functions for execution of maintenance works is separated from the management function of determining local maintenance priorities and monitoring performance. The management function is now placed under the control of a Head Office based unit. The DMOs have now been split into District Engineering Divisions (DED) and District Road Maintenance Contractors (DRMC). The DEDs are responsible for network Planning and traffic surveys, recommending maintenance priorities, specifying and letting contracts, arranging emergency repair and monitoring performance. The DRMCs are responsible for undertaking road maintenance works, initially drawing on the resources of manpower, equipment and facilities of ERA’s districts. The DEDs are now letting maintenance works to the DRMCs and are preparing payment certificates. The DRMCs have their own accounts and payroll and are

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responsible for their own staff recruitment. It is planned that equipment and facilities will be leased on a full replacement cost basis to DRMC. The DED have started to let contracts to external contractors and in time the DRMCs will be expected to compete against these contractors on a commercial basis in line with the objective of sector policy. 3.6.5 Although the DMO Capacity Building project aimed at achieving commercial entity stage by July 2006, a list of actions need to be undertaken before the DRMCs reach full stage to compete with the private sector. ERA has approved an exit strategy in May 2006 with a detailed assessment of the inputs and budget required for its implementation to ensure that the DRMCs eventually reach the commercial entity stage with sustained planned outputs. In support of the exit strategy and sustainability, DFID extended its support for additional six months from the original completion date in August 2006. The government has further ascertained its commitment to list of actions for achieving the commercial entity stage by the DRMC by introduction of term maintenance contracts for a period of two to three years on limited sections of the road network; participation in routine maintenance with a planned scaling up in the coming years along with the private domestic contractors. ERA also recruited local consultants to supervise all maintenance works and manage the network in particular pilot sections. The consultants will play the network management role of ERA. Financing 3.6.6 As shown in Table 3.2 below, road sector capital expenditures for the Federal and Regional Network have increased from ETB 994.6 million (US$ 114 million) in 1998 to ETB 2,264.4 million (US$ 260 million) in 2004. The total amount disbursed for routine maintenance during the RSDP up to June 2005 amounted to ETB 1,652 million while for periodic maintenance during the same period, amount disbursed was estimated at ETB 789.6 million. About 2,109km of periodic/emergency maintenance work was planned with a budget of ETB 771.1 million under RSDP up to June 2005; and actual maintenance accomplishments turned out to be 2,617 km, which is 124% of the plan. Due to the upgrading and rehabilitation works under the RSDP I and RSDP II, the share for maintenance expenditure has been on average in the region of 14% of road capital expenditure for seven years as indicated in Table 3.2 below. However, in the preparation of the RSDP III (2007/08 – 2012/13) that has just commenced; a sector issue that need to be addressed is ensuring the appropriate balance of resources between new road construction, rehabilitation and maintenance expenditure.

Table 3.2 Road Sector Maintenance and Capital Expenditures (1998 – 2004)

(In Million ETB)

Expenditure Category 1998 1999 2000 2001 2002 2003 2004

Total Maintenance Expenditure 123.50 136.00 184.70 228.70 265.40 227.10 404.50

Total Road Sector Capital Expenditure

994.60

1,223.50

1,092.90

1,678.10

1,855.70

2,282.10

2,264.40

Maintenance/total Capital expenditure 0.12 0.11 0.17 0.14 0.14 0.10 0.18 Source: Ethiopian Roads Authority 3.6.7 As agreed during the RSDP donors meeting of 1996 for the sustainability of investment under the program, a Road Fund was established by Proclamation No. 66/1997 on 06 March 1997 to ring fence a steady and secured financing for maintenance. The objectives of the Road Fund are to finance maintenance works of the Road Agencies and to provide sources of fund for road safety measures and programs. The fund is managed by the Road Fund Board which has been established as an autonomous public authority and comprising representatives of the Federal Government (4),

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Regional States and Municipalities (6) and private transport sector (4) of which one member is designated as chairman.

3.6.8 Revenues for the Road Fund are derived from levy on fuel consumption, vehicle license fee, overloading fines, annual allocation from the central government budget, and other prospective road tariffs, which could be fixed as necessary. The Road Fund’s basic distribution of budget allocation has been based on 70% to Federal Roads (ERA), 20% to Regional Roads and 10% to selected municipalities. In 2000/01, about 3% of the budget was allocated to the financing of road safety measures before the sharing among the road agencies. Currently 65 per cent of the regular Road Fund Budget is allocated to the Ethiopian Roads Authority for the Federal Network, 25 per cent is allocated to the Regional Road Authorities; 10 per cent to the Municipalities and 3.0% to Road Traffic Safety. The revenue collected by the Road Fund Administration from road users has increased from ETB 164.5 million in 1997/98 to ETB 534.9 million in 2004/05. The Road Fund Revenue and Regular Budget Allocation for the years 1997/98 to 2005/06 is as reflected in Table 3.3 below.

Table 3.3 Road Fund Revenue and Regular Budget Allocation (ETB million)

Fiscal Year

Total Revenue

Total Allocated

Federal (ERA)

Regional (RRA)

Municipalities

Traffic Safety

Capacity Building

Support Services

1997/98 164.461 162.958 117.958 30.000 15.000 - 1998/99 182.816 212.210 152.210 40.000 20.000 -

1999/00 220.815 254.240 194.240 40.000 20.000 - 2000/01 355.800 250.000 169.750 48.500 24.250 7.500 2001/02 346.396 300.000 178.500 51.000 25.500 9.000 33.000 3.000 2002/03 341.914 300.000 178.500 51.000 25.500 9.000 33.000 3.000 2003/04 516.649 349.999 208.250 59.500 29.749 10.500 38.500 3.500

2004/05 534.968 350.000 216.125 83.125 33.250 10.500 7.000

Source: Road Fund Administration, 3.6.9 To ensure transparency and value for money, road agencies are advised and instructed to keep separate financial records as per financial principles and procedures so that the Road Fund Auditors can audit the books of account separately from that of other financiers. The Road Fund Administration has developed road fund financial and technical audit system so that Road Agencies maintenance activities are effectively monitored to ensure that road users get value for money in accordance with the proclamation for its establishment. 3.6.10 The Government has prepared a Maintenance Action Plan (MAP-4) for the period 2004/05 to 2008/09 for the road sector. The plan reflects the commitment to progressive contracting out of mechanized and manual routine maintenance works, identified resources as well as sources of funds for its implementation. The size of the maintainable part of the road network is estimated at about 65%. The maintenance program is currently constrained by existing capacity in the Domestic Construction Industry and not by the level of secured and steady flow of Funds. As indicated in Table 3.3 above, annual allocation to Road Agencies are less than collected revenue by the Road Fund Administration and there are concerns whether Government can open the maintenance operations to foreign contractors to clear the backlog. Government is reluctant as it is of the view that market availability is vital for development and growth of the domestic construction industry. The Government with financial resources from the RF has recently revamped the capacity of ERA, RRAa and Municipality’s with equipment worth of over Birr 250 million to improve their capacity to undertake maintenance activities. The total maintenance need for the network in maintainable condition and the Road Fund Revenue is as indicated in Table 3.4 below. Donor funding from the World Bank is being used for emergency maintenance need for the sections of the road network damaged by heavy military equipment during the civil strife with Eritrea.

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Table 3.4: Road Maintenance Needs and Road Fund Revenues (In million ETB)

Year

Federal Regional Urban Roads

Wereda Roads

Road Safety & Other needs

Total Need

Donors Road Fund Revenues**

Total Revenues

2004/05 479.6 40 58.8 11 26 615.4 113 534 647 2005/06 351.6 137.8 59.5 14 26 588.9 66 588 654 2006/07 312.3 153.6 60.2 16 28 570.1 31 647 678 2007/08 295.1 170.1 60.9 19 33 578.1 712 712 2008/09 268.9 269 61.5 20 27 646.4 783 783

Total 1707.5 770.5 300.9 80 140 2998.9 210 3264 3474

Source: Ethiopian Roads Authority 4. THE PROJECT 4.1 Project Concept and Rationale 4.1.1 The upgrading of 227.18-km Jima-Mizan road from gravel to bitumen standard has been conceived under the Road Sector Development Program (RSDP II) and within the sector goal of removing the constraints posed by road transport infrastructure and services to the success of PASDEP. The project road links the towns of Jima and Mizan and forms part of the south western corridor route from Addis Ababa. It serves the highly fertile coffee-growing areas and thus plays a strategic role in linking this large area with its high agricultural potential to the rest of the country. The road also plays an important role in linking small towns, villages, and scattered communities along the route and fulfils a vital role in transporting goods locally and maintaining social ties. However, the engineered gravel road has deteriorated rather badly over the years resulting in prevalence of camber and drainage problems, corrugations, rutting and potholes. It is against this background that a feasibility study was commissioned to investigate the most viable options for the road improvement. 4.1.2 Several alternative pavement design options and maintenance strategies for Double Bituminous Surface Treatment (DBST), Asphalt Concrete, high standard gravel road, and low standard gravel road were evaluated by the feasibility study and the design review consultants. Subsequently, an Asphalt Concrete wearing course was selected as the most technically sound and cost-effective pavement option in an area that is highly susceptible to heavy rainfall. 4.1.3 Participatory approach was mainstreamed into the project design through consultation with the stakeholders from project feasibility study to preparation phase. The positive and negative impacts and mitigation measures of the Jima-Mizan road upgrading project were discussed with all key stakeholders comprising District officials, Community Leaders and Women’s Groups, and development specialists in the districts concerned. The outcome of the participatory approach showed clearly that all key stakeholder groups consulted were strongly in favour of the project as its potential positive impacts outweigh the negative impacts. 4.1.4 The Bank Group has financed ten operations in the road sub sector in Ethiopia for a total amount of UA 191.61 million. Eight of the operations consisting of seven projects and one study have been successfully completed and the Bank's PCRs have been undertaken for six of them while remaining two were completed in June 2005. Two projects are ongoing without any major problem. Several lessons have been drawn from the Bank's experience and past intervention of other donors in the sector. The most important of them are: i) Implementation delays due to possession and hand over of sites to contractors; and ii) Poor design studies requiring major design review at implementation stage.

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4.1.5 The Government with support from development partners has taken actions to improve on these areas. An institutional support and technical assistance in project design review was included in the Wacha - Maji road project approved by the ADF in 2003. The ERA ROW has been further strengthened for a more pro-active action on ROW issues and a loan condition has been put in this respect in the design of the project. Besides, other road sector donors are currently providing technical assistance and institutional support in critical areas of need particularly in contract administration. The field presence of the Bank with opening of the Ethiopian Field Office with adequately staffed experts in critical areas would improve the situation further. 4.2. Project Area and Project Beneficiaries A) Project Area 4.2.1 The project area lies in the South-western part of Ethiopia and traverses three zones and two regions, namely, Jima Zone in Oromiya Region, and Keficho Shekicho and Bench-Maji Zones of the Southern Nations, Nationalities and Peoples Region (SNNPR). The project zone of influence covers 7 weredas of Kersa, Limu Seka, Seka Cherkosa in Jima Zone, and Gimbo, Decha and Chena in Keficho Shekicho Zone, and Bench in Bench-Maji Zone. The three zones in which the project lies cover a land area of about 55,000 km2 (total for Ethiopia is 1,104,000 km2) with Jima and Mizan Teferi as the headquarters of Jima and Bench Maji Zones, respectively, which are major towns in the project area. The project road starts on the outskirts of Jima, 340 km south west of Addis Ababa, and runs to Mizan Teferi passing close to the town of Bonga. The road also passes through 19 population centers comprising smaller towns and villages. 4.2.2 The total population of the three zones is approximately 4.2 million with an average population density of 100 persons/ km2. Population densities of Kersa, Seka Cherkosa, Bench and Chena weredas are about 120-190 persons/ km2; Limu Seka, and Gimbo 60-120 persons/ km2; and Decha has less than 40 persons/ km2. The average household size in the road zones is 4.4, which is lower than the national average of 4.6 with a rural fertility rate of 6.4 and 3.3 for urban areas. Most of the populations (82-98%) live in rural areas except Kersa where around 44% of the population is urban. The main ethnic groups along the road are Oromo in and around Jima, the Kaffa around Bonga and the Bench in Mizan Teferi. In the larger towns, significant numbers of residents of Amhara, Tigray and Gurage origin are found. 4.2.3 Approximately 150 km of the existing road passes through mainly secondary forests. However a total of about 25 km section lies close to broad-leaf high (primary) forest and has been re-aligned in these sections in line with Bank Group’s environmental safeguard policy to avoid the primary forest areas – Beleta Gera forest area (km 34-43) and in Shuba forest area (km 118-132). The presence of endangered plant species (Juniperus procera, Hagenia abysinica, Cordia africana and Podocarpus gracilior) occur at elevations higher than the project road. Much of the forests traversed by the road are eucalyptus, pine and juniper. JICA has financed at a cost of about USD 3.0 million, a Participatory Forest Management Project in the area for the forest communities which involves sustainable forest management practices and income generating activities for improving livelihoods of the rural communities in the forest areas including bee keeping and production of honey, spices, and indigenous tree seeds and medicinal plants. The project zone has many rivers such as Gibe, Gojeb, Gilgilbe, Qawwa and Abono. River Gilgilbe is now generating the highest hydropower in Ethiopia of 180 megawatts. There is low wildlife diversity in the region due to widespread subsistence agricultural practices. 4.2.4 Agriculture is the main activity of area employing about 85% of the labor force and contributing to 72% of the regional domestic product. The area is a major coffee producer, out of the total national coffee production of 199,009 tons (2003/4), the two Regions of Oromiya and

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SNNP produced 194,536 tons, representing 98% of coffee grown in Ethiopia. It is estimated that 7579 tones of cereals, pulses, oilseeds were produced in 1997 accounting for 90% of cereals, 21% Teff and 16% sorghum. Livestock is an integral part and complementary to farming in the project area. The Oromiya Region had in 2003/04 over 16,800 heads of cattle of the national 40,894. The region also produced over 10,000 heads of sheep and goats combined, representing 25% of the national production. Livestock productivity is generally low, with low reproductive rates, high mortality and low off-take including hides and milk. 4.2.5 Social wellbeing among people in the project zone is low in terms of health, education, nutrition, potable water and sanitation. The main causes of mortality and morbidity are malaria, respiratory infections, tuberculosis (TB) and pneumonia. The national average (2002) polio immunization was 79% whilst for Jima was 67%, Keficho Shekicho 74.6% and 77.2% for Bench Maji. Based on the available health facilities, the service ratio of a Doctor + Health Officer to Population was 1:157619 which is below the national doctor average of 1:40,000 and 8 nurses per 100,000. The national adult HIV/AIDS prevalence rate (2003) is estimated at 4.4% of which 12.6% is urban and 2.6% is rural. While the urban rate has leveled, rural prevalence is expected to rise to 3.4% by 2008. Only about 23% of the population had access to clean water and 9% had adequate sanitation facilities while national averages were 25% and 15%, respectively. 4.2.6 The educational performance in the area is below national average for rural areas. Literacy rate for the project zone was 20% on average (1994 census) with male 27.2% and female literacy at 13%. The primary school gross enrolment rate (GER – 2002) was 21.8% for girls in Jima, 45.2% in Keficho Shekicho and 33.9% in Bench Maji, respectively, whilst the national average was 40.7%. The GER for girls in secondary schools in the project zone ranged from almost nothing in Jima, 3% in Keficho Shekicho and 3.7% in Bench Maji while the national GER was 13.7%. 4.2.7 Women generally face disproportionate burden compared to men due to imbalances in accessing social and economic infrastructure. Illiteracy national average is 74% with women accounting for 75% and men 54% (Gender Profile – SIDA 2002 Study). As summarized in the Multi-Country Gender Profile for Ethiopia (ADB, 2004), 15-20% of poor rural households are female headed. While agriculture accounts for 85% of total employment, it employs 70% of rural women. Women own less farm sizes than men by approximately 13%. The study done in the project area stipulates that while division of labor spells out what tasks the women do in food production (farming), domestic chores fall on women. On average transport time for provision of basic needs was 60% of overall time of households--majority of which is borne by women in collecting firewood, water, trips to markets, mill, hospital and farm. On average 8.5% of adult time is spent on travel and transport, including waiting time adding up to the equivalent of 2.5 hours per day. B) Project Beneficiaries 4.2.8 The immediate beneficiaries of the proposed road upgrading are the populations living directly adjacent to the road and traders who market goods in the area. Given the dominance of agricultural activities in the area, farmers will also benefit from the road by removing transport constraints on agriculture. The upgraded and all-weather road communication between Jima and Mizan Teferi forms the main link trunk road for exporting coffee from the Keffa area to other parts of the country and for export. Livestock farmers will also benefit as improved road surface makes extension service able to penetrate project area. The other stakeholders who are affected by the project are landowners, the local/district authorities, NGOs and other Community Based Organizations (CBOs). There is also the potential of opening up of the interior of the project area, with its waterfalls, lakes and hot springs, to both local and international tourism.

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4.3 Strategic Context 4.3.1 The GOE’s Plan for Accelerated and Sustained Development to End Poverty (PASDEP) for the period 2005/06 – 2009/10 recognise the role of the road sub-sector in improving social service coverage and supporting pro-poor economic growth in line with Millennium Development Goals (MDG). Among the objective of the program is to transform subsistence agriculture into small scale commercial farming with the road sector ensuring accessibility to the rural sector for inputs, extension services, and marketing of produce and production of high value agriculture produce to boost export earning as well as unlocking areas of agricultural potential. PASDEP recognized the pivotal role of the successful implementation of the Road Sector Development Program (RSDP) that is now half-way through its second phase as a key pillar for achieving the Government’s poverty reduction strategy. The Jima-Mizan Road project is one of the main trunk roads to be upgraded in the core programme of RSDP II (2002/03-2006/07) for unlocking areas of agricultural potential in south-western part of Ethiopia. 4.3.2 This strategic context is consistent with the Bank Group’s intervention strategy, which mainly focuses on removal of the constraints posed by poor infrastructure base to support economic development efforts and rural transformation. The objective of the Bank Group Strategy as contained in the 2006 –2009 result-based Country Strategy Paper (CSP) is to provide support for the effective implementation of the PASDEP with focus on infrastructure development, agricultural transformation and Governance. The improvement of the road network by maintenance and construction of trunk and links to the rural areas and collector roads linking the main agricultural regions with the marketing centers shall contribute to the achievement of the government’s food security strategy and program and reinforce the overall poverty reduction objective. The Bank Group intervention in the road sub sector is therefore consistent with the infrastructure pillar of support in the Ethiopia CSP 2006 – 2009 approved by the Board of Directors on 6th September 2006. 4.4 Project Objectives 4.4.1 The project sector goal is to improve the efficiency and capacity of the transport system to support social and economic development programs in Ethiopia on a sustainable basis. 4.4.2 The objective of the project is to improve transport service levels between the towns of Jima and Mizan; and to facilitate market integration of the zone of influence with the rest of the country and foreign markets. 4.5 Project Description 4.5.1 The project consists of:

i) Construction Works for the upgrading of gravel surfaced road to Asphalt Concrete

standard with 7.0-m wide carriageway and 1.5-m shoulders on either side from Jima to Mizan (227.18 km): Works involve: 150mm Selected Subgrade material, 200mm Natural Gravel and 150mm Crushed Aggregate Sub-base, 175mm crushed-Aggregate base, and 50-mm thick Asphalt Concrete wearing course and sealed road shoulders.

ii) Consultancy Services for supervision of Jima-Mizan road upgrading works; iii) Consultancy Services for Audit; and

iv) Payment of Compensation to the Project-Affected People (PAP)

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A. Construction Works 4.5.2 The proposed road alignment is mainly along the existing Jima - Mizan road; and the horizontal and vertical alignment have been improved and designed for a speed of 80 km/h. The carriageway width is 7.0 m with a shoulder of 1.5 m on either side of the road. The pavement structure has been designed for a 20-year period, taking into consideration the low California Bearing Ratio (CBR) values of the sub-grade materials, cost of materials, traffic levels, structural capacity, maintenance and high rainfall intensity in the project area. 4.5.3 The drainage structures have been reviewed and improved upon based on the hydrological study of the road catchment areas. Additional lines of culverts and lined side ditches will be implemented. There are no new bridge construction works. Rather, there are repair works to be carried out on four (4) existing bridges and replacement of reinforced concrete deck slabs of seven (7) existing short-span bridges along the road. In order to check soil erosion the side slopes will be planted with grass and gabion boxes will be used at appropriate location. 4.5.4 The road furniture such as road marking, guardrails, and traffic signs is integral components of the road project. These components will enhance traffic safety on the road. B. Consultancy Services 4.5.5 Supervision consultancy services for the construction works will be carried out by two experienced consulting firms on behalf of ERA. The selected firms will administer the construction contract, inspect the works, supervise the necessary quality control testing performed by the contractors, track progress and costs, and maintain close liaison with ERA and relevant ministries responsible for the project. A description of the services for the consulting firms will be detailed in a Terms-of-Reference and in the respective contract agreements. In addition, an auditing firm will carry out the audit of the project annually. C. Resettlement 4.5.6 The detailed Resettlement Action Plan (RAP) has been prepared with a view to sensitize the affected communities on the potential impact of the Jima – Mizan road upgrading project, identify directly affected persons and households, estimate the cost of compensation and set out strategies to mitigate adverse impacts on the people among others. The consultations and socio-economic survey of the Project Affected Persons (PAP) revealed that a total of 1073 people would be affected and relocated/compensated by the project. The summary of the cost of the compensation has been put at ETB 11.6 billion and made up of ETB 7.913 million to cover compensation to PAPs for houses, trees, crops, businesses etc and ETB 2.280 million for relocation of public utilities. The relocation/compensation under the RAP will be solely financed by the Government of Ethiopia and shall be paid to the affected population prior to commencement of the civil works in line with the Resettlement Action Plan (RAP) as a condition of the loan. 4.6 Transport Demand and Road User/Agency Unit Prices

a) Traffic Levels 4.6.1 As part of the Economic Feasibility Study, the result of the traffic surveys carried out in 2001 complemented by Moving Observation Count on the project road indicated an AADT of 153 vehicles for Jima – Bonga section and an AADT of 111 on the Bonga – Mizan section. Recent traffic data (2004) undertaken in 2005 by ERA’s 3-cycle 7-day counts collected at four stations indicated a total traffic of AADT of 425 vehicles for Jima – Bonga and an AADT of 142 vehicles for Bonga to Mizan.

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The Jima – Bonga section is improved gravel while the Bonga to Mizan section is mainly deteriorated to track and has affected traffic levels. Both links of the project road are extensively used for pedestrian access and 77% of the pedestrian trips would have an economic value estimated at USD 0.01 per hour. Daily pedestrian traffic is estimated at around 8,000 on the Jima – Bonga link and at 6,000 between Bonga and Mizan. Pack Animal traffic varies between 100-300 and relative volumes are in relation to population densities in the respective zone of influence. The normal Base (2004) Motorized Traffic on which the appraisal is base is as given in Table 4.1 below.

Table 4.1 Base (2004) Normal Traffic

Links Car 4 WD Small Bus Large Bus Small Truck

Medium Truck

Heavy Truck

Truck & Trailer

Total

Jima - Bonga 1 64 48 31 77 99 88 17 425

Bonga - Mizan 1 21 6 12 25 41 27 9 142

4.6.2 In forecasting traffic, consideration has been taken of traffic growth parameters viz: GDP growth of 5%, population growth rate of 2.9%, per capita income development of 2.1%, projections for vehicle ownership of 6% and estimated increase in fuel consumption of 8%. It is assumed that the current fairly high level of traffic growth rates of 12% for normal traffic on the Jima – Bonga will reduce in the future as the economy stabilizes to steady growth. Thus, two sets of growth rates have been estimated at 10% and 8% per annum respectively for the period 2005-2020 and 2021-2030 in projecting future growth of normal traffic. At the opening of the project road in 2011 some generated traffic is expected in response to elasticity of transport demand to percentage reduction on vehicle operating costs on each section of the road. This has been estimated at about 28.0% of normal traffic for the Jima – Bonga section and 40.0% of normal traffic for the Bonga – Mizan section where there would be substantial supply response due to the existing constraining road infrastructure and services. Elimination of generated traffic has also been done as part of sensitivity analysis of project worth.

b) User Prices/Intervention Costs 4.6.3 The road user costs include vehicle operating costs (VOC), travel time values and accident costs. The VOCs depend on type of vehicles and of road surface conditions. The VOC is estimated based on prices of vehicles, types of tyres for the various vehicle types on the road, fuel and lubricants costs, labour costs for drivers/crew and maintenance labour. Average annual Composite VOC is estimated at USD 0.75 per veh-km on current gravel road, which will be reduced to USD 0.34 per veh-km when the road is upgraded to asphalt concrete standard. (VOC per veh-km for various vehicle types and road surface conditions generated by HDM-4 in the PID). 4.6.4 Passenger travel time values have been estimated from the origin destination surveys based on vehicular passenger occupancy, income levels, and trip purpose. Based on the assumptions of the project study: i) Household incomes of passengers in light vehicles are 75% above national average incomes; ii) Household income of bus passengers are at the national average; iii) 50% of light vehicle passengers’ time is paid time; and iv) 30% of bus passengers’ time is paid time. Passenger travel time is expected to be reduced from 5 hours to 3 hours on project completion. On the basis of above, passenger hourly time values for motorized traffic is estimated as ETB 0.89 and ETB 0.28 respectively for light vehicles and bus passenger. In the case of pedestrian mode, the pedestrian time value has been estimated at ETB 0.13 per hour with economic hourly value estimated at ETB 0.08 after adjustment by shadow wage and trip purpose factors. The road intervention unit costs based on current rates in the construction industry in Ethiopia are: Routine Maintenance/km – ETB 7000; Grading/km – ETB 1900; Spot re-gravelling/m3 – ETB 104.1; Re-

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gravelling/ m3 – ETB 120.0; Patching/ m2 – ETB 40.0; Resealing/m2 - ETB 38.0 and Asphalt overlay/m2 – ETB 86.04. 4.7 Environmental and Social Impacts 4.7.1 The road project has been classified as Category 1 in line with the Bank’s Involuntary Resettlement Policy (Revised Version, 2003) as it passes close to sensitive forest areas and the number of project affected households are above the threshold of 50. The Environmental and Social Impact Assessment (ESIA) Summary/RAP Annex was posted on the AfDB PIC Website on 28th July 2006 and distributed to the Board of Directors on 31st October, 2006 under reference number ADF/BD/IF/2006/181. Implementing the upgrading works of the Jima-Mizan road will involve adverse environmental and social impacts mostly related to the construction phase, and implementation of appropriate mitigation measures, as summarized below will minimize these undesirable impacts.

a) Positive Environmental and Social Impacts 4.7.2 Employment opportunities: One of the most direct positive impacts of the road project is creation of job opportunities for the road side communities. The project works are expected to involve at least 2000 casual workers throughout its implementation period. Based on the RSDP assessment already alluded to, this investment should create between 300 and 500 jobs during construction and an additional 1,500 people per year in maintenance work. ERA has a deliberate policy of giving preference to women when hiring workers. Other opportunities will result from the general economic improvement of the region due to increased access and increased traffic flow which will create further indirect jobs. For instance, there is potential for employment in the tea and coffee processing factories such as the tea factory at Wushwush which in 2002 employed approximately 2000 people half of whom were women. Furthermore, it is hoped that the successful implementation of ongoing ERTTP and the follow-on rural credit project will further enhance the situation of women, in the more remote areas of influence of the road. 4.7.3 Access to health: The upgrading of the road to asphalt standard will support the provision of a wider and better range of health care services. The project will reduce travel time to health centers by mode and location and particularly to secondary and tertiary level referral hospitals at Jima and Mizan. Given the population densities of the project zone and the 5 km radius of a health centre, at least 24,000 households in Jima would be within reachable distance to transportation compared to 2,600 who in 2002 who were within 4 km radius to the nearest health facility. Similarly Keficho Shekicho zone would have at least 22,500 households compared to 3,333 in 2002; and Bench Maji would be 1012 households compared to 232 within 4km reach to nearest health facility. The project road will make it possible for health service providers especially those managing the expanded program of immunization to reach distant and remote areas and strive to reach the national average of 79% in polio immunization, for example, and same will be for ambulatory services for emergencies. 4.7.4 Access to education: Upgrading this road would provide opportunity for increased school enrolments. In Jima, for example, approximately 44% of households are situated at over 4 km to the nearest primary school. This poses a big challenge for administrators to supply teaching and learning materials and conduct quality inspections. More importantly will be increased access to secondary school facilities. Currently, 32% of those attending secondary schools in the project area have to travel distances of 5-19 km every day which definitely affect girls enrolment levels. The road would therefore, potentially, give opportunity (more so for girls) to access motorized transportation and provide increased access to educational opportunities.

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4.7.5 Agricultural productivity: The road once completed will increase opportunities for increased farm-gate prices with access to urban markets and increased production due to access to extension services, new farming techniques, inputs such as hybrid seeds, fertilizer and pesticides . The project zone area is a major producer of organic coffee (Kerrorima and Timiz) and food crops mainly maize, teff, sorghum and pulses. An ex-post evaluation of an ADB funded Chida-Sodo project in 2000 showed big yield increases in teff, maize and wheat 18 months after project completion (see paragraph 2.3.2 above) implying big positive externalities driven among others from the road investment. The Livestock production and off take would increase due to improved veterinary services and disease control 4.7.6 Impacts on gender: In addition to increased job chances at the construction sites, income generating opportunities would arise from emerging demand for services such as restaurants, small shops and allied activities which tend to favor women who have demonstrated better preparedness than men to capitalize on them as evidenced form a study done in Oromiya Region in East Worega Zone (2006) where at least 35% of women were empowered to make household decisions that affect their wellbeing due to response to economic environment that improved their economic status. Similarly, according to the CSA (1997) Ethiopian women operated 65% of micro enterprises and 26% of small enterprises.

b) Negative Environmental and Social Impacts and Mitigation Measures 4.7.7 Land Take and Material Sources: The upgrading of the road is expected to cause minimal adverse impact except in some sharp bends, the widening of which, will lead to loss of some cultivation land. Land take would occur where land will be acquired for contractor’s camps, gravel pits, hard stone quarries and crusher plant site. Some identified sites have old borrow pits and quarries which will be used in order to minimize the impact. After completion of road works, the borrow pits/quarries and construction camps would be reinstated in accordance with an agreed reinstatement plan that provides details of final profile, drainage and sediment control, re-soiling and re-vegetation measures by the contractor. Spoil materials generated during upgrading works will be placed in worked out borrow areas for reinstatement and suitable temporary dumping places identified by the contractor prior to start of road works. These mitigation measures are included in the bidding document for civil works to be done to specification and supervised by the supervision consultant. 4.7.8 Pollution of Water Courses and Drainage: Watercourse pollution could result from loose soil being washed into rivers and streams. In general, construction phase impacts will be mitigated through the inclusion of specific environmental protection clauses in the contract documents to be complied with during construction. Supervision of implementation of mitigating measures would be by a consultant appointed by ERA. Monitoring of compliance with mitigation measures would be carried out by ERA through its Environmental Monitoring and Safety Branch (EMSB). 4.7.9 Erosion of Earthworks Slopes and soil: Soil erosion could occur during the upgrading works and sections of the road are prone to landslides. Slope stability will be improved by building gabion walls and concrete retaining walls, as necessary, while tree planting will stabilize less steep slopes. There would be re-vegetation where bare soil is created due to construction works. 4.7.10 Deforestation and Hunting: In order to retain the natural vegetation cover, sensitization would be undertaken on use of firewood for cooking and prohibition of hunting by the work force. The use of kerosene stoves in place of firewood by work force and local communities would be encouraged. In addition, JICA is currently engaged in a pilot Participatory Forest Management Project (PFMP) in the Beleta Gera forest reserves as technical assistance to Oromiya and SNNPR

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Forestry Departments and NGOs. This is a system for sustainable forest management with participation of local communities. 4.7.11 Monitoring and Institutional Arrangements: The ERA through EMSB has the responsibility of ensuring that all environmental aspects are taken into consideration. Accordingly, ERA has prepared the Environmental and Social Management and Monitoring Plan (ESMMP). A total budget of ETB 1.622 million for environmental mitigation measures has been included in the overall project cost. The ESIA has been endorsed by Environmental Protection Authority (EPA). The contractors will have the overall responsibility of complying with relevant Bank and Government policies and regulations with respect to environmental safeguards. The Resident Engineer (RE) will supervise these alongside all other civil works. The RE will ensure that among the key staff is an environmental/sociologist who will assist in supervision and reporting. 4.7.12 In addition, ESMB shall regularly review the RE’s report with respect to (i) the evolution of the environment during and after road works; and (ii) the effectiveness and efficiency of the mitigation measures as specified in the tender documents. Copies of EMSB’s report on road project would be submitted to the EPA. Post-construction environmental auditing will be carried out by the EPA through its Regional offices to ascertain that the adverse effects are mitigated and beneficial impacts enhanced. There will be involvement of local community representatives, Right of Way Agents and EMSB staff in this process. 4.7.13 Displacement of Population: According to the ESIA study conducted, at least 87 houses will be affected by the project works, 63 shops and another 6 buildings to be relocated. In all approximately 1073 people would be affected and in need for compensation. Most of structures are small and of simple construction, comprising wooden frameworks with mud plaster. Nevertheless, a Resettlement Action Plan has been prepared and will be implemented within the ESMMP. Mitigation of the impacts on land and property will be facilitated by work designs which minimize land-take as far as possible. In line with the GOE Resettlement Land Acquisition Policy Framework and the Bank’s Policy on Involuntary Resettlement, a compensation bill of ETB 11,606,653 million has been anticipated. Responsibility for executing compensation payments is with ERA’s Contract Construction Implementation Division and the Right of Way Branch. This is done in collaboration with Resettlement Implementation Committee (RIC) of each woreda. RIC is chaired by the woreda administrator and members comprise Right of Way Agent, women associations, elders, PAPs representative, and other relevant agents. 4.7.14 Handling of Right of Way issues in projects and resettlement/ compensation of Project Affected Peoples (PAPs) have been major issues of project implementation delays given Bank’s operational experience in the Road Sector in Ethiopia. Though some improvement has been noticed in the last two years, the need to further strengthen right-of-way management capacity remains and has become basis for claims by contractors. Since the project is Category 1 as per the Bank’ Guidelines, evidence satisfactory to the ADF that the PAPs have been fully resettled/compensated in line with RAP schedule before commencement of the civil works will be made a condition precedent to the First Disbursement of the Loan. 4.7.15 HIV/AIDS and STI: The project road is likely exacerbate the situation on HIV/AIDS and sexually transmitted infections (STI) due to the workforce that will be away from home and has higher disposable income. ERA implements HIV/AIDS awareness, prevention and control activities through EMSB and HIV/AIDS Prevention and Control Project Office whose strategies and programs are aimed at construction workers and the communities in the project areas. A sum of ETB 1.6 million (UA 0.128 million) has been earmarked for these activities, and will be in the BoQs for the two contracts to ensure that HIV/AIDS activities are implemented in line with ESMMP. The Contractor will sub-contract an experienced NGO (vetted by ERA) to implement the

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activities. The RE will incorporate in his/her staff a sociologist to supervise and follow-up work of the NGO and report to ERA through the RE. The NGO will liaise with local CBOs, local government officials, other agents including women’s associations and Organization for Social Services for AIDS (OSSA) to ensure sustainability of activities after the project. Included in the civil works will be social amenities which, as part of road safety, will provide space/room for HIV/AIDS awareness and VCT for truck drivers and the communities around. 4.7.16 Road Safety: Upgrading of the project road will encourage more traffic and higher vehicular speeds which would have effect on road safety for pedestrians, cyclists, livestock and their owners. Particular attention has been given in project design to put in place measures that would enhance road safety viz: provision of sealed shoulder, bus bays in settlements, improved road signs and markings, and speed humps/rumble strips. The contractors will implement traffic management at construction sites to enhance traffic flow and safety and public road safety awareness activities along roadside communities. Rest stops will be constructed at regular intervals along the route for use by long-distance truck and bus drivers, hence minimize the risk of accidents due to fatigue. Proper traffic signs shall be placed at all necessary sites in the construction area to reduce traffic congestion and safety problems associated with haulage of materials and the construction works.

c) Public Consultation 4.7.17 Consultation with various stakeholders has been an integral part of this EIA process. In April 2006, the Study Consultants conducted 6 consultations in several Kabeles along the route alignment. In total 63 people were met of which 57 were men and 6 were women. In addition the Consultant conducted a socio-economic survey and sampled 326 PAPs of which 167 (51.2%) were men and 159 (48.8%) were women. Several people were also interviewed along the route including government and public sector representatives, representatives of NGOs (Farm Africa and Action Aid) and representatives of JICA who are supporting a participatory forest management project in Belete-Gera Regional Forestry Priority Area. Structured and semi-structured were conducted and most people interviewed gave a positive reaction to the road improvement. Among the concerns raised were the potential interference and clashes with the Farmer’s Participatory Forest Protection Cooperative Group established in the Bonga area to ensure that construction workers don’t encroach into the forest reserves in fetch of fuel wood. Another concern was with regard to compensation for lost property and crops. The concern was to ensure that adequate and timely compensation of PAPs. 4.7.18 There was great satisfaction among women on the proposed road as it will reduce cost of transport to markets, health centers and schools. Most women expressed the concern that very often they have to spend up to 6 hours a day to visit a health facility and if at all they can have access to transport it often costs higher (2Birr) per 5 km when the road is bad, instead of 1Birr. Students, especially those attending secondary school at Mizan have to walk for over 2 hours one way and this discourages girls from continuing with education for safety and time reasons since they have to attend to other chores. 4.8 Project Costs 4.8.1 The project cost estimate (net of all taxes and duties) is UA 101.53 million (ETB 1270.97 million) of which the foreign exchange cost is UA 75.16 million (ETB 940.87 million) or 74.02% of the total and the local cost is UA 26.37 million (ETB 330.10 million) or 25.98% of the total. The estimated project cost is based on “Bills Of Quantities” prepared by an engineering firm contracted by ERA and financed through ADF/TAF resources but revised in February 2006 by ERA to reflect the current oil price increases. A provision of 10% was made to accommodate physical contingency; another provision for price escalation of 3% and 8% per annum for foreign and local costs respectively

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and trends in the construction cost or price index were also taken into consideration. An amount of UA 2.85 million was also provided for supervision services based on man-month method. A lump sum amount of UA 0.10 million has been incorporated for project audit services 4.8.2 The project cost estimates by project components and by category of expenditure are presented in Table 4.2 and Table 4.3 respectively.

Table 4.2 Summary of Project Cost Estimates by Component (Net of Taxes)

Ethiopian ETB (million) UA (million)

Component Foreign

Exchange Local Cost Total Foreign

Exchange Local Cost Total

% of Foreign Exchange

A. Civil works 766.73 255.58 1022.31 61.25 20.42 81.67 75.0% B. Consultancy Services

i) Supervision 32.20 3.58 35.78 2.57 0.28 2.85

90.0%

ii) Audit 1.25 0.00 1.25 0.10 0.00 0.10 100.0% C. Miscellaneous (Resettlement) 0.00 11.61 11.61 0.00 0.93 0.93

0.0%

Base Cost 800.19 270.76 1075.95 63.92 21.63 85.55 74.7% Physical Contingencies (10% base cost) 80.02 25.91 105.93 6.39 2.07 8.46 75.5% Price Escalation (3% for FE % 8% for LC) 60.70 33.46 94.16 4.85 2.67 7.52 64.5%

Total 940.90 330.14 1271.04 75.16 26.37 101.53 74.0%

Table 4.3 Summary of Project Cost by Category of Expenditure (Net of Taxes)

Ethiopian ETB (million) Unit of Account (million) UA

Category Foreign

Exchange Local Cost Total Foreign

Exchange Local Cost Total

A. Civil works 766.73 255.58 1022.31 61.25 20.42 81.67

B. Consultancy Services 33.45 3.58 37.03 2.67 0.28 2.95

C. Miscellaneous (Resettlement) 0.00 11.61 11.61 0.00 0.93 0.93

Unallocated 140.72 59.37 200.09 11.24 4.74 15.98

Total 940.90 330.14 1271.04 75.16 26.37 101.53 UA 1.00 = 12.5182 UA 1.00 = USD 1.45486

4.9 Sources of Financing and Expenditure Schedule

4.9.1 ADF and GOE will jointly finance the road and consultancy services components of the project while the GOE will be solely responsible for the resettlement and compensation payments for PAPs. The proposed financing from ADF will cover UA 65.0 million of the total project costs which is 64.02%. The GOE will finance a portion of foreign cost amounting to UA 10.16 million and all of the local cost amounting to UA 26.37 million (ETB 330.10 million). The GOE’s contribution will amount to 35.98% of project cost net of taxes. GOE will in addition be responsible to cover all taxes, duties, royalties, levies and Right of Way acquisition which are not eligible for financing by the ADF. The proposed financing plan by category of expenditure and source of finance is presented in Table 4.4 and Table 4.5 respectively below:

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Table 4.4 Summary of Project Cost by Category of Expenditure (Net of Taxes)

ADF (UA million) GOE(UAmillion)

Category Foreign

Exchange Local Cost Total Foreign

Exchange Local Cost Total A. Civil works 52.10 0.00 52.10 9.15 20.42 29.57 B. Consultancy Services 2.67 0.00 2.67 0.00 0.29 0.29 C. Miscellaneous (Resettlement) 0.00 0.00 0.00 0.00 0.93 0.93 Unallocated 10.23 0.00 10.23 1.01 4.73 5.74 Total 65.00 0.00 65.00 10.16 26.37 36.53

UA 1.00 = 12.5182 UA 1.00 = USD 1.45486

Table 4.5 Sources of Finance for the ADF Components (Net of Taxes)

(in UA million)

Source Foreign Exchange Local Costs Total Costs % of Total ADF LOAN 65.00 0.00 65.00 64.02% GOE 10.16 26.37 36.53 35.98 % Total 75.16 26.37 101.53 100% Percentage 74.02% 25.98% 100%

4.9.2 The expenditure schedule has evolved from the total estimated cost of the project spread over the implementation programme in proportion to the works and services programmed for each year of project implementation. The expenditure schedule by component (including contingencies) of the project is shown in Table 4.5 below.

Table 4.6 Expenditure Schedule by Component

(In UA million) - Net of Taxes

Component 2007 2008 2009 2010 2011 Total

A) Civil Works: - Road Upgrading Works

14.57 14.56 38.84 19.42 9.71 97.10

B) i) Supervision ii) Audit Services

0.51 -

0.91

0.02

0.90

0.03

0.91

0.02

0.17

0.03

3.40

0.10 C) Miscellaneous: - Resettlement

0.93 - - - - 0.93

Total 16.01 15.49 39.77 20.35 9.91 101.53 The expenditure schedule by Source of financing is shown in Table 4.6 below.

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Table 4.7 Expenditure Schedule by Source of Finance

(In UA million) - Net of Taxes

Source 2007 2008 2009 2010 2011 Total

ADF LOAN 10.24 10.09 25.27 13.13 6.27 65.00

GOE 5.77 5.40 14.50 7.22 3.64 36.53

Total 16.01 15.49 39.77 20.35 9.91 101.53

4.9.3 The Counterpart Fund requirement for the project above is estimated at UA 36.53 million net of taxes. The Government will have a share of 35.98% of project cost to be financed from its budget. This poses some risk given current fiscal situation caused by high oil prices and floods. However this risk is minimized by the comfort given by the EU sector budget support under the RSDP. 5. PROJECT IMPLEMENTATION 5.1 Executing Agency 5.1.1 The Ethiopian Roads Authority (ERA) will be responsible for the execution of the project. ERA is a legally autonomous agency responsible for overall planning, construction, maintenance and management of the country's trunk and major link roads. ERA is headed by a General Manager reporting to a Board of Directors appointed by the Government. To discharge its responsibilities ERA has been recently reorganized into three main Departments which are accountable to the General Manager, namely: - 1) Engineering and Regulatory Department; which is structured into five divisions: Planning and Programming Division, Construction Contract Implementation Division, Network Management Division Engineering Procurement, Design and Technical Service Division and District Engineering Divisions (DEDs); 2) Operations Department, which has responsibility for Force Account Maintenance and Construction, and Associated Logistics Support including Supplies and Equipment; 3) Human Resources and Finance Department; which is responsible for Personnel Administration, Training and Finance Administration. The General Manager, who is appointed by the Prime Minister through recommendation of the Board, and Ministry of Infrastructure (MOI) is the Chief Executive Officer of the Authority and directs and administers the activities of the Authority. 5.1.2 Currently, the total number of employees of the Authority is about 13,000, of which 5,545 are permanent, the rest are contract and seasonal workers. 102 staff members are employed in the Procurement Unit and consists among others of 36 engineers, 19 semi professionals and 15 support staff with responsibility for procurement of works and services. Out of the total workers, excluding seasonal employees, the proportion of high professionals to semi professionals is about 5%; technicians and operators constitute about 40% of the total force. Women make up 4% of the total staff, and about 16% of them are professionals. The Government is trying to recruit more women into the professional categories.

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5.2 Institutional Arrangements 5.2.1 The project’s supervision and monitoring falls under the purview of the Deputy General Manager, Regulatory and Engineering Department of ERA. The implementation of the works will be under the responsibility of the Construction Contract Implementation Division while procurement planning will be done by Engineering Service Procurement, Design and Technical Support Division. A Project Co-ordinator has been be designated by ERA, before Appraisal, with at least a Bachelor of Science. Degree or equivalent in Civil Engineering and a minimum of 5 years experience that have been found acceptable to the Bank. He will be responsible for overall monitoring of the activities of the project, and serve as a contact person for all the parties involved in the project. The Project Coordinator in collaboration with the head of the Environment Monitoring and Safety Branch will also monitor the environment and social management plan. ERA has been implementing the 10-year Road Sector Development Program, and has benefited from substantial technical assistance provided by the Bank Group, World Bank, DfID, the EU and JICA in contract administration, procurement and project management, gained considerable experience in implementing road projects and its performance has significantly improved.

5.3 Supervision and Implementation Schedule 5.3.1 The construction works for the Jima - Mizan Road project will be carried out by one or two contractors as tendering will be based on one lot or combination of the two lots. The works will be inspected and supervised by two engineering consulting firms. The project works will be implemented over a period of 36 months commencing in January 2008 and ending in December 2010 followed by 12 months of defects liability period. 5.3.2 The project Implementation schedule, which has been agreed to with the Executing Agency, is shown on Table 5.1 below and also presented in Annex 3.

Table 5.1 Summary of Project Implementation Schedule

Activities Date Agency Responsible

Approval of Loan /Grant

Nov 2006

ADF

Publication of GPN

Jan 2007 ERA /ADF

Construction of Works Contract Advertisement and Notification (SPN) Feb 2007 ERA /ADF Pre-qualification of Contractors May 2007 ERA /ADF Call for tenders Jun 2007 ERA /ADF Receipt of Tenders Aug 2007 ERA Evaluation & approval Oct 2007 ERA /ADF Award of Contract Nov 2007 ERA Civil works commenced Jan 2008 ERA Construction completed Dec 2010 ERA End of Defect Liability Period Dec 2011 ERA Consultancy Service for Supervision Advertisement and Notification (SPN) Mar 2007 ERA /ADF Approval and Issue of RFP Apr 2007 ERA /ADF Receipt of Proposals Jun 2007 ERA Evaluation & Approval Sep 2007 ERA /ADF Award of Contract Oct 2007 ERA

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Commencement of Consultancy Services Nov 2007 ERA Completion of Consultancy Services Dec 2011 ERA Consultancy Services for Project Audit Advertisement and Notification (SPN) Feb 2008 ERA /ADF Approval and Issue of RFP Mar 2008 ERA /ADF Receipt of Proposals May 2008 ERA Evaluation & Approval June 2008 ERA /ADF Award of Contract July 2008 ERA Commencement of Consultancy Services Aug2008 ERA Completion of Consultancy Services Dec 2011 ERA

5.4 Procurement Arrangements 5.4.1 Procurement arrangements are summarized in Table 5.2. All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules of Procedure for Procurement of Goods and Works, or as appropriate Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents. ♦ Civil Works 5.4.2 The procurement of civil works will be carried out under International Competitive Bidding (ICB) procedures, with pre-qualification of contractors and a regional preference margin of 7.5%. The civil works contract for the construction of the Jima-Mizan road is valued at UA 101.53 million, and will be packaged in two lots.

Table 5.2 Summary of Procurement Arrangements (costs include contingencies)

UA million

Project Categories

ICB Short-List Others Total

Civil Works 1.1 Jima-Mizan Road Construction (2 lots)

97.10 (61.84)

97.10 (61.84)

Consulting Services 2.1 Supervision of Road Construction (2 lots) 2.2 Project Account Auditing

3.40 (3.06) 0.10 (0.10)

3.40 (3.06) 0.10 (0.10)

3. Miscellaneous: - Resettlement 0.93 (0.00)

0.93 (0.00)

TOTAL 97.10

(61.84) 3.50 (3.16)

0.93 (0.00)

101.53 (65.00)

( ) Figures in brackets are amounts financed by the ADF. ♦ Consulting Services 5.4.3 The consulting services for supervision of road construction in two lots will be procured on the basis of short-lists of qualified consulting firms. The selection procedure, in each case, will be based on the technical quality with price consideration.

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♦ Project Audit Services 5.4.4 The audit services will be procured through a short-list of auditing firms, subject to clearance by the Federal Auditor General’s Office, prior to call for bids. Since the amount of contract for audit services is less than UA 350,000, the Recipient may limit the publication of the announcement to national or regional newspapers. However, any eligible consultant, being regional or not, may express his desire to be short-listed. The selection procedure will be based on establishing the comparability of technical proposals and selection of the lowest financial offer.

• Miscellaneous (Resettlement) 5.4.5 The Ethiopian Roads Authority as per Art. 1457 of civil code of Ethiopia has the authority over compensation of the PAPs through Resettlement Implementation Committee (RIC) comprising ERA Right of Way Agents, representatives of the local administration (wereda) and two (man and woman) representatives of PAPs. In line with the Proclamation on Expropriation of Land holdings for Public Purposes and Payment of Compensation, RIC will have the full responsibility to co-ordinate, manage and monitor the day-to-day compensation of the activities under this component to be fully financed by Government. ♦ National Procedures and Regulations 5.4.6 Ethiopia’s national procurement laws and regulations have been reviewed and found acceptable. . ♦ Executing Agency 5.4.7 The Ethiopian Roads Authority (ERA) will be responsible for the procurement of works, supervision consulting, and audit services and resettlement/compensation. The resources, capacity, expertise and experience of ERA are adequate to carry out the procurement. ♦ General Procurement Notice 5.4.8 The text of a General Procurement Notice (GPN) had been agreed to with ERA during appraisal. It will be issued for publication in the United Nations Development Business, upon approval of the loan by the Board of Directors. ♦ Review Procedures 5.4.9 The following documents are subject to review and approval by the Bank.

♦ Specific Procurement Notices ♦ Invitation for pre-qualification Documents ♦ Tender Documents and Requests for Proposals ♦ Tender Evaluation Reports and Reports on Evaluation of Consultants' Proposals ♦ Draft Contracts, if the Form of Contract document in the Standard Bidding Document has been

amended.

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5.5 Disbursement Arrangements

5.5.1 The loan will be disbursed for two categories of expenditure that consists of Civil Works, and consulting services for Supervision and Project Audit. The Direct Payment Disbursement Method will be used for the loan in line with the procedures and standard supporting documents outlined in the Bank’s Disbursement Hand Book. 5.6 Monitoring and Evaluation 5.6.1 ERA shall regularly provide the Bank with quarterly progress reports for the project including the implementation of the social and environmental action plan, in the established format covering all aspects of the concerned components. These reports will include not only physical and financial performance indicators, but also those relating to social and environmental impacts, which will assist in verifying whether or not the objectives are being achieved. In addition, monitoring of the project will be done through the Bank’s supervision mission program, in accordance with the Bank Group’s Operations manual. A mid-term review will be undertaken during the second year of implementation in 2008 to identify any major constraints facing the project and provide the required corrective measures. 5.6.2 The implementation of the environmental mitigation measures will be monitored by the supervision consultant and the ERA Environment Monitoring and Safety Branch (EMSB) that had been strengthened through the IDA technical assistance to ERA. The EMSB will send periodic reports of its monitoring activities to the EPA which, in turn, will perform environmental audit of the road project. 5.6.3 Within six months of project completion, ERA will prepare the Borrower’s Project Completion Report to be submitted to the Bank. Subsequently, the Bank will carry out its own PCR. The two reports and ERA’s performance statistics and financial results will form the basis for the post-evaluation of the project. 5.7 Financial reporting and auditing 5.7.1 The Finance Division of ERA will be responsible for the financial management and reporting for the project. The existing accounting and reporting system is capable of producing accurate and reliable information regarding project resources and expenditure; and in addition produce financial statements of ERA as an entity for the GOE and donor partners intervening in the RSDP. The Division has been strengthened through an IDA financed technical assistance which has put in place an Accounting and Financial System Manual as of March 2000, to enhance accountability, managerial autonomy and financial control. The division has now migrated its accounting system from a Microsoft Excel-based application to professional accounting software ⎯ ACCPAC. The software package was provided under a technical assistance support from GTZ based on the new Manual. The ACCPAC software had been installed and configured on ERA computer system and staff trained on its use. The use of the new Financial Information System is critical for internal control and efficient financial reporting and auditing of projects. 5.7.2 The Financial Division of ERA will open and maintain separate books of account for the project and keep all the financial records of the projects separate from that of other donors in the RSDP. The financial statements and project accounts will be audited annually during project implementation following the Bank’s Guidelines for Project Audit. A qualified independent audit firm procured on the basis of terms of reference acceptable to the Fund shall undertake the auditing services. The Audit reports shall be submitted to the Bank regularly once every year and after project completion.

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5.8 Aid Co-ordination 5.8.1 Aid co-ordination has been achieved through the Consultative Group (CG) meetings, which provided opportunities for donors both bilateral and multilateral to periodically review Ethiopia’s development program as well as co-ordinate their development assistance in support of the program. The complementarities of the development partners’ efforts have been facilitated by the co-financing under the Road Sector Development Program (RSDP I & II) and extensive country level donor co-ordination involved in program formulation and implementation progress monitoring. The Public Expenditure Review (PER) in which the Bank effectively participates has also provided an effective forum for dialogue between the Government and its development partners on budget allocation and implementation issues. 5.8.2 The Ministry of Finance and Economic Development (MoFED) has been effective in the in-country donor co-ordination mechanism which involves different levels of meetings among which is the Development Assistance Group (DAG), which is the main coordination framework for donors with the Government. The Bank Group Ethiopia Field Office is currently serving as a member of the DAG Executive Committee. There is also coordination at ambassadorial level whereby donor ambassadors and heads of key development agencies meet to review development co-operation issues. Also there are periodic review meetings of sector investment programs involving the Government, donors and other stakeholders in which the Bank Group effectively participate. For the road sub-sector, a mid-term review of the implementation performance of the RSDP II was undertaken in April 2005, which provided the forum for drawing lessons for the effective delivery of the program. The Bank Preparation and Appraisal Missions held consultative discussion with all major donors participating in the RSDP viz. World Bank, EU, DFID, JICA, DCI and GTZ. They all confirmed and agreed on the priority of the Jima - Mizan road project as one of the main trunk roads for implementation in the RSDPII. 6. PROJECT SUSTAINABILITY AND RISKS

6.1 Recurrent Costs 6.1.1 Throughout the construction and mandatory one-year maintenance period, the construction firm will be responsible for maintenance of the project road. Thereafter ERA would be responsible for the routine maintenance expenditure of the project, which involves maintenance of the sides of the road, ancillary works including pothole patching to the end of the project service life in 2032. In addition ERA would meet the financing requirement for periodic maintenance, which involves asphalt overlay at a cost of USD 15.42 million every 8 to 10 years of service life of the road. The routine and periodic maintenance costs that constitute the recurrent cost of the project have been estimated and would be accommodating in the Road Fund Budget for maintenance. 6.1.2 Government has established a Road Fund in March 1997 with the goal that all maintenance expenditure will be financed from the Fund on a “fee for service” basis as a first step towards progressively achieving long term marginal cost recovery for the road sector, initially focusing on full road maintenance recovery. Routine maintenance is a continuous activity that does not depend on the engineering characteristics of the road or volume of traffic. Routine maintenance is undertaken on a regular basis and includes grass cutting, clearing ditches, culvert maintenance, drainage clearing, road signs maintenance etc.

6.2 Project Sustainability

6.2.1 The Government has recognized in the conception and design of the RSDP that the sustainability of the investment in the programme in the long run would depend on i) the institutional and capacity strengthening of the Road Agencies, ii) increasing the capacity of the local private contractors and commercialisation/decentralisation of ERA force account unit, and iii) effective

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resource mobilization for road maintenance financing. In this regard, Government has implemented and continue to put in place policies, measure and action with technical assistance support from donors to address these concerns. The restructuring of ERA was addressed by Proclamation in 1997 that transformed ERA from a supplier of road infrastructure to a manager and purchaser of services and works for network maintenance and development. Donors have also assisted ERA with technical assistance support for institutional strengthening in critical areas. ERA’s policy of commercialisation of its force account unit and contracting out increasingly to match pace of development of domestic contracting capacity in line with the Maintenance Action Plan (2001–2005) endorsed by donors will ensure project sustainability. 6.2.2 In addition, the Road Fund Administration is a well led office effectively mobilizing resources and monitoring the use of funds by the beneficiary agencies (ERA, RRAs of the Regions and municipalities) in order to ensure that road users get value for money through the proposed technical audits financed under EDF-technical assistance. All these measures would ensure the sustainability of the investment in the project. In addition Government would ensure effective axle load control measures to protect the investment in the project. In this context, the implementation of policy measures with respect to axle load control on the road network is being implemented with EU technical assistance support. 6.3 Critical Risks and Mitigating Measures 6.3.1 Implementation of the project does not present major risks but some factors have been taken into account in project design. There could be an increase in the project cost due to delay in the implementation and the projected traffic growth could be slower than anticipated. The risk of delay in the implementation has been minimized through actions taken in the RSDP, by way of providing technical assistance to ERA and organizing seminars/workshops and training to ERA staff in procurement planning/programming and in contract administration. Regarding the risk on the projected traffic growth, recent experience in similar projects has shown a traffic increase of twice or more, than the original estimated growth. Besides current traffic growth parameters are higher than the rate used in the forecast. Further, these factors were taken into account in the economic analysis, which shows that the project will remain economically viable even with a combined increase of 10 percent in investment costs above the physical contingency provision of 10.0% and a decrease of 10 percent in the traffic levels. 6.3.2 The political and economic risks are low despite the tense internal political environment after the recent elections which is already calming down and the low level of relation between Ethiopia and its neighbors and the oil shock. There is high level Government endorsement of the RSDP and problems arising out of implementation are continuously expeditiously resolved. Government and Donors annual joint assessments of implementation performance and joint solutions to issues reduce the risks. Ability to meet counterpart fund obligations may derail project implementation schedule and this is a risk given Government counterpart requirement for the project and current fiscal situation of high oil prices that may affect Government ability to meet its share of the foreign exchange cost of the project. The Government is receiving substantial road sector budget support from EU and general budget support from a number of donors that will minimize this risk. Besides, Government prioritization of the project is high and will not be affected by any scale down of RSDP II program size. 6.3.3 The fiduciary risks are also low as the overall Public Financial Management situation is encouraging. There is also active donor support and monitoring and quality of dialogue is high. ERA is actively improving its accounting systems and efforts are in place to link accounting systems to budgets and expenditure management to improve management oversight within ERA with technical assistance support under the RSDP. There is financial and technical audit of utilization of road fund resources to ensure Value for Money for road users and ensure sustainability of the road network. In

32

addition Government is committed to commercialization of the force accounts under its ten Maintenance Districts (DMOs) with Technical Assistance Support from DFID and policy reversal is not anticipated. 7. PROJECT BENEFITS 7.1 Economic Analysis a) Methodology 7.1.1 Appraisal has been made using HDM-4. The Jima to Mizan road is divided into two links, Jima-Bonga and Bonga-Mizan. The project road condition data input into the HDM-4 has been in a “with” and “without” project scenarios using the characteristics of the different road sections (Jima – Bonga and Bonga - Mizan). HDM-4 allows for modelling over the analysis period of the link, the interaction between traffic volume, composition, road condition, geometry and characteristics and the vehicle operating costs for the “with” and “without” project scenarios. 7.1.2 For Economic Analysis, a conversion factor of 0.78 has been used to convert financial construction and maintenance costs into economic costs. The measures of project worth used are the EIRR, NPV, BCR and the FYRR at 10% discount rate. The base year taken for economic evaluation is 2008, the year in which construction is expected to commence with a construction period of 36 months and first year under traffic of the project road is estimated as 2010. b) Costs 7.1.3 The costs taken into account are the Road Agency costs in the “with” and “without” project scenarios which include both the cost of maintenance and the investment costs of upgrading the project road to a asphalt concrete surface standard. These costs include the base cost for civil works plus the physical contingencies, consulting services for supervision and project audit. The financial contingencies are not taken into account, as they do not constitute consumption of economic resources. The total financial investment cost is estimated as USD 153.166 million resulting after conversion into economic capital investment costs of USD 119.47 million (ETB 1028 million). This is to be disbursed as follows: 30% in 2008, 40% in 2009 and 30% in 2010. Residual values have not been taken into account after the 25 years design life as there are only repairs under the project to existing bridge structures. c) Benefits

7.1.4 The benefits taken into account are those accruing to Road Users in terms of Vehicle Operating Cost (VOC) Savings to normal and generated traffic and travel time savings for normal traffic. The other benefit is the reduction in Road Agency costs in terms of road maintenance savings on the road in a with and without project situation for same level of service. Secondary benefits in terms of externalities that cannot be directly traced to the road investment have not been taken into account in estimating the economic worth of the investment. Of the estimated 31.274 million vehicle kilometers of travel in 2011 when road is in service; 71.5% is due to normal traffic while remaining 28.6% is due to generated traffic. The annual average vehicle operating cost per composite veh-km would be reduced from USD 0.75 in 2008 without the project to USD 0.34 in 2011 when the project road is open to traffic. This would result in a total motorized VOC savings of USD 904.56 million over the project design life. The annual average travel time cost per composite veh-km would also be reduced correspondingly from USD 0.08 in 2008 to USD 0.056 in 2011 with total savings in motorized travel time estimated at USD 88.60 million over the project design life. (Summary of Motorized Road User Cost Summary per veh-km by vehicle is in the PID). Changes in accident costs have not been calculated and included in the estimate of economic benefits as the profile and frequency of accidents

33

are not known. Other secondary effects in terms of exogenous benefits are also not included in the benefits but only qualified. d) Results of Cost-Benefit Analysis

7.1.5 The results of the economic evaluation using the HDM-IV has resulted in an Economic Internal Rate of Return of 20.5% which is higher than the opportunity cost of capital in Ethiopia of 10.0%, agreed between Government and Ethiopian Development Partners for admission of a project in the RSDP II. The Net Present Value (NPV) of the project in the base case has been estimated as USD 162.56 million which confirm the viability of the intervention in the upgrading of the Jima - Mizan road project to paved standard (See Annex 5 for details). 7.2 Social Benefits 7.2.1 Upgrading the project road will enhance chances for increasing returns to agriculture, improved service delivery in education systems, health care and economic activities in the zone of influence. There are potential externalities which are not easily quantifiable hence not included in the estimation of the EIRR. To realize these though, assumptions shall have to be made backed up with complementary strategies and programs in the respective sectors outlined in the PASDEP (2005-2010). 7.2.2 The road construction works will offer an opportunity for job creation and increased off-farm employment of the people around the area hence advances the fight against poverty. Most of the workers will be unskilled laborers who are peasant farmers living in the vicinity of the projects for which project works will offer off-farm incomes. Accordingly, this will play an important role in the fight against poverty since most of these are under-employed and face seasonal unemployment. In the RSDP assessment similar workers received an average wage of ETB 2112 per year per person doing maintenance work which compared favorably to the estimated poverty line of ETB 1075 (2005) per year. 7.2.3 Improved transportation system in the area will enhance chances for increasing returns to agriculture resulting from improved supply of inputs such as fertilizers, pesticides and improved seed varieties. In addition, the road will make travel easier for extension service workers who may now reach rural communities. Furthermore, the upgraded road will enhance education performance especially for girls. The analysis shows that a large number of secondary school students have to travel 19-25 km each day to access schools in either Jima or Mizan. Similarly, health and community services will be enhanced. Health service providers will easily implement rural out-reach health care programs which include immunization and primary health care activities. Ambulatory services will be expanded since now that the road shall have been improved which is very crucial in saving expecting women who may have delivery complications. Supplies of medical materials just like educational materials will be readily available in all institutions within reach from the new road. 7.3 Sensitivity Analysis 7.3.1 Sensitivity Analysis was undertaken on the base case result of the economic evaluation to determine the effect of changes in project investment cost and traffic levels on economic viability. The exclusion of non-motorized transport only indicated an insignificant decrease in net present value but no changes in EIRR. An increase of 10.0% in project investment cost above the 10.0% physical contingency provision already taken into account in project costing resulted in a decrease of project EIRR from 20.5% to 19.3% and the NPV also dropped to USD 152.88 million. A 10.0% decrease in traffic levels resulted in a decrease in EIRR from 20.5% to 19.0% and NPV declined to

34

USD 134.50 million. Elimination of generated traffic would result in an EIRR of 18.8% and an NPV of USD 131.04 million. In a worst case scenario of simultaneous 10% increase in costs over and above the 10.0% physical contingency provision and 10% decrease in traffic, the project still remained viable with an EIRR of 17.8% and an NPV of USD 123.63 million. On all scenarios tested the project is satisfactorily robust. 7.3.2 Switching values to determine the percentage increase in capital investment costs and percentage decrease in traffic for which project viability would be threatened were undertaken. A 47.18% increase in the base case capital investment cost will reduce the EIRR to 10.0% while a decrease in traffic by 60.27% will reduce the EIRR to 10%. These percentage change in the base case capital investment cost is unlikely as current high level unit cost have been used in project cost estimate and the project documentation are at detail engineering with detailed Bill of Quantities. The likelihood of traffic also falling by over 60.27% given current traffic growth rate on the network is not anticipated 8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions 8.1.1 The Jima – Mizan Road Upgrading Project would benefit the population in the Project zone of influence by expanding their access to inputs and markets, reducing the cost of transport and improving the transport services to enlarge social service coverage in support of PASDEP. The project will enable increased use of motorized and non motorized transport and would substantially ease the women’s burden of head-loading and men’s back loading, thus freeing their time for more productive endeavours. The project will improve transport service levels between the towns Jima and Mizan and facilitate market integration of the zone of influence with the rest of the country and foreign markets for export produce and contribute to the sector goal of improving the efficiency and capacity of the transport system to support economic and social development in Ethiopia on sustainable basis. The project is consistent with the Bank Group’s assistance strategy for Ethiopia as elaborated in the 2006-2009 Result-Based CSP approved by the Board of Directors in September 2006 that included infrastructure as one of the three pillars of support to the country. 8.1.2 The project is well conceived, technically feasible, socially justified and environmentally sustainable. The project would generate an Economic Internal Rate of Return of 20.5%, which is higher than the opportunity cost of capital of 10.0% in Ethiopia. The upgrading of the project road would have a significant impact on poverty reduction in the project area whose major constraint has been in accessibility and high transport cost. 8.2 Recommendation and Conditions of Loan Approval It is recommended that a loan not exceeding UA 65.00 million be extended to the Government of Ethiopia for the upgrading of Jima – Mizan Road from gravel to asphalt concrete surfaced standard subject to the following conditions: A. Conditions Precedent to the Entry into Force of the Loan Agreement The obligations of the Fund to make the first disbursement of the loan shall be conditional

upon the entry into force of the loan agreement as provided in Section 5.01 of the General Conditions Applicable to Loan Agreement and Guarantee Agreements of the Fund, and fulfillment by the borrower of the following conditions:

35

B. Conditions Precedent to First Disbursement The Borrower shall:

i) Provided evidence satisfactory to the Fund that all land required for the road

right-of-way has been acquired and the project affected peoples has been fully compensated (paras 3.5.3, 4.5.6 and 4.7.14).

Annex 1: Project Location Map

ANNEX 4

ETHIOPIA JIMA-MIZAN ROAD UPGRADING PROJECT

INDICATIVE PROVISIONAL LIST OF GOODS AND SERVICES

Ethiopian ETB (million) Unit of Account (million) at 13.08

ETB per UA

Component Foreign

Exchange Local Cost Total

Foreign Exchange

Local Cost Total

% of Foreign Exchange

A. Civil works 766.73 255.58 1022.31 61.25 20.42 81.67 75.0% B. Consultancy Services

i) Supervision 32.20 3.58 35.78 2.57 0.29 2.86

90.0% ii) Audit 1.25 0.00 1.25 0.10 0.00 0.10 100.0% C. Miscellaneous (Resettlement) 0.00 11.61 11.61 0.00 0.93 0.93

0.0%

Base Cost 800.19 270.76 1075.95 63.92 21.63 85.55 74.7% Physical Contingencies (10% base cost) 80.02 25.91 105.93 6.39 2.07 8.46 75.5% Price Escalation (3% for FE % 8% for LC) 60.70 33.46 94.16 4.85 2.67 7.52 64.5% Total 940.90 330.14 1271.04 75.16 26.37 101.53 74.0%

ANNEX 5 Page 1 of 6

ETHIOPIA JIMA-MIZAN ROAD UPGRADING PROJECT

SUMMARY OF FINANCIAL AND ECONOMIC ANALYSIS

Revised RSDP II by Components and Sources of Funding (ETB million) Component GOE Road

User Community Private Sector Donors Unidentified Total

A. Federal Roads Rehab of Trunk Roads 682.1 1,535.2 2,217.3

Upgrading of Trunk Roads 1,867.9 1,863.5 3,731.4 Upgrading of Link Roads 1,094.6 14.9 349.7 1,459.2

Construction of Link Roads 1,830.9 482.5 2,313.4 Roads Heavy Maintenance 51.5 632.9 292.5 976.9

Roads Routine Maintenance 606.1 606.1 Feasibility Study of New

Roads 4.4 21.2 25.6

Procurement of Equipment 41.2 41.2 Bridge, Structure and

Equipment 96.2 20.5 116.7

Policy and Capacity Building 140.8 53.0 188.0 381.8 Recurrent Budget 118.8 118.8

B. Regional Roads Construction 1,984.8 1,984.8

Emergency Maintenance 2.4 195.5 197.9 Routine Maintenance 287.3 287.3

Recurrent Budget 235.1 235.1 C. Community Roads/ERTTP

Preparation and Physical Programme

130.0 10.0 811.0 250.0 209.5 900.0 2,310.5

D. Municipality Routine Maintenance of

Municipality Roads 102.7 102.7

Total 8,239.5 1,706.9 811.0 250.0 5,199.3 900.0 17,106.7

Source: Ethiopian Roads Authority

ANNEX 5 Page 2 of 6

RSDP I & II: Disbursement by Financiers – 1997/98 – 2004/05 (Cost in million ETB)

Financier Disbursement_

RSDPI

Disbursement_ RSDPII three

years Disbursement_ total eight years

% age of contribution

IDA 1,422.67 2,355.69 3,778.4 25.2 EU 678.1 626.2 1,304.3 8.7 ADB 506.4 324.4 830.8 5.5 NDF 14.8 32.3 47.1 0.3 Japan 164.9 318.6 483.5 3.2 Germany 27.7 159.7 187.4 1.2 Sweden 0.0 5.0 5.0 0.03 Ireland Aid/UK 25.8 59.0 84.8 0.6 OPEC 0.3 82.3 82.6 0.6 BADEA 0.0 0.2 0.2 0.001 GOE 3,357.71 2,711.48 6,069.2 40.5 Road Fund 975.0 1146.7 2,121.7 14.1

TOTAL 7,173.4 7,821.5 14,994.9 100

Disbursement by Financiers (1997-2005)

40%

14% 25%

1.3%0.6%

0.6%0%

0.03%3%0.3%

9%

6%

IDAEUADBNDFJapanGermanySwedenIreland Aid/UKOPECBADEAGOERoad Fund

Source: Ethiopian Roads Authority

ANNEX 5

Page 3 of 6 a) Methodology and Assumptions for Economic Evaluation i) Methodology

The project evaluation has been done using HDM-4. The route Jima to Mizan is divided into two links, Jima-Bonga and Bonga-Mizan. The project road condition data input into the HDM IV has been in a “with” and “without” project scenarios using the characteristics of the different road sections (Jima – Bonga and Bonga - Mizan). HDM IV allows for modelling over the analysis period of each of the link, the interaction between traffic volume, composition, road condition, geometry and characteristics and the vehicle operating costs for the “with” and “without” project scenarios. For Economic Analysis, financial construction and maintenance costs have been converted into economic costs by applying a conversion factor of 0.78. The measures of project worth used are the EIRR and NPV at 10% discount rate. The base year taken for economic evaluation is 2008, the year in which construction is expected to commence with a construction period of 36 months and first year under traffic of the project road is estimated as 2011 and service life of 25 years. All appraisal components have been inputted into the model in USD and output values are also in USD...

Investment costs have been distributed over three years, with 30, 40 and 30 percent of costs assumed incurred in the first, second and third year respectively. The period for which the road is appraised is 23 years; three for construction and 20 for operation. The final year for appraisal is therefore 2030.

iii) Appraisal Assumptions i) Maintenance Strategies

Maintenance of the existing road has been intermittent. Spot repairs have been carried out and some grading but the latter mainly over the sections of the links which are nearest to the ERA facilities. The maintenance strategy in the “without project” case, and the “with project” are as here under: Three strategies have been incorporated into the appraisal as follows:

“Without project” do minimum: which is essentially the historic maintenance practice. The strategy comprises routine and drainage maintenance, a grading frequency of once a year and spot re-gravelling of 30m3 per km per year. In practice routine maintenance is not annual throughout the route and both grading and spot re-gravelling activities are to be minimal to ensure pass-ability before the road is restored to maintainable condition “With project” moderate paved standard: involves routing maintenance, patching 5 percent of the surface area each year, and resealing with a 12mm SSD every 8 years.

ii) Residual Value Residual values have been calculated for a road operating life of 25 years based on various investment components of the project made up of general, earthworks, drainage structures, ancillary & road works, bridges, and design and supervision services. Since no new bridge structures are but under the project but limited to repairs of existing bridge structure, residual value at the end of service life has not been taken into account in the analysis.

ANNEX 5 Page 4 of 6

iv) Costs and Benefits

Costs The costs taken into account are the Road Agency costs in the “with” and without project situations which include both the cost of routine and periodic maintenance, the investment cost of upgrading the project road to paved standard. The investment costs taken into account include the financial base cost for civil works plus the physical contingencies. These are converted to economic cost using the conversion factor of 0.78. The financial contingencies are not taken into account, as they do not constitute consumption of economic resources. The economic investment cost estimated at USD 119.47 million (ETB 1028 million) would be disbursed over the period 2008 to 2010. Benefits The benefits include road user benefits in terms of Vehicle Operating Cost (VOC) savings and travel time savings to normal/generated traffic and benefits accruing to the Road Agency in terms of road maintenance cost savings on the road. Cost savings on accidents to road users have not been taken into account. The forecast vehicle operating costs and travel time savings are derived from the road-planning model HDM-IV. The details of the motorized Road Use Cost Summary per veh-km by vehicle are in the PID. Total benefits accruing to Road Users as a result of the investment at current 2006 price over the project design life consists of USD 904.56 million in vehicle operating cost savings and USD 88.60 million in travel time savings for motorized traffic. Generated motorized traffic accounted for about 29% of the motorized user benefits. Savings in non motorized traffic & operations accounted for only USD 7.90 million of the benefits. Exogenous benefits and reduction in accident costs have not been taken into account. Result of Cost – Benefit Analysis The results of the economic evaluation using the measure of investment worth on the basis of most likely traffic forecast scenario resulted in an Economic Internal Rate of Return of 20.5% which is higher than the current opportunity cost of capital in Ethiopia of 10.0%, agreed between Government and Ethiopian Development Partners for admission of projects in the RSDP II. The Net Present Value (NPV) in the base case scenario has been estimated as USD 886.14 million at 10.0% discount rate. These results confirm the viability of the intervention in the upgrading of the Jima – Mizan Road project to asphalt concrete surfaced standard. Sensitivity & Switching Values Analysis Sensitivity testing has been made on the result of the base case scenario with respect to all measures of investment worth for the project road and the results indicated in the Table below confirm the project viability. In the each scenario of sensitivity analysis, EIRRs and NPVs at 10.0% discount rate have been estimated as follows:

• The exclusion of benefits to non-motorized transport. The result is an insignificant

decrease benefits with no change in EIRR and NPV. • Changes in capital investment costs by a margin of 10 percent over and above the

physical contingency provision of 10.0% resulted in a change of the base EIRR from 20.5% to 19.3% and NPV from USD 162.56 million to USD 152.88 million.

ANNEX 5 Page 5 of 6

• The reductions of traffic levels by 10% made the EIRR to change from 20.5% in the base

case to 19.0% and NPV from USD 162.56 million to USD 134.50 million. • Elimination of generated traffic resulted in reduction of EIRR from 20.5% to 18.8% and

the NPV reduced from USD 162.56 million to USD 131.04 million. • The combination of 10% increase in the investment cost over and above the physical

contingency provision of 10.0% and a reduction of 10% in traffic taken as a worst case scenario resulted in an EIRR of 17.8% and a positive NPV of USD 123.63 million.

Results of Sensitivity Analysis

EIRR NPV

% USD million

Base Case 20.5 162.56 Investment Costs (+10%) 19.3 122.88 Traffic (-10%) 19.0 134.50 Investment Costs +10% and Traffic -10%

17.8 123.63

Switching values for % increase in capital investment costs and % decrease in traffic for which project viability would be threatened were undertaken. A 47.18% increase in the base case capital investment cost will reduce the EIRR to 10.0% while a decrease in traffic by 60.27% will reduce the EIRR to 10%. These % increase in capital investment cost in the base case above 47.18% are unlikely as current high level unit cost have been used in project cost estimate and the project documentation are at detail engineering with detailed Bill of Quantities. The likelihood of traffic also falling by over 60.27% given current traffic growth rate on the network is not anticipated.

ETHIOPIA JIMA – MIZAN ROAD UPGRADING PROJECT

ECONOMIC ANALYSIS SUMMARY HDM – 4 HIGHWAY DEVELOPMENT & MANAGEMENT Run Date: 12-10-2006 Currency: US Dollar (millions). Discount rate: 10% Analysis Mode: Analysis-by Project Increase in Road Agency Costs Capital Recurrent Special

Savings in MT VOC

Savings in MT Travel Time costs

Savings in NMT

Travel &

operating Costs

Reduction In Accident

Costs

Net Exogenous

Benefits

Net Economic Benefits (NPV)

Undiscounted 124.38 -9.46 0.00 904.56 88.60 7.90 0.00 0.00 886.14 Discounted 110.47 -3.29 0.00 244.47 23.30 1.98 0.00 0.00 162.56 Economic Internal Rate of Return (EIRR) = 20.5% (N°. of solutions = 1) HDM-4 Version 1.2

Annex 6ETHIOPIA: LIST OF BANK GROUP OPERATIONS

As at 31 August 2006

APPROVED SOURCE LOAN DISB UNDISB LOAN STATUS YEAR OF DATE AMOUNT AMOUNT AMOUNT PERCENT CLOSING OF

No APPROVED PROJECT FUNDS SIGNED Million UA Million UA

Million UA DISB DATE PROJECT

AGRICULTURE 1 1975 Southern rangeland Livestock ADF 20.02.1976 4.59 4.59 0.00 0.00 30-Jun-94 Completed2 1977 Amibara Irrigation ADF 18.08.1977 4.25 4.25 0.00 100.00 31-Dec-87 Completed3 1979 Finchaa Sugar Study ADB 16.05.1979 4.85 4.85 0.00 100.00 31-Dec-85 Completed4 1980 Wush Wush Tea ADF 12.12.1980 7.36 7.36 0.00 100.00 31-Dec-95 Completed5 1981 Addis Ababa Fuelwood ADF 25.06.1982 6.62 6.62 0.00 100.00 31-Dec-94 Completed6 1982 Bebeka Coffee Plantation ADB 06.05.1982 10.00 10.00 0.00 100.00 31-Dec-94 Completed7 1982 Agriculture Line of credit ADF 02.08.1983 7.33 7.33 0.00 100.00 30-Jun-90 Completed8 1984 Gelena irrigation TAA 05.11.1984 1.10 1.10 0.00 100.00 11-Jul-95 Completed9 1984 Dairy Rehabilitation & Dev. ADF 28.01.1985 5.01 5.01 0.00 100.00 31-Dec-95 Terminated

10 1985 Small-scale irrigation ADF 09.05.1985 5.36 5.36 0.00 100.00 31-Dec-95 Terminated11 1985 Awash Basin Water Supply TAA 09.05.1985 1.19 1.19 0.00 100.00 30-Jun-94 Completed12 1985 PADEP (Sidamo/Gamo/Gofa) ADF 07.05.1986 5.44 5.44 0.00 100.00 31-Dec-95 Terminated13 1986 Tepi Coffee Development ADB 24.04.1987 4.68 4.68 0.00 100.00 31-Dec-98 Completed ADF 24.04.1987 16.05 16.05 0.00 100.00 31-Dec-98 Completed14 1987 Amibara Drainage I ADF 27.08.1987 14.78 14.78 0.00 100.00 31-Dec-97 Completed15 1988 Finchaa Sugar Project ADB 25.04.1989 78.25 78.00 0.25 99.68 31-Dec-99 Completed ADF 14.02.1989 14.46 14.46 0.00 100.00 31-Dec-99 Completed16 1989 South East Rangelands ADF 01.12.1989 18.28 18.28 0.00 100.00 31-Dec-00 Completed17 1989 EVDSA Institutional Building TAF 01.12.1989 2.56 2.56 0.00 100.00 31-Dec-93 Completed18 1989 Wush Wush II ADF 14.02.1990 6.42 6.42 0.00 100.00 30-Jun-99 Completed19 1990 Meat Plan Feasibility Study TAF 21.02.1991 1.02 1.02 0.00 100.00 31-Dec-97 Completed20 1991 Omo-Ghibe Master Plan Study TAF 31.12.1991 5.07 5.07 0.00 100.00 31-Dec-97 Completed21 1991 Birr-Koga Irrigation Study TAF 24.12.1991 2.48 2.48 0.00 100.00 31-Dec-97 Completed22 1992 Amibara Drainage II Study TAF 22.01.1993 0.54 0.36 0.18 66.67 31-Dec-95 Completed

23 1997 National fertilizer Project ADF 21.02.1998 36.43 36.43 0.00 100.00 30-Jun-02 Completed24 1998 National Livestock Dev. Project ADF 10.09.1998 27.00 13.57 13.43 67.50 30-Jun-06 On-Going25 2000 Pastoral Area Development Study TAF 15.12.2000 0.71 0.53 0.18 74.65 30-Apr-05 On-Going26 2001 Koga Irrigation Project ADF 19.07.2001 32.59 7.00 25.59 21.48 31-Dec-06 On-Going 2001 Koga Irrigation Project TAF 19.07.2001 1.33 0.51 0.82 38.35 31-Dec-06 On-Going27 2001 Genale-Dawa Master Plan Study TAF 16.11.2001 3.93 1.70 2.23 43.26 31-Dec-06 On-Going28 2003 Rural Finance Intermediation ADF 16.07.2003 27.17 3.61 23.56 13.29 30-Jun-08 On-Going 2003 Rural Finance Intermediation ADFGrant 16.07.2003 8.00 0.28 7.72 3.50 30-Jun-08 On-Going

29 2003 Awash River Basin Control ADF Grant 21.07.2003 1.83 0.40 1.43 21.86 31-Dec-08 On-Going

30 2003 Livestock Development Master Plan

ADF Grant 10.8.2003 2.34 0.00 2.34 0.00 31-Dec-08 On-Going

31 2003 Agric. Support Programme ADF 5.11.2003 21.24 1.03 20.21 4.85 31-Dec-10 On-Going 2003 Agric. Support Programme ADFGrant 5.11.2003 17.70 0.46 17.24 2.60 31-Dec-10 On-Going32 2004 Fisheries Development Study ADFGrant 8.12.2004 0.92 0.00 0.92 0.00 31-Dec-08 On-Going SUB-TOTAL 408.88 292.78 116.10

TRANSPORT 33 1977 Jimma-Chida Road ADF 13.12.1977 6.45 6.45 0.00 100.00 16-Jul-85 Completed34 1980 Rural Roads (Sidam, Bale) ADF 22.06.1980 7.11 7.11 0.00 100.00 30-Jun-85 Completed35 1981 Rural Roads (Gondar and shoa) ADF 30.12.1981 10.94 10.94 0.00 100.00 31-Dec-97 Completed36 1984 Gore-Tepi Road ADF 10.02.1984 15.69 15.69 0.00 100.00 31-Dec-94 Completed37 1989 Assab Port Development ADF 29.05.1989 8.58 8.58 0.00 100.00 31-Dec-94 Terminated38 1989 Road Maintenance & Rehabilitation ADF 01.12.1990 43.75 38.61 5.14 88.25 31-Dec-01 Completed39 1990 Ethiopian Airlines Infra. Dev. Proj. ADB 14.03.1991 24.55 24.55 0.00 100.00 31-Dec-98 Completed40 1992 Addis Ababa Airport Study TAF 22.26.1992 1.93 1.93 0.00 100.00 31-Dec-95 Completed41 1992 Chida-Sodo Road ADF 14.04.1992 20.76 20.76 0.00 100.00 31-Dec-98 Completed42 1996 Addis Ababa Airport Infra. Dev ADF 20-12-1996 19.50 17.20 2.30 88.21 31-Dec-04 Completed

43 1998 Alemgena-Butajira Road Upgrading ADF 21-07-1998 18.50 17.85 0.65 96.49 30-Jun-05 Completed

44 1998 Seven Road Studies TAF 16.12.1998 3.40 2.35 1.05 69.12 30-Jun-05 Completed

45 2001 Butajira-Hossaina-Sodo Road Project ADF 16-11-2001 41.31 13.40 27.91 32.44 31-Dec-08 On-Going

46 2003 Wacha-Maji Road Project ADF 13-10.2003 22.71 0.02 22.69 0.09 31-Mar-10 On-Going

2003 Wacha-Maji Road Project ADF Grant 13-10-2003 0.99 0.12 0.87 12.12 31-Mar-10 On-Going

SUB-TOTAL 246.17 185.56 60.61

PUBLIC UTILITIES 47 1975 Addis Ababa Sewerage I ADF 16.01.1976 4.60 4.60 0.00 100.00 31-Dec-79 Completed48 1979 Rural Electricity ADB 16.05.1979 1.50 1.50 0.00 100.00 30-Jun-84 Completed NTF 16.05.1979 5.00 5.00 0.00 100.00 30-Jun-84 Completed49 1979 Assab Water Supply ADF 27.02.1980 6.13 6.13 0.00 100.00 31-Dec-90 Completed50 1986 Power transmission Lines ADB 24.04.1987 9.37 9.37 0.00 0.00 30-Jun-98 Completed ADF 24.04.1987 24.90 24.90 0.00 100.00 30-Jun-98 Completed51 1979 Addis Ababa Sewerage II ADF 16.05.1979 6.63 6.63 0.00 100.00 30-Jun-94 Completed52 1982 Six Centers Water Supply ADF 02.03.1983 13.58 13.58 0.00 100.00 31-Dec-97 Completed53 1983 Eight Centers Water Supply ADF 04.05.1984 11.60 11.60 0.00 100.00 31-Dec-97 Completed54 1984 Telecommunications I ADB 05.11.1984 24.01 24.01 0.00 100.00 31-Dec-95 Completed55 1985 Chemoga-Yeda Hydro Study TAA 07.05.1986 0.55 0.55 0.00 100.00 30-Jun-94 Completed56 1989 Five towns Water Supply TAF 29.05.1989 1.44 1.44 0.00 100.00 31-Dec-95 Completed57 1989 Addis Ababa Master Plan TAF 01.12.1989 1.09 1.09 0.00 100.00 30-Apr-97 Completed58 1990 Aleltu Hydro Feasibility Study TAF 21.02.1991 1.58 1.58 0.00 100.00 30-Jun-98 Completed59 1991 12 Towns Water Supply Study TAF 19.03.1992 1.79 1.79 0.00 100.00 31-Dec-97 Completed60 1992 Addis Ababa Water III Study TAF 12.05.1993 2.39 2.39 0.00 100.00 31-Dec-99 Terminated ADF 12.05.1993 3.05 3.05 0.00 100.00 31-Dec-99 Terminated61 1992 Telecommunications II ADB 14.04.1993 23.79 23.79 0.00 100.00 30-Jun-02 Completed ADF 14.04.1993 3.44 3.44 0.00 100.00 30-Dec-02 Completed62 1992 Nothern Ethiopian Power trans. ADF 14.04.1993 20.11 20.11 0.00 100.00 31-Dec-98 Completed TAF 14.04.1993 26.72 26.72 0.00 100.00 31-Dec-98 Completed63 1993 Hydro-Power feasibility Study ADF 06.09.1994 2.35 2.35 0.00 100.00 30-Jun-01 Completed64 2001 Rural Electrification Project ADF 14-03-2002 37.67 13.60 24.07 36.10 31-Dec-05 On-Going65 2002 Harar Water & Sanitation ADF 08.11.2002 19.89 1.20 18.69 6.03 31-Dec-08 On-Going

2002 Harar Water & Sanitation ADF Grant 08.11.2002 1.12 0.00 1.12 0.00 31-Dec-08 On-Going

66 2005 Rural Water Supply & Sanit ADF Grant 25.02.06 43.60 0.00 43.60 0.00 31-Dec-11 On-Going

SUB TOTAL 297.90 210.42 87.48

SOCIAL SECTOR

67 1983 Primary Teachers & Sec. Education ADF 13.06.1983 14.98 14.98 0.00 100.00 31-Dec-95 Completed

68 1992 Basic Educ., Tech. & Voc. Training ADF 22.01.1993 4.53 4.53 0.00 100.00 31-Dec-99 Completed69 1998 Education III ADF 19-09-1998 32.00 14.88 17.12 46.50 31-Dec-04 On-Going TAF 19-09-1998 0.30 0.00 0.30 0.00 31-Dec-04 On-Going70 1998 Primary Health Care ADF 26.11-1998 29.67 11.08 18.59 37.34 31-Dec-04 On-Going SUB TOTAL 81.48 45.47 36.01 INDUSTRY 71 1987 Legal Dembi Gold Project ADB 19.11.1987 16.55 16.55 0.00 100.00 31-Dec-95 Completed72 1989 Lega dembi Gold Study TAF 30.01.1990 2.02 2.02 0.00 100.00 31-Dec-99 Completed73 1993 Biklai Phosphate Study TAF 26.01.1994 2.60 1.22 1.38 46.92 31-Dec-01 Completed SUB TOTAL 21.17 19.79 1.38 MULTI-SECTOR 74 1992 ERRP ADF 14.05.1992 86.62 86.62 0.00 100.00 31-Dec-97 Completed75 1993 SAL I ADF 09.07.1993 63.54 63.54 0.00 100.00 30-Jun-96 Completed76 2000 Privatisation Technical Assistance TAF 15-03-2001 3.00 1.91 1.09 63.67 31-Dec-05 On-Going77 2001 SAL II ADF 16-1-2001 60.00 60.00 0.00 100.00 30-Jun-04 Completed78 2001 Capacity Building for MoFED TAF 15-01-2002 0.52 0.28 0.24 53.85 31-Dec-05 On-Going

79 2004 Support for Women Affairs Office ADF Grant 12.05.2004 1.05 0.26 0.79 24.76 31-Dec-07 On-Going

80 2004 PRSL ADF 12.01.2005 60.00 60.00 0.00 100.00 31-Dec-05 Completed SUB TOTAL 274.73 272.61 2.12 GRANT TOTAL 1286.73 1022.45 264.28 79.46

ANNEX 7

JIMMA- MIZAN ROAD UPGRADING PROJECT

List of Annexes in the Project Implementation Document (PID)

1. Final Design Review Report 2. HDM 4 Input and Output Data

3. Detailed Project Cost Estimates 4. Resettlement Action Plan

5. Methodology for Traffic Analysis

6. Environmental and Social Impact Assessment and Resettlement Action Plan

(RAP) Summary

Annexe

SCCD: G .G.

CONFIDENTIAL

AFRICAN DEVELOPMENT FUND ADF/BD/WP/2006/141/Corr.124 November 2006Prepared by: OINFOriginal: English version only

Probable Date of Board Presentation

TO BE DETERMINEDFOR CONSIDERATION

MEMORANDUM

TO : THE BOARD OF DIRECTORS

FROM : Modibo I. TOURESecretary General

SUBJECT : ETHIOPIA: PROPOSAL FOR AN ADF LOAN OF UA 65,000,000TO FINANCE THE JIMA-MIZAN ROAD UPGRADING PROJECT

CORRIGENDUM *

Please find overleaf a corrigendum to the above-mentioned Appraisal Report.

Attach:

Cc: The President

* Questions on this document should be referred to:

Mr. G. MBESHERUBUSA Director OINF Extension 2034Mr. J. RWAMABUGA Manager OINF.2 Extension 2181Mr. M. O. AJIJO Principal Transport Economist OINF.2 Extension 3110Mr. N. KULEMEKA Principal Social Economist OINF.2 Extension 2336Mr. A. BABALOLA Senior Transport Engineer OINF.2 Extension 2525Mr. J. BERTLIN Environmentalist OINF Extension 2209

ETHIOPIA – JIMA – MIZAN ROAD UPGRADING PROJECT

CORRIGENDUM

The following modifications are made to the appraisal report:

(i) In the Source of Financing box of the Results Based Matrix, replace “GOM” with“GOE”.

(ii) Paragraph 4.5.6 - replace “ETB 11.6 billion” with “ETB 11.6 million”.

(iii) Paragraph 4.7.13 - replace “ETB 11,606,653 million” with “ETB 11.6 million”.

(iv) Paragraph 5.4.2 - in first sentence, delete “and a regional preference margin of7.5%.”

(v) Paragraph 6.3.2 - in first sentence, delete “which is already calming down and thelow level of relation between Ethiopia and its neighbors and the oil shock.” Thenew sentence shall read “The political and economic risks are low despite theinternal political environment after the recent elections.”

(vi) Annex 5, page 3 of 6, under the heading “Maintenance Strategies”, last sentencein first paragraph should read “The strategies that have been incorporated intothe appraisal are as follows”:

(vii) Annex 5, page 4 of 6, under the sub-section on “Result of Cost - Benefit”, the lastbut one sentence is amended to read as follows: The Net Present Value (NPV) inthe base case scenario has been estimated as USD 162.56 million at 10.0%discount rate.