AFRICAN DEVELOPMENT FUND

REPUBLIC OF UGANDA

APPRAISAL REPORT

ROAD SECTOR SUPPORT PROJECT

INFRASTRUCTURE DEPARTMENT ONIN NORTH, SOUTH & EAST REGION March 2005

TABLE OF CONTENTS

PROJECT INFORMATION SHEET, CURRENCY AND MEASURES, LIST OF TABLES, LIST OF ANNEXES, LIST OF ABBREVIATIONS, BASIC DATA SHEET, PROJECT LOGICAL FRAMEWORK, EXECUTIVE SUMMARY (i-xi) 1. ORIGIN AND HISTORY OF THE PROJECT 1 2. THE TRANSPORT SECTOR 2 2.1 The Transport System 2 2.2 Transport Policy, Planning and Co-ordination 4 2.3 Regional Transport Facilitation Program 5 3. THE ROAD SUB-SECTOR 6

3.1 The Road Network, Vehicle Fleet and Traffic 6 3.2 The Road Transport Industry 7

3.3 Road Administration and Training 7 3.4 Road Planning and Financing 9 3.5 Road Engineering and Construction 13 3.6 Road Maintenance 14 3.7 Development Impact of Bank Assistance 14 4. THE PROJECT 15 4.1 Project Concept and Rationale 15 4.2 Project Area and Project Beneficiaries 16 4.3 Strategic Context 18 4.4 Sector Goal/Project Objective 18 4.5 Project Description 19 4.6 Traffic Demand and Road User Prices 21 4.7 Environmental and Social Impact 22

4.8 Project Costs 27 4.9 Sources of Finance and Expenditure Schedule 28 5. PROJECT IMPLEMENTATION 30 5.1 Executing Agency 30

5.2 Institutional Arrangements 31 5.3 Supervision and Implementation Schedules 31

5.4 Procurement Arrangements 33 5.5 Disbursement Arrangements 34 5.6 Monitoring and Evaluation 35 5.7 Financial Reporting and Auditing 35 5.8 Aid Co-ordination 36

6. PROJECT SUSTAINABILITY AND RISKS 36 6.1 Recurrent Costs 36 6.2 Project Sustainability 37 6.3 Critical Risks and Mitigation Measures 37 7. PROJECT BENEFITS 39 7.1 Economic Analysis 39

7.2 Social Impact Analysis 40 7.3 Sensitivity and Risk Analysis 41

8. CONCLUSIONS AND RECOMMENDATIONS 41 8.1 Conclusions 41 8.2 Recommendations and Conditions for Loan Approval 42 This appraisal report was prepared by Messrs. A. BABALOLA (Senior Transport Engineer, Ext. 2525) M. AJIJO (Principal Transport Economist, Ext. 3110), I. SAMBA (Senior Environmentalist, Ext. 2657), and a Social/Gender consultant following their mission to Uganda in July 2004, updated at Negotiations in December 2004 and revised after the first Board Presentation in February 2005. Any inquiries relating to this report may be referred to either the authors or to Mr. J. RWAMABUGA, Division Manager, ONIN.3, Ext. 2181 or Mr. K. Bedoumra, Director ONIN, Ext 2040.

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AFRICA N DEVELOPMENT FUND

B.P. 323- 1002 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 Borrower. 1. COUNTRY : Uganda 2. PROJECT TITLE : Road Sector Support Project 3. LOCATION : Southwestern Uganda. 4. BORROWER : The Republic of Uganda. 5. EXECUTING AGENCY : Ministry of Works, Housing and Communications Road Agency Formation Unit (RAFU) Plot 11 Yusuf Lule Road P.O. Box 28487 Kampala, Uganda. Tel: (256) 41 251264/232803 Fax:(256) 41 232807 E-Mail: rafu@rafu.or.ug 6. DESCRIPTION : The project consists of:

A) Civil Works: Construction Works for the upgrading of gravel-surfaced road to bitumen

standard with 6.0-m wide carriageway and 1.5-m shoulders on both sides from Kabale town through Kisoro town to Bunagana with a spur to Kyanika Border Post (98.7 km).

B) Consultancy Services

i) Construction supervision services for Kabale-Bunagana/Kyanika road works;

ii) Consultancy Services for Audit; iii) Consultancy Services for Feasibility and

Detailed Engineering studies of Nyakahita-Ibanda-Fort Portal Road (208 km);

iv) Consultancy Services for Detailed

engineering study for rehabilitation of rural roads in 12 Districts; and

ii

v) Consultancy Services for review and update of all documentation of Kabale-Bunagana Kyanika road upgrading project by PPF Advance-already executed.

C) Resettlement

Resettlement of the people affected by the project

7. TOTAL COST : UA 33.47 million i) Foreign Exchange : UA 23.80 million ii) Local Cost : UA 9.67 million

8. BANK GROUP LOAN/GRANT ADF-LOAN : UA 27.01 million ADF-GRANT : UA 1.49 million 9. OTHER SOURCE OF FINANCE

GOU : UA 4.97 million 10. DATE OF APPROVAL : May 2005 11. ESTIMATED STARTING DATE OF PROJECT

AND DURATION : March 2006 – March 2009 (36 months, excluding 12 months of defect liability period)

12. PROCUREMENT OF

GOODS AND WORKS : International Competitive Bidding (ICB) with Pre-qualification for construction works, among contractors from member countries of Bank and State participants of the ADF in accordance with the Bank's "Rules of Procedure for Procurement of Goods and Works".

13. CONSULTANCY SERVICES REQUIRED AND STAGE OF SELECTION : Consultancy services will be required for supervision

of construction works, Audit and Studies. Procurement will be in accordance with the Bank's "Rules of Procedure for Use of Consultants". The procurement will be through competition on the basis of shortlist of firms, and on the basis of Technical quality with Price consideration for supervision and studies and on the basis of comparability of Technical proposals with Least-cost consideration for audit services.

1 SDR = UA 1 1 UA = US$ 1.44331 1 UA = UGX 2774.82 (July 2004)

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CURRENCY AND MEASURES

Currency Equivalents (July 2004 Exchange Rates)

Currency Unit = Uganda shilling (UGX) 1 UA = UGX 2774.82 1 UA = US$ 1.44331 1 US$ = UGX 1922.54 WEIGHTS AND MEASURES 1 metric tonne (t) = 2,205 lbs 1 kilogramme (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 FISCAL YEAR July 1 - June 30

LIST OF TABLES

Table 3.1 : Road Sector Development Program (2001/02- 2010/11) Table 3.2 : Road Sub-Sector Investment and Recurrent Expenditure (2000/01-

2005/06) Table 3.3 : RSDP – Projection of Donors’ Support Table 3.4 : Road Maintenance Budget Performance

Table 4.1 : Summary of Project Cost by Category of Expenditure Table 4.2 : Summary of Project Cost by Sources of Finance Table 4.3 : Expenditure Schedule by Component Table 4.4 : Expenditure Schedule by Category Table 4.5 : Expenditure Schedule by Sources of Finance Table 5.1 : Summary of Procurement Arrangements

LIST OF ANNEXES Annex. Titles No of Pages 1. Map of Country and Project Area 2 2. Project Organisational Chart 1 3 Project Implementation Schedule 1 4. Provisional List of Goods and Services 1 5. Summary Financial and Economic Analysis 4

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6. Summary of Existing Bank Group Portfolio as 25/10/2004 4 7. List of Annexes in Project Implementation Document 1 8. Terms of Reference for Nyakahita-Fort Port 4 9. Terms of Reference for District Roads Study 4 10. Project Preparation, Review Process, and Donor Consultative Process 1

LIST OF ABBREVIATIONS

AADT = Annual Average Daily Traffic ADT = Average Daily Traffic ADB = African Development Bank ADF = African Development Fund CAA = Civil Aviation Authority CBO = Community Based Organisation CBR = California Bearing Ratio CMP = Corrugated Metal Pipe DANIDA = Danish International Development Agency DBST = Double Bitumen Surface Treatment DFID-UK = Department for International Development – United Kingdom DRC = Democratic Republic of Congo DUCAR = District urban & Community Access Road EAC = East African Community EIA = Environnemental Impact Assessment EU = European Union EIRR = Economic Internal Rate of Return ESAL = Equivalent Standard Axle Load ESIA = Environmental & Social Impact Assessment FE = Foreign Exchange FY = Financial Year GOU = Government of Uganda HDM = Highway Development and Management Tool HPT = Human Poverty Index ICB = International Competitive Bidding IDA = International Development Association (World Bank) IDB = Islamic Development Bank IFC = International Finance Corporation ILO = International Labour Organisation IRI = International Roughness Index JICA = Japanese International Cooperation Agency KfW = Kreditanstalt fur Weideraufbau kph = Kilometres Per Hour MDG = Millennium Development Goals MFPED = Ministry of Finance, Planning and Economic Development MLG = Ministry of Local Government MWHC = Ministry of Works, Housing and Communications NEMA = National Environmental Management Authority NGO = Non Governmental Organization NPV = Net Present Value PCR = Project Completion Report PER = Public Expenditure Review PPF = Project Preparation Facility RAFU = Road Agency Formation Unit RSDP = Road Sector Development Programme RSISTAP = Road Sector Institutional Support Technical Assistance Project SBD = Standard Bidding Document

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TA = Technical Assistance TAF = Technical Assistance Fund TLB = Transport Licensing Board TSIREP = Transport Sector Investment and Recurrent Expenditure Programme UA = Unit of Account URC = Uganda Railways Corporation UNRA = Uganda National Roads Authority VOC = Vehicle Operating Costs vpd = Vehicles Per Day

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ROAD SECTOR SUPPORT PROJECT PROJECT MATRIX- ADF LOAN & GRANT

REVISION DATE: March 2005 DESIGN TEAM: A. BABALOLA/ M.AJIJO

Narrative Summary (NS)

Verifiable Indicators (VI)

Means of Verification

Assumptions

1. Goal: 1.1 To contribute to poverty reduction

by improving sustainable road access to all rural and urban areas of the country

1.1 Inventory of all-weather roads providing accessibility (i.e. in satisfactory condition) to be increased from 66% in 2004 to at least 80% by year 2009.

1.2 Human Poverty Index (HPI) reduced from 38.5 in 2004 to at

least 15% by 2015 in Kabale and Kisoro districts

1.3 Accident rate/1000 vehicles reduced from 81.3 in 2003 to 41.6 in 2009.

1.4 HIV/AIDS awareness rate improved from 92% in 2003 to 98% in 2009 in the road corridor.

1.1 Annual road construction and pavement evaluation statistics from MWHC/RAFU

1.2 Traffic statistics on road network

1. 3 UNDP: Uganda Human Development Report.

1.4 Uganda National Household Survey (UNHS).

(Goal to super goal)

2. Project Objective: 2.1 To reduce transport cost and travel

time between Kabale and Kisoro districts and promote regional integration with DRC and Rwanda.

2.2 To prepare road projects to enhance accessibility in the Southwestern region of Uganda.

2.1 Composite vehicle operating costs of USD 0.464 per veh-km in 2004 reduced to USD 0.224 per veh-km in 2009.

2.2 Reduction in annual road maintenance cost from USD440.7/Km in 2004 to USD 60.8/Km from 2009.

2.3 Reduction in average travel time by 50% from 3 hours in 2004 to 1.5 hours by 2009 resulting in a travel time saving of USD 0.18 per passenger-hr.

2.4 Increase international traffic level on the road from 19 veh/day in 2004 to 50 veh/day in 2009.

2.5 Selection of the most viable solution to improve accessibility to Southwestern region in year 2007.

2.1 Transport prices and vehicle operating cost data. 2.2 Travel time survey reports. 2.3 Road pavements condition report. 2.4 Review of Study Reports 2.5 Follow-up missions

(Project objective to Goal) 2.1 Government

commitment to axle load limits enforcement on main roads.

2.2 Peace and Security in the great Lakes Region 2.3 Institutional Reforms in the sector implemented 2.4 Funds are mobilised to implement projects.

3. Outputs 3.1 A two lane asphalt concrete road

with 6.0 m wide carriageway and two 1.5 m shoulders from Kabale to Bunagana with a spur to Kyanika constructed.

3.2 Final Reports on studies submitted for:

i) Nyakahita-Ibanda-Fort Portal road study;

ii) District Roads Rehabilitation Study; and

iii) Design Review of Kabale-Kisoro Bunagana/Kyanika road.

3.1 98.7 km of asphalt concrete road

between Kabale and Bunagana/ Kyanika completed by 2009.

3.2 Economic Feasibility and Detailed

Engineering, ESIA Reports and Tender Documents on the three studies submitted by 2007.

3.1 Consultants' final Construction Report.

3.2 Project Completion Report (PCR)

3.3 Audit Reports. 3.4 Study Reports

(Outputs to Project Objective) 3.1 TSIREP estimates for recurrent expenditure are met by GOU. 3.2 RAFU is transformed in to a Road Authority to implement annual road network programme as scheduled. 3.3 GOU implements measures to augment tax revenue and improve tax collection including road user fees.

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4. Activities: For Project Construction:

4.1 Issue and receipt of tenders Evaluation, negotiation and award of contract

4.2 Upgrading of Kabale – Kisoro – Bunagana with a spur to Kyanika road (98.7 km).

Consultancy Services:

(Including Audit) 4.3 Approval of TOR and Shortlist. 4.4 Issue and receipt of RFP. 4.5 Evaluation and approval. 4.6 Award of consultancy service 4.7 Commencement of services. Resettlement 4.8 Payment of compensation

Inputs/Resources Inputs million UA 4.1 Construction

Works 24.42 4.2 Supervision of

Works & audit 1.57 4.3 2 Studies 1.29 4.4 PPF (Design Review) 0.23 4.5 Resettlement 1.71 4.6 Contingencies:

- Physical 2.60 - Price 1.65

Total 33.47 Resources ADF-Loan 27.01 ADF- Grant 1.49 GOU 4.97 Total 33.47

4.1 QPRs. 4.2 Supervision Reports 4.3 Audit Reports. 4.5 Disbursement Records. 4.6 Study Reports

(Activity to Output) 1.1 GOU budgets for and make timely release of counterpart local funds. 1.2 Security in the road corridor is maintained 1.3 Compensation is paid on schedule 1.4 Competent contractors

and consultants respond to bids

1.5 Project financial management strengthened

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UGANDA

ROAD SECTOR SUPPORT PROJECT PROJECT MATRIX –ADF GRANT

REVISION DATE: March 2005 DESIGN TEAM: A. BABALOLA/ M.AJIJO

Narrative Summary (NS)

Verifiable Indicators (VI)

Means of Verification

Assumptions

1. Goal: 1.1 To contribute to poverty reduction by

improving sustainable road access to all rural and urban areas of the country

1.1 Inventory of all-weather roads providing accessibility (i.e. in satisfactory condition) to be increased from 66% in 2004 to at least 80% by year 2009.

1.2 Human Poverty Index (HPI) reduced from 38.5 in 2004 to at least

15% by 2015 in Kabale and Kisoro districts.

1.3 Accident rate/1000 vehicles reduced from 81.3 in 2003 to 41.6 in 2009.

1.4 HIV/AIDS awareness rate improved from 92% in 2003 to 98% in 2009 in the project corridor.

1.1 Annual road construction

and pavement evaluation statistics from MWHC/RAFU 1.2 Traffic statistics on road network

1.3 UNDP: Uganda Human Development Report. 1.4 Uganda National Household Survey (UNHS).

(Goal to super goal)

2. Study Objective 2.1 To prepare road projects to

enhance accessibility in the Southwestern region of Uganda.

2.1 The most viable technical options are recommended and selected by 2007.

2.1 Inception reports.

2.2 Progress reports

2.3 Draft/final reports and comments by the Govt. and the Fund.

(Objective to goal)

2.1 Govt. will implement the recommendations of the completed Studies.

2.2 Funds are mobilised to implement projects.

3. Outputs

3.1 Economic feasibility and preliminary engineering reports. (Stage 1 completed).

3.2 Detailed engineering design reports and Tender documents for the viable options (Stage 2 completed.)

3.3 Design review consultancy under PPF completed

3.1 Feasibility Reports on Nyakahita–Ibanda-Fort Portal road submitted by 2006. 3.2 Detailed Engineering Design Reports on Nyakahita-Ibanda- Fort Portal road study and 12 District Roads in Southwest Uganda submitted by 2007. 3.3 Tender documents submitted by 2007. 3.4 Documentation (Economic, ESIA, & detailed Engineering Studies on Kabale-Kisoro- Bunagana/Kyanika Road by 2004

3.1 Follow-up mission reports

3.2 Review of study reports.

3.3 Comments by the GOU and the Fund.

(Output to objective)

3.1 Recommendations of the Studies are acceptable to the Govt. and the Fund.

4. Activities

Appointment of three consultancy firms for:

i) Nyakahita –Ibanda-Fort Portal Road Study;

ii) District Roads Rehabilitation Study

iii) Design review consultancy under PPF completed

Inputs/Resources (UA million)

FE LC Total Nyakahita –Ibanda- Fort Portal Road Study 0.55 0.35 0.90 District Roads 0.27 0.12 0.39 PPF (design rev.) 0.22 0.01 0.23 Price contingency 0.03 0.03 0.06 Total 1.07 0.51 1.58 Sources FE LC Total ADF 1.07 0.42 1.49 GOU 0.00 0.09 0.09 Total 1.07 0.51 1.58

4.1 Grant agreement signed.

4.2 Signed contracts.

4.3 Progress reports. 4.4 Technical reports

produced. 4.5 Follow-up Bank

Missions. 4.6 Disbursement

records. 4.7 Audited accounts.

(Activity to output)

4.1 Competent consultants respond to bidst

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EXECUTIVE SUMMARY Project Background The Government of Uganda (GOU) at a conference with its development partners in Paris in 1996 agreed on a 10 Year Road Sector Development Program for sustainable development of the economy which was projected to cost USD 1.5 billion. In 2002 following a mid-term review of the program, it was agreed that the program be made a rolling program and this ushered in the RSDP 2 during which investments in District, Urban and Community Access road that were not taken into account in 1996 were incorporated. It is in this context that the GOU within a sector wide approach involving several donors, has requested the Bank for financial assistance to implement a project aimed at supporting the road sector. The components of the project are the upgrading of Kabale-Kisoro-Bunagana/Kyanika gravel road to a paved standard and studies of one major link road (Nyakahita-Ibanda-Fort Portal Road) to unlock areas of agricultural potential and 12 Districts road studies to improve accessibility of the rural population to the main road network largely in the south-western region of the country. The Kabale – Kisoro – Bunagana/Kyanika road is one of the gravel roads that were identified under the Preferential Trade Area (PTA) and its economic feasibility and detailed engineering study was carried out between 1993 and 1996 with ADF/TAF resources. During the Joint Government/Donor Transport Sector Review in Kampala in May 2004 in which the TSIREP for the period 2004/05 to 2006/07 was reviewed in line with MTEF, the project was one of the priority development projects included in the program. This is the highest level of donor/GOU forum for integration of project aid into MTEF. The Bank conducted a preparation mission on this component in 2002; and the documentation has been reviewed and updated with the Bank’s Project Preparation Facility in 2004. The project will support the effort of the Government in poverty reduction through improvement of road infrastructure in rural areas in order to provide all-weather access for the supply of farm inputs and evacuation of produce to major market centres, thus enhancing productivity, competition and incomes of the people in line with the Poverty Eradication Action Plan (PEAP). As a secondary objective, the Kabale – Kisoro – Bunagana/Kyanika road which links Uganda to DRC and Rwanda will promote regional integration and economic co-operation among member states of Common Market for East and Southern Africa (COMESA). Purpose of the loan & Grant The proposed financing from ADF will cover the entire foreign exchange cost and 44.26% of the local cost of the project amounting to UA 27.01 million (UGX 74.95 billion) by Loan and UA 1.49 million (UGX 4.13 billion) by Grant. This is inclusive of PPF Advance of UA 0.22 million, which will be re-financed by a portion of the Grant. Sector Goal and Project Objective(s) The project will contribute towards achieving the sector goal of contributing to poverty reduction by improving sustainable road access to all rural and urban areas of the country.

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The project objectives are: i) To reduce transport costs and travel time between Kabale and Kisoro districts and promote

regional integration with DRC and Rwanda. ii) To prepare road projects to enhance accessibility in the Southwestern region of Uganda. Brief Description of the Project’s Outputs The project outputs will consist of:

i) A two-lane asphalt concrete road with 6.0 m wide carriageway and two 1.5 m shoulders

from Kabale to Bunagana with a spur to Kyanika (98.7 km) constructed.

ii) Feasibility and detailed engineering reports/tender documents on Fort Portal-Ibanda –Nyakahita Road (208 km) in the South-western part of Uganda

iii) Detailed Engineering Reports for rehabilitation of district roads in 12 districts in the

Southwestern part of Uganda. iv) Design Review Reports on Kabale to Bunagana/Kyanika (already executed under Bank’s

PPF) V) Resettlement of the affected people Project Cost The project cost estimate, net of taxes, is UA 33.47 million (UGX 92.87 billion), which is, made up of UA 23.80 million (71.28%) in foreign exchange cost and UA 9.67 million (28.72%) in local cost. The estimated project cost is based on rates from contracts recently awarded in the country. A provision of 10% was made to accommodate physical contingency and price escalation of 3% and 5% per annum for foreign and local costs respectively. An amount of UA 1.47 million, representing 6% of the base cost for the civil works, has been set aside for supervision consultancy services; and UA 1.49 million will cover the feasibility and detailed engineering studies for a main road and district roads, and re-financing of PPF Advance for the design-review consultancy services. A lump sum amount of UA 0.10 million has also been incorporated for consultancy services required for audit of the project. The cost of resettlement amounts to UGX 4.75 billion (UA 1.71 million) to ensure that the displaced people receive adequate compensation from the GOU due to upgrading works on Kabale – Kisoro – Bunagana/Kyanika road.

Sources of Finance In terms of loan, the proposed financing from ADF will cover the entire foreign exchange cost and 44.26% of the local cost of the civil works amounting to UA 27.01 million (UGX 74.95 billion) and GOU will contribute UA 4.88 million (inclusive of the cost of resettlement). ADF will contribute UA 1.49 million (UGX 4.13 billion) by Grant and GOU will contribute UA 0.09 million for the studies.

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Project Implementation The duration of implementation of physical works is 36 months commencing in March 2006 and ending in March 2009 followed by 12 months of Defects Liability Period. The Implementing Agency will be Ministry of Works, Housing and Communications (MWHC) /Road Agency Formation Unit (RAFU). Conclusions and Recommendations The Road Sector Support Project comprising: 98.7 km long Kabale–Kisoro–Bunagana/Kyanika road upgrading; Nyakahita-Ibanda-Fort Portal Road Study and District Road Rehabilitation Study (in 12 districts) is in line with the Government's transport sector policy. The project will support the economic and social recovery programmes taking place in Uganda through the removal of traffic flow bottlenecks to ensure economic recovery, poverty reduction and market integration and support regional integration with neighbouring countries. The project is technically feasible, economically viable, environmentally sustainable and socially desirable, and it is consistent with the Bank Group country assistance strategy for 2002/04 period that has been updated in March 2005 and the Ugandan Poverty Eradication Action Plan (PEAP). It is recommended that an ADF loan not exceeding UA 27.01 million and ADF grant of UA 1.49 million be extended to the Government of Uganda for the implementation of the Road Sector Support Project, as described in this report subject to the conditions respectively specified in the Loan Agreement and Protocol of Grant Agreement.

1. ORIGIN AND HISTORY OF THE PROJECT 1.1 The Government of Uganda (GOU) at a conference with its development partners in Paris in 1996 agreed on a 10 Year Road Sector Development Program (RSDP) for sustainable development of the economy which was projected to cost USD 1.5 billion. In 2002 following a mid-term review of the program, it was agreed that the program be made a rolling program and this ushered in the Road Sector Development Program 2 (RSDP 2) at an estimated cost of USD 2.28 billion during which investments in District, Urban and Community Access road that were not taken into account in 1996 were incorporated. It is in this context that the GOU, within a sector wide approach involving several donors, has requested the Bank for financial assistance to support the road sector project by upgrading essentially a key road (Kabale – Kisoro – Bunagana/Kyanika road) in the core national road network and conducting some studies on priority national and district roads to unlock areas of agricultural potential in the south-west region in a bid to remove major constraints to transport services which is critical to achieving the objectives of the Ugandan Poverty Eradication Action Plan (PEAP). 1.2 Kabale-Kisoro Bunagana/Kyanika road is one of the roads that were identified under the Preferential Trade Area (PTA) and its economic feasibility and detailed engineering study was carried out between 1993 and 1996 and financed by ADF/TAF. As part of the implementation of the 10-Year Road Sector Development Programme (RSDP), GOU requested in 2000 for the Bank’s financial assistance for the upgrading of the road to bitumen standards; and for carrying out feasibility studies and detailed engineering design for Nyakahita-Ibanda-Fort Portal road. The Bank undertook a Preparation mission in March 2002 on the road to be upgraded and later financed the review and updating of project documentation using the Bank’s Project Preparation Facility in 2004. The Government has also, in 2004, requested the Bank to participate in financing the detailed engineering study of District Road Rehabilitation in the southwestern region of the country. All the requests have been reviewed and accommodated under this project. 1.3 During the Joint Government/Donor Transport Sector Review in Kampala in May 2004 in which the TSIREP for the period 2004/05 to 2006/07 was reviewed in line with MTEF sectoral ceilings, the project was admitted as one of the priority development projects for the period. 1.4 This appraisal report is based on a review of the Consultant’s reports, preparation report of March 2002, discussions held with the Government and other agencies including donors (see Annex 10), and on additional information collected by the Bank Mission that visited Uganda in July 2004 and updated during loan negotiations in December 2004. 2. THE TRANSPORT SECTOR 2.1 The Transport System General 2.1.1 The transport and communications sector plays a major role in the socio-economic development of the country. It contributed 5.4% of the GDP in 2002/03. Because of its significant role in promoting the development of the productive sector of the economy and improving social service coverage, the sector is accorded high priority in the Government Poverty Eradication Action Plan (PEAP). Uganda operates a transport system consisting of four

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modes, namely, road, rail, air and inland water transport. The transport system consists of a road infrastructure of about 68,000 km, a railway line of 1,350 km, rail-ferry services on Lake Victoria and air transport facilities comprising one international airport at Entebbe, and thirteen aerodromes. Uganda transport infrastructure also serves as a transit corridor linking the land-locked neighbouring countries of Rwanda, Burundi, southern Sudan and parts of eastern Democratic Republic of Congo (DRC) to the Indian Ocean via the port of Mombassa in Kenya and Dar Es Salaam in Tanzania. Roads 2.1.2 Roads have been identified in Uganda among the priority areas necessary for poverty reduction and critical for the transformation and development of the economy. Road transport accounts for 99 % of the country's passenger - km and 95% of the freight tonne – km within Uganda and provide the only form of access to most rural communities. Transit traffic is estimated at 25 % of total traffic on the paved main east-west arterials, which serve as the connecting link between Kenya, Uganda, Rwanda, Burundi, eastern DRC and southern Sudan. More details on the road sub-sector are given in chapter 3. Railways 2.1.3 Uganda Railways Corporation (URC) operates a metre-gauge railway system of 1,350 km, which extends from east to west between Kasese-Kampala-Tororo, connecting via the rail lines of Kenya and Tanzania to the seaports of Mombasa and Dar-es-Salaam. These links provide for long- haul movement, primarily of bulky goods, which enter the import and export trade of Uganda and neighbouring countries of Burundi, Rwanda, eastern part of the DRC and southern Sudan. A new workshop at Nalukolongo, near Kampala is now completed and operational and the rehabilitation of tracks on the Kasese-Kampala and Kampala-Malaba are under consideration. The URC now has a stock of 43 mainline and branch locomotives, 12 shunters, 1,431 wagons and 25 coaches; with three wagon ferries having a capacity of 44 wagons each, and two vessels operating on Lake Victoria to provide essential links to the rail systems and seaports of Kenya and Tanzania. 2.1.4 URC has withdrawn its services from several routes, which were loss-making and since 1997, the passenger transport service has been suspended. Wagon availability has been rated at 86.8% while locomotive availability is at 79.1%. Tonnage freight volumes had increased from 515,086 tonnes in 1998 to 864,613 tonnes in 2003 resulting in an annual growth of about 7.0%. Total operating revenue has also increased from UGX 15.2 billion in 1998 to UGX 33.2 billion in 2003. 2.1.5 The “Privatisation and Business Planning Study of URC” has been completed and GOU has agreed on a long-term concession. By July 2005, URC will be jointly privatised with Kenyan Railway Corporation (KRC) on concession basis for 20 years, while the asset remains the property of the Government. The GOU’s commitment is to ensure that all the essential infrastructures are maintained to such a level that the associated services are attractive to private investors. Since 1998, the maintenance of locomotives has been privatised.

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Waterways 2.1.6 About 18 % of Uganda’s total area is made up of water in the form of lakes and rivers, most of which are navigable such that inland water transport is a major component of the transport system. It provides low-cost access to the islands and remote shoreline locations and connects villages along the banks of navigable rivers. It plays a key role in poverty reduction by providing accessibility to remote areas on the lakeshores and islands. Water transport is of economic importance to the fishing industry. However, most of the infrastructure is in poor condition. With the present state of the infrastructure, it is often difficult to recruit the much-desired personnel on a sustainable basis for education and health-related activities. In fact, the poor water transport infrastructure hinders accessibility to market centres. Some 700 lives/year are lost in water-transport related accidents due to lack of safety precautions and inadequate navigational aids. 2.1.7 As a member of the East African Community (EAC), Uganda has increasingly looked to Lake Victoria transport to provide an alternative transit route to the sea through Tanzania and Kenya. Three (3) Uganda ferries operate services from Jinja/Portbell in Uganda to Mwanza in Tanzania and Jinja/Portbell to Kisumu in Kenya. Kenya operates a one-ferry service from Kisumu to Jinja/Portbell and Tanzania operates one from Mwanza to Jinja/Portbell. 2.1.8 With a view to finding a solution to the challenges posed by this sub-sector, the Government conducted a pre-feasibility study on Inland Water Transport in 1997 using an ADF /TAF grant. The final report of the study identified over 70 landing sites and recommended the investment options ranging from rehabilitation of landing infrastructure to construction of new facilities and improving navigational aids, and enforcement of water transport regulations. It further recommended a Capital Investment Programme costing USD 96.00 million, USD 240.90 million and USD 484.10 million would be required in the short, medium and long-run respectively. GOU’s effort to develop this sub-sector has led to the formulation of an Inland Water Transport Project under which a ship for Kalangala district is being procured. Update and harmonization of inland water transport legislation in East Africa, improved coverage of water vessels inspected and licensed from 800 in 2004/05 to 1,000 in 2006/07, and sensitization and education of the public on water transport safety are on-going. A substantial improvement in the performance of the water transport sector is needed, but there has been inadequate funding in the waterways sub-sector. Air Transport 2.1.9 The Government policy objective is to provide a safe, regular, secure and efficient aviation industry; and to create an enabling environment through appropriate legislation and an institutional framework to enhance private sector participation in the sub-sector. The Civil Aviation Authority (CAA) was established to implement Government policy in civil aviation, while the ministry remains an aeronautical authority for policy formulation and regulation. The Government's current air transportation policy direction is embodied in a Draft Aviation Policy Document that is being harmonized with those of Kenya and Tanzania under the East African Community. Fourteen (14) airlines provide scheduled international passenger services and nine (9) airlines provide non-scheduled cargo and passenger services to Entebbe Airport. Government has entered into bilateral air service agreements with 44 countries to ensure provision of air transport services, out of which eleven are currently operational. The volume of international passengers flow through the Entebbe international airport increased from 130,704 in 1992 to

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329,777 in 2002 resulting in an average annual growth of 11.8% while domestic passengers flow increased at a rate of 21.02% from 5,887 to 33,757 over the period. Transit passenger traffic however decreased from 35,526 in 1992 to 25,865 in 2002. Cargo traffic in 2002 was 34,205 tonnes with a growth rate of 22% from a level of 6,765 tonnes in 1992. 2.1.10 Government encourages privatisation of some of the activities of the CAA like development and management of private aerodromes and airstrips; maintenance and management of public aerodromes. The sub-sector is facing some challenges such as runway strengthening and lighting, conversion of Entebbe old airport into general/domestic terminal, construction of new cargo apron, upgrading of Arua and Kasese airports and procurement of a radar system. These will require a capital investment of about USD 38million. 2.2 Transport Policy, Planning and Co-ordination 2.2.1 The overall objective of transport sector policy is to promote the provision of cost effective, efficient, safe and environmentally sensitive transport services to support increased agricultural and industrial production, trade, tourism, social and administrative services. Government as a rule will not directly participate in the provision of transport services but limits its role to providing guidelines and a regulatory framework that would ensure the establishment of a level playing field for the competitive provision of services. Government intends to promote private sector participation in the preparation, execution, and supervision of infrastructure works in tandem with relieving capacity constraints in the domestic construction industry. Government is also actively implementing its commercialisation, privatisation and divestiture polices in the sector. 2.2.2 The Transport policy and strategy also recognizes the need to accord equal opportunities to women to obtain gainful employment and provide services in the construction industry, ministries and agencies. In line with this, gender issues are considered in planning, design and construction of infrastructure projects, and in the development and maintenance of district and community access roads, where intensive labour-based method will be employed. Also for paved roads, women will be encouraged to participate in off-carriageway and routine maintenance. In addition, GOU is committed to ensuring that women are represented in user-based participatory planning of transport infrastructure projects. 2.2.3 The principal authority over transportation is the Ministry of Works, Housing and Communications (MWHC), which oversees the main trunk and rural feeder roads, Uganda Railways and its waterway system (mainly Lake Victoria rail ferry services), the Civil Aviation Authority and the Transport Licensing Board. The Rural Feeder Roads and the Urban Roads were at the Central Government level under the direction of the MWHC, which supervised and assisted district and municipal authorities in technical and funding matters. These categories of roads are now transferred as statutory responsibility of districts and municipal governments. The MWHC represents district interest at national and international levels, provides guidelines and technical advice, supervises and co-ordinates their development budget and donor involvement in rural feeder roads. The MWHC is also in charge of policy development and regulations for the road network while the operational aspects are left to the Road Agency Formation Unit (RAFU) a precursor to the Uganda National Road Authority (UNRA), which was planned to be in place in June 2002 but now scheduled for July 2005.

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2.2.4 Sectoral co-ordination is achieved through the Public Investment Plan. This is reviewed annually by the Development Committee of the budget, which prepares a 3-year rolling budget medium-term expenditure framework paper as a tool for implementing the plan. The Development Committee is made up of the Ministry of Finance, Planning and Economic Development (MFPED), MWHC, Ministry of Local Government (MLG), Office of the Prime Minister and that of the President. The Committee ensures that projects included in the development budget are economically, environmentally and technically sound, and fit into the overall macro-economic framework of the country. The draft budget medium term expenditure framework paper with respect to the sector, which is based on the Transport Sector Investment and Recurrent Expenditure Programme (TSIREP), is also discussed with Uganda’s development partners in Kampala before presentation to Cabinet and Parliament. Overall, through the Development Committee of the Budget, there is effective policy and investment co-ordination in the sector.

2.3 Regional Transport Facilitation Program 2.3.1 Uganda belongs to the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA), both with the common objective to promote trade, economic cooperation and regional integration among its member countries. In this context, improvement of intra regional transport infrastructure and cross border facilitation for the movement of goods and persons has been given high priority by the GOU. This is evidenced by the level of implementation of the COMESA Transport Facilitation Instruments that has been rated at over 90.0% achieved as of July 2004. These instruments that are currently operational in Uganda include i) harmonized Road Transit Charges at USD10.0 per 100 km for heavy good trucks with more than three axles and USD 6.0 per 100km for trucks with up to three axles ii) harmonized axle load limits and maximum vehicle dimensions to reduce damage to road network and preservation of investment; iii) Comesa Carrier licence which liberates transport services at the regional level and allow truckers to pick up loads in other countries and enable more efficient use of regional vehicle fleet and reduction of transport cost due to economies of scale; iv) Comesa Yellow Card, a motor vehicle insurance scheme that is valid in all participating states; v) Comesa Transit Plate fitted at the front and rear of heavy goods commercial vehicles involved in COMESA transit operations. 2.3.2 Uganda’s transport infrastructure is critical since it is a transit country to and from the ports of Mombasa and Dar es Salam for the land locked countries of Rwanda, part of DRC and Burundi and also for intra- regional trade. In this context, Uganda has put in place instruments aimed at creating a common transport space with member countries of COMESA and EAC thereby contributing to widening the transport markets beyond national boundaries. This has resulted in consolidating the contribution of the transport sector to regional economic cooperation and integration. Though Uganda has not joined the COMESA Free Trade Area (FTA) launched in October 2000 by nine member countries of COMESA – (Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe), with members trading on duty free and quota free terms for all goods originating within their territories, it is one of the 11 other countries of the community that is moving towards the FTA and is currently trading on preferential terms with a 80.0% reduction on the general tariff rates on goods from COMESA countries. The extension of its national road infrastructure to connect with its neighbouring countries of Rwanda and Democratic Republic of Congo (DRC) who are members of COMESA also in this group trading in preferential terms will further strengthen intra-regional trade within COMESA and EAC. From latest

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statistics of COMESA, the value of intra-COMESA trade for Uganda increased from a level of USD 315.5 million in 2000 to USD 385.5 million in 2003; of which, the value of exports increased from USD74.15 million to USD 111.52 million over the period.

3. THE ROAD SUB-SECTOR

3.1 The Road Network, Vehicle Fleet and Traffic

3.1.1 The total road network is estimated to be some 68,000 km and is divided into four functional categories: (i) National Roads; (ii) District Roads; (iii) Urban Roads; and (iv) Community Access Roads. The national road network covers 10,000 km of which 2,500 km is paved and 7,500km is gravel surfaced. The district road network is some 25,000 km (virtually unpaved), urban road network is approximately 3,000 km (mostly paved), and the community access roads are estimated to cover 30,000 km (all unpaved) consisting of one lane, un-engineered tracks and connect isolated and rural communities. Based on the recent roads condition survey of 2004, for the national road, 82.0% has been classified as fair to very good and for the district road, 60% are in fair to very good condition. The community access roads are mostly in poor condition with only 7 % rated as fair to good. This implies that 18% of national roads and 40% of district roads are in poor condition. Effectively, about 66% of the national and district road networks are on a sustainable basis and it is the desire of the Government to raise this level to at least 80% by 2009. Government is addressing the problem of poor road condition by implementing the RSDP 2, which is being co-financed by Donors including the Bank Group; and for which this project is an integral part.

3.1.2 The number of vehicles on the road was 189,105 in 2000 and rose to 214,245 in 2003. The average annual growth rate of the fleet is about 4.43%, which indicated a recovery and rapid growth of the economy. The fleet size has doubled between 1995 and 2003. In year 2003, the number of vehicles per 1000 persons was 8.6 while the number of vehicles per km of road was 3.15. The total vehicle-km travelled per year estimated on an entire road network increased from 4.69 billion in 2000 to 9.06 billion in 2003. This increased motorisation implies increased wear and tear on vehicles and roads. The share of the national network is 70% of paved road. In terms of average daily traffic volumes (ADT), the weighted ADT is about 2,255 veh./day on the paved road. The paved network carries the greater volume of traffic, which is especially pronounced on approaches to Kampala, whereas the gravel roads carry significantly lower traffic. Transit traffic on the paved main east-west arterials serves as the connecting link between Kenya, Uganda, Burundi, Rwanda, eastern DRC and southern Sudan.

3.1.3 Road accidents recorded increased from 14,384 in 2000 to 17,422 in year 2003. The accident rate per 100,000 population rose from 46.0 in 1996 to 64.8 in year 2000. On the other hand, the accident rate per 1000 vehicles on the road has also increased from 76.0 in 1996 to 81.3 in year 2003. The average loss of lives per 100,000 people is still 8.0. High accident rates, environmental concerns and traffic axle loading beyond the legal limits are major issues that Government is addressing under the RSDP 2. To reduce accident rates, Government conducted a Road Safety Audit and Improvement Study in 2000, which indicated that 80% of all vehicular accidents were due to human error, 10% due to poor mechanical condition of vehicles and 5% resulted from design features of the roads and 5% arose from environmental conditions such as fog, rain and wind. Government is implementing the National Road Safety Action Plan in order to improve roads safety in the country. The Action Plan comprises: a Three-Year Action Plan (2002/03-2005/06) and a Five Year Road Safety Improvement Program. The main components of the 3-year Action Plan are: capacity building, equipping the Traffic Highway Patrol Unit of

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the Police, incorporating road safety education into primary school curriculum and training of casualty personnel in emergency and acute care. The 5-year program involves improvement of road safety at selected road black spots and associated road safety enforcement and management. At the end of 2009, it is expected that the accident rate per 1000 vehicles that was 81.3 in 2003 will be reduced by at least 50% to 41.6.

3.1.4 To ensure the efficient and safe use of road especially along the transit transport corridor network, the traffic and road safety (weighbridges) Regulations 1998 is being amended to include strict measures for effective axle load control. There are currently weighbridges at Busia, Malaba, and Mbarara to control vehicle overloading on national roads. Government is also procuring four mobile weighbridges in the first phase and also planning to procure additional six in the second phase. There is plan to also construct four fixed weighbridges in the next four years. An Axle Load Monitoring & Control Unit has been established in MWHC in this respect. 3.1.5 The Government has not conducted periodic traffic count on its road network since 2001. Accordingly, a loan condition has been put to ensure that Government imbibes the culture of conducting regular traffic count and having a database for planning and programming purposes. The efforts of the Government, so far, on road accident control and axle load control have a potential of yielding positive results and contributing to sustainability of investment in the road sub-sector. 3.2 The Road Transport Industry 3.2.1 The Transport Licensing Board (TLB) of the MWHC licenses vehicles and operators, regulates passenger routes, minibuses servicing those routes, and tariffs. The key activity of the TLB in the medium term is to decentralize transport licensing through establishment of regional TLB offices in Gulu, Mbale, Mbarara and Fort-Portal.

3.2.2 The passenger transport services are provided by 282 local and 88 interstate licensed bus operators. The licensed minibuses of the private sector, with 7660 operators form the Uganda Taxi Operators and Drivers Association serves the more heavily populated urban and inter-urban main roads. The minibuses provide about 80 percent of road passenger services.

3.2.3 Freight traffic is less organised in the private sector, and private owners operate independently on a negotiated basis with suppliers or producers. Freight rates are set as guidelines only, without enforcement, and keyed to the regular price increases affecting fuel and spare parts. There is service competition in the international transit trucking service since neighbouring countries vehicles are also involved in the operation. In addition, there is competition with rail / marine in transporting sea-borne commodities to Mombasa and Dar es Salaam. 3.3 Road Administrations and Training 3.3.1. MWHC is statutorily responsible for the development, management and maintenance of the national road network in Uganda. In line with the Government policy of rationalising the management of sector agencies and of restructuring the civil service and in particular the weak implementation and co-ordination capacity in the MWHC in the past sector programmes, RAFU, a unit accountable to MWHC but outside the ministry's structure was established in September 1998 as a transitional semi-autonomous institutional arrangement to effectively manage the implementation of the RSDP. RAFU, as stated in the Frame Work Document establishing it, has been given all powers to carry out the executive functions of

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the MWHC with respect to road development, management and maintenance with full divestiture of the road project execution mechanisms by the MWHC with the evolution of RAFU into a sustainable and market-led Uganda National Roads Authority (UNRA) originally by June 2002 but now by July 2005.

3.3.2 The organisational structure for the implementation of the RSDP during the transitional period consists of RAFU and a RAFU Management Committee at the level of the MWHC. The Management Committee meets monthly and is chaired by the Minister of Works Housing and Communications, and has as members, the Permanent Secretary of MWHC, the Director of RAFU, the Engineer-in-Chief of MWHC and the Director of Transport of MWHC. A RAFU desk is located within the MWHC with a technical advisor funded by DANIDA, which provides secretariat services to the Management Committee and in addition, generally acts in liaison role between RAFU and the re-organised MWHC. RAFU’s establishment is being financed under the RSISTAP credit of the IDA extended to 31 December 2005 and covers its capital and recurrent costs up to the amount of US$ 14.10 million (90%) while local cost contribution estimated as US$ 1.4 million (10%) over the period 1998-2005 will be met by the GOU. 3.3.3 In line with the on-going reforms in the transport sector, the MWHC is divesting the bulk of its road projects under RSDP2 to RAFU, which is the nucleus of the proposed Uganda National Roads Authority (UNRA). The RAFU is headed by a Director and is assisted by a Deputy Director. The Director is in charge of the day-to-day management of the agency. The Director reports to the Permanent Secretary of MWHC and through his office to the RSDP Steering Committee on policy issues while having operational autonomy. The Steering Committee, which was established in 1999 to oversee the implementation of RSDP and the on-going institutional reforms, is chaired by Ministry of Finance, Planning and Economic Development (MFPED) and consists of MWHC, Ministry of Public Service (MPS), MFPED, and key development partners. The organisational structure of the MWHC and RAFU is provided as Annex 2; and the structure and capabilities RAFU’s as the implementation unit for the RSDP and the project are discussed under Section 5.1.2. 3.3.4 After the successful operation of RAFU with respect to national roads development, it has reached a point at which national road maintenance can be absorbed. Accordingly, RAFU has established a Maintenance Division with its Manager in place to undertake all preparatory activities necessary for the orderly and organised transfer of road maintenance function from MWHC to RAFU/UNRA. Under the District Administrations Act of 1967, Urban Authorities Act of 1964, the Local Government Statute of 1993 and decentralization provisions of the 1995 constitution, rural feeder roads and urban roads, are mandated services of local and municipal authorities. The MWHC (in liaison with MLG) is responsible for providing policy guidelines, operating procedures, and technical advice to the districts. Institutional issues are being further addressed under the IDA - RSISTAP credit, and would reinforce the short to medium-term co-ordination under the Development Committee of the Budget. 3.3.5 Facilities for training of staff in the areas of civil works are well established in Uganda. The Faculty of Technology of Makerere University and Kyambogo University in Kampala offer training in areas of civil, mechanical and electrical engineering. In addition, four other technical colleges, thirty-one technical institutes, and twenty-seven public and thirty-six private technical schools also train staff for the sector. The MWHC has a Public Works Training Centre at Kyambogo some 5 kms on the Kampala-Jinja road, which is open

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to the whole construction industry, giving courses not only for the Ministry but also for personnel of the local and urban authorities and the private contractors. The target groups range from road building/maintenance craftsmen and artisans to supervisors and managers. A Principal Training Engineer, who is assisted by two Senior Executive Engineers and other supporting staff, presently heads the centre. A Training and Production Unit has been set up to offer on-the-job training to the relevant cadres of trainees. 3.3.6 The training needs of the residual MWHC and UNRA will be assessed after the establishment of the UNRA and efforts will be put in place to improve the capacity of the two institutions. The local academic and vocational institutions will handle local courses, while overseas academic institutions will conduct specialized courses. 3.4 Road Planning and Financing a) Road Planning 3.4.1 MWHC and RAFU are the responsible authority for developing plans affecting construction, rehabilitation, and maintenance of the national road network. Its proposals are subject to review and approval by MFPED, which has responsibility for inter-sectoral co-ordination and planning under the Budget Medium Term Expenditure Framework. The MWHC in liaison with MLG oversees and co-ordinates the district administrations and municipal authorities in their responsibilities for rural and urban road planning, construction, rehabilitation and maintenance. Community access roads are the responsibility of communities. 3.4.2 The main tool for implementing transport policy in the main roads sub-sector is the 10-year RSDP2, which envisaged expenditure levels of US$2.28 billion (in constant end-1998 prices) for the main roads and District feeder roads over the period 2001/02 – 2010/11 as presented in Table 3.1. The RSDP2 was presented to Development partners and other stakeholders in April 2002. The program prioritised and ranked all road maintenance and investments projects after a thorough optimisation and rationalization process with the objective of minimizing overall transport cost to the economy and providing access to rural communities and programmed implementation in phases. In 1997, GOU developed “District, Urban & Community Access Road (DUCAR) programme to deal with the poor condition of the community access roads, which is now integrated into the sector program. And, within the context of DUCAR, a Ten-year District Road Investment Programme (TYDRIP) was formulated in 2002 in order to harmonize programs in the road sub-sector. The program reflects investment requirement priorities within the macro-economic constraints in terms of Government counterpart funding and inflow of development assistance. The program components consists of i) National Roads Maintenance and Rehabilitation to preserve existing investment to ensure required level of service, ii) Improvement of part of the network to meet traffic demand, safety and environmental requirements, iii) Rehabilitation and maintenance of districts, urban and community access roads to improve access to the rural poor and support production, competition and income in line with the PEAP and iv) Studies and Capacity Building in road sector and local construction industry with details of the program in Table 3.1 below.

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Table 3.1 Road Sector Development Program (RSDP) 2001/2-2010/11

(In USD million)

Programme Component

2001/2 2002/3 2003/4 2004/5 2005/6 5-Year Totals

2006/7 2007/8 2008/9 2009/10 2010/11 10-Year Totals

1.1 Nat. Roads Routine Maintenance

30.23 24.12 24.79 24.70 19.57 123.41 20.19 19.90 20.00 19.79 20.06 223.35

1.2 Nat. Roads Periodic maintenance & Rehab.

20.13 19.44 37.63 39.65 37.58 154.43 32.21 30.60 30.93 33.78 36.88 318.83

1.3 Nat. Roads – network Improvement/ Development

83.59 109.55 156.41 135.94 120.89 606.38 112.63 112.41 89.84 86.52 34.26 1,042.04

2.0 DUCAR Network

34.50 29.10 31.80 34.50 49.40 179.30 70.80 72.20 79.60 84.90 90.20 577.00

3.0 Institutional Development & Capacity Building

5.31 14.35 17.12 15.06 10.25 62.09 10.45 10.85 11.05 11.35 13.05 118.84

Overall Programme Total

173.76 196.56 267.75 249.85 237.69 1,125.61 246.28 245.96 231.42 236.34 194.45 2,280.06

Source: MFPED

b) Road Financing

3.4.3 The road sector has been identified as one of the six critical sectors that require substantial budget expenditure if the objective of the GOU Poverty Eradication Action Plan (PEAP) is to be achieved. The sector contributes to increasing rural incomes and supporting the private sector and continues to be one of the fastest growing programs with budget allocation accounting for about 6.5% of total Government expenditure. In Table 3.2 showing the details of the sector funding by components of the program, GOU’s spending increased from a level of USD 61.5 million in 1998/99 to USD 89.53million in 2001/2 dropping to USD 73.56 million in 2002/03. Projected expenditure by the GOU over the period 2003/4 to 2005/6 has been estimated at USD 231.77 million. GOU contribution over the period 2000/01 to 2005/06 shall account for about 51.44% of the total road expenditure with donors accounting for the rest, indicating a high level of Government commitment to the program.

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Table 3.2 Road Sector Investment and Recurrent Expenditure

2000/01 – 2005/06 (US$ Million)

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Implementation of RSDP2 Actual Actual Actual Budget Projection Projection

A) GOU Funded

i) National Road Maint. 32.60 37.80 29.800 31.90 35.04 35.04

ii) National Road Devt. 19.70 24.30 15.37 17.20 13.65 13.65

iii) Inst. Capacity Building 1.20 1.00 1.67 2.10 4.05 4.06

iv) District and Urban Roads (improvement) 7.49 6.81 16.56 16.48 15.48 15.22

v) District and Urban Roads (maintenance) 10.31 10.99 0.53 2.32 3.29 3.07

vi) Others 10.70 8.63 9.63 4.6 3.46 3.44

Total-GOU 82.0 89.53 73.56 74.52 74.97 74.48

B) Donor Funded i) National & Districts Devt. 13.66 74.85 23.88 93.10 106.01 109.07 ii) National & District Mt’ce 4.74 8.65 4.70 19.95 9.65 12.67 ii) Others 2.20 0.00 0.00 4.38 8.03 8.03

Total-Donors 20.60 83.50 28.58 117.43 123.69 129.77

Total Financing (GOU and Donor) 102.60 173.03 102.1 191.95 196.66 204.25 GOU % of Total 79.92% 51.74% 70.63% 38.82%3 37.74% 36.47%

Source: MFPED 3.4.4 . As indicated in Table 3.3 below, nine donor agencies/ financial institutions are in the sector viz: Danish International Development Agency (DANIDA), European Union (EU), World Bank (IDA), Japanese International Cooperation Agency (JICA), Nordic Development Fund (NDF), and the Department for International Development – (DFID, UK) and Arab Bank for Economic Development in Africa (BADEA), Kreditanstalt fur Weideraufbau (KfW) and African Development Fund (ADF). Donor Agencies/development partners’ actual disbursement over the period 1998/99 to 2002/03 amounted to USD 221.33 million while commitment over the period 2003/04 to 2005/06 has been projected at USD 370.89 million.

Table 3.3 RSDP – PROJECTED DONOR SUPPORT

(In USD Million)

Past Spending Actual Actual Budget Projection Grand Donor 1998/99-01 2001/02 2002/03 2003/04 2004/05 Total % ADF 7.5 10.01 6.45 8.25 6.01 38.22 3.8 KFW 6.39 13.14 2.12 0 0 21.65 2.2 DFID 7.23 2.46 0.32 0 0 10.01 1.0 DANIDA 28.34 9.17 2.89 5.00 4.53 49.93 5.0 EDF 17.71 2.35 1.44 63.53 59.12 144.15 14.4 IDA 30.62 37.77 15.36 32.65 50.43 166.83 16.6 NDF 0 0.20 0 1.11 1.60 2.91 0.3 BADEA 0 0.25 0 3.89 2.00 6.14 0.6 JICA 11.46 8.15 0 3.00 0 22.61 2.2 Total (Donors) (109.25) (83.50) (28.58) (117.43) (123.69) (462.45) (46.1) GOU 225.31 89.53 75.56 74.52 74.97 539.89 53.9 Grand Total 334.56 173.03 104.14 191.95 198.66 1002.34 100 Source: The Updated 10 Year Road Sector Development Programme, MFPED & MWHC

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3.4.5 The GOU in February 2001 has received the final report on Road Management and Financing Study funded under IDA RSISTAP credit that recommended the establishment of a Ugandan Road Fund Administration that would require legislative action to be enacted by Parliament. The report noted that the existing tax structure in Uganda provides several fees, taxes and charges that are levied from road users and estimated in 2001 at USD 117.9 million; while maintenance needs for the whole road network was estimated at USD 96.20 million per annum, if all the network is in good condition. The needs on the maintainable part of the road network (good to fair condition) are currently estimated at about USD 60.00 million per annum. The proceeds from the road user fees are however not at present dedicated to road maintenance but are paid into the general revenue funds, which are then used for general expenditure. Government is at the moment not in favour of a dedicated Road Fund but prefers allocation from general revenue through the budgetary process. The current allocation for maintenance runs at a third of revenue generated from road users and not enough to meet the maintenance needs of the part of the road network in maintainable condition without the support of the donors. However, over the period 1998/99 to 2002/03 pledged donor resources for maintenance budget were not fully realised. 3.4.6 The amount allocated for recurrent cost for the maintenance of road network is contained in the Transport Sector Investment and Recurrent Expenditure Program (TSIREP) that is revised annually within the Government’s Medium Term Expenditure Framework (MTEF) (see Annex 5). A review of maintenance budget performance over the last five years has been rated at an average of 84.7% of budgeted funds. The performance with respect to Government own resources has been encouraging as the Government has protected budget allocation for maintenance from cuts and honoured to a large extent its pledge to its development partners to ring fence the maintenance budget.

Table 3.4

ROAD MAINTENANCE BUDGET PERFORMANCE (USD Million)

Budget Budget | Projections 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 Total Budget 57.36 65.25 57.45 64.70 58.82 45.10 48.04 58.86 60.12 - GOU Budget (30.39) (36.99) (42.51) (52.57) (47.49) 41.85 46.04 48.30 50.16 - Donors Budget

(26.97) (25.26) (14.94) (12.13) ( 3.33) 3.25 2.00 10.56 9.96

Actual GOU/Donor Releases National Roads

23.97 31.67 32.61 38.10 29.80 31.86 35.00 37.00 39.00

-District Roads 9.99 8.03 10.31 10.99 7.66 8.54 9.02 9.19 8.71 -Urban Roads 0.00 0.00 0.00 2.15 2.11 1.45 2.02 2.11 2.45 Total - GOU 33.96 39.70 42.92 51.24 39.57 41.85 46.04 48.30 50.16 Actual-Donors

18.24 14.58 4.74 8.65 3.86 3.25 2.00 10.56 9.96

Overall budget Performance

91.0% 83.2% 83.0% 92.6% 73.9 % N/A N/A N/A N/A

GOU’s Performance

111.7% 107.3% 101.0% 97.5% 83.3% N/A N/A N/A N/A

Donors’ Performance

67.6% 57.7%%

31.7% 71.3% 115.9% N/A N/A N/A N/A

Source: MFPED

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3.4.7 In 2001/02 and 2002/03, Government budget releases fell below the budget estimates. In addition, the issue of late releases has come to the fore and has affected maintenance planning, programming and implementation. This has generated new concerns for a dedicated Road Fund based on road user charges that can guarantee a regular and steady flow of funds for maintenance and thereby putting the road sector completely in the market place. This is deemed necessary to complement the supply side of the institutional reform already in process with the establishment of RAFU in September 1998 as a forerunner of a commercially oriented Uganda National Road Authority. This has been an issue of continuous dialogue between the Government and the donors. The Government has agreed with the Donors in the sector to increase the allocation to maintenance of the national road network by USD 2.00 million yearly from 2003/04 until self-sufficiency in funding is achieved in 2008/09. The steady and reliable flow of funds for maintenance will ensure sustainability of the network. The evidence that this commitment of Government is captured in TSIREP has been made a condition of the loan in harmony with the requirement of other development partners. 3.5 Road Engineering and Construction 3.5.1 The minor works and designs are usually carried out directly by the Engineering Division of MWHC, while the major ones are contracted to consultants and contractors. MWHC used to retain Technical Assistance consultants financed through bilateral arrangements to help manage its projects, and established design standards, which are being applied to all rehabilitation projects. With establishment of RAFU, all the major road projects in the RSDP2 are to be implemented by the private sector, with RAFU acting mainly as a contract management agency. International consulting firms normally carry out major road studies like feasibility and detailed engineering design. 3.5.2 As part of this project, some national and district roads have been identified and prioritized for future improvement due to their strategic importance. Specifically, Government has requested the Bank to finance feasibility and detailed engineering design of Fort Portal – Ibanda- Nyakahita road, and contribute to its Ten-Year District Roads Investment Programme (TYDRIP) supported by donors for re-gravelling of prioritized feeder roads by financing detailed engineering study in 12 districts of Southern and Western Uganda. The selected districts are: Bundibugyo, Bushenyi, Kabale, Kabarole, Kamwenge, Kanungu, Kasese, Kisoro, Kyejojo, Mbarara, Ntungamo and Rukungiri. The cluster of districts has been chosen considering the various Bank’s interventions in the region and for the purposes of improving development effectiveness or impact. International consultants in most cases will carry out these studies in association with local engineering firms. 3.5.3 The contracting capacity of the country has improved over the years with the training and utilization of small and medium-scale contractors in the areas of routine and periodic road maintenance works under various institutional development or donor support programmes in the road sector. To date, the domestic contractors that have registered with MWHC as recorded are: 23 Large-scale contractors, 15 Medium-scale contractors and 139 small-scale contractors. Government efforts to improve the domestic construction industry are geared towards creation of an enabling environment for private sector participation in road maintenance works. Hence, domestic contracting capacity for civil works has improved considerably and at least the domestic large-scale contractors have graduated and can take on large civil works. This has informed the acceptance of domestic preference margin under the procurement for civil works in the project.

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3.5.4 The Central Materials Laboratory at Kireka, on the outskirts of Kampala, is the only materials laboratory in the country, which carries out tests of construction materials used in civil engineering works. It caters adequately for the present demand from the construction industry. However, there is need for Government to assess and strengthen its capacity to cope with future demands. 3.6 Road Maintenance a) Organisation of Maintenance 3.6.1. As previously discussed under Section 3.3.4, the Road Maintenance Section of MWHC is directly responsible for maintaining the classified road network in the meantime. To expedite administration and management of maintenance activities, the Ministry has divided the country into four regions, namely; central, east, west, and north for operational purposes. The regions operate under the regional engineers and are sub-divided into 28 field stations, which are managed by district engineers. The road maintenance will be gradually transferred to the Maintenance Division of RAFU. In tune with the ongoing reforms to road management, the government has made a policy decision in 2002 to implement a Performance Based Maintenance Management contract system on the national road network. The implementation of the policy will transfer most risk from public to private sector, among others. As a necessary precaution, Government will implement a pilot programme over 7-8 years on a network of about 1,500 km in the eastern part of the country. 3.6.2 Routine and periodic maintenance are carried out by direct labour service (force account) and by contractual service of small scale contractors on the basis of unit cost/day work rates; heavy grading is normally carried out by force account but where funds allow, this activity is let out to small-scale contractors. Some periodic maintenance (regravelling or resealing) work is awarded to large-scale contractors each year depending on availability of funds. These contracts are usually done by local contractors and supervised by the Ministry's personnel at the district or area offices. The district roads system is maintained by district administrations under the supervision of the MWHC in liaison with the MLG. 3.7 Development Impact of Bank Assistance 3.7.1 The Bank has, to date financed nine projects and six studies in the road sub-sector for a total amount of about UA 94.69 million, of which UA 9.41 million has been in grants. Eight projects and all the studies have been completed satisfactorily. There is only one on-going project. 3.7.2 The Bank commenced its operations in the road sector in 1975 and has so far funded the feasibility and detailed engineering studies of three roads (180 km), PTA Sponsored Roads (635 km) and the Classified Road Network (319 km). The Bank and other donors in the road sector have implemented most of these roads, which were subject of the studies. Specifically, the Bank has financed the upgrading of Iganga-Mbale Road (96 km), and Kyotera-Mutukula Road (44 km), which promotes regional integration between Uganda and Tanzania; and at the moment is financing the Road Maintenance and Upgrading project consisting of: Gayaza-Kalagi Road upgrading (20 km) the resealing of six trunk roads (55.1 km) and the regravelling of ten trunk roads (214.2 km). The Bank has also implemented the Rural Feeder Roads Maintenance Programme consisting of: (i) plant and equipment supply,

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(ii) a significant training programme for Local Government staff as well as contractors and (iii) 2400 km of routine maintenance of previously rehabilitated gravel roads and “spot improvements” on another 2000 km of feeder roads. 3.7.3 The Bank financial assistance has resulted in the rehabilitation and upgrading to bitumen standard of some 327 km of main roads, 270 km of road resealed and re-gravelled, 2400 km of district roads maintained and 2000 km of spot improved district roads; and the interventions have contributed to improved road conditions. This has thus, contributed to the overall growth in transport activity, which has increased by 8.77%, the annual motor vehicle fleet has increased by over 20% and the annual traffic growth rate averaged 5.5% in the last ten years. The Bank interventions have also fostered regional integration between Uganda, Tanzania and Kenya. 4 THE PROJECT 4.1 Project Concept and Rationale 4.1.1 The road upgrading from gravel to paved standard is the main component of the project, and has been conceived under the Road Sector Development Program (RSDP2), which is within the framework of the Sector Investment Programme. This national gravel road, which serves the highly fertile hilly areas between Kabale and Kisoro districts also provides a route into neighbouring Democratic Republic of Congo (DRC) at Bunagana with a spur to Rwanda at Kyanika, which is in poor condition. It does not provide all-weather service to the road users due to blockages usually caused by frequent landslides, and is often slippery for trucks and other vehicles during rainy seasons. The rationale behind the proposed project is that the improvement of the road will contribute to poverty reduction and promote regional integration. Hence, relevant studies were conducted on the road that carries about 34% of trucks as cross-border traffic; and its improvement was recommended with a view to meeting the required service levels for truck traffic. From the detailed engineering design report, the technical options for the treatment of the road surface under the project include: "do-nothing" on the existing gravel road, gravel improvement, and upgrading from gravel to bitumen standard with surface dressing and Asphalt concrete. Asphalt concrete surfacing has been selected as the most cost-effective technical option for the road upgrading, given the equivalent standard axle loads to be carried during the road design life. 4.1.2 Participatory Approach: A participatory approach was mainstreamed into the project design through consultation with the stakeholders from project feasibility study to the appraisal phase. The positive and negative impacts and mitigation measures of the Kabale-Kisoro-Bunagana/Kyanika road were discussed with all key stakeholders comprising District officials, Community Leaders and Women’s Groups, NGOs, CBOs and development specialists in the districts concerned. The approach adopted was the use of participatory qualitative research methods for both women and men in different groups and organisations through focus group discussions, individual in-depth interviews and non-structured observations. 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 far outweighs its negative impacts. 4.1.3 The proposed studies consisting of Fort Portal-Ibanda-Nyakahita road and some district roads in 12 districts in the south-western region of Uganda have been conceived

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within the RSDP2 with a view that their improvement would further increase the density of paved roads and provide connectivity/accessibility of the rural population to economic and social centers in the region. The district roads study is also conceived within the context of the Government’s Ten-Year District Roads Investment Programme (TYDRIP) for re-gravelling of prioritized feeder roads. These roads are in poor condition and are not all-weather roads. They require grading, spot gravelling and drainage re-instatement, as emergency measures. These roads when improved will enhance accessibility to the southwestern region of Uganda that is fertile for the production of food and cash crops, and livestock. The feasibility study and detailed engineering design of Fort Portal-Ibanda-Nyakahita road to be upgraded to bituminous standard, and detailed engineering study of the district roads are required to determine options for their improvement and to support the RSDP. These pre-investment studies will be financed under ADF Grant resources. The abridged TORs are presented in Annexes 8 and 9 respectively. 4.1.4 The major generic lessons learnt from the experience of the Bank's previous interventions in the road sub-sector, which are summarised below, have been taken into account in the conception of this project. i) There were initial delays in project start-up and fulfilment of loan conditions.

The Bank will field a launching and some follow-up missions to ensure that delays are reduced considerably in the implementation of the project.

ii) The local counterpart funds released to the projects were in some cases not timely

and also below appraisal estimates. The SIP, based on the macro-economic ceilings and medium-term budget expenditure framework, has addressed this issue by placing RSDP2 in the ‘core area’ of the consolidated budget.

iii) There were delays by the Borrower to undertake annual audit reports for most

projects as required under the loan agreements. For the project, an independent auditing firm would be procured as a component of the project. In line with the general conditions applicable to Loans and Guarantee Agreements, disbursements would be suspended or stopped in cases of non-compliance with Audit requirement.

iv) Axle load control is still weak and Government is making an effort as stated in Section 3.1.4 to address it. Notwithstanding, a pavement option that caters for some overloaded trucks at a reasonable cost increase of about 1.2% has been adopted for this project in order to preserve the road investment. Further still, a mobile weighbridge will be mounted on the road after completion to monitor and control overloaded trucks.

v) In Section 3.1.3 road accidents are largely due to human error rather than road design. The Government is addressing this through the National Road Safety Action Plan. In order to enhance road safety on the project road, traffic signs, guardrails and speed calming measures such as rumble strips and humps are incorporated into the project.

4.2 Project Area and Project Beneficiaries

A) The Project Area

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4.2.1 The project road is located in Kabale (Rubanda county) and Kisoro (Bufumbira county) districts of southwestern Uganda. The two districts have a total area of 2,459.3 sq. km, which is about 1.02% of the whole country. The districts have an estimated population of 0.897 million based on the projected mid-year population of year 2000, which is about 4.04% of the whole country. The sex is 89:100 compared to the national average of 95:100. Both districts have high population density of above 360 per. sq. km when compared with the national density of 92 per sq. km with an annual growth rate of 2.17% and 3.35% for Kabale and Kisoro respectively compared to the national average of 3.2%. The road traverses an area where 93% of the population lives. There are 461 and 133 primary and secondary schools respectively. The project area has 88 health facilities, including 3 hospitals (five of the health units are located along the road). 55.9% and 36.3% of the population of Kabale and Kisoro respectively have access to safe drinking water. 30% of the people in Kabale and 38.5% of the people of Kisoro live below the national poverty line. 4.2.2 Agriculture is the main economic activity of the two districts engaging over 93% of the population followed by 7% engaged in trade. The area produces 72% of the total annual potatoes consumed in Uganda; Kabale district produces 57% followed by Kisoro that produces 15%, this produce comes from an area that covers 1% of the country. The climate is tropical, but much moderated by altitude (ranges from 1400m in the north to over 1800m in the south). Average annual temperature is around 17 degree centigrade. But the daily temperature varies from 8 to 24 degrees centigrade. Rainfall is bimodal, peaking from March - May and September-December. Mean annual precipitation is reported to rise from about 1000 mm to 1800 mm. 4.2.3 The soil in the project zone is fertile (being predominantly volcanic in origin) for production of food and cash crops; and it is intensively cultivated. The area is particularly well known for its horticultural produce including carrots, cabbages, onions, tomatoes and other crops like sorghum, Irish potatoes, millet, cassava, peas, soya beans, banana and groundnuts. There is also a large plantation of softwood located at Mafia, between Kabale and Kisoro towns. Animal farming is also dominant in the area. The farmers rear cattle, pigs, sheep and goats, as major sources of livestock products. There are six big market towns along the road, Bunagana on Tuesdays, Mubugu on Wednesdays, Kisoro and Nyakabande (mainly for cows and other livestock products) on Monday and Thursdays as well as Karukara (also for cows and other livestock products) on Tuesdays. 4.2.4 The climate in the area is conducive for temperate and high value exotic fruits like apples, cape gooseberries and strawberries, high value vegetables like asparagus and other horticultural produce such as different varieties of flowers (roses and cut flowers). Uganda is ranked 21st on the list of African-Caribbean-Pacific countries (ACP) suppliers of fruits and vegetables into the EU, by value in 2000, mainly to Britain exporting avocado, okra, chillies and runner beans. Uganda was the third largest supplier of small roses to the Dutch market, in 2001; the country exported $30 million fob (freight on board) horticultural products (IDEA Project 2002). The improved road will make it easier and faster to access the airport in Kampala or Kigali and so to export markets in Europe and the Middle East. 4.2.5 There is also a timber industry with obvious potential for growth and the iron ore deposits near Kisoro that have the potential for commercial exploitation. It is generally an area of outstanding natural beauty and a tourist centre for those visiting lake Bunyonyi and the mountain gorilla sanctuary at Mghinga.

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4.2.6 Furthermore, the road provides access to Kisoro Airstrip at about 74 km from Kabale, this airstrip has the potential to be used in transporting both fresh produce to markets in Rwanda, DRC, Burundi and to Entebbe airport to other European markets. It can also serve the tourist market well. B) Project Beneficiaries 4.2.7 The primary beneficiaries are road users, traders and farmers. An important economic benefit to be derived as a result of road improvement is the increase in agricultural production from the farm holdings within the road's zone of influence. The other stakeholders who are affected by the project are landowners, the local/district authorities, NGOs and other (CBOs) community-based organisations. 4.2.8 In Uganda the sex is 95:100 and in the project zone, the ratio is 89:100. In the project area, the women are generally producers of food crops while the men are in cash crops and are also landowners. The main determinant of rural poverty reduction has been the ability to market high-value cash crops. The households in the food crop sector, especially those marketing little amounts of food crops only experience modest rates of poverty reduction. However, the gender division of labour in many Ugandan rural and farming systems is that men concentrate on livestock and high-value crops farming, while women are involved in food crop subsistence farming. When the proposed road improvements are implemented, the women and men will equally benefit through improved employment opportunities through off-farm income of the labour wage in the construction works where equal opportunity will be given to women and better access to markets as well as other social and economic facilities. 4.3 Strategic Context 4.3.1 The project is within the context of the ten year Road Sector Development Programme (RSDP2 – 2001/02 – 2010/11) which has been developed as a sector investment programme in response to Government’s sector goal of providing a safe and efficient road transport system capable of supporting the productive sectors and the social and economic transformation of the country in general within the context of Uganda’s Poverty Eradication Action Plan (PEAP) in support of the Millennium Development Goals (MDGs). The project also responds to the Plan for Modernization of Agriculture (PMA) as Uganda depends heavily on agricultural production for its economic growth, and the 2003 Bank Group Involuntary Resettlement Policy. The RSDP2 focuses on institutional capacity building, road maintenance and rehabilitation, network improvement and development in order to reduce the costs of transportation to the economy. The efficient and effective implementation of the programme would result in the improvement of access to rural and economically productive areas through removal of major constraints to transport services on the road network, and hence contribute to poverty reduction. The project will also support the regional integration objective of the regional member countries. The project is consistent with ADF IX Policy, and 2002 - 2004 Bank Group’s Country Assistance Strategy (CSP), which has been updated in March 2005, and still focusing on agriculture, rural development, infrastructure development, capacity building, and Private Sector Development. The key infrastructure sector in the CSP is transport.

4.4 Sector Goal / Project Objective

4.4.1 The sector goal is to contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country.

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4.4.2 The specific objectives of the project are: i) To reduce transport cost and travel time between Kabale and Kisoro districts and promote regional integration with DRC and Rwanda; and ii) to prepare road projects to enhance accessibility in the South-western region of Uganda.

4.5 Project Description

Project Outputs 4.5.1 The outputs of the project are:

a) A two lane asphalt concrete road with 6.0 m wide carriageway and two 1.5 m shoulders from Kabale to Bunagana with a spur to Kyanika constructed.

b) Final Reports on studies submitted for: i) Nyakahita-Ibanda-Fort Portal road study; ii) District Roads Rehabilitation Study; and

iii) Design Review of Kabale-Kisoro Bunagana/Kyanika road.

4.5.2 The project consists of: A) Civil Works Construction Works for the upgrading of gravel surfaced road to bitumen standard with 6.0-m wide carriageway and 1.5-m shoulders on both sides from Kabale town through Kisoro town to Bunagana with a spur to Kyanika Border Post (98.7 km): Works involve: 250-mm thick stabilised sub-base, 150-mm thick crushed-stone base and 50-mm Asphalt Concrete surfacing.

B) Consultancy Services

i) Construction supervision services of Kabale-Bunagana/Kyanika road works; ii) Consultancy Services for Audit; iii) Consultancy Services for Feasibility and Detailed Engineering study of Nyakahita-Ibanda-Fort Portal Road (208 km)

iv) Consultancy Services for Detailed engineering study for rehabilitation of rural roads in 12 districts; and

vi) Consultancy Services for review and update of all documentation of Kabale-

Bunagana Kyanika road upgrading project by PPF Advance-already executed.

C) Resettlement Civil Works 4.5.3 The civil works involve the upgrading of a 98.7-km gravel road to bituminous standard.

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The alignment for the proposed road is generally on the existing road to maximize the use of the existing pavement and reduce extra land takes. The road traverses a mountainous terrain in Kabale and Kisoro districts and also connects a gravel road in DRC at Bunagana and to a paved road in Rwanda at Kyanika town. The design speeds of 50 to 80 km/h have been reduced in areas of habitation and ‘hairpin’ bends to increase safety and reduce land acquisition and demolition of structures. The road design has made provisions for pedestrian sidewalks, a lot of guardrails, road signs, pavement markings, and retaining walls with gabions. It also incorporates road humps and rumble strips as traffic calming measures to enhance traffic safety on the road. The Right-of-Way for the road is 20 m and 30 m in Urban and rural areas respectively. There are some Tee junctions with side roads; bus bays and lorry parking lanes in settlements and near the international border and rest areas are included in the road design. One contractor shall execute the civil works. Consultancy Services 4.5.4 The consultancy services required under the project are as follows: i) Lot 1-Consultancy Services for supervision of Kabale-Bunagana/Kyanika road works

One (1) consulting firm on behalf of MWHC/RAFU will carry out consultancy services for the supervision of the road construction works. The responsibility of the selected firm will include contract programming and administration, inspection of works, quality testing of construction materials and project cost management.

ii) Consultancy Services for Audit

One (1) independent auditing firm will carry out the project audit services to ensure that the proceeds of the loan and grant are utilised in line with the terms agreed to by the Fund and the Government during the implementation of the entire project.

iii) Consultancy Services for Feasibility Study and Detailed Engineering Design

Two consulting firms will conduct the required studies;

Lot 1- Feasibility and Detailed engineering design to upgrade 208-km long gravel road between Nyakahita and Fort Portal through Ibanda.

Lot 2- Detailed engineering design to rehabilitate 2105 km of district roads in twelve

districts in the southwestern region of Uganda The consultants will be required to liaise effectively with RAFU and the Fund during project implementation.

iv) Consultancy Services for review and update of all documentation of Kabale-Bunagana/Kyanika road upgrading project

The consultancy service for this sub-category has been executed by Project Preparation Facility (PPF) Advance to be re-financed under the project. Resettlement 4.5.5 The Resettlement Action Plan (RAP) has been prepared in line with the 2003 Bank’s

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Involuntary Resettlement Policy to sensitize the affected communities on the potential impact of the Kabale-Kisoro-Bunagana/Kyanika road, identify directly affected persons and households, estimate the cost of compensation and set out strategies to mitigate adverse impacts on the population, among others. According to the RAP, the implementation of the project will affect 70 households and 200 buildings/structures that fall in other categories, e.g. roadside kiosks and semi-permanent commercial buildings/structures for which resettlement cost must be paid. Hence, resettlement or payment of compensation to the affected population constitutes an activity that shall be carried out by GOU prior to the commencement of the civil works. RAFU in the meantime has prepared some pamphlets for distribution to the public on the compensation procedure to be followed by the affected population. 4.6 Traffic Demand and Road User Prices

a) Traffic Analysis 4.6.1 Traffic analysis has been undertaken with respect to the Kabale-Kisoro- Bunagana/Kyanika road to be upgraded under the project. The existing traffic volumes on the road were established on the basis of the result of the classified traffic counts undertaken in March 2004 by the consultant that updated the Economic Feasibility Study. From the survey results, bicycles are used as the main type of non-motorized transport to carry farm produce to the local market. However for motorized traffic, the road can be divided into 3 homogenous traffic sections with the base year 2004 traffic volumes estimated at 290 vehicles per day for Kabale to Ikumba (19 km), 139 vehicles per day for Ikumba to Kisoro (56 km) and 289 vehicles per day for Kisoro – Bunagana (23.7 km). A review of the historic traffic data from surveys undertaken in 1989, 1992, 1993, indicates a general trend of light vehicles traffic decreasing on all the three road sections with an average annual decline of about 3.3% while heavy vehicles including buses have shown an overall increase with an average annual growth rate of 7.2% over the period 1989 – 2004. The deteriorating road conditions and consequent increased vehicle operating costs made light vehicles traffic decline but is replaced by phenomenal growth in motorcycles. The 2004 base year traffic indicated that motorcycles account for 24.0 %, light vehicles 43.0%, buses 3.5% and trucks 30.5% of vehicular traffic. On the average 6.6% of all traffic and 34% of truck traffic in 2004 is international traffic. 4.6.2 Diverted traffic has been estimated at about 25 trucks per day destined for the Democratic Republic of Congo (DRC), which are currently using the route through the Katuma border post in Rwanda. This volume of truck traffic will redistribute to the project road and pass through the Bunagana border post after improvement due to shorter distance and avoidance of paying transit charges twice when passing through Rwanda. The volume of generated traffic has been based on conventional practice of price elasticity of traffic demand due to lower vehicle operating costs after road improvement. It is estimated that 20% of the short distance trips for most vehicle classes would be generated as additional trips and also the decrease in bus fares due to lower vehicle operating costs would also lead to a generated traffic component for buses which is estimated at about 20% of the bus traffic at the opening year of the project road in 2009. 4.6.3 Traffic projections for normal, generated and diverted traffic for the respective road sections have been done on the basis of review of available historical traffic data to establish current trends and taking into account other parameters such as demographic growth rates, GDP growth rate of 5.52%; growth rate for the road sector services of 5.87% per annum, 4.59% growth rate for the Agricultural sector for the period 1998 to 2002 and the growth in fuel sales

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estimated at 7.0% per annum over the period 1989 – 2002. Of the three scenarios of traffic growth of low, medium and high proposed in the update studies, a composite medium traffic growth scenario of 7% per annum for the period 2004 – 2014 and 5% per annum for the period 2015 – 2027 have been assumed and applied to all traffic and vehicle categories for the economic evaluation of the road. See Annex 5 on the Base Year 2004 traffic levels and projections while detailed information on the traffic analysis is in the Project Implementation Document (PID).

b) Road User Prices/Unit Maintenance and Construction Costs

4.6.4 The road user prices with respect to the road upgrading component of the project include vehicle operating costs (VOC), travel time values and accident costs. Vehicle Operating Costs (VOC) input data (vehicle prices, fuel and lubricants prices, tyre price, maintenance labour per hour, crew wages per hour, interest and overhead costs) calibrated for Uganda have been inputted into the HDM IV to arrive at the weighted average vehicle operating cost per vehicle kilometre in the with and without project scenarios. The VOC is estimated at USD 0.464/veh-km on the existing poor gravel road and would be reduced to USD 0.224/veh-km when the project road is completed in 2009 and open to traffic. Details of VOC per vehicle class are in the PID. Travel time values are determined from the product of the value of passengers’ time and the journey time and have been estimated at USD 0.18/hour per passenger given the average household monthly income of USD 75 per month in Uganda. All costs have been expressed in constant July 2004 prices.

4.6.5 The unit construction and maintenance costs are based on engineering design estimates and vary depending on the particular characteristics of the road. The unit rates for construction ranges from USD 384,998/km in flat terrains to USD 539,809/km in mountainous sections while the unit rates for routine maintenance of paved and gravel road sections currently stands at USD 29.60/km/year consisting of cleaning of side drains; grass cutting, spot fill potholes (not repair). For the repair of the carriageway, the unit rates for paved roads are currently estimated for: patching potholes - USD 20.03/m2, patching damage areas – USD 37.09/m2, edge repair- USD 20.03/m2, surface dressing (single) USD 1.09/m2 and asphalt overlay – USD 6.29/m2. For gravel roads unit rates currently stand at USD 1,112.59/km for gravelling and re-gravelling rate of USD 8.41/m2. There are concerns that unit maintenance and construction costs in Uganda are higher than in neighbouring countries of Ethiopia and Tanzania. Consequently in April 2004, GOU commissioned a Maintenance and Construction Unit Costs Study to analyse costs, and develop and implement strategies to lower costs and to create a better value for money and improved transparency in procurement of goods, works and services. Even within Uganda, there is wide variation in unit cost based on sources of finance; the ADB and IDA-financed projects record an average of USD 300,000/km for paved roads while EU and bilateral donors- financed projects record an average of over USD 600,000/km for paved roads.

4.7 Environmental and Social Impacts

4.7.1 The project has been classified as Category 1, against the background that it impacts on sensitive areas such as the Echuya Forest; Lake Bunyonyi; and the steep mountain terrain which may be susceptible to excessive mass wasting if the slope is not stabilized. The road is also close to and could impact Mt. Mgahinga Gorilla and Bwindi Impenetrable National Parks, which is within a National Forest reserved for the protection of endangered species and particularly famous for about half of the remaining world population of the mountain gorilla.

4.7.2 According to the Bank’s Environmental and Social Assessment Procedures (ESAP-2001), category 1 projects require an Environmental and Social Impact Assessment (ESIA)

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study. In addition, because more than 200 people have to be re-settled and compensated, a Resettlement Action (RAP) had been prepared in line with 2003 Bank Group Involuntary Resettlement Policy. The Executive Summary of the ESIA has also been prepared and circulated to the Board of Directors of the ADF for their information 120 days prior to project Board presentation. Simultaneously, the Webmaster has released the ESIA Executive Summary to the public through the Public Information Centre (PIC) on 6th October 2004. In addition, the ESIA was done through a participatory approach (seminars, workshops, lectures and other presentations to stakeholders in the two districts involved) and made available to the public in Uganda and displayed for comments in the concerned District Environmental Offices after which the National Environmental Management Authority (NEMA) issued the certificate of Environmental Impact Assessment in July 2004. The environmental and social impacts of upgrading Kabale – Kisoro – Bunagana/Kyanika road and their mitigation measures are summarized below.

a) Physical/Biological Environment Impacts and their Mitigation

4.7.3 Land Take and Material Sources: The upgrading of the road is not expected to cause much deviation from the existing alignment except in the case of some hairpin bends which will even be widened within the existing road reserve and the southern diversion around Kisoro Airstrip and link to Kyanika. However as upgrading involves widening of existing road, some land either cultivated or uncultivated will be permanently lost Loss of land will occur where land would be acquired for the contractor’s camp, gravel pits, hard stone quarries and crusher plant site and crops may even be removed at these sites if cultivable. Sites identified in the study do not currently have agricultural activity and a total of thirty-two borrow pits and four quarries already exist and are identified as sources of materials in order to minimize the impact as far as possible. RAFU and the contractor will have to minimize land take as much as possible by following existing alignment. As a mitigation measure after the road works, the borrow pits/quarries and construction camps would be reinstated in accordance with an agreed reinstatement plan that provide 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 identified suitable temporary dumping places by the contractor prior to start of road works to allow retrieval for borrow pit/quarry rehabilitation. These mitigation measures have been included in the bidding document for civil works to be done to specification and supervised by the supervision consultant. In addition, adequate compensation will be paid under the RAP to population affected.

4.7.4 Pollution of Water Courses and Drainage: Watercourse pollution will result from loose soil being washed into rivers and streams and from lime and fuel pollutants during construction. The contractor is to prevent soil, lime and fuel and lubricant pollutants from entering watercourses and would implement appropriate precautions and measures in this regard and as specified in the tender documents. As part of mitigation, during the drainage design of the road, the highly sensitive nature of the project site was taken into account and concentration of water is minimized in order to reduce soil erosion and consequent silting of downstream sites.

4.7.5 Erosion of Earthworks Slopes and Soil: Soil erosion will be a major issue during the upgrading works as part of the road winds through mountainous terrains susceptible to land slides. 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 under the civil works contract.

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4.7.6 Ecological Sensitive Areas: The project road, as indicated above, passes through a major protected area, namely the Echuya Forest Reserve and the main plant species to be affected is the montane bamboo in the Kabale side of the road and some other indigenous vegetation on Kisoro side. The existing road in the reserve is already wide enough to preclude further widening and significant removal of vegetation. Moreover, the species affected are not in any IUCN (World Conservation Union) threat category. In addition, there would be adoption of appropriate mitigation measures that include sensitization of workers and minimizing vegetation removal to preserve the integrity of the reserve. The District Forestry Office will be involved in this sensitization, while the contractor will sub-contract the re-forestation and re-vegetation to Forest Departments of Universities to be been included in the bidding document to be priced under the civil works contract. Though the wetlands in the project area have largely been modified for agriculture, the road skirts Kirurama swamp and crosses the Ruhuhuma, Masere and Mucuya swamps. The health and ability of these wetlands to perform their ecological functions depend on uninterrupted flow of water through them, as construction of fills through them might impede the flow of water. The contractor as part of mitigation measures would avoid interruption to natural drainage by good engineering practice such as use of bridges and culverts of adequate diameter. In addition, earth borrowing, pilling and temporary camps would be prohibited in the ecological sensitive sites. At the Mountain Mgahinga Gorilla and Bwindi Impenetrable Parks, sensitization would be undertaken on prohibition of hunting as a mitigation measure both for the work force during the construction period and tourists that might come to the area after improved access.

b) Social Impacts and their mitigation

4.7.7 Construction Camps: The contractor’s camp will host a lot of migrant labour and this can cause significant environmental damage if not controlled particularly pollution due to all forms of waste, indiscriminate fuel wood collection, dust, noise and accidents from construction traffic. The contract documentation will make clear the contractor’s responsibility with respect to the operation and reinstatement of construction camps and workshops. In order to reduce excessive dust, which can cause respiratory diseases, the contractor will use sprinkler trucks to spray water in work areas during construction. To minimize noise level for machine operators, ear -muffs would be provided. Blasting activities at quarry sites will be scheduled with early warnings and quarry sites would be located away from towns. The contractor would also draw up a ‘Noise Mitigation Plan’ in line with NEMA guidelines and apply to NEMA for a noise license.

4.7.8 HIV/AIDS: The project road is likely to cause adverse health impacts and in particular stimulate sexually transmitted diseases including HIV/AIDS due to the influx of the male workforce that have greater disposable income than the local people. A line item is already provided in the bill of quantities for education, awareness, voluntary counselling/testing, treatment and prevention to workforce and roadside communities to complement on going programs of Government and NGOs in the project zone of influence. An amount of UA 29, 366.21 has been included in the Bills of Quantities for this to be sub-contracted to an NGO or CBO already involved in HIV/AIDS sensitization and prevention activities in the project zone of influence. The TOR for the HIV/AIDS awareness campaign has been prepared and it includes training for the local personnel. Education materials and information booklets in the local languages of Rukiga and Kinyarwanda for the Kisoro and Kabala districts will also be provided, as well as in French and Kiswahili for the migrant workers from DRC and Rwanda. Long distance truck and bus drivers will also be targeted in the awareness and prevention campaign. The awareness rate about HIV/AIDS in the districts estimated at 92% in 2003, for age 10 and above, would be increased to about 98% by 2009.

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4.7.9 Road Safety: The 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 and on animals within the national parks. Particular attention has been given in project design to put in place measures that would enhance road safety viz; road widening, provision of sealed shoulder, bus bays in settlements, improved road signs and markings, 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 so as to enable long-distance truck and bus drivers to stop, rest and refresh themselves, thus minimizing the risk of accidents due to fatigue. 4.7.10 Resettlement Action Plan: One of the negative social impacts is the involuntary resettlement of people whose properties have been affected. Due to the alignment of sections of the road, some 70 households and 200 buildings will be affected and have to be re-located and their owners compensated. Within the framework of the GOU Resettlement Land Acquisition Policy Framework and the 2003 Bank Group Involuntary Resettlement Policy, the displaced population are to receive benefits from the displacing project following a socio-economic survey, community participation and compensation system. The Resettlement Action Plan has been completed and the summary has been posted for public comment as indicated in section 4.7.2 above. The estimated cost of resettlement is UGX 4, 746,500,000 (UA 1.71 million). The Government is committed to make adequate budgetary allocation for the RAP for the fiscal year 2005/06 following conclusive loan negotiations in December 2004 and reconfirmed by an official letter from the Borrower in March 2005. Hence, the evidence of resettlement or payment of compensation to the affected population prior to the commencement of the civil works has been made a condition of the loan. The Bank’s Uganda Country Office (UGCO) will assist in monitoring, reporting and ensuring that the resettlement action plan of the project is carried out satisfactorily by the Government. 4.7.11 Gender Impact: The project will provide at least 900 jobs for the host population and migrant labourers; and the contractor will be encouraged to provide equal employment opportunities for women and men. Women will also be encouraged to work particularly on off carriageway activities. There will also be indirect employment opportunities for local businesses, particularly; women who traditionally sell prepared meals to construction workers and through this economic opportunity, these women would improve their household earnings and income levels. The earning of off-farm income would make a direct contribution to the poverty reduction objective. The increased household income would have a multiplier effect that would widen the revenue base for government through increased capacity to pay and collect taxes. In addition, child and maternal mortality rates that are now high in the project zone compared to national average will be reduced due to significant reduction in travel time and improved access level to health and education facilities. The upgraded road will lead to a significant improvement of access of surrounding villages in the project zone of influence; enabling the supply of a broad spectrum of goods, services and opportunities. Private sector service providers in banking, communications and tourist industries will increase their activities in the area thus generating additional employment opportunities in the project zone with current situation of high unemployment rates. 4.7.12 The current state of the roads in the area contributes to the burden of transporting food and other agricultural produce to markets. The project will reduce damage to perishable

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produce from the hinterlands to the roadside. Significantly, women, who act mostly as head carriers are bound to gain from the reduction in workload, both by reducing time and energy spent on loading produce. There will be a reduction of average travel time by 50% from 3 hours in 2004 to 1.5 hours when the road is completed in 2009 resulting in allowing the population having more time for other socio economic activities. In addition, the road shoulders would be widened in towns to improve vehicular parking at the market centres along the road to the benefit of women, among others. This will create a better environment for women business activities within the project zone of influence. 4.7.13 Others: Finally, the upgrading of the road will encourage the development of the great potential for tourism in the area. The Lakes Bunyonyi, Mutanda and other crater lakes and the mountain gorilla sanctuary at Mgahinga/Bwindi Impenetrable Parks have a substantial potential for the development of tourism in the area. An average of over 6,000 tourists visit this project zone annually in spite of current poor accessibility; and the project would enhance the development of the potential of the area into a high quality eco-tourism centre. There is also the long term potential of mining of iron ore, wolfram (tungsten) and lime in the Kisoro district. The completion of the project will in the long term, boost tourism in the area, further improving income levels and contributing to reducing poverty in the area.

c) Poverty Reduction

4.7.14 The base line condition survey carried out during the ESIA Study indicated that the Human Poverty Index (HPI) for the two districts is 30.0 and 38.5 for Kabale and Kisoro district respectively. The project will enhance production, competition and income in its zone of influence and contribute to achieving the poverty reduction index of (HPI) of 15% by 2015. The project will be opened to traffic in 2009 and the PCR to be prepared by the Consultant and Borrower will assess progress in this poverty eradication effort.

d) Mitigation Cost and Compliance Monitoring 4.7.15 The total indicative compensation assessment for the Kabale-Kisoro-Bunagana-Kyanika Road Project is estimated at UGX 4,746,500,000 (Four Billion seven Hundred and Forty Six Million Five Hundred Thousand), which is equivalent to UA 1.71million. The cost of complying with the provisions of the EIA in respect of prevention, mitigation and monitoring plan is estimated at USD 805,150. Most of the recommended mitigations measures, which are work related, would be implemented through good engineering practice, and do not entail extra cost beyond normal construction cost. In addition, an amount of UA 29, 366.21 has been included in the Bills of Quantities for the contractors to provide HIV/AIDs prevention and counselling through sub-contracting to NGOs and CBOs as well as to organize gender sensitisation, awareness raising and the development of a gender management plan.

4.7.16 The Supervising consultant has the responsibility to supervise the implementation of the mitigation measures and prepare Quarterly Progress Reports that will provide information on the environmental concerns. In addition, the monitoring team will ensure environmental compliance will be appointed by the Executing Agency and shall compose of: an Environment Officer from RAFU, a District Environment Officer; and the representative of the Environment Monitoring and Compliance Department of NEMA. Monitoring shall cover: 1) The evolution of the environment during and after road upgrading; 2) the effective implementation of the mitigation measures; and 3) the efficiency of the mitigation measures as specified in the tender documents.

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4.8 Project Costs

4.8.1 The project cost estimate, net of taxes, is UA 33.47 million (UGX 92.87 billion), which is, made up of UA 23.80 million (71.28%) in foreign exchange cost and UA 9.67 million (28.72%) in local cost. The estimated project cost is based on rates from contracts recently awarded in the country. A provision of 10% was made to accommodate physical contingency and price escalation of 3% and 5% per annum for foreign and local costs respectively. An amount of UA 1.47 million, representing 6% of the base cost for the civil works, has been derived using man-month method and set aside for supervision consultancy services; and UA 1.49 million will cover the feasibility and detailed engineering studies for Nyakahita-Ibanda-Fort Portal Road and District Roads, and re-financing of PPF Advance for the design-review consultancy services. A lump sum amount of UA 0.10 million has been incorporated for consultancy services required for audit of the project. The cost of resettlement has been estimated as UGX 4.75 billion (UA 1.71 million).

4.8.2 A summary of the project cost by category of expenditure is presented in Table 4.1.

Table 4.1(a) Summary of Project Cost by Category of Expenditure – Loan UGX billions UA millions ADF Loan Foreign

Exchange Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

%

A

Civil works- Kabale-Bunagana/ Kyanika Road Upgrading 50.81 16.95 67.76 18.31 6.11

24.42 18.31 3.67 21.98

90.0

B Consulting Services

-Supervision 3.66 0.42 4.08 1.32 0.15 1.47 1.32 - 1.32 89.8 - Audit 0.28 - 0.28 0.10 - 0.10 0.10 - 0.10 100

C Resettlement - 4.75 4.75 - 1.71 1.71 - - -

0.0

Base Cost –Road Upgrading 54.75 22.12 76.87 19.73 7.97

27.70 19.73 3.67 23.40

84.5

* Physical Contingency (10%) 5.47 1.74 7.21 1.97 0.63 2.60 1.97 0.37 2.34

90.0

Price Contingency 2.86 1.55 4.41 1.03 0.56 1.59 1.03 0.24 1.27

79.9

Total Cost- Road works

63.08 25.41 88.49 22.73 9.16 31.89

22.73 4.28 27.01 84.7

* Excluding Resettlement Cost

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Table 4.1(b) Summary of Project Cost by Category of Expenditure – Grant UGX billions UA millions ADF Grant Foreign

Exchange Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

%

B

Consultancy Services –Road Studies

Lot 1- Nyakahita Fort Portal Road Study 1.53 0.97 2.50 0.55 0.35 0.90 0.55 0.29 0.84

93.3

Lot 2 –District Roads Study 0.75 0.33 1.08 0.27 0.12 0.39 0.27 0.10 0.37

94.9

Base Cost Studies 2.28 1.30 3.58 0.82 0.47 1.29 0.82 0.39 1.21 93.8

Price Contingency 0.08 0.08 0.16 0.03 0.03 0.06 0.03 0.03 0.06 100

-Design Review of Kabale- Bunagana/Kyanika Road Upgrading* 0.61 0.03 0.64 0.22 0.01 0.23 0.22 - 0.22

95.7

Total Cost –Road Studies 2.97 1.41 4.38 1.07 0.51 1.58 1.07 0.42 1.49

94.3

* Already executed by PPF Advance

4.9 Sources of Finance and Expenditure Schedule

4.9.1 In terms of loan, the proposed financing from ADF will cover the entire foreign exchange cost and 44.26% of the local cost of the civil works amounting to UA 27.01 million (UGX 74.95 billion) and GOU will contribute UA 4.88 million (inclusive of resettlement cost of UA 1.71 million). The GOU contribution represents 55.74% of local cost. ADF will contribute UA 1.49 million (UGX 4.13 billion) by Grant and GOU will contribute UA 0.09 million for the studies. A portion of the Grant will be used to re-finance the PPF Advance of UA 0.22 million that was approved previously by ADF for the preparation of documentation on this project. The proposed financing plan of the project by source of finance is presented in Table 4.2 below.

Table 4.2. Summary of Project Cost by Source of Finance (UA Million)

a) Civil Works

Foreign Local Total Percentage Source Exchange Cost ADF LOAN 22.73 4.28 27.01 84.70% GOU - 4.88 4.88 15.30%

Total 22.73 9.16 31.89 100% Percentage 71.28% 28.72% 100%

b) Studies

Foreign Local Total Percentage Source Exchange Cost ADF GRANT 1.07 0.42 1.49 94.3% GOU - 0.09 0.09 5.7%

Total 1.07 0.51 1.58 100% Percentage 67.7% 32.3% 100%

c) Summary

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Foreign Local Total Percentage Source Exchange Cost ADF LOAN 22.73 4.28 27.01 80.70% ADF GRANT 1.07 0.42 1.49 4.45% GOU - 4.97 4.97 14.85%

Total 23.80 9.67 33.47 100% Percentage 71.11% 28.89% 100%

4.9.2 The Counterpart Fund requirement for the project above is UA 4.97 million (UGX 13.79 billion) exclusive of Taxes, import duties and compensation cost. The inclusion of the counterpart funds in the TSIREP (MTEF) for 2005/2006 – 2008/2009 and annually as rolled during the project implementation period, has been made a condition of the loan. Thus, the Government is contributing approximately 14.85% of the total project cost. The rest of the local cost financing, amounting to 14.04% of the total project cost shall be provided under ADF loan and grant. 4.9.3 Utilization of ADF Grant: The ADF Grant of UA 1.49 million will be utilized to finance the following project cycle-related activities to ensure the building of a pipeline of national projects that will facilitate Bank Group operations and improve the quality of projects at entry into the portfolio viz: i) the preparation of feasibility studies, including preliminary engineering design, preliminary cost estimates, and financial and socio-economic analysis; and ii) the preparation of detailed engineering, including detailed designs, specifications, cost estimates, tender documents and pre-qualification of bids. These activities are in line with the Guidelines and Procedures for the Utilization of ADF-IX Grant Resources. 4.9.4 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 yearly expenditure plans by component, category and by sources of finance are shown in Tables 4.3, 4.4 and 4.5.

Table 4.3 Expenditure Schedule by Component

(UA Million) Component 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Total A. Civil Works -Kabale-Bunagana/Kyanika Road Upgrading

- - 5.67 9.93 9.93 2.84 28.37

B. Consultancy Services: - Supervision - 0.26 0.34 0.47 0.47 0.17 1.71 - Audit - - 0.02 0.03 0.03 0.02 0.10 - Nyakahita- Ibanda-Fort Portal

(Lot 1) - 0.14 0.38 0.42 - - 0.94

-District Roads Study (Lot 2) - 0.06 0.16 0.19 - - 0.41 - Design Review Kabale (PPF) 0.23 - - - - - 0.23 C. Resettlement - 1.71 - - - - 1.71 Total 0.23 2.17 6.57 11.04 10.43 3.03 33.47

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Table 4.4 Expenditure Schedule by Category

(UA Million) Category 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Total A. Civil Works - - 5.67 9.93 9.93 2.84 28.37 B. Consultancy Services: 0.23 0.46 0.90 1.11 0.50 0.19 3.39 C. Others -Resettlement - 1.71 - - - - 1.71 Total 0.23 2.17 6.57 11.04 10.43 3.03 33.47

Table 4.5 Expenditure Schedule by Source of Finance

(UA Million) Source 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Total ADF LOAN - 0.23 5.40 9.34 9.34 2.70 27.01 ADF GRANT 0.22 0.20 0.51 0.56 - - 1.49 GOU 0.01 1.74 0.66 1.14 1.09 0.33 4.97 Total 0.23 1.06 6.57 11.04 10.43 3.03 33.47 5. PROJECT IMPLEMENTATION 5.1 Executing Agency 5.1.1 The Ministry of Works, Housing and Communication is the Executing Agency for the project, whilst Road Agency Formation Unit (RAFU) is the Project Implementation Unit for all the projects under the RSDP2. RAFU being a transitional arrangement has taken over the executive functions of the MWHC for the national roads until it is transformed into a fully- fledged Uganda National Roads Authority (UNRA). The Unit has been set up outside the present organisational set-up of the MWHC, and it is still accountable to the Ministry under a transitional institutional arrangement prior to the establishment of a UNRA. RAFU's duties and responsibilities as agreed with the development partners will include the planning, design, construction supervision, maintenance management, operation, development and management of the road links under the RSDP, including the financial and technical monitoring of programme activities, and management of policy studies. The Unit has adequate staff for contract administration and project management as discussed below; and it will eventually transfer all projects and activities that are being implemented to the Uganda National Roads Authority. This has been made a condition of the loan. 5.1.2 The RAFU organisation structure spans three levels which consists of the Directorate, made up of a Director, a Deputy Director and a Legal Adviser; four divisions namely Engineering, Maintenance, Information Service, and Finance and Administration. The Directorate, the Divisional Managers and the full complement of secretaries and support staff have been recruited and are in place. It has met about 70% of its initial manpower plan / requirement. The Engineering Division in charge of the project consists of five units namely, Programme Evaluation, Long-term Consultants and Short-term Consultants, Procurement and Implementation. At the professional level, the Engineering Division is made up of project engineers, middle level engineers, transport economists, financial analysts, environmentalist and administrative officers. The Engineering Division is adequately staffed with 6 senior project engineers, 14 project engineers, 1 Environmental/Social Management Specialist, 1 Transport Economist, 1 Soil/material Specialist, 1 Bridge Engineering Specialist and 4 Short-term consultants that are presently working with the Division. The organisation structure of the MWHC and RAFU is presented in Annex 2.

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5.2 Institutional Arrangements

The institutional arrangements for the implementation of the project shall involve RSDP Steering Committee, RAFU Management Committee and RAFU as presented in Annex 2. The Steering Committee, which was established in 1999 to oversee the implementation of RSDP, including the project under consideration, and the on-going institutional reforms, is chaired by Ministry of Finance, Planning and Economic Development (MFPED) and consists of MWHC, Ministry of Public Service (MPS), MFPED, and key development partners. The Management Committee of RAFU is chaired by the Minister of Works, Housing and Communications, and has as members, the Permanent Secretary of MWHC, the Director of RAFU, the Engineer-in-Chief of MWHC and the Director of Transport of MWHC. The Management committee meets on a monthly basis to oversee all operations of RAFU, including the project. The Director of RAFU reports to the Permanent Secretary of MWHC and through his office to the RSDP Steering Committee on policy issues while having operational autonomy. The Director is in charge of the day-to-day management of the agency. Within the Engineering Division of RAFU, a Project and Study Coordinator, with at least an MSc. Degree or equivalent in Civil Engineering and a minimum of 5 years experience in a relevant field has been designated to coordinate all activities of the project on a full-time basis. His qualifications and experience are found acceptable to the Bank. 5.3 Supervision and Implementation Schedules 5.3.1 A selected contractor under a unit price contract will execute the road upgrading works. A reputable civil engineering consulting firm on behalf of the Executing Agency will participate in pre-tender activities and supervise the works from September 2005 to March 2010. The construction works will be implemented over a period of 36 months commencing in March 2006 and ending in March 2009 followed by 12 months of Defects Liability Period. An independent auditing firm throughout the project implementation period will carry out the project audit. Two consulting firms will conduct the feasibility and detailed engineering studies for 18 months from September 2005 to April 2007. The Bank’s PPF Advance has already been used to execute the consultancy services for the design review of Kabale-Kisoro-Banagana/Kyanika road in 2004. Furthermore, the Bank shall field 2 supervision missions per year from the Headquarters, and UGCO will assist in the supervision of the project implementation. There will be a supervision/mid-term review of the project in September 2007.

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IMPLEMENTATION SCHEDULE Activities Date Agency Responsible

Approval of PPF Advance Jan 2003 ADF Approval of Advance Procurement Actions Nov 2004

ADF

Publication of GPN

Jan 2005 MWHC/RAFU/ADF

Approval of Loan /Grant

May 2005

ADF

Loan Effectiveness Oct 2005 GOU Construction of Works Contract

Advertisement and Notification (SPN) Mar 2005 MWHC/RAFU/ADF Pre-qualification of Contractors May 2005 MWHC/RAFU/ADF Call for tenders June 2005 MWHC/RAFU/ADF Receipt of Tenders Sept 2005 MWHC/RAFU Evaluation & approval Award of Contract

Nov 2006 Feb 2006

MWHC/RAFU/ADF MWHC/RAFU

Civil works commenced Mar 2006 MWHC/RAFU Construction completed End of Defects Liability Period

Mar 2009 Mar 2010

MWHC/RAFU MWHC/RAFU

Consultancy Services for Supervision

Advertisement and Notification (SPN) Mar 2005 MWHC/RAFU/ADF Approval and Issue of RFP Apr 2005 MWHC/RAFU/ADF Receipt of Proposals May 2005 MWHC/RAFU Evaluation & Approval Award of Contract

Jul 2005 Aug 2005

MWHC/RAFU/ADF MWHC/RAFU

Commencement of Consultancy Services Sep 2005 MWHC/RAFU Completion of Consultancy Services Mar 2010 MWHC/RAFU

Consultancy Services for Studies Advertisement and Notification (SPN) Mar 2005 MWHC/RAFU/ADF Approval and Issue of RFP Apr 2005 MWHC/RAFU/ADF Receipt of Proposals May 2005 MWHC/RAFU Evaluation & Approval Award of Contract

Jul 2005 Aug 2005

MWHC/RAFU/ADF MWHC/RAFU

Commencement of Consultancy Services Sep 2005 MWHC/RAFU Completion of Consultancy Services Apr 2007 MWHC/RAFU

5.3.2 The construction supervision-consulting firm will be responsible for the day-to-day supervision of the works, quality control and certification of the works done. RAFU will be responsible for the supervision of the studies being undertaken. The project implementation schedule is presented in Annex 3.

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5.4 Procurement Arrangements 5.4.1 The procurement arrangements are summarized in Table 5.1 below and shown in detail in Annex 4. 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.

Table 5.1. Summary of Procurement Arrangements (UA Million) Non-Bank Project Categories ICB NCB Other Shortlist Fund Total 1 . Civil Works: Kabale-Bunagana/Kyanika Road Upgrading 28.37 28.37 (25.39)* (25.39) 2. Consulting Services 2.1 Supervision 1.71 1.71 (1.53) (1.53) 2.2 Audit 0.10 0.10 (0.10) (0.10) 2.3 Nyakahita-Ibanda-Fort-Portal Road Study

(Lot 1) 0.94 0.94 (0.88) (0.88) 2.4 District Roads Study (Lot 2) 0.41 0.41 (0.38) (0.38) 2.5 Design Review of Kabale-

Bunagana/Kyanika Road study (PPF) – Already executed 0.23 0.23

(0.22) (0.22)

3. Resettlement 1.71

(0.00) 1.71

(0.00) Total 28.37 1.71 3.39 33.47 (25.39) (0.00) (3.11) (28.50) * ( ) - ADF financing Civil Works 5.4.2 Procurement of civil works above will be carried out under International Competitive Bidding (ICB) procedures. One of such contracts will be awarded, for the upgrading Kabale-Kisoro-Bunagana/Kyanika road and valued in total at UA 28.37 million. The civil works contract has been packaged into one lot because of the tight geographical location of the road that prevents two contractors from executing the work from the two ends of the road. This, being classified, as “Large Works” will require pre-qualification of contractors. It will also involve domestic preference margin as discussed under paragraph 3.5.3. Consultancy Services 5.4.3 Procurement of consulting services, as detailed in Table 5.1 above, will be undertaken in accordance with the Bank’s “Rules of Procedure for the Use of Consultants”. The selection criterion to be used for Consultancy Services will be “Price is a Factor”, i.e. technical quality and will be combined with price consideration for supervision and studies. The selection criteria

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for audit services will be ‘Lowest Price for comparable services’ i.e. comparability of technical proposals with least-cost consideration. The Office of the Auditor-General will clear the shortlist for audit services before is forwarded to the Fund for no objection. The Executing Agency shall complete both technical and financial evaluations for Consultancy Services and obtains the Bank's 'No objection' in one step. The road studies will be in two Lots: one for District Roads and the other for Nyakahita-Ibanda-Fort Portal Road Study. The procurement arrangement is such that one firm will be selected for the supervision service, one firm for the Audit services; and two firms for the road studies.

5.4.4 RAFU will be responsible for the procurement of works and services. The resources and capacity, expertise and experience of RAFU are adequate to carry out the procurement. General Procurement Notice 5.4.5 The text of a General Procurement Notice (GPN) has been agreed with the RAFU and it will be issued for publication in Development Business, upon approval by the Board of Directors of the Loan and Grant proposal. Review Procedures 5.4.6 The following documents are subject to review and approval by the Bank before promulgation:

• Specific Procurement Notices; • pre-qualification document for works, • Tender documents and Requests for Proposals from consultants. • Tender and proposals evaluation reports, including recommendations for contract award. • Draft contract for works, if these have been amended from the draft included in the

tender invitation document. • Draft contract for consultancy services, if these have been amended from the draft

included in the Request for Proposal document. Advance Procurement Action 5.4.7 Following the Government’s request for Advance Procurement Action (APA) for the civil works and Advance Action for the Acquisition (AAA) of consultancy services for this project, an approval was granted in line with the Bank rules and the safeguards were communicated to the Government. The APA and AAA were found necessary in order to speed up the procurement process, and to avoid delay in the commencement of physical construction works during the rainy season, which is the cause of frequent landslides in the mountainous terrain of the project area. Early preliminary activities such as pre-qualification of civil works and expression of interests for the consultancy services would therefore be required to start the procurement of works and services. The decision on APA and AAA is therefore in favour of the project implementation in terms of timesaving.

5.5 Disbursement Arrangements

The ADF loan of UA 27.01 million, when approved, will be disbursed against two categories of expenditure viz: civil works and consultancy services using the direct payment method made against standard documentation as specified in the Bank’s Disbursement Handbook. The ADF Grant of UA 1.49 million, when approved will also be disbursed by the same method for the Consultant services.

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5.6 Monitoring and Evaluation 5.6.1 RAFU shall prepare Quarterly progress reports in line with the Bank's format covering all aspects of the project and forwarded to the Bank not later than one month after the end of each quarter. These reports will include progress achieved against agreed implementation and disbursement schedules, key performance indicators, work programmes and cost estimates for the next quarter. The progress report will provide updated information on project implementation, highlighting key issues and problem areas, and recommending action plans for resolving identified bottlenecks. 5.6.2 The ESIA mitigation measures shall be supervised by the supervising consultant and RAFU, and be monitored by the Environmental Liaison Unit of MWHC and by NEMA. The consultant will prepare a quarterly brief on the implementation of the identified mitigation measures in paragraph 4.7.6 and forward to the Bank, RAFU and NEMA. The consultant is required to prepare and submit to the Executing Agency and the Bank a final report at the completion of the project. Thereafter, MWHC/RAFU will prepare and submit to the ADF the Borrower's Project Completion Report (PCR) not later than three months after project completion. The consultants' final reports and the Borrower's PCR will provide the background documents for the preparation of the Bank's PCR required to facilitate post evaluation of the project. 5.7 Financial Reporting and Auditing 5.7.1 The Finance and Administration Division of RAFU will be responsible for financial management and reporting procedures for the project and other donor assisted projects under the RSDP2. Technical Assistants and Management Information Systems to support the Accounting Division of RAFU has been provided under the IDA financing in order to ensure that accounting and reporting functions are carried out in a sound and desirable manner. The Division has been fully established with its complement of staff in accordance with the Financial Management Action Plan agreed under the IDA RSISTAP credit. A well-documented Financial Management Manual, which outlines internal control procedures as well as financial reporting arrangement to Government and Donors has been developed and found acceptable. The Accounting System based on PASTEL accounting software is operational. A Financial Management Sub-committee to review and approve quarterly and annual Financial Statements and reporting to the RAFU Management Committee has been established. 5.7.2 RAFU will be required to operate a separate account for the project in order to facilitate verification of expenditures by component/category and source of finance. The project audit will be carried out once every year and a final audit will be prepared at the completion of the project. When conducted, the audit report would be reviewed by the Office of the Auditor General to determine compliance with the Terms of Reference (TOR) before submission to the Fund. The certified audit report will then be submitted annually to the Fund, not later than six months after the end of each financial year. Provision has been made as part of project cost for annual audit of the project during implementation and a final audit at the end of the project in line with the Bank's Guidelines for Project Audit.

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5.8 Aid Co-ordination 5.8.1 The RSDP was a result of extensive consultation and collaboration between the GOU and the donor agencies. Nine donor agencies/financial institutions (Danida, EU, IDA, BADEA, DFID, KfW, ADF, Irish Aid, JICA and Norway) including the Bank Group are involved or have indicated interest in funding the programme. In view of institutional restructuring process in the road sector, Government for effective and close co-ordination and monitoring of the RSDP established a RSDP Steering Committee since July 1999. The Committee has power to co-opt other members from relevant fields on an ad-hoc basis. The Committee is facilitated by a secretariat, the RSDP Co-ordination Unit located in the Ministry of Finance with cost met from Danida's Institutional Support to RSDP. 5.8.2 The RSDP Steering Committee is responsible for the co-ordination of the planning and implementation of the RSDP2; monitoring and evaluating the performance of the programme; monitoring and guiding the transition of RAFU into an autonomous Uganda National Road Authority; organising Donor consultative Group meetings on a semi-annual basis for all donor/institutions participating in financing of the RSDP including the Bank Group. The Steering Committee is also responsible for disseminating information to the public and stakeholders about RSDP plan and progress on a quarterly basis. A Joint Government/Donor Transport Sector Review meeting was held in May 2004 to discuss the RSDP2 and its financing implications, Institutional reforms, Axle Load control, Road safety and Road maintenance Budget, among others in which the Bank actively participated. The Bank’s Uganda Country Office (UGCO), which has been opened recently, will further facilitate and deepen aid coordination in the sector. 5.8.3 The project, being a component of RSDP2 that set out physical targets for achieving the national road network improvement plan, has been discussed and formulated in consultation with the principal donors in the sector (See Annex 10). The project has gone through a thorough optimisation and rationalisation process with its funding fully admitted among other development projects into the TSIREP 2003/04 – 2006/07 and within the MTEF ceiling agreed to in the Joint GOU/Donors Sector Review meeting of May 2004. Specifically, the project components, objectives and development impacts were reviewed and agreed upon starting from Identification in March 2000, to Preparation in March 2002, and to Appraisal in July 2004. 6. PROJECT SUSTAINABILITY AND RISKS 6.1 Recurrent Costs No increase in recurrent cost is anticipated during the construction phase of the upgrading of Kabale – Kisoro – Bunagana/Kyanika road as the construction costs are in lieu of recurrent expenditures related to the project. During the one-year maintenance period, the contractor will be responsible for maintenance of project roads. Thereafter, the maintenance expenditure of the project will be taken over by the Government and will be charged to the road maintenance budget. Periodic maintenance comprising asphalt concrete overlay after every 10 years of traffic use for the paved road would also be undertaken to ensure sustainability. The recurrent maintenance activities comply with the current maintenance policy mostly comprising routine maintenance of the roadside, ancillary works including pothole patching for the paved

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road. The expected recurrent cost of maintaining the gravel road throughout its design life would be US$ 1.248 million per year. This cost would however be reduced to about US$ 0.375 million per year for the asphalt concrete alternative that has been adopted for the project. This would be budgeted for annually and included in TSIREP. 6.2 Project Sustainability 6.2.1 Government, in order to ensure sustainability, strictly adheres to providing the financial requirements for road maintenance projected under the TSIREP. The TSIREP serves as a basis for elaboration of the Medium Term Budget Expenditure Framework in the sector and for the budgeting process in each fiscal year. The Budget Expenditure Framework Paper discussed during the Public Expenditure Review of May 2004 noted the road sub-sector among the six critical sectors that require substantial budget expenditure if the objective of poverty reduction is to be achieved given its role in enhancement of production, competition and income. Resource allocation to national road maintenance by the GOU, as per actual budget releases has been growing fast and had increased from US$ 23.97 million in 1998/99 to US $ 29.80 million in 2002/03 and projected to a level of US$ 37.00 million in 2005/06 exclusive of projected donor intervention of USD 10.56 million to clear the backlog of periodic maintenance. Government is committed as agreed with development partners in the sector to increasing the national roads’ maintenance funding by an equivalent of USD 2.00 million annually from 2003/04 until self-sufficiency in funding is achieved in 2008/09. This level of expenditure is considered acceptable for ensuring the sustainability of the national road network as agreed with donors intervening in the sector. 6.2.2 The ongoing institutional restructuring and strengthening of the sector will limit the functions of the MWHC to policy formulation and regulation and empower Uganda National Road Authority (to be formed) to take on the executive function as a highly performing, well focused professional agency using the private sector for the execution of road works. The Road Authority will improve the efficiency of overall delivery of the RSDP and sustainability of the project. It is therefore important that the institutional restructuring is not aborted and that Government sees it through and keeps the Bank informed on developments with respect to the establishment of the Road Authority, which is delayed to July 2005. This has been made a condition of the loan. Government has also, with support of donors, put in place policies to develop the domestic construction industry, particularly the introduction of Performance Based Maintenance Management Contracts for private contractors on a pilot basis that will strengthen the contracting capacity of the private sector and enhance the sustainability of investment in the RSDP2. 6.3 Critical Risks and Mitigation Measures 6.3.1 There is the perceived risk of inefficient use of project resources as internal audit function is still performed by the MWHC until the road authority is established. The Ugandan Country Financial Accountability Assessment (CFAA) carried out in 2001 by IDA in collaboration with the GOU indicated that inadequate financial accounting and auditing systems at the centre and district levels pose a major fiduciary risk. Since then a number of donor assisted initiatives, such as the Economic and Financial Management Project II/RSISTAP supported by IDA and the Financial Accountability and Decentralisation Support Project funded by DFID, have yielded positive improvement in the accountability environment. In the road sector there had been major institutional reforms and restructuring of the Ministry and establishment of

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RAFU aimed at addressing these weaknesses. RAFU accounting system has been computerized using Pastel Accounting System Software and a Financial Management Manual that documents all the accounting and internal control procedures for projects is in place and are adequate to provide accurate and timely information on financial status of the project. The project accounts in addition would be audited in line with the Bank’s Guideline and submitted on due dates to enable monitoring of linkages between physical progress and financial disbursements. 6.3.2 There is the risk that annual capital and recurrent budget estimates would not be made in accordance with the projections as indicated in Section 3.4 above given current pressure on sector ceilings based on the MTEF. The three-Year Rolling TSIREP reviewed annually in May in consistency with the MTEF sector ceilings before finalization of the budget in June every year with participating donors in the RSDP II and the GOU would minimize this risk. The project has been carried into the TSIREP for the period 2003/04 – 2006/07 consistent with the MTEF sectoral ceilings with assurance of its annual expenditure budgeted for as per expenditure scheduled agreed to at loan negotiations in December 2004. The project benefits would therefore be sustained as annual maintenance program would be implemented as scheduled given Government’s renewed commitment to budget discipline and decision to put the road maintenance budget in the core area strategic for poverty eradication as per the PEAP that would not suffer budget cuts. The commitment has been accommodated in setting the sector ceilings in the MTEF. Joint donors’ and GOU annual review of implementation progress of the RSDP2 would monitor this commitment and serve to minimize the risk. This monitoring of the TSIREP has also been made a condition of the Loan. In addition, the transfer of maintenance function from the MWHC to RAFU will improve planning, programming and execution of maintenance works. All these measures would mitigate the risk of project benefit not being sustained. 6.3.3 The institutional reforms in the sector have not moved with the speed agreed, particularly the establishment of the UNRA has not been carried through and axle load limits on the main roads have not been effectively enforced, which is a risk. Government commitment on transformation of RAFU to UNRA and outstanding actions are contained in the Letter of Development Policy forwarded to Development Partners in March 2004. Cabinet approval had been sought in December 2004 so that the draft legislation would be forwarded to Parliament for approval by July 2005 at the latest. Establishment of the UNRA and axle load control are matters of interest and has been put as outstanding actions for close monitoring by the Joint Government /Donor Transport Sector Group for which the Bank is a major participant. Donors’ consensus has provided sufficient leverage through advocacy, which has reduced the risk factor in this assumption. 6.3.4 The political situation in the Great Lakes region could result in some security problems in some project areas particularly in Kisoro District, which share borders with DRC and Rwanda at Bunagana and Kyanika, respectively. The security problems might spillover to some of the project zones of influence particularly at border towns that might affect project implementation beyond Kisoro town, which is about thirteen kilometres from the border with DRC. Government would ensure additional measures within its territory to enable the contractor have full access to the site. In addition, the International Community has been fully engaged in bringing peace and security to the Great Lakes Region and Development Partners including the Bank have initiated post-conflict initiatives to ensure enduring peace and stability. This has culminated in the November 2004 Declaration of the Heads of State and Government in Dar-Es Salaam on the commitment of the Members States of the Region to peace, security, democracy and development in the Great Lakes Region. Donors, including the Bank, will meet with the Great

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Lakes State Ministers in April 2005, to discuss potential interventions by, in support of post-conflict efforts. There is the concern that the security situation can risk the achievement of the regional integration objective of the project as cross border traffic that accounts for about 6% of the estimated traffic levels may not be achieved. A sensitivity test of 10.0% reduction in traffic level to assess the level of this risk was undertaken, and an EIRR of over 16.0% was still registered which indicates the robustness of the intervention. 6.3.5 There is the fear that due to security situation at the border zones, competent contractors and consultants may not respond to the invitation to bid. This risk is however considered minimal given the fact that the design-review consultant and the Bank mission have been to the site several times without any disturbance and the problem in DRC has not split over into the project zone. Besides, the whole stretch of the road to be constructed is within Uganda’s territory and the Government has the capability to guarantee security of lives and properties in the region. 7. PROJECT BENEFITS 7.1 Economic Analysis a) Methodology 7.1.1 The investment in the Kabale –Kisoro – Bunagana/Kyanika road that is the physical component of the project has been subject to specific Cost-Benefit analysis. The analysis is based on the road improvement option consisting of asphalt concrete surfacing. The analysis was carried out using the Highway Development and Management Tool model (HDM-IV). Base data on traffic volumes and composition, road conditions and vehicle operating costs, capital investment, maintenance strategies/costs updated to July 2004 prices were inputted into the model. The HDM-IV allows modelling over the analysis period of 2006-2027 of project life cycle, the interaction between these factors in the ‘with’ and ‘without’ project case. Construction works would start in 2006 and would be completed and open to traffic in 2009 at substantial completion. Financial infrastructure prices have been converted to economic prices by applying a standard conversion factor of 0.831. The measures of project worth used in the analysis are the EIRR in excess of 12% and a positive NPV at a discount rate of 12%*, which is the opportunity cost of capital in Uganda. A residual value estimated at about 40% of the initial investment has been assumed at the end of project life cycle. (See Annex 5 and more details of methodology in the PID)

b) Economic Costs and Benefits

7.1.2 The costs taken into account in the Cost – Benefit Analysis of the Kabale – Kisoro – Bunagana/Kyanika road are the Road Agency Costs in the with and without project scenarios which consists of the capital investment costs including the physical contingency of ten percent, the recurrent costs, costs of environmental and social impact mitigation as a result of the project works but excludes the cost of compensation paid to people whose property has been affected. Compensation costs are transfer costs with the flows netting out themselves. 1 (*National parameters recommended in the “Procedural Guide to Economic Feasibility Studies in Uganda” initially produced under IDA financing in mid 2001 as part of ESW for the RSDP)

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The estimated economic capital investment cost is put at USD 37.515 million and consisting of the base cost for civil works, consulting services for supervision and audit services and physical contingencies. The recurrent costs are made up of routine and periodic maintenance expenses for the project road. The benefit streams essentially consists of the savings in vehicle operating costs for normal, diverted and generated traffic and travel time accruing to road users as a result of improvement in the road condition with the upgrading of the road from deteriorated gravel surfaced to paved road. Other benefits, which are not quantified, include improved access to health and education facilities thereby contributing to reduction in maternal and infant mortality rates and improved school enrolment rates in the two districts in line with MDGs. c) Result of Cost – Benefit Analysis 7.1.3 The measures of economic viability (NPV and EIRR) were found to be satisfactory for the three sections of the road. The EIRR for the road sections ranges from 14.7% for Ikumba – Kisoro road section, 18.7% for Kisoro – Bunagana/Kyanika section to 27.0% for the Kabala – Ikumba section while for the whole project road, an over all EIRR of 17.6% is achieved which is higher than the opportunity cost of capital of 12% in Uganda. Considered separately, the central mountainous section (Ikumba – Kisoro) with lower traffic volumes result in a lower performance measure in terms of economic return but it is viable. The NPV for the sections are also positive and are respectively USD 10.32 million for Kabala – Ikumba (19km); USD 6.39 million for Ikumba – Kisoro (65.3km) and USD 2.72 million for Kisoro – Bunagana/Kyanika (13km). The NPV for the overall project road is estimated as USD 19.43 million. (See Annex 5 for Summary of Base Case Economic Evaluation Results).

7.2 Social Impact Analysis 7.2.1 The project will generate direct employment for at least 900 people in the project districts and would improve their income levels considerably over the duration of project implementation. More than double this number will benefit from associated commercial activities, most of whom will be women providing services for the workers. This socio-economic boost to the local economy would provide a valuable opportunity for poverty reduction, which has declined from 56% in 1992/93 to 35% in 2000 for the country. The combination of improved access to education, health and other social facilities as well as the socio economic boost to the area will in the long term reduce the number of people living below the poverty line of which the current Human Poverty Index (HPI) are 30.0 and 38.5 of Kabale and Kisoro districts, respectively which is lower than the country average of 41. The project will undoubtedly contribute towards achieving some of the MDGs and reduce the incidence of poverty in the area to 15% by 2015 in line with the GOU’s overall goal to reduce poverty to 10 % by 2017. 7.2.2 The project would, in addition, contribute to improving the linkage of rural production centres to markets and to social facilities. The beneficiary population living along the road will benefit from the elimination of dust along the road, which in effect will drastically reduce the high incidence of respiratory disease recorded in the area from the current 750,236 reported cases by 90% to 7,500 cases in 2009. Business will also benefit, by operating in dust free and more hygienic conditions.

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7.2.3 The project area consists of beautiful terrain of Muhabura dormant volcanic mountains as well as the presence of Lakes Bunyonyi, Mutanda and other crater lakes which are attractive sights that have a substantial potential for the development of Tourism. In addition the mountain gorilla sanctuary at Mgahinga has a huge potential to develop the area into a high quality eco-tourism centre. There is also the long term potential of mining of iron ore, wolfram (tungsten) and lime in the Kisoro district. The completion of the project will in the long term, boost tourism in the area, further improving income levels and contributing to reducing poverty in the area. Regional Integration 7.2.4 As previously discussed, Kabale-Kisoro-Bunagana/Kyanika road as a national road that connects Uganda to DRC at Bunagana and to Rwanda at Kyanika, serves also as a transit corridor to Burundi. Although the road is classified as a national road, it carries cross-border or international traffic to and from the neighbouring countries. The traffic analysis in Section 4.6.1 indicates that in 2004, 6.6% of ADT or 34% of truck traffic accounts for international traffic. This traffic is expected to grow given that the road is upgraded from gravel to bitumen standard from 19 veh/day to 50 veh/day in 2009. The significant increase in cross-border vehicular traffic shows that the improvement in the road will further strengthen trans-border trade and in turn facilitate regional integration as its secondary objective.

7.3 Sensitivity Analysis & Switch Values 7.3.1 Test of sensitivity of the appraisal results on the base case EIRR of 17.6% to changes in assumptions on levels of construction costs and benefit indicate that this is a viable investment. When traffic levels are reduced by 10%, the EIRR dropped to 15.6% and when construction costs increase by 10%, the EIRR declined to 16.3%. In a worst-case scenario of simultaneous increase in investment costs and reduction in benefits of 10.0%, the economic rate of return dropped to 14.5% that is still above the threshold level of 12.0% opportunity cost of capital in Uganda. In all cases, the project is still viable since it gives return higher than the opportunity cost of capital in Uganda. 7.3.2 In addition to the sensitivity tests above, the analysis of switch values for capital investment costs and traffic levels (benefits) was undertaken. Capital investment costs would increase by over 57.4% before viability is threatened while traffic levels (benefits) would drop by over 14.3% before project economic return fall below the threshold of opportunity cost of capital of 12.0% for Uganda. As a central traffic growth assumption has been used for the analysis which is lower than current average traffic growth rate on the national network and project costing is based on detailed design estimate using current tender prices and in an environment of international competitive bidding for the project, the likelihood of capital investment cost rising to a level to threaten project viability is remote. The project viability on all indications is robust. 8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions 8.1.1 The project is to support the economic and social recovery programmes taking place in Uganda through the removal of transportation bottlenecks to economic recovery, poverty reduction and market integration. The project is consistent with the Bank Group's country assistance strategy for Uganda for the period 2002-2004.

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8.1.2 The project physical works which consists of the upgrading of Kabale – Kisoro – Bunagana/Kyanika gravel road to paved standard” based on technical option chosen and described in Chapter 5 above is economically justified, socially desirable and environmentally sustainable. The road upgrading component would generate an EIRR of 17.6% based entirely on quantifiable economic benefits in terms of vehicle operating cost and travel time savings for normal, diverted and generated traffic, which would accrue to road users. Since the trucking industry in Uganda has been liberalized and the project road serves area of good agricultural potential, a part of the VOC savings will be passed with time to agricultural producers and consumers, to improve social service coverage and thereby support adjustment efforts in other sectors of the economy. The social benefits of the project includes, inter alia, enhancement of direct and indirect employment, and improved accessibility to market and production centres and to social facilities. It will also support regional economic integration efforts between Uganda, Rwanda, and DRC as its secondary objective. 8.2 Recommendations and Conditions for Loan Approval 8.2.1 It is recommended that an ADF loan not exceeding UA 27.01 million and ADF grant of UA 1.49 million be extended to the Government of Uganda for the implementation of the Road Sector Support Project, subject to the loan and grant conditions given below. LOAN: The ADF Loan shall be 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 fulfilment by the borrower of the following conditions:

B Conditions Precedent to First Disbursement

The Borrower shall undertake to:

i) Compensate, before the commencement of civil works, the population affected by the upgrading of Kabale-Bunagana/Kyanika road in line with the Resettlement Action Plan (RAP) (para. 4.7.10);

ii) Include the project in the Transport Sector Investment and Recurrent

Expenditure Programme (TSIREP) for 2005/2006 – 2009/2010 and as updated annually (para. 3.4.6); and

iii) Submit to the Fund, not later than 1st April, results of traffic counts on the project

road once every calendar year, which shall reflect bi-annual counts and seasonal variations (para. 3.1.5 ).

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C. Other Conditions The Borrower shall:

i) Submit to the Fund evidence that the population affected by the upgrading of Kabale-Bunagana/Kyanika road have been compensated, before the commencement of civil works, in accordance with the Resettlement Action Plan (RAP) (para. 4.7.10);

ii) Submit to the Fund, no later than 31st January of each year annual reports

evidencing the axle load control measures being enforced on the national trunk road systems (para. 3.1.5 );

iii) Submit to the Fund, not later than 31st March 2006, the Act establishing the

Uganda National Roads Authority (para. 5.1.1); and

iv) Submit to the Fund, no later than 30th September of each year, throughout the project’s implementation period, a copy of TSIREP indicating the allocation for the project.(Para . 3.4.6)

GRANT: The ADF Grant shall be subject to the following specific conditions: Conditions Prior to Entry into Force of the Grant Agreement

(a) The Protocol Agreement shall enter into force on its signature. Conditions Precedent to First Disbursement (b) The obligations of the Fund to make the first disbursement shall be conditional upon the

entry into force of the Protocol of Agreement as set forth in (a) above and the fulfilment by the Recipient of the Conditions Precedent to First Disbursement under the Loan Agreement for the Road Sector Support Project of even date.

Annex 3 UGANDA

ROAD SECTOR SUPPORT PROJECT

IMPLEMENTATION SCHEDULE

Annex 4

UGANDA

TRANSPORT SECTOR SUPPORT PROJECT

PROVISIONAL LIST OF GOODS AND SERVICES

UGX billions UA millions Co-

financiers Foreign Local Total Foreign Local Total ADF ADF GOU Item Category Exchange Cost Cost Exchange Cost Cost LOAN GRANT

A

Civil works- Kabale-Bunagana/Kyanika Road Upgrading 50.81 16.95 67.76 18.31 6.11 24.42 21.98 - 2.44

B Consulting Services - Supervision 3.66 0.42 4.08 1.32 0.15 1.47 1.32 - 0.15 - Audit (financial) 0.28 - 0.28 0.10 - 0.10 0.10 - -

- Nyakahita Road Study 1.53 0.97 2.50 0.55 0.35 0.90 - 0.84 0.06

-District Road Study 0.75 0.33 1.08 0.27 0.12 0.39 - 0.35 0.02 - Pre-contract (PPF) 0.61 0.03 0.64 0.22 0.01 0.23 - 0.22 0.01

C Resettlement - 4.75 4.75 - 1.71 1.71 - - 1.71 Base Cost 57.64 23.45 81.09 20.77 8.45 29.22 23.40 1.43 2.68 Physical Contingency 5.47 1.74 7.21 1.97 0.63 2.60 2.34 - 0.26

Price Contingency 2.94 1.63 4.57 1.06 0.59 1.65 1.27 0.06 0.32 Total Project Cost 66.05 26.82 92.87 23.80 9.67 33.47 27.01 1.49 4.97

Summary of Detailed Base Cost Estimate for Civil Works

ITEM TOTAL TOTAL (UGX Billion) (UA Million ) CIVIL WORKS: Preliminaries, Constructor’s Establishment and General obligations 9.57 3.45 Engineer’s Accommodation and Offices,etc. 2.85 1.03 Clearing, Grubbing and Earthworks 6.32 2.28 Drains (Prefab-Culverts, concrete Channels) 7.30 2.63 Sub-base Course 8.31 2.99 Base Course 7.40 2.67 Bituminous/Asphalt Concrete Work 9.78 3.52 Protection Works (Stone Pitching -Drains) 0.27 0.10 Protection Works (Gabions) 7.90 2.84 Guardrails 0.82 0.30 Ancillary Works (Road Furniture) 6.91 2.49 Day-Works 0.33 0.12 TOTAL 67.76 24.42

Annex 5 Page 1 of 4

UGANDA TRANSPORT SECTOR SUPPORT PROGRAMME

(KABALE – KISORO- BUNAGANA/KYANIKA ROAD UPGRADING PROJECT)

TRANSPORT SECTOR INVESTMENT AND RECURRENT EXPENDITURE PROGRAMME (TSIREP) 2003/04 – 2006/07 GOU funding in Shs. Billions

Donor funding in US$ millions Exchange Rate: 1 US$ = Shs. 1890 2110 1997 2108 2224 Total

2002/03 2003/04 2004/05 2005/06 2006/07 03/04 - 06/07 No. Actual

Donor Actual GOU Budget Estimate Provisional Budget Projections Projections GRAND TOTAL

Project Name and Description Donor

Donor GOU Donor GOU Donor GOU Donor GOU Donor GOU Donor GOU J. Summary (i) National Roads Maintenance 3.86 56.32 3.25 67.24 2.00 69.86 10.56 73.86 9.96 78.15 25.77 289.11 (ii) National Roads Improvement 17.23 28.50 80.91 35.60 98.66 29.07 106.01 28.78 109.55 25.05 395.13 118.50 (iii) Studies 2.47 0.55 1.80 0.66 2.34 0.17 0.34 0.02 0.00 0.00 4.48 0.85 (iv) Institutional Capacity Building 4.19 3.15 7.39 4.35 7.47 4.58 5.75 8.53 0.10 9.75 20.17 27.20 (v) District Roads 0.84 25.89 16.70 34.48 8.41 31.47 7.11 34.41 10.68 35.60 42.90 135.96 (vi) Urban Roads 0.00 6.41 3.00 5.13 0.00 7.15 0.00 6.35 0.00 7.15 3.00 25.78 (vii) Railways 0.00 0.00 4.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 8.00 0.00 (viii) Waterways 0.00 9.27 0.00 5.05 0.00 5.03 0.00 5.05 0.00 6.86 0.00 21.99 (ix) Other Transport & MOWHC Project 0.00 8.89 0.38 4.73 0.81 2.39 2.28 2.25 2.65 2.61 6.12 11.97 TSIREP Overall total (excluding wage, non-wage recurrent but include road maintenance) and CU expenditure

28.58 130.10 117.05 152.51 123.69 149.71 129.77 157.00 130.29 162.56 499.99 619.39

MTEF Sector Ceiling (excluding wage, non-wage recurrent but include road maintenance recurrent) and CU expenditure

28.58 138.98 117.43 157.24 123.69 149.71 129.77 157.07 150.33 162.69

Source: MFPED Transport Sector

Annex 5 Page 2 of 4

RSDP – PROJECTED DONOR SUPPORT (In USD Million)

B) SUMMARY OF TRAFFIC AND ECONOMIC ANALYSIS a) Result of Traffic Analysis for Kabale-Kisoro-Bunagana/Kyanika Road

The result of the classified traffic counts undertaken in March 2004 for the project road are as indicated in the table A.1 below while the traffic projections based on a central traffic growth assumption over the project life cycle is indicated in table A.2 below

Table A.1 : Base Year 2004 Traffic Levels

Vehicle Type Kabale-Ikumba (19km)

Ikumba-Kisoro (56km)

Kisoro-Bunagana/Kyanika

Total Weighted Average

Annual Average Growth

Rate AADT % ADDT % ADDT % % % Motor cycles 26 8.97 17 12.23 130 44.98 24.10 8.10 Light vehicles 151 52.07 57 41.01 96 33.22 42.34 -3.30 Buses 11 3.79 8 5.76 6 2.08 3.48 15.60 Single unit trucks 86 29.66 44 31.65 50 17.30 25.07 4.50 Truck Tankers & Semi trailers

16 5.52 13 9.35 7 2.42 5.01 3.00

Totals 290 100.0 139 100 289 100 100

Table A.1 : Projected Annual Traffic (2004-2027)

Years Kabale-Ikumba Ikumba-Kisoro Kisoro-Bunagana/Kyanika ADDT ADDT AADT

2004 290 139 289 2009 407 195 405 2014 570 273 569 2019 728 349 726 2024 929 445 926 2027 1076 516 1072

Source: Update Studies of the Feasibility Study and Detailed Engineering Design for Upgrading of Kabale-Kisoro-

Bunagana Road & ADF Appraisal Mission June/July 2004.

Annex 5 Page 3 of 4

b) Methodology and Assumptions for Economic Evaluation i) Methodology Appraisal has been made using the HDM IV model developed by the International Study of Highway Development and

Management tools. The HDM IV allows modelling over the analysis period of 20 years of each links and for the whole project the interaction between traffic volume and composition, road condition, geometry and characteristics and vehicle operating costs for the “with” and “with out” project scenarios. The base year for economic evaluation is taken as 2006, the year in which project activities are assumed to commence with a construction period of 36 months and first year of opening to traffic in 2009 with analysis period going up to 2007.

All appraisal components have been inputted into the model in USD; output values are in Uganda Shillings (UGS) at current rate of exchange at appraisal in June 2004. For economic analysis, financial construction and maintenance costs have been converted into economic costs by applying a conversion factor of 0.83*. This is a standard conversion factor which has been estimated and adopted by the World Bank and other donors for Uganda for the RSDP. The measures of project worth used are the EIRR and NPV at 12%* discount rate given the opportunity cost of capital of 12.0% in Uganda.

ii) Appraisal Assumptions

a) Maintenance Strategies

Maintenance if the existing road has been intermittent. The maintenance strategies incorporated into the economic evaluation are as follows: “Without project” do minimum: which is essentially the historic maintenance practice strategy comprising routine maintenance of a grading frequency of once a year and spot re-gravelling of 30m3 per year. “With project” paved standard: involves routing maintenance, patching 50 percent of damaged surface each year, and an overlay every 8 years.

b) Residual Values

Residual values are likely to have analytical significance and have been assumed as 15% of original capital investment; thus credited to the project in the final evaluation year of 2027.

c) Cost and Benefits

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 cost of upgrading the gravel road to asphalt surface standard. These costs taken into account include the base cost for civil works plus the physical contingencies, consulting services for supervision of works and for project audit as indicated in Chapter 4. The financial contingencies, which do not constitute consumption of economic resources, are not taken into account.; and compensation costs paid to people whose properties are affected are not included as these are transfer costs with the flows netting out themselves. The benefits taken into account in the analysis include road user benefits which include voc benefits accruing to normal, diverted and generated traffic on the road; and travel time savings in the “with” and “without” project scenarios. Accidents cost benefits resulting from the road improvement have not been taken into account as the profile and frequency of accidents is not available. The details on the estimation of each category of benefit and the streams of costs and benefits over the evaluation period are in the Project Implementation Document (PID).

iii) Result of Cost Benefit Analysis

a) The Base Case Results of the Base Case Cost Benefit Analysis, on the basis of the realistic traffic forecast indicated an Economic Internal Rate of Return (EIRR) of 17.6% that is above the opportunity cost of capital of 12.0% for Uganda. The Base Case CBA results for the road sections and for the project road as a whole are as indicated here under. Detailed HDM – IV run results are in PID.

Annex 5 Page 4 of 4

Summary of Base Case Economic Evaluation Results

(US$ million, Year 2006 – 2007; discounted to 2004 @ 12.0%).

Road Section Estimated Economic

Investment Cost (2004)

NPV EIRR (%)

Kabala-Ikumba (19km) 7.557 9.689 27.0 Ikumba-Kisoro (65km) 24.787 6.866 14.7 Kisoro-Bunagana/Kyanika (14.4km) 5.171 2.903 18.7 Overall Project Road (98.7 km) 37.515 19.428 17.6

Source: ADF Appraisal Mission, June/July 2004.

b) Sensitivity Analysis & Switch Values

The base case result of EIRR of 17.6% for the overall project road was then tested for sensitivity to changes in the basic assumptions on construction costs and on traffic levels. The results given in the table hereunder indicated that in all cases, the project is satisfactorily robust with EIRR in each case higher than the threshold of 12.0% opportunity cost of capital for Uganda. In the worst case scenario of a combined 10% increase in costs and 10% decline in traffic, the project is still viable with and EIRR of 14.5% and a NPV of USD 8.71 million.

Sensitivity Analysis on Base Case

Scenarios EIRR %

NPV @ (USD million)

i) Base Case 17.6 19.43 ii) Construction Cost increased by 10.0% 16.3 16.7 iii) Traffic reduced by 10.0% 15.6 11.94 iv) Combined 10.0% increased cost and 10% decrease in traffic levels 14.5 8.71 In addition to the sensitivity tests above, “switch values” for construction costs and benefits have been calculated as part of economic viability analysis. The switch value for construction cost and for Road User Benefits, which would result in an EIRR of 12.0% or NPV of zero for the project, has been estimated. A more than 57.4% increase in construction cost indicated that the project would not be economically viable while a more than 14.3% reduction in road user benefits (traffic levels) will threaten project attractiveness. Traffic levels (Road User Benefits) constitute the most critical factor to watch. Since a medium traffic growth assumption has been used which is about half current growth rate of fuel sales and lower than current average growth of traffic on the national network of over 10%; likelihood of traffic dropping to this level is remote. Construction costs would also not go up to more than 57.4% as project cost estimates are based on detailed engineering design study and physical contingency provision of about 10.0% has been taken into account in the economic analysis over and above the base costs.

Switch Values for Construction Costs and Benefit

for EIRR of 12.0% and NPV = 0

Case Switch values for Construction Cost & Benefit (EIRR of 12.0%)

Switch Values for Construction Cost &

Benefit NPV = 0 USD million

Base Case – EIRR 17.6% 19.43 Construction Cost 57.4% 0.0 Road User Benefits -14.28% 0.0

Annex 6 Page 1 of 4

SUMMARY OF EXISTING BANK GROUP PORTFOLIO IN UGANDA AS AT 15 MARCH 2005

Project Name Source Approval Date Date of SignatureLoan/Grant Approved

(UA)

Undisbursed Balance (UA)

Amount Disbursed (UA)

Net Loan/Grant (UA)

Disbursement Ratio

Last Disbursement Status

A - Agriculture

COTTON GINNERIES ADB 11/21/1974 11/30/1974 4,800,000.00 0.00 4,149,065.45 4,149,065.45 100.00 06/30/1994 Completed

ERECTION OF TEA FACTORIES ADB 10/28/1976 03/14/1977 5,000,000.00 0.00 5,000,000.00 5,000,000.00 100.00 12/31/1981 Completed

RANCH REHABILITATION ADB 06/17/1980 06/26/1980 10,000,000.00 0.00 9,983,035.72 9,983,035.72 100.00 06/30/1994 Completed

COFFEE REHABILITATION ADF 06/17/1980 06/26/1980 7,368,416.00 0.00 7,368,416.02 7,368,416.02 100.00 07/01/1985 Completed

ERECTION OF TEA FACTORIES ADB 12/19/1980 01/23/1981 10,000,000.00 0.00 6,396,592.32 6,396,592.32 100.00 06/30/1994 Completed

COTTON GINNERIES (SUPPL. LOAN) ADB 06/23/1981 10/20/1981 7,800,000.00 0.00 7,800,000.00 7,800,000.00 100.00 06/30/1994 Completed

LUGAZI SUGAR PROJECT ADB 09/06/1982 11/08/1982 15,000,000.00 0.00 14,943,229.42 14,943,229.42 100.00 06/30/1994 Completed

SEEDS-FOOD CROPS STUDIES ADF 06/17/1985 07/26/1985 1,040,789.00 0.00 1,022,108.86 1,022,108.86 100.00 07/31/1994 Completed

DAIRY REHABILITATION ADF 06/17/1985 07/26/1985 12,903,939.00 0.00 8,193,007.68 8,193,007.68 100.00 12/31/1999 Completed

OLWENY SWAMP RICE IRRIGATION PROJECT ADF 12/22/1986 02/13/1987 15,657,884.00 0,00 14,926,333.89 14,926,333.89 100.00 06/30/2000 Completed

KAKIRA SUGAR REHABILITATION ADB 12/15/1987 03/11/1988 6,857,000.00 0.00 6,856,427.19 6,856,427.19 100.00 10/31/1998 Completed

KAKIRA SUGAR REHABILITATION ADF 12/23/1987 03/11/1988 7,338,021.00 0.00 7,337,067.27 7,337,067.27 100.00 10/31/1998 Completed

GRANT FOR ESTABLIS.AGRIC-FIN INST STUDY. ADF 11/22/1989 05/18/1990 276,153.00 0.00 212,689.86 212,689.86 100.00 12/31/1996 Completed

WHEAT AND BARLEY DEVELOPMENT STUDY ADF 12/18/1989 05/18/1990 2,634,209.00 0.00 2,537,548.09 2,537,548.09 100.00 12/31/1996 Completed

SEEDS INDUSTRY RATIONALISATION ADF 08/28/1991 05/12/1992 6,447,364.00 0.00 6,302,950.23 6,302,950.23 100.00 09/30/2000 Completed

KAKIRA OUTGROWERS SCHEME STUDY ADF 04/27/1993 05/13/1993 386,842.00 0.00 362,460.72 362,460.72 100.00 09/30/1997 Completed

SMALL SCALE AGRICULTURAL ADF 07/10/1993 10/08/1993 598,684.00 0.00 484,038.38 484,038.38 100.00 02/28/1998 Completed

LIVESTOCK PRODUCTION MASTER PLAN ADF 07/10/1993 10/08/1993 681,578.00 0.00 421,721.19 421,721.19 100.00 12/31/1998 Completed

FISHERIES MASTER PLAN STUDY ADF 11/24/1993 12/17/1993 543,421.00 0.00 349,535.73 349,535.73 100.00 12/31/2000 Completed NORTHWEST SMALLHOLDER AGRICULTURAL DEVELOPMENT ADF 12/15/1999 11/20/2000 17,600,500.00 15,626,629.9 1,973,870.06 17,600,500.00 11.21 12/31/2005 On going AREA-BASED AGRICULTURAL MODERNISATION PROGRAMME ADF 09/13/2000 05/30/2001 9,671,500.00 9,538,530.25 132,969.75 9,671,500.00 1.37 12/31/2005 On going

FISHERIES DEVELOPMENT PROJECT ADF 06/12/2002 11/14/2002 22,000,000.00 21,938,023.8 61,976.21 22,000,000.00 0.28 01/31/2008 On going

LIVESTOCK PRODUCTIVITY IMPROVEMENT PROJ. ADF 12/04/2002 06/02/2003 23,740,000.00 23,740,000.0 0.00 23,740,000.00 0.00 12/31/2008 On going

LIVESTOCK PRODUCTIVITY IMPROVEMENT PROJ. ADF 12/04/2002 06/02/2003 2,796,000.00 2,796,000.00 0.00 2,796,000.00 0.00 12/31/2008 On going

FARM INCOME ENHANCEMENT AND FOREST CONSE ADF 09/29/2004 31,570,000.00 0.00 0.00 0.00 0.00 On going

FARM INCOME ENHANCEMENT AND FOREST CONSE ADF 09/29/2004 9,850,000.00 0.00 0.00 0.00 0.00 On going

Annex 6 Page 2 of 4

Sector Subtotal 232,562,300.00 73,639,183.98 106,815,044.04 180,454,228.02 59.19

B - Industry and Mining

LAKE KATWE SALT PR0JECT ADB 10/14/1975 11/07/1975 3,500,000.00 0.00 3,500,000.00 3,500,000.00 100.00 12/31/1979 Completed

CEMENT INDUSTRIES REHABILITATION STUDIES ADF 11/19/1984 12/11/1984 1,114,473.00 0.00 1,022,002.23 1,022,002.23 100.00 12/31/1994 Completed

Project Name Source Approval Date Date of SignatureLoan/Grant Approved

(UA)

Undisbursed Balance (UA)

Amount Disbursed (UA)

Net Loan/Grant (UA)

Disbursement Ratio

Last Disburse-

ment Status

LAKE KATWE SALT STUDY ADF 07/10/1993 10/08/1993 469,736.52 0.00 435,762.33 435,762.33 100.00 06/30/1997 Completed

SHERATON KAMPALA HOTEL ADB 09/18/2002 11/20/2002 5,368,587.05 0.00 5,368,587.05 5,368,587.05 100.00 12/31/2003 Completed

Sector Subtotal 10,452,796.57 0.00 10,326,351.65 10,326,351.65 100.00

C – Transport

BUWAYO-BUSIA ROAD CONSTRUCTION ADB 11/22/1972 01/11/1973 1,000,000.00 0.00 725,154.05 725,154.05 100.00 12/04/1975 Completed

EQUATOR ROAD ADB 11/21/1978 12/16/1978 5,000,000.00 0.00 5,000,000.00 5,000,000.00 100.00 08/01/1983 Completed

EQUATOR ROAD (SUPPLEMENTARY LOAN) ADB 12/15/1983 03/09/1984 2,590,000.00 0.00 2,583,373.25 2,583,373.25 100.00 06/30/1994 Completed

REHABILITATION OF KAMPALA - JINJA ROAD ADF 10/29/1986 12/04/1986 14,442,095.00 0.00 13,320,800.56 13,320,800.56 100.00 12/31/1996 Completed

THREE ROADS STUDY ADF 06/26/1987 08/04/1987 1,344,736.00 0.00 1,278,447.97 1,278,447.97 100.00 03/31/1999 Completed

ISHAKA-KATUNGURU ROAD REHABILITATION ADF 01/18/1988 03/11/1988 9,698,678.00 0.00 7,587,161.15 7,587,161.15 100.00 06/30/1995 Completed

ENTEBBE AIRPORT (GRANT) ADF 06/12/1990 01/03/1991 1,482,894.00 0.00 0.00 0.00 0.00 06/30/1994 Completed

RAILWAYS STUDY (GRANT) ADF 06/12/1990 01/03/1991 274,700.00 0.00 273,914.73 273,914.73 100.00 12/31/1995 Completed

REHABIL.- IMPROVMENT OF PTA S.ROAD(GRAN) ADF 01/28/1991 05/12/1992 2,892,103.00 0.00 2,152,609.62 2,152,609.62 100.00 12/31/1997 Completed

RURAL FEEDER ROADS MAINTENANCE PROGRAMME ADF 10/30/1991 05/12/1992 18,052,619.00 0.00 11,237,468.44 11,237,468.44 100.00 06/30/2001 Completed

MAIN ROADS UPGRADING PROJECT (GAYAZA-KALAGIE) ADF 08/24/1992 05/13/1993 11,236,834.00 0.00 10,353,744.42 10,353,744.42 100.00 12/31/1998 Completed

STUDY OF THE CLASSIFIED ROAD NETWORK ADF 10/21/1993 12/17/1993 3,200,000.00 0.00 1,706,818.67 1,706,818.67 100.00 12/31/1998 Completed

KYOTERA-MUTUKULA UPGRADING PROJECT ADF 09/17/1998 01/12/1999 8,260,000.00 0.00 6,483,410.26 6,483,410.26 100.00 03/30/2004 Completed

ROADS MAINTENANCE AND UPGRADING PROJECT ADF 09/13/2000 05/30/2001 15,000,000.00 8,141,600.14 6,858,399.86 15,000,000.00 45.72 12/31/2004 On going

TRANSPORT SECTOR DEV PROG: KABALE-KISORO ADF 01/10/2003 01/10/2003 216,600.00 110,966.00 149092.69 216,600.00 68.82 03/31/2004 Completed

Sector Subtotal 94,691,259.00 8,252566.14 69666937.55 77,919,503.12 73.61

D - Public Utilities (Power, Water and Telecom)

WATER SUPPLY - SEWERAGE STUDIES ADB 03/27/1968 09/06/1968 300,000.00 0.00 236,598.00 236,598.00 100.00 06/30/1970 Completed

WATER SUPPLY SYSTEM IN 18 URBAN CENTERS ADB 08/29/1970 08/29/1970 3,000,000.00 0.00 2,868,012.61 2,868,012.61 100.00 12/31/1975 Completed

FIVE URBAN CENTERS WATER - DRAINAGE ADF 11/24/1983 03/09/1984 13,815,780.00 0.00 13,810,329.44 13,810,329.44 100.00 03/31/1996 Completed

K.B.O.REGIONAL TELECOMMUNICATION PROJECT ADF 12/22/1986 02/03/1987 5,305,260.00 0.00 4,704,739.63 4,704,739.63 100.00 06/30/1994 Completed

INSTITUTIONAL SUPPORT GRANT FOR UEB. ADF 05/15/1990 05/29/1990 4,469,865.00 0.00 4,298,672.50 4,298,672.50 100.00 06/30/2001 Completed

Annex 6 Page 3 of 4

EXTENSION OWEN FALLS GENERATING STATION ADB 08/27/1991 08/14/1992 15,000,000.00 0.00 0.00 0.00 0.00 07/31/1997 Completed

EXTENSION OWEN FALLS GENERATING STATION ADF 08/27/1991 05/12/1992 18,421,040.00 0.00 18,372,946.47 18,372,946.47 100.00 06/30/2000 Completed

MASTER PLAN STUDY FOR HYDROPOWER DEVELOPMENT ADF 10/21/1993 12/17/1993 1,460,000.00 0.00 475,223.52 475,223.52 100.00 12/31/1997 Completed

URBAN POWER REHABILITATION PROJECT ADF 11/06/1996 09/03/1997 18,000,000.00 6,264,964.99 11,735,035.01 18,000,000.00 65.19 12/30/2004 On going

RURAL TOWNS WATER SUPPLY AND SANITATION STUDY ADF 05/17/2000 05/29/2000 1,570,000.00 325,804.46 1,244,195.54 1,570,000.00 79.25 12/31/2004 completed ALT.ENERGY RESSOURCE ASSESS. AND UTILIZATION STUDY ADF 10/18/2000 11/20/2000 1,650,000.00 465,850.68 1,184,149.32 1,650,000.00 71.77 09/30/2004 On going

Small Towns Water Supply ADF 24/11/2004 01/12/2005 19,110,000.00 19,110,000.00 On going

Sector Subtotal 102,101,945.00 7,056,620.13 58,999548.38 85096522.17 57.78

Project Name Source Approval Date Date of Signature

Loan/Grant Approved

(UA)

Undisbursed Balance (UA)

Amount Disbursed (UA)

Net Loan/Grant (UA)

Disbursement Ratio

Last Disbursement Status

E- Finance

LINE OF CREDIT I ADB 03/26/1980 06/26/1980 10,000,000.00 0.00 9,724,913.12 9,724,913.12 100.00 06/30/1994 Completed

LINE OF CREDIT II ADB 11/22/1983 03/09/1984 20,000,000.00 0.00 19,974,035.59 19,974,035.59 100.00 06/30/1994 Completed

AGRICULTURE LINE OF CREDIT TO UCB ADF 11/25/1987 12/31/1987 13,815,780.00 0.00 12,021,505.18 12,021,505.18 100.00 12/31/1996 Completed

SMALL - MEDIUM SCALES ENTREPRISES DEVEL. ADB 11/21/1990 07/24/1991 20,000,000.00 0.00 16,123,087.95 16,123,087.95 100.00 12/31/1998 Completed

SMALL AND MEDIUM-SCALE ENTERPRISES DEV. ADF 11/21/1990 07/24/1991 9,671,046.00 0.00 31,922.08 31,922.08 100.00 12/31/1996 Completed

Sector Subtotal 73,486,826.00 0.00 57,875,463.92 57,875,463.92 100.00

F – Social

EDUCATION STUDY ADF 06/17/1985 07/26/1985 1,630,262.00 0.00 1,513,498.93 1,513,498.93 100.00 06/30/1997 Completed

THE MBALE HOSPITAL REHABILITATION PROJEC ADF 03/23/1987 06/11/1987 3,518,419.00 0.00 3,513,829.68 3,513,829.68 100.00 12/31/1997 Completed

MULAGO HOSPITAL REHABILITATION STUDY ADF 03/23/1987 06/11/1987 589,473.00 0.00 587,170.07 587,170.07 100.00 12/31/1995 Completed

HEALTH SERVICES REHABILITATION PROJECT NTF 12/18/1989 05/08/1991 5,000,000.00 0.00 4,833,325.43 4,833,325.43 100.00 06/30/2002 Completed

STRENG OF SCIEN - TECH TEACH EDUC PROJ ADF 08/28/1990 01/03/1991 14,184,201.00 0.00 11,678,162.24 11,678,162.24 100.00 09/30/2002 Completed

HEALTH SERVICES REHABILITATION PROJECT ADF 12/18/1990 05/08/1991 25,328,930.00 0.00 24,732,705.56 24,732,705.56 100.00 07/31/2002 Completed

POVERTY ALLEVIATION PROJECT ADF 08/31/1993 10/08/1993 9,210,520.00 0.00 9,210,520.00 9,210,520.00 100.00 12/31/1998 Completed

SECOND HEALTH SERVICES REHABILITION PROJECT ADF 10/21/1993 12/17/1993 24,500,000.00 0.00 19,126,910.72 19,126,910.72 100.00 12/31/2000 Completed

HEALTH SECTOR STUDIES ADF 10/21/1993 12/17/1993 2,800,000.00 0.00 1,709,169.26 1,709,169.26 100.00 06/30/2000 Completed

RURAL MICROFINANCE SUPPORT PROJECT (RMSP) ADF 11/24/1999 05/29/2000 13,100,000.00 8,696,306.71 4,403,693.29 13,100,000.00 33.62 12/31/2005 On going

RURAL MICROFINANCE SUPPORT PROJECT (RMSP) ADF 11/24/1999 05/29/2000 1,840,000.00 1,330,694.11 509,305.89 1,840,000.00 27.68 12/31/2005 On going

SUPPORT TO THE HEALTH SECTOR STRATEGIC PLAN ADF 09/13/2000 05/30/2001 30,000,000.00 20,823,796.8 9,176,203.19 30,000,000.00 30.59 06/30/2006 On going

SUPPORT TO THE HEALTH SECTOR STRATEGIC PLAN ADF 09/13/2000 05/30/2001 2,500,000.00 1,318,161.39 1,181,838.61 2,500,000.00 47.27 06/30/2006 On going

SUPPORT TO THE ESIP (EDUCATION II PROJECT) ADF 12/21/2000 05/30/2001 20,000,000.00 12,026,291.3 7,973,708.67 20,000,000.00 39.87 12/31/2006 On going

Annex 6 Page 4 of 4

SUPPORT TO THE ESIP (EDUCATION II PROJECT) ADF 12/21/2000 05/30/2001 2,380,000.00 2,217,239.04 162,760.96 2,380,000.00 6.84 12/31/2006 On going

Sector Subtotal 156,581,805.00 46,412,489.4 100,312,802.50 146,725,291.89 68.37

G - Multi-Sector

ECONOMIC RECOVERY LOAN ADF 05/27/1988 11/21/1988 27,631,560.00 0.00 27,523,456.96 27,523,456.96 100.00 06/30/1994 Completed

STRUCTURAL ADJUSTMENT PROGRAMME ADF 12/16/1991 01/23/1992 23,026,300.00 0.00 23,026,299.92 23,026,299.92 100.00 06/30/1994 Completed

SECOND STRUCTURAL ADJUSTMENT LOAN ADF 07/16/1997 09/03/1997 27,770,000.00 0.00 27,769,258.42 27,769,258.42 100.00 12/31/2001 Completed

INSTITUTIONAL SUPPORT TO EXTERNAL AID COORDINATION ADF 12/16/1998 01/12/1999 1,470,000.00 17,504.42 1,452,495.58 1,470,000.00 98.81 03/31/2004 On going

TECHNICAL ASSISTANCE - ILI- UGANDA ADF 05/15/2002 01/06/2003 150,000.00 402.56 149,597.44 150,000.00 99.73 12/31/2003 On going

POVERTY REDUCTION SUPPORT LOAN ADF 10/16/2002 06/02/2003 40,460,000.00 20,255,158.3 20,204,841.71 40,460,000.00 49.94 12/30/2004 On going

Institutional Support Project for Good Governance ADF 17/11/2004 01/18/2005 9,000,000.00 9,000,000.00 On going

Sector Subtotal 129,507,860.00 20,273,065.3 100,125,950.03 129,399,015.30 GRAND TOTAL 799,384,791.57 155,703,570.68 504,026,262.87 677,796,376.03 63.08

Annex 7

UGANDA

ROAD SECTOR SUPPORT PROJECT LIST OF ANNEXES IN PROJECT IMPLEMENTATION DOCUMENT (PID)

1. Uganda at a glance. 2. Project Maps. 3. Detailed Project Costing and Provisional List of Goods and Services. 4. Summary of Project Cost by Component. 5. Summary of Procurement Arrangements. 6. Project Implementation Schedule. 7. Supervision Plan. 8. Main Road Network and Vehicle Fleet. 9. Traffic Demand and Road User Prices. 10. Detailed Economic Analysis. 11. Road Accident Statistics 2002/03. 12. Geometric Design Standards for Roads. 13. Environmental and Social Impacts Assessment.

14. TOR – for Nyakahita -Ibanda- Fort Portal Road Study

15. TOR – for District Roads Study.

Annex 8 Page 1 of 2

UGANDA

ROAD SECTOR SUPPORT PROJECT

Terms-Of-Reference (Abridged) for Nyakahita-Ibanda-Fort Portal Road Study 1.0 Background

Fort Portal-Ibanda- Nyakahita road (208 km) traverses mainly flat and partially rolling terrain in western Uganda. It is a feeder road to the Northern Corridor and Trans African Highway, and also provides the shortest link to Kampala for traffic to and from the neighbouring districts. The road will compliment the efforts of IDA and EU in that region and densify the road network. The road is located in area that is fertile for the production of food and cash crops. Animal farming is also dominant in the area. These roads are in poor condition and require grading, spot gravelling and drainage re-instatement, as emergency measures. They are not all-weather roads.

2.0 Objectives of the Services

The objective of the services is to investigate and determine the technical, economic, environmental and social feasibility of upgrading the existing gravel roads of approximately 208 km between Nyakahita, Ibanda and Fort Portal towns, to all weather bitumen class II standard roads. The services are also to undertake detailed engineering designs depending on the results of the feasibility studies, and to prepare standard pre-qualification and bidding documents suitable for international competitive bidding for each of the packages.

3.0 Scope of Consultancy Services

The consultancy will be carried out for each package in two phases, namely: Phase I - Economic and Environmental Feasibility Study and Social Impact Assessments. Phase II - Detailed Engineering Design, Resettlement Action Plan (RAP) and production of pre-qualification and bidding documents. The progression of the consultancy from Phase I to Phase II in the case of each package will depend on the results of the Feasibility Study. If the results show that the package is not viable for the proposed upgrading, then Phase II shall not be undertaken. As such each phase of the consultancy for each package shall be costed separately. Authorization of Phase II will be given by RAFU based on the viability of the projects. The consultant shall review and perform all engineering, environmental, economic and financial analysis and related works described herein to attain the objectives stated in 1.0 above. In carrying out the consulting services, the consultant shall take into account the requirements of the financing institutions and in particular relating to the tender documents that shall be prepared. An Environmental and Social Impact Assessment (EIA & SIA) including the provision of the preliminary EIA mitigation plan, the preliminary Resettlement Action Plan (RAP)

Annex 8 Page 2 of 2

and the estimated costs of the mitigation plans shall be carried out for each road in accordance with the requirements of EIA formulation legislated by the GOU and in accordance with requirements of the Bank as part of the Phase I services.

4.0 Human Resource Inputs

In each phase, the Consultant is to supply resources sufficient to carry out all the services required. The resources will include, as a minimum but not necessarily limited to, the key staff shown below. The consultant is free to organize his/her resources as he/she wishes around the key personnel whose professional staff input is expected to be as follows:

Phase I : Nyakahita-Ibanda-Fort Portal Road - 34 Person months Phase II : Nyakahita-Ibanda-Fort Portal Road - 30 Person months The minimum requirements of these key staff are as indicated in Attachments. 5.0 Timing

The feasibility study and the detailed engineering design phases are each expected to require a period of 6 months to complete both roads, excluding a period of three months approximately for RAFU and the Bank to review and approve the submissions.

6.0 Reporting and Other Outputs

The consultant shall prepare and submit the following reports (all in English) to the client. Generally, the consultant will initially submit two copies of draft reports and documentation for comments by the client. The comments of the client shall be incorporated in the final version of the reports and documentation. All final reports and documentation shall have an original plus five copies and in addition, require an electronic copy. a) Inception Report (g) Progress Reports (h) Draft feasibility Study Report (i) Environment & Social Impact Assessment Reports (j) Feasibility Study Reports (k) Draft Detailed Design Reports

The Consultant is further required to prepare the documents in packages as follows: Package 1 : Nyakahita-Kazo road Package 2 : Kazo-Ibanda-Kamwenge Road Package 3 : Kamwenge-Fort Portal Road

(g) Final Detailed Design Reports

After approval of the draft detailed design reports, the consultant shall submit the final detailed design reports with sets of bidding documents, acceptable to the client and the financiers and in accordance with the packaging detailed in (f) above. The drawings that will form part of the bidding documents shall be in A1 size as well as reduced to A3 size.

Attachment 8

Page 1 of 2 Consultancy Services for the Feasibility Study and Detailed Engineering Design for the

Upgrading to Paved (Bitumen) Standard of Nyakahita-Ibanda-Fort Portal Road Budget Estimates (In US$)

1. Economic and Environmental Feasibility Study 1.1 Nyakahita-Ibanda-Fort Portal Road (208 km (Stage I)

No. Item Unit Unit

Cost Quantit

y Foreign (%)

Foreign Cost

Local Cost

Total Cost

A. Professional Fees 1. Team Leader Man Month 12,000 5.0 100 60,000 0 60,000 2. Road Design Engineer Man Month 10,000 6.5 100 65,000 0 65,000 3. Hydrologist Man Month 8,500 2.0 100 17,000 0 17,000 4. Senior Transport Economist Man Month 10,000 3.5 100 35,000 0 35,000 5. Material Engineer Man Month 8,500 3.0 100 25,500 0 25,500 6. Senior Surveyor Man Month 8,500 2.0 100 21,250 0 21,250 7. Environmental/Social Impact Specialist Man Month 7,500 7.3 100 54,375 0 54,375 8. Land Economist/Valuer Man Month 8,000 2.0 100 16,00 0 16,000 9. Contracts Engineer Man Month 9,000 2.0 100 18,000 0 18,000 Sub-Total 34.0 312,125 312,125 B. Support Staff 1. Technical Staff LS 55,880 1 0 0 55,880 55,880 2. Field & Office Staff LS 20,775 1 0 0 20,775 20,775

Sub-Total 76,655 76,655 C. Equipment 1. Computers No. 4,000 2 90 7,200 800 8,000 2. Photocopiers No. 2,500 1 90 2,250 250 2,500

Sub-Total 9,450 1,050 10,500 D. Travel, Communication & Accommodation

1. International Travel Trip 1,200 9 100 10,800 0 10,800 2. Communication LS 5,698 1 90 5,128 570 5,698 3. Subsistence - Consultant Night 40 790 90 28,450 3,161 31,611 4. Subsistence – Field Support Staff Night 24 129 90 2,777 309 3,086 5. Office Rent/

Accommodation Month 1,200 9 0 0 10,800 10,800

Sub-Total 47,156 14,840 61,995 E. Operational Expenses 1. Office Supplies LS 9,497 1 90 8,547 950 9,497 2. Vehicle Hire (4 No.) Day 120 690 0 0 82,800 82,800 3. Document Reproduction & Printing LS 8,000 1 90 7,200 800 8,000 4. Soils and Material Investigation LS 18,559 1 50 9,280 9,280 18,559 5. Hire of Survey Equipment &

Topographic Survey LS 40,066 1 90 36,060 4,007 40,066

6. Traffic, Valuation & Environmental LS 31,863 1 0 0 31,863 31,863 Sub-Total 61,087 129,698 190,785 T O T A L 429,817 222,243 652,060

Attachment 8 Page 2 of 2

Consultancy Services for the Feasibility Study and Detailed Engineering Design for the Upgrading to Paved (Bitumen) Standard of Nyakahita-Ibanda-Fort Portal Road

Budget Estimates (In US$)

1. Detailed Engineer Design 1.1 Nyakahita-Ibanda-Fort Portal Road – (208 km (Stage II)

No. Item Unit Unit Cost

Quantity Foreign (%)

Foreign Cost

Local Cost

Total Cost

A. Professional Fees 1. Team Leader Man Month 12,000 5.0 100 60,000 0 60,000 2. Road Design Engineer Man Month 10,000 5.8 100 57,500 0 65,000 3. Hydrologist Man Month 8,500 1.5 100 12,750 0 17,000 4. Senior Transport

Economist Man Month 10,000 0.5 100 5,000 0 35,000

5. Material Engineer Man Month 8,500 2.5 100 21,250 0 25,500 6. Senior Surveyor Man Month 8,500 4.5 100 38,250 0 21,250 7. Environmental/Social

Impact Specialist Man Month 7,500 4.8 100 35,625 0 54,375

8. Land Economist/Valuer Man Month 8,000 3.5 100 28,000 0 16,000 9. Contracts Engineer Man Month 9,000 2.0 100 18,000 0 18,000 Sub-Total 30.0 276,375 276,375 B. Support Staff 1. Technical Staff LS 53,280 1 0 0 53,280 53,280 2. Field & Office Staff LS 20,775 1 0 0 20,775 20,775

Sub-Total 74,055 74,055 C. Equipment 1. Computers No. 4,000 2 90 0 0 0 2. Photocopiers No. 2,500 1 90 0 0 0

Sub-Total 0 0 0 D. Travel, Communication & Accommodation

1. International Travel Trip 1,200 9 100 10,800 0 10,800 2. Communication LS 5,114 1 90 4,602 511 5,114 3. Subsistence - Consultant Night 40 709 90 25,532 2,837 28,369 4. Subsistence – Field Support

Staff Night 24 150 90 3,231 359 3,590

5. Office Rent/ Accommodation

Month 1,200 9 0 0 10,800 10,800

Sub-Total 44,166 14,507 58,673 E. Operational Expenses 1. Office Supplies LS 8,523 1 90 7,671 852 8,523 2. Vehicle Hire (4 No.) Day 120 600 0 0 72,000 72,000 3. Document Reproduction &

Printing LS 8,000 1 90 7,200 800 8,000

4. Soils and Material Investigation

LS 14,276 1 50 7,138 7,138 14,276

5. Hire of Survey Equipment & Topographic Survey

LS 35,957 1 50 7,138 7,138 14,276

6. Traffic, Valuation & Environmental

LS 102,631

1 0 0 102,631 102,631

Sub-Total (Detailed Study) 360,528 289,962 650,490 Sub-Total (Feasibility Study) 429,817 222,243 652,060

GRAND TOTAL 790,316 512,205 1302,550 UA 547,592 354,882 902,474

Annex 9 Page 1 of 3

UGANDA

ROAD SECTOR SUPPORT PROJECT

Terms-Of-Reference (Abridged) for District Roads Study 1.0 Background The District Roads Rehabilitation Study has been conceived out of the

Government’s Ten-Year District Roads Investment Programme (TYDRIP), which has been supported by donors for re-gravelling of prioritized feeder roads (see section 3.5.2). It is focused on nationwide rehabilitation, improvement and maintenance of district roads with an aim of providing accessibility to social services, markets and administrative centers. This in turn, will lead to economic growth and reduce poverty of Ugandan population. The Feasibility study on the entire 56 district road networks has been financed under IDA credit, and it has been completed satisfactorily. As part of the Bank’s contribution to the programme, there is need to finance a more detailed study in 12 districts of Southern and Western Uganda on 2,105 km of prioritized district roads.

2.0 Objective of the Study

The objectives of the study are: i) Preserve and improve the condition of the district roads in totalling 2,105 km

in the following districts:

i) Bundibugyo ii) Bushenyi iii) Kabale iv) Kabarole v) Kamwenge vi) Kanungu vii) Kasese viii) Kisoro ix) Kyenjojo x) Mbarara xi) Ntungamo xii) Rukungiri

ii) Increase access to productive areas, and social and administrative centers iii) Improve incomes of the rural population in the project area through improved

marketing and agri-processing infrastructure. iv) Build up capacity of the small scale local contracting industry.

Annex 9 Page 2 of 3

3.0 Scope of consultancy Services The consultant shall review all available documentation and information prepared by

earlier programmes and projects for District Roads reconstruction, rehabilitation and maintenance carried out by Government, or with assistance of Uganda’s development partners. In particular he shall review the studies conducted for the TYDRIP. He shall perform engineering work, including field investigations, detailed designs, and prepare environmental and social studies deemed to be required for achieving the objectives mentioned above.

The Consultant shall prepare an environment and Social Impact Assessment (EIA &SIA)

including the provision of the preliminary EIA mitigation plan, preliminary Resettlement Action Plan (RAP) where necessary and the estimated costs of the mitigation plans shall be carried out for each road in accordance with the requirements of EIA formulation legislated by the Government of Uganda and in accordance with requirements of the ADF as part of the services.

3.1 Phase I: Feasibility Study (this was undertaken earlier) In this study, the Consultant shall only review and acquaint him/herself with the previous

feasibility study which formed the basis for the TYDRIP. 3.2 Phase II Detailed Engineering Design, Environmental Impact Assessment (EIA), social

impact assessment (SIA) and preparation of Bidding Documents 4.0 Human Resource Inputs In this phase, the Consultant is to supply resources sufficient to carry out all the services

required. The consultant is free to organize his/her resources as he/she wishes around the key personnel whose professional staff input is expected to be as follows:

Phase II: 32 man months (see Attachment 9) 5.0 Timing The study which includes the review of the previous feasibility study is expected to

require a period of 9 months to complete all the roads. The required man months are expected to total 30.0.

6.0 Reporting and Other Outputs The Consultant shall prepare and submit the following reports (all in English) to the

client. Generally, the consultant will initially submit three copies of draft reports and documentation for comments by the client. The comments of the client shall be incorporated in the final version of the reports and documentation. All final reports and documentation shall have an original plus five copies and in addition, require an electronic copy.

Annex 9 Page 3 of 3

These reports are: a) Inception Report b) Progress Report c) Environment & Social Impact Assessment Reports d) Draft Detailed Design Reports e) Final Detailed Design Reports

(e) Final Detailed Design Reports After approval of the draft detailed design reports, the consultant shall submit the

final detailed design reports with sets of bidding documents, acceptable to the client and the financiers and in accordance with the packaging detailed in (l) above. The drawings that will form part of the bidding documents shall be in A1 size as well as reduced to A3 size.

Attachment 9

Regravelling of Roads in Twelve districts of Southern and Western Uganda Consultancy Services for the Feasibility Study and Detailed Engineering Design for the

Regravelling of District Roads in Twelve Districts of Southern and Western Uganda Budget Estimates (In US$)

Detailed Engineering Design No. Item Unit Unit

Cost Quantity Foreign (%)

Foreign Cost

Local Cost

Total Cost

A. Professional Fees 1. Team Leader/Senior

Highway Engineer Man Month 12,000 9.0 100 108,000 0 108,000

2. Structure Engineer/Hydrologist

Man Month 8,500 5.0 100 42,500 0 42,500

3. Transport Economist/Planner

Man Month 10.000 2.0 100 20,000 0 20,000

4. Senior Road Engineer/Materials Engineer

Man Month 8,500 9.0 100 76,500 0 76,500

5. Environmental/Social Impact Special

Man Month 7,500 5.0 100 37,500 0 37,500

6. Senior Surveyor Man Month 8,500 2.0 100 17,000 0 17,000 Sub-Total 32.0 100 301,150 0 301,500 B. Support Staff 1. Technical Staff LS 55,530 1 0 0 55,530 55,530 2. Field & Office Staff LS 15,000 1 0 0 15,000 15,000

Sub-Total C. Equipment 1. Computers No. 4,000 0 90 0 0 0 2. Photocopiers No. 2,500 0 90 0 0 0

Sub-Total 0 0 0 D. Travel, Communication & Accommodation

1. International Travel Trip 1,200 5 100 6,000 0 6,000 2. Communication LS 7,600 1 90 6,840 760 7,600 3. Subsistence - Consultant Night 40 589 90 21,204 2,356 23,560 4. Subsistence – Field Support

Staff Night 24 100 90 2,160 240 2,400

5. Office Rent/Accommodation Month 1,200 9 0 0 10,800 10,800 Sub-Total 36,204 14,156 50,360

E. Operational Expenses 1. Office Supplies LS 13,000 1 90 11,700 1,300 13,000 2. Vehicle Hire (4 No.) Day 120 270 0 0 32,400 32,400 3. Document Reproduction &

Printing LS 16,000 1 90 14,400 1,600 16,000

4. Soils and Material Investigation

LS 18,000 1 50 9,000 9,000 18,000

5. Hire of Survey Equipment & Topographic Survey

LS 40,000 1 50 20,000 20,000 40,000

6. Traffic, Valuation & Environmental

LS 16,000 1 0 0 16,000 16,000

Sub-Total 55,100 80,300 135,400 T O T A L 392,804 164,986 557,790

In UA 272,154 114,312 386,465

Annex 10 UGANDA

Road Sector Support Project

Project Preparation, Review and Donor Consultative Process

Date Activities Organizations

1992- 2000 Project Identification: The Bank identified Kabale-Kisoro Bunagana Kisoro road along with six other roads in 1992 under the Preferential Trade Areas. The feasibility studies and detailed engineering designs of the road were carried out with TAF resources between 1993 and 1996. In September 2000, GOU requested for the Bank’s financial assistance for the upgrading of this road. The project identification was discussed with the principaldonors in the sector in March 2000.

ADF/GOU ADF/ IDA, EU, DANIDA & DFID

March 2002 - June 2004

Project Preparation: The project was prepared in March 2002 by a team of experts. The road was found to be economically viable, but social and environmental and some technical issues needed to be updated. At the request of the Government, the Bank approved a PPF Advance on 10th January 2003 to review and update all documentation of the road project. The Design review was substantially completed in June 2004 by a consultant. The project preparation was done in consultation with theprincipal donors in the sector in March 2002.

ADF/GOU ADF/ IDA, EU, DANIDA, JICA & DFID

June- September 2004

Project Appraisal: The project was appraised in June/July2004 by a team. The draft loan/grant conditions werediscussed and agreed on with the Government. In thecourse of the appraisal mission, some additionalinformation was required on the Resettlement Action Plan(RAP) and received in September 2004. ESIA Summarytranslated and posted on the website on 27 September 2004(English version) & 6 October 2004 (French version) anddistributed to the Board. The project appraisal was further discussed with available principal donors in the sector in July 2004.

ADF/GOU ADF/ EU, DANIDA and JICA

November- December 2004

Loan/Grant Negotiations: The negotiations took place in Kampala, Uganda on 6 and 7 December 2004

ADF/GOU

February 2005 Board Approval The Board presentation is scheduled for 16 February 2005.

ADF

Annexe

CONFIDENTIAL

AFRICAN DEVELOPMENT FUND ADF/BD/WP/2004/181/Rev.1/Add.1 14 April 2005 Prepared by: ONIN/GECL Original: English

Probable Date of Board Presentation: 27 April 2005

FOR CONSIDERATION

MEMORANDUM

TO: THE BOARD OF DIRECTORS

FROM: Cheikh I. FALL Secretary General

SUBJECT: UGANDA: PROPOSAL FOR AN ADF LOAN OF UA 27.01 MILLION AND AN ADF GRANT OF UA 1.49 MILLION TO FINANCE THE ROAD SECTOR SUPPORT PROJECT

ADDENDUM – ENGLISH ONLY*

Please find attached as addendum, the “Comparative Socio-economic Indicators” page, which was inadvertently omitted from the Appraisal Report relating to the above-mentioned project.

Attach.

Cc.: The President

*Questions on this document should be referred to: Mr. G. BEDOUMRA Director ONIN Ext. 2040 Mr. J. RWAMABUGA Division Manager ONIN.3 Ext. 2181 Mr. A. BABALOLA Transport Engineer ONIN.3 Ext. 2525 Mr. M. AJIJO Transport Economist ONIN.3 Ext. 3110 Mr. I. SAMBA Environmentalist ONIN.0 Ext. 2657 Mrs. M. KEI-BOGUINARD Legal Counsel GECL.1 Ext. 2418

SCCD: W. A. A.

Year Uganda AfricaDevelo-

pingCountries

Develo-ped

CountriesBasic Indicators Area ( '000 Km²) 241 30 061 80 976 54 658Total Population (m illions) 2002 25.0 831.0 5,024.6 1,200.3Urban Population (% of Total) 2002 14.0 38.6 43.1 78.0Population Density (per Km²) 2002 103.7 27.6 60.6 22.9GNI per Capita (US $) 2002 240 650 1 154 26 214Labor Force Participation - Total (% ) 2002 48.0 43.1 45.6 54.6Labor Force Participation - Female (% ) 2002 47.7 33.8 39.7 44.9Gender -Related Development Index Value 2001 0.483 0.484 0.655 0.905Human Develop. Index (Rank among 174 countries) 2001 147 n.a. n.a. n.a.Popul. Living Below $ 1 a Day (% of Population) 1992 36.7 46.7 23.0 20.0

Demographic IndicatorsPopulation Growth Rate - Total (% ) 2002 3.2 2.2 1.7 0.6Population Growth Rate - Urban (% ) 2002 6.2 3.9 2.9 0.5Population < 15 years (% ) 2002 52.0 43.2 32.4 18.0Population >= 65 years (% ) 2002 2.6 3.3 5.1 14.3Dependency Ratio (% ) 2002 110.8 86.6 61.1 48.3Sex Ratio (per 100 female) 2002 98.8 98.9 103.3 94.7Female Population 15-49 years (% of total population) 2000 … 24.0 26.9 25.4Life Expectancy at Birth - Total (years) 2002 46.2 50.6 62.0 78.0Life Expectancy at Birth - Female (years) 2002 46.9 51.7 66.3 79.3Crude Birth Rate (per 1,000) 2002 50.7 37.3 24.0 12.0Crude Death Rate (per 1,000) 2002 16.7 15.3 8.4 10.3Infant Mortality Rate (per 1,000) 2002 86.1 81.9 60.9 7.5Child Mortality Rate (per 1,000) 2002 147.0 135.6 79.8 10.2Maternal Mortality Rate (per 100,000) 1995 550 641 440 13Total Fertility Rate (per woman) 2002 7.1 4.9 2.8 1.7Women Using Contraception (% ) 1998 15.0 40.0 59.0 74.0

Health & Nutrition IndicatorsPhysicians (per 100,000 people) 1993 4.0 57.6 78.0 287.0Nurses (per 100,000 people) 1989 14.5 105.8 98.0 782.0Births attended by Trained Health Personnel (% ) 1995 38.0 38.0 56.0 99.0Access to Safe Water (% of Population) 2000 50.0 60.3 78.0 100.0Access to Health Services (% of Population) 1988 71.0 61.7 80.0 100.0Access to Sanitation (% of Population) 2000 75.0 60.5 52.0 100.0Percent. of Adults (aged 15-49) Living with HIV/AIDS 2001 5.0 5.7 1.3 0.3Incidence of Tuberculosis (per 100,000) 2000 130.4 198.0 144.0 11.0Child Immunization Against Tuberculosis (% ) 2002 96.0 76.4 82.0 93.0Child Immunization Against Measles (% ) 2002 77.0 67.7 73.0 90.0Underweight Children (% of children under 5 years) 1995 25.5 25.9 31.0 …Daily Calorie Supply per Capita 2001 2 398 2 444 2 675 3 285Public Expenditure on Health (as % of GDP) 1998 1.9 3.3 1.8 6.3

Education Indicators Gross Enrolment Ratio (% ) Primary School - Total 2000 140.9 89.2 91.0 102.3 Primary School - Female 2000 136.1 83.7 105.0 102.0 Secondary School - Total 1999 12.0 40.8 88.0 99.5 Secondary School - Female 2000 12.0 38.2 45.8 100.8Primary School Female Teaching Staff (% of Total) 1994 32.0 49.9 51.0 82.0Adult Illiteracy Rate - Total (% ) 2002 31.2 37.9 26.6 1.2Adult Illiteracy Rate - Male (% ) 2002 21.3 29.2 19.0 0.8Adult Illiteracy Rate - Female (% ) 2002 40.8 46.4 34.2 1.6Percentage of GDP Spent on Education 1998 2.6 3.5 3.9 5.9

Environmental IndicatorsLand Use (Arable Land as % of Total Land Area) 2002 25.3 6.2 9.9 11.6Annual Rate of Deforestation (% ) 1995 0.9 0.7 0.4 -0.2Annual Rate of Reforestation (% ) 1981-90 … 4.0 … …Per Capita CO2 Emissions (metric tons) 1998 0.1 1.1 1.9 12.3

Source : Compiled by the Statistics Division from ADB databases; UNAIDS; World Bank Live Database and United Nations Population Division.Notes: n.a. Not Applicable ; … Data Not Available.

COM PARATIVE SOCIO-ECONOM IC INDICATORSUganda

Infant Mortality Rate ( Per 1000 )

0

20

40

60

80

100

120

1994

1995

1996

1997

1998

1999

2000

2001

2002

Uganda Africa

GNI per capita US $

0

200

400

600

800

1994

1995

1996

1997

1998

1999

2000

2001

2002

Uganda Africa

Population Grow th Rate (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1994

1995

1996

1997

1998

1999

2000

2001

2002

Uganda Africa

111213141516171

1994

1995

1996

1997

1998

1999

2000

2001

2002

Uganda Africa

Life Expectancy at Birth (Years)

CONFIDENTIAL

AFRICAN DEVELOPMENT FUND ADF/BD/WP/2004/181/Rev.1/Add.2 27 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: UGANDA: PROPOSAL FOR A SUPPLEMENTARY ADF LOAN OF UA 32.99 MILLION TO FINANCE THE ROAD SECTOR SUPPORT PROJECT

SUPPLEMENTARY LOAN*

Please find attached a request for a supplementary loan for the above-mentioned project, which was approved by the Board in April 2005 (document ADF/BD/WP/2004/181/Rev.1).

The request has become necessary because the procurement process for the civil works of Kabale – Kisoro – Bunagana/Kyanika road has led to tender prices much higher than the appraisal estimate, due partly to a considerable global increase in the prices of various inputs required for the construction.

Consequently, the Government of Uganda requested the Bank in August 2006, for a supplementary loan in order to implement the project as initially conceived.

Attach.

Cc.: The President

* Questions on this document should be referred to: Mr. G. MBESHERUBUSA Director OINF Ext. 2034 Mr. J. RWAMABUGA Division Manager OINF.2 Ext. 2181 Mr. A. BABALOLA Senior Transport Engineer OINF.2 Ext. 2525 Mr. M. AJIJO Principal Transport Economist OINF.2 Ext. 3110 Mr. P. STURMHEIT Senior Transport Engineer OINF.1 Ext. 3667 Mr. D. GEBREMEDHIN Principal Transport Economist OINF.2 Ext. 3684

SCCD: W. A. A.

AFRICAN DEVELOPMENT FUND

UGANDA

ROAD SECTOR SUPPORT PROJECT

SUPPLEMENTARY LOAN

INFRASTRUCTURE DEPARTMENT (OINF) SEPTEMBER 2006

TABLE OF CONTENTS

Page EQUIVALENTS AND ABBREVIATIONS, LIST OF ANNEXES, (i-iv) UPDATED PROJECT MATRIX 1. INTRODUCTION 1 2. THE INITIAL PROJECT 1 2.1 Objectives and Description of Components 1 2.2 Initial Cost and Financing Conditions 2 2.3 Initial Loan Conditions 4 2.4 Project Implementation Status 6 3 THE PROJECT AT RE-APPRAISAL AND THE SUPPLEMENTARY

LOAN 7 3.1 Objectives and Description 7 3.2 Revised Project Cost Estimates 7 3.3 Sources of Finance 9 3.4 Revised Implementation Schedule 10 3.5 Revised Expenditure Schedule 10 3.6 Environmental and Social Impact Assessment 11 3.7 Executing Agency 11 3.8 Procurement Arrangements 12 3.9 Disbursement Arrangements 12 4. . BANK’S POLICY AND STRATEGIC CONTEXT 12 5. TECHNICAL AND ECONOMIC JUSTIFICATION 12 5.1 Technical Justification 12 5.2 Economic Analysis 14 6. CONCLUSIONS AND RECOMMENDATION 17 6.1 Conclusions 17 6.2 Recommendation 17

i

EQUIVALENTS AND ABBREVIATIONS

CURRENCY EQUIVALENTS (July 2004 / September 2006 Exchange Rates)

Currency Unit = Uganda shilling (UGX) 1 UA = UGX 2774.82 / 2753.88 1 UA = USD 1.44331 / 1.45725 1 USD = UGX 1922.54 / 1889.78 WEIGHTS AND MEASURES 1 metric tonne (t) = 2,205 lbs 1 kilogramme (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 FISCAL YEAR July 1 - June 30

ABBREVIATIONS

AADT = Annual Average Daily Traffic ADB = African Development Bank ADF = African Development Fund B-CR = Benefit Cost Ratio DBST = Double Bitumen Surface Treatment DRC = Democratic Republic of Congo EIRR = Economic Internal Rate of Return ESAL = Equivalent Standard Axle Load ESIA = Environmental & Social Impact Assessment GOU = Government of Uganda HDM = Highway Development and Management Tool ICB = International Competitive Bidding IDA = International Development Association (World Bank) IFC = International Finance Corporation kph = Kilometre Per Hour MFPED = Ministry of Finance, Planning and Economic Development MoWT = Ministry of Works, and Transport NEMA = National Environmental Management Authority NGO = Non Governmental Organization NPV = Net Present Value PPF = Project Preparation Facility RAFU = Road Agency Formation Unit RSDP = Road Sector Development Programme TSIREP = Transport Sector Investment and Recurrent Expenditure Programme UA = Unit of Account UNRA = Uganda National Roads Authority VOC = Vehicle Operating Costs

ii

LIST OF TABLES 2.1(a) Initial Project Costs Estimates by Component – Civil works 2.1(b) Initial Project Costs Estimates by Component – Studies 2.2 Initial Project Costs Estimates by Category – Civil works 2.3 Initial Overall Project Cost by Source of Finance 3.1 Revised Project Cost Estimates by Components – Civil Works 3.2 Comparative Analysis between Initial and Revised Cost Estimates – Civil works 3.3 Revised Financing Plan by Source – Civil works 3.4 Revised Expenditure Schedule by Component – Civil works 3.5 Revised Expenditure Schedule by Category 3.6 Revised Expenditure Schedule by Source of finance 5.1 Summary of Economic Analysis 5.2 Sensitivity Analysis (% EIRR) 5.3 Switch Values for Construction Costs and Benefits for EIRR of 12% and NPV=0

LIST OF ANNEXES

Annex 1 : Project Location Map Annex 2 : Revised Project Implementation Schedule Annex 3 : Provisional List of Works and Services Annex 4 : Economic Analysis Annex 5 : Recent Road Unit Cost for Works in Africa (2006)- Bank Funded Annex 6 : International Price Indices for Some Construction Materials and Equipment

iii

UGANDA ROAD SECTOR SUPPORT PROJECT

RESULTS BASED MATRIX- ADF LOAN

PROJECT TEAM : A. BABALOLA/ M. AJIJO / P. STURMHEIT / D.GEBREMEDHIN Hierarchy of Objectives Expected Results Reach Performance Indicators

Source/Method Indicative Targets

Timeframe Assumptions/ Risks

1.Sector Goal 1.1. To contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country

Long Term Outcomes 1.1Improved accessibility to all areas of the country 1.2 Improved socio-economic welfare conditions in the country 1.3 Increased Traffic safety. 1.4 Improved health of the people .

1.1 Rural population in inaccessible areas of Uganda. 1.2 Road Users

1.1. Percentage of roads in satisfactory condition 1.2 Reduced Human Poverty Index (HPI) 1.3 Reduced Accident rate/1000 vehicles 1.4 Increased HIV/AIDS awareness rate improved Sources : 1.1 Annual road construction and pavement evaluation statistics 1.2 Transport and Road Statistics of Uganda Bureau of Statistics. 1.3 UNDP –Uganda Human Development Report 1.4 Uganda National Household Survey/ Bureau of Statistics Methods: Statistics from Uganda annual traffic data; national statistics

1.1 Inventory of all-weather roadsproviding accessibility increased from 66% in 2004 to at least 80% in 2009. 1.2 HPI reduced from 38.5% in 2004 to at least 15% by 2015 in Kabale and Kisoro districts 1.3 Accident rates per 1000vehicles reduced from 81.3 in 2004 to 41.6 in 2009 1.4HIV/AIDS awareness rate improved from 92% in 2003 to 98% in 2009 in the road corridor

1.1 GOU’s commitment to the full implementation of the transport sector reforms and Programmes. 1.2 Political and economic stability in the region.

2. Project Objective 2.1 To reduce transport cost and

travel time between Kabale and Kisoro districts and promote regional integration with DRC and Rwanda.

2.2 To prepare road projects to

enhance accessibility in the South-western region of Uganda.

Medium Term Outcomes 2.1 Reduced road transportation cost, Vehicle Operating Costs (VOCs), travel time and accessibility. 2.2 All weather road infrastructure and improved access to social services

Beneficiaries 2.1Rural communities in the zone of influence of the road. Road users

Indicators 2.1 Reduced VOCs per vehicle-km 2.2 Reduced average travel time cost per vehicle-km between key centers. 2.3 Increased Average Annual Daily Traffic on the corridor. Source/Method: National Statistics

Target Indicators 2.1 Reduced composite VOCs per vehicle-km from US$ 1.449 in 2007 to US$ 0.671 in 2010. 2.2 Reduced composite travel time cost per vehicle-km from US$ 0.013 in 2007 to US$ 0.004 in 2010. 2.3. AADT on the entire road increased by 35.9% from weighted average of 390 in 2006 to 529 in 2010.

Assumptions 2.1 TSIREP estimates for recurrent expenditure are met by GOU. 2.2 RAFU is transformed into a Road Authority to implement annual road network programme as scheduled. 2.3 GOU implements measures to augment tax revenue and improve tax collection including road user fees.

iv

3. Activities A. Implementation of the project(civil works)

Project Costs (UA million)

SOURCES OF FINANCING FOR SUPPLEMENTARY LOAN)

Component Appraisal

Re-Apprai

sal Difference

Civil works- 24.42 56.90

32.48 Consulting Services

supervision 1.47 1.47

0.00 - Audit 0.10 0.10

0.00

Resettlement 1.71 1.71

0.00 Base Cost –Road Upgrading 27.70 60.18

0.00

* Physical Contingency (10%) 2.60 5.85

32.48 Price Contingency (8%) 1.59 4.81

6.47 Total Cost- Road works

31.89 70.84 38.95

Source Total

ADF 32.99

GOU 5.96

TOTAL 38.95

Short Term Outputs 3.1 A two lane asphalt concrete road with 6.0 m wide carriageway and two 1.5 m shoulders from Kabale to Bunagana with a spur to Kyanika constructed.

Beneficiaries 3.1 Remote communities 3.3 Road users

Indicators 3.1 Length of road upgraded. Source/Methods: Appraisal Report, Quarterly Reports, Bank Supervision reports, Audit reports, Mid-term review.

Target Indicators 3.1 98.7 km of asphalt concrete paved road between Kabale and Bunagana/ Kyanika completed by 2010.

Assumptions 3.1 All procurement actions are on schedule and in accordance with respective Bank rules and procedures. 3.2 Effective supervision by the Bank and Consultants for civil works and auditing.

1. INTRODUCTION 1.1 The Government of Uganda (GOU) is pursuing the implementation of the 10-Year Road Sector Development Programme (RSDP2 2001/2011), whose aim is to contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country. Under the RSDP2, GOU retained a key road (Kabale – Kisoro – Bunagana/Kyanika road) in the core national road network to be upgraded from gravel to bituminous standard, and studies to be conducted on one major link road (Nyakahita-Ibanda-Fort Portal Road) to unlock areas of agricultural potential and 12 Districts road studies to improve accessibility of the rural population to the main road network. 1.2 As part of the Government’s strategy for the actualization of the Programme, GOU requested for Bank’s financial assistance to support the road sector in respect of the identified project components. The project was appraised in July 2004 and the Bank approved an ADF loan of UA 27.01 million and ADF grant of UA 1.49 million for the implementation of the Road Sector Support Project in April 2005. 1.3 The ADF loan agreement was signed on 19th May 2005 (Loan No. 2100150009644 and Grant No. 2100155004668) and the loan became effective on 24th July 2006. Disbursement deadline for the loan is 31st December 2010 and 31st December 2007 for the grant. The procurement process for the civil works of Kabale – Kisoro – Bunagana/Kyanika road has led to tender prices much higher than the appraisal estimate. This is due to a number of reasons but mainly to a considerable global increase in the prices of various inputs required for road construction such as bitumen, cement and steel, as the manufacture of these items is highly dependent on oil. Having realized that the financing gap could not be closed using own resources, GOU requested the Bank in August 2006 for a supplementary loan in order to implement the project as initially conceived. 1.4 Upon GOU’s request, the Bank fielded a mission from 13th to 23rd September 2006 to re-appraise the project with a view to securing a supplementary loan to cover the project cost-overrun. This memorandum is based on the findings of the mission. 2. THE INITIAL PROJECT 2.1 Objectives and Description of Components 2.1.1 Objectives: At sectoral level, the goal of the project is to contribute towards poverty reduction by improving sustainable road access to all rural and urban areas of the country. The primary project objectives are to reduce transport costs and travel time between Kabale and Kisoro districts, promote regional integration with DRC and Rwanda and to prepare road projects to enhance accessibility in the Southwestern region of Uganda. 2.1.2 Description of Components: As appraised in 2004, the project outputs consisted of:

i) A two-lane asphalt concrete road with 6.0 m wide carriageway and two 1.5 m shoulders

from Kabale to Bunagana with a spur to Kyanika (98.7 km) constructed. ii) Feasibility and detailed engineering reports/tender documents on Fort Portal-Ibanda –

Nyakahita Road (208 km) in the South-western part of Uganda. iii) Detailed Engineering Reports for rehabilitation of district roads in 12 districts in the

Southwestern part of Uganda.

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iv) Design Review Report for Kabale to Bunagana/Kyanika Road. V) Resettlement of the affected people 2.2 Initial Cost and Financing Conditions

Initial Cost

2.2.1 The overall project cost estimate at appraisal, net of all taxes and duties was UA 33.47 million (UGX 92.87 billion), which was made up of UA 23.80 million (71.28%) in foreign exchange cost and UA 9.67 million (28.72%) in local cost. The estimated project cost was based on rates from contracts awarded in the country prior to July 2004. A provision of 10% was made to accommodate physical contingency and another 3% and 5% per annum were made for price escalation for foreign and local costs respectively. An amount of UA 1.47 million, representing 6% of the base cost for the civil works, and derived using man-month method had been set aside for supervision consultancy services. Another amount of UA 1.49 million was set aside to cover the feasibility and detailed engineering studies for Nyakahita-Ibanda-Fort Portal Road and District Roads, and re-financing of the PPF Advance for the design-review consultancy services. A lump sum amount of UA 0.10 million had been incorporated for consultancy services required for audit of the project. The cost of resettlement had been estimated as UGX 4.75 billion (UA 1.71 million). 2.2.2 The initial project cost estimates exclusive of taxes are summarized below in Table 2.1.

Table 2.1(a): Initial Project Cost Estimates by Component–Civil Works

Component UGX billions UA millions

Foreign Exchange

Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

A Civil works- Kabale-Bunagana/ Kyanika Road 50.81 16.95 67.76 18.31 6.11 24.42

B Consulting Services

-Supervision 3.66 0.42 4.08 1.32 0.15 1.47

- Audit 0.28 - 0.28 0.10 - 0.10

C Resettlement - 4.75 4.75 - 1.71 1.71

Base Cost –Road Upgrading 54.75 22.12 76.87 19.73 7.97 27.70

* Physical Contingency (10%) 5.47 1.74 7.21 1.97 0.63 2.60

Price Contingency 2.86 1.55 4.41 1.03 0.56 1.59

Total Cost- Road works 63.08 25.41 88.49 22.73 9.16 31.89

* Excluding Resettlement Cost

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Table 2.1(b): Initial Project Cost Estimates by Component –Studies Component

UGX billions UA millions

Foreign Exchange

Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

B Consultancy Services –Road Studies

Lot 1- Nyakahita Fort

Portal Road 1.53 0.97 2.50 0.55 0.35 0.90

Lot 2 –District Roads Study 0.75 0.33 1.08 0.27 0.12 0.39

Base Cost Studies 2.28 1.30 3.58 0.82 0.47 1.29

Price Contingency 0.08 0.08 0.16 0.03 0.03 0.06

-Design Review of Kabale-Kyanika Road 0.61 0.03 0.64 0.22 0.01 0.23

Total Cost –Road Studies 2.97 1.41 4.38 1.07 0.51 1.58

* Already executed by PPF Advance (1 UA =UGX 2774.82; 1 UA =US$ 1.44331; 1 US$ =UGX 1922.54 at Appraisal in July 2004)

Table 2.2: Initial Project Cost Estimates by Category–Civil Works

UGX billions UA millions

Category Foreign Exchange

Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

A Civil works- Kabale-Bunagana/ Kyanika Road 50.81 16.95 67.76 18.31 6.11 24.42

B Consulting Services

-Supervision 3.66 0.42 4.08 1.32 0.15 1.47

- Audit 0.28 - 0.28 0.10 - 0.10

Sub-Total for Consulting Services 3.94 0.42 4.36 1.42 0.15 1.57

C Resettlement - 4.75 4.75 - 1.71 1.71

Base Cost –Road Upgrading 54.75 22.12 76.87 19.73 7.97 27.70

D Unallocated 8.33 3.29 11.62 3.00 1.19 4.19

Total Cost- Road works 63.08 25.41 88.49 22.73 9.16 31.89

* Excluding Resettlement Cost

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Financing Conditions 2.2.3 The ADF loan was to cover the entire foreign exchange cost and 44.26% of the local cost of the civil works. The GOU contribution was UA 4.88 million (inclusive of resettlement cost of UA 1.71 million). The GOU contribution represents 55.74% of local cost. ADF contributed UA 1.49 million (UGX 4.13 billion) by Grant and GOU contributed UA 0.09 million for the studies. A portion of the Grant was used to re-finance the PPF Advance of UA 0.22 million that was approved previously by ADF for the preparation of documentation on the project. The financing plan of the project by source of finance is presented in Table 2.2 below.

Table 2.2. Initial Overall Project Cost by Sources of Finance (UA Million)

Source Foreign Local Total Percentage

Exchange Cost ADF LOAN (Works) 22.73 4.28 27.01 80.70 ADF GRANT (Studies) 1.07 0.42 1.49 4.45

GOU (Works + Studies) - 4.97 4.97 14.85

Total 23.80 9.67 33.47 100 Percentage 71.11 28.89 100

2.2.4 Globally, out of a total cost of UA 33.47 million, ADF was to finance 85.15% of the total cost (i.e., UA 28.5 million) and GOU was to finance 14.85% of the total cost (i.e., UA 4.97 million) as presented above.

2.3 Initial Loan and Grant Conditions LOAN: 2.3.1 The loan agreement for the project was signed on 19th May 2005 and it became effective on 24th July 2006. The “Conditions precedent to first disbursement” have been fulfilled and the “Other conditions” of the loan are being fulfilled. The Government also fulfilled the Other Condition C(iii) by submitting to the Bank a copy of Act 15 of 8th June 2006 establishing the Ugandan National Roads Authority . The conditions are reproduced hereunder: 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:

B Conditions Precedent to First Disbursement The Borrower shall undertake to:

i) Compensate, before the commencement of civil works, the population affected by the upgrading of Kabale-Bunagana/Kyanika road in line with the Resettlement Action Plan (RAP);

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ii) Include the project in the Transport Sector Investment and Recurrent Expenditure Programme (TSIREP) for 2005/2006 – 2009/2010 and as updated annually; and

iii) Submit to the Fund, not later than 1st April, results of traffic counts on the project

road once every calendar year, which shall reflect bi-annual counts and seasonal variations.

C. Other Conditions The Borrower shall:

i) Submit to the Fund evidence that the population affected by the upgrading of Kabale-Bunagana/Kyanika road have been compensated, before the commencement of civil works, in accordance with the Resettlement Action Plan (RAP);

ii) Submit to the Fund, no later than 31st January of each year annual reports

evidencing the axle load control measures being enforced on the national trunk road systems;

iii) Submit to the Fund, the Act establishing the Uganda National Roads

Authority; and

iv) Submit to the Fund, no later than 30th September of each year, throughout the project’s implementation period, a copy of TSIREP indicating the allocation for the project.

GRANT: 2.3.2 The ADF Grant was signed on 15th May 2005 subject to the following specific conditions: Conditions Prior to Entry into Force of the Grant Agreement

(a) The Protocol Agreement shall enter into force on its signature. Conditions Precedent to First Disbursement (b) The obligations of the Fund to make the first disbursement shall be conditional upon the

entry into force of the Protocol of Agreement as set forth in (a) above and the fulfillment by the Recipient of the Conditions Precedent to First Disbursement under the Loan Agreement for the Road Sector Support Project of even date.

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2.4 Project Implementation Status Kabale-Kisoro-Bunagana/Kyanika Road Works: 2.4.1 Following the pre-qualification exercise for the civil works of the road project, the three pre-qualified contractors submitted their bids for the road works in accordance with the Instructions to Bidders. However, upon the opening of the bids, the Government of Uganda discovered that the bid prices far exceeded the part of the loan for the civil works. The Government of Uganda (GOU) therefore requested the Bank to assist them with a supplementary loan. Consultancy Supervision Services 2.4.2 The Bank approved a shortlist of 6 engineering consulting firms for the supervision of the civil works for the upgrading of Kabale-Kisoro-Bunagana/Kyanika road in August 2005. Five firms eventually submitted their proposals in November 2005 that were subsequently evaluated by the Government. After the review of the Evaluation Report, the Bank gave its no objection to negotiate and award the contract to the highest ranked firm. Road Study

2.4.3 Consultancy Services for Feasibility and Detailed Engineering Studies of Nyakahita-Ibanda-Fort Portal Road (208 km): Six short-listed firms have submitted their proposals. District Road Rehabilitation Study

2.4.4 Consultancy Services for Detailed Engineering Study for rehabilitation of rural roads in 12 Districts: Four short-listed firms have submitted their proposals. The technical evaluation of the consultants’ proposals is underway. 2.4.5 As of October 2006, there is no disbursement under the loan or the grant. Difficulties Encountered 2.4.6 The GOU received high tender prices for the civil works during the bidding process that were not anticipated at project appraisal in July 2004 and exceed the available budget for works as well as the allowances made for physical and price contingencies. The Government analyzed the high bid prices and was of the view that the prices, though higher than the appraisal estimate, are representative of the current prices for similar works in the region (land-locked countries with difficult access conditions). High prices were influenced considerably by the global increase in the prices of petroleum products, bitumen, cement and steel, among others. Hence, the Government applied for a supplementary loan from ADF resources. 2.4.7 A Bank mission visited Uganda from the 13th to the 23rd September 2006. The objectives of the mission were to discuss the cost, technical and economic details with, and obtain sufficient information from the Government, and thereby obtain the data required for the Supplementary Loan proposal to the Board.

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2.4.8 Bid Evaluation: The lowest evaluated bidder has a corrected bid price of UGX 148.99 billion (UA 56.90 million), net of taxes and duties. The bid is 122% higher than the appraisal estimate. The highest bid is 166% higher than the appraisal estimate. The GOU still accords a high priority to the project and would like to proceed to recommending that the award of the contract for the civil works be made to the lowest-evaluated bidder provided the Bank would extend a supplementary loan to finance the short fall. 2.4.9 Financing of the project: The Bank’s share is limited to 90% for the civil works category of expenditure which would amount to a maximum of UGX 134.09 billion (UA 51.21 million) subject to availability funds. The expected counterpart fund is UGX 14.90 billion (UA 5.69 million). 2.4.10 Availability of Funds: The amount allocated to the works category from the loan inclusive of physical and price contingencies is UA 25.39 million. With a total cost for works of UA 56.90 million, the available Bank funds leave a shortfall of approximately UA 31.51 million. The overall financing gap has been revised at re-appraisal and presented in the next chapter. 3. THE PROJECT AT RE-APPRAISAL AND THE SUPPLEMENTARY LOAN 3.1 Objectives and Description There are no changes to the sectoral and specific objectives of the re-appraised project. The sector goal is still to contribute towards poverty reduction by improving sustainable road access to all rural and urban areas of the country. The primary project objectives are to reduce transport costs and travel time between Kabale and Kisoro districts and promote regional integration essentially with DRC, and to prepare road projects to enhance accessibility in the Southwestern region of Uganda. The objectively verifiable performance indicators are presented in the project matrix. Also, the initial project components remain unchanged. 3.2 Revised Project Cost Estimates 3.2.1 As the ADF Grant of UA 1.49 million for the two road studies in the project remains unchanged and the re-appraisal has been necessitated by the cost increase of the civil works component of the project, the revision concentrates on the ADF Loan components at re-appraisal. The project cost estimate, net of all taxes and duties, for the civil works has been re-appraised at UA 70.84 million comprising 73.56 percent of the foreign exchange cost (i.e., UA 52.11 million) and 26.44 percent in local cost (i.e., UA 18.73 million). The project cost estimate is essentially derived from the actual tender prices (lowest bid), physical contingencies of 10% and price contingency of 8% that has been obtained through simulation of a price adjustment formulae. The revised project cost estimate for the civil works is summarized in Table 3.1 below.

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Table 3.1 Revised Project Cost Estimates by Component–Civil Works (Loan)

Component UGX billions UA millions

Foreign Exchange

Local Costs

Total Costs

Foreign Exchange

Local Costs

Total Costs

A Civil works- Kabale-Bunagana/ Kyanika Road 111.74 37.25 148.99 42.67 14.22 56.90

B Consulting Services

-Supervision 3.46 0.39 3.85 1.32 0.15 1.47

- Audit 0.26 - 0.26 0.10 - 0.10

C Resettlement - 4.48 4.48 - 1.71 1.71

Base Cost –Road Upgrading 115.46 42.12 157.58 44.09 16.08 60.18

* Physical Contingency (10%) 11.55 3.76 15.31 4.41 1.44 5.85

Price Contingency (8%) 9.45 3.15 12.61 3.61 1.20 4.81

Total Cost- Road works 136.46 49.03 185.49 52.11 18.73 70.84

* Excluding Resettlement Cost 3.2.2 A comparative analysis between re-appraisal and appraisal cost estimates in Table 3.2 below indicates that the civil works cost has increased from UA 31.89 million to UA 70.84 million resulting in an overall financing gap of UA 38.95 million. This amount translates to an increase of 122% above the initial cost estimate, which GOU cannot finance alone as discussed under section 2.4 above.

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Table 3.2 : Comparative Analysis between Initial and Revised Cost Estimates for Civil Works (Loan)

Cost excl. Taxes at AppraisalIn UA million

Revised Cost excl. Taxes In UA million

Difference

Components

F.E. L.C. Total F.E. L.C. Total F.E. L.C. Total

Civil works- Kabale-Bunagana/ Kyanika Road 18.31 6.11 24.42 42.67 14.22 56.90

24.36 8.12 32.48

Consulting Services

-Supervision 1.32 0.15 1.47 1.32 0.15 1.47

0.00 0.00 0.00

- Audit 0.10 - 0.10 0.10 - 0.10

0.00 0.00 0.00

Resettlement - 1.71 1.71 - 1.71 1.71

0.00 0.00 0.00

Base Cost –Road Upgrading 19.73 7.97 27.70 44.09 16.08 60.18

24.36 8.12 32.48

* Physical Contingency (10%) 1.97 0.63 2.60 4.41 1.44 5.85

2.44 0.81 3.25Price Contingency (8%) 1.03 0.56 1.59 3.61 1.20 4.81

2.58 0.64 3.22

Total Cost- Road works 22.73 9.16 31.89 52.11 18.73

70.84

29.38 9.57 38.95

Percentage %

71.28 28.72 100 73.56 26.44 100 92.13 30.01 122.14

3.3 Sources of Finance

3.3.1 The Tables 3.3 below gives Sources of Finance for the total project cost

Table 3.3: Revised Financing Plan by Source for Civil Works

Appraisal In UA million

Re-Appraisal Cost excl. Taxes In UA million

Supplementary Loan

Category

ADF GOU Total ADF. GOU. Total ADF GOU. Total

A) Civil works- Kabale-Bunagana/ Kyanika Road

21.98 2.44 24.42 49.55 7.35 56.90

27.57 4.91 32.48

B) Consulting Services

Supervision

1.32 0.15 1.47 1.32 0.15 1.47

0.00 0.00 0.00

- Audit

0.10 0.00 0.10 0.10 0.00 0.10

0.00 0.00 0.00

Sub-Total for Consulting Services

1.42 0.15 1.57 1.42 0.15 1.57

0.00 0.00 0.00

C) Resettlement

0.00 1.71 1.71 0.00 1.71 1.71

0.00 0.00 0.00

Base Cost –Road Upgrading

23.40 4.30 27.70 50.97 9.21 60.18

27.57 4.91 32.48

D) Unallocated

3.61 0.58 4.19 9.03 1.63 10.66

5.42 1.05 6.47

Total Cost- Road works 27.01 4.88 31.89 60.00 10.84 70.84 32.99 5.96 38.95Percentage %

84.70 15.30 100 84.70 15.30 100 103.45 18.69 122.14

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3.3.2 The Counterpart Fund (GOU) requirement for the project is UA 10.84 million exclusive of taxes and import duties. Thus, the Government is contributing 15.3% of the total project cost. The rest of the cost financing, amounting to 84.7% of the project cost shall be provided under ADF loan. 3.3.3 The cost estimate of the civil works has increased by 122% from UA 31.89 million at appraisal to UA 70.84 million in October 2006. With a Supplementary loan of UA 32.99 million from ADF, the revised ADF contribution will increase by 122% from UA 27.01 million at appraisal to UA 60.00 million, while the GOU contribution will increase by 122% from UA 4.88 million at appraisal to UA 10.84 million. 3.4 Revised Implementation Schedule The revised project implementation schedule presented in Annex 2 shows indicatively that the project would be completed by December 2009, followed by a 12-month defects liability period. There is a slippage of about one year between the initial and revised implementation schedule. 3.5 Revised Expenditure Schedule The expenditure schedule has evolved from the total estimated cost of the civil works spread over the implementation programme in proportion to the works and services programmed for each year of project implementation. The yearly expenditure plans by component, category and by sources of finance are presented in Tables 3.4, 3.5 and 3.6.

Table 3.4 Revised Expenditure Schedule by Component (UA Million)

Component 2007 2008 2009 2010 TotalA Civil Works – Kabale – Bunangan/Kyanika Road Upgrading

17.07 17.07 17.07 5.69 56.90

B Consultancy Services Supervision 0.44 0.44 0.44 0.15 1.47 Audit 0.03 0.03 0.03 0.02 0.10C Resettlement 1.71 1.71Base Cost Road Upgrading 19.25 17.54 17.54 5.85 60.18Physical Contingency (10%) 1.75 1.75 1.75 0.60 5.85Price Contingency (8%) 1.41 1.41 1.41 0.57 4.81Total 22.41 20.70 20.70 7.03 70.84

Table 3.5 Revised Expenditure Schedule by Category (UA Million)

Category 2007 2008 2009 2010 TotalA Civil Works – Kabale – Bunangan/Kyanika Road Upgrading

20.14 20.14 20.14 6.72 67.14

B Consultancy Services 0.56 0.56 0.56 0.31 1.99C Others - Resettlement 1.71 1.71Total 22.41 20.70 20.70 7.03 70.84

Table 3.6 Expenditure Schedule by Source of Finance (UA Million)

Source 2007 2008 2009 2010 TotalADF Loan 18.0 18.0 18.0 6.0 60.0GOU 4.41 2.70 2.70 1.03 10.84Total 22.41 20.70 20.70 7.03 70.84

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3.6 Environmental and Social Impacts Assessment Environmental Impact 3.6.1 The project has been classified as Category 1, against the background that it impacts on sensitive areas such as the Echuya Forest, Lake Bunyonyi and the steep mountain terrain which may be susceptible to excessive sheet erosion if the slope is not stabilized. The road is also close to and could impact Mt. Mgahinga Gorilla and Bwindi Impenetrable National Parks, which is within a National Forest reserved for the protection of endangered species and particularly famous for about half of the remaining world population of the mountain gorilla. 3.6.2 According to the Bank’s Environmental and Social Assessment Procedures (ESAP-2001), category 1 projects require an Environmental and Social Impact Assessment (ESIA) study. In addition, because more than 200 people have to be re-settled and compensated, a Resettlement Action (RAP) had been prepared in line with 2003 Bank Group Involuntary Resettlement Policy. The Executive Summary of the ESIA was prepared and circulated to the Board of Directors. Simultaneously, the Webmaster had released the ESIA Executive Summary to the public through the Public Information Centre (PIC) on 6th October 2004. The environmental and social impacts of upgrading Kabale – Kisoro – Bunagana/Kyanika road and their mitigation measures are summarized in the Environmental and Social management and Monitoring Plan (ESMP) contained in the Annex to the original appraisal report. The Government is in the process of securing the Right-of-Way for the project road. 3.6.3 Inevitably, there will be some environmental impacts associated with the road during the various phases of the project although most of these shall be limited to short to medium-term disturbances for which mitigation measures are provided. Social Impact 3.6.4 The road will have positive exogenous social economic impacts on the people living in the zone of influence. The project will lead to a substantial increase in traffic levels resulting in improved transport conditions in and out of the project area, facilitate movement of goods and people and improve communication. Consequent positive impact on agricultural and livestock activities will improve the well being of the local population through improved access to input and product markets, and agricultural extension services. In addition, the project is expected to provide employment opportunities through provision of casual laborers during construction and road maintenance. In addition, the contractors will provide HIV/AIDS preventive and health facilities in the construction camps and organize training in gender sensitization and community empowerment as well as improving community participation. HIV/AIDS programs will continue to be implemented as per design. Provisions have been included in the contractor’s special clauses and BoQ with appropriate budget. Potential social negative impacts include loss of assets that will occur during construction and shall need to be replaced and/or compensated for. Such occurrences are properly managed through the Resettlement Action Plan (RAP). 3.7 Executing Agency 3.7.1 The Ministry of Works and Transport (MoWT), formerly referred to as “Ministry of Works, Housing and Communications” is still the Executing Agency for the project and the implementation arrangement has not changed.

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3.7.2 The Road Agency Formation Unit (RAFU) is the Project Implementation Unit for all the projects under the RSDP2. The MoWT, under current arrangements still has overall responsibility as Executing Agency while RAFU acts as the Project Implementation Unit (PIU) for rehabilitation and upgrading projects in the road sector. In the light of the on-going institutional reform in the road sub-sector, RAFU will transfer all its projects to the Uganda National Roads Authority (UNRA) planned to be operational by mid 2007. 3.8 Procurement Arrangements Procurement of civil works is being carried out under International Competitive Bidding (ICB) and the procurement of the consulting firms for supervision of works and studies is handled in accordance with the Bank’s “Rules of Procedure for the Use of Consultants” as discussed under paragraph 2.4 on project implementation status. The GOU is preparing the shortlist of auditing firm. 3.9 Disbursement Arrangements The direct payment method will be used for consulting firms, contractors, and audit services. 4. BANK’S POLICY AND STRATEGIC CONTEXT 4.1 The supplementary loan proposal is in line with the Bank Group Policy and Procedures for Supplementary Financing, ref no. ADF/BD/WP97/90 of 11 August 1997. The supplementary loan proposal meets the general conditions for supplementary financing in that the implementation of the project has commenced and is progressing satisfactorily. The project cost overrun is essentially due to the reasons cited under 2.4.6 above (steep increase in price of crude oil, bitumen, etc,) is indeed outside the control of the Government of Uganda. The proposed Supplementary Loan of UA 32.99 million could be funded from ADF X resources allocated to the country. Furthermore, the project is still technically sound, environmentally sustainable, socially desirable and economically viable. Its completion will enable the Bank and Government to achieve the developmental objective set forth at appraisal. 4.2 In addition to the supplementary loan, the Borrower is committed to the project and will provide resources for the counterpart funding. The proposed Supplementary Loan is consistent with the Bank Group’s intervention strategy in the transport sector as contained in the Uganda Joint Assistance Strategy Paper (2005-2007). According to UJAS, the Bank will continue to provide support to the Government's 10-year Road Sector Development Program by focussing on periodic maintenance and upgrading of trunk roads. 5. TECHNICAL AND ECONOMIC JUSTIFICATION 5.1 Technical Justification 5.1.1 The key factors that have contributed to the price increase beyond what could have been reasonably foreseen at appraisal are: (i) increase in the prices of oil based inputs into road construction ,(ii) the landlocked nature of the country and remoteness of project site and (iii) project terrain which is mainly volcanic ash and the under- estimation of the haulage distance for earthworks, stabilization and crushed stones required for the road pavement in 2004. .

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5.1.2 Petroleum-based products into road works such as fuel, lubricants and bitumen, as well as other materials such as cement and steel are significant components of road construction cost consumed by heavy-duty equipment in clearing and grubbing of site, in excavation and dumping of soil, compaction of earthworks, placing and compaction of sub-base and base layers, for heating asphalt mixing plants, and for transporting asphalt concrete. Bitumen is also used in priming the road base course and producing asphalt concrete for road wearing course. International Price Indices have shown that the cost of diesel fuel has more than doubled during this period1. General cost increase of recent road construction works in Africa vary from +67% to +124% for time lapses of 2 to 4 years. Recent (2006) Unit Costs for Road Construction in Africa for selected contract values for heavy rehabilitation or upgrading from gravel to bitumen standard for two lane medium trafficked roads that have similar characteristics as the project road and mostly situated in land locked countries have been compared. The average unit cost for asphalt concrete paved road is USD 780,000/km for Rwanda, Lesotho and Uganda. This analysis shows that the re- appraised unit cost of the project road at USD 790,000/km is close to this average for roads of similar technical characteristic, in similar terrain and for land locked countries. Furthermore, recent experience from other donor-funded projects in Uganda and the sub-region confirms that average unit costs of road projects have significantly increased. For example, the unit tender cost of the Jinja –Bugiri road rehabilitation project in Uganda that is being funded by EU was USD 920,000/km while that of the Juba Town Roads Project in Sudan financed by IDA was estimated at USD1,000,000/km. (See Annex 5) 5.1.3 The second factor is the land-locked nature of Uganda and the remote location of the project area. The project region is at 500 km distance from Kampala and 1,400 km distance from the Port of Mombasa. At the time of bid preparation, the bidder might have factored into their bid prices high road transport cost due to the location of the project site and the poor state of the access road corridor after the initial project appraisal. The unit haulage cost from the ports due to increase in oil and lubricant prices have increased from appraisal in 2004 and this has been factored into the bid prices. 5.1.4 A review of the break down of items of works indicated that most of the increases are in earthworks, stabilization of sub-base layer, crushed stones in base layer, and Asphalt Concrete wearing course of the road pavement. These items that account for about 60% of the total cost of the civil works have increased by over 200% compared to the appraisal estimates. With respect to these items, it has been established that the consultant assumed that suitable construction materials were available at short distances in its initial cost estimate. However, due to the high prevalence of volcanic ash in the project area; suitable construction materials are considerably far from the site following pre-tender site visit. This situation has led to excessive haulage distances than initially estimated and has impacted significantly on the overall increase in the project cost. 5.1.5 Given the above analysis, it is reasonable to expect the cost estimate of the road works to increase close to other current bids received in Uganda and othe land-locked regional member countries by 122% from UA 31.89 million in 2004 to UA 70.84 million in 2006.

1 The Price of crude oil has nearly doubled in the last two years, leading to a 75% increase in the price of the asphalt used un road construction end repair, according to State Department of Transportation”… Transportation Article: ‘Oil Price Cloud road –work Cost’ Bellingham Herald Journal of August 19, 2006.

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5.1.6 Furthermore, the pavement design options for the road have been reviewed and it is not advisable to reduce the scope of the civil works as a result of the increase in cost because the Asphalt concrete option as recommended as per the initial appraisal is necessary from both technical and traffic load configuration on the project road. 5.2 Economic Re- evaluation

a) Traffic Analysis 5.2.1 At Appraisal, traffic analysis of Kabale – Kisoro – Bunagana / Kyanika road has been undertaken based on the March 2004 traffic count by the consultant that updated the economic feasibility study. The overall Annual Average Daily Traffic (AADT), in 2004 was estimated to be 204 and projected to reach 234 in 2006. A review of the historic traffic data surveys undertaken in 1989, 1992 and 1993, indicated a general trend of light vehicles traffic decreasing on the road with an average annual decline of about 3.3 percent. On the other hand, heavy vehicles including buses have shown an overall average annual growth rate of 7.2 percent over the period 1989 – 2004. The deteriorating road conditions and consequent increased vehicle operating costs made light vehicles traffic decline, but was replaced by phenomenal growth in motorcycles. The 2004 base year traffic indicated that motorcycles account for 24.0 percent, light vehicles 43.0 percent, buses 3.0 percent and trucks 30.0 percent of vehicular traffic. Based on the review of available data and parameters for traffic projections, traffic levels for the economic evaluation of the road were estimated on a composite medium traffic growth scenario of 7 percent per annum for the period 2004 – 2014 and 5 percent per annum for the period 2015 – 2027 for all vehicle categories. A 20 percent generated traffic was assumed based on conventional practice of price elasticity of traffic demand due to lower vehicle operating costs after road improvement and opening to traffic in 2009. 5.2.2 During re -appraisal, the traffic projections was based on the July 2006 Ministry of Works and Transport (MoWT) traffic count. The 2006 traffic count of the MoWT for the three road sections are estimated at an AADT of 601 for Kabale – Ikumba, 312 for Ikumba- Kisoro, and 415 for Kisoro – Kyanika. This results in a weighted aggregated 2006 base AADT for the entire road of 390 vehicles compared to the 2004 projection of 234 vehicles per day. In 2006, truks accounted for 40.8% of vehicular traffic compared to 2004 situation of 30%. A substantial amount of non – motorized traffic of 1295 was recorded on the project road; broken down into 2389 for Kabale – Ikumba, 1095 for Ikumba – Kisoro and 865 for Kisoro – Kyanika. About 50.0% of this non-motorized traffic would undergo modal shift to motorized mode which would result in 33 vehicles per day. 5.2.3. The 2006 re-appraised motorized traffic estimates when compared with that of the appraisal projection shows an increase of 67 percent. The increase has been reviewed at re-appraisal and is attributable to the restoration of socio-economic activities in parts of the project zone of influence, mostly in the Eastern Democratic Republic of Congo that has been politically pacified and vehicles destined for the area have reverted to the project road. The project road is part of the regional road link between Uganda, Rwanda and DRC. The traffic on the road is being restored to the pre-appraisal levels. For example the Kisoro – Ikumba section had an AADT of 671 in 1998 and 754 in 2000. while the MoWT count of 601 in 2006 is still at lower levels. Since restoration of peace and security in the Great Lakes Region, there has been an upsurge in tourist traffic to Mt. Mgahinga Gorilla Park and increased cross border trade in the region; and particularly an important traffic generator is the transportation of raw material (sorghum) for Uganda Breweries from Eastern DRC. The base 2006 traffic is taken as representing a realistic situation for normal traffic as the 2004 Consultant Study results, represented a situation of suppressed demand.

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5.2.4 A growth rate of 7.0 percent per annum for the period 2006 to 2015 and 5.0 percent from 2016 to 2029 was assumed for the re-appraisal traffic projection as used at appraisal. Generated traffic of 20 percent of the normal traffic was assumed for 2010 when the road opens to traffic and have been projected at same rate with the normal traffic growth rate. For the non-motorized traffic, a growth rate of 3.5 percent for the project life was considered.

b) Economic Costs and Benefits

5.2.5 The economic costs of the project taken into account in the economic analysis include, the base capital construction costs, physical contingency of ten percent, recurrent costs, environmental and social impact mitigation costs and cost for supervision of works and audit services. The economic cost excludes the cost of compensation paid to people whose property has been affected. The financial cost of these components of cost have been adjusted to economic cost using the Standard Conversion Factor (SCF) of 0.83. The estimated economic capital investment cost is put at USD 77.48 million compared to USD 37.515 million at appraisal, resulting in unit costs of USD 785,021 per km at re-appraisal compared to USD 380,091 per km at appraisal.

5.2.6 The main project benefits taken into account in the analysis include road user benefits consisting of: mainly Vehicle Operating Cost (VOC) savings, time savings accruing to road users from normal and generated traffic on the project road; maintenance cost savings and salvage value of 15.0% at end of project life. The re-appraisal analysis for the entire road project shows substantial savings in VOC due to updated VOC input data in the HDM-IV, which has oil and lubricants as major inputs. Trucks, which accounted to 30 percent of the vehicular traffic composition at appraisal has increased to 40.8 percent during re-appraisal and has implications for the increased VOC savings at re-appraisal. Thus, at appraisal the composite VOC savings per vehicle km was estimated at USD 0.464 / veh- km on the gravel road and reduced to USD 0.224 /veh-km when the project road is completed in 2009, resulting in VOC savings of USD 0.240/veh-km. But at re-appraisal, the composite VOCs / veh-km on the existing poor gravel road has increased to US$ 1.449 in 2007 and expected to be reduced to US$ 0.671 when the project road is completed and open to traffic in 2010, leading to VOC savings USD0.778/veh-km. This implies that although the project construction cost has about doubled, this has been compensated for by the doubling of VOC saving per veh-km and the normalization of traffic to pre 2000 levels.

5.2.7 Other benefits, which are not quantified, include improved access to health and education facilities, thereby contributing to improved social service coverage in the two districts. The project road would also facilitate the exploitation of the other potentials of the project zone of influence which include the mining of the pig iron deposits at Muko, oil exploration in the larger project influence zone, paper production from bamboo forests, and biological pesticide from pyrethrum, for which potential investors have expressed interest. c) Result of Cost – Benefit Analysis 5.2.8 The viability of the entire road project has been reassessed again, considering the prevailing construction cost (bid/ tender quotation). The Highway Development and Management Model (HDM-IV) inputs have been updated and the result of the comparison of quantifiable project benefits and costs during the design life of 20-years of the project, in “with” and “without” project scenario, yields the Economic Internal Rate of Returns (EIRR) of 15.1% for the whole project and Net Present Value (NPV) of USD 19.1 million. The Benefit Cost ratio (B-CR) of the entire project is 1.17. The EIRR and NPV for the entire route at appraisal and reappraisal are summarized in Table 5.1 below.

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Table 5.1: Summary of Economic Analysis

APPRAISAL RE - APPRAISAL

Economic NPV Economic NPV

Cost (USD million)

EIRR (%)

(USD million)

Cost (USD million)

EIRR (%)

(USD million)

Total 37.515 17.6 19.43 77.481 15.1 19.10 5.2.9 Even though overall construction cost has doubled, the project is still viable, at a reduced EIRR of 15.1 percent, when compared with appraisal estimate of EIRR of 17.6 percent.

d) Sensitivity Analysis 5.2.10 Test of sensitivity of the re- appraisal results on the base case EIRR of 15.1 percent to changes in assumptions on levels of construction costs and benefit indicate that the investment is viable. The sensitivity is calculated by increase of 10 percent in the construction costs, 10 percent reduction in traffic levels and worse case scenario of concurrently increasing cost and decreasing benefits by 10 percent. In the increase of cost and decrease benefit cases, the project is still viable. In the worse case scenario, the EIRR is 11.4 percent, which is marginally lower than the 12 percent opportunity cost of capital in Uganda. Table 5.2 shows the sensitivity analysis for the entire project.

Table 5.2: Sensitivity Analysis (% EIRR)

Variable Total Project Base case 15.1 10% cost increase 12.6 10% benefit reduction 12.5 10% cost increase and 10% benefit reduction 11.4

e) Switch Values for Investment Cost and Traffic

5.2.11 At appraisal, from the switch value analysis, it was noted that a more than 57.4 percent increase in the construction cost, with out change in the traffic, indicated that the project would not be economically viable. A switching value analysis was undertaken under the revised cost and traffic situation in addition to the sensitivity tests above; for capital investment costs and traffic levels (benefits) as part of the economic viability analysis. In this regard, it has been observed that the capital investment costs would have to increase by over 17.2 percent before the EIRR falls below 12.0% opportunity cost of capital for Uganda. Similarly, benefits (traffic) can be reduced by a maximum of 14.7 percent with costs remaining the same and the project will still be viable. These are critical factors to watch, though the project is more sensitive to drop in traffic levels. 5.2.12 These situations are most unlikely and are remote. With regard to traffic, a central traffic growth assumption of 5 to 7 percent has been used for the analysis, which is lower than current average traffic growth rate on the national network of over 7.0%. Construction costs would not also increase more than 17.2 percent as project cost estimates during the re-appraisal is based on the lowest bid offer. The following table shows the results of the switch values analysis.

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Table 5.4 Switch Values for Construction Costs and Benefit for EIRR of 12.0% and NPV = 0

Case Switch values for Construction Cost & Benefit (EIRR of 12.0% and NPV = 0 USD million)

Construction Cost 17.2% Road User Benefits -14.7%

6. CONCLUSIONS AND RECOMMENDATIONS 6.1 Conclusions 6.1.1 The project cost overrun is largely due to is the unforeseen global general price hike of petroleum products and other construction material, the poor condition of the road coupled with the remoteness of the project site. All these factors have impacted severely on the cost of the road construction works. Although the re-evaluated unit cost of the road is significantly higher than the appraisal estimate, it is still within the range for similar African road projects in regions of difficult access tendered in recent time. 6.1.2 From the foregoing analysis, the investment in Kabale – Kisoro – Bunagana/Kyanika (98.7 km) is technically sound, economically viable, environmentally sustainable and socially desirable The successful implementation of the project will be facilitated by the provision of the supplementary loan in order to achieve its development objectives. 6.2 Recommendations It is therefore recommended that the Fund extends to the Government of Uganda a supplementary loan not exceeding UA 32.99 million to complete the civil works for the road project.

ANNEX 1

UGANDA: ROAD SECTOR SUPPORT PROJECT PROJECT LOCATION MAP OF THE KABALE-KISORO-BUNAGANA/KYANIKA

ROAD

This map has been drawn by the African Development Bank Group exclusively for the use of readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgment concerning the legal status of a territory or any approval or acceptance of these borders.

Kabale-Kisoro-Bunagana/Kyanika

Road

ANNEX 2

UGANDA

ROAD SECTOR SUPPORT PROJECT SUPPLEMENTARY LOAN

REVISED IMPLEMENTATION SCHEDULE

2006 2007 2008 2009 2010 2011 2012 COMPONENTS

Supervision Services

Civil Works

Audit Services

ANNEX 3

UGANDA

ROAD SECTOR SUPPORT PROJECT Supplementary Loan

PROVISIONAL LIST OF GOODS AND SERVICES Civil Works (ADF LOAN COMPONENT)

UGX billions UA millions

Foreign Local Total Foreign Local Total ADF GOU

ADF Supplementary loan

Item Category Exchange Cost Cost Exchange Cost Cost LOAN

A

Civil works- Kabale-Bunagana/Kyanika Road Upgrading 111.74 37.25 148.99 42.67 14.22 56.90 49.55 7.35

27.57

B Consulting Services

- Supervision 3.46 0.39 3.85 1.32 0.15 1.47 1.32 0.15

0.00

- Audit (financial) 0.26 - 0.26 0.10 - 0.10 0.10 0.00

0.00

C Resettlement - 4.48 4.48 - 1.71 1.71 1.42 0.15

0.00 Base Cost 115.46 42.12 157.58 44.09 16.08 60.18 0.00 1.71 0.00

Physical Contingency 11.55 3.76 15.31 4.41 1.44 5.85 50.979.21 27.57

Price Contingency 9.45 3.15 12.61 3.61 1.20 4.81 9.03 1.63 5.42 Total Project Cost 136.46 49.03 185.49 52.11 18.73 70.84 60.00 10.84 32.99

Summary of Detailed Base Cost Estimate for Civil Works

ITEM

APPRAISAL BASE COST

RE-APPRAISAL

BASE COST

UGX Billion UA Million UGX Million UA Million CIVIL WORKS: Preliminaries, Constructor’s Establishment and General obligations, Engineer’s Accommodation and Offices, etc.

12.42 4.48 21.64 8.27

Clearing, Grubbing and Earthworks 6.32 2.28 14.36 5.48 Drains (Prefab-Culverts, concrete Channels) 7.30 2.63 9.75 3.72 Sub-base Course 8.31 2.99 27.57 10.53 Base Course 7.40 2.67 15.50 5.92 Bituminous/Asphalt Concrete Work 9.78 3.52 34.71 13.26 Protection Works (Stone Pitching -Drains) 0.27 0.10 1.65 0.63 Protection Works (Gabions) 7.90 2.84 9.17 3.50 Guardrails 0.82 0.30 2.56 0.98 Ancillary Works (Road Furniture) 6.91 2.49 11.60 4.43 Day-Works 0.33 0.12 0.48 0.18 TOTAL 67.76 24.42 148.99 56.90 Source: RAFU/ADF Missions of 2004 & 2006

ANNEX 4

ECONOMIC ANALYSIS

ANNEX 5 UGANDA - ROAD SECTOR SUPPORT PROJECT SUPPLEMENTARY LOAN Recent Road Unit Costs for Works in Africa (2006), Bank funded Projects, Paved Roads

ANNEX 6

UGANDA - ROAD SECTOR SUPPORT PROJECT SUPPLEMENTARY LOAN

International Price Indices for Some Construction Materials and Equipment Index Jun-04 3rd Quarter 2005 Apr-06 % differenceInputs: Crude oil (USD per barrel) 40.42 60.78 50% Gasoline * 129.1 217.7 69% Diesel Fuel * 114.2 230.4 102% Steel mill products * 147.0 165.2 12% Construction machinery & equipment * 157.1 175.0 11% Highway Construction: ** Composite Bid Price Index 175.4 209.9 20% Surfacing - Bituminous concrete 144.2 219.4 52% * U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Indexes ** U.S. Federal Highway Administration, price trends 2nd Q 2004 to 3rd Q 2005