Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 9035

PROJECT COMPLETION REPORT

REPUBLIC OF CYPRUS

THIRD HIGHWAY PROJECT(LOAN 2128-CY)

SEPTEMBER 28, 1990

Infrastructure Operations DivisionCountry Department IVEurope, Middle East and North Africa Regional Office

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

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EXCHANGE RATES

Name of Currency (Abbreviation): Cyprus Pound (CE)

At appraisal (1982,: CE 1.00 = USs 2.32At completion (1989): CE 1.00 = US$ 2.20

ABBREVIATIONS

MCW = Ministry of Communication and WorksPWD = Public Works Department of MCWKFAED 5 Kuwait Fund for Arab Economic DevelopmentRRI = Rural Roads Improvement ProgramRMMS = Road Maintenance Management SystemHDM3 = Highway Design and Maintenance Standards ModelTRRL = Transport and Road Research Laboratory

FISCAL YEAR OF BORROWER

January 1 - December 31

FOR OMCIAL USE ONLYTHE WORLD SANK

Washington. D.C. 20433U.S.A.

Offlce of DOewtmGewalOpesatEons fvahaMtwn

September 28, 1990

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Complation Report on Cyprus Third HighwayProiect (Loan 2128-CY)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on Cyprus Third Highway Project (Loan 2128-CY)" prepared bythe Europe, Middle East and North Africa Regional Office with Part II of thereport contributed by the Borrower. No audit of this project has been made bythe Operations Zvaluation Department at this time.

Attachment

This document has a restricted distribution and may be usd by recipients only in the performanceof their offcial duties Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

REPUBLIC OF CYPRUSTHIRD HIGHWAY PROJECT

(Loan 2128-CYIPROJECT COMPLETION REPORT

Table of Contents

Pace No.

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iEval.uation Summary ... . . . . . . . . . . . . . . . . . . . . .

PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE

Project Identity .1.. . . . . . . . . . . . . . . . . . . . .

Background .1... . . . . . . . . . . . . . . . . . . . . . .

Proiect Obiectives and DescriltionProject Objectives . . . . . . . . . . . . . . . . . . . . . 2Project Description. 2

Project Design and Organization ... . . . . . . . . . . . . . 3

Proiect ImplementationLoan Effectiveness and Project Start-up . . . . . . . . . . . 3Implementation Schedule .... . . . . . . . . . . . . . . . 4Procurement . . . . . . . . . . . . . . . . . . . . . . . . . 4Project Costs .... . . . . . . . . . . . . . . . . . . . . 4Disbursements .... . . . . . . . . . . . . . . . . . . . . 4Loan Allocation .... . . . . . . . . . . . . . . . . . . . 5

Proiect Results

Project Objectives . . . . . . . . . . . . . . . . . . . . . 5Physical Results ... . . . . . . . . . . . . . . . . . . . 5Economic Results . . . . . . . . . . . . ... . . . . . . . . 5Impact of Project .... . . . . . . . . . . . . . . . . . . 6

Project Sustainability . . . . . . . . . . . . . . . . . . . . 6

Bank Performance. 7

Borrower Performance .8... . . . . . . . . . . . . . . . . . a

Project Relationship . . . . . . . . . . . . . . . . . . . . . 9

Consulting Services . . . . . . . . . . . . . . . . . . . . . . 9

Project Documentation and Data .9

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

TABLE OF CONTENTS-(Cont'd)

Page No.

PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . .10

PART III STATISTICAL INFORMATION

Related Bank Loans and/or Credits . . . . . . . . . . .13

Project Timetable . . . . . . . . . . . . . . . . . . . . . . . 14

Loan Disbursements . . . . . . . . . . . . . . . . . . . . . . . 15

Project Implementation . . . . . . . . . . . . . . . . . . . . . 16

Proiect Costs and FinancingProject Costs ......... .... ... .... ... . 17Project Financing ....... ... .. ... .. .. .. . 18

Project ResultsDirect Benefits . . . . . . . . . . . . . . . . . . . . . . . 19

Economic Impact ......... ... ... .... ... . 20

Studies ..................... ..... . 21

Status of Covenants ........ ... .......... . 22

Missions ............... ............ 23

Staff Input . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ANNEXES

Annex A .*.*................ .......... . 25

PROJECT COMPLETION REPORT

REPUBLIC OF CYPRUS

THIRD HIGHWAY PROJECT

(LOAN 2128-CYI

PREFACE

This is the Project Completion Report (PCR) for the Third HighwayProject in Cyprus, for which Loan 2128-CY in the am3unt of US$12.2 million wasapproved on April 20, 1982. The loan was closed on June 30, 1989, two yearsbehind schedule. The project implementation included all the componentscontemplatea in thn SAR and Loan Agreement plus the rehabilitation of theNicosia-Limassol Highway (not originally contemplated). There were twoseparate cancellations of funds. The first cancelation was made effective inthe amount of US$968,633.09 as of October 20, 1989. The last disbursement wasmade on December 1, 1989. On January 10, 1990 the Bank informed the Borrowerthat the unclaimed balance in the amount of US$964,159.47 was being canceledretroactively to the date of the last disbursement. The total amount of thislast cancelation was composed of US$0.4 million worth of disbursementapplications that were not received in time for processing and a balance ofUS$0.56 million due to civil works execution that was delayed beyond the endof 1989. The components contemplated in SAR for construction with KFAEDfinancing, were executed with upgraded design standards as justified byrevised traffic counts data.

The PCR was prepared by the Infrastructure Operations Division of theEurope Department (Preface, Evaluation Summary, Part I and III), and theBorrower (Part II).

Preparation of this PCR was started during the Bank's finalsupervision mission of the project in October 1989, and is based, inter alia,on the Staff Appraisal Report; the Loan Agreement; supervision reports;correspondence between the Bank and the Borrower; and internal Bank memoranda.

PROJECT COMPLETION REPORT

REPUBLIC OF CYPRUS

THIRD HIGHWAY PROJECT

(LOAN 2128-CY)

EVALUATION SUMMARY

1. Obiectives

1.01 The objectives of this project were oriented to support the overalltransport policy objectives of the Government (para 4.01), and addressed in atimely fashion the need to attend to the rural roads netwcrk, to help expandthe main highways network and to improve the maintenance of the existinghighway network. Also, they were realistically attainable and consistent withthe degree of technical capacity and competence of the professional staff ofMCW/PWD, who received additional training through the project.

2. ImDlementation Experience

2.01 The project had a very slow start-up period due to delays incontractor prequalification and in preparing the civil works biddingdocuments. These delays accounted for one of the two additional years,required to complete the project. The second year was required for theexecution of the rural roads improvement program (which could not be executedat the speed considered at appraisal) and for the rehabilitation of theNicosia-Limassol Highway (not initially included in the project).

2.02 Procurement continues to require too much time in Cyprus. Other thanthis drawback, project procurement wis implemented without any major problems.Project cost estimates were reasonably accurate. The project's cost overrunswere due to the upgraded design standards with which the Limassol By-pass andthe Ypsonas-Erimi Link were constructed, which were justified.

2.03 The decision to implement the project through a project unit,specifically created to manage the project and coordinate interventions ofdiverse MCW/PWD units has proven to be a wise one.

3. Results

3.01 The project objectives of supporting regional development, improvingtraffic conditions, strengthening PWD and ensuring adequate maintenance toexisting road network, were satisfactorily attained (para 6.01). Theobjective of ensuring adequate maintenance for the existing highway networkbegan to be reached towards the end of this project and the influence of theFourth Highway Project in this accomplishment was substantial. The projectwas successful in promoting institutional development.

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3.02 The execution of the rural road impro"ement program reached 88 percentof the project's physical target, defined in the SAR to be "approximately200 km" (para 6.02). All the necessary equipment (financed through the loan)for the vehicle inspection facilities was acquired and five out of six centersare operating. The last one (in Paphos) is expected to be opened by the endof 1990.

3.03 All components of the project are estimated to remain economicallyjustified, with the project economic return reestimated to be 20% compared to17% at appraisal (para 6.04).

3.04 In addition to physical results, the grvatest 'mpact of the prcojecthas been in the area of promoting the development of institutional capabilitypreviously non existing, or existing at a lesser extent and in theimplementation of a rational maintenance management system (para 6.07).

4. Sustainability

4.01 The almost trouble free implementation of the ongoing Fourth HighwayProject, (as was the case of the Third) is a clear indication of thesustainability of this project. The continued commitment of Government andExecuting Agency are essential if the benefits attained are to continue andincrease (paras 7.01).

4.02 To this effect the continued Bank presence through the follow onFourth Highway Project and the Transport Sector Development Project will go along way in supporting the institutionalization of adequate technical/economiccriteria for road investment selection and the provision of adequatemaintenance funding (para 7.03).

5. Overall Assessment

5.01 In the Region's opinion the Third Highway Project has been asuccessful one.

6. Findings and Lessons

6.01 The importance of securing in a timely fashion the required land hasonce more been demonstrated with the delays in constructing the vehicleinspection station at Paphos.

6.02 The good results of this project are linked with the continued Banklending in the sector through "piggy-backed projects" with similar/congruentobjectives and components.

6.03 The creation of the Project Unit has proven to have been instrumentalin the project's success. The coordinating role played by the unit has beensuccessful and has obviated many problems that might otherwise have hinderedthe project.

6.04 Project success is due to a large part to the commitment of theAuthorities to the goals of the Project.

REPVBLIC OF CYPRUSTHIRD HIGHWAY PROJECT

(LOAN 2128-CY)

PROJECT COMPLETION REPORT

PART I: PROJECT REVIEW FROM BANiK'S PERSPECTIVE

1. Proiect Identity

Name : Third Highway ProjectLoan Number : 2128-CYRVP Unit : EMENA RegionCountry : CyprusSector : TransportSubsector : Highways

2. Backaround

2.01 The economic growth of Cyprus (7.5 percent per annum between 1960 and1973) was brought to a temporary halt by the events of 1974 that de factodivided the country. After an initial drop of the GNP by some 19 percent anda jump of the unemployment rate to nearly 25 percent, Government policy toreactivate the economy in the area under its control proved highly successfuland the economy recovered rapidly (prasently the GNP yearly growth stands atabout 6.0% percent and full employment conditions prevail, with some laborsnortages reported).

2.02 Bank lending to Cyprus began in 1963 with loans going mostly forinfrastructure (power, sewerage, highways and ports). The events of 1974 hadsubstantial impact on some of the Bank-financed projects. In particular, theconstruction of the Nicosia-Morphou highway (first Bank involvement in thissubsector) had to be suspended and the unutilized balance (about US$3.6million) was transferred to the Se-cond Highway Project, which included theconstruction of the new Nicosia-Limassol highway as well as traffic studiesand a training program.

2.03 In 1979, the Government requested Bank assistance for a rural roadimprovement program to sustain agricultural and mineral development in thesouth, improve a;cessibility to areas remote from Nicosia and Limassol, andensure a balanced development of the road network. The project was preparedby the Government with the help of consultants under the Second HighwayProject.

3. Proiect Obiectives and Descrintion

3.01 Prpiect Obiectivee. The main objectives of the project were to:

(i) support regional agricultural and mineral development in severalless accessible rural areas in southern Cyprus and to increase theprovision of social services, through the betterment of ruralroads;

(ii) improve traffic conditions to and from Limassol port and easecongestion on Limassol town streets by construction of theLimassol Bypass;

(iii) strengthen the operations and administration of the PWD and InlandTransport Department, and in particular to improve theircapability to implement and monitor the proiect components, byproviding them with technical assistance, equipment and training;and,

(iv) ensure adequate maintenance of the existing highway network.

3.02 Proiect Descriotion. The project provided for:

(i) a three-year time slice (about 200 km) of a program fir theimprovement of priority rural roads, to be completed by end of1986, including minor realignment where needed as well aswidening, reconstruction and strengthening of aged or deformedpavements on existing rural roads;

(ii) construction, with supervision, of the first two lanes of a newLimassol bypass (about 10 km) and two-lane connecting link (about9 km) via Ypsonas to the Limassol-Paphos road. The bypass wouldconnect two Bank-assisted projects, namely Limassol port (Loan1549-CY) and new Nicosia-Limassol highway (Loan 1344-CY);

(iii) provision of testing and examination equipment for use in fourvehicle inspection centers;

(iv) provision of equipment for highway maintenance needed for theincreased maintenance operations to remedy backlog ir highwaymaintenance;

(v) technical assistance to help meet project objectives(approximately 60 man-months over a three year period) byaugmenting and strengthening the existing and managementcapability of PWD; and

(vi) a training program for MCW staff to be implemented through short-term courses on technical and operational aspects at the HigherTechnical Institute of Nicosia as well as overseas.

4. Project DesOgn and Organization

4.01 The Third Highway Project was designed to support the Governmentsoverall transport policy objectives to support activities leading to higherproductivity and exports, by providing essential infrastructure justifiable inthe context of the present status of the island. Since Cyprus has no railwaysystem, highways are of critical importance. Level of motorization isrelatively high (about 24 vehicles per 100 inhabitants), and in generaltraffic on the arterial routes has increased by about 7 percent per annum . erthe last years, with growth rates even higher in certain arteries and urbanareas. The road network while generally adequate, requIred improvements notonly tc satisfy traffic pattern alterations that resulted from ;he changes inthe econ-my since 1974, but also to improve access to certain remote areas notadequately served. In this respect the rural road improvement program adds anew dimension to the overall highway planning.

4.02 The project concept and design was appropriate and timely in order toensure that adequate priority was given to the new rural roads improvementsprogram (RRI) that might have, otherwise, taken longer to be implemented. Theconstruction of the Limassol By-pass was also timely in addressing the need(created by the changed traffic patterns) to complete the main networkconnection between the Nicosia-Limassol Highway (constructed under Loan 1344-CY) and the Limass.l port as well as the by-pass extension towards Erimi.Since the traffic growth estimates on the basis of which these two facilitieswere originally designed were underestimated, the Limaesol By-pass and theYpsonas-Erimi Link were constructed as full four-lane facilities afteradditional economic analysis proved their upgrading to be economicallyjustified.

4.03 The institutional goals and technical assistance scope were alsoappropriate and have attained good success. In the later years of the projectprogress was also achieved towards the project's road maintenance goals.

4.04 The rehabilitation of the Nicosia-Limassol Highway (financed withproceeds of the Loan) was added to the project after Loan Agreementmodification of August 1, 1986. This project wmdification was accepted by theBank in order to enhance the serviceability of the island's most importanthighway, which had deteriorated more rapidly than expected, primarily due tohigher than designed traffic volumes and axle loads.

4.05 The Public Works Department (PWD) of the Ministry of Communicationsand Works (MCW) was responsible for the implementation of the project. Inretrospect, the selected alternative to implement the project through aproject unit, specifically created to manage the project, coordJnate theinterventions of the diverse MCW/PWD units involved in actual projectexecution and to channel the benefits of the technical assistance, has provento be a wise one.

5. Proiect Im*lementation

5.01 Loan Effectiveness and Proiect Start-un. Although Loan 2128-CY becameeffective relatively promptly (five months after Board date), project start-

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up was rather slow due primarily to delays in contractor's prequalificationand preparation of bidding documents for civil works contracting.

5.02 ImDlementation Schedule. The project was originally scheduled to becompleted by June 30, 1987, but most of the Bank-financed project componentswere only completed by December 1988. The first one year closing dateextension was required due to overall project execution delays. An additionalyear was required to implement the last tranche of rural roads and therehabilitation of the Nicosia-Limassol highway. During this second additionalyear, the upgrading of the Ypsonas-Erimi link (KFAED financing) to a fullfour-lane divided facility with split level intersectlons, was carried-out.One of the vehicle inspections facilities (at Paphos) is still pendingconstruction due to delays in obtaining adequate land. Completion of thisfacility is expected by the end of 1990. The main reasons for the initialoverall project delays were:

(a) lengthy contractor prequalification process;

(b) lengthy civil works bidding documents preparation;

(c) slow bidding process and the customary time-consuming process on thepart of the Main Tender Board in determining the successful bidder;

5.03 In addition to the obvious implementation delays that the projectencountered, the estimated project execution schedule was probably somewhatoptimistic. This was implicitly acknowledged in the SAR of the Fourth HighwayProject (appraised during the early years of implementation of the Third),whose implementation schedule considered a six-years project execution (asopposed to only four years for the Third).

5.04 Procurement. Except for the already mentioned procurement delays, nomajor procedural problems were encountered. Once agreement was reachedregarding the Bank's bidding procedures, procurement proceeded somewhatfaster, although the time taken at the Main Tender Board level has notimproved.

5.05 Proiect Costs. The estimated cost of the Third Highway Project atappraisal was about US$48.0 million. The final cost is about US$50.2 millionas shown in Table 5A in Part III. The increase in total cost of about 4percent was due to the improved standards of construction of the Limassol By-pass and the Erimi-Ypsonas Link. The cost increase of these standard-improvedcomponents was partially offset by the saving attained with the reducedconstruction of the RRI program (initially contemplated at 200 km. of whichonly 175.7 were constructed), as well as smaller than contemplated equipment.Costs.

5.06 Disbursements. Estimated disbursements of the Loan 2128-CY are givenin Table 3 in Part III. Disbursements were delayed due to project start-updelays and slow project implementation. The original closing date was June.30, 1987; efter two extension the final closing became June 30, 1989. InOctober 20,1989 the Borrower requested the cancellation of approximatelyUS$0.9 million not necessary for project completion. Disbursements againstcommitments were made until December 1, 1989 and an outstanding balance of

approximately US$1.0 million was cancelled retroactively to the date of thelast disbursement. The total amount of this last cancelation was composed ofUS$0.4 million worth of disbursement applications that were not received intime to be processed and a balance of US$0.56 million due to civil worksexecution that was delayed beyond the end of 1989.

5.07 Loan Allocation. The original and revised allocation and actualdisbursements for the Loan 2128-CY are shown in Table 5 Part III. Theoriginal allocations were revised in 1986 to reflect changes in projectcomposition, --i.e. the inclusion of the Nicosia-Limassol Highwayrehabilitation works and the reduced amount of kilometers in RRI program.

6. Proiect Results

6.01 Proiect Objectives. Overall, the project was successful in meetingits principal objectives of supporting regional development through the RRIprogram (although the initial project target for this component was notreached); of improving traffic conditions to and from Limassol port and easingcongestion on Limassol town; of promoting the technical development of PWD;and in the last years of the loan, also of improving the level of maintenanceof the existing highway network.

6.02 Physical Results. The physical target of the RRI program was notfully reached, only 176 km. of rural roads were improved (88 percent of thetarget of about 200 km.). This nevertheless had no detrimental effect on theproject because the execution of the Fourth Highway Project (that overlappedby more than three years with this one), also has a RRI component that hascontinued to be successful. The other project target that was not attained byclosing date, namely the construction of vehicle inspection stations, will becompleted by end of 1990.

6.03 On the other hand the rehabilitation of the Nicosia-Limassol Highwaythat was not contemplated in the original project design added to the benefitsobtained through the project. The decision to implement this work during theexecution of this project, appears to have been a sound one since apostponement of the rehabilitation would have caused the reconstruction coststo be much higher.

6.04 Economic Results. The weighted average economic return for theproject is now estimated to be 20%, compared to 17% at appraisal, and theproject is considered economically justified.

6.05 At appraisal, the economic return for the first year of the ruralroads improvement program (56.5 km) was estimated to be 16%. A total of 175.7km were eventually improved during 1985-89 under the program at a cost of 12.0million Cyprus Pounds. Traffic levels on the improved roads generally rangedfrom 300-3000 vpd, with one suburban section carrying about 5800 vpd. Theprogram is now estimated to have a weighted average economic return of 25%,with all except one of the 25 sections having an economic return greater than10% (Table 6B in Part III). The increase in the reeatimated economic returnis due to higher levels of traffic than were assumed at appraisal.

6.06 At appraisal, traffic on the Limassol By-pass and Ypsonas-Erimi linkwas forecast to reach 4500-7000 vpd in 1985. Traffic in fact grew to 8000-20000 vpd in 1989, due primarily to the rapid growth of tourist traffic in theLimassol area, as well as to the growth of traffic at the port of Limassol.It was therefore decided during project implementation to construct both roadsections to four-lane standard, rather than two-lane standard as anticipatedat appraisal. The final cost of the four-lane facilities is now estimated tobe 10.7 million Cyprus Pounds. The economic return for both sections inreestimated to be 15%, compared to 22% eptimated at appraisal. The moderatedecrease in the estimated economic return is due to the additional cost ofconstructing the facility to four lane standard. However, this reestimatedrate of return does not capture all the benefits due to the better level ofservice resulting from the construction to four-lane standard.

6.07 Imoact of Prolect. In addition to the physical results, which willhave a significant impact in the economic development of the country, thegreatest impact of this project has probably been in promoting the developmentof institutional capability which was previously non existent, or existed to alesser extent, and in providing the technical tools and the methodologynecessary for the implementation of a rational maintenance management system(RMMS). This system has been very successful and is fully operational. Inthe preparation of the feasibility studies for the initial tranches of the RRIprogram, PWD had to rely on the assistance of outside consultants; startingwith the latter tranches of this component, all the feasibility studies forthis type of work are now adequately prepared in-house.

6.08 The project has also been instrumental in promoting within PWD thepractice to approach roal investments with rational economic/technicalcriteria, and in subste;.tially expanding MCW/PWD's capability to prepare, in-house, the terms of reference and proposal-invitation documents for studies aswell as the bidding documents and technical specifications for civil works andequipment procurement.

6.09 The greatest benefit derived from the project is the substantialprogress in institutionalization of rational criteria in the selection of roadinvestments and adequate road maintenance budget allocation.

7. Proiect Sustainability

7.01 As indicated, the Project has had significant benefits in thefollowing:

(a) drawing adequate attention to the need to improve the rural roadnetwork and increasing the availability of funds for this purpose;

(b) strengthening PWD's technical capability

(c) increasing the coverage of the primary network with roadinvestments selected through adequate technical/economic criteria,and promoting the establishment of these criteria as the only onesused in the selection of road investments; and,

(d) promoting an increase in the budget allocated for mnaintenance ofthe exiting road network and providing PWD with the necessarytools and methodology to carry-out a rational maintenance program.

7.02 The success encountered by this project was largely due to theGovernment's and the Executing Agency's commitment to the project'sobjectives. The continued commitment of Government and Executing Agency areessential if the benefits attained through this project are to continue andincrease.

7.03 The Fourth Highway Project (Loan 2684-CY) and the Transport SectorDevelopment Project (Loan 2906-CY) presently under implementation, share withthis project similar objectives. This extended Bank participation in thesector and the continuity of project objectives, should have a major impact inthe institutionalization of adequate technical/economic criteria for roadinvestment and the provision of adequate road maintenance budget allocations.

8. Bank Performance

8.01 Through the Third Highway Project, the Bank has made positivecontributions to the physical development of the sector and to theinstitutional development of the Agency in charge.

8.02 Bank performance has been satisfactory. Project preparation wastimely and thorough. Although discussions of contractors' prequalificationand bidding documents were started well in advance of Loan Negotiations, thedelays encountered in this respect were caused by what appears to have beendifficulties on the part of the Executing Agency to adapt to the Bank'sprocurement practices. However, once this obstacle was resolved projectexecution developed almost problem free.

8.03 The timeliness of Bank's response to the requests made by Borrower andExecuting Agency was satisfactory as was the periodicity with which theSupervision missions were scheduled, with the possible exception of 1989 whenonly one mission could be programed. The three changes in Task Managementthat the project underwent do not appear to have had any ill effects on theproject, and Task Management transition appears to have been smooth. On theother hand, the procurement delays that this project suffered throughout itsimplementation continue to exist in the ongoing projects, in spite of specificproject objectives to address this issue (Loan 2906-CY).

8.04 In retrospect the following lessons may be learnt from the experienceof this project:

(a) the contemplated implementation schedule was possibly too optimistic;this lesson has been applied in preparing the Fourth Highway Project,whose implementation schedule was set at BiX years (two more than thisproject's);

(b) the clearly valuable impact and the benefits obtained through thisproject (outside of its physical results), cannot be objectivelyassessed without due regard to the influence that the other two,

ongoing projects, had in their attainment. In this regard the lesson,once again, is the importance of the Bank's continued involvement in asector and the benefit accruing through "piggy-backed" projects;

(C) the project experiencr substantiates, once again, the importance thatfirm commitment to project objectives, on the part of theBorrower/Executing Agency have for the success of a project;

(d) although the delay in constructing the vehicle inspection facility didnot have any serious detrimental effect in the project's overallimpact/benefits, it nevertheless highlights the importance that timelyland acquisition has in preventing major project delays.

9. Borrower Performance

9.01 Table 7 Part III contains the review of the compliance with LoanAgreement covenants by the Borrower (Government) and the executing agency (PWD).Except for the delays in producing the annual highway maintenance program(complied with only after 1984) and in submitting the Audited Report for fiscalyear 1989, performance has been good.

9.02 Project execution was particularly problem free. There were some delaysduring project preparation and appraisal, but cooperation and support wereadequate.

9.03 The project unit was created in a timely fashion and staffed withqualified personnel and, within the confines of its authority, performedsatisfactorily throughout. project implementation.

9.04 With the exception of the delays in increasing the budgetary roadmaintenance allocations (this goal began to be attained only after 1985), theGovernment's and PWD's commitment to the project's goals were very strongthroughout project implementation.

9.05 In general the time needed for the procurement process still continuesto be too long, particularly the time required by the Main Tender Board to makeits award recommendation. This remains so in spite of the procedures review thatwas included and carried out under the Transport Sector Project (Loan 2906-CY).In this regard the Executing Agency is clearly not at fault since the delay takesplace outside its area of jurisdiction.

9.06 The main lessons that can be learnt by the Borrower and the ExecutingAgency from the experience of this project are:

(a) the large economic benefits derived from the RRI program, and theimportance to retairn, and hopefully increase, the in-house technicalcapability to prepare and evaluate the yearly proposals for thisprogram; hence, the relevance of a focused and continued trainingprogram for the technical staff;

(b) the importance of the timely acquisition of land required for projectimplementation in order to prevent construction delays;

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(c) the need to accelerate Tender Board procedures.

10. Proiect Relationship

10.01 Bank relationship with Government and PWD on the project has beengood.

11. Consulting Services

11.01 Consultant services required for the preparation of this project werefinanced through the Second Highway Project (Loan 1344-CY). Similarly,through this the Third Highway Project several studies, required for thepreparation of future projects, were financed. Table 6C of Part III presentsa summary of the studies financed through the project.

11.02 The two major studies required by the legal documents of the projectwere fully implemented and have met with satisfactory results. The study toimprove rural bus service has been instrumental in the creation of newimproved companies; although the program of company creation is still underway, it has already yielded some very tangible benefits. The study for thepreparation of a highway maintenance and rehabilitation p.ogram was alsosuccessfully completed and the RMMS is presently fully operational withupdated road data.

12. Proiect Documentation and Data

12.01 The Loan Agreement was adequate and appropriate for achieving projectobjectives. The Appraisal Report provided the Bank and the Executing Agencywith adequate information and with a useful framework for managing, monitoringand reviewing the project implementation.

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PART II

PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

The following paragraphs (Part II of the PCR) have been transcribed, withoutmodification from the letter of the Ministry of Pubic Works.

We refer to your letter of March 9, 1989 and the attached officememorandum concerning the above subject, and we present herebelow Part II ofthe PCR.

2. We confirm the adequacy and accuracy of the factual informationcontained in Part III of the PCR.

The missing figures in paragraph 2. Background, of Part I of tne PCR are 6%and 2.3% for the present GNP annual growth and the present level ofunemployment respectively.

3. The Bank's staff members have contributed significantly to theidentification, preparation, appraisal, negotiation, andimplementation/supervision of the Project by focusing attention on issues andprocedures of importance both at senior and less levels of the Administration.This was done with tact and by exemplifying cases of action taken in similarcircumstances as set out in the Bank's guidelines. Such advice could havebeen pedantic and irritating but, because of the way it was offered and theobvious competence and experience of almost all of those who have been here,was pertinent and helpful. The effectiveness of the relationship between theGovernment and the Bank is demonstrated by current acceptance of theimportance of the following:

a) Project appraisal and cost/benefit analysis before committingGovernment to major investments. The use of such measures as economicinternal rates of return (EIRR's), net present values of benefits andcost streams (NPV's), first year rates of return and the sensitivitytests of results is now in general use whereas before it was not. Itis also recognised that over concentration on these measures without acareful consideration of the issues which need to be studied and thenature of the evaluations themselves has its own dangers. Ofparticular importance is this respect would be traffic growthestimates especially those relating to diversion of traffic andgeneration of new traffic because of a proposed investment.

b) Engagement of Consulting firms. The disciplines insisted upon by theBank have ensured that consideration of technical competence is ofparamount importance in the selection of consultants. The methodologywhich is now adopted for the commissioning of Consultants is thatdescribed in the "Guidelines for the use of Consultants by World BankBorrowers and by The World Bank as Executive Agency". Governmentpersonnel have gained considerable experience in all stages of theprocedures including those of invita:ion, efvaluation and awards. As aresult of the review and approval by the Bank of the proposed terms of

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reference for projects, important modifications have been made whichhave contributed to the success of the assignment.

As a result of the Bank's policy to encourage the setting up andpromote the development of domestic consulting firms, a number oflocal firms have entered into association with foreign firms. Thishas led to the transfer of skill to the benefit of local firms. Theexperience thus gained by local firms will help them to undertake infuture assignments by themselves.

c) The procurement of civil works is now carried out using, the BankGuidelines and the sample Bidding Documents used by the IBRD.Initially valuable guidance was obtained from the World Bank throughits missions to Cyprus and directly Washington. This assistance hashelped us refine our documents to a point which, from our recentexperience, the problems that arise during post-tendering period areminimal.

d) Procurement of goods is now accomplished by using detailed biddingdocuments which have been developed on the basis of "sample biddingdocuments" which were prepared jointly by the Asian Development Bank,the Inter-American Development Bank and the World Bank and resultingfrom broad international experience. These documents have helped theGovernment to award contracts to lowest evaluated bidders, and not onprice quotation alone. This has led to the securing of better qualityequipment.

e) Road maintenance was little appreciated before the Bank's involvementwith us. The value of easier communications was already appreciatedbut the methodical maintaining of the road network is now increasinglyunderstood. A good example of this is the experience of the Nicosia-Limassol arterial highway. This was a road which was under-designedat the outset, was subjected to a massive traffic growth of more than10% per annum from its opening and suffered from a poor road pavementresulting in the need for a partial reconstruction and replacement ofthe asphaltic layers after only a few years. Observed deteriorationof road surface is now the basis for centrally programmed maintenanceeffort with the newly established Maintenance Section using the RoadMaintenance Management System (RMMS) the introduction of which was theresult of a maintenance study carried out by foreign consultants.This study was indicated by the Bank and made the Government awarethat adequate funding for maintenance was justified. The annualallocation for road maintenance has increased in such a way so as toremedy in phased manner the backlog in road maintenance from previousyears.

f) The environmental inipact of road developments and construction wasparticularly highlighted in the study of road access to Tillyria andin subsequent work. The effects on flora and fauna and the changes inland use in ecologically and socially sensitive areas was recognised.For the first time the impacts of development on land use, water andair quality, the landscape, soil erosion and the risk of fire damageand the obliteration'of antiquities were noted and attempt made to

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quantify the costS of minimising adverse effecte. Tourisn. is now animportant part of the island's economy and tourist related employmentis well over the 20,000 jobs estimated at that time. To avoiddestruction of the very environment which attracts tourist and whichshould remain a national heritage is now a common awareness. Th- costof minimising spillage of spoiled material on mountain slopes areincreasingly considered when making contractual arrangements withconstruction companies.

g) Training of personnel in the Ministry of Communications and Works sothat they appreciate the new technologies available and their use andlimitations. Sixty MCW personnel attended overseas courses in variousprofessional skills whilst many others have undergone local trainingat the Nicosia Higher Technical Institute.

h) Road safety and the costs to the community of poor driver performanceand geometrically substandard roads and highway especially in view ofthe growing vehicle population of the island and more intensive use ofcars, trucks and buses.

4. Adherence to Bank guidelines and target dates during theimplementation of Projects was one of the Government's main concerns. We havefor the greater part of the project cycles matched the schedules set with theBank. The project duration was, however, in two cases extended by one yeardue to lengthy procurement procedures. Advice from the Bank through thevarious supervision missions to Cyprus and the subsequent aide-memoires werean invaluable assistance to the Government when taking accelerated action asnecessary to avoid bottlenecks and delays.

s. No small part of the successes of the Third Highway Project for Cyprushas been the tactful reminding by the Bank Mission members of the importanceof proper reporting as part of the administration and management of theprojects. As a matter of self discipline we now regularly produce monthlyreports of general progress and regular reports on particular road projects.This has helped at &'l levels of the Administration. The availability ofsuccinct Aide-Memoires every six months or so are invaluable.

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PART III

STATISTICAL INFORMATION

1. Reglted Bank Loans and/or Credits. In addition to this Loan the Bank hasfinanced the following related projects, four for highways and two for porti

Year ofLoan Purpose Anoroval Status

Hiahwav Proiects

First Highway Construction of Nicosia- May 1973 Suspendedl'904-CY Morphou highway and

access roads.

Second Highway Construction of Nicosia- Nov. 1976 Completed1344-CY Limassol highway.

Fourth Highway Road rehabilitation and April 1986 Ongoing2684-CY strengthening, slice of

maintenance program andimprovement of Larnaca-Kophinou and Larnaca-Nicosia highways.

Transport Sector Construction of Dhekelia- Feb. 1988 OngoingDevelopment Aradhippou-LIA highway, road2906-CY improvement and pavement

strengthening.

Port Proiects

Cyprus Ports Development of new deep- June 1969 Completed628-CY water port at Limassol

Second Ports Expansion of port facilities March 1978 Completed1540-CY at Limassol and Larnaca.

I/ Comt1ai vm hiemqWd by evems of iWy 1974 after .Iy ow -i of wrk. ad the Bank agreed to It Goveral' .qucat for the rfaUocaio of US$3.6,,iliks to do d pojed (Last 134C7.

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2. Proiect Timetable

Date Date DateItem Planned Revised Actual

Identification 1/79 3/8/79

Preparation 3/80 - 2/27/80

Preappraisal 3/80 12/80 3/81

Appraisal 5/80 7/81 10/17/811'

Loan Negotiations 3/82 - 3/5/82

Board Approval 5/82 4/20/82

Loan Signature 6/82 - 6/8/82

Loan Effectiveness 8/82 10/82 9/15/82

Loan Closing 6/30/87 6/30/88 6/30/89

Loan Completion 12/30/86 5/31/89 10/31/891

Comments:

1/ Slower than expected project preparation.21 Most components were completed by this date but, the Ayia By-pass

road (RRI program) was completed in January 1990, and the VehicleInspection facility at Paphos will be completed only by the end of1990.

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3. Loan Disbursements

Cumulative Estimated and Actual Disbursements(USS million)

1983 1984 1985 1986 1987 1988 1989

Appraisal Estimate 2.2 5.8 8.1 11.3 12.2 12.2 :2.2Actual 0.3 1.0 2.5 3.2 5.3 7.6 10.3Actual as of %

of Estimate 13.6 17.2 30.9 28.3 43.4 62.3 84.4

Date of Final Disbursement: December 1, 1989

Cumulative Disbursements:

CWULAT IVE D 1SSURSBEENTS13 -

12 -

11-

J 7 -

3 -

1983 1984 1985 1986 1987 1988 1989

A E A A So SAP EST IMATE 7ACTUJAL

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4. Proiej t Imolementation

Appraisal Actual (orIndicgtor.a' Estimates PCR Estimates

1. Rural RoadsImprovements 50 km/year 29 km/yeary

Comments:

1/ In the SAR no specific project implementation performance indicator isgiven. Nevertheless, for the construction if the RRI component it isreasonable to assume a uniform rate of implementation, which yields50 km. of RR1 per year.

ai Considering a total implementation time of 6 years. If allowance ismade for the initial delay of one year, che implementation rate over anexecution time of 5 years would be 35 km. per year, that still issubstantially lower than the implicit SAR target.

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5. Project Costs and Financing

A. Proiect Costs

Appraisal Estimates ActuaALocal Foreign Total Local Foreign TotalCosts c C Exchance Costs Costs

(USS M) (US$ M)

ComtponentRural Road Improvement!'(SAR:200 km; Cons: 375.7 km) 20.8 13.7 34.5 15.6 9.1 24.7

Paving Worksy --- ---- 2.3 1.7 4.0

Limassol Bypaus (10 km) andYpsonae-Erimi Link (9 km) 6.8 3.4 10.2 17.2 5.7 22.93'

Vehicle Examination Equipment 0.0 0.7 0.7 0.0 0.3 0.3F

Technical Assistance 0.1 0.5 0.0 0.0 1.7 1.7

Training of MCW staff 0.1 0.3 0.4 0.0 0.2 0.2

Highway Maintenance Equipment 0.0 1.6 1.6 0.0 0.8 0.8

Charges 0.0 0.2 0.2 0.0 0.2 0.2

Total Cost 27.8 20.4 48.2 35.1 19.7 54.8

Comments:

1/ The SAR contemplated the construction of 200 km, but only 175.7 km wereconstructed. The unit price implicit in the SAR was USS 172,200 per km, and theaverage actual unit price of these program was only approximately USS 136,000 perkm.

2/ Rehabilitation of the Nicosia-Limassol Highway

3/ Cost overrun due to improved construction standards (4-lane facilities)

4/ All Vehicle Examination equipment has been received, but the installation of theequipment for the Paphos center will have to wait until end of 1990 to be install-after the facility has been constructed.

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B. Proiect Financina

Planned(Loan

fiourcu Agreement). Revised Final(US$ 000) (Us$ 000) % (US$ 000) E

IBRD1. Civil Works 10,462 7,012 6,191la. Paving Works 2,404 90 1,703 752. Vehicle Exam. Equip. 668 601 90 282 423. Consulting Services 556 1,703 306 1,685 3034. Training of Staff 334 300 90 225 675. Charges 180 180 100 180 100

Co-PinancingInstitutions(Kuwait Fund)1. Rural Roads 3,193 2,962 93 2,885 902. Limassol Bypass 3,405 4,638 136 5,726 1683. Maintenance Equip. 1,702 660 39 777 46

Domestic(Government)1. Rural Roads Improv. 20,288 14,780 15,636la. Paving Works --- 1,967 82 2,335 892. Limasol Bypass 7,236 9,856 136 17,205 238

TOTAL 48,024 47,063 98 54,830 114

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6. Proiect Results

A. Direct Benefits

Appraisal Actual atIndicators Estimates Closing Date

Improvement ofRural Roads 200 km 175.7 km

Professional /Technical JobsGenerated --- 137

Unskilled/ Semi-okill JobsGenerated --- 844

Daily vehiclesBenefiting fromRRI Program --- 10,594

Daily vehiclesBenefiting fromthe Limassol By-pass andYpsonas-Erimilink 12,908 23,790

Staff thatReceivedTraining --- 52

Comments:

In the SAR the only direct-benefit indicator given is the number of kilometersof rural roads to be improved. Additional direct-benefit indicators have beenobtained by direct counting and estimations made by PWD that, although cannotbe compared with the expected ones at appraisal, nevertheless give anindication of benefits obtained through the project.

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B. Economic Benefits

Appraisal ActualEstimate (At Final Development)

EconomicRate of Return

Limassol By-pass 21 15

Ypsonas-Erimi Link 27 15

RRI program 16 25

Project (weighted 17 20average)

Note:

The economic return for the project was reestimated using actual or estimatedfinal construction costs, the most recent available traffic counts, andcurrent vehicle operating cost estimates. Traffic counts were carried outshortly before construction of each of the 25 sections of the rural roadsimprovement program, as well as after construction for five of the rural roadsections and the Limassol By-pass and Ypsonas-Erimi link. A comparison of thebefore and after rural road traffic counts revealed little change beyond whatwould be expected from normal traffic growth, so that the pre-constructioncounts were used in the reevaluation for the remaining rural roads, afteradjusting them to the opening date assuming and average growth rate of 4.5%p.a. Land costs were estimated to add 20% to the cost of construction of theLimassol By-pass and Ypsonas-Erimi link. The tax component of constructioncosts is small, and was disregarded. Costs and benefits were adjusted to 1989levels using a Cyprus construction cost index. Vehicle operating cost(including time costs) were derived by the Public Works Department from HDM3and TRRL data, and are considered reasonable. Roughness was generally assumedtL be 6000 mm/km before rural road improvements, and 2000 mm/km followingimprovement. Roughness was assumed to be 3500 mm/km on parallel existingroads before construction of the Limassol By-pass and Ypsonas-Erimi link, and1500 mm/km on the new roads. Improvements were evaluated over a 20 yearperiod, with future traffic assumed to grow 4.5% p.a.Details of the calculation are shown on Annex A.

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C. Studies

Purpose asDefine at Impact of

Studies Acoraisat Status Study

1. Public Service Passenger See below Completed (1986) Confirmed Goverrynent policyCarrying Vehicles on the formation of rural

regionaL bus companies. Thiswas the preliminary work forthe main study below

Formation of Rural Rationalization of the Completed (1988) Five new coffpanies formed,Regional Rural Bus public transport system two near formationCompanies servicing rural roads completion and several

others Identified

2. Improved Road Establishment of a rational Completed (1989) Periodic maintenance of roadMaintenance road maintenance management network is now carried out

system on the basis of prioritiesestablished using the RMMSsystem

3. Limassol Traffic Not contemplated at CompLeted (1987) A number of junctionsManagement Appraisal identified in the study are

now being redesigned

4. Feasibility studies for Not contemplated at Completed (1989) Timely preparation of futurepreparation of future Appraisal projectsprojects (several roads)

5. Deflection Survey on the Not contemplated at Completed (1988) Allowed adequate design forNicosia-Limassol Highway AppraisaL the rehabilitation of this

highway

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7. Status of Covenants

Deadline forCovenant Subject Compliance Status

(3.01) Establish Project Unit Complied

(3.02) Employment of Consultants for Parts Throughout the Project ComptiedA and F of the Project

(3.03) a Insurance of Goods Throughout the Project Complied

(3.03) b Usage of equipment exclusively for Throughout the Project CompliedProject

(3.04) Furnish documentation to Bank, Throughout the Project Compliedmaintain adequate records, enablesite visits, advice Bank ofcontracts award and prepareCompletion Report

(3.05) Timely acquisition of land needed Throughout the Project Compliedfor the Project

(3.06) RRI schemes selected according to Throughout the Project Compliedagreed methodology and with previousagreement of Bank/KFAED

(3.07) Carry out a training program Throughout the Project Complied

(4.02) Maintain adequate financial records Throughout the Project Cotpliedand have them audited / yearly

(4.03) Forward to Bank annual highway Yearly Clmptied starting withmaintenance program 1985, but not

previously

- 23 -

8. Use of Bank Resources

A. Missions

Stage of Month/ Nilber of Days Specialtzation Performance Rating Types ofProiect Cvcle Year Persons in Field Reoresented StAtusY Problems

Throuoh Aworaisal

Identification 3/79

Preparation 2/80

Preappraisal 3/81

Appraisal 10/81 3 2v 20 EngineerEconomistFinancial Analyst

Supervision

Supervision 1 10/82 2 13/7 Y Engineer 1Economist

Supervision 2 4/83 2 6 ' Engineer IEconomist

Supervision 3 10/83 1 7 3/ Engineer 1

Supervision 4 6/84 1 8 3/ Engineer 1

Supervision 5 10/84 2 9 1' Engineer 1Economist

Supervision 6 4/85 3 11 F Engineers 1Economist

Supervision 7 8/85 3 l 10 A' Engineers 1Economist

Supervision 8 4/86 1 8 Y Economist 1

Supervision 9 8/86 2 15 2' Engineer 1Economist

Supervision 10 10/86 1 17 tl Economist 1

Supervision 11 3/87 2 16 7/ Engineer 1Economist

Supervision 12 6/87 2 26 Y' Engineer 1Economist

Supervision 13 4/88 1 5 ' Engineer 2

Supervision 14 12/88 1 12 2' Engineer 1

Supervision 15 10/89 2 20/10 2' Engineer 1Economist

1/ 1 - Problem free or m;nor problems2 - Moderate problems3 - Major problems

2/ Including one consultant3/ Including supervision of Loans 1344-CY and 1540-CY7/ Including supervision of Loans 1344-CY and 1540-CY and preparation of proposed Fourth Highway Project

Partial supervision and preparation of proposed Fourth Highway ProjectIncluding identification of proposed Transport Sector ProjectIncluding supervision of Loan 2684-CY and preparation of proposed Transport Sector ProjectIncluding supervision of Loan 2684-CYIncluding supervision of Loans 2684-CY and 2906-CY

- 24 -

B. STAFF INPUT(BW)

Processina Stage Inowt

Preparation 3.3

Appraisal 20.1

Negotiations 6.3

Supervision 63.1

Total 92.8

- 25 -

Annex A

Details of the Economic Reevaluation

Cost EstimatedDistance (pounds Traffic Economic

Road Section (km.) 000) (AADT) Return (%)

RURAL ROAD BETTERMENT:1st year (completed 4/85-12/85):

Kalokhorio-Gourri 7.7 452 374 13Polis-Pomos & Stroumbi-Polemi 10.8 562 927 30Liopetri-Paralimni 9.0 363 1380 25Kykkos-Kambos 5.0 282 264 21Parekklisha & Ayia Phyla 13.7 691 2000 51Paraklisha Bypass 1.6 102 1199 34Kellia-Troulli 6.6 224 745 11

2nd year (completed 10/86-10/88):Aredhiou-Kal. & Gourri-Pharma 12.4 1,172 1538 30Athalassa-Yeri 3.0 188 3148 100Avgoru-Ormidhia 2.5 94 1174 23Polemi-Psalti-Kannaviou 9.1 809 561 15Pomos-Pakhyammos 4.6 308 366 7Zoopiyi-Agros 13.9 1,001 324 15

3rd year (completed 1/88-8/88):Moni-Monagroulli-Asgata 6.0 423 249-1236 19Palodhia-Zoopiyi 16.0 1,080 331-629 12Tsadha-Khoulou 12.0 918 510-627 25Liopetri-Laru/Fam. 8.0 506 753 20Paliometokho S. & N. 2.5 243 1692 37Kambia-Kapedhes 4.0 280 367 19Mathiatis-Lythrodhontas 4.0 333 997 22Peristerona-Plat./Agro.-Mitse 15.0 1,161 835-1148 17

4th year (completed 1/89-12/89):Lania-Road 0.8 115 364 22Eylenjia-Athalassa 2.2 262 5817 100Anayia By-pass 5.3 427 2500 27

subtotal or weighted average 175.7 11,996 n.a. 25(Appraisal) (200) (18,720) n.a. (16)

LIMASSOL BYPASS: 9.2 5,729 19984 15(Appraisal Estimnate) (10) (2,200) n.a. (21)

YPSONAS-ERIMI LINK: 9.1 4,931 8315 15(Appraisal Estimate) (9) (2,200) n.a. (21)

TOTAL OR WEIGHTED AVERAGE 175.7 22,656 n.a. 20(Appraisal Estimate) (219) (23,120) n.a. (17)