Docun-e of

The World BankFOR OMCIAL USE ONLY

Report No. 6108-YAR

STAFF APPRAISAL REPORT

YEMEN ARAB REPUBLIC

MARIB-SAFIR ROAD PROJECT

May 28, 1986

Regional Projects DepartmentEurope, Middle East and North Africa Regibn

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.

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CURRENCY EQUIVALENT(as of May, 1986)

FISCAL YEAR

January. 1 to December 31

Currency Unit = Yemeni Rial (YR)US$ 0.138 = YR 1.00U$ 1.00 = YR 7.25US$137.931 = YR 1,000,000

WEIGHTS AND MEASURES

1 meter (m) = 3.2808 feet (ft)1 Kilometer (km) = 0.6214 miles (m)1 Square Kilometer (km2) = 0.3894 square miles (sq. miles)I hectare (ha) = 2.47 acres1 metric ton (= 1 ton) = 0.9842 long ton (1g. ton)

ACRONYMS AND ABBREVIATIONS

AADT - Average Annual Daily Trafficbpd - barrels per dayCAMA - Civil Aviation and Meteorolbgy AuthorityCPO - Central Planning OrganizationCYDA - Confederation of Yemeni Development .ssociationsdwt - deadweight tonsFirst Plan - First Five-Year Plan (1977-81)GDP - Gross Domestic ProductGSTA - General Secretariat for Transport AffairsGTC - General Transport CorporationHA - Highway AuthorityICB - International Competitive BiddingIDA - International Development AssociationLPG - Liquid Propane GasLDA - Local Development AssociationMAFR - Ministry of Agriculture and Fisheries ResourcesMCT - Ministry of Communications and TransportM4PW - Ministry of Public WorksPDRY - People's Democratic Republic of YemenPMAC - Ports and Marine Affairs CorporationSecond Plan - Second Five-Year Plan (1982-86)TA - Technical AssistanceThird Plan - Third Five Yeat Plan (1987-91)toe - tons of oil equivalentvpd - vehicle per dayVOC - Vehicle Operating CostVTC - Vocational Training CenterYAR - Yemen Arab RepublicYEMENIA - YAR National AirlineYGTC - Yemen General Transport CorporationYHOC - Yemen Hunt Oil CompanyYPC - Yemen Petroleum Corporation

1O OFFICIAL USE ONLY

YEMEN ARABIC REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAFIR ROAD PROJECT

Table of Contents

Page No.

I * THE TRANSPORT SECTOR..............................I

A. Background ................... IB. The Oil Discovery ......... ...... * ...... 2C. The Transport System... *... .. ...... ..* * 4D. Transport Organization, Planning and Policy......... 6E. Previous IDA Projects ............ .......... ........... 10

II. THE HIGHWAY SUBSECTOR ................................ 11

A* The Road Network.................................... 11B. T raffic .....t............................... 13C. Administration ....... ......... ......* 13B. Planning .b....iv................................. .. 14E. Fnci ....................................... 15F. Engineering ..................... ". 15F. Construction .nd..oi.... n.......... ....... ....... 16B. Maintenance Eff....................... . 27T r Training .r . ......eu .nfo t.ir d... bt.he Highway.... 18J. A ccoun ting and Auditingo.....ver -ent of.... ai

I1II THE PROJECT ............ }9

A. D ett ing ........... e.s.... . Parker .......... 19B. Project Objectiwves..........*. ....... ........ 19C* Description*. ....... ***.... ........... 20D. Engineering ......................... ........* .. 20E. Cost Esiae.. .......... .......... #* ... 21F .Implementation and Mo nitoring ............. 23G. Employment Effects .......................... 25H. Environment .............. ...0.0.... . ....... 25

Th is report was prepared using information provided by the HighwayAuthority and other agencies of the Government of the Yomen Arab Republic(YAR), and is based on the findings of an appraisal mission which visitedYk', in December 1985 comprising Messrs. P. Parker (senior transporteconomist) and L. Revuelta (senior transport engineer).

Thbs dcumnt ha esticttd dindbutionad may be usd by ripints only in th pefanusnOofthi ofcial dusa Its contets may otheribe be dIbcked wtbout Wofld Bank suthouiin.

Table of Contents (Continued)

-Paje No.

IV. ECONOMIC EVALUATION .......................... ... 4****e* 25

B. Traffic .................................... ....... 26C. Vehicle Operating Costs............................. 28D. Construction and Maintenance Costs .................. 28E. Results and Sensitivity Analysis ................... 28

V. RECOMMENDATIONS .. . *** *....... .e........ ... .... 29

ANNEXES1. Estimated Costs and Prices of Petroleum

Products, February 1986 ........................... 312. Road Expenditures and Road Related Revenues, 1984... 323. Existing Main Road Network.......................... 334. Supervision of Construction - Draft Terms of Reference 345. Proposed Implementation Schedule .................... 376. Project Monitoring Indices 387. Schedule of Estimated Disbursements ................. 398. Economic Costs and lnefits.......................... 409. Documents in the Project File 41

CHARTS1. HA Organization Chart: World Bank 30355 ............. 422. Cross Section of the Marib-Safir road:

World Bank 30376 ........ 43

MAPIBRD 19544

6157D

1M1 ARAB REPUBLIC

STAFF APPRAISAL REPORT

MNRIB-SAFIR ROAD PROJECT

Credit and Proiect SumparE

Borrover: Yemen Arab Republic (YAR)

Beneficiary: Highway Authority (HA)

Amount: US$10.0 million (SDR 8.6 m. at April 30, 1986)

Terms: Standard IDA terms

Project Obj#ectivesand Description:

The objectives of the project are to (a)facilitate substitution of domestic oil forimported products by permitting the transportof white products from a refinery at the oilfield to domestic markets; (b) facilitate thefurther development of the oil fields; (c)provide road access and facilitate themovement of agricultural inputs and themarketing of agricultural products to theWadi As Sudd area (population 78,000), whichwill be irrigated b? a neo dam; and (d)increase the capability of RA to design roadworks.

The project would consist of the constructionto paved standard of the Msrib-Safir road(62.5 ki). The road would connect the pavedroad network at Marib with the oil field andrefinery at Safir, and would also serve anagricultural area for the first 32 km.

Benefits and Risks

The primary project benefits would be to help reduce expendituresfor the importation of petroleum products and to reduce the cost oftransporting agricultural inputs and products. Institutional benefitswould include increasing the ability of KA to design road works. There areno unusual project risks, but allowance has been made in projectimplementation for delays in the construction component.

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Estimated Project Costs (Construction Foreign Local Taxes Totalof the Marib-Safir Road): -U US$illion Equivalent-

1. First Phase

Construction 5.2 4.3 1.3 10.8- Supervision 0.2 0.1 - 0.3

Physical Contingencies 0.3 0.2 0.1 0.6Subtotal 5.7 4.6 1.4 11.7

2. Second Phase

Construction 6.0 3.4 1.3 10.7Supervision 0.6 0.1 - 0.7Physical Contingencies 0.3 0.1 0.1 0.5Price Contingencies * 1.4 0.9 0.3 2.6

Subtotal 8.3 4.5 1.7 14.5

Total - Both Phases 14.0 9.1 3.1 26.2

Total Project (Second Phase) 8.3 4.5 1.7 14.5

US$ MillionFinancing Plan Equivalent Percent

Government 4.5 31Association Credit 10.0 69

Estimated Disbursements (US$ Millione)

IDAFiscal Year FY87 FY88 FY89 FY90

Annual 1.0 2.0 3.0 4.0Cumulative 1.0 3.0 6.0 10.0

Economic Rate of Return - 131, not including important unquantified benefits.

Staff Appraisal Report: Report No. 6108-YAR dated May 28, 1986.

* Price escalation for local costs estimated at 101 p.a. through 1990.Price escalation for foreign costs estimated as 7.2% in 1986, 6.8% p.a.in 1987 and 1988, 7.02 in 1989 and 7.12 in 1990.

I. TH. TRA4NSPORT SECTOR

A. Background

1.01 The Yemen Arab Republic (YAR) occupies an area of about 195,000km2 of largely mountainous terrain in the southwest corner of the Arabianpeninsula. There are three distinct geographic regions, the arid coastalplain (the Tihams), the rugged central and southern highlands rising toabout 2,500 m where the bulk of population lives, and the eastern plateau.Only about eight percent of the land is arable. mainly in the central andsouthern highlands where rainfall is highest, but also in the Wadis of theeastern plateau, the Tihama, and in pockets of terraced mountain slopesthroughout the central highlands. Most of the estimated 8.5 million popu-lation is therefore widely dispersed. As a consequence of this setting,both the demand for transport and the cost of providing transport servicesare high.

1.02 Until about 1960, YAR lacked a modern transport system. Primitivetracks were the only means of land transport, port facilities were limitedto the ancient port of Mocha, and there was no air service within thecountry. Efforts to modernize transportation began slowly in the 1960s,and accelerated following the end of the civil war in 1972 because the newregime was anxious to usher the country into the modern world throughcomprehensive economic development. Progress to date in developing thetransport system has been impressive (see map).

1.03 The fast pace of economic development in neighboring oil-richcountries provided employment opportunities for Yemeni workers and absorbedabout 30 percent of the Yemeni work force. The resulting increases inworker remittances fueled an economic boom in YAR, particularly in transport. Various factors contributed to this upsurge in transport demand: (i)financial support from the migrant labor force to build transport links totheir villages; (ii) increasing migration of rural people to the citieswhile maintaining close ties to their villages; (iii) structural changes inthe pattern and level of consumption requiring much larger imports; and(iv) an ambitious development program spurring construction activities invarious sectors on a massive scale. Traffic on all modes grew at unprece-dented levels during the 1970's, but has recently declined to more normallevels due to a decline in workers remittances caused by the recession inthe Gulf states and a general slowdown in economic activity:

Table 1.1: Traffic Growth Rates

Representative Tirafic Growth Rates (p P.a.)1971-76 1976-80 1980-84

1. Road Traffic 1/ 20 27 13

2. Port Traffic (imortsPlus Esaorts) 14 29 7

3. Air TramnDort ?asseugersat 5ana'aAirort 26 21 11 5

1/ Based on traffic at selected counting stations on main highways.1 1974-76

B. The Oil Discovery

1.04 YAR had no known energy sources until recently. In July 1984, theoil exploration activities by the Yemen Runt Oil Company (Y1CC) in theNarib basin (Safir) revealed the presence of oil with asociated gas. Anmber of international oil companies (Exxon, Total and British PetroleumCompany) have been attracted by the YROC discovery and the Government hasrecemtly negotiated with them for exploration blocks in other areas, bothon and offshore.

l.GS TROC has identified about 17 potential hydrocarbon bearing struc--t-rea in the Marib basin. Only three of the structures have been drilled,resulting in one oil discovery and two gas discoveries. The size of theoil reserves has not been officially revealed by Y%OC. but there areIndications that exploitable reserves are substantial in relation to YAR'se_rgy needs. The Government declared the oil discovery commercial inDecember 1985, stating that reserves discovered so far totalled 400 millionbarrels of oil. There are various unofficial estimates of possible produc-tion rates for this oil. ranging from 100,000 to 200,000 bpd.

1.06 TAR currently imports about 1.1 million tons p.a. of refinedpetrolem products to meet domestic needs:

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Table 1.2: Petroleum Imports In 1985 (thousands of metric tons)

Bas oilldiesel 522.3Fuel oil 491.2Gasoline 316.5 *Kerosene 77.8Liqgid Propane Gas (LPG) 52.0Aviation turbine kerosene 49.2

1,509.0

* Includes official and private imports. Does not include unofficialimports currently estimated at about 50,000 tons p.a.

Domestic production of crude oil is expected to be at least three timesdomestic consumption. The Government therefore plans to export crude oil.

1.07 The exploration concession is governed by the terms of the produc-tion sharing agreement between the Government of YAR and the YROC which wassigned in 1981. The development of the Alif field at Safir is determinedby a participation agreement, with 75.5S owned by YEOC and 24.52 owned by aconsortium of four Korean companies. In December 1985, 49% of YEOCsInterest in YAR were sold to Exxon. This joint venture will be responsiblefor development of drilling, and for the construction of a 400 km crude oilpipeline from the oil fields to the coast near Salif with a deep waterw-ine terdmial The 27" diameter pipeline has been designed by consul-tants Wilbros-Butler Engineering (UK), and the Government expects that itwill be completed as early as March 1988.

1.08 YAR has also agreed with Y8OC to build a 10,000 barrels per day(bbd) "hydroskimiing" refinery at the oil field in Safir to produce LPG,gasoline, diesel, and fuel oil for the domestic market. Temporary produc-tion facilities will be provided to supply crude oil to the refinery. Therefinery and related facilities are under construction and initial opera-tions began in April 1986. The refinery will supply about 382 of thecountry's consumption of refined products (at 1984 consumption levels).Thi& will improve the country's balance of payments by allowing fieldproduction to advance by approximately two years, and thereby avoiding thehigher cost of importing refined products. The refinery and gatheringsystem were partly financed by the International Finance Corporation(Investment Loan 11-TAR, $9.0 million, 1985).

1.09 The Government is also considering providing additional refiningcapacity. This could be accomplished by expanding the Safir facility, orby building a secontd refinery near Sana'a (the main consumption center) ornear Salif (the crude oil export marine terminal). This decision should bebased on an economic evaluation, since there is a new refinery presently

being constructed near Yanbu, Saudi Arabia, and there is excess refinerycapacity at Aden in the People's Democratic Republic of Yemen (PDRY). TheAssociation, by carrying out an Energy Investment Options Study, is assist-ing the Government to define its refinery strategy, and also to assess theoverall impact of the oil discovery in the economy and to determine theinvestment options and alternatives in the energy and other relevantsetsora.

Li10 Gas has also been discovered in the Safir area. If re-injectionis not necessary, gas production could total roughly 150 million cubic feet(3,540 toe) per day. The Government has various options for utilizing thisgas, including substituting gas for fuel oil for domestic power or cementproduction, producing fertilizer based on gas feedstock, or exporting gas.Ift particular, the Government could construct a new power generator atSafir, or build a gas pipeline to power plants on the coast, or to otherdcmestic usars. The refinery and the o4; fields will also produce LPG,which could be bottled for household rne or used for other purposes. TheAssociation is also assisting the G',vernment to assess its gas utilizationoptions as part of the Energy Investment Options Study (para. 1.09).

C. The rransport System

1.11 YAR has built up from almost nothing (para. 2.01) the framework ofa modern transport system through concentrated efforts during the lasttwenty years. The system now consists of about 3,250 km of main roada(Table 2.1), a modern sea port at Hodeidah and secondary ports at Salif andMocha, and three international airports. YAR has also made a good begin-ning at building up the institutional framework to administer and maintainthe system. However, only the initial building blocks are in place and alot more needs to be done to further expand transport capacity, particu-larly the road network, and to build and strengthen institutions. Severalof the country's interior areas, even fertile and densely inhabited areassuch as the Wadi As Sudd to be served by the proposed project, still lackroad access. Current Government policy and planning emphasize the need toimprove access to interior areas, while it continues to assign importanceto the need for better maintaining and improving other elements of thetransport system.

Highways

1.12 The highway system is discussed in Chapter II.

Ports and ShipDina

1.13 Port congestion, with ships waiting for up to three months beforeberthing at Hodeidah, was a major problem faced by YAK in the late 1970's.Ocean freight charges to YAR more than doubled during this period. TheGovernment then took a number of steps to increase capacity, assisted bythe Association and other donors, so that port capacity has not been asignificant problem since 1980.

1.14 Of YAR's three main ports (Hodeidah, Mocha and Salif), Hodeidah islocated almost centrally on the coastline and is the main port, handlingabout 80 percent of general cargo traffie. Under the Port DevelopmentProject (Cr. 114-YAR), the approach channel of Hodeidab was widened and theport dredged to a general depth of 9.2 meters, so that the port nowreceives fully loaded ships of about 22,000 deadweight tons (dwt). Threenew berths and other facilities, including a container berth, were alsoconstructed and the existing berths rehabilitated. The mooring berth forhandling petroleum products was also reconstructed, and can now accommodatetankers up to 15,000 dwt. Under the Grain Storage and processing Projectfinanced by IDA (Cr. 636-YAR), the Hodeidah port also received a mechanizedinstallation for unloading bulk food grains and a grain silo of about20,000-ton capacity. The Government has recently called tenders for theconstruction of a second container berth at Hodeidah to be financed byJapan. YAR is expected to have sufficient port capacity for several yearsfollowing completion of the second container berth.

1.15 The small port of Mocha was also improved in the 1970's and nowhas a finger pier with two berths of 8 m water depth and support facil-ities. Mocha is well sited to serve the prosperous southern highlandgovernorates of Taiz and Ibb; however, for containerized and other special-ized cargo destined for these areas, Hodeidah. with its superior facil-ities, still retains a competitive advantage.

1.16 Salif has a natural deep-water harbor with a modern pier to handlesalt. It has no general cargo or other port facilities. Salif was used tounload some general cargo ships during the period of port congestion in the1970's, though the handling fac 4 lities were meager and the road link to theport poor. In 1980, a private firm constructed a floating jetty and silofor mechanized discharge of cement at Salif. The Government is also con-sidering constructing a single buoy mooring at the terminal of the proposedcrude oil pipeline close to Salif.

1.17 The Ports of Hodeidah and Mocha are managed by the Yemen Ports andMarine Affairs Corporation (PHAC), and Salif by the Yemen Salt ExportCorporation. These organizations are reasonably efficient. During 1984,the three ports together handled about 3.1 million tons of dry cargo (about2.2 million tons in Hodeidah, 0.6 million tons in Mocha and 0.3 milliontons in Salif), and 0.9 million tons of bulk petroleum products. Generalcargo traffic has been growing about 7.0% p.a. during the last four years.YAR imported about 364,000 tons of goods in containers in 1984, almost allthrough Bodeidah. Container traffic has doubled during the last threeyears.

1.18 The Government established the Yemen Sea Transport Company, ashipping company, under a joint venture agreement with the Government ofPDRY. However, the company never operated any vessels, and the venture wasrecently abandoned in part because YAR and PDRY do not have sufficienttraffic to made a shipping company profitable.

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Civil Aviation

1.19 TAR has invested substantially in its airport infrastructure sincethe revolution. The airports at Sana'a, Taiz and Hodeidah n*ow providefacilities for both international and domestic air traffic, while sevensmaller airports serve regional needs. Sanaa's main runway is currentlybeing extended to 3,800 a to accommodate wide-bodied aircraft, and a newterminal building was recently completed. The runwaya at taiz and RHdeidahhave now been extended to 3,000 m, and a new terminal building at Hodeidahis under construction. The Sana'a airport handled a total of 12,750flights (arrivals and departures), excluding military traffic. in 1984.About 473,000 passengers moved through the airport in 1984, three-quartersof whom were international passengers. Passenger traffic has only grownabout 5% p.a. since 1980, and is not expected to grow significantly in thenear future due in part to the decline in foreign remittances.

1.20 The United Nations, through its International Civil AviationOrganization and United Nations Development Program, continues to providevaluable tecknical as8istance covering a variety of areas to assist TAR'sCivil Aviation and Meteorology Authority (CAMA), the autonomous authoritynow in charge of civil aviation maitters including airports and meteorolog-ical installations.

1.21 The national airline, YEMENIA, is a profitable joint venture ofthe Governments of YAR and Saudi Arabia. It operates four Boeing 727-200'sand one Boeing 727-300 primarily in international service, and two DashDHC-7's in domestic service. The company has about 1,500 employees.TEMENIA carried 456,000 passengers in 1984, at an average aircraft loadfactor of 558.

D. Transport Organization, Planning and Policy

Transport Organization

1.22 A number of organizations are involved in transport in YAR. TheMinister of Public Works is the Chairman of the semi-autonomous HighwayAuthority (HA), which is responsible for the technical planning, design,ccnstruction and maintenance of the main road infrastructure system. Inaddition, he is the Chairman of the semi-autonomous PMAC. The CentralPlanning Organization (CPO) is responsible for national economic planningand coordinating investment decisions, including those in the transportsector. The Ministry of Communications and Transport (NCT) controls CAZA,YEMENIA and the land transport companies. Local Development Associations(LDAs), which are not responsible to any Ministry, build low-cost ruralroads with their own funds as well as with local Government financing. TheMinistry of Interior controls the traffic police.

1.23 MCT has recently formed a General Secretariat for TransportAffairs (GSTA) under a Deputy Minister. This nascent agency lacks qual-ified staff and as a result, the operatius agencies for road transport,airports and civil aviation, still operate with little accountability to

GSTA. To improve the situation, the Government undertook organizationaland policy studies under the Association-financed Fourth Highway Project(Cr. 1267-YAR) which define the role and identify the technical assistancerequired by GSTA. The Government is presently considering adopting therecommendations of this study for strengthening/reorganizing GSTA.

Road Transport Organization

1.24 The Government has established two public-sector road transportcompanies: (a) the General Transport Corporation (GTC) established in 1982with YR 100 million capital (51 percent of which is owned by YAR Governmentand the reminder by private investors), which provides inter-city andin-city bus services; and (b) the Yemen General Transport Corporation(YGTC), with a capital of YR 50 million, jointly owned by YAR and PDRY,which operates a fleet of 3 buses and 10 trucks between the two countries.The GTC owns a modern fleet of 66 buses, and operates 52 inter-city busservices daily; it plans to start in-city bus services in Sana'a, Hodeidahand Tais, but these are not yet operational.

1.25 Apart from the above Public sector activities, road transport isessentially private, with operators subject to the rules of drivers' asso-ciations. The drivers' associations function as cartels which maximize thesize of their membership. Drivers are required to register for the routethey wish to operate on, and to wait for their turn at the associations'freight and passenger stations which exist in all major towns. Contractingtransport from sources other than the association offices is not permitted,but entry into the industry is free and many migrant Yemenis, returningwith capital to invest in a small business, opt to become transport oper-ators. As a result, the size of the fleet is large, waiting time at theturn offices long, vehicle utilization low, and transport costs are high.Tariffs which are proposed by the associations and normally approved by theGovernment without change, reflect these high costs, although they varyfrom route to route depending on road conditions, likelihood of a backhaul,size of shipments and other factors. Determining the proper role of thedrivers' association is the principal issue that Government must address ifcosts and prices are to be brought down. Government is aware of thisproblem, and recommendations were made as part of the GSTA study under theFourth Highway Project. The strengthening/reorganization of GSTA, willprovide the Government with an effective way to interact with privateoperators (para. 1.23).

Transport Planning

1.26 Transport planning is done predominantly with the help of outsideconsultants engaged by sub-sectoral agencies, with decision making oninvestment allocation and project selection being done by the projectsub-sector agencies (such as the PMAC, HA and CAMA), and by concerned min-istries, coordinated by tae CPO. CPO is responsible for national economicplanning and for coordinating economic decisions for all sectors. Likeother Government agencies, it is seriously short of professional staff andits involvement in transport has been in less depth than in other sectors,

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leaving transport planning almost entirely to the individual modes. Forthe preparation of the transport part of the Second Plan (1982-86), the CPOmade use of consultants to collate the contributions of the various agen-cies. The key t improving transport-sector planning is to strengthenGSTA, but this will take time (para. 1.23). In the meantime, CPO is beingassisted in the preparation of the Third Plan (1987-91) with expertsfinanced by the Kuwait Fund, UNDP, and the Association.

Transport Policy

1.27 The objectives of the transport sector are reflected in the coun-try's Five-Year Plans. The policy objectives of the First Plan (1977-81)were stated in only general terms, but emphasized the role of transport andthe need to build up a reasonable infrastructural base to integrate thecountry, to mobilize existing domestic resources for development, to reduceYAR's isolation, and in general to cater for the growing mobility of peopleand exchange of goods. The objectives of the ongoing Second Plan (1982-86)are to foster the productive base of the economy with priorities given toagriculture, minerals, and manpower development. Transport and communi-cation, however, retain an important supporting role, accounting for 222 ofproposed public investments. Transport sector objectives include construc-ting new main roads, maintaining existing assets, and developing secondaryroads to serve the country's interior areas better. The Second Plan alsoemphasizes investments and other measures to reduce the cost of passengerand freight transport so as to promote better utilization of the country'sresources. The Association agrees with the general priorities and strategyof the Second Plan. The Third Plan (1987-91) is expected to emphasize thesame objectives as the Second Plan, in addition to providing sufficienttransport infrastructure to accommodate the oil discovery.

1.28 Actual and planned public investments in the transport sector areas follows:

Table 1.3: Transport Sector Investments, 1977-86

First Plan Second Plan (1982-86)(1977-81) 1982-84

Transport Sector Actual Planned ' Actual- - YR Millions --

Roads 2,223 2,682 2' 799Road Transport 20 25 11Ports 318 200 65Airports 711 473 576 5"Yemenia Airways 558 261 n.a.

Total 3,830 3,641

lt 1981 prices.21 Includes feeder roads for agricultural projects, and city streets.3/ 1982 and 1983

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Actual investments in the transport sector have declined during recentyears due primarily to the decline in foreign assistance caused in part bythe recession in the Gulf States, and as well as to the fall off in workersremittances which resulted in a decline in Government revenues. In 1983,the Association assisted the Government to reconsider priorities for theSecond Plan when it became evident that investment objectives would not bemet.

Cost Recovery

1.29 Government fiscal policies aim at recovering the full cost of pub-lic transport services, except in special circumstances where it considersthat a subsidy is justified on social grounds. Road users contribute tothe general tax revenue through import duties and excise taxes on fuel,import duties on vehicles and spares, and annual vehicle taxes and licensefees. Petroleum products were priced on a cost plus basis until 1984.Since then, the Government has not increased the price of all petroleumproducts sufficiently to offset changes in the exchange rate, in spite ofrecent declines in the cost of petroleum. As of February 1986, gasolinewas priced at YR 3.00/liter, which exceeded the economic cost of productionby about 53 percent (Annex 1). Diesel fuel, however, was priced at YR2.00/liter, which was about 22 percent below its economic cost. The EnergyInvestment Options Study, currently under preparation by the Association,will include reconuendations on energy pricing (para. 1.09).

1.30 Road user revenues exceed what the Government spends on road main-tenance and construction. The Government spent about YR 527.7 million onroads in 1984, which was a reasonably typical year, at the same time thatit took in about YR 688.6 million in revenues from road user taxes(Annex 2). The current subsidy of diesel fuel (para. 1.29) does not changethis relationship significantly since fuel taxes only accounted for 11 ofroad user revenues in 1984. The structure of road user taxes, however,requires some improvement. First, the incidence of road user charges onparticular user categories favors heavy trucks, whereas heavy trucks causemost of the damage to roads (road damage generally increases with thefourth power of axle weight). For example, diesel trucks pay almost no netfuel tax at present and all trucks are taxed at a fixed rate per ton ofcarrying capacity, which favors heavy vehicles. Second, vehicle owners whouse unofficially imported fuel are not paying any taxes. In the past, theGovernment has considered increasing the price of diesel fuel, but feltthis could lead to a further increase in road tariffs, adversely affect theagricultural sector, and encourage unofficial imports. In addition to theEnergy Investment Options Study (para. 1.29), a road user charges study isbeing carried out as part of the Highway Master Plan Study under the ThirdHighway Project to provide recommendations in this area. The Governmentexpects to adopt policy reforms based on this study by end-1987. Theeevenues of both public road transport corporations, GTC and YGTC (para.1.24), cover their operating costs including depreciation.

1.31 PMAC collects various charges from port users which are intendedto cover the cost of port operations. Tariffs were increased in 1977 and

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again in 1982, to roughly double their former levels. Port charges are nowat the same general level as other Red Sea ports with which YAR portscompete.

1.32 The Government invested intensively in the development of theSana'a, Taiz, and Hodeidah airports during the last ten years. Airportuser charges are not sufficient to cover current expenditures, and make nocontribution to the capital budget. Airport operating costs are alsolikely to increase rapidly during the coming decade, as airport infra-structure requires more maintenance and is further expanded. As agreedunder the Fourth Highway Project, CAMA carried out a comparative study ofairport user charges and made recoumendations: Their recommended level oftariffs would enable the airports to cover operating expenses, includingdepreciation. CAMA's recommendations are currently under review by theGovernment.

E. Previous IDA Proiects

1.33 IDA has actively assisted YAR since 1972 to develop its basictransport system and institutions. The Government has successfully imple-mented six projects, financed by $56.0 million equivalent in IDA credits,and has maintained a constructive dialogue with IDA on sector policieswhich have resulted in significant improvements. In highways, HA wasestablished and strengthened, a training school was established and suc-cessfully operated in Taiz, a road maintenance program was implemented,axle-loads were limited, accounting improved, and economic project evalu-ation introduced. In ports, cargo handling was improved, cost accountingintroduced, tariffs increased, and an engineering department established.Initial steps were also taken to improve the administration of other modes.

1.34 IDA's first involvement in YAR was the First Highway Project (Cr.315-YAR, FY73), which was co-financed with the Kuwait Fund. The projectemphasized technical assistance for establishing KA, and provided for feas-ibility and engineering studies for priority roads, construction of theTaiz-Turba road, and the purchase of road equipment. The Second HighwayProject (Cr. 558-YAR, FY75), also co-financed with the Kuwait Fund,financed the continuation of technical assistance to HA, and the construc-tion of the Tais-Al Mafraq road. The audit report for these first twohighway projects acknowledged that they improved many aspects of highwayoperations in YAR despite shortages of staff and the small base upon whichthey could build initially. In particular, they assisted in: (a) separ-ating out road construction from other public works; (b) setting up andimproving the management structure of HA; (c) building up the road con-struction and maintenance capability in HA; (d) initiating an equipmentpool; (e) introducing axtle load controls; and (f) establishing a basicaccounting system.

1.35 The Third Highway Project (Cr. 794-YAR, FY78), co-financed withthe OPEC Fund. financed additional technical assistance for HA, focusedmore closely on the road maintenance problem by including equipment forroad maintenance, mechanical workshops and maintenance depots; training andfellowships; vehicle weighing stations; 3 km of pavement overlay; and

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preparation of a Highway Master Plan. The project included about 600man-moths of technical assistance to HA to fill 18 in-line senior tech-nical and professional posts at HA. The project also included the upgrad-ing, equipping and staffing of a training school to train 600 maintenancepersonnel over three years. The Highway Master Plan Study financed underthe project is addressing two key issues: determining investment prior-ities in the face of budgetary and institutional constraints, and recom-mending steps to improve the system of road user taxes. A national axleloading policy has been established with technical assistance providedunder the project. Project implementation, although two years delayed, hasbeen satisfactory. The Credit was closed on December,31, 1985.

1.36 The Fourth Highway Project (Cr. 1267-YAR, FY82), co-financed bythe Arab Fund, provides for strengthening the Taiz-Al Mafraq road, and alsoincludes studies and technical assistance and training to improve transportsector organization and road operation. Progress is satisfactory, and theroad works were completed at end-1984.

1.37 The Fifth Highway Project (Cr. 1413-YAR, FY83) provided for theconstruction to paved standard of the Ibb-Al Udayn road, plus a two yearcontinuation of the technical assistance and training component begun underthe Third Project. Project implementation started in mid-1985 after aone-year delay.

1.38 The Port Development Project (Cr. 714-YAR, FY77), co-financed withthe Kuwait Fund, included dredging, berth construction, and equipment forthe port of Hodeidah; as well as improvements at Mocha and technicalassistance to PMAC to increase the efficiency of port operations and toimprove financial management and accounting. It was successfully completedin March 1983. The audit report for the project noted that the improve-ments were timely and enabled the port of Hodeidah to cope with extremetraffic congestion. It is recalled that PMAC, now an efficient organi-zation, was a relatively new organization when the project was appraised in1976. That project contributed to establishing a badly needed engineeringdepartment, and to improving cargo handling, cost accounting, statistics,and tariffs.

1.39 A Transport Sector Memorandum (4990-YAR) published in November1985 serves as a vehicle for continuing our dialogue with the Government.It discusses YAR accomplishments in developing its transport system andfocuses on the priority areas for future work. It emphasizes the need forimproving the administration of the transport system and maintenance/reha-bilitation of existing roads. It also recommends assessing when futureport expansion will be required because traffic may increase further withthe commercialization of oil.

II. THE HIGHWAY SUBSECTOR

A. The Road Network

2.01 In 1962, only one paved inter-urban road existed in YAR, linkingthe major Red Sea port of Hodeidah with the capital Sana'a (226 km.). The

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country has made an all-out effort to build up its road network since then,and results have been impressive. Between 1962 and 1970, the YAR main roadnetwork grew to a total length of about 700 km. Since then, the rate ofgrowth of the main road network accelerated and by 1985 it reached about3,250 km., including 2150 km. of paved roads (see Map).

Table 2.1: Growth of the Main Road Network

Year Paved Roads Unpaved Roads Total… - - - - - - -…Length (kma.)- - - - -

1970 436 266 7021971 684 609 1,2931980 1,472 798 2,2701981 1,604 876 2,4801982 1,810 1,096 2,9061983 1,985 952 2,9371984 2,048 974 3,0221985 2,144 1,104 3,248

Paved roads now link Sana'a, the capital, with Hodeidah (the main port andsecond largest city), Tais, and Ibb, and with the networks of Saudi Arabiaand PDRY. The 1,100 km. of unpaved roads mainly serve the most fertileagricultural regions of the country: Tihama, a flat 50-70 km. wide coastalstrip, and those regions around Tais and Ibb in the Western Highlands.Annex 3 gives an inventory of the existing main road network. RA isresponsible for the improvet and maintenance of this network, whichexcludes local roads built by the LDAs.

2.02 The growth of the local road network has been even more spectac-ular. From an estimated 6,500 km. in 1975, the local network has grown toaround 30,000 km in 1985. Most of these roads were built by the LDAs.There are now about 215 LDAs, compared with 28 in 1972. Their budgetconsists mainly of voluntary direct contributions from local people. TheLDAs have been active in promoting and building all kinds of public worksprojects in their respective areas, with the provision of access to com-muities with more than 100 people ranking high in their priorities. Theseroads or tracks are designed to low standard. Many of them are barely ofbulldozer width and are negotiable only by four-wheel drive vehicles. How-ever, they provide the only road connection to remote areas and constitutea vital feeder road system to the main network.

2.03 The main road network is far from complete, since a-number ofjourneys involve very circuitous routes in order to avoid using low stan-dard tracks which are generally impassable to trucks. The density of theroad network is still low (about 17 km. per 1,000 km2 ), but would comparewell with other countries at a similar stage of development if the LDAroads could be considered part of the network, (153 km per 1,000 km2).Because the main road system is not developed, LDA roads have assumed thefunctions of secondary roads in many areas.

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B. Traffic

2.04 Accurate information on vehicle ownership in YAR is not readilyavailable. The only official information concerns the number of newvehicle registrations in each governorate after 1978. Official infor-mation, therefore, excludes a substantial number of vehicles which are notregistered, but includes vehicles which are now off the road. The HighwayMaster Plan study, financed under the Third Highway Project, estimated thatthe fleet totaled 236,150 vehicles at the end of 1983, of which 172,100 or73 percent are registered. This implies a fleet of 27 vehicles per 1,000inhabitants, which compares favorably with other countries at similarstages of development. There is also a shortage of data for estimating thegrowth of road traffic. The estimation of traffic growth based on theconsumption of petroleum products is not reliable because an unknown butsignificant part of petroleum products come by road from Saudi -Arabia, andare not covered by the official statistics (para. 1.06), and also becausepetroleum products are consumed by other sectors (para. 1.30).

2.05 HA's Planning and Traffic Division has undertaken a program oftraffic counts since 1976, but with several interruptions due to lack ofstaff and some inconsistencies following changes of personnel and of surveystations. Data from few selected stations indicate high rates of trafficgrowth: 27 percent p.a. between 1976-80, reflecting rapid growth of theeconomy and the structural changes due to additional transport demand andnew road construction, followed by a 13 percent p.a. between 1980-84,reflecting a slower rate of economic growth due to a reduction of workerremittances, and also a wider traffic base. Traffic on main roads rangesbetween 2,000 and 5,000 v.p.d. and in many secondary roads may reach asmuch as 2,000 v.p.d. Annual traffic growth rates are likely to stabilizearound 10 percent in the period 1986-1990. Since 1985, the Planning andTraffic Division has been strengthened with new staff and the purchase ofadditional traffic counters.

2.06 The design axle-load was increased from 8 to 13-tons per singleaxle in 1980. Studies by consultants financed by IDA found that this wasthe load which minimized the total cost of transport, i.e., the cost ofoperating the transport fleet plus the cost of construction/maintenance ofthe roads. Recent axle-luad surveys indicate that as many as 40 percent ofthe trucks are overloaded, which has resulted in considerable road deterio-ration. Three vehicle weighing stations with computerized equipment werebuilt at Hodeidah, .4ocha and Harad to monitor and control overloading.Axle-load legislati=n was prepared under the Third Highway Project andapproved by the Parliament in November 1985. Axle-loads are already beingcontrolled with full enforcement expected by mid-1986. HA is alsostrengthening about 1000 km of paved roads to handle heavier vehicles.

C. Administration

2.07 HA c'se established in 1972 witb assistance under the First HighwayProject. HA is a semi-autonomous Government agency with its own capital,budget, income and salary scales. It is controlled by a Board of Directors

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and chaired by the Minister of Public Works. Details of its organizationare given in Chart 1. NA employs about 40 engineers and 2,100 workers. HAis charged with the technical planning, design and maintenance of mainroads, which are financed at cost from the Government budget, as well asi-ith road construction for central Government and local authorities on acontractual basis. RA's headquarters in Sana'a provide central servicesfor administration, planning and design. Construction and maintenanceoperations are carried out tbrough its five regional offices in Sana'a,Ibb, Taiz, Rodeidah and Saadah. All road maintenance operations are per-formed by RA using its own labor and equipment (para. 2.20).

2.08 HA-is chronically short of qualified staff at many levels. TheThird and Fifth Highway Projects provide for technical assistance (TA) toalleviate this shortfall. The recruitment of experts and their Yemenicounterparts was not fully satisfactory in the past because of the highturnover of appointees. However, this improved considerably following arecent increase in salaries and benefits. Since 1984, a group of expertsfrom the Indian civil service plus several from Sudan and the Philippineshave filled the 18 positions under the TA component of the Third and FifthHighway Projects. The TA program is now proceeding satisfactority, andwill enable HA to fulfill most of its tasks in the short term. For thelonger term, an increasing number of counterparts should be able to takeover, although additional TA will still be required at higher manageriallevels.

2.09 Construction and maintenance of the local road network is carriedout by the respective LDAs, using their own staff and equipment. The LDAsbudget derive from contributions from several sources including directcontributions from local emigrants and residents, and a portion of theZaqat, a one percent tax levied on agricultural production. CYDA, the LDAscentral organization, maintains technical staff to provide advice, and alsoprovides additional equipment if required by the LWAs. The Highway MasterPlan under the Third Highway Project recommends that the most important LDAroads be upgraded and included in the national network administered by RA.It also recomends steps to improve the coordination between HA and CYDA,as well as steps to improve CYDAs technical capability. These recommen-dations are being implemented satisfactorily following HA's annual budgetincreases.

D. Planning

2.10 Road investment planning is carried out on the basis of trafficcounts, a review of regional development needs, and feasibility studies formajor investments particularly those which are funden externally. Duringthe identification of IDA's First Righway Project, consultants prepared aroad development program for 1972-79 covering about 1,400 km. This docu-ment was the basis for expanding the network in the 1970s. Many of theproposed improvements were included under the Government's Three-YearDevelopment Plan (1974-76) and the First Five-Year Plan (1977-81). Pro-posals for the Second Five-ear Plan (1982-86) were prepared under theThird Highway project with the assistance of expatriate experts. Finally

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in 1984, still under the Third Highway Project, HA appointed consultants toprepare a Highway Master Plan Study covering the period up to 1996. Thedraft final report was submitted in April, 1986 and is currently underreview by the Government. It establishes investment priorities based on acompre- hensive review of regional activity and detailed trafficforecasts. It also proposes improvements in management and policy, roaddesign standards, maintenance policy, roads user charges, and datacollection. The study also examines and advises on the role of LDAs, andproposes new axle-load legislation which was recently approved by theParliament (para. 2.06). The Government expects to be able to adopt anynecessary policy reforms based on study recommendations by end-1987.

2.11 The First Plan proposed a total investment of YR 3.1 (US$0.7)billion for main road construction, of which YR 2.0 (US$0.4) billion wasclassified as first priority. Actual expenditures reached only YR 1.4(US$0.3) billion. Seven hundred twenty six kilometers of main roads werecompleted or started, including two connections to PDRY (financed by theArab Fund and Saudi Fund), three connections to Saudi Arabia (one finencedby Abu Dhabi and two by the Saudi Fund) and a link to Mocha Port financedby Libya. Many of the proposed projects, including 2,300 km. of secondaryroads, were delayed because of a lack of financing.

2.12 The Second Plan allocates YR 2.7 (US$0.5) billion of public in-vestment to the road sector (Table 1.3): 40 percent for road maintenanceand improvements, 34 percent for the new roads, 18 percent for rural roadsof integrated rural development projects and LDAs, and 8 percent for com-pletion of ongoing construction projects. The Second Plan also sufferedfrom shortage of resources and was trimmed down with the assistance of theAssociation in 1983. Preparation of the Third Five-Year Investment Plan(1987-91) is expected to take place in 1986. Road investments will bebased on the recouendations of the Highway Master Plan Study which empha-sizes adequate conservation (maintenance) of existing roads. Constructionof new roads will have second priority because of the urgency of main-tenance and an expected decrease in foreign aid.

E. Financing

2.13 About 701 of the cost of constructing YAR's main road network wasfinanced from external sources such as the Federal Republic of Germany,Iraq, Libya, People's Republic of China, Saudi Arabia, the United States,the USSR, the Abu Dhabi Fund, the Arab Fund, and the Association. Externalfinancing is decreasing, in part because of a fall off in economic activityin the Gulf states. All functions and operations related to roads, exceptconstruction, are financed by the Government and executed at cost by HA(para. 2.07). Construction is executed by HA on a contractual basis, butthis activity is declining because HA considers that private contractorsare generally more effective and flexible .

F. Engineering

2.14 Up to 1980, all engineering designs had to be prepared by foreignconsultants. iA's Design Division was strengthened under the Third Highway

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Project beginning in 1980. Presently, HA carries out the design of allprojects with the exception of some large internationally financed projectswhich are designed out by foreign consultants. HA also carries out allsoil and material tests in its own soils laboratory. This laboratory iswell staffed with Yemenis, and was recently re-equipped, partly with IDAfinancing.

2.15 The YAR has not yet developed a comprehensive set of highwaydesign standards. In the past, various consultants employed their ownnational systems, resulting in a lack of uniformity in the road network.The Highway Master Plan recommends a three tier road network classificationbased on function and type of terrain (para. 2.10). It also recommends theadoption of uniform road design standards based on the United States AASHTOsystem, adjusted to the special conditions of YAR. Both proposals havebeen discussed and agreed with the Association and are being considered byHA for final approval. Following this decision, the Highway Master Planconsultants will provide a manual of design standards for the three cate-gories of roads, which will assure uniformity of design for all HA roads inthe future. The Highway Master Plan also provides recommendations ondesign standards for LDA roads.

G. Construction

2.16 HA is responsible for all road construction (new construction andrehabilitation) by contracting or by force account, except for LDA roads.Contracts for road projects financed by foreign assistance follow theguidelines of the agencies involved. Contracting of large projects isusually carried out by foreign contractors. Other projects are carried outby HA force account with the help of domestic contractors. In both casesthe quality of the final output is high.

2.17 HA's Construction Division is well organized and equipped, andadequately staffed with Yemeni and expatriate experts. As discussed, mostof the large civil works are carried out by foreign contractors, but whenno responsive bids are received, HA acts as a contractor of last resort andcarries out the work. The IDA financed Tais-Turba road under the FirstHighway Project and the Saudi Arabia financed Yarim-Qataba road were bothconstructed in this way when no responsive bids were received. Presently,HA is satisfactorily constructing the first phase (sub-base) of theMarib-Safir road because the works needed to be completed quickly in orderto carry the products of the new refinery. HA will also construct by forceaccount the second phase (asphalt standard) of this road, to be financedunder the proposed credit, because of the very special circumstances ofthis case (para. 3.09)3. In these cases, HA undertakes the works by forceaccount, but to avoid a potential conflict of interest the supervising con-sultants are retained by CPO. HA's direct involvement in road constructionwas particularly important before 1983 because contractors bids were highsince they were hedging against the real or perceived risks of cumbersomeadministrative procedures, delayed payments, political unrest and otheruncertainties. However, recent improvements in YARX coupied with a slowdownin contracting activity in the Gulf States has resulted in lower prices.

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HA, following IDA's advice, is now reducing its construction activities,and trying to use domestic contractors as much as possible. During negoti-ation's, HA stated that it intends to carry out a study on the role ofdomestic and foreign constructors and force account in constructing roads,and would seek financing for this purpose under the next IDA financed high-way project. The YAR delegation stated that the purpose of such a studywould be to help establish and implement a policy which would furtherassure tbat roads would be constructed most economically and efficiently.The YAk delegation also confirmed that the Government would formulate sucha policy and discuss it with IDA by June 30, 1989.

R. Maintenance

2.18 When HA was established in 1972, hardly any attention was paid toroad maintenance. The rapid development of the road network in the 1970swas not matched by an improved maintenance capability because of an endemicshortage of funds, equipment and manpower. Subsequently, the road networkdeteriorated considerably. HA then undertook a road maintenance programbeginning in 1978 to reverse this deteriorating trend, assisted under theThird Highway Project. This program was based on an inventory of HA'snetwork needs and an appraisal of the equipment, manpower and budget neededfor periodic and xoutine maintenance.

2.19 The Government increased its road maintenance budget fromUS$150,000 equivalent in 1972 to US$6.2 million equivalent in 1985 which issatisfactory. IDA and the OPEC Fund financed needed maintenance equipmentand workshop improvements. The main bottleneck of the program, however,was the lack of trained personnel to operate the equipment, to man thenewly-equipped workshops, and to supervise and monitor the work of themaintenance teams. A successful training program was carried out under cheThird and Fifth Highway Projects which is largely overcoming this probliem(paras. 2.22-2.24).

2.20 Road maintenance is presently HA's highest priority. Maintenanceof the 3,250 km. road network is carried out with HA's own equipment andmanpower. Maintenance is organized under five regional offices (Sana'a,8odeidaa, Ibb, Taiz and Saadah), each office with its own equipment andworkshop. Major repairs are made at the central workshop in Sana'a and atthe maintenance training center workshop in Taix. Routine and periodicmaintenance, particularly on the main roads, are improving constantly andare generally satisfactory. In the case of some important roads, overlaysare financed by foreign lenders and carried out by contractor.

2.21 Maintenance of LDA roads are carried out by LDAs. In the longrun, when-HA has built up sufficient capacity for an extended network, themore important of the WDA roads should be integrated into the main roadnetwork and maintained by HA. The Highway Master Plan identifies these LDAroads and recomuends that they be transferred to HA after adequate upgrad-ing.

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I. Training

2.22 An important bottleneck to achieving an effective road maintenanceprogram has been the pervasive shortage of skilled personnel (para. 2.19).To a lesser degree this also applies to other MA departments. Consultantsengaged under the Third Highway Project designed a training program basedon an inventory of existing and required manpower in HA. A VocationalTraining Center (VTC) at Taiz was then established to carry out thesetraining activities. At the beginning, the program was delayed due todifficulties in recruiting a team of expatriate instructors. The programis now being implemented with excellent results.

2.23 Training is provided for seven specialties required by HA andCYDA: auto mechanics, auto electricians, plant mechanics, road super-visors, machinists, welders and plant operators. Classes are given byseven expatriate instructors, each assisted by a Yemeni counterpart in-structor, under the overall supervision of a Chief of Training. Theoret-ical training is carried out at the VTC in Taiz. Practical training isprovided through the mobile road training production unit and the mechan-ical training production unit. HA needs at least 600 trainees from theschool. At end-1985, about 450 trainees had been accepted of which about320 have graduated and are working for KA. Seventy graduates are workingfor CYDA, which represents an important part of the technical assistanceprovided by HA to the LDAs. The program is also well known among privatesector employers, who have recently started sending their own staff fortraining.

2.24 Twelve trainees with the highest level of education and experiencewere chosen as counterparts to the expatriate instructors. The objectiveis for them to take over as instructors at about end-1987, following thecompletion of the Fifth Highway Project. The program also includes afollow-up monitoring and evaluation system, under which KA graduates arechecked every six months to see if they are working effectively or requirefurther training. Furthermore, a survey of high level training needs in HAwould take place in 1986, followed by a training program in the VTCfinanced under the Fifth Highway Project.

J. Accounting and Auditing

2.25 In 1983, HA introduced a new financial and cost accounting systemwhich covers almost all areas of financial management. Separate accountsare kept for the construction and maintenance divisions, and expendituresare separately recorded for each project. An adequate inventory controlsystem for spare parts is also in operation. Periodic reevaluations ofassets have taken place since 1981. On the whole, the financial and costaccounting systems and documentation recording systems form a satisfactorybasis for the auditing and monitoring of road projects.

2.26 HA agreed under the Fourth and Fifth Highway Project to haveproject related expenditures audited by independent auditors. This hasbeen done since 1983. HA is also submitting its annual accounts to the

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Association duly audited by independent auditors. During negotiations, NAagreed to provide audited project account to the Association within sixmonths of the close of each financial year durLug project implementation.

III. THE PROJECT

A. §etting

3.01 IDA has actively assisted YAR since 1972 to develop its basictransport network and related institutions (pars. 1.34-1.38). IDA'sassistance to the transport sector and in particular to the highwaysub-sector, the only land transportation mode, has been particularly im-portant. Five highway projects, three complete and two ongoing, have beenapproved. All of them are interrelated, and together they form a consoli-dated strategy to support the expansion of the physical network and to helpestablish new and efficient institutions and a rational policy framework.Results have been positive. However, because of its late start on develop-ment YAR still has a long way to go to complete its road system and developmodern inatitutions and policies.

3.02 The Marib-Safir road project is proposed as an interim projectbetween the ongoing Fifth Highway Project and the proposed Sixth HighwayProject which was originally planned for this time. Because of the recentdiscovery of oil and construction of a 10,000 bbd refinery at the oil wellsite (Safir), construction of a road connecting Sefir with the paved roadnetwork at Marib became urgent. The road is required in order to evacuaterefinery products by truck, to facilitate the further development of theoil fields (paras. 1.04-1.09), and to provide access to an agri:ulturalarea which will be irrigated by a new dam (paras. 4.05-4.07). The Govern-ment requested that the Narib-Safir road be prepared as a separate projectbecause of its urgency.

D. Proiect Obiectives

3.03 The principal objectives of the proposed project are to:

(a) facilitate the substitution of domestic oil for importedproducts by permitting the transport of white products from arefinery at the oil field (expected to be fully operationalin mid-1986) to domestic markets;

(b) facilitate the further developmeat of the oil fields;

(c) provide road access, and facilitate the movement of agricul-tural inputs and the marketing of agricultural products tothe Wadi As Sudd area (population 78,000), which will beirrigated by a dam which was completed in early 1986; and

(d) increase the capability of the Highway Authority (HA) todesign road works.

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C. Description

3.04 The project would consist ef:

(a) completion to paved standard of a new road from Marib toSafir (62.5 km.), which is currently being constructed togravel standard by RA force account; and

(b) supervision of construction by consultants.

3.05 The road links Marib, the capital of the Governorate of Marib andthe end of the paved road network, with the oil fields and refinery atSafir, which is on the edge of the Al Raba Al Khaly desert. The alignmentwas selected by HA based on their study of alternative routes. Theselected alignment is the shortest of the four alternatives, and passesclose to, but not through, the most densely populated and cultivated areaswhich lie along the banks, and on alluvial deposit, of the Wadi As Sudd.From Km 32 to Safir, the road passes through an inhospitable area of thedesert which is populated by only a few scattered bedouin families.

3.06 The road passes through a generally undulating terrain whichvaries between 1,350 m (Marib) and 1,000 m (Safir) in height. Practicallyall the alignment is in desertic land, because the road intentionallyborders the Wadi As Sudd in order to avoid any loss of agricultural land.The alignment of the last 30 km. traverses a zone of high but stable sanddunes. The climate is extremely arid. Rainfall averages less than 50mm/year (mostly in June-September) and many years pass without any rain-fall. Ambient temperatures in summer reach 45°C (115'F) and during thewinter go down to OC. Daily temperatures may vary more than 250C.The area is subject to strong winds, mostly northeasterly, with velocitiesup to 100 km/h in the summer months. The only water course crossed by theroad is the Wadi As Sudd.

3.07 The gravel road (phase 1) will consist of an embankment made oflocal soil, topped by a 40 cm thick gravel/selected granular material sub-grade and a 20 cm thick gravel sub-base. The second phase, to be financedunder the proposed project, would include the addition of a 20 cm thickcrushed aggregate base course plus a 4 cm thick asphalt concrete wearingcourse (chart 2). The asphalt concrete carriageway would be 7 a wide withcompacted gravel shoulders 1.5 m wide. The second phase would include theconstruction of a 250 m long ford across the Wadi As Sudd, the only majordrainage structure along *he road, plus several irrigation pipes. The roadis expected to carry up to 930 vpd in 1990, including 155 heavy tankertrucks. This is equivalent to about 0.38 million standard axles, based onthe national axle-load limitations of 13 tons. The design standards weredetermined on the basis of expected traffic loadings and the physical con-dition of the terrain.

D. EnRineering

3.08 IA is playing an important role in the preparation of the projectas a result of the maturity it has now reached, assisted by IDA under

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previous projects. HA, assisted by two expatriate experts financed underthe Third Highway Project, prepared the feasibility study and the detailedengineering design documents for the project. All the soil tests are beingcarried out at the HA laboratory, partly financed under the Third HighwayProject, which is exclusively staffed by Yemenis. The Association providedcomments on the feasibility study and engineering designs. However, thesedocuments were prepared on the assumption of the additional temporarytransport by truck of 50,000 bbd of crude oil for export before the openingof the scheduled pipeline. The Government recently decided to advanceconstruction of the pipeline and not to transport any crude oil by road.The documaents were therefore, revised in view of the reduced traffic, whichimplied a change of the design from 7 cm to 4 cm asphalt concrete wearingcourse. The revised feasibility study and engineering designs were re-viewed and agreed during negotiations.

3.09 HA is currently constructing the first phase of the road by forceaccount to gravel (sub-base) standard using its own funds. It is proposedto complete the road (base, shoulders and wearing course) to paved standardalso by force account with IDA financing under the proposed project. Thereasons for this exceptional proposal are twofold: (i) KA is satisfac-torily constructing phase I of the road by force account. To complete theroad to asphalt standard by contractor selected under International Com-petitive Bidding (ICB) would likely delay construction by about nine months(the duration of the ICB process) and would increase the cost of mobili-zation and maintenance, and result in a loss of expected vehicle operatingcost savings; and (ii) a contractor would have difficulty in working in aremote area where local tribes have jurisdiction over land and waterrights. The first phase is being supervised by consultants financed underthe Fifth Highway Project, and is scheduled for completion in October1986. Supervision of the second phase by consultants would be financedunder the proposed project.

S. Cost Estimate

3.10 The total cost of the proposed Marib-Safir road (both phases) isestimated to be about YR 189.5 (US$ 26.2) million with a foreign exchangecomponent of about TR 101.1 (US$13.9) million. The second phase of theroad, which would be financed under the proposed project, is estimated tocost about YR 105.4 (US$14.5) million, including a YR 60.3 (US$8.3) millionforeign component.

3.11 Construction cost estimotes are based on quantities from engineer-ing designs and on unit rates derived from the individual works and checkedagainst recent favorable contract awards in YAR and recent force accountworks (mainly the Yarim-Qataba road). The foreign costs are estimated froma breakdown of cost components. Taxes amount to about 12 percent of totAalcost; exempted taxes on imports have been excluded. The supervision ofworks is estimated to take about 100 man-months and to cost YR 7.1 (CS$l.0)million, of which 70 man-months costing YR 4.9 (US$0.7) million would berequired to supervise the second phase financed under the project.

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3.12 A physical contingency of five percent is included for both civilworks and construction supervision to cover possible increases in quan-tities. Prices escalation has been estimated assuming the rates of infla-tion for local and foreign costs for the periods 1986-89 as shown in Table3.1:

table 3.1: 1

% of f.t.

ta_ L I ICSI;]MS~Trn uta- mli---i. (tMliaUn$ u11s)-

Cmsstr"ut of th lirib-Stfir readfirst Phas - Cafstr"tfs 37-.7(.2) 30.9(4.3 9.4(1.3) 7.0(10.8)Ph)s tal Cative vies (at 1.94LL21 1.5lL*2I SJL..L *JfLLA) 55

391.5f.5) 32.4(4.5) 9.9(1.4) 61.9(11.4)censtrusties SOuNr vsiten *..a . .JLLJ-I _ f 2 2t&2 Ss

Subtdoal First Phase 40.8(.7) 33.44.6) 9.9(1.4) 8.1l t) 0

Secaud phse - Cmistruetimn 43.6(5.0) 24.S(3.4) 9.3(i.3) 77.4(10.?)Physieal Cast!uomies (n) -.LILIA _..2LLLZI JL.LLL JALALS 64

45.6(6.5) 25.7(3.61 9.8(1.4) $1.3(11.3)Construstiem Supervis n 44,JLS. JLMiL ZILL. -- eJL.ZI 90

50.2(6.9) 26.2(3.5) 9.U(1.4) 66.2(11.9)Price CORtInuse les - Second hse ILLLLAi JJL*JL .. Z L 2L9S _! LZ

Subtot Secomn Phase 40.3(8.3) 32.8(45) 12.3(1.7) 105.4(14.5) 6S

Total - seth phases 101.1(14.0) 66.2(9.1) 22.2(3.1) 189.5(23.2) 60

total Propouse Project (Sac"ot ROhsM) 60.3(8.3) 32.S(4.5) 12.3(1.7) 166.4(14.5) 65

NT: Pries as atof w 1986; US$1 a V 7.25. taxes forcivil works are 12 percuat of totl cusstvuctimmct. Price cti ttngcies for th Second Ptae arebased 11 the diso_ast profile of tUe sitllarTaiz-Al Herl road which ws reently coopletedunde Ur t tbo Hisho Projwet (foard arowalJme 1902; worts coltd fruy 19"; disburse-musts subtntIally _ loted mid-1965). Folleutogthis prw"esdnt. we wmld disburs 0 in 1966; M22in 1967: 125 In 1986. 425 in 19 and 202 1n 1990.Price contingole ss are am bausn thm folluing in-fllatln rates estiusted by the Association:

foreign (2) 7.2 6.8 5.81 7.0 7.1Loeal (S) 10.0 10.0 10.0 10.0 10.0

During negotiations the Government confirmed the above cost estimate.

Financing

3.13 The Association would provide a Credit of US$10.0 million equiva-lent to finance the whole estimated foreign cost of the project (secondphase) of YR 60.3 (US$8.3) million and 38 percent of the estimated localcost (excluding taxes) or YR 12.3 (US$1.7) million. The borrower would be

- 23 -

the Govermt of YAR. The Governmt would finance the remaining localcost of the project, estimated at TR 32.8 (US$ 4.5) million icluding YR12.3 (US$ 1.7) million in taxes. During negotiations agreemnt was reachedthat the Goverment will provide the necessary funds for the projectpromptly as needed. The proposed financing plan is shown in Table 3.2:

table 3.2: £h_aUuu.*JM

Cat Vs {t.mts MIl4lt lw o Utmatattibm~~ w DM m

euwtvustt 39.6 ( .5.) 43.3 (5. 01.9 (11.3) - 01.9 .(SI zZ.Z}(4 8.0) (166.I"- (10".6)

amst.iS _tufSW m 1.t (0.2) 1.0 (0.8) 2.2 (0.4 - 2.2 (0.4)(I) .-.LL .1"flS .. LUJ - 1USA1

Toal rtnut fte 46.0 (MY) 43.3 (-.6) 66.1 (11.?) - 84.1 (11.7)

c..tr,stiom 540 (7.6) 44.S (6.1) 99.3 (13.7) 7.6 (9.) 32.3 (4.5)(5) (55) (45) (100) (67) (33)

cestrostl $""vt,1.m 5.5 (6.6) 6.6 (6.1) 4.1 0.9) S. (0*.*) 6.6 (6.1)(5) testL.... iii .LLL.....Total M_ e 60.3 (0.3) iET1 1) 16S.4 (14.5) n.I 0) 32.9 (4.S)

(5) ~~~~~(57) (43) (166) (69) (31)

Gramrouli (PM"1e a It) 1ol. (14.6) 5.4 (12.2 169.S (S.2) 7n.5 (10.6) 117.0 (16.3)(5) ~~~~~(53) (47) (156) (36) (6)

F. rmlemetation and Monitoring

3.14 The Central Planning Organization (CPO) will be responsible forimlementing the proposed project. The road will be constructed by KAusing its own force account. CPO will employ consultants to assist it insupervising the construction. The qualification, experience and terms andconditions of employment of expert selected will be acceptable to theAssociation. Term of Reference are included in Aanex 4 and were agreed atnegotiations. Employment of consultants for supervision of the construc-tion of the road will be a condition of effectiveness of the project.

3.15 The proJect is expected to start in mid-1987 and be completed inJune 1989, three years after Board approval (para. 3.19 and Annex 5). Itis. bowever, possible following discussions with the Government (Annex 5),that the project will be implemented more efficiently are the implemen-tation period, reduced to eighteen monghs (three months for effectivenessand fifteen months for physical execution). The implementation schedulewas discussed and agreed with the Borrower at negotiations.

- 24 -

3.16 CPO would submit quarterly progress reports to the Associationdetailing the progress of civil works and effectiveness of consultantsupervision. Within six months of the closing date of the Credit, theBorrower would provide the Association with a project completion report.Annex 6 gives details of project monitoring indices to be applied and usedin the reports. During negotiations, reporting arrangements were discussedand agreed.

Procurement

3.17 The civil works (US$13.0 m.) would be carried out using NA's forceaccount (para. 3.09) under a single unit-price agreement with CPO which wasreviewed and approved at negotiations (para. 3.14). The asphalt requiredfor the civil works (US$1.4 m.) would be procured under international com-petitive bidding according to documentation prepared by the Borrower fol-lowing the Association's Guidelines for Procurement. The cost of asphaltwould be subtracted from each works certificate to avoid double counting.Based on present country profiles it is expected that works will start onJuly 1, 1987 and be completed by mid-1989 (Annex 5). During negotiationsthese arrangements were discussed and agreed with the Borrower.

3.18 Construction supervision (US$0.7 m. equivalent) would be carriedout by CPO with the assistance of qualified consulting engineers, selectedand appointed on the basis of IDA Guidelines. This was discussed andagreed at negotiations.

Disbursements

3.19 For civil works, funds would be withdrawn by CP0 from the SpecialAccount (para. 3.20) on the basis of certificate of works and/or statementof expenditures. Disbursements for procurement of asphalt and consultantservices for supervision of civil works would be made on the basis of fulldocumentation provided to the Association. Disbursements would be made onthe following basis:

(a) 55 percent of total expenditures for civil works;

(b) 100 percent of the foreign expenditures for asphalt; and

(c) 100 percent of the foreign expenditures of the consultants'services for supervision of civil works.

Annex 7 shows the estimated schedule of disbursements. It is expected thatthe project would be completed by June 30, 1989 and that disbursementswould be completed by June 30, 1990 based on t- actual implementation ofthe civil works component of the Fourth Highway Project (Table 3.1).

3.20 The Associations share of the project would be financed through aSpecial Account which would be opened in the Central Bank by the CPO. TheAssociation would make an initial deposit of US$1.0 million in the account,equivalent to about four months of project expenses. CPO would disburse

- 25 -

from the account on the basis of withdrawal applications supported by workscertificates and/or statements of expenditure submitted by HA and certifiedby the supervision consultants. CPO would request replenishments of theSpecial Account from the Association, and would retain supporting documen-tation for inspection by the Association, which would be audited annuallyby independent auditors. The Government and HA agreed to this arrangementduring negotiations.

G. Employment Effects

3.21 Construction of the road would provide employment for about 250persons during a construction period of two years. By increasing trans-port, facilitating further development of the oil fields, and by boostingagricultural and economical development, the project would generate newemployment opportunities which would benefit the Wadi As Sudd area (popu-lation 78,000), one of the poorest areas of the country.

H. Environment

3.22 Construction of the Marib-Safir road would not detrimentallyaffect the environment. The alignment was selected to pass close to, butnot through, land with agricultural potential. Paving the road will avoidadding dust to the air. Concentrating traffic on the road will, in fact,considerably reduce the dust and erosion associated with traffic moving onmultiple desert tracks. The road will make several ancient monuments moreaccessible to tourists; the Government is constructing fences to protectthese monuments.

3.23 The road may result in some increase in traffic accidents which,however, is expected to be minimal because of the favorable alignment andgeometric standards of the road, and because of the vehicle speed andweight control being exercised by HA. Noise levels will increase, but thiswill not affect populated areas. Finally, the spread of trash in thevicinity of the road without an adequate system of garbage disposal mayalso affect the environment. However, YAR is focussing on this issue atpresent, and garbage collection and disposal schemes have been or will beinitiated in many towns.

IV. ECONOMIC EVALUATION

A. Approach

4.01 The Marib-Safir Road Project is expected to generate the followingbenefits:

(a) The road will reduce vehicle operating costs (VOC) for tankertrucks and other traffic moving to and from the refinery.The refinery may be expanded in 1987 or thereafter, but nofirm decision has been taken. Oil reserves announced so far

- 26 -

are sufficient for about 18 1/2 years of production uut mayprove to be much larger since the borders of the oil fieldare not yet determined. The oil field also has substantialgas/LPG deposits which may generate additional road traffic;

(b) the road will facilitate the exploration and possibledevelopment of 14 other undrilled structures in the Maribbasin (Safir);

(c) the road will reduce VOCs for agricultural traffic moving toand from the Wadi As Sudd area. The road will also increaseeconomic activity in the Wadi area which has a population ofabout 78,000 who have no road access at present; and

(d) the road will improve security, administration and nationalintegration. The oil fields and the Wadi As Sudd are locatedin remote areas which are not yet well integrated into YAR.

4.02 The economic return from paving the Marib-Safir road was conserva-tively quantified on the basis of VOC savings for traffic associated withthe 10,000 bbd refinery, and for agricultural traffic in the Wadi As Suddarea. The other project benefits (para. 4.01) are quite significant, butdifficult to quantify. In order not to overestimate VOC benefits, it wasalso assumed that oil trucks would be able to travel across the desert withreduced loads in the absence of the Marib-Safir road. * The economicevaluation considered only the improvement of the road from gravel toasphalt standard, a conservative assumption since the sub-base constructedunder phase one is not a true wearing course, and since the economic returnfor constructing the entire road is higher than for the phase two works(para. 4.11). The analysis was based on an economic feasibility studycarried out by VA and assisted by an economist from Rendel, Palmer andTritton (UK), which is available in the project file, and the estimates ofthe appraisal mission.

B. Traffic Forecasts

4.03 Oil Traffic: The oil refinery at Safir is expected to produce10,000 bbd of white products beginning in mid-1986. The Government has

* If this is not possible, then the road and the refinery are a jointinvestment which are both necessary for domestic oil to be refined.Benefits should then be calculated on a value added basis, and theeconomic return for the road is very high. The cost of the road ($26.2million) plus refinery ($50.3 million) result in value added benefits ofabout $442 million .... say US$15/barrel (FOB price) plus US$3/barrel(Iodeidah to Sanm'* road transport cost) less US$3/barrel (Safir to Sena'aroad transport cost) lese US$2/barrel (production cost) times 10,OOO (bbd)times 365(days) times 19 (years) times 49S (YAR share after explorationcosts) - $442 million.

- 27 -

announced that it has 400 million barrels in reserves (para. 1.05). It wasassumed that crude oil would be produced and the refinery operated over an18 1/2 year period. The Government is considering doubling the output ofthe refinery in 1987 or later in order to supply about 752 of domesticneeds. However, this possible expansion was not taken into account in theeconomic evaluation because plans are not yet firm.

4.04 White products would be transported in privately owned tankertrucks which average 8bout 30,C00 liters in capacity. There are aufficienttanker trucks in YAR to provide the 80 or so trucks which will be re-quired. Traffic to and from the refinery is expected to total about 170vpd, of which 155 vpd are tanker trucks and the remainder light vehiclescarrying personnel and supplies.

4.05 Agricultural Traffic: The first 32 km of the Marib-Safir roadwill serve the Wadi As Sudd, an agricultural area which has no road accessat present. The Wadi was the center of the ancient Kingdom of Sheba, whichwas irrigated from about 700 BC to 700 AD by the famous Marib dam, whoseruins are now a tourist attraction. The Government is constructing amodern dam 3 km upstream from the ancient site which was essentially com-pleted in early 1986. Fifty five km of irrigation canals and relatedinstallations are expected to be completed in 1988. The dam will store upto 390 million m3 of water, and will discharge an average 200 millionm3 of water p.a. for irrigation. The dam plus canals will cost anestimated US$75 million, which is being financead by the Abu Dhabi Fund.

4.06 The present population of the Wadi is estimated to be about 78,000(including 5,000 nomads). The Ministry of Agriculture and FisheriesResources (MAF) estimates that about 85,000 tons of agricultural productsare produced each year in the Wadi, partly on irrigated land and partly onland watered by wells. The principal crops are watermelons, grapes, maizeand sorghum. KAFM and consultants Electrowatt forecast that 10,000 addi-tional hectares will be irrigated by 1990 and 30,000 additional hectares by2000, following construction of the dam. They project that total agricul-tural output will increase to about 125,000 tons by 1990 and to 225,000tons by 2000.

4.07 Agricultural inputs and produce are presently moved between Mariband the Wadi via a series of desert tracks which have no fixed alignment.Following the partial construction of the first section of the Marib-Safirgravel road in late 1985, traffic began to concentrate on the new align-ment. Traffic levels along the 32 km of the Wadi were estimated on thebasis of a 3-day count along the new alignment to average 510 vpd, exclud-ing oil, military and road construction traffic. Ninety seven percent ofthis traffic are pickups, landrovers or similar small vehicles, and theremainder light trucks which average about five tons in size. Futuretraffic which is not oil related was forecast tc grow in proportion to theexpected increase in agricultural output. Non-oil traffic is thereforeexpected to increase to about 760 vpd by 1990, and to 1400 vpd by 2000. Itwas assumed that the vehicle mix would remain the same since the vehicleswill probably still have to travel across the desert to their final

- 28 -

destination. It was also assumed that the vehicles would travel an average17 km on the Marib-Safir road, consistent with observed traffic flows.

C. Vehicle Operating Costs

4.08 Vehicle operating costs were estimated on the basis of tht method-ology proposed by the Transport and Road Research Laboratory (U.K.), asapplied in the Highway Master Plan Study by consultants Dar Al Iandasah,all updated to end-1985 prices. Details of the estimate are in the projectfile. Summary results are as follows:

Table 4.1: Estimated Vehicle Operating Costs

Variable Economic VehicleOperating Costs (YR/km)

Vehicle Type Desert Track Gravel Road Asphalt Road

Pickup truck (1.5 ton) $3.066 $1.617 $1.075Light truck (5 ton) 3.574 1.760 1.138Oil tanker (30,000 ton) 1/ 7.197 4.665 3.373

1, It was assumed that oil tankers would travel fully loaded over a gravelor asphalt road, and one-half loaded over the desert.

D. Construction and Maintenance Costs

4.09 Project costs include the costs of construction and supervision,including physical contingencies but net of taxes and price contingencies.Construction costs were adjusted to December 1985 price levels for purposes ofthe economic evaluation. No other adjustments to financial costs were made.Construction of the gravel road began in September 1985 and is expected to becompleted by October, 1986. Completion of the road to asphalt standard wasassumed to start in mid-1987 and to be finished by mid-1989.

4.10 Routine maintenance of the asphalt road (patching, clearing dunes,etc.) was estimated to cost YR 10,000/km/year. It was estimated that the roadwould have to be resurfaced with a 2 cm overlay in the ninth year at a cost ofabout YR 215,000/km. in order to keep the road in good condition, and that theroad would have a residual value of 75% of its construction cost when it was15 years old.

E. Results and Sensitivity Analysis

4.11 The flows of construction and maintenance costs and project benefitsare shown in Annex 8. On this basis, the economic return for constructing theroad (Phase 1 plus Phase 2) is conservatively estimated to be 22X. The eco-nomic return for improving the road from gravel to asphalt standard (Phase 2,financed under the project) is conservatively estimated to be 13%.

- 29 _

4.12 There are no particular project risks. If project costs are 20Qhigher than anticipated, the economic return for the project (phase 2) isestimated to be 11X. If project benefits are 201 less than expected, then theeconomic return for the project would also be 11X. Completion of theMarib-Safir road to aspbalt standard is therefore considered to be economi-cally justified under all likely scenarios.

V. RECOMMENDATIONS

5.01 During credit negotiations the Government confirmed:

(a) the project cost estimate (para. 3.12); and

(b) the financing plan (para. 3.13).

(c) that KA will carry out a study on the role of contractingindustry/force account and will formulate a contracting policy byJune 30, 1989 (para. 2.17).

5.02 During credit negotiations the Government and HA agreed with theAssociation:

(a) that HA will have its project accounts audited by an independentauditor and submit it to the Association within six months of theclose of each financial year during project implementation (para.2.26);

(b) on the revised designs (para. 3.08);

(c) that Government would provide the necessary funds for the projectpromptly as needed (para. 3.13);

(d) on the CPO/HA Agreement for the construction of the road, and thatHA would employ consultants to assist in supervising constructionwhose qualifications, experience and terms and conditions ofemployment would be acceptable to the Association (para. 3.14);

(e) on the implementation schedule (para. 3.15);

(f) on project reporting and monitoring arrangements (para. 3.16);

(g) on methods of procurement (para. 3.17 - 3.18); and

(h) on the availability in CPO for inspection by supervision missions ofall documentation related to the Special Account and its annualauditing by independent auditors (para. 3.20).

- 30 -

5.03 A condition of Credit effectiveness would be that the consultantsacceptable to the Association for supervision of the construction of the roadhave been employed (Para. 3.14).

5.04 Agreement having been reached on the above, the project is suitablefor an IDA credit of US$10 million equivalent to YAR on standard terms.

6157D-

- 31 -

ANNEX I

YEMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAFIR ROAD PROJECT

Estimated Costs and Prices of Petroleum Products, February 1986(YR/liter)

AviationCosts and Prices Gasoline Fuel Fuel Oil Diesel Kerosene LPG -

CIF Import Prices 2/ 1.52 2.32 1.33 2.09 2.32 2.88

Other economic costs 0.44 0.54 0.36 0.49 0.53 0.65

Economic Cost 1.96 2.86 1.69 2.58 2.85 3.53

Taxes and othercontributions 0.32 0.08 0.08 0.11 0.10 0.00

Financial cost 2.28 2.94 1.77 2.69 2.95 3.53

Retail Price 3.00 2.41 1.72 2.00 2.30 2.96

Retail price overeconomic cost

YR 1.04 -0.45 0.03 -0.58 -0.55 -0.572 53 -16 2 -22 -19 -16

Retail Price overfinancial cost

YR 0.72 -0.53 -0.04 -'0.69 -0.65 -0.57X 32 -18 -3 -26 -22 -16

1/ LPG price per kg.2/ Converted at the connercial exchange rate at February, 1986 of US$1.00 = YR 9.00.

Source: Yemen Petroleum Corporation and Energy Assessment Mission estimates.

May 19866358D

- 32 -

ANNEX 2

YEMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAFIR ROAD PROJECT

Road Expenditures and Road Related Revenues* 1984

Road Expenditures

YR Millions

New Construction/Major Improvements 295.0Maintenance 32.7Administration 50.0

Total 377.7

Road Related Revenues

Purchase Taxes 1.9Registration Fees 8.6rmport Duties 459.8Annual Ownership Taxes 115.9Driving Lisence Fees 10.3Fuel Taxes 82.1Lubricant Taxes 10.0

Total 688.6

Note: Does not include about YR 150 million p.a. for CYDA roads which areconstructed and maintained by self-help programs and financed by partof the Zaquat (local religious tax). Does not include urban streets.

* Estimate.

Source: Highway Authority

March 19866358D

- 33 -

AMNEX 3

YEMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAFIR ROAD PROJECT

Existing Main Road Network(As of December 31, 1985)

Paved 1Km Unpaved Km

SANA'A-EODEIDAB 226 KITAB-ANNADERAH 30ALMAGRABA-MANAKHA 5 ASHOOL-IOBBISII 14HODAIDA-AL 1APRAQ 192 YARIM-ALDALIL 63SANA'A-TAIZ 256 AL YAKRAR-AL KAFR 25S,AMA-SAMAN 242 YARIM-HOWBAN 25BAJIL-MABAR 159 IBB-AL UDDAYIN 31TAIZ-TURBA 70 IBB-JIBLAH 6TAIZ-AL MAFRAQ 64 IBB-QATABA 85TAIZ-AL RANIDA 68 IBB-BADAN 19SANA'A-HADDA 6 TELEVISION ROADS 70SANA'A-SHIBAM 34 SHIBAM-ALMAHWIJ 77SANA'A-WADI DRAR 12 AL WAIDA-DISSUFAL 10SANA'A-ALMATAR 22 AL HOWBAN-MAWIYA 39SANA'A-JIRANA 49 TAIZ-SABAR 11SHIBAM-KABABA-THILLA 15 ASSAIRAR-MAKEANA 24AIRPORT-ALSAMA 15 HIDRAN-ARRAWNAR 26NODEIDAM-KATIB 14 JABAL-HABASKI 26SANA'A-MARIB 173 YOUFRES 4ANRAN-RAJJA 77 ANNASEIMA-QADAS 35SADAM-DALIRAN 80 HODEIDAM-SALIF 46HODEIDME-JAIZAN 206 AL RUSHM-RAJJA 64AL MAFRAQ-AL MOKHA 45 BAJ IL-AL KADEM 23WADI DIAR-AL KARYA ROAD 6 AL MANSURIA-AL SUKRMA 20SANA'A-BAGIN 5 MIS-AL RHOKHA 29MODEIDAI-RAKATNIB 7 AL AWIYA ROAD 12YARDM-QATABA 96 ASSUKINA-AL QABA-

RAIBATH 29TOTAL 2,144 ALSAMA-ARNAB 15

MARAR-ANIS 82HWTH-ALASSBAI 18AL KATAIBA ROAD 22ARRAB-HAZM 100AL RIBAD-AL JABI 24

TOTAL 1,104

Source: HA and Appraisal Mission

March 19866358D

- 34 -ANNEX 4Page 1 of 3

YOMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAFIR ROAD PROJECT

Supervision of ConstructionDraft Terms of Reference

A. Scope of Work

1. The Government of Yemen Arab Republic (YAR), with the CentralPlanning Organization (CPO) a8 executing agency, has requested assistancefrom the International Development Association (IDA) for the purpose ofproviding engineering supervision for the second phase of the Marib-Safirroad works. Works will be carried out by force account by the HighwayAuthority (HA) and include completion to paved standard of a 62.5 km roadbuilt at sub-base level through construction of a gravel base, asphaltconcrete carriageway and stabilized gravel shoulders. The estimated costof the works is US$13 million.

B. Duties and Responsibilities of the Consultant

2. The duties of the consultant are to supervise the works andapprove the materials and workmanship. He shall not relieve the HA of anyof his contractual obligations without the previous consent of CPO. Mainresponsibilities, in coordination with CPO, are to:

(a) Issue order to commence the works, and approve the workprogram, and the list of equipment and personnel submitted bythe HA;

(b) decide on HA's applications for subletting parts of the works;

(c) assist in the settlement of any disputes between the CPO andRA;

(d) approve the HA's working drawings;

(e) order special tests of materials if required;

(f) appraise the progress of works and to order, if required,the suspension of works and to determine any extension of theperiod required to complete the works;

- 35 -ANNEX 4Page 2-of 3

(g) evaluate variations, issue variation orders, and fix ratesfor unpriced works;

(h) issue certificates of payment to the RA, and certifycompletion of the works;

(i) inspect the works during the maintenance period, and issuethe maintenance certificate; and

(i) advise CPO on all claims from the NA and make recommendationsin the case of negotiations between CPO and the HA.

C. Duties and Responsibilities of the Resident Engineer and his Staff

3. The duties of the Resident Engineer and his staff are to observeand supervise the works and to test (or order to test) and examine anymaterials used or workmanship employed in connection with the works. Heshall not relieve the HA of any of his contractual obligations without theprevious consent by CPO.

4. His main responsibilities, in coordination with HA, are to:

(a) inspect performance of works in compliance with thespecifications, order. supervise or perform tests onmate:ials, and approve or disapprove the KA's plant andequipment;

(b) check the progress of the works systematically, examine andattend the measurement of any work that is about to becovered, and order, if required, uncovering of unsatisfactoryworks and its satisfactory reconstruction;

(c) check HA's accounts, invoices, claims and other statementswith respect to arithmetical errors and compliance with thecontract;

(d) supervise the RA in all matters concerning safety and care ofthe works; direct operations in case of an emergencysituation affecting the safety of life, of the works or ofadjoining property; and

(e) carry out such duties under the terms of the contract as mayfrom time to time be delegated in writing from the consultant.

- 36 -ANNEX 4Page 3 of 3

D. Reports and Documents

5. The consultant shall furnish to the CPO the following reports anddocuments in the English language.

(a) Monthly Progress Reports (10 copies) commencing at the end ofthe month following the date of the agreement CP0/HA for theconstruction of works. After the issue of the CompletionCertificate, these reports shall be submitted at six-monthintervals until the end of the Maintenance Period;

(b) Completion Report (ZO copies) at the time of the finalcertificate; and

(c) Built Drawings (2 copies) of the project as soon as possibleafter completion of the project.

E. Tentative Staff Schedule

6. The consultant may reassess staff needed for supervision visitingthe site. Based on existing services provided by HA under Phase 1, and a24-mouth construction period tentative staff needs would be:

- Resident/Highway Engineer 24 months- Materials Engineer 23 months- Senior Surveyor 23 months

70 months

7. KA would provide the consultant reasonable office space andtransportation, both free of charge for the Consultant. It would alsoprovide additional technical services duly justified.

6358D

- 37 -

ANNEX 5

YEMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAPIR ROAD PROJECT

Proposed Implementation Schedule*

Board Date June, 1986Credit Effectiveness May 1987Signing of CPO/RA Agreement May 1987Mobilization June, 1987Start of Construction July 1, 1987

Construction Period 2 Ira.Construction Completed June 30, 1989

Loan Closing Date Dec. 31, 1989Disbursement Period from Board 3 vrs. 6 mos.

Add Safety Factor for Unforeseen 6 monthsRevised Loan Closing Date June 30, 1990

Disbursement Period 4 yrs.

* Following country disbursement profile; however the Government assuredthe Association at negotiations that it would take steps to fulfill allconditions of effectiveness before October 1986 and to complete theworks by end-1987.

Source: Appraisal Mission

May 19866358D

YEMEN ARBA REPUBLIC

STAFF APPRAISAL REPORT

NURIB-SAFIR ROM PRO.IECT

Pronect Monitarino Indices

Actual as percent- Reason (tt any) Actions to beProieet Cnoopa"nt Aia9U1 ear Eic l af KtimtrnAd for Piffarenee takn

Karib-Safir Road Construction(i) Contract agreemnt (date)0i1) Formation/earthworks completed (m)(OMi) Sub-base and base completed (km)(iv) Shoulders completed (km)(v) Asphalt concrete paving (km)(vi) Drainage structures. culverts (units)(vii) Construction work completed (date)(viii) Maintenance work completed (date)(ix) Copletion certificate (date)(x) Final Cost

II. Supervision of CoStructionl1) M/m for each expert0i) Final cost

s5uree: Appratsal Mission

May 19866358D

- 39 -

ANNEX 7

YEMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SARIF ROAD PROJECT

Schedule of Estimated Disbursements(US$ Million equivalent)

Cumulative Disbursement PercentageIDA Fiscal Year at End of Quarter of Totaland Quarter IDA Government Total Disbursement

FY 1987September 30, 1986December 31, 1986 - - -

March 31, 1987 - - - -

June 30, 1987 1.0 0.5 1.5 10

FT 1988September 30, 1987 2.0 0.9 2.9 20December 31, 1987 2.2 1.0 3.2 22March 31, 1988 2.5 1.1 3.6 25June 30. 1988 3.0 1.3 4.3 30

FT 1989September 30, 1988 3.5 1.5 5.0 34December 31, 1988 4.0 1.8 5.8 40March 31, 1989 5.0 2.3 7.3 50June 30, 1989 6.0 2.7 8.7 60

F1 1990September 30, 1989 7.0 3.1 10.1 70December 31, 1989 8.0 3.7 11.7 80Mtrch 31, 1990 9.0 4.0 13.0 90June 30, 1990 10.0 4.5 14.5 100

Source: Appraisal Mission Estimates

May 19866358D

STAFF APPRISL REPgRT

YURI-SAFIR MAD PWJOECT

LEenoaic Costs and Benefits

__-----_------Phase One (gravel road)------------- --------------- Phase Two (Paved road) ----------------C-osts _ VOC Benefits Costs vOC ane -its

Contruc- Mainte- Ol Agric. Net Construc- Mainte- Oil Agric. NetYear Zion -nine5 Traffic raffi.c hemfits t1in _WnanL Traffic =rafft.c lMfiLts"(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)

198S 36.0 -37.11986 36.0 9.0 1.7 -26.41987 2.3 18.1 3.8 19.6 18.6 -16.81988 2.3 18.1 4.2 20.0 37.1 -35.91989 2.3 18.1 4.5 20.3 18.5 0.6 2.3 1.3 -13.81990 6.7 18.1 9.7 21.1 1.1 4.6 2.6 12.61991 2.3 18.1 10.2 26.0 1.1 4.6 2.7 8.51992 2.3 18.1 10.8 26.6 1.1 4.6 2.9 8.71993 2.3 18.1 11.4 27.2 1.1 4.6 3.1 8.91994 6.7 18.1 12.0 23.4 1.1 4.6 3.3 13.51995 2.3 18.1 12.7 28.5 1.1 4.6 3.5 9.31996 2.3 18.1 13.4 29.2 1.1 4.6 3.7 9.51997 2.3 18.1 14.1 29.9 1.1 4.6 3.9 9.71998 6.7 18.1 14.9 26.3 1.1 4.6 4.2 14.41999 2.3 18.1 15.7 31.5 8.7 4.6 4.5 2.72000 2.3 18.1 16.4 32.2 1.1 4.6 4.7 10.52001 2.3 18.1 16.4 32.2 1.1 4.6 5.0 10.82002 6.7 18.1 16.4 27.6 1.1 4.6 5.3 15.52003 2.3 18.1 16.4 32.2 1.1 4.6 5.7 11.52004 -55.7 2.3 18.1 16.4 87.9 -57.3 1.1 4.6 6.0 69.1

tnternal Rates of turnPhase 1 30%Phase 2 13%Both Phases 22%

lI Cols. (9) + (10) - (7) - (8) + (3)

Source: Mission Estimate.

May 198663580

- 41 -

ANNEX 9

YEMEN ARAB REPUBLIC

STAFF APPRAISAL REPORT

MARIB-SAFIR ROAD PROJECT

Documents in the Pro ect File

1. Rendel Palmer and Tritton, Marib-Safir Road - Economic FeasibilitYStudr (Draft Re wort) - November 1985.

2. Appraisal Mission - A Note on Exporting Crude Oil from YAR Priorto the Completion of the Export Pipeline - December 10, 1985

3. Ministry of Agriculture and Fisheries Resources - Spotlight onKarib Dam in Antiquity and Today (undated).

4. Dar Al Handasah - Development of National Hishway Master Plan -(Draft Final Report) - June 1985.

5. Highway Authority - Marib-Safir Road - Final Engineering Designs -November 1985.

6358D

YEMEN ARAB REPUBUCMARIB-SAnR ROAD PROJECT

HA ORGANIZATION CHART

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I I~~~~~~~~~~~~~~~~~

0641W ~ ~ 05ptlfY 061S CHE 011f 066f 0568W I56

WECUANICLttt^ COUhC. 0506 ASIO LANN IINN POIS £55. 3 4 I~ 58F006 AITRO

555680= DIIIN DVSO IIIN f UFI IIIN DPIMNT DPUWI oE CONAI CONS £0 t 056

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EAOATR

SOURC WAt4 ^X OS

YEMEN ARAB REPUBUCMARIBS4R ROAD PROJECT

Croos Secton d th Maib-Sok Road

1.5M &UM l6M 1.6M

, __ 20W 1_______ I<t

4CM DH" ASPHALTIC CONCREIF (PHASE 2> 40 / T 4 /CT

MCM KCRUSHEAGGREGATE 20 CM THICK GRAVEL J /ASE (PSAM 1)BAM COURSE (PHASE 2)

ENMIUM MDE OF LOCAL 9Ots (PHSE i)

NoWskldope 1:21uflllhof-I hon#ZOm

Sousrow HIwjovAuthor#

WVd8da-30376

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SAUDI A k A 6 1 A YEMEN ARAB REP-BLiC,S A U D I A A A MARIB-SAFIR ROAD PROJECTTRANSPORT NETWORK

I9A U_- Project Road

. __ <t ._ d First ThrougJ Fourth Highway ProjectsRoads Constructed-SOULr, / N _ r Fitth Highwaey ProijtPaved Road Under Construction

* - i - Other Roads

r, , i~ / -_ _- Othef Paved Aoads Under Rehabid,tatioi___________r______ . S A A D A H - Principal Gravel Roads

Wadis

N ¢v tNational Capitals-.3ti - { - Cittes. Towns and Villages

4. Main Ports(< |4.| - . * International Airports

Province Boundanres;nternattonal Eoundariea

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PEOPLE'S DEMOCRATIC REPUSLIC OF YEMEN

E T H I O P I A /

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. LI F Of ADEN lar__ aDJIBOUTI

FEBRUARY 1986