AFRICAN DEVELOPMENT FUND

ETH/PTTR/2001/01
LANGUAGE : ENGLISH
ORIGINAL : ENGLISH

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

BUTAJIRA-HOSSAINA-SODO ROAD UPGRADING PROJECT

APPRAISAL REPORT

NB: This document contains errata or corrigenda (see Annexes)

COUNTRY DEPARTMENT OCDE

EAST REGION MAY 2001
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TABLE OF CONTENTS

Pages

PROJECT INFORMATION SHEET, CURRENCY AND MEASURES,

LIST OF TABLES, LIST OF ANNEXES, LIST OF ABBREVIATIONS,
BASIC PROJECT DATA, PROJECT LOGICAL FRAMEWORK,
EXECUTIVE SUMMARY iv-viii

1. ORIGIN AND HISTORY OF THE PROJECT 1

2. THE TRANSPORT SECTOR 2

2.1 Sector Overview 2

2.2 Transport System 2
2.3 Transport Policy, Planning and Coordination 4

3. THE ROAD SUB-SECTOR 5

2.1 Road Network, Vehicle Fleet and Traffic 5

2.2 The Road Transport Industry 6
2.3 Road Administration and Training 7
2.4 Road Planning and Financing
9
2.5 Road Engineering and Construction 11
2.6 Road Maintenance 12

4. THE PROJECT 15

4.1 Concept and Rationale 15

4.2 Project Area and Project Beneficiaries 15
4.3 Strategic Context 18
4.4 Project Objective 18
4.5 Project Description 18
4.6 Traffic Demand and Road User Prices 20
4.7 Environmental Impact 22
4.8 Social Impact 24
4.9 Project Costs 25
4.10 Sources of Finance and Expenditure Schedule 26
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5. PROJECT IMPLEMENTATION 27

5.1 Executing Agency

27
5.2 Institutional Arrangements 28
5.3 Supervision and Implementation Schedule 28
5.4 Procurement Arrangements 29
5.5 Disbursement Arrangements 31
5.6 Monitoring and Evaluation 31
5.7 Financial Reporting and Auditing 32
5.8 Aid Co-ordination
33

6. PROJECT SUSTAINABILITY AND RISKS 33

6.1 Recurrent Costs 33

6.2 Project Sustainability 34
6.3 Critical Risks and Mitigation Measures 34

7. PROJECT BENEFITS 35

7.1 Financial Analysis

35
7.2 Economic Analysis 35
7.3 Social Impact Analysis 36
7.4 Sensitivity Analysis 37

8. CONCLUSIONS AND RECOMMENDATIONS 38

8.1 Conclusions
38
8.2 Recommendations and Conditions of Loan Approval 38

This Appraisal Report was prepared by Messrs. M.O. AJIJO (Principal Transport Economist,
Ext. 5353), M. DIENE (Principal Transport Engineer, Ext. 5954), A. OUMAROU (Senior Transport
Engineer, Ext. 5286) and Ms. G. GEISLER (Senior Gender Specialist, Ext. 4940) following their
mission to Ethiopia in May 2001. Any inquiries relating to this report may be referred to either the
authors or to Mr. G. MBESHERUBUSA, Division Manager, OCDE.4, Ext. 4131.
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AFRICAN DEVELOPMENT FUND

01 B.P. 1387 - ABIDJAN
Tel: 20 20-44-44
Fax: (225) 20 20-49-86
Telex: 23717, 22202, 22203

PROJECT INFORMATION SHEET

The information given hereunder is intended to provide some guidance to prospective suppliers,
contractors and consultants and to all persons interested in the procurement of goods and services for
project approved by the Board of Directors of the Bank Group. More detailed information and
guidance should be obtained from the Executing Agency of the Borrower.

1. COUNTRY : Ethiopia

2. PROJECT TITLE : Butajira-Hossaina-Sodo Road Upgrading Project

3. LOCATION : Alemgena and Sodo Districts of Southern Nations

Nationalities and Peoples Region.

4. BORROWER : Federal Democratic Republic of Ethiopia

5. EXECUTING AGENCY : Ethiopian Roads Authority (ERA)

P.O. Box 1770
Addis Ababa Ethiopia
Tel: (251) 1 156603
Fax: (251) 1 514866
E. Mail: era1@telecom.net.et

6. DESCRIPTION : The project consists of:

(a) Civil works for upgrading of the 189.0 km long

Butajira–Hossaina-Sodo gravel road to bitumen
standard.

(b) Consultancy services for the supervision of above

civil works.

(c) Consultancy Services for Project Audit .

7. TOTAL COST : UA 45.90 million

i) Foreign Exchange: UA 39.07 million

ii) Local Cost : UA 6.83 million
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8. BANK GROUP LOAN

ADF : UA 41.31 million

9. OTHER SOURCE OF FINANCE

GOE : UA 4.59 million

10. DATE OF APPROVAL : October 2001

11. ESTIMATED STARTING

DATE OF PROJECT
AND DURATION : July 2003 - 32 months

12. PROCUREMENT OF
GOODS AND WORKS : International Competitive Bidding (ICB) with pre-
qualification of contractors for construction works, limited
to member countries of ADB and ADF State participants in
accordance with the Bank's "Rules of Procedure for
Procurement of Goods and Works".

13. CONSULTANCY SERVICES

REQUIRED AND STAGE
OF SELECTION : Consultancy services will be required for the supervision of
construction works and for project audit services.
Procurement will be in accordance with the Bank's "Rules
of Procedure for Use of Consultants". The selection will be
through limited competition on the basis of shortlist of
consulting firms using the selection criteria of “Price is a
Factor” for supervision of works and “Comparability of
technical proposal and lowest price considerations” for
audit services respectively.

1 SDR = UA 1
1 UA = US$ 1.29619 (May, 2001)
1 UA = ETB 10.8249
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CURRENCY AND MEASURES

Currency Equivalents
(May, 2001 Exchange Rates)

Currency Unit = Ethiopian Birr (ETB)

1 UA = ETB 10.8249
1 UA = US$ 1.29619
1 US$ = ETB 8.3513

Weights and Measures

1 metric tonne (t) = 2,205 lbs.

1 kilogram (kg) = 2.205 lbs.
1 metre (m) = 3.281 ft
1 foot (ft) = 0.305 m
1 kilometre (km) = 0.621 mile
1 square kilometre (km2) = 0.386 square mile
1 hectare (ha) = 0.01 km2 = 2.471 acres

FISCAL YEAR
July 7- July 6

LIST OF TABLES

Table 3.1 : RSDP-I Mid Term Review and Revised Implementation

Table 3.2 : Road Construction and Maintenance Expenditure
Table 3.3 : Road Fund Regular Budget Allocation
Table 3.4 : Maintenance Needs and Financing Sources
Table 4.1 : Base Year (2003): Traffic
Table 4.2 : Road Intervention Unit Cost
Table 4.3 : Summary of Project Cost Estimates by Components
Table 4.4 : Summary of Project Cost by Category of Expenditure
Table 4.5 : Sources of Finance
Table 4.6 : Expenditure Schedule by Components
Table 4.7 : Expenditure Schedule by Source of Finance
Table 5.1 : Summary of Project Implementation Schedule
Table 5.2 : Summary of Procurement Arrangements
Table 5.3 : Provisional Mission Program
Table 7.1 : Switch Values for Investment Costs

LIST OF ANNEXES

ANNEX Titles No of Pages

1. Road Location Map 1

2. Ethiopian Roads Authority Organisation Chart 1
3. Project Implementation Schedule 1
4. Provisional List of Goods and Services 1
5. Summary Financial and Economic Analysis 4
6. Environmental and Social Management Plan Summary 2
7. Summary of Bank Group Operations as of 31 May 2001 1
8. List of Annexes in the Project Implementation Document 1
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LIST OF ABBREVIATIONS

AADT = Average Annual Daily Traffic

ADB = African Development Bank
ADF = African Development Fund
BADEA = Arab Bank for Economic Development for Africa
CAA = Civil Aviation Authority
CBR = California Bearing Ratio
DBST = Double Bituminous Surface Treatment
DfID = Department for International Development (U.K.)
EAL = Ethiopian Airlines
EDF = European Development Fund
EU = European Union
ESL = Ethiopian Shipping Lines
EFTC = Ethiopian Freight Transport Corporation
ERA = Ethiopian Roads Authority
EIRR = Economic Internal Rate of Return
ERTTP = Ethiopian Rural Travel and Transport Programme
ESAL = Equivalent Standard Axle Load
FE = Foreign Exchange
GPN = General Procurement Notice
GOE = Government of Ethiopia
GTZ = Deutsche Gereuschraft fur Technische Zusammenarbeit
HDM = Highway Design and Maintenance Standard Model
IMT = Intermediate Means of Transport
ICB = International Competitive Bidding
IDA = International Development Association (World Bank)
IRI = International Roughness Index
JICA = Japanese International Cooperation Agency
kph = Kilometres Per Hour
KfW = Kreditanstalt fur Wiederanfbaw
MEDAC = Ministry of Economic Development and Cooperation
MOF = Ministry of Finance
MOTAC = Ministry of Transport and Communications
MOW & UD = Ministry of Works & Urban Development
NDF = Nordic Development Fund
PID = Project Implementation Document
PER = Public Expenditure Review
PTC = Passenger Transport Corporation
RFP = Request for Proposals
RE = Regional Engineer
REO = Regional Engineer's Office
RIU = Road Inspectorate Unit
RSDP = Road Sector Development Program
SIP = Sector Investment Program
SPN = Specific Procurement Notice
TA = Technical Assistance
TCDE = Transport Construction and Design Enterprise
TRRL = Transport Road Research Laboratory
UNDP = United Nations Development Programme
VOC = Vehicle Operating Costs
vpd = Vehicles Per Day
v
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ETHIOPIA
BUTAJIRA-HOSSAINA-SODO ROAD UPGRADING PROJECT
PROJECT MATRIX

REVISION DATE: MAY 2001

DESIGN TEAM: M.O. AJIJO/M. DIENE/A. OUMAROU

Narrative Summary (NS) Verifiable Indicators (VI) Means of Verification Assumptions

1. Goal: (Goal to supergoal)
1.1 To improve the efficiency and 1.1 Inventory of the 1.1 Annual road Reduced transport cost will lead to
capacity of the transport system to classified road network Construction and economic growth and improvement of
support economic and social in satisfactory condition Pavement evalua- critical poverty indicators.
development programmes. increase from 57% in tion statistics from
2000 to about 90% by ERA
year 2007.
1.2 Raise the level of road 1.2 Road Network
density from 21 km/ statistics..
1000 km2 in 2001 to 38
km/1000 km2 by the
year 2007.
2. Project Objective: (Project objective to Goal)
2.1. To reduce transport cost between 2.1 Average vehicle operating 2.1 Vehicle operating 2.1 Fuel levy fund is adequate for
Butajira and Sodo and to promote costs reduced by 43% in cost data road maintenance
market integration between rural the year 2006 when the 2.2 Government commitment to axle
and urban areas. roads is opened to traffic load control and other policies
compared to the base case. and measures contained in the
2.2 Average travel time RSDP
between Butajira and Sodo 2.2 ERA traffic and .
reduced by up to 50% travel time survey
compared with base case data on project road

3. Outputs (Outputs to Project Objective)

3.1 A two lane bituminous road with 7.0 3.1 189 km of gravel road 3.1 Project Completion 3.1 ERA will maintain the road
m wide carriageway and 1.5 m wide upgraded to all weather Report (PCR). in accordance with the
shoulder on either side from Butajira bitumen standard by . 3.2 Audit Reports maintenance action plan.
to Sodo (189 km). 2006. 3.3 Project Performance
. 3.2 IRI reduced from 15m/ Evaluation
. km in 2003 on existing Report(PPER)
road to about 2.2 m/k on
actual project road by
2006.

4. Activities Inputs/Resources (Activity to Output)

For Civil Works : Inputs million UA . 4.1 All procurement actions are on
schedule.
4.1 Prequalification of contractors, Issue 4.1 Civil works 34.71 4.1 QPRs 4.2 Payments for invoices are not
and receipt of tenders Evaluation, 4.2 Consultancy delayed.
negotiation and award of contract i) Supervision 1.99 4.2 SRs 4.3 GOE budgets and timely release
4.2 Execution of civil works. ii) Audit 0.10 of counterpart funds.
4.3 Contingencies: 4.3 PCR 4.4 Effective supervision by the
- Physical 3.68 Bank and consulting firms.
For Consultancy Services: - Price 5.43 4.4 Audit Reports 4.5 ERA’s effective monitoring.
Total 45.90
4.3 Approval of TOR for supervision and
auditing services. Resources:
4.4 Issue & receipt of RFP ADF 41.31
4.5 Evaluation and approval GOE 4.59
4.6 Award of consultancy service contracts Total 45.90
4.7 Commencement of services.
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EXECUTIVE SUMMARY

Project Background

The Government of Ethiopia put together with the support and wide consultation with its development
partners and other stakeholders in 1997 a ten year Road Sector Development Programme to be
implemented in two phases with the objective of improving the road transport operating efficiency
which is critical to the success of its Agricultural Development Led Industrialisation Strategy. The
first phase of the programme, RSDP – I originally estimated to cost US$ 2.8 billion over the period
1997 – 2002 focused mainly on i) the restoration/upgrading of the classified main road network, ii)
institutional support to strengthen Federal and Regional roads management capacity including support
to domestic construction industry, environmental protection, a road safety component and iii) road
maintenance support programme which focuses on use of private sector. The RSDP lists several road
links and sector policy support options which provided the basis for donor intervention. Donors
currently co-financing the programme include the IDA, ADF, EU, NDF, OPEC, BADEA and a
number of bilateral donors viz. the Governments of Germany, Italy, Japan, and the United Kingdom.
The Government, participating donors and other stakeholders had a mid-term review of the RSDP I in
February 2001 and have agreed on actions and schedules for preparing, discussing and follow on of
the RSDP II for the period 2002-2007.

Among the list of several link roads put forward by the GOE for financing by the Bank Group in the
RSDP is the upgrading from gravel to bitumen standard of the Alemgena–Butajira–Hossaina–Sodo
Road Corridor (309.1 km). For ease of implementation, the project was conceived in lots of
Alemgena–Butajira (120.1 km), Butajira–Hossaina (95 km) and Hossaina–Sodo (94 km). The Bank
appraised the Alemgena–Butajira section in February 1998 and the ADF approved a loan of UA 18.50
million for the section in June 1998. The physical execution of the link commenced in November
2000. The ADF/TAF Grant for the Seven Roads Study was used to update the economic feasibility
and social impact studies of the other two sections which are the subject of this appraisal document.

Purpose of the Loan

The ADF loan will be used to finance the entire foreign exchange cost of UA 39.07 million and
32.83% of the local cost, which amounts to UA 2.24 million. The total ADF financing amounts to UA
41.31 million, representing 90.0% of the total project cost, net of taxes.

Sector Goal and Project Objective(s)

The sectoral objective of the project is to improve the efficiency and the capacity of the transport
system to support economic and social development of Ethiopia. The objective of the project is to
reduce transport cost between Butajira and Sodo and to promote market integration between rural and
urban areas of Ethiopia.

Brief Description of Project Outputs:

The output of the project will be a two-lane 189-km bitumen surfaced road with 7.0m wide
carriageway and 1.5m shoulder on either side between the two towns of Butajira and Sodo.

The project comprises the following components:

 viii

i) Construction works for the upgrading of gravel surfaced road to a two-lane bitumen
standard with 7.0m wide carriageway and 1.5m wide shoulders on each side for a total
length of 189 km between Butajira and Sodo.

ii) Consultancy Services for:

- Supervision of construction works of (i) above.

- Project audit services.

Project Cost

The estimated cost of the project is UA 45.90 million (net of taxes) of which UA 39.07 million
(85.0%) will be in foreign currency and UA 6.83 million (15.0%) will be in local currency. The
estimated cost is based on March 2001 prices with 10% physical contingency and a price escalation
per annum of 3% and 9% on foreign and local costs respectively.

Source of Finance

ADF and GOE will jointly finance the project. The proposed financing from ADF will cover the
entire foreign exchange cost of UA 39.07 million and 32.83% of local cost, which amounts to UA
2.24 million. The total proposed financing from the ADF amounts to UA 41.31 million which is
equivalent to 90.0% of total cost of the project. The GOE will finance 67.17% of the local costs
amounting to UA 4.59 million.

Project Implementation

The Ethiopian Roads Authority (ERA) will be responsible for the execution of the project. The project
construction will be implemented over a period of thirty-two (32) months starting from July 2003 and
will be completed by February 2006 followed by the 12 months warranty period.

Conclusions and Recommendations

The upgrading to bitumen standard of the Butajira–Hossaina-Sodo section of the Alemgena-Sodo

trunk road is in line with the Government's stated policy on road infrastructure development. The
project through the removal of transportation bottlenecks will contribute to the sector goal of
improving the efficiency and capacity of the transport system to support the social and economic
programmes of the Government. .

The proposed road will improve transport services between the capital Addis Ababa and Sodo, and
promote market integration between rural and urban areas. The project is consistent with the Bank
Group's strategy for Ethiopia in the transport sector for the period 1999-2001 and is well conceived,
technically feasible, economically justified and environmentally sustainable. The project generates an
economic internal rate of return (EIRR) of 18.46% based entirely on quantifiable economic benefits
for road user benefits. The road will give rise to other economic and social benefits, and will have a
significant impact on poverty reduction in the project area.

It is recommended that a loan not exceeding UA 41.31 million from ADF resources be extended to the
Government of Ethiopia for the purpose of implementing the project described in this report subject to
the conditions specified in the loan Agreement.
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1. ORIGIN AND HISTORY OF THE PROJECT

1.1 The Government of Ethiopia put together with the support and wide consultation with its
development partners and other stakeholders in 1997, a ten year Road Sector Development
Programme (RSDP) with the objective of improving the efficiency and capacity of the road transport
system to support its Agricultural Development Led Industrialisation Strategy and social economic
development in general. Initially the programme emphasis is on extensive rehabilitation and
upgrading of existing main roads and later substantially expanding the rural roads network. The
programme is under implementation in two phases; RSDP - I is estimated originally to cost US$ 2.8
billion over the period 1997-2002 and focused mainly on restoration/upgrading of the classified main
road network. A mid-term review of RSDP-I was undertaken in February 2001 to assess
implementation experience and draw lessons for putting the programme on track. The RSDP provides
the key to transport development in Ethiopia, and lists several roads and sector policy support options,
which provided the basis for donor intervention in the programme. Donors currently co-financing the
implementation of the programme or indicated commitment include the IDA, EU, ADF, NDF, OPEC,
BADEA and a number of bilateral donors viz.: the Governments of Germany, Italy, Japan, Ireland and
the United Kingdom. More details on the RSDP and its implementation performance are in Chapter 3.

1.2 Among the list of several link roads put forward by the Government for financing by the
Bank Group in the RSDP is the upgrading from gravel to bitumen surfaced standard of the Alemgena-
Butajira-Hossaina-Sodo Corridor (309.1 km). The area through which the road passes is characterised
by extensive small-scale agricultural activity. However the poor condition of the road infrastructure
on the corridor, leads to low operating speeds and difficult operating conditions during wet season.
The development of road infrastructure in this corridor is important for market integration between the
rural and urban sectors.

1.3 For ease of implementation, the project is subdivided into sub-sections viz.: Alemgena-
Butajira (120.1km), Butajira–Hossaina (95 km) and Hossaina-Sodo (94 km). The ADF appraised the
Alemgena - Butajira link in February 1998 and approved a loan of UA 18.50 million for the link in
June 1998. The contractor was issued letter of commencement in November 2000 for completion in
30 months and physical implementation is currently rated at 6%. The other two remaining links were
admitted into the 2001 Indicative Lending Programme following a Bank identification mission to
Ethiopia in June 2000. The feasibility studies of the Alemgena-Butajira-Hossaina-Sodo corridor was
commissioned in June 1996 under a Consulting Services for Five Roads Feasibility Study financed
through a Japanese Grant administered by the IDA for review and revision as necessary of Ethiopian
Roads Authority's (ERA) preliminary feasibility on five road corridors that have been admitted into
the RSDP after a selection on the basis of an initial assessment of needs as part of a base line Road
Sector Study financed by the European Union. The final report of the feasibility study was delivered
in July 1997 while the detailed engineering design was completed in December 1997. Given the age
of the studies, the ADF approved an update of the feasibility studies under Package "A" of the
ADF/TAF Grant for the Seven Roads Study in December 1998. This appraisal report is based on the
updated project documents, discussions held with the Government and other agencies and on
additional information collected by the Bank mission that visited Ethiopia in May 2001.
 2
2. THE TRANSPORT SECTOR

2.1 Sector Overview

2.1.1 Ethiopia's land area of 1.10 million km2 is one of the largest countries in Africa.
Economic activities are widely dispersed around the country and long haul traffic movements are
characteristic of Ethiopia's transport system. With agriculture accounting for 45.0% of the country’s GDP
and 85.0% of its employment, Ethiopian needs a sustainable road network and transport services that
could play a vital role in agriculture for internal distribution and marketing of food as well as export of
cash crops. It is in this context that the successful implementation of the RSDP is critical for the its
Agriculture Development Led Industrialisation Strategy aimed at boosting the productivity of the
agricultural sector.

2.1.2 The transport system consists of about 60,000 km of roads of which about 3,824 km are
paved; one railway line (780 km) connecting Addis Ababa with Djibouti; two international airports
(Addis Ababa and Dire Dawa), twelve local airports and 38 air strips, river and lake transport of relatively
little significance and marine shipping. Roads are the country's dominant mode of transport. More than
95 percent of motorised tonnes-km and passenger-km are carried by road.

2.2 Transport System

Road Transport

2.2.1 Ethiopia has a relatively limited classified network of about 29,571 km of which about 13
percent is paved; in addition there are some 30,000 km of unclassified roads. The classified network is
one of the least developed in Africa with a density of only 27 km per 1000 km2 and 0.47 km per 1000
population as at 2001 despite 0.7 per cent annual increase in the network since 1992.

2.2.2 Inadequate maintenance over a long period had led to a severely deteriorated road
network. In 1996, it was estimated that 82 percent of the classified roads were in a fair/poor condition and
penalised agricultural activity through its effect on vehicle operating costs, delayed evacuation and
damage to crops. The ten-year Road Sector Development Programme (RSDP) is to address both the past
neglect and the present capacity constraint in the road sector. Through the implementation of RSDP, the
Government plans both to expand the network by 80 percent and to improve the condition of the existing
network by an extensive programme of rehabilitation and upgrading. Further details of the road sub-
sector and the RSDP are given in Chapter 3.

Rail Transport

2.2.3 Rail transport operations are undertaken by the Chemin de Fer Djibouti-Ethiopia (CDE)
jointly owned by the governments of the two countries under the provision of a 1981 treaty. It is a 781
km single track rail connecting Addis Ababa to the port of Djibouti, built about 100 years back with aging
track and rolling stock making it difficult to maintain its original operational efficiency and safety
standards. Historically, Addis-Djibouti railway was the main import and export corridor in the country
but lost its monopoly in the 1950's when the Port of Assab was built and a road was constructed from
Addis Ababa to the new port.
 3
2.2.4 During its peak, CDE moved 90 percent of Ethiopia's international traffic. However, since
1986, there has been a general decline. The freight tonnage conveyed fell from a high of 336,000 tons in
1986 to a low of 160,000 tons in 1999. The number of passengers transported fell from 1,000,000 in 1986
to 760,000 in 1999, a drop of 31 percent. The reasons for this decline were the poor condition of the
track, limited locomotives availability and weak management.

2.2.5 As part of its external transport strategy to develop alternatives transit routes to the
neighbouring countries, efforts to improve the performance of the CDE have been underway, with the
help of several donors. In this context, the EU has funded a study which concluded that an investment
programme of about US$ 205 million (US$ 140 million for infrastructure and US$ 65 million for
equipment) is required to meet CDE's needs until 2012. Emergency measures estimated at 31.7 million
ECU with part financing to the tune of 55 million French francs from France is currently being
implemented and involves renewal of track, rehabilitation and procurement of locomotives/rolling stock,
training and technical assistance support. These measures when completed would restore the annual
lifting capacity of the rail to 350,000 tonnes per year. In addition, medium and long term measures with
an estimated cost of 102.2 million ECU have been put in place with expected financing from the EU of
which 35 million ECU has already been secured. There is also the intention of the two Governments to
implement CDE concession plan, which would involve the granting of a license to a private company to
operate the railway services. Government is also finalising a preliminary study of a Railway development
master plan with short, medium and long-term vision to have alternative export corridors through
Djibouti, Kenya and Sudan.

Air Transport

2.2.6 Ethiopia is served by two international airports (Addis Ababa and Dire Dawa), twelve local
airports, which are administered directly by the Ethiopian Civil Aviation Authority (CAA) and 38 air
strips which are seasonally used outside of the CAA’s administration. In order to keep pace with the
evolving technologies and growing traffic at Addis Ababa International Airport, Government has
embarked on improvement and upgrading of existing infrastructure facilities with its related systems to
transform Addis Ababa airport with a new runway, five taxiways, a new international terminal, and
upgraded communication and safety facilities as per ICAO standards to be completed by 2002. The total
estimated cost of the project was US$ 160 million and for ease of implementation for external financing
consideration has been divided into three packages. The Bank Group and the EIB are co-financing with
Government on parallel basis the air side works, with financing of US$ 26 million for the new runway,
taxiways and associated works provided by the ADF in one package, while the EIB provided financing
for augmentation of navaids, communications, airfield lighting systems and other utilities with a credit of
US$ 21 million in another package. The construction of new international passenger terminal with co-
financing to the tune of US$ 47.0 million from KFEAD, BADEA and OPEC, while NDF is financing the
special systems including luggage handling with a credit of US$ 7.0 million that constitute the third
package. Government using its own resource and in support of development of tourism has invested
about Birr 302.0 million in construction of runways, terminal buildings and upgrading of facilities in five
of the twelve domestic airports of Arba Minch, Axum, Gondar, Lalibela and Mekele.

2.2.7 Air transport services are provided by EAL which operates on domestic and international
routes. At present the EAL services 49 destinations in its international operations, which still remains
under the domain of the state. However about ten other international airlines operate regional and
international flights into and out of Addis Ababa. Ethiopian Airlines (EAL) is wholly owned by the
government and is still the dominant provider of domestic scheduled services to 32 domestic airports and
airstrips. Private participation is allowed under general aviation and as per proclamation No 37/1996, the
area of investment reserved for domestic investors is in the areas of air transport services using aircraft
with seat capacity of 20 passengers, or with cargo capacity of up to 2700 kgs. At present five private
national operators have been licensed out of which two have started operation. The demand for EAL's
services is high with average passenger load factor of about 59 percent on all routes and 63 percent in the
domestic market, resulting in a high turnover particularly at Addis Ababa airport.
 4

Maritime Transport

2.2.8 At the moment Ethiopia is mainly served by one port which provides the gateway for it’s
foreign trade viz. Djibouti in the Republic of Djibouti. Ethiopia’s transit traffic in 1999 amounted to 2.8
million tonnes. Of this, only 200,000 tonnes were exports. Imports consisted of 1.0 million tonnes of
petroleum products and 1.6 million tonnes dry cargo, half of which consisted of grains and fertilizers.

2.2.9 The Ethiopian Shipping Lines (ESL), a Government parastatal owns 12 ships with total lifting
capacity of 112,834 Gross Registered Tonnes (GRT) out of which 10 are operational. Two of its vessels
are less than 10 years old, two between 10 and 15 years and another 5 between 15 and 20 years while the
remaining one is 30 years old. The ESL operates in five routes viz.; North & Western Europe,
Mediterranean & Adriatic, Far East, East Africa and Middle East and plays an important role in the
development of the country’s external sector. The total tonnage lifted by the ESL was 228,285 tonnes in
1998/99. Government as matter of policy has in 1997 liberalized freight forwarding and shipping agency
which hitherto were the domain of the state and are now open to the private sector with 36 companies
including the state owned Maritime and Transit Services Enterprise (MTSE) involved.

2.3 Transport Policy, Planning and Coordination

2.3.1 The Government of Ethiopia's current economic policy statement calls for a greater role
for the private sector and a departure from centralised administrative regulation to market determined
decisions. The policy as enunciated in November 1991 has important elements with respect to policy
direction in the transport sector. The economic policy recognises the need for limiting the role of the state
to regulations and their enforcement and introducing reforms including streamlining the role of public
enterprises; and encouraging private participation in the sector. A lot of institutional support and policy
studies are being financed in the sector by donors for which action plans are being recommended for
implementation by the Government for the deregulation and privatisation of the sector.

2.3.2 The Ministry of Economic Development and Cooperation (MEDAC) is responsible for
giving directives and reviewing investment plans, which are submitted for approval to the Cabinet and the
Council of Representatives from the sector Ministries. The Ministry of Finance undertakes the review of
recurrent budget, which is also approved by the Cabinet and the Council of Representatives.

2.3.3 The overall coordination in the transport sector is exercised by Ministry of Transport and
Communications (MOTAC) to which all agencies in the transport sector, except those in road
infrastructure report. Roads planning and construction for the trunk and main link roads is undertaken by
the Ethiopian Roads Authority (ERA) whereas MOTAC is responsible for planning of all other transport
modes as well as regulation of the road transport industry. The Ministry of Works and Urban
Development oversees development of urban transport and the construction industry while Regional Road
Organisations (RRO) are responsible for rural roads.

2.3.4 Finally, the Ministry of Economic Development and Cooperation (MEDAC) plays an
important role in helping to coordinate transport strategies, providing guidelines for sectoral development
plans, and setting overall levels of investment for each of the sub-sector plans. Effective coordination
exists between the planning offices of MOTAC, ERA and the MEDAC.
 5

3. THE ROAD SUB-SECTOR

3.1 Road Network, Vehicle Fleet and Traffic

Road Network

3.1.1 The total classified road network is about 29,571 km of which 8,180 km are designated
trunk roads which function as the primary road system, 7,911 of major link roads connecting the trunk
roads with economic centers, and 13,480 km of regional roads which provide the inter-village tertiary
road network. This classification is more related to design standard than function; a study to establish a
comprehensive functional classification system has been finalized which enabled the Ethiopia roads to be
classified in five classes. The final classification of the roads in these five classes is underway. The
overall condition of the network indicated as of 1999/2000 that about 70% of the paved network are rated
poor while for the gravel roads 78% are in poor condition. This current condition indicates an apparent
poor level of service, which would be arrested to a greater extent as the rehabilitation of roads under
current contracts, is expedited.

3.1.2 The main network extends radially from Addis Ababa with few interconnecting links;
large areas still lack an all-weather link to the capital or to other economic centers. However, the network
has expanded considerably since 1996/97 as indicated by road density data, which increased from 21.7
km per 1000 km2 in 1996/97 to 27 km/1000 km2 in 1999/00, and from 0.442 per 1000 population to
0.498 per 1000 population over the same period. The regional roads in both categories of collector and
feeder roads increased from 9,192 km in 1996/97 to 13,480 km in 1999/00, an increase of over 46.6%
which has contributed to accessibility while the expansion of the federal highway network was from
15,769 km to 16,091 km (2.04%) over the same period. The overall expansion of 18.460% has been
recorded for the overall national network, which has been attributed mainly to improvement in rural
access roads.

Road Vehicle Fleet and Traffic

3.1.3 An estimated fleet of some 100,000 vehicles provides transport services in Ethiopia. The
current rate of motorization is very low by international standards with only 0.0016 vehicle per capita
(620 people per vehicle). Despite an increase in the fleet of 150 percent since 1991; this is less than half
the rate in the region. Moreover, the geographical distribution of vehicle ownership is highly
concentrated with over 70 percent of vehicles registered in Addis Ababa.

3.1.4 As a consequence of the past regulations, some 13 percent of the Government owned
trucks are between 16 and 20 years old while for truck in private possession where the age is known, 48
percent are older than 16 years and 28 percent are over 20 years. Less than one percent of Government
buses are over 16 years whilst 53 percent of private buses are over 16 years and 39 percent over 20 years.
This ageing fleet has resulted in low availability and high spare parts requirements and therefore high
operating costs.

3.1.5 Despite the small vehicle fleet, traffic flows on the main network are high. In 1996, 6
percent of the main network had an average daily traffic greater than 800 and 70 percent greater than 200.
Total non-urban traffic grew by about 10 percent per year since 1992. The most striking feature in traffic
flow trends is the continuing increase in total vehicle kilometres travelled; particularly the result indicated
increases in kilometers travelled for heavy vehicles than for small vehicles. The adjusted aggregated index
of traffic flow on the main road network increased from 100 in 1996 to 105.6 in 1998 and reached a level
of 115.3 in 1999. This high rate of traffic growth is supported by data on fuel consumption and sales.
Since 1993, the nation wide increase in fuel sales has been at nearly 15 percent per year.
 6
3.2 The Road Transport Industry

3.2.1 The road transport industry accounts for 95% of passenger/freight movement in the
country, import distribution of petroleum products, fertilizer, relief food and collection/ export of coffee
from the rural areas. In the Derg period all commercial road transport was under state control. The
Government of Ethiopia in 1992 introduced a change, from regulation to deregulation with the Transport
Regulation Proclamation and the road transport market is today almost completely deregulated. The
Proclamation allowed the establishment of non-government transport undertakings as associations,
companies and private operators out of the aegis of Government Corporations and is free to operate. The
State owned the very large truck and bus companies; the private sector acted as subcontractors to the
Ethiopian Freight Transport Corporation (EFTC) and the Passenger Transport Corporation (PTC) which
are currently being commercialized.

3.2.2 Deregulation of the road freight sector including the abolition of the official Ketana freight
allocation system, the restructuring of EFTC into four separate trucking enterprise and a workshop
enterprise, and the removal of tariff control and route assignment has resulted in a competitive market for
the movement of goods. Freight transport is available throughout the country but its price varies with
market conditions, backloading opportunities, and road conditions. In order to match the transport supply,
the private sector has received assistance from the government through credits and loans. However the
number of new private operators entering the market has been very limited, showing no confidence in the
profit opportunities in the sector.

3.2.3 In the passenger transport sector, deregulation started prior to the change of regime with
liberalization of mini-buses, stimulating a large expansion in the fleet. The process has continued and
most official controls over the sector have been removed with the exception of fare control for the large
buses and urban public transport. The supply of passenger transport has been growing at an annual rate of
about 6 percent and appears adequate except at peak periods and in remote areas.

3.2.4 The road transport market, though had made in reality impressive progress from the
regulated state market of the Derg regime, but it is today in fact characterized by a situation of imperfect
competition due to the excessive presence of Government activity (own account fleets, parastatal
companies, city bus public company, national protection) to the non transparency of the new regulation to
operators, to poor organisation and preparation of transport companies (limited backhaul, low
containerization factor). In particular, in the freight transport, the presence of three large conglomerates of
operators owned by the public sector which in different ways exert some oligopolistic influence on the
market, do not stimulate the entrance of individual private operators. In the public passenger transport, the
system of public obligation services should be restructured in the capital city and introduced in difficult
rural areas to guarantee basic needs for transport to all citizens.

3.2.5 The road transport regulation still has to respond to the demands of the new economic policy
through effective privatisation of parastatal enterprises; opening of the transport market to foreign
operators and investors, the complete deregulation of the entire market, with restructuring of urban public
transport, the widespread information disclosure policy of the new rules and regulation to all operators
and the adoption of a clear framework of regulatory and enforcement institutions. Government is
currently trying to review these issues under a Study on Road Transport Regulations with EDF financial
support.

3.2.6 Other issues of concern are i) the control of vehicle loading which is not effective and axle
load limits are exceeded and ii) road safety in Ethiopia which is extremely poor with accident fatalities of
155/10,000 motor vehicles compared to 60/10,000 motor vehicles in Kenya and 17/10,000 motor vehicles
in South Africa ranking among the highest in Africa. EDF financed study was completed in November
2000 in the case of the axle load controls and Government accepted the recommendation and an
implementation action plan was formulated by March 2001 to be submitted to stakeholders consultative
group. The substantial completion of implementation of the action plan is to be achieved by 2003 by
 7
ERA for the sustainability of the investment under the RSDP. The EDF financed study on the issue of
Road Safety is still on going and Government adoption of the recommendations and the agreement of an
action plan is expected by end 2001. Submission of the annual progress reports on the implementation of
the action plans for control of vehicle loading and that of Road Safety have been made a condition of the
loan.

3.3 Road Administration and Training

Road Administration

3.3.1 As a part of the institutional reforms agreed during the donors’ conference of 1996, the
restructuring of Ethiopian Roads Authority (ERA) was addressed by Proclamation in 1997. This set the
framework for transforming ERA from a supplier of road infrastructure to a manager and purchaser of
services and works for the road network maintenance and development. The main objectives of this
reform was to encourage cost effective construction and maintenance management, and implementation
through; (i) contracting-out all construction and progressively increasing amounts of maintenance work
contracted out; (ii) progressive commercialization of force account units; (iii) creation of a commercial
equipment pool (using ERA equipment); (iv) clear delegation of authority and responsibility; and (v)
development of the private sector participation in all aspects of the operations (e.g. training, equipment
ownership, materials testing, etc.).

3.3.2 ERA is a legally autonomous agency responsible for overall planning, construction,
maintenance and management of the country's trunk and major link roads. A Board of Directors
appointed by the Government now leads ERA. The Board is composed of six members of whom the
Government nominates one member as its Chairman. At present the Minister of Economic Development
and Co-operation (MEDAC) is the Chairman. The other five members are: Minister for Works and Urban
Development (MOW & UB), Minister of Transport and Communications (MOTAC), General Manager,
ERA and two representatives (equal to the rank of ministers) from the Prime Minister's Office. The Board
meets regularly once a month to review the progress of the authority and guides ERA in its strategic
management of the road network to ensure that it meets the priority needs of the economy and the social
demands of a large and widely dispersed rural population and also approves the award of all contracts.
The responsibilities for the construction and maintenance of rural/regional roads have been decentralised
and are administered by the Regional Government's Rural Roads Organization (RRO).

3.3.3 The new ERA structure, headed by a General Manager has three departments, each headed by
Deputy General Manager as follows: (a) Regulatory and Engineering Services Department, which is to
discharge its responsibilities through three divisions viz. Planning & Programming, Contracts
Administration, and Design, Research and Network Management; (b) Operations Department, which has
responsibility for force account maintenance, emergency road construction and maintenance and
associated logistic support; and (c) Human Resources and Financial Management Department. The
technical divisions for the implementation of projects under contract are under the Regulatory and
Engineering Services Department. Each division headed by a Manager has specialised branches, with a
branch head, responsible for activities under his jurisdiction and is assisted by qualified and experienced
professionals in relevant fields. Each engineer is assigned with projects and is responsible for overall
supervision and day-to-day monitoring of the projects. The ERA's current organisational structure is
given in Annex 2.

3.3.4 All departments and divisions of ERA are staffed by qualified and experienced Ethiopian
professionals. ERA has about 14,258 employees of whom 5% are professionals and the remaining are
non-professionals. Of the total, 4% are women and only about 16% of them are professionals, the
remaining is in administrative support cadres. Government is, however, making efforts to recruit more
women in the professional categories.
 8

Training

3.3.5 ERA has its own in-house and on-the-job training programmes for all levels of its personnel.
The existing training centre at Alemgena (established in 1956) is capable of training personnel engaged in
building and maintaining of trunk and major link roads. It has also facility to train in other major fields
such as equipment operation, trade and crafts, engineering, financial management etc. Another training
institute was established in 1981 to train in modern labour-based techniques suitable to the country's
needs. ERA through these training centres, also arranges advanced training courses in foreign institutions
with assistance from World Bank, JICA and Federal Republic of Germany (FRG).

3.3.6 In order to strengthen the institutional capacity of both ERA and Regional States’ Rural Roads
Organization (RRO), training of more personnel in areas of highway design and engineering, transport
planning, contract administration and equipment management, is underway. More than 80 professionals
have so far received overseas training with financial assistance from the Government and the World Bank.
In addition, financial assistance has been received from the European Union (EU) and GTZ and
commitments have been made to cover expenditures related to short term training, project related study
tours, and policy oriented seminars in the areas of road infrastructure and road transport.

Technical Assistance

3.3.7 In order to meet the objectives of the Road Sector Development Programme and the need for
smooth and speedy execution of the programme, technical assistance in different fields has been in place
to compliment the in-house activities of ERA. Currently, there are seven Technical Assistants working
for the ERA. Four of them (contract specialist, transport economist, rural roads coordinator and RSDP
adviser) have been assigned by E.U.; the other three, who are working in the newly established Road
Inspectorate Unit for strengthening capacity for technical monitoring and supervision of works, have been
financed by the World Bank. A bridge specialist technical assistant assigned by the Government of Japan
is working under Bridges Branch of ERA. The effective utilisation of the technical assistance programme
is critical to the sustainability of the projects under the RSDP and as such monitoring through progress
reporting to the Fund of the institutional support component of the RSDP has been made a condition of
the loan.

3.4 Road Planning and Financing

3.4.1 Road planning and programming is undertaken by ERA's Planning and Programming Division
(PPD) which is well organised and staffed with economists, engineers, statisticians, budget analysts and
traffic experts. Budget preparation for roads is also the responsibility of the PPD. When the programmes
are finalised, the proposals and budgets are reviewed by the Board of ERA and submitted to the Ministry
of Economic Development and Co-operation (MEDAC) for review and submission to the Government for
its approval. It is through this process that the RSDP has been formulated.

Road Sector Development Programme (RSDP)

3.4.2 The RSDP, a comprehensive ten year target programme, was prepared by the Government
through effective participation with stakeholders and donor community and commissioned in September
1997 for implementation in two phases. The objective of RSDP is to restore Ethiopia's road network,
which has become an obstacle to the sustainability of the Economic Development Programme, and to
develop institutional capacities of the road agencies to properly manage the network. The physical targets
in the first phase of the programme RSDP I (1997 –2002) are: i) increasing the road density from 21
km/1000 sq. km in 1996 to 27 km/1000 sq. km in 2002 and ii) to have the proportion of the network in
good condition increased from 18% in 1996/97 to 60% by 2002 and to install regular maintenance on the
maintainable road network.
 9

3.4.3 The first phase of the programme with an original programme size amounting to US$ 2.8
billion was presented to the donors for financial support in 1996. The programme was supported by ten
multilateral/bilateral donors and commitment/pledges by all financiers including the Government
amounted to US$ 1.29 billion by the mid term review of February 2001 (see Annex 5). Donors
participating in the programme include the IDA, ADF, EU, OPEC, BADEA, NDF, and a number of
bilateral donors, viz. the Governments of Germany, Italy, Japan, Ireland and United Kingdom. The main
components of the programme consists of: (a) rehabilitation and upgrading of about 6300 km of trunk
roads, (b) upgrading and construction of about 2300 km major link roads, (c) rehabilitation/construction of
1900 km regional roads, (iv) periodic maintenance of about 2400 km, and (v) institutional support to
strengthen federal and regional road management agencies.

3.4.4 The investment component of the programme focuses mainly on the rehabilitation/upgrading
of the five road corridors as under:

i) Southern import-export corridor between Addis-Modjo-Awash-Mille (522 km);

ii) Northern Corridor between Addis-Dessie-Woldiya-Adigat-Zalambessa (922 km);

iii) North-Western corridor between Addis-Debre Markos-Gondar (750 km);

iv) East and South Eastern corridor between Awash-Kulubi-Dir Dawa-Harar (315 km);
and

v) North-South rift valley corridor between Alemgena-Hossaina-Sodo (309.1 km).

The intervention of the World Bank, European Commission and the Government of Japan is on the first
four corridors, whereas the Bank Group's financing is in the fifth corridor. RSDP programme financing
sources as at May 2001 and the indicative commitment of each donor are given in Annex 5. The
Government of Ethiopia (including the Road Fund Administration) is the major financier of RSDP I
accounting for 60% while 40% of the funding is from donor agencies.

3.4.5 In order to ensure the sustainability of the RSDP programme, during the donors meeting of
January 1996, four major issues were raised by the donors viz. (i) ERA institutional reform; (ii)
Establishment of Road Fund; (iii) Preparation of maintenance action plan and; (iv) preparation of letter of
sector policy. Government has taken actions and complied to the satisfaction of the donors’ requirements;
in particular the Road Sector Policy was overhauled by the Government prior to the launching of the
RSDP and resulted in Government issuing a letter of sector policy, which was endorsed by the donor
community. The letter of sector policy and strategy formed the foundation of many policy and
institutional reforms that gave the donor community the confidence to invest in RSDP I.

3.4.6 In February 2001, a mid-term review of RSDP I was undertaken where the Government and
participating donors including the Bank Group took stock of progress to date, assimilate lessons learned
and redirected efforts to a more efficient implementation of the program. The overall accomplishment in
terms of physical work as at February 2002 (maintenance, rehabilitation and upgrading) are as indicated
in the table below while the projected accomplishments at the end of RSDP I are based on progress
expected from on-going projects. :
 10

Table 3.1
RSDP I MID TERM REVIEW AND REVISED IMPLEMENTATION
Components RSDP I Target Achieved as at Forecast for
(July 2002) February 2001 June 2002
Trunk Road Rehabilitation 2736 km 23% 63%
Trunk Road upgrading 2190 km 16% 43%
Link road construction 1179 km 50% 73%
Link road upgrading 784 km 0.0% 0.0%
Rural Road Construction 5399 km 101% 148%
Rural Road Rehabilitation 2000 km 0.0% 36%
Periodic Maintenance 2389 km 8% 39%
Routine Maintenance—Federal 734 million Birr 45% 95%
Regions 161 million Birr 51% 197%

3.4.7 The delays in availability of some donor funds, longer than expected procurement periods for
works contracts, and the conflict with Eritrea resulted in progress at mid term review less than expected.
However, the realistic forecast based on assessment of on-going and planned works indicates possible
substantial achievements by 2002. The lesson learnt from the mid term review are summarized under:

i) for policy issues, it is noted that substantial progress is achieved when the Executing
Agency (ERA) acts as champion of change. The follow-up policy reform studies
(axle load, road safety, road transport regulations, Domestic Construction industry)
would involve many other ministries and agencies that need to collectively take
ownership of need for change for the efficiency of the sector in servicing the
economy;

ii) institutional reform and capacity building has improved the efficiency of both ERA
and Road Fund Administration. The reorganisation of the regional States rural road
organisations based on proven policy guidance from ERA and support from GTZ
should move ahead as such decentralised reforms illustrates that regions recognize
the success of ERA at federal level, which is based on strong ownership backed by
political commitment;

iii) contract management of infrastructure is a major headache in which responsibility

must be shared by ERA as a client, consultants, contractors and donors as problems
have occurred during project preparation, in evaluation of works and supervision of
tenders and in execution of all contracts in which all involved are to play their parts
effectively in addition to the technical assistance support being provided in key areas
of need;

iv) management of maintenance through opening door to the private sector and
commercialisation of ERA force account units have considerably lowered unit rates
of maintenance works.

3.4.8 The Government is in the process of preparing the first draft of RSDP II (2002 – 2007) for
consideration and comments by all stakeholders including a revision of the Letter of Sector Policy. The
investment priority to be followed include i) roll over of projects commenced under phase I; ii) road
projects initially proposed under phase I for which funding was not secured; iii) roads connecting areas of
great potential; iv) roads that would connect missing links in the rural network and implementation of the
Ethiopia Rural Travel and Transport Programme (ERTTP). As a loan condition, the Government is to
forward for Bank’s review and comments the updated letter of Road Sector Policy and draft final report of
the RSDP II.
 11
3.5 Road Engineering and Construction

3.5.1 Most of the studies and designs for large and complex projects are undertaken by foreign
consultants through financing by bilateral or multilateral donors. Transport Construction and Design
Enterprise (TCDE), a Government owned organization undertakes detailed engineering of minor roads
and bridges. However, most of the work of the engineering operations of ERA is devoted to the
supervision and review of feasibility studies and detailed engineering carried out by consultants. Up till
recently, domestic consulting firms have had little capacity for undertaking road consultancy. In view of
the high investments underway in the road infrastructure development programme, where substantial
input by consultants are necessary, the local consultancy firms have built up their capability to undertake
consultancy assignments in the sector in association with foreign consultants.

3.5.2 Prior to 1992, construction of all main roads was undertaken by the force account units of
ERA. In order to construct more access roads in the remote areas, as agreed by donors in terms of
transport sector policy, Government through a proclamation has decided to utilize the force account
brigades on these works and invite contractors for construction of major roads. Majority of the
construction of roads is now being executed by foreign contractors who play a dominant role in its
execution. The road construction works, which have not been undertaken by foreign contractors, have
mainly been carried out by local contracting firms or through ERA's force account arrangements. The
Government has accepted the recommended measures contained in the Domestic Construction Industry
Study financed by the IDA to encourage the development of private sector. The most significant were the
selling-off of government –owned equipment on a long-term interest free credit basis, an adjudication
board for settling disputes, licensing construction equipment as bank collateral, the provision of
mobilisation advances, etc. The implementation of the finding of the study has been made a condition of
the loan.

3.5.3 ERA has no separate laboratory facilities for testing of soil and materials. TCDE, which is
fully equipped with such facilities, assists all Government and parastatal organizations and ERA utilizes
these facilities whenever required.

3.6 Road Maintenance

Organization

3.6.1 Under the new structure, ERA has been given the responsibility of maintenance operations of
the main trunk road network and the major link roads through its ten-maintenance district offices spread
over the country. The responsibility for maintenance of regional/rural roads has been delegated to the
Regional Government's Rural Roads Organization under the respective regions. Each maintenance
district of ERA is headed by a District manager who is responsible for planning, budgeting, and
monitoring of maintenance activities under his district, and reports directly to the Deputy General
Manager, Operations Department of ERA

3.6.2 While a policy of involving domestic private contractors for road maintenance works to cope
with demand is underway, it is noted that the domestic private sector is just emerging from a constraining
policy environment of the past. Government has, however been taking the necessary steps to increase
their capacity by awarding contracts to create a more conducive environment.

Financing

3.6.3 As shown in Table 3.2, road expenditures for the Federal Main Trunk Network administered
by ERA have increased from ETB 145 million (US$ 29 million) in 1993/94 to ETB 800 million (US$
95.80 million) in 1999/2000, or by a factor of 3.3 in real terms. As a consequence of the necessary
investment on the upgrading and rehabilitation works under the RSDP I, the share for maintenance
expenditure declined from 37% in 1993/94 to 18 % in 1999/2000. However, the absolute allocation for
 12
maintenance has increased more than twice over the same period, reflecting the recognition by the GOE
that maintenance of the existing network is a crucial part of retaining the value of country’s assets.

Table 3.2
Road Construction and Maintenance Expenditures (In Million ETB)
1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00
Total 145 476 582 621 681 882 800
Construction as % in total 63 84 75 76 83 84 82
Maintenance as % in total 37 16 25 24 17 16 18
Source: ERA

3.6.4 As agreed during the RSDP donors meeting for the sustainability of investment under the
programme, which required secured financing for maintenance, a Road Fund was established by
Proclamation No. 66/1997 on 06 March 1997. The objectives of the Road Fund are to finance
maintenance works of the Road Agencies and to provide sources of fund for road safety measures and
programmes. The fund is managed by the Road Fund Board which has been established as an
autonomous public authority under the Prime Minister's office and comprising representatives of the
Federal Government (6), Regional States (5) and private transport sector (4) of which one member is
designated by the Government as its chairman. The Board meets regularly every three months. The Road
Fund's structure, headed by an executive secretary has five services: Legal and Public Relation, Internal
Audit, Administration and Finance, Planning and Programming and Management Information Systems.

3.6.5 Revenues for the Road Fund are derived from a levy on fuel consumption, vehicle license fee,
overloading fines, annual allocation from the central government budget, and other prospective road
tariffs, which could be fixed as necessary. The Ethiopian Petroleum Enterprise and the collection
organizations are transferring fuel levy and other fees directly to the Road Fund's commercial bank
account respectively. Government contribution is deposited into the account of Fund at the beginning of
every month. The Road Fund basic distribution of budget allocation is based on 70% to Federal Roads
(ERA); 20% to Regional Roads; 10% to selected municipalities. In 2000/01 3% of the budget is allocated
to the financing of road safety measures before the sharing among the road agencies. The Road Fund
Regular Budget Allocation for the years 1997/98 to 2000/01 is as reflected below:

Table 3.3
Road Fund Regular Budget Allocation
(ETB million)
Federal Regional Traffic Safety
Fiscal Year Total (ERA) (RRO) Municipalities
1997/98 162.999 117.999 30.000 15.000
1998/99 200.000 140.000 40.000 20.000
1999/00 200.000 140.000 40.000 20.000
2000/01 250.000 169.750 48.500 24.250 7.500

Source: Road Fund Administration

The total Road Fund allocation including supplementary budget over the period 1997/98 to 2000/01 were
ETB 812.99 million of which ETB 524 million have been disbursed to the road agencies. The Road Fund
Administration has fully taken charge of it mandate to address road maintenance financing needs of the
network and improve the efficiency in the use of resources.

3.6.6 To ensure transparency and value for money, road agencies are advised and instructed to keep
separate financial records as per financial principles and procedures so that the Road Fund Auditors will
audit the books of account separate from any other accounts of other financiers. The Road Fund
Administration future plan of action for which technical assistance would be provided by the EDF, is to
focus on how to start and develop road fund financial and technical audit system so that road agencies
 13
maintenance activity will be effectively monitored to ensure that road users get value for money.

3.6.7 The Government has prepared a Maintenance Action Plan (MAP-2) for the period 2001 to
2005, a multi-annual maintenance plan for the sector. The plan reflects commitment to progressive
contracting out of mechanized and manual routine maintenance works and identified resources and
sources of funds for its implementation. The plan identifies routine maintenance needs over the next five
years based on planned rehabilitation, upgrading and new construction of the road network. It is to be
noted that 72 percent of the requirements are to be met from the user charges with the balance being
provided by transfers from the Central Government Budget. By the year 2003/4, it is estimated that the
contribution from the user charges will be more than meet the maintenance needs.

3.6.8 Though it is noted that the maintenance needs as stipulated on the MAP are identified based
on unit maintenance costs which account for equipment and other fixed costs, fund flow from the Road
Fund presently covers operational costs only and Government has agreed to move towards full
maintenance cost recovery as an essential element in the commercialization of its force account units and
gradual movement towards contracting arrangement under the plan. Other element of the plan is that
ERA will move gradually from 100% force account in 2001 for periodic maintenance to 100%
contracting in 2004. This requires further elaboration and as demanded by donors at the February 2001
mid–term review, ERA needs to develop a strategy and an action plan to realize these objectives, taking
into account the current weaknesses in the domestic construction industry. The submission of the strategy
and action plan has been made a condition of the loan. DFID has agreed to finance a technical assistance
support project in this regard for ERA-District Road Maintenance Organisations.

Table 3.4
Maintenance Needs and Financing Sources
(In Million ETB)
MAINTENANCE NEED 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005

- Federal 238.01 401.857 425.529 301.931 245.064

- Regional 54.529 54.821 58.392 63.450 69.349
- Municipalities 29.900 30.500 31.100 31.700 32.300

Total 322.439 487.178 515.021 397.081 346.713

- Road Fund Financing

* IDA 33.9 152.8 134.4 - -

* User Charges 288.5 324.0 369.0 397.1 346.7
* Government Budget -___ 10.4 11.6 -___ -____

Total 322.4 487.2 515.0 397.1 346.7

4. THE PROJECT

4.1 Project Concept and Rationale

4.1.1 The project road links the major towns of Sodo, Hossaina, and Butajira to Addis Ababa to the
north, and to Arba Minch to the south, thus playing a strategic role in linking the Butajira Sodo area to the
rest of the country. The road also plays an important role in linking small towns, villages, and scattered
communities along the route and fulfils a vital role in transporting goods locally and maintaining social
ties.

4.1.2 During consultations carried out along the project route, public support for the road upgrading
was, without exception, very high. The urgent need for upgrading and reconstruction is due to the
advanced deteriorating conditions of the existing gravel wearing course. The riding surface of the road is
poor with ruts and corrugations of varying degree at many locations due to gravel loss and the underlying
 14
weak sub-grade conditions. Most of drainage structure are silted and clogged and do not function
properly. The extent of the deterioration, and the increase in traffic has made it necessary to upgrade the
road.

4.1.3 The detailed engineering design for the project was reviewed and found to be appropriate. It
takes into account the sub-grade conditions, availability of the construction materials, and the projected
traffic during the road's life span. After analyzing several pavement design alternatives, Double Bitumen
Surface Treatment (DBST) was found to be technically sound and most economical.

4.1.4 The Bank Group has financed seven projects and a study in the road sector in Ethiopia for a
total amount of UA 138.37 millions. Five of the projects have been successfully completed and the
Bank's PCR has been undertaken for four of them. Two projects and the study are ongoing without any
major problem. Several lessons have been drawn from the Bank's experience and past intervention of
other donors in the sector. The most important of them are:

i) Implementation delays due to inadequate capacity for procurement actions;

ii) Capacity need in the Implementation Agency for reviewing and supervising design
studies;

iii) Need for capacity strengthening of the implementation agency for monitoring and
supervision of works.

4.1.5 The Government acknowledged these lessons, and actions have been taken to improve on
these areas of poor performance. The Bank Group has undertaken procurement and disbursement
seminars for Executing Agencies in Ethiopia as part of solution to these problems. In addition, a civil
engineer has been recruited in the Bank’s Ethiopia Country Office for effective follow-up on procurement
and implementation issues. Also the Bank Group as a matter of policy ensures that the detailed
engineering design is reviewed and found adequate before projects are appraised. Besides, other donors
have trained ERA staff on their procurement procedures and are currently providing technical assistance
and institutional support in critical areas of need.

4.2 Project Area and Project Beneficiaries

A) Project Area

4.2.1 The project area lies in the Southern Nations Nationalities and Peoples Region (SNNP
Region) and encompasses Gurage, Hadiya, Kambata Alaba Tembaro and Semen Omo Zones with an
estimated population of 12,514,993. The road crosses seven weredas, administrative units below the
Zone. The larger towns, Butajira, Hossaina and Sodo, are the home of 20, 31 and 36 thousand
inhabitants respectively. Thus between 81 and 96 percent of the population live in rural areas. Some
of the areas along the road, particularly the weredas of Sodo Zuria and Blokosso Sore, count among
the most densely populated areas of Ethiopia with 467 and 511 persons/km2. Ethnically the
population in the project area is very mixed, including Gurage, Amhara, Oromo and others. The
project area south of Hossaina is largely Christian, while that to the north is with few exceptions
Muslim. The are no substantial gender imbalances in rural or urban populations, with the exception of
Sodo where 54 percent of inhabitants are women.

4.2.2 Agriculture is the largest employment sector in the project area, and agricultural products
include both cash and food crops. Teff, enset and sorghum are amongst the most important
subsistence crops grown, supplemented by sweet potato, maize, wheat, barley and pulses. The main
cash crops in the area are maize, wheat, pulses, coffee, khat and peppers. Coffee, peppers and khat,
and ginger and other spices, are the main products currently exported from the area. In Hadiya Zone
skins of domestic livestock constitute another export item. The areas between Hossaina and Sodo are
 15
food deficient due to overpopulation, while those between Hossaina and Butajira are either food self-
sufficient or produce a surplus. The potential for agricultural expansion is accordingly more limited
around Sodo and more promising north of Hossiana. However, improved access to agricultural inputs
and advice will result in realisation of the potential of both areas. Pack animals and donkey drawn
carts are common along most of the road, but are concentrated in the small urban centres. In the food
deficient areas donkeys are the major transport means used by people to carry food in surplus areas.

4.2.3 Although differences exist between weredas and ethnic communities in the project area,
the gender division of labour makes men responsible for ploughing, sowing and harvesting and
women for weeding and transporting produce from fields to houses and from there to markets and
mills. Women also cultivate house gardens and do almost all domestic tasks. Women are also active in
informal sector activities, and they run eating and drinking places in the predominantly Christian
areas. Despite working much longer hours, married women have little control over incomes and
property, including livestock. Husbands normally control family assets.

4.2.4 Ethiopia is one of the poorest countries in Africa, with half of the population estimated to
live in absolute poverty. Beyond the effects of the war, small land holdings, environmental
degradation, backward farming practices and a lack of agricultural inputs in the rural areas are to
blame for the pervasive poverty. Women are the prime victims of poverty, since they have almost no
control over production resources. The 21 percent of household headed by women are known to be
particularly poor. Women’s poor situation is further hampered by the salience of Harmful Traditional
Practices, female circumcision and child marriage prime amongst them. The provisions against such
practices in the constitution are yet to take effect in rural areas.

4.2.5 There are two health facilities in Hossaina and Butajira. They report a high incidence of
respiratory diseases caused by the dust generated by the gravel road. Cases of HIV/AIDS infection
have also been recorded in this area. Women complained that they have problems reaching the
existing clinics when they are in labour and expressed hopes that the improved road would facilitate
their access to clinics in such emergency situations. Given that 53 percent of all major health
problems in women in Ethiopia are obstetrical and particularly related to obstructed labour and
rupture of the uterus, birth attendance is indeed a major concern.

4.2.6 Primary schools are generally in walking distance along the road (on average no further
than 5 km or 45 minutes walk) and gaps in school enrolment are largely influenced by the inability of
parents to pay for school supplies. Girl’s enrolment are slightly lower than boys (84.17 against 91.7
percent) and in rural settings where the enrolment is generally much lower, girls make up only half of
the boys (17.15 against 34.19 percent). Girl's low enrolment is largely due to cultural attitudes, which
place women at a disadvantage. The low enrolment of rural children would indicate the degree of
poverty of the population, coupled with the lower coverage of schools in areas not immediately
adjacent to the road.

4.2.7 Studies in Ethiopia have shown that by far the largest share of household transport needs,
which takes more time and energy than all other transport needs taken together, is made up of
domestic transport needs, and includes the transport of water and firewood, done largely by back and
head-loading and by women. In 1999, vehicle ownership in rural areas stood as low as one vehicle for
4000 persons, and even the household ownership of donkeys was estimated to be a mere 27 percent.
In addition only 10 to 15 percent of all rural transport are currently done by donkeys leaving the
largest share of the transport burden to women.

B) Project Beneficiaries

4.2.8 The main beneficiaries of the improved road will be the populations living adjacent to the
road. People were unanimous that an improved road would benefit their lives through increased
access to and from the area, thus improving business and labour opportunities as well as access to
 16
information, agricultural inputs, schools, and health facilities. People are also to benefit from the
lower vehicle operating costs and the resulting increase in motorised transport, which would improve
the quality of transport services. The increase in the use of IMTs for domestic transport needs is also
expected and would benefit the project area generally and particularly women, who manage most of
the domestic transport.

4.2.9 The opening of the area would also have benefits for truckers and transport operators who
might find it opportune to run additional public transport facilities or to exploit the areas potential new
markets. Moreover, the improvement of Ethiopia's road network will ultimately benefit the whole
country and its inhabitants through facilitation of rural–urban movement. These new opportunities
would ultimately improve the incomes and well being of both men and women through access to
improved markets and services. Improved incomes might also indirectly stimulate school enrolment.

4.2.10 It is likely that the heavy transport burden currently born by women might be eased with
the expected increase in the use of donkeys and carts on a smoother road surface. However, for IMTs
to ease women’s workload, women will have to be enabled to control the use of IMTs also for
domestic transport needs (for example via micro-credit or communal ownership as proposed in the
ERTTP to be financed by donors). The upgrading of the road (in conjunction with the use of IMTs for
domestic transport) might thus ultimately cut women’s domestic carrying burdens by as much as 80
percent. This would represent a substantial freeing of women’s labour, which in turn could be used
more productively.

4.3 Strategic Context

4.3.1 The Government of Ethiopia recognised that the success of its Agricultural Development
– Led Industrialisation Strategy critically depends on the efficiency of the road transport system. This
is in view of the fact that the bulk of the agricultural production in the country is accounted for by
small scale farmers scattered in the rural communities while on the other hand, the major markets, the
processing and collecting centres for the crops and distribution points for agricultural inputs including
fuel are in urban centres located at considerable distance from each other and from the ports. Given
this rural settlement pattern, the growth in agricultural output depends on the ability of the country’s
transport system to integrate these points in a cost effective manner in order to get the required supply
response to the Government’s development and poverty alleviation strategy. The Ethiopian Interim
Poverty Reduction Strategy Paper (2000/01-2002/03) recognized that the development of road
infrastructure has a key role in Ethiopia’s economic growth and poverty reduction. It is in this context
that the Government is committed to the implementation of the Road Sector Development Programme
(RSDP) with the goal of improving road transport operating efficiency, providing access to isolated
rural and food deficit areas and developing the institutional capacity of the sub-sector. The proposed
project has been conceived in this context and admitted into the RSDP.

4.3.2 This strategic context is consistent with the Bank Group’s intervention strategy in the
Transport Sector which is mainly to remove constraints posed by poor road network and limited
access to agricultural and rural development which complicates the problem of food shortage and
rural poverty. As contained in the 1999 – 2001 Country Strategy Paper, the Bank Group is to provide
support for the effective implementation of the RSDP focusing on the expansion and improvement of
the road network in the rural areas and trunk and collector roads linking the main agricultural regions
with the marketing centres to promote the achievement of the government’s food security strategy and
programme and reinforce the over all poverty reduction objective. The Butajira-Sodo road-upgrading
project is therefore in conformity with both the overall Bank Group lending strategy in Ethiopia and the
Government's development strategy.

4.4 Project Objectives

The sectoral goal of the project is to improve the efficiency and capacity of the transport
 17
system to support economic and social development programmes of Ethiopia. The objective of the
project is to reduce transport costs between Butajira and Sodo and to promote market integration between
rural and urban areas.

4.5 Project Description

4.5.1 The project comprises the following components:

i) Construction works for upgrading the existing gravel road to a bitumen-paved road
with a 7-m carriageway and 1.5-m shoulders on each side for a total length of 189 km
between the towns of Butajira and Sodo.

ii) Consultancy services for:

- Supervision of the construction works.

- Project audit service.

A. Construction Works

4.5.2 The Butajira-Sodo road upgrading project includes improved horizontal and vertical
alignments, a new and adequate pavement structure, the rehabilitation of existing drainage structures, the
construction of additional drainage structures where necessary, the installation of roadside safety
structures, and the provision of horizontal and vertical road signs and markings. Topographic surveys, soil
investigations, and detailed engineering design were carried out for the preparation of construction and
bidding documents.

4.5.3 The proposed road alignment follows the existing one with only minor realignments and
improvements to the horizontal and vertical curves to accommodate the design speed and to meet road
safety requirements. It has been designed in accordance with the Ethiopian geometric design standards
for trunk roads. The crossectional characteristics are a 7-m carriageway and 1.5 m shoulders on each side.
A design speed of 100 kph in the flat terrain, and 80 kph in the rolling terrain has been adopted.

4.5.4 Adequate 'V' shaped side ditches are provided for the longitudinal drainage of the road. The
side ditches are paved where the gradient exceeds 5%. Cross drainage structures including concrete
pipes, box culverts and bridge openings to convey storm water runoff will be provided to carry the
calculated design flows from the catchment areas along the road. Stone rip-raps are used as energy
dissipators to minimize erosion due to high water velocities at culverts and ditches outfalls.

4.5.5 The structural design of the pavement was based on the CBR values of the road sub-grade
along the alignment and the expected traffic load during the design period. The road was divided in
homogenous sections falling into four categories based on CBR values. The cumulative traffic loading
over a 20-year design period was estimated at 3.0 x 106 ESAL. The recommended final pavement design
was arrived at, after comparing the results of four widely accepted design procedures (i.e. TRRL Road
Note 31, AASHTO, AustRoads, and TRH4). The thickness of the recommended pavement sections for
the various uniform sub-grades varies from 350 mm to 900 mm with double bituminous surface treatment.

4.5.6 The structural strengths of the existing bridges along the Butajira-Hossaina-Sodo road were
evaluated by the consultant. No major reconstruction is required. However most of the bridges will
undergo partial rehabilitation to accommodate 2-lane traffic and sidewalks. Additional bridgework
includes scour protection, approach guardrails, and expansion joints.

4.5.7 Highway signs and markings for the safe and efficient movement of traffic will be provided.
The vertical signage includes regulatory, warning, and guide signs. Standard painted pavement markings
are provided for the delineation of traffic lanes. Guardrails will be installed at high embankments and at
 18
bridge approaches for safety purposes.
 19
B. Consultancy Services

4.5.8 Supervision consultancy services for the construction works will be carried out by experienced
consulting firms on behalf of ERA. The selected firms will participate in the tender evaluation process,
administer the construction contract, inspect the works, supervise the necessary quality control testing
performed by the contractors, track progress and costs, and maintain close liaison with ERA and relevant
ministries responsible for the project. A detailed description of the services for the consulting firms will
be contained in the respective contract agreements. In addition an auditing firm will carry out the audit of
the project.

4.6 Traffic Demand and Road User Prices

a) Traffic Levels

4.6.1 The data on historic traffic development on project road comes from two sources -i) ERA's
3 cycle 7 - day counts taken at three stations, south of Butajira and north and south of Hossaina and ii)
the classified manual counts undertaken by a consultant Messrs TechnEcon in 1996; one for 3 days at
a station 30 km south of Butajira to support an OD survey and another for 24 hours at a station 10 km
south of Hossaina. The ERA data for the decade 1991 to 2000 indicate total traffic volumes for
Butajira - Hossaina as increasing from ADT of 195 vehicles in 1990 to an ADT of 300 vehicles in
1996 from whence the traffic continues a dramatic plunge to an ADT of 240 vehicles in 2000. The
trend for the Hossaina - Sodo link followed same trend increasing from an ADT of 150 vehicles in
1990 to an ADT of 300 vehicles in 1996 after which it started a decline to a low ADT of 210 vehicles
in 2000. The implied annual growth rates in the two periods are 12.2 percent and - 5.9 percent
respectively. The study conducted by TechnEcon in 1996 was of short duration, and accuracy levels
of short duration survey are usually poor with error margin of about 37.0%.

4.6.2 ERA data base thus provided the basis of traffic assessment, but was supplemented by
classified manual counts conducted under the ADF/TAF funded Seven Roads study, which included the
project road. The link volumes of normal traffic are estimated from an average of the ERA 2000 count
results which reflect traffic volumes towards the ends of the links, and the Seven Roads study counts
which indicate lower volumes away from major settlements. Overall link density are therefore given by a
distance-weighted average of counts taken at the ends and in the centre. The estimated 2000 link AADT
for Butajira-Hossaina is estimated as 156 vehicles while that of Hossaina-Sodo is estimated at an AADT
of 126 vehicles.

4.6.3 The decline in total traffic on the project road suggests that significant diversion has taken
place away from the project links, as current traffic levels are about 130 vehicles less than would have
resulted from the normal growth in traffic. Such diversion was a result of the pull of through traffic
between the Addis Ababa region and the South to the improved but 59 km longer route through Ziway
and Shashamene to Sodo. It is significant in this respect that the Shashamene to Sodo link was completed
in 1996, the year in which traffic growth changed direction. It is assumed that upgrading of the project
road to a paved standard would result in significant traffic diversion back to the project road from Addis-
Ziway-Shashamene route. Based on the Origin – Destination survey which was undertaken under the
project study to assess potentially diverting traffic, there is the possibility that 130 vehicles a day could
divert back to project road as existing road conditions which is very poor with average roughness (IRI) of
over 15 m/km would be improved through upgrading to bituminous surface standard with IRI of
2.5m/km. Generated Traffic is not likely to be significant and has not been taken into account in the
estimation of benefits to project.

4.6.4 For the forecast of traffic, the forecasting variables taken into account are population growth,
GDP and per capita income growth and growth rate in fuel consumption. Three growth scenarios were
assumed for traffic forecast and the medium forecast rates was reviewed and found acceptable on the basis
of the above traffic growth parameters. For light vehicles forecast traffic growth rate from 2000 to 2010
 20
of 5.8% per annum and declining thereafter to 4.6% towards the year 2020, while for commercial and
heavy vehicles, a growth rate of 6.9 percent from 2000 to 2010 and 5.7 percent thereafter to the end of the
forecasting period of 2020 has been used as the most likely growth scenario for traffic on the project road.
The base year 2003 traffic is estimated as AADT of 253 vehicles for Butajira - Hossaina Link and an
AADT of 223 vehicles for Hossaina - Sodo link with vehicle composition as indicated in the Table 4.1
below.

Table 4.1
Base Year (2003) - Traffic*

Links/ Car 4 WD Small Large Small Medium Heavy Truck Tota

Bus Bus Truck Truck Truck Trailer l
Butajira-Sodo
Normal 1 36 11 30 17 25 35 21 176
Diverting 1 22 1 7 15 14 9 9 77
Total 2 58 12 38 32 38 43 30 253
Hossaina-Sodo
Normal 0 30 13 19 24 26 22 10 143
Diverting 1 25 1 7 15 14 9 9 80
Total 1 55 14 26 39 40 30 19 223
• The diverting traffic indicated is added in 2003 only for purpose of pavement design as it would be
realized in 2006 when project is completed and opened to traffic.

b) Road User Prices/Intervention Costs

4.6.5 The road user costs include vehicle operating costs (VOC), travel time values and accident
costs. The VOCs depend on type of vehicles and of road surface conditions. The VOC is estimated
based on prices of vehicles, types of tyres for the various vehicle types on the road, fuel and lubricants
costs, labour costs for drivers/crew and maintenance labour. The cost of these input data for VOC
estimation is based on Birr 3.6/litre for petrol and Birr 2.94/litre for diesel, crew cost that ranges from
Birr 13.89/hour for cars, Birr 6.95/hour for light commercial vehicles, Birr 9.90/hour for small buses,
Birr 13.58/hour for large bus, Birr 10.14/hour for medium truck, Birr 14.13/hour for heavy truck, and
Birr 24.93/hour for articulated truck, and maintenance labour cost of Birr 6.95/hour, new vehicle
prices that ranges from Birr 29,790 for cars and Birr 147,947 for articulated and heavy trucks; and
tyre prices that ranges from Birr 513 for cars to Birr 2,520 for heavy and articulated truck.

4.6.6 Passenger travel time values have been estimated from the origin destination surveys on
vehicular passenger occupancy, income levels, trip purpose and are based on the assumptions of the
project study that:

i) Household incomes of passengers in light vehicles are 75% above national

average incomes
ii) House hold income of bus passengers are at the national average
iii) 50% of light vehicle passengers’ time is paid time; and
iv) 30% of bus passengers’ time is paid time.

On the basis of above, passenger hourly time values for the project is estimated as Birr 0.89 and Birr
0.28 respectively for light vehicles and bus passenger respectively.

4.6.7 The road intervention unit costs on the average in Ethiopia is as highlighted in the Table
4.2-below.
 21

Table 4.2
Road Intervention Unit Cost

Activity Financial Price (Birr) Conversion Economic

Factor Price (Birr)
Unpaved road
Routine Maintenance/km 30,000.00 0.76 22,850.70
Grading/km 443.80 0.78 347.1
Spot re-gravelling/m3 58.6 0.77 45.1
Regravelling/m3 42.8 0.76 32.6
Paved road
Routine Maintenance/km 40,000.00 0.76 30,467.6
Patching/m2 24.70 0.77 19.1
Resealing/m2 16.80 0.77 12.9

Construction/km
Paved road 2,440,050.00 0.78 1,903,239
Gravel road 1,800,000.00 0.78 1,404,000

4.7 Environmental Impact

4.7.1 In accordance with Bank's environmental guidelines, the project has been classified as
category II. The project is not located in or close to environmentally sensitive areas such as, wetlands,
flood plains or protected wildlife habitat. It is the upgrading of an existing gravel road to paved standard
with minor improvements to the horizontal and vertical alignments. The environmental impact
assessment was carried out as part of the feasibility study. The study concluded that the environmental
impacts due to the road upgrading would be minor. The impacts are mainly related to the construction
activities and therefore of temporary nature. The mitigating measures and good construction practices
included in the tender documents for the contractor would help to minimize them.

4.7.2 The following environmental effects both positive and negative are expected to be associated
with the project. Proposed mitigating measures to minimize the adverse effects are discussed below and
will be specified in the bidding documents. The related costs for the implementation of the measures have
been included in the project cost estimates.

Positive Impacts - The road upgrading will produce the following positive environmental impacts:

(i) The erosion and sedimentation of the water courses of the existing road surface will be
eliminated;

(ii) The new pavement will tremendously reduce the dust and therefore improve the health of
road users and settlers along the road;

(iii) Vehicles will stay in better condition due to improved road surface, thus reducing air
emissions.

Negative Impacts - The following negative impacts are mainly related to construction activities:

(i) Soil erosion and sedimentation due to removal of vegetative cover within the construction
limits and at borrow pits;

(ii) Soil erosion and sedimentation due to temporary road detours;

 22

(iii) Excessive noise, vibrations and dust due to construction activities;

(iv) Potential water and soil contamination by improper disposal of used oils and lubricants or
by spills and leakage at the construction camp or along the road.

Mitigating Measures

4.7.3 The following recommendations are made to minimize the potential adverse impacts to the
environment during the road construction phase. These techniques are well known and are part of the
contract specifications.

(i) To control erosion the various techniques recommended include minimization of clearing,
especially during rainy period; quick reestablishment of vegetative cover; use of protective
mulches; and minimization of exposed slope length.

(ii) To control sedimentation and sediment loading, construction in and around perennial
rivers should be conducted during dry season; on-site drainage management using dikes,
sediment traps, and silt fences will be implemented.

(iii) To minimise post-construction soil erosion, the following measures are provided in the
construction documents: grass planting on cut and fill slopes; provision of gabions or stone
pitching at bridges; concrete or grass lining of ditches; and stone riprap protection at inlets
and outlets of culverts.

(iv) To minimize noise and vibrations all construction activities in towns shall be scheduled to
take place only during daytime.

(v) To minimize dust in towns during construction by regularly wetting the road surface.

(vi) All borrow pit areas and construction detours will be reclaimed as much as possible to
their original state.

(vii) Camp sites will be located in an area so as to minimize disruption to local population,
fauna and flora and water courses; adequate drainage facilities and treatment of sewerage
and waste disposals will be provided. Camp area will be dismantled and rehabilitated once
construction is completed.

(viii) To prevent pollution hazards by spillage of pollutants to water sources or leakage to the
ground, all temporary and permanent storage facilities will be located away from these
sites and in bounded enclosures with impermeable liners.

4.7.4 The supervision consultants and the Environmental Management Branch of the Ethiopian
Roads Authority will monitor the implementation of above outlined mitigation measures. Full
consultations with local authorities and close follow-up of specific clauses in contract documents will also
be carried out by ERA.

4.8 Social Impact

4.8.1 Ethiopia has a very small vehicle to person ratio, and motorised transport accounts for
only 20 percent of the total travel and transport. Prior to 1992, when the motorised transport services
were highly regulated both in terms of tariffs and modes of operation, the motorised transport fleet
was stagnant. Since then it has increased by between 4 to 21 percent annually. Taxis and busses take
the lion share in these increases signalling a great need for public transport facilities. Improved roads,
 23
which reduce vehicle operating costs and increase competition between transport operators are the
necessary step to fill that need for transport. Increased mobility broadens not only people’s horizons
but also their economic and social well-being. It is expected that the reduction in dust along the road
is going to lead to a decline in the respiratory diseases now so prevalent along the road. Reduction in
dust would also improve economic possibilities, for running shops bars and restaurants which now
suffer from being covered in dust and being dependent on local customers only. The new road would
be passable all year round doing away with seasonal disruption of transport. This and the increased
number of motorised transport and IMTs will increase business opportunities for both formal and
informal service provision and trading. It would also increase access to agricultural inputs and advice,
and improve access to markets which is key to increased agricultural productivity.

4.8.2 In order for the road to carry positive effects for all members of society, their specific
transport needs will have to be considered. Women have been shown to have such specific transport
needs for domestic transport, and those needs will not be fully met by motorised transport but will
have to be catered for by IMTs. Only if IMTs are made available for domestic transport is the
improved road able to fill the most urgent transport need. The Ethiopian government clearly
recognises this fact and has thus embarked on the ERTTP, which is to meet rural travel, and transport
needs. This holistic approach will ensure that roads benefit a maximum number of people.

4.8.3 In the interests of road safety and on the background of the expectation that back-loading
and the use of pack animals, wheelbarrows and IMTs along the road is likely to continue or increase,
the proposed road design will take into consideration the mixed transportation needs of the
population. Training in road safety and the installation of traffic signs and speed bumps at critical
places on the road will further enhance the safety of road users.

4.8.4 During the construction and maintenance of the road it is expected that the local
population will benefit from the employment opportunities. It is expected that skilled and unskilled
workers will be hired for the construction and for the maintenance of the road. To mitigate the
negative effects usually associated with the importation of a large foreign workforce (spread of
diseases, increase in consumer prices, conflicts with local population), and in order to spread the
benefits of the road more evenly, a substantial proportion of the unskilled workers will be hired
locally. Since the acceptability of women in construction is very high in the project area, and since
women’s incomes are minuscule in comparison to men, women will be particularly encouraged to
participate in the road works.

4.8.5 HIV/AIDS is a serious problem in Ethiopia, and the opening up an area might exacerbate
the problem as increased traffic and movement might expose local populations to a greater degree to
the pandemic. Young women are particularly at risk since they are least likely to negotiate safe sex.
However, the Ethiopian government is fully aware of the dangers of the pandemic and has put in place
a policy and strategy on HIV/AIDS prevention in 1998 which has attracted considerable foreign
funding. In addition six national NGOs are active in the field of awareness raising and a national
council on the control and prevention of HIV/AIDS. Interestingly one of the priority areas of the
Ethiopian AIDS strategy is gender equality, or the empowerment of women and girls to negotiate safe
sex.

4.8.6 In addition to the ongoing efforts of the government, the project seeks to minimise the
danger of HIV/AIDS and other sexually transmitted diseases by using where possible a local rather
than imported workforce during the construction period. In addition a social expert/local administrator
should be employed in the contractor’s team to ensure that construction workers housed in camps are
informed about sexually transmitted diseases, and condoms are distributed widely. Already existing
AIDS awareness groups in the area should be contacted to inform the local populations on the dangers
on unprotected sex with foreign road workers and to distribute condoms. Efforts to keep the imported
workforce small will also reduce the dangers of clashes between local people and foreign workers and
perhaps also minimise the rise in the prices of essential commodities which has been observed in other
 24
project areas.

4.9 Project Costs

4.9.1 The estimated project cost (net of all taxes and duties) is UA 45.90 million (ETB 496.70
million) of which the foreign exchange cost is UA 39.07 million (ETB 422.75 million) or 85% of the total
and the local cost is UA 6.83 million (ETB 73.95 million) or 15% of the total.

4.9.2 The project cost estimates are based on construction quantities, and the engineer's cost
estimate provided by the design consultant. These estimates have been updated to March 2001 prices by
taking into account the recent bid prices for the Alemgena-Butajira road upgrading project, and other
similar construction works and supervision services. Allowances have been made for physical and price
contingencies. Physical contingencies are estimated at 10% of base cost. Average price escalation of 3%
per annum on foreign exchange and 9% per annum on local currency prior to and during implementation
has been adopted. These rates are based on the recent trend of price inflation within Ethiopia's
construction industry. An allowance of 6% of the construction cost has been allocated for the supervision
consultancy services. A lump sum amount of UA 0.1 million (ETB 1.08 million) has been included for
auditing services of the project accounts during the implementation stage. The project cost estimates by
project components and by category of expenditure are presented in Table 4.3 and Table 4.4 respectively.
More detailed cost estimates are given in Annex 6.

Table 4.3
Summary of Project Cost Estimates by Component
Ethiopian Birr (Millions) UA (Millions)
Components F.E. L.C. F.E. L.C. % F.E.
Total Total
A. Civ. Works Butajira–Hosana 170.10 23.99 194.09 15.72 2.22 17.94 88%
B. Civil Works Hossana–Sodo 159.05 22.43 181.48 14.70 2.07 16.77 88%
C. Supervision Butajira–Hosana 9.16 1.96 11.12 0.85 0.18 1.03 82%
D. Supervision Hossaina - Sodo 8.56 1.84 10.40 0.79 0.17 0.96 82%
E. Audit Butajira – Hossaina 0.54 0.00 0.54 0.05 0.00 0.05 100%
F. Audit Hossaina – Sodo 0.54 0.00 0.54 0.05 0.00 0.05 100%
Total Base Cost 347.95 50.22 398.17 32.16 4.64 36.80 87%
Physical Contingency 34.80 5.02 39.82 3.21 0.46 3.67 87%
Price Contingency 40.00 18.71 58.71 3.70 1.73 5.43 68%
Total Project Cost 422.75 73.95 496.70 39.07 6.83 45.90 85%

Table 4.4
Summary of Project Cost by Category of Expenditure
Ethiopian Birr (Millions) UA (Millions)
Category of Expenditure Foreign Local Total Foreign Local Total % F.E.
Exchange Costs Costs Exchange Costs Costs
A. Civil Works 329.15 46.42 375.57 30.42 4.29 34.71 88%
B. Consultancy:
- Supervision 17.72 3.80 21.52 1.64 0.35 1.99 82%
- Audit 1.08 0.00 1.08 0.10 0.00 0.10 100%
Total Base Cost 347.95 50.22 398.17 32.16 4.64 36.80 87%
Physical Contingency 34.80 5.02 39.82 3.21 0.46 3.67 87%
Price Contingency 40.00 18.71 58.71 3.70 1.73 5.43 68%
Total Project Cost 422.75 73.95 496.70 39.07 6.83 45.90 85%

4.10 Sources of Financing and Expenditure Schedule

 25
4.10.1 The project will be financed jointly by ADF and GOE. ADF financing will cover 90% of the
total project cost net of taxes (UA 41.31 Millions). This amount includes 100% of the foreign
exchange cost (UA 39.07 Millions) and 32.83% of the local cost (UA 2.24 Millions). The GOE will
finance 10% of the total project cost (UA 4.59 Millions) which represents 67.17% of the local cost as
well as taxes and duties. The proposed financing plan is shown in Table 4.5 below.

Table 4.5
Sources of Finance
(in UA million)
Foreign Local Total
Source % of Total
Exchange Costs Costs
ADF 39.07 2.24 41.31 (90)
GOE - 4.59 4.59 (10)

Total 39.07 6.83 45.90 (100)

4.10.2 The expenditure schedule by component of the project is shown in Table 4.6 below.

Table 4.6
Expenditure Schedule by Component
(In UA million)
Component 2003 2004 2005 2006 Total
Civil Works Butajira – Hossaina 4.25 7.71 8.02 2.38 22.36
Civil Works Hossaina – Sodo 3.98 7.22 7.49 2.22 20.91
Supervision Butajira – Hossaina 0.24 0.45 0.47 0.14 1.30
Supervision Hossaina – Sodo 0.23 0.42 0.43 0.13 1.21
Audit Butajira – Hossaina 0.01 0.015 0.015 0.02 0.06
Audit Hossaina – Sodo 0.01 0.015 0.015 0.02 0.06
Total 8.72 15.83 16.44 4.91 45.90

4.10.3 The expenditure schedule by Source of financing is shown in Table 4.7 below.

Table 4.7
Expenditure Schedule by Source of Finance
In UA million)
Source 2003 2004 2005 2006 Total
ADF 7.91 14.27 14.75 4.38 41.31
GOE 0.81 1.56 1.69 0.53 4.59

Total 8.72 15.83 16.44 4.91 45.90

4.10.4 The local costs of the project are estimated at 6.83 millions UA net of taxes and 13.67
millions UA including taxes and duties. These costs are fairly high and would put a severe strain on the
already limited budget resources of the country, had they to be entirely financed by the GOE. During the
border conflict period (1998-2000) the domestic borrowing of the government rose to 10% of GDP.
This situation in turn led to a large increase in budget deficit, which rose to 11.5% of GDP in
1999/2000. But apart from the two-year border conflict with Eritrea, the country has exhibited
prudent fiscal management overall, and has built a good track record of implementing a broad
spectrum of sound macroeconomic and structural reforms. The Government has launched a series of
 26
reforms that would significantly improve the budgetary process and expenditure tracking, including a
pilot exercise of preparing a macroeconomic and fiscal framework and a welfare monitoring system.
The Government has also instituted annual public expenditure review in collaboration with its
development partners, including the African Development Bank, to improve expenditure
programming. Despite these strong reform efforts, Ethiopia remains a poor country with a low
Revenue/GDP ratio of 4.7%. The fragile financial situation as well as the remarkable measures taken
by the government are strong arguments to its request to the ADF to finance 32.83% of the local cost.

5. PROJECT IMPLEMENTATION

5.1 Executing Agency

The Ethiopian Roads Authority (ERA) will be responsible for the execution of the project.
ERA is the executing agency for the main road infrastructure projects in Ethiopia financed by the
Government as well as by donor agencies including the Bank. In particular ERA has been responsible
for the implementation of the 10-year Road Sector Development Program, which is financed by the
Government of Ethiopia and many donors including the World Bank, the European Union, the
African Development Bank, etc. and the first phase of which will be completed in 2002. Regarding
the ADF-financed operations, ERA has successfully completed five projects, namely Jimma-Chida
road, Gore-Tepi road, Rural Roads I & II, and Chida-Sodo road. The Road Maintenance and
Rehabilitation Project is at completion stage, while the Alemgena-Butajira Road Project is at starting
point. It will be recalled that ERA is also implementing the Seven Roads Studies financed by the Bank
under TAF and which have yielded the present Butajira-Hossaina-Sodo Road Project actually
prepared under Package A. ERA’s performance has substantially improved with the development and
subsequent implementation of the RSDP, and through a continuous dialogue with the main donors
within the RSDP. In particular, ERA has benefited from the capacity building project financed within
the RSDP by DfID to strengthen ERA’s expertise in contract management, legal and planning. In
addition to such capacity strengthening, ERA’s Board has already approved, based on a reassessment
of the human resource needs, the budget for the creation of an additional contract management branch
within the ERA Contract Administration Division. Based on the foregoing, the Agency is considered
capable of carrying out the responsibilities for the execution of the Butajira-Hossaina-Sodo.

5.2 Institutional Arrangements

ERA has acquired a solid experience in the area of contract administration through a close
collaboration between two of its departments, namely the Engineering and Regulatory Department
and the Human resource and Financial Department. The project’s supervision and monitoring falls
under the purview of the Deputy General Manager, Regulatory and Engineering Department of ERA.
The implementation of the works will be under the responsibility of the Contract Administration
Division. A civil engineer of at least 5 years of experience and whose curriculum vitae is acceptable to
the Bank will be assigned from ERA as Project Coordinator and will be responsible for overall
monitoring of the activities of the project. This has been included as a condition prior to first
disbursement of the loan. The Project Coordinator will work in close collaboration with the Head,
Environment Management Branch for the follow-up on environment and social issues, and also with
ERA’s Financial Department for project accounting. Annex 2 displays the Project Implementation
Unit (PIU) arrangement within the ERA Organizational chart.

5.3 Supervision and Implementation Schedule

5.3.1 The construction works for each one of the two lots of the Butajira-Hossaina-Sodo Road
project will be undertaken by a contractor under a unit price contract and will be supervised by a firm
of consulting engineers. The construction works will be implemented over a period of 32 months
starting from July 2003.
 27
5.3.2 The supervision consulting services for the project will start six months prior to the
commencement of works to allow the consulting firms to provide ERA with pre-contract service
assistance. Day-to-day supervision of different components of the project will be the responsibility of
the firm of consulting engineers with appropriate staff based on site. A one-year warranty period will
follow at the end of construction activities.

5.3.3 The tentative project Implementation schedule, which has been agreed to with the
Executing Agency is as follows (See also details in Annex 3)

Table 5.1
Summary of Project Implementation Schedule

Activities Date Agency Responsible

Approval/ADF Oct. 2001 ADF

Publication of GPN Nov. 2001 ERA/ADF

Consultancy Services for Civil Works Supervision

Advertisement and Notification (SPN) Dec. 2001 ERA/ADF

Receipt of requests for pre-qualification Jan/Feb. 2002 ERA
Establishment of short-list Feb. 2002 ERA
Approval of short-list and RFP March 2002 ADF
Issue of RFP April 2002 ERA
Receipt of Proposals June 2002 ERA
Evaluation of Proposals by ERA Sept. 2002 ERA
Approval of Evaluation Nov. 2002 ADF
Negotiation and Award of Contracts Dec. 2002 ERA
Commencement of Consultancy Services Jan. 2003 ERA/ADF
Completion of Consultancy services March 2007 ERA/ADF

Construction of Works Contract

Invitation for Prequalification of Contractors May 2002 ERA/ADF

Evaluation of Applications for Prequalification June/July 2002 ERA
Approval of Prequalification and Bid Documents Aug. 2002 ADF
Issue of Bid Documents Sept. 2002 ERA
Receipt of Bids Dec. 2002 ERA
Evaluation of Bids Feb. 2003 ERA
Approval of Evaluation March 2003 ADF
Negotiation and Award of Contract April/May 2003 ERA
Commencement of Civil Works July 2003 ERA/ADF
Completion of Civil Works Feb. 2006 ERA/ADF

5.4 Procurement Arrangements

Introduction

5.4.1 Procurement arrangements are summarized in Table 5.2. All procurement of goods, works
and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules of
Procedure for Procurement of Goods and Works, January 2000 Edition and Rules of Procedure for the
Use of Consultants, January 2000 Edition, using the relevant Bank Standard Bidding Documents.
 28
Civil Works

5.4.2 Procurement of civil works for large works greater than UA 10 million per contract will be
carried out under International Competitive Bidding (ICB) procedures with prequalification of
contractors. Two such contracts will be awarded, for respectively upgrading to double surface treatment
the road sections between Butajira and Hossaina (95 km) and between Hossaina and Sodo (94 km), and
valued in total at UA 43.27 million.

5.4.3 Due to the size of the contract in terms of the amounts involved, the Executing Agency will
conduct a pre-qualification of contractors, prior to call for tenders. During tendering the pre-qualified
contractors will have the choice to present bids for one or two lots. To promote local contractors, joint
venture with capable international contractors could be encouraged by the Executing Agency.

Table 5.2
Summary of Procurement Arrangements

UA million
Project Categories ICB Short-List Total
1. Civil Works
Lot 1 : Butajira – Hossaina 22.36 22.36
[20.17]+ [20.17]
Lot 2 : Hossaina – Sodo 20.91 20.91
[18.86] [18.86]

2. Consulting Services Supervision

Lot 1 : Butajira-Hossaina 1.30 1.30

[1.12] [1.12]
Lot 2 : Hossaina – Sodo 1.21 1.21
[1.04] [1.04]
Audit 0.120 0.120
[0.120] [0.120]
TOTAL 43.27 2.63 45.90
[39.03] [2.28] [41.31]

+ Figures in brackets are amounts financed by the ADF.

♦ Consulting Services

5.4.4 Procurement of consulting services, as detailed in Table 5.2 above, will be undertaken on
the basis of the Bank’s Request for Proposals “Price is a Factor” Rules of Procedure for the Use of
Consultants.

5.4.5 The consulting services for supervision will be acquired on the basis of a short-list of
qualified consulting firms established through a pre-qualification of consultants. Two different short-
lists will be prepared for the two lots of supervision services.

♦ Project Audit Services

5.4.6 The audit services will be procured through a short-list of auditing firms, which will be
submitted to clearance by the Federal Auditor General’s Office, prior to call for bids. Since the
amount of contract for audit services is less than UA 350,000, the Borrower may limit the publication
of the announcement to national or regional newspapers. However, any eligible consultant, being
regional or not, may express his desire to be short-listed.
 29

♦ Executing Agency

5.4.7 The Ethiopian Roads Authority (ERA) will be responsible for the procurement of works,
consulting supervision and audit services. The resources, capacity, expertise and experience of ERA
are adequate to carry out the procurement. In the specific case of works procurement, the supervision-
consulting firms through pre-contract services will assist the Executing Agency.

♦ General Procurement Notice

5.4.8 The text of a General Procurement Notice (GPN) has been agreed to with ERA during
negotiations. It will be issued for publication in the United Nations Development Business, upon
approval of the loan by the Board of Directors.

♦ Review Procedures

5.4.9 The following documents are subject to review and approval by the Bank.

♦ Specific Procurement Notices

♦ Invitation for pre-qualification Documents
♦ Tender Documents and Requests for Proposals
♦ Tender Evaluation Reports and Reports on Evaluation of Consultants' Proposals
♦ Draft Contracts, if the standard contract document has been amended.

5.5 Disbursement Arrangements

The loan will be disbursed for three categories of expenditure including Civil Works,
Supervision and Audit Services. The Direct Payment Disbursement Method will be used following
the procedures and standard supporting documents outlined in the Bank’s Disbursement Hand Book.

5.6 Monitoring and Evaluation

5.6.1 ERA shall regularly provide the Bank with quarterly progress reports for the project
including the implementation of environmental protection measures in the established format covering
all aspects of the concerned components. These reports will include ERA’s Performance indicators,
which will assist in verifying whether or not the objectives are being achieved. In addition, monitoring
of the project will be done through the Bank’s supervision mission program, in accordance with the
Bank Group’s Operations manual. A mid-term review will be undertaken during the second year of
implementation to identify and eventually alleviate the major constraints facing the project. A
provisional mission program is displayed in Table 5.3.

5.6.2 The implementation of the environmental mitigation measures will be monitored by the
supervision consultant and the ERA Environment Management Branch (EMB) that had been
strengthened through the IDA technical assistance to ERA.

5.6.3 Pursuant to the general conditions of Bank loans, ERA will prepare and provide the Bank,
within six months of completion of the project, with a Borrower’s Completion Report. Subsequently,
the Bank will prepare its own PCR. The two reports together with ERA’s performance statistics and
financial results will form the base for the post-evaluation of the project.
 30

Table 5.3 Provisional Mission Program

Bank Staff Input Ministry/

Date Activity Skill (Staff Week) Agency/Bank
February 2003 Launching Mission Task Manager, Procurement 3 ERA/ADF
and Disbursement Officer

October 2003 Supervision Task Manager 2 ERA/ADF

Transport Engineer

April 2003 Supervision Task Manager 2 ERA/ADF

Transport Engineer
ERA/ADF
October 2004 Supervision/ Task Manager 4
Mid -Term Review Transport Engineer
ERA/ADF
September 2005 Supervision Task Manager 2
Transport Engineer
ERA/ADF
February 2006 Supervision Task Manager and 2
Transport Engineer
ERA/ADF
September 2006 Bank’s PCR Task Manager and 2
Mission Transport Engineer

5.7 Financial reporting and auditing

5.7.1 The Finance Division of ERA will be responsible for the financial management and
reporting procedures for the project and other donor financed projects in the RSDP. The Division has
been strengthened through an IDA financed technical assistance which has put in place an Accounting
and Financial System Manual as at March 2000 to enhance accountability, managerial autonomy and
financial control and with the objective of implementing the decentralisation and commercialisation
plan of ERA. In order to cope with its mandate under the RSDP, and as to the requirement of the
manual, a revised organisation chart and job description was approved by the ERA Board and the
division is now fully staffed with thirty accountants/accounting personnel and the required
complementary staff. Though the Accounting System based on Microsoft Excel had been operational
and in use since the commencement of the RSDP, the computerisation of the financial accounting is
on process based on an accounting software package financed under the technical assistance support
from GTZ based on the new Manual. The ACCPAC software is selected and the necessary packages
have been procured while training on the software package has been programmed for the staff of the
division.

5.7.2 The Financial Division of ERA will operate and maintain separate account for each
project under each financier to enable it keep complete financial record of the projects and supply the
respective financiers with relevant reports and information. ERA shall maintain separate accounts for
the project, which should allow identification of expenditures by component, category and source of
finance. Audited accounts with audit report of the project will be submitted to the Bank regularly once
every year and after project completion, not later than three months after the auditing has been carried
out. ERA’s financial statement and project accounts will be audited annually during project
implementation and at the end of the project in line with the Bank’s Guidelines for Project Audit. The
auditing services will be undertaken by a qualified and independent audit firm appointed by the
Government and procured on the basis of a terms of reference acceptable to the Fund.
 31
5.8 Aid Co-ordination

5.8.1 Aid co-ordination has been achieved through the Consultative Group (CG) meetings
which provided opportunities for donors both bilateral and multilateral to periodically review
Ethiopia’s development programme as well as co-ordinate their development assistance in support of
the programme. The third CG meeting was held in Addis Ababa in December 1996. The
complementarity of the development partners’ efforts have been facilitated by the co-financing under
the Sector Investment Programmes (SIPs) and the extensive internal donor co-ordination involved in
programme implementation progress monitoring. The PER in which the Bank effectively participates
has also provided an effective forum for dialogue between the Government and its development
partners as this affords close donor collaboration on analytical issues and commitment to a more
systematic follow-up process.

5.8.2 A number of development partners including the Bank Group are active in Ethiopia’s
transport sector. Phase I of the RSDP has attracted US$ 509.22 million from the World Bank, ADF,
EU, UK, GTZ, KfW, NDF and JICA. The EU and AFD have also provided 35 million ECU and FF
56.7 million respectively for the rehabilitation of the railways. The Addis Ababa Airport Development
Project is being co-financed by the ADF, OPEC Fund, Kuwait Fund, BADEA, EIB, NORDIC Fund
and UNDP. The Ministry of Economic Development and Co-operation (MEDAC) has been effective
in-country donor co-ordination mechanism which involves different levels of meetings among which
are the one at ambassadorial level whereby donor ambassadors and heads of key development
agencies to review development co-operation issues, there is also the co-ordination at informal level
by the Development Group Agencies led by the World Bank to discuss development issues and aid
co-ordination with sub-sector groups. Also there are periodic review meetings of sector investment
programmes involving the Government, donors and other stakeholder in which the Bank Group
effectively participate. For the road sub-sector, a mid-term review of the implementation performance
of the RSDP - I was undertaken in February 2001 which provided the forum for frank exchanges of
view and helped draw lessons for the effective delivery of the programme while the one for the Addis
Ababa Airport Development Project was scheduled for July/August 2001.

6. PROJECT SUSTAINABILITY AND RISKS

6.1 Recurrent Costs

6.1.1 Through out the construction and mandatory one-year maintenance period, the
construction firm will be responsible for maintenance of the project road. There after the ERA which
is the executing agency would be responsible for the routine maintenance expenditure of the project
which involves maintenance of the road side, ancillary works including pothole patching up to the end
of the project service life in 2025. In addition ERA would meet the financing requirement for
periodic maintenance which involves resealing after 8 years of service life. The financial recurrent
maintenance cost for the project road is estimated at March 2001 prices at Birr 144.2 million ($17.35
million) over the project service life which on the average amounts to about Birr 8.0 million (US$
0.96 million) per annum as against the estimated expenditure of Birr 3.68 million (US$ 0.44 million)
per annum under the existing road. The incremental recurrent cost implication for the project amounts
to Birr 4.32 million ($0.517 million) per annum. The estimated periodic maintenance expenditure to
be incurred after about 8 years of service life is estimated as Birr 34.274 million (US$ 2.96 million).
(See Annex 5 on Financial and Economic Analysis).

6.1.2 Government has established a Road Fund in March 1997 with the goal that at the end of
RSDP I, all maintenance expenditure will be financed from the Fund on a “fee for service” basis as a first
step towards progressively achieving long term marginal cost recovery for the road sector, initially
focusing on full road maintenance recovery. The specific modalities for the allocation of funds between
Federal, Regional and Urban roads has been determined by the Road Fund Board with and initial
distribution of 70.0%, 20.0% and 10.0% respectively. As of date and based on the appraised resource
 32
mobilisation and road financing, meeting the recurrent expenditure need is not constrained by resources
but executive capacity of the domestic contracting industry which has led to non full utilisation of
resources allocated annually to the road agencies for maintenance.

6.2 Project Sustainability

The Government has recognized in the conception and design of the RSDP that the
sustainability of the investment in the programme in the long run would depend on i) the institutional and
capacity strengthening of the Road Agencies, ii) increasing the capacity of the local private contractors
and commercialisation/decentralisation of ERA force account unit, and iii) effective resource mobilization
for road maintenance financing. In this regard, Government has implemented or is putting in place
policies, measure and action with technical assistance from donors to address these concerns. The
restructuring of ERA was addressed by Proclamation in 1997 and set the framework for transforming
ERA from a supplier of road infrastructure to a manager and purchaser of services and works for network
maintenance and development, with competitive salaries for its staff. Donors have also assisted ERA with
technical assistance support for institutional strengthening in critical area. ERA’s policy of
commercialisation of its force account unit and contracting out increasingly to match pace of development
of domestic contracting capacity in line with the Maintenance Action Plan (2001–2005) endorsed by
donors will ensure project sustainability. In addition, the Road Fund Administration is a well led office
effectively mobilizing resources and monitoring the application of funds by the beneficiary agency (ERA,
Regions and municipalities) in order to ensure that road users get value for money through the proposed
technical audits to be financed under EDF-technical assistance. All these measures would ensure the
sustainability of the investment in the project. In addition Government would ensure effective axle load
control measures to protect the investment in the project. In this context, the implementation of policy
measures with respect to axle load control on the road network have been made a condition of the loan to
ensure project sustainability.

6.3 Critical Risks and Mitigating Measures

6.3.1 Implementation of the project does not present major risks, but two factors could influence its
viability. Firstly, an increase in the project cost due to delay in the implementation and secondly, the
projected traffic growth could be slower than anticipated. The risk of delay in the implementation has
been minimized through actions taken in the RSDP, by way of providing technical assistance to ERA and
organizing seminars/ workshops and training to ERA staff. Regarding the risk on the projected traffic
growth, recent experience in similar projects has shown a traffic increase of twice or more, than the
original estimated growth.

6.3.2 Further, these factors were taken into account in the economic analysis, which shows that the
project will remain economically viable even with an increase of 20 percent in costs and a decrease of 20
percent in the traffic.

7. PROJECT BENEFITS

7.1 Financial Analysis

The financial analysis in terms of financial internal rate of return is not relevant, as cash
revenues do not accrue to the Road Agency. However in terms of budget feasibility and fiscal impact,
a regular annual assessment of the budget feasibility of the RSDP is carried out taking into account
the overall macro-economic environment. This work will continue to be conducted as part of the
annual Public Expenditure Review where the Ministry of Finance and donors are extensively
consulted. In order to maintain the fiscal sustainability of the increased public expenditures called for,
the implementation rate of the RSDP are geared to the pace of macro-economic growth and a medium
term public expenditure framework for which the project road has been taken into account. Annex 5
indicates status of financial support within the projected macro-economic framework.
 33

7.2 Economic Analysis

7.2.1 The methodology used for the economic appraisal has been made using the manager interface
of HDM III. The evaluation parameters for economic analysis are put in the PID. The route Butajira to
Sodo is divided into two links and each link has two sections, one for each of two terrain types of flat to
rolling and hilly to mountainous. The road geometry and characteristics for the two links are imputed into
the HDM III. The HDM III allows for modelling over the analysis period of 23 years of each of the road
links the interaction between traffic volume and composition, road conditions and vehicle operating costs
for the “with” and “without” project scenarios under the alternative intervention strategy of do minimum
in the “without” project case and upgrading from gravel to double bitumen surface treatment standard
(DBST) in the “with” project case. Maintenance strategies applicable under the alternative intervention
strategies were included in the comparative analysis A construction period for economic appraisal of
thirty two months is assumed starting from July 2003 and ending February 2006. Some 20 percent of
investment costs have been assigned to the first year, which will effectively cover a construction time of
six months. The balance has been distributed as 35 percent for the second year, 35 per cent for third year
of works and 10 percent for the fourth year, which will only cover two months of execution of mainly the
road furniture.

7.2.2 The construction and maintenance costs are based on detailed engineering design
estimated quantities prepared by consultants and reviewed and agreed upon at appraisal. These
constitute the Agency costs for the project. The total financial construction cost excluding price
escalation based on March 2003 prices is estimated as Birr 490.06 million. The financial infrastructure
prices have been converted to economic prices for the analysis using a conversion factor of 0.78
resulting in an economic investment cost for the project of Birr 382.25 million. This amount covers
the base cost for civil works, the physical contingencies, cost of consultancy services for supervision
and project audit and the environmental mitigation measures.

7.2.3 The project benefits are road user benefits in terms of vehicle operating cost savings
accruing to normal and diverted traffic on the project road. These benefits accruing to normal traffic
have been calculated using HDM-VOC sub model, and it is estimated at Birr 46.673 million in year
2006 when the road is completed and open to traffic increasing to Birr 202.696 million by the end of
project design life. Two sets of exogenous benefits have been taken into account for the proposed
investment, which consists of benefits to traffic diverting back to the improved project road from the
Addis-Mojo-Shashemene route, and benefits to non-motorised traffic. These benefits have been
calculated exogenously and imported into the HDM – III model. In the case of benefits accruing to
diverting traffic, this is estimated at Birr 2.622 million in 2006 and would increase based on the
assumed growth rate for normal traffic to Birr 7.02 million by year 2025. Other benefits taken into
account in the analysis is the benefit accruing to non motorized transport. The project road
particularly the Hossaina – Sodo link is extensively used for pedestrian access and other non-
motorized transport. Based on identification of pedestrian time spent in travel which could have a
resource cost implication, it is estimated that in all over 77 percent of pedestrian trips would have an
economic value, the proportion being slightly higher for women than for men. This has been estimated
at pedestrian economic hourly value of Birr 0.08 for the pedestrian traffic. Also non-motorized
transport operating cost savings has been estimated based on operators hourly time value which
ranges from Birr 261.49 for an IRI of 4 m/km and Birr 396.14 for an IRI of 18 m/km. The non
motorized transport benefit have been estimated as Birr 11.57 million per annum from 2006 and is
estimated to increase over the appraisal period at the rate of population growth. Though it is noted that
accident cost/benefits are important as part of road user cost savings, it has not been taken into
account in the economic evaluation as data to cost accidents are not available. The residual value of
the investment after its operating life of 20 years for the project road has been estimated at about 12%
of initial investment which amounts to Birr 40.93 million (See Annex 5 on Economic analysis).
 34

7.2.4 The results of the economic evaluation using the measures of investment worth on the
basis of the medium traffic forecast and in which exogenous benefits to both non-motorised and
diverting traffic are included indicated an Economic Internal Rate of Return (EIRR) of 18.46 % which
is higher than the opportunity cost of capital of 12% for cut off of projects for admission into the
RSDP; a Net Present Value (NPV) in Birr 234.11 million with present values of costs and benefits
discounted at 12 percent, an incremental benefits to cost ratio (BCR) of 1.77; all confirming the
viability of the project. The result also indicated a first year rate of return (FYRR) for the project road
of 17.64 percent excluding benefits to diverted traffic and non motorized transport. Detail results of
the analysis are provided in Annex 5.

7.3. Social Impact Analyses

7.3.1 The project road improvement identified for ADB financing is expected to improve access
to markets and the quality of transport services available to rural populations by linking under-served
rural areas with the countries regional and national networks. The project road, in conjunction with
the Alemgena-Butajira road would link the populations along the road directly to Addis Ababa and
greatly improve access of rural populations to the services of the small towns along the road. Access
to Kenya and from Kenya will also be greatly improved. The project road will also improve the
connections between the food-surplus producing areas north of Hossaina and the densely populated
and food-deficient areas south of this rural town. The road is not only likely to enhance the
availability of food in deficient areas but it also going to enhance non-agricultural income generating
opportunities for both women and men among those restricted in their agricultural production by land
shortage. Moreover, the improved access to densely populated areas is also likely to bring enhanced
access to agricultural extension services and inputs with possibilities to minimise soil erosion, to
improve crop husbandry and thus maximise yields on the scarce land.

7.3.2 The improved road will increase the movement of people and goods from and into the area
and thus serve as a motor of the economy. While the prices of some commodities might fall due to
lowered vehicle operating costs and increased competition, other goods and services might improve
both in quantity and price as demand grows and more money circulates in the local economy. Women,
who are now almost entirely dependent on their husbands, will benefit from the road by the increased
availability of transport, which will enable them to access health facilities, as for example in the
context childbirth and child care. The entire population will benefit from the reduction in dust along
the road and the problems connected to it now, such as respiratory diseases, and impaired ability to
run hygienic businesses along the road. Populations further afield will also be able to access the
increased market possibilities along the road and in time increased movement to and from the road
will lead to the establishment of feeder road.

7.3.3 The provision of IMTs through the planned ERTTP has the potential of being able to cut
women’s domestic carrying burden by as much as 80 percent and will free their labour for more
productive and income-generating activities opportunities for which are likely to increase and
diversify with the improved road. School enrolment, particularly of girls, might indirectly benefit
from the improved road, as increased incomes open for more children attending school. Increased
business opportunities open opportunities for business people also outside the project area.
 35

7.4 Sensitivity Analysis

7.4.1 Sensitivity testing has been made for the route as a whole using for the analysis a
threshold of 12% for opportunity cost of capital in Ethiopia and as a limit for viability. The results
suggest that the project is satisfactorily robust. In the analysis EIRR and NPV have been calculated
for:

♦ The exclusion of benefits to non-motorised transport; The result is a decrease in EIIR from
18.46% to 16.2%. The inference is that even if benefits to this category of road users have
been overstated, the project remains clearly viable.

♦ Changes in capital costs by a margin of 10 percent upward: A 10 percent increase in

investment cost still results in a manifestly viable investment at an EIRR of 17 percent.
Even were costs increase by 20 percent, the EIRR would drop to 16 percent, which would
still remain significantly above the viability threshold.

♦ Traffic growth at the lower limits of the traffic forecast: Using the most pessimistic traffic
forecast of light vehicles annual growth rate of 3-6% up to 2010, and 2.4% henceforth to
2020; and commercial vehicles annual growth rate of 2-9% up to 2010 from where a
growth rate of 3-4% is taken up to 2020, the EIRR is reduced from 18.46 % to 15 % which
still remains above the 12 percent threshold.

♦ No Traffic growth to 2006: Traffic remaining at the current level until completion of the
investment from when it grows at the Base Case rate. This addresses what is regarded as
one of the greatest uncertainties. The assumption that traffic on the Project Road remains
constant until it is improved implies that over the next few years natural traffic growth will
just be offset by continuing diversion. On completion of the road improvements traffic will
resume its natural growth rate and will attract back a proportion of the traffic lost. In this
case, although measures of investment worth are less attractive than for the Base case, the
project remains demonstrably viable with an EIRR of 16.6%.

7.4.2 Testing for sensitivity to changes in investment costs has been undertaken as an essential
component of the analysis. Specific changes have been analysed, and “switch values” for investment
costs have been calculated for each investment case with the switch value, which would result in an
EIRR of the 12 percent threshold level. Table 7.1 below shows the percentage increase in costs, which
would result in that rate of return. It can be seen that the low forecast case is the most sensitive but
even this requires a 33 percent increase in costs to produce a marginal investment. In the Base Case,
regarded as the “most likely”, a 76 per cent increase in investment costs could be accepted before
viability was threatened.

Table 7.1:
Switch Values for Investment Costs (EIRR of 12%)

Case Increase in Investment Cost

Base Case 76%
Low traffic forecast 33%
No Traffic growth to 2006 55%
 36

8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions

8.1.1 The upgrading of the Butajira-Sodo road is expected to benefit the population in the project
area by expanding their access to markets, improving the transport services thus linking them to the
larger economy. Health facilities will be in manageable reach of people along the road and the
reduction of dust along the road will improve health and business opportunities. A smooth road
surface also will allow for increased use of IMTs, which in turn is expected to substantially ease
women’s burden of back-loading, thus freeing them for more productive endeavours. The
improvement of the trunk road network will contribute towards the general development of Ethiopia.

8.1.2 The proposed road will improve transport services between the capital Addis Ababa and Sodo
leading to Cairo-Gaborone Trans African Highway and would contribute to the regional integration
between Ethiopia and Kenya. The project is expected to benefit the population in the project area by
expanding their access to markets, improving the transport services thus linking them to the larger
economy. Health facilities will be in manageable reach of people along the road and the reduction of
dust along the road will improve health and business opportunities. A smooth road surface also will
allow for increased use of IMTs, which in turn is expected to substantially ease women’s burden of
back loading, thus freeing them for more productive endeavours. The project is consistent with the
Bank Group's assistance strategy for Ethiopia in the transport sector for the period 1999-2001.

8.1.3 The project is well conceived, technically feasible, economically justified and environmentally
sustainable. The Butajira-Sodo section (189 km) of the Alemgena-Sodo trunk road would generate an
economic rate of return (ERR) of 18.46% based entirely on quantifiable economic benefits of road user
benefits. The road will give rise to other economic and social benefits, and will have a significant impact
on poverty reduction in the project area, such as generation of direct and indirect employment
opportunities for the rural population, access to health and education centres.

8.2 Recommendations

It is recommended that a loan not exceeding UA 41.31 million be given to the Government of
Ethiopia for the upgrading of the road section from Butajira-Sodo (189 km) subject to the following
conditions:

A. Conditions Precedent to the Entry into Force of the Loan Agreement

The entry into force of the Loan Agreement shall be subject to the fulfilment by the
Borrower of the requirements of Section 5.01 of the General Conditions Applicable to
Loan Agreements and Guarantee Agreements of the Fund.

B. Conditions Precedent to First Disbursement

The obligation of the Fund to make the first disbursement of the loan shall be
conditional upon the entry into force of the Agreement and fulfilment by the Borrower
of the following conditions. The Borrower shall have:

(i) nominated from the Ethiopian Roads Authority, a Civil Engineer, with a
minimum of 5 years post-qualification experience, as a full-time Project Co-
ordinator for the implementation of the road project, and whose
qualifications and experience are acceptable to the Fund (para. 5.2.1);

(ii) forwarded for Bank’s review and comments the updated Letter of Road
 37
Sector Policy and the draft final report of the RSDP II (para. 3.4.8).

C. Other Conditions.

The Government shall:

(i) furnish to the Bank a bi-annual progress report on the institutional strengthening
support components of the RSDP (para. 3.3.7);

(ii) furnish to the ADF the strategy and action plan for ERA commercialisation of
its force account units and movement to use of private contractors latest by mid-
term review scheduled for end October 2004 (para. 3.6.10);

(iii) forward to the ADF the action plan for the implementation of the
recommendations of the Construction Industry Study latest by mid-term review
scheduled for end October 2004 (3.5.2);
`
(iv) forward to the ADF, annual progress reports on the implementation of the
action plans for control of vehicle axle loading and Road Safety Measures
(3.2.6).
 ANNEX 1

ETHIOPIA
BUTAJIRA-HOSSAINA-SODO ROAD UPGRADING PROJECT
Map of the Project Area

International Boundary
National Capital
Railroad
Road
Track

0 50 100 150 Kilometers

0 50 100 150 Miles
ERITREA

Himora Aksum Adigrat

Mek’ele

Maych’ew
Gonder
SUDAN
Debre
Tabor Weldiya DJIBOUTI
Bahir Dar
Asayita
Desé
Kurmuk Debre
Mark’os
Asosa Dabre
Birhan Diré
Dawa
Harer Jijiga
Nek’emté Butajira
Addis SOMALIA
Ababa
Metu N azrêt
Gambéla Hossaina Degeh Bur

Jima
Sodo Shashemené
Awasa K’ebri Werdér
Goba Dehar
Imi
Arba Godé
Minch Kibre
Mengist

Negélé
Kelem
Dolo
Odo
SOMALIA
KENYA Moyalé

This map was provided by the African Development Bank exclusively for the use of the readers of the report to
it is attached. The names used and the borders shown do not imply on the part of the Bank and its member
judgement concerning the legal status of a territory nor any approval or acceptance of these borders.
 ETHIOPIA : BUTAJIRA-HOSSAINA-SODO ROAD UPGRADING PROJECT
Ethiopia Roads Authority Organisational Chart

ERA BOARD

GENERAL MANAGER

Legal & Protection of Right-Of-Roads Division Internal Audit service

Information and Public Relations Services

Operations Department Engineering & Regulatory Department Human Resources & Financial Department
Deputy General Manager Deputy General Manager Deputy General Manager

Procurement Services Own Force Construction Division Own Force Maintenance District (10) Equipment and Supplies Division Civil Contract Administration Design Research & Network Planning & Programming Division Finance Division Human Resource Development Division Personnel Administration Division
Management Division

Contract Formulation Branch Civil Contract Implementation Branch Environment Management Branch Project Accounting

Project Co-ordinator

Project Implementation Unit (PIU)

ANNEX 2
Source: Ethiopian Roads Authority
2
 ANNEX 4

Source: ADF Appraisal Mission, May 2001

 ANNEX 5
Page 1 of 4
ETHIOPIA
BUTAJIRA – HOSSAINA – SODO ROAD UPGRADING PROJECT
SUMMARY FINANCIAL AND ECONOMIC ANALYSIS

a) Methodology and Assumptions for Economic Evaluation

i) Methodology

Appraisal has been made using the manager interface of HDM III. The project road Butajira to Sodo (189 km) is
divided into two links: Butajira – Hossaina (95 km) and Hossaina – Sodo (94 km) and each link has two sections,
one for each of two terrain types. The types are flat to rolling and hilly to mountainous. Road geometry and
characteristics for the two links have been inputted into the HDM III. The HDM III allows for modelling over the
analysis period of 23 years of each of the links and for the whole project road the interaction between traffic
volume and composition, road condition, geometry and characteristics and vehicle operating costs for the “with”
and “with out” project scenarios. The base year for economic evaluation is taken as 2003, the year in which
construction is assumed to commence with a construction period of 30 months and first year of traffic in 2006.

All appraisal components have been inputted into the model in USD; output values are in Ethiopian Birr at a
current rate of exchange at appraisal. For economic analysis, financial construction and maintenance costs have
been converted into economic costs by applying a conversion factor of 0.78. Details on how this factor is arrived
at are in the PID. The measures of project worth used are the EIRR, NPV & BCR at 12% discount rate and the
FYRR.

b) Appraisal Assumptions

i) Maintenance Strategies

Maintenance of the existing road has been intermittent. The maintenance strategies incorporated into the
economic evaluation are as follows:

“Without project” do minimum: which is essentially the historic maintenance practice strategy
comprising routine maintenance of a grading frequency of once a year and spot re-gravelling of 30m3 per
km per year.
“With project” paved standard: involves routing maintenance, patching 50 percent of the damaged
surface each year, and resealing with a 13 mm SSD every 8 years.

ii) Residual Values

Residual values have been calculated for a road operating life of 20 years. Residual values are likely to have analytical
significance, and have been assumed as 12% of original economic investment cost, which is estimated at Ethiopian
Birr 40.932 million in year 2025 as in page 4 of 4 of this annex.

iii) Costs and Benefits

The costs taken into account are the Road Agency costs in the “with” and “with out” project scenarios which include
both the cost of maintenance and the investment cost of upgrading the gravel road to a double bituminous surface
treatment standard. These costs taken into account include the base cost for civil works plus the physical contingencies,
consulting services for supervision of works and for project audit. The financial contingencies, which do not constitute
consumption of economic resources, are not taken into account.

The benefits taken into account in the analysis include road user benefits accruing to normal and diverted motorized
traffic on project road by comparing the vehicle operating costs and travel time savings in the “with” and “with out”
project scenarios. Diversion benefits for road users will accrue to the project road from diverted traffic on Addis-Mojo-
Shashamene road based on the assumption that the improvement of the Alemgena – Butajira link that is already on
 going precedes that of the project road.

ANNEX 5
Page 2 0f 4

The other category of benefits taken into account in the analysis is the benefit accruing to Non Motorized Transport
(NMT) using the project road, comprising of pack animals and pedestrians; its inclusion has been taken as part of the
sensitivity analysis. Accident cost benefits resulting from the improvement has not been taken into account as the
profile and frequency of accidents is not available. The details on the estimation of each category of benefit are in the
PID. The streams of costs and benefits over the evaluation period are as indicated in page 4 of 4 of this annex.

c) Results of Benefit – Cost Analysis

i) The Base Case

Results of appraisal for the Base Case which comprises the medium traffic forecast and in which exogenous
benefits to both non-motorised and diverting traffic are included indicated an Economic Internal Rate of Return
[EIRR %] of 18.46% which is above the cut-off rate of return of 12% 1 for acceptance of project into the RSDP, a
Net Present Value [NPV] in Ethiopian Birr 234.11 million, a benefits- Costs ratio [BCR] of 1.77 and the First
Year Rate of Return [FYRR] of 17.64% applying a discount rate of 12% for the three indices. The project is
clearly viable on the basis of all the measures of project worth as indicated on page 4 of 4 of this Annex. Detailed
results of the Base Case, for the two links and for the combined route, are in the PID.

ii) Sensitivity Analysis

Sensitivity testing has been made on the results of the base case with respect to EIRR for project road and the results
given in the table hereunder suggest that the project is satisfactorily robust.

Table 1: Sensitivity Analysis on base case

Scenarios EIRR % Change from

% Base case
Base Case 18.46
Base Case with no NMT benefits 16.2 -12.24
Base case with 10% increase in capital cost 17.0 -7.9
Low traffic forecast 15.0 -18.74
No Traffic growth to 2006 16.6 -10.07

In addition to the sensitivity tests above, “switch values” for investment costs have been calculated for each
investment case with the switch value which would result in an EIRR of the 12 percent threshold level. Table 2 shows
the percentage increase in costs, which would result in that rate of return. It can be seen that the low traffic forecast
case is the most sensitive but even this requires a 33 percent increase in costs to produce a marginal investment. In the
Base Case, regarded as the “most likely”, a 76 per cent increase in investment costs could be accepted before viability
was threatened.
Table 2: Switch Values for increase in Investment Costs for EIRR of 12%

Case Increase in Investment Cost

Base Case 76%
Low traffic forecast 33%
No Traffic growth to 2006 55%

1
The opportunity cost of capital in Ethiopia is now 10% as recently revised by the Ministry of Economic
Development and Cooperation..
 Annex 5
Page 3 of 4

ETHIOPIA
SUMMARY FINANCIAL AND ECONOMIC ANALYSIS
ROAD SECTOR DEVELOPMENT PROGRAM (1997-2007)
STATUS OF FINANCING SUPPORT, MAY 2001
RSDP I RSDP II RSDP I & II
Length Cost in million US Dollar Length Cost in million US Dollar Length Cost
Financier (km) Secured Pipeline ExpecteTotal (km) Secured Pipeline ExpectedTotal (km) (in mii. US $)

IDA 1816 303,58 0,00 0,00 303,58 3334 124,87 339,63 0,00 464,50 5150 768,08
EU 704 115,56 1,18 0,00 116,74 1331 119,32 123,97 0,00 243,29 2035 360,03
ADB 305 67,53 0,00 0,00 67,53 316 11,42 67,03 0,00 78,46 621 145,98
Japan 103 29,25 0,00 0,00 29,25 196 74,08 0,00 0,00 74,08 299 103,33
Germany 5 9,22 0,00 0,00 9,22 179 25,82 14,73 0,00 40,55 184 49,77
Italy 0 0,00 0,00 0,00 0,00 300 0,00 81,94 0,00 81,94 300 81,94
UK 0 2,78 0,36 0,00 3,14 0 0,00 3,23 0,00 3,23 0 6,37
OPEC 0 7,70 0,00 0,00 7,70 127 32,80 0,00 0,00 32,80 127 40,50
BADEA 0 0,00 0,00 0,00 0,00 62 9,33 0,00 0,00 9,33 62 9,33
NDF 0 4,16 0,00 0,00 4,16 0 1,63 0,00 0,00 1,63 0 5,79
Ireland 0 0,68 0,00 0,00 0,68 0 0,00 0,00 0,00 0,00 0 0,68
GOE 10027 606,35 3,58 0,00 609,92 11112 217,23 993,18 0,00 1210,41 21139 1820,33
Road Fund 166 119,15 7,82 0,00 126,97 2009 163,79 47,75 0,00 211,54 2175 338,51
Community 0 0,00 0,89 0,00 0,89 0 0,00 305,11 0,00 305,11 0 306,00
Private 0 0,00 5,99 0,00 5,99 0 0,00 217,81 0,00 217,81 0 223,80
Unidentified 0 0,00 0,00 4,34 4,34 1144 0,00 0,00 580,56 580,56 1144 584,89

Total 13126 1265,96 19,82 4,34 1290,12 20111 780,29 2194,38 580,56 3555,23 33237 4845,35

SOURCE : ETHIOPIAN ROAD S AUTHORITY

 ANNEX 5
Page 4 of 4

SOURCE: ADF Appraisal Mission, May 2001

 ANNEX 6
Page 1 of 2

ETHIOPIA
BUTAJIRA - SODO ROAD UPGRADING PROJECT
ENVIRONMENTAL AND SOCIAL MANAGEMENT PLAN SUMMARY

a) Brief description of the project and key environmental and social components

The road from Butajira to Sodo is located southwest of Addis Ababa in central Ethiopia. The project road runs
189 km from Butajira to Hossaina to Sodo. The project consists of upgrading the existing gravel road to bitumen
standard, with very minor realignments. Most of the drainage structures are existing and will only be
rehabilitated.

b) Major environmental and social impacts

• Soil Erosion removal of vegetative covers for road construction and at material borrow pits will generate
erosion and affect the road itself, the shoulders, the road reserve, and the nearby land and crop fields.
Road erosion silt the watercourses and under the bridges. Erosion may also occur at stormwater drainage
outfalls when water velocities are not controlled. Design is critical to alleviate this problem.
• Disturbance of natural water flows occurs mainly when there are changes in drainage patterns or when
drainage facilities, culverts, and bridges are not adequately designed, implemented, or maintained. This
results is inundation, road overflow, erosion, and downstream water abstraction, which affects fauna and
flora.
• Water pollution by oil spillage: Results from road construction and operation and affect surface and
groundwater resources in specific areas as well as affect resources use by population and animals.
• Traffic disruption: This is a minor temporary disruption during road rehabilitation works.
• Traffic Noise: in the rural areas, noise is a minor impact as residences are scattered and road traffic is
low.
• Waste materials from drain cleaning and pavement reconstruction: Impacts are minor if disposed
properly, i.e. in areas to be reclaimed, but not in rivers.
• Safety of road workers from careless commuters: risks of accidents are temporary during road
rehabilitation, especially when road signing is poor.
• New developments and settlements, induced by improved access usually in the form of markets and
other business premises, new clearing for cropping, and homestead implementation.
• Landscape disturbance, besides borrow pits, this is mainly limited to road reserve and results from
clearing for improved visibility. Un-rehabilitated borrow pits become hazards and/or breading sites for
disease vectors (e.g.: malaria, shistosomiasis).

c) Mitigating Measures

Design and construction measures: 1) Minimization of clearing, especially during rainy period; quick
reestablishment of vegetative cover; 2) To control sedimentation and sediment loading, construction in and
around perennial rivers should be conducted during dry season; on-site drainage management using dikes,
sediment traps, and silt fences will be implemented; 3) Regular watering of road works in operational areas;
4) Install water diversions on the road alignment designed to minimize erosion in the road reserve and fields;
5) Provide necessary and adequate drainage works; 6) Provide stone riprap at inlets and outlets of culverts to
minimize erosion due to high velocities of stormwater runoff; 7) Avoid materials extraction in or close to
human settlement areas wherever possible; and 8) Protect erosion susceptible surfaces by grassing and stone
pitching and/or with mulch or fabric.
 ANNEX 6
Page 2 of 2

Rehabilitation works: 1) Rehabilitate quarries into water points or by replanting vegetation.

Maintenance works: Cure gullies abutting the road using gabion works.
Law enforcement: 1) Enforce air and noise pollution standards; 2) Schedule work in towns only during
daytime.

Prevention and waste disposal: 1) Provide adequately located and maintained latrines and roadside litter
disposal facilities; 2) Create awareness on HIV/AIDS and other related diseases and provide limited health
care services.

d) Monitoring program and complementary initiatives

Monitoring and supervision are conducted to ensure that potential environmental impacts are minimized through
adequate implementation of mitigation measures and also to provide early warning on unforeseen impacts.
Some of the key parameters for monitoring and supervision in the Butajira Sodo road upgrading project include:
1) Erosion of the road, control the limits of disturbance during construction; 2) Water quality in critical water
resources affected by road construction, by controlling proper implementation of sediment control measures; 3)
Vegetation, assess encroachment on forested areas by non planned economic activities, especially new clearing
for cropping, and homestead development; 4) Traffic accidents in order to improve road signing; and 5)
Diseases such as malaria, especially around borrow sites.

e) Institutional arrangements

The supervision consultants and the Environmental Management Branch of the Ethiopian Roads Authority will
monitor the implementation of above outlined mitigation measures. Full consultations with local authorities and
close follow-up of specific clauses in contract documents will also be carried out by ERA.

f) Public consultations and disclosure requirements

During project preparation and design phase, as well as during the EIA report studies, extensive
consultation with local authorities and stakeholders were carried out.

g) Estimated costs

There are two types of costs associated with the adverse environmental and social impacts of the road
upgrading: 1) the impacts that are in the road right of way, for which the cost is integrated in the overall
project design and costing; 2) and the potential impacts that are out of the right of way, for which the local
government will make the necessary arrangements for mitigation.

h) Implementation schedule and reporting

Implementation of the mitigation measures follows the civil works of upgrading the road. The two
activities are fully integrated
 ANNEX 8

ETHIOPIA
BUTAJIRA - HOSSAINA - SODO ROAD UPGRADING PROJECT
List of Annexes in the Project Implementation Document (PID)

1. SUMMARY OF PROJECT SCOPE AND OBJECTIVES

2. PROJECT MAPS
3. PROJECT DESIGN
4. DETAILED PROJECT COSTING
5. SUMMARY OF PROCUREMENT ARRANGEMENTS
6. PROJECT IMPLEMENTATION SCHEDULE
7. PROJECT SUPERVISION PLAN
8. TRAFFIC DEMAND AND ROAD USER PRICES
9. PARAMETERS FOR ECONOMIC ANALYSIS
10. HDM RESULTS FOR LINK ROADS AND PROJECT ROAD
11. SCHEDULE OF DISBURSEMENT
12. ENVIRONMENTAL AND SOCIAL IMPACTS ASSESSMENTS
Annex
 ETHIOPIA
BUTAJIRA-HOSSAINA-SODO ROAD UPGRADING PROJECT

CORRIGENDUM

(i) Page 27, paragraph 5.4.2, the phrase “greater than UA 10.0
million per contract” in the first sentence should be deleted.

(ii) Page 29, Table 5.3 Provisional Mission Programme, under the
column for skill, the word Task Manager should be amended to
read “Transport Economist”

(iii) Page 35, paragraph 8.1.2, the sentences that read - “The
proposed road will improve transport services between the capital
Addis Ababa and Sodo leading to Cairo-Gabarone-Trans African
Highway and would contribute to the regional integration between
Ethiopia and Kenya. The project is expected to benefit the
population in the project area by expanding their access to
markets, improving the transport services thus linking them to the
larger economy. Health facilities will be in manageable reach of
people along the road and the reduction of dust along the road
will improve health and business opportunities. A smooth road
surface also will allow for increased use of IMTs, which in turn is
expected to substantially ease women’s burden of back loading,
thus freeing them for more productive endeavours” - should be
deleted as the project road will not link up to Kenya border and
the remaining sentences are repetition of paragraph 8.1.1.

(iv) Page 35, the last sentence on paragraph 8.1.2 “The project is
consistent with the Bank Group’s assistance strategy for Ethiopia
in the transport sector for the period 1999-2001” should be added
as last sentence to paragraph 8.1.1 and paragraph 8.1.2 should
be deleted.

(v) Page 35, Paragraph 8.1.3 should be re-numbered as paragraph

8.1.2.

(vi) Page 35, Paragraph 8.2, item B (ii) “Bank’s” should read “ADF’s”.

(vii) Page 36, Paragraph 8.2, item C (i) “Bank” should read “ADF”.

(viii) Annex 1 “Ethiopia Butajira–Hossaina–Sodo Road Upgrading

Project; Map of Project Area” should be replaced with Annex 1
“Ethiopia: Butajira–Hossaina-Sodo Road Upgrading Project - Road
Location Map” attached herewith.
 ANNEX 1

ETHIOPIA
BUTAJIRA - HOSSAINA - SODO ROAD UPGRADING PROJECT
ROAD LOCATION MAP

International Boundary
National Capital
Railroad
Road
Track

0 50 100 150 Kilometers

0 50 100 150 Miles
ERITREA

Himora Aksum Adigrat

Mek’ele

Maych’ew
Gonder
SUDAN
Debre
Tabor Weldiya DJIBOUTI
Bahir Dar
Asayita
Desé
Kurmuk Debre
Mark’os
Asosa Dabre
Birhan Diré
Dawa
Harer Jijiga
Nek’emté
Addis SOMALIA
Ababa
Metu Nazrêt
Gambéla Butajira Degeh Bur

Jima
Hossaina
Shashem ené Werdér
Awasa K’ebri
Goba Dehar
Sodo Imi
Arba Godé
Minch Kibre
Mengist

Negélé
Kelem
Dolo
Odo
SOMALIA
KENYA Moyalé

This map was provided by the African Development Bank exclusively for the use of the readers of the report to which it is attached. The names used and the borders
shown do not imply on the part of the Bank and its members any judgement concerning the legal status of a territory nor any approval or acceptance of these borders.