Document of The WorldBank FOR OFFMCIAL USE ONLY /v -3/J- Report No. P-5110-MA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$83.2 MILLION TO MALAYSIA FOR A HIGHWAYREHABILITATION AND IMPROVEMENT PROJECT NOVEMBER20, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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Document of
The World Bank
FOR OFFMCIAL USE ONLY
/v -3/J-Report No. P-5110-MA
MEMORANDUM AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
IN AN AMOUNT EQUIVALENT TO US$83.2 MILLION
TO MALAYSIA
FOR A
HIGHWAY REHABILITATION AND IMPROVEMENT PROJECT
NOVEMBER 20, 1989
This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EOUIVALENTSCurrency unit - Ringgit (M$)
US$1.00 - M$2.70M$1.00 - US$0.37
(as of October 31, 1989)
FISCAL YEAR
January 1 - December 31
WEIGHTS AND MEASURES
km - kilometer (0.62 miles)mi - mile (1.6093 kilometers)sq mi - square mile (2.5900 square kilometers)
ABBREVIATIONS AND ACRONYMS
ERR - Economic Rate of ReturnHPU - Highway Planning UnitJKR - Department of Public Works (in MPW)ICB - International Competitive BiddingLCB - Local Competitive BiddingMOT - Ministry of TransportMOw - Ministry of Works
.
FOR OMCL41 USE ONLY
MALAYSIA
HIGHWAY REHABILITATION AND IMPROVEMENT PROJECT
Loan and Project Summary
Borrower: Malaysia
Amount: US$83.2 million equivalent
Terms: Repayable in 17 years including five years of grace,at the Bank's standard variable interest rate.
This document has a restricted distribution and may be used by recipients only in tQC performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN
TO MALAYSIAFOR A HIGHWAY REHABILITATION AND IMPROVEMENT PROJECT
1. The following memorandum and recommendation on a proposed loan toMalaysia for US$83.2 million equivalent is submitted for approval. The loanwould help finance a highway rehabilitation and improvement project and wouldbe for a term of 17 years, including five years of grace, at the Bank's standardvariable interest rate.
2. Background. In 1987-88, the Bank, in cooperation with the Governmentof Ma_aysia, carried out a National Transport Policy Review with the objectiveof identifying areas where efficiency gains could be made from existinginvestments. In part, the Review was a response to the country's severe economicrecession of 1985-86 and the need to formulate investments for Malaysia's SixthDevelopment Plan (1990-95) in the context of tight resource constraints. Amongother things, the Review identified weaknesses in transport planning andcoordination as well as the need to improve and maintain the country's roadnetwork, the only mode for which major investments now seem justified. TheGovernment accepted the thrust of these recommendations, and has requestedfinancing for the proposed project, which would improve both the planning of roadinvestments and the condition of the existing road network.
3. The Bank's involvement in Malaysia's transport sector has beenrelatively modest, totalling about US$232 million since 1971. In the highwaysubsector, the last Bank project in the economically important states ofPeninsular (West) Malaysia was in 1974; since then, the Bank has participatedin only one highway project, which helped expand the relatively underdevelopedroad network of the East Malaysian states of Sabah and Sarawak.
4. The Road System. During 1981-85, the Government expanded the roadnetwork at a rate of 8% per annum, more than doubling the length of gravel roadsand increasing the paved road network by 37%. Malaysia's road network now totalssome 42,300 km, including 34,500 km of paved roads, 6,500 km of gravel roads and1,300 km of earth roads. Almost half of the total network (20,500 km) is on thewest coast of Peninsular Malaysia. Due to budgetary cuts in road maintenanceduring the mid-1980s as well as rapid increases in traffic levels and significantoverloading of trucks, the condition of the network has deteriorated, with about20% of the roads now in only fair condition and 23% considered poor. While theGovernment has kept the majority of roads in reasonably good condition through
* the provision of routine maintenance, it did so only by neglecting periodicmaintenance (resurfacing) requirements. The lack of resurfacing has caused somesections of the federal road network in Peninsular Malaysia to deteriorate tosuch an extent that major rehabilitation and strengthening are now needed toreturn the roads to the condition required to support current and anticipatedtraffic levels. The Roads Branch of the Department of Public Works (JKR) hasrecently begun to carry out some of this work with the help of contractors; whilethis approach seems cost-effective, the quality of work carried out thus far hasnot been wholly satisfactory due to inadequate staff capabilities in contractorsupervision.
- 2 -
5. Rationale for Bank Involvement. The proposed project would be theBank's first involvement in the highway subsector in Peninsular Malaysia in 15years and would provide a vehicle by which to begin implementation ofrecommendations of the National Transport Policy Review, specifically itsproposals for improved road transport planning, increased maintenance budgetsfor federal highways, and enforcement of truck axle-load restrictions. Inaddition, the Government has requested Bank assistance in improving highwaymaintenance planning, programming, operations and monitoring. With continuedlimited funds available for road maintenance, the Government intends toconcentrate on improving the efficiency of maintenance operations, which havenot kept pace with development of the network or with traffic growth. Theproposed project would therefore provide necessary external expertise for thispurpose as well as for improved monitoring of road safety and the environmentalimpact of road works.
6. Eroiect Objectives. Besides addressing the major issues identifiedin the National Transport Policy Review, the project would help JKR to achievethe Government's goals for the subsector, that is, to preserve and improve theexisting highway network to meet increasing transport demand and thus providesupport to the productive sectors of the economy by reducing travel costs andincreasing accessibility. The project would assist the Government to improvehighway and bridge maintenance operations on the federal highway network,focussing on the technical and institutional aspects of highway maintenance toimprove the efficiency of activities and promote the provision of adequatebudgetary allocations for the federal highway maintenance program. Furthermore,as a first step in improving overall transport planning, the project wouldinitiate the coordination of federal and state highway planning by MOW's HighwayPlanning Unit (HPU).
7. Proiect DescriRtion. The project would have the followingcomponents: (a) implementation of a Maintenance Improvement Program, includingthe rehabilitation and strengthening of some 562 km of road pavements andimprovement of road and bridge maintenance procedures and operations; (b)replacement of about 24 timber bridges and 43 substandard concrete bridges; (c)improvement of two roads totaling 56 km; (d) various physical works under a RoadSafety Improvement Program; (e) construction of 35 weigh stations in conjunctionwith a Truck Weight Control Program; (f) consultant services and technicalassistance to strengthen HPU's highway planning capability, improve JKR's roadand bridge maintenance capabilities, supervise project works, improve road safetymonitoring and establish methodologies for determining the environmental impactof road works; and (g) training of JKR staff in supervision of construction andmaintenance done by contractors, maintenance programming and operations, trafficengineering and road safety analysis. A breakdown of project costs and thefinancing plan are shown in Schedule A. Retroactive financing for up to 10% ofthe loan amount is recommended for expenditures incurred after May 1,1989.Amounts and methods of procurement and disbursement as well as the disbursementschedule are shown in Schedule B. A timetable of the key project processingevents and the status of Bank Group operations in Malaysia are given in SchedulesC and D, respectively. A map is also attached. The Staff Appraisal Report, No.7995-MA dated November 28,1989 is being distributed separately.
8. Agreed Actions. During negotiations, agreement was reached withthe Gover-nment to: (a) make HPU responsible for coordination of federal andstate investments in highways and for coordination of these investments withother transport investments planned by the Ministry of Transport; (b) reduce byat least 70% by December 31,1994 the existing backlog of deferred periodicmaintenance of roads; (c) annually exchange views with the Bank on the proposedbudgetary allocations for maintenance for the coming year; (d) annually to reviewwith the Bank the federal road maintenance program for the coming year; (e) carryout agreed Action Plans for the Maintenance Improvement, Truck Weight Controland Road Safety Improvement Programs to be implemented under the project; and(f) carry out an agreed maintenance training program during the project period.
9. Benefits. The main benefit associated with the rehabilitation andimprovement of roads under the project is the substantial savings in vehicleoperating costs accruing to road users. The two highway improvement subprojectshave economic rates of return (ERRs) of 21% and 33%, while project componentsfor highway upgrading/rehabilitation and timber bridge replacement have ERRsranging from 12% to over 100% since these investments are preserving or improvingexisting assets of substantial value. All project components yield ERRs above10%, which is the opportunity cost of capital in Malaysia. The weighted averageERR of all project components for which benefits have been quantified is 24%.Sensitivity analysis indicates that even with a 20% increase in costs and a 20%decrease in benefits, project investments would still be justified, with ERRsranging from 12% to 25%.
10. Benefits expected from improved and expanded maintenance operationsas a result of the Maintenance Improvement Program and project technicalassistance and training are also not quantified, but in the future shouldtranslate into significant savings in vehicle operating costs.
11. Risks. There are no major risks associated with the physicalimplementation of the project. While there is a possibility that difficultieswith land acquisition could delay implementation of the road improvementcomponent (56 km), this matter is being vigorously pursued by the Government,which has already frozen the necessary rights of way. The project schedule forthis component also includes some slack for delays.
12. Recommendation. I am satisfied that the proposed loan would complywith the Articles of Agreement of the Bank and recommend that the ExecutiveDirectors approve the proposed loan.
Barber B. ConablePresident
AttachmentsWashington D.C.November 20,1989
.4.
Seadlsl A
BAIA=
NI9GAY UHABL!TAT!ON AND IMP OVENT PROJECT
EPsXtimat Costs and Fie ing Plan
Istimted Costs:
Project Components LaJ, Foreig Tot&1............ (U million)..........
Civil WorksMaintenance Improvement Program 42.9 23.1 66.0Bridge Replacement 7.7 9.5 17.2Truck Welght Control Program 5.7 3.8 9.5Highvay Improvements 26.8 21.9 48.7Road Safety Improvement 14.7 7.9 22.6
Notes: 1. Amounts shown include contingencies.2. Figures in parenthesis are the respective amounts to be financed by the Bank Loan.3. Figures exclude the cost of land acquisition and the cost of technical assistance to be financed through other sources. o
Schedule BPage 2 of 2
Category Amount * of Total Expenditures(US$u ) to be finaced
Civil Works 66.2 40
Equipment 6.2 100
Consulting Services, TechnicalAssistance and Training 10.8 100
Total tL.Z
Estimated Disburasgents EY L12 12U 2912 1995............. (US$ million).............
(g) List of relevant PCRs and PPARs: Highways II (Loan 931-MA), PPAR No. 5273 datedSeptember 1984; HighwaysIII (Loan 1376-NA), PPARNo. 7303 dated June 1988.
it Processing suspended from September 1986 to October 1988 at Governmentrequest.
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Page 1 of a
A. £lTATR!T pF' RANW LOANS INAs of September 30, 1989
Loan or Amount In US$ millionCredit Fiscal la esna*llae4onaNumber Year Borrower Purpose Bank Undisbursed
Sixty-eight loans fully disbursed 1,232.80
2145 1982 Malaysia Industrial Training (Educ. VI) 34.60 10.242147 1982 Malaysia Malacca Agri. Development 17.75 1.052291 1983 Malaysia Sabah-Sarawak Road 71.22 42.572438 1984 Nat'l Elec. Board Power (XI) 70.00 5.652471 1985 Malaysia Small Scale Enterprises 51.96 31.492530 1985 FELDA FELDA Palm Oil Mill Project 17.90 5.032550 1985 Malaysia Sabah Forestry Tech. Assistance 6.50 2.872601 1986 Malaysia Second Industrial Training 68.50 58.402642 1986 Malaysia Land Settlement Infrastructure 50.00 39.612654 1986 Malaysia Johore Water Supply Project 62.00 41.552685 1986 Malaysia Primary and Secondary Education 127.00 79.022686 1986 Malaysia Port Kelang 2.10 .822687 1986 Kelang Port Auth. Port Kelang 7.50 3.552740 1987 Malaysia Second Western Johore Agr. Dev. 55.00 49.592770 1987 Bank Kemajuan Development Finance Project 20.00 15.542771 1987 Sabah Dev. Bank Development Finance Project 10.00 8.502772 1987 Nat'l Elec. Board Energy Efficiency & Plant Rehab. 69.00 57.202828 1987 Malaysia National Forestry Research & Dev. 9.00 7.872887 1988 Malaysia University Development 48.20 32.172917 1988 Malaysia Second FELSRA Land Development 66.00 47.362942 1988 SESCO Sarawak Power 56.00 51.872987 1989 Malaysia Second Primary & Secondary Educ. 58.80 58.803039 1989 Malaysia Sabah Land Development 71.50 71.50
Total 2.283.32 722.25
Of which has been repaid 770.00
Total Now Outstanding 1513.32
Less: Amount sold 153.40Of which repaid 83.06 71.34
Total Now Held by Bank 1.441.98
Total Undisbursed 722. 25 722.25
La The status of the projects listed in Part A is described in a separate report on allBank/IDA financed projects in execution, which is updated twice yearly and circulatedto the Executive Directors on April 30 and October 31.
- 7 - Schedule C
MALAYSIA
HIGHWAY REHABILITATION & IMPROVENENT PROJECT
Timetable fox Key Project Processing Events
(a) Time taken to prepare: One Year
(b) Prepared by: JKR
(c) First IBRD Mission: October 1985
(d) Appraisal Mission Departure: April 20, 1989
(e) Negotiations: November 3, 1989
(f) Planned Date for Effectiveness: January 1990
(g) List of relevant PCRs and PPARs: Highways II (Loan 931-MA), PPAR No. 5273 datedSeptember 1984; HighwayaIII (Loan1376-HA), PPAM'No. 7303 dated June 198b.
v Processing suspended from September 1986 to October 1988 at Governmentrequest.
a-
Pago 1 of 2
THE STATUS OF BANK GROUP OPERATIONS IN MALAYSIA
Al STATEMENT DF BANK L9ANS iAs of September 30, 1989
Loan or Amount in US$ millionCredit Fiscal tless ancea1anfons'Number Year Borrower Purpose Bank Undisbureed
Sixty-eight loans fully disbursed 1,232.80
2145 1982 Malaysia Industrial Training (Educ. VI) 34.60 10.242147 1982 Malaysia Malacca Agri. Development 17.75 1.052291 1983 Malaysia Sabah-Sarawak Road 71.22 42.572438 1984 Nat'l Elec. Board Power (XI) 70.00 5.652471 1985 Malaysia Small Scale Enterprises 51.96 31.492530 1985 FELDA FELDA Palm Oil Mill Project 17.90 5.032550 1985 Malaysia Sabah Forestry Tech. Assistance 6.50 2.872601 1986 Malaysia Second Industrial Training 68.50 58.402642 1986 Malaysia Land Settlement Infrastructure 50.00 39.612654 1986 Malaysia Johore Water Supply Project 62.00 41.552685 1986 Malaysia Primary and Secondary Education 127.00 79.022686 1986 Malaysia Port Kelang 2.10 .822687 1986 Kelang Port Auth. tort Kelang 7.50 3.552740 1987 Malaysia Second Western Johore Agr. Dev. 55.00 49.592770 1987 Bank Kemajuan Development Finance Project 20.00 15.542771 1987 Sabah Dev. Bank Development Finance Project 10.00 8.502772 1987 Nat'l Elec. Board Energy Efficiency & Plant Rehab. 69.00 57.202828 1987 Malaysia National Forestry Research & Dev. 9.00 7.872887 1988 Malaysia University Development 48.20 32.172917 1988 Malaysia Second FELCRA Land Development 66.00 47.362942 1988 SESCO Sarawak Power 56.00 51.872987 1989 Malaysia Second Primary & Secondary Educ. 58.80 58.803039 1989 Malaysia Sabah Land Development 71.50 71.50
Total 2.283.32 722.25
Of which has been repaid 770.00
Total Now Outstanding 1.513.32
Less: Amount sold 153.40Of which repaid 83.06 71.34
Total Now Held bv Bank 144198
Total Undisbursed ,722.25 722.25
i The status of the projects listed in Part A is described in a separate report on allBank/IDA financed projects in execution, which is updated twice yearly and circulatedto the Executive Directors on April 30 and October 31.
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Schedule DPage 2 of 2
B. STATEMENT OF IFC INVESTKENT(As of September 30, 1989)