fouth and fifth road improvement projects (loans 1009 & 1108-lao[sf])

7/31/2019 Fouth and Fifth Road Improvement Projects (Loans 1009 & 1108-LAO[SF])

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ASIAN DEVELOPMENT BANK PPA:LAO 23210

PROJECT PERFORMANCE AUDIT REPORT

ON THE

FOURTH AND FIFTH ROAD IMPROVEMENT PROJECTS(LOAN 1009-LAO[SF] AND LOAN 1108-LAO[SF])

IN THE

LAO PEOPLES DEMOCRATIC REPUBLIC

December 2001


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CURRENCY EQUIVALENTS

Currency Unit Kip (KN)

At Appraisal At Completion At EvaluationOctober 1989 September 1991 March 1998 October 20011009-LAO(SF) 1108-LAO(SF)

KN1.00 $0.00141 $0.0014 $0.0004 $0.0001$1.00 KN709 KN700 KN2,384 KN9,520

ABBREVIATIONS

ADB Asian Development BankADB4 Fourth Road Improvement ProjectADB5 Fifth Road Improvement ProjectDCTPC provincial branch of MCTPCEA Executing Agency

EIRR economic internal rate of returnICB international competitive bidding

km kilometerLao PDR Lao Peoples Democratic Republicm meterMCTPC Ministry of Communications, Transport, Post and

ConstructionN13 national road 13OEM Operations Evaluation MissionPCR project completion reportPPAR project performance audit reportRIA road influence area

SDR special drawing rights

SF Special FundsTA technical assistanceVOC vehicle operating cost

NOTES

(i) The fiscal year (FY) of the Government ends on 30 September.

(ii) In this report, $ refers to US dollars.

Operations Evaluation Department, PE- 583


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CONTENTS

PageBASIC DATA 4

EXECUTIVE SUMMARY 5

MAP

I. BACKGROUND 6A. Rationale 6B. Formulation 6C. Purpose and Outputs 7D. Cost, Financing, and Executing Arrangements 7E. Completion and Self-Evaluation 8F. Operations Evaluation 8

II. PLANNING AND IMPLEMENTATION PERFORMANCE 10A. Formulation and Design 10B. Achievement of Outputs 10C. Cost and Scheduling 11D. Procurement and Construction 11E. Organization and Management 12

III. ACHIEVEMENT OF PROJECT PURPOSE 13A. Operational Performance 13B. Performance of the Operating Entity 14C. Economic Reevaluation 16D. Sustainability 16

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 17A. Socioeconomic Impacts 17B. Environmental Impact 18C. Impact on Institutions and Policy 19

V. OVERALL ASSESSMENT 20A. Relevance 20B. Efficacy 20C. Efficiency 20D. Sustainability 20E. Institutional Development and Other Impacts 20F. Overall Project Rating 21G. Assessment of ADB and Borrower Performance 21

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 22A. Key Issues for the Future 22B. Lessons Identified 22C. Follow-Up Actions 23

APPENDIXES 24


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BASIC DATAFourth Road Improvement Project (Loan 1009-LAO[SF])Fifth Road Improvement Project (Loan 1108-LAO[SF])

PROJECT PREPARATION/INSTITUTION BUILDINGTA No. TA Project Name Type Person-

MonthsAmount

($)Approval

Date1019-LAO Northern Roads Improvement PPTA n.a. 350,000 19 Jul 19881255-LAO Bridge Management Project

1ADTA 12 300,000 21 Dec 1989

KEY PROJECT DATA ($ million)1009-LAO(SF) 1108-LAO(SF)

As perADB Loan

Documents Actual

As perADB Loan

Documents Actual($ million) ($ million) ($ million) ($ million)

Total Project Cost 42.8 48.6 37.7 37.1Foreign Currency Cost

239.0 44.7 34.0 36.0

ADB Loan Amount/Utilization 39.0 44.7 34.0 36.0ADB Loan Amount/Cancellation 0.0 0.0

KEY DATES1009-LAO(SF) 1108-LAO(SF)

Expected Actual Expected ActualFact-Finding 21 Jun-7 Jul 1989 13-27 Feb 1991Appraisal 23 Aug- 7 Sep 1989 9-19 Aug 1991Loan Negotiations 26 Oct 1989 26 Sep 1991Board Approval 21 Dec 1989 29 Oct 1991Loan Agreement 16 Feb 1990 13 Dec 1991Loan Effectiveness 16 May 1990 16 May 1990 13 Mar 1992 12 Mar 1992First Disbursement 11 Jun 1990 25 Sep 1992Project Completion Dec 1994 Jun 1996 Dec 1995 Jun 1997Loan Closing 31 Dec 1995 4 Jul 1997 30 Jun 1996 14 Jan 1998Months (effectiveness to completion) 61 79 51 69

KEY PERFORMANCE INDICATORS (%)1009-LAO(SF) 1108-LAO(SF)

Appraisal PCR PPAR Appraisal PCR PPAR

Economic Internal Rate of Return 11.7 13.3 17.9 12.0 12.0 15.6

BORROWER The Lao Peoples Democratic RepublicEXECUTING AGENCY Ministry of Communications, Transport, Post and Construction

MISSION DATA1009-LAO(SF) 1108-LAO(SF) Both Loans

Type of Mission No. ofMissions

Person-Days

No. ofMissions

Person-Days

No. ofMissions

Person-Days

Fact-Finding 1 17 1 15Appraisal 1 16 1 11Project Administration

Review 3 30 1 5 9 101Special Project Administration 2 10 1 8Project Completion 1 11

Operations Evaluation

3

1 20ADTA = advisory technical assistance; n.a. = not available; PCR = project completion report; PPAR = project performance auditreport; PPTA = project preparatory technical assistance; SF = Special Funds; TA = technical assistance.

1Accompanying TA of Loan 1009-LAO(SF).

2The foreign currency cost was covered by the ADB loan, because the value of the special drawing rights, the currencyof loan commitment, strengthened against the US dollar during the loan implementation period.

3 The mission comprised C. D. Heider, Senior Evaluation Specialist; and R. Valkovic, Staff Consultant.


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EXECUTIVE SUMMARY

The Asian Development Bank approved two loans in 1989 and 1991, respectively, tofinance the improvement of sections of the main trunk road from Vang Vieng, north of Vientiane,to Pak Mong via Louang Phrabang. The projects aimed to provide all-weather access to thenorthern provinces, reduce transport costs and facilitate more efficient movement of goods andpassengers, and support rural development by enhancing the mobility of rural communities. Theloans were to fund improving 346 kilometers of a 6-meter wide carriageway and replacing 41bridges. In addition, funds were provided for maintenance of existing roads. The estimated costat appraisal was $42.8 million and $37.7 million, respectively.

The two projects were implemented between 1990 and 1997, and completed with adelay of 18 months each. The actual cost amounted to $48.6 million and $37.1 million. The costoverrun under the first project was due to landslides that impeded progress in road constructionand required additional earthworks, and an additional bridge that was necessary after LouangPhrabang was declared a world heritage site. The cost overrun was covered by the appreciationof the US dollar against the special drawing rights and by reallocating some maintenance worksto later projects.

The projects were generally implemented as planned, delivering the main output,namely, the improved carriageway. The construction appears to be of relatively good quality,with road width being consistent and pavement layers (where visible) uniform and well-compacted. The sealed surface appears well-bonded and generally shows high-qualityworkmanship, although resealing in some areas may be required in the near future. Themajority of the road is smooth, although several sections are affected by landslides and roadslips and by major potholes. Allocations made for road maintenance were adequate to purchaseequipment and materials required to maintain the agreed-upon number of kilometers. However,the Operations Evaluation Mission could not verify whether these maintenance works wereundertaken on the agreed-upon road sections, or whether materials had been used to improve

other roads.

The projects improved the vital road link from Vientiane to the northern provinces. Theroad is the backbone of the countrys network and its improvement was essential for otherinvestments in the transport sector and the economy as a whole. This is shown not only in thetraffic counts, which grew by 150-230 percent for passengers and around 50 percent for goodsbetween completion and postevaluation. In addition, travel times have been reduced fromsometimes 2-3 days to 5-8 hours. Most importantly, the improvements made the road passablein all weather and reduced, if not eliminated, bandit activities that limited the use of the route.This has had beneficial impacts on the socioeconomic activities in the region. While at appraisalonly few cash crops were grown, now every one of the visited sample villages reported growingcash crops and selling them to traders or markets at district towns, in Louang Phrabang, or

Vientiane. The economic rates of return of the projects have been reestimated at 17.9 and 15.6percent, respectively, well above the 12 percent calculated at appraisal and completion. Theprojects are rated highly successful.

The technical assistance associated with one project was partly successful. It did notinstitute the bridge management system it was meant to develop and no traces can be found ofthe results that the consultants had reported at the end of their assignment.


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I. BACKGROUND

A. Rationale

1. The Fourth Road Improvement Project4 (ADB4) and the Fifth Road ImprovementProject5 (ADB5) fitted into a larger development strategy for the road sector financed by anumber of multilateral and bilateral funding agencies6 and supported investments in the roadinfluence area (RIA). The projects financed the improvement of the northern part of nationalroad 13 (N13), which is the backbone of the countrys road network, linking the northern andsouthern provinces of the Lao Peoples Democratic Republic (Lao PDR). The road sectionsassisted by the Projects are north of Vientiane and run from Vang Vieng to Louang Phrabang(ADB4) and from Louang Phrabang to Pak Mong (ADB5).7 The rationale for choosing theseroad sections for assistance was based on the Governments concern over the isolation of thenorthern parts of the country that were cut off from the rest of the country. In addition, the AsianDevelopment Bank (ADB) concluded positively on a number of criteria to justify the projects,including the economic development potential of and other investments in the area, the poorcondition of the existing road, and the need for developing the national road network. Therationale for maintenance work (included in the projects) on roads extending from Pak Monginto adjacent provinces was based on technical needs to preserve past investments in the, atthe time, only paved roads in the northern areas.

B. Formulation

2. The projects were formulated based on an ADB-financed feasibility study.8 Completed in1989, the feasibility study described existing conditions and road inventory to a sufficientdegree. The level of traffic counts and origin-destination surveys were suitable for the lowvolume of vehicles. Prediction of future traffic was acceptable, given the unknown factors due toongoing security problems and expected significant changes for traffic growth. The preliminarydesign following the existing alignment was in line with the Governments economic constraintsat the time and traffic volumes in the design period. The design width was based on a detailedcost comparison of different widths for different sections, as mountainous sections were very

cost sensitive to this criterion. A lower standard was proposed for the Louang Phrabang-PakMong section than for Vang Vieng-Louang Phrabang due to lower traffic volumes. The proposedbridge works were highly detailed and recommended solutions that would improve localconstruction practices. Drainage problems and deficiencies were addressed, but inadequateattention was paid to the potential slope instability problems, particularly through themountainous sections. While the feasibility study covered the whole length of the road betweenVang Vieng and Pak Mong, it was decided to process two separate loans in view of the totalcosts and implications on the absorptive capacity and debt burden of the borrower. The loanswere appraised in August 1989 and August 1991, respectively. The time required from fact-finding to approval was six and eight months, respectively.

4Loan 1009-LAO(SF) for $39.0 million, approved on 21 December 1989.

5Loan 1108-LAO(SF) for $34.0 million, approved on 29 October 1991.

6An overview of investments is given in ADB. 2001. Transport Sector Development: A Medium Term Strategy for theLao Peoples Democratic Republic. Manila.

7The N13 section from Vientiane to Vang Vieng was financed by ADB under Loan 866-LAO(SF): Third RoadImprovement Project, for $19.0 million, approved on 24 November 1987.

8` TA 1019-LAO: Northern Roads Improvement, for $350,000, approved on 19 July 1988.


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C. Purpose and Outputs

3. The projects aimed to (i) provide all-weather access to the northern provinces fromVientiane; (ii) reduce transport costs in the Project influence area and facilitate more efficientmovement of goods and passengers; (iii) support rural development by enhancing the mobilityof rural communities; (iv) strengthen domestic capabilities for designing, constructing, andmaintaining the countrys road network; and (v) enhance the Governments road maintenancecapacity in the northern provinces.910

4. The planned outputs of the projects were

(i) 346 kilometers (km) of a 6-meter (m)-wide carriageway (230 km under ADB4 and116 km under ADB5), with double bituminous surface treatment and a shoulderon each side with a single bituminous surface and 1 m wide for the Vieng Vang-Louang Phrabang section and 0.5 m wide for the Louang Phrabang-Pak Mongsection;

(ii) 41 bridges to replace existing temporary bridges (total length of 1,175 m), 6 mwide between curbs and with railing, made of either reinforced or prestressedconcrete deck girder type, depending on span length;

(iii) rehabilitation of the ferry at Nam Ou River north of Louang Phrabang;

(iv) a new bridge across the Nam Khan River at Louang Phrabang, 7 m widebetween curbs and with a 1.5 m sidewalk on each side;

(v) repair of 1,520 km (550 km under ADB4 and 970 km under ADB5) of existingroads in northern provinces by resealing the bitumen surface, reshapingshoulders, removing materials, preventing landslides, regraveling, and/orrepairing bridges as required. ADB5 also financed the maintenance of 140 km oflocal roads and 700 km of national and provincial roads in southern provinces;and

(vi) enhanced technical capacity of the Executing Agency (EA) in road maintenanceand bridge management, through the provision of maintenance equipment andstaff training.

D. Cost, Financing, and Executing Arrangements

5. At appraisal, the cost of ADB4 was estimated at $42.8 million. The ADB loan amountedto $39.0 million (91 percent of the total cost), with the remainder to be financed by theGovernment. For ADB5, the cost was estimated at $37.7 million, with the entire foreignexchange component of $34.0 million to be financed by ADB (90 percent of total cost). Theactual cost of the projects was $48.6 million and $37.1 million, with actual loan amounts of

$44.7 million and $36.0 million, respectively (Appendix 1). The cost overrun under ADB4 wascovered by the ADB loan because the special drawing rights (SDR) appreciated against the USdollar during the implementation period.

9LAO 22078:Appraisal of the Fourth Road Improvement Project in the Lao Peoples Democratic Republic, November1989. The same objective was stated in the appraisal report of the Fifth Road Improvement Project.

10Maintenance equipment, spare parts, and tools were also provided under ADB5 to the southern provinces of

Champassak and Saravane.


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6. The Ministry of Communications, Transport, Post and Construction (MCTPC) was theEA for the projects. The project management unit under MCTPCs project management officereported to the Vice Minister Communication Section. It managed the physical implementationof the projects, assisted by loan-financed consultants. MCTPC had executed the three previousloans to the sector (amounting to $39 million) and has been the EA for four additional loansworth $145 million since the approval of ADB4 and ADB5. In addition, MCTPC has received a

total of $13.2 million in TA grants. Appendix 2 lists ADBs loans and TA in the Lao PDRs roadsector.

E. Completion and Self-Evaluation

7. Implementation of ADB4 was completed in June 1996 and that of ADB5 in June 1997.One project completion report (PCR) was prepared for both ADB4 and ADB5 by theInfrastructure, Energy and Financial Sectors Department (West) and circulated to the Board inDecember 1998. It concluded that the projects had been implemented as planned, with onlyminor changes in scope. The completion of each project was delayed by 18 months due todelays in completing detailed engineering and subsequent delays in starting construction work,landslides requiring additional works, Government procedures for procurement and contracting,and long negotiations on commercial unit rates after switching from force account to directcontract (affecting the Vang Vieng-Kasi section of ADB4).11 The PCR also concluded that theprojects achieved an economic internal rate of return (EIRR) of 13.3 and 12.0 percent,respectively, slightly higher than the appraisal estimates; improved road maintenancecapacities; and had no adverse social or environmental impacts. The PCR rated the projectsgenerally successful.

8. The PCR recommended that (i) the Government set up an effective monitoring andmaintenance system for landslides or road slips (necessary, given the mountainous terrain); (ii)sufficient funds be allocated for road maintenance and the condition of the road bemonitored/maintained; (iii) future road improvement designs pay particular attention to the risk of

landslides and incorporate the information in road designs and construction plans; and (iv) theGovernment streamline its procurement procedures to ensure timely implementation of projects.

9. The PCR reflected adequately the implementation and results of the projects, althoughits assessment of the impact and sustainability of the institution building TA (para. 0) was toooptimistic. Also, the PCR underestimated maintenance costs, which resulted in overstating theEIRRs. On the other hand, the benefits from time savings were not taken into account in theeconomic analysis either.

F. Operations Evaluation

10. This project performance audit report (PPAR) assesses the projects relevance, efficacy,efficiency, sustainability, and institutional and other development impacts. The PPARrepresents the findings of the Operations Evaluation Mission (OEM) that visited the projects inOctober 2001. This PPAR is based on discussions with officials working for the EA and other

11The state-owned construction unit was corporatized during the project implementation period. Therefore, a change inprocurement method was necessary and resulted in the need to renegotiate rates.


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relevant offices, people living in seven villages situated along N13,12 ADB staff, staff of othermultilateral and bilateral agencies involved in the transport sector, analysis of documentation,and visits to sites. The OEM inspected the entire road length of ADB4 and ADB5, and visitedthe Louang Phrabang Road Maintenance Enterprise in Pak Mong. Findings were discussed atmeetings in Vientiane and in Manila, and the report was circulated for comments, which wereconsidered in preparing the PPAR.

12Due to time constraints, the OEM was not able to visit villages located within the RIA that were not along the road, asreaching those settlements would have taken several hours or even days.


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II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

11. The projects fitted into a larger development plan for the transport sector that has beensupported by a number of multilateral and bilateral funding agencies, with ADB as the largestfinancier. They focused on an important section of the main trunk road that links the northernpart of the country to Vientiane and southern provinces, thus establishing the backbone fromwhich the road network could develop and has been developed further. This main trunk roadforms an important link to neighboring countries, namely, Thailand and the Peoples Republic ofChina, and facilitates trade with them.

12. The appraisal reports of the projects used the findings of the feasibility study (para. 0),which was satisfactory. One weakness of the appraisal reports was that institutionaldevelopment goals were not well-specified and a full capacity-building plan was not set up.13The change in the appraisal report for ADB5 from the road maintenance component in

ADB4which listed specific roads that should be maintained from loan fundsto a generalsupport to the Governments maintenance program seems reasonable, as it provided greaterflexibility. However, there were no safeguards to ensure that allocations from the loan weremade in addition to the Governments budget for maintenance.

13. The detailed technical design largely complied with the recommendations of thefeasibility report, with the alignment following the existing road, making improvements on sub-standard radius curves and avoiding major realignments. For all these reasons, the projectswere relevant to the development strategies of the Government and of ADB at appraisal andtoday.

B. Achievement of Outputs

14. The main output, i.e., the 6 m wide carriageway of about 340 km, was upgraded asplanned. However, due to cost constraints, the shoulder width was reduced in the mountainousregions, i.e., for 63 km between Vang Vieng and Kasi, 23 km between Kasi and LouangPhrabang, and 5 km between Louang Phrabang and Pak Mong. One major realignmentinvolved the rerouting of the road through Louang Phrabang, including 6 km of bypass roads,and construction of a new bridge with steel superstructure across the Nam Khan to the east ofthe existing bridge, which also resulted in deleting 4 km of town roads and 3 km of villagestreets from ADB5. The bridge became necessary after Louang Phrabang had been declared aworld heritage site. Instead of the other 41 bridges foreseen at appraisal, 24 new bridges werebuilt and 3 rehabilitated. For technical and economic reasons, the rest were replaced with largebox culverts. The rehabilitation of the ferry was superseded because a new bridge built acrossthe Nam Ou made the ferry redundant.

15. The projects provided equipment and materials for road maintenance, which contributedto building the EAs capacities in this area. However, the OEM could not ascertain whether thematerials were used for maintaining the selected roads or for other roads and therefore cannot

13The Special Evaluation Study of Effectiveness and Impact of Bank Assistance to the Reform of Public ExpenditureManagement in Bhutan, India, Kiribati, And Lao Peoples Democratic Republic(SST:REG 99024) discusses capacity-building issues that are applicable to the design of the institutional development component of these projects.


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determine the exact length of roads maintained with loan funds. The results concerningmaintenance capacities are discussed in para. 0.

C. Cost and Scheduling

16. Both ADB4 and ADB5 were completed 18 months behind schedule. The delay inimplementation of ADB4 was due to (i) delay in completion of detailed engineering; (ii) massivelandslides on the project road; (iii) tedious Government procedures for bid approvals; and(iv) change in procurement method to direct contract let to a corporatized state-ownedconstruction unit. Meanwhile, the delay in ADB5 was mainly attributable to (i) difficulty inrecruiting labor in the remote project area; and (ii) additional work resulting from the constructionof the bridge over the Nam Khan River. The delays in completing the projects did not have anegative impact on the EIRRs.

17. The 14 percent cost overrun under ADB4 (para. 0 and Appendix 1) was mainly causedby additional earth works and repairs to completed sections of the road due to landslides, andbuilding the new bridge in Louang Phrabang. The additional cost was covered by the ADB loan,as the SDR had appreciated against the US dollar, and by assigning some of the maintenancework to a later project.14 There was a 2 percent cost underrun in ADB5.15

D. Procurement and Construction

18. Two contract packages for civil works were procured using international competitivebidding (ICB) procedures. The third contract was undertaken by force account and laterconverted to a commercial contract through direct negotiation with the corporatized state-ownedconstruction unit that had done the work under force account. The corporatization process wasundertaken with ADB assistance.16

19. The Vang Vieng-Kasi section of ADB4 was constructed under force account and laterunder the direct contract with the state-owned construction company. The force account systemsuffered from problems in management and procurement of material and spare parts, whichdelayed progress of works. The system was also inflexible. It took long to procure spare parts

whenever equipment broke down. The long time taken for converting to the commercial contractalso impeded overall progress.

20. Construction works for the Kasi-Louang Phrabang and Louang Phrabang-Pak Mongsections were contracted following ICB procedures. The procedures took longer than expectedas these were the first ICB contracts. One of the contractors experienced somedifficultiesADB4 being its first contract in the Lao PDRwhich were compounded by thedifficult terrain along the mountainous route of N13 that resulted in a larger-than-expectednumber of landslides during construction. These difficulties were overcome, even thoughcompletion of the construction works was delayed. The work of the contractors was assessedas satisfactory.

14Loan 1369-LAO(SF): Champassak Road Improvement Project, for $48.0 million, approved on 31 August 1995.

15The local currency component was significantly below the appraisal estimate while a 6 percent overrun in foreignexchange costs was met by the appreciation of the ADB loan.

16 TA 1897-LAO: Privatization and Management of Road Sector Institutions, for $950,000, approved on 1 June 1993.


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E. Organization and Management

21. The EA was fully committed to the projects. The director general of the Department ofRoads in MCTPC was an effective counterpart for ADB assistance, fully cognizant of all sectorissues, including external assistance and details of ADB4 and ADB5, making decisions asrequired.17 The EA was supported by a number of TAs that started before and continued afterthe projects (para. 6 and Appendix 2); the TA associated with ADB5 is discussed in para. 0. TheEAs compliance with ADBs loan covenants has been satisfactory.

22. Loan-financed consultants guided EA staff in preparing and implementing the projects,and satisfactorily performed their function. This assistance resulted in building the capacities ofEA staff for reviewing contract documents, evaluating bids, monitoring contract implementation,and project management. The EA continues to be supported by a number of internationalconsultants, but it aims to reduce dependence on them.

23. ADB conducted 16 review and special administration missions for a total of 154 person-days (on average 10 person-days per mission). These missions normally served to review otherloans that were implemented simultaneously by the same EA or were under processing. Thisappears to have been an effective use of ADB staff time and resources. Site visits wereconducted and problems were dealt with as they arose. Some shortcomings in financialmonitoring were noted only in 1996 (about six years after ADB4 started), which possibly couldhave been identified earlier. Immediate action was taken to rectify the situation by introducing afinancial monitoring system that keeps track of construction and maintenance expenditure(para. 0).

17The Project Monitoring Division set up in 1999 is equally well organized and familiar with all details of the sector andits development, consolidating progress reports prepared by managers of all ongoing projects.


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III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Traffic Carried

24. Traffic counts conducted for the evaluation show an average increase of 150-230percent in passengers and 50 percent in goods for the different road sections since completion.Clearly, external factors influence traffic volumes and it may be several years before cleargrowth patterns are evident. Growth along the Kasi-Xiang Ngeun section of ADB4 is heavilyconstrained by the mountainous terrain, restricting the use of heavy vehicles. In the long term,there is limited scope to significantly increase the road capacity while following the existingalignment. The Louang Phrabang-Pak Mong section saw a significant traffic volume increasebetween appraisal and completion, which likely represented the latent demand beforeupgrading; the high growth rate since completion may not continue into the future. In theeconomic reevaluation, an annual traffic growth rate of 6 percent has been assumed, except for

the Louang Phrabang-Pak Mong section where traffic is forecast to grow at 14 percent annuallyfor the next five years and at 6 percent thereafter. These are conservative assumptionscompared with the observed trends (para. 0 and Appendix 3).

25. The travel time from Vang Vieng to Louang Phrabang at appraisal was 2-3 days by a 4-wheel-drive or larger vehicle. This duration was longer during the wet season due to the poorsurface condition and slope instability. After project completion, the duration was reduced to 5-6hours for all smaller passenger vehicles, and 7-8 hours for buses and heavy vehicles,depending on the size of loads. Even when there are larger landslides during the wet season,these are now typically removed within half a day. At appraisal, much of ADB5 (LouangPhrabang-Pak Mong) was literally a track accessible only to larger vehicles, with even 4-wheel-drive vehicles having problems at times. Despite the relatively short length and easier terrain of

ADB5, this trip would take two days and longer in the wet season. After completion, the journeytime was reduced to two hours for all passenger vehicles and about three hours for trucks.

26. Based on a recent MCTPC study,18 the overload per axle of heavy vehicles along ADB4and ADB5 is some of the worst in the country. In fact, the difficult terrain of ADB4 contributes tothis factor by greatly reducing the ability to use multiaxle trucks to transport goods andeffectively allowing only two- or three-axle trucks. Hence, vehicle operators maximize theirloads, but have fewer axles to distribute the load, and so road damage factors are muchhigher.19 This increases maintenance costs and reduces the economic life of the road. Portableweigh scales have been procured and four weigh stations will be built under a more recent ADBproject,20 one of which will be located in Phoukhoun on ADB4. In addition, a World Bank-financed project (footnote 19 and para. 0) will install three-axle load weigh stations along ADB4

and ADB5.

18Final Report. Heavy Transport Management Program, 2000.

19The generally accepted formula for load to pavement damage is exponential to the power of 4.5.

20Loan 1533-LAO(SF):Xieng Khouang Road Improvement Project, for $46 million, approved on 9 September 1997.


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2. Technical Standards and Current Conditions

27. The road construction appears to be of a relatively good quality, with road width beingconsistent and pavement layers (where visible) uniform and well-compacted. The sealedsurface appears well-bonded and generally of high quality workmanship, although it is showingsigns of its age in some areas and needs to be resealed in the next few years to avoidexcessive deterioration. The worst section, 24 km near Phoukhoun, has already been resealed.The international roughness indicator for the road surface is estimated to vary between 3.5 and6, with most of the road being in the lower end of the range (i.e., less rough). The worsesections are in the mountains around Phoukhoun and between Louang Phrabang and PakMong.

3. Maintenance Program

28. At appraisal, the responsibility for maintenance lay with the maintenance units of the EA.Since 1995, these units have been commercialized and continue to exist as state-owned, butcommercially operated entities that have to compete with private enterprises. The responsibilityfor contracting and supervising routine and periodic maintenance has been delegated to theprovincial branches of the EA (DCTPCs), while the EA retains a planning, monitoring, andmanagement function vested in the Road Administration Division. Local contractors undertakemuch of the periodic maintenance (resealing) and emergency maintenance (removal oflandslides and repairs or road slips), while local contractors and local communities do routinemaintenance. Retired DCTPC staff organize to resolve emergency situations (such as fallenrocks) and villagers are hired to clear vegetation and other blockages from the drains within 12km of their village. The OEM observed that emergency and periodic maintenance wasimplemented satisfactorily. The level of routine maintenance varied considerably with somedrains heavily overgrown while others were well maintained. Routine maintenance (removal ofvegetation) is essential for road safetyit ensures good visibility and prevents other damages tothe road due to blocked drainage. The response to emergency situations seemed satisfactory.DCTPCs reported that managing and supervising arrangements for routine maintenancethrough communities were time-consuming and ineffective, and hiring local contractors waspreferred.

B. Performance of the Operating Entity

1. Sector Management

29. In the area of road construction, the EA is competent to critically review contracts,assess whether design standards are met, analyze costing submitted by contractors andconsultants, and request desirable modifications. Technical design capacities (drawings) arelimited as a matter of policy because these services are considered better contracted out.However, capacities should be developed to enable the EA to review and assess technicaldesigns rather than rely on consultants submitting the design drawings.

30. For supervision of contracts awarded through ICB, the EA recruits consultants. Localcapacities for supervision are improving and continue to be built as domestic consulting firmsparticipate in projects as inspectors, assistant engineers, and assistant resident engineers. Withsufficient time, local capacities will develop. The role of the EA in this area is to monitorprogress reported by supervision consultants, and to monitor the supervision consultants. Thisis a typical practice in the industry, particularly in developing countries.


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31. Local capacities for actually carrying out construction work have been improving over thepast years. At the time of the feasibility study and in the early phase of implementing theprojects, construction was carried out under force account. Subsequently, the state-ownedconstruction companies were commercialized. In addition, some private construction companieshave evolved. These are now capable to take on contracts for construction, and emergency andperiodic maintenance. In their function as subcontractors they are sometimes responsible for allworks for a short section of road construction. The companies tend to be medium size and can

compete only for relatively smaller contracts but sometimes they form joint ventures with foreigncompanies to work on larger contracts. However, the number of contracts available locally islimited, thus restricting the extent to which local contracting industries can develop. TheDCTPCs monitor the implementation of maintenance contracts, but face limitations in number ofpersonnel, vehicles, and possibly skills to effectively exercise the quality control function.

2. Financial Management

32. The appraisal report for ADB4 estimated that revenues from the road sector amountedto $10 million, which would have been sufficient to cover the estimated requirements formaintenance of $7 million. Allocations for maintenance have, however, fallen short becauseresources are largely allocated to the requisite counterpart funds for investments in constructionand rehabilitation. Road sector revenues are derived from sales and import duties and variouslicenses and fees.21 The World Bank estimated that in FY1997/98, revenue generated from thevehicle fleet, including tax on fuel consumption, amounted to 9 percent of total internalrevenues, or KN29 billion, of which only KN11 billion was allocated to the road sector. Of theKN7 billion allocated for road maintenance, KN3 billion was financed from the internal revenuesand met just 7 percent of the maintenance needs for national and local roads. Funds frominternationally-assisted projects financed the rest of the road maintenance allocation.

33. To redress this situation, a road maintenance fund will be established with theassistance of the World Bank and others, including ADB. The aim is to preserve road assets byincreasing the allocations for road maintenance, controlling through proper maintenance theextent to which road roughness indicators increase, and reducing the number of heavy vehiclesthat are overloaded. This World Bank project22 will be implemented in two phases starting in

October 2001, with expected completion in December 2009. At that time, it is expected thatinternal revenues will meet 90 percent of the road maintenance requirements. Such revenueswill be generated through fuel levy and heavy vehicle surcharge, raised in addition to currentroad sector revenues from import duties, excise and turnover taxes on vehicles and fuels. Themaintenance of the projects road will be covered by the road maintenance fund.

34. To ensure that expenditure for construction and maintenance contracts is monitored, theEA has in place a system of checks and balances and monthly reporting. This system was, inpart, developed with the assistance of ADB after reported shortcomings were noticed (para. 0).The system generates regular reports on implementation status, but the extent to which it iseffective in controlling expenditure and managing cash flow is not clear. At present, the SwedishInternational Development Agency is assisting in developing a consolidated accounting system

that will cover all expenditures related to road construction and maintenance. The accountingsystem will have to be linked to the contract monitoring system to ensure consistent use ofexpenditure data and minimize the workload in updating and reentering data.

21ADB. 2001. Transport Sector Development: A Medium-Term Strategy for the Lao Peoples Democratic Republic.Manila.

22 World Bank. 2001. Road Maintenance Project, Project Appraisal Document 21773-LA. Washington, D.C.


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C. Economic Reevaluation

35. The EIRR was reestimated, following a methodology similar to that used at appraisaland completion. However, there were several differences. A conversion factor of 0.92 wasapplied to the construction cost of the projects to arrive at the economic cost. Highermaintenance costs were used, based on actual expenditures during the first years of operationand on projections of the EA. The PCR significantly underestimated these costs. Benefits werereestimated by updating traffic count figures and adjusting vehicle operating costs to constant2001 prices. Finally, benefits derived from time savings were included, which had not beenconsidered at appraisal or completion. The reestimated EIRRs for ADB4 and ADB5 are 17.9and 15.6 percent, respectively, well above the estimates at appraisal and completion, whichwere around 12 percent. Appendix 3 provides details of the EIRR calculation.

D. Sustainability

36. The projects are sustainable in that N13 is the vital link to the northern provinces and thebackbone of the transportation network in that part of the country. The Government is thereforecommitted to sustaining the investments made in the road, even though the funding of roadmaintenance faces constraints (paras. 0-33). Technically, ADB4 and ADB5 are sustainablethroughout their economic life, barring catastrophic environmental events. The socioeconomicbenefits are also sustainable, unless external events induce an economic recession that resultsin a general downturn of economies in the region, similar to the Asian financial crisis of 1997. Itis expected that the current frequency of landslides will continue to drop as the geologicfeatures settle and vegetation growth on the slopes continues to increase, thus reducing theimmediate environmental impact.


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IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impacts

37. The projects made the road usable in all weather conditions. Depending on the section,the road used to be closed for 3-6 months per year during the wet season. Travel times havebeen reduced considerably; villagers interviewed reported that journeys of 40 km previouslytook a whole day or longer, but can now be made twice a day if needed, ensuring that, forinstance, health services can be accessed in times of need. The travel cost has becomeaffordable to most villagers, but the OEM could not establish trends in the actual costs for lackof baseline data.

38. Security used to be a major issue on N13 between Kasi and Louang Phrabang, requiringarmed forces to patrol the road and sometimes accompany convoys. Robberies occurredfrequently and discouraged the use of the route, thus isolating the northern provinces fromVientiane and the southern provinces. Since completion, security is no longer an issue, as travelspeed increased and more villages were built along the route. Interviews revealed that many

villagers had moved periodically to different locations before, but have stayed along the roadsince its improvement was completed. No resettlement issues were reported. However, the EAis increasingly concerned about the risk of encroachment on the road.

39. Tourism has increased along the route, with centers developing around Vang Vieng andLouang Phrabang, which was declared a world heritage site and thus attracts a lot of visitors.The increased convenience and security of road travel have contributed to a rise in the numberof tourists visiting Louang Phrabang.23 This increase has enhanced the local tourism industry(accommodation, restaurants, transportation, and Internet services) and handicrafts production.

40. In addition, the projects had a positive effect on economic activities in the RIA. Thefeasibility study observed that only few cash crops were grown in 1987. In 2001, all villages the

OEM visited reported a variety of income sources, including vegetables, papyrus-type grass thatlocal enterprises use for papermaking in the Louang Phrabang area and export to Thailand,24fishponds, and handicrafts. Women in one village produce traditional embroidery and travel toLouang Phrabang to send the final products to relatives in the United States. Prices for theseembroideries are far above those achieved locally and payments are made by mail to LouangPhrabang. Without improved transportation services, this income source would not beaccessible to the women of this village. Another source of income to the villagers derives fromtheir employment in routine maintenance activities, while employment in construction wasrelatively minor and short-term in nature.

41. In larger villages, local transport services that have been set up facilitate selling ofproduce in neighboring villages, whereas smaller villages depend on traders coming from

Louang Phrabang or Vientiane to purchase directly from the villagers. The OEM observedseveral places where roadside stalls for selling produce had been built and were used by

23The increase in tourism has been facilitated by promotional activities, such as the Visit Lao year, and by introducingsimplified visa formalities (available on arrival at the airport).

24The production chain links the villagers, who collect the raw materials, via the producers of the paper to the touristindustry where the paper is sold locally or exported as wrapping paper, notebooks, or lamp shades. Prior to improvingcommunication to Louang Phrabang, the raw material had no commercial value.


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villagers living further away from the road. Farmers at one such place reported that they hadwalked two hours to reach the road. The increase in the level of prosperity reported by villagerswas manifest in the standard of housing (in some villages, houses were atypical using rocks,which are more expensive than the usual building materials) and existence of televisionantennas and satellite dishes. A summary of the socioeconomic impacts is in Appendix 4.

B. Environmental Impact

1. Immediate Environmental Impact of the Road

42. Road sections that traverse mountainous terrain experienced landslides and road slips,and continue to do so. This was, in part, anticipated at appraisal, but the chosen road alignmentwas selected as the best possible least-cost option. Other choices would have caused lesslandslides during the economic life of ADB4, but they would have required more earthworksduring construction, resulting in a bigger environmental impact.

43. Effects of the earthworks and most landslides that occurred during construction can nolonger be traced, as the terrain is entirely overgrown with vegetation. Whether the course ofstreams had been affected at the time is not clear. Older villages are located in areas where

relatively little earthworks would have taken place, while newer villages were established afterthe earthworks were completed and thus were built on a changed terrain. The environmentalsensitivity analysis undertaken for provincial and national roads under a recent TA25 did notsuggest that ADB4 and ADB5 required environmental rehabilitation.

44. Landslides and road slips occurring at present are in areas where there are nosettlements and fields do not seem affected. When removing landslides, earth is tipped over theedge of the road, thus affecting vegetation in that area. However, areas where that waspreviously the practice are now overgrown, which suggests that the vegetation in currentlyaffected areas may recover in a similar way. Moreover, if soil from the landslides were to betrucked away, other deposit sites would have to be identified, which might increase the risk ofimpacting on cultivated areas.

45. The OEM observed a number of areas in which teak tree and bamboo plantations havebeen established. This biological approach is expected to arrest the risk of future landslides. Inaddition, these plantations provide an additional source of income to the villages concerned.

2. Environmental Monitoring and Management

46. The EA has an environmental monitoring unit, with social sector concerns, which isconducting some reviews similar to environmental assessments, but is not keepingenvironmental monitoring data. Instead, the Road Administration Division monitors theoccurrence of landslides and their clearance. The recent TA (footnote 25) indicates that thetechnical capacities of the environmental unit of MCTPC and those of DCTPCs require

strengthening and that incentives for working in these units need improvement. The MCTPCunit will be upgraded to a division with forthcoming ADB assistance for environmentalmanagement across several sectors that will support capacity building tailored to the needs ofthe EA.

25 TA 3070-LAO: Road Infrastructure for Rural Development, for $720,000, approved on 17 September 1998.


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3. Extended Environmental Risks

47. At the time of the OEM, there was no evidence of logging activities26 or logging vehiclesalong the road, although the latter could be due to the government ban on logging during thewet season. Recent classified traffic surveys (footnote 18) indicate that logging or timber trucksconstitute about 30 percent of heavy vehicles during the dry season, implying that loggingactivities do occur in the RIA. However, the volume of logs is relatively low and the steep longgrades of the Kasi-Xiang Ngeun section limit the access to large-scale logging areas.

48. The OEM observed the manifestations of slash-and-burn practices, but cannot assesswhether these have increased since implementation of the projects or would have resultedtherefrom. However, the reported increase in sedentary settlements (para. 0) suggests thatslash-and-burn practices may have decreased as a result of the projects. Likewise, the OEMcould not establish whether the exploitation of forest products had increased and threatens theenvironment. One forest product was reported to have gained in economic value (papyrus-typegrass, para. 0), but the OEM could not determine whether the quantities that were collectedwould have adverse environmental effects. The recent TA (footnote 25) concluded that risks ofincreased logging or exploitation of wild animals or plant products did not exist for roads inLouang Phrabang or Vientiane provinces.

C. Impact on Institutions and Policy

49. The projects aimed to strengthen domestic capabilities for designing, constructing, andmaintaining the countrys road network and to enhance the Governments road maintenancecapacity in the northern provinces. These institutional goals were pursued through loanallocations for supervision consultants (expected to train EA staff on the job), procurement ofequipment for road maintenance workshops in the northern provinces, and advisory TAs. TheEA received a total of 20 advisory TAs worth $10.0 million between 1984 and 2000, whichassisted in various aspects of capacity building. One of these TAs was directly linked to theprojects.27

50. The bridge management TA was not effective in building capacities or establishing

functioning systems. Several other external agencies assisted in the same area withoutproducing better results than the ADB TA. For instance, the final report of the recent TA(footnote 25) refers to data on bridges from a program prepared by the Road AdministrationDivision in 1997, but does not mention a functioning and reliable database. Appendix 5 providesmore details on the results of the bridge management TA.

26Logging in this case does not include the numerous teak plantations along the project road.

27 TA 1255-LAO: Bridge Management, for $300,000, approved on 21 December 1989.


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V. OVERALL ASSESSMENT

A. Relevance

51. At appraisal, investments in the road sector were a priority as expressed in thedevelopment plans and the national budget of the Government and the country operationalstrategy of ADB. Important factors that led to the choice of the projects included the need tocomplete the upgrading of the national trunk road that connects the northern and southern partsof the country, and provides cross-country connections to the Peoples Republic of China andThailand. This has created the basis for expanding the road network further. The sector remainsimportant: it continues to receive a large portion of the national budget, features as one of thepriorities in the Governments development plans, and is important as part of ADBs povertyreduction strategy through rural development. The projects are, therefore, rated highly relevant.

B. Efficacy

52. To a large extent, the projects produced the outputs as planned, with some minor

deviations. The degree to which road maintenance works were carried out could not be verified.Equipment and materials were procured and used to set up maintenance enterprises in thenorth and the south of the country (footnote 7) in locations from which the roads mentioned inthe appraisal report were maintained. However, the OEM cannot establish with absolutecertainty whether the specified road sections were maintained during implementation. The maincomponent, i.e., the 6 m wide carriageway about 340 km long, was implemented as foreseen.The projects are rated efficacious.

C. Efficiency

53. The projects used the existing alignment with minor deviations, which was the most cost-effective solution and suited the existing traffic volume at the time of appraisal. Traffic growth

projections indicate that N13 will be adequate to meet demand in the medium term. Only whenhigher traffic volumes are expected will a new and more costly alignment be necessary. TheEIRR is 17.9 percent for ADB4 and 15.6 percent for ADB5. The projects are rated highlyefficient.

D. Sustainability

54. The Government is committed to maintaining this vital link to the northern provinces andallocating the necessary funds. Given that there are no other parallel road links, theGovernment has no choice in the matter. Other development impacts are considered equallysustainable, barring major economic crises in the region. Current problems with landslides arenot expected to adversely affect the environmental sustainability in the long term. The projects

are, therefore, rated most likely sustainable.

E. Institutional Development and Other Impacts

55. The impact of the projects and the associated capacity-building TA (para. 0) oninstitutional development is less clear as the positive results observed in para. 0 can beattributed to other ADB TAs provided at the time. However, the projects generated other positivedevelopment impacts. They contributed to expanding the economic activities in the RIA,considerably reduced travel time, and made passage on the road safe and possible throughout


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the year. This ensures that the northern provinces are accessible and can be integrated into theeconomy of the rest of the country, which is particularly important in light of the fact that theprovinces north of Pak Mong are among the poorest in the country. In total, the projects madesubstantial contributions to socioeconomic development.

F. Overall Project Rating

56. Given the positive performance of the projects against most of the above criteria, theprojects are rated highly successful.

G. Assessment of ADB and Borrower Performance

57. The Borrower adequately managed project implementation, was responsive to advicefrom ADB regarding project management issues, and is fully committed to the projects and theirsustainability. The supervision exercised by ADB was equally satisfactory.


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VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

58. The road sector is an important part of the Governments development strategy asillustrated by high allocations from the public investment program. MCTPCs absorptive capacitymakes the ministry a sought-after counterpart for projects. This has resulted in majorinvestments in the sector, drawing on the Government budget to provide matching counterpartfunds. Investments in expanding the road network will continue, increasing demands on thenational budget for recurrent costs as well. This reduces the levels of funding available forinvestments in other sectors that are also essential to achieve the Governments povertyreduction goals. The Government faces the unenviable position of having to balance thesedifferent needs. This should be considered in identifying future assistance to the road and othersectors.

59. To address the recurrent funding issues for the road sector, and thus ensure thatadequate funds are allocated for road maintenance, a road maintenance fund will be set up

under a World Bank-funded project (footnote 19), also supported by ADB. The fund should help,provided it is implemented successfully.

60. The development of a local contracting industry capable of maintaining the roads facesseveral obstacles. The companies are relatively small (at most, medium-size) Given theirfinancial position and limited capacity to raise the necessary funds, they will find it difficult tocompete for large contracts. The import of equipment is subject to taxation, while internationalcontractors can import construction equipment tax-free, provided the equipment is re-exported.In addition, there are so few contracts for road maintenance that some companies have work foronly about six months a year.

B. Lessons Identified

61. Overall, the road sector in the Lao PDR is dynamic and ready to learn from pastexperience, whether from these projects or others. Some examples of technical issues thatwere addressed during implementation and taken into account in other projects follow.

62. From the performance of some culverts in the weak geology of mountainous terrain, itwas found that previous design practice had several flaws resulting in erosion problems. Aparticular problem was the culvert outlet, which was prone to erosion past the supportinggabion, resulting in failure and end collapse. Overall, the main areas of culvert design wereimproved for future road projects by including (i) a lean concrete base in poor soils, (ii) moregabions and channelization or stepping of outlet flow over grouted riprap, (iii) improved inletgeometry to ensure high flow capture rates, and (iv) wider side protection of outlets.

63. The problem of water flowing out onto the road from small uphill sources in times ofstorms rather than following the side drains was corrected by appropriate use of more culvertsor side protection along the road. The highly saturated poor soils were initially not directlyaddressed in design, but now the practice of subsoil drains for drainage in wet weak soils hasbeen introduced. For ADB4, it was an addition during the construction stage and subsequentlyas part of landslide repair.


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64. As cut slope failures were partially due to long continuous faces, the design practice wasamended to ensure that benching at about 10 m intervals was used for future projects.

C. Follow-Up Actions

65. The EA needs to ensure that the following actions are taken as soon as possible:

(i) Areas with major damages to the road surface are repaired to avoid furtherdeterioration. These repairs need to be implemented before the next rainyseason, when some of the road sections risk being washed out further. Roadworks under way during the site visit make the OEM confident that action is andwill be taken on a continuous basis.

(ii) Arrangements should be made to ensure that routine maintenance is undertakenalong the entire length of ADB4 and ADB5. This may require the EA to engagesmall contractors to cover areas beyond the reach of villages that otherwiseundertake routine maintenance activities.

(iii) The EA should expand the road markings, particularly in dangerous curves, toincrease road security. Some initiatives to set up road signs have been taken, buthave to continue to cover all road sections in need of markings.


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APPENDIXES

Number Title PageCited on

(page, para.)

1 Summary of Project Costs 18 7, 0

2 ADB Assistance to the Road Sector in Lao PDR 19 8, 6

3 Economic Analysis 20 7, 24

4 Achievement of Development Objectives 26 18, 0

5 Bridge Management Project 30 19, 0

SUPPLEMENTARY APPENDIX(available on request)

A Photographs


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Appendix 1

SUMMARY OF PROJECT COSTS($000 current prices)

Appraisal Estimate Actual Change (%)

Component FX LC Total

FX As% ofTotal FX LC Total

FX As% ofTotal FX LC Total

A. Loan 1009-LAO(SF)

1 Road Improvement 22,700 1,800 24,500 93 34,559 3,949 38,508 90 52 119 57

2 Periodic Maintenance 4,200 600 4,800 88 4,407 - 4,407 100 5 -100 -8

3 Consulting Services 3,250 370 3,620 90 4,743 - 4,743 100 46 -100 31

4 Service Charge 800 - 800 100 922 - 922 100 15 - 15

5 Prior TA Cost 100 - 100 100 54 - 54 100 -46 - -46

6 Unallocated 7,950 1,030 8,980 89 - - - - -100 -100 -100

Subtotal (A) 39,000 3,800 42,800 91 44,685 3,949 48,634 92 15 4 14

B. Loan 1108-LAO(SF)

1 Road Improvement 20,500 1,400 21,900 94 26,905 1,062 27,967 96 31 -24 28

2 Periodic Maintenance 6,000 1,000 7,000 86 5,696 - 5,696 100 -5 -100 -19

3 Consulting Services 1,500 300 1,800 83 2,752 - 2,752 100 83 -100 53

4 Service Charge 600 - 600 100 638 - 638 100 6 - 6

5 Unallocated 5,400 1,000 6,400 84 - - - - -100 -100 -100

Subtotal (B) 34,000 3,700 37,700 90 35,991 1,062 37,053 97 6 -71 -2

Total 73,000 7,500 80,500 91 80,676 5,011 85,687 94 11 -33 6

= not applicable; FX = foreign exchange; LC = local currency; SF = Special Funds; TA = technical assistance.

Sources: ADB appraisal reports and project completion report.


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Appendix 2

ADB ASSISTANCE TO THE ROAD SECTOR IN LAO PDR(as of 30 November 2001)

Amount

No. Title ($'000) Approval Source

A. Technical Assistance

1. Project Preparatory0295 Vientiane Plain Road Improvement 150 1979 TASF

0621 Second Road Improvement 250 1984 TASF

0873 Southern Roads Improvement 330 1987 TASF

1019 Northern Roads Improvement 350 1988 TASF

1639 Preparation of the Sixth Road Improvement 100 1992 TASF

1896 Seventh Road Improvement 500 1993 JSF

2242 Xieng Khouang Road Improvement 530 1994 JSF

2889 Rural Access Roads Improvement 600 1997 JSF

3756 Roads for Rural Development 400 2001 JSF

Subtotal 3,210

2. Advisory

0656 Vientiane Plain Road Improvement 490 1984 UNDP0796 Road Maintenance Study 285 1986 TASF

0797 Implementation of Second Road Improvement 1,200 1986 UNDP

0923 Road Maintenance Training 225 1987 TASF

0924 Implementation of Third Road Improvement 1,000 1987 UNDP

1255 Bridge Management 300 1989 TASF

0797 Implementation of Second Road Improvement (Supplementary) 250 1991 France

1494 Road Maintenance and Equipment Training 600 1991 TASF

1495 Prestressed Concrete Bridge Training 570 1991 TASF

1494 Road Maintenance and Equipment Training (Supplementary) 400 1993 TASF

1897 Privatization and Management of Road Sector Institutions 950 1993 TASF

2248 Upgrading of the School of Communication and Transport 300 1994 JSF

2388 Feeder Roads Maintenance Training 350 1995 JSF

2389 Management Information System in MCTPC 350 1995 JSF2862 Management Information System (Phase II) 700 1997 JSF

3070 Road Infrastructure for Rural Development 720 1998 JSF

3348 East-West Corridor Coordination 690 1999 JSF

3396 Assessing a Concession Agreement for the Lao PDRComponent of the Chiang Rai to Kunming Highway

150 2000 TASF

2862 Management Information System (Phase II) (Supplementary) 280 2000 TASF

3557 Strengthening Social and Environmental ManagementCapacity in the Department of Roads

200 2000 TASF

Subtotal 10,010

Total Technical Assistance 13,220

B. Loan

0643 Vientiane Plain Road Improvement 8,000 1983 ADF0788 Second Road Improvement 12,000 1986 ADF

0866 Third Road Improvement 19,000 1987 ADF

1009 Fourth Road Improvement 39,000 1989 ADF

1108 Fifth Road Improvement 34,000 1991 ADF

1234 Sixth Road Improvement 26,000 1993 ADF

1369 Champassak Road Improvement 48,000 1995 ADF

1533 Xieng Khouang Road Improvement 46,000 1997 ADF

1795 Rural Access Roads 25,000 2000 ADF

Total Lending 257,000

ADF = Asian Development Fund; JSF = Japan Special Fund; MCTPC = Ministry of Communications, Transport, Post andConstruction; TASF = Technical Assistance Special Fund; UNDP = United Nations Development Programme.


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Appendix 3, page 1

ECONOMIC ANALYSIS

A. General Assumptions

1. The economic analysis of the benefits and costs of the projects follows the sameapproach as that used at appraisal and completion, unless specified otherwise. The economiclife of the projects is assumed to be 20 years. The residual value of the road at the end of theeconomic life of the projects is assumed to be 25 percent.

2. Benefits are derived from vehicle operating cost (VOC) savings realized by existingtraffic and benefits from diverted and generated traffic. The costs included in the calculation arethe capital costs (projects economic cost) and the cost of routine, periodic, and emergencymaintenance. Savings are estimated by comparing costs and benefits that would arise withoutthe projects and those with the projects. The valuation is expressed in dollars in constant 2001prices.

3. Not included in the economic evaluation are nonquantifiable benefits that are describedin detail in Achievement of Other Development Impacts (Section IV) of the project performanceaudit report.

B. Traffic Growth

4. To ensure comparability, the traffic counts for the evaluation were made at the samecounting stations used for the project completion report. The counts were done for threeconsecutive days and adjusted to represent the typical annual average daily traffic. Passengertraffic increased by 150-230 percent and goods traffic by an average 50 percent over counts atproject completion (Table A3.1)

Table A3.1: Traffic Count(annual average daily traffic)

Passengers Goods

Road Section PC LDV LBus Bus Total MGV HGV VHGV Total

Vang Vieng-Kasi 18 95 13 23 149 28 11 0 39

Kasi-Louang Phrabang 38 133 27 25 223 59 24 0 83

Louang Phrabang-Nam Ou 122 717 64 81 984 170 49 2 221

Nam Ou-Pak Mong 37 95 24 11 167 33 22 0 55

PC = passenger car; LDV = light delivery vehicle (pickup, van, or 4WD); LBus = truck (MGV) used as bus, Bus =medium-size bus (30-35 passengers); MGV = medium goods vehicle (2 axles, 6-8 tons (t) load capacity); HGV =heavy goods vehicle (3 axles, 10-15 t load capacity); VHGV = very heavy goods vehicles (>3 axles, typically HGVwith trailer).

5. Traffic is assumed to grow at an average annual growth rate of 6 percent for all yearsafter 2001, except for the Louang Phrabang-Pak Mong section, where generated traffic isexpected to grow at 14 percent annually for the next five years (para. 7). Afterwards, a 6 percentgrowth rate is assumed.


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Appendix 3, page 2

1. Existing Traffic

6. Benefits to existing traffic are based on VOC savings to existing traffic, growing at 6percent annually. Traffic growth beyond this is considered under generated traffic.

2. Generated Traffic

7. The benefits from generated traffic are calculated as half of the VOC savings of actualincremental traffic that was observed between project completion and evaluation, i.e., trafficgenerated above the assumed growth rate of 6 percent for existing traffic. After 2001, generatedtraffic is assumed to grow at the same rate as existing traffic, except for the next five yearsalong the Louang Phrabang-Pak Mong section, where a higher rate of traffic growth is expected.This seems justified, given the larger-than-expected growth rates observed and the potentialdevelopment of the region. Incremental traffic resulted from improved security along the route,reduced travel time, increased affordability of transportation services, and growth in tourism.

3. Diverted Traffic

8. The benefits from diverted traffic used the assumptions made at appraisal and projectcompletion about attracting river traffic to the road. Figures in the project completion report wereconverted to constant 2001 prices and escalated by 3 percent per annum, reflecting the reducedfuture potential to realize savings from diverted river traffic.

C. Vehicle Operating Cost

9. The evaluation adopted the same approach taken in the project completion report andused VOC data generated for the Xieng Khouang Road Improvement Project,1 which hastopographic characteristics similar to those of the project road. The VOC is in constant 2001prices (Table A3.2).

Table A3.2: Vehicle Operating Cost($/km)

Passengers Goods

Road Section PC LDV LBus Bus MGV HGV VHGV

With Project

Vang Vieng-Louang Phrabang 0.391 0.517 0.760 0.875 0.760 0.782 0.806

Louang Phrabang-Pak Mong 0.398 0.527 0.775 0.892 0.774 0.797 0.822

Without Project

Vang Vieng-Louang Phrabang 0.899 1.488 1.500 1.269 1.500 1.570 1.611

Louang Phrabang-Pak Mong 0.918 1.162 1.530 1.295 1.530 1.602 1.643

PC = passenger car; LDV = light delivery vehicle (pickup, van, or 4WD); LBus = truck (MGV) used as bus,Bus = medium sized bus (30-35 passengers); MGV = Medium goods vehicle (2 axles, 6-8 tons (t) load capacity); HGV = heavygoods vehicle (3 axles, 10-15 t load capacity); VHGV = very heavy goods vehicles (>3 axles, typically HGV with trailer).

1Loan No. 1533-LAO(SF): Xieng Khouang Road Improvement Project, for $46.0 million, approved on 9 September1997.


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Appendix 3, page 3

D. Project Economic Costs

10. At completion the financial cost was taken as equal to the projects economic cost,because no tax was raised on the project inputs. No other adjustments were made. The

reevaluation adjusted the financial cost by applying a conversion factor of 0.92 to theconstruction cost of the projects. Table A3.3 summarizes the projects economic costs inconstant 2001 prices, as derived from the projects financial costs.

Table A3.3: Project Economic Costs($000 in constant 2001 prices)

Road Section 1990 1991 1992 1993 1994 1995 1996 1997 Total

Vang Vieng-Louang Phrabang 941 2,628 7,098 5,670 6,275 12,367 7,668 735 43,382

Louang Phrabang-Pak Mong 168 8,164 2,686 6,789 9,513 7,433 34,753

Total 941 2,628 7,266 13,834 8,961 19,156 17,181 8,168 78,135

E. Maintenance Costs

11. In reevaluating the economic internal rate of return (EIRR), actual maintenance costsbetween completion and evaluation were included in the cost stream.

12. Using data provided by the Executing Agency (EA), future maintenance costrequirements were projected based on the desired 2001 budgetary levels for the project road,and nearby national roads (gravel) for the without-projects scenario. Periodic maintenancerequires resealing, the cost of which the EA estimates at $14,000-$16,000 per kilometer for theroad financed by the projects. The cost is lower for unpaved roads, assumed for the without-

projects situation. The periodic maintenance cost was annualized over an eight-year period (thenormal interval for resealing) as the periodic maintenance cycle had already begun on the roadalong the Kasi-Louang Phrabang section (ADB4).

13. In addition to maintenance costs assumed at completion, emergency maintenance costwas added, as this is a significant annual cost to the projects road due to a relatively highnumber of slope failures each wet season. Emergency maintenance costs are expected todecline to 25 percent of current levels in five years as slopes begin to stabilize.

14. For the without-projects scenario, it was assumed that road rehabilitation would have tobe undertaken to keep it serviceable. The rehabilitation costs assumed in the feasibility studywere converted into constant prices (2001). It is assumed that such rehabilitation would be

necessary every 10 years, and thus have been added as a benefit to the capital cost stream inthe years 2001 and 2011.

15. Maintenance costs assumed at project completion and evaluation for scenarios with andwithout projects are compared in Table A3.4.


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Appendix 3, page 4

Table A3.4: Road Maintenance Costs($ per kilometer or bridge, in constant 2001 prices)

At Completion At Evaluation

Road Section Routine Periodic Routine Periodic

With Project

Flat terrain 157 856 385 16,200

Mountainous terrain 313 877 380 13,900

Bridges 31 136

Without Project

Flat terrain 329 828 257 9,500

Mountainous terrain 486 1,096 447 11,000

Bridges 115 338

16. The difference in maintenance costs is explained by the unusually low cost estimates forperiodic maintenance adopted in the project completion report, which did not include resealingnormally undertaken under periodic maintenance.

F. Economic Evaluation

17. Following the examples of the appraisal and project completion reports, the EIRR wasreestimated separately for the sections financed under each loan. A summary of the EIRRsestimated at appraisal, completion, and evaluation is in Table A3.5. The differences in the ratesof return can be explained by the increase in traffic growth that is higher than expected at

project completion, and benefits derived from time savings. However, these positive effects aredampened by higher road maintenance costs. This is particularly valid for the LouangPhrabang-Pak Mong stretch, where maintenance for the without-project road is estimated to bemuch lower than the maintenance cost with the Project. While based on the EAs standard unitcosts, it is a conservative assumption, because the costs of keeping the road open might behigher.

Table A3.5: Comparison of Economic Rates of Return(percent)

Road Component Appraisal Completion Evaluation

Vang Vieng-Louang Phrabang 11.7 13.3 17.9

Louang Phrabang-Pak Mong 12.0 12.0 15.6

18. The cost and benefit streams are shown in Tables A3.6 and A3.7.


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Appendix 3, page 5

Table A3.6: Economic Reevaluation of ADB4Loan 1009-LAO(SF): Fourth Road Improvement Project

(Vang Vieng-Louang Phrabang)

Costs Total Benefits from Traffic

Existing Diverted Generated Total Net

Year

Capital Mainte-nance

Passengers Goods Passengers Goods Passengers Goods Passengers Goods Total Benefits

1990 -941 -941

1991 -2,628 -2,628

1992 -7,052 -7,052

1993 -5,605 -5,605

1994 -6,171 -6,171

1995 -12,254 -12,254

1996 -7,639 367 3,513 0 21 1,590 872 1,958 4,385 6,343 -1,296

1997 -600 -870 395 3,585 0 23 2,007 1,046 2,402 4,653 7,055 5,584

1998 -900 423 3,657 0 24 2,423 1,552 2,846 5,234 8,080 7,180

1999 -867 450 3,729 0 25 2,840 2,633 3,290 6,387 9,678 8,811

2000 -1,717 478 3,801 0 27 3,256 5,024 3,734 8,852 12,586 10,869

2001 3,166 -1,661 498 4,694 0 29 4,253 78 4,751 4,801 9,552 11,057

2002 -391 528 4,976 0 30 4,508 82 5,036 5,089 10,125 9,734

2003 -361 559 5,275 0 32 4,779 87 5,338 5,394 10,732 10,371

2004 -331 593 5,591 0 34 5,066 92 5,659 5,718 11,376 11,045

2005 -301 628 5,927 0 36 5,370 98 5,998 6,061 12,059 11,758

2006 -271 666 6,282 0 38 5,692 104 6,358 6,424 12,782 12,511

2007 -271 706 6,659 0 41 6,033 110 6,739 6,810 13,549 13,278

2008 -271 748 7,059 0 43 6,395 117 7,144 7,218 14,362 14,091

2009 -271 793 7,482 0 46 6,779 124 7,572 7,652 15,224 14,953

2010 -271 841 7,931 0 48 7,186 131 8,027 8,111 16,137 15,866

2011 3,166 -271 891 8,407 0 51 7,617 139 8,508 8,597 17,106 20,000

2012 -271 945 8,912 0 54 8,074 147 9,019 9,113 18,132 17,861

2013 -271 1,002 9,446 0 57 8,558 156 9,560 9,660 19,220 18,9492014 -271 1,062 10,013 0 61 9,072 166 10,134 10,239 20,373 20,102

2015 -271 1,125 10,614 0 65 9,616 175 10,742 10,854 21,595 21,324

2016 10,723 -271 1,193 11,251 0 68 10,193 186 11,386 11,505 22,891 33,342

EIRR = 17.9%


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Appendix 3, page 6

Table A3.7: Economic Reevaluation of ADB5Loan 1108-LAO(SF): Fifth Road Improvement Project

Louang Phrabang-Pak Mong

Costs Total Benefits from Traffic

Existing Diverted Generated Total Net

Year

Capital Mainte-nance

Passengers Goods Passengers Goods Passengers Goods Passengers Goods Total Benefits

1992 -169 -169

1993 -8,138 -8,138

1994 -2,677 -2,677

1995 -6,770 -6,770

1996 -9,466 -9,466

1997 -7,388 41 374 8 205 1,765 431 1,813 1,009 2,823 -4,565

1998 -825 44 399 8 211 1,917 549 1,969 1,158 3,128 2,303

1999 -281 47 425 8 217 2,070 666 2,126 1,308 3,433 3,152

2000 -498 50 450 9 224 2,223 783 2,282 1,457 3,739 3,241

2001 667 -192 56 501 9 230 3,935 901 4,000 1,632 5,632 6,108

2002 -147 59 532 9 237 4,486 1,027 4,555 1,795 6,350 6,203

2003 -145 63 563 10 244 5,114 1,170 5,186 1,978 7,164 7,019

2004 -143 66 597 10 252 5,830 1,334 5,906 2,183 8,089 7,946

2005 -141 70 633 10 259 6,646 1,521 6,727 2,413 9,140 8,999

2006 -139 75 671 10 267 7,577 1,734 7,662 2,672 10,334 10,195

2007 -139 79 711 11 275 8,032 1,838 8,121 2,824 10,946 10,807

2008 -139 84 754 11 283 8,513 1,948 8,608 2,985 11,594 11,455

2009 -139 89 799 11 292 9,024 2,065 9,125 3,156 12,281 12,142

2010 -139 94 847 12 300 9,566 2,189 9,672 3,337 13,008 12,869

2011 667 -139 100 898 12 309 10,140 2,320 10,252 3,528 13,779 14,307

2012 -139 106 952 12 319 10,748 2,460 10,866 3,730 14,597 14,458

2013 -139 112 1,009 13 328 11,393 2,607 11,518 3,944 15,462 15,323

2014 -139 119 1,070 13 338 12,077 2,764 12,209 4,171 16,380 16,241

2015 -139 126 1,134 14 348 12,801 2,929 12,941 4,411 17,352 17,213

2016 -139 134 1,202 14 359 13,569 3,105 13,717 4,666 18,382 18,2442017 8,652 -139 142 1,274 14 369 14,383 3,292 14,539 4,935 19,474 27,987

EIRR = 15.6%


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Appendix 4, page 1

ACHIEVEMENT OF DEVELOPMENT OBJECTIVES

DevelopmentObjective Indicator Baseline Situation Evaluation Observation

DevelopmentGoal:Contribute tothedevelopmentof rural areasin the northernprovinces

Economic activity:- Agriculture:

composition andquantity ofproduction

- Forestryproducts:composition andquantity of useand preservation

- Mining: quantity

of extraction- Tourism: number

of tourists,number and typeof touristestablishments

- Trade: quantityand direction oftrade

- 29% of nationalrice production,while home to38% ofpopulation

- Cash crops playa marginal role.

- Animalhusbandry is animportant sourceof cash.

-Logging ismarginal in allnorthernprovinces, exceptin Sayaburi.

- Other forestproducts (spices,resins, andplants) are animportant sourceof income.

- Very limitedexploitation ofmineralresources

-Very limitedindustrialactivities; mostlygeared to thelocal market(e.g., rice mills,sawmills, smallworkshops)

Changes over Baseline Situation:- Villages still reported rice production

insufficient for 12 months a year. However,cash crops have become a significant part ofthe agriculture sector. All villagers reportedgrowing a variety of vegetables and fruits thatare sold on local markets, in Vientiane, andLouang Phrabang, and exported to thePeoples Republic of China.

- Animal husbandry is still an important part ofthe rural economy, although the composition

of livestock may have changed in somelocations.

- The Operations Evaluation Mission (OEM)could not ascertain the extent to whichlogging is taking place or has increased.There is evidence of slash-and-burnagriculture on the hillsides.

- Since harvesting forest products and huntingof animals is illegal, no such activities havebeen reported. However, a papyrus-type ofgrass is being collected and marketed tosmall-scale papermaking enterprises. Beforethe road existed and before the boom intourism, this raw material had no economicvalue.

-No major changes in mining industries wereobserved.

- Industrial activities in villages continue to belimited to small-scale mills (rice or saw) andshops. However, small-scale transportservices have developed in larger towns.

The evaluation was not able to verify the situationin the greater road influence area (RIA), wheregreater hardship may still be experienced.Other Development Initiatives:The OEM was not able to obtain data on otherdevelopment initiatives in the RIA implemented inthe past. Currently some 36 projects are beingimplemented in the two provinces in the RIA, 7 ofwhich are related to rural development.Risks/External Factors:The Asian financial crisis of 1997 affected the LaoPeoples Democratic Republic and may havereduced previous results, but villages appearbetter-off than before the two projects.Issues of Attribution and Isolation:Transportation plays an important role infacilitating other development initiatives, but not allof the observed changes can be attributed to theprojects.


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Appendix 4, page 2

DevelopmentObjective

Indicator Baseline Situation Evaluation Observation

Services andinfrastructure- Education

services: numberand location ofschools withteachers

- Medical services:number andlocation of healthfacilities withparamedical staffor midwives

-

Financialservices: locationand access toservice (actual)

- Electricity:connections andactual services

- Water supply:connections andactual services

- Limited financehampers tradetransactions.

- Irrigation systemwould beessential tosupportagriculturedevelopment.

Changes over Baseline Situation:- Agriculture seems to focus on dryland rice

rather than irrigated paddy fields, although thesituation may be different in the greater RIA.

- Financial services are available in some partsof the RIA, but not as effective as desirable.

- All villages reported having school facilities,but most of them existed before the projectswere implemented. Over the past years,many of the schools have been expanded tocover more classes. In all schools, at leastone teacher was present each, however,sometimes teaching as many as 76 pupils.

-

Health facilities do not exist in all villages, butare accessible in neighboring villages ordistrict towns.

- Electricity connections existed in a number ofvillages and the distribution network iscurrently being expanded. In villages withelectricity, the OEM observed that electricalappliances ranged from refrigerators totelevisions, including antennas and satellitedishes.

- All villages reported no problems with watersupply, but drew water mostly from naturalsources. Only one village reported that awell/pump was under consideration.

Other Development Initiatives:

The OEM was not able to obtain data on otherdevelopment initiatives in the RIA implemented inthe past. Currently some 36 projects are beingimplemented in the two provinces in the RIA, 3 ofwhich are related to the health sector, 3 toeducation, and 1 to water supply (not necessarilyin rural areas).Risks/External Factors:Providing services depends on allocations tothese sectors, which will depend on governmentpriorities. Furthermore, building facilities thatprovide services does not automatically result indesired impacts.Issues of Attribution and Isolation:Transportation plays an important role in

facilitating other development initiatives, but not allof the observed changes can be attributed to theprojects.


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Appendix 4, page 3



ImmediateObjectives:Increase theefficiency ofmovingpassengersand goods

- Economicinternal rate ofreturn (EIRR)

- Cost to customer(fare price forpassengers,tonnage price forgoods)

- No baselineEIRR

- Villagers recalledthat prices fortransportationwere possiblysimilar orsomewhat higherin dollar termsbefore theprojects wereimplemented/completed.

Changes over Baseline Situation:- See Economic Analysis (Appendix 3).- Prices may have gone down somewhat. In

addition (and possibly more importantly),transportation has become more affordable tovillagers as a result of higher householdincome levels.

Other Development Initiatives:No data/not applicableRisks/External Factors:The transport sector, largely private, hasdeveloped to provide needed services.Issues of Attribution and Isolation:

The cost of transportation is directly attributable tothe projects.

Increase themobility ofpeople andgoods

- Passengers/goodstransported (totalnumber/tonnage)

- Number and typeof transportavailable

- See EconomicAnalysis(Appendix 3)

- When road usewas feasible,only army trucksand other heavyvehicles traveledthe route. Someof these vehicleswould not stop at

the smallervillages.

Changes over Baseline Situation:- See Economic Analysis (Appendix 3).- Transport services available now include

passenger buses, including air-conditionedcoaches, with 7 buses per day betweenVientiane and Louang Phrabang. In addition,passenger cars and trucks use the road.

Other Development Initiatives:No data/not applicableRisks/External Factors:No data/not applicable

Issues of Attribution and Isolation:The improved road conditions made it possible tochange the type of vehicles; thus, this result isdirectly attributable to the projects.

ProjectOutcomes:Reduce thecost oftransportation

Vehicle operatingcost (VOC)

See EconomicAnalysis (Appendix 3)

Changes over Baseline Situation:See Economic Analysis (Appendix 3)Other Development Initiatives:No data/not applicableRisks/External Factors:VOC depends on the cost of transport-relatedexpenditures (cost of cars, fuel, etc.), theconsumption of which depends partly on the roadcondition, partly on other factors such as taxes.Issues of Attribution and Isolation:

Changes in VOC result directly from the projects.


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Appendix 4, page 4



Reduce traveltime

Time (hours) Villagers recalled thatjourneys as short as40 kilometers mighttake a whole day.Staff and consultantsof MCTPC associatedwith the projects earlyon reported that thestretch from PakMong to LouangPhrabang took 11hours (116kilome