Transport Infrastructure Project

$60,690,000Original Compact Project Amount
$60,084,297.52Total Disbursed

Estimated Benefits

Estimated benefits correspond to $60.1 million of project funds, where cost-benefit analysis was conducted.[[MCC did not produce a closeout ERR. The ERR reported here and the net benefits are documented in a re-scoped July 2009 document. MCC’s publicly available ERR analysis was conducted by an independent evaluator in lieu of a closeout ERR. Please see the “Evaluation Findings” section for details on the publicly available ERR. ]]

		Estimated Economic Rate of Return over 20 years	Estimated beneficiaries over 20 years	Estimated net benefits over 20 years
Transport Infrastructure Project [[At the time of compact signing, the project was comprised of two activities and eleven infrastructure sub-activities under the Infrastructure Activity. During implementation, this activity was restructured to only include two sub-activities—the Efate Ring Road and the Santo East Coast Road. This report assumes that, in accordance with practice followed at the time, the project ERR was estimated combining the Institutional Strengthening and Infrastructure Activities.]]	At the time of signing (March 2006)	24.7	65,227	N/A
	Updated (July 2009)	20.7	14,783	83,514,460

Project Summary

The Transport Infrastructure Project aimed to increase adequate and reliable transport infrastructure services as well as overcome the impact of poor transport infrastructure on formal economic activity and investment in the agriculture and tourism sectors—two primary sources of growth and employment in Vanuatu. The project sought to benefit poor, rural agricultural producers and providers of tourist-related goods and services by reducing transportation costs and improving the reliability of and access to transportation services. The project consisted of two principal activities: The Infrastructure Activity and the Institutional Strengthening Activity.

The Infrastructure Activity (original budget $54.47 million; total disbursed: $58.33 million) originally included civil works for the reconstruction of priority transport infrastructure on eight islands, covering roads, wharfs, airstrips, and warehouses. The eleven sub-projects included:

Efate island – Upgrade 90km of the Ring Road;
Santo island – Upgrade 70km of the East Coast Road from Luganville to Port Orly;
Santo island – Upgrade South Coast Road Bridges (5);
Malekula island – Reconstruct 11km of the Norsup Lakatoro Lits Lits Road;
Malekula island – Upgrade South West Bay Airstrip;
Pentecost island – Construct the Loltong Wharf and Upgrade of North-South Road to Wharf;
Tanna island – Reconstruct the Whitesands Road;
Epi island – Upgrade Lamen Bay Wharf;
Ambae island – Reconstruct Creek Crossings on 50km Road section;
Malo island – Upgrade 15km of Roads; and
Warehouses (for produce and freight storage) on five islands: (i) Ambae island (Lolowai), (ii) Epi island, (Lamen Bay) (iii) Pentecost island (Loltong), (iv) Malo island (Nunuka), and (v) Malekula island (South West Bay).

Following initial delays in program implementation, in early 2008 the bids received for the design and construction of all sub-projects came in at approximately three times the project budget. MCC, the GoV, and MCA-V recognized that rising construction costs, changes in currency exchange rates, and delays in mobilizing implementing entities and contractors limited MCA-V’s ability to implement the Infrastructure Activity within its allocated budget and timeline. MCC and the GoV considered several options for restructuring the program. Ultimately, the Infrastructure Activity was re-scoped to eliminate nine of the original 11 sub-projects and focus on the construction and sealing of two high priority national roads: the Efate Ring Road (92.5 km, comprised of five road segments: Klehhm’s Hill, Tanoliu, Takara, Pang Pang, and Rentabao) and portions of the Santo East Coast Road (57.2 km, comprised of four road segments: Rubbish Dump, Matevulu, Kole, and Hog Harbour). To further support this work, the GoV signed a funding agreement with New Zealand AID in June 2009 to provide NZD14 million (equivalent to US $9 million). The commitment and partnership resulted in both roads being constructed and sealed with an asphalt surface treatment five months ahead of the compact end date.

The compact was completed prior to MCC’s adoption of the IFC Performance Standards and the MCC Road Safety Policy, but nonetheless the MCC Environmental Guidelines (2006) required the completion of Environmental and Social Impact Assessments (ESIA), Environmental and Social Management Plans (ESMPs) and Resettlement Action Plans (RAP), and the implementation of these plans to protect the sensitive island environment and its people. The ESIA, ESMPs and RAPs were developed for the Efate Ring Road and the Santo East Coast Road and were implemented in a satisfactory manner. Public consultation and disclosures were completed as part of the ESIA and RAP process.

The Infrastructure Activity also included the introduction of community-based road maintenance and road safety improvements for both roads. The compact supported an evaluation of road safety needs to guide the development of road safety interventions, including engineering solutions, education, and enforcement. These interventions were subsequently implemented as a part of the infrastructure developed under the compact.

The Institutional Strengthening Activity (original budget: $6.22 million; total disbursed: $1.75 million) aimed to provide focused assistance to the Public Works Department (PWD), which was responsible for maintaining the country’s national road network, including the two MCC-funded roads, by removing key constraints that the institution faced in effectively delivering maintenance and repair services. The activity also aimed to provide support for the sustainability and viability of the PWD through organizational reform. The initial scope of this activity included:

Provision of plant and equipment to maintain road and airstrip infrastructure in order to facilitate enhanced sustainability and maintenance of infrastructure assets; and
Technical assistance for the development of annual PWD action plans for maintenance and repairs and annual audits of PWD performance.

The PWD additionally requested budget support to fund incremental costs incurred as a result of project administration during the compact period. MCC and MCA-V agreed to fund new positions or secondments (detailees) that were not established Vanuatu Government Public Service Commission positions. The new positions, within the Engineering Support Unit (ESU), were established in an attempt by MCA-V, MCC, and the Ministry of Infrastructure and Public Utilities to strengthen the capacity of the PWD.

As part of the compact, PWD was required to meet specific performance targets established in an annual action plan for effective delivery of road maintenance and repairs. Performance was measured through annual audits to gauge PWD performance against targets. The GoV’s policy interventions did not adequately address expectations of the PWD’s ability to maintain all roads, including the two new roads funded by the compact, despite the increase in funding and technical capacity over the compact term. Road maintenance was hampered by frequent government and ministerial changes, political interference, the lack of and retention of qualified engineers, the lack of road maintenance plants and equipment, and the perceived lack of funding. While these problems were more intrinsic to PWD, there were questions about the stability of the ESU to function within the PWD to utilize expertise gained. This was a lost opportunity which may have impacted the scope of PWD’s ability to carry out road maintenance.

Therefore, in 2008, funds earmarked for the Institutional Strengthening Activity were not utilized and were reallocated to the Infrastructure Activity due to (i) the GoV’s failure to meet certain performance targets under the PWD annual action plan, (ii) the revised scope of the Infrastructure Activity, and (iii) the PWD’s capacity to absorb technical assistance and capacity building efforts.

Despite the reduction in scope, the activity accomplishments as a result of the technical assistance provided to PWD included:

Recruitment and training of new ESU staff, consisting of an engineer, three site supervisors, two environmental and social impact officers, and an administrative officer;
Recruitment of a new manager for compact responsibilities;
Establishment of two road maintenance crews; and
Engagement of a road assessment and maintenance management consultant to:
- improve the inventory of roads;
- identify and develop systematic inspections, maintenance management plans, and budgets for road asset maintenance;
- promote strategic use of increased government funds for maintenance following construction; and
- advise on legislative reforms for road sustainability and safety.

By the end of the compact the Institutional Strengthening Activity also provided over $1 million in plant and maintenance equipment for the PWD, the introduction and training of nine community-based road maintenance crew members in procedures for maintaining and sealing roads and use of equipment, permanent hiring of seven trained ESU employees to further ensure sustainability of the compact investments, and hiring and training of 167 full-time workers to support future PWD manpower requirements. Road condition surveys, as part of the PWD action plan, were also conducted to establish baseline road conditions on the Efate Ring Road and portions of the Santo East Coast Road in order to measure against performance targets. In 2011, in support of the sustainability of the compact-funded roads, the GoV also increased their national road maintenance budget commitment from $5 million to $5.5 million.

Evaluation Findings

One performance evaluation was undertaken for the Transport Infrastructure Project. The evaluation used the Highway Development and Maintenance (HDM-4) model[[The Highway Development and Maintenance (HDM-4) and Road Economic Decision (RED) models are MCC’s standard tools to evaluate roads. Both models take into account vehicle operating cost savings and time savings as part of a decision-making tool for road investments]], and was completed in 2011.

The analysis examined whether the road upgrades for the Santo East Coast and Efate Ring Roads:

Reduced road roughness
Increased traffic volume
Decreased vehicle operating costs.

Data for the HDM-4 analysis was collected before road sealing in 2008 and after road sealing in 2010. Key findings from that analysis are presented below and additional details can be found in the Vanuatu Road Evaluation Brief.

Road Extension and Condition:

Prior to the intervention, the condition of the unpaved coral roads was very poor—with erosion gullies and deep depressions—equivalent to an international road roughness index of 15.
Following the double surface dressing, the road condition improved to a smoother surface with only minor depressions—equivalent to an international road roughness of 3.

Traffic Volume:

Traffic volumes increased between 5 percent and over 300 percent from 2008 to 2010 across various road segments after the roads were sealed.

Vehicle Operating Costs and Sustainability:

Three and four-axle trucks accrued 70 percent of the total vehicle operating cost savings.
The analysis reports an economic rate of return of 10.3 percent when considering the full package of road segments, though this was largely driven by higher economic rates of return for road segments with greater than 400 annual average daily traffic counts.

MCC noted the lessons that came from the Vanuatu Road Evaluation Brief, many of which build on the implementation lessons noted below:

Although not relevant for the Efate Ring Road given engineering requirements fora uniform design standard, segment-specific analysis is important when considering a road investment as it may not be cost-effective to upgrade every segment of the road.
It is critical to incorporate sensitivity analysis into ex-ante cost-benefit analysis to understand what level of risk MCC is taking in its assumptions about key parameters, such as traffic counts.
For future MCC road investments to produce the highest return for the largest number of beneficiaries, the investments should be identified through an analysis of the relevant road network that assesses key criteria, such as current traffic volume and road roughness.
Collect accurate baseline data to properly document traffic volume and road roughness.

The findings from this evaluation also contributed to MCC learning in the transport sector, as detailed in the “Lessons from MCC’s Investments in Roads” (2017) publication in MCC’s Principles into Practice series.

Key performance indicators and outputs at compact end date

Indicators	Baseline (2006)	Actual Achieved (2011)	End of Compact Target (2011)	Percent Complete[[MCC uses the following formula to calculate Percent Complete for all numerical indicators, (Actual – Baseline)/(Target-Baseline)*100]]
Kilometers of Efate Ring Road Completed	0	92.5	92.5	100%
Kilometers of Santo East Coast Road Completed	0	57.2	57.2	100%
Number of International Tourists per Annum	61,453	90,062	87,743	109%
International Roughness Index[[International Roughness Index (IRI): Roughness is a measure of the irregularity of the road surface. It affects the operation of a vehicle (safety, comfort and speed of travel) and costs of operation through vehicle wear, fuel consumption and the value of human and asset time spent in transit. This affects the economic evaluation of proposed road maintenance and upgrading expenditures.]]: Efate Ring Road	17.5	3.0	3.5	104%
International Roughness Index: Santo East Coast Road	22	3.0	3.5	103%
Average Annual Daily Traffic - Efate: Ring Road	85	305	98	1692%
Average Annual Daily Traffic - Santo: East Coast Road	307	381	355	154%
Number of Days Efate Ring Road is closed per year	9	0	0	100%
Kilometers of Efate Ring Road under cyclical maintenance community contracts issued by PWD	0	52.9	92.5	57%
Kilometers of Santo East Coast Road under cyclical maintenance community contracts issued by PWD	0	14.4	57.2	25%
PWD Efate Ring Road maintenance crew members (4) trained and certified in sealed road maintenance procedures and equipment	Not applicable	9-May-11	28-Apr-11	Completed
PWD Santo East Coast Road maintenance crews trained in sealed road maintenance procedures and equipment	Not applicable	28-Apr-11	29-Apr-11	Completed

Explanation of Results

By the compact end date, 52.9 kilometers of 92.5 kilometers of the Efate Ring Road (57 percent) and 14.4 kilometers of 57.2 kilometers of the Santo East Coast Road (25 percent) were maintained under cyclical maintenance community contracts. This was due to the GoV’s limited financial capacity to fund road maintenance. However, after the compact end date and under the leadership of the GoV, new community contracts were progressively executed as road sections were certified for takeover and crew members completed related road maintenance training. MCC received notice that as of January 1, 2012, all contracts for the Efate Ring Road and the Santo East Coast Road were signed by PWD and fully funded by the GoV.