37182 TIMOR-LESTE TRANSPORT SECTOR OUTLINE OF PRIORITIES AND PROPOSED SECTOR INVESTMENT PROGRAM EASTR Working Paper No. 5 Transport Sector Unit, Infrastructure Department East Asia and Pacific Region December 2005 TIMOR-LESTE TRANSPORT SECTOR OUTLINE OF PRIORITIES AND PROPOSED SECTOR INVESTMENT PROGRAM June, 2005 EASTR Working Paper No. 5 Transport Sector Unit, Infrastructure Department East Asia and Pacific Region June 2005 ii Timor-Leste Transport Sector Investment Program Abbreviations and Acronyms AADT Average annual daily traffic (annual traffic = AADT x 365) ADB Asian Development Bank CBM Community-based maintenance CEP Community Enhancement Program CFET Consolidated Fund for East Timor DCA Directorate of Civil Aviation (of MTCPW) DEM Directorate of Equipment and Materials (of DRBFC) DLT Directorate of Land Transport (of MTCPW) DRBFC Directorate of Roads, Bridges, and Flood Control (of MTCPW) DST Directorate of Sea Transport (of MTCPW) EIRP Emergency Infrastructure Rehabilitation Project EU European Union JEG Japan Engineering Group JICA Japan International Cooperation Agency km kilometer MEAD Ministry of Environment and Development (former, now Ministry of Development and Environment) MOJ Ministry of Justice MPF Ministry of Planning and Finance MTCPW Ministry of Transport, Communications, and Public Works NDP National Development Plan (Planning Commission 2002) PER Public Expenditure Review PWD Public Works Department (of MTCPW) RAMS Road Asset Management System RDTL Republica Democrátia de Timor-Leste SOLAS Safety of life at sea TA Technical assistance TFET Trust Fund for East Timor TLSS Timor-Leste Social Survey (conducted in 2001) TSMP Transport Sector Master Plan for East Timor (ADB) UN United Nations UNDP United Nations Development Program UNOPS United Nations Office of Project Services UNPKF United Nations Peace Keeping Force UNTAET United Nations Transitional Administration for Timor-Leste * Unless otherwise indicated, all monetary values are in US$ in current prices Timor-Leste Transport Sector Investment Program iii PREFACE The Government's proposed investment program was prepared under the direction and guidance of the Ministry of Transport, Communications, and Public Works, in close collaboration with the Ministry of Planning and Finance. The program is part of a larger exercise undertaken by the Government of Timor-Leste that includes investment programs for the following sectors: Basic service sectors · Education and training · Health care · Housing and other services Production-related sectors · Agriculture, forestry, and fisheries · Natural resources and environment · Private sector development Basic infrastructure sectors · Communications · Power · Transport · Water supply and sanitation Governance-related sectors · Public sector management · Local government and civil society · Rights, equality and justice · Security, peacebuilding and reconciliation · External relations Supporting expenditure data and analysis have been provided by the Ministry of Planning and Finance. Unless otherwise specified, these data are drawn from two sources. CFET budget appropriations data have been provided by the Budget Office of the Ministry of Planning and Finance for FY2001/02 onwards. CFET data for FY1999/00 and FY2000/01 are rough estimates based on aggregate data for CFET expenditures included in the National Development Plan. Information about external assistance to Timor-Leste comes from the Registry of External Assistance database of the Ministry of Planning and Finance. Data on external assistance are current as of December 31, 2004; they have been made available through the generous cooperation of Timor-Leste's development partners. They are supplemented with information provided by individual government agencies that have responsibilities for particular donor-funded projects and programs. The information about these programs includes assistance channeled by donors through international and local NGOs, as well as programs implemented directly by individual donors. Some data provided by donors are provisional and subject to change as work on individual projects and programs progresses. iv Timor-Leste Transport Sector Investment Program The data presented in this paper cover both capital and recurrent expenditures in an effort to present a complete picture of development spending in Timor-Leste. However, as the paper indicates, information on both categories is incomplete in a number of areas. This working paper was drafted on the basis of findings of a World Bank transport sector study in October 2003 and updated based on joint World Bank-Asian Development Bank in July 2004. This version of the paper incorporates the Government's data on donor programs current as of February 2005, and covers the consensus on which the Governments Sector Investment Plan for Transport, April 2005, was based. The paper reflects policies and programs for the transport sector as of February 2005. The original drafts were written by David Bray and Koji Tsunokawa (staff consultants) and William Paterson (Team Leader). Contents Abbreviations and acronyms........................................................................................ii Preface...........................................................................................................................iii Executive summary.....................................................................................................vii 1. The setting for the transport sector........................................................................1 Transport demand................................................................................................1 Transport infrastructure and services ..................................................................2 Sector responsibilities within the government ....................................................6 Legal and regulatory arrangements.....................................................................7 2. Objectives for the transport sector.........................................................................9 Land transport .....................................................................................................9 Maritime transport.............................................................................................10 Aviation.............................................................................................................11 Intermodal transport ..........................................................................................11 Progress toward key objectives.........................................................................11 3. Main issues and challenges....................................................................................13 Transport demand will require upgraded infrastructure in some locations.......13 Emphasis on infrastructure works will move from reactive to a preventive approach......................................................................................13 Road design standards and maintenance practices and vehicle load limits need to be oriented to minimizing life-cycle transport costs..............13 Sustainable arrangements are needed to manage the rural road network .........14 Addressing social impacts and involvement .....................................................14 Reducing the environmental impact of transport ..............................................14 DRBFC in particular will need additional resources and new skills.................15 The time required to initiate projects is likely to increase ................................15 Road investment needs in particular will remain high......................................15 Spending will need to rise to adequately maintain the current road system.....16 Corporate port and airport authorities should become financially self-sustaining in the medium term..............................................................17 Developing a sustainable private contracting industry, with good contract management, will minimize the cost of infrastructure .................................17 Light-handed regulation of the transport sector is appropriate .........................18 User charges are essential for a sustainable transport system...........................18 4. Medium-term development program...................................................................19 Policy framework for future public investment ................................................19 Road infrastructure............................................................................................20 Traffic and transport management ....................................................................22 Ports and shipping.............................................................................................23 vi Timor-Leste Transport Sector Investment Program Airports and aviation.........................................................................................24 Program priorities for the medium term............................................................25 5. Expenditure programs and sources of funding ...................................................26 Recent public expenditure in the transport sector .............................................26 Proposed investment and maintenance .............................................................28 Capital and recurrent spending in the transport sector......................................31 Sources of funding ............................................................................................32 6. Managing uncertainty............................................................................................34 Project preparation and approval by donors......................................................34 Domestic funding..............................................................................................34 Extraordinary events .........................................................................................34 References....................................................................................................................36 ANNEX 1: STANDARD TABLES ............................................................................36 ANNEX 2: THE ROAD NETWORK IN TIMOR-LESTE .....................................44 ANNEX 3: ACHIEVEMENT OF NATIONAL DEVELOPMENT PLAN INDICATORS ............................................................................................45 ANNEX 4: ASSESSED ROAD REHABILITATION AND MAINTENANCE NEEDS.....................................................................................52 ANNEX 5: THE CONSTRUCTION INDUSTRY AND EQUIPMENT MANAGEMENT IN TIMOR-LESTE.................................................................56 ANNEX 6: THE COST OF FUEL IN TIMOR-LESTE ..........................................60 Tables Table 1: Road Network in Timor-Leste, 2003 (estimated) ............................................2 Table 2: Proximity of village centers to roads (2001)....................................................4 Table 3: Transport sector responsibilities .......................................................................7 Table 4: Principal transport laws.....................................................................................8 Table 5: Priorities for proposed new program ..............................................................26 Table 6: Expenditures by donors, CFET, and autonomous agencies in the transport sector, FY1999/00 through FY2003/04.............................................................................27 Table 7: Expenditures in the transport sector by program category, FY1999/00 through FY2003/04 .............................................................................................................28 Table 8: Proposed expenditures on road transport, by program category.....................29 Table 9: Proposed expenditures on other transport programs, by program category...30 Table 10: Expenditures in the transport sector, by type................................................31 Table 11: Sources of funding for transport sector program..........................................32 Timor-Leste Transport Sector Investment Program vii EXECUTIVE SUMMARY The Government and community of Timor-Leste face substantial challenges in the transport sector. The international port and airport in Dili are operating satisfactorily, though the decline in demand that is expected to accompany the withdrawal of much of the international presence in mid-2004 will reduce demand at the facilities and hence their revenues. There is no domestic civil aviation, and formal domestic shipping services require a large annual subsidy. Timor-Leste has a substantial 6,000 km road network, though this is generally in poor condition. The country's terrain, geology, and weather conditions significantly add to the costs of providing and maintaining roads. With only 19,600 vehicles in the country, including 6,500 motorcycles and 3,000 United Nations vehicles, the tax base for recovering the cost of providing roads from the community is small. The Government has established much of the essential framework for the transport sector, including laws, institutions, and development plans. It has also identified a number of key issues that it will need to address in the future. · Emphasis on infrastructure works will move from a reactive to a preventive approach. · Road design standards and maintenance practices and vehicle load limits need to be oriented to minimizing life-cycle transport costs. · Sustainable community-based arrangements are needed for managing the rural road network. · There is a need to engage with the community to address social issues related to transport. · There is a need to reduce the environmental impact of transport. · Government staff need additional resources and new skills. · The need to undertake more careful feasibility studies and to determine financing sources is likely to lengthen the time required to initiate projects. · Road investment requirements in particular will remain high. · Spending will need to rise for adequate maintenance of the current road system. · Corporate port and airport authorities should become financially self-sustaining in the medium term. · Developing a sustainable private contracting industry, with good contract management, will minimize the cost to the Government of infrastructure. · Light-handed regulation of the transport sector is appropriate. · User charges are essential for a sustainable transport system. Roads The road system is degraded and entails a very high cost for the reactive work needed to keep it functioning. The Government therefore has set a five-year program and a ten-year vision for the road system to: viii Timor-Leste Transport Sector Investment Program · Bring the road network up to a sustainable condition where, with regular maintenance, life-cycle costs will be minimized, road closures will be reduced and manageable, and road access will be reliable. · Improve key roads to support a growing economy. · Ensure effective capacity to manage the road system, comprising asset management systems (including risk management), use of the private sector for cost-effective delivery, and reliable funding and adequate cost-recovery from users. Ports and airports The Government's vision for the maritime and aviation sub-sectors in FY2008/09 is to: · Establish the basis for financially sustainable provision of port and airport facilities from user charges. · Ensure adequate commercial domestic services, and supplement these services for disadvantaged groups. · Facilitate international trade and tourism. Transport development plan The Government has prepared a transport development plan to support these visions. The plan covers planning investigations, rehabilitation of existing infrastructure, and capacity building to support the continued development of the country's domestic capacity to undertake this work and to sustain its assets in the longer term. Discussions are underway with several donors to implement some of the projects included in the proposed program. The estimated cost of transport sector development and operation over the five-year period to FY2008/09 is almost $176 million. This excludes operations and minor investments in the port and airport in Dili, which are to be financed by user charges. This ambitious program is double that of the past five years. Ongoing donor programs and CFET would provide about $95 million of the funding needed. Additional CFET allocations of $23 million would be required as well as $56 million of new donor funding. The Government expects to be able to generate an additional $8 million by raising fuel taxes as the cost of imported fuel is reduced, and by introducing annual vehicle registration charges that will be enabled by a proposal in the investment program. Under the proposed program, annual expenditures in the transport sector would rise from about $12 million in FY2003/04 to about $47 million in FY2006/07 and then tail down to about $27 million by FY2008/09. Road construction and maintenance would account for a large share of the increase, rising to $34 million in FY2006/07. Successful implementation of the program depends not only on the availability of funding, but equally on aggressive action aimed at building implementation capacities within the sector. The program offers a major opportunity to develop Timor-Leste's domestic construction industry since it would involve more than $100 million of civil works and maintenance Timor-Leste Transport Sector Investment Program ix expenditures over the five-year period. Recent years have seengood progress in building the capacity of the local industry, which in turn offers significant job opportunities. The Government recognizes the contribution that the construction sector can make to the development of small and medium enterprises and to employment. The policies and programs that are needed to take advantage of these opportunities are discussed at greater length in the draft SIP report for Private Sector Development.1 1Available at Timor-Leste Transport Sector Investment Program 1 I. THE SETTING FOR THE TRANSPORT SECTOR Transport Demand Current transport demand in Timor-Leste is modest. About 19,600 vehicles were in use in 2002, comprising 14,300 publicly registered vehicles (6,500 motorcycles and 7,800 cars, vans, buses and trucks), about 2,300 unregistered vehicles, and 3,000 United Nations vehicles. Port records indicate that 740 vehicles were imported into Timor-Leste in the 12 months to the end of June 2003. Though some aged vehicles have probably been scrapped, the number of vehicles in use is not likely to have changed much in recent times. Vehicle ownership in Timor-Leste is low, with 25 vehicles per thousand people (excluding UN vehicles) in 2002. A 2001 household survey indicated that only three percent of people live in households that have a motorbike and fewer than one percent live in households that have a car or truck. The registered public transport fleet (excluding taxis) is about 650 vehicles, of which nearly 600 are minibuses. About 500 of the public transport vehicles are based in Dili and Baucau. Traffic counts in 2000 indicated that one-third of the road network outside urban centers carried more than 200 vehicles per day (with 15 percent carrying more than 500 vehicles per day and less than two percent carrying more than 1,000 vehicles per day). One-third of the network carried fewer than 50 vehicles per day. Recent indicative analysis suggests that the average daily traffic for motorized vehicles excluding motorcycles is about 160 on national roads, 90 on district roads, 30 on rural roads, and 170 on urban roads. The heaviest traffic flows (in excess of 400 vehicles per day) are on the northern coastal road (Dili-Batugade and Dili-Baucau) and sections of the road to the south (Dili-Aileu and Ermera). Some decline in road transport demand will occur with the completion of the initial phase of external assistance to Timor-Leste. With appropriate network improvements, the rate of traffic growth thereafter is expected to be 0.5-1.0 percent above economic growth (ADB 2002: 25). A little more than 300,000 tonnes of freight passed through Dili Port in 2001 (ADB 2002:61). Imports accounted for about 85 percent of this movement. In the 12 months to the end of June 2003, 22,000 containers (almost exclusively 20-foot containers) amounting to 310,000 tonnes of freight passed through the port. Ninety-five percent of incoming containers were exported empty. As noted by ADB (2002:61), movement through the port in recent years has been boosted by the presence of international personnel and materials imported to support the reconstruction effort. In the year ending June 2002, containers for the UN alone accounted for 11 percent of the container movement. Looking ahead, the Transport Master Plan for East Timor (TSMP) forecast that movement would decline by almost a half when the UN Peace- Keeping Force (UNPKF) and related assistance was completed, but would then rise by an average of almost 5 percent per year due to economic growth. The number of containers moving through the port is expected to recover to the level of the past year by about 2011. In the first six months of 2003, 39,990 people arrived or departed from Lobato Airport in Dili on a total of 1,830 flights. All were international passengers; domestic travel comprised only UN flights. Some 237 tonnes of air freight passed through the airport during the same period, 2 Timor-Leste Transport Sector Investment Program two-thirds of it as imports. The presence of the UNPKF and other external assistance has boosted this movement, especially airfreight, and a substantial drop in movement at the airport is expected as this presence declines. The TSMP forecast that over the longer term, passenger movement would rise at a rate five percent higher than growth in GDP. Transport Infrastructure and Services Land transport Timor-Leste's road network is extensive but in Table 1: Road Network in Timor-Leste, 2003 poor condition. Roads provide access to the rural (estimated) parts of the country, where the majority of the Region Length Density - km of road/ (km) poor live. They link rural communities to 1,000 km2 1,000 land area population markets, services, and participation in the wider Baucau 1,611 324 7.0 society. Urban roads sustain important Dili 1,475 596 5.5 commercial, industrial, and service activities in Same 1,204 422 9.7 towns. Maliana 1,432 429 8.3 Oecussi 314 385 6.7 Total 6,036 417 7.2 The road network is strongly influenced by its Source: MTCPW. spatial and physical environment. A main arterial road runs along the semi-arid northern coast, serving the economic activity around Dili and trade connections by sea and to the west. Connections with the southern economic zone cross a mountainous and midland area, which includes steep lands of unstable rock and poor soils that are highly susceptible to erosion and landslides. The southern coastal zone, which has higher population density, agricultural production, and energy reserves, has a moister climate and comprises alluvial formations and numerous rivers which aggrade and are prone to change course during the monsoon rain period. The road network is thus vulnerable to natural hazards of erosion and flooding, and access is frequently cut at high-risk locations during the wet season. The terrain and low standard of roads limit the support they can provide to the economy in the south and midlands, including coffee and other agriculture, and, soon, energy sources. Some further features of the road network are shown in Annex 2. The road network in Timor-Leste is estimated at 6,040 km in length.2 About 1,430 km links district centers, and forms the national network. A further 870 km of road, described as district roads, provide links to large administrative centers, with the remaining 3,020 being rural access or feeder roads. On the basis of pre-1997 information, about 2,600 km of the network is bitumen paved, 500 km is gravel, and almost 3,000 km is earth-formed. The national road network has about 317 bridges, with an average length of 34 meters; half of the bridges are less than 10 meters in length. While the road network is extensive, road standards are generally poor. Pavements are generally narrow (3.5 to 5.5 meters) and require vehicles to move off the pavement to pass other vehicles. Vertical and horizontal alignments are poor, limiting travel speeds and sight distance. Inadequate drainage exacerbates road damage. 2A road inventory database was prepared in 2001 as part of a Road Asset Management System (RAMS). Timor-Leste Transport Sector Investment Program 3 By the end of FY2003, a total of $36.2 million had been spent on roads in Timor-Leste through donor programs, and a further $6.1 million through CFET (Consolidated Fund for East Timor) appropriations (see Annex Table 1). Major projects have included $21.3 million provided through TFET (Trust Fund for East Timor) for the Emergency Infrastructure Rehabilitation Project (EIRP) to repair about 1,250 km of national road and 660 km of district road. That project included $0.74 million for community-based road maintenance, with 355 villages involved in maintenance of 1,445 km of road. The Japanese Government provided a grant of $4.7 million through UNDP for urgent repairs to the Dili-Alieu-Ainaro-Cassa road (136 km). The Japan Engineering Group (JEG) of UNPKF has also cleared landslides and undertaken other road repairs; this work, which is likely to have exceeded $3 million in value, is not included in the CFET, TFET, or bilateral aid programs (see Annex 5). About 1,000 km of rural road has been repaired or built through the Community Empowerment Project (CEP), which was implemented by the sub-district level of government. The CEP has ended, however, and there is no formal means at present for maintaining rural roads.3 Much of the expenditure on roads was needed to repair damage to roads caused by the unusually heavy wet season of 1999-2000. The density of the road network in Timor-Leste is relatively even (Table 1), and the average density is high by comparison with other low-income countries. For example the density of the total length of road of 420 km/'000 km2 of land area and 7.2 km/'000 people in Timor- Leste compares with an average of about 110 km/'000 km2 of land area and 1.4 km/'000 people in eight other low-income countries.4 Average GDP per capita for these countries was $272 in 1998, compared with $442 in 2002 in Timor-Leste. The density of roads with respect to population in Timor-Leste is almost the same as that for eight middle-income countries withGDP per capita some eight times higher. The extensive road network results in reasonably good penetration, with villages in Timor- Leste being an average of 0.7 km from a vehicle-passable road (Table 2). Poor people typically live in areas that are more distant from roads, especially paved roads. However, the extensive road network also imposes a considerable cost obligation on the Government for its upkeep; the cost is exacerbated by the cost of emergency repairs needed because of the country's geology and weather. Moreover, due to the low number of road users, there is limited opportunity for cost recovery. 3 Very recently responsibility for the maintenance of the entire road network including feeder roads was delegated to MTCPW. 4See Appendix A in World Bank, "Design and Appraisal of Rural Transport Infrastructure: Ensuring Basic Access for Rural Communities", World Bank Technical Paper No 496, Washington DC (undated work in progress for public discussion). 4 Timor-Leste Transport Sector Investment Program There is limited regulation of road use and transport services at present. Vehicles are registered only once (there is no annual vehicle registration fee), and there is no record of when theyare scrapped. Public transport services are also licensed only when first introduced, although vehicles should undergo a bi-annual safety inspection. Public transport services are provided by the private sector without explicit subsidy (though the absence of an annual registration fee and the low level of fuel excise--$0.06 per liter--represent an implicit subsidy of road transport in general). MTCPW has limited the number of licensed taxis to 1,000. The Ministry inspects public transport vehicles when they are first licensed, and requires drivers of public transport vehicles to be literate. The loaded mass of trucks is limited, though no scales are available to enable the regulation to be enforced. Table 2: Proximity Of Village Centers To Roads (2001) Distance (km) Expenditure on roads in recent years has Vehicle-passable Paved sought to maintain a basic level of road road accessibility, especially on national roads. By region It has therefore focused on basic Urban maintenance and emergency works. Dili/Baucau 0.1 0.1 Other urban 0.4 0.6 Sea transport Average 0.3 0.3 The port in Dili is the main, and only Rural international, port of entry to Timor-Leste. Center 0.8 5.3 The main port, which previously served a East 1.4 3.1 lesser role, is located near the center of the West 0.1 1.1 town. It now has a wharf length of 300 Average 0.8 3.8 meters and can concurrently accommodate National 0.7 3.1 two large vessels with a draft of up to 7 By income meters. Roll-on-roll-off facilities are also Urban available for front-loading vessels. Non-poor 0.2 0.3 Improvement works at the port have been Poor 0.5 0.6 undertaken by the UNPKF (wharf extension), with$5.7 million of bilateral Rural aid from the Government of Japan Non-poor 0.9 3.1 (fenders, channel access, navigation aids Poor 0.7 4.8 and upgrading of the container yards), and National the EIRP ($1.3 million) for completion of Non-poor 0.7 2.4 the wharf extension, slipway repair, and Poor 0.7 4.2 paving). The port currently achieves a Source: 2001 TLSS, reported in World Bank (2003). financial surplus on operating activities based on receipts from port fees and service charges. The main port in the center of Dili is complemented by a fuel terminal located towards the western end of Dili that is currently operated by Pertamina. The Government is seeking ownership of this terminal. Small wharfs or jetties are located at Hera, Tibar, Com, Caravela, Timor-Leste Transport Sector Investment Program 5 the enclave of Oecussi, and the island of Atauro--the latter two provide the only means of access to the localities from other parts of Timor-Leste. Development of a new international port to replace the current port in Dili would alleviate some of the problems associated with the location of the current port in the center of town. But the costs of developing a new port and suitable road links would be substantial, and are unlikely to be justified in the near future. The implications for the freight industry of moving the port to a less central location would also need to be examined. Probably the best site for a future cargo port would be at Tibar, a few km to the west of Dili. Regular direct shipping services are provided to Darwin (Australia), Kota Kinabalu (Malaysia), Singapore, and Surabaya (Indonesia). Other services also operate to Indonesian ports. A ferry service between Dili and Oecussi(twice weekly) and Dili and Atauro (once weekly) is provided by a private company under contract to the Government. The service, which uses a 300 passenger vessel that is able to accommodate about ten vehicles, is generally well patronized. The Government of Germany currently meets the cost of the subsidy for the service, which has been about $0.6 million per year, and is also funding the acquisition of a new vessel that is to be leased by the RDTL to a private operator. The subsidy needed for the service is expected to decline due to the use of a more efficient vessel and to an expected rise in coastal freight traffic. Legislation is in place to establish a Ports Authority of Timor-Leste (APORTIL), with its formation awaiting establishment of the Board of the Authority. The Directorate of Sea Transport is currently working with the Ministry of Planning and Finance and consultants to the latter on implementing a commercial accounting system. APORTIL will be responsible for shore protection in Dili, which is ancillary to its commercial activities. There is no explicit arrangement at present for compensating APORTIL for such community service obligations. Air transport Presidente Nicolau Lobato International Airport (previously named Comoro Airport) in Dili can accommodate B727 and similar category aircraft. The 1,850 meter runway (with a 30 meter wide pavement) was last repaved in 1988, and required emergency maintenance in 2000. Navigation aids, ground guidance systems, and the passenger terminal have been improved, though VHF radio facilities need upgrading. Each week, 15 return air services are provided between Darwin and Dili by Air North (of Australia), typically using 30-seat turbo- prop aircraft, and seven return services fly between Denpasar and Dili, provided by Merpati (of Indonesia), generally using B737/F100 jet aircraft with about 100 seats. The airport achieves a financial surplus on operating activities based on receipts from aeronautical and non-aeronautical fees and charges. Philips Petroleum has expressed interest in leasing part of the airport to support the Timor Sea natural gas and light oil development. No other airports in Timor Leste have regular public passenger services. Baucau airport (120 km from Dili) was previously used by Indonesian military, and has a runway that can accommodate B747 and similar category aircraft at reduced take-off weight. This airport is presently used only for UNMISET purposes. Other airfields include Suai (1,050 m sealed runway), Oecussi (a gravel runway), and airfields at five other locations. Though Baucau 6 Timor-Leste Transport Sector Investment Program Airport can accommodate larger aircraft than can Lobato International Airport in Dili, it is poorly placed to be the country's sole international airport: considerable investment in the airport and the road to Dili would be needed for it to play a significant role, and it would be costly to sustain international airports for regular public air services at both Baucau and Dili. Still, Baucau Airport is a substantial resource, and there may be opportunities to make more effective use of it for other aviation activities. Sector responsibilities within the government All transport management is now Figure 1: Government Transport Sector Organization located within the Minister for Transport, Ministry of Transport, Communications and Communications, and Public Works Public Works (Figure 1). Vice-Minister for Transport, The Directorate of Communications and Roads, Bridges, and Public Works Flood Control (DRBFC) is responsible for Secretary of State Secretary of State for Public Works for Water, Sanitation providing and managing and Power road infrastructure. The Director General Director General Directorate operates for Public Works for Transport and Communications through a central administration and five Director, Directors for Director, Chief, Planning Land Telecomm- regional offices (in Dili, Roads, Bridges and Design Transport unications, & Flood Control Post, Baucau, Same, Malian, Chief, Meteorology Director, and Oecussi). A Operations & Sea Information Directorate of Equipment Transport Technology Director, and Materials (DEM) Equipment and Director, manages equipment Materials Civil owned by the Aviation Director, Government, including Buildings that which has been transferred from the Japan Engineering Group. The Director-General for Transport and Communications is responsible for other transport matters. The Directorates of Sea Transport (DST) and Civil Aviation (DCA) are responsible for both providing and managing infrastructure and for regulatory activities in their respective sub-sectors. The Directorate for Land Transport (DLT) is a regulatory agency. Transport sector responsibilities are summarized in Table 3. Timor-Leste Transport Sector Investment Program 7 Table 3: Transport Sector Responsibilities Function Road Aviation Maritime Policy DLT DCA DST Infrastructure - Planning DRBFC DCA DST - Management DRBFC DCA DST - Operation DRBFC DCA DST - Delivery of works and DRBFC, private sector Private sector Private sector maintenance contractors, contractors, DCA staff contractors communitya Services - Delivery Private Private Government/private - Regulation & enforcement DLT, police DCA DST aThe Government involves communities in some routine maintenance of national and district roads. Currently, there is no formal arrangement for management of feeder and rural roads. While the Government has overall responsibility, communities participate in the construction and maintenance of some roads. Some roads have been developed through rural development projects. DRBFC has 12 staff with engineering qualifications, out of a total staff complement of 91. Some of these staff were employees of the roads authority under the former Indonesian administration, thus providing some continuity in technical knowledge and experience. There has been less staff continuity in the aviation and marine sub-sectors. The focus of MTCPW in the transport sector to date has been on sustaining road accessibility and ensuring effective port and airport services. This has resulted in, for example, a concentration on engineering staff in the road sub-sector, with less capacity in strategic planning and evaluation. DRBFC, DST, and DCA have gained from the presence of UN advisers. Projects financed through the TFET and bilateral programs have generally been implemented through separate project management units. While the general goal has been to implement projects using the private sector, DRBFC is currently using equipment provided by JEG to construct a bridge at Natabora, and has established a capacity for minor and emergency works through its regional offices. Legal And Regulatory Arrangements The Government has implemented five laws to establish the essential framework for the transport sector (Table 4). All were passed in 2003. Regulations are currently being prepared to support the implementation of the Basic Law for Vehicle Transport. 8 Timor-Leste Transport Sector Investment Program Table 4: Principal Transport Laws Law Name Function Law No. Basic Law for Civil Aviation Aircraft and flight safety and security; 1/2003 defining airspace; institutional arrangements; industry regulation and airport charges. Law No. Basic Law for Vehicle Vehicle registration; road charges; regulation 2/2003 Transport of passenger and freight transport services and passenger fares; planning and coordination of public infrastructure provision. Law No. To Establish a Ports Authority Establishment of a port authority with its own 3/2003 of Timor-Leste (APORTIL) Board and finance committee; relationship between the authority and the Government; tax-free status; cost recovery. Law No. Establishing Minimal Applies to vessels less than 500 tonnes used 4/2003 Conditions for Security and for international transport; empowers Management of Sea Transport Harbormaster to inspect vessels. Not Covered by SOLAS Convention of 1974 Law No. Road Code Road rules; traffic management; classification 6/2003 and use of roads; vehicle categorization; fines; vehicle emissions; accident reporting; driver licensing. Timor-Leste Transport Sector Investment Program 9 II. OBJECTIVES FOR THE TRANSPORT SECTOR As indicated in the National Development Plan (NDP), the Government recognizes that "Having effective systems ofphysical infrastructure and services is crucial for agricultural productivity and poverty reduction, a determinant of business investment, instrumental to human development, and the foundation for private sector development" (Planning Commission2002:263). The Government's supporting vision is "To plan for, provide, and manage physical infrastructure that is efficient, cost-effective, and financially sustainable, and which supports the social and economic development priorities of the people of Timor-Leste" (Planning Commission2002: 263). Effective development of the transport sector will support these objectives, by enhancing the sector's potential to be self-financing in the longer term; by underpinning regional development and thus supporting food securityand poverty alleviation and discouraging a population drift to Dili; by supporting social development through improved access to health and education services; by improving environmental outcomes; and by making effective use of the private sector. The National Development Plan outlines specific objectives for each transport sub-sector, as indicated below. Land Transport The Government's objectives for roads, bridges, and flood control are to: · identify the national, district, and rural road network essential for the support of economic and social development; · initiate policies with a legal and regulatory framework that improves quality of life, encourages private enterprise, and improves access and safety particularly in impoverished areas; · develop roads, bridges, and topologies of flood control that provide environmental protection and reverse existing ecological damage; · ensure development and regulation for the safe circulation of transport; · ensure that the transport infrastructure meets nationaldefense imperatives; · establish technical standards for a national road network; · preserve existing road assets as the first priority through sustainable maintenance and long-term management plans for support systems; · establish an institutional structure and develop the technical and administrative capacity of Timorese staff to manage, maintain, and improve the road network; · implement sustainable strategies for the maintenance of rural access roads; and · establish and implement erosion control measures to prevent damage to physical infrastructure and economically valuable property (Planning Commission2002: 271). The objectives for land transport management are to: · establish institutional capacity to support growing demand for land transport services; 10 Timor-Leste Transport Sector Investment Program · create sustainable regulatory processes for ensuring the safe use of vehicles, effective traffic control, and appropriate licensing and registration of all vehicles; · coordinate service requirements with those of road building, urban and rural road construction, and infrastructure systems that can achieve the national objectives of economic growth and poverty reduction; · resolve the problem of saturation of major road arteries through improved accessibility for outlying and remote population areas; · reduce import dependence on oil through increased use of public transport and improved energy efficiency of road vehicles; · pursue optimal models of regulation and technical knowledge from established and comparable land transport systems, incorporating these into Timor-Leste; · implement a national public safety program for driving and maintaining all road vehicles, through driver awareness campaigns and public information services; · formulate regulations with traffic and vehicular rules governing safe and legal vehicle operation, and enforcement capabilities with appropriate penalties; and · establish an effective policy for public transport fees and charges, and a retention fund for these revenues to enhance public transport (Planning Commission2002:288). Maritime Transport The efficiency of sea transport has a major impact on the performance of Timor-Leste's economy, with the potential to reduce the cost of imports and to facilitate exports. Sea transport also provides the only formal link to Oecussi and Atauro. The Government's objectives for maritime transport are to: · develop a code of commercial maritime law; · conclude ratification procedures on behalf of Timor-Leste of the United Nations Convention on the Law of the Sea; · establish a registry of shipping for Timor-Leste; · establish a modern system of port taxes and tariffs with effective enforcement capabilities that preclude contraband and corruption; · pursue enactment of the law on public maritime domain in conjunction with the MEAD and MOJ; · establish a public passenger sea transport service between Dili and Atauro, and between Dili and Oecussi; · create a plan and institute a policy for regulation of national coastal traffic; · achieve a national capacity for essential survey and inspection procedures, and thereon, for certifications regarding ship conditions, materials safety, and hazards; · train and develop East Timorese in special maritime studies abroad; Timor-Leste Transport Sector Investment Program 11 · improve port container and bulk handling while reducing congestion at Dili; · provide the facilities and services required to situate the Naval Defense Force at the Port of Hera in concert with the Government's priorities; · complete current projects and rehabilitation activities on schedule with Japanese bilateral and multilateral assistance; and · assess and subsequently implement an effective system of fire prevention and both port and maritime fire and damage control (Planning Commission2002:293). Aviation Civil aviation is essential for tourism, trade, support for multilateral and bilateral aid programs, and sustaining links between expatriate East Timorese and their mother country. The Government's objectives for its civil aviation authority are to: · attain a high standard of safe and efficient passenger service; · establish effective air cargo systems for international and national transport; · develop a reliable staff with the qualifications needed to ensure safe and effective airport operations, comparable to the best in the region; · establish reliable and secure systems needed for an efficient mail and postal expediting hub and internal national postal support services; · establish an appropriate financial system that allows the civil aviation administration to recover its full costs of operation; · provide the ground facilities required to support military, air and land priorities; and · support national development priorities and poverty reduction initiatives through indigenous staff recruitment, training, employment, and district services (Planning Commission2002:298). Intermodal Transport The NDP explicitly recognizes the need for management of intermodal linkages between sea and land transport at Dili. Intermodal linkages are also important for moving goods from farms to markets, and for people who need to use more than one public transport vehicle to travel between their origins and destinations. Progress Toward Key Objectives Considerable progress has been achieved in the transport sector in recent years. Dili Port and Lobato Airport, which previously served local roles, have been developed to fulfill national functions. Dili Port has been able to accommodate the substantial demands placed on it during reconstruction, and is achieving an operating profit. A coastal shipping service provides an essential link to Oecussi and Atauro, albeit with the need for a substantial subsidy. Lobato Airport is accommodating demand for international passenger and freight transport, and is achieving an operating profit. Emergency repairs and refurbishment have sustained the road 12 Timor-Leste Transport Sector Investment Program network, and basic road transport services are being provided. A legal framework for transport has been largely established. These accomplishments provide a sound base for future development of the transport sector and are initial actions that support the 2002 National Development Plan. The NDP specifies performance indicators for the objectives set for each transport sub-sector. Substantial progress has been made, though it is likely that some specific objectives may not be met on schedule (Annex 3). It is notable that data are being collected on only a few explicit performance indicators for the provision of roads, and that there are no explicit targets for cost recovery. Timor-Leste Transport Sector Investment Program 13 III. MAIN ISSUES AND CHALLENGES The Government still faces a number of challenges with respect to transport infrastructure. These relate mainly to financing and management of the transport sector, especially for roads. Transport demand will require upgraded infrastructure in some locations Transport demand is sufficiently modest at present that growth will not seriously challenge the capacity of current road, port, and airport infrastructure for some years to come. However, upgraded infrastructure will be warranted in some circumstances: (a) where it reduces risks and the total long-term cost of road provision; (b) where the incidence of accidents is high and remedial actions are required; (c) where traffic volumes are sufficiently high to warrant road widening and improved alignment; and (d) where upgraded roads are needed to complement development in other sectors, for example agricultural rehabilitation and expansion and international trade. Emphasis on infrastructure works will move from reactive to a preventive approach The vital need of the last few years has been to restore the operability of the transport system. In the case of roads, this has involved relieving critical bottlenecks, particularly damaged bridges, landslips, and other pavement failures. The cost of this reactive approach is high because the dilapidated state of the infrastructure makes it vulnerable to further failure. The challenge for the Government in the road sub-sector in coming years will be to undertake a targeted program of risk reduction and gradual rehabilitation of the network so that it can be sustained with normal routine and periodic maintenance and a manageable amount of emergency repairs. The targeted program would identify the areas most prone to natural hazards and reduce the risk of closures and expensive repairs, through the completion of missing or incomplete bridges and stabilization and protection of slopes and riverbanks. The rehabilitation program would restore and strengthen deteriorated pavements to an appropriate standard, using low-cost treatments where traffic volumes are too low to warrant expensive surfacing. This approach will minimize the life-cycle cost of providing roads. Enhanced transport planning and evaluation are needed to establish a prioritized program of road investment proposals that is integrated with economic development plans in other sectors and that maximizes economic and social returns. Road design standards and maintenance practices and vehicle load limits need to be oriented to minimizing life-cycle transport costs Higher standards of road construction reduce maintenance needs and allow the use of larger trucks, but excessive standards are costly. In the short run, as many pavements in the network have thin structures suited to light vehicles, the axle loading on some roads may need to be limited to avoid premature damage and destruction of the pavement, prior to its rehabilitation to the required strength. In the long run, a lower than usual limit on axle loads may not be warranted, given that it would produce only a small saving in construction costs. More detailed study will be needed to determine such restrictions as freight transport travel patterns develop. 14 Timor-Leste Transport Sector Investment Program Sustainable arrangements are needed to manage the rural road network Formal sustainable arrangements need to be established to maintain the extensive rural road network. Low incomes and high rates of underemployment provide the opportunity to use labor-intensive forms of construction and maintenance to reduce economic costs and enhance social equity.5 Moreover, the local communities who are the greatest beneficiaries of rural roads have strong incentives to maintain them in good condition, provided support can obtained for more difficult equipment-supported activities such as the maintenance of crossing, drainage, or slope retention structures. There is scope therefore for finding a suitable arrangement for sharing the responsibility and costs between Government and rural communities for managing rural roads.6 Addressing social impacts and involvement Roads and road traffic can have a substantial impact on communities. Gaining community consensus and support for developing and maintaining roads is essential for the efficient implementation of projects and maximization of project benefits. When infrastructure works require access to and extraction of construction materials, or involve the acquisition of land, the concerns of local communities need to be properly addressed before the works are undertaken, or they may lead to substantial disruption. The Government has undertaken some consultations with communities for specific projects. A more formal and sustained consultation process will need to be adopted to help develop the support and participation of local communities and also to take account of their needs in the design and implementation of the works. In many cases, jobs in road building and maintenance can generate income for local communities. Community support and contribution will also be essential for the sustainable maintenance of the extensive rural and feeder road network in Timor-Leste. The risk of transient transport operators and workers introducing adverse health impacts on local communities will also need to be addressed. Reducing the environmental impact of transport Transport is affected by the environmental circumstances in which it operates, and itself affects the environment.7 The Government recognizes the effect of factors such as deforestation on increasing the quantity and velocity of water runoff, which contributes to land slips and erosion of roads. The Government is addressing these matters through other policy initiatives. At present the emissions of greenhouse gases and other pollutants from road transport are modest given the small number of motor vehicles in use in Timor-Leste, and traffic volumes and congestion are too limited to produce emissions with a major impact on health. In future, the growth in the number of road vehicles that is expected to accompany economic growth will increase the volume of vehicle emissions, though rising income will 5The overall rate of workforce participation in Timor-Leste in 2001 was 60 percent. World Bank 2003: 42. 6The Sector Investment Program for Local Government and Civil Society includes provision for a Community Development fund that would channel donor and CFET resources to local communities, some of which could be allocated for road maintenance on a cost sharing basis. Available at 7 For a more complete discussion of environmental issues see the Sector Investment Program for Natural Resources and the Environment. Available at Timor-Leste Transport Sector Investment Program 15 allow people to purchase better vehicles and to maintain them better--which will slow the growth of emissions. The Government wishes to improve the quality of the vehicle registration system so that it can better enforce traffic regulations, including a requirement for regular inspection of vehicles. Environmental problems from marine and air transport are less serious, though the Government understands the need to carefully manage the risk of oil spillages in the harbor of Dili. DRBFC in particular will need additional resources and new skills DRBFC has focused to date on managing emergency repair work, and its staff have only limited skills in transport planning and project appraisal. These tasks will be essential for supporting the shift to identifying road projects to meet longer-term development needs and to optimizing road design and maintenance standards. Because all works and engineering services such as design and supervision are being contracted out to the private sector, DRBFC's primary role will be that of asset manager. The agency will need to adopt practical management systems to survey and analyze road requirements, in order to prepare annual and rolling programs of maintenance and rehabilitation. Its staff will need training in project management and contract administration. Similar analytical skills will be needed to support planning in the aviation and marine sub-sectors, management of road traffic, and policy development. The time required to initiate projects is likely to increase As the UN-sponsored program of assistance winds down, bilateral assistance is expected to play a growing role in the transport sector. The Government understands that the approval processes involved in such assistance can be considerable. The shift to addressing longer-term development needs will also involve a period of planning to identify prioritized projects suitable for donor financing. Assuming that the time needed for project preparation and approval is three years, a continuing investment program in road upgrading of $10 million a year, for example, would require investment projects of more than $30 million to be in the preparation and approval pipeline at any point in time. Given the limited number of projects in the pipeline at present, the Government proposes that some future support for road development and management will need to occur on a program basis, governed byclear spending principles. Road investment needs in particular will remain high Future reinvestment needs for Lobato Airport and Dili Port are expected to be modest, given the scale of the facilities, recent investment in the port, and the contraction in demand that is expected at the end of the initial phase of assistance to Timor-Leste. Road assets, on the other hand, are generally still prone to failure, notwithstanding explicit expenditure of more than $40 million and work undertaken by JEG in recent years for emergency repairs. The reason for this lies in the high burden of sustaining the current dilapidated infrastructure. For the core road network, indicative analysis suggests that over the next decade $90 million will be needed for rehabilitation, and $34 million for periodic maintenance, to bring the system up to a standard where it canbe sustained through regular maintenance and provided at the lowest possible life-cycle cost. For the non-core network, $38 million will be needed for periodic 16 Timor-Leste Transport Sector Investment Program maintenance over the same period. Annex 4 presents a more detailed assessment of future road spending needs, including an estimate of the minimum level of spending that is needed to avoid further deterioration of the road system (although this option will result in higher long-term maintenance costs). The Road Asset Management System needs to be updated to provide information that can be used to refine this estimate, and to provide the basis for evaluating and prioritizing specific projects. Underinvestment will result in higher maintenance costs, and in a higher long-term cost for providing roads. Spending will need to rise to adequately maintain the current road system Recently MCTPW, or more specifically, DRBFC has been assigned responsibility for the feeder road network. DRBFC was previously responsible for developing and maintaining the national, district, and rural road networks, which total about 3,020 km. National roads form the arterial network while district roads connect the district capitals with the national highways. Rural roads connect districts to sub-districts and major villages. Feeder roads provide the country's farming areas with primary access to markets and support institutions. A little more than 700 km of feeder roads has now been added to DRBFC's responsibility.8 Based on previous experience in Timor-Leste under the Emergency Infrastructure Rehabilitation Project I and in other countries, an annual allocation of about $650 per km has been estimated for the maintenance of the feeder roads and has been included in Annex Table 5 in the amount of $2 million starting in FY2005/06. Every year, particularly when the monsoon rains are severe or sustained over a long period, many parts of the infrastructure can fail. Commonly this occurs on roads in the form of landslides and land slips on the outer edge of the road. It is estimated that each year about 500 to 550 km of roads have failures that make them impassable. Seasonal weather patterns can also damage ports and airports, and their supporting infrastructure. To ensure that the negative effects of such events to people and the economy are minimized, it is essential that MTCPW have in place an emergency response system and an emergency fund that can be released quickly. Given past experience with these sections of road, such a fund for the transport sector would probably need an allocation of about $1.5 million. No such provision has been included in Annex Table 5, however. Appropriations from CFET for routine maintenance of the road network in Timor-Leste rose steadily to a peak of $3.1 million in FY2002/03, equivalent to an average of about $1,000/km. The allocations subsequently declined to about $1.2 million in FY2004/05. This level, equivalent to about $400/km, is well below what is needed for adequate maintenance of the national network. The proposed program calls for additional allocations from CFET that would lift annual maintenance spending to $5.2 million by FY2008/09, equivalent to about $1,700/km. The latter figure broadly matches the guidelines set out in Annex 4 below, after taking account of expected inflation. It does not include the cost of maintaining rural feeder roads. The proposed program includes additional CFET allocations for this purpose, rising to $2.15 million by FY2008/09. This would provide an average of about $700/km for rural roads 8The financial needs of the national core network, the district roads and rural roads were included in the earlier versions of the Transport SIP, but the category for the Feeder/Rural roads was significantly understated as only the 2,300 km rural road network requirements were included, not the additional 700 km of feeder roads. Timor-Leste Transport Sector Investment Program 17 at that time, which is in line with the foregoing estimates of the costs of maintaining this part of the network. The annual outlays on routine maintenance would total about $7.3 million per year by FY2008/09. With appropriate spending on rehabilitation of the core road network, the requirement for maintenance spending on the entire road network could be reduced somewhat. Securing village responsibility for maintenance of rural and feeder roads will be a means to gain greater benefit from limited funding. Corporate port and airport authorities should become financially self-sustaining in the medium term Implementation of the port authority (APORTIL) and, in due course, an airport authority with commercial accounting systems and appropriate user charges should enable these functions to become financially self-sustaining in the medium term, with the agencies able to finance investment from free cash flow. It is expected, though, that the current agencies will face difficulties in the short term due to the decline in demand, and therefore income, that will accompany the withdrawal of the UNPKF. Accordingly, external financial assistance will need to continue in the short term to support the necessaryinvestments in the port and airport. The port and airport authorities will also need external support to meet their community service obligations. Developing a sustainable private contracting industry, with good contract management, will minimize the cost of infrastructure Other than work undertaken by the UNPKF, private companies have been used to implement most infrastructure projects. This is in accordance with the strong priority the Government attaches to private sector contracting and outsourcing (Planning Commission 2002:272). A competent contracting industry has emerged, although it is still small and has limited resources (Annex 5). In the roads sub-sector, more than 90 companies are pre-qualified to undertake works, and six of them are considered able to take on contracts larger than$0.5 million. Ensuring a continuing, steady program of works will facilitate the further development of the industry, and will reduce the cost of projects by avoiding the high costs involved in winding down and mobilizing teams for sporadic works. The average cost of works can be reduced by encouraging technical innovation and equipment investment, active competition for work, and effective supervision of quality. The potential transfer of equipment from JEG and other donors to MTCPW and use of the equipment by DRBFC to implement projects extends the Government's role beyond the current focus on project identification and contracting. The Government has established the separate Directorate of Equipment and Materials (DEM) to manage the equipment. The Government recognizes the merit of DRBFC maintaining a focus on project management, and will investigate other options for making the equipment available to the private sector, which is likely to be better able to use it. Options could include making the DEM a commercial enterprise that hires equipment to Government agencies and the private sector on a full cost- recovery basis, or arranging for donors to sell equipment to the private sector in Timor-Leste and to provide the proceeds from the sale to the Government for use in infrastructure projects that require use of the equipment. Annex 5 outlines these options and the advantages and issues associated with them. 18 Timor-Leste Transport Sector Investment Program Light-handed regulation of the transport sector is appropriate Regulation in the transport sector will focus on essential areas of safety, security, and certainty. Implemented regulations need to be enforced consistently to ensure public acceptance. Regulations increase business and government costs. Accordingly, there is a need to ensure that proposed regulations provide a net benefit to the community. Consideration will be given to the preparation of "regulatory impact statements' for proposed regulations (as practiced by government administrations in other countries) to ensure that the costs and benefits of regulations are fully appreciated before a decision is made to implement them. User charges are essential for a sustainable transport system Appropriate user charges improve economic efficiency and social equity. This is especially so in road transport, where Timor-Leste's low fuel tax and the absence of registration fees encourage more travel than is optimal, especially by large vehicles, and subsidize parts of the community who are less needy than others. Moreover, raising revenue from other tax bases to cross-subsidize the provision of transport infrastructure may divert resources away from other services intended for the socially and economically disadvantaged. Consideration needs to be given to vehicle registration fees and fuel taxes that divide the cost of providing roads equitably among road users in relation to the damage they cause and the use they make of the road system. A balanced approach is needed, including assessment of the willingness and ability to pay of road users and of the implications of using other sources of revenue to finance roads. A rise in fuel prices of 10 percent will increase the cost of travel by public transport, for example, by about 3 percent. The retail price of fuel in Timor-Leste is not high by international standards. However, fuel taxes make up an unusually small proportion of the retail price. Consideration will be given to means for reducing the cost of imported fuel to a level comparable to that in countries similarly situated to Timor-Leste. Introducing an offsetting fuel tax could raise additional revenue for the Government of about $1.5 million per year (Annex 6). Introduction of a vehicle registration fee at an average rate of $100 per vehicle plus an administrative charge could generate net revenue to the Government of $1 million per year. Ideal registration charges would be related to the size of vehicles. Timor-Leste Transport Sector Investment Program 19 IV. MEDIUM-TERM DEVELOPMENT PROGRAM Policy Framework For Future Public Investment The Government will continue to focus on developing a transport system that meets the needs of the economy and ensures essential community linkages at the lowest possible cost. In the case of the road system, the Government currently faces the burden of managing a system that is degraded, and which entails a very high cost for reactive work needed to keep it functioning The Government therefore has adopted a ten-year vision for the road system to: · Bring the road network up to a sustainable condition where, with regular maintenance, life-cycle costs will be minimized, road closures will be reduced and manageable, and road access will be reliable; · Improve key roads to support a growing economy; and · Ensure effective capacity to manage the road system, comprising asset management systems (including risk management), use of the private sector for cost-effective delivery, and reliable funding and adequate cost-recovery from users. Works in the period to FY2008/09 will lay the essential basis for achieving this vision. Five specific principles will guide future Government spending on roads: · Priority will be given to maintaining current roads before extending the road network, with its associated maintenance obligations. · Priority will be given to maintaining the core road network, i.e. roads that serve major economic and administrative functions. · In-kind community contributions will be sought for maintenance of the non-core road network. · Investment will focus on projects that provide net economic benefits in terms of reduced road maintenance and vehicle operating costs, or that support agricultural and industrial developments that are worthwhile when account is taken of the cost of road investment. · Road users will be expected to make a greater contribution to the cost of providing roads. The Government's vision for the maritime and aviation sub-sectors in the period to FY2008/09 is to: · Establish the basis for financially sustainable provision of port and airport facilities from user charges; · Ensure adequate commercial domestic services, supplementing commercial services for disadvantaged groups; and · Facilitate international trade and tourism. 20 Timor-Leste Transport Sector Investment Program Investment in the maritime and aviation sub-sectors will generally be directed to projects that enhance the financial viability of the port and airport in Dili and the Government-sponsored Dili-Oecussi/Atauro ferry service, to help the commercial functions of these businesses become self-financing by the end of FY2006/07. The focus on maintaining the operability of the transport system in recent years has allowed little emphasis on planning longer-term maintenance and investment. As a result, there are few well-developed project proposals, and a consequent need for investigations to identify projects that meet the spending criteria described above and can be implemented in the period to FY2008/09. As indicated in the following sections, the medium-term program for the transport sector will involve: · Preparation of prioritized investment proposals that are based on appropriate design standards and meet the investment criteria described above. · Development of a road use charging policy, and increased cost-recovery from motorists. · Implementation of independent commercial port and airport agencies that will be able to finance their own investment needs by FY2006/07. · Building capacity and skills in policy and planning, regulation, pricing and financial management, contract management, and other specific technical skills. Road Infrastructure The development needs in road infrastructure center on three main elements: Strategy for road development and management An updated, comprehensive development strategy for the road system is urgently needed to provide the framework within which available funds can be spent to the best effect. The plan will identify capital expenditure needs for roads beyond those that are currently committed or under preparation. Outputs of the strategy will be: (a) optimal level of expenditure on road construction and road maintenance, taking account of road classification, the appropriate mix of road design standard, vehicle characteristics, road maintenance standard and risk mitigation, and budget constraints; (b) a detailed five-year and indicative ten-year road investment program; (c) a program to increase expenditure and management capability for sustainable road maintenance, addressing appropriate methods of delivery, labor-intensive approaches, risk management, and community involvement in maintenance of rural roads; (d) recommended road use charges, including vehicle registration fees and fuel taxes; and (e) basic information that will serve the Government's longer-term needs for road planning and management. Proposed road investments will also take account of planned investment in other sectors such as agriculture that will influence travel demand, and for which road access is instrumental to Timor-Leste Transport Sector Investment Program 21 success. Consideration will be given to the optimal use of community-based inputs for road maintenance. Road use charges will be directed to encouraging optimal choices in vehicles that are purchased for use in Timor-Leste and in the use of those vehicles, as well as to generating revenue to meet the cost of providing the road system. Basic information for longer-term road planning and management will include, for example, establishment of a road hierarchy, including determination of the core road network; updating and institutionalization of the RAMS and an associated traffic counting system; derivation of vehicle operating costs, value of travel time, costs associated with freight transport, and an accident analysis system. The cost of this work is estimated at $1.0 million. Capital and maintenance expenditure for road infrastructure The TSMP outlined an investment plan of $26.7 million of urgently needed works, with economic internal rates of return for the 11 individual projects of between 20 and 52 percent per year. However, circumstances have changed since 2001 when most of this work was undertaken, including implementation, to varying extents, of some of the proposed projects. Interim estimates of the needs for maintenance and rehabilitation on the whole road network over the next ten-year period have been developed using a bottom-up approach that takes account of the current condition of the network and the inputs of the recovery phase programs, as detailed in Annex 4. This approach is considered more reliable than generalized estimates based on assumptions about average maintenance conditions, and it also allows specific projects to be identified for potential donor assistance. For the national road network, inventory data on road and traffic characteristics were available from Phase 1 of the EIRP, and data on recent conditions were obtained from a JEG survey which assessed vulnerable and impassable sections.9 A broad program of treatments was developed, based on road conditions and traffic volumes, to bring the core network to a maintainable condition within ten years. Specific treatments to reinforce the roadway and bridges were programmed where chronic or potential closures were evident, with the intent of achieving a lasting reduction in risk. Currently planned inputs during Phase 2, including bridge replacements, were taken into account and their expenditures programmed as committed. For district, urban, and rural roads, the approach adopted is for average expenditures by category of works over substantial portions of the network. The resulting program--in a highly desirable scenario--comprises annual programs averaging $21 million per year over the first six years, with an average of approximately $3 million for routine maintenance, $7 million for periodic maintenance, $8 million for road rehabilitation, and $3 million for bridge and structure repairs (Annex 4). Priority will need to be given to rehabilitation in the earlier years of the program to protect roads that are at risk of rapid further deterioration. In years 7-10, rehabilitation needs will be somewhat lower, though periodic costs would be higher. Given the other road projects in the pipeline, it is expected that the road upgrading program would commence in FY2005/06, and that investment in that year and the next would enable 9Inventory data were available from the RAMS database in the PMU of MTCPW, and the JEG survey data of July 2003 were available from the DRBFC of MTCPW. 22 Timor-Leste Transport Sector Investment Program the Government to progress, by the end of FY2006/07, 25 percent of the way towards its objective of a sustainable road network in ten years' time. High priorities are likely to be the upgrading of the main road along the south coast of Timor-Leste and of heavily trafficked sections of road elsewhere. Capacity building and staff development Work in recent years has supported the development of basic engineering skills in the DRBFC. JICA is currently considering technical assistance for further development of MTCPW staff through the provision of an infrastructure policy advisor to the Minister and a road sector advisor to the DRBFC, and related training. There is a further need to develop DRBFC's skills in geotechnical engineering, bridge engineering, road safety and traffic engineering, and road project evaluation and preparation; this would be met through the provision of part-time technical assistance over a three-year period, at a cost of $0.6 million. Twinning arrangements with a suitable overseas roads organization would facilitate the development of DRBFC's institutional capacity, with a direct cost of about $0.15 million. Traffic And Transport Management Investment in traffic and transport management includes four main elements: Urban traffic management Investment in traffic management through improved signage, lane markings, and traffic islands will enable more efficient and safer use to be made of urban roads. Expenditure of $0.2 million per year is needed, following actual expenditure of $0.34 million in FY2003/04. This would require $0.4 million to be added to the declining allowance made in the current CFET budget, over the period to FY2008/09 (Annex Table 3). Land transport administration system Better management of land transport is needed to enhance the safety of vehicles, security of services, and Government revenue. Timor-Leste needs a computerized vehicle registration system that provides up-to-date information on the vehicle fleet in use. This is essential to allow annual vehicle registration fees to be imposed, and thereby provide increased Government revenue that will support environment and road safety objectives and transport regulations. The system needs to be implemented using enhanced information technology, and relying on the regional offices of the DRBFC for vehicle registration and inspection. Also needed is an accident reporting system and means for enforcing vehicle load limits. This work is expected to cost about $0.7 million. Work undertaken as part of the proposed road development and maintenance strategy will provide guidance on the appropriate level of registration fee for various classes of vehicle. Public transport development study There are only limited public transport services in Timor-Leste at present, especially in rural areas. A study is needed to develop a strategy to facilitate the provision of improved urban Timor-Leste Transport Sector Investment Program 23 and rural public transport services, identify needs and means for providing bus terminals, and to refine the regulation of public transport services and fares. The cost of this study is estimated at $0.25 million. Capacity building and staff development The Directorate of Land Transport requires technical assistance in policy analysis, to support optimal regulation and management of the transport sector, including appropriate road and public transport user charges. This assistance would also facilitate coordination of DLT and DRBFC activities. The cost of part-time assistance and supporting study tours is estimated at $0.75 million. Ports and shipping Investment in the maritime sub-sector includes two main components: Dili Port development and shore protection It is intended that APORTIL will become operational within the FY2003/04 financial year. In the period to FY2008/09, investment in ports in Timor-Leste will primarily be related to reinvestment in assets that have reached the end of their economic lives. Project proposals have not yet been prepared in detail, but the needs include: · Some of the current wharf infrastructure is more than 40 years old, and is dilapidated. An inspection is needed to identify investment requirements, followed by refurbishment works. · There is evidence that the channel at Dili Port has been silting up and that some parts have become undesirably shallow (as little as 3.6 meters). A hydrographic survey of the port has been completed, but work has not yet been undertaken to determine the optimal extent of dredging. An investigation of the need is required, followed by necessary works. · The sea wall that protects the entire shore of the bay on which Dili is located is subject to sometimes heavy waves. While not critical, an investigation of the quality of the current sea wall and future investment needs is required. The cost of an investigation of these needs is estimated at $150,000, with an allowance of $5 million for subsequent works. Ferry service and associated support A project is currently being investigated to replace the current ferry that serves Oecussi and Atauro with a new vessel; to upgrade and extend port facilities at Dili, Oecussi, and Atauro; to provide technical assistance and training; and--funding permitting--to construct a slipway for vessel maintenance at Hera Port that could be financed by the Government of Germany. The project is likely to cost about $9 million. In the meantime, the current ferry needs a continuing subsidy (at an annual rate of $0.45 million) until the new ferry becomes available in late 2005. There may be a need to subsidize the new ferry service, at least in the beginning 24 Timor-Leste Transport Sector Investment Program (at a rate of $0.1 million per year), while traffic demand builds up, giving a total cost of $1.3 million in the period to FY2006/07. New cargo port at Tibar Dili Port is located downtown and its operations have the potential to cause considerable environmental and traffic problems in the future. Additionally, as cargo traffic increases, capacity limitations will become a problem. Initial investigations made several years ago indicate that the favored location of a future cargo port would be at Tibar a few km to the west of Dili. Exactly how Tibar should be developed physically, financially, and economically requires a feasibility study. A sum of $500,000 has been included in Annex Table 5 for that purpose. Development of maritime services This proposed project has three components. The first would cover the purchase of much- needed tugboat services; the second would develop a ship repair and maintenance facility to provide a critically needed service to fishing boats and the country's naval defense force; and the third would develop port facilities for easier landing of vessels. The project would strongly emphasize the building of local capacity. It would effectively connect remote farming regions with each other and provide access to remote markets. Airports and Aviation It is intended that an airport authority will be established by the end of the 2004/05 financial year. Investment needs in the period to FY2008/09 have five components: Runway improvement Some deficiencies in the runway pavement at Lobato Airport are becoming apparent, and an investigation involving non-destructive pavement testing is needed to determine runway rehabilitation needs. The cost of protecting current sealed runways at other airports that have a potential future role (which will be established by the aviation strategy described below) will be minimized if the work is done while equipment is already mobilized for use at Lobato Airport. The cost of the structural investigation at Lobato Airport, and of a simpler assessment of engineering needs at other airfields and other airfield infrastructure, will be about $0.15 million. Finally, traffic using the road that crosses next to the eastern end of the runway at Lobato Airport presents a safety hazard. The cost of relocating that road is estimated at $0.1 million, giving a total investment in runway infrastructure of $7.74 million. Communications and navigational aids The current VHF radio at Lobato Airport is to a minimal standard and needs to be upgraded to enhance air safety. This estimated cost is about $0.15 million. Timor-Leste Transport Sector Investment Program 25 Accounting and management information system A financial manual and proposal for implementation of an accounting system for Lobato Airport has been completed. The system is essential for the successful operation of an airport authority; its implementation cost is estimated at $0.06 million. Establishing an airport authority and aviation strategy Work is required to prepare legislation, regulations, and other actions needed to establish an autonomous, commercial airport authority and a separate agency able to undertaken regulatory activities in the aviation sub-sector. A process to finance community service obligations of the airport authority will also need to be established. This work, which it is estimated to cost $0.20 million, will benefit from the experience with APORTIL, and will provide guidance for any necessary refinement of institutional arrangements in the maritime sub-sector. Capacity building Staff need to be trained in areas such as aviation and airport management, and the cost of a current proposal for this purpose is estimated at $0.15 million over the period FY2004/05 to FY2006/07. This training could be complemented by a twinning arrangement with another airport authority to further assist with development of institutional capacity, at a cost of about $0.15 million over a three-year period. Program Priorities For The Medium Term The responsible Government agencies have established a clear set of priorities for the proposed transport sector program(Table 5). The Government attaches particular importance to the continuation of the ferry subsidy and to the following programs: · The strategy for road development and management, because its outcome will guide most future capital and maintenance expenditure in the road sub-sector and the formulation of road user charges to be imposed on motorists; · Technical assistance for development of the capacity of DRBFC staff to assist with implementation of a sustainable road program; · Implementation of a vehicle registration system to allow the implementation of improved vehicle management and registration fees; and · Investigation of wharf, dredging, and shore protection needs for Dili port and for the runway at Lobato airport to define the ongoing investment needs. 26 Timor-Leste Transport Sector Investment Program Table 5: Priorities for proposed new program Priority Ranking Start Date Proposed Total Amount for program Total FY2004/05 FY2005/06 FY2006/07 FY2007/08 FY2008/09 A. High priority Programs DRBFC capacity building FY2004/05 750,000 750,000 Strategy for road development FY2004/05 1,000,000 1,000,000 DLT capacity building FY2004/05 500,000 500,000 Dili port investigation FY2004/05 150,000 150,000 Civil aviation capacity building FY2004/05 300,000 300,000 Runway improvement investigation FY2004/05 150,000 150,000 Total proposed amount 2,850,000 2,850,000 Disbursements 1,470,000 980,000 400,000 2,850,000 B. Programs for the medium-term FY2005/06 Tefhnical assistance for MTC&PW FY2005/06 1,500,000 1,500,000 Public transport development study FY2005/06 250,000 250,000 Raod improvement (Dili-Los Palos-Lautem) FY2005/06 10,000,000 10,000,000 Land transport administration system FY2005/06 700,000 700,000 Dili port and foreshore development FY2005/06 5,000,000 5,000,000 Tibar port feasibility FY2005/06 500,000 500,000 Establish airport authority FY2005/06 200,000 200,000 Communications and navaids FY2005/06 150,000 150,000 Accounting system FY2005/06 60,000 60,000 Runway improvement FY2005/06 7,740,000 7,740,000 Development of Marit ime Services in TL FY2006/07 7,000,000 7,000,000 Road improvement (Manatuto-Natabora) FY2006/07 7,500,000 7,500,000 Road improvement (Viqueque-Natabora) FY2006/07 6,500,000 6,500,000 Urban traffic management FY2006/07 450,000 450,000 Raod improvement (Los Palos-Viqueque) FY2007/08 10,000,000 10,000,000 Total proposed amount 26,100,000 21,450,000 10,000,000 57,550,000 Disbursements 12,890,000 17,200,000 14,760,000 9,200,000 54,050,000 C. Total Program Proposed amount 2,850,000 26,100,000 21,450,000 10,000,000 - 60,400,000 Total disbursements 1,470,000 13,870,000 17,600,000 14,760,000 9,200,000 56,900,000 The high-priority programs identified in Table 5 would require new approvals of donor support amounting to $2.8 million that would need to be agreed upon with donors for FY2004/05. New approvals for FY2005/06 would amount to $26 million. V. EXPENDITURE PROGRAMS AND SOURCES OF FUNDING Recent Public Expenditure In The Transport Sector Total donor and government spending on the transport sector amounted to $82 million over the five-year period ending FY2003/04 (Table 6). The very high levels of spending in FY2000/01 and FY2001/02 stemmed from the large programs of rehabilitation and repair that were funded by donors. Donor spending accounted for about three quarters of total outlays in this period. Timor-Leste Transport Sector Investment Program 27 Table 6: Expenditures by donors, CFET, and autonomous agencies in the transport sector, FY1999/00 through FY2003/04 With the main tasks of emergency rehabilitation completed, donor support for the transport sector has declined sharply, with disbursements fairly stable at about $5 million per year over the past two years. As a result, in FY2002/03 and FY 2003/04 total outlays in the transport sector were less half the level of the two previous years. About two-thirds of total spending has been allocated to road transport, primarily for reconstruction and rehabilitation in FY2000/01 and FY2001/02 (Table 7). As noted above, spending on roads in recent years has sought to maintain a basic level of accessibility, especially on national roads, by focusing on basic maintenance, rehabilitation, and emergency works. However, the fact is that the current levels of spending in the road transport sector are substantially below those required for even minimally adequate maintenance of assets and selective upgrading. A significant increase in allocations will be required to meet the goal of bringing the road network to a sustainable condition within ten years. 28 Timor-Leste Transport Sector Investment Program Table 7: Expenditures in the transport sector by program category FY1999/00 through FY2003/04 A particular concern of the Government throughout 2003 was the weak state of the project pipeline for the road sector. At that time, the only committed road project was the $9 million Phase II of the EIRP, which is to be completed by mid-2005. This program, which includes civil works of $6.7 million, addresses a backlog of road works, slip rehabilitation, and upgrading of the Cassa Bridge. The Government has stepped up discussions with donors about a range of new activities for the road sector. Currently under preparation is the upgrading of the Dili to Cassa Road (with upgrading of the Mola Bridge, rehabilitation of slips and resheeting of the current road) and the provision of technical assistance to the MTCPW by the Government of Japan. The European Union has undertaken to fund the upgrading of five bridges on the south coast road between Viqueque and Los Palos, at an indicative cost of about $6 million. Investment in marine infrastructure has amounted to about $11.5 million over the past five years. The resumption of the ferry service to Oecussi has been made possible with assistance from Germany to cover the cost of the operating subsidy (about $0.6 million a year) [p 22 suggested 0.45 million]. Donors (mainly Portugal) have also provided support of more than $2.4 million for airport operations. Proposed Investment and Maintenance Recurrent and capital expenditures in the transport sector are summarized in Table 8 and Table 9. The proposal is for total spending on the transport sector of about $175 million betweenFY2004/05 and FY2008/09. This includes proposed new CFET and donor-funded programs amounting to about $56 million. Timor-Leste Transport Sector Investment Program 29 Table 8: Proposed expenditures on road transport, by program category The proposed program for road transport amounts to almost $133 million, which accounts for 80 percent of the transport program as a whole and represents a significant increase over the $57 million spent in the past five years (Table 8). Outlays on new construction and rehabilitation amount to about $103 million as part of the proposed move towards establishing a stable, sustainable road network over the next ten years. Spending on road construction is expected to rise sharply in FY2004/05 as work begins on the above-mentioned Japan- and EU-funded programs and the currently planned CFET allocations for upgrading and rehabilitation. An important component of the new proposals is technical assistance for detailed planning studies that would help set clear priorities for construction, rehabilitation, and maintenance for the ensuing five years. The proposed road network study will refine the scale of the road investment and maintenance program, and define a program of specific projects. Given the proposed planning studies, there will be merit in donors taking a program approach to providing support for road investment and maintenance, with budget support provided for specific works that are identified in accordance with the studies. 30 Timor-Leste Transport Sector Investment Program Table 9: Proposed expenditures on other transport programs, by program category The Government is proposing a significant increase in spending on routine road maintenance. The CFET budget allocates $1.2 million for the maintenance of national roads, with appropriations rising to $2.7 million by FY2008/09. As noted above, this level of spending remains well below what is needed to ensure that the road system remains in good working order. Moreover, the budgeted amount does not make adequate provision for maintenance of rural and feeder roads. The SIP therefore includes an additional $16.2 million to meet these needs to bring total allocations for maintenance to about $26 million for the five years. These funds would be directed towards the national and district network as well as to priority interventions within the 3,000 kilometers of rural and farm access roads that currently receive minimal or no maintenance.10 As noted elsewhere, a key issue related to the rural and feeder road program is the clarification of responsibilities for the network and the role of local communities in maintaining these assets. The above allocations could be combined with resources available under the proposed Community Development Fund in a way that would provide local communities with a role in decision making at the local level on priorities for road maintenance. 10See the SIP for the Agriculture, Forestry, and Fisheries sector for a further discussion of the problems associated with determining a sustainable level of government support for rural infrastructure. Available at Timor-Leste Transport Sector Investment Program 31 The large increase in civil works spending can have a very important impact on job creation over the next five years while greatly improving transport services. A rough estimate of the impact on employment suggests that over the next five years the proposed program could add as many as 6,000-10,000 new jobs in construction. A key issue is Timor-Leste's institutional capacities for effective implementation of the much expanded roads program. As Annex Table 1 shows, at the peak of the rehabilitation program (in FY2000/01 and FY 2001/02), annual spending on roads was $18 million. The proposed program calls for an increase in estimated spending to $34 million in FY2007/08, followed by a decline to $27 million the following year (Table 8). The Government is very conscious of the need to build up the capacities of the relevant agencies responsible for the transport sector, and of the domestic construction industry, for this much larger program of construction. Spending of $30 million is proposed for aviation, ports, shipping services, and capacity building in the transport sector (Table 9). This compares with $24 million of expenditures over the past five years. Much of the increase stems from the new ferry that will begin operating soon, and from the substantial program of upgrading that is planned for the airport. The proposed program includes a number of capacity building initiatives in the amount of about $1 million for the MTCPW and the Civil Aviation Authority, the specifics of which were reviewed in Chapter 4. Capital And Recurrent Spending In The Transport Sector Over the past five years, capital outlays in the transport sector amounted to an estimated $62 million, three quarters of which was funded by donors (Table 10). The proposed program for the next five years calls for a doubling of capital spending to $130 million, withtwo thirds funded by donors. Recurrent spending, largely on road maintenance, would rise from $19 million during the past five years to about $43 million. CFET would continue to finance about 80 percent of these recurrent outlays. Table 10: Expenditures in the transport sector, by type 32 Timor-Leste Transport Sector Investment Program There is a strong case for such increased emphasis on better transport infrastructure. The main issue, as noted above, is whether the Government agencies concerned and the domestic construction industry have the capacity to handle a doubling of the work load in the sector in a short period of time, while ensuring the effective use of funds. Increased use of foreign contractors is likely to be necessary, and close attention will need to be given to the use of labor-intensive construction methods to ensure that the potential employment benefits are realized. In this connection, the $5 million skills training project (STAGE) funded by the European Union and executed by the International Labor Organization has a major role to play in supporting the development of relevant domestic skills. Complementary programs, for example for equipment leasing, may also be needed to ensure that Timor-Leste's construction industry can respond to the new opportunities. Sources Of Funding The role of donors Over the past five years, donor support for the transport sector amounted to about $52 million, or about two thirds of total outlays (Table 11). TFET and Japan were by far the most important supporters of the program, supplying half of total spending. Ongoing and currently approved donor projects will disburse another $44 million over the next five years, thus providing for about a quarter of the proposed program. Table 11: Sources of funding for transport sector program The Government recognizes that the phase-out of TFET in the coming years will bring new challenges for the funding of the transport investment program. Japan, Germany, and the Timor-Leste Transport Sector Investment Program 33 European Union have all made major commitments related to the program for the next five years. However, some $56 million of new money remains to be mobilized, in addition to some $23 million more for CFET spending on road building and maintenance. In the event that this level of funding is not available from donors on a grant basis, the Government will have to consider alternative funding arrangements, including additional CFET allocations, or a reduction in proposed spending for the transport sector. The role of user charges Given the current level of transport demand and the state of the economy in Timor-Leste, user charges are unlikely to generate enough revenue to support unsubsidized private sector provision of infrastructure for any mode of transport, at least in the short term--and in the case of roads, probably in the medium to long term as well. Government funds and international aid are needed to support investment in fixed infrastructure in the transport sector for the time being. Using the private sector to implement and maintain projects and provide public transport services is vital, however, to ensure that transport is cost-effective in the medium and longer term. The first steps in this direction are being taken with the port and airport. Implementation of the Port Authority (APORTIL) and an equivalent airport authority with commercial accounting systems and appropriate user charges should enable these sub-sectors to become financially self-sustaining in the medium term. They may face difficulties in the short term due to the decline in demand that will accompany the withdrawal of the UNPKF, during which time there will be a need for continued external assistance to finance needed investments. A continued subsidy will be needed to sustain the current ferry service to Oecussi and Atauro in the short term, though the introduction of a new ferry in late 2005 should substantially reduce and perhaps eliminate the need for a subsidy. In the road sub-sector, the introduction of user charges will lead to better travel decisions by the community and generate more revenue for the Government. The Government recognizes the scope for generating additional revenues from road user charges that in turn can fund the additional requirements for road maintenance. Preliminary estimates suggest that revenue from fuel excise and registration fees could meet 70 percent of the cost of road maintenance by FY2006/07. This is based on the assumption of a rise in fuel excise from the beginning of 2005 at a rate of $1.5 million per year in FY2003/04 prices; the revenue would be contingent on a reduction in the imported cost of fuel and a corresponding increase in fuel excise. Revenue is expected to rise by five percent per year in nominal terms, reflecting inflation as well as an increase in the number and use of vehicles. Net revenue from registration fees is expected to be $1 million per year in FY2004/05 prices, rising in nominal terms in the following years by five percent per year. This revenue stream should commence in FY2005/06 following the implementation of the proposed vehicle registration system. The total revenue in FY2006/07 from fuel taxes and registration charges could be about $5.8 million: about $1.2 million from the current fuel excise and $4.6 million from a rise in the level of fuel excise and the introduction of annual registration charges. The Government would seek to collect additional revenue from road users to eventually recover the full cost of road maintenance within a further period of about five years. 34 Timor-Leste Transport Sector Investment Program VI. MANAGING UNCERTAINTY Project Preparation and Approval By Donors The timing and likely scale of future donor assistance for the transport sector are uncertain. These uncertainties will be addressed in the following ways: (a) ensuring that clear sector development plans establish infrastructure development needs and priorities; (b) ensuring that more projects are under preparation than can be funded, to allow for the failure of some projects to secure support; and (c) seeking guidance and certainty from donors regarding their priorities and interests. Domestic Funding The Government will need to provide increased domestic funds to meet recurrent costs in the transport sector. However, the limited resource base for increased Government revenue leaves the risk that such resource mobilization may not be fully achieved. The extent to which the winding down of UNPKF will reduce the operating surplus of the airport and port is also uncertain. The uncertainty can be managed by budgeting less than full use of all the potential sources of additional revenue in the immediate future. In the event of shortfalls in the capacity of CFET and donors to fund the proposed program, the Government would need to consider scaling back the program. For roads, an alternative program--based on a "Low Case Scenario" assuming lower levels of donor support--would result in a lower but still sustainable standard for the network. Details of this smaller program are in Annex 4. Extraordinary Events Extraordinary events can disrupt transport services and impose substantial additional costs on the operation and maintenance of transport infrastructure. Road infrastructure faces significant risks from natural hazards including erosion, landslides, and flooding. Ports and airports face natural risks of storm damage and man-made risks such as those from hazardous materials and security breaches. Exposure to risk can be managed systematically through interventions that address the reduction of risk, preparedness for emergencies, response plans for handling emergencies, and through planning recovery options. For example, preventive investment in strengthening the resilience of sensitive sections of the road network--through adequate drainage, slope stabilization, riverbank protection, and practices that minimize disturbance to natural landforms and vegetation--can do much to reduce the probabilities of closure or damage and reduce the costs that are currently spent on reactive emergency maintenance. A readiness plan could include stocks of emergency equipment such as bailey bridges and earthmoving equipment in the vicinity of sensitive areas. Response arrangements include clear designation of responsibilities for directing emergency operations and authorizing expenditures and resources, and coordination between institutions and affected people. The Government would like to incorporate such a systematic risk management approach into infrastructure planning and operation so as to significantly Timor-Leste Transport Sector Investment Program 35 reduce the probability and impacts of disruption and to reduce the overall costs of responding to emergencies. 36 Timor-Leste Transport Sector Investment Program References Asian Development Bank (ADB) (2002), "Transport Sector Master Plan for East Timor", Pacific Department, May. Pacific Islands Forum Secretariat (2003), "Pacific Fuel Price Monitor ­ Edition 3- Fuel Prices for November-December 2002", March. Planning Commission (2002), "East Timor ­ National Development Plan", Dili, May. Republica Democrátia de Timor-Leste (2003), "The Road Map (for the implementation of NDP Programs ­ Final Draft", 15 April, Dili. World Bank (2003), "Timor-Leste - Poverty in a New Nation: Analysis for Action", May, Washington DC. World Bank (undated work in progress for public discussion) "Design and Appraisal of Rural Transport Infrastructure: Ensuring Basic Access for Rural Communities", World Bank Technical Paper No 496, Washington DC. Annexes 38 Timor-Leste Transport Sector Investment Program ANNEX 1 Table 1: Actual and Proposed CFET Appropriations and Donor Expenditure Programs Completed, Ongoing and Under Preparation for the Transportation Sector Budget Category Annual Appropriations Total FY1999/00 FY2000/01 FY2001/02 FY2002/03 FY2003/04 FY2004/05 FY2005/06 FY2006/07 FY2007/08 FY2008/09 FY1999/00-FY2003/04 FY2004/05-FY2008/09 Amount Percent Amount Percent Policy, planning and management Donor programs 200,000 2,501,168 1,551,000 395,000 339,019 678,821 375,000 - - - 4,986,187 6.1 1,053,821 0.6 CFET appropriations - 5,000 24,000 65,750 61,200 57,750 74,250 64,750 71,750 74,000 155,950 0.2 342,500 0.2 Proposed new donor programs 300,000 1,000,000 700,000 500,000 2,500,000 1.4 Sub-total 200,000 2,506,168 1,575,000 460,750 400,219 1,036,571 1,449,250 764,750 571,750 74,000 5,142,137 6.3 3,896,321 2.2 Road and bridge construction and rehabilitation Donor programs 807,132 12,345,966 15,829,086 2,996,780 3,824,407 7,912,368 9,953,585 10,927,282 4,432,914 352,000 35,803,371 43.8 33,578,149 19.2 CFET appropriations 3,500,000 4,000,000 658,000 3,484,050 5,105,000 6,180,000 6,416,000 6,761,000 7,420,000 11,642,050 14.3 31,882,000 18.2 Proposed new CFET 1,000,000 2,000,000 2,300,000 1,000,000 6,300,000 3.6 Proposed new donor programs 600,000 4,400,000 8,000,000 9,500,000 9,000,000 31,500,000 18.0 Sub-total 4,307,132 16,345,966 15,829,086 3,654,780 7,308,457 13,617,368 21,533,585 27,343,282 22,993,914 17,772,000 47,445,421 58.1 103,260,149 59.0 Road maintenance CFET appropriations 1,000,000 1,500,000 2,288,000 3,148,000 1,440,550 1,228,000 1,519,000 1,824,000 2,232,000 2,680,000 9,376,550 11.5 9,483,000 5.4 Proposed new CFET 2,420,000 4,510,000 4,610,000 4,660,000 16,200,000 9.2 Sub-total 1,000,000 1,500,000 2,288,000 3,148,000 1,440,550 1,228,000 3,939,000 6,334,000 6,842,000 7,340,000 9,376,550 11.5 25,683,000 14.6 Road transportation CFET appropriations 1,000,000 153,000 173,000 241,000 841,300 662,000 559,000 274,000 303,000 320,000 1,508,300 1.8 2,118,000 1.2 Proposed new CFET 100,000 100,000 100,000 100,000 400,000 0.2 Proposed new donor programs 200,000 900,000 200,000 150,000 200,000 1,650,000 0.9 Sub-total 1,000,000 153,000 173,000 241,000 841,300 862,000 1,559,000 574,000 553,000 620,000 1,508,300 1.8 4,168,000 2.3 Airports and aviation Donor programs 1,139,421 1,229,227 Civil aviation authority 750,000 830,000 840,000 845,000 851,000 854,000 894,000 972,000 972,000 975,000 2,368,648 2.9 4,667,000 2.7 Proposed new donor programs 220,000 5,070,000 2,200,000 1,110,000 4,116,000 5.0 8600000 4.9 Sub-total 750,000 1,969,421 2,069,227 845,000 851,000 1,074,000 5,964,000 3,172,000 2,082,000 975,000 6,484,648 7.9 13,267,000 7.6 Sea port construciton, maintenance Donor programs 46,265 4,212,948 3,113,867 652,176 891,300 1,204,000 1,337,000 1,500,000 1,000,000 5,041,700 2.9 Ports authority 505,000 520,000 525,000 538,000 549,000 873,000 547,000 547,000 547,000 550,000 8,916,556 10.9 3,064,000 1.7 Proposed new donor programs 150,000 2,500,000 6,500,000 3,500,000 2,637,000 3.2 12,650,000 7.2 Sub-total 551,265 4,732,948 3,638,867 1,190,176 1,440,300 2,227,000 4,384,000 8,547,000 5,047,000 550,000 11,553,556 14.1 20,755,700 11.8 Shipping services Donor programs 150,000 450,000 3,421,000 250,000 150,000 0.2 4,121,000 2.4 Proposed new donor programs Sub-total 0 0 0 0 150,000 450,000 3,421,000 250,000 0 0 150,000 0.2 4,121,000 2.4 Total transportation Donor programs 1,053,397 20,199,503 21,723,180 4,043,956 5,204,726 10,245,189 15,087,285 12,677,282 5,432,914 352,000 52,224,762 64.0 43,794,670 25.0 CFET appropriations 4,600,000 5,658,000 2,485,000 4,112,750 5,827,100 7,052,750 8,332,250 8,578,750 9,367,750 10,494,000 22,682,850 27.8 43,825,500 25.0 Autonomous authorities 1,255,000 1,350,000 1,365,000 1,383,000 1,400,000 1,727,000 1,441,000 1,519,000 1,519,000 1,525,000 6,753,000 8.3 7,731,000 4.4 Proposed new CFET 3,520,000 6,610,000 7,010,000 5,760,000 22,900,000 13.1 Proposed new donor programs 1,470,000 13,870,000 17,600,000 14,760,000 9,200,000 56,900,000 32.5 Total 6,908,397 27,207,503 25,573,180 9,539,706 12,431,826 20,494,939 42,250,535 46,985,032 38,089,664 27,331,000 81,660,612 100.0 175,151,170 100.0 Source: Annex 1, Tables 2, 3, and 5 Timor-Leste Transport Sector Investment Program 39 Annex 1 Table 2: Summary of Donor Funded Programs for Transportation Sub-sector/Project Donor Annual Appropriations Total FY1999/00 FY2000/01 FY2001/02 FY2002/03 FY2003/04 FY2004/05 FY2005/06 FY2006/07 FY2007/08 FY2008/09 Disbursed Approved Policy, planning and management Emergency Infrastructure Rehabilitation I TFET 1,144,000 1,501,000 345,000 2,990,000 2,990,000 Transport Sector Policy Portugal 1,257,168 1,257,168 1,257,168 Transport Sector Improvement ADB 200,000 100,000 50,000 50,000 50,000 50,000 500,000 500,000 Transport Sector Training Japan 35,200 35,200 Sub-total 200,000 2,501,168 1,551,000 395,000 85,200 50,000 0 0 0 0 4,782,368 4,747,168 Road Sector Emergency Road Repairs Australia 295,000 295,000 205,000 Airport Roundabout Rehabilitation Japan 65,000 65,000 65,000 Dili-Amaro-Cassa Road Rehabilitation ???? Japan 2,350,000 2,350,000 4,700,000 4,700,000 Infrastructure Rehabilitation Japan 825,000 2,305,000 3,130,000 3,130,000 Road and Bridge Repair USA 46,184 46,184 46,183 138,551 157,494 Technical Assistance Road Tepairs Portugal 13,140 4,622 17,762 17,746 Road Repairs Norway 486,400 486,400 486,400 Road Engineering and Administration Train Japan 15,833 15,833 15,833 Transport Sector Restoration ADB 500,000 221,000 279,000 1,000,000 1,000,000 UNDP Rural Roads Australia 307,132 307,132 307,132 Urgent Road Rehabilitation Japan 94,786 94,786 94,786 Basic Design Study for Roads & Bridges Japan 418,500 418,500 837,000 837,000 Improvement of Roads and Bridges (Dili-Ca Japan 1,573,943 3,851,886 4,814,857 2,888,914 352,000 13,481,600 13,481,600 Road and Bridge Improvement Japan 1,544,000 1,544,000 1,544,000 1,544,000 6,176,000 6,176,000 Livelihood Stabilization Program Japan 352,000 352,000 704,000 704,000 Upgrading of Five Bridges (Viquaqua-Los P EU 3,053,907 1,505,425 1,557,699 1,505,425 7,622,456 7,622,457 Emergency Infrastructure Rehabilitation I TFET 8,109,242 10,733,661 2,467,097 21,310,000 21,310,000 Emergency Rehabilitation II TFET 2,937,000 3,000,000 3,063,000 9,000,000 9,000,000 Sub-total 807,132 12,345,966 15,829,086 2,996,780 3,824,407 7,912,368 9,953,585 10,927,282 4,432,914 352,000 69,381,520 69,310,448 Airports and aviation Civil Aviation Management Training Japan 2,688 2,688 2,688 International air transport Comoro(???) Portugal 1,139,421 1,226,539 2,365,960 2,361,710 Sub-total 0 1,139,421 1,229,227 0 0 0 0 0 0 0 2,368,648 2,364,398 Sea Transportation Dili Harbour Fenders & Navigation Aids Japan 706,042 1,943,958 2,650,000 2,650,000 Port Management Training Japan 1,792 1,792 1,792 Rehabilitation of Dili Port Japan 44,000 44,000 44,000 Technical Advisor Port of Dili Portugal 46,265 46,265 46,265 Emergency Infrastructure Rehabilitation I TFET 506,114 669,909 153,977 1,330,000 1,330,000 Ferry Service Subsidy Germany 562,994 680,982 1,243,976 1,144,918 New Ferry Germany 3,000,000 3,000,000 3,000,000 Maritime Transport Service Project Germany 891,295 2,068,406 1,501,267 1,526,483 1,850,000 7,837,451 8,500,000 Hara Fisheries Port Rehabilitation (???) TFET 500,000 498,199 998,199 998,199 Dili Port West Container Yard Rehabilitatio Japan 2,999,000 2,999,000 2,999,000 Sub-total 46,265 4,212,948 3,676,861 1,333,158 891,295 5,112,406 1,501,267 1,526,483 1,850,000 0 20,150,683 20,714,174 GRAND TOTAL 1,053,397 20,199,503 22,286,174 4,724,938 4,800,902 13,074,774 11,454,852 12,453,765 6,282,914 352,000 96,683,219 97,136,188 Source: Registry of External Assistance 40 Timor-Leste Transport Sector Investment Program Annex 1 Table 3: Summary of CFET Budget Appropriations for Transport Sector Annual Appropriations Total Budget Category FY1999/00 FY2000/01 FY2001/02 FY2002/03 FY2003/04 FY2004/05 FY2005/06 FY2006/07 FY2007/08 FY2008/09 FY1999/00-FY2003/04 FY2004/05-FY2008/09 Amount Percent Amount Percent Office of Minister of TC&PW 5,000 7,500 10,250 8,750 8,750 8,750 9,000 9,250 9,500 31,500 0.1 45,250 0.1 Office of Vice Minister of TC&PW 5,000 7,000 6,000 6,000 6,000 6,250 6,500 6,750 18,000 0.0 31,500 0.0 Permanent Sec Transport Communications 11,500 5,500 6,800 6,000 10,500 7,500 11,000 11,500 23,800 0.1 46,500 0.1 Directorate for Administrative Services 41,250 34,013 33,250 43,750 38,250 38,500 38,750 75,263 0.3 192,500 0.4 Directorate for Planning Services 1,750 5,638 3,750 5,250 3,750 6,500 7,500 7,388 0.0 26,750 0.1 Roads, Bridges and Flood Control Directorate of roads, bridges and flood contr 1,000,000 1,500,000 2,288,000 3,148,000 1,440,550 1,228,000 1,519,000 1,824,000 2,232,000 2,680,000 9,376,550 31.9 9,483,000 18.4 Periodic maintenance of roads 3,000,000 3,000,000 2,519,000 2980000 3,061,000 4,200,000 4,600,000 5,000,000 8,519,000 28.9 19,841,000 38.5 Road improvements 200,000 600000 800,000 850,000 850,000 1,000,000 200,000 0.7 4,100,000 8.0 Bridge rehabilitation 510000 1,000,000 1,510,000 0.0 Urban roads, drainage, footpaths 500,000 500,000 200,000 200,000 300000 400,000 400,000 400,000 450,000 1,400,000 4.8 1,950,000 3.8 Flood control 500,000 250,000 318,000 500000 606,000 650,000 650,000 700,000 1,068,000 3.6 3,106,000 6.0 Public safety campaign 50,000 55000 50,000 0.2 55,000 0.1 Material and Equipment 208,000 247,050 215000 313,000 316,000 261,000 270,000 455,050 1.5 1,375,000 2.7 Directorate for Land Transport Services 100,000 153,000 173,000 241,000 251,300 307000 309,000 274,000 303,000 320,000 918,300 3.1 1,513,000 2.9 Rehabilitate bus terminals 200,000 200000 200,000 200,000 0.7 400,000 0.8 Traffic signals 340,000 100000 50,000 340,000 1.2 150,000 0.3 Civil aviation 750,000 830,000 840,000 845,000 851,000 854000 894,000 972,000 972,000 975,000 4,116,000 14.0 4,667,000 9.1 Sea Transportation 505,000 520,000 525,000 538,000 549,000 873000 547,000 547,000 547,000 550,000 2,637,000 9.0 3,064,000 5.9 Total 5,855,000 7,008,000 3,850,000 5,495,750 7,227,101 8,779,750 9,773,250 10,097,750 10,886,750 12,019,000 29,435,850 100.0 51,556,500 100.0 Memo items: Capital Expenditures 3,500,000 4,500,000 1,402,000 1,781,100 4,367,600 5,926,300 6,644,700 6,645,700 6,976,300 7,325,000 15,550,700 52.8 33,518,000 65.0 Source: Budget Office Timor-Leste Transport Sector Investment Program 41 Annex 1 Table 4: Source of Funding for Transportation Sector Annual Appropriations Total Source of Funding FY1999/00 FY2000/01 FY2001/02 FY2002/03 FY2003/04 FY2004/05 FY2005/06 FY2006/07 FY2007/08 FY2008/09 Disbursed Approved Amount Amount Donors TFET 9,759,356 13,404,570 3,464,273 2,937,000 3,000,000 3,063,000 35,628,199 35,628,199 Japan 6,881,834 6,712,265 483,500 805,700 3,513,943 5,395,886 6,358,857 4,432,914 352,000 27,977,699 27,977,699 Germany 562,994 680,982 891,295 5,068,406 1,501,267 1,526,483 1,850,000 12,081,427 12,644,918 European Union 3,053,907 1,505,425 1,557,699 1,505,425 7,622,456 7,622,457 Portugal 46,265 2,409,729 1,231,161 3,687,155 3,682,889 ADB 700,000 321,000 329,000 50,000 50,000 50000 1,500,000 1,500,000 Norway 486,400 486,400 486,400 UNDP 307,132 307,132 307,132 Australia 295,000 295,000 205,000 United States 46,184 46,184 46,183 138,551 157,494 Sub-total 1,053,397 20,199,503 22,286,174 4,724,938 4,800,902 13,074,774 11,454,852 12,453,765 6,282,914 352,000 89,724,019 90,212,188 CFET Appropriations 5,855,000 7,008,000 3,850,000 5,495,750 7,227,100 8,779,750 9,773,250 10,097,750 10,886,750 12,019,000 58,086,600 58,085,600 Total 6,908,397 27,207,503 26,136,174 10,220,688 12,028,002 21,854,524 21,228,102 22,551,515 17,169,664 12,371,000 147,810,619 148,297,788 CFET as % of total 84.8 25.8 14.7 53.8 60.1 40.2 46.0 44.8 63.4 97.2 39.3 39.2 Source: Annex Table 2 42 Timor-Leste Transport Sector Investment Program Annex 1 Table 5: Proposed New Projects and Programs in the Transportation Sector Possible Program Funding Proposed Annual Disbursements Total Source Amount FY2004/05 FY2005/06 FY2006/07 FY2007/08 FY2008/09 Amount Policy, planning and management Technical assistance for MTC&PW Japan 1,500,000 500,000 500,000 500,000 1,500,000 DRBFC capacity building & staff development 750,000 300,000 250,000 200,000 750,000 Public transport development study 250,000 250,000 250,000 Sub-total 2,500,000 300,000 1,000,000 700,000 500,000 0 2,500,000 Road and bridge construction and rehabilitation Strategy for road development and management 1,000,000 600,000 400,000 1,000,000 Road improvement (Dili-Los Palos_Lauten) 10,000,000 4,000,000 3,000,000 3,000,000 10,000,000 Road widening (Maubisse-Turiscai-Alas) CFET 4,000,000 1,000,000 1,500,000 1,500,000 4,000,000 Road improvement (Manatuto-Lachubar-Natabora) 7,500,000 3,000,000 2,500,000 2,000,000 7,500,000 Road improvement (Viqueque-Natarbora) 6,500,000 2,000,000 2,000,000 2,000,000 6,000,000 Road opening (Turiscai-Soibada-Salau) CFET 1,500,000 500,000 500,000 500,000 1,500,000 Road improvement (los Palos-Unlari-Viqueque) 10,000,000 2,000,000 5,000,000 7,000,000 Road widening and extension (Vemasse-Uaimora- Lactua) CFET 1,300,000 300,000 500,000 800,000 Sub-total 41,800,000 600,000 5,400,000 10,000,000 11,800,000 10,000,000 37,800,000 Road maintenance Road maintenance national system CFET 8,700,000 1,170,000 2,510,000 2,510,000 2,510,000 8,700,000 Road maintenance rural and feeder roads CFET 7,500,000 1,250,000 2,000,000 2,100,000 2,150,000 7,500,000 Sub-total 16,200,000 0 2,420,000 4,510,000 4,610,000 4,660,000 16,200,000 Traffic and Trtansport Management DLT capacity -building & staff development 500,000 200,000 200,000 100,000 500,000 Land transport adminstration system 700,000 700,000 700,000 Urban traffic management improvement 450,000 100,000 150,000 200,000 450,000 Road safety programs CFET 400,000 100,000 100,000 100,000 100,000 400,000 Sub-total 2,050,000 200,000 1,000,000 300,000 250,000 300,000 2,050,000 Ports and Shipping Dili Port development & shore protection - investigation 150,000 150,000 150,000 Dili Port development & shore protection - works 5,000,000 2,000,000 2,000,000 1,000,000 5,000,000 Development of Maritime Sesrvices in Timor Leste 7,000,000 4,500,000 2,500,000 7,000,000 Tibar Port Feasibility Study 500,000 500,000 500,000 Sub-total 12,650,000 150,000 2,500,000 6,500,000 3,500,000 0 12,650,000 Aviation Civil aivation capcity -building & staff development 300,000 70,000 130,000 100,000 300,000 Establishing an Airport Authority * aviation strategy 200,000 200,000 200,000 Runway improvemnet - investigation 150,000 150,000 150,000 Runway improvemnet - works 7,740,000 4,530,000 2,100,000 1,110,000 7,740,000 Communication and navaids 150,000 150,000 150,000 Accounting system 60,000 60,000 60,000 Sub-total 8,600,000 220,000 5,070,000 2,200,000 1,110,000 0 8,600,000 Total new programs 83,800,000 1,470,000 17,390,000 24,210,000 21,770,000 14,960,000 79,800,000 Donor funded programs 60,400,000 1,470,000 13,870,000 17,600,000 14,760,000 9,200,000 56,900,000 CFET funded programs 23,400,000 3,520,000 6,610,000 7,010,000 5,760,000 22,900,000 Source: Annex 1, Tables 2, 3, and 5 Timor-Leste Transport Sector Investment Program 43 44 Timor-Leste Transport Sector Investment Program ANNEX 2: THE ROAD NETWORK IN TIMOR-LESTE The length of the road network in Timor-Leste is reported to be 6,036 km. About half of this network is rural road, which is commonly not reported as part of "classified" road networks when making international comparisons. Table 1: Length of road in Timor-Leste (km) Region National District Urban Rural and feeder Total Baucau 373 270 158 810 1,611 Dili 293 157 316 710 1,475 Same 246 206 97 655 1,204 Maliana 423 164 106 740 1,432 Oecussi 91 73 40 110 314 Total 1,426 869 716 3,025 6,036 Source: DRBFC. The Japan Engineering Group (JEG) recently surveyed the "core" national road network, which was taken to be Road Numbers A01 to A14. Features of the roads are summarized in Annex 2 Table 2. The roads are generally in poor condition and carry modest quantities of traffic, with the notable exceptions of A01 and A06. The JEG review focused on identifying locations where roads were currently impassable due to landslides or absent bridges, and locations where failure could occur in the future. JEG found that the north coast road is generally in better condition than other roads. The north-south roads must cross difficult terrain, which makes them subject to landslips and water runoff. The south coast road is in poorer condition, and is also subject to landslips and the passage of waterways to the sea. Table 2: Features of major roads in Timor-Leste Route No. Road Link Length (km) AADT (veh/day) Roughness (IRI) Road condition A01 Dili-Com 202.9 3,490 5.1 Good A02 Dili-Suai 178.3 930 9.8 Fair to very poor A03 Dili-Maliana 151.1 1,690 5.9 Good to fair A04 Tibar-Ermera 45.0` 510 6.1 Fair A05 Aituto-Betano 53.6 650 8.7 Good to very poor A06 Baucau-Viqueque 63.1 5,500 6.0 Good to fair A07 Viqueque-Natabora 48.4 1,100 10.0 Poor A08 Lautem-Viqueque 153.5 620 10.4 Good to very poor A09 Manatuto-Natabora 85.6 390 11.0 Poor A10 Ermera-Hauba 68.5 240 12.1 Poor to very poor A11 Ermera-Maliana 63.2 220 11.3 Poor to very poor A12 Maliana-Zumalai 50.9 270 11.6 Fair to very poor A13 Aiassa-Cassa 24.6 320 11.9 Poor to very poor A14 Natabora-Betano 46.4 1,360 10.9 Poor Total 1,235.1 1,480 8.7 Timor-Leste Sector Transport Investment Program 45 ANNEX 3: ACHIEVEMENT OF NATIONAL DEVELOPMENT PLAN INDICATORS Roads, Bridges, and Flood Control Objective Performance Indicator Achievement (to February 2005) 1. Identify and plan the national · Plan completed and approved To be developed district and rural road network · Assessed road access to population Reported in Timor-Leste social survey 2. Initiate policies within a legal · Laws enacted and regulations approved Not yet implemented. and regulatory framework Limited need for legislation. 3. Develop roads, bridges, and · Number of road closures Data not collected on a topologies of flood control · Number of new roads and km regular basis · Area of new and repaired pavement · Number of water retaining walls/culverts · Reduction in flood damage 4. Development and regulation · Assessed accident and damage rates Accident data not reviewed management for the safe · Dili and District traffic plans completed Work is underway circulation of transport · Percent of projects on time Projects generally · Percentage of projects within budget implemented successfully 5. Establish transport · Assessment of defense access needs met Continuing discussions to infrastructure that meets · Access to security posts ensure needs are met national defense imperatives 6. Establish technical standards · Number of days per year road closure Data not collected on a for a national road network regular basis · Percentage of population with all-weather Reported in Timor-Leste access to road utilization social survey · Percentage of road meeting vehicle load Not undertaken to date capacities because of insufficient data · Cost ratio of maintenance Monitored 7. Implement capital · Achieve capital funding for roadways Funding constrained by improvements to the road · Achieve capital funding for flood control budget allocations and network external support 8. Preserve the existing road · Number of roads with maintenance achieved Road and bridge assets through appropriate · Km of roads and percent maintained management systems are allocation of road funds and a · Percent of maintenance on time not currently available to system of sustainable provide the basis for maintenance monitoring assessed and actual asset expenditure needs 9. Establish an institutional · Division staff and management approved Approved structure and develop · Qualified technical staffing levels met Not all positions are filled technical and administrative · Certified staff levels attained Staff still need training capacity 10. Implement sustainable · Rural road maintenance plan approved No plan prepared to date strategies for the maintenance · Number of roads maintained under plan Limited ­ undertaken on an of rural access roads ad hoc basis · Km of rural roads maintained Maintenance of rural roads is a community responsibility at present 11. Establish and implement · Reduced number of flood-related incidents Not monitored at present sustainable erosion control · Percent reduction in road maintenance measures · Assessment of environmental impact 46 Timor-Leste Transport Sector Investment Program Objective Performance Indicator Achievement (to February 2005) 12. Enhance human resource · Number of local qualified staff No precise data. Staff capabilities for sustained · Number participating in training workshops turnover is low. indigenous development · Percentage retained and qualified Sources: National Development Plan (Planning Commission 2002) for Objectives and Performance Indicators. Directorate of Roads, Bridges, and Flood Control for Achievement. Timor-Leste Sector Transport Investment Program 47 Civil Aviation Objective Performance Indicator Achievement (to February 2005) 1. Attain a high standard of safe ·Maintain 100% incident- and accident- Achieved and efficient passenger free air and ground operations service ·Join ICAO by year end 2002 Convention approved by National Parliament ·Compliance with ICAO Guidelines by In progress (Ministry of 2003 External Cooperation) ·Civil aviation laws and regulations In progress enacted by end of 2003 2. Establish effective air cargo ·100% rehabilitation of Dili facilities by In progress systems for international and 2005 national transport ·90% of cargo facilities renovation by 2002 Achieved ·Create mobile off-loading and conveyor Achieved cargo and passenger systems by 2003 3. Generate a reliable staff with ·80% of ground and CA staff recruited and Achieved qualifications required to trained by end of 2002 ensure safe and effective ·100% of staff hired and trained by end In progress operations 2003 4. Establish the reliable and ·With Post Office, establish fully secure Achieved secure systems needed for and efficient air mail and post by end of efficient mail and postal 2002 expediting ·Establish with Post Office and postal In progress ministry fees for all postal handling and shipping by 2003 5. Establish an appropriate ·System implemented database with donor Proposal prepared financial system that allows support by 2003 full cost recovery of ·Fee structure and budgeting system by Partially achieved operations 2003 6. Promote a favorable ·80% of development studies completed Basic training only to date environment for development 2002 with confidence among the ·100% of assessment developments by Basic training only to date Division staff 2005 ·100% training for ICAO and Civil Basic training only to date Aviation laws and regulations 7. Provide ground facilities ·Compliance with military requirements as Achieved required for military air and specified and maintained land priorities 8. Support national ·Public promotion and competition for Continuing development priorities and main and secondary air service locations poverty reduction initiatives ·Private contractor requirement s for Using local contractors through staff recruitment, capable local hiring and training where appropriate training, employment and air- ·Coordinated support program for air Not applicable as no assisted district services service to rural airports and access to commercial or government population services are operated to rural airports Sources: National Development Plan (Planning Commission 2002) for Objectives and Performance Indicators. Directorate of Civil Aviation for Achievement. 48 Timor-Leste Transport Sector Investment Program Sea Transport Objective Performance Indicator Achievement (to February2005) 1. Develop commercial maritime ·Code completed by 2003 Not yet achieved - in law progress 2. Ratification procedures for ·Ratification achieved by 2003 Not yet achieved - in principal maritime conventions progress on maritime safety and maritime ·Conventions on safety implemented by Not yet achieved - in transport 2003 progress 3. Ratification of the United ·Ratification achieved by end 2003 Ratification approved by Nations Convention of the Law National Parliament of the Sea ·Conventions promulgated by end of Promulgated by National 2002 Parliament 4. Establish a registry of shipping ·Registry completed by end of 2002 Not yet achieved. 5. Establish a modern system of ·System approved and implemented by System approved in port taxes and tariffs with end of 2002 principle, but not yet effective enforcement approved for capabilities that preclude implementation contraband and corruption ·Enforcement staff and control systems in Not yet addressed, pending place by 2003 approval of system 6. Enact the law on public maritime ·Joint regulation by end of 2002 Not yet achieved domain in conjunction with ·Enforcement procedures enacted and Not yet achieved MOE&P and MOJ published by 2003 7. Establish passenger sea transport ·Dili to Atauro service established by Implemented service between Dili and Atauro, 2003 and between Dili and Oecussi ·Dili to Oecussi service established by Implemented 2003 8. Plan and institute a policy for ·Plan drafted by end of 2002 Not initiated. Little formal regulation of national coastal ·Plan for total coastal traffic instituted in coastal traffic. traffic 2003 9. Achieve a national capacity for ·Ship survey and inspection regulations Completed survey and inspection passed procedures, and certification for ·Inspection staff recruited or contracted In progress ship condition, materials safety, 2003 and hazards ·Materials safety inspection system 2003 Completed ·Hazardous handling systems in place Completed 2003 10. Achieve access to proper training ·100% of human resources required for Completed (continuing) and development for Timorese in technical port operations educated and special maritime studies abroad certified by 2004 11. Improve port container and bulk ·100% of regional ports operational by In progress handling while reducing 2005 congestion problems at the Port ·Dili port congestion resolved by 2003 In progress of Dili ·Container port handling improved by Achieved 50% 12. Situate Naval Defense Force at ·Comply with defense requirements by Complied with needs (in Hera 2003 progress) 13. Complete current projects and ·Projects completed on time and in In progress rehabilitation activities on budget schedule with Japanese bilateral ·90% rehabilitation by 2004, 100% by In progress and multilateral assistance 2005 ·Land infrastructure at Dili completed Will be completed 2003 Timor-Leste Sector Transport Investment Program 49 Objective Performance Indicator Achievement (to February2005) ·Tibar and Hera repairs completed 2003 Hera completed. Tibar not yet initiated ·Ports of Com and Oecussi remodeled Not yet initiated 2004 14. Assess and implement an ·Assessment completed by end of 2002 Completed effective system of fir prevention ·Port of Dili fire and emergency systems In progress. Will be and both port and maritime fire to international standards by 2003 completed with current port and damage control upgrading. ·Secondary fire and emergency systems In progress. Will be 2004 completed with current port upgrading. Sources: National Development Plan (Planning Commission 2002) for Objectives and Performance Indicators. Directorate of Sea Transport for Achievement. 50 Timor-Leste Transport Sector Investment Program Land Transport Objective Performance Indicator Achievement (to February2005) 1. Create service infrastructure ·100% of basic law completed by 2003 Completed with competent and ·100% staffing levels achieved and Not fully achieved. sufficient staff to support sustained the growing demand for ·Regulations and enforcement Draft regulations prepared land transport services implemented and ready for approval and implementation. 2. Create sustainable ·60% of sector policies defined in 2002 Difficult to assess regulatory processes for ·100% of policies implemented by 2003 Not yet complete (in ensuring safe vehicular progress) utilization, traffic control, ·Traffic control supervision 100% by DLT plays a coordination and licensing and 2004 role, with the Police registration of all vehicles responsible for traffic control. ·National licensing 100% by 2003 Not yet complete. Limited by absence of a need for annual registration and an effective registration system. ·Traffic plans completed with Roads Not yet complete. Limited Division coordination between divisions to date. 3. Coordinate service ·Signage and traffic control in Dili Underway - not yet requirements with those of completed complete road building, urban and ·Roadway hazard rural signage Underway in current rural roadway construction, completed financial year - not yet and infrastructure systems complete 4. Resolve the problem of ·Integrated road/port access plan by 2003 Not yet complete saturation of major road ·Vehicle load/road-use requirements by Limited role for DLT. arteries through improved 2003 Police and DRBFC have accessibility for outlying major roles. and remote population areas ·Percent of nation with access to safe Not being monitored by roads DLT ·Reduced travel time to clinics and Not being monitored by schools DLT 5. Reduce import dependence ·Increased bus and public conveyances Sufficient services provided on oil by using alternative at present to meet current public transport and and potential demand, with improving vehicle energy flexibility to introduce efficiencies additional services when required. ·Reduced emissions with new standards Not yet accomplished for vehicle inspection and licensing 6. Provide employment ·Increased local district and rural staff Not yet accomplished ­ opportunities through current proposal under effective job development consideration and capacity building ·100% training coverage for all staff in Not yet accomplished (in programs relevant technical areas progress) 7. Establish optimal models of ·Plans and models from regional nations Not yet complete regulation and technical acquired and compatibility approved Timor-Leste Sector Transport Investment Program 51 Objective Performance Indicator Achievement (to February2005) knowledge from established ·Compliance with international standards Not yet initiated and comparable land for road and traffic safety transport systems 8. Implement a national public ·100% of population with access to Initiated in Dili for drivers safety program for driving public safety regulations of public transport vehicles and maintaining all ·100% of schools with road safety and Undertaken at one school to transport vehicles by driving safety programs for relevant date creating driver awareness youth campaigns ·Public safety media campaign instituted Being initiated, with advertisements in newspapers and a TV clip 9. Formulate regulations for ·Assessment procedures for accidents Data collected by Police, traffic and vehicular rules and traffic incidents implemented but no analysis of data governing safe legal vehicle ·Reduced accident and traffic incident No data analysis to date operation, and enforcement rates 10. Establish an effective policy ·Affordable public transport fees Established for public transport fees and established charges, and a retention ·Rural system for public transport and Focus to date on services fund for these revenues fees between Dili and district centers. ·Fund established for retention and road Not initiated. use fees, public transport revenues Sources: National Development Plan (Planning Commission 2002) for Objectives and Performance Indicators. Directorate of Land Transport for Achievement. 52 Timor-Leste Transport Sector Investment Program ANNEX 4: ASSESSED ROAD REHABILITATION AND MAINTENANCE NEEDS Several estimates of the expenditure needed to maintain the road network in Timor-Leste have been prepared. The costs have generally covered the categories of emergency, routine, and periodic maintenance, and have been based on a typical average unit cost per kilometer of each class of road. These estimates have diverged, and include: · $18.2 million in the Transport Sector Master Plan (ADB 2002: 28); · $13.5 million (Republica Democrátia de Timor-Leste 2003: Annex 3); and · $19.1 million (draft work undertaken in support of the Public Expenditure Review). Factors that contribute to the difference between the estimates include differing assumptions about the state of the road network, commingling of road rehabilitation and periodic maintenance costs, high unit costs experienced to date in Timor-Leste as a result of the heavy demand for engineering services, and use of an aggregated approach. Nonetheless, the clear message that maintenance needs are high has resulted in appropriations for road maintenance being forecast to rise from $3.2 million in 2002/03 to $8.9 million in 2007/09 (Annex Table 3 in Annex 1). While a road maintenance program Figure 1: ADT and EIRR ­ Eastern Indonesia of this size might be considered periodic maintenanceHDM-III analysis pe od c a te a ce a a ys s ideal from an engineering 30% perspective, it is not feasible given 25% current financial constraints, nor is % it economically viable. The total 20% IRR cost of maintaining the network to 15% design standards amounts to more 10% than one quarter of the total Economic spending by the Consolidated Fund 5% for East Timor in FY2004, and 0% around one fifth of total spending - 500 1,000 1,500 2,000 over the medium term. It is much Annual average daily traffic AADT more than most countries are able to allocate to their road maintenance programs. Recent analysis of the road network in eastern Indonesia has shown that periodic maintenance is rarely viable for paved roads with traffic volumes less than 500 vehicles a day. This is illustrated in Annex 4 Figure 1, which shows an IRR of less than 10 percent for four out of five roads with traffic densities of less than 500 vehicles a day. Less than 15 percent of the Timor-Leste national road network has traffic volumes above 500 vehicles a day. As a general rule, paved surfaces become viable once traffic volumes pass 200 vehicles a day. Consequently, the economic returns on periodic maintenance for much of the paved network are likely to be low. An analysis prepared for development of this Plan [which?] has integrated the derivation of the cost of both maintenance and rehabilitation costs. It acknowledges that some roads are in good enough condition to be sustained by periodic maintenance roughly every ten years (i.e. Timor-Leste Sector Transport Investment Program 53 with resurfacing of the road pavement and simple refurbishment of drainage) with simple routine maintenance and emergency repair in between. In other cases, more substantial rehabilitation is needed to restore roads to a condition where routine and emergency maintenance will suffice. Two scenarios have been considered, in recognition of funding constraints and the possibility that some road investment will not be economically justified. The first is a program that would achieve the Government's objective of having a road network that, in ten years' time, can be sustained with routine and emergency maintenance. The second is the minimum level of expenditure that will enable the continuation of the current road system, i.e. without further deterioration but with repairs that will reduce the incidence of road closure. The results of the analysis are summarized in Annex 4 Table 1. They suggest that total expenditure of $192 million is needed to bring the road system to a sustainable level, with the minimum level of expenditure on roads being $119 million. The analysis assumes that the unit cost of road works is reduced from the current high level in Timor-Leste to levels closer to those common in comparable countries such as Laos. As indicated in Annex 4 Table 2, it is also assumed that relative priority is given in early years to road rehabilitation, so as to protect roads that are especially vulnerable to further deterioration and hence yet higher costs if work on them is delayed. The road programs described in Annex 4 Tables 1 and 2 have not yet been subject to economic evaluation and engineering study. Similarly, they are based on limited information on current road conditions. It is intended that the proposed road network study will address these and other matters to develop an optimized program of works. 54 Timor-Leste Transport Sector Investment Program Table 1: Ten-year road preservation program ($ million, Oct 2003 prices) Road class (incl. bridges) National core District core Other Total Length (km) 1,235 600 4,201 6,036 Sustainable road network Rehabilitation Roads 44.7 19.7 - 64.4 Bridges and structure 24.6 0 - 24.6 Subtotal 69.3 19.7 - 89.0 Periodic maintenance 28.9 5.4 39.8 74.1 Routine maintenance 11.1 5.4 12.6 29.1 Total 109.3 30.5 52.4 192.2 Minimum program Rehabilitation Roads 23.0 8.4 - 31.4 Bridges and structure 14.8 - - 14.8 Subtotal 37.8 8.4 - 46.2 Periodic maintenance 18.6 2.3 27.1 48.0 Routine maintenance 8.3 4.1 12.6 25.0 Total 64.7 14.8 39.7 119.2 Timor-Leste Sector Transport Investment Program 55 Table 2: Distribution Of Ten-Year Road Preservation Program Over Time ($ million, Oct 2003 prices) Period Years 1-3 Years 4-6 Years 7-10 Total Sustainable road network Rehabilitation Roads 30.0 18.8 15.6 64.4 Bridges and structure 8.0 2.0 4.6 24.6 Subtotal 38.0 30.8 20.2 89.0 Periodic maintenance 14.9 27.1 32.1 74.1 Routine maintenance 9.0 8.7 11.4 29.1 Total 61.9 66.6 63.7 192.2 Minimum program Rehabilitation Roads 15.1 9.0 7.3 31.4 Bridges and structure 4.8 7.2 2.8 14.8 Subtotal 19.9 16.2 10.1 46.2 Periodic maintenance 10.2 17.5 20.3 48.0 Routine maintenance 7.7 7.5 9.8 25.0 Total 37.8 41.2 40.2 119.2 56 Timor-Leste Transport Sector Investment Program ANNEX 5: THE CONSTRUCTION INDUSTRY AND EQUIPMENT MANAGEMENT IN TIMOR-LESTE The construction industry There are more than 90 construction companies in Timor-Leste. The Ministry of Transport, Communications, and Public Works classifies them into three groups according to the size of contract that they are competent to undertake. The companies belonging to the highest class, A, are eligible for contracting civil works larger than $500,000, those belonging to class C, smaller than $250,000, and class B companies are in between. The numbers of companies in Classes A, B, and C are 6, 37, and 48 respectively. The industry is still at an early stage and not well equipped, as exemplified by the aggregate number of vehicles owned by the six class-A companies (Annex 5 Table 1). Table 1: Numbers of vehicles owned by six class-A construction companies Vehicle type Number of vehicles* Small dump truck 19 Large dump truck 42 Crane 9 Large dozer 9 Small dozer 6 Bucket loader 15 *The numbers of vehicles were obtained from telephone interviews with the six companies. Japan Engineering Group Operations History JEG (Japan Engineering Group) was dispatched to East Timor as part of UNTAET in February 2002 with the maintenance of roads and bridges as its main mission. On the independence of Timor-Leste in May 2003, JEG was moved under the control of the newly established UNMISET. JEG's first contingent consisted of 680 personnel and about 300 vehicles, and was succeeded by the second contingent of about the same size in September 2003. The third contingent arrived in March 2003 with 520 persons, and was replaced by the fourth contingent of 400 persons in October 2003. JEG is scheduled to withdraw from Timor- Leste at the end of June 2004, along with other UNMISET operations. Table 2 shows the breakdown of the third contingent as of August 2003. It also shows the number of vehicles of the fourth contingent as of November 2003 in parentheses. The 3rd corps stationed at Suai was abolished in the third contingent, and 26 vehicles that had belonged to the corps were handed over to the Government of Timor-Leste in March 2003. The 4th corps stationed at Oecussi was abolished in the fourth contingent and the vehicles used by the corps were transferred to, and are temporally stored at, the headquarters along with the vehicles discharged from other corps. Timor-Leste Sector Transport Investment Program 57 Table 2: Size of JEG Third Contingent Personnel and Equipmenta Corps HQ HS Co 1 Co 2 Co 4 Co Total Location Dili Dili Dili Maliana Oecussi Troop size 30 220 80 90 100 520 Vehicles: Dump truck (5t) - 1 (1) 8 (8) 5 (5) 5 (0) 19 (14) Special large dump (8t) - 3 (0) 4 (8) 3 (3) 2 (0) 12 (11) Oil-pressure shovelb - 1 (0) 2 (3) 2 (2) 2 (0) 7 (5) Crane (20t) - 1 (0) 1 (1) 1 (1) 1 (0) 4 (2) Dozer (13t)c - 1 (0) 1 (2) 1 (1) 2 (0) 5 (3) Small dozer - 1 (1) 2 (2) 2 (1) 2 (0) 7 (4) Bucket loader (118kw) - 1 (0) 1 (1) 1 (1) 1 (0) 4 (2) Grader (101kw) - 0 (0) 1 (1) 1 (1) 1 (0) 3 (2) Total - 9 (2) 20 (26) 16 (15) 16 (0) 61 (43) a Numbers in parentheses are the numbers of vehicles of Fourth Contingent that replaced the Third Contingent in late October, 2003. bThey are in three varieties: 20t class and 13t class with caterpillar tracks and an unknown size with four tires. cThey are in two varieties: one with rippers and one of 13t class. Training JEG has provided training courses to Timorese in different areas of construction including operation and maintenance of machinery and construction planning and management. Annex5 Table 3 shows the number of trainees who successfully completed training courses that typically lasted for two months. The trainees came from both government and the private sector. Annex 5 Table 3: Training Provided by JEG Field of training Number of trainees Operation of machinery 67 Maintenance of machinery 10 Construction planning and management 7 JEG vehicles donated to the Government of Timor-Leste The Government created a special unit within the Directorate of Roads, Bridges, and Flood Control (DRBFC) of the Ministry of Transport, Communications, and Public Works to take responsibility for the 26 vehicles already transferred from the JEG to the Government. DRBFC is using the vehicles to construct the Natabora Bridge. The unit consists of one project manager, four engineers, and 15 operators and was allocated $220,000 for fiscal 2003 for hiring 50 local workers. The cost of civil works is estimated at $680,000 to be financed by CFET. All the staff members of the unit had been trained by JEG in the aforementioned program. 58 Timor-Leste Transport Sector Investment Program Including the vehicles that belonged to the 4th corps and had been transferred to the headquarters in Dili, there are 60 some vehicles altogether that could be donated to the Government on the JEG's final withdrawal. Currently, the Government of Japan is seeking the best disposition of these vehicles within the rules and regulations of Japan. MTCPW is also investigating various options for the future of the special unit and these vehicles, including the separation of the unit from the ministry as an independent company after the completion of Natabora Bridge. Timor-Leste Sector Transport Investment Program 59 Transfer of road construction equipment provided by donors: consideration of options Description Advantages Issues 1. Transfer equipment to Government of Timor Leste (GOTL) ownership: (a) Equipment is owned and used by GOTL The equipment is owned and · Equipment is owned and managed by · Conflicts with principle of managed by the Directorate for Government. undertaking works through private Equipment and Materials of the · Government develops construction sector contractors. MTCPW, and used by capacity. · Equipment unlikely to be used as Government staff for works. efficiently or effectively compared with the private sector. · Draw on Government budget for operating costs. · Distracts MTCPW from core activity of planning and program management. (b) Equipment owned and leased by a public company The public company acts in a · Equipment is owned and managed by · Needs legislation and establishment commercial manner. Preferable Government. of the public company. that the company be wound up · Equipment can be used by GOTL · GOTL needs to provide working when the equipment reaches agencies and leased to the private capital to the company, and gain the end of its useful life. sector. technical assistance (TA) for Preferable also that the management and operation. company be responsible to Ministry of Planning and · GOTL exposed to risk that the company will not be profitable. Finance or similar in keeping with its commercial role. · The company may set prices incorrectly, and undermine the private sector. (c) Equipment on-leased on long term basis to the private sector Lease to private sector · Equipment is provided to those who · Willingness of donors to see specialist equipment leasing are best able to manage and use it. equipment leased to the private companies (to promote · Markedly reduces potential financial sector. specialization and risk to Government, with the · Lease price will depend on private competition), but could be Government to secure a revenue sector confidence in future works leased directly to construction stream that is subject only to program. companies. Lease period to contractual risk. cover the remaining useful life · Lease payments could be disrupted if lessors face financial problems. of the equipment. · Eliminates distortion to MTCPW activities, and need for TA in how to manage and use the equipment. · Reinforce the private sector. 2. Sell equipment to the private sector Donors sell appropriate · Equipment is provided to those who · Willingness of donors to sell equipment in Timor-Leste to are best able to manage and use it. equipment to the private sector and private sector, and provide · Eliminates potential financial risk to provide assistance to GOTL using financial grant to GOTL. Government. the proceeds. · Eliminates distortion to MTCPW · Sale price will depend on private activities, and need for TA in how to sector confidence in future works manage and use the equipment. program. · Reinforce the private sector. 60 Timor-Leste Transport Sector Investment Program ANNEX 6: THE COST OF FUEL IN TIMOR-LESTE Fuel used for transport in Timor-Leste is generally imported from Indonesia or Australia and is expensive. Retail prices vary by retailer and the origin of the fuel, but gasoline and diesel prices are generally in the range of $0.45 to $0.56 per liter, with an average price of about $0.48 per liter. It is estimated that the fuel used by road transport, excluding UNPKF-related vehicles, is about 19 million liters per year. The situation in Timor-Leste may be compared with that of countries in the Pacific that must import their fuel from distant sources. The cost of fuel in these countries varies substantially (Annex 6 Figure 1). The price of fuel in mid-2003 was similar to that in November-December 2002. The most common minimum price exclusive of taxes is about $0.30 per liter, with the lowest cost being about $0.28 per liter in Samoa (where the government periodically awards an internationally-bid period contract for the supply and retailing of all fuel for the country to a single company). The cost in Australia was about $0.25 per liter. Fuel in Timor-Leste at present has an average retail price of Annex 6 Figure 1: Retail fuel prices in Pacific Island about $0.37 per liter excluding countries (excl. taxes, Nov.-Dec. 2002, mogas=petrol) taxes of about $0.11 per liter (comprising customs duty of 6%, excise of $0.06/liter, and sales tax of 6%). If Timor- Leste could obtain the common minimum price in the Pacific (about $0.30 per liter including distribution and retailing but excluding taxes), the retail price of fuel in Timor-Leste would be about $0.40 per liter, i.e. 17 percent lower than at present. This would reduce the cost of fuel Source: Pacific Islands Forum Secretariat (2003). used for road transport (excluding UNPKF activities) in Timor-Leste by about $1.5 million per year. The cost to the economy of Timor-Leste of higher-than-necessary prices for fuel is even greater when account is taken of diesel fuel imported for power generation and other activities. Timor-Leste Sector Transport Investment Program 61 If the imported cost of fuel could be reduced, the Annex 6 Figure 2: Retail petrol prices in Pacific Island Government could introduce countries (incl. taxes Nov.-Dec. 2002 an offsetting rise in excise or user charge to generate funds for road maintenance. Such an approach could support social equity. Users of motorized transport, who will generally have higher- than-average income, would help to offset the cost incurred by the Government in providing them with roads. Poor people make Source: Pacific Islands Forum Secretariat (2003) relatively less use of motorized vehicles, and therefore gain less from low fuel prices. By way of comparison, it is notable that only three countries in the Pacific region have retail prices for gasoline that are less than that the current price in Timor-Leste (Annex 6 Figure 2). Guidance for means for minimizing the cost of imported fuel can be gained from the experience of Pacific Island countries, notably Samoa. THE WORLD BANK EASTR Working Paper No. 5 Transport Sector Unit Infrastructure Department East Asia and Pacific Region June 2005