Thailand Highways Management Project

Source: PROJECT APPRAISAL DOCUMENTS, HIGHWAYS MANAGEMENT PROJECT, World Bank, 2003

2.The Project Work Breakdown Structure

In order to provide clearly the works need to be done, the project design team had built a detailed description which is given below.

Figure 3. The Project Work Breakdown Structure

3.The Project Cost Estimation

The estimated project cost is 146.39 USD.  The project funding is subsidized by RTG in the amount of USD 62.10 million and The International Bank of Reconstruction and Development (World Bank) in the amount of USD 84.29 million.

In deriving the aforementioned cost, the Project Implementing Agency (PIU) formulated the total project cost and submitted to the RTG via the National Debt Policy Committee for its prior approval before proceeding with the Project. Then the RTG requested the borrowing plan to the World Bank. The Bank dispatched the Appraisal mission to conduct the feasibility of the project both physically and financially. The Appraisal Mission then submitted the finding report through the World Bank Executive Directors for the approval. Oftentimes some project is subjected to go through several revision processes if the finding is proved to have a minor political or environmental risk.

Most of the large infrastructure project in Thailand requires the large investment of foreign fund, which can be obtained by the multilateral lending institution (i.e. World Bank and Asian Development Bank) and bilateral countries (i.e. Japanese government via Japan Bank of International Cooperation; JBIC). Comparing to other private multinational investment bank, the term loan from these sources have low interest with long repayment period as part of the official development assistance to developing countries. The approximated ratios for project financing are 80% for foreign funded project and 20% local cost financing by the borrowing countries.

In the case of the Highway Management Project, the PIU is the Highway Department of Ministry of Transport, who has long history of collaboration with the World Bank in implementing the road construction and maintenance project.  The essence of the project objectives are to provide the road maintenance and build the connecting road. The construction cost is calculated on number of the road being built and maintenance per kilometer. The total cost are broken down mainly into the following work component: the consulting fee which is the project management cost; the civil works comprises of labor and machinery; and the material cost.  In addition, the 10% contingency fee is added on the top of the above work component.  Each work component is financed by both the borrowing foreign fund from the lender and local cost financing by the RTG. The local cost is usually reserved for the local tax and levied imposing by host country government, while the contingency fee is wholly funded by the lender. Subsequently, the contingency fee is also served as the risk management tool sheltering the project in case of the funding shortfall.

The Highway Management Project has the following 5 years loan disbursement schedule.

Interestingly, most of the infrastructure project has a bell shaped curve. There is a slow disbursement at the first year due to the procurement process and gradually rises at the middle of the implementation period. Then it falls towards the end.

The information of the project cost estimation is compiled from an interview and disbursement guideline of Public Debt Department, Ministry of Finance, the World Bank and Department of Highway.

4.The Project Planning and Scheduling

4.1. Department of Highway Initial Plan    

The Project has the implementation schedule for 4 years and 3 months, but it is estimated that actual implementation period would be extended about 1 – 2 years due the delay in selection of consultant and the work delivery.  The extension could be requested by DOH to the lender, World Bank. Based on the experience of implementing the infrastructure development project, the selection of the supervisory consultant, who is in charge as the Project Manager, takes about 9 – 12 months due the government procurement procedure. The procurement also must be approved by the lending agency. Once the qualified consultant being selected as Project Manager, he would assist DOH select the subcontract.  In the case of Highway Management Project, there are four main subcontractors.

The average work schedule for each component is about 2 years. Within each work component, there are two parts.  The first part is the implementation part that could be started earlier at the beginning of the subcontractor working period and the latter part is the supervisory part that could start 2 months after the work is being implemented.

1.  Department of Highway Revision Plan    

Based on the current schedule of the Highway Management Project, the Project loses about 1 year in selection process for Project Manager and Main Subcontractors. In Thailand one year is considering to be the norm of Infrastructure Development Project wasting in this rigid procedure. The process could be shorten if the government would cut the red tape and accelerate the process. The delay is considering to be hidden cost as the Project is funded by the World Bank loan and there is the interest cost and opportunity cost associated with time spent of implementing the delayed project.  

It is also interesting to notice that work component 2 - 4 begin at the latter period.  All the work can be altered to begin at the earliest period since each work component is independent to one another. The work could not scattered around the second and third years.  There is a risk in detecting the error and fault during the last half of project life.  Providing the current oil crisis in Thailand, the material cost and other cost associated might be increased by not less than 10 %, the demand for construction material during the second and third years might be a burden if the material is undersupply and project might be stalled.  

From our point of view, we see the risk of the project during the first “idle” year in selection of the consultant. Therefore, the project should be rescheduled by shortening the selection of consultant period and   smoothing the work schedule to begin at early as possible.  We suggest the delay the work component 4 until the last half period.   The trend in IT is changing rapidly every year: procurement of computer today may guarantee the updated technology by the time of the Project completion date. The proposed Project revision schedule is attached for your reference.

2.  The Project Schedules:

To visualize the project plan, hereunder shown are the two schedules for the initial and revised project schedules.

Figure 4. The Project Initial Schedule

Figure 5. The Project Revised Schedule

5.The Project Key Stakeholders Description

There are many individuals, organizations, interest groups involving in a project, especially for big size ones related to infrastructure sector. That is true for this project, however, because of limited time and due to the limitations for a group study report we will discuss only the main key stakeholders, who can directly affect to its success and failure, in the following stakeholder mapping.

Figure 6. The Project Stakeholder Mapping

III- PROJECT PROBLEM AND RISK ANALYSES

1.Project Problem Analysis

As the government embarked on the Public Sector Management Reform Plan in May 1999, the transport sector has undergone through a restructuring process including the realignment of the transport related ministries, agencies and State of Enterprises in lines to ease fragmentation and duplication of responsibilities. DOH is subjected to the restructuring program and weighted on the work performance and utilization of the resources: financial and manpower. DOH scope of work includes the road construction, maintenance and upgrading. The agency has about 19,000 permanent staffs (civil servants) and 20,000 temporary staffs (laborers) on the department payroll.  All the work is centrally planned and monitored from the head office in Bangkok, although DOH has the provincial office in most of the provinces in Thailand.  
The inception of the World Bank funded loan on Highways Management Project calls for the new alternative for transport sector project management.  In the past, foreign funded projected was strategically and financially executed in central office in Bangkok. The highway rehabilitation and maintenance were conducted on the random basis; oftentimes, the road condition was deteriorated prior to DOH inception of annual road maintenance budget. By implementing the project, DOH provincial office has the autonomy to propose the periodic highways rehabilitation and maintenance of the 700-km national highways.  It also includes the 3 pilot projects for 5 years plan of performance-based maintenance of 900 km of national highways. The implementation of the pilot project requires the private sector contractor involvement in conducting the road rehabilitation of 10 km and the annual maintenance of 15-20% per annum as well as routine maintenance for 5 years of the assigned 300 km in each region. Thus, this pilot project would initiate the job decentralization and provincial level budget management. The Project also calls for the private sector participation under the National Competitive Bidding (NCBV) procurement scheme. Unlike the previous loan that required the International Competitive Bidding. NCB would create the advantage of private sector participation and job employment for locals.
The strategic context of Highways Management Project aims to solve the problem of the following issues

• Creation of the sustainable road and transport sector management
  The project also supports Ministry of Transports reform agenda in provision of DOH capacity in the area of performance management, alternative means of service delivery and legislative and regulatory reform in implementing the transport sector.
  It aims to enhance the efficiency, effectiveness and transparency of public resource management and service delivery to be carried out in the fours project components: 1) Highway Rehabilitation and Maintenance; 2) Highway Upgrading and Intersection Improvement; 3) Road Safety Improvement; 4) Institutional Strengthening,  especially in land transport sector.
• Improving the national trade and logistics and Accessing to remote area of the country.
  The jurisdiction of DOH road network is about 52,000 km, consisting of 150 km multilane motorways, 2,000 km four lanes divided highways, and remaining two lanes highways. The combination of the highways asset value is estimated about US$40-50 billion. The annual periodic highways maintenance is budgeted every year. However, the budget is neither suspended nor declined since the financial crisis due to the shortage of maintenance funding and poor budget management. The road improvement would appreciate the DOH asset value and foster the national trade and logistics, owing to the contribution of land transportation. The Project also called for the technical assistance in study on the sustain ability of road maintenance funding and legal framework of Pubic-Private Partnership (PPP) in implementing public- private highway projects.
  The better road network condition would facilitate the domestic and international trading. Thailand has an efficient cross border network linkage to Myanmar in the North, Laos in the Northeast, Khmer in the East and Malaysia in the South. This linkage would increase export and ease trade deficit. Subsequently, it would support the trade and diplomatic relation in the perspectives of AFTA and GMS. Besides the remote area, especially in north and northeast region, would be able to connect to the central area. It shall bring the social and infrastructure development in the needy area. Subsequently, road rehabilitation and maintenance program would create the job in and ease the labor migration to Bangkok.
• Fostering Road Safety
  The Project aims to alleviate the accident rate in the national highway as well as promote the safety driving to all the motorists. According to DOH official statistics, the road accident is accounting for 12 deaths per 10,000 vehicles, which is about six times the rate in developed countries.30 percents of this statistics occurred in national highway. The accident yields social and economical loss. Therefore, the campaigns would be done to improve the hazardous location on the national highways; enforce on traffic regulation; create drive awareness and better behavior; and improve emergency health services. The Project would launch several pilot projects in major cities to promote road safety campaign.  The government of Thailand also promotes the road safety campaign under the Global Road Safety Partnership (GRSP) program. Therefore, the National Road Safety Action Plan has been implemented under the guidance of National Road Safety Council set up by the Prime Minister.  

Based on the current project status, the project has achieved about 30% progress and the total loan disbursement is US$ 8,607,806.06. Based on the interviewed with the  officer  at Public Debt Management Office, Ministry of Finance, who is in charge of the monitoring the loan  and Project, the Project is now facing several hurdles that may hamper the project progress in the near future. It can be classified into the following perspectives:

• Institutional Arrangement
  In order to be compliance with the World Bank policies in development project, the executing agency must set up the Project Steering Committee to provide the direction and guidance of the Project. The committee will be chaired by the Director-General of Department of Highway and consisted of the member from the stakeholder agencies:  National Social and Economic Development Board, Bureau of Budget, Comptroller General Department, Public Debt Management Office and etc. The nomination of the member is appointed to the head of the office. The acceptance of the nomination is obligatory. Up until present, the proposal to form the Committee is in the pending.
  The delay might jeopardize the project well being and its process.
• Staff Technical efficiency
  In the past the procurement process would be done centrally in DOH office. Subsequently, the local staffs are familiar with traditional government procedure in selection of consultant, procurement and budget disbursement. The Project is the World Bank funded project and must be comply by the World Bank regulation which is rigid and procedural. For example, the Project has mandated the NCB bidding process to be conducted by DOH local office. Since most of the local staffs are not familiar with the World Bank NCB procedure, it would also delay the procurement process until the staff receives the further training.
• Environment Assessment
  The Project is also subjected to the environment assessment by the protocols of World Bank and the government of Thailand.  he assessment is identified in the area of pollution, natural habitats, forestry, pest management, cultural property, indigenous people, involuntary resettlement, safety of dams.  Subsequently, some work component may be abolished if it triggers the well being of the above criteria.
• Local Resettlement
  Experience in infrastructure development project indicates the problem of resettlement of people along the national highway.  Especially in the work component of Highway upgrading and intersection improvement, the improved area is not being identified as of present.  There is also an anticipation in the land acquisition, mostly private property, which is time consuming in the reconciliation of damage compensation.
• Budgeting
  Providing the successful of the 3 pilot projects  of 5 years  performance based maintenance contracts of 900 km national highways, DOH must commit to multi year budget plan for the  3 pilot projects and other proposed areas. This is also posing the burdensome for the sustainability of this performance based scheme for DOH to commit in the long run basis.

2.The Project Risk Analysis

The major risks determined under the project’s documents and the mitigation measures are listed in the below table.

Note: H-High risk, M-Modest risk, N-Negligible or Low risk

These risks are explicitly identified. Almost the risks listed out above is analyzed at the level of “Medium”, however, according to the project document, the risk “traffic and axle road regulation are enforced” is at the highest risk level because in the reality in Thailand now, the regulations on road and traffic are not enforced timely. It is considered that in the near future, it can not be enforced as quickly as expectation.

The risks are addressed in almost aspects in the projects, from the context of law, society, policy implementation, etc. At the same time, the solutions to minimize risks are also mentioned, mainly in the mitigation measures (see above)

In the reality, there has not existed a system called “risk management system”, which can be a factor affecting to the project schedule because, as a big project with different components, the project have faced much unexpected problems coming from changing social-economical conditions. In the future, the need of having a risk management system is essential.

IV- LESSONS LEARNT

Through the process of discovering the project background, analyzing its main problems with a view on risks facing, we can withdraw some useful lessons which will be discussed in the following parts.

1.Ownership and Commitment

Oftentimes the project was designed and prepared by the multilateral or bilateral financial institutions like the International Bank for Reconstruction and Development (World Bank), Asian Development Bank (ADB) or Japan Bank for International Cooperation (JBIC). The project is driven by the Program officer and pushes to the Board of Directors in order to get the project approval.  The Program officer tends to pursue his/her own interest in the lending aspect rather than the sustainable development aspect. Vice versa, the executing agency also pushes the project into the annual government borrowing plan for the sake of agency performance and the benefit of free financial assistance. The project does not serve the need to eradicate the problem. Subsequently, the primary lesson that emerges from the past infrastructure projects is that neither the project objective nor the expected project outcomes are unlikely to materialize in the absence of strong ownership and commitment.

2.Cross-sector Issues and Conflicts of Interest

Implementation of action plans, such as the Road Safety Action Plan, involving various agencies has proven much more complicated than anticipated and has given rise to conflicts of interest among some agencies. The implementation of the plan requires the better coordination to smoothing the conflicts and yielding the sound project justification.  In such as case DOH should be the lead in arbitrating the project stakeholders.

3.Budget Allocation, Adequate Staffing and Procurement Procedures

Providing the current annual budgeting allocation process in Thailand, the project lacks a long term sustainable commitment since the budget is subsidized on yearly basis. There are the problems of inadequate operating budgets, insufficient numbers of qualified staff, and differences between national and Bank procurement regulations that undermining the smooth implementation of the projects. It is proposed that the outsourcing of operations, the appointment of a Government project preparation team will ease the hardship of this implementation hurdles. Furthermore, the early resolution of potential procurement differences will help to ensure expeditious project implementation.

4.Support from World Bank Field Office

The World Bank field office has played a significant role in improving the coordination with and performance of executing agencies, especially in the area of procurement. Normally, the World Bank tends to leave the procurement guideline for the executing agency as a reference without providing any further assistance.  It is recommended for the World Band and DOH to jointly provide the procurement training for DOH local staffs and, also set up a Procurement Hotline Center to assist the procurement process. This procurement familiarization program should be continued under the new project as well.

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REFERENCE

1. World Bank (2003), PROJECT APPRAISAL DOCUMENTS, HIGHWAYS MANAGEMENT PROJECT, at
2. Interview with Khun Teerasak Mongkolpod, Director of Project Loan Operation Bureua, Public Debt Management Office, Ministry of Finance, Royal Thai Government
3. Hand-outs/slides of Sm73.61_Managing Public and Development Project, Dr. Do Ba Khang, SOM, AIT
4. Clifford F.Gray & Erik W. Larson, Project Management – The Managerial Process,  Mc Graw Hill, 2003

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