Mozambique - Second Phase of the Roads and Bridges Management and Maintenance Project

Documentof The World Bank FOROFFICIAL USEONLY ReportNo: 39679-MZ PROJECTAPPRAISALDOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNTOFSDR66.1MILLION (US$ 100MILLIONEQUIVALENT) TO THE REPUBLICOF MOZAMBIQUE FORPHASEI1OF THE ROADSAND BRIDGESMANAGEMENTAND MAINTENANCEPROJECT INSUPPORTOF THE ROADSAND BRIDGESMANAGEMENTAND MAINTENANCEPROGRAM(RBMMP-11) May 1,2007 Transport Sector Southern Africa CountryDepartment2 (AFCS2) Africa RegionOffice This documenthas a restricteddistributionandmaybe usedbyrecipientsonly inthe performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective March 3 1,2007) Currency Unit = Metical (MT) 26.42MT = US$1 1.51US$ = S D R l FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ANE AdministraqCo Nacional deEstradas (National RoadAdministration) APL Adaptable ProgramLending CAS Country Assistance Strategy CBO Community Based Organization CEO Chief ExecutiveOfficer CFAA Country Financial Accountability Assessment C L Community Leaders CREE ComissCo de Relaqcles Economicas Externas (Comlssion for External Economic Relations) CQ Consultant Qualification DFID Department for InternationalDevelopment DP Development Partner DPPF ProvincialDirectorates o f Planning and Finance EA Environmental Assessment ERRS Economic Internal Rate o f Return EMP EnvironmentalManagement Plan FMM Financial Management Manual FMS Financial Management System GAS Gabinete deAssessoria e SupewisCo (Assessment and Supervision Unit) GDP Gross Domestic Product G o M Government o fMozambique HDM Highway Development and Management HQ Headquarters ICB International Competitive Bidding IDA International Development Association IFR Interim Financial Report IGF Inspectorate General of Finance INAV Instituto Naczonal de ViaqEo (National Traffic Institute) IRR Internal Rate o fReturn JICA Japanese International Cooperation Agency MICOA Ministryfor the CoordinationofEnvironmentalInterventions M o F MinistryofFinance MoTC MinistryofTransport and Communications MoPWH Ministryo fPublic Works andHousing MOU Memorandum o f Understanding MPF MinistryofPlanningand Finance (former) MTEF MediumTerm ExpenditureFramework N1 National Road 11  FOROFFICIAL USE ONLY N C B National Competitive Bidding PAF Performance Assessment Framework PARPA Plano de Acgiio para a ReduGtio da Pobreza Absoluta (Action Plan for the Reduction of Absolute Poverty) PDO Project Development Objectives PEFA Public Expenditure and Financial Accountability PF Pooled Fund P F M Public Financial Management systems PIP Prise ImplementationPlan P M Procurement Manual PRISE ProgramaIntegrado do Sector de Estradas (Integrated Road Sector Program2007- 09) QCBS Quality and Cost Based Selectlon RBMMP Roads and Bridges and Management and Maintenance Program RF RoadFund(Fundo de Estradas) ROCS Roads and Coastal ShippingProject RSPS Road Safety Policy and Strategy RSS Road Sector Strategy SATC Southern Africa Transport Commission (formerly SATCC) SBS Sector Budget Support SED sc Standard Bidding Documents Supervision Consultant SE Site Engineer SlDA Swedish International Development Agency SISTAFE Sistema deAdministragiio Financeira do Estado (State Financial Management System) SSATP Sub-Saharan Afnca Transport Policy Program SWAp Sector Wide Approach TA Technical Assistance U A S M A Unidadede Assuntos Sociais eMeio Ambiente (Environmental and Social Unit o f ANE) UFSA UnidadeFuncional de Supewistio das Aquisig6es UGEA Unidade Gestora Executora das Aquuicses (Central Unitin charge o f Procurement Functions) UMASE Unidadede Monitoramento eAvaliaq?o do Sector de Estradas (Road Sector Unit for Monitoring and Evaluation) voc Vehicle Operating Cost Vice President: Obiageli K.Ezekwesili Country Director: Michael Baxter Sector Manager: C. Sanjivi Rajasingham Task Team Leader: Dieter Schelling ... 111 I I This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization.  1v  MOZAMBIQUE Roadsand BridgesManagementandMaintenance Program. I1 Phase TABLE OF CONTENTS Page A. StrategicContext andRationale .......................................................................................... 5 1. Country and sector issues ................................................................................................... 5 2 . Rationale for Bank involvement ......................................................................................... 6 3 . Higher-level objectives to which the project contributes.................................................... 6 B. ProjectDescription ................................................................................................................ 7 1. Lending instrument ............................................................................................................. 7 2. Program objective and phases............................................................................................. 7 3. Tnggers for Phase I1and 111o fRBMMP............................................................................ 8 4. Project development objective and key indicators............................................................ 10 5 Project components........................................................................................................... 11 6. Lessons learned and reflected inthe project design .......................................................... 12 7 Alternatives considered and reasons for rejection ............................................................ 13 C. Implementation ................................................................................................................... 14 1. Partnership arrangements.................................................................................................. 14 2. Institutional and implementation arrangements ................................................................ 14 3. Monitoring o f outcomes and reporting ............................................................................. 15 4. Sustainability .................................................................................................................... 15 5. Critical risks...................................................................................................................... 15 6. Credit conditions and covenants ....................................................................................... 18 D. AppraisalSummary ............................................................................................................ 19 1. Economic and financial analyses ...................................................................................... 19 2. Fiscal impact o f PRTSE..................................................................................................... 20 3. Technical........................................................................................................................... 21 4. Fiduciary........................................................................................................................... 21 5 Social ................................................................................................................................ 22 6. Environmental................................................................................................................... 23 7 Safeguard policies............................................................................................................. 24 8. Policy exceptions and readiness ....................................................................................... 24 Annex 1:ResultsFrameworkandMonitoring ......................................................................... 25 V  Annex 2: ImplementationArrangements .................................................................................. 30 Annex 3: Documentsinthe Project File .................................................................................... 35 Annex 3: Documentsinthe Project File .................................................................................... 36 Annex 4: DetailedProjectDescription ....................................................................................... 37 Annex 5: ProjectCosts................................................................................................................ 42 Annex 6: CountryandSector or ProgramBackground .......................................................... 45 Annex 7: FinancialManagementandDisbursementArrangements ...................................... 49 Annex 8: ProcurementArrangements ....................................................................................... 61 Annex 9: Economicand FinancialAnalysis .............................................................................. 70 Annex 10: SafeguardPolicyIssues ............................................................................................. 76 Annex 11:Project Preparationand Supervision ...................................................................... 83 Annex 12: Major RelatedProjectsFinancedbythe Bankor OtherAgencies ....................... 84 Annex 13: Statement of Loansand Credits ............................................................................... 86 Annex 14: Countryat a Glance .................................................................................................. 88 Annex 15: Map IBRD 35460 ....................................................................................................... 90 v1  MOZAMBIQUE ROADS ANT) BRIDGES MANAGEMENTAND MAINTENANCE PROGRAM- PHASE I1 PROJECT APPRAISAL DOCUMENT AFRICA AFTTR Date: M a y 1, 2007 Team Leader: Dieter E. Schelling Country Director: Michael Baxter Sectors: Roads and highways (100%) Sector Manager: C. Sanjivi Rajasingham Themes: Infrastructure services for private sector development (P);Administrative and civil service reform (P);Rural services and infrastructure (P) Project ID-PO83325 Environmental screening category- B - Partial Assessment LendingInstrument: Adaptable ProgramLending (Credit) For Loans/Credits/Others: FRANCE: Govt. o f [MOFA and AFD 1 1 Coop. (NORAD)  Local Sources o f Borrowing Country 195 195 OPEC FUND 1 7 8 SWEDEN: Swedish Intl. Dev Cooperation 10 58 68 Agency (SIDA) Total: 439 604 1,043 Borrower: MinistryofPlanningandDevelopment Av Ahmed S. Toure 21,4th floor Caixa Postal 272, Maputo Mozambique Tel: 258 21 49 22 68 Fax: 258 21497663 ResponsibleAgency: ROAD FUND (Fundo de Estradas) 1st Floor 170Martires de InhamingaAve P.O. Box 797 Maputo Mozambique Tel: 258-21-305589 Fax: 258-21-305069 pcafe@fe.r;ov.mz FY 2008 j 2009 2010 2011 0 0 0 0 0 Annual 25.00 1 45.00 25.00 5.OO 0.00 0.00 0.00 0.00 0.00 Cumulative 25.00 I 70.00 95.00 100.00 0.00 0.00 0.00 0.00 0.00 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Re$ PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical nsks rated "substantial" or "hlgh"7 Re$ PAD C.5 [XIYes [ ] N o Does the project meet the Regional cnteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD B.2, TechnicalAnnex 6 The pnmary objective of the overall Roads and Bridges Management and Maintenance Program (RBMMP), i s to stimulate growth and contribute to poverty reduction through improved road infrastructure, better sector policies, and enhanced roads sector management. More specifically by (i) improving the coverage and conditions o froads and bridges inthe territory o f the Recipient; (ii) strengthening the Recipient's institutional capacity to manage and administer the road sector; (iii) establishing financing mechanisms for road maintenance; (iv) promoting the use o f local resources in 2  roads construction and management; and (v) improving road transport safety The project development objective o f this phase o f the APL i s to improve access o f the populationto all- season roads through maintenance, rehabilitation and upgrading o f the classified road network. The indicators to assess the achievement o f the PDO are (i) the percentage o f classified roads in good and fair condition, and (ii) the percentage ofthe rural populationwithin 2 kmo fan all-seasonroad. Intermediate outcomes have been defined as follows: (a) improved road sector management capacity; (b) enhanced execution o f the road maintenance program; and (c) timely and cost-effective implementation o f the IDA financed rehabilitation and upgrading o f sections o f the National RoadN1. Project descnption Re$ PAD B.3., TechnicalAnnex 4 A. Overheads: (i) Administrative costs: salanes, operating costs, office infrastructure expansion and improvement, and office equipment and vehicles for the National RoadAdministration (ANE) and the Road Fund.(ii) Capacity building: technical assistance, consultancies, training. (iii)Additional Programs: road safety, axle load control and pnvate sector development. B.Maintenance: (i) roadmaintenance: small maintenance works onurbanroadinthe 33 Urban municipalities (i) Provincial consultants, who assist the provincial offices o f ANE to execute their work program, including planning, procurement, and supemsion o f works; (ii) Emergency works including civil works and the procurement and placing o fbailey bridges; (iii) Unpavedroad maintenance, including routine maintenance, periodic maintenance, and spot improvements; (iv)Paved road maintenance, including routine maintenance, and, periodic maintenance C. Investments: (i) Bridgeconstruction andrehabilitation: (ii) Regional and Distnct road program; (iii) National road rehabilitationand upgrade program: civil works and consulting services for rehabilitation and upgrading o f national roads. Which safeguardpolicies are triggered, ifany7 Re$ PAD 0.6, TechnicalAnnex 10 Environmental Assessment (OP/BP 4.0 l), Property (OPN 11.03) and Involuntary Resettlement Cultural (OP/BP 4.12) Significant, non-standard conditions, if any, for: Re$ PAD D.7 Board presentation: None. Credit effectiveness: a) The Subsidiary Agreement has been executed on behalf o f the Recipient and the RoadFund(the Project ImplementingEntity). b) The Project Implementing Entityand ANE have established a financial management system in form and substance satisfactory to IDA. c) ANE shall have completed its restructuring ina manner satisfactory to IDA. d) The Project ImplementingEntityhas adopted the Project ImplementationManual (which includes the Financial Management Manual, The Procurement Manual, environmental and social guidelines, and guidelines for the monitonng, reporting and evaluation o f the Project) inform and substance satisfactory 3  to IDA. e) The Project Implementing Entityhas issued a request for proposal for the selection o f independent auditors inform and substance satisfactory to IDA. Following i s the condition for disbursement for payments into the pooled fund in support of components A and B: Theprovision o f an acceptable semiannual report o fPRISE including a report on the execution o fthe previous semester and the work plan and budget for the following semester intime for the semiannual joint review meetings in September and April each year. Such reports will also include the results o f the financial, technical and procurement audit fiom mid2008 onwards. Covenants applicable to proiect implementation: a) The Road Fund's contribution to the project, through road user charges duringthe years 2007-09 shall not be less than $195 million. b) The signingo f acontract satisfactory to IDAwith an auditor not later than by September 30, 2007 c) That the RF enters into an agreement with ANE on an annual basis for the purpose o f implementing the parts of the project under the responsibility o f ANE. d) That the RF enters into an agreement with INAV for the purposes o fimplementingcomponent A.3.1 o f the project. e) That the RF includes in its annual budget the necessary amounts to be allocated to the Municipalities for the implementation o f component B.l o f the project. 4  A. Strategic Context and Rationale 1. Country andsector issues 1. Mozambique has made notable progress since the 1992 Peace Accords and has sustained real annual growth o f more than 7 percent since 2003. The benefits o f growth have been broad- based and can be seen in improvements in both monetary and non-monetary poverty measures. There was an unprecedented overall 16 percent decline inpoverty between 1997 and 2003, from 70 percent in 1997 to 54 percent in 2003; rural poverty fell slightly more (by 22 percent) than urban poverty (by 16 percent) but more than 50 percent o f the population remains in poverty Despite the country's economic success, lifting the other half out o f poverty will require continued broad-based growth in the economy, together with continued expansion o f social and economic services to the poorest. 2. Mozambique's classified road network-the national and regional roads-consists o f 29,349 kilometers o f roads, o f which 5,814 kilometers (or 20 percent) are paved. No systematic survey exists on the extent and condition o f the non-classified road network, but it i s estimated that about 3,000 kilometers o f urban roads (about 500 kilometers o f which are paved) exist, along with 5,000 kilometers o f distnct roads, all unpaved. The total roadnetwork lengthis estimated at about 37,349 kilometers (see Table 1). Table 1:Road Network of Mozambique (in kilometers) Type of road Paved Unpaved Total ................................................................................. Classified roads .... ... ................... ................... ....... .......................................................................................................................... 5,814 .............................. 23,535 ..... ,......... 29,349 ....., .........,........ ,, IRural Urban unclassified roads (estimate) 500 2,500 3,000 unclassified roads (estimate) 5,000 5,000 I Total 6,3 14 31,035 37,349 3. Road density per land area i s low at 46 meters per sq. kilometer due to the large size o f Mozambique, but quite average, relative to the population, at 423 meters per 1,000 populations. Preliminary estimates suggest that the network could provide potential access (measured as those living within two kilometers o f any roadinthe network) to around 41 percent o fthe nation's rural population. Because o f the poor condition o f the network, the percentage o f the rural population that has reliable, all-year access i s much smaller (reliable numbers will be available once the 2007 population census has concluded); currently, the Performance Assessment Framework (PAF) puts it at 11 percent. One o f the main objectives o f this project i s to increase the number o f rural residents with reliable access to social and economic facilities. The aforementioned statistics suggest that a much larger local road network will be requiredto connect all residents. 4. The Government's medium-term development objectives are spelled out in the PARPA 11, 2006, the country's poverty reduction strategy, and are supported by the Country Assistance Strategy (CAS) prepared jointly by the Government and the Bank. The 2007-1 1 Road Sector Strategy (RSS), and the Road Sector Policy, support the country's poverty reduction strategy The strategy i s also in line with the Bank's Africa Action Plan, which puts renewed emphasis on adequate infrastructure to support growth and increased access to all-season roads. 5  5 During 2006, in close collaboration with road sector Development Partners (DPs), the Government o f Mozambique (GoM) developed PRISE, the 2007-2009 Integrated Road Sector Program. PRISE i s based on the 2007-11 Road Sector Strategy (RSS) and the Road Sector Policy It was decided that PRISE would be implementedusing a sector-wide approach (SWAP). The Road Sector Strategy i s an update o f the 2001-2011 Roads and Bndges Management and Maintenance Program (RBMMP), based on which the International Development Association's (IDA)Adaptable ProgramLending (APL)was first developed. A mid-term review of RBMMP-1 heldinMay 2005 resulted ina decision to embark on the update. 6. Road sector expenditure between 2001 and 2006 was about US$700 million equivalent or U S 1 4 0 million on average per annum. It has been recognized that past road sector investments were insufficient to support the country's poverty reduction goals. PRISE therefore plans to substantially increase expenditures for both maintenance and investment. Total planned sector expenditure under PRISE 2007-09 i s US$1,043 million, or about US$347 million per annum (about 4.4 percent o f GDP). 7 RBMMP-2 supports PRISE. It focuses on the continued rehabilitation and upgrade o f the main national road N1, and contributes to PRISE through a pooled financing arrangement with G o M and other DPs. This support will enable G o M to carry out a sustainable road maintenance program with particular emphasis on periodic maintenance o f paved roads, while at the same time increasing the capacity o f the implementing agencies. The third phase o f the APL will be contingent on successful implementationo f Phase I1and on satisfaction o f agreed triggers. 2. Rationale for Bank involvement 8. An important source o f value added by Bank support is its comparative worldwide expenence in facilitating preparation and implementation o f major roads and transport sector development programs. The Bank has also gained considerable expenence in the region from its management o f the Sub-Saharan Africa Transport Policy program (SSATP). Within the country, the Bank has expenence in the transport sector gained through past and ongoing projects in the roads, rail, and port sub-sectors (ROCS 1 and 2, RBMMP-1, Railways and Ports Restructuring, and the Beira Railway Project). 9 There i s strong commitment by all DPs to harmonize their approaches in line with the Paris Protocol. Hence it was decided that PRISE would be implemented in a SWAP mode. The World Bank team has been instrumental in the preparation o f PRISE and the furthering o f donor harmonization. 10. The use o f a programmatic approach has been validated by the success o f this instrument in many other countnes and sectors. Adaptable Program Lending provides greater flexibility in adapting project design and financing in response to evolving client needs. The Bank's participation thus provides continuity for the implementation o f the long-term national plan inthe roads sector. 3. Higher-level objectives to which the project contributes 11. The GoM's Action Plan for the Reduction o f Absolute Poverty for 2006-09 (PARPA 11) focuses on reducing the incidence o f poverty (from 54 percent in 2003 to 45 percent in 2009) through improvements in governance, human capital, and economic development. The proposed 6  second phase o f the road sector support program continues its strong support to the government's development objectives, and addresses key priorities identified in the new FY08-11 Country Partnership Strategy These are (i) increased accountability and public voice; (ii) equitable access to public services; and (iii) sustainable and broad-based growth. 12. The roads program addresses the development o f infrastructure, a priority area under PARPA I(2001-2005) and retained as a priority area under PARPA I1(2006-2009). Phase I1o f the program focuses on improvements in management o f the sector as well as physical infrastructure, with the objective o f improving connectivity across the country Improving access opportunities for agro producers and rural communities to ports and rail heads, as well as social infrastructure, i s also included. B. ProjectDescription 1. Lendinginstrument 13. An Adaptable Program Lending (APL) was designed in three phases to support the Government's road sector program 2001-11. Phase I(RBMMP-1) with a credit amount o f SDR127 4 million (currently US186.4 million) was designed to be a four-year program starting on July 1, 2001 and ending on June 30, 2005 Phase Iwas presented to the Board o f the World Bank on July 19, 2001, and became effective on June 4, 2002. Delays to execute a subsidiary agreement between M o F and ANE caused a one-year delay in effectiveness. Lengthy procedures for the approval o f contracts caused further delays in implementation, and the credit closing date o f RBMMP-1 i s now June 30, 2007 RBMMP-2 should seamlessly take over from RBMMP-1 and i s plannedto become effective on September 1,2007 Initially it had a plannedcredit amount o f US$135 million, but the amount was reduced to US$lOO million because o f limited availability o f IDA funding. 2. Programobjective and phases 14. The pnmary objective o f the overall Roads and Bridges Management and Maintenance Program (RBMMP), as set out in APL1, i s to stimulate growth and contribute to poverty reduction through improved road infrastructure, better sector policies, and enhanced roads sector management. More specifically by (i)improving the coverage and conditions o f roads and bridges in the temtory o f the Recipient; (ii) strengthening the Recipient's institutional capacity to manage and administer the road sector; (iii)establishing financing mechanisms for road maintenance; (iv) promoting the use o f local resources in roads construction and management; and (v) improving road transport safety 15. The program is being implementedin three phases, with the start o f each stage based on measured progress on agreed targets in the previous stage, including policy and institutional reforms, as well as implementation o f physical works. The program includes an integrated package o f investments focusing on (i) rehabilitation o f key links in the road network to reduce constraints on trade and growth, increase access by rural populations, and reduce transport costs; (ii)strengthening roadplanning, management, and implementing financial reforms to ensure sustainability; (iii) completing institutional reforms to align technical and managerial capacity at the central and provincial levels; (iv) improving road safety policy and implementation; (v) addressing environmental and social impacts by taking measures to incorporate environmental protection requirements in design standards and during implementation o f works; and (vi) 7  improving sector performance through a well-designed (and funded) monitoring and evaluation framework, and dissemination of Performance Assessment Framework (PAF) indicators. 16. The current second phase o f RBMMP i s planned to be delivered in a SWAP mode and it supports the GoM's 2007-09 Integrated Road Sector Program, PRISE. 3. Triggers for Phase I1and I11of RBMMP 17 Tnggers have been defined that need to be fulfilled to move from one phase to the next. The triggers to move from Phase 1to 2 have been met (see Table 2) and the overall scope o f the programhas not increased. The triggers for moving to Phase I11are presented inTable 3. Table 2 Triggers for Phase I1of the RBMMP Original Responsible Trigger Specific Action Date Agency Actual Status (summarized) A. Agreed Phase I Activities definedinthe June 2005 ANE AchievedinMarch2007 roadworks creditagreement Owing to cost increases only substantially substantiallycompleted 778 kilometersof nationalroads completed were rehabilitatedandupgraded, insteadof the planned 1250 kilometers. All of the ninecivil works contracts awardedare substantiallycompletedandwill be fully completedby April 2007 B. Separationof Decree creating the Road June 2004 Government AchievedinMay 2003. the RoadFund Fundas a legalentity Separate RoadFundestablished from ANE passed by Decree2212003 of 20 May completed 2003. C. Roads Board Boardmeetsregularly June 2004 RoadFund Achieved. functioning Roads BoardandRoadFund Boardwere createdinMay 2003. They have sincemet . regularly , .................................................... ............. ....................... .................................. ..,. ... ....: ...............,............. ... .. .. , .. ... .. ............................. : ....................................................... ..... ....... .............................................. D.Financial Outcomeandcompliance ANE and Achievedpartially. management of with financialmanagement RoadFund FM assessments of the Road ANE andthe (FM) assessments Fundhavebeen consistently RoadFund satisfactory. satisfactory ANE has beenworking to ensure compliance with FM.However, the following weaknesses were observed; (a) pendingitems in thereconciliationof Designated Account; (b) delay in implementationof agreed reformsinthe FMunit; (c) some deficienciesinthe internal control system. 8  Original Responsible Trigger SpecificAction Date Agency Actual Status (summarized) E. Timely MPF to channel to Road Continuous Ministry of Achieved, since 2004 inexcess provisionof Fund:equivalent monitoring Finance of plan. agreed level of US$40 millionin2002, Actual annualamounts funds to the Road equivalent U S 4 5 million (equivalentUS$) transferredby Fundand for in 2003, equivalent GoM to RoadFundwere counterpartfunds US$50 million in2004, 2002-US$38.3 million equivalent US$55 million 2003-US$37.5 million in2005 2004-US$55.9 million 2005-US$88.7 million 2006-US$ 85.1 million F Commitment to Audits carriedout Annually (or ANE and Achievedpartially. regular technical semiannually RoadFund Annual financial auditswere and financial for the Road carriedout. The technicalaudit audits Fundas startedbut the quality of needed) technicalauditreports presented by the auditorwas not satisfactory ............................................................................................ G. Satisfactory Activities definedinthe June 2005 ANE Achieved. implementationof credit agreement Roadsafety works and the roadsafety substantiallycompleted installationof traffic signs plan carriedout as part ofthe civil works contracts ................................................................................ H.Satisfactory Activities definedinthe June 2005 ANE Achieved. implementationof credit agreement HIVIAIDS preventionclauses agreed HIVIAIDS substantiallycompleted includedin all contract prevention documents and compliance measuresin monitoring beingcarriedout. relationto road Training of HIVIAIDS office sector staff, peer educatorsand committee carriedout. New office facilities are being ..................................................................................... provided I.Allpreparatory Engineeringdesignsand December ANE Achieved. activitieshave tender documentsfor 2004 Engineeringdesignsand been satisfactorily Phase I1 investmentshave drawings for projectsunder completed been completed PhaseI1were completedin Environmentimpact 2001. These have beenupdated assessmentand social December ANE 2004 andbidding documentsare now a impact assessmentfor ready andthe procurement PhaseI1 investmentshave processhas commenced. been completed Environmentaland social impact assessmentfor Phase I1 projects has beencompletedprior to appraisal 18. To overcome shortfalls noted under triggers D and F above, the following measures have been built in the second phase o f the APL (i)overall fiduciary responsibility for project implementation has been given to the Road Fund which performed consistently better than ANE interms of financial management, while ANE's financial management capacity is strengthened; and (ii) dunngphase one insufficient attention was given to the conduct of technical audits (these were just an appendix to the financial audit, instead o f being audits in their own right). Based on this, and taking into account world-wide experience with technical audits, appropriate terms o f reference have been defined jointly with the financing partners. The conduct o f financial, technical and procurement audits i s part o f the agreements o f the DP o f PRISE (a respective 9  Memorandum o f Understanding i s planned to be signed during the first semiannual joint review meeting in September 2007). 19 Tnggers to move from APL2 to APL3 were defined dunng preparation o f the initial program. These triggers are still valid. One additional trigger (G) in respect o f institutional arrangements for the management o f environmental and social issues at ANE has been added to ensure that these remain inplace also duringphase I11o f the APL. Table 3 Revised Triggers for Phase I11of RBMMP Responsib Trigger Specific Action Date Agency A. Agreed Phase I1 road works Activities defined in Schedule 1 June 2010 ANE substantially completed Part C (c) (i) o f the Financing ................................................................................................................................................................................................................................................................ ................................ Agreement substantially completed j. ............................................................................. B.Financial managementofANE Satisfactory FMassessments o f Monitored ANE and ................................................................................................................................................................................................................................................................] and the Road Fundsatisfactory ANE andRF annually Road Func C. Timely provision o f agreed level The agreed level o f funding inU S Monitored G o M o f funds to the Road Fundand G o M Dollar equivalent from the Road annually budget allocation. Fundis US$195m (US$63m for 2007, US$64,5mfor 2008 and US$67.5m for 2009) and the G o M budget allocation is US$139mfor I the period 2007-09 D.Road Safety Policy and Strategy Ministerial Level approval June 2009 G o M adovted E. Satisfactory implementation of Activities defined inthe financing Continuous ANE agreed HIViAIDS prevention agreement substantially completed measures F Regular financial, technical and Follow up on recommendations Annually RF procurement audits made made by the audit G. Satisfactory institutional Institutional arrangements as December ANE arrangements for environmental and defined in Section 6 o f Annex 10 o f 2007 social management at ANE this PAD are inplace H.Allpreparatory activities for Engineering designs and tender December ANE Phase 3 have been satisfactorily documents for phase three 2009 completed investments as well as environmental and social impact assessments have been comvleted 4. Project development objective and key indicators 20. During adoption of the sector-wide approach by GoM and DPs, a Performance Assessment Framework (PAF) was prepared as a key element o f PRISE. The PAF includes 21 performance indicators (see Annex 1) that serve to define the program purpose, intermediate outcomes as well as indicators to measure the outcomes, with baselines and targets for the coming five years. The indicators proposed below to measure REiMMP-2 outcomes are taken directly from the PAF indicators. Institutional responsibilities for the reporting and the monitoring o f the PAFhave been definedand are mainly with the RoadFund(RF). 10  21. The project development objective (PDO) i s to improve access ofpopulation to all- season roads through maintenance, rehabilitation and upgrading of the classiJiedroad network, 22. The indicators to assess the achievement of the PDO are (i) thepercentage of classi9ed roads in good and fair condition, and (ii) the percentage of the rural population within 2 kilometers of an all-season road. 23. Intermediate outcomes have been defined as follows: (A) improved road sector management capacity; (B) enhanced execution of the road maintenance program, and (C) timely and cost-effective implementation of the IDAJinanced rehabilitation and upgrading of sections of the Nl 24. Key indicators to assess the achievements o f these intermediate outcomes are the following: 0 A(i): Policy for the management o f unclassified roads adopted and implementation plan prepared (PAF indicator 2) A(ii): new RoadAct approved and implemented(PAF indicator 14) e B: percentage o f annual execution o f the planned maintenance achieved on paved and unpaved roads (PAF indicator 7&8 and PAF quarterly reports) 0 C: 160 kilometers o f the N 1 rehabilitated and upgraded by June 2010 as per plan (from the PAF quarterly reports). 5. Projectcomponents 25 The project consists o f three components: A, Overheads; B, Maintenance; and C, Investments. Components A and B are mainly financed through Road Fund revenues and Development Partner (DP) contributions through pooled funding. IDA contributes US$35 million to this pool. Component C i s financed exclusively through dedicated funding by both G o M and DPs. IDA contributes to component C with US$65 million. A. Overheads: USS69.6 million(of which RF and DPs,includingIDA, contribute US$45.2 millionthroughpooledfunding, and DP contributes US$24.4 millionthrough dedicatedfunding) A.1 Administrative costs: salaries, operating costs, office infrastructure expansion and improvement, and equipment for ANE and the RoadFund. A.2 Capacity building: technical assistance, consultancies and training to build up capacity o f ANE, both at headquarters and in the provinces, particularly in terms of planning, procurement and contract management, and to strengthen the financial management and oversight capacity o f the RoadFund. A.3 Additional Programs: road safety, axle load control and private sector development. B. Maintenance:US$263.9 million(of which RFand DPs,includingIDA, contribute US246.2 millionthrough pooledfunding, and RF and DPs contributes US$17.2 million through dedicated funding) B.l Urban road maintenance: funding of small works on urban roads in the 33 municipalities financed by dedicated fundingfrom the RoadFund(10% o f fuel levies by decree). 11  B.2 Provincial consultants: who assist the provincial offices o f ANE to execute their work program, including planning, procurement, and supemsion o f works. B.3 Emergency works: including emergency civil works and the procurement and placing o f bailey bridges. B.4 Unpaved road maintenance: including routine maintenance (15,575 km), periodic maintenance (725 kilometers), and spot improvements (823 km). B.5 Paved road maintenance: including routine maintenance (4,260 km), periodic maintenance (600 km). C. Investments:USS709.8 million(of which GoMcontributesUSS139.1 millionandDPs USS570.7 million,ofwhich IDA contributes U S 6 5 million-all dedicatedfunding) C.1Bridge construction and rehabilitation: the construction o f 16 bndges, including the Zambezi bridge at Caia and the rehabilitationo f three existingbridges. C.2 Regional and Dzstrict road program: under this program it i s planned to rehabilitate about 1,500 kdometers o f regional and distnct roads. C.3 National road rehabilitation and upgrade program: financing the rehabilitation and upgrading o f about 487 kilometers o f national roads, o f which 160 kilometers by IDA, as follows (sub-component C.3.1): (a) Jardim-Benfica section (7 km) (b) Xai-Xai-Chissibuca section (96 km) (c) Massinga-Nhachengue section (57 km) C.4 National roads paving: under this program about 607 kilometers o f national unpaved roads will be paved. C.5 Engineering Services: this includes all supervision services for the works on national roads, and the preparation o f detailed design and biddingdocuments for the next phase o f the project. 6. Lessonslearnedand reflectedinthe projectdesign 26. Implementationdelays: RBMMP-1 experienced implementation delays because of (i) delayed execution o f the subsidiary agreement; (ii)implementation problems; and (iii) bureaucratic procurement approval procedures external to ANE. To mitigate against these delay factors the following has been decided: (a) a draft subsidiary agreement (called memorandum o f understanding) between the Ministry o f Planning and Development and the Road Fund has been prepared; (b) a restructunng program for ANE has been agreed upon (see paragraph below); and (c) G o M has presented a proposal for the reduction o f the need for external approvals for procurement decisions to IDA at negotiations. 27. Restructuringof ANE. Prior to November 2005, responsibility for the management o f the classified road network was split between ANE (primary and secondary roads) and provincial public works offices under the Governor o f each province (tertiary and vicinal roads). In November 2005 GoM decided to merge the roads section o f the provincial road offices and ANE into one body responsible for the management o f the entire classified road network. For that purpose, an appropnate organizational structure, in line with modern road management principles, has been adopted both at ANE headquarters and at provincial levels. The 50 key positions of this new structure are currently being selected through a transparent, competitive 12  process (for details see Annex 2) and the salary structure o f ANE (and the RF) i s being reviewed and will be adjusted to comparable levels in pnvate sector or government institutions o f similar importance. Also, a new Board o f Directors o f ANE i s being put in place. As per the Financial Agreement it i s an effectiveness condition that ANE shall have completed its restructuring in a manner satisfactory to IDA. Inthe Minutes o f Negotiations this has been defined as follows: (i) the new organizational structure o f ANE has been adopted (done on April 3, 2007); (ii) new the Board o f Directors o f ANE i s inplace; and (iii)at least the ANE headquarters' Director General, the Executive Directors and ANE's provincial delegates have been selected in a manner satisfactory to IDA (which means they have been selected through a competitive process). 28. Use of local building materials: The coastal areas o f Mozambique have few naturally available materials suitable for road building. Crushed stone must be hauled to coastal sites from distant quarries, which adds substantially to the cost o f road construction. ANE has carned out research with support from the University o f Texas on the use o f locally available material (sand asphalt) for the construction o f roads. The result of the research has been applied in the updated designs for the N1road sections to be rehabilitated and upgraded duringthis phase. 7. Alternatives considered and reasons for rejection 29. Mode of financing: G o M would like to move toward sector budget support as soon as possible. Having to deal with 19 sector DPs, each with its own (financing) procedures, certainly puts a heavy load on the sector institutions and further undermines their limited capacity As part o f the SWAP it was agreed that during Phase 2 considerable amounts would be set aside by the DPs for pooled financing to be channeled through the RoadFund (RF). IfPhase I1i s successfully implemented, it i s envisaged that the IDA share o f pooled funds will increase or will move to Sector Budget Support (SBS) in Phase 111. In addition, the road fund legislation requires that all road sector funding be channeled through the RF for both maintenance and development. The alternative to this approach for IDA would have been to stick to the financing mechanism applied during Phase I,when all project funding was channeled directly to ANE and all funding was earmarked. This was rejected as not being in line with Government requirements and donor harmonization, hence the channeling o f all IDA funds through the RF part o f which through the pooled fund. 30. Operation of the provincial offices of ANE: Because o f the limited availability o f experienced engineers in Mozambique, the following options were considered to operate the provincial offices o f ANE: (i)outsourcing the provlncial road management functions to the private sector; (ii)augmenting and strengthening the available staff with technical assistance (TA) and training; and (iii)appropnately filling top tier management and technical positions in the provincial offices o f ANE through national and regional recruitment, and offering attractive salary scales in line with private and public entities o f similar importance to ANE. Option (iii)i s preferred and i s currently being implemented. If through these efforts ANE cannot be appropriately staffed by the Credit effectiveness date, it would be necessary to fall back on option (ii). 13  C. Implementation 1. Partnershiparrangements 3 1. This project is a partnership between GoM and nineteen DPs. It is to be implemented ina SWAP mode. It entails a jointly developed and agreed sector policy, strategy, and investment plan, common financing arrangements (for the overhead and maintenance component only), common financial management and procurement procedures, as well as a common reporting and monitoring system. Furthermore it includes joint auditing arrangements, including financial, technical and procurement audits. It i s planned to hold semiannual joint review meetings in September and April each year to which G o M will invite DPs. In order to reduce the number o f missions that are visiting Mozambique it i s suggested that DP should combine their supervision missions with the joint review meetings. It i s planned to agree on the mode o f execution and collaboration inrespect o f PRISE in agreements to be signedby the partners. A Memorandum o f Understanding (MoU) would be signed by all "pool funding" DP and a Code o f Conduct (CoC) by all partners that are contributing to the SWAP through pooled or parallel financing, or both. Drafts o f the M o U and CoC have been prepared and would be signed at the first semiannualjoint review meeting in September 2007 It i s a requirement o f the M o U and the CoC that there will be a joint financial, technical and procurement audit (financed from the pooled fund) that will serve the requirements o f all partners. 2. Institutionalandimplementationarrangements (a) Project Implementation. The responsibility for project implementation will be with the Road Fund, the legally autonomous entity for managing the collection and disbursement o f road sector funds. Policy guidance and oversight will be provided by the Ministry o f Public Works and Housing (MoPWH) and its advisory unit (GAS). (b) Planning; and implementation o f road works will be the responsibility of ANE, the national road administration responsible for the management o f classified roads in Mozambique. ANE headquarters will manage large contracts while the management o f smaller maintenance contracts will be delegated to the provincial offices o f ANE (the threshold for such delegation i s defined inthe procurement manual for PRISE.) (c) Procurement Arrangements. Responsibility for procurement o f most o f the contracts financed under the Project will be with ANE. Those contracts financed under earmarked funding will have to follow the procurement rules of the various DPs, including IDA. Contracts that are funded under the Pooled Fund will be procured following national procurement procedures as described in the Procurement Manual. The financial and technical audit o f all funding under the pooled fund will include a procurement audit. The road fund will employ a high level procurement specialist who will ensure that the procurement arrangements under the project are being followed and that sufficient capacity i s built up to execute the project. (d) Financial Management and Auditing. The overall responsibility for financial management i s with the Road Fund. The RF will manage a pooled fund with funding from road user charges and contributions from some o f the DP (including IDA). In addition, the RF will manage the IDA designated account, a G o M investment account, and an urban roads account meant for the financing o f the maintenance o f urban road by the municipalities. The RF will procure the services o f an external auditor to conduct annual financial, technical, and procurement audits o f PRISE. 14  3. Monitoring of outcomes and reporting 32. The overall responsibility for the monitonng and reporting on the project will be with the RF, which is establishing a specific unit for that purpose (UMASE). The RF will, based on the agreed sector performance assessment framework (PAF) (see Annex l), report quarterly on the progress o f the implementation o f the project to all stakeholders o f the project. Templates have been created for preparation o f quarterly reports for the first and the third quarter o f each calendar year. These quarterly reports will essentially be updates o f statistical sector data. More detailed semiannual reports will be prepared as o f June 30 and December 31 each year (a draft template has beencreated). These semiannual reports will be the basis (together with the audit reports) for the semiannualjoint sector review meetings. 33. ANE will have to provide much of this reporting information to the RF in a timely manner. The RF will need to initiate the collection o f some o f the mission baseline data. The quarterly or semiannual reports will follow up on the agreed indicators and will provide explanations if targets have been missed. The Reports will also include financial information o f the various accounts managed by the RF Each report will provide information on the implementation o f the period immediately previous to reporting period, as well as total achievement since the beginning o f the project. It will also set out the budget and work plan for the coming quarterly or semiannual penod. The semiannual report for the period July to December will also report on the execution o f the program o f the previous year, while the report for the penod January to June will set out a preliminary work program and budget for the following year. 34. G o M will invite DPs twice a year (in April and September) to joint sector review meetings for which the respective semiannual progress report and the technical, financial, and procurement audit reports will form the basis. At the April meeting physical and financial progress o f the implementation o f the previous year will be discussed and evaluated. Progress will also be discussed at the September meeting, and the updated work program and the budget requirements o f the following year will be reviewed and agreed upon. 4. Sustainability 35 Critical to the sustainability o f the road sector program i s improvement o f maintenance performance. Sufficient increased resources for maintenance have been allocated in PRISE (US$SS million on average per annum). Since maintenance works will largely be implementedby the provincial offices o f ANE, ensunng their strong performance will be crucial to sustainability of the program. Clearly, the planned overall spendingunder PRISE(4.4 percent o f GDP) will not be sustainable in the long run, but i s considered necessary in the short run to cover the huge backlog and achieve the country's poverty goals. In the medium term, however, overall resource allocation relative to GDP will decrease, and the share o f maintenance compared to investments will increase. Dunng this phase a great deal o f emphasis has been placed on development o f appropriate annual periodic maintenance programs on paved roads, for which a large portion o f the pooled fundingis intended. 5. Critical risks 36. Constrained implementation capacity: the planned increase o f the average annual expenditure in the road sector from US$140 million to U S 3 4 2 million will require a substantial 15  increase in A N E ' s capacity, bothat headquarters and in the provinces. This comes at a time when ANE is being restructured through the integration of provincial road offices into ANE. This clearly poses a challenge and might lead to implementation delays. To mitigate this risk ANE i s currently restructunng itself through competitive selection of all k e y managerial and technical staff (a total of 50 positions). Starting with the Director General (DG), ANE i s advertising these positions in Mozambique and in neighbonng countnes (to attract Mozambicans from the Diaspora). An attractive salary scheme, similar to those of pnvate and public entities of comparable importance i s being developed. Remaining skill gaps will b e filled temporarily with technical assistance financing provided in PRISE. Table 4 summarizes the main categories of risks. Table 4: Critical risks and possible controversial aspects RiskRating wit Risks RiskMitigationMeasures Mitigation To Project Development 0bjectives Constrained implementation IImplementation capacity will be strengthened at High capacity 'headquarters and inthe provinces through (a) restructuring o f ANE, (b) integration o f provincial road offices into ANE, (c) appointment o f key managerial and technical staff ,throughcompetitive selection; and (d) the application o f an lattractive salary scheme. Implementation delays 'RFinconsultation with the MoF, and MoPWH is preparing Medium because o f the need for the ,aproposal for internalization o f the procurement procedures, procurement related approvals which will be agreed prior to disbursement external to ANE To ComDonent Results Financial management risks ;Before effectiveness, the Bank will approve a Financial High iManagement Manual, which will define budgetary control, ;accounting policies andprocedures inaccordance with ....................... ........................... ........ .. international standards. ,.............................................. ........................... ................................ .......................................................................................... ................... .................................. .... ...... ................................,. ................. Poor governance and :Agovernance structure with clear distmction o froles and Medium corruption inthe sector ;responsibilities including separation o f strategic oversight i(MoPWH), project implementation (RF) and project :execution (ANE) functions is being established. Delay ingenerating sufficient ;Flexibility i s built inthe deterrmnation o f the size o f the Low funds inthe pooled fund, or isermannual IDA payments to the pooled fimd. Modalities there i s a surplus due to slow !willbe agreed upon ina Memorandum o f Understanding progress o f works. lbetween pooled fund contributing parties. Plannedto be :concludedat the first sermannual sector review meeting in ;September 2007 37. Implementation delays because of the need for procurement-related approvals external to ANE: One of the expenences of the implementationof Phase Iof RBMMPwas that the requirement for various external (outside the road sector agencies) procurement decisions was 16  a major contributor to the delays in implementation o f the project. It was agreed with other DPs and G o M that this issue must be addressed as part o f the implementation o f PRISE. The present system requires that all evaluation reports be sent to the Ministry o f Public Works and Housing (MoPWH) for approval, and evaluation reports for externally funded project with a value equal or above the equivalent o f USD 1million must be approved by CREE (ComissZio de Relaqdes Econ6micas Externas - Commission for External Economic Relations). Before signature o f the contract, another approval i s required from both MoPWH and Ministry o f Finance (MoF). Moreover, all foreign exchange payments must be made through the Bank o f Mozambique, which requires that the contract be approved by the M o F According to the law, the Tribunal Administrativo must also give vzstoprbvzo (pnor review) for all contracts pnor to implementation o f the contract. G o M has presented a proposal for the simplification o f these processes. 38. Financial management risks: The financial management assessment done prior to appraisal i s rating the financial management risks as substantial due to the complexity o f the project. Duringphase one o f the APL, when ANE was the implementing agency, its financial management showed some weaknesses (as explained in Table 2 section D). The changed financial management arrangements under PRISE (Phase I1 o f RBMMP) place the main responsibility for financial management under the RF (while ANE will be able to focus on its core strength namely procurement and contract management). Since the core activity o f the RF has always been financial management (most o f its staff are financial specialists), and its assessed capacity i s satisfactory, the overall financial management nsk i s substantially reduced. However, the workload o f the RF under the new arrangements will increase. The RF i s preparing a proposal for the employment o f additional staff and will employ a high-level procurement specialist prior to effectiveness. 39 The detailed financial management arrangements o f PRISE, including the various responsibilities, monitonng, control, and reporting functions are being laid out in the PRISE Financial Management Manual, a draft o f which was reviewed and commented on dunng appraisal. A new draft was presented prior to negotiations. Approval o f the Financial Management Manual (satisfactory to IDA) by the Board o f Directors o f the RF and the Ministry i s a condition o f effectiveness. 40. Procurement risks: a procurement capacity assessment of ANE's central procurement unit (UGEA) was carried out during appraisal o f the project. I t s capacity was assessed as substantial and the overall procurement risk o f the project was assessed as moderate. The challenge for the UGEA will be to ensure adequate procurement capacity in the provincial units o f the ANE (UGEAP) which are currently being created. However, in the past the provincial road units (which are being integrated into ANE) have procured works for an average o f US$4 million per annum and their staff i s being absorbed into the UGEAP ANE is preparing a procurement manual (a draft was discussed pnor to negotiations and its completion satisfactory to IDA is an effectiveness condition) which will lay out the detailed procurement procedures for all works, services and goods to be procured through the pooled fund. Additionally, the RF will employ a high level procurement advisor who will oversee the implementation o f the procurement activities under the project. 41. Governance risks: Although there is considerable nsk o f poor governance and corruption in the sector, such nsk i s not disproportionate compared to those for other sectors or similar countnes. Vanous measures have been taken to mitigate against such nsk: (i) the sector investment program (PRISE) has been defined through a participatory and lengthy planning process with a large number o f civil society representatives and stakeholders; through this process 17  a detailed investment program has been defined, any deviation from which would need to be agreed to by all the stakeholders during the semiannual sector review meetings; (ii) an elaborate monitoring system for the implementation o f PRISE has been defined and clear responsibilities for the monitonng function have been assigned; (iii)the governance structure o f the sector i s elaborate, with clear distinction o f the roles and responsibilities o f the vanous bodies, including the separation of oversight functions (the Ministry), financing (the RF), and execution (ANE); both RF and ANE have Boards o f Directors with pnvate sector representation; (iv) the sector operation modalities are being laid down in financial management and procurement manuals, which are currently being finalized. These manuals will describe clear and transparent processes, including publishing the results o f procurement process on designated Web sites, the national press, and the need for transparent and clear financial reports; (v) in addition, there will be an extensive external financial, technical, and procurement audit that will provide feedback to all financiers as to the proper implementationo f the program and achievement o f value for money 42. Delay in generating sufficient funds in the pooled fund or the funds are in surplus due to slow progress of works: Although there i s willingness among the participating DPs to provide sufficient funding to meet the cash flow requirements o f the pooled fund to finance commitments to service providers, there i s a risk that funds will deplete quickly ifthe DPs are not able to make their contributions on time; or, alternatively, a situation could occur where there are sufficient funds inthe common fund and the RF would like to delay or decrease the IDA payment to avoid excessive liquidity To mitigate this nsk, it i s plannedto buildinflexibility regarding the IDA payment size and timing. It is proposed that each payment will be agreed upon jointly among GoM, DPs, and IDA at the semiannual sector review meeting in September and April each year. The size and timing o f subsequent payment will be based on the agreed and updated cash flow forecast for the pooled fundpresentedby the RF at the semiannual sector review meetings. 6. Credit conditionsand covenants Following are the conditions of effectiveness: a) The Subsidiary Agreement has been executed on behalf o f the Recipient and the RoadFund(the Project Implementing Entity). b) The Project Implementing Entity and ANE have established a financial management system in form and substance satisfactory to DA. c) ANE shall have completed its restructuring in a manner satisfactory to IDA. d) The Project Implementing Entity has adopted the Project ImplementationManual (which includes the Financial Management Manual, The Procurement Manual, environmental and social guidelines, and guidelines for the monitoring, reporting and evaluation o f the Project) inform and substance satisfactory to IDA. e) The Project Implementing Entity has issued a request for proposal for the selection o f independent auditors inform and substance satisfactory to IDA Following is the condition for disbursement for payments into the pooled fund in support of componentsA and B: a) The provision o f an acceptable semiannual report o f PRISE including a report on the execution of the previous semester and the work plan and budget for the following semester in time for the semiannual joint review meetings in September 18  and April each year. Such reports will also include the results o f the financial, technical and procurement audit from mid2008 onwards. Following are Project Covenants: a) The Road Fund's contribution to the project, through road user charges during the years 2007-09 shall not be less than US$195 million b) The signing o f a contract satisfactory to IDA with an auditor not later than by September 30,2007 c) That the RF enters into an agreement with ANE on an annual basis for the purpose o f implementing the parts o f the project under the responsibility o f ANE d) That RF enters into an agreement with INAV for the purposes o f implementing component A.3.1 o f the project e) That RF includes in its annual budget the necessary amounts to be allocated to the Municipalities for the implementationo f component B.l o f the project Following are the key milestonesfor the implementation of theproject: a) Effectiveness o fthe credit i s plannedfor September 1, 2007 b) Joint review meetings are planned inSeptember and April eachyear c) A mid-term review o f the project shall be carried out not later than by April 30, 2009 d) The project is planned to be fully implementedby June 30, 2010 e) The project closing date i s June 30, 2011 D. Appraisal Summary 1. Economic andfinancialanalyses 43. An economic analysis has been completed for the N1 rehabilitation and upgrading component financed by IDA. This component accounts for 65 percent o f total IDA financing and does not require any counterpart funding by GoM. The investments proposed under this project are priorities in the updated Road Sector Strategy, as o f May 2006, o f the GoM. As these roads were part o f the civil works component o f RJ3MMP1, detailed designs were preparedunder APL1 and have now been updated, along with the economic analysis. The results for the three project roads indicate IRRs inthe range o f 15 to 61percent with a combined IRRo f 19 percent. 44. The HDM4 model has been used for the economic analysis. The proposed works option i s compared with a "do minimum" scenario, which assumes that a minimum amount o f maintenance o f the existing road will be camed out. The economic analysis i s based on benefits from savings in VOCs, travel time, and road maintenance costs, compared with the costs o f rehabilitation and upgrading, and maintenance. Discounted benefits are compared to discounted costs for benefit-cost ratios and net present values, as well as calculating the IRRs. A sensitivity analysis o f the I R R s was camed out for (a) an increase in costs o f 30 percent; (b) a reduction in traffic o f 20 percent; and (c) reduction in traffic o f 20 percent, combined with a simultaneous 19  increase in cost o f 30 percent. The sensitivity analyses indicate that all the projects would remain economically feasible even with 20% lower traffic and 30% higher costs. 2. Fiscal impact of PRISE 45 To measure the fiscal impact o f PRISE, expenditures are viewed in the context o f GDP and the main G o M fiscal magnitudes as projected by the IMF over the 2007-2009 penods (see table 5). Average annual PRISE expenditure o f US$348 million would be about 4.4 percent o f GDP and 16percent o f total GoM expenditures. Table 5 :GoM FiscalProjections by IMF 2007-2009 Avg Annual 2007-2009 Item US$ billion Yo of GDP GDP (nominal) US$8.100 100.0% ............................................................................................................................................................................. GoM revenue " .................................................................................................................................. US$1.251 !.s!4.% ................................................................................................................................................................................................................................................................ ofwhich ................................................................................................................................................................................................................................ Taxeson petroleum US$O.I10 1 4 % ................................................................................................................................................................................................................................................................ Other taxes on goods & services US$0.514 6.3% ............. .TEe?..on..!ncome ........................................................................................................................................................................ US$0.270 3.3% /..... .................................................................. ................................................................................................................................................................................................................................................................ Taxeson international trade US$O.I62 2.0% ........................................................................................................................................................................................................................... Other taxes US$O.024 ..~ ............................................................................ 0.3% Other sources of revenue US$O.170 2.1% ........................................................................ GoM expenditure,,&net lending ............................................................................... ........................................................................................................................ US$2.233 27.6% ............................................................................................................................... ofwhich: ," ............................................................................................... ................................................................................................................................................................................................................................................................4 Current expenditure US$1.180 14.6% .................................................................................................................................................... ................................................................................................................................... Capital expenditure, " US$0.977 12.1% ........................................................................................................................................................... of which: " ......................................................................................................................................... ................................................................................................................................................................................................................................................................ Capital expenditure-local& financed US$0.340 4.2% Capital expenditure-other financing US$0.637 7.9% Grants received ................................................................................................................................................................................................................................................................ US$0.664 8.2% I ofwhich; Project US$0.421 5 2% Nonuroiect USs0.243 3 .O% ............................................................................................................................................................................................................ PRISE (expenditureon classifiedroads) US$0.348 ..................................... ......................................................................... 4.3% ................................................................................................................................................................................................................................................................ Domesticfunding 0.111 1.4% Foreignfunding 0.236 2.9% 46. Approximately two-thirds o f PRISE 2007-2009 expenditures i s programmed for investment and one-third for maintenance (current expenditures). Under the medium-term plan shown in the Road Sector Strategy, almost all large-scale investments on the national trunk road network and major bndges will be completed by 2010 or 2011. The next phase o f the roads program will concentrate on asset preservation (maintenance), and expanding rural accessibility through low-cost upgrades and rehabilitation o f the rural roads network; although those needs are extensive, they will almost certainly involve a substantial decrease in total allocations of resources to investment. At the same time, annual allocations to maintenance should m e to US$lOO million or more. Thus, the likely level of total annual road expenditures from 2012 onward should be in the US$200-250 million range (bringingroad sector expenditures down to a 20  level o f around 3 percent o f GDP), with the relative balance between maintenance and investment shiftinginfavor o f the former. 3. Technical 47 ANE is currently carrying out a review o f the Southern Afnca Transport Commission (formerly SATCC) standards to ensure how these can be best adopted in a cost-effective and affordable manner in terms o f both geometric and structural design standards taking into account environmental conditions, traffic volume, locally available construction materials, and ease o f future maintenance. With an aim to decrease unit cost o f rehabilitation works on national roads, ANE is adopting modem road design technology using Accelerated Pavement Testing (APT) with consultant's support from the University o fTexas. ANE has embarked on testingprocedures on locally available road construction matenals for durability and ease o f their applications. The lessons, drawn from the research and material testing expenences, have been used inthe design o f rehabilitation o f three road sections on N1. Two design options were considered, one using crushed stone based on the standard engineering practices, and the other usingsand-asphalt, based on APT design methods. The APT design method was adopted as it was found to give a cost savings o f about 18 percent. 48. To ensure sustainability and improve technical quality o f road maintenance ANE i s planning to implement a pilot output- and performance-based management and maintenance contract, for which the engineering design was carned out under APL Phase 1. Furthermore, the project will continue to support the development o f road safety programs, adoption o f axle load control study recommendations, conducting technically sound road condition surveys, and application o f the Integrated Roads Management System in the planning, design, and implementation o f the routine and periodic maintenance programs o f the road network. 4. Fiduciary 49 The procurement procedures for the pooled fund component will be in accordance with the G o M Public Procurement Regulation enacted in December 2005, with the provision that domestic preference shall only apply to International Competitive Bidding (ICB) procedures and that for ICB, bidding documents and advertisement shall also be available in English.The client has prepared and presented to IDA prior to negotiations a draft Procurement Manual describing the procurement procedures applicable for all contracts funded from the pooled fund. The Procurement Manual describes the various procurement procedures applicable for works, goods and services, relevant thresholds, procedures for the disclosure o f procurement procedures, etc. It will now be updated to reflect the procurement procedures agreed upon dunng negotiations (as per Annex 8). It i s a condition o f effectiveness that a final Procurement Manual, as a part o f the Project Implementation Manual, i s presented to IDA for its review and clearance. For the IDA financed portion o f component C o f the project, to be funded through an IDA designated account maintainedby the RF at the Bank o f Mozambique, IDA procurement procedures will apply The procurement o f contracts financed by other DP through dedicated funding will follow the procedures o f the various DP To strengthen the capacity o f its procurement staff both at headquarters and inthe provinces, ANE will prepare, by June 30,2007, a plan for suitable on-the job training o f its procurement staff. To strengthen its oversight capacity the RF will employ a highlevel ProcurementAdvisor. 21  50. A financial management (FM) review of both the RF and ANE was carried out at appraisal to assess the institutional capacity for handling FM functions. The general observation i s that the accounting and financial management systems o f both the RF and ANE need to be upgraded to establish an acceptable control environment to mitigate financial management risks. Given that the satisfactory assessment o f the FM system was a trigger for APL2, ANE has been working to ensure compliance with FM. However, the following weaknesses were observed: (a) pending items in the reconciliation o f special accounts; (b) delay in implementation of agreed reforms in the FM unit; and (c) some deficiencies in the internal control system. To strengthen institutional capacity for managing FM functions an action plan as shown inTable A7.1 inAnnex 7 has been agreed on. Funds from the GoM, DP, and IDA will be channeled through the RF and from there to executing agencies (see flow o f funds diagram in Annex 7, Figure A7.1). The overall financial management risk i s rated as substantial. 5. Social 51. Safeguards arrangements for the implementation of PRISE. In 2001 a "Strategic Environmental Impact Assessment" for the road sector was prepared for the ten year (2001-11) Road and Bridges Management and Maintenance Program(RBMMP) (also called Roads 3). This strategic assessment i s beingupdated for PRISE and the update i s expected to be available inMay 2007 Under a previous project, Roads and Coastal Shipping Project 2 (ROCS-2) guidelines were prepared, in 1996, for environmental assessments (EA). For the implementation o f resettlement action related to the implementation o f PRISE, a Resettlement Policy Framework (RPF) was prepared in 2006 as part o f the APL1 activities. UASMA, the Environmental and Social Unit o f ANE, is applying the above mentioned instrumentsto all sector investments under the project, not just those financed by IDA. Additionally, UASMA has developed guidelines for the application o f H N / A I D S control measures and applies these guidelines consistently inall sub-projects. 52. Resettlement issues related to the IDA financed road section: The EA revealed that impacts upon some housing, along with shops, kiosks, and associated fences, are anticipated along the Jardim-Benfica section o f the National Road during rehabilitation and upgrading, and some loss o f land i s expected along the Xai-Xai-Chissibuca and Massinga-Nhachengue sections. Social analyses documented persons and assets affected by project construction activities, and a Resettlement Action Plan (RAP) for each sections was developed to accommodate displacement o f indimduals and structures and their resettlement. Mechanisms to minimize the impacts have been incorporated in the RAPs, and include provision for repositioning structures removed within the existing area to minimize resettlement in new areas, adequately compensating all affected persons to ensure that their means o f livelihood are sustained or improved, and paying compensation before the affected persons' properties are removed to minimize transitional loss o f income, services, and livelihood by the affected persons. Provision i s also made for ensunng that the affected persons' grievances are addressed as soon as possible to avoid loss, and for providing employment to Project Affected Persons as an alternative source o f income. Costs for implementationo f the RAPs are to be met under the pooled fund. 53. A Resettlement Policy Framework (RPF) has been developed for application to future road projects, and this should also be monitored and evaluated during implementation o f the Project. Both the RPF and RAPs were disclosed in-country and in the Bank's InfoShop prior to appraisal. 54. HIV/AIDS control: ANE will enhance institutional arrangements to scale up existing prevention activities and continue developing and implementing measures to prevent and mitigate 22  the spread o f Sexually TransmittedInfections and H N / A I D S among ANE staff and their families as well as construction workers and communities living near road construction activities. Functions and specialist staffing will form part o f U A S M A (Unidade de Assuntos Soiais e Meio Ambiente-Environmental and Social Unit o f ANE), and will work with the line ministry, the National Aids Commission and other authorities to implement the workplace policy guiding implementation o f the sectoral response to HIV/AIDS. Priority will be given to developing a monitoring and evaluation system and to exchanging information with the HIV/AIDS Multi- sectoral Aids Program (MAP). With direct assistance from NGOs and Community-based Organizations (CBOs), new approaches will be adopted to assure the implementation o f clauses incontractors' contracts. 6. Environmental 55. EAs in respect of the IDA financed sections of the N1: Environmental Assessments (EA) analyzed the potential environmental and social impacts o f the proposed rehabilitation and upgrading o f three sections o f the N1, and stipulated measures to mitigate such impacts. The environmental policy, and legal and administrative framework o f Mozambique were also reviewed, along with institutional capacity to identify any weaknesses and needs for strengthening. The EA shows that impacts generated by the project activities are limited in extent and duration, given that good construction and management practices will be integrated in design, project implementation plan, and contract documents, and safeguard provisions will be closely monitored during implementation. These requirements have been explicitly described and costed in the Environmental Management Plan (EMP) section of the EA, and include environmental protection measures covering drainage, soil erosion, noise control, and short-term, local impairment o f water quality, and borrow pit use and restoration. The EMP also specifies the responsibilities o f agencies for the implementation and supervision o f environmental and social safeguards. The environmental screening category i s `category B' and the EA has been disclosed in-country and inthe Bank's InfoShop. 56. Institutional arrangements for the application of environmental and social safeguards: The following key players will be involved inEMP and RAP implementation during construction stage: 0 ANE and its Environmentaland Social Unit(UASMA) 0 Supervision Consultants (SCs), that is, the Site Engineer (SE) and SE representatives Contractors The Director General o f ANE, with the assistance o fUASMA, will have overall responsibility for certifying compliance with all safeguard measures and reporting to the regulatory bodies and IDA. 57 Following recommendations in the ENEMP, personnel who have charge o f environmental, social, and health issues in ANE will work within a single unit-that is, UASMA, and report directly to the Director General o f ANE. To assure efficiency and integration, U A S M A should be headed initially by the senior level Environmental/Social Specialist. This would have the added benefit o f enhancing decision making and coordination within and outside ANE, and ensuring that the activities stipulated in EMP and RAPSare implemented satisfactorily TORS have been agreed on, stipulating UASMA's objectives and functions covenng environmental, social, HN/AIDS, and safety activities. 58. Consultations: Initial and detailed consultations took place with the different stakeholders from government departments, local authonties, and local communities, and their 23  output forms an integral part o f project design and implementation arrangements. Communities have a mandate for participation in the decision-making process and this provides an enabling environment for enhancing the benefits o f infrastructure development. 7. Safeguard policies Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/C;P 4.0 1) [XI [I Natural Habitats (OP/RP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revisedas OP 4.11) [XI 11 InvoluntaryResettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revisedas OP 4.10) 11 [XI Forests (OP/BP 4.36) 11 [XI Safety o f Dams (OP/BP 4.37) [I [XI Projects inDisputedAreas (OP/RP/GP 7.60)* [I [XI Projects on International Waterways (OP/RP/GP7.50) [I [XI 8. Policy exceptions and readiness 59 This project complies with all applicable Bankpolicies. 60. The engineering design and bidding documents for the roads to be financed under this credit have been completed, and the procurement o f works and supervision services i s ongoing. It i s expected that respective contracts can be signed immediately after effectiveness o f the credit. * By supportingthe proposedproject, the Bankdoes not intendto prejudicethe final determinationof the parties' claims on the disputedareas. 24  Annex 1: Results Framework and Monitoring MOZAMBIQUE: Roadsand BridgesManagementandMaintenanceProgram(PhaseII) 1. Arrangements for ResultsMonitoring 1. Progress made in achieving the objectives o f PRISE will be reported through a Performance Assessment Framework (see project files, Annex 3) which has been jointly developed by all the sector stakeholders. The road sector Performance Assessment Framework (PAF) aims at incorporatingthe reporting needs o f all stakeholders to reduce the need for the high level o f individual project reporting needs that have prevailed in the sector untilnow The overall responsibility for monitoring and reporting on the program will be with the Road Fund (RF). To cope with the reporting needs for PRISE, the RF i s building up a specialized reporting and monitoring unit (UMASE). The RF will prepare quarterly and semiannual reports based on the PAF Templates for these reports have been prepared and agreed upon (see project files, Annex 3). The quarterly reports will be prepared for the first and third quarter o f each calendar year. They are essentially updates on statistical data being collected in the sector. The semiannual reports will cover the penods January to June and July to December each year. They will incorporate the previous quarterly report and will constitute one o f the key inputs to the semiannualjoint sector review meetings scheduled for September and April each year. 2. RBMMP-2ResultsFramework Table Al.l RBMMP-2 Results Framework Use of ProjectOutcome PDO Information The project development objective is The indicators to assess the To engender a road planning process to improve access o f the population achievement o f the PDO are (I) the that focuses on minimzingroad user to all-season roads through percentage of classified roads ingood costs and on providing reliable access maintenance, rehabilitation and and fair condition, and (ii) the to as many o f the rural dwellers as upgrading of the classified road percentage o f the rural population possible. To feed into the overall network. within two kilometers o f an all- monitoring o f the PARPA I1and the season road (PAF indicators 1 and 3). CAS. Use of IntermediateOutcome IntermediateOutcomes IntermediateOutcomeIndicators Monitoring OutcomeA. Improved road sector (I) Policy for the management of Compliance with these indicators will management capacity unclassified roads adopted and demonstrate GoM's willingness to implementation plan prepared (PAF reform the sector and enhance its indicator 2); management. (ii)new Roads Act approved and implemented (PAF indicator 14) OutcomeB:Enhanced execution o f %of annual execution of The periodic maintenance program is the road maintenance program maintenance achieved on paved and the most prominent omission ofpast unpaved roads (PAF indicators 7&8, maintenance programs. IDA periodic maintenance from the PAF contribution to the pooled fund i s quarterly report) meant to assist to close this gap. Outcome C: Timely and cost- 160kilometers of the N1 A detailed plan for the effective implementation o f the IDA rehabilitated and upgradedby June implementation o f these works has financed rehabilitation and upgrading 2010 (from PAF quarterly report) been prepared. Close monitoringwill program on the N1 helpavoid delays. 25  3. PerformanceAssessmentFramework(PAF) Indicatorsfor PRISE 2. Twenty-one performance indicators have been defined based on the aforementioned results framework. For each performance indicator, a fiche has been established (see PAF in the project files) with a detailed definition o f the indicator, responsibility and means o f collection, baseline data, and targets for the years 2007 to 2011 (for the five-year road sector strategy, including the three-year PRISE). 26  .............. g.g E E c - : & : ' % E g g ; & ' % E g g ; g g z g g g $ E2....................................... 2 6 ' 6 ..e.?..&... i ga..................................... j ggz, Egg ZE.mc2 "zE & ' % E E,: z & C U E & ' % E Q 2 +"n " G E % Egg a : K5I3GB E ~ !$e "............................................................................................. .......................................... p?+n /...................................................... 2 2 6 2; se, e, 6 e, c6jEQ$ . Z + 5 ,c&Q'- 6 r . 2 s c L 0 ....................................................................................................................... -*x2 .- T 3 % & A g 1 3 g g j g 8 3 -xz 6 * m m m *r%r%r% >" -a5x "................................................................................. g - 2 , n fi fi 3E s s g P w3m ' 0 2 ..................... ,.....................,............................... -.-a" 5! m x r- W 5 3 d e z /.............................. '.................................................. ,........................ .............................................................. ......,............................... ....,............... h 6 5-,5 0 - .- s s e s s8 s 4- g v -s i ? E g r- m 0 0 00 69 m d m m v > v) ......................... ,................................ .,...................................... .,.. ............................................................. 3 .................... ....................... ....,................................................... ,........................... ....,............... 3 g, i 2 e6 o sL s8 3  Bc 3 k ; c 8E .............................................................................. g: g 5 - ".................................. .............................................................................................. ................,................................................................................................... I- I- h Q 2h m m m m m C C E E E  ...................I ....................,... ............................................. s W E 0 O s gs u. m W 0 : (A 5 z h 0 c? i? 3 .................. ...,................................................... .................................... s O s rnE 2s 0 p' \o (A VI 3 s E m E r- 0 s" W N 3 N rff E In m m c c $ 3 0 (A  Annex 2: ImplementationArrangements MOZAMBIQUE: Roadsand BridgesManagement and MaintenanceProgram(Phase11) 1. The project will be carried out under the strategic direction and coordination o f the Ministry o f Public Works and Housing (MoPWH) and under the overall responsibility for the implementation, coordination and oversight o f the Road Fund (RF).The RF will enter into annual contract agreements (Contrato Programa) with ANE for the execution o f the part o f the project to be implemented by ANE. Part o f the Road Safety component o f PRISE will be executed by INAV (Instituto Nacional de Viaqiio), which is under the oversight o f the Ministry o f Transport and Communication. The main responsibilities o f each o f the agencies in the road sector are as follows. 2. MoPWH has the overall responsibility for the roads sub-sector. It sets policies and strategies. It oversees the proper functioning o f the agencies under its responsibility, and coordinates their activities. MoPWH has an advisory unit called GAS (Gabinete de Assessona e Supervis?io), which assists the Minister inhis sector oversight and policy setting functions. 3. The Road Fund (Fundo de Estradas) is the Project Implementing Entity It i s responsible for sector finance and monitoring. Its tasks include sector financial planning and management o f sector disbursements. It enters into annual Contract Programs with ANE. The Road Fund i s also responsible for overall supervision (control) over annual program execution, and employs financial, technical, and procurement auditors to audit program execution. Finally, the Road Fund will coordinate the sector-wide monitoring, evaluation, and reporting system through a unit established especially for this purpose (Unidade de Monitoramento e Avaliaqiio do Sector de Estradas-UMASE). 4. The Road Fund i s an autonomous, fully operational body, overseen by its Board o f Directors (see Figure A2.1). The objectives o f the Road Fund (RF or FE) are to guarantee financing for implementation o f the Government's policies on maintenance and development o f public roads, and promote increasingparticipation o f road users inthe provision o f funds. The FE i s responsible for collecting funds (from government and external sources), approving spending plans and disbursingfunds for work completed according to pre-approved budgets and programs. 5 The chairperson o f the board (consisting o f five members) has executive powers and oversees the day-to-day running o f the organization, which has approximately 25 staff. Representatives from the Ministnes o f Finance and State Administration, and two members from private sector organizations involved in the sector, make up the remainder o f the five-member Board. 6. ANE (AdministragPoNacionalde Estradas) is an autonomous body responsible for the preparation and implementation o f sector plans and programs. ANE prepares the medium- and short-term (annual) sector plans, including investment and maintenance components, both at national and provincial level, as well as capacity building activities. Design, supervision and execution o f works i s done by private sector consultants and contractors under contracts procured and managed by ANE. 7 ANE is inthe process of evolution that began with its transition in 1999 from the former National Directorate o f Roads and Bndges (DNEP), part o f MoPWH, to an autonomous road authority overseen by a Board o f Directors, and underwent a redefinition o f its responsibilities in 2003, when the RF and ANE were separated. Further major changes were decided upon in November 2005-namely, the merger o f the functions o f ANE with those o f the roads unit o f the provincial public works departments. On April 3, 2007 the decree o f ANE o f M a y 2003 was 30  amended and a new organizational structure was adopted both at headquarters and in the provinces to reflect this merger. It i s a condition o f effectiveness o f this credit that key elements o f this restructunngare inplace, including the renewal o f the Board o f Directors o f ANE, and the competitive selection o f key staff o f ANE (Director General, Director level staff at ANE headquarters and provincial delegates). The full renewal i s expected to be concluded by December 31,2007 8. Initially (in 1999), the functions o f funding, oversight, and implementation in the road sector were located ina single organization, under an executive board. This board was made up o f representatives from both the public and private sectors, with nominations made by the Minister o f Public Works and Housing, based on proposals from appropnate ministnes and private sector organizations. The Board had eleven members; a Chairman, Vice Chairman, four representatives from ministnes, four from the pnvate sector and one from the university 9 This structure was altered under the second round o f reforms, which were intended to increase separation o f the financing and executive functions and strengthen the institutions responsible for carrying them out. Decree 23/2003 transformed the role o f ANE's Conselho de AdministraqZo from its previous hands-on (executive) role to one o f non-executive oversight o f the performance o f ANE. The current board has five members: a chairperson, representatives from the Ministries o f Public Works and Housing and Transport and Communications, and two members from private sector organizations involved inthe sector. 10. Under the 2003 Decree, ANE had administrative autonomy, and was responsible for planning the development and maintenance o f the public roads system, implementing national roads programs, recommending projects to be financed, and examining and proposing administrative and technical regulations for roads. Its Directorate o f National Roads (DEN) was responsible for the rehabilitation and penodic maintenance o f national roads, whereas the Directorate o f Regional Roads (DER) had the role o f coordinating, supporting, and monitoring the provincial roads departments and municipalities responsible for the routine maintenance o f roads and the management o f regionalroads. 11. Further changes to the structure o f ANE were agreed by the Board in September 2006 and have led to a new organizational structure both at ANE headquarters and in the provincial offices o f ANE. This new structure (see Figures A2.2 and A2.3) has been legalized through two decrees passed by cabinet on April 3, 2007 Under the new structure ANE headquarters will be managed by a Director General (DG) and four Directors, for Planning, Projects (investments), Maintenance, and Administration and Finance. Specialized units responsible for procurement (UGEA), environmental and social issues (UASMA), internal audit, legal services, and public relations will report directly to the DG. Other key staff will be a variety o f technical specialists (such as matenals, bndge, and road safety specialists, and so forth), and at least five highly qualifiedproject managers with extensive procurement and contract management expenence. Key staff in the provinces will be the provincial manager, and heads o f the Planning and Projects departments. All o f the aforementioned staff are currently being recruited in a transparent, competitive process. Whereas it i s expected that most o f the positions will be filled from existing staff o f ANE both at HQand in the provinces, it will also be important to attract professionals from outside ANE and indeed, attempts are being made to attract Mozambicans currently working in neighboring countries and from the Diaspora by offering attractive salary packages comparable to those offeredby other pnvate and public sector entities. 12. INAV (Instituto Nacional de ViaqPo): INAV operates under the supervision of the Ministry o f Transport and Communications (Decree 3/2006 of February 28 2006) and is 31  responsible for road safety policy and its implementation, including regulating drivers and vehicles, road regulations such as speed limits, and the collection of road safety data. 32  m m  1 .-0e! C 0 .-mcs E h r0 a 88  Figure A2.3 Proposed Organizational Structure for ANE (Provinces) Accountant Procurement Management HumanResources 1 Headof Planning Department Department I I ControlDept. I I SafetyDepartment 1 I I Technician Coordinators PavedRoad 35  Annex 3: Documents in the Project File MOZAMBIQUE: Roadsand BridgesManagement andMaintenanceProgram(Phase11) Documents are available inelectronic form inthe files noted. IDocument Electronic File 1. Road Sector Strategy (Road Sector Strategy 2007 -2011, Final Report, August 2006) 01-RSS 2006 Final Report Eng.pdf .........................................................................................................................................................................................................................................................:................................................................................................................... 2. Road Sector Integrated Program 2007-2009 (PRISE - Programa Integrado do Sector de Estradas, Implementation Plan 2007 - 2009, 02-Prise 2007-2009 Final.pdf Final Summary Plan, February 2007) III................................................................................................................................................................................................................................................................x 3. Performance Assessment Framework (PAF) for PRISE (Road 03-PRISE PAFv4 Final.pdf Sector Program, PRISE 2007 - 2009. Performance Assessment Framework, February 2007) 4. Maps for Road Sector Strategy and PRISE Implementation Plan Folder: 04-Maps 5. Draft ANE Procurement Manual, Manual de Procedimentos de Procurement, Draft Prelimnar Maputo - Moqambique, March 2007 05-Procurement Manual Prelimnar Draft-30.03.07.pdf 6. Draft Road FundFinancial Management Manual, Manual de Gestiio Fmanceira (versiio Prelimnar) March 2007 06-Draft Financial Management Manual.pdf ................................................................................................................................................................................................................................................................f 7 Draft PRISE Memorandum o f Understanding, 8 February 2007 07-Draft PRISE M o U 8 FEB ................................................................................................................................................................................................................................................................q 2007.pdf 8. Draft PRISE Code o f Conduct, 9 February 2007 08-Draft PRISE CoC 9 FEB 2007.pdf 9 Decrees 20 through 2312003 o f May 20 - Statutes creating the mstitutional and financial framework o f the Roads Admnistration 09-Decrees 20-23 2003.pdf System, creating the Road Fund, and approving ANE's existing organizational structure. ................................................................................................................................................................................................................................................................} 10. Decree 5412005 o f December 13 - Government Procurement Regulation, Regulamento de Contratacco de Empreitada de Obras 10-Procurement Regulation Publicas, Fornecimento de Bens e Prestapio de Sewiqo ao Estado. Decree.pdf ................................................................................................................................................................................................................................................................j 11. New decree establishng ANE [Draft version submtted to the Cabinet for approval, to be replaced by final version when 11-Draft Decree ANE publishedinthe GoM Official Gazette.] reorganization.pdf 12. Decree 3/2006 of February 28 2006, Approval of the organic statutes of INAV 12-INAVDecree.pdf 13. Decree 10312006of June 1 2005, Approval o f the reclassificationo f 13~Classlficat~on Decree.pdf the road network, Aprova a classi9ca@o de estradas do pais, e revoga a anterior classijcapTo. 36  Annex 4: Detailed Project Description MOZAMBIQUE: Roadsand BridgesManagementandMaintenanceProgram(Phase11) General 1. Phase I1o f R B M M P supports PRISE, the 2007-09 integrated road sector program o f GoM. PRISE i s being implemented ina sector wide approach (SWAP) mode. PRISE incorporates a coherent GoM-owned-and-led roads program in a comprehensive and coordinated manner, with emphasis on planning, finance, implementation monitoring, and evaluation. The SWAP mode will foster stronger country ownership and leadership in the road sector. It will also facilitate a coordinated and open policy dialogue for the entire sector, involving the key G o M agents MoPWH, ANE, Road Fund, and other local stakeholders) and the road sector development partners (DP). PRISE i s developed consistent with the prionties and objectives o f the G o M road sector policy, the action plan for the reduction o f absolute poverty (PARPA), the Medium Term ExpenditureFramework (MTEF),and the RoadSector Strategy (RSS). 2. The cost estimate o f the three years' PRISE 2007-09 i s US$1.043 billion comprising US$69.6 million (7 %) for overheads, US$263.9 million (25 %) for maintenance and US$709.8 million (68 %) for investments. Total D P contribution to PRISE i s US$709 million or 68 percent o f the total. Out o f this, US$114 million will be provided as pooled funding and the balance o f US$595 million through traditionally dedicated funding. The IDA support o f US$lOO million to PRISE, i s planned to be appropnated as follows: (a) US$35 million contribution to the pooled fund for overhead and maintenance expenditures; and (b) US$65 million dedicated funding for the rehabilitationand upgrading o f three sections o f the N1, Following are the various components planned to be financed under PRISE: A. Overheads:UW69.6 million(ofwhich RE' andDP,includingIDA, contribute US$45.2 millionthroughpooledfunding; andDP contributes US$24.4 millionthrough dedicatedfunding) A.l Administrative costs (US$37.3 million - to be financed from the pooled fund). including salaries, operating costs, office infrastructure expansion and improvement, and equipment for ANE and the RoadFund. A.2 Capacity building (US$25.1 million of which US$4.7million to befinanced from the pooled fund and US$20.4 million through dedicated funding). including technical assistance, consultancies, training, and additionalprograms as follows: A.2.1 Technical Assistance (US$10.6 million of which US$2.9million from the pooled fund and US$7.6 million from dedicated funding))) for ANE and RF in the areas o f planning, procurement, contract management, financial management, internal auditing, environmental and social issues, human resource management, information technology and monitoring and evaluation, as per the Technical Assistance Strategy and Plan, which i s part o f the PIP The overall objective o f the technical assistance sub-component i s to transfer know-how and to create capacity which will eventually make technical assistance inthe sub-sector unnecessary 37  A.2.2 Consultancies (Studies) (US$13 million of which US$1.2 million from the pooled fund and US$ll.9 million from dedicatedfunding), including (i)an integrated road management system for ANE; (ii) social and environmental studies, including HIV/AIDS control activities to be executed by the social and environmental unit o f ANE (UASMA); (iii) a study on engineenng design standards, to take into account the local environmental, geotechnical, availability o f local materials and maintenance practices for ANE; (iv) information technology for implementation o f LAN and WAN linking ANE headquarters, provinces, and RF, including hardware, software, and operating costs; (v) technical support for financial management and control systems for ANE and RF; (vi) support to the formulation of provincial strategies, updating o f project implementation plan, preparation, and rolling five- and three-year work plans by ANE; (vii) a road user charges study for the RF; (viii) a financial, technical, and procurement audit for the entire implementationo f PRISE for the RF; and (ix) other studies, as necessary A.2.3 Training (US$1.5 million of which US$0.6 million from pooled funding and US$0.9 millionfrom dedicatedfunding). a training budget for staff o f ANE, the RF, INAF, and GAS has been prepared with an estimated amount o f US$0.5 million per annum. A.3 Additional Programs (US$7.2 million of which US$3.3 million from pooled funding and US$4.0 millionfrom dedicatedfunding). this includes programs for road safety, axle load control, and pnvate sector support. A.3.1 Road Safety program (US$3.7 million of which US$1.2 millionfrom pooledfunding and US$2.5millionfrom dedicatedfunding for sub-componentA3.1.7) as follows: A.3.1.1 Preparation of a Road Safety Policy and Strategy (RSPS) that clearly defines responsibilities, financing mechanisms, and a monitoring framework; the RSPS will be prepared in consultation with all stakeholders. The lead agency for this activity i s Instituto Nacional de ViagHo (INAV) A.3.1.2 A financial and management review o f INAV, with a focus on its regulatory functions while outsourcing most o f its activities to private operators A.3.1.3 Completion o f post-implementation training for the Driver License and Vehicle RegistrationProject, by INAV A.3.1.4 Establishment o f a National Crash Database, founded on a reliable crash data collecting system, by INAV A.3.1.5 Establishment and support o f a road safety audit unitwithin ANE A.3.1.6 A road safety action plan, along the newly rehabilitated section o f the N1, with a focus on measunng enhanced road safety to be executed by ANE A.3.1.7 Support for small civil works to address black spots on classified roads (including road signs) under supervision o fANE's road safety audit unit. A.3.2 Axle Load Control (US$2.0 million - allpooledfunding): this activity to be led by ANE focuses on setting up the institutional and implementation frameworks and various operational costs for Axle Load Control defined under a study executed during Phase Io f RBMMP Financing the construction o f additional weigh bridges will be included in the various road works contracts along sections where a weigh bridge i s proposedunder the study A.3.3. Private Sector Support (US$1.5 million - all dedicatedfunding)) i s support to MoPWH to assist in the development o f local contractors including the establishment o f a national contractor's federation and provincial associations. 38  B. Maintenance:US246.2 million(ofwhich RFandDP, includingIDA, contribute US263.4 millionthroughpooledfunding, andDP contributes UW17.7 millionthrough dedicated funding) B.1 Urban road maintenance (US$I7.2million - to be channeled through a dedicated account). funding o f small works on urban roads in the 33 municipalities financed by dedicated funding from the Road Fund (10% o f fuel levies by decree) to be managed by the infrastructure departments o f each municipality; B.2 Provincial consultants (US$18.0 million - pooled funding) will assist the provincial offices o f ANE to execute their work program, including planning, procurement, and supervision o f works. The provincial consultants (one per province) are local consultants. Their contracts are being procured at ANE HQbecause o f their size. However, the consultants will report to the ANE delegate inthe provinces. B.3 Emergency works (US$I6.0 million -pooled funding): including emergency civil works and the procurement and placing o f bailey bridges. These are activities that will be managed by the provincial offices o f the ANE. B.4 Unpaved road maintenance (US$S8.6million - pooled funding), including routine maintenance (15,575 km), periodic maintenance (725 km) and spot improvements (823 km). All works are planned and managed by the provincial offices o f the ANE. B.5 Paved road maintenance (US$124.I million) B.5.1 US$123.6m pooled funding for routine maintenance (4,260 km) and periodic maintenance on 15 sections o f national roads (600 kilometers). These contracts, because o f their large size, will be procured and managed from ANE headquarters, although in a second phase routine maintenance responsibilities may be delegated to the provinces. B.5.2 US$O.Sm for the penodic maintenance o f the Zandamela-Maxixe section which i s beingfinanced by AFD through dedicated fundingprovidedby AFD. C. Investments:US$709.8 million(of which GoMcontributesUW139.1 millionandDP UW570.7 million-of which IDA contributes US$65 million-all dedicated funding). All these contractswill beprocuredand managedbyANE headquartersstaff becauseof their large size. C.1 Bridge rehabilitation and construction (US$I31.3 million). this includes the rehabilitation and construction o f at least 16 bridges, including the construction o f the Zambezi nver bndge at Caia, which i s under construction and which i s financed by the EU, SIDA, and Italy (planned expenditure dunng the PRISEpenodUS$66.5 million). C.2 Regional and district road program (US$101.3million) under this program, which i s financed by G o M and vanous DPs: it i s plannedto rehabilitate about 1,500 kilometers o f regional and district roads. Provincial strategies for the improvement o f rural accessibility that take into account the development plans o f the provinces and distncts (e.g., agriculture, connections to stations on the Sena railway line) are being developed by ANE in collaboration with provincial and district authonties. These strategies utilize the "rural roads" approach that focuses on solving transitability problems and ensunng maintainability rather than on upgrading or rehabilitation o f entire roads. 39  C.3 National Road Rehabilitation and Upgrading Program (US$232.2 million of which US$65million is IDAfunding). this program, which is largely financed by DP under dedicated funding arrangements (with the exception of N7, Vanduzi-Changara, which is largely GoM- financed) plans to rehabilitate 17 sections o f high-priority national roads with a total length o f (487 hlometers). The three sections o f the N1planned to be rehabilitated under IDA funding are part o fthis item. C.3.1 IDA contribution to National Road Rehabilitation and Upgrading: IDA will contribute US$65 million for the execution o f three large civil works and three supervision consulting services contracts for the rehabilitation and upgrading o f three sections o f the N1. The National RoadN1, starting from the capital, Maputo, and connecting to Pemba inthe north, i s the longest and most important road corndor inthe country GoM has therefore assigned the highestprionty to this National Road. Under the IDA Credit for APL1, about 670 kilometers o f N1between Maputo and Inchope have been rehabilitated and upgraded to meet national standards and the requirements o f current traffic volumes. However, owing to funding constraints under APL1, the following three sections could not be completed: (a) Jardim-Benfica section o f N1 (length- 7 km); (b) Xai-Xai-Chissibuca section o f N1(96 km), and (c) Massinga- Nhachengue section o f N1(57 km). Giventhat the condition o fthe three road sections is poor, and the sections are inurgent need o f rehabilitation and upgrading, the APL2 will include civil works and supervision services. With the completion o f APL2, about 1,000 km o f the N1 Maputo-Inchope section (which i s almost half o f N1) will be improved to National Road standard. The rehabilitation work will include widening, shape correction, strengthening, and upgrading o f the existing pavement. It will also include repairs o f minor drainage structures, as well as geometric and structural improvements to enhance traffic capacity and safety for vehicles and pedestrians. A detailed description o f each road section follows. (a) Jardim-Benfica section o f N1 (7 km): The project entails the rehabilitation o f road N1 between Jardim and Benfica. The entire road i s located in Maputo Province, and runs in the north-northeast direction from Maputo. The road includes urban sections. The road i s heavily trafficked with a traffic volume o f more than 23,000 vehicles per day, o f which 10 percent consists o f heavy vehicles. The road i s thus too narrow to accommodate the current traffic volume. The section will be upgraded to a four-lane divided carnageway o f 13.6 meters in width. (b)Xai-Xai-Chissibuca section ofN1(96 km): The project entails rehabilitation o f road N1between Xai-Xai and Chissibuca. Most of the project road is located in Gaza Province, with a short section in Inhambane province. Xai-Xai is the provincial capital of Gaza, situated some 200 km fkom Maputo city The traffic on the road i s moderate, currently carrying just more than 1,400 vehicles per day at Chongoene and 900 vehicles per day at Zandamela. The vehicle composition i s 78 percent cars and light delivery vehicles (pickups) and minibuses, with the remaining 22 percent comprising buses and trucks. The existingroad consists o f a 5.8 to 6.8 meter-wide carnageway with unsurfaced shoulders o f variable width on both sides. This section will be strengthened and widened to a two-lane carnageway o f 6.8 meters width, and shoulders o f 1.5 meters on either side. (c) Massinga-Nhachengue section o f N1(57 km): The project entails rehabilitation o f road N1 between Massinga and Nhachengue. The entire project road i s located in Inhambane. The traffic on the road today i s significant, currently carrying more than 900 vehicles per day The 40  vehicle composition i s 63 percent cars and light vehicles, with the remaining 37 percent comprising buses and trucks. The road travels through predominantly rolling terrain with very short sections o f hilly terrain, where the gradient o f the road i s steep. The existing road consists o f a 5.8 to 6.8 meter-wide carriageway with unsurfaced shoulders o f variable width on both sides. This section will be strengthened and widened to a two-lane carriageway 6.8 meters in width, and shoulders o f 1.5 meters on either side. C.4 National Roads Paving (US199.2 million): fifteen national roads, which are currently gravel roads totaling 607 kilometers, are plannedto be paved. This program as well i s largely financed by DP (US$185 million), with US$14.2 million i s GoMcounterpart funding. C.5 Engineering Services (US45 4 million): these are costs o f engineenng services for supervision and design services (mainly for international consultant firms), including the engineenng designs and preparation o f biddingdocuments for the program beyond PRISE. 41  Annex 5: ProjectCosts MOZAMBIQUE: RoadsandBridgesManagementandMaintenanceProgram(Phase11) 1. PRISEUse ofFunds 1. RBMMP-2 contributes to PRISE; the Government's 2007-09 roads program. Table A5.1 shows the total planned expenditure for PRISE o f US$1,043.2 million, 7 percent o f which i s planned to be used for overheads, 25 percent for maintenance and 68 percent for investments (further details o f planned expenditures can be found inthe PRISE ImplementationPlan, which i s inthe project files-see Annex 3). Total Pooled DedicatedFunding # Description Cost Funding GoMW DP Subtotal ............................. A 'Overheads i...................................................................................................................................................................................................................................................................0 A. 1 .....................................................................................................................................................................................................................................,. ..................................................... :Administrative costs 37.3 37.3 ........................................ A.2 iCapacity building :...................................................................................................................................................................................................................... .. ............................................................ A.2.1 ................................................................................................................................................................................................................................................................G Technical assistance 10.6 2.9 7.6 7.6 ................................................................................................................................................................................................................................................................= A.2.2 Consultancies 13.0 1.2 11.9 11.9 ................................................................................................................................................................................................................................................................a A.2.3 Training 1.5 0.6 0.9 0.9 ...................................... A.3 ,Additional programs : ................................................................................................................................................................................................................................ .............................................................................. ~ ............................................................................................................................................................................................................................................................... A.3.1 Roadsafety 3.7 1.2 .......................................................................... 2.5 2.5 A.3.2 Axle load control 2.0 2.0 ........................................................................................................................................................................................................................................... B.1 'Urbanroadmaintenance 17.2 17 2 i 17 2 .................................................................................................................................................................................................................... B.2 lProvincia1consultants 18.0 18.0 B.3 ................................................................................................................................................................................................................................................. 'Emergency works 16.0 16.0 B.4 'Unpavedroad maintenance 88.6 88.6 'Regional& District road program Nationalroad rehab & upgrade 454 1868 142 1850 Note: Pooled Funding includes US$35 rmllion o f IDA funding; dedicated funding includes US$65 rmllic o f IDA fbnding under category C.3: National Roads Rehabilitation and Upgrading, for three N1sections 42  2. DevelopmentPartner Contributions 2. Table A5.2 presents the individual levels o f DP funding by program component. Although not all DP funding levels are yet definitively confirmed, they form a sound basis for proceeding with the program as constituted, while showing flexibility in implementation to take account o f changing needs and resources. Table A5.2 DPFundingby Component,PRISE 2007-2009 (US$ millions) Component Dedicated Dedicated Dedicated DP Overhead Maintenance Investment PooledFund Total ............................................................................................................. ........................................................................................................................................... IDA APL2 65.0 35.0 100.0 : ........................................................................................................................................ ~ ................................................................................................................................................................................................................................................................u IDA APLl 1.5 0.5 9 7 11.7 EU 9.6 116.2 59.8 185.6 ADB 44.6 .................................. 44.6 DFID 20.0 ................................................. 20.0 Asdi 13.3 52.9 1.8 ............................................................ 68.0 Italy ................................................................................................................................................................................ 19.0 .................................................... ................................................................ 19.0 ~ Japan ................................................................................................................................................................................................................................................................ 74.9 ............................................................ 74.9 MCC ..................................................... .....,.......... ............................................................................................ 137.1 .................................................................. 137.1 .......................................I ..................................................... USAID .............................................................. 5.9 ..................................................................... 5.9 :........................................................................................................................... ..........,. ........................................................... KfW 11.8 ................................................................ 11.8 AFD ................................................ 0.5 .............................................................. 0.5 :................................................................................................................. .............I........................................................ DANIDA 10.1 .............................................................. 10.1 NORAD 2.2 2.2 BADEA ................................................................... : ................................................................................................................................ .~........................................................................................................................... IDB ......................................................................... 12.4 .................................................................................................................................... 12.4 :...................................................................................................................................... ~ Irish ................................................................................................................................................................................................................................................................ 2.0 2.0 NDF ................................................................................................................................................................................................................................................................ 8.5 8.5 OPEC ........................................................................................................................................................... ...,........................................................................................................ 8.1 8.1 IFAD 0.1 0.1 Total I 24.4 0.5 580.6 116.6 722.5 Note: Values indicatedat time ofPFUSElaunching, February2007 43  3. IDA Contributionto PRISE 3. Table A5.3 shows the IDA contribution to PRISE under RBMMP-2, comprising two components: (i)component A. Contribution to the Pooled Fund ( U S 3 5 million); and (ii) component B: Rehabilitation and Upgrading of Sections ofN1(US$65 million). TableA5.3 IDA contributionto PRISE (US$ millions) Base cost Description l includingtaxes) b l `Zt' 1 ,",",",l;t 1 Total ~~ ~ ~~ Contributionto componentsA and B throughpooled funding 35.0 Contributionto component C: Rehabilitationand Upgrading of Sections of N1 Jardim-Benfica (7km) Civil works 10.45 18 1.88 12.3 Supervision 0.63 18 0.11 0.7 Xai-Xai-Chissibuca (96km) Civil works 25.16 18 4.52 29 7 Suuervision 1.51 18 0.27 1.8 Civil works Total IDA contribution 100.0 44  Annex 6: CountryandSector or ProgramBackground MOZAMBIQUE: Roads and BridgesManagement and Maintenance Program (Phase 11) 1. RoadNetwork 1. Mozambique's road network consists o f about 37,000 kilometers o f roads as shown in Table A6.1 below. Table A6.1 Length of ClassifiedNetwork inkm IIPrimary Classification Paved Unpaved Total II 4,459 1,407 5,866 Secondary 809 3,983 4,792 Tertiary 516 11,645 12,161 Vicinal 30 6,500 6,530 Urban Roads* ...... .......... ... 500 2,500 ........................................... 3,000 ,,....... .............................................. .................................................................................... District Roads* 5,000 5,000 Grand Total 6,314 31,035 37,349 * These roads are not classified- their length i s an estimate. 2. In 1992, when the peace agreement was signed, it was estimated that less than 10percent of the network was in good condition and more than one-third o f roads, particularly the rural roads, were in poor condition and not passable on a regular basis. Poor condition o f roads contributed to high vehicle operating costs, high transport costs, and consequently low traffic volumes, posing major constraints to the marketing o f farm produce and to economic growth generally Moreover, most o f Mozambique's transport infrastructure was designed to serve the colonial economy, providing access to sea ports for landlocked countries in southern Afixa. This had senous implications, particularly for the agricultural sector, as large areas o f the country, especially the agnculturally productive areas o f the north and center, remained isolated and poorly integrated into national markets. 3. The World Bank and other Development Partners' (DPs) assistance in the sector led to major improvements in the condition o f Mozambique's road network since 1992. Under the First and Second Roads and Coastal Shipping Projects (ROCS1 and ROCS2, approved in 1992 and 1994 respectively), more than 3,800 kilometers o f primary, secondary and tertiary roads were rehabilitated and about 3,000 meters o f metallic bndges were laid. In2001, the Roads 3 program, comprising the GoM's 10-year Roads and Bridges Management and Maintenance Program (RBMMP) evolved, encompassing all national road sectors planning and financing, inclusive o f programmed support from all the development partners. Within 10 years, G o M expected to systematically maintain all roads specified in the annual programs, eliminating backlogs. RBMMPwas plannedto be completed inthree phases. 4. The program assigned priority to expanding links to agricultural areas, secunng access to ports, upgrading corridors to neighbonng countries to encourage industrial investment, and improving the coastal road network to stimulate development o f tourism. The Government's network strategy i s focused on improvement o f the main north-southroad that runs from Maputo to Pemba, which contributes to national unity, promotes internal commerce, and improves access. 45  The program assists the Government to (a) improve the coverage and condition o f roads and bridges; (b) strengthen capacity to manage road sector activities; (c) establish effective, efficient, and sustainable institutional arrangements for the sector; (d) establish mechanisms for sustainable financing o f road maintenance; (e) promote use o f local resources in roads construction and maintenance; and (0 support efforts to reduce the spread o fHIV/AIDS and improve road safety 2. Sector Policy 5. Recognizing the dual roles o f the road network, which include (a) ensunng the social and economic mobility necessary for promoting growth, and (b) fostenng regional development by providing secure links to all areas o f the country, G o M has adopted the following as road sector po1icy National Integration: Better roads contribute to the reduction o fregional differences and to the buildingo fnational unitythrough integration 0 Economic Growth: Better roads stimulate economic growth by reducing transportation costs and providing access to markets, They facilitate marketing o f agricultural commodities by ensunng reliable delivery o f inputs and timely marketing o f productionat reasonable cost Strategic Asset: Better roads bolster Mozambique's strategic geographical position as an essential transit comdor for its landlocked neighbors, facilitating their access to international markets 0 Poverty Reduction and Social Development: Roads provide access to distnct capitals, employment opportunities, schools, health care facilities, and other social services, consistent with Action Plan for the Reductionof Absolute Poverty (PARPA) 3. Government's Program for Poverty Reduction 6. Programa do Governo para a ReduGZo da Pobreza Absoluta, or PARPA, the Government's program for poverty reduction, establishes five major goals for the road sector: 0 Supporting Markets: To contribute to the expansion of markets, in particular the agricultural sector 0 District Access: To ensure access to districts with the greatest economic potential, focusing on provinces with highpopulation densities and highconcentrations o fpoverty 0 Connectivity. To establish connectivity between the major regions o f the country and to develop the main comdors 0 Decentralization: To improve the capacity at the provincial and local level for the management and pnontization o f roads civil works 0 Quality of Works: To improve the quality o f the roads civil works, including construction, rehabilitation, and maintenance 4. Road Sector Strategy 7 As a result o f the mid-term review o f the implementation o f phase one o f the RBMMP (APL1) in May 2005, a Road Sector Strategy 2007-2011(RSS) has been formulated in a participatory process with all sector stakeholders. The goals and objectives o f RSS are consistent with the Programa do Governo para a ReduqZo da Pobreza Absoluta, or PARPA, the Government's program for poverty reduction. 46  8. The RSS takes a medium- to long-term perspective o f the development and management o f the classified road network o f Mozambique. RSS adds a level o f detail to the GoM's Road Sector Policy to,establish the main principles, approaches, and activities that will be undertaken through the end o f Roads-3, GoM's 10-year road's program, covering Phases 2 and 3 o f RBMMP The strategic plans for investment, maintenance, and finance included in RSS are prepared for a 5-year horizon, 2007-2011. Both RSS and the 5-year strategic plans should be reviewed and revised in three years' time for the preparation for Phase I11 o f Roads-3. The overall thrust of RSS i s to create an efficient, dynamic, independent, and responsive system o f roads management that is capable o f implementing national and provincial policies and effectively delivenng road services desired by road users. Fundamental pnnciples underlying the Road Sector Strategy, incorporated in the Plan for Phase 11, are Sustainability, Connectivity, Accessibility, Transitability,Asset Preservation,andMaintainability The sustainability o f the road network ensures that resources invested inthe sector yield long- term benefits to the economy, through sustainability o f maintenance, financial sustainability, and sustainability o f capacity. Connectiviv i s directly related to the goal o f national integration and mainly refers to the role o f the pnmary, and to a lesser extent, the secondary road networks in connecting the nation's provinces, provincial capitals, and main international comdors. It also contributes to national economic development by connecting national and international markets to zones o f production and consumption. The concept o f accessibilitv refers to the role of secondaly roads to provide access to high- priority economic poles and to the role o f tertiay and vicinal roads to improve and expand rural accessibility, especially in densely populated and economically productive regions. Accessibility i s closely related to the concept o f transitability. The goal o f transitability i s to keep roads open almost all year, in almost all weather, especially for those roads that are the only source o f accessibility for otherwise isolated rural populations and distncts. The asset preservation principle is to minimize the long-term, life-cycle costs o f maintaining the road network. Inparticular, it strives to prevent the highcosts o f neglected maintenance, especially on roads that represent the largest investment inthe sector, pavedroads. Maintainability entails the design and construction o f roads, keeping in mind the limited capacities for maintenance. It does not mean using expensive low-maintenance options, but rather focusing on realistic life-cycle costs o f keeping roads in good, or at least transitable, condition. 5. Integrated Road Sector Program 2007-09 -PRISE 9 The Mozambican economy continues to show solid growth, having achieved a real GDP growth rate o f about eight percent, which was driven by the good performance o f the transport, communication and construction sectors. G o M has also designed a Programa Integrado do Sector de Estradas (PRISE), plan for the implementation o f RSS in the first three years, that is, 2007- 2009 under a Sector Wide Approach (SWAP). The objective inmoving to a sector-wide approach i s to support a coherent Mozambican-owned-and-led roads program in a comprehensive and coordinated manner. The PRISE Implementation Plan (PIP) includes all program elements and their sources o f funding. Development Partners (DPs) have been involved in this process, and there i s agreement among DP that the GoM-led strategy and sector approach i s coherent and that 47  all DP support should be within PRISE. Moreover, working under PRISE will help donors meet their commitments to the PARIS Declaration on Aid Effectiveness. To harmonize the support from the DPs in the road sector, G o M launched PRISE in a stakeholder workshop held on February 28, 2007 in Maputo, and prepared a draft Memorandum of Understanding (MOU- planned to be signed by DP that participate inpooled funding), and a Code o f Conduct (CoC-for all other DP), which are planned to be signed between G o M (Ministry o f Public Works and Housing, Road Fund and ANE) and DP during the first bi-annualjoint sector review meeting in September 2007 10. The PRISE ImplementationPlan 2007-09 (PIP) equates to approximately a US$1billion program. The funding i s made up o f 19 percent from the Road Fund, 13 percent from GoM, and 68 percent from DP There are 19 participatingDP, including IDA. 48  Annex 7: FinancialManagementandDisbursementArrangements MOZAMBIQUE: RoadsandBridgesManagementandMaintenance Program(Phase11) 1. Introduction 1. An assessment o f the financial management arrangements for the project was carried out in accordance with the Financial Management Practices Manual issued by the Financial Management Board on 3 November 2005. The objective o f the assessment was to determine whether these arrangements are adequate to ensure that (1) project funds are used only for the intended purposes in an efficient and economical way, (2) periodic financial reports are prepared inan accurate, reliable and timely manner, and that (3) the entities' assets are safeguarded. This annex contains the results o f this assessment. 2. Countryissues 2. The public financial management system in Mozambique has been the subject o f a number o f diagnostic studies inthe recent past, the latest o fwhich is the report based on the PFM PEFA (Public Expenditure and Financial Accountability) Strengthened Approach, issued in March 2006. They also include a Country Financial Accountability Assessment (CFAA) report issued in December 2001, and a Public Financial Management Assessment conducted in September 2004. These reports conclude that the public sector financial management systems in Mozambique are weak and that the overall public sector fiduciary risk inMozambique i s high. 3. The Government, with the support o f its development partners, has instituted a number o f reforms in its efforts to address these weaknesses. These include the introduction o f a new Financial Management law that forms the basis for the introduction and implementation o f a computerized integrated financial management information system, e-SISTAFE, which has been rolled out in the Ministry o f Finance and selected other line ministnes. To accompany these, the Government also (i)issued regulations for the Financial Management law; (ii) initiated the introduction o f a new and more detailed functional classifier into the budget; (iii) introduced restnctions on bank accounts held by public institutions; (iv) started to incorporate off-budget revenues, as well as DP-funded expenditures into the budget; (v) initiatedtraining for budget staff in double-entry accounting; and (vi) established a consolidated electronic treasury account to improve control o f treasury operations and cash management. 4. The PEFA Report concluded that these reforms had begun to have an impact. The budget was a credible document with final out-turns reasonably close to initial approvals; there was also a steady improvement in revenue collection and administration. Fundamental weaknesses remained in the quality o f the Public Financial Management Systems (PFM), especially in internal control systems; limited coverage o f the external audit; and the high-level o f off-budget spending, mainly from external project finance. The draft report noted that the quality o f the PFM was expected to continue improving as a natural consequence o f ongoing reforms such as e- SISTAFE; however, this would take time. 5 The 2006 report notes that despite this progress, there are still some lingenng weaknesses in areas such as the comprehensiveness and transparency of the budget and the medium-term planning and budgeting, and emphasizes the weaknesses o f these in relation to budget execution, accounting and reporting. These form part o f the continuing efforts by Government to strengthen the PFM system. 49  3. Institutional Arrangements for FinancialManagement 6. The objective o f RBMMP-2 i s to support PRISE, which will be implemented by the RF and executed by ANE under the oversight o f the Ministry o f Public Works and Housing (MoPWH), In addition, part o f the Road Safety component o f PRISE will be executed by INAV (Instituto Nacional de Via@o) which i s under the oversight o f the Ministry o f Transport. With regard to financial management, the main responsibilities o f each agency inthe road sector are as follows: 7. M o P W H will exercise overall policy guidance and oversight, primarily through its Consultative Council and supported by an advisory body called GAS (Gabinete de Assessoria e SupervisZo). In this function, it will ensure that the financial management arrangements for the project continue to be satisfactory and that the implementing agencies continue to function properly 8. The Road Fund (Fundo de Estradas) i s generally responsible for sector finance and monitoring. Its tasks include sector financial planning, and management o f sector disbursements. The Road Fund is also responsible for monitonng the annual program execution and manages technical audits o f the contract program activities. It will thus retain overall responsibility for the financial management arrangements o f the project. The RF enters into annual contract agreements with ANE (Contrato Programa). 9. ANE (Administraqgo Nacional de Estradas) is responsible for execution of the sector plans and programs. ANE prepares the medium and short-term sector plans, including both investment and maintenance components, as well as sector capacity building activities. ANE's main activities are in the execution o f the plan at both national and provincial levels. It i s responsible for the detailed programming o f plannedworks and engineering services, and then for carrying them out through effective project management and supervision. In addition to the technical tasks, ANE must also manage contracts and estimate cash flows, in conformity with the established procedures. 10. Incarrying out its ultimate responsibility for financial management, the Road Fund has prepared a Financial Management manual which indicates a clear allocation o f responsibilities. These responsibilities will also be the subject o f a Contract Agreement between the Road Fund and the ANE, and will be referred to in a Memorandum o f Understanding. A key provision inthe Contract Program will be the clear delineation o f the responsibility o f each party in the management o f project funds. A more detailed description o f the funds flow mechanism i s given below (Figure A7.1). The Road Fund will assure itself that ANE has put in place adequate financial management arrangements to enable it to properly safeguard assets and report periodically on the use o f funds before effectiveness. 11. At central level, the Road Fundhas an adequate number of staff; however, given the size o f the proposed project as well as the enhanced role as a coordinating agency, consideration should be given to recruiting additional staff. 50  4. Risk Assessment 12. The nsk rating for the project in the area of financial management i s substantial, reflectingthe complexity o f the funds flow mechanism, the nature o f the financing for the project, and the implementation arrangements (see Table A7.1). In addition to funds disbursed to ANE headquarters, some funds will be managed at the provincial level by ANE's provincial delegations, inwhich the adequacy o f staffing levels will assume crucial importance. 13. The table below indicates the activities that will be undertaken by the client to mitigate these nsks. Table A7.1 Summaryof ProjectRisks Risk Rating Risk Mitigating Measures INHERENT RISKS The Government o f Mozambique i s highly comrmtted to a reform program underpinned by the introductiono f a new legal and regulatory framework, and the introduction o f an integrated financial management system, the eSISTAFE. However, there still exist major weaknesses inthe FMenvironment, resulting mainly from capacity shortages. There are still weaknesses incapacity and in audit, with respect to preparation o f the first set o f consolidated accounts. The legal and institutional framework supports project oversight and implementation, with overall responsibility for the project allocated to the Ministry o f Public Works. The RF will have ultimate responsibility for financial management, and it i s a legal entity. There also exist arrangements for overall policy guidance related to financial management, and for coordination o f the responsibilities o f both ANE and the RF Strong internal control procedures and inspection arrangements will be adopted to ensure compliance. Project Level S Through its responsibility for FM, the RF will be responsible for ensuring continuing adequacy o f financial management arrangements inall implementingagencies. RF will remain adequately staffed throughout the project. K e y project activities will be implemented at the provincial level. The flow o f funds will be carefully coordinated, and procedures will be adopted to ensure the proper recording and reporting o f these. OverallInherent S Risk CONTROL RISKS I Budgeting 1 i M The FinancialManagement Manual (FMM)will define the arrangements for budgeting, budgetary control, and the requirements for budgeting revisions. Accounting Accounting policies and procedures will be documented inthe FMM.These willbe inaccordance with international accounting standards. 51  Risk Rating Risk Mitigating Measures Internal Control H Internal control procedures will be documented inthe manual, and management will adopt measures to monitor compliance with these. The RF and ANE bothhave internal audit departments that have the dutyto ensure this compliance. These procedures will also be the subject o f an agreement between Government and the donors ina Memorandum o f Understanding. I FundsFlow H The Funds Flow mechanism has been defined inthe financial management manual and as shown inFigure A7.1, and will be includedina Memorandum o f Understandingbetween donors and GoM, thus providing clarity on the procedures. There will also be strict procedures adopted for regularly accounting for the use o f funds. The disbursement o f funds will be linkedto the project's p l a m n g and reporting. Financial M The project implementing unitshave experience inreporting to Reporting donors on SWAP-type operations. There are regular reporting requirements to facilitate timely preparation o f the required reports. The format o f reporting statements will be specified inthe manual. Overall policy guidance arrangements will ensure that financial information i s followed up and relevant recommendations are implemented. s Auditing S The project's institutional arrangements allow for the appointment o f adequate external auditors. International auditing standards are followed inthe industry.Management will adopt measures to ensure that the audit i s undertaken ina timely manner. OverallControl OVERALLRISKRATING: S H-High S - Substantial M-Modest L-Low 14. Key Strengths: The Government o f Mozambique i s highly committed to a reform program: The legal and institutional fi-amework supports project oversight and implementation. The Financial Management Manual (FMM) defines responsibilities for financial management and procedures to be adopted. 0 The flow o f funds will be carefully coordinated, and procedures will be adopted to ensure the proper recording and reporting o f these. 0 Accounting policies and procedures are documented in the FMM. These are in accordance with international accounting standards. 0 Strong internal control procedures and inspection arrangements will be adopted to ensure compliance. The Funds Flow mechanism will be documented in a Memorandum o f Understanding signed between DPs and the Government. 0 The project implementing units have experience in reporting to donors on SWAP- type operations. 52  15. Main Weaknesses: 0 The multiple sources o f financing for the PRISE present complexities with respect to funds flow and reporting arrangements. There may be a lack o f capacity for ensuring proper financial management, particularly for activities implemented at provincial level. 5. Funds Flow Mechanism 16. IDA funds will be disbursed through designated accounts managed by the RF Amounts for components A and B o f the project will be channeled through a pooled designated account and those for component C will be channeled through a segregated designated account. Additionally, the RF will manage designated accounts for funding for the Municipalities (10% o f the fuel levy) and for G o M budget allocations. Figure A7.1 illustrates the funds flow mechanisms usedby the project. 5.1. Bank Accounts 17 The following accounts managed by the Road Fund and used for funds from IDA will be kept at the Bank o f Mozambique: 0 IDA designated account: this account will be denominated inUS Dollars. Disbursements from the IDA credit will be deposited inthis account and will be usedto finance the IDAportion of component C o f the project which encompasses three large civil works contracts and three supervision services contracts. Pooled Fund the pooled fund will consist o f three accounts denominated in Meticals, US Dollars and Euros. Disbursement from the IDA credit will be made to the U S Dollar account. Contributions from other DPs to the pooled fund can be channeled to these accounts as per procedures still to be defined in a Memorandum o f Understanding between partners contributing to the pooled fund and GoM. 18. Additional accounts managed by the Road Fundinclude: 0 Urban Roads Account: This account will receive funds from the fuel levy (10%) and will be usedto finance the maintenance o f urbanroads inthe 33 municipalities. 0 G o M Investment Account: This account will receive G o M road sector budget allocations and will be used for the financing o f counterpart funding(of sub-project financed by other DP) and for G o M dedicated investments under component C o fthe project. 5.2. Disbursementof IDA funds to the DesignatedAccounts 19 The disbursement o f the IDA credit funds into the designated accounts will be done on the basis o f quarterly un-audited Interim Financial Reports (IFR). A preliminary format o f the IFR was agreed upon dunng negotiations and is attached to the minutes o f negotiations. This format will be further refined prior to effectiveness o f the credit. The IFR will be part o f the overall project reports prepared by the RF and are due not later than 45 days after each reporting period. Each IFR will report on the use o f the funds from the IDA designated account (for component (2.3.1 o f the project). The consolidated bi-annual reports will report on the use o f all funds for the project, including the pooled fund. 53  20. The IFR will include information under the following main categories: (1) a project financial statement, which includes a summary o f sources and uses o f funds; (ii) an updated six- month forecast; designated and pooled account activity and reconciliation statements; (iii)a statement o f eligible expenditures by disbursement category; (iv) a project progress report FigureA7.1FundsFlow Mechanism explaining variances between actual physical and financial progress versus forecasts; and (v) a procurement management report showing procurement status and contract commitments. -.,, /-'-'------.. r'' IDA f Roadusen \ (' Source of funds (Credit) ) Budget \.., -._.---- \ Amounts (m USD) (Total $1,043m) r t Road Fund i IDA Designated ManagedAccounts .- A c c i ~ ~ Other Agency's Municipalities ~ :---I I I - Achvities Financed - T p e of Funding IDA Project Funding Other Funding ~ Pooled Funding Certification Requirements for Payment ........ ANE HQ certifies Invoices Disbursementsaccording to DP requirements ................., ANE Pronncial DelegateCertifies Invoices Quarterly advancesagainst disbursement forecasts and sansfactorypost review X Other DP conuibuhons to the pooled fund to be confirmed 21. An advance will be made to the IDA designated account at the inception o f the project. The advance will be meant to cover forecast expenditures for six months, as indicated in the initial six-month cash flow forecast. After every subsequent quarter, the project will submit IFRs that include a cash flow forecast for the following six-month penod. The cash request at the reporting date will be the amount required for the forecast penod as shown in the approved Interim Reports, less the balance inthe Designated Account at the end o f the quarter. Subsequent disbursements o f the IDA funds will be made with respect to this request. 54  22. With respect to the disbursement to the pooled fund, six semi-annual payments will be made. Disbursement o f the payments i s contingent to the submission o f satisfactory semi-annual reports and (only starting mid 2008) to the receipt o f satisfactory audit reports. These reports will form the basis o f the discussions at semi-annual joint review meetings in September and April each year. There, jointly with the other DP contributing to the pooled fund, and based on the cash flow forecast o f the RF for the following six month the percentage o f IDA contribution to the pool will be determined. 5.3. Disbursementof funds fromthe PooledFund 23. The Road Fund (RF) will make disbursements from the pooled fund as necessary to finance the activities implemented by ANE headquarters and its provincial offices. The RF will obtain assurance on the continued existence o f adequate financial management arrangements in the concerned agency each time it advances funds to such agency These arrangements will include the existence o f staff with appropnate qualifications and expenence. The minimum expectations will be laid out inthe FMM. 24. Implementing agencies will prepare three-months rolling work plans and related cash needs. Funds will be disbursed from the pooled fund to the ANE operational account and to ANE provincial delegations monthly based upon these three-month plans. The first disbursement will cover three month's forecast and subsequent disbursements will be based on work plans and the submission o f satisfactory documentation to justify the use o f funds disbursedearlier. 25. Funds for civil works contracts and other services managed by ANE headquarters and funded by the pooled fund will be disbursed by the RF directly to service providers, upon certification by ANE. 55  5.4 Withdrawal of the Proceedsof the Credit The following table specifies the categories o f eligible expenditures that may be financed from the proceeds o fthe credit. Table A7.3 Withdrawal of the Proceedsof the Credit Category Amount of the Credit Percentageof Allocated Expendituresto be (inUS$ million) Financed (inclusive of taxes) (1) Goods, works, services (other 35.00 Such percentage as IDA than consultant's services), may detemne for each consultants' services, training and semester o f the Financial operating costs under Parts A and B Year o f the Project financed from the pooled fund (except for components A.3.1.7,B.l, andB.5.2) (2) Works under Component C of the Project financed by IDA 51.98 100% (3) Consultants' services for Component C o f the Project financed by IDA 3.12 100% (4) Unallocated 9.90 TOTAL AMOUNT 100.00 6. InternalControls and AccountingProcedures 26. A Financial Management Manual (FMM) is beingbe prepared for the project. It includes a clear allocation o f responsibilities for financial management. It describes the accounting system, internal control procedures, the basis o f accounting, standards to be followed, and policies and procedures to be usedin accounting for program funds. 27 The internal controls includes arrangements to provide reasonable assurance that (a) operations are being conducted effectively, efficiently, and in accordance with relevant financing agreements with respective donors; (b) financial and operational reporting i s reliable; (c) applicable laws and regulations are being complied with; and (d) assets and records are safeguarded. 28. The accounting policies specify the accounting treatment o f financial transactions and establish basic principles designed to ensure that the accounting records are complete, relevant, and reliable, and that accounting practices are followed consistently This manual sets forth financial policies and procedures for the guidance o f all personnel charged with financial responsibilities, with the aim o f ensuring that program resources are properly managed and safeguarded. It documents specific procedures for each significant accounting function. It also 56  covers the following aspects: administrative and human resources; flow o f funds; financial and accounting policies; record keeping and maintenance; the chart o f accounts; formats o f records and books o f account; authonzation procedures for transactions; planning and budgeting; financial reports (including formats, linkages with Chart o f Accounts, and procedures for reviewing these); and auditing arrangements. 7. Accounting System 29 The accounting system i s used to track, record, analyze, and summarize the project's financial transactions relating to the components for which they are responsible. The project's accounts will be prepared on a cash basis inaccordance with InternationalAccounting Standards. 30. The RF's accounting records are maintained using a computerized accounting system based on the accounting software, Primavera, which i s adequate to properly account for project resources. The system integrates budgeting, operating, and accounting systems to facilitate monitoring and reporting. It also enables the automatic generation o f intenm, annual, and other financial reports. 31. Accounting staff are being trained to maintain and operate the system and appropriate controls are being institutedto safeguard the confidentiality, integrity, and availability o f the data. The existence o f a computerized accounting system helps to reduce the nsk o f human errors in record keeping, and enhances efficiency inprepanngreports. 32. The Government of Mozambique is undertaking a public sector management reform, SISTAFE, which among other things i s aimed at improving public financial management. This would integrate budgeting, treasury management, and accounting through a cornputenzed management information system, and also introduce a new internal control regime to support improved public financial management. The accounting systems that are used for the project will be designed to fit within the framework o f the SISTAFE once this reformi s completed. 33. Books o f account will include at a minimum, a general ledger, cashbook, and subsidiary ledgers. A proper filing system that allows authorized users easy access will be set up to ensure that all accounting and supporting documents are retained on a permanent basis and properly maintained. 8. Financial Reporting 34. The project reporting system will have as an objective the production o f sufficient detailed information to manage the program, and the provision to stakeholders, including government and DPs, with quarterly consolidated Intenm Reports and bi-annual consolidated financial statements. The FMM documents the format o f the reports and responsibilities at each level o f implementation for the production o f reports and financial statements. The Road Fund will be responsible for consolidating reports submitted by ANE provincial delegations. 35. The financial reports are designed to provide high-quality and timely information to project management, implementing agencies, and various stakeholders on project performance. These reports include financial statements (for example, sources and application o f funds; expenditure classified by project components, disbursement categones, expenditure types and 57  implementing agencies, and comparison with budgets; short-term forecasts o f expenditure; unit costs for key items and comparison with budgets; and so forth). 36. Annual financial statements and annexes for the project will include a Statement of Sources and Uses o f Funds, showing funds from IDA, other DPs and G o M separately; a summary of expenditures analyzed under the main headings and by main category o f expenditures; Notes in respect o f significant accounting policies and accounting standards adopted by management; a Designated Account Reconciliation Statement; an Implementation Report, which would be a narrative summary o f the implementation progress for the project; and a Summary of Withdrawals. 9. Oversight Arrangements: Audits 9.1. InternalAuditing 37 There i s an internal audit department at the Road Fund comprised of three staff. Its main role i s to assess the level of compliance with internal controls o f the agency both at headquarters and at provincial level. Giventhe RF's overall responsibility, they will also ensure compliance by ANE of financial management procedures that are agreed upon. The head o f the internal audit department reports directly to the Chairman o f the RF The RF management will ensure that the department i s always staffed adequately to enable it to fulfill the mandate envisaged for it. ANE through its own internal audit unit will monitor the technical and procedural aspects of works carried out by ANE both centrally and at provincial level. 38. In addition, the Ministry of Finance plays a central role in the management of public finances and in the coordination o f the implementation of SISTAFE. Its organizational structure includes an Inspectorate General o f Finance (IGF) and Provincial Directorates of Planning and Finance (DPPF) that have the responsibility o f inspecting the transactions of every ministry within the province. Internal audit inspections will be conducted by IGF-MoF once a year in compliance with the norms and procedures used by the Government. The scope o f these audits will cover both central and local implementing agencies. 9.2. ExternalAuditing 39 Constitutionally, the Administrative Tribunal i s mandated to audit all government expenditure. However, additional measures will be taken to ensure that the audit i s conducted by an international firm o f auditors. The annual financial statements o f the project will be audited by independent auditors, acceptable to the Bank, in accordance with acceptable auditing standards. The external audit will be conducted to international auditing standards using terms of reference acceptable to the Bank and other DPs. Auditors will be requiredto issue a single opinion on the project's financial statements, according to the guideline on Annual Financial Reporting and Auditing for World Bank-financed Activities of June 30, 2003. In addition, auditors will be required to issue a management letter, highlighting any identified internal control weaknesses, which will contribute to the strengthening of the control environment. The auditor's report will be submitted to the Bankno later than six months after the end o f each fiscal year. 58  10. FinancialCovenants 40. A financial management system, including records and accounts, will be maintained by the Road Fund. Financial Statements will be prepared in a format acceptable to IDA, and will be adequate to reflect in accordance with sound accounting practices the operations, resources, and expenditures with respect to the project. Financial statements will be audited on an annual basis. 11. Conclusion 41. The overall conclusion of the assessment i s that the current financial management arrangements are satisfactory to meet IDA FMrequirements, subject to the implementation o f the measures agreed on and documented inthe Action Plan. 12. FinancialManagementActionPlan The financial management action plan (see Table A7.2) contains measures required to be implementedto ensure the adequacy o f the financial management arrangements for the project. TableA7.2 FinancialManagementAction Plan ~~~~ ~~~ Action DueDate Responsible Memorandum o f Understanding. To be reviewed IDA/DPs/Government September 2007 IFinalizationo f a Chart o f Accounts incorporating the Effectiveness Road FundANE activities to be carried out under the project (as part o f ................................................................................................................................................................................................................................................................n the FMM) Financialreporting formats (a draft IFR template is Draft completed Road Fund part o f the mnutes o f negotiations. It will be further (negotiations) ANEIIDAIDPs refined before effectiveness) To be refinedbefore ................................................................................................................................................................................................................................................................2 effectiveness I....... Preparation o f the FinancialManagement Manual Effectiveness Road Fund documenting the operations o f the financial management system for the project, including: Staffing responsibilities FundsFlow mechanisms ................................................................................................................................................................................................................................................................N Responsibilities o f implementingagencies RFP issued for selection o f independent auditors in Effectiveness Road Fund format satisfactory to IDA 13. Supervision 42. Financial management supervision will be carried out regularly by the Bank Financial Management Specialist at least twice a year. The initial supervision will be a review o f the implementationprogress o f agreed action plans noted above. The Specialist will also: Review the implementationo f financial management arrangements before credit effectiveness 0 Review the financial component o f the quarterly Interim Report 59  Review the annual audit reports and management letters from the external auditors and follow up on matenal accountability issues by engaging with the TTL, client (Road Fund), or auditors. 60  Annex 8: ProcurementArrangements MOZAMBIQUE: RoadsandBridgesManagementand Maintenance Program (Phase11) 1. General 1. The estimated cost of the three-years- road program is US1.043 billion, and IDA will contribute US$lOO million. The IDA contribution will include (a) US$35 million through pooled funding, for which the procurement processing will be consistent with the Government Procurement Regulation (Decree 54/2005) enacted on December 13, 2005 and all procedures will be laid out in the project's Procurement Manual; and (b) U S 6 5 million through traditional IDA dedicated funding, for the execution o f three large civil works and three supervision services contracts for the rehabilitation and upgrading o f three road sections o f N1. The procurement procedures for the dedicated IDA-funded component will be consistent with the Bank's procurement policy, and Bank's standard biddingand proposals documents will be used. 2. Part A and B: Pooled Funding (US$291.4 million, of which US$35 million i s IDA contribution) 2. The Government, IDA, and DPs' have agreed to create a pooled fund in an amount o f US291.4 million (IDA contribution US$35 million) to support the Government's three-year (2007-09) integrated road sector program (PRISE), estimated at US$1.043 billion. The PRISE will be executed in a sector-wide approach (SWAP) for the following expenditures: (a) overhead costs composed o f administrative costs, part o f the capacity building, and part o f the additional program, and (b) maintenance costs o f unpaved roads, urban roads, emergency works, provincial consultants, and a large part o f the pavedroad maintenance. 3. The procurement system in Mozambique has been under reform over the last two years, based on the recommendations o f the 2002 Country Procurement Assessment Report (CPAR). The Government enacted a Public Procurement Regulation on December 13, 2005, replacing all previous procurement legislation. This law covers procurement for government agencies under both central government and local authorities. 4. For pooled fund expenditure financed by IDA under APL2, the Mozambican procurement system may be used provided: (i)domestic preference i s applied only for ICB (International Competitive Bidding) procedure. Under N C B domestic preference shall not apply, even when foreigners do show interest; (ii) domestic preference for locally manufactured goods shall be applied only for ICB without limitation to the nationality o f goods' manufacturer and (iii) when it i s in an ICB the bidding documents as the advertisement shall be made available in the English language. Accordingly the following Procurement and Selection methods have been established: 5 Goods, Works and Services (other than Consultant's Services): (i) Request for Quotations (RFQ); (ii)National Competitive Bidding (NCB) and; (iii) International Competitive Bidding (ICB). 1Participation o f the various DP that have shown interest inparticipating inthe pooled fund is still to be confirmed. 61  Consultant's Services: (i)Quality and Cost Based Selection (QCBS); (ii)Selection Based on Consultant's Qualifications; and (iii) Least Cost Selection (LCS). Tables A8.1 through A8.3 below summarize the various procurement and selection methods: Table A8.1: Civil Works Categories Threshold Values Remarks ............................................................................................................................................ a) Request for Quotation .................................................................... <us$100,000 At least 3 qualified contractors ................................................................................................................................................ b) NCB:National Competitive Bidding us$loo,ooo - Open for National and International <US$5.0million Bidders. Advertising only in local newspaper and internet website; English ................................................................................................................................................................................................................................................................e not required. c) ICB: International Competitive Bidding XJS$5.0 million Document should also be available in English; domestic preference is applicable. Table A8.2: Goods and Services Categories Threshold Values Remarks ................................................................................................................................................................................................................................................................