Guinea - Transport Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4568-GUI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 42.8 MILLION (US$55 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA FOR A TRANSPORT SECTOR PROJECT May 18, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their officil duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Guinean Franc (GF) USSl.O = GF 400 US$1.28563 = SDR 1 FISCAL YEAR January 01 -- December 31 SYSTEM OF W4EIGHTS AND MEASURES (METRIC) 1 meter (m) - 3.28 feet (ft) 1 square meter (M2) 10.76 square feet (sq ft) 1 cubic meter (m3) 35.3 cubic feet (cu ft) 1 kilometer (km) 0.62 mile (mi) 1 square kilometer (kM2) 0.39 square mile (sq mi) 1 metric ton (t) = 2,205 pounds (lb) ABBREVIATIONS AND ACRONYMS Item English French ANA Air Navigation Agency Agence Autonome pour la Navigation A4rienne AfDB African Development Bank Banque Africaine de D6veloppement AfDF African Development Fund Fonds Africain de Developpement FAC French Bilateral Aid Fund Fonds d'Aide et de Cooperation GTZ Society for Technical Cooperation, Societ6 pour la Coopdration Technique, Federal Republic of Germany Republique Federale d'Allemagne KfW German Bilateral Aid Agency Agence Allemande Bilaterale d'Aide au (Kreditanstalt fuir Wiederaufbau) Developpement m million million PAC Port Authority of Conakry Port Autonome de Conakry SJF Special Joint Financing Agreement Fonds Special pour l'Afrtque, Finance- for the Special Africa Facility ment conjoint  FOR OMCIL. USE ONLY REPUBLIC OF GUINEA TRANSPORT SECTOR PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Guinea Beneficiaries: Secretariat of State for Public Works Secretariat of State for Transport Port Authority of Conakry (PAC) Air Navigation Agency (ANA) Amount: IDA Credit SDR 42.8 million (US$55 m equivalent) Terms: Standard Onlending Terms: for US$11.0 m to PAC and US$8.9 m to ANA: 8.0% 20 years including four years grace Financing Plan: IDA US$55.0 m AfDB US$30.0 m KfW/SJF US$13.0 m GTZ US$ 1.0 m FAC US$ 1.0 m Economic Rates of Return: Road Component: 21% overall, ranging from 18%-28% Port Component: 24% overall, ranging from 12%-27% Staff Appriisal Report: 6787-GUI This document has a restricted distribution and may be used by recipients only in the performance of their offil duties. Its contents may not otherwise be discloed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 42.8 MILLION (US$55 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA FOR A TRANSPORT SECTOR PROJECT 1. The following report on a proposed Development Credit to the Repub- lic of Guinea for SDR 42.8 m (US$55 m equivalent) is submitted for approval. The proposed credit would be on standard IDA terms and would help finance a Transport Sector Project, including a sectorwide policy reform program and investments in highways, ports and civil aviation. Part of the proceeds of the credit would be channelled to the Conakry Port Authority (PAC) and the Air Navigation Agency (ANA) at an interest rate of 8% for 20 years, including four years of grace. The exchange risks would be borne by PAC and ANA, respective- ly. 2. Background. After 25 years of neglect, Guinea's transport sector is among the least efficient in the region and one of the main obstacles to accelerated development of Guinea's newly liberalized economy. A system of some 14,000 km of classified roads is currently reduced to barely 4,500 km of all-weather roads, many of them in very poor condition. The countrv's vehicle fleet is among the smallest and most overaged in the region. Guinea's rail system totals 1,047 km, comprising three mining railways in satisfactory condition (385 km), and a deteriorated public railway from Conakry to Kankan (662 km) which has virtually ceased to operate. A concerted donor approach endorsed by IDA would let the railway subsist with minimum maintenance re- quired only for safety considerations, until the road system is able to take over. Guinea has two deep-water ports, one for commercial and mining traffic at Conakry and one mining-oriented at Kamsar, and a small secondary port at Benty. The country has one recently modernized international airport at Conakry and nine secondary airfields in poor condition. Air safety and navigation equipment remain sub-standard, and the national carrier's (AIR GUINEE) financial and operational situation is precarious. 3. Re-establishing reasonably dependable communications among the main production, consumption and export centers and opening up Guinea's rich hinterland will be essential for the success of the recently launched struc- tural adjustment program for Guinea's economy. To do so will take at least ten years. Building sustainable institutions capable of planning, maintaining and operating the transport systems efficiently will take longer. Pragmatism and realism are therefore essential in defining a bector strategy. In ap- proaching this problem, the Government has sensibly accorded the highest priority to the formulation and implementation of policy reforms aimed at introducing a market-oriented environment in the transport sector and to the re-establishment of essential transport services. In support of this strate- gy, the Government's investment program rightly focuses on the elimination of four major bottlenecks: (a) the heavily deteriorated basic trunk road system; (b) the serious congestion in the commercial port of Conakry; (c) the unreli- able and unsafe air transport system; and (d) the difficulties of transforming a transport industry historically dominated by inefficient parastatals into a performing, private service industry. In collaboration with several co-financing agencies (AfDB, KfW, GTZ, FAC), we propose to support this strategy through a series of projects in the next few years that will finance priority investments and support reform measures in the transport sector, paralleling those being supported at the macro-level by the IDA-supported ongoing structural adjustment program.  4. Project Objectives. The project aims at providing the policy framework required to ensure efficiency and effectiveness throughout the sector. It also supports a major rehabilitation effort in highways, ports and civil aviation -- the backbone of the country's transportation system. To accomplish these objectives, a program of policy reforms, the main elements of which are detailed in the Government's Letter of Development Policy for the Transport Sector, has been formulated and partially implemented; the remaining actions will be carried out during project implementation and comprise (a) pricing policy and related administrative reforms; (b) public investment and expenditure policy; (c) restructuring and privatization of public sector agencies and enterprises including cargo handling and other port-associated services; (d) deregulation and liberalization; and (e) institutional reform and development. 5. Project Description. The project would finance (a) the rehabilita- tion of some 360 km of existing paved roads; (b) the construction of a con- tainer berth, a fuel jetty and a siltation prevention dike in Conakry port, and dredging of the port area and access channel; and (c) essential naviga- tional aids and infrastructure rehabilitation at Conakry International Airport and at selected domestic airfields to re-establish safe operating conditions. Additionally, the project would finance technical assistance to establish a regulatory framework for privatized transport sector operations, and to strengthen and improve Government planning and investment selection, pricing policies, manpower development and training sectorwide. 6. The total cost of the project is estimated at US$111.5 m equivalent, excluding taxes and duties, from which the project is exempt. Foreign ex- change costs are estimated at US$99.6 m (89%). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement together with the estimated disbursement schedule ore shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Guinea are given in Schedules C and D, respectively. Three maps showing project locations are also attached. The Staff Appraisal Report, No. 6787-GUI, dated May 18, 1987, is being distributed separately. 7. Rationale for IDA Involvement. Improving the transportation system in Guinea is high on the agenda of priorities of the Government. The critical condition of roads and airports has isolated, periodically or permanently, productive areas of the country and is the major obstacle for the rehabilita- tion of agriculture and trade. IDA's involvement in the sector will help implement fundamental policy reforms, will serve as a catalyst in mobilizing the substantial resources needed to rehabilitate the sector, and will support the institution building actions required to ensure a lasting effect of the rehabilitation and reconstruction efforts. 8. Agreed Actions. Agreements reached during negotiations include: (a) annual review of the three-year rolling transport investment and expendi- ture program for 1988-93, including limiting funding for railways to that required for safety reasons and limiting tuture budgetary transfers to rail- ways to present low levels; for investments, only projects with a 10% economic rate of return will be included in the program; (b) subsequent annual review of maintenance budgets for roads, ports, railways and aviation; (c) reor- ganization of institutions responsible for transport planning, administration and operations, including adoption by June 30, 1988, of appropriate road transport regulations conducive to competition, efficiency and safety of service, in particular, regulations on free entry into and exit from the industry; (d) a study of road user taxation, including the level and structure of fuel taxes, to be completed by November 15, 1987; (e) creation of an  autonomous civil aviation agency (ANA) by June 30, 1988; (f) a manpower development and trainirg program for transport sector administration personnel to be established by October 31, 1988; and (g) overall project coordination and management. Conditions of Credit Effectiveness will be: (a) a CF 15 in- crease in the tax on petroleum products; (b) implementation of PAC's (i) new tariff structure; (ii) new statutes and port regulations; and (iii) new organization chart and salary structure; (c) enactment of measures ensuring PAC's financial autonomy; (d) certification by the Ministry of Finance of PAC's revalued balance sheet as of January 1, 1986; (e) approval of PAC's detailed program for improvement of financial management; and (f) completion of legal arrangements for compensation of reciprocal debts between PAC and the State. Conditions of disbursement are (a) after January 1, 1988, the implementation of a further increase in fuel prices based on the findings of the above-mentioned study; (b) for the road component: adequate 1988 budgetary provisions for maintenance of the priority road network; (c) for the port component: conclusion of the subsidiary loan agreement, and the * fulfillment of all conditions of effectiveness of the co-financing agreements; and (d) for the aviation component: conclusion of the subsidiary loan agreement and employment of two members of the technical assistance team. 9. Justification and Benefits. The main benefits of the project are the opening up of areas that now are isolated for several months each year; the protection of the paved highway network from further deterioration and even higher reconstruction costs; and a substantial reduction in road trans- port costs with direct benefits to both urban and rural populations. In- creased efficiency will result from the streamlined and reorganized transport sector institutions and enterprises, and from the deregulation and liberal- ization which would facilitate an expanded role for private sector operators. Additionally, the project will establish a sound regulatory framework for a privatized transport industry, and promote greater efficiency and safety in port and airport operations. Based on estimated capital and maintenance/oper- ating costs and a conservative estimate of quantifiable benefits, and a natural economic life, the project would yield an economic rate of return of 21% overall for the prved road rehabilitation component and 24% overall for the port component. 10. Risks. Satisfactory agreement has been reached on the policy reforms underpinning the proposed project, and substantial changes have already been introduced up front to ensure their implementation. The main risks, therefore, would be insufficient or delayed implementation of subse- quent phases of policy reform. These risks are, however, tolerable since the more significant steps will be adopted early on and the perspective of follow-up operations in the sector would help strengthen the Government's commitment. 11. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D. C. May 18, 1987  .4 Schedule A REPUBLIC OF GUINEA TRANSPORT SECTOR PROJECT Summary "roject Cost Estimate and Financing Plan (Net of Taxes and Duties) ------- USS million ------------- Local Foreign Total Road Component 3.4 23.7 27.1 Port Component 3.0 47.0 50.0 Aviation Component 0.5 9.5 10.0 Institution Strengthening 0.3 2.9 3.2 Total Base Cost 7.2 83.1 90.3 Physical Contingencies 1.1 11.5 12.6 Price Contingencies 3.6 5.0 8.6 Total Project Cost 11.9 99.6 111.5 /a ia Exempt from taxes and duties Financing Plan IDA 0.4 54.6 55.0 AfDB 30.0 30.0 KfW/SJF 13.0 13.0 GTZ 1.0 1.0 FAC 1.0 1.0 Conakry Port Authority (PAC) 5.0 -- 5.0 Government 6.5 -- 6.5 Total 11.9 99.6 111.5 Estimated Disbursements Bank Fiscal Year: 1988 1989 1990 1991 1992 Annual 10.8 16.2 23.3 4-1 0.6 Cumulative 10.8 27.0 50.3 54.4 55.0 Rates of Return Paved Road Rehabilitation: 21% overall, ranging from 18S%-28% Port Rehabilitation: 24% overall, ranging from 12%-27% Maps: IBRD 20074, 20075, 20131  -5- Schedule B REPUBLIC OF GUINEA TRANSPORT SECTOR PROJECT Amounts and Methods of Procurement /a (USS m equivalent) Item Category ICB LCB Other Total 1 Civil Works by Contract 83.1 6.9 0.1 90.1 (31.5) (6.2) (0.1) (37.8) 2 Equipment and Materials 4.3 3.2 7.5 (4.3) -- (3.2) (7.5) 3 Consulting Services, -- 13.9 13.9 Technical Assistance and Training -- -- (9.7) (9.7) Total 87.4 6.9 17.2 111.5 (35.8) (6.2) (13.0) (55.00) /a Amounts include contingencies. Amounts in ( ) indicate IDA financing. Disbursement /b % of Expenditure Category Amount (USS m) to be Financed (1) Civil Works by Contract 33.0 (a) for road rehabilitation 19.2 100% of foreign expenditure (b) for pilot road maintenance 0.1 100% of total cost (c) for office rehabilitation 1.2 100% of foreign expenditure (d) for port infrastructure 8.9 100% of toreign expenditure (e) for airport rehab. - Conakry 1.3 100% of foreign expenditure (f) for secondary airport rehab. 2.3 100% of foreign expenditure (2) Equipment and Materials 4.7 (a) for road component 0.9 100% of foreign expenditure (b) for port component 0.1 100% of foreign expenditure (c) for aviation component - ANA 3.1 100% of foreign expenditure (d) for aviation component-Meteorology 0.6 100% of foreign expenditure (3) Consulting Services, Technical Assistance and Training 7.5 (a) for road component 2.6 100% of total cost (b) for port component 0.5 100% of total cost (c) for aviation component 1.2 100% of total cost (d) for transport sector component 3.2 100% of total cost (4) Reimbursement of PPF Advance 0.5 Amount due (5) Unallocated 9.3 TOTAL 55.0 b Estimated annual disbursements are shown in Scbedule A.  - 6 - Schedule C REPUBLIC OF GUINEA TRANSPORT SECTOR PROJECT Timetable of Key Project Processing Events (a) Identification: February 1986 (b) Preparation: April-June 1986 (c) Pre-appraisal: October 1986 (d) Appraisal: January 1987 (e) Negotiations: April 1987 (f) Target Effectiveness: September 1987 List of Relevant PCRs and PPARs Board Report Document Date of Ln/Cr No. No. Title Signature 1589 SecM77-407 Republic of Guinea -- Boke Bauxite 09/18/68 (LOAN 0557) 4358 SecM83-232 Republic of Guinea -- First Highway 12/24/75 (CREDIT 0596) 5653 SecM85-882 Republic of Guinea -- Second Highway 02/18/79 (C'EDl- 0953)  -7- Schedule D Page 1 of 2 REPUBLIC OF GUINEA T.XANSPORT SECTOR PROJECT STATUS OF BANK GROUP OPERATIONS IN THE REPKBLIC OF GUINEA R. Statement of Bank Loans and IDA Credits (as of Mlarch 31 1987) Rmount (US $ million) /a Less cancellations Credit tio Year Borrower ~~~~~~~~Und is- / Credit NSo Year Broer BnPurpose Bank IDA/Ib bursd/ed Twao Loans and Five Credits fully disbursed 73`.50 57.49 870 GUI 1979 Guinea Water Supply Sa.iitatitiorli 12. $8 0.02 952 GLII 1980 Guiinea Pice Developmrrt 10.40 0.00 953 GUI 1980 Guinea Highbay II 13.00 0.05 1063 GLII 1981 Guinea Livestock Developmernt 17.50 0.20 1234 GLII 1962 Guinea Industrial Prt-..?-b.4 PrJiltot. 19.00- 8.01 1341 GUI 1983 Guinea Eductation II 11.00 6.92 1392 GIJI 1983 Guinea Conakry Port 13.00 0.98 1438 GUI 1984 Guinea Pet-ol. Explor.-J Pr-o:fiot. 8.00 1.82 1457 GUI 1984 Guinea Hiqhway III 28.00 23.32 1466 GlII 1984 Guinea Conak:ry Urban Bev. 10.70 6.53 1559 GUI 1985 Guinea T.R. for Economic Mgmt.. 9.50 4.99 1595 GIIl 1985 Guinea Power & T.A. II 8.00 6.38 1635 GLII 1985 Guinea Gueckedou Agr. Dev. 6.60 5.50 1636 GUI 1985 G.inea Agricultural Sces. 7.50 5.95 1637 GUI 1986 Gtjinea Mineral Sector Mgmt. 3.90 2.35 1659 GUI 1986 Guinea Structural Adjustment 25.00 14.04 RAll bOII 1986 Guinea Stru-tural Adju-Fstment 17.00 E. 18 125 tiJ I/c 1987 Guinea Livest.ock Reha-sbilitati on 9.80 9.80 TOTRL 73.50 287.89 105.04 of which repaid 40.48 0.25 TOTAL held by Bank & IOR 33.02 287.64 TOTAL undisbursed 105.04 /a Prior to exchange adjustments. /b Credit 1063 GUI and higher are denominated in SDRs and are shown in US & equivalent based on the exchange rates in effect at time of negotiations. /c Not yet effective.  -8- Schedule D Page 2 of 2 B. Statement of-IFC Investments (as of March 30, 1987) Fiscal Year Obligor Tvpe of Business Loan Equitv Total 1983 Soci6tA Uixte, Aredor Cuin6e, S.A. Diamond Mining. 13.0 1.2 14.8 1988 BIClO-UI Banking _ 1.0 1.0 Total Crosa Coamitments 13.6 2.2 15.8 Less Cancellations, Terminations, Repayments and Sales 1.7 - 1.7 Total Commitments now hold by IFC 11.9 2.2 14.1 Undisbursed Balance 0.0 0.0 0.0  S E 'N E. G \A,L '? G U I N E A udr _. A