Malawi - Northern Transport Corridor Project

Document of The World Bank FOR OFFICIAL USE ONLY C4- I )-7i _ /4 Report No. i-4729-MAI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 11.1 MILLION TO THE REPUBLIC OF MALAWI FOR A NORTHERN TRANSPORT CORRIDOR PROJECT January 27, 1988 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALENT UNITS Currency Units - Malawi Kwacha (MK' and Tembala US$1.00 - MK 2.3 MK 1.00 - 100 Tambalas WEIGHTS AND MEASURES 1 foot (ft) = 0.305 meters (m) 1 mile (mi) = 1.609 kilometers (km) 1 ton (t) - 0.907 metric tons (m ton) ABBREVIATIONS EDF - European Development Fund KfW = Kreditanstalt fur Wiederaufbau LS - Lake Service (Malawi Railways) MCC = Malawi Cargo Center MR - Malawi Railways MRHC - Malawi Railways Holding Company NTC = Northern Transport Corridor ODA = Overseas Development Administration (UK) SADCC - Southern African Development Coordination Conference TAZARA - Tanzania-Zambia Railway Authority USAID = United States Agency for International Development FISCAL YEAR April 1 - March 31  FOR OMCIAL USE ONLY MALAWI NORTHERN TRANSPORT CORRIDOR PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Malawi Beneficiaries: Ministry of Transport and Conmmunications Ministry of Works and Supplies, and Malawi Railways Amount: SDR 11.1 million (US$ 13.4 million equivalent) Terms: Standard IDA terms, with 40 years maturity. Onlending Terms: Not applicable Financing Plan: Government of Malawi USS 2.9 million EDF US$ 20.0 million ODA (UK) US$ 19.3 million USAID US$ 18.0 million KfW (FRG) US$ 18.9 million Netherlands US$ 17.3 million IDA US$ 13.4 million TOTAL US$ 109.8 million Economic Rate of Return: 16% Financial Rate of Return: 12% (Malawi Cargo Center) 10% (Lake Service) Staff Appraisal Report: 6022-MAI Maps: IBRD 19421 IBRD 19422 This document has a restricted distribution and may be used by recipients only in the performa et of their official duties. Its contents may not otherwise be disclosed without World Bank authorizatiut:.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF MALAWI FOR THE NORTHERN TRANSPORT CORRIDOR PROJECT 1. The following report on a proposed development credit to Malawi for SDR 11.1 million (US$13.4 million equivalent) is slbmitted for approval. The proposed credit would bc on standard IDA terms and would assist in financing the development of an alternative transport route to the sea through the Northern Transport Corridor (NTC) to Dar es Salaam, Tanzania. The proposed p.oject involves improvements to transport facili,ies in both Malawi and Tanzania. Total project cost is US$109.8 million and will be financed through contribution from the European Development Fund (US$20.0 million), and grants from U K. Overseas Development Administration (ODA - USS19.3 million), U.S. Agency for International Developmer.t (US$18.0 million), the F.R.G. Kreditanstalt fur Wiederaufbau (US$18.9 million) and The Netherlands Ministry of Development Cooperation (US$17.3 million). The Malawi Government wculd finance the local project cost for the iDA financed portion of the project and the local taxes (US$2.9 million). -. Background. As a landlocked country, Malawi has always depended upon external transport routes to reach the sea. The several alternative routes available to Malawi var-y greatly in length, relab5ilitv and cost (see map). From the main cormmercial center o- a-..'>re the distance to be4ra is 640 kim, .o Nacala 815 km, to Durban via Lusa&a :,l) LA, ind to Dar es S aa n iG' ,J:n. Traditionally, almost all exports and iwzrtzs .ave n;,ovd through Mczambiquc to t..e ports of Beira and Nacala. In the late 1970's rrecuent interruptions in servfce developed as a result of equipment breakdown and lire :l.-l-res, brougr.: ao-lt by poor maine.enance as well as repeated attacks by atmed ar:cd.s. Tne interruptions escalate4 to tie point where by December 1983, the rail' 'in.s -o Seira wa.b closed, and in July 985, the line to Nacala was also closed. As a result of .hese p:oblems, most of the export/import traffic of about 800,000 tons has been diverted to South Africa, via Zimbabwe and Zambia at greatly increased costs. s. r.`e use of the so_thern route to South Africa has had a significant negative ?a.poct orn Maiawi's export ealnings, import prices and balance of payments. With a.'sport costs three to four t .nes higher than those on historical routes throgh Xozambique, Malawi has incurred annual losses of at least US$50 million, or 20% of the value of all exports. Improvement of NTC represents a significant opportunity to lower -ransport cost for Malawi, with estimated savings in excess of 40% of the cost over the ScAtnerr, route. However, NTCh as not been used extensively because of inadequate tran.sport facilities and infa!;tructure. The principal deficiencies are lack of pave._ road link between Malawi and Tanzania, inadequate transshipment facilities at the Mbeya rail terminal (TAZARt railway), inadequate facilities in Dar es Salaam for transshipment of Malaw4 cargo between the port and TAZARA railway, limitations in ship and port facilitries on Lake Malawi and tne poor condition of a road link on the route between Blantyre and Chipoka (the prircipal lake port). The project is designed to overcome tr.cse deficiencies. Reactivation -f Lhe trad' _o,al routes to Beira and Nacala ports is dependenrt upon !.C Cessat ion of security po.roems i. Mozambique and the rehabilitation ot these ines c.rtm: r ranv years of neglect a:.i heavy dcmage. Jnder the auspices of the Southern Africa Dee popme..t Coordinatior.n Conf-ercnce (SADCC) and donor assistance, Mozambique has begun Ore. iil tatio worss or. te t a. transport. corridors In Mozambique: the Nacoa: -o:rrdor and the Beira-Zimbabwe (Corrior. Despite these efforts, future prospects to: llalaw, do not appear encouiagi.-6. 'ne Nacala line has carried a maximum of only one .hird of M