Senegal - Second Transport Sector Project (TSP II)

Report No. PID6349 Project Name Senegal-Second Transport Sector Program (TSP II) Region Africa Sector Transport Project ID SNPE2366 Borrower Government of Senegal Implementing Agencies Oversight: Ministry of the Economy, Finance and Planning (MEFP) in collaboration with Ministry of Equipment and Land Transport (MELT), Ministry of Tourism and Air Transport (MTTA), Ministry of Fisheries and Maritime Transport (MPMT). Day-to-day Coordination: Project Coordination Unit (CELCO) Tel: (221) 825. 73. 55 Fax: (221) 825. 80. 61 Execution of Components: Department of Public Works (DTP--MELT); Department of Land Transport (DTT); National Railway Company (SNCS); Port of Dakar (SONAPAD); Department of Merchant Marine (DMM); ASECNA-Senegal; SONATRA (Air Senegal); Professional Training Center (CFP); Road Research and Quality Control Laboratory (CEREEQ); State Portfolio Management Unit (CGCPE-MEFP); CELCO in collaboration with others (rural transport component) Date PID Prepared April 22, 1998 Projected Appraisal October 1, 1998 Projected Board Date February 28, 1998 Country Background 1 Senegal has a population of approximately 8 million, of which 41% lives in the urban areas. The population growth rate is approximately 2. 7% per annum. During the period 1989-1993 GDP growth rate was 1.7%. At end 1993 however, economic growth was a negative 2.1% and internal and external arrears reached 221 billion CFA Franc. In the urban areas the standard of living has deteriorated. The incidence of poverty continues to be high in the rural areas. Poor economic performance was mainly due to: inappropriate policies undertaken by the Government which placed excessive regulation on the private sector; insufficient internal adjustment measures undertaken; and the overvaluation of the exchange rate of the CFA Franc.  2 In addition to the devaluation of the CFA Franc in January 1994, the Government of Senegal (GOS) has taken steps to improve the economy and enhance the activities of the private sector through structural and institutional reforms. In 1994, following an initial phase in which the private sector adopted a cautious attitude, primary sector production and export oriented activities started increasing significantly. There was much renewed tourist activity in the Casamance and elsewhere. Structural reforms have covered price and trade liberalization, labor and regulatory legislation, public enterprise reform, the public administration, agriculture, energy, transport, social sectors and the environment. As a result, in 1995 the economy grew at 4.89 in real terms, in 1996 at 5.6 9, and in 1997 growth was about 4.7%. Sector background 3 The transport sector plays a strategic role in the economy of Senegal. It accounts for approximately 10% of GDP and generates a significant share of the total budgetary revenues of the State. As a center of French colonial administration in the 1950's and following independence in 1960, Senegal and in particular its capital Dakar, acquired a relatively good infrastructure base. At independence in 1960, there were approximately 765 km of paved roads and in 1972 1186 km of railroad. Economic crisis and decline over the 1970's and early 1980's led to deterioration in the infrastructure network and operations together with the inability to expand services to a larger segment of the population. 4 Following the neglect of infrastructure in the 1970s and 1980s, GOS initiated in the late 1980s a wide range of new approaches to develop and improve the infrastructure network and operations. Private participation was considered and contracting out services, road maintenance and the concession approach to infrastructure management began to come to the forefront. In 1990 the Government adopted a General Policy Letter for the Transport Sector (LSP1) which outlined policies and a medium-term action plan for the sector. The overriding objectives was to improve the efficiency of the sector, reduce its operating costs and make it more competitive. As such it aimed at reforming the policies and modernizing the management of the sector. To support implementation of LSP1, the Transport Sector Adjustment Program (PAST) was prepared with the assistance of the Bank and several donors. With support under the PAST most of the above goals have been addressed with varying degrees of completeness and success given the difficult circumstances prevailing during the earlier stages of execution of the program. The proposed TSPII in support of which a new Letter of Sector Policy (LSP2) is in preparation will pursue reforms and consolidate past efforts Sector Strategy 5 In its recently adopted Ninth Economic and Social Development Plan, the Government of Senegal reiterated the fact that efficient management, maintenance and development of the infrastructure sectors and particularly of the transport sector are a crucial variable for Senegal's future development including poverty alleviation and increased competitiveness. In line with this and in order to review the issues in a more in-depth and structured fashion a joint Bank-Government Medium Term Strategy Paper for the Transport Sector (MTSTS) was issued in June 1997. The MTSTS, drawing from the lessons learned under the PAST, suggested an agenda and strategy for further reform and improvements in the sector. -2-  6 The draft LSP2 drawing heavily from the MTSTS, and developed through extensive stakeholder consultation, outlines the principles underlying Government's policies and proposed reforms and regulatory interventions in the sector. It calls for: (i) adapting transport infrastructure to the needs of economic growth and of regional integration; (ii) strengthening sector institutions and administration so as to improve their capacity to perform the essential functions of planning, coordination, regulation, and supervision; (iii) extensive stakeholder involvement in the decision-making process regarding the development of the sector; (iv) adoption of a regulatory and fiscal framework designed to induce competition and promote as much as possible private participation in the development and management of the sector; (iv) giving particular attention to the development of rural transport and to the environmental and social sustainability of sector development. In line with the above principles a detailed list of objectives and plans of action back up the LSP2. The proposed TSP II is consistent with and will support the attainment of the objectives and implementation of the plans of actions. Project Objective 7 The Development Objective of the TSP II is to obtain a sustainable improvement in the supply and performance of the transport infrastructure to help improve economic growth and access. This objective will be pursued by supporting further institutional reforms in the sector and, at the same time, removing its major structural constraints, thus consolidating and building on the achievements of the previous TSAP. Also, the project is consistent with the Country Assistance Strategy (CAS) discussed by the Board on January 29, 1998 (Report No. 17269-SE of 12/29/97). The overarching objective of the CAS is to reduce the incidence of poverty and to create gainful employment opportunities based on a two-pronged approach: (i) support to policies and programs aimed at more rapid and sustained growth; and (ii) ensuring social sustainability. The improved supply and performance of the transport infrastructure, including in rural areas, will support the CAS mainly in two ways: it will contribute to increase Senegal's competitiveness in foreign trade and promote linkages in domestic markets - crucial factors for rapid and sustained growth; and it will improve the degree and decrease the cost of access by the poor to social services & markets/economic opportunities. Project Description 8 In order to achieve the above mentioned objective the Program addresses on the one hand institutional problems sector-wide through its capacity- building and reform implementation features. On the other hand it supports a priority program of rehabilitation and maintenance operations, as well as selected performance-enhancing new investments. The program will: (i) strengthen the Government's capacity to perform the essential functions of planning, coordination, regulation and supervision; (ii) continue restructuring of sector parastatals and promotion of private participation in the development and management of the sector; (iii) continue rehabilitation and improvement of transport infrastructure encompassing all modes; (iv) support necessary measures to make road maintenance more efficient and financially sustainable; (v) define a strategy and support an emergency program for the provision and maintenance of rural roads, an area where no coherent policy exists at the moment; (vi) ensure the environmental and social sustainability of the sector development. - 3-  9 The operations to be included in the investment components will respect a minimum rate of return criterion of 12 percent, be essential to maintain requisite safety standards for transport services, be least-cost solutions or demonstrate significant support for poverty alleviation and regional integration objectives. The investment program for the different subsectors include the following actions: a) Sector Institutional and Policy Development: strengthening of the planning and coordination capacity in the relevant administration; building of a reliable data base on the status of the transport infrastructure; assistance to the modernization of the transport support and management in its supervision and regulatory role; building capacity in the sector to participate and follow up on project finance schemes for private sector financing of investments; and update of the Memento des Transports including an assessment of opportunity for updating the National Transport Plan; b) Land Transport Administration: a significant source of revenue for the Government, land transport administration and management will be provided modern equipment for efficient management of vehicle registration, licensing, inspections and road safety; c) Transparent and Sustainable Public Finanacing in Road Subsector: restructuring of the Road Fund including putting in place systems for greater accountability . Appointment of Advisory and Review Board. d) Promotion of Further Private Sector Involvement in the Sector: e) Road Maintenance, Rehabilitation and Construction: maintenance and rehabilitation of roads on the basis of a three-year rolling program; selective construction of new roads possibly in partnership with the private sector; restructuring of the management of Road Fund including a redefinition and streamlining of the Fund's replenishment and management procedures; restructuring of the Road Research and Quality Control Center (CEREEQ) and of the Professional Training Center for Road Maintenance Managers (CFP); f) Railways: rehabilitation of the Tambacounda-Kidira rail line; rehabilitation or replacement of many key assets in state of advanced despair; supply of a new communication system for train operations; assistance to the finalization of the privatization of the management of the Dakar/Bamako railway axis; g) Ports/Maritime transport: investments to improve both the capacity and the performance of the container terminal in Dakar; support to the private sector participation in the development and operation of passenger and freight lines for domestic shipping; development of river transport; h) Civil Aviation: support further improvements of the national companies in the sub-sector (Airport Management Company, Airline etc. . ) in terms of their financial performance and operational autonomy, so as to finalize their privatization process; upgrading of the runaway and the parking and storage facilities in Dakar airport; assistance to improve safety at secondary airports; i) Rural Transport: definition of a rural transport strategy; contribution to the feeder roads component of the national rural infrastructure program - 4 -  Project Cost and Financing 10 The program would represent a five year time slice of public investments in the sector. The cost of the program is currently estimated at CFAF 405 billion (about USD 675 million). The local contribution is expected to be in the order of 20% of total project cost. IDA, in close coordination with other donors will finance a significant portion of these programs. The following donors/financiers have expressed interest in co-financing the program: the European Union (EU) through the FED, the Caisse Francaise de Developpement (CFD); the African Development Bank (ADB); the West African Development Bank (BOAD); the Nordic Development Fund. A joint pre-appraisal mission will be undertaken by co-financiers in June 1998, following which the contributions would be confirmed. Appraisal of the program will take place in October 1998. Project Implementation 11 The MEFP is expected to, in collaboration with the MELT, MTTA, MFMT, provide oversight and guidance for the program. Day-to-day coordination and follow-up of the entire project will be the responsibility of the project coordination unit (CELCO) which was set up under the TSAP and reporting to the MELT and will be restructured to better respond to a changed context. One issue to be decided by GOS is that of the institutional attachment of CELCO. The road works component will be executed by DTP. An Advisory, Review and Consultative Committee complete with a secretariat and key accounting and management staff will be set up to monitor, review and advise on the management and execution of the Road Fund. During project implementation, performance of the Road Fund will be closely monitored and modifications will be introduced as necessary. DTT will execute the land transport administration component. SNCS will execute the railway component, PAD will be responsible for port of Dakar activities, DMM will execute the river transport and secondary ports activities, The MTTA (DAC) and ASECNA-Senegal with support from its parent company ASECNA will implement part of the civil aviation component while the other will be implemented by MTTA, SONATRA Air Senegal and CGCPE-MEFP. Implementation of privatization activities will be undertaken in close consultation with, and sometimes led by, the Unit for the Management and Control of the State Portfolio at MEFP (CGCPE). The CELCO will, with the advice of an inter-agency steering committee, undertake direct responsibility for the rural transport component Project Sustainability 12 Government has clearly demonstrated its commitment to the sector as evidenced by its allocation of about 20% of its overall investment budget to the road sub-sector in the past years and by the reforms already undertaken for the parastatals (railways and port) under the on-going project. The need and justification for adequate and sustained investments in infrastructure is well understood. To further strengthen the chances for sustainability, the project will ensure the following: (i) stable, reliable financing for road maintenance and their timely disbursements of funds; (ii) restructuring of management of the road fund; (iii) efficient system for road maintenance; (iv) effective capacity building; and (v) continued improvements in regulatory and operating environment for sector enterprises. Lessons learned from past operations in the Country/Sector - 5 -  13 Prior to the on-going TSAP, the Bank had financed eleven transport operations in Senegal including five road, three port and three railway projects, in addition to financing of rural roads under agricultural projects. These projects had all tried, with disappointing results, to introduce reforms in the transport subsectors. Nevertheless, the more recent of these projects which have been completed (Third Railway Project--Credit 1518-SE; Third Port Project--Credit 1459-SE), the on-going TSAP and the June 1997 joint Bank- Government strategy paper have provided the opportunity to establish a frank dialogue with the government on major shortcomings in the transport sector and the agenda to be addressed. Special importance has been given to the need to consolidate policy and institutional reform measures and to define/adopt new ones in light of a rapidly changing world. The TSP II will address directly and upfront the financial and institutional constraints to sustained improvement in the performance of the sector. Poverty Category 14 The project will directly address poverty through reducing transport costs and improving accessibility of isolated areas with agricultural potential so as to enhance production and to link more efficiently producers to markets. Moreover, promotion of local small and medium enterprises and the use of labor-based methods should have a positive impact on employment of unskilled workers. Environmental Aspects 15 Environmental category: B. No major environmental issues are expected since proposed activities to be financed under the project concern mainly rehabilitation of existing infrastructure plus some extension of the rural roads network as needed to support agricultural development. Nevertheless, certain investment activities will be undertaken only in line with a framework for social and environmental sustainability of policies and works in the sector. This framework will be contained in environmental guidelines being prepared. In effect, project preparation includes the development of "Environmental Guidelines" including appropriate methodologies for environmental impact assessments and norms for the execution of works and operations of transport equipment. Consideration is also being given to the establishment of a unit for the evaluation of environmental and social impact. The project will support this action if it is decided upon. Program Objective Categories 16 The primary program objective category is environmentally sustainable development. Secondary program objectives are private sector development, public sector management and poverty reduction. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. - 6 -  Processed by the InfoShop week ending May 8, 1998. -7 -