Tanzania - Central Transport Corridor Project

Document of The World Bank FOROFFICIAL USEONLY ReportNo. 28409 TZ PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNTOF SDR 81.6MILLION (US$122MILLION EQUIVALENT) TO THE UNITEDREPUBLICOF TANZANIA FORTHE CENTRALTRANSPORT CORRIDORPROJECT MARCH31,2004 Transport Sector Country Department 4 Africa RegionalOffice This document has a restricteddistribution andmay be used by recipients only inthe performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange RateEffective March31,2004) Currency Unit = Tanzania Shillings (TZS) TZS 1000 = US$0.902 US$1 = TZS 1108.7 July 1 -- June 30 FISCALYEAR ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic AASHTO American Association APL Adjustable Program Lending BRT BusRapidTransport CAG Controller and Auditor General CAS Country Assistance Strategy (MOCT, Zanzibar) CFAA Country FinancialAccountability Assessment CODAP Coordination o f Donor Aided Project CPAR Country Procurement Assessment Review CTB Central Tender Board CTCP Central Transport Corridor Project DAWASA Dar es Salaam Water Supply and Sanitation Authority DRC Democratic Republic o f Congo EAI SA Environmental Assessment / Social Assessment EIA & SIA EnvironmentalImpact Assessment & Social Impact Assessment EMP EnvironmentalManagement Plan ERR Economic Rate of Return FAD Finance and Administration Division FMR Financial Monitoring Reports GDP Gross Domestic Product GOT Government of Tanzania GPN General Procurement Notice HDM Highway Development and Maintenance HIV/ AIDS HumanImmunodeficiencyVirus / Acquired Immunodeficiency Syndrome ICB International Competitive Bidding ICT Information Communication Technologies IDA International Development Association IFC InternationalFinance Corporation IRP I1 IntegratedRoads Project I1 LGA Local Government Authority M C T MinistryofCommunications andTransport, Mainland MOCT MinistryofCommunication and Transport, Zanzibar MOW MinistryofWorks MTEF MediumTermExpenditureFramework  NBF Not Bank Financed FOROFFICIALUSEONLY NCB National Competitive Bidding NDF Nordic Development Fund NEMC National EnvironmentalManagement Council NGO Non-Governmental Organization NORAD NorwegianAgency for Development Cooperation NPV Net Present Value NTP National Transport Policy OP/BP Operation Policy / Bank Policy PAD Project Appraisal Document PC Project Company PCR Physical Cultural Resources PER Public Expenditure Review PFMR Project Financial Management Report PIP Project Implementation Plan PORALG President's Office Regional Administration and Local Government PPA Public Procurement Act PPIAF Public Private Infrastructure Advisory Facility PRG Partial Risk Guarantee PRSP Poverty Reduction Strategy Paper PSRC PresidentialParastatal Sector Reform Commission QCBS Quality and Cost-Based Selection RAHCO Reli Assets Holding Company RAP Resettlement Action Plan RFB RoadFundBoard RFP Request for Proposal RRP Railways Restructuring Project SDP Specific Development Project Unit SSATP Sub-Saharan Africa Transport Policy SUMATRA Surface and Marine Transport Regulatory Authority SWAP Sector Wide Approach TA Technical Assistance TANROADS Tanzania National Roads Agency TAZARA Tanzania Zambia Railway Authority TB Tender Board TOR Terms o f Reference TRC Tanzania Railways Corporation UNDB UnitedNations Development Business VPD Vehicles Per Day WAN Wide Area Network Vice President: Callisto E. Madavo Country ManagerDirector: Judy M.O'Connor Sector ManagedDirector: C. SanjiviRajasingham Task Team Leader/TaskManager: Dieter E. Schelling This document has a restricteddistributionandmay be used by recipients only in the performanceof their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.   TANZANIA. CENTRAL TRANSPORT CORRIDORPROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supportedby the project 3 2. Mainsector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 8 C. Project Description Summary 1. Project components 9 2. Key policy and institutional reforms supported by the project 11 3. Benefits andtarget population 12 4. Institutional and implementation arrangements 13 D.Project Rationale 1. Project altematives considered and reasons for rejection 13 2. Major relatedprojects financed by the Bank andor other development agencies 14 3, Lessons leamed and reflected inthe project design . 14 4. Indications o fborrower commitment and ownership 15 5. Value added o f Bank support inthis project 15 E. Summary Project Analysis 1. Economic 16 2. Financial 17 3. Technical 17 4. Institutional 18 5. Environmental 19 6. Social 20 7. Safeguard Policies 20 F. Sustainability and Risks 1. Sustainability 21  2. Critical risks 21 3. Possible controversial aspects 22 G. Main Credit Conditions 1. Effectiveness Condition 22 2. Other 22 H. Readiness for Implementation 23 I.CompliancewithBankPolicies 23 Annexes Annex 1: Project Design Summary 24 Annex 2: Detailed Project Description 27 Annex 3: Estimated Project Costs 37 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 38 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 46 Annex 6: (A) Procurement Arrangements 47 (B) FinancialManagement and DisbursementArrangements 55 Annex 7: Project ProcessingSchedule 66 Annex 8: Documents inthe Project File 67 Annex 9: Statement o f Loans and Credits 68 Annex 10: Country at a Glance 70 Annex 11:Environmental Impact Assessment and Mitigation Measures ,75 Annex 12: Partial Risk Guarantee 79 MAP@) Map o f Tanzania  TANZANIA Central Transport Corridor Project ProjectAppraisal Document Africa RegionalOffice AFTTR Date: March 31,2004 Team Leader: Dieter E. Schelling ~~ Sector Managermirector: C. Sanjivi Rajasingham Sector(s): Railways (45%), Roads and highways (43%), Country Managermirector: Judy M.O'Connor Central government administration (12%) Project ID: PO78387 Theme@): Infrastructure services for private sector Lending Instrument: Specific Investment Loan (SIL) development (P), Trade facilitation andmarketaccess (P), Regulation and competition policy (P), State enterprisehank restructuring and privatization (P), Export development and competitiveness(S) For LoanslCreditslOthers: Amount (US$m): IDA Credit $122.00m, PRG $40.00m (Specific Board approval for the PRGwill be sought once the private concessionairehas beenselected andthe PRGhas beennegotiatedto IDA'Ssatisfaction). Proposed Terms (IDA): StandardCredit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.50% Service charge: 0.75% ' BORROWER 10.02 I 0.00 I 10.02 IDA IDA GUARANTEE Borrower: REPUBLIC OF TANZANIA Responsible agency: TANROADS, MOCT ZANZIBAR AND TRCIRAHCO Address: P.O. 11364, 3rd FloorMaktaba Complex Building, BibiTiti Mohamed Street, Dar es Salaam, Tanzania Contact Person: Dr.F.Y. Addo-Abedi, Chief Executive Tel: 255-22-2-2152576 Fax: 255-22-2-150022 Email: tanroadshq@tanroads.org Other Agency(ies): Ministryof Communications andTransport, Zanzibar Address: P.O. Box 266, Zanzibar Contact Person: Edward A. Mwakyembe Tel: 255 24 223 2841-3 Fax: 255 24 223 3674 Email: moct@zanzinet.com Tanzania Railway Corporation Address: P.O. Box 468, Dar es Salaam, Tanzania Contact Person: Mr.Linford Mboma, Director General Tel: 255-22-2-1 12695 / 2-110599 Fax: 255-22-2116525 Email: dgx-mboma@trctz.com trcpc2@intafrica.com  - 2 -  A. Project Development Objective 1. Project development objective: (see Annex 1) The project supports the National Transport Policy (NTP), which was prepared in a participatory way and presented to the public in October 2003. Within the NTP the Central Transport Corridor Project (CTCP) focuses on improved performance o f the Central Transport Corridor, both in respect o f road and rail transport, improvement o f key roads in Zanzibar, and on generally enhanced road management capacity. The development objective o f the Central Transport Corridor Project (CTCP) is to: (a) upgrade strategic road links; (b) enhance road management capacity; and (c) improve operations o f Tanzanian Railways (TRC and TAZARA). 2. Key performance indicators: (see Annex 1) Following are the key performance indicators in respect o f the road component o f the project: (i)traffic increases by at least 10% per annum on average between 2004 and 2009 on improved roads; (ii) the network under TANROADS responsibility (28,900 km o f trunk and regional roads) in poor condition reduced from 49% in 2003 to 30% in2009. Inrespect o f the rail component o f the project, following are the key performance indicators: (i) total freight traffic tonnage carried (on TRC network) is expected to increase from the current level of 1.45 million tons to 2.0 million tons by 2009, (ii) level o f transit traffic carried will by 2009 increase by 20% from the 560,000 tons in 2003; and (iii) kilometers o f track under speed restriction as a percentage o f the total will decrease from the current 10% to 2% in2009. The above assumes that signing o f the concession agreement with a private Concessionaire will take place in November 2004 andhandover inJune 2005 at the latest. B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: Report No. 20728 -TA Date of latest CAS discussion: June 15,2000 The Central Transport Corridor Project (CTCP) is consistent with the Bank Group Country Assistance Strategy discussed by the Executive Directors on June 15, 2000. The Bank's mission in Tanzania is to assist the Government in reducing poverty through the promotion o f higher growth, with interventions to buildassets for the poor, reducetheir vulnerability and promotebetter governance and accountability. The CAS proposes to focus interventions in four strategic areas: (a) private sector and infrastructure development; (b) sustainable rural development; (c) improved social infrastructure; and (d) public sector reform and institution building. The proposed Project would assist in all the above strategic areas by: (a) continuing the build-up o f the local construction industry through their progressively increasing involvement in road development and maintenance; (b) improving access to rural areas vital for rural development; (c) improving access to social infrastructure; (d) supporting capacity building o f TANROADS for the management o f the trunk and regional roads; and (e) improving the performance o f Tanzanian Railways through its concessioning to a private operator. 2. Main sector issues and Government strategy: 2.1 Roads Sub-Sector - 3 -  Good andFair Poor Condition Total Condition (km) (km) (km) Trunk Roads (5563) (4371) 9934* RegionalRoads (9276) (9682) 18958* Subtotal managedby (14839) (14053) 28892" TANROADS UrbanRoads FeederRoads (1000) (29000) (30000) Subtotal managedby (7715) (43393) (51108) Local Governments TotalNetwork (22554) (57446) (80000) From the above table it follows that: (i) half the trunk and regional road networks are in poor about condition; (ii)the total road network that is in good and fair (or maintainable) condition is about 22,500 km; (iii) the local government network only an estimated 7700 kmis inmaintainable condition (20% of of these are urban secondary roads); (iv) feeder roads are mostly tracks in poor condition (they are- traditionally been managed by the local communities); (v) only about 28% o f the overall network is in - or have good and fair condition. It is estimated that the core network requiredfor poverty alleviation (the network that provides reliable access to the majority -say, 90%- o f the rural population) is o f a lengtho f about 45,000 km. To get this core network into maintainable (good and fair) condition, about 3 billion U S Dollars (3000 billion Tanzanian Shillings), or about $ 300 million per annum, would be required over the coming 10 years (to rehabilitate the share o f the network in poor condition and to maintain the network in good and fair condition). With the improved condition of the network, the share requiringmaintenance would gradually increase and the share for rehabilitation (and upgrading) decrease. The amount spent inthe road sector in the past, about $100 150 millionper annum, traps the road sector in a vicious cycle whereby insufficient - - 4 -  money is allocated for rehabilitation, which "forces" moneys intended for maintenance to be used for spot improvement and emergency works, leaving insufficient resources for maintenance, which leads to a deterioration o f the network, which requires further rehabilitation, and so on. Road Management and Financing Roadmanagement and financing capacity inTanzania inthe past has been insufficient, leading to the above described cycle o f premature road network deterioration and resulting rehabilitation need. In response to this lack o f capacity, Government has created TANROADS under the executive agency act in 2000 and the Road Fund Board (RFB) in 1999. Both TANROADS and RFB have since greatly enhanced the road management and financing capacity in the sector. Further reform is needed, however, to secure the long term sustainability o f these reforms, and to achieve the Government's goal to have a core network o f about 45,000 km o f roads ingood and fair condition by 2015. TANROADS, with about 780 staff which were transferred from the former Roads Department o f the Ministry of Works (MOW), needs to be professionalized and made fully and solely responsible for the delivery o f the trunk and regional road programs. This can be achieved through a business-like organizational set-up, competitive selection o f staff, based on carefully preparedjob descriptions, provision o f appropriate accommodation and up-to-date management equipment, and with adequate autonomy from the parent Ministry. It is felt that under the current set-up, TANROADS being an executive agency o f the Ministryof Works, its autonomy in terms of day to day management is insufficient, and its sustainability fragile. Therefore, TANROADS should be turned into a Road Authority created under an act approved by parliament with its own independent and decision making Board, as is world-wide best practice, inline with the SADC Protocol on Transport, Communications and Meteorology, and as announced by GOT in the TANROADS Establishment Order, in 2000. Under such a set up TANROADS would still be answerable to the MOW, which will bear the ultimate responsibility for the trunk and regional road network. MOW'S core function would be road sector policy setting, and general road sector oversight. The RFB was created in1999 under the RoadTolls Amendment (No. 2) Act, 1998. The RFB has its own Board. As per the RFB act, 30% o f the resources collected from the Road Fund (RF) are allocated to LGAs. The RF is currently fimded from a Tshs 100 (9 US cents equivalent) per litre fuel levy. In2002 a total amount o f about $ 65 million was collected. This would be sufficient if strictly used for maintaining the maintainable network o f about 22,500 km. However, political realities require that a portion o f the RF be used for rehabilitation (inthe absence o f sufficient funding for rehabilitation). This is particularly true for the local government road network, which has only a very modest proportion inmaintainable condition. It can be assumed that, if road user charges are kept at their current level in real terms, resources will increase at a rate above general economic growth (he1 consumption increases normally at a rate o f about 2-4% above GDP growth), and if the core network (of about 45,000 km) is fully rehabilitated the RF would be sufficient to maintain the core network by 2015. However, for the coming five to ten years substantial Government and donor money is required to rehabilitate the road network (andupgrade it where economically justified). IDA is committed to increase funding in the sector substantially, and so are other donors, providedthe reform process continues. 2.2. Rail Sub-Sector TanzaniaRailways Corporation (TRC) - 5 -  The Bank has a long history o f supporting the railways in East Africa, starting in the mid 1950s. The Tanzania Railways Corporation (TRC) was formed in 1977, after the break-up o f the East Africa Railways. The Railways Restructuring Project (RRP) was approved by the Board in June 1990 as part o f a multi-donor program for TRC. The Credit closed on December 31,2002. The objective o f the RRP was to assist TRC to become a commercially viable enterprise - operationally efficient and financially self-sufficient. Originally, it was envisaged that TRC would remain inthe public sector with commercial and management autonomy provided through a performance contract arrangement. Following an initial increase in rail traffic, it became increasingly evident that the project objectives would not be achieved within the `parastatal' framework. This institutional framework imposed serious constraints on efficient commercial operations, that is (a) the system lacked incentives and sanctions arrangements which would reward initiative and innovation and penalize inaction and poor performance; (b) have cumbersome rules and procedures that prevent either rapid or decentralized decision-making; (c) was prone to direct and indirect political interventions in management and operations; and (d) was under pressure to maintain loss-making services and lines without adequate financial compensation. While RRP led to a more commercial management approach, TRC's overall performance did not show the substantial improvement expected despite the high investment, technical assistance, upgraded computer systems and intensive supervision by the funding agencies. At the end o f 1997, GOT announced its decision to concession TRC to the private sector; this preempted a donor decision to cease support. The experience with railway concessions in Latin American and African countries (Cote d'Ivoire, Burkina, Gabon, Cameroon, and Malawi) has, with few exceptions, proven to be very encouraging and is now accepted as the most promising approach for sustainable railways in developing countries. Following GOT'S decision, RRP was restructured to provide concession transaction assistance and operational support for TRC during the transitional period leading to concessioning. Considerable progress has been achieved since 1997. The concessioning process is well advanced with the process o f pre-qualification o f potential bidders completed. Three bidders are fully prequalified and four are conditionally prequalified. The biddingprocess is scheduled to be launched in April 2004. A concessionaire is expected to take over responsibility for the operation and expansion o f the rail and transport services by June 2005. TRC's operational performance had improved during 2001 and 2002 as a result o f TRC's enhanced management supported by the assistance o f donor funded line management in a few key areas. Mainline locomotive availability had improved, and record levels o f freight traffic was hauled both in2001 and 2002. However, financial performance had shown little improvement, and concessioning is considered as essential for the long-term commercial future o f the railway. Towards the end o f 2003 the delay o f the concessioning process had a negative impact on the performance o f TRC, specially in respect o f locomotive and wagon availability and rail breakages, and TRC could no longer cope with the raising demand for freight transport. Financial sustainability for TRC can be achieved, but it will not be easy because o f the small revenue base, high fixed costs, and overstaffing. It is made even more difficult by inadequate asset renewal over a very extended period. The investment under the RRP resulted in (i) the renewal o f 200 km o f track , the provision o f rails and sleepers for casual renewals on 1000km o f line (out o f a network o f 2722 km) and o f equipment and machine for track maintenance and welding, (ii) rehabilitation, repair andpurchase o f a total o f more than 2600 wagons (almost the entire fleet), o f 24 locomotives out o f 90 and o f 50 passenger coaches (other 27 purchased) out o f 150. Notwithstanding that effort, some o f the network is still laid with the original German track, circa 1910, and most o f the locomotives and rolling stock is more than 30 years old. By improving the operating systems, physical resources and staffing levels, a competent concessionaire will be able to make the railway financially viable, but will not be in a position to finance substantial immediate renewal o f the basic infrastructure (which remains owned by GOT). In these circumstances, there needs to be clear demarcation o f responsibilities between GOT and the concessionaire: - 6 -  GOT would take responsibility for the initial renewal of tracks (of about 200 km), retrenchment o f surplus staff andpast environmental and social liabilities, and the concessionaire would take care o f all operational investments and future maintenance and upgrading o f the track. Approximately 200 km o f TRC track has to be renewed, as it is time-expired and suffering an escalating frequency o f rail fractures. It is estimated that the renewal will cost $ 33 million. It is unlikely that a concessionaire will be willing to finance such immediate heavy investment requirements in track infrastructure owned by GOT inaddition to the other essential investments inoperating assets (locomotives and rolling stock) and operating systems (particularly communications). Financing o f the track renewal by GOT is a prerequisite for the successful concessioning of the railway. GOT has therefore requested the Bank's assistance for the track renewal, as well as limited assistance to liquidate some outstanding social andenvironmental liabilities inorder to ensurethe successofthe concessioning process. The GOT had initially decided to concession TRC in 2001 and embarked on a tendering process in 2001/2002. The effort was not successful as not a single bid was received, though comments on the concession were sent to PSRC by some o f the potential bidders, which highlighted the need for some form o f political risk mitigation. Given the post September 1lthevents, the ENRONscandal and the subsequent corporate downgradings, and the Argentina and Brazilian crisis, investors have shown general unwillingness to bid for projectskoncessions in emerging market countries, as has been evidenced by bid failures in several o f these countries. GOT, therefore, decided to re-launch the bidding process after revising some aspects o f the proposed concession and, as part of its effort to make the concession more attractive to potential bidders, requested IDA for a PRG to provide political risk mitigation in support o f the concession. Despite political and economic stability since independence in 1961, the GOT recognizes the need to offer an IDA PRG to address Government/parastatal performance and policy related risks. It is expected that investors' interest will be enhanced through the provision o f the PRG, particularly in the current adverse investment environment. In view o f the fact that Tanzania is considered as a `frontier' market by investors where political and policy related risks are perceived as significant, Bank Group intervention through a PRG is considered to be an appropriate form o f Group support in line with the Board Paper o f December 2000 ('Enhancing the Use of World Bank Guarantees as an Operational Tool: A Review of the World Bank Guarantee Program'), particularly given the Bank's considerable involvement in the sector and the availability of an explicit counter-guarantee from the Government o f Tanzania to ensure project sustainability. It is intended that PRG support would be complemented with MIGA support and possibly IFC support and bidders are being advised to approach the two institutions. If successful this would be the first PRG insupport o f a Transport Project. TAZARA The Tanzania-Zambia Railway (TAZARA) is an 1870 km line constructed in the 1970s, connecting Tanzania and Zambia. TAZARA's infrastructure is in a reasonably good condition, but is, operationally and financially, inworse condition thanTRC. Thejoint owners o f TAZARA, the govemments o f Tanzania and Zambia, have now made a decision to engage private sector participation inTAZARA's management and operations. A grant under PPIAF has been arranged to undertake the necessary studies with the following objectives: 0 to identify and evaluate the various options for private sector participation in the operations currently carried out by TAZARA, andto recommend, withjustification, the most appropriate strategy; 0 to make recommendations on the institutional arrangements for the rail asset holding entity and the regulator; and - 7 -  0 to propose changes necessary in the legal and regulatory regime currently in place to ensure the successful implementation o f the restructuring and privatization strategy. The study is expectedto commence inApril 2004. Both governments have requested the Bank to provide assistance for preparing the bidding documents, marketing the transaction, negotiating the final contract, facilitating the takeover by the selected bidder, restructuring the residual TAZARA, and establishing the appropriate legal framework. 2.3 Government Strategy for the Transport Sector GOT strategy for the transport sector is to reduce costs and increase service standards by: (i) investing in improved Mastructure, especially in the road sector; (ii)promoting modal efficiency; (iii) enhancing competition and (iv) recovering some of the cost from the users. Within the road sub-sector govemment policy is to provide a core network o f about 45,000 km o f roads in good and fair condition by 2015. Such network is perceived as being needed for providing reliable access to the majority (90%) o f the rural population in Tanzania. Each link o f the network should be at an economically optimal level o f service related to the traffic borne. Above 200 vehicles per day (VPD) tarmac roads are usually the optimal solution, between 200 and 50 VPD gravel roads are usually optimal, andbelow 50 VPD spot improvedearth roads are usually the optimal solution. Within the rail sub-sector, the introduction o f private sector management and finance through long-term concession arrangements is central to the strategy. The basic infrastructure will remain under the public ownership, but will be leased to the private concessionaire. The concessionaire would be bound by the concession agreement to maintain the infrastructure and hand it back, at the end o f 25 years, in a substantially improved condition. The operating assets will be leased or concessioned to the concessionaire, who will be expected to make further investments needed to achieve the financial potential o f the railway as well as make concession and lease payments to RAHCO. The concessionaire would be requiredto maintain the present level o f passenger services, unless demand falls substantially as a result o f roadimprovements, and the third-class passenger fare would be fixed, inreal terms, at the present levels. With more efficient management and improved operational assets, there is an immediate rail market for 2 million tons (TRC cannot carry all the traffic on offer) and the concessionaire should be able to attract substantially greater traffic from road, given the long haul distances (1000 km) at which rail has a major cost advantage over road. The concessionaire will have a monopoly o f rail traffic over the TRC network, with the exceptions of transit traffic between southern Africa and Uganda for which a concession has already been granted to a separate company, TransAfrica Railway, and o f traffic frondto Rwanda for which the company Panache is allowed to use its own wagons to transport Rwandan cargo on the TRC track. Economic regulation is not expected to be a major issue, given the level o f rail competition, but residual economic regulatory powers have been established under SUMATRA which will also oversee safety regulation inthe sector. Monitoring the concession agreement and the compliance with the technical standards will be undertaken by the asset holding authority, RAHCO, which is also the concessioning authority. RAHCO would have the right to terminate the concession and lease agreements, inthe event that the concessionaire fails to meet the required operating and technical standards. GOT will also be protected by a performance bond. 3. Sector issues to be addressed by the project and strategic choices: 3.1 Upgrading of Sections of Strategic Road Links - 8 -  The construction o f the 110 km Singida-Shelui road will complete the upgrading o f the Central Transport Corridor linking the port o f Dar es Salaam with the landlocked countries o f Burundi and Rwanda to bituminous standard. It will also connect the westem and lake regions o f Tanzania with the nation's capital and port. Additionally, fifty nine kilometers o f roads will be rehabilitated and upgraded to bituminous standard inZanzibar. These roads provide access to the main northem and eastem areas with isolated rural communities and major tourism development. Furthermore, five key ferries in Mainland Tanzania will be rehabilitated. Feasibility, detailed design and biddingdocuments for the rehabilitation and upgrading for a further 713 kilometers of key trunk roads will be preparedinpreparation o f future lendinginthe sector. 3.2 Enhancementof Road Management Capacity Through IRPII the Bank has participated in building up the capacity o f TANROADS and MOCT Zanzibar. This project would build on the achievements, and would inparticular, assist TANROADS with a new headquarter building, improved communication equipment, improved organizational and managerial capacity, and training and technical assistance. 3.3 Improved Operations of Tanzanian Railways The proposedproject would assist GOT to: 1, Rehabilitate specific sections o f the TRC track which are failing andneed renewal; 2. Provide a Partial Risk Guarantee to help enhance investor interest for the concession 3 , Finance investments in rail equipment ifrequired; 4. Clean-up existing polluted areas around the major railway workshops and depots; 5. Relocate existing squatters and encroachers from within the rail reserve; 6. Help to buildcapacity to ensure the effective functioning of the proposedasset holding company (RAHCO); 7. Support the residual TRC inits role o f non-core asset disposal and eventually support its winding down; 8. Support the engagement o f private sector participation inthe TAZARA railway. C. Project DescriptionSummary 1. Project components(see Annex 2 for a detailed description andAnnex 3 for a detailed cost breakdown): Part A: Upgrading of StrategicRoad Links Inline with the Government's roadsector development plan, the Project will support the following: 1. Rehabilitation and upgrading to bituminous standard o f the Singida-Shelui Road (110 km), including the costs o f the EMP and RAP; 2. Rehabilitation and upgrading to bituminous standard o f the Mkwajuni-Nungwi, Matemwe-Pongwe and Paje-Pingwe roads inZanzibar (59 km), including the cost o f the EMP and RAP; 3. Carrying out and updating o f feasibility studies and detailed design, and preparation o f bidding documents for 713 kilometers o f high priority trunk roads to be rehabilitated and/or upgraded under a proposed follow-on project, including: (a) the Singida-Babati-Minjingu road (220 km), (b) the Dodoma-Babati road (263 km), (c) the Korogwe-Mkumbara-Same road (165 km), and (d) the Tanga - Horohoro road (65 km); - 9 -  4. The rehabilitation o f the MV Kigamboni, Pangani, Sengerema, Kilombero and Rufijiferries. Part B: Enhanced Road Management Capacity In order to enhance capacity for road management, both in Mainland Tanzania and in Zanzibar, and in view o f the preparation o f a proposed follow-on project, the Project will support the following: 1. Design and construction o f a new TANROADS headquarters building; 2. Setting up o f a Wide Area Network to improve communication between TANROADS' headquarters, its regional offices and MOCT Zanzibar; 3. Carrying out o f a study for the enhancement o f the organization and management o f TANROADS; 4. Carrying out of studies to identify road investment priorities, such as traffic counts and an update o f the ten-year investment plan; 5. Preparation o f a local government roads inventory and condition survey; 6. Carrying out other transport related studies, including a Dar-es-Salaam Bus Rapid Transit and traffic management study; 7. Provision o f technical advisory services and training for improved management and operational capacity o f TANROADS and MOCT Zanzibar; 8. Provision o f technical advisory services, training and financing to IDA PCU and MOCT CODAP for the day-to-day administration, financial management, procurement, monitoring and evaluation of Part A andB ofthe Project, andfinancing ofthe external financial audit o fthe Project. Part C: Improved Performance of Tanzanian Railways Inline with the Government's policy to engage the private sector into the operation andfinancing ofthe rail sector, the Project will support the following: 1. Provision o f urgently needed rails, sleepers and other material for TRC, for the replacement o f the track between Itigiand Tabora; 2. Provisiono f other rails, sleepers and material for TRC, including their installation, these are meant for the replacement o f the balance o fthe tracks o f TRC between Itigiand Tabora. (The mode o f placing o f this material will be discussed with the pre-qualified bidders for the concession and disbursement for this portion o f the credit is tied to signing o f a concession agreement or such other agreement satisfactory to the Association). 3. Preparation o f an Environmental Assessment, a Social Assessment, EMPs and RAP for TRC; 4. Financing o f clean-up costs based on the Environmental Assessment and EMP, and o f resettlement costs based on the Social Assessment and RAP; 5. Provision o f technical advisory services and training for: (i) the handing over o f TRC assets and operation o f the Railway Operator; (ii)the winding up o f TRC; and (iii) the building up o f the management and operational capacity o f RAHCO; 6. Provision o f technical advisory services for the future private sector participation in TAZARA, including: (i)the restructuring o f TAZARA; (ii)the establishment o f the regulatory and legal -10-  framework governing the operations o f TAZARA; and (iii) preparation o f EA, SA, EMP andRAP; The proposed PRG in support of the Concession for the Management and Operation of TRC (Subject to Separate Board Approval) The proposed PRG would be provided in support of the concessionaire to be selected following a competitive tendering process, which is underway. The concessionaire will be required to arrange the necessary financing (equity and/or debt) for the operation and management o f the concession for the duration o f its 25 year term. The concessionaire will be required to set up a wholly-owned special purpose Project Company in Tanzania for the purpose o f canying out its obligations under the Concession and Lease Agreements(Concessi0n Agreements). The total investment requirement over the life o f the concession is projected to be around US$180 -200 million, which is expected to be financed through equity and/or loans from the concessionaire or its lenders and internally generated casMow. In addition, the IDA credit o f US$ 33 million would be used to finance the rail tracks and associated equipment and services which would be made available by RAHCO to the concessionaire together with up to an amount o f US$40 million PRG to help catalyze debt andequity investments inthe concession. The proposed PRG would backstop RAHCO's payment obligations under the Concession Agreements to the Project Company. While the precise level o f RAHCO support for the concession and the exact scope o f PRG coverage will only be determined once these have been negotiated with the selected bidder, they are likely to include both periodic and termination payment obligations o f RAHCO. The periodic payments would be in support o f RAHCO's obligations to undertake restoration works on the rail infrastructure (which RAHCO will continue to own during the term o f the concession) as a result o f political or natural force majeure events. The termination payment would be with respect to compensation owed to the concessionaire by RAHCO in the event that the concessionaire or Project Company terminates the Concession Agreements as a result o f (i)a material breach o f the Concession Agreement by RAHCO, (ii) a Discriminatory Change inLaw adversely affecting the Railway Operator, and (iii) Expropriation. Board approval for the final terms and conditions o f the PRG will be sought once the final level o f RAHCO and PRG support has beendetermined and documentation has beennegotiatedwith the selectedbidder. % of Bank- 84.32 47.4 70.71 Part B: Enhanced road management capacity 15.99 9.0 14.83 Part C: Improved performance o f Tanzanian Railways 37.76 21.2 36.46 22.5 Partial Risk Guarantee 40.00 22.5 40.00 24.7 Total Project Costs 178.07 100.0 162.00 100.0 I Total Financing Reauired 178.07 I 100.0 I 162.00 100.0 2. Key policy and institutional reforms supported by the project: CTCP would build on the reform program supported under the IRP-I1andthe RRP by: 1. Providing support to TANROADS for road network management including planning, procurement, contract management, financial management, safeguards and monitoring. Specifically it would speed up the procurement process by exempting TANROADS from the Central Tender Board (CTB) involvement intheir procurement process; - 11 -  2. concessioning o f TRC to a private operator; and 3. preparation for the private sector participation inthe operation o f TAZARA. Further key transport sector policy reforms, such as (i) transforming TANROADS into a Road Authority; (ii) definition o f the management o f local government roads; (iii)enhancement o furban transport regulatory capacity inDar es Salaam; (iv) improvedvehicle emission control and changing to unleaded petrol; and (v) road safety measures, will be assisted through this project and supported in a follow-on project which is proposed to be in the form o f an APL using a sector-wide approach (SWAP) jointly with the Government and other development partners. Regarding the railways, the Project supports a major sectorial reform which includes (i) the concessioning o f the operations o f the railways to a private operator; and (ii) the creation o f an asset holding company (RAHCO). 3. Benefits and target population: The central transport corridor is one o f the most important o f Tanzania's nine transport corridors. Its significance is important in terms o f population served, agricultural production and potential, mining, tourism, and trade with landlocked countries. The central corridor extends about 1,500 km connecting Dar es Salaam with Morogoro, Dodoma, Nzega with a link to Mwanza on Lake Victoria and further leading to Rwanda and Burundi border in case o f the road corri,dor. It provides access to Tabora and Kigoma, on Lake Tanganyika through the railway corridor which is not serviced by a road. These corridors connect major urban centers, ports and border points with inland regions and vast rural areas, and function as vital lifelines for a large number o f people. The investments to be undertaken under the roads component o f the project would restore the essential role and function o f the roads concerned. The restoration is expected to yield substantial benefits, mainly in terms o f vehicle operating cost savings resulting from improved road condition. The project will benefit the entire population including rural dwellers livingalong the corridor. Maintenance cost savings would also be realized as a result o f timely investments which will prevent fhther road deterioration to a point where full reconstruction would be required. These anticipated impacts are consistent with the objective o f strengthening economic infrastructure, which has been identified in the CAS as a key element in GOT'S growth and poverty eradication strategy. Regarding the railways, the concessioning is expected to result in a substantial improvement in the railway's capacity, operating efficiency and level o f service. The specific benefits for stakeholders are expected to be: (i)for freight customers: reduced transport costs; higher quality and predictability o f services; improved national and international competitiveness; reduced damage; (ii) for passengers: lower transit times, fewer delays, reduced accident rates (low income passengers, traveling third class, are protected against real fare increases or reductions in service levels); (iii) for GOT: positive returns from the railways through lease payments and concession fees, as well as taxes on the concessionaire's profits and Reducedpressure on the road infrastructure leading to lower road rehabilitation andmaintenance costs; (iv) for the concessionaire: improved physical infrastructure providing the opportunity for attracting more rail traffic andthus the potential for higher profits; and (v) for neighboring countries o f Uganda, Burundi, DRC and Rwanda: reduced transit costs and better access to the sea. - 1 2 -  4. Institutional andimplementation arrangements: Overall fiduciary responsibility will be with the IDA PCU (IDA Project Coordination Unit) o f TANROADS who will manage the project's Special and Project Accounts, and who will oversee the other implementing agency's procurement actions. The Zanzibar road works will be executed by the CODAP (Coordination office for Donor Aided Projects) Unit o f the Zanzibar Ministry o f Communication and Transport. The rail component will initially be executed by the dedicated unit which was established within TRC to execute the RRP. During project execution RAHCO (Reli Asset Holding Company) will be created. RAHCO will sign the Concession Agreements with the selected private operator on the Government's behalf and must, therefore, be established by the time o f the signing o f the concession agreement, planned for November 2004. At the time o f the planned commencement o f the concession by June 2005, RAHCO will take over from TRC as the implementing agency for the rail component. RAHCO will receive technical assistance from the project to buildup its capacity for that purpose. At the time o f the take over o f RAHCO, the D C A will be amended to reflect the changes. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Road Sub-sector: It has been considered to insist on more up front road sector reforms, such as the transformation o f TANROADS into a RoadAuthority, as the Government had committed itself inthe 2000 TANROADS ordinance. However, it was felt that the long delayed financing o f the Singida to Shelui road could not be held up any longer. The discussion on the renewal o f the ROADS ACT, where the Government has agreed to form a joint GOT/donor review committee, is considered as the main vehicle for the dialogue with Government on M h e r sector reforms. These discussions will focus on the said transformation o f TANROADS and define a conducive frame work for the management o f rural roads. Railway Sub-sector: The concession o f TRC was considered as a separate Railway Restructuring Project, but later chosen to be part o f the formerly roads-only project because o f the urgency o f facilitating the concessioning process. However, the two are closely linked as part o f the Central Corridor, and it made sense to combine them in view of their complimentary role in regional trade and transport facilitation. Moreover, as is to be expected in the concessioning process, the morale o f TRC staff is low and deteriorating, and the physical condition o f TRC is critical. Both situations lead to decreased performance o f TRC, and asset stripping is common under such circumstances. Having a fm commitment by IDA for the financing o f rail and sleeper replacement and the possibility o f a PRG is likely to (i)enhance bids in favor o f the Government; and (ii) encourage Government to move quickly on the concessioning will process. For these reasons, it has been decided to include the rail component inthis Project. - 13-  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Sector Issue Project Implementation Development Bank-financed Progress (IP) Objective (DO) Roadnetwork invery poor condition Sixth Highway Project S S Lack o f capacity to manage the network IRP1 HU U As above IRP2 S S Railway financial performance Railways Restructuring Project S S declining Other development agencies To improve condition o f roadnetwork EU, AFDB, NORAD, and enhance roadmanagement capacity DANIDA, SDC, JICA, Kuwait, OPEC 3. Lessonslearned and reflected in the project design: 1.Roadcomponent The (first) Integrated Road Project which was launched in 1991 and closed in 1999, was rated as unsatisfactory in its Implementation Completion Report (ICR) due to non-achievement o f the project's development goals and slow and partial physical implementation. This ICR provides valuable lessons for the Central Transport Corridor Project roads component: 0 The IRPl basically relied on the strengthening o f the existing institutional set-up for the management o f the road sector without demanding up-front institutional change. Only aRer the clear failure of this approach, did the Government agree to fundamental change (with creation o f the Road Fund in 1999 and TANROADS in2000). This Project now assists to progress further and complement the reforms already achieved. 0 The absence o f substantially completed detailed engineering for all major roads immediately prior to Board presentation leads to delays and cost increases. This Project is presented with a majority o f designs andbiddingdocuments completed. 0 Donor Coordination led by Government is essential. Both MOW and M C T need to take the lead in developing poverty focused policies and strategies (MOCT) has already done so in its National Transport Policy o f 2003). The project helps them through support to develop such plans and strategies and to hold annual policy and donor coordination conferences. 2. Rail component The client and the Bank have drawn valuable lessons from preparing and implementing past railway projects, and in particular projects aimed at helping concessioning processes, which have been taken into account inthe preparation o f this project. 0 Privatizing railway assets rather than restructuring parastatals gives results which are much more -14-  profound and sustainable. However, the railway infrastructure is considered a strategic asset for a nation and investments required to renew and update it are sometimes too high to attract private investors as it may negatively impact on the viability o f the concession. Insuch cases, concessioning, where the State retains ownership over the infrastructure and the private sector is in charge o f the operations and investments inequipment, is a viable choice. Private sector is interested in investing in railway concessions only if the concessions are offered on reasonable terms, which enable them to recover costs and make an appropriate return on investments. Moreover, environmental and social liabilities and work force downsizing should be the responsibility o f the State as the private investor would not be willing to assume responsibility for the costs associated with these activities. Hence, the present project design provides for IDA financing for track renewal, and social and environmental liabilities while the GOT shall finance staff retrenchment costs. Following the previous failed attempt to concession TRC, the use o f political risk mitigation to support the concession appears necessary. The possibility o f the use o f an IDA PRG is being offered to bidders to help enhance investor interest. This should result inmore competitive bids and better financial terms and higher up-front commitment to invest inasset rehabilitation and replacement. (See Annex 12) One o f the conditions o f success o f a concession is the effective functioning o f the regulatory body and o f the institutions in charge o f monitoring the concessionaire's performance and maintenance o f infrastructure. Hence the inclusion o f the component for the institutional support to RAHCO, the asset holding company on behalf o f the Government, and TRC, which will take care of the residual assets before being wound up. 4. Indications of borrower commitment and ownership: The Government has initiated action to address road sector relatedpolicy issues, as detailed inits Letter o f Development Policy, and has prepared a Poverty Reduction Strategy Paper (PRSP), which outlines linkage between adequate transport and poverty eradication. In addition, GOT has prepared a Public Sector Expenditure Report for Trunk and Regional Roads, outlining its macro-policy and strategy, as well as associated sector strategies, and a 10-Year Road Sector Development Program which will further firm up Government's development policy and create an action plan for poverty alleviation. As outlined in the National Transport Policy (2003), GOT is disengaging itself from direct operational activities and allowing private sector participation in the provision o f infrastructure and services. The objective is to effectively separate policy and planning, from regulation on the one hand and finance, execution and operation on the other. 5. Value added of Bank support inthis project: 1.Roadand Railway Reform The Bankhas been a leader inpromoting road reform inthe region (through SSATP) andworld wide and is well positioned to assist Governments to enhance the management o f their road assets. Interms o f railway concessioning, as well, the Bank has successfully assisted a number o f countries to concession their railways to private operators. In Africa this has been successfully done in the Ivory Coast, Burkina Faso, Cameroon, Madagascar, Zambia, and is currently on-going in a number o f other countries. 2. Value added of PRG Support The proposed TRC concession was first tendered internationally in November 2001. Although four -15-  companies had pre-qualified, no compliant bid was received by PSRC. An important element o f the bidders concerns was that no political risk mitigation was offered by GOT in support of the concession. Giventhe current adverse investment climate for investments in emerging market countries, the possibility o f the use o f a PRG insupport o f the concession could help to enhance investor interest. A PRG is likely to strengthen investor confidence inthe Government/ RAHCO policy and performance commitments. As a consequence, bidders may offer more competitive bids resulting in higher concession fees and lease payments and stronger upfront commitment to invest innetwork rehabilitation and expansion. A PRGmay help to improve the risk profile ofthe privatization by reducing the perceived risks andthereby enabling investors to raise funds, directly or through their corporate balance sheets, in commercial debt markets that may not be available without some form o f political risk mitigation. As such, a PRG may help to make the privatization financeable by catalyzing acquisitiodconcession finance as well as by leveraging large amounts o f capital typically needed for network rehabilitation and expansion. Inthis way, the pace o f new investments for expansion o frelevant services can be accelerated by overcoming the general reluctance o f investors to commit large amounts o f capital upfront. The risks covered by the PRG would be limited to political risks and RAHCO related performance undertakings. In this way, the PRG would provide a transparent mechanism for allocating risks between RAHCO andpotential investors. GOT and RAHCO would be accountable only for their own actions while the investors would be accountable for all the commercial risks, including traffic risk as well as investment and performance risks. The use o f a PRG to catalyze commercial debt or investments could help to achieve much longer tenors for the debt andreduce the investors' overall cost of financing because of the AAA credit-rating o fthe Bank as well as by a reduction o f the risk premium. This should help to achieve more sustainable retail tariff regimes for consumers by lowering the capital costs that investors need to recover through the retail tariffs. The PRG would not give rise to any additional contingent liability for the government, as it would backstop only the contractual obligations that RAHCO would make to the concessionaire. In addition, the government would not incur any costs associated with the PRG, as all guarantee-related charges would be payable by the concessionaire. It is envisaged that an investment o f around US$180-200million would be required to be undertaken by the private concessionaire during the 25 year term of the concession. Under the current investment climate, investors would be reluctant to commit to such investments unless they are provided with some assurances that the GOT would not prematurely terminate the concession and if this were to happen they would be duly compensated. Giveninvestors' experience of governance issues relating to government commitments in emerging market countries, investors and lenders may require these assurances to be backstopped by IDA. As a result, an indicative term sheet for an IDA PRG is being incorporated in the bid package for the pre-qualified investors (See Annex 12). E. Summary Project Analysis (Detailed assessmentsare inthe project file, see Annex 8) 1. Economic(see Annex 4): 0 Costbenefit NPV=US$ million; ERR= % (see Annex 4) 0 Costeffectiveness 0 Other(specify) Road Component: Costhenefits analyses have been carried out for the Singida-Shelui and Zanzibar roads, using the H D M 4 -16-  model, For both components, several technical altematives have been tested, the economic analysis leading to a rational choice. The Internal Rates o f Return and Net Present Value o f the chosen solutions are shown hereafter: Road section cost IRR NJ?V (m$) (%I (m US$) Singida Shelui (109 km) - 42.43 24.3 34.15 Mkwajuni - Nungwi (19 3.51 14.9 0.771 km) Matemwe - Pongwe (21 3.87 13.3 0.489 km) Paje Pingwe (17 km) - 3.08 14.1 0.452 Rail Component: A costbenefit analysis has been carried out, comparing the with and without project situations. The main assumptions are that the freight traffic would increase by 14% in the first three years following the rehabilitation, and by 3% per year later on, that the number o f staff will be reduced from 7,000 to 3,000, that the concessionaire's investment would be close to US$ 30 million, while the Bank is financing US$ 33 million and that the main benefits to be expected are the road avoidance cost for additional traffic, and the reduction in the unit cost o f operation for the existing traffic. Under such assumptions, the ERR o f the project is estimated as 45%. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) The transaction advisor for the rail has prepared a financial model on the basis of which the bidding documents were prepared. The bidders for the concessioning o f the railway will prepare their own financial models inorder to decide on their bid. Fiscal Impact: The fiscal impact o f the project will initially be negative for the country, since counterpart funding are required and redundancy costs will arise. Inthe mid to short term, however, a positive fiscal impact can be expected through increased fiscal revenues due to increased economic activities and the payment o f fees for the rail concession. 3. Technical: Road Component: Design standards are based on the Tanzanian Design Manual and are adequate given the likely traffic that the roads will be exposed to. The Singida Shelui road will have a carriageway width - of 6.5 meters with 1.5 meters wide shoulders. The pavement will consist o f 200 mm cement stabilized natural gravel sub-base layer, a 150 mm crushed stone base, and double surface dressing. The Zanzibar roads will have a carriageway width o f 6 meters with 0.75 meters shoulders. The pavement will consist o f a 150 mm gravel sub-base, 150 mm crushed stone base and a surfacing o f 50 mm asphalt concrete. Asphalt concrete has been chosen for the surface because the only type o f stone found in Zanzibar is limestone which is too soft to permit surface dressing. Rail Component: The technical proposal for the replacement o f rail and sleepers on three worst deteriorated sections of a total length o f 197 kilometer between Dodoma and Tabora will be presented to bidders during the bidding process who will be requested to review these proposals and to make altemative proposals (within the credit limit), ifnecessary. -17-  4. Institutional: 4.1 Executing agencies: The roads components o f the project will be executed by TANROADS, an executive agency o f the Ministry of Works (MOW), regarding roads in Tanzania Mainland, and by MOCT Zanzibar regarding roads in Zanzibar. The rail component will be executed initially by TRC. RAHCO (Reli Asset Holding Company) will be created with the help o f the project, and RAHCO will take over the executive function for the rail component from TRC at the time of the commencement o f the concession (planned by June 2005). 4.2 Project management: Overall fiduciary responsibility will be with the IDA PCU (IDA-Project Coordination Unit) o f TANROADS who will manage the project's Special and Project Accounts, and who will oversee the other implementing agency's procurement actions. The Zanzibar road works will be executed by the CODAP PCU (Project Coordination Unit for the Coordination o f Donor Aided Projects) Unit o f the Zanzibar Ministry of Communication and Transport. The rail component will initially be executed by the dedicated unitwhich was established within TRC to execute the RRP.Duringproject execution RAHCO (Reli Asset Holding Company) will be created. RAHCO will sign the concession agreement with the selected private operator on the Government's behalf and must therefore exist at the time o f signing (planned for November 2004). At the time o f the planned commencement o f the concession (by June 2005) RAHCO will take over from TRC as the implementing agency for the rail component. RAHCO will receive technical assistance to buildup its capacity for that purpose. At the time o f take over o f the implementation function for the rail component by RAHCO from TRC, the D C A will have to be amended accordingly. 4.3 Procurement issues: The overall procurement risk for the project has beenjudged as average. TANROADS which will assist to oversee the procurement action o f the other implementers needs to implement the procurement capacity enhancement planas outlinedinparagraph4 o fAnnex 6A. 4.4 Financial management issues: A dedicated unit established within TANROADS is in charge o f specific projects including IDA financed projects. The key accounting staff in the IDA PCU is adequately qualified and well experienced with World Bank requirements. Currently a significant proportion o f the fknding for the roads network is received from development partners and TANROADS has an obligation to demonstrate that public funds are being effectively managed and fully accounted. The accounting system is based on a well functioning computerized, double entry, accrual-based system maintained within the FAD. The overall conclusions of the financial management 'assessment are: (i)the project's financial management arrangements satisfy the World Bank's minimumrequirements under OP/BP10.02. However, some improvements remain to be effected for the system in order to establish an acceptable control environment and to mitigate financial management risks. The various measures/improvements should be implementedby the due dates as indicated inthe Financial Management Annex to the PAD (see Annex 6B); (ii) project financial managementriskisassessedasbeinglow/negligibleprovidedthatthefinancial the management arrangements are properly implemented and the financial management action plan (see Annex 6B) is satisfactorily addressed inpractice. Standardfinancial covenants include the submission to IDA ofl (i) audited financial statements within six - 18-  months after the year-end; (ii) related information as required by IDA; (iii) other financial Monitoring Reports (FMRs) within 45 days after each calendar quarter period. Disbursements from the IDA Credit will initially be made on the basis o f incurred eligible expenditures (transaction based disbursements). Strengthening its accounting and financial management capacity will enable TANROADS to eventually facilitate the introduction o f FMR-based disbursements. The extemal audit will be carried out annually.as part o f the TANROADS audit by the Controller and Auditor General (CAG) or such other person registered as an auditor under the Auditors and Accountants Act, 1972 and approved by the CAG. The auditor will be required to express an opinion on the audited project financial statements only, incompliance with Intemational Standards on Auditing. 5. Environmental: Environmental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. For the Singinda-Shelui road which is the main component o f this credit, environmental and social assessments have been prepared and were disclosed, after ASPEN review and approval, both inthe Bank's Kiosk and inTanzania as per requirements 120 days before Bank approval. The three roads in Zanzibar are being considered as second year sub-projects for which the E N S A approval process is carried our during project implementation. The E N S A for this sub-project was approved by ASPEN prior to appraisal, subject to the incorporation o f its comments. After finalization o f the documents these will be disclosed in line with IDA requirements. Construction is planned to commence after the full implementation o f the RAP inearly 2005. For the rail component, the production o f an E N S A satisfactory to IDA is a condition o f disbursement for part of the credit proceeds allocated to the rail component. Procurement for these services is currently on-going and it is expected that services will commence immediately after effectiveness o f the credit. 5.2 What are the main features o f the EMP and are they adequate? The main features o f the EMP for the Singida Shelui road are tree planting, putting inplace fire barriers, - support to local environmental NGOs, HIV/AIDS and cultural aspects awareness campaigns. 5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: May 2003 (Singida- Sheluiroad) The E N S A for the Singida Shelui roads was disclosed on December 12,2003. The E N S A for the - Zanzibar roads is expected to be disclosed inApril 2004 andthe one for the rail component in September 2004. 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Intensive consultations have taken place with affected villages and communities along the road way, with local NGO's andwith environmental groups. 5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP? A specific part will be added to the quarterly FMRto report on environmental and social actions taken. -19-  6. Social: 6. I Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. Transport projects tend to cause health problems (such as HIV/AIDS) through increased social interaction, anddue to safety problems. The project addressesthese problems through contractor conductedHIV awareness campaigns and through road safety measures along the road way. 6.2 Participatory Approach: How are key stakeholders participating inthe project? Itis proposedto the transport ministries to holdannual sector meetings jointly with private sector and government stakeholders and other donors where the Government would present its plans, where implementation issues could be discussed and solutions sought. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Duringproject preparationthe consultants preparing the design documents interacted with local communities, NGOs and environmental groups inorder to prepare the EA/SA. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? TANROADS has engaged a full time social scientist to monitor and follow-up social impacts. 6.5 How will the project monitor performance interms of social development outcomes? A specific partwill be added to the quarterly FMRto report on environmental and social actions taken. 7. Safeguard Policies: Environmental Assessment(OP 4.01, BP 4.01, GP 4.01) 0 Yes 0No Natural Habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes 0No Forestrv (OP 4.36. GP 4.36) 0Yes 0No Pest Management (OP 4.09) 0Yes 0No Cultural Property (OPN 11.03) 0Yes 0 No IndigenousPeoples(OD 4.20) 0Yes 0No Involuntary Resettlement(OP/BP 4.12) 0 Yes 0No Safety of Dams (OP 4.37, BP 4.37) 0Yes 0No Projectsin International Waters (OP 7.50, BP 7.50, GP 7.50) 0Yes 0No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. 0 Safeguards measures to be included inthe tender documents and TOR for consultants 0 Environmental specialist from TANROADS to monitor the EMP and RAP preparation, implementation and supervision 0 Reporting on compliance is part o f the FMR. - 20 -  F. Sustainability and Risks 1. Sustainability: The sustainability o f the roads component o f the project depends largely on the progress o f the reforms that have been commenced by the Government. This project will lay the ground for further reform, implementation o f which is proposedto be linked to a much larger sector-wide follow on project through an Adaptable Program Lending (APL) credit. Reforms already achieved are the creation o f a Road Fund for the financing o f road maintenance in 1999 and the creation o f TANROADS, an executive agency responsible for the management o f the trunk and regional roads inthe country. Next steps are to enhance TANROADS efficiency andto arrive at conducive framework for the management o f rural roads. Sustainability o f the r a i l system in Tanzania is largely dependent upon its successful concessioning. The likelihood for successful concessioning is strongly linked to the implementation o f the project - without the renewal o f the track and PRG support, it is unlikely that the private sector would be prepared to undertake the concession. The project will also help strengthen GOT'Soversight o f the concession, which is another essential condition for the sustainability of the sector. 2. Critical Risks(reflecting the failure o f critical assumptions found inthe fourth column o f Annex 1): The table below identifies the key risks that project management may face in achieving its objectives and provides a basis for determining how management should address these risks. Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Consultants and Contractors are M Inthe past contractors andconsultants often did performing satisfactorily not perform as required. The key to their improved performance is tight contract management. Improved contract management i s the focus o f the TA provided to TANROADS Government does not let TANROADS M TANROADS to some extent still operates like a operate at ms-length government department. This project supports efforts to make it more autonomous and responsive Lack o f compliant bids for the M Riskmitigationthrough PRG concessioning o f TRC due to high perceived country risk From Componentsto Outputs TANROADS can not carry out its M O+M Study andother actions supportedby the mandatedresponsibilities independently credit are to enhance capacity o f TANROADS. and efficiently Commitment is being solicited from Governmen to let TANROADS operate at arms-length Counterpart funds will not be budgeted M Annual review o f counterpart funding andreleased ontime requirement during GOTPERdiscussions is planned The track renewal does not result in N The design of the renewal component will be operational improvements undertaken inconjunction with the concessionaire, and will be tranched. It is very unlikely that a competent operator will not take advantage o f the opportunities offered. - 21 -  GOT does not provide sufficient budget S The package offered to 1800TRC employees for future TRC retrenchments who were retrenched in2003 was adequate. Future retrenchments including phasing needto be well plannedand discussed betweenthe successful bidder and GOT and appropriately budgeted for Financial management risks: the staff in M Training o f staff is ongoing and hands-on the IDA PCUhave implemented the new support by supplier o f software reduces this risk EPICOR system, however, initial teething problems couldjeopardize timely and accurate financial reporting RAHCOdoes not have the necessary M IDA support is beingprovidedfor technical capacity for oversight o f the concession assistance for capacity buildingo f RAHCO Overall Risk Rating M 3. Possible ControversialAspects: G. Main Creditconditions 1. EffectivenessCondition 1, the Subsidiary Grant Agreement has been executed on behalf o f the Borrower and TRC; 2. the Project Implementation Plan has been duly adopted by the Borrower inform and substance acceptable to the Association; and 3. the Borrower has opened a Project Account and the initial contribution o f Tshs. 900 million has been deposited therein. The following are specified as additional matters within the meaning o f Section 12.02(b) o f the General Conditions, to be included inthe opinion or opinions to be h i s h e d to the Association: 1. the Project Agreement has beenduly authorized or ratifiedby TRC, and is legally bindinguponTRC inaccordance with its terms; and 2. that the Subsidiary Grant Agreement has been duly authorized or ratified by the Borrower and TRC and is legally bindinguponthe Borrower andTRC inaccordance with its terms. The maximum period untileffectiveness is 90 days after the signing o f the D C A and PA. 2. Other [classify according to covenant types used in the Legal Agreements.] Conditions of Disbursement - 22 -  1. EA and SA for the Zanzibar road component i s prepared, approved and disclosed; 2. EA and SA for the rail component, prepared, approved and disclosed, for disbursement o f emergency 25%; and 3. For the balance 75% o f the amount, the Borrower shall have signed a railway concession agreement or made arrangements satisfactory to the Association. Project Inialenieiztatian The Borrower shall, not later than May 31 of each year, undertake an annual review o f the Project, and shall undertake a midtermrevieFY not later than May 3 1, 2006. H. Readiness for Implementation @ 1. a) The engineering design documents for the first year's activities are complete and ready for the start o f project implementation. C,1. b) Not applicable. 2. The procurement documents for the first year's activities are complete and ready for the start o f project implementation. Z 3. The Project ImpleinentationPlanhasbeenappraisedandfoundto berealistic and ofsatisfactoT quality. 24. Thefollowingitems arelackingandarediscussedunderloanconditions (SectionG): r_ I. Compliance with Bank Policies 1. This project complies with all applicable Bank policies. 1 J2.ThefollowingexceptionstoBankpoliciesarerecommendedforapproval. Theprojectcoinplieswith all other applicable Bank policies. - 23 -  Annex I:Project Design Summary TANZANIA Central Transport Corridor Project KeyIndicator Perform lata Collection Strategy itical Sector Indicators: ectorl country reports: from Goal to Bank Mission) :o promote economic and Yncreasedvolume of .nnualEconomic Review !ffective market integration ocially sustainable igriculture, commercial and RSP vi11leadto additional levelopmentandpoverty ndustrial goods nationally in ublic Expenditure Review xonomic growth and the lleviation by supporting: (i) illseasons. mprovement of critical irivate sector and )overty indicators. nfrastructure development; ii)publicsectorreformand nstitutionbuilding; and (iii) mproved social nfrastructure. JrojectDevelopment Outcome I Impact 'roject reports: :fromObjective to Goal) 1bjective: Indicators: To support Government's (ational Transport Sector strategic Plan through : A) Upgrading of Strategic Traffic increases on improved 'ANROADS Reports. Governmentand Donors Zoad links. roadsat least by 10%per support for rehabilitation is annum on averagebetween forthcoming as planned. 2004 and 2009. B) EnhancedRoad Portion of road network undei 'ANROADS Reports. RoadFund financing for road aanagement Capacity. TANROADS responsibilility maintenanceis sustained and inpoor condition reduced forthcoming as planned. from 49% in 2003 to 30 % 2009.(Average per year). :C) Improved operation of Traffic on TRC increases teport of concessionare Demand for freight transport ranzanian Railways from 1.45 milliontons at inthe central corridor signing o f the concession increasesas planned and rail agreement to 2.0 million by can compete with road the end of 2009, level of transporters. transit traffic will increaseby 20% in 2009 from the level of 560,000 tons in 2003, kmo f tracksunder temporary speed restriction will decrease from the current 10% to 2% in 2009. - 24 -  Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: (A) Singida-Shelui Road 169km of roads pavedand TANROADS and MOCT Consultants and Contracters (110 km) and 59 km of five ferries rehabilitated. Zanzibar reports. perform. strategic roads inZanzibar upgradedto paved standard and key ferries rehabilitated. (B) Feasibility, detailed Bid documentsare available. TANROADS & MOCT Consultantsperform. design and documentation for Zanzibar reports. rehabilitation, and upgrading of4 trunk roads totally 713 km. (C) TANROADS and MOCT TANROADS HQ building TANROADS and MOCT GOTallows TANROADS Zanzibar capacity enhanced occupied, WAN operational Zanzibar reports. operate at arms-lenght. and keey studies for improved and studies executedby July road management executed. 2007. (D)TRC concessionedto a ConcessionAgreement signed Signed Concession Private Sector respondsto private operator. by November 2004 and Agreement bids and Government commencement of concession concludesbid evaluation and by June 2005. negotiations ina timely manner. Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) A.1Paving of Singida-Shelui $ 55.73 million Road (110 km) and supervision. A.2 Reconstructionof 3 roads $ 14.34 million inZanzibar (59 Km) and supervision. A.3 Feasibility Studies, $ 7.67 million detailed design and bidding documents (713 kms) A.4 Rehabilitation of ferries $ 6.58 million B1TANROADS HQ Building $ 4.88 million B.2 Wide Area Network for $ 1.24 million TANROADS. B.3 O&M study for E 1.08 million TANROADS B.4 Road investment E 1.08 million prioritization B.5 Local governmentsroads E 1.35 million inventory &survey - 25 -  B.6 DSMBRT & other $ 2.47 million transport related studies B.7 TA & training for $ 3.62 million TANROADS & MOCT Zanzibar B.8 Operating costs $ 0.27 million C.1Urgently neededrails, $ 8.50 million sleepers and other material for TRC C.2 Other rails, sleepersand $ 25.47 million material for TRC, including installation C.3 Preparationof SNEA $ 0.54 million C.4 Environmental Clean-up $ 0.55 million and Resettlement C.5 TA and training for TRC, $ 0.54 million the concessionaireand RAHCO C.6 TA for the private sector participation inTAZARA Partial Risk Guarantee Total: $ 178.07 million - 26 -  Annex 2: Detailed Project Description TANZANIA Central Transport Corridor Project By Component: Project Component A: Upgrading of strategic road links US$84.32 million - A.1 Singida-SheluiRoadRehabilitationandUpgradingProject (US$55.73m, of which IDA US$ 50.33m and GOT US$5.40m) Background. Singida-Shelui Road (110 km) leads from the region's headquarters to the border o f Tabora region, serving a number o f intermediate administrative and trade centers as Iguguno, Misigiri and Shelui. It falls under the Central Corridor o f the national trunk road network, with the highest international freight flows across the country. Due to the difficult crossing o f the Rift Valley through Sekenke Escarpment, the road is viewed as the bottleneck inthe corridor. The existing roadway is gravel surfaced, 7 to 10 m wide, including shoulders. Shoulders cannot be used for non-motorized traffic. Design features are poor androad safety is much below national standards. Table: Mainfeatures of the existing road section Section Alignment Pavement Remarks Singida-Iguuno Horizontal minradii Garvel Road. Poor The depressed road Confluence km 1OOm condition, with section behaves as a 0-35 Maxgrade 5.5% widespread channel incase o f undulations and flooding corrugations Iguguno Horizontal minradii Gravel road, poor Tightbendexiting Confluence- 450m Max. grade 7.1% condition, pavement from Iguguno Misigiri km depressions, corrugation 35-76 and rutting Misigiri- Shelui Horizontal minradii Gravel road except a The stretch across km77-110 1OOmMax grade road stretch through the Escarpment o f 12.3% Sekenke Escarpment Sekenke is quite that is bitumen paved, treacherous at present inbad especially incase o f condition rainstorm Strategic Importance. The proposed components o f the Central Transport Corridor Project serve the Western and North Western parts o f the country as well as the neighboring land locked countries o f Rwanda, Burundi, Uganda and Democratic Republic o f Congo. The Government accords high priority to the rehabilitation and upgrading o f the sections along the Central Corridor. A.2 Reconstructionof 3 roads in Zanzibar (US$ 14.34m, of which IDA US$ 12.94m and Gov US$ 1.40m) Project Description This subcomponent includes the rehabilitation o f 3 different road sections on Zanzibar's sea shore. - 27 -  Year RoadA RoadB Road C 2003 96 29 121 2006 (opening) 138 63 173 2015 233 149 292 CostEstimates Upgradingworks to bitumenstandard US$ 13.24m SupervisionCosts U S $ 1.10m TOTAL U S $14.34 million A.3 Feasibilitystudies and detailed design(US$ 7.67m, of which IDA US$ 1.51m, NDFUS$6.05m and Gov 0.llm) A.3.1 Feasibility Study and Detailed Engineering Designfor Upgrading and WorksSupervision of Singida Babati -Minjingu Road Project (US$2.59m, of which NDF US$2.59m) - - 28 -  The Singida - Babati - Minjinguroad (222km), is composed o f two different sections namely; Singida - Babati (T014), which is a branch of the Central Corridor Route and covers 163km and links the two major strategic corridors, Central and the Great North corridor at Babati, and Babati - Minjingu(59km), which forms part o f the Great North Road Corridor (T005) and connects the Central Corridor Route with the North -East corridor via Babati- Minjingu- Arusha. Minjinguis located 28 km to Makuyuni thejunction to Ngorongoro, Manyara and Serengeti National parks. The entire road passes through agricultural and pastoral potential areas with mainly sunflower and wheat as cash crops. The Singida - Babati - Minjinguroad is an unpaved gravevearth road, 5-6.0m carriageway width, with no shoulders. The section from Singida to Manyara border (55km) is an unengineered earth road and is inbad condition, while the remaining section, Singida border -Babati-MinjinguinManyara region is ina fair to poor condition. The section received some maintenance interventions during 1999/2000 to restore accessibility under the El-Nino road infrastructure repair program. Activities included gravelling and drainage improvement following the existing non-engineered alignment. Maintenance operations carried out recently are mainly spot improvement to restore accessibility on the earth road sections and routine and recurrent maintenance involving grading and drainage maintenance for gravelled sections. The road facilitates goods movement from Singida and Manyara to Arusha, Kilimanjaro and Tanga port and M e r to Mombasaport inthe neighboring country o fKenya via Tanga -Horohoro road. Traffic on this road is mainly composed o f heavy goods vehicles ferrying various agricultural produce to processing plants in Arusha, Moshi, Tanga and Mombasa in Kenya. According to traffic count data o f MOW for the year 2001 the average traffic volume is about 200 vehicles per day (vpd). The lOYR SDP forecasts the Annual Average Daily Traffic (AADT) to exceed 600 vpd in year 2012. However, light vehicle traffic is currently restricted by poor road conditions. TANROADS has commissioned a feasibility study o f the whole road and this is expected to be completed soon, The proposed study under CTCP will review the feasibility to ensure that mandatory requirements such as EMP and RAP have been prepared and if not include them inthe study. This will be followed by a detailed design based on the preferred option and biddocumentation. A.3.2 Feasibility Study, Detailed EngineeringDesign, Upgrading to Bitumen Standard of Dodoma - Babati Road Section (vS$2.70m, of which NDF US$2.70m) The Dodoma - Babati road has a total length of about 263 km and forms part o f the Great North Corridor Route (T005) running from Iringa to Arusha via Dodoma and Manyara regions and has been identified as a strategic corridor in Tanzania road network. The road comprises of two sections namely; Dodoma - Kondoa - Manyara border (228 km) and Babati - Dodoma border (35 km). The road crosses seven (7) bridges and passes through flat, rolling and hilly (Kolo and Bereko escarpments) terrain. It passes through agricultural potential areas reknowned for maize, millet, beans, sunflower, coffee and groundnuts. It also links tourist destinations such as Ngorongoro, Tarangire, and Manyara National parks. The Great North Corridor also links the productive areas o f Iringa, Dodoma, Manyara and Arusha regions and the North Corridor (T005). It is also a major link between Zambia, Tanzania and Kenya. The alignment is an unengineered gravevearth road whose width varies from 4.5 - 6.0 m for the section from Dodoma to Manyara border and4.5 - 5m for the section from Manyara border to Babati. The present condition o f the section from Dodoma - Manyara border varies from fair to poor condition and the rest varies from fair to good. In calendar years 1998, 2000 and 2001, the road received major repairs along some sections inorder to - 29 -  ensure its accessibility throughout the year. However, currently most o f the drainage structures are silted and eroded on the downstream. Many culverts have broken headwalls/wingwalls and aprons. Generally, the drainage on the section from Dodoma to Manyara border varies from fair to poor while from Manyara border to Babati varies from fair, along the flat terrain, to good inhilly sections. The existing road lacks the basic engineering qualities (structural, geometry, drainage and alignments). The road is intended to stimulate economic growth by reducing transportation costs and improving accessibility to economically productive areas, primarily agriculture, tourism as well as increased accessibility and mobility inrural areas. The traffic on road is fairly low due to the poor condition o f the road with most vehicles from Dodoma to Arusha opting to use the longer but paved route via Chalinze. According to the traffic census carried out in 2002 by the Ministryo f Works, the Average Daily Traffic is 90. After upgrading to bitumen standard, it is anticipated that vehicles usingChalinze route will be diverted back to this road and considerable new traffic will be generated. The proposal is to carry out a feasibility to determine the most appropriate and cost effective intervention as a first phase followed by a detailed design and bid documentation for upgrading to the feasible standard. The CTCP shall finance both phases o f the study. A.3.3 Feasibility Study and detailed design of Tanga -Horohoro road (US$0.76m, of which NDF US$ 0.76m) The Tanga- Horohoro road links the port and town o f Tanga to the International border between Tanzania and Kenya. The 65km road section when upgraded will complete the all weather bitument road from Dar es Salaam (via Chalinze and Segera) to Mombasa, the principal port city inKenya. The road passes through a flat to rolling terrain with a coastal climate. Currently the road is in a good condition with recent regravelling o f bad sections. In addition, duringthe past two years construction o f 6 bridges and access roads has been accomplished through the IRPII credit at an estimated cost o f TShs. 6.8billion and this has significantly improved the road resulting inincreased traffic. The accesses have been constructed to a 6m wide bitumen standard road while the bridges are to 6m wide carriageway with a provision for a pedestrianfootpath. The rest o f the road varies inwidth from 4.5m to 6m. The road serves a rural farming community whose production could be increased significantly by access to markets inthe tourist areas of the Kenyan South Coast.The road once developed will also spur growth in cross border travel and increase commerce between Kenya and Tanzania. The road is amongst critical strategic links and the first phase comprising the construction o f the bridges that is complete, is expected to be followed by the upgrading of the whole road to bitumen standard in the follow up credit. The envisaged study will include a feasibility stage followed by detailed design and bid documentation. The alignment will tie up with the already constructed bridges. A.3.4 Study and design of Korogwe-Mkumbara-Same road (US$1.62m, of which IDA US$l.Slm and Gov US$0.11m) This section of the North East corridor that is constructed to bitumen standard has started showing signs o f distress and it is proposed to carry out a feasibility study, detailed design and documentation within the CTCP credit. Civil works for full rehabilitation is planned during the follow up credit. - 30 -  A.4 Rehabilitationof 4 ferries (US$ 6.58m, of which IDA US$5.94mand Gov 0.64m) TANROADS has proposed the rehabilitation of 5 key ferries (MV Kigamboni, MV Pangani, MV Rufiji, MV Sengerema, and MV Kilombero) andhas commissioned a study under IRPIICredit to not only establish the level of rehabilitation requiredbut to also review the economic viability of operating them. Once the study recommendations are presented it i s proposed to explore the option o f concessioning the operation of the viable ones to a private operator. The study is expected to be completedby May 2004.The rehabilitation will be done prior to concessioning. Project Component B: Enhanced road managementcapacity US$15.99 million - B.l Tanroads Headquarter Building (US$4.88m, of which IDA US$4.40mand Gov US$0.48m) This component will support TANROADS build its head quarter in Dar es Salaam. The MOW will provide a plot for the building. Currently TANROADS operates from a leased offices in the city that are congested and there i s no room for expansion. The component provides funds for civil works and supervision. It i s expected that TANROADS will be able to move to its new offices by July 2007. Under the proposed CTCP, design, supervisionandworks are to be financed. B.2 Wide Area Network(US$ 1.24m, ofwhich IDA US$1.20mand Gov US$0.04m) This component will provide funding to enable TANROADS develop a dedicated ICT network within its regions and the head office for ease of communication and transmission of data and other information including purchase of appropriate equipment. B.3. Organisation and Management Study of TANROADS (US$ 1.08m, of which IDA US$ 1.OOm and Gov US$0.08m) TANROADS has been in operation for the past 3 years and as it continues to evolve and take more responsibility there i s a case for an institutional audit to determine the optimal organization structure and hence level o f staffing. This component will assist TANROADS carry out a job evaluation, determine the level o f staffing and identify areas that require strengthening. It will also help them identify skills not available within the organization that would need to be out-sourced inthe short andmediumterm while the organizations makes alternative longterm plans. B.4 RoadInvestmentPrioritization(US$l.O8m, ofwhich IDA US$l.OOm and Gov US$O.OSm) TANROADS proposes to develop a methodology for ease o f identification and prioritization o f roads and networks requiring intervention, particularly rehabilitation and upgrading. It i s proposed to carry out a preliminary appraisal o f all (or a majority of) trunk and regional roads to establish those that are economically andor socially viable for M e r development and map them out in a logical order for ease of reference. Through this process TANROADS will be able to prioritize investments from GOTand Development Partners. It should be noted that this study will compliment the 25 year, 10 year and 5 year development plans in the transport sector prepared by the Ministryof Transport and Communications, Tanzania and provides more detailedinformation to assist inprioritization. B.5 Local Governments Roads Inventory and Condition Survey (US$ 1.35m, of which IDA US$ 1.26m and Gov US$0.09m) -31 -  Currently 30% of the Road Fund is earmarked for the maintenance of roads falling under POLARG. Both the Road Fundand POLARG do not have a clear indication o f the condition and length of roads falling under the district road management. TANROADS already has a clear indication of the roads under their jurisdiction based on inventory completed in December 2003. To help establish the length and general condition of district roads it i s proposedto carry out an inventory in 10 representative districts. Based on the outcome, further inventory may be carried out in the remaining districts. Hopefully the outcome will also help the Road Fund in future allocation of funds. It i s proposed that this component be implementedjointly with the Road Fund. B.6 Other transport studies (US$ 2.47m, of which IDAUS$2.30m and Gov US$0.17m) B.6.1 Dar es Salaam Rapid Bus Transit and Traflc Management Study (US$ 1.08m, of which IDA US$1.00m and Gov US$0.OSm) The City Council of Dar es Salaam plans to review traffic management in the city to reduce congestion and to particularly increase capacity at various junctions. They also propose to introduce a Rapid Bus Transport system to increase public transport and reduce dependance on private transport. This component will therefore assist them in carrying out commercial and feasibility study and preparing plan for RBT and private sector participation operation traffic management studies and review of institutional arrangements. If the proposal i s found to be commercially feasible further support may be included ina future credit for related infrastructure. B.6.2 Other transportsector studies (US$1.40m, of which I D A US$1.31m and Gov US$0.10) Inpreparationfor a future APL it is proposedto carry out several studies inthe transport sector to cover not only roads but ports and other related aspects. This component will cater for these activities. B.7 Technical assistance and training for TANROADS and MOCT (US$ 3.62m, of which IDA US$ 3.42m and Gov US$0.20m) B.7.1 & B.7.2 Technical Assistance for TANROADS and MOCT (US$ 2.54m, of which IDA US$ 2.36m and Gov US$O.lSm) Under IRP-11, CODAP/MOCT, Zanzibar has shown ability to coordinate and execute projects, but it has also shown weakness in contract management and financial monitoring resulting to substantial delay of some project components. Recognizingthe limitations of the unit's capacity to manage the expanded road program under IRP-11, the Bank supported the unit with a contract management and heavy equipment specialists. This has improved the capacity, however more specialist expertise will be requiredin the foreseeable future. Specifically i s proposedto retain the services of a contract specialist and possibly a procurement expert. The component shall support these and others as necessary. For the mainland TANROADS has been responsible for implementing project under IRPII. TANROADS i s a semi-autonomous Road Agency. TANR0AD.Sis mandated to be incharge o f (a) road network development and management; (b) planning and management o f network maintenance; and (c) overseeing the implementation o f the program, with emphasis on technical and financial monitoring and performance evaluation. Like wise TANROADS has established a dedicated IDA PCU under direct management o f its Chief Executive, composed o f experienced professional staff, who have been responsible o f technical - 32 -  and financial management of the project under IRP 1I.Their responsibility included: (i) coordinating the planning and implementation of the IRP I1 program; (ii)supervising and execution o f the program; (iii) preparing quarterly and annual technical and financial performance reports and financial audits; (iv) compiling progress reports for quarterly and annual review meetings with stakeholders and donor community; (v) updating o f the program documents including the annual expenditure and financing plan; (vi) disseminating information to the public and stakeholders; (vii) organizing donor consultative meetings. Substantial progress has been made in creating a professional team, however weaknesses have been noted that have resulted in delays and losses. It i s therefore proposed to engage short and medium term TA inspecialist areas to build capacity and a category has been included. This should strengthen the IDA-PCU to absorb more responsibilities. B.7.3 & B.7.4 Trainingfor Tanroadsand MOCT (US$0.81m, of which IDA US$0.81m) Training i s an integral and ongoing process within TANROADS and MOCT Zanzibar. This component will however be more focused and will aim at providing skills in areas that are deficient particularly those identified during the institutional operation and management study. B.7.5 Externaljinancial audit (US$0.27m, of which IDA US$0.25m and Gov US$O.O2m) It is proposedthat, in conjunction with the Auditor-General, TANROADS will appoints auditors from the private sector annually to audit the project. This component provides funds for this. B.8 Operating costs (US$ 0.27m, ofwhich IDA US$0.24m and Gov US$0.03) This item covers transaction mainly and other operational expenses related to the implementation of the project through TANROADS. Project Component C: Improved infrastructure of Tanzania Railway Corporation US$ 37.75 million - Concession Structure The proposed Concession will include a 25-year lease for the TRC railway network, with the right to manage and maintainthe network, and leaseof TRC locomotives and rolling stock. The concessionaire will also have the exclusiveright on the TRC network to operate freight services and passenger services for the period, with an obligation to supply designatedpassengerservices. The concessionaire will operate freight and passenger services throughout the network and undertake the integratedmaintenance, upgrading and operation of the infrastructureand rolling stock. It will earn access fees from TRC and any other operator it may agree to provide access to. It will be incorporated in Tanzania and will be regulatedby the Surface and Marine Transport Regulatory Authority (SUMATRA) and will have to comply to the Railways Act 2002, as well as with local safety and environmental regulation. During the duration of the lease, RAHCO will retain ownership of the land and railway infrastructureand the leasedlocomotivesandrolling stock. The payments associated with the concession have two components. The first component is a periodic payment for the right to operate passenger and freight services. It is structuredas apercentageof the gross revenues of the Concession Operator. The second payment component is a periodic lease payment for the use of the infrastructure,denominatedinU S dollars andindexedagainst U S inflation. Total investment requirementover the life of the concession is projectedto be around U$180- 200 million. It is expected that these will be financed through: equity from the concessionaire, loans to the - 33 -  concessioanire from financial institutions (both amounts to be determined), US$33 million through an IDA credit specifically for track rehabilitation, and the balance through internally generated funds. The Infrastructure Lease, for a period o f 25 years, covers the track and the buildings located on the land included in the lease (such as locomotive and wagon maintenance depots), maintenance units, he1points, terminals, yards and shunting facilities and sidings. The Concession Operator will be responsible for the maintenance o f the infrastructure and for all train control and safety on the network. RAHCO will be responsible for an initial capital program to upgrade some sections and for any emergency works required under Force Majeure. RAHCO may also upgrade infrastructure andor extend the network using its own finds duringthe leaseperiod. The assets to be concessioned include all o f the TRC rolling stock, spares, plant and maintenance equipment and office equipment, and some specialized facilities. The operational TRC diesel locomotive fleet consists of 49 mainline locomotives, 20 branchline locomotives and 24 shunting locomotives. The operational TRC vehicle fleet consists o f 166 vehicles and 1,424 wagons. In addition, there are 423 non-operational wagons. The concessioned assets includes plant and equipment for infrastructure and other maintenance and all office computers, furniture and fittings. The concessionaire will select what he requires, the rest shall be retainedby TRC to be disposed appropriately. The concessionaire will be able to select those staff it requires for the operation o f the concession from existing staff at all levels in TRC as part o f the package. All TRC employees re-employed by the Concession Operator will have their terminal benefits frozen and paid by the Government on retirement and will thus not cany over any leave or pension entitlements. The Concession Operator is required to engage former TRC staff on terms that are at least equal to those which they enjoyed under TRC. The concessionaire will have the right to reduce the staffing levels and any staff made surplus within two years of the operation o f the concession would be paid by GOT at its own cost. Periodic reviews will be conducted by RAHCO to ensure that the Concessionaire and the Concession Operator have conformed with the terms o f the Lease and Concession Agreements and with the agreed infrastructure work programs. C.1 & C.2 Provision of rails, sleepers and other material(US$ 33.97m, of which IDA US$ 33m and Gov US$0.97m) A section of TRC's track, about 200k1n (almost all German 561b/yd rail) between Itigi - Tabora, has completely outlived its useful engineering life and needs to be replaced at the earliest opportunity. The cost of renewal is estimated at US$33 million. GOT has, assumed the responsibility for this renewal and the commitment included inthe concession biddingdocument. It is proposed that TRC lay equivalent o f 25% o f this renewal cost prior to concession and the 75% component be laid once the concession has been signedwith fullparticipation o fthe operator. Some o fthe proposal included: (i) o f track by a Bank relaying financed contract; (ii) relaying o f the track by the concessionaire using IDA financed rail and sleepers. Technical approaches: (iii) replacement o f the old rail and sleepers by new 801b track; (iv) replacement o f the Dar - Morogoro - Dodoma section with new 801b track and use o f the cascaded track on the deteriorated section. Approaches (i) and (iii) be the conventional approach, but (ii) (iv) would would and provide significant operational improvements as well as leveraging investment from the concessionaire. Rehabilitation through a contractor (i), to be selected under the Project, would give complete responsibility for the final outcome to one party. However, the track would be concurrently used by the concessionaire for rail operations, and the renewal contract would be let through RAHCO rather than the concessionaire. Such an arrangement is possible but it would require close coordination, detailed working arrangements established in the renewal contract (for line closures, etc.) and could lead to tension, slow progress, and even contractual problems. The alternative approach (ii) would use IDA funds for the procurement o f the - 34 -  track material (rails, ballast, sleepers and fastenings) and leave the concessionaire to undertake the actual relaying o f the track. This would avoid the problems o f coordination. TRC's long-term policy has been to renew the track with 80 lb rails (iii), under the expectation that, in 20 years or so, the entire network would be renewed with 80 lb rails and axle-loads can be significantly increased. Replacement with 601b rail would save little cost as such rail and the corresponding sleepers are outdated and it would require special manufacture, at a relatively higher cost. It has thus been agreed to renew with 801b material (as under RRP). TRC's track consist o f 801b, 601b and 561b rails. The 801b rail allows heavier locomotives but the potential cannot be used as the adjoining sections have lighter rail. Renewing the Itigi - Tabora section would not allow heavier locomotives until, at the very least, the entire Dodoma -Tabora section was relayed with 801b track. An alternative approach (iv) to renewal would be to relay the present 601b track between Dar es Salaam and Morogoro or Dodoma with 801b rail, and then cascade the released track (probably 60% is re-usable) to relay the Itigi - Tabora section. This would generate substantial operational benefits for the concessionaire as the gradients on the Morogoro section currently require freight trains to be hauled by two locomotives, which could be replaced by one heavier, high-powered locomotive. The cost o f the track materials for this section would be equivalent to a complete relaying contract for the Itigi- Tabora section. The altemative (iiand iv) would benefit the concessionaire who might thus be prepared to fund the cost o f the civil works.However, the altemative will need to be finalized in consultation with RAHCO and the preferred bidder, when identified. Ifthe procurement o f track materials is selected, the procurement would be made in at least two tranches, linked to the progress on the relaying. The base cost o f the component would be US$33.0 million with nominal contingency as TRC has made several purchases o f rail recently (74% o f the total project cost, assuming that the concessionaire funds the civil works). These material shall be purchased in two steps: urgently needed rails, sleepers and other material will be purchased by TRC as soon as the Environmental and Social Assessments requirements are met and for an amount o f $8.50m; then the rest will be purchased after the concession agreement is signed, under an agreement reached with the bidder and for an amount o f $25.50m. C.3 Preparation of the Environmental and Social Assessments (US$ 0.54m, of which IDA US$ 0.5m and Gov US$0.04m) The TRC has prepared a TOR for the execution o f an environmental and social impact assessment. The TOR was initially approved by ASPEN, however a review before launch has been recommended and approval is expected in March 2004. A short list o f consultants has also been made and it is expected that the RFP will be launched in March 2004. The plan is for the appointment o f the consultant to be made in May immediately after the credit is approved. The funds for the study have been included in the credit. Subsequent mitigation measures include clean up o f oil spills are discussed below. (2.4 Environmentalclean-up and resettlement costs (US$ 0.44m, of which US$ 0.39m and Gov US$ 0.04m) The Environmental and Social Liability audit, undertaken as part o f the concession advisory services, revealed oil pollution around TRC's workshop facilities and a number o f squatters inthe rail reserve. The bidding documents indicated that GOT would take responsibility for existing liabilities and the concessionaire would be responsible for any subsequent environmental or social liabilities. GOT has requested the Bank to assist with (i) the clean-up o f existing pollution, and (ii) relocation o f squatters the Pollution Clean-up: Relatively limited areas around the main workshop facilities at Dar, Morogoro, - 35 -  Moshi, Mwanza, and Tabora are contaminated by oil. The project will assist GOT to clean up the soil in these areas, Provisional cost US$0.5 million Resettlement Costs: Inline with OP4.12, IDA funds will not be used for cash compensations, including for land, but for the cost of the assistance o f people out o f the right o f way o f TRC to other suitable locations (such assistance will be provided by local NGOs). C.5 Technical assistance for RAHCO, TRC and the proposed concessionaire (US$ 0.54m, of which IDA US$0.5m and Gov US$0.04m) The concessioning of TRC and the overall withdrawal o f the public sector from the provision o f transport services has resulted in the need for new institutions to regulate the transport sector and monitor the concession contracts, while a residual TRC will remain to liquidate the assets and resolve the outstanding financial and legal liabilities. These are new roles/functions and the institutions will require some initial assistance, inthe form of technical assistance and training, to become hlly established. The Reli Asset Holding Company will be the lessor o f the TRC assets leasedto the concessionaire, and will have the responsibilities o f keeping the asset register and monitoring the compliance o f the concessionaire with the concession and lease agreements. Inaddition, RAHCO would be the implementing agency for any capital works on the TRC rail network, financed by GOT. RAHCO is a limited liability company, wholly owned by GOT. Assistance inthe form o f staff training, studies or technical assistance may be needed for the establishment and capacity building o f RAHCO. C.6 Technical assistance for the private sector participation in TAZARA Railway (US$ 2.15m, of which US$2m and Gov US$0.15m) A study is due to be commissioned inFebruary 2004 through a grant from the PPIAF to look into various options that are available for the participation o f the private sector in the management o f the TAZARA. TAZARA is an important railway that links the port o f Dar es Salaam to Zambia and the Southern and South Eastern regions o f Tanzania. It is expected that the 6 months study will provide mechanism for the privatization o f the rail. The funding earmarked will support the process including possibly the funding for the transaction advisers and provision o f TA to guide the process. - 36 -  Annex 3: Estimated Project Costs TANZANIA. Central Transport Corridor Project PartA: Upgrading of strategic road links Part3: Enhancing of road magement capacity Part C: Enhancement of the performance of Tanzanian Railways Part D: Partial Risk Guarantee ' Total Baseline Cost Physical Contingencies 1 Price Contingencies 3.08 6.06 9.14 I Total Proiect Cost; 44.81 133.26 178.07 I Total Financing Rewired I 44.81 I 133.26 I 178.07 I I Works I 18.59 1 55.78 1 74.37 1 Goods 4.20 30.84 35.04 Services 21.52 6.05 27.57 ITraining 0.24 0.58 0.82 Operating costs 0.27 0.00 0.27 Partial Risk Guarantee 0.00 40.00 40.00 Total Project Cost; 44.82 133.25 178.07 Total Financing Required 44.82 133.25 178.07 I Identifiable taxes and duties are 0 (US$m)and the total project cost, net of taxes, is 178.07 (US%m).Therefore, the project cost sharing ratio is 68.51% of total project cost net of taxes. - 37 -  Annex 4: Cost Benefit Analysis Summary TANZANIA Central Transport Corridor Project A. Singida Shelui road - Road section Pavingcompared Econ. costs (m%) Current traffic EIRR (YO) NPV (m%) to... Section A Singida -Sekenke Regraveling 2 221 14.7 3.94 Diversion (76.1 km) Nothing 23.5 221 28.0 27.95 Section B Kinkungu Road Regraveling 0.25 201 1.7 -4.55 (11.9 km) Nothing 8.6 201 10.8 -0.66 Sekenke \Regraveling 0.6 181 14.1 6.08 6 191 27.4 0.78 Based on these results, the decision has been made to choose the paving solution. Main Assumptions: Traffic Forecasts The traffic forecasts are based on two types o f studies: - traffic counts and surveys, inorder to estimate the current Annual Average Daily Traffic (AADT) and - carried out in 1999,2001 and 2002; traffic growth estimates, based on the economic growth rates projectionfor the next years, growth-traffic elasticity studies and diverted traffic estimates. This study stated that the generateddiverted traffic should be around 78% o f the current traffic, ranging from a low o f 43% to a highof 114%. Vehicle Operating Costs. The labor costs utilized for the calculation o f VOC are as follows: skilled labor for vehicle maintenance: $ 3-48/hr vehicle crew wages: $1.14-3.1 /hr (according to vehicle category) passengerworking time: $ 0.25 /hr - 38 -  passenger non-working tome: $ 0.05 Ihr Maintenance strategies Without Project re-gravelling: when gravel thickness is <=50mm--cost: $24.34 /m3 grading: carried out every 12month--cost: $2,250 lkm routine maintenance: carried out as per local norms--cost $l,OOOh With Project resealing: when surface damage is >=25% o f the carriageway, the resealing includes: ---- patching: double seal coat: cost $5.l/m2 edge repairs: cost $11.9/m2 cost $ 10.0 /m2 crack sealing: cost $ 6.0/m2 pothole patching: when number o f potholes is >=25lkm-cost $1O.O/m2 routine maintenance: carried out as per local norms---cost $1,42O/km Methodology For economic analysis purposes, the Project roadhas been divided inthree sections because to take unit account the different construction cost per km, and vertical alignment. Furthermore the Project road has been divided intwo lots according to the proposed contract strategy as presented below: Design Road Sections LOT Section Length Sub -section and change km Lot 1 Section 76.103 Singida Town, change from 1+278 to O+OO 1 Singida- Sekenke Diversion, change from O+OO to 74+825 Lot 2 Section 2 11.875 KinkunguRiver roadfrom chainage74+825 to 86+700 Section 3 21.449 Sekenke Confluence - Shelui, from chainage 86+700 to 108+149 The economic analysis o f proposed works for the project road has been carried out utilizing the HDM-4 model. Two levels o f analysis have been considered. The first level compares the selected alternative of the Project road against the alternative "Without Project". The second level compares separately the two lots o f the Project road against the corresponding alternatives "Without Project". Sensitivity analysis / Switching values of critical items: a. SensitivityAnalysis Two different sensitivity tests have been carried out, one considering possible changes inthe construction costs and the other one measuring the impact o f traffic growth variations. It has gauged the effects o f the above variations on the economic IRR. - 39 -  Base case High traffic Low traffic High costs Low costs Traffic growth 5.50% 6.50% 4.50% Construction costs 20% -20% Nothing ElRR 24.30% 27.60% 21-30% 20.90% 29.00% NPV (m$) 34.15 47.28 23.88 Regraveling ElRR 12.13% 14.70% 9.60% 10.40% 14.40% NPV (m$) 0.17 6.98 -5.06 b. AdditionalBenefits Farmers ' cost savings:Substantial cost savings are projected to accrue from upgrading the Singida-Shelui road. Farmers are expected to adjust progressively to road upgrading because in agriculture there is a lag time between a decision to produce and the production o f the final output. Delay may vary between two and three years, although 50 to 65 % o f the adjustment towards the long-run equilibrium occurs in the first year. The region traversed by the Project road exports foodstuffs to both internal and external markets. Over the period 1995-2000, the region has annually exported 256,000 ton o f crops. Contribution to the national development generated by the Project Road:The improvement o f Project road will also contribute to the development o f other sectors, namely the mining sector ,the international and national road cargo industry and the tourism sector. Mining sector: The Central Corridor, including the section Singida-Shelui is an important link to the important gold mines o f Kahama, Nzega and Shinyanga andthe nickel deposits inNgara district. Road cargo industry: All sections o f the Central Corridor, including Singida-Shelui are strategic for cargoes coming from Rwanda, DRC and Burundiand from the interior o f Tanzania Mainland. Tourism sector: Although no important parks are located along the Central corridor, it serves as connection for the Great North, Western and Lake Circuit corridors that serve tourist destination. Along this corridor, though are located archaeological sites with rock graffiti such as those in Singida region. c. Risk Analysis Risk analysis is most commonly performed by assigning probabilities o f occurrence to key parameters, together with the evaluation o f the combined effects o f changes in the values o f each parameter. The parameters to which the project is most sensitive are derived from the sensitivity analysis. In the case o f Singida Shelui road section, the risk analysis has been carried out for changes in: - construction costs - traffic growth rates. The uncertainties in construction costs occur frequently in the works implementation stage, particularly when a long period elapses between the economic appraisal and the start o f the works. The probability o f change in construction costs has been estimated on the basis o f past experience. The probability o f a decrease or increase in cost o f construction turns around 20%. Traffic growth forecasts depend on a wide number o f factors, such as economic growth and social, political and civil events, that exert a direct impact on VOCs and road maintenance costs. The uncertainties about the traffic growth rates o f the present project are related to the country's overall development trends. Inthe past ten years, economic growth has been satisfactory. Consequently, it is assumed that there i s a 50% probability that the uncertainty in forecasting traffic growth rates is lower or higher than the adopted traffic forecast. - 4 0 -  B.Zanzibar road projects Summary of Benefitsand Costs: Three technical solutions (described in Annex 2) have been considered for each road section, and independent economic analysis have been carried out. For section A (Mkwajuni-Nungwi) and C (Paje-Pingwe), two alternatives have been considered, including (or not) the terminal sections to the fish market, Michamvi and the access road. The table below summarizes the results o f the study. Roadsection Technical Invest. costs Recurrent Dailytraffic EIRR(YO) NPV (m%) solution (m%) costs (m%) RoadA I Mkwajuni - A-GWC-1 1.79 0.57 183 15.3 0.367 Nungwi (17.7 km) A-DSD-1 2.46 0.14 183 15.4 0.583 A-Asph- 1 3.24 0.14 183 15.0 0.69 Access Road Mkwaj. - Fish - A-GWC-2 1.79 0.57 183 11.8 -0.023 market (19.4 km) A-DSD-2 2.46 0.14 183 15.5 0.687 A-Asph-2 3.51 0.14 183 14.9 0.771 RoadB Matemwe - B-GWC-1 1.65 0.75 88 12.1 0.013 Pongwe (21 km) B-DSD-1 2.88 0.1 88 12.5 0.162 B-ASph-1 3.87 0.12 88 13.3 0.489 RoadC Paje Pingwe C-GWC-1 - 1.29 0.32 188 17.4 0.425 (14.4 km) C-DSD-1 2.23 0.06 231 15.6 0.578 C-Asph-1 2.86 0.07 231 15.8 0.774 Paje- C-GWC-2 1.39 0.33 188 14.0 0.161 *m) Michamvi (16.6 C-DSD-2 2.38 0.06 231 13.6 0.255 C-As~h-2 3.08 0.08 231 14.1 0.452 Based on these results, the decision has been made to choose the asphalt solution. MainAssumptions: a. Traffic Forecasts The traffic forecasts are based on two types o f studies: -41 -  -- traffic counts and surveys, inorder to estimate the current Annual Average Daily Traffic (AADT); traffic growth estimates, based on the fuel imports statistics inthe last 10 years, assuming that the share rate between power production and road transport will remain constant, and distorted in order to fit local conditions. The estimated annual growth is 5% before distortion, andthen modified to 6% (Mkwajuni -NungwiandPaje-Pingwe), 8% (passengersonPongwe-Matemwe) and 10%(freight onPongwe- Matemwe). b. Methodology The economic analysis o f proposed works for the project road has been carried out utilizing the HDM-4 model. Its description can be found inthe preceding section regarding the evaluation o f the Singida-Shelui road. Sensitivity analysis / Switching values of critical items: a. Sensitivity Analysis Two sensitivity tests have been carried out consisting of: A 10-20% increase of construction costs, B 10-20% reduction o f traffic volumes, The sensitivity analysis has gauged the effects o f the above variations on the economic IRR. Results are summarized hereafter, three cases being considered: (+20,-0) for an increase by 20% o f the construction costs and a decrease by 0% o f the traffic volumes, (+O,-20) and (+20,-20): (+20,-0) (+O,-20) (1-20,-20) (+20,-0) (+O,-20) (+20,-20) (+20,-0) (+0,-20) (+20,-20) A 12.68 12.57 10.42 12.33 12.53 9.75 12.71. 12.82 10.72 A+ 9.58 9.13 7.2 12.7 12.92 10.08 12.72 12.67 10.71 B 9.99 10.14 8.21 10.44 10.67 8.69 11.59 11.76 10.19 c 14.45 14.29 11.71 12.59 12.53 9.75 13.4 13.33 11.19 c+ 1I 11.41 II 11.18 II 8.9 II 10.68 I1 10.6 II 7.95 11.89 11.82 9.8 b. RiskAnalysis The probability o f change in construction costs has been estimated on the basis o f past experiences. The probability o f a decrease or increase in cost o f construction turns around 20%. Traffic growth forecasts depend on a wide number o f factors, such as economic growth and a number o f social, political and civil events, exerting a direct impact on VOCs and maintenance costs. The uncertainties about the traffic growth rates o f the present project are related to the island's overall development trends. In the past ten years, economic growth has been satisfactory. Consequently, it is assumed that there is a 50% o f probability that the uncertainty inforecasting traffic growth rates is lower or higher thanthe adopted traffic forecast. e. AdditionalBenefits The main economic activity of the regions accessed by theses 3 roads is tourism. The access to not less than 70 hotels will be rehabilitated, allowing fhrther economic growth. Additional benefits are also expected inthe agriculture and fishery sectors, which will take advantage o f a faster access to the markets. C.Railways 1. The economic rate o f return (ERR) has been computed by ascertaining the costs and benefits o f the - 42 -  "With" and "Without" Project scenarios for a 20lyear period. Inall probability, the implementation o f the Project could commence from January 1,2005. The "With" and "Without" Project scenarios are discussed below. 2. The "With Project" scenario will have the following key features: (a) Project commencement: The project implementation is scheduled to commence on January 1, 2005. It is assumed that the concessionaires would commence operations during the year 2005, most probably by January 1,2005; Year 2005 has also been assumed to be first year o f the economic analysis; (b) Implementation of physical investments: The Project funds allocated for track rehabilitation would be utilized during the first two years o f the concession, i.e., before December 31, 2005. With the resulting improvement in the condition o f the track, availability o f wagons, reliability o f locomotives, the traffic during the year 2005 is projected to increase from the one projected in year 2004, i.e., 1.4 million tons, to 1.6 million tons. Assuming an average lead o f 10000 kms, the traffic during the first year o f analysis would amount to 1600million ntkm duringthe year 2005; (c) Disbursement of staffretrenchment funds: GOTis usingits own funds for staff rationalization and these would be available for disbursement as soon as the concession becomes operational, Le., during the early 2005. All the funds for staff retrenchment are, therefore, assumed to be disbursed during the first two years o f the Project; (d) TrafJic projections: Track rehabilitation is scheduled for the first two years o f Project implementation. The freight traffic during the first year o f the Project, Le., 2005, is estimated at 1.6 million tons. Further investments and an efficient private management could lead to a further substantial shift in the freight traffic from road to rail. During later years, the traffic could grow at a compounded rate o f 14%. This is based on a commodity wise analysis. However, for the economic analysis, traffic growth has been conservatively estimated at 10% per year for the first three years only, starting with 1.6 million tons or 1600 million ntkmequivalent inthe first year as indicated above. This reflects a shift intraffic from road to rail. Thereafter, the traffic has been estimated to grow by 3% every year, reflecting economic growth; (e) Operating costs: The operating cost for a well performing TR at the level o f 1.6 million tons o f freight traffic has been estimated by the consultants as US$57 million (excluding depreciation); (f) Staffcosts: The current staff level is about 8,800 and the concessionaire is likely to operate with 3000 staff. (g) Variable costs: Variable costs have been assumed to reduce by 10% each in the first two years and, thereafter, remain constant. 20% reduction in variable costs is considered quite achievable. The reductions are expected to be effected in the areas o f consumption o f fuel, spare parts, wastage control, more economical procurement through long-term contracts, better inventory control, and more effective utilization o f operating assets; (h) Fixed costs: Fixed costs have been assumed to reduce by 10% each in the first two years and, thereafter, remain constant. 20% reduction in futed costs is considered quite achievable. The reductions are expected to be effected in the areas o f infrastructure maintenance more economical procurement o f fittings and parts by use o f long-term contracts and better inventory control, better quality control leading to reduced wear, derailments, and accidents, better control o f working capital, and better utilization o f fixed assets. However, with the increase in traffic, the unit costs would show a decline due to the futed costs being shared by higher traffic. It is also assumed that the concessionaires would not need to engage more staff or operating assets for the increased traffic, which will be taken care o f through increased staff and resource productivity. It is assumed that the concessionaires would not need to engage more operating - 43 -  assets for the increased traffic, which will be takencare o f through increased resource productivity; (9 Investments by the concessionaires: Even though the concessionaires' strategy for investment can not be anticipated, a good guess would be that the concessionaires would invest whatever is needed to rehabilitating the railway assets so as to cater fully to the railway demand. The present management has estimated the investments to be close to US$60 inaddition to the US$33 million to be provided through the credit. For the purpose o f analysis, it has been assumed that the concessionaires would make the investment o f US$60 million spread over a period o f 6 years. 0) Repatriation by the concessionaires: Based on the concessioning experience elsewhere in sub-Saharan Africa, the concessionaires normally expect between 30 and 40% return on their equity investments. Assuming that the concessionaire will be able to raise loans at Labor+risk allowance, an average return on the concessionaire's investment (2/3rd loan plus 1/3rd equity) o f 25% has been assumed. Since the concessionaires are most likely to be foreigners, the return on capital payments have been deducted from the net cash flow to arrive at the benefits available to the economy. (k) Road costs: The road costs have been assumed to be US$.O8/ntkm. These are estimated on the basis o f the tariffs charged by the road hauliers as generally assessed. These are assumed to reduce to US$.O7/ntkm over the next five years as a result o f road improvements and better management by road hauliers when faced with competition from a privatized railway; (1) Project benefits taken into account: Two benefits o f the Project have been considered in computing ERR: (i) avoidance cost for additional traffic as in the absence o f the Project, the road additional traffic would have continued to move by road; and (ii) reduction inthe unit cost o f operation for the existing traffic. However, recognizing that the road users might lose some benefits in shifiing to rail, the overall benefits have been reduced by a factor o f .5 inthe base case; and (m) Project benefits not taken into account: There would be other economic benefits, which have not been taken into account for the economic analysis because even without these benefits, the ERR is far above the acceptable level. These include: (a) increase inpassenger traffic and revenues; (b) redeployment o f retrenched staff elsewhere in the economy (estimated to be about 20% o f the retrenched staff not employed by the concessionaires; (c) more productive use o f non-core assets o f the railways; and (d) reduced environmental degradation, railways being considered less polluting than road. 4. For the "Without Project" scenario, it is assumed that: (a) All staff currently employed by TRC would be retained and no staff would be retrenched since no financing would be available for the same; however the staff would get reduced at the rate o f 3% per year as a result o f normal attrition until it reaches the level o f about 6,000, considered necessary for operating the railways; (b) The railway management would not be able to make any investments in the system. However, in that case, the system could wither away very fast andmight even close down altogether. Therefore, for the purpose o f this analysis, it has been assumed that, somehow, the company would invest US$2.0 million per year over a period o f 10 years; (c) The freight traffic would decline at a rate o f 4% per annum due to inadequate investments and inadequate maintenance; and (d) The staff-related costs would reduce as a result o f 3% reduction o f staff due to normal attrition. The fixed costs are assumed to remain the same but the unit costs for this component would increase due to the declining traffic; and (e) The fixed and variable costs are assumed to remain constant. 5. The ERR in the base case is estimated as 45% (see table 4B.1 for estimates of unit costs in the "with" and the "without" scenarios, and 4B.2 for ERRfor the base case scenario). - 44 -  6. Sensitivity analysis. The ERRSfor various pessimistic and optimistic plausible combinations are indicated below: (a) With traffic growth under the "With" scenario restricted to 0% per year for the first three years andthen 3% per year: 40% (Table 4B.3); (b) With traffic growth as inthe Base case but the no reduction inthe variable and fixed costs: 38%. (Table 4B.4); (c) With both (a) and (b) together: 34% (Table 4B.5); (d) With traffic growth under the "With" scenario being 5% per year for the first three years andthen 3% per year: 48% (Table 4B.3); Summary o f NPV and ERR for different scenarios Base Sensitivity Sensitivity Sensitivity Sensitivity N P V One Two Three Four USDMillion 185 160 168 137 202 ERR 45 40 38 34 48 - 45 -  Annex 5: Financial Summary TANZANIA Central Transport Corridor Project Years Ending IYear1 I year2 I Year3 I Year4 I year5 IYear6 IYear 7 Total Financing Required Project Costs Investment Costs 41.9 41.9 34.9 14.0 7.0 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 41.9 41.9 34.9 14.0 7.0 0.0 0.0 Total Financing 41.9 41.9 34.9 14.0 7.0 0.0 0.0 Financing IBRDllDA 36.6 36.6 30.5 12.2 6.1 0.0 0.0 Government 3.5 3.5 2.9 1.2 0.6 0.0 0.0 Central 3.5 3.5 2.9 1.2 0.6 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 1.5 1.5 1.3 0.5 0.3 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 41.6 41.6 34.7 13.9 7.0 0.0 0.0 Total Financing Required Project Costs Investment Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Financing IBRDllDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 CentraI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Main assumptions: -46-  Annex 6(A): Procurement Arrangements TANZANIA: Central Transport Corridor Project Procurement A. Procurement 1. OngoingProcurementReform 1.1 The procurement system in Tanzania has been under reform over the last 4 years based on the recommendations of the 1996 Country Procurement Assessment Report (CPAR). The Government enacted a Procurement Law inFebruary 2001 replacing all previous procurement legislation. The Act became effective on July 1,2001, Intandem, the Government also issuedthe Regulations intwo parts: (a) Procurement o f Goods and Works; and (b) Selection and Employment o f Consultants. In mid November 2002, the Government issued a set o f Standard Bidding Documents (SBD) comprising o f (a) Procurement o f Goods through International Competitive Bidding; (b) Procurement o f Health Sector Goods; (c) Standard Request for Proposal; (d) Standard Pre-qualification Document for Procurement o f Works; (e) Procurement o f Works through National Competitive Bidding; and (f) Procurement o f Works, Smaller Contracts. These documents were reviewed during the 2003 Country Procurement Assessment Report (CPAR) and found to be consistent with good public procurement practice. 1.2 The following are among the recommendations made during 2003 CPAR: (a) establishing a Procurement Authority responsible for oversight o f public procurement; (b) decentralizing procurement to ministries, departments, and government agencies (MDAs); (c) changing the legal framework to include private sector representatives in the Public Procurement Appeals Authority; and (d) replacing the supplies officers with Procurement Specialists, a new position in the public sector rating system. The final report including all recommendations, was submitted to the Government by end o f April 2003 for implementation. The Government has drafted an action planto implement these recommendations. The Government will table the proposed amendment to the current Law to reflect the 2003 CPAR recommendations to the Parliament inApril 2004 session. 1.3 Based on the CPAR findings, the procedures and practices o f procurement in Zanzibar need substantial improvement. At present, procurement capacity in the Zanzibar Government is almost nonexistent. There is an Act to establish a Central Tender Board (CTB), but the Act only provides for the organization, and does not deal with any o f the procedures o f procurement. While the Central Tender Board Act became effective on July 1, 2002, the relevant regulations have not yet been issued. Although, established by Act, CTB is not yet h c t i o n i n g since the members have not been appointed. As an interim measure, following the 2003 CPAR recommendations, the Ministry o f Finance and Economic Affairs has issued interim instructions authorizing ministries to approve all contracts. The Ministry o f Finance and Economic Affairs has also drafted a new Public Procurement Bill to repeal and replace the Central Tender Board Act o f July 2002. The draft procurement bill is not consistent with the recommendations o f the 2003 CPAR, which to some extent is a reflection o f the lack o f understanding o f the CPAR recommendations. 2. Use of Bank Guidelines 2.1. Procurement o f civil works and goods will be carried out in accordance with the Guidelines: Procurement under IBRD Loans and IDA Credits (January 1995 edition- revised January and - 4 7 -  August 1996,September 1997, and January 1999). Bank's Standard BiddingDocuments (SBD) and Standard Bid Evaluation Forms for works and goods under Intemational Competitive Bidding (ICB) will be used. Since the Government has prepared Standard Bidding Documents for procurement o f works and goods the Government may use these documents for procurement o f works and goods under National Competitive Bidding (NCB). 2.2. Selection o f consultants will be carried out in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers (January 1997 edition - revised September 1997, January 1999, and May 2002). Bank standard Request for Proposals (RFP) and evaluation forms will be used where applicable. 3. Advertising 3.1. A General Procurement Notice (GPN) was published in March 2003 in the UN Development Business (UNDB), Development Gateway's dgMarket, and in a daily national newspaper o f wide circulation. The Government has updated the GPN to reflect the inclusion o f railways component in this project. The updated GNP will be published in UNDB online and Development Gateway's dgMarket immediately after negotiations. Invitation to prequalify for large civil works as well as other Specific Procurement Notices (SPN) for goods and works to be procured under I C B and N C B and for consultant services will be published in a daily national newspaper o f wide circulation. Such invitations shall also be published in UNDB online and in dgMarket inorder to get broadest interest possible from bidders. The date for SPN should coincide with the date that the bidding documents are available for purchase by interestedbidders. The Government shall advertise a request for expressions o f interest for each contract for consulting firms in a national newspaper o f wide circulation. Large consulting services shall be advertised inUNDB online and in dgMarket. The Government may also advertise requests for expressions o f interest in an international newspaper or a technical magazine. Not less than 14 days from date o f posting on UNDB online shall be provided for responses, before preparation o f the short list. 4. ProcurementCapacity 4.1. A procurement capacity was carried out to assess the capacity o f implementing agencies, which will be responsible for implementing the project. This project basically, has two major components, namely, road and rail. Inaccordance with proposed implementation arrangements, procurement o f the road component will be carried out by Tanzania National Roads Agency (TANROADS) through IDA-Coordination Project Unit (IDNCPU) and the rail component will be carried out by Tanzania Railways Corporation (TRC) during the initial stages until RAHCO becomes operational. The Zanzibar road works will be executed by the Ministry o f Communication and Transport through their office for Coordination o f Donor Aided Projects (CODAP) under the supervision o f IDA-CPU. CODAP has 3 qualified Engineers with procurement experience, specifically working on World Bank Project. Besides, there are 2 qualified Civil Engineers under the Roads Commission, who will provide technical backstopping, particularly for this project. 4.2. IDNSDP is charged with procurement and contract management o f projects financed by IDA and other donors. The unit is also responsible for financial management related matters including, inter alia; processing payments to contractors, suppliers, and consultants; processing replenishment applications; preparation o f financial statement; and facilitation o f audits. qualified Civil Engineers inclusive o f the head o f unit. Also it comprises o f one Social Scientist; one - The unit has eight (8) Environmental Specialist; one Transport Economist; and 4 Accountants. In addition, the unit is at - 48 -  present supported by three (3) Technical Assistants (TAs) one inprocurement and two (2) incontract - management. Their contracts expire in June 2004. Four (4) out o f 8 civil engineers have adequate experience in procurement o f works and selection o f consultants. Currently, the four (4) engineers are fully devoted to activities related to Tanzania Second IntegratedRoadsProject (IRPII) another project - financed by IDA - and will be also responsible for implementation o f this project. IRPIIcloses on June 30, 2004. 4.3. TANROADS has a Procurement Unit (PU) that oversees procurement activities o f the organization. The size o f the unit is small, presently staffed by 3 procurement specialists inclusive o f Head o f the Unit. Among activities being handled by P U include, inter alia; (a) to advise the user departments on matters related to procurement and contract management; (b) review o f the draft procurement documents - bidding documents, Request for Proposals (RFPs), contract documents, etc.; (c) record keeping o f procurement files; and (d) serves as a secretariat to the TANROADS' Tender Board in accordance with PPA. TANROADS has a Tender Board (TB) that is chaired by the Chief Executive Officer. The TB consists o f five (5) members drawn from within and two (2) extemally. Currently, the TB has limitedauthority to award contracts inaccordance with the thresholds outlined in the Regulations. To expedite procurement processes for this project, inthe meantime, while waiting for amendment o f the procurement Law, TANROADS has requested for full authority from the Minister for Finance so that its TB will in future award contracts without making reference to the Central Tender Board (CTB). This is in line with GOT'Sfull decentralization contained in 2003 CPAR recommendations. In2003, DAWASA was given a full authority; TANROADS may cite DAWASA's precedent to justify their request. 4.4 The Independent Procurement Review (IRP) carried out in December 2002 as part o f the CPAR indicated that generally TANROADS has inadequate record keeping and filing systems. Preliminary observations from the ongoing Procurement Post Review (PPR) is that procurement files are kept by each user department, and sometimes it is very difficult to retrieve information during procurement audit. TANROADS is currently working towards improving filing andrecord keeping. 4.5 Before RAHCO is,formed and fully operational, TRC will be responsible for procurement o f rails, steel railways sleepers, and fittings. Day to day procurement will be done by a unit that was responsible for procurement during execution o f the Railways Restructuring Project (RRP), the previous World Bank funded project. The Credit for this project closed on December 31, 2002. Currently this unit has a Procurement Specialist, who is a qualified civil engineer and two (2) support staff, The Procurement Specialist has rich experience in procurement gained during the implementation o f the RRP. Presently he is responsible for preparation o f the railways component. 5. ProcurementPlan 5.1. The Government has prepared a procurement plan for works and services covering the entire project period. A specific procurement plan for the first 2 years o f implementation will be agreed with TANROADS and TRC. The procurement plan will include relevant information on all goods, works, and consulting services expected to be procured, and their estimated cost; procurementhelection methods as well as timing and whether is a post or prior review contract. TANROADS and TRC will submit for review by March 31 o f each year specific annual procurement plans for the 12 subsequent months that will include contract packaging, estimated costs, types o f contract, procurement methods and procurement schedules. 6. ProcurementImplementationArrangements - 49 -  6.1 The implementing agencies are TANROADS, MOCT, Zanzibar and TRCRAHCO. Procurement o f component falling under TANROADS will be done by IDA-CPU. Also, this unitwill be responsible for supervision o f the other two implementing entities. The Zanzibar works will be executed by the Ministry of Communication and Transport through the office of Coordination office for Donor Aided Project (CODAP). This is the same arrangement currently being followed for implementation o f IRPII that is due to close on June 30, 2004. Based on the results o f the procurement capacity assessment, it is considered that I D N C P U has adequate capacity in procurement and reasonable staff, who has adequate experience inprocurement to continue providing technical back-stopping to CODAP in areas o f procurement, and contract administration. Day to day procurement o f TRC component will be done by the office o fthe Project Coordinator. 7. ProcurementMethods Specific procurement arrangements are summarized in Tables A and Al, and are briefly described below. 7.1. Works: [estimated to cost IDA a total of US$66.94million including contingencies]. The civil works will comprise o f : the upgrading o f 110 km o f Singida-Shelui road from gravel to bitumen standard that will be implemented in 3 packages; the reconstruction o f 59 km o f roads in Zanzibar; and the building o f a new headquarter for TANROADS. Works related to upgrading o f roads will be procured following ICB procedures. Pre-qualification o f civil works contractors will be done for large contracts costing US$ 10 million equivalent or above per contract. The process has already started for Singida-Shelui road and pre-qualification o f Contractors for package 3 contract is at an advanced stage while for the other 2 packages it is currently ongoing. Civil works contracts costing more than US$5 million equivalent per contract will be procured through International Competitive Bidding (ICB). Domestic Preference will be applicable to local contractors bidding for contracts through ICB. Civil works contracts costing less than US$5 million equivalent per contract will be procured through National Competitive Bidding(NCB). 7.2. Goods: [estimated to cost IDA a total of US$34.00 million including contingencies]. Goods to be procured are for the creation o f a Wide Area Network for TANROADS; and the provision o f rails, steel railways sleepers, and fittings to TRC; and the rehabilitation o f 5 ferries. Goods estimated to cost US$500,000 equivalent and above per contract will be procured through International Competitive Bidding (ICB). Individual contracts costing less than US$500,000 equivalent will be procured through National Competitive Bidding (NCB) procedures. Other goods with an estimated value o f less than US$50,000 equivalent per contract may be procured through National and International Shopping or, the UNDP Inter-Agency Procurement Services Office (IAPSO), based on comparing price quotations from at least three suppliers in accordance with IDA Procurement Guidelines (paragraph 3.5 June 9, 2000 Memorandum "Guidance on Shopping" issued by the Bank). Request for such quotations will be in writing, and will include time and place for delivery o f the quotations, a clear descriptiodspecifications and quantity o f the goods; as well as requirements for delivery time, place for delivery o f goods, and installation requirements as appropriate. The request for quotations should be sent to at least three reputable suppliers, however, it may be better to approach up to five suppliers because not all three suppliers may respond, so that at least three competitive quotations are received. 7.3 Consultants: [estimated to cost IDA US$20.82 million including contingencies and US$ 6 millionfunded by NDF]. - 50 -  Consulting services required for implementation o f the project including technical assistance's, and supervision o f works are shown below. All consulting services contracts costing more than US$200,000 equivalent for f m s will be awarded on the basis o f Quality and Cost Based Selection (QCBS) procedures in accordance with Part I1o f the Guidelines. Short lists for contracts costing less than US$200,000 equivalent may consist of national firms only in accordance with provision of paragraph2.7 o f the Guidelines provided that at least three qualified f m s are available at competitive costs. However, if foreign firms have expressed interest, they will not be excluded from consideration. Consulting services contracts o f standard or routine nature, e.g., audits, costing less than US$200,000 equivalent for firms will be awarded on the basis o f Least Cost Selection (LCS) method in accordance with provision o f paragraphs 3.1 and 3.6 o f the Guidelines. Consulting service contracts estimated to cost less than US$lOO,OOO equivalent to be awarded to consulting f m s may be awarded according to the Consultants' Qualifications selection method in accordance with provision o f paragraphs 3.1 and 3.7 o f the Guidelines. In addition all contracts awarded under Single Source Selection (SSS) will be subject to IDA review in accordance with procedures in Appendix Io f the Consultant Guidelines. Individual consultants will be selected in accordance with the Guidelines in Part V. In exceptional cases, and after the Bank's prior agreement, services that meet the requirements o f paragraphs 3.8 to 3.11o f the Guidelines, may be awarded on Single-Source selection basis. 7.4 Training Programs including workshops are geared toward capacity building, information sessions, and improving management skills. Training programs will be part o f the Project's Annual Work Plans and will be included inannual procurement plan. The annual training program (including proposed budget, participants, location o f training, and other relevant details) will be reviewed by the Bankbefore trainingbegins. 8. Prior Review Thresholds (Table B) 8.1. Table B gives the thresholds for Bank prior reviews: Works: Each contract for civil works estimated to cost US$l,OOO,OOO equivalent or more will be subject to prior review in accordance with the procedures o f Appendix Io f the Guidelines. Goods: Each contract for goods estimated to cost US$ 500,000 equivalent o f more will be subject to prior review with the procedures o f Appendix Io f the Guidelines. Consultants Services: Consultancy contracts with firm estimated to cost US$200,000 equivalent or more, and consultancy contracts for individuals estimated to cost US$lOO,OOO equivalent or more will be subject to prior review in accordance with procedures set forth in Appendix Io f the Consultants Guidelines. In addition all contracts awarded under Single Source Selection (SSS) will be subject to IDA review inaccordance with procedures inAppendix Iof the Consultant Guidelines. Training and exceptional extensions o f non-prior review contracts raising their values to levels equivalent or above the prior review thresholds will also be subject to prior reviews. Contracts, which are not subject to prior review will be selectively reviewed by the Bank duringproject implementation and will be governed by the procedures set forth in paragraph 4 o f Appendix Ito the relevant Guidelines. All documentation used for the procedures o f contracting, employment o f consulting services, evaluation and award shall be retained for subsequent examination by auditors and IDA supervision missions. 9. Overall Procurement RiskAssessment - 51 -  9.1.The overall procurement risk assessment for the project at both levels is rated Average and the following action planis designed to mitigate the average procurement risk. Action Deadline I Responsible railways componentsincludingfirm andmonitorabledates Publishtheupdated GeneralProcurementNotice (GPN) to reflectthe inclusion . . I Done ITANROADSand ofthe railwayscomponent BANK Finalize InternalInstructions July 2004 TANROADS IReviewthe overalluroiectmocurementcaoacitvfor bothTANROADS and I December2004 ITANROADS CODAP and ifrequiredrechit ProcuremeitSpdcialiststo reinforcetheir capacity. ImproveTANROADS archivingsystemfor ease ofreference July 2004 TANROADS Harmonizeprocurementfunctions by amalgamating PUandIDNSpecific Processto start inJuly 2004 TANROADS Donors Unit Conducttraining for procurementstaffofPU, IDNSpecific DonorsUnit, TRC, DuringProject implementation-On TANROADS /IDA andmembersofthe TBs going activity. Conducttrainingfor procurementandcontractmanagement staff indispute Duringprojectimplementation TANROADS /IDA 10. Frequencyof procurementsupervisionmissionsproposed: Once every six months (includes special procurement supervision for post-review/audits) Procurement methods (Table A) 4. Training 0.00 0.00 0.81 0.00 0.81 (0.00) (0.00) (0.81) (0.00) (0.81) 5. Operating costs 0.00 0.27 0.00 0.00 0.27 (0.00) (0.23) (0.00) (0.00) (0.23) Total 103.43 6.27 22.37 6.00 138.07 (96.37) (4.80) (20.82) (0.00) (121.99) Includes civil works and goods to be procured through national shopping, consulting services, servicesof contracted staff ofthe project managementoffice, training, technical assistance services, and incrementaloperating costs related to (i)managing the project, and (ii) re-lending project funds to local government units. - 52 -  Table A I: Consultant Selection Arrangements (optional) (US$ million equivalent) ' \Includingcontingencies Note:QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-CostSelection CQ = Selection Based on Consultants' Qualifications Other Selection of individual consultants (IC) (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesesare the amounts to be financed by the Bank Credit. - 53 -  Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review' Cont Th >5,000,000 ICB All contracts <5,000,000 but NCB All contracts >1,000,000 <1.ooo.ooo NCB Postreview >500,000 ICB All contracts <500,000 NCB Postreview <50,000 NS/IS/IAPSO Postreview 3. Services Firms >200,000 QCBS All contracts <200,000 QCBS/LCS/CQ Postreview individuals All values sss All contracts >100,000 IC All contracts <100,000 IC Postreview All values sss All contracts Total value of contracts subject to prior review: US$lZO.OO million Overall Procurement Risk Assessment: Average Frequency of procurementsupervisionmissionsproposed: One every 6 months (includesspecialprocurement supervisionfor post-review/audits) "Thresholds generally differ by country andproject. Consult "Assessment of Agency's Capacityto Implement Procurement"and contactthe RegionalProcurementAdviser for guidance. - 54 -  Annex 6(B): Financial Management and DisbursementArrangements TANZANIA: Central Transport Corridor Project Financial ManaPement 1. Summary ofthe FinancialManagement Assessment 1.1 Country Risks A Country Financial Accountability Assessment (CFAA), carried out in2001, concluded that: "signzjkant advances have been made in Tanzania in the last few years, particularly in terms of accounting and expenditure control as well the introduction of the Medium Term Expenditure Framework (MTEF). Equally there are other areas, which for various reasons, have not advanced as quickly, such as the standing and capacity of the national audit ofice or the ability of the anti corruption/ethics bodies to undertake their duties effectively. Generally, Tanzania has a sound system of formal rulesfor financial management and many of these rules have recently been updated and strengthened." GOThas clearly made great steps in improving financial management and through the revised Public Financial Management Reform Programme (PFMRP) sets out a methodology to carry the process forward. These initiatives are significantly supported by the donor community at, for instance, the Accountant General and the Office o f the Controller and Auditor General as well as the Accounting Departments o f a number o f line ministries. The speed o f progress o f implementation and integration o f the IFMS and the legislative changes has however left a number o f gaps, which unless filled, will negate the benefits o f the achievements o f the recent past. In addition, issues o f non-compliance, limited execution, inadequate monitoring, insufficient capacity and lack o f enforcement need to be resolved. Theses issues indicate that inadequate financial accounting and auditing systems both at central and local govemment level pose a high fiduciary risk. Priority issues identified in the CFAA include strengthening o f planning and budgeting, improved govemance and integrity, strengthening o f local government financial management and maintenance of high standards o f financial reporting and auditing. The country's financial accountability framework, and therefore financial management, would be considerably more effective and the associated fiduciary risk mitigated, if these areas were strengthened. The PFMRP, which is soon to be launched, is designed to address these weaknesses. 1.2 Project Risks The 2001 and 2002 audited financial statements and management letters o f the forerunner IRP-I1project identified areas requiring improvement to strengthen accounting procedures and the internal control system. In addition, World Bank missions discussed with TANROADS the need for proper contract management o f the supervision consultants, and indicated that unless the client carryout its contract management responsibilities, the desired effects o f the works contracts are reduced and the objectives o f the project not met. At the request o f the Road Fund Board an interim audit for the year ended 30 June 2002 was conducted early in2002 by the Office o f the CAG. The scope o f the work included audit testing for all implementing agencies, including TANROADS. Again, the audit report identified a number o f accountability issues andweaknesses which need to be addressed. 1.3 Main Strengths and Weaknesses The project financial management is strengthened by the following salient features: TANROADS is a registered Executive Agency, having to comply with strict financial -55 -  accountability requirements. The track record o f the institution is above average - it had unqualified audit reports since it had been established in2000 The accounting personnel is adequately qualified and well experienced. The TANROADS accounting system is based on a well functioning computerized, double entry, accrual-based system. The entity has an Accounting Procedures Manual, which describes the intemal control system that has been inplace since its establishment. The project is a follow-on project and hence the key accounting staff with experience o f World Bank requirements is retained. The project financial management is weakened by the following salient features. TANROADS has though made progress inaddressing them as indicated: The staff in the IDNSDP unit have not implemented the new EPICOR system yet. Teething problems may jeopardize timely and accurate financial reporting. However, significant progress has been made in integrating the units accounting into EPICOR and at the time o f negotiations the system was being tested inpreparation for full integration before July 2004. Poor linkages exist between physical progress and financial outcomes. There is a need to develop/procure and implement a Project Management System compatible with the FM System. During appraisal it was confirmed that a draft TOR for the procurement o f system has been prepared. The Accounting Procedures Manual (April 2000 version) needs to be completely updated in the light of practical experience and emerging requirements since the establishment of TANROADS. Good progress has beenmade inupdating the manual and it is expected to be issuedinJune 2004. The measures taken will minimize the impact of the weaknesses and the following is a description of how they will function: 1.4 Financial Management System and Reporting Organizational Structure A dedicated unit established within TANROADS is in charge o f specific projects including IDA financed projects. It i s intended to gradually integrate the unit into the organizations overall management structure. However, the I D N C P U unit will initially take full responsibility for project FM reporting under the supervision o f the Director o f the Finance and Administration Division (FAD). During project execution it shall coordinate project implementation andmanage: (a) procurement, including purchases o f goods, works, and consulting services, (b) project monitoring, reporting and evaluation; (c) contractual relationships with IDA and other co-financiers; and (d) financial management and record keeping, accounts and disbursements. The Chief Executive Officer o f TANROADS will be the "Accounting Officer" for the project, assuming the overall responsibility for accounting for the project funds. Currently a significant proportion o f the funding for the roads network is received from Development Partners and TANROADS has an obligation to demonstrate to the Development Partners that their funds are being effectively managed and fully accounted. Although this project may be regarded to be a follow-up project, the FM arrangements differ significantly from the previous project and are therefore subject to a complete FMassessment. - 56 -  Financial/Accounting Procedures Manual The project financial management will be based on the system documented inthe TANROADS Accounting Procedures Manual, covering financial policies and procedures, accounting and internal control system, financial reporting, flow o f funds and auditing arrangements. The Accounting Procedures Manual (April 2000 version) is being updated in the light o f practical experience and emerging requirements since the establishment o f TANROADS. The EU-funded Financial Management Consultant is now almost 111time devoting his time on this project due to the fact that the scope o f the task had significantly been expanded. It now encompasses eliminating duplications and inconsistencies between the Accounting Procedures Manual and EPICOR Manuals, reviewing the reality o f the existing procedures, capturing of numerous existing procedures that have not been included in the manuals in the past, grouping procedures in different volumes o f these manuals and capturing o f new procedures due to the development o f the systems over the past few years. This task will now be completed by June 2004 due to increased scope. Accounting System,Accounting Policies and Procedures The FM system must support management in their deployment o f limited resources with the purpose o f ensuring economic, efficient and effective application o f these resources in the delivery o f outputs and the achievement o f desired outcomes. Also, it should ensure that funds are properly managed and flow smoothly, adequately, regularly and predictably to the implementing agency. Specifically, the FM system should be capable of producing usefbl information in a timely manner for decision-making purposes (to enable project management to monitor the efficient implementation o f the project). This information should have the characteristics o f being understandable, relevant, reliable and comparable and would enable management to plan, implement, monitor and appraise the entity's overall progress towards achieving its objectives. This will be achieved through the preparation o f quarterly Financial Monitoring Reports (FMRs) that integrates project accounting, procurement, contract management, disbursement and audit with physical progress. The TANROADS accounting system will be based on a computerized, double entry, accrual-based system. The objectives o f the system are to: Record assets, liabilities, revenue and expenditure o f the organization so as to meet statutory and other requirements; Provide information to management to assist them inrunning the organization's activities on a day to day basis; Provide information on reporting and accountability to stakeholders, and in particular for donor funding; Provide a suitable financial framework for planningthe organization's future activities by means o f annual budgets and long term strategies; Facilitate concise and accurate Management Information Reports from reliable records to enable corrective measures on time; Enable performance evaluation o f the organization; and Enable the flow o f management information from the basic recording system described above. In addition, certain accounting information is obtained from other sources like Weigh bridge Managers. The following summarizes other salient financial management arrangements: Chart of Accounts: The project will use the same structure o f chart of accounts used in - 57 -  TANROADS and create specific codes for project specifics. The chart o f accounts is flexible enough to provide financial information per (1) project activity (2) project component and (3) expenditure category. Internal Control System: Plans have been drafted for the enhancement of a robust system of internal control with specific emphasis on financial control and improved project management. This should go hand-in-hand with the update o f the Accounting Procedures Manual. Banking: Bankaccounts, supportedby satellite nation-wide computerized bankingfacilities, have been opened for regional offices at CRDB, (except for two regions banking at NBC, namely Coast and Manyara). Assets: A preliminary reconciliation of asset inventory from regional offices has been undertaken, along with determination o f the remaining usefid lives o f fixed assets for inclusion in the accounting records. However, the asset inventory did not include (1) equipment hire units, (2) motor vehicles and (3) plant& machinery. The process o fdoing the inventory andvaluation o fthese items, is inprogress. Budgeting: Salient features ofthe budgeting process includes: o Procedures are inplace to ensure proper preparation and compilation o f the annual budget. 0 The budgets lays down physical andfinancial targets. o Budgets are prepared for all significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance. o Actual expenditures are compared to the budget with reasonable frequency, and explanations required for significant variations from the budget. Prior approval o f variances are required. Information systems The specifications o f a computer-based financial management system, EPICOR (previously known as Platinum ERA) were developed to be implemented throughout the organization, including the 21 regional offices (with the exception o f the new region Manyara which will be implemented duringthe financial year ended 30 June 2004.). The computer package had been procured and the hardware installed in all regions. Accounting staff at HQ and these regions have received training inthe application o f the Computer system and Accounting Procedures Manual. The computers systems in the regions are not connected to the HQ. For this reason transfer o f data is not done online; it is sent to H Q on computer tapes where the information i s then consolidated. TANROADS will receive financing from IDA for the funding o f the procurement and implementation o f the Wide Area Network (WAN) under component 2 o f the CTCRP. This facility will allow online transmittal o f information. Currently, the IDNSDP unit retains separate reporting formats for different Donors and therefore different sets o f accounts are maintained for reporting to them a situation that complicates the organizations reporting system. To arrest this situation, steps have been taken to integrate all the organization's financial accounting and reporting systems with the EPICOR system, which will now be usedfor all accounting and financial reporting throughout the organization. It had been envisaged that the financial statements o f IRP-I1for the year ended 30 June 2003 would have been prepared with the use of EPICOR. However, while the training of the staff had been done and the implementation and procurement o f the system was well underway, it had been delayed due to design challenges that the consultants (Softech) needed to resolve. It is envisaged that full integration will be achieved by the June 2004. From a general management perspective, there is a need to have this FM system integrated with sub-systems/modules that would provide for project management and contract management. Inthis regard a TOR for the procurement/ development o f a Project Management System (PMS) has been prepared. - 58 -  Reporting (Financial Monitoring Reports) Formats o f the various periodic financial monitoring reports to be generated from the financial management system will be developed. There will be clear linkages between the information in these reports and the Chart o f Accounts. The financial reports will be designed to provide quality and timely information to project management and various stakeholders on project performance. The following quarterly FMRswill be producedby the IDNSDP unit: 8 Financial Reports: 0 Sources and Uses o f Funds by FundingSource o Uses o f Fundsby Project Activity/Component 8 Physical Progress (Output Monitoring) Report 8 Procurement Report The formats have been defined and agreed by negotiations and the project must be capable o f producing FMRsby credit effectiveness. The first quarterly report is due byNovember 15,2004. The project may later become eligible to use the report-based disbursement method, provided that during project implementation, it (a) sustains satisfactory financial management rating during project supervision; (b) submits FMRs consistent with the agreed form and content as explained below; and (c) submits Project Audit Reports by the due dates. The project is then required to submit to the Bank the following information inorder to support report-based disbursement: 8 FinancialMonitoring Report (FMR). Special Account (SA) Activity Statement. 8 SA Bank Statements. 8 Summary Statement o f SA Expenditures for Contracts subject to Prior Review. 8 Summary Statement o f SA Expenditures not subject to Prior Review. Project Financial Statements The Executives Agencies Act, 1997 states that such institutions should prepare its financial statements in accordance with Generally Accepted Accounting Practice (which inter alia includes the application o f the accrual basis o f recognition o f transactions). The IDA Credit Agreement will require the submission o f audited financial statements to the Bank within six months after the year-end. In addition to the monthly reconciliations and quarterly FMR's, the project will produce annual Project Financial Statements for analytical and audit purposes. These Financial Statements will compose o f A Statement of Sources and Uses of Funds / Cash Receipts and Payments which recognizes all cash receipts, cash payments and cash balances controlled by the entity; and separately identifies payments by thirdparties on behalfo fthe entity. 0 The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on the Statement of Cash Receipts and Payments being cross referenced to any related information inthe notes. Examples o f this information include: a summary o f fixed assets by category o f assets; 0 a summary o f SOE Withdrawal Schedule, listing individualwithdrawal applications; A Management Assertion that Bankfimds have beenexpended inaccordance with the intended purposes as specified inthe relevant World Bank legal agreement. - 59 -  Monitoring Project monitoring will take the following forms: Management oversight o fthe IDNSDP unit; Annual external audit o f the Project finances. Previously the concern had been raised that managerial reports are produced in a fragmented manner. Nevertheless, it was observed that the preparation o f the quarterly Financial Report for the IRP-I1is not yet integrated with the process o f preparing the quarterly Status Reportfor the Performance of the Road Sector. This would ensure that the quality o f information is credible ahd that the preparation o f the latter report is based on the same financial data prepared on the accrual basis and which is being used for financial management purposes. The integration and linkage to the PMS will hopefully address this. Status Reports currently contain most o f the information required for FMRs. 1.5 Flow of Funds Fundsflow arrangements for the project, through two bank accounts are as follows: IDA will make aninitial advance disbursement from the proceeds o fthe Credit by depositing into a Borrower-operated Special Account (SA) held at Citi Bank (or an acceptable commercial bank) and denominated inUS Dollars. Actual expenditure will be reimbursedthrough submission o f Withdrawal Applications and against Statements o f Expenditure, which will be approved inaccordance with internal control measures applied in TANROADS. Payments for activities implemented at the TANROADS, TRC and MOCT, Zanzibar will be done centrally from the TANROADS' head quarters. Counterpart funds and transfers ffom the SA (for payment o f transactions in local currency) will be deposited in the Project Account in accordance with project objectives. The Government will allocate and pay over counterpart funds for the project by cheque (Warranto f funds). Counterpart funds will be allocated through the normal central government budgetary process. Counterpart funds are accessed through compliance with the country specific FinancialRegulations. The two bank accounts should be opened by credit effectiveness. The account signatories should also be documented inthe Accounting Procedures Manual 1.6 Staffing and Training StaflQualijkations & Skills The Director o f Finance and Administration, and Chief Accountant o f TANROADS are professionally qualified Tanzanian CPAs. The three accounting staff inthe IDA-CPU are accounting graduates and two o f them are conversant with the Bank's FMrequirements due to their exposure to the IRP-I1project. They have also received training inthe use o fthe EPICOR system. Training Plan The FAD organizes continuous training courses for its staff inorder to enhance their accounting capacity and to update them on EPICOR upgrades. - 60 -  1.7 Supervision Financial management supervision will be carried out regularly by the Financial Management Specialist (FMS) at least once a year. The initial supervision will be on implementation progress o f agreed actions as per paragraph 1.10 and the effective operation of the EPICOR system within the IDA-CPU. In addition, the project may be submitted to regular SOE reviews as requiredby the World Bank. The FMS will also: Conduct an FMsupervision before effectivenesddisbursement; Review the financial component o f the quarterly FMRs as soon as they are submitted to the World Bank; and, Review the annual Audit Reports and Management Letters from the external auditors and follow-up on material accountability issues by engaging with the TTL, Client, and/or Auditors. A 2002 SOE review by a World Bank team of the forerunner IRP-I1project revealed no major or unresolved weaknesses identifiedin the financial management systems. Also a follow-up review (May 2003) of the implementation o f the SOE recommendation revealed no major weaknesses. The IRP-I1 project has thus been rated as satisfactory on financial management since the FM-rating became effective. 1.8 ProcurementArrangements Procurement by the IDA/SDP unit will be under the management o f the Procurement Specialist. There are no specific Procurement arrangements that specifically impact the FMarrangements. 1.9 Conclusion The evaluation above indicates that the project's financial management arrangements satisfy the Bank's minimum requirements under OP03P10.02. However, some improvements remain to be effected for the system in order to establish an acceptable control environment and to mitigate financial management risks. The various measures/improvements should be implemented by the due dates as indicated in the table below. The project financial management risk is assessed as being low/negligible provided that the financial management arrangements are properly implemented and the following financial management action plan is satisfactorily addressed inpractice: No. Action Due date Covenants 1. Update the Accounting Procedures Manual (April 2000 Substantially None version) with due observance o f strengthening the completed system o f Intemal Control. , 2. Integrate the current accounting and financial reporting Substantially None system used by the IDA-CPU with the EPICOR system completed used by other TANROADS units. 3, Procurement and implementation o f a WAN. June 2007, draftNone TOR have been prepared 4. Prepare and update status reports on financial and Draft FMR None physical progress on quarterly basis. The reports should prepared. 1st compare plannedactual targets and outputs and be report due -61 -  integrated with the accounting system. November 15, 2004 5. Develop/procure and implement a Project Management December 2004 None System compatible with the FMSystem. Draft TOR have already been prepared. 6. Open a Project account and deposit Tshs. 900 million Effectiveness 2ondition o f therein ffectiveness 1.10 FinancialCovenants andEffectiveness Conditions Financial covenants are the standardones as stated inArticle IV o f the Development Credit Agreement. The only effectiveness condition is shown inrow six inthe table above. 2. Audit Arrangements Internal Audit An Internal Audit unit has been established at HQwith independent dual reporting to the CEO and respective auditees. Responses to audit queries are required to be submitted directly to the CEO to improve quality and timeliness o f follow-up. This unit will concentrate on corporate governance and testing compliance with financial regulations. Taking into account that the internal audit function is relatively small (3 professional accountants and 1 semi-professional), there needs to be strong supervision and quality assurance in the Project. The day-to-day supervision o f accounting functions will be assured by the organization structure o f TANROADS. ExternalAudit The external audit will be carried out annually as part o f the TANROADS audit by the Controller and Auditor General (CAG) or such other person registered as an auditor under the Auditors and Accountants Act, 1972 and approved by the CAG. The external audit will cover all World Bank and NDF funds and Counterpart funds at all levels o f project execution. The auditor will be required to express an opinion on the audited project financial statements only, in compliance with International Standards on Auditing (IFACKNTOSAI pronouncements) and submit the audit report within six months o f the end o f the financial year. In addition, detailed management letters containing the auditor's assessment o f the internal controls, accounting system and compliance with financial covenants inthe IDA Credit Agreement, and suggestions for improvement will be prepared and submitted to management for follow-up. The following observations relate to audit compliance o f the forerunner IRP-I1project: The audited financial statements and management letters for the year ending 30 June 2002 had been issued late (in March 2003). Although the audit report contained an unqualified opinion, the management letter identified areas requiring improvement to strengthen accounting procedures and the internal control system. This state o f affairs was confmed in a review conducted by the World Bank duringMay 2003 to evaluate the timely and complete follow-up o fthe audit findings andrecommendations. While the IDA/PCU unit had taken steps to solicit responses on the issues raised inthe management letter, sadly this process had not been concluded by the date o f this assessment due to the Ministryo f Works not beingresponsive ina timely manner. - 62 -  The financial statements for the year ended 30 June 2003 had been prepared with the use of the same database as inthe past, due to delays in implementation o f EPICOR It was submitted for audit by the end o f September 2003 and the audit report and management letter issued in January 28, 2004 one month late. 3. DisbursementArrangements Disbursements from IDA would initially be made on the basis o f incurred eligible expenditures (transaction based disbursements). IDA would then make advance disbursement from the proceeds o f the Credit by depositing into a Borrower-operated Special Account (SA) to expedite Program implementation. The advance to an SA would be used by the Borrower to finance IDA's share of Program expenditures under the proposed Credit. Another acceptable method o f withdrawing funds from the Credit is the direct payment method, involving direct payments from the Credit to a thirdparty for works, goods and services upon the Borrower's request. Payments may also be made to a commercial bank for expenditures against IDA special commitments covering a commercial bank's Letter o f Credit. IDA's Disbursement Letter stipulates a minimumapplication value for direct payment and special commitment procedures. Upon credit effectiveness, TANROADS would be required to submit a withdrawal application for an initial deposit to the SA, drawn from the IDA Credit, in an amount to be agreed to in the Development Credit Agreement. Replenishment o f funds from IDA to the SA will be made upon evidence o f satisfactory utilization o f the advance, reflected in SOEs andor on full documentation for payments above SOE thresholds. Replenishment applications would be required to be submitted regularly. If ineligible expenditures are found to have been made from the SA, the Borrower will be obligated to refund the same. Ifthe SA remains inactive for more than six months, the Borrower may be requested to refund to IDA amounts advanced to the SA. IDA will have the right, as reflected inthe Development Credit Agreement, to suspend disbursement of the funds ifreporting requirements are not complied with. Strengthening its accounting and financial management capacity will enable TANROADS to establish effective financial management and accounting systems, which should eventually facilitate the introduction o f Financial Monitoring Report (FMR)-based disbursements in periods subsequent to project effectiveness. The adoption o f this approach will enable the project to move away from time-consuming transaction based disbursement (voucher-by-voucher) methods to quarterly report based disbursements to the project's SA, based on the FMRs. Report-based disbursements offers more flexibility. Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Civil works 60% o f local expenditures 100%o f foreign expenditures - 63 -  1I-1 -under Part A.2 10.17 under Part C.2 0.00 1 -- under Part C.4 III 0.37 III III other 46.20 Goods 75% o f local expenditures 100%o f foreign expenditures --- under under Part C. 1 8.22 Part C.2 24.82 other 0.97 Consultants, services, training and audit 93% o f all expenditures -- under Part C 3.14 other 14.88 Operating costs 0.23 90% o f all expenditures Unallocated 13.00 Total Project Costs with Bank 122.00 Financing Total 122.00 Use of statements of expenditures (SOEs): All applications to withdraw proceeds from the Credit account will be fully documented except for expenditures against contracts for: (a) works under contracts below $1,000,000 equivalent each; (b) goods under contracts below $500,000 equivalent each; (c) consulting and auditing services under contracts below 200,000 equivalent each; and (d) $100,000.00 for individual consultants. Documentation supporting expenditures claimed against SOEs will be retained at the project and will be available for review as requested by IDA supervision missions andproject auditors. Special account: To facilitate disbursement o f eligible expenditures for goods works and services, GOT will open a Special Account in a commercial bank acceptable to IDA. The special account will be managed by TANROADS and TRC and will cover IDA's share o f eligible expenditures. The authorized allocation for the special account will be US$12.0 million. Replenishment o f funds by IDA will be made upon production o f evidence o f satisfactory utilization o f the advance, as reflected in the SOE or in full documentation for payments above the SOE thresholds. Upon credit effectiveness or as needed ,an amount of US$6.0 million will be deposited in the special account. Subsequent deposits may be requested as needed. To the extent possible , IDA's share o f expenditures should be paid through the special account. Replenishment applications should be submitted regularly, preferably monthly, after monthly bank statements are received and reconciled, with appropriate supporting documents for local and foreign expenditures as required. Only IDA's share of eligible expenditures will be paidthrough the special account. - 64 -  Annex 7: Project Processing Schedule TANZANIA: Central Transport Corridor Project ITime taken to prepare the project (months) 1 9 I 8 I First Bank mission (identification) 0911012003 09/08/2003 Appraisal mission departure 0211512004 03/02/2004 Negotiations 0313012004 03/16/2004 Planned Date of Effectiveness 0713012004 0710112004 Prepared by: Dieter Schelling, Solomon MuhuthuWaithaka, Yash Pal Kedia, Farida Mazhar, Julien Dehornoy, Vickram Cuttaree, England Rogasian Maasamba Preparationassistance: EnglandRogasian Maasamba Bank staff who worked on the projec Name Dieter Schelling Task Team Leader Farida Mazhar Lead Financial Officer (PFG) Yitzhak Kamhi Senior Consultant Solomon MuhuthuWaithaka Highway Engineer Michael Silverman Sr.Counse1 Marius Koen Sr.Financia1 Management Specialist Mercy Sabai Sr. FinancialManagement Specialist Ajay Kumar Transport Economist Pascal Tegwa Sr. Procurement Specialist Nina Chee Environmental Specialist Farida Khan Operations Analyst Ani1 Bhandari HighEngineering andQuality Assurance Control Peer Reviewer - Cesar August0 Queiroz Highway Engineering - PeerReview Nina Jones Program Assistant England Rogasian Maasamba Team Assistant Leah Mukuta Team Assistant Julien Dehomoy Project Assistant Vickram Cuttaree Young Professional (PFG) - 65 -  Annex 8: Documents in the Project File* TANZANIA Central Transport Corridor Project A. Project Implementation Plan An overallprocurementplanfor the project has beenpreparedandis attachedto the appraisalaide memoire. A detailedprocurementplanwith monitorable milestoneswill be producedfor year one andtwo before March 30,2004. B. Bank Staff Assessments Aide Memoires and Status Report on the Sector from 2002- 2004 Financial Assessment Management Report C. Other 1. National Transport Policy 2003 2. 10-Year Road Investment Program - 2002 3. National Road Safety Masterplan 4. PER Reports - 2001/02/03 - 2004 5. Feasibility Study and Detail Design for Singida-Shelui Road 2003 6. National Transport Masterplan - 2002 - 7. Environmental Guidelines for Transportation Program 2001 - 8. Tracking of Road FundStudy 2002 - *Including electronic files - 66 -  Annex 9: Statement of Loans and Credits TANZANIA: Central Transport Corridor Project March24. 2004 Difference betweenexpected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig Frm Rev`d PO17014 4 HlVlAlDS 0.00 70.00 0.00 68.60 0.00 0.00 PO58706 2002 Forest Conservation and Management 0.00 31.10 0.00 32.21 2.43 0.00 P002797 2002 TZ Songo Songo Gas Dev. & Power Gen. 0.00 183.00 0.00 175.24 106.03 0.00 PO71012 2002 Primary Education Development Program 0.00 150.00 0.00 105.23 37.50 0.00 PO73397 2002 Lower Kihansi Environmental Managemenl 0.00 6.30 0.00 6.02 1.55 0.00 PO47762 2002 Rural Water Supply 0.00 26.00 0.00 27.32 2.56 0.00 PO65372 2001 Social Action Fund 0.00 60.00 0.00 29.46 -2.76 0.00 P069982 2001 Regional Trade Fac. Project- Tanzania 0.00 15.00 0.00 11.39 2.81 0.00 PO50441 2000 Rural & Micro Fin Svc 0.00 2.00 0.00 1.09 I.06 1.OB PO57187 2000 FlDP II 0.00 27.50 0.00 15.94 15.15 6.05 PO58627 2000 Health Sector Development Program 0.00 22.00 0.00 4.56 -7.01 0.00 PO60833 2000 Public Service Reform Program 0.00 41.20 0.00 31.61 -9.33 0.00 PO02822 2000 Tanzania PSCA 1 0.00 190.00 0.00 81.21 -108.84 0.00 PO49838 2000 Privatization 0.00 45.90 0.00 32.25 22.16 0.00 PO47761 1999 Tzx Administration 0.00 40.00 0.00 26.31 22.30 0.00 PO02804 1998 Agric Research 0.00 21.80 0.00 5.34 4.77 0.00 PO02789 1998 Human Resources Dev 1 0.00 20.90 0.00 1.89 0.29 0.00 PO02753 1997 Nat. Ext Proj PH Ii 0.00 31.10 0.00 2.36 4.80 -1.68 PO46837 1997 Lake Victoria Env. 0.00 10.10 0.00 3.52 -1.13 0.00 P038570 1997 Tz. River Basin Mgm Smai. 0.00 26.30 0.00 4.57 6.57 0.00 PO02758 1996 Urban Sector Rehab 0.00 105.00 0.00 18.03 21.79 0.00 PO02770 1994 Roads Ii 0.00 170.20 63.53 36.38 107.13 35.77 0.00 Total: 0.00 1295.40 63.53 720.52 229.83 41.20 - 67 -  TANZANIA STATEMENTOF IFC's Held and Disbursed Portfolio June 30-2002 InMillionsUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 AEF BlueBay 1.45 0.00 0.00 0.00 1.45 0.00 0.00 0.00 2001 AEF Boundary Hi1 0.20 0.00 0.00 0.00 0.20 0.00 0.00 0.00 1996 AEF Contiflora 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 1998 AEF DropZanzibar 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 1997 AEF Hort Farms 0.19 0.00 0.00 0.00 0.19 0.00 0.00 0.00 1998 AEF MajiMasafi 0.27 0.00 0.00 0.00 0.27 0.00 0.00 0.00 1996 AED Milcafe 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 1994 AEF MoshiLthr 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 1999 AEF MusomaFish 1.50 0.00 0.00 0.00 1.so 0.00 0.00 0.00 1997199 AEF Pallsons 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 1995 AEF Tanbreed 0.70 0.00 0.00 0.00 0.70 0.00 0.00 0.00 2000 AEF Zan Safari 0.70 0.00 0.00 0.00 0.70 0.00 0.00 0.00 2002 EximBank 2.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 IHP 0.82 0.60 0.00 0.00 0.82 0.00 0.00 0.00 2000 IOH 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 2000 NBC 0.00 10.00 0.00 0.00 0.00 3.44 0.00 0.00 1993 TPS (Tanzania) 5.69 0.87 1.04 0.00 5.69 0.87 1.04 0.00 1991/97 TPS Zanzibar 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1994 TanzaniaBrewery 0.00 6.00 0.00 0.00 0.00 6.00 0.00 0.00 1998 Tanzania Jubilee 0.00 0.29 0.00 0.00 0.00 0.29 0.00 0.00 1994 ULC Leasing 0.00 0.38 0.00 0.00 0.00 0.38 0.00 0.00 2001 AEF 2000 Industries 1.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996199 AEF A&K Tanzania 0.15 0.00 0.00 0.00 0.15 0.00 0.00 0.00 1997 AEF Aquva Ginner 0.68 0.00 0.00 0.00 0.68 0.00 0.00 0.00 Total Portfolio: 20.12 18.36 1.04 0.00 16.02 11.80 1.04 0.00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2002 Exim Bank 0.00 1.oo 0.00 0.00 Total PendingCommitment: 0.00 1.oo 0.00 0.00 - 68 -  Annex IO: Country at a Glance TANZANIA Central Transport Corridor Project Sub POVERTYand SOCIAL Saharan LOW- Tanzania Africa Income levelopment diamond. 2002 Population, mid-year(millions) 35.2 666 2,495 Life expectancy GNI per capita (Atlas method, US$) 280 450 430 GNI (Atlas method, US$billions) 9.9 306 1,072 Average annual growth, 199642 T Population(%) 2.4 2.4 1.9 Laborforce (%) 2.5 2.5 2.3 ;Ni Gross ier primary Most recent estimate (latestyear available, 1996.02) :apita nroliment Poverty (% ofpopulationbelownationalpovertyline) Urbanpopulation(% of totalpopulation) 34 33 30 Lifeexpectancy at birth (years) 43 46 59 Infantmortality (per 1,000 live births) 107 105 81 - Childmalnutrition(% of childrenunder5) 29 Access to improvedwater source Access to an improvedwater source (% ofpopulation) 66 58 76 Illiteracy(% ofpopulation age 75+) 23 37 37 Gross primaryenrollment (?Aof school-agepopulation) 63 86 95 Tanzania Male 63 92 103 Low-incomegroup Female 63 80 87 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 Economlcratios. GDP (US$ biliions) 4.6 9.3 9.4 Grossdomestic InvestmenffGDP 27.2 17.0 17.4 Exportsof goods and ServiceslGDP 12.4 15.3 16.7 Trade Grossdomestic savings/GDP 0.3 8.4 10.5 Grossnationalsavings/GDP 6.2 7.3 10.1 CurrentaccountbalancelGDP -15.5 -7.9 Domestic interestpaymentslGDP 1.2 0.4 0.6 savings Investment Total debUGDP 145.1 71.5 77.2 Total debt service/exports 23.6 42.2 10.3 7.8 Present value of debffGDP 14.4 Presentvalue of debVexports 89.9 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) -Tanzania GDP 4.0 6.1 6.3 GDPDercaDita .... 1.3 3.8 4.1 Low-Incomegroup STRUCTUREof the ECONOMY 1982 1992 2001 2002 1 Growth of Investmentand GDP (%) (% of GDP) 1 Agriculture 48.0 44.8 44.4 industry 16.2 16.0 16.3 Manufacturing 0.2 7.4 7.6 Services ........ 35.8 39.2 39.3 Privateconsumption 80.0 79.9 77.1 General government consumption 19.6 11.7 12.5 Importsof goods and services ...... 39.4 23.9 23.6 1 1 I (averageannualgrowth) Agriculture 3.6 5.4 5.0 " T 1 Industry .... 5.3 6.9 9.3 40 Manufacturing 4.3 5.0 7.0 20 Services .... 3.7 5.5 6.2 Privateconsumption 3.9 24.0 2.3 .20 o Generalgovernmentconsumption 1.9 -32.6 13.6 4 0 1 " Grossdomesticinvestment ...... 0.7 5.8 6.7 -Exports -9-Imports importsof goods and services 'The diamondsshow four key indicatorsinthe country(In bold)comparedwith its income-groupaverage.Ifdataare missing,the diamondwill beincomplete. - 69 -  Tanzania PRICES and GOVERNMENTFINANCE 1982 1992 2001 2002 Domestic prices Inflation (Oh) 1 (% change) 30 Consumer prices 26.9 21.6 5.2 4.6 25 ImplicitGDP deflator 25.4 6.2 4.2 20 15 Government finance 10 (% of GDP, includes currentgrants) 5 0 Current revenue 12.7 11.4 11.5 97 98 99 00 01 02 Currentbudget balance 0.6 -0.7 -1.4 -GDP deflator -0'CPI Overallsurplus/deficit -1.6 -5.0 -5.7 TRADE 1982 1992 2001 2002 I Exportand (US$ millions) Import levels(US$ mill.) Totalexports(fob) 411 414 772 737 12.000. Coffee 134 60 57 70 cotton 56 98 33 41 1.500 Manufactures 43 64 56 38 Total imports(cif) 1,128 1,357 1,726 1,889 1,000 Food 108 25 169 Fueland energy 256 142 106 500 Capital goods 527 639 755 613 II 0 Export price index /1995=100) 66 75 151 156 98 97 98 99 00 01 02 Importpriceindex (1995=100) 77 101 102 110 Exports .Imports Terms of trade (1995=100) 112 74 146 141 BALANCE of PAYMENTS 1982 1992 2001 2002 1 Currentaccountbalancelo (US$ millions) GDP (Oh) I Exports of goods and services 645 546 1,430 1,569 0 Importsof goods and services 1,201 1,885 2,232 2,224 1 Resource balance -556 -1,337 -802 -656 2 3 Net income -85 -187 -65 -45 4 Netcurrent transfers 24 456 -19 10 6 8 Currentaccountbalance -523 -714 -738 7 Financingitems (net) 524 617 909 8 9 Changes in netreserves 0 -102 -171 -347 -10 Memo: Reserves includinggold (US$ miNions) Conversion rate (DEC,/ocal/US$) 9.3 297.7 876.4 966.6 EXTERNALDEBT and RESOURCEFLOWS 1982 1992 2001 2002 (US$ miNions) Composltlon of 2002 debt (US$ mill.) Total debt outstandingand disbursed 6,202 6,675 6,679 7,236 IBRD 211 171 8 6 I IDA 414 1.618 2,566 2.869 G: 606 A:6 Total debt service 152 235 154 128 IBRD 25 45 4 3 IDA 4 19 35 22 Composition of net resourceflows Officialgrants 309 697 927 Officialcreditors 231 263 93 179 Privatecreditors 31 -45 -21 -21 Foreigndirect investment 17 12 224 Portfolioequity 0 0 0 World Bank program Commitments 71 60 355 57 A IBRD E Bllaleral - Disbursements 107 235 119 148 . - ~ B IDA D Other multilateral F Private - Shorl-tem ~ Principalrepayments 10 39 23 8 C - IMF G Netflows 97 196 96 140 Interest payments 16 25 17 17 Nettransfers 79 171 60 123 hote: Ihis table was producedfrom the Developmenttconomics centrald a t a b b - 70 -  Additional Annex 11: EnvironmentalImpact Assessment and Mitigation Measuresfor Singida -Shelui Road TANZANIA Central Transport Corridor Project 1. The RoadInfluenceArea The environmental study has considered two concentric road influence zones, namely: Road Reserve Area, 45 m wide, along the design route, covering a total surface o f 5 km2 Wider Proiect Area: it coincides with the "Feeder Road Basin" o f the project road, covering an area o f about 5,000 sq km. The direct, short-term physical impacts o f the road project are largely limited to the road reserve area and its immediate environs. The long-term potential impacts on the Wider Project Area mainly concern the modification o f the settlement pattern and possible damage risks for the forest cover, the cultural heritage, as well as threats to health due to the intensification o f disease vectors and to the spread of HIV-AIDS prevalence. Some o f the long-term and indirect impacts may be beneficial on the Wider Project Area, such as the greater possibility o f intervention o f the government services dealing with the protection o f nature, cultural heritage andhuman welfare. The project area is part o f the Central Plateau Ecological Region, between 1,000 and 1,600 mo f altitude. It hosts a variety o f ecosystems, including seasonal wetland, dense and derived dry forests, savanna woodland and grasslands. Humanaction-deforestation, hunting, overgrazing andnature-depleting extensive farming - has heavily modified all ecosystems. 2. Socioeconomicand CulturalEnvironment Population. About 250,000 people live inthe Wider Project Area, o f which 150,000 in Singida Urban District and 100,000 intwo rural Districts (Singida Ruraland Kiomboi-Iramba). The overall population density is 60 inhabitants per km2(16 inthe rural countryside). The design route road runs through a dozen villages and one Trading Center (Shelui Nselembwe at km91). Shelui town lies 5 kmnorth o f the project road. Ulemo and Misigiri are fast growing settlements androad safety measures are required. The new bypass will avoid Iguguno Trading Center, which will continue to be served by an upgraded road. Economy. Agriculture employs 80 % o fthe manpower and yields 60% o f Singida Region's domestic product. Industryis confinedto small-scale, agro-based processing and service-oriented handicrafts. Trading lacks wholesale facilities. Tourism is poorly organized. Despite low monetary incomes, the region does not suffer from acute poverty and the food balance is good. Children do not suffer from widespread malnutrition or diseases. But economic growth is slower inSingida thanthe neighboring administrative regions. The lag appears to be both the cause andthe effect o f the poor development o f road transport facilities. Cultural heritage. Singida region hosts prehistoric Physical Cultural Resources (PCR), spanning more than 10,000 years. The earliest extant East African rock paintings - showing stylized humans and isolated naturalistic animal figures either in outline or flat monochrome - areconcentrated inSingida region. More than 50 rock paintings and other prehistoric sites have recently been inventoried with the assistance o f the Italian cooperation, including the so-called Drum Caves. The site o f Kiomboi, lies inthe Wider Project Area, 20 km - 71 -  northof the road, not so near to it as to be exposedto the immediate hazardsofthe plannedworks. 3. AlternativesAssessed Six variant routeshave beenassessedinterms of environmental and social impact, namely: three different routes traversing Sekenke Escarpment, and: two bypassesaround IgugunoTrading Center, where the present roadcrossesthe town. Sekenke Escmment: for each alternative alignment, an ad hoc EIA and SIA has beenprepared. The solution advised by the present study requires six viaducts. This solution will have a favorable ecological impact, becauseabout 12 kmof former hilly route can be convertedto a forest roadwithin the plannedSekenke Forest reserve, with extensive reforestationover more than 2,500 ha. The negative impact on KinkunguRiver Gorge, which presently serves as a natural corridor for wildlife migrating from Singida plateau to Wembere Swamplands, will be minor, as the six new bridges will cross the meandering river bed. Green screens protectingthe forests along the new designroute can mitigate suchimpact. 1g;uguno Bypass. The proposedbypass, 7 km long, will have the double advantage of avoiding the congested Iguguno urban area and shortening the road lenght by as much as 1.5 km. The bypass - which will run sufficiently close to the southern urban outskirts not to deprive them of the trading benefits generated by through-fare traffic -will cross the MunyuRiver south of the town, where a new bridge is needed(25m span). The new roadreservewill cut across farms (45 ha). Various EIA options Road environment in Singida Town. To foster safe mixed-traffic flows within a pleasant urban environment, two lanes will be introduced, with aparallelparkinglane at least 2.0m wide on both sides, to serve commercial business. Sidewalks for pedestrian access to schools, parks, shopping areas and other main buildings will line the mainstreet. Kerb-openinginlets at suitable intervalswill drainthe street. 4. Environmentaland social impact statement and recommended mitigationmeasures The impactof the project inthe roadconstructionphase (years 2004-07) and inthe roaduse phase (year 2007 onward) is summarizedinthe following tables Environmental impact and mitigating measures in the road Constructionphase (2004-07) EIS Recommendedmitigation and enhancement measures Land take, earthworks Proper timing o f works. Topsoil stock piled for later use Borrow pits, quarries Works to transform the pits into permanent water points Detours and haul roads Minimize vegetation clearance. Restore sites after use Workers camps Careful camp location, construction, management Machines (noise, vibration, pollution) Machine mufflers. Dust sprinkling. Halt works during holidays Water and soil pollution Recycle lubricants. Precautions to avoid accidental spills Site and detour hazards Proper signaling. Careful driving o f haul trucks Health hazards during works Healthexam & treatment o f workers with priority to HIV-AIDS Breedinghabitat o f disease vectors Goodlandscaping, filling & drainage to avoid creating habitats Threat to Physical Cultural Resources (PCR) Clause in Works Contract to protect them Displacement o f property and business Resettlement, compensation and access to equivalent asset basis - 72 - 8  Environmental impact and mitigating measures in Phase II,Road Use (2004 onward) Environmentalimpacts Recommendedmitigation and enhancement measures Traffic risks and pollution effects Introduction o f updated vehicle and traffic control systems Forest fires Creation o f green barriers along the road Endangering o f cattle herds Creation o f new stock route and markets Higher pressure on ecosystems Strengthening o f ecologic services, awareness campaigns Road maintenance impacts Handbook for ecologically sustainable road maintenance Increase of disease vectors Upgrading o f health facilities focused on HIV-AIDS Threats to Physical Cultural Resources (PCR) Heritage protection o f and development o f eco-tourism Each mitigation or enhancement measure has been debated with the local communities along the road's design alignment, and with the concerned National authorities: NEMC, Ministry o f Tourism & Natural Resources, Forestry Department. 5. Environmentaland Social ImpactMitigationActionPlan The Action Plan will be geared to implement both the environmental and socioeconomic mitigation and enhancement measures. Consistently with the identified impact cycles, the Action Planwill span three phases, as tabulated below: Phasing o f Singida-Shelui Environmental and Social MitigationAction plan Phases Year Key responsibilities II Works - - - imolementation 103-05 Icontractor, TANROADS and other line Ministries 1 ~~ ~~ Roaduse & maintenance 105 onward IMinistrv o f Lands, TANROADS EAP Phases I & 11: Engineering and Work Implementation (2003-07): the mitigation measures will counteract the adverse effects o f earthworks (land takes, materials spoiling, plant operation, haul traffic), like soil erosion, water pollution, encroachment into natural and humanhabitats. Borrow pits and quarries cover a surface o f 110ha. EAP Phase III,road use and maintenance from 2007), will mobilize seven environmental impact management processes, namely: i. EnvironmentallySustainableRoadMaintenance ii. TrafficManagement iii. DevelopmentofAncillaryInfrastructure iv. Ecosystem Protection inthe Wider RoadArea v. Health Protection Against Disease Vectors (HIV-AIDS and others) vi. Safeguard o f Physical Cultural Resources inthe Wider RoadArea vii. Benefit Enhancement Measures I. Environmentallvsustainableroadmaintenance.A"MaintenanceHandbook"willprovide guidelines for environmental friendly maintenance, taking into account the type o f road structures, cut vegetation, drainage system and impact mitigation measures advised by the project. The manual will not overlap with the current Road Maintenance Handbook o f Tanroads, insofar as the latter provides general - 73 -  procedures for, while the former would impartspecific solutions for the maintenance o f each km and individual structure of Singida Shelui road section, focusing on environmental issues. The handbook will also consider the collaboration o f Tanroads with the Ministry o f Education and Culture to protect the cultural heritage along the road. 11. Traffic management. Ifnot curbed by appropriate measures, like speed signs, rumble strips, intersection layout, etc., across towns andvillages, or crash barriers and guardrails, traffic related risks would increase proportionally to the traffic flow. 111. Development of ancillaw infrastructure: socioeconomic infrastructure will enhance the benefits generated by the upgradedroad. Investment costs, funded by the regional budget assisted by credit line facilities, will be recovered by user-fee mechanisms. IV.Ecosystem Protection inthe Wider Road Area. The design route will cross 20 km o f ecologically sensitive areas in Sekenke Forest Reserve and Wembere Game Reserve. Sekenke Forest Reserve. Closed to normal traffic, the old hilly road (12 km) will be dedicated to forest service and tourism. Thanks to reduced fire exposure, the uphill forests will regenerate, returning up to 300 ha to nature and timber production. The project will install signs and gates to interface Singida Shelui road with the Forest Reserve. On the negative side, the new route may slightly affect wildlife in Kinkungu Gorge. Recommended mitigations: (a) green barriers for fire protection, and: (b) support to village people bordering on the escarpment to set up charcoal makers associations and ensure participative forest management. Wembere Game Reserve. The future Reserve will encompass 1,200 km2o f a swamp-river-lake complex, rich inwildlife. InWembere valley, the present road acts as a dam, preventing the fish migration. The project hydraulic design will minimize the barriers to seasonal water flows across the first 3 km o f Wembere basin, presently hamperedby the small number and size o f culverts. V. Safeguard o f Phvsical Cultural Resources (PCR) in the road area. Easier access to PCR may increase thefts and acts o f vandalism. After works completion, Tanroads, jointly with the Ministry o f Education & Culture and the local authorities, will help in protecting the PCR near the road, featuring: prehistoric and historic sites, cemeteries, family graves, traditional groves, churches, mosques, vernacular architecture, etc. VI.Health-oriented environmental measures. Incoming workers andtraffic flows may carry and spread disease vectors. Local medical services should closely monitor AIDS-HIV. The project will provide a subvention to prevent spread to workers and community along the roadduring construction o f the said road. VI1. Benefit enhancement measures. As a result o f improved access, Singida Regional Government will be able to improve health care, education facilities, water supply, power plants, rural communications and other amenities. The institutions that rely on transport services can expand the environmental opportunities generated by the project. Action Plan for Implementation. Tanroads will appoint a Task Manager to coordinate the project's environmental components. H e will submit a Memorandum to the Environmental Department of the Vice President's Ofice (VPO) and the National Environmental Management Council (NEMC)),suggesting the tasks and schedule o f each Action Plan component. After reviewing the Memorandum, the VPO will issue a corresponding Order to the concerned Ministries and Agencies, and will oversee the whole process. N E M C will provide advisory and monitoring services, with the help o f specialized institutes and consultants. The - 74 -  Ministry o f Local Government will transmit the VPO Order and the attached schedule to Singida Regional Government, which in his turn will instruct the District Offices, notify the local communities and inspect the planned measures. Contractualcomponents. The environmental and social impact mitigation measures of phase Iof the Action Plan, related to work implementation, will be attached, with their bill o f quantities, to the Works Contract. A `chance-finds' clause will be incorporated inthe Contract to ensure the protection o f PCR, not only those which are already known and classified, but also those which are yet unknown and could unpredictably be found and inadvertently damaged duringthe construction. Supervisionsystem and Action Plan monitoring. The Works Supervisor will report to VPO andNEMC on the progress o f the Action Plan, constantly updating the Environmental Desk Officer o f Tanroads. N E M C will monitor the Action Plan and cany out a mid-tenn and final evaluation, with the assistance competent o f consultants and institutes. Environmentalaudit. The audit ofthe long-term effects ofthe mitigatiodenhancement measures shouldbe the responsibility o f the National Environmental Management Council. Community participation to Action Plan. During the field study, the Consultant has sensitized the local communities about the ecological and resettlement implications o f the project. The response has been positive at all levels. Comments, suggestions and additional detailed information can be collected after the Action Plan Memorandum prepared by Tanroads is circulated among local authorities. Environmental costs. Environmental mitigation and enhancement measures are estimated at TZS 715,000,000, equivalent to US$ 715,000. Investment costs for ancillary infiastructure do not compete to the project. Details o f two components are shown below. Cost of mitigation measures in Phase I.The remedial works to overcome the environmental damage during road construction will cost US$ 370,000, out o f which US$ 160,000 are for the mitigation o f the impact o f construction works and US$210,000 for the impact o f road use and maintenance. Cost of mitiaation/enhancement measures in Action Plan's Phase II,US$ 100,000, covering two major interventions: 0 Environmental mitigation measures impacts of road use (an awareness campaign, targetting forest and wildlife protection, tree planting and charcoal production; US$50,000); and 0 Cultural heritage and tourism (including 0 (i) Completion o f the inventory o f rock art paintings: 15,000 U S $; 0 (ii)Physical Cultural Resources safeguard and cultural tourism package in the road area: U S $ 20,000; and 0 (iii) Promotionofeco-touristcircuitsinSekenke&WembereReserves:US$15,000). Financial schedule o f EAP. The funds provided by the project will be complemented by Government funds, and the participation o fNGOs and local communities. The total cost estimate of the Action Plan inUS$715,000m out o f which US$235,000 will be used during the works period and US$480,000 duringthe operational period. - 75 -  Additional Annex 12: Partial Risk Guarantee TANZANIA: Central Transport Corridor Project SUMMARY OF INDICATIVE TERMS AND CONDITIONS OF THE IDA GUARANTEE INSUPPORT OF THE CONCESSIONINGOF TANZANIA RAILWAYS CORPORATION Borrower or Beneficiary: Project Company (PC) to be established in Tanzania by the Concessionaire. Guarantor: InternationalDevelopment Association (IDA). Purpose: (i) To catalyze debt finance in support o f investments through a commercial or shareholder loan. or (ii)Intheabsenceofdebtfinancing,toprovidepoliticalrisk mitigation by backstopping a Letter o f Credit ( to be issued by RAHCO in favor o f the PC) that can be drawn following a 'Guaranteed Event' (See below). Use of proceeds: Proceeds o f the financing covered by the Guarantee to be used for productive purposes relating to the purchase o f goods and services and other eligible expenditures incured for the construction, rehabilitation and refurbishment o f the concessioned assets (not amlicable for the L/C structure) PrincipalAmount: To be determined through discussions between RAHCO, the Concessionaire and IDA. In any event a principal amount not to exceed U S Dollars 40 million. Currency: U S Dollars or any other major currency. Term: To be indicated by the Concessionaire andto be agreed by IDA. Interest Rate of the An appropriate margin to reflect the IDA guarantee, above the Guaranteed Loan or LIC cost o f funds. (To be indicated by the lenders / Concessionaire following Drawings: and agreed with IDA). Guarantee Support: IDA could guarantee: (i)Scheduledprincipalandinterest paymentsto lendersnot paid by the Borrower as a result o f the occurrence o f a 'Guaranteed Event' (see below); or (ii)Inthe absenceofdebt financing, all or partofthe L/C drawn ( and not repaid by RAHCO within the agreed period) to - 76 -  cover a cash flow shortfall caused by the occurance o f a 'Guaranteed Event' (see below). The above alternative options would need to be discussed and agreed with RAHCO. the Concessionaire and IDA. Guaranted Events: Breach o f Contract in respect o f certain RAHCO payment obligations in the Concession and Lease Agreements. Specific breach o f contract coverage to be negotiated with the Concessionaire and / or its lenders by IDA and could include: (i) Termination Event as a result o f Expropriation, (ii) Termination Event as a result o f Changes in Law and (iii) RAHCO's failure to make required Restoration payments for the rail infrastructure. (i)0.75 percent per annum on IDA guaranteed amounts 'IDAGuarantee Fees: outstanding, payable by the PC. Standby Fee: (ii)0.25 percent per annumon guaranteed but undisbursed loan amounts, payable by the PC. (N/A to guaranteed L/C) Front-end Fees: (iii)(a)AnInitiationFeeof0.15percentoftheamountcovered under the IDA Guarantee (but not less than USD100,OOO) for intemal Project preparation and development costs, payable by the PC. (b) Processing Fee o f up to 0.50 percent of guaranteed amounts to cover IDA-designated reimbursable expenses, payable by the PC up on receipt of invoices. Conditions Precedent to Usual and customary conditions for project financings o f this type, including the following: the effectiveness of the (a) Firm commitment for proposed equity and /or deb1 IDA Guarantee: financing; (b) Execution, delivery and effectivenss o f the concession and Lease Agreements and all other concession and financing agreements, each inform and substance satisfactory to IDA; (c) Delivery o f environmental documentation, including ar Environmental Assessment and Management Plan, satisfactorq to IDA; (d) Effectiveness o f all required insurance (to include IDA as an additional insured on the third-party liability insurance); (e) Provision o f satisfactory legal opinions; (0 Payment in full of the Initiation Fee and Processing Fee and the first installment o f the Guarantee Fee; (8) Conclusion o f a Guarantee Agreement between Lenders 01 the L/C issuing bank and IDA, a Project Agreement between the Concessionaire and IDA, and an Indemnity Agreement between - 77 -  [DAand the Government-ofTanzania. ~ ~~ Buy-out Option: [f interest payments are covered under the Guaranteed Loan, hen following a default by the Borrower o f the Guaranteed Loan, a demand by the Lender(s) and payment under the 3uarantee, the IDA shall have the right, at its sole discretion, to mrchase the Guaranteed Loan or oustanding obligations due for m amount equal to the outstanding principal and accrued but inpaid interest (not including default interest) on the Guaranteed Loan. Inthe event IDA acquires the Guaranteed Loan, IDA will lave the right under its Indemnity Agreement with the Sovernment o f Tanzania to demand immediate payment to IDA 3 f the outstanding Guaranteed Loan amount. (N/A to the L/C structure). Subrogation: [fand to the extent the IDA makes payment under the IDA Guarantee and the Government o f Tanzania has failed to reimburse IDA for the amount so paid in accordance with the terms o fthe Indemnity Agreement and such failure has continued for at least 60 days, then IDA shall be immediately subrogated to the Lender(s)' rights, including any security rights, in respect of such payment, provided that IDA shall not be subrogated to any voting rights or rights o f enforcement o f security untileither (i)IDA has paid the Guaranteed Amount; or (ii)where, following an acceleration, IDA has agreed to make payments in accordance with the Loan's original repayment schedule I D A may waive any such rights o f subrogation. GuaranteeAgreement: The terms and conditions o f the IDA Guarantee would be embodied in a Guarantee Agreement between the commercial 01: shareholder Lender(s) and IDA (or in the case o f a guaranteec L/C, IDA and the issuingbank). Indemnity Agreement: The Government o f Tanzania would enter into an Indemnio Agreement with IDA. Under the Agreement, the Government 0: Tanzania would undertake to indemnify IDA on demand, or a: the IDA may otherwise determine, for any payment made by the IDA under the terms of the Guarantee. The Indemnig Agreement will follow the legal regime, and include dispute settlement provisions, which are customary in agreement: between member countries andthe IDA ProjectAgreement: The PC will enter into a Project Agreement with the IDA ir respect o f its Guarantee. Under such Agreement, the PC will agree to use the proceeds o f each advance, in the case o f a Guaranteed Loan (or portion thereof), in accordance with the terms and conditions o f the Project Agreement and the Loan Agreement to provide reports (including audit reports) and other - 78 -  Project information and make warranties, representations and covenanted undertakings, including in respect o f compliance with environmental laws and the applicable World Bank Guidelines. Other Provisions: As part of its appraisal process, IDA would carry out due diligence including a technical and economic analysis o f the Project, review the financing structure o f the concession and financing agreements, andthe proposed riskcoverage, as deemed relevant by IDA. The PC would be expected to comply with all applicable Bank policies and requirements, including those governing disclosure o f information, and applicable environmental, social, fiduciary, and anti-corruption safeguards. The ProposedPRGStructure In order to enhance bid responsiveness, in the context of the currently prevailing adverse investment climate and the previous failed Government tender for a concessionaire, two alternative PRG structures are being offered to the concessionaire, as outlined in the indicative term sheet set out above. The two structures consist o f (i)the traditional Limited Recourse Structure and (ii) Letter o f Credit Structure. a Once a concessionaire has been selected and expressed a preference for one or the other o f these two alternative structures, the structure andrisk coverage o f the PRG will be negotiated with the concessionaire andor its lenders and specific Board approval would be sought on the negotiated PRG terms and conditions. Under the Limited Recourse Structure, the PRG will guarantee either a commercial or shareholder loan provided to finance the Project Company's investments in locomotives and rolling stock. Inthis case, the PRG could only be triggered in the event o f a debt service default on the covered loans caused directly by RAHCO's non-compliance with its contractual undertakings (Le. RAHCO's Breach o f Contract under the Concession Agreements). The term o f the covered loan(s) would be negotiated by the concessionaire and its lenders once the concessionaire is selected, and would be subject to IDA'Sapproval. The Letter o f Credit (LE) Structure has been developed, particularly in the context o f privatization or concession guarantees, to enhance and facilitate privatizations and the concessioning o f infrastructure and public service utilities. Thus it is intended to be offered for the first time in the context o f the proposed TRC Concession, which would also be the first privatizatiodconcession operation to be supported by a PRG. The L/C Structure is specifically designed to provide political risk mitigation to the concessionaire/Project Company, when its financing plan does not anticipate direct commercial debt to the Project Company. Under this structure, RAHCO, for its account, would open an L/C with a commercial bank based in Tanzania (the Issuing Bank) for the benefit o f the Project Company. The L/C would not exceed the maximum amount of US$40 million and would have a validity period which would be negotiated between RAHCO and the concessionaire/Project Company and agreed by IDA. In the event o f a RAHCO Breach o f Contract guaranteed by IDA, the Project Company would notify - 79 -  RAHCO as well as IDA. Ifthe Breach o f Contract is not remedied within the cure period agreed in the Concession Agreements, and ifit is not disputed by RAHCO, the concessionaire would be entitled to present agreed documentation to the Issuing Bank for a draw under the L/C backed by IDA. If, however, RAHCO disputes the occurrence of a Breach of Contract, then the applicable dispute settlement mechanisms (including arbitration) set forth in the Concession Agreements would need to be exhausted before a draw on the L/C could be made. Following a drawing upon the L/C and payment to the Project Company, RAHCO/Government (under the L/C agreement) will be obligated to reimburse the Issuing Bank for the amounts drawn (plus interest at an agreed rate accruing until repayment is made) within a "repayment period" to be negotiated between the L/C issuing bank and RAHCO and to be agreed with IDA. This repayment period could extend from a minimum of six months to a year or longer, and will essentially represent the maximum loan term to RAHCO for the drawn amounts. If RAHCO should fail to make the required reimbursementAoan repayment within the repayment period, then the Issuing Bank would have the right to call on the PRG and the total amount o f the L/C would be reduced by the amount o f such PRG payment. However, if RAHCO makes the required repayment to the L/C Issuing Bank prior to the expiration o f the repayment period, then the L/C amount would be reinstated to its original amount and IDA would have no obligation for payment under the PRG. As is the case with all guarantee operations, any payments made by IDA under either o f the above structures would give IDA the right to seek reimbursement from the Government under the Indemnity Agreement that would be concluded between IDA and the Government o f Tanzania. Also the risk coverage, the amounts covered, as well as the guarantee charges would be the same for both the structures. The IDA Guarantee would be priced at 0.75% per annum on guaranteed amounts disbursedand outstanding with a standby fee o f 0.25% per annum on guaranteed undisbursed amounts. In addition, there would be an upfront initiation fee o f 0.15% and a processing fee o f 0.50% (for reimbursable expenses) of the guaranteed amounts. All PRG related charges would be payable by the concessionaire and not by RAHCO. Key Legal Documents: The key Legal Documents that will be entered into to effect the concession will consist o f the following: A Concession Agreement which will be executed among RAHCO, the concessionaire and the Project Company (as Concession Operator) which will grant the concession for the management, operation, and maintenance o f the rail infrastructure to the private concessionaire (operating through the Project Company) and its right to provide railway freight and passenger transport services. The concessionaireh'roject Company will be required to make periodic payments to RAHCO, consisting o f a percentage of its gross revenues, throughout the concession term. The Agreement will define the rights and obligations of the concessionaire and Project Company, including service performance obligations, as well as the obligations of RAHCO with respect to Restoration o f the rail infrastructure and any payment obligations o f RAHCO in the event o f early termination by the Project Company or concessionaire. It also outlines a dispute resolution process in the case o f disputes between RAHCO, the concessionaire and the Project Company. A Lease Agreement which will be executedbetween RAHCO andthe Project Company for the lease ofthe rail infrastructure and the existing rolling stock under which the Project Company would be required to makeperiodic leasepayments for the use o fthe assets to RAHCO. - 80 -  The PRG related key Legal Documents, will consist o f the following: A Guarantee Agreement which will be executed between the lender@) or the L/C IssuingBank and IDA, which will specify the Guarantee Coverage as well as the process for making a claim upon IDA in the event a guaranteed event is triggered by a RAHCO Breacho f Contract. A Project Agreement which will be executed among the Project Company, the concessionaire and IDA which will set forth certain undertakings o f the Project Company and the concessionaire (e.g. in respect o f applicable environmental, safeguards, and use o f proceeds undertakings). An Indemnitv Agreement (IA) which willbe executed between IDA andthe Government o fTanzania. The IA will entitle IDA to repayment on demandor otherwise as IDAmay direct inthe event that IDA makes a payment to the lenders or the WC IssuingBank on behalf o f RAHCO under the Guarantee Agreement. -81 -   MAP SECTION