Senegal - Second Aviation Project

Document of The World Bank IE L W FOR OFFI('IAL USE ONLY Report No. 2290-SE SENEGAL STAFF APFPRAISAL REPORT SECOND AVIATION PROJECT February 2, 1979 Western Africa Projects Department Ports, Railways, & Aviation Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: - CFA Francs (CFAF) US$1.00 - CFAF 220 CFAF 1 million. - US$4,545 FISCAL YEAR Government (Borrower) July 1 - June 30 ASECNA January 1 - December 31 SYSTEM OF WEIGHTS AND MEASURES: Metric 1 meter (m) 2 3.28 feet (ft) I square meter (5 ) 10.8 square feet (sq.) 1 cubic meter (m ) 35.3 cubic feet (cu ft) 1 kilometer (km) 2 0.620 mile (mi) 1 square kilometer (km ) 0.386 square mile (sq. mi.) I hectare (ha) 2.47 acres 1 metric ton (t) 2,204 pounds (lb) ABBREVIATIONS AND ACRONYMS ASECNA - Agence pour la Securite de la Navigation Aerienne en Afrique et a Madagascar DAC - Directorate of Civil Aviation Dakar Airport - Dakar-Yoff International Airport DSP - Directorate of Studies and Programming GDP - Gross Domestic Product ME - Ministry of Equipment VASIS - Visual Approach Slope Indicator System VOR - Very High Frequency Omni-Range  FOR OFFICIAL USE ONLY SENEGAL STAFF APPRAISAL REPORT SECOND AVIATIONF PROJECT Table of Contents Page No. I. THE TRANSPORT SECTOR ................................... 1 A. Economic Setting .......................... ... 1 B. The Transport System .......................... .1 C. Transport Planning and Coordination .............. 2 D. Bank Assistance to the Transport Sector .......... 3 II. THE AVIATION SUBSECTOR ............................... . . 4 A. Organization .............................., 4 B. Air Services .............................., 4 C. Past Traffic .............................., 6 D. Traffic Forecast ..............................6. , 6 Tables: 2.1 Traffic at Ziguinchor and Cap Skirring Airports in 1977 2.2 Air Traffic at Dakar AiLrport 1971-1977 III. THE EXECUTING AGENCY ..... .. ..................... 11 A. Background ..................... 11 B. Organization .................... 11 C. Budgeting, Accounting and Auditing . ............... 12 IV. THE PROPOSED PROJECT .. 13 A. Project Objectives . 13 B. Project Description . 14 C. Cost Estimate ., 15 D. The Borrower . 16 E. Implementation . 16 F. Procurement ....................................... 17 G. Financing and Disbursement ........................ 17 H. Project Monitoring ................................ 18 This report has been prepared by Messrs.. K. Ewing (Engineer), H. Levy (Economist), and P. Levy and R. Venkateswaran (Financial Analysts) based on an appraisal mission in July 1978. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Continued) Page No. V. ECONOMIC EVALUATION .................................... 19 A. Investment Objective ..... ........................ 19 B. Investment Alternatives .......................... 19 C. Benefits ......................................... 20 D. Rate of Return ................ .. ................. 21 E. Sensitivity and Riisks ............................ 22 VI. FINANCIAL EVALUATION ............... .. ................. 23 A. Background .............................................. 23 B. ASECNA's Past and Present Finances Articles 10/12 Accounts ...................... 24 C. Financial Objectives ........... ................... 27 D. Future Financial Position .................... .... 28 E. Risk Analysis .................. ..... 32 Tables 6.01 Consolidated Income Account, 1973-78 6.02 Actual and Forecast Income Account Dakar Airport 6.03 Actual and Forecast Income Account Other Airports 6.04 Consolidated Actual and Forecast Income Account 6.05 Historic Source and Application of Funds Statement Articles 10/12 Accounts 6.06 Historic and Projected Pro Forma Balance Sheet Article 10 6.07 Determination of Annual Increases in Landing Fees (Article 10) 6.08 Passenger Revenues (Article 10) 6.09 Variation of F'ixed Asset and Depreciation Accounts, Dakar Airport 6.10 Variation of F'ixed Asset and Depreciation Accounts Other Airports 6.11 Projected Source and Application of Funds Statement Dakar Airport Account 6.12 Projected Source and Application of Funds Statement Other Airports 6.13 Projected Source and Application of Funds Statement Consolidated Account All Airports 6.14 Source and Application of Funds under Financial Risk Analysis (Article 10) VII. AGREEMENTS REACHED AND RECOMMENDATION .... ............... 33 ANNEXES Annex 1 Detailed Description of Project .............. . 50 Annex 2 Assumptions Used in Financial Projections ..... 53 Annex 3 The Financial Outlook for Operations of Minor Airports ................................ 55 Annex 4 Related Documents and Data Available in Project File ............................... 58 MAPS  SENEGAL SECOND AVIATION PROJECT STAFF APPRAISAL REPORT I. THE TRANSPORT SECTOR A. Economic Setting 1.01 Senegal is located along t?e Atlantic Ocean on the western tip of West Africa. Most of its 196,000 km are in the Sudan-Sahel region and the climate is typical of the area: a long dry season (up to nine months in the north) and a season with limited rainfall, which is subject to considerable annual fluctuation, particularly in the north and the center. Senegal's predominantly rural population is about 5.0 million and growing at an annual rate of 2.7%. About 70% of the people live in villages of less than 10,000 inhabitants. 1.02 Between 1970 and 1974, the country's gross domestic product (GDP) grew at an average annual rate of 1.9%, and in 1977 per capita income was about US$420. While about 80% of Senegal's labor force is employed in agri- culture, this sector generates only about 25% of GDP because of poor soils and low rainfall, compounded by severe cyclical droughts, the last one having occurred in 1977-78. The principal crops are groundnuts, mainly for export, and millet for domestic consumption. Senegal's economic growth is hampered by a scarcity of natural resources. The main mineral resource is phosphate rock, the price of which is depressed by a world market slump. Tourism is the country's third largest earner of foreign exchange after groundnuts and phosphate. A pleasant climate most of the year and good beaches on the Atlantic Ocean south of the Cap Vert peninsula are attracting a growing number of European tourists. 1.03 An important component of the country's GNP has been the services provided by Dakar, the national capital and former capital of French West Africa. While this role has diminished due to the growth of other cities in the region, Dakar's substantial infrastructure and advantageous location make it a staging point for traffic to and from MIali, Mauritania, Gambia and Guinea-Bissau and a stopover for airline traffic between Europe and Latin American and for international shipping. B. The Transport System 1.04 The transport system consists of a 1,034 km railway; a 13,300 km road network, including 2,600 km paved and 3,300 km all-weather roads; a deep-water, protected port at Dakar (the only one with such characteristics in the Sahel zone) and three secondary ports; and an international airport at Dakar and a network of smaller domestic airports. All components of the system, except the road network, serve an important international function and reflect the country's role as a regional center and transit point.  - 2 - 1.05 The railway comprises about 660 km of mainline between Dakar and the Mali border forming part of the international line linking Dakar with Bamako (Mali) and 374 km of branch lines. In FY1978 the railway carried about 1.7 million tons of freight, the bulk of which was short-haul phosphates from the mine to Dakar port and Mali transit traffic. The railway has tradition- ally been the dominant carrier of domestic freight, but due to deteriorating service and efficiency it has lost its position over the past decade. Passenger traffic declined substantially with the expansion of the road network and the road vehicle fleet, particularly for shorter hauls. The railway has recently started to regain freight traffic as a result of strong managerial action, technical assistance and training programs implemented under the Third Railway Project (Loan 1518-SE, US$11 million, March 17, 1978). 1.06 The road network, generally well-developed relative to the size and growth of the national economy, is concentrated in the more heavily populated coastal regions and the groundnut-producing areas near Dakar, with a number of main roads running parallel to the railway. However, many of the paved roads were built before independence in 1960; a large proportion were not designed for present traffic volumes and have suffered substantial damage. Some rural and feeder roads are also in poor condition. The Government's main priority in the medium term is rehabilitation and proper maintenance. The Bank will support this policy with its proposed Fourth Highway Project, which was appraised in December 1978. With very few exceptions, no new investments are being planned for constructing or upgrading roads to those areas lacking year- round road access and being served mostly by air transport. 1.07 The road vehicle fleet comprised about 74,000 vehicles in 1974 and is estimated to be increasing at a rate of 5.5% per year. 1.08 Senegal's port and waterway system consists of major port facilities at Dakar, supplemented by secondary ports at St. Louis, Kaolack and Ziguinchor. Cargo through Dakar port doubled in the last ten years and now totals about 6 million tons per annum. The most important traffic includes petroleum (for the national refinery, the port's bunkering services and aircraft refueling), international traffic for Mali and Mauritania, and phosphates. Traffic through the secondary ports, generally domestic, has been declining due to increased competition from road transport operating out of Dakar. C. Transport Planning and Coordination 1.09 The responsibility for transport planning and coordination is shared by three ministries. The Ministry of Planning has overall responsibility for preparation of the four-year national development plans. The Ministry of Finance exercises substantial influence in the planning process by specifying overall amounts to be invested in each transport mode, determining the struc- ture and level of taxes levied on transport services and maintaining financial supervision of the state-owned transport enterprises. The Ministry of Equip- ment proposes and executes Government policy in the transport sector through  --3 - three directorates: (a) Public Works, the general directorate responsib:Le for the administration of, and investments in, the national highway system; (b) Transport, the general directorate responsible for the regulation, control and development of the various transport modes; and (c) Studies and Programming (DSP), a directorate in Public Works responsible for studies in all modes of transport and planning. DSP was created and is being strengthened with technical assistance provided under the ongoing Third Highway Project (Loan 1222-SE, US$15 rmillion, 1976); its main task is the preparation of a National Transport P:Lan, which is expected to be completLed in mid-1980. D. Bank Assistance to the Transport Sector 1.10 The Bank Group has been a major contributor to the development of the transport sector. Over the past 12 years, the Bank Group has invested $82.7 million in the sector under 10 'Loans/credits (3 highway, 1 feeder road, 3 railway, 2 port and 1 aviation projects) plus feeder roads under agricultural projects. 1.11 The highway projects have covered highway maintenance, pavement strengthening, equipment, studies and training, technical assistance for transport planning and development of the domestic construction industry. Project works executed by contractors have been successful; highway mainte- nance carried out by force account has not been satisfactory mainly because of inadequate highway maintenance organization, failure to provide local funds on time, and shortage of trained staff. The proposed Fourth Highway Project will be designed to remedy this by focusing on road maintenance organization, financing and training. 1.12 Execution of the first two railway projects, which were primarily designed to rehabilitate the track and provide rolling stock, was hampered by many delays mainly stemming from misunderstanding of bidding procedures and lack of experience in mechanized track-laying under the first project, and from changes in scope mostly due to a shortage of local funds for spare parts under the second project. In addition the railway's operating performance was less than satisfactory due to a shortage of adequately trained personnel. Despite this, the projects, together with parallel projects for the connecting Mali railway, helped prevent a collapse of operations on the Mali-Senegal railway system. The ongoing Third Railway Project is primarily designed to improve operational performance through a massive technical assistance effort and strong measures to strengthen management. 1.13 The First Dakar Port Project, which was successfully carried out, was designed to restore and expand general cargo handling facilities and included important financial and institutional objectives. The ongoing Second Port Project is designed to increase the fishing port's capacity and efficiency through civil works and technical assistance; the project also provides for a study of the development of container traffic and required port facilities. 1.14 Tourism, an important source of air transport demand, has become a major contributor to Senegal's GDP. To assist in developing this sector, the Bank is helping by financing the Petite Cote Tourism Project (Loans 1412/13-SE, US$13.6 million, 1977).  - 4 - 1.15 The First Aviation Project (Loan 867-SE, US$3.0 million, 1972), successfully completed in 1976 1/, comprised the extension of the runway of Dakar's international airport, enlarging aircraft parking aprons and related works. It was aimed at making the airport suitable for large aircraft which were being put into service, thus enabling Senegal to maintain its position as staging point for transatlantic flights. Physical execution of the project was good with few delays; the financial performance, traffic and economic re- turn were very close to appraisal expectations. During implementation of the project, the Government financed other airport improvements including an ex- pansion of the terminal building, a new cargo shed and a new flight kitchen. The second project now proposed aims at maintaining the attractiveness of Dakar for international air traffic through the strengthening of the main runway and taxiways and at modernizing navigational equipment at Senegal's two busiest domestic airports, Ziguinchor and Cap Skirring. II. THE AVIATION SUBSECTOR A. Organization 2.01 Civil Aviation in Senegal is the responsibility of the Ministry of Equipment (ME) and of the Agence pour la Securite de la Navigation Aerienne en Afrique et a Madagascar (ASECNA). ME carries out its responsibilities in the subsector through the Directorate of Civil Aviation (DAC) in the Directorate General of Transport. DAC supervises the operation of the state-owned airline, Air Senegal, approves its investments and tariffs; it also sets Senegal's air transport policy, negotiates agreements on the establishment of new air routes to Senegal, supervises and regulates air charters and approves ASECNA-proposed landing fee schedules. ASECNA is an international organization created under a convention between 14 African countries and France. Its main tasks are to control air navigation over the territories of the African member states and to design, construct, manage, and operate airports as requested by individual member states. The organization of the aviation sector is sound and works quite efficiently. B. Air Services 2.02 The national airline, Air Senegal, provides domestic scheduled services and limited international services. Air Senegal operates piston and turbo-prop aircraft, covers a domestic network of 4,080 km serving 15 airports, and carries about 60,000 passengers annually. The two busiest routes are the ones connecting Dakar with Cap Skirring (271 km), a tourist resort on Senegal's southern coast which has attracted growing traffic since the construction of 1/ See Project Performance Audit Report, Senegal-Dakar International Airport Project, December 13, 1977.  - 5 - tourist facilities in 1973, and with Ziguinchor (275 km), Senegal's third largest city and the development pole of the Casamance region. In 1977 about 9,000 passengers travelled to Cap Skirring on Air Senegal and private charter flights, mostly during the November-April tourist season, and about 10,()00 passengers travelled to Ziguinchor, at a relatively regular rate throughout the year (Table 2.1). Traffic at the other 12 domestic airports served by Air Senegal is substantially lower. 2.03 Due to the overall low level of traffic, domestic air services do not generate enough revenue to cover ASECNA's costs, and the deficit from the operation of domestic airports is covered by a Government subsidy. The Government has also subsidized Air Senegal's operations; however, the airline is expected to break even in 1978. ASECNA's deficit from domestic airport ,erations was CFAF 345 million (US$1.6 million) in 1977, but about 30% stemmed from expenditures on meteorological services, which also serve non-aviation purposes. An analysis of the deficit and measures proposed to reduce it are described in Chapter VI and Annex 3. 2.04 International air transport services to and from Dakar, the only airport in Senegal equipped to handle aircraft used on long-distance flights, are provided by 22 airline companies including Air Senegal. Air Afrique, a multinational airline, serves as Senegal's primary international airline. Air Senegal is therefore limited to international service to contiguous states not served by Air Afrique -- Senegal to Nouakchott (Mauritania), Praia (Cape Verde) and Bissau (Guinea Bissau). 2.05 Dakar is a well-placed, convenient transit stop for flights between Europe and Latin America. The city is almost on the great circle (minimum distance) route between most European cities and Buenos Aires and Rio de Janeiro, the first connecting points in Latin America. Dakar is the seat of ASECNA's main Flight Information Center (FIC), which controls flights over Senegal as well as over several other West African states and part of the South Atlantic. Dakar's pleasant climate, excellent hotels and good general business and airport services make it an attractive stop-over/rest point for aircraft crews and a suitable place to provide required aircraft transit services. With the introduction of very long-haul aircraft in the early 1970s, Dakar lost part of its advantage as direct flights started operating between Rio de Janeiro and Paris. Some of the airlines now stopping in ])akar on the Europe-Rio route are studying Lhe possibility of introducing direct flights in the early or mid-1980s. However, although attractive to passengers due to reduced travel time, very long distance direct flights require carrying larger or duplicate crews, subject crews to longer flying hours, require more fuel, and cause payload restrictions, all of which are likely to limit the number of new direct flights. Dakar will continue to be an attractive st:op for Europe-Buenos Aires flights as aircraft on this longer distance would face severe payload penalties on non-stop flights.  - 6 - C. P'ast Traffic 2.06 Commercial air traffic, mainly international, through Dakar airport has increased substantially over the past 10 years. Annual growth rates have averaged 14.8% for passengers, 13.4% for freight and 7.9% for aircraft move- ments. 1/ This traffic is summari'zed below and detailed in Table 2.2 Dakar Air Traffic 1968 1972 1977 Passengers ('000) 156.9 236.4 506.2 Freight ('000 tons) 5.4 6.9 16.3 Aircraft movements ('000) 7.6 9.7 14.5 2.07 During the same period, Dakar has continued to expand its role as a passenger transit point between Europe and Latin America because of its privileged geographical location and the quality of its facilities. Despite efforts of airlines to reduce stops and increase direct flights, the number of transit passengers (i.e. passengers remaining on the same flight) increased from about 100,000 in 1968 to 250,000 in 1977, or a 10% average annual growth. 2.08 In 1977, Dakar handled 757,115 passengers of whom 250,884 were international transit and 506,231 began or ended trips at Dakar. Of the 506,231 passengers, Air Senegal handled 42,098 or 8%, Air Afrique (in which Senegal is a shareholder) handled 165,179 or 33% and foreign airlines handled 298,954 or 59%. As Air Afrique handles only international passengers and Air Senegal has a small international component, less than 8% of Dakar's traffic is of domestic origin/destination. Of this more than 50% is foreign tourist traffic. Senegalese exports constituted 68% of air freight in 1977 and imports 32%; internal freight transport was negligible. Aircraft movements were 81% by foreign airlines and 19% by Air Senegal. D. Traffic Forecast 2.09 ASECNA has thoroughly analyzed trends in passenger, freight and aircraft movements at Dakar airport and has made projections, as shown below, which serve as the basis for the forecast for 1978-1984. 1/ Passengers: boarding and disembarking in Dakar; freight: exports and imports; aircraft movements: landings and take-offs.  -7- Forecast of Commercial Air Traffic at Dakar Airport 1978-1984 1978 1979 1980 1981 1982 1983 1984 Passengers ('000) 567 635 711 797 893 1,000 1,120 Freight ('000 tons) 18.3 20.7 23.4 26.4 29.8 33.7 38.1 Aircraft Movements ('000) 15.4 16.3 17.3 18.7 20.2 21.8 23.5 Source: ASECNA and Bank mission August 1978 2.10 Passenger traffic is expected to grow at an average of 12% annually which is high but lower than the long-term trend and the more recent trend of 16.5% from 1972 through 1977. During the first quarter of 1978, passenger travel between Dakar and Europe, representing about 50% of total Dakar pas- senger traffic, was 16% above the first quarter of 1977. In the future, travel by business passengers and local residents should continue to grow as in the past, but the third component of Dakar passenger traffic, tourists, will probably not be able to maintain its past growth rate. The number of tourists visiting Senegal more than doubled between 1972 and 1975 as a result of vigorous Government policies in the sector and the tripling of hotel capa- city. In the coming years, however, tourism is expected to increase at about 6% per year, and expansion of hotel capacity is based on this projection. 1/ 2.11 Air freight traffic consists mostly of Senegalese exports of fruits and vegetables produced by cooperatives in the Cap Vert area and some fish and other seafood products destined for Europe. Senegalese exports enjoy a low tariff as this traffic is back-haul for aircraft returning from Africa to Europe via Dakar. Wide-body cargo planes have recently been put into service on these routes, and this should further reduce the cost of exporting Senegalese products. However, since Dakar is only 6-10 days from Europe by sea, general air freight to Senegal remains low and has little potential for growth. Total air freight is forecast to grow at 13% a year, which has been the average rate over the last 10 years and is consistent with Senegal's potential for increasing exports of agricultural arLd sea products. 2.12 Consistent with a world-wide trend, aircraft movements at Dakar airport have grown less than passenge!r and freight traffic because of the increased use of larger aircraft. The index of aircraft movements per traffic unit 2/ (passenger plus freight) for Dakar decreased from 34.2 in 1968 to 21.0 1/ Staff Project Report, Petite Cot:e Tourism Project. 2/ A traffic unit is one passenger or 100 kg of freight.  - 8 - in 1977, similar to other West and Central African countries. Despite this, Dakar aircraft movements grew at a rate of 7.9% a year between 1971 and 1977. In addition to the use of bigger aircraft, the following counterbalancing factors will influence the number of aircraft movements at Dakar airport: (a) Transit flights: The number of flights between Europe and Latin America transiting Dakar will probably remain constant in the coming years, despite an increase in demand, due to (i) the increase in direct flights between Europe and Latin America as more long-range aircraft (such as the Boeing 747-SP) become available, and (ii) the expected increase in flights to Europe by Latin American airlines (mainly Argentina and Brazil) which do not transit via Dakar; and (b) Europe-Dakar flights: Most European companies already flying to or via Dakar plan to introduce new flights between Europe and Dakar around 1980, using Boeing 727, DC-8 or similar type aircraft, and it is likely that new companies will also be attracted to this market. 2.13 Considering the above facztors, it is estimated that total commercial aircraft movements will increase at an annual rate of 6% through 1980, that is, somewhat below the growth rate achieved in the past due to the stagnation of Europe-Latin America transit flights, and at 8% annually after 1980 when the new, direct Europe-Dakar flights using relatively small aircraft, start service.  - 19 - TABLE 2.1 SENEG(AL SECOND AVIAT:[ON PROJECT Traffic at Ziguinchor and Cap Skirring Airports in 1977 Ziguinchor Cap Skirring Passengers Freight Passengers Freight (tons) (tons) January 2,264 4.0 2,926 6.1 February 2,273 4.4 2,659 4.5 March 2,385 5.0 2,797 6.4 April 2,195 3.9 2,697 8.2 May 1,438 5.1 659 0.8 June 1,248 5.3 231 0.2 July 1,262 3.2 226 0.2 August 951 3.1 168 0.2 September 924 3.2 163 0.0 October 1,347 3.6 432 1.1 November 1,786 3.4 1,860 4.8 December 2,531 4.5 2,853 8.7 20,604 48.7 17,671 41.2 1/ Arrivals and Departures (Air Senetgal and other services) Source: ASECNA November 1978  S E N E G A L AIR TRAFFIC AT DAKAR AIRPORT 1971-1977 1971 1972 1973 1974 1975 1976 1977 PASSENGERS (thousand) International (1) 198.2 226.0 289.1 332.0 379.8 413.4 474.2 Domestic (1) 8.7 10.4 16.8 24.7 27.8 27.7 32.0 Total Dalcar 206.9 236.4 305.9 356.7 407.6 441.1 506.2 Transit (2) 137.6 151.8 177.0 203.2 218.2 195.5 250.9 FREIGHT (3) (tons) In cargo Planes 71 330 2,893 2,353 2,944 3,994 5,870 In other planes 6,338 6,564 7,913 8,368 8,828 9,156 10,380 Total freight 6,409 6,894 10,806 10,721 11,772 13,150 16,250 Mail 828 895 867 805 942 925 871 AIRCRAFT MOVEMENTS (4) (thousand) o International scheduled 6.3 7.0 7.3 7.8 9.3 9.7 10.6 International non- scheduled 1.1 1.0 1.9 1.7 2.1 1.7 2.0 Domestic 1.7 1.6 1.9 2.4 2.2 2.2 1.9 Total commercial '9.1 9.6 11.1 11.9 13.6 13.6 14.5 Other (5) 27.4 34.0 31.5 26.5 24.9 23.0 29.0 (1) Passengers boarding and disembarking at Dakar (2) Passengers aboard aircraft transiting via Dakar (3) Inbound and outbound (4) Landings and take-offs (5) Includes private, military and any other non-commercial Source: ASECNA August 1978  - 11 - III. THE EXECUTING AGENCY A. Background 3.01 ASECNA was created by the Convention of St. Louis (December 12, 1959) between France and 14 African states, including Senegal. The conven- tion distinguishes ASECNA's two main functions as follows: (i) International functions, governed by Article 2 of the convention, are the control of air navigation over the territory of the African member states and the operation of approach and landing aids at the main airports. (ii) Domestic functions, governed by Articles 10 and 12 of the convention, are regulated by bi-lateral agreements between individual member states and ASECNA. These functions include managing, operating and maintaining ground facilities of member states' airports, preparing studies, designing and building airport facilities for member states and providing other services as required. 3.02 In the beginning ASECNA had a large French expatriate staff with a definite plan for training replacemenLt African personnel. This training program was successful and in 1976 a new treaty, the Dakar Convention, was adopted by the African States. ASECNA is now supported, directed and manned by these states with the help of only aL few French expatriate specialists. Although France is not a signatory state to the 1976 convention, a close working relationship continues between ASECNA and French civil aviation authorities who provide the expatriate technical staff. B. Organization 3.03 A committee of the ministers responsible for air transport in the member states lays down the broad lines of policy for ASECNA. A president and an administrative council, made up of ministerial delegates from all member states, are responsible for administration while a director-general is responsible for the day-to-day running of all ASECNA activities. He in turn is assisted by experts drawn from the various states. 3.04 ASECNA headquarters is in Dakar, but it is represented in each member country by an agent appointed by the president of the council. Each representative has a technical staff and is responsible for all ASECNA opera- tions in his country. ASECNA is well-organized and the staff is competent and effective. A training school is maintained at Niamey in Niger.  - 12 - 3.05 Dakar-Yoff International Airport (hereafter Dakar Airport) and most of the domestic airports including Ziguinchor and Cap Skirring are managed, operated and maintained by ASECNA under the general direction of the agent or representative for Senegal who reports to the director general. This service is provided under the terms of agreements between the Government of Senegal and ASECNA. 3.06 ASECNA acted as executing agency for the Bank's First Senegal Aviation Project and for the First Niger Aviation Project under the terms of special contracts with Senegal and Niger respectively. The execution of these projects was satisfactory in all respects. It is proposed, therefore, that ASECNA act as executing agency for the Second Senegal Aviation Project under the terms of a special contract with Senegal. The special contract will in- clude the terms and conditions for the implementation of the project as well as the financial conditions (subsidiary loan agreement) under which the pro- ceeds of the Bank loan will be made available to ASECNA. The signing of the special contract will be a condition of loan effectiveness. 3.07 In 1978 ASECNA had 765 employees at Dakar Airport. Overall, ASECNA has more than 4,000 permanent employees in all member countries with an ex- patriate component of less than 10%. C. Budgeting, Accounting and Auditing 3.08 The financial organization and the accounting procedures ASECNA has developed reflect the functions it performs, i.e. international navigation under Article 2 and management of domestic airports and other operations under the special agreements provided for under Articles 10 and 12 of the Dakar con- vention. Under the special agreement between the Government of Senegal and ASECNA, ASECNA's Planning and Studies Department prepares the airport's capital and current budgets and its accounting department is responsible for the accounting. 3.09 Accounts for the flight information centers and other air navigation related activities, managed under Article 2 are kept on a multinational basis. Only a small part of the services provided by the centers relate to air traffic over Senegalese territory, and therefore only part of the revenues and costs is charged to Senegal. Any deficit is offset by subsidies paid by member countries under agreed conditions and in agreed proportions. 3.10 Management of the airport ground facilities in Senegal complies with Articles 10 and 12. Under tlhese articles, part of the gross operating revenues generated by Senegalese airports is assigned to "special accounts" to be used for large investments and their debt service. Any revenues remaining after deducting operating expenses are used for current investments and their debt service.  - 13 - 3.11 The general accounting system is essentially budgetary and does not report the true cost of operations of any one airport, nor does it take into account depreciation. However, ASECNA is able to extract from its accounts direct costs for single airports and to calculate the proportion of indirect costs and depreciation appropriate to the operations of each airport. 3.12 The accounting department is, under an agent comptable appointed by the administrative council with the agreement of the committee of ministers. The agent comptable reports to the director general who is responsible for submitting the financial statements related to international operations and special agreements to the administrative council and to member countries' governments. A comptable subordonne, appointed by the director general with e agreement of the agent comptable, is seconded to each member country's epresentative to keep the domestic airport's accounts under the special agreements. The comptable subordonne reports to the agent comptable. ASECNA's accounting staff is well-qualified and competent. 3.13 A controleur financier, appointed by the administrative counci:L, with the agreement of the committee oi ministers, is in charge of the internal auditing of ASECNA's economically and financially related matters. The controleur financier initials a priori major financial commitments and pay- ments. He has the authority to defer or cancel their execution after having informed the director general of the reasons for his decisions. 3.14. Within two months of their provisional approval by the administra- tive council ASECNA's annual financial statements are sent for auditing to the Commission de Verification des Comptes which consists of three members selected by the administrative council from a list of qualified candidates proposed by member countries. The commission is then given six months to prepare the audit report which is sent to the administrative council and to the ministries of member countries in charge of supervising ASECNA for final approval or possible modification of the year's financial statements. As this procedure is unduly slow in producing a certified audit report of ASECNA's financial position, the Government and ASECNA have agreed to appoint indepen- dent auditors acceptable to the Bank and to provide an audit report within six months of the close of the fiscal year. The standard covenant has been included as Section 4.02 of the Project Agreement. IV. THE PROPOSED PROJECT A. Project Objectives 4.01 The proposed project is part of a phased airport development plan and is included in the Government's Fifth Development Plan. Dakar Airport's importance to the Senegalese economy lies in its three main functions: First, as an international staging point it provides services to several foreign air- lines and is, therefore, a source of foreign exchange. Second, it allows  - 14 - Senegal to make use of the services of these airlines for its own commerci'l and tourist requirements, placing Dakar in a very advantageous position. Third, the airport permits Dakar to serve as the hub of a domestic and regional air transport industry. 4.02 The objective of the Government under the overall development plan is to promote a sound civil air transport system. Specific objectives at Dakar under the airport development plan are (i) to maintain its attractive- ness for international air traffic by exploiting its favorable location as an important staging point for long-range flights to central Africa and South- America, and (ii) to stimulate growth thereby generating increased foreign exchange earnings and greater job opportunities for Senegalese. The Govern- ment 's objectives at Ziguinchor anid Cap Skirring airports are to promote tourism and at the same time, provide scope for Air Senegal to improve air- craft utilization, reduce costs and enhance service levels by providing reliable air navigation and night flying aids. Under the proposed project, investment in these two airports is small and based on the need to increase air safety mainly by improving night-landing capabilities and replacing obsolete equipment. B. Project Description 4.03 The proposed project includes (i) strengthening and levelling the main runway and taxiway and improving the taxiway alignment at Dakar airport, (ii) installing navigation aids, runway lighting and related works at Ziguinchor, and (iii) providing visual approach aids at Cap Skirring. Dakar Airport 4.04 The paved areas at Dakar airport were not originally designed to support the heavier modern jet aircraft which began to be put into service in the late 1960s. The steadily increasing use of these aircraft has caused the pavement to deteriorate. The detetrioration of the runway was recognized at the time of appraisal of the First Senegal Aviation Project and a strengthening overlay was included in the investment program. A careful evaluation at the time of project implementation led to the conclusion that the work of reha- bilitation could be deferred until 1978. A few particularly bad portions of the runway were patched as part of the first project but these sections are again showing distress. The lengthening of the runway under the first project has meant much heavier allowable take-off weights and this, plus increased traffic movements, has contributed to an acceleration of the deterioration of the runway. 4.05 Under the proposed project, the pavement will be resurfaced with asphaltic cement concrete sufficiently thick to arrest the deterioration and supply the necessary strength to support large aircraft. The completed work will match the strength and performance characteristics of the runway exten- sion carried out under the first aviation project. A detailed description of the improvement works is given in Annex I.  - 15 - Ziguinchor and Cap Skirring Airports 4.06 The ability to carry out night operations safely and efficiently will expand Air Senegal's operational capacity. The proposed improvements to the airports at Ziguinchor and Cap Sk:irring are a step in bringing about such an expansion. At Ziguinchor the proposed project will include (i) the procure- ment and installation of a VOR, replacing obsolete equipment, in order to provide a reliable navigation aid, and (ii) runway lighting, together with motor generators and controls, to facilitate night landing. As Ziguinchor is on an established air route to the south, the VOR will be a useful aid for aircraft enroute to Conakry and beyond as well as for local traffic require- ments. Since runway lighting, urgently needed at Cap Skirring, is being installed by ASECNA, it is, therefore, not included in the project. The project will provide visual aids for Cap Skirring, and these, coupled with the runway lighting at Ziguinchor, will constitute a reliable domestic night flying route in this important section of the country. C. Cost Estimate 4.07 The total project cost including contingencies is CFAF 1,996 million (US$9.074 million equivalent). The foreign exchange component is CFAF 1,510 million (US$6.864 million equivalent) or 76% of the total cost. The Govern- ment has agreed that the project contractors and suppliers will be exonerated from paying customs duties and income and other taxes. 4.08 The cost estimates shown below (in January 1978 prices), which exclude customs duties and taxes, are categorized by site. A detailed itemi- zation of project components is given in Annex I, Table 1. 4.09 The cost estimates were developed by ASECNA which carried out the required engineering studies. The estimates were updated and revised during appraisal, and the costs are considered reasonable. No additional land will be acquired as the work will be carried out on existing airport property. 4.10 Physical contingencies amounting to 10% based on detailed design, have been included in the cost estimate. An item for price contingencies is included and averages 10% per annum f-or local costs, 6% per annum for equip- ment procurement, 7.4% per annum for the foreign cost component of civil works, and 7.4% per annum on engineering and supervision.  - 16 - Appraisal Cost Estimate % of -----CFAF million ------ -------US$'000-------- Project Local Foreign Total Local Foreign Total Content Dakar Airport 274 969 1,243 1,248 4,404 5,652 62 Improvements Ziguinchor 36 75 111 163 341 504 6 Cap Skirring 7 9 16 32 41 73 1 Total Works 317 1,053 1,370 1,443 4,786 6,229 69 Engineering/ Supervision 14 64 78 64 292 356 4 Project Base Cost 331 1,117 1,448 1,507 5,078 6,585 73 Contingencies Physical 10% 33 112 145 151 508 659 7 Price 122 281 403 552 1,278 1,830 20 Total Project 486 1,510 1,996 2,210 6,864 9,074 100 D. The Borrower 4.11 The Government will be the borrower and the proceeds of the loan will be on-lent to ASECNA under the same terms and conditions as the loan to the Government. ASECNA will control and disburse the funds. The Bank will enter into a Project Agreement with ASECNA for the execution of the project. E. Implementation 4.12 ASECNA will be responsible for the construction and subsequent operation of the project works under the terms of agreements between the agency and the Government of Senegal which are satisfactory to the Bank. The project management, design, engineering and construction supervision will be performed by ASECNA's own staff, which is competent and experienced, on a  - 17 - percentage fee basis. The estimated cost of these services is much lower than would be the case if outside consultants were retained, due in part to the agency's familiarity with conditions and procedures in the region. The total cost of US$356,000 for these services is very reasonable under the circum- stances. 4.13 The work at Ziguinchor and Cap Skirring will not interfere with aircraft operations and no problems are envisaged. The paving at Dakar will interfere with operations and it will be necessary to limit the hours during which paving can be done each day and to reschedule some flights. Every effort will be made to keep the interference to a minimum. F. Procurement 4.14 The civil works at Dakar airport will be carried out through inter- national competitive bidding in accordance with Bank guidelines. 4.15 For purposes of standardization with existing air navigation equip- ment throughout the ASECNA system and to take advantage of ASECNA's bulk pur- chasing procedures, ASECNA will negotiate with overseas suppliers for the highly specialized electronic and electrical equipment costing about US$300,000 for Ziguinchor and Cap Skirring. Installation of the equipment will be by ASECNA staff. This procedure is consistent with normal ASECNA equipment procurement practice for their member countries. The arrangement has been used in past Bank projects with ASECNA and has proven satisfactory. 4.16 A building (CFAF 10.0 million, US$45,000 equivalent) to house new electrical switchgear and an emergency power plant together with other related civil works at Ziguinchor will be executed by a local contractor under local bidding and procurement procedures satisfactory to the Bank. G. Financing and Disbursement 4.17 The proposed Bank loan would furnish the funds to cover the foreign exchange component of the project (para. 4.07). ASECNA would furnish the remainder of the project costs from internally generated funds. Disbursement of funds from the loan would be on the following basis: (a) 100% of foreign expenditure for equipment and its installation, and 70% of local costs; (b) 80% of total costs for civil works; and. (c) 80% of total cost for engineering and supervision. A schedule showing the estimated rate of disbursement is shown on the follow- ing page.  - 18 - Disbursement Schedule (US$ '000) FY 1980 Disbursements Cumulative Quarter ending: September 30, 1979 85 85 December 31, 1979 5 90 March 31, 1980 500 590 June 30, 1980 500 1,090 FY 1981 September 30, 1980 700 1,790 December 31, 1980 1,100 2,890 March 31, 1981 1,100 3,990 June 30, 1981 1,200 5,190 FY 1982 September 30, 1981 900 6,090 December 31, 1981 820 6,910 March 31, 1982 90 7,000 Source: IBRD mission July 1978 H. Project Monitoring 4.18 ASECNA, which will be responsible for implementing the project, will submit to the Bank quarterly reports on the progress being made. In addition, ASECNA will prepare and submit to the Bank within six months after completion of the project a report which shall contain sufficient relevant information to serve as the project completion report.  - 19, - V. ECONOMIC EVALUATION A. Investment Objective 5.01 Traffic at Dakar airport has grown at a high rate during the last 10-15 years, and the forecast calls for sustained growth in the foreseeabLe future (Chapter 2). This traffic potential, however, is threatened by deteri- oration of the runway and taxiways because they were built to support the lighter aircraft of the 1950s and early 1960s. The heavier aircraft now in use have caused a rapid increase in the number and importance of pavement cracks and slab failures. Some of the more badly damaged sections of runway were repaired during extension of the runway under the first project, but the repairs were temporary measures and were not intended to provide greater pavement strength. Unless something is done now to correct the situation, the runway will continue to deteriorate and, within a few years, become inoperative. As Dakar is Senegal's only international airport, its closure would isolate the country from international air services. The objective of the proposed project is to strengthen the pavement thereby permitting continued use of the airport by modern, heavier aircraft at full payload. B. Investment Alternatives 5.02 The rational alternative, were the proposed project not to be executed, would be to limit the weight of aircraft flying into Dakar to the original design strength of the runway but taking into account its deteri- orated condition. Without weight restrictions on aircraft, the pavement cracking and slab failures would continue, leading to the eventual closing of the airport. 5.03 The runway and other aircraft areas were designed and built to support aircraft equivalent to a Boeirng-707 (150 tons gross take-off weight). Due to the deterioration of the runway, its present bearing capacity is somewhat below the original design strength. With weight restrictions, a Boeing-707 type aircraft could still be accepted at Dakar but with a payload penalty, and heavier aircraft would be banned or subject to a severe weight penalty. 5.04 The runway could be operated with weight restrictions for an aLmost indefinite period of time. As the reduced allowable weight would depend on the degree of existing deterioration, restrictions should be determined and enforced immediately to avoid a further reduction in allowable aircraft weight.  - 20 - 5.05 Placing weight restrictions on the runway would principally affect the Europe-Latin America aircraft transiting Dakar for the following reasons: (a) planes stopping in Dakar on these routes are heavily loaded, long-range aircraft which cannot be operated economically under severe payload restric- tions nor be replaced for such distances by smaller aircraft; (b) there are other airports to which the aircraft could be diverted for transit stops on the Latin America-Europe route (e.g. Sal Island, Cape Verde) at relatively small additional cost, even though such airports are less well-equipped and are less convenient; and (c) passenger traffic between Dakar and Latin America is negligible, and therefore on the Latin America-Europe routes Dakar is appealing because of its location and quality of services. For practically all other flights with Dakar either as terminus or as a transit point, lighter aircraft are normally used and Dakar is an important origin of passenger demand. In these cases, therefore, despite inconveniences and higher costs resulting from weight restrictions, airlines would probably be able to maintain service by introducing smaller aircraft or accepting payload limitations. C. Benefits 5.06 The economic analysis of the proposed project focuses on the bene- fits forgone to the Senegalese economy if Europe-Latin America flights which now stop at Dakar were diverted to other airports. It is assumed that with runway weight restrictions, the Concorde, Boeing-747s and DC-lOs would cease using Dakar. There are four quantifiable benefits: (a) revenues from landing charges; (b) expenditures by the crews stopping over in Dakar; (c) sale of aviation fuel; and (d) sale of airport-related services (catering, duty-free shop). 5.07 Landing Charges. The loss in landing charges, on the basis of 1978 traffic, would amount to CFAF 363.5 million per year, as detailed below: Unit Landing Annual Landing Type of Annual Charge Revenue Airline Aircraft Landings CFAF '000 CFAF million Air France Concorde 208 218.8 45.5 Air France Bowing-747 208 427.0 88.8 Lufthansa DC-10 208 314.7 65.5 Swiss Air DC-10 312 314.7 98.2 Alitalia DC-10 208 314.7 65.5 Total 363.5  - 21 - 5.08 Crew Expenditures. The diversion of aircraft transiting Dakar to other airports would mean a loss to Senegal of expenditures by the crews stopping over in Dakar. On the basis of the schedule shown above, it is estimated there would be a loss of crew nights as follows: Aircraft Type Crew-nights B-747 7,488 DC-10 20,384 Total 27,872 The Concorde is excluded from this computation as the Concorde's crew is not changed in Dakar due to the shorter flight time Paris-Dakar-Rio de Janeiro than with conventional jet aircraft. 5.09 The value added foregone to Senegal is estimated at CFAF 5,000 per crew-night. 1/ To compute annual value-added benefits, the analysis takes into account the fact that during two peak months per year the crews take up hotel space which could otherwise be occupied by tourists. Because tourists spend more money, they are estimated to generate CFAF 2,000 value added per night more than crew, thus slightly reducing Senegal's benefits during these two months. The annual value added foregone to Senegal from crew expenditures would amount to CFAF 107.3 million/year. 5.10 Fuel Sales. The sale of aviation fuel generates an estimated CFAF 1,225 per ton of net benefit to the Senegalese economy. 1/ The diversion of transit flights would cause a drop in fuel sales of about 125,000 tons per year, causing an annual loss to Senegal of CFAF 153.8 million. 5.11 Other Airport Services. In 1977, sales of airport related services (i.e. catering, duty-free shops, and bar and restaurant) amounted to about CFAF 820 million, with an estimated value-added component of CFAF 380 million. Taking into account the proportion oi- transit passengers to total Dakar passen- gers, which is about 15%, it is estirnated that the losses to the Senegalese economy from diverting transit flights would be about CFAF 57 million/year. D. Rate of Return 5.12 Taking into account the above benefits, which are assumed to be constant (Chapter 2) over the 15 year life of the project, and the economic projects costs (Table below), the rate of return for the proposed investment at Dakar airport, representing 92% oi total project costs, would be 39%. 1/ Project Performance Audit Report, Senegal-Dakar International Airport Project, December 1977.  - 22 - Costs and Benefits for Economic Evaluation (CFAF million; 1978 prices) Benefits Investment Landing Crew Fuel Airport Costs Charges Expenditures Sales Services 1979 18.0 1980 671.0 1981 758.0 1982 2.0 1982-96 (per year) 363.5 107.3 153.8 57.0 5.13 The assessment of the Dakar project's return is conservative as it omits several benefits difficult to quantify. In particular, if the project were not carried out: (a) runway maintenance costs would increase even if restrictions on weight were enforced; (b) the diversion of transit traffic would cause a drop in the number of tourists visiting Senegal because addi- tional seat space available on transit flights allows the offering of low rates to tour groups from Europe to Dakar (e.g. US$200-250 compared with US$550 for the lowest round-trip Paris-Dakar) and would reduce backhaul capacity for perishable goods; and (c) other services for transit traffic providing employment to Senegalese, such as aircraft cleaning and assistance in passenger boarding and deplaning, would be reduced. The analysis also takes the conservative view that diverted flights would continue to use Dakar's traffic control center and that ASECNA. would not, therefore, lose air navigation revenues. The objectives of the works at Cap Skirring and Ziguinchor have been discussed above (para 4.02), and the investment is fully justified in terms of air safety. In addition, this investment will result in more frequent flights and increased aircraft utilization over the Dakar-Cap Skirring-Ziguinchor route, generating a net benefit estimated at CFAF 27 million/year and savings in maintenance costs of equipment estimated at CFAF 4 million/year; its estimated rate of return is 14%. The rate of return for the whole project, including Dakar and domestic airports, is 37%. E. Sensitivity and Risks 5.14 Execution of the project should be straightforward and no major problems are anticipated. The project's return would be 34% under a 10% increase in construction costs and 30% if project benefits were 20% lower than estimated. Were these two events to occur simultaneously, the project would still have a high rate of return of 28%. 5.15 The only identifiable uncertainty that could have a major impact on the project would be the possible relocation of Dakar airport. The capacity of the airport should be sufficient for air transport demand during the next 20 years and therefore relocation would not be justified on capacity grounds. However, some government agencies are suggesting that the airport is hampering the city's development and that for this reason it should be relocated. This  - 23 - question should be resolved under a comprehensive urban study, which the Government is planning to undertake. It is estimated that, should a re]Loca- tion be justified and taking into account the time required to carry out urban and engineering studies, arrange financing and carry out construction, it would be a minimum of 10 years before a new airport is in operation. In this event, and considering financial benefits alone, i.e. lost airport revenue from landing charges and airport services, the rate of return for the Dakar component of the proposed project would drop to an acceptable 25%. In order to monitor any airport relocation plans, the Government has agreed to (i) inform the Bank of any studies aiffecting airport relocation and (ii) consult with the Bank before making any decisions on airport relocation. VI. FINANC:[AL EVALUATION 1/ A. Background 6.01 ASECNA's financial system reflects the dual nature of its operations in Senegal and in each of its member states, as stipulated in Article 2 and Articles 10 and 12 of the Convention of Saint Louis (para. 3.01). ASCENA's income account for the period 1973-1978 with regard to its Article 2 and Article 10/12 operations in Senegal is shown in Table 6.01 and summarized below. The annual total cost of ASECNA operations in Senegal to the Senegalese Government increased from CFAF 339 million in 1973 to CFAF 390 million in 1974, but has been relatively stable since then. Of this total cost, somewhat over 50% represents the subsidy payment under the Article 2 international accords to cover the cost of ASECNA's regional air traffic and air navigation control functions. The level of this payment is not controllabli by any single member country, but is set by the ASECNA Board each year. Article 10/12 operations are, however, fully controllable by Senegal as they represent the management of the airport infrastructure in the country. ASECNA Senegal Aviation Accounts (Summary) (CFAF million) 1973 1974 1975 1976 1977 1978 Article 2 Operating Revenue 440 469 587 645 726 764 Working Expenses 741 763 854 890 964 1033 Depreciation 45 50 55 62 65 70 Net Operating Revenue (346) (344) (322) (307) (303) (339) French Govt. Subsidy 172 170 148 105 120 130 Cost to Senegal 174 174 174 202 183 209 1/ Annex 2 details the main assumptions used in preparing the financiLal projections which are in current CFAF.  - 24 - ASECNA Senegal Aviation Accounts (Summary) (Con't) (CFAF million) 1973 1974 1975 1976 1977 1978 Article 10/12 Operating Revenue 474 571 829 913 1060 1197 Working Expenses 337 443 605 567 713 747 Depreciation 230 239 351 393 425 44 Net Operating Revenue (93) (111) (127) (47) (78) 7 Interest Charges 16 21 61 175 165 125 Net Income (Deficit) (109) (132) (188) (222) (243) (118) Senegal Subsidy 165 216 200 190 183 166 Book Profit (Loss) 56 84 12 (32) (60) 48 Total Cost to Senegal 339 390 374 392 366 375 under Articles 2 & 10/12 6.02 As a result of the above duality, and consequent thereupon, the financial evaluation of the proposed project has been limited to an analysis of only the relevant portion of ASECNA accounts that have a direct bearing on the operation of the Senegalese airport system - accounts that are entirely controllable by Senegal by virtue of its Article 10/12 bilateral agreement. As Article 2 subsidy assessments are likely to increase in the coming years, it is all the more important for Senegal to analyze and control Article 10/12 operations and attempt to minimize its direct subsidy so that its total cost from ASECNA operations can at least remain fixed at present levels thereby declining in real terms in future years. B. ASECNA'S Past and Present Finances Articles 10/12 Accounts Income Account 6.03 ASECNA's financial performance under the First Aviation Project (para. 1.11) was very good, insofar as it related to Dakar Airport operations. ASECNA's Article 10/12 account however covers all airports in Senegal, and Tables 6.02, 6.03 and 6.04 1/ show the accounts for Dakar, Other Airports and the Consolidated Senegal Airport Sector. The recent evolution of the income account is summarized in the table below: 1/ Projections by airport group start with 1976 accounts as no reliable breakdown of earlier accounts was available.  - 25 - Senegal Airports - Income Account Summary (CFAF million)