Mozambique - Maputo Corridor Revitalization (Technical Assistance) Project

Document of The World Bank FOR OMCIAL USE OM MICROFICHE C00Y Report No.:P- 5809-MOZ Type: (PH) Title: MAPUTO CORRIDOR REVITALIZATION RportN. P-5809-MOZ Author: CROOKES, YUSJPHA Ext.:3)322 Room:J11139 Dept.:AF6IN MEWORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 6.6 MILLION TO THE REPUBLIC OF MOZAMBIQUE FOP THE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT DECEMBER 28, 1992 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 M Metical (plural Meticals [Mtsj) US$1.00 = 1,931.43 Mts (03/01/92) Nt 1000 US$0.52 MEASURES AND EQUIVALENTS 1 meter (i) - 3.28 feet (ft) 1 square meter (P) = 10.76 square feet (ft) 1 hectare (ha) - 2.47 acres 1 kilometer (km) - 0.62 miles (mi) 1 kilogram (kg) = 2.20 pounds (lb) 1 ton (t) 2240 pounds (1bs) 1 metric tonne (mt) = 1.10 tons (t) 1 pennyweight (dwt) - 1.56 grams (g) 1 cubic meter (a) - 35.71 cubic feet (ft) ABBREVIATIONS AND ACRONYMS CCCE - Caisse Centrtle pour le Cooperation Economique CIDA - Canadian International Development Agency CFM - Empresa Nacional de Portos E Caminhos de Ferro de Mocambique, B.E. CFM-Centro - Caminhos de Ferro de Mocambique (Centro) CFM-Norte m Caminhos de Ferro de Mocambique (Norte) CFM-SUl - Caminhos de Ferro de Mocambique (Sul) BC = European Community KI - Kreditanstalt fuer Wiederaufbau MTC * Ministry of Transport and Communications NR National Railways of Zimbabwe atkm = Net tons kilometer ODA = Overseas Development Administration RSA - Republic of South Africa TEU Twenty-foot equivalent container unit tpa = Tons per annun USAID - United States Agency fGr International Development FISCAL YEAR January December 31 FOR OFFICIAL USE ONLY MAPUTO CORRIDOR RMEITALIZATION (TECHNICAL ASSISTANCZ) PROJECT CREDIT AND PROJECT SIVARY Borrowers Republic of Mosambique Benefticiariess Ministry of Transport and Communications (MTC) & Empresa Nacional de Porto 8 Caminhos de Ferro de Mocambique, E.E. (CFM) Credit Amouats SDR 6.6 million (US$9.3 million equivalent) Term*% Standard IDA term with 40 years maturity Onleading Terms: SDR 1.06 million (US$1.5 million equivalent), representing the estimated cost of equipment to be procured under the project, will be on-lent to CIM at a fixed interest rate of 92 for a tern of 15 years, including a grace period of five yearst CFM will bear the foreign exchange risk. US$ (million) Financing Plan: IDA 9.3 Government 0.5 ODA 0.1 USAID 0.6 Total A Economic Rate of Return: Not applicable Staff Appraisal Reports None Maps$ IBRD No. 21355 IBRD No. 23715 IBRD No. 23716 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. MIMORANDUM AND RECOMMBNDATION OF THE PRESIDENT OF TE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO MOZAMBIQUE FOR THE NAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT 1. I submit the following memorandum and recommendation on a proposed credit to Mozambique in the amount of SDR 6.6 million (US$9.3 million equivalent) for approval. The proposed credit would be on standard IDA terms, with 40 years maturity, including 10 years grace, to assist with financing the Maputo Corridor Revitalization (Technical Assistance) Project. SDR 1.1 million (US$1.5 million equivalent), representing financing for equipment purchases, will be on-lent to Empresa Nacional de Portos E Caminhos de Ferro de Mocambique, E.E. (CPM) at a fixed rate of 92 for a term of 15 years, including a grace period of five yearP. CFM will bear the foreign exchange risk. The balance of SDR 5.5 million (US$7.8 million equivalent) of the proposed credit will be passed on to CFK as equity. The project wili be parallel financed by ODA (US$0.1 million) and USAID (US$0.6 million). 2. Country/Sector Background. Mozambique has three transport corridors, each consisting of integrated railways and port facilities and serving primarily regional transit traffic. The corridors represent distinct geographical segments with no physical linkages between them within Mozambique. The Nacala Corridor System, comprising the port of Nacala and a railway line to the Malawi border, is capable of serving Malawi's foreign trade. Since 1984, traffic has virtually ceased due to the insecurity and the dilapidated state of the line. The Beira Transport Corridor is comprised of two railway lines linking the port of Beira to the railways system of Malawi and the National Railways of Zimbabwe (NRZ) system. The Maputo corridor is comprised of three railway lines and the port of Maputo, and serves transit traffic from Swaziland, Zimbabwe and the north-eastern Transvaal region of the Republic of South Africa. Prior to independence in 1975, income from transit traffic on these corridors financed most of the large structural deficit in the country's balance of trade. In 1973, this financing amounted to about US$110 million equivalent. Since independence, transit traffic has declined precipitously, from its pre-independence peak of 18.0 million tonnes in 1973 to about 1.6 million tonnes currently, as transport operations have been disrupted by war and banditry, the massive exodus of the managerial and artisan class and changes in the structure of economic incentives and managent. Considerable investments in restoring the corridors, physical and inst!.Ational capacity, on the whole have not been effective in reversing this oveLall decline in traffic on the corridors, although there have besn significant gains in traffic on the Beira Corridor and encouraging -higns of improvement in its operating efficiency. The signing ftf *o &^se-fire agreement in mid-October 1992 marked the official end of a decade of civil war and renewed vigor on the part of Government towards implementing its Economic and Social Rehabilitation Program. As reconstruction of the economy continues, the restoration of the capacity to generate foreign exchange from transit traffic will be critical to the country's ability to maintain a sustainable external balance and to accelerating its economic growth. - 2 - 3. Proiect Strategy. In formulating a strategy for j. ving the performance of the corridors, account has to be taken of & ar key factors. First, due to the dependence of transit traffic demand on market conditions and the performance and preferences of other transport operators and customers outside of 1%zambique, investments in the corridors 're subject to an extra- ordinary degree of risk outside of the direct control of Mozambican authorities and agencies. Second, the existing management of the corridors' operating entities needs to be significantly strengthened and restructured to manage the external business risks and opportunities to which it is exposed. Such strengthening may take considerable time and would be subject to significant uncertainties as to its success. As vitually pure transit corridors without a sizeable domestic traffic base, potential customers are compelled neither by economic circumstances nor by regulations to continue to use the corridors' facilities whilst waiting for incremental improvements in efficiency. Third, Mozambique will need to devote an increasing proportion of available public resources to the resettlement of a large displaced population and to the rehabilitation and development of the social sectors and basic physical infrastructure. The corridor operating entities are the largest state-owned enterprises ane are heavily loss-making. With the flow of external assistance unlikeli to increase significantly from current levels, much of the additional required resources will have to come from the elimination of the losses of state-owned enterprises now subsidized by the Government and limiting the recourse of such enterprises to public resources to meet their investment requirements. Finally, the corridors have occupied an important position in the economic and political history of Mozambique and are viewed as a strategically important geo-politicil asset in the region. A consequence of this history is the political concern about keeping the ownership of the corridors' infrastructure and other long-lived assets in the hands of the state in order to guard against their use in ways inconsistent with perceived Mozambican national interests. Given these factors, the Government and IDA have agreed that the strategy for the revitalization of the corridors shoulds (a) seek to minimize the Government's financial exposure in the corridors by shifting it to other parties more capable of managing such risks; (b) eliminate as rapidly as possible the need for any form of subsidies to the corridor entities; whilst (c) ensuring that any transfer of responsibility for the management and operation of the corridor facilities does not involve the corresponding legal transfer of title to ownership of existing assets. In effect, privatization should be limited to that of service provision on the corridors. 4. In implementing this strategy, the Government intends to start with the Maputo Corridor which commands a hinterland with the greatest traffic potential. The Maputo Corridor System facilities are managed by Caminhos de Ferro de Mocambique-Sul [CFM(S)]. At the peak of its performance in 1973, the corridor handled about 14 million tons of transit traffic, mostly mineral products from Zimbabwe, RSA, and Swaziland. Transit traffic has now declined to about 1 million tons as traffic has been diverted to other corridors due tos (I) a fall in reliability and customer confidence in the system due to the effects of the war; and (11) declining efficiency and performance of the system. The decline of traffic on the system has left it with one important competitive advantage, Maputo is the only port in Southern Africa that can handle significant incremental traffic without major capital expansion. It is - 3 - also the closest outlet for Swaziland and the industrial and mining heartland of RSa. 5. In 1989, the Government moved towards commercialization with the conversion of CEM from a department of the Ministry of Transport and Commnications to a state-owned enterprise with increased autonomy. Recently, the National Assembley passed a law which laid the basis for the transformation of state-owned enterprises into public enterprises with the authority to enter into joint ventures with private concerns and/or grant concessions of some operating assets to private parties. The enactment of this law marks the beginning of a process which envisages (i) the development of a legal and regulatory framework that facilitates the involvement of the private sector in the management and operations of parts of CPM; (ii) more managerial autonomy, e.g. In the setting of tariffes and (III) the establishment of a performance contract between CPM and Government that will cover inter alia financial targets, investment selection criteria and personnel policy. 6. To support the achievement of Government's strategic objectives with respect to CIM(S), the following approach has been agreed upon between Government and IDA. First, the competitive features of the transit traffic market, the performance potential of the system and the related operating and business strategies that would need to be pursued to realize this potential will be determined. Second, the appropriate mix and form of public and private sector participation in the management and operation of different activities on the system will be defined. This mix will take into account the following factorst (i) the capacity of the existing CPM(S) management to Implement the identified strategies and actions required to make the system competitive; (11) the possibility, costs and risks of enhancing such capacity in the shortest period of time consistent with maintaining the competitiveness of the system as compared to attracting private sector firms to manage and run the system or parts of it; and (iii) the activities that for regulatory reasons are best undertaken by a state-owned enterprise. Based on the agreed mix, appropriate investment packages will be formulated and promoted to attract private sector firms into designated activities. Due to the large number of possible activity areas into which the system may be divided, however, the possible combination of services whose provision may be privatised under various arrangements and those that can remain under public sector management is Immense. Exploring the feasibility of all such possible combinations would delay a final decision on the future direction of the system and would be of little value, since ultimately, the key decision variable will be the capacity of the existing management to implement the changes necessary to make the system competitive. Accordingly, during appraisal, agreement was reached between the Government and IDA that the choice of options to be evaluated should be constrained to no more than three combinations of different activities. These would take account of the expressed preferences of parties with important stakes in the future of CPM(S), including the management of CM. One such combination would involve the leasing of all assets (except those for which public sector management can be clearly demonstrated as essential on economic or regulatory grounds) for defined periods and under apecified performance arrangements and payment terms to an investor group or company. Such an investor group or company would then decide the basis under which it would operate the constituent parts of the system. A second arrangement would confine private participation to the management and operation of specialized terminals at the port and to the maintenance and supply of services that would help to achieve greater levels of availability of port and railway plant and equipment, with CFM(S) managing the rest of the system and assuming the responsibility for achieving an adequate degree of financial performance. The third combination would iWolve the awarding of operating concessions for selected activities to the private sector by subsidiaries of a newly created transport corridor conglomerate corporation. The subsidiaries would be derived from the formal incorporation of CFM's regional operating divisions. 7. Whilst the detailed investigation of the prospects of the system and an assessment of the appropriate form of private sector involvement is ongoing, existing donor-supported programs to strengthen the performance of the system would continue. Also, Government wishes to maintain investor interest, while at the same time ensuring that in any negotiated transaction its financial interest would be protected (and its risk exposure eliminated) as more information on the system's worth becomes available and the arrangements under which the best returns may be achieved appear more evident. A number of Investment proposals are currently under discussion and the Government would like to ensure that CFM has access to good financial advice in negotiations with those private investors concerned. This parallel process which would seek to address the imba.ance in knowledge is not inconsistent with the approach being taken in zhis project, as any transaction negotiated in the period preceding the decision on the organisational option to be employed in the restructuring of the CPM(S) system could be folded into the final selected scheme later. 8. Project Objectives. The overall project objective is to assist the Government to restructure CPN(S) in order to improve its long term efficiency. To achieve this objective, the project aims tos (i) facilitate Government's divestiture of direct involvement in the management and operation of those transport facilities in the corridor where there is no demonstrable competitive or regulatory advantage to such participation, and to assist it to do so on the most commercially advantageous terms; and (11) assist Government in ensuring that the substantial proportion of the workforce that is likely to be redundant as a consequence of this restructuring is adequately cushioned against the impact of the loss of employment. A subsidiary and related objective of the project is to enhance confidence in the capacity of the system by financing equipment to relieve bottlenecks in container terminal operations and to strengthen communications with neighboring systems. These Investments would have an immediate Impact on the efficiency of operations in two key areas of activity in the system. 9. Project Description. The project will include the following components which will form the basis for deciding on the scope of private sector participation in the provision of services on the CPN(S) systemt (i) Investment and Financial Advisory Services (US$7.5 millions 71% of total project costs). This component will involve the detailed evaluation of the past performance, resources, and the scope for improvements in operating efficiency of the system. It will also provide support to Government In - 5 - promoting investment schemes to potential investors and in negotiating transactions with interested partiess (ii) Legal Advisory Services (US$0.8 milliont 82 of total project costs). This component will assist Government to review, streamline and update the existing legal and regulatory frameworks with a view to facilitating the privatization of service provision on the system. Also, it will assist Government in preparing and negotiating the transactions derived from the selected mode of privatisation of service provision; (III) Environmental Analytical Services (US$0.1 million; 11 of total project costs). This component, which will be parallel-financed by ODA. is to be carried out in coordination with the preparation of the National Bavironmental Action Plan. It will involve the review of existing standards of occupational health and safety and pollution abatement, an examination of liability issues surrounding the environmental management of the system, the recoumendation of environmental standards, and an assessment of the investment requirements to comply with those standardes (iv) Labor Redeployment Strategy (US$0.6 million; 62 of total project costs). This component (to be parallel- financed by USAID) will involve the preparation of a detailed plan for the redeployment of surplus staff from all three corridor systems. (v) Equipment (US$1.5 million; 142 of total project costs). This component will finance handling equipment for the container terminal as well as communications equipment for operations control. The technical assistance to be provided under the project is primarily aimed at institutional development, '1though a portion of the legal advisory services would facilitate policy reform. 10. The total cost of the project is estimated at US$10.5 million, with a foreign exchange component of about US$9.3 million (892). A breakdown of costs and the financing plan are shown in Schedule A. To facilitate disbursements, a Special Account will be established with an initial deposit of US$0.4 million. Although, project implementation should take no longer than three years, given past disbursement delays, established implementation experience for investment projects in Mozambique has been taken into account in finalizing project costs and the disbursement profile. Amounts and methods of procurement and the disbursement schedule of the proposed IDA credit are shown in Schedule B. A timetable of key processing events is shown in Schedule C. The status of Bank Group operations in Mosambique is presented in Schedule D. Three maps (IBRD Nos. 21355, 23715 and 23716) are also attached. 11. Project Implementation. The project is to be implemented by an inter- agency committee appointed by and accountable to the Council of Ministers, and whose composition and mandate are mutually acceptable to Government and to IDA. This body will operate full-time under the auspices of the Minister of Transport and Communications and will be responsible for monitoring all phases of the project. Headed by a representative of the Minister of Transport and Communications, it would consist of representatives from the Ministries of Finance and Commerce, the National Planning Commission, the Bank of Mozambique and the Ministry of Justice. A final decision on a global strategy for CFM(S), under which the scope of restructuring of service provision (including definition of the extent of private sector participation) on the system would be defined, would be made by Government within two amths of the end of the investigative phase of the project. The timing of this decision would mark the end of the first phase of the project and the start of the approved privatization transactions phase during which Government would seek to attract private investors and operators into the system. 12. Project Sustainability. Mozambique is committed to a program of reducing state participation in commercial activities. The knowledge of large-scale enterprise restructuring and options for privatisation gained under the project and any reforms in the legal or business framework instituted in support of the selected scheme would be of relevance to the restructuring of other large enterprises in the public sector. The benefits of the equipment component of the project would only be sustainable if the basis o operations in the system is changed to move away from operating the railways as a closed circuit with limited operational and marketing co-operation with neighboring systems and if the management of the container terminal is strengthened. Both these conditions would be fulfilled if the findings and recommendations of the strategy study component of the project are Implemented. 13. Lessons from Previous Bank/lDA Involvement. There are two generic areas of past Bank Group experlence of relevance to this projects (i) the experience with consulting or advisory servicess and (ii) the experience with support of privatization programs. The major lestson from experience on consulting and advisory services is that the success of implementation of the recommendations of such services is enhanced if the project objectives are consistent with Governmen policies and concerns and the scope of services is prepared in detail with significant participation by the Government and the key agencies likely to be affected. Project strategy has been formulated keeping in mind this lesson. On privatization, the program supported by IDA in Mozambique has been relatively successful. Its success has been due to substantial support from the Bank Group in assisting the Government in designing institutional arrangements that have ensured transparency and coherence in the operation of the program. However, until now, the objective of this program has been to divest Government of responsibility for relatively small businesses without the same degree of economic or political significance as the corridors in the country. More relevant to the project is regional experience in large scale privatisation of the provision of infrastructural services. This experience is limited. However, the few operations effected to date with Bank Group support have been relatively successful. This success has been due to a consensus on the need for change in the form of management of state-owned assets, and well structured proposals and implementation processes for effecting such change with all the elements of the process being conducted with a high degree of transparency. 14. Rationale for Bank/lDA Involvement. The project is consistent with the Bank Group's strategy for assistance to Mozambique which emphasizes support in the planning and implementation of long-term economic rehabilitation and reconstruction. The central feature of IDA's strategy of assistance to the transport sector is to support the strengthening of the domestic capacity to provide reliable and efficient services which are essential to the revival of the country's economy, particularly the agricultural sector. The project would complement this strategy by creating the conditions under which subsidized public support (domestic and external) of the corridors would gradually cease according to an agreed timetable, allowing the transfer of such resources to domestic programs of high economic priority. IDA's role in the project has been to assist the Government in formulating a strategy to improve the performance of CPK(S). The Government has requested the Bank to continue assisting with such work and to coordinate all donor assistance to - 7 - CN(S) within the framework of the strategy selected to revitalize the system. The donors have also requested Bank leadership in developing and implementing a strategic framework through which theix assistance to the sector would be funnelled. 15. Areed Actions. The following future actions were agreed during negotiations: (a) on-lending arrangementes all project financing for advisory and consulting services will be passed on to CFN as equity, and all project financing for equipment be on-lent at a fixed interest rate of 92 for a term of 15 years, including a grace period of five yearsl (b) Investment plan review: for every year startit% in 1993s (i) a draft multi-year investment plan for the CPM(S) system will be submitted to IDA by September 15; (ii) a joint GOM/Donor/IDA review of the draft plan will be held by October 15; (111) a final version of the plan based on the review will be submitted to IDA by November 1 and (iv) a progress report detailing measures taken to implement the plan will be submitted to IDA by April 15; and (c) aid-term revies a review will be carried out no later than ten months after effectiveness, to monitor project progress and to define future actions to be taken; agreed recommendations from the review would be promptly carried outt and no later than one month prior to the afore-mentioned review Government would submit a progress report detailing any privatisation transaction made to date, as well as the findings and recommendations resulting from completion of the investigative analytical component, and specifying the bases for Government*s decision on a global strategy for the restructuring of CFM(S). It was also agreed that credit effectiveness would be conditioned on: (i) the execution of both a Subsidiary Loan Agreement and an Administration Agreement for the Credit between Government and CPM; and (11) the submission of the audit reports issued by independent auditors on the financial performance of CPM for the 1989, 1990 and 1991 fiscal years. Agreement was also reached on the following conditions of disbursement: (i) disbursements will be made against the transaction-related services only after a decision satisfactory to IDA on a global strategy for the restructuring of CNM(S) has been made by Government; and (ii) disbursements for equipment will be made only after IDA has received from CFM a satisfactory report containing the economic and financial justifications for prioritized equipment items to be financed under the project. 16. Environmental Aspects. As part of the technical studies being undertaken, the project would seek to address five key inter-related issues: first, the standards of environmental protection and occupational health and safety that should govern the various activities on the ports and railways, particularly in the context of the enhanced prospects for a significant increase in traffic and activity; second, the gaps in the sub-systems' caps:ity to meet such standards due to inadequate physical facilities, planning procedures, operating procedures and practices and compliance with existing and inappropriate standards; third, the nature of the adverse consequences resulting from past lack of compliance with adequate environmental standards and the cost of redressing these consequences; fourth, the nature and likely cost of necessary improvements to physical assets, working procedures and practices to ensure future compliance with adequate standards; and fifth, the appropriate distribution of rectification costs and the costs of upgrading facilities and procedures between Government, * 8 - CFM and any future third party managers of service provision on the system. The findings and recommendations of this analysis would be Inputs Into the National Environmental Action Plan currently under preparation by the Government in which the issues of regulation of environmentally-sensitive activities and occupational health and safety as well as the national capacity for monitoring compliance with regulatory standards are to be thoroughly examined and detailed. 17. Proiect Benefits. The project will assist Government in bringing about necessary increases in efficiency in the operations and management of CIM(s). With this in place, the losses of CNM(S) would be steamed, its recourse to the national treasury for financial support set aside and the assets and operations now under its control could begin to make a financial contr.bution to the Goverament's budget. In addition, the effective operation of the Mapato Corridor would provide considerable benefits to other countries in the region. It would: (i) reduce transport costz for the international traffic of Zimbabwe, Swasiland and the north-eastern Transvaal region of RSA; and (ii) obviate the need for capital expenditures in RSA to expand port capacity to handle growing traffic originating from the countries of the region. 18. Project Risks. Two types of risks could undermine the effective implementation of the projects political and investment. Political Risks. The corridor facilities are considered patrimonial assets in Nozambique and are significant employers of labor, much of which would be redundant under efficient operations. There could be, as a consequence, some political opposition to the deep restructuring of these facilities. This raises the risk that efforts to encourage private sector participation could be derailed. Overcoming this risk requires building a strong consensus behind the need for change and adequately cushioning likely losers in the process of change, against the adverse impact of the inevitable substantial loss of employment. The major component of the project has been structured to facilitate this process. In addition, the options have been constrained to those based on the transfer of the use of these assets through renewable contractual arrangements. The Human Resources and Institutional Development Project (BRID), a parallel project financed by USAID and managed by the Bank (currently under implementation), is providing appropriate institutional development assistance to CNN officials. HID will assist CNM to develop a strategic plan which will serve to address inter alia the lack of familiarity in Mozambique with the development of corporate competitive strategies as well as the range of corporate vehicles for private sector participation in an industry. Finally, considerable emphasis has been placed in the project on mitigating the adverse effect of labor redundancies. In particular, USAID will not only fund the analytical work necessary to support an orderly retrenchment and redeployment of the workforce assessed as redundant but also will earmark sufficient funds to support its implementation. Investment Risks. The corridor has been subject to intermittent attacks which have disrupted operations on its railway lines and represented a constant source of insecurity on the system. Without devaluing the importance of the insecurity, it is possible that the drop in traffic may be due (in addition) to the decline in the efficiency of the system and the inadequacy of security arrangements at the port which in principle is subject to managerial control. To the extent that unpredictable interruptions to the operation of the system - 9 - occur, this would afftet both the cost of transport, and the capacity and revenue generation potential of the system. In turn, this would affect the Investment attraction potential of the system. At oresent, the Government is reviewing the measures it can take to strengthen security along the railway lines and has commissioned a number of studies with assistance from external sources to this end. This in combination with the recent signing of the Peace Agreement should serve to reduce this risk. The investment advisory firm would provide advice based on its knowledge of the concern of prospective investors on the extent and form of measures and assurances the Government should offer potential Investors. Another risk is that there may not be a sufficient number of interested private sector Investors because the system's returns may not be sufficiently attractive to compensate for its business risks or that there may not be a sufficient number of corporations or investors willing or able to diversify geographically. Overcoming this problem requires structuring and promoting Investment proposals creatively to attract existing participants in the industry or to create vehicles, independent of the Government, through which appropriate management expertise can be tapped without an unduly large initial investment exposure on the part of the external investors. To minimize this risk, the investment advisory firm to be selected under the project would be required to demonstrate the capacity and experience to create appropriate vehicles to attract foreign investment in conditions where the underlying investment objective is financially viable but considered of high risk. 19. Recommendation. I an satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend that the Becutive Directors approve the proposed credit. Lewis T. Preston President Washington, D.C. December 28, 1992 Attachmente * 10 - Schedule A MOZAMBIQUE MAPUTO CORRIDOR REVITALIzATION (TECHNICAL ASSISTANCE) PROJECT Estimated Costs and Financing Plan A. Estimated Costs Local Foreign Total (US$ million) Investment and Financial Advisory Services 0.7 5.0 5.7 Legal Advisory Services 0.1 0.6 0.7 Environmental Analysis 0.0 0.1 0.1 Labor Redeployment Strategy 0.2 0.4 0.6 Port Handling & Communications Equipment 0.0 1.2 1.2 Total Base Costs 1.0 7.3 8.3 Physical Contingencies 0.1 0.7 0.8 Price Contingencies 0.1 1.3 1.4 TOTAL COST LA LA Financing Plan: Government 0.5 0.0 0.5 IDA 0.5 8.8 9.3 ODA 0.0 0.1 0.1 USAID 0.2 0.4 0.6 Total L UA * 11 - Schedule B Page 1 of 2 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT Procurement Methods and Disbursements A. Procurement" (US$ million) Procurement Method2l Total Project Elements ICB LIS Other Cost Consulting & Advisory Services 9.0 9.0 (7.8) (7.8) Equipment 1.2 0.3 1.5 (1.2) (0.3) (1.5) Total 1.2 9.3 10.5 (1.2) (8.1) (9.3) Procurement of Consulting Services wIll follow the Bank Guldellneo for the Use of Consultants. IDA contrAbutlon shown In parenthesis. * 12 - Schedule B Page 2 of 2 MAPUTO CORDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT B. Disbursements Amount of Credit Percent of Expenditures CateRory (US$ million) to be financed Investigative & Analytical Services 4.6 952 of total expenditures Financial Advisory Services 0.3 95% of total expenditures Investment Advisory & Promotion Services 1.5 95% of total expenditures Legal Advisory Services 0.7 95% of total expenditures Equipment 1.4 100% of total expenditures Project Preparation Facility (PPF) 0.3 100% Unallocated 0.5 Total Credit Amount Estimated IDA Disbursements (US$ million) IDA Fiscal Years 93 94 95 96 97 98 99 Annual 0.5" 0.1 0.3 0.3 1.6 6.4 0.1 Cumulative 0.5 0.6 0.9 1.2 2.8 9.2 9.3 I nacludis US0.4 ait e I tal depsit into the Speelai Asooub. * 13 - Schedule C MDEAMSGZQS MAPUTO CORRIDOR EVITALIZATION (TECHNICAL AS§ISTANCB) PROJECT Timetable of Key Credit Processin Events Time taken to prepares Six months. Prepared byt The Government of Mozaabique with IDA assistance. First IDA Missions September/October 1991. Appraisal Mission Departures March 1. 1992. Date of Negotiations* November 16, 1992 Planned Date of Effectiveneses May 1993 - 14 - Schedule D Page 1 of 2 MOZAMBIQUE MAPDTO CORRIDOR REVITALIZATION (TECMNICAL ASSISTANCE) PROJECT Status of Bank Group Operations in Mozambique A. Statement of IDA Credits (as at November 16, 1992) Amount Amoun FI*s* of Credj% Undlbur~ed Closing Credit No. Vear Titt* ff(USmlPion) fUS mIilon) Date 1*06-~o2 87 Energy Technical Acelstance 4 Rehabi Iltatlon 20.00 6.24 12/31/92 1907-OZ .88 Educatlon and Menpo~er Development 16.90 7.42 12/1/96, 0^80-MOZ 88 Second Rehablli tation 18.60 0.17 06/80/91 1949-N02 8 Urban Rhab 1I Itation 60.00 26.29 12/31/96 1989-N 2 89 meålth a Nutrition 27.00 24.88 12/31/94 2021-M 89 Thi rd Rchabl lltation 90.00 2.72 04/30/92 2088-mol 89 Urban Mousehold Enor 22.00 17.98 12/31/98 2086-mo2 90 Beira Tranaport Corrldor 40.00. 27.89 06/30/96 2066-No2 90 Economle & Financial Management 21.00 19.88 12/81/97 2081-mOZ 90 Induetrial Enterpris Retructoring 50.10 52.20 12/31/97 2082-M02 90 S~a I- & mdiu-ScaleEntorprIee Development 32.00 81.18 12/31/96 2176-MoZ 91 Agricultural Rehabl ltatlon £ Deveopmen 16.40 14.42 06/830/99 2200-NO 91 Second Education 08.70 52.17 04/30/97 2337-mOZ 92 Agricultura servlee Rehabilltatlon 36.00 86.51 2374-OZ 92 FiratRoad 1 Coastal Shipping 74.30 69.87 06/30/96 2384-No 92 Econ«mIc Recovery Credit 180.00 146.78 06/830/96 Total" (16 Crodito) 7M6.00 U84.26 [2 Credite closed) 114.65 Tota V" 889.68 of which repaid Total hold by IDA 869.66 Amount sold of which repald Total Undlebured u3.z2 * Indicates SAL/SECAL Credite Aetve Credit e "* Total Approved, Repaymenta and Outatanding Salance represent both active and inaetive Crodite. R Indicatow format ly rovled Cl**Ing Date Mozambique * portfolio of IDA-eupported projeote is retatIvely og with ~et proj*ets being to*e than three years old. All IDA-eupported projecte sre anaged financiall y bte C~ 1ral Bank, Banco de Mocambique (8dM). Proviouely, understaffing and the eroelon of administrative procedures over the long period of the civil war contributed to 8d1 being te main bottlenock to emoth dibureoments. Stepe have now been taken ta dacentralie me financIl managemen of project to he ImplömentIng agenee through discuselone with sd and through the conditiolality employed under the Econceic Recovery Credit. IDA is continuing ite efforta to build up administrative capacity and to put in place workable system that feelil tate projeoc implementation. To this end, specific action* taken include (1) the sttloning of a senior Bank *aaff meber in the flold to help accelerate/facilitate implementation; (ii) the continued review of implomentation 16sues via regular Country Iuplementation Reviews (CIRs); (111) training for local *taff in a number of basic implomentation aems and; (iv) the judiclous us of euspension of diburements where evidonce of non-compJiance la obvious. - 15 - Schedule D Page 2 of 2 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT B. Statement of IFC Investments (as of October 31, 1992) Investment Fiscal Type of Loan Equity Total Number Year Obligor Business US$ million ) 864-MDZ 1987 LOMACO Agri-business 2.5 2.5 978-OZ 1988 Xai Xai Oil Chemical/Petrochemical 7.8 7.8 Total Gross Co=nitments 2.5 7.8 10.3 Lesss Cancellations, terminations, exchange adjustments, repayments, write-offs and sales 1.5 7.8 9.3 Total Commitments held by IFC 1.0 0.0 1.0 Total Undisbursed 0.0 0.0 0.0 Total Disbursed 1.0 0.0 1.0 - 16 - TECHNICAL AKNE TO TIM NWORANDR AND RECOlMENDATION OF THE PRESIDENT FOR A MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT Section A: Detailed Project Description I. The Transport Corridors 1. Mosambique has three transport corridors each consisting of Integrated railways and port facilities and serving primarily regional transit traffic. The corridors represent distinct geographical segments with no direct physical linkages between them inside Mosambique. The Nacala Corridor System, comprising the port of Nacala and, amongst others, a railway line to the Malawi border, is capable of serving Malawi's foreign trade. However, since 1984 traffic has virtually ceased due to the security situation and the dilapidated state of the infrastructure. Since then, the port has been extensively rehabilitated and a program of track upgrading is underway. Malawi's trade pattern and the transit corridors available to it have changed significantly since the closure of the Nacala corridor. In particular, more of its imports are now sourced from within the region, requiring a different pattern of transport routes; and a new transit route with dedicated fuel goods terminal facilities and use of the Port of Dar es Salaam has been developed, allowing it to diversify its transit routes. These changes could have significant competitive implications for the Nacala Corridor. 2. The Beira Transport Corridor consists of a 331 km railway line (the Sena link) linking the port of Beira to the railway system of Malawi and a 317 km railway line (Machipanda line) linking the port of Beira to the National Railways of Zimbabwe (YRU) system. The Sena line has been non-operational since 1984 due to the security situation. Since 1982, the port of Beira and the railway line to Zimbabwe have undergone significant rehabilitation to improve both their physical condition and operational efficiency. To date, about US$500 million have been committed or spent on this program of physical rehabilitation and on a parallel program of technical assistance and training to strengthen management systems and technical and managerial skills. Transit traffic throughput on the system has recovered significantly since 1982, increasing from 0.3 million tons to 0.6 million tons currently. 3. The Maputo Corridor system comprises three railway lines and the port of Naputo, and mainly serves traffic from Swasiland, Zimbabwe and the north- eastern Transvaal region of the Republic of South Africa (RSA). The Ressano Garcia railway line, 88 km long, links Maputo with RSA. The Gobs line links the port of Maputo with Swaziland and is 68 km long within Mozambique. The third railway line on the system is the 534 km Limpopo line which links Maputo with the NRZ system in Zimbabwe. Thle Memorandum and Resendastion of the President (MOP) was prepared on the basis of an appraisal mission that visited Mozambique Ia March, 19. The missIe consisted of Meore. Yusupha Crookes (Mission leader/Sr. Financial Analyst), Sujer Nayak (Sr. Railway Englaser), R. Gopolkrishnan (Procurement Specialist), Urique Saravia (Legal Consultant) and Ms. Nas Del Nikol (Consultant). TiU report was reviewd byMe. PhyllI Pamoranta (Division Chief, AFOU). The Director of the Department Is Mr. S Dening. - 17 - The port of Maputo comprises the main port of Maputo and the subsidiary port of Matola located 4 km upstream.The port of Matola is dedicated to handling bulk ore, coal and petroleum products traffic. The resources and recent performance of the Maputo Corridor system and strategic issues confronting it are outlined in Section II below. Map IBRD No. 23716 shows the location of the corridors in the context of the regional transport network. 4. The transport corridors have played and continue to play an important role in the economy of Mozambique. During much of the pre-independence period, net foreign currency generated from transit traffic typically represented about 80Z of the country's balance of trade deficit. At the peak of their operating performance in 1973, net foreign currency genersted 4from transit traffic by the corridors amounted to about US$110 million equivalent. However, since independence, a number of problems have plagued the system resulting in a significant decline in traffic. irst. the rise in insurgency activities led to frequent disruptions in railway operations. Second, the attainment of independence led to the exodus of virtually all the skilled magement and semi-skilled staff of the system. A new cadre of managers and skilled workers with no prior background in ports and railways operations had to be recruited and trained to manage and operate this relatively large and sophisticated system. Third, the competing transport networks in the region changed in significant ways, e.g. the development of Richards Bay port and the extension and upgrading of the railways from the Transvaal region of RSA to cater to coal exports; and some countries, formerly reliant on Mozambique, have developed alternative international trade routes or have been induced to change the pattern of their international trade. Net foreign currency earnings from transit traffic (excluding the cost of technical assistance necessary to support the system's operational efficiency) now amount to about US$25 million, virtually all of which is generated by Zimbabwe traffic on the Beira corridor. S. As part of its attempt to reverse the decline in the corridor's performance, Government in 1989, established the commercially autonomous parastatal, Empresa Nacional de Porto a Caminhos de Ferro de ozambique E.E. (CPM), to manage the system's facilities. CPM is currently organised as a public enterprise with regional operating divisions responsible for the day- to-day management of each of the three corridor systems. The objective of the Government is that CFM be financially viable by 1995. To achieve a meaningful return on the total capital employed in it (including the cost incurred to date in rehabilitating the corridor systems). CEH is likely to need significant restructuring in all areas of its operations. The Government envisages the proposed project as the start of this process. II. The Maputo Corridor System (i). The Port of Mapnuto 6. The port of Maputo is situated in the Maputo Bay which is formed by the confluence of the Matola, Maputo, Incomati, Tembe and Umbelusi rivers. The port is in a natural harbor, and the beginnings of the development of the current facilities date back to the turn of this century. The main port of Maputo comprises 20 berths with a total quay length of 3300 meters. The - 18 - layout of the port is shown in Map IBRD No. 21355. Berths 1, 2 and 3 are dedicated to cabotage operations and have recently been developed with Norwegian assistance as a separate cargo and passenger terminal and leased to NAVIQUE, the national shipping parastatal. Berths 4-8 are general cargo berths with supporting covered and open storage space. The rest of the port consists of specialized terminals. The coal terminal has a theoretical annual handling capacity of about 2 million tons based on the loading rate of the ship loader, and a dumping area for coal stacking with a capacity of 120,000 tons. CFM seeks to transfer all coal traffic to Matola. The container terminal, with a berth length of 300 m and a container parking area, can handle ships of up to 1500 TEUs (twenty-foot equivalent container units) capacity. The terminal is served by two ship-to-shore gantry cranes. The other specialized terminals are a steel terminal with an adjacent dumping area of 4 ha; a citrus terminal with a pre-cooling storage capacity of 7500 m; and a sugar terminal with storage capacity of 140,000 tons in three storage sheds. The facilities at Matola consist of a bulk ore terminal with a train unloading capacity of about 5.0 atpa and ship loading capacity of about 2.0 tpa, both developed in the early 1960s to serve iron ore exports from Swaziland and rehabilitated in the mid-1980s to handle coal exports from RSA; and an oil jetty with storage capacity of 200,000 tons. The depth of the access channel to the ports varies from 9.4 m to 10.1 m. Maintenance dredging was deferred from independence until recently, leading to considerable siltation in the entrance channel. A recently completed program of dredging has restored the main entrance channel to its design depth of 9.4 a and depth alongside berths to their design levels of between 8 m and 12 a. With a tide movement of 2.5 a, ships with drafts of up to 11 a can be accommodated. However, for all practical purposes, vessel sizes are largely limited to 35,000 dt. Cargo handling equipment at the main port of Maputo includes 61 electric quay cranes, 145 fork lift trucks, 13 heavy duty fork lift trucks of capacity of between 20 and 23 tons, 11 front-end loaders, 20 mobile cranes, 25 tractor units and 23 trailers. 7. Overall, the throughput capacity of the port based on the designed loading rates of fixed quay installations, 24 hours operation, reasonable rates of discharge from multi-purpose vessels and average berth occupancy of 45Z is about 3.6 a tons of general cargo, 0.7 million tons of containerized cargo, 4 million a? of petroleum products and 4 million tons of bulk ore and mineral traffic. However, achievable capacity is constrained by a number of key inter-related factors. First, the mechanical availability of cargo handling equipment is poor, averaging about 412 in 1991. Second, the productivity of work gangs and available equipment is low. Finally, the clearance rates of both containerized and break-bulk traffic from the port are low and congestion high due to long cargo dwell times arising from the low ship service times, delays in clearance of goods from customs and from the port area. Although the available data on dwell times is not adequately segregated into transit and domestic traffic, container dwell times averaged about 50 days per TEU in 1991 and dwell times in the stuffing and unstuffing shed averaged 50 days. 19 - (ii). The CFM(S) Railways System 8. The track on the CFM(S) railways system is laid to the standard Southern Africa regional gauge of 1067 m and is an integral part of the interconnected regional railways network. The railways are single line except for the 10 km section between Maputo and Machava - the junction of the Ressano Garcia and Goba lines - which is double track. The railway lines are laid with continuously welded rail of 54 kg/m or 45 kglm weight on concrete sleepers except on the Goba line where the track is a combination of 30 kg1m, 40 kglm and 45 kglm rail laid on wooden sleepers. Curves throughout the system are not sharp being generally in excess of 300 m radius. The steepest grade on the system is 1.6Z between the 34 and 57 km points on the Ressano Garcia line. However, this is not the currently dominant traffic direction, along which gradients across the system are generally light. Permissible axle loads on the system are uniformly of 18 tons except on the Gob& line where one section is limited to axle loads of 16 tons. Passing loop lengths are sufficient to accommodate train lengths of 50 wagons and permissible trailing loads are 1600 gross tons, 1800 gross tons and 2000 gross tons respectively in dominant traffic directions on the Goba, Ressano Garcia and Limporo lines. Train working on the system is mainly by telephone proceed orders and communications is by a magneto telephone system and radio links. The system line capacity based on the current block sections and assuming 24 hours working is 11 trains per day on both the Goba and Ressano Garcia lines and 8 trains per day on the Limpopo line. The Ressano Garcia and Goba lines are currently restricted to daylight working which reduces the practical line capacity to 6 trains per day on each line. 9. In terms of operational assets, the CFM(S) system had a complement of 33 diesel electric mainline locomotives until September 1992 when 11 additional units were delivered. The mainline fleet now consists of two classes of locomotives of different makes, power and vintage: a fleet of 32 General Electric (GE) locomotives of 2150 horsepowere and 11 years old and a fleet of 12 new Alsthom locomotives of 2515 horsepower. The current fleet of shunting locomotives consists of 14 diesel hydraulic locomotives of 1250 Lorsepowers of Rumanian origin. Of this fleet, 13 are currently out of service. The wagon fleet consists of 3702 revenue traffic units of which 2755 are general purpose high-sided, drop-sided or freight cars. The average age of the fleet is 31 years. 10. The performance of the railways system has been poor. The availability of the serviceable fleet of mainline loccmotives has been unsatisfactory, averaging only 60% in 1991. Locomotive utilization is extremely low at an average of less than 100 km per day, in part constrained by predominantly daylight operations. However, there is little prospect of improving much on this performance even if the system returns to full day working principally because of the likely low weighted average haul distances on the system with the existing confinement of motive power to the CM(S) system, and the expanded site of the fleet. The availability of the fleet of wagons is low with 31% currently out of service due to braking systems problems arising from mechanical defects and thefts of ball valves. The proportion of wagons overdue for general service is believed to be high. Although operating statistics are not readily available, the assessed utilization of the wagon - 20 - fleet is extremely low for three main reasonst () traffic on the circuit is low relative to the size of the wagon fleett (ii) traffic origination at Maputo is currently extremely small; and (iii) CFM(S) wagons are not currently permitted on the RSA system because of safety concerns, and traffic from Zimbabwe is predominantly carried on NRZ wagons. Finally, the condition of the track. except the recently rehabilitated sections of the Limpopo line, is poor reflecting the absence of adequate maintenance over a prolonged period. (iii). The Ports/Railways Interface 11. Interface operations between the ports and railways subsystems are plagued by the problems of both subsystems. The port is the focus of marshalling operations on the system. However, the efficiency of such operations is constrained by, inter alia, lines congested with defective wagons, inadequate motive power and delays caused by low rates of service at the berths and the poor sequencing of shunting and stevedoring operations. (iv). Staffing 12. The total number of employees on the CFM(S) system was estimated at 13,078 at the end of February, 1992; staff strength has fluctuated considerably over the past decade reaching a peak of about 17,000 in 1982 and 1983. Much of this fluctuation reflects the high proportion of port workers employed as casuals, the operation of temporary track maintenance gangs, the absence of meaningful controls over the productivity of the workforce and its complement, and the functional inflexibility in the organization and workforce which inhibits the extent to which fluctuations can be smoothed by the internal redeployment of staff. An adequate personnel information system needs to be developed. In addition, a recent study, financed by IDA under the ongoing Beira Corridor Project', indicates a seriously imbalanced staff profile: well over 602 of permanent staff across all functions have very basic or no schooling and have had no significant upgrading of their skills while in the system; and substantially more than 502 of the staff are over 40 years old. By any performance criteria, the system is seriously overstaffed with productivity on the railways at less than 48,000 atkm per employee and on the port at about 400 port tons per worker. As a comparative benchmark, the railways system in Tanzania which is considered at least 40Z overstaffed by its management has a productivity of 80,000 ntkh. (v). Financial Performance of the System 13. Preliminary accounts for CFM for 1988 and 1989 show CFM(S) as incurring net losses of MT 0.5 billion (US$ 0.25 million equivalent) in 1988 and earning a net income of MT 1.5 bn (US$0.8 bn equivalent) in 1989. These figures are based on adjusted cash-based accounts. CEX(S) financial accounts are not a reliable basis for assessing the financial position of the system. First, the fixed assets register is acknowledged to be incomplete. Second, the division of long-tera liabilities consequent to the divisionalization of the system in 1989 has not been determined and debts contracted with capital expenditures on I Credit 2065-MOZ, US$40 million, 1990. - 21 - the system since then are uncertain. Third, working capital accounts are subject to considerable doubts as to their accuracy. Fourth, expenditure accounting is weak with incomplete and uncertain records of material usage particularly in the workshops where the responsibility for the procurement of materials is fragmented between CFN(S) management and donor agencies; and there is an absence of any reflection of the cost of expatriate staff. Finally, accounting policies have not been clearly formulated leaving methods and forms of disclosure as a matter largely of discretion. With appropriate adjustments to the valuation of asset accounts and fuller accounting for long- term liabilities and expenditures, the disclosed net incomes for 1988 and 1989 are likely to translate into substantial losses on an accrual basis. An audit of the opening balance sheet of CPH and its operating divisions and a review of its internal control system and accounting policies have recently been completed under French funding. Given the weaknesses in expenditure accolmnting, a meaningful budgetary system remains a key management objective. (vi). The Competitive Prospects for the CFM(8) System 14. Despite the prolonged period of deteriorating performance, CFM(S) enjoys a number of significant potential competitive advantages which, if properly exploited could provide the basis for the recovery in its performance. Firat, the distance of the port from major centers of economic activity in RSA and Swaziland is shorter than for other competing routes whilst, for Zimbabwe, it offers the closest outlet with dedicated facilities for the handling of minerals and metals which comprise a major part of that country's exports. Second, it has substantial excess physical capacity on both the port and the railways systems. The capacity of all of the systems in competition with it are constrained in their ability to handle large incremental volumes of traffic, particularly of bulk commodities, by the capacity of their ports. Increases in the capacity of these systems would require significant changes in technology or large infrastructural and equipment investments or both. Third, the current relative inefficiency of the system grants it the potential to generate large one-off improvements in its cost structure which can be partly passed on in its pricing structure. These advantages can now be exploited given Improved prospects for peace following the signing of the Peace Accord in October 1992. However, this recovery potential is constrained from being achieved by a number of factors, amongst which the most important aret (a) the deterioration of equipment and infrastructure which would require substantial investments to upgradel (b) the imbalance of equipment and infrastructural capacities across an operationally integrated network which creates bottlenecks that will require investments to relieve; (c) the need to strengthen the capacity and incentives for the management on the system to achieve, monitor, control and sustain an adequate level of operating efficiency on all parts of the system; (d) the current political apprehension and the lack of specific managerial experience and expertise to enter into operating agreements with contiauous railways to improve the operating utilization of railways assets which under prevailing conditions constrain the system to having a higher than necessary capital cost structure; and (e) insufficient information on the evolution and competitive features of potential customers and an insufficient framework for relieving the constraints mentioned above and for capturing an adequate share of the available and prospective market. - 22 - (vii) Past Attempts at Reviving the Performance of CFM(S) 15. Past external assistance to the CIM(S) system has sought to relieve the constraints to the recovery of the performance of the system. Since 1984, at least US$17 million has been provided by the donor community to assist CFM(S) to upgrade the physical facilities of Maputo port to handle international traffic. A further US$16 million has been spent on technical assistance and training to improve management skills and systems and the operational efficiency of the port. On the railways subsystem, the focus of donor assistance has been on the rehabilitation and restoration to service of the Limpopo line. To date, about US$64 million has been spent on this program and an additional US$60 million is expected to be spent through 1993 to complete the line rehabilitation. Aggregate expenditures on the rest of the railways system since 1984 are not readily available. However, at least US$5 million has been spent on technical assistance since 1990 and the total spent on new locomotives and rehabilitation of the system's mechanical engineering workshops between 1990 and the end of 1992 is estimated at US$73 million. CEM is currently seeking donor support for the financing and implementation of a US$167 million investment plan covering the entire system. 16. Although a significant part of the investment undertaken to date, namely the Limpopo line rehabilitation, has not been completed, there is considerable concern amongst the donors that, as a basis for resuscitating the performance of the system, the assistance strategy implicitly pursued to date is flawed. First, the strategic framework in existence to guide investments and actions has not provided a sustainable balance in the performance of all parts of the system. Using donor assistance, CPM has addressed some key deficiencies in the infrastructure, systems and operating assets of the CFM(S) system. However, bottlenecks to efficient operations have arisen in other parts of the system, negating the impact of this assistance. Second, a precondition for the success of any large measure of future assistance is the existence of an organization with clearly defined performance objectives. In the new economic environment, specific operational and financial performance objectives would need to be set for CFM(S) by the Government and actively pursued by its management. Third, with a clearly stated plan of objectives, achieving rapid and comprehensive improvements in the performance of the system would require substantial strengthening of the capacity of the existing management. Such an approach would require the establishment of new performance norms for key areas of operation, the restructuring of current operating practices and the upgrading or scrapping of assets to relieve bottlenecks to the achievement of such norms, the reduction of staffing to levels consistent with acceptable levels of operating efficiency, the revamping of accounting and operating statistical systems to support the monitoring of performance and the restructuring of organizational relationships. Fourth, CVM(S) is a small part of the overall regional transport corridor system, but it is almost wholly dependent on the corridor system external to Mozambique for virtually all its traffic. The railways and shipping services feeding into and out of it represent th* -.at important sources of expenses in the international transport chain for regional importers and exporters. These services are also constituent parts of the other corridors. The regional users are unlikely to be interested in using or promoting the use of the CFM(S) system if the returns to such efforts are perceived as uncertain due to a slow turnaround in - 23 - the system's relative efficiency. Finally, recent developments in the international trading prospects for RSA have introduced new uncertainties into the competitive prospects for the CFM(S) system and created an urgency for the improvement of its efficiency. As a result of the opening of new coal markets, there is cvrrently pressure In the RSA for the development of new port facilities to handle expanded coal exports. The development of a new coal terminal would have two immediate adverse Implications for CFM(s)s (a) it would eliminate the prospect for a meaningfal increase in traffic volumes on the Ressano Garcia line and in the port of Maputo which are dependent on increased coal and other mineral exports; and (b) enhanced competition would be faced for the transport of other transit traffic from commodities which could be handled on the same infrastructure developed for coal exports at little incremental capital costs. (viii) Performance Improvement Strategy 17. To address the constraints on the capacity of the CFM(S) system to be competitive and Improve its performance, Government, the donors and IDA have agreed on the need for a fundamental re-evaluation of the strategy of assistance to the system and the formulation of a coherent restructuring strategy. At the core of this re-evaluation is the recognition that, given the competitive environment, CFK(S) has neither the time nor the resources to pursue a detailed revamping of its operations and management. Further, the Governmeat cannot afford to underwrite the risk that the substantial public resources that would need to be devoted to implement such a strategy might ultimately yield little benefit to Mosambique in terms of enhanced net foreign exchange earnings. In the light of the above and after detailed discussions with IDA and the donors, the Government has decided on an approach to the revival of the CEM(S) system with the following features: (a) the assessment in detail of the strategies and operating actions that would need to be implemented by the CFM(S) system to achieve competitive levels of operating efficiency and an acceptable measure of financial performance in the shortest possible time; (b) the assessment of the scope for involvement of the private sector in managing all or parts of the system to implement these actions and achieve the designated objectives as an alternative to a program of restructuring implemented under the existing organization; (c) based on these assessments, the initiation of a process of active promotion of the involvement of the private sector in the provision of services on the system and, in the interim, provision of assistance to CFH(S) in negotiating the privatization of parts of the system in which private sector operators have already expressed a serious interest in investing and managing. Both the Government and IDA see this approach to revitalizing the performance of the CFH(S) system as having a number of important merits: (i) it would provide the basis for the compilation of a comprehensive dossier on the resources, and the current and the potential performance of the system; (11) it would provide a basis for alternative assessments of the system's financial worth as reference points for the evaluation of bids and form the range of financial values of the system; (iii) it would clearly highlight the relationship between the effective implementation of defined strategies and actions and the long-term financial viability of the system; and (iv) it would make transparent any decision on the scope of private sector participation in the provision of services on the system and base it on the relative capacities of prospective - 24 - private investors to exploit the commercial potential of the system. (ix) Future Forms of Private Sector Participation 18. In terms of the assessment of the scope of private sector participation in the management and operations of the CPH(S) system, Government has decided to limit the options to be considered to three forms as folloves (a) Award of concessions to manage and operate specialized terminals at the port and other specific port and rail facility components to users and private operators. This is a continuation of the existing policy objective pursued by CPH(S). As envisaged, this approach would entail significant external assistance to CPH(S) to strengthen its capacity to manage the other activities of the system and to effectively coordinate operations between and amongst such concessions and the rest of the system. The strategic operating and commercial objectives and approaches to be pursued by CFK(S) would be as defined in the assessment of appropriate approaches to maximizing the financial potential of the system. (b) Creation of a transport corridor conglomerate corporation with award of operating concessions for selected activities by the subsidiaries to the private sector. Under this option, the following are envisageds (i) formal Incorporation of each of the corridor operating divisions as fully owned subsidiaries of CPK; (ii) centralized investment planning by CP; (III) centralized management by CPN of cash generated from operations by the individual subsidiaries; (iv) creation of a General Directorate and Administrative Council for each subsidiary. The General Directorates would be responsible for identifying activities suitable for operation under concession, negotiating specific concession agreements and coordinating the activities of the private operators. The Administrative Councils would be responsible for corporate strategy formulation and the specification of the rights and responsibilities of all parties involved in the management and maintenance of infrastructure. (v) reservation of financial responsibility for the maintenance of the infrastructure of the system for the public sector; (vi) formation of railways operations subsidiaries by the CPH subsidiaries; these corporations would have similar management structures as their parent bodies; and (vii) award of concessions for the operation of selected activities in both the ports and railways to the private sector. - 25 - Noteworthy characteristics of this option ares (a) the possibility of cross-subsidization across corridor systems that cater to distinct marketas (b) strong user influence on all areas of corporate policy including pricing and investmentas and (c) residual responsibility for the financial performance and risks of the syatem on CM and its shareholders. (c) Award of a master lease (concession) to one private sector organization to manage all parts of the system except those activities that can be demonstrated to be better discharged under public sector management. The key features of this option are as followes (i) All operationally useful assets would be transferred from CFM(S) to a new organization, with residual assets made up of scrap or defective assets surplus to the requirements of an efficiently operating organization remaining with the old CPM(S). Alternatively, an administrative structure to manage unrequired assets may be created. All useful assets would be subject to lease to one organization. (ii) All workers, except those selected by the lessee organization would remain administratively under the existing CPH(S) or, as relevant, be transferred to an administrative unit established under the labor redeployment component of the project. (III) The lessee organization may consist of an operator or a combination of operators and investors. (iv) The lessee organization may sub-lease operations or activities to third parties and enter into operating arrangements with contiguous transport systems to achieve operating efficiency. (v) Responsibility for achieving a satisfactory degree of financial performance for the leased assets and businesses would rest with the master lessee organization which would assume all financial risks including those related to equipment and infrastructure for the duration of the lease period. (vi) The new CNH(S) organization would be responsible for the financial performance of the parts of the sstem under its management. (vii) The new CNM(S) organization would be responsible for monitoring the performance of the master lessee and for related corporate planning activities. Under this option, coordination of all activities and investments in such activities would be managed by one entity with a strong financial incentive to ensure that the system performs well. - 26 - III. Detailed Proiect Description 19. Investment Advisory Services. This component consists of three parts as followst (a) Investigative and Analytical Services. This sub-component will involve the detailed evaluation of the past performance of the system; the evaluation of the resources of the system, the scope for improvements in operating efficiency and the means through which such Improvements could be achieved; a detailed review of the market prospects of the system including the commercial strategies that would need to be pursued to gain market access and share and the changes to any regulations affecting the commercial attractiveness of the system that would need to be madet an assessment of the investment requirements across the system to support the market strategy; an evaluation of management and technical capacities in the system and indicative staffing requirements and costs; an assessment of the financial performance potential of the system and possible ways in which the system might be structured organizationally; and the assessment of the options for privatizing the system. It is estimated that these investigations would require 74 man-months of effort over a seven month period. The team undertaking this task would comprise a coordinator supported by two analysts and a group of technical specialists consisting of railways and ports operations specialists and engineers, management consultants, market analysts and logistics specialists. A review group consisting of personnel drawn from a number of ministries and supported by external advisers would review designated outputs produced by the team. Ths review process reflects the Government's concerns that a broad bod of experts be involved in the conduct of the study to ensure that the: is a measure of consensus behind the final recommendations arising from the investigations. Government would make a decision on the global strategy for the restructuring of the CFM(S) system and the degree of privatization of service provision to be aimed for on the completion of this sub-component. Terms of reference for this sub-component were finalized at negotiations. (b) Financial Advisory Services. This sub-component will address the requirement of the Government and CPM for support in negotiating and structuring transactions for the privatization of operations of some of the specialized port terminals and for the involvement of the private sector in the management of maintenance facilities on the railways. Such advisory services would be provided on an as-required basis by the investment advisory firm selected to co-ordinate and manage the investment advisory services component. Six man-months of services have been provided for this component. These services are expected to be required prior to the completion of the analytical and investigative studies. (c) Investment Advisory and Investment Promotion Services. These services will cover the design of options for the privatization of the provision of services on the system, the preparation of appropriate investment solicitation documentation, promotion of privatization - 27 - schemes to likely interested Investors and operators and assistance to Government in negotiations with prospective investors. The design of privatization options will be based on the investigative work done and take into account any measure of privatization achieved prior to the completion of the investigations. 20. Lexal Advisory Services. A review of the legal framework governing the conduct of business by CPH was undertaken during appraisal. This review indicated a number of potential legal issues of relevance to the proposed restructuring of CFM(S). First, existing labor laws and regulations clearly define the administrative and legal procedures to be applied in all cases of termination of redundant workers. Hovever, workers transferred from MTC to Cm in 1989 are covered by different labor regulations ('Estatuto dos Funcionarios do Estado' and 'Lei do Trabalho') due to its transformation into a state-owned enterprise. Accordingly, clarification of the procedures to be followed for shedding workers is required. Second, the civil law legal framework adopted by Mozambique makes no provision for the concept of an operating lease as practiced in the comnon law tradition. However, the concept of a 'concessao de servico pdblico' (a concession of public service) does exist. Such a 'concession' can be structured to mirror the features of an operating lease (i.e. allocation of the use of state-owned assets to a third party for defined periods of time under specified rules and payment terms). The applicability of this concept for the project will be examined and other appropriate legal instruments identified in accordance with the provisions of the existing civil and commercial codes in Kozambiqae. Third, under existing laws, state-owned and private enterprises can enter into joint- ventures for the operation of services. Currently, the climate for the operation of such legal entities is highly uncertain since the state reserves the right to revoke any provisions in these agreements. In xecognition of this, Government is currently reviewing the foreign investment law (Law No. 4184) and other related regulations with a view to strengthening the framework for the provision of incentives and guaranties. The proposed legal advisory services component wills (a) assist Government to update and streamline the existing legal framework governing 'concessions of public service'; (b) establish whether satisfactory modalities are available to handle extensive labor redeployment from CFM within the framework of the existing labor laws and regulations and, as relevant, assist the Government to revise and streamline existing labor laws and regulations; (c) assist the Government and CPM in reviewing and updating as necessary, provisions of the civil code, commercial code and administrative law applicable to the options under consideration for the privatization of service provision on the CFM(S) system; and (d) support the Government in negotiating specific privatization transactions as they arise; such support to include identification of any critical legal issues, possible forms of solutions to such issues and drafting, as necessary, of agreements and other legal documentation. The estimated requirement for legal services is twelve man-months for the review and amendment of laws and regulation and six man-months for the transaction- related legal services. 21. Environmental Analytical Services. Conditions on the CPM(S) system in terms of both environmental protection and occupational health and safety are inadequate and unsatisfactory. There are no pollution abatement, oil and - 28 - waste collection, processing or disposal facilities for use by ships and on the port. Safety consciousness in the workshops and at cargo-handling facilities is low and compounded by the unsafe condition of some equipment and the use of protective clothing is limited. Dredging is becoming an Important issue of environmental concern as the significant deferral of maintenance dredging since independence is being rectified and routine maintenance procedures are put in place. It could become an even more important issue if the capacity of the port or the competitiveness of shipping services is to be enhanced. Similarly, the protection of wetlands is emerging as an issue as CFM(S) plans to extend the port of Natola by infilling wetlands and has commenced with the use of trash and construction debris. On the railways, standards for safe handling of toxic and other unsafe cargo as well as the use of chemical compounds in maintenance activities are non-existent but are likely to emerge as key areas of concern. This project component will Involve the review of existing standards of occupational health and safety and pollution abatement governing port and railways operations, the assessment of the safety of operating and maintenance facilities, the recommendation of standards to be complied with including international conventions governing environmental protection in ports. the assessment of required changes in operating and safety procedures, t1he assessment of the investment requirements to comply with minimm standards f safety and environmental protection and an assessment of the issues to be explored in relation to future maintenance dredging and, if justified, quay expansion in the port. This study will be coordinated with the preparation of a National Environmental Action Plan under which the issues of regulation of environmentally sensitive activities and occupational health and safety and the national capacity for monitoring compliance with regulatory standards are to be studied in detail. The study is expected to require five man-months of effort to complete. The scope of work for this component was finalized during the negotiations. 22. Labor Redeployment Strategy. This component of the project would involve the preparation of detailed options for the redeployment of surplus staff from all three corridor systems, the elaboration of the eligibility criteria for specific options, the likely unit cost of retreachment under each option, the required administrative structures for each option and the institutional arrangements for management of a comprehensive program of retrenchment and redeployment of workers. A detailed assessment of the number of surplus staff has already been made on the Beira Corridor system and a preliminary assessment of redundant staff has also been carried out for the Maputo Corridor system. It is intended that the completion of this study will be followed quickly by implementation of a redeployment program covering some of the already identified workers. This component was prepared by USAID in consultation with Government, IDA and the donors. 23. Equipment. The following equipment, with an estimated total base cost of US$1.2 million, would be provided under the project: (a) Port Handling Xquipment. The port of Maputo is currently incurring a shipping surcharge of US$225 per container for container vessels, which significantly undermines its competitiveness. This surcharge is being imposed by shipping companies to compensate for high total turnaround times for container carrying vessels. These conditions are attributable - 29 - to poor service times due to the slow clearance of containers from the quay to the parking areas as well as congestion in container parking areas. These in,turn are largely caused by an imbalance in the capacity of handling equipment for transfer of containers from the queue relative to the discharge rates of the ship-to-shore gantry cranes. This constraint in the capacity of handling equipment reflects in part the low rates of mechanical availability of an aged fleet of tractor units and front-end loaders. Any provision of equipment under the project would ensure: (L) that the port is at least capable of handling some container traffic at competitive shipping rates whilst the design of a restructuring program including the prospective privatization of the container terminal is underway but (ii) the equipment requirement would be sized to insure against the risk of redundant assets and the possibility of non-recovery of the full cost of such additional equipment from a lessee with possibly different preferences as to equipment configuration. It was agreed at negotiations that priority equipment investments would be made based on IDA having received from Government a satisfactory report containing the economic and financial justification for said investments. (b) C.mmunications Equpment. Maputo has faced and continues to face an immediate logistical challenge in moving a large volume of maize for drought relief in neighboring countries. However, the communications facilities to enable effective operational co-operation with neighboring countries are limited. Such links are essential not only to facing the Iamediate challenge but to future effective service to customers in neighboring countries. In particular, part of the objective of the support for communications upgrading is to facilitate the linking of CPM(S) operations with the tracking systems of neighboring railways. The equipment to be provided under the project will include facsimile transceivers, microcomputers and related software. - 30 - SECTION Bt Project Costs. Financing, Procurement. Disbursements. Reporting, Management and Agreements Reached I. Project Costs 1. The total project cost is estimated at US$10.5 million with a foreign exchange component of US$9.3 million or about 89Z of total costs. The estimated total project cost is net of taxes and duties which would be borne by the Government. The project costs are estimated on the basis of a six-year implementation schedule which is consistent with the experience of the Bank for the implementation of projects in Mozambique. Base cost estimates are calculated using March 1992 prices. Price contingencies of 3.9Z p.a and physical contingencies of 101 have been applied to all components except for the labor redundancy study which is expected to be awarded on the basis of a fixed budget. Given the limited window of opportunity available to the Government to implement actions to restore the competitiveness of the CFM(S) system, an implementation schedule of six years is inconsistent with the objectives of the project. Accordingly, for project management purposes, an implementation target of 2 to 3 years has been agreed upon with the Government; appropriate incentives would be built into the contract with the investment firm to make this achievable. This would reduce total project costs to approximately US$9.6 million. II. Project Financing 2. The proposed IDA credit of US$9.3 million equivalent would finance 891 of total costs including 1001 of the foreign costs and 571 of the estimated local costs of the investment and legal advisory components of the project, and 100% of the total cost (excluding taxes) of port handling and communications equipment. The total estimated cost of the environmental analysis component (US$0.1 million) and the labor redeployment strategy component (US$0.6 million) of the project would be parallel financed by ODA and USAID, respectively. Government financing of US$0.5 million would be utilized for part of the local cost of the investment and legal advisory services, including office facilities and secretarial support. III. Procurement 3. The procurement procedures for the IDA-financed components are as followes (a) Investment Advisory Services. The contracts for the conduct of a review to determine the operating and financial potential of CFM(S) and provision of investment promotion and financial advisory services would be awarded as one package to the best-evaluated firm from a short-list of investment banking firms. The firms may contract for the services of technical specialists or associate with specialist technical or management consulting firms as necessary to cover the scope of work, but would assume singular responsibility for all phases of the work. The selection process would be based on the Bank's *Guidelines for Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" (August 1981); (b) Legal Advisory Services. Legal Advisory Services would be contracted for from firms with experience in civil law systems. The selected firm would nominate two * 31 - Individuals with resumes satisfactory to GOM and IDA to provide legal advisory services to CIM and the Government on an as-called for basis; (C) Equipment. Equipment would be handled in two packages. Comnunications equipment. expected to cost in aggregate less than US$300,000 would be limited to US$50,000 per contract and procured on the basis of the comparison of price quotations obtained from at least three suppliers from at least two different countries eligible under the Bank's *Guidelines for Procurement under IBRD Loans and IDA Credits" (May 1992), and in accordance with procedures acceptable to IDA. Port handling equipment would be procured as one lot under ICB in accordance with Bank guidelines. Contract Review. Contracts above US$100,000 equivalent would be subject to IDA's prior review of procurement documentation. The balance of the packages would be subject to random post- review by IDA after contract award. IV. Disbursements 4. The proceeds of the Credit would be disbursed against expenditures as followes (i) 95% of total expenditures on consultants' services; (ii) 100? of total expenditures on communications and port handling equipment. For expenditures on the local component of the advisory services and purchase orders and contracts not exceeding US$50,000, disbursements would be on the basis of statements of expenditures (SOs). All other disbursement claims would be fully documented. In order to expedite disbursement of funds, a special account with an initial deposit of US$0.4 million would be established and would be replenished in accordance with procedures agreed at negotiations. The estimated schedule of disbursements of IDA funds is shown in Schedule B. Disbursements are expected to be completed by June 30, 1998, if not earlier (para. 1), with the Closing Date scheduled for December 31, 1998. V. Reporting and Monitoring 5. During negotiations, the following accounting and auditing arrangements would be agreed upon; (i) Project accountes that memorandum accounts would be maintained on a basis satisfactory to IDA by CFM for all IDA-financed components of the project, including local costs financed by Government; (ii) Audits: (a) that the project accounts, including the Special Account, and all disbursements against SOEs would be audited separately and on an annual basis by independent auditors acceptable to IDA; (b) that the consolidated annual accounts for CFM and the accounts for CFM(S) would be audited and submitted annually to IDA by no later than six months after the end of CM's financial year. The following arrangements for project monitoring and reporting would be agreed upon during negotiations: (i) that MTC would provide on a quarterly basis consolidated reports (comprising the quarterly reports of the consultants and MTC commuents thereon) on project implementation progress covering the status of procurement of goods and progress in the conduct of the advisory services and studies; and (ii) that MTC would prepare and submit to IDA no later one mouth prior to the mid-term review (set for ten months after the date of effectiveness) a review of the progress of the project summarising any privatisation transaction made to date. This submission should also detail the findings and recommendations of the investigations and analyses carried out by the investment bank specifying the bases for Government's decision on a global strategy for restructuring CFM(S) including the scope for private sector service provision and any significant deviations (and the reasons for them) from the recommendations of the investment bank. The - 32 - actions and timetable proposed to be taken by Government to implement its decision should also be outlined. VI. Project Management and Review 6. The project would be managed by an inter-agency committee consisting of senior officials from MTC, the Ministries of Finance and Commerce, the National Planning Commission, Banco de Mosambique and the Ministry of Justice. The committee would be responsible to the Minister of Transport and Communications, who would report on the activities under the project to the Council of Ministers or other competent authorities as agreed with IDA. The committee would be headed by a senior official from MTC and operate on a full- time basis. The body would be responsible for monitoring all phases of the project, includings (i) bid analysis and proposal of contract awards for the provision of services; (ii) analysis and approval of the assumptions and criteria used by the selected firms; (iii) analysis of new investment projects for CFM(8) during the period under which the investigative analytical components are being carried out; and (iv) implementation of the decisions arising out of the investigative analytical phase of the project. Other working committees may be established by this committee as required to review specific components of the project. However, all such sub-committees would be headed by a leader designated by the head of the inter-agency committee. For transaction-related activities, the committee will review all proposals for the promotion and execution of investment deals and make recommendations for any modifications in such deals for approval to the Council of Ministers. CFM would provide both the committee and the investment firm with a regularly updated list of proposals currently under consideration or received during the implementation of the project. The review sub-committee for the investment advisory services will meet on a fortnightly basis with the lead advisor of the investment advisory services provider to review progress in the performance of services. Day-to-day operational support for this official will be provided by CPM as part of its counterpart contribution. 7. The key elements of the Implementation process and other relevant issues were discussed at negotiations, and based on this implementation guidelines are being prepared in close consultation with representatives of the inter- agency committee and CPM. VII. Agreements Reached 8. During negotiations, agreement was reached on the followings (i) all project financing for the advisory and consulting services will be passed onto CFM as equity, and all project financing for equipment will be on-lent to CPM at a fixed rate of 9Z for a tem of 15 years, including a grace period of five years (p. 6. para. 15); (ii) for every year starting in 1993: (i) a draft multi-year investment plan will be submitted to IDA by September 15; (11) a joint GOM/Donor/IDA review of the draft plan will be held by October 15; (111) a final version of the plan based on the review will submitted to IDA by November 1 and (iv) a progress report detailing measures taken to implement the plan will be submitted to IDA by April 15 (p. 7, para. 15); - 33 - (III) project accounts and all disbursements against 80s will be audited separately and on an annual basis by independent auditors acceptable to IDAl and the consolidated annual accounts for CU and the accounts for CFM(S) would be audited and submitted annually to IDA by no later than six months after the end of CPM's financial yearl (p. 31, para. 5) and (iv) a mid-term review be carried out no later than ten months after the date of Effectiveness (p. 7, para. 15)1 (v) no later than one month prior to the afore-mentioned review NTC will submit to IDA a progress report detailing any privatisation transaction made to date, as well as the findings and recommendations resulting from completion of the investigative analytical component specifying the justifications for Government's decision on a global strategy for the restructuring of CPM(S) including any significant deviation (and the reasons for them) from the recommendations of the investment firm (p. 7, para. 15); and (v) HTC provide IDA with quarterly progress reports (comprising the consultants' quarterly reports plus MTC comments thereon) covering the status of procurement of goods and progress in the conduct of consulting services (p. 31, para. 5); 9. It was agreed that the following would be conditions of effectiveness (p. 7, para. 15): (i) the execution of a Subsidiary Loan Agreement between Government and CFM; (ii) the execution of an Administration Agreement between Government and CFM; and (iii) the submission of the audit reports issued by independent auditors on the financial performance of CPM for the 1989, 1990 and 1991 fiscal years. 10. It was also agreed that the following would be conditions of disbursement (p. 7, para. 15)s (i) that disbursements would be made against the category of consultants to carry out the transaction-related services only after a decision on a global strategy for the restructuring of CPM(S) satisfactory to IDA has been made by the Government; and (ii) that disbursements for equipment would be made only after IDA has received from CmN, a satisfactory report containing the economic and financial justifications for prioritised equipment items to be financed under the project. * 34 - Section Ct Nature and Timing of Consultancy Services to be Provided. Terms of Reference, Consideration of Implementation Issues and Summary Implementation Schedule NATURE AND TIMING OF CONSULTANCY SERVICES TO BE PROVIDED A. Introduction 1. Five types of consultancy services will be provided under the projects (i) Services for business strategy formlation, valuation analysis, formulation of the extent and form of private sector participation in service provision on the system and restructuring of CFM(S) and the relationship between GOM, CFM and CPM(S); (ii) Investment promotion and financial advisory services; (iii) Services for the formulation of labor redundancy strategies, and training and related cost-sharing mechanisms; (iv) Legal advisory services; and (v) Services for system-wide analysis of environmental protection and occupational health and safety standards, definition of regulatory standards, compliance and related investment requirements, and modalities for burden-sharing between public and private sectors where relevant. 2. Services (i) and (ii) are intimately linked and will be managed by one service provider. The terms of reference are provided in Appendix A. 3. Service (iii). The definition of redundancy strategy options, detailed analysis of requirements for each specified strategy and that of the management of implementation of a redundancy program will procsed independent of services (i) and (ii). However, choices of options, implementation periods, total likely cost of chosen options in the case of the CVM(S) system and final management arrangements for CFK as a whole will need to take into account inputs from services (i) and (U1). The scope of work for this component was developed under the auspices of the funding agency (USAID) and service is to be provided separately. 4. Service (iv). The Government and CPH would require an independent view of the legal implications of proposed business strategies, the feasibility of specific corporate or concessionileasing arrangements and assistance in reviewing and structuring contractual agreements with external parties. This advisory service will be provided independently of services (i) and (ii). The service will be structured in two phases. The first phase will consist of providing assistance to Government in the process of reviewing, streamlining and updating the legal and regulatory frameworks governing (a) concessions of public services; (b) labor redeployment issuess and (c) the comercial and administrative legal issues pertaining to public companies and the privatization of service provision on the Maputo Corridor. The second phase - 35 - vill consist of providing assistance to Government in the preparation and negotiation of transactions arising from the mode of privatisation of service provision selected by the Government. The terms of reference are provided in Appendix B. 5. Service (v). The environmental regulatory and compliance issues are to be addressed in a national context taking into account the existence and adequacy of national standards and monitoring capacity. This will involve the close participation of the Environmental Division of the National Institute for Physical Planning in the review and analyses as well as the addressing of its capacity to manage such issues in so far as they relate to ports and railways. The investment and cost implications will only be defined after the review is completed. This service will be provided independently and arrangements to ensure that its completion is adequately sequenced to provide an input into the appropriate phase of service (i) were agreed with the funding agency (ODA) following negotiations. Terms of reference are provided in Appendix C. B. Contracting for Service Providers 6. The preparatory activities to be undertaken for the process of contracting for service provision ares (i) the definition of scope of work, competencies required fr-a service providers and timing of outputs; (ii) the definition of criteria for evaluating potential service providers; (iii) the development of a shortlist of potential service providers; and (iv) the preparation of letters of invitation (including draft form of contract for provision of services) to be sent to potential service providers. 7. At negotiations, agreement was reached with Government and CFM on the following provisional time-table for the contracting processs Submission of Package (Letters of Invitation, etc) to IDAs March 15, 1993 Release of Documents to Short-Listed Firms: March 29, 1993 Receipt of Proposals: May 31, 1993 Submission of Results of Evaluation to IDA: June 14, 1993 Negotiations with Best-Rvaluated Providers July 12, 1993 Submission of Negotiated Package to IDAs July 26, 1993 Contract Signings August 16, 1993 Start of Assignments November 1993 Rey implementation issues underlying the guidelines currently being developed are attached as Appendix D and a Sumary Implementation Schedule is provided in Appendix B. The components of the project to be parallel-financed by USAID and ODA will be contracted for according to their procedures. - 36 - Ap!endix A Page 1 of 17 MOZAMaIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT TERMS OF REFERENCE FOR INVESTMENT ADVISORY SERVICES BACKGROUND 1. Mozambique has three transport corridors serving the international transit traffic of neighboring countries. Each corridor comprises an integrated ports and railways system linked into the regional markets by a well developed regional railways and roads network. The northern corridor, comprising the port of Nacala, the railway line to Malawi and a branch line to the Mozambique Province of Niassa, managed by CFM-Norte, serves the international and national trade flows of Malawi and of the northern Provinces of Mozambique. The central corridor, managed by CPH-Centro, comprising the port of Beira and three railway lines to the borders with Zimbabwe and Malawi, and the northwestern Mozambique Province of Tete, serves the international and national trade flows of Zimbabwe, Malawi, Zambia as well as Mozambique. The southern corridor, managed by CFM-Sul, comprising three railway lines linking the ports of Maputo and Matola with the railway systems of Zimbabwe, South Africa and Swaziland, and the southern Mozambique Provinces of Gaza and Maputo, serves the international and national trade flows of these countries and to a certain extent those of Botswana, Zambia and Zaire. Of these three corridors, the CF-Sul system has the largest inherent transport capacity and the hinterland with the greatest traffic potential, but faces the greatest competition from transport outlets in South Africa. 2. The corridors play an important role in the economy of Mozambique. In particular, they have a potential to generate significant net foreign exchange to cover much of the country's balance of trade deficits. However, the volume of transit traffic has declined steeply in the last two decades and the financial performance of the systems has deteriorated correspondingly. The decline in traffic has been due to a combination of factors including disruptions to transport operations by sabotage of railways facilities and weaknesses in the organization and management of the systems. S. In the early 1980s, the Government of the Republic of Mozambique (GOX) decided to launch a major an lopment and investment program aimed at the rehabilitation and modernization of the entire port and railway network of the country, in order to restore the cost efficient trade routes serving the large demand of a vast area of the Southern Africa region. Subsequently, and as a matter of consistency, in 1989 GON decided to restructure the parastatal responsible for the port and railways sub-sectors - CF, to enable the provision of transport services with the required efficiency and effectiveness and to respond appropriately to the competitive environment of each corridor. It approved a set of policies aimed at the revitalization of the operating divisions responsible for the day-to-day management of the country's three corridor systems, namely CF-Sul, CPM-Centro, and CFM-Norte, that are integral parts of * 37 Appendix A Page 2 of 17 MoZANqus MAPUTO CORRIDOR REVITALAZATION (TECHNICAL ASSISTANCE) PROJECT the transport network in the Southern Africa region. These policies define measures that comply with market-oriented and profit-making management objectives, and encourage the participation of private interests and capital. They comprise specifically* * Organizational and institutional reform of CM as a whole, with the introduction of commercially-oriented and cost-effective management practices, in order to provide the optimal level of services in response to customers' demands and wishes; * Reduction of redundant workforce and/or its professional reorientation, and the introduction of incentive schemes and salary levels that help stimulate labor productivity; * Participation of private interests and capital in the management of specialised port terminals, using medium- and long-term concession contracts whenever this introduces added value, particularly with the main users of the facilities and other intervening parties in the transport chain with clear influence in the specific market segments; * Establishment of joint-ventures with direct national and foreign investment that generate additional traffic volumes in accordance with the investment levels, mainly in the expansion of the port terminalsl * rarticipation of private interests in the maintenance and supply of services that help to achieve greater levels of availability of port and railway plant and equipment; and * Reinforcement of the protection and security schemes for the port and railway networks. 4. Since the adoption of this program of restructuring, there have been significant changes in the region that are likely to affect the future market prospects of the systems. These changes also increase the urgency for the systems to be competitive and sufficiently profitable to be financially self-sustaining, and to generate a return to GOM on its large investment. In view of this emerging situation, G04 now wishes to secure the services of an investment advisory firm to assist it in deepening the restructuring process of CFM-Sul, which faces the biggest competitive challenge. 5. Phasing and Scope of the Services : The work of the firm would be structured in three phases, as follows: * 38 - Appendix A Page 3 of 17 Nonnizqua HAPUTO CORRIDOR REVITALIZATION (TSCHNICAL ASSISTANCE) PROJECT * In the first phase, a detailed analytical study of the market for the CFM-Sul system's services and its competitive position and prospects would be undertaken. * In the second phase, the scope and form of privatization on the CFM. Sul system (and, by corollary, the degree of public sector Involvement in the system's management) would be determined. * The third phase comprises the advisory and support services to GOM and CPM in the Implementation of the option as decided upon by the GOM. 6. In addition to the work in these phases, advisory services would be provided by the firm in relation to the structuring and negotiations of investment traniactions currently under consideration for the CPM-Sul system, to ensure that CFM's financial interests are adequately protected. 7. The GO envisages that the investment advisory firm's services in the process of restructuring of CPM-Sul would cover the following areass * The firm would be expected to assist the GOM in evaluating the financial prospects of the system and in identifying the related operating, investment and coamercial strategies that should be implemented to realize these prospects and ensure that the CFN-Sul system earns an adequate return on the total capital invested in it; * The firm would define the options available for restructuring the CPN-Sul organization and attracting private capital and expertise to effectively implement the identified strategies and achieve the financial objectives in the most timely manner; * Subject to the choice of an organizational restructuring option by the GOM, the firm would assist the GOM and CPM to attract and negotiate private sector investment in identified areas of the CIM-Sul system and map out an Implementation strategy for the management of those activities to be retained by CFM-Sull * The firm would be expected to assess the major institutional impacts of the restructuring option selected for the CFM-Sul system on the other corridor systems in Mozambique and on the CPM organization as a whole, and recommend appropriate readjustment measures; and * The firm would assist the GOM and CIM in structuring and negotiating private sector investment proposals currently under consideration. - 39 - Appendix A Page 4 of 17 MOZAMBI(U MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT 8. In undertaking the assignment the selected firm would need to take into account the fact that the Government has decided that ownership of all existing assets in the system will continue to be legally vested in CFM. Accordingly, the potential forms of privatisation will be confined to the provision of services on the system with the use of such CR assets on a concessional (leased) basis. In carrying out the detailed analysis outlined below, the investment advisory firm shall make explicit the criteria used and assumptions considered. In its analysis, the firm will be bound by all applicable legislation. However, it may suggest possible changes in the legislation if absolutely necessary to accommodate the privatization arrangements agreed upon by GOM1. In making any recommendations on possible changes in legislation, the firm should consult closely with the legal advisors to GOM. In addition, all relevant studies already undertaken shall be consulted. A. Investigative and Analytical Services 9. The Investigative and analytical services to be undertaken will serve two broad purposes. First, the information generated will enable the Government and the advisory firm to assess the performance potential of the system, determine the options for partitioning the system for privatization and evaluate the range of valuations that could be placed on the system. Second, the information to be disclosed in the investment memoranda and other documents to be used to promote private Investment in the system will be drawn from the investigations and analyses. The advisory firm will play a key role in the determination of the exact forms of and the extent of disclosure of information in such documents. 10. Evaluation of Financial Prospects of the System: In evaluating the financial prospects for the system, the services of the advisory firm are expected to cover the following areas: * The investigation of the past operating and financial performance of the system; * Detailed investigation of the current resources and productive capacity of the systemg * Analysis of the market prospects for the systemt and * Projections of the financial performance of the system. The detailed scope of work for these investigations and analyses are presented in the following paragraphs. * 40 - Appendix A Page 5 of 17 WoNNJZ MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT 11. Historic Operating and Financial Performances The investigations and analyses under this service heading should cover the followings Historic Operating Performance 12. The advisory firm shall collect and appropriately tabulate operating performance data for the 1970-1991 period. This information, which will provide the background to changes in the system's competitive position and financial position and its current status, should cover the followings * The key operating assets of the port and railways subsystems, e.g. number and topology of operating berths, as relevantl storage areas in the port; number and type of port handling equipmentl number of locomotives by type, i.e. shunting and mainlinet number of wagons by type, etc; * Productivity of major classes of assets on the railways e.g. annual average availability and utilization of locomotives and vagons; * Samary measures of the efficiency of service provision on the ports, e.g. gang productivity in handling major types of traffic, throughput per berth; ships' waiting time, etc; * Rate of availability of major classes of port equipment, e.g availability of cranes, tractors, trailers and forklift trucks; * Traffic throughput on the port and railways subsystems, separately and on the system as a whole; in each case the data should be categorized into its major commodity components; and * Overall manpower productivity in the subsystems and in the system as a whole. 13. A sumary narrative should be provided in which any Important trends in the system's productive capacity and productivity should be highlighted and causative factors identified. Historic Financial Performance * So far as available data allows, data on the financial performance of the system should be derived for the same period as for the operating performance analysis. These should show, as a minnimm where feasible, the pre-interest profit and loss performance of the system and its cash flow generation from recurrent operations. - 41 - Appendix A Page 6 of 17 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT * Based on the available financial data and on knowledge of the assets structure of the system during the specified periods, a sumary analysis should be provided as to the financial viability of the system during the above period(s). 14. Resources and Productive Capacity of the Systems The analysis, which will fozm one of the valuation benchmarks for the system as well as the basis of the assessment of its latent capacity, should cover the following areas: Physical Assets of the System * A full inventory of the operationally useful assets should be prepared for the port and railways subsystems. For working purposes, the operationally useful assets of the system may be defined as those assets that are in the day-to-day operational control of CFM-Sul and are either In working order or can be restored to a satisfactory working condition within a time and cost threshold to be determined by the advisory firm. * Based on the assets inventory, a determination should be made of the current value to be assigned to various classes of assets, taking into account their age and condition. Classes of assets will be defined by the advisory firm according to operationally meaningful criteria. Valuation bases should be determined by the firm and should be explicitly stated and justified. 15. OperatinR Capacity of the Systems The throughput capacity potential of the constituent parts of the system should be assessed separately based on: * The assessment of the operationally useful assets of the system; * Efficiency criteria, e.g. availability of handling equipment, locomotives, wagons, etc, utilization rates of available equipment and assets, work-gang productivity, etc, judged as being attainable; * The bases for the efficiency criteria used in the exercise should be made explicit. The criteria should be organized under a limited number of scenarios. One such scenario should take explicit account of the Impact of available options for enhancing assets availability and utilization by eventually entering into operational arrangements with neighboring railway systems. Where such arrangements are proposed, the feasibility of such approaches should be explored with the concerned systems and the results of such consultation fully documented. - 42 - Appendix A Page 7 of 17 MOZAMBIQUE MAPUTO CORRIDOR REVITALI2ATION (TECHNICAL ASSISTANCE) PROJECT * Infrastructural bottlenecks to the achievement of the subsystems potential throughput capacity should be identified and the cost of rectifying such constraints assessed separately. This assessment should cover all infrastructure assets, including the port channel. * As a separate exercise, the capacity of the system as a whole, under different scenarios of operating efficiency should be determined taking into account the likely constraints, inter alia, the capacity of the port, the limits to ships queuing, storage capacities at the port and the railways terminal yards' capacity. The potential binding constraints on the overall system's capacity under the different scenarios should be identified in this exercise. 16. Manpower Resources: A study to determine the options and implementation arrangements for reducing staff would have been completed by the anticipated start of the investment advisory and related services called for herein. Also, it is anticipated that actual implementation of staff reductions on the CPM system as a whole and particularly on the central corridor where the assessment of surplus staff is well-advanced, would have commenced. The purpose of this set of investigations and analyses is to refine the assessment of surplus staff, evaluate the total costs of adequately staffing the system, define the type of measures that would need to be taken to ensure the system's ability to recruit and retain appropriate staff, and the distribution of responsibility for implementing actions to ensure an appropriate climate for managing labor costs and quality between GON and the system's management. The selected firm would be expected to undertake the followingi * Determine the number of employees in the port and railway subsystems, analyzed by function and further classified within functions by broad skills category, age cohorts and length of service. * Identify current industrial relations practices in both subsystems and determine whether critical procedures are governed by statutes or evolved practices. * Identify pension regulations, if any, in force, their cost and current solvency status and whether mandated by law or evolved entity practices. * Based on the work done on the operating capacity of the CPM-Sul system, as well as other investigations and studies for the overall CFM, provide estimates of the manpower requirements by occupational category and the degree of labor redundancy or skills shortage by - 43 - Appendix A Page 8 of 17 MOzAWIqUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT occupational category. * Formulate strategies for effecting any reductions in the manpower requirements. * Assess the time frame over which such staff reduction strategies should be implemented taking into account the systeaa competitive environment and the need for the system overall to reduce costs and increase its efficiency. * Assess the financial costs of implementing the strategies taking into account, inter alias ** Contractual statutory and other service obligations; and ** The time frame over which such strategies would need to be Implemented and the related need to offer appropriate inducements to staff to effect a speedy adjustment to the required staffing levels. * Assess the level of remuneration and the nature of service conditions necessary to ensure that the systems can compete effectively for the recruitment and retention of required skilled staff, particularly in the areas of shortage. * Identify training facilities and resources available within CPH and the country at large that could be used to upgrade skills in key functional areas with manpower shortages. * Identify strategies for strengthening the specific training needs of the port and railway subsystems whilst ensuring adequate mechanisms for effective cost recovery or funding for such programs if the potential beneficiary organizations are different from the providing organizations. 17. Administrative and Management Control Systems and Resources * Evaluate the adequacy and effectiveness of maintenance planning systems, operations planning and control systems, management accounting and budgetary control systems and procedures, personnel administration systems, financial accounting and management systems. and other key decision support and management control systems. Identify, where relevant, if systems are shared within parent organization or dedicated to the CPH-Sul system alone. - 44 - Appendix A Page 9 of 17 MOAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT * Assess the adequacy and competence of staff operating such systems. 18. Market Prospects of the System: The review of the system's market potential should cover the following areass * A detailed review of the potential customers of the system, including their competitive prospects and growth potential. * An assessment of the competitive advantages and current disadvantages of the CPM-Sul system in serving such customers. This analysis should cover a review of the total cost of transport for the major identified groups of customers from point of traffic origination to destination (final customer) if the CFK-Sul system is used as compared to the use of alternative transport routes. The cost of the constituent services in the CFK-Sul system and alternative routes should be identified. The analysis should also explicitly identify service-quality differences as well as emerging competitive factors (e.g. differential adoption of improved technologies and planned or ongoing reorganizations by the parts of the route system outside Mozambique to improve their competitiveness) having or likely to have an effect on route choices. * Identification of the constraints on the competitiveness of CFM-Sul arising from the structure of relationships between the CPM-Sul system and other contiguous transport systems or service organizations in the regional transport network. * Identification of regulations and practices adversely affecting the smooth facilitation of traffic through the system and the final delivered cost of trade routed through Mozambique. This should cover inter alia export and import documentary requirements and carriers' liability, current trading and payment policies and practices of CPM-Sul, insurance practices and costs, structure of the freight-forwarding and clearing and shipping agency industry and its effectiveness, etc. * Identification and evaluation of the options for reducing the cost of service on the various components of the routes encompassing the CFM-Sul system, particularly where cost is the source of competitive disadvantage for CFM-Sul. * Formulation of various scenarios of traffic levels and growth for the system under clearly defined competitive conditions. - 45 - Appendix A Page 10 of 17 MoAMBQaU MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCI) PROJECT * Comparison of the scenarios of traffic levels and operating capacities and assessment of potential asset redundancies or future investment requirements. 19. Proiections of Financial Performances These projections are required to give an indication to the GOM, subject to pursuit of identified operating and market strategies, of: a) the range of future operating cash flow generation by the system; b) the magnitude of claims on such cash flow generations for financing new asset acquisitions and replacements and maintaining the system's capital base; and c) the potential amounts available for distribution to it and potential investors. 20. To do this task efficiently it may need to be assumed that a reconstruction is effected possibly covering the followings a) a new abstract entity is created in which all existing operationally useful and required assets are vested at the valuations arrived in para. 14; b) assets assessed as required to supplement the existing operationally useful assets are leased in or hired through operating agreements with neighboring entities or purchased and financed with debt; and c) the value of the transferred assets represents the GON's opening equity in the abstract entity. 21. Subject to this and/or any other convenient working assumptions, the scope of work for this component should cover the following areas: 22. Operating Cost Structure: Operating cost structures for the system should be derived based on inter alias a) the analysis of operations and the scenarios of performance and operating capacity developed; b) the assessment of labor requirements under the various scenarios, the requirements for administrative, maagement and management support staff and competitive remuneration; - 46 - Appendix A Page 11 of 17 MOZAMBzQUE HAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT c) appropriate variable unit costs or charge rates for services bought-in under cooperative arrangements with other systems; and d) appropriate unit costs for other material and service inputs. 23. Financial Projections. This work should include the followings * Preparation of projections of profit and loss based on the work done on operating cost structures, traffic potential and likely competitive and, therefore, pricing conditions and on operationally useful and required assets; * Preparation of associated projections of cash flows and * Preparation of balance sheets for the reconstructed abstract entity (see above) under the various chosen scenarios. 24. On completion of this exercise any further measures that need to be taken to ensure that adequate sustainable financial returns to the CFM-Sul system is achieved should be identified by the firm. The exercise should result in specific recommendations being made for a global strategy including well-defined financial objectives to be adopted by GOM for the CPH-Sul system. The actions to be taken to effect this strategy identified from the analytical work on the system's strengths and weaknesses should be tabulated. The most effective organizational forms under which these actions and the global strategy could be Implemented would be the object of the organizational analysis below. B. Privatization on the System 25. Organizational Restructuring Options. The objective of this phase of work is to defines a) the scope for and forms of divisionalization of the system's constituent areas of activity; and b) the most effective mix and form of public and private sector participation in the operations and management of the CPH-Sul system. 26. The scope of work will comprise three distinct stages: a) definition of the options as to the possible organization of the system's activities and their likely effectiveness in strengthening * 47 - Appendiz A Page 12 of 17 MoZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT the overall system'e competitive position and thus ensuring its capacity to earn returns on investments indicated in the financial analysis; b) the identification of the most effective mix of public and private sector management of the system to achieve the financial potential of system out of the three options evaluated; and C) identification of the role of GOM, CPM and CFM-Sul in the foregoing organizational arrangements. 27. Organizational Options: In undertaking this task, the firm will be expected to consider, inter alia, the following factorst * The complexity of coordination arrangements between the various defined activity areas and the likely risks of various degrees of fragmentation on the system's overall efficiency; * The consistency of identified grouping of activities with the proposed operating strategies, for example, with respect to the forms of cooperation with contiguous systems; and * The capacity of the system to cater more effectively to defined streams of traffic under various organizational arrangements. 28. Scope of Privatizations The firm will review the privatization options for the CFM-Sul system stipulated below and define their relative advantages and disadvantages in promoting the efficient and profitable use of the system's resources. In undertaking this analysis, consideration should be given to the following factors, amongst others$ * Activities which, due to the special risks attached to them or for economically defensible public policy or regulatory reasons, should be managed by entities under the control of the GOM and should therefore not be a direct object of private sector control; * The complexity or ease with which effective coordination arrangements between possibly different organizations can be put in place and the consistency of the features of specific options with the analysis in paragraph 26 above; * The efficiency with which activities designated to be managed by CFM-Sul in any of the options can be undertaken and the risks posed to the efficiency of other parts of the system dependent on such * 48 - Appendix A Page 13 of 17 APUTO CORRIDOR RVMTALIIATION (TECHNICAL ASSISTANCE) PROJECT CFM-Sul activity; * The degree of financial risk likely to be borne by the 0ON. The different organizational options to be evaluated are as followss (I) an option in which all assets (except those for which public sector management can be clearly demonstrated as essential on economic or regulatory grounds) for defined periods and under specified performance arrangements and payment terms to an investor group or company. Such an investor group or company would then decide the basis under which it would operate the constituent parts of the system (ii) an option in which private sector participation would be confined to the management and operation of specialized terminals at the port and the maintenance and supply of services that would help achieve greater levels of availability of port and railway plant and equipment, with CPM(S) managing the rest of the system and assuming the responsibility for achieving an adequate degree of financial performancel and (iii) an option which would involve the awarding of operating concessions for selected activities to the private sector by subsidiaries of a newly created transport corridor conglomerate corporation. The subsidiaries would be derived from the formal incorporation of CIM's regical operating divisions. 29. On the basis of the analysis undertaken above, the firm will define the operating activities best undertaken by CPH-Sul and its responsibilities vis-a-vis the parts of the system proposed to be privatised. As a supplemental exercise, the firm will undertake the following tasks: (a) identify the regulatory/institutional arrangements that should be in place to ensure that activities designated to be undertaken by CFM-Sul are managed by it in a comercially appropriate fashion; this identification will include, inter , financial objectives to be set CIM-Sul, the powers of the management of the organization in discharging its performance obligations and the organizational relationship between CFM-Sul, CFM and GM; (b) recommend a capital structure for the reorganized CFM-Sul; and (c) map out a process for implementing the proposed changes in the size and role of the reorganized CIK-Sul as well as identify any assistance and the form of such assistance required to support such transformation. - 49 - Appendix A Page 14 of 17 MoZAMB12uz MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT C. Investment Promotion and Advisory Services 30. Based on the work done above, and in close consultation with GOW, the firm sanould structure specific investment proposals for promotion to private sector investors. The scope of the firm's advisory services will include but will not be confined to assisting GOM in the following areass * The preparation, as relevant, of investment memoranda, prospectuses or offers for purchase documentation as bases for the solicitation of private sector investment interest in the parts of the system identified above; * Assistance in evaluating and structuring proposals currently under consideration by CFM-Sul taking into account the need to protect the financial interests of CPM and the COM as more information as to the intrinsic potential of the system emerges under the analytical and investigative components of the assignment; * The structuring and negotiation of investment proposals covering inter alia, the valuation of and capital structure for specific corporate investment proposalst the structuring of concession/leasing agreements covering, inter alia, concession/leasing payments or profit/revenue sharing arrangements, duration of concession/leasing transactions, the formulation of performance clauses and monitoring arrangements, valuation and division of residual interest in concession/le see, etc; * The assessment of the measures to take and to disclose, Including the possible support action by external public resources to assist the CON, to assure investors of protection against unusual and, in particular, non-business risks. This would cover any measures to be taken to Improve the provision of related services not covered by the specific Investment under consideration, particularly but not Imtted to physical and institutional measures to provide security and protection arrangements for the port and railway lines; * Advice on the promotion and distribution of investment proposals and the undertaking of all follow-up actions necessary to ensure adequate responses to investment promotion documents; pre-placement/distribution of promotional activities to ensure that planned investment proposals are adequately structured to secure adequate Investors interest; - 50 - Appendix A Page 15 of 17 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT * Assistance in evaluating proposals received and in negotiating proposals. 31. The firm would assist GOM in identifying the areas in which public external financing support would be required to complement private external investment in the system and the terms on which such financing should be passed on by the GOM to the target organizations, whether managed by the public or the private sector. 32. The firm will be expected to consult and cooperate closely with GOM in the structuring of investment proposals, the preparation of investment memoranda and during evaluation and negotiations of proposals. Conduct of Services 33. Although it is expected that the primary competency of the selected firm will be in investment advisory services, the firm would be expected to manage and be responsible for all phases of the underlying investigations and analyses - technical, comercial and financial. 34. The firm will be expected to field as a lead advisor, a corporate finance professional experienced in restructuring state-owned enterprises and in structuring deals involving relatively complex private sector participation arrangements (concession/lease or franchise). This advisor mat also be familiar with issues involved in investments in infrastructure, particularly in developing countries. It is expected that for significant components of the analytical work, the firm will use individuals or firms with a mix of management consulting experience, significant technical knowledge of ports and railways industries, knowledge of trade logistics and experience in formulating business strategies in competitive and capital-intensive industries. However, the selected firm will be responsible for quality control of the work of such experts and is expected to make appropriate arrangements with such firms or individuals to be able to discharge such an obligation. 35. The availability of robust historic data in CPM-Sul may be insufficient. Therefore, there will be a particularly important call on the ability of the team to piece together disparate data to arrive at sound conclusions on the performance of the system. 36. The proposed assignment consists of discrete but highly integrated elements. There will of necessity be considerable iterations and integration of data before the firm will be in a full position to make recommendations on the possible privatization options and terms, structure and presentation of investment proposals. Nonetheless, for purposes of monitoring progress in the conduct of the assignment and to ensure that critical information is available # 51 - Ae A Page 16 of 17 NOZAMBIOUS MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT for timely consideration by all parties, the following schedule of intermediate outputs is expecteds COMPONENT ELAPSED TIMS FROM START OF ASSIGNMENT (MONTHS) Historic Operating/Financial Performance 2 Resources of the System 2 Operating Capacity of the System 3 Market Prospects for the System 3 Financial Projections 5 Organizational options 7 The total elapsed time of the assignment, including the evaluation and negotiations of investment proposals, is expected to be no more than 24 months. 37. To facilitate the work of the firm and its team of investigators and analysts, CPN and CN-Sul will grant access of the firm tot a) copies of any relevant reports prepared internally or by outside consultants; and b) all accounting records. CPU and CPH-Sul will also make arrangements for the team to visit work sites or facilities, as necessary, and facilitate visits to contiguous railway systems. 38. The firm will be accountable to the Minister of Transport and Communications or his Anthorised Representative and for operational purposes, will report to the inter-agency committee (made up of senior and qualified representatives of Ministries and other relevant national institutions) appointed by GOK to implement the Maputo Corridor Revitalization (Technical Assistance) Project. 39. The firm shall submit the following reports (50 copies in Portuguese and 20 copies in English)t * An Inception Report, one month after the award of the assignment, with a Plan of Operations for the conduct of the assignment; * Progress Reports according to the intermediate outputs outlined above; - 52 - Appendix A Page 17 of 17 MOZABIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT * A Draft Final Report upon completion of the analytical and evaluation phases; and * Other Reports, as deemed necessary by the GOM, related to the advisory and support services during implementation. In addition, the firm is also expected to brief the committee appointed by the GOM on a regular basis and in accordance with the agreed Plan of Operations. 40. Copies of all reports are expected to be made available to the GOM and IDA within two weeks of their issue, for review and comments. 41. Due to the complex and delicate nature of the proposed assignment, Government would require that findings, documentation, reports and other information acquired and handled by the firm during the course of the assignment be kept strictly confidential. - 53 - Appendix B Page 1 of 4 MOZAMIQUE XAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT TaMS OF REFENCE FOR LEGA ADVISORY SERVICES Introduction 1. Mozambique has three transport corridorsv serving the international transit traffic of neighboring countries. Each corridor comprises an integrated ports and railways system linked to the regional markets by a well developed regional railways and roads network. The southern corridor, managed by CFM-Sul, comprising three railway lines linking the ports of Maputo and Matola with the railway systems of Zimbabwe, South Africa and Swaziland, and the southern Mozambique Provinces of Gaza and Maputo. serves the international and national trade flows of these countries and to a certain extent those of Botswana, Zambia and Zaire. Of the three corridors, the CP-Sul system has the largest inherent transport capacity and the hinterland with the greatest traffic potential, but faces the greatest competition from transport outlets in South Africa. 2. The corridors play an important role in the economy of Mosambique. In particular, they have a potential to generate significant net foreign exchange to cover much of the country's balance of trade deficits. However, the volume of transit traffic has declined steeply in the last two decades and the financial performance of the systems has deteriorated correspondingly. 3. In the early 1980s, the Government of the Republic of Mozambique (GOM) launched a major development and investment program aimed at the rehabilitation and modernization of the country's entire port and railway network, in order to restore the cost efficient trade routes serving the large demand of a vast area of the Southern Africa region. 4. Since the adoption of this program, there have been significant changes in the region that are likely to affect the future market prospects of the systems. These changes also increase the urgency for the systems to be competitive and sufficiently profitable to be financially self-sustaining, and to generate a return to GOM on its large investment. 5. Under the Maputo Corridor Revitalization (Technical Assistance) Project, GO wishes to secure the services of consultants to carry out legal advisory services. These services would be carried out as part of the technical analysis being undertaken in preparation for the involvement of the private sector in the provision of services on the Maputo Corridor. The northra (Nacele) corridor managed by CFi-Norte, the central (Beira) corridor managed by CF-Centre and the southera (Maputo) corridor msnaged by CM-Sul. - 54 - Aendix B Page 2 of 4 MOZAMazQUa MAPUTO CORRIDOR RVITALIZATION (TECHNICAL ASSISTANCE) PROJECT 6. The legal advisory services component is to be delivered in two different phasest Phase Is which would comprise providing assistance to Government in the process of reviewing, streamlining and updating the legal and regulatory frameworks governing (a) concessions of public services; (b) labor redeployment issues and (c) the commercial and administrative legal issues pertaining to public companies and the privatization of service provision on the Maputo Corridor. This would involve inter alia (i) identifying any impediments in the legal system to the structuring of transactions involving granting concessions of public servicest and (ii) examining the labor regulations and civil service statutes governing CPM, with a view to establishing a common labor regime for all CFK workers (hired pre- and post-1989) and determining Government's contractual responsibilities regarding retrenchment of the CFK workforce deemed redundant (twelvd man-emths); and Phase Its which would comprise providing assistance to Government in the preparation and negotiation of transactions arising from the mode of prvatization of service provision on the Maputo Corridor selected by the Government. This would be carried out in accordance with terms of reference designed taking into account the recommendations arising out of Phase I and the conclusions of the investigative analytical phase of the project being carried out by the investment advisory experts (six man-maths). Scope of Work 7. Under Phase I, it is expected that the consultant(s) would analyse the existing legislation and support Government's efforts to (i) laprove the legal framework governing the operations of public companies; and (11) remedy any identified impediments in the present legislation to the involvement of the private sector in the provision of services on the Maputo Corridor. To this end, assistance would be provided to Government with the following activities: (A) clarifying the legal status of CFM as a public enterprise, in accordance with its statutes and defining any existing privileges under public law; (B) reviewing and recommending improvements to CPH's legal and statutory frameworks in the context of its transformation into a public enterprise (Lei 17191), with legal capacity to establish subsidiaries, participate in mixed-equity companies, joint ventures and other types of - 55 - AiDendix B Page 3 of 4 MOZAMBI2UE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT partnerships and negotiate concession agreements on behalf of the Government; (C) reviewing and recommending improvements to the Labor law (Lei do Trabalho No. 8/85), and other related regulations in order to refine the administrative and legal procedures pertaining to manpower dismissalst (D) establishing a general regulatory framework for railways and ports (public) services, defining the opportunities for granting 'concessions' to private operators and formulating regulations concerning rate assessment and quality standards in order to avoid monopolistic practices in services to be privatized; (E) identifying the necessary steps required to legally enable CPM(S) to participate in mixed-equity companies, joint ventures and other types of partnerships; (F) drafting all the legal instruments prescribed by the privatization laws (Lei 15/91 and Decree 28/91) in order to facilitate the granting of a 'concession of public services' to the private sector for the participation in the operations of the Maputo Corridor; and (0) drafting the necessary adjustments to the commercial and investment legislation to provide for the legal definition and regulation of equity and non-equity joint ventures, consortia and other modern forms of commercial partnerships. Consultant(s) Skills 8. Consulting services to provide assistance with the above will require a consultant/team with expertise in civil law with special emphasis on: (i) administrative law; (ii) commercial law; (iii) labor law; and (iv) the legal aspects of public enterprises and privatization. Knowledge of and experience in legal systems similar to those of Portugal and Mozambique would be highly desirable. Proficiency in Portuguese and English are essential. 9. To facilitate the work to be carried out, Government will wake available to the consultants (upon the authorization of the Ministry of Transport and Communications) all pertinent documentation including: (i) copies of special legislation, regulations and administrative decisions applicable to CPK and to the ports and railways sub-sectors; - 56 - Appendix B Page 4 of 4 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT (ii) a summary of the important or unusual features and exposure to litigation in respect of any of the above for the enterprise or the business operation, distinguishing between them both; and (iii) available documentation pertaining to the legal ownership or equity structure of CFK. 10. The consultant(s) would be accountable to the Minister of Transport and Comaunications or his Authorized Representative and for operational purposes would report to the inter-agency committee appointed by GON to implement the Maputo Corridor Revitalization (Technical Assistance) Project. 11. The consultant(s) would submit the following reports (50 copies in Portuguese and 20 copies in English)s (a) An Inception Report, one month after the award of the assignment, with a Plan of Operations for the conduct of the assignment; (b) A Progress Reports (c) A Draft Final Report upon completion of both phases; and (d) Other Reports, as deemed necessary by GOM. In addition, the firm is also expected to provide regular briefings to the committee in accordance with the agreed Plan of Operations. Consultant(s) Code of Conduct 12. Due to the complex and delicate nature of the proposed assignment, Government would require that findings, documentation, reports and other information acquired and handled by the consultant(s) during the course of the assignment be kept strictly confidential. - 57 - Appendix C Page 1 of 5 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT TERMS OF REFERENCE FOR ENVIRONMENTAL ANALYTICAL SERVICES Introduction 1. Mozambique has three transport corridora serving the international transit traffic of neighboring countries. Each corridor comprises an integrated ports and railways system linked to the regional markets by a well developed regional railways and roads network. The southern corridor, managed by CFH-Sul, comprising three railway lines linking the ports of Maputo and Matola with the railway systems of Zimbabwe, South Africa and Swaziland, and the southern Mozambique Provinces of Gaza and Maputo, serves the international and national trade flows of these countries and to a certain extent those of Botswana, Zambia and Zaire. Of the three corridors, the CFM-Sul system has the largest inherent transport capacity and the hinterland with the greatest traffic potential, but faces the greatest competition from transport outlets in South Africa. 2. The corridors play an important role in the economy of Mozambique. In particular, they have a potential to generate significant net foreign exchange to cover much of the country's balance of trade deficits. However, the volume of transit traffic has declined steeply in the last two decades and the financial performance of the systems has deteriorated correspondingly. 3. In the early 1980s, the Government of the Republic of Mozambique (GOM) launched a major development and investment program aimed at the rehabilitation and modernization of the country's entire port and railway network, in order to restore the cost efficient trade routes serving the large demand of a vast area of the Southern Africa region. 4. Since the adoption of this program, there have been significant changes in the region that are likely to affect the future market prospects of the systems. These changes also increase the urgency for the systems to be competitive and sufficiently profitable to be financially self-sustaining, and to generate a return to the GOM on its large investment. 5. Under the Maputo Corridor Revitalization (Technical Assistance) Project, GOM wishes to secure the services of consultants to carry out environmental analytical services. These services would form part of the technical analysis being undertaken in preparation for the involvement of the private sector in the provision of services on the Maputo Corridor. The northern (Nacalo) corridor managed by CFM-Norte, the central (Beira) corridor managed by CF1-Centro and the southern (Vaputo) corridor managed by CFM-Sal. - 58 - Appendix C Page 2 of 5 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT Institutional Framework 6. The central administrative capacity for environmental management in Mozambique is vested in the Divisao Meio Ambiente (Environmental Division) of the Instituto Nacional de Planeamento Fisico - INPF (National Institute for Physical Planning) in Maputo, which was established in 1982 under the Comissao Nacional de Planeamento (National Planning Commission). This Division is charged with creating the institutional machinery to integrate environmental management and development as well as with spreading awareness of environmental issues throughout the co*mtry. 7. Government is in the process of reviewing the existing legal and regulatory frameworks for environmental management and occupational health and safety to make them more comprehensive and to ensure that future needs are met. Under the aegis of the INPF, a national environmental action plan is currently being developed which aims to enhance the capacity for environmental management, planning and implementation not only at the national level but at the provincial, district and urban levels as well. Objectives of Comonent 8. It is proposed that the environmental analytical services component address three inter-related issues: (a) the definition of acceptable standards of environmental protection and occupational health and safety in ports and railways, with a view to providing an inventory of such standards; (b) the degree to which the current conduct of operations on the CPM-Sul system comply with the standards identified; and (c) the adverse effects of prior lack of compliance with standards, the actions and related costs required to: (L) address any liabilities arising out of this; and (ii) for ensuring future compliance with identified standards. 9. The results of this assessment will form the basis for decision-making in the following areas: (i) the extent to which national institutions would need to be strengthened to permit the regulation and moritoring of environmentally-sensitive activities and occupational health and safety concerns in similar industries; and - 59 - Appendix C Page 3 of 5 MOZAMBIqu MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT (ii) the scope of remedial actions to be introduced and the definition of the costs of these actions that should be borne by GON and the operators of the system, public or private. Scope of Work 10. The component would provide the following: (a) an evaluation of existing guidelines, control and enforcement legislation regarding environmental management for both sub-systems. This should include a tabulation of best practices or sources of best practices governing ports, railways and related industrial activities such as dredging, safety rules for cargo handling, workshop procedures including the safety of machinery etc. (b) an analysis of current operating procedures and existing regulations governing working conditions in both the port and railway sub-systems. An assessment of the required changes and/or Improvements in operating procedures, equipment, training, etc. in these sub-systems and a determination of the initial (set up) and future costs of such actions should be made. (c) an examination of pollution abatement/control practices in both the port and railways sub-systems focusing on: i. the impacts of the resumption of maintenance dredging in the port and the disposal of dredged material, including the adequacy of the mode of dredging used; the ecological Impacts of any contaminants released by dredged materials and the precautions taken (and their adequacy) in the disposal of such materials; the ecological ramifications of siltation in the entrance channel; and the long-term impacts of further channel deepening and continued maintenance dredging. ii. the ecological impacts of vetland nfilling paying attention to possible economic losses resulting from the loss of habitat and breeding and spawning areas of species that are essential to maintain estuary, near shore and maritime fisheries. iii. the existing capacity for the detection and clean-up of spills - e.g. oils, toxic compounds. Ecologically and environmentally 'spillage- sensitive' areas should be identified and a contingency plan outlining responsibility for dealing with possible incidents including an assessment of the equipment and training needed should be developed. Regarding control of the discharge of pollutants in the port area, a review of the existing reception facilities and current operating - 60 - Appendix C Page 4 of 5 MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT practices dealing with waste management (oily discharges, sewage, garbage, etc.) should be undertaken in the light of the regulations stipulated under the International Conference for the Prevention of Pollution from Ships (1973, as modified by the Protocol of 1978 - MARPOL 73/78). An assessment of the investments required and a determination of the costs for Mozambique to become a party to the MARPOL convention as well as an estimation of future operating costs should be made. iv. the control of dry bulk cargo spills (e.g. grains) and windblown dust emissions (e.g. coal) and investigation of the adequacy (or existence) of technology to control such emissions. If absent, a determination of the initial costs and future operating/maintenance costs of putting in place such technology should be made. (d) an examination of the handling of hazardous cargo on both the port and railway sub-systems, reviewing the types and quantities of cargo handled, modes of storage, handling conditions and the mechanisms in place for monitoring the handling of these materials. (e) an analysis of the adequacy of the methods used to dispose of waste generated in both sub-systems e.g. used oil on the railways, bunding on the ports, etc. This analysis should include recommendations on appropriate pollution and waste management systems and methods for containing and/or minimizing pollution and waste generation. (f) an assessment of the appropriateness of chemical compounds used for operational purposes e.g. for cleaning in the workshops, for the eradication and control of weeds in the area of the track, if relevant, and with transport or workshop equipment should be made. 11. The component would be carried out with a view to outlining appropriate standards for the ports and railways, detailing the investments (and associated costs) required to achieve those standards and incorporating any actions needed to achieve such standards or to remove any impediments (in infrastructure, training, equipment, etc.) to their achievement in the National Environmental Action Plan currently being devised by the Government. Also, it is expected that a careful examination of enforcement and compliance issues - the capacity of the ports and railways to enforce standards and that of the Government to monitor compliance with such standards, and the associated burden-sharing and liability issues (i.e. at the national and system-wide levels) aould be made. 12. It is expected that the team to undertake this assignment would be led by a specialist with expertise in environmental economics and would consist of an ecologist and occupational health and safety specialists familiar with port and railways operations. - 61 - Appendix C Page 5 of 5 MoZAMBIqu MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT 13. It is expected that the assessment would be carried out in a period of 5 perealmonths, at the end of which the team would be required to produce documentation detailings (a) acceptable standards of environmental protection and occupational health and safety in port and railways and the degree of compliance of the CFM- Sul system, if any, with such standards; (b) recommendations for changes in current/existing practices and the actions, investments and costs required to implement and sustain these changes; and (c) recommendations on liability issues surrounding the environmental management and occupational health and safety concerns of the ports and railways i.e. burden-sharing between Government, CFM-Sul and any potential investors in the management of the system. 14. The team would be accountable to the Minister of Transport and Communications or his Authorized Representative and for operational purposes would report to the inter-agency committee appointed by GOM to implement the Maputo Corridor Revitalization (Technical Assistance) Project. The team would be expected to coordinate closely with the Environment Division and its consultants preparing the National Environmental Action Plan. - 62 - Appendix D Page 1 of 4 MOZAMaIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT CONSIDERATION OF IMPLEMENTATION ISSUES Introduction 1. At negotiations, the key elements of the implementation process and other relevant issues were discussed. implementation guidelines for the project are currently being prepared in close consultation with representatives of the inter- agency committee and CFM. This Appendix outlines the key issues being considered in the development of these guidelines. 2. The implementation process will be comprised of six activities: A. Contracting for service providers; B. Managing the conduct of services; C. Decision-making on the extent and possible forms of private sector participation in the provision of services on the CFM(S) system and the concomitant restructuring of CPM(S) and CFM; D. Developing, promoting and negotiating privatization initiatives as decided under (d); E. Implementation of the restructuring of CNM(S) and CFM; and P. Managing, in parallel with the first two activities above, the process of developing and negotiating privatization initiatives currently under consideration. Contracting for Service Providers 3. Key elements of this activity are as follows: (i) definition of scope of work, competencies required from service providers and timing of outputs; (ii) definition of criteria for evaluating potential service providers; (iii) development of a shortlist of potential service providers; - 63 - Appendix D Page 2 of 4 MOZAMBIQUE MaPUTO CORRIDOR REVITALIZATION (TECRNICAL ASSISTANCE) PROJECT (iv) preparation of letters of invitation (including draft form of contract for provision of services) to be sent of potential service providers; (v) submission of complete documentation to IDA for review; (vi) release of documents to shortlisted firms; (vii) receipt of proposalst (viii) evaluation of proposals; (ix) submission of results of evaluation to IDA for reviews (x) negotiation with best evaluated provider(s) - final negotiated package will include minutes of negotiations, agreed description of services to be provided and draft contract; (xi) submission of negotiated package to IDA for its review and no objection; (xii) signing of contract; and (xiii) commencement of assignment. 4. Issues relevent to this process include: a. determining clearance procedures within the Government that could affect the speed of the process and what arrangements and understandings can be arrived at with relevant agencies to overcome possible procedural bottlenecks; and b. determining the need for assistance to manage some components of the process. 5. Government noted at negotiations that it would require the services of an experienced investment banker with developing country experience to assist with elements (iv)-(x) of the process for the investment advisory services component. Managing the Conduct of Services 6. The inter-agency committee established to monitor all phases of the project would be responsible to the Minister of Transport and Communications, who would - 64 - Apendix D Page 3 of 4 MOZAMBIU MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT report on the activities under the project to the Council of Ministers or other competent authorities as agreed with IDA. The committee would be headed by a senior official from MTC and operate on a full-time basis. Other working committees may be established by this committee as required to review specific components of the project. However, all such sub-committees would be headed by a leader designated by the head of the inter-agency committee. For transaction- related activities, the committee will review all proposals for the promotion and execution of investment deals and make recommendations for any modifications in such deals for approval to the Council of Ministers. In managing the implementation process, the committee will ensure thats (i) the service providers structure their work adequately (ensuring proper phasing and sequencing) and deliver outputs on schedule; and (ii) the delivered outputs are reviewed on timely basis, that the quality of reviews is adequate and that the reviews take account of the comments of all interested parties. 7. To ensure that (i) and (ii) above are carried out with the required efficiency, the focus of the interagency committee has been on determinings (a) the structure and composition of the review process (b) the duration of the review period for each output/sub- component/component and for the total package; and (c) the need, if any, for external specialized support to assist in the review of various components and the timing of such inputs. Decision-making 8. A final decision on the global strategy for CFM(S) (to include the definition of the extent of private sector participation in the provision of service on the system) will be made within two months of the end of the investigative analytical phase of the project. Establishing and formalizing the modalities for the review of consultant outputs will be essential to ensuring that this schedule is adhered to. Privatization Initiatives/Restructuring of CFM(S) and CFM 9. Once the decision on the global strategy and organizational option for CFM(S) has been made, a timetable for its implementation will be determined based * 65 - Appendix D Page 4 of 4 MOZAMB12UE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT on information arising out of the investigative analytical phase of the project. The establishment of clear procedures and development of a time bound plan will ensure the smooth Iaplementation of the initiatives arising out of the decision. - 66 * Appendix E Page 1 of 1 MOZAM1OUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT SUMMARY MLEMENTATION SCHEDULE ITEM 1993 1994 1995 1. Investment Advisory Services Terms of References/ Letters of INatetion - Receipt of Propoea Evablaon/Contracting Provision of Services 2. Legal Advisory Services Fnalzatwon of TOR/ Selection of LaWayeus Provision of Services x3o aon 3. Environmental Analysis Conbaron for SeOMWc pravinn Povision of Service OOOC 4. Labor Redeployment Strote Contracting for Service ProviAlo --- Provislon of Service 5. Port Handing Equipment id Docurments/ Specifoot-on Tendering - - Evoluation/Contracting - Denivewy maor 3. Communications Equipment auotktUoms/ContractUng -- DeaveWy O -67 * Section D: Supervision 1. General. The core component of the project - investment advisory services - is complex in design, the approach is new and the objective of the project is politically sensitive. In addition, the project mst be completed in a relatively short period of time to be of any economic relevance to Mosambique. Accordingly, its supervision would need to be particularly intensive both to support the decision-making process in Mosambique and to ensure that bottlenecks to its smooth implementation are addressed and resolved. 2. IDA Supervision Input. Bank staff input into the supervision of the project will take the following forms (a) Portfolio management operations. The review of work programs and schedules, progress reports, financial statements and procurement documentation at headquarters and correspondence and internal reporting related to such activities are estimated to require six staff weeks in the first two years of project implementation. (b) Field Supervision. It is planned to undertake field supervision of the project on a trimestral cycle for the years of the project, starting no later than one month after Board presentation and on a quarterly basi4 in the second year. Field supervision will cover the following areas: (I) Review of procurement issues and the working of project implementation arrangements. (ii) Review with the committee and advisory service providers of the progress of workload of specific outputs. (iii) Review with the donors of progress in the discharge of services and performance in key areas of CFM(S) activity supported by the donors. (iv) Review with MTC of key problem areas in implementation and actions taken (or planned) to resolve them. (v) Review with CFM and CPM(S) of the performance of the CPM(S) system. S. Borrowers and Beneficiary's Contributions to Supervision (a) Aside from the quarterly and annual reports to be provided to IDA in the form and to the time schedule agreed at negotiations, MTC will, prior to every supervision mission, prepare an issues paper summarising progress on project Implementation to date and the key outstanding issues to be resolved as well as any revised implementation schedule for the project. This issues paper will form the core agenda of the mission's work. (b) Mission briefing meetings on arrival and wrap-up meetings by a senior official of MTC and attended by members of the task-force and senior management of CFM. -68 - 4. At the end of each mission, an aide memoire sunmarizing the mission's major findings, agreements reached with the Government, and the actions requiring attention will be prepared. FIELD SUPERVISION PLAN APPROXIMATE DATE ACTIVITY EXPECTED SKILL STAFF INPUT (month/year) REQUIREMENT (Staff-weeks) 08/98 Project Start-up; Engineer/ Issues and arrangements; Operatione Secialis t 8 Review of Iaplementation schedule a General let and arrangenente for coordination and mnitoring; 11/98 Review of progress of procurement Engineer/ and iaplementation of services; Operations Spcial Iste 8 & GeneraIlt 01/94 Review of output of consulteante/ Engineer/ advisory service providers; Operations Specialitt 8 Review of Issues presented to A Genersaiest IDA by COM. 04/94 Review 0 output of consultants/ Engineer/ advisory service providere; Operations Svel lIte S Review of Issues presented to A Generalslat IDA by 0CM. 07/94 id-term Review Workshop Engineer/ Operations Special ists 4 Lawyer & Generelit' 11/94 Review of output of consultants/ Engloeer/ advisory service providers; Operations special let 8 Review of Iase presented to A Genera l It IDA by COM. 08/96 Review of output of consultants/ Engineer/. advisory service providers; Operatione Seciallt 8 Review of Issues presented to & Generalest IDA by 0M. with operience in corporate strategy formulatle or privatisation process. MAP SECTION 써 IBRD 23715 A z 0 l vil. Il lia i i May 1992 BREviLLE1 1 2 xl ens2. 4(. GABON RWANDAKEY \ eoANAIROBI \EY 4Kl ZA! u U UNDI ,r N b i \ b. o ANZAN A oam LUADA N J ATrLANTIC LK ANGOLA ZAMBIA NAMMB3A BOTSWANA=MO ZAMBNDU -2&~S OCEA 22000- OCEA BOSWNA MOZAMBK?lUE NDH ~0O CORRIDOR GABOGRONE REVTLEZATION SPROJECT International e Transport Routes M2e 2W Rad "fi SOUTH o0 naoc"e m~m n I.Wms AFRICA ® ~1oalcpa on~iM dm mn e - cd s. Majorm Bmdi -m.e 3r2- n a