Mali - Transport Sector Project

Doc_mmt of The World Bank FOR OMCUL USE ONLY Ru_t No. P-61 10-MLI li(ADM AJD REC EDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMIT ASSOCIATION TO THE EXECTI VE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO SDR 46.1 MILI1ON TO THE REPUBLIC OF MALI FOR A TRANSPORT SECTOR PROJECT MAY 5, 1994 This document has a resricted distibuton and may be med by reipiens only In the perfomance of thI officialdt Its conten may not othrwe be dilosed without Wrd Bak atoizatio|n.  EXCHANGE RATE Currency Unit = CFA Franc (CFA F) US$1.00 = CFAF 600 WEIGUITS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS and ACRONYMS ADM = Aeroports du Mali (Mali Airports) AGETIPE-MALI = Agence d'Execution des Travaux d'Interet Public pour l'Emploi du Mali ASECNA = Agency for the Safety of Aerial Navigation in Africa and Madagascar CAS - Country Assistance Strategy COMANAV Compagnie Malienne de Navigation (Malian Shipping Company) CNREX = Centre National de Recherche et d'Exp6rimentation pour le Bdtiment et les Travaux Publics National Construction and Public Works Research and Experimentation Center CPTP = Centre de Perfectionnemeat des Transports et des Travaux Publics (Transportation and Public Works Training Center) DGTSP = Declaration of General Transport Policy Sector Paper DNT = Direction Nationale des Transports (National Directorate of Transportation) DNTP - Direction Nationale des Travaux Publics (National Directorate of Public Works) MALITAS = Mali Timbuktu Air Service MEH - Ministere de I 'Equipment et de l 'Habitat (Ministry of Equipment and Housing) MET = Ministere de t'Equipement et des Transports (Ministry of Equipment and Transportation) PCR = Project Completion Report PFP = Policy Framework Paper PPAR = Project Performance Audit Report RCFM = Regie du Chemin de Fer du Mali (Mali Railways) SDR = Special Drawing Rights SMTP = Service a Materiel des Travaux Publics (Public Works Equipment Service) SNCS = Socigte Nationale de Chemins de Fer du Sgn6gal (Senegal Railways) TSC = Transport Sector Committee  FOR OFFICLAL USE ONLY REPUBLIC OF MALI TRANSPORT SECTOR PROJECT CREDIT AND PROJECT SUMlMARY Borrower: Republic of Mali Beneficiaries: Ministry of Equipment and Transportation Regie du Chemin de Fer du Mali (RCFM) Amount: SDR 46.1 million (US$65 million equivalent) Onlending Terms: For the track rehabilitation and studies subcomponents, R. '=M will receive funds in grant form; for the other subcomponents, amounts will be on!_nt at 7.5% interest per annum, repayable over 20 years, with 10 years grace. Financing Plan: Government US$ 47.8 million IDA US$ 65.0 million Other donors US$173.4 mnillion To be found US$ 19.5 million TOTAL US$305.7 million Economic Rates of Return %: Overall Road component 28 (from 178 to 12) Road maintenance and rehabilaion 36 (from 178 ta 14) Road construction Urban roads in Bamako 16 Rural roads 12 - 19 Railway 23 Airport ror inclusion in the program, a minimum ERR of: 12 Poverty Categorg: Not applicable Staff Appraisal Report: Report no. 12082-MLI Mae: IBRD 25497 This document has a restricted distinbution and may be used by recipients only in the prormancG of thr offlcial duties Its contents may not otheswse 1aistz ved without World Bank autoIzaion.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDfT TO THE REPUBLIC OF MALI FOR A TRANSPORT SECTOR PROJECT 1. I submit for your approval the followinig memoranldm and recommendation on a proposed development credit for SDR 46.1 million, the equivalent of US$65 million, on standard IDA terms with a n.aturity of 40 years to help finance a project for the transport sector. Part of the proceeds of the credit (US$ 10.9 miulion) would be onlent to the Regie du Chemin de Fer du Mali (RCFM) (for track rehabilitation and studies: grant form; for other subcomponents, 20 year repayment period, including 10 years of grace, with interest at 7.5% per annum). Parallel confinancing is expected in the amount of US$173.4 million. 2.1 Country/Macro-Economic Background. Mali is a vast, sparsely populated Sahelian country with limited natural resources. The bulk of its agricultural production takes place along the Niger River and in the southern third of the country. The often long distances between agricultural production areas and consumer centers, along with the poor condition of the country's transport infrastructure, make for high domestic transport costs and temporary inter-spatial disequilibria in agricultural markets. However, recently enacted measures aimed at liberalizing the regulatory framework have increased competition in the transport industry and have resulted in more efficient services. 2.2 After several false starts, Mali began its adjustment effort in earnest in 1988 and has since implemented a wide range of economic and institutional reforms. These have included complete domestic marketing and price liberalization, reforms to the regulatory framework and tax regime, public enterprise restructuring, and progressive elimination of trade distortions. The civil service wage bill has been kept in check, and the share of social sector expenditures in the recurrent budget has increased steadily. These mezsures have improved the economic incentive system and have allowed greater play of market forces in determining economic outcomes. Furthermore, the transparency and efficiency of public resource allocation has improved. Real GDP growth has gone up from an annual average of less than 2% during the first half of the 1980s to an average of about 3.7% between 1988 and 1992. The public sector's fiscal position also improved from a deficit of 12% of GDP equivalent in 1991 to 9.6% in 1993. 2.3 Progress in restorh g macroeconomic balances, however, remains slow in a fragile political context that has seen three government changes between April 1992 and February 1994. During the second half of 1992 and for much of 1993, the financial recovery program began to falter. Revenue performance was weaker than anticipated, and while overall spending was within the programmed limit, some expenditure items (notably student scholarships) increased significantly in response to pressure from various social groups. The fiscal deficit, despite some improvement, remained higher than expected. Furthermore, balance-of-payment performance has been adversely affected by the fall in the world market price of cotton, the maia export crop. More importantly, the program was, until recendy, unable to achieve significant improvements in Mali's external competitiveness and, as a result, the economy was not able to generate the growth rates needed to allow improved standards of living and the alleviation of poverty. 2.4 On January 12, 1994 the governments of the CFA zone-of which Mali is a member-decided to devalue the CFA franc by 50% in foreign currency terms. This decision should give a new boost to Mali's ongoing structural adjustment efforts and provide a greater chance for success in stimulating the economy and, ultimately, achieving the' sustained growth necessary for raising the standards of living.  2 A new Policy Framework Paper (PFP), which was circulated to the Board on February 25, 1994, has been agreed on with the Government for the 1994-96 period. This outlines important accompanying measures to the devaluation necessary to help restrain inflation and to ensure that significant real depreciation is attained. Other features of the PFP include continued focus on human resource development, improved efficiency in agriculture, the provision of basic infrastructure services (notably transport), and the continuation of public enterprise reform and reforms to the regulatory and incentives framework. 3.1 Country/Sectoral Background. The transport sector is a key factor in Mali's development. Based mainly on subsistence agriculture subject to a highly unpredictable climate, the Malian economy depends heavily on foreign trade (40% of GDP) and, therefore, on the efficiency of its international transport systems. Total imports of various basic consumer and capital goods in 1992 were estimated at nearly 600,000 tons (including 200,000 tons of petroleum products) valued at CFAF i80 billion, while 1992 exports totaled nearly 200,000 tons (cotton accounting for nearly half) worth CFAF 87 billion The development of local trade, spurred by the increased activity in population movement and in rapid urban growth, has made domestic transport particularly important. Land transport accounts for most of the trade traffic, with annual volumes on the order of 1.1 billion ton-kn (tk) (25% by rail) and 2.2 billion passenger-km (pk) (10% by rail). Transport contributes some 5% of GDP and has posted average annual growth rates of about 4% in the last few years. Given the country's size and its landlocked position, the development of Mali and the competitiveness of its economy depend more than usual on the operational efficiency of its tiarsport system which currently faces a number of problems. 3.2 Because it is landlocked, Mali's imports and exports are dependent on the neighboring countries' overland routes and seaports. Until recently, Government intervention in international transDort (particularly through freight allocation and rate-setting) was partly responsible for the high cost of international transport equivalent to about 30% of the country's import bill. About half of international traffic is by road (mainly from Abidjan), while the rest is by rail (from Dakar). Road transport suffers from poor performance and insufficient competition in the trucking industry and from a lack of adequate maintenance of road infrastructure. Rail transport has shown significant improvements in operational and fmancial performances in recent years, but the RCFM still needs to develop a decidedly commercial orientation and improve collaboration with the Senegal railway company, Societe Nationale de Chemins de Fer du Senegal (SNCS) into a true partnership. River barge transport services are provided by the private sector for part of the year when the Niger river permits navigation; the parastatal Compagnie Malienne de Navigation (COMANAV) has also intermittently operated freight and passenger service at a loss downstream from Koulikoro. Two new airlines, Mali Timbuktu Air Service (MALITAS) and Air MALISA, were created in 1990 and 1993, respectively, with more than 80% private sector participation, to provide local air transport services. Mali also rejoined the international carrier Air Afrique in 1992. As a result of the recent devaluation of the CFA franc, the volume of imports is expected to decrease somewhat; the share of international transport in the country's import bill may decrease from 30% to about 20% to 25% since only a part of the fuel price increase is being passed on the users, with the rest being absorbed through a decrease in fuel taxes. For domestic traffic, which plays a crucial role in food security during recurring periods of drought and is handled predominantly by road, the impact of the devaluation is again expected to be muted since vehicle operating costs are expected to increase by some 40%, i.e., well below price increases of imported goods. 3.3 While efficient and competitive transport is necessary to the country's development, transport infrastructure is expensive to construct and maintain, thus placing heavy -..emands on the scarce available resources. The parity change of the CFA franc will increase road maintenance costs by some 40% (in  3 CFAF). Therefore, it will be more essential than ever that future investment and maintenance works are carefully screened with particular emphasis on maximizing potential foreign exchange savings. 3.4 To bring the transport sector in line with Government's macro-econom , adjustment reforms, the then MinistWre de I 'Equipement et de l 'Habitat (MEH) decided in early 1991 to set up a Transport Sector Commnittee (TSC) which brought together all the sector's operators, public and private, in a first-ever attempt to bring a particiDatorv approach to bear on identifying key sectoral problems and develooina approaches to their solution. The TSC met a number of times and, with the assistance of facilitators brought in for this purpose, prepared a draft Declaration of General Transport Sector Policy (DGTSP). This was fiully discussed with IDA and formally adopted by Goverunent on Novemv"ber 2, 1993. This Policy introduced fundanmental changes in sector objectives in five major respects: it pledged its comnitment (a) to encourage competitiveness and gve a bigger role to the private sector in the transport and public works industries; (b) to restructure public enterprises, particularly the RCFM, and to replace force account works in the highway sec.or, including road maintenance with works by contract; (c) to use economic criteria ir transport investment choices; (d) to give infrastructure maintenance the highest priority in resource allocation; and (e) to take more responsibility for rural roads, in particular, and the environment, in general. The new strategy is discussed fully in the Mali Transport Sector Memorandum (Report No. 12095-MLI, green covei issued in October, 1993). 4. Program and Project Objectives. The proposed project is part of a sector-wide program to support the Goverrnment of Mali's efforts: (a) to strengthen sector management and performance through reorganization and local capacity building; (b) to restructure transport sector paratatals; (c) to modify the regulatory and institutional framework to promote increased private sector participation in the provision of services and the execution of works; (d) to rehabilitate and maintain a priority network of transport infrastructure; and (e) to improve the transport operation's efficiency, and reduce transport costs. 5. Program and Project Description. The proposed project is designed around the Government's five-year (1994-98) program of sectoral reforms contained in the DGTSP, supported by a parallel donor- assisted program of investments in transport 2ector. The program has four components and IDA will participate in financing the following three: (a) a capacity build;ag and trainirg component focusing on support for the implementation of sector policy measures, the modernization of sector admir;stration, and the reorganization of transport services. This component will be fully financed by IDA (US$5.7 million, 2% of total project costs); (b) a road component to finance a five-year program focusing on the rehabilitation, and routine and periodic maintenance of a priority network accompanied by environmental actions, improvement of rural tracks, purchase of ferries, improvement of Bamako 's main urban roads system, and procurement of equipment for routine road maintenance. This  4 component will be cofinanced by donors-the IDA project will finance some 19% of this component (US$208.1 million, 68% of total project costs); and (c) a railway component designed to help the Government and RCFM implement the program to restructure the railway business and pat it on a more commercial footing, and finance a five-year investment program, focusing mainly on improving traffic safety and preserv-ng existing assets-the IDA project will finance some 28% of this component (US$32.5 million, 11% of total project costs). The fourth component is an investment component for airports to finance both safety equipment for the Timbuktu and Bamako-Senou airports and technical studies, and is fully financed by cofinanciers (US$7.8 million, 3% of total project costs). Price contingencies represent US$51.6 million, 16% of total project costs. Further cost details are given in Schedule A; procurement and disbursement arrangements in Schedule B; and the project preparation timeframe and principle IDA staff involved in Schedule C. The status of Bank Group operations is given in Schedule D. 6. Project Implementation. The program, to be carried out over a period of five years, will be implemented, under the supervision of the respective donors, by the ministries responsible for Finance and Commerce, for Equipment and Transportationi, RCFM for the railway component, and A-roports du Mali-Agency for the Safety of Aerial Navigation in Africa and Madagascar (ADM-ASECNA) for air tansport. The role of the ministries would be redefined to include only planning, programming, budgeting and supervision for roads. A small coordinating unit will organize joint donors' meetings annually, assist the Administration and RCFM in handling the procedures relative to procurement and disbursemerits, and will coordinate the documentation and reports to be prepared by each executing agency. As learned from the implementation of the ongoing Fifth Highway Project (Cr. 1629-MLI), and from experiences with the AGETIP model, the following arrangements have been agreed on to facilitate implementation: (a) the transport sector administration (Direction Nationale des Transports - DNT for transport, and Direction Nationale des Travaux Publics - DNTP for roads) will be reorganized to improve efficiency; (b) the RCFM will be strengthened by transforming it into a commercial enterprise, and reinforcing its technical and commercial integration of international freight rail transport services with SNCS, thereby improving efficiency and competitiveness; (c) the execution of works by force account will be progressively abandoned; (d) a special account for routine road maintenance has been created so that contractors, particularly small ones, executing works for the project may be paid quickly; and (e) the transformation of public works equipment service into a public equipment rental comipany will facilitate the work of small private contractors by providing them with equipment they cannot afford to purchase. 7. Project Sustainabilitv. The economic appraisal of the planned investments shows a 28% rate of return; dhe existing and *xpected revenues from road user taxation and RCFM's billings cover all infrastructure costs as well as RCFM's operating costs. The sustainability of the project will be promoted by means of: (a) institutional reforms to be introduced within the sector's administraon to upgrade its planning and management capacities; (b) reforms in transport regulations to allow the industry to develop; (c) restructuring of the public enterprises to eihance their efficiency, and the passing on to users, through the prices charged, of the full range of transport operating costs, including maintenance and infrastructure renewal; (d) revision of the road user taxation system to improve recovery of road use costs; (e) development of the Malian constuction industry; (f) training and upgrading of sector personnel; and (g) reduction of the annua infrastructure rehabilitation bill through the introduction of rational routine mnaintenance and preventive periodic maintenance.  5 8. Lessons Learned from Previous IDA Involvement. Over the past 25 years, IDA has financed five highway and three railway projects in Mali for a total of US$130 million (current). The implementaion of all these projects was marked by administrative sluggishness, procurement delays, slow disbursements, insufficient resource allocation for routine maintenance, inefficient works execution by force account, payment delays to contractors, and programming of investments and works. New investments, often with inadequate rates of retun were favored over maintenance of existing infrastructure. Specific lessons from the implementation of the Fifth Highway Project include: (a) maintenance performed by force account is lower in quality and higher in price than work contracted to the private sector. In the proposed project, the proportions of routine maintenance done by contract will have to exceed 75%; (b) project implementation suffered severely from procurement delays and caused a three-year overrun (in fact the five-year project, approved in 1985, is now schduled for completion on June 30, 1995). The proposed project introduces delegated contract management for routine maintenance. It will use standard bidding docurmients and a procedures manual to expedite procurement-related matters; (c) it was difficult to get an accurate picture of the cost of force account works because DNTP's account was inadequate. Provision has been made in the proposed project to overhaul DNTP's accounting system and computerize various services; (d) the Fifth Highway Project did not explicitly address the issues of rural roads and the environment. The proposed p;oject provides for the conctruction of rural roads to open up areas with agricultural potential. It systematically incorporates environmental concerns into all road designs and maintenance works and finances environmental actions and safety along the roads. Lessons learned from the transport sector in general include: (a) the project-by-project efforts to achieve a more rational approach to investment planning, to strength institutional capabilities and improve subsector performance have had little success. The proposed project is part of an overall transport sector program which places transport development in a policy-b.sed, sectorwide framework developed by the Government and supported by donors; (b) the necessity of implemengin2 a nackaqge of policy reforms through a coordinated nvestment program to keep the focus on the broad sectoral and developmental objectives; and (c) the need to carefully define the mechanics of resource allocation for routine maintenance and the timely payment of local contractors. 9.1 Rationale for IDA Involvement. The reform program launched by Government in thetrazu=ort sector calls for support to improve the sector's efficie zy in order to reduce transport costs, to help make the Malian economy, particularly the export sector, more competitive, and to stimulate the development of agriculture by opening up isolated rural areas in coordination with the Ministry of Rural Development. Th_ institutional reforms and the proposed studies and capacity building are geared toward modernizing and streamlining the Administration, withdrawing it from management and works operations, and strengthening its investment planning, programming and supervision capabilities. The new oriention aims at strengthening the role of the private sector, both in the transport industry, where administrative constraints will be eliminated, and in public works, where the proposed measures will foster the development of local contractors and engineering firms. Considering Mali's resources, external aid is needed to successfully implement the reform and investment program. With its long and extensive experience in the transport sector, IDA's participation would be essential to assisting Government in coordinating the contributions of aU donors in the framework of a sectoral program that includes priority projects offering reasonable rates of return, together with support for reform measures. 9.2 IDA's Country Assistance Strateav (CAS) to Mali will continue to focus on promoting human resources and private sector development, extending and rehabilitating basic productive infrastructure, improving macroeconomic management, and building institutional capacity. This project is cornsistent with the last CAS for Mali which was discussed by the Board in November 1992. The objectives of the proposed project are also consLstent with the up coming CAS scheduled for Board presentation during  6 the first half of FY95. IDA lending to Mali in the next few years is expected to increase substantially to support the Government's expanding adjustment effort and to assure that output growth recovers significantly. Planned operations include a follow-up adjustment operation, and new investment operations in agriculture, infrastructure, and human resources. The transport sector project is an important part of IDA's assistance strategy for Mali since it will allow improved access to, and efficiency of, transport services which are critical for ensuring a quick and strong supply response and stimulating growth. 10.1 Agreed Actions. The following were conditions of negotiations: (a) appointment of a Project Coordinator acceptable to IDA; (b) delivery to IDA of the audit of RCFM's accounts for FY92, conducted by an auditor acceptable to IDA; (c) the opening of a routine maintenance srecial account in a commercial bank; (d) delivery of terms of reference and a list of consulting firms, acceptable to IDA, to be invited to submit proposals for the technical assistance to DNTP; (e) delivery to IDA of the terms of reference and a list of vehicle inspector firms to be invited to submit proposals for the vehicle inspection subcomponent; and (f) delivery of terms of reference and a list of consulting firms, acceptable to IDA, to be invited to submit proposals for the study of the road-user taxation system. 10.2 The following points were confirmed during negotiations: (a) all executing agencies will have adequate counterpart staff in place before the beginning of any technical assistance assignments; (b) investments in the transport sector would be limited to those included in the Program adopted by the Government and specified in its January 4, 1994 letter; allocations not included in the Program would require prior approval from IDA; the Government will submit to IDA, for the duration of the credit, and no later than July 15 each year, the rolling three-year investment Program for the transport sector, to be adopted in agreement with IDA; investmen. program and key indicators will be reviewed during the annual meetings with donors, while a mid-term review will examine overall project advancement, objectives reached, update the program, agree on additional steps required for improved cost recovery and agree on updated program financing plan; (c) the recommendations from the road-user taxation system study will be implemented in agreement with IDA no later than two years after credit effectiveness; (d) vehicle inspection will carried out by independent private firms and will take place in coordination with the re-registration exercise; DNT will publish the results of the vehicle inspection no later than 18 months following credit effectiveness, prepare the new regulations covering penalties for violations and apply it starting the third year of  7 inspection; (e) CPTP will be allowed to train staff from the private sector in transport sector specialties not taught in other centers in Mali; (f) the share of routine road maintenance work performed under contract will be at least 75% for the duration of project implementation, and force account works will be "contracted out" starting FY94 and routine maintenance by contractors is to be handled by delegated contract maragement; (g) as regards the financin, of routine road maintenance, the Government will: (i) make iiionthly payment into the separate routine road maintenance account managed bv the ministry responsible for roads of the funds necessary for routine road mahitenance; (ii) ensure that funds necessary to pay for routine maintenance work performed under delegated contract management are transferred in advance by the ministry responsible for roads into an account opened for the purpose by the agency serving as delegated contract manage.; (h) technical and financial audit of CNREX will be performed on the first year of credit effectiveness; (i) performance indicators for routine road maintenance; 0j) technical studies for road rehabilitation and periodic maintenance would be completed by the end of the second year of credit effectiveness; (k) RCFM will undertake its staff reduction program no later than two .nonths following credit effectiveness; the staff will be reduced to 1,700 at most by the end of 1995 and 1,500 at most by the end of 1998, and RCFM will complete its staff reduction program no later than 12 months following credit effectiveness; (I) a first year CPITP training program; and (m) that the auditor will review the executing agency's accounting systems and agreement on TOR for the audit. 10.3 The conditions of Board presentation were: (a) delivery to IDA of a letter confirming Govermnent's five-year transport sector investment program; (b) delivery to IDA of an "arr&td modifying the Arret creating the routine road maintenance special account; and (c) deposit of funds into the special account for road maienance as agreed upon during  8 negotiations. 10.4 The conditions of credit effectiveness are: (a) signing of the technical assistance contracts for DNT and Project Coordinator; (b) signing of an agreement with the firm responsible for vehicle inspection, (c) establishment of SMTP as an equipment rental company under conditions acceptable to IDA; (d) preparation of standard bidding documents; (e) signing of the contract for project audit and setting up of an appropriate accounting system; and (f) adoption of regulations prohibiting dumping of used engine oil into storm drains, sewers, or watercourses, lakes and ponds. 10.5 The conditions of disbursement for the railway component are: (al signature of a subsidiary agreement acceptable to IDA; (b) adoption of a new legal status for RCFM (satisfactory to IDA) and the appointment of its new Board of Directors; (c) adoption by RCFM's Board of Directors of a (1995-1997) business plan acceptable to IDA; (d) signature of the 1994-96 contrat-plan, acceptable to IDA, between the Government and RCFM; (e) for the RCFM staff reduction program, adoption of detailed financing mechanisms and listing of corresponding expenses in the three-year investnent plan and in the annual budget; (f) adoption, by the Governments of Mali and Senegal, of a joint action plan, acceptable to IDA, for the technical and commercW integration of international freight rail transport services; and (g). the signature of agreements between RCFM and the Government, acceptable to IDA, for the operation of passengers domestic lines to be maintained for public service obligations. 11. Environmental Aspects. This project is rated category B. An assessment of the ongoing Fifth Highway Project's impact on the environment was car-ied out in 1993 and its recommendations have been incorporated into the project. The environmental action plan adopted by the Government in the DGTSP covers the key actions to be taken. The terms of reference for studies and the designs of works will include actions for protecting and imVr,ving the environment. There is no resettlement involved, the  9 road and rail track rehabilitation programs following existing alignments. The environment and safety subcomponent will allow the execution of works for local improvements in villages, anti-erosion planting, safety and other actions to improve the enviromnent along the roads. 12. Prorm Objective Categories. The project participates in promoting the development of competitiveness (reinforced by CFA devaluation) of the economy by reducing transport sector costs and developing the capacity of small public works firms working in the private sector. It reduces poverty in rural arees by creating employment opportunities through the construction and maintenance of rural roads and through agricultural development. In addition, the project aims at increasing the efficiency of both public and private sector management in the transport and public works industry. 13. Project Benefits. The program and project are designed to modernize the administration of the sector and, most importantly, to reduce transportation costs. The overall appraisal of the two principal program components (road and rail, accounting for about 95 % of program costs) yields an internal rate of return (IRR) of 28%, more than double the discount rate (12%) adopted (the rates of subprojects range from 178% for periodic maintenance for a semi-urban road to 12% for the last rural track included in the program; the sensitivity tests carried out show rates of return higher than 12 %). The project is also expected to result in many other indirect benefits that cannot be quantified. It will enhance the transport sector's efficiency by realigning the functions of its administration, restructuiing its public agencies to give them a firmly commercial character and improving their operadonal capacities. The program will have a high economic and social impact on the population through reduced trensport costs, the 280,000 person/months of jobs it will create, and the promotion of small local firms to meet the increased demand expected to arise through the multiplier effects of the income generated by the program. 14. BRisk. The principal project risks stem from the fact that the Government may not be able to implement all the desired reforms in the sector, or to remove the obstacles to the mobilization and allocation of adequate financial resources for counterpart funding and, in particular, for routine road maintenance. Mali transport agencies' institutional capacity to manage the program is presently weak. For RCFM, the risk would derive from the insufficient integration of international freight services with SNCS. I .ese risks are minimized by the strong ownership demonstrated by the Govermment during project preparation, the fulfillment of all conditionalities for the negotiations, monitoring of the anmual public investment programs and key indicators of RCFM activities, continued coordination with other financing institutions, strengthening of sector management through reorganization and capacity building. 15. Recomnendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President Attachments Washington, DC May 5, 1994  SCHEDULE A Page 1 of 4 MALI TRANSPORT SECTOR PROJECT PROGRAM COST SUMMARY (CFA MILLION) (US$ MILLION) % X TOTAL .......-................. ......................... FOREIGN OASE LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL EXCHANGE COSTS ....... ....... ....... .......