Niger - Transport Infrastructure Rehabilitation Project

Document of THE WORLD BANK Report No. 16315-NIIR STAFF APPRAISAL REPORT REPUBLIC OF NIGER TRANSPORT INFRASTRUCTURE REHABILITATION PROJECT NOVEMBER 21,1997 Transport Group 2 Infrastructure Department Africa Regional Office  CURRENCY EQUIVALENTS (as of October 21, 1997) Currency Unit = CFA Franc (CFAF) US$1.00 CFAF590 CFAF 1 million = US$1,695 FISCAL YEAR January 01 -- December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ASECNA = Agence pour la Securite de la Navigation Adrienne en Afrique et a Madagascar (Air Navigation Safety Agency for Africa and Madagascar) CAS = Country Assistance Strategy CNUT = Conseil National des Utilisateurs des Transports (Shippers' Council) CFD = Caisse Fran,aise de Developpement (French Development Agency) CNEDD = Conseil National de l'Environnement pour un Developpement Durable (National Council of Environment for a Sustainable Development) COMANI = Compagnie Maritime du Niger (National Shipping Line) DE = Direction de 1'Environnement (Department of Environment) DLNTP/B = Laboratoire des Travaux Public et du Batiment (Public Works Laboratory) DMTP = Direction du Materiel des Travaux Publics (Public Works Equipment Department) ERR = Economic Rate of Return EU = European Union FAC = Fonds d'Aide et de Cooperation (French Cooperation Fund) GDP = Gross Domestic Product ICB = International Competitive Bidding, ICR = Implementation Completion Report IDA = International Development Association MEI = Ministry of Equipment and Infrastructure MHE = Ministry of Hydraulics and Environment MT = Ministry of Transport NBC = National Bureau of Coordination NCB = National Competitive Bidding NGO = Non-Governmental Organization OCBN = Organisation Commune Benin-Niger (Joint Organization Benin-Niger) PIP = Public Investment Program SNTN = Socidte Nationale de Transports du Niger (National Road Transport Company) STRN = Syndicat des Transporteurs Routiers du Niger (Road Transport Union) TSP = Transport Sector Project Vice President: Jean-Louis Sarbib, AFR Country Director: Theodore Ahlers, AFC 13 Technical Manager: Maryvonne Plessis-Fraissard, AFTT2 Task Team Leader: Jean Noel Guillossou, AFTT2  REPUBLIC OF NIGER TRANSPORT INFRASTRUCTURE REHABILITATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Niger Guarantor: Not Applicable Implementing Agencies: Prime Ministry Ministry of Equipment and Infrastructure Ministry of Transport Beneficiaries: Not Applicable Poverty: Program of Targeted Interventions Credit Amount: SDR 20.3 million (US$28.0 million equivalent) Terms: Standard IDA terms with a maturity of 40 years Commitment Charge: Standard Onlending Terms: Not Applicable Financing Plan: See para. 34 Net Present Value: Earth Road Component: CFAF 27.6 billion discounted at 12 percent (see paras. 65 and 66) Staff Appraisal Report: Report No. 16315-NIR Maps: IBRD No. 28605 Project I.D.: 35608   REPUBLIC OF NIGER INFRASTRUCTURE REHABILITATION PROJECT TABLE OF CONTENTS Credit and Project Summary .............................................................i 1. BACKGROUND ............................................................. 1 A. Country Background .............................................................1 B. Transport Sector Background .............................................................2 C. Previous Bank Experience and Lessons Learned ....................................................... 10 D. Project Rationale ............................................................ 10 2. THE PROJECT ............................................................ 11 A. Project Objectives ............................................................11 B. Project Description .1............................................................ 1 C. Project Cost and Financing ............................................................ 12 D. Project Implementation ............................................................ 13 E. Procurement ............................................................ 14 F. Disbursement ............................................................ 17 G. Accounting and Auditing ............................................................ 18 H. Reporting and Monitoring ............................................................ 19 I. Environmental Aspects ............................................................ 20 J. Benefits ............................................................ 22 K. Risks ............................................................ 24 3. AGREEMENTS REACHED, CONDITIONS AND RECOMMENDATIONS ................. 27 This report is based on the findings of two preappraisal missions and one appraisal mission which visited Niger in October and December, 1996 and April 1997. The project team consisted of Mmes./Messrs. Jean-Noel Guillossou (Task Team Leader, Sr. Transport Economist, AFTT2); Andreas Schliessler (Transport Economist, AFTT2); Abdellatif Baltagi (Highway Engineer, Consultant); Inger Bertilsson (Environment Specialist, Consultant); and Thierry Du Crest (Research Assistant, AFTT2). Mr. Colin Gannon (TWUTD) is Peer Reviewer. Ms. Maryvonne Plessis-Fraissard (AFTT2) is Technical Manager. Mr. Theodore Ahlers (AFC13) is Country Director. Ms. Jocelyne do Sacramento (AFTT2) provided technical support.  ANNEXES I Project Design Summary .................................................. 29 2 Letter of Sector Policy .................................................. 33 3 Road Maintenance Budget .................................................. 39 4 Public Investment Program .................................................. 43 5 Detailed Project Costs .................................................. 44 6 Project Implementation Schedule .................................................. 47 7 Key Performance Indicators .................................................. 56 8 Supervision Plan .................................................. 58 9 Summary Environmental Assessment of Earth Road Regraveling Works ................ 60 10 Summary Environmental Impact Assessment of the Road Gaya-Margou-Ounditan.63 11 Summary Environmental Assessment of the Rural Road Sector .66 12 Summary Environmental Mitigation Plan .69 13 Economic Analysis .70 14 Documents Available in the Project File .74 MAPS IBRD No 28605  REPUBLIC OF NIGER TRANSPORT INFRASTRUCTURE REHABILITATION PROJECT STAFF APPRAISAL REPORT I.BACKGROUND A.COUNTRYBACKGROUND 1. Niger is a large landlocked country covering an area of 1.27 million Km2, and is 600 km away from the closest seashore. The population estimated at 8.7 million in 1994-- about half of which is less than 15 years old--is growing at about 3.3 percent a year which is above the average for Sub-Saharan Africa. Social indicators are among the lowest in the Sahelian countries. The human resource base is weak, with an adult literacy rate of only 14 percent (9 percent among women) and a primary school enrollment ratio of less than 30 percent. Life expectancy at birth is 47 years, one of the lowest on the continent, and infant and child mortality rates are high. The natural resource base is fragile due to low and irregular rainfall and low and declining soil fertility. As a result, Niger's fast growing population is becoming one of the poorest in the world. Per capita gross domestic product (GDP) has declined by more than 52 percent since 1980, reaching US$176 in 1994. Niger has an open economy, with imports and exports exceeding 30 percent of GDP. Strong trade links exist with Nigeria, which exerts considerable economic influence through long-standing trading and cultural bonds. 2. Besides the weak natural resource base, Niger faces additional constraints in the form of high factor costs, overdependence on uranium, a relatively inefficient public sector and a small modem private sector. The fall of uranium prices in 1981 has resulted in severe financial imbalances and triggered a long-term economic decline. The devaluation of the CFA franc in January 1994 has given Niger an opportunity to resume its economic growth. Political instability, however, has prevented the country from taking full advantage of the devaluation. Eventually, the Government reached agreement with the International Monetary Fund on an Enhanced Structural Adjustment Facility program in June 1996. IDA approved a one-tranche adjustment credit on March 20, 1997. 3. Poverty remains critical in Niger. 63 percent of Nigeriens (5.3 million people) earn incomes below the poverty threshold defined by the Government. About 34 percent (2.8 million people) are classified as extremely poor. Urban/rural differentials are stark, with average rural incomes being half those in urban areas. The participatory poverty assessment carried out in 1996 (Report no. 15344-NIR, June 28, 1996) pictures vividly poverty in Niger:  2 Niger - Transport Infrastructure Rehabilitation Project (a) Urban areas: Poverty is hunger. Ownership of goods is a form of safety net rather than money. Being employed is what matters. Women earn revenues through petty trade, mostly the sale of cooked food. They take care of the family when men lose their jobs. Squatting neglected areas saves the cost of renting houses. Recently, the number of beggars has increased in Niamey, and "traditional" beggars have been joined by large numbers of younger people. (b) Rural areas: Access to land is a major constraint because of the dearth of fertile land and competition exists among groups to exploit natural resources. Households exchange young children: families with many children send older children to help families who do not have enough labor force and receive younger children. Diversification of income sources is a necessary strategy because of the climatic risks, but the poor have little possibilities available. Migration is a survival strategy, the poor migrate to look for food and work within Niger or to neighboring countries. Remittances contribute to the income of those in the household who have stayed in their villages. During the dry season, Niamey's population is estimated to increase by 100,000 dwellers. 4. Putting the country back onto a development path requires the pursuit of the reform agenda, including private sector development and restructuring of the public expenditures to improve basic education and health services coverage. Government's commitment and action on key reforms, the return to political stability and the resumption of donor assistance are critical for the reforTn program. Sustained success depends on continued fiscal discipline and the increase of investments to rekindle growth, especially in satisfying the large needs in social infrastructure. To pursue its reform agenda, Niger critically needs to regain donors' confidence through an effective transition to democracy. External aid is progressively resuming after several important donors suspended budgetary aid in reaction to the military takeover in late January 1996. A Presidential election was held in July 1996 and legislative elections in November 24, 1996. B. TRANSPORT SECTOR BACKGROUND 5. The following paragraphs describe the transport sector and identify the most important issues. Government actions and decisions listed in the paragraphs are taken from the Letter of Sector Policy prepared by the Government for the 1998-2000 period (Annex 2). The Letter was signed by the Government before Board presentation. 6. Road Maintenance. The Government is committed to improve highway management and road transport perfornance to promote Niger's economic competitiveness. The interurban road network consists of 14,000 km of roads, including 3,500 km of paved roads. The urban road network is estimated to be 840 km long, of which 25 percent is paved. Road maintenance performance has deteriorated during the past five years, mostly because of a lack of incentives, salary arrears, low availability of equipment (about 60 per cent for heavy equipment), insufficient financing, and cumbersome procedures. Because of lack of resources, the Government has concentrated its maintenance effort on a priority network of about 7,656 km. About 55 percent of paved roads and 44 percent of earth roads are in poor condition. Most roads not recently built or  Niger - Transport Infrastructure Rehabilitation Project 3 maintained with external financing are now 9- to 1 0-years old, and periodic maintenance is crucial now to preserve road assets and prevent costly rehabilitation in the future. 7. The sector is managed by the Ministry of Equipment and Infrastructure (MEI). The Public Works Department (DTP) has a staff of about 1,400 employees. MEI does not have a clear procedure to establish road maintenance and rehabilitation programs. A road data bank was set up under the Transport Sector Project (TSP, Cr. 1706-NIR closed on June 30, 1993). The data bank was maintained as long as the TSP was effective, but data have not been regularly collected since project completion. However, MEI's staff was trained to operate the data bank which was used for the preparation and the economic analysis of the proposed Project, after more recent data on road conditions were collected. The strategy which provides the basis for establishing road maintenance programs by using the road data bank needs to be updated by changing working methods and works standards and taking into account budget constraints, as well as lessons learned from the experience of road maintenance in Niger during the past ten years. The new strategy is expected to be available by December 1998, based on terms of reference available in the project files. The objective is to define several economically-justified maintenance scenarios based on different sets of maintenance standards and chose the scenario which best fits within the resources available. The definition of the new strategy will give the opportunity to replace the existing data bank developed ten years ago with a software which is no longer on the market. The project will also purchase equipment to help MEI to collect data and monitor road conditions. 8. Lack of resources for road maintenance hampers the sustainability of investments in the highway sector. The 1997 operating budget, excluding salaries of civil servants in DTP, amounted to CFAF 3.1 billion (Annex 3). The resources budgeted are insufficient to maintain the priority network. The necessary budget, excluding salaries, is estimated at CFAF 4 billion (Annex 3) for only routine maintenance (CFAF 3 billion), some emergency operations (CFAF 775 million) and the operating costs of the Public Works Department (CFAF 240 million). The Government has decided to increase the 1998 budget by 18 percent to CFAF 3.7 billion in a effort to fill the gap between resources available and those required. However, resources will still lack for periodic maintenance of both the paved and unpaved networks. The present project is expected to cover part of the deficit for the unpaved roads, but there are no immediate prospects of new resources for the paved roads, other than those under an African Development Bank project suspended since 1994, which would cover 136 km of roads. During negotiations, the Government agreed to prepare annual budgets for road maintenance in consultation with IDA. 9. A 1991 study shows that maintenance costs were not covered by tax revenues generated by the transport sector. The main reason is the use of smuggled gasoline from Nigeria, which results in loss of taxes collected from petroleum products. The following table details costs and revenues per category of transport. Maintenance costs included costs for routine maintenance estimated at that time at CFAF 2.7 billion, costs for periodic maintenance estimated at CFAF 4.9 billion and administration costs estimated at CFAF 795 million. Since 1991, road tolls have been introduced to improve cost recovery, but revenues have been uneven: about CFAF 300 million, one third of expected revenues, until 1995; and CFAF 600 million in 1996. Even fully recovered,  4 Niger - Transport Infrastructure Rehabilitation Project revenues from road tolls would not balance maintenance costs and revenues from the transport sector. Table 1: Recovery of road maintenance costs from road transport taxation (1991 - CFAF million) Passenger transport Freight transport Total Private Public Trucks Trailers Maintenance costs 2,012 2,032 1,620 2,715 8,379 Revenues from 2,256 1,377 367 615 4,615 specific taxation Balance 244 -655 -1,253 -2,100 -3,764 10. To sustain road maintenance financing, the Government intends to create a Road Maintenance Fund according to the four following principles: (a) involvement of road users in its management; (b) carrying out by external independent auditors of technical and financial audits of road maintenance programs financed by the Fund; (c) commercial management of the Fund; and (d) to the extent possible, resources collected from road users. The Government's decision in March 1997 to create, as a transitory period before the Road Fund, a Road Maintenance Account with resources allocated from the Treasury failed to achieve its objective as the Government was unable to allocate resources to the account. This failure emphasizes the need to create the Road Fund according to the four principles above. In addition to securing resources, the Fund will accelerate payment to contractors, who have difficulty to survive the long payment delays which are typical of the normal procedure through the Treasury. It will also irnprove transparency in the management of public resources. The project will finance annual financial audits of the Road Fund and annual technical audits of the road maintenance program executed with Government budget's financing. Terms of reference for the technical audits are in the project files. During negotiations, the Government agreed to implement before January 1, 1999, a mechanism to finance road maintenance based on the four principles above. The type of user charges and their collection process will be defined in a study included in the project. The study will consider a revision of the road tolls system, which is a potential source of revenues for the Fund. Terms of reference are in the project files. The study will also consider the possibility of using road network management contracts, for some specific roads, under which a private operator would receive the right to collect tolls and in turn be responsible to maintain roads to established standards. I11 To improve efficiency, the Government has decided to progressively disengage from road maintenance execution and use civil works contractors instead. MEI should focus on planning, programming, budgeting and supervision of works. Presently, routine maintenance is still carried out by force account. Periodic maintenance, rehabilitation and some emergency interventions are contracted out. The Government has agreed that, by 2000, all routine maintenance will be contracted out except in areas under army control. In 1997, in addition to operating expenditures used for emergency operations and usually carried out by local contractors, part of the Government's budget has already been used for routine maintenance operations by local contractors. DTP will be restructured to reflect these changes before January  Niger - Transport Infrastructure Rehabilitation Project 5 1, 1999. The terms of reference of the study to define the new structure for DTP are in the project files. Training activities will be identified as part of the study. The project will also provide resources for short-term missions of experts to assist DTP in managing the implementation of the new framework for road maintenance. 12. To improve efficiency of public works equipment rental activities, the Government has agreed to transform its equipment pool into a privately managed equipment rental company. The new statute should be implemented before January 1, 1999. Force account brigades use public works equipment managed by a department of MEI (Direction du Materiel des Travaux Publics - DMTP), which has 670 employees and maintains 885 pieces of equipment and vehicles. DMTP's performance has been low for three reasons: (a) difficulties to access to funds budgeted for the renewal of equipment; (b) cumbersome administrative procedures which prevent to purchase spare parts when required; and (c) lack of incentives for staff. DMTP's budget is a separate budget in the Government's budget. It amounted to CFAF 3.1 billion in 1997 (Annex 3). About CFAF 1.5 billion were revenues from equipment rental to the Department of Public Works and corresponding expenditures were almost entirely disbursed. CFAF 1.3 billion were budgeted for the renewal of equipment but almost none of these resources were used. Terms of reference of the financial adviser who will assist the Government in the establishment of the new privately managed equipment rental company are in the project files. The project will also finance rehabilitation of some equipment to facilitate the start of the new company. The technical expertise to appraise rehabilitation requirements and prepare bidding documents will be provided under the contract of the fmancial adviser. 13. The Road Laboratory should change its statute in order to become autonomous and fmancially viable. The Road Laboratory is a department of MEI, with 70 employees. It is responsible for the geotechnical supervision of road works. The Road Laboratory uses a Special Account in the Government's budget. Although the Special Account was created to facilitate the Laboratory's operations, the revenues generated by supervising road works on external financing and for services rendered to private entrepreneurs, are transferred to the Treasury, which keeps them for other purposes. Then, the resources cannot be used by the Laboratory to finance its operating costs and renew its equipment. The Laboratory's 1997 budget amounted to CFAF 109 million, 91 percent being for salaries. The Laboratory's statute should be changed before January 1, 1999. Terms of reference to define the new structure are in the project files. 14. Rural Roads. Development of the rural road network has been unsustainable due to lack of funds for its maintenance. The network is 1,250 km long, mostly entirely built with IDA financing under the Feeder Road Project (Cr. 886-NIR, closed on June 30, 1987) and the Transport Sector Project (TSP, Cr. 1706-NIR, closed on June 30, 1993). Rural roads were built by force account with high standards similar to those on the primary network, although supporting much less traffic. About 1,500 km of new roads were identified on the basis of their economic justification during the preparation of a new feeder road project later canceled. 15. There is a high demand for the construction of new roads as demonstrated by several examples where population have contributed in cash to finance force account brigades to build new roads or rehabilitate existing roads. The Government is attentive to this demand and is  6 Niger - Transport Infrastructure Rehabilitation Project seeking financing to extend the rural road network in areas which lack access. However, it is also conscious that resources being insufficient to maintain the existing network, a new strategy has to be defined to make investments in the rural road network sustainable. As part of the Government's decentralization policy, responsibility for the maintenance of the tertiary network which includes rural roads would be given to local governments. Although the Ministry of Equipment and Infrastructure has prepared a draft decree in this direction, the decree cannot be implemented as long as the overall framework for decentralization is not put in place. The Government has requested to include in the project a rural component with the objective of defining a new strategy aiming at sustaining maintenance of rural roads. Implementation of the strategy would be tested through a pilot operation included in the project. The pilot operation would cover about 150 km of rural roads. Terms of reference of the consultant which will assist the Government in the definition of the new strategy in consultation with beneficiaries and the preparation of the pilot operation to validate the strategy are in the project files. 16. Road Transport. Niger is heavily dependent on road transport, both for its domestic freight and passenger movements, and for cross-border traffic. The latter consists of formal and informal (and unrecorded) trade flows with neighboring countries (mostly Benin, Togo and Nigeria but also Burkina, Ghana and C6te d'Ivoire), and transit transport of maritime imports and exports. The following table summarizes the 1995 and 1996 statistical data on regional and international cargo flows to and from Niger (by transport corridor). However, actual cargo flows are higher, as there is much unrecorded trade with some neighboring countries, especially with Nigeria. Table 2: 1995 Regional and international cargo flows (tons) 1995 1996 Country Regional Maritime transit Total cross- Total cross- traffic traffic border traffic border traffic Benin route 13,000 178,000 191,000 172,772 Togo/Burkina n.a. n.a. 78,000 113,507 Nigeria 46,000 0 46,000 49,809 Ghana 35,000 0 35,000 36,296 C6te d'Ivoire 40,000 0 35.000. 44,006 n.a.: not available. The split between regional and maritime transit traffic in the Togo/Burkina corridor is not known. 17. The Government has little intervention in the sector as a result of measures taken to liberalize the sector. Price regulation was abolished in 1994 except for the transport of petroleum products. Access to the industry is unrestricted. In 1996, the Government abolished the monopoly granted to the national road transport company (Societe Nationale des Transports du Niger, SNTN) to transport the freight of mining companies. SNTN is being restructured with interurban transport activities transferred to a private company created in 1994, and urban transport activities transferred to a company created in December 1996 and jointly owned by Niamey's municipality, the State and private investors. SNTN itself will remain as a semi-private freight transport company jointly owned by the State and a foreign private freightforwarder. Completion of SNTN's restructuring has been delayed because of lack of financing for severance  Niger - Transport Infrastructure Rehabilitation Project 7 payment of redundant staff, but is expected before end of March 1998, with the assistance of external financing. 18. Despite these efforts, high transport costs are a major constraint to Niger's development due to restrictive practices by the road transport industry. Independent from the Government, the road transport union (Syndicat des Transporteurs Routiers du Niger, STRN) has established a system to allocate among operators public domestic passenger traffic, and also international freight in the Benin and Togo corridors. This has several negative effects on the economy: (a) tariffs set by STRN are two-third above those practiced by Beninese truckers, which cannot be explained only because Niger is a landlocked country; (b) the system prevents contractual relationships between shippers and truck owners; (c) implementation of the system is distorted in favor of large fleet owners; (d) although tariffs are high, the profitability of the activity remains low as the traffic is shared among numerous operators which do not carry out enough trips to make the activity profitable. For high-value cargo, shippers may use SNTN who charges higher tariffs and provides a better quality of service. This is possible on all routes, including those international corridors which are subject to the allocation system enforced by STRN (Benin and Togo corridors). On domestic routes and other international corridors, shippers can also use the service of a few other higher-quality operators. 19. Freight transport services are provided by about 700 operators. The vehicle fleet consists of about 1,300 trailers with a 25-ton payload, 400 smaller trucks, most of them very old, which are mainly used for occasional domestic transport of low-value cargo. About 5 operators own fleets between 50 and 100 trucks. SNTN owns more than 300 trucks. Many truck operators are also traders and shift between transport and trade according to market conditions. Only SNTN and a few other operators are formal transport companies. The large majority of operators is informal and mostly of a low educational background. They do not operate out of established premises, do not have vehicle servicing and repair workshops, and also do not have a clear notion of vehicle operating costs. For the past ten years, almost all newly registered trucks have been second-hand vehicles which are between 8- and 12-year old. The cost of these vehicles is about 10 percent of a new unit. This results of the low profitability of the activity, because of which operators do not have enough resources to invest in new costly vehicles and prefer to buy imported second-hand vehicles instead. However, despite the high average age of the fleet, there are few complaints about the quality of transport services. A sign of confidence in the services provided is the readiness of insurance companies to cover the risks of cargo loss or damage during road transport, at a reasonable rate. 20. The allocation system is also applied to passenger transport and negatively affects the safety and comfort of passengers. Passengers are not allowed to choose between buses in fair or poor condition. Interurban passenger transport is provided by about 900 individual operators, most of which own one or two vehicles. The fleet consists of some 550 taxis, about 1,000 minibuses with a capacity between 17 and 22 passengers, and about 150 larger buses. Cars which operate on international routes are particularly in poor condition. SNTN operates large buses and is the single big operator. Characteristics of operators are similar to those of freight transport operators described above.  8 Niger - Transport Infrastructure Rehabilitation Project 21. When road tolls being constructed in Benin on the road between Cotonou and Parakou are in service, road freight services will be authorized and the monopoly granted to the joint Benin-Niger institution (Organisation Commune Benin-Niger, OCBN), for transit traffic on the Benin-Niger corridor, will disappear. Construction of road tolls has started but completion expected in December 1996 has been delayed and is now expected before the end of 1997. The operator of the road tolls has already been selected. OCBN operates the Beninese railway from Cotonou to Parakou and contracts out road transport from Parakou to Niger to a pool of truckers. The contracting procedure and the monopoly facilitate the freight allocation system. In addition to freight traffic, the railway carries a substantial volume of passengers. Passenger traffic is most likely to be subsidized by freight traffic, though this cannot be substantiated because of the poor accounting practices in OCBN. Thus, Niger would bear, through rail freight tariffs, a portion of the subsidy to the transport of mainly Beninese passengers on the railway. Because privatization of OCBN is supported by the Nigerien Government, but not fully by the Beninese Government, the Nigerien Government does not have full autonomy in the decision and no timetable has been agreed yet. A joint meeting between the Beninese and Nigerien Governments and donors is envisaged in 1998 to support the decision process regarding the privatization of OCBN. 22. The Government is committed to eliminate the stranglehold of the road haulage cartel and discourage the use of the allocation system. It intends, with the project's assistance, to sensitize the road transport industry to the issues described above and launch discussions with STRN to replace the bus allocation system by schedules, which would let passengers decide on the vehicle they prefer to take. Among the sensitization activities, will be presented the link between poverty and transport, which will be studied as part of the project activities. The Government, with the project's assistance, will improve technical control of vehicles to remove those which are in the poorest condition. Some of these vehicles remain in use only to capture a larger share of the freight through the allocation system although they do not actually transport this freight. Terms of reference for the improvement of technical control of vehicles are in the project files. Disappearance of OCBN's monopoly and the rehabilitation of the road between Togo and Niger included in the IDA's Transport Sector Project in Togo approved by the Board in early FY98 will increase competition and are expected to result in the disappearance of the freight allocation system. 23. In 1990, the Government prepared a plan of action to improve road safety. However, the cost of the plan estimated at about US$4 million was out of proportion with the Government's capacity to finance it. Because the Departmnent of Land Transport (DTT) in the Ministry of Transport does not collect data on road accidents, the only information on accidents date from 1990. That year, about 500 people had been killed, 1,000 people had suffered heavy injuries and 3,000 people light injuries. Road accidents had been estimated to cost about CFAF 2 billion to the economy. DTT's capacity needs to be strengthened to be able to analyze and use efficiently information on accidents. The institutional framework needs to be revised to improve collaboration between public and private institutions involved in the sector. Terms of reference for the preparation of the plan are in the project files. 24. Maritime Transport. The application of the 40-40-20 rule (UNCTAD Code of Conduct) for cargo sharing is an additional burden on international transport. The rule is administered by  Niger - Transport Infrastructure Rehabilitation Project 9 the Shippers' Council (Conseil Nigerien des Utilisateurs des Transports, CNUT), which has 48 employees. The 40-40-20 rule now prevents the reduction of maritime freight rates at a time when those are decreasing throughout the rest of the world. The rule has also failed to promote the development of national shipping lines in Africa, which was one of its objectives. Besides, the enforcement and administration of the rule adds an average of US$3 per ton to transport and transit costs, which is partly to cover CNUT's operating costs. Maritime traffic allocated to the Nigerien shipping line (Compagnie maritime du Niger, COMANI, a Non-Vessel Operating Common Carrier) is reassigned to other shipping lines, which in turn grant discounts to COMANI. The Government has decided to liberalize maritime transport by June 1998 giving shippers the freedom to chose their shipping lines for maritime transport. The CNUT is being restructured and its role redefined. The project will provide support to the creation of a National Observatory of Transport in which the CNUT would participate with private sector stakeholders. CNUT's services should be remunerated on the basis of their costs under commercial contracts. 25. Civil Aviation. The Government is negotiating with ASECNA, the Air Safety Agency for Africa and Madagascar, to transfer airport management to the Agency. Nigerien airports are currently managed by ANAC, the public Civil Aviation Agency. The Agency has 334 staff, 100 above what is required. The Department of Civil Aviation in the Ministry of Transport regulates the sector. The main airport is Niamey with about 130,000 annual passengers, mostly international. ASECNA is currently responsible for air traffic control. Although reliable information is unavailable, financial statements for Niamey's airport would be expected to be balanced. Because of a low level of traffic, those for secondary airports would show a deficit. Cross-subsidization between airports would be unacceptable if the amount of the cross-subsidy is too high, because it would make Niamey's airport unattractive especially for tourism. 26. Highway Investment and Maintenance Program. The Program for the 1998-2000 period (see Table 3) totals about CFAF81 billion distributed into CFAF70 billion for investrnent and CFAFl billion for maintenance. The Government contribution is estimated at about CFAF14 billion or 17 percent. Table 3: 1998-2000 Highway Investment and Maintenance Program (CFAF billion) 1998 1999 2000 Total Maintenance program 3.7 3.8 3.8 11.3 Investment program 15.4 31.8 22.4 69.6 Total 19.1 35.6 26.2 80.9 With the proposed project, the Government plans to include 12 highway projects in the 1998-2000 Public Investment Program (PIP) (Annex 4) which will be submitted to the National Assembly's approval at the end of 1997. The IDA project represents 21 percent of the investment program. The PIP for the highway sector represents 21 percent of the overall PIP for the 1998- 2000 period, up from 15.6 percent in 1997. For 1998 only, this percentage amounts to 15 percent. During negotiations, the Government agreed that annual PIPs will be prepared in consultation with IDA.  10 Niger - Transport Inftastructure Rehabilitation Project C. PREvious BANK EXPERIENCE AND LESSONS LEARNED 27. The experience under the Transport Sector Project (TSP) calls for a strong consensus between the Borrower and donors on objectives for any new project in the sector. This consensus was reached with the new Government which came on power early 1996. The TSP's Implementation Completion Report (PCR, Report No. 13773, December 9, 1994) also recommends to establish a road maintenance policy based on economic criteria, to strengthen road management capacities and to reactivate road management tools, all activities which are included in the proposed project. The PCR for the Feeder Roads Project (Report No. 7739, April 28, 1989) emphasizes the need to address lack of funds for rural road maintenance, which hampered the Project's sustainability. 28. A review of the IDA portfolio was held with Nigerien and IDA project managers in May 1997 to discuss generic issues and provide recommendations. Four themes were identified: (a) the project's environment, the conditions for success and the participation of beneficiaries; (b) programming of project's activities, monitoring and assessment of outcome; (c) project management; and (d) project's institutional framework. Recommendations were related to: (a) on the Government' side: (i) define sector strategies; (ii) include counterpart funds in the quarterly cash-flow management at the Treasury; (iii) strengthen the local capacity in the ministries for planning, monitoring, evaluation and reporting; (iv) revise the national procurement code and identify obstacles hamnpering the procurement process; and (v) avoid project specific conditions for effectiveness; (b) on IDA's side: (i) strengthen the role of the Resident Mission, especially for procurement; and (ii) revise the amounts in the Special Accounts. D. PROJECT RATIONALE 29. The proposed project is consistent with the Country Assistance Strategy (CAS) discussed by the Board on November 11, 1997. In a context where reduction of poverty, although an overarching objective, is unlikely to be achievable in the medium term, IDA's assistance would focus on three core areas with the following broad objectives: Core area of IDA assistance Broad objective Human capital development Expand the coverage of basic education and health services Improved management of water Increase access to safe drinking water and promote sustainable water management in agriculture Promotion of open economic policies and regional Foster a favorable business climate, including linkages further development of links with Nigeria 30. The proposed project will be part of the third area of IDA assistance. It will support state divestiture and removal of regulatory bottlenecks in the transport sector while contributing to providing and maintaining basic road infrastructure. The project will also contribute to mitigate the impact of an harsh environment on the poor especially through the rural road component of  Niger - Transport Infrastructure Rehabilitation Project 11 the project as poverty is critical in rural areas and evidence suggests that poverty is growing in Niger. The project will help develop a strategy for rural road maintenance to sustain the development of the rural road network. Also, although improvement of road maintenance efficiency has not a direct impact on poverty reduction, it will prevent an increase in poverty which would result of high transport costs caused by roads in poor condition due to lack of maintenance. II. THE PROJECT A. PROJECT OWECTIVES 31. The development objectives are to improve the condition of the road network and the efficiency of road maintenance execution. B. PROJECT DESCRIPTION 32. The project includes six components: (a) Earth roads: This component includes the regraveling of 1,060 km of earth roads; detailed engineering studies and preparation of bidding documents; site-specific environmental impact assessments and preparation and implementation of environmental mitigation plans for works included in the project; and supervision of works execution. (b) Rural roads: This component includes the definition of a strategy involving beneficiaries in rural road management; the preparation of a pilot operation and the coordination and monitoring of its implementation; sensitization activities; detailed engineering studies and preparation of bidding documents; site-specific environmental impact assessments and preparation and implementation of environmental mitigation plans; execution of civil works on about 150 km of rural roads; and supervision of works. (c) Road maintenance administration and management: This component includes: support to Government's divestiture of public works equipment rental activities; support to the Road Laboratory's restructuring; support to the Public Works Department's restructuring; support to improve road maintenance programming procedures, monitor road conditions and contract out road maintenance; training to strengthen the Public Works Department's capacity in road maintenance programming, procurement and works supervision; implementation of a computerized system and procedures to manage the Road Fund; technical audits of annual road maintenance programs; financial audits of the Road Fund; study for the creation of a Road Fund; road maintenance strategy study; training in environmental considerations of staff in the environmental unit of the Public Works Departmnent and incremental operating costs of the unit; and equipment.  12 Niger - Transport Infrastructure Rehabilitation Project (d) Road transport: This component includes: technical advisory services for the implementation of a road safety plan; improvement of vehicle technical control of vehicles; and revision of the regulatory framework to improve protection of road assets, including axle load limitation; a study of the links between transport and poverty; sensitization activities aimed at the road transport industry; support to the creation of the National Observatory for Transport (technical advisory services, training equipment); feasibility study of a container terminal; definition of a training strategy for the transport sector; development of an investment plan for river ports; and computerization of vehicle certification; (e) Environment: In addition to the activities described above which are road maintenance specific, the project includes support to the National Council of Environment for Sustainable Development (CNEDD) under the Prime Ministry and the Department of Environment in the Ministry of Hydraulics and Environment (DE/MHE): preparation of the legal documents to implement the 1997 law institutionalizing environmental assessments; training; and equipment. (f) Project management: This component includes: financial audits of the Credit Account and the Special Account; equipment; and incremental operating costs of the National Bureau of Coordination, including contractual staff. 33. Training will be provided in the following fields: procurement under IDA projects and under the Nigerien budget using the national procurement code; programming of road maintenance works; economic analysis of road projects; technical supervision of road maintenance works; management of road data bank; and environmental issues. Additional training activities will be defined under the various restructuring studies included in the project. Trainees will come from the Ministry of Infrastructure and Equipment, Ministry of Planning, Ministry of Finance, Ministry of Hydraulics and Environment, and the National Council of Environment for a Sustainable Development. Training activities will be organized also to promote the development of local contractors. Seminars will be organized on the new road maintenance strategy; on the privatization of road maintenance execution; and on transport regulation. A workshop will be organized to launch the project. Missions will be sent to foreign countries to review experiences in road funds, privatization of road maintenance execution, and creation of public works equipment rental companies. C. PROJECT COST AND FINANCING 34. The total project cost is estimated at US$30.5 million. IDA's contribution will amount to US$28.0 million and the Government's contribution to US$2.5 million. In addition, the Government will finance salaries of civil servants in NBC and some operating costs of NBC. The annual contribution is estimated at US$10,000. Table 4 summarizes the distribution of project costs per component and foreign currency, local currency and taxes. Project costs are detailed in Annex 5.  Niger - Transport Infrastructure Rehabilition Project 13 Table 4: Project Cost Summary (US$ million) Component Foreign Local Taxes Total % Foreign % Base Currency Currency Currency Costs l.Civil Works 15.9 3.1 1.4 20A 78 79 2. Equipment 0.8 0.0 0.1 0.9 90 3 3. Technical Assistance 1.8 1.7 0.0 3.4 52 13 4. Training and Seminars 0.2 0.4 0.0 0.5 30 2 5. Operating Costs 0.0 0.0 0.0 0.1 62 0 6. PPF 0.4 0.2 0.0 0.6 63 2 Total Base Costs 19.0 5.4 1.5 26.0 73 100 Physical Contingencies 1.6 0.3 0.1 2.0 78 8 Price Contingencies 1.8 0.5 0.2 2.5 72 10 Total Costs 22.4 6.2 1.8 30.5 73 118 35. IDA will finance US$5.6 million of expenditures in local currency. This is justified by the relatively high share of expenditures in local currency in civil works on earth and rural roads (64 percent for personnel and 24 percent for inputs) as well as by the amount of training activities or consulting services carried out locally. Local consultants have proved to be competitive under the PPF for engineering services because of the low technology of civil works executed under the project as well as for audit, legal, survey or sensitization services. The Government will finance taxes and duties on all contracts. The project is exempt of custom duties on imported professional equipment. Counterpart funds for the earth road rehabilitation component will be deposited in a commercial bank on a Project Account managed by the National Bureau of Coordination prior to the signature of any works contract financed from the credit. This account will be audited as part of the project activities. The Project Account should be opened and an initial amount of CFAF 20 million corresponding to counterpart funds for equipment to be purchased in 1998 should be deposited in the account before effectiveness. D. PROJECT IMPLEMENTATION 36. The Prime Ministry will be responsible for the overall coordination of the project through the project's Steering Committee and the National Bureau of Coordination. The Steering Committee coordinates both transport and urban (Cr. 2957-NIR approved by the Board on May 29, 1997) infiastructure rehabilitation projects. It is composed of representatives of the Prime Ministry, Ministry of Finance, Ministry of Planning, Ministry of Infrastructure and Equipment, Ministry of Transport, and the Secretary to Decentralization and Administrative Reform. NBC has coordinated project preparation. It was created under the Ministry of Planning by ministerial order in July 1996, then transferred under the Prime Ministry in January 1997. NBC's staff consists of one civil servant, who is chief of the Bureau, and one accountant under contract. NBC's chief has performed his duties satisfactorily; he is well accepted by other executing agencies. Depending on the activity, sub-conmmittees composed of staff from the Steering Committee and from executing agencies will be responsible for procurement under the project. Procurement activities carried out under the PPF have demonstrated a satisfactory performance  14 Niger - Transport Infrastructure Rehabilitation Project of members in procurement committees. Training in procurement is being provided with PPF resources to further improve this performance. 37. The Public Works Department in MEI will be responsible for the highway component of the project, including road maintenance strategy studies, engineering studies and execution of the earth road regraveling prograrn and the rural road pilot operation included in the project. Environmental activities related to road works will be under the responsibility of the Service for environmental impact studies in the Public Works Department. The National Council of Environment for Sustainable Development and the Department of Environment in the Ministry of Hydraulics and Environment will advise MEI regarding environment-related activities. DMTP and LNTPB will be responsible for the project activities which concern their departments. The Department of Land Transport will be responsible for road transport studies. The National Council of Environrent for Sustainable Development and the Department of Environment in the Ministry of Hydraulics and Environment will be responsible for non-road specific environment- related activities (para. 32 (e) above). The National Bureau of Coordination will manage the project accounts, ensure a timely provision of financial audits, and be responsible for reporting on project progress. 38. A Project Implementation Plan was drafted before appraisal and is available in the project files. The plan includes all procedures for the execution and the management of the project (procurement, disbursement), the project's content and objectives, detailed project costs, terms of reference of studies, standard forms of progress reports. The plan was formally adopted by the Government before Board presentation. The plan also includes an implementation schedule for the project activities (Annex 6). The schedule was prepared on the assumption that the credit would become effective on March 31, 1998. E. PROCUREMENT 39. During negotiations, the Borrower agreed to the procurement procedures described hereafter, which are part of the project implementation plan. All goods and works financed under the IDA credit will be procured in accordance with the Guidelines for the Procurement under IBRD Loans and IDA Credits (January 1995, revised January 1996 and August 1996). Consultants will be selected in accordance with the Guidelines for the Use of Consultants by World Bank Borrowers, and by the World Bank as Executing Agency" (January 1997). Table 5 summarizes the project elements, their estimated costs and procurement methods. Procurement of Civil Works 40. All contracts for the rehabilitation of earth roads and the construction of rural roads will be awarded based on ICB in accordance with IDA's procurement guidelines. All ICBs will be advertised in national newspapers and in Development Business. Bank Group's standard bidding documents (Passation des marches de travaux-Droit civil, September 1996) will be mandatory. Draft bidding documents are available and are being reviewed by IDA. A 7.5 percent margin of preference may be granted in the evaluation of bids to domestic contractors. Contracts specifying completion time more than 18 months will provide for a price adjustment clause. All bids will  Niger - Transport Infrastructure Rehabilitation Project 15 be opened in public. Evaluation criteria will be included in the standard bidding docurnents. Contract negotiation will not be permitted. The contracts will be awarded to the lowest evaluated responsive bidder. Table 5: Proposed Procurement Methods (Amounts in US$ million) Project Element ICB NCB Other Total Cost 1. Works 24.7 - - 24.7 (22.2) - (22.2) 2. Goods 0.4 0.3 0.2 0.9 (0.4) (0.3) (0.2) (0.8) 3. Technical Assistance - - 3.7 3.7 - - (3.7) (3.7) 4. Training and Seminars - - 0.6 0.6 - - (0.6) (0.6) 5. Operating Costs - - 0.1 0.1 (0.1) (0.1) 6. PPF Refinancing - - 0.6 0.6 (0.6) (0.6) TOTAL 25.1 0.3 5.2 30.5 (22.6) (0.3) (5.2) (28.0) ICB: Intemational Competitive Bidding; NCB: National Competitive Bidding; Other procedures for equipment includes Limited International Bidding and Local Shopping. Note: Figures in parentheses are the amounts financed by the IDA Credit. Rem: Figures may not add up to total due to rounding. Procurement of Goods 41. Goods (spare parts for rehabilitation of public works equipment) estimated to cost the equivalent of US$70,000 equivalent or more per contract, up to an aggregate amount not to exceed US$360,000 will be procured by ICB. Tenders will be advertised in a national newspaper and in Development Business. Use of standard bidding documents is mandatory. Goods (cars, computers and related equipment) estimated to cost less than US$70,000 equivalent per contract, up to an aggregate amount not to exceed US$325,000 equivalent may be procured under contracts awarded on the basis of NCB, advertised locally, in accordance with procedures acceptable to IDA, including: (a) bids will be opened in public in the presence of bidders or their representatives; (b) there will be no negotiation with bidders between bid opening and contract award; (c) bid evaluation and post-qualification criteria will be defined in precise quantitative and monetary terms; and (d) award will be made to the lowest evaluated responsive bidder. Standard bidding documents for NCB should be prepared before credit effectiveness. The software for the road data bank, the equipment for road roughness measurement, and automatic traffic counters, up to an aggregate amount not to exceed US$151,000 may be procured using Limited International Bidding (LIB) by soliciting bids from qualified suppliers. For ICB, a 15 percent margin of preference may be granted in the evaluation of bids offering domestically manufactured goods.  16 Niger - Transport Infrastructure Rehabilitation Project Employment of Consultants 42. For complex, time-based assignments, lump-sum contracts and individual consultants, the Borrower will employ such consultants under contracts, using the standard forms of contract for consultants' services issued by the Bank Group, with such modifications as shall have been agreed by IDA. Where no relevant standard procurement documents have been issued by the Bank Group, the Borrower will use other forms agreed with IDA prior to inviting proposals. Three contracts for the project audits totaling US$149,000 will be awarded using the least-cost selection method in accordance with pare. 3.6 of the Guidelines. Twelve contracts totaling US$500,000 will be awarded to individual consultants selected in accordance with Section 5 of the Guidelines. Other contracts will be awarded using the quality- and cost-based selection method in accordance with paras. 3.2 to 3.4 of the Guidelines. The method per contract is detailed in annex 5. Review by IDA of Procurement Decisions 43. Prior review by IDA of bid and contract documents will be required for: (a) consultant services estimated to cost more than US$100,000 equivalent for firms (three contracts) and US$50,000 equivalent for individual consultants (one consultant); (b) individual consultants selected for short-term support to the Public Works Department, the technical audit of road maintenance works, and assessment of public works equipment; (c) civil works contracts above US$250,000 equivalent (about six contracts) and goods contracts above US$70,000 equivalent (two contracts). Documentation for contracts under these thresholds will be maintained for ex- post reviews by auditors and IDA supervisory staff. For the selection of consultants, prior review will be required for terms of reference, single-source hiring of consulting firms, amendments of contracts raising the contract value above US$100,000 for firms and US$50,000 for individual consultants. For all civil works contracts for which there are less than five bidders or for any decision not to select the lowest evaluated bidder, the Borrower will submit its proposal to IDA for no-objection prior to notifying the winning bidder. Additional Arrangements 44. Contracts will be awarded within the agreed bid validity period and only exceptionally, bid validity extension may be requested. In the case of fixed price contracts, requests for second and subsequent extensions will be permissible only if the request for extension provides for an appropriate adjustment mechanism of the quoted price to reflect changes in the cost of inputs for the contract over the period of extension. Procurement Times 45. Procurement processing times for major steps up to contract signing were agreed during negotiations. For consultants, time between the transmission of the letter of invitation and the deadline for the submission of proposals should not be less than 45 days. Time between the deadline for the submission of proposals and contract's signature should not exceed 120 days. For goods and works, time between notification of the tender or availability of bidding  Niger - Transport Infrastructure Rehabilitation Project 17 documents, whichever is later, and deadline for submission of bids should not be less than 45 days. Time between the opening of bids and contract's signature should not exceed 120 days. A timetable for the preparation of bidding documents for works, goods and services is included in the Project Implementation Plan. A first General Procurement Notice is being prepared to be issued before effectiveness. General Procurement Notices should be updated annually. F. DISBURSEMENT 46. Annex 5 provides the estimated annual financial commitments for the project during the 1997/2001 period. 1997 expenditures were made using PPF funds. The project is expected to be completed within a five-year period by July 31, 2002 with a closing date of January 1st, 2003. The following graphs compare expected disbursements to standard disbursement profiles for the transport sector in Niger. Disbursement under the projects are expected to be slower that based on the standard profiles during the 1998-2000 period then catch up with the standard profiles in 2001. This is justified by the start of works on rural roads only in 2000 after the rural road maintenance strategy has been established. 30 -100% 25 2 80% 1 20 0 .60% , . FY97 FY99 FY01 FY03 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY.E Annual Disbursements EStandard Total Disbursements Projectn 47. The proposed IDA credit would be disbursed on the following basis. Table 6: Allocation of Credit Proceeds (US$ million) Category Amount Percent of Expenditures to be Financed Allocated Foreign Local 1. Works 20.0 90 percent 2. Goods 0.8 100 percent 90 percent 3. Technical assistance 3.7 100 percent 4. Training and Seminars 0.6 100 percent 5. Operating Costs 0.1 95 percent 6. PPF Refinancing 0.6 N/A Unallocated 2.2 N/A Total 28.0 48. To facilitate project implementation and reduce the volume of withdrawal applications, a Special Account will be opened in CFAF in a commercial bank on terms and conditions  18 Niger - Transport Infrastructure Rehabilitation Project acceptable to IDA. The authorized allocation amounts to CFAF 400 million and covers about four months of eligible expenditures. Upon effectiveness, an arnount of CFAF 200 million, representing 50 percent of the authorized allocation will be deposited in the Special Account. The remaining balance will be made available when the total amount withdrawn from the credit account and/or special commitments issued amounts to SDR 8 million. The Special Account will be used for all payments below 20 percent of the initial deposit. Replenishments will be submitted monthly. 49. Disbursements will be made against standard Bank documentation, except for contracts of less than US$250,000 equivalent for civil works, US$70,000 for goods, US$100,000 for consulting firns and US$50,000 for individual consultants, for which certified statements of expenditure will be used. These statements of expenditure will be subject to review by supervision missions and periodic financial audits. 50. Operating costs consist of incremental expenditures related to the project and supported by the Government to operate NBC. They include consumable, communications, contractual salaries excluding civil servant salaries, field supervision and subsistence allowances, building and office/vehicle/equipment operation and maintenance. NBC's annual budget is estimated at US$50,000. Operating costs will be financed after 2001 only as they are financed for the first years of project execution by the Urban Infrastructure Rehabilitation Project. G. ACCOUNTING AND AUDITING 51. Accounting. NBC will maintain records and accounts adequate to reflect, in accordance with sound accounting practices, the operations, resources and expenditures in respect of the IDA credit. Accounting procedures will be defined in a manual prepared by NBC and to be agreed by IDA before effectiveness. The project is assisting NBC with PPF funds to put in place a computerized management information system to manage the project's financial accounts. The system is expected to be implemented by December 1997. A new accountant should be appointed before credit effectiveness. 52. Auditing. The project auditors have already been appointed. During negotiations, the Borrower agreed to: (a) have the records and accounts referred to in the preceding paragraph including those for the Special Account and the Project Account audited semiannually, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to IDA; (b) furnish to IDA as soon as available, but in any case not later than four months after the end the period covered by each semiannual audit, a certified copy of the report of such auxdit by said auditors, of such scope and in such detail as IDA shall have reasonably requested; and (c) furnish to IDA such other information concerning said records and accounts and the audit thereof as IDA shall from time to time reasonably request.  Niger - Transport Infrastructure Rehabilitation Project 19 53. For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (a) maintain or cause to be maintained, in accordance with paragraph 51 records and accounts reflecting such expenditures; (b) retain, until at least one year after IDA has received the audit report for the period covered by the audit in which the last withdrawal from the Credit Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (c) enable IDA's representatives to examine such records; and (d) ensure that such records and accounts are included in the annual audit referred to in paragraph 52 and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. H. REPORTING AND MONITORING 54. Reporting. NBC will prepare quarterly progress reports and in advance of each IDA supervision mission. The format and the timing of the progress reports is included in the project implementation plan drafted before appraisal. The Borrower should submit an Implementation Completion Report to IDA no later than six months after the closing date of the credit. 55. Monitoring. In addition to the financial audits of the project accounts, a technical audit of the works financed under the project will be carried out semi-annually by independent external auditors. During negotiations, the Government agreed to carry out this audit and furnish the audit report to IDA not later than four months after the end of the period covered by the audit. 56. Performance Indicators. Three types of indicators have been defined: (a) Key project performance indicators (see table 7) based on which IDA will decide at the mid-term review whether to continue the project as appraised, restructure one project's component or the entire project, or cancel one project's component or the entire project. These indicators will reflect the degree with which the project development objectives are achieved. The value/target of these indicators were agreed during negotiations. (b) General project performance indicators will characterize progress in project execution, project activities and outputs. A detailed list of indicators is provided in Annex 7. (c) Sector performance indicators will characterize sector evolution during project execution. A detailed list of indicators is provided in Annex 7.  20 Niger - Transport Infrastructure Rehabilitation Project Table 7: Performance Indicators Component Key performance indicators Value/target Improvement of road Creation of the public works equipment rental 01-01-99 maintenance company with private operators administration and Creation of a Road Maintenance Fund 01/01/99 management Restructuring of DTP 01-01/99 Restructuring of the Road Laboratory 01-01/99 State's disengagement of road maintenance 100 percent starting 01/01/2000 execution, except in areas under army control Percentage of the network with quality paved roads (T>250 veh/day): 28%; above 12 at the end of 2001 earth roads (T>50veh/day): 48% rural roads (T>25veh/day): 44% Indice of vehicle operating costs in 2001 paved roads: 99; earth roads: 89; (100 in 1997) rural roads: 94 Execution of road maintenance program above 80 percent Monitoring of network condition one traffic survey during 7 days in 1998, two traffic surveys during four days after 1998, measure of roughness on the paved network and visual survey on the unpaved network every year Regraveling of earth Discounted value at 12 percent of benefits for Greater than 0 roads civil works included in the project 57. Supervision Plan. The project will be supervised three times a year by IDA missions. Mission activities will consist of field visits to work sites, review of financial and management practices, bidding and disbursement procedures, and performance indicators. Missions will also monitor the implementation of environmental mitigation plans. The supervision schedule and mission composition are presented in Annex 8. 58. Mid-term Review. A mid-term review will be carried out no later than November 30, 1999. The review will give the opportunity to discuss transport issues with a large group of sector stakeholders (shippers, private operators, administration, donors). The review will assess the Government's continued commitment to the project's objectives. The review will take stock of progress in the implementation of institutional reforms agreed by the Government in its Letter of Sector Policy (Annex 2). Taking into account the numerous risks identified (para. 68), which can prevent successful achievement of the project objectives, the mid-term review will give the opportunity to decide on project continuation, restructuring or cancellation. The Government agreed during negotiations to the carrying out of the mid-term review with the objectives described above. I. ENVIRONMENTAL ASPECTS 59. The project is rated category A. During pre-appraisal, an overall environmental impact assessment of the road regraveling works was carried out which concluded that most of the works are unlikely to have any major adverse impact on the environment as: (a) they only involve regraveling of existing roads; (b) no new construction and no new alignments are intended; and (c) traffic patterns are not expected to change to any large extent and therefore no significant increase of new developments with subsequent secondary environmental impacts  Niger - Transport Infrastructure Rehabilitation Project 21 would be entailed. Site-specific environmental impact assessments will be carried out for each road as part of the engineering studies and measures will be defined to mitigate negative environmental impacts such as loss of vegetation cover, soil erosion, land degradation or sand encroachment. Terms of reference for these environmental impact assessments are available in the project files. With appropriate planning of the road works including mitigation measures for water management, soil conservation and maintenance/replacement of vegetation cover, potential negative environrmental effects should be avoided or kept at a minimum. The mitigation measures should be incorporated in the works contracts and consulting firms responsible for the supervision of works execution should ensure that the measures are actually implemented. The assessment is summarized in Annex 9. 60. Before appraisal, a full environmental impact assessment was carried out on two existing roads (Gaya-Margou and Margou-Ounditan) which were initially included in the project and had potential impact on natural habitats. The southern part of road Gaya-Margou is crossing the Dosso Reserve, created as a buffer zone for the W National Park, which is located on the opposite side of the Niger river. Park animals occasionally cross the river to feed in the reserve when the water level is low. A number of protected trees are also found in the area. Large areas being under cultivation or used for pasture, the project would not involve impact on original natural habitats. The Margou-Ounditan road serves the Dallol Bosso area, home of the last giraffes remaining in West Africa. The area is unprotected and has become a recognized tourist attraction. Official guides have been trained, to draw upon wildlife tourism as a source of local income, at the same time strengthening the awareness and protection of wildlife. Measures have been identified to minimize any potential consequences of road works, but also to take the opportunity to improve the environmental conditions and prepare for future traffic growth. Although the Government eventually decided that the two roads will not be included in the project, there is still the possibility that some roads included in the project may be funded by other sources in the future and hence the roads Margou-Gaya and Margou-Ounditan be re- introduced in the IDA project. To ensure that the road works will not be executed without the measures to protect the environment, the Government has committed itself to implement the environmental mitigation plan defined in the environmental assessment, should it request IDA to finance the works on the roads during project execution. The environmental assessment is summarized in Annex 10. 61. Special attention should be given to soil erosion in connection with road works on Madaoua-Keita and Keita-RN25 PK22. Detailed directives should be developed during the environmental study of these roads carried out as part of the detailed engineering studies. The road Foneko-Yatakala is located in an area with scattered settlements. The region is subject to a larger environmental assessment triggered by requests from the mining industry to construct access roads to potential mining sites in areas not yet opened to development. Although, the road Foneko-Yatakala does not open any new area to settlements and development, it will be important to follow the conclusions of the on-going environmental assessment. 62. An overall environmental assessment of the rural road sector was carried out before appraisal. The assessment identified roads where works would have a significant environmental impact and which would need a full environmental impact assessment before the decision to  :22 Niger - Transport Infrastructure Rehabilitation Project carry out the road works is taken. A multi-criteria analysis was used to evaluate the environmental risk related to hydrology, geomorphology, sand silting up, bushfires, use of local materials and biodiversity. The Government has confirmed that roads included in the project will be chosen among those not presenting a significant risk for the environment using the multi- criteria analysis established in the overall environmental impact assessment. Technical studies preliminary to the execution of the pilot operation will include site-specific environmental assessments and preparation of mitigation plans which will be implemented under the project. The assessment is summarized in Annex 11. 63. In January 1997, the Government has adopted a law which institutionalizes environmental studies for economic development projects. The National Council of Environment for a Sustainable Development (CNEDD) is the Coordinating body for environmental management of economic development. With the creation of CNEDD, directives were given requesting all governmental institutions to assign focal points for the environment. A unit responsible for environmental management and impact assessment of road works in the Ministry of Equipment and Infrastructure was created and its staff appointed in early 1997. The Government is committed to maintain this unit during the project life. Summary terms of reference for the staff are available in the project files. The Department of Environment in the Ministry of Hydraulics and Environment will provide additional support to MEI. Resources and training will be provided under the project to help in the startup of the environmental unit in MEI. The proposed mid-term review will include a post-evaluation of the environmental impact of the project and formulate recommendations if necessary for the second half of the project. 64. Recommendations included in the environmental impact assessments of the regraveling works, including the roads Gaya-Margou-Ounditan, and the rural road sector were summarized in an environmental mitigation plan adopted by the Government on September 3, 1997. The draft assessments were discussed with other departments in the administration and the major NGOs in Niger involved in the environment sector. The list of activities, their timetable, the costs and entities responsible for the implementation of the plan are summarized in Annex 12. The final assessments and the mitigation plan will be made available to the public in Niger. J. BENEFITS 65. Benefits have been calculated for the regraveling of the 13 earth roads included in the project (Table 8 below). They result from savings in vehicle operating costs and preservation of road assets preventing further costly rehabilitation. The unit cost of works has been increased by five percent to take into account measures to protect the environment. No benefits resulting from these measures have been accounted for. Detailed assumptions, rates of return and net present values are provided in Annex 13. The Net Present Value discounted at 12 percent of benefits for the program of works included in the project amounts to CFAF 27.6 billion. ERRs for individual roads range between 28 and more than 200 per cent. Sensitivity studies in annex 13 present the impact of a shadow exchange rate based on a seven percent premium on foreign exchange and a 50 percent shadow price for salaries.  Niger - Transport Infrastructure Rehabilitation Project 23 Table 8: List of roads included in the project Road Length (km) Traffic (veh/day) RNIe-Kornaka 55.5 214 Dogondoutchi-Dogonkiria 73.5 166 Keita-RN25 PK 22 53 131 Loga-Dogondoutchi 91.1 139 Tchadaoua-Mayahi 53.4 104 Malaza est-Dabnou 25.5 83 Tebaram-Badagachiri 170.5 108 Foneko-Yatakala 92.6 94 RN 25 PK 73- Tchintabaraden 76.9 76 Tinkim-Nigeria 76.5 77 RN 7 PK 86.6 -Boureimi 109.3 75 Gazoua-Nigeria 66.9 76 Madoua-Keita 114.6 70 66. Benefits from the basic scenario were compared to benefits resulting from other alternatives which were eventually rejected: (a) Pavement of one among two earth roads with traffic above 150 vehicles per day, has been considered but rejected. Given the fixed budget for the project, this would have allowed to pave one road and regravel six earth roads for a total of 615 km against regraveling 13 roads for a total of 1,060 km in the basic scenario. The net present value discounted at 12 percent of this alternative is CFAF 19.9 billion, much lower than in the basic scenario. (b) Postponement of works by two years has also been considered. The net present value amounts to CFAF 23.2 billion. (c) Alternatives with a 10-cm and a 20-cm surface layer have been compared to the 15-cm basic scenario. The net present values are CFAF 28.2 billion and CFAF 27.8 billion. 67. Other benefits have been identified but not measured: (a) Benefits expected from the institution building component for the public works sector are: strengthening of the existing capacity in MEI to monitor road conditions and program road maintenance works; improved use of local resources for road maintenance; improved efficiency of road maintenance execution by using local small and medium enterprises to replace force account; reduction of adverse impact of road works on environment.  24 Niger - Transport Infrastructure Rehabilitation Project (b) Benefits expected from the rural road component are: improved sustainability of rural roads development programs; and reduced poverty in rural areas where the pilot operation will be executed. (c) Benefits expected from the road transport component are: improved road safety and better protection of road assets. K. RISKS 68. Several risks are presented hereafter. Some are related to measures with a strong political impact, and thus difficult to mitigate. Although a solution would have been to postpone the project until the most critical reforms are implemented, this report recommends to start the project and assess the risk occurrence during the project's mid-term review. This is justified by the good quality of the dialogue with the Government during project preparation and by the opinion that starting the project would do more to help implement difficult measures than postponing it. The following risks were identified: (a) The political risk is the most important risk. The new Government, which came on power in 1996, is fully committed to the proposed reforms, but difficulties encountered during the preparation of the project before 1996 demonstrate that reforms may be strongly opposed if the commitment weakens due to political changes. A new Government could delay State divestiture of operations in the transport sector. It is difficult to identify measures which could mitigate this risk. Therefore, should the risk occur, the mid-term review will give the opportunity for any decision regarding project continuation, restructuring or cancellation. (b) As the project will support a significant restructuring of the transport and public works sector, there is a risk of delays in the implementation of the reforms due to Government's reluctance to proceed because of social impact, under the pressure of staff to be laid off in the institutions which need to be restructured. A sensitization campaign will be carried out to informn and explain the rationale for the reforms. The campaign will include workshops, seminars, study trips abroad financed with project funds. However, this is not expected to significantly mitigate the risk. Again, the mid-term review will give the opportunity for any decision regarding project continuation, restructuring or cancellation. (c) Lack of funds for severance payment of staff to be laid off is a serious risk taking into account the scarcity of local resources. To mitigate this risk, particular attention will be paid during project execution to the inscription of the required resources in the annual budgets prepared in consultation with IDA. Resources will be needed in 1998 for the severance payment of staff in the equipment pool. They range between CFAF 435 million and CFAF 950 million depending on the outcome of negotiations with the union. Currently, CFAF 800 million are budgeted by the Government in 1997 and CFAF 1.2 billion in 1998 for expenditures related to the civil servant voluntary departure program and the financing of redundancies is sought from adjustment operations. Resources will  Niger - Transport Infrastructure Rehabilitation Project 25 be needed in 1999 and 2000 to accompany the transfer of road maintenance execution from force account to contractors, but have still to be estimated based on the study on the restructuring of the Department of Public Works to be carried out under the project. In addition to the transport sector, ressources will be required for the redundancies resulting from the ongoing program of privatization which includes the water, electricity and telecommunications utilities. Provision of resources to finance these redundancies is being discussed with donors including IDA. Also included in the macro-economic dialogue is the amount of severance payment paid per staff, which currently equals three years of salaries but, if maintained as such, would largely exceed the resources available in the budget or from donors. The mid-term review will assess the impact of the occurrence of lack of funds for severance payment on the project. (d) Because of the passenger traffic allocation system, the risk is that savings on vehicle operating costs resulting from improved conditions on roads regraveled under the project are not passed on to passengers. The risk does not exist for freight transport as the allocation system is not applied to domestic freight transport on the roads included in the project and the project will not finance strengthening of paved international itineraries which link Niger to Benin and Togo and where the system is applied. For passenger traffic, the Government is committed to discouraging this system and seek to replace the system by bus schedules. Sensitization activities aimed at transport operators will mitigate the risk that discussions between the Government and transport operators fail and that the allocation system be maintained. (e) Lack of protection of road assets after their maintenance is a risk which would hamper the sustainability of road works. Cooperation of the road industry is essential to mitigate this risk. The project will support through seminars, workshops and study trips abroad, the dialogue with the road transport industry to improve compliance with the regulation on axle loads and rain barriers. Involvement of road users in the Road Fund is also a measure expected to sensitize road users to the need to protect road assets. (f) To mitigate the impact of lack of counterpart funds after the start of contracts, the Government will be requested to deposit counterpart funds for any works contract financed from the IDA credit under the road component on a project account in a commercial bank prior to the signature of the contract. However, this does not mitigate the risk of lack of counterpart funds before signature of the contracts which would delay contracts' signature and project's execution. Attention will be paid during project execution to the inscription of the required resources in the annual budgets prepared in consultation with IDA. Counterpart funds requirements will be included in the management of the State's cash-flow, which was not the case in the past, and this is expected to mitigate the risk of their unavailability. In addition, donors will pay a particular attention to the improvement of the State's cash-flow management as a macro-economic  26 Niger - Transport Infrastructure Rehabilitation Project performance indicator. The mid-term review will assess the risk occurrence and appropriate decisions will be taken in this respect at that time. (g) In the highway sector, the risk of lack of funds to finance recurrent costs will be mitigated by improved planning and budgeting, and, starting with fiscal year 1999, the use of the Road Fund replenished with resources collected from road users and managed with the participation of road users. A satisfactory macro- economic framework will also alleviate this risk. (h) Lack of sustainability of capacity building activities may result of the mobility of staff in the technical ministries. This will be mitigated by favoring mass training rather than individual training. (i) Lack of consistency in the dialogue between IDA and the Government due to the turnover of IDA's task managers resulting often in the new task managers questioning the approach taken under the project is a risk emphasized by the Government. This risk will be mitigated by involving more the Resident Mission in the supervision of the project to ensure continuity on the IDA side. IDA's management will also pay attention to ensure smooth transition between task managers, comprising at least one week of work at headquarters and one supervision mission in common.  Niger - Transport Infrastructure Rehabilitation Project 27 III. AGREEMENTS REACHED, CONDITIONS AND RECOMMENDATION 69. Before negotiations, the Government: (a) adopted legal documents assigning to the Steering Committee and NBC their responsibilities during project implementation; (b) decided on the type of structure to replace the equipment pool; (c) confirmed its agreement to the creation of a Road Fund; (d) confirmed the programming of works to be financed under the project and the inscription under the budget of corresponding counterpart funds. 70. During negotiations, the Government confirmed the source of funds to be used to finance redundancies in the equipment pool (para. 68) and agreed to: (a) the letter of sector policy (para. 5); (b) prepare annual budgets and Public Investment Programs in the transport sector in consultation with IDA (paras. 8 and 26); (c) implement before January 1, 1999 a mechanism to finance road maintenance based on the following principles: (i) involvement of road users in its management; (ii) carrying out of technical and financial audits of road maintenance programs financed by the mechanism; (iii) commercial management of the mechanism; and (iv) to the extent possible, resources collected from road users (para. 10); (d) carry out annually a technical audit of road maintenance works executed with IDA funds (para. 55); (e) key performance indicators (para. 56); and (f) carry out jointly with IDA a mid-term review at mid-execution of the project to assess the Government's continued commitment to the objectives listed in the letter of sector policy and to the project's objectives (para. 58). 71. At Board presentation, the Government has confirmed: (a) the letter of sector policy (para. 5); and (b) the Project Implementation Plan (para. 38). As a condition for credit effectiveness, the Government should: (a) appoint the accountant in BNC (para. 51); (b) open in a commercial Bank the Project Account (para. 35); and (c) deposit the initial amount (para. 35). 72. Subject to the above conditions, the proposed project is suitable for an IDA credit of SDR 20.3 million (US$ 28.0 million equivalent) to Niger on standard IDA terms.  28 Niger - Transport Infrastructure Rehabilitation Project  Annex 1 29 Annex 1: Project Design Summary Narrative Summary Key Performance Monitoring and Critical Assumptions and l______ _ Indicators | Supervision J Risks CAS Objective [CAS Objective to Bank Mission] Foster a favorable Continuous Government's business climate, commitment to the macro- including further economic reform program development of links with Return of donors which have Nigeria: left after the january 1996 military coup * Restore sound public Rainfall is favorable finance management * Improve environment for private investment * Provide basic economic v Road rehabilitation . Periodic surveys of infrastructure program: 60 percent of road network priority network attaining condition by minimum quality Department of Public standards Works - Road Fund: Availability - Technical audit of of resources for road maintenance maintenance programs - Financial audit of Road Fund  30 Niger - Transport Infrastructure Rehabilitation Project Narrative Summary Key Performance Monitoring and Critical Assumptions and Indicators Supervision Risks Project Development [Development Objectives Objectives to CAS Objective] Improve the condition Percentage of the Annual surveys on A: Starting January 1999, of the road network network with quality road conditions by resources are allocated to above 12 at the end of MEI maintain the priority 2001: network in accordance paved roads (T>250 with the outcome of the veh/day): 28%; road maintenance earth roads strategy study and the (T>50veh/day): 48% study to create the Road rural roads Fund. (T>25veh/day): 44% Improve efficiency of Execution ratio of road Annual reports of road maintenance maintenance program activities by DTP execution above 80 percent Annual technical audits of the road maintenance program Road Fund created Legal documents before 01/01/99 signed. Board and general manager appointed  Annex 1 31 Narrative Summary Key Performance Monitoring and Critical Assumptions and Indicators Supervision Risks Project Outputs [Outputs to Development Objectives] State divested of public DMTP transformed Legal documents A: Funds are available to works equipment rental into a public works creating the company finance severance activities equipment rental signed. Board and payment company with private general manager A: The management of operators by 01/01/99 appointed the equipment rental company is efficient 100 percent of routine State divested of road maintenance works Annual reports of A: Funds are available to maintenance execution contracted out starting activities by DTP finance severance January 1, 2000 payment A: The local contractors develop to take over works executed by force account Focus MEI on DTP restructured by New organizational A: Enough resources are planning, budgeting, 01/01/99 chart adopted and available to finance programming and implemented DTP's operating costs supervising works A: DTP has the human resources necessary for efficient planning, budgeting, programming, and supervision of works. Road Laboratory is Road Laboratory New statute autonomous restructured before implemented 01/01/99 Improved capacity in Programs of works Ministerial orders DTP to program road established annually in Annual technical maintenance works consistence with the audits of the road outcome of the road maintenance program maintenance strategy studies Improved capacity in Environmental unit DTP's new DTP to manage created in DTP organizational chart environmental issues in implemented road maintenance Ratio of environmental Annual reports assessments carried out prepared by in the total number of environmental unit in projects DTP  32 Niger - Transport Infrastructure Rehabilitation Project Project Components [Components to Outputs] Assistance to Plans of action Consultants' reports R: Government and institutional reforms in prepared for DMTP, MEI are reluctant to the road maintenance the Road Laboratory divest of force account sector and DTP R: Government is reluctant to proceed with reforms because of social impact Improvement of road New road maintenance Consultants's report R: Resources lack for maintenance strategies defined for severance payment programming the primary network by R: Government is procedures December 1998 reluctant to publicize maintenance efforts concentrated on a priority network for political reasons Execution of an earth 1,060 km of roads Progress reports A: The road transport road regraveling regraveled prepared by consulting industry supports program firmns supervising measures to protect works execution road assets (rain Field visits by MEI barriers, axle load regulation) Training on Annual reports of the A: Enough resources environmental issues in environmental unit in are allocated to carry road maintenance DTP out environmental assessments Training in road R: Staff in MEI does maintenance not keep its position management after receiving training  Annex 2 33 Annex 2: Government's letter of sector policy I. REMINDER ON MACRO-ECONOMIC OBJECTIVES AND STRATEGIES During the last years, the economy of Niger has been characterized by a slowing down of activities and the emergence of external and fiscal deficits, whose internal and exogenous explanatory factors are bad climatic conditions, the conditions of a land-locked country, the price fall of uranium, the deterioration of terms of exchange and deficiencies in socio-economic management. The bad performances generated by the weak competitiveness of the economy are worsened by the net aggravation of mass poverty faced by a large portion of the population. The numerous economic choices adopted by the authorities have not given the expected results. After the interruption or the absence of programs with the institution of Bretton Woods during the 1989-1993 period, the government has resumed its adjustment efforts since the second semester of 1995. From the results obtained in 1996, the Government has updated and strengthened its mid- term strategy with the principal objective being an acceleration of the economic growth that will allow it to sustainably reduce poverty. The objectives and measures associated to the Government's strategy are described in the policy framework paper for the 1997-1999 period. During this period, the Government intends to continue its efforts to stabilize the macro- economy, while creating favorable conditions for a strong, balanced and sustainable growth. The economy of Niger will have to be more involved in investment activities, production and exportation in order to realize the economic growth desired or expected. The Government will continue therefore to pursue rigorous monetary and budgetary policies, to intensify structural reform, in particularly that of public enterprises and public administration, to improve management of rural development and natural resources, while giving a particular importance to policies leading to better education, health and infrastructure. II. POLICIES A. ROAD MAINTENANCE POLICY Since 1989, Niger's economic and financial situation has ceased to be favorable to the maintenance of a satisfactory level of investment in road maintenance and construction. The combination of the resulting maintenance backlog, the serious deterioration of the entire road network and the urgent need to satisfy new access infrastructure requirements calls for new attitudes and rigorous utilization of the available resources.  34 Niger - Transport Infrastructure Rehabilitation Project A.1 Objectives and Goals Niger's road maintenance objectives and goals are, essentially, to: * ensure the sustainability of road sector investments; e improve access both to and within Niger; * improve road maintenance resources management and utilization; . promote small and medium-sized enterprises (SMEs) in the construction and public works sector. A.2 Strategies These comprise: * implementing an efficient road maintenance works programming and budgeting system; * improving road maintenance execution conditions and methods; * opening up access to poor areas and those with high agricultural or mining potential; * divesting government from road maintenance execution; * implementing procedures for speedy payment of contractors;