Madagascar - Second Rural Transport Project

Document of The World Bank Report No: 23352-MG PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 60.7 MILLION(US$ 80.0 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR A RURAL TRANSPORT PROJECT IN SUPPORT OF THE SECOND PHASE OF THE TRANSPORT SECTOR REFORM AND REHABILITATION PROGRAM October 22, 2002 Transport Sector Country Department 8 Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective 10/17/2002) Currency Unit = Malagasy Franc I FMG = USSO.0001485 US$1 = 6734 FMG FISCAL YEAR 2003 - 2008 ABBREVIATIONS AND ACRONYMS APL - Adaptable Program Loan AfD - French Development Agency (Agence Franaise de D6veloppement) AfDB - African Development Bank AGETIP - Agency for the Execution of Works of Public Interest APU Autonomous Production Unit ASC - Advisory Stearing Committee ASPEN - Africa Safeguards Policy Enhancement CAS - Country Assistance Strategy CBA - Cost-Benefit Analysis CBO - Community-Based Organizations CDD - Community Driven Development CDP - Community Development Project CRA Central Road Agency EA - Environmental Assessment EIRR - Economic Internal Rate of Return EMP - Environmental Management Plan EPZ - Export Production Zone EU - European Commission FCE - Fianarantsoa-C8te Est (Railway) FMR - Financial Monitoring Report GPN - General Procurement Notice GTDR - Groupes de Travail pour le D6veloppement Rdgional HIPC - Heavily Indebted Poor Country IFAD - International Fund for Agriculture Development ICB - International Competitive Bidding IDA - International Development Association IMT - Intermediate Means of Transport JICA - Japan International Cooperation Agency MTM - Ministry of Transport & Meteorology MPW - Ministry of Public Works NCB - National Competitive Bidding NEO - National Environmental Office NGO - Non Government Organization NPV - Net Present Value NORAD - Norwegian Agency for Development Cooperation PES - Program Executive Secretariat PRA - Provincial Road Agencies PRD - Provincial Road Departments PRSP - Poverty Reduction Strategy Paper RC - Community Road (Route Communautaire) RMF - Road Maintenance Fund RNP - Primary National Road (Route Nationale Primaire) RNS - Secondary National Road (Route Nationale Secondaire) RNT - Temporary National Road (Route Nationate Temporaire) RP - Provincial Road (Route Provinciale) RSDP - Rural Development Support Project RTI - Rural Transport Infrastructure RTP - Rural Transport Project RTPS - Rural Transport Policy and Strategy RTS - Rural Transport Services RTIP - Rural Travel and Transport Program RTU - Rural Transport Unit SRFP - Standard Request For Proposal SOE - Statement of Expenses TSRRP - Transport Sector Reform and Rehabilitation Project QCBS - Quality and Cost Based Selection USAID - US Agency for International Development VPD- Vehicles Per Day Vice President: Callisto Madavo Country Director- Hafez Ghanem Sector Manager- Maryvonne Plessis-Fraissard Task Team Leader: Dieter Schelling MADAGASCAR RURAL TRANSPORT PROJECT CONTENTS Page A. Program Purpose and Project Development Objective 1. Program purpose and program phasing 2 2. Project development objective 2 3. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 7 4. Program description and perfoimance triggers for subsequent loans 9 C. Program and Project Description Summary 1. Project components 15 2. Key policy and institutional reforms supported by the project 17 3. Benefits and target population 17 4. Institutional and implementation arrangements 18 D. Project Rationale 1. Project alternatives considered and reasons for rejection 20 2. Major related projects financed by the Bank and other development agencies 21 3. Lessons learned and reflected in the project design 21 4. Indications of borrower commitment and ownership 22 5. Value added of Bank support in this project 22 E. Summary Project Analysis 1. Economic 23 2. Financial 24 3. Technical 24 4. Institutional 24 5. Environmental 26 6. Social 30 7. Safeguard Policies 32 F. Sustainability and Risks 1. Sustainability 32 2. Critical risks 33 3. Possible controversial aspects 33 G. Main Credit Conditions 1. Effectiveness Condition 34 2. Other 34 H. Readiness for Implementation 35 I. Compliance with Bank Policies 35 Annexes Annex 1: Project Design Summary 36 Annex 2: Detailed Project Description 39 Annex 3: Estimated Project Costs 41 Annex 4: Summary Economic Analysis 46 Annex 5: Financial Summary 49 Annex 6: Procurement and Disbursement Arrangements 50 Annex 7: Project Processing Schedule 63 Annex 8: Documents in the Project File 64 Annex 9: Statement of Loans and Credits 65 Annex 10: Country at a Glance 67 Annex 11: Social and Environmental Analysis 69 Annex 12: Organization Charts 77 Annex 13: Letter of Sector Policy 79 Annex 14: Framework for the Collaboration with other IDA Financed Rural Projects 87 MAP(S) IBRD 31724 MADAGASCAR Rural Transport Project Project Appraisal Document Africa Regional Office AFTTR Date: October 22, 2002 Team Leader. Dieter E. Schelling Sector Manager: Maryvonne Plessis-Fraissard Sector(s): Roads & highways (91%), Railways (4%), General transportation sector (4%), Ports, waterways and shipping (1%) Country Director: Hafez M. H. Ghanem Theme(s): Rural services and infrastructure (P), Other rural development (S) Project ID: P073689 Lending Instrument: Adaptable Program Loan (APL) Program Financing Data Estimated Implementation Period (Bank APL Indicative Financing Ph n FY) Borrower IDA Others Total Commitment Closing USS m % USS m USS m Date Date APL 1 Loan/ Credit 65.00 39.4 100.00 165.00 06/19/2000 07/31/2005 Republic of Madagascar APL 2 Loan/ Credit 80.00 26.7 220.00 300.00 11/07/2002 06/30/2009 Republic of Madagascar APL3 Loan/ Credit 200.00 19.3 835.00 1035.00 05/31/2004 06/30/2010 Republic of Madagascar Total 345.00 1155.00 1500.00 I I Loan [X] Credit J ] Grant [1 Guarantee [] Other: For Loans/Credits/Others: Amount (US$m): The Rural Transport Project amounts to US$ 300 million of which the IDA credit is US$ 80 million. Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5% Service charge: 0.75% Financing Plan (US$m): Source Local Foreign Total BORROWER 181.60 0.00 181.60 IDA 46.00 34.00 80.00 AFRICAN DEVELOPMENT BANK 4.70 2.70 7.40 US: AGENCY FOR INTERNATIONAL DEVELOPMENT (USAID) 1.90 0.80 2.70 EC: EUROPEAN COMMISSION 10.80 8.80 19.60 FRANCE: FRENCH AGENCY FOR DEVELOPMENT 1.00 2.00 3.00 JAPAN: JAPAN INTERNATIONAL COOPERATION AGENCY (JICA) 1.20 0.50 1.70 NORWAY: NORWEGIAN AGENCY FOR DEV. COOP. (NORAD) 2.30 1.70 4.00 Total: 249.50 50.50 300.00 Borrower: REPUBLIC OF MADAGASCAR Responsible agency: MINISTRY OF TRANSPORT AND MINISTRY OF PUBLIC WORKS Program Executive Secretariat Address: Ministry of Transport, Antananarivo, Madagascar Contact Person: Jean Maillot, Conseiller Principal Tel: 261 32 07 05 762 Fax: Email: paoermad(iidts.mg Estimated Disbursements (Bank FY/USSm): FY 2003 2004 2005 2006 2007 2008 Annual 3.84 15.32 16.77 16.04 15.65 12.37 Cumulative 3.84 19.16 35.93 51.97 67.62 79.99 Project implementation period: 6 years Expected effectiveness date: 02/28/2003 Expected closing date: 06/30/2009 OCS APL PAD Fala Rev Mwc. 2000 A. Program Purpose and Project Development Objective 1. Program purpose and program phasing: The purpose of the transport sector program is to reduce transport costs and to improve accessibility specially in rural areas (see Annex 1). The project would be one of the three parallel phases of an Adaptable Program Loan (APL) assisting the Government of Madagascar to implement its transport sector policy and strategy. The first phase of this APL, the Transport Sector Reform and Rehabilitation Project (TSRRP) became effective on November 28, 2000 and is planned to close on July 31, 2005. TSRRP, with a credit amount of $65m, is focusing on essential reforms of the transport sector, and on critical and highest priority investments. A further phase would focus on investment into major economic transport infrastructure, such as national roads, ports and airports. 2. Project development objective: (see Annex 1) The development objective of the project is to sustainably improve the access of rural communities to markets, schools, health centers and other economic and social infrastructure, and to enhance the mobility of the rural population, in order to improve their quality of life and promote economic development. 3. Key performance indicators: (see Annex 1) The project objectives will be monitored by the following indicators: (i) increase of traffic on the rehabilitated road network (expected to be 10% on average annually immediately after rehabilitation); (ii) a reduction by 83% of the rural population which has currently no motorized access or only unreliable one (from 7.2 to 1.2 million); and (iii) significant improvement of rural well-being indicators (such as school attendance and morbidity). During project preparation socioeconomic base-line studies were conducted in 90 selected villages along the alignments of the roads planned for improvement. While traffic counts will be executed annually by the concerned road department on all roads, it is planned to execute follow up socioeconomic studies in the initially selected villages towards the end of the project to measure socioeconomic impact. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDA/R97-7 Date of latest CAS discussion: 02/18/97 After having been one of the most rapidly growing African economies in recent years, Madagascar plunged into a deep political crisis at the beginning of 2002. The crisis began following contested first- round elections in December 2002. The two major candidates, the then-incumbent president, Didier Ratsiraka, and the mayor of the capital Antananarivo, Marc Ravalomanana, disagreed on the outcome of the elections. Mediation attempts of the Organization of African Unity failed and the stand-off grew more and more tense as large parts of the highlands were increasingly isolated from the coastal areas through road blockades and destruction of bridges. Two parallel Governments with two Central Banks were established, leading to a freezing of Madagascar's assets abroad, a suspension of foreign exchange trading and a closure of the treasury bond market for several months. The political crisis ended in July with Mr. Ravalomanana's victory, but the social and economic impact is huge, especially in a country with a GDP per capita of US$250, one of the poorest in the world even before the current events commenced. Direct revenue losses for households are estimated at half a billion dollars in 2002 alone, and this might well turn out to be a conservative estimate. Activity in several sectors, including tourism, transport and export processing industry, came to an almost complete stop. About 150,000 workers -lost their jobs in the formal sector alone. Farm produce prices, especially in isolated areas of the country, were cut in half, causing an unprecedented drop in rural incomes and 2 putting future production at risk. Poverty might well have increased to over 75 percent since the beginning of the year, a level higher than that a decade ago. Early warning systems indicate a significant increase in malnutrition and infant mortality rates. The interim Country Assistance Strategy (CAS) outlines the proposed Bank response to the post-crisis environment. The last CAS was presented to the Board in November 1997, with a new full CAS initially planned for FY02 together with the presentation of the full Poverty Reduction Strategy Paper (PRSP). However, the completion of the PRSP was delayed due to the crisis. Moreover, given that the last CAS is no longer applicable in the current context, an interim strategy is being proposed to limit the impact of the crisis on the poor to support Government to (i) establish a social safety net for those in most need, (ii) ensure a minimum of functioning public services; and (iii) assist the private sector to restart production. During the implementation period of this interim CAS, a new CAS would be drafted with the Government and development partners, to be presented to the Board based on the full PRSP around July 2003. It is expected that the new CAS would include a strong emphasis on reconstruction of infrastructure which has already been declared a priority of the new government. The project will support these objectives through establishing a sustainable and decentralized management of an improved rural road network. Access will be improved to previously isolated provincial capitals and selected rural communities thus contributing to human capital development through easier provision of basic services such as education, health care, and water and sanitation. At the same time, economic and especially rural development will be facilitated through reduced transport time and cost. Rural mobility will be improved through the promotion of intermediate means of transport thus reducing time and energy expended on transport-related tasks. 2. Main sector issues and Government strategy: The transport sector plays a key role in Madagascar's growth and poverty alleviation strategy and rural transport features prominently in the Government's PRSP. Increased foreign investment, development of the country's eco-tourism potential, growth in agricultural output, and improved delivery of basic social services all depend on the competitiveness of transport services and the availability of basic transport infrastructure. Unfortunately, transport services and infrastructure are in short supply both in quality and quantity. The considerable size of the country and its formidable topography, compounded by long- lasting neglect of maintenance for transport infrastructure have exacerbated the situation. In recent years severe cyclones had devastating effects on the transport infrastructure. Furthermore the sector is hindered by inappropriate policies, a flawed institutional framework and lack of managerial incentives, unbalanced funding, and the absence of an appropriate regulatory framework. The Bank decided to support Government's intention to tackle these issues through an adaptable program loan, of which this project forms APL-2. Poverty in Madagascar. The population of Madagascar, to a large extent, has experienced a long descent into extraordinary misery as average real income fell by a third over 1960-99. The growth of real GDP recovered in the 1990s but this did not reduce poverty rates. Instead, the poverty rate was broadly stable in the 1990s, rising from 70 percent in 1993 to 73% in 1997 and then slipping to 71% in 1999. Physical measures of nutrition are an alternative and basic indicator of poverty. Stunting (age/height) improved only marginally over the decade and so was roughly consistent with the poverty rate. However there were some significant changes in the profile of poverty in the 1990s. The rural poverty rate rose from 74.5% in 1993 to 76.7% in 1999, despite migration of poor rural families to urban areas -- which led to a smaller increase in the poverty rate there. The worsening of rural poverty seems associated with physical isolation caused by a breakdown of the road system. 3 The distribution of income among provinces shifted significantly in the 1990s. Toliara was the poorest province in 1993, with a poverty rate of 81%, but poverty fell to 72% in 1999. In contrast, poverty in Mahajanga province deteriorated dramatically from 53% in 1993, which was the most moderate poverty rate in the country, to 76% in 1999 -- well above the national average. Similarly, poverty in Antsiranana (Diego Suarez) was relatively modest in 1993 at 60%, but the rate deteriorated to 73% in 1999. The poverty status of Fianarantsoa also deteriorated rapidly, becoming the poorest province in 1.999 with a poverty rate of 81%. Finally, poverty in Antananarivo moderated over the 1990s and reached 62% in 1999. Poverty and rural isolation can be illustrated by the following data (source: EU): % with reliable % with unreliable % with no Province Population access access motorable access Antananarivo 4,307,935 76 13 11 Fianarantsoa 3,024,747 45 39 16 Toamasina 2,520,175 80 2 18 Mahajanga 1,517,291 16 69 15 Toliara 2,054,274 20 50 30 Antsiranana 1,345,189 30 58 12 Total 14,760,611 52 32 16 The Poverty Reduction Strategy Paper (PRSP). The Government's draft PRSP outlines a poverty reduction strategy built on three pillars: (a) higher and more sustainable levels of economic growth, (b) governance and institutional reform, and (c) improved basic service delivery. Rural roads feature prominently in the PRSP and improved access has been identified as a key aspect to improve livelihood and foster economic growth. A final draft of the document was received by the Bank at the end of 2001. The new Government has fully prescribed to the PRSP and intends to relaunch the process with workshops during the month of October 2002 and finalize the document by the end of the year. Government Program. The Government plans a number of short-term actions in the context of its emerging poverty reduction strategy. These actions stress institutional development and good governance to enhance the environment for investment and promote stable growth and efficient delivery of basic services to the poor. Thus, key elements of the program are: (i) improving the budget control for public services, financial monitoring mechanisms and dissemination of information, (ii) strengthening the natural resource management system, especially in the forestry sector, (iii) strengthening judicial systems, (iv) improving rural infrastructure, (v) increasing access to education for the poor, (vi) broadening the health system, and (vii) establishing a poverty monitoring system. Heavily Indebted Poor Country (HIIPC) Relief and Use of Resources. Madagascar's external debt would be reduced significantly with the delivery of assistance under the enhanced HIPC initiative. Debt service savings would amount to about US$59 million per year (1.1% of GDP) on average during the period 2001-2019. Government has provided IDA and IMF staff with a detailed plan for using those resources in support of its poverty reduction program. The plan allocates resources to four areas: education, health, water, and rural roads. The government has agreed to allocate at least US$ 10 million equivalent per annum for the improvement of rural roads within the framework of the rural transport policy (see Letter of Sector Policy in Annex 13). Decentralization in Madagascar. The Malgasy Government has fully subscribed to the notion of political, administrative, and fiscal decentralization and the Constitution provides for the establishment of 4 autonomous provinces and communes. A number of 1,392 rural and urban (municipalities) communes, each with an elected mayor and council, were established in 1999. Elections for provincial councils were held in December 2000 and governors were nominated in June 2001. Various efforts are underway to support and strengthen this newly established system. There is some concern that the new established provinces might lead to a re-centralization to the detriment of the independence and vibrancy of the rural communes. Rural Transport in Madagascar. Madagascar is characterized by a low population density and a formidable topography and climate; making the provision of rural transport infrastructure and services a significant challenge. The project will attempt to provide adequate transport solutions for the different regions of the country, and, while the focus is on roads, investments will also be made in the rail and water transport sub-sectors. Realizing the importance of rural access to improved economic growth and better quality of life for the rural population, Government decided to tackle the void of institutional, financing, and technical provisions for rural transport by formulating a Rural Transport Policy and Strategy (the policy). This process was assisted by the Africa Rural Travel and Transport Program (RTTP) through a participatory process with national and regional workshops. The policy's objective is to improve the rural population's access to markets and basic social services in order to promote economic development and enhance rural livelihood. The policy covers rural transport services (RTS) and intermediate means of transport (IMT), as well as all types of rural transport infrastructure (RTI) including river and maritime landings, air strips, railways and rural roads, paths and footbridges. The implementation of the policy, which is binding for all development partners, is being facilitated and monitored by a Rural Transport Unit (RTU) attached to the Program Executive Secretariat (PES). The PES is responsible for the implementation of the government's transport sector program jointly managed by the Ministry of Transport and Meteorology (MTM) and the Ministry of Public Works (MPW). RTU works in close coordination with the Rural Development Program and the Regional Working Groups (Groupes de Travail pour le D6veloppement R6gional-GTDR). The policy has three strategic orientations: (i) improved provision of rural transport services and intermediate means of transport; (ii) sustainable management and financing of network maintenance, and (iii) improvement of the rural road network. Gender issues are mainstreamed into these strategic axes and particular attention will be paid to an equitable access of women to employment opportunities, for example as contractors or laborers on road improvement contracts. The rural road network that is covered by the policy consists of temporary national roads (RNT) (temporarily managed by the central government until sufficient capacity is available in the provinces), provincial roads (RP), and community roads (RC). The Graph below shows that there is very strong link between productivity and remoteness. Rural households better connected to markets have a significantly higher productivity than those living in more isolation. Isolation also implies lacking access to financial institutions and credit, forcing poor Graph X: Madagascar: Rice Yields by population farmers to sell at times of low, post-harvest prices. kglare remoteness,2001 The road network. The road network of Madagascar 40 has been gazetted, based on the Charte routire, as 30 2,560.2 km of national primary roads (RNP - also 20 called the structural network, connecting the provincial capitals), 4,753.8 km of secondary 10 national roads (RNS), 4,549 km of temporary o- national roads (RNT), 12,250 km of provincial Least 2 3 4 Mst roads (RP), and 7,500 of communal roads (though SfDia r A n(2 e not yet gazetted) for a total of 31,612 kmn. Of these 5 only 5,855 km are currently in good and fair condition, and of the roads in good and fair condition 4,074 are paved. 25,757 km of the road network are in bad condition, that is, are in need of rehabilitation. Most of these roads in bad condition are only seasonally practicable (and some not at all) and induce very high costs on users. The road network of Madagascar (2002) In good or fair Of which bituminous In bad condition Type of Road Length (krm) condition (kam) surface (kam) (kam) RNP 2560 1616 1577 944 RNS 4753 1319 1277 3434 RNT 4549 1000 800 3549 RiP 12250 1070 70 11180 RC 7500 850 350 6650 Total 31612 (100%) 5855 (18.5%) 4074 25757 (81.5%) Currently only 18.5% of the road network in Madagascar is in good and fair condition. Through this project, and the planned follow-on project (APL-3) which will focus on the rehabilitation of the national roads (RNP and RNS), the share of the network in good and fair condition is expected to increase to 60% by 2008, as shown in the table below. In good or fair Of which bituminous In bad condition Type of Road Length (km) condition (kam) surface (km) (km) RNP 2560 2560 2521 0 RNS 4753 4753 2827 0 RNT 4549 4549 1280 0 RP 12250 5750 250 6500 RC 7500 1450 410 6050 Total 31612 (100%) 19062 (60.3%) 7288 12550 (39.7%) The rail network: The rail network of Madagascar consists of the Northern and Southern Railway. The Northern Railway with a network of 732 km is being concessioned to a private operator. Though badly in need of rehabilitation, connecting the main port of Toamasina (Tamatave) with the capital, the Northern Railway has substantial commercial potential. The Southern Railway with a track length of 163 km connecting Fianarantsoa with the East Coast and the port city of Manakara, is of essential economic and social importance to this unique eco-region. It provides the only access for about 100,000 people who are not served by road and has about 1,000,000 people in its zone of influence. A group of donors, including USAID, AfDB and Japan are currently funding urgent repair works with the understanding that concessioning will be concluded by end of 2003. IDA would complete the financing gap after concessioning is effective. Water transport: In many parts of the country, river and coastal transport is vital for the marketing of produce, supplying isolated communities and providing crucial socioeconomic mobility. Lack of small river craft and water-based rural transport services has been identified as a limiting factor during the elaboration of the rural transport policy and strategy. Of particular importance are the Sofia River, the Tsiribihina River, the Canal des Pangalanes, the waterways around the rice-growing region of Maravoay, and coastal trading. In the framework of the APL-1 pilot river transport improvements are being executed on the Sofia and Tsiribihina rivers by constructing landings and removal of obstacles in the rivers. APL-2 will build on the experience gained. 6 Air Transport: There are 43 rural airstrips in Madagascar which provide vital linkages to isolated groups of rural population. Needed rehabilitation of such airstrips, if at all, is being studied and would be financed under the APL-3. 3. Sector issues to be addressed by the project and strategic choices: The main strategic choice had been taken during the preparation of APL-1 by opting for a long-term engagement in Madagascar and by dedicating a separate project to rural transport. This project would be an integral part of a strategy to improve the rural transport infrastructure and enhance its management. While the emphasis would be on the road network, investments would also be targeted at the southern railway and at water transport. Furthermore, the project would establish mechanisms to promote the use of intermediate means of transport (IMT). The project would thus be able to assist Government in implementing its strategy of providing basic access and therefore using limited resources to reach the largest possible number of rural poor. Road improvements would primarily be achieved through critical spot treatment, putting an emphasis on drainage structures, and using labor-based methods through small scale contractors. Improved access. Investments in roads should be based on a network approach so that continuous transport becomes possible. It serves little purpose to improve community roads if they lead to impassable provincial roads. National roads are being rehabilitated with resources from APL 1, the forthcoming APL 3, and funding from the EU, AfDB, Japan, etc. The strategic option was therefore taken to concentrate funding from APL 2 on provincial roads. This will be complemented by funding from the EU in the provinces of Tul6ar and Fianarantsoa, from the African Development Bank in Antananarivo (along the RN1), from NORAD in Fianarantsoa, and from USAID in Fianarantsoa, Mahajanga, and Toamasina. At the lower end of the network, it is mainly the Social Fund m and the new Community Development Project that provide funding for the community road network. In certain parts of the country, the railways are the most important mode of transport for cargo and passengers. Due to the very poor condition of rail infrastructure many villages find themselves isolated. As part of APL 1 the northern railway is being concessioned to a private sector operator. As part of the concessioning agreement limited passenger and local freight services will be provided. The southern railway, which can be an important outlet for export commodities such as litchis, would be rehabilitated as part of this project in collaboration with other donors, after concessioning to a private operator. Improved mobility. There is substantial evidence that improving RTI is an important but not sufficient condition to enhance rural mobility. The development objective of the project is, however, to improve the quality of life and economic opportunity of the rural population and this implies being able to get to schools, clinics, markets, etc. RTS are scarce and often hazardous and IMT, where they are known, use inefficient technology and are expensive. Motorized transport services are the object of a study on road transport currently being carried out in the framework of TSRRP. Possible performance impeding policy issues will be identified and can be addressed in this or subsequent program phases. The use of IMT might be improved through an appropriate policy environment, the transfer of appropriate technology and the availability of micro-credit to users and artisans. Four broad categories of IMTs will be promoted: (i) cycle-based technologies, (ii) animal powered carts, (iii) human-powered carts (including wheelbarrows and pousse-pousse), (iv) water based transport (motorized and non-motorized). These technologies all have proven value for rural development and poverty alleviation in Madagascar. Improved financing for maintenance. Madagascar established a Road Maintenance Fund (RMF) in 1999. The purpose of the RMF is to finance the maintenance of all roads in Madagascar. The RMF is a second generation road fund with a legal basis, governed by a Board constituted both of private sector road user and government representatives, with a small secretariat (with ten staff), and to be financed from road user charges. An in-depth analysis of the Road Maintenance Fund (RMF) was carried out 7 during project preparation and revealed significant shortcomings. These shortcomings relate to (i) the decree of the RMvF which insufficiently defines the eligibility criteria for funding, does not adequately take into account the newly introduced decentralized set up of road management, and which unduly reduces the autonomy of the Board through the Minister of Works' oversight function (creating a conflict of interest, since he is one of the takers of the funding); (ii) the fact that the majority of the funding still comes from budget and not from user charges, as is the intent of the law; (iii) the absence of an adequate technical and financial audit; (iv) inadequate financial and technical procedures, and (v) insufficient transparency. These issues have been addressed as follows, during preparation of the project: (a) a new road fund decree was prepared (and adopted in July 2002) in close collaboration with Government, the RMF and sector donors addressing the above issues; (b) in August 2002 the Government increased the road user charges element of the fuel price ten-fold (to about 5 US cents equivalent per liter of fuel). This is expected to collect about US$ 21.6 million equivalent in 2003; (c) to address issues (iii) to (v) above, the EU is financing a financial, technical and organizational audit of the RMF (satisfactory execution of such audit is a dated covenant (DCA, Schedule 4, clause 9(b)), as well as Technical Assistance to the RMF, and provides budget support to the RMF during the period of 2002-2004, amounting to about US$8 million equivalent. The result of the audit of the RMF will be presented to all interested parties at the occasion of the Transport Sector Conference in May each year. Issues raised will be discussed and remedies taken, if necessary. At the occasion of the conference, the RMF will also present its preliminary budget for the coming year and will inform the different road owners (the MPW, the provinces and the communes) as to how much maintenance funding they can expect in the coming year, on the basis of which they prepare their annual road maintenance programs. These programs are established based on a format provided by the RMF and are submitted to the RMF for review and approval. Road maintenance funding requirements are expected to amount to US$ 28 million equivalent in 2003, of which US$ 22.1 million is expected from the fuel levy, US$ 0.7 million equivalent from local governments, US$ 1.5 million from the EU support program and US$ 3.6 million might be required to be added from the US$ 10 million HIPC resources reserved for rural roads. Maintenance funding requirement will raise to an estimated US$ 49.6 million in 2008 due to the increased rehabilitated road network. It is expected that starting 2004 a heavy vehicle license fee will commence to contribute to the resources of the RMF. Road maintenance needs and funding from 2003 to 2008 are shown in the table below. (Amounts in US $ million) 2003 2004 2005 2006 2007 2008 Total Maintenance Requirement 28.0 32.6 38.3 43.9 49.6 55.5 - of which expected from fuel levy 22.1 23.4 29.8 31.6 39.1 41.4 - of which expected from heavy vehicle licence fee 0.0 2.5 5.0 5.3 5.6 6.0 - of which co-financed by local govemments 0.7 0.8 0.9 1.0 1.1 1.3 - of which financed by EU 1.5 1.1 0.0 0.0 0.0 0.0 - of which IPPTE 3.7 4.8 2.6 6.0 3.8 6.8 8 With the exchange rate dated 09/26/02: (for information) (Amounts in FMG billion) 2003 2004 2005 2006 2007 2008 Total Maintenance Requirement 185 215 253 290 328 366 - of which expected from fuel levy 146 155 197 209 258 274 - of which expected from heavy vehicle licence fee 0 17 33 35 37 39 - of which co-financed by local governments 5 5 6 6 7 8 - of which financed by EU 10 7 0 0 0 0 - of which IPPTE 24 31 17 40 26 45 Improved environment. To the extent possible the project will take a pro-active approach to environmental protection by not only mitigating negative aspects related to road improvements but rather by working closely with the beneficiary communities to design and implement environmental actions that are of commercial interest. For example, the counterpart funding of the decentralized levels of government for road improvements could be the contribution of a terrain for reforestation and its subsequent commercial use. The project would work closely with the Ministry of the Environment and local NGOs in this endeavor. The project will also use bio-engineering techniques for slope stabilization which have proved successful under very difficult conditions in Nepal. Investments in the southern railway would be crucial to safeguard the last remaining forest corridor on the highlands and preserve a unique eco-region. 4. Program description and performance triggers for subsequent loans: Program Design The purpose of the government's transport sector program is to reduce transport costs and to improve accessibility specially in rural areas (see Annex 1). The objectives and strategy of the government's transport sector program are described in the Letter of Sector Policy (see Annex 13). The World Bank's transport sector APL aims at assisting the government to implement its transport sector policy and strategy. The first phase of this APL, the Transport Sector Reform and Rehabilitation Project (TSRRP) became effective on November 28, 2000 and is planned to close on July 31, 2005. TSRRP, with a credit amount of $65m, is focusing on essential reforms in the transport sector, and on critical and highest priority investments. Besides the Rural Transport Project (RTP) - APL-2 - , a further phase (APL-3) is planned focusing on investments into major economic transport infrastructure such as national roads, ports and airports, if possible, jointly with private sector investors. Originally the APL was planned to have four phases. This Rural Transport Project was the former APL- 3 with an original IDA allocation of $ 33.9 m. The former APL-2 was planned to focus on strengthening the civil aviation and railway sub-sectors (planned credit amount $ 20.0 m) and APL-4 was to finance investments in the roads and ports sub-sectors (planned credit amount $ 100.0 m). The project team is proposing a redesign of the program, including a merger of the former APL-2 and APL-4 into a new APL-3 and a substantial increase of IDA contributions for the following reasons: * The original credit amount of the APL-2 was planned to be US$ 33.9 million and envisioned to rehabilitate 1000 km of rural roads. After thorough investigations and consultations with the government and other partners interested in rural development, it was realized that far more resources would be required to have a measurable impact on the rural accessibility situation in Madagascar. It is estimated (see table in chapter B.2) that only about 52% of the population of Madagascar has reliable access (of which a large share lives in urban areas). Thirty-two percent (4.8 million) has unreliable or seasonable access only and 16% (2.4 million) have no road access at all. In view of this, and based on a request from the government, the IDA amount for this project was increased from US$ 34 million to US$ 80 million, and a multi-donor/government supported rural transport program 9 was formulated which would spend an estimated amount of US$ 250 million over the next six years (including an amount of US$ 59 million for the maintenance of the rehabilitated rural road network). This program plans to rehabilitate about 8,000 kilometers of the most important rural roads providing 83% (six million) of the rural population which currently has no road access at all or only unreliable one, with reliable access. * Some of the issues originally planned to be addressed in the former APL-2 are being dealt with in APL-1 and in the new APL-2 while other issues have turned out to be of little relevance, such as the rehabilitation of secondary and tertiary airports and river transport. Other issues can easily be integrated into a new APL-3 (such as the financing of public-private partnerships). * The original program cost of $ 251.2 million (of which IDA contribution of $ 211.6 million and GOM $ 39.6 million) is not based on a holistic sector needs assessment and does not include contributions from other donors. In the meantime a pieliminary ten-year transport sector operations and investment program has been prepared jointly with Government and all the sector donors which arrives at a requirement of an estimated amount of $ 1,500 million over the period 2003 to 2010. To finance the gap after the likely donor, Government and user contributions are accounted for an estimated amount of $ 200 million will be required from the IDA APL-3 planned to be implemented from 2004 to 2010. Condition for the successful implementation of the APL-3 are that progress in the on-going reform and capacity building program are achieved as planned (see triggers for the new APL-3 below). Compliance with Triggers Sector Policy Triggers: The PAD of APL-1 states that "no APL would be triggered before an assessment of the implementation of the government's transport sector policy is carried out". Such a review was carried out during pre-appraisal in October 2001, results of which are captured in the Letter of Sector Policy for APL-2 (see Annex 13). The schedules of reforms in the transport sector overall and in the road sector in particular, as defined during the preparation of the APL, were reviewed. Actual achievements todate were taken into account and future planned achievements were adjusted, as against the original plan, where necessary (see Annexes 1 and 2 to the sector policy letter). Overall progress in policy implementation is judged satisfactory, with delays regarding some of its aspect, and faster than expected progress regarding others. Below, a summary of the status of achievement of policy implementation is given: A) General Transport Sector * Both a new maritime code and a framework law on civil aviation providing the basis for reform and restructuring were adopted during preparation of the APL in 1999 and 2000 respectively. * A detailed port code is under preparation and is expected to be implemented in 2003 (original plan was 2001). Documents for the application of the civil aviation framework law were planned to be prepared in 2002 (still on target, respective consultants are being recruited) * The Civil Aviation Authority (ACM) was created in 1999 (one year earlier than planned) while the Marine Transport Authority was created in September 2001 (a year later than planned) * The restructuring of the MTM is under preparation and is planned to commence in 2002 * Regarding privatization/concessioning it was planned to privatize AIRMAD, SMTM (Socit6 Malgache de Transport Maritime), CMN (Compagnie Malgache de Navigation) and to concession the northern railway in 2000, and the 15 main airports between 2002 and 2004. CMN was liquidated in 2001. The privatization of SMTM is underway. In respect of AIRVAD, bids were-launched in 1999. Due to lack of progress of negotiations in respect of a lease-purchase contract (for a B747) 10 with the main lender to AIRMAD, prospective bidders would not confirm their interests. In the meantime the air transport environment has become very volatile and prospective bidders are in difficulty themselves. As a result the strategy was revised. It was decided to restructure the company to make it more attractive to bidders. Meanwhile AIRMAD has entered into a management contract with LUFTHANSA. Restructuring is underway and a respective audit was submitted to government in September 2001. The concessioning of the main airports is planned to commence in 2003. * The rehabilitation of two ports (Tul6ar and Mahajanga) and two rivers (Sofia and Tsiribina) is on- going as planned. B) Road Sector * It was originally planned to create the Central Road Agency (CRA) in 2001 and the Provincial Road Agencies (PRA) gradually between 2001 and 2003. Meanwhile the Government has decided to create all the six PRA simultaneously by February 2003, at the planned effectiveness of the APL-2. Draft statuts have been prepared and are being publicly discussed. Work on the preparation of manuals of procedures is on-going. The staff of the six PRA in the provincial capitals will initially be employed and trained by PES, and will, after assessment of their capacity by the Bank's FM and procurement specialists, be made independent and will manage contracts below $150,000 financed by this credit. The CRA will be created later in 2003 and will be strengthened by technical assistance financed by the EU. The CRA will manage large contracts on national roads. * The creation of twelve Autonomous Production Units (APU) from existing public works force account units was planned to take place from 2000 to 2003. A study on commercialization of the activities of MPW currently being carried out (under APL-1) revealed that with the remaining equipment of MPW only one commercially viable APU could be created. Meanwhile MPW has decided to create a private leasing company before the end of 2002 which would absorb the remaining equipment and which would lease it to small enterprises (see Letter of Sector Policy in Annex 13) and thereafter execute all works by contract. The RMF, as well, will no longer finance force account works after the end of 2002. This was originally planned to be achieved only in 2003. * The assets of the provincial workshops are currently being assessed in preparation of their sale to the private sector. Conclusion of this exercise is planned in 2002, while originally it was planned to be achieved only in 2003. * The required budget of the RMF was achieved as planned in 2000 (FMG 60 billion) and over- achieved in 2001 (FMG 86 billion instead of FMG 70 million). However, the user charges portion of the budget which was supposed to be 15% in 2000 and 30% in 2001 was actually 0% in 2000 and 8% in 2001. It was a condition of negotiations that at least 50% are achieved in 2002 as originally planned. According to Sector Policy, 70% should be achieved in 2003 and 100% in 2004. Due to the ten-fold increase of the road user charges (from 0.5 to about 5 US cents equivalent) in August 2002, the 2004 target is already achieved. * The portion of the RMF allocated to rural roads will need to increase faster than originally assumed. While in 2000 the requirement was 5%, achievement was 0% (the first year of the operation of the RMF), in 2001 requirement was 7% and actual allocation was 5%. Partially due to a new definition of rural roads (as per the Rural Transport Policy and Strategy) and due to the impact of the RTP, the requirement for 2003 is 37% and will need to rise to 40% in 2008. * A new decree of the RIMF was planned for 2000 but was prepared only at the end of 2001 and was adopted on July 4, 2002. * The rehabilitation of National Roads is going on as planned (500 kilometers planned to be rehabilitated by the end of 2002). Under the new APL-2 it is planned to rehabilitate 9,000 kilometers of rural roads as against 1000 kilometers in the original APL-3. * The share of the road network in satisfactory condition (good and fair) is expected to raise from the current 18% to 60% in 2008. 11 Triggers for APL-2: The triggers for this project were defined in the supplemental letter no. 2 to the credit agreement for APL-1 dated June 19, 2000. These are: (i) "bottom-up preparation of rural transport strategy completed" (trigger) - "strategy agreed by central and local governments and interested communities" (means of verification); (ii) "preparation of rural and village road program completed and approved" (trigger) - "pipeline of 500 km of rural and village roads prepared, in accordance with technical, economic, financial, environmental and social criteria acceptable by IDA" (means of verification); (iii) "matching grant funding framework in place" (trigger) - "level of finance required to ensure maintenance of the project rural and village roads secured in a sustainable way" (means of verification); (iv) "involvement of beneficiary communities in road maintenance secured" (trigger) - "bilateral agreements between MOW and beneficiary communities signed" (means of verification); and (v) "rural environmental protection manual approved" (trigger) - "participatory environmental auditing mechanism adopted" (means of verification). Comments: (i) This trigger is fulfilled with the conclusion of the rural transport policy and strategy (RTPS) which was adopted by government on May 30, 2001 (see Annex 13) and was presented to local stake holders in six workshops in the provincial capitals during October 2001. The policy and strategy was elaborated over a period of two years with the help of the Africa-wide bank-managed RTTP (Rural Travel and Transport Program). From 1997 to 2000, RTTP conducted a series of studies as well as regional workshops and national workshops. This work culminated in a national workshop in February 2001, at the end of which a final RTPS was presented to government. (ii) This trigger is fulfilled. In parallel with the development of the RTPS, a selection of 8,500 lan of rural roads was made based on network, population and agricultural criteria. Preliminary design to achieve basic access at least cost, as well as social and economic studies were conducted along these 8,500 km from July to September 2001. Based on the results of the survey, all roads were ranked according to least-cost criteria (investment required to bring them to all-season standard divided by population served). In October 2001, participatory provincial workshops were held in each province, and, based on the above ranking, and taking into account other selection criteria, such as balance between the regions, existence of agricultural or other projects and environmental and social concerns, a first-year-program (2002) of 1674 km of roads, was selected. Prior to negotiations the bidding documents for the selected roads were reviewed, including the respective environmental management plans, and the no-objection was given to commence the procurement process. Contracts are planned to be ready for signing at effectiveness of the project (February 2003). (iii) This trigger is fulfilled. A matching grant funding framework is in place. As stated in the Rural Transport Policy and Strategy all decentralized entities (provinces and communes) are contributing 10% to the cost of both rehabilitation and maintenance. In the case of provinces, this contribution is to be in cash while communes can contribute in cash or in kind. The RMF finances 90% of all the maintenance costs of provinces and communes (for the measures taken to ensure the sustainability and efficiency of the RMF, please be referred to the respective paragraph in chapter B.3). (iv) This trigger requires some modification due to recent changes in the road sector, including decentralization and the creation of the road maintenance fund. However, in a changed form the trigger is still relevant and is fulfilled. As per point (iii) above, the "beneficiary communities" are the provinces and the communes and they are by law required to contribute 10% to the maintenance cost. The beneficiaries annually sign bilateral agreements with the RMF (and not MTP) in respect of the maintenance program planned to be executed on their road network. 12 (v) This trigger is fulfilled. An overall environmental mitigation manual has been developed for the roads to be rehabilitated under the project and environmental management plans (EMP) are being prepared in a participatory manner as part of the detailed design studies. Triggers for the Original APL-2 and 4 and Consequences of their Planned Combination into a New APL-3 As mentioned before, the transport sector team plans to combine the original APL-2 and APL-4 into a new APL-3. In the table below, issues, triggers and means of verification of the original APL phases 2 and 4 are listed (as per the PAD APL-1, Annex 1) and their state of implementation is discussed. No Issue Trigger Indicator Means of Verification Remarks Triggers for Original APL-2 I Regulatory agencies for civil Technical Satisfactory results of the This trigger is still aviation and ports assistance and activity completion and relevant for a autonomously discharge training programs follow-up surveys combined APL-3 technical and economic successfully regulatory function completed 2 Progress in privatization/ Concessioning Residual public financing This trigger requires concessioning of the agreements signed requirements identified, and modification. (see railways, secondary and technical, economic, financial, paragraph below tertiary airports and transport environmental and social table) terminals assessment of the proposed investments completed Proposed modifed trigger: Revenue from concession fees to ensure, at least cost Primary airports are either recovery of public investment concessionned or other Social mitigation packages for arrangements for their each transport enterprise and proper operation and agency to be privatized agreed management have been made with trade unions satisfactory to the Environmental protection Association. measures appropriately incorporated into concession agreements and in public investments 3 Social protection measures Social mitigation Social mitigation packages for This trigger is still for redundant staff under plans prepared to MITM staff and agencies relevant for a MTMIIMITP IDA standards agreed with trade unions combined APL-3 4 Environmental process fuEly Satisfactory Favorable opinion by NE This trigger is to be internalized into operational environmental and social stakeholders modified and practices of MTM and MTP assessments applicable for both Iregularly produced MTM and MTM 5 Financial management Success in Compliance with requirements This trigger should improved in MTM implementing the for implementation of the be dropped since action plan for LACI initiative achievement of this financial trigger is already a management condition of effectiveness of MT/MP_DAstndrd _ ared_ ih_rae_ ninscobiedAP-APL-2 13 Triggers for Original APL-4 6 Preparation of river Program completed Pipeline of investments This trigger is navigation program and and approved. prepared, in accordance with considered no progress in involving Involvement of criteria acceptable to IDA, and longer appropriate beneficiaries in river beneficiaries bilateral agreements between and should be management secured. MPW and communities dropped (see signed. paragraph below table) 7 Performance of the Road Appropriate Road Fund revenues to meet This trigger is still Maintenance Fund allocations under 100% of routine maintenance relevant for a the road fund for requirement combined APL-3 the various Rural roads to benefit, at categories of roads least, from 15/o of total allocation from the fund 8 Progress in the Required legislation Force account equipment This trigger is commercialization of approved liquidated and assets disposed considered no productive functions within of longer relevant (see MPW paragraph below table) 9 Progress by MPW in Required legislation 80% of maintenance works in This trigger is outsourcing works and approved value terms contracted out to considered no services the private sector longer relevant (see paragraph below table) 10 Environmental process fully Satisfactory Favorable opinion by NEO Included in trigger internalized into operational environmental and social stakeholders above applicable for practices of MPW assessments regularly both MTM and produced MTP 11 Financial management Success in Compliance with requirements Should be dropped improved in MPW implementing the for implementation of the (see respective action plan for LACI initiative trigger for MTM financial above) management Of the eleven triggers of the above combined former APL-2 and APL-4, three remain relevant as originally conceived, two triggers require modification and six can be dropped. Hence it is suggested to remain with a total of five triggers for the new APL-3. Further explanation to the above in respect of triggers 2, 6, 8 and 9 are given below: Trigger no. 2 * Concessioning of both the northern and southern railway is on-going. Regarding the northern railway (Antananarivo to Tamatave and branches) a concessioning agreement has been signed with a railway operator. Endeavors are on-going to secure the financing required for the rehabilitation of the railway (an estimated $37m). It is planned that the concession agreement comes into effect before the end of 2002. The concessioning and rehabilitation of the southern railway is part of this project and it is planned to have a concession agreement signed before the end of 2003. * In respect of secondary and tertiary airports there is a discrepancy between this trigger and the sector policy. The sector policy states that for secondary and tertiary airports management arrangements will be sought with private sector operators or with the decentralized governments. A recent survey * has shown that traffic in these airports is low and investment needs are modest. Investment needs, however, have been identified in respect of the primary airports. The primary airports are currently 14 managed by ADEMA a public-private airport management company. While the transport sector policy aims at concessioning the primary airports (fifteen). The issue is controversial and there are voices saying that rather than dismantling ADEMA it should be improved. A modified trigger is therefore suggested, as follows: Primary airports are either concessioned or other arrangements for their proper operation and management have been made satisfactory to the Association. * Transport terminals and intermodal platforms are required particularly in the main transport hubs. It is however unlikely that these can be financed entirely by the private sector through concessioning. Public-private financing opportunities being investigated and, if necessary, the government's contribution can be financed through APL-3. Trigger no. 6 During preparation of APL-1 a river transport expert investigated the potentials for river transport in Madagascar. The findings are that modest potentials for river transport exist but remain rather limited and relevant only for local rural transport. Key issues are the lack of appropriate means of river transport and landing facilities. It was therefore decided that this will be dealt with in component five (promotion of intermediate means of transport) in the rural transport project (APL-2). Therefore, this trigger should be dropped. Trigger nos. 8 and 9 In respect of the outsourcing and commercialization of the functions of the MTP good progress is being made in the framework of APL-1 and the trigger is expected to be fulfilled at the end of 2003, and hence no longer relevant for APL-3 (see also chapter on Sector Policy Triggers above). C. Program and Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project has five components: 1) Capacity building: Assistance to the Rural Transport Unit (RTU) to oversee the implementation of the rural transport policy and strategy (further capacity building relevant to this project in respect of the Provincial Road Agencies (PRA), the Provincial Road Departments (PRD) and small scale labor based contractors is being done under APL-1). 2) Rehabilitation of rural roads: This component includes the following: (i) the rehabilitation of about 9,000 km of rural roads. The vast majority of these roads (where traffic is less than 50vpd) will be improved to "basic access standard" which is defined as the least cost investment to make the roads all- year round passable (with the exception of short periods of heavy rains) for the prevailing means of transport. Basic access interventions focus on the elimination of trouble spots. For roads with higher traffic levels (50-150 vpd) full rehabilitation to gravel road standard will be sought and above 200 vpd paving of the road will be an option. A first year program has been selected and detailed design and bidding documents are being prepared. Further annual programs in five tranches have been identified. These will be reviewed and adjusted in annual provincial planning workshops. The program will be appropriately packaged in lots for small scale labor based contractors (about 40% of the volume) and for medium to large scale contractors (about 60% of the volume). The program will provide reliable access to an estimated 6 million people or 83% of the population which currently has no reliable access or does not have road access at all. Additionally, it is estimated that each year 5 million person-days of work (at one dollar per day) will be provided in rural areas; (ii) the component also includes a pilot for the improvement of appropriate rural transport infrastructure at community level. This might include the construction of foot bridges or appropriate tracks for ox-carts. 15 3) Maintenance of the rural road network: This component has been made an integral part of the project to ensure that maintenance of the rehabilitated network is executed adequately and appropriately, and that this is closely monitored. Finance for this component will be provided by the RMF (90%) and the provincial governments (10%), and for a limited period by the EU and the central government through allocation of HIPIC resources, if required (see Annex 13). IDA will contribute only a modest amount in respect of a study for the introduction of a heavy vehicle license fee and, possibly, the continuation of the financing of the technical and financial audit, after expiry of the respective EU financing. The result of the technical and financial audit will be presented to the partners at the annual transport sector conference in May each year. A satisfactory outcome of the audit is a requirement for the continuation of the program. Remedies will be taken in case of defaulting provinces. It is estimated that an additional amount of 2.5 million person-days of work will be created on average each year by the maintenance program. 4) Rehabilitation of the corridor Fianarantsoa-Manakara: This corridor relies heavily on the FCE Railway (Fianarantsoa-COte Est) and the Port of Manakara. Government has committed itself to concession both the railway and the port by the end of 2003. The 163-km long railway runs through a very unique ecosystem of some of the last remaining primary forest on the highlands. If the railway were to cease operations, this forest would be gravely threatened because the people living along the line could no longer rely on their export crop and would resort to slash and burn farming (see chapter E.5). About 100,000 people have no other access than the train and depend on the transport services for their livelihood; additional 1,000,000 people live in the region that is served by the railway. A consortium of donors, let by USAID, carried out a series of studies (CBA, financial analysis, beneficiary assessment, environmental assessment) which showed the viability of the railway (IRR of 16%) and decided to finance emergency rehabilitation under the condition that the FCE is concessioned to a private operator. IDA would fill the financing gap for this rehabilitation once the concession agreement has been signed. The port of Manakara is classified as a secondary port and the tonnage handled has declined from a high of 80,000 tons in the early 1970s to some 20,000 tons today. The port has a comparative advantage for fuel from Tamatave to Fianarantsoa and for basic goods from Tamatave for the region of Manankara. On the export side it would serve primarily for agriculture exports, such as coffee, bananas and litchis. Following years of neglect the port is in urgent need of repairs, especially in respect of the quays, oil pipeline and dredging. Following cost-benefit analysis, the IRR for the basic investment option stands at 33%. USAID is currently financing emergency works and the project would complete infrastructure improvements once the concession agreement has been signed. It can be assumed that after the rehabilitation of the corridor Fianarantsoa would be become attractive for the establishment of an export production zone (EPZ). EPZ are currently the main driver of economic growth in the country. 5) Promotion of intermediate means of transport (IMT): This component would put into practice the first strategic axis of the Government's rural transport policy. National and international experience with the promotion of IMT has rarely gone beyond very limited pilot projects and this would be the first initiative to up scale. Intensive networking and implementation assistance would be required to ensure successful execution. Despite road improvements in recent years, much transport in Madagascar involves walking and head-loading. The project would aim to improve rural mobility by increasing the overall number of IMTs in use, increasing and diversifying -their uses and improving the technology used. The project would also promote water and river IMTs which so far have been largely neglected. It is expected that within a five-year period, as many as half a million people would directly or indirectly benefit from increased use of IMTs. Four broad categories of IMTs would be promoted through information campaigns, networking and micro projects: (i) cycle-based technologies; (ii) animal-powered carts; (iii) human-powered carts; and (iv) water-based transport (motorized and non-motorized). The component would also include spot improvements of waterways and jetties. The provision of IMTs is essentially a private sector activity. However there are a number of obstacles that prevent the private sector from 16 playing its role optimally. Actions taken under this component will focus on factors impeding the private sector and will be carefully screened to ensure that private sector activities are not crowded out, and that support is limited in scope and time to what is needed to kick-start viable and eventually self-sustaining private sector activities. Project cost by component and IDA financing Indicative Bank- % of Costs % of financing Bank- Component (US$M) Total (USsM) financing (1) Capacity building 2.24 0.7 1.91 2.4 (2) Rehabilitation of rural roads 167.33 55.8 62.02 77.5 (3) Maintenance of the rural road network 105.43 35.1 0.46 0.6 (4) Rehabilitation of the Fianarantsoa to Manakara 17.00 5.7 9.63 12.0 corridor (5) Promotion of intermediate means of transport 8.00 2.7 5.98 7.5 Total Project Costs 300.00 100.0 80.00 100.0 Total Financing Required 300.00 100.0 80.00 100.0 2. Key policy and institutional reforms supported by the project: The project would support the implementation of the Government's Rural Transport Policy and Strategy which was adopted in May 2001. The policy is henceforth binding for all interventions in the sector. Key features of the policy include (i) the promotion of rural transport services and intermediate means of transport with clearly defined roles for government and the private sector; (ii) a basic access approach to rural road improvement which provides reliable access to as much of the rural population as possible and which favors labor-intensive work methods; and (iii) transfer of the management responsibility to the respective local entities, and application of cost-share mechanisms for both investment and maintenance. Prior to negotiations the Government has agreed to carry out the following crucial reforms regarding the Road Maintenance Fund (RMF) (i) to adopt a new decree defining the status of the RMF which reflects the new decentralized road sector organizational set up presently being implemented, better defines the eligibility criteria for funding under the road fund, and introduces numerous improvements for the operations of the RMF; (ii) to increase the road user charges from the current $2.2 million to $21.6 million through a respective increase of the fuel levy. Also, the government has agreed to establish a financial and technical audit for the operations of the road fund (to be financed initially by the EU) and to use the proceeds from HIPC allocated to rural roads (about $10im equivalent) as specified in the letter of sector policy (Annex 13). 3. Benefits and target population: The project would benefit about 6 million of the rural population. Of the total population of Madagascar it is estimated that 7.2 million (48%) currently live in partially or completely inaccessible areas. Of these about 6 million (83%) will be provided with reliable access at the end of the project. Poverty indices show that these isolated areas are the poorest, both in economic and in human development terms. The benefits of the project would be economic and social, by facilitating trade and economic exchanges between different parts of the country and by improving access to social infrastructure. Furthermore, labor-based construction would provide employment opportunities during road improvements and subsequent maintenance (it is estimated that annually about 7.5 million work-days of labor at $1 per day will be 17 created). Provisions would be made to employ women in these contracts thus conferring potentially higher income benefits directly to the family than if only men were employed. Road improvements would make it easier for other projects, such as the Community Development Project, the Rural Sector Development Project, and the Community Nutrition Project to reach their target populations (see Annex 14 for an agreed framework of collaboration amongst the Bank rural development projects). 4. Institutional and implementation arrangements: Oversight of Implementation of Government's Rural Transport Policy and Strategy: a Rural Transport Unit (RTU) has been created and attached to the Program Executive Secretariat (PES) responsible for the implementation of the Government's transport sector program. The RTU is in charge of overseeing the implementation of the rural transport policy and strategy (RTPS). It maintains a data base on rural transport, disseminates information pertinent to rural transport to all concerned and particularly to the decentralized governments and their agencies, it coordinates all interventions in the sector, and ensures that they are in line with the policy. Project Implementation. Project execution, including procurement, financial management, reporting, and social and environmental safeguard implementation, will be the responsibility of PES whose capacity has been built up in the framework of TSRRP (APL-1). PES is answerable both to the Minister of Transport and Meteorology (MTM) and the Minister of Public Works (MPW) (overall responsibility for the execution of each of the project components has been allocated to either of the two Ministries). PES has financial management, procurement, rural transport and environmental units with thirteen high level staff (see organization chart in Annex 12). To cope with the additional demands of APL-2 it will be strengthened by at least one additional accountant and an information technology specialist. Part of the financial and procurement activities of PES (mainly regarding the rehabilitation of roads) will be decentralized to the Provincial Road Agencies (PRA) that are being created in each province in the framework of the sector reforms assisted under APL-1. The PRAs will operate like an AGETIP*. Their purpose is to execute, on demand and through the employment of contractors and consultants, the various road rehabilitation and maintenance programs of the road owners in the provinces (national, provincial and communal governments). Respective agreements will be signed annually between the road owners and the PRA, and between the financiers (RMF for maintenance, and Government and donors for rehabilitation [through PES]) and PRA. The PRA will have their own financial management capacity and its functioning will be defined in operational manuals. Their operational cost will be a percentage of the costs of the contracts they manage. For each funding agency they will open an account into which an initial allocation is transferred (amount to be determined). Funds advanced from the main special account to the PRA special account may be outstanding for up to 90 days (as is the case for the special account itself). Periodic withdrawal applications will be made from the project account of PES against eligible payments that have been made from the advance payment. The procurement process will be controlled through a system of prior and posterior review. Despite this decentralization, the fiduciary responsibility for project execution will remain with PES. It is planned that all PRAs will be established in a initially reduced format by end of February 2003. Thereafter, during a transition period of about six months (during which a core staff of the PRAs will be employed under contract by PES), functions will be gradually transferred to them by PES. At the end of the transition period, an assessment of their capacity, particularly related to financial management and procurement will be made, before all the planned activities will be delegated to them and before they will be made autonomous under a Board of Directors. PES will assist PRA to achieve the necessary capacity, during the transition period, and will tightly AGETIP are nonprofit contract management organizations. They normally charge a management fee of about 5% of the value of the contracts managed. They employ highly qualified staff and.pay market based salaries. Their operations are overseen by a Board of Directors and they are regularly audited by external auditors. 18 control their activities through regular internal audits, thereafter. The financial management system of the PRA and the PES will be made compatible and data transfer will be done via internet. Regular external audits of the PRA are a statutory requirement. In parallel with the creation of the PRA the existing deconcentrated road departments of the MPW at province level are being restructured and focused on the task of managing the road networks in the provinces on behalf of the various owners. They will be called Provincial Road Departments (PRD). Their job will be to classify, inventorize and survey the road network (of all the different owners) in the province. They will conduct annual traffic counts and will, based on annual needs assessments, prepare the annual maintenance programs for the various owners, and will present these to the RMF for approval and financing. Also, based on their network knowledge, they will prepare medium and long term rehabilitation programs for the entire network, will update them periodically and will discuss them with the owners. Such programs will be discussed and revised in annual provincial road network planning workshop held jointly with all the different stake holders in October each year. They will also maintain GIS based road network data bases, including accident data, and will produce and update provincial road maps. For the time being, they are controlled by the MPW. It is planned that eventually they will be transferred to the provinces once sufficient capacity is available at this level. For an overview of these reforms see Annex 12. Environmental and social safeguards: The respect of environmental and social safeguards will be ensured by the environmental and social unit of PES which has the required competences and staff. A framework EA/SA has been prepared for the entire transport sector prior to appraisal of the APL. A policy framework for possible displacement and compensation of persons has been established as well prior to appraisal. Detailed environmental and social action plans are being prepared and will be implemented for the first year rural road rehabilitation and maintenance program. The completion and disclosure of acceptable EAs and environmental management plans (EMPs) for the port upgrade and railway rehabilitation are a disbursement condition for this component, along with the signing of concession agreements for the railway. The preparation and implementation of the environmental management plans (EMPs) for all project components will be reflected in the Development Credit Agreement (DCA). Monitoring and evaluation: The function of monitoring and evaluation of the outcome and output of the project is with RTU. RTU's monitoring task will be assisted by a technical audit which will provide feedback on the quality and quantity of the execution of the road rehabilitation program. The same audit will also make judgements on the degree of adherence by all partners to the rural transport policy and strategy and its adequacy. A further audit conducted for the RMF (to be financed in 2002-04 by the EU and later budgeted for in this project) will judge the outcome of the maintenance program. Mentioned audit reports will be presented to all program participants at an annual transport sector conference, planned to be held in May each year. Remedies in case of default (of a province or the RMF) and restructuring of the program, if needed, will be discussed at this conference. To measure project impact, socioeconomic baseline and control studies have been executed in 90 villages along the alignment of the road network selected for rehabilitation and are presently being summarized. A follow up study will be conducted prior to completion of the project The possibility of a joint M&E system with the CDP and RSDP are being investigated. A mid-term review is planned two years after effectiveness of the credit. 19 Flow of Funds Following will be the flow of funds of the project: Provinces IDA Central Government Special Project Account Account 10% PRAs Contractors/ Consultants/Suppliers D. Project Rationale 1. Project alternatives considered and reasons for rejection: The following alternatives were considered: 1) A stand-alone rural transport project versus one as a part of an APL: It is clear that the close integration of RTP into an APL program lending closely reflect the reality that the provision of sustainable rural transport is very much part of a sustainable overall transport system. During preparation of the APL-2 a lot of emphasis was put on ensuring sustainable financing for road maintenance through the RMF. The integrated and holistic approach of the APL assisted substantially to promote the RMF as a key element for sustainability in the transport sector. 2) A project focusing only on rural roads versus one that addresses rural transport: This option would have financed exclusively improvements of rural roads and the strengthening of related management capacity. The alternative was rejected because it would not have supported the overall intention of Government's rural transport policy and would have ignored infrastructure needs of the railway and water transport which are potentially important modes in parts of the country. By focusing on infrastructure alone, the project would have repeated past mistakes of assu-ing that transport services will develop spontaneously. 2) A rural transport project that would have including community roads versus one that focuses on provincial roads: There is an undisputed need in Madagascar to improve intra-commune rural transport infrastructure and this might have warranted an important component for community roads. It was decided, however, that the poor state of the provincial roads require that attention be given to that network first. There is limited use of improving community roads if they lead to an impassable provincial road. Furthermore, what might be needed for intra-commune transport often are not roads but improved tracks, footpaths, and footbridges. The project would include a pilot to appropriately improve such rural transport infrastructure. 20 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision (PSR) Ratings Sector Issue Project (Bank-financed projects only) Bank-financed Implementatio Development n Progress (IP) Objective (DO) Transport sector performance Transport Sector Reform and S S Rehabilitation Project ($65m) Community development and Community Development S S decentralization Project ($11 Om) Social Fund m ($15m) Rural development Rural Development Support S U Project ($89m) Environment Second Environment Project U U ($30m) Other development agencies European Union - Roads (STABEX, FED7/8/9 $184m) African Development Bank Roads, railways ($5 1m) French Development Agency Roads, ports, airports ($35m) USAID Rural roads, railways ($8m) NORAD Rural roads ($7m) BADEA Roads ($53m) China Roads ($28m) Japan Roads ($37m) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) Both IP and DO ratings of the above projects were rated satisfactory prior to the political crisis which ensued Madagascar commencing January 2002. During the crisis implementation of most projects virtually came to a halt and achievement of development objectives became questionable. Meanwhile a substantial restructuring of the portfolio in Madagascar is being undertaken (which will be presented to the Board jointly with this project) with the objective to return all concerned projects back into satisfactory rating. During the crisis the Transport Sector Reform and Rehabilitation Project was also rated as unsatisfactory. During a recent mid-term review, agreement was reached on a plan of action to return the project back to satisfactory condition. Meanwhile these conditions were met and the project is now rated satisfactory. An agreement in principle has been reached to coordinate the projects that target rural and community development (see Annex 14). This agreement is henceforth the base for intervention and is being operationalized. 3. Lessons learned and reflected in the project design: The project incorporates lessons from Bank projects on rural transport and draws extensively on the work by the rural transport thematic group. The lessons include: * The Bank, other development partners, and governments have often invested in over-designed rural roads while at the same time ignoring mobility constraints of the rural population. The focus was on continuous rehabilitation executed to technical standards that were beyond need, while drainage 21 structure were often under-funded. The project would employ a service level approach which gives year-round access to as many of the rural population as possible. Priority would be given to drainage works and the improvement of critical spots. These works would be carried out using labor-intensive methods where appropriate which has the advantage of providing income opportunities for the local population, including women, and dispensing training for maintenance. * Investments in rural roads projects in the past have largely ignored questions of institutional and financing arrangements and have therefore encountered substantial problems in the subsequent maintenance of those roads. The RTP would be based on the Government's rural transport policy which clearly sets out these responsibilities defined through a participatory process. To ensure the commitment of provinces and communes for the management and maintenance of the improved roads, these entities would contribute 10% to the investment cost and thereafter 10% to maintenance. * Past experience of investments in rural roads in Madagascar and in Africa has shown that road improvements do not necessarily lead to a spontaneous emergence of traffic. Very often walking and carrying remain the dominant modes of transport. To address this problem, the project would include the promotion of intermediate means of transport (IMT) and improving the availability of targeted micro-credit for users and artisans (through a preexisting micro-credit promoting project). 4. Indications of borrower commitment and ownership: The Government has already approved the rural transport policy and strategy which henceforth is the basis of all investment in rural transport. The Government has also committed itself to use the proceeds from HIPC allocated for rural roads (about $1 Om per annum) in each year of project execution as follows: (i) first priority would be given to finance existing gaps in maintenance funding; (ii) second priority would be to cover counterpart funding needs for the various donor funded rural roads programs; (iii) the balance of the funds would be used as an addition to the rural roads rehabilitation program within the framework of the rural transport policy and strategy (see Annex 13). Also, the Government has adopted a new road fund decree which clarifies issues regarding road fund oversight, its functioning in the newly decentralized set-up, and which more clearly defines the eligibility criteria for expenditures of the funds. Further, the Government has increased the road user charges portion of the road fund (a fuel levy) ten- fold from 0.5 to about 5 US cents per liter of fuel. Further funding for maintenance will be provided by the EU and from HIPIC resources, if needed. 5. Value added of Bank support in this project: The value added by the Bank comes through its experience in a large number of rural transport projects, in Africa and elsewhere, as well as from the knowledge created by the Africa Rural Travel and Transport Program (RTTP) and from the rural transport thematic group. Through the RTTP the Bank has supported the preparation of the national rural transport policy and strategy. The Bank transport sector team has taken the lead in the preparation of this multi-donor funded rural transport program. Good practice, cutting edge rural transport knowledge, e.g. in respect of the participatory road intervention selection process and the promotion of intermediate means of transport is being applied in this project. 22 E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost Benefit NPV=US$ million; ERR = % (see Annex 4) * Cost effectiveness / Other (specify) Both cost benefit and cost effectiveness analysis have been applied to evaluate some of the components, while others where exempted from economic analysis, as follows: (i) Capacity Building: no economic analysis undertaken. However, the main objectives of this component, to disseminate and apply the Rural Transport Policy and Strategy and to strengthen the Road Maintenance Fund are crucial for the achievement of the goals of the "physical" components. (ii) Rural Road Rehabilitation: both cost effectiveness and cost benefit (consumer surplus) methods have been applied and will be applied in future selection cycles. Least-cost investment required to improve each road section to basic access standard (standard required to make a road all-year-round passable with the exception of short interruptions during heavy rains) have been determined and road links have been ranked according to cost per population served. Participatory workshops were held where a priority first- year program was selected for the preparation of detailed design and execution in 2002/03. Basic access standard (spot improvement only) is considered appropriate if motorized vehicular traffic is less than 50 vpd. If traffic is above that threshold, cost benefit analysis (consumer surplus method) is applied to determine which higher than basic access standard is appropriate (usually a full gravel road can be justified at traffic levels between 50-150 vpd. and a surface dressed road at traffic levels greater than 200 vpd.). This selection method is based on the World Bank Technical Paper no 496: "Design and Appraisal of Rural Transport Infrastructure". (iii) Maintenance of the Rural Road Network: No specific economic analysis has been carried out for this component of the project. First because road maintenance is known to yield very high economic returns and second because maintenance is a sine qua none for the returns of the rehabilitation component. Economic return of routine maintenance normally yields returns of up to 100% and periodic maintenance up to 60% (which shows the dire consequences if not done). Economic analysis of rehabilitation investments normally rests on the assumption that subsequent maintenance is performed satisfactorily. The most important factor for ensuring maintenance is sustainable finance. This issue is being addressed in the covenants to this credit (increase of road user charges and use of HIPC funding to address remaining funding gaps). (iv) Rehabilitation of the Fianarantsoa to Manakara Corridor: For this component full cost-benefit analyses have been done (funded by the USAID) for both the railway and the port rehabilitation sub- components. Due to years of neglect the Fianarantsoa to Manakara railway (FCE) requires rehabilitation to enable it to be concessioned to a private operator. Some rehabilitation is currently being carried out with USAID funding and more is planned shortly financed by other donors. IDA funding for rehabilitation is contingent to concessioning (planned for the end of 2002). Benefits arise from increased traffic of goods and people, agricultural productivity and social redistribution, as well as decreased deforestation. The NPV, at a 10 percent discount rate, is close to US$ 12.5 million, with an EIRR of over 15.5 percent. Similarly, the port of Manakara urgently requires rehabilitation. The fuel depot and supply pipeline have become hazardous for both people and the environment. Benefits arise mainly from fuel transshipment. The analysis arrives at a NPV of US$ 2.5 million and an EIRR of 33 percent, assuming a 10% discount rate. (v) Promotion of Intermediate Means of Transport: no specific economic analysis was undertaken for this component. However, world-wide experience shows that the use of intermediate means of transport 23 (IMT) can greatly benefit the rural poor in improving their lives. Particularly, they assist rural dwellers to reduce time and effort spent on transport activities (which would otherwise be done by head loading). Also, IMT are often used for commercial activities and provide an income to the rural poor. (For more information: see World Bank Technical Paper no. 525: "Improving Rural Mobility"). 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Financial Analysis of the FCE Concessioning: A financial analysis of the southern railway concessioning has been carried out. Average transport assumptions for 2003 to 2009, extrapolated until 2012 yield an EIRR of 29 percent with a concession fee of 5 percent out of the overall turnover. The minimum investment for the concessionaire is US$1 million. In a pessimistic transport prediction for 2003 to 2012, based only on the transport figures for 1992 to 2001, the EIRR exceeds 17 percent, with a minimum investment of US$1 million. The minimum investment, although tempting, requires a few conditions to be verified. The concessionaire must recover the fuel transport contract as early as 2003. Transport fees must rise by 10 percent every year. Lastly, future repair works in case of natural calamities must be financed by government/donors. Fiscal Impact: The project would require about $11 million equivalent in counterpart funding (that is about $2m per annum) of which about two thirds would be contributed by the provinces (their 10% co-financing contribution to the rehabilitation contracts). Substantial additional maintenance funding would be required for rural roads, raising by $2.5m per annum from an initial $3.4m in 2003 to $16m in 2008. As shown in chapter B.3, it is expected that starting 2004 all maintenance financing (other than donor support) would be financed from user charges. General taxation from fuel taxes currently amounts to about FMG 500 billion per annum ($80m) and is still expected to increase steadily (above GDP growth) and remain a major source of government tax revenue, despite a larger user fee portion in the fuel price. Total tax revenue of the government amounted to about $500m equivalent in 2000. Of this the fuel taxation presents about 16%. 3. Technical: The project will use a basic access approach that focuses on removal of critical spots and improvement or rehabilitation of drainage structures. During project preparation a technical manual was produced to explain the critical spot approach to the local engineering consultants which have prepared the preliminary design of works. In a series of workshops this manual was explained to them. After an initial period of surveys on the terrain, the consultants were called back and their experience with the approach was discussed with them and adjustments were made where necessary. It is planned that as far as feasible works will be grouped in appropriate lots for labor based execution (about $70,000 per lot). Share of works that will be executed by labor based methods of the total will depend on the capacity of the local small scale contractors (a training program is currently on-going to increase the number of labor based contractors), on labor availability near the prospective site (a minimal density of 10 people per square kilometer is required), and on the type of work to be executed. It is expected that the share of labor based works will gradually increase over the time of project execution. It is assumed that it will be 30% in the first year and will increase to 50% towards the end of the project. 4. Institutional: Assessments conducted by national and international consultants have shown that excessive centralization of decision making undermine the capacities of communities and local governments to manage their own affairs, and result in lack of accountability. The .project would support current decentralization efforts. 24 Autonomous provinces have been created and elections of provincial councils were held in December 2000. Transfer of responsibilities to the six provinces is expected to take place over the next 12 months. The Government's objective also is to give more independence to communes. The communes are in place, have elected officials and are receiving budgetary transfers. In promoting a decentralized approach, the proposed project faces three main institutional challenges: inertia at the central level, lack of capacity at the local level and reluctance of authorities to associate more closely the private sector to the decision- making process. 4.1 Executing agencies: Executing agencies for the project are the Ministry of Transport and Meteorology (MTM) and the Ministry of Public Works (MPW). Responsibility for the components is shared among the two ministries. The capacity building, Fianarantsoa to Manakara corridor, and IMT components are under the responsibility of MTM, while the rural road rehabilitation and maintenance components are under the responsibility of the MPW. At provincial level, the provincial road agencies (PRA) which are being created and the provincial road departments (PRD), which are being formed from the existing regional road departments, will be involved in the execution of the road rehabilitation and maintenance components. 4.2 Project management: Project management responsibility lies with the Program Executive Secretariat (PES). Its capacity has been built up and proven during the execution of the on-going APL-1. It is currently being reinforced through a management consultant introducing appropriate financial management and management information systems. As well, a technical assistance will resume work in early 2003 to enhance the capacity of the environmental unit of PES. In order to cope with the additional work load induced by APL-2, PES will be reinforced by an additional accountant and an information technology technician. The provincial road agencies (PRA) are planned to be operational by February 2003. They will operate like an AGETIP and their legal basis and operational procedures will be similar to the one of the existing AGETIPA in Antananarivo. Their staff will be selected on a'competitive basis, under TORs approved by IDA, and enumerated like private sector employees. They will be provided initially with equipment and staff training from APL-1 funding. During an initial period of six to twelve months they will be part of PES. Only after they have proven financial management and procurement capacity will they be made independent under a Board of Directors. PES will delegate some of the procurement and financial management activities in relation to the rural road rehabilitation component to these entities under a special agreement. Overall responsibility for procurement and financial management will remain with PES. 4.3 Procurement issues: A new Procurement Code was issued in 1998 and the bank ascertained that deficient features identified in the 1995 CPAR have been properly addressed in the Madagascar. Bank standard bidding documents (SBDs) are widely used and have helped to ensure that any unacceptable features do not affect Bank- financed procurement. However, one area of concern is that the Government's approval process for contract signing is cumbersome and involves an excessive number of bureaucratic steps causing unnecessary delays. In addition, insufficient programming and procurement planning contribute to delays in project implementation resulting in slow disbursement. To mitigate risks of delays for the proposed project, a procedures manual including financial and procurement procedures with special consideration of the PRAs, and inspired from AFRICATIPs procedures manual is being prepared as a part of the PIP and its existence satisfactory to IDA is a condition of effectiveness. PES has substantial capacity for efficient procurement built up in the framework of TSRRP with trained procurement staff and a 25 procurement unit for each of the MTM and MPW components of the project. These units will train and supervise the staff of the PRAs with PRD technical support to procure and manage contracts (with local consultants and small scale enterprises below a threshold of $100,000). A Procurement Capacity Assessment of the PRAs, including training needs and arrangements, will be undertaken by an experienced procurement specialist after their creation. On the basis of the assessment, an action plan will be agreed upon to address areas where the PRAs need to be strengthened to meet good performance criteria for procurement. The action plan might include; (i) the organization of the filing of procurement-related documents at PRAs level; and (ii) procurement training sessions for PRAs staff. An independent financial audit of the PRAs will be carried out annually as part of the overall audit of the project. Additionally, a technical audit will be carried for planned rehabilitation works to feed information to the RTU on the quality of the execution of the program. Furthermore, a technical and financial audit will be carried of all maintenance works financed by the RMF. This audit will be financed by the EU. 4.4 Financial management issues: The execution of the RTP, including financial management , reporting and procurement will be the responsibility of the PES. Part of the financial and procurement responsibilities, regarding especially the rehabilitation of roads, will be decentralized to the Provincial Road Agencies (PRA) once they are set up but the fiduciary responsibility will remain with PES. Before the transfer of financial management responsibilities to the PRAs, their capacity and systems would be reviewed by a Bank/IDA Financial Management Specialist to determine whether they meet the requirements of sound financial management. The assessment of the PES's financial management system (both at the MTM and MPW) carried out during pre-appraisal by an IDA accredited specialist determined that the arrangements in place are adequate. The accounting system operates on a double entry accrual principles and follows generally accounting standards acceptable to the Bank. However, the following recommendations have been made for improvement: (i) the preparation of a Chart of Accounts to ascertain the availability of the information required to manage and monitor RTP's activities; (ii) the recruitment of an accountant to cope with additional workload. These recommendations must be implemented prior to credit effectiveness. In addition, the PES cannot yet produce Financial Monitoring Reports (FMRs) required by the Bank. A consultant has been recruited, in conformity with Bank procedures, to design and implement a MIS capable of producing FMRs. The computerized system is expected to be functional by October 2002. Since the APL-2 is a part of the Transport Sector Program, it is considered more efficient to entrust the auditors of the APL-1 accounts with the annual audit of the RTP financial statements. The auditors must submit a technical and financial proposition and the contract must be signed prior to credit effectiveness. This audit will be carried out annually, in accordance with International Standards of Auditing. 5. Environmental: Environmental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. Environmental degradation is a major concern in Madagascar, given the country's unique ecological environment. Resulting devastating effects are wide-ranging from siltation of rice fields to destruction of transport infrastructure. This project will finance the rehabilitation of existing transport infrastructure: provincial roads, and railway and port infrastructure in the corridor Fianarantsoa-Manakara. Transport Sector Environmental Assessment (TSEA) - The entire APL program consists of various investment phases/packages, which includes support to -the various transport sub-sectors. Prior to program appraisal, a sectoral environmental assessment was prepared for the transport sector. The TSEA, 26 comprising three volumes, provides an overview of the context in which the sector currently operates. The TSEA report: a) defines and analyzes the general environmental impacts related to each sub-sector; b) identifies the potential environmental impacts of activities planned under APLI; and c) recommends a plan for environmental management. The TSEA report provides project managers in the transport sector with a permanent working document enabling them to develop a clearer understanding of the situation at each project site, taking social, biological, and physical factors into account. The TSEA was prepared and disclosed in accordance with World Bank guidelines and national environmental policies concerning infrastructure and environmental protection. Rural road rehabilitation - Separate environmental and social analyses were carried out for the proposed roads and for part of the work proposed for the Fianarantsoa corridor. The planning process for the rehabilitation for provincial roads is similar to that of CDD projects. A first year road rehabilitation program has been selected within a prescribed framework of financial, technical, social and environmental criteria. Each year the provinces will establish their annual road improvement programs based on this criteria through a consultative process. Preliminary environmental and social analysis was carried out for 8,500 lan throughout Madagascar which identified the likely impact of interventions as high, medium, or low for each road segment., Teams of environmental and social specialists were brought together in a workshop to establish a common framework for field visits, environmental and social inputs and levels of analyses prior to the assessment. Direct and indirect environmental and social impacts at the road construction site and in the immediate environs of the right of way may include: stripping of top soil and loss of vegetation due to the creation of borrow pits, soil erosion on road cuts and fills and stripped borrow areas, silting of road side ditches and subsequent sedimentation downstream of water, soil contamination and water pollution due to the spillage of toxic materials, slope stability problems and slopes affected by erosion, poor drainage, various forms of temporary land take, impacts on human settlements (spread of HIV/AIDS and other infectious diseases, increased levels of accidents). In order to mitigate these impacts, an environmental management unit has been established to carry out overall environmental management of the Program and to implement and monitor separate environmental management plans for each road segment. Annex 11 details the environmental management arrangements. During the provincial workshops for the elaboration of the first year's road rehabilitation program, only those roads which had no or minimal environmental and social impacts were selected. Therefore, for the first year's program, no sensitive natural habitats will be affected and no resettlement and/or compensation will be necessary. For subsequent programs, based on these preliminary analyses, roads will be selected and further necessary environmental and social assessments will be prepared, disclosed and approved prior to any civil works as identified by the project environmental unit, the National Environmental Office (NEO) and the Bank's safeguard policies. Rail and port infrastructure rehabilitation - The environmental assessment for the rehabilitation of the rail infrastructure has been carried out. The 163-km long railway runs through a very unique ecosystem of one of the last remaining primary forest on the highlands. The EA for the railway has highlighted the negative environmental and social impacts of a permanent closure of the railway, i.e. conversion from cash crop production to staples, especially manioc and rice through slash and burn techniques on steep slopes. It is expected that an additional 110.300 ha would be put under cultivation. Secondary impacts due to erosion and reduced rainfall in the immediate vicinity of the corridor are estimated at $16 million by NEO. No estimates have been carried out for the eventual loss in biodiversity and tourism potential. Ongoing community activities for slope stabilization have already demonstrated the positive effects of converting fields adjacent to the railway from manioc cultivation to vetiver, fruit trees and spice crops. These experiences would be applied and adapted to mitigation measures for provincial roads rehabilitation programs, where appropriate. 27 Some preliminary feasibility studies have been carried out for the port infrastructure rehabilitation. A study examining the different options for rehabilitation was prepared,. however an environmental assessment of the chosen option has not yet been prepared. The port environment has been assessed as part of the preparation of a GEF project which is making available emergency equipment for oil spills. The project will finance the rehabilitation of the port which includes rehabilitating a land-based oil pipeline and container facility. The corridor relies heavily on the FCE railway and the port of Manakara. Government has committed itself to concession both the railway and port. It has been established that the Project will not finance any works under this component until this concessioning agreement has been met. It is estimated that it will take approximately a year for this to be completed. It has been agreed that in order to comply with the national environmental regulations and that of the Bank, an environmental audit and EMP be prepared for the rail infrastructure rehabilitation and an environmental assessment and EMP be preared for the proposed port infrastructure rehabilitation within this timeframe to supplement/complement various existing feasibility studies. This requirement/condition has been articulated in the project's legal documents. Community Environmental Management - On a pilot basis community participation in environmental management would be introduced in areas where NGOs are already active, i.e. watershed management, reforestation activities, etc. Community contribution to road improvement could be in the form of making land available for reforestation and ensuring its environmentally-sound exploitation. Given the extreme poverty in Madagascar, it is clear that communities would only invest in the environment if there is a direct economic benefit. During project preparation the project therefore explored the various forms of community-based environmental actions that can be undertaken: Sustainability issues regarding such environmental activities were also explored i.e. inclusion into road maintenance programs. 5.2 What are the main features of the EMP and are they adequate? The EMP for the entire Program is under implementation. The EMP proposed that an environmental management unit be established to monitor and supervise environmental and social management issues. In particular, the sector EA proposed that environmental and social issues be integrated into project management through the implementation of the following: mitigation measures be introduced before the project begins, in consultation with the population; mitigation measures for impacts of existing infrastructure for which investments are planned, be identified; mitigation measures to prevent potential impacts at the national and regional levels be identified; and a guide of monitoring indicators (status indicators, pressure, and response indicators, and monitoring and evaluation methods) be prepared. There was also an emphasis on integrating standard clauses in works contracts, which would also serve as reference points for the drafting of environmental standards. A communications strategy, which comprises three components (environment and sustainable development; environment, population, and poverty; and environment from a regional perspective), and provides details regarding the needs assessment, the introduction of training programs, monitoring and assessment activities, and the relevant budget, has not yet been prepared. The objective of the awareness program is to facilitate dialogue among the various actors and generate momentum for incorporating a sound communications strategy for the transport sector. Within the context of the overall project implementation, EMP implementation is adequate. The environmental and social aspects of the project are addressed by the environmental management unit, however, more progress needs to be made in establishing and maintaining an environmental and social management "system" for the transport sector i.e. lack of tracking system, establishment of cellules in each sub-sector. See 5.5. 28 Environmental and social assessments were undertaken for 8,500 km of rural roads in various provinces throughout Madagascar. A general EP was prepared that included moderate and high impact roads (see Annex 11). During provincial workshops only road links with a low environmental impact have been selected and individual EMPs are being prepared for those selected roads. These EMPs will be approved and disclosed before effectiveness of the project. Following the selection that was carried out in the provinces it has been established that no resettlement or compensation would be necessary. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: sectoral EA presented 09/27/99 As part of the preparation of the entire APL program, a Transport Sector Environmental Assessment (TSEA) was prepared. It provides an overall analysis of the biophysical and social impacts associated with the GOM's transport program (all sub-sectors). The sectoral assessment provides the basis for the separate environmental and social assessments to be undertaken for each APL phase. The preparation of environmental and social assessments have been built in as triggers for each APL phase. The EA for the rural road rehabilitation and the Resettlement Policy Framework were disclosed on January 17, 2002. It was also agreed that in order to comply with the national environmental regulations and that of the Bank, an environmental audit and EMP be prepared for the rail infrastructure rehabilitation and an environmental assessment and EMP be prepared for the proposed port infrastructure rehabilitation prior to disbursement and within the concessioning timeframe (approximately one year). This requirement/condition has been formulated in the project's legal documents. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? The environmental and social assessments have been prepared with consultation built into the process. Communities, local provincial authorities, local NGOs/CBOs were consulted during these assessments. NEO was also consulted on the recommendations of the assessments. As a quality assurance measure, a national NGO has been engaged by the PMU to oversee of the environmental and social inputs for the feasibility studies and provides support to the environmental and social teams who prepared the studies/surveys. Findings and recommendations of all assessments of all subprojects financed by the project would be disclosed according to Bank's disclosure policies once clearance has been received from ASPEN. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? Under phase 1 of the APL, several environmental management recommendations have been implemented. PES has recruited an environmental specialist who will receive technical assistance to not only, implement and monitor the EMPs, but also to take over the leadership of the "Environmental and Social Protection Component" of the project. This project will continue to support improving the environmental management systems in the transport sector, and in particular as it relates to the rural transport. International technical assistance is being put in place at the PES to reinforce local staff. 29 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. So far only positive social impacts have been associated with improving rural access. During the summary evaluation of the 8,500 km of rural roads, social scientists carried out interviews and discussion groups with communities along the roads to investigate the anticipated effects of the project. The results were available prior to appraisal and at the provincial workshops. The surveys will also form the basis of long-term socio-economic baseline studies which will be used to monitor the poverty impact of the project. It is expected that the project would work closely with the forthcoming HIV/AIDS project and would include measures to prevent the spread of the disease. As the prevalence today is very low, this is of high importance. Social development outcomes of the project are expected in the areas of improved provision of social infrastructure and services, such as schools, health posts, nutrition, etc. Because of the isolation of a large number of the sub-prefectures development projects have difficulties reaching their beneficiaries and even once infrastructure is in place, staff are reluctant to move to such areas, supplies are hard to come by, etc. Better connectivity of people is also expected to improve their participation in the political and social development of the country and to enhance their sense of belonging to the national at large. In times of natural calamities, such as cyclones or droughts, an improved rural transport network would facilitate the delivery of emergency relief and assist with reconstruction. Resettlement and land acquisition were identified as a potential negative impact. Though all planned works concern the rehabilitation of existing infrastructure and during the study of the 8500 kilometers of rural roads no such requirement for resettlement and land acquisition were identified. For the planned rehabilitation of the Southern Railways and the Manakara Port (for which the establishment of an EA and EMP has been made a condition of disbursement) resettlement and land acquisition as well are unlikely to be required. To be on the safe side, however (and in view of the forthcoming next phase of the program which might entail resettlement action), a Resettlement Policy Framework was prepared and disclosed. 6.2 Participatory Approach: How are key stakeholders participating in the project? Stake holders have played a key role in project preparation and would continue to do so during implementation of the project. Decentralized levels of government, i.e. the elected representatives of the stake holders, ensure the ownership and management of rural roads. Beneficiaries and their representatives would be consulted in the final selections of roads to be improved and would be advised on how to maintain these roads. Stake holders would decide whether they want to take advantage of the project's intention to provide support to environmentally-sound exploitation of reforested areas. These micro projects would then be executed under the responsibility of CBO. Once the technical and managerial capacity of provincial transport entities has been enhanced, responsibility for project execution (including procurement) would be transferred to them. This would be a gradual process unfolding over the duration of the project. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? During project preparation a number of workshops were held to define the component Promotion of Intermediate Means of Transport and NGOs were instrumental in defining this component. NGOs and civil society also participated in the final selection of roads to be improved under the project and would 30 thus have a major role in shaping that component. The local NGO Lalana played a leading role in providing guidance on the environmental and social impact studies to the consulting engineering offices that carried out the summary design studies. NGOs also played a key role by participating in the definition of the project log frame. These may include national NGOs (eg, Lalana, FJKM), international NGOs (eg, CARE, CRS, Vt6rinaires sans fronti6res, Agro Action, Intercooperation), credit agencies (examples cited in Annex 2), and community associations. Depending on their qualifications they would be involved in animation, technology transfer, micro credit, etc. Community-based organizations would be involved in informing communities about the potential of environmentally-sound watershed management and would assist those communities that chose to participate in this component. These initiatives would be coordinated by the NGO ANAE which has extensive experience in community-based environmental management and ecological services delivery. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project would fully support the decentralized institutional arrangements that are being promoted by Government's rural transport policy: provinces and communes are henceforth the owners and managers of their road networks. The project would provide those governments and their technical departments with the necessary training to fulfill their tasks. At the national level the project would be executed through the Rural Transport Unit which is a permanent institutional set-up in the Ministry of Transport. Component 5, promotion of IMT, is the project's most decentralized activity. National-level coordination is a prerequisite but success will depend on local ideas and acceptance. For this reason, the component would involve a wide range of autonomous partner organizations, coordinated by a smaller number of capable NGOs (eg. Care, Lalana) and overseen by the Rural Transport Unit. 6.5 How will the project monitor performance in terms of social development outcomes? The key measure would be whether central and decentralized levels of government are able to mobilize the necessary resources to ensure routine maintenance, the essential element in sustainably improving access. This would be monitored through budget allocations made available by these structures for road maintenance, including the road maintenance fund, and road condition assessments. The socioeconomic baseline study, which would be an integral and ongoing instrument of the project's M&E system, would monitor poverty impact of the project. The surveys would collect both economic data, such as cost of travelling to the nearest market town and prices of consumer goods and basic staples; as well as socio-development data, e.g. number of children completing primary school, incidences of diseases, and assistance of agriculture extension workers. Furthermore the studies would collect information about the quality of life in the community through open-ended questions. 31 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Yes Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Yes Forestry (OP 436, GP 436) No Pest Management (OP 4.09) No Cultural Property (OPN 11.03) No Indigenous Peoples (OD 4.20) No Involuntary Resettlement (OP/BP 4.12) Yes Safety of Dams (OP 4.37, BP 4.37) No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) No Projects in Disputed Aiteas (OP 7.60, BP 7.60, GP 7.60)* No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Compliance with the safeguard policies has been addressed through various assessments and frameworks: sector environmental assessment for the transport sector, a resettlement policy framework, APL-specific environmental and social assessments prepared and disclosed according to national and Bank's policies (with the exception of the EA/EMP for the railroad and port component, production of such EA/EMP satisfactory to IDA and disclosure have been made a condition of disbursement). The overall Program supports the environmental and social management within the transport sector through the establishment of environmental management within sub-sectors, putting in place a management system, building environmental and social capacity among relevant stake holders and raising awareness. F. Sustainability and Risks 1. Sustainability: The key to the sustainability of the investments planned in this project is the Road Maintenance Fund (RMF). The reform of the RMF has been made a core issue in the preparation of this project (conditions of negotiations). Constant vigilance will be required to keep the reform on track. The rehabilitation of the rural road network will require substantial capacity for road maintenance management and finance. The core of the APL (and particularly the APL-1) focuses on the required reforms to achieve such capacity. 32 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective High level support for the transport S This project phase is being used as leverage to keep reform on sector reforms weakens track Other donor financing is not M Other donors also make their funding dependent on progress on forthcoming as planned reform Further RMF reforms are not S Key reform of the RMF have been made a condition of implemented successfully negotiations, other, subsequent reforms are mentioned in the supplemental policy letter and will be followed up during preparation of the APL-3 Economic activities in the N This is only likely to happen in a situation of general economic Fianarantsoa to Manakara corridor decline do not increase as assumed IMT are not affordable to rural N It can be assumed that improved accessibility and income population opportunities (through labor based approach) will greatly improve the income of the rural population From Components to Outputs Support to the implementation of S Constant vigilance will be required to avoid policy reversals the rural transport policy and strategy by the government weakens Provinces are not coming forward M All provinces declared that a contribution of 10% is not a with the required 10% contribution problem to them. to the cost of rehabilitation Agreement is not reached with EU M All donor conditionalities for reform of the RMF are to finance the audit of the RMF synchronized and strong leverage for reform is achieved (2002-04) Private sector uninterested to S Interested parties have already come forward and investments by operate Southern Railway joint donors should make the deal interesting. However, experience with railway concessioning in Africa indicates that difficulties might be encountered in the process Micro credit is not forthcoming for M Project would work closely with existing micro finance IMT users institutions (MFI); network of NGOs, MFI and stake holders I would be established Funds Flow M Adequate financial management system must be in place before disbursing funds to PRA External Audit S - Invitation of local auditors to enter into partnership with international auditing firm to strengthen their capacity. - Recruitment of auditors based on QCBS method; - Reinforcement of the accounting profession capacity by creating a component under a new project entitled "Poverty Reduction and Institutional Development Technical Assistant" which will be presented to the Board in 2003 Overall Risk Rating S Overall risk rating is assumed to be substantial Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: The ambitious road sector reform program still faces substantial resistance (by staff of MPW) and non- comprehension on the side of the provincial governments. PES and RTU will be required to develop a major outreach and information campaign on the planned reform to alleviate fears and misunderstanding. 33 G. Main Credit Conditions 1. Effectiveness Condition * The Borrower has opened a Project Account and deposited therein the amount of $500,000 equivalent. * The Borrower has established a financial accounting and management system acceptable to the Association, and signed an agreement with auditors acceptable to the Association * The Borrower has adopted a Project Implementation Plan in form and substance satisfactory to the Association * The Borrower has recruited an additional accountant and an information technology specialist acceptable to the Association to reinforce PES 2. Other [classify according to covenant types used in the Legal Agreements.] Conditions of Negotiations (all fulfilled prior to negotiations) * Adoption of a new road fund decree, acceptable to the Association * Increase of share of road user charges to at least 50% of required road maintenance funding * Signing of a contract for a financial, technical and institutional audit of the RMF * Signing of the amendment to the transport sector policy and strategy (letter of sector policy, see Annex 13) Conditions of Disbursement * Disbursement for the IDA part of the component 4 of the project will require that (i) concession contracts with a railway operator and a port operator (preferably jointly) has been concluded or other arrangements satisfactory to the Association for the proper management of the Southern Railway and the Manakara port have been made; and (ii) that an environmental audit and an environmental management plan (EMP) has been prepared for the Southern Railway and that an environmental assessment and an environmental management plan (EMP) has been prepared for the rehabilitation of the Manakara port acceptable to the Association. * Disbursement of the training component of the project will require that an annual training plan has been submitted to, and approved by, the Association. Financial Covenants * PES and PRA shall maintain or cause to be maintained records and accounts in accordance with sound accounting practices reflecting the operations, resources and expenditures of the project.. * Records, accounts, special account, SOEs and sub-projects shall be audited by independent auditors acceptable to the Association. * The Borrower shall submit quarterly financial management reports (FMR) not later than 45 days after each quarter. The first FMR is due after the first quarter after effectiveness. Quarterly consolidated reports on compliance with social and environmental safeguard measures will be an integral part of the FMR. * The Borrower shall have undertaken beginning January 1, 2003 annual and semi-annual technical, financial and organizational audits of the RMF and shall submit these to the Association no later than three months after the end of the reporting period. Other Covenants * Not later than May 31 of each year the Borrower shall undertake an annual review of the previous financial year and shall hold a mid-term review of the Project not later than by May 31, 2005. Not later than one month prior to the review the Borrower shall furnish to the Association a report of the various matters to be discussed at the review. 34 * Prior to the approval of the bidding documents for each subproject the Borrower shall develop an Environmental Assessment (EA) acceptable to the Association giving details of the social and environmental risks and adverse impacts along with proposed mitigation measures, and shall develop an Environmental Management Plan (EMP), acceptable to the Association, giving details of measures appropriate or required to manage potential environmental risks and mitigate adverse impacts associated with the subproject, together with adequate institutional, monitoring and reporting arrangements capable of proper implementation of the EMP (DCA, Schedule 4, clause 8). H. Readiness for Implementation / 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 1. b) Not applicable. / 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. / 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. / 4. The following items are lacking and are discussed under loan conditions (Section G): Detailed designs for the works to be financed by IDA in respect of the rehabilitation of the Fianarantsoa to Manakara railway and the Manakara port, the concessionning process for both the railway and the port, as well as the respective environmental assessment and environmental management plans are being prepared and are expected to be completed by mid 2003. Signing of concession agreements for the railway and the port or other management agreements satisfactory to the Association and the preparation of an environmental audit (for the railway) and an environmental assessments (for the port) and environmental management plans is a condition of disbursement of the respective sub-components of the project. I. Compliance with Bank Policies 1. This project complies with all applicable Bank policies. / 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Component no. 4, the rehabilitation of the Fianarantsoa to Manakara corridor, was added to the project in October 2001. At that time a donor's conference was held and a variety of donors pledged support for the corridor rehabilitation project. Without IDA participation sufficient funding for this important component with a highly positive poverty and environmental impact (see Annex 4) could not have been secured. Since the project was scheduled for Board presentation in May 2002, it was not possible to prepare respective environmental assessments satisfactory to the Association and to disclose them in a timely manner as required, and it was therefore decided to make the preparation of such documents a condition of disbursement for that particular component. The subsequent political crisis during the first half of 2002 let to a postponement of the Board date and delayed the production of the required documents further. Hence, there was need to uphold this condition of disbursement. Dieter E. Schelling7M le sis-Fraissard em Team Leader S tor Manager Countr rector 35 Annex 1: Project Design Summary MADAGASCAR: Rural Transport Project Key Performance Hierarchy of Objectives Indicators Data Collection Strategy Critical Assumptions (from Goal to Bank Sector-related CAS Goal: Sector Indicators: Sector/ country reports: Mission) Improved quality of live of Increase income of rural Socioeconomic baseline Macro-reform program the rural population through household and decreased study in 90 villages along remains on track economic growth and better time spent on transport the alignment of the rural access to economic and activities roads and follow up survey social facilities at completion of project Strengthening the public Implementation of the Bi-annual reports of PES As above sector's ability to deliver transport sector reform quality services and create an program as per the sector enabling business policy environment End-of-Program Program Purpose: Indicators: Program reports: (from Purpose to Goal) Transport costs reduced and Increase of the portion of the Bi-annual reports of PES Other sector and macro accessibility improved road network in good and reforms are implemented specially in rural areas (from fair condition from 18% to successfully APL-1) 60% Reduction of average transit Respective surveys are cost and time in main currently being carried out. corridors Follow up surveys will be carried out intermittently and at the end of the project. Improved accessibility from Socioeconomic surveys have remote areas of the country been carried out during to the main production and preparation of APL-2. consumption centers Follow up surveys will be carried out. Project Development Outcome / Impact (from Objective to Obective: Indicators: Project reports: Purpose) Access of rural communities 1. Traffic on the Annual traffic counts Government's transport to markets, schools, health rehabilitated rural road executed by Provincial Road sector reform program centers and other economic network increases annually Departments remains on course and social infrastructure by 10% sustainably improved, and 2. Six million people who their mobility enhanced, in currently do not have order to improve their reliable access will be quality of life and promote provided with reliable economic development. access in 2008 3. Rural well-being Follow up to base line study indicators, such as school planned in 2008 attendance and morbidity, will have significantly improved by 2008 as _I compared to 2001 36 Key Performance Hierarchy of Objectives Indicators Data Collection Strategy Critical Assumptions Output from each (from Outputs to Component: Output Indicators: Project reports: Objective) 1. Capacity built to manage Set-up for the management Annual report of the High level support for the the rural road network of the road network technical and financial audit transport sector reforms implemented under APL- 1 of the Road Maintenance remains strong functions satisfactorily Fund for year 2004 and starting 2004 thereafter 2. Rural roads rehabilitated 9000 km of rural roads Bi-annual report of PES Other donor financing is rehabilitated by 2008 in forthcoming as planned annual tranches of about 1500 km 3. Rural roads maintained All rural roads in good and Annual road survey reports Further Road Maintenance fair condition (rehabilitated of the Provincial Road Fund reforms are or already good) are Departments starting 2004 implemented successfully as maintained in this condition per policy letter starting 2004 and thereafter 4. Corridor Fianarantsoa to Annual freight tonnage and Annual report of Economic activities in the Manakara rehabilitated passenger transported by concessionaire area increase as assumed FCE increases from 20,000 tons/103,000 passengers in 2001 to 50,000 tons/140,000 passengers in 2007 5. Intermediate means of Ownership of intermediate Follow up to baseline study Intermediate means of transport promoted means of transport per rural executed in 2001 planned transport are affordable to household will have for 2008 the rural population significantly increased by 2008 as compared to 2001 37 Key Performance Hierarchy of Objectives Indicators Data Collection Strategy Critical Assumptions Project Components / Sub- Inputs: (budget for each (from Components to components: component) Project reports: Outputs) 1. Capacity Building US$ 2.24 million Bi-annual reports of the PST Continued support to the 1.1 Assistance to RTU (Government and IDA) implementation of the rural transport policy and strategy is provided by government 2. Rehabilitation of rural US$ 167.33 million Bi-annual reports of PST Agreement is reached with roads (Government, including the Provincial Governments 2.1 Preliminary and provinces & HIPC, EU, as to the proritization of detailed design & AIDe, NORAD, AfD, IDA) interventions and they are in supervision a position and willing to 2.2 Works (40% labor contribute 10% of the costs based and 60% medium to of rehabilitation large scale enterprise) 2.3 Pilot improvement of rural transport infrastructure at community level______________ 3. Maintenance of US$ 105.43 million (Road Annual Report of Road Agreement for EU support rehabilitated roads Maintenance Fund, Fund and report of technical to the Road Fund (2002-04) 3.1 Routine Maintenance provinces, HIPC, EU) and financial audit is reached. 3.2 Periodic Maintenance Provinces are capable to 3.3 Emergency provide the 10% co- Maintenance & Minimal financing. Maintenance of roads in bad condition 3.4 Program preparation & supervision 3.5 Assistance to the RMF _ _ _ 4. Rehabilitation of the US $ 17 million Annual Reports of Railway concessioned to a corridor Fianarantsoa to (Government, USAID, Concessionnaire starting private sector operator Manakara Japan, UNDP, AfDB and 2003 before end of 2002. 4.1 Rehabilitation of the IDA) Other donor support railway forthcoming. 4.2 Rehabilitation of the Port regulatory famework port of Manakara allows port operations to be 4.3 Communal concessioned to same environmental protection operator activities 5. Promotion of IMT US$ 8 million Ri-annual reports of PST Credit is provided for MIT 5.1 Small projects (Government, AID,B and through existing micro 5.2 Action research IDA) finance intitutions 5.3 Training and networking 5.4 Spot improvements of waterways & jetties TOTAL US$ 300 milion Bi-nnal_eprtsofPS Crdi_i_povde _fr _I 38 Annex 2: Detailed Project Description MADAGASCAR: Rural Transport Project By Component: Project Component I - US$2.24 million Capacity building for the sustainable management of the rural road network and the promotion of intermediate means of transport ($2.24 million of which Government $0.33m and IDA $ 1.91m) Support to the Rural Transport Unit (RTU) to oversee the implementation of the rural transport policy and strategy (RTPS) The RTPS was adopted by the government on May 30, 2001. RTU is a unit of the Program Executive Secretariat (PES) which manages the government's transport sector program. The RTU consists of a Rural Transport Coordinator, a Information Technology Specialist, and a Secretary. RTU will conduct information campaigns to disseminate the rural transport policy and strategy to all actors in the sub-sector and particularly to the decentralized government's. It will maintain a rural transport data base based on a GIS system and will integrate with other existing electronic data bases, such as the poverty and the forestry mapping. This data base will assist the annual provincial physical planning process at which the rehabilitation programs for the coming year are- determined. RTU will act as a coordinator for all RT interventions. It will also monitor and report on the progress of the implementation of the RTPS (by employment of a technical auditors). RTU will be assisted with equipment (one four wheel drive vehicle, office equipment, software and print material), short term international rural transport expertise, by local consultant that assist to develop the information, education and communication campaign (IEC), by local and international training, and by support to its operational costs. Project Component 2 - US$167.33 million Rehabilitation of rural roads ($167.6 million of which Government (through HIPC) $57.1m, the provinces $18.7m, EU $18m, AfDB $5m, NORAD $4m, AfD $3m, and IDA $62.4m) This component consists of two sub-components: (i) Rehabilitation of about 9,000 km of provincial roads (including temporary provincial roads: RNT) from 2003 until 2008 The national rural transport policy defines the rural road network as comprising temporary national (RNT), provincial (RP) , and community roads (RC). A national rural roads rehabilitation program has been formulated which will focus on the rehabilitation of RNT and RP. Application of the definitions as per the Charte routi6re shows that most roads which are now considered community roads, are actually provincial roads. The Charte routidre defines community roads as roads that connect villages and hamlets with the commune center, while roads that connect the commune center with the higher level road network are provincial roads. Given the means available to communities, roads on that level are in most cases not affordable. At community level, the appropriate transport infrastructure normally is improved paths for the use of non-motorized vehicles and foot bridges. This will be addressed in (ii) below. In February 2001, at the national workshop for the formulation of the rural transport policy and strategy about 8,500 km of rural roads (out of the 24,300 kIn) were selected for priority assessment. Of these about 2,500 km classified as RNT would provide access to 67 sub-prefectures (fivondronana) which are currently completely or partially inaccessible (a further 44 are already provided with reliable access). The remaining 6,000 lan of provincial roads (RP) were chosen based on population and agriculture data. 39 From June to September 2001, six local consultants (one per province) have been preparing preliminary designs and cost estimates for these alignments. At the same time they collected environmental and social data, and conducted a socioeconomic survey in 90 villages along the alignment. In preparation of these surveys, technical, environmental and social data collection manuals were prepared and workshops were held to train the consultants to conduct these surveys. After two weeks of field work the consultants were called back and a further workshop was held to discuss preliminary results to ensure conformity and appropriateness of the survey results. In respect of the technical surveys a least-cost approach was chosen, focusing on improvement of identified critical spots on the alignments with the goal of making the roads all year passable for the prevailing means of transport. After cost estimates for the improvement of each link to the above basic access standard had been established, the links were ranked according to cost per population served. On the basis of the information collected, participatory workshops were held in each of the six provincial capitals in October 2001 with all the major provincial stakeholders, including the Governor and his Commissioners and other provincial officials, senators, officials from MPW, the agricultural development groups (GRDP), transporter representatives and local NGO's. The primary objective of these workshops was to agree on a first priority selection of roads for the year 2002 program. Roads with presumed negative environmental and social impact were excluded from this first year selection. Roads with possible negative environmental and social impacts might be taken up in later annual programs after appropriate mitigations plans have been prepared. (However, none of the road rehabilitation works requires any realignment, land acquisition or resettlement). Final outcome of these workshops is the selection of 1670 lan of rural roads (or about 280 km on average per province) to be rehabilitated in the 2002 program, at an average cost of US$ 10,000 per km. The consultants that prepared the preliminary design have been assigned to prepare detailed design and bidding documents for the selected roads. Works will be divided into appropriate lots. About 40% of the works will be appropriate for small scale labor based contractors (less than US$ 100,000 per contract) and 60% of works will be executed in one large scale contract per province (including the construction of bridges). Procurement of these works is planned to take place from October 2002 to January 2003 and works are planned to commence in March 2003 after effectiveness of the credit. In coming years, in October each year, similar provincial planning workshop will be held where the works program of the following year will be identified. (ii) Pilot improvement of rural transport infrastructure at community level ($1m) A pilot for the improvement of rural transport infrastructure at community level will be executed. The purpose of this pilot is to define and propagate appropriate transport infrastructure interventions at community level. At that level most transport is on foot or by intermediate means of transport, such as ox carts, often using precarious footbridges, steep paths and tracks. Good practice examples will be established and executed with community participation. The RTU will then disseminate information on such interventions particularly to NGOs and projects working on community level and will monitor performance (of this infrastructure) and impact. Project Component 3 - US$ 105.43 million Maintenance of the rural roads ($ 105.4 million of which the road user charges (fuel and heavy vehicles taxes) $ 84. 1m, Government through HIPC $9.6m, the provinces $2.2m, the EU $9m and IDA $0.5m) 40 Annex 3: Estimated Project Costs MADAGASCAR: Rural Transport Project Local Foreign Total Project Cost By Component US $million US $million US $million 1. Capacity building 1.27 0.88 2.15 2. Rehabilitation of rural roads 118.83 34.68 153.51 3. Maintenance of the rural road network 96.43 3.57 100.00 4. Rehabilitation of the corridor Fianarantsoa to Manakara 8.12 7.25 15.37 5. Promotion of intermediate means of transport 7.59 0.00 7.59 Total Baseline Cost 232.24 46.38 278.62 Physical Contingencies 7.97 2.27 10.24 Price Contingencies 9.29 1.85 11.14 Total Project Costs' 249.50 50.50 300.00 Total Financing Required 249.50 50.50 300.00 Local Foreign Total Project Cost By Category US $million US $million US $million 1. Works 202.56 40.95 243.51 2. Goods 0.13 0.09 0.22 3. Consultants' services and audits 28.48 5.12 33.60 3. Training 0.89 0.09 0.98 4. Operating Costs 0.32 0.32 5. Unallocated 17.12 4.25 21.37 Total Project Costs' 249.50 50.50 300.00 Total Financing Required 249.50 50.50 300.00 Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 300 (US$m). Therefore, the project cost sharing ratio is 26.67% of total project cost net of taxes. The rural road network of Madagascar (RNT, RP, RC) amounts to about 24,300 km of which currently only about 2,920 km (of which 1,700 gravel and 1,220 km paved) are in "maintainable condition" (good and fair). Most of these roads (in good and fair condition) have been rehabilitated during the past five years by a variety of donors. If these roads are not to be lost again, they have to receive both routine and periodic maintenance in first priority. The maintenance of the rural roads already in good or fair condition has therefore been included in the design of the project. It also includes a small fund for emergency maintenance of rehabilitated roads (after a typhoon) and a "minimal maintenance" fund for preventing the roads in bad condition from further deterioration, while waiting for a rehabilitation. Globally, this is estimated to cost an amount of $10.4 m in 2003 and to rise up to $22 m in 2008. The rural transport program will now, over the period 2003 to 2008 add annually an estimated 100 km of paved roads to the network, bituminizing gravel roads. This will require additional amounts estimated at $ 2.5 m annually. Over a period of six years this amounts to $ 96.9 million. 10% of this will be financed by the provinces. Total requirement for maintenance in 2003 is estimated at US$ 28 million (including national and urban roads). Based on current estimates, the road user charges, the provinces charge, the planned subsidy from EU and a part of the HIPC will be sufficient to cover the needs. Future road maintenance funding requirement and expenditure will be determined at annual transport sector conferences, planned to be held in May each year. It will be ensured that the RMF is sufficiently financed to cover needs of the following 41 year, prior to discussing any financing for rehabilitation. Based on current estimates, it should be the case, provided a heavy vehicle license fee is planned to the road fund resources as from 2004 (see next paragraph below). (ii) Technical Assistance to the Road Maintenance Fund (EU $8m and IDA $0.5m) The Road Maintenance Fund is planned to get support during the period 2002-04 from the EU amounting to about $8m. This will include technical assistance, budget support and a financial and technical audit. IDA financing is planned to finance the continuation of the audit beyond 2004. Furthermore, it is planned to introduce a heavy vehicle license fee as from 2004. This will require international expertise. Other, expertise in respect of legal, financial and technical matters might be required. Need for such assistance will be determined in close contact with the RMF during the supervision missions. Project Component 4 - US$17.00 million Rehabilitation of the corridor Fianarantsoa-Manankara ($17.0 million of which Government $lm, IDA $9.7m, USAID $2.7m, AfDB $1.9m, Japan $1.7m) This corridor relies heavily on the FCE Railway (Fianarantsoa-C6te d'Est) and the Port of Manankara. Government has committed itself to concession both the railway and the port to private sector operators (preferrably jointly) before the end of 2003. (i) Rehabilitation of the FCE Railway ($14 million, $7.3m of which IDA) The 163-km long railway runs through a very unique ecosystem of the last remaining primary forest on the highlands. 100,000 people have no other access than the train and depend on the transport services for their livelihood's; additional 1,000,000 people live in the region that is served by the railway. Following years of neglected maintenance the train came to a standstill after two cyclones in early 2000. This natural calamity provided the scenario to carry out analyses on the economic, environmental and social impacts that the permanent closing of the train would have on the region. The railway plays an essential role in the regional economy and in safeguarding the primary forest corridor that the train passes through. The otherwise isolated villages along the railway depend on the train for the delivery of basic goods (oil, sugar, rice at certain time, etc.) none of which are produced locally. The region produces bananas and coffee which are exported from the region by the train. The production chain includes producers, porters, and collectors who depend on this production to buy staple foods, such as rice from other areas. If the train stops operating these people will necessarily turn from cash crops to growing rice and manioc using slash and burn. Because of the topography of the region and pressure on land, this would lead to further and rapid deforestation of an additional 110.300 ha which is evaluated at $ 9 m by the National Environmental Office (NEO). Secondary effects due to erosion and reduced rainfall in the immediate vicinity of the corridor are estimated at $ 16 m by NEO. No estimates have been carried out for the eventual loss in biodiversity and tourism potential. A consortium of donors, let by USAID, carried out a series of studies (CBA, financial analysis, beneficiary assessment, environmental assessment) which showed the viability of the railway (IRR of 16%) and therefore decided to finance emergency rehabilitation under the condition that the FCE be concessioned. These works are currently ongoing and are supplemented by remarkable support from Swiss private railways which are donating material and expertise. IDA would complete the financing gap for this rehabilitation once the concession agreement has been signed. IDA financing will cover the replacement of about 114 kilometers of worn rails and sleepers, the addition of ballast and the supply of rail placing and repair equippment (all planned to be covered in a single works contract) and the continuation of the financing of community activities for slope stabilization and community organization currently being financed by USAID. The slope stabilization program works currently with some 270 42 farmers to stabilize their fields with vetiver plants and planting perennial crops and/or spice crops to replace the rice and manioc that was planted before. Community organization includes both an inter- communal association of mayors promoting the railway and also a federation of NGOs (Kolo Harena) that assist farmers in the marketing of organically grown products, such as honey and spices. Interest has been expressed by international companies to further develop the organic food production and marketing. (ii) Rehabilitation of the Port of Manakara ($ 2.8 million, $2.2m of which IDA) The port of Manankara is classified as a secondary port and the tonnage handled has declined from a high of 80,000 tons in the early 1970s to some 17,500 tons today. The port has a comparative advantage for oil from Tamatave to Fianarantsoa and for basic goods from Tamatave for the region of Manankara. On the export side it would serve primarily for agriculture exports, such as coffee, bananas and litchis. Following years of neglect the port is in urgent need of repairs, especially for the quays, oil pipeline and dredging. Following cost-benefit analysis for essential rehabilitation, the IRR for the basic investment option stands at 33%. Tonnage handled is expected to increase to 34,500 tons. USAID is currently financing urgent repair works on the quays and on the two stores, and will also finance the rehabilitation of the railway branch linking into the port. IDA financing will assist to complete quay repair works and will finance the repair of the fuel storage facilities and pipeline connecting them to the port once the concession agreement for the FCE has been signed. The port is left with one meter of debth and urgent dredging is required. USAID is trying to mobilize government funding to get this done: No works, other than the on-going one, will be carried out until an environmental assessments and environmental management plans are available satisfactory to IDA (services for which are currently being procured). (iii) Support of Community Environmental Activities ($0.18m of which Government $0.04 and IDA $0.15m) USAID is currently financing community environmental activities along the alignment of the railway. This funding source will come to an end by end of 2002 and it is planned that some further financing will be provided for these activities by IDA and government. Project Component 5 - US$8.00 million Promotion of intermediate means of transport (IMT) ($1.5m Government, $0.5m AfDB and $6m IDA) This component will put into practice the first strategic axis of the Government's rural transport policy. National and international experience with the promotion of IMT has rarely gone beyond very limited pilot projects and this will be the first initiative to up scale. Given the complexity of a highly decentralized approach further and more detailed component programming would be carried out prior to effectiveness. Reducing poverty by introducing greater and innovative use of IMTs would come from many small, decentralized initiatives, involving local promotion, pilot introductions, collaborative action- research to improve technologies and/or expanding local credit availability. National-level coordination is a prerequisite and would be ensured through the Advisory Steering Committee (ASC) of the IMT Network. The Rural Transport Unit is part of the ASC and will be assisted by local and international IMT experts. Despite road improvements in recent years, much transport in Madagascar involves walking and head-loading. The project will aim to increase rural mobility by increasing the overall number of IMTs in use, increasing and diversifying their uses and improving the technology used. The project will also promote water and river IMTs which so far have been largely neglected. It is expected that within a five- year period, perhaps has many as half a million people would directly or indirectly benefit from increased use of IMTs. Four broad categories of IMTs would be promoted through information campaigns, networking and micro projects: (i) cycle-based technologies; (ii) animal-powered carts; (iii) human- 43 powered carts; and (iv) water-based transport (motorized and non-motorized). The component would also include spot improvements of waterways and jetties. The activities aim at reducing rural poverty by enhancing rural mobility. However, rural transport technologies and services often have crucial urban connections (transport hubs, supplies, support services). Although the emphasis will be on rural mobility, some activities will involve urban-based enterprises and support services. For certain innovative technologies (such as tricycles), pilot introductions may take place around urban markets, to establish the critical mass of users and support required for subsequent rural promotion. The investment program will involve: Sub-projects (US$ 3.2 million); Action research (US$ 1.0 million); Training and networking (US$ 2.1 million); and Spot improvements of waterways and jetties (US$ 1.7 million). Details of the proposed activities, organizational methodology and budget are provided in the following sections. (i) Sub-projects ($ 3.2m of which $ 0.5m AJDB and $ 2.1m IDA) At the heart of the investment program will be many small-scale initiatives aimed at enhancing rural mobility through the greater or more efficient use of cycle-based technologies, animal-powered carts, human-powered carts, water-based transport (motorized and non-motorized) or a combination of complementary transport modes. Some projects will concentrate on the supply side (e.g., boat builders, cart manufacturers, cycle workshops), while others will concentrate more on promoting greater or diversified uses (e.g., user associations, women's groups, developing transport services). To facilitate effective implementation and follow-up, the component will focus on certain areas of Madagascar. About 50 initiatives will be undertaken by partner NGOs (e.g. CARE) which will be able to plan and implement projects in several sectors (cycles, boats, carts) and in several different provinces. Sub-project proposal will be prepared by the NGOs and will be reviewed and approved by the Advisory Steering Committee (ASC) of the IMT Network. Although the sub-projects will be autonomous, they will be linked through the planned networking process to other small projects, credit schemes, national investigations, and international sources of information. Their valuable lessons and problems experienced will be shared through networking exchanges, so increasing the rate of progress and the overall impact. The sub-project will consist of the employment of NGO's or local consultants that will assist the communities/associations to identify and implement the project and will monitor its impact. A manual for the implementation of this sub-component is being established which defines the terms and conditions, and eligibility criteria governing the grants for these sub-projects. The manual will also ensure that the activities are complementary and promototory to private sector activity and that there will be clearly defined sun-set claused to avoid crowing out viable private sector activities. The existence of such a manual of implementation satisfactory to IDA is a condition of effectiveness of the project. (ii) Action research (S Im of which $ 0.8m IDA) Financing will be made available for important investigations (participative surveys, collaborative adaptive research-development) to identify problem areas and possible solutions. These will be in all sub- sectors (cycles, boats, carts, etc). Following consultancy studies and planning workshops, several key areas have already been identified, and several partner organizations have expressed willingness to undertake collaborative work. Among the major national initiatives already discussed are: Bicycle evaluation and promotion, Boat construction and mechanization, Ox cart improvement, Studies measuring rural mobility and rural transport services, Tricycle promotion, Potential for developing transport using donkeys and/or horses, and Developmentof complementary rural transport services. A series of collaborative and participative studies will be undertaken to review constraints to efficient 44 motorized rural transport services, and identify ways of promoting greater complementarity between transport modes. (iii) Training and networking ($ 2. Im of which $ 1.7m IDA) Capacity and expertise in this sector will be built up, through a wide range of networking activities, workshops, publications, formation of associations (constructors, operators, users), professional exchanges and formal training. An IMT Network of interested NGOs, private sector and civil society representative has already been set-up and will elect an Advisory Steering Committee. This information exchange and networking will be considered an integral part of the investment strategy, and budgetary allocation will be made for network coordination, publicity and publications. Information exchange and planning workshops will be held at national and regional level. Every year, there will be at least one wide- ranging workshop open to all network members. There will also be technical workshops focused on particular subjects (e.g., safety, participative methodology) or sectors (e.g., cycles, water transport, animal power). National level workshops will be complemented by workshops in each region. Resources will be available for international expertise (consultancies, exchange visits from other countries) to advise on particular IMTs, or assist the planning, implementation and follow up of specific initiatives. As part of the planning process, a provisional network steering committee has been formed, comprising the Rural Transport Unit, leading NGOs and micro credit agencies. Particular attention will be given to provision of information and sensibilization of micro-credit agencies which currently provide very few credits for IMTs. During preparation of this project it was not possible to ascertain clearly whether there is a lack of liquidity to provide micro-credit for IMTs or whether the agencies and clients are simply unaware of the potential that IMTs offer. It was therefore decided to limit the interventions of this component to an information campaign and to assess the situation again at the mid-term review. (iv) Spot improvements of waterways and jetties ($ 1.7 m of which $1.4m IDA) In some parts of the country, localized silting or inadequate infrastructure limits water transport. Funds will be made available for local spot improvements to improve water transport (small jetties and removal of obstacles (mainly trees). These sub-projects will be identified through NGOs which would present them to the Advisory Steering Committee for approval. Works will be executed by small-scale enterprises. This sub-component is a follow-on to a pilot water transport improvement component currently being implemented under APL-1. Under this component currently works are being executed on Tsiribihina and Sofia rivers (removal of obstacles in the course of the river and construction of jetties) for a total amount of $600,000. Experiences with this pilot will be evaluated and used to enhance the effectiveness of further similar investments on other waterways. 45 Annex 4: Summary Economic Analysis MADAGASCAR: Rural Transport Project 1. Road Rehabilitation Component For the Rural Road Rehabilitation component both cost effectiveness and cost benefit evaluation methods have been applied for the selection of the 2002 rehabilitation program and will be applied in the future annual selection process for the programs 2003-07. The selection process is defined in the World Bank Technical Paper no. 496: "Design and Appraisal of Rural Transport Infrastructure". Investments into improvement of rural transport infrastructure are ranked based on least-cost investment to achieve basic access standard per population served. Basic access standard is defined as the minimum standard that allows all-year access (with short interruptions during heavy rains) for the prevailing means of transport. The ranking is then reviewed in a participatory physical planning process where other criteria such as connectivity, planned and on-going rural development activities, poverty aspects and political considerations are taken into account. During project preparation necessary least-cost interventions have been assessed on 8,500 km of priority rural roads (selected out of 26,000 lan based on connectivity, agricultural and population data). Average per-km cost of rehabilitating this network to basic access standard amount to US$18,000. Cost per population served vary from US$6 to US$47 in the various provinces (much higher cost occur in the coastal provinces where many and substantial bridges are required and where a low density of population prevails). Total cost of the rehabilitation of the 8,500 kilometers to basic access standard would amount to $ 153 million (works costs only, without engineering, overhead, and contingencies). During the month of October 2001, a first planning exercise took place in each of the provinces and 1,674 km of roads have been selected for rehabilitation in 2002 (some of these works might extend into 2003). Each province was allocated roughly the same amount of resources and on average about 300 km of roads will be rehabilitated per province per year. Total cost of the 2002 program is estimated to be $ 16.74 million and average per kilometer cost amount to $ 10,000. In the course of the future annual provincial planning exercises more roads will be identified, assessed, added to the list and ranked according to the same criteria, while already assessed roads might be deleted from the list or deferred to a future program. Poverty concerns have been taken into account by allocating roughly the same amount of funding per province. A strict ranking of the links in relation to cost per population served would have concentrated works in the central provinces, which are already provided with relatively more rural roads than the peripheral provinces, where rehabilitation costs tend to be lower, and where population density is higher. This has led to much higher expenditure per population served in the coastal provinces ($47 versus $6 in the central provinces). In future annual planning and selection exercises it will be tried to better and more scientifically integrate available poverty data into the planning process (e.g. in Vietnam, in a similar planning process, poor persons were given double the weight of a non-poor). Subsequent annual road works will become gradually more expensive and will serve less people (because initially those roads were selected which serve more people and whose rehabilitation costs less). There might be a need for the definition of a "cut-off point" below which IDA would not be willing to finance. Such a "cut-off point" could be defined by executing sample cost benefit analysis on selected road links, taking into account social benefits expected due to the improvement of the road. Monetizing such benefits (particularly in the health and education sectors) is difficult, but has 46 been attempted recently in Butan (see World Bank Technical Paper no. 496). The cut-off point would then be set at a level where the cost-benefit analysis reveals an EIRR of about 12%. Out of the 1500 kilometers of the 2002 package 114 kilometers of roads carry more than 50vpd (and of these 47 kilometers have a traffic of more than 200 vpd.). On these sections a cost benefit analysis using a simple spread sheet (see Annex E.1 of WB Technical Paper no. 496) and based on the consumer surplus method (vehicle operating cost saving due to the improved road) is being requested from the consultants that prepare the detailed design and bidding documents. It is expected that based on this analysis at traffic levels from 50-200 vpd. full rehabilitation to gravel road standard can be justified, and that above 200 vpd. a surfaced dressed road can be considered. 2. Rehabilitation of the Fianarantsoa to Manakara Corridor Rehabilitation of the FCE railway (i) Background The Southern railway is currently operated by the GOM. The FCE, which runs the railway, is one of the State-owned companies that is to be concessioned by the end of 2002. Over the past two decades, the railway has suffered from a lack of maintenance, making it an unreliable means of transport both for passengers and goods. This is why today, the fuel which is imported through the port of Manakara is mainly distributed by trucks. Given the condition of the railway, unless it is rehabilitated, it should be closed down. In 2000, the railway carried approximately 11,000 mt of goods and 73,000 passengers following several years of decline. In 2007, it is estimated that it would carry as much as 51,000 mt of goods and over 210,000 passengers. (ii) Costs The cost of the works has been assessed by consultants for the USAID. Works are projected to take place over 2002, 2003, 2004 and 2005 during the dry seasons. Subsequent annual operations and maintenance costs will be financed by the operator. (iii) Benefits Four kinds of benefits have been identified: agriculture, environment, social and transport. Savings in the amount of traffic carried on the road network are expected to represent US$ 30 million over the next 20 years in terms of freight costs. Another US$ 10 million should be saved on road maintenance. Those benefits, in turn, will entice the population to produce exportable goods and foods and to import basic foods such as rice. Relying on such imports will spare 100,000 ha of forest and save an extra US$ 15 million over the next 20 years (US$ 8 million for deforestation and US$ 7 million for the low agricultural productivity linked to it). Lastly, salaries generated by the operator are likely to represent a US$ 4 million benefit over the same period of time. (iv) Results and sensitivity analysis The restoration of an efficient and reliable rail service on the southern railway network yields an NPV at 10 percent of US$ 12.5 million and an EIRR of 15.5 percent. The estimates of the investment efficiency indicators for the rehabilitation are relatively sensitive to an increased price for rice and 47 less so to a decreased price for coffee. A 10 percent increase in the price of rice results in an EIRR of 23 percent. A 13 percent decrease in the price of coffee is to reduce the EIRR to 12.6 percent. Rehabilitation of the Port of Manakara (i) Background The port of Manakara is a key economic facility for the Fianarantsoa - Manakara corridor. Fuel imports are the main comparative advantage of the port. The other route for fuel imports for the province of Fianarantsoa is through the port of Tamatave, on the other side of the country. The fuel must then be freighted with trucks over 760 lan. Due to lack of maintenance, the infrastructures of the port of Manakara, especially the fuel depot, have become dangerous, polluting and inefficient. The tonnage handled has declined from 80,000 mt in the early 1970s to almost 17,500 mt today. Within two years, the port should be privatized, as the second part of the cross-concessioning of the Southern railway and the port. Unless investments are made, the concessioning is highly unlikely to take place. The GOM does not have sufficient resources to finance investments. Thus, the port would probably be closed down. It is imperative that initiatives be carried out to keep the port operational in the medium term and improve safety, security and pollution risks. It will also provide a functional improvement from the direct link to the FCE. (i) costs The cost of the works required to rehabilitate the port has been assessed by consultants for the USAID. Works are projected to take place in 2002 and mostly in 2003. The subsequent investments and maintenance operations will be financed by the operator. (iii) Benefits Benefits derive mainly from fuel imports. Today, 72 percent of the fuel imports for the province of Fianarantsoa go through the port of Tamatave. Road maintenance on the road to Fianarantsoa would decrease considerably, by over US$ 6.5 million over the next 10 years. Fuel transportation costs would also drop, by over US$ 1.2 million over the same period of time. Other benefits include improved safety and fewer and smaller oil spills. (iv) Results The NPV at 12 percent of the investments proposed for the port of Manakara is estimated to be US$ 2.5 million, and the EIRR is calculated at 33 percent. 48 Annex 5: Financial Summary MADAGASCAR: Rural Transport Project Years Ending IMPLEMENTATION PERIOD Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total Financing Required Project Costs Investment Costs 32.0 42.7 42.8 41.3 40.8 37.0 0.0 Recurrent Costs 3.9 6.4 9.4 11.7 14.5 17.5 0.0 Total Project Costs 35.9 49.1 52.2 53.0 55.3 54.5 0.0 Total Financing 35.9 49.1 52.2 53.0 55.3 54.5 0.0 Financing IBRD/IDA 3.9 15.6 16.8 15.9 15.5 12.3 0.0 Government 13.0 15.1 15.0 16.6 15.5 17.4 0.0 Central 8.3 9.4 10.0 10.0 10.0 11.0 0.0 Provincial 4.7 5.7 5.0 6.6 5.5 6.4 0.0 Co-financiers including 10.8 7.7 5.8 4.7 4.7 4.7 0.0 IDA through FID Road Maintenance Fund 8.2 10.7 14.6 15.8 17.6 20.1 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 35.9 49.1 52.2 53.0 53.3 54.5 0.0 Main assumptions: Figures in US $ million. Total project cost: US $300 million. Recurrent costs are mainly due to maintenance of rehabilitated roads. The IDA contribution to the first year of the project is very low because it was assumed that the credit agreement would become effective on June 30th, 2002. The Government will contribute US $10 million every year through the HIPC debt relief initiative. However, for Years 1 and 2, the Government will also finance the RMF with this money, thus also financing indirectly maintenance for urban and national roads, which are not part of the project. The Provinces provide 10% of the funds used for both rehabilitating and maintaining rural roads. Co-financiers include the EU, the USAID, the AfDB, the JICA, the NORAD, and the AfD. They finance mainly the rehabilitation of rural roads, the maintenance of the rural roads and the development of the Fianarantsoa-Manakara corridor. Road maintenance is funded from road user charges, provincial contributions, and a decreasing EU subsidy. 49 Annex 6: Procurement and Disbursement Arrangements MADAGASCAR: Rural Transport Project Procurement General 1. A new Procurement Code was issued in 1998 and the Bank ascertained that deficient features identified in the 1995 CPAR have been properly addressed. No special exceptions, permits or licenses need to be specified in the credit documents for International Competitive Bidding (ICB), since Madagascar's procurement practices allow IDA procedures to take precedence over any contrary provisions and local regulations. Use of Bank Guidelines 2. Procurement of works, goods, and consultant services financed by the IDA credit will be carried out in accordance with the Guidelines: Procurement for IBRD Loans and IDA Credits (January 1995, revised in January and August 1996, September 1997 and January 1999) and Guidelines for the Selection of Consultants by the World Bank Borrowers published in January 1997 and revised in September 1997 and January 1999. National Competitive Bidding (NCB) advertised locally would be carried out in accordance with Madagascar's procurement laws and regulations which are. acceptable to IDA. Procedures include local advertising, public bid opening, clarity in evaluation criteria, award to the lowest evaluated bidder, and non-exclusion of foreign bidders. A General Procurement Notice will be published in the Development Business immediately after Board presentation and will be updated annually. The project implementation plan comprises a procurement and disbursement plan was reviewed and agreed with IDA during Negotiations. Procurement plans will be reviewed and updated at least one month prior to the start of each project year. Prior to issuing the first call of bids, draft standard bidding documents prepared as annexes to the Procedures Manual have to be submitted to IDA and found acceptable 3. The Standard Request for Proposal (SRFP) forms as developed by the Bank will be used for the appointment of consultants. Simplified contracts will be used for short-term assignments, simple missions of standard nature (and not exceeding 6 months) carried out by individual consultants or firms. The Government will be briefed during negotiations about the special features of the Consultants guidelines, in particular with regards to advertisement, public bid opening and the various steps of IDA reviews. Procurement methods 4. Works estimated to cost US$ 243.5 million dollars, of which US$ 58.7 will be financed by IDA, will be procured. The portion financed by IDA includes the rehabilitation of rural roads, the renewal of the rails of the southern railway, the rehabilitation of the Manakara port, and the construction of river jetties. The contract for the rehabilitation of the rails of the southern railway, estimated to cost US$ 6.71 million equivalent, will be procured with prequalification of bidders. To the extent practicable, contracts shall be grouped into bid packages estimated to cost the equivalent of US$ 150,000 or more and would be procured through ICB procedures. It is estimated that of the IDA financed amount US$ 35.2 million will be procured through ICB procedures, the balance, amounting to US$23.5, will procured through NCB. The bidding documents shall include a detailed description of the works, including basic specifications, the required completion date, basic form of agreement acceptable to IDA and relevant drawings where applicable. The awards would be made to the contractors who's tender is assessed on the basis of the 50 lowest evaluated bid, provided they demonstrate they have the experience and resources to complete the contract successfully. Lots for the contracts to be procured through NCB will be tailored in such a way to be amendable for small scale, labor-based contractors. Average lot size for such contracts is estimated to be US$ 70,000. Minimum qualification criteria for such contracts will be appropriately defined. In terms of equipment, in most cases, at least an appropriate hand operated compacter is required. Regarding the qualification of the key personnel it will be required that the site-in-charge provides of a labor based works training certificate. Such certificate could be obtained even after presentation of bids, but prior to commencement of works. 5. Goods to be procured under the project are estimated to cost US$ 0.22 million, of which US$ 0.20 will be financed by IDA, concern mainly vehicles, office equipment, furniture and other supplies. These will be grouped in lots estimated at more than US$ 30,000, and be procured through NCB. Goods estimated to cost less than US$ 30,000 equivalent per contract and, up to an aggregate of US$ 150,000 may be procured through prudent national shopping on the basis of quotations obtained from at least three qualified and authorized local suppliers. 6. Consultant Services and Training estimated to cost US$ 34.6 million, and of which US$ 11.96 million will be financed by IDA, will be procured. The IDA financed portion will be for: (i) feasibility studies, design, preparation of bidding documents and supervision of works, data collection, accounting and financial management, audits and impact analysis; (ii) short-term consultancies on specific technical matters such as procurement, financial management, economics and statistics, and the design of training courses; (iii) training abroad and locally. Consultants would be hired in accordance with the Bank's Guidelines for the Selection and Employment of Consultants by World Bank Borrowers dated January 1997 and revised in September 1997 and January 1999. Selection of consultants will be done through competition among qualified short-listed firms in which the selection will be based on Quality and Cost Based Selection (QCBS) by evaluating the quality of the proposal before comparing the cost of the services to be provided and Consultant Qualifications (CQ) by selecting the firm with the most appropriate qualifications and references' based on the expression of interest and information on the consultant's experience and competence relevant to the assignment for services estimated to cost less than US$ 50,000 equivalent per contract. Single Source Selection for services which are estimated to cost less than US$ 100,000 equivalent per contract, may, with the Association's prior agreement, be procured in accordance with the provisions of paragraphs 3.8 through 3.11 of the Consultant's Guidelines. For Individual Consultants selection will be made by evaluating individual resumes against job description requirements. For training abroad and in-country, the program, containing names of candidates, cost estimates, content of the courses, periods of training, institution selection would be reviewed annually. Advertising 7. A general procurement notice (GPN) will be prepared and issued upon Board Approval in the United Nations Development Business listing all contracts above US$ 150,000 for works and US$ 100,000 for consultants. It would be updated annually for any outstanding major procurement. Specific Procurement Notices for works to be procured by ICB will be advertised in the national press of wide distribution and internationally. Requests for expression of interest will be published in local newspapers and in the UNDB for consultancy contracts estimated to cost more than US$ 200,000. Responses will be recorded in a register established at the PES. 8. The related bidding documents, as applicable, will not be released - or the short list for consultant services will not be prepared - before eight weeks after the GPN has been published. Specific procurement notices will be advertised in the national press of wide circulation and internationally for large contracts. Sufficient time will be allowed to obtain bid documents and to prepare bids. 51 IDA Review. 9. All contracts for construction of civil works above the threshold value of US$ 150,000 and above US$100,000 for goods will be subject to IDA's prior review procedures. The use of IDA's standard bidding documents will considerably expedite the prior review process as IDA review will primarily focus on invitations to bid, bid data sheets, contract data,. technical specifications, bill of quantities/schedule of requirement and other contract specific items. The review process would cover about 60 percent of the total value of the amount contracted for works. Procurement post review of contracts awarded below the threshold levels will apply and should cover 20% of contract in term of number, in the event samples of post reviews indicate major problems, additional reviews, financed by the Borrower, should cover the remaining portion of contracts. Draft standard bidding documents for NCB will be reviewed and agreed upon with IDA prior to Credit effectiveness. 10. For consultant services, prior review will include the review of budgets, short-lists, selections procedures, terms of reference, letters of invitation, proposals, evaluation reports and draft contracts. Prior IDA review will not apply to contracts for the recruitment of consulting firms and individuals estimated to cost less than US$ 100,000 and US$ 30,000 equivalent respectively. However, IDA prior review will apply to the Terms of Reference of such contracts, regardless of value, to single-source hiring, to assignments of a critical nature as determined by IDA or to amendments of contracts raising the contract value above the prior review threshold. For consultant contracts estimated above the US$ 100,000, opening the financial envelopes will not take place prior to receiving the Bank's no-objection to the technical evaluation. For contracts estimated to cost less than US$ 100,000 and more than US$ 50,000 the borrower will notify IDA of the results of the technical evaluation prior to opening the financial proposals. Documents related to procurement below the prior review thresholds will be maintained by the borrower for ex-post review by auditors and by IDA supervision missions. The Project Unit will be required to maintain all relevant procurement documentation for subsequent review by IDA. The Project Unit will submit to IDA periodic procurement schedules detailing each procurement package in progress and completed as part of the normal project reporting exercise. Procurement Implementation Arrangements 11. Procurement responsibility for the project rests with the respective services within PES. Management of works and services contracts related to the execution of component no. 2 (rehabilitation of rural roads), and estimated to cost less than US$ 150,000, will be delegated under a services agreement with each PRA. PES will remain responsible for the quality of these procurements and adherence to Bank procedures, and will therefore need to establish tight supervision procedures of the procurement process of the PRA. The tasks of PES will comprise (unless delegated to the PRA) : (a) maintaining a register of all interested bidders; (b) maintaining a detailed list of technical specifications of goods and services to be financed by the project; (c) preparation of the procurement plan and calendar; (d) preparation and/or finalization of pre-qualification /bidding documents and requests for proposals; (e) bid evaluation and preparation of evaluation reports; (f) contract approval process; (g) receipt of goods and services and dispatching; and (h) processing international and local price quotations. Procurement Capacity Assessment 12. A procurement capacity assessment was conducted during project's appraisal, and the findings are highlighted in the table below. During appraisal, assurance was given that each Provincial Road Agency (PRA) will (a) recruit a procurement specialist; (b) submit a draft procurement plan for the first year acceptable to IDA; and (c) give assurance that it will (i) apply the agreed procurement procedures and arrangements; (ii) use standard bidding documents documents acceptable to the Bank (annexed to the Manual of Procedures of the PIP); and (iii) annually review the procurement plan with IDA. Separate 52 assessments will be conducted for PES and each PRA. PRA staff will initially be employed by PES. Only after each PRA has proven procurement capacity will it be made independent under a Board of Directors (after a period of 6 to 12 months). Action Plan for Building PRA's Capacity Tasks Responsability Due Date Finalization of project Manual of Procedures PES Prior to project effectiveness Establishment of filing system PES Prior to project effectiveness Recruitment of Procurement Officers for PRA PES By January 2003 Training of PRA's staff involved in procurement PES By February 2003 Procurement Plan 13. The Procurement Plan (being a part of the Project Implementation Plan) for the first year of project implementation, for each PRA, as well as for works, goods and services procured by PES, will be finalized prior to credit effectiveness. For each subsequent year, the procurement plan related to the agreed Annual Work Program will be updated and submitted to the Bank for review and approval. These plans will show the step-by-step procedures for procurement, contract packages for goods, works and consultants services and training, estimated cost and the procurement/selection method, the activities which follow procurement, such as manufacture, shipment, delivery and installation of goods; mobilization, construction and completion of works. Manual of Procedures 14. The project's implementation plan of the Borrower shall include a manual of procedures that will include specification on procurement activities to be carried out under the project, and especially or better separately for each PRA: (i) procedures for planning; calling for bids; selecting contractors; consultants and vendors; and awarding contracts; (ii) internal organization for supervision and control or works; (iii) procedures for handling over completed works. The manual of procedures will be reviewed and approved by the Bank prior to effectiveness. 15. Prior to effectiveness, the Government will recruit a procurement officer for each PRA. During negotiations the Government (a) submitted to IDA a draft procurement plan for the first year; and (b) gave assurance that it will (i) apply the agreed procurement procedures and arrangements; (ii) use the Bank's standard bidding documents for ICB and selection of consultants; and (iii) annually review the procurement plan with IDA, and seek to adhere to the maximum duration of different stages of the procurement process as indicated in the following table: Maximum Duration of the Different Stages of the Procurement Process Stages Maximum number of weeks Preparation of bidding documents 4 (6 weeks large contracts) Preparation of proposals by potential bidders 4 (6-10 for ICB) Evaluation of proposals 2 (4 for large contracts) Signing of contracts 2 weeks Payments 4 weeks 53 Financial Management Assessment Executive summary and conclusion (see section E 4.4) Summary Project Description (see section C and Annex 2) Country Issues 16. The capacity of the accounting profession in Madagascar remains weak. A number of accounting firms were operating below the international standards due to the lack of regulatory framework, proper accounting and auditing standards, clearly defined guidelines and procedures for systematic peer reviews, continuing education requirements, quality control mechanisms to harmonize methodology. As a result of this diagnostic, the following measures have been taken to improve the capacity and the competitiveness of the local auditing firms: i) inclusion of a component "Reinforcement of Accounting profession" in the Poverty Reduction and Institutional Development Technical Assistant Project, in preparation and expected to be presented to the Board by September 2002; ii) local auditors that have been selected will carry out the audit of the project accounts in collaboration with international accounting firms in order to improve the quality of audit reports and ensure practical training and real transfer of methodology and approach in the areas of organization and execution of audit assignments. Strengths and weaknesses Organizational structure 17. The project organizational structure described in the section 4 of the PAD (Institutional and implementation arrangements) is appropriate for planning, directing and controlling operations. Authority and responsibility assignments within the organization structure is clearly defined. Accounting and budgeting system. 18. The existing accounting system used by the PES is appropriate. It operates on a double entry accrual basis and follows internationally accepted accounting standards acceptable to the Bank. It can also deal with budgeting, including tracking variances between actual and planned cost and activities. However it cannot produce yet FMR. The consulting firm recruited under the APL-1 for the design and implementation of a Management Information System is now working to make the new system operational by June 2002. This computerized system will be used by the PES and PRAs and will in particular facilitate: annual programming of activities and project resources, accounting, financial and budgetary management of the project, procurement management, follow-up of project implementation progress, monitoring of key indicators to assess the results and impact of the project, preparation of Financial Monitoring Reports as required by the Bank/IDA. Since the APL-1 and APL-2 accounts should be maintained separately, the preparation of the RTP's Chart of accounts is required to satisfy reporting requirements. The Chart of accounts must be available prior to credit effectiveness. Internal control 19. The PES has a good internal control system: proper authorization, adequate separation of duties, budgeting system, adequate measures for safeguarding assets. A financial management manual is also available containing relevant information to facilitate sound accounting practices and ensure adequate safeguarding of assets. 54 Significant Weaknesses Resolution Absence of a Chart of accounts reflecting RTP components Preparation of a Chart of accounts to reflect activities and activities as outlined in the RTP outlined in the PAD PAD and satisfy reporting requirements Inadequacy of the number of accountants in place Recruitment of an accountant to reinforce the commensurate with the accounting unit of PES volume of transactions to be treated No contract has been signed yet but it was decided that the Invitation of the auditing firm selected under APL-1 to APL-2 accounts submit a technical and financial proposition for the will be audited by the firm in charge of the financial audit of audit of the APL-2 accounts. Presentation of a signed the APL-1 contract prior to credit effectiveness Incapacity of the PES's financial management system to Design and implementation of a MIS capable of produce producing FMRs. The FMRs consulting firm in charge of the implementation of the MIS has already been recruited under APL-1 on a competitive basis. The new system is expected to be functional by June 2002 Implementing Entities 20. Project execution, including procurement, financial management, reporting, and social and environmental safeguard implementation will be the responsibility of PES. Part of the financial and procurement activities (contracts below a threshold of $150,000) will be entrusted to PRAs after their capacity will have been judged to be sufficient by the Financial Management and Procurement Specialists of the Bank. Similarly, the capacity of NGOs in charge of assisting the user associations to manage funds for sub-project (component 5.1) will be assessed prior to any disbursement of funds to them. Eligible criteria, procedures and modalities for selection and contracting of these entities are described in details in the RTP PIP and its implementation manual. Flow of Funds Following will be the flow of funds of the project: Provinces IDA Central Government Special Project Account Account 10% PRAs Contractors/ Consultants/Suppliers 21. To ensure timely and reliable flow of funds, a special account will be opened in a commercial bank acceptable to IDA. The replenishment of the Special Account will be based on periodic expenditure 55 statements. The "special account 90-day advance procedure" especially designed for Provincial Road Agencies will be used to facilitate their operation and ensure prompt payment of contractors. Under this procedure, PES will advance funds covering no more than 90 days estimated expenditures (in local currency) to PRAs accounts based upon submission of satisfactory, budgeted work plans. PRAs will submit quarterly expenditure reports indicating sources and uses of funds upon which basis, justifying the use of funds and accompanied by reconciled bank statements. The PES will then aggregate this data and prepare replenishment applications accompanied by reconciled bank statements. The project implementation and accounting manuals will describe in details all procedural aspects regarding financial management (payments, replenishment, reporting, internal control) and reference to the procedures outlined in these manuals will be indicated in the DCA. Staffing 22. The PES staff has adequate qualification and relevant experience to be completely successful in carrying out their functions. However the accounting staff needs to be reinforced by one accountant to cope with additional workload. The recruitment of this accountant is a condition of effectiveness. Accounting Policies and Procedures 23. The Project is required to maintain records and books of accounts in accordance with Generally Accepted Accounting Principles. The accounting system operates on a double entry accrual principles. The financial statements are prepared under the historical cost convention. Project accounts will be maintained in Malagasy currency (FMG). As a result, the opening and closing balances of the SA held in $ US should be translated therefore at the rate ruling on the opening and closing dates, respectively. Expenditures made out of the SA should be stated at the rate ruling on the transaction dates. The actual exchange rates used should be disclosed. Fixed assets bought for use by executing agencies are depreciated at the generally accepted rates. Stock is valued at the lower of the estimated selling price and the actual cost. Consumable stores are written off on purchase. Internal Audit 24. The PES staff will assure also the supervision of the PRA financial management and carry out internal audit to ensure the efficient use of funds by the PRAs. These audits should be conducted in such a way that they cover every PRA in any one year. External Audit 25. Since the APL-2 is a part of the Transport Sector Program, the mission considers more appropriate and efficient the use of the same firm to carry out the audit of APL-1 and APL-2 accounts. Since the services of the auditors for APL-1 come to an end at the end of 2002, a new auditor will therefore be selected to execute future audits of APL-1 and APL-2. The existence of a signed contract with auditors will be a condition of effectiveness. This audit will be carried out annually, in accordance with International Standards of Auditing. The auditors will provide separated opinion on the financial statements, the special accounts and statements of expenditures. The auditors will also be required to carry out a comprehensive review of the internal control procedures and provide a management report outlining any recommendations for their improvement. The audit report will be submitted to IDA not later than 6 months after the end of each fiscal year. In addition to the project's accounts audit and in coordination with technical auditors, the auditors will be also requested to examine, on a selective basis, conventions signed with contractors. The sub-projects audit should examine whether: (i) eligibility criteria defined in the implementation Manual have been met in approving the sub-projects; (ii) funds received by the executing agencies have been used for the purpose intended; (iii) all necessary supporting 56 documents, records and accounts have been kept by the PRAs. The amended contract should be signed prior to credit effectiveness. The terms of reference of the audit will be reviewed with the financial management specialist of the Bank/IDA. 26. A technical, financial and organizational audit will be executed (financed by the EU) regarding the RMF. The result of this audit will be presented to the partners in May each year at the occasion of an annual transport sector conference. A satisfactory outcome of the audit is a requirement for the continuation of the program. 27. A technical audit of the execution of the rural road rehabilitation program will be carried using external auditors on behalf of the RTU of PES, in order to provide feedback on the quality and quantity of the execution of the program. Reporting and Monitoring 28. PES will maintain separate accounts for all transactions related to each component for which they have implementation responsibility, and will produce their individual annual financial statements in accordance with internationally accepted accounting principles. PES will consolidate the project financial statements at the end of each fiscal year. 29. The PES accounting system should be capable of producing the following reports: (1) Financial statements including: (i) a Summary of sources and uses of funds by main expenditures categories/ project activities; (ii) a balance sheet; (2) Special Accounts statements; (3) Statement of Expenditures; (4) Quarterly Financial Monitoring Reports including: Financial Reports, Physical Progress Reports and Procurement Reports (a Contract Expenditure Report- Goods & Works, a Contract Expenditure Report- Consultants, a Procurement Management Report- Goods & Works and a Procurement Management Report- Consultants). The format and content of these reports will be agreed at negotiations and presented in the PSE accounting manual of procedures. 30. Each PRA shall put in place an accounting system capable of producing: (i) annual basic financial statements (Summary of uses and sources of funds, bank account statement, SOE statement); (ii) the following reports on a quarterly basis: (1) Summary of Disbursements by category of sub-projects (contracts); (2) Schedule of movements of funds held by PRA; (3) Progress report, and list of non-disbursing, slow disbursing, and most active implementing partner/participating project; (4) Other reports on demand by the PES. The format of these reports will be presented in the accounting manual of procedures to be prepared for the PRAs. Information Systems 31. The financial management system of PES is capable of producing the project basic financial statements and tracking variances between actual and planned cost and activities. However, it cannot produce Financial Monitoring Reports required by the Bank. To address this issue, a consulting firm has already been recruited to design and implement a MIS. This new system would in particular facilitate: annual programming of activities and project resources, accounting, financial and budgetary management of the project, procurement management, follow-up of project implementation progress, monitoring of 57 key indicators to assess the results and impact of the project, preparation of quarterly Financial Monitoring Reports as required by the Bank/IDA. The new system will be functional by December 2002. Disbursement Arrangements Method of Disbursement: 32. The disbursements will be transaction-based (traditional mode) in accordance with procedures outlined in the Bank's Disbursement Handbook. The proposed allocation of the IDA Credit is shown in Table C below. All applications to withdraw proceeds from the Credit will be fully documented, except for expenditure for which certified statements of expenditures (SOEs) have been approved. For training, reimbursement may be made against certified statements of expenditures (SOEs). PES will be responsible for preparing withdrawal applications and SOEs to be submitted to IDA, and will indicate on the SOEs the nature and origin of any goods and the payment date. These will be retained along with all other supporting documentation for review by Bank supervision missions and independent auditors. Table C indicates the disbursement schedule, the amounts (in US$) for each expenditure category and the disbursement percentage applicable to each. The disbursement percentages have been calculated on a tax-inclusive basis such that, when applied to invoices denominated in local currency, the percentage not financed by the Bank be sufficient to cover Government counterpart contributions and eliminate any Bank financing of local taxes and duties. Use of statements of expenses (SOEs): 33. The Project will use SOE procedures in which expenditures are summarized by category. The documentation for withdrawals of SOEs would be retained for review by IDA staff during supervision missions and for annual audits. SOEs will be used for payments of contracts of less than US$ 100,000 for goods and US$ 150,000 for works, and consultant contracts of less than US$ 50,000 and US$ 30,000 for firms and individuals respectively. SOEs will likewise be utilized for training and operating costs. Special account: 34. To ensure that funds will be available when needed, a Special Account (SA) in US$ will be established in the name of PES in a local commercial bank under conditions satisfactory to IDA, The authorized allocation to this account will be US$4.5 million. Fifty percent (50%) of this amount will be withdrawn from the Credit account after effectiveness; the remainder will be withdrawn once aggregate disbursements have reached SDR 5.12 million. The amount has been estimated to cover about four months of expenditures. PES will have the right to draw directly from this account for project expenditures without prior approval by the Ministry of Finance. The Special Account will be replenished on the basis of documentary evidence, provided to IDA by PES, of payments made from the account for works, goods and services required for the project that are eligible for financing under the Credit. All supporting documents will be retained by PES, and made available for review by periodic Bank supervision missions and external auditors. 58 Action Plan 35. The action plan below describes main actions to be taken to strengthen the PES financial management system and to build its capacity to produce quarterly Financial Monitoring Reports. Action Date due by Responsible I Preparation of a Chart of account to reflect RTP October 2002 PES components/activities to satisfy reporting requirement. 2 Agreement on terms of reference for external auditors and accountant. October 2002 PES/IDA 3 Installation of a computerized accounting system (MIS) for the 09/30/2002 Consultant project use. 4 System testing to ensure compliance with management's 10/24/2002 Consultant expectations and IDA specifications: 0 Prepare test data and expected results; 0 Perform tests and analyze results; 0 Correct problems and retest. 5 Final testing and user's training including: 10/31/2002 Consultant i) completion of systems documentation and training manuals; ii) completion of user's training and commencement of operation of system; and iii) obtain users acceptance and approval. 6 Evaluation of technical and financial proposition submitted by external November 2002 PES auditors and submission of draft contract to IDA for no-objection to signg. 7 Signing of contract with external auditors and appointment of December 2002 PES additional accountant. 8 Production of draft FMRs from the MIS (Jan, Feb, March 2003) April 2003 PES/Consultant 9 Production of the first FMRs (January, Feb, March 2003) May 2003 PES 59 Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent Procurement Method Total 2 Expenditure Category ICB NCB Other N.B.F. Cost 1. Works 35.20 23.50 0.00 184.80 243.50 (35.20) (23.50) (0.00) (0.00) (58.70) 2. Goods 0.00 0.10 0.10 0.02 0.22 (0.00) (0.10) (0.10) (0.00) (0.20) 3. Services 0.00 0.00 11.96 22.64 34.60 Consultants, audits & Training (0.00) (0.00) (11.96) (0.00) (11.96) 4. Operating costs 0.00 0.00 0.32 0.32 (0.00) (0.00) (0.24) () (0.24) 5. Unallocated 4.00 3.00 1.90 12.46 21.36 (4.00) (3.00) (1.90) (0.00) (8.90) Total 39.20 26.60 14.28 219.92 300.00 F (39.20) (26.60) (14.20) (0.00) (80.00) 1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re- lending project funds to local government units. Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) Consultant Services QCBS QBS SFB Selection Method Other N.B.F. Total Expenditure Category _ _LCS CQ Cost A. Firms 10.05, 0.00 0.00 0.00 0.40 0.00 21.33 31.78 (10.05) (0.00) (0.00) (0.00) (0.40) (0.00) (0.00) (10.45) B. Individuals 0.00 0.00 0.00 0.00 0.50 0.30 1.02 1.82 (0.00) (0.00) (0.00) (0.00) (0.50) (0.30) (0.00) (0.80) Total 10.05 0.00 0.00 0.00 0.90 0.30 22.35 33.60 (10.05) (0.00) (0.00) (0.00) (0.90) (0.30) (0.00) (11.25) Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit. 60 Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ millions) 1. Works >150 ICB 35.2 <150 NCB 2. Goods >30 NCB 0.10 <30 National Shopping 3. Services >100 (firms) QCBS 10.00 >50 (firms, individuals) .CQ >30 (individuals) 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous __ Total value of contracts subject to prior review: 45.3 Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) PRAs would be delegated fiduciary/procurement responsibilities only after their capacity for financial management and procurement has been assessed and shown to adequate. PRAs risk rating could be re- assessed after first year of operation. Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance 61 Disbursement Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$million Financing Percentage (1) Civil Works 6.71 100% of foreign expenditures and Component 4: Rehabilitation of the FCE 80% of local expenditures (1) Civil Works 1.86 100% of foreign expenditures and Component 4: Rehabilitation of the Manakara port 80% of local expenditures (1) Civil Work: other 50.08 100% of foreign expenditures and 80% of local expenditures (2) Goods 0.20 100% of foreign expenditures and 80% of local expenditures (3) Consultants' services 11.25 80% (3) Training 0.71 80% (4) Operating Costs 0.24 80% (5) Unallocated 8.95 Total Project Costs 80.00 Total 80.00 Use of statements of expenditures (SOEs): Total amount estimated at US$ 30 million Special account: Special account amount is US$4.5 million (initial allocation 50% of that) 62 Annex 7: Project Processing Schedule MADAGASCAR: Rural Transport Project Project Schedule Planned Actual Time taken to prepare the project (months) 10 12 First Bank mission (identification) 02/01/2001 02/01/2001 Appraisal mission departure 02/04/2002 02/10/2002 Negotiations 02/18/2002 10/01/2002 Planned Date of Effectiveness 02/28/2003 Prepared by: Dieter Schelling and Susanne Holste Preparation assistance: Walter Osterwalder, Consultant, Rural Roads Specialist Paul Starkey, Consultant, Intermediate Means of Transport Specialist Colin Palmer, Consultant, Water Transport Specialist Luc Rasamoela, Rural Transport Coordinator, PES Jean Maillot, Principal Advisor, PES Bank staff who worked on the project included: Name Speciality Dieter Schelling co-TTL, Lead Rural Transport Specialist Susanne Holste co-TTL, Sr. Transport Specialist Bienvenu Rajaonson Environmental Specialist Nina Chee Environmental Specialist / Operations Analyst Sylvain Rambeloson Procurement Specialist Gervais Rakotoarimanana Financial Management Specialist Raj Soopramanien Sr. Counsel Michael Fowler Sr. Disbursement Officer Michele Rajaobelina Program Assistant Ziva Razafintsalama Social Development Specialist Benjamin Vannier Intern Nadege Thadey Program Assistant Hang Sundstrom Program Assistant Cl6mentine du Prayat Intern 63 Annex 8: Documents in the Project File* MADAGASCAR: Rural Transport Project A. Project Implementation Plan Document de Mise en Oeuvre du Projet, version octobre 2002 B. Bank Staff Assessments Recommendaitons for Investments in Intermediate Means of Transport, Paul Starkey, revised version as of October 10, 2001 Rapport Final (préliminaire), du Consultant en Routes Rurales, Walter Osterwalder, 10 novembre, 2001 Report on River Transport in Madagascar, by Colin Palmer, June 2001 C. Other • Project cost table • Evaluation des Impacts Environnementaux et Sociaux, janvier 2002 • Manuel de Procédures, Avant Projet Sommaire (APS) des Routes Rurales, juillet 2001 • Cadre Institutionnel d'Opérations de Déplacement de Population, 16 janvier 2002 a Etude d'un System de Micro-fmancement pour les Moyen Intermédiaire de Transports • Création d'une Base des Données sur les Partenaires Intervenant ou s'intéressant aux Moyens Intermédiaires de Transports • Etude sur une Filière Vélo • Utilisation des Transports à Traction Animale à Madagascar • Etats des Lieux Actuels des Moyens Intermédiaires de Transports • Manuel de Procédures pour Composante Moyen Intermédiaire de Transport Including electronic files 64 Annex 9: Statement of Loans and Credits MADAGASCAR: Rural Transport Project 09/03/2002 Difference between Original Amount in US$ expected and actual Millions disbursements Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P040019 1997 Capacity Building 0.00 13.80 0.00 0.00 0.00 0.90 0.80 P055166 2001 Community Development Fund 0.00 110.00 0.00 0.00 105.70 10.70 0.00 P001559 1998 Education Sector Development 0.00 65.00 0.00 0.00 44.80 45.10 5.90 P001533 1996 Energy Sector Development 0.00 46.00 0.00 0.00 8.20 12.00 0.00 P001537 1997 Environment 11 0.00 30.00 0.00 0.00 1.50 2.40 0.00 P040596 1997 Environment II (GEF) 0.00 0.00 0.00 0.00 4.20 2.00 0.00 P052186 1999 Microfinance 0.00 16.40 12.80 0.00 9.20 4.70 0.00 P056487 1998 Mining Project 0.00 5.00 0.00 0.00 0.90 0.80 0.60 P072987 2002 Multisectoral STI/HIV/AIDS Prevention 0.00 20.00 0.00 0.00 20.80 0.00 0.00 P001568 1998 Nutrition lI 0.00 27.60 0.00 0.00 11.00 4.80 0.00 P001555 1997 Private Sec. Dev & Capacity Building 0.00 23.80 0.00 0.00 1.50 2.50 2.40 P062628 2000 Regional Development 0.00 4.60 0.00 0.00 4.10 3.10 0.00 P051922 2001 Rural Sector Development 0.00 89.10 0.00 0.00 88.20 -3.10 0.00 P001564 1998 Rural Water Sector Pilot 0.00 17.30 0.00 0.00 10.50 11.20 0.00 P057378 1999 SAC II 0.00 150.50 0.00 0.00 42.60 -3.70 5.80 P051741 2000 Second Health Sector Support Project 0.00 40.00 0.00 0.00 30.80 9.20 0.00 P072160 2002 Second Private Sector Dev. Project 0.00 23.80 8.10 0.00 25.20 5.70 0.00 P064305 1999 Social Fund III 0.00 33.10 0.00 0.00 33.10 0.00 0.00 P052208 2000 Transport Sector Reform and 0.00 65.00 0.00 0.00 44.90 9.30 0.00 P048697 1997 Rehabilitation 0.00 35.00 0.00 0.00 17.60 18.90 0.00 Urban Infrastructure Total: 0.00 816.00 12.80 0.00 504.80 136.50 15.50 65 MADAGASCAR STATEMENT OF IFC's Held and Disbursed Portfolio 06/30/2002 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1991 BNI 0 2.61 0 0.00 0 2.61 0 0.00 2000 BOA-M 0 0.82 0.56 0.00 0 0.82 0.56 0.00 1983/89 Nossi-Be 0 0.14 0 0.00 0 0.14 0 0.00 1990/91 AEF FIARO 0 0.19 0 0.00 0 0.19 0 0.00 1997 AEF GHM 0.67 0 0 0.00 0.67 0 0 0.00 1995 AEF Karibotel 0.22 0 0 0.00 0.22 0 0 0.00 1992/93/95 AQUALMA 0.71 0 0 0.00 0.71 0 0 0.00 Total Portfolio: 1.60 3.76 0.56 0.00 1.60 3.76 0.56 0.00 Approvals Pendng Commitment FY Approval Company Loan Equity Quasi Partic 2001 Besalampy 15233.24 0.00 0.00 0.00 2001 COTONA III 7764.75 0.00 0.00 0.00 Total Pending Commitment: 22997.99 0.00 0.00 0.00 66 Annex 10: Country at a Glance MADAGASCAR: Rural Transport Project Sub- POVERTY and SOCIAL Saharan Low- Madagascar Africa Income Development diamond' 2001 Population, mid-year (millions) 16.0 674 2,511 Life expectancy GNI per capita (Atlas method, US$) 260 470 430 GNI (Atlas method, US$ billions) 4.1 317 1,069 Average annual growth, 199541 Population (%) 3.1 2.5 1.9 Labor force (% 3.1 2.6 2.3 GNI Gross per primary Most recent estimate (latest year available, 199501) capita ,/ enrollment Poverty (% of population below national poverty line) Urban population (% of total population) 30 32 31 Life expectancy at birth (years) 55 47 59 Infant mortality (per 1,000 live births) 84 91 76 Child malnutrition (% of children under 5) 40 .. .. Access to improved water source Access to an improved water source (% of population) 47 55 76 Illiteracy (% of population age 15+) 33 37 37 Gross primary enrollment (% of school-age population) 102 78 96adagascar Male 104 85 103 Low-income group Female 100 72 88 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1981 1991 2000 -2001 Economic ratios* GDP (US$ billions) .. 2.7 3.9 4.5 Gross domestic investment/GDP .. 8.2 15.0 17.8 Exports of goods and services/GDP .. 17.9 30.7 24.3 Trade Gross domestic savingslGDP .. 0.7 7.8 7.7 Gross national savingslGDP .. 0.1 9.4 9.5 Currerit account balancelGDP .. -8.1 -5.6 -5.8 Domestic interest payments/GDP .. 2.5 .. Investment Total debt/GDP .. 146.0 106.2 91s.6 Total debt servicelexports 27.4 29.1 Present value of debtlGDP .. .. 77.0 Present value of debtlexports . .. 247.1 Indebtedness 1981-41 199141 2000 2001 200145 (average annual growth) GDP 1.8 29 4.8 5.9 .Madagascar .GDP per capita -0.9 -0.1 1.6 2.8 .. - Low-Income group Exports of goods and services 1.2 4.9 15.6 -9.0 STRUCTURE of the ECONOMY 1981 1991 2000 2001 Growth of Investment and GDP (%) (% of GDP) Agriculture 33.1 33.0 34.9 34.9 Industry 14.1 14.2 13.1 13.1 4 Manufacturing .. 11.8 ..0. Services 52.8 52.8 52.0 52.0 a Private consumption .. 90.6 83.1 85.5 -20 98 Or 9 99 01 General govemment consumption .. 8.7 9.2 6.8 _GDI GDP Imports of goods and services .. 25.4 37.9 34.4 198141 199141 2000 2001 Growth of exports and Imports (%) (average annual growth) Agriculture 2.7 2.0 0.8 4.3 s Industry 2.5 3.2 5.6 8.9 Manufacturing 1.5 1.2 .. Is Services 0.8 3.5 7.0 6.2 Private consumption 0.1 2.6 8.5 10.6 7 9 9 0o 1 General govemment consumption 0.3 4.5 6.4 -21.5 -15 Gross domestic investment 6.8 7.5 -9.9 38.9 - Exports - iports Imports of goods and services -3.6 7.4 21.2 12.8 Note: 2001 data are preliminary estimates. The diamonds show four key Indicators in the country (in bold) compared with Its Income-group average. If data are missing, the diamond will be incomplete. 67 Madagascar PRICES and GOVERNMENT FINANCE 1981 1991 2000 2001 Inflation (%) Dikostic prices (% change)aw Consumer prices .. 8.5 11.9 7.4 40 Implicit GDP deflator .. 13.9 7.1 7.3 20 Government finance (% of GDP, includes current grants) 0 Current revenue .. 10.1 12.4 11.1 96 97 o so ao 01 Current budget balance .. -0.1 3.2 1.7 - GDP deflator *CPI Overall surplus/deficit .. -6.5 -5.7 -6.4 TRADE (USS millions) 1981 1991 2000 2001 Export and Import levels (US$ mill.) Total exports (fob) 313 334 829 947 1,250 Coffee 112 28 8 14 Vanilla 9 47 37 26 1,00 Manufactures .. 159 486 59 750 Total Imports (cif) 608 518 1,029 1,095 500 Food 99 35 67 54 Fuel and energy 127 71 214 226 M Capital goods 191 165 168 182 0 OS 96 97 so so so 01 Export price Index (1995=100) 93 82 87 87 Import price Index (1995=100) .. 89 92 94 U Exports 0 Irriports Terms of trade (1995=100) .. 92 95 93 BALANCE of PAYMENTS (USS millions) 1981 1991 2000 2001 Current account balance to GDP (%) Exports of goods and services 394 480 1,186 1,321 0 Imports of goods and services 785 681 1,467 1,668 Resource balance -391 -200 -280 -34 -2 Net Income .. -195 -74 -90 -4 Net current transfers 12 179 135 172 Current account balance .. -216 -219 -265 -a Financing items (net) .. 232 247 344 Changes In net reserves .. -17 -28 -80 10 memo: Reserves including gold (USS millions) .. 90 301 396 Conversion rate (DEC, local/US$) 271.7 1,835.4 6,767.5 6,588.5 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ millions) Composition of 2000 debt (US$ mill.) Total debt outstanding and disbursed 1,613 3,908 4,117 4,147 IBRD 31 23 0 0 G:301 IDA 155 881 1,378 1,409 F: 3 Total debt service 110 161 IBRD 3 5 2 0 B: 1,378 IDA 1 9 27 20 Composition of net resource flows E 1,534 Official grants 59 113 147 212 Official creditors 189 161 Private creditors 63 -11 .. .. c. los Foreign direct investment .. Portfolio equity .. .. . .796 World Bank program Commitments 30 51 .. .. A - IBRD E - Bilateral Disbursements 34 106 94 97 B - IDA D - Other multilateral F - Private Principal repayments 1 6 17 10 C-IMF G - Short-term Netflows 34 100 77 87 Interest payments 3 8 12 11 Net transfers 30 92 65 76 Development Economics 9/14102 68 Annex 11 MADAGASCAR: Rural Transport Project Summary of Environmental and Social Assessment APL 2 - Rural Transport Project Proposed Project The purpose of the transport sector program is to reduce transport costs and to improve accessibility in rural areas. This project is one of the parallel phases of an Adaptable Program Loan (APL) assisting the Government of Madagascar to implement its transport sector policy and strategy. The entire APL program consists of various investment phases/packages, which include support to the various transport sub-sectors, i.e. essential reforms of the transport sector, and on critical and high priority investments, strengthening civil aviation and railway sub-sectors and providing major investments in the road sub- sector. Given the country's unique ecological setting, environmental degradation is a major concern in Madagascar. Resulting devastating effects are wide-ranging from siltation of rice fields to destruction of transport infrastructure. This project will finance the rehabilitation of existing transport infrastructure: provincial roads, and railway and port infrastructures in the corridor Fianarantsoa-Manakara. Transport Sector Environmental Assessment Prior to program appraisal, a sectoral environmental assessment was prepared for the transport sector. The Transport Sector Environmental Assessment, comprising three volumes, provided an overview of the context in which the sector currently operates. The EA report: a) defined and analyzed the general environmental impacts related to each sub-sector; b) identified the potential environmental impacts of activities planned under APLI; and c) recommended a plan for environmental management. The EA report provides project managers in the transport sector with a permanent working document enabling them to develop a clearer understanding of the situation at each project site, taking social, biological, and physical factors into account. The EA was prepared and disclosed in accordance with World Bank guidelines and national environmental policies concerning infrastructure and environmental protection. The sectoral environmental assessment also provides the basis for the separate environmental and social assessments to be undertaken for each APL phase. The preparation of environmental and social assessments have been built in as triggers for each APL phase. Environmental Assessment for APL 2 Environmental and social assessments were undertaken for 8,500 km of rural roads in various provinces throughout Madagascar. A general EMP was prepared that included moderate and high impact roads. Provincial workshops were held to select roads to be rehabilitated under this APL phase. It was determined that only those road links with low environmental impact were selected and individual EMPs will now be prepared for those selected roads. These EMPs will be prepared, disclosed and approved before effectiveness of the project. However, the environmental and social assessments resulted in a general EMP, which describes the likely magnitude and range of negative impacts and their mitigation measures. Following the selection that was carried out in the provinces, it has been established that no resettlement or compensation would be necessary. The Fianarantsoa-Manakara corridor relies heavily on the FCE railway and the port of Manakara. The Government has committed itself to concession both the railway and the port. It has been established that the Project will not finance any works under this component until this concessioning agreement has been met. It is estimated that it will take approximately a year for this to be completed. It has been agreed that in order to comply with the national environmental regulations and that of the Bank, an environmental audit and EMP be prepared for the rail infrastructure rehabilitation and an environmental 69 assessment and EMP be prepared for the proposed port infrastructure rehabilitation within this timeframe to supplement/complement various existing feasibility studies. This requirement/condition has been articulated in the project's legal agreements in the sector policy letter within the DCA package. Policy and Legislative Framework The impact assessment is based on the following material: - "Charte de l'Environnement", 1990 - "D6cret de Mise en Compatibilit6 des Investissements avec l'Environnement" (MECIE), Nov 2000 - NEO: Maps of the national parks ("Plan de Gestion du R6seau National des Aires Prot6g6es de Madagascar", May 2001), natural reserves and national forests (GEF Design Assistance to PE2, Dec 1995), "Priorit6 de conservation de la biodiversit6 A Madagascar", 1999 - "Etude environnementale du secteur de transport", MOT, MOW (report for the transport project), July 1999 - "Utilisation de la technologie HIMO", NORAD/BIT, Feb 2001 - "Manuel de proc6dures pour avant-projets sommaires (APS)", SEP / NGO Lalana / Basler & Hofmann, July 2001, with comments made to the engineering and social firms during the workshops (June-July 2001) by specialists from the PES, the World Bank and the NGO Lalana - Preliminary designs provided by the engineering and social firms for each Province, Sep-Oct 2001. Methodology The environmental and socio-economical studies carried out by the environmental and social firms for the preliminary designs are based on the Procedures Handbook for Rural Roads and include in particular: - a description of the current environmental situation (as evaluated on the field) * an assessment of the potential impacts of the road rehabilitation during the preparation implementation , operations and maintenance phases - the specification of mitigation measures and an estimate of the subsequent costs (to be included in the total costs) * a detailed socio-economic study carried out in the communes that were selected (listed in the annex) with communal and household level surveys used as the baselines for the future project impacts. The Handbook describes the approach to defining appropriate interventions and contains the following instructions in order to minimize the negative environmental and social impacts: - changes in the alignment can only be made if they are absolutely necessary and avoid resettlement of people or goods, * adequate selection of construction camps, , borrow pits and quarries to, avoid resettlement, inclusion of measures to rehabilitate after operation, * identification of drainage areas and other zones which could be stabilized through local community involvenient i.e. through in kind contributions. The preliminary designs and conclusions prepared by the environmental firms have been reviewed by experts at the PES, by Lalana, the oversight NGO and by the rural transport specialists of the World Bank, to ensure that: * studies were carried out in a timely manner, - environmental maps of the NEO (integrated maps of biological importance, eco-regional maps) were integrated into the analysis, Participatory approach Stakeholders have played a key role in project preparation as well as the environmental and social assessment preparation and will continue to do so during implementation of the project. Decentralized levels of Government, i.e. the elected representatives of the stakeholders, ensure the ownership and 70 management of rural roads. Beneficiaries and their representatives have been consulted in the final selections of roads to be improved and will be advised on how to maintain these roads. Stakeholders will decide whether they want to take advantage of the project's intention to provide support to environmentally-sound exploitation of reforested areas. These environmental enhancement initiatives and/or micro-projects will then be executed under-the responsibility of community-based organizations. During project preparation a number of workshops were held to define the Promotion of Intermediate Means of Transport component and NGOs were instrumental in defining this component. NGOs and civil society also participated in the final selection of roads to be improved under the project and will thus have a major role in shaping this component. The local NGO Lalana played a leading role in providing guidance on the environmental and social impact studies to the consulting engineering offices that carried out the summary design studies. NGOs will also play a key role by participating in the definition of the project log frame. Some of these may include national NGOs (e.g. Lalana, FJKM), international NGOs (e.g. CARE, CRS, Vt6rinaires sans fronti6res, Agro Action, Intercooperation), credit agencies, and community associations. Depending on their qualifications they may be involved in animation, technology transfer, micro-credit, etc. Community-based organizations will also be involved in informing communities about the potential for environmentally-sound watershed management and will assist those communities who choose to participate in this component. These initiatives will be coordinated by ANAE, an NGO that has extensive experience in community-based environmental management and ecological services delivery. The environmental and social assessments have been prepared with consultation built into the process. Communities, local provincial authorities, local NGOs/CBOs were consulted during these assessments. ONE was also consulted on the recommendations of the assessments. As a quality assurance measure, a national NGO has been hired by the PES to oversee the environmental and social inputs for the feasibility studies and provide support to the environmental and social teams who prepared the studies/surveys. Rural transport rehabilitation component Separate environmental and social analyses were carried out for the proposed roads and for a part of the work proposed for the Fianarantsoa corridor. The planning process for the rehabilitation of provincial roads is similar to that of CDD projects. Roads will be selected within a prescribed framework of financial, technical, social and environmental criteria. Each year the provinces will establish their annual road improvement programs based on this criteria through a consultative process. Preliminary environmental and social analyses were carried out for 8,500 km throughout Madagascar which identified the likely impact of interventions as high, medium, or low for each road segment. Teams of environmental and social specialists were brought together in a workshop to establish a common framework for field visits, environmental and social inputs and levels of analyses prior to the assessment. Direct and indirect environmental and social impacts at the road construction site and in the immediate environs of the right of way may include: stripping of top soil and loss of vegetation due to the creation of borrow pits, soil erosion on road cuts and fills and stripped borrow areas, silting of road side ditches and subsequent sedimentation downstream of water, soil contamination and water pollution due to the spillage of toxic materials, slope stability problems and slopes affected by erosion, poor drainage, various forms of temporary land take, impacts on human settlements (spread of HIV/AIDS and other infectious diseases, increased levels of accidents). In order to mitigate these impacts, an environmental management unit has been established to carry out overall environmental management of the Program and to implement and monitor separate environmental management plans for each road segment.. The first year's road rehabilitation program was established during a series of provincial workshops. It was determined that only those roads that had no or minimal environmental and social impacts were to 71 be selected. Therefore, for the first year's program, no sensitive natural habitats will be affected and no resettlement and/or compensation will be necessary. For subsequent programs, based on these preliminary analyses, further necessary environmental and social assessments will be prepared, disclosed and approved prior to any civil works as identified by the project environmental unit/management, National Environmental Office (ONE) and the Bank's safeguard policies, where applicable. Potential Environmental Impacts Road rehabilitation has a positive overall impact, particularly on the social and economical environments. The major potential downsides are physical (soil, flora, fauna - loss of habitat, deforestation) and social (disruption of life, resettlement, loss of cultural sites). The potential effects of road rehabilitation on soil, flora and fauna have been assessed on every road, especially in the biologically diverse eco-regions. Five of the 350 roads provide increased access to sensitive areas (national forests). This could intensify the pressure that already exists on primary forests and on the endemic fauna. Nevertheless, these effects will be reduced by measures such as the creation of the Gestions Locales de S6curit6 (GELOSE) and other similar institutions to protect the environment. About 25 roads go through sensitive areas which have already been damaged or are near primary forests. For damaged areas, rehabilitation will have a fairly positive impact, whereas nearby primary forests, rehabilitation may have a fairly negative impact. For these roads, a detailed EMP, including responsibilities and follow-up measures, will be prepared and implemented. For roads going through damaged areas, environmental measures (reforestation, drainage pits stabilization) will be appraised in the field during the preparation of the detailed design studies. Such measures will be adapted/modified appropriately for every road segment with any negative environmental impact. No physical works will be implemented until an EMP for each road segment is prepared, approved, included in contract documentation and costed. In conclusion, the few potential negative impacts on the environment can be sufficiently diminished. Resettlement and cultural heritage The project will improve existing roads which are often in very poor conditions. These improvements will provide more reliable access throughout the year (rainy season). The preliminary designs that have been prepared by the engineering and social firms so far show that very few road layouts should be modified. So far, no one is expected to be resettled nor is any cultural site expected to be destroyed. The overall assessment of the impacts is shown in the following table. Rough studies provide a general view of the project. Detailed studies analyze roads one by one. 72 Potential impact Assessment Phase Importance Study Environmental Soil: erosion, silting Erosion (bush fire, creation of "lavaka") is a Execution Medium Detailed relevant problem in Madagascar. Roads which go through areas that have already been operation damaged have a positive effect in general, as they help replace use of wood by use of kerosene, and educate the population. The impact is improved when environmental measures are promoted (reforestation, stabilization of drainage areas) as local contribution to the road rehabilitation. Water: pollution, Road drainage will be improved. However, -/+ Execution, Low No drainage modification during project execution, pollution may be an operation issue at construction sites/camps.. Air: dust, emission There are very few engine-powered vehicles - Execution, Low No on rural roads, which are generally uncoated. operation Paving roads in villages and the HIMO method can prevent dust nuisances, especially during works. Fauna: loss of habitat The broad biodiversity in Madagascar suffers - Execution, Medium Detailed from human activities. Today, there are 46 operation natural reserves and national parks. Roads provide access to them, which is both good (audit, tourism) and bad (illegal exploitation of natural resources). Road works may temporarily disturb a reserve or a park. . Flora: deforestation, Same assessment as for the fauna. -l+ Execution, High Detailed reforestation Deforestation has always been a problem in operation Madagascar, mainly due to the migration of the population, who need wood and fields for agriculture and cattle. In the high lands, deforested slopes are deteriorating quickly ("lavaka" are appearing). The project should have a positive impact, especially through the promotion of environmental measures (reforestation, stabilization of drainage areas etc.). See "Soil: erosion." Illegal deforestation is closely linked to road access. Improved access to forests will facilitate these illegal activities. Landscape: esthetical Roads are not being built and are fairly - Execution Low No modification narrow. , operation 73 Potential impact Assessment Phase Importanc Study e Social Providing access People will have increased access to basic + Operation High Rough, services. Roads will be more reliable, providing detailed access at any time of the year (spot low-level maintenance/rehabilitation). study, appraisal later on Improved access Transportation costs and timing will be reduced. + Operation Medium Detailed Furthermore, better access can discourage local low-level monopolies on agricultural goods in some areas. study, These monopolies have often prevented such appraisal works from taking place in the past. The later on environmental and social firms have taken this potential consequence into account. The project focuses mainly on providing access and improving means of transport, without improving significantly the surface of roads. However, spot maintenance/rehabilitation will shorten travel times. Creating jobs The private sector will execute works. This will + Execution High Rough provide jobs to local populations, especially in HIMO SMEs. The various trainings also intend to promote female labor in SMEs. . Resettlement Since roads are being rehabilitated and not built, - Execution Medium Detailed resettlements should be minimal Compensation will be available for relocated and/or affected populations. A resettlement policy framework is being prepared. For the first year's rehabilitation program, no one is expected to be relocated. Disruption of life Rehabilitation works may cause disruptions -1+ Execution, Medium No (bush clearing, temporary enlargement.) In operation addition, the great number of workers may disturb local populations but will also induce economic transactions. HIMO trainings for SMEs will provide information to site managers on how to deal with those issues. An information campaign on AIDS, with the AIDS project, will target particularly road users (truck drivers.) Loss of cultural sites Cultural sites in Madagascar are mainly - Execution Medium Detailed cemeteries and sites linked to the dead. The environmental and social firms have been careful to avoid such destructions. For the first year's rehabilitation program, no cultural sites will be affected. Rail and port infrastructure rehabilitation component The environmental assessment for the rehabilitation of the rail infrastructure has been carried out. The 163-km long railway runs through a very unique ecosystem of the last remaining primary forest on the 74 highlands. The EA for the railway has highlighted the negative environmental and social impacts of a permanent closure of the railway, i.e. conversion from cash crop production to staples, especially manioc and rice through slash and bum techniques on steep slopes. It is expected that an additional 110.300 ha would be put under cultivation. Secondary impacts due to erosion and reduced rainfall in the immediate vicinity of the corridor are estimated at $16 mio by ONE. No estimates have been carried out for the eventual loss in biodiversity and tourism potential. Ongoing community activities for slope stabilization have already demonstrated the positive effects of converting fields adjacent to the railway from manioc cultivation to vetiver, fruit trees and spice crops. These experiences would be applied and adapted to mitigation measures for provincial roads rehabilitation programs, where appropriate. Several preliminary feasibility studies have been carried out for the port infrastructure rehabilitation. A study examining the different options for rehabilitation was prepared, however an environmental assessment of the chosen option has not yet been prepared. The port environment has been assessed as part of the preparation of a GEF project which is making available emergency equipment for oil spills. The project will finance the rehabilitation of the port which includes rehabilitating a land-based oil pipeline and container facility. The corridor relies heavily on the FCE railway and the port of Manakara. Government has committed itself to concession both the railway and port. It has been established that the Project will not finance any works under this component until this concessioning agreement has been met. It is estimated that it will take approximately a year for this to be completed. It has been agreed that in order to comply with the national environmental regulations and that of the Bank, an environmental audit and EMP be prepared for the rail infrastructure rehabilitation and an environmental assessment and EMP be pepared for the proposed port infrastructure rehabilitation within this timeframe. This requirement/condition has been articulated in the project's legal agreements in the sector policy letter within the DCA package. Community Environmental Management On a pilot basis, community participation in environmental management would be introduced in areas where NGOs are already active, i.e. watershed management, reforestation activities, etc. Community contribution to road improvement could be in the form of making land available for reforestation and ensuring its environmentally-sound exploitation. Given the extreme poverty in Madagascar, it is clear that communities would only invest in the environment if there is a direct economic benefit. During project preparation the project therefore explored the various forms of community-based environmental actions that can be undertaken. Sustainability issues regarding such environmental activities were also explored i.e. inclusion into road maintenance programs. Environmental Management/Monitoring Plan Under APL 1 of the transport program, several environmental management recommendations were implemented. The PES recruited an environmental specialist who will receive technical assistance to not only, implement and monitor the EMPs of all APL activities, but also to take over the leadership of the "Environmental and Social Protection Component" of the project. This project will continue to support improving the environmental management system in the transport sector, and in particular as it relates to the rural transport. International technical assistance is currently being put in place at the PES to reinforce local staff. The socio-economic baseline study, which would be an integral and ongoing instrument of the project's M&E system, would monitor poverty impact of the project. The surveys would collect both economic data, such as cost of traveling to the nearest market town and prices of consumer goods and basic staples; as well as socio-development data, e.g. number of children completing primary school, incidences of diseases, and assistance of agriculture extension workers. Furthermore the studies would collect information about the quality of life in communities. 75 Implementation of EMP Measure Responsible Schedule Preparation of the EMPs Engineering and In the preliminary design environmental and social reports (Oct 2002) firms Inclusion of the measures in the plan in the detailed design Engineering and Depending on the phases (description, quantity, costs) environmental and social (1st phase early 2002) firms Inclusion of the measures in the request for proposals Engineering and Depending on the phases (specific clauses in the contracts) environmental and social (1st phase early 2002) firms Creation of local organizations dedicated to environmental Province / GTDR Before the competitive protection (GELOSE) for the five roads that have been bidding selected Follow-up and decision to launch the competitive bidding for PES and CE of the the five roads that have been selected MPW Implementation of the measures that must be taken out prior Companies to and during the works Follow-up of the measures Audit firms, PES, ONE Audit of the measures PES and CE of the MPW 76 Annex 12: Organization Charts MADAGASCAR: Rural Transport Project 12.1 Execution of the Transport Sector Program Minisry OfMinistry Of Public Transport andTrn Meteorology MTM Project MPW Project management unit (1 management unit (1 per donor) per donor) Technical & Program Executive Secretariat Ohrprnr financial partners (RMF, NGOs etc.) Rural Transpr Unit Team of the Program Executive Secretariat: - 1 Secretary General - 1 Senior Adviser and Contracting Adviser - 1 Administrative and Financial Adviser - 1 Transport Adviser - 1 Public Works Adviser - 1 Environmental and Social Adviser - 1 Information/Communication Officer To be strengthened by I additional Accountant and 1 Information Technology Specialist Team of the Rural Transport Unit: - I Rural Transport Coordinator - 1 Information Technology Specialist - I Assistant Project Management Units for IDA projects: - 1 Chief Accountant - 1 Accountant - 1 Contracting Officer 77 rRæN1HVERET:G RM.GRE HV,ECLOMLEL0M lJ D UtIØ8APB1 CG PP CENTRA~ Widafikn MTMPOUCa - PRK MTM~ * ... MASTER -- PLAN FOR ANAGEUENr GOVERNMENT ULTIMODA THE IP ROViNCES COMMUNE TRANSPOR mpement PUBUCWORKS OU POUCY NAT0NALr MINISTRYOF NETM0RK: TERRITORY EELOPUE > T PLANNING .1NGM rga greei ýING -HNAGEIJENr. TERRITORY PLANNING &bro OUCY ~ASSISTS C0L1UUNESFnnBImitnn \ COPRVNŒS FOR EVELOPMENT, MANAGEMENT BUDGETO OF NETWOR RhF MPLEMdTS Advl ........... ....._... ROAD E POLfCY TECNCAL - REOULATIONS: NEMOR CE ATION -0 E)ECUrION k STANDARDS -TESTS Agrem . ...-. UTONOMOUS -TRNN NcINEERING correds YR FIgffS GENERAL ON TATO CS cis OPERA10RB COUUUNES A NTE u. p.A. LNTPBININFRA LABS Ad EXECUn*0NF XECUTION ØF TRAINING Fundtig of CorNr MR S CENTERS construction, rohablibtion & NORS BU[LD -pededic mdrdenanc2 RENABIITATE . ....--• am OR CARRY OUT PERtODID ENANCE SCEOM - ORGASYS, WOVEI|BER 2001 Additional Annex 13: Letter of Sector Policy MADAGASCAR: Rural Transport Project Republic of Madagascar Transport Sector Program Ministry of Transport-and Meteorology Ministry of Public Woks Amendment to the Statement of National Transport Policy and Road Strategy of April 6, 2000 and to the Statement of Rural Transport Policy and Strategy of May 30, 2001 in connection with the Implementation of the Rural Transport Project September 2002 General 1. The Government of Madagascar is continuing its involvement in the implementation of the national transport policy and road strategy formulated in April 2000. The status of implementation of this policy and strategy, based on performance indicators, is outlined in Annexes I and 2. 2. The Government of Madagascar is committed to the implementation of the rural transport policy and strategy approved by the Council of Ministers on May 30, 2001 (see Annex 3). This policy applies to all actors involved in the sub-sector, including donors and the Government. In particular, the following is required: (i) classification of the roads in accordance with the Road Charter, (ii) the mandatory provision by the provinces and decentralized local authorities of a ten percent matching contribution to road rehabilitation in the respective provinces and communities, to be paid prior to the start of work, (iii) setting of priorities and selection of the main portions to be repaired based on a participatory process, taking into account the minimum cost by population served. Concessioning of the FCE and Manakara Port 3. The Government is committed to prepare as expeditiously as possible a new regulatory framework for the reforni of maritime and port transport, thereby allowing the concessioning of the Manakara Port. 4. The Government of Madagascar is committed to concession to operate the southern railway network to Fianarantsoa - East Coast (FCE) and its facilities, as well as the Manakara Port to a single 79 concession-holder, selected by means of international competitive bidding. The Government has pledged to complete the concession process of the FCE before June 2003. 5. IDA funds allocated to the rehabilitation of the FCE and Manakara Port will not be disbursed before the signing of the concession agreement of the FCE. In addition, disbursements of IDA funds are contingent on environmental assessments and environmental management plan for the railway and the Manakara Port. Use of HIPC funds for rural roads 6. The Government is committed to using the total HIPC funds allocated on an annual basis to the Ministry of Public Works (estimated at FMG 72 billion) as follows: (i) as a first priority, to supplement the financing of the Road Maintenance Fund (in addition to allocation of the road user fee, budgetary allocation, and donor subsidies). This supplement will be defined at the annual transport sector conference in May each year, in conjunction with the partners involved with the sector; (ii) as a second priority, to provide counterpart funds for donor financing for the rehabilitation of rural roads (if these needs are not met through budgetary allocations); (iii) as a third priority, to finance rural road rehabilitation, based on the rural transport policy and strategy. The funds used for point (i) will be transferred to the Road Maintenance Fund (RMF). The funds used for points (ii) and (iii) will come under budget headings established for this purpose in the Public Investment Program. Road Maintenance Fund 7. The Government will increase the user fee portion of the total RMvF budget, as provided for in the transport policy, to at least 70 percent in 2003 and 100 percent in 2004; apart from 10% of counterpart funding by decentralized levels of Government. 8. The Government will introduce a technical, financial and organizational audit of the Road Maintenance Fund. This audit will be done twice a year, starting on December 31, 2002. This audit will be made publicly available not later than 3 months after the reporting period. It will be discussed at the annual Transport Sector Conference in May each year. 9. During the Transport Sector Conference in May each year the requirement for the following year will be determined and the funding for the RMF secured. After the conference the RMF will inform the road owners as to the budget envelope for the coming year on which they will prepare their maintenance program and will submit it to the RMF for approval. Establishment of provincial road agencies 10. The Government is committed to the establishment of six provincial road agencies in the provincial capitals prior to end of March 2002, with a streamlined structure and attached to the Project Executive Secretariat (PES). They will become fully autonomous after a transition period during which their capacity will be developed. Agencies are following their specific method of providing services and procurement is not submitted for review to the Commission Centrale des March6s (Central Tender Board). 80 Autonomy of the Project Executive Secretariat (PES) 11. In order to avoid delays in procurement and disbursement, the PES shall gain greater autonomy through: a) Procurement: (i) The verification by the Central Tender Board (CTB) is simplified. The contracts following the procurement methods of the World Bank and use contract templates for important contracts (over $150,000) and national procurement rules for small contracts. Only the contract templates are reviewed by the CTB at the beginning of the project; (ii) The evaluation of the technical and financial offers and the approval of the evaluations is carried out by the PES; and submitted directly to the World Bank for non-objection; (iii) Contracts are signed by the contractors, the Executive Secretary and the concerned Minister. The signatures of the Prime Minister or the minister of Economy and Plan are no longer required for large contracts. The office of the Control of Commitments is active at the beginning of the project but no longer reviews each commitment and no longer signs contracts. The agreement of Payment, signed by the Minister of Economy and Plan, is abolished. b) Disbursement: The PES manages the Credit. The Division of Administration and Finance as well as the Division of Control of Commitments intervene in an oversight function at the beginning of each year. Equipment of the Ministry of Public Works 12. The Ministry of Public Works is committed to create a private leasing company, based on procedures deemed acceptable to IDA before the end of 2002 and to make it operational in March 2002. Priority to the equipment leasing will be given to SMMES that had been amended contracts by the Ministry of Public Works, following its policy of reform and decentralization. September 17, 2002 Minister of Transport and Meteorology Minister of Public Works 81 Annex 1 SCHEDULE OF REFORMS AND DEVELOPMENT OF THE TRANSPORT SECTOR 1999 200 2001 2002 2003 2004 2005 2006 2007 Proj. Act. Proj. Act. Proj. Adj. Proj. Adj. Proj. Adj. Proj. Adj. Proj. Adj. Proj. Adj. Proj. Adj 1999 2000 2000 .2000 2 i 2000 REGULATORY REFORM AND' PRIVATE SECTOR DEVELOPMENT * Maritime code X X * Framework Law on X X Civil Aviation * Documents X X applying the Framework Law on Civil Aviation * Law and decrees on X x road transport * Port code X X Privatization / concessioning * Main airports 2 0 8 2 15 5 15 5 15 5 15 5 (cumnulative figures) I * Public enterprises X CMN X (AIR MAD, SMTM, CMN, RNCFM NORD) Institutional reform X X of ports Public/private partnerships * Transport terminals X X * Rivers 2 22 4 4 3 RESTRUCTURING AND SECTOR POLICY " Establishment of X X the ACM * Establishment of X X the APMF * Restructuring of the X X MOT SOCIAL AND 40 40 60 60 ENVIRONMENTAL PROTECTION Departure of surplus REHABILITATION AND MAINTENANCE OF INFRASTRUCTURE " Rehabilitated ports 2 2 1 3 3 1 1 1 " Rehabilitated rivers 2 2 2 4 4 3 * Rehabilitated 2 0 8 10 10 10 10 10 10 10 secondary airports * Construction ofbus X X stations and multi- modal platfom 82 Annex 2 ROAD STRATEGY - SCHEDULE OF WORK 2000 2001 2002 2003 2004 2005 2006 2007 2008 Proj. Act Prol. Act. Proj. Adj. Proj. Adj. Proj. Adj. Proj. Adj. Proj. Adj. Prol. Adj. Proj. Adj. 2000 2000 000 proj. 2000 proj. 2000 proj. 000 proj. 2000 proj. 2000 proj. 2000 proj. Restructuring of the MTP - Operational road agencies Central (1 u) 1 0 0 1 Provincial (6 u) 1 0 2 6 3 0 - Operational UPABN Organized as a legal corporation 3 0 9 0 0 1 -Operational GPRH X 0 0 X - Social plan Departure of surplus agents 40 40 60 60 Marketing-sale of productive activities - Privatized UPAs (12 u) 6 0 6 1 Independently operated ferries 50 50 20 20 - MOW equipment sold (%) 0 100 100 0 - Assets of the DRM that have 100 100 been marketed or sold (%) - Assets of the SLM-BC that 100 100 have been marketed or sold % Road maintenance -% of work assigned to PMEs 55 55 60 70 65 80 80 100 100 Id 100 id 100 id 100 Id 100 id - RMF Budget Amount in billions of FMG 60 60 70 86 85 115 100 147 100 202 100 214 130 234 130 249 130 261 Contribution from fees (%) 15 0 30 8 50 62 70 81 100 92 100 95 100 95 100 95 100 95 Portion allocated to rural roads 5 0 7 5 10 18 13 25 15 26 18 31 20 35 20 39 20 40 % - New decree of the RMF x 0 0 x Rehabilitation of the road network (km) - all financing Cumulated length of 20 20 260 260 635 500 1232 1000 1382 1500 1632 2000 2282 2500 3382 3000 3382 3500 rehabilitated national roads km Cumulated length of 0 1870 0 3270 200 4670 475 597 825 7270 1000 8570 1000 9870 rehabilitated rural roads km % of the network In satisfactory 53 25 55 26 59 31 64 38 65 44 68 50 73 56 83 66 83 70 condition (good and fair) . UPABN : Uniti de Production Autonome Brigade Mcanisde [Autonomous Production Unit, Mechanized team] (team from the former rdgie (state owned enterprise] that will apply private sector rules in the performance of its work. GPRH : Provisional Management of Human Resources / MTP: Ministry of Public Works. DRM Regional Equipment Division (unit responsible for managing and repairing the equipment of the current rigie). SLM: Logistical and Maintenance Service (workshop located in the capital, responsible for major repairs of the equipment of the rigie). SBC: Civil buildings service (unit located in the capital for the maintenance of state-owned buildings). PMEs: Small- and medium-sized enterprises. FER: Road Maintenance Fund (allocates road maintenance credits for all national, provincial, and community networks). 2000 projection = projection done in March 2000 Act. = Actual Adj. Proj. = new projection done in November 2001. 83 Annex 3 STATEMENT OF RURAL TRANSPORT POLICY AND STRATEGY The rural transport development policy consists of improving access by rural populations to markets and socio-economic services in order to develop productive activities and, in so doing, boost their income and improve their living conditions, thereby reducing poverty. The transport sector policy is based on the Poverty Reduction Strategy Paper, the main objective of which is to strengthen growth while improving the distribution of the fruits derived from this growth, with a view to a sustained reduction in poverty. The role of the State is to create an environment that is conducive to developing the transport sector in rural areas, namely transport services and intermediate means of transport by private entities and non-governmental organizations (NGOs). Introduction * Transport in rural areas concerns road, paths, waterway, maritime infrastructure, and well as the means of transport. * The rural road network to which the strategy applies is composed of temporary national roads (TRNs), provincial roads (PRs), and community roads (RCs). Coordination and follow-up * This policy will be coordinated by a follow-up unit, within the framework of the Executive Secretariat of the Sector Transport Program (SEPST), which will work with the Rural Development Sector Program (PSDR) and its regional branch offices, that is, the Working Groups for Rural Development (GTDR). Strategies for transport services in rural areas and intermediate means of transport (IMT) Role to be played by the Government * Strengthening/supporting/sustaining the private sectors and NGOs with a view to increasing both the number and diversity of IMT (on waterways, roadways, and maritime routes). * Improving the legal and organizational framework for transport and infrastructure in order to ensure the quality of service and safety. * Enhancing the coordination of all activities related to rural transport. Role of NGOs and the private sector * Facilitating access by the rural population to additional motorized and non-motorized transport services (on waterways, roadways, maritime routes). * Promoting the acquisition of IMT. Diversifying IMT. 84 * Improving knowledge of the IMT that are suited to needs in rural areas and the most commonly used by the poor and women. Strategies for improving the transport network in rural areas - management of the network * Transferring the rural network to the decentralized territorial authorities (CDTs), including resources and authority. * Doing an inventory of and classifying the roads in the rural network, in particular community roads that are eligible for financing by the Road Maintenance Fund (FER) and donors. * Assuming responsibility for the current maintenance of decentralized territorial authorities (CDTs) and the strengthening of the technical, management, and financial capabilities of CDTs before and during the performance of work. * Identifying the transport networks that are eligible for development based on the following criteria: - Connection to the national network (mainly the opening up of the main towns of Fivondronana). - Delegation of tasks related to the network based on criteria linked to economic activities and to the population. * Assigning priority to transport networks based on the following criteria: - connection to a better and well-functioning network - maximum efficiency (cost per inhabitant served) - approval of the final selection of activities by the CTDs (including GTDRs) * Defining a work concept based on a minimum cost and, consequently, defining the levels of service for temporary national roads/provincial roads (RNT/RP) and community roads (RCs). * Applying the principle of gradual development of the network based on increased traffic flows. * Ensuring, in a proactive manner, the protection of the environment beginning with the design phase of work and guaranteeing a reduction in the negative impact of this work. * Ensuring supervision of the work by local authorities (CTLs) and providing for the possibility of delegating tasks to the Ministry of Public Works or the private sector, depending on the CTDs. * Encouraging private sector involvement (with priority being given to small- and medium-sized enterprises) and national consulting offices (BEs). * Clarifying the methods for award of public works contracts. * Encouraging use of the high-intensity manpower method (IMO). * Employing local manpower and women. * Improving the methods of financial management of small- and medium-sized enterprises. 85 * Ensuring the timely availability of funds. * Ensuring the contribution of CTDs to development activities, based on their resources (in cash or in kind). * Promoting programs to train PMEs, BEs, and CTDs while development activities are taking place. Strategies for the long-term financing and management of network maintenance * Clarifying the responsibilities of the Central Government and CTDs in the management of rural roads, in particular: - Ensuring that CTDs assume responsibility for some or all of current maintenance. - Leaving open the possibility of financing of up to 100 percent of periodic maintenance by the Road Maintenance Fund (FER), provided that current maintenance is done. - Ensuring that, at a minimum, a certain percentage of the resources of decentralized local authorities (CLDs) or of provinces is allocated to the maintenance of CTDs, a percentage of which will be earmarked for community roads. * Guaranteeing consistent programming and proper performance of work as set forth in the Road Charter and the Law on the Supervision of Public Works [loi sur la Maitrise d'Ouvrage Public (MOP)]. * Ensuring that FERs have adequate resources to finance the current maintenance work of national roads and periodic maintenance work, with urgent attention being paid to provincial and community roads. * Providing training at all levels: employers, construction managers, road user associations [Associations des Usagers des Pistes, A UPs], and maintenance professionals. 86 Annex 14: Framework for the Collaboration with Other IDA Financed Rural Projects MADAGASCAR: Rural Transport Project The following describes the coordination of the Rural Development Support Project (RDSP), the Community Development Project (CDP), the Rural Transport Project (RTP), and the Second Environment Project in ways that intensify their benefits to the extraordinarily poor rural population. Participatory methods * The RDSP and CDP would agree on a standard design for rapid rural appraisals that can be used as a basis for financing decisions by both projects (and by other Bank and other donor supported projects). * The RDSP and CDP would conduct rapid rural appraisals for use in all communes where either project intervenes -unless other donors have already conducted the appraisals. * The RDSP and the CDP would begin operations by using rapid rural appraisals and the resulting community development plans produced with support from the UNDP, the Swiss Cooperation, and other agencies -so long as the quality of the work is acceptable. * The "Association Nationale pour l'Action pour l'Environnement" (through the Second Environment Project) would consult with the RDSP and CDP execution units with the aim of reaching agreement on a standard format for the rapid rural appraisal. Project targeting * The CDP, RDSP, RTP, and Second Environment Project execution units would prepare annual work programs that are agreed among these projects. In these communes, the CDP would respond to mainly social demands; the RDSP would respond to demands from farmers' organizations for agricultural investments; and the RTP would seek to provide basic access. * In its first year of operation, the RDSP would work principally but not exclusively in FID m areas, which are relatively accessible to favor a quick start in RDSP operations (although the RDSP would intervene mostly at the village level). * The CDP, RDSP, RTP and the "Association Nationale pour l'Action pour l'Environnement" (through the Second Environment Project) would work together on certain pilot projects on the commune level. Regional working groups (Groupes de travail rigional - GTDR) * For the RDSP, the functions of the GTDRs are (i) to coordinate development activities in their regions and (ii) to vet whether proposals for sub-projects meet the project's criteria. * The GTDRs would participate in the regional consultative committees of the FID that validate CDP supported sub- projects. Irrigation * In the first year of operation of the RDSP, the project would respond first to requests for financing of small-scale irrigation sub-projects not exceeding 200 hectares; then the CDP would attempt to support any qualifying sub-projects not exceeding 100 hectares that the RDSP cannot process. * The CDP would support small-scale irrigation under the same conditions as the RDSP, such as beneficiary cofinancing rate and with the same standards for technical assistance and extension. 87 Rural transport infrastructure * The RTP would seek to increase funding for rural transport infrastructure provided that sufficient resources for maintenance are available through the Road Maintenance Fund and other sources. * The CDP would continue to finance rural transport infrastructure that is requested by the community, consistent with the Government's rural transport strategy once its adopted. * In the long-term the commune governments would be responsible for the maintenance of their community road networks. 88 MAP SECTION  44° 46° MADAGASCAR RURAL TRANSPORT PROJECT PROGRAMME DE TRANSPORT RURALE -12° PROJECT RAnisirnono ROUTES PRE-SELECTIONNÉES PROJECT RAILROAD CHEMIN DE FER PRÉ-SÉLECTIONNEÉE o MANAKARA PORT REHABILITATION MANAKARA REHABIEITATION DU PORT NATIONAL ROADS ROUTES NATPONALES RAILROADS n CHEMIN DE FER RIVERS R(VIERES O SELECTED MAIN CITES S-nbo-o PRINCIPAUX VILLES CHOISIES PROVINCE CAPITALS CAPMTALES DES PROVINCES IAnd"p NATIONAL CAPITAL Ansobhby AnIha CAPJTALE D'ETAT- - - - PROVINCE BOUNDARIES LIM(TES DES PROVINCES -ra t ~mkan 160- SælloMaravaay - oon ~ ORonokdySaanierna Moeann Tarnonanan' Aåonn I on9a nmbodiInoor Mo'ambique T Kad a nda IeponPeso. 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