Madagascar - Seventh Highway Project

Dbcument of The World Bank FOR OFFICIAL USE ONLY Report No. P-4793-MAG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE-DIRECTORS ,--ON A PROPOSED CREDIT OF SDR 28.9 MILLION TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR .FOR A SEVENTH HIGHWAY PROJECT. April 18, 1988 Infrastructure Operathons Division South-Central and Indian Ocean Department Africa Region= f This document has a restricted distribution and may be used by recipients only in the performance of --their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  IN Currency Equivalent Currency Unit M4alagasy Franc (FMG) TJS$ - FMG 1,200 (December 1987) weighti and Measures 1 meter (m) = 3.28 feet . kilometer G 0.62 mile 1 square kilometer (km2) - 0.386 sq. mile - 1 square meter (mi2) = 10.76 square feet Acronyms and Abbreviations AfDP African Development Fund CATP MTP Training School (Centre d'Application des Travaux Publics) ECU European Currency Unit EDF European Development Fund (EEC) KfW Kreditanstalt fuer Wiederaufbau (FRG) -FNDE Fonds National de D6veloppement MOD Ministry of Defense MTP Ministry of Public Works (Ministere des Travaux Publics) MTMT Ministry of Transport, Meteorology and Tourism (Ministare- des Transports, de la Meteorologie et du Tourisme) Nkr Norwegian Crowns NORAD Norwegian Ministry of Development Cooperation ODR Office of Rice Development (Office du D4veloppement Rizicole) PEP Public Expenditure Program PSAC Public Sector Adjustment Credit SDC Swiss Development Cooperation SOLIMA Madagascar National Oil Company (Solitany Malagasy) UCF Unit of Accounts of AfDF Fiscal Year January 1 - December '31  FOR OMCMAL USE ONLY GOVERNMENT OF MADAGASCAR FISCAL YEAR January 1 - December 31 MADAGASCAR SEVENTH HIGHWAY PROJECT Credit and Proiect Sumnary Borrowers Democratic Republic of Madagascar Beneficiaries: Ministry of Public Works (MTP) and Ministry of Transport, Meteorology and Tourism (MTMT) Amount: SDR 28.9-million (US$40.0 million equivalent) Terms: Standard IDA terms - Financing Plan ---------- US$ million ---------- As Local Foreign Total 2 of Total -TDA 9.1 30.9 40.0 28 AfDB 4.5 20.5 25.0 17 - EDF 8.7 23.9 32.6 22 SDC 0.0 15.6'- 15.6 11 NORAD 0.8 1.9 2.7 2 Government Road Fund 7.2 12.8 20.0 14 FNDE 8.2 0.0 8.2 6 Total 38.5 105.6 144.1 100 Economic Rate of Return: 342 over 852 of total project costs Staff Appraisal Reports Madagascar Seventh Highway Project Report No. 7135-MAG MAP: IBRD 20566R lllis document has a restricted distribution and may be used by recipients only in the perfor_u of their oMcbk duties. Its contents may not otherwise be disclosed without World Bank authorizatio i.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR A SEVENTH HIGHWAY PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Democratic Republic of Madagascar for SDR 28.9 million (US$40.0 million) is submitted for approval. The proposed Credit would be on standard IDA terms with 40 years maturity and would help finance transport development in Madagascar. The project would be cofinanced from the African Development Fund (AfDF) credit of UCF 20.0 million (US$ 25.0 million), the European Development Fund (EDF) grant of ECU 25.5 (US$32.6 million), the Norwegian Aid (NORAD) grant of Nkr 16.0 million (US$2.7 million), and the Swiss Development Cooperation and Humanitarian Aid (SDC) grant of about SF 25.0 million (US$15.6 million). The Association would administer SFR 15.0 million of the SDC SFR 25.0 million grant while the other SFR 10.0 million will be administered on a bilateral basis. 3ackground 2. Transport is one of the most important sectors in the economy of Madagascar, with the road sub-sector playing a vital role in the movement of freight (about 50X) and interurban passengers (about 65?). The island'e rugged terrain and tropical climate make the transport system costly to build and difficult to maintain. After manN years of neglect, transport infrastructure had badly deteriorated by the early 19809, causing high costs, largely in foreign exchange, thus inhibiting the movement of coffee and other export crops and domestic consumption staples, like rice. Large-scale nationalization, and cumbersome regulations contributed to lower agricultural production and to depressed exports. Misallocations of resources. lack of coordination among entities, and poor management also plagued the transport sector. 3. In the 1980s, to support the country's development program, IDA's and other donors' lending shifted to the roads, railways and ports sub-sectors. The programs, focusing on rehabilitation and policy reforms, have overall improved infrastructure considerably, and restored financial viability to the railways and the national air carrier. Institution building and policy formulation have also been strengthened through new institutions such as a new Planning Directorate in the Ministry of Transport, Meteorology and Tourism (MTMT) and new planning instruments like the National Transport Plan. The Government is carrying out a program of structural adjustment aimed at greater liberalization and reliance on the private sector. In this context the liberalization of freight has been carried out, but not that of passenger transport. 4. Although main roads have improved, serious constraints remain, such as the deteriorating feeder road network, the centralized organization of the Ministry of Public Works (MTP), and the lack of consistent road maintenance. Many factors have contributed to deficient road maintenance and in particular: (i) inadequate financial allocations to the Road Fund, established under IDA's Sixth Highway Project (Cr. 1391/SF4-MAG), from central government's budget and not as stipulated, by fuel tax receipts through the national oil company, SOLIMA; (ii) sporadic maintenance  -2- operations directed centrally by MTP which lacks management capacity; (iii) multiple management responsibilities of the road aetwork by other public and private agencies, such as Faritany (jrovinces) and Office du Developpement Rizicole (ODR) with resulting inefficiencies and ambiguity of accountability; (iv) delayed progress in rehabilitation works under the Sixth Highway Project caused by arrears in payments to contractors, consultants and suppliers; and (v) lack of enforcement of traffic regulations and safety which has resulted in accelerated deterioration and high accident fatalities. Proiect Obiectives 5. The project aims at: (i) strengthening MTP's capacity, especially in policy formulation, planning, budgeting, and supervision; (ii) facili- tating agricultural development, thus promoting food security and exports of agricultural products; (iii) gradually shifting most maintenance operstions from force account to private contractors who are already active in the sector; (iv) developing local human resources and the domestic construction industry; {v) improving public expenditure practices- in the road sub-sector through a three-year rolling Public Expenditure Program (PEP) based on a current National Transport Plan; (vi) improving road safety and enforcing traffic regulations; and (vii) ensuring optimal use of donors' assistAnce through financing of high priority works. Project Description 6. At appraisal a four-year program (1988-1991) for road rehabilitation and maintenance, and institution building was designed to meet the high priority transport needs of the country. The cost of the program was estimated at'US$197.0 million equivalent 1/. With pledges made by donors during a meeting held in the ,Bank offices in Paris on January 27, 1988, a project consisting of critical elements of the program has been designed; it is estimated to cost US$144.1 million. The project presented below is self-contained; it is designed so that as additional financing becomes available, the elements can be easily expanded. 7. The proposed Seventh Highway Program is within the scope of Government's National Transport Plan and conforms to Government's macro-economic development strategy. The program's objectives will be optimally achieved by: (i) rehabilitating-end maintaining the main roads and priority feeder roads; (ii) restructuring and strengthening the role of MTP by (a) entrusting it with planning, coordination and monitoring of works including those carried out by other entities; <b) decentralizing MTP's functions by shifting the management of road operations to MTP's 11 Costs are net of taxes which are estimated at US$29.5 million and US$21.6 million equivalent respectively for the program and the project.  3- regional heads; (c) contracting out road maintenance works; (d) developing the local construction industry by upgrading contractors' skills through training at MITP's Centre d'Applications des Travaux Publics (CATP) and solving their liquidity problem through contractual arrangement providing quick upfront payments and ensuring regular payments through the Road Fund; (e) strengthening the professional caliber of civil works personnel by upgrading CATP to the rank of institut so that its diplomas and certificates are valid for promotion of its graduates in the public and private sectors; (iii) providing the Ministry of Defense (MOD), charged with enforcing traffic regulations and road safety requirements to minimize road deterioration and accident fatalities, with the legal instruments to do so; and (iv) providing consultants' services to assist in project implementation. Rationale for IDA's Involvement 8. IDA's suppor' of Government's Seventh Highway Program is justified on the following grounds: (i) assistance to Government to achieve food security through the development of priority feeder roads; (ii) consolidation and continuation of transport sector improvements initiated under previously financed IDA projects; (iii) support to Government's policy reforms aimed at restoring vital infrastructure and mobilizing more effectively domestic and external resources; and (iv) leadership in the coordination of external support to a program which the international community is willing -to finance. Actions Agreed 9. The Government has published a decree decentralizing road maintenance to regional road authorities and a decree ensuring reliable funding of the Road Fund by SOLIMA and a flexible disbursement mechanism for timely road maintenance. The Government has also liquidated arrears of payments accumulated under the Sixth Highway Project. Issues agreed upon with the Government during negotiations and incorporated as covenants in the Credit Agreement include: (i) updating the National Transport Plan and annually preparing a three-year PEP, for IDA's approval, to improve allocations of resources and promote a rational choice of investments; (ii) agreeing on a yearly level of SDR 3.6 million financing for road maintenance and the mechanisms to ensure its timely provision through the Road Fund; (iii) reviewing regulations for passenger traffic and implementing further liberalization if necessary; and Civ) requiring firms sending participants to courses at CATP to pay fees equivalent to the average cost per trainee for salaries of local teachers and consumable goods. Conditions of credit effectiveness would entail publishing legal instruments: Ci) coordinating all road activities and initiating charging local users the cost of maintaining feeder roads; (ii) upgrading CATP to the status of an institut and empowering it to issue valid training certificates and diplomas; and (iii) establishing adequaL2 standards for implementation of traffic regulations and road safety measures.  -4- Benefits 10. The project would support the country's policy reform aimed at economic development by: (i) rehabilitating and maintaining an economic road network which carries about 902 of the traffic, traverses the most populous regions of the country and links all major centers of economic activity, and (ii) rehabilitating the vital feeder road network which would support exports of agricultural products and promote food security, thus alleviating poverty in the rural areas. The promotion of small- and. medium-scale domestic contractors, who will carry out labor intensive road maintenance operations, would provide employment to the rural poor. Risks 11. The main risks associated with the project arise from the possible shortage of local counterpart funds for the maintenance component and from MTP's capability to manage and execute force account works. These risks should be mitigated by the use of the Road Fund which ensures adequate, timely and easily accessible funds for road maintenance, by using contractors to carry out most of the civil works and through the technical assistance provided. Recommendation 12. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber Conable President Attachments Washington, DC April 15, 1988  - 5 Schedule A Seventh H"lha j rim (1988-1991) ProJest Co"t Ent1. if and Financing Plan (USS MilIion) Forelgn as Local Lorelgn Total X of Total I) Proecot Cost Estimates (I) Rohabilitotion/R_surfacifn of Paved Roads (1.472 km) 10.0 0j. 40.2 fl (ii) Rehabilitation/Rogravelling of Ensineerd E rth Roads (619 he) 9.6 L.5 2.1 70 (i1l) Rehabilitation of Feeder Road* (1.790 km) '_.6 20.3 28.9 70 (iv) Routtn- MaintennES) (1) Op rat'ng and Contracting Costs (a) Paved Roads 2.8 5.2 60. 65 (b) Engineered Earth Roads 1.0 2.4 4.0 6o (c) Feoder Roads 1.6 2.4 4.0 6G (2) Equipment, Materials and Suppliee 0.4 4.0 4.4 90 (3) Infrastructure 0.1 0.6 0. Sub-Total 14 li71 2:T. 69 (v) Trnint (1) Infrastructure/Equipment 0.1 0.6 0.7 SO (2) Fellowships 0.4 9.6 1.0 so Sub-Totel u: I 71 (vi) Road Safety S1) EqiTpoent/Infrestructure 9.1 0.9 1. 90 (vii) Conoultina S rvi (1) supervlsion 1.4 5.6 7.9 90 (2) TA Maintenance 0.4 1.8 2.2 so (3) TA Transport 9.1 0.3 0.4 So (4) TA Training 9.4 1.8 2.2 80 Sub-Total El 7 11.8 89 Total Base Cost 28.A 78.2 196.8 78 jontingee physical 2.9 7.8 10.7 73 Price 7.9 19.6 26.6 78 Sub-Total E l W4 1771 74 Grand Total 38.5 195.6 144.1 i8 II) Financing Plan S- IS million Foreign As Local Foretsn Total X of Total IDA Cr - 80 9- 4 a- 28 AfDB 4.6 209. 25.9 17 EDF 8.7 28.9 82.8 22 SDC 9.9 15.0 15.0 11 y NORAD 0.8 1.9 2.7 2 Government Road Fund 7.2 12.8 20.9 14 FNDE 8.2 9.9 8.2 1/ 6 Tot i ii3[10 liRT Iin Costa are net of taxes which *re estimated at USS21.6 million equivelent. V Equivalent to SDC 9rant of SFR. 16.0 million cofinancing with IDA and about SFR. 10.0 million btilatral financing. !/ Of which US$65. million could be covered by Swiss Government counterpa>t funds of its balance of payments support.  -6- Schedule B Madaaascar Seventh Highway Proiect (1988-1991) Procurement-and Disbursements 1. Procurement Method . 'Not Total Proiect Element ICB LCB Other A lic. / -~~~~US milI on ------- Civil Works 59.0 6.4 54.4 119.8 (20.8) (3.5) (24.3) Equipment. Materials 6.5 0.5 0.1 7.1 and Supplies (6.5) (0.5) (7.0) Consultant Services 17.2 17.2 and Fellows"bps 48.7) 3_ (8.7) . ->' ., ' 65.5 6.9 17.2 54.5 144.1 . ... ,:. ,.'. ': .. (27.3) (4.0)0 (8.7) (40.0) II. Disbursements Category Credit Amount 2 of Expenditures' ',(Ub Millon) to be Disbursed 1. Civil Wors: - a) Rehabilitation 19.5 1002 of total expenditures b) Maintenance 1.5 100? of foreign expenditures 2. Equipment, Materials K1002 of total expenditures and. and Supplies , 5.5 70Z of local expenditures 3. --Consulting Services, 7.5 1002 of total expenditures Technical Assistance, and Fellowships,<, 4. Unallocated 6.0 Total IDA Credit 40.0 Estimated Disbursements IDA FY89 Y0go PY91 'FY92 FY93 - -------------- USS Million ---------- Annual 2.3 9.8 11.6 9.8 6.5 Cumulative 2.3 12.1 23.7 33.5 40.0 Figures in parentheses are amounts financed by IDA. 21 Contracts financed by Government and other donors. 3/ IDA Guidelines.  -7 Schedule C DEMOCRATIC REPUBLIC OF MADAGASCAR SEVENTH HIGHWAY PROJECT Time Table of Key Proiect Procurement Events (a) Time to prepare 3 2 years (b) Prepared by s Government of Madagascar (c) First IDA Mission I Noven'ber 1985 (d) Appraisal Mission Departure I November i987 (e) Negotiations s April 1988 (f) Board Presentation I May 1988 (g) Planned date of Effecti ,en~sss October 1988 MAGMOP APTIN  Schedule D STATUS OF BANK GROUP OPERATIONS IN THE DEMOCRATIC REPUBLIC OF MADAGASCAR A. Statement of Bank Loans and IDA Credits (as of March 31. 1988) Loan or (Amount USS Millon Credit unteos cancel lation) Number Year Borroer Purpose Bank IDA1 Undibur ed2 Twenty-one Credits and tlv Loans have been fully di.buneed 32.67 277.78 - CR 1156-MAO 1981 Madagascar Accounting & Audit 11.60 0.51 CR 1211-MAC 1982 Madagascar Village Livesteck It 15.00 1080. CR 1298-MAO 1882 Madoagscar Teimiroro H evy Oil Exploration 11.65 8.16 CR 1337-MAO 1982 Madagascar Lac Almotra 1.0.8 .911 CR 1891-MAO 19883 Madagascar Sixth Highway 26.00 8.37 CtR F04-MAO 1983 Madagascar - * * 20.00 2.36 CR 1488-MAG 1983 Madagascor Cotton DOvelopment 7?.8 0.89 CR FP08-MAO 19883 Madgascar * 9.90 1.06 CR 1497-MAO 1983 Madagascar Urban 12.80 11.26 tR 1528-MAO 1984 Madagascar Cyclone Rehabilitation 15.88 0.78 CR 1641-MAO 1985 Madagascar Industrial Assistance 48.08 13.51 CR A007-MA 1988 Madagascar * (SFA) 208.0 3.32 CR 16894MAO 1986 Madagascar irrigation Rehabilitation 10867 12.38 CR 1881-iAO 1988 Madagascar Accounting A Mgtmt Training l8.30 12.91 CR 1526-1-MAG 1988 Madagascar Cyclone Supplemontal 10.00 8.86 CR 1691-MAO 19886 Madagasr Ag. Sector Adjust. Credit 20809 14.30 CR A916-MAO 1986 Madagascar * * 8.8O0 25.94 CR 1694-MAO 1988 Madagascr Third Railway 12.00 19a.8 CA1 1709-MAO 1988 Madagascar Second Ag. Instituttons 19.O8 18.18 CR 17t5-MAO 1987 Madagascar Port Rehabilitation 188 18.61 CR 1787-MAG 1987 Madagascr Energy 25.60 27.47 CR 1804-MAO 1987 Madagascar Scond Agricultural Credit 18.08 18.60 CR 1834-MAO 1987 Madagascr Industry A Trade Policy Adjust. 1.800 108.4 CR 1876-MAG 1987 Madgascar Forestry Management 7.00 7.86 CR A832-MAO 1887 Madgascar Industry * Trano Policy Adjust. 8700 44.97 TOTAL 32.67 781.28 271.29 of which hao been repaid 6.81 6.51 TOTAL now outstanding 2.78 724.72 Amount sold .886 of which has been repaid 6.86 TOTAL now held by Bank and TDA 28.76 724.72 TOTAL undisbursed 1.29 y/Th. status of projects listed in Part 'Al Is described In a separate report on all Bank/IDA-fin*nced projects In execution, which is updated twice yearly and eirculated to the Executive Directors on April 30 and October 31. a/The undisbursed balance of IDA 8 and 7 In USS was calculated at the SOR rats of 8/81/88.  -9- Schedule D B. Statement of IFC Investment (March 31. 1988) Loan Equity Total -------(US$ Million)-------- 1987 Sotema - Textile M4ll et Majunga 11.000 0.299 11.299 1980 Bata - Shoe Manufacturing In 1.250 - 1.250 Antananarivo 1983 Pecheries de Nossi-Be 2.570 0.099 2.669 1985 Cotona, S.A. at Antsirabe 9.563 0.184 9.747 1987 Satema-Textile Mill 3.744 0.010 3.754 Total 28.127 0.592 28.719 Less: Repayments, sales cancellations and exchange adjustments 8.469 8.469 Total commitments now held by IFC 19.658 O.592 20.250 Total undisbursed 3.385 0.583 3.385  IfDR 205MR 2-~~~~~~~~~~~~~~~~4 , D'hIli MADAGASCAR S nisjra- ., SEVENTH HIGHWAY PROJECT Main Road Network PAVED ROADS, - Anb&rbe RehabilttoaIon and Resfadng - N Resurfing , ,_. Maintenance ElN"1 NeERED EARTh ROADI ANTSI RANANA 4