Madagascar - Transport Restructuring and Investment Program Project

Report No. PID7991 Project Name Madagascar-Transport Restructuring (+) and Investment Program Region Africa Sector Transportation/Roads Project ID MDPE52208 Borrower The Republic of Madagascar Implementing Agencies Oversight: Ministry of Transport and Meteorology-MTM, Ministry of Public Works-MTP, Ministry of Finance Day-to-day Coordination: Project Coordinator and Project Financial and Contract Management Units (PFCMUs) in MTP and MTM (to be appointed) Execution of Components: PFCMU within MTP, MTP Directorates and provincial directorates (DRTP), PFCMU within MTM and MTM Directorates, Foreign and local contractors. Date PID Prepared October 27, 1998 Projected Appraisal March 15, 1999 Projected Board Date September 30, 1999 Country and Sector Background Madagascar has a population of approximately 13.5 million, of which about 70t lives in poverty. With a GDP of about US$ 230 per capita growing at a mere 2t in real terms, Madagascar is among the poorest countries in the world. Two decades of ill advised economic policies have blocked economic growth at various intervals. While stabilization measures and structural reforms have helped, Madagascar still remains steeped in poverty. Clearly, the Government's main objective is to steadily reduce the incidence of poverty over the next 20 years, mainly by achieving ambitious economic growth rates. Such high growth will require opening up to foreign investment, fostering high-growth potential sectors such as tourism, devolving public assets to the local private sector, and facilitating private sector investments in transport infrastructure and services. Provision, financing and maintenance of basic infrastructure necessary for fostering investments has, hence, become a Government priority. The transport sector plays a strategic role in the economy of Madagascar. It accounts for about 14t of GDP and 25t of total government expenditures. Unfortunately, inadequate transport has been and still is, a major constraint to the country's economic development. The transport supply is short of needs in terms of geographical coverage and quality. The long lasting deterioration of transport infrastructure has attained a critical level. Since 1993, the government showed a strong commitment to liberalize the transport sector and identify the main problems of the sector. A transport plan has been prepared for  2000 and a transport policy paper is being prepared. Sector Strategy The Government has deployed, in collaboration with the World Bank, major efforts to elaborate a sector strategy. This strategy rests on: the institutional reorganization of the sector, including inter alia the enactment of a new Road Act which specifies the role of the different actors and the responsabilization of municipalities and other decentralized levels of government; the promotion of the private sector through the government's withdrawal from the productive activities, and its focusing on its core planning, regulatory, monitoring, and facilitation functions; the improvement of planning, programming, and budgeting activities; the increase in local financing capacity, including securing sufficient resources for maintenance of transport infrastructure, and implementing cost recovery schemes for transport services; and the promotion of beneficiary community responsabilization. Project Objective The Development Objective of the project is to support Government in achieving sustainable improvements in the supply and performance of transport infrastructure and services, and improving access, to support economic growth and poverty reduction. The project will contribute to remove main transport bottlenecks and stop the spiral of infrastructure degradation. Progress of the project toward its objectives will be measured through: (i) the percentage of road infrastructure in good condition by 2002, (ii) the reduction of average delivery time for selected consumer and exports goods by 2002, (iii) the reduction of transport costs and vehicle operating costs by 2002, (iv) all weather transitability for a percentage of the network by 2002, (v) the contracting out to the private sector of road works by 2002, and (vi) the percentage of private participation in ports operations. Project Description The project is the first out of three phases of an adaptable program lending. It would focus on road, ports and river infrastructure, river and air transport services, and restructuring of the transport sector. The second phase of the adaptable program would focus on railway transport, road transport and Toamasina port extension. Finally, the third phase would focus on rural roads and provide continued assistance to shore up sector reforms and management capabilities. The project will support: (i) strengthening road management through the implementation of up-front reforms and sustainable improvements in the quality of the country's road infrastructure, with a focus on: (a) the strengthening and restructuring of road sector institutions, the enhancement of planning and programming capacity, and the deconcentration of managerial responsibilities; (b) the development of the local road construction industry; (c) the divestiture of the public -2 -  equipment fleet; (d) the strengthened governance and financial autonomy of the road fund, and increased road sector financing; and (e) capacity building at all levels of the road administration; (ii) strengthening management of the transport sector through: (a) support to the restructuring of MTM, including providing equipment and training for its staff; (b) support to the effective implementation of various transport legislation; (c) assistance to transport planning and regulatory capabilities; and (d) support to the private transporters in acquiring skills and qualifications; (iii) promoting public-private partnerships for the development of better transport interfaces, and further liberalizing air, maritime and coastal shipping, and road transport services; and (iv) executing high priority transport infrastructure investments to facilitate the complementarity of various modes, in particular: (a) the rehabilitation of key priority roads and ports; (b) a pilot program to develop river navigation infrastructure; (c) priority minor investments in airports and air traffic systems; (d) the backlog of maintenance on main, secondary and tertiary roads; and (e) road transport externalities such as road safety and road traffic management. Project Cost and Financing The project would represent a four-year slice of public investments in the transport sector . The cost of the project is currently estimated at US$ 420 million. The local contribution is expected to be in the order of 15t of total project costs. IDA, in close coordination with other donors, will finance a significant US$ 145 million ( of the total project cost). The following donors/financiers have expressed interest in co-financing or financing parallel components of the road program under the transport program. All contributions will be reconfirmed during the pre-appraisal mission of November 1998. Project Implementation The project will be implemented from January 1, 2000 until December 30, 2004. A project financial and contract management unit-PFCMU will be created within MTM to take over the responsibility for implementing the transport components of the project, and a PFCMU will be also created within MTP to assume similar responsibility for implementing the roads components of the project. The physical components, depending on their complexity, will be carried out by foreign and local contractors on the basis of their expertise and geographical distribution, under the supervision of consultants hired to this effect and the MTP. A Project Coordinator will be appointed to ensure overall project coordination, arranging and monitoring the PFCMUs, contracting the audits of all components of the project and overall reporting to IDA. An organizational chart and terms of reference will be provided to specify the responsibilities of the Project Coordinator and each PFCMU. The project oversight will be carried out by Ministry of MTM, Ministry of MTP and Ministry of Finance. Project Sustainability -3-  Government has clearly demonstrated its commitment to the sector as evidenced by the reforms already undertaken and the on-going liberalization and privatization in the road transport, maritime and coastal transport, and air transport sectors. The need and justification for adequate and sustained investments in infrastructure is well understood. To further strengthen sustainability, the project will assist inter alia in the following: (i) stable, timely, and reliable financing of road maintenance, in particular adequate and independent management of the Road Fund, and establishment of cost recovery mechanisms for transport services; (ii) restructuring and strengthening of concerned ministries; (iii) continued support to regulatory and post-privatization activities, and liberalization of the sector; and (iv) assistance to the development of the local private sector capacity. Lessons learned from past operations in the Country/Sector The project design draws on the experience of past projects in Madagascar, as well as on lessons learned in other countries, and from the SSATP (sub-Saharan Africa Transport Program), in particular its RMI (Road Management Initiative), RTTP (Rural Travel and Transport Program), and Trade Facilitation components. For the last twenty years, the transport system has been deteriorated to an alarming degree in all modes over the whole country, as a consequence of a persistent lack of coordination, a misallocation of resources with excessive new investments at the expense of maintenance, cumbersome administrative controls, and poorly managed public enterprises. With regard to these issues, the project will focus on rehabilitation and policy reforms rather than new investments. The projects implemented in the past showed that public services were not the right instrument to foster effective development, and little has been done to transfer maintenance activities to the private sector. The project is, therefore, designed to entail the withdrawal of the public sector from commercial and productive activities. In addition, all rehabilitation works should be contracted out to the private sector. Another key lesson was that future efforts should be sought to design projects that are well focused and limited in their scope. This project aims at reducing the complexity of the sector approach through the use of the APL instrument with three smaller but coordinated projects which would be easier to manage than one large sector investment project. Poverty Category The project will directly address poverty through reducing transport costs and improving accessibility of isolated areas with agricultural potential. Moreover, promotion of local small and medium enterprises and the use of labor-based methods will have a positive impact on employment of unskilled workers. Environmental Aspects Environmental category: B. No major environmental issues are expected - 4 -  since proposed activities to be financed under the project concern mainly rehabilitation of existing infrastructure (roads, ports, airports). Nevertheless, certain investment activities will be undertaken only in line with a framework for social and environmental sustainability of policies and works in the sector. Moreover, the project will assist MTM and MTP in developing environmental guidelines, and implement mitigation measures. Program Objective Categories The primary program objective category is to improve the coverage of transport needs by financially sustainable transport infrastructure and services. Secondary program objectives are private sector development, public sector management, and poverty reduction. Contact Point The InfoShop The World Bank 1818 H Street, N.W. Washington D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Processed by the InfoShop week ending July 30, 1999. Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. - 5 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -6-