Madagascar - Transport Infrastructure Investment Project

Documentof The World Bank ReportNo: 27140-MG PROJECT APPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHE AMOUNT OF SDR 104.4MILLION (USSl50 MILLIONEQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR THE TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT INSUPPORTOF THE THIRD PHASEOF THE TRANSPORT SECTOR REFORM AND REHABILITATIONPROGRAM November 12,2003 Transport Sector Country Department8 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective November 10,2003) Currency Unit = Malagasi Franc 1FMG = US$0.00017 USSl = 5920FMG FISCAL YEAR 2004 -- 2008 ABBREVIATIONS AND ACRONYMS A C M Aviation Civile de Madagascar ADP Akroports de Pans - Paris Airport Company AFTES Africa Safeguards Policy Department AGETIP Agency for the Execution o f Works o f Public Interest AOC Airline Operator Certificate APD Avant Projet DCtaillC - Detailed Design Study APL Adaptable Program Loan APMF Agence Portuaire, Maritime et Fluviale - Port, Maritime and River Agency APS Avant Projet Sommaire -Preliminary Design Study ATT Agence Transport Terrestre - Surface Transport Agency C A M Centre d'Apprentissage Maritime -Maritime Training Center CAS Country Assistance Strategy C B A Cost-Benefit Analysis C F A A Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CPFA Country Profile o f Financial Accountability CQ Selection based on Consultant's Qualifications DAO Dossier d'Appel d'offre - Tender document D C A Development Credit Agreement EA Environmental Assessment EDF European Development Fund EIRR Economic Internal Rate o f Retum E M P Environmental Management Plan ENEM Ecole Nationale d'Enseignement Maritime -National Maritime Training School ESSD Environmentally and Socially Sustainable DevelopmentVice Presidency EU European Commission FCE Fiananrantsoe-CBte Est (Railway) FMR Financial Monitoring Report GEM Groupement d'Entreprises de Madagascar - National Employers' Association GPN General Procurement Notice I C B Intemational Competitive Bidding IDA International Development Association JICA Japan Intemational Cooperation Agency LCS Least-Cost Selection N C B National Competitive Bidding NE0 National Environmental Office NGO Non Government Organization  FOROFFICIAL USEONLY N P V Net Present Value PATESP Projet d'AppuiTechnique au Secteur Prive - Private Sector Technical Assistance Project PES Program Executive Secretariat PIP Project Implementation Plan PPP Public-Private Pamership PRG Partial Risk Guarantee PRSP Poverty Reduction Strategy Paper QBS Quality Based Selection QCBS Quality and Cost Based Selection RA Road Authority RMF Road Maintenance Fund RNP Primary National Road Route Nationale Primaire - RNS Secondary National Road - Route Nationale Secondaire RNT Temporary National Road - Route Nationale Temporaire RP Provincial Road - Route Provinciale RTP Rural Transport Project RUC Road Users Charges SBD Standard BiddingDocument SFB Selection under Fixed Budget SIL Secotr Investment Lending SOE Statement o f Expenses SOP Situation without project SRFP Standard Request For Proposal SSATP Sub-Saharan African Transport Program sss Single Source Selection SWAP Sector-wide approach SWP Situation with project TSEA Transport Sector Environmental Assessment TSRRP Transport Sector Reform and RehabilitationProject UNDB United Nations Development Business USAID voc US Agency fogIntemationa1 Development Vehicle Operating Cost V P D Vehicles Per Day V P M Vice Prime Minister's Office Vice President: Callisto Madavo Country ManagedDirector: Hafez Ghanem Sector ManagedDirector: C. Sanjivi Rajasingham Task Team Leader/Task Manager: Dieter Schelling This document hasa restricteddistributionandmay be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.   MADAGASCAR TRANSPORT INFRASTRUCTUREINVESTMENT PROJECT CONTENTS A. Program Purpose andProject Development Objective Page 1. Program purpose and program phasing 2. Project development objective 3. Key performance indicators B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 9 4. Program description and performance triggers for subsequent loans 11 C. Program and Project Description Summary 1. Project components 12 2. Key policy and institutional reforms supported by the project 14 3. Benefits and target population 15 4. Institutional and implementation arrangements 15 D.Project#Rationale 3 1. Project alternatives considered and reasons for rejection 16 2. Major related projects financed by the Bank andor other development agencies 16 3. Lessons learned andreflected inthe project design 17 4. Indications of borrower commitment and ownership 17 5. Value added o f Bank support inthis project 17 E. Summary Project Analysis 1. Economic 18 2. Financial 19 3. Technical 20 4. Institutional 20 5. Environmental 21 6. Social 22 7. Safeguard Policies 23  F. Sustainability and Risks 1. Sustainability 24 2. Critical risks 24 3. Possible controversial aspects 25 G. Main Conditions 1. Effectiveness Condition 25 2. Other 25 H. Readiness for Implementation 26 I.CompliancewithBankPolicies 26 Annexes Annex 1: Project Design Summary 27 Annex 2: Detailed Project Description 30 Annex 3: Estimated Project Costs 34 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 35 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 41 Annex 6: (A) Procurement Arrangements 42 (B) Financial Management and Disbursement Arrangements 48 Annex 7: Project Processing Schedule 53 Annex 8: Documents inthe Project File 54 Annex 9: Statement o f Loans and Credits 55 Annex 10: Country at a Glance 57 Annex 11: Summary o f Environmental and Social Assessment 59 Annex 12: Letter o f Sector Policy 64 MAP(S) IBRD32805  MADAGASCAR TRANSPORT INFRASTRUCTUREINVESTMENTPROJECT Project Appraisal Document AfricaRegionalOffice AFTTR Date: November 12, 2003 Team Leader: Dieter E.Schelling Sector Manager: C. SanjiviRajasingham Sector(s): Roadsandhighways (69%), Ports, waterways Country Director: Hafez M. H.Ghanem and shipping (17%), Generaltransportation sector (8%), Project ID: PO82806 Aviation(6%) Lending Instrument: Adaptable ProgramLoan (APL) Them@): Trade facilitationandmarket access (P), Infrastructure servicesfor private sector development(S) Republic of Madagascar For LoanslCreditslothers: Amount (US$m): $150.00 Proposed Terms (IDA): StandardCredit Grace period (years): 10 Years to maturity: 40 e tal BORROWER 129.89 2.60 132.49 IDA 48.27 101.73 150.00 FRANCE: FRENCHAGENCY FORDEVELOPMENT 4.40 17.60 22.00 AFRICANDEVELOPMENTBANK 10.40 41.60 52.00 EAST AFRICANDEVELOPMENTBANK 3.80 15.20 19.00 EC: EUROPEANCOMMISSION 50.20 200.80 251.OO JAPAN:JAPANINTERNATIONALCOOPERATIONAGENCY 2.00 8.00 10.00 (JICA) LOCAL SOURCES OF BORROWINGCOUNTRY 175.20 0.80 176.00 FinancingGap 9.64 20.36 30.00 Total: 433.80 408.69 842.49  Borrower: REPUBLIC OF MADAGASCAR Responsible agency: VICE PRIME MINISTER OFFICE Program Executive Secretariat Address: Vice Prime MinisterOffice of Economic Programs, Ministryo f Transport, Public Works and Regional Planning, Antananarivo, Madagascar Contact Person: Jean Berchmans Rakotomaniraka Tel: 261 33 11 15942 Fax: Email: rjb-sepst@dts.mg Estimated Disbursements ( Bank FY/US$m): Project implementation period: 4 years (over 5 FinancialYears) Expected effectiveness date: 0212712004 Expected closing date: 06/30/2008 s A P . P m F ~ r Re" Wnhnm - 2 -  A. Program Purpose and Project Development Objective 1. Programpurpose and programphasing: An Adjustable Program Loan (APL) has been prepared to assist the Government of Madagascar to implement its transport sector policy and strategy. The purpose o f the program is to reduce transport costs and to improve accessibility especially in rural areas. The current project would be the third o f three parallel phases o f the APL. The first phase, the Transport Sector Reform and Rehabilitation Project (TSRRP) became effective on November 28, 2000, and i s planned to close on July 31, 2005. TSRRF', with a credit amount o f US$65m, is focusing on essential sector reforms, and on critical and highest priority investments. The second phase, the Rural Transport Project (RTP), financed with a credit of US$8Om, became effective on March 13, 2003 and is planned to close on June 30, 2009. The Rural Transport Project focuses on improving the access and mobility o f rural communities. The third phase of the APL, the subject o f this PAD, focuses on rehabilitation and investment o f the national road network, and on enhancing the performance of major ports and airports through public-private partnerships. It i s scheduled to become effective inFebruary 2004 and to close on June 30,2008. 2. Projectdevelopmentobjective: (see Annex 1) The Transport Infrastructure Investment Project (TIIP) supports the CAS objective to accelerate poverty reduction, and, in conjunction with A P L l and APL2, the goals o f the country's transport sector policy and strategy, The specific development objective o f this project is to rehabilitate the country's major transport infrastructure in order to reduce transport cost and to facilitate trade. 3. Key performance indicators: (see Annex 1) The achievement of the project objectives will be monitored by the following key indicators: (i)increased traffic (both passengers and freight); (ii)decreased user costs; and (iii)decreased time delays on the nation's main transport infrastructure. Baseline data have been established, and follow up surveys will be conducted by the monitoring unit o f the Vice Prime Minister Office (VPM the implementing agency o fthe - project) through its various agencies and authorities. The overall implementation o f the transport sector program is monitored through the monitoring framework defined in the overall transport policy letter, attached in Annex 9 of the PAD o f the APL-1, and amended in Annex 13 o f the PAD o f APL2. This monitoring framework is reported on in the quarterly consolidated Financial Management Reports o f the APL. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDAiR2002-0169 Date of latest CAS discussion: 11/14/2002 The new CAS was presented to the Board on November 18, 2003. Its main objective is to support Madagascar to accelerate poverty reduction. Together with other development partners, the Bank proposes to support Government inthe implementation o f its PRSP and align its work program to the framework and strategic focus o f the PRSP. In line with the PRSP objectives, the Bank intends to considerably strengthen its support to (i) improve governance, (ii) rural poverty, and (iii) reduce improve service delivery. This project, together with the other phases o f the APL, strongly supports these objectives through (i)assisting in the fundamental reform of governance in the transport sector; (ii) reducing rural isolation which has a strong poverty link; and (iii) improving service delivery in crucial infrastructure areas such as the main ports and airports. - 3 -  2. Main sector issues and Government strategy: The transport sector plays a key role in Madagascar's growth and poverty alleviation strategy. Increased foreign investment, development o f the country's eco-tourism and mining potential, growth in agricultural output, and reduction o f rural isolation, all depend on the efficiency of transport services and the availability o f appropriate transport infrastructure. Unfortunately, three decades (1970-2000) o f inappropriate sector policies have led to a serious deterioration o f the country's transport infrastructure. It i s estimated that, during that period, the country lost on average about 1,000 kilometers o f roads per year due to lack o f maintenance. In April 2000, after almost ten years o f sector dialogue and no lending in the sector, the country adopted a comprehensive transport sector policy and strategy, which aims at (i) focusing the government's role on strategic planning, sector oversight and coordination; (ii)creating jointly public-private controlled and user-financed agencies for sub-sector management and regulatory functions; (iii)divesting operational activities to the private sector, through privatization and concessioning arrangements; (iv) developing the local private sector for works design and execution; and (v) rehabilitating transport infrastructure to appropriate levels. The transport sector A P L assists the government, jointly with other donors, users, and the private sector, inimplementing this policy and strategy. InJanuary 2003, the Govemment merged the former Ministryof Public Works, Ministryof Transport and Meteorology, and Ministry o f Regional Planning and put them under the leadership o f the Vice Prime Minister. In the process o f this reorganization, a light structure is being adopted reflecting the role o f the Ministry as a planning, oversight and coordination body, while delegating regulatory functions to autonomous agencies, and operating functions to the private sector through concessioning arrangement. The new Ministry (VPM) i s well positioned to implement and oversee the comprehensive transport sector policy and strategy. Following are the main sub-sector issues and the Government's strategy to address them The Road Sub-sector The Road Network o f Madagascar has been gazetted, based on the Charte routisre, as 2,560 km o f national primary roads (Routes Nationales Primaires - RNP - also called the structural network, connecting the provincial capitals with the national capital), 4,753 km o f secondary national roads (Routes Nationales Secondaires - RNS), 4,549 kmo f temporary national roads (Routes Nationales Temporaires - RNT), 12,250 km of provincial roads (Routes Provinciales - RP), and 7,500 km o f communal (local government) roads (though not yet gazetted) for a total o f 31,612 km. Of these, only 5,855 km are currently in good and fair condition. Of the roads in good and fair condition, 4,074 km are paved. 25,757 km o f the road network are in bad condition, and therefore in need o f rehabilitation. Most o f the roads in bad condition are only seasonally practicable, and some not at all, inducing very high costs on users, interrupting economic exchanges, and isolating towns and villages for up to eight months of the year. Type o f Road Length (km) Good or fair Ofwhich bituminous Bad condition condition (km) surface (km) (km) RNP 2.560 1.616 1.577 944 RNS 4,753 1,319 1,277 3,434 RNT 4,549 1.ooo 800 3,549 R P 12,250 1,070 70 11,180 R C 7,500 850 350 6,650 Total 31,612 (100%) 5,855 (19%) 4,074 (13%) 25,757 (81%) - 4 -  Through a six-year paving, rehabilitation and maintenance program (2003 2008) the Govemment intends - to bringthe share o f good roads to 60% (including all national roads), and the share o fpaved roads to 23%, as shown inthe table below. The planned conditionof the road networkin 2008 Type of Length (km) Goodor fair Of which bituminous Badcondition Road condition(km) surface (km) oun) RNP 2.560 2.560 2.521 0 1- RNS I 4.753 I 4.753 I 2.827 I 0 1 RNT 4,549 4,549 1,280 0 R P 12,250 5,750 250 6.500 R C 7,500 1,450 410 6,050 Total 31,612 (100%) 19,062 (60%) 7,288 (23%) 12,550 (40%) Following is the proposed investment and maintenance program for 2003 -2008 which will lead to the improved road network: Madagascar RoadProgram2003 2008 Cost and Financing - Type ofWorks Financier US$m NationalRoads (RNP/RNS) --- Periodic - incl.APL 3 Routine maintenance RMF 60 maintenance o f gravel roads RMF 8 Periodic maintenance o f paved roads RMFlGovernmentldonors 55 - Rehabilitation o f gravel roads --- New GovernmenbDonors 227 Rehabilitation o f paved roads GovernmentiDonors 82 Paving o f gravel roads GovernmentDonors 202 construction (urban roads in Tana) GovernmentDonors 9 Sub-total 643 RuralRoads (RNT/RP/RC) --- Periodic - incl.APL 2 Routine Maintenance RMF 44 maintenance RMF 61 Rehabilitation GovernmentiDonors 167 Sub-total 272 Total 915 RoadManagement in Madagascar in the past has been weak, leading to the loss and degradation o f over 80% o f the network over the last 30 years. As part o f its sector policy and strategy, the government plans a complete renewal o f road management through: (i)setting up of a user-financed and controlled second generation Road Maintenance Fund (RMF); and (ii)creation o f an autonomous Road Authority (RA) responsible for the management o f all roads in the country, working through deconcentrated offices in the provinces. The V P M also plans to introduce long term performance based maintenance contracts on the already rehabilitated network, first on a pilot basis, and perhaps also concessions on highly trafficked sections o f the network, in order to improve the management and financing o f the road network. The Road Maintenance Fund (RMF): Madagascar established a Road Maintenance Fund in 1999 to - 5 -  finance the maintenance o f all roads in the country. The RMF was conceived as a second generation road fund with a legal basis, governed by a Board comprising a majority o f private sector road user representatives, with a small secretariat o f five high level staff, and financed by road user charges (RUC). A recent audit revealed important shortcomings o f the RMF during past years. Consequently, a revised decree was agreed upon between Government and donors and was adopted in March 2003. The new management o f the RMF has been recruited through a competitive process and a new Board has been constituted. Technical assistance is being provided by the European Union (EU). The table below summarizes the maintenance funding requirement o f 2003-2008 and expected sources o f income. The current fuel levy o f 5 U S cents equivalent per liter o f fuel will have to be increased to 7 U S cents in 2005, and a heavy vehicle licence fee will have to be introduced in 2004 to match the growing needs due to the increase o f the network in good and fair condition as a consequence o f the rehabilitation program. Local governments (provinces and communes) are contributing 10% to all maintenance works. Persisting financing gaps are planned to be filled by donor contributions and proceeds from the Highly IndebtedPoor Country Initiative (HIPC). Some "backlog" periodic maintenance will be financed by donors in2003 and 2004. (Amounts inUS$ million) 2003 2004 2005 2006 200 2008 7 Total Maintenance Requirement 28.0 32.6 38.3 43.9 49.6 55.5 - ofwhich exnected from fuel levv I - of which exnected from heaw vehicle license fee I 22.1 23.4 29.8 31.6 39.1 41.4 I 2.51 5.0 I 5.3 I 5.6 I 6.0 I - o f which co-financed by local governments 0.7 0.8 0.9 1.0 1.1 1.3 - o f which financed by EU 1.5 1.1 - o f which HIPC 3.7 4.8 2.6 6.0 3.8 6.8 TheRoad Authority (RA): Previously, the Government had intended to create six provincial and one central road agency which would have been contract management agencies (AGETIP-like), while the six deconcentrated Provincial Road Departments o f the former Ministry o f Public Works would have been responsible for the programming o f works for both maintenance and rehabilitation o f all roads in their respective provinces. The Government recently decided to change this strategy in favor o f the creation o f a single Road Authority (RA) for the following reasons: (i)due to the dearth o f professional skills in the country the recruitment of staff for the agencies has proved impossible; (ii) the Government realized that the collaboration would be very difficult between the road agencies, with salary levels comparable to the private sector, and the Provincial Road Departments whose staff would still be paid at government level salaries; and (iii)the entire set up was too complicated and no longer corresponds to the revised decentralization objectives o f the Government. The Government plans to have the RA fully functional before the end o f 2005. During 2004 the necessary legal basis will be prepared through a participatory process and presented to parliament and cabinet for approval. The RA will be responsible for the management o f the national and provincial roads, and upon request by the local governments, also for community roads on behalf o f their owners. It will prepare annual and multi-annual programs for the maintenance o f the maintainable network, and for the rehabilitation o f the network inpoor condition. It will execute, through private sector consultants and contractors, the work programs for the maintenance, rehabilitation and expansion o f the network. It will receive funding for maintenance from the RMF and for rehabilitation and expansion from the Government's development budget, including donor financing. The RA will be overseen by a Board o f private sector and Government representatives. The RA will have a headquarters office in Antananarivo and deconcentrated offices at the provincial level. It will require an estimated 300 professional staff, who will be competitively selected, and who will be paid salaries - 6 -  comparable to the private sector. The RA's business practices will be akin to that o f the private business environment. The Surface Transport Agency: The Govemment is inthe process o f creating a Surface Transport Agency (Agence Transport Terrestre, ATT). The ATT will be a small entity (about 70 employees) which will be overseen by a Board o f transport operators and Government representatives. The key responsibility o f the ATT will be the regulation o f surface transport operations, including passenger and freight transport, vehicle licensing, vehicle control, axle load control, public transport regulations, road safety, and provision of the oversight of the railway concessions. The Government plans to out-source vehicle control to the private sector. The ATT will play a key role in the financing o f road safety actions (particularly information campaigns and educational efforts), that will be proposed to a Road Safety Council with wide membership o f concerned groups (including the police, transport operators, public health officials, insurance companies, the VPM, etc.). The Agency should be operational by the end o f 2004. Rail Transport The rail network o f Madagascar consists o f the Northem and Southem Railways. The Northem Railway with a network o f 732 km was concessioned to a private operator (MADARAIL) in July 2003. The Northem Railway connects the country's main port in Toamasina with the capital Antananarivo and Antsirabe. The line has substantial commercial potential but is inneed o f major infrastructure rehabilitation and renewal o f rolling stock. The concessionaire plans a five-year US$35m investment program to modernize the railway and provide a competitive transport alternative to the road. The Southem Railway with a track length o f 163 km connects Fianarantsoa with the port o f Manakara, is planned to be concessioned, jointly with the port o f Manakara, to a private operator. Due to its limited commercial viability, however, substantial public investment (USS 17m) is planned through government funding, supported by various donors, including APL2, once the concession has been signed. The Govemment recently decided to provide import tax exemptions for a large number o f products in order to stimulate economic growth. This exemption includes trucks but excludes rolling stock. There i s concem that this unequal treatment might weaken the competitive position o f the railway. Maritime, River and Canal Transport, and Coastal Protection In keeping with the principles adopted for the restructuring of the transport sector as a whole, the Govemment has created a Ports, Maritime and River Agency (Agence Portuaire, Maritime et Fluviale, APMF) and has adopted a legal framework for the regulation o f the ports and maritime transport (adopted by parliament in July 2003). The groundwork for this reform was initiated under APL1. The law allows individual concessioning o f large ports (Ports a Gestion Autonome), and grouped concessions for medium-sized ports, while the small commercially nonviable ports, as well as non-port related marine signalling, will be managed directly by APMF or fully transferred to local communities. The private sector, through the National Employers' Association (GEM-Groupement d 'Entreprises de Madagascar) and professional port and maritime associations, has been closely involved in the work leading to the new institutional and legal framework. In particular, the principle o f representation at parity between the public and private sectors in the APMF board has been endorsed by both parties. This is consistent with the intention that most o f the operating and development costs o f the sector will be financed through port and maritime user fees. The Govemment will naturally retain its role in discharging fimctions pertaining to planning and oversight, safety, environmental protection, and security. - 7 -  Air Transport The air transport sector is viewed by the Malagasy Government as crucial to promote broad-based growth in support o f tourism (Govemment is aiming at 500,000 tourists by 2008) and manufacturing exports, two sectors targeted for their growth potential in the PRSP. The Govemment is also willing to ensure an efficient grid network throughout the country for trade and communications from urban centers to enclaved and remote towns domestically and outside the great island o f Madagascar. To achieve these goals, the Government's air transport policy centers on two main axes: (i)liberalization and (ii) disengagement o f the state from operation's management. TheAir Transport Liberalization Policy: Since 1996, Madagascar has embarked on a liberalization reform o f the air transport to promote an efficient air transport system, i.e. improve quality and access to air services, and reduce costs. Those reforms came with the introduction o f new regulatory frameworks, whose first phase, from 1998 to 2001, was supported by PATESP (Projet d`Appui Technique au Secteur Privk) and APL1. Air transport liberalization in Madagascar was made gradually. At its early stages, the liberalization o f domestic routes was limitedto small aircrafts (under 20 seats); on intemational routes, air charter carriers were admitted under some conditions, such as the prohibition o f embarking on commercial traffic from Madagascar and the obligation to build hotels: the French carrier Corsair, belonging to the Tour Operator Group "Nouvelles Frontikres", began its operation to Madagascar in 1996. Meanwhile, the most important reform was the publication o f a whole set o f civil aviation law and decrees in 1999 and 2000. This regulatory package: (i)endorses the Government's air transport liberalization policy, both on domestic and intemational routes. Conceming the latter, the new regulations establish the principles o f multiple designation, free capacity and pricing (except for dumping and excessive price practices); (ii)confirms the Government's willingness to achieve intemational standards and best practices in all technical civil aviation issues, especially regarding safety and security; and, (iii) upanautonomousCivilAviationAuthority, Aviation CiviledeMadagascar (ACM), in sets charge o f implementing Government's air transport policy, overseeing the sector, as well as drafting and enforcing technical and economic regulations. As a result o f these liberalization efforts, tourism increased from 40,000 in 1997 to 178,000 in 2000, 59 destinations were serviced, and passenger traffic amounted to almost 1 million o f which 55% were on the domestic network. This growth came to an halt in 2002 with a 70% traffic collapse following September 11, 2001; and the Malagasy political crisis between January and July 2002 further exacerbated the condition o f the aviation sector. In 2002, only 26 destinations were serviced and the level o f seats offered went back to levels pre-1996. TheState's Disengagement from Air Transport Operations: It i s also clear inthe new regulations package that the Government is willing to retrieve from the management o f air transport and civil aviation operations. Conceming air camers, Air Madagascar i s among the State owned companies to be privatized. Due to the recent political turmoil, in 2002, the privatization process has been slowed down since the Government have chosen to first save the national airline company from bankruptcy. A German Consultancy Firm, Lufthansa Consulting, has the mission to restore both the financial situation o f the company, and the confidence o f its partners. With regard to airports, the management o f the 12 biggest airports (of which 5 international airports: Ivato, Nosy Be, Antsiranana, Toamasina, and Mahajanga) has been concessioned to ADEMA, a company owned mainly and jointly by the Government o f Madagascar and Airoports de Paris (ADP), since 1991 until 2006. To allow this operation, the Government got an AFD (French Development Association) credit to make the main investment neededat the beginning o f the - 8 -  Concession. The 43 remaining airports are temporarily managedby ACM; but, the current regulations state that their management should be transferred to private operators by 2004. Other Air Transport issues: Air transport services are provided in Madagascar on the regional and international haul through five regular airlines (Air Madagascar, Air France, Air Austral, Air Mauritius, Interair, and Corsair), and on the domestic haul through Air Madagascar as the only regular airline, and six other non scheduled air carriers (Malagasy Airlines, Madagascar Flying Service, Aeromarine, Air Hdtel, Services et Transports ACriens, Sun & Sea). In the last two years, five other non scheduled camers were disqualified, mainly for non compliance with technical, organizational, and economical regulation reasons. But since the last few months, A C M has registered six new requests for AOC (Airlines Operator Certificates), among which one player who is planning to operate scheduled regional and domestic routes. Concerning the infrastructure, most airports require urgent rehabilitation, in particular safety and security equipment, telecommunications and radio navigation and expansion o f terminals and runways, road access improvements to bring infrastructure to international safety and operations standards. 3. Sector issues to be addressed by the project and strategic choices: In May 2003 the VPM held the first annual Transport Sector Conference. During this conference the Government's six-year sector program (2003-2008) was presented and discussed with all the sector stakeholders including the donor community. The proposed project supports this program and finances the agreed priority investments. Road sector Government has declared the improvement o f the road network to be one o f its main development objectives. In this sub-sector, the project will finance, jointly with the Government, road users and other donors, the necessary maintenance and rehabilitation o f the national road network in order to ensure that the entire network of primary and secondary national roads (7,313 km) will be in good and fair condition by the end o f 2008. Generally, the network will be brought back to its original standard and will then be maintained at that level. Primary National Roads (RNP) are normally two lane paved roads. Secondary National Roads are either paved or gravelled two lane roads. However, standards are determined by traffic levels and there are therefore exceptions to the above. As a general rule, roads with more than 200 vehicles per day (VPD) are built to paved standard, those between 50 and 200 V P D are built to gravel standard and those below 50 vpd are spot-improved earth roads. The project will also assist the Government to rehabilitate and improve the operations o f some 80 ferries on the road network o f Madagascar which provide essential transport links but are notoriously unreliable and unsafe. The ambitious investment program for the road sector will generate unprecedented demand on the public works market. Due to the very limited scope o f previous years and the crisis o f 2002, there are only two international companies operating in the country and the local small and medium sized companies are not yet well established. The Government is therefore trying to attract additional international contractors and consulting engineers and i s putting incentives into place. Present and future companies will depend primarily on the local work force to operate and the labor market is already tight. It i s estimated that the investment program will create as many as 12,000 jobs during the first year and 18,000 jobs thereafter. It has been decided to launch a comprehensive vocational training program, working closely with the private sector to rapidly train as many workers as possible. - 9 -  Maritime, River and Canal Transport, and Coastal Protection Inthe waterborne transport sub-sector, the project will finance the mainpriorities of the Government's long term development plan, including further institutional strengtheningin the sector (particularly the APMF), the rehabilitation and expansion o f the Mahajanga port (IDA), the rehabilitation o f the Antisranana and Morondava ports (AFD), and minor works on the Grande Terre-Sainte Marie transport connection infrastructure (IDA). Furthermore, the project will finance the rehabilitation o f the four main light houses and the rehabilitation o f basic coastal navigation aids, as well as actions required for Madagascar to comply with the IMO-MARPOL convention on marine environmental protection, which is due to be ratified. Identification and preparation o f these components have been completed under APL1. Also under APLl,coastal protection studies have been carried out for Toamasina and Morondava, where the seashore i s regularly receding under wave erosion, threatening public buildings and private settlements. The project plans to finance phase one priority works at Toamasina. The container operations inthe port o f Toamasina are being concessioned to a private operator with the help o f the IFC. It is expected that through this concession a first phase o f the berths rehabilitation program estimated to require about US$3.3 million, as well as the works needed to complete the Tsarakafofa inland container terminal, can be financed. Air transport The Government's objective o f increasing tourism and exports manufacturing, involves the acceleration o f the reform and the modernization o f its infrastructure to accommodate future growth. This would also help restore access and quality services, and reduce costs. The proposed project will address primarily the modernization o f the airport system o f Madagascar to reach international standards in safety, security and airport operations. The project will in particular focus on two key areas: financing safety and security equipment for all the airports. Secondly, the project will provide minimum financing requirements to facilitate public-private partnerships inthe airports management system, and to increase the involvement o f the private sector in the airport network. The latter would be achieved by granting last-resort finance, either through concessional funds or guarantees within public-private partnerships (PPP) so that the airport infrastructure network is rehabilitated to international standards on security and safety, and i s efficiently managed to adequately accommodate market needs. Institutional and regulatory reforms (to finalize the whole set o f legislation to be in line with international best practices) pertaining to capacity buildingo f the regulatory authority and training o f its staff are being pursued with assistance from A P L l . Safety, Security and Operations Improvements: Preliminary conclusions indicate that investments needs o f the 55 airports amount to US$117 million over the next fifteen years, without taking into consideration the runway extensions o f Ivato and Mahajanga. Urgent priority needs in the next five years amount to US$44 million and include the upgrading o f all airports with safety and security equipment, telecommunication and radars, the modernization o f Ivato passenger terminal and construction o f a freight terminal to accommodate growing exports. Public-private partnerships (PPP): Following the strategic review o f private participation options, the Government is considering: (i) creating either concession or affermage arrangements for the 8 main airports (Ivato, Nosy Be, Antsiranana, Toamasina, Fianarantsoa, Fort-Dauphin, Toliara and Mahajanga), without refusing to combine two or more airport inthe same arrangement, (ii)setting up a management contract, grouping all remaining airports requiring subsidies for operations and investments. Public-private sector partnerships should be encouraged in order to promote private sector investments and -10-  reduce the amount o f lending commitment under APL3. However, the nature o f the market and the intricacies o f the Malagasy air transport sector also require subsidies from the G o M to ensure continued service for airports which may not be commercially viable but crucial from a public service standpoint. APL 3 will thus finance the settingup o f the PPPs, together with other donors like AFD or the EU. 4. Program description and performance triggers for subsequent loans: Program design The purpose o f the transport sector program is to reduce transport costs and to improve accessibility especially in rural areas. The project would be the third o f the three parallel phases o f an Adaptable Program Loan (APL) assisting the Government o f Madagascar in implementing its transport sector policy and strategy. The first phase o f 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 o f US$65m, focuses on essential reforms o f the transport sector, and on critical and highest priority investments. The second phase, the Rural Transport Project (RTP), financed with a credit o f US$80m equivalent, became effective on March 13, 2003 and i s planned to close on June 30, 2009. The Rural Transport Project focuses on improving the access and mobility o f rural communities, through the rehabilitation o f 9, 000 km o f rural roads, the concessioning o f the Southern Railway and Manakara Port, and through the promotion o f intermediate means o f transport. The current third phase, focusing on investment o f strategic economic transport infrastructure, such as national roads, ports and airports, is scheduled to become effective in February 2004 and close o n June 30, 2008. Compliance with triggers The initial triggers defined in the PAD o f the A P L l had become obsolete due the merger o f the transport sector ministries and due to the realities on the ground, and were therefore revised inthe P A D o f the APL2 dated October 22, 2002, as follows: (i) Regulatory agencies for civil aviation (ACM), and for ports, maritime and river transport (APMF) autonomously discharge technical and economic regulatory functions. ACM is operational since 2000, and is in full charge o f technical and economic regulatory functions for civil aviation issues. The APMF is set up and its Board o f Directors, evenly composed o f public and private sector members at parity, is operational. It must be highlighted that this institutional setup is an innovative arrangement that, although rather time-consuming to finalize with the new APMF decree only approved by Parliament inJuly 2003, i s worth the additional delay: for the first time since the country's independence, the private sector will have an equal voice to the Administration's in the operational and financial management o f the sector. Based on thesefacts, the Project Team declares the trigger met. (ii) Primary ports and airports are either concessioned or other arrangements for their proper operation and management have been made satisfactory to the Association. Primary ports and airports in Madagascar are currently managed under a variety o f public-private partnership arrangements. Recently, the V P M has concluded a contract with the IFC for assistance to - 11 -  concession the Toamasina port and the Ivato airport (perhaps in conjunction with other airports) to a private operator. Commercial operations in other main ports are already concessioned to private operators, and the Port Sector law passed in July 2003 strengthens the sector's legal framework and the regulatory role o f the Govemment through the APMF. Also, the V P M has recruited technical assistance staff to strengthen its capacity to handle the concessioning process. Based on thesefacts, the Project Team declares the trigger met. Social protection measures for redundant staff of the V P M are in place. The V P M has retained the services o f an international consultant who has, jointly with respective units of the VPM, prepared a staff redeployment plan. This plan proposes to reduce by about 60% o f the current staff o f the VPM o f about 3000, to a large extent through voluntary measures such as retirement, pre-retirement, voluntary departure and proposes intemal reallocations combined with training programs. This plan will be implemented during 2004, and its cost will be financed from the , proceeds o f this project. Based on thesefacts, the Project Team declares the trigger met. Environmental process is fully internalized into operational practices of VPM. The V P M has created a division in charge o f environmental and social impact studies and continues to draw on the expertise o f the Project Implementation Unit. All projects are being reviewed for social and environmental safeguards and contracts are compliant with guidelines. The division was staffed with personnel from the former ministries and i s still in need o f upgrading with more qualified staff. It i s expected that this will happen under the strategic staffing plan. In the interim the staff is being supported by an international consultant and receives training. Based on these facts, the Project Team declares the trigger met. The Road Maintenance Fund is performing well: After an audit o f the RMF found some misuse and malfunctioning o f the fund in the past, the new government, in consultation with the donors, embarked on a complete overhaul o f the RMF. Following are the measures taken by the Government since August 2002: (i)the fuel levy was adjusted to about 5 U S cents per liter o f fuel equivalent; (ii) decree was passed which would allow the collection of heavy vehicle charges a (implementation o f this awaits the completion o f a respective study); (iii)a new decree for the operations o f the RMF was formulated and passed by parliament in March 2003; (iv) the former staff o f the secretariat o f the RMF was dismissed and new staff was recruited on a competitive basis; and (v) the Board o f the RMF was reconstituted. Meanwhile the RMF has prepared an emergency program (US$20m equivalent) for 2003 which i s currently being implemented; and i s preparing the 2004 maintenance program. Based on these facts, the Project Team declares the trigger met. C. Program and Project Description Summary 1. Project components(see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): 1)NationalRoadMaintenance,RehabilitationandUpgrading(TotalUS$642millionofwhich IDA US$110.75 million) Reflecting the Government's development priorities, this component i s the most important of the project. The program for upgrading, rehabilitation and maintenance aims at bringingall the primary and secondary national roads (7,3 13 km) to good and fair condition by end o f 2008. The overall program for the national road amounts to US$642 million o f which this credit will finance US$111 million for the following interventions: - 112 kilometers of upgrading to paved standard on the RN44 from Marovoary to thejunction with RN3A. This secondary national road connects the "rice bowl" o f the country - the Lac Alaotra region - with the - 1 2 -  main road linkingthe capital Antananarivo with the main port Toamasina (RN2). The RN44 is currently ---inaccessible duringthe rainy season 69 kilometers o f rehabilitation o f the gravel road from Ambatondrazaka to Vohitraivo (RN44) 249 kilometers o fperiodic maintenance on the FW2 between Antananarivo and Brickaville 295 kilometers o f periodic maintenance on various sections o f the RN7 between Antananarivo and - Fianarantsoa, the highest trafficked trunk road in the country 186 kilometers of rehabilitation and periodic maintenance on the bituminous RN32 from Ansohihy to - Mandritsara, a departmental capital and a major agricultural production zone 159 kilometers o f rehabilitation and paving on the RN5a from Ambilobe to Vohemar - the rehabilitation o f about 30 femes within a national plan for the renewal o f the ferries system and the involvement o f the private sector for their operation. The estimated cost o f the above interventions including contingencies actually amount to US$141 million leading to a financing gap o f U S 3 0 million. Provided that the project will be implemented as planned, favorable consideration will be given to an eventual request of the borrower to finance the gap either through a supplemental or follow-on IDA credit. 2) Ports and Maritime Transport: InstitutionalStrengthening, Port Upgrading, Coastal Protection and Maritime Signals Enhancement(TotalUS$llO millionof which IDA US$22.85million) The Government's ports and maritime transport upgrading, rehabilitation and maintenance program aims at contributing to trade facilitation, by increasing the efficiency o f the system, its connectivity with other segments o f the transport network, consequently lowering overall transport costs. The total program cost amounts to US$177 million, including the planned construction o f a new port at Fort Dauphin through a public-private partnership arrangement. To be realistic the program was divided into first priority actions, to be achieved between 2003 and 2008 (the time frame of the APL) and those planned for beyond 2008. The first priority actions amount to US$110 million (including the port in Fort Dauphin, the rehabilitation o f the Morondava and Antsirana ports - financed by AFD, and the part rehabilitation o f the Toamasina port through the envisaged concession), out of which IDA is expected to finance US22.85 as follows: - technical assistance, equipment and training for APMF, ENEM (Ecole Nationale d 'Enseignement Maritime) and C A M (Centre d'Apprentissage Maritime), as well as setting up o f a management - the rehabilitation and extension o f the Mahajanga port and rehabilitation works on the Manompana - information system inAPMF Sainte Marie ferry connection infrastructure - the rehabilitationof four main lighthouses and coastal navigation aids, as well as services and supplies to helpmake Madagascar compliant with the IMO-MARPOLconvention it hasjoined inMay 2003 - first phase o f littoral protection works o f Toamasina. Second phase actions, beyond 2008, include, among others, further rehabilitation works in Toamasina (to be financed by the concessionaire), expansion o f the Tulear port, reopening o f the Canal de Pangalan, further coast protection works and further rehabilitation o fmaritime signals. 3) Airport Safety and Security Equipment and Co-financing of Secondary Airports through Public-Private Partnerships (Total requirement US$79 million of which IDA US$7.77 million) The government's aviation policy aims at promoting trade and tourism, through institutional strengthening, airport infrastructure rehabilitation, safety and security development and general modemization o f the airport system o f Madagascar. Total programmed investments amount to about US$79 million. Out o f this, - 13-  IDA is planning to finance US$7.77m. IDA'Ssupport includes the following: - safety, security, and operational enhancements on the Malagasy airport network through the provision o f respective up-to-date equipment to comply with ICAO standards - the financing o f technical assistance to the VPM for the establishment o f public-private partnership arrangements on secondary airports 4) Support to the VPM (Total requirementUS$10.7 million, of which IDA US$8.62 million) This component will focus on strengthening the newly merged VPM to execute its function to oversee and coordinate the sector, and to finalize the reform process. It will finance the following: (i) the social plan for the redeployment o f about 60% o f the current 3,015 employees o f the V P M costing an estimated US$3 million; (ii) the provision o f technical support including technical assistance, training and equipment (US$4 million); and (iii)feasibility studies, preliminary design, detailed design and preparation o f bidding documents for future requirements inthe sector. Indicative Bank- % of Component costs % of financing Bank- (US$M) Total (US$M) financing 1) National Roads, including a financing gap o f US$30m 642.48 76.3 110.76 73.8 2) Ports and Maritime Transport 109.95 13.1 22.85 15.2 3) Airports 79.32 9.4 7.77 5.2 4) Support to the V P M 10.74 1.3 8.62 5.7 Total Project Costs 842.49 100.0 150.00 100.0 Total FinancingRequired I 842.49 1 100.0 I 150.00 1 100.0 1 2. Key policy and institutionalreforms supported by the project: This project will assist the Government to finalize the ambitious transport sector organizational reforms commenced under the A P L l and supported by APL2. APL3 will finance the social plan o f the V P M which will bringthe staffing in line with its mandate. While the remaining staff o fthe VPM will focus on strategic planning, oversight and coordination, regulatory and executive fimctions will be handled by autonomous agencies or authorities (ACM, APMF, RA and ATT). Operations o f viable infrastructure entities will be handed over to private sector operators through concession arrangements. APL3 will continue to strengthen the APMF, will assist to create the FL4 and ATT, and will promote the concessioning process, ifrequired. - 1 4 -  3. Benefitsand target population: The Government has identified the transport sector as one o f the main bottlenecks for economic and social development. About 80 percent o f the rural population has no reliable transport services due to poor road conditions, and one third o f these has no road access at all. Studies suggest that lack o f access to roads and markets, low agricultural productivity and rural poverty are closely associated. In participatory investigations as well as quantitative analysis o f household surveys, rural families stress poor roads and the need to improve agricultural productivity as among their major concerns. This is mirrored, for example, in the relationship between yields and remoteness. Rural households better connected to markets have a significantly higher productivity than those living in more isolation and the same relationship holds for the use o f modem inputs such as fertilizer. Isolation also implies lacking access to financial institutions and credit, forcing poor farmers to sell at times o f low, post-harvest prices. Export processing zones which are primarily located in the capital depend on reliable road and rail access to transport inputs and finished goods to the port o f Toamasina. The TIIP aims at reducing transport costs and delays in the whole country through the rehabilitatiodupgrading of main transport infrastructure. I t will thus benefit all transport users directly and the entire population indirectly. It will strongly contribute to private sector development, which inturnwill provide employment and reduce poverty. The rehabilitation o fthe national road network is also a necessity to ensure the benefits o f the rehabilitation o f the rural network (which is financed through APL2). Improvement o f the main ports and airports will enhance intemational trade and tourism. 4. Institutionalandimplementationarrangements: ImplementingEntities Procurement, financial management and reporting, and social and environmental safeguard implementation will be the responsibility o f the Program Executive Secretariat (PES) located in the V P M which works in close collaboration with the respective entities responsible for the execution o f the various sub-components of the project. The project organizational structure currently in place i s appropriate for planning, directing and controlling o f operations. Authority and responsibility assignments within the organization structure are clearly defined. FundsFlow World Bank Government Other donors (Credit funds) (Counterpart funds) PES: Specialaccount Project account Major works account Other accounts Goods suppliers, works andservices - 1 5 -  D. Project Rationale 1. Project alternatives considered and reasons for rejection: TIIP (APL3) builds on the institutional reforms and capacity building efforts supported through A P L l . It focuses on main transport infrastructure while APL2 supports rural transport infrastructure. A self-standing SIL would have been possible but would not have profited equally from the first two phases o f the APL. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financec xojects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Deterioratedtransport infrastructure Transport Sector Reform and S S and lack o f capacity Rehabilitation Project [US$65m) Rural Transport Project S S (US$8Om) Urban Infrastructure Project S S (US$35m) L o w productivity inthe agricultural Rural Development Support S S sector Project (US$89m) Community development and Community Development S S decentralization Project (US110m) HIV/AIDS Multisectoral STI/HIV/AIDS S Deteriorating natural resource base Third Environment Project (planned) 3ther development agencies European Union Roads (STABEX, FED7/8/9 USS254m) Afirican Development Bank Roads, railways (US$5 lm) French Development Agency Roads, ports, airports [US$35m) USAID Rural roads, railways (USS8m) NORAD Rural roads (US$7m) BADEA Roads (US$53m) 2hina Roads (US$28m) Japan Roads (US$37m) [FAD Rural development (planned) P/DO Ratings: HS (Highly Satisfactory), S Satisfactory), U (Unsatisfactory), HU (Highly Unsatis - 1 6 -  3. Lessonslearned and reflectedin the projectdesign: This project builds on the long years o f sector dialogue and the experiences gained from the implementation o f APLl and 2. I t continues in a sector-wide approach (SWAP) jointly with all donors to address the key issues o f the sector in order to ensure that it i s conducive to the envisaged economic growth and poverty alleviation. 4. Indications of borrower commitment and ownership: Madagascar i s currently undergoing an exciting new beginning.Having emerged from a deep political and economic crisis in2002 which propelled extreme poverty to levels observed a decade ago, the newly elected Government o f President Ravalomanana is embarking on many courageous reforms which are unique for Madagascar since independence in 1960. Much -- and unprecedented -- attention has been given to gaining confidence o f private investors by embarking on import tariff simplification and customs reform. Government has singled out transport as one o f three key issues (the others are governance and education) that need to be addressed as priority in order to address the government's economic growth and poverty alleviation goals. Significant reforms have taken place in the transport sector including the signing o f management contracts for Air Madagascar and the Northern Railway, the announcement that the most important port in the country (Tamatave) will also be concessioned, and the reorganization o f the Road Maintenance Fund. The recent merging o f the Ministry o f Public Works, Ministry o f Transport and Meteorology, and Ministryo f Regional Planning, and its placement under the Vice Prime Minister's Office i s a strong signal o f the commitment o f the new administration towards the transport sector. The Vice Prime Minister is transport expert who puts a very strong emphasis on solving the current transport issues. The Government is committed to finalize reforms in the sector and orient it towards a small but efficient public sector which works in close partnership with the private sector. 5. Value added of Banksupportin this project: Through its long-lasting association with Madagascar, IDA has developed a deep knowledge o f the country's transport sector. The Bank was instrumental in its assistance to the Government to formulate its transport sector policy and strategy. Due to its global outlook and experience, the Bank has important knowledge to offer with regard to the reform o f the various sub-sector o f transport, and in terms o f public-private partnerships. In addition, the World Bank Group, with its various institutions involved in the private financing o f infrastructure and through its various risk mitigation instruments (IFCiMIGANorld Bank guarantees), is in a unique position to leverage as much as possible private financing to complement and minimize public investments. The World Bank managed Sub-Saharan African Transport Program (SSATP) will assist Madagascar to exchange experiences with other countries o f the region and learn from them. The Bank's comparative advantage in contributing to the reform and development o f the transport sector i s well recognized by the stakeholders active in Madagascar, including the donors community, the private sector, and the NGO's. - 1 7 -  E. Summary Project Analysis (Detailed assessmentsare inthe project file, see Annex 8) 1. Economic (see Annex 4): 0 Costbenefit NPV=US$ million; ERR = % (see Annex 4) 0 Costeffectiveness 0 Other(specify) (i) National Road Maintenance, Rehabilitation and Upgrading: No specific economic analysis has beencarried out for the maintenance sub-component. This isjustified for two reasons: (1) road maintenance i s known to yield very highrates o f economic returns and (2) because maintenance is a sine qua non for the economic returns o f the rehabilitation sub-component. Concerning road rehabilitation, upgrading or construction, cost-benefit (consumer surplus) methods have been applied and will be applied in future selection cycles. All investments have been decided based upon the analysis carried out by the European Union VPM Institutional Support Unit. Detailed description o f their study can be found in their report Etude de planijlcation d'ensemble du rheau principal (RNP et RNS) (Global planning study for the national network) o f May 2002, updated in January 2003 under the title "Programmation et plannification des investissements sur riseau RNP et RNS! (Investments programming and planning on RNP&RNS network). Two scenarios have been examined: a pessimistic and an optimistic one, characterized by different levels o f traffic, and a simplifiedcalculation o f NPV and ERR of each investment has been done. The results o f theses studies are shown in the following table (when the pessimistic ERR was already above 15%, the probable scenario has not been further investigated). NPV are calculated usinga 12% discount rate: Port infrastructure rehabilitation: Most of the financing will be provided for the rehabilitation o f the port in Mahajanga which is a continuation o f A P L l activities. A detailed economic study o f this project i s being prepared. The actual infrastructure i s in a very bad state, and some piers will soon be out o f use, thus threatening the port's activity. Traffic experienced strong growth during the last years (+124% between 1995 and 2001), mainly due to the improvement o f the road to Antananarivo, inducing strong and profitable economic activities in the region, and due to new economic activities in the region, such as shrimp farming. To cope with this growth, further investments are necessary, including the reconstruction o f two piers. This project is considered a "second year project" (bidding to commence in September 2004) and economic, environmental and social analysis is still to be provided to and approved by the Bank. - 18-  2. Financial (see Annex 4 and Annex 5): NPV=USS million; FRR = % (see Annex 4) 1. TheRoad Maintenance Fund (RMF or FER) In 1999, the total budget of RMF was FMG 36.6 billion equivalent. In2003, it is estimated to reach FMG 362.5 billion, including various amounts camed forward, especially those coming from unused credit in 2002, due to the political crisis. Out o f this figure, in 2003, the subtotal revenue from RUC (Road Users Charges), representing FMG 90 billion, plus taxes on fuels and lubricants (which would be about FMG 59 billion), axel load fees, Province and local governments participation, and EDF (European Development Fund) are expected to be FMG 184.5 billion in 2003. The same subtotal revenue is expected to achieve (in FMGbillion) 186.5 in2004 (duringwhich taxes on fuels and lubricants are planned to be suppressed, axel load fees to be introduced - with an expected amount of FMG 17 billion, and EDF fund falling from 34.5 to 9.5); 244.3 in 2005 (the last year for EDF funding, amounting to FMG 8.3 billion); 250 in 2006; 302 in 2007; and, 321 in 2008. Those figures show that RUC would finance the bulk of RMF program, with 49% of the above mentioned subtotal revenue in 2003, going up to 83% as early as 2004 to achieve 85% in 2007 and 2008. Starting from 2006, RMF would only rely on its own resources (no more budget support from the Government, and no more EDF funding). Mainly due to the political crisis in 2001/02, the performance based on work fulfilled vs. work planned fell to only 30,44%, but in August 2003, this rate went up to 67,71% and the Secretariatis confident to achieve 100% by the end of this year. 2. The Civil Aviation Authority (ACM) The Civil Aviation Authority has been operational since January 2000. Its main revenue is constituted by passenger fees, called "FSD"(Safety Development Fund), which represented 91YOo f its total revenue (almost FMG 19 billion) in 2001, and about 80% for 2002 and 2003. Due to the political crisis, during which the total air traffic fell by 60%, ACM's total revenue went down to FMG 13.4 billion, which means a reduction of 29%. The main explanation i s that ACM's highestrevenue inFSD is inthe Regional Traffic, which was the most affected duringthe crisis. In2003, the total revenue i s expected to be FMG 17 billion, with the introduction and collection o f new fees (for landing and parking, on fuel and lighting), for a total amount o f FMG0.428 billion. Salaries represent 47% o f expenditures, with FMG 8.3 billion in2003, for a total number o f 283 employees; the amount o f investment for the same year would be FMG 1.8 billion, which represents 11% o f the total Budget. A C M is mainly investing in flight safety improvements through the acquisition o f telecommunications equipment, the rehabilitation o f offices and terminal buildings, and airports electrification as requiredby intemational Standard practices. Those are small urgentinvestments, more important safety and security investments will be financed partly underthe present project. 3. ThePorts, Maritime and River Agency (APMF) Before its current status, the Agency was funded by the Government from its own Budget. From now on, it will be financed by various fees, mainly the maritime flux fees collected on imported goods to Madagascar, which tariff i s USS5/ton, or US125 by container for long haul traffic and U S 5 0 by container for regional traffic. The other fees would come from port fees and merchant navy fees. The annual financial needs o f APMF are FMG 31.3 billion. The salaries represent FMG 5.3 billion, and the operation and maintenance costs, plus subvention to maritime schools: FMG 6.8 billion. The estimation for investment needs i s about FMG6.3 billion, excluding huge investments that would be financed by donors. Fiscal Impact: Because of the creation of regulatory agencies, like A C M and APMF, the Government does no longer collect user fees related to their activities, these will now be used to finance the operational cost o f these - 1 9 -  agencies. On the other hand, the Government will no longer have to pay their salaries as well as infrastructure maintenance and small investments. As well, those agencies will pay various taxes (especially, income taxes and Value Added Taxes) to Government. The same logical applies to the RMF: no more budgetary allocations for road maintenance are expected from the Government from year 2006 onwards. 3. Technical: Appropriate technical specifications and construction methods are being proposed by consultants and are discussed with the client and IDA during the current preparation o f the detailed design and bidding documents. 4. Institutional: 4.1 Executing agencies: The Executing agency will by the Vice Prime Minister Office and its various units and agencies. This newly created Ministry is a merger o f the former Ministry o f Public Works, the Ministry o f Transport and Meteorology, and the Ministry o f Regional Planning in January 2003. The V P M i s being strengthened through the provision o f technical assistance financed by the main donors (EU, WB and AfDB) particularly inthe areas o froadmanagement, general planning, and concessioning o fports, airports and railways. 4.2 Project management: The Program Executive Secretariat (PES) which was created under the A P L l and which i s also managing APL2, will provide an oversight management function, while focusing on procurement, financial management and project reporting. The capacity assessment o f PES has shown that its capacity i s adequate for the execution o f A P L l and 2 but needs reinforcement to take on the additional task o f managing the APL3. Based on these assessments, PES will require three additional staff, two in the procurement unit and one inthe financial management unit. 4.3 Procurement issues: The third Country Procurement Assessment Review (CPAR) for Madagascar was conducted inNovember 2002, followed by a workshop in June 2003 for the validation o f a joint CPAWCFAA action plan to ensure rapid implementation o f procurement reforms. Key elements o f the intended procurement reforms are: (i) revision of the draft procurement code to ensure transparency, to simplify procedures, and to comply with international standards, (ii) establishment o f effective procurement institutions to ensure that the new regulations will be adequately applied and to provide sufficient oversight and control and to improve efficiency through adequate delegation o f responsibilities, and (iii)implementation o f adequate training and capacity building to ensure the sustainability o f the procurement reforms. The existing Procurement Code o f 1998 will continue to be applied until the enactment o f the new code. The World Bank ascertained that deficient features identified in the 1995 CPAR have been properly addressed. IDA standard bidding documents (SBDs) are widely used. An area o f concern, however, is the cumbersome and overly bureaucratic approval process for contract signing by the Government which causes unnecessary delays. In addition, insufficient programming and procurement planning contribute to delays in project implementation which results in slow disbursement. To mitigate risks o f delays for the proposed project, proper prerequisites for the use o f Bank standard bidding documents, including evaluation reports for National Competitive Bidding procedures (NCB) have been agreed upon with Government during negotiations. The manual o f procedures will be updated as a part o f the Project Implementation Plan. A Procurement Capacity Assessment o f the PES, including training needs and arrangements, was - 20 -  conducted as part o f the project preparation. On the basis o f the initial assessment, an action plan was drafted to address areas where the PES needs to be strengthened. The action plan includes (i)a specific section on procurement in the Project Implementation Manual to be finalized before Credit effectiveness; (ii) organizationofthefilingofprocurement-relateddocuments; (iii) the procurement training sessions for project staff; (v) the financing o f independent procurement and technical audits to be carried out on a regular basis (see Annex 6 for details); and (v) the employment o f two additional procurement specialists. One of the issues that this project is trying to address is the insufficient number o f large scale civil works contractors (there are only two large scale contractors present) and the resultinglack o f competitiveness in the sector in Madagascar, as well as lack o f local contracting capacity. During the preparation o f this project the Director of Procurement Policy at the World Bank visited Madagascar and found that the following main issues impede large scale contractors from biddingin Madagascar: (i) lack o f knowledge o f the roads program outside the country; (ii) language being a hurdle for non French speakers; (iii) o f worry late payment o f counterpart funding; and (iv) shortage o f qualified human resources. In the meantime, the V P M has addressed these issues as follows: (i) a brochure has been produced with the long term road program in Madagascar, both in English and French, and a road show was held in South Africa (others are planned); (ii) an Englishversion o f bidding documents is being produced, bidders are allowed to submit bids in English, and contracts in English will be signed; and (iii) D C A contains a clause requiring the the client to establish escrow accounts for the counterpart funding o f each contract above US$10 million into which, at signing o f the contract, the requirement for one year will be deposited. 4.4 Financial management issues: The financial management arrangements o f the PES responsible for the implementation o f the project (APL3) have been reviewed to determine whether they are acceptable to the Bank. This review was rather an update o f the previous FM assessment o f the PES which is implementingthe first and second phases o f the transport sector program. The conclusion o f the review found the systems adequate. However, the following actions were requested in view o f the APL3: (i) a chart o f accounts to reflect components and activities to be financed under this credit (done); (ii) recruitment, on a competitive basis, o f an accounting assistant to face the additional volume o f transactions generated by APL3 (on-going); (iii) design o f the content and format o f Financial Management Reports (FMRs) (done); and (iv) preparation o f an addendum to the auditor's contract (for A P L l and 2) to include the audit o f the APL3 accounts. 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. High rates o f rural poverty i s putting pressure on the environment, and at the same time environmental degradation, and associated top soil erosion, i s reducing agricultural productivity and increasing rural poverty. I t is estimated that Madagascar lost about 12 million ha o f forests between 1960 and 2000, effectively reducing forests cover by 50 percent injust 40 years. The most severe losses took place in the 1970s and early 1980s during the height o f the socialist revolution when the practice o f slash-and-bum, locally known as tuvy, was actively encouraged in order to produce more rice to feed the growing urban population without need for investment in the declining irrigation infrastructure. Following the launch o f the National Environment Action Plan in the late 1980s, deforestation rates have since declined from over 400,000 hdyear in 1975-1985 to around 100,000 - 200,000 hdyear duringthe 1990s. This project will finance the rehabilitation o f existing transport infrastructure including national roads, ports and airports. Transport Sector Environmental Assessment (TSEA] - The APL program consists o f three phases, which -21 -  support the various transport sub-sectors. Prior to program appraisal, a transport sector environmental assessment was prepared. The TSEA, comprising three volumes, provided an overview o f the context in which the sector operates. The TSEA report (i)defined and analyzed the general environmental impacts related to each sub-sector, (ii) identified the potential environmental impacts o f activities planned under APL1, and (iii) recommended an environmental management plan. The TSEA report provided project managers in the transport sector with a permanent working document enabling them to develop a clearer understanding o f 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 conceming infrastructure and environmental protection. A proiect specific EA was prepared, approved by AFTES and disclosed on August 4, 2003. The executive summary o f the EA can be found inAnnex 11o f this PAD. The EA focuses on the first year sub-projects, second year sub-projects will still require specific Environmental Assessments, particularly inrespect o f the rehabilitation o f provincial airports which will be rehabilitated in a public-private partnership framework. 5.2 What are the main features o f the E M P and are they adequate? The EMPs o f the first year projects which are part o f the EA include measures such as erosion control, dampening o f gravelled surfaces during construction, HIV/AIDS prevention, and reforestation o f watersheds. These measures are estimated to cost $400,000 during the first year o f project implementation. 5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: The EA was disclosed on August 4,2003 5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? Wide consultations with various stakeholder groups took place during the preparation o f the EA. A workshop was held inJune based on the draft report to solicit and incorporate views o f the public. The EA disclosure was accompanied by press and radio releases. 5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP? The EA identified indicators to monitor general project impact in the following areas: (i)erosion, (ii) depletion o f fauna, flora and natural habitats, (iii) impacts, (iv) sustainability o f investments, and (v) social waste management. For each o f these areas, mitigation measures, verifiable indicators, and monitoring agents were identified. Monitoring agents include technical departments o f concerned ministries, the semi-autonomous agencies o f the VPM, supervising engineers, and local communities. The indicators are appropriately chosen and sufficiently detailed to support the EMP. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. A resettlement policy framework was prepared and disclosed in the framework o f the APL2. All road works will be carried out on existing platforms and there will be no modification o f alignments. Investments in the ports and airports will take place within existing perimeters. The EA has shown that the first year sub-projects (chiefly the roads) will not trigger resettlement. Should any o f the second year project require resettlement, the resettlement policy framework would apply and respective resettlement action plans would be prepared, presented to IDA for review and approval, and would be implemented by the safeguards unit o f PES. - 22 -  Transport projects are known to have substantial risks o f promoting the spread o f HIV/AIDS. The prevalence o f HIVIAIDS is still low but concem is growing that the previously assumed rate o f under one percent i s severely underestimated. Encouraging is the very outspoken position o f the President who is leading the fight against the disease. The V P M has put a policy inplace and works contracts systematically contain clauses to introduce preventive measures on construction sites. It is proposed that the PES cooperates closely with the National AIDS Council and makes extensive use o f NGOs to promote safe practices within the ministry,contractors, and the transport sector. 6.2 Participatory Approach: H o w are key stakeholders participating inthe project? Participatory approaches were applied during the preparation o f the EA and EMP, as explained in paragraph 5.4 above. Investment decisions for main infrastructure, such as national roads, ports, and airports are made by Govemment and the project was prepared in close collaboration with the relevant departments and agencies. The public-private boards o f the Road Fund and the A P M F will be closely associated with the management o f their subsectors. 6.3 H o w does the project involve consultations or collaboration with NGOs or other civil society organizations? As per 5.4 above for the environment. Public consultation was sought during the May 2003 transport conference where strategic choices were confirmed and this process will be repeated annually. NGOs will be particularly involved inthe HIV/AIDS prevention activities o f the project. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The safeguard unitofPES is fully operational and in the process o f transferring knowledge to the respective unit in the VPM. 6.5 H o w will the project monitor performance interms o f social development outcomes? Through baseline and follow up studies. 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies, An EA has been disclosed on August 4, 2003. A resettlement framework was prepared as part of the APL2 and was disclosed in July 2002. There will be no resettlement caused by the first year project o f APL3 (the national road upgrading, rehabilitation and maintenance). Should a second year project (essentially the - 23 -  expansion o f the Mahajangaport) cause resettlement action, the resettlement framework would apply. F. Sustainability and Risks 1. Sustainability: The sustainability o f investments financed in the TIIP i s based on the institutional reforms that have already been made or are on-going such as: (i)the merger o f the transport sector ministries and their focusing on strategic planning, oversight and coordination; (ii)the creation o f user-financed, arms-length authorities such as the RMF, RA, ACM, APMF, and ATT; (iii) the concessioning o f the operations o f the railways, major ports and airports to the private sector; (iv) the privatization o f parastatals, such as AIRMAD; and (v) the creation of a conducive legal and regulatory framework for all o f the above. All these reforms have been initiated, some have been completed and others are on-going. Their successful completion is considered a condition for the sustainability o f the investments made into the sector. 2. Critical Risks (reflecting the failure o f critical assumptions found inthe fourth column o f Annex 1): Risk Risk Rating I Risk Mitigation Measure From Outputs to Objective I Sufficient private sector capacity cannot S Small scale contractor training programs are be mobilized to execute the ambitious beingfinanced under APL-I to enhance local program. capacity. Large lots are being created to attract new international contractors and consultants, and a special outreach campaign i s being made to attract them. Further, contractors are being allowed to bid inEnglish and escrow accounts are beingestablished for the counterpart contribution Other donors' financing is not M This risk is being mitigatedthrough a forthcoming as planned. SWAP-like approach where all donors work within one Govemment-defined program Roadmaintenance fund does not operate M There were problems with the RMF in the past. as planned. Meanwhile a new decree has been passed, a new Manager selected, TA is provided (by EU) and user fees have been increased Private sector does not respond to bids for M Experience in other countries shows that this the operation o f the ports and airports. riskis not high.Importance will be how the private sector assesses political risk. The use o f MIGA to mitigate risks will be considered Contractors can not find sufficient skilled S N e w contractors will need to come with an labor to operate appropriate number o f skilled staff and provide training for local staff - The biddingdocuments will need to include such services From Components to Outputs V P M risks not to have sufficient capacity M PES procurement and financial management to implement the ambitious program. teams are being strengthened to cope with the additional work load. TA is providedto the VPM to bridge capacity gaps and to build capacity and large scale training programs are - 24 -  being executed to enhance the capacity o f V P M staff Overall Risk Rating M Risks Riskrating RiskMitigationMeasures Implementing Entity L o w NIA Funds Flow L o w NIA Staffing L o w NIA Accounting Policies L o w and Procedures Internal Audit L o w NIA External Audit: Moderate Negotiation with the auditors recently Weak capacity o f the accounting selected for APL2 to carry out the audit o f profession in Madagascar. APL3 accounts. Monitoring and Reporting L o w NIA Information Svstems L o w NIA 3. PossibleControversialAspects: G. Main Loan Conditions 1. EffectivenessCondition The borrower has opened a Project Account and deposited therein the amount o f US$350,000 equivalent. 2. Other [classify according to covenant types used in the Legal Agreements.] Financial: Prior to signing o f each works contract estimated to cost more than US$lO million equivalent, the borrower is to open a "Major Works Account" into which the amount o f counterpart fundingrequired for one year i s deposited. After one year, these accounts are to be replenished to cover the amount for a further year, and so on, untilcompletion o f the contract. Safeguards: For each o f the second year (and following year) sub-projects (sub-projects for which a detailed EA has not yet been prepared, submitted and approved) an EA, EMP, and RAP, as necessary will be prepared, and submitted for IDA approval, prior to the approval o f the respective biddingdocuments. Quarterly consolidated reports on compliance with safeguard measures on the project will be submitted as part o f the FMR. - 25 -  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. 42. The procurement documents for the first year's activities are complete and ready for the start o f project implementation. H3. TheProjectImplementationPlanhasbeenappraised andfoundto berealistic andofsatisfactory quality. 04. Thefollowingitemsarelackingandarediscussedunderloanconditions(SectionG): Not all engineering designs o f the first year activities are complete. We are requesting exemption to this requirement, due to the following. Since initiation o f the preparation o f this third phase o f the Adjustable Program Loan, it was planned to commence road works (by far the largest component o f this project) in May 2004 aRer the rainy season. For this to happen, engineering designs and bidding documents must be ready by February 2004. During appraisal, progress o f the preparation o f engineering designs and bidding documents for the roads component were assessedand it was found that the client is in compliance with the original schedule, and will be able to issue bidding documents by February 2004, as planned. The reason for taking this project forward to Bank's Management approval by December 4, 2003, is that parliamentary endorsement is required during the December 2003 session. The next session o f the parliament will take place in June/July 2004 which would lead to a delay o f the execution o f the project and to missing part o f the dry season, the use o f which is crucial for construction progress. 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. I Dieter E. Schelling C. Sanjivi Rajasingham Hafez M.H.Ghanem Team Leader Sector Manager Country Director - 26 -  Annex 1: Project Design Summary MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT Key Performance Data Collection Strategy ISector-related Hierarchy of Objectives Indicators CAS Goal: Sector Indicators: Sector1country reports: Improved quality o f life o f Improvedrural well-being Socioeconomic baseline vlacro-reform program the rural population through indicators ;tudy in90 villages along ,emains on track economic growth and better :he alignment o f the rural access to economic and -oads and follow up survey social facilities it completion o f project Strengthening the public [mplementation o f the 2uarterly reports o f PES 4s above sector's ability to deliver transport sector reform quality services and create ?rogram as per the sector an enabling business policy environment Program Purpose: End-of-Program Indicators: 'rogram reports: from Purpose to Goal) ITransport costs reduced and Reduction o f average transit Xespective surveys are 2oncessionaires operate accessibility improved :ost and time inmain :urrently being carried out. roperly. specially inrural areas (fron :orridors ?allow up surveys will be APL1) :arried out intermittently indat the end ofthe project. :mproved accessibility from Vumber o f persons provided toad Maintenance Fund .emote areas o f the country vith reliable access inances rehabilitatedrural o the main production and nonitored as part o f APL2 oads adequately. :onsumption centers Project Development 3utcome IImpact 'roject reports: from Objective to Purpose) Objective: ndicators: To rehabilitate the country's I.Increased traffic through Surveys o frespective 3overnment's general major transport mproved transport igencies o f VPM and PES xonomic program and its infrastructure in order to nfrastructure (both ransport sector reform reduce transport cost and to Jassengers and freight). x-ogram remain on course. facilitate trade 4verage annual traffic ncrease: 10% after .ehabilitation ?. Decreaseduser costs: )etween 20% and 60% iepending on road link (see xonomic analysis) 3.Decreaseduser time lelays: between 30% and !OO% depending on link see economic analysis) - 27 -  0utput fromach Output Indicators: Project reports: (from Outputs to Objective) Component: 1.National roads 4400 km o f national roads Annual report o f Road Sufficient private sector rehabilitated and maintained rehabilitated by average Authority (and until its capacity can be mobilized to annual tranches o f about creation the annual report o f execute the program, other 750 km (of which 1274km the Road Department o f the donor financing is by IDA) so that by end o f VPM) forthcoming, and Road 2008 all national roads Maintenance Fundoperates (RNP & RNS) are ingood properly. and fair condition. 2. Main ports rehabilitated Mainports concessioned Annual report o f APMF Private sector responds to andwell operated and smaller ports under bids global concession arrangements 3. Main airports well Ivato concessioned, seven Annual report o f A C M Private sector responds to operated and safety and secondary airports bids security enhanced franchised and tertiary airports are under management contracts 4. VPM functions properly Social plan is executed and Quarterly brochure o f VPM Support for the reform i s remaining staff adequate for provided by the president the functions o f the V P M -28 -  Data Collection Strategy Project Components I Inputs: (budget for each Project reports: from Components to Sub-components: component) lutputs) 1. Rehabilitation and US$642m (IDA US$14lm) Quarterly report o f PES, h f f c i e n t capacity o f VPM Maintenance o fNational Road Maintenance Fund md PES Roads US$66m Annual Report, and 1.1 RN2/44 technical and financial audit US$8m 1.2 RN7 US$17m 1.3 RN32 US$59m 1.4 RN 5a US$4m 1.4 Ferries 2. Ports US$11Om(IDA Quarterly report o f PES and 9s above US$22.85m) reports o f APMF and the port concessionaires 3. Airport Safety and US$79m (IDA US$7.77 m) Quarterly report o f PES 4s above facilitation ofpublic-private partnership 4. VPM Support US$10.7m(IDA USS8.62m) - 29 -  Annex 2: Detailed Project Description MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT By Component: Project Component 1: National Road Upgrading, Rehabilitation and Maintenance Program - US$642.49 million The national road upgrading, rehabilitation and maintenance program aims at bringing all the primary and secondary national roads (7,313 km) to good and fair condition by end o f 2008. To achieve this, total investments and maintenance finance amounting to US$642 million is required. Out o f this, the Road Maintenance Fund (RMF) i s planned to finance about US$70m, the Government about US$98m, other donors about US$333m (the bulk o f which the EU), and IDA USS14lm. The program i s planned to achieve: (i)thepavingof627kmofgravelroadstobituminousstandard; (ii) rehabilitationof683kmofbituminousroads; the (iii) rehabilitationof2,178 kmofgravelroads; the (iv) the periodic maintenance o f 2,065 kmo f paved roads; (v) the routine maintenance o f all roads that are in good and fair condition (which is increasing annually); and (vi) the minimal maintenance works on roads not yet rehabilitated to keep them from further deteriorating, and, if possible, to keep them passable during rainy season (estimated cost: US$500/km on national paved roads and US$150/km on rural roads). Ofthe above, IDA will finance the following: 1.1 RN2 and RN44/RN3A package (USS65.7 million. o f which IDA USS60.1 and G o M USS5.5) The RN2 links the capital Antananarivo with the mainport o f Toamasina. Traffic levels are relatively high with about 1,500 vehicles per day and a high share o f heavy trucks. It i s expected that through the rehabilitation o f the Northern Railway (which has been concessioned to a private operator) much o f the heavy loads, and particularly fuel transports, will in the future be made by rail, thus relieving the road. The RN44 branches o f f from the RN2 at Moramanga and links to the main rice growing area o f the country o f Lac Alaotra. The road i s in dismal condition and mostly impassable during rainy season. During a recent survey it was found that trucks take up to 13 hours for the 120 kilometers, ifthey pass at all. This large package is being created in response to the government's wish to attract new contractors to the country. Currently there are only two large scale contractors operating in Madagascar and it would be highly desirable to attract new contractors in order to enhance competition in the sector. This package, other large packages financed by the EU and the AfDB, and the entire transport sector program should assist to make Madagascar attractive for new large capacity contractors. A special outreach and information campaign is under way. The package consists o f the following works: -- paving of RN44 from Marovoay to thejunction with RN3A (112km- traffic about 300 vehicles per day) rehabilitation o f the RN44 from Ambatondrazaka to Vohitraivo (69km) to gravel road standard - heightening o f about a 2 km section o fthe embankment on the RN3A near thejunction with RN44 which i s frequently flooded, and - 30 -  - provision o f an overlay (periodic maintenance) on RN2 between Antananarivo and Brickaville (249km). The VPM, with the support o f consultants, i s finalizing the Preliminary Project Design o f the technical studies. The bidding document for works should be launched at the end o f February 2004, in order to start the works inApril 2004. 1.2RN7 (US$S.O million, o f which IDA US$7.3 and G o M USS0.7) This road can be considered "the spine" o fthe road network o f Madagascar. I t is the highest trafficked road with traffic levels o f about 2,000 vehicles per day and a high share o f trucks. Works consist o f 295 km o f periodic maintenance (bituminous overlay), in various sections, on the RN7 between Antananarivo and Fianarantsoa and beyond. 1.3 RN32 (USS17.1million, ofwhich IDA US$15.7 and G o M US$1.4) This secondary national road branches from the RN6 that connects Antananarivo with Antsiranana, at Ansohihy and connects to Mandritsara, a departmental capital in a major agricultural production zone. Works consists o f the rehabilitation o f 186 km o f an existing bituminous road which i s quite badly deteriorated (70% o f its length is in poor condition). Due to low traffic levels, full rehabilitation is not justified and appropriate intervention levels need to be defined during design. A possible approach will be to rehabilitate to bituminous level only on the first half o f the road where traffic levels are higher, and to rehabilitate the second half to gravel standard. 1.4 RN 5a (US$59.1 million, o f which IDA USS 54.1 and G o M USS5.0) This national road links the RN 6, the region of Antsiranana and the rest of the Malagasy road network with the eastern coast region o f Vohemar and Sambava. This region i s very difficult to reach by the road due to the very bad condition of the RN 5a. However, it has an important economic role to play since it i s the main vanilla growing area, and also one of the main litchi and clove producer, which are three major export products in Madagascar. Works consist o f the rehabilitation and paving from Ambilobe ('junction with RN6) to Vohemar (159 km). 1.5 Replacement o f femes (US$3.7 million, o f which IDA US$3.6 and G o M US$O.l) There are 82 femes being operated on the road network o f Madagascar. Many o f them are in poor condition and in urgent need o f repair. These femes are currently being managed by the Provincial Road Departments. A commercialization study on ferry services has shown that involvement o f the private operators is possible particularly on femes with carry considerable traffic volumes. Inconjunction with the commercialization o f the femes, the Government has drawn up a plan for their rehabilitation. Out o f this plan the Government has asked for IDA financing o f the rehabilitation o f 29 femes for an amount o f US$3.7million. Project Component 2: Institutional Strengthening, Port Upgrading, Coastal Protection and Maritime Signals Enhancement - US$110.00 million The ports upgrading, rehabilitation and maintenance program aims at strengthening international economic activities for Madagascar. Total investments and maintenance finance programmed amount to US$l10 million. Out o f this, IDA i s expected to finance US$23m, other donors and the Govemment USS57m. The program i s planned to achieve: (i) institutional strengthening; (ii) rehabilitation o f the ports o f Toamasina, - 31 -  Mahajanga, Nosy Be, Antsiranana, Morondava; (iii)rehabilitation o f the maritime signalling; (iv) environmental and coastal protection; (v) studies for the dredging o f the Canal des Pangalanes to restore minimumnavigational depth between Toamasina and Manakara, and to prepare the concessioning o f the operational maintenance o f the canal to a private operator; and (vi) a study for the construction o f a new port inFort Dauphin (the works would be financed later on by the private sector and GoM). Of the above, IDA will finance the following: 2.1 Institutional strengthening (USS3 million, of which IDA USS2.7 and G o M US$0.3) APMF, ENEM, CAM. The project will finance technical assistance and training for APMF, together with an information system. Management and training equipment will be provided to APMF, ENEMand CAM. 2.2 Port infrastructure rehabilitation (US$14 million, o f which IDA US$12.8 and GoM USS1.2) Mahajanga. The project will finance the rehabilitation o f existing operational areas, complementing the works already camed out under APL1, and a limited extension made necessary to accommodate the increasing number o f containers now passing through the port, carrying in particular high-value seafood products. Further works will be necessary later on, which could be financed under a new APL, or with the participation o f other donors. AFD has actually signalled its willingness to support these developments alongside the Bank. Liaison Grande Terre - Sainte Marie. The project will finance limited rehabilitation o f existing infrastructure. 2.3 Maritime signalling ( U S 2 million. o f which IDA US$1.8 and G o M USS0.2) The project will finance the rehabilitation o f the four main lighthouses o f Madagascar. The 39 other lighthouses need rehabilitation for an amount o f US$4.8 million. This could be financed under the next APL or by another donor. 2.4 Environmental protection lUS$6 million, o f which IDA USS5.5 and G o M USS0.51 The project will finance the rehabilitation o f basic coastal navigation aids, as well as services and supplies to help make Madagascar compliant with the IMO-MARPOLconvention it has joined inM a y 2003. Itwill support financing the first phase o fthe littoral protection works o f Toamasina, and the acquisition o f equipment for oil spill contingencies. Project Component 3: Airports Safety and Security Equipment and Co-financing of Secondary Airports through Public-Private Partnerships - US$ 79.32 million The Government's objective o f increasing tourism and exports manufacturing, involves the following priorities for air transport: promotion o f growth inthe sector, infrastructure rehabilitation, modernization o f airports infrastructure to accommodate future growth and acceleration o f the sector reform, especially by facilitating public-private partnerships in the airports management system. Thus, the proposed project will address primarily the provision o f financial requirements to facilitate public-private partnerships in the airports management system, and to increase the involvement o f the private sector in the airport network. Secondly, the project will support the modernization o f the airport system o f Madagascar to reach international standards in safety, security and airport operations. The project will inparticular focus on two - 32 -  key areas: financing safety and security equipment for all the airports. Total programmed investments amount to U S $79 million. Out o f this, IDA i s expected to finance US $ 7.77 million, the balance by the private sector, other donors, and the Government. 3.1 Promotion o f Public-Private Partnershiu (US$I.O million, of which IDA USS0.8 and G o M USS0.2) IDA will support the promotion o f public-private partnerships as well as the reinforcement o f the institutional capacity by providing technical assistance to the V P M for the facilitation o f the implementation o f the state's disengagement from the airport management and the increase o f the private sector participation. 3.2 Safety, security and operational enhancements on main airuorts (USS7.3 million. o f which IDA USS6.92 million and GoM US$0.36 million) The aim of this sub-component i s to improve the security and the safety o f the main airports, as well as their operations to international standards through provision o f equipment, including: (i)aeronautical telecommunications equipment; (ii) the meteorological equipment; (iii) security equipment; (iv) safety fire equipment; and (v) airport operational equipment. Project Component 4: VPM support US$10.70 million - This component will focus on general and institutional support for the VPM. It will finance the following: 4.1 Deployment plan (US$3.1 million. o f which IDA US$2.3 and G o M US$0.8) The strategic staffing plan o f the V P M i s under preparation and proposes incentive packages for retirement, pre-retirement, voluntary departure, training to integrate private sector companies, and internal staff training. 4.2 General support (US$4.2 million. o f which IDA US$3.7 and G o M US$0.5) Government has requested technical assistance to implement a coaching program for V P M staff and general technical support, realizing that current capacity will not allow the administration to appropriately discharge its functions. For this purpose following amounts have been allocated: (i) US$1.5 million for Technical Assistance; (ii) US$1.4 million for various small studies; (iii)US$0.8 million for training; and (iv) US$0.4 million for equipment. 4.3 Studies for future phases (USS3 million. o f which IDA USS2.4 and G o M USS0.6) An amount o f USS3 million is allocated for feasibility studies, preliminary and detailed design, and preparation o f bidding documents for future needs in the sector, to be financed either through a fourth phase o f the APL, a Sector Investment Lending (SIL) or through future annual tranches o f the PRSC. 4.4 Operating costs (US$O.3 million. o f which IDA USS0.24 and G o M USS0.06) - 33 -  Annex 3: Estimated Project Costs MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT Foreign Total US $million 1. Roads 230.30 393.29 623.59 2. Ports 34.78 72.64 107.42 3. Airports I 9.60 69.40 79.00 4. VPMsupport 6.59 3.71 10.30 Total Baseline Cost 281.27 539.04 820.3 1 Physical Contingencies 5.64 9.53 15.17 Price Contingencies 2.58 4.43 7.01 289.49 553.00 842.49 289.49 553.00 842.49 Works 236.77 355.15 591.92 Goods 9.18 46.61 55.79 Consulting and Audit 26.88 67.36 94.24 Training 1.39 3.25 4.64 Operating Costs 1.28 0.00 1.28 Unallocated 35.07 59.55 94.62 Total Project Costs1 310.57 53 1.92 842.49 Total Financing Required 3 10.57 53 1.92 842.49 1 Identifiable taxes and duties are 0 (USSm) and the total project cost, net o f taxes. is 842.49 (US$m). Therefore. the project cost sharing ratio is 17.8% of total project cost net of taxes. - 34 -  Annex 4: Cost Benefit Analysis Summary MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT National roads: The objective o f the road component o f the project i s to reduce road transport costs and preserve the national road network in an efficient and sustainable manner. The proposed investments will reduce road user transport costs by lowering vehicle operating and travel time costs. Investments have been decided based upon the analysis carried out by the Cellule d'Appui aux Riformes Institutionnelles et a I 'Entretien Routier o f the European Union (VPM Institutional Support Unit). Detailed description of their study can be found in their report Etude de planification d'ensemble du rbeau principal (RNP et RNS) (Global planning study for the national network) o f May 2002, updated in January 2003 under the name Programmation et plannification des investissements sur riseau RNP et RNS (Investments programming and planning on RNP & RNS network). The report studies the overall works that are programmed on the national network by the donors, consisting o f rehabilitation, periodic maintenance works and construction o f 4857km of roads, corresponding to an investment o f US$643 million (85 percent o f the project costs). The rest o f the roads component is routine maintenance carried out by the RMF for an amount o f US$60 million. The analysis i s based on the comparison o f life cycle road costs and vehicle operating cost and passengers time savings. It was done using a 12 percent discount rate. The paragraphs below summarize the results o f the analysis for the works to be financed by IDA. Summary of Benefitsand Costs: Method: Initial work consisted o f an analysis o f the possible levels o f development and o f a simplifiedcalculation o f N P V and ERR o f each investment. The study was based on simple data available for all the detailed sections o f the RNP and RNS network (sections register, traffic and state kmby km, operations costs o f the vehicles), on the following pattern: The goal o f the IRR calculation was to specify inan homogeneous and summarized way the profitability of each rehabilitation or periodic maintenance project considered for the main network. It is based on the comparison o f two situations: e the ((Situation Without Project ))(SOP) e the ((Situation With Project ))(SWP). The situation without project represents the most likely evolution o f the road if the project i s not executed. The situation with project is the result o f the execution o f the project programmed. The point is to specify the advantages brought with the second situation. - 35 -  Basic data per section, length, surfacing, current state, traffic, rtha bilitation ~ o s t... , I I I I Rehabilitation strategy statettraff ic= >level of rehabilktation Sum costtslhenefit Sum co sts#benefit Situation without project Situation with project I 20 years projection tHH Main Assumptions: As for the advantages, the model is limited to the direct results from the project, according to the modification o f the flow between the situation with or without project for each following year. It has been taken into consideration that : the VOC is reduced ; the travel time is reduced ; the maintenance costs are reduced ;and the road have a higher asset value at the end o f the period considered. The remaining asset value is assumed to be 40% o f the initial investment. 1. The volume o f traffic is the key element on which the calculation is based. Two types o f traffic are considered : the normal traffic and the induced andor rerouted traffic. The normal traffic is related to macro-economic data such as the GNIper capita, households consumption, fuel prices, number o f vehicles, population, etc. The induced andor deflected traffic is generated or rerouted by the improvement or the degradation o f the road's condition. So, the variation rate o f the induced traffic can be negative, which represents a diminution o f the number o f vehicles using the section o f road considered, in particular in case of continuous degradation or o f deterioration o f the existing infrastructure. The base traffic (or reference data) corresponds to the latest traffic counts available from the (former) Ministry of Public Works (now the Vice Prime Ministry), and in particular from the Cellule d'Appui Institutionnel. The main study used is the Traffic Count made by LBII inAugust and September 2001. The roads where the traffic count is missing are considered equivalent to the comparable roads. However, these indicative data will then be adjusted project by project depending on the level o f service obtained and the available knowledge o f the road. - 36 -  2. The main costs that have been taken into account inthe model are: works costs: rehabilitation, periodic and routine maintenance vehicle operation cost (VOC) passenger time costs. 2.1 The works costs are the investment amounts necessary for the rehabilitation and maintenance, given with tax. Some periodic andor routine maintenance costs are added to both situation with or without project so as to maintain the level o f service constant and to preserve the existing asset . The unit costs by kilometer used in the model come from previous studies done by the Ministry o f Public Works, and the Cellule d 'Appui Institutionnel, in particular. These unit costs reflect the empiric costs accounted over a period o f fifteen years by the Ministry.They take into account the different studies (APS, APD, DAO, etc.) that the Ministryor Consultant Companies have canied out over the years, as well as the actual prices noted on the contracts. Inparticular, the study largely usedthe unit costs gathered in the << Manuel d'Appui a la Programmation de I'Aminagement et de I'Entretien des Routes d I'Usage des Inginieurs Routiers )) (Users Handbook for road engineers in the programming o f roads installation and maintenance), issued by the Ministryo f Public Works. They differ according to the level o f service, and the geographical, meteorological and geotechnical situation. Inorder to determine the investment to adopt for each section, a new indicator has been introduced inthe model. This G index ))would indicate the global condition o f the section o f road being considered. It varies from 0 to 9 and is determined by the following formula : Index = 0 x YOGood Condition + 3 %Fair x Condition + 9 % Bad x Condition The following table summarizes the type o f work chosen depending on the type and condition o f the road. Table 1. Type o f works and condition o f application I I I I Code Works Conditions EC-RB-1 Routine Maintenance Bit. Road level 1 For a bituminous road with index less or equal to 3 EC-RB-2 Routine Maintenance Bit. Road level 2 For a bituminous road with index superior to 3 EC- RT- 1 Routine Maintenance Earth Road level 1 For an earth road with index less or equal to 3 EC- RT-2 Routine Maintenance Earth Road level 2 For an earth road with index superior to 3 EP-RB-1 Periodic Maintenance Bit. Road "mini" For a bituminous road with index less or equal to 3 EP-RB-2 Periodic Maintenance Bit. Road "traffic" For a bituminous road with index superior to 3 and less or equal to 6 EP-RB-3 Periodic Maintenance Bit. Road "damaged" For a bituminous road with index superior to 6 EP-RT-1 Periodic Maintenance Earth Road "mini" For an earth road with index less or equal to 3 EP-RT-2 Periodic Maintenance Earth Road "traffic" For an earth road with index superior to 3 and less or equal to 6 EP- RT-3 Periodic Maintenance Earth Road "damaged" For an earth road with index superior to 6 AUCUN No works If index is less or eaual to 3. that is. for the section in good or fair condition 100% BIT-RT-RB Bituminize ex Earth Road For an earth road with traffic superior to 150 REH-RT Rehabilitation Earth Road For an earth road with traffic less or equal to 150 REH-RB-1 Rehabilitation Bit. Road Mini For a bituminous road with index superior or equal to 6 and with heavy vehicle traffic less or equal to 50 REH-RB-2 Rehabilitation Bit. Road Traffic For a bituminous road with index superior or equal to 6 and with heavy vehicle traffic superior to 50 CON-RB-1 Construction Bit. Road traffic Construction of new road - 37 -  The standard costs for each works type were taken as follows : Table 2. Standard costs o f works Traffic counts category VOC classification 1. Car 1. Car 2.4WD 2. Family car, Minibus 3. Minibus 3. Truck and bus o f TWC<lOT 4. Mediumbus 5. Light goods vehicle 4. Truck and bus o f T W C >10 and <16T 6. Light truck r 5. Truck o f TWC>16T 7. Heavy truck 6. Articulated truck I 8. Articulated truck I 2.3 The passenger time cost differs according to the income o f the user and the reason o f the travel. The calculations made inthe model are based on the book Economie des transports (Transport Economics) by Martine TEFRA. The main assumption is that the value of time is about 50% o f the hourly income for the short trips and 25% for the long trips. According to the study made by B C E O M on the roads RN34, RN35 and RN41 in 1999, the GNI per capita and per hour for the 10% richer population, which was 5,100 FMG, corresponds to the hour cost o f time for a travel related to work. This value was multiplied by 0.5 for the trips in pick-up and by 0.67 for the trips inminibus and coach. For the other trips, these numbers were divided by 2. - 38 -  In addition, it was observed that in the study made for the road RN1 in July 2001, SCETAUROUTE Intemational used 3.000 FMG as the value o f time for passengers o f private cars, and 300 FMG for passengers o f collective means o f transport. The assumption made for this study was that the cost o f time is 2,500 FMG per passenger and per hour, which i s an average cost consistent with the two studies available (the study made by B C E O M on the roads RN34, RN35 and RN41 in 1999, the study o f the RN1 bis in July 2001 by SCETAUROUTE Intemational) and with the book Economie des transports (Transport Economics) by Martine TEFRA. Calculations The annual traffic i s obtained by the multiplication o f the AADT (average annual daily traffic) per 365 for each category. The calculations and projections are made over a period o f 20 years, considered as the average life-time o f a road project. The net profits are derived from the difference between the series o f costs o f the situations with and without project. The annual profits obtained are escalated with a rate of 12% per year. The sum o f the annual escalated profits gives the NPV. The IRRi s the interest rate corresponding to NPV=O. Program Then, the program was made on the following methodology: Grouping in bigger homogeneous sections, more pertinent on an "itinerary scale" (the initial data were very detailed). Utilization o f the study o f May 2002 for the choice of the appropriate rehabilitation solutions, then smoothing and manual correction (mostly downwards) on the basis o f empiric knowledge. When the overall ERR i s higher than 12%, we consider it sufficient to directly plan a detailed study for the section When the overall ERR is weak (less than 12%), we first do a feasibility study in order to better define the solution to be adopted (in terms of levels o f rehabilitation, as well as knowledge o f induced impacts, type of layout, ...). The methodology used can be described as follows: - 39 -  detailled study already existing I Detailed study Factibility study I I I I Smoothing I manual corrections DonuE information Dispatching orworks and studies All IDA studies (detailed & feasibility) are being camed out under the APL-1 financing on the same pattern o f cost-benefit analysis. The current project will be limitedto appropriate investments along with supervision and control activities. When applicable, a new calculation of the NPV and IRRwas made. Sensitivityanalysis/ Switchingvalues of criticalitems: Results: The main results of the economical studies, as shown inthe Etude deplanijkation d'ensemble du riseau principal inFebruary 2002 and in Programmation et plani3cation des investissements sur le riseau RNS et RNP inJanuary 2003, are reported inthe table below: IActual Traffic Cost NPV NPV (VPd) I Pessimisticcase Optimistic case Road (US$ million) ERR (US$ million) ERR (US$ million) RN2 Km 0 to 249 668 38.78 Yo 29.1 - 40 -  Annex 5: Financial Summary MADAGASCAR:TRANSPORTlNFRASTRUCTURElNVESTMENTPROJECT Years Ending I Year1 I year2 I Year3 I year4 I Year5 I Year6 I Year7 I Total Financing Required Project Costs Investment Costs 125.2 176.8 194.4 183.7 106.0 0.0 0.0 Recurrent Costs 10.3 12.2 13.2 12.2 8.5 0.0 0.0 Total Project Costs 135.5 189.0 207.6 195.9 114.5 0.0 0.0 Total Financing 135.5 189.0 207.6 195.9 114.5 0.0 0.0 Financing IBRDllDA 15.5 41.6 43.O 42.2 7.7 0.0 0.0 Government 1.8 4.7 5.0 5.0 1.o 0.0 0.0 Central 1.8 4.7 5.0 5.0 1.o 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 105.3 124.5 134.0 124.5 86.2 0.0 0.0 RMF 12.9 15.3 16.5 15.3 10.6 0.0 0.0 Financing gap 0.0 3.0 9.0 9.0 9.0 0.0 0.0 Total Proiect Financing 135.5 189.1 207.5 196.0 114.5 0.0 0.0 Main assumptions: -41 -  Annex 6(A): Procurement Arrangements MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT Procurement General The third Country Procurement Assessment Review (CPAR) has been conducted in November 2002 for Madagascar and a workshop took place on May 2003 for the validation o f a joint CPAWCFAA action plan to ensure rapid implementation of procurement reforms. The Procurement Code issued in 1998 will continue to govern until a new code will be set up and adopted. N o special exceptions, permits or licenses need to be specified in the Credit documents for international competitive bidding since Madagascar procurement practices allow IDA procedures to take precedence over any contrary provisions o f local regulations Use of BankGuidelines Procurement o f 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 o f Consultants by the World Bank Borrowers published in January 1997 and revised in September 1997, January 1999 and M a y 2002. 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 o f foreign bidders. A General Procurement Notice will be published in the Development Business immediately after Board presentation andwill be updated annually. The project implementation plan comprises a procurement and disbursement plan that was reviewed and agreed with IDA during Negotiations. Procurement plans will be reviewed and updated at least one month prior to the start o f each project year. Prior to issuingthe first call o f bids, draft standard bidding documents prepared as annexes to the Procedures Manual have to be submitted to IDA and found acceptable The Standard Request for Proposal (SRFP) forms as developed by the Bank will be used for the appointment o f consultants. Simplified contracts will be used for short-term assignments, simple missions o f standard nature (and not exceeding 6 months) carried out by individual consultants or firms. The Govemment has been briefed for previous projects about the special features o f the Consultants guidelines, inparticular with regards to advertisement, public bidopening and the various steps o fIDA reviews. Procurementmethods Works estimated to cost US$158.18 million will be procured under the IDA financed portion o f the project, o f which US$115.52 million will be financed by IDA. This includes the rehabilitation o f national roads, the rehabilitation o f four lighthouses, the expansion o f the Mahajanga port, the rehabilitation o f Sainte Marie ferry terminal on the mainland side, and coastal protection works. To the extent practicable, contracts shall be grouped into bid packages estimated to cost the equivalent o f US$500,000 or more and would be procured through I C B procedures. The bidding documents shall include a detailed description o f the works, including basic specifications, the required completion date, basic form o f agreement acceptable to IDA and relevant drawings where applicable. The awards would be made to the contractors who's tender i s assessed on the basis o f the lowest evaluated bid, provided they demonstrate they have the experience and resources to complete the contract successfully. Goods estimated to cost US13.96 will be procured under the IDA financed portion o f the project, o f which USS13.50 million will be financed by IDA. Items to be procured are femes, ferry parts, vehicles, office equipment, furniture, and other supplies. These will be grouped in lots estimated at more than - 42 -  US$250,000, and be procured through ICB. Goods estimated to cost more than US$50,000 and less than USS250,OOO equivalent per contract may be procured through NCB. Goods estimated to cost less than US$50,000 equivalent may be procured through prudent national shopping on the basis o f quotations obtained from at least three qualified and authorized local suppliers. Consultant Services and Training estimated to cost US$25.01 million will be procured under the IDA financed portion o f the project, o f which US$20.70 million will be financed by IDA. The IDA financed portion will be for: (i)feasibility studies, design, preparation o f bidding documents and supervision o f 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 o f training courses; (iii) training abroad and locally. Consultants would be hired in accordance with the Bank's Guidelines for the Selection and Employment o f Consultants by World Bank Borrowers dated January 1997 and revised in September 1997, January 1999 and M a y 2002. Selection o f 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 o f the proposal before comparing the cost o f the services to be provided and Consultant Qualifications (CQ) by selecting the firm with the most appropriate qualifications and references based on the expression o f interest and information on the consultant's experience and competence relevant to the assignment for services estimated to cost less than US$50,000 equivalent per contract. Single Source Selection (SSS) for services which are estimated to cost less than US$ 100,000 equivalent per contract, may, with the Association's prior agreement, be procured in accordance with the provisions o f paragraphs 3.8 through 3.11 o f the Consultant's Guidelines. The CQ based selection method is applicable to the selection o f specialized firms for the provision o f specialized services for which there i s a limited supply and demand. SSS based selection applies specifically to the selection o f individual consultants that have either previously provided services or are o f such limited numbers on the market that SSS i s justified. Individual Consultants selection will be made by evaluating individual resumes against job description requirements. For training abroad and in-country, the program, containing names o f candidates, cost estimates, content o f the courses, periods o f training, institution selection would be reviewed annually. Advertising A general procurement notice (GPN) will be prepared and issued upon IDA'Sapproval in the United Nations Development Business (UNDB) listing all contracts above US$500,000 for works, US$250,000 for goods and US$200,000 for consultants. It would be updated annually for any outstanding major procurement. Specific Procurement Notices for works to be procured by I C B will be advertised in the national press o f wide distribution and internationally. Requests for expression o f interest will be published in local newspapers and inthe UNDB for consultancy contracts estimated to cost more than US$200,000. Responses will be recorded in a register established at the PES. The related biddingdocuments, 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 inthe nationalpress o f wide circulation and internationally for large contracts. Sufficient time will be allowed to obtain bid documents and to prepare bids. - 43 -  IDA Review All contracts for construction o f civil works above the threshold value o f US$500,000 and above US$250,000 for goods will be subject to IDA'sprior review procedures. The use o f 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 o f quantities/schedule o f requirement and other contract specific items. The review process would cover at least about 80 percent o f the total value o f the amount contracted for works. Procurement post review o f contracts awarded below the threshold levels will apply and should cover 20% o f contract interm o f number, inthe 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 N C B have been reviewed during project preparation and agreed upon with IDA. For consultant services, prior review will include the review o f budgets, short-lists, selections procedures, terms o f reference, letters o f invitation, proposals, evaluation reports and draft contracts. Prior IDA review will not apply to contracts for the recruitment o f consulting firms and individuals estimated to cost less than US$200,000 and US$50,000 equivalent respectively. However, IDA prior review will apply to each contract for the employment o f the higher level staff o f the PES, to the Terms o f Reference o f all contracts, regardless o f value, to single-source hiring, to assignments o f a critical nature as determined by IDA or to amendments o f contracts raising the contract value above the prior review threshold. For consultant contracts estimated above the US$lOO,OOO, 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$lOO,OOO and more than US$50,000 the borrower will notify IDA o f the results o f 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 requiredto 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 o f the normal project reporting exercise. Procurement Capacity Assessment and Procurement Plan A procurement capacity assessment was conducted during project preparation and capacity was found sufficient provided that PES will' (a) recruit two additional procurement specialists; (b) submit a draft procurement plan (as a part o f PIP) 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 biddingdocuments acceptable to the Bank (annexed to the Manual o f Procedures o f the PIP); and (iii) annually review the procurement plan with IDA. The Procurement Plan (being a part o f the Project Implementation Plan) for works, goods and services was reviewed and approved during negotiations. 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 o f works. Prior to negotiations PES had employed the required two additional procurement staff. Manualof Procedures The project's implementation plan of the Borrower includes a manual o f procedures with specifications on procurement activities to be camed out under the project: (i) procedures for planning; calling for bids; selecting contractors; consultants and vendors; and awarding contracts; - 44 -  (ii) intemal organization for supervision and control or works; (iii) procedures for handling over completed works. Stages Maximumnumber ofweeks Preparation o f biddingdocuments 4 (6 weeks large contracts) Preparation o f proposals by potential bidders 4 (6-10 for ICB) Evaluation o f proposals 2 (4 for large contracts) Signing o f contracts 2 weeks Pavments 4 weeks Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies. 21Includes 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 relatedto (i)managing the project, and (ii)re-lending project funds to local government units. - 45 -  Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent) (0.00) Total I 20.00 (16.31) I\Includingcontingencies 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 parentheses are the amounts to be financed by the Bank Credit. - 46 -  Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review' <250 but >50 National shopping 3. Services- firms >200 QCBS 22.00 50-100 QCBS CQ I 3. Services individuals - <5 0 >loo IC <loo 1.o IC/SSS 0.50 key staff of PES all prior review 0.50 <50 IC 4. Training 0 Training plan 1.13 5. Operating costs National shopping "Thresholds generally differ by country and project. Consult "Assessment ofAgency's Capacity to Implement Procurement"and contactthe Regional ProcurementAdviser for guidance. - 47 -  Annex 6(B): Financial Management and Disbursement Arrangements MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT Financial Management 1. Summary of the FinancialManagement Assessment Executive summary and conclusion (see section E 4.4) Summary Project Description (see section C and Annex 2) Country Issues The C F A A diagnostic completed in June 2003 identified serious weaknesses in public sector budgeting, accounting system, reporting and auditing. To mitigate this high fiduciary risk,it was agreed that the APL3 will be initially implemented by the PES o f the VPM. However, FM responsibilities will be gradually transferred from PES to V P M departments and agencies, provided the FM capacity o f these entities are assessed adequate. A detailed transition plan agreed with the borrower will be developed during the pre-appraisal stage to ensure smooth transfer o f responsibilities. The CPFA (Country Profile o f Financial Accountability) carried out in September 1998 confirmed also the weak capacity of the accounting profession in Madagascar. A number o f accounting firms were operating below the intemational standards due to the lack o f regulatory framework, proper auditing standards, clearly defined guidelines and procedures for systematic peer reviews, continuing education requirements, quality control mechanisms to harmonize methodology. To improve the capacity and the competitiveness o f the local auditing firms, the following measures have been taken: i)obligation for local auditors to enter into partnership with intemational accounting firms while auditing BanWIDA financed projects in order to improve the quality o f audit reports and ensure practical training and real transfer o f methodology in the areas o f organization and execution o f audit assignments; ii)the use o f QCBS method rather than Least Cost for the recruitment o f auditors. Risks RiskRating RiskMitigation Measures Implementing entity low na Fundsflow low na Staffing low na Accounting policies and procedures low na Intemal audit 1 low na profession in Madagascar selected for the audit o f APLl and 2 Monitoring and reporting low na Information systems low na Strengths and weaknesses The PES has strong experience in managing World Bank funds, being responsible for currently implementingAPLl and APL2: i)it has a qualified and trained accounting staff who is well tuned to Bank procedures; ii)its accounting system generally follows accounting standards acceptable to the Bank. Duringappraisal the chart o f accounts and the FMR was reviewed and approved. It was agreed also that PES will negotiate with the auditors o f the A P L l and 2 an addendum to their contract to include APL3. The recruitment o f an additional accounting assistant is on-going. - 48 -  ImplementingEntities Project execution, including procurement, financial management and reporting, and social and environmental safeguard implementation will be the responsibility o f PES during the initial stages o f the APL3 activity. Gradual transfer of FMresponsibilities from PES to VPM agencies and the Road Authority will be operated if the financial management capacity o f these entities are deemed adequate following the assessment carried out by the Bank FM specialist. The project organizational structure currently inplace is appropriate for planning, directing and controlling operations. Authority and responsibility assignments within the organization structure are clearly defined. Funds Flow The flow o f funds from IDA, the government and other donors i s presented as follows : (Credit funds) (Counterpart funds) PES: Special account Project account Major works account * Other accounts 1 Goods suppliers, works and services *Major works Accounts: Prior to signing o f major works contracts (larger than US$10 million equivalent) major works accounts need to be opened, into which the equivalent o f one year counterpart funding is deposited, and replenished for further twelve months requirements thereafter. I t is estimated that four such accounts will need to be opened and maintained. Staffing The PES'S accounting staff is qualified and has relevant experience to be completely successful in carrying out his functions. However due to the volume o f transactions to be coped with and to ensure appropriate segregation o f duties in financial management area, the mission considers more appropriate to recruit an accounting assistant in conformity with the Bank procedures. Accounting Policies and Procedures The PES will be responsible for the project financial management aspect. It will maintain separate accounts for APL1, APL2 and APL3 and will produce therefore separate individual annual financial statements. The project accounting system will use standard book accounts (`journals, ledgers and trial balances) to enter and summarize transactions and will operate on a double entry accrual principles. The financial statements will be prepared under the historical cost convention. Project accounts will be maintained in Malagasy currency (FMG). As a result, the opening and closing balances o f the Special Accounts (SA) held in US$ should be translated at the rate rulingrespectively on the opening and closing dates. Expenditures made out o f the SA should be stated at the rate ruling on the transaction dates. The actual exchange rates used should be disclosed. The PES has a good internal control system: proper authorization, adequate separation o f duties, budgeting system, adequate measures for safeguarding assets. An accounting manual o f procedures - 49 -  i s also available but it must be updated to include the Chart o f accounts as well as the content and format o f the Financial Monitoring Reports (FMRs) for APL3. To ensure timely production o f financial information required for managing and monitoring project activities, the PES will use the accounting software actually inplace acquired within the context o f APL2. 2. Audit Arrangements InternalAudit Since the project organizational structure is centralized, an internal audit function is not really needed at the present time. However, to ensure consistent application o f the procedures and efficient use o f funds, the financial Adviser in collaboration with Monitoring & Evaluation specialist could play the role o f internal auditor. For this purpose he will assure the supervision o f the project financial management and make sure that the project is complying with all specific procedures (on procurement, financial management and disbursement) and agreements described in the manual of proceduresDCA. ExternalAudit Since the APL3 i s a part o f the Transport Sector Program, the mission considers more appropriate and efficient the use o f the same fmto carry out the audit o f APL2 and APL3 accounts. The auditors selected under APL2 will be therefore invited to submit a technical and financial proposition for the audit o f the APL3 accounts, which will become an addendum to the existing contract. This audit will be carried out annually, in accordance with International Standards o f Auditing and the new Guidelines describing Audit Policy and Practices for World Bank-financed Activities. The auditors may provide a single opinion on the project annual financial statements instead o f expressing separate audit opinions on special accounts and statements o f expenditures (SOEs), provided such statements reflect the balances and transactions associated with any special accounts and SOEs. The auditors will be required to carry out a comprehensive review o f 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 o f each fiscal year. The terms o f reference o f the audit as well as the contract to be signed will be reviewed by the financial management specialist o f the B a M D A . 3. DisbursementArrangements Disbursementfrom IDA credit For the implementation o f APL3 the following bank accounts to be managed by the PES will be opened in a local commercial bank under conditions satisfactory to IDA: (i) special account, denominated in US$, disbursements from the IDA credit will be deposited in this account to finance the IDA financed activities of this project accordance with the disbursement percentages indicated in the DCA; (ii) project account, denominated in local currency, counterpart funds from the government will be deposited in this account to finance project activities in accordance with the disbursement percentages indicated in the DCA. The amount o f the initial advance into the project account amounts to US$350,000 equivalent and must be deposited prior to credit effectiveness. Funds deposited in these accounts will be used to ensure timely payments o f contractors and suppliers o f goods and services The special account would be replenished on the basis o f documentary evidence provided to IDA by the PES, justifying the payments made from the account for works, goods and services that are eligible for financing under the credit. All supporting documents will be retained by the PES and made available for review by periodic Bank supervision missions and external auditors. The project implementation and accounting manuals will describe in detail all procedural aspects regarding financial management (payments, replenishment, reporting, internal control). - 50 -  Method of Disbursement Duringthe first year o f project implementation, the PES would follow the transaction-based disbursements procedures (traditional mode) outlined in the Bank's Disbursement Handbook. The use o f report-based disbursements could be possible, if requested by the client and if the following criteria are met: (i) the FM rating has been maintained at satisfactory level; and (ii)the submission o f at least three quarterly satisfactory FMRs that could be relied upon for purposes o f disbursement. Detailed disbursement procedures will be described inthe project accounting manual o f procedures. Minimum of Application Size The minimum application size for direct payments, to be withdrawn directly from the Credit Account, and special commitments i s US$2.3 million. Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$million Financing Percentage I(1) Civil works 100.00 I1 100%o f foreign expenditures and 80% o f local expenditures (2) Goods 12.65 100% o f foreign expenditures and 80% of local expenditures (3) Consultants' services 18.14 85% foreign expenditures and 75% o f local expenditures (4) Training 1.02 100% (5) Operating Costs 0.24 80% (6) Unallocated 17.95 Total Project Costs with Bank 150.00 Financing Total 150.00 Use of statements of expenditures (SOEs): Disbursements would b e made against Statement o f Expenses (SOEs) for contracts and goods not requiring the Bank's prior review. Therefore disbursements for all contracts for: (i)works: less thanUS$500,000; (ii) less thanUS$250,000; (iii) goods: consultants: less than US$200,000 in the case o f firms and less than US$50,000 in the case o f individuals; (iv) all expenditures on training; and (v) all incremental operating expenses would b e made on the basis o f SOEs and certified by the PES. SOE statements would b e audited annually by independent auditors acceptable to the Bank. All SOEs supporting documentation would therefore b e kept by the PES and made available for review by Bank supervision missions and external auditors. Special account: Payments from the IDA Credit and other donors would b e administered by the PES from the Special Account. The Special Account would b e maintained in a commercial bank selected by the Borrower and acceptable to the World Bank. The authorized allocation, sufficient for about four months o f eligible expenditures, would b e US$11.5 million; however, the initial allocation will be -51 -  limited to US$5.75 million until the aggregate amount of withdrawals from the Credit Account plus the total amount of all outstandingspecial commitments entered into the Bank shall be equal to or exceed SDR 12.00 million. The Special Account would be managed by the PES which would be responsible for preparingdisbursement requests.These requests would be submittedat least on a monthlybasis. Replenishment of the Special Accounts would follow Bank procedures. Disbursements wouldbe made under the authorizedsignature from a designatedrepresentative o f the Borrower. The Special Accounts would be audited annually by independent auditors acceptable to the Bank. - 52 -  Annex 7: Project Processing Schedule MADAGASCAR: TRANSPORT INFRASTRUCTUREINVESTMENT PROJECT Time taken to prepare the project (months) 8 8 First Bank mission (identification) 05/15/2003 0511512003 \Appraisalmission departure I 10/27/2003 I 10/27/2003 I I I I I Negotiations 11/03/2003 11/03/2003 Planned Date of Effectiveness 0212712004 Prepared by: Dieter Schelling Preparation assistance: The team o f the Project Executive Secretariat Bank staff who worked on the projectincluded: Name Speciality Dieter Schelling TTL, Lead Transport Specialist Susanne Holste Sr. Transport Specialist Sylvain Rambeloson Procurement Specialist Gervais Rakotoarimanana Financial Management Specialist Raj Soopramanien Sr. Counsel Michael Fowler Sr. Disbursement Officer Nina Chee Environmental Specialist Yvette Djachechi Sr. Social Development Specialist Noroarisoa Rabefaniraka Transport Specialist Lantoharifera Ramiliarisoa Team Assistant Hang Sundstrom Program Assistant Clementine DuPayrat Intem Julien Dehomoy Intem Marie-Ange Saraka-Yao Sr. Financial Officer Marc H.Juhel Lead Transport Specialist - 53 -  Annex 8: Documents in the Project File" MADAGASCAR:TRANSPORTlNFRASTRUCTURElNVESTMENTPROJECT A. Project Implementation Plan Document de mise en oeuvre du projet 6. Bank Staff Assessments C. Other 0 Project cost table 0 Evaluation des impacts environnementaux et sociaux, aout 2003 0 Cadre institutionnel d'operations de dkplacements de population, 16janvier 2002 *Including electronic files - 54 -  Annex 9: Statement of Loans and Credits MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT 27-0ct-2003 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd PO76245 2003 MINERAL RESOURCES GOVERNANCE PROJECT 0.00 32.00 0.00 32.51 -0.05 0.00 P073689 2003 Rural Transport Project. APL Phase 2 . 000 80.00 0.00 82.82 5.42 0.00 PO72160 2002 Second Private Sector Development Projec 0.00 23.80 0.00 24.12 8.88 0.00 PO72987 2002 Multisect. STIIHIVIAIDS Prev. 0.00 20.00 0.00 17.59 -2.69 0.00 PO55166 2001 Communit. Dev. Fund 0.00 110.00 0.00 68.01 -15.21 0.00 PO51922 2001 MG Rural Development Support Project - 0.00 89.05 0.00 84.09 -13.90 0.00 PO52208 2000 Transport Sector Reform and Rehabilitat. 0.00 65.00 0.00 25.95 8.50 0.00 PO51741 2000 2nd Health Sect. Sup. 0.00 40.00 0.00 20.76 6.65 0.00 PO52186 1999 MICRO FINANCE 0.00 16.40 0.00 7.13 4.92 0.00 PO01559 1998 Educ. Sector Dev. 000 65.00 0.00 25.68 25.39 0.44 PO01564 1998 RURAL WATER SEC.PIL0 0.00 17.30 0.00 8.70 8.58 0.00 PO01568 1998 Nutrition II 0.00 27.60 0.00 2.06 2.30 0.00 PO48697 1997 URBAN INFRASTRUCTURE 0.00 35.00 0.00 11.13 11.68 9.70 PO01533 1996 MG ENERGY SECTOR DEVELOPMENT PROJECT 0.00 46.00 0.00 6.99 10.17 3.62 Total: 0.00 667.15 0.00 417.53 60.65 13.76 - 55 -  MADAGASCAR STATEMENT OF IFC's HeldandDisbursedPortfolio June 30 - 2003 InMillions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990191 AEF FIARO 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 1997 AEF GHM 0.78 0.00 0.00 0.00 0.78 0.00 0.00 0.00 1995 AEF Karibotel 0.22 0.00 0.00 0.00 0.22 0.00 0.00 0.00 1992193195 AQUALMA 0.43 0.00 0.00 0.00 0.43 0.00 0.00 0.00 1991 BNI 0.00 2.61 0.00 0.00 0.00 2.61 0.00 0.00 2000 BOA-M 0.00 0.82 0.65 0.00 0.00 0.82 0.65 0.00 1983189 Nossi-Be 0.00 0.14 0.00 0.00 0.00 0.14 0.00 0.00 Total Portfolio: 1.43 3.76 0.65 0.00 1.43 3.76 0.65 0.00 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic 2001 Besalampy 0.02 0.00 0.00 0.00 2001 COTONA I11 0.01 0.00 0.00 0.00 Total PendingCommitment: 0.02 0.00 0.00 0.00 - 56 -  Annex I O : Country at a Glance MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT Sub- POVERTY and SOCIAL Saharan Low. Madagascar Africa income Developmentdiamond" 2002 Population, mid-year (millions) 16.4 688 2,495 Life expectancy GNi per capita (Atlas method, US$) 240 450 430 GNI (Atlas method. US$ billions) 3.9 306 1,072 T Average annual growth, 1996-02 Population (%) 3.0 2.4 1.9 Labor force (%) 3.2 2.5 2.3 GNI Gross per primary Most recent estimate (latest year available, 1996-02) capita nrollment Poverty (% of population below nationalpoverfyline) 71 Urban population (% of total population) 31 33 30 Life expectancy at birth (years) 55 46 59 1 Infant mortality (per 1,000live births) 84 105 81 Child malnutrition (% of children under 5) 40 Access to improved water source Access to an improved water source (% ofpopulation) 47 58 76 Illiteracy (% ofpopulation age 15+) 32 37 37 Gross primary enrollment (% of school-agepopulation) 103 86 95 mXI_I Madagascar Male 105 92 103 __Low-incomegroup Female 101 80 87 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ billions) 3.5 3.0 4.6 4.5 Gross domestic investmentiGDP 8.5 11.2 15.5 11.8 Exports of goods and servicesiGDP 11.2 16.4 28.6 16.9 Trade Gross domestic savingsiGDP -1.o 2.9 12.3 5.9 Gross national savings/GDP -3.2 3.9 13.2 5.8 T Current account balanceiGDP -11.5 -7.3 -2.3 -5.9 Domestic interest payments/GDP 1.3 1.1 0.7 1.2 savings Investment Total debtiGDP 54.8 129.3 90.4 Total debt serviceiexports 28.4 15.8 6.8 i I Present value of debVGDP 44.4 Present value of debvexports 152.6 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) ~ Madagascar GDP 1.5 2.6 6.0 -11.9 GDP per capita -1 2 -05 3 0 -14.4 .-- - Low-income group STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) (% of GDP) Agriculture 34.2 29.1 29.8 27.4 40 T industry 13.4 12.5 14.5 12.8 Manufacturing .. 10.4 12.4 10.9 Services 52.4 58.4 55.7 59.8 Private consumption 90.3 88.9 79.6 86.2 -40 1 General government consumption 10.6 8.2 8.0 7.8 Imports of goods and services 20.7 24.7 31.8 22.8 -GDI *GDP I 1982-92 1992-02 2001 2002 (average annual growth) Growth of exports and imports (%) Agriculture 2.5 2.0 4.0 -1.4 40 T I Industry 2.7 2.3 7.6 -25.1 20 Manufacturing 0.8 2.5 10.7 -25.1 0 Services 1.o 3.3 6.1 -11.1 -20 Private consumption 0.1 2.9 3.9 -5.9 -40 General government consumption 0.1 1.4 15.7 -13.5 Gross domestic investment 5.5 5.6 22.6 -31.4 Imports of goods and services -2.4 5.4 11.8 -31.O *The diamonds show tour hey indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. - 57 -  Madagascar PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (Oh) Domesticprices I (77 change) 25 Consumer prices 15.3 7.4 14.8 Implicit GDP deflator 28.6 14.4 9.0 15.4 Government finance (% of GDP, includes current grants) Current revenue 11.9 11.2 -1.o 8.6 Current budget balance -1.2 1.1 Overall surplusideficit -9.3 -6.5 -5.8 I TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 284 324 953 525 Coffee 94 32 3 3 '500 T Vanilla 3 51 164 140 Manufactures 158 557 219 Total imports (clf) 552 547 1,118 756 Food 128 58 84 75 Fuel and energy 134 72 168 128 I Capital goods 117 129 144 130 01 Export price index 11995-100) 104 91 132 136 96 97 98 99 00 import price index (1995=100) 92 94 95 Exports Imports O2 Terms of trade (1995=100) 98 140 142 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balance to GDP (W) I Exports of goods and services 377 496 1,317 759 imports of goods and services 656 733 1,462 1,021 Resource balance -280 -237 -146 -262 Net income -113 -148 -59 -77 Net current transfers -13 163 99 72 Current account balance -405 -222 -106 -267 Financing items (net) 384 239 204 228 Changes in net reserves 21 -17 -98 39 Memo: Reserves including gold (US$ millions) 85 396 348 Conversion rate (DEC, /oca//US$) 349.7 1,864.0 6,588.5 6,832.0 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of ZOO1 debt (US$ mill.) Total debt outstanding and disbursed 1,933 3,911 4,160 I IBRD 31 20 0 G: 239 IDA 187 887 1,409 F 73 Total debt sewice 110 96 92 IBRD 3 4 0 1,409 IDA 2 10 34 Composition of net resourceflows Official grants 58 203 155 Official creditors 199 85 86 E Ia70 Private creditors 48 -8 -2 127 I Foreign direct investment 0 21 11 Portfolio equity 0 0 0 D:442 World Bank program Commitments 32 24 243 A . IBRD E. Bilateral Disbursements 34 37 97 B IDA D .Other multilateral F Private - Principal repayments 1 7 24 C IMF .- G .Short-term Net flows 33 30 73 Interestpayments 3 8 11 Nettransfers 29 22 63 'Note: Ihis table was proauceatrom me uevelopment tconomics central database. t(lzuIuJ - 58 -  Additional Annex 11: Summary of Environmental and Social Assessment MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT A. Overview Background. An Adjustable Program Loan (APL) has been prepared to assist the Government o f Madagascar to implement its transport sector policy and strategy. The purpose o f the program i s to reduce transport costs and to improve accessibility especially in rural areas. The current project would be the third o f three parallel phases o f the APL. The first phase, 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 o f USS65m, i s focusing on essential sector reforms, and on critical and highest priority investments. At the end o f July 2003, its realization rate was about 65%. The second phase, the Rural Transport Project (RTP), financed with a credit o f USS80m, became effective on March 13, 2003 and is planned to close on June 30, 2009. The Rural Transport Project focuses on improving the access and mobility o f rural communities. The third phase o f the APL, the subject o f this PAD, focuses on rehabilitation and investment in the national road network, and on enhancing the performance o f major ports and airports through public-private partnerships. It is scheduled to become effective in February 2004 and to close on June 30,2008. B. TransportInfrastructureInvestmentProject Project Objective. The Transport Infrastructure Investment Project (TIIP) supports the CAS objectives, and, in conjunction with the first two phases o f the sector APL, the objectives o f the country's transport sector policy and strategy. The TIIP aims at reducing transport costs and delay in the whole country through the rehabilitatiodupgrading o f main transport infrastructure. It will thus benefit all transport users directly and the entire population indirectly. It will strongly contribute to private sector development, which intum will provide employment andreduce poverty. The rehabilitation o fthe national road network is also a necessity to ensure the benefits o f the rehabilitation o f the rural network. Improvement o f the main ports and airports will enhance international trade. Project description. The project has four components: 1) National Road Maintenance, Rehabilitation and Upgrading(Total US$642 million of which IDA US$111 million). Reflecting the Government's development priorities, this component is the most important o f the project. The program for upgrading, rehabilitation and maintenance aims at bringing all the primary and secondary national roads (7,313 km) to good and fair condition by end o f 2008. 2) Ports and Maritime Transport (Total US$110 million of which IDA US$22.85 million). The Government's ports and maritime transport upgrading, rehabilitation and maintenance program aims at contributing to trade facilitation, by increasing the efficiency o f the system and lowering transport cost. IDA financing will be used for the following actions: (i) technical assistance, equipment and training, (ii) the rehabilitation and extension o f the Mahajanga port, and (iii) rehabilitation o f four main lighthouses the in Madagascar and coastal navigation aids, as well as services and supplies to help make Madagascar compliant with the IMO-MARPOL convention it hasjoined in May 2003. 3) Airport Safety and Facilitationof Public-Private Partnership (Total requirement US$79 million of which IDA US$7.77 million). The govemment's aviation policy aims at promoting trade and tourism, through institutional strengthening, airport infrastructure rehabilitation, safety and security development - 59 -  and general modernization o f the airport system o f Madagascar. Total investments programmed amount to about USS56 million. Out o f this, IDA i s planning to finance US$7.24m for (i)safety and security enhancements on the entire Malagasy airport network through the provision o f respective up-to-date equipment to comply with I C A O standards and (ii) financing o f the necessary govemment contribution to complement private sector financing related to the rehabilitation o f 7 provincial airports. 4) Support to the VPM (Total requirement US$10.7 million, of which IDA US$8.62 million). This component will focus on strengthening the newly merged V P M to execute its function to oversee and coordinate the sector, and to finalize the reformprocess. C. EnvironmentalAssessment Background. APL3 will finance the rehabilitation o f existing transport infrastructure including national roads, ports and airports. Although most investment concems the rehabilitation o f existing infrastructure, the general environmental situation in Madagascar and the size and nature o f the infrastructure concerned requires that the project be classified A - full assessment. The project EA is detailed for the roads component for which all sub-projects are clearly defined, detailed design studies are on-going and which are considered as "first year projects". In respect o f the ports and airports, investments are planned as residuals to private sector investments as part of concessioning agreements with private sector operators. Since this process is only commencing now, investments are considered as "second year investments". Thus, the disclosed EA focuses on the national roads RN2/RN3A/RN44, RN7, and RN32. The EA was prepared and disclosed on August 4, 2003 in accordance with World Bank guidelines and national environmental policies (Environment Charter and MECIE Decree related to the necessity o f Compatibility o f Investments with the Environment) conceming infrastructure and environmental protection. Methodology.The EA followedthe followingmethodology: - Background document analysis, regarding the transport sector, the project areas, the regulations on environment and transport, including operational and safeguardpolicies o f the World Bank; - Interviews with key staff o f the V P M and at the Environment National Office to gain a clear understanding o f current problems; - Field visits to project sites to collect data on the road conditions, the environment characteristics, - and conduct interviews with the local population; Data analysis, identification and assessment o f the potential project impacts and mitigation measures; - - Elaboration o f an Environmental Management Plan (EMP); and Participatory approach: extensive consultations were held during the redaction o f the EA and the EMP. Public consultations were carried out through field visits followed by discussions with the National Assembly and the Senate, a workshop with the participation o f key representatives o f the public and private sectors, including the media, and collection o f comments by the public in registries made available at public services such as libraries, National Library, VPM, National Assembly, Senate, Association Nationale pour la Gestion des Aires Protegees (ANGAP), and World Wild Life Foundation (WWF). - 60 -  Environmental Assessment Findings. The EA contains four chapters : 1. Context o f the study; ii. Analysis o f the environmental dimension o f the sector; 111. I . . Assessment o f the potential impacts and mitigation measures o f the sub-projects; iv. Environmental Management Plan. The report also contains two annexes: Annexe 1 contains a communications plan and Annexe 2 proposes a program for reinforcing stakeholder capacity. Chapter 1 deals with the national environmental framework (political, legal, institutional) and the operational policies o f the World Bank. It gives an overview o f the environmental issues in the transport sector, and concludes with a short description o f the sub-projects financed through APL3. Chapter 2 presents the eco-regional framework o f the sub-projects and presents an environmental analysis based on the issues and sensitivityhulnerabilityfactors o f the road and ports sub-sectors. Chapter 3 discusses the method o f identification o f the potential impacts and mitigation measures o f each sub-projects. T w o tables show, with details by roads and eco-region, the impacts and the mitigation measures for each road sub-project. The sub-project for the Port o f Mahajanga i s similarly described. Chapter 4 presents the Environmental Management Plan (EMP) and addresses particularly the following issues: (i)a recapitulative list o f the action plan, (ii) measures o f environmental safeguards (erosion, natural habitat, social questions, measures to secure investments, and waste management), (iii) monitoring indicators, and (iv) contract clauses. The EMP is summarized in a table which presents the institutional arrangements for implementation and monitoring o f impacts and their mitigation measures; together with an action plan, in compliance with the plannedphasing and relevant cost estimates. - 61 -  The Action Plan to carry out the Environmental Plan o f Management is summarized in the two tables below. SUMMARY OF THE ENVIRONMENTALMANAGEMENTPLAN (COMMON IMPACTS TO ALL PROJECTS) IMPACTS MEASURES IMPLEMENT PHASE/ IMPLE MONITORIN MONITOR1 ATION DURATIO MENT G AGENT NG AGENT N ATION COSTS COST Deforestation site; Contractors; 3efore .Supervising MGF101.3 and/or negative -- Delimit Avoid built-upareas Local :onstruction :ngineer; millions aesthetics due to for the site installations; governments. Ministryo f setting-up o f - Integrate site Water and construction site installation into country 7orests side Perturbation o f - Carry out the works Contractors; luring \T/A .Supervising To be aquatic fauna outside the reproductive Local vorks mgineer; assessedby andmodification season o f aquatic fauna; governments. Ministryof the o f water flows - Follow the natural Water and monitoring duringthe bridge direction o f water flow; 4fter Torests; agent works - Remove any temporary :ompletion Research installation afterwards; - Rebuildthe :enters or banks and miversities. embankments to their initial status. Air, soil, and Apply the technical Contractors; luring (/A -Supervising MGF1.145 water pollution standards with regard to Department o f vorks :ngineer billion due to wastes pollution and waste Public Works. . Ministry o f from oil changes, management, including 3nvironment asphalt, etc. the construction o f controlled waste disposals. Increase o f - Informworkers and Contractors ; luring ylGF1.15 Organization sexual increase their awareness Department o f vorks )illion mandated by assessed transmissible o f these issues; Environmental the duringwork diseases; - Reinforce the actions Impacts Department o f implementat HIVIAIDS undertaken by NGOs Studies; Environmental mandated by the V P M Health Impacts andthe local health Departments. Studies, in departments charge o f the implementingthe Plan fight against against HIVIAIDS HIVIAIDS. (informative sessions on the diseases' ways o f transmission, condoms distribution). - 62 -  S U M M A R Y OF THE ENVIRONMENTAL MANAGEMENT P L A N (SPECIFIC IMPACTS TO SOME PROJECTS) IMPACTS MEASURES IMPLEMEh PHASE MPLEME MONITORING vlONITOR TATION \TTATION AGENT ING AGENT COSTS COST New erosion and - Avoid cutting o f trees Zontractor Works vIGFl.162 - Supervising ilGF1.15 soil destabilization uprooting ; )illion engineer; million during excavation - Protect rehabilitated - research centers works on RN2, embankments with or universities; RN32 and RN44 masonry; and - Regional - Stabilize slopes with technical grass and vetiver departments. danning Pollution o f and - Cover or dampen Zontractor Works YIGF9 - Supervising '0be risk o frespiratory materials during nillion engineer; ssessed diseases o f transport; dampen eartl - Ministryo f .uringwork workers during the roads; Health; nplementat works on earth - Mandatory wear o f - Regional In. roads (RN44, RN7 protective mask; technical south, and a departments; portion o f RN5A) - Ministryo f Environment Premature Create a synergy zontractor; Works vIGF45 - Supervising '0 be deterioration o f between organizations Iepartment nillion engineer; ssessed infrastructure due responsible for the ifRural - Rural luringwork to the erosion o f protection o f Zngineering; Engineering mplementat the watersheds watersheds and those Water Users Department; m. (RNSA and responsible for the 4ssociation. - local RN44); maintenance o f associati-ons; irrigation canals - Ministryo f (reforestation o f Environment watersheds; reconstitution o f stripped land; regLAdr -cleaning canals) Perturbation o f the Choose the work Sontractor. Works :o be - Supervising To be marine calendar in such a way ssessed engineer; assessed underground and that the perturbations ater - Research Centers during work sea pollution are minimized (low tide second or Universities. implementat zaused by infull moon or new rear ion. dredging works moon); ctivities) during the port - Forbiddredging rehabilitation. activities close to mangroves and coral reefs - 63 -  Additional Annex 12: Letter of Sector Policy MADAGASCAR: TRANSPORT INFRASTRUCTURE INVESTMENT PROJECT Second annex to the Letter of Sector Policy November 4,2003 Context 1. The strategic development objective o f Madagascar, which was highlighted inthe Poverty Reduction Strategy Paper (PRSP), i s a rapid and sustainable development which aims to half the incidence o f poverty inten years. 2. Inorder to allow the transport sector to contribute efficiently to this development, the Government o f Madagascar is determined to translate into action an integrated transport policy that includes the institutional framework and infrastructure, and that i s built around five pillars : 0 the focus o f the Administration on strategic planning, sector oversight and coordination, 0 the setting-up o f autonomous agencies, in partnership with the private sector, charged with the management and regulatory functions o f each sub-sector, 0 the withdrawal o f the Administration from commercial and operational activities through privatization, concessioning and management contracts, the development o f the local private sector for works design, supervision and execution, and 0 the rehabilitation o f transport infrastructure. Implementation of the strategic staffing plan 3. In the context o f restructuring and strengthening o f its Administration, the Government o f Madagascar has decided to implement a strategic staffing plan to adjust staffing in line with the new institutional arrangements, in particular following the creation o f the Vice Prime Minister's Office (VPM) tasked with the coordination o f the economic programs o f different ministries and having absorbed the Ministry o f Public Works, Ministry o f Transport, and Ministry o f Land Planning. The strategic staffing plan o f the V P M has national coverage and will be filly implemented at the end o f 2004. 4. The VPM's strategic staffing plan will incorporate a capacity assessment that will be available at the end o f December 2003. This assessment will show available and to-be-developed skills and will be finalized taking into account (i)the realignment o f the activities o f the VPM on strategic planning, sector oversight and coordination and (ii)in line with the divestiture of public services and the public-private partnership, the creation o f an autonomous and efficient Roads Authority which will manage the road network and autonomous and efficient agencies for each sub-sector to ensure the safety, regulation, and quality o f service for passengers and freight. - 64 -  Creation of the Roads Authority 5. The Government o f Madagascar has decided to set up an autonomous and efficient Roads Authority (RA), which should be operational no later than end of 2005. The Authority will be tasked with the management o f the Government's road network, and can be called upon by the urban and rural communes to manage the roads under their responsibility. The Roads Decree will be amended accordingly. 6. The RA will be charged with the following functions : (i)research and definition o f technical standards for road construction, (ii)knowledge and monitoring o f the road network through a roads database, (iii) programming o f works for construction, rehabilitation and periodic and routine maintenance for that network, and (iv) procurement (goods, consulting services, and works) required for the implementation o f that program. 7. The RA is a strategic instrument to ensure the rehabilitation o f 14,000 km o f roads before the end o f 2008 and to realize the objective o f having at least 60% o f the 32,000 km network in good condition. This will necessitate revisions and improvements in the functioning o f the Road Maintenance Fund (RMF) to allow a regular, stable and sustainable flow o f financing. 8. The following preparatory steps have been defined for the creation o f the RA : 0 Since September 2003 programming units, equipped with information technology and logistics support, have been established at central level and ineach province. 0 The technical staff o f those units is currently enrolled ina comprehensive training program. 0 The roads database is being designed. 0 An intensive procurement training (training o ftrainers) was carried out in October 2003. And e A procurement unit is beingset up inthe Transport Program Executive Secretariat. 9. The RA will have administrative and financial autonomy and will have business practices akin to that o f the private business environment. Its operating budget, including road works, will be transferred directly from the Government budget and from proceeds o f donor credits or grants into commercial bank accounts, heldinthe name ofthe RA. Creation of autonomousand efficient agencies 10. The Government o f Madagascar, in partnership with the private sector, is pursuing its policy to delegate public service to autonomous agencies to ensure sub-sector management and regulatory functions, namely : 0 Civil Aviation Authority o f Madagascar (Aviation Civile de Madagascar-ACM), already created and functioning 0 Ports, Maritime and River Authority (Agence Portuaire, Maritime et Fluviale-APMF), in the process o f being created 0 Surface Transport Agency (Agence des Transports Terrestres ATT), in the study phase o f being - created. 11. These agencies will be operational latest by end o f 2004 and the creation will be accompanied by a comprehensive training program in line with the VPM's strategic staffing plan, so that they h c t i o n efficiently. - 65 -  12. These agencies will have financial autonomy and will cover their operating costs from user fees in their respective sub-sectors. Government policy on the management of transport infrastructure 13. The Government o f Madagascar continues to implement institutional reforms that will promote public-private partnership in the management o f transport infrastructure. The objective includes the concessioning o f the railways, ports, airports and those road links that have sufficient traffic to interest the private sector. Development of private sector management in the operation of river ferries 14. The Government o f Madagascar reiterates its commitment to withdraw from commercial activities that can be better ensured by the private sector, inparticular the management o f operation o f river femes. In the context o f public-private partnerships the transfer o f ferry operations will be done by taking into account the required service level, based on the level o f traffic (regular services with flexible schedules, customized services). This assessment will guide the infrastructure requirements o f the quays and will have mandatory requirements for the safety o f passenger and freight transport. Introduction of long-term performance-based maintenance contracts 15. The Government o f Madagascar confirms its readiness to develop long-term (3 to 12 years) performance-based road maintenance contracts. It is planned that by June 2004 the entire road network will have been dividedinto sub-networks o f an appropriate size and corresponding to required service levels for different development centers (market places, cities, ports, airports). Each sub-network that is eligible for long-term maintenance contracts (25% o f network in need o f rehabilitation, 40% in fair condition with required spot improvements, and 35% in good condition) will be contracted out with specified performance criteria (year-round accessibility, defined minimum speed) to small and medium sized companies (SMMEs) that have a proven track record o f works execution. Development of the local private sector for works design, supervision and execution 16. Continuing inthe context o f public-private partnerships, the Government o f Madagascar supports the development o f the local private sector for consultant engineers and contractors. To achieve this, training and vocational skills programs will be implemented to develop or strengthen various competencies. In parallel, an enabling environment will be created to promote access o f SMMEs to equipment. - 66 -  Rehabilitation and maintenance of transport infrastructure 17. Government plans to implement a large-scale rehabilitation and maintenance program for transport infrastructure from 2003-2007. The following tables give an overview o f these investments. Road infrastructure Works Rehabilitation o f paved national 387 I 1138 1 415 1 267 I 268 I 2 475 Rehabilitation o f national 550 I 1300 I 750 1 1300 I 1100 I 5 000 secondary roads (gravel) Improvement of rural roads 1580 2 170 1850 1800 1200 8 600 Periodic maintenance of paved 490 800 480 280 274 2 324 national roads Total 3 007 5 408 3 495 3 647 2842 18399 Routine maintenance 7 500 7 500 9500 11 400 13 700 InFMG(billions) 2003 2004 2005 2006 2007 Total Rehabilitation of paved national 481,7 1201,2 559,s 293,7 294,8 2 830,9 roads (incl. construction) Rehabilitation of national 1 137,5 I 325,OI 187,5 I 325,O 1 275,O I 1 250,O secondary roads (gravel) Improvement of rural roads 205,4 282,l 240,5 234,O 156,O 1 118,O Periodic maintenance of paved 343,O 560,O 384,O 252,O 274,O 1 813,O national roads Routine maintenance 75,O 75,O 95,O 114,O 137,O 496,O Total 1167,6 2 368,3 1371,5 1104,7 999,8 7 507,9 InUSD(millions) 2003 2004 2005 2006 2007 Total Rehabilitation of paved national 74,l 184,8 86,l 45,2 45,4 435,5 Rehabilitation of national 21,2 I 50,OI 28,8 I 50,O I 42,3 I 192,3 secondary roads (gravel) Improvement of rural roads 31,6 43,4 37,O 36,O 24,O 172,O Periodic maintenance of paved 52,8 86,2 59,l 38,8 42,2 278,9 national roads Routine maintenance 11,5 11,5 14,6 17,5 21,l 76,3 Total 191,2 375,9 225,6 187,5 174,9 1155,l Other investments InUSD (millions) 2003-2007 Rehabilitation o f track and equipment of North and Southern railways 69,O Rehabilitation o f 6 primary and 13 secondary ports and maritime signaling 157,O Improvements of air safety to international standards 58,O Infrastructure improvements of urban and rural communes 112,o - 67 -