RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE KENYA: NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT APPROVED ON AUGUST 2, 2012 TO THE

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1 Public Disclosure Authorized RESTRUCTURING PAPER ON A REPORT NO.: RES29405 Public Disclosure Authorized PROPOSED PROJECT RESTRUCTURING OF THE KENYA: NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT APPROVED ON AUGUST 2, 2012 TO THE REPUBLIC OF KENYA Public Disclosure Authorized December 26, 2018 TRANSPORT GLOBAL PRACTICE AFRICA REGION Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 ABBREVIATIONS AND ACRONYMS AF AfDB APRP BRT CBD EASA EBK EIRR ERSWE ESIA EU FM GoK ICAO ICT IDA ITS JICA JKIA KeNHA KRC KURA M&E MoR MoTIHUD MRTS NaMATA NCA NMA NPV NTSA PAD PDO PPP RAP SDR ToR Additional Financing African Development Bank Annual Public Road Programme Bus Rapid Transit Central Business District East African School of Aviation Engineering Board of Kenya Economic Internal Rate of Return Economic Recovery Strategy for Wealth and Employment Creation Environmental and Social Impact Assessment European Union Financial Management Government of Kenya International Civil Aviation Organization Information and Communication Technology International Development Association Intelligent Transportation System Japan International Cooperation Agency Jomo Kenyatta International Airport Kenya National Highways Authority Kenya Railways Corporation Kenya Urban Roads Authority Monitoring and Evaluation Ministry of Roads Ministry of Transport, Infrastructure, Housing, and Urban Development Mass Rapid Transit System Nairobi Metropolitan Area Transport Authority National Construction Authority Nairobi Metropolitan Area Net Present Value National Transport and Safety Authority Project Appraisal Document Project Development Objective Public-Private Partnership Resettlement Action Plan Special Drawing Rights Terms of Reference 2 P age

3 Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Hafez M. H. Ghanem Carlos Felipe Jaramillo Guangzhe Chen Benedict Eijbergen Josphat O. Sasia, Haileyesus Adamtei Mengesha 3 P age

4 Table of content PAGE BASIC DATA 5 I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 6 Summary of the Proposed Restructuring 6 A. Background 6 B. Overall Progress 8 C. Rationale for Restructuring 10 II. DESCRIPTION OF PROPOSED CHANGES 11 III. SUMMARY OF CHANGES 11 IV. DETAILED CHANGE(S) 12 4 P age

5 BASIC DATA Product Information Project ID P Original EA Category Partial Assessment (B) Approval Date 02-Aug-2012 Financing Instrument Investment Project Financing Current EA Category Partial Assessment (B) Current Closing Date 31-Dec-2018 Organizations Borrower Kenya National Treasury Responsible Agency Kenya National Highways Authority,Kenya Urban Roads Authority,Ministry of Transport, Infrastructure, Housing and Urban Development,Kenya Railways Corporation Processing (this section will be automatically removed by the system before the paper is disclosed) Form Type Full Restructuring Paper Based on the proposed changes this Restructuring type is Level 2 Decision Authority CD Decision Explanation of Exception to Decision Authority This is the cancellation of the undisbursed balance of the IDA Credit. Project Development Objective (PDO) Original PDO The Project Development Objectives (PDO) are to: (a) improve the efficiency of road transport along the northern corridor; (b) improve the institutional capacity and arrangements in the urban transport sub sector; and (c) promote the private sector participation in the operation, financing and management of transport systems. 5 P age

6 Summary Status of Financing Ln/Cr/Tf Approval Signing Effectivene ss Closing Net Commitme nt Disburs ed Undisburs ed IDA Aug Sep Dec Dec Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Summary of the Proposed Restructuring 1. The Government of Kenya (GoK) has requested the cancellation of the undisbursed balance of the IDA Credit for the Kenya National Urban Transport Improvement Project (Cr KE) on December 21, This constitutes a Level 2 restructuring of the project. A. Background 2. The IDA Credit for the project was approved on August 2, 2012 for an amount of SDR million (US$300 million equivalent, Credit No KE), and became effective on December 24, Progress towards achievement of the Project Development Objective (PDO) is rated Moderately Satisfactory (MS) while Implementation Progress is rated Moderately Unsatisfactory (MU), in the latest Implementation Status and Results Report (September 7, 2018). As of December 21, 2018, the cumulative disbursement is about SDR million (US$ million equivalent) or 22.7 percent of the IDA credit. 3. Initial project implementation was considerably delayed in part due to this period coinciding with the start of devolved government systems and transport sector policy adjustments. Subsequent to Board approval of the project on August 2, 2012, the GoK developed a new urban transport strategy 1 that focuses on enhancing public transport by prioritizing the developments of Mass Rapid Transit System (MRTS). Studies were carried out that informed this decision including the Master Plan for Urban Transport in the Nairobi Metropolitan Area (NMA) for , the Feasibility Study for MRTS for the Nairobi Metropolitan Region (CES/APEC 2011), and the subsequent Mass Rapid Transit Harmonization Study of Several mass transit corridors were identified for development to improve the current 1 this strategy is part of Integrated National Transport Policy for Kenya which Parliament endorsed in December P age

7 inefficient urban transport system in NMA and develop Bus Rapid Transit (BRT) systems and commuter rail services for inclusion in the project. 4. Whereas the shift of focus by GoK to MRTS provides a sensible solution for the traffic problems and movement of people in the NMA, this affected the pace of implementation, and project scope as some of the activities required retrofitting to incorporate public transport aspects. For instance, the mere expansion of the Jomo Kenyatta International Airport-James Gichuru road junction-rironi under the project was no longer deemed as an appropriate intervention and incorporation of BRT aspects became imperative. Hence, the designs for road expansion that were underway required modification. 5. Accordingly, there was a need for additional feasibility and design studies on BRT. The bidding process to procure a contractor for expansion of this entire road section (JKIA-Rironi section, which was split into three Lots) was kept in abeyance to allow for the review and update of the design studies to incorporate additional lanes, stations, depots, etc. in the works contracts to support the implementation of a public transport system focused mainly on a BRT. The updated studies led to major cost increases and the available financing under the project could not cover the original scope. The available financing under the project could finance only one Lot, James Gichuru road junction-rironi, implying the deletion of some of the other project activities. This took time to conclude. 6. Meanwhile, there was also a change in the governance structure of the country, from a centralized to a devolved system of government leading to the creation of counties. Five counties 2 were created in NMA, whose leadership had to be consulted afresh and agreement reached on the implementation and coordination of the development of public transport matters within their jurisdiction under a proposed metropolitan transport authority, Nairobi Metropolitan Area Transport Authority (NaMATA). Under the changing landscape, GoK initiated and carried out discussions to agree on the concept of MRTS in the wider geographical NMA by bringing all five counties on board which took significant time. The project had to be retrofitted to respond to the requirements of implementing the new (2010) Constitution that created a new institutional structure for the transport sector. This involved introducing new project activities in response to the transition from a centralized to a devolved form of government. 7. Due to changed circumstances, most of the designs for works have been carried out during the project implementation phase. The preparation of designs for the selected major road sections on the Northern Corridor through Nairobi as well as the proposed Kisumu Northern Bypass was delayed, and designs were finalized only after Board approval of the project. The delay is attributed to the need to incorporate aspects of public transport in the designs particularly BRT systems in response to the shift in Government strategy in support of MRTS. The designs revealed that the financing requirements were much higher than the funds available under the IDA Credit and therefore some of the project activities were dropped, new and relevant activities introduced. 8. Delays and inadequate releases of counterpart and IDA funding likewise slowed down implementation progress. The bulk of counterpart funds is required for compensating project affected 2 Nairobi, Kiambu, Kajiado, Machakos and Murang a counties 7 P age

8 persons (PAPs) either for land acquisition or structures as well as the relocation of services. An estimated KES13.5 billion (about US$135 million) in counterpart funding is required to compensate PAPs for road related contracts under the project including the James Gichuru road junction-rironi and Meru bypass roads. In addition, other counterpart funds required from GoK are estimated at KES4.2 billion (about US$42 million) in addition to the undisbursed amount that was earlier envisaged to be financed from the IDA Credit (now being cancelled). 9. The combination of these factors presented major challenges for project implementation and required proactivity from Bank s task team and implementing agencies which at the request of the GoK commenced working on restructuring the project. A more flexible arrangement aligned with the changed circumstances is required if the retrofitted activities are to be implemented smoothly. The Government needs to consult extensively with the counties involved, particularly in the NMA while simultaneously executing contracts already awarded and reaching closure on the outstanding issues including compensation of PAPs (currently a larger number than initially estimated at appraisal of the project). The momentum of the implementation of the institutional and policy reforms in urban transport, initiated under this project should not be lost. B. Overall Progress 10. Some progress has been recorded in the recent past. GoK has implemented all dated covenants under the project which involved institutional and policy reforms. Specifically, this includes, setting up (a) a lead road safety agency, the National Transport and Safety Authority (NTSA); and (b) a body to coordinate the planning and development of urban transport initiatives in the NMA, NaMATA. NTSA is fully operational. Operationalization of NaMATA is underway after a one-year delay. A Board of Directors has been selected and a full time acting Chief Executive Officer has been appointed. The project is supporting some of the startup activities of NaMATA to put it on solid footing to discharge its responsibility as delegated by the Government. Unless NaMATA becomes fully functional, it will be difficult to coordinate and lead urban transport projects/activities in NMA. 11. The regulatory framework for the engineering profession and practice Engineers Board of Kenya (EBK) has been established. These reforms are showing positive results in improving the governance and accountability in the transport sector. Meanwhile, the East African School of Aviation (EASA) has been strengthened through provision of training equipment and a library. Through the installation of 3-D Air Traffic Control Training Simulators as well as a library enhancement, the international Civil Aviation Organization (ICAO) has certified EASA as a Regional Training Center of Excellence which is among only 21 such training centers in the World. EASA now attracts trainees from all over the world. 12. Several contracts have been completed. These include: 8 P age (a) the supply of various traffic enforcement equipment to NTSA; (b) design of the proposed Kisumu Northern bypass and the adjoining road; (c) strengthening the management of information technology systems of Kenya Urban Roads Authority (KURA); (d) strengthening the capacity of the Kenya National Highway Authority (KeNHA) by supplying and installing a management information system; (e) building the capacity of the recently established National Construction Authority (regulator,

9 construction industry) and preparing the implementing regulations for the National Construction Authority Act (2011), through provision of goods and services; (f) building the capacity of the EBK (regulator, Engineering profession and practice) and developing the implementing regulations for the Engineers Act (2011); (g) preliminary design for supply and installation of an intelligent transport system (ITS) for Nairobi and bidding process for the system has commenced; and (h) construction of a library and purchase of training simulators for the EASA that has contributed to accreditation of the School by ICAO as a global center of excellence. 13. Construction of the Meru bypass roads (22km) is nearing completion and currently shows a 70 percent completion rate. Though delayed, the construction of the carriageway is virtually complete except for two bridges expected to be completed by June Completion of the roads will contribute greatly to easing the congestion through Meru town. 14. Expansion of the James Gichuru road junction-rironi (26km) adjoining Nairobi (US$172.2 million, works and supervision cost) is 12 percent completed. The works have been slowed down by inadequate funding for the resettlement action plan (RAP). 15. The preliminary design for supply and installation of an ITS for Nairobi is complete and the procurement of a vendor has commenced. The cost estimate is US$219 million for the improvement of major priority junctions, that contribute to congestion in the city. The government will decide on an appropriate course of action, including financing sources. 16. Preparation of a commuter rail master plan for Nairobi and associated activities is nearing completion (US$2.4 million). The recommendations of the study could help guide the development of commuter rail service in Nairobi to improve public transport. The recommendations include the proposed immediate interventions to improve operational efficiency, provide the desired user experience to commuters and help in defining the future of commuter rail services in NMA. 17. Some changes have been made to the project design and scope considering the changed circumstances, even though a Level 1 restructuring of the project (including change of Environmental Assessment Category from B to A) has not concluded 3. Some project activities were to be dropped due to insufficient funds under the project, and the scope of some activities was to be changed through that restructuring which has not concluded by the time of this Level 2 restructuring. Updated safeguard documents were prepared and disclosed. 18. Table 1 summarizes all the contracts awarded. 3 GoK proposed changes in its letter dated May 17, The restructuring was to follow the preparation and disclosure of updated safeguard documents (completed in November 2018), and has not concluded by the time of this Level 2 restructuring. 9 P age

10 Table 1: Contracts Awarded under the Project (US$ million) No Activity Cost at Appraisal Contract Price Component A: Support to Kenya National Highways Authority (KeNHA) to Upgrade the Urban Road Transport Infrastructure 1 Improvement of James Gichuru road junction-rironi of which km is six lanes while 19 km is four lanes 2 Consultancy services for supervision of improvement of James Gichuru road junction-rironi 3 Consultancy services for design review and supervision of construction of Kisumu Northern Bypass Subtotal A Component B: Support to Kenya Urban Roads Authority (KURA) and Kenya Railways Corporation (KRC) to Develop Selected Mass Transit Corridors B1: Kenya Urban Roads Authority (KURA) 4 Design and supervision of an ITS for Nairobi Construction of Meru Western and Eastern Bypasses Consultancy services for the supervision of the construction of Meru Western and Eastern Bypasses Subtotal B B2: Kenya Railways Authority (KRC) 7 Development of a Commuter Railway Master Plan for Nairobi Supply of a track recording car for Kenya Railways corporation Development of a commuter rail masterplan and feasibility study for Mombasa Subtotal B Subtotal B Component C: Institutional Strengthening and Capacity Building 10 Construction of a library for the East Africa School of Aviation Not 2.70 (EASA) specified 11 Consultancy services for supervision of the construction of a Not 0.25 library for EASA specified 12 Supply and installation of training simulators for EASA and associated training 13 Development of an integrated public transport network for Nairobi Subtotal C Total Commitments Audits: There are no outstanding audits. Also, the Interim Financial Reports are current. C. Rationale for Restructuring 20. Over the past six years, the project has been implemented in an environment of significant institutional change: (i) Kenya underwent a major decentralization and the NMA area was divided into five counties; (ii) after Board approval, the GoK developed a new urban transport strategy; (iii) new mass transit corridors (including for BRTs) were identified; and (iv) new institutions (including NaMATA) were 10 P age

11 set up to plan and oversee urban transport in this new environment. These changes had substantial impacts on the major civil works planned under the project including the James Gichuru road junction- Rironi which needed to be further widened to accommodate the plan to put in a BRT, which was not contemplated at appraisal. As a result, civil works were delayed, and resettlement impacts increased. 21. While the government has made progress over the past six years with recent accelerated progress on operationalizing the institutional architecture for urban transport in the NMA, there have been delays as well as shortfalls in providing counterpart funding, particularly for compensation for PAPs as well as the relocation of services and implementing the re-scoped civil works. highlighted project implementation issues in letters and aide memoires in December 2016, August 2017, January 2018, and August 2018 following Implementation Support missions; and in meetings with counterparts at the Ministry of Transport, Infrastructure, Housing and Urban Development and the National Treasury on December 11, Given the project s performance and the low disbursement of the IDA Credit (22.7 percent), the GoK has decided to cancel the undisbursed amount of the credit. These cancelled IDA funds will be available for recommitment for other Kenya projects (new operations /additional financing) in the current IDA18 cycle (FY18-20). In light of this, the World Bank supports the GoK s decision, and a level 2 restructuring is recommended. 22. The GoK would continue with the implementation of the on-going project activities using its own resources beyond December 31, As noted above, many contracts are under implementation. Thus, a smooth transition is critical, otherwise disrupting the current implementation impetus could lead to additional costs arising from delayed payment, which should be avoided. II. DESCRIPTION OF PROPOSED CHANGES 23. The restructuring entails (a) cancellation of the entire undisbursed amount of the IDA credit of SDR million (US$ million equivalent) from the project, (b) revision of the cost of each component; and (c) amendment of the amounts allocated to the Categories set forth in Section IV of Schedule 2 to the Financing Agreement. Details are found in section III. The rest remain unchanged including the Closing Date of the IDA Credit (December 31, 2018). 24. Any unfinished project activities will need to be financed from the GoK s own funds. Safeguards obligations as stipulated in the disclosed Safeguard Instruments will remain in place after the closing of the project including implementation of RAPs and ESIAs. III. SUMMARY OF CHANGES Components and Cost Cancellations Proposed Reallocation between Disbursement Categories Changed Not Changed 11 P age

12 OPS_DE TAILE DCHA NGES_ COMPONE NTS_TA BLE Disbursement Estimates EA category Implementing Agency DDO Status Project's Development Objectives Results Framework Loan Closing Date(s) Disbursements Arrangements Overall Risk Rating Safeguard Policies Triggered Legal Covenants Institutional Arrangements Financial Management Procurement Implementation Schedule Other Change(s) Economic and Financial Analysis Technical Analysis Social Analysis Environmental Analysis IV. DETAILED CHANGE(S) COMPONENTS Current Component Name Upgrading Urban Road Transport infrastructure along Northern Corridor through Nairobi to be implemented by Kenya National Highway s Authority (KeNHA) Current Cost (US$M) Action Revised Proposed Component Name Upgrading Urban Road Transport infrastructure along Northern Corridor through Nairobi to be implemented by Kenya National Highway s Authority (KeNHA) Proposed Cost (US$M) P age

13 OPS_DE TAILE DCHA NGES_CANCELLATIONS_TABLE Support to the development of selected Mass Transit Corridors Institutional Strengthening and Capacity Building in the Urban Transport and Technical Assistance Revised Revised Support to the development of selected Mass Transit Corridors Institutional Strengthening and Capacity Building in the Urban Transport and Technical Assistance. TOTAL CANCELLATIONS Ln/Cr/Tf IDA Statu s Disbu rsing Curren cy XDR Current Amount 193,500, Cancellatio n Amount 149,540, Value Date of Cancellatio n 21-Dec New Amount 43,959, Reason for Cancellatio n BORROWE R'S REQUEST FOR COUNTRY REASONS OPS_DE TAILE DCHA NGES_REA LLOCAT ION _TA BLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Allocation Actuals + Committed Proposed Allocation Financing % (Type Total) Current Proposed IDA Currency: XDR ilap Category Sequence No: 1 Current Expenditure Category: GDS,WKS &CS for KeNHA Part 1 124,000, ,425, ,650, ilap Category Sequence No: 2 - A Current Expenditure Category: GDS, WKS &CS for KURA (Part 2a) 25,940, ,515, ,009, ilap Category Sequence No: 2 - B Current Expenditure Category: GDS, WKS & CS for KRC (Part 2 b) 6,650, , , P age

14 ilap Category Sequence No: 3 - A Current Expenditure Category: GDS, WKS & CS for MoT (Part 3 a) 7,740, ,515, ,000, ilap Category Sequence No: 3- B Current Expenditure Category: GDS, WKS & CS for MoR (Part 3 c) 1,900, , , ilap Category Sequence No: 4-A Current Expenditure Category: TRAINING-KeNHA (Part 1) 890, , , ilap Category Sequence No: 4-B Current Expenditure Category: TRAINING - KURA (Part 2 a) 432, , , ilap Category Sequence No: 4-C Current Expenditure Category: TRAINING - KRC (Part 2 b) 432, , , ilap Category Sequence No: 4-D Current Expenditure Category: TRAINING - MoT (Part 3 a) 239, , , ilap Category Sequence No: 4-E Current Expenditure Category: TRAINING -MoR (Part 3 b) 239, , , ilap Category Sequence No: 5-A Current Expenditure Category: UNALLOCATED- KeNHA (Part 1) 19,100, ilap Category Sequence No: 5-B Current Expenditure Category: UNALLOCATED - KURA (Part 2 a) 4,440, ilap Category Sequence No: 5-C Current Expenditure Category: UNALLOCATED -KRC (Part 2 b) 613, P age

15 ilap Category Sequence No: 5-D Current Expenditure Category: UNALLOCATED - MoT (Part 3 a) 697, ilap Category Sequence No: 5-E Current Expenditure Category: UNALLOCATED - MoR (Part 3 b) 188, Total 193,500, ,415, ,959, OPS_DETAILEDCHA NGES_DISBURSEMENT_TA BLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed ,000, ,900, ,000, ,011, ,000, ,474, ,000, ,941, ,000, ,354, ,000, ,111, ,219, P age