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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Transport Sector Country Department AFCE1 Africa Region Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL FINANCING (GRANT) IN THE AMOUNT OF SDR 12.2 MILLION (US$19 MILLION EQUIVALENT) TO THE REPUBLIC OF BURUNDI FOR A ROAD SECTOR DEVELOPMENT PROJECT MARCH 11, 2011 Report No: BI This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank s policy on Access to Information.

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3 CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2011) Currency Unit = Burundi Franc BIF 1.23 = US$1 US$1.56 = SDR 1 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF AfDB ADC ALM BU BADEA BRB CAS CEM CG DCA EAC EU EIA FCFA FM FRN HIV/AIDS ISTEEBU ICB ICR IDA IFRs IRI ISR M&E MTPE MTTPE NRA Additional Financing African Development Bank Community Development Associations Equipment Leasing Pool Burundi Arab Bank for Economic Development in Africa (Banque Arabe pour le Développement Economique en Afrique) Central Bank of Burundi (Banque de la République du Burundi) Country Assistance Strategy Country Economic Memorandum Consultative Group Development Credit Agreement East Africa Community European Union Environmental Impact Assessment CFA Franc Financial Management National Road Fund (Fonds Routier National) Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome Burundi Institute of Statistics and Economic Studies (Institut des Statistiques et des Etudes Economiques du Burundi) International Competitive Bidding Implementation Completion Report International Development Association Interim Financial Reports International Roughness Index Implementation Supervision and Results Report Monitoring and Evaluation Ministry of Public Works and Equipment (Ministère des Travaux Publics et de l Equipement) Ministry of Transport, Public Works and Equipment (Ministére des Transports, Travaux publics et de l Equippement) National Road Agency

4 NRF NPV NPWL OBCs ODR ORAF PAD PDO PIU PMU PP PPR QCBS RN RPD RSDP RSPAP SIL SDR TDB TSS VOC WB National Road Fund Net Present Value National Public Works Laboratory Output-based Contracts National Road Agency (Office des Routes) Operational Risk Assessment Framework Project Appraisal Document Project Development Objective Project Implementation Unit Project Management Unit Project Paper Post Procurement Reviews Quality and Cost Based Selection National Road (Route Nationale) Road Planning Department Road Sector Development Project Road Sector Policy Action Plan Specific Investment Loan Special Drawing Rights To be Determined Transitional Support Strategy Vehicle Operating Costs World Bank Group Vice President: Country Director: Sector Director Sector Manager: Task Team Leader: Obiageli K. Ezekwesili John M. McIntire Jamal Saghir Supee Teravaninthorn Kingson K. Apara

5 BURUNDI ROAD SECTOR DEVELOPMENT PROJECT ADDITIONAL FINANCING CONTENTS Additional Financing Data Sheet... i I. Introduction... 1 II. Background and Rationale for Additional Financing in the amount of US$19 million... 2 III. Proposed Changes... 6 IV. Appraisal Summary... 9 Annex 1: Results Framework and Monitoring Indicators Annex 2: Operational Risk Assessment Framework (ORAF) Annex 3: Detailed Description of Additional Financing Activities Annex 4: Revised Project Cost Estimate Annex 5: Revised Implementation Plan... 31

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7 BURUNDI ROAD SECTOR DEVELOPMENT PROJECT (RSDP) Country Director: John M. McIntire Sector Director: Jamal Saghir Sector Manager: Supee Teravaninthorn Team Leader: Kingson K. Apara Project ID: P Expected Effectiveness Date: May 22, 2011 Lending Instrument: Specific Investment Loan Additional Financing Type: Cost Overrun and Financing Gap Additional Financing Data Sheet Basic Information - Additional Financing (AF) Sectors: Roads and Highways (80%); General Transportation Sector (20%) Themes: Other Trade Integration Environmental category: B-Partial Assessment Expected Closing Date: December 31, 2013 Joint IFC: N/A Joint Level: N/A Basic Information - Original Project Project ID: P Environmental category: B-Partial Assessment Project Name: Burundi Road Sector Expected Closing Date: June 30, 2011 Development Project Lending Instrument: Specific Investment Loan Joint IFC: N/A Joint Level: N/A AF Project Financing Data [ ] Loan [] Credit [ X ] Grant [ ] Guarantee [ ] Other: Proposed terms: Standard IDA Grant terms AF Financing Plan (US$m) Total Project Cost: Co-financing: Borrower: Source Total Bank Financing: IBRD IDA New Recommitted Client Information Recipient: Republic of Burundi Responsible Agency: Office des Routes Telephone No.: Fax No.: odr@usan-bu.net Total Amount (US $m) i

8 AF Estimated Disbursements (Bank FY/US$m) FY Annual Cumulative Project Development Objective and Description Original project development objective: The objective of the Project is to contribute to the post-conflict revival of the Recipient through restoration of part of the priority road network, generation of employment for the rural poor, and improvement of institutional capacity in the road sector. Revised project development objective: N/A Project description: The proposed Additional Financing (AF) would help complete the physical outputs of the RSDP that could not be achieved due to an unanticipated cost overrun of US$7.3 million and a financing gap of US$11.7 million. It would be allocated to Components 1, 2, 4, and 5 of the Project, while Component 3 would be financed by the Recipient through counterpart funds. Project components under the AF would be as follows: Component 1: Rehabilitation of Paved Classified Roads - US$10.4 million (IDA). Completion, control and supervision of civil works for the rehabilitation of part of paved primary roads, comprising National Roads 1, 3, 7 and 10, through drainage improvement and spot rehabilitation. Component 2: Rehabilitation of Unpaved Classified Roads - US$3.7 million (IDA). Completion, control and supervision of civil works for the rehabilitation of approximately 100 km of unpaved classified roads including Provincial Roads (RP) 101, 109, 120 and 124. Component 3: Road Maintenance and Management: This component will be financed entirely by a Government parallel contribution of US$3 million. Routine maintenance on the entire paved road network of some 1,100 km, and on 250 km of unpaved roads rehabilitated under the original project, and periodic maintenance on selected roads of the classified paved network, through labor-intensive and output-based contracting approaches. Component 4: Sector Management and Institutional Strengthening - US$2.1 million (IDA). (a) Consolidation of the functionality of data management and planning systems in road agencies and the Ministry of Transport, Public Works and Equipment (MTTPE); and (b) implementation of the Road Sector Policy Action Plan (RSPAP). Component 5: Project Management Support - US$2.8 million (IDA). Support for the management of the Project, including financial management, procurement, monitoring and evaluation, reporting, auditing, as well as preparing follow-on activities. Safeguard and Exception to Policies ii

9 Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) [ X ]Yes [] No [ ]Yes [X ] No [ ]Yes [X ] No [ ]Yes [X ] No [ ]Yes [X] No [ ]Yes [X ] No [ ]Yes [X ] No [ ]Yes [X ] No [ ]Yes [X ] No [ ]Yes [X ] No Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management? [ ]Yes [X ] No [ ]Yes [ ] No Conditions and Legal Covenants (to be completed based on negotiations outcome): Financing Description of Condition/Covenant Date Due Agreement Reference ARTICLE IV.4.01 The Recipient has updated the Project Implementation Manual for the Project in form and substance Before Effective Date SCHEDULE 2 SECTION I.A.2 (b)(iv) SCHEDULE 2 SECTION I.A.2 (b)(v) SECTION I.A.2(c) satisfactory to the Association The Recipient shall ensure that a new financial management specialist, with terms of reference, experience and qualifications satisfactory to the Association, has been recruited for the Project The Recipient shall ensure that a new monitoring and evaluation specialist, with terms of reference, experience and qualifications satisfactory to the Association, has been recruited for the Project The Recipient shall ensure that: (i) a supervision engineering firm shall be recruited in due course, on the basis of terms of reference, experience and qualifications satisfactory to the Association and in accordance with the provisions of Section III of this Schedule, in order to help update bills of quantities and technical design and support the ODR with bid evaluations; and (ii) bill of quantities for works contracts of a duration of twelve (12) or more months shall be reviewed jointly by said supervision engineer firms and the civil work contractors No later than May 31, 2011, No later than three (3) months after the Effective Date Before the procurement of each civil works contract with reviews held every six (6) months or following any other frequency as needed iii

10 SCHEDULE 2 SECTION I.B (b) SCHEDULE 2 SECTION I.B (d) SCHEDULE 2 SECTION I.E.3 SCHEDULE 2 SECTION F SECTION II.A.2 SECTION II.A.2 SECTION II.B.4 The Recipient shall deposit into an account in Burundi Francs in a commercial bank, an amount in Burundi Francs equivalent to Dollars 3,000,000, in twelve (12) equal monthly installments of 300,000,000 Burundi Francs as counterpart funds The Recipient shall carry out an assessment of the implementation of the contracts for the completion of the road maintenance works under Part 3 of the Original Project, in concert with the stakeholders. The Recipient shall include in the bidding documents for civil works under Parts 1 and 2 of the Project, the mitigation measures to be carried out with respect to said civil works activities. In order to limit the risk of outstanding claims under the contracts for the rehabilitation of National Roads 3 and 10 under the Original Project having an adverse impact on the Project and the achievement of its objectives, the Recipient shall reach an agreement with its creditors on a calendar for the payment of said claims, and shall thereafter comply with said agreement The Recipient shall, in conjunction with the Association, carry out a mid-term review of the Project The Recipient shall prepare a report integrating the results of the monitoring and evaluation activities performed pursuant to this Agreement The Recipient shall engage auditors for the timely carrying out of audits July 2011 to June 2012 (both inclusive) No later than June 30, 2011 Before the publication of bidding documents No later than the day before the date of publication of the bidding documents for the first civil works contract Fifteen (15) months after the Effective Date, Not less than three (3) months prior to the beginning of the Mid-term Review Not later than three (3) months after the Effective Date iv

11 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional Grant in an amount of US$19.0 million equivalent to Burundi for the Road Sector Development Project (RSDP); (P064876; Credit number 3874 BU) for the financing of Components 1, 2, 4, and 5 of the Project. 2. A recent Bank-sponsored Country Economic Memorandum (CEM) identified severe infrastructure gap as one of the main constraints to growth in land-locked Burundi. In the road sector, out of a total paved network of 1,100 km, only 49 percent is currently classified in good to fair condition. The RSDP was designed to partially restore critically damaged sections of the road network and to help increase domestic resources for maintenance. While domestically generated funds for road maintenance have more than tripled since 2005 to reach US$7.5 million in 2010, they remain far below their pre-war level of US$11 million achieved in The proposed Additional Financing (AF) would help complete the physical outputs of the RSDP that could not be achieved due to an unanticipated cost overrun of US$7.3 million and a financing gap of US$11.7 million. Specifically, it would cover: (i) Cost overruns on: (a) drainage improvement and rehabilitation of degraded sections of National Road (RN) 3 and RN10 (US$5.2 million) and (b) sector management and institutional strengthening (US$2.1 million); (ii) A financing gap for: (a) drainage improvement and rehabilitation of degraded sections of RN1 and RN7 (US$5.2 million); (b) rehabilitation of the remaining 100 km of earth roads (US$3.7 million); (c) transport studies and reviews (US$1.0 million); and (d) additional project management costs during the AF period (US$1.8 million). 4. The outcomes expected from the additional grant are presented in Annex 1 of this Project Paper (PP). The paved road network in good to fair condition would increase from 49 to 56 percent while the unpaved road network in good to fair condition would grow from 10 to 14 percent. Likewise, the number of jobs created by road works would increase from 48,000 to 56,000, and annual domestic road maintenance resources from US$7.5 million to US$8 million. The gains in procurement and invoice processing time would be consolidated, as well as the functionality of information systems within the National Road Agency (Office des Routes - ODR) and the Ministry of Public Works and Equipment (Ministère des Transports, des Travaux Publics et de l Equipement - MTTPE). 5. Seven percent of the original project cost is funded by the government through its National Road Fund (NRF). The government has accepted to maintain the same contribution of US$3 million under the AF, bringing its total funding to eight percent of the total cost of the project. In December 2008, the government organized a donor Consultative Group (CG) meeting to raise funds in support of its road infrastructure. Since the CG meeting, IDA has been joined in the sector by the African Development Bank (AfDB), the European Union (EU) and the Arab 1

12 Development Bank. Their combined current and planned lending commitments to the restoration of the existing classified network are limited, however, to about US$230 million. Accordingly, the government is relying largely on IDA and its national road fund resources to pursue the rehabilitation and maintenance of its existing paved and unpaved road networks. II. Background and Rationale for Additional Financing in the amount of US$19 million Background 6. Burundi is a small land-locked country, some 2,000 km from the Indian Ocean, whose internal and international trade depends essentially on road transport. In 2004, as peace returned to the country after more than a decade of war, the government adopted a road strategy which placed high priority on repositioning the network in a maintainable status and improving international road links. Implementing the strategy required increased financing and also short and long-term institutional improvements to guarantee the sustainability of road preservation. 7. Original Credit and Additional Financing: The RSDP was approved by the Board of Directors of the World Bank on March 18, 2004, in the Credit amount of SDR34 million (US$51.4 million) which became effective on September 9, This credit was to support and fully fund a Road Sector Development Project as an emergency response to Burundi s post - conflict revival. The RSDP was an integral part of the Bank's Transitional Support Strategy (TSS) for Burundi discussed by the Executive Directors on March 7, 2002, and whose transport sector objective was to reduce poverty and improve living standards by stimulating rural employment through road infrastructure programs. 8. The Project Development Objective (PDO) of RSDP is to contribute to the post-conflict revival of the Recipient through restoration of part of the priority road network, generation of employment for the rural poor, and improvement of institutional capacity in the road sector. The achievement of the PDO is supported by the following major project components: (1) rehabilitation of paved classified roads; (2) rehabilitation of unpaved classified roads; (3) road maintenance and management; (4) sector management and institutional strengthening; and (5) project management support. The original PDO and project components remain relevant and there are no changes to it under the AF. 9. Extension of the Project Closing Date for the AF: The original closing date of the credit was December 31, 2009, which was extended by 12 months to December 31, 2010, then by another six months to June 30, 2011, due to initial delays from a difficult start, and to enable the completion of project activities under implementation and to fully disburse the original credit. The original credit will close on June 30, 2011 as it will be fully disbursed. The closing date of the additional financing is being set to December 31, 2013, in order to allow for the completion and payment of works, goods and services which will be funded from the additional financing. 2

13 Project Development Objective (PDO) 10. The project has achieved most of its deliverables and development outcomes without modification of its PDO. It has restored 16 percent and 10 percent of the paved and unpaved road networks, respectively, through rehabilitation and periodic maintenance. It has helped triple domestic road maintenance resources since 2005 to US$7.5 million and generated some 48,000 jobs through output-based and labor-intensive approaches to road maintenance. Furthermore, it has improved operational and planning capacity within the National Road Agency (NRA); reduced its procurement and invoice processing delays by more than half and helped establish a road database to facilitate road works programming. Implementation Performance 11. The performance of the project has been rated as Satisfactory in the last three Implementation Supervision Reports (ISRs) both in terms of achievement of the development objectives and implementation progress. Overcoming initial shortcomings, the government has continued to show strong commitment to the project since the mid-term review on November 24, 2007, evidenced by high level ministerial involvement in project oversight and the provision of counterpart funding to the road maintenance component. 12. In terms of result delivery, all major road contracts under the current project have been completed. However, they were executed over longer periods and at higher costs than planned, for varying reasons including: weak oversight capacity, poor performance of a contractor on RN3 and unforeseen erosion mitigation activities on difficult slopes such as on RN 7 and 10. The delays on these contracts also led to the extension of supervision contracts, causing additional cost overruns. 13. The works contract for RN3 was terminated and a more expensive second bidder completed the works, albeit with a 25 percent cost increase. In order to contain the increased cost of works on paved roads, some project deliverables were reduced at various times during implementation. Surface treatment and drainage works on a section of the RN10 were dropped. The Development Credit Agreement (DCA) was revised in December 2009 to, inter alia, (a) reduce the scope of the unpaved road rehabilitation component from 350 to 250 km; and (b) compensate an IDA financing gap on the road maintenance component with a government contribution of US$3.0 million equivalent. These reductions however, did not affect the PDO. Exchange gains versus inflation 14. The project has enjoyed a favorable SDR-US$ exchange rate during most of its implementation life, given that a good number of the major contracts were concluded in US dollars. Nonetheless, the six percent exchange gain on IDA credit could not offset sixteen percent inflation on major works contracts, as shown in the table below. Project design had included a five percent price contingency, on the assumption that works would start immediately after credit effectiveness. Unfortunately, overall implementation took place in a period of generalized inflation associated with the prevailing global financial crisis, and suffered from a two year delay due to a combination of factors including initial weak implementation capacity, 3

14 armed conflicts in some project zones and a high staff turnover within the Project Implementation Unit (PIU). Table 1: Inflation on road contracts (in million Burundian francs) Contract Appraisal Cost Mid contract date Inflation adjustment factor 1 Adjusted appraisal cost Real costs Theoretical Gap Inflation rate (percent) RN 1 et 7 6,225 dec ,665 8,142 4, RN 3 7,331 jul ,495 8,621 1, RN4 6,266 nov ,493 7,824 1, RN 10 8,692 nov ,304 7,898 6,406-9 Total 28,515 46,957 32,485 14, Source: Project technical auditor s report (December 2010) Fiduciary, Environmental and Legal Compliance 15. The project has complied with or is current with all legal covenants, including audit requirements. At the request of the Borrower, a revision to the DCA in December 2009 cancelled a legal covenant requiring the privatization of the Equipment Leasing Pool (ALM) and the National Public Works Laboratory (NPWL), when the Bank recognized that the two entities were no longer receiving government subsidies. Environmental Safeguard that was rated as Marginally Satisfactory in the last ISR pending a safeguards review of the last civil works, is expected to be upgraded to Satisfactory by March 2011 after the actions agreed in December 2010 with the Bank s environmental specialist will have been executed. These actions are discussed in Paragraph 43 below as part of the AF assessment. 16. The government disclosed in-country the ESIAs for the paved and unpaved road works to be financed under the AF on January 21, 2011 Procurement Performance 17. Procurement compliance and performance under the project is rated Satisfactory. The transition from the 2002 procurement guidelines to the 2004 procurement and consultants guidelines revised in October 2006 was achieved through an amendment to the DCA. However, Post Procurement Reviews (PPR) conducted by the Bank s procurement staff in October 2010, revealed a few minor weaknesses including inappropriate use of sample documents. Other weaknesses noted during the project include frequent changes in procurement committee members and high staff turnover, both of which have led to deficiencies and delays in the evaluation of bids and proposals. Also, long delays observed in the settlement of two contract litigations 2 were partly due to lack of clarity in the complaints handling process. Project procurement activities are processed in a decentralized manner with all related decisions and clearances being taken through a special commission within ODR. However, recent requirements 1 Derived from price indices provided by the Burundian Institute of Statistics and Economic Studies (ISTEEBU) 2 The government is required to pay an arbitration award of US$3.1million in compensation under the terminated RN3 works contract and US$1.9 million as compensation to the contractor who carried out the works on RN10. 4

15 under Burundi s new procurement code revert to a pre-project practice which was to seek clearance from a central procurement department of the Ministry of Finance. The government confirmed during negotiations that the decentralized regime of the original project will be maintained during the AF period. Full and effective decentralization should be addressed as part of the Bank s overall strategic dialogue. Results Framework 18. The project results framework now incorporates relevant and mandatory core indicators introduced in July 2009 which will be updated in the next ISR. The AF provides an opportunity to further improve the result framework in line with recent management reviews. The AF will also help strengthen data collection arrangements within the ODR to ensure sustainable monitoring of the Road Sector Policy Action Plan-RSPAP in the context of a new performance agreement between MTTPE and ODR whose key aim is to enforce accountability and results effectiveness in road program delivery. AF Rationale 19. The AF is critical to help consolidate the RSDP objective and guarantee its sustainability. It will help complete high impact road maintenance and rehabilitation components and address the institutional and operational deficiencies identified during project implementation and discussed in the Operational Risk Assessment Framework (ORAF). 20. The activities envisaged under the AF are justified both by the cost overrun incurred on the paved road rehabilitation component and by the need to close the road works financing gap which emerged during RSDP implementation. Indeed, as part of project preparation, paved roads conditions were assessed in At that time some sections of the paved road network, especially those related to the RN1, RN5, RN7 and RN10, were found less damaged than anticipated and, therefore, were not considered a priority for intervention. During project implementation, however, these roads deteriorated considerably and the absence of available funding under the RSDP precluded the financing of their rehabilitation works. At the project mid-term review, it was noted that since most of RN5 had deteriorated beyond a point where spot rehabilitation was appropriate, its associated financing was redirected to finance works on less damaged sections of the RN1 and RN7 as well as to cover part of a US$3.5 million cost overrun incurred on RN As demobilization of ex-combatants and reconstruction efforts intensify with Bank support, infrastructure projects are creating employment opportunities in Burundi where the national poverty incidence is nearly 70 percent. The RSDP has so far created some 48,000 jobs for the rural poor, thanks to its labor-intensive focus, and is expected to generate an additional 8,000 other jobs during the AF period. The labor-intensive concept being tested with rural Community Development Associations (ADCs) is becoming increasingly popular and successful in the country and needs to be expanded and improved upon. Its nation-wide coverage is expected to contribute to the reduction of social tensions in rural communities. The AF is an appropriate instrument to pursue this program without further interruption. 5

16 22. Finally, the AF is considered the best alternative to reaching RSDP objective and maximizing its development impact. Its streamlined and quick processing procedures will enable the completion, without much interruption, of drainage and rehabilitation works that are crucial to ensuring project sustainability and which had to be scaled down due to funding shortfalls. Alternative considered 23. The Country Assistance Strategy (CAS) includes a regional transport project to be supported by IDA. An alternative to the AF was to allow the closure of the original project and accelerate the preparation of this regional operation. This solution had the merit of approaching Burundi s transport problems regionally in the context of its integration with the East Africa Community (EAC). However, it would have resulted in an interruption of the Bank s presence in the Sector for an uncertain duration, which would have impacted negatively the sustainability of the RSDP achievements, as the increase envisioned in domestic resources will not compensate in the short term for the IDA proposed AF resources. III. Proposed Changes Changes in project outcome indicators 24. No changes are proposed to the development objectives of the project, or to the design standards of the works being proposed for the AF. The number of project outcome indicators has been reduced for simplicity and to better reflect the Bank s core indicators which were adopted after RSDP became effective. Some indicators whose targets have already been achieved under the original project have also been dropped. These changes are reflected in Annex 1 and summarized in the table below. Table 2: Current and Proposed Outcome Indicators Indicator Original target 3 Changes with AF Revised target Share of annual road maintenance budget disbursed (80%) Paved Roads in good and fair condition as a share of total classified Roads (percentage) Earth roads in good and fair condition as a share of total classified Roads (percentage) Share of rural Population with access to an all season road (percentage) of which female (percentage) 29 of which 52% female 11 of which 52% female 40 of which 52% female Persons employed on road works (Number) of which female (percentage) 48,000 of which 50% female 8,000 of which 50% female 56,000 of which 50% female ADC members counseled on HIV/AIDS prevention (Number) of which female (percentage) 22,000 of which 50% female 5,000 of which 50% female 27,000 of which 50% female 3 Project indicator values at October 31,

17 Annual road statistics are available within ODR and MTTPE Road database exists for paved roads Road database exists for paved and earth roads Annual statistics exist in ODR and MTTPE Maximum average time (in weeks) for Special Procurement Commission to complete ICB and QCBS procurement Maximum time period (in days) between the receipt and payment through the DA of invoices from local contractors and service providers by the PMU Changes in project deliverables 25. A significant part of the AF (60 percent) will be used to pursue spot rehabilitation and drainage improvement on deteriorated sections of the paved road network which could hinder traffic flows. Spot rehabilitation will target 23 km of the 115 km of RN1 and RN10 of the 129 km of RN7. It will also help rehabilitate some 100 km of unpaved roads. The AF also contains provisions to help complete the establishment of a road database within the ODR and finance associated data collection. Furthermore, the AF will allow the development of a statistical system at MTTPE. Finally, the AF will finance the implementation of the government s Road Sector Policy Action Plan (RSPAP) as well as project follow on activities. The AF incremental cost is in Annex 4 and the financing responsibilities between the government and IDA are shown in the Tables 3 and 4 below: Component/Activity Table 3: Changes in IDA Financing IDA Original Project IDA AF (overrun) IDA AF (Financing gap) Total IDA AF IDA Combined Component 1 : Paved Road Rehabilitation Rehabilitation of RN Rehabilitation of RN Rehabilitation of RN Spot Rehabilitation RN 1, Component 2: Earth Roads Rehabilitation Component 3 : Road Maintenance Component 4: Sector Management and Institutional Strengthening Component 5: Project Management Support Total Cost

18 Table 4: Changes in Government Financing Component/Activity Original AF (NRF) Combined project (NRF) Component 1 : Paved Road Rehabilitation Rehabilitation of RN 3 Rehabilitation of RN 4 Rehabilitation of RN 10 Spot Rehabilitation RN 1, 7 Component 2: Earth Roads Rehabilitation Component 3 : Road Maintenance Component 4: Sector Management and Institutional Strengthening Component 5: Project Management Support Total Cost Institutional and Implementation Arrangements 26. The institutional and implementation arrangements for project coordination and oversight including financial management, disbursement arrangements and procurement used under the original project were found appropriate and will be continued under the AF. However to ensure good governance in the road sector, the Road Sector Action Plan (RSAP) developed and agreed with at the negotiations of the original credit will continue to apply. Its implementation and monitoring remains a priority under the AF and has been included as a covenant in the financing agreement of the AF. Monitoring and Evaluation 27. Within ODR project Monitoring and Evaluation (M&E) functions are shared by three entities: The Project Management Unit (PMU) is responsible for results monitoring, the Road Planning Department (RPD) monitors all engineering studies and other programming activities while the Department of Works (DT) oversees the execution of works. A Cooperation unit responsible for overall monitoring within ODR is currently not operational. ODR s current staffing skills mix lacks the ability to adequately monitor its activities. Accordingly, a full time M&E specialist will be recruited to strengthen the capacity of the Cooperation unit within ODR in data collection and project reporting. The AF will also support the establishment of an accounting system within ODR to facilitate resource monitoring, data collection for road program preparation and monitoring, and implementation oversight of the performance agreement concluded under the RSDP between ODR and MTTPE. 8

19 IV. Appraisal Summary Consistency with CAS or CPS 28. The RSDP was an integral part of the Bank's Transitional Support Strategy (TSS) for Burundi discussed by the Executive Directors on March 7, 2002, and whose transport sector objective was to reduce poverty and improve living standards by stimulating rural employment through road infrastructure programs. On July 8, 2008, the Board also approved a follow on CAS, whose transport objective is to enhance regional integration and promote efficient transport services. The proposed AF is consistent with both the TSS and the CAS. Economic Analysis of Cost Overrun or Financing Gap 29. Economic analysis under the original project was limited to full scale rehabilitation works on RN3, RN4 and RN10. Works envisaged under the AF are spot rehabilitation and drainage improvement on RN3, RN10, RN1 and RN7, with an objective to avoid any potential traffic disruption on the targeted roads over a ten year residual life of the roads studied. A cost/benefit analysis conducted in December 2010 took into account the total cost of the works completed under the original project and those envisaged under the AF, (with the exception of RN10 for which works under the original project were excluded) 4. The analysis compared annual vehicle operating costs (VOC) on each road with those on a credible deviation 5 in good condition. The difference between the two values was taken as the benefits of having an all-year road without traffic disruption. Works envisaged under the AF were considered economically viable if they yielded a positive Net Present Value (NPV). The analysis was based on the following assumptions: (i) A paved road in good condition has an International Roughness Index (IRI) of 3 and an average VOC of US$0.30 to US$0.36/km, depending on the road; (ii) An unpaved road in good condition has an IRI of 7 and an average VOC of US$0.39/km; (iii) An unpaved road in poor but maintainable condition has IRI of 12 and an average VOC of US$0.48/km; (iv) Deviated traffic was determined from Origin/Destination surveys; and (v) Investment and maintenance costs considered include surface treatment and drainage structures (culverts and slopes). 4 The economic analysis of RN 10 under the original project showed a negative internal rate of return because of low traffic volumes and high cost of off-road drainage works 5 A credible deviation is an alternative road in good condition to which traffic would most likely deviate in case there was disruption on the road under study. 9

20 30. The results are summarized in Table 5 below. RN1 and RN 7 Traffic growth Year Economic Costs Table 5: Road Section Evaluation Benefits RN3 5% In first 5 years 5% In first 5 years 3% Beyond 3% beyond Year Economic Costs Benefits Net Benefits NPV NPV 8.68 IRR IRR 33% Table 6: Road Section Evaluation RN10 Traffic Growth 5% In first five years 3% Beyond Year Cost Benefits Net Benefits NPV 4.45 IRR 6% 10

21 Technical Design 31. Works to be financed under the AF have been appraised by international consultants. However, the unpredictable nature of and specific challenges posed by landslides reduce the reliability of works estimates and require specific expertise to monitor contracts. Hence, two lessons from the current project need to be taken into account under the AF. First, there must not be poor performance or sub-standard delivery of works as was the case on the RN 3. Second, the weak oversight capacity of ODR documented during several Bank supervision missions needs to be addressed. Accordingly, supervision engineering firms will be recruited in due course before the procurement of each civil works contract for the Project (i.e. approximately three months ahead of works contractors) in order to help update bills of quantities and technical design and support the ODR with bid evaluations. Furthermore, bill of quantities for works contracts of a duration of 12 or more months shall be reviewed jointly by supervision engineer firms and the civil work contractors every six months or following any other frequency as needed. Financial Management 32. A Financial Management (FM) assessment was carried out for the RSDP Implementing Unit in line with the Financial Management Practices Manual issued by the Financial Management Sector Board in March The objective of the assessment was to determine whether the unit had acceptable financial management arrangements in place to adequately implement the AF. The results of this assessment are that RSDP implementing unit has adequate capacity to meet IDA financial management requirements assuming a residual risk rating of substantial, both of which satisfy the World Bank s minimum requirements under OP/BP FM risk mitigating measures have been identified and will be monitored over the implementation of the project to bring the risk down from high to substantial. 33. Unaudited Interim Financial Reports (IFRs) for RSDP have been submitted on time, reviewed and found to be satisfactory. The external auditors issued a clean audit report for the year ended December 2009 and the management letter from the external auditors did not raise any major issues. RSDP implementing unit is therefore in compliance with Bank s financial management requirements. There are no overdue audit reports or interim financial reports. 34. The PMU has maintained proper books of accounts which include a cash book, ledgers, journal vouchers and a contract register. Under the AF it will prepare the necessary records and books of accounts which shall adequately identify, in accordance with accepted international accounting standards and practices, the goods and services financed out of the proceeds of the Grant. The existing RSDP accounting system will be used during the implementation of this AF. 35. Disbursements will be made for 100 percent of eligible project expenditures, inclusive of taxes. A US Dollar denominated Designated Account (DA) will be opened in the Central Bank of Burundi (BRB) for the purposes of implementing the project. The project will disburse against Statement of Expenditures (SOE) or records. Disbursement from the IDA grant account will be made into the DA (initial advance at effectiveness followed by monthly replenishments) and 11

22 payments in US Dollars will be made out of this account. This account will also be used to finance transactions in local currency. The ceiling of the DA has been set at US$1.8 million, equivalent to four months of project expenditures expected to be made from the DA. 36. A comprehensive Project Implementation Manual of which a Financial Management Manual is an integral part, is in use under the current project, and will need to be updated for the AF as a condition of effectiveness. The PMU will, however, need to recruit a new financial manager before May 31, The remaining project financial management staff will be maintained under the AF. 37. Counterpart funding. The government will open a Project Account in Burundi Francs in a commercial bank acceptable to the Association. The government will deposit in the account, twelve (12) equal monthly installments of 300,000,000 Burundi Francs from July 2011 to June 2012 (both inclusive), as counterpart funds to be used to finance Component 3 of the project 38. A full FM assessment report is made available on file for consultation. Procurement 39. There are no changes being proposed to the procurement arrangements used under the RSDP. Anticipated procurement issues should be minor under the AF as it will rely on project staffs who have acquired relevant expertise during the RSDP implementation. Selection of consultancy services will either be completed or will be in the process of finalization before AF effectiveness. Accordingly, the main outstanding activities will be tied to the civil works contracts for unpaved roads rehabilitation, paved road spot rehabilitation and drainage improvements on RN1, RN3, RN7 and RN10. The bidding documents for these works as well as their associated bills of quantities will be developed from existing RSDP procurement documents. The AF procurement plan is shown in Annex 5. It will be updated at least annually or as required to reflect the actual project implementation circumstances. 40. Procurement activities will be carried out in accordance with the provisions of the World Bank s Guidelines: Procurement under IBRD Loans and IDA Credit, May 2004, revised October 2006 and May 2010; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers, May 2004, revised October 2006 and May 2010, and the provisions stipulated or referred to in the Financing Agreement (FA) of the AF. 41. In order to ensure compliance with the above guidelines, procurement under the AF will not be handled by the same person responsible for M&E, as was the case in the original project. A full-time procurement specialist will be maintained to help, inter alia, conduct procurement and technical reviews on works and consultants services carried out under the AF. Following these reviews, ODR will take any corrective action necessary to remedy any shortcoming noted in the administration of procurement activities and contract management. 42. The procurement capacity of the implementing agency has been reasonably acceptable, albeit with some problems relating to frequent changes of members of the procurement commission. ODR has reasonably qualified and experienced staff. The systems and procedures 12

23 which are in use have been assessed to be satisfactory by the Bank. The project procurement risk has been rated as Moderate Risk (MR). Safeguards 43. Activities proposed for the AF are very similar to those already completed under the original project: They include rehabilitation and drainage improvement of sections of the paved and earth road networks. Therefore the safeguards Category B, partial assessment, remains unchanged. As in the original project, these works focus mainly on the existing road alignments, with no realignment or incursions into the wider right of way. They will not require alterations to the road geometry, or any economic displacement of persons or property like in the original project. No negative impacts have been noted on any abutting users or land holders. No new environmental risks are expected to arise under the AF, whose activities will not trigger any new safeguard policies. The original project has not required any land acquisition and it is not foreseen in the works to be financed by the Additional Financing. For these reasons, neither the original project nor the Additional Financing triggers OP 4.12 (Involuntary Resettlement). As has been done in the original project, if implementation of designs was to result in potential land acquisition and displacement of persons, the road width would be limited at such sites. This condition will be included in the bidding documents and is feasible, given the low volume of traffic in the next several years. 44. The Environmental and Social Impact Assessments (ESIA) for RN3 and RN10 were prepared before appraisal and disclosed in 2003 prior to the presentation of the original project to the Board in Since that time and in line with the safeguards arrangements approved for the original project, ESIAs have been prepared by an independent consultant for RN1 and RN7 and for unpaved roads, reviewed and consulted upon. They include works on the road sections to be financed by the AF, namely, drainage improvements and rehabilitation of degraded sections of RN1, RN3, RN7 and RN10, and rehabilitation of the remaining 100 km of unpaved roads. These ESIAs were reviewed by Bank staff for consistency with final activities retained under the AF and were disclosed both in-country and at the InfoShop on January 21 and January 25, 2011, respectively. Prior to IDA approval of the bidding documents for each road works contract, the Borrower, through ODR, will define detailed environmental and social measures to manage potential environmental risks and mitigate their adverse impacts, in a manner satisfactory to IDA. The measures arising from each ESIA will be quantified and included in the bidding documents and works contracts. They will be implemented as an integral part of these works whose supervision engineer team will include an environmental specialist. 45. Bank s supervision missions will continue to include safeguard specialists to ensure that proposed safeguards have been implemented. ODR has an environmental unit whose staff has received training in Bank safeguards policies. This unit will be further strengthened with a visiting environmental consultant to ensure ongoing monitoring of the environmental aspects of the works and training of staff. 13

24 Expected Outcomes 46. The four outcomes of the additional financing are: (a) improved condition of paved and unpaved roads; (b) improved sector planning through functional programming instruments; (c) more rural jobs generated from community based road maintenance; (d) and number of people with access to an all-season road. These project outcomes will contribute to wider socioeconomic gains, including increased accessibility to social-economic amenities such as markets, schools and health facilities. Better accessibility will also boost economic activities such as tourism and agricultural development. In addition, road rehabilitation will reduce vehicle operating costs and transport costs on national and regional sections of the road network. Benefits and Risks 47. The fundamental concern at the time of preparation of the original project was that the insecurity prevailing in Burundi and/or the uncertainty that the proposed road sector policy reforms would be implemented could impact adversely RSDP implementation. Fortunately, all major road contracts have been successfully completed, albeit with considerable delays. Preproject traffic disruptions from floods (on RN4 and RN10), erosion and poor drainage structures on all paved trunk roads are expected to be substantially minimized following the completion of works planned under the AF. This will ensure that year-round movement of persons and goods is possible in a country where the road is the only mode of domestic transport. Although efficiency and governance still remain a challenge in the road sector, the RSDP has helped build up the operational functionality of sector agencies. 48. Overall macroeconomic risks are equally high as considerable uncertainty remains with respect to recovery from the global crises. Vulnerability to fluctuating world oil prices, combined with the effect of drought on food supply and hydropower generation could further drive up inflation, including on construction inputs. Project cost includes a seven percent contingency as provision against inflation during implementation. 49. Overall project-related risk is medium-l. This rating is influenced by the Satisfactory rating of the Original Project in the ISR, and measures taken to maintain the same rating during the AF period. The risks and their mitigation measures are discussed in Paragraph 55 below and in the ORAF attached as Annex 2. Bank Policy Exceptions 50. No policy exceptions are required for the activities being funded under the AF. Project Sustainability 51. Assuming that the risk on social peace is mitigated, the sustainability of the project will depend on the actions that the government will take to ensure regular and effective maintenance of rehabilitated roads. Specifically, the following actions currently under implementation in the RSDP will be continued under the AF: 14

25 (i) Long term output-based maintenance contracts started in 2009 will be in effect beyond the project closing date; (ii) Additional road maintenance revenues generated under the project through increased fuel levy will be sufficient to finance routine maintenance of the entire paved road network as well as 250 km of the unpaved road network which will be rehabilitated by the project. In its ongoing dialogue with the government, the Bank will continue to support in identifying more domestic resources to reduce Burundi s dependence on foreign funds for periodic maintenance works; and (iii) The road database established within ODR will be finalized and extended to include the unpaved network. The AF will also help complete the establishment of a statistical database in the planning unit of MTTPE, to facilitate sector budget and sector strategic planning. The underlying data collection requirements will be addressed as part of the AF and will be monitored subsequently as part of the Bank s ongoing dialogue in the sector. 52. The original and existing project designs recognize that spot rehabilitation is not a long term solution to maintaining paved roads which are beginning to show signs of pavement distress over a greater part of their length. The government s strategy is to pursue preventive maintenance on these and other paved road sections using internal and external resources until adequate funding for proper rehabilitation can be identified and mobilized. The AF will finance a full study of these roads to assist the government in achieving this objective and know the true costs of this undertaking for resource programming purpose. Given the foreseeable large amount needed to restore road conditions and the economic importance of road transport in Burundi, it is recommended that the programming of road works be integrated into the government s Medium Term Expenditure Framework. Governance and Corruption 53. In the face of growing corruption, the President of Burundi has emphasized zerotolerance to corruption since his inauguration speech following his re-election. This call has been echoed by other ministers during various meetings with the Bank, and recently during the visit of the Regional Vice President to the country last October. The Bank is currently discussing a draft governance strategy with the government as well as its implementation plan and approach, in collaboration with other donors. Sector aspects of the strategy will be monitored on an ongoing basis by supervision missions of the Bank. In addition separate an assessment of road sector governance will be undertaken from which concrete actions will be derived to improve value for money and social accountability in the sector. 54. Risk arising out of the CPIA ratings is high, notably on Question 13 (Quality of Budgetary and Financial Management) and Question 16 (Transparency, Accountability and Corruption in the Public Sector). Specific measures will be taken from the onset of the project to tighten controls on project and contract execution. In this regard, the oversight function of the ODR will be reinforced with an independent technical auditor and a resident consultant, both of whom are experienced highway engineers of international caliber. The consultants will work closely with a supervision engineering firm which shall be recruited in due course before the procurement of each civil works contract for the Project, on the basis of terms of reference, 15