RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF INFRASTRUCTURE TRANSPORT INVESTMENT PROJECT LOAN (ADDITIONAL FINANCING)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF INFRASTRUCTURE TRANSPORT INVESTMENT PROJECT LOAN (ADDITIONAL FINANCING) Transport Sector Country Department AFCS1 Africa Region CREDIT NUMBER APPROVED ON May 22, 2007 TO THE REPUBLIC OF MADAGASCAR June 29, 2010 Report No:

2 ABBREVIATIONS AND ACRONYMS APL BOA EIB OP/BP PIU SDR Adaptable Program Loan Bank of Africa European Investment Bank Operational Policy/Bank Policy Project Implementation Unit Standard Drawing Rights Regional Vice President: Country Director: Sector Manager / Director: Task Team Leader: Obiageli K. Ezekwesili Ruth Kagia C. Sanjivi Rajasingham/Inger Anderson Pierre Graftieaux

3 MADAGASCAR INFRASTRUCTURE TRANSPORT INVESTMENT PROJECT ADDITIONAL FINANCING P CONTENTS Page ANNEX 2: REALLOCATION OF PROCEEDS... 1

4 ANNEX 2: Reallocation of Proceeds MADAGASCAR INFRASTRUCTURE TRANSPORT INVESTMENT PROJECT ADDITIONAL FINANCING CREDIT MAG P Restructuring Paper 1. Proceeds for Madagascar Infrastructure Transport Investment Project, Additional Financing, Credit , P105044, will be reallocated as follows: Category of Expenditure Allocation (SDR) % of Financing Current Revised Current Revised Current Revised (1) Works (1) Works 3,900,000 3,020, % 100% (2) Goods, audits, and Operating Costs (2) Goods, audits, and Operating Costs 6,500,000 7,380, % 100% TOTAL TOTAL 10,400,000 10,400,000 AMOUNT AMOUNT (to be reflected in the table contained in paragraph A.2 of Section 4 of the Schedule 2 of the Credit Agreement) The reallocation is considered to be minor, as the amount to be reallocated is small (SDR 880,000) and represents only 8.46 percent of the Project Additional Financing (Cr ), and 0.77 percent of the total credit ( and ). 2. Summary of Project Implementation Progress The Transport Infrastructure Investment Project is the third of a three-phase Adaptable Program Lending (APL) and was approved on December 8, The credit amount is SDR million (US$150 million equivalent). The restructuring of APL 3 was approved by the Board on January 3, This restructuring included the addition of a new component: support to the rehabilitation of the Northern Railway (operated by a private concessionaire, Madarail). An additional financing to the APL3 in an amount of SDR 10.4 million was approved on May 22, 2007 and signed on June 5, 2007, to continue supporting the rehabilitation of the Northern Railway through the financing of rail infrastructure investments (rail track, bridges, and station rehabilitation, for US$$14.1 million) and operational costs (for US$1.5 million). As of today, the Credit s cumulative disbursements represent percent, with a remaining balance of SDR 2,060, The total undisbursed funds of the project are expected to be committed by the end of

5 The railway component of APL3 was rated highly satisfactory until the advent of the 2009 political crisis. By then, all the project indicators, be they related to traffic volumes, travel times, wagon turnaround time, productivity or financial targets for the concessionaire, were being met. The last formal supervision mission conducted in December 2008 confirmed that during the period under review there was no misuse of funds from the project designated account and no major risk factors related to safeguards, fiduciary or reputational issues or risks stemming from interference of government authority. A recent Financial Management Review, carried out from 15 to 19 February, 2010, confirmed the good management of the project by the Project Implementation Unit (PIU Madarail). The proposed request meets Operational Policy criteria, namely that: (i) the project objectives continue to be achievable and this request does not modify the project description; (ii) there are no qualified or overdue audits; (iii) the performance of the PIUs is fully satisfactory; and (iv) the PIU has prepared a specific action plan acceptable to the Bank for the use of the reallocated funds. 3. The proposed reallocation is necessary to finance a cash compensation scheme to be paid to Madarail, the Northern Railway Concessionaire, as an operating costs subsidy due to the 2009 crisis. as per the terms used in the Exception to OP/BP 7.30 Memo on Madagascar, presented by the Africa Region Vice President, and approved by the Managing Director on May 6, Background: Since March 17, 2009 when the unconstitutional change of government occurred, Bank s operations have been guided by OP/BP 7.30, Dealing with de facto Governments, and no withdrawal request has been processed since that date. The abovementioned exception Memo proposes to: (i) extend projects that closed in the course of 2009, while disbursements remain on hold, (ii) allow the required level of funding for the PIUs to perform essential fiduciary/management functions, (iii) pay arrears on contractual obligations signed before March 17, 2009, and (iv) resume disbursements for the some selected projects and Trust Funds. More specifically for this project, it was agreed to: retroactively extend the closing date (The Additional Financing Project closed on February 28, 2010), pay the arrears, and provide an operating costs subsidy to Madarail in the amount of US$2.2 million. The approach is consistent with the terms of the APL3 loan agreement and has been used already under the project. Rationale for the request for fund reallocation: The rail concession s financial viability is currently in jeopardy because of the impact of the international and domestic economic crisis on Madarail s operations. Approving the requested fund reallocation would not only prevent the railway concessionnaire from going bankrupt, but would indeed help to save the rail transport mode, the existence of which is currently endangered, and allow for further competition between the rail and road transport while achieving the Credit s agreement s development objective (reducing transport costs and facilitate trade). 2

6 Madarail s current financial situation requires an immediate financial injection of about US$2.2 million, without which it will likely be forced to stop its operations by the third trimester of Madarail transport volumes which should have reached 412,000 tons in 2009 only came at 355,000 tons as overall transport demand for Madarail services contracted. Prospects for 2010 remain bleak, since the economy is expected to go through a recession, which of course will further impact Madarail s financial bottom line and results in the company s inability to service its commercial debt as well as pay its suppliers on time. On January 28, 2010, Madarail s key fund providers, i.e. the World Bank team, the Bank of Africa (BOA), and the European Investment Bank (EIB) met in Antananarivo with representatives from the Ministry of Transport to define a way out of this situation, and agreed that: The EIB and the BOA would assess the feasibility of restructuring Madarail s debt repayment terms (since this meeting, EIB and BOA senior management has approved the proposed restructuring), and The World Bank would examine the possibility of paying contractors arrears for Bank s financed works, and finance a cash compensation scheme for the net loss of cash flow endured by Madarail since the beginning of the crisis. At that time, all stakeholders acknowledged that, should one of the key players default on the proposed agreement, the likelihood of Madarail collapsing would be very high. On the Bank s side of this three-fold arrangement, a reallocation of funds, reason for this Restructuring Paper, is needed. On May 20, 2010, the Ministry of Transport sent a letter to the Bank (see attachment) to request the reallocation of SDR 880,000 from the Credit s Category 1, Works, to Category 2, Goods, audits, and Operating Costs). 3