MEMORANDUM TO THE BOARD WAEMU/GHANA: ROAD PROGRAMME I SUPPLEMENTARY LOAN TO MALI

Transcription

1 AFRICAN DEVELOPMENT FUND LANGUAGE : ENGLISH ORIGINAL : FRENCH DISTRIBUTION : LIMITED MEMORANDUM TO THE BOARD WAEMU/GHANA: ROAD PROGRAMME I SUPPLEMENTARY LOAN TO MALI This Report is made available only to staff members to whose work it relates. Any further release must be authorized by the Vice-President for operations. DEPARTMENT OF INFRASTRUCTURE (OINF) JANUARY 2009

2 TABLE OF CONTENTS Pages PROGRAMME INFORMATION SHEET, EQUIVALENTS, ACRONYMS AND ABBREVIATIONS, LISTS OF ANNEXES AND TABLES, BASIC DATA, PROGRAMME LOGICAL FRAMEWORK, EXECUTIVE SUMMARY i-v 1 PROJECT ORIGIN AND BACKGROUND 1 2 THE INITIAL PROJECT Project Objectives and Description Initial Cost and Financing Plan of the Project Programme Implementation Status 5 3 EVALUATION OF THE SUPPLEMENTARY LOAN Justification for the Supplementary Loan Objectives and Description of Revised Programme Cost Estimate of Revised Programme Financing Plan and Implementation Schedule Environmental and Social Impact Project Implementation Procurement of Goods, Works and Services Disbursement Arrangements Monitoring and Evaluation Accounts and Financial Audit 11 4 JUSTIFICATION IN LIGHT OF POLICY ON SUPPLEMENTARY LOANS Justification in light of General Conditions Justification in light of Specific Conditions 12 5 PROJECT SUSTAINABILITY AND RISKS Recurrent Costs and Programme Sustainability Major Risks and Mitigation Measures 13 6 ECONOMIC ANALYSIS Economic Analysis Sensitivity Analysis 14 7 CONCLUSIONS AND RECOMMENDATIONS Conclusions Recommendations 15 This report has been prepared by Messrs. M. AMARA, Transport Engineer (Ext. 2497) and M. MBODJ, Transport Economist (Ext. 2348). Questions on this report should be referred to them or to Mr. A. KIES, Division Manager, OINF.1 (Ext. 2282) and Mr. G. MBESHERUBUSA, Director OINF (Ext. 2034).

3 i CURRENCY EQUIVALENTS At initial appraisal of RP-1 (August 2003) UA 1 = CFA F At appraisal of the supplementary loan (January 2009) UA 1 = CFA F FISCAL YEAR 1 January - 31 December WEIGHTS AND MEASURES 1 kilogramme (kg) = lbs 1 meter (m) = 3.29 feet (ft) 1 kilometer (km) = mile 1 square kilometer (km2) = sq mile 1 hectare (ha) = acres ACRONYMS AND ABBREVIATIONS ACIS = Advance Cargo Information System ADF = African Development Fund ASYCUDA = Automated System of Customs Data BOAD = West African Development Bank CBR : = Californian Bearing Ratio CFAF = CFA Franc DAI = Regional Development and Infrastructure Department DATC = Community Regional Development Department ECOWAS = Economic Community of West African States EDF = European Development Fund FER = Road Maintenance Fund IRR = Internal Rate of Return IRT = Inter-State Road Transport ISRT = Inter-State Road Transit MID = Ministry of Infrastructure and Territorial Accessibility Burkina NEPAD = New Partnership for Africa s Development PACITR = Community Programme of Actions on Infrastructure and Road Transport REC = Regional Economic Community STAP = NEPAD s Short-term Action Plan on Infrastructure UNCTAD = United Nations Conference on Trade and Development Veh/d = Vehicles per day WAEMU = West African Economic and Monetary Union LIST OF ANNEXES No. TITLE No. of pages Annex 1: Map of the programme area 1 Annex 2: Tables of costs 3 Annex 3: Financing Plan of Works Contract 1 Annex 4: Implementation and Supervision Schedules 2 Annex 5: Economic and Sensitivity Analysis 1 Annex 6: Monitoring of Recommendations from Study on Costs of Road Works 3 Annex 7: Status of fulfilment of conditions for initial loan 2 LIST OF TABLES No. TITLE Page Table 2.1: Summary Initial Cost Estimate by Component of Entire Programme 3 Table 2.2: Summary Initial Cost Estimate by Component of ADF Programme 4 Table 3.1: Summary Revised Cost Estimate by Component of Entire programme 8 Table 3.2: Summary Revised Cost Estimate by Component of ADF programme 9 Table 3.3: Cost of Entire Programme by Source of Finance (in UA million) 9

4 WAEMU/Ghana - Road Programme I: Updated Results-based Logical Framework Design Team Messrs.: M. AMARA, Civil Engineer, M. MBODJ Transport Economist HIERARCHY OF OBJECTIVES 1 PURPOSE : Contribute to strengthening economic integration and sub-regional co-operation of WAEMU and ECOWAS Member States, to opening up the countries of the hinterland, and to developing economic activities 2 PROJECT GOAL 2.1. Further open up countries without a sea front (Burkina, Mali and Niger) to Ghanaian ports by reducing general transport costs and improving the state of roads in the corridor Expected outcomes by sector and corresponding themes 1 LONG-TERM RESULTS 1.1. Increase in trade in local products in the WAEMU Zone 1.2. Increase in the overseas trade of the landlocked countries of WAEMU whose goods transit through WAEMU and Ghanaian ports 2 MEDIUM TERM RESULTS The landlocked countries have effective alternative corridors for their trade Intermediate effects 1. Transit conditions at border checkpoints improved 2. Increased effective control and monitoring of road transit transport 3. Improved quality and safety of road links SCOPE ECOWAS Zone BENEFICIA RIES Transport companies, importers road users and consumers ii PERFORMANCE INDICATORS Source and method 1.1 Percentage increase in trade in local products in the WAEMU Zone 1.2 Percentage increase in the overseas trade of the landlocked countries of WAEMU whose goods transit through WAEMU and Ghanaian ports Sources: Ministries in charge of foreign trade of the three countries and WAEMU Methods: Statistics prepared by the different Ministries of the three countries and WAEMU - economic, agricultural, imports/exports and transport statistics 2.1 Percentage increase in traffic on the Ghanaian corridor 2.2 Quality of service on the roads in the Bamako-Ouagadougou-Tema corridor 2.3 Percentage reduction in travel time and invisible costs on the corridor for container, tanker and sealed truck traffic 2.4 Percentage reduction of vehicle operating costs on the programme highways 2.5 Percentage reduction in rate of overloaded trucks on the corridor Sources : Ministries in charge of foreign trade of the three countries and WAEMU Methods: Statistics prepared by the different Ministries of the three countries and WAEMU - economic, agricultural, imports/exports and transport statistics TARGET INDICATORS AND DEADLINES % increase between 2002 and 2011 in trade in local products in the WAEMU Zone 1.2 Increase of at least 15% between 2002 and 2011 in the overseas trade of the landlocked countries of WAEMU whose goods transit through WAEMU and Ghanaian ports Sources : Ministries in charge of foreign trade of the three countries and WAEMU Methods: Statistics prepared by the different Ministries of the three countries and WAEMU - economic, agricultural, import/ export and transport statistics 2.1 Increase in traffic by more than 15% on the Ghanaian corridor between 2002 and Level of service on the roads in the Bamako- Ouagadougou-Tema corridor improve from average state in 2002 to good as from 2011; 2.3 Reduction of travel time as from 2011 by 50% and of invisible costs by 15% to 20% on the corridor for the container, tanker and sealed truck traffic recorded in From 2011, reduction of vehicle operating costs on the programme highways by more than 30% the costs recorded in Overloaded trucks reduce from 60% to less than 20% on the corridor as from 2010 Sources : Ministries in charge of foreign trade of the three countries and WAEMU Methods: Statistics prepared by the different Ministries of the three countries and WAEMU - economic, agricultural, imports/ exports and transport statistics ASSUMPTIONS RISKS 1.1. Continued commitment of the countries to regional integration 1.2. Proper implementation of the transport policies adopted by the countries 2.1.Harmonization of road maintenance policies, notably 2 nd generation road maintenance funds in the three countries 2.2. Effective implementation of inter-state transit and transport facilitation agreements Sustainability of structures (trade practices observatory, regional data banks etc.)

5 HIERARCHY OF OBJECTIVES INPUTS AND ACTIVITIES 3.1. Rehabilitation of surfaced roads in the Bamako-Ouagadougou-Accra (Tema) corridor 3.2. Construction of juxtaposed checkpoints at the borders and equipment of Tema port with weigh bridges 3.3.Procurement and installation of advance cargo information system (ACIS) and radio communication 3.4. Establishment of an institutional mechanism for control and monitoring and road transport and transit facilitation 3.5. Technical assistance to WAEMU Sources of finance in UA million Update d Source Initial Gap ADF loan to Burkina ADF loan to Mali ADF loan to Ghana ADF grant BOAD Private operators WAEMU IDA, EU, DANIDA Gov t Burkina Gov t Mali Gov t Ghana Total Expected outcomes by sector and corresponding themes SHORT TERM RESULTS 3.1 Surfaced roads in the Bamako-Ouagadougou-Accra (Tema) corridor rehabilitated 3.2 Juxtaposed checkpoints at the borders built and equipped and Tema port equipped with weigh bridges 3.3 Cargo information and radio communication systems procured and installed 3.4 Institutional mechanisms for control and monitoring road transport and transit facilitation established. Technical assistance provided for at least 2 years SCOPE BENEFICIA RIES Populations resident around surfaced roads Project traders area iii PERFORMANCE INDICATORS Source and method PERFORMANCE INDICATORS 3.1. Number of km of Community roads rehabilitated 3.2. Number of juxtaposed checkpoints at borders (JCP) built 3.3. Year of installation of the radio communication system and ACIS 3.4. Laws on transport facilitation adopted 3.5. Additional staff recruited by WAEMU and trained Sources: Reports of programme progress, supervision, audit and completion and of facilitation Committees and statistics of the Trade Practices Observatory TARGET INDICATORS AND DEADLINES TARGET INDICATORS 3.1 Approximately 1050 km of road in the Bamako-Ouagadougou-Tema corridor rehabilitated in Two juxtaposed checkpoints at the borders (Paga and Héremenkono) built and operational in Radio communication and goods tracking systems installed in the corridor in The texts on limitation of checkpoints, the legal status of JCP, control of axle load, the ISRT single customs booklet and the facilitation Committees and the management board of the corridor adopted before 31/12/ At least 1 engineer and 1 transport economist recruited in 2007 Sources: Reports of programme progress, supervision, audit and completion and of facilitation Committees and statistics of the Trade Practices Observatory ASSUMPTIONS RISKS 3.1.Coordination of the implementation of the programme components and donors 3.2. Compliance with schedules 3.3. Effective monitoring by ADF, WAEMU and the countries 3.4. Risk of cost overruns related to the programme approach ; Availability of counterpart funds in line with the disbursement profile and all the required financing.

6 iv EXECUTIVE SUMMARY 1. In order to harmonize the quality of transport infrastructure in the Community space, WAEMU in 2001 developed a Community strategy and programme of action for road transport infrastructures (PACITR). The PACITR has components relating to road studies, reinforcement and development, as well as actions and measures to facilitate road transport and transit, road safety and programme management support. 2. Following a joint request from the Governments of Burkina Faso, Ghana, Mali and the WAEMU Commission, the Bank between 2002 and 2003 conducted the preparation and then the appraisal of road programme 1 (RP-1) concerning Ghana, Burkina Faso and Mali. On 19/11/2003, the Bank extended an ADF loan of UA million to Burkina Faso, Ghana and Mali, and an ADF grant of UA 3.50 million to WAEMU Commission for the financing of RP-1. The ADF loan agreement and the Memorandum of Understanding of the ADF grant were signed on 18/12/ RP-1 was the first programme in the ECOWAS zone under NEPAD s Short-Term Action Plan (STAP) for the transport sector. Since the approval of RP-1, the activities financed through the ADF grant are being implemented satisfactorily. Regarding the activities financed through the ADF loan, there has been a delay of almost 18 months due mainly to differences between available financing and real costs noted following the invitations for bids. Faced with this situation, each of the three countries, in agreement with the various donors, has opted for the solution which seems most appropriate to offset the cost overrun. 4. Regarding Mali, the first invitation to bid for road works issued in June 2006 was declared inconclusive due to the financing gap of CFA F 12 billion between the amount available and the bid of the contractor selected, and the lack of visibility to fill this gap. The Government financed a study to resize the works, and then issued another invitation to bid in separate tranches and lots. This 2 nd invitation to bid led to the selection of a contractor, but still with a financing gap of CFA F 5.65 billion, or UA 7.78 million, including the physical and financial contingencies. To fill this gap, the Government of Mali in October 2008 requested from the Bank a supplementary loan from its country allocation under ADF XI. 5. It should be noted that the other donors which put in place their financing nearly two years before that of the ADF were confronted with financing gaps which were handled as follows: (i) negotiation with the selected contractor with reduction of road length in line with the amount available in the case of the EU in Burkina; and (ii) approval and start of works, then subsequent provision of additional funding to finance the gap in the case of the WB in Mali. 6. This supplementary loan to Mali is intended to fill the said gap which is due to: (i) the uncontrollable inflation of the prices of inputs, notably hydrocarbons and building materials; (ii) depreciation of the UA against the CFAF which led to almost 15% drop in the available ADF resources for this project; and (iii) delays in the procurement process. The increased costs are beyond the Borrower s control. It should be recalled that the Bank conducted a study on road construction unit costs in Africa" whose results were submitted to the Board in December The main conclusions of the study are taken into account in this loan, as indicated in Annex 5

7 v 7. The updated programme cost estimate amounts to UA million, comprising UA million in foreign exchange and UA million in local currency. This amount will be financed by the ADF loan (UA million), ADF grant (UA 3.50 million), BOAD loan (UA million), the Private sector (UA 0.38 million), WAEMU (UA 9.75 million), IDA credit, EU and DANIDA credit (UA million), and the Governments (UA million). 8. The implementation of RP-1 will contribute to strengthening regional co-operation and economic integration by reduction of non-tariff barriers and "invisible" costs. It will allow for the development of commercial activities along the corridor thanks to savings from reduced illicit payments along the corridor. Despite delays in the procurement process, particularly for the road works, the updated programme remains justified at the technical, economic, environmental and social levels. 9. It is recommended that the ADF should extend to the Government of Mali a supplementary loan not exceeding UA 7.00 million representing part of the amount of UA million required to finance all the road works in Mali.

8 1. PROGRAMME ORIGIN AND BACKGROUND 1.1 The West African Economic and Monetary Union (WAEMU) on 20September 2001 adopted a Community strategy and action program for road transport infrastructure (PACITR). In March 2002, this programme was presented to donors, including the Bank, which undertook to support it according to a progressive programme approach, with initial emphasis on corridors to open up countries without a sea-front. 1.2 The period of adoption of the PACITR coincided with the onset of the Ivorian crisis, which deeply modified trade flows in the sub-region and put great pressure on the alternative link-up corridors to the ports of Tema in Ghana and Lome in Togo. Thus the decision was taken to intervene in the first phase on the Bamako-Ouagadougou-Accra corridor, which links the landlocked countries of West Africa to Tema Port in Ghana. This first intervention, known as Road Programme 1 (RP-1), extracted from the PACITR, comprises a road rehabilitation component and, in particular, a "transport facilitation" component related to the new NEPAD concept. 1.3 Following the joint request from the Governments of Burkina Faso, Ghana and Mali and WAEMU Commission, the Bank between 2002 and 2003 conducted the preparation and appraisal of RP-1. On 19 November 2003, the ADF Board of Directors granted a loan of UA million to Burkina, Ghana and Mali, and an ADF grant of UA 3.50 million to WAEMU Commission for the financing of RP-1. The ADF loan agreement and the Memorandum of Understanding of the ADF grant were signed on 18 December The grant became effective on its date of signature, and the first disbursement conditions of the grant were fulfilled on 06 April The loan became effective on 12 October 2004, and the first disbursement conditions were fulfilled on 14 November The deadline for the last disbursement of the loan and grant is scheduled for 31 December RP-1 was the first programme under the NEPAD Short-Term Action Plan (STAP) for the transport sector in the ECOWAS zone. In this respect, it is a pilot programme whose implementation lessons served as basis for other similar programmes approved by the Bank and the other donors. Since the approval of RP-1, the activities financed through the ADF grant are being implemented satisfactorily. Regarding the activities financed through the ADF loan, there was a delay of almost 18 months due mainly to the differences between available financing and actual costs noted following the invitations to bid. 1.5 Faced with this situation, each of the three countries, in agreement with the various donors, opted for the solution which seems most appropriate to offset the financing gap. Thus, Burkina issued an invitation to bid for firm and conditional tranches and separate lots. Finally, the Government opted for signing a contract with the successful bidder, and in April 2008 requested a supplementary loan of UA 18 million from the ADF, which was approved on 25/11/2008. Ghana in June 2008 also requested a supplementary loan of UA 4.30 million from the ADF, which was approved on 16/12/2008 to cover the financing gap. 1.6 Concerning Mali, the first invitation to bid for road works jointly financed by the ADF and BOAD was issued on 30 June 2006, and was declared inconclusive due to the significant financing gap. The 2 nd invitation to bid led to the selection of a contractor for the two works tranches, and the signing of the contract on 06/11/2008, but with a financing gap of CFAF 5.3 billion, excluding physical and financial contingencies, or CFAF 5.65 billion including physical and financial contingencies. Hence, the Government of Mali in October 2008 requested from a supplementary loan the Bank from its country allocation under ADF XI.

9 2 1.7 It should be noted that the other donors which provided financing nearly two years before the ADF were confronted with financing gaps, which were handled as follows: (i) negotiation with the selected contractor with reduction of road length in line with the amount available in the case of the EU in Burkina; and (ii) approval and start of works, then subsequent provision of additional funding to finance the gap in the case of the WB in Mali. 1.8 The desire of the Governments of Burkina Faso, Ghana and Mali to use their country allocations to finance a regional programme is also noteworthy. This arrangement is in line with the new policy of ADF XI for regional operations and with the Bank s intervention strategy in the three countries over the period. It shows the importance that these countries, two of which are landlocked, attach to regional integration. 1.9 This supplementary loan is intended to fill the aforementioned financing gap in Mali which is due to: (i) the general trend of increase in construction costs; and (ii) delays in the procurement process. It should be recalled that the Bank conducted a study on road construction unit costs in Africa" whose results were submitted to the Board in December The main conclusions of this study are taken into account in this loan as indicated in Annex THE INITIAL PROJECT 2.1 Programme Objectives and Description Programme Objectives The sector goal of the programme is to contribute to strengthening economic integration and sub-regional co-operation between WAEMU and ECOWAS Member States, opening up landlocked countries of the hinterland, and developing economic activities. Its specific objective is to further open the countries without a sea front (Burkina, Mali and Niger) and link them to Ghanaian ports, by reducing overall transport costs and improving the state of the roads in the corridor. Programme Description Programme Description: The detailed description of the programme components and activities is as follows. A - B - Road studies: (i) preparation of the final design for approximately 900 km of roads under RP-1; and (ii) preparation of the preliminary design for the Dakar- Bamako corridor through the South (Kita-Saraya-Kédougou) and conduct of feasibility studies on the rehabilitation of sections of the Mali-Cote d Ivoire corridor. Road rehabilitation works: (i) reinforcement of approximately 1050 km of the roads of RP-1 located in the Dioulasso-Ougadougou-Pô-Koumassi-Accra- Tema Sore corridor; (ii) related rehabilitation works on social infrastructures located on road sections of the corridor; and (iii) inspection and supervision of the said works.

10 3 C - D - Sensitization and facilitation of inter-state traffic and transit: (i) sensitization on environmental protection, AIDS and malaria prevention, and road safety in each country; (ii) general sensitization on this programme, technical standards, transport and transit regulations; (iii) study and installation of the advance cargo information system (ACIS) developed by UNCTAD; (iv) installation of a radio communication system between inter-states freight vehicles operating on the corridor and support for the establishment of the unfair practices observatory on road sections in the corridor; (v) construction and equipment of 2 juxtaposed checkpoints at the Burkina/Mali and Burkina/Ghana borders; (vi) construction of toll gates/weighing stations on the corridor and installation of weigh bridges in Tema Port; and (vii) works inspection and supervision. Programme Management: (i) building the capacities of the DATC of WAEMU; (ii) support for the National Directorates in charge of the administrative and technical monitoring of the programme; and (iii) financial auditing of the programme. 2.2 Initial Cost and Financing Plan of the Programme and Financing Conditions Initial Costs The initial cost estimate, net of taxes and customs duties, of the entire programme was UA million, comprising UA million in foreign exchange and UA million in local currency. The initial cost estimate of the components proposed for ADF financing was UA million, comprising UA million in foreign exchange and UA million in local currency. The provision for physical contingencies is 12% of the base cost. The provision for price escalation is 8% of the base cost, plus the physical contingencies. The summary costs by expenditure category of the entire programme and ADF programme are given in Annex 2. The summary cost estimates by component of the entire programme and ADF programme (ADF, BOAD, Transporters, WAEMU and Governments) are given in Tables 2.1 and 2.2 respectively below. Table 2.1 Summary Initial Cost Estimate by Component of Entire Programme COMPONENTS CFAF million UA million FE LC Total FE LC Total A. Road and Facilitation Studies B. Rehabilitation of roads and ancillary works C. Sensitization and Facilitation D. Programme management and monitoring Base cost Physical contingencies Price escalation TOTAL COST

11 4 Table 2.2 Summary Initial Cost Estimate by Component of ADF Programme COMPONENTS CFAF million UA million FE LC FE LC FE LC A Road and Facilitation studies - Road studies ACIS and Radio communication studies B - Rehabilitation of roads and ancillary works - Road works Works inspection and supervision C- Sensitization and Facilitation - Sensitization Construction of juxtaposed checkpoints Installation of ACIS and Radio communication Works inspection and supervision D - Programme management and monitoring - Technical assistance Operating costs, training and seminar Financial and accounts auditing Base cost Physical contingencies Price escalation TOTAL COST Initial Financing Plan The programme is financed jointly by the ADF, private operators of the inter-state transport sector, BOAD and the Governments of Burkina Faso, Ghana and Mali, along with other donors (IDA, EU, and DANIDA). The ADF loan to Burkina Faso, Ghana and Mali will finance: (i) works and inspection of the reinforcement of road sections in each country; (ii) works and inspection of the construction of juxtaposed checkpoints at the border between Burkina Faso and Ghana, and between Burkina Faso and Mali; and (iii) supply and installation of ACIS and radio communication systems, as well as inspection of the installation The ADF grant extended to WAEMU is intended to finance studies, technical assistance, training, general sensitization on the programme and operating costs for building the monitoring capacities of the programme, as well as for auditing the activities of the programme components financed by the Bank. The ADF grant of UA 3.50 million, representing 1.92% of total cost of the programme, exclusive of taxes, will be used to finance 1.71% of the foreign exchange costs of the programme and 2.71% of the local currency costs of the programme The financing plans by source of the entire programme, as well as the ADF programme and grant, are given in Annex 2.

12 5 2.3 Programme Implementation Status Fulfilment of the conditions of the programme The loan and the grant were signed on 18 December The grant became effective on its date of signature, and the disbursement conditions of the grant were fulfilled on 6 April The loan became effective on 12 October 2004, and the disbursement conditions were fulfilled on 14 November The closing date is scheduled for 31 December The other conditions of the ADF grant are being fulfilled satisfactorily. Regarding the "other conditions" of the ADF loan, the situation is as follows: (i) some of the conditions have been fulfilled, for example the preparation and adoption of a common legal status appropriate for the juxtaposed checkpoints and the establishment of sites for these checkpoints, mobilization of financing for the works on the road sections in the corridor in Burkina and Ghana not financed under RP-1 and adoption of a second-generation road fund in Burkina Faso; (ii) the texts relating to other conditions have been adopted, but their implementation is not yet effective, as is the case with the limitation of controls in the corridor to three points, axle load control, and the use of the ISRT single customs booklet; and (iii) for some of the conditions, their fulfilment has been deferred due to delays in startup of works (installation of the corridor management committee) or to the fact that the first invitations to bid have not been concluded (entrust the management of the juxtaposed checkpoints to a private sector structure). Implementation status of the components and activities financed by the ADF grant The activities to be financed by the ADF grant are being implemented satisfactorily(final designs of the road sections, studies on the advance cargo information System (ACIS) with UNCTAD, study on the two juxtaposed checkpoints at the borders, technical assistance to WAEMU, and auditing of the entire RP-1). Thus the final designs of the Bougouni-Sikasso sections in Mali and Ouagadougou-Pô in Burkina were prepared between February 2005 and March 2006, and were used as basis for the invitations to bid concerning works on the said sections. The 2004 to 2007 audits of the entire programme have been conducted. The disbursement rate of the ADF grant as at 30 June 2008 stands at 80%. Implementation status of the components and activities financed by the ADF loan Works and inspection of the reinforcement of the Bougouni-Sikasso road in Mali: The invitation to bid for the Bougouni-Sikasso road works in Mali, divided into two lots and co-financed with BOAD, was issued on 30 June After several remarks on the contract award proposals, the Bank gave its no-objection opinion on 11 June 2007 on the Government s proposal to: (i) award the two lots provided the CFAF 12 billion gap is financed by the Government; or (ii) award only one lot and thereafter seek financing for the other lot. The Government decided to declare the invitation to bid unsuccessful and to finance, through its budget, a supplementary study to redesign the works and reissue an invitation to bid for lot 1 (53.3 km) financed by BOAD and lot 2 (151.3 km) financed by the ADF. This 2nd lot is divided into a firm phase of 101 km and a conditional phase of 50 km. The invitation to bid was reissued on 19 February 2008, and the Bank gave its no-objection opinion on the proposal for the contract awards for the firm and conditional phases, provided the Government mobilizes the resources to finance the gap of slightly over CFAF 5.65 billion. In a letter dated 10 October 2008, the Ministry of the Economy and Finance of Mali indicated that its priority under ADF XI was to mobilize supplementary financing to start and complete works on this road. As regards the works inspection and supervision, the Bank gave its no-objection opinion on the draft contract.

13 Works and inspection of the reinforcement of the Ouagadougou-Pô road in Burkina Faso: As regards the rehabilitation of one part (121 km), the Bank gave its noobjection opinion on the proposal for an award provided the Government finances the gap of almost CFA F 10 billion. In a letter dated 19 February 2008, the Ministry of the Economy and Finance of Burkina indicated that its priority under ADF XI was to mobilize supplementary financing to start and complete works on this road, and requested a supplementary loan of UA 18 million, which was approved by the ADF on 25/11/2008. Concerning works inspection and supervision for the rehabilitation of the Ouagadougou-Pô road, the Government informed the Bank that the related contract will be financed entirely by the Government and BOAD Works and inspection of the reinforcement of the Techiman-Kintampo road in Ghana: The invitation to bid was issued on 16 January 2008 after reducing the road length (from 61 km to 53 km). The Administration preferred to invite bids only for the 53 km, instead of the firm phase (53 km) and the conditional phase (7 km). The proposal for award of the works contract was approved by the ADF on 20 May The contract for the review of the technical documents, as well as works inspection and supervision was signed on 9 October 2006, and the first disbursements of the ADF loan were made under this contract. The Government of Ghana requested a supplementary loan from the ADF to finance the gaps noted on three projects, including a gap of UA 4.30 million for sections of RP-1. This supplementary loan was approved on 16/12/ Construction works on the two juxtaposed checkpoints at the borders (Paga in Ghana at the border between Burkina and Ghana and Hérémakono in Mali between Burkina and Mali): Taking into account the financing gap of CFAF 4.5 billion generated following the invitation to bid concerning the works of the said checkpoints, the Bank accepted the WAEMU proposal to completely finance, with its own resources, the construction works of the Hérémakono checkpoint and seek financing for the works of the Paga checkpoint with EU resources (PIR 9 th EDF) for investments concerning transport facilitation in West Africa. The bidding documents have been prepared, and invitations to bid are expected to be issued during the 3 rd quarter of Other programme components: The texts and regulations on transport facilitation have been prepared and adopted (Rules on the control of axle load, Decision on the limitation of checkpoints on the corridor to the departure, border and arrival points, ISRT Convention, etc). As regards the establishment of a goods monitoring system, since the study on ACIS entrusted to UNCTAD has not produced the expected outcomes, other systems are being explored, in particular the extension, to Mali and Burkina Faso, of the system of Société Générale de Surveillance (SGS) already operational on the part of the corridor on Ghanaian territory. 3. EVALUATION OF THE SUPPLEMENTARY LOAN 3.1 Justification for the supplementary loan The programme, as designed, is expected to contribute to the achievement of these objectives by: (i) reducing overall transport costs through reduction of part of the invisible costs, which constitute an input for all the other economic and social activities of these countries; (ii) improving the mobility of factors of production and providing incentives to

14 7 increase production; and (ii) supporting fair competition between the corridors. Hence, the programme is in conformity with the Bank s vision, the CSP of the three countries, as well as the main priorities of NEPAD, which aims at generating economies of scale through major integrated projects. The development of infrastructure and establishment of corridors without borders or barriers constitute one of the key components for achieving this goal Since the approval of the RP-1, studies have been updated and bids invited for road works, but the bid amounts of the selected contractors exceed the financial packages available. To fill the financing gaps, the Bank approved supplementary loans to Burkina Faso (UA 18 million) and to Ghana (UA 4.30 million) on 25/11/2008 and 16/12/2008 respectively. Regarding Mali, the reissue of invitations to bid for the Bougouni-Sikasso road works led to the selection of a contractor, and revealed a financing gap of almost CFA F 5.65 billion. The Government of Mali on 10/10/2008 requested the Bank to finance this gap through its country allocation under ADF XI. This gap is due mainly to: (i) uncontrollable increases in the prices of inputs, notably hydrocarbons and building materials; (ii) depreciation of the UA against the CFA F causing the value of ADF resources available for this project to drop by almost 15%; and (iii) delays in the procurement process. The increased costs are beyond the Borrower s control It should be noted that the other donors, which put in place their financing nearly two years before the ADF, were confronted with financing gaps that were handled as follows: (i) negotiation with the selected contractor on reduction of road length according to the amount available, in the case of the EU in Burkina; and (ii) approval and start of works, and then subsequent provision of additional funding to finance the gap, in the case of the WB in Mali Furthermore, there is currently an overall upward and uncontrolled trend of construction costs on the five continents. Hence, the Bank conducted a study on road construction unit costs in Africa", whose results were submitted to the Board in December This study helped to identify the major causes and make a number of recommendations to mitigate these contingencies. The main conclusions of the study are taken into account in this loan, as indicated in Annex Objectives and Description There are no changes as regards the sector and specific objectives of the programme whose costs have been updated. However, the initial objectives-based matrix has been maintained for adaptation to the results-based matrix. Furthermore, taking into account the financing gaps and the decision of some donors to defer their supplementary financing (EU in Burkina and the World Bank in Burkina and Mali), the implementation rates of activities have been reviewed. As a reminder, at the sector level, the programme aims at contributing to strengthening economic integration and sub-regional co-operation of WAEMU and ECOWAS member States, and to opening up the countries of the hinterland and developing economic activities. The specific objective of the programme is to improve the accessibility of countries without a sea front (Burkina, Mali and Niger) to Ghanaian ports by reducing overall transport costs and improving the state of the roads in the corridor This supplementary loan has not made any modifications to the initial components of RP-1. The review concerns only the financial aspect of the programme.

15 8 3.3 Revised Programme Cost Estimate The updated cost, exclusive of taxes and customs duties, of the entire programme is estimated at UA million. This updated cost takes into account the financing gaps and amendments to the construction contracts financed by the Bank and the other donors in the three countries. The costs by component are given in Tables 3.1 and 3.2 below. Table 3.1 Summary Revised Cost Estimate by Component of Entire Programme COMPONENTS CFAF million UA million FE LC FE LC FE LC A - Road and Facilitation studies - Road studies ACIS and radio communication studies B - Rehabilitation of roads and ancillary works - Road works Works inspection and supervision C- Sensitization and Facilitation - Sensitization Construction of juxtaposed checkpoints Installation of ACIS and radio communication Works inspection and supervision D - Programme management and monitoring - Technical assistance Operating costs, training and seminar Financial and accounts auditing Base cost Physical contingencies Price escalation TOTAL COST

16 9 Table 3.2 Summary Revised Cost Estimate by Component of ADF Programme COMPONENTS CFAF million UA million FE LC FE LC FE LC A Road and Facilitation Studies - Final design Updating of studies Road feasibility studies ACIS and radio telecommunications studies B - Rehabilitation of roads and ancillary works - Malian road sections Burkinabé road sections Ghanaian road sections Works inspection and supervision C- Sensitization and Facilitation - Sensitization Construction of juxtaposed border checkpoints Computer equipment juxtaposed border checkpoints Supply and install. of scanners at juxtaposed checkpoints - - Installation of ACIS Installation of radio communication system Works inspection and supervision D - Programme management and monitoring - Technical Assistance Equipment DATC/Country Directorates /Customs Ghana Operating costs Training Seminar/Field trip Financial and accounts auditing Base cost Physical contingencies Price escalation Total Financing plan Table 3.3 Cost of Entire Programme by Source of Finance (in UA million) Source Initial Amount Updated Amount Difference ADF loan to Burkina ADF loan to Mali ADF loan to Ghana ADF grant BOAD Private operators WAEMU IDA, EU, DANIDA Gov t Burkina Gov t Mali Gov t Ghana Total

17 Environmental and social impact At appraisal, Road Programme 1 was classified under category 2 in accordance with the Bank s relevant guidelines. The supplementary loan will be used to finance only activities which were already envisaged in the initial programme; consequently, the current classification will not change. Indeed, the activities of RP-1 concern the rehabilitation and strengthening of existing surfaced roads, as well as widening, within the available road area, of sections at the entry to the urban centres of Bamako and Ouagadougou The social impacts on gender and poverty, as described in the Appraisal Report of RP-1, as well as the various mitigation measures, remain the same As regards the impacts on climate change, the rehabilitation of the already surfaced road sections of the corridor will have no major impacts. However, improvement of the state of the road will help to reduce the shifting of gears and acceleration, which increase exhaust fumes emission (mainly CO2) into the atmosphere. In addition, the three countries have adopted and implemented the 2001 Dakar Declaration to ban the production and sale of leaded petrol not later than 31/12/2005. The oil refineries of the sub-region (Dakar, Abidjan and Accra) no longer produce any leaded petrol. 3.6 Project Implementation Executing Agency and Institutional Arrangements The executing agencies defined in the Appraisal Report and the Loan Agreement and the initial Memorandum of Understanding have been maintained. They are: (i) the WAEMU Commission through the Department of Community Regional Planning, Infrastructure, Telecommunications and Transport (DATC) for the overall coordination of the programme implementation and management of the component concerning transport facilitation; (ii) the Ministries in charge of roads of the three countries will continue to play their usual role of Executing Agency of the works and inspection of the rehabilitation/ reinforcement of roads component, each on its territory (Ministry of Equipment and Transport (MET) through the National Directorate for Roads in Mali, (DNR), in Ghana, the Ministry of Roads and Transport through the Road Authority of Ghana, and in Burkina, the Ministry of Infrastructure and Territorial Accessibility through the Directorate-General of Roads (DGR) The institutional arrangements in the initial programme (Joint Technical Committee, trade practices observatories, and the facilitation committees) remain unchanged. Revised programme implementation and monitoring schedule The programme will be implemented from February 2004 to June The implementation schedule of the programme and the estimated supervision schedule are given in Annex 4.

18 Procurement of Goods, Works and Services The procurement arrangements defined in the Appraisal Report, the Loan Agreement and the Memorandum of Understanding of RP-1 remain unchanged. The arrangements concern international competitive bidding for road works and construction works of the juxtaposed checkpoints at the borders, and short-lists for consultancy services The resources of this supplementary loan to Mali will be allocated to the financing of the cost of the Bougouni-Sikasso road works, whose contract has been signed with a contractor selected following international competitive bidding and no-objection opinion of the Bank. The contract provides that in the event of mobilization of supplementary resources, an amendment will be made to reduce the Government s contribution to at least 10% of the value of the bid. Details of the financing of the construction contract by source, as well as the provisions for physical contingencies and price escalation are given in Annex Disbursement Arrangements The direct disbursement method is adopted for works and inspection of the works financed by the ADF loan in the three countries. The same will apply to the construction contract for the Bougouni-Sikasso road financed by this supplementary loan to Mali The supplementary loan of the ADF will be used only to cover expenditures relating to the additional cost of road works for Mali. The expenditure schedules for the entire programme and the ADF component are given in Annex Monitoring and Evaluation Monitoring and evaluation, as envisaged in the Appraisal Report of the initial programme, will cover the supplementary loan. The monitoring and evaluation comprises internal and external monitoring, the supervision missions of the Bank and other cofinanciers, a mid-term review and a final evaluation, including the completion reports of the Borrowers and WAEMU and the Bank. Already, with World Bank financing, a study to determine benchmark indicators for monitoring and evaluation has been conducted, and with the financing of donors and WAEMU, the monitoring of the trend of the said indicators is envisaged. The estimated supervision schedule is given in Annex Accounts and Financial Audit The audit of the entire programme financed by the ADF grant to WAEMU will include the audit of the supplementary loan. A firm has been recruited to conduct the audit until 2009, and the initial programme has already been audited for the years An amendment to the audit contract will be made for the period. 4. JUSTIFICATION IN LIGHT OF POLICY ON SUPPLEMENTARY LOANS 4.1 Justification in light of General Conditions The proposed supplementary loan fulfills the conditions defined in the Bank Group s Policies and Procedures on supplementary financing (Document No. ADF/BD/WP9790 of 26 August 1997). The additional costs are due mainly to: (i) the uncontrollable increases in the

19 12 prices of inputs, notably hydrocarbons and building materials; (ii) depreciation of the UA against the CFAF leading to almost 15% drop in the value of available ADF resources for this project; and (iii) delays in the procurement process. The increased costs are beyond the Borrower s control The proposed supplementary loan fulfills the other general conditions defined in Section (iii) of the Bank Group s Policies and Procedures on supplementary financing. The amount of UA 7.00 million requested under this supplementary loan is far below the level of ADF XI resource allocation for the country. Similarly, the activities to be financed are consistent with the pillars of CSP : "(i) improvement of competitiveness and private investments; (ii) capacity building and participation of the poor" The supplementary loan will be subject to the same service charges as ADF loans, and the normal period of repayment of ADF loans will also apply. 4.2 Justification in light of the specific conditions This proposed supplementary loan fulfills the specific conditions defined in Section (iv) of the Bank Group s Policies and Procedures on supplementary financing: The country is eligible for ADF resources in light of its performance as regards policies and institutions (CPIA); The Government is making enormous efforts towards national development and mobilization of internal and external resources; The project implementation framework is favourable, and the Government is resolutely committed to achieving the development goals pursued by the project. This project stems from the Community Strategy and Action Plan for Road Transport Infrastructure (PACITR) adopted by WAEMU on 20 September 2001 and presented in March 2002 to donors, who began to give support to the Government following a progressive programme approach of initially laying emphasis on corridors that provide accessibility for the countries without a sea front; The cost overrun is beyond the control of the Government given the market contingencies of the various inputs (bitumen, fuels etc.) and the UA exchange rate between 2003 and The Government is unable to cope with the cost overrun. On the other hand, it has made an effort by requesting that the supplementary loan be deducted from its country allocation under ADF XI, instead of the resources allocated for the financing of multinational operations. This portrays the country s commitment to regional integration The project is technically and economically viable, despite the cost overruns.

20 13 5. PROGRAMME SUSTAINABILITY AND RISKS 5.1 Recurrent Costs and Programme Sustainability The recurrent costs are mainly routine and periodic maintenance costs of the roads in the corridor, as well as the maintenance and operating costs of the juxtaposed checkpoints that will be constructed at the borders. The roads of RP-1 are already surfaced and are currently maintained with financing from the Road Funds (RF) of the various countries, whereas their periodic maintenance costs had hitherto been covered by external financing The routine maintenance requirements of the rehabilitated road sections are estimated at approximately: (i) CFAF 720 million per year, representing approximately 2% of the sum of the budgets allocated to road maintenance in the 3 countries; and (ii) CFAF 100 billion for periodic maintenance during the 20-year lifespan of the investments, which is 16% of the sum of the budgets allocated to road maintenance in the 3 countries. The establishment of 2 nd generation road funds in the 3 countries (FER-Mali created in 2001, RF in Ghana and FER in Burkina created in 2007), whose resources are derived mainly from a charge paid directly into the account of the RFs. Furthermore, the effective control of the axle load is expected to prevent early degradation of the road sections. 5.2 Major Risks and Mitigation Measures The major risks of RP-1 initially identified are: (i) the complexity of the programme and multiplicity of stakeholders in the programme; (ii) capacity of the DATC to monitor the programme; (iii) the obstacle to traffic flow and trade due to non-application of conventions on Inter-State road transport and transit ISRT and IST and lack of harmonization of port and customs procedures; (iv) lack of harmonization of road maintenance financing policies and mechanisms making it impossible to ensure sustainability of investments and standardization of the service level of the roads in the corridor; (v) increased traffic and axle overload on the corridor, which jeopardize the strategies and level of maintenance adopted in the PACITR; and (vi) the commitment and decision of the countries to confer a specific legal status to the juxtaposed checkpoints at borders Risks (i), (ii), and (vi) described above have been eliminated. As regards the risks concerning the harmonization of road maintenance financing policies and mechanisms, progress is being made. On the other hand, delays in the application of the regional decisions and regulations adopted within the framework of RP-1 with regard to limitation of the number of checkpoints, the use of a single ISRT customs booklet and compliance with the axle load requirements still seem to be potential risks. Their mitigation requires effective application of the relevant laws and sanctions in the event of non-compliance with the regulations. 6. ECONOMIC ANALYSIS 6.1 Economic Analysis The volumes of average normal traffic weighted by the distances recorded in 2007 on the corridor vary across road sections from 223 to vehicles/day, 18% of which are heavy trucks. In 2002, the traffic ranged from 225 to veh/day, with 26% of heavy trucks. In 2002, traffic assumptions based on a resumption of traffic on the corridors of Cote

21 14 d Ivoire were 2% per year before the end of works under the RP-1 and 5% per year from 2008 at the end of works. Given the traffic recorded in 2007, the average growth of traffic between 2002 and 2007 is 5.27% per year, whereas much of the road rehabilitation works on the corridor are yet to start. This suggests that the 2002 traffic assumptions are sound and that the corridor will attract traffic Based on these various data and the updated cost estimates (excluding price escalations), the works and supervision of works in the three countries, the annual routine maintenance and periodic maintenance costs, an economic rate of return (ERR) of 27.31% (instead of 24.8% in 2002) was obtained for the entire corridor. As concerns the components to be financed by the ADF, the rates of return are 22.54% (instead of 13% in 2002) for the Bougouni Sikasso section, 21.32% (instead of 16% in 2002) for the Ouagadougou-Pô-Paga section, and 41.19% (instead of 23% in 2002) for the Techiman-Kintampo section. These rates are higher than the opportunity cost of the capital estimated at 12%. Despite the increased cost of works, the ERR is higher due to the fact that: (i) traffic trends between 2002 and 2007 are above expectations; (ii) increased gain in vehicle operating costs by comparing the situations before and after the project, as a result of accelerated degradation of the road following delays in starting work, and increased fuel consumption amounts as a result of significant fuel price variations. The IERRs are slightly different from those appearing in the documents of the supplementary loan in Burkina Faso and Ghana due to the fact that the updated costs based on invitations to bid were not available at the same times. 6.2 Sensitivity analysis The sensitivity tests conducted show that the ERR for the entire corridor increased from 20.89% to 27.31% as a result of variations in costs (+10%) and benefits (-10 %). For the road sections to be financed by the ADF, the rates range from 16.03% to 41.19%, due to variations in costs (+10%) and benefits (-10 %). These variations in IERR remain higher than the opportunity cost of the capital, which is 12%. The programme is therefore economically justified. 7. CONCLUSIONS AND RECOMMENDATIONS 7.1 Conclusions Implementation of the programme will contribute to strengthening co-operation and regional economic integration by reducing non-tariff barriers and invisible costs. It will help to develop commercial activities along the corridor, as a result of savings from reduction of illicit payments along the corridor This supplementary loan, which will contribute to the achievement of the goals of RP-1, is justified by: (i) the significant increase in the costs of the main inputs (bitumen, fuel); (ii) the fluctuation of the UA against the CFAF, leading to almost 15% drop in the available ADF resources; and (iii) delays in the procurement process. Despite the increased cost, the programme remains economically viable.

22 Recommendations It is recommended that the ADF should grant to the Government of Mali a supplementary loan not exceeding UA 7.00 million, representing part of the amount of the UA million required to finance the entire road works in Mali. A. Conditions precedent to effectiveness of the supplementary loan The effectiveness of the loan agreement will be subject to fulfillment, by the Borrower; of the conditions defined in Section of the General Conditions applicable to loan agreements and guarantee agreements. B. Conditions precedent to first disbursement Since the conditions precedent to the first disbursement of the initial loan concluded on 18 December 2003 have been fulfilled, the disbursement of the resources of the supplementary loan could be made upon effectiveness of the related agreement.

23 WAEMU/GHANA ROAD PROGRAMME 1 PROGRAMME MAP ANNEX 1