Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT

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1 ~ Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Transport Sector Country Department 15 Africa Region Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 22.2 MILLION (US$32.8 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 10.8 MILLION (US$15.9 MILLION EQUIVALENT) TO THE REPUBLIC OF MALI FOR THE TRANSPORT CORRIDORS IMPROVEMENT PROJECT February 1 1,2004 Report No: This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 ADM BCC BIM-SA BMCD CARCHEM des Cheminots CAS CFAA CMC ECOWAS EDF EDM EMP ESAP ESW FAPM FARAH FM FMC FMR FMS GPN HDM HIV/AIDS ICB ICs IEC LC NCB NEPAD NPV PCU PIM PMR PRSP QCBS CURRENCY EQUIVALENTS (Exchange Rate Effective January 28,2004) Currency Unit = CFAF lcfaf = US$ US$1 = CFAF FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS Airports of Mali - Adroports du Mali Behavioral Change communication Mali Investment Bank - Banque d lnvestissement de Mali Savings and Loans Bank of Mali - Banque Malienne de Credit et de Ddp6ts Support Unit for the reinsertion of the railways staff - Cellule d Appui d la Rtinsertion Country Assistance Strategy Country Financial Accountability Assessment Concession Monitoring Committee Economic Community of West African States European Development Fund Electricity of Mali - Electricitd du Mali Environmental Mitigation Plan Environmental and Social Action Plan Economic Sector Work Financial and Administrative Procedures Manual Financial, Accounting, Reporting and Auditing Handbook Financial Management Financial Management Financial Monitoring Reports Financial Management System General Procurement Notice Highway Development and Management Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome Intemational Competitive Bidding Senegalese Phosphate Mining and Chemical Company Information Education Communication Least Cost National Competitive Bidding New Partnership for Africa s Development Net Present Value Project Coordination Unit Project Implementation Manual Project Management Reports Poverty Reduction Strategy Paper Quality and Cost-Based Selection

3 FOR OFFICIAL USE ONLY RCFM ROW RPF SNCS SONATAM SOTELMA SPN SSATP STI TSP VCT WADB WAEMU Railways Company of Mali -Regie Nationale du Chemin de Fer du Mali Right-of-way Resettlement Policy Framework Railways Company of Senegal - Socikti Nationale de Chemins de Fer du Sinkgal Tobacco Company of Mali - Sociktt Nationale des Tabacs et Allumettes du Mali Telecommunications Company of Mali - Socidtd des Tddcommunications du Mali Specific Procurement Notice Sub-Saharan Africa Transport Program Sexually Transmitted Infection Transport Sector Project Voluntary Counseling and Testing West African Development Bank West Africa Economic and Monetary Union Vice President: Country Director: Sector ManagedDirector: Task Team Leader/Task Manager: Callisto E. Madavo A. David Craig C. Sanjivi Rajasingham Jean-Noel Guillossou This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

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5 MALI TRANSPORT CORRIDORS IMPROVEMENT PROJECT CONTENTS A. Project Development Objective 1. Project development objective 2. Key performance indicators Page 3 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices C. Project Description Summary 1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements D. Project Rationale 1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank and/or other development agencies 3. Lessons learned and reflected in the project design 4. Indications of borrower and recipient commitment and ownership 5. Value added of Bank support in this project E. Summary Project Analysis 1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies F. Sustainability and Risks 1. Sustainability 29

6 2. Critical risks 3. Possible controversial aspects G. Main Credit Conditions 1. Effectiveness Condition 2. OtherBoard and Disbursement Conditions H. Readiness for Implementation I. Compliance with Bank Policies Annexes Annex 1 : Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary Annex 6: (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 10: Country at a Glance Annex 11 : Letter of Transport Sector Policy Annex 12: Main Characteristics of the Concession for Railway services between Dakar and Bamako Annex 13: Social and compensation plan Annex 14: Environmental and Social Management Plan Annex 15: Reference Prices of cereals in Mopti region and Gao MAP(S) IBRD 32868

7 Date: February 11,2004 Sector Manager/Director: C. Sanjivi Rajasingham Country Director: A. David Craig Project ID: PO79351 Lending Instrument: Specific Investment Loan (SIL) MALI TRANSPORT CORRIDORS IMPROVEMENT PROJECT Project Appraisal Document Africa Regional Office AFTTR Project Financing Data [ ]Loan [XI Credit [XI Grant [ ] Guarantee [ ]Other: For LoanslCreditslOthers: Amount (US$m): $48.7 million Team Leader: Jean-Noel Guillossou Sector(s): Roads and highways (75%), Railways (25%) Theme(s): Infrastructure services for private sector development (P) BORRO WEWRECIPIENT IDA AFRICAN DEVELOPMENT BANK BORROWING AGENCY FRANCE: FRENCH AGENCY FOR DEVELOPMENT IDA GRANT FOR DEBT VULNERABLE WEST AFRICAN DEVELOPMENT BANK FOREIGN MULTILATERAL INSTITUTIONS oo Foreign Total Responsible agency: MINISTRY OF EQUIPMENT AND TRANSPORT DELEGATE MINISTRY AT THE MINISTRY OF EQUIPMENT AND TRANSPORT, IN CHARGE OF TRANSPORT Coordination Unit of Transport Sector Program Contact Person: M. Thiemoko Yoro Kone, Coordinator of Transport Sector Program Tel: Fax: pst@datatech.net.ml Other Agency(ies): TRANSRAIL, Concessionaire of rail services between Dakar and Bamako Contact Person: M. Rkjean Bklanger, CEO Tel: (514) Fax: rbelanger@canac.com National Highway Department, Ministry of Equipment and Land Development Address: Avenue de la Libertk, BP 1758, Bamako, Mali Contact Person: M. Gabounk Keita, Director Tel: Fax: DntpBCefib. Com

8 Estimated Disbursements ( Bank FY/US$m): FY I 2005 I I 2008 I 2009 I I Annuall I I I 4.50 I 0.60 I I I I -2-

9 A. Project Development Objective 1. Project development objective: (see Annex 1) The objectives of the project are to (a) improve alternative corridors from Mali to the ports of Dakar and Abidjan by rail and road respectively; and (b) sustain accessibility to the Northern region of Mali, one of the poorest regions in the country. 2. Key performance indicators: (see Annex 1) Project progress will be monitored using the following main performance indicators which are consistent with the transport infrastructure sector objectives of the PRSP. Sector-related CAS goals: Adequate provision of public infrastructure 1. Objective 1 - road component (IDA credit): Roads between Bamako and borders of CBte d Ivoire and Burkina Faso passable and in good condition at the end of the project. The total surface of potholes on the roads should not exceed 5 sq-m per km during the period of project execution. 2. Objective 1 - rail component (IDA credit): The cumulative length of slow down in effect for more than 90 days on the railway track between Dakar and Bamako should not exceed 30 km by Objective 2 - road component (IDA grant): Road between Bamako and Gao (1 135 km) passable and in good condition at the end of the project: The total surface of potholes on the roads should not exceed 20 sq-m per km during the period of project execution. Outcomehmpact indicators: 4. Objective 1 - rail component (IDA credit): Share of traffic on the Senegalese rail corridor compared to the total of international trade of Mali: The target is 25 percent of total traffic at the end of 2007 compared to about 15 percent in Objective 1 - rail component (IDA credit): (1) Improvement of turnaround time of wagons between Dakar and Bamako: The target is 14 days in 2004 and 11 days in 2007 compared to more than 20 days currently; (2) Customer satisfaction survey : The target is that 75 percent of the 16 most important clients of the railway, based on their turn-over, will be satisfied with the railway concessionaire s services. 6. Objective 2 - road component (IDA grant): Increase in prices of fruits and grains in Gao is not more than the increase in Mopti area as of June 30, 2008, all other parameters being equal (baseline prices presented in Annex 15 based on a survey carried out in early 2003). 7. Objective 2 - road component (IDA grant): Access to Gao is maintained during the period of project execution: The target is that the average speed between Bamako and Gao does not fall below 65 Mhour. Output indicators: 8. Objective 1 - road component (IDA credit): Number of kms on the Bamako-Bougouni road that received periodic maintenance with project resources (target: 154 km). 9. Objective 1 - rail component (IDA credit): Concession fee as proposed by the concessionaire in its financial bid. 10. Objective 1 - rail component (IDA credit): (1) number of railway staff that followed training courses with support from the project- there is no target for this indicator which will be monitored during project execution; (2) number of staff who found a new job or started a personal business: the target is 20 percent of the redundant staff compared to about 10 percent during the first social plans in 1993 and Objective 2 - road component (IDA grant): Number of kms on the Shark-Gao road that received periodic maintenance with project resources (target : 407 km). -5-

10 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDAiR Date of latest CAS discussion: July 31, 2003 The project supports the CAS objective of reducing the country's vulnerability due to climate conditions and lack of sea access by diversifying the economy, building and maintaining necessary infrastructure, and protecting the environment. Mali is a landlocked country and depends strongly on the quality of the transport infrastructure along its access corridors to the sea. Deterioration of transport infrastructure immediately results in increase in transport costs. This in turn increases the price of basic import products critical to the economy such as construction materials, grain, flour and sugar and petroleum products. It decreases the price of cotton to producers as well. Cotton is the major export product of Mali (between 60 percent and 90 percent of tonnages exported between 1997 and 2000) which is the first producer of cotton in West Africa and the second producer of the entire Africa continent. Achievement of project objectives will create the conditions for an increased transfer of benefits resulting from economic growth to the end beneficiaries which are the producers and the consumers and prevent the loss of these benefits through costlier intermediary services. The project is part of the base case scenario defined for Bank lending assistance in the CAS. The project supports Goal 8 of the Millennium Development Goals (MDG), which aims at developing a global partnership for development. Goal 8 will be achieved through Target 14, whose objective is to address the special needs of landlocked countries and small island developing States and is particularly relevant for Mali as a landlocked country. The transport sector is also a major contributor to Goal 1 of MDG which aims at reducing poverty by stimulating growth. The project objectives will also contribute to the goals under the New Partnership for Africa's Development (NEPAD), in particular, to close Africa's gap in transport infrastructure and services, by: a) reducing the costs and improving the quality of transport services; b) increasing both public and private financial investments in transport infrastructure; c) improving the maintenance of transport infrastructure assets; d) removing formal and informal barriers to movements of goods and people; and e) supporting regional cooperation and the integration of markets for transport services. IDA GRANT The project has a strong social focus and specific activities selected to receive IDA grant funding (see costs in annex 3) are: (i) periodic maintenance of the road SevarC-Gao linking the Extreme North of Mali, one of the poorest region in Mali, to the rest of the country and (ii) HIV/AIDS preventive measures and road safety activities included in the civil works contract for the periodic maintenance of the StvarC-Gao road. Mali qualifies for IDA grant lending as per the guidelines which set the criteria as part of the IDA 13 replenishment framework under the debt-vulnerability eligibility category. Mali is among the poorest IDA-only countries that is particularly vulnerable to longer-term debt sustainability problems. The strategy for the use of grants in the Mali program is to apply them to those Bank activities which support the priorities of the Poverty Reduction Strategy Paper (PRSP) and directly target the poor. This particular project was selected for grant financing because of the following reasons: 1. The development of the transport sector is a key element of the PRSP priorities of (a) promoting institutional development while improving governance and participation; (b) developing human resources and improve access to quality basic services; and (c) developing basic infrastructure and productive sectors; -4-

11 2. This project is a core element of the Bank s FY04-06 CAS for Mali: Transport costs remain a major impediment to growth as they are extremely high (30 percent of product prices). Progress made during the past ten years to (a) enhance and sustain efficiency of the sector s operations; (b) improve and maintain infrastructure, especially for roads and rail; and (c) open access to the remote and poorest areas, have remained insufficient and these efforts need to be continued; 3. The Government has expressed a particular interest in applying IDA grants to this project as it further underlines the project s importance and the Government s commitment to its development objectives. In the key performance indicators listed in section A.2 above, the following key indicators specific to the IDA grant will specifically measure its impact: 3-Road between Bamako and Gao passable and in good condition at the end of the project; 6-Increase in prices of fruits and grains in Gao is not more than the increase in Mopti area as of June 30, 2008, all other parameters being equal; 7-Access to Gao is maintained during the period of project execution; and 11. Number of kms on the SCvarC-Gao road that received periodic maintenance with project resources. 2. Main sector issues and Government strategy: 2.1 Country Context and Sector Background. Mali is a 1.2 million square kilometer landlocked Sub-Saharan African country, sixty percent of which is covered by desert. The Malian economy, based mainly on agriculture subject to marked climatic vagaries, depends entirely on imports and cotton, its main export commodity. Therefore, efficient bctioning of its intemational transport system is necessary for the procurement of numerous strategic commodities (notably petroleum products) and consumer and capital goods. It is also imperative to enable Mali s exports-particularly of fiber cotton, its leading export, which accounts for 85 percent of export tonnage40 compete on the international market. The dispersion of activities across a vast territory, the pronounced disparities in population densities, rapid urban growth and the ensuing development of trade flows have also made domestic transport of goods as well as passengers particularly important. Transport accounts for percent of the cost of most essential products. Reducing vulnerability and increasing hture competitiveness of Mali s economy will depend in large part on improving the operational efficiency of its transport system. Until the September 2002 crisis in CGte d Ivoire, the country used two main transportation corridors, the Bamako - Dakar rail system through Senegal, and the Bamako - Abidjan road network through CGte d Ivoire. International traffic in Mali increased rapidly during the 1990s (from 917,000 tons in 1993 to 2,000,000 tons in 1999). During the period, the market share of the railway declined substantially (from 34% to 18%), mainly due to the inability of the railway to provide adequate capacity and quality of service, Since the crisis in CGte divoire, intemational traffic has been diverted through the port of Tema in Ghana, and, in a lesser way, through the port of Lome in Togo. (i) Roads. Over the past two decades Mali has put substantial effort into the development of its transport infrastructure, particularly its road network. Nevertheless, its road density remains one of the lowest in West Africa, with 1.2 km of road per 100 km2, compared to 3.1 for the Economic Community of West African States as a whole. Insufficient resources allocated to the maintenance of the road networks and inefficiency of the Government s force account used for road maintenance have led to substantial maintenance backlogs and have accelerated the deterioration of the existing network. Out of a 8,786 km network under the responsibility of the Ministry of Equipment and Transport, 78 percent was in poor or bad condition at the end of Rehabilitation is required on 5,493 km of roads. 1,515 km of roads would need periodic maintenance during the next three years. The Transport Sector Project (TSP, Cr 2617-MLI, 1994) assisted the Government to increase the resources allocated to road maintenance to about US$4.6 million a year. -5-

12 However, the resources remained below the real needs (estimated for routine maintenance at about US$7 million a year during TSP appraisal and at about US$lO million during this project's preparation), despite the large volume of government revenues levied in the sector and estimated in 1996 at US$72 million for revenues generated by the entire road taxation system and US$30 million for revenues generated by specific taxes applied only to road transport. Most Government resources were allocated to routine maintenance while periodic maintenance has usually been financed by donors. During the past ten years, annual resources for periodic maintenance have averaged US$13.3 million with a 9 percent contribution from the Government. Resources have increased during the past four years with an annual average of US$22.9 million of which 10 percent is the contribution from the Government. (ii) Railways. Until October 2003, the 1228 km-long Dakar-Bamako railway was operated by two parastatal companies: The Socidtd Nationale de Chemins de Fer du Sdndgal (SNCS) operated the Senegalese part (644 km) and the Rdgie Nationale du Chemin de Fer du Mali (RCFM) operated the Malian part (584 km). Rail infrastructure is old and suffers from a lack of maintenance, particularly on the Malian section. Traction and rolling stock was adequate in quantity, but also suffers from inadequate maintenance and poor utilization. Despite staff reduction programs implemented in the 90s, the two parastatals remained overstaffed. They lacked commercial orientation and financial discipline. The attempt to better coordinate the operation and marketing of intemational services through a joint SNCSmCFM body in the mid-90s failed. While demand for international traffic to and from Mali has increased substantially, railway traffic has decreased due to severe limitation on transport capacity resulting from deteriorated infrastructure as well as poor quality of service. The financial situation of RCFM also severely deteriorated, mainly due to the increase of unit labor costs and, more generally, due to poor management. After a modest profit (CFAF 222 million) in 1997, losses reached CFAF 2.9 billion in 1998, CFAF 2.9 billion in 1999 and CFAF 1.8 billion in 2000 (the equivalent of US$2.5 million) or about 20 percent of the company's tumover during the same year. 2.2 Public sector reform. The PRSP describes the Government strategy to reform public sector and promote private sector development. The objectives of the reform are to refocus the role of the State and divest it of productive activities, modemize the institutions and transform economic structures, liberalize markets and reform business laws. The strategy for private sector development comprises: strengthening of the partnership between the State and the private sector; consolidation and development of infrastructure and services aimed at supporting the development of enterprises in areas with strong economic potential; strengthening of the markets' institutional and regulatory framework; and building of a strong and performing financial sector. An action plan has been defined accordingly for the short and mid-terms and is developed in the PRSP. Privatization of public enterprises is part of the second pillar of the strategy for private sector development. Strategic partners hold a majority in the equity of the water and electricity public utilities. The most critical measures being taken now are in the cotton area which is the major agricultural produce in Mali. The sector restructuring plan adopted in 2001 and supported by the Third Structural Adjustment Credit (Cr approved on December 11, 2001) aimed at reforming and liberalizing the cotton sector, including privatization of the cotton parastatal cotton company's agro-industrial and commercial activities. The Government has already privatized Hotel AmitiC, the tobacco company SONATAM (Socidti Nationale des Tabacs et Allumettes du Mali), the electricity company EDM (Electricitd du Mali), and Banque Malienne de Cr6dit et de D&p,Gts (BMCD). It has also adopted laws to open the telecommunications sector to competition, as well as to privatize the telecommunications company, SOTELMA (Socidtd des Tddcommunications du Mali). Two cellular phone licenses were issued. The action plan for the financial sector reform program has also been finalized, and progress has been made in restructuring the Banque d 'Investissement de Mali (BIM-SA) for privatization. Preparations for the privatization of the bank -6-

13 ~~~ BIM-SA are at an advanced stage. In November 2003, the Government announced its intention to initiate negotiations with the private consortium which was awarded the concession of ADM (ABroports du Mali) following the bidding procedure launched in early The other public enterprises which remain in the State portfolio are smaller enterprises. The Government is discussing with the Bank possible support to divest these enterprises. In parallel to private sector development, the Government has developed an action plan to improve the performance of the public administration. This action plan aims at refocusing the State on its essential missions of public service while making other actors responsible in the development area (local communities, civil society, women, private sector). The action plan is developed along two areas: (a) institutional framework : better define the missions and the role of the State; identify and transfer to the private sector the activities where public intervention is not justified; transfer to local communities responsibilities as defined in the law; restructure and strengthen the administration based on an organizational audit; define and implement a deconcentration policy for public services; (b) human resource management : define a policy to strengthen the capacity in the social sectors in the administration; implement a training plan for civil servants; define a policy for career development and reform the statute of civil servants; revise the wage and the social security policy for civil servants. 2.3 Sector issues and Government strategy. The Government has implemented several reforms with the support of the donor community under the umbrella of the Transport Sector Program during the past ten years. The Government strategy to achieve the development objectives in the Letter of Sector Policy adopted in 1993 was to develop competition between transport modes and enterprises on a sound basis; to improve the condition of infrastructure for the road and rail networks, by applying a suitable maintenance policy; and to continue the process of opening up areas that lack easy access. The following paragraphs summarize the status of implementation of the strategy, the main issues and the current strategic choices of the Government : - Road maintenance financing: Past inefficient management of road maintenance resources has led the Government to commercialize it by involving road users in the decision making process, essentially the approval or road maintenance programs and by financing road maintenance from road user charges. An autonomous Road Fund (RF) was created in August 2000 reflecting best practices in other countries where RFs have been established. The Road Fund is managed by a Board of Directors with five representatives from road users, two representatives from local governments and five representatives from the Government. Before the Fund was created, management of road maintenance resources was characterized by lack of accountability, inadequacy between resources allocated and road maintenance needs, delays in provision of fimds resulting in deferred road maintenance, accelerated road deterioration and increased road maintenance and transport costs. As shown in the following table, the Government intends to more than double road maintenance resources in 2007 compared to 2002 by significantly increasing resources generated by road user charges Total road maintenance budget (CFAF billion) Road user charges (%) of total budget* * Revenues from the levy on vehicle weight are estimated at CFAF 300 million in In 2004, road user charges increase to CFAF 1.3 billion with the creation of a levy on the price of petroleum products. Further increase until 2007 results from the progressive increase of the levy on petroleum products and from revenues from toll roads. -7-

14 - Road maintenance management: The Government recognizes that the Government administration is not the best environment for road maintenance management conducive to efficiency and transparency. The reasons are lack of incentives for administrative staff, cumbersome procurement procedures, lack of resources for operating expenditures, Government interference in day-to-day management of road maintenance resulting in untimely programming and procurement, delays in execution of seasonal works, and overall disconnect between the initial and actual programs and resources. A new framework for road maintenance management is being designed by the Government which is envisaging to restructure the Public Works Department along two possible options : the first option keeps responsibilities for programming works in the Public Works Department and transfers responsibilities for managing the execution of road maintenance works to an autonomous executing agency; the second option transfers both responsibilities to an autonomous executing agency. A study financed by the European Community is underway to provide the basis for the decision in early Road maintenance execution: The Government decided to transfer the actual execution of road maintenance works to private contractors, starting with the second semester of 2002 after the Road Fund became fully operational. In 2001, more than 40 percent of road maintenance works was still executed by force account. In 2003, all road maintenance was executed by contractors with the exception of emergency works in remote areas in the Extreme North where use of contractors would be too costly. - Rail transport: Although restructuring measures defined during the previous TSP were implemented, they could not be sustained because of Government involvement in management of the company resulting in overstaffing, inefficient management and operation of non-profitable services for political reason and because of increased competition with the Bamako-Abidjan corridor. The joint Senegalese-Malian company created for managing international rail traffic could not keep up with the newly privatized and much more competitive railway company in CBte d'ivoire which resulted in losing most of the traffic of petroleum products previously transported by rail from Dakar. Compared to the early 1990s where rail traffic peaked at more than 500,000 tons, it amounted in 2002 to only about 250,000 tons for international traffic and 70,000 tons for local traffic. The Government decided in 2000 to transfer international rail operations to a private operator while keeping the public railway company for domestic operations and keeping the ownership of rail equipment leased out to the private operator. In 2001, this strategy was rescinded and the Government decided that all traffic including equipment would be transferred to a private concessionaire. The concession was awarded to a joint-venture of private operators in February 2003 and signed on September 24, The concessionaire started its operations on October lst, Since then, traffic has started to increase reaching more than 40,000 tons in January 2004 compared to less than 20,000 tons before the concession was awarded. This results from greater efficiency and better safety and reliability of railway services operated by the concessionaire. - Road transport: The sector suffers from low profitability as a result of overcapacity, overloaded trucks and an aging vehicle fleet. The over-loading of trucks was shown by surveys carried out during the period of execution of the Transport Sector Project. Since then, no recent data are available because the weighing stations are out of order. The Government recently purchased new weighing stations which are being tested before being installed. Statistics from the Transport Observatory show that the vehicle fleet is aging. About 95 percent of trailers and tankers are more than 1 1-years old. This results from the overcapacity diagnosed when the Transport Sector Project was prepared. The consequence of this overcapacity is a low number of trips per truck and poor profitability of the activity, which prevents to renew the fleet except for some large transporters. - Transit transport: Efficiency of transit is hampered by the following issues: (a) procedures for interstate -a-

15 road transit are not applied making transit through borders cumbersome; and (b) unauthorized road blocks are a source of harassment for travellers and generate bribery and corruption. As a landlocked country, Mali suffers particularly from these problems. They were salient in CGte d'ivoire and are increasing in Ghana where transit traffic is transferring because of the crisis in CGte d'ivoire. Transit issues are being addressed through a regional transport facilitation program prepared by the West Africa Economic and Monetary Union (WAEMU) and the Economic Community of West African States (ECOWAS). The program extends to the ECOWAS region a pilot developed by WAEMU which consisted of two components: (a) creation of Observatories of practices along key road corridors; and (b) construction and equipment of joint border posts at key borders. The program's content was discussed during a workshop with representatives from the ECOWAS countries, regional institutions, private sector and donors held in Accra on November 10 to 12, It will cover improvement and harmonization of transit regulation, improvement of transit procedures efficiency, improvement of road and port infrastructure, monitoring and evaluation. The corridors to Mali are among the priority corridors which will receive support from the program. - Rural transport: The Government has launched the preparation of a rural transport strategy to address rural transport issues. These issues were identified with the support of the Rural Travel and Transport Program which is part of the Sub-Saharan Africa Transport Program (SSATP) developed with support of several donors including the Bank. The first issue is lack of sound allocation of responsibilities. Since rural roads were necessary for rural development, the responsibility for developing the rural road network was taken over by rural development agencies. Since these agencies very often had a monopoly on the production of major produces, they could impose an additional charge on the price to the producer to finance this development. With the collapse of most of these agencies because of management inefficiencies and the liberalization of prices and markets, the agencies could not sustain this additional charge which would have made the exports uncompetitive and have been unable to bear the cost of developing and maintaining the rural roads. In the absence of institutional arrangements for the transfer of responsibility for maintenance from these agencies to the Government, the roads were not maintained and the network eventually collapsed. The second issue is the lack of resources for rural road maintenance. This is compounded by the fact that resources for maintenance of the primary road network are themselves insufficient. Support to the definition of the strategy is also provided under the National Rural Infrastructure Program (Credit 3393-MLI approved on June 27,2000). The Government has prepared a Letter of Transport Sector Policy (see Annex 11) which describes the strategy that it intends to implement during the next four years to achieve its objectives for the sector with support from the proposed project. 3. Sector issues to be addressed by the project and strategic choices: The railway component of the proposed operation will address the need to secure an efficient second transport corridor to unlock the country. In the rail sector, the strategic choice is reflected by the Government decision to transfer rail operations to a private operator and to focus the public sector on concession monitoring rather than operating an inefficient public enterprise. Two issues need to be addressed to make the concession effective and rail services efficient: (a) The first issue results from the overstaffing of the public railway company. In 2003, RCFM had about 1,462 staff when it is estimated that about 600 would have been sufficient in addition to about the same number of staff on the Senegalese side. Before the concessionaire took over, redundant staff needed to be compensated to ensure a peaceful social climate. The compensation plan was negotiated with -9-

16 the staff unions and the redundant staff were compensated in October The major complaint from the staff is that the plan was calculated on the basis of a retirement age of 55 years while a law was recently adopted which increased the retirement age to 58 years for civil servants, but not for private sector workers. The staff in the railway company, having a private status, were not eligible for the benefits of the new law. However, the Government is discussing the adoption of the law for the private sector and has agreed to compensate the redundant staff retroactively on its own resources on the basis of the new law after it is approved by the Parliament. (b) The second issue is the poor condition of the rail infrastructure and rolling stock as well as limitations in transport capacity which prevent an efficient operation of rail services. Between September and November 2002, traffic was slowed down on about 86 km during more than 90 days on sections seriously deteriorated on the Malian side. The number of derailments was high, which was a cause of lack of safety as well as of additional costs to repair the track, and the rolling stock was deteriorating rapidly without being maintained or repaired due to the difficult financial situation of the public company. About 80,000 tons of Malian goods were stored in Dakar because of lack of wagons. The concessionaire will address the infrastructure issue by executing an investment plan which was presented during two donors meetings organized with the World Bank's support in June and October These meetings were successful and the amount of resources available from donors exceeds the amount of funds requested by the concessionaire. To increase the transport capacity, the concessionaire will modify and upgrade the braking system of the locomotives and wagons which will allow to double the capacity of the trains. However, improved management is also key to better efficiency as demonstrated since the concessionaire took over in October. During the first two months of operation, it transported 46,000 tons, about twice the monthly tonnage transported by the public railway company during the previous two years. In the road sector, the strategy aims at addressing the issue of poor accessibility to and within Mali resulting from lack of preservation of road infrastructure. While the project will finance limited periodic maintenance of road infrastructure, it will support a deep restructuring of sector institutions aiming at improved road maintenance management, financing and overall efficiency. The first strategic choice is reflected in the Government's decision to create a Road Fund which will improve efficiency in the use of road maintenance resources and involve road users in the decision-making process of defining road maintenance programs. This includes also the involvement of a Road Board with representatives of the private sector. This is critical for the success of the reform as a Road Fund operated by an inappropriate Road Board may become a major governance issue. The second choice will result from the Government decision to reform the institutional framework for programming and management of road maintenance based on the study financed by the European Community. The project will give the opportunity to consolidate the road maintenance strategy implemented in Mali through the creation of the Road Agency, the Road Fund and the execution of works by contract. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Aimex 3 for a detailed cost breakdown): In support of the above objectives, and as a follow-up to the reforms achieved under the Transport Sector Project, the proposed project seeks to: (a) support the concessioning of railway services between Dakar and Bamako, including financing of redundancies and necessary upgrading of the rail infrastructure; and (b) rehabilitate the road infrastructure and secure an all-year satisfactory level of service along the road from Bamako to the borders of CBte divoire and Burkina Faso and the road from Bamako to Gao which links the Extreme North of Mali to the rest of the country. The proposed operation will include three components

17 Component A: Rail component. Sub-component AI: Social and compensation plan. The sub-component will support implementation of the social and compensation plan to mitigate the impact of the concessioning of rail services to a private operator on staff declared redundant. The plan includes the following activities: (a) financing of severance payment; (b) technical advisory services and operating costs of the unit created to provide support to redundant staff in evaluating training needs, finding a new job, and preparing personal business projects; (c) measures aimed at facilitating reinsertion of redundant staff; and (d) technical advisory services to monitor the social impact of redundancies during and after the period of implementation of the social and compensation plan. Severance packages were paid in October Eligible expenditures for an amount of CFAF 5.25 billion (equivalent to about US$10 million) confirmed by an audit report will be financed retroactively by the proposed project as approved by Bank management in June Sub-Component A2: Infrastructure rehabilitation and modernization. The sub-component will support rehabilitation of the most deteriorated sections of the railway track between Bamako and the Senegalese border. The sections to be maintained will be defined by the private concessionaire of the railway company. The activities in the sub-component are: (a) procurement of inputs (rail, sleepers, ballast) to rehabilitation works; (b) measures to mitigate the environmental and social impact of the rehabilitation works and past degradations prior to the concession; and (c) technical advisory services for implementation and monitoring of the railway component of the social and environmental mitigation plan of the project. Sub-Component A3: Institutional support. The sub-component includes technical advisory services for the first audit of the railway concession scheduled during the third year of the concession in the concession agreement, and support to the committee appointed to monitor implementation of the concession and compliance with the concession agreement. Component B: Road maintenance component. Sub-component Bl: Periodic maintenance of road network. The sub-component will include: (a) periodic maintenance of (i) the 154 km section of the road between Bamako and Bougouni, which is part of the road linking Bamako, the capital city of Mali, to the ports on the West African Coast (Abidjan in Cbte d Ivoire, Tema in Ghana, and Lome in Togo); and (ii) the 558 km section of the road between Stvart and Gao, which is part of the only road giving access from Bamako to the Extreme North of Mali; (b) technical advisory services for supervision of works; and (c) measures to protect the environment, to improve road safety and to prevent the spread of HIVIAIDS resulting from the presence of civil works contractors in the villages along both roads. The HIViAIDS activities will include sensitization campaigns in parallel to the road works and railway operations to prepare the sector stakeholders to participate fully in the HIV/AIDS MAP project under preparation by the Bank. Road safety activities include equipment for road safety database, adaptation of driving course teaching and exam documents to local context and language, supply of one second-hand articulated truck for driving courses, study to improve both formal and informal teaching of driving, awareness building and road safety campaigns, vertical and horizontal signaling, parking areas in the villages, and access to the customs area at the entry of Bamako. Given the social importance of the Stvart-Gao road as it keeps open the access to one of the poorest region of Mali, the contract for the periodic maintenance works on the road, including HIV/AIDS and road safety activities, will be financed with the IDA grant. Sub-component B2: Institutional support. The sub-component will include (a) technical advisory services for impact monitoring; (b) technical advisory services, equipment and training to support implementation of road sector reforms and strengthening of the local road construction industry; (c) environmental and social impact assessment of road maintenance, strengthening of the capacity of the Road Agency to implement

18 environmental and social mitigation action plans. Component C: Project management: The component includes: (a) technical audit of the works carried out and the goods provided in components A and B (review of procurement procedure, quality of works, compliance with contracts); (b) technical advisory services for fiduciary aspects of project coordination (financial management specialist, accountant); (c) financial audit of project accounts; and (d) operating costs of the project coordination unit. Financing Plan. The project is supported by the donor community. In the rail sector, two Donors Round Table meetings facilitated by the Bank in 2003 successfully brought together about 10 donors interested in supporting the railway concession. The French Development Agency (AFD), the West African Development Bank (WADB), IDA and the concessionaire will finance the investment plan for the next five years. The WADB project was signed with the public railway company and is transferred to the concessionaire. The AFD project is being evaluated. In the road sector, the African Development Bank (AfDB) approved in November 2003 a project to improve the Ghana-Burkina Faso-Mali corridor which includes the Bougouni-Sikasso road, a continuation of the Bamako-Bougouni road financed under the present IDA project. The WADB is considering complementing the financing plan of the AfDB project. B. Road Maintenance Component C. Project management Total Project Costs TotalFinancingReauired/ I I I Key policy and institutional reforms supported by the project: The project will help consolidate reforms carried out up front in the rail and road maintenance sectors. Operations of rail services were transferred in October 2003 to the private concessionaire designated in February The Road Fund is already created to improve efficiency and transparency in the use of road maintenance resources by involving road users in its management and in the decision-making process with respect to road maintenance program definition. Execution of road maintenance is now privatized since the Road Fund became operational in The only reform not yet implemented is the creation of the Road Agency which is scheduled to be completed in

19 3. Benefits and target population: The rail component of the project will benefit producers and consumers of products transported by rail in Senegal and Mali. Improved efficiency of rail transport will make the rail more competitive compared to the road for certain categories of products such as bulk dry products, containers and petroleum products. These products can be transported in large quantities by rail and costs can be reduced because of economies of scale compared to road transport. Better reliability and safety compared to the current situation of the railway will also reduce loss of goods and cost of maintenance. It is expected that savings will be passed to end users of the railway because the transport market on the corridors linking Mali to the sea will be very competitive. The railway will compete with the road and the railway through C6te divoire, the existing roads through Ghana and Togo, and the new roads through Guinea, Senegal and Mauritania which will open during the next two years. A better tracking system of goods on the railway will be an incentive for freight forwarders and shippers to use the railway, particularly as such a system does not exist for trucks and is unlikely to develop in the short term because of the informal character of the transport industry. Improved railway efficiency will also benefit the rural populations along the railway track between Bamako and Kayes, at the border with Senegal, who are poor and isolated as no road exists to access this area. The social impact assessment of the rehabilitation works emphasized the importance of the railway for these populations. Concessioning of rail services will benefit the Government's budget by reducing the financial burden caused by the bankrupt situation of the public railway company. On the contrary, the concessionaire will pay a concession fee to the Government. The concessionaire will also pay taxes on its revenues which has not been the case with the public railway company. Railway staff transferred to the new railway company will benefit from better working conditions based on similar experiences in Cameroon and CGte d'ivoire. Implementation of the environmental mitigation plan will benefit the environment along railway tracks and in depots as transportation of hazardous substances improves and train operation becomes cleaner and safer. The road component of the project will benefit the population of Gao, Kidal and Tombouctou, in the North of Mali, which is the poorest population in the country. Poverty incidence in this region is the worst among the nine regions of Mali, based on existing basic services supplied to the population (health, education, potable water, etc.). In 1993, the school enrollment ratio was 24 percent compared to an average of 33 percent in Mali. Although the region is rich in potential economic activities (live stock, Niger river, phosphates, manganese, tourism), it is difficult to exploit this potential due to the long distance between the region and other regions and economic centers in Mali. In 2000, Gao exported about 10,000 tons of produces to other regions, the second lowest tonnage after Kidal and Tombouctou. It imported about 40,000 tons, the fourth lowest tonnage after Kidal, Tombouctou and Kayes. During the rainy season, the road to Gao is also used to reach Tombouctou. Isolation of the North from the rest of the country was one of the causes of the rebellion between 1990 and While good road infrastructure from Gao to the rest of the country cannot alone change the difficult situation of Northem Mali, its preservation is required to preserve political stability in the region as well as in the entire country itself. Periodic maintenance on the Bamako-Bougouni road will complement rehabilitation of the railway track to Dakar and will benefit cotton producers in the Bougouni region by reducing transport costs along the Dakar corridor and making it more competitive than the Abidjan corridor used in the past to export cotton. For import products, it will increase competition between corridors, the benefit of this competition going to consumers

20 The road safety program executed at the same time as the civil works on the two roads will benefit inhabitants in the villages and cities along the roads as well as vehicles passengers and drivers. The HIV/AIDS activities will benefit the migrant workers working for civil works contractors executing the contracts financed under the project and the population in the villages along the railway track and the roads who are at risk because of the presence of migrant workers. Basic activities will comprise condom promotion and distribution, and support of Information Education CommunicationBehavioral Change Communication (IECBCC) for employees working on the specified works sites. These activities will be handled by a contracted NGO that has a track record in HIV/AIDS prevention activities. For HIV/AIDS care purposes, all health units on the work sites will be provided with condoms and IEC. The project will identify health centers along the two roads and the railway track that can be supported to provide basic HIViAIDS related health services including treatment of sexually transmitted infection (STI), treatment of opportunistic infections and if applicable, voluntary counseling and testing (VCT) services. Implementation of the social plan to mitigate the impact of redundancies will benefit the workers who are declared redundant. The plan includes training, and support to find a new job or to develop a personal project (creation of enterprise, change of occupation). 4. Institutional and implementation arrangements: Institutional arrangements The delegate Ministry in charge of Transport will oversee the rail component. The new concessionaire will be the executing agency of the railway rehabilitation sub-component of the project. A concession monitoring committee (CMC) is being created in accordance with the concession agreement included in the bidding documents for the selection of the concessionaire. CMC will comprise representatives from the Governments of Mali and Senegal and from the concessionaire. CMC will act as a forum for the Government of Mali and the concessionaire to monitor execution of the concession agreement, including implementation of the concessionaire's investment program and compliance with transport regulations in both countries, in particular those related to safety and environment. An audit of the concession is scheduled in the concession agreement the third and the fifth year of the concession and every five years after that. The audit will review compliance with the terms of the concession agreement by the Government and the concessionaire, and contracts between the concessionaire and contractors linked to the reference strategic shareholders. An association with representatives from the civil society and from the redundant staff was created with TSP support to implement the social and compensation management plan to mitigate the impact of the redundancies. TSP will finance the operation of the unit until TSP's closing date on December 31, 2004 and the proposed project will finance the operation of the unit in A plan of action is available in the project files which details the tasks of the unit, its staff and its budget. The Ministry of Equipment and Transport will oversee the road component. The Department of Public Works will be the executing agency of the component until a new institution is created following the on-going process on the definition of a Road Agency with EU financing. Responsibilities for managing the component will then be transferred to the new institution

21 Implementation arrangements Period of project execution and mid-term review. The Interim Transport Project is expected to become effective in July 2004, executed over four years and closed on December 31, The Borrower, the concessionaire and IDA will carry out a mid-term review no later than June 30, The review will monitor project implementation progress, performance of the concessionaire and project performance indicators. It will also identify implementation issues and agree to a plan of action to address these issues. No later than May 15, 2006, the Borrower and the concessionaire will prepare a mid-term assessment including: (a) project implementation status and use of credit resources; (b) performance indicators; (c) progress in implementation of the environmental and social mitigation plan; and (d) a draft action plan including revised disbursements and updated procurement plan covering the period through project completion. Recommendations from the mid-term review will be implemented promptly by the Borrower and the concessionaire. Implementation of the railway component: The Government of Mali will onlend the IDA funds to the concessionaire with the following terms: (a) 5-year grace period and 20-year period of reimbursement; (b) four percent annual interest rate; and (c) risk of change borne equally by the Government and the concessionaire. The Government will make available from the IDA credit and as a grant to the concessionaire, funds required to repair environmental degradations resulting from railway activities prior to the concession. The concessionaire will finance from its own resources the measures to mitigate the environmental and social impact of railway activities after the concession. Bunk supervision. In the first year of project implementation, the Bank will carry out two supervision missions with a particular emphasis on implementation of the social and compensation management plan for the redundancies in the railway company; and of the environmental and social mitigation plan of the concession, especially the repairs of degradations resulting from past railway activities. The missions will include a social scientist and an environmental specialist in addition to the staff responsible for supervision of sectoral or fiduciary aspects of the project. In view of the existing capacity in the Bamako office which was recently strengthened with the recruitment of an infrastructure specialist, in the subsequent years, supervision will consist of one mission with the participation of Washington staff and one mission of the infrastructure staff based in Bamako accompanied by the fiduciary staff (financial management specialist, procurement specialist) in the Bamako office. Monitoring and Reporting The concessionaire will provide annual reports on railway operation performance, including progress towards the project performance indicators and implementation of the social and environmental action plan. The consultant responsible for organizing the payment of severance pay to the staff of the railway company under the supervision of a committee produced a report after all indemnities were paid. The report was provided to IDA. The unit which will provide support to redundant staff of the railway company will produce quarterly reports on its activities The concessionaire, the Highway Department and the Road Agency after its creation will provide quarterly reports on project implementation, including implementation of environmental and social action plans. The reports will be furnished to IDA not later than one month after the end of the quarter they are due. The last quarter report will include an updated procurement plan and disbursement forecasts for the year to come. The project coordination unit will consolidate the annual and quarterly reports into an annual report which will assess implementation performance and include progress toward the project performance indicators for all the project components. The project coordination unit will also produce consolidated annual financial statements. The annual reports identified above will be furnished to IDA not later than three months after the end of the fiscal year. The concessionaire and the Road Agency after its creation will furnish to IDA their annual financial statements and the financial audit reports. The project coordination unit will furnish a technical audit of - 15-

22 road and railway works executed under the project, including implementation of environmental and social action plans related to the execution of the works, and a financial audit of the project accounts including statements of expenditures. Technical and financial audits will be carried out by independent auditors with qualifications and experience satisfactory to IDA. All technical and financial audits will be furnished to IDA not later than six months after the end of each fiscal year. A separate financial audit of the severance pay is underway. The report is expected to be provided by end of February Evaluation: A survey will be carried out to evaluate the impact of the social plan on the redundant staff after the first, second and fourth years of project execution. The Concession Monitoring Committee will fumish to IDA an audit of the terms of the concession including execution of the environmental plan not later than six months after the third year of the concession. The National Department of Transport will evaluate annually the share of traffic on the Senegalese rail corridor compared to the total of Mali s international trade based on the traffic data for rail provided by the concessionaire and the overall international traffic provided by the customs. An annual survey will be carried out by local consultants to evaluate the impact of the road works on the prices of hits and grains in Gao compared to other regions. A customer satisfaction survey will be carried out annually to measure the satisfaction of customers vis-a-vis the services provided by the railway concessionaire. The first survey will be carried out in The Road Data Base will carry out an annual survey to measure the condition of the roads between Bamako and Gao and between Bamako and the borders of Burkina Faso and CBte d lvoire. It will also measure annually the travel time between Bamako and Gao. The other performance indicators will be provided in the reports listed above and will be evaluated by the Project Coordination Unit in its annual report. Procurement, disbursement, accounting and financial arrangements are detailed in Annexes 6-A and 6-B. D. Project Rationale 1. Project alternatives considered and reasons for rejection: A supplemental credit to the Transport Sector Project or a smaller project, both focusing only on railway rehabilitation were two alternatives initially considered. A stand alone operation covering railway rehabilitation and periodic maintenance of the Bamako-Bougouni and SCvar6-Gao roads was preferred because of the economic and social importance of these corridors for the country. Attempts to make cotton more competitive will risk failure if the Bamako-Bougouni road linking the cotton area to the railway deteriorates and transport costs increase as a result. Deterioration of the SCvarC-Gao road would increase poverty and as a result create the risk of political deterioration in the North as seen in the 1990s, annihilating economic efforts to promote economic development. An alternative to the project would have been to postpone the project until a transport sector analysis and a new Transport Sector Program are prepared by the Government. It is estimated that it will take two years to prepare such a program. The Government will start a sector analysis in early 2004 in cooperation with donors involved in the transport sector (European Community, Agence Franqaise de DCveloppement, World Bank, African Development Bank). The analysis is expected to result in an update of the transport strategy adopted by the Government in The preparation of the investment program supporting strategy implementation would then take about one year. Mobilization of hds would take an unknown amount of time, These delays would make it difficult to postpone the proposed project activities until a new Transport Sector Program is finalized. In addition, the Bank is waiting for the conclusions and recommendations of the ESW on the transport sector in Mali which is underway to identify within the framework of the PRSP how the Bank can support the transport sector to provide the highest added value, which issues need to be addressed and which instrument is the best to address these issues. For all these reasons, it was decided to -16-

23 proceed with this project as it is a well-focused short-term operation for the transition period until a new transport program is available. Since this decision was taken, its rationale has been even more strengthened because of the crisis which has developed in Cate d'ivoire since September 2002 justifying urgent improvement of alternative corridors to the Abidjan-Bamako corridor. Rail component: - One alternative to the concessioning of railway operations to a private operator would be to restructure the public railway company. Based on the failed experience of restructuring RCFM under the Transport Sector Project as well as other failed experiences in others countries in Africa, this alternative was rejected. - The second alternative would be to do nothing which would likely result in the disappearance of the company. The immediate impact would be social with about 1,400 staff who would be laid off in Mali in addition to about the same number of staff in the railway company in Senegal. Both countries would lose a very costly asset which would then be more costly to rebuild. The economic analysis of the project concludes that closing of the railway services would not be economically justified. - The third alternative considered was to start rehabilitation works managed by RCFM without waiting for the concession to become effective and the concessionaire to take over the railway operations. This alternative was rejected and it was decided that the concessionaire would decide which type of works would be carried out and that it would manage and supervise their execution. The reason is that the concessionaire will reimburse the credit and has the incentive to use the resources speedily and efficiently which is not the case with a public enterprise. - The last alternative was to seek other financing than IDA for redundancies and rehabilitation works. Two donors' meetings were organized in June and October 2003 to discuss the financing plan of the investment plan of the concessionaire. N o donor expressed interest to finance the redundancies. Road component: - One alternative would have been to wait for the creation of the Road Agency to ensure that an efficient framework for road maintenance management is in place. However, this would have postponed the project by about one year delaying urgent support to the railway sector to make the concessioning effective and this would also have resulted in costlier road maintenance works on the roads Bamako-Bougouni and SCvarC-Gao. The creation of the Road Agency is a condition for European Union to finance the road maintenance and construction program under its 9th European Development Fund. The risk is therefore low of not creating the Agency. In addition, the Bank is consulted during the process to create the Agency. Therefore, it was decided to proceed with the proposed project without waiting for the creation of the Agency. - One alternative was to seek other financing than IDA. Other donors were consulted. None has currently expressed its availability to finance entirely either the works on Bamako-Bougouni or on SCvarC-Gao. European Community and the Islamic Development Bank have expressed informally an interest to finance part of the periodic maintenance works on SevarC-Gao because of the social importance of the road and the large amount of the contract. A donors' meeting is envisaged in early 2004 to discuss financing of road investments, which will include complementary works on SCvarC-Gao. - Technical alternatives were reviewed for works on both roads as part of the engineering and economic study being carried out. These alternatives examined various structures. The final structure reflects the best choice based on the economic justification of works as well as considerations on road safety

24 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Sector Issue Bank-financed Inefficient sector public enterprises and poor performance of road maintenance Rural road management and maintenance Obstacles to movements of goods within West Africa Other development agencies European Community European Community European Community European Community African Development Bank Project Transport Sector Project (Report No MLI, May 5, 1994) National Rural Infrastructure Program (Report No MLI, June 2,2000) West Africa Regional Transpon and Transit facilitation Program (under preparation) Sixth Program: Pavement of Miyou-Macina Seventh Program : Pavement of Ouan-Shark, S6gou-Koutiala, Koutiala-Faramana, Dikma-DidiCni and regraveling of Dikma-Didieni Eighth Program: Pavement of Shark-Bandiagara, Bamako-DidiCni, Di6ma-Kayes NarCna-Kourkmalk, Kayes-Kidira, Gao-Ansongo, Asongo-Niger border, Di6ma-Nioro Improvement of earth roads around Tombouctou Ninth Program under preparation First Road Program WAEMUIGhana IPlDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), I Latest Supervision IPSRI Ratings (Ban k-fkance irojects only) Implementation Progress (IP) S S I (Highly Unsati Development Objective (DO) ICtOry) S S - 18-

25 3. Lessons learned and reflected in the project design: Support of public railway companies is neither effective nor sustainable. The experience of the Transport Sector Project, and similar operations in Cameroon and C6te d'ivoire, which focused on institutional strengthening of public railway companies, did not result in significant improvement. This was due to inefficient public sector management practices (lack of commercial orientation, Government interference in management, inefficient procurement procedures, lack of accountability) and public services obligations not compensated by the State, which proved to be major impediments to cost-effective operation of the railway. On the other hand, concessionning of railway operations to a private operator has proved to be successful. Such operations have been completed in Cameroon and C6te divoire and have dramatically improved the performance of the new railway companies. The Bank experience shows that in the case of railways with a low profitability, availability of donor financing is key to the success of the concessioning process. Without donor financing, it makes it difficult to interest bidders because of the financial risk associated with the operation. Donor financing however should concentrate on infrastructure as the long-term reimbursement period is more appropriate in view of the long life of the infrastructure. Commercial lending is more expensive and needs to be reimbursed over a shorter period of time (7-8 years) which makes it inappropriate for infrastructure but more appropriate for financing of equipment. Financing of redundancies needs to be accompanied by a social plan to mitigate their social impact. A survey of railway staff declared redundant in 1995 and 1997 in Mali demonstrated that money is not enough and that support needs to be provided to the staff during a transitory period until they are settled in new activities, This project supports training of the staff and other support services for them to find alternative employment. The lessons from the ongoing Transport Sector Project (TSP) are the following: (a) Country Absorptive Capacity: Projects should remain simple and adjusted to the country's absorptive capacity for reforms and implementation. Too many demands for simultaneous reforms along with implementation burdens tax the capacity of the government and implementing agency to deliver outputs on schedule and achieve results. (b) Project Design: Detailed engineering needs to be substantially completed before negotiations. The absence of detailed engineering prior to negotiations for all major roads financed by the TSP resulted in variation of quantities during execution, leading to delays and cost increases. 4. Indications of borrower and recipient commitment and ownership Important sector reforms have been implemented up front. In the railway sector, the concession of railway services was awarded to a joint-venture of private investors in February 2003 and became effective on September 24,2003. In the road sector, the Road Fund was created in August It became operational in April 2002 when all its staff were appointed. Since 2002, the resources allocated to road maintenance in the Government budget are managed by the Road Fund. The Government adopted a decree defining the resources of the Fund in June A by-law defining resources collected from overloaded trucks was also signed in These resources are deposited on the account of the Road Fund. Resources collected from road user charges will be transferred to the Road Fund starting in The Government has decided to fully privatize road maintenance execution which was carried out until now by force account. Since the Road Fund became responsible for managing road maintenance resources in - 19-

26 mid-2002, road maintenance works are now contracted out. The 2003 road maintenance program was based only on execution by contract. The Government has drafted a Letter of Sector Policy (Annex 11) which describes its strategy during the coming period of project implementation. 5. Value added of Bank support in this project: The Bank has played an active role in developing the Transport Sector Project, of which this proposed Transport Corridors Improvement Project (TCIP) is a follow-up. During TSP implementation, the Bank advised the Government on sector issues which resulted in the launch of the concessionning process for railway services and the creation of the Road Fund. During the TCIP implementation, the Bank will continue to advise the Government by bringing to bear its experience in monitoring rail concessions, Road Fund operations and execution of road maintenance by contract. Advising the Government is key during this transitory period where capacity needs still to be built on such aspects as regulation of the railway concession, definition of road maintenance programs, promotion of SMEs and quality control in execution of road maintenance works. The Bank is providing similar support to Senegal under the Second Transport Sector Project (Cr SE). Together with the Transport Sector Project in Mali, the Senegal project financed advisory services for the concessioning of railway services. The Senegal project has also allocated funds to rehabilitate the railway track. Both projects in Mali and Senegal complement each other. The TCIP will also be the link in Mali with the transport and facilitation component of the regional integration program for West African countries developed by regional institutions (West Africa Economic and Monetary Union, Economic Community of West African States). This program is supported by most donors and the Bank is a key actor with the European Union and the African Development Bank. It will address issues along international corridors such as illegal road barriers, truck overload, implementation of customs procedures at borders, lack of harmonization of road transport regulations among countries, and inadequate implementation of interstate road transport procedures. The Bank will also help Mali to incorporate HIV/AIDS issues and road safety issues in the transport sector based on its experience in other countries. A handbook on transport and HIVIAIDS has been prepared by the Bank which provides guidelines for mitigating the impact of transport projects. The Africa Region of the World Bank recently carried out an audit of the road safety components in its projects. The report became available in July The implementation team will include a road safety expert which will apply the lessons of the audit to the TCIP. As explained in the paragraph on project alternatives, no other donor has resources currently available to replace IDA financing. Lack of resources for financing redundancies in the public railway company would jeopardize the concessionning process with serious negative impact on the social climate and the access of Mali to the port of Dakar in Senegal. In the road sector, postponement of periodic road maintenance on the two roads included in the project would make the hture rehabilitation works much more costly and also impact negatively on the accessibility to the Gao region in the North and between Mali and the ports on the West African coast

27 IBamako-Senou SCnou- Sanankoroba Sanakoroba-OuCltssCbougou Out16 sstbougou-bougouni Average Daily Traffic Length , Option 2.0 Option 2.1 Option 2.2 Option 2.3 Option 2.4 Investment costs Investment costs Net Present Value at 12% IRR (%) (US$ million) (CFAF million) (CFAF million) ,468 12, ,184 8, ,353 12, ,329 10, ,645 9,

28 considered: (a) the first strategy supposes that only sections of the road in poor condition are strengthened and that maintenance of sections in good and fair conditions is postponed until 2008 and 2010; and (b) the second strategy supposes that all sections are immediately strengthened. The study was also carried out considering with and without the widening of the road from 6.0m to 7.0m. Detailed results are presented in Annex 4.2. Net Present Value Investment costs at 12% (CFAF I (US$ (CFAF I (US$ 1 Road's Strategy width million) million) million) million) Postponed maintenance of sections 6.0m 19, , in good and fair condition 7.0m 21, , IImmediate maintenance of sections I 6.0m I I 31.6 I I I in good and fair condition Railway component 7.0m I 19,302 I 34.5 I 4,448 I 7.94 Investment urogram. The proposed works are part of the larger investment program envisaged by the concessionaire. The economic analysis of the works has therefore been carried out for the entire program, including investments carried out on the railway track in SCnCgal. In the without project situation, the railway is expected to progressively reduce its activity and eventually disappear in Indeed, in the absence of investments, the railway track, and thus the quality of services, will continue to deteriorate, clients will progressively abandon the railway and shift entirely to road transport when the roads between Bamako and Dakar and Bamako and Conakry are completed. In the with project situation, the railway will keep the freight for which rail is competitive, which consists mostly of bulk cargo and containers. Rail traffic is expected to reach 72 1,406 tons after five years compared to less than 300,000 tons in 2002, and is expected to double in 20 years. These assumptions are reasonable in view of the growth of rail traffic in CBte d'ivoire after the private concessionaire took over. About 40 percent of the program would be carried out during the first three years of the concession. The costs in the without project situation include the investment cost to purchase trucks to replace the railway, the increase in road maintenance costs resulting from the increase in traffic and the costs of trucks operations. Detailed results of the economic analysis are presented in Annex 4.3. The cost of investment is estimated at about CFAF 25 billion (US$45 million equivalent) during the first five years of the concession. The net value of costs and benefits discounted at 12 percent is positive and amounts to CFAF 58.2 billion (about US$97 million) during the 20-year period of analysis. Redundancies. The analysis carried out to evaluate the economic impact of the redundancies in the railway company confirms the justification of the retrenchment plan. The number of staff declared redundant is the difference between the current number of staff in the railway company (1,383) and the number of staff (750) to be kept by the concessionaire. The costs of redundancies reflect memoranda of understanding signed between the Government and the personnel's unions in 1995 and 1997 at the time of previous retrenchment operations. First, redundancy costs were compared to savings on salaries and overhead costs on personnel supported by the railway company. The resulting net present value discounted at 10 percent amounts at CFAF 0.7 billion. Second, a more comprehensive economic analysis was carried out to compare the overall costs and benefits of the retrenchment for the country's economy. Benefits result from additional productivity from redundant staff expected to find a new job and from saving on salaries and on indemnities awarded at retirement. Costs include the cost of redundancies and the cost of measures to mitigate the social impact of the redundancies. The resulting net present value discounted at 10 percent amounts at CFAF 1.2 billion

29 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = 15.5 % (see Annex 4) The main fmancial data for the railway concession are summarized in Annex 5 based on the financial model prepared by the concessionaire. In the base case, the internal rate of return is 15.5 percent. Fiscal Impact: During the first five years of the concession, the concessionaire is expected to benefit from the Investment Code in Mali and Senegal. Specific arrangements have also been defined in an annex to the concession agreement to cover the tax and customs arrangements for international traffic. The amount of taxes and duties payable by the concessionaire has been estimated in its financial model of the concession. During the 25-year period of the concession, the concessionaire estimates that about CFAF 67 billion of taxes and duties (about US$122 million) will be paid in both Mali and Senegal. This adds to about CFAF 48 billion (USS83 million) of concession fee paid during the 25-year period. 3. Technical: N/A 4. Institutional: 4.1 Executing agencies: The railway concessionaire will be the executing agency for the railway civil works component of the project. The concessionaire is a consortium of international and local firms and shareholders. It was selected based on international competition. The concession arrangement is described in Annex 12. The Department of Public Works will be the executing agency for the road maintenance component of the project until a new institution is created following the on-going process of restructuring the Department and creating a Road Agency. Responsibilities for managing the component will then be transferred to the new agency. The Government is consulting with the Bank and other donors during the process to establish the new institution to ensure that the new set-up will be satisfactory to the Association with respect to the transfer of project management responsibilities to the new institution. 4.2 Project management: Project Coordination will be the responsibility of the existing Transport Sector Project Unit created to coordinate the Transport Sector Project. The unit has been efficient. It has not substituted to the TSP executing agencies which have always kept responsibilities for decision and implementation. The unit advises sector ministries and executing agencies on Bank procedures. Because it is not involved in the day-to-day management of sector activities, it keeps some distance with mundane activities and has the capacity to advise on broad or cross-cutting sector issues. The unit is playing a facilitator role for the preparation of a second Transport Sector Program which has started with financial support from the Bank and the European Community. The unit is staffed with two high-level staff and a few administrative personnel. It will consolidate financial information provided by the railway concessionaire and the Road Authority which will manage financial aspects of the road maintenance component of the project. The unit will also consolidate information on project progress in progress reports. 4.3 Procurement issues: The Country Performance Procurement Review carried out in early January 2003, highlighted the long procurement procedures. As a contribution to address this issue, the World Bank doubled its procurement staff in its Bamako office in early This is expected to accelerate the review of procurement

30 documents on the Bank side. The Department of Public Works will be responsible for all procurement under the road maintenance component of the credit. The Department has experience of World Bank procedures acquired under the Transport Sector Project and more recently under the National Rural Infrastructure Project. The current timetable for the creation of the Agency foresees that it will become operational during the first semester of This will be too late for the Agency to take responsibility for procurement and benefit from its more efficient institutional arrangements including for procurement. Under the concession agreement, procurement in the railway component will be managed by the private concessionaire which has the financial incentive to reduce the procurement time to a minimum. Detailed procurement arrangements are described in Annex 6 including an action plan to mitigate lack of procurement expertise. 4.4 Financial management issues: Assessment of Financial Management System. The overall conclusion of the financial management assessments is that, provided the following conditions are met by the PCU prior to credit effectiveness, the Bank's financial management requirements will be satisfied: Finance Department established within the PCU headed by a professionally qualified FM Specialist; computerized FM system installed; Financial and Administrative Procedures Manual developed; Project Account and Special Accounts opened and initial deposit of counterpart funds made in project account; and qualified external auditors appointed. By effectiveness, the project will not be ready for report-based disbursements. Thus, at the initial stage, transaction-based disbursement procedures, as described in the World Bank Disbursement Handbook, will be followed, i.e. direct payment, reimbursement, and special commitments. However, after project implementation begins and when the borrower requests conversion to report-based disbursements, a review will be undertaken by the Task Team (TT) to determine if the project is eligible. Reporting arrangements. The project coordination unit will prepare quarterly project management reports and annual project financial statements. The latter will show all project components and funding sources. The concessionaire will provide annual financial statements since its financial viability is key to the project success and needs to be continuously monitored during the period of project implementation. The format of the project management reports (PMR) will be defined in the Project Implementation Manual. Audit arrangements. Independent auditors acceptable to IDA will audit the use of IDA funds available under the credit, including the Special Accounts and the Statements of Expenditures in accordance with international standards on auditing. Audit reports will be submitted to IDA no longer than six months after the end of the fiscal year. The arrangements for financial management are detailed in the action plan in Annex 6(b). 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. An environmental and social impact assessment was carried out for the periodic maintenance works on the two roads Bamako-Bougouni and Shark-Gao and for the railway operations managed by the concessionaire. Each of the assessments included an Environment and Social Mitigation Plan (ESMP), the three ESMPs being then consolidated in the project's ESMP. The following safeguard issues have been identified: (a) related to the execution of the road works on the road Bamako-Bouaouni: An environmental impact

31 . study (EIS) of the periodic maintenance works on the road Bamako-Bougouni was carried out to evaluate 13 categories of impact and define mitigation measures when necessary : (i) climate: Minimize clearing of land for works sites and restoration of areas threatened by erosion. (ii) vegetation: As the road is already paved, its maintenance will not improve accessibility to and increase pressure on natural resources. The road does not cross any protected natural habitat. Vegetation on embankments and trees at the entry of Bougouni will need to be protected during works execution. (iii) wildlife: No particular impact has been identified as the project does not improve accessibility to the area which is already very good. (iv) erosion: No new excavation or new embankment will be created and no change in agricultural areas is envisaged as the project involves only periodic maintenance of the existing road. (v) water: Road safety measures implemented under the project will reduce the risk of accidental pollution by hazardous products transported on the road. Continuous pollution of water has been not identified based on consultation with populations along the road. (vi) health: Inhabitants in some villages complained that super elevation of the road created ponds attracting mosquitos. Borrowing pits may also be filled by water during the rainy season and attract mosquitos. The presence of migrant workers may also increase the risk of spreading HIV/AIDS. (vii) noise: The level of noise is not expected to increase after the project and will remain under 65 db which is acceptable for the populations. (viii) socio-economic: The impact of the project will be positive. New jobs will be created during works execution. (ix) agriculture: The longitudinal profile of the road will not be changed. No land will be acquired for the project. No fruit tree will be cut. (x) safety: A road safety audit defined measures to improve road safety. Measures include parking areas for trucks in large villages, widening of the shoulders for bicycles and pedestrians, vertical and horizontal signaling and other measures listed in the project description. (xi) landscape: Some modification can result from borrow pits. Abandoned cars along the roads also 'need to be removed. (xii) air quality: The project is located mostly in non urbanized areas where pollution of air is minimum. The project will not have an impact. (xiii) habitations: No need for resettlement has been identified. In case resettlement is unavoidable as a result of the civil works, the resettlement policy framework agreed during project preparation will be applied. The EIS defines also mitigation measures to be taken during works execution and related to (i) accidental pollution from oil changes or other petroleum products; (ii) transport of construction materials; (iii) drainage; (iv) restoration of borrow pits; (v) solid wastes; (vi) protection of trees and other vegetation; and (vii) protection of wildlife. The cost of the EMP including control and monitoring is estimated at about US$1.2 million which has been included in the project costs. (b) related to the execution of the road works on the road Shark-Gao: The impacts and measures described above are also valid for the road Skvark-Gao. The EIS proposes recommendations which are specific to the following issues specific to the road SkvarbGao: (i) Market gardening and cultivation of pluvial rice has developed along the road in areas where water is running from a superelevation. (ii) 21 sites have been identified where habitations, restaurants, shops and mosques are less than 10 meters from the road but they will not be touched by the works. (iii) The Douentza reserve, an IUCN category IV protected area, stretches for about 200 km just

32 north of the road. The elephants of the Gourma live in the reserve. They constitute one of the largest surviving elephant populations in this region of Africa. (iv) 20 km of road at 14 different locations will need to be reconstructed. Most of this road construction will take place in fluvial zones, where the road crosses rivers, creeks, wetlands. Of particular concern are the ponds ( mares ), especially the mare d Agoufou. The cost of the EMP including control and monitoring is estimated at US$0.66 million included in the project costs. (c) related to the concessioning of railway services: An environmental audit has been prepared which includes an environmental and social management plan. Both Governments of Senegal and Mali and the concessionaire agreed to the plan before appraisal. An Environmental and Social Impact Assessment (ESIA) of railway works on the most deteriorated sections of the railway track in Mali was carried out before appraisal. The conclusions of the ESIA are summarized hereafter. Materials such as laterite and ballast will be used to strengthen the railway track. Ballast will come from an existing quarry. Laterite will come from borrow pits identified by the engineering study of the works. Execution of the works may also impact on the health of workers of villagers because of the dust of laterite. The presence of migrant workers may also increase the risk of spreading HIV/AIDS. Consolidating the railway platform may require enlarging it by about 20 cm on one side or both sides of the track. The ESIA of the works did not identify resettlement issues that may result from occupation of right-of-way for residential, commercial and farming purposes or from the extension of the ballast quarry if its existing capacity is insufficient and from the opening of borrow pits for the laterite. No impact has also been identified on minor cultivations, trees and bushes, buildings, commercial structures etc. along the track resulting from the widening of the railway platform. 5.2 What are the main features of the EMP and are they adequate? An Environmental and Social Analysis (ESA) was undertaken before appraisal for both the road and rail components of the project. The ESA further determined the extent of environmental and social impacts and made recommendations in line with the safeguard policies of the Government of Mali and Bank procedures and best practices. It reviewed the institutional framework for environment in Mali and provided recommendations on the institutional arrangements for implementation of mitigation measures and monitoring of the project impacts. The project Environmental Mitigation Plan consolidates the recommendations, the costs and the institutional arrangements related to environmental measures. It includes the Resettlement Policy Framework as well. An environmental audit was prepared for the concessioning of rail services. The audit provides the appropriate safeguard framework and measures, while highlighting the opportunities for enhancing the positive synergy between privatization, social and environmental protection. The proposed project provides support for the implementation of recommendations provided in the audit. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: January 2 1, How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? The EA reports for the works on the roads Bamako-Bougouni and SCvarC-Gao were made available at the regional representations of the Department of Highways in Mali. Their availability, the place and the time to consult the documents were advertised in local newspapers. The reports were also made available at the

33 Bank's Infoshop before appraisal. Similarly, the EA report on railway operations was made available to the public in Mali, and in Senegal and at the Bank's Infoshop before appraisal. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? The project provides for technical advisory services to monitor implementation of the EMP and evaluate the impact of the project on the environment. The Environmental Unit of the Ministry of Rural Development and Environment is the Government's clearing house for environmental safeguards. It is responsible for ensuring compliance with environmental laws and regulation in Mali. Monitoring reports will be submitted to the Unit for review. The concession agreement for rail services provides for the creation of a unit comprising representatives from the Governments of Mali and SCnCgal and from the concessionaire to monitor compliance by the concessionaire of rail services with regulations in both countries, in particular those related to safety and environment. The unit is created and will receive training and support from environmental advisors. The Department of Transport will monitor the road accidents through its data base. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. Impact of retrenchment: The impact of retrenchment on redundant staff in the railway company is a major social issue. Retrenchment has resulted in the loss of jobs which is a traumatic event not only for the staff concerned but also for their families who rely on them for their livelihood. Financial compensation in the form of a "golden handshake" has proved to only partially overcome this trauma and mitigate the negative social effects of retrenchment schemes. To address these issues, a comprehensive Social Action Plan was prepared, which includes a communication strategy, the description of the compensation package, of the accompanying measures, and of the institutional arrangement for implementing the Plan. Its objectives are to (i) support the reinsertion of the workers declared redundant; (ii) ease social tension resulting from the job losses; and (iii) ensure effective delivery of the Social Action Plan to the workers affected. Implementation of the communication strategy started before the retrenchment took place. The Plan is detailed in Annex 13. Resettlement: No new land acquisition or involuntary resettlement are expected. The TCIP's activities consist of periodic maintenance of existing roads and rehabilitation of railways track. A 2 km urban section of the Bamako-Bougouni road will be broadened from 2 to 4 lanes. However, no resettlement will be required because broadening will take place in an area which is not occupied by houses, shops or other buildings or activities. On the other sections of the roads included in the project, the project will not fund any road enlargement or clearing of right-of-way (ROW). Construction materials needed to execute the works will come from existing borrow pits and ballast quarry, and will be bought from private entrepreneurs. The EA findings for the railways works indicates that some of the camp sites ("campements de cheminots") established along the track have encroached on the ROW. While this issue goes beyond the scope of TCIP, which is not anticipated to clear ROW, mitigation measures are included in the environmental and social mitigation audit prepared for the operation of the railway concession. Given the magnitude of the project and to mitigate the risk that local population will be negatively affected by the project, a Resettlement Policy Framework (RPF) was prepared by the Government of Mali as due diligence. It defines procedures to follow if involuntary resettlement, loss of assets or access to assets in the

34 project were to occur. HIVIAIDS and road safety The inflow of migrant workers brought in the project area to execute project activities may also increase the risk of spreading HIV/AIDS. Traffic accidents are already a risk for both villagers and vehicle passengers. Studies on HIV/AIDS and transport, and road safety audits of the road works have proposed mitigation measures which are included in the Environmental and Social Mitigation Plan prepared for the project. 6.2 Participatory Approach: How are key stakeholders participating in the project? A preliminary study on the social impact of the railway privatization was carried out during project preparation. It was based on consultation with current and former railway workers. The study s findings and subsequent action plan were discussed with the railway management and trade unions. This study. fed into the elaboration of a comprehensive Social Action Plan featuring among others, a communication strategy. That strategy is aimed at maintaining a constructive and permanent dialogue between the staff and the management, throughout the concession process and the implementation of the Social Action Plan. As described below, an association was created to provide support to retrenched staff. The members of the Board of the Association come from the civil society. The retrenched staff are also represented in the Board of the Association to oversee the activities of the unit and ensure that it provides the services required by the beneficiaries. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The retrenchment plan was negotiated with the unions representing the staff of the railway company. Railway workers and trade unions in Mali constitute a closed corps de mktier akin to a guild. Hence, it was not necessary to bring in outside NGOS or civil society organizations to handle the social issues raised by the project. Prevention of HIViAIDS spreading along the project sites will be contracted out to a NGO with a track record in HIV/AIDS activities. 6.4 What institutional arrangemcnts have been provided to ensure the project achieves its social development outcomes? A Social Action Plan has been prepared to mitigate the impact of the redundancies. A unit called the I Cellule d Appui a la Rkinsertion des Cheminots (CARCHEM) was created with financing from TSP during the first year and will be financed from TCIP during the second year. It has the responsibility for implementing the Social Action Plan. CARCHEM is a small unit that is expected to be dissolved within two years following the retrenchment. By that time, it is anticipated that the retrenched workers would have been given appropriate assistance, taking into account the constraints of the Malian job market and economic situation. CARCHEM will rely mostly on short-term consultants and local institutions involved in training, reemployment and other activities which can help redundant staff during the transition period toward reinsertion in the economy. Arrangements regarding involuntary resettlement are laid down in the resettlement policy framework. 6.5 How will the project monitor performance in terms of social development outcomes? The Social Action Plan for the retrenchment contains provisions for monitoring its implementation and performance. CARCHEM will provide the basic data. A survey will be carried out to monitor the impact of the social plan on the redundant staff after the first, second and fourth years of project execution

35 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. There are no key compliance issues arising out of safeguard policies applicable to the project. Project funds include the resources necessary to implement the project's social and environmental action plan including control during and monitoring after implementation. The Road Agency is not created yet. A strategic environmental study will be carried out under the proposed project to provide the framework for sound environmental management of road maintenance. The study will also evaluate the needs for capacity strengthening of the Agency in environmental management. F. Sustainability and Risks 1. Sustainability: Sustainability of road investments requires efficient management and sustainable financing of road maintenance, The creation of the Road Fund provides the framework for sustainable financing by involving road users in the decision-making process on the level of road maintenance resources necessary to execute agreed road maintenance programs. The Letter of Sector Policy defines the amount of Government resources to be allocated to road maintenance until The road maintenance budget will increase from CFAF 5.88 billion (US$10.5 million) in 2003 to CFAF 13 billion (US$23.6 million equivalent) in This will allow to cover entirely routine maintenance on the primary network as targeted in the Letter of Sector Policy. Continued budget increase after 2007 would progressively cover a larger share of periodic maintenance mostly financed by external donors until now. Road user charges represent 14 percent of the total road maintenance budget in 2003 and should increase progressively to 100 percent by The Government has agreed to restructure the institutional framework for road maintenance management. A new Road Agency will be created which will provide the incentive framework for efficient and transparent management. The structure and responsibilities of the Road Agency are being designed with support of the European Community. The Government is committed to make the Agency operational by March 31, 2004 according to its Letter of Sector Policy and its agreement with the European Community under its 9th European Development Fund (EDF). The Road Agency will be financed by the Road Fund. Concessioning of railway activities to a private operator provides the framework for sustainable railway investments and operations. The operator invests its own resources, which provides the incentive to use efficiently these resources and to maintain the improved infrastructure. The concessioning process was transparent and designed to select a highly qualified operator. The concession agreement provides the

36 framework to ensure that railway operations and management will be independent from Government interference. The concession is granted for 30 years which is also a factor in favor of stability and sustainability. The risk that staff, once laid off, are rehired, is minimal. First, the concessionaire designated the staff to be laid off, It is not a voluntary scheme. The criteria for the decision on who is to be laid off is based on who adds least value to the new railway company. The concessionaire will suffer a penalty if it decides to hire staff who have been previously laid off as it will have to reimburse the retrenchment package to the Government. This will be applied during a two-year period after staff are laid off. The period is not longer: (a) to reduce the possible impact of HIVIAIDS on the company's operations as well as the fact that the staff are relatively old (47-year average) and to give the possibility to the concessionaire to hire staff with some railway qualifications reducing the amount and the cost of training; and (b) to take into account the fact that the experience shows that a low percentage only of staff which are laid off find a new job. The monitoring studies included in the social plan will document what happens to the laid-off workers. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk From Outputs to Objective Roads not maintained after completion of works Widespread truck overload Poor management or private railway company Lack of availability of rolling stock for railway operations From Components to Outputs Insufficient mobilization of local resources including counterpart funds and taxes Poor quality of road works Poor maintenance of railway track Social disturbance resulting from retrenchments Dverall Risk Rating Risk Rating N S N N M N N M M Risk Mitigation Measure Involvement of road users in management of Road Fund and decisions on road maintenance programs. Creation of Road Agency On-going implementation of weighing stations along the roads. Sensitization campaign of truck drivers and reduction of illegal road barriers with support of regional program being prepared with regional economic institutions Monitoring of performance by Concession Monitoring Committee and terms of concession agreement Monitoring of performance by Concession Monitoring Committee and terms of concession agreement, support of the donors' community through financing of investment plan Ensure allocation of counterpart funds, especially taxes, in annual budgets; agree with the Ministry of Economy and Finance on procedures to pay taxes Include quality assurance plans in contracts monitored by consultants which will supervise works execution Monitoring by concession monitoring committee and terms of concession agreement Implementation of social plan

37 3. Possible Controversial Aspects: Laying off staff of the railway company is a possible controversial aspect. While payment of severance packages in October 2003 went smoothly, one remaining issue is the retirement age which was taken into account at the time of payment. The retirement age was increased from 55 years to 58 years for civil servants but not for the private sector, which was the statute of the staff in the railway company. The Government is contemplating to increase the retirement age for the private sector to 58 years as well. The staff of the railway company claims that the severance package should be adjusted on that basis. The Government has agreed but the additional compensation remains to be paid. This was addressed up front by the definition of a social and compensation plan agreed between the unions and the Government. The plan includes severance payment, job counseling and training. A management plan of severance pay was also agreed to ensure transparency when redundant staff received their package as well as accuracy when the retrenchment packages were calculated. A communication plan was defined to ensure that all staff has the same level of information on the concession and the social plan. The Social Action Plan is described in Annex G. Main Credit and Grant Conditions 1. Effectiveness Conditions The Borrower and the Concessionaire have appointed the consultant to be in charge of the preparation of the Project Implementation Manual.. The Borrower has established the Project Account and deposited therein the initial deposit of CFAF 88 million. The Subsidiary Grant Agreement and the Subsidiary Loan Agreement have been signed and executed on behalf of the Government and Transrail. 2. Other [classify according to covenant types used in the Legal Agreements.] Board Condition 0 Transmission to the Bank of the signed Letter of Sector Policy by the Minister of Equipment and Transport through the Minister of Economy and Finance. Disbursement Conditions 0 No withdrawals from the project accounts will be made in respect of payments made for expenditures other than to support the railway concession until the Government has reimbursed the Association for amounts outstanding under Credit Numbers 021-MLI and MLI in the order of FCFA 30,771,5 17 and FCFA 100,000,000, respectively. 0 No withdrawals shall be made in respect of payments made for expenditures other than for financing of redundancies in the railway company and to support the railway concession until : o The Government has adopted and fumished the financial and accounting procedures manual (FAPM) and the Project Implementation Plan (PIP) in form and substance acceptable to the Association. o The Government has appointed an independent auditor of the project financial statements with experience and qualifications acceptable to IDA o The Government has established a computerized accounting and financial management system satisfactory to IDA o The Government has appointed the key staff in the Project Coordination Unit: a chief financial officer, an accountant, and an environmental and social expert

38 No withdrawal shall be made in respect of payments made for expenditures to support the railway concession until the Concessionaire has appointed an independant auditor of thc financial statements of the concessionaire with experience and qualifications acceptable to IDA H. Readiness for Implementation ixi 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 1. b) Not applicable The procurement documents for the first year's activities are complete and ready for the start of project implementation The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality The following items are lacking and are discussed under loan conditions (Section G): The procurement documents for the road works are being prepared by the consultants who carried out the detailed engineering design study. For Bamako-Bougouni, the draft bidding documents are being reviewed by the Bank and the bidding is expected to be advertised the first week of March For Shark-Gao, the international consultant who carried out the detailed engineering study went bankrupt. The Malian administration found an arrangement with the liquidators and the Malian consultants who were associated to the study to produce the bidding documents which are expected to be received by February 20, The concessionaire of the railway company will be responsible for preparing the bidding documents for the railway component. It has the incentives to perform procurement efficiently. A procurement plan has been prepared. Provision of the Project Implementation Plan, acceptable to IDA, is a condition of disbursement for project expenditures, excluding those to finance retroactively payment of severance packages and the hiids retroceded to the railway concessionaire. I. Compliance with Bank 1. This project complies with all applicable Bank policies The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Team Leader Sector Man a g erld i rec tor A. David Craig Country Director

39 Hierarchy of Objectives Sector-related CAS Goal: 4dequate provision of mblic infrastructure Annex 1: Project Design Summary MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Key Performance Indicators Sector Indicators: Roads between Bamako and the borders with Burkina Faso and CBte divoire passable and in good condition at the end of the project (road component): total surface of potholes on the roads not to exceed 5 sq-m per km during the period of project execution Road between Bamako and Gao passable and in good condition at the end of the project (road component) :total surface of potholes on the roads should not exceed 20 sq-m per km during the period of project execution Cumulative length of slow down in effect for more than 90 days on the railway track between Dakar and Bamako:less than 30 km in 2007 Data Collection Strategy Sector1 country reports: Road data bank, comparative survey between Bamako-Bougouni and Sikasso-Zegoua Road data bank Annual reports o concessionaire Critical Assumptions From Goal to Bank Mission) Jo dramatic variation of nices on intemational narkets (cotton) leading to nacroeconomic stability 'olitical stability

40 Hierarchy of Objectives 'roject Development Ibjective:. Improve competitiveness )f alternative corridors to he ports on the West Coast,f Africa by rail and road espectively 1. Sustain accessibility to he Northern region of Mali Key Performance Indicators Outcome / Impact Indicators: Improvement of turnaround time of wagons between Dakar and Bamako (rail component): 14 days in 2004 and 11 days in 2007 compared to more than 20 days currently. Share of traffic on the Senegalese rail corridor compared to the total of international trade of Mali: The target is 25 percent of total traffic at the end of 2007 compared to about 15 percent in Customer satisfaction survey : 75 percent of the 16 most important clients of the railway, based on their turn-over with Transrail, will be satisfied with Transrail services Increase in price of cereals in Gao is not more that the increase in Mopti, all other parameters being equal: reference data in Annex 15. Access to Gao is maintainec during the period of project execution : The average speed between Bamako and Gao should not fall below 65 ludhour Data Collection Strategy Project reports: Quarterly operational reports of concessionaire Annual reports on transport statistics by Transport Observatory Annual reports of concessionaire Survey by consultants Annual surveys by consultants Survey by consultants base( on Source methodology Critical Assumptions From Objective to Goal) dormal pluviometry Jo natural disaster drought) Vormal pluviometry

41 Hierarchy of Objectives :omponent: mprovement of,erformance of railway :ompany 'reservation of 3amako-Bougouni and 3CvarC-Gao roads Key Performance Indicators Output Indicators: Obiective 1 - Rail component: Concession fee Obiective 2 - Rail component: Number of railway staff that followed training courses with support from the project. Number of staff which found a new job or started a personal business:20 percent of redundant staff. Obiective 1 - Road component: Number of kilometers of roads maintained on Bamako-Bougouni (1 54km) Obiective 2 - Road component: Number of kilometers of roads maintained on Share-Gao (407km) Data Collection Strategy 'roject reports: 4udited financial statements 3f concessionaire Reports from CARCHEM Reports from CARCHEM Final report of consultant supervising works execution Final report of consultant supervising works executior - Critical Assumptions from Outputs to Objective) Efficient road maintenance jystem (adequate financing, implementation capacity) Efficient control of truck overload Road blocks along road corridors do not increase in numbers

42 Hierarchv of Obiectives Project Components I Sub-components: A. Rail component A.l Social and compensation plan A.2 Infrastructure Rehabilitation and Modernization Input to civil works Social, environmental and institutional support B. Road component B. 1 Civil works Key Performance indicators nputs: (budget for each :omponent) US$13.2 million US$0.3 million US$41.3 million USs1.9 million US$71.7 million Data Collection Strategy Project reports: Report by external auditor Reports by implementation unit (CARCHEM) Report by concessionaire Report by social and environmental expert in project coordination unit Progress reports of consultant supervising works execution Technical and financial annual audit report Critical Assumptions (from Components to 0 ut pu t s) Social climate maintained peaceful after retrenchments Regular maintenance of railway track after completion of works Good management practices of concessionaire Mobilization of resources for counterpart funds and taxes Good quality of works B.2 Social, environmental and institutional support C. Project management US1.3 million US1.2 million Report by social and environmental expert in project coordination unit Production of quarterly and annual progress reports Annual audit report by external auditor

43 Annex 2: Detailed Project Description MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT By Component: Project Component 1 - US$13.47 million Rail component - Social and compensation vlan The component includes : - financing of severance payment: The compensation plan amounts to CFAF 7.9 billion (US$13.2 million) for about 61 8 employees. These expenditures are financed retroactively and disbursements will take place at effectiveness. - technical advisory services in the unit created to provide support to redundant staff: The unit is staffed with manager and one long-term advisor. The unit is expected to tum to existing agencies in Mali for most of the support provided to the redundant staff. The costs of services are estimated at US$115, operating costs of the support unit: They are estimated at US$45,000 during one year including the salaries of administrative staff, office equipment and one car. - training and other measures to facilitate reinsertion of redundant staff Training will be carried out by extemal agencies. It is difficult to estimate the costs of these measures which depend on the demand expressed by the redundant staff. A provision of US$121,000 has been budgeted. - evaluation of impact: A survey will be carried out to evaluate the impact of the social plan on the redundant staff after the first, second and fifth years of project execution. The cost is estimated at US$23,000. Project Component 2 - US$43.33 million Rail comvonent - Suvvort to concession Infrastructure rehabilitation and modernization (US$43.06 million) The component includes: - input materials for rehabilitation works on the railway track: The project will provide inputs (rail, sleepers, ballast) and works will be executed by the concessionaire to rehabilitate the most deteriorated sections of the railway track between Bamako and the Senegalese border. The length of priority sections identified by the public railway company is about 134 kms. - spare parts and rehabilitation of rolling stock; - measures to mitigate the environmental impact of past degradations: The measures are detailed in the environmental and social management plan of the project summarized in Annex 14. Their cost is estimated at US$1.8 million including civil works, equipment training and sensitization. Institutional support (US$0.27 million) The component includes: - Audit of the concession after the third year of effectiveness (US$30,000). - Technical advisory services including training to strengthen the capacity of the committee appointed to monitor implementation of the concession and compliance with the terms of the concession agreement (US$53,000), annual survey on the satisfaction of clients of railway services (US$77,000), full environmental audit of the railway concession (US$53,000), manual of procedures, IEC and training (US$60,000)

44 Project Component 3 - US$ million Road component - Periodic maintenance of road network The component includes: - Periodic maintenance on two sections of two critical roads which are part of the North-South corridor: (a) the 364 km section of the road between Bamako and Sikasso is part of the road linking Bamako, the capital city of Mali, to Abidjan, the port of Cbte divoire through which between 60 percent and 80 percent of import and export goods transit; and (b) 200 km of the most deteriorated sections on the 558 km road between SCvarC and Gao. The cost is estimated at CFAF 10.7 billion (US$17.8 million equivalent) for Bamako-Bougouni financed by IDA and CFAF 11.8 billion (US$19.7 million equivalent) for SCvarC-Gao. Rehabilitation of the Bougouni-Sikasso section is financed by the African Development Bank and the West African Development Bank. - Maintenance of sections of SCvarC-Gao not subject to periodic maintenance (358 km): The cost is estimated at CFAF 4.1 billion (US$6.8 million equivalent). Financing will be sought during a donor meeting in early Technical advisory for works supervision: The cost of these services is estimated at US$2.8 million, seven percent of the costs of the works. - Measures to: (a) improve road safety (US$191,000): equipment for road safety data bank, adaptation of driving course teaching and exam documents to local context and language, second-hand articulated truck for driving courses, study to improve both formal and informal teaching of driving; and (b) to prevent the spread of HIV/AIDS resulting from the presence of civil works contractors in the villages along both roads (US$l 1 1,000). Measures to mitigate the environmental impact and additional measures to improve road safety are included in the civil works contracts (specific measures on the sites during works execution, vertical and horizontal signaling, parking areas in the villages, access to the customs area at the entry of Bamako). The cost of these measures is estimated at CFAF 205 million (US$0.4 million) for protection of the environment and CFAF 458 million (US$0.8 million) for road safety on the Bamako-Bougouni road and CFAF 31 1 million (USS0.6 million) for protection of environment, and CFAF 8 million (US$l5,000) for road safety on the SCvarC-Gao road. Road component - Institutional support The component includes : - Technical advisory services for monitoring of project impact : survey on prices of products along the Bamako-Gao road (US$18,000), measures of vehicle speed on the two roads Bamako-Bougouni and SBvarC-Gao and survey of roads condition (four annual visual surveys and one measure of roughness and deflection at the end of the project - US$39,000). - Technical advisory services, equipment and training to support implementation of the reform of the road maintenance management institutional framework. The cost is estimated at US$0.45 million. - Environmental impact assessment of road maintenance, preparation of an action plan and strengthening of the capacity of the Road Agency to implement mitigation measures: US$107, Annual technical audit of road works during the first, second and third years of the project: US$55, Second phase of rural road studies started under TSP (US$0.36 million)

45 Project Component 4 - US$1.15 million Proiect manapement The component will include: - Project's annual financial audit: US$139,000 - Environmental monitoring: This task is located under project management as it will cover both road and rail component. A local environmental and social expert will be recruited by the project coordination unit. He will be advised by an international expert through short-term missions. The total cost is estimated at US$233, Operating costs of the project coordination unit: They are estimated at US$620,000 during the period of project execution. Investment costs for office equipment, one 4-wheel drive and one regular car is estimated at US$82, Purchase of equipment for the Transport Observatory: Computers and office equipment (US$49,000)

46 Annex 3: Estimated Project Costs MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Project Cost By Component A. Railway component A. 1 Social and compensation plan A.2 Support to the concession B. Road component C. Project Management Total Baseline Cost Physical Contingencies Price Contingencies Local US $million Foreign US $million Total Financing Required I Total US $million Project Costs By Components A. 1 Social and compensation plan A.2 Support to concession B. Road Component C. Project management Total Project Costs Local Foreign Total US$ million US$ million US$ million 1 A. Railwav Comoonent I I I I Project Costs By Category Civil Works 1. Works to mitigate the environmental impact of railway operations prior to the concession (Govemment grant to concessionaire) 2. Works on the SBvare-Gao road (IDA grant to Govemment 3. Works on the Bamako-Bougouni road Goods 1. Railway component i. Inputs for rail rehabilitation (Govemment loan to concessionaire) ii. Equipment to mitigate the environmental impact of railway operations prior to the concession (Govemment grant to concessionaire) 2. &hers (IDA credit to Govemment) Consultants' services (IDA credit to Government) Severance payment (IDA credit to Government) Training, workshops and seminars (IDA credit to Government) Operating costs (IDA credit to Govemment) Unallocated (physical and price contingencies on civil works and equipment) Total Credit 0.45 I Grant 'L Total US$ million I I 3.55 I 0.22 a rr I Identifiable taxes and duties are (US$m) and the total prqiect cost, net of taxes, is (USSm). Therefore, the project cost sharing ratio is 45.13% of total project cost net of taxes

47 Annex 4: Cost Benefit Analysis Summary MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Summary of Benefits and Costs: Road Component Methodolom. The economic analysis was conducted using the Highway Development and Management (HDM-4) Model developed by the World Bank. The model simulates life cycle road conditions and costs and provides economic decision criteria for multiple road design and maintenance altematives, based on a survey of road characteristics, traffic, and agency and user costs. The analysis compares the incremental benefits and the investment costs. Incremental benefits result from the variation in vehicle operating costs and road maintenance costs between the with and without project situations. Without project the road deteriorates without periodic maintenance. Maintenance is limited to routine maintenance and patching of potholes. Periodic maintenance of the road Bamako-Bougouni The results of the economic analysis are summarized in the following table for five technical options described in the section on main assumptions. Solutions observed Urban Interurban section section Solution 1 Solution 2.0 I Solution 2.1 I Solution Solution 2.3 I Solution 2.4 Section A (KP 0 to Carrefour vers SCnou) I 16.6 I NA I NA 1 NA 1 NA I NA 1 Section B (Carrefour vers SCnou to Sanankoroba) NA 55, ,3 56,8 55,3 Section C (Sanankoroba to OuClCssCbougou) Section D (OuClCssCbougou to Bougouni) NA NA 35,l 26,2 31,6 24,5 32,3 25,O 36,3 27,2 31,6 24,5 Net Present Value discounted at 12 percent, CFAF million Section A (KP 0 to Carrefour vers Shou) Section B (Carrefour vers SCnou to Sanankoroba) Section C (Sanankoroba to OuClCssCbougou) Section D (OuClCssCbougou to Bougouni) 340,2 NA NA NA NA 4 213, , ,9 NA 3 217,l 2 333, ,6 NA 4 213, , ,O NA 3 775, , ,7 NA , ,6 Periodic maintenance of the Road SCvarC-Gao With project, the most deteriorated sections of the road are rehabilitated. Preventive maintenance (patching and slurry seal) is executed on the sections in good and fair condition. The Table below provides a summary of the net benefits of the project per section depending on the two technical options chosen as described in the section on main assumptions. The overall Internal Rate of Retum (IRR) for the Project and its Net Present Value (NPV) discounted at 12 percent are estimated respectively at 17.7 percent and FCFA

48 million for option 1 and 15.2 percent and FCFA million for option 2. Option 1 : Without broadening of the road width Net Present Value discounted at 12 percent Economic Rate of (CFAF million) Return Option 2: With broadening of the road width Net Present Value discounted at 12 percent Economic Rate of (CFAF million) Return Total SCvarC-Douentza 5, , , , Douentza-Gossi I -475 I 11.1 I I 10.0 I Gossi-Gao Total ISCvare-Douentza I I 23.2 I 5,137 I 21.4 I Douentza-Gossi ,178 Gossi-Gao Works on the two sections Shark-Douentza and Gossi-Gao have a positive net present value. While the net present value on the Douentza-Gossi section is negative, the reason is specific works along a pond and the need to raise the level of the road which would be otherwise destroyed. For this reason, the economic justification of the works on this section is considered acceptable. The strategy retained for execution under the project is strategy A and the option is option 1 on the SCvar6-Douentza section which has the highest level of traffic and option 2 on the other sections. Option 1 on SCvarC-Douentza is chosen for road safety reasons. Railway component Rehabilitation of the railway track between Dakar and Bamako Benefits (CFAF Million): Costs (CFAF Million): Investment cost in railway with project Investment cost in additional transport units without the project Difference between the two investments: Net benefits discounted at 12%(CFAF Million): /IRR: I Present Value of Flows I Economic Analysis 73,488 61,624 46,304 15, Financial Analysis 1. Cost-benefit analysis was used to assess the economic retum of the concession investment program over the 20-year concession period. The benefits that have been quantified for the economic analysis are essentially better productivity and efficiency of the railway after investments are executed. Without project,

49 diminishing productivity of railway and freight is transferred to more costly road transport. 2. Additional benefits, which have not been quantified are: impact on the economy of turning rail transport from a heavily subsidized activity to a commercially profitable one, relieving the fiscal burden on the national budget; and alleviating road congestion and improving road safety as freight shipment and commercial passenger traffic transfers from road to rail. Another non direct monetary benefits consist in reduce air pollution that comes from the difference of fuel consumption between road and rail transport, in the with and without projects scenarios, time savings for the transport of merchandise in the with project situation. 3. The operating costs of the railway company were taken from the financial projections established to demonstrate the viability of the railway concession. Road vehicle operating costs were derived from recent transport sector studies in Mali. Economic analysis Level of the railway company Level of the country's economy Initial costs Net present value of benefits discounted Economic Rate (CFAF million) at 12 percent (CFAF million) of Return 7, % 6,250 1,162 15% Main Assumptions: Periodic maintenance of the Road Bamako-Bougouni The road was built in 1965 and rehabilitated and upgraded between 1988 and Six bridges were rebuilt in The wearing course is a double layer surface treatment which is reaching the end of its life. Low pluviometry has helped to extend the life period of the wearing course which is usually seven years for the level of traffic supported by the road. The structure of the road is deteriorated mostly on two sections (between KP and and KP and 153.1) as shown by the deflection campaign carried out as part of the engineering design study. The average roughness, measured by the International Roughness Index - IRI, is 3.9 which is good. About 10 percent of the road has a roughness above 5.5 which is moderate. 94 percent of the road presents cracking with 29 percent being large cracking greater than 50 cm. However, this results from the action of the sun and not from structural default. Rutting averages 8 mm and spalling averages 6 cm which remains moderate. The average number of potholes which require patching is 2.6 per km. On average, 2.2 potholes per km have already been repaired in the past. The results of the traffic survey are given in the following table. The survey was carried out during seven days, night and day

50 Senou I Sanankoroba I Ouelessebougou I Bougouni KP 10.5 I KP 23.6 I KP 68.7 I KP I Private cars I 1,352 I 509 I 309 I Minibuseslpick-ups 1,653 Buses axle trucks I 107 I I 3 axle trucks 4 axle trucks 5 axle trucks I 6 axle trucks I 13 I 14 I 12 I 13 I Articulated truck Total Percentage of heavy trucks , % 19% 28% 33% A survey was carried out to measure the axle load of trucks. This survey shows that the percentage of overloaded trucks is important. Between 7 percent and 95 percent of trucks are overloaded based on the axle load regulation in Mali. The highest percentages (above 70 percent) are reached for articulated trucks which are also the heaviest trucks. Traffic growth is estimated at 3 percent near Bamako reflecting the growth of the population in the capital city of Mali. Consumption of gasoline and fuel oil has remained modest in the past. Based on this conclusion, the average traffic growth is estimated at 2.5 percent between Senou and Sanankoroba and 2 percent between Sanankoroba and Bougouni. Section of the Option 2.0 Option 2.1 Option 2.2 road Bamako-Senou 5 cm bituminous 5 cm 5 cm bituminous concrete bituminous concrete concrete Sanankoroba-Oue lessebougou Ouelessebougou- Bougouni Option 2.3 Option cm bituminous 5 cm bituminous concrete concrete I Sanankoroba concrete I laver concrete concrete concrete Senou- 15 cm bituminous triple surface 5 cm bituminous 4 cm bituminous 5 cm bituminous 5 cm bituminous triple surface 15 cm laterite and 4 cm bituminous triple surface concrete layer triple surface layer concrete layer 5 cm bituminous triple surface 15 cm laterite and 4 cm bituminous triple surface concrete layer triple surface layer concrete layer Periodic maintenance of the Road Sevark-Gao A technical survey of the road shows that 65 percent is in fair condition and 31 percent is in poor condition. The proposed maintenance consists in strengthening of the pavement. Two design options were considered, which have the same technical conception but not the same geometry: - Option 1: Preservation of the existing width of the carriageway (6 m) and shoulders (2 x 1.50 m) - Option 2: Widening of the carriageway from 6.00 m to 7.00 m and narrowing of the shoulders from 2 x 1.50 m to 2 x 1.OO m to improve road safety and comply with ECOWAS standards. Normal traffic in 2002, defined as the number of vehicles using the road in its actual condition, is based on the results of the traffic survey carried out during seven days, night and day in 2002 adjusted by seasonal

51 variations. The results are given in the table below: *Heavy vehicles include buses, Light trucks, Heavy trucks and Articulated truck. The traffic history of the road shows a 10 percent average growth rated during the last three years. Based on this past trend, a realistic 8% annual growth rate was adopted during the period of works ( ) and 10 percent until 2012, thereafter the annual growth rate drops to 3 percent in 2013 and stays the same until Rehabilitation of the railway track between Dakar and Bamako 4. With the project :Freight traffic would increase by 10 percent a year and reaches 636,160 tons in 2007, then drop to 5 percent a year until before yielding an annual growth rate of 1 percent for the rest 11 years, by 2023 the freight traffic would double and would be around 949,993 tons. Commercial passenger traffic would grow by an average 34 percent during the first two years and stabilize at about 90,000 passenger-kilometer a year. Concerning investment costs, the elasticity of the rehabilitation of the railway depend very sparsely on traffic variations and It was assumed that the rehabilitation of the south road between Bamako and Dakar will be differed by 3 years. 5. Without the project. It is assumed that the national railway company would discontinue its operations in 2008(i.e. in five years ) by which time, given current trends, the company would be virtually bankrupt. As a result, traffic demand will gradually be diverted to road transport which would become the only transport system in Mali in Rail freight traffic and passenger services would decrease very fast until all railway services close at the end of the fifth year. In this situation the rehabilitation of the south road between Bamako and Dakar will not be differed 6. Results of the Economic Analysis. The net present value at a 12 percent discount rate amounts FCFA francs 58.2 billion. This indicator demonstrates the strong economic viability of the project. Most economic benefits are generated by cotton, and general cargo traffic. Passenger traffic ought to be carried by road modes as the rail mode is economically more expensive. Economic justification of retrenchment plan The first analysis is carried out from the point of view of the public railway company. It is assumed that for the company to reach the targeted level of productivity, it would require to invest in new equipment (computers, telecommunication) and training as demonstrated by the investment plan of the concessionaire, In the absence of such investment in the public railway company, all the benefits from the retrenchment plan would not be achieved. This is translated in the calculation by a reduction of benefits assuming that part of the staff only is actually redundant, as it would be actually required in the absence of investment. The basic scenario assumes conservatively that 73 percent of the redundant staff is actually redundant in the absence of investment. The percentage was established on the basis of an analysis of the structure of the

52 staff in the railway company. Costs are those of the severance packages. Benefits are a reduction in total salaries, including overhead costs (social security, contribution of the employer to the retirement system, etc..) and a reduction of operating expenditures estimated at 30 percent of the salaries of the redundant staff. The second analysis is carried out from the point of view of the economy. Benefits include the savings on cost of staff and the additional production generated by staff who are reemployed in an other job. Costs include the loss of production calculated in the first analysis above assuming that all staff is not actually redundant in the absence of investment, cost of indemnities as they will be borne by the State and not by the railway company, the costs of retirement if the staff is not laid off, costs supported by the economy especially by the close family if the redundant staff does not find a new job, and the cost of the social plan to help redundant staff to find reemployment. Sensitivity analysis / Switching values of critical items: Periodic maintenance of the Road Bamako-Bouaouni A sensitivity analysis was carried out to measure the impact of a reduction of benefits by 20 percent, an increase of investment costs by 20 percent and both reduction of benefits and increase of investment costs. The results of the analysis are summarized in the following table. Option 2.0 NPV IRR Option 2.1 NPV IRR Option 2.2 NPV IRR Option 2.3 NPV IRR Option 2.4 NPV IRR Basic study Benefits - 20% Investment Costs + Benefits - 20 YO 20% Investment Costs + 20% 12,090 9,269 11,687 8, ,263 6,326 7,979 6, ,615 9,118 11,641 8, , ,72 1 8, ,260 7,123 8,975 6,

53 Periodic maintenance of the Road Shark-Gao The results of the analysis are summarized in the following table for the two technical options and the two maintenance strategies: Option 1 : Without broadening of the road width Net Present Value Economic Rate discounted at 12 of Return percent (CFAF million) Option 2 : With broadening of the road width Net Present Value Economic discounted at 12 Rate of Return percent (CFAF million) Basic results 5, , Traffic increased by 10 percent, investment and maintenance costs decreased by 10 percent 8, , Traffic decreased by 10 percent, investment and maintenance costs increased by 10 percent 1, Strategy B : Periodic Maintenance of sections in good and fair condition is carried out in 2004 Basic results Traffic increased by 10 percent, investment and maintenance costs decreased by 10 percent Traffic decreased by 10 Dercent. investment and 5,793 8, ,448 8, mainten'ance costs increased by 10 percent Rehabilitation of the railway track between Dakar and Bamako 7. Three sensitivity analysis were conducted by switching values of the following factors: Traf$c :An empirical test shows that the base line traffic has to drop by more than 27 percent for the NPV at a 12 percent discount rate to fall to zero. The closing date of the railway: Differing this date by three years in the without project situation shows that the net present value of the project at a 12% discount rate is still positive and is around FCFA 49.2 billion.(i.e. about ten billion less than without this assumption). Exchange rate: Given the weight of imported materials for the investments and the operating costs, a 25 percent devaluation happening in 2007 was tested. By this date the main investments in the with project situation for the railway should be completed whereas investment for the renewal of the vehicle fleet in the without project situation will continue beyond the 2007 date. The net present value at 12 percent discount rate for this situation is (FCFA 65.1 billion)

54 Economic justification of retrenchment plan The sensitivities assume an increase in the compensation plan from a maximum of 60 months for negotiated indemnities to a maximum of 75 months or a decrease of the compensation plan to a maximum of 52.5 months. The results of the economic analysis using these sensitivities are provided in the following table. Basic scenario Compensation plan Compensation plan up to 75 months down to 52.5 months Net Present Value of benefits discounted at 10% (CFAF million) Economic Rate o f Return ,719 13% 7% 17% Net Present Value of benefits 1, discounted at 10% (CFAF million) Economic Rate of Return 15% 9%

55 Annex 5: Financial Summary MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT r Years Ending IMPLEMENTATION PERIOD I Year1 I year2 I year3 j year4 I Year5 I Year6 I Year 7 Total Financing Required Project Costs Investment Costs Recurrent Costs Total Project Costs Total Financing Fin an c i n g IBRDllDA o Government Central Provincial Co-financiers User FeeslBeneficiaries Transrail Total Project Financing Main assumptions:

56 Financial Summary for Revenue Earning Project Entities Year Average I Forecast Annual IForecast /Forecast IForecast IForecast IForecast \ Growth Income Statement Items (000 s) Revenues I I I I I I I 5.5 Working Capital Net Fixed & Other Long I I I I I I I Term Assets Revenue Net Income as a % of Revenue I 19.9 I I I 21.4 I Return on Average Invested Debt Service Coverage I 4.29 I I I 7.24 I 0.91 I Main assumptions: These financial data are based on a forecast provided by the Concessionaire in December Since the Concessionaire has yet to finalize its business plan and its investment financing plan, changes to the numbers presented above are possible

57 The concession traffic forecast by commodity is summarized in the following table. Table : Railway traffic forecasts (000 tons) 2004 International 592 Containers 110 Cotton 80 Attapulgite 107 Fertilizers 45 Cereals 40 Fuel Products 56 Others 154 Vational Total I 49 I I 731 I

58 Annex 6(A): Procurement Arrangements MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Procurement 1. Assessment ofnutional Procurement Code. The Malian Procurement Code, revised in 1999 with IDA assistance, is generally sound. No special exemption, permit or license needs to be specified in credit documents for Intemational Competitive Bidding (ICB) as Mali allows Bank procedures to take precedence over any contrary local regulation or practice. A CPAR prepared in 1998, has pointed out the main issues such as lack of capacity among the staff of the borrower, absence of standard bidding document at the national level, insufficient capacity of domestic contractors to face larger contracts subject to ICB, and corruption practice. Recommendations were provided to address these diverse issues. In addition an IDF Grant was offered in order to strengthen the capacity of the Borrower in procurement, to modemize the procurement process, and to improve the regulation. Some improvement needs still to be done. However, the designated agencies for the execution of the Transport Corridors Improvement Project are among the best performers in procurement in Mali. A CPAR update is being carried out: the recommendations and action plan will be taken into account during the execution of the project. 2. Guidelines. With the exception in the second alinea of the present paragraph, all works and goods financed under the credit will be procured in accordance with the Guidelines for Procurement under IBRD Loans and IDA credits, January 1995 and as revised in January and August 1996, September 1997 and January Consultants will be selected in accordance with the Guidelines for Selection and Employment of Consultants by World Bank Borrowers, January 1997 and as revised in September 1997, January 1999 and May The Bank's standard bidding documents for goods and civil works will be used. For consulting services, the Bank's standard documents for requesting proposals and for contracts will be used. National Competitive Bidding advertised locally (NCB) will be carried out in accordance with procedures acceptable to IDA which allow that: (a) any bidders are given sufficient time to submit bids (four weeks for contracts exceeding US$50,000 equivalent); (b) bid evaluation and bidder qualification are clearly specified; (c) no preference margin is granted to domestic contractors or manufacturers; (d) eligible foreign firms are not precluded from participation; (e) contracts provide for security in amounts sufficient to protect the Borrower in case of breach of contract (without distinction or exception); (f) prior to issuing the first call for bids, draft standard bidding documents are submitted to IDA and found acceptable; and (g) award will be made to the lowest evaluated bidder. The railway concessionaire will be free to procure the goods purchased for track rehabilitation from eligible sources, using its own procedures. The concessionaire was selected under ICB procedures acceptable to the Bank. The Bank reviewed all bidding documents and the proposed award. Other civil works, goods and services supplied under the grant provided by the Government of Mali to the concessionaire to mitigate past environmental impacts of railway activities before the concession became effective, will be procured in accordance with the procedures described in the first alinea of the present paragraph. Table A summarizes the project elements, their estimated costs and the proposed methods of procurement. 3. Advertising. A General Procurement Notice (GPN) is mandatory and will be published in the UN

59 Development Business and in a newspaper with national circulation as provided under the Guidelines. The GPN will list all goods and works contracts to be procured through ICB (i.e. with an estimated cost of the equivalent of US$ 500,000 or more for works, and US$ 250,000 or more for goods) and large contracts for consultants services (i.e. with an estimated cost the equivalent of US$ 100,000 or more). It will be updated annually and the update will show all outstanding ICB and all large consulting services as described above. Specific Procurement Notices (SPN) will be required for contracts to be procured under ICB and NCB procedures, in accordance with the Guidelines. A request for expression of interest will be required for each consultant contract estimated to costs US$200,000 or more prior to the preparation of the short-list, in accordance with the Guidelines. The GPN, specific notices for the road works and the request for expression of interest to select the consultants for the supervision of the road works was drafted at appraisal. 4. Civil Works. Periodic maintenance of roads and rehabilitation of the railway track, will result in large contracts and are likely to attract foreign bidders. The contracts will be tendered through ICB procedures, for an estimated total value of US$37.6 million. Contracts which cost less than US$500,000 equivalent per contract may be procured under NCB procedures. Eligible domestic contractors bidding for works would receive a 7.5 percent preference margin in bid evaluation, in accordance with the Guidelines. Contracts which cost less than US$50,000 equivalent per contract and are procured by the railway concessionaire for environmental works may be procured under lump sum, fixed price contracts awarded on the basis of quotations obtained from three qualified domestic contractors in response to a written invitation. 5. Goods. Depending on the decision of the concessionaire,, the project may finance supply of rails, turnouts, fasteners, sleepers and ballast instead of civil works for rail rehabilitation. Bid packages estimated to cost US$250,000 or more will be tendered through ICB. Eligible domestic contractors bidding for goods under ICB would receive a maximum of 15 percent preference margin in bid evaluation, in accordance with the Guidelines. Contracts for office equipment, materials available locally and vehicles which cost less than US$250,000 equivalent may be procured under NCB procedures. Small quantities of goods such as office supplies, consumable materials and spare parts, which are normally available off-the shelf at competitive prices and which cannot be grouped into packages of at least US$50,000, will be procured through prudent local or international shopping, based on price quotation obtained from at least three reliable suppliers. Office equipment to cost less than US$50,000 equivalent or less per contract and vehicles may be procured from IAPSO. 6. Consulting services. Consulting services financed by IDA, totaling US$3.3 million, will be for : (a) feasibility and engineering studies, preparation of bidding documents, supervision of works, setting up accounting management system, financial management support and canying out of financial and technical audits; (b) technical advisory services for capacity building and support to reforms implementation; (c) technical advisory services in the unit created to support redundant staff in the railway company; and (d) monitoring implementation and impact of the project. Consultants will be selected through competition among qualified short-listed firms through a "Quality and Cost Based Selection (QCBS)" process that takes into account the quality of the proposal and the cost of the services, with a relative weight given to both criteria depending on the nature of the assignment. For financial audits and services, works supervision, concerning small contracts if any, and other services of a standard nature, the "Least Cost (LC)" selection process will be used, the fm with the lowest price being selected provided that its technical proposal receives the minimum qualifying score. Services valued under US$lOO,OOO per contract which do not require firms may be procured using individual consultants. Services for : (a) research activities and activities requiring specialized expertise; and (b) training of redundant railway staff, estimated to cost less than US$50,000 per contract may be procured under selection based on consultants' qualifications

60 Consultant will be selected through comparison of at least three curriculum vitae among those expressing an interest in the assignment or approached directly in accordance with the Guidelines, and judged against their qualification and experience. Single Source selection will be used in exceptional cases in accordance with the Guidelines. 7. Review by IDA. Prior review will be required for all contracts for civil works for US$500,000 equivalent or more and all contracts for goods for US$250,000 equivalent. Prior review will be required for the following contracts procured by the railway concessionaire : (a) the first three contracts procured under NCB; (b) the first three contracts procured under national shopping; (c) the first three contracts for small works; and (d) any amendment to a contract raising its value above the equivalent of US$250,000 for goods and US$500,000 for works. All contracts with consulting firms equal or exceeding the equivalent of US$lOO,OOO will be subject to a prior review. Prior review will be required for all contracts with individual consultants above US$50,000 or equivalent (no individual contract is expected to exceed US$lOO,OOO). The exception to prior review for consultant contracts does not apply to terms of reference for such contracts, single-source hiring, assignments of critical nature as determined by IDA and to amendments to contracts raising their value above the US$lOO,OOO equivalent threshold for firms and US$50,000 equivalent threshold for individual consultants. Prior review would cover about (to be completed) percent of the total value of contracts financed by the IDA. Documentation for contracts not subject to prior review will be maintained for ex-post reviews by auditors and IDA supervisory staff, For all civil works contracts for which there are less than three bidders and for any decision not to select the lowest evaluated bidder, IDA'S approval is required prior to notifying the winning bidder. 8. Procurement readiness and procurement arrangements. All bidding documents for the road works will be ready before credit effectiveness. They are being prepared by the consultants who carried out the feasibility and detailed engineering studies. The General Procurement Notice, Specific Procurement Notices for road works, and a request for expression of interest for road works supervision was prepared during appraisal mission. Arrangements for the preparation of bidding documents for railway works were discussed with the concessionaire during appraisal. The procurement plan was updated during the appraisal mission. It describes all steps required during the procurement procedure as well as provides a monitoring tool to identify emerging delays and provide the basis for action

61 Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Figures in parentheses are the amounts to be financed by the Bank CreditiGrant. All costs include contingencies. 2 Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local govemment units

62 Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent) Consultant Services Expenditure Category A. Firms B. Individuals Total Selection Method QCBS QBS SFB LCS CQ Other N.B.F. Total cos< (2.83) (0.00) (0.00) (0.10) (0.00) (0.10) (0.00) (3.03) (0.00) (0.00) (0.00) (0.00) (0.00) (0.40) (0.00) (0.40) (2.83) (0.00) (0.00) (0.10) (0.00) (0.50) (0.00) (3.43)

63 Prior review thresholds (Table B) Expenditure Category 1. Works Contract Value Contracts Subject to Thresh o Id Procurement Prior Review (US$ thousands) Method (US$ millions) 500 ICB t 2. Goods 250 ICB Services Consulting firms (full review) Consulting firms (quick review) Individual consultants 100 QCBS 3.51 LC 50 Other 0.65 Total value of contracts subject to prior review: Overall Procurement Risk Assessment: Frequency of procurement supervision missions proposed: US$43.5 million Average One every 6 months (includes special procurement supervision for post-reviewiaudits) Expertise required Preparation of bidding documents, requests for proposals, bid/proposal evaluation Procurement filing Contract management Level of expertise of staff Good Poor Good Poor Action Review of procurement documents by World Bank staff as part regular procurement supervision Training requested before involvement in procurement process A filing plan will be defined during appraisal and included in the Manual of Procedures Filing will be reviewed during procurement supervision missions Production of monthly inanagemen reports requested Staff cannot be responsible for contract management i ' Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance

64 Annex 6(B): Financial Management and Disbursement Arrangements MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Financial Manavement 1. Summary of the Financial Management Assessment Implementing Entity The Project Coordination Unit (PCU) will be the continuation of the unit created to coordinate the on-going Transport Sector Project (Projet Sectoriel des Transports - PST). The PCU will thus benefit from PST experience in term of managing IDA funds. It will be in charge of all aspects of financial management of the project. The main recommendations below relative to the Financial staff, to the information system organization, and to the audits should be implemented before the effectiveness of the project. Staffing PCU will appoint a Financial Management Specialist (FMS) with academic and professional qualification acceptable to the Bank. Reporting to the Project Coordinator, FMS should be capable of directing and guiding the financial management operations of the Project. S/he will be supported by an accounting assistant. Appropriate training will be given to FM staff in the following areas: (a) financial management, including internal controls, information systems and computer applications; (b) procedures relating to use of funds e.g. IDA (Special Accounts, SOEs, Special Commitments, Procurement, FMR etc.) and Government regulations; and (c) performance measurement. On-the-job coaching will also be provided. Risk analysis The overall conclusion of the Mali Country Financial Accountability Assessment (CFAA) carried out in 2002 and completed in 2003 is that the public finance management system is fairly coherent with relatively strong budget procedures implemented within a clear institutional setting with improving and strengthened control measures. It goes on to add that This reality should not hide malfunctions for which appropriate dispositions should be taken. In essence, the CFAA shows that significant progress has been made in the areas of financial management. The country s own control systems are operating more efficiently despite a few weaknesses in the supervision of projects. Consequently various measures to mitigate these risks have been agreed and thus the project risk from a financial management perspective is considered as moderate provided the risk mitigating measures are properly addressed. Therefore financial management arrangements for PCU are designed to ensure that funds are used for the purpose intended, and timely information is produced for project management and government oversight, and facilitate the compliance with IDA fiduciary requirements

65 Weaknesses and how they will be addressed are listed below. Significant Weaknesseshtisks TPCU established under the TSP project without its own finance department, financial management responsibilities being shared between the Ministry of Equipment and Transport's administrative and accounting department and technical assistance from a loca: accounting firm TPCU does not have qualified FMS and accounting assistant Existing coordination unit of the Transport Sector Project does not have Financial Management Systems ~ The association CARCHEM, which will providi support to the redundant staff of the railway company, has no experience in IDA fiduciary tlrocedures. External Auditors have not been appointed AvailabilityDelay in provision of Counterpart hds Resolution. Set up Finance Department in TPCU. Appoint professionally qualified and experienced FM Specialist and accounting assistant on clearly defined Terms of Reference (TOR) that are acceptable to IDA.. Retain a FM Consultant to install a computerized FMS in PCU and train staff. * FM Consultant to design the FM arrangements and prepare a detailed Financial Administrative Procedures Manual (FAPM) for PCU. * Establish CARCHEM, commence its operations and train its financial management staff.. Appoint relevantly qualified, experienced and independent external auditors will be appointed by PCU on TORS acceptable to the IDA.. Open project account and release the deposit Information Systems A computerized FM System will be implemented to manage the project resources. A Financial Management Consultant (FMC) will be appointed to design and install the system in PCU. Terms of reference are in the project files. She will also train financial staff on the use of the system. A Financial and Administrative Procedures Manual (FAPM) will be developed by the FMC. Financial Reporting and Monitoring Monthly, quarterly and annual reports will be prepared by PCU and hmished to IDA for the purpose of monitoring project implementation. Monthly: (i) A Bank Reconciliation of Cash position, (iii) Statement of expenditures, (iv) Statement of Sources and Uses of funds; Quarterly: (i) Financial Reports, (ii) Physical Progress Reports, (iii) Procurement Reports, (iv) SOE withdrawal schedule, (v) Special account statement and reconciliation; Annually: Annual project financial statements consisting of the following: (i) A Statement of Sources and Uses of funds (by Credit Categoryhy Activity showing IDA and Counterpart Funds separately); (ii) A Statement of Cash Position for Project Funds from all sources; (iii) Statements reconciling the balances on the various bank accounts (including IDA Special Account) to the bank balances shown on the Consolidated Statement of Sources and Uses of funds; (iv) SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount; (v) Notes to the Financial Statements. Indicative

66 formats for the reports are outlined in two Bank publications: (a) quarterly FMRs in the FMR Guidelines, and (b) monthly and annual reports in the Financial Accounting, Reporting and Auditing Handbook (FARAH). Accounting Policies and Procedures Project accounts will be maintained on an accurate basis, augmented with appropriate records and procedures to track commitments and to safeguard assets. Accounting records will be maintained in dual currencies (Le. CFA and SDR). The Chart of Accounts will facilitate the preparation of relevant monthly, quarterly and annual financial statements, including information on the following: 0 Total project expenditures; 0 Total financial contribution from each financier; Total expenditure for each project component'activity; and. 0 Analysis of total expenditures for civil works, goods, training, consultants and other procurement and disbursement categories. Annual financial statements will be prepared in accordance with International Accounting Standards (IASs). All accounting and control procedures will be documented in the FAPM, a living document that will be regularly updated by the FMS. 2. Audit Arrangements a. Audit of PCU The IDA Agreement will require the submission of Audited Project Financial Statements for PCU to IDA within six months after year-end. Relevant qualified external auditors will be appointed by PCU on TORS acceptable to IDA. A single opinion on the Audited Project Financial Statements in compliance with International Standards on Auditing (ISAs), will be required including the accuracy and the propriety of expenditures made under the SOE procedures and the extent to which these can be relied upon as a basis for credit disbursements. In addition to the audit reports, the external auditors will be expected to prepare a Management Letter giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the IDA agreement. b. Other external audits For the project, the annual audit reports of the railway company (concessionaire) and the Road Agency after its creation will also be required and transmitted to the World Bank in the same terms and conditions as of project audit. 3. Disbursement Arrangements The overall project funding will consist of IDA Credit and Counterpart Funds. The following accounts will be maintained by PCU: (i) Special Account A in FCFA which will be managed by PCU and used to make payments to suppliers in the respective contract currencies for the credit portion of the IDA financing, including CARCHEM based on monthly invoices according to terms of a formal contractual agreement; (ii) Special Account B in FCFA which will be managed by PCU and used to make payments to suppliers in the respective contract currencies for the grant portion of the IDA financing; (iii) Special Account in FCFA which will be managed by the railway concessionaire and used for payments to suppliers in the respective contract currencies; and

67 (iv) A Project deposited. Account in FCFA with a commercial bank into which Counterpart Funds will be Interest income received on the Special Accounts will be deposited to the respective project account or any other account of the borrower. Additionally, PCU will maintain an IDA Ledger Loan Account (Washington) in FCFNSDR to keep track of drawdowns from IDA credit. The account will show (a) deposits made into the Special Accounts by IDA, (b) direct payments, reimbursements or special commitments issued by IDA, and (c) opening and closing balances. Advances will be made to PCU when the conditions for credit effectiveness are met. All bank accounts will be reconciled with bank statements on a monthly basis by the Finance Department. Detailed banking arrangements, including control procedures over all bank transactions (e.g. cheque signatories, transfers, etc.) will be documented in the FAPM. Method Of Disbursement By effectiveness, the Project will not be ready for report-based disbursements. Thus, at the initial stage, the transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook) will be followed, i.e. direct payment, reimbursements, special commitments and replenishments of the Special Account. When project implementation begins, the quarterly Financial Monitoring Reports (FMRs) produced by the project will be reviewed. Where the reports are adequate and produced on a timely basis, and the borrower requests conversion to report-based disbursements, a review will be undertaken by the Financial Management Specialist in the World Bank team to determine if the project is eligible. The adoption of report-based disbursements by the project will enable it to move away from time-consuming voucher-by-voucher (transaction - based) disbursement methods to quarterly disbursements to the Project s Special Account, based on FMRs. Detailed disbursement procedures will be documented in the FAPM

68 Allocation of creditlgrant proceeds (Table C) Table C : Allocation of Credit/Grant Proceeds Expenditure Category 1. Civil Works a. Part B.2. Works to mitigate the environmental and social impacts of railway operations prior to the concession b. Part C. 1 (b). Works on the SevarC-Gao road c. Part C.1 (a). Works on the B amako-b ougouni 2. Goods Credit Grant Financing (US% million) (US$ million) percentage 76 percent % of foreign expenditures and 80% of local i. Part B. 1 Inputs for railway 3.45 rehabilitation ii. Part B.2. Equipment to mitigate the 0.13 environmental impacts of railway operations prior to the concession b. Part C. Other Consultants' services, audits 4. Training, seminars and workshops 5. Severance pay under Part A % % % of 6. Operating costs %.. - on civil works and equipment) Total Project Costs with Bank Financing ITotal Proiect Costs I I I I Use of statements of expenditures (SOEs): Disbursements for all expenditures will be made against full documentation, except for items claimed under the Statement of Expenditures (SOE) procedure. SOEs will be used for payments claimed under contracts for: (a) works in an amount inferior to US$500,000, (b) goods in an amount inferior to US$l50,000; (c) consulting firms in an amount inferior to US$lOO,OOO; (d) individual consultants in an amount inferior to US$50,000. SOEs will likewise be utilized for all small equipment, office supplies and training. Documentation supporting all expenditures claimed against SOEs will be retained by PCU, and will be made available for review when requested by IDA periodic supervision missions and project external auditors All disbursements are subject to the conditions of the Development Credit Agreement and the procedures defined in the Disbursement Letter

69 Special account: To facilitate project implementation and reduce the volume of withdrawal applications, three Special Accounts in local currency (FCFA) will be opened by PCU and the railway concessionaire, respectively in a commercial bank on terms and conditions acceptable to IDA. The authorized allocations would be FCFA 1.3 billion for the PCU, and FCFA 450 million for the Concessionaire under the Credit. An authorized allocation of FCFA 1.2 billion will be made available to the PCU under the Grant. The respective allocations will cover about four months of eligible expenditures. PCU and the railway concessionaire will be responsible for submitting monthly replenishment applications with appropriate supporting documents for expenditures. To the extent possible, all of IDA S share of expenditures should be paid through the special accounts. The Special Accounts will be replenished through the submission of Withdrawal Applications on a monthly basis and will include reconciled bank statements and other documents as required until such time as the borrower may choose to convert to report-based disbursement. In lieu of Special Account, the borrower may also choose to pre-finance project expenditure and seek reimbursement from IDA. Upon credit effectiveness, IDA will deposit the amount of FCFA 650,000 into Special Account A, FCFA 225,000 into Special Account B and FCFA 600,000 into the Special Account C managed by Transrail, representing fifty percent of the authorized allocations. The Special Accounts will be used for all payments inferior to twenty percent of the authorized allocation and replenishment applications will be submitted monthly. Further deposits by IDA into the Special Accounts will be made against withdrawal applications supported by appropriate documents. Counterpart funds and taxes The concessionaire will be responsible for financing the counterpart funds including taxes due on the contracts for which it is responsible under the rail component of the project. The tax and customs regime is defined in a specific convention signed by the Governments of Mali and Senegal. The Borrower will finance counterpart funds including taxes due for other expenditures

70 Annex 7: Project Processing Schedule MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Project Schedule Planned Time taken to prepare the project (months) First Bank mission (identification) Appraisal mission departure 01/05/2004 'Negotiations 01/23/ Planned Date of Effectiveness Actual 16 06/06/ /23/ /28/2004 Prepared by: Ministry of Equipment and Transport Delegate Ministry at the Ministry of Equipment and Transport, in charge of Transport TRANSRAIL, concessionaire of railway operations between Dakar and Bamako Preparation assistance: Transport Sector Project (Cr MLI) Bank staff who worked on the project included: Name Jean-Noel Guillossou Yvette Laure Djachechi Abdelghani Inal John Buursink Cheick Traore Karim-Jacques Budin Nestor Coffi Zakariae Cherkaoui Hang Sundstrom Hans Wabnitz Wolfgang Chadab Mahine Diop Renee Desclaux Meriem Tamarzizt Luisa Velardi Mohi Uz Zaman Quazi Jocelyne Do Sacramento Sameena Dost Evan O'Halloran Speciality Sr. Transport Economist, Task Team Leader Social Development Specialist Highway Engineer, Consultant Environmental Specialist, Consultant Procurement Specialist Railway Specialist, Consultant Financial Management Specialist Intern Program Assistant Sr. Counsel Finance Officer Urban Development Specialist Finance Officer Intern Sr. Transport Specialist, Peer Reviewer Sr. Transport Engineer, Peer Reviewer HIVIAIDS and transport Counsel Operations Officer

71 Annex 8: Documents in the Project File* MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT A. Project Implementation Plan Procurement plan B. Bank Staff Assessments Financial management specialist assessment Procurement specialist assessment C. Other Feasibility study and detailed engineering design of periodic maintenance works on the road Bamako-Bougouni (final, February 2003) Environmental impact study of periodic maintenance works on the road Bamako-Bougouni (final report, February 2003) Road safety audit of the road Bamako-Bougouni (final report, April 2003) Feasibility study and detailed engineering design of periodic maintenance works on the road SCvarC-Gao (final report, August 2003) Environmental impact study of periodic maintenance works on the road SCvarC-Gao (final report, September 2003) Road safety audit of the road SCvarC-Gao (final report, October 2003) Environmental and social impact study of rehabilitation works on the Dakar-Bamako railway (final, October 2003) Study of the social impact of the privatization of the railway company and action plan (final, November 2001) Definition of modalities for the creation and operation of the support unit to redundant staff of the railway company (final, June 2002) Economic analysis of the social and compensation plan for the railway company (March 2003) Economic analysis of the investment plan of the railway company (final, April 2003) Survey of prices of cereals and hits along the Bamako-Gao road (final report, April 2003) Survey of vehicle speed on the roads Bamako-Bougouni and SCvarC-Gao (June 2003) Environmental audit of the railway concession (final report, January 2004) Investment program and business plan of the railway concessionaire (January 2004) Environmental and social management plan (final report, January 2004) Social and compensation management plan (final, July 2003) Resettlement policy framework (final report, January 2004) Study for the restructuring of the National Public Works Department (final, July 2001) Study for the creation of the Road Agency (final, September 2002) *Including electronic files

72 Annex 9: Statement of Loans and Credits MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT 03-Feb-2004 Difference between expected and actual Oriainal Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd PO ML SAC Ill-Supplemental PO ML Household Energy & Universal Access PO Ma1i:AGRICULTURAL & PRODUCER ORGAN PO Educ. Sect. Exp. Program PO RURAL INFRASTRUCTURE PO FINANCE SECTOR DEVEL PO Health Sector Dev. Prog PO ML REGIONAL POWER PO URBAN DEVT & DECENTR PO MALI TRANSPORT SECTOR Total: MALI STATEMENT OF IFC's Held and Disbursed Portfolio June In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 0 PAL-Rabelais PAL-SAW SEF 3T SEMOS AEF GGG I Hotel Bamako PAL-Graphique Id Total Portfolio: Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total Pending Commitment:

73 Annex 10: Country at a Glance MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT POVERTY and SOCIAL 2002 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNi (Atlas method, US$ billions) Mali Sub- Saharan Africa Lowincome 2, ,072 Jeveiopment diamond' Life expectancy Average annual growth, Population (%) Labor force I%) Most recent estimate (latest year available, ) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) infant mortality (per 1,000 live births) Child malnutrition (% ofchildren under 51 Access to an improved water source I% ofpopulation) illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population) Male Female >NI Gross )er primary :apita nroliment I - Access to improved water source Mali Low-income group KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (US$ billions) Gross domestic investmentlgdp Exports of goods and services/gdp Gross domestic savingsigdp Gross national savings/gdp Economic ratios. Trade T Current account balance/gdp interest payments/gdp Total debvgdp Total debt service/exports Present value of debt/gdp Present value of debtlexports Indebted ness (average annual growth) GDP GDP per capita Mali Low-income group STRUCTURE of the ECONOMY (% of GDP) Agriculture Industry Manufacturing Services Private consumption General government consumption imports of goods and services o01 2o02 (average annual growth) Agriculture Industry Manufacturing " Services " Private consumption General government consumption Gross domestic investment imports of goods and services Growth of exports and imports (Oh) i: Exporls -O'lmporls

74 IBRD Mali PRICES and GOVERNMENT FINANCE Domestic prices (% change) Consumer prices Implicit GDP deflator Inflation (Oh) Government finance (% of GDP. includes current grants) Current revenue Current budget balance Overall surplus/deficit GDPdeflator d'cpi I TRADE (US$ mililonsj Total exports (fob) Cotton Goid Manufactures Total imports (cifl Food Fuel and energy Capital goods Export and Import levels (US$ mill.) I Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100j BALANCE of PAYMENTS (US$ millions) Exports of goods and services Imports of goods and services Resource balance , , Current account balance to GDP ( Oh) 1 Net income Net current transfers Current account balance Financing items (net) Changes in net reserves Memo: Reserves including gold (US$ millions) Conversion rate (DEC. iocal/us$) EXTERNAL DEBT and RESOURCE FLOWS (US$ millions) Total debt outstanding and disbursed IBRD IDA , , , ,131 I Composition of 2002 debt (US$ mill.) I G: 151 Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct Investment Porffolio equity World Bank program Commitments Disbursements Principai repayments Net flows Interest payments Net transfers A ~ E. Bilateral B. IDA D.Other multilateral F - Private C - IMF G - Short-tern

75 Additional Annex I I : Letter of Transport Sector Policy MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT LETTER OF TRANSPORT SECTOR POLICY UNDER THE TRANSPORTATION CORRIDOR IMPROVEMENT PROJECT (ROAD, RAIL AND AIRPORT SUBSECTORS) FOR THE PERIOD OF I. BACKGROUND Since 1995, the Government of Mali has undertaken in collaboration with financial partners, to implement the Transport Sector Project (TSP). The main objectives of this project are to: (a) strengthen management capacities and improve sector performance by reorganizing the sector and developing local expertise; (b) restructure transport public enterprises; (c) revise the current administrative and regulatory framework so as to promote private sector participation in the provision of services and execution of works; (d) rehabilitate and maintain a priority network of transport infrastructure; and (e) improve the efficiency of transport operations and reduce transport costs. The TSP closing date is set for December 3 1,2004. Beyond this date, there will remain a substantial portfolio of road maintenance projects already funded by development partners to be implemented or completed. In addition, there is still a major need for funding to improve the condition of transport infrastructure, which calls for urgent attention, particularly in the case of the SCvarO-Gao and Bamako-Bougouni roads and certain sections of the Bamako-Diboli railway. The Government of Mali, with support from financial partners, has begun preparation of a project called the Transportation Corridor Improvement Project (Projet d 'Am6nagement des Corridors de Transport: PACT), planned for a four-year period ( ), in order to address these concerns pending preparation and implementation of the second Transport Sector Project. The Transportation Corridor Improvement Project has the following objectives: a) improve the efficiency and sustainability of rail transport, specifically by rehabilitating railway infrastructure and by implementing the investment program; b) reduce Mali's internal and external isolation, specifically :(i) through periodic maintenance of two main roads (Bamako-Bougouni-Sikasso and Shark-Gao); (ii) pavement of missing links to the ports of Nouakchott and Dakar (Diditni-DiCma, DiOma-Nioro); (iii) pavement of the roads Kati-Kita and Gao-Ansongo-Niger border; c) implement or complete the periodic maintenance works already funded by financial partners; d) complete the restructuring of public enterprises in the transport sector (RCFM and ADM) and implement social plans. These objectives are consistent with the third main theme of the Poverty Reduction Strategy Framework, which is to develop infrastructure and support productive activities

76 11. OVERVIEW OF THE TRANSPORT SECTOR In a landlocked country as large as Mali with a surface of 1,240,138 km2, the transport sector plays a critical role in reducing internal and extemal isolation. The Malian economy depends largely on imports and therefore on the efficient hctioning of its international transport systems for the procurement of numerous strategic commodities (notably hydrocarbons) and consumer and capital goods (building materials, agricultural inputs). Efficient functioning of the international transport systems is imperative also to enable Mali s exports-particularly cotton fiber, its leading export-to compete on the international market. Domestic transport is of particular importance given the immensity of the territory and the geographical disparity of activities. Transport accounts for percent of the cost of most essential products. The competitiveness of Mali s economy depends in large part on the operational efficiency of its transport system. To improve the transport sector operational efficiency, the Government of Mali adopted in 1993, a Statement of General Transport Sector Policy that includes both a strategy statement and an action plan to implement within the framework of the Transport Sector Project (TSP). The sectoral approach implemented under the TSP, which ties sector reforms to coordinated investments, has resulted in greater consistency within the sector and greater efficiency in the use of limited resources. Implementation of the Transport Sector Project has indeed led to a substantial improvement in the management capacities of the sector s central authorities. The central authorities have been computerized and supplied with planning and decision-making tools. At the National Directorate of Roads, a data bank called the Road Data Unit has been established, which has contributed in developing rationalized annual road maintenance programs. At the National Directorate of Transportation, computerization has served to reduce the time frame for processing transport documents and has made their storage more secured. In addition, a Transport Observatory has been set in place which, since 1995, has produced each year an annual compendium of transport statistics. This document is an important informational tool for both government decision-makers and private operators. The Highway Code has also been reviewed to improve road safety. 2.1 Road subsector The reforms implemented under the TSP have proven to be insufficient to reach the strategic objective of increasing the sector s operational efficiency in the medium term by developing a sound basis for competition between modes of transport and between enterprises. The subsector is penalized by its low profitability which results from overcapacity, overload of trucks and decrepitude of the vehicle fleet which is unable to meet the country s supply needs. To a large extent, transport remains the province of artisans. There is a need to modernize the management of transport enterprises and to better organize the profession in order to facilitate eligibility for credit from financial institutions and fleet renewal. 2.2 Rural tranmort strategy In view of the major constraints generated by the difficulties of transport in rural areas, where some

77 percent of the country s population lives, and in view of the government s commitment to poverty reduction, a study to develop a rural transport strategy is now underway as part of the National Rural Infrastructure Program (Programme National d Infrastructures Rurales: PNIR). This study will focus primarily on the following issues: Improve and sustain the condition of rural infrastructure; identify ways to improve the mobility of populations in rural areas. 2.3 Road maintenance Since 1995, major efforts by the government and financial partners have produced a substantial improvement in the condition of the road network as a result of routine and periodic maintenance. This situation, combined with the difficulties faced by RCFM, has diverted approximately 70 percent of freight traffic to the road network. As a result of the reforms undertaken to date: (i) the National Directorate of Roads has refocused its attention on issues of project implementation (planning) and project execution (managing the execution of work programs); (ii) road maintenance activities are executed by contractors; and (iii) a system has been set in place for funding road maintenance (Highway Authority). However, efforts to promote local public works enterprises have been substantially impeded by the failure of the Public Works Equipment Leasing Company (Socikti de Location de Matkriel des Travaux Publics: SLMTP). 2.4 Rail subsector Rehabilitation efforts generated a brief recovery of the Malian Public Railway Company (Rkgie du Chemin de Fer du Mali: RCFM), which then quickly deteriorated under the weight of major funding needs for infrastructure and rolling stock. The Governments of Mali and Senegal have brought to completion the process of concessioning railway operations, initiated in The concession was awarded to the CANAC-GETMA Group. The concessionaire created for this purpose, called TRANSRAIL, began its operations on October 1, TRANSRAIL is responsible for the technical and business operation of rail transport services for both freight and passengers, as well as for maintaining, operating, renewing and improving rail infrastructure and managing the rail property covered by the concession. Rail infrastructure (including all works performed by the concessionaire) will however remain the property of the state in whose territory it is located. 51 percent of the concessionaire s capital is held by a private shareholder, set up in the form of a corporation (the reference shareholder of TRANSRAIL). The concessionaire s other shareholders are: (a) the Governments of Mali and Senegal, which each hold a maximum of 10 percent of the company s capital; (b) the company s employees, who hold 9 percent of the company s capital through portage, with the methods of transfer to be settled by negotiations between trade unions and TRANSRAIL; and (c) private shareholders who have acquired shares in TRANSRAIL (a maximum of 20 percent). These shares are temporarily covered by portage by the concessionaire

78 The concession is rolling, with an initial duration of 25 years and possible 10-year extensions, to be decided at the end of each 10-year period after the concession goes into effect. 2.5 Air subsector In connection with implementation of the action plan for liberalizing air transport in West and Central Africa: steps are underway to restructure the National Directorate of Civil Aviation with a view to making it financially autonomous; safety and security concerns must be covered in the COSCAP project prepared by the West Africa Economic and Monetary Union; aspects of the economic regulation of air transport must be covered by the committee for standardization set up at the subregional level. The airport management company (Ahports du Mali: ADM) has benefited from the rehabilitation of movement surfaces and technical blocks at the Mopti and Nioro airfields. Other airports such as Kayes, KCniCba, Nioro, YClimanC, Nara, Mopti, MCnaka, Kidal, Goundam amd Hombori received air navigation or meteorology equipment. The Government has initiated a concessioning process in order to establish more effective business management that is conducive to implementation of the investments needed to modernize infrastructure and equipment. The provisional recipient of the Ahports du Mali concession has been designated. Negotiations are underway. 2.6 River subsector The restructuring of COMANAV was not followed by adequate investments to improve the period of navigability and offset the losses caused by the sale of the shipyard and the metal barrel factory. The Niger river has not been dredged for 30 years. Actions are underway with partners to adapt the equipment to the low depth of the river and thereby extend the period of navigability. Search for funding dredging of the river will also be undertaken STRATEGY A. ORGANIZATION OF COMPETITION IN THE ROAD TRANSPORT MARKET FOR FREIGHT The competitive mechanisms are functioning imperfectly in view of the requirements for access to freight (access in turn), the provisions of the interstate road transport agreements in effect concerning the allocation of freight, and the condition of the fleet. The government will continue its actions to facilitate the emergence of professional transport operators by improved organization of access to the profession of road transport operator

79 B. REHABILITATION AND MODERNIZATION OF THE PUBLIC TRANSPORTATION FLEET The government remains preoccupied with the need to modernize and rehabilitate the fleet by fighting against excess loads, performing technical inspections of vehicles and gradually renewing the fleet. The preoccupation with excess loads is a Government priority which stems from the desire to preserve the condition of the network, which has just been substantially improved. The government will support efforts by professional organizations to set up adequate mechanisms for fimding the acquisition of new vehicles in order to rehabilitate the existing fleet. C. EFFORTS TO IMPROVE THE FUNCTIONING OF TRANSPORTATION CORRIDORS The government intends to continue its efforts to improve national and international transport services and reduce the transport and transit costs for freight. The government will ensure that the Malian Shippers Council is operational in the transport chain and contributes to ensure speed of transport at minimum cost. The study on restructuring of the National Directorate of Transportation will enable the authorities to adopt appropriate legal statutes adapting its activities to the sector evolution. Special attention will be given to the necessity of adopting national regulations that are consistent with subregional guidelines and regulations (WAEMU and ECOWAS) in order to improve traffic flow and facilitate trade. The government will give priority to maintenance of existing infrastructure and will enforce existing rules and regulations and the decisions taken by subregional bodies in the areas of transport facilitation, standardization of road safety policies and axle weight controls. Actions will be taken to standardize regulations and guidelines, as well as to ensure that they are enforced, through informational and awareness-raising initiatives, appropriate signaling and other means. The government will strengthen its policy of diversifying access roads to the coast and expanding freight storage capacity in existing ports by building or enlarging warehouses. As part of the effort to facilitate subregional trade and improve the supply channels, actions will be taken to build dry ports in Kayes and Sikasso. D. IMPROVEMENT OF ROAD SAFETY The government will ensure that regional regulations on axle weight controls will be applied as they constitute a key factor in the fight to protect road investments. The Government will continue technical controls of vehicles in order to improve road safety. The government will implement the recommendations of the road safety audits as a way to improve safety on the roads scheduled for periodic maintenance under the Transportation Corridor Improvement Project

80 E. RESTRUCTURING OF PUBLIC ENTERPRISES IN THE TRANSPORT SECTOR The government, after completing the restructuring of the Malian Public Railway Company, will continue the same process with the airport management company (A6roports du Mali: ADM) with a dual objective: (i) first, transform ADM into a strictly business-oriented enterprise; and (ii) second, eliminate financial support from the government for their operations. a) Concessioning of RCFM a.1 Social plan In connection with implementation of the concessioning process, the Government of Mali, in collaboration with the Government of Senegal and financial partners, approved a social plan designed to: (i) compensate employees who were not retained by the concessionaire; and (ii) provide extension services and training to facilitate their rehabilitation. The social plan was approved by the government at the Council of Ministers meeting of July 29,2003. a.2 Investment program of the railway concession The Government of Mali with the concessionaire, have prepared a major investment program in order to support efforts to modernize the Dakar-Bamako railway and thereby improve its performance on a sustainable basis. This investment program comprises: (i) the acquisition or restoration of rolling stock; (ii) works to be done on the railway; and (iii) renovation of the telecommunications system. TRANSRAIL began its operations on October 1, The setting up the concession monitoring unit and the concessioning monitoring committee is now underway. b) Concessioning of Ae roports du Mali The government will continue to implement its policy of stimulating the air transport sector in line with the following objectives: ensure air transport s contribution to socio-economic development, specifically by reducing the country s intemal and extemal isolation and by developing its potential for tourism; improve the quality of services provided to airport users; expand the airports capacity to accommodate users, improve the potential traffic and increase the competitiveness of Malian airports in the West African subregion; promote private sector participation in hnding air transport needs in terms of investments and airport management; ensure the development and effective management of the entire national network of ADM airports open to public air traffic, in addition to the international airport of Bamako-Sknou. To meet these objectives, the government has undertaken, among other actions, the concessioning of ADM

81 F. REORGANIZATION OF ROAD MAINTENANCE AND RECOVERY OF INFRASTRUCTURE COSTS F.l Restructuring of road maintenance a) Restructuring of the National Directorate of Public Works Laws and establishing the National Directorate of Roads (Direction Nationale des Routes: DNR) and the Road Data Unit (Service des DonnBes Routidres: SDR) were promulgated in December The texts pertaining to the decentralized units of DNR were adopted in February The mission of the National Directorate of Roads is to develop the elements of national policy with respect to roads and bridges and related structures and to coordinate and oversee the operations of public and private services and organizations involved in implementing this policy. The Road Data Unit is responsible for updating road data, preparing technical documentation on road infrastructure and improving the planning and programming of road construction and maintenance activities. The various laws and regulations that have been adopted complete the revision of the institutional and regulatory framework for the National Directorate of Public Works and define DNR s responsibilities, including programming and project management to ensure promotion of the private sector s role in providing services and performing works. b) Creation of the Road Agency (Agence d ExLcution des Travaux Routiers: AGEROUTE) To overcome the constraints hindering prompt management of projects, the government has decided to create an implementing agency in charge with facilitating execution of road maintenance by contractors, improving the quality of works and reducing costs. The study of the Road Agency is underway. In the meantime, works are performed under agreements with the implementing agencies already in place (AGETIER and AGETIPE). F.2 Infrastructure Cost Recovery Funding for road maintenance (Highway Authority) In collaboration with financial partners, the government has decided to fundamentally reorient its policy on hding for road maintenance. Indeed, budget allocations clearly showed their limitations during the previous period, which was characterized by substantial delays in the availability of funds, insufficient credit and irregular availability of funds, all of which seriously undermined the effectiveness of road maintenance. The new policy is based on commercialization of road service through user cost recovery. For this purpose, an autonomous entity for funding road maintenance was created. This entity, called the Highway Authority (AutoritB Routidre), is under the authority of a board of directors where road users are represented, The Highway Authority began operations in The first actions involved adoption of the regulations

82 governing its operations. Thus, for the purpose of generating funds for road maintenance, Decree P-RM of July 5, 2002 instituted road user fees on behalf of the Highway Authority. This involves road user fees on petroleum products, road user fees based on axle weight for vehicles authorized in Mali and highway tolls. Interministerial Order of December 31, 2002 set the rates of road user fees based on axle weight. By the first quarter of 2003, this fee was already being collected. In addition to its resources, resources from the Government budget allocated for road maintenance have been transferred to the accounts of the Highway Authority, which has been responsible for managing them since The road maintenance budget for fiscal year 2003 was set by the board of directors in receipts and expenditures in the amount of CFAF 5,880,000,000. Execution is planned to be entirely by contractors, force account being only an exception. The road maintenance budget thus shows a major increase over previous years. The budget came to CFAF 2,851,473,954 in 2001 and CFAF 4,770,000,000 in This increase reflects the government's commitment to improve road maintenance. AGEROUTE will next be set in place, following the National Directorate of Roads, the Road Data Unit and the Highway Authority, and this will finalize the process of reforming the road maintenance institutions and methods of execution for road maintenance. G. CAPACITY BUILDING The government has set in place the Transport Observatory, concession vehicle inspections, re-register vehicles, review the Highway Code, create the Accident Analysis Bulletin (Bulletin d 'Analyse d 'Accidents Corporels: BAAC), computerize the National Directorate of Transportation and its regional agencies, establish a Road Data Bank and implement training modules on road maintenance management, business management and staff development for government and private sector officials and employees. To improve sector performance, the government will continue its efforts to adapt and modernize the sector administration, particularly through the restructuring of the National Directorate of Transportation. H. ENVIRONMENTAL AND SOCIAL MANAGEMENT OF THE PROJECT As part of implementation of the Transportation Corridor Improvement Project, it is planned to carry out road and rail infrastructure works that could have negative effects on the environment and adjacent populations. H.l Environmental concerns The government will implement plans to mitigate the environmental impact of such works through implementation of recommendations as defined by environmental impact studies. H.2 Resettlement policy The government will implement the overall policy framework for resettlement and compensation of populations affected by the works executed during the Transport Corridors Improvement Project

83 Road projects will henceforth attempt to better understand the role of the road in consultation with the roads neighbors. Such consultation will cover road safety issues, road layout concerns and other matters such as water retention at bridges and related structures. IV. ACTION PLAN FOR TRANSPORT OPERATIONS A. ORGANIZATION OF COMPETITION IN THE ROAD TRANSPORT MARKET FOR FREIGHT The government will strive to improve the fimctioning of the competition mechanisms for land transport markets for freight through the elimination of freight distribution quotas between transit countries and destination countries by reviewing transport agreements by the end of The Malian Shippers Council will create a freight bureau in 2005 to stimulate competition among transporters and reduce transport costs. B. REHABILITATION AND MODERNIZATION OF THE PUBLIC TRANSPORTATION FLEET The political crisis plaguing the West African subregion has shown the limitations of the Malian public transportation fleet, characterized by its dilapidated condition, in comparison with other fleets in the subregion. This has resulted in a significant increase in acquisitions of new vehicles, rising from 52 vehicles in 2002 to 122 vehicles in The Government created a technical committee in charge of evaluating the needs for freight transport vehicles and less-than 10 seat passenger vehicles in view of the fleet renewal. The govemment will support efforts to bring professional organizations together through an entity called the Malian Council of Road Transport Operators (Conseil Malien des Transporteurs Routiers: CMTR) to defend the interests of the transport industry. The Government will support the efforts made by the CTMR near financing institutions in view of renewing and modemizing the vehicle fleet, restoring the conditions for a sound intermodal competition and reducing transport costs. During the first half of 2004, the govemment will acquire and install six new scales for trucks at planned inspection points. The government will implement the regulation adopted to control excess loading and will enforce penalties for violations, after a period of awareness-raising, by the second half of 2004 at the latest. Also in 2004, the government will continue to rehabilitate the public transportation fleet and improve road safety by: (i) expanding technical inspections to include all vehicle parts presently covered by the regulation in effect in other countries of the subregion; (ii) support the efforts of the concessionaire for vehicle inspection services to increase the number of

84 inspection centers in order to facilitate the users access to the centers; and (iii) stepping up road checks in order to verify that vehicles are presented for technical inspections. C. IMPROVEMENT OF THE FUNCTIONING OF TRANSPORTATION CORRIDORS The objective is to improve national and international transport services with a view to reducing transport costs and facilitating the free movement of persons and freight, both of which are basic requirements for economic development and regional integration. The government will give special attention to the implementation of measures designed to improve traffic flow and facilitate trade, particularly by reducing checkpoints along main roads. To this effect, check points will be maintained at the borders and at the end of international routes. Intermediary checkpoints will serve only to control conformity. The Malian Shippers Council will seek arrangements in view of reducing transport delays and costs, especially through (i) information on and monitoring of transit goods; and (ii) support to shippers during negotiations with port operators and transporters. D. IMPROVEMENT OF ROAD SAFETY The government will see that the measures defined in the road safety audits are implemented for the works planned on the SBvarB-Gao and Bamako-Bougouni roads. These measures relate to accident reduction and road safety issues along these two roads. The government will take steps to implement the following measures: acquire computer equipment for the data bank on road accidents; evaluate driver s license testing and teaching of driving by driving schools; continue informational and awareness-raising activities for users concerning the provisions of the Highway Code. E. RAIL TRANSPORT Implementation of the concession The government will see to the following matters: Social plan set up of the concession monitoring committee; set up of the concession monitoring unit; mobilize the Government resources as planned. In connection with the railway concessioning, the government has implemented measures to streamline the workforce based on a social plan (consistent with Senegal s social plan) that was prepared and negotiated with unions representatives. The plan has two parts:

85 The first part involves determining and paying legal and negotiated compensation to employees not retained by the concessionaire, in accordance with labor law and the enterprise convention of RCFM. The second part of the social plan involves the assistance to be given to employees not retained by the concessionaire in order to facilitate their reinsertion through the unit created for this purpose, called the Cellule d Appui pour la Rdinsertion des Cheminots (CARCHEM). CARCHEM s management bodies are already in place (Association of Founding Members and Board of Directors). CARCHEM s executive bodies will be set in place during the first semester of 2004 to ensure that the effective start of the unit s activities. F. Akroports du Mali ACTION PLAN The concessioning process is underway. The recipient of the concession has been designated and the investment plan adopted. The Government will create a Committee responsible for monitoring compliance to the concession agreement by the Government and the concessionaire. Faced with the prospect of a workforce reduction when the concession is awarded, the government has taken steps to: prepare and negotiate a social plan with personnel representatives to ensure compensation of employees not retained by the concessionaire; include finding of the social plan in the government s budget for fiscal year V. ACTION PLAN FOR ROAD MAINTENANCE A. RESTRUCTURING OF ROAD MAINTENANCE Given the considerable importance of the impact of programming on the success of efforts to restructure road maintenance, the government is committed to: mobilizing its own resources necessary for the Road Data Unit; providing adequate equipment to the Road Data Unit to collect and analyze data for the purpose of developing streamlined road maintenance programs; and carrying out of in-service training for Road Data Unit staff. To facilitate the emergence of civil works enterprises, improve the quality of maintenance and reduce the time frame for processing procurement documents, the government will take the following measures: complete the study on the creation of AGEROUTE with a focus on the institutional aspects, organizational structure and hnctioning of this hture agency during the first quarter of 2004; complete the formalities for AGEROUTE to begin operations during the second semester of 2004; perform a technical and environmental audit of road projects

86 B. IMPROVEMENT OF ROAD INFRASTRUCTURE COST RECOVERY The government will take steps to: start to collect road user fees on petroleum products in January 2004; carry out a study on road tollsiweighing stations so that toll collection can begin in The government will take steps to ensure a gradual increase in the resources of the Highway Authority. This increase, which will reflect commitments made by the government in the Strategic Cooperation Framework Paper signed with the European Union in connection with implementation of the Cotonou Agreement (EU-ACP), will be as follows: CFAF 5.6 billion in 2003; CFAF 7.45 billion in 2004; CFAF 9.3 billion in 2005; CFAF billion in 2006; and CFAF 13 billion in The Government will pay particular attention to the gradual increase of the Highway Authority s own resources. VI. ACTION PLAN FOR SOCIAL AND ENVIRONMENTAL MANAGEMENT The government will implement the measures recommended to eliminate, reduce and, if possible, compensate for the harmful environmental and social impacts of the projects. Environmental concerns Road infrastructure Steps will be taken to implement, beginning in 2004, the main recommendations of the environmental studies, in particular: Measures during the period of works: tree plantations; specific instructions on the opening of quarries and sand pits (methods of operation, site restoration instructions) and detours; proposed environmental provisions to be included in the specifications. Measures during the road operation: pavement of areas for vehicles to stop or of extra road width in communities crossed by the road, depending on their size; development of parking areas near markets. Rail infrastructure The government will implement the recommendations of the environmental and social study of the Dakar-Bamako railway. As part of the burden resulting from the impact of infrastructure works on the population to be resettled, the Government will continue its efforts to:

87 prevent involuntary resettlement and acquisition of land as much as possible; compensate people that are resettled. However, if necessary, the Resettlement Policy Framework will be applied. VII. ACTION PLAN FOR CAPACITY BUILDING The government will continue to carry out actions designed to build local management capacities, particularly in the following areas: management of road maintenance; management of transport enterprises; management of the environmental aspects of projects; capacity building for small and medium civil works enterprises and local consulting firms. To consolidate the improvements made as a result of road maintenance reform, the government will give special attention to building the capacities (through training and equipment) of the newly created entities: National Directorate of Roads; Road Data Unit; Highway Authority; Agency for Road Works (AGEROUTE). VIII. ACTION PLAN FOR TRANSPORT AND HIV/AIDS Insofar as transport and civil works sites represent powerful vectors for AIDS transmission, the government will ensure that the recommendations of the study on Transport and AIDS are implemented, particularly by: conducting actions to raise the awareness of (i) migrant workers on works sites; (ii) users and drivers of means of transportation; and (iii) the population living along roads and railways targeted for civil works activities under the Project; including clauses related to HIV/AIDS prevention in road and rail civil works contracts. IX. INVESTMENT PROGRAM OF THE TRANSPORT CORRIDORS IMPROVEMENT PROJECT 9.1 Road investment program The government plans to carry out a major road investment program in collaboration with financial partners. These programs fall within the annual program-budgets and the three-year programs which encompass capital expenditure and operating costs. The program-budgets define the objectives set by the sector, the expected results and the performance indicators. The government plans to complement this approach by establishing medium-term expenditure frameworks for the transport sector in 2004, following the health and education sectors in

88 The medium-term expenditure framework will develop the program budget concept, with the following objectives: ensure consistency with the Poverty Reduction Strategy Framework; ensure consistency with the macro-economic framework; establish the link between the resources allocated to the sector and the expenditures needed to meet the objectives set by the sector, by making sure that the expenditure program for the sector includes all necessary expenditures and the resources budgeted for recurrent expenditures, i.e. expenditures needed to implement the programs and not based solely on expenditures from previous years. These programs involve the following investments: Periodic maintenance on the Bamako-Bougouni road: The Bamako-Bougouni road was built between 1988 and 1990 as part of the Fifth Mali Road Project with funding from the World Bank and the African Development Bank. This road represents one section of National Road 7 (RN 7) and connects Bamako, the country s capital city, to the port of Abidjan. It is the country s most important road: in 1999, it handled approximately 70 percent of all intemational road traffic. The cost of the civil works is estimated at roughly CFAF 11 billion. Periodic maintenance on the SCvarC-Gao road: The SCvart-Gao road was built between 1979 and 1986 with support from the German cooperation and Arab funding. It represents one section of National Road 16 (RN 16), which is the only paved road connecting Bamako, the capital, to the northem part of the country. It thus permits trade between these two poles of development and ensures the mobility of populations in the northem regions while enabling them to export their products to the south. The cost of the civil works is estimated at roughly CFAF 26 billion. The final study of civil works on the SCvarC-Gao road proposes two strategies: a strategy of immediate development and a strategy of gradual development. Given the difference between the two strategies with respect to the need to raise funds in early 2004, and the fact that 60 percent of the road is in good condition based on visual inspections and analysis of the existing road structure, the strategy of gradual development was preferred, as follows: periodic maintenance on 40 percent of the road; heavy routine maintenance on the remainder, to be revisited under the future Second Transport Sector Project. Periodic maintenance on the road Bougouni-Sikasso road: This road continues the road Bamako-Bougouni toward the borders with CBte d Ivoire and Burkina Faso. The works are financed by the African Development Fund and the West African development Bank and are estimated at CFAF15 billion. Rehabilitation works on the roads DidiCni-Ditma, DiCma-Nioro, Kati-Kita and Gao-Asongo-Niger border are financed by European Union as part of the Ninth European Fund for a cost estimated at CFAF 68 billion. The government intends to organize a meeting of donors in the first quarter of 2004 to present its transport sector policy (letter of policy) and submit project briefs for funding: periodic maintenance on the SCvarC-Gao road; civil works on 607 kilometers of rural roads;

89 construction works to reduce the isolation of certain villages located along the railway that are entirely dependent on train service; road maintenance needs over the next three years as defined in the recent road maintenance study. Investment program of the rail operations concession An investment program has been developed that encompasses (i) investments planned by the concessionaire, in the amount of approximately CFAF 30 billion, and (ii) investments planned by the Governments of Mali, in the amount of CFAF 20.8 billion. These investments mainly concem: acquisition of rolling stock; infrastructure works; renovation of telecommunications network; upgrading of equipment maintenance facilities. This investment program, which will be financed either through government loans on-lent to the concessionaire, through concessionaire self-financing, or through loans raised directly by the concessionaire with no government guarantee, will help to improve the operational performance of the Bamako-Dakar railway. The project briefs were presented at an initial meeting of donors that took place in Paris on June 26-27, The Government of Mali has submitted requests to donors to finance some of these investments (purchase of passenger equipment). The concessionaire participated in a donor meeting in October Investment program of the Akroports du Mali concession This program will be worked out once the concessionaire has been selected. X. PROJECT PERFORMANCE INDICATORS The performance indicators identified during project preparation are as follows: Road maintenance Increase the Highway Authority s own resources in the total road maintenance budget by an annual 10 per cent with a 40 percent target in 2007; Complete periodic maintenance and pavement works of corridors to the ports of Nouakchott, Dakar, Conakry, Abidjan and Tema and the road Bamako-Gao-Niamey for a total of 1,569 km. Road Transport Road safety : compilation of accident statistics : provision of reports on accidents by 100 percent of police bureaus in 2008 compared to about 20 percent currently; Axle load : 11.5 ton standard; Number of road blocks : decrease in road blocks to 2 per road itinerary (start and end),

90 intermediary controls will be limited to compliance with regulation. Railway Railway s market share in the international transport of freight in Mali : 25 percent in 2008; Number of derailments : decrease by 70 percent in 2008 from 60 in Bamako, MINISTER OF EQUIPMENT AND TRANSPORT H.E. MINISTER OF ECONOMY AND FINANCE Ousmane Issoufi MAIGA Commandeur de l Ordre National Bassarv TOURE Commandeur de 1 Ordre National

91 Additional Annex 12: Main Characteristics of the Concession for Railway services between Dakar and Bamako MALI: TRANSPORT CORRIDORS IMPROVEMENT PROJECT Scope of the concession. The concessionaire will be responsible for the technical and commercial operation of international freight and passenger rail services between Dakar and Bamako and for the maintenance, renewal, development and operation of the rail infrastructure and management of the railway real estate part of the concession. The concession does not include the services and the infrastructure between Tivaouane and St Louis and Diourbel and Touba in Senegal which remain public but are not in service currently, between Thies and Tivaouane which will be operated by a private railway operator, a subsidiary of the Senegalese Phosphate Mining and Chemical Company (ICs), and suburban passenger services between Dakar, Thies and Tivaouane which remain public although operation by a private operator is being considered. The concessionaire determines the nature, the configuration, the technical and commercial modalities of its commercial operation and the tariffs. Special contract rates can be negotiated with shippers, whose rates are not publicized. Public Service Obligations. The States can impose the operation of services with specific configuration and tariffs. These services are subject to special agreements and the concessionaire is financially compensated for the operation of these services. Similarly, the States would compensate the concessionaire for tariffs which might be imposed below the commercial tariffs defined by the concessionaire. An agreement for passenger services operated in Mali between Kayes and Mahina and between Bamako and Kayes was included in the bidding documents for the selection of the concessionaire. Duration of the concession. The concession is a "rolling concession", with an initial duration of 25 years. At the end of the first ten-year period, and every ten years thereafter, the concession can be extended by mutual agreement for an additional ten years, thus preserving the 25-year horizon which provides the incentive for the concessionaire to manage the company properly and continue to invest without the risk of termination and loss of invested capital. Concession fee. The concessionaire will pay to the Government a concession fee defined as a percentage of its yearly revenue (0 percent for the first year, one percent for years 2 to 4, 3.5 percent for years 5 to 6 and six percent thereafter) with a minimum equal to CFAF 500 million in year 2 and established by the concessionaire in its financial proposal for the subsequent years. Infrastructure management and development. The Government keeps the ownership of the infrastructure (tracks, buildings, structures, signaling, telecommunication). The concessionaire is responsible for their operation and maintenance. Infrastructure investment programs are prepared, managed and financed (either directly or through on-lending of resources by the States) by the concessionaire. Investments above a certain threshold will require States approval. The concessionaire included an investment program in its proposal. This investment program was discussed in a Round Table of Donors preliminary to the appraisal of the proposed project. Motive power and rolling stock. The concessionaire will purchase the equipment (motive power, rolling stock, spare parts) previously owned by the public railway companies in Mali and Senegal as defined in the bidding documents for the selection of the concessionaire. Payment to the States will be spread on a seven-year period. The concessionaire will be responsible for purchasing new equipment as necessary. States will have a right of first refusal for equipment sold during the concession and will have an acquisition right for equipment at the end of the concession based on book value