Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No. 28409 TZ

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 8 1.6 MILLION

(US$122 MILLION EQUIVALENT)

TO THE

UNITED REPUBLIC OF TANZANIA

FOR THE

CENTRAL TRANSPORT CORRIDOR PROJECT

MARCH 3 1,2004

Transport Sector Country Department 4 Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 3 1,2004)

TZS 1000 = US$0.902 Currency Unit = Tanzania Shillings (TZS)

US$1 = TZS 1108.7

AADT AASHTO APL BRT C A G CAS CFAA CODAP CPAR CTB CTCP D A W A S A DRC EA I SA EIA & SIA E M P ERR FAD FMR GDP GOT GPN HDM HIV / AIDS I C B I C T IDA IFC IRP I1 LGA M C T M O C T MOW MTEF

FISCAL YEAR July 1 -- June 30

ABBREVIATIONS AND ACRONYMS

Annual Average Daily Traffic American Association Adjustable Program Lending Bus Rapid Transport Controller and Auditor General Country Assistance Strategy (MOCT, Zanzibar) Country Financial Accountability Assessment Coordination o f Donor Aided Project Country Procurement Assessment Review Central Tender Board Central Transport Corridor Project Dar es Salaam Water Supply and Sanitation Authority Democratic Republic o f Congo Environmental Assessment / Social Assessment Environmental Impact Assessment & Social Impact Assessment Environmental Management Plan Economic Rate of Return Finance and Administration Division Financial Monitoring Reports Gross Domestic Product Government of Tanzania General Procurement Notice Highway Development and Maintenance Human Immunodeficiency Virus / Acquired Immunodeficiency Syndrome International Competitive Bidding Information Communication Technologies International Development Association International Finance Corporation Integrated Roads Project I1 Local Government Authority Ministry o f Communications and Transport, Mainland Ministry o f Communication and Transport, Zanzibar Ministry o f Works Medium Term Expenditure Framework

NBF N C B NDF N E M C N G O NORAD N P V NTP OP/BP PAD PC PCR PER PFMR PIP PORALG PPA PPIAF PRG PRSP PSRC QCBS RAHCO RAP RFB RFP RRP SDP SSATP

FOR OFFICIAL USE ONLY Not Bank Financed National Competitive Bidding Nordic Development Fund National Environmental Management Council Non-Governmental Organization Norwegian Agency for Development Cooperation Net Present Value National Transport Policy Operation Policy / Bank Policy Project Appraisal Document Project Company Physical Cultural Resources Public Expenditure Review Project Financial Management Report Project Implementation Plan President's Office Regional Administration and Local Government Public Procurement Act Public Private Infrastructure Advisory Facility Partial Risk Guarantee Poverty Reduction Strategy Paper Presidential Parastatal Sector Reform Commission Quality and Cost-Based Selection Reli Assets Holding Company Resettlement Action Plan Road Fund Board Request for Proposal Railways Restructuring Project Specific Development Project Unit Sub-Saharan Africa Transport Policy Surface and Marine Transport Regulatory Authority SUMATRA

SWAP Sector Wide Approach TA Technical Assistance TANROADS Tanzania National Roads Agency TAZARA Tanzania Zambia Railway Authority TB Tender Board TOR Terms o f Reference TRC Tanzania Railways Corporation UNDB United Nations Development Business VPD Vehicles Per Day WAN Wide Area Network

Vice President: Callisto E. Madavo Country ManagerDirector: Judy M. O'Connor

Dieter E. Schelling Sector ManagedDirector: C. Sanjivi Rajasingham

Task Team Leader/Task Manager:

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization.

TANZANIA. CENTRAL TRANSPORT CORRIDOR PROJECT

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. M a i n 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 altematives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3, Lessons leamed and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in this project

.

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

Page

3 3

3 3 8

9 11 12 13

13 14 14 15 15

16 17 17 18 19 20 20

F. Sustainability and Risks

1. Sustainability 21

2. Critical risks 3. Possible controversial aspects

G. M a i n Credit Conditions

1. Effectiveness Condition 2. Other

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 Fi le Annex 9 : Statement o f Loans and Credits Annex 10: Country at a Glance Annex 1 1 : Environmental Impact Assessment and Mitigation Measures Annex 12: Partial Risk Guarantee

21 22

22 22

23

23

24 27 37 38 46 47 55 66 67 68 70

, 75 79

MAP@) Map o f Tanzania

TANZANIA Central Transport Corridor Project

Project Appraisal Document Africa Regional Office

AFTTR

BORROWER

~~

Date: March 3 1,2004 Sector Managermirector: C. Sanjivi Rajasingham Country Managermirector: Judy M. O'Connor Project ID: PO78387 Lending Instrument: Specific Investment Loan (SIL)

Team Leader: Dieter E. Schelling Sector(s): Railways (45%), Roads and highways (43%), Central government administration (1 2%) Theme@): Infrastructure services for private sector development (P), Trade facilitation and market access (P), Regulation and competition policy (P), State enterprisehank restructuring and privatization (P), Export development and competitiveness (S)

10.02 I 0.00 I 10.02

For LoanslCreditslOthers: Amount (US$m): IDA Credit $122.00m, PRG $40.00m (Specific Board approval for the PRG wi l l be sought once the private concessionaire has been selected and the PRG has been negotiated to IDA'S satisfaction).

Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: 0.50%

Years to maturity: 40 Service charge: 0.75% '

IDA IDA GUARANTEE

Borrower: REPUBLIC OF TANZANIA Responsible agency: TANROADS, MOCT ZANZIBAR AND TRCIRAHCO Address: P.O. 11364, 3rd FloorMaktaba Complex Building, Bibi Titi Mohamed Street, Dar es Salaam, Tanzania Contact Person: Dr. F.Y. Addo-Abedi, Chief Executive Tel: 255-22-2-2152576 Fax: 255-22-2-150022 Email: tanroadshq@tanroads.org Other Agency(ies): Ministry o f Communications and Transport, Zanzibar Address: P.O. Box 266, Zanzibar Contact Person: Edward A. Mwakyembe Tel: 255 24 223 2841-3 Fax: 255 24 223 3674 Tanzania Railway Corporation Address: P.O. Box 468, Dar es Salaam, Tanzania Contact Person: Mr. Linford Mboma, Director General Tel: 255-22-2-1 12695 / 2-1 10599 Fax: 255-22-21 16525 trcpc2@intafrica.com

Email: moct@zanzinet.com

Email: dgx-mboma@trctz.com

- 2 -

A. Project Development Objective

1. Project development objective: (see Annex 1)

The project supports the National Transport Policy (NTP), which was prepared in a participatory way and presented to the public in October 2003. Within the N T P the Central Transport Corridor Project (CTCP) focuses o n improved performance o f the Central Transport Corridor, both in respect o f road and rai l transport, improvement o f key roads in Zanzibar, and o n generally enhanced road management capacity. The development objective o f the Central Transport Corridor Project (CTCP) i s to: (a) upgrade strategic road l inks; (b) enhance road management capacity; and (c) improve operations o f Tanzanian Railways (TRC and TAZARA).

2. Key performance indicators: (see Annex 1)

Fol lowing are the key performance indicators in respect o f the road component o f the project: (i) traffic increases by at least 10% per annum on average between 2004 and 2009 on improved roads; (ii) the network under TANROADS responsibility (28,900 km o f trunk and regional roads) in poor condition reduced from 49% in 2003 to 30% in 2009. In respect o f the rai l component o f the project, following are the key performance indicators: (i) total freight traffic tonnage carried (on TRC network) is expected to increase from the current level of 1.45 mi l l ion tons to 2.0 mi l l ion tons by 2009, (ii) level o f transit traffic carried wil l by 2009 increase by 20% from the 560,000 tons in 2003; and (iii) kilometers o f track under speed restriction as a percentage o f the total will decrease from the current 10% to 2% in 2009. The above assumes that signing o f the concession agreement wi th a private Concessionaire w i l l take place in November 2004 and handover in June 2005 at the latest.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: Report No. 20728 -TA

The Central Transport Corridor Project (CTCP) is consistent w i th the Bank Group Country Assistance Strategy discussed by the Executive Directors on June 15, 2000. The Bank’s mission in Tanzania i s to assist the Government in reducing poverty through the promotion o f higher growth, with interventions to build assets for the poor, reduce their vulnerability and promote better governance and accountability. The CAS proposes to focus interventions in four strategic areas: (a) private sector and infrastructure development; (b) sustainable rural development; (c) improved social infrastructure; and (d) public sector reform and institution building. The proposed Project would assist in a l l the above strategic areas by: (a) continuing the build-up o f the local construction industry through their progressively increasing involvement in road development and maintenance; (b) improving access to rural areas vital for rural development; (c) improving access to social infrastructure; (d) supporting capacity building o f TANROADS for the management o f the trunk and regional roads; and (e) improving the performance o f Tanzanian Railways through i ts concessioning to a private operator.

Date of latest CAS discussion: June 15,2000

2. M a i n sector issues and Government strategy:

2.1 Roads Sub-Sector

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Trunk Roads

Good and Fair Poor Condition Total Condition (km) (km) (km)

(5563) (4371) 9934*

Urban Roads

Regional Roads

Subtotal managed by TANROADS

(9276) (9682) 18958*

(1 4839) (14053) 28892"

From the above table it follows that: (i) about half the trunk and regional road networks are in poor condition; (ii) the total road network that i s in good and fair (or maintainable) condition i s about 22,500 km; (iii) o f the local government network only an estimated 7700 km i s in maintainable condition (20% o f these are urban secondary roads); (iv) feeder roads are mostly tracks in poor condition (they are - or have traditionally been - managed by the local communities); (v) only about 28% o f the overall network i s in good and fair condition.

Feeder Roads

Subtotal managed by Local Governments

Total Network

It i s estimated that the core network required for poverty alleviation (the network that provides reliable access to the majority -say, 90%- o f the rural population) i s o f a length o f about 45,000 km. To get this core network into maintainable (good and fair) condition, about 3 billion U S Dollars (3000 billion Tanzanian Shillings), or about $ 300 mill ion per annum, would be required over the coming 10 years (to rehabilitate the share o f the network in poor condition and to maintain the network in good and fair condition). With the improved condition o f the network, the share requiring maintenance would gradually increase and the share for rehabilitation (and upgrading) decrease. The amount spent in the road sector in the past, about $100 - 150 mill ion per annum, traps the road sector in a vicious cycle whereby insufficient

(1 000) (29000) (30000)

(7715) (43393) (51108)

(22554) (57446) (80000)

- 4 -

money is allocated for rehabilitation, which “forces” moneys intended for maintenance to be used for spot improvement and emergency works, leaving insufficient resources for maintenance, which leads to a deterioration o f the network, which requires further rehabilitation, and so on.

Road Management and Financing

Road management and financing capacity in Tanzania in the past has been insufficient, leading to the above described cycle o f premature road network deterioration and resulting rehabilitation need. In response to th is lack o f capacity, Government has created TANROADS under the executive agency act in 2000 and the Road Fund Board (RFB) in 1999. Both TANROADS and RFB have since greatly enhanced the road management and financing capacity in the sector. Further reform is needed, however, to secure the long term sustainability o f these reforms, and to achieve the Government’s goal to have a core network o f about 45,000 km o f roads in good and fair condition by 2015.

TANROADS, w i th about 780 staff which were transferred from the former Roads Department o f the Ministry o f Works (MOW), needs to be professionalized and made fully and solely responsible for the delivery o f the trunk and regional road programs. This can be achieved through a business-like organizational set-up, competitive selection o f staff, based on carefully prepared job descriptions, provision o f appropriate accommodation and up-to-date management equipment, and with adequate autonomy from the parent Ministry. It i s felt that under the current set-up, TANROADS being an executive agency o f the Ministry o f Works, i t s autonomy in terms o f day to day management i s insufficient, and i t s sustainability fragile. Therefore, TANROADS should be turned into a Road Authority created under an act approved by parliament with i t s own independent and decision making Board, as is world-wide best practice, in line with the SADC Protocol on Transport, Communications and Meteorology, and as announced by GOT in the TANROADS Establishment Order, in 2000. Under such a set up TANROADS would st i l l be answerable to the MOW, which wil l bear the ultimate responsibility for the trunk and regional road network. MOW’S core function would be road sector pol icy setting, and general road sector oversight.

The RFB was created in 1999 under the Road Tolls Amendment (No. 2) Act, 1998. The RFB has i t s own Board. As per the RFB act, 30% o f the resources collected from the Road Fund (RF) are allocated to LGAs. The RF i s currently fimded from a Tshs 100 (9 US cents equivalent) per litre fuel levy. In 2002 a total amount o f about $ 65 mi l l ion was collected. This would be sufficient if strictly used for maintaining the maintainable network o f about 22,500 km. However, political realities require that a portion o f the RF be used for rehabilitation (in the absence o f sufficient funding for rehabilitation). This i s particularly true for the local government road network, which has only a very modest proportion in maintainable condition.

I t can be assumed that, if road user charges are kept at their current level in real terms, resources wil l increase at a rate above general economic growth (he1 consumption increases normally at a rate o f about 2-4% above GDP growth), and if the core network (of about 45,000 km) is fully rehabilitated the RF would be sufficient to maintain the core network by 2015. However, for the coming five to ten years substantial Government and donor money is required to rehabilitate the road network (and upgrade it where economically justified). IDA i s committed to increase funding in the sector substantially, and so are other donors, provided the reform process continues.

2.2. Rail Sub-Sector

Tanzania Railways Corporation (TRC)

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The Bank has a long history o f supporting the railways in East Africa, starting in the mid 1950s. The Tanzania Railways Corporation (TRC) was formed in 1977, after the break-up o f the East Afr ica Railways. The Railways Restructuring Project (RRP) was approved by the Board in June 1990 as part o f a multi-donor program for TRC. The Credit closed on December 31,2002. The objective o f the RRP was to assist TRC to become a commercially viable enterprise - operationally efficient and financially self-sufficient. Originally, it was envisaged that TRC would remain in the public sector wi th commercial and management autonomy provided through a performance contract arrangement. Following an initial increase in rai l traffic, it became increasingly evident that the project objectives would not be achieved within the ‘parastatal’ framework. This institutional framework imposed serious constraints on efficient commercial operations, that i s (a) the system lacked incentives and sanctions arrangements which would reward initiative and innovation and penalize inaction and poor performance; (b) have cumbersome rules and procedures that prevent either rapid or decentralized decision-making; (c) was prone to direct and indirect political interventions in management and operations; and (d) was under pressure to maintain loss-making services and lines without adequate financial compensation.

While RRP led to a more commercial management approach, TRC’s overall performance did not show the substantial improvement expected despite the high investment, technical assistance, upgraded computer systems and intensive supervision by the funding agencies. At the end o f 1997, GOT announced i ts decision to concession TRC to the private sector; this preempted a donor decision to cease support. The experience with railway concessions in Lat in American and Afr ican countries (Cote d’Ivoire, Burkina, Gabon, Cameroon, and Malawi) has, wi th few exceptions, proven to be very encouraging and is now accepted as the most promising approach for sustainable railways in developing countries. Fol lowing GOT’S decision, RRP was restructured to provide concession transaction assistance and operational support for TRC during the transitional period leading to concessioning. Considerable progress has been achieved since 1997. The concessioning process is wel l advanced with the process o f pre-qualification o f potential bidders completed. Three bidders are fully prequalified and four are conditionally prequalified. The bidding process is scheduled to be launched in April 2004. A concessionaire is expected to take over responsibility for the operation and expansion o f the rai l and transport services by June 2005. TRC’s operational performance had improved during 2001 and 2002 as a result o f TRC’s enhanced management supported by the assistance o f donor funded line management in a few key areas. Mainline locomotive availability had improved, and record levels o f freight traffic was hauled both in 2001 and 2002. However, financial performance had shown little improvement, and concessioning i s considered as essential for the long-term commercial future o f the railway. Towards the end o f 2003 the delay o f the concessioning process had a negative impact on the performance o f TRC, specially in respect o f locomotive and wagon availability and rai l breakages, and TRC could no longer cope w i th the raising demand for freight transport.

Financial sustainability for TRC can be achieved, but it will not be easy because o f the small revenue base, high fixed costs, and overstaffing. I t i s made even more difficult by inadequate asset renewal over a very extended period. The investment under the RRP resulted in (i) the renewal o f 200 km o f track , the provision o f rails and sleepers for casual renewals on 1000 km o f line (out o f a network o f 2722 km) and o f equipment and machine for track maintenance and welding, (ii) rehabilitation, repair and purchase o f a total o f more than 2600 wagons (almost the entire fleet), o f 24 locomotives out o f 90 and o f 50 passenger coaches (other 27 purchased) out o f 150. Notwithstanding that effort, some o f the network i s st i l l la id with the original German track, circa 1910, and most o f the locomotives and rol l ing stock i s more than 30 years old. By improving the operating systems, physical resources and staffing levels, a competent concessionaire wil l be able to make the railway financially viable, but w i l l not be in a position to finance substantial immediate renewal o f the basic infrastructure (which remains owned by GOT). In these circumstances, there needs to be clear demarcation o f responsibilities between GOT and the concessionaire:

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GOT would take responsibility for the initial renewal o f tracks (of about 200 km), retrenchment o f surplus staff and past environmental and social liabilities, and the concessionaire would take care o f a l l operational investments and future maintenance and upgrading o f the track.

Approximately 200 km o f TRC track has to be renewed, as it is time-expired and suffering an escalating frequency o f ra i l fractures. I t i s estimated that the renewal w i l l cost $ 33 million. I t i s unlikely that a concessionaire wil l be wil l ing to finance such immediate heavy investment requirements in track infrastructure owned by GOT in addition to the other essential investments in operating assets (locomotives and rol l ing stock) and operating systems (particularly communications). Financing o f the track renewal by GOT i s a prerequisite for the successful concessioning o f the railway. GOT has therefore requested the Bank’s assistance for the track renewal, as wel l as limited assistance to liquidate some outstanding social and environmental liabilities in order to ensure the success o f the concessioning process.

The GOT had initially decided to concession TRC in 2001 and embarked on a tendering process in 2001/2002. The effort was not successful as not a single bid was received, though comments on the concession were sent to PSRC by some o f the potential bidders, which highlighted the need for some form o f political risk mitigation. Given the post September 1 lth events, the ENRON scandal and the subsequent corporate downgradings, and the Argentina and Brazilian crisis, investors have shown general unwillingness to bid for projectskoncessions in emerging market countries, as has been evidenced by bid failures in several o f these countries. GOT, therefore, decided to re-launch the bidding process after revising some aspects o f the proposed concession and, as part o f i t s effort to make the concession more attractive to potential bidders, requested IDA for a PRG to provide political risk mitigation in support o f the concession.

Despite political and economic stability since independence in 1961, the GOT recognizes the need to offer an IDA PRG to address Government/parastatal performance and policy related risks. I t i s expected that investors’ interest w i l l be enhanced through the provision o f the PRG, particularly in the current adverse investment environment. In view o f the fact that Tanzania i s considered as a ‘frontier’ market by investors where political and policy related risks are perceived as significant, Bank Group intervention through a PRG i s considered to be an appropriate form o f Group support in line wi th the Board Paper o f December 2000 (’Enhancing the Use of World Bank Guarantees as an Operational Tool: A Review of the World Bank Guarantee Program’), particularly given the Bank’s considerable involvement in the sector and the availability o f an explicit counter-guarantee from the Government o f Tanzania to ensure project sustainability. I t i s intended that PRG support would be complemented with MIGA support and possibly I F C support and bidders are being advised to approach the two institutions. If successful this would be the first PRG in support o f a Transport Project.

TAZARA

The Tanzania-Zambia Railway (TAZARA) is an 1870 km line constructed in the 1970s, connecting Tanzania and Zambia. TAZARA’s infrastructure i s in a reasonably good condition, but is, operationally and financially, in worse condition than TRC. The joint owners o f TAZARA, the govemments o f Tanzania and Zambia, have now made a decision to engage private sector participation in TAZARA’s management and operations. A grant under PPIAF has been arranged to undertake the necessary studies with the following objectives:

0 to identify and evaluate the various options for private sector participation in the operations currently carried out by TAZARA, and to recommend, with justification, the most appropriate strategy;

0 to make recommendations o n the institutional arrangements for the rai l asset holding entity and the regulator; and

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0

The study is expected to commence in April 2004. Both governments have requested the Bank to provide assistance for preparing the bidding documents, marketing the transaction, negotiating the final contract, facilitating the takeover by the selected bidder, restructuring the residual TAZARA, and establishing the appropriate legal framework.

to propose changes necessary in the legal and regulatory regime currently in place to ensure the successful implementation o f the restructuring and privatization strategy.

2.3 Government Strategy for the Transport Sector

GOT strategy for the transport sector i s to reduce costs and increase service standards by: (i) investing in improved Mastructure, especially in the road sector; (ii) promoting modal efficiency; (iii) enhancing competition and (iv) recovering some o f the cost from the users.

Within the road sub-sector govemment policy i s to provide a core network o f about 45,000 km o f roads in good and fair condition by 20 15. Such network is perceived as being needed for providing reliable access to the majority (90%) o f the rural population in Tanzania. Each link o f the network should be at an economically optimal level o f service related to the traffic borne. Above 200 vehicles per day (VPD) tarmac roads are usually the optimal solution, between 200 and 50 V P D gravel roads are usually optimal, and below 50 V P D spot improved earth roads are usually the optimal solution.

Within the rai l sub-sector, the introduction o f private sector management and finance through long-term concession arrangements i s central to the strategy. The basic infrastructure wil l remain under the public ownership, but wil l be leased to the private concessionaire. The concessionaire would be bound by the concession agreement to maintain the infrastructure and hand it back, at the end o f 25 years, in a substantially improved condition. The operating assets w i l l be leased or concessioned to the concessionaire, who will be expected to make further investments needed to achieve the financial potential o f the railway as well as make concession and lease payments to RAHCO. The concessionaire would be required to maintain the present level o f passenger services, unless demand falls substantially as a result o f road improvements, and the third-class passenger fare would be fixed, in real terms, at the present levels. With more efficient management and improved operational assets, there i s an immediate rai l market for 2 mi l l ion tons (TRC cannot carry al l the traffic on offer) and the concessionaire should be able to attract substantially greater traffic from road, given the long haul distances (1000 km) at which rai l has a major cost advantage over road.

The concessionaire w i l l have a monopoly o f ra i l traffic over the TRC network, with the exceptions of transit traffic between southern Afr ica and Uganda for which a concession has already been granted to a separate company, TransAfrica Railway, and o f traffic frondto Rwanda for which the company Panache i s allowed to use i t s own wagons to transport Rwandan cargo o n the TRC track. Economic regulation is not expected to be a major issue, given the level o f ra i l competition, but residual economic regulatory powers have been established under SUMATRA which w i l l also oversee safety regulation in the sector. Monitoring the concession agreement and the compliance with the technical standards will be undertaken by the asset holding authority, RAHCO, which i s also the concessioning authority. R A H C O would have the right to terminate the concession and lease agreements, in the event that the concessionaire fails to meet the required operating and technical standards. GOT w i l l also be protected by a performance bond.

3. Sector issues to be addressed by the project and strategic choices:

3.1 Upgrading of Sections of Strategic Road Links

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The construction o f the 110 km Singida-Shelui road w i l l complete the upgrading o f the Central Transport Corridor linking the port o f Dar es Salaam with the landlocked countries o f Burundi and Rwanda to bituminous standard. I t w i l l also connect the westem and lake regions o f Tanzania wi th the nation's capital and port. Additionally, fifty nine kilometers o f roads wil l be rehabilitated and upgraded to bituminous standard in Zanzibar. These roads provide access to the main northem and eastem areas with isolated rural communities and major tourism development. Furthermore, five key ferries in Mainland Tanzania wil l be rehabilitated. Feasibility, detailed design and bidding documents for the rehabilitation and upgrading for a further 7 13 kilometers of key trunk roads wil l be prepared in preparation o f future lending in the sector.

3.2 Enhancement of Road Management Capacity

Through IRPI I the Bank has participated in building up the capacity o f TANROADS and M O C T Zanzibar. This project would build on the achievements, and would in particular, assist TANROADS with a new headquarter building, improved communication equipment, improved organizational and managerial capacity, and training and technical assistance.

3.3 Improved Operations of Tanzanian Railways

The proposed project would assist GOT to:

1, Rehabilitate specific sections o f the TRC track which are failing and need renewal; 2. Provide a Partial Risk Guarantee to help enhance investor interest for the concession 3 , Finance investments in rai l equipment if required; 4. Clean-up existing polluted areas around the major railway workshops and depots; 5. Relocate existing squatters and encroachers from within the rai l reserve; 6. Help to build capacity to ensure the effective functioning of the proposed asset holding company

(RAHCO); 7. Support the residual TRC in i ts role o f non-core asset disposal and eventually support its winding

down; 8. Support the engagement o f private sector participation in the TAZARA railway.

C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Part A: Upgrading of Strategic Road Links

In l ine with the Government's road sector development plan, the Project will support the following:

1. Rehabilitation and upgrading to bituminous standard o f the Singida-Shelui Road (1 10 km), including the costs o f the EMP and RAP;

2. Rehabilitation and upgrading to bituminous standard o f the Mkwajuni-Nungwi, Matemwe-Pongwe and Paje-Pingwe roads in Zanzibar (59 km), including the cost o f the E M P and RAP;

3. Carrying out and updating o f feasibility studies and detailed design, and preparation o f bidding documents for 713 kilometers o f high priority trunk roads to be rehabilitated and/or upgraded under a proposed follow-on project, including: (a) the Singida-Babati-Minjingu road (220 km), (b) the Dodoma-Babati road (263 km), (c) the Korogwe-Mkumbara-Same road (165 km), and (d) the Tanga - Horohoro road (65 km);

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4. The rehabilitation o f the MV Kigamboni, Pangani, Sengerema, Kilombero and Rufiji ferries.

Part B: Enhanced Road Management Capacity

In order to enhance capacity for road management, both in Mainland Tanzania and in Zanzibar, and in view o f the preparation o f a proposed follow-on project, the Project wil l support the following:

1.

2.

3.

4.

5.

6.

7.

8.

Design and construction o f a new TANROADS headquarters building;

Setting up o f a Wide Area Network to improve communication between TANROADS' headquarters, i t s regional offices and M O C T Zanzibar;

Carrying out o f a study for the enhancement o f the organization and management o f TANROADS;

Carrying out of studies to identify road investment priorities, such as traffic counts and an update o f the ten-year investment plan;

Preparation o f a local government roads inventory and condition survey;

Carrying out other transport related studies, including a Dar-es-Salaam Bus Rapid Transit and traffic management study;

Provision o f technical advisory services and training for improved management and operational capacity o f TANROADS and M O C T Zanzibar;

Provision o f technical advisory services, training and financing to IDA P C U and MOCT CODAP for the day-to-day administration, financial management, procurement, monitoring and evaluation o f Part A and B o f the Project, and financing o f the external financial audit o f the Project.

Part C: Improved Performance of Tanzanian Railways

In line wi th the Government's policy to engage the private sector into the operation and financing o f the rai l sector, the Project w i l l support the following:

1.

2.

3.

4.

5.

6.

Provision o f urgently needed rails, sleepers and other material for TRC, for the replacement o f the track between Itigi and Tabora;

Provision o f other rails, sleepers and material for TRC, including their installation, these are meant for the replacement o f the balance o f the tracks o f TRC between Itigi and Tabora. (The mode o f placing o f this material w i l l be discussed with the pre-qualified bidders for the concession and disbursement for th is portion o f the credit i s tied to signing o f a concession agreement or such other agreement satisfactory to the Association).

Preparation o f an Environmental Assessment, a Social Assessment, EMPs and R A P for TRC;

Financing o f clean-up costs based o n the Environmental Assessment and EMP, and o f resettlement costs based on the Social Assessment and RAP;

Provision o f technical advisory services and training for: (i) the handing over o f TRC assets and operation o f the Railway Operator; (ii) the winding up o f TRC; and (iii) the building up o f the management and operational capacity o f RAHCO;

Provision o f technical advisory services for the future private sector participation in TAZARA, including: (i) the restructuring o f TAZARA; (ii) the establishment o f the regulatory and legal

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framework governing the operations o f TAZARA; and (iii) preparation o f EA, SA, E M P and RAP;

The proposed PRG in support of the Concession for the Management and Operation of TRC (Subject to Separate Board Approval)

The proposed PRG would be provided in support o f the concessionaire to be selected following a competitive tendering process, which i s underway. The concessionaire wil l be required to arrange the necessary financing (equity and/or debt) for the operation and management o f the concession for the duration o f its 25 year term. The concessionaire w i l l be required to set up a wholly-owned special purpose Project Company in Tanzania for the purpose o f canying out i t s obligations under the Concession and Lease Agreements(Concessi0n Agreements). The total investment requirement over the l i fe o f the concession is projected to be around US$180 -200 million, which i s expected to be financed through equity and/or loans from the concessionaire or i t s lenders and internally generated casMow. In addition, the IDA credit o f US$ 33 mi l l ion would be used to finance the rai l tracks and associated equipment and services which would be made available by RAHCO to the concessionaire together wi th up to an amount o f US$40 mi l l ion PRG to help catalyze debt and equity investments in the concession.

The proposed PRG would backstop RAHCO’s payment obligations under the Concession Agreements to the Project Company. While the precise level o f RAHCO support for the concession and the exact scope o f PRG coverage w i l l only be determined once these have been negotiated with the selected bidder, they are l ikely to include both periodic and termination payment obligations o f RAHCO. The periodic payments would be in support o f RAHCO’s obligations to undertake restoration works on the rai l infrastructure (which RAHCO wil l continue to own during the term o f the concession) as a result o f political or natural force majeure events. The termination payment would be with respect to compensation owed to the concessionaire by R A H C O in the event that the concessionaire or Project Company terminates the Concession Agreements as a result o f (i) a material breach o f the Concession Agreement by RAHCO, (ii) a Discriminatory Change in Law adversely affecting the Railway Operator, and (iii) Expropriation.

Board approval for the final terms and conditions o f the PRG w i l l be sought once the final level o f R A H C O and PRG support has been determined and documentation has been negotiated with the selected bidder.

Part B: Enhanced road management capacity Part C: Improved performance o f Tanzanian Railways Partial Risk Guarantee

Total Project Costs I Total Financing Reauired

84.32 47.4 70.71 15.99 9.0 14.83 37.76 21.2 36.46 40.00 22.5 40.00

178.07 100.0 162.00 178.07 I 100.0 I 162.00

% of Bank-

22.5 24.7

100.0 100.0

2. Key policy and institutional reforms supported by the project:

CTCP would build on the reform program supported under the IRP-I1 and the RRP by: 1. Providing support to TANROADS for road network management including planning, procurement,

contract management, financial management, safeguards and monitoring. Specifically it would speed up the procurement process by exempting TANROADS from the Central Tender Board (CTB) involvement in their procurement process;

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2. concessioning o f TRC to a private operator; and 3. preparation for the private sector participation in the operation o f TAZARA.

Further key transport sector policy reforms, such as (i) transforming TANROADS into a Road Authority; (ii) definition o f the management o f local government roads; (iii) enhancement o f urban transport regulatory capacity in Dar es Salaam; (iv) improved vehicle emission control and changing to unleaded petrol; and (v) road safety measures, w i l l be assisted through this project and supported in a follow-on project which i s proposed to be in the form o f an A P L using a sector-wide approach (SWAP) joint ly with the Government and other development partners.

Regarding the railways, the Project supports a major sectorial reform which includes (i) the concessioning o f the operations o f the railways to a private operator; and (ii) the creation o f an asset holding company (RAHCO).

3. Benefits and target population:

The central transport corridor is one o f the most important o f Tanzania’s nine transport corridors. I ts significance is important in terms o f population served, agricultural production and potential, mining, tourism, and trade with landlocked countries. The central corridor extends about 1,500 km connecting Dar es Salaam with Morogoro, Dodoma, Nzega with a link to Mwanza on Lake Victoria and further leading to Rwanda and Burundi border in case o f the road corri,dor. I t provides access to Tabora and Kigoma, on Lake Tanganyika through the railway corridor which i s not serviced by a road. These corridors connect major urban centers, ports and border points w i th inland regions and vast rural areas, and function as vital lifelines for a large number o f people.

The investments to be undertaken under the roads component o f the project would restore the essential role and function o f the roads concerned. The restoration is expected to yield substantial benefits, mainly in terms o f vehicle operating cost savings resulting from improved road condition. The project will benefit the entire population including rural dwellers living along the corridor. Maintenance cost savings would also be realized as a result o f timely investments which wil l prevent fhther road deterioration to a point where full reconstruction would be required. These anticipated impacts are consistent with the objective o f strengthening economic infrastructure, which has been identified in the CAS as a key element in GOT’S growth and poverty eradication strategy.

Regarding the railways, the concessioning i s expected to result in a substantial improvement in the railway’s capacity, operating efficiency and level o f service. The specific benefits for stakeholders are expected to be: (i) for freight customers: reduced transport costs; higher quality and predictability o f services; improved national and international competitiveness; reduced damage; (ii) for passengers: lower transit times, fewer delays, reduced accident rates (low income passengers, traveling third class, are protected against real fare increases or reductions in service levels); (iii) for GOT: positive returns from the railways through lease payments and concession fees, as wel l as taxes on the concessionaire’s profits and Reduced pressure on the road infrastructure leading to lower road rehabilitation and maintenance costs; (iv) for the concessionaire: improved physical infrastructure providing the opportunity for attracting more rai l traffic and thus the potential for higher profits; and (v) for neighboring countries o f Uganda, Burundi, D R C and Rwanda: reduced transit costs and better access to the sea.

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4. Inst i tut ional and implementation arrangements:

Overall fiduciary responsibility w i l l be wi th the IDA P C U (IDA Project Coordination Unit) o f TANROADS who w i l l manage the project's Special and Project Accounts, and who will oversee the other implementing agency's procurement actions. The Zanzibar road works wil l be executed by the CODAP (Coordination office for Donor Aided Projects) Unit o f the Zanzibar Ministry o f Communication and Transport. The rai l component will initially be executed by the dedicated unit which was established within TRC to execute the RRP. During project execution RAHCO (Reli Asset Holding Company) will be created. R A H C O will s ign the Concession Agreements with the selected private operator on the Government's behalf and must, therefore, be established by the time o f the signing o f the concession agreement, planned for November 2004. At the time o f the planned commencement o f the concession by June 2005, R A H C O w i l l take over from TRC as the implementing agency for the rai l component. RAHCO w i l l receive technical assistance from the project to build up its capacity for that purpose. At the time o f the take over o f RAHCO, the D C A will be amended to reflect the changes.

D. Project Rationale 1. Project alternatives considered and reasons fo r rejection:

Road Sub-sector: I t has been considered to insist on more up front road sector reforms, such as the transformation o f TANROADS into a Road Authority, as the Government had committed i tse l f in the 2000 TANROADS ordinance. However, it was felt that the long delayed financing o f the Singida to Shelui road could not be held up any longer. The discussion on the renewal o f the ROADS ACT, where the Government has agreed to form a jo int GOT/donor review committee, i s considered as the main vehicle for the dialogue with Government on M h e r sector reforms. These discussions wil l focus o n the said transformation o f TANROADS and define a conducive frame work for the management o f rural roads.

Rai lway Sub-sector: The concession o f TRC was considered as a separate Railway Restructuring Project, but later chosen to be part o f the formerly roads-only project because o f the urgency o f facilitating the concessioning process. However, the two are closely linked as part o f the Central Corridor, and it made sense to combine them in view o f their complimentary role in regional trade and transport facilitation. Moreover, as i s to be expected in the concessioning process, the morale o f TRC staff is l ow and deteriorating, and the physical condition o f TRC is critical. Bo th situations lead to decreased performance o f TRC, and asset stripping is common under such circumstances. Having a fm commitment by IDA for the financing o f ra i l and sleeper replacement and the possibility o f a PRG is l ikely to (i) enhance bids in favor o f the Government; and (ii) wi l l encourage Government to move quickly o n the concessioning process. For these reasons, it has been decided to include the rai l component in this Project.

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2. M a j o r related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

Sector Issue Project

Bank-financed Road network in very poor condition Lack o f capacity to manage the network As above Railway financial performance declining

Sixth Highway Project IRP 1 IRP2 Railways Restructuring Project

Implementation Progress (IP)

S HU

S S

3. Lessons learned and reflected in the project design:

1. Road component The (first) Integrated Road Project which was launched in 1991 and closed in 1999, was rated as unsatisfactory in i t s Implementation Completion Report (ICR) due to non-achievement o f the project's development goals and slow and partial physical implementation. This I C R provides valuable lessons for the Central Transport Corridor Project roads component:

Development Objective (DO)

S U S S

0 The IRPl basically relied on the strengthening o f the existing institutional set-up for the management o f the road sector without demanding up-front institutional change. Only aRer the clear failure o f this approach, did the Government agree to fundamental change (with creation o f the Road Fund in 1999 and TANROADS in 2000). This Project now assists to progress further and complement the reforms already achieved.

Other development agencies To improve condition o f road network and enhance road management capacity

0 The absence o f substantially completed detailed engineering for al l major roads immediately prior to Board presentation leads to delays and cost increases. This Project i s presented with a majority o f designs and bidding documents completed.

EU, AFDB, NORAD, DANIDA, SDC, JICA, Kuwait, OPEC

0 Donor Coordination led by Government is essential. Bo th MOW and M C T need to take the lead in developing poverty focused policies and strategies (MOCT) has already done so in its National Transport Policy o f 2003). The project helps them through support to develop such plans and strategies and to hold annual policy and donor coordination conferences.

2. Rai l component The client and the Bank have drawn valuable lessons from preparing and implementing past railway projects, and in particular projects aimed at helping concessioning processes, which have been taken into account in the preparation o f this project.

0 Privatizing railway assets rather than restructuring parastatals gives results which are much more

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profound and sustainable. However, the railway infrastructure is considered a strategic asset for a nation and investments required to renew and update it are sometimes too high to attract private investors as it may negatively impact on the viability o f the concession. In such cases, concessioning, where the State retains ownership over the infrastructure and the private sector i s in charge o f the operations and investments in equipment, i s a viable choice.

Private sector i s interested in investing in railway concessions only if the concessions are offered on reasonable terms, which enable them to recover costs and make an appropriate return on investments. Moreover, environmental and social liabilities and work force downsizing should be the responsibility o f the State as the private investor would not be wil l ing to assume responsibility for the costs associated with these activities. Hence, the present project design provides for IDA financing for track renewal, and social and environmental liabilities while the GOT shall finance staff retrenchment costs.

Following the previous failed attempt to concession TRC, the use o f political risk mitigation to support the concession appears necessary. The possibility o f the use o f an IDA PRG is being offered to bidders to help enhance investor interest. This should result in more competitive bids and better financial terms and higher up-front commitment to invest in asset rehabilitation and replacement. (See Annex 12)

One o f the conditions o f success o f a concession i s the effective functioning o f the regulatory body and o f the institutions in charge o f monitoring the concessionaire's performance and maintenance o f infrastructure. Hence the inclusion o f the component for the institutional support to RAHCO, the asset holding company on behalf o f the Government, and TRC, which w i l l take care of the residual assets before being wound up.

4. Indications of borrower commitment and ownership:

The Government has initiated action to address road sector related policy issues, as detailed in i t s Letter o f Development Policy, and has prepared a Poverty Reduction Strategy Paper (PRSP), which outlines linkage between adequate transport and poverty eradication. In addition, GOT has prepared a Public Sector Expenditure Report for Trunk and Regional Roads, outlining i t s macro-policy and strategy, as wel l as associated sector strategies, and a 10-Year Road Sector Development Program which wil l further firm up Government's development policy and create an action plan for poverty alleviation. A s outlined in the National Transport Policy (2003), GOT i s disengaging itself f rom direct operational activities and allowing private sector participation in the provision o f infrastructure and services. The objective i s to effectively separate policy and planning, from regulation o n the one hand and finance, execution and operation on the other.

5. Value added of Bank support in this project:

1. Road and Railway Reform

The Bank has been a leader in promoting road reform in the region (through SSATP) and world wide and i s well positioned to assist Governments to enhance the management o f their road assets. In terms o f railway concessioning, as well, the Bank has successfully assisted a number o f countries to concession their railways to private operators. In Afr ica this has been successfully done in the Ivory Coast, Burkina Faso, Cameroon, Madagascar, Zambia, and i s currently on-going in a number o f other countries.

2. Value added of PRG Support

The proposed TRC concession was first tendered internationally in November 2001. Although four

- 1 5 -

companies had pre-qualified, no compliant bid was received by PSRC. An important element o f the bidders concerns was that no political risk mitigation was offered by GOT in support o f the concession. Given the current adverse investment climate for investments in emerging market countries, the possibility o f the use o f a PRG in support o f the concession could help to enhance investor interest. A PRG is l ikely to strengthen investor confidence in the Government/ RAHCO policy and performance commitments. As a consequence, bidders may offer more competitive bids resulting in higher concession fees and lease payments and stronger upfront commitment to invest in network rehabilitation and expansion.

A PRG may help to improve the risk profile o f the privatization by reducing the perceived risks and thereby enabling investors to raise funds, directly or through their corporate balance sheets, in commercial debt markets that may not be available without some form o f political risk mitigation. As such, a PRG may help to make the privatization financeable by catalyzing acquisitiodconcession finance as wel l as by leveraging large amounts o f capital typically needed for network rehabilitation and expansion. In th is way, the pace o f new investments for expansion o f relevant services can be accelerated by overcoming the general reluctance o f investors to commit large amounts o f capital upfront.

The risks covered by the PRG would be limited to political risks and RAHCO related performance undertakings. In this way, the PRG would provide a transparent mechanism for allocating risks between R A H C O and potential investors. GOT and RAHCO would be accountable only for their own actions while the investors would be accountable for a l l the commercial risks, including traffic risk as wel l as investment and performance risks.

The use o f a PRG to catalyze commercial debt or investments could help to achieve much longer tenors for the debt and reduce the investors' overall cost o f financing because o f the AAA credit-rating o f the Bank as wel l as by a reduction o f the risk premium. This should help to achieve more sustainable retail tariff regimes for consumers by lowering the capital costs that investors need to recover through the retail tariffs.

The PRG would not give rise to any additional contingent liability for the government, as it would backstop only the contractual obligations that R A H C O would make to the concessionaire. In addition, the government would not incur any costs associated with the PRG, as al l guarantee-related charges would be payable by the concessionaire.

I t i s envisaged that an investment o f around US$ 180-200 mi l l ion would be required to be undertaken by the private concessionaire during the 25 year term o f the concession. Under the current investment climate, investors would be reluctant to commit to such investments unless they are provided with some assurances that the GOT would not prematurely terminate the concession and if this were to happen they would be duly compensated. Given investors' experience o f governance issues relating to government commitments in emerging market countries, investors and lenders may require these assurances to be backstopped by IDA. As a result, an indicative term sheet for an IDA PRG i s being incorporated in the bid package for the pre-qualified investors (See Annex 12).

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit 0 Cost effectiveness 0 Other (specify) Road Component: Costhenefits analyses have been carried out for the Singida-Shelui and Zanzibar roads, using the H D M 4

NPV=US$ million; ERR = % (see Annex 4)

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model, For both components, several technical altematives have been tested, the economic analysis leading to a rational choice. The Internal Rates o f Return and Net Present Value o f the chosen solutions are shown hereafter:

Road section cost IRR (m$) (%I

Singida - Shelui (1 09 km) 42.43 24.3 Mkwajuni - Nungwi (19 3.51 14.9

Matemwe - Pongwe (21 3.87 13.3 km)

NJ?V (m US$)

34.15 0.771

0.489 km) Paje - Pingwe (17 km)

Rai l Component: A costbenefit analysis has been carried out, comparing the with and without project situations. The main assumptions are that the freight traffic would increase by 14% in the f i rs t three years following the rehabilitation, and by 3% per year later on, that the number o f staff wil l be reduced from 7,000 to 3,000, that the concessionaire's investment would be close to US$ 30 million, while the Bank is financing US$ 33 mi l l ion and that the main benefits to be expected are the road avoidance cost for additional traffic, and the reduction in the unit cost o f operation for the existing traffic. Under such assumptions, the ERR o f the project is estimated as 45%.

3.08 14.1 0.452

2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) The transaction advisor for the rai l has prepared a financial model on the basis o f which the bidding documents were prepared. The bidders for the concessioning o f the railway w i l l prepare their own financial models in order to decide on their bid.

Fiscal Impact:

The fiscal impact o f the project wil l initially be negative for the country, since counterpart funding are required and redundancy costs wil l arise. In the mid to short term, however, a positive fiscal impact can be expected through increased fiscal revenues due to increased economic activities and the payment o f fees for the rai l concession.

3. Technical: Road Component: Design standards are based on the Tanzanian Design Manual and are adequate given the l ikely traffic that the roads w i l l be exposed to. The Singida - Shelui road w i l l have a carriageway width of 6.5 meters wi th 1.5 meters wide shoulders. The pavement w i l l consist o f 200 mm cement stabilized natural gravel sub-base layer, a 150 mm crushed stone base, and double surface dressing. The Zanzibar roads w i l l have a carriageway width o f 6 meters w i th 0.75 meters shoulders. The pavement wil l consist o f a 150 mm gravel sub-base, 150 mm crushed stone base and a surfacing o f 50 mm asphalt concrete. Asphalt concrete has been chosen for the surface because the only type o f stone found in Zanzibar is limestone which is too soft to permit surface dressing.

Rail Component: The technical proposal for the replacement o f ra i l and sleepers o n three worst deteriorated sections o f a total length o f 197 kilometer between Dodoma and Tabora wil l be presented to bidders during the bidding process who wil l be requested to review these proposals and to make altemative proposals (within the credit limit), if necessary.

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4. Institutional:

4.1 Executing agencies:

The roads components o f the project w i l l be executed by TANROADS, an executive agency o f the Ministry o f Works (MOW), regarding roads in Tanzania Mainland, and by MOCT Zanzibar regarding roads in Zanzibar. The rai l component w i l l be executed initially by TRC. RAHCO (Reli Asset Holding Company) will be created with the help o f the project, and RAHCO w i l l take over the executive function for the rai l component from TRC at the t ime o f the commencement o f the concession (planned by June 2005).

4.2 Project management:

Overall fiduciary responsibility wil l be with the IDA P C U (IDA-Project Coordination Unit) o f TANROADS who wil l manage the project's Special and Project Accounts, and who wil l oversee the other implementing agency's procurement actions. The Zanzibar road works wil l be executed by the CODAP PCU (Project Coordination Unit for the Coordination o f Donor Aided Projects) Unit o f the Zanzibar Ministry o f Communication and Transport. The rai l component w i l l initially be executed by the dedicated unit which was established within TRC to execute the RRP. During project execution RAHCO (Reli Asset Holding Company) wil l be created. RAHCO w i l l sign the concession agreement with the selected private operator on the Government's behalf and must therefore exist at the time o f signing (planned for November 2004). At the time o f the planned commencement o f the concession (by June 2005) RAHCO w i l l take over f rom TRC as the implementing agency for the rai l component. R A H C O w i l l receive technical assistance to build up i ts capacity for that purpose. At the time o f take over o f the implementation function for the rai l component by R A H C O from TRC, the D C A w i l l have to be amended accordingly.

4.3 Procurement issues:

The overall procurement risk for the project has been judged as average. TANROADS which w i l l assist to oversee the procurement action o f the other implementers needs to implement the procurement capacity enhancement plan as outlined in paragraph 4 o f Annex 6A.

4.4 Financial management issues:

A dedicated unit established within TANROADS is in charge o f specific projects including IDA financed projects. The key accounting staff in the IDA P C U i s adequately qualified and wel l experienced with World Bank requirements. Currently a significant proportion o f the fknding for the roads network i s received from development partners and TANROADS has an obligation to demonstrate that public funds are being effectively managed and fully accounted. The accounting system i s based on a wel l functioning computerized, double entry, accrual-based system maintained within the FAD.

The overall conclusions of the financial management 'assessment are: (i) the project's financial management arrangements satisfy the World Bank's minimum requirements under OP/BP 10.02. However, some improvements remain to be effected for the system in order to establish an acceptable control environment and to mitigate financial management risks. The various measures/improvements should be implemented by the due dates as indicated in the Financial Management Annex to the PAD (see Annex 6B); (ii) the project financial management risk is assessed as being low/negligible provided that the financial management arrangements are properly implemented and the financial management action plan (see Annex 6B) i s satisfactorily addressed in practice.

Standardfinancial covenants include the submission to IDA ofl (i) audited financial statements within six

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months after the year-end; (ii) other related information as required by IDA; (iii) financial Monitoring Reports (FMRs) within 45 days after each calendar quarter period.

Disbursements f rom the IDA Credit w i l l initially be made on the basis o f incurred eligible expenditures (transaction based disbursements). Strengthening i t s accounting and financial management capacity w i l l enable TANROADS to eventually facilitate the introduction o f FMR-based disbursements.

The extemal audit wil l be carried out annually.as part o f the TANROADS audit by the Controller and Auditor General (CAG) or such other person registered as an auditor under the Auditors and Accountants Act, 1972 and approved by the CAG. The auditor will be required to express an opinion o n the audited project financial statements only, in compliance w i th Intemational Standards on Auditing.

5. Environmental: 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.

For the Singinda-Shelui road which is the main component o f this credit, environmental and social assessments have been prepared and were disclosed, after ASPEN review and approval, both in the Bank's Kiosk and in Tanzania as per requirements 120 days before Bank approval.

Environmental Category: A (Full Assessment)

The three roads in Zanzibar are being considered as second year sub-projects for which the E N S A approval process i s carried our during project implementation. The E N S A for this sub-project was approved by ASPEN prior to appraisal, subject to the incorporation o f i t s comments. After finalization o f the documents these wil l be disclosed in line with IDA requirements. Construction i s planned to commence after the full implementation o f the RAP in early 2005.

For the rai l component, the production o f an E N S A satisfactory to IDA i s a condition o f disbursement for part o f the credit proceeds allocated to the rai l component. Procurement for these services is currently on-going and it i s expected that services w i l l commence immediately after effectiveness o f the credit.

5.2 What are the main features o f the EMP and are they adequate?

The main features o f the EMP for the Singida - Shelui road are tree planting, putting in place fire barriers, support to local environmental NGOs, HIV/AIDS and cultural aspects awareness campaigns.

5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: M a y 2003 (Singida - Shelui road)

The E N S A for the Singida - Shelui roads was disclosed o n December 12,2003. The E N S A for the Zanzibar roads is expected to be disclosed in April 2004 and the one for the rai l component in September 2004.

5.4 How have stakeholders been consulted at the stage o f (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?

Intensive consultations have taken place with affected villages and communities along the road way, with local NGO's and with environmental groups.

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP?

A specific part will be added to the quarterly FMR to report on environmental and social actions taken.

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6. Social: 6. I Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

Transport projects tend to cause health problems (such as HIV/AIDS) through increased social interaction, and due to safety problems. The project addresses these problems through contractor conducted HIV awareness campaigns and through road safety measures along the road way.

6.2 Participatory Approach: H o w are key stakeholders participating in the project?

I t i s proposed to the transport ministries to hold annual sector meetings joint ly with private sector and government stakeholders and other donors where the Government would present i ts plans, where implementation issues could be discussed and solutions sought.

6.3 H o w does the project involve consultations or collaboration wi th NGOs or other c iv i l society organizations?

During project preparation the consultants preparing the design documents interacted w i th local communities, NGOs and environmental groups in order to prepare the EA/SA.

6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes?

TANROADS has engaged a full time social scientist to monitor and follow-up social impacts.

6.5 How wi l l the project monitor performance in terms o f social development outcomes?

A specific part w i l l be added to the quarterly FMR to report on environmental and social actions taken.

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Forestrv (OP 4.36. GP 4.36)

7. Safeguard Policies:

0 Yes 0 N o 0 Yes 0 N o 0 Yes 0 No

Pest Management (OP 4.09) Cultural Property (OPN 11.03) Indigenous Peoples (OD 4.20) Involuntary Resettlement (OP/BP 4.12) Safety o f Dams (OP 4.37, BP 4.37) Projects in International Waters (OP 7.50, BP 7.50, GP 7.50)

0 Yes 0 N o 0 Yes 0 No 0 Yes 0 N o 0 Yes 0 No 0 Yes 0 N o 0 Yes 0 N o

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

0 0

0

Safeguards measures to be included in the tender documents and TOR for consultants Environmental specialist f rom TANROADS to monitor the E M P and RAP preparation, implementation and supervision Reporting on compliance is part o f the FMR.

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F. Sustainability and Risks 1. Sustainability:

The sustainability o f the roads component o f the project depends largely on the progress o f the reforms that have been commenced by the Government. This project will lay the ground for further reform, implementation o f which is proposed to be linked to a much larger sector-wide follow o n project through an Adaptable Program Lending (APL) credit. Reforms already achieved are the creation o f a Road Fund for the financing o f road maintenance in 1999 and the creation o f TANROADS, an executive agency responsible for the management o f the trunk and regional roads in the country. Next steps are to enhance TANROADS efficiency and to arrive at conducive framework for the management o f rural roads.

Risk Rating

M

M

M

Sustainability o f the r a i l system in Tanzania is largely dependent upon its successful concessioning. The likelihood for successful concessioning is strongly linked to the implementation o f the project - without the renewal o f the track and PRG support, it i s unlikely that the private sector would be prepared to undertake the concession. The project will also help strengthen GOT’S oversight o f the concession, which i s another essential condition for the sustainability of the sector.

Risk Mitigation Measure

In the past contractors and consultants often did not perform as required. The key to their improved performance is tight contract management. Improved contract management i s the focus o f the TA provided to TANROADS TANROADS to some extent still operates l ike a government department. This project supports efforts to make it more autonomous and responsive Risk mitigation through PRG

2. Cr i t i ca l Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

The table below identifies the key risks that project management may face in achieving its objectives and provides a basis for determining how management should address these risks.

M

M

N

Risk From Outputs to Objective Consultants and Contractors are performing satisfactorily

Government does not let TANROADS operate at m s - l e n g t h

Lack o f compliant bids for the concessioning o f TRC due to high perceived country risk

O+M Study and other actions supported by the credit are to enhance capacity o f TANROADS. Commitment i s being solicited from Governmen to let TANROADS operate at arms-length Annual review o f counterpart funding requirement during GOTPER discussions is planned The design o f the renewal component will be undertaken in conjunction with the concessionaire, and wil l be tranched. I t i s very unlikely that a competent operator will not take advantage o f the opportunities offered.

From Components to Outputs TANROADS can not carry out i t s mandated responsibilities independently and efficiently

Counterpart funds w i l l not be budgeted and released on time

The track renewal does not result in operational improvements

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GOT does not provide sufficient budget for future TRC retrenchments

RAHCO does not have the necessary capacity for oversight o f the concession Overall Risk Rating

Financial management risks: the staff in the IDA PCU have implemented the new EPICOR system, however, initial teething problems could jeopardize timely and accurate financial reporting

M

M

IDA support i s being provided for technical assistance for capacity building o f RAHCO

S

M

The package offered to 1800 TRC employees who were retrenched in 2003 was adequate. Future retrenchments including phasing need to be wel l planned and discussed between the successful bidder and GOT and appropriately budgeted for Training o f staff i s ongoing and hands-on support by supplier o f software reduces this risk

3. Possible Controversial Aspects:

G. Main Creditconditions 1. Effectiveness Condition

1, the Subsidiary Grant Agreement has been executed o n behalf o f the Borrower and TRC; 2. the Project Implementation Plan has been duly adopted by the Borrower in form and substance

acceptable to the Association; and 3. the Borrower has opened a Project Account and the init ial contribution o f Tshs. 900 mil l ion has been

deposited therein.

The following are specified as additional matters within the meaning o f Section 12.02(b) o f the General Conditions, to be included in the opinion or opinions to be h i s h e d to the Association:

1. the Project Agreement has been duly authorized or ratified by TRC, and is legally binding upon TRC in accordance with i ts terms; and

2. that the Subsidiary Grant Agreement has been duly authorized or ratified by the Borrower and TRC and is legally binding upon the Borrower and TRC in accordance w i th its terms.

The maximum period until effectiveness is 90 days after the signing o f the D C A and PA.

2. Other [classify according to covenant types used in the Legal Agreements.]

Conditions of Disbursement

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1. 2.

3.

EA and S A fo r the Zanzibar road component i s prepared, approved and disclosed; EA and SA for the rai l component, prepared, approved and disclosed, for disbursement o f emergency 25%; and For the balance 75% o f the amount, the Borrower shall have signed a railway concession agreement or made arrangements satisfactory to the Association.

Project Inialenieiztatian

The Borrower shall, not later than M a y 3 1 of each year, undertake an annual review o f the Project, and shall undertake a midterm revieFY not later than M a y 3 1, 2006.

H. Readiness for Implementation @ 1. a) The engineering design documents for the first year's activities are complete and ready for the start

o f project implementation. C, 1. b) N o t applicable.

2. The procurement documents for the first year's activities are complete and ready for the start o f project implementation.

quality. Z 3 . The Project Impleinentation Plan has been appraised and found to be realistic and o f satisfactoT

2 4. The fol lowing i tems are lacking and are discussed under loan conditions (Section G): r_

I. Compliance with Bank Policies

J 2. The following exceptions to Bank policies are recommended for approval. The project coinplies with 1. This project complies wi th all applicable Bank policies.

1

all other applicable Bank policies.

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Annex I: Project Design Summary TANZANIA Central Transport Corridor Project

:o promote economic and ocially sustainable levelopment and poverty lleviation by supporting: (i) irivate sector and nfrastructure development; ii) public sector reform and nstitution building; and (iii) mproved social nfrastructure.

Jroject Development 1 bjective: To support Government's (ational Transport Sector strategic Plan through :

A) Upgrading o f Strategic Zoad links.

B) Enhanced Road aanagement Capacity.

:C) Improved operation o f ranzanian Railways

Key Perform Indicator

Sector Indicators: Yncreased volume o f igriculture, commercial and ndustrial goods nationally in ill seasons.

Outcome I Impact Indicators:

Traffic increases on improved roads at least by 10% per annum on average between 2004 and 2009.

Portion o f road network undei TANROADS responsibilility in poor condition reduced from 49% in 2003 to 30 % 2009.(Average per year).

Traffic on TRC increases from 1.45 million tons at signing o f the concession agreement to 2.0 million by the end o f 2009, level o f transit traffic wi l l increase by 20% in 2009 from the level of 560,000 tons in 2003, km o f tracks under temporary speed restriction wi l l decrease from the current 10% to 2% in 2009.

lata Collection Strategy

ectorl country reports: .nnual Economic Review RSP ublic Expenditure Review

'roject reports:

'ANROADS Reports.

'ANROADS Reports.

teport o f concessionare

itical from Goal to Bank Mission) !ffective market integration vi11 lead to additional xonomic growth and the mprovement o f critical )overty indicators.

:from Objective to Goal)

Government and Donors support for rehabilitation i s forthcoming as planned.

Road Fund financing for road maintenance i s sustained and forthcoming as planned.

Demand for freight transport in the central corridor increases as planned and rail can compete with road transporters.

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Output from each Component: (A) Singida-Shelui Road (110 km) and 59 km o f strategic roads in Zanzibar upgraded to paved standard and key ferr ies rehabilitated.

Consultants and Contracters perform.

(B) Feasibility, detailed design and documentation for rehabilitation, and upgrading o f 4 trunk roads totally 713 km.

(C) TANROADS and MOCT Zanzibar capacity enhanced and keey studies for improved road management executed.

(D) TRC concessioned to a private operator.

Project Components I Sub-components: A. 1 Paving o f Singida-Shelui Road (1 10 km) and supervision. A.2 Reconstruction o f 3 roads in Zanzibar (59 Km) and supervision. A.3 Feasibility Studies, detailed design and bidding documents (713 kms) A.4 Rehabilitation o f ferr ies

B 1 TANROADS HQ Building B.2 Wide Area Network for TANROADS. B.3 O&M study for TANROADS B.4 Road investment prioritization B.5 Local governments roads inventory &survey

Output Indicators:

169 km o f roads paved and five ferries rehabilitated.

Bid documents are available.

TANROADS HQ building occupied, WAN operational and studies executed by July 2007.

Concession Agreement signed by November 2004 and commencement o f concession by June 2005.

Inputs: (budget for each component) $ 55.73 million

$ 14.34 million

$ 7.67 million

$ 6.58 million

$ 4.88 million $ 1.24 million

E 1.08 million

E 1.08 million

E 1.35 million

Project reports:

TANROADS and MOCT Zanzibar reports.

TANROADS & MOCT Zanzibar reports.

TANROADS and MOCT Zanzibar reports.

Signed Concession Agreement

Project reports:

(from Outputs to Objective)

Consultants perform.

GOT allows TANROADS operate at arms-lenght.

Private Sector responds to bids and Government concludes bid evaluation and negotiations in a timely manner.

(from Components to Outputs)

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B.6 DSM BRT & other transport related studies B.7 T A & training for TANROADS & MOCT Zanzibar B.8 Operating costs

C. 1 Urgently needed rails, sleepers and other material for TRC C.2 Other rails, sleepers and material for TRC, including installation C.3 Preparation o f SNEA C.4 Environmental Clean-up and Resettlement C.5 T A and training for TRC, the concessionaire and RAHCO C.6 T A for the private sector participation in TAZARA Partial Risk Guarantee

$ 2.47 million

$ 3.62 million

$ 0.27 million

$ 8.50 million

$ 25.47 million

$ 0.54 million $ 0.55 million

$ 0.54 million

Total: $ 178.07 million

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Annex 2: Detailed Project Description TANZANIA Central Transport Corridor Project

Section Alignment Pavement Remarks Singida-Iguuno Horizontal min radii Garvel Road. Poor The depressed road Confluence km 1 OOm condition, wi th section behaves as a 0-35 Max grade 5.5% widespread channel in case o f

undulations and flooding corrugations

Iguguno Horizontal min radii Gravel road, poor Tight bend exiting Confluence- 450m Max. grade 7.1% condition, pavement from Iguguno Misigir i km depressions, corrugation 35-76 and rutting Misigiri- Shelui Horizontal min radii Gravel road except a The stretch across km 77-1 10 1 OOm M a x grade road stretch through the Escarpment o f

12.3% Sekenke Escarpment Sekenke i s quite that i s bitumen paved, treacherous at present in bad condition

especially in case o f rainstorm

By Component:

Project Component A: Upgrading of strategic road links - US$84.32 million A.1 Singida-Shelui Road Rehabilitation and Upgrading Project (US$55.73m, of which IDA US$ 50.33m and GOT US$5.40m)

Background. Singida-Shelui Road (110 km) leads from the region's headquarters to the border o f Tabora region, serving a number o f intermediate administrative and trade centers as Iguguno, Misigiri and Shelui. I t falls under the Central Corridor o f the national trunk road network, with the highest international freight flows across the country. Due to the difficult crossing o f the Rift Valley through Sekenke Escarpment, the road i s viewed as the bottleneck in the corridor. The existing roadway i s gravel surfaced, 7 to 10 m wide, including shoulders. Shoulders cannot be used for non-motorized traffic. Design features are poor and road safety i s much below national standards.

Table: Main features of the existing road section

Strategic Importance. The proposed components o f the Central Transport Corridor Project serve the Western and North Western parts o f the country as wel l as the neighboring land locked countries o f Rwanda, Burundi, Uganda and Democratic Republic o f Congo. The Government accords high priority to the rehabilitation and upgrading o f the sections along the Central Corridor.

A.2 Reconstruction of 3 roads in Zanzibar (US$ 14.34m, of which IDA US$ 12.94m and Gov US$ 1.40m)

Project Description

This subcomponent includes the rehabilitation o f 3 different road sections on Zanzibar's sea shore.

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Year Road A Road B 2003 96 29

2006 (opening) 138 63 2015 233 149

Cost Estim ates

Upgrading works to bitumen standard

Supervision Costs

TOTAL

Road C 121 173 292

US $ 13.24 m

U S $ 1.10m

U S $14.34 million

A.3 Feasibility studies and detailed design (US$ 7.67m, of which IDA US$ 1.51m, NDF US$6.05m and Gov 0.llm)

A.3.1 Feasibility Study and Detailed Engineering Design for Upgrading and Works Supervision of Singida - Babati - Minjingu Road Project (US$2.59m, of which NDF US$2.59m)

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The Singida - Babati - Minjingu road (222km), is composed o f two different sections namely; Singida - Babati (T014), which i s a branch of the Central Corridor Route and covers 163km and links the two major strategic corridors, Central and the Great North corridor at Babati, and Babati - Minjingu (59km), which forms part o f the Great North Road Corridor (T005) and connects the Central Corridor Route w i th the North - East corridor via Babati - Minjingu - Arusha. Minjingu is located 28 km to Makuyuni the junction to Ngorongoro, Manyara and Serengeti National parks. The entire road passes through agricultural and pastoral potential areas with mainly sunflower and wheat as cash crops.

The Singida - Babati - Minjingu road i s an unpaved gravevearth road, 5-6.0m carriageway width, w i th no shoulders. The section f rom Singida to Manyara border (55km) is an unengineered earth road and is in bad condition, while the remaining section, Singida border - Babati - Minjingu in Manyara region is in a fair to poor condition. The section received some maintenance interventions during 1999/2000 to restore accessibility under the El-Nino road infrastructure repair program. Activities included gravelling and drainage improvement following the existing non-engineered alignment. Maintenance operations carried out recently are mainly spot improvement to restore accessibility o n the earth road sections and routine and recurrent maintenance involving grading and drainage maintenance for gravelled sections.

The road facilitates goods movement f rom Singida and Manyara to Arusha, Kilimanjaro and Tanga port and M e r to Mombasa port in the neighboring country o f Kenya via Tanga - Horohoro road.

Traffic on this road is mainly composed o f heavy goods vehicles ferrying various agricultural produce to processing plants in Arusha, Moshi, Tanga and Mombasa in Kenya. According to traffic count data o f MOW for the year 2001 the average traffic volume is about 200 vehicles per day (vpd). The lOYR SDP forecasts the Annual Average Dai ly Traffic (AADT) to exceed 600 vpd in year 2012. However, light vehicle traffic is currently restricted by poor road conditions.

TANROADS has commissioned a feasibility study o f the whole road and this i s expected to be completed soon, The proposed study under CTCP w i l l review the feasibility to ensure that mandatory requirements such as E M P and R A P have been prepared and if not include them in the study. This w i l l be followed by a detailed design based on the preferred option and bid documentation.

A.3.2 Feasibility Study, Detailed Engineering Design, Upgrading to Bitumen Standard of Dodoma - Babati Road Section (vS$2.70m, of which NDF US$2.70m)

The Dodoma - Babati road has a total length of about 263 km and forms part o f the Great Nor th Corridor Route (T005) running from Iringa to Arusha via Dodoma and Manyara regions and has been identified as a strategic corridor in Tanzania road network. The road comprises of two sections namely; Dodoma - Kondoa - Manyara border (228 km) and Babati - Dodoma border (35 km). The road crosses seven (7) bridges and passes through flat, rol l ing and hilly (Kolo and Bereko escarpments) terrain. It passes through agricultural potential areas reknowned for maize, millet, beans, sunflower, coffee and groundnuts. I t also links tourist destinations such as Ngorongoro, Tarangire, and Manyara National parks. The Great Nor th Corridor also links the productive areas o f Iringa, Dodoma, Manyara and Arusha regions and the Nor th Corridor (T005). I t i s also a major link between Zambia, Tanzania and Kenya.

The alignment is an unengineered gravevearth road whose width varies f rom 4.5 - 6.0 m for the section from Dodoma to Manyara border and 4.5 - 5 m for the section f rom Manyara border to Babati. The present condition o f the section from Dodoma - Manyara border varies from fair to poor condition and the rest varies f rom fair to good.

In calendar years 1998, 2000 and 2001, the road received major repairs along some sections in order to

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ensure i ts accessibility throughout the year. However, currently most o f the drainage structures are silted and eroded on the downstream. Many culverts have broken headwalls/wingwalls and aprons. Generally, the drainage on the section from Dodoma to Manyara border varies f rom fair to poor while from Manyara border to Babati varies from fair, along the flat terrain, to good in hilly sections. The existing road lacks the basic engineering qualities (structural, geometry, drainage and alignments).

The road is intended to stimulate economic growth by reducing transportation costs and improving accessibility to economically productive areas, primarily agriculture, tourism as we l l as increased accessibility and mobil i ty in rural areas.

The traffic on road i s fairly low due to the poor condition o f the road with most vehicles from Dodoma to Arusha opting to use the longer but paved route via Chalinze. According to the traffic census carried out in 2002 by the Ministry o f Works, the Average Dai ly Traffic i s 90. After upgrading to bitumen standard, it is anticipated that vehicles using Chalinze route wil l be diverted back to th is road and considerable new traffic w i l l be generated.

The proposal i s to carry out a feasibility to determine the most appropriate and cost effective intervention as a first phase followed by a detailed design and bid documentation for upgrading to the feasible standard. The CTCP shall finance both phases o f the study.

A.3.3 Feasibility Study and detailed design of Tanga -Horohoro road (US$ 0.76m, of which NDF US$ 0.76m)

The Tanga- Horohoro road links the port and town o f Tanga to the International border between Tanzania and Kenya. The 65km road section when upgraded wil l complete the al l weather bitument road from Dar es Salaam (via Chalinze and Segera) to Mombasa, the principal port city in Kenya.

The road passes through a flat to rol l ing terrain with a coastal climate. Currently the road i s in a good condition wi th recent regravelling o f bad sections. In addition, during the past two years construction o f 6 bridges and access roads has been accomplished through the IRPII credit at an estimated cost o f TShs. 6.8billion and this has significantly improved the road resulting in increased traffic. The accesses have been constructed to a 6 m wide bitumen standard road while the bridges are to 6 m wide carriageway with a provision for a pedestrian footpath. The rest o f the road varies in width from 4.5m to 6m.

The road serves a rural farming community whose production could be increased significantly by access to markets in the tourist areas of the Kenyan South Coast.The road once developed w i l l also spur growth in cross border travel and increase commerce between Kenya and Tanzania.

The road i s amongst critical strategic links and the first phase comprising the construction o f the bridges that is complete, i s expected to be followed by the upgrading of the whole road to bitumen standard in the fol low up credit.

The envisaged study will include a feasibility stage followed by detailed design and bid documentation. The alignment w i l l tie up with the already constructed bridges.

A.3.4 Study and design of Korogwe-Mkumbara-Same road (US$1.62m, of which I D A US$l .S lm and Gov US$ 0.11m)

Th is section o f the North East corr idor that i s constructed to b i tumen standard has started showing signs o f distress and it i s proposed to carry out a feasibi l i ty study, detai led design and documentation within the CTCP credit. Civil works fo r full rehabil i tat ion i s planned during the follow up credit.

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A.4 Rehabilitation of 4 ferries (US$ 6.58m, of which IDA US$5.94m and Gov 0.64m)

TANROADS has proposed the rehabilitation o f 5 key ferries (MV Kigamboni, MV Pangani, MV Rufiji, MV Sengerema, and MV Kilombero) and has commissioned a study under IRPII Credit to not only establish the level o f rehabilitation required but to also review the economic viability o f operating them. Once the study recommendations are presented it i s proposed to explore the option o f concessioning the operation o f the viable ones to a private operator. The study i s expected to be completed by May 2004.The rehabilitation will be done prior to concessioning.

Project Component B: Enhanced road management capacity - US$15.99 million B.l Tanroads Headquarter Building (US$4.88m, of which IDA US$4.40m and Gov US$0.48m)

This component wil l support TANROADS build i ts head quarter in Dar es Salaam. The M O W wi l l provide a plot for the building. Currently TANROADS operates from a leased offices in the city that are congested and there i s no room for expansion. The component provides funds for c iv i l works and supervision. I t i s expected that TANROADS will be able to move to i ts new offices by July 2007.

Under the proposed CTCP, design, supervision and works are to be financed.

B.2 Wide Area Network (US$ 1.24m, of which IDA US$1.20m and Gov US$0.04m)

This component wil l provide funding to enable TANROADS develop a dedicated ICT network within i ts regions and the head office for ease o f communication and transmission o f data and other information including purchase o f appropriate equipment.

B.3. Organisation and Management Study of TANROADS (US$ 1.08m, of which IDA US$ 1.OOm and Gov US$0.08m)

TANROADS has been in operation for the past 3 years and as it continues to evolve and take more responsibility there i s a case for an institutional audit to determine the optimal organization structure and hence level o f staffing. This component wil l assist TANROADS carry out a job evaluation, determine the level o f staffing and identify areas that require strengthening. I t will also help them identify ski l ls not available within the organization that would need to be out-sourced in the short and medium term while the organizations makes alternative long term plans.

B.4 Road Investment Prioritization (US$l.O8m, of which IDA US$l.OOm and Gov US$O.OSm)

TANROADS proposes to develop a methodology for ease o f identification and prioritization o f roads and networks requiring intervention, particularly rehabilitation and upgrading. I t i s proposed to carry out a preliminary appraisal o f al l (or a majority of) trunk and regional roads to establish those that are economically andor socially viable for M e r development and map them out in a logical order for ease of reference. Through this process TANROADS will be able to prioritize investments from GOT and Development Partners. I t should be noted that this study wil l compliment the 25 year, 10 year and 5 year development plans in the transport sector prepared by the Ministry o f Transport and Communications, Tanzania and provides more detailed information to assist in prioritization.

B.5 Local Governments Roads Inventory and Condition Survey (US$ 1.35m, of which IDA US$ 1.26m and Gov US$0.09m)

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Currently 30% o f the Road Fund i s earmarked for the maintenance o f roads falling under POLARG. Both the Road Fund and POLARG do not have a clear indication o f the condition and length o f roads falling under the district road management. TANROADS already has a clear indication o f the roads under their jurisdiction based on inventory completed in December 2003. To help establish the length and general condition o f district roads i t i s proposed to carry out an inventory in 10 representative districts. Based on the outcome, further inventory may be carried out in the remaining districts. Hopefully the outcome wi l l also help the Road Fund in future allocation o f funds. I t i s proposed that this component be implemented jointly with the Road Fund.

B.6 Other transport studies (US$ 2.47m, o f which IDA US$2.30m and Gov US$0.17m)

B.6.1 Dar es Salaam Rapid Bus Transit and Traflc Management Study (US$ 1.08m, of which I D A US$ 1.00m and Gov US$ 0.OSm)

The City Council o f Dar es Salaam plans to review traffic management in the city to reduce congestion and to particularly increase capacity at various junctions. They also propose to introduce a Rapid Bus Transport system to increase public transport and reduce dependance on private transport. This component wil l therefore assist them in carrying out commercial and feasibility study and preparing plan for RBT and private sector participation operation traffic management studies and review o f institutional arrangements. If the proposal i s found to be commercially feasible further support may be included in a future credit for related infrastructure.

B.6.2 Other transport sector studies (US$1.40m, of which I D A US$1.31m and Gov US$ 0.10)

In preparation for a future APL it i s proposed to carry out several studies in the transport sector to cover not only roads but ports and other related aspects. This component wil l cater for these activities.

B.7 Technical assistance and training for TANROADS and MOCT (US$ 3.62m, of which IDA US$ 3.42m and Gov US$0.20m)

B.7.1 & B.7.2 Technical Assistance for TANROADS and M O C T (US$ 2.54m, of which I D A US$ 2.36m and Gov US$O.lSm)

Under IRP-11, CODAP/MOCT, Zanzibar has shown ability to coordinate and execute projects, but it has also shown weakness in contract management and financial monitoring resulting to substantial delay o f some project components. Recognizing the limitations o f the unit’s capacity to manage the expanded road program under IRP-11, the Bank supported the unit with a contract management and heavy equipment specialists. This has improved the capacity, however more specialist expertise will be required in the foreseeable future. Specifically i s proposed to retain the services o f a contract specialist and possibly a procurement expert. The component shall support these and others as necessary. For the mainland TANROADS has been responsible for implementing project under IRPII. TANROADS i s a semi-autonomous Road Agency. TANR0AD.S i s mandated to be in charge o f (a) road network development and management; (b) planning and management o f network maintenance; and (c) overseeing the implementation o f the program, with emphasis on technical and financial monitoring and performance evaluation. L ike wise TANROADS has established a dedicated IDA PCU under direct management o f i t s Chief Executive, composed o f experienced professional staff, who have been responsible o f technical

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and financial management o f the project under IRP 1I.Their responsibility included: (i) coordinating the planning and implementation o f the IRP I1 program; (ii) supervising and execution o f the program; (iii) preparing quarterly and annual technical and financial performance reports and financial audits; (iv) compiling progress reports for quarterly and annual review meetings wi th stakeholders and donor community; (v) updating o f the program documents including the annual expenditure and financing plan; (vi) disseminating information to the public and stakeholders; (vii) organizing donor consultative meetings. Substantial progress has been made in creating a professional team, however weaknesses have been noted that have resulted in delays and losses. I t i s therefore proposed to engage short and medium term TA in specialist areas to build capacity and a category has been included. This should strengthen the IDA-PCU to absorb more responsibilities.

B. 7.3 & B. 7.4 Training for Tanroads and MOCT (US$0.81m, of which I D A US$0.81m)

Training i s an integral and ongoing process within TANROADS and MOCT Zanzibar. This component wil l however be more focused and will aim at providing ski l ls in areas that are deficient particularly those identified during the institutional operation and management study.

B.7.5 Externaljinancial audit (US$0.27m, of which I D A US$0.25m and Gov US$O.O2m)

I t i s proposed that, in conjunction with the Auditor-General, TANROADS will appoints auditors from the private sector annually to audit the project. This component provides funds for this.

B.8 Operating costs (US$ 0.27m, of which IDA US$0.24m and Gov US$0.03)

This item covers transaction mainly and other operational expenses related to the implementation o f the project through TANROADS.

Project Component C: Improved infrastructure of Tanzania Railway Corporation - US$ 37.75 million Concession Structure

The proposed Concession wil l include a 25-year lease for the TRC railway network, with the right to manage and maintain the network, and lease o f TRC locomotives and rolling stock. The concessionaire wil l also have the exclusive right on the TRC network to operate freight services and passenger services for the period, with an obligation to supply designated passenger services.

The concessionaire wil l operate freight and passenger services throughout the network and undertake the integrated maintenance, upgrading and operation of the infrastructure and rolling stock. I t wil l earn access fees from TRC and any other operator it may agree to provide access to. I t wi l l be incorporated in Tanzania and wil l be regulated by the Surface and Marine Transport Regulatory Authority (SUMATRA) and wil l have to comply to the Railways Act 2002, as well as with local safety and environmental regulation. During the duration o f the lease, RAHCO will retain ownership o f the land and railway infrastructure and the leased locomotives and rolling stock.

The payments associated with the concession have two components. The first component i s a periodic payment for the right to operate passenger and freight services. I t i s structured as a percentage o f the gross revenues o f the Concession Operator. The second payment component i s a periodic lease payment for the use o f the infrastructure, denominated in U S dollars and indexed against U S inflation.

Total investment requirement over the l i fe of the concession i s projected to be around U$180- 200 million. I t i s expected that these wil l be financed through: equity from the concessionaire, loans to the

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concessioanire f rom financial institutions (both amounts to be determined), US$33 mi l l ion through an IDA credit specifically for track rehabilitation, and the balance through internally generated funds.

The Infrastructure Lease, for a period o f 25 years, covers the track and the buildings located on the land included in the lease (such as locomotive and wagon maintenance depots), maintenance units, h e 1 points, terminals, yards and shunting facilities and sidings. The Concession Operator w i l l be responsible for the maintenance o f the infrastructure and for al l train control and safety o n the network. RAHCO w i l l be responsible for an initial capital program to upgrade some sections and for any emergency works required under Force Majeure. RAHCO may also upgrade infrastructure andor extend the network using i ts own finds during the lease period.

The assets to be concessioned include al l o f the TRC rol l ing stock, spares, plant and maintenance equipment and office equipment, and some specialized facilities. The operational TRC diesel locomotive fleet consists o f 49 mainline locomotives, 20 branchline locomotives and 24 shunting locomotives. The operational TRC vehicle fleet consists o f 166 vehicles and 1,424 wagons. In addition, there are 423 non-operational wagons. The concessioned assets includes plant and equipment for infrastructure and other maintenance and al l office computers, furniture and fittings. The concessionaire will select what he requires, the rest shall be retained by TRC to be disposed appropriately.

The concessionaire w i l l be able to select those staff i t requires for the operation o f the concession from existing staff at a l l levels in TRC as part o f the package. All TRC employees re-employed by the Concession Operator w i l l have their terminal benefits frozen and paid by the Government on retirement and w i l l thus not cany over any leave or pension entitlements. The Concession Operator i s required to engage former TRC staff on terms that are at least equal to those which they enjoyed under TRC. The concessionaire wil l have the right to reduce the staffing levels and any staff made surplus within two years of the operation o f the concession would be paid by GOT at i t s own cost.

Periodic reviews will be conducted by RAHCO to ensure that the Concessionaire and the Concession Operator have conformed with the terms o f the Lease and Concession Agreements and with the agreed infrastructure work programs.

C.1 & C.2 Provision o f rails, sleepers and other material (US$ 33.97m, of which IDA US$ 33m and Gov US$0.97m)

A section o f TRC’s track, about 200k1n (almost al l German 561b/yd rail) between Itigi - Tabora, has completely outlived its useful engineering l i fe and needs to be replaced at the earliest opportunity. The cost of renewal i s estimated at US$33 million. GOT has, assumed the responsibility for this renewal and the commitment included in the concession bidding document. It i s proposed that TRC lay equivalent o f 25% o f th is renewal cost prior to concession and the 75% component be laid once the concession has been signed with full participation o f the operator. Some o f the proposal included: (i) relaying o f track by a Bank financed contract; (ii) relaying o f the track by the concessionaire using IDA financed rai l and sleepers. Technical approaches: (iii) replacement o f the old rai l and sleepers by new 801b track; (iv) replacement o f the Dar - Morogoro - Dodoma section with new 801b track and use o f the cascaded track on the deteriorated section. Approaches (i) and (iii) would be the conventional approach, but (ii) and (iv) would provide significant operational improvements as wel l as leveraging investment from the concessionaire.

Rehabilitation through a contractor (i), to be selected under the Project, would give complete responsibility for the final outcome to one party. However, the track would be concurrently used by the concessionaire for ra i l operations, and the renewal contract would be let through R A H C O rather than the concessionaire. Such an arrangement i s possible but it would require close coordination, detailed working arrangements established in the renewal contract (for line closures, etc.) and could lead to tension, slow progress, and even contractual problems. The alternative approach (ii) would use IDA funds for the procurement o f the

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track material (rails, ballast, sleepers and fastenings) and leave the concessionaire to undertake the actual relaying o f the track. This would avoid the problems o f coordination.

TRC’s long-term policy has been to renew the track w i th 80 lb rails (iii), under the expectation that, in 20 years or so, the entire network would be renewed with 80 lb rails and axle-loads can be significantly increased. Replacement with 601b rai l would save little cost as such rai l and the corresponding sleepers are outdated and it would require special manufacture, at a relatively higher cost. I t has thus been agreed to renew with 801b material (as under RRP).

TRC’s track consist o f 801b, 601b and 561b rails. The 801b rai l allows heavier locomotives but the potential cannot be used as the adjoining sections have lighter rail. Renewing the Itigi - Tabora section would not allow heavier locomotives until, at the very least, the entire Dodoma -Tabora section was relayed with 801b track. An alternative approach (iv) to renewal would be to relay the present 601b track between Dar es Salaam and Morogoro or Dodoma with 801b rail, and then cascade the released track (probably 60% is re-usable) to relay the I t ig i - Tabora section. This would generate substantial operational benefits for the concessionaire as the gradients o n the Morogoro section currently require freight trains to be hauled by two locomotives, which could be replaced by one heavier, high-powered locomotive. The cost o f the track materials for this section would be equivalent to a complete relaying contract for the I t ig i - Tabora section.

The altemative (ii and iv) would benefit the concessionaire who might thus be prepared to fund the cost o f the c iv i l works.However, the altemative wil l need to be finalized in consultation with RAHCO and the preferred bidder, when identified. If the procurement o f track materials i s selected, the procurement would be made in at least two tranches, linked to the progress o n the relaying.

The base cost o f the component would be US$33.0 mi l l ion with nominal contingency as TRC has made several purchases o f rai l recently (74% o f the total project cost, assuming that the concessionaire funds the civ i l works).

These material shall be purchased in two steps: urgently needed rails, sleepers and other material wil l be purchased by TRC as soon as the Environmental and Social Assessments requirements are met and for an amount o f $8.50m; then the rest w i l l be purchased after the concession agreement is signed, under an agreement reached with the bidder and for an amount o f $25.50m.

C.3 Preparation of the Environmental and Social Assessments (US$ 0.54m, o f which IDA US$ 0.5m and Gov US$0.04m) The TRC has prepared a TOR for the execution o f an environmental and social impact assessment. The TOR was initially approved by ASPEN, however a review before launch has been recommended and approval i s expected in March 2004. A short l i s t o f consultants has also been made and it i s expected that the RFP will be launched in March 2004. The plan i s for the appointment o f the consultant to be made in M a y immediately after the credit is approved. The funds for the study have been included in the credit. Subsequent mitigation measures include clean up o f o i l spills are discussed below.

(2.4 Environmental clean-up and resettlement costs (US$ 0.44m, of which US$ 0.39m and Gov US$ 0.04m) The Environmental and Social Liabi l i ty audit, undertaken as part o f the concession advisory services, revealed o i l pollution around TRC’s workshop facilities and a number o f squatters in the rai l reserve. The bidding documents indicated that GOT would take responsibility for existing liabilities and the concessionaire would be responsible for any subsequent environmental or social liabilities. GOT has requested the Bank to assist with (i) the clean-up o f existing pollution, and (ii) the relocation o f squatters

Pollution Clean-up: Relatively l imited areas around the main workshop facilities at Dar, Morogoro,

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Moshi, Mwanza, and Tabora are contaminated by oil. The project w i l l assist GOT to clean up the soil in these areas, Provisional cost US$0.5 mi l l ion

Resettlement Costs: In line with OP4.12, IDA funds w i l l not be used for cash compensations, including for land, but for the cost of the assistance o f people out o f the right o f way o f TRC to other suitable locations (such assistance w i l l be provided by local NGOs).

C.5 Technical assistance for RAHCO, TRC and the proposed concessionaire (US$ 0.54m, of which IDA US$0.5m and Gov US$0.04m)

The concessioning of TRC and the overall withdrawal o f the public sector from the provision o f transport services has resulted in the need for new institutions to regulate the transport sector and monitor the concession contracts, while a residual TRC w i l l remain to liquidate the assets and resolve the outstanding financial and legal liabilities. These are new roles/functions and the institutions wil l require some initial assistance, in the form o f technical assistance and training, to become h l l y established.

The Rel i Asset Holding Company w i l l be the lessor o f the TRC assets leased to the concessionaire, and wil l have the responsibilities o f keeping the asset register and monitoring the compliance o f the concessionaire wi th the concession and lease agreements. In addition, RAHCO would be the implementing agency for any capital works on the TRC rai l network, financed by GOT. RAHCO is a l imited liability company, wholly owned by GOT. Assistance in the form o f staff training, studies or technical assistance may be needed for the establishment and capacity building o f RAHCO.

C.6 Technical assistance for the private sector participation in TAZARA Railway (US$ 2.15m, of which U S $ 2 m and Gov US$0.15m)

A study i s due to be commissioned in February 2004 through a grant from the PPIAF to look into various options that are available for the participation o f the private sector in the management o f the TAZARA. TAZARA is an important railway that links the port o f Dar es Salaam to Zambia and the Southern and South Eastern regions o f Tanzania. I t i s expected that the 6 months study wil l provide mechanism for the privatization o f the rail. The funding earmarked wil l support the process including possibly the funding for the transaction advisers and provision o f TA to guide the process.

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Annex 3: Estimated Project Costs TANZANIA. Central Transport Corridor Project

Part A: Upgrading o f strategic road links Part €3: Enhancing o f road magement capacity Part C: Enhancement o f the performance o f Tanzanian Railways Part D: Partial Risk Guarantee Total Baseline Cost

' Physical Contingencies 1 Price Contingencies 3.08 6.06 9.14 I Total Proiect Cost; 44.81 133.26 178.07

I Operating costs Partial Risk Guarantee

Total Project Cost; Total Financing Required

I Total Financing Rewired I 44.81 I 133.26 I 178.07 I

0.27 0.00 0.27 0.00 40.00 40.00

44.82 133.25 178.07 44.82 133.25 178.07

I Works I 18.59 1 55.78 1 74.37 1 Goods Services Training

4.20 21.52

0.24

30.84 6.05 0.58

35.04 27.57

0.82

I Identifiable taxes and duties are 0 (US$m) and the total project cost, net o f taxes, i s 178.07 (US%m). Therefore, the project cost sharing ratio i s 68.51% of

total project cost net o f taxes.

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Annex 4: Cost Benefit Analysis Summary TANZANIA Central Transport Corridor Project

Road section Paving compared to...

A. Singida - Shelui road

Econ. costs (m%) Current traffic EIRR (YO) NPV (m%)

Section A

Diversion (76.1 km)

Singida -Sekenke Regraveling 2 22 1 14.7 3.94

Nothing 23.5 22 1 28.0 27.95

Section B

(11.9 km) Kinkungu Road Regraveling 0.25 201 1.7 -4.55

Nothing 8.6 20 1 10.8 -0.66

Sekenke \Regraveling 0.6 181 14.1

Based on these results, the decision has been made to choose the paving solution.

6.08

Main Assumptions: Traffic Forecasts

The traffic forecasts are based on two types o f studies:

- traffic counts and surveys, in order to estimate the current Annual Average Dai ly Traffic (AADT) and

- traffic growth estimates, based on the economic growth rates projection for the next years, growth-traffic This study stated that the generateddiverted traffic should be around 78% o f the current traffic, ranging from a low o f 43% to a high o f 114%.

Vehicle Operating Costs.

The labor costs utilized for the calculation o f VOC are as follows:

carried out in 1999,2001 and 2002;

elasticity studies and diverted traffic estimates.

skilled labor for vehicle maintenance: vehicle crew wages: passenger working time:

$ 3 -48 /hr $1.14-3.1 /hr (according to vehicle category) $ 0.25 /hr

6 191 27.4

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0.78

passenger non-working tome: $ 0.05 Ihr

LOT Section

Lot 1 Section

Maintenance strategies Without Project

re-gravelling: when gravel thickness is <=50mm--cost: $24.34 /m3 grading: carried out every 12month--cost: $2,250 lkm routine maintenance: carried out as per local norms--cost $ l , O O O h

resealing: when surface damage i s >=25% o f the carriageway, the resealing includes: With Project

- double seal coat: cost $5.l/m2 - edge repairs: cost $1 1.9/m2 - patching: cost $ 10.0 /m2 - crack sealing: cost $ 6.0/m2

pothole patching: when number o f potholes i s >=25lkm-cost $1 O.O/m2 routine maintenance: carried out as per local norms---cost $1,42O/km

Length Sub -section and change km

76.103 Singida Town, change from 1+278 to O+OO

Methodology For economic analysis purposes, the Project road has been divided in three sections because to take unit account the different construction cost per km, and vertical alignment. Furthermore the Project road has been divided in two lots according to the proposed contract strategy as presented below:

Lot 2

Design Road Sections

1 Singida - Sekenke Diversion, change from O+OO to 74+825 Kinkungu River road from chainage 74+825 to 86+700 Sekenke Confluence - Shelui, from chainage 86+700 to 108+149

Section 2 1 1.875 Section 3 21.449

The economic analysis o f proposed works for the project road has been carried out utilizing the HDM-4 model. Two levels o f analysis have been considered.

The first leve l compares the selected alternative o f the Project road against the alternative “Without Project”. The second leve l compares separately the two lo ts o f the Project road against the corresponding alternatives “Without Project”.

Sensitivity analysis / Switching values of cr i t ical items: a. Sensitivity Analysis

T w o different sensitivity tests have been carried out, one considering possible changes in the construction costs and the other one measuring the impact o f traffic growth variations. I t has gauged the effects o f the above variations on the economic IRR.

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Traffic growth Construction costs

Nothing

Reg raveling

b. Additional Benefits

Base case High traffic Low traffic High costs Low costs 5.50% 6.50% 4.50%

20% -20% ElRR 24.30% 27.60% 21 -30% 20.90% 29.00% NPV (m$) 34.15 47.28 23.88 ElRR 12.13% 14.70% 9.60% 10.40% 14.40% NPV (m$) 0.17 6.98 -5.06

Farmers ’ cost savings:Substantial cost savings are projected to accrue from upgrading the Singida-Shelui road. Farmers are expected to adjust progressively to road upgrading because in agriculture there i s a lag time between a decision to produce and the production o f the final output. Delay may vary between two and three years, although 50 to 65 % o f the adjustment towards the long-run equilibrium occurs in the f i rs t year.

The region traversed by the Project road exports foodstuffs to both internal and external markets. Over the period 1995-2000, the region has annually exported 256,000 ton o f crops.

Contribution to the national development generated by the Project Road:The improvement o f Project road will also contribute to the development o f other sectors, namely the mining sector , the international and national road cargo industry and the tourism sector.

Mining sector: The Central Corridor, including the section Singida-Shelui i s an important link to the important gold mines o f Kahama, Nzega and Shinyanga and the nickel deposits in Ngara district.

Road cargo industry: All sections o f the Central Corridor, including Singida-Shelui are strategic for cargoes coming from Rwanda, D R C and Burundi and from the interior o f Tanzania Mainland.

Tourism sector: Although no important parks are located along the Central corridor, it serves as connection for the Great North, Western and Lake Circuit corridors that serve tourist destination. Along this corridor, though are located archaeological sites with rock graffiti such as those in Singida region.

c. Risk Analysis Risk analysis i s most commonly performed by assigning probabilities o f occurrence to key parameters, together with the evaluation o f the combined effects o f changes in the values o f each parameter. The parameters to which the project is most sensitive are derived from the sensitivity analysis. In the case o f Singida Shelui road section, the r isk analysis has been carried out for changes in:

- construction costs

- traffic growth rates.

The uncertainties in construction costs occur frequently in the works implementation stage, particularly when a long period elapses between the economic appraisal and the start o f the works. The probability o f change in construction costs has been estimated on the basis o f past experience. The probability o f a decrease or increase in cost o f construction tu rns around 20%. Traffic growth forecasts depend o n a wide number o f factors, such as economic growth and social, political and civ i l events, that exert a direct impact on VOCs and road maintenance costs. The uncertainties about the traffic growth rates o f the present project are related to the country’s overall development trends. In the past ten years, economic growth has been satisfactory. Consequently, it i s assumed that there i s a 50% probability that the uncertainty in forecasting traffic growth rates is lower or higher than the adopted traffic forecast.

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B. Zanzibar road projects

Road section Technical Invest. costs Recurrent Daily traffic EIRR (YO) NPV (m%) solution (m%) costs (m%)

I

Road A Mkwajuni - A-GWC-1 1.79 0.57 183 15.3 0.367 Nungwi (17.7 km)

A-DSD-1 2.46 0.14 183 15.4 0.583 A-Asph- 1 3.24 0.14 183 15.0 0.69

Access Road - A-GWC-2 1.79 0.57 183 11.8 -0.023 Mkwaj. - Fish market (1 9.4 km)

A-DSD-2 2.46 0.14 183 15.5 0.687 A-Asph-2 3.51 0.14 183 14.9 0.771

Road B Matemwe - B-GWC-1 1.65 0.75 88 12.1 0.013 Pongwe (2 1 km)

B-DSD-1 2.88 0.1 88 12.5 0.162 B-ASph- 1 3.87 0.12 88 13.3 0.489

Summary of Benefits and Costs:

Road C Paje - Pingwe (14.4 km)

Paje - Michamvi (16.6

Three technical solutions (described in Annex 2) have been considered for each road section, and independent economic analysis have been carried out. For section A (Mkwajuni-Nungwi) and C (Paje-Pingwe), two alternatives have been considered, including (or not) the terminal sections to the fish market, Michamvi and the access road. The table below summarizes the results o f the study.

C-GWC-1 1.29 0.32 188 17.4 0.425

C-DSD-1 2.23 0.06 23 1 15.6 0.578 C-Asph- 1 2.86 0.07 23 1 15.8 0.774 C-GWC-2 1.39 0.33 188 14.0 0.161

C-DSD-2 C-As~h-2

2.38 0.06 23 1 13.6 0.255 3.08 0.08 23 1 14.1 0.452 *m)

Based on these results, the decision has been made to choose the asphalt solution.

Main Assumptions: a. Traffic Forecasts

The traffic forecasts are based on two types o f studies:

- 4 1 -

- -

traffic counts and surveys, in order to estimate the current Annual Average Dai ly Traffic (AADT); traffic growth estimates, based on the fue l imports statistics in the last 10 years, assuming that the

share rate between power production and road transport w i l l remain constant, and distorted in order to fit local conditions. The estimated annual growth is 5% before distortion, and then modified to 6% (Mkwajuni - Nungwi and Paje - Pingwe), 8% (passengers on Pongwe - Matemwe) and 10% (freight on Pongwe - Matemwe).

A A+ B

b. Methodology The economic analysis o f proposed works for the project road has been carried out utilizing the HDM-4 model. I ts description can be found in the preceding section regarding the evaluation o f the Singida-Shelui road.

Sensitivity analysis / Switching values of critical items: a. Sensitivity Analysis Two sensitivity tests have been carried out consisting of:

A B

10-20% increase o f construction costs, 10-20% reduction o f traffic volumes,

The sensitivity analysis has gauged the effects o f the above variations o n the economic IRR. Results are summarized hereafter, three cases being considered: (+20,-0) for an increase by 20% o f the construction costs and a decrease by 0% o f the traffic volumes, (+O,-20) and (+20,-20):

(+20,-0) (+O,-20) (1-20,-20) (+20,-0) (+O,-20) (+20,-20) (+20,-0) (+0,-20) (+20,-20) 12.71. 12.82 10.72 12.68 12.57 10.42 12.33 12.53 9.75

9.58 9.13 7.2 12.7 12.92 10.08 12.72 12.67 10.71 9.99 10.14 8.21 10.44 10.67 8.69 11.59 11.76 10.19

c 1 14.45 I 14.29 I 11.71 I 12.59 I 12.53 I 9.75 c+ I 11.41 I 11.18 I 8.9 I 10.68 1 10.6 I 7.95

13.4 13.33 11.19 11.89 11.82 9.8

b. Risk Analysis The probability o f change in construction costs has been estimated o n the basis o f past experiences. The probability o f a decrease or increase in cost o f construction turns around 20%. Traffic growth forecasts depend o n a wide number o f factors, such as economic growth and a number o f social, political and civ i l events, exerting a direct impact on VOCs and maintenance costs. The uncertainties about the traffic growth rates o f the present project are related to the island’s overall development trends. In the past ten years, economic growth has been satisfactory. Consequently, it i s assumed that there is a 50% o f probability that the uncertainty in forecasting traffic growth rates i s lower or higher than the adopted traffic forecast.

e. Additional Benefits The main economic activity of the regions accessed by theses 3 roads i s tourism. The access to not less than 70 hotels wil l be rehabilitated, allowing fhrther economic growth. Additional benefits are also expected in the agriculture and fishery sectors, which wil l take advantage o f a faster access to the markets.

C. Railways

1. The economic rate o f return (ERR) has been computed by ascertaining the costs and benefits o f the

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“With” and “Without” Project scenarios for a 20lyear period. In al l probability, the implementation o f the Project could commence from January 1,2005. The “With” and “Without” Project scenarios are discussed below.

2. The “With Project” scenario w i l l have the following key features:

(a) Project commencement: The project implementation i s scheduled to commence on January 1, 2005. I t i s assumed that the concessionaires would commence operations during the year 2005, most probably by January 1,2005; Year 2005 has also been assumed to be first year o f the economic analysis;

(b) Implementation of physical investments: The Project funds allocated for track rehabilitation would be utilized during the first two years o f the concession, i.e., before December 31, 2005. With the resulting improvement in the condition o f the track, availability o f wagons, reliability o f locomotives, the traffic during the year 2005 i s projected to increase from the one projected in year 2004, i.e., 1.4 mi l l ion tons, to 1.6 mi l l ion tons. Assuming an average lead o f 10000 kms, the traffic during the first year o f analysis would amount to 1600 mi l l ion ntkm during the year 2005;

(c) Disbursement of staffretrenchment funds: GOT i s using its own funds for staff rationalization and these would be available for disbursement as soon as the concession becomes operational, Le., during the early 2005. Al l the funds for staff retrenchment are, therefore, assumed to be disbursed during the first two years o f the Project;

(d) TrafJic projections: Track rehabilitation i s scheduled for the first two years o f Project implementation. The freight traffic during the first year o f the Project, Le., 2005, i s estimated at 1.6 mi l l ion tons. Further investments and an efficient private management could lead to a further substantial shift in the freight traffic f rom road to rail. During later years, the traffic could grow at a compounded rate o f 14%. This i s based on a commodity wise analysis. However, for the economic analysis, traffic growth has been conservatively estimated at 10% per year for the first three years only, starting w i th 1.6 mi l l ion tons or 1600 mi l l ion ntkm equivalent in the first year as indicated above. This reflects a shift in traffic f rom road to rail. Thereafter, the traffic has been estimated to grow b y 3% every year, reflecting economic growth;

(e) Operating costs: The operating cost for a wel l performing TR at the level o f 1.6 mi l l ion tons o f freight traffic has been estimated by the consultants as US$57 mi l l ion (excluding depreciation);

( f ) Staffcosts: The current staff level i s about 8,800 and the concessionaire i s l ikely to operate wi th 3000 staff.

(g) Variable costs: Variable costs have been assumed to reduce by 10% each in the first two years and, thereafter, remain constant. 20% reduction in variable costs i s considered quite achievable. The reductions are expected to be effected in the areas o f consumption o f fuel, spare parts, wastage control, more economical procurement through long-term contracts, better inventory control, and more effective utilization o f operating assets;

(h) Fixed costs: Fixed costs have been assumed to reduce by 10% each in the first two years and, thereafter, remain constant. 20% reduction in futed costs i s considered quite achievable. The reductions are expected to be effected in the areas o f infrastructure maintenance more economical procurement o f fittings and parts by use o f long-term contracts and better inventory control, better quality control leading to reduced wear, derailments, and accidents, better control o f working capital, and better utilization o f fixed assets. However, with the increase in traffic, the unit costs would show a decline due to the futed costs being shared by higher traffic. I t i s also assumed that the concessionaires would not need to engage more staff or operating assets for the increased traffic, which will be taken care o f through increased staff and resource productivity. I t i s assumed that the concessionaires would not need to engage more operating

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assets for the increased traffic, which w i l l be taken care o f through increased resource productivity;

(9 Investments by the concessionaires: Even though the concessionaires’ strategy for investment can not be anticipated, a good guess would be that the concessionaires would invest whatever is needed to rehabilitating the railway assets so as to cater fully to the railway demand. The present management has estimated the investments to be close to US$60 in addition to the US$33 mi l l ion to be provided through the credit. For the purpose o f analysis, it has been assumed that the concessionaires would make the investment o f US$60 mi l l ion spread over a period o f 6 years.

0) Repatriation by the concessionaires: Based on the concessioning experience elsewhere in sub-Saharan Africa, the concessionaires normally expect between 30 and 40% return on their equity investments. Assuming that the concessionaire w i l l be able to raise loans at Labor+risk allowance, an average return on the concessionaire’s investment (2/3rd loan plus 1/3rd equity) o f 25% has been assumed. Since the concessionaires are most likely to be foreigners, the return on capital payments have been deducted from the net cash f low to arrive at the benefits available to the economy.

(k) Road costs: The road costs have been assumed to be US$.O8/ntkm. These are estimated on the basis o f the tariffs charged by the road hauliers as generally assessed. These are assumed to reduce to US$.O7/ntkm over the next five years as a result o f road improvements and better management by road hauliers when faced with competition from a privatized railway;

(1) Two benefits o f the Project have been considered in computing ERR: (i) road avoidance cost for additional traffic as in the absence o f the Project, the additional traffic would have continued to move by road; and (ii) reduction in the unit cost o f operation for the existing traffic. However, recognizing that the road users might lose some benefits in shifiing to rail, the overall benefits have been reduced by a factor o f .5 in the base case; and

(m) Project benefits not taken into account: There would be other economic benefits, which have not been taken into account for the economic analysis because even without these benefits, the ERR is far above the acceptable level. These include: (a) increase in passenger traffic and revenues; (b) redeployment o f retrenched staff elsewhere in the economy (estimated to be about 20% o f the retrenched staff not employed by the concessionaires; (c) more productive use o f non-core assets o f the railways; and (d) reduced environmental degradation, railways being considered less polluting than road.

4. For the “Without Project” scenario, it i s assumed that: (a) All staff currently employed by TRC would be retained and no staff would be retrenched since no financing would be available for the same; however the staff would get reduced at the rate o f 3% per year as a result o f normal attrition until it reaches the level o f about 6,000, considered necessary for operating the railways; (b) The railway management would not be able to make any investments in the system. However, in that case, the system could wither away very fast and might even close down altogether. Therefore, for the purpose o f this analysis, it has been assumed that, somehow, the company would invest US$2.0 mi l l ion per year over a period o f 10 years; (c) The freight traffic would decline at a rate o f 4% per annum due to inadequate investments and inadequate maintenance; and (d) The staff-related costs would reduce as a result o f 3% reduction o f staff due to normal attrition. The f ixed costs are assumed to remain the same but the unit costs for th is component would increase due to the declining traffic; and (e)

Project benefits taken into account:

The f ixed and variable costs are assumed to remain constant.

5. “with” and the “without” scenarios, and 4B.2 for ERR for the base case scenario).

The ERR in the base case i s estimated as 45% (see table 4B.1 for estimates o f unit costs in the

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6. indicated below: (a) and then 3% per year: 40% (Table 4B.3); (b) (Table 4B.4); (c) (d) 3% per year: 48% (Table 4B.3);

Sensitivity analysis. The ERRS for various pessimistic and optimistic plausible combinations are

With traffic growth under the “With” scenario restricted to 0% per year for the f irst three years

With traffic growth as in the Base case but the no reduction in the variable and f ixed costs: 38%.

With both (a) and (b) together: 34% (Table 4B.5); With traffic growth under the “With” scenario being 5% per year for the first three years and then

Summary o f NPV and ERR for different scenarios

Base Sensitivity Sensitivity Sensitivity Sensitivity N P V One Two Three Four USD Mi l l ion 185 160 168 137 202 ERR 45 40 38 34 48

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Annex 5: Financial Summary TANZANIA Central Transport Corridor Project

Years Ending

I Year1 I year2 I Year3 I Year4 I year5 I Year6 I Year 7 Total Financing Required

Project Costs Investment Costs 41.9 41.9 34.9 14.0 7.0 0.0 0.0

Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 41.9 41.9 34.9 14.0 7.0 0.0 0.0 Total Financing 41.9 41.9 34.9 14.0 7.0 0.0 0.0

Financing IBRDllDA 36.6 36.6 30.5 12.2 6.1 0.0 0.0 Government 3.5 3.5 2.9 1.2 0.6 0.0 0.0

Central 3.5 3.5 2.9 1.2 0.6 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 1.5 1.5 1.3 0.5 0.3 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 41.6 41.6 34.7 13.9 7.0 0.0 0.0

Total Financing Required Project Costs

Investment Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financing IBRDllDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Centra I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Main assumptions:

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Annex 6(A): Procurement Arrangements TANZANIA: Central Transport Corridor Project

Procurement A. Procurement

1. Ongoing Procurement Reform

1.1 The procurement system in Tanzania has been under reform over the last 4 years based on the recommendations of the 1996 Country Procurement Assessment Report (CPAR). The Government enacted a Procurement Law in February 2001 replacing al l previous procurement legislation. The Ac t became effective on July 1,2001, In tandem, the Government also issued the Regulations in two parts: (a) Procurement o f Goods and Works; and (b) Selection and Employment o f Consultants. In mid November 2002, the Government issued a set o f Standard Bidding Documents (SBD) comprising o f (a) Procurement o f Goods through International Competitive Bidding; (b) Procurement o f Health Sector Goods; (c) Standard Request for Proposal; (d) Standard Pre-qualification Document for Procurement o f Works; (e) Procurement o f Works through National Competitive Bidding; and ( f ) Procurement o f Works, Smaller Contracts. These documents were reviewed during the 2003 Country Procurement Assessment Report (CPAR) and found to be consistent with good public procurement practice.

1.2 The following are among the recommendations made during 2003 CPAR: (a) establishing a Procurement Authority responsible for oversight o f public procurement; (b) decentralizing procurement to ministries, departments, and government agencies (MDAs); (c) changing the legal framework to include private sector representatives in the Public Procurement Appeals Authority; and (d) replacing the supplies officers w i th Procurement Specialists, a new position in the public sector rating system. The final report including al l recommendations, was submitted to the Government by end o f April 2003 for implementation. The Government has drafted an action plan to implement these recommendations. The Government w i l l table the proposed amendment to the current Law to reflect the 2003 CPAR recommendations to the Parliament in April 2004 session.

1.3 Based o n the CPAR findings, the procedures and practices o f procurement in Zanzibar need substantial improvement. At present, procurement capacity in the Zanzibar Government i s almost nonexistent. There is an Ac t to establish a Central Tender Board (CTB), but the Ac t only provides for the organization, and does not deal wi th any o f the procedures o f procurement. While the Central Tender Board Ac t became effective on July 1, 2002, the relevant regulations have not yet been issued. Although, established by Act, CTB i s not yet h c t i o n i n g since the members have not been appointed. As an interim measure, following the 2003 CPAR recommendations, the Ministry o f Finance and Economic Affairs has issued interim instructions authorizing ministries to approve al l contracts. The Ministry o f Finance and Economic Affairs has also drafted a new Public Procurement Bill to repeal and replace the Central Tender Board Ac t o f July 2002. The draft procurement bill is not consistent with the recommendations o f the 2003 CPAR, which to some extent i s a reflection o f the lack o f understanding o f the CPAR recommendations.

2. Use of Bank Guidelines

2.1. Procurement o f c iv i l works and goods wil l be carried out in accordance with the Guidelines: Procurement under IBRD Loans and IDA Credits (January 1995 edition- revised January and

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August 1996, September 1997, and January 1999). Bank's Standard Bidding Documents (SBD) and Standard Bid Evaluation Forms for works and goods under Intemational Competitive Bidding (ICB) w i l l be used. Since the Government has prepared Standard Bidding Documents for procurement o f works and goods the Government may use these documents for procurement o f works and goods under National Competitive Bidding (NCB).

2.2. Selection o f consultants w i l l be carried out in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers (January 1997 edition - revised September 1997, January 1999, and May 2002). Bank standard Request for Proposals (RFP) and evaluation forms w i l l be used where applicable.

3. Advertising

3.1. A General Procurement Notice (GPN) was published in March 2003 in the UN Development Business (UNDB), Development Gateway's dgMarket, and in a daily national newspaper o f wide circulation. The Government has updated the GPN to reflect the inclusion o f railways component in this project. The updated GNP will be published in UNDB online and Development Gateway's dgMarket immediately after negotiations. Invitation to prequalify for large civ i l works as wel l as other Specific Procurement Notices (SPN) for goods and works to be procured under I C B and N C B and for consultant services wil l be published in a daily national newspaper o f wide circulation. Such invitations shall also be published in UNDB online and in dgMarket in order to get broadest interest possible from bidders. The date for SPN should coincide with the date that the bidding documents are available for purchase by interested bidders. The Government shall advertise a request for expressions o f interest for each contract for consulting firms in a national newspaper o f wide circulation. Large consulting services shall be advertised in UNDB online and in dgMarket. The Government may also advertise requests for expressions o f interest in an international newspaper or a technical magazine. No t less than 14 days from date o f posting o n UNDB online shall be provided for responses, before preparation o f the short list.

4. Procurement Capacity

4.1. A procurement capacity was carried out to assess the capacity o f implementing agencies, which will be responsible for implementing the project. This project basically, has two major components, namely, road and rail. In accordance with proposed implementation arrangements, procurement o f the road component w i l l be carried out by Tanzania National Roads Agency (TANROADS) through IDA-Coordination Project Unit ( IDNCPU) and the rai l component wil l be carried out by Tanzania Railways Corporation (TRC) during the init ial stages until RAHCO becomes operational. The Zanzibar road works wil l be executed by the Ministry o f Communication and Transport through their office for Coordination o f Donor Aided Projects (CODAP) under the supervision o f IDA-CPU. CODAP has 3 qualified Engineers with procurement experience, specifically working on Wor ld Bank Project. Besides, there are 2 qualified C iv i l Engineers under the Roads Commission, who wil l provide technical backstopping, particularly for this project.

4.2. I D N S D P i s charged with procurement and contract management o f projects financed by IDA and other donors. The unit i s also responsible for financial management related matters including, inter alia; processing payments to contractors, suppliers, and consultants; processing replenishment applications; preparation o f financial statement; and facilitation o f audits. The unit has eight (8) qualified C iv i l Engineers - inclusive o f the head o f unit. Also it comprises o f one Social Scientist; one Environmental Specialist; one Transport Economist; and 4 Accountants. In addition, the unit i s at

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present supported by three (3) Technical Assistants (TAs) - one in procurement and two (2) in contract management. Their contracts expire in June 2004. Four (4) out o f 8 c iv i l engineers have adequate experience in procurement o f works and selection o f consultants. Currently, the four (4) engineers are fully devoted to activities related to Tanzania Second Integrated Roads Project (IRPII) - another project financed by IDA - and w i l l be also responsible for implementation o f th is project. IRPII closes on June 30, 2004.

4.3. TANROADS has a Procurement Unit (PU) that oversees procurement activities o f the organization. The size o f the unit i s small, presently staffed by 3 procurement specialists inclusive o f Head o f the Unit. Among activities being handled by P U include, inter alia; (a) to advise the user departments o n matters related to procurement and contract management; (b) review o f the draft procurement documents - bidding documents, Request for Proposals (RFPs), contract documents, etc.; (c) record keeping o f procurement files; and (d) serves as a secretariat to the TANROADS' Tender Board in accordance with PPA. TANROADS has a Tender Board (TB) that is chaired by the Chief Executive Officer. The TB consists o f five (5) members drawn from within and two (2) extemally. Currently, the TB has limited authority to award contracts in accordance w i th the thresholds outlined in the Regulations. To expedite procurement processes for th is project, in the meantime, while waiting for amendment o f the procurement Law, TANROADS has requested for full authority from the Minister for Finance so that i t s TB will in future award contracts without making reference to the Central Tender Board (CTB). This i s in line with GOT'S full decentralization contained in 2003 CPAR recommendations. In 2003, D A W A S A was given a full authority; TANROADS may cite DAWASA's precedent to justify their request.

4.4 The Independent Procurement Review (IRP) carried out in December 2002 as part o f the CPAR indicated that generally TANROADS has inadequate record keeping and filing systems. Preliminary observations f rom the ongoing Procurement Post Review (PPR) i s that procurement files are kept by each user department, and sometimes it i s very difficult to retrieve information during procurement audit. TANROADS is currently working towards improving filing and record keeping.

4.5 Before R A H C O is,formed and fully operational, TRC wil l be responsible for procurement o f rails, steel railways sleepers, and fittings. Day to day procurement wil l be done by a unit that was responsible for procurement during execution o f the Railways Restructuring Project (RRP), the previous World Bank funded project. The Credit for this project closed o n December 31, 2002. Currently this unit has a Procurement Specialist, who i s a qualified c iv i l engineer and two (2) support staff, The Procurement Specialist has r ich experience in procurement gained during the implementation o f the RRP. Presently he is responsible for preparation o f the railways component.

5. Procurement Plan

5.1. The Government has prepared a procurement plan for works and services covering the entire project period. A specific procurement plan for the first 2 years o f implementation w i l l be agreed with TANROADS and TRC. The procurement plan w i l l include relevant information on al l goods, works, and consulting services expected to be procured, and their estimated cost; procurementhelection methods as wel l as timing and whether i s a post or prior review contract. TANROADS and TRC w i l l submit for review by March 3 1 o f each year specific annual procurement plans for the 12 subsequent months that wil l include contract packaging, estimated costs, types o f contract, procurement methods and procurement schedules.

6. Procurement Implementation Arrangements

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6.1 The implementing agencies are TANROADS, MOCT, Zanzibar and TRCRAHCO. Procurement o f component falling under TANROADS will be done by IDA-CPU. Also, this unit will be responsible for supervision o f the other two implementing entities. The Zanzibar works wil l be executed by the Ministry o f Communication and Transport through the office o f Coordination office for Donor Aided Project (CODAP). This i s the same arrangement currently being followed for implementation o f IRPII that i s due to close on June 30, 2004. Based o n the results o f the procurement capacity assessment, it is considered that I D N C P U has adequate capacity in procurement and reasonable staff, who has adequate experience in procurement to continue providing technical back-stopping to CODAP in areas o f procurement, and contract administration. Day to day procurement o f TRC component will be done by the office o f the Project Coordinator.

7. Procurement Methods

Specific procurement arrangements are summarized in Tables A and Al, and are briefly described below.

7.1. Works: [estimated to cost I D A a total of US$66.94million including contingencies]. The civ i l works w i l l comprise o f : the upgrading o f 110 km o f Singida-Shelui road from gravel to bitumen standard that w i l l be implemented in 3 packages; the reconstruction o f 59 km o f roads in Zanzibar; and the building o f a new headquarter for TANROADS. Works related to upgrading o f roads wil l be procured following I C B procedures. Pre-qualification o f c iv i l works contractors w i l l be done for large contracts costing US$ 10 mi l l ion equivalent or above per contract. The process has already started for Singida-Shelui road and pre-qualification o f Contractors for package 3 contract i s at an advanced stage while for the other 2 packages it i s currently ongoing. C iv i l works contracts costing more than US$5 mi l l ion equivalent per contract wil l be procured through International Competitive Bidding (ICB). Domestic Preference w i l l be applicable to local contractors bidding for contracts through ICB. C iv i l works contracts costing less than US$5 mi l l ion equivalent per contract wil l be procured through National Competitive Bidding (NCB).

7.2. Goods: [estimated to cost I D A a total of US$34.00 million including contingencies]. Goods to be procured are for the creation o f a Wide Area Network for TANROADS; and the provision o f rails, steel railways sleepers, and fittings to TRC; and the rehabilitation o f 5 ferries. Goods estimated to cost US$500,000 equivalent and above per contract wil l be procured through International Competitive Bidding (ICB). Individual contracts costing less than US$500,000 equivalent wil l be procured through National Competitive Bidding (NCB) procedures. Other goods with an estimated value o f less than US$50,000 equivalent per contract may be procured through National and International Shopping or, the U N D P Inter-Agency Procurement Services Office (IAPSO), based on comparing price quotations from at least three suppliers in accordance w i th IDA Procurement Guidelines (paragraph 3.5 June 9, 2000 Memorandum "Guidance on Shopping" issued by the Bank). Request for such quotations will be in writing, and w i l l include time and place for delivery o f the quotations, a clear descriptiodspecifications and quantity o f the goods; as wel l as requirements for delivery time, place for delivery o f goods, and installation requirements as appropriate. The request for quotations should be sent to at least three reputable suppliers, however, it may be better to approach up to five suppliers because not al l three suppliers may respond, so that at least three competitive quotations are received.

7.3 Consultants: [estimated to cost I D A US$20.82 million including contingencies and US$ 6 million funded by NDF].

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Consulting services required for implementation o f the project including technical assistance's, and supervision o f works are shown below. All consulting services contracts costing more than US$200,000 equivalent for f m s wil l be awarded on the basis o f Quality and Cost Based Selection (QCBS) procedures in accordance with Part I1 o f the Guidelines. Short lists for contracts costing less than US$200,000 equivalent may consist o f national f irms only in accordance w i th provision o f paragraph 2.7 o f the Guidelines provided that at least three qualified f m s are available at competitive costs. However, if foreign f i rms have expressed interest, they w i l l not be excluded from consideration.

Consulting services contracts o f standard or routine nature, e.g., audits, costing less than US$200,000 equivalent for f i rms w i l l be awarded on the basis o f Least Cost Selection (LCS) method in accordance with provision o f paragraphs 3.1 and 3.6 o f the Guidelines. Consulting service contracts estimated to cost less than US$lOO,OOO equivalent to be awarded to consulting f m s may be awarded according to the Consultants' Qualifications selection method in accordance with provision o f paragraphs 3.1 and 3.7 o f the Guidelines. In addition al l contracts awarded under Single Source Selection (SSS) wi l l be subject to IDA review in accordance with procedures in Appendix I o f the Consultant Guidelines. Individual consultants wil l be selected in accordance with the Guidelines in Part V. In exceptional cases, and after the Bank's prior agreement, services that meet the requirements o f paragraphs 3.8 to 3.1 1 o f the Guidelines, may be awarded on Single-Source selection basis.

7.4 Training Programs including workshops are geared toward capacity building, information sessions, and improving management skills. Training programs wil l be part o f the Project's Annual Work Plans and w i l l be included in annual procurement plan. The annual training program (including proposed budget, participants, location o f training, and other relevant details) wil l be reviewed by the Bank before training begins.

8. Prior Review Thresholds (Table B)

8.1. Table B gives the thresholds for Bank prior reviews: Works: Each contract for c iv i l works estimated to cost US$l,OOO,OOO equivalent or more w i l l be subject to prior review in accordance with the procedures o f Appendix I o f the Guidelines.

Goods: Each contract for goods estimated to cost US$ 500,000 equivalent o f more wil l be subject to prior review with the procedures o f Appendix I o f the Guidelines.

Consultants Services: Consultancy contracts wi th firm estimated to cost US$200,000 equivalent or more, and consultancy contracts for individuals estimated to cost US$lOO,OOO equivalent or more w i l l be subject to prior review in accordance with procedures set forth in Appendix I o f the Consultants Guidelines. In addition al l contracts awarded under Single Source Selection (SSS) w i l l be subject to IDA review in accordance with procedures in Appendix I o f the Consultant Guidelines. Training and exceptional extensions o f non-prior review contracts raising their values to levels equivalent or above the prior review thresholds w i l l also be subject to prior reviews.

Contracts, which are not subject to prior review w i l l be selectively reviewed by the Bank during project implementation and wil l be governed by the procedures set forth in paragraph 4 o f Appendix I to the relevant Guidelines. All documentation used for the procedures o f contracting, employment o f consulting services, evaluation and award shall be retained for subsequent examination by auditors and IDA supervision missions.

9. Overall Procurement Risk Assessment

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9.1. The overall procurement risk assessment for the project at both levels i s rated Average and the following action plan i s designed to mitigate the average procurement risk.

Action Deadline I Responsible

railways components including firm and monitorable dates Publish the updated General Procurement Notice (GPN) to reflect the inclusion I Done I TANROADSand . . ofthe railways component Finalize Internal Instructions

BANK July 2004 TANROADS

I Review the overall uroiect mocurement caoacitv for both TANROADS and I December 2004 IT ANROADS CODAP and if required rechit Procuremeit Spdcialists to reinforce their capacity. Improve TANROADS archiving system for ease of reference July 2004 TANROADS

Harmonize procurement functions by amalgamating PU and IDNSpecific Donors Unit

Conduct training for procurement staff o f PU, IDNSpecific Donors Unit, TRC, and members of the TBs Conduct training for procurement and contract management staff in dispute

10. Frequency of procurement supervision missions proposed: Once every six months (includes special procurement supervision for post-review/audits)

TANROADS Process to start in July 2004

During Project implementation - On TANROADS /IDA going activity. During project implementation TANROADS /IDA

Procurement methods (Table A)

4. Training

5. Operating costs

Total

0.00 0.00 0.81 0.00 0.81 (0.00) (0.00) (0.81) (0.00) (0.81) 0.00 0.27 0.00 0.00 0.27

(0.00) (0.23) (0.00) (0.00) (0.23) 103.43 6.27 22.37 6.00 138.07 (9 6.3 7) (4.80) (20.82) (0.00) (1 21.99)

Includes civil works and goods to be procured through national shopping, consulting services, services o f contracted staff o f 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 government units.

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Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

' Including contingencies \ ' Including contingencies \

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other Selection of individual consultants (IC) (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

3. Services Firms

individuals

Cont Th

>5,000,000 <5,000,000 but

>1,000,000 <1 .ooo.ooo >500,000 <500,000 <50,000

>200,000 <200,000 Al l values >100,000 <100,000 Al l values

ICB NCB NCB

ICB NCB

NS/IS/IAPSO

QCBS QCBS/LCS/CQ

sss IC IC sss

Al l contracts Al l contracts Post review

All contracts Post review Post review

All contracts Post review Al l contracts Al l contracts Post review Al l contracts

Total value of contracts subject to prior review: US$lZO.OO million

Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits)

Overall Procurement Risk Assessment: Average

"Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements TANZANIA: Central Transport Corridor Project

Financial ManaPement

1. Summary of the Financial Management Assessment

1.1 Country Risks

A Country Financial Accountability Assessment (CFAA), carried out in 2001, concluded that: "signzjkant advances have been made in Tanzania in the last few years, particularly in terms of accounting and expenditure control as well the introduction of the Medium Term Expenditure Framework (MTEF). Equally there are other areas, which for various reasons, have not advanced as quickly, such as the standing and capacity of the national audit ofice or the ability of the anti corruption/ethics bodies to undertake their duties effectively. Generally, Tanzania has a sound system of formal rules for financial management and many of these rules have recently been updated and strengthened."

GOT has clearly made great steps in improving financial management and through the revised Public Financial Management Reform Programme (PFMRP) sets out a methodology to carry the process forward. These initiatives are significantly supported by the donor community at, for instance, the Accountant General and the Office o f the Controller and Auditor General as we l l as the Accounting Departments o f a number o f line ministries. The speed o f progress o f implementation and integration o f the IFMS and the legislative changes has however left a number o f gaps, which unless filled, will negate the benefits o f the achievements o f the recent past. In addition, issues o f non-compliance, limited execution, inadequate monitoring, insufficient capacity and lack o f enforcement need to be resolved. Theses issues indicate that inadequate financial accounting and auditing systems both at central and local govemment level pose a high fiduciary risk. Priority issues identified in the CFAA include strengthening o f planning and budgeting, improved govemance and integrity, strengthening o f local government financial management and maintenance of high standards o f financial reporting and auditing. The country's financial accountability framework, and therefore financial management, would be considerably more effective and the associated fiduciary risk mitigated, if these areas were strengthened. The PFMRP, which i s soon to be launched, i s designed to address these weaknesses.

1.2 Project Risks

The 2001 and 2002 audited financial statements and management letters o f the forerunner IRP-I1 project identified areas requiring improvement to strengthen accounting procedures and the internal control system. In addition, World Bank missions discussed with TANROADS the need for proper contract management o f the supervision consultants, and indicated that unless the client carryout its contract management responsibilities, the desired effects o f the works contracts are reduced and the objectives o f the project not met. At the request o f the Road Fund Board an interim audit for the year ended 30 June 2002 was conducted early in 2002 by the Office o f the CAG. The scope o f the work included audit testing for a l l implementing agencies, including TANROADS. Again, the audit report identified a number o f accountability issues and weaknesses which need to be addressed.

1.3 M a i n Strengths and Weaknesses

The project financial management is strengthened by the fol lowing salient features: TANROADS i s a registered Executive Agency, having to comply with strict financial

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accountability requirements. The track record o f the institution i s above average - it had unqualified audit reports since it had been established in 2000

The accounting personnel i s adequately qualified and well experienced. The TANROADS accounting system i s based on a wel l functioning computerized, double entry,

The entity has an Accounting Procedures Manual, which describes the intemal control system that

The project i s a follow-on project and hence the key accounting staff with experience o f World

accrual-based system.

been in place since i t s establishment. has

Bank requirements is retained.

The project financial management is weakened by the following salient features. TANROADS has though made progress in addressing them as indicated:

problems may jeopardize timely and accurate financial reporting. However, significant progress has been made in integrating the units accounting into EPICOR and at the time o f negotiations the system was being tested in preparation for full integration before July 2004.

Poor linkages exist between physical progress and financial outcomes. There i s a need to develop/procure and implement a Project Management System compatible with the FM System. During appraisal it was confirmed that a draft TOR for the procurement o f system has been prepared.

The Accounting Procedures Manual (April 2000 version) needs to be completely updated in the light o f practical experience and emerging requirements since the establishment o f TANROADS. Good progress has been made in updating the manual and it i s expected to be issued in June 2004.

The staff in the I D N S D P unit have not implemented the new EPICOR system yet. Teething

The measures taken w i l l minimize the impact o f the weaknesses and the following i s a description o f how they will function:

1.4 Financial Management System and Reporting

Organizational Structure

A dedicated unit established within TANROADS i s in charge o f specific projects including IDA financed projects. I t i s intended to gradually integrate the unit into the organizations overall management structure. However, the I D N C P U unit wil l initially take full responsibility for project FM reporting under the supervision o f the Director o f the Finance and Administration Division (FAD). During project execution it shall coordinate project implementation and manage: (a) procurement, including purchases o f goods, works, and consulting services, (b) project monitoring, reporting and evaluation; (c) contractual relationships with IDA and other co-financiers; and (d) financial management and record keeping, accounts and disbursements.

The Chief Executive Officer o f TANROADS w i l l be the “Accounting Officer” for the project, assuming the overall responsibility for accounting for the project funds.

Currently a significant proportion o f the funding for the roads network i s received from Development Partners and TANROADS has an obligation to demonstrate to the Development Partners that their funds are being effectively managed and fully accounted. Although this project may be regarded to be a follow-up project, the FM arrangements differ significantly f rom the previous project and are therefore subject to a complete FM assessment.

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Financial/Accounting Procedures Manual

The project financial management w i l l be based on the system documented in the TANROADS Accounting Procedures Manual, covering financial policies and procedures, accounting and internal control system, financial reporting, f low o f funds and auditing arrangements.

The Accounting Procedures Manual (April 2000 version) i s being updated in the light o f practical experience and emerging requirements since the establishment o f TANROADS. The EU-funded Financial Management Consultant i s now almost 111 time devoting his time on th is project due to the fact that the scope o f the task had significantly been expanded. I t now encompasses eliminating duplications and inconsistencies between the Accounting Procedures Manual and EPICOR Manuals, reviewing the reality o f the existing procedures, capturing o f numerous existing procedures that have not been included in the manuals in the past, grouping procedures in different volumes o f these manuals and capturing o f new procedures due to the development o f the systems over the past few years. This task will now be completed by June 2004 due to increased scope.

Accounting System, Accounting Policies and Procedures

The FM system must support management in their deployment o f l imited resources with the purpose o f ensuring economic, efficient and effective application o f these resources in the delivery o f outputs and the achievement o f desired outcomes. Also, it should ensure that funds are properly managed and flow smoothly, adequately, regularly and predictably to the implementing agency. Specifically, the FM system should be capable o f producing usefbl information in a timely manner for decision-making purposes (to enable project management to monitor the efficient implementation o f the project). This information should have the characteristics o f being understandable, relevant, reliable and comparable and would enable management to plan, implement, monitor and appraise the entity's overall progress towards achieving i t s objectives. This wil l be achieved through the preparation o f quarterly Financial Monitoring Reports (FMRs) that integrates project accounting, procurement, contract management, disbursement and audit w i th physical progress.

The TANROADS accounting system w i l l be based on a computerized, double entry, accrual-based system. The objectives o f the system are to:

other requirements;

to day basis;

funding;

annual budgets and long term strategies;

corrective measures o n time;

Record assets, liabilities, revenue and expenditure o f the organization so as to meet statutory and

Provide information to management to assist them in running the organization's activities on a day

Provide information on reporting and accountability to stakeholders, and in particular for donor

Provide a suitable financial framework for planning the organization's future activities by means o f

Facilitate concise and accurate Management Information Reports f rom reliable records to enable

Enable performance evaluation o f the organization; and Enable the f low o f management information from the basic recording system described above. In

addition, certain accounting information is obtained from other sources l ike Weigh bridge Managers.

The following summarizes other salient financial management arrangements: Chart of Accounts: The project wil l use the same structure o f chart o f accounts used in

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TANROADS and create specific codes for project specifics. The chart o f accounts is flexible enough to provide financial information per (1) project activity (2) project component and (3) expenditure category.

internal control with specific emphasis on financial control and improved project management. This should go hand-in-hand with the update o f the Accounting Procedures Manual.

been opened for regional offices at CRDB, (except for two regions banking at NBC, namely Coast and Manyara).

along with determination o f the remaining usefid lives o f fixed assets for inclusion in the accounting records. However, the asset inventory did not include (1) equipment hire units, (2) motor vehicles and (3) plant & machinery. The process o f doing the inventory and valuation o f these items, i s in progress.

o Procedures are in place to ensure proper preparation and compilation o f the annual budget. 0 The budgets lays down physical and financial targets. o Budgets are prepared for al l significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance. o Actual expenditures are compared to the budget w i th reasonable frequency, and explanations required for significant variations from the budget. Prior approval o f variances are required.

Internal Control System: Plans have been drafted for the enhancement o f a robust system o f

Banking: Bank accounts, supported by satellite nation-wide computerized banking facilities, have

Assets: A preliminary reconciliation o f asset inventory from regional offices has been undertaken,

Budgeting: Salient features o f the budgeting process includes:

Information systems

The specifications o f a computer-based financial management system, EPICOR (previously known as Platinum ERA) were developed to be implemented throughout the organization, including the 21 regional offices (with the exception o f the new region Manyara which will be implemented during the financial year ended 30 June 2004.). The computer package had been procured and the hardware installed in al l regions. Accounting staff at H Q and these regions have received training in the application o f the Computer system and Accounting Procedures Manual. The computers systems in the regions are not connected to the HQ. For this reason transfer o f data i s not done online; it is sent to H Q on computer tapes where the information i s then consolidated.

TANROADS will receive financing from IDA for the funding o f the procurement and implementation o f the Wide Area Network (WAN) under component 2 o f the CTCRP. This facility wil l allow online transmittal o f information.

Currently, the I D N S D P unit retains separate reporting formats for different Donors and therefore different sets o f accounts are maintained for reporting to them a situation that complicates the organizations reporting system. To arrest this situation, steps have been taken to integrate al l the organization's financial accounting and reporting systems w i th the EPICOR system, which w i l l now be used for a l l accounting and financial reporting throughout the organization. I t had been envisaged that the financial statements o f IRP-I1 for the year ended 30 June 2003 would have been prepared with the use o f EPICOR. However, while the training o f the staf f had been done and the implementation and procurement o f the system was wel l underway, it had been delayed due to design challenges that the consultants (Softech) needed to resolve. I t i s envisaged that full integration wil l be achieved by the June 2004.

From a general management perspective, there i s a need to have this FM system integrated with sub-systems/modules that would provide for project management and contract management. In this regard a TOR for the procurement/ development o f a Project Management System (PMS) has been prepared.

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Reporting (Financial Monitor ing Reports)

Formats o f the various periodic financial monitoring reports to be generated from the financial management system w i l l be developed. There wil l be clear linkages between the information in these reports and the Chart o f Accounts. The financial reports w i l l be designed to provide quality and timely information to project management and various stakeholders on project performance.

The following quarterly FMRs w i l l be produced by the I D N S D P unit:

0

o

8 Financial Reports: Sources and Uses o f Funds by Funding Source Uses o f Funds by Project Activity/Component

8

8 Procurement Report Physical Progress (Output Monitoring) Report

The formats have been defined and agreed by negotiations and the project must be capable o f producing FMRs by credit effectiveness. The first quarterly report is due by November 15,2004.

The project may later become eligible to use the report-based disbursement method, provided that during project implementation, it (a) sustains satisfactory financial management rating during project supervision; (b) submits FMRs consistent with the agreed form and content as explained below; and (c) submits Project Audit Reports by the due dates. The project i s then required to submit to the Bank the following information in order to support report-based disbursement:

8 Financial Monitoring Report (FMR).

8 SA Bank Statements. 8

8

Special Account (SA) Activi ty Statement.

Summary Statement o f SA Expenditures for Contracts subject to Prior Review. Summary Statement o f SA Expenditures not subject to Prior Review.

Project Financial Statements

The Executives Agencies Act, 1997 states that such institutions should prepare its financial statements in accordance w i th Generally Accepted Accounting Practice (which inter alia includes the application o f the accrual basis o f recognition o f transactions). The IDA Credit Agreement wil l require the submission o f audited financial statements to the Bank within six months after the year-end. In addition to the monthly reconciliations and quarterly FMR’s, the project w i l l produce annual Project Financial Statements for analytical and audit purposes.

These Financial Statements will compose o f A Statement of Sources and Uses of Funds / Cash Receipts and Payments which recognizes al l cash receipts, cash payments and cash balances controlled by the entity; and separately identifies payments by third parties on behalf o f the entity. The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on the Statement o f Cash Receipts and Payments being cross referenced to any related information in the notes. Examples o f this information include:

0

0 a summary o f f ixed assets by category o f assets; a summary o f SOE Withdrawal Schedule, listing individual withdrawal applications; A Management Assertion that Bank fimds have been expended in accordance with the intended purposes as specified in the relevant World Bank legal agreement.

- 59 -

Monitor ing

Project monitoring wil l take the following forms: Management oversight o f the I D N S D P unit; Annual external audit o f the Project finances.

Previously the concern had been raised that managerial reports are produced in a fragmented manner. Nevertheless, it was observed that the preparation o f the quarterly Financial Report for the IRP-I1 i s not yet integrated with the process o f preparing the quarterly Status Report for the Performance of the Road Sector. This would ensure that the quality o f information i s credible ahd that the preparation o f the latter report i s based o n the same financial data prepared o n the accrual basis and which is being used for financial management purposes. The integration and linkage to the PMS w i l l hopefully address this. Status Reports currently contain most o f the information required for FMRs.

1.5 Flow of Funds

Funds f low arrangements for the project, through two bank accounts are as follows:

Borrower-operated Special Account (SA) held at C i t i Bank (or an acceptable commercial bank) and denominated in US Dollars.

Statements o f Expenditure, which wil l be approved in accordance with internal control measures applied in TANROADS.

centrally f rom the TANROADS' head quarters.

be deposited in the Project Account in accordance with project objectives. The Government w i l l allocate and pay over counterpart funds for the project by cheque (Warrant o f funds). Counterpart funds wil l be allocated through the normal central government budgetary process. Counterpart funds are accessed through compliance with the country specific Financial Regulations.

also be documented in the Accounting Procedures Manual

IDA will make an initial advance disbursement from the proceeds o f the Credit by depositing into a

Actual expenditure wil l be reimbursed through submission o f Withdrawal Applications and against

Payments for activities implemented at the TANROADS, TRC and MOCT, Zanzibar w i l l be done

Counterpart funds and transfers f fom the SA (for payment o f transactions in local currency) wil l

The two bank accounts should be opened by credit effectiveness. The account signatories should

1.6 Staffing and Training

StaflQuali jkations & Skills

The Director o f Finance and Administration, and Chief Accountant o f TANROADS are professionally qualified Tanzanian CPAs. The three accounting staff in the IDA-CPU are accounting graduates and two o f them are conversant with the Bank's FM requirements due to their exposure to the IRP-I1 project. They have also received training in the use o f the EPICOR system.

Training Plan

The FAD organizes continuous training courses for its staff in order to enhance their accounting capacity and to update them on EPICOR upgrades.

- 60 -

1.7 Supervision

No. 1.

2.

3,

4.

Financial management supervision wil l be carried out regularly by the Financial Management Specialist (FMS) at least once a year. The initial supervision w i l l be on implementation progress o f agreed actions as per paragraph 1.10 and the effective operation o f the EPICOR system within the IDA-CPU. In addition, the project may be submitted to regular SOE reviews as required by the Wor ld Bank.

Action Due date Covenants Update the Accounting Procedures Manual (April 2000 Substantially None version) with due observance o f strengthening the completed system o f Intemal Control. ,

Integrate the current accounting and financial reporting Substantially None system used by the IDA-CPU with the EPICOR system completed used by other TANROADS units. Procurement and implementation o f a WAN. June 2007, draftNone

TOR have been prepared

Prepare and update status reports on financial and Draft FMR None physical progress on quarterly basis. The reports should prepared. 1st compare plannedactual targets and outputs and be report due

The F M S wil l also: Conduct an FM supervision before effectivenesddisbursement; Review the financial component o f the quarterly FMRs as soon as they are submitted to the World

Review the annual Audit Reports and Management Letters f rom the external auditors and Bank; and,

follow-up o n material accountability issues by engaging with the TTL, Client, and/or Auditors.

A 2002 SOE review by a World Bank team o f the forerunner IRP-I1 project revealed no major or unresolved weaknesses identified in the financial management systems. Also a follow-up review (May 2003) o f the implementation o f the SOE recommendation revealed no major weaknesses. The IRP-I1 project has thus been rated as satisfactory o n financial management since the FM-rating became effective.

1.8 Procurement Arrangements

Procurement by the IDA/SDP unit wil l be under the management o f the Procurement Specialist. There are no specific Procurement arrangements that specifically impact the FM arrangements.

1.9 Conclusion

The evaluation above indicates that the project’s financial management arrangements satisfy the Bank’s minimum requirements under OP03P10.02. However, some improvements remain to be effected for the system in order to establish an acceptable control environment and to mitigate financial management risks. The various measures/improvements should be implemented by the due dates as indicated in the table below. The project financial management r isk is assessed as being low/negligible provided that the financial management arrangements are properly implemented and the following financial management action plan i s satisfactorily addressed in practice:

-61 -

5.

6.

None

integrated with the accounting system.

Develop/procure and implement a Project Management December 2004 System compatible with the FM System.

November 15, 2004

Draft TOR have already been prepared.

Open a Project account and deposit Tshs. 900 mil l ion Effectiveness therein

2ondition o f ffectiveness

1.10 Financial Covenants and Effectiveness Conditions

Financial covenants are the standard ones as stated in Article IV o f the Development Credit Agreement. The only effectiveness condition i s shown in row six in the table above.

2. Audit Arrangements Internal Audit

An Internal Audit unit has been established at HQ with independent dual reporting to the CEO and respective auditees. Responses to audit queries are required to be submitted directly to the CEO to improve quality and timeliness o f follow-up. This unit will concentrate o n corporate governance and testing compliance with financial regulations.

Taking into account that the internal audit function is relatively small (3 professional accountants and 1 semi-professional), there needs to be strong supervision and quality assurance in the Project. The day-to-day supervision o f accounting functions w i l l be assured by the organization structure o f TANROADS.

External Audit

The external audit wil l be carried out annually as part o f the TANROADS audit by the Controller and Auditor General (CAG) or such other person registered as an auditor under the Auditors and Accountants Act, 1972 and approved by the CAG. The external audit w i l l cover al l Wor ld Bank and NDF funds and Counterpart funds at a l l levels o f project execution. The auditor will be required to express an opinion on the audited project financial statements only, in compliance with International Standards on Auditing (IFACKNTOSAI pronouncements) and submit the audit report within six months o f the end o f the financial year. In addition, detailed management letters containing the auditor’s assessment o f the internal controls, accounting system and compliance with financial covenants in the IDA Credit Agreement, and suggestions for improvement will be prepared and submitted to management for follow-up.

The following observations relate to audit compliance o f the forerunner IRP-I1 project:

been issued late (in March 2003). Although the audit report contained an unqualified opinion, the management letter identified areas requiring improvement to strengthen accounting procedures and the internal control system. This state o f affairs was c o n f m e d in a review conducted by the Wor ld Bank during M a y 2003 to evaluate the timely and complete follow-up o f the audit findings and recommendations. While the IDA/PCU unit had taken steps to solicit responses o n the issues raised in the management letter, sadly this process had not been concluded by the date o f th is assessment due to the Ministry o f Works not being responsive in a timely manner.

The audited financial statements and management letters for the year ending 30 June 2002 had

- 62 -

The financial statements for the year ended 30 June 2003 had been prepared with the use o f the same database as in the past, due to delays in implementation o f EPICOR I t was submitted for audit by the end o f September 2003 and the audit report and management letter issued in January 28, 2004 one month late.

3. Disbursement Arrangements Disbursements from IDA would initially be made on the basis o f incurred eligible expenditures (transaction based disbursements). IDA would then make advance disbursement from the proceeds o f the Credit by depositing into a Borrower-operated Special Account (SA) to expedite Program implementation. The advance to an SA would be used by the Borrower to finance IDA’s share o f Program expenditures under the proposed Credit. Another acceptable method o f withdrawing funds from the Credit i s the direct payment method, involving direct payments f rom the Credit to a third party for works, goods and services upon the Borrower’s request. Payments may also be made to a commercial bank for expenditures against IDA special commitments covering a commercial bank’s Letter o f Credit. IDA’s Disbursement Letter stipulates a minimum application value for direct payment and special commitment procedures.

Upon credit effectiveness, TANROADS would be required to submit a withdrawal application for an initial deposit to the SA, drawn from the IDA Credit, in an amount to be agreed to in the Development Credit Agreement. Replenishment o f funds from IDA to the SA will be made upon evidence o f satisfactory utilization o f the advance, reflected in SOEs andor on full documentation for payments above SOE thresholds. Replenishment applications would be required to be submitted regularly. If ineligible expenditures are found to have been made from the SA, the Borrower will be obligated to refund the same. If the SA remains inactive for more than six months, the Borrower may be requested to refund to IDA amounts advanced to the SA.

IDA w i l l have the right, as reflected in the Development Credit Agreement, to suspend disbursement o f the funds if reporting requirements are not complied with.

Strengthening i t s accounting and financial management capacity w i l l enable TANROADS to establish effective financial management and accounting systems, which should eventually facilitate the introduction o f Financial Monitoring Report (FMR)-based disbursements in periods subsequent to project effectiveness. The adoption o f this approach wil l enable the project to move away from time-consuming transaction based disbursement (voucher-by-voucher) methods to quarterly report based disbursements to the project’s SA, based on the FMRs. Report-based disbursements offers more flexibility.

Allocation of credit proceeds (Table C)

Table C: Allocation of Credit Proceeds

Civ i l works 60% o f local expenditures 100% o f foreign expenditures

- 63 -

1 - under Part A.2 I 10.17 I I

1 - other Goods

- under Part C. 1 - under Part C.2 - other Consultants, services, training and audit - under Part C - other Operating costs Unallocated

Total Project Costs with Bank Financing

Total

I - under Part C.2 I 0.00 I I

46.20 75% o f local expenditures

100% o f foreign expenditures 8.22

24.82 0.97

3.14 14.88 0.23 90% o f al l expenditures 13.00

122.00

93% o f a l l expenditures

122.00

1 - under Part C.4 I 0.37 I I

Use of statements of expenditures (SOEs):

All applications to withdraw proceeds from the Credit account wil l be fully documented except for expenditures against contracts for: (a) works under contracts below $1,000,000 equivalent each; (b) goods under contracts below $500,000 equivalent each; (c) consulting and auditing services under contracts below 200,000 equivalent each; and (d) $100,000.00 for individual consultants. Documentation supporting expenditures claimed against SOEs w i l l be retained at the project and wil l be available for review as requested by IDA supervision missions and project auditors.

Special account: To facilitate disbursement o f eligible expenditures for goods works and services, GOT will open a Special Account in a commercial bank acceptable to IDA. The special account w i l l be managed by TANROADS and TRC and will cover IDA's share o f eligible expenditures. The authorized allocation for the special account will be US$12.0 million. Replenishment o f funds by IDA w i l l be made upon production o f evidence o f satisfactory utilization o f the advance, as reflected in the SOE or in full documentation for payments above the SOE thresholds. Upon credit effectiveness or as needed , an amount o f US$6.0 mi l l ion wil l be deposited in the special account. Subsequent deposits may be requested as needed. To the extent possible , IDA's share o f expenditures should be paid through the special account. Replenishment applications should be submitted regularly, preferably monthly, after monthly bank statements are received and reconciled, with appropriate supporting documents for local and foreign expenditures as required. Only IDA's share o f eligible expenditures w i l l be paid through the special account.

- 64 -

Annex 7: Project Processing Schedule TANZANIA: Central Transport Corridor Project

First Bank mission (identification) Appraisal mission departure

Negotiations Planned Date of Effectiveness

ITime taken to prepare the project (months) 1 9 I 8 I 091 1012003 09/08/2003 0211 512004 03/02/2004 0313 012004 03/16/2004 0713012004 0710 112004

Prepared by: Dieter Schelling, Solomon Muhuthu Waithaka, Yash Pal Kedia, Farida Mazhar, Julien Dehornoy, Vickram Cuttaree, England Rogasian Maasamba

Preparation assistance: England Rogasian Maasamba

Bank staff who worked on the projec Name

Dieter Schelling Farida Mazhar Yitzhak Kamhi Solomon Muhuthu Waithaka Michael Silverman Marius Koen Mercy Sabai Ajay Kumar Pascal Tegwa Nina Chee Farida Khan Ani1 Bhandari Cesar August0 Queiroz Nina Jones England Rogasian Maasamba Leah Mukuta Julien Dehomoy Vickram Cuttaree

Task Team Leader Lead Financial Officer (PFG) Senior Consultant Highway Engineer Sr.Counse1

Sr.Financia1 Management Specialist Sr. Financial Management Specialist

Transport Economist Sr. Procurement Specialist

Environmental Specialist Operations Analyst High Engineering and Quality Assurance Control - Peer Reviewer Highway Engineering - Peer Review Program Assistant Team Assistant Team Assistant Project Assistant

Young Professional (PFG)

- 65 -

Annex 8: Documents in the Project File* TANZANIA Central Transport Corridor Project

A. Project Implementation Plan

An overall procurement plan for the project has been prepared and i s attached to the appraisal aide memoire. A detailed procurement plan with monitorable milestones wi l l be produced for year one and two before March 30,2004.

B. Bank Staff Assessments

Aide Memoires and Status Report on the Sector from 2002- 2004 Financial Assessment Management Report

C. Other

1. National Transport Policy 2003 2. 10-Year Road Investment Program - 2002 3. National Road Safety Masterplan - 2004 4. PER Reports - 2001/02/03 5. Feasibility Study and Detail Design for Singida-Shelui Road - 2003 6. National Transport Masterplan - 2002 7. Environmental Guidelines for Transportation Program - 2001 8. Tracking o f Road Fund Study - 2002 *Including electronic files

- 66 -

Annex 9: Statement of Loans and Credits TANZANIA: Central Transport Corridor Project

March 24. 2004 Difference between expected

and actual disbursements’ Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig Frm Rev‘d PO17014 HlVlAlDS 0.00 70.00 0.00 68.60 0.00 0.00 PO58706 P 0 0 2 7 9 7 PO71012 PO73397 PO47762 PO65372 P 0 6 9 9 8 2 PO50441 PO57187 PO58627 PO60833 PO02822 PO49838 PO47761 PO02804 PO02789 PO02753 PO46837 P 0 3 8 5 7 0 PO02758 PO02770

4 2002 2002 2002 2002 2002 2001 2001 2000 2000 2000 2000 2000 2000 1999 1998 1998 1997 1997 1997 1996 1994

Forest Conservation and Management TZ Songo Songo Gas Dev. & Power Gen. Primary Education Development Program Lower Kihansi Environmental Managemenl Rural Water Supply Social Action Fund Regional Trade Fac. Project - Tanzania Rural & Micro Fin Svc FlDP II Health Sector Development Program Public Service Reform Program Tanzania PSCA 1 Privatization Tzx Administration Agric Research Human Resources Dev 1 Nat. Ext Proj PH Ii Lake Victoria Env. Tz. River Basin Mgm Smai. Urban Sector Rehab Roads Ii

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

31.10 183.00 150.00

6.30 26.00 60.00 15.00 2.00

27.50 22.00 41.20

190.00 45.90 40.00 21.80 20.90 31.10 10.10 26.30

105.00 170.20

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

63.53

32.21 175.24 105.23

6.02 27.32 29.46 11.39

1.09 15.94 4.56

31.61 81.21 32.25 26.31

5.34 1 .89 2.36 3.52 4.57

18.03 36.38

2.43 0.00 106.03 0.00 37.50 0.00

1.55 0.00 2.56 0.00

-2.76 0.00 2.81 0.00 I .06 1 .OB

15.15 6.05 -7.01 0.00 -9.33 0.00

-108.84 0.00 22.16 0.00 22.30 0.00

4.77 0.00

0.29 0.00 4.80 -1.68

-1.13 0.00 6.57 0.00

21.79 0.00 107.13 35.77

Total: 0.00 1295.40 63.53 720.52 229.83 41.20

- 67 -

TANZANIA STATEMENT OF IFC's

Held and Disbursed Portfolio June 30-2002

In Millions US Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 2001 1996 1998 1997 1998 1996 1994 1999 1997199 1995 2000 2002 1996 2000 2000 1993 199 1/97 1994 1998 1994 2001 1996199 1997

AEF Blue Bay AEF Boundary Hi1 AEF Contiflora AEF Drop Zanzibar AEF Hort Farms AEF Maji Masafi AED Milcafe AEF Moshi Lthr AEF Musoma Fish AEF Pallsons AEF Tanbreed AEF Zan Safari Exim Bank IHP IOH NBC TPS (Tanzania) TPS Zanzibar Tanzania Brewery Tanzania Jubilee ULC Leasing AEF 2000 Industries AEF A&K Tanzania AEF Aquva Ginner

Total Portfolio:

1.45 0.20 0.35 0.32 0.19 0.27 0.18 0.00 1.50 0.32 0.70 0.70 2.50 0.82 2.50 0.00 5.69 0.00 0.00 0.00 0.00 1.60 0.15 0.68

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.19 0.00 0.00 0.00 0.00 0.00 0.60 0.00

10.00 0.87 0.03 6.00 0.29 0.38 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1.45 0.20 0.35 0.32 0.19 0.27 0.18 0.00 1 .so 0.32 0.70 0.70 0.00 0.82 2.50 0.00 5.69 0.00 0.00 0.00 0.00 0.00 0.15 0.68

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.19 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.44 0.87 0.03 6.00 0.29 0.38 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

20.12 18.36 1.04 0.00 16.02 11.80 1.04 0.00

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2002 Exim Bank 0.00 1 .oo 0.00 0.00

Total Pending Commitment: 0.00 1 .oo 0.00 0.00

- 68 -

Annex I O : Country at a Glance TANZANIA Central Transport Corridor Project

.. 3.6 5.4 5.0

POVERTY and SOCIAL Tanzania

" T 1

2002 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 199642

Population (%) Labor force (%)

Most recent estimate (latest year available, 1996.02) 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 (% of children under 5) Access to an improved water source (% of population) Illiteracy (% ofpopulation age 75+) Gross primary enrollment (?A of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982

GDP (US$ biliions) Gross domestic InvestmenffGDP Exports of goods and ServiceslGDP Gross domestic savings/GDP Gross national savings/GDP

Current account balancelGDP interest paymentslGDP Total debUGDP Total debt service/exports 23.6 Present value of debffGDP Present value of debVexports

1982-92 1992-02 (average annual growth) GDP .. 4.0 GDP Der caDita .. 1.3

.. 1.9 -32.6 13.6

.. 0.7 5.8 6.7

35.2 280 9.9

2.4 2.5

34 43

107 29 66 23 63 63 63

1992

4.6 27.2 12.4 0.3 6.2

-15.5 1.2

145.1 42.2

2001

6.1 3.8

4 0 1 " -Exports -9-Imports

Sub Saharan

Africa

666 450 306

2.4 2.5

33 46

105

58 37 86 92 80

2001

9.3 17.0 15.3 8.4 7.3

-7.9 0.4

71.5 10.3 14.4 89.9

2002

6.3

LOW- Income

2,495 430

1,072

1.9 2.3

30 59 81

76 37 95

103 87

2002

9.4 17.4 16.7 10.5 10.1

0.6 77.2 7.8

2002-06

4.1

STRUCTURE of the ECONOMY

(% of GDP) Agriculture industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annualgrowth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment imports of goods and services

Manufacturing

1

1982 1992

.. 48.0

.. 16.2

.. 0.2

.. 35.8

.. 80.0

.. 19.6

.. 39.4

2001

44.8 16.0 7.4

39.2

79.9 11.7 23.9

2002

44.4 16.3 7.6

39.3

77.1 12.5 23.6

levelopment diamond.

Life expectancy

T ;Ni Gross ier primary :apita nroliment

Access to improved water source

- Tanzania Low-income group

Economlc ratios.

Trade

Investment Domestic savings

Indebtedness

-Tanzania Low-Income group

1 Growth of Investment and GDP (%) 1

I .. 5.3 6.9 9.3 40 .. 4.3 5.0 7.0 20 .. 3.7 5.5 6.2 1 o .. 3.9 24.0 2.3 .20

'The diamonds show four key indicators in the country (In bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

- 69 -

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit

TRADE

(US$ millions) Total exports (fob)

Coffee cotton Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index /1995=100) Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ miNions) Conversion rate (DEC, /ocal/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ miNions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1982

26.9

1982

41 1 134 56 43

1,128 108 256 527

66 77

112

1982

645 1,201 -556

-85 24

-523

524 0

9.3

1982

6,202 21 1 414

152 25 4

309 23 1 31 17 0

71 107 10 97 16 79

1992

21.6 25.4

12.7 0.6

-1.6

1992

414 60 98 64

1,357 25

142 639

75 101 74

1992

546 1,885

-1,337

-187 456

-714

617 -102

297.7

1992

6,675 171

1.618

235 45 19

697 263 -45 12 0

60 235 39

196 25

171

2001

5.2 6.2

11.4 -0.7 -5.0

2001

772 57 33 56

1,726 169 106 755

151 102 146

2001

1,430 2,232 -802

-65 -19

-738

909 -171

876.4

2001

6,679 8

2,566

154 4

35

927 93

-21 224

0

355 119 23 96 17 60

2002

4.6 4.2

11.5 -1.4 -5.7

2002

737 70 41 38

1,889

613

156 110 141

2002

1,569 2,224 -656

-45 10

-347

966.6

2002

7,236 6

2.869

128 3

22

179 -2 1

57 148

8 140 17

123

Inflation (Oh) 1 30 25 20 15 10

5 0

97 98 99 00 01 02

-GDP deflator - 0 ' C P I

I Export and Import levels (US$ mill.)

12.000.

1.500

1,000

500

0 I 98 97 98 99 00 01 02

I Exports .Imports

Tanzania

hote: I his table was produced from the Development tconomics central d a t a b b

1 Current account balance l o GDP (Oh) I 0 1 2 3 4 6 8 7 8 9

-10

Composltlon of 2002 debt (US$ mill.)

I G: 606 A : 6

A ~ IBRD B . IDA D - Other multilateral F ~ Private C - IMF

E - Bllaleral

G - Shorl-tem

- 70 -

Additional Annex 11 : Environmental Impact Assessment and Mitigation Measures for Singida -Shelui Road

TANZANIA Central Transport Corridor Project

1. The Road Influence Area

The environmental study has considered two concentric road influence zones, namely:

Road Reserve Area, 45 m wide, along the design route, covering a total surface o f 5 km2

Wider Proiect Area: it coincides with the “Feeder Road Basin” o f the project road, covering an area o f about 5,000 sq km.

The direct, short-term physical impacts o f the road project are largely limited to the road reserve area and i t s immediate environs. The long-term potential impacts on the Wider Project Area mainly concern the modification o f the settlement pattern and possible damage risks for the forest cover, the cultural heritage, as we l l as threats to health due to the intensification o f disease vectors and to the spread of HIV-AIDS prevalence. Some o f the long-term and indirect impacts may be beneficial on the Wider Project Area, such as the greater possibility o f intervention o f the government services dealing with the protection o f nature, cultural heritage and human welfare.

The project area is part o f the Central Plateau Ecological Region, between 1,000 and 1,600 m o f altitude. I t hosts a variety o f ecosystems, including seasonal wetland, dense and derived dry forests, savanna woodland and grasslands. Human action - deforestation, hunting, overgrazing and nature-depleting extensive farming - has heavily modified al l ecosystems.

2. Socioeconomic and Cultural Environment

Population. About 250,000 people l ive in the Wider Project Area, o f which 150,000 in Singida Urban District and 100,000 in two rural Districts (Singida Rural and Kiomboi-Iramba). The overall population density i s 60 inhabitants per km2 (1 6 in the rural countryside). The design route road runs through a dozen villages and one Trading Center (Shelui Nselembwe at km 91). Shelui town lies 5 km north o f the project road. Ulemo and Misigiri are fast growing settlements and road safety measures are required. The new bypass wil l avoid Iguguno Trading Center, which w i l l continue to be served by an upgraded road.

Economy. Agriculture employs 80 % o f the manpower and yields 60% o f Singida Region’s domestic product. Industry i s confined to small-scale, agro-based processing and service-oriented handicrafts. Trading lacks wholesale facilities. Tourism is poorly organized. Despite l o w monetary incomes, the region does not suffer f rom acute poverty and the food balance i s good. Children do not suffer from widespread malnutrition or diseases. But economic growth is slower in Singida than the neighboring administrative regions. The lag appears to be both the cause and the effect o f the poor development o f road transport facilities.

Cultural heritage. Singida region hosts prehistoric Physical Cultural Resources (PCR), spanning more than 10,000 years. The earliest extant East Afr ican rock paintings - showing stylized humans and isolated naturalistic animal figures either in outline or flat monochrome - are concentrated in Singida region. More than 50 rock paintings and other prehistoric sites have recently been inventoried with the assistance o f the Italian cooperation, including the so-called Drum Caves. The site o f Kiomboi, lies in the Wider Project Area, 20 km

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north of the road, not so near to it as to be exposed to the immediate hazards o f the planned works.

EIS Land take, earthworks Borrow pits, quarries Detours and haul roads Workers camps Machines (noise, vibration, pollution)

Water and soil pollution Site and detour hazards Health hazards during works Breeding habitat o f disease vectors Threat to Physical Cultural Resources (PCR) Displacement o f property and business

3. Alternatives Assessed

Recommended mitigation and enhancement measures Proper timing o f works. Topsoil stock piled for later use

Works to transform the pits into permanent water points Minimize vegetation clearance. Restore sites after use Careful camp location, construction, management

Machine mufflers. Dust sprinkling. Halt works during holidays

Recycle lubricants. Precautions to avoid accidental spills Proper signaling. Careful driving o f haul trucks Health exam & treatment o f workers with priority to HIV-AIDS Good landscaping, f i l l ing & drainage to avoid creating habitats Clause in Works Contract to protect them Resettlement, compensation and access to equivalent asset basis

Six variant routes have been assessed in terms o f environmental and social impact, namely:

three different routes traversing Sekenke Escarpment, and: two bypasses around Iguguno Trading Center, where the present road crosses the town.

Sekenke Escmment: for each alternative alignment, an ad hoc EIA and SIA has been prepared. The solution advised by the present study requires six viaducts. This solution wil l have a favorable ecological impact, because about 12 km of former hilly route can be converted to a forest road within the planned Sekenke Forest reserve, with extensive reforestation over more than 2,500 ha. The negative impact on Kinkungu River Gorge, which presently serves as a natural corridor for wildlife migrating from Singida plateau to Wembere Swamplands, wil l be minor, as the s ix new bridges wil l cross the meandering river bed. Green screens protecting the forests along the new design route can mitigate such impact.

1g;uguno Bypass. The proposed bypass, 7 km long, will have the double advantage of avoiding the congested Iguguno urban area and shortening the road lenght by as much as 1.5 km. The bypass - which will run sufficiently close to the southern urban outskirts not to deprive them of the trading benefits generated by through-fare traffic - will cross the Munyu River south of the town, where a new bridge i s needed (25m span). The new road reserve wil l cut across farms (45 ha). Various EIA options

Road environment in Singida Town. To foster safe mixed-traffic flows within a pleasant urban environment, two lanes wil l be introduced, with a parallel parking lane at least 2.0m wide on both sides, to serve commercial business. Sidewalks for pedestrian access to schools, parks, shopping areas and other main buildings wil l line the main street. Kerb-opening inlets at suitable intervals wil l drain the street.

4. Environmental and social impact statement and recommended mitigation measures

The impact of the project in the road construction phase (years 2004-07) and in the road use phase (year 2007 onward) i s summarized in the following tables

Environmental impact and mitigating measures in the road Construction phase (2004-07)

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Environmental impact and mitigating measures in Phase II, Road Use (2004 onward)

Environmental impacts Traff ic risks and pol lut ion effects Forest fires Endangering o f cattle herds

Higher pressure on ecosystems Road maintenance impacts Increase o f disease vectors Threats to Physical Cultural Resources (PCR)

Recommended mitigation and enhancement measures Introduction o f updated vehicle and traffic control systems

Creation o f green barriers along the road Creation o f new stock route and markets Strengthening o f ecologic services, awareness campaigns Handbook for ecologically sustainable road maintenance Upgrading o f health facilities focused on H I V - A I D S

Heritage protection o f and development o f eco-tourism

Each mitigation or enhancement measure has been debated with the local communities along the road’s design alignment, and with the concerned National authorities: NEMC, Ministry o f Tourism & Natural Resources, Forestry Department.

Phases

5. Environmental and Social Impact Mitigation Action Plan

Year Key responsibilities

The Action Plan will be geared to implement both the environmental and socioeconomic mitigation and enhancement measures. Consistently wi th the identified impact cycles, the Action Plan will span three phases, as tabulated below:

Phasing o f Singida-Shelui Environmental and Social Mit igation Action plan

- - - I Works imolementation 103-05 Icontractor, TANROADS and other line Ministries ~~ ~~ I Road use & maintenance 105 onward IMinistrv o f Lands, TANROADS 1

E A P Phases I & 11: Engineering and Work Implementation (2003-07): the mitigation measures wil l counteract the adverse effects o f earthworks (land takes, materials spoiling, plant operation, haul traffic), l ike soil erosion, water pollution, encroachment into natural and human habitats. Borrow pits and quarries cover a surface o f 110 ha.

E A P Phase III, road use and maintenance from 2007), wil l mobilize seven environmental impact management processes, namely:

i. Environmentally Sustainable Road Maintenance ii. Traffic Management iii. Development o f Ancillary Infrastructure iv. v. vi. vii. Benefit Enhancement Measures

Ecosystem Protection in the Wider Road Area Health Protection Against Disease Vectors (HIV-AIDS and others) Safeguard o f Physical Cultural Resources in the Wider Road Area

I. guidelines for environmental friendly maintenance, taking into account the type o f road structures, cut vegetation, drainage system and impact mitigation measures advised by the project. The manual will not overlap with the current Road Maintenance Handbook o f Tanroads, insofar as the latter provides general

Environmentallv sustainable road maintenance. A “Maintenance Handbook” wil l provide

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procedures for, while the former would impart specific solutions for the maintenance o f each km and individual structure of Singida Shelui road section, focusing on environmental issues. The handbook will also consider the collaboration o f Tanroads with the Ministry o f Education and Culture to protect the cultural heritage along the road.

11. intersection layout, etc., across towns and villages, or crash barriers and guardrails, traffic related risks would increase proportionally to the traffic flow.

Traffic management. If not curbed by appropriate measures, l ike speed signs, rumble strips,

111. generated by the upgraded road. Investment costs, funded by the regional budget assisted by credit line facilities, will be recovered by user-fee mechanisms.

IV.Ecosystem Protection in the Wider Road Area. The design route w i l l cross 20 km o f ecologically sensitive areas in Sekenke Forest Reserve and Wembere Game Reserve.

Development of ancillaw infrastructure: socioeconomic infrastructure will enhance the benefits

Sekenke Forest Reserve. Closed to normal traffic, the o ld hilly road (12 km) w i l l be dedicated to forest service and tourism. Thanks to reduced fire exposure, the uphill forests w i l l regenerate, returning up to 300 ha to nature and timber production. The project will install signs and gates to interface Singida Shelui road with the Forest Reserve. On the negative side, the new route may slightly affect wi ldl i fe in Kinkungu Gorge. Recommended mitigations: (a) green barriers for fire protection, and: (b) support to village people bordering o n the escarpment to set up charcoal makers associations and ensure participative forest management.

Wembere Game Reserve. The future Reserve w i l l encompass 1,200 km2 o f a swamp-river-lake complex, r ich in wildlife. In Wembere valley, the present road acts as a dam, preventing the fish migration. The project hydraulic design w i l l minimize the barriers to seasonal water flows across the first 3 km o f Wembere basin, presently hampered by the small number and size o f culverts.

V. Safeguard o f Phvsical Cultural Resources (PCR) in the road area. Easier access to PCR may increase thefts and acts o f vandalism. After works completion, Tanroads, joint ly with the Ministry o f Education & Culture and the local authorities, wil l help in protecting the PCR near the road, featuring: prehistoric and historic sites, cemeteries, family graves, traditional groves, churches, mosques, vernacular architecture, etc.

VI. Health-oriented environmental measures. Incoming workers and traffic flows may carry and spread disease vectors. Local medical services should closely monitor AIDS-HIV. The project will provide a subvention to prevent spread to workers and community along the road during construction o f the said road.

VI1 . Benefit enhancement measures. As a result o f improved access, Singida Regional Government wil l be able to improve health care, education facilities, water supply, power plants, rural communications and other amenities. The institutions that rely on transport services can expand the environmental opportunities generated by the project.

Action Plan for Implementation. Tanroads wil l appoint a Task Manager to coordinate the project’s environmental components. H e w i l l submit a Memorandum to the Environmental Department of the Vice President’s Ofice (VPO) and the National Environmental Management Council (NEMC)), suggesting the tasks and schedule o f each Action Plan component. After reviewing the Memorandum, the VPO wil l issue a corresponding Order to the concerned Ministries and Agencies, and wil l oversee the whole process. N E M C w i l l provide advisory and monitoring services, with the help o f specialized institutes and consultants. The

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Ministry o f Local Government will transmit the VPO Order and the attached schedule to Singida Regional Government, which in his turn w i l l instruct the District Offices, noti fy the local communities and inspect the planned measures.

Contractual components. The environmental and social impact mitigation measures o f phase I o f the Action Plan, related to work implementation, w i l l be attached, with their bill o f quantities, to the Works Contract. A ‘chance-finds’ clause wil l be incorporated in the Contract to ensure the protection o f PCR, not only those which are already known and classified, but also those which are yet unknown and could unpredictably be found and inadvertently damaged during the construction.

Supervision system and Action Plan monitoring. The Works Supervisor wil l report to VPO and N E M C on the progress o f the Action Plan, constantly updating the Environmental Desk Officer o f Tanroads. N E M C w i l l monitor the Action Plan and cany out a mid-tenn and final evaluation, with the assistance competent o f consultants and institutes.

Environmental audit. The audit o f the long-term effects o f the mitigatiodenhancement measures should be the responsibility o f the National Environmental Management Council.

Community participation to Action Plan. During the field study, the Consultant has sensitized the local communities about the ecological and resettlement implications o f the project. The response has been positive at a l l levels. Comments, suggestions and additional detailed information can be collected after the Action Plan Memorandum prepared by Tanroads i s circulated among local authorities.

Environmental costs. Environmental mitigation and enhancement measures are estimated at TZS 715,000,000, equivalent to US$ 715,000. Investment costs for ancillary infiastructure do not compete to the project. Details o f two components are shown below.

Cost of mitigation measures in Phase I. The remedial works to overcome the environmental damage during road construction wil l cost US$ 370,000, out o f which US$ 160,000 are for the mitigation o f the impact o f construction works and US$210,000 for the impact o f road use and maintenance.

Cost of mitiaation/enhancement measures in Action Plan’s Phase II,US$ 100,000, covering two major interventions: 0 Environmental mitigation measures impacts of road use (an awareness campaign, targetting forest and

wildl i fe protection, tree planting and charcoal production; US$ 50,000); and 0 Cultural heritage and tourism (including

0 (i) Completion o f the inventory o f rock art paintings: 15,000 U S $; 0 (ii)Physical Cultural Resources safeguard and cultural tourism package in the road area: U S $

20,000; and 0 (iii) Promotion o f eco-tourist circuits in Sekenke & Wembere Reserves: U S $ 15,000).

Financial schedule o f EAP. The funds provided by the project wil l be complemented by Government funds, and the participation o f NGOs and local communities.

The total cost estimate of the Action Plan in US$715,000m out o f which US$235,000 wil l be used during the works period and US$480,000 during the operational period.

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Additional Annex 12: Partial Risk Guarantee TANZANIA: Central Transport Corridor Project

SUMMARY OF INDICATIVE TERMS AND CONDITIONS

THE CONCESSIONING OF TANZANIA RAILWAYS CORPORATION OF THE IDA GUARANTEE IN SUPPORT OF

Borrower or Beneficiary:

Guarantor:

Purpose:

Use of proceeds:

Principal Amount:

Currency:

Term:

Interest Rate of the Guaranteed Loan or LIC following Drawings:

Guarantee Support:

Project Company (PC) to be established in Tanzania by the Concessionaire.

International Development Association (IDA).

(i) a commercial or shareholder loan.

To catalyze debt finance in support o f investments through

or

(ii) In the absence o f debt financing, to provide political risk mitigation by backstopping a Letter o f Credit ( to be issued by RAHCO in favor o f the PC) that can be drawn following a 'Guaranteed Event' (See below). Proceeds o f the financing covered by the Guarantee to be used for productive purposes relating to the purchase o f goods and services and other eligible expenditures incured for the construction, rehabilitation and refurbishment o f the concessioned assets (not amlicable for the L /C structure)

To be determined through discussions between RAHCO, the Concessionaire and IDA. In any event a principal amount not to exceed U S Dollars 40 million.

U S Dollars or any other major currency.

To be indicated by the Concessionaire and to be agreed by IDA.

An appropriate margin to reflect the IDA guarantee, above the cost o f funds. (To be indicated by the lenders / Concessionaire and agreed with IDA).

IDA could guarantee:

(i) Scheduled principal and interest payments to lenders not paid by the Borrower as a result o f the occurrence o f a 'Guaranteed Event' (see below);

or

(ii) In the absence o f debt financing, al l or part o f the L/C drawn ( and not repaid by RAHCO within the agreed period) to

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Guaranted Events:

'IDA Guarantee Fees:

Standby Fee:

Front-end Fees:

Conditions Precedent to

the effectiveness of the

IDA Guarantee:

cover a cash f low shortfall caused by the occurance o f a 'Guaranteed Event' (see below). The above alternative options would need to be discussed and agreed w i th RAHCO. the Concessionaire and IDA.

Breach o f Contract in respect o f certain R A H C O payment obligations in the Concession and Lease Agreements. Specific breach o f contract coverage to be negotiated with the Concessionaire and / or its lenders by IDA and could include: (i) Termination Event as a result o f Expropriation, (ii) Termination Event as a result o f Changes in Law and (iii) RAHCO's failure to make required Restoration payments for the rai l infrastructure.

(i) 0.75 percent per annum on IDA guaranteed amounts outstanding, payable by the PC.

(ii) 0.25 percent per annum o n guaranteed but undisbursed loan amounts, payable by the PC. (N/A to guaranteed L/C)

(iii) (a) An Initiation Fee o f 0.15 percent o f the amount covered under the IDA Guarantee (but not less than USD100,OOO) for intemal Project preparation and development costs, payable by the PC.

(b) Processing Fee o f up to 0.50 percent o f guaranteed amounts to cover IDA-designated reimbursable expenses, payable by the PC up on receipt o f invoices.

Usual and customary conditions for project financings o f t h i s type, including the following:

(a) Firm commitment for proposed equity and /or deb1

(b) Execution, delivery and effectivenss o f the concession and Lease Agreements and al l other concession and financing agreements, each in form and substance satisfactory to IDA;

(c) Delivery o f environmental documentation, including ar Environmental Assessment and Management Plan, satisfactorq to IDA;

(d) Effectiveness o f a l l required insurance (to include IDA as an additional insured on the third-party liability insurance);

(e) Provision o f satisfactory legal opinions;

(0 Payment in full o f the Initiation Fee and Processing Fee and the first installment o f the Guarantee Fee;

(8) Conclusion o f a Guarantee Agreement between Lenders 01 the L /C issuing bank and IDA, a Project Agreement between the Concessionaire and IDA, and an Indemnity Agreement between

financing;

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Buy-out Option:

Subrogation:

Guarantee Agreement:

Indemnity Agreement:

Project Agreement:

[DA and the Government-of Tanzania. ~ ~~

[f interest payments are covered under the Guaranteed Loan, hen following a default by the Borrower o f the Guaranteed Loan, a demand by the Lender(s) and payment under the 3uarantee, the IDA shall have the right, at i ts sole discretion, to mrchase the Guaranteed Loan or oustanding obligations due for m amount equal to the outstanding principal and accrued but inpaid interest (not including default interest) on the Guaranteed Loan. In the event IDA acquires the Guaranteed Loan, IDA will lave the right under its Indemnity Agreement wi th the Sovernment o f Tanzania to demand immediate payment to IDA 3 f the outstanding Guaranteed Loan amount. (N/A to the L /C structure).

[f and to the extent the IDA makes payment under the IDA Guarantee and the Government o f Tanzania has failed to reimburse IDA for the amount so paid in accordance with the terms o f the Indemnity Agreement and such failure has continued for at least 60 days, then IDA shall be immediately subrogated to the Lender(s)' rights, including any security rights, in respect o f such payment, provided that IDA shall not be subrogated to any voting rights or rights o f enforcement o f security until either (i) IDA has paid the Guaranteed Amount; or (ii) where, following an acceleration, IDA has agreed to make payments in accordance with the Loan's original repayment schedule I D A may waive any such rights o f subrogation.

The terms and conditions o f the IDA Guarantee would be embodied in a Guarantee Agreement between the commercial 01: shareholder Lender(s) and IDA (or in the case o f a guaranteec L/C, IDA and the issuing bank).

The Government o f Tanzania would enter into an Indemnio Agreement with IDA. Under the Agreement, the Government 0: Tanzania would undertake to indemnify IDA on demand, or a: the IDA may otherwise determine, for any payment made by the IDA under the terms o f the Guarantee. The Indemnig Agreement w i l l follow the legal regime, and include dispute settlement provisions, which are customary in agreement: between member countries and the IDA

The PC will enter into a Project Agreement wi th the IDA ir respect o f i t s Guarantee. Under such Agreement, the PC wil l agree to use the proceeds o f each advance, in the case o f a Guaranteed Loan (or portion thereof), in accordance w i th the terms and conditions o f the Project Agreement and the Loan Agreement to provide reports (including audit reports) and other

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Project information and make warranties, representations and covenanted undertakings, including in respect o f compliance with environmental laws and the applicable Wor ld Bank Guidelines.

Other Provisions: As part o f i t s appraisal process, IDA would carry out due diligence including a technical and economic analysis o f the Project, review the financing structure o f the concession and financing agreements, and the proposed risk coverage, as deemed relevant by IDA. The PC would be expected to comply with al l applicable Bank policies and requirements, including those governing disclosure o f information, and applicable environmental, social, fiduciary, and anti-corruption safeguards.

The Proposed PRG Structure

In order to enhance bid responsiveness, in the context o f the currently prevailing adverse investment climate and the previous failed Government tender for a concessionaire, two alternative PRG structures are being offered to the concessionaire, as outlined in the indicative te rm sheet set out above. The two structures consist o f (i) the traditional L imited Recourse Structure and (ii) a Letter o f Credit Structure. Once a concessionaire has been selected and expressed a preference for one or the other o f these two alternative structures, the structure and risk coverage o f the PRG w i l l be negotiated w i th the concessionaire andor its lenders and specific Board approval would be sought on the negotiated PRG terms and conditions.

Under the Limited Recourse Structure, the PRG wil l guarantee either a commercial or shareholder loan provided to finance the Project Company’s investments in locomotives and rol l ing stock. In this case, the PRG could only be triggered in the event o f a debt service default on the covered loans caused directly by RAHCO’s non-compliance with i t s contractual undertakings (Le. RAHCO’s Breach o f Contract under the Concession Agreements). The term o f the covered loan(s) would be negotiated by the concessionaire and i t s lenders once the concessionaire is selected, and would be subject to IDA’S approval.

The Letter o f Credit (LE) Structure has been developed, particularly in the context o f privatization or concession guarantees, to enhance and facilitate privatizations and the concessioning o f infrastructure and public service utilities. Thus it is intended to be offered for the f i rst time in the context o f the proposed TRC Concession, which would also be the first privatizatiodconcession operation to be supported by a PRG.

The L /C Structure is specifically designed to provide political risk mitigation to the concessionaire/Project Company, when its financing plan does not anticipate direct commercial debt to the Project Company. Under th is structure, RAHCO, for its account, would open an L /C w i th a commercial bank based in Tanzania (the Issuing Bank) for the benefit o f the Project Company. The L /C would not exceed the maximum amount of US$40 mil l ion and would have a validity period which would be negotiated between RAHCO and the concessionaire/Project Company and agreed by IDA.

In the event o f a RAHCO Breach o f Contract guaranteed by IDA, the Project Company would noti fy

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RAHCO as wel l as IDA. If the Breach o f Contract i s not remedied within the cure period agreed in the Concession Agreements, and if it is not disputed by RAHCO, the concessionaire would be entitled to present agreed documentation to the Issuing Bank for a draw under the L/C backed by IDA. If, however, RAHCO disputes the occurrence of a Breach of Contract, then the applicable dispute settlement mechanisms (including arbitration) set forth in the Concession Agreements would need to be exhausted before a draw o n the L /C could be made.

Fol lowing a drawing upon the L /C and payment to the Project Company, RAHCO/Government (under the L /C agreement) will be obligated to reimburse the Issuing Bank for the amounts drawn (plus interest at an agreed rate accruing until repayment i s made) within a "repayment period" to be negotiated between the L/C issuing bank and RAHCO and to be agreed with IDA. This repayment period could extend from a minimum o f six months to a year or longer, and will essentially represent the maximum loan term to RAHCO for the drawn amounts. If RAHCO should fai l to make the required reimbursementAoan repayment within the repayment period, then the Issuing Bank would have the right to call on the PRG and the total amount o f the L /C would be reduced by the amount o f such PRG payment. However, if RAHCO makes the required repayment to the L /C Issuing Bank prior to the expiration o f the repayment period, then the L /C amount would be reinstated to i t s original amount and IDA would have no obligation for payment under the PRG.

As i s the case with a l l guarantee operations, any payments made by IDA under either o f the above structures would give IDA the right to seek reimbursement from the Government under the Indemnity Agreement that would be concluded between IDA and the Government o f Tanzania. Also the risk coverage, the amounts covered, as wel l as the guarantee charges would be the same for both the structures. The IDA Guarantee would be priced at 0.75% per annum on guaranteed amounts disbursed and outstanding w i th a standby fee o f 0.25% per annum on guaranteed undisbursed amounts. In addition, there would be an upfront initiation fee o f 0.15% and a processing fee o f 0.50% (for reimbursable expenses) o f the guaranteed amounts. All PRG related charges would be payable by the concessionaire and not by RAHCO.

Key Legal Documents:

The key Legal Documents that will be entered into to effect the concession will consist o f the following:

A Concession Agreement which wil l be executed among RAHCO, the concessionaire and the Project Company (as Concession Operator) which will grant the concession for the management, operation, and maintenance o f the rai l infrastructure to the private concessionaire (operating through the Project Company) and i t s right to provide railway freight and passenger transport services. The concessionaireh'roject Company wil l be required to make periodic payments to RAHCO, consisting o f a percentage o f i t s gross revenues, throughout the concession term. The Agreement will define the rights and obligations o f the concessionaire and Project Company, including service performance obligations, as wel l as the obligations of R A H C O wi th respect to Restoration o f the rai l infrastructure and any payment obligations o f RAHCO in the event o f early termination by the Project Company or concessionaire. I t also outlines a dispute resolution process in the case o f disputes between RAHCO, the concessionaire and the Project Company.

A Lease Agreement which w i l l be executed between RAHCO and the Project Company for the lease o f the rai l infrastructure and the existing rol l ing stock under which the Project Company would be required to make periodic lease payments for the use o f the assets to RAHCO.

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The PRG related key Legal Documents, will consist o f the following:

A Guarantee Agreement which will be executed between the lender@) or the L/C Issuing Bank and IDA, which wil l specify the Guarantee Coverage as well as the process for making a claim upon IDA in the event a guaranteed event i s triggered by a RAHCO Breach o f Contract.

A Project Agreement which w i l l be executed among the Project Company, the concessionaire and IDA which wil l set forth certain undertakings o f the Project Company and the concessionaire (e.g. in respect o f applicable environmental, safeguards, and use o f proceeds undertakings).

An Indemnitv Agreement (IA) which wil l be executed between IDA and the Government o f Tanzania. The IA wil l entitle IDA to repayment on demand or otherwise as IDA may direct in the event that IDA makes a payment to the lenders or the WC Issuing Bank on behalf o f RAHCO under the Guarantee Agreement.

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MAP SECTION