for official use only -...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 49698-MZ

PROJECT PAPER

ON A

PROPOSED ADDITIONAL FINANCING (CREDIT)

IN THE AMOUNT OF SDR 26.3 MILLION (US$41 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MOZAMBIQUE

FOR

PHASE II OF THE

ROADS AND BRIDGES MANAGEMENT AND MAINTENANCE PROJECT

(RBMMP-II)

March 14, 2011

Transport Unit Country Department AFCS2 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Exchange Rate Effective: 31 January 2011

Currency Unit = New Mozambique Metical (MZN) 32.45 MZN = US$1

1.56440 US$ = SDR 1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB AF ARAP

African Development Bank Additional Financing Abbreviated Resettlement Action Plan

ANE Administração Nacional de Estradas (National Road Administration) APL Adaptable Program Lending CA Chief Accountant CAS Country Assistance Strategy DFID Department for International Development DG Director General DGF Departamento de Gestão Financeira (Department of Financial

Management) DP Development Partner EA EC

Environmental Assessment European Commission

ECMEPs Provincial State Enterprise for Construction and Maintenance of Roads and Bridges

EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan EU European Union- FA Financing Agreement FM Financial Management FMS Financial Management System FIFA Fédération Internationale de Football Association (International

Federation of Football) GAI Gabinete de Auditoria Interna (Internal Audit Deparment) GAS GIS GoM GDP

Gabinete de Assessoria e Supervisão (Assessment and Supervision Unit) Georgraphic Information System Government of Mozambique Gross Domestic Product

GPPZ Gabinete do Projecto da Ponte do Zambeze (project management unit for the Zambezi Bridge)

HDM Highway Development and Management HIMS Highway Information and Management System HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome HNMS Highway Network Management System ICB International Competitive Bidding INAV IDA

Instituto Nacional de Viação (Traffic National Institute) International Development Association

IFR Interim Financial Reports IMOPETRO Importadora Moçambicana de Petróleos, Mozambique (Petroleum Import

Association) IP Implementation Progress IPR Independent Procurement Review IRR Internal Rate of Return IRPS Imposto Sobre o Rendimento das Pessoas Singulares (Income Tax) ISDS Integrated Safeguards Data Sheet ISR Implementation Status Report IVA Imposto sobre o Valor Acrescentado (Value Added Tax) M-I Medium Impact MoF Ministry of Finance MoPH Ministério de Obras Publicas e Habitação (Ministry of Public Works and

Housing) MZN New Mozambique Metical N1 National Road Number 1 NCB National Competitive Bidding NPV Net Present Value OP/BP Operational Policy/Bank Procedure ORAF Operational Risk Assessment Framework PAD Project Appraisal Document PAFGS Processing Additional Financing: Guidance to Staff PAPs Project Affected Persons PARPA Plano de Acção para a Redução da Pobreza Absoluta (Action Plan for the

Reduction of Absolute Poverty) PCA Presidente do Conselho de Administração (Chairman of the Board of

Directors) PDO Project Development Objectives PF Pooled Fund PRISE Programa Integrado do Sector de Estradas (Integrated Road Sector

Program 2007-09) QCBS Quality and Cost Based Selection RAP Resettlement Action Plan RBMMP Roads and Bridges Management and Maintenance Project RF Fundo de Estradas (Road Fund) RPM Regional Procurement Manager RSDMS Road Safety Data Management System RSS Road Sector Strategy SADC Southern African Development Community

SATC South African Transport Commission SBS Sector Budget Support SDMRR Support for the Decentralized Management of Regional Roads SIDA Swedish International Development Cooperation Agency SISTAFE Sistema de Administração Financeira do Estado, Public (Public Financial

Management System) SWAp Sector Wide Approach TA Technical Assistant UFSA Unidade Funcional de Supervisão das Aquisições (Department of

Procurement Monitoring) US United States VOC Vehicle Operating Cost

Vice President: Obiageli Katryn Ezekwesili Acting Country Director:

Sector Director Olivier Godron Jamal Saghir

Sector Manager: Supee Teravaninthorn Task Team Leader: Pierre Graftieaux


ADDITIONAL FINANCING AND RESTRUCTURING FOR PHASE II OF THE

ROADS AND BRIDGES MANAGEMENT AND MAINTENANCE PROJECT

CONTENTS

Additional Financing Data Sheet ........................................................................................................... i

I. Introduction ................................................................................................................................1

II. Background and Rationale for Additional Financing in the amount of US$41 million ............4

III. Proposed Changes: ...................................................................................................................12

IV. Appraisal Summary .................................................................................................................17

V. Consistency with CAS .............................................................................................................17

VI. Revised Economic Analysis ....................................................................................................18

VII. Expected Outcomes .................................................................................................................18

VIII Benefits and Risks....................................................................................................................18

IX. Financial Terms and Conditions for the Additional Financing ...............................................19

X. Environmental Safeguard Issues ..............................................................................................19

XI. Social Safeguard Issues............................................................................................................19

Annex 1: Results Framework and Monitoring....................................................................................21

Annex 2: Operational Risk Assessment Framework (ORAF) .............................................................24

Annex 3: Detailed Description Of Modified Activities ......................................................................27

Annex 4: Revised Estimate Of Project Costs .....................................................................................29

Annex 5: Revised Procurement Plan ...................................................................................................30

Annex 6: Revised Financial Management ..........................................................................................38

Annex 7: Revised Economic Analysis ................................................................................................48

ANNEX 8: Revised Financing of PRISE and IDA Contribution .......................................................55

Annex 9: Environmental and Social Safeguards ................................................................................56

i


PHASE II OF THE ROADS AND BRIDGES MANAGEMENT AND MAINTENANCE

PROJECT – ADDITIONAL FINANCING

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF) Country Director: Olivier Godron (Acting) Director: Jamal Saghir Sector Manager: Supee Teravaninthorn Team Leader: Pierre Graftieaux Project ID: P114880 Expected Effectiveness Date: May 2, 2011 Lending Instrument: Adaptable Program Loan Additional Financing Type: Credit

Sectors: Roads and highways (100%) Themes: Infrastructure services for private sector development (67%); Rural services and infrastructure (33%) Environmental category: B –Partial Assessment Expected Closing Date: December 31, 2012 Joint IFC: N/A Joint Level: N/A

Basic Information - Original Project Project ID: P083325 Environmental category: B – Partial

Assessment Project Name: Roads and Bridges Management and Maintenance Program - Phase II

Expected Closing Date: December 31, 2012

Lending Instrument: Adaptable Program Loan

Joint IFC: N/A Joint Level: N/A

AF Project Financing Data [ ] Loan [ X ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms:

AF Financing Plan (US$m) Source Total Amount (US$m)

Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IBRD IDA New Recommitted

41.0 0.0 0.0 41.0 0.0 41.0 41.0 0.0

Client Information

ii

Recipient: Republic of Mozambique Responsible Agency: Road Fund (Fundo de Estradas)

Contact Person: Elias Paulo

Telephone No.: 258-21-30 55 89 Fax No.: 258-21-30 50 69 Email: [email protected]

AF Estimated Disbursements (Bank FY/US$m) FY 2011 2012 2013 Annual 5.00 32.00 4.00 Cumulative 5.00 37.00 41.00

Project Development Objective and Description Original project development objective: The objective of the overall RBMMP is to assist the Recipient in: (i) improving the coverage and conditions of roads and bridges in the territory of the Recipient; (ii) strengthening the Recipient’s institutional capacity to manage and administer the road sector; (iii) establishing financing mechanisms for road maintenance; (iv) promoting the use of local resources in roads construction and management; and (v) improving road transport safety. The project development objective of the Roads and Bridges Management and Maintenance Program - Phase II is to improve access of the population to all season roads through maintenance, rehabilitation and upgrading of the classified road network. Revised project development objective: There are no changes in the Project Development Objectives (PDOs). Project description: The first component of the project will support the Project Implementing Entity and National Road Administration (ANE), at national and provincial levels, to enable them to effectively carry out the Project through the provision of technical assistance and consulting services. The second component will support maintenance of the road network. The third component will support investments in the national road rehabilitation and upgrade program and engineering services.

Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

[ X ]Yes [ ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ X ]Yes [ ] No [ ]Yes [ X ] No [ X ]Yes [ ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No

Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management?

[ ]Yes [ X ] No [ ]Yes [ ] No

iii

Conditions and Legal Covenants: Financing Agreement

Reference Description of

Condition/Covenant Date Due

FA, Article V, 5.01

Dated Covenant

The Recipient has hired a chief accountant for the Project with qualifications, experience, and pursuant to terms of reference, satisfactory to the Association, in accordance with the provisions of paragraph C of Section III of Schedule 2 of the FA.

The Recipient shall submit to the Association, evidence in form and substance satisfactory to the Association, showing that the Project Implementing Entity has established and adopted a financial management system, in form, and substance satisfactory to the Association, as confirmed by the Association in writing

Effectiveness condition

December 29, 2011

1

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to: (a) provide an Additional Financing (AF) in an amount of US$41 million to the Mozambique Roads and Bridges Management and Maintenance Project Phase II (RBMMP-II), Credit 4308-MZ, which includes US$25 million to bridge the financing gap, and US$16 million to scale up the project’s impact and effectiveness, (b) restructure the project to drop all references to a pooled fund (PF) which has proved unworkable; and (c) extend the credit closing date by one and a half years from June 30, 2011 to December 31, 2012. The original credit amount is US$100 million equivalent.

2. There will be no changes in the Project Development Objectives (PDO), institutional roles and implementation arrangements. The project scope is modified in two ways: first, one of the three large civil works projects on the N1 road was removed from the project due to the funding gap (although it was financed by the Government of Mozambique (GoM) and has been completed). Second, the project was originally designed as a SWAp (sector wide approach) with 35 percent of the total IDA funding under the project allocated to a PF (see paragraph 7) with large number of activities and with IDA financing about 10 percent of the total. Because it was not possible to implement the pooled fund as planned, the restructuring of the project proposes a reallocation of the remaining IDA funding originally intended for the PF to finance 100 percent of a subset of the activities included in the SWAp. Consequently, the project now includes fewer activities although all of the remaining original activities are being implemented under GoM and other donor funding. Otherwise, the civil works remain as originally planned with the addition of road safety investments, and the technical assistance and consultants services component is enriched with some additional activities, including the preparation of engineering designs, road safety and the implementation of a highway management system. The provision of the additional finance is critical to achieving the original project objectives of RBMMP-II.

3. Compliance with Bank’s Policies and Procedures on Additional Financing: According to the Bank’s guidelines, ongoing Adaptable Program Loans (APLs) do not normally qualify for AF. However, successful APLs may qualify for AF under specific exceptions (“Processing Additional Financing: Guidance to Staff” PAFGS, July 12, 2010 Clause 7). In this case, although the project has faced some implementation challenges, it is successfully moving toward achieving its PDOs and the purpose of the restructuring is to address the challenges confronted. The exceptions under which the AF is justified as described in the PAFGS are:

• “a. address a cost overrun or financing gap encountered during implementation of a phase”: the major part of the AF is being applied to the cost overruns on the two civil works projects, Xai-Xai – Chissibuca and Jardim – Benfica, as described below in the next paragraph;

• “c. scale up project activities that are performing better than expected and cannot be postponed to the subsequent APL phase”: the two civil works projects, which are performing well, have scale-up components that cannot be delayed as described in the next paragraph; and

• “d. complement project activities that are performing better than expected and cannot be postponed to the subsequent APL phase”: project preparation required for

2

APL 3 cannot be postponed and several additional consultancies are necessary for the successful implementation of this phase of the APL and for the preparation of the following phase (see paragraph 35).

4. Furthermore, this proposed additional financing also complies with the provisions of OP 13.20 paragraphs 1 and 2, and paragraph 5 of BP 13.20. 5. In addition, anti-corruption guidelines state that guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and updated January 2011, shall apply to the project.

6. The proposed AF would support the completion of original project activities and would enable the project to meet its initial development objectives through bridging the financing gap associated partly with the cost overrun1

, and through funding additional activities designed to enhance the efficiency of the investment. The proposed allocation of the US$41 million, combined with savings of US$16.4 million as the result of the GoM’s decision to not use IDA funds to finance the civil works on Lot 3 (Massinga-Nhachengue, initially to be funded under APL2) is as follows: (a) US$32.85 million for the priority section of National Highway (N1) from Xai-Xai to Chissibuca, of which US$27.85 million would be to cover the gap between the contract price and the cost estimates at the time of appraisal, and US$5 million would be to finance the additional thickness of the asphalt layer from 30 mm to 40 mm in order to meet South African Transport Commission (SATC) specifications; (b) US$16.55 million for the Jardim-Benfica section on National Highway 1, of which US$11.95 million would be to cover the gap between the contract price and the cost estimates at the time of appraisal, US$3 million would be to enhance the project impact through the inclusion of pedestrian bridges and street lighting to improve road safety along this section; and US$1.6 million to cover additional supervision costs; (c) US$4.05 million for the preparation of engineering design and bidding documents for civil works that would be financed under a proposed follow-on RBMMP-III; and (d) US$3.95 million to provide technical assistance, studies and support for road safety, highway management systems, climate resilience in road and bridge design and development of a strategy to integrate rail service and feeder roads along the Beira Railway corridor. Procurement of construction works coincided with the financial crisis of 2008 and a steep rise in oil prices, causing unprecedented increases in construction costs in the region.

7. In view of the cost increases, the GoM reduced the works to be financed by the Bank to two lots, and increased their counterpart contributions, especially under Category 1. However, the cost increase was unfortunately so significant that these measures proved insufficient to bridge the gap and the need to resort to an AF from the Bank, even though on a reduced scale, remains.

8. The largest part of the scaling up component is an integral part of the civil works. These additions under the AF are justified as they could not be delayed. The increased pavement thickness for Xai-Xai – Chissibuca is strictly in response to the updated projected loadings and

1 Bid prices for works increased substantially and unexpectedly right after the time that the Project was being prepared, mainly because of a steep increase in input prices, especially oil. This phenomenon is being repeated elsewhere in Southern Africa and throughout Africa.

3

economic benefits. The lighting and pedestrian bridges cannot be postponed to RBMMP-III, when the costs of implementation would be significantly higher as the ongoing contract would be closed by then, not mentioning the fact that the sooner these bridges are built and the street lighting is operational, the fewer fatal accidents will happen along this urban road. With regard to the funds allocated for RBMMP-III of the project preparation, they are necessary to adequately prepare the next operation. Failure to have incorporated these funds initially could have been overcome had the project proceeded without the cost overruns, since in such case the Road Fund (RF) could have made due by allocating to these studies some of the unallocated funds.

9. Apart from the above cost increase, there was a need to restructure the project, to amend the financing agreement in order to drop the reference to the PF which has proved unworkable, and to reflect the cancelation of the earlier misprocured activities. With respect to the pooled fund component, IDA stopped contributing to the PF for Part A (Overhead Costs) and Part B (Road Maintenance) because of changes from the originally agreed sectoral approach. The fund flow mechanism to the PF had been changed in 2008 after other DPs decided not to join when they were informed that IDA rules would apply to all procurement under the PF. This forced the RF to establish two PFs one with contributions from IDA and the Road Fund (to which IDA procurement rules applied) and another one with contributions from EC, DFID and RF under which procurement followed Mozambican procurement law. As a result of this situation, no further disbursements were made to the pooled fund and no Category 1 expenditures were financed with the IDA credit after June 30, 2009. 10. As a result of an Independent Procurement Review carried out in June 2009, out of a sample of 31 contracts, 10 contracts in the total amount of US$1,436,000 were proposed for a declaration of mis-procurement. Although it was not possible to determine what IDA share actually was used in the payment of the subject contracts, the Association decided to use a figure of 30 percent of the total payment made from the RF-IDA PF account for these contracts in determining the amount to be declared as mis-procurement.

11. The restructuring thus comprises: (a) reallocation of the remaining un-disbursed amount, initially under the PF, i.e. US$18.04 million, not to be allocated to specific activities under Parts A and B of the project, still under Category 1; and (b) the estimated amount identified as misprocurement in the amount of US$430,800 from Category 1 “Goods, Works and Consulting Services” which was funded from the PF has been cancelled from the project (reimbursement was made by the GoM on December 2, 2010). It was agreed that the reallocated Category 1 funds would be used for activities specified in the project description, included in the project procurement plan and which were procured following World Bank procurement guidelines. Eligible expenditures after July 1, 2009 are to be financed 100 percent by IDA, and funds advanced by the Road Fund for payment on these contracts would be reimbursed once the Additional Financing becomes effective. For consequences of the cancellation, the amount of the original credit is now reduced to US$99,569,200.

12. RBMMP-II is being implemented in a sectoral way to support GoM’s integrated road sector program, in Portuguese called Programa Integrado do Sector de Estradas (PRISE), the three-year cost of which was estimated at US$1.043 million in 2007. The PRISE established the

4

PF for meeting overhead and maintenance costs. Subsequently, this component was split into two funds: PF and a Sector Budget Support (SBS) fund, after other development partners (DPs) did not join the PF. There were 19 DPs including the International Development Agency (IDA), who were initially contributing to PRISE either through PF, SBS, directly to earmarked projects and activities, or a combination of the above. The original IDA-financed RBMMP-II was contributing US$35 million to the PF, and US$65 million to the infrastructure investment component earmarked for the rehabilitation of priority sections of N1. The proposed AF is critical for the completion of these works, which are an integral part of the North-South national corridor in Mozambique.

13. The GoM and the key implementing agencies, Road Fund and National Roads Administration (ANE), are fully committed and are complying with all legal covenants specified in the Financing Agreement (FA). The overall project performance in terms of achieving the PDO indicators has been satisfactory throughout project implementation. Implementation progress (IP) has also become satisfactory after significant progress in procuring the civil works contracts. The project does not have any unresolved fiduciary, environmental, social or other safeguard issues. On account of the extended procurement process for the civil works contracts and some of the scaling up activities, the project closing date will need to be extended by one and a half years from June 30, 2011 to December 31, 2012. II. Background and Rationale for Additional Financing in the amount of US$41 million

Background

14. Country Context. Mozambique has been a strong economic and social performer. Since the devastating civil war ended in 1992, the country has enjoyed a remarkable economic recovery, achieving an average annual economic growth rate of six to eight percent between 1996 and 2010. As a result, the poverty index fell by 15 percentage points between 1997 and 2003, bringing almost three million people (of a total population of 20 million) above the poverty line and out of extreme poverty. However, a recent 2008 household survey indicates that its development strategy requires some reorientation to make it more inclusive. After a sizable 15 percentage point drop between 1997 and 2003, the new poverty report indicates a broadly stagnant poverty headcount, at around 54 percent. Inequality remains relatively low by regional standards and progress has been made toward the key Millennium Development Goals of infant mortality and primary school enrollment. Further investments and reforms are required to improve business environment, make the legal and judicial sectors more effective, and strengthen public financial management and the overall governance framework. In addition, further decentralization and enhanced delivery of key services, especially in rural areas is required. Access to transport infrastructure and services plays a significant role in promoting the rural economy, providing social services, and improving market environments.

15. Economic growth was strong in 2010 at 8.5 percent in real terms, higher than the six percent growth achieved in 2009. Trade deficit has increased lately to reach about 11 percent of gross domestic product (GDP) in 2010 (estimates by the Economist Intelligence Unit 2010). The impact of the global financial crisis on the Mozambican economy is limited but real. The government formed an inter-agency financial crisis task force at the ministerial level in 2009 and

5

started to talk about possibilities of aid and foreign direct investment shortfall, decline in economic activity and low fiscal revenues. The likelihood of renewed social unrest echoing the September 2010 riots in Maputo, particularly in poor urban areas, will remain substantial, all the more so if food prices increase more than currently expected. The main funding source in the road sector, the fuel levy, however, will not likely be severely affected by the crisis, and hence sector funding remains relatively secure.

16. Sector Issues. Mozambique's classified road network-the national and regional roads-consists of 29,349 kilometers of roads, of which 5,814 kilometers (or 20 percent) are paved. Road density per land area is low at 46 meters per square kilometer (204 for sub-Saharan Africa as a whole) due to the large size of Mozambique, but quite average, relative to the population, at 423 meters per 1,000 of the population. The percentage of the rural population that has reliable, all-year access (as measured by the percent of the rural population within two kilometers of an all-season classified road) is currently 31.3 percent. One of the main objectives of RBMMP-II is to increase the number of rural residents with reliable access to social and economic facilities.

17. Sector Policy and Strategy. In 2001 the GoM developed a Road Sector Strategy (RSS) and ten-year plan in collaboration with IDA and other DPs. To support GoM in implementing the Road Sector Strategy 2001-2011, a 10-year Adaptable Program Loan (APL), the RBMMP, was designed in three phases. Phase I of the RBMMP (RBMMP-I) successfully achieved its objectives and closed on June 30, 2007. During 2006, in close collaboration with road sector DPs, the GoM revised the Road Sector Strategy and developed PRISE, a road sector program based on the Revised RSS and the Road Sector Policy. RBMMP-II was designed concurrently with and as an integral part of PRISE. The approval of RBMMP-III is contingent upon the successful completion of triggers, which include the requirement that road works under RBMMP-II are substantially completed.

18. Road sector expenditures between 2001 and 2006 were about US$700 million or on average US$140 million per annum. It has been recognized that past road sector investments were insufficient to support the country's poverty reduction goals. PRISE therefore, planned to substantially increase expenditures for both maintenance and investment. Total planned sector expenditure under PRISE 2007-09 was projected at US$1,043 million, or about US$347 million per annum (about 4.4 percent of gross domestic product). During calendar years 2007, 2008, and 2009 actual sector expenditure reached only 70, 60 and 61 percent respectively of the plan mainly due to delays in implementation of externally financed investments, including the IDA financed RBMMP-II. Budgeted amounts for year 2010, 2011 and 2012 are respectively US$333, 268 and 402 million. Since RBMMP-II is being extended to 2012, it will now cover six years of PRISE activity, over which time the projected cumulative budget will be approximately US$1.7 billion.

19. During the preparation of PRISE, there was strong commitment by DPs and GoM to harmonize approaches in line with the Paris Declaration. While harmonization has been achieved in respect of the adoption of a joint performance assessment framework, a joint financial, technical and procurement audit, and the conduct of joint bi-annual review meetings, joint financing arrangements were not achieved as originally intended. It was originally intended to finance a large portion of PRISE through sector budget support as described and detailed in the

6

PRISE Implementation Plan (February 2007). However, at the request of IDA, and as described in the original Project Appraisal Document (PAD), the financing of administration and overheads, and road maintenance (components A and B of RBMMP-II) was changed to a PF to which the RF, the European Commission (EC), the Department for International Development (DFID), the Swedish International Development Cooperation Agency (SIDA)2 and IDA would contribute. However, when it became clear to these DPs3 that IDA requires fiduciary oversight of the PF expenditures, through prior review of the procurement of contracts above certain thresholds and variations4

to the Mozambique procurement procedures, EC and DFID decided that they would not join the PF, but would provide the untied portion of their funding (about 30 percent in the case of the EC and 100 percent in the case of DFID) through untied SBS. During the mid-term review of the project, it was recognized that this revised financing arrangement is not in line with the description in the original PAD and the provision of the Project Agreements, and that therefore a restructuring would be required.

20. Original Project Data. RBMMP-II was approved on May 23, 2007 for an amount of US$100 million, declared effective on October 5, 2007, and was originally scheduled for closing on June 30, 2011, but this proposal for Additional Financing seeks to extend the closing date to December 31, 2012. RBMMP-II supports PRISE, Mozambique’s current road sector program. PRISE has three components: (A) Overheads; (B) Maintenance; and (C) Investments. RBMMP-II contributes to components (A) and (B) through a US$35 million allocation to the PF, and to component (C) with US$65 million for infrastructure investments and related consultant’s services for civil works aimed at rehabilitating and upgrading 160 kilometers of the N1 in three sections in Maputo, Gaza and Inhambane Provinces.

21. Objectives. The objective of the overall RBMMP is to assist the Recipient in: (i) improving the coverage and conditions of roads and bridges in the territory of the Recipient; (ii) strengthening the Recipient’s institutional capacity to manage and administer the road sector; (iii) establishing financing mechanisms for road maintenance; (iv) promoting the use of local resources in roads construction and management; and (v) improving road transport safety. The project development objective (PDO) of RBMMP-II is to improve access of the population to all-season roads through maintenance, rehabilitation and upgrading of the classified road network. The achievement of the PDO is measured through: (a) percentage of classified roads in good and fair condition; and (b) the percentage of the rural population within two kilometers of an all-season classified road.

22. The rating of the progress towards achievement of the PDO is satisfactory as shown in the last three ISRs of January 2011, June 2010, and April 2010. The rating of the Overall Implementation Progress (IP) as per ISR of December 2009 was Satisfactory, however it was downgraded to Moderately Satisfactory in the ISRs of April 2010 and June 2010 because the disbursement was slow on account of delay in the procurement and signing of civil works 2 The anticipated SIDA contribution to the PF was later clarified to be more appropriately included as part of its SDMRR program (Support for the Decentralized Management of Regional Roads) which includes substantial amounts of flexible funding but which is not commingled with PF or SBS funding from other DPs. 3 At a special meeting between the RPM and DP in Maputo in August 2007. 4 As per the original PAD, Annex 8, page 61, paragraph 4, the Mozambican procurement system may be used provided: (i) domestic preference is applied only to ICB and not NCB; (ii) domestic preference for locally manufactured goods shall apply only for ICB; and (iii) in case of ICB bidding documents shall also be in English.

7

contracts. During the September 2010 mission, good progress was seen in the procurement and as of February 2, 2011, the project has disbursed 65.7 percent (against 41.6 percent five months earlier in June 2010) of the credit amount and the IP rating in the January 2011 ISR has been upgraded to satisfactory on account of the following reasons: (a) substantial progress has been achieved in the implementation of large civil works contracts since the June 2010 mission; (b) based on the clarification received from the RF, the issue of mis-procurement has been resolved and the GoM has now refunded to the Bank an amount of US$430,800. As indicated in the ISRs of January 2011 and June 2010, disbursements have picked up since the two big civil works contracts were signed and it is expected that all project activities will be completed within the proposed project extension of one and a half years. In all four last ISRs, the rating for the performance of Financial Management (FM) has been moderately satisfactory due to weaknesses identified by the auditors in their audit reports and management letters for 2008 and 2009. An action plan to address these issues was agreed upon during the September 2010 mission and is being implemented by the client. The status of the progress achieved in implementation of the agreed action plan is shown in Annex 6 “Revised Financial Management”. In the four last Implementation Status Reports, the rating for project management, counterpart funding and monitoring and evaluation was Satisfactory. Despite the fact that at the beginning of the Project there were some procurement problems that led to a finding of mis-procurement, the implementing entity responded very well and addressed the problems. The rating for procurement is now satisfactory as per the last ISR (January 2011).

23. Performance indicators. With regard to the two key results and their performance indicators, as specified in the project appraisal document, the progress is as follows:

• Condition of the classified road network in good and fair condition: Baseline value as

of January 1, 2007 was 64 percent; achievement as of end 2009 was 71 percent, and final target is 77 percent.

• Rural population within two kilometers of an all-season classified road:5

the revised estimated baseline value as of January 1, 2007 was 25 percent; the achievement as of end 2008 (last available measurement) is 31.3 percent; and the target for 2012 is 32.3 percent.

24. Fiduciary and Safeguard Issues: The project has followed the most updated procurement guidelines and all financial audits are current. The project has complied with all legal covenants. The project does not have any unresolved fiduciary, environmental, social and other safeguard problems. However, the construction of footbridges for Lot 1 requires an abbreviated Resettlement Action Plan (RAP), which was disclosed on February 4, 2011 at the InfoShop and in country on ANE’s website (ane.gov.mz). The existing Environmental Management Plan (EMP) for the Jardim-Benfica section on National Highway 1 can be used to implement environmental management measures for the new construction works (the pedestrian bridges),

5 The original baseline for this indicator was estimated at 11 percent for 2006. However, as the indicator was computed for 2007 and 2008 using more reliable data and a better methodology, it became clear that the baseline was in error. The indicator is now computed only for the classified road network (which is the target of the project) and using the current population distribution data available, the baseline should have been closer to 25 percent and the maximum value attainable is estimated at 34 percent.

8

and these measures will be reflected in the Progress Reports submitted by the Consultant. The project will continue following-up other cross-cutting activities such as Human Immunodeficiency Virus / Acquired Immunodeficiency Syndrome (HIV/AIDS) awareness and prevention for all stakeholders, including workers employed on the road project sites, village residents on project road routes, and the staff of the implementing agencies.

25. Progress in Achieving Triggers. Good progress has been made in meeting the triggers set out for the proposed RBMMP-III which was initially planned to be a credit of US$135 million. The already achieved triggers are: (a) timely provision of agreed level of funds to the RF and GoM budget allocation; (b) satisfactory implementation of agreed HIV/AIDS prevention measures for all stakeholders including workers employed on the road project sites, village residents along project roads, and the staff of the implementing agencies; (c) regular financial, technical and procurement audits; and (d) satisfactory arrangements for environmental and social management at ANE. The triggers still to be achieved are the following: (a) agreed RBMMP-II road works substantially completed (this is expected to be achieved by June 2011); (b) preparatory activities for RBMMP-III have been satisfactorily completed (this includes the preparation of design and bidding documents for which financing is proposed to be provided under this AF credit); (c) an appropriate road safety policy and strategy is adopted (preparations for this are on-going and this trigger is expected to be met during 2011); and (d) satisfactory financial management of RF and ANE, which is currently moderately satisfactory but an action plan, described below, has been agreed upon during the September 2010 mission to address fiduciary issues. Implementation status of this action plan is described in Annex 6.

26. Financial Management Arrangements: A financial management review of the arrangements of the project implementing unit of the RBMMP-II was carried out to verify whether the financial management arrangements to implement the AF of the project are adequate. Several deficiencies were identified in financial management, including the failure to appoint a suitably qualified Chief Accountant and the slow implementation of a new financial management software system. The above noted comprehensive Financial Management Action Plan being implemented addresses these and other shortcomings. The conclusion of the financial management review is thus positive, subject to: (a) timely appointment of a Chief Accountant satisfactory to the Bank, (b) full implementation of the Financial Management Software Package at headquarters and in the provinces by the end of 2011, and (c) continued satisfactory implementation of the agreed financial management action plan.

27. As a result of the restructuring, all payments made after July 1, 2009, for activities under Parts A and B included in the Procurement Plan for funding by IDA (Annex 5) will be financed 100 percent by the credit and paid directly from the Category 1 dedicated account A (formerly the Pooled Fund Account).6

6 For those ongoing activities under Parts A and B that are eligible for IDA financing the GoM will be reimbursed for payments incurred after July 1, 2009. The Interim Financial Reports for Category 1 for the period July 2009 up through the most recent quarter will be submitted immediately following effectiveness of the Restructuring and Additional Financing and serve as the basis for such reimbursement.

There are no other major changes expected in the overall financial management arrangements. The implementing unit is current with submission of un-audited interim financial reports for the original credit, as well as with audited financial statements. The overall financial management performance of the original project has been Moderately

9

Satisfactory, due to some shortcomings such as the vacancy of Chief Accountant, completion of the fixed assets schedule, delays in implementation of the new accounting system, and the outcome of the last two audit reports. There is, however, a robust action plan in place which shows appropriate follow-up actions to address these issues.

28. The recording of accounting transactions will take place through the newly-acquired and customized integrated financial management information system, SunSystems, which is connected to both RF and ANE headquarters and all provincial delegations. The overall financial management responsibility stays with the Road Fund’s Departamento de Gestão Financeira (DGF). The integrated accounting system is expected to mitigate several issues noted in prior audits. With the exception of the Chief Accountant’s post noted above, the DGF is adequately staffed with experienced and qualified personnel to handle the complexity of the project, as well as an Internal Audit Department. The RF already has an approved financial management procedures manual, which is currently being revised to reflect current conditions and which will also enhance the RF’s internal control procedures.

29. Fund flow arrangements will follow the arrangements used in the original financing, whereby the Bank transfers the funds to the same Designated Accounts used for the original financing, one for Category 1 activities and the other for Category 2 and 3 activities, which are held at the Banco de Moçambique. The funds are managed by the RF which makes payments directly to suppliers of works, goods and services. As in the original project, it is expected that the larger contracts will be making use of the Direct Payment disbursement method. Disbursements will also be report-based, and interim un-audited financial reports will be submitted on a quarterly basis within 45 days of the end of the quarter.

30. Audit reports will be submitted to the Bank on a yearly basis, along with the respective management letters within six months of the end of the year. A single audit opinion will be issued for the financial statements of the Road Fund and its implementing entities, and the audits will be conducted based on International Standards on Auditing, by a firm acceptable to the association.

31. Institutional and Capacity Issues. As a condition of effectiveness of RBMMP-II, ANE had to complete its restructuring in a satisfactory manner. By effectiveness, on October 5, 2007, all key staff of ANE had been competitively selected and put in place. As well, a new Board of ANE had been constituted and was already operational when the project became effective. The project implementing agency is the RF which takes the overall fiduciary responsibility for project implementation, while ANE focuses on execution of the roads program. The above institutional arrangement has led to a marked increase in capacity and to satisfactory implementation of the PRISE program, as is demonstrated by the performance indicators of PRISE and acknowledged by the development partners during the past semi-annual joint review meetings, including the most recent one in September 2010. ANE has proven internal capacity in the preparation of RAPs, as demonstrated in the implementation of the existing RAP for the Jardim-Benfica road. The project has also provided satisfactory progress reports on environmental management, prepared by an environmental specialist retained by the consultants working on the Jardim-Benfica Road.

10

32. The lowest evaluated bids received on July 28, 2008 for the three civil works contracts planned to be financed under RBMMP-II amounted to US$121.2 million and were 133 percent above the appraisal estimate of US$52.0 million. In its bid evaluation report, ANE provided a detailed analysis for the reasons of the price escalation by looking at the escalation of various cost factors such as labor, fuel, construction material, plant and equipment from the time of the appraisal (March 2007) to the time of the bid (June/July 2008). Most civil works projects that went into tender around 2007-2008 had experienced bid prices that were 30-50 percent higher than engineer’s estimate. Based on this analysis, which the Bank team reviewed and agreed with, a large proportion of the price increase, about 60 percent can be explained by the massive increase of input costs (particularly fuel, which was, at the time of bid submission, at its peak at US$147 per barrel). The balance of the increase was due to the (world) construction market conditions which at the time of the bid made it more attractive for contractors to work in the then booming South African (especially on those massive construction projects in South Africa related to the organization of the FIFA World Cup in 2010) and Asian markets7

. The other reasons behind the increase of the final contract values are scaling up of the component design that included: (a) pedestrian bridges and street lighting, to improve road safety along the highly trafficked road sections in the built-up areas; and (b) the increase in the thickness of asphalt concrete pavement from 30 mm to 40 mm in order to accommodate increased traffic volumes and to be consistent with the SATC road design standards. This will increase the design life of the rehabilitated road sections from 15 to 20 years.

33. After careful review of the above, IDA gave its no objection to award the contract for Lot 2 (Xai-Xai – Chissibuca) for an amount of 1,269,447,739 Meticais (equivalent at the time to approximately US$53.1 million in November 26, 2008, and this contract is currently 95 percent complete. Based on recommendations of IDA, Lot 1 (Jardim – Benfica) was issued for re-bidding to the pre-qualified bidders after including a cost adjustment clause, and the lowest evaluated bid, received on February 25, 2009, was 541,788,314 Meticais (equivalent at the time to approximately US$21.6 million (18 percent below the bid of July 2008, due to the decreased risk and falling input prices). With prior no objection from the Bank, ANE signed the contract in November 2009 after completion of resettlement actions (see paragraph 61). For Lot 3 (Massinga – Nhachengue) GoM is financing the civil works through other sources and IDA funding is no longer needed, except for the supervision contract. The contract for the execution of these works (Lot 3) was signed on March 18, 2009 and the resulting savings have been reallocated to meet the cost increase under Lot 1 and 2. The additional funding needs for Lots 1 and 2, including the cost overrun, increase in scope, and additional costs for supervision are US$33 million (as shown in Table 2, penultimate column, US$31.5 million for works, and US$1.5 million for supervision).

34. Improvement of these three sections of N1 was originally planned under RBMMP-I but was later relegated to RBMMP-II due to insufficient funding. RBMMP-II financed the

7 This happened not only to many Bank project in the sub-region, but also to projects of other development partners too. The EU, ADB and other donors had exactly the same experience. For example, on Mocuba – Milange, the PRISE estimated value for an upgrading project was US$36 million. The estimate by the design engineer was about €45 million (US$60 million) and the contract price is about € 69 million (about US$95 million). Consequently, the EU is financing a study to analyze the magnitude and sources of construction cost increases in the sector and to make recommendations for ways to mitigate these increases.

11

rehabilitation and upgrading of 670 kilometers of the N1 in Maputo, Gaza, Inhambane and Sofala Provinces but left out the above three sections, which are an integral part of the key backbone North-South road of Mozambique. Not rehabilitating them, or rehabilitating them only partly, would mean that the PDO of RBMMP-II would not be achieved.

35. The amount allocated under Category 3 of the credit (consultant’s services) was insufficient to finance the revised costs of the supervision of the contracts on N1 and to fund the preparation of designs and bidding documents for works that would be financed under the follow-on RBMMP-III project. It is therefore proposed to allocate an additional amount of US$5.55 million to this category to cover the anticipated funding gap, US$1.5 million for supervision and US$4.05 million for project preparation.

36. The mid-term review and subsequent missions also identified several key areas that could significantly contribute to the project’s impact and effectiveness and it was decided to provide an additional US$3.95 million to scale up the project in the following areas:

• Strengthening the Highway Information and Management System (HIMS): to install

an integrated system for the management of the classified road network, including bridges. This is an area where the road sector is performing well, having collected data on the entire network. The system will be fed with these data, facilitate systematic maintenance and investment planning. Failure to take advantage now of this opportunity would be very costly in many respects. The proposed services will include full configuration and implementation of the system within six months, full-time on-site support for one year, twice-annual on-site support for four years, and continuous on-the-job training for one year followed by refresher training for four years. The estimated cost is US$2.0 million of which the RBMMP-II share through project closing date will be approximately US$1.79 million.

• Development of a Road Safety Data Management System (RSDMS): to design,

configure and implement an integrated Road Safety Data Management System, and or to roll this system out to the provinces, to collect and analyze traffic accidents, black spots, traffic infractions, emergency services, and other information critical to improving road safety. Under Swedish funding a specialized consultant has been procured for one year (January – December 2011) to establish the specifications of the desired system and to supervise its procurement, installation and initial operation. Road safety is another area where the road sector is on the right path. The GoM used its own resources to finalize the drivers' license program and vehicle inspection centers, and also for traffic markings to improve safety. The Ministry of Transport and Communications through Instituto Nacional de Viação (Traffic National Institute) INAV is preparing the road safety policy under SIDA funding. The Additional Financing will only finance a portion of this program as a bridging activity until RBMMP-III. To delay this step would be to miss the opportunity to quickly expand the system beyond Maputo. Estimated cost: US$3 million of which the RBMMP-II share through project closing date will be approximately US$0.50 million.

12

• Study of climate resiliency in road design and maintenance: to study specific measures that can be incorporated in road and bridge designs and in their maintenance in order to promote climate resiliency. The main objective will be to identify incremental investments that have high returns through their reduction of risks from the effects of climate change. It is anticipated that the most promising ideas can be incorporated into RBMMP-III funded projects. This study may also be followed up by the preparation of construction standards under RBMMP-III. Estimated cost: US$0.25 million.

• Study to develop a strategy to integrate rail service and feeder roads: to examine the

potential to exploit complementarities between rehabilitated rail service and feeder roads, especially to promote commercial agricultural development. The study will focus on specific potential investments in rural roads linking potentially productive agricultural lands with the Sena Rail Line linking the Port of Beira with the interior of Sofala and Tete provinces. It is anticipated that the study could serve to identify potentially attractive rural roads investment projects for funding under RBMMP-III. Estimated cost: US$0.25 million.

• Support to the implementing agencies through the continuation of two technical

assistance posts and two supporting consultancies. Estimated total costs: US$0.91 million.

III. Proposed Changes:

37. The proposed changes to the original project relate to costs and financing mechanisms, disbursement arrangements, and extension of the project closing date. The revised financing mechanism and IDA contribution to PRISE is attached as Annexes 6 and 8.

38. Prior to suspension of IDA funding for Category 1, on June 30, 2009, a total of US$16.96 million had been disbursed and the percentage of financing was determined for each semester of the fiscal year. This arrangement will now be changed and for the remaining balance under Category 1, being US$17.61 million8

, the project will finance periodic maintenance works and Capacity Building including technical assistance, studies and other services at 100 percent and IDA procurement rules and procedures will apply.

39. Contracts financed under the PF and subject to post review were subjected to an Independent Procurement Review (IPR) by the office of the Regional Procurement Manager (RPM) in June 2009. The IPR carried out an audit of 31 contracts and in accordance with Paragraph 1.12 of the Bank’s Procurement Guidelines, IDA declared misprocurement with respect to ten (10) contracts in the estimated amount of US$430,800. The IPR did not negatively affect the performance rating since most of procurement related actions happened before the effectiveness of the project due to the recurrent nature of the activities funded through the PF.

40. Due to the protracted pre-qualification process, the delay of the award of the contracts, and the delays in Category 1 activities due to restructuring, more than one year has been lost. It is

8 i.e. US$18.04 million – US$0.43 million (amount cancelled due to misprocurement)

13

therefore necessary to extend the closing date of the RBMMP-II by one and a half years from June 30, 2011 to December 31, 2012.

41. IDA funding is no longer needed for the civil works contract on Lot 3, Massinga – Nhachengue, the appraisal estimate of which was US$19.3 million. This amount has been absorbed by Lot 1 and Lot 2.

42. As a result of the extension of the project closing date, improvements in the estimation of some indicators, progress in the achievement of other indicators, and modifications in the Project’s scope, there have been several changes in the Project Outcome Indicators (see Table 1). The target for the percentage of classified roads in good and fair condition has been increased to be consistent with the new closing date. The indicator relating to percentage of rural population within two kilometers of an all-season road has been specified to refer to the classified road network and the data and methodology have been improved, resulting in more realistic baseline and targets. The kilometers of the N1 road to be rehabilitated and upgrade has been modified to reflect the removal of Lot 3 (Massinga – Nhachengue) from the Project.

Table 1: Project Outcome Indicators Indicator Original target Changes with AF Revised target Project Outcome Indicators Percentage of classified roads in good and fair condition

77% Will increase by 1% due to Credit extension by 18 months

78%

Percentage of the rural population within two kilometers of an all-season classified road

17% Baseline and targets modified to reflect improved methodology and data

32.3%

Intermediate Outcome indicators Policy for the management of unclassified roads

Adopted and implementation plan prepared

None Adopted and implementation plan prepared

New Road Act

Approved and implemented

None Approved and implemented

Percentage of annual execution of maintenance achieved on paved and unpaved roads

100% Target modified to be more realistic

95%

# of km of N1 rehabilitated and upgraded as per plan

160 Will decrease by 57 km, ( length of the Massinga – Nhachengue section)

103

14

Changes in Project Costs

43. Table 2 shows the project cost adjustment from the original RBMMP-II to the current situation where RBMMP-II Additional Financing is proposed. US$18.04 million were reallocated under Parts A and B of the project from the PF to 100 percent IDA funding. US$430,800 of the credit has been cancelled due to misprocurement. The US$41 million of proposed Additional Financing has been allocated to Parts A and B (US$3.95 million), to civil works (US$31.5 million), to supervision of civil works (US$1.5 million) and to project preparation (US$4.05 million). The specific activities are shown in Table 3.

15

Table 2: IDA contribution to PRISE (US$ millions)

Components

Original Cost at

Appraisal

Changes with Additional Financing

Revised Cost

Cost Overrun Scaling Up

Reallo-cation Total

1 2 3 4 5 6

(2+3+4) (1+5)

Component 1: IDA Contribution to Part A and B of PRISE

Contribution to Part A & B through pooled funding as per initial project concept (IDA financing 30%).

35.00 0.00 0.00 -18.04 -18.04 16.96

Cancellation due to misprocurement. n/a -0.43 -0.43 -0.43

Contribution to Part A & B as per restructured project concept (IDA financing 100%).

n/a n/a n/a 18.04 18.04 18.04

Contribution to Part A & B for technical assistance, studies & others (IDA financing 100%)

0.00 0.00 3.95 0.00 3.95 3.95

Total Component 1 35.00 0.00 3.95 -0.43 3.52 38.52

Component 2: IDA Contribution to Part C of PRISE

Project Civil Works

Lot 1 (Jardim–Benfica) 10.45 11.95 3.00 14.95 25.40

Lot 2 (Xai-Xai–Chissibuca) 25.15 27.85 5.00 32.85 58.00

Lot 3 (Massinga–Nhachengue) 16.30 0.00 0.00 -16.30 -16.30 0.00

Total Civil Works 51.90 39.80 8.00 -16.30 31.50 83.40

Project Supervision

Lot 1 (Jardim–Benfica) 0.60 1.60 0.00 1.60 2.20

Lot 2 (Xai-Xai–Chissibuca) 1.50 0.00 0.00 0.00 1.50

Lot 3 (Massinga–Nhachengue) 1.00 0.00 0.00 -0.10 -0.10 0.90

Total Supervision 3.10 1.60 0.00 -0.10 1.50 4.60

APL3 Project Preparation 0.00 0.00 4.05 0.00 4.05 4.05

Total Component 2 55.00 41.40 12.05 -16.40 37.05 92.05

Contingencies 10.00 0.00 0.00 0.00 0.00 10.00

Total 100.00 41.40 16.00 -16.83 40.57 140.57

16

Table 3: Activities to be Funded under the Proposed Additional Financing

Civil Works and Supervision (Km) (US$ m) Activity

N1: Jardim – Benfica 7 16.55 Works, pedestrian bridge, lighting

N1: Xai-Xai – Chissibuca 96 32.85 Works, change in layer thickness

N1: Massinga – Nhachengue -16.40 Works now financed by GoM through a line of credit

Studies and Other

N1: Pambara – Rio Save (Rehabilitation) 122 0.30

Design Review& Bid Documents; Estimate of 12 person-months; QCBS procurement; Works financed under APL3

N1: Rio Save – Muxungue (Periodic Maintenance and Bridge designs)

109 0.60 Detail Design & Bid Documents; Estimate of 24 person-months; QCBS procurement; Works financed under APL3

N1: 3 de Fevereiro – Incoluane (Rehabilitation) 19 0.30

Design Review & Bid Documents; Estimate of 12 person-months; QCBS procurement; Works financed under APL3

N1: Inchope – Gorongosa (Periodic Maintenance) 72 0.60 Detail Design and Tender Documents; Estimate of 24

person-months; tender; Works not financed under APL3

N1: Gorongosa – Caia (Periodic Maintenance) 244 0.80 Detail Design and Tender Documents; Estimate of 32


N1: Quelimane – Namacurra (Periodic Maintenance) 69 0.75 Detail Design and Tender Documents; Estimate of 30


N2: Matola – Namaacha: (Periodic Maintenance) 42 0.70 Detail Design and Tender Documents; Estimate of 28


Planning Specialist: Addendum na 0.35 Extension of contract of technical assistant for planning at ANE (through Project Closing)

Planning and Strategy Consultant na 0.45 Extension of contract for technical assistant for planning and strategy at the Road Fund (through Project Closing)

Road Safety Accident Database Management System na 0.50 See full explanation above

Study of Climate Resiliency in Road Design and Maintenance na 0.25 See full explanation above

Study to Develop a Strategy to Integrate Rail Service and Feeder Roads

na 0.25 See full explanation above

Strengthening the Highway Information and Management System (HIMS)

na 1.79 See full explanation above

Financial Management na 0.36 Chief Accountant for the Road Fund, Internal Audit Consultancy, Information Systems Advisor

Total 41.00

17

IV. Appraisal Summary

44. The analysis undertaken using the Highway Development and Management Model version 4 (HDM-4) indicates that the rehabilitation and upgrading of each of the two road sections individually and combined is economically feasible with economic internal rate of returns (EIRRs) well in excess of the 12 percent economic feasibility threshold.

45. The results for Lot 1 (Jardim – Benfica) are very robust, yielding a base scenario net present value (NPV) of US$69.1 million with an EIRR of 53.8 percent, while for Lot 2 (Xai-Xai – Chissibuca), the base scenario NPV is US$23.1 million and the EIRR equal to 17.6 percent.

46. The combined result for the two sections gives an NPV of US$38.7 million and an EIRR for the combined projects of 35.2 percent. The sensitivity analysis indicates that the combination of both projects would remain economically feasible even in the worst-case scenario, with an NPV of US$12.4 million and an EIRR of 19.1 percent.

47. The proposed modified and expanded activities do not raise the environmental category of the project – it remains Category B (Partial Assessment) and does not trigger any new safeguard policies. However, the construction of footbridges in Lot 1 requires an Abbreviated Resettlement Action Plan (ARAP), which ANE has prepared (see part XI of the PP).

48. There are no exceptions to Bank policies and no waiver of Bank policies to be approved by the MD and/or by the Board.

V. Consistency with CAS

49. The government's medium-term development objectives are spelled out in the Second Action Plan for the Reduction of Absolute Poverty (in Portuguese Plano de Acção para a Redução da Pobreza Absoluta PARPA-II, 2006-09), and are supported by the Country Partnership Strategy prepared jointly by the government and the Bank. The 2007-11 RSS, and the Road Sector Policy, support the country's poverty reduction strategy. The strategy is also in line with the Bank's Africa Action Plan, which puts renewed emphasis on adequate infrastructure to support growth and increased access to all-season roads.

50. The GoM's Action Plan for 2006-09 (PARPA-II) focuses on reducing the incidence of poverty (from 54 percent in 2003 to 45 percent in 2009) through improvements in governance, human capital, and economic development. Through improving the main road network and improving road sector performance, RBMMP-II continues its strong support to the government's development objectives, and addresses key priorities identified in the FY08-11 Country Partnership Strategy. These are: (a) increased accountability and public voice; (b) equitable access to public services; and (c) sustainable and broad-based growth.

51. The roads program addresses the development of infrastructure, a priority area under PARPA-I (2001-2005) and retained as a priority area under PARPA-II (2006-2009). RBMMP-II focuses on improvements in management of the sector as well as physical infrastructure, with the

18

objective of improving connectivity across the country. Improving access opportunities for agro producers and rural communities to ports and rail heads, as well as social infrastructure is also included. VI. Revised Economic Analysis

52. The HDM-4 model has been used to update the economic analysis for Lots 1 and 2 using the actual lowest bid prices and vehicle operating costs (VOC). For Lot 2 bids were received in July 2008 and the contract is currently under implementation. For Lot 1 new bids were received on February 25, 2009, and the contract is under implementation. Lots 1 and 2 continue to be viable with internal rates of return (IRR) of 53.8 percent and 17.6 percent respectively. The combined IRR for Lots 1 and 2 is 35.2 percent. The high IRR for Lot 1, an urban road, reflects the high traffic levels (some 15 times those on Lot 2) which generate much larger vehicle operating cost savings than on Lot 2. The economic analysis is based on benefits from savings in VOCs, travel time, and road maintenance costs, compared with the costs of rehabilitation, upgrading, and maintenance. Discounted benefits are compared to discounted costs for benefit-cost ratios and net present values, as well as calculating the IRRs. A sensitivity analysis of the IRRs was carried out for: (a) an increase in costs of 30 percent in the case of Lot 1 and 15 percent in the case of Lot 2; (b) a reduction in traffic of 20 percent; and (c) reduction in traffic of 20 percent, combined with a simultaneous increase in cost (30 and 15 percent respectively). The sensitivity analysis indicates that the projects would remain economically feasible even with lower traffic and higher costs. For details see Annex 5.

VII. Expected Outcomes

53. The expected project outcome will remain unchanged. The project is expected to increase usage of the project roads, reduce travel time and generate employment through construction and maintenance activities. With the sector reform in place, including an effective RF and an enhanced National Roads Administration, maintenance performance is expected to further improve, as has been shown by the respective performance indicators. With the completion of the road improvement works, which include road safety measures such as lowering of speeds within villages, road safety along the improved sections is also expected to improve.

VIII Benefits and Risks

54. Benefits. Expected benefits related to reduced transport costs have not changed. Safeguard issues (preparation of an Abbreviated RAP and updated EMP), are expected to be addressed to the high standard demonstrated to date by the project. Overall benefits will actually be enhanced, due to improved safety for pedestrians and traffic, through street lighting and the two pedestrian bridges, the first at Choupal (25th June Junction) and the second at the Jardim junction. The project will continue supporting other cross-cutting activities such as HIV/AIDS prevention for all stakeholders including workers employed on the road project sites, village residents on project road routes, and the staff of the implementing agencies.

55. Risks. The overall risk is M-I due to weak financial management capacity and it is expected that with the implementation of the already agreed action plan it will become low by

19

mid-2011. The critical risks and their proposed mitigation measures are discussed in the attached Annex 2 (Operational Risk Assessment Framework). However, implementation of agreed mitigation measures, such as the establishment of internal control procedures as per the financial manual, putting in place an external financial, technical and procurement audit, as well as the restructuring of ANE, have already had their impact and have mitigated the assessed risks.

IX. Financial Terms and Conditions for the Additional Financing

56. The Additional Financing would be provided on the same terms and conditions as the original credit - standard IDA terms with 40 years repayment period including 10 years grace period. There will be no change in the implementation and disbursement arrangements other than the ones described in Section III above. X. Environmental Safeguard Issues

57. The project triggers Environmental Assessment (EA): OP/BP 4.01. Prior to appraisal of RBMMP-II in February 2007, EAs analyzed the potential environmental and social impacts of the project and showed that impacts generated by the project activities were limited in extent and duration, given that good construction and management practices will be integrated in the design. The environmental category is “B” – Partial Assessment - and the EA was disclosed in-country and in the Bank’s Infoshop before project appraisal in February 2007. The EMP for the EA is fully applicable to AF activities. The scope of environmental mitigation measures described in the EA covers the nature of work activities envisioned under the AF. 58. Taking into account that the project design, location and scope of works have not changed, there is no need to either update the EA or the EMP, or change the Environmental Category. The Borrower’s moderately high capacity to efficiently implement safeguards is demonstrated by the fact that all project consultant teams on RBMMP-II include an environmental specialist who provides monthly environmental progress reports. 59. RBMMP-II triggered OP/BP 4.11, Physical Cultural Resources. The location of the current Project does not include works located in, or in the vicinity of, recognized cultural heritage sites. Nevertheless, a section on chance find procedures will be included in all new contracts, and is included in the original EA.

60. See Annex 10 for more details on Environmental Safeguards issues.

XI. Social Safeguard Issues

61. The Project triggers OP 4.12, Involuntary Resettlement. Before appraisal of RBMMP-II in February 2007, a Resettlement Action Plan (RAP) was required for Lot 1 due to its crossing a peri-urban area. The RAP was reviewed and cleared by the Bank and was disclosed as required. Meanwhile the Borrower has implemented the RAP and prepared a RAP implementation report which has been reviewed by the Bank during the April 2009 mission and found to be satisfactory. The Borrower has clearly demonstrated strong capacity to implement and monitor OP 4.12.

20

62. The proposed pedestrian footbridge at Choupal is proposed to be located near the Choupal junction, with a school situated on one side of the road, and small shops (mostly auto parts and mechanics shops) on the other side. The construction of the footbridge will lead to greatly enhanced safety for students and faculty, as they are now obliged to cross the busy road to reach public transportation.

63. The proposed pedestrian walkway at Jardim is also located near a busy junction. On one side of the road there are about ten to fifteen heavily patronized small shops, which encroach onto the official Road Reserve.

64. Less than 200 people will be affected, and therefore this resettlement is documented in an Abbreviated Resettlement Action Plan (ARAP). 65. The additional resettlement work does not affect the environmental classification of the project as it is limited in scale. An updated Integrated Safeguards Data Sheet (ISDS) was filed at the Bank’s InfoShop on February 16, 2011. The completed ARAP has been disclosed in-country and published on ANE’s website and was disclosed at the Bank’s InfoShop on February 4, 2011. The resettlement does not expand the project into new geographical areas beyond the scope of RBMMP-II. The Borrower has undertaken public consultations in the area to be resettled; has evaluated project alternatives to minimize involuntary resettlement; and has developed an entitlement matrix with preliminary estimates of costs of relocation and replacement of fixed assets.

66. See Annex 10 for more details on Social Safeguards issues.

21

ANNEX 1: RESULTS FRAMEWORK AND MONITORING

Mozambique: Additional Financing and Restructuring for Phase II of the Roads and Bridges Management and Maintenance Project

Overall Program Objective Current Program Indicators Proposed Program Indicators

The primary objective of the overall Roads and Bridges Management and Maintenance Program (RBMMP), is to stimulate growth and contribute to poverty reduction through improved road infrastructure, better sector policies, and enhanced roads sector management. More specifically by (i) improving the coverage and conditions of roads and bridges in the territory of the Recipient; (ii) strengthening the Recipient's institutional capacity to manage and administer the road sector; (iii) establishing financing mechanisms for road maintenance; (iv) promoting the use of local resources in roads construction and management; and (v) improving road transport safety.

The indicators to assess the achievement of the PDO are (i) the percentage of classified roads in good and fair condition, and (ii) the percentage of the rural population within 2 km of an all-season road. Intermediate outcomes have been defined as follows: (a) improved road sector management capacity; (b) enhanced execution of the road maintenance program; and (c) timely and cost-effective implementation of the IDA financed rehabilitation and upgrading of sections of the National Road N1.

No change proposed

PDO Project Outcome Indicators9 Use of Project Outcome Information Current (PAD) Proposed Change Current Proposed Current Proposed

The project development objective of this phase of the APL is to improve access of the population to all-season roads through maintenance, rehabilitation and upgrading of the classified road network.

No change proposed (i) the percentage of classified roads in good and fair condition, and (ii) the percentage of the rural population within two kilometers of an all-season road

(i) No change proposed in substance; adapted to core indicator: Roads in Good and Fair Condition as a Share of Total Classified Roads (ii) Share of rural population with access to an all-season road [classified only] ]

To engender a road planning process that focuses on minimizing road user costs and on providing reliable access to as many of the rural dwellers as possible. To feed into the overall monitoring of the PARPA II and the CAS.

No change proposed

9 Indicators were adapted to reflect language of the World Bank’s corporate Core Sector Indicators.

22

Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Current (PAD) Proposed Change Current Proposed Current Proposed

Outcome A: Improved road sector management capacity

No change proposed (i) Policy for the manage-ment of unclassified roads adopted and implemen-tation plan prepared (ii) new Roads Act approved and implemented

No change proposed Compliance with these indicators will demonstrate GoM’s willingness to reform the sector and enhance its management.

No change proposed

Outcome B: Enhanced execution of the road maintenance program

No change proposed % of annual execution of maintenance achieved on paved and unpaved roads

(i) The share of planned paved road routine maint-enance program achieved annually (ii) The share of planned unpaved road works routine maintenance program achieved annually

The periodic maintenance program is the most prominent omission of past maintenance programs. IDA contribution to the pooled fund is meant to assist to close this gap.

Improved maintenance is critical for asset preser-vation, to ensure that investment is directed to improving the network rather than just substituting for poor maintenance, and to improve road condition.

Outcome C: Timely and cost-effective implemen-tation of the IDA financed rehabilitation and upgrad-ing program on the N1

No change proposed 160 kilometers of the N1 rehabilitated and upgraded by June 2010

Roads rehabilitated, non-rural [103 kilometers of the N1 rehabilitated and upgraded as per revised plan]

A detailed plan for the implementation of these works has been prepared. Close monitoring will help avoid delays.

Proactive monitoring of progress will help to avoid delays, identify problems to be solved, and head off unnecessary variations and claims.

23

Project Outcome Indicators

Core

Indicator

Unit of Measure-

ment

Baselines Targets Date Collection and Reporting Original (2006)

Current (2009) 2010 2011 2012 Frequency Methodology Responsibility

PDO Level Results Indicators

1. Roads in Good and Fair Condition as a Share of Total Classified Roads

x % 64% 71% 75% 77% 78% Annual Road condition

reports ANE

2. Share of rural population with access to an an all-season road.10

x % 25.7% 31.3% 31.8% 32.0% 32.3% Annual Census and road condition data ANE

Direct Project Beneficiaries (Rural only), of which female

x Number,

% 3.4 million

52% 4.5 million

52% 4.6 million

52% 4.8 million

52% 4.9 million

52% Annual Estimate based on #2 and rural population

Road Fund

Intermediate Outcome Indicators

A (i) Policy for the management of unclassified roads adopted and implementation plan prepared

Policy &

Plan None Policy Adopted Plan

completed na Evidence of policy and plan

GoM, Road Fund and ANE

A (ii) new Roads Act approved and implemented

Roads Act None Draft

Prepared Adopted by GoM na Publication in

Gazette MOPH and GoM

B (i) The share of planned paved road routine maintenance program achieved annually

% 54% 92% 95% 95% 95% Annually FMS and PRISE

annual report ANE and Road

Fund

B (ii) The share of planned unpaved road routine maintenance program achieved annually

% 66% 95% 95% 95% 95% Annually FMS and PRISE

annual report ANE and Road

Fund

C Roads rehabilitated, non-rural [103 kilometers of the N1 rehabilitated and upgraded as per revised plan]

x km 0 km 0 86 103 Completed Annually Quarterly

Progress Reports ANE and

consultants

10 Defined as rural population living within 2 km of an all-season classified road.

24

ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)


Project Development Objective(s)

The Project Development Objective of Roads and Bridges Management and Maintenance Program – Phase 2 is to improve access of the population to all-season roads through maintenance, rehabilitation and upgrading of the classified road network

Key Results Indicators: 1. Percentage of classified roads in good and fair condition

2. The percentage of the rural population within two kilometers of an all-season road.

Risk Category

Risk Rating

Risk Rating Explanation Risk Description Proposed Mitigation Measures

Project Stakeholder Risks

Low All project resources are aimed at improving the condition of only national roads and will not focus on improving the condition of access roads to local communities. This may raise some dis-satisfaction among local communities.

The team has reviewed the government’s road program (PRISE) and the proposed roads have been selected based on their economic rate of return. Access roads to communities do not fall under the agreed selection criteria.

During the semi-annual review meetings, the Road Fund will invite all stakeholders including the representatives from the local governments and communities and explain the rationale for priority of national roads, to pave the way for the adoption of a consensual policy for the management of unclassified roads.

Implementing Agency Risks

Medium-I High impact/ Low likelihood

Capacity of the implementing agencies is limited on account of the following: (a) There were delays in the procurement processing of large contracts; (b) Under the pool fund component, the procurement procedures were not followed consistently with the procurement manual; (c) The performance of financial

The capacity in procurement, financial management and implementation was found less than adequate. The award of large contracts was delayed by a year. In provincial offices 10 contracts were declared mis-procured in an amount of US$1.436m financed by the pool fund, for which IDA contribution was 30% in an

The position of the Head of Procurement Section in ANE had been vacant for a long time. ANE has now recruited the Head of Procurement Section. Road Fund has revised the procurement manual and has developed a training plan aimed at strengthening the capacity of all implementing agencies in procurement.

25

Risk Category Risk

Rating Risk Rating Explanation Risk Description Proposed Mitigation Measures

management is moderately satisfactory due to issues raised in the audit report

amount of US$430,800. Some deficiencies were noted in the financial audit reports

An action plan has been developed to strengthen capacity in procurement, financial management and to reduce implementation delays.

Project Risks Risk Rating Rating Explanation Risk Description Proposed Mitigation Measures

Design Low Quality of engineering design in the highly specialized areas of the rehabilitation of national roads is improvable.

ANE technical capacity in designing road safety, highway management system and climate resilience is sometimes limited.

Project will include financing of technical assistance to ANE in the specialized areas of engineering design. Project will also include training of the ANE senior staff in highly specialized areas.

Social and Environmental

Medium-I High impact/ Low likelihood

The abbreviated resettlement plan is implemented in accordance with the Bank policy and procedures. (The original EMP will be used for AF ).

The implementation of the proposed works will require the relocation of the nearby existing businesses.

IDA will approve the abbreviated resettlement action plan prior to the Board presentation.

Program & Donor Low

To finance Part A (Overhead costs) and Part B (Maintenance) of PRISE, all development partners (DPs) initially agreed to contribute to the pool fund, but in September 2007 just prior to project effectiveness, when DPs were informed that IDA procurement rules would apply, they decided not to join the PF.

Road Fund was forced to establish two funds (See Annex 3 in Concept Memorandum); one with contribution from IDA and RF to which the Bank procurement rules would apply and the other with contribution from other DPs to which the GoM procurement rules would apply. Donors’ action might end up being less coordinated than originally planned.

Although the Pool Fund did not work out as planned, donors’ actions are still very well coordinated, as they all aim at meeting the objectives of the PRISE, which is being discussed bi-annually with donors.

Delivery Quality Medium-I High impact/ Low likelihood

Improvable quality in contract management, sustainability, and monitoring and evaluation of the project performance through the agreed result framework.

ANE capacity in contract management , sustainability and carrying out regular review of the result framework is constrained

Project will finance technical assistance in improving contract management, M&E and ensuring that the roads are properly maintained in provinces.

26

Overall Risk Rating at Preparation Risk Rating at Preparation Risk Rating during

Implementation Comments

M-I

M-I

27

ANNEX 3: DETAILED DESCRIPTION OF MODIFIED ACTIVITIES


1. The objective of the overall RBMMP is to assist the Recipient in: (i) improving the coverage and conditions of roads and bridges in the territory of the Recipient; (ii) strengthening the Recipient’s institutional capacity to manage and administer the road sector; (iii) establishing financing mechanisms for road maintenance; (iv) promoting the use of local resources in roads construction and management; and (v) improving road transport safety. The objective of the project is to assist the recipient in: (i) improving the coverage and conditions of its roads and bridges; (ii) strengthening its institutional capacity to manage and administer the road sector; (iii) establishing financing mechanisms for road maintenance; (iv) promoting the use of local resources in roads construction and management; and (v) improving its road transport safety. 2. The Project consists of the following parts (values are of IDA RBMMP-II contributions):

PART A: Overhead Costs (US$11.8 million)

(a) Administrative costs (US$5.1 million)

Support to the Project Implementing Entity and the National Road Administration (ANE), at national and provincial levels, to strengthen their administrative capacity through the provision of goods, technical assistance and Operating Costs.

(b) Capacity building (US$5.9 million)

Strengthening the technical capacity of the Project Implementing Entity, ANE, and the Recipient’s ministry of public works and housing through i. the provision of technical assistance in the areas of: (A) financial management, (B)

control systems, (C) information technology; (D) road management and maintenance; (E) training to national and provincial staff; and

ii. the carrying out of studies on:

A. National and provincial roads strategies, plans, and budgets

B. Financial, technical, and procurement audits, including methods to strengthen financial management and procedures for the processing of internal financial audits;

C. Highway information and management system

D. Climate resiliency in road design and maintenance

E. A strategy to integrate rail service and feeder roads

F. Financial management systems

(c) Additional Programs (US$0.8 million) Road Safety Program, including but not limited to

28

i. Carrying out of safety related civil works on the Recipient’s road network. ii. Development of a road safety data management system (RSDMS)

PART B: Maintenance of the Road Network (US$26.8 million)

(a) Carrying out of civil works for the maintenance of the paved and unpaved road network, including routine and periodic maintenance, local repairs and road markings.

PART C: Investments (US$92.05 million)

(a) National Road Rehabilitation and Upgrade Program (US$83.4 million) Rehabilitation of the Jardim-Benfica and Xai-Xai–Chissibuca sections of the N1, including widening, surfacing, shape correction, strengthening and upgrading of the existing pavement and repairs of minor drainage structures, geometric and structural improvements to enhance traffic capacity and safety for vehicles and pedestrians.

(b) Engineering Services (US$8.65 million) Provision of consulting services for: (i) the supervision of the civil works referred to in Part C (a) of the Project; (ii) the supervision of the civil works to rehabilitate the Massinga – Nhachengue road; and (iii) the design of engineering plans to ensure the Project’s sustainability.

NB: Rounded total is US$130.65 million, i.e. the initial loan amount (US$100 million) + the Additional Financing amount (US$41 million) – contingencies (US$10 million) –mis-procured amount (US$0.4 million)

29

ANNEX 4: REVISED ESTIMATE OF PROJ ECT COSTS


Table 4-1: Revised Withdrawal of the Proceeds of the Credit Values in US Dollars

Category

Amount of the Original

Credit Allocated

Amount of the

Additional Financing Allocated

Percentage of Expenditures to be

Financed (inclusive of taxes)

(1) Goods, Works (except as covered by Category 2 below), services (other than consultants’ services), consultants’ services (except as covered by Category 3 below), Training and Operating Costs for Part A and Part B of the Project

34,569,200 3,950,000 100 percent

(2) Works for Part C (a) of the Project 51,900,000 31,500,000 100 percent

(3) Consultants’ services for Part C (b) of the Project 3,100,000 5,550,000 100 percent

(4) Unallocated 10,000,000 0

TOTAL AMOUNT 99,569,200 41,000,000

Note: the value of Category 1 in the original credit reflects the cancelation of US$430,800 for misprocurement.

30

ANNEX 5: REVISED PROCUREMENT PLAN


I. GENERAL

1. Bank’s approval Date of the procurement Plan Original: ..................................... 2007 Revision 1: ................................. 2008 Revision 2: ................................. 2009

2. Date of General Procurement Notice: November 15th, 2006: to be updated and published annually.

3. Period covered by this procurement plan: July 2009-December 2012

II. GOODS AND WORKS AND NON-CONSULTING SERVICES

1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement:

Civil Works Categories Threshold Values Remarks

a) Request for Quotation < US$100,000 At least 3 qualified contractors b) NCB: National Competitive Bidding US$100,000 -

< US$5.0 million Open for National and International Bidders. Advertising only in local newspaper and internet website; English not required.

c) ICB: International Competitive Bidding ≥ US$5.0 million Document should also be available in English; domestic preference is applicable.

Goods and Non-Consulting Services Categories Threshold Values Remarks

a) Request for Quotation < US$50,000 At least 3 qualified suppliers b) NCB: National Competitive Bidding US$50,000 -

< US$250,000 Open for National and International Bidders. Advertising only in local newspaper and internet website; English not required..

c) ICB: International Competitive Bidding ≥ US$250,000 Document should also be available in English; domestic preference is applicable.

2. Pre-qualification. Bidders for Works shall be prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the Guidelines.

3. Reference to Project Operational/Procurement Manual: Road Sector Procurement Manual

31

4. Any Other Special Procurement Arrangements: Not Applicable

5. Procurement Packages with Methods and Time Schedule

• Civil works contracts in support of maintenance of the road network, under Restructuring of Part B of the Project, see Table 5.2

• Civil works under contract, Part C of the Project for Additional Financing of ongoing rehabilitation works on N1, see Table 5.6

III. SELECTION OF CONSULTANTS

1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants:

Categories Threshold Values Remarks

a) CQS – Consultant Qualifications based Selection • LCS - Least Cost Selection • QBS - Quality Based Selection • FBS - Fixed Budget Based Selection

< US$100,000 Short-lists may be comprised entirely of national consultants

b) QCBS – Quality and Cost based selection

≥ US$100.000

Short-lists shall not have more than two firms from any given country, unless qualified consultants did not express interest, except as per paragraph below.

2. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than US$200,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

3. Any Other Special Selection Arrangements: Sole Source Selection permitted under special conditions or in cases of urgency, requires prior approval by Bank.

4. Consultancy Assignments with Selection Methods and Time Schedule

• Ongoing consulting services contracts in support of overhead and capacity building, under Restructuring of Part B of the Project, see Table 5.1

• New consulting services contracts in support of overhead and capacity building, under Additional Financing for Part B of the Project, see Table 5.3

• Ongoing engineering consulting services for supervision of works under Additional Financing for Part C of the Project, see Table 5.4

• New engineering consulting services for project preparation of RBMMP Phase 3 under Additional Financing for Part C of the Project see Table 5.5.

32

Category 1 Restructuring (US$17.61 million)11

Table 5.1 Part A: Consulting Services Contracts in Support of Overhead and Capacity Building

# Ref # Description Contract amount Value to be

funded under Restructuring

Procurement Method

Date of IDA “no objection”

Date of contract

Completion Date

1. 10/prise/fe/07 Planning and Strategy Consultant $495,531 $24,320 IC 20/12/07 21/04/08 31/08/09

2. 37/prise/fe/08 Information Systems Advisor $42,500 $37,111 IC 21/8/09 01/09/08 30/11/09

3. 737/dg/09 Procurement Specialist $88,800 $53,332 IC 4/2/09 29/06/09 26/12/09

4. 001/prise/fe/07 Consultancy Services for the Audits $1,450,256 $825,954 QCBS 28/2/08 15/03/08 28/02/11

5. 38/prise/fe/08 Internal Audit Consultancy $110,658 $110,658 QCBS Post 01/06/09 31/08/10

6. 10/prise/fe/07 Planning and Strategy Consultant (Addendum) $530,480 $530,480 IC 29/6/09 29/06/09 30/06/11

7. 07/prise/fe/09 Information Management Systems Consultancy $181,146 $181,146 SS 1/10/09 22/09/09 11/11/11

8. 06/prise/fe/09 Road Fund Financial Management Assessment $48,400 $48,400 QCBS 5/6/09 24/09/09 30/05/10

9. 731/dipla/08 Planning Specialist $608,000 $608,000 IC 24/2/10 10/05/10 08/11/11

Subtotal $3,555,771 $2,419,401 Notes: Values under restructuring are eligible expenditures after July 1, 2009. Completion dates are contract closing dates or estimates of actual completion dates as appropriate.

11 US$18.04 million Contribution to Part A & B as per restructured project concept (IDA financing 100 percent) less US$430,800 Cancellation due to misprocurement.

33

Table 5.2 Part B: Works Contracts in Support of Maintenance of the Road Network

# Ref # Description Contract Amount

Value to be funded under Restructuring

Procurement Method

Pre-Qualification

Domestic Preference

Review by Bank Contract Date Completion

Date

1. 13/diman/10 Paved Road Maint.– Local Repairs N105: Monapo/Ilha de Moç, Nampula $1,870,627 $1,870,627 NCB No No Post 21/06/10 16/04/11

2. 14/diman/10 Paved Road Maintenance: Local Repairs: R702 Cruz N12/ Nacala-a-Velha $982,756 $982,756 NCB No No Post 21/06/10 28/02/11

3. 665/diman/08 – L2 Road Markings: N6 Chimoio-Beira $406,513 $315,223 NCB No No Post 13/01/09 30/06/11

4. 665/diman/08 – L3 Road Markings: N1/N12 Nampula-Nacala; N1/N14 Pemba-Montepuez $1,140,685 $1,140,685 NCB No No Post 12/02/09 31/01/11

5. 720/diman/08 Paved Road Maintenance - Local Repairs: N1: Nicoadala-Chimuara $1,972,703 $1,972,703 NCB No No Post 13/05/09 31/05/11

6. 721/diman/08 Paved Road Maintenance - Local Repairs: Quelimane-Namacurra $1,229,565 $1,173,355 NCB No No Post 13/05/09 30/11/10

7. 722/diman/08 Paved Road Maintenance - Local Repairs: Macomia-Oasse $1,550,406 $1,550,406 NCB No No Post 10/04/09 31/03/11

8. 723/diman/08 Paved Road Maintenance - Local Repairs: N1 Pambara-Rio Save $801,051 $891,549 NCB No No Post 10/04/09 06/12/09

9. 726/diman/08 Road Markings: N2 Matola-Namaacha; N1 Marracuene-Manhiça - Lot 3 $323,255 $323,255 NCB No No Post 26/06/09 31/01/10

10. 727/diman/08 Road Markings: N8 N7, e N301 CruzN7 $511,070 $511,070 NCB No No Post 26/06/09 31/12/10

11. 728/diman/08 Road Markings: Maniamba-Metangula $149,956 $149,956 NCB No No Post 26/06/09 31/01/11

12. 796/diman/09 Paved Road Maintenance – Local Repairs N1: Gorongosa-Caia $3,162,860 $3,162,860 NCB No No Post 30/11/09 30/04/11

13. 797/diman/09 Paved Road Maintenance – Local Repairs N1: Inchope-Gorongosa $429,718 $429,718 NCB No No Prior 30/11/09 30/04/11

14. 798/diman/09 Paved Road Maintenance – Local Repairs N6:Beira- Inchope $716,436 $716,436 NCB No No Post 30/12/09 31/05/11

Subtotal $15,247,601 $15,190,599

Total Parts A and B $17,610,000

34

Additional Financing (US$41 million)

Table 5.3 Part A: New Consulting Services Contracts in Support of Overhead and Capacity Building

# Ref # Description Estimated Contract amount

Procurement Method

Review by Bank

Procurement Launch

Estimated Contract Signing

Estimated Completion

Date

1 Chief Accountant for the Road Fund $250,000 QBS Prior 18/2/11 16/5/11 31/12/12

2 37/prise/fe/08 Information Systems Advisor (Addendum) $61,200 IC Prior 28/5/10 1/3/11 31/12/12

3 Planning Specialista $350,000 IC Prior 1/7/11 1/11/11 31/12/12

4 Planning and Strategy Consultant $450,000 IC Prior 1/3/11 1/7/11 31/12/12

5 Study of Climate Resiliency in Road Design and Maintenance $250,000 QBS Prior 31/3/11 1/7/11 31/12/11

6 Study to Develop a Strategy to Integrate Rail Service and Feeder Roads $250,000 QBS Prior 15/4/11 1/8/11 31/3/12

7 Strengthening the Highway Information and Management System (HIMS) $1,788,800 SS Prior 1/3/11 1/5/11 31/12/12

8 Development of a Road Safety Data Management System (RSDMS) $500,000 QCBS Prior 1/9/11 1/3/12 31/12/12

9 38/prise/fe/08 Internal Audit Consultancy (Addendum) b $50,000 Addendum Post 15/2/11 1/5/11 31/12/12

Total $3,950,000

a. Consultant originally competitively selected; value is Procurement planned for addendum to contract. IDA to finance contract value at 100 percent through close of RBMMP-II; GoM to finance balance of contract.

b. Consultant originally competitively selected by QCBS.

35

Table 5.4 Part C: Engineering Services for Supervision: Consultants Under Contract

# Ref # Description Contract amount

Value to be funded under

Additional Financing

Procurement Method

Date of IDA “no

objection”

Date of contract


Date

1. 560/DEN/06 Supervision of Civil Works, Lot 1: Jardim – Benfica $1,242,995 $1,600,000 QCBS 24/4/08 10/06/08 30/09/12

2. 562/DEN/06 Supervision of Civil Works, Lot 2: Xai-Xai – Chissibuca $1,212,216 0 QCBS 24/4/08 10/06/08 31/03/12

3. 561/DEN/06 Supervision of Civil Works, Lot 3: Massinga – Nhachengue $914,680 -$100,000 QCBS 5/5/09 10/05/08 31/12/11

Subtotal $3,510,263 $1,500,000 a. Additional Financing for cost overruns.

36

Table 5.5 Part C: Engineering Services for Project Preparation: Consultants Under Procurement

# Ref # Description Estimated Contract amount

Procurement Method

Review by Bank

Procurement Launch

Estimated Contract Signing


Date

1. N1: Pambara – Rio Save: Design Review and Tender Documents $300,000 QCBS Prior 17/12/10 30/6/11 31/12/11

2. N1: Rio Save – Muxungue: Design and Tender Documents $600,000 QCBS Prior 16/12/10 15/7/11 31/3/2

3. N1: 3 de Fevereiro – Incoluane: Design Review and Tender Documents $300,000 QCBS Prior 16/12/10 15/6/11 31/1/11

4. N1: Inchope – Gorongosa: Periodic Maintenance: Design and Tender Documents $600,000 QCBS Prior 1/3/11 21/10/11 30/06/12

5. N1: Gorongosa – Caia: Periodic Maintenance: Design and Tender Documents $800,000 QCBS Prior 15/3/11 5/11/11 31/08/12

6. N1: Quelimane – Namacurra: Periodic Maintenance: Design and Tender Documents $750,000 QCBS Prior 29/3/11 20/11/11 30/09/12

7. N2: Matola – Namaacha: Periodic Maintenance: Design and Tender Documents $700,000 QCBS Prior 17/2/11 11/9/11 30/09/12

Total $4,050,000

37

Table 5.6 Part C: Civil Works under Contract

# Ref # Description Original Contract Amount

Additional Financing a

Procurement Method

Pre-Qualification

Domestic Preference

Date of IDA “no objection” Contract Date Completion

Date

1. 734/DIPRO/08 Reabilitação da N1 Jardim – Benfica $21,570,000 $14,950,000 ICB Yes No 3/8/09 19/11/09 30/09/11

2. 502DEN/06 Reabilitação da N1 Xai-Xai – Chissibuca $53,100,000 $32,850,000 ICB Yes No 26/11/08 31/12/08 31/03/11

3. Massinga – Nhachengue Na -$16,300,000

Total $31,500,000

a. Additional Financing for cost overruns and scaling up. Note that the original contract values already included elements of Additional Financing, since the costs were higher than at appraisal.

Table 5.7: Summary of Additional Financing Procurement

Table Ref Description

Value of Additional Financing

5.3 Part A: New Consulting Services Contracts in Support of Overhead and Capacity Building $3,950,000

5.4 Part C: Engineering Services for Supervision: Consultants Under Contract $1,500,000

5.5 Part C: Engineering Services for Project Preparation: Consultants Under Procurement $4,050,000

5.6 Part C: Civil Works under Contract $31,500,000

Total Additional Financing $41,000,000

38

ANNEX 6: REVISED FINANCIAL MANAGEMENT


# Reference Action When Progress

Road Fund

1. 1.1 Financial Reporting Preparation

• Recruitment of Chief Accountant and other Professional Staff: The restructuring process has started and the selection of the financial controller is in the final stage and additional key staff will be hired

• June 2011

• Two full-time technical assistants (one funded by EU the other through the World Bank) have been assigned to work full-time with DGF staff to improve the financial management including accounting.

• The initial recruitment of a Financial Comptroller failed due to lack of qualified candidates.

• A current staff member has been appointed “Chief Accountant” as head of the accounting division; he will be mentored by the two TAs

• The two TAs will report to management in early 2011 the preferred approach to strengthening DGF management:

• Appointment of a Chief Accountant or Financial Comptroller (or both)

• Whether any current staff have the required qualifications and experience to fill the position(s)

• If external recruitment is required, advise on and guide the recruitment process including the option of using a targeted recruitment approach (i.e., inviting previously identified qualified individuals) with an enhanced remuneration package.

39


2.

• Timeliness and submission of financial reports: to be monitored by GAI and reported to PCA. All reports to be sent first to the Conselho de Administração for approval prior to being sent to the auditor.

• During quarter

• GAI has determined that currently DGF does not prepare standard quarterly reports that can be reviewed. Further, the annual financial reports are not prepared independently of the external audit process.

• The TAs to DGF are assisting in the development of models for quarterly financial reports which will be applied in 2011.

• Under guidance from the TAs, DGF will prepare its annual financial report for 2010 during the first quarter of 2011. This report will be reviewed by GAI and approved by the CA, prior to being sent to the external auditors for their independent review.

3.

• A policy and procedure manual is in draft and will be finalized and approved sent to the respective Department/Units (Gabinetes) for comment and thereafter approved Board Meeting

• March 2011

• As part of the DGF Assessment Action Plan and the implementation of the Financial Management System (SunSystems) the procedures manual for the Financial Management is being revised with a target of end of Q1 2011. The TAs will assist in the preparation and implementation of the policy and manual.

4. 1.2 Control over Contracts

• Automating Contract Control: The SunSystems software is in an advance stage, contract control will be done using the new FMS

• May 2011

• Centrally managed contract control (conta corrente) are being reviewed and verified, to be completed by November 2010;

• All provincial accounts are being entered into SunSystems and full operation of the system will begin in early 2011;

• All contract ending balances are being reconciled accordingly.

5. • Monitoring: GAI to review completeness and accuracy twice a year • Semiannually • GAI to review centrally managed conta correntes as they are

updated by Accounting Unit

6. 1.3 Procurement – Civil Works

• Decree 54/2005 not constantly adhered to. A revised policy and procedure manual for procurement has been drawn up and is circulated for comment. This will assist in the training and adherence to laws rules and regulations

• March 2011

• The new Decree (15/2010) is now in force. The policy and procedure guidelines will be finalized by the end of the first quarter of 2011 and approved by management of the Road Fund and ANE.

40


7. 1.4 Procurement – Supplies and Services

• Decree 54/2005 not constantly adhered to. A policy and procedure manual for procurement has been drawn up and is circulated for comment. This will assist in the training and adherence to laws rules and regulations

• Ongoing

• The use of direct contracting will be clarified, restricted to those cases which are clearly justified by the procurement law and will require prior approval by the relevant authorities.

• With respect to the issue of documentary evidence of receipt of goods and services, GAI, the procurement specialist and the internal control units will ensure that confirmation procedures will be included in the guidelines, including appointment of an internal independent committee to verify receipt of goods and services.

8. 1.5 Administrative Court – Pre-Approval of Contracts

• Road Fund and ANE to keep on with the follow-up of submissions to Tribunal Administrativo • Ongoing

• The rules for Administrative Court approval have changed under Decree 15/2010 and will be included in the procurement guidelines

• Provincial contracts for civil works are being submitted and receiving approvals, and adherence is being monitored by the procurement specialist

• A streamlined approach for Administrative Court approval of centrally managed contracts will be being proposed to the Administrative Court.

9. 1.6 Income – Fuel Levy

• Follow-up on documentation needed from IMOPETRO and Import Companies regarding fuel levy will be monitored on a monthly basis

• Ongoing • This issue is largely out of the control of the Road Fund. The

TA for Infrastructure Public Finance will work with the Road Fund’s Income Unit to advance this issue.

10. 1.7 Income – Bridge Tolls

• Electronic bridge toll control tender was launched for the main collection points. Financial proposal is to be received for the final evaluation. Manual control will continue at the other points, but new tickets are now used.

• Ongoing • The tender is still under evaluation; • The TA for Infrastructure Public Finance is working with the

Road Fund’s Income Unit to advance this issue.

11. 1.8 Income – Transit Fees

• Electronic transit fee control is being introduced at two collection points. In view of the plan by SADC to harmonize transit fees, this issue has been delayed. GAI will investigate the possibility to employ an independent supervisory consultant to monitor and control the collection of transit fees and/or the installation of an electronic control system.

• May 2011

• A large share of the transit fees will be eliminated when the Tete Corridor Concession becomes operational.

• The TA for Infrastructure Public Finance is working with the Road Fund’s Income Unit to advance this issue.

41


12. 1.9 Fixed Assets

• GAI assisted in the preparation of a complete fixed assets register for the Road Fund. A consultant will be appointed to assist in the evaluation and quantification of the assets where the value cannot be determined.

• Ongoing • The tender for the consultant is progressing; the Expressions of Interest are currently being evaluated

13. 1.10 Municipalities

• The lack of the Engineer Certificate was noted for the work done in 2008 and paid in 2009. In 2009 The Road Sector renewed the contracts of Provincial Consultants with the specific task to supervise Municipalities as well as Districts

• Ongoing

• Regarding funding mechanisms, the application of Decree 56/2003 is not under the control of the Road Fund. However, Road Fund is following a systematic annual plan for budget allocations

• Regarding supervision of works, the municipalities are being encouraged to use the provincial supervising engineering consultants

14. 1.11 Travel Allowances

• Policies and procedures in line with Regulamento do Estatuto dos Funcionários e Agentes do Estado (Rules for Civil Servants and other Agents of State) is being instituted. RF bears the accommodation cost and the staff is entitled to 70% of daily allowance according to the stipulated on the Decree 15/2010.

• Ongoing • Full compliance

15. 1.12 Budget Line Control

• Road Sector has implemented budgetary line control in compliance with the law No.9/2002 - SISTAFE.

• Implemented Q4 2009 • Compliance is being verified by GAI

16. 1.13 Accounting System

• The new FMS (SunSystems) is in the process of implementation and current expenditures are being processed through the system. Full migration will address all of the cited deficiencies and is anticipated to be completed beginning of 2011.

• Ongoing • Implementation of the SunSystems continues. FE and ANE

are currently reviewing progress and recommendations for accelerating implementation

• Remedy of other deficiencies • Q1 2011

• The specific deficiencies noted by the auditors are being reviewed by DGF and GAI, with the assistance of the DGF TAs and will be reported on separately in a progress report by the TAs to be submitted monthly

• An administrative and financial manual is being updated. This will include clear job descriptions and deadlines of tasks

• Q1 2011 • As noted above, the manual is being revised consistent with the DGF Assessment and the FMS (SunSystems)

42


17. 1.14 ECMEPs- Conflict of Interest

• The necessary actions are being taken to address this issue. Currently two of the three Executive Directors no longer chair the Board of the ECMEPs Companies. And the last one will cease its functions during the third quarter of 2010

• 30/09/10 • Full compliance; new Directors outside of Road Fund and ANE have been appointed.

18. 1.15 Pooled Fund • The issues regarding the IFRs have all been addressed

with IDA and the Pooled Fund no longer functions as of Q3 2009

• Completed • Completed and no longer relevant. All World Bank funded

expenditures fully reported in IFRs consistent with internal financial reports.

19.

1.16 Bank accounts

• Some of the bank accounts have been closed and some are earmarked as it can finance a specific group of expenditures.

• Ongoing • Review of bank accounts and closure of those no longer required is being done

20. • The RF will decide on the alternative exchange rate to be used weighing the pros and cons of this action • Ongoing

• This issue is being reviewed by the DGF TA for Infrastructure Public Finance and an appropriate policy will be introduced for 2011

21. 1.17 Internal audit

• Internal Audit (GAI) is working according to an approved risk based audit plan. The weaknesses in internal accounting controls systems have been pointed out by internal audit and must be monitored by management. Attention is given to the financial reporting and procurement systems

• Ongoing • Improvements are being introduced. • QA report by Consultant will be submitted to the PCA at year

end

22. 1.18 Districts

• The lack of the Engineer Certificate was noted for the work done in 2008 and paid in 2009. In 2009 The Road Sector renewed the contracts of Provincial Consultants with the specific task to supervise Municipalities as well as Districts

• Ongoing

• Each district has a budget of one million meticais for roads civil works. This budget may be allocated to various contracts. According to clause 48.2 of Decree 15/2010, it is permissible for the Client (i.e., the District) to supervise the works.

• A proposal for dealing with the certification of the works by the Road sector will be prepared by the RF in conjunction with ANE and the Ministry

43


23. 1.19 Human resources

• Personnel Files are being updated and completed as required

• Terms of commitment for the scholarship funded by the RF is finalized and submitted to the Administrative Council for Approval. Mod 11 of the Ministry of Finance for all employees has been distributed and will be submitted to the MoF. The training plan was approved by the Conselho Directivo chaired by the RF PCA

• Controls for staff attendance

• Q1 2011 • Q1 2011 • Completed

• Personnel Files under review • Agreements for scholarship recipients are being prepared • Controls for staff attendance in place

24. 1.20 IRPS and INSS • Computation of IRPS • The RF has requested the MoF to ensure all RF staff

benefit from the Government’s social security system.

• Completed • Q1 2011

• Computation of IRPS is now corrected • Road Fund sending list to INSS to calculate the social

contribution liability which will then be paid.

Road Fund Current Observations

25. 2.1 Foreign bank guarantees

• The Road Fund will consult with the Banco de Moçambique to determine the validity of the bank guarantee from foreign banks

• February 2011 • Effective immediately, all foreign bank guarantees are being certified and validated by a local commercial bank

26. 2.2 Organization in Provinces

• The RF is finalizing the process of recruiting additional Provincial delegates to cover all provinces • Q1 2011

• Road Fund Delegados have been appointed for seven provinces and the remaining three will be appointed in first quarter of 2011

27. 2.3 Payment of works to ECMEP

• All previous liabilities of all contractors and other services providers or goods suppliers will be disclosed on the financial statements.

• Ongoing • The general issue will be addressed by the improvement in the contract control system noted above

28.

2.4 Payments on behalf of Ministério de Obras Publicas e Habitação (MOPH)

• Within the framework of PRISE, it was envisaged support to certain MOPH activities especially those related to fiduciary and supervisory activities

• Ongoing

• The issue of allowable expenditures (for MOPH as well as for road sector agencies) will be dealt with in the revised procedures.

• In general, all expenditures must be specifically identified in the annual budget and plan and relate to road sector activities

29. 2.5 Treasury plan • The monthly treasury plan will be improved • Ongoing • This issue is being addressed under the review of DGF activities.

44


30. 2.6 Supporting documentation - Headquarters

• This will being addressed • Ongoing

• All specific cases are being addressed and will be reported on separately;

• Appropriate measures to avoid these problems are included in the procedures discussed above.

2.7 Recipient entities of Road Fund

31. 2.7.1 GAS- Support Office to MOHP

• During the closure of GAS, the physical inventory count was performed and a report was produced and signed by MOPH and Road Fund. The Ministry will determine the disposition of the capital goods

• Ongoing • The Road Fund will write a letter to the Ministry to resolve this issue.

32. 2.7.2 GPPZ • The closing of the project will be undertaken and the

assets handover will be monitored. GPPZ will analyze the petty cash in order to determine the final balance

• Q1 2011 • The Road Fund will address each of the specific issues

mentioned by the external auditor and resolve them with GPPZ and ANE.

33. 2.7.3Districts • Guidelines for the use of funds channeled to districts was

produced and approved by the RF and was distributed to Provincial Directorate and subsequently to the districts.

• Ongoing • The issues regarding Districts are addressed above.

34. 2.7.4 Municipalities

• The lack of the Engineer Certificate was noted for the work done in 2008 and paid in 2009. In 2009 The Road Sector renewed the contracts of Provincial Consultants with the specific task to supervise Municipalities as well as Districts.

• Q1 2011 • Issues dealt with above

35. 2.7.5 Delegations of Road Fund • Controls is being improved and regularly monitored • Ongoing • The specific issues and recommendations will be addressed by

the Administration Unit.

ANE •

36. 3.1Fixed Assets • ANE intends to launch a tender to contract an individual

consultant/firm to perform an inventory from scratch and to evaluate the fixed assets

• Ongoing • The issue of the sale of houses is being dealt with by ANE • Physical assets verification is being addressed by the

consultant tender, noted above.

45


37. 3.2 Human Resources

• The internal regulation is still awaiting approval at MOPH and the permanent base of staff (Quadro do Pessoal) is waiting for approval at the Ministry of Public Function.

• ANE is in the process of submitting the Mod11 to the MF.

• Ongoing

• Following comments made by the Consultative Consul of MOPH, the Internal Regulation was revised and approved by the ANE Board. The Internal Regulation final version will be send to Ministry of Public Function via MOPH for approval, before December 2010

38. 3.3 Delegations- Control of Contracts • A control regarding retentions is being implemented. • Ongoing

• Issue of contract control noted above; • Issue of control of retentions will be dealt with by DGF in

financial procedures manual.

39. 3.4Delegations – Control of vehicles

• ANE head office has already introduced a control over mileage per car, this control will be extended to the delegations

• Ongoing • To be updated at all Provinces up to 31 December 2010 by ANE HQ.

40. 4.1 Salaries and allowances

• RF and ANE are statutory two different entities and some differences in salary and benefits may occur. The Ministry of Public Work and Housing in coordination with the Ministry of Finance is in the process of harmonization of salary for the Road Sector Salaries and allowances and internal regulations of Road Fund and ANE, will be compared and evaluated, considering harmonization, when applicable.

• Ongoing • Ministry of Finance has approved the harmonization of salaries and allowances

41. 4.2 Internal Auditor • An assessment of the activities of the internal auditors

will be performed in order to avoid duplication of tasks, time, allowances and per diems

• Completed in Q4 2010

• ANE has abolished the positions for internal technical auditors and the function is the responsibility of the Road Fund.

42. 4.3 Resettlement of population – Central level

• The Internal Audit Unit is monitoring these processes as to conclude their validity and accuracy. RF acknowledges that these processes should be concluded as soon as possible.

• Q1 2011 • This issue remains under clarification;

43. 4.4 Supporting documentation

• Periodical review of the expenditure documentation will take place, on a timely basis • Ongoing • To be updated by ANE

44. 4.5 Headquarter bank accounts - Signatures

• ANE will instruct the bank to remove the signature of the former General Director • Immediately • Complied with

46


45. 4.6 Delegations

• a) All Delegations will implement a reliable control of guarantees received and returned;

• b) Compliance with the Decree 54/2005, superseded currently by Decree 25/2010, dated 24 May;

• c) Introduction of a control of vehicle mileage in order to guarantee a correct management of the vehicles;

• d) Review the current inventories and introduce a control system at central level;

• e) Introduction of a plan for expenditures to be approved • f) All bank accounts will be integrated in accounts. The

transactions will be fully accounted for.

• Immediately • To be updated by ANE

46. 4.7 Resettlement of population – Provincial level

• The Internal Audit Unit is monitoring these processes as to conclude their validity and accuracy. • Q1 2011 • To be updated by ANE and Road Fund

47

REVISED FUNDS FLOW MECHANISM

NB: the payments shown to the PF are those made before it was discontinued, i.e. prior to the proposed restructuring. Total of US$140.6 takes into account the value of misprocurement cancelation of US$430,800. Flows exclude the US$10 million allocated for contingencies.

48

ANNEX 7: REVISED ECONOMIC ANALYSIS


1. Prioritized Investment Plan for PRISE 2007-2009

1. As part of the review of the Road Sector Strategy, a five year prioritized investment plan was formulated based on analysis of socio-economic and technical feasibility as well as on the resources available for implementation. The underlying principle was that given the scarcity of resources and the importance of prioritizing maintenance, all investments in roads and bridges rehabilitation and upgrade must be economically and socially justified and consistent with the broad objectives of the government’s social-economic policy and in the Action Plan for the Reduction of Absolute Poverty (PARPA).

2. For the purposes of the planning exercise, projects were divided into three categories: • 59 national roads projects (primary and secondary roads): These projects were prioritized

using economic analysis (with Highway Development Management Model version 4 (HDM-4) and multi-criteria analysis.

• 69 regional road projects (tertiary and vicinal roads): these projects were not initially prioritized as their rehabilitation priorities were to be established by the provinces.

• 32 bridge projects, including a priority program of 10 bridges for rehabilitation and repair.

3. Using data on the road network collected from several sources (HNMS Database, Reclassification Database, 2003 Visual Condition and Surface Roughness Survey Database), the consultant created a GIS database of the network consisting of 34,331 kilometers of road. The data sets assembled for analysis included: road inventory, road condition data, traffic data, intervention costs, and vehicle operating costs.

4. The 59 national roads candidate projects were each evaluated in terms of the required level of intervention based upon existing detailed designs, HDM-4 output, recommendations made by road sector professionals and the Consultant’s inspection of the road. Six broad types of intervention were defined, each with alternative levels of intervention: periodic maintenance, rehabilitation, upgrade, and “targeted intervention” in various combinations for paved and unpaved roads. Estimated costs for interventions were arrived at using a combination of recent costs for civil works contracts, engineering estimates for projects which have completed designs, and estimated built up costs using known comparable national and regional input prices.

5. The economic feasibility of the projects considered during the formulation of the Road Sector Strategy was conducted with the use of the HDM-4 model. Where more than one intervention was analyzed, the one with the highest net present value (or on the basis of incremental benefit-cost ratio) was selected for prioritization. Thirty two of 59 projects earned an economic internal rate of return (EIRR) greater than 12 percent, and 14 others had EIRRs between 0 and 12 percent. In general, paved roads have higher traffic volumes and therefore generally higher EIRRs. Paved road periodic maintenance projects had many of the highest rates of return, confirming the focus of the Road Sector Strategy on the maintenance of paved roads. Rates of return for upgrading projects varied widely, suggesting that very careful consideration

49

of the appropriate intervention was required in the feasibility study or design phase. The targeted intervention approach would permit a mix of upgrade and unpaved rehabilitation or periodic maintenance, and is a suitable method for “staged upgrade”. Rates of return on unpaved interventions tended to be quite low, mainly due to the low levels of traffic and relatively high costs of these interventions.

6. Multi-criteria analysis was used to rank projects within each category, assessing each project’s contribution in four areas:

• Economic Feasibility as measured by its internal rate of return; • Connectivity as defined by the major function of the road in the national grid; • Accessibility: external economic benefits accruing from increased accessibility, in

particular, existing or potential for promoting small-holder agricultural, agro-industry, other industries, natural resource exploitation, tourism, inter-modal transportation, and additional Government priorities;

• Social Weight: a factor measuring the incidence of poverty in the area of influence of the road;

7. Alternative weighting schemes were applied to the results to evaluate the sensitivity of the prioritization to emphasis on different attributes. While all national roads candidate projects were evaluated together for the purposes of the multi-criteria analysis, for the investment plan, periodic maintenance projects were treated separately from national roads rehabilitation and upgrade projects in line with government policy to assume increasing responsibility for the financing of all maintenance activities.

8. The resulting prioritization yielded the preliminary five year investment plan: enhanced paved road maintenance; national road rehabilitation; regional roads rehabilitation; bridges rehabilitation and construction; and urban roads rehabilitation. The summary investment plan as formulated under the RSS and in the final PRISE 2007-2009 are shown in Table 7.1 below.

Table 7-1: Road Sector Strategy and PRISE Investment Plans 2007-09

Category

RSS Values a

PRISE Value US$ m b # Projects Length

Estimated Costs US$ m

Paved Road Backlog Maintenance (km) 19 1,593 48 48 Bridge Rehabilitation and Construction (meters) c 10 8,900 137 131 Regional and District Roads (km) d 20 600 51 102 National Roads Rehabilitation (km) e 12 1,285 328 232 National Roads Upgrade (km) f 10 1,468 156 199 Investment Engineering 45 45

Total 13,846 765 757 a. From Road Sector Strategy, February 2006 b. From Final PRISE 2007-2009 (February 2007) c. Total span in meters. d. Estimated number of projects at average project length of 30 kilometers e. In the RSS Investment Plan, this category was “funded rehabilitation and upgrade”, of which most was rehabilitation. f. In the RSS Investment Plan, this category was “unfunded rehabilitation and upgrade”, of which most was upgrade.

50

9. Following the presentation of the Draft Final Report of the RSS, the investment plan was subjected to a series of revisions based on GoM and DP considerations and inputs. While the interventions or estimated costs of some of the projects included have changed, the overall size and composition of the Investment Plan is substantially the one that was proposed under the RSS.

2. IDA Financed Road Sections

2.1. Project Costs

10. Economic analyses of paved and national road rehabilitation and upgrading projects were undertaken using HDM 4. The analyses were based on economic costs, which excluded taxes and duties. The economic costs were assumed to amount to 80 percent of financial costs excluding Value Added Tax. The discount rate used was 12 percent. The appraisal period used was 20 years. No shadow pricing of unskilled labor was used in the Road Sector Strategy Study analyses.

11. The projects appraised in the economic analysis comprise mainly the construction of a new base, sub-base, and a bituminous surfacing, the widening and surfacing of shoulders, upgrading the road furniture, and the rehabilitation or widening of drainage structures. Each road section will be upgraded by means of widening and strengthening of the existing carriageway. The heavily trafficked Jardim–Benfica section will be widened to four-lane standard and the other sections to two-lane standard.

12. The plan for Phase II of the Roads and Bridges Management and Maintenance Program (RBMMP-II) as described in the PAD defined the IDA financed works to include the upgrading of three sections of the N1, namely Jardim - Benfica (6.1 km), Xai-Xai - Chissibuca (95 km) and Massinga - Nhachengue (57 km). Bids received for these contracts exceeded the estimate at the time of appraisal by 133 percent.

13. The costs for the three projects could not be accommodated within the initial IDA RBMMP-II allocation of US$65 million for works, and the government has sought Additional Financing (AF) from IDA and other development partners. GoM has been successful in securing funds for the Massinga - Nhachengue section (Lot 3) through the Portuguese Government. The two works projects to be funded by IDA will therefore be Jardim - Benfica and Xai-Xai - Chissibuca, known as Lots 1 and 2. The results of the economic analysis for this new situation, taking into account current, updated increased construction costs and updated traffic levels, are presented in the sections that follow.

14. The economic costs of the rehabilitation and upgrading projects include the updated construction costs excluding IVA, supervision costs excluding withholding taxes, and contingency allowances of 14 percent for Jardim – Benfica and 7 percent for Xai-Xai – Chissibuca (the lower contingencies are justified since construction is almost complete and the contract is not subject to variation of price). The sum of these costs is converted to economic costs using a conversion factor of 80 percent. The values used in the analysis are summarized in Table 7-2:

51

Table 7-2: Economic Investment Costs of Rehabilitation and Upgrading Projects

Item No. Description

Lot 1: Jardim – Benfica

Lot 2: Xai-Xai – Chissibuca

1 Total Financial Costs Including IVA and Withholding Taxes $27,600,000 $59,500,000

2 Less IVA and Withholding Taxes -$2,000,000 -$3,900,000

3 Plus Contingencies on works $3,300,000 $3,700,000

4 Adjusted Financial Costs to Use in Economic Analysis $28,900,000 $59,300,000

5 Conversion factor for Economic Costs (80%) 80% 80%

6 Total Project Costs To Be Used In Economic Analysis $23,120,000 $47,440,000

Notes: • Financing costs include works and supervision • Cost Values rounded up to nearest hundred thousand. • Contingencies computed on works only, 30 percent for Lot 1 and 15 percent for Lot 2

15. The maintenance standard adopted for each alternative for use in the HDM4-based analysis was a scheduled routine maintenance and condition responsive periodic maintenance standard. Maintenance interventions included in the analysis are as follows:

• Routine maintenance starting after construction for Lots 1 and 2 • A double reseal in year 2022 for Lot 1 • A single reseal in years 2018 and 2026 for Lot 2

2.2. Traffic Assumptions

16. Traffic growth from 2002–2010 was taken to be 4 percent a year. Base-year (2010) traffic and subsequent traffic growth assumptions were accordingly estimated as shown in Table 7-3 for the Revised Economic Analysis.

17. Each project road was split into links for economic analysis with separate assessment of traffic for each link. The values in the tables reflect this range. The HDM-4 analysis is based on economic factors alone to calculate the viability of the proposed works. The results are predominantly influenced by road roughness which is greatly improved due to the pavement upgrading but the program has also taken into account traffic congestion factors, which become significant for Lot 1 which carries high traffic volumes in an urban setting. There is no assumption of generated traffic in the analysis.

52

Table 7-3: Traffic Forecasts for Rehabilitation and Upgrading Projects

Project

Growth (%/yr) AADT Range 2010-2016 2016-2030

Light. Heavy Light Heavy 2010 2030

Lot 1: Jardim– Benfica 6.0 5.0 5.0 4.0 20,702 - 30,404 55,072 - 80,882

Lot 2: Xai-Xai – Chissibuca 6.0 5.0 5.0 4.0 1,026 - 1,983 2,630 - 5,086

2.3. Results of the Economic Analysis

18. The summary of the main inputs into the economic analysis is shown in Table 7-4. The full results of the revised economic analysis are set out in Table 7-5 and the results of the sensitivity analyses are shown in Table 7-6. The analysis was carried out on each project separately and on the two projects combined.

Table 7-4: Summary of Main Inputs into Economic Analysis

Project

Surface Type Length

(km)

Carriageway Width (m) Initial Roughness

(IRI m/Km)

Base Year 2010

AADT Range Existing Appraised Existing New

Lot 1: Jardim–Benfica AC/WBM AC/BTB 6.1 7.5 - 8.5 13.6 3.5 - 4.5 20,702 - 30,404

Lot 2: Xai-Xai–Chissibuca AC/CTB AC/CTB 95.0 6.0 - 7.0 6.8 5.0 - 6.5 1,026 - 1,983

Combined projects 101.1

Notes: • AC - Asphalt Concrete • CTB - Cement Treated Base • BTB - Bitumen Treated Base

• WBM - Water Bound Macadam • IRI – International Roughness Index • AADT – Annual Average Daily Traffic expressed as Vehicles per Day

19. The basic sensitivity analyses undertaken examined the impact on economic feasibility of assuming:

• 20 percent lower traffic; • 30 percent higher investment costs for Lot 1 and 15 percent higher investment costs for

Lot2. As indicated above the latter is deemed appropriate as the construction is almost complete and the contract is not subject to variation of price, thus the risks are lower; and

• A worst-case scenario combining 20 percent lower traffic and 30 percent higher investment costs for Lot 1 or the 15 percent higher investment costs for Lot 2.

20. The analysis undertaken using HDM-4 indicates that the rehabilitation and upgrading of each of the two road sections individually and combined is economically feasible with EIRRs well in excess of the 12 percent economic feasibility threshold.

53

Table 7-5: Summary of Main Results of the Economic Analysis

Project

Updated Financial Costs Updated Economic Analysis

Total Cost per Km NPV at 12% EIRR

Lot 1: Jardim–Benfica $28.900 $4.738 $69.1 53.8%

Lot 2: Xai-Xai–Chissibuca $59.300 $0.624 $23.1 17.6%

Combined projects $88.200 $38.71 35.2%

Notes: • Values in million USD. • Financial costs are current, updated costs of works, excluding taxes and VAT, supervision, excluding

withholding taxes, including contingencies of 14 percent for Lot 1 and 7 percent for Lot 2 • Economic costs are 80 percent of financial costs • NPV – Net Present Value • EIRR – Economic Internal Rate of Return

21. The results for Lot 1 (Jardim – Benfica) are very robust, yielding a base scenario NPV of US$69.1 million with an EIRR of 53.8 percent. Reducing traffic by 20 percent and increasing costs by 30 percent do little to reduce the economic viability of the project. Even the combined worst-case scenario yields an NPV of US$35.6 million and an EIRR of 29.3 percent.

22. It is noted that for Lot 1, the addition of lighting and pedestrian bridges will certainly yield benefits in terms of road safety and possibly also in terms of reduced congestion from improved traffic flows. These benefits were not quantified in the analysis but do serve to strengthen the feasibility of the project.

23. The results for Lot 2 (Xai-Xai – Chissibuca) are also quite strong. The base scenario NPV is US$23.1 million and the EIRR equal to 17.6 percent. Reducing traffic by 20 percent and increasing costs by 15 percent reduce the benefits, but not below the 12 percent threshold. The combined worst-case scenario yields an NPV of US$4.0 million and an EIRR of 12.9 percent.

24. The combined result for the two sections gives an NPV of US$38.7 million and an EIRR for the combined projects of 35.2 percent. The sensitivity analysis indicates that the combination of both projects would remain economically feasible even in the worst-case scenario, with an NPV of US$12.4 million and an EIRR of 19.1 percent.

54

Table 7-6: Sensitivity Analysis

Project Scenario Tested

Updated Economic Feasibility Indicators

NPV at 12% EIRR

Lot 1: Jardim–Benfica

Base case $69.1 53.8%

Base Year Traffic -20% $42.1 36.1%

Financial cost +30% $62.7 44.0%

Worst-case scenario Traffic -20% & Cost +30% $35.6 29.3%

Lot 2: Xai-Xai–Chissibuca

Base case $23.1 17.6%



Worst-case scenario Traffic -20% & Cost +30% 4.0 12.9%

Combined Projects

Base case $38.7 35.2%



Worst-case scenario Traffic -20% & Cost +30% $12.4 19.1%

Notes: as above

55

ANNEX 8: REVISED FINANCING OF PRISE AND IDA CONTRIBUTION


Revised Estimate of Donor Funding: PRISE: 2007-2012

Values in Million USD

Component Earmarked Investment

Other Earmarked

Non-earmarked

(PF or SBS) Total DP IDA APL2 103.0 38.0 141.0

IDA APL1 24.0 9.4 33.4

EU 277.3 3.3 50.2 330.8

ADB 278.1 278.1

DFID 28.8 28.8

Asdi 59.0 26.9 85.9

Italy 26.3 26.3

Japan 174.6 174.6

MCC 171.1 171.1

USAID

KfW 13.2 13.2

AFD

DANIDA 36.6 10.0 46.6

NORAD 7.4 7.4

BADEA

IDB 12.0 12.0

Irish

NDF 9.4 9.4

OPEC 8.7 8.7

IFAD 7.4 7.4

Korea 20.0 20.0

Portugal 832.7 832.7

Total 2,053.3 47.0 127.0 2,227.2

56

ANNEX 9: Envir onmental and Social Safeguar ds


Environmental Safeguard Issues

1. The Project triggers Environmental Assessment: OP/BP 4.01. The objective of this policy is to ensure that Bank-financed projects are environmentally sound and sustainable, and that decision-making is improved through appropriate analysis of actions and of their likely environmental impacts. This policy is triggered if a project is likely to have potential (adverse) environmental risks and impacts on its area of influence. OP 4.01 covers impacts on the natural environment (air, water and land); human health and safety; physical cultural resources; and trans-boundary and global environment concerns. A range of instruments can be used to conduct Environmental Assessments (EAs) i.e. Environmental Impact Assessment (EIA), environmental audit, hazard or risk assessment and Environmental Management Plan (EMP). The Borrower is responsible for carrying out the requirement under the EA and the EMP. 2. Prior to appraisal of the Roads and Bridges Management and Maintenance Project (RBMMP-II) in February 2007, EAs analyzed the potential environmental and social impacts of the rehabilitation and upgrading of the three sections of N1 and stipulated measures to mitigate such impacts. The environmental policy, legal, and administrative frameworks of Mozambique were also reviewed, along with institutional capacity, to identify any weaknesses and needs for strengthening. The EA showed that impacts generated by the project activities were limited in extent and duration, given that good construction and management practices will be integrated in the design, and that project implementation plan and contract documents will be closely monitored during implementation. The environmental category is “B” – Partial Assessment - and the EA was disclosed in-country and in the Bank’s Infoshop before project appraisal in February 2007. The EMP for the EA is fully applicable to AF activities. The scope of environmental mitigation measures described in the EA covers the nature of work activities envisioned under the AF.

3. Taking into account that the project design and scope of works have not changed, there is no need to either update the EA or the EMP, or change the Environmental Category. Given that, under the proposed Additional Financing (AF), the installation of street lighting will be undertaken on already planned sidewalks/shoulders, and in the second instance the pedestrian footbridges will improve safety, no additional environmental measures are needed beyond those called for in the existing EMP for Jardim-Benfica, though the monthly environmental progress reports will describe the environmental management measures followed during the construction of the footbridges: Occupational Health and Safety, adequate safety equipment for workers, signs to ensure motorized and pedestrian traffic safety during road works, and management of construction waste. The Borrower’s moderately high capacity to efficiently implement safeguards is demonstrated by the fact that all project consultant teams on RBMMP-II include an environmental specialist who provides monthly environmental progress reports. These include a monitoring sheet, a report of environmental incidents (such as high dust levels,

57

inadequate drainage on roadsides, conditions at worker camps, and disposal of waste), and a check list on environmental commitments including land use changes, official permissions required, and drainage management, socio-economic issues, waste management, and rehabilitation. Under the AF, new contracts will include penalties if contractors do not abide by Environmental Management Plans, the oversight of which will continue to be the responsibility of the Project Consultants, as authorized by the Borrower. 4. RBMMP-II triggered OP/BP 4.11, Physical Cultural Resources. The objective of this policy is to assist countries to avoid or mitigate adverse impacts of development projects on physical cultural resources. For purposes of this policy, "physical cultural resources" are defined as movable or immovable objects, sites, structures, groups of structures, natural features and landscapes that have archaeological, paleontological, historical, architectural, religious, aesthetic, or other cultural significance. Physical cultural resources may be located in urban or rural settings, and may be above ground, underground, or underwater. The cultural interest may be at the local, provincial or national level, or within the international community. This policy applies to all projects requiring a Category A or B Environmental Assessment under OP 4.11, project located in, or in the vicinity of, recognized cultural heritage sites.

5. The location of the current project does not include works located in, or in the vicinity of, recognized cultural heritage sites. Nevertheless, the following section on chance find procedures will be included in all new contracts, and is included in the original EA. Chance Find Procedures for Culturally Significant Artifacts 6. The contractor is responsible for familiarizing themselves with the following “Chance Finds Procedures”, in case culturally valuable materials are uncovered during excavation, including:

• Stop work immediately following the discovery of any materials with possible

archeological, historical, paleontological, or other cultural value, announce findings to project manager and notify relevant authorities;

• Protect artifacts as well as possible, using plastic covers, and implement measures to stabilize the area, if necessary, to properly protect artifacts

• Prevent and penalize any unauthorized access to the artifacts • Restart construction works only upon the authorization of the relevant authorities.

7. In addition to Personal Protective Equipment described in EMP, construction workers should be provided with sturdy rubber boots (if they do not already have them). Social Safeguard Issues 8. The Project triggers OP 4.12, Involuntary Resettlement. The main objectives of this Policy are:

• Avoiding or minimizing involuntary resettlement where feasible, exploring all viable alternative project design; where it is not feasible to avoid resettlement, resettlement

58

activities should be conceived and executed as sustainable development programs, providing sufficient investment resources to give the persons displaced by the project the opportunity to share in project benefits.

• Displaced persons should be meaningfully consulted and have opportunities to participate in planning and implementing resettlement programs.

• Those displaced persons should be assisted in their efforts to improve their livelihoods and standards of living or at least to restore them, in real terms, to pre-displacement levels or to levels prevailing prior to beginning of project implementation, whichever is higher. Specifically, the production systems of a community are safeguarded to the extent that guarantees their livelihoods and that their skills base remain relevant regardless of the resettlement site. The policy objectives are also designed to minimize kinship group dislocation that might subject the affected persons to unfair competition when mutual help is diminished or lost.

9. Before appraisal of RBMMP-II in February 2007, a Resettlement Action Plan (RAP) was required for Lot 1 due to its crossing a peri-urban area. The RAP was reviewed and cleared by the Bank and was disclosed as required. Meanwhile the Borrower has implemented the RAP and prepared a RAP implementation report which has been reviewed by the Bank during the April 2009 mission and found to be satisfactory in respect of the following: (a) the compensation has been paid to all businesses affected along the road, and (b), 28 houses were constructed (with improved amenities and with access to infrastructure) for Project Affected Persons (PAPs) whose houses were demolished, and who were resettled as a result of the project. The National Road Administration (ANE) has submitted terms of reference for the commissioning of an external and independent end-of-project evaluation of the compensation activities for the RAP for the Jardim-Benfica Road. The Borrower has clearly demonstrated strong capacity to implement and monitor OP 4.12. 10. The proposed pedestrian footbridge at Choupal is proposed to be located near the Choupal junction, with a school situated on one side of the road, and small shops (mostly auto parts and mechanics shops) on the other side. Clearance will extend beyond what was initially planned for the road works to an additional depth of 5 meters, and will span 25 meters of the road on each side. Both the school boundary wall and the small shops have encroached onto the official Road Reserve. The school boundary abuts a moderately large playground and the existing EMP covers the work needed to demolish the wall and re-construct it outside the official Road Reserve. A temporary fence restricting access from the adjacent playground will be set up while demolition works are ongoing. It is anticipated that no advanced mechanical machinery will be used for demolition. The construction of the footbridge will lead to greatly enhanced safety for students and faculty, as they are now obliged to cross the busy road to reach public transportation.

11. The proposed pedestrian walkway at Jardim is also located near a busy junction. Again, clearance will extend beyond what was initially planned for the road works to an additional depth of 5 meters, and will span 25 meters of the road on each side. On one side of the road there are about ten to fifteen heavily patronized small shops, which encroach onto the official Road Reserve.

59

12. Under Bank Operational Policy OP 4.12 on Involuntary Resettlement, Project Affected Persons (PAPs) without formal title to land (in this case, both those encroachers with shops in fixed structures and street vendors with fixed structures) are entitled to compensation at replacement value for the loss of all immovable assets, and are to be provided resettlement assistance. Resettlement assistance includes assistance in finding a new location that provides continued access to clients and suppliers (though not payment for or provision of this new location)12

, compensation for the loss of income during transition, assistance with the physical transfer, and follow-up services.

13. Less than 200 people will be affected, and therefore this resettlement is documented in an Abbreviated Resettlement Action Plan (ARAP). An abbreviated plan covers the following minimum elements:

(a) A census survey of displaced persons and valuation of assets; (b) Description of compensation and other resettlement assistance to be provided; (c) Consultations with displaced people about the project and, if possible, discussion

of new location; (d) Institutional responsibility for implementation and procedures for grievance

redress; (e) Arrangements for monitoring and implementation of resettlement; (f) A timetable and budget.

14. A cut-off date has been chosen to coincide with the earliest feasible census survey of all affected persons. (Any persons attempting to establish residency in or use of the affected site after the date of the survey are not eligible for resettlement assistance or compensation). Any of the following are permissible to establish residency or site use: a recent official census of the area, or local utility, banking or tax records. 15. Compensation for lost assets that are immovable, and resettlement assistance, will be offered to displaced persons prior to the start of construction works. If there is a legal appeal by the displaced persons (unlikely as they are illegally on the Road Reserve) sums equivalent to the compensation offer made will be placed in escrow until such time as negotiations are resolved.

16. The additional resettlement work does not affect the environmental classification of the project as it is limited in scale. An updated Integrated Safeguards Data Sheet (ISDS) was filed in the Bank’s InfoShop on February 16, 2011. The completed ARAP has been disclosed in-country and published on ANE’s website (though details of compensation will not be publicly disclosed) and was disclosed at the Bank’s InfoShop on February 4, 2011. The resettlement does not expand the project into new geographical areas beyond the scope of RBMMP-II. The Borrower has undertaken public consultations in the area to be resettled; has evaluated project alternatives to minimize involuntary resettlement; and has developed an entitlement matrix with preliminary estimates of costs of relocation and replacement of fixed assets.

12 Insofar as possible, assistance will be provided to help PAPs relocate economic activities in planned shopping areas, on open shoulders, or in other commercial facilities along the transportation corridors. The open square behind Jardim is one option under consideration, as it is Council-owned.