Ff ASIAN DEVELOPMENT BANK RRP: RMI 32208 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN AND TECHNICAL ASSISTANCE GRANT TO THE REPUBLIC OF THE MARSHALL ISLANDS FOR THE OUTER ISLAND TRANSPORT INFRASTRUCTURE PROJECT October 2002 CURRENCY EQUIVALENTS The unit of currency in the Republic of the Marshall Islands is the US dollar. ABBREVIATIONS ADB – Asian Development Bank AMI – Air Marshall Islands EPA – Environmental Protection Authority JICA – Japan International Cooperation Agency km – kilometer km2 – square kilometer m – meter MIAA – Marshall Islands Airport Authority MIPA – Marshall Islands Ports Authority MOTC – Ministry of Transportation and Communications MPW – Ministry of Public Works navaid – navigation aid NGO – nongovernment organization O&M – operation and maintenance RMI – Republic of the Marshall Islands UNDP – United Nations Development Programme GLOSSARY Atoll Coral atolls are formed from volcanic cones that have subsided and a coral barrier reef has formed at their perimeter; some atolls are completely encircled by reef with no sea outlet, while others are breached by reef passages enabling vessels to enter the lagoon. There are 29 atolls in the Republic of the Marshall Islands of which 22 are permanently inhabited. Beach channel Usually artificial local widening and deepening between the deeper water of the lagoon or ocean side reef and the beach to enable small boat access. Docks Berthing facilities for interisland shipping. Island True isolated islands, with no central lagoon. Islets The areas of dry land around an atoll’s perimeter are termed islets. They are characterized by being low lying, typically no more than 2 meters above sea level, and narrow; in some cases chains of nearby islets have been connected by artificial causeways. Jetties Berthing facilities for lagoon boats and interisland ships’ boats. Pass Deepwater breaks in the atoll ring permitting ships to enter the lagoon; otherwise known as passages. Rearcart Handcart with tubular steel frame, wooden deck and sides, and pneumatic bicycle tires. YFU A type of landing craft. NOTES (i) The fiscal year (FY) of the Government ends on 30 September. FY before a calendar year denotes the year in which the fiscal year ends. (ii) In this report, “$” refers to US dollars. This report was prepared by a team consisting of Luigi Bodda (Mission Leader) and Christophe Gautrot. CONTENTS Page LOAN AND PROJECT SUMMARY i MAP v I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 6 A. Objective 6 B. Components and Outputs 6 C. Technical Justification 7 D. Cost Estimates 8 E. Financing Plan 9 F. Implementation Arrangements 9 IV. TECHNICAL ASSISTANCE 12 V. PROJECT BENEFITS, IMPACTS, AND RISKS 12 A. Technical Aspects 12 B. Policy and Institutional Aspects 12 C. Poverty Intervention and Social Impact 13 D. Overall Assessment 18 VI. ASSURANCES 19 VII. RECOMMENDATION 20 APPENDIXES 1. Project Framework 21 2. Chronology 25 3. Problems/Constraints Analysis 26 4. Sector/Subsector Analysis 27 5. External Assistance 32 6. Cost Estimates and Financing Plan 34 7. Implementation Schedule 37 8. Nonlending Assistance for Improving the Delivery of Sea and Air Transport Services 39 9. Summary Poverty Reduction and Social Strategy 42 10. Economic Analysis 51 11. Summary Initial Environmental Examination 56 12. Project Implementation Consulting Services 60 SUPPLEMENTARY APPENDIXES (available on request) A. Summary Poverty Reduction and Social Strategy B. Economic Analysis LOAN AND PROJECT SUMMARY Borrower The Republic of the Marshall Islands Classification Poverty classification: Poverty intervention. Thematic: Economic growth. Environment Category B. An initial environmental examination was undertaken. Assessment Its summary is a core appendix. Project Description The Project will reduce poverty by improving the safety, reliability, and efficiency of transport services to the outer atolls and islands through construction of navigation aids, small wharves and jetties, airstrip extensions, warehouses, and track improvements. Complementary nonlending assistance will strengthen institutional capacity to manage shipping and air services to the outer islands. Rationale Thirty percent of the population live in the 18 outer islands in the project area. Communities in the outer islands suffer from physical isolation leading to low incomes, lack of basic services, and poverty of opportunity. The people who live in these outer islands have significantly lower incomes than the national average, and it is estimated that almost two thirds of the population in the project area have an income level below the United Nations Development Programme poverty line threshold of $1 a day. Transport services provide the lifeline to these outer islands. Shipping brings in essential goods and services, and takes out island produce from which the people earn a substantial portion of their incomes. Shipping also brings in government services and supplies, particularly to schools and health clinics. Shipping provides an essential service to families in transporting children to and from secondary schools and colleges elsewhere in the Republic of the Marshall Islands, and in providing links for everyone to the urban centers and the outside world. Air services provide passenger and freight transport, as well as emergency evacuation services for sick and vulnerable people. Transport operations are at present complicated by poor infrastructure and facilities in the outer islands. In particular, the sea approaches and landings on coral atolls are often constrained by narrow reef passages, navigation obstructions, and shallow reef flats, making landing difficult. Weather, sea, and light conditions restrict the time available for anchoring and lightering goods and passengers ashore; passengers are subject to greater risk and discomfort; and there is frequent damage to cargo. Navigation aids are almost entirely absent and there are few ship docks or small boat jetties. Where beach landings are required, ii channels need to be cleared to allow small boats to reach the shore. On land, warehousing for storing goods and local produce for export is required at a central location to improve the efficiency of shipping operations. Most atolls have airstrips, but they are unsealed and often poorly maintained. In some cases, restricted runway length reduces aircraft capacity and range. Together, these constraints lead to infrequent and unreliable schedules, increased safety risks to passengers and cargo, and added costs to outer island transport. These, in turn, limit the opportunity for social interaction; access to education, health, and business development services; and the ability of public agencies to deliver programs and develop social infrastructure in the outer islands. It also increases the prices of essential goods and discourages production and marketing of local produce, such as copra, fruits and vegetables, fish, and handicrafts. Objective and Scope The objective of the Project is to reduce poverty through safer, more frequent, and reliable shipping and transport services in the outer islands that will (i) improve access to basic goods and services, and (ii) assist in increasing incomes from the sale of produce and handicrafts from the outer islands in the main centers of Majuro and Ebeye. The scope of the Project includes the construction, installation, and/or improvement/renovation of: (i) outer island port infrastructure, comprising docks, jetties, and beach channels; (ii) navigation aids, comprising lit beacons, buoys, and land lights; (iii) improvements to tracks for goods movement; (iv) storage warehouses for concentration of cargo; and (v) airstrip extensions and remedial maintenance. Cost Estimates The Project is estimated to cost $10.0 million equivalent, of which $6.84 million equivalent (68.4%) is the foreign exchange cost and $3.16 million equivalent (31.6%) is the local currency cost. Financing Plan Foreign Local Currency Currency Total Cost Financing Source ($ million) ($ million) ($ million) (%) ADB 6.84 0.16 7.00 70.0 Government 0.00 3.00 3.00 30.0 Total 6.84 3.16 10.00 100.0 ADB = Asian Development Bank. iii Loan Amount and Terms The Asian Development Bank (ADB) will provide a loan of Special Drawing Rights 5.304 million (equivalent to $7.0 million) from ADB’s Special Funds resources. The loan will be repayable in 32 years with a grace period of 8 years and interest charges of 1% per annum during the grace period and 1.5% per annum thereafter. Period of Utilization Until 30 June 2007 Estimated Project 31 December 2006 Completion Date Implementation A project coordination committee will be established to monitor Arrangements project implementation. Consulting services will support preconstruction and implementation activities. Executing Agency Ministry of Transportation and Communications (MOTC) Procurement Due to limited competition within the local construction industry, marine civil works and other procurement will be tendered using international competitive bidding in accordance with ADB’s Guidelines for Procurement. Qualified local construction companies will be permitted to tender for the work in their own right or in association with an international partner, either for the main contract or as nominated subcontractors. Consulting Services International consulting services will be required for: (i) management of