Language: English Original: English

PROJECT: MOMBASA - NAIROBI – ADDIS ABABA ROAD CORRIDOR PROJECT PHASE II

COUNTRIES: KENYA & ETHIOPIA

PROJECT APPRAISAL REPORT

Date: June 2009

Team Leader: A. OUMAROU, Transportation Engineer, OINF.2

Team Members N. KULEMEKA, Socio-Economist, OINF.2 D. KIDANE, Infrastructure Specialist, ETFO Appraisal Team T. OPIYO, Infrastructure Specialist, KEFO

Sector Manager: J. RWAMABUGA, OINF.2 Sector Director: G. MBESHERUBUSA, OINF Regional Director: D. GAYE, OREA/OREB

R. SHERMAN Procurement Specialist, ORPF.1 L. EHOUMAN Transport Economist, OINF.1 Peer Reviewers P. KARANI Environmental Officer, OWAS M. AJIJO Consultant Transport Economist, ONRI

TABLE OF CONTENTS

I. STRATEGIC THRUST & RATIONALE ...... 1 1.1. PROJECT BACKGROUND...... 1 1.2. PROJECT LINKAGES WITH COUNTRIES STRATEGIES AND OBJECTIVES ...... 1 1.3. KEY DEVELOPMENT ISSUES...... 2 1.4. RATIONALE FOR BANK’S INVOLVEMENT...... 2 1.5. DONORS COORDINATION...... 3 II. PROJECT DESCRIPTION ...... 3 2.1. CORRIDOR DEVELOPMENT PROGRAM AND PHASING...... 3 2.2. PROJECT DEVELOPMENT OBJECTIVES...... 4 2.3. PROJECT COMPONENTS ...... 4 2.4. TECHNICAL SOLUTION RETAINED AND OTHER ALTERNATIVES EXPLORED ...... 5 2.5. PROJECT TYPE...... 6 2.6. PROJECT COST AND FINANCING ARRANGEMENTS ...... 6 2.7. PROJECT’S TARGET AREA AND BENEFICIARIES ...... 7 2.8. PARTICIPATORY PROCESS FOR PROJECT DESIGN AND IMPLEMENTATION ...... 8 2.9. BANK GROUP EXPERIENCE, LESSONS REFLECTED IN PROJECT DESIGN...... 9 2.10. KEY PERFORMANCE INDICATORS ...... 10 III. PROJECT FEASIBILITY...... 10 3.1. ECONOMIC AND FINANCIAL PERFORMANCE...... 10 3.2. ENVIRONMENTAL AND SOCIAL IMPACTS...... 11 IV. IMPLEMENTATION...... 12 4.1. IMPLEMENTATION ARRANGEMENTS ...... 12 4.2. MONITORING ...... 14 4.3. GOVERNANCE ...... 14 4.4. SUSTAINABILITY ...... 15 4.5. RISK MANAGEMENT...... 16 4.6. KNOWLEDGE BUILDING ...... 17 V. LEGAL INSTRUMENTS AND AUTHORITY ...... 17 5.1. LEGAL INSTRUMENT...... 17 5.2. CONDITIONS ASSOCIATED WITH BANK’S INTERVENTION ...... 17 5.3. COMPLIANCE WITH BANK POLICIES ...... 18 VI. CONCLUSIONS AND RECOMMENDATION...... 18 6.1 CONCLUSION...... 18 6.2 RECOMMENDATIONS ...... 19

ETHIOPIA – COMPARATIVE SOCIO-ECONOMIC INDICATORS ...... 20 KENYA – COMPARATIVE SOCIO-ECONOMIC INDICATORS ...... 21 KENYA - BANK GROUP ONGOING PROJECTS AS OF MAY 2009...... 22 ETHIOPIA - BANK GROUP ONGOING PROJECTS AS OF MAY 2009...... 23 KENYA - RELATED PROJECTS FINANCED BY THE BANK AND OTHER DONORS...... 24

ETHIOPIA - RELATED PROJECTS FINANCED BY THE BANK AND OTHER DONORS...... 25 MAP OF PROJECT AREA ...... 26 MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIDOR DEVELOPMENT PROGRAM ...... 27 COUNTRY AND SECTOR BRIEF ...... 28 LESSONS LEARNED...... 36 PROJECT DETAIL COSTS ...... 37 IMPLEMENTATION ARRANGEMENTS...... 39 FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS...... 41 PROCUREMENT ARRANGEMENTS...... 43 AUDIT ARRANGEMENTS ...... 46 SUMMARY OF FINANCIAL AND ECONOMIC ANALYSIS ...... 47 ENVIRONMENTAL AND SOCIAL ANALYSIS ...... 49 PROJECT PREPARATION AND APPRAISAL ...... 57 APPLICATION OF THE BANK ROAD UNIT COST STUDY RECOMMENDATIONS...... 58

Currency Equivalents As of 01.04.2009

1 UA = 1 SDR 1 UA = 1.4674 USD 1 UA = 119.696 KES 1 UA = 16.2183 ETB

Fiscal Year 8 July – 7 July (Ethiopia) 1 July – 30 June (Kenya)

Weights and Measures

1metric tonne = 2204 pounds (lbs) 1 kilogramme (kg) = 2.200 lbs 1 metre (m) = 3.28 feet (ft) 1 millimetre (mm) = 0.03937 inch (“) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres

Acronyms and Abbreviations

ADB African Development Bank KeNHA Kenya National Highway Authority ADF African Development Fund KES Kenya Shilling ADT Average Daily Traffic KPA Kenya Ports Authority AFD Agence Francaise de Developpement KRB Kenya Roads Board AIDS Acquired Immune Deficiency Syndrome LC Local Cost ASAL Arid & Semi Arid Lands MoFED Ministry of Finance and Economic Development CBO Community Based Organization MTP Medium Term Plan COMESA Common Market for Eastern & Southern Africa NACC National AIDS Control Council EAC East African Community NEPAD New Partnership for Africa's Development EIRR Economic Internal Rate of Return NGO Non-governmental Organization ERA Ethiopian Roads Authority NPV Net Present Value ESAP Environmental and Social Assessment Procedures OPADC Oromia Pastaralist Area Development Commission Plan for Accelerated and Sustained Development to End ESIA Environmental and Social Impact Assessment PASDEP Poverty ESMP Environmental and Social Management Plan PAP Project Affected Persons ETB Ethiopian Birr PCR Project Completion Report EU European Union PID Project Implementation Document FE Foreign Exchange PS Permanent Secretary FTA Free Trade Area RAP Resettlement Action Plan GOE Government of Ethiopia RFP Request for Proposals GOK Government of Kenya RRA Rural Roads Authority GPN General Procurement Notice RSDP Road Sector Development Program HDM Highway Design and Maintenance Standard Model SPN Specific Procurement Notice ICB International Competitive Bidding STI Sexually Transmitted Infection IDA International Development Association TA Technical Assistance IGAD Intergovernmental Agency for Development TEU Twenty-foot Equivalent Unit JICA Japan International Cooperation Agency VOC Vehicle Operating Costs

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Loan Information Client’s information

BORROWERS: ETHIOPIA KENYA

EXECUTING AGENCY: ETHIOPIAN ROADS AUTHORITY KENYA NATIONAL HIGHWAY AUTHORITY

Financing plan

Source Amount (UA) Instrument

ADF 210,000,000 Loan EUROPEAN UNION 76,000,000 Grant GOV. OF ETHIOPIA 16,820,000 Counterpart GOV. OF KENYA 26,180,000 Counterpart TOTAL COST 328,760,000

ADB’s key financing information

Loan currency Unit of Account (UA) Interest type* Not Applicable Interest rate spread* Not Applicable Service Charge* 0.75% on amount disbursed and outstanding Commitment fee * 0.50% on the un-disbursed loan amount Tenor 50 years Grace period 10 years NPV (base case) US$ 91.54 million EIRR (base case) 21.7%

Timeframe - Main Milestones (expected)

Concept Note approval March, 2009 Project approval July, 2009 Effectiveness December, 2009 Last Disbursement December, 2015 Completion December, 2014 Last repayment December 2059

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PROJECT SUMMARY

Project Overview

The Mombasa-Nairobi-Addis Ababa Road Corridor Project aims at promoting trade and regional integration between Ethiopia and Kenya by improving transport communications between the two countries. The project involves the construction to bitumen standard of 438 km road sections including 245 km Merille River-Marsabit-Turbi road section in Kenya and 193 km Ageremariam-Yabelo-Mega road section in Ethiopia. The total cost of the project is UA 328.76 million. The project is co-financed by the Bank Group (64%), the European Union (23%) and the Governments of Ethiopia and Kenya (13%). The expected outcomes of the project include reduced transport and shipping costs between Kenya and Ethiopia; reduced transit time for import and export goods; and increased volume of Ethiopian transit goods using the port of Mombasa. The development of the corridor will expand market sizes beyond national boundaries and foster a conducive and enabling environment for the private sector and for attracting foreign direct investments. In addition to enhancing trade and strengthening regional integration, the project will contribute to poverty reduction in both countries by increasing access to markets and social services for the surrounding areas, and communities, and by empowering women and other disadvantaged groups through adequate roadside socio-economic infrastructure and services.

Needs Assessment

Ethiopia and Kenya share more than 1000 km of common border, and have a combined population of more than 100 million people. Yet, there is currently not a single all-weather road connecting the two countries. The main road connecting Addis Ababa to Nairobi has more than 700 km of missing links. The poor condition of the road represents a major constraint to trade between the two countries. The development of the Mombasa-Nairobi- Addis Ababa transport corridor is warranted by the anticipated great trade potential between Kenya and Ethiopia and to a lesser extent between the Horn and East Africa countries to include Uganda, Tanzania, Eritrea, and Djibouti. The corridor will also serve as the most cost effective transit route to Mombasa Port for import/export goods to/from southern Ethiopia.

Bank’s Added Value

The rationale for Bank involvement is threefold: (a) The Bank is already involved in the financing of the first phase of the project and the feasibility studies for the second phase. Therefore, the continued support of the Bank is logical; (b) the objective of the project to address the development constraints caused by poor transport infrastructure and regional interconnectivity is in line with the Bank medium term strategy (2008-2012) on promoting infrastructure development and regional integration; and (c) by supporting this flagship regional integration project, the Bank will continue to play a leadership role in the implementation of the key priorities of NEPAD’s infrastructure action plan.

Knowledge Management

The project provides a good opportunity to expand the knowledge on the impact of regional infrastructure on cross-border trade and on appropriate legal and institutional arrangements for transport facilitation particularly regarding the operation of one-stop-border posts. The project component on Monitoring, Evaluation, and Knowledge Building was designed specifically to capture the knowledge during project implementation and disseminate it amongst policy makers, regional economic communities, and development agencies.

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MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIDOR PHASE II PROJECT

RESULTS-BASED FRAMEWORK

PERFORMANCE ASSUMPTIONS/ HIERARCHY OF OBJECTIVES EXPECTED RESULTS REACH INDICATIVE TARGETS INDICATORS RISKS

Sector Goal Impacts Beneficiaries Impacts Indicators Impacts Targets 1 Favorable macro- 1 Promote trade and regional 1 Increased Intra-regional trade between Ethiopia 1 Volume of trade 1 Trade between Ethiopia and Kenya estimated to grow economic integration. and Kenya and Eastern & Horn of Africa regions Populations from US$ 48 M (2007) to US$ 200 M (500%) by 2017 conditions and of Ethiopia, Source: Kenya and Ethiopia Customs 2 Intra-COMESA trade for Ethiopia, Eritrea, Djibouti terms of trade. Kenya, statistics; Trade statistics from currently stagnant, to grow at part or above the 11% COMESA COMESA, IGAD, UNCTAD, WTO COMESA average by 2017; Member States

Project Objective Outcomes Beneficiaries Outcomes Indicators Outcomes Targets 1 Ethiopia & Kenya remain 1 To improve transport 1 Transport and logistics costs between Addis Freight 1 Transport and shipping costs 1 Port of Mombasa transit goods to/from Ethiopia to committed to communications between Kenya and Ababa and Nairobi are reduced; transit and Shippers, 2 Transit time for imports and increase from zero in 2009 to 500,000 t in 2014; and regional Ethiopia for the benefit of both travel times are reduced Exporters and exports to over 1000,000 t or 20% of total Ethiopian sea fret by cooperation countries and the region. Importers 2018. within 2 Port of Mombasa becomes cost-effective 3 Volume of transit goods to/from Transport COMESA. alternative for Ethiopia’s import/export shipping Ethiopia using the port of 2 Average transport cost of US$ 0.50 per veh-km on the Operators 3 Technical and Operational Capacity of Kenya Mombasa corridor in 2009 reduced by 20% by 2011; and by 50% 2 Peace and Business by 2014. stability is Road Agencies is strengthened 4 Performance of Roads Agencies community maintained in 4 Improved economic and social welfare of towns 3 Transit and travel time of 5 days between Addis and 5 Average household income Kenya and along the corridor Nairobi in 2009 reduced by 20% (1 day) by 2011; and by 60% (3 days) by 2014 Ethiopia. Source: Ethiopia Roads Transport 4 Technical, Operational, Financial Management & Authority, Port of Mombasa, NCTTCA Procurement capacity of Roads Agencies adhere to Transit transport surveys; customs broadly accepted good practices by 2011. statistics, Financial & Procurement Capacity Assessment of AfDB or World 5 30% average household income increase by 2017 in Bank, AfDB project M&E the project zone of influence.

Activities/Inputs Outputs Beneficiaries Output Indicators Output Targets 1 Availability of counterpart 1 Construction of Merille River- 1 Road between Merille River and Turbi (245 km) Contractors, 1 Km of road constructed and open 1 80 km of road in Ethiopia and 110 km of road in Kenya funding. Marsabit-Turbi road in Kenya (UA in Kenya constructed to bitumen standard consultants, to traffic. completed and opened to traffic by project mid-term in 2 Security 209.09 M). 2 Road between Ageremariam and Yabelo (193 Business 2 Design Reports, Business Plan 2012 situation does 2 Rehabilitation of Ageremariam- km) in Ethiopia rehabilitated to AC standard. community, Reports, Process Management 2 245-km Merille River-Turbi road in Kenya and 193-km not prevent population in Yabelo-Mega road in Ethiopia (UA 3 Technical Reports, Specifications and Cost Reports validated by GOK and Ageremariam- Yabelo road in Ethiopia completed and execution of the project 91.71 M). Estimates for dualling of Mombasa-Nairobi Road Agencies. opened to traffic by 2014. works area Kenya 3 Consulting services for construction completed. 3 Number of Roadside Socio- 3 All Technical Design Reports, Business Plan Reports, 3 Effective Roads supervision, design, evaluation, and Economic infrastructure built. & Process Management Reports validated by coordination of 4 Roadside socio-economic infrastructure Agencies and audit services (UA 11.42 M) stakeholders by 2011. project constructed their staff 4 Number of ICT & Survey implementation 4 Construction of OSBP and Roadside 5 ICT & Survey Equipment & Software acquired Equipment & Software Acquired 4 Three Road Stations and one OSBP built in Ethiopia; socio-economic infrastructure (UA Two Road Stations and one OSBP built in Kenya by 4 Construction 6 5-Year business plans for Road Agencies 5 Number of staff-weeks of training 9.33 M), 2013. costs completed 6 Number of people sensitized to 5 Technical Assistance for Kenya 5 180 pieces of computer stations, servers, printers and escalation 7 Management & Staff of Roads Agencies trained road safety, STDs, and HIV/AIDS Roads Agencies (UA 2.63 M). related software acquired by 12/10. within in various areas 7 Number of jobs created predictable 6 Compensation & Resettlements (UA 6 172 staff-weeks of training in road management, M&E, 8 Population of project area and road users bounds 4.57 M) financial management, procurement delivered by sensitized to Road Safety, STIs, and HIV/AIDS Source: ERA/ KENHA management 2011. 9 Employments created reports, Progress reports, supervision reports, Completion reports 7 3000 people (50% women) sensitized to road safety, STIs, and HIV/AIDS by 2014. 8 2000 skilled and unskilled jobs (30% women) created by 2014.

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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE BOARD OF DIRECTORS ON PROPOSED LOANS TO ETHIOPIA AND KENYA FOR THE MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIOR PHASE II PROJECT

Management submits the following Report and Recommendation on proposed loans for UA 85.00 million to the Federal Democratic Republic of Ethiopia and for UA 125.00 million to the Republic of Kenya to finance the Mombasa-Nairobi-Addis Ababa Road Corridor Phase II Project. I. STRATEGIC THRUST & RATIONALE 1.1. Project Background 1.1.1 The project road is an important section of the Trans-African Highway Cairo-Cape town. Within Ethiopia and Kenya, the road is a link on the main Addis Ababa – Nairobi - Mombasa corridor (see map in Appendix 1). The Kenyan section of the road between Isiolo and Moyale is about 525 km and was constructed as a gravel road in 1974. On the Ethiopian Side of the border, the road is entirely bitumen-paved from Moyale to Addis Ababa. However, the section of the road between Moyale and Ageremariam is more than 40 years old. It has deteriorated and requires reconstruction/rehabilitation. In July 2003, the GOK and the GOE approached the Bank to request the financing of the road under the Bank multinational window. Owing to the low level of project preparation for some of the missing links and the need to mobilize the required financing, the corridor development had to be carried out in phases. For the first phase, the ADF Board of Directors approved a loan of UA 33.60 million and a grant of UA 2.55 million to finance the construction of the 136-km Isiolo- Merille section of the road in Kenya and the feasibility and design studies for 366 km road section in Kenya and another 302 km of road section in Ethiopia in readiness for the second phase. After a slow start due to procurement delays and insecurity in the project area, the implementation of the first phase is now progressing at a satisfactory pace with the contractual completion date set for April 2010. The feasibility and detail design studies of the remaining missing links have been completed and provide the basis for this second phase of the project. 1.2. Project linkages with countries strategies and objectives 1.2.1 The Mombasa-Nairobi-Addis Ababa Road Corridor Project is in line with Ethiopia’s and Kenya’s Poverty Reduction Strategies as well as the Bank Group’s assistance strategies to the two countries. Ethiopia’s second Poverty Reduction Strategy (2005-2010), known as the Plan for Accelerated and Sustained Development to end Poverty (PASDEP) accords high priority to infrastructure development to support industrialization and development and commercialization of agriculture. Within the context of the fifth pillar of PASDEP, Strengthening the Infrastructure backbone of the Country, Ethiopia’s five-year Road Sector Development Strategy III is putting emphasis on expanding the road network and improving regional trade corridors and port linkages. In support of Ethiopia’s PASDEP, Infrastructure Development is one of the three pillars of the Bank Group Country Strategy Paper (CSP) 2006-2009. The Ageremariam-Moyale section of the Mombasa-Nairobi-Addis corridor is programmed for Bank financing under the ADF-XI Indicative Lending Program for Ethiopia in the CSP. It will contribute to PASDEP and CSP objectives of improving trade corridors and linkages to ports.

1.2.2 Kenya’s development strategy, Vision 2030 and the Medium Term Plan (MTP) 2008- 2012 identifies infrastructure development as the main pillar in the GOK’s quest in transforming Kenya into a globally competitive economy and in expanding intra-regional trade with neighboring countries. The MTP underscored also the importance of infrastructure to enhance incomes and social welfare in rural areas. In support of the MTP, one of the two

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the pillars of the Bank Group Kenya Country Strategy Paper 2008-2012 is Infrastructure Development for Enhanced Growth. The development of the Mombasa-Nairobi-Addis road corridor with a branch to southern Sudan is one the key regional infrastructure programs under the MTP. The project is programmed for Bank financing under ADF-XI Indicative Lending Program in the CSP. The project outcomes will contribute to the objective of the CSP and the MTP by enhancing trade expansion into neighboring countries and strengthening Kenya’s position as a natural transport hub for East Africa. 1.3. Key Development Issues 1.3.1 Ethiopia and Kenya share more than 1000 km of common border, and have a combined population of more than 100 million people. Yet, there is currently not a single all- weather road connecting the two countries. The main road connecting Addis Ababa to Nairobi has more than 700 km of missing links including 366 km of gravel road in Kenya and more than 300 km of low standard and deteriorated paved road in Ethiopia. The poor condition of the road represents a major constraint to trade between the two countries. COMESA trade statistics show for example that the value of trade between Kenya and Uganda in 2007 is 10 times more important than trade between Kenya and Ethiopia, despite the fact that Uganda has only 25 million people compared to the estimated 75 million for Ethiopia. This disparity, and the apparent marginalization of the horn of Africa countries from the recent intra-COMESA trade boom are largely explained by the lack of reliable road transport infrastructure to link them to the rest of the region, which is consistent with the findings of a World Bank study which estimated the elasticity of the flow of trade with respect to transport costs to about –3. It implies for example that the volume of trade between two countries would drop by 20%, if transport costs between them were to increase by 10%.

1.3.2 Ethiopia, as a landlocked country, relies on the neighbouring transit countries for its sea freight. In order to reduce transport cost and improve the competitiveness of the Ethiopian economy, the Government is striving to diversify its access to seaports as much as possible. About 20% of the Ethiopian sea freight traffic originating or destined to southern and south-western Ethiopia would normally be attracted to the Mombasa port, which has this region of Ethiopia as its natural catchment area via Moyale. However, the poor condition of the corridor forces the totality of this traffic to transit through more distant ports.

1.3.3 While addressing the road infrastructure bottleneck is paramount to foster trade between the two countries, it should go hand in hand with reforms programs in the areas of transport facilitation and trade liberalization – the so-called non-physical barriers. Both Ethiopia and Kenya are members of COMESA; but while Kenya has also joined the COMESA Free Trade Area (FTA), Ethiopia has not and continues to trade on preferential terms applying 10% discount to duties granted to “the Most Favored Nation” to all COMESA member states except Djibouti and Sudan with which it has bilateral agreements. Ethiopia and Kenya are at an advance stage of negotiating a bilateral trade agreement. The proposed improvement of the transport connectivity between the two countries underscores the need for Ethiopia and Kenya to move quickly to conclude the agreement. From the Facilitation standpoint, both countries have ratified the key COMESA instruments and common standards to facilitate regional transport and trade including harmonized axle load limits, harmonized transit charges, regional carrier licensing, regional third-party motor vehicle insurance, Regional Customs Bond Guarantee, and Single Customs Document. The two countries are in the process of re-engineering an existing transport transit agreement to take into account the recent development in transport facilitation and the status and condition of the transport and communication infrastructure along the corridor. 1.4. Rationale for Bank’s involvement 1.4.1 The rationale for Bank involvement is threefold: (a) The Bank is already involved in the financing of the first phase of the project and the feasibility studies for the second phase.

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The first phase is progressing at a satisfactory pace and the feasibility studies for the second phase have demonstrated the economic viability of the operation. Therefore, the continued support of the Bank is logical. (b) The objective of the project to address the development constraints caused by poor transport infrastructure and regional interconnectivity is in line with the Bank medium term strategy (2008-2012) on promoting infrastructure development and regional integration. The Bank has developed extensive experience in Kenya and Ethiopia as well as multinational infrastructure projects across Africa. (c) The project road is a continental priority under the Trans-African Highway Network and a flagship regional integration project under the NEPAD short-term infrastructure action plan; by supporting the project, the Bank will continue to play its leadership role in the implementation of the key priorities of NEPAD. 1.5. Donors coordination 1.5.1 Donor coordination in Kenya is carried out at both sector and national levels. The Kenya Coordination Group meetings, chaired by the Minister of Finance, provide regular opportunities for the government and the resident donor community to discuss matters of mutual concern. Development partners meet among themselves each month in the Development Coordination Group (DCG), chaired by the Embassy of Denmark. The DCG meetings offer an effective forum for aid co-ordination among development partners, to better align assistance with government programs, and to coordinate assistance more effectively among themselves. The Harmonization, Alignment, and Coordination Group, which includes the Ministry of Finance, actively promote the Paris Declaration on aid effectiveness. All 17 of its members, covering some 90% of total official development assistance (ODA) to Kenya, have joined to formulate the Kenya Joint Assistance Strategy (KJAS). The ADB Kenya Field Office is currently the Chair of the Roads and Transport Sector Donor Group and leads sector policy dialogue with the government. The group meets regularly to harmonize donors’ response and positions with respect to institutional, policy and projects’ financing and implementation issues.

1.5.2 In Ethiopia, aid coordination is carried out through the Consultative Group (CG) meetings, which provides opportunities for donors both bilateral and multilateral to periodically review Ethiopia’s development programs and co-ordinate their development assistance. The co-financing under the Road Sector Development Program (RSDP) has facilitated the complementarities of the development partners’ efforts and the extensive internal donor co-ordination involved in monitoring program implementation. The Bank actively participates in the Government-Donor Transport Sector Working Group. The Working Group is chaired by the Minister of Transport and Communications and co-chaired by one donor on a rotation basis, the European Commission holding the current co- chairmanship.

1.5.3 During Project Preparation and Appraisal, the Bank project team held extensive consultations with the main donors actively engaged in the transport sector in Ethiopia and Kenya particularly the EU, the World Bank, AFD, and JICA. The European Union is co- financing the project with the Bank, which is one of the positive outcomes of the Bank’s engagement with the other donors. II. PROJECT DESCRIPTION 2.1. Corridor Development Program and Phasing 2.1.1 The development of the Mombasa-Nairobi-Addis Ababa Road Corridor into a viable trade route required an integrated approach, which took into account the construction or improvement of the road, the capacity expansion of the port of Mombasa, the construction of transit infrastructure facilities, and the policy and operational changes for trade and transport facilitation. The Corridor Development Program and Action Plan are shown in Appendix 5.

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The Development was planned in three phases owing to the magnitude of the program, the low level of project preparation for some of the missing links and transit facilities, and the need to mobilize the required financing.

2.1.2 Phase I of the Program comprised the following: (i) Construction to bitumen standard of the 136-km road section between Isiolo and Merille River in Kenya co-funded by AfDB and GOK; (ii) the expansion of Mombasa port facilities co-funded by JICA and GOK; and (iii) the feasibility and engineering design studies for two corridor links in both Kenya and Ethiopia totalling 670 km, and an Inland Container Terminal funded by AfDB in readiness for the second and Third Phases of the Program.

2.1.3 The proposed Phase II of the Program involves: (i) the construction to bitumen standard of 438 km road sections including 245 km Merille River-Marsabit-Turbi road section in Kenya and 193 km Ageremarian-Yabelo-Mega road section in Ethiopia; (ii) the construction of road stations and one-stop-border post facilities; and (iii) policy action to sign a bilateral transit transport agreement. Phase II is co-financed by the AfDB, the EU, the GOE, and the GOK.

2.1.4 The planned Phase III will include: (i) Rehabilitation of 300-km Awasa-Ageremarian and Mega-Moyale, and construction of an Inland Container Terminal in Ethiopia; (ii) Construction to bitumen standard of 125-km Turbi-Moyale in Kenya; and (iii) Transport facilitation program to operationalize the bilateral transit transport agreement. Consistent with its commitment to this corridor, the Bank will take the lead in mobilizing other donors to finance the third and final phase of the program. 2.2. Project Development Objectives 2.2.1 The sector goal of the project is to promote trade and regional integration. The expected long-term impact of the project includes increased intra-regional trade between Ethiopia and Kenya and the Eastern and Horn of Africa regions.

2.2.2 The objective of the project is to improve transport communications between Kenya and Ethiopia for the benefit of both countries and the region. The expected outcomes of the project include (a) reduced transport and shipping costs between Kenya and Ethiopia; (b) reduced transit time for import and export goods; (c) increased volume of Ethiopian transit goods using the port of Mombasa. 2.3. Project components 2.3.1 The project will consist of the following components: A. Road Construction Civil Works (UA 300.08 million) Ethiopia - Road Construction Civil Works: This component involves the construction to bitumen standard (Asphalt Concrete) with 7-m carriageway and 1.5-m shoulders of the road section between Ageremariam and Mega (193 km). The civil works will be subdivided in two (2) separate contracts: (Lot 1) Ageremariam-Yabelo (94.5 km); (Lot 2) Yabelo-Mega (97.5 km). Kenya - Road Construction Civil Works - This component involves the construction to bitumen standard (Asphalt Concrete) of the road section Merille River-Marsabit-Turbi (245 km) with 7-m carriageway and 2-m shoulders. It will be subdivided in two contracts: (Lot 1) Merille River-Marsabit (122 km); and (Lot 2) Marsabit-Turbi (123 km) B. Border Posts and Roadside Socio-Economic Infrastructure (UA 9.33 million)

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Ethiopia - This component involves the construction and equipment of two (2) Road Stations in Ageremariam, Yabelo, the construction of One-Stop-Border-Post facilities in Moyale, and the drilling of twelve community water wells. The Road Stations will incorporate public sanitation, market stands and shops, secured parking area, repair and refuelling stations, etc. They will provide business opportunities for local residents and serve as venues for the provision of multiple public services such as, health care, education and training activities, and cultural activities. Kenya – This component involves the construction and equipment of two (2) Road Stations in Marsabit and Turbi, the construction of One-Stop-Border-Post facilities in Moyale, the construction and equipment of security outposts, and the drilling of community water wells and water harvesting schemes. C. Consulting Services for Supervision, Design and Audit (UA 11.42 million) Ethiopia - Consulting Services for Construction Supervision, and Audit: Engineering consulting firms will provide construction supervision services for the civil works described above. The supervision services will also be divided in two (2) lots corresponding to the civil works contracts; Technical and Financial Audit will be a separate consultancy component. Kenya - Consulting Services: (1) Consulting services for construction supervision of the civil works described above; (2) consulting services for detail design of dual carriageway of some sections; (3) Consulting services for evaluation and knowledge building; and (4) Project Technical and Financial Audit. D. Technical Assistance (UA 2.63 million) Kenya - Technical Assistance for Highway Authorities: The technical assistance include consulting services to develop Five-Year Business plans; development of modern business processes; capacity in procurement and financial management; project coordination costs, and provision of specialized ICT and software for modern highway management systems. E. Compensation and Resettlement (UA 4.57 million) Ethiopia - Compensation and Resettlement of Project Affected People – This component makes provision for the adequate compensation and resettlement of Project Affected People identified in the Project Environmental and Social Impact Assessment. Kenya - Compensation and Resettlement of Project Affected People – This component makes provision for the adequate compensation and resettlement of Project Affected People identified in the Project Environmental and Social Impact Assessment. 2.4. Technical solution retained and other alternatives explored 2.4.1 The design consulting firms evaluated several alternative design, maintenance, and financing strategies for the road. The recommended option is a 7-m Asphalt-paved carriageway with 1.5-m to 2.0-m sealed shoulders. This design was found to be technically, economically, and environmentally the most adequate solution. Stage-construction with an initial lower standard pavement and subsequent reinforcement was assessed and rejected because of the major risk of future construction costs as well as the remoteness of the project area. The scope for private sector participation in the financing of the project was assessed but not pursued because of low risk-adjusted financial returns.

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2.5. Project type 2.5.1 The ADF financing will support the construction and rehabilitation of identified economic and social infrastructure. The investments against which funds are to be disbursed are well defined and specific. Therefore, the specific project loan has been chosen as the most appropriate instrument for the intervention of the Bank in this operation.

2.6. Project cost and financing arrangements Project Cost 2.6.1 The project cost estimate (net of taxes) is UA 328.76 million (USD 482.40 million) of which the foreign exchange cost is UA 212.83 million (USD 312.29 million) or 65% of the total, and the local cost is UA 115.93 million (USD 170.11 million) or 35% of the total. The cost of the project components located in Ethiopia is UA 101.57 million (USD 149.05 million) or 31% of the total; while the cost for the components in Kenya is UA 227.18 million (USD 333.36 million) or 69% of the total cost. The project cost estimates are based on feasibility and detail design studies of the project as well as international norms and average unit prices for the recruitment of high quality consulting firms and individual consultants for similar services. The cost estimates also took into account the recommendations of the 2008 Bank’s study on the unit costs of road construction, which is detailed in Annex C1. The project cost estimates by component and by country are summarized in Tables 2.1 and 2.2 below. Detailed costs and expenditure schedules are provided in Annex B3.

Table 2.1 - Project Cost Estimate by Component (Net of Taxes) USD (Million) Unit of Account (Million) Component Foreign Local Foreign Local Total Total Exchange Cost Exchange Cost A. Road Construction Civil Works 245.79 132.35 378.14 167.51 90.20 257.70 B. Roadside Amenities 8.90 4.79 13.69 6.06 3.27 9.33 C. Consultancies & Audit 13.40 3.35 16.75 9.13 2.28 11.42 D. TA Institutional Support 3.09 0.77 3.86 2.11 0.53 2.63 E. Resettlement & Compensation 0.00 6.71 6.71 0.00 4.57 4.57 Total Base Cost 271.18 147.98 419.16 184.81 100.84 285.65 Physical Contingency 22.68 12.21 34.89 15.45 8.32 23.78 Price Contingencies 18.43 9.93 28.36 12.56 6.76 19.33 Total 312.29 170.11 482.40 212.83 115.93 328.76

Table 2.2 - Project Cost Estimate by Component and by Country (Net of Taxes) Ethiopia Kenya Component US$ UA US$ UA Million Million Million Million A. Road Construction Civil Works 117.02 79.75 261.12 177.95 B. Roadside Amenities 6.33 4.32 7.36 5.01 C. Consultancies & Audit 6.33 4.32 10.42 7.10 D. TA Institutional Support - - 3.86 2.63 E. Resettlement & Compensation 1.81 1.23 4.90 3.34 Total Base Cost 131.49 89.61 287.66 196.04 Physical Contingency 8.78 5.98 26.11 17.80 Price Contingencies 8.78 5.98 19.58 13.35 Total 149.05 101.57 333.36 227.18

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Sources of Finance 2.6.2 The proposed project will be co-financed by the Bank Group, the EU, the GOE, and the GOK. The AfDB Group is the lead financing agency and will provide 64% of the total financing requirements equivalent to UA 210 million (USD 308.15 million). The AfDB financing will be in the form of two ADF loans to Ethiopia and Kenya amounting respectively to UA 85.00 million and UA 125.00 million. The EU will co-finance the project in Kenya on parallel basis for UA 76 million representing 23% of the overall project cost. The Governments counterparts’ contributions represent 13% of the cost and are made up of UA 16.57 million from the Government of Ethiopia and UA 26.18 million from the Government of Kenya. The financing plan for the project is shown in Tables 2.3 below.

Table 2.3 - Sources of Financing (in UA million) AfDB Financing EU Financing Counterpart Country Cost Amount Percent Amount Percent Amount Percent

Ethiopia 101.57 85.00 84% - 16.57 16% - Kenya 227.18 125.00 55% 76.00 33% 26.18 12%

Total Project 328.76 210.00 64% 76.00 23% 42.76 13%

2.6.3 The total ADF contribution to the project is UA 210 million. Fifty percent (50%) of the ADF resources for the project will come from the ADF-XI PBA-based national allocations for Kenya and Ethiopia. The remaining 50% will come from the regional operations (RO) envelope. The source of ADF financing is shown in Table 2.4 below.

Table 2.4 – Source of ADF Loans (UA Million) ADF-XI PBA Country ADF-XI Loan Allocation RO Envelope Country Amount Amount Percent Amount Percent

Ethiopia ADF Loan 85.00 40.00 47% 45.00 53%

Kenya ADF Loan 125.00 65.00 52% 60.00 48%

Total Project 210.00 105.00 50% 105.00 50%

2.7. Project’s target area and Beneficiaries 2.7.1 In the general sense, the project road corridor by linking Kenya and Ethiopia, would affect the whole of east and horn of Africa regions. As such, in terms of trade and regional integration, the project area extends beyond Kenya and Ethiopia to include Uganda, Tanzania, Eritrea, and Djibouti. However, the corridor being developed in phases, the project area of influence for the first and second phases lies mostly in the Northeast arid and semi arid region (ASAL) of Kenya and the Oromia Region of Ethiopia.

2.7.2 The ASAL region is an area primarily of pastoralists with relatively few services. Livestock and dairy production dominate the local economy. The region accounts for 67% of the red meat and 12% of the milk consumed in Kenya. Livestock production and productivity, and the development of the livestock industry in general, are constrained by a number of factors including poor veterinary services, and poor access to markets all of which are greatly compounded by the lack of good road infrastructure. In recognition of these facts, the

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GOK has created the Ministry of Northern Kenya to assist the region to fully integrate into the national economy. Improving road infrastructure in the area will have a positive impact in stimulating growth in the local economy, improving security, and reducing poverty.

2.7.3 The Oromia Region is one of the nine governmental regions of Ethiopia. About 89% of the population is supported by subsistence agriculture. There is a wide variety of farm animals and crops based on the favorable climate, rich soils and normally sufficient rainfall. The main cash crops are coffee and khat. The development prospects brought by the road are critical to the development of the region and to better integrating it into national development. Stakeholders anticipate better market access, increased tourism, and better distribution and lower cost for agricultural inputs, industrial goods and manufactured goods. Stakeholders also expect improved public services including health and education, and more efficient, less expensive distribution of food relief.

2.7.4 The road will strengthen the link of both border regions to their national capitals and economic heartland and to social services. The road also has good tourism development potential, which can generate many unskilled as well as skilled jobs. Other long-term project beneficiaries include freight shippers, exporters and importers, transport operators, the business community and the wider population of Ethiopia and Kenya.

2.8. Participatory process for project design and implementation 2.8.1 The formulation, design, and financing of the project benefited from the wide consultations carried out by the Design Consultants and the Bank project appraisal team, through bilateral meetings, town hall meetings and sharing of interim and final project design reports. The key stakeholders consulted include government agencies, regional economic communities (EAC & COMESA), project beneficiaries, the donor community (AFD, EU, JICA, World Bank), corridor groups, transport operators, shippers’ associations, manufacturers associations, Community-based organizations, and NGOs.

2.8.2 One of the positive outcomes of the engagement with other donors is the forging of a partnership with the EU to co-finance the project to the tune of UA 76 million. As a result of consultations with project beneficiaries and transport operators, the project has incorporated roadside socio-economic infrastructure – the so-called “Michinoeki”1 - that will enhance the benefit of the road to the communities living in its zone of influence. The road stations will provide much stronger links between local communities and the users of the roads by offering business opportunities for local residents and serving as possible venues for the provision of multiple public services such as, health care (including HIV/AIDS care), education and training activities, and cultural activities. The scope for private sector participation in the financing of the operation was assessed during consultations but deemed insignificant because of below average risk-adjusted financial return. However, the Management and operation of the Road Stations will mostly rely on PPP arrangements.

2.8.3 Consultations and participatory process will continue during project implementation to provide regular feedback from the key stakeholders. The Regional Project Coordination Committee discussed under the Project Implementation Section will carry it out. The process will also aim to achieve greater complementarities and synergies between the project and other related projects such as the JICA-funded US$ 223 million port of Mombasa expansion or the ADF-funded Nairobi-Thika Highway and Arusha-Namanga-Athi River road project on the same Cairo-Cape town Transafrican Highway. These synergies will globally improve the region’s logistic chains and result in greater competitiveness of traded goods and exports.

1 Michinoeki (Concept Originated in Japan) are spaces for rest and exchange along highways. They create connections between the highway and local communities.

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2.9. Bank Group experience, lessons reflected in project design Status and Impact of Prior Bank Intervention in the Sector 2.9.1 The Bank Group has since 1967 participated in the financing of 18 operations in the transport sector in Kenya amounting to UA 368.41 million and covering 16 projects in the road sub-sector, one railway project, and one road study. Fifteen of the operations have been completed. The transport projects financed by the Bank Group include the construction of more than 1000 km of paved roads, and the maintenance and rehabilitation of 2900 km of rural roads. The completed projects have made a significant contribution towards strengthening the infrastructure base of the Kenyan economy by improving mobility and access to socio-economic opportunities for several millions of people, and linking rural and urban areas in the most productive provinces of the country, including Nyanza, Western, Central and Rift Valley. In Ethiopia, the Bank Group has since its first sector intervention in 1967, financed 15 operations in the transport sector for a total amount of UA 311.17 million consisting of 13 projects and two studies of which eleven had been successfully completed and one terminated/cancelled. The intervention in the road sector has been significant and involved construction of 1,890 km of rural roads in four regions, construction of 386 km of link roads, maintenance of 2485 km of district roads and 143 km of rehabilitation of the section on the Addis Ababa – Djibouti export corridor. These interventions have led to opening up of isolated and inaccessible areas to markets. Post evaluation undertaken for the completed projects has indicated that the constructed roads have brought about an all round improvement and growth in production in the agricultural and livestock sectors. Lessons Learned and Reflected in project Design 2.9.2 The project design has taken into account lessons learned from the ongoing phase I of the project as well as previous interventions of the Bank and other donors in the transport sector in both Kenya and Ethiopia. In past interventions of the Bank, implementations have been characterized by long start-up delays, low disbursement levels, lack of local counterpart funds, and poor reporting and auditing. For multinational projects, poor or inappropriate regional coordination with ill-defined responsibilities and lack of resources has been one of the weaknesses that were identified. For the ongoing phase I of the project, insecurity in the project area and the scarcity of water for construction have posed a significant challenge. In addition, due to an unprecedented level of construction activity in Kenya, shortages of locally sourced construction material (lime) have been detrimental to the project.

2.9.3 The proposed project design for the second phase of the operation has reflected these lessons. By starting procurement prior to board approval (Advance Contracting), project start-up delay will be considerably reduced by up to six months. The GOK has engaged in several institutional reforms including the establishment of autonomous highway authorities in order to improve governance and management in the road sector. The project includes a Technical assistance to support the newly established Highway Authorities to address poor reporting and auditing and improve on project management. The increases in fuel levy, and budgetary allocation in Kenya, and donor road sector budget support in Ethiopia have remarkably improved the mobilization resources for road financing in both countries. However, to minimize the risk for inadequate budgeting of local counterpart funds, particularly in Kenya, the ADF loan will cover all the project expenditure except for compensation and resettlement costs. The project design includes a strong regional project coordination steering committee with appropriate budgetary provisions to address poor cross-border coordination observed in past projects. Finally, the project design incorporated alternative design options and various sources of construction inputs supply to mitigate potential shortages of water and locally sourced material such as cement, and lime.

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2.10. Key performance indicators 2.10.1 The achievement of the project objectives would produce the following outcomes: (i) Reduced transport and shipping costs between Kenya and Ethiopia; (ii) Reduced transit time for import and export goods; (iii) increased volume of Ethiopian transit goods using the port of Mombasa.

2.10.2 Basic indicators for monitoring and evaluating project outcomes are included in the Project Results Framework. The outcome and impact indicators will be reviewed at the start of project implementation and include: (i) Volume of cross-border trade between Kenya and Ethiopia; (ii) transport and shipping costs of a 20-ft container from Mombasa to Addis Ababa; (iii) transit volumes and time from Ethiopia to Mombasa port; (iv) other socio-economic outcome indicators that are indirectly influenced by the project such as income levels, Production and productivity levels of key commodities will also be monitored in Northern Kenya and Southern Ethiopia. The project design consultants have collected some of the baseline data. Additional baseline values will be collected at the beginning of project implementation by the Supervision consultant. The indicators will be measured at project inception, completion, and 3 years later, and results compared with the baseline. Where relevant, indicators will be disaggregated by gender. Funding will be provided under the project for monitoring up to project completion. The consultant for the Evaluation and Knowledge Building component will be responsible for data collection and analysis under the supervision of the Ethiopian Roads Authority and the Kenya National Highway Authority. III. PROJECT FEASIBILITY 3.1. Economic and financial performance 3.1.1 The economic viability of the project has been assessed within the broad framework of Cost Benefit Analysis using the Highway Development Management Tool (HDM) - IV that was found to be appropriate. A discount rate of 12.0%, which is the opportunity cost of capital in Kenya and Ethiopia, has been used for the economic evaluation. The costs taken into account are the capital costs and the routine and periodic maintenance costs. For the economic analysis, these financial costs were converted into economic costs by applying a standard conversion factor (SCF) of 0.78. The economic benefits are calculated as the difference between the “with the project” and “without the project” scenarios. The benefits include road user incremental benefits in terms of Vehicle Operating Cost savings, time savings for passengers and cargo, and road maintenance savings because of the new facility. The Residual value after 20 years of service has been estimated at 25% of the original economic investment cost. 3.1.2 The measures of project worth used are the EIRR, and NPV. Table 3.1 below gives a summary of the economic analysis, whose details are presented in Annex A5.

Table 3.1: Key Economic and Financial Figures EIRR (base case) 21.7% NPV (12% Discount) US$ 91.54 million EIRR (15% decrease in benefits) 16% EIRR (15% increase in costs) 14.5% EIRR (+15% costs & -15% benefits) 12.5%

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3.2. Environmental and Social impacts Environment 3.2.1 Consistent with Bank’s ESAP, the project is Category 1 since it entails significant earth works and vegetation clearing stretching over a long distance. The road passes through several biodiversity-rich and ecologically sensitive areas. The major environmental impacts will be due to destruction of forests and vegetation, disruption of animal migration routes, and poaching. It is also likely to cause significant displacement of households. Full ESIA and RAP reports and ESMPs have been prepared, and the ESIA/RAP Summary was posted on the Bank website on 20 February 2009.

3.2.2 The potential impacts include soil erosion and run-off, overgrazing, vegetation clearance, dust, noise and vibration, water pollution and wildlife conservation measures. The main social impact will be the relocation of PAPs due to widening and realignments. The project has developed an elaborate program of monitoring of environmental and social impacts with responsibilities and costs identified. All these issues have been addressed in the respective ESMPs and RAPs. The financial provisions to cover the related costs including HIV/AIDS prevention programmes and road safety campaigns and monitoring have been included in the project. Climate change 3.2.3 The project area is arid and semi-arid and exhibits desert characteristics especially on Kenyan side. The area has very low rainfall and is prone to drought. In some high attitude areas however, above average rainfall (800 – 1000mm) may be experienced resulting in flash floods. In such instances, the project design has incorporated storm drains and drainage systems away from homes and property, raised level of road embankment and intensified erosion protection measures such as grassing, sodding and mulching. On the other hand, rising temperatures due to climate change would exacerbate water shortages. To mitigate this, an extensive program of gravity fed water distribution coordinated by OPADC is underway in Ethiopia. Similar initiatives are ongoing through the Ministry of Northern Kenya (the Arid Lands Resource Management Project and the Drought Management Initiative supported by World Bank and European Commission, respectively). The project has incorporated water supply provision along the project road.

3.2.4 Increased traffic may lead to increased gas emissions. The two countries are taking measures to monitor air pollution and curb emissions. NEMA in Kenya has provisions for controlling air pollution and is developing guidelines with UNEP assistance. The EPA has prepared guidelines “Ambient Environment Standards for Ethiopia” with assistance from UNIDO. The project on its part has made provisions for financing an elaborate program of tree planting along the perimeter of the road reserve to act as a carbon sinks. Already ongoing, in the two countries, at district level, are community based indigenous tree planting programs, which will take advantage of the project inputs. At Moyale, (Ethiopia), there is a program of food for work linked to the Food Security Pastoral Development Office. Gender 3.2.5 The major impact on women will emanate from dislocation that may occur. The communities are pastoralists where women bear the burden of the necessities of the relocation process including house (tukul) construction. In addition, the patriarchal traditions, give men control over household income, and therefore may be inclined to control compensation payments. To mitigate the burden of relocation and control of finances is to sensitize community leaders, elders and CBOs to ensure and monitor the compensation process. The potential of an increase in the spread of HIV/AIDS may disproportionately

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affect girls and women due to an influx of migrant male workers. Measures of mitigation will include targeted awareness and prevention interventions. Women in the project area are engaged in sell of milk and meat (sheep and goat) and roadside vending. The project will provide milk and slaughter facilities and roadside market space for their use. The project will improve the wellbeing of women by providing potable water resulting in time and energy savings. This in turn is expected to have beneficial repercussions on family health and education for girls. Social 3.2.6 The project is expected to enhance the standard of living and socio-economic welfare of the people living within its zone of influence. During construction, over 2000 skilled and unskilled jobs will be created injecting into the two local economies an estimated USD 240,000 per month in form of wages. The workforce will create a demand for services, such as catering and hospitality, supply of provisions, and thereby encourage small scale and micro ventures to be established. Among the project interventions, contributing towards wealth creation and distribution, are construction of roadside amenities, milk houses and processors and slaughterhouses (for goats and sheep). Wellbeing of the people will be improved through improved access to social facilities such as potable water, health facilities, schools and enhanced security.

3.2.7 However, during and after construction traffic accidents will increase due to higher traffic volumes and speeds, and there is a risk of the spread of STI/ HIV/AIDS. Road safety and STI/HIV/AIDS awareness campaigns have been proposed to mitigate these impacts. The project has included financial provisions under the bill of quantities for the civil works and special clauses for the contractors to conduct or sub-contract to NGOs the campaign against the spread of HIV/AIDS. Urban expansion and higher immigration rates along the project road will lead to greater demand on infrastructure services and natural resources; this will require regulation by the regional / district planning authorities in both countries. Involuntary resettlement 3.2.8 Approximately 89 households (445 persons) will be affected (and may require relocation) by the road works on the Marsabit – Turbi road section; while the Moyale – Yabelo section has an estimated 524 households (2620 people) that will be affected with 150 requiring relocation. Land take, destruction of buildings (dwelling and commercial), house fences, loss of trees and crops, and loss of livelihoods will occur because of this road project. Bank Policy on Involuntary Resettlement requires that a full resettlement action plan be prepared if more than 50 households (200 persons) are displaced. In this case, the project has had full resettlement actions plans (RAPs) prepared for the two sides of the road and estimated resettlement and compensation costs are estimated at KES4.71 million and ETB20.0 million, respectively.

IV. IMPLEMENTATION

4.1. Implementation arrangements Executing Agencies 4.1.1 The Kenyan National Highways Authority (KENHA) will be the executing agency for the components of the project located in Kenya, while the Ethiopian Roads Authority (ERA) will be the executing agency for the components of the project located in Ethiopia. The Ethiopian Roads Authority (ERA) and the Ministry of Roads (now being replaced by the Kenya National Highway Authority) have well established financial management and procurement capacities. The two agencies have considerable experience in implementing projects financed by donors including the ADF, IDA and the EU. Therefore, they have proven

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capacities in meeting the reporting and procurement requirements of the Bank. However, the Kenya National Highway Authority being a newly established agency, its procurement and financial management capacity will be strengthened through technical assistance provided under this project. The two agencies will each appoint a senior engineer as Project Manager and focal points for the project. More details on Implementation Arrangements are provided in Annex B3.

4.1.2 Most of the project components will be implemented in parallel and independently. However, close cooperation is necessary for the project to achieve its long-term development impacts. The overall cross-border coordination of the project will be provided by a joint Regional Project Coordination Committee (RPCC). The Permanent Secretary of Ministry of Roads in Kenya and the State Minister of Ministry of Works and Urban Development in Ethiopia will co-chaired the RPCC. Its membership will include General Managers of Ethiopian Roads Authority and Kenya National Highway Authority, a representative of IGAD, a representative of COMESA, key stakeholder ministries in charge of transport, immigration, customs, tourism, and livestock. The joint committee will raise coordination/harmonization issues that may hamper or negatively affect the development of the road corridor and advise on the necessary corrective measures. The establishment of the RPCC, its composition and terms of reference shall be agreed upon between Ethiopia and Kenya in an MOU. The signing of the MOU will be a Covenant of the loan. 4.1.3 Some progress has been made in aid harmonization and the implementation of the Paris Declaration on Aid Effectiveness, particularly in information sharing and coordination of missions in both countries. However, concerns over governance and inadequacy of country systems, some of which do not adhere to broadly accepted good practices, have prevented Development Partners from moving faster on this agenda. The present project alignment and harmonization include the use of the countries financial management systems, and the use of existing government entities for project implementation therefore avoiding the creation of parallel project implementation units. Procurement 4.1.4 All procurement of civil works and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules & Procedures for Procurement of Goods and Works, or as appropriate Rules & Procedures for the Use of Consultants, using the relevant Bank Standard Bidding Documents. The procurement of components funded by the EU will follow EU procedures. For the components financed by the Bank, the different procurement and consultants’ selection methods, the requirements for prequalification, post-qualification, and prior review, the estimated costs of procurement packages, and the procurement plans were agreed upon with ERA and KENHA. The procurement arrangement details are provided in Annex B5. Disbursement and Audit Arrangements 4.1.5 The loans will be disbursed for categories of expenditure including civil works, goods, consulting services, and miscellaneous project coordination costs. The Direct Payment Disbursement Method will be used for all the project components, except for the technical assistance, which will be disbursed through special account. All disbursements will follow the procedures and standard supporting documents outlined in the Bank’s Disbursement Hand Book. Independent auditors will audit the project accounts annually. The audit reports of the ongoing phase I of the project have been submitted by both Ethiopia and Kenya. The reports were reviewed and found to adhere to accepted good practices. Further disbursement details are provided in Annex B4.

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4.2. Monitoring 4.2.1 The Ethiopian Roads Authority (ERA) and Kenya National Highway Authority (KENHA) shall regularly provide the Bank with quarterly progress reports for the project including the implementation of the environmental and social action plan, in the established format covering all project activities. These reports will include physical, financial, social, and environmental indicators, which will assist in verifying the delivery of the project outputs. A semi-annual project coordination meeting with the participation of the two executing agencies and the regional economic communities IGAD, COMESA, and EAC will be held every six month to ensure that proper execution and cooperation is maintained. In addition, monitoring of the project will be done through the Bank’s semi-annual supervision missions, in accordance with the Bank Group’s Operations manual. The Bank will undertake the project mid-term review in 2012 to identify any major constraints facing the project and provide the required corrective measures. The following table summarizes the project monitoring timeframe and monitoring process. Table 4.1 – Implementation Monitoring Timeframe

Monitoring process / Timeframe Milestone feedback loop

Q4 - 2009 Project Launching Supervision and Progress Report

Q2 - 2010 Procurement of Civil Works Completed Procurement Plan/Progress Report

Q3 - 2010 All Contractors Mobilization Completed Supervision and Progress Report

Q2 - 2011 30% of Civil Works completed Supervision and Progress Report

Q1 - 2012 60% of Civil Works completed Midterm Review & Progress Report

Q1 – 2013 Substantial completion of civil works Supervision and Progress Report

Q1 – 2014 End of Defects Liability period Supervision and Progress Report

Q1 – 2014 Project Completion Project Completion Report

4.3. Governance 4.3.1 Transparency and accountability in public financial management has improved considerably in Kenya. Donors’ support including the IDA-funded Public Sector Management Technical Assistance Project and the ADF-funded Institutional Support for Good Governance have improved financial accountability framework and strengthened regulatory institutions. The Public Procurement Act of 2005 has created bodies for the regulation of Public Procurement and has resulted in greater transparency in procurement matters. In the road sector, governance will be enhanced with the operationalization of the Kenya Roads Act of 2007, which provided a clear mandate and legal identity for each organization involved in the road sector. The Act has now limited the role of the Ministry of Roads to policy formulation and regulatory functions, while Autonomous Road Agencies will handle executive functions of planning, programming, development, and maintenance of roads on commercial basis with a management contract signed with the Minister.

4.3.2 In Ethiopia, the ongoing programs such as the Good Governance Package of the District Level Decentralization Program (DLDP); the Public Sector Capacity Building program (PSCAP); and the Expenditure Management Control Program (EMCP) are intended to address the challenges related local governance and lack of capacity. The 2007 Public Expenditure Financial Accountability Report concludes that although weak institutional

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capacity requires attention, the fiduciary systems in place are adequate. The report highlights improvements in the quality of accounting records, fiscal reporting and external auditing. The existing governance structure in the road sector is generally well perceived by development partners active in the sector. The Ethiopian Roads Authority (ERA) is an autonomous Federal Government Agency with its own Board. A Road Inspectorate Unit, which is accountable to the ERA Board, provides independent inspection and monitoring reports on the performance of the road sector operations.

4.3.3 The specific governance risk mitigation measures of the present project include: (i) the appointment of independent Financial and Technical Audit firms to ensure that funds are used efficiently and for the intended purposes; (ii) Bank prior review and approval of all project procurement activities; and (iii) the use of direct disbursement methods to channel project funds to contractors and service providers.

4.4. Sustainability 4.4.1 The sustainability of the project will depend largely on the ability of the two governments to plan, program, finance, and implement timely maintenance of the road. Sustainability will also depend on the implementation of effective axle-load-control programs to prevent overloaded trucks from prematurely destroying the road.

4.4.2 The planning, programming, and implementation of road maintenance in Ethiopia is done under a holistic sector wide approach – the Maintenance Action Plan (MAP-4) under the Road Sector Development Program (RSDP). The Ethiopian Roads Authority implements the program. In Kenya, the newly established Kenya National Highway Authority (KeNHA) is now providing the needed streamlined management and improved governance structure to tackle road maintenance problems in the country. As mandated by the Kenya Roads Act 2007, KeNHA is currently finalizing five-year Road Sector Investment Program to guide the development and maintenance of the road sector. The recurrent costs after project completion include the routine maintenance expenditure of the road undertaken annually at a cost of US$ 500,000 in both Kenya and Ethiopia; and the periodic maintenance every ten years in the form of resealing or asphalt overlay to protect the investment estimated a US$ 13 million in Ethiopia and US$ 15 million in Kenya.

4.4.3 Both countries have established ring-fenced road maintenance funds to secure stable flow of funds for road maintenance. The resources mobilized by the Ethiopian Road Fund Administration rose from ETB 165 million in 1998 to more than ETB 700 million in 2008. The resources of the Road Fund can cover the annual maintenance needs of the network in maintainable condition estimated at ETB 650 million. The Kenya Road Maintenance Fuel Levy Fund (RMLF) is the biggest road fund in sub-Saharan Africa. The fund is managed by the Kenya Roads Board and raised KES 19 billion (US$ 270 million) in 2008 from fuel levy and other road user charges. The amount is adequate to cover all periodic and routine maintenance needs of the network but not including the backlog maintenance.

4.4.4 The above-mentioned institutional arrangements for the management, financing, and maintenance of roads have lead to the application of sound road assets management and resulted in improved sustainability of road investments in both Ethiopia and Kenya. Another policy direction that will ensure sustainability is the increased role of the private sector in routine and periodic maintenance limiting the role of the force account units to emergency response only. As of date, private contractors in Kenya carry out about 95% of periodic and routine maintenance. In Ethiopia, the restructuring of ERA has transformed it from a supplier of road infrastructure to a manager and purchaser of services and works for network maintenance and development. Following its policy of commercialisation of its force account unit, ERA is increasingly contracting out road maintenance to match the pace of

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development of the domestic contracting capacity. The share of private sector in periodic maintenance works in Ethiopia is expected to increase from the current 50% to 100% over the next five years. This policy direction will lead to improved efficiency in road maintenance and the emergence of strong domestic construction industry and further enhance sustainability.

4.4.5 Both Ethiopia and Kenya are implementing policy measures with respect to axle- load-control on their respective road networks with technical assistance funded by Development Partners. These measures include the introduction of improved axle configurations, the construction of additional weighbridge stations, and more efficient rules enforcement. These protective measures and the improve sector governance and maintenance funding mechanisms will contribute to the sustainability of the project.

4.5. Risk management 4.5.1 The successful implementation of the project and achievement of its development objectives predicates on several assumptions, each of which may constitute a potential risk: Risk of political and civil unrest – both Ethiopia and Kenya have recently experienced post- election violence and civil unrest. Both countries have weathered those storms. The mitigation of such risks is beyond this project; however, the repeat of similar events in the near future is unlikely. Insecurity in the project area is a major concern and may prevent the orderly execution of the works – Lessons learned from ongoing construction activities have been incorporated in the design of the project to address insecurity and mitigate this risk including the provision of special security personnel by the government and the construction of several security outposts. Unpredicted escalation of construction costs – The risk of uncontrolled construction costs are mitigated by having detail design documents and having substantial provisions for contingencies. In addition, the global economic slowdown will have a dampening effect on oil prices and positive outcome on competition. Fiscal impacts of the Global Economic Crisis will affect the capacity of the concerned governments to meet counterpart contributions – Despite improved fiscal discipline in both Kenya and Ethiopia, the likelihood of this risk is high. The risk will be mitigated in Ethiopia by the donor-funded road sector budget support, which provides the government with more budgeting flexibility. In Kenya, the risk will be mitigated by the ADF loan financing all project activities therefore reducing its immediate fiscal impact on government treasury. Implementation risk due to newly established executing agency in Kenya – An Interim Management Committee provided under the Kenya Road Act has been set up to oversee the change management process and the smooth transfer of functions, rights, powers, and project portfolios. The committee has prepared a roadmap to facilitate the process of operationalizing the newly established Roads Authority. Therefore, disruption to project implementation will be minimized; in addition, the present project has incorporated a technical assistance to strengthen the institutional capacity of the Road Authorities. Commitment of the two countries to COMESA regional economic cooperation and integration initiatives that would boost intra regional trade – Kenya and at a slower pace Ethiopia have been pursuing COMESA open trade agenda. Therefore, a reversal of these decades’ old commitments and policies is unlikely. This risk is further mitigated by the fact that the project will incorporate a trade and transport facilitation component to address non- tariff barriers by harmonizing transport and customs standards and improving document flows.

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4.6. Knowledge building 4.6.1 The type of knowledge expected to emerge from this operation stem directly from its anticipated outcomes. Several empirical studies point out the critical role of transport in reducing transactions costs, fostering cross-border trade, and improving the general welfare of affected populations. The project provides a good opportunity to test this hypothesis and expand the knowledge in this area. In addition, there is limited knowledge on appropriate legal and institutional arrangements for transport facilitation particularly regarding the operation of one-stop-border posts. By tackling this aspect, the project will produce valuable information. The project component on Monitoring, Evaluation, and Knowledge Building was designed specifically to capture the knowledge during project implementation and disseminate it amongst regional economic communities, policy makers, and development agencies involved in infrastructure development in Africa.

V. LEGAL INSTRUMENTS AND AUTHORITY

5.1. Legal instrument 5.1.1 The Bank instruments to finance this operation are two ADF concessionary loans to Ethiopia and Kenya. The loan to Ethiopia amounts to UA 85 million broken down in UA 45 million (53%) from the Regional Operations Envelope and UA 40 million (47%) from Ethiopia’s ADF-XI PBA-based allocation. The loan to Kenya amounts to UA 125 million broken down in UA 60 million (48%) from the Regional Operations Envelope and UA 65 million (52%) from Kenya’s ADF-XI PBA-based allocation. The standard ADF loan terms and conditions are applicable to the two loans.

5.2. Conditions associated with Bank’s intervention Conditions Precedent to the Entry into Force of the Loan Agreement 5.2.1 The entry into force of the Loan Agreements shall be subject to the fulfillment by the Borrowers of the provisions of Section 12.01 of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the Fund.

Conditions Precedent to First Disbursement of the Loans 5.2.2 The obligation of the Fund to make the first disbursement of the Loans shall be conditional upon the entry into force of the Loan Agreement and the fulfillment of the following conditions:

By both the Government of Ethiopia and the Government of Kenya (i) Submitted a resettlement action plan (RAP) together with a works and compensation schedule detailing the sections into which each lot of the civil works will be divided, and a timeframe for the compensation of project affected persons with respect to all such sections in form and substance satisfactory to the Fund; and

(ii) Submitted evidence of having compensated and/or resettled all project affected persons with respect to the first section of the first lot of the civil works in accordance with the RAP and the works and compensation schedule;

By the Government of Ethiopia (iii) Having appointed a senior engineer with qualifications and experience acceptable to the fund to serve as Project Manager;

17

By the Government of Kenya (iv) Having opened a foreign currency project account in a bank acceptable to the fund into which the proceeds of the loan to cover eligible expenditures for the technical assistance component will be deposited as required.

Other Conditions of the Loan (i) The Borrowers shall have jointly provided evidence to the Fund that a Road Transport Services Agreement between Ethiopia and Kenya, for a transit regime and transport facilitation for the effective utilization of the corridor, has been signed by December 31, 2011;

(ii) The Borrowers shall have jointly provided evidence to the Fund that an MOU between Ethiopia and Kenya establishing a cooperation framework for coordinating the development, financing, operation, management of the corridor has been signed by June 30, 2010;

(iii) The PS Ministry of Roads – Kenya shall submit to the fund yearly by 31 March, detailed budgets for the institutional training program of the roads Authorities, and the project coordination and oversight costs funded by the project for review and no- objection.

5.3. Compliance with Bank Policies () This project complies with all applicable Bank policies. () The project does not require any exception from Bank policies.

VI. CONCLUSIONS AND RECOMMENDATIONS

6.1 Conclusion 6.1.1 The project is expected to contribute to enhance trade and regional integration between Ethiopia and Kenya, by reducing general transport costs, increasing market sizes beyond national boundaries, increasing economic output, and giving rise to other socio- economic benefits. The Economic Internal Rate of Return has been estimated at 21.7%, which is higher than the opportunity cost of capital in Kenya and Ethiopia.

6.1.2 In addition to enhancing trade and strengthening regional integration, the project will contribute to poverty reduction in both countries by increasing access to markets and social services for the surrounding areas, and communities, and by empowering women and other disadvantaged groups through adequate roadside socioeconomic infrastructure and services. For Kenya, the project will improve access to Northern Kenya and enhance integration with the rest of the country. For Ethiopia, the road will also provide a cost effective alternative outlet to the sea. The project road will also enhance the development effectiveness of several other donor-funded projects in agricultural, health, and education in the two countries.

6.1.3 The project road is one of the missing links on the Trans-African Highway Cairo- Capetown and is one of the key priorities of the New Partnership for Africa’s Development (NEPAD) and part of its short-term action plan for infrastructure. It is also consistent with the Bank’s Medium Term Strategy (2008-2012) and the Bank Group’s Policy on Regional Economic Cooperation and Integration.

18

6.2 Recommendations 6.2.1 Management recommends that the Board of Directors approve the proposed loans of UA 85.00 million, and UA 125 million respectively to the Federal Democratic Republic of Ethiopia and the Republic of Kenya for the purposes of financing the project described in this report and subject to the above-stipulated conditions.

19 Appendix 1

MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Ethiopia – Comparative Socio-Economic Indicators Develo- Develo- Year Ethiopia Africa ping ped Countries Countries Basic Indicators GNI per capita US $ Area ( '000 Km²) 1 104 30 307 80 976 54 658 Total Population (millions) 2007 83.1 963.7 5 448.2 1 223.0 1200 Urban Population (% of Total) 2007 16.7 39.8 43.5 74.2 1000 800 Population Density (per Km²) 2007 75.3 31.8 65.7 23.0 600 GNI per Capita (US $) 2006 180 1 071 2 000 36 487 400 Labor Force Participation - Total (%) 2005 42.0 42.3 45.6 54.6 200 0 Labor Force Participation - Female (%) 2005 41.9 41.1 39.7 44.9 2001 2002 2003 2004 2005 2006 Gender -Related Development Index Value 2005 0.393 0.486 0.694 0.911

Human Develop. Index (Rank among 174 countries) 2005 169 n.a. n.a. n.a. Ethiopia Africa Popul. Living Below $ 1 a Day (% of Population) 2004 12.5 34.3 … …

Demographic Indicators Population Growth Rate - Total (%) 2007 2.5 2.3 1.4 0.3 Population Growth Rate - Urban (%) 2007 4.2 3.5 2.6 0.5 Population < 15 years (%) 2007 43.8 41.0 30.2 16.7 Population Growth Rate (%) Population >= 65 years (%) 2007 3.1 3.5 5.6 16.4 2.7 Dependency Ratio (%) 2007 87.7 80.1 56.0 47.7 2.6 Sex Ratio (per 100 female) 2007 99.0 99.3 103.2 94.3 Female Population 15-49 years (% of total population) 2007 23.4 24.2 24.5 31.4 2.5 Life Expectancy at Birth - Total (years) 2007 52.9 54.2 65.4 76.5 2.4 Life Expectancy at Birth - Female (years) 2007 54.3 55.3 67.2 80.2 2.3

Crude Birth Rate (per 1,000) 2007 38.2 36.1 22.4 11.1 2.2 Crude Death Rate (per 1,000) 2007 13.0 13.2 8.3 10.4 2.1 Infant Mortality Rate (per 1,000) 2007 86.9 85.3 57.3 7.4 2002 2003 2004 2005 2006 2007 Child Mortality Rate (per 1,000) 2007 145.3 130.2 80.8 8.9

Total Fertility Rate (per woman) 2007 5.3 4.7 2.8 1.6 Ethiopia Africa Maternal Mortality Rate (per 100,000) 2005 673.0 723.6 450 8 Women Using Contraception (%) 2005 14.7 29.9 61.0 75.0

Health & Nutrition Indicators Physicians (per 100,000 people) 2004 1.5 39.6 78.0 287.0 Nurses (per 100,000 people) 2004 13.7 120.4 98.0 782.0 Life Expectancy at Birth (years) Births attended by Trained Health Personnel (%) 2005 6.0 50.4 59.0 99.0 Access to Safe Water (% of Population) 2006 42.0 62.3 80.0 100.0 71 Access to Health Services (% of Population) 2004 55.0 61.7 80.0 100.0 61 51 Access to Sanitation (% of Population) 2004 13.0 45.8 50.0 100.0 41 31 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 2.2 4.7 1.3 0.3 21 Incidence of Tuberculosis (per 100,000) 2005 343.9 300.7 275.0 18.0 11 1 Child Immunization Against Tuberculosis (%) 2006 72.0 83.7 85.0 93.0 2002 2003 2004 2005 2006 2007 Child Immunization Against Measles (%) 2006 63.0 75.4 78.0 93.2 Underweight Children (% of children under 5 years) 2005 38.0 28.6 27.0 0.1 Daily Calorie Supply per Capita 2004 1 840 2 436 2 675 3 285 Ethiopia Africa Public Expenditure on Health (as % of GDP) 2005 3.0 2.4 1.8 6.3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2006 97.8 96.4 91.0 102.3 Primary School - Female 2006 91.7 92.1 105.0 102.0 Infant Mortality Rate Secondary School - Total 2006 34.0 44.5 88.0 99.5 ( Per 1000 ) Secondary School - Female 2006 28.0 41.8 45.8 100.8 98 Primary School Female Teaching Staff (% of Total) 2006 45.4 47.5 51.0 82.0 96 94 Adult Illiteracy Rate - Total (%) 2007 52.5 33.3 26.6 1.2 92 Adult Illiteracy Rate - Male (%) 2007 45.7 25.6 19.0 0.8 90 Adult Illiteracy Rate - Female (%) 2007 59.3 40.8 34.2 1.6 88 Percentage of GDP Spent on Education 2006 6.0 4.5 3.9 5.9 86 84 82 Environmental Indicators 80 2002 2003 2004 2005 2006 2007 Land Use (Arable Land as % of Total Land Area) 2005-07 10.0 6.0 9.9 11.6 Annual Rate of Deforestation (%) 2000-07 0.8 0.7 0.4 -0.2 Annual Rate of Reforestation (%) 2000-07 10.0 10.9 … … Ethiopia Africa Per Capita CO2 Emissions (metric tons) 2005-07 0.1 1.0 1.9 12.3

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; last update : July 2008 UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports Note : n.a. : Not Applicable ; … : Data Not Available;

20 Appendix 1

MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Kenya – Comparative Socio-Economic Indicators Develo- Develo- Year Kenya Africa ping ped Countries Countries Basic Indicators GNI per capita US $ Area ( '000 Km²) 580 30 307 80 976 54 658 Total Population (millions) 2007 37.5 963.7 5 448.2 1 223.0 1200 Urban Population (% of Total) 2007 21.4 39.8 43.5 74.2 1000 800 Population Density (per Km²) 2007 63.3 31.8 65.7 23.0 600 GNI per Capita (US $) 2006 580 1 071 2 000 36 487 400 Labor Force Participation - Total (%) 2005 50.7 42.3 45.6 54.6 200 0 Labor Force Participation - Female (%) 2005 47.1 41.1 39.7 44.9 200 200 200 200 200 200

Gender -Related Development Index Value 2005 0.521 0.486 0.694 0.911 1 2 3 4 5 6

Human Develop. Index (Rank among 174 countries) 2005 148 n.a. n.a. n.a. Kenya Africa Popul. Living Below $ 1 a Day (% of Population) 2005 45.9 34.3 … …

Demographic Indicators Population Growth Rate - Total (%) 2007 2.7 2.3 1.4 0.3 Population Growth Rate - Urban (%) 2007 5.1 3.5 2.6 0.5 Population < 15 years (%) 2007 42.7 41.0 30.2 16.7 Population Growth Rate (%) Population >= 65 years (%) 2007 2.6 3.5 5.6 16.4 2.7 Dependency Ratio (%) 2007 83.2 80.1 56.0 47.7 2.6 Sex Ratio (per 100 female) 2007 99.4 99.3 103.2 94.3 2.5 Female Population 15-49 years (% of total population) 2007 24.4 24.2 24.5 31.4 2.4 Life Expectancy at Birth - Total (years) 2007 54.1 54.2 65.4 76.5 2.3 Life Expectancy at Birth - Female (years) 2007 55.2 55.3 67.2 80.2 2.2 Crude Birth Rate (per 1,000) 2007 39.2 36.1 22.4 11.1 2.1 Crude Death Rate (per 1,000) 2007 11.8 13.2 8.3 10.4 2.0 Infant Mortality Rate (per 1,000) 2007 64.4 85.3 57.3 7.4 20 20 20 20 20 20 Child Mortality Rate (per 1,000) 2007 104.1 130.2 80.8 8.9 02 03 04 05 06 07

Total Fertility Rate (per woman) 2007 5.0 4.7 2.8 1.6 Kenya Africa Maternal Mortality Rate (per 100,000) 2005 560 724 450 8 Women Using Contraception (%) 2003-06 39.3 29.9 61.0 75.0

Health & Nutrition Indicators Physicians (per 100,000 people) 2007 27.6 39.6 78.0 287.0 Nurses (per 100,000 people) 2007 121.9 120.4 98.0 782.0 Life Expectancy at Birth (years) Births attended by Trained Health Personnel (%) 2003-05 41.6 50.4 59.0 99.0 Access to Safe Water (% of Population) 2006 57.0 62.3 80.0 100.0 71 Access to Health Services (% of Population) 2004 77.0 61.7 80.0 100.0 61 51 Access to Sanitation (% of Population) 2004 43.0 45.8 50.0 100.0 41 31 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 6.1 4.7 1.3 0.3 21 Incidence of Tuberculosis (per 100,000) 2005 641.0 300.7 275.0 18.0 11 1 Child Immunization Against Tuberculosis (%) 2006 92.0 83.7 85.0 93.0 2002 2003 2004 2005 2006 2007 Child Immunization Against Measles (%) 2006 77.0 75.4 78.0 93.2 Underweight Children (% of children under 5 years) 2003-05 19.9 28.6 27.0 0.1 Daily Calorie Supply per Capita 2004 2 149 2 436 2 675 3 285 Kenya Africa Public Expenditure on Health (as % of GDP) 2006 2.5 2.4 1.8 6.3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2006 107.4 96.4 91.0 102.3 Primary School - Female 2006 113.4 92.1 105.0 102.0 Infant Mortality Rate Secondary School - Total 2006 32.4 44.5 88.0 99.5 ( Per 1000 ) Secondary School - Female 2005 47.0 41.8 45.8 100.8 100 Primary School Female Teaching Staff (% of Total) 2005 44.8 47.5 51.0 82.0 90 80 Adult Illiteracy Rate - Total (%) 2007 11.8 33.3 26.6 1.2 70 Adult Illiteracy Rate - Male (%) 2007 7.6 25.6 19.0 0.8 60 50 Adult Illiteracy Rate - Female (%) 2007 16.1 40.8 34.2 1.6 40 Percentage of GDP Spent on Education 2006 8.1 4.5 3.9 5.9 30 20 10 Environmental Indicators 0 2 2 2 2 2 2 Land Use (Arable Land as % of Total Land Area) 2005-07 7.0 6.0 9.9 11.6 002 003 004 005 006 007 Annual Rate of Deforestation (%) 2000-07 0.5 0.7 0.4 -0.2 Annual Rate of Reforestation (%) 2000-07 1.0 10.9 … … Kenya Africa Per Capita CO2 Emissions (metric tons) 2005-07 0.3 1.0 1.9 12.3

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; last update : July 2008 UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports Note : n.a. : Not Applicable ; … : Data Not Available;

21 Appendix 2

MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Kenya - Bank Group ongoing Projects as of May 2009

PROJECT NAME Main Sector Financing Source Approval Effect. Date Closing Approved Disbursement Date Amount UA Ratio A - Public National Projects 1. Roads 2000 - Districts Rural Transport/ ADF Loan 12.07.2001 29.04.2002 30.12.2008 20,000,000 42.30% Roads Rehabilitation Project Roads 2. Nairobi - Thika Highway " ADF Loan 21.11 2007 29.07.2008 Dec. 2010 117,850,000 0.00% Improvement Project " ADF Grant 21.11 2007 29.07.2008 Dec. 2010 3,150,000 0.00% 3. Rift Valley Water Supply and Water & ADF Loan 07.07.2004 21.12.2004 31.12.2009 13,040,000 43.01% Sanitation Project Sanitation " ADF Grant 07.07.2004 6.09.2004 31.12.2009 5,020,000 40.39% 4. Water Services Boards Support " ADF Loan Nov-07 26.11.2008 Dec. 2011 35,190,000 0.00% Project " ADF Grant Nov-07 - Dec. 2011 10,070,000 0.00% 5. Green Zones Development Agriculture ADF Loan 12.10.2005 27.02.2006 31.12.2013 25,040,000 35.77% Support Project 6. Ewaso Ng'ïro North Natural " ADF Loan 22.04.2005 27.09.2005 31.12.2012 13,590,000 20.33% Resources Conservation Project " ADF Grant 22.04.2005 16.06.2005 31.12.2012 2,890,000 34.65% 7. ASAL-Based Livestock and " ADF Loan 17.12.2003 22.09.2004 31.12.2011 18,410,000 51.92% Rural Livelihoods Support Project " ADF Grant 17.12.2003 09.08.2005 31.12.2011 3,170,000 59.03% 8. Kimira- Oluch Smallholder " ADF Loan 31.05.2006 21.09.2006 30.09.2013 22,978,992 2.46% Farm Improvement Project " ADF Grant 31.05.2006 20.10.2007 30.09.2013 1,153,332 2.08% 9. Small-Scale Horticulture " ADF Loan 05.09. 2007 20.5.2008 Jan. 2014 17,000,000 1.20% Development Project 10. Education III Project Social ADF Loan 17.12.2003 24.11.2004 31.12.2010 24,260,000 1.03%

" ADF Grant 17.12.2003 24.11.2004 31.12.2010 6,750,000 0.73%

11. Rural Health III Project " ADF Loan 07.07.2004 15.03.2005 31.12.2010 17,180,000 11.09%

" ADF Grant 07.07.2004 15.03.2005 31.12.2010 6,000,000 52.86% 12. Kenya Institutional Support to Institutional ADF Grant 26.07.2006 08.12.2007 30.09.2009 5,520,000 14.20% Good Governance reforms 13. Community Empowerment & " ADF Loan 17.12.2007 - Mar. 2013 17,000,000 0.00% Institutional Support Project 14. Kisumu District Primary Schools Water and Sanitation " AWF 19.12.2006 29.01.2007 Sep-08 198,317 100.00% Project 15. Technical Industrial Vocational and Entrepreneurship Social ADF Loan 16.12.2008 - 31.12.2013 25,000,000 0.00% Training (TIVET) 16. Integrated Land and Water Water & AWF 1,936,000 0.00% Management Sanitation Sub-total 412,396,641 11.49%

B. Public – Multinational Projects 17. Mombasa - Nairobi - Addis Transport/ ADF Loan 13.12.2004 07.04.2005 31.12.2010 33,600,000 20.90% Ababa Road Corridor Project Roads " ADF Grant 13.12.2004 07.04.2005 31.12.2010 1,200,000 29.01% 18. Arusha - Namanga - Athi " ADF Loan 13.12.2006 30.04.2007 31.12.2012 49,241,000 8.01% River Road Development Project 19. Creation of Sustainable Tsetse Agriculture ADF Loan 08.12.2004 07.04.2005 31.12.2011 6,550,000 48.49% Eradication Program 20. Nile Equitorial Lakes Electric Energy ADF Loan 27.11.2008 - 31.1.2014 17,730,000 0.00% Grid - NELSAP Sub-total 108,321,000.00 13.38%

Sub total (A + B) 520,717,641 11.89%

C. Other Projects 21. African Virtual University Social ADF Grant 13.12.2004 07.03.2005 30.09.2009 5,000,000 57.57% Support Project Total 525,717,641 12.32%

22 Appendix 2

MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Ethiopia - Bank Group ongoing Projects as of May 2009

PROJECT NAME Main Sector Financing Approval Effect. Closing Approved Disbursement Source Date Date Amount UA Ratio Koga Irrigation And Watershed Agriculture ADF Loan 19.07.01 30.06.10 25.02.02 32,590,100.00 48.91% Management Project Koga Irrigation And Watershed Agriculture ADF Grant 19.07.01 30.06.10 25.02.02 1,330,000.00 75.45% Management Project Koga Irrigation And Watershed Agriculture ADF Loan 19.07.01 1,639,767.69 100.00% Management Project Rural Finance Interm. Support Agriculture ADF Loan 13.10.03 31.12.09 07.07.04 27,170,000.00 61.12% Project Rural Finance Interm. Support Agriculture ADF Grant 13.10.03 31.12.10 13.10.03 8,000,000.00 77.95% Project Agriculture Sector Support Agriculture ADF Loan 12.02.04 31.12.10 25.01.05 21,240,000.00 49.05% Programme Agriculture Sector Support Agriculture ADF Grant 12.02.04 31.12.10 25.01.05 17,761,200.00 34.23% Programme Genale Dawa River Basin Agriculture ADF Grant 16.11.01 30.12.09 27.06.02 3,928,000.00 96.58% Integ. Dev. Mas Awash River Flood Control Agriculture ADF Grant 15.10.03 30.06.09 19.08.04 1,830,000.00 92.29% Study Livestock Development Agriculture ADF Grant 05.03.04 30.06.09 05.03.04 2,340,000.00 57.71% Masterplan Study Fisheries Resources Agriculture ADF Grant 16.05.05 30.12.09 16.05.05 920,000.00 100.00% Development Study Instl Sup.For Women Affairs Agriculture ADF Grant 15.09.04 31.12.09 15.09.04 1,060,000.00 97.52% Office Wacha-Maji Road Upgrading Transport ADF Loan 13.10.03 31.03.10 18.06.04 22,710,000.00 34.55% Project Wacha-Maji Road Upgrading Transport ADF Grant 13.10.03 31.03.10 13.10.03 990,000.00 71.50% Project Butajira - Hossaina -Sodo Transport ADF Loan 16.11.01 30.12.09 19.03.02 41,310,000.00 71.02% Road Project Butajira - Hossaina -Sodo Transport ADF Loan 16.11.01 4,860,463.39 100.00% Road Project Jimma-Mizan Road Upgrading Transport ADF Loan 12.01.07 31.12.12 03.10.07 65,000,000.00 18.98% Project Mombasa-Nairobi-Addis Transport ADF Grant 1,350,000.00 Corridor Phase I Project Harar Water Supply & Water ADF Loan 08.11.02 30.09.10 09.12.03 19,890,000.00 68.42% Sanitation Project Sup/Sanit Harar Water Supply & Water ADF Grant 08.11.02 30.09.10 08.11.02 1,120,000.00 7.30% Sanitation Project Sup/Sanit Harar Water Supply & Water ADF Loan 08.11.02 250,503.16 100.00% Sanitation Project Sup/Sanit Rural Water Supply & Water ADF Grant 25.02.06 31.12.10 25.02.06 43,610,000.00 14.63% Sanitation Program Sup/Sanit Emergency Humanitarian Water ADF Grant 21.08.06 31.10.06 333,237.81 0.00% Assistance - 2006 Sup/Sanit Water Water Information Systems ADF Grant 31.10.06 30.12.09 31.10.06 445,307.35 90.00% Sup/Sanit Rural Electrification Project Power ADF Loan 14.03.02 30.06.09 12.12.02 37,670,000.00 87.66%

Rural Electrification Project Power ADF Loan 14.03.02 399,196.03 100.00%

Rural Electrification Project Ii Power ADF Loan 12.01.07 31.12.13 02.11.07 87,200,000.00 9.16%

Education Iii Social ADF Loan 20.11.98 30.06.09 19.07.00 32,000,000.00 98.85%

Education Iii Social ADF Grant 20.11.98 30.06.09 17.11.99 300,000.00 50.00%

Education Iii Social ADF Loan 20.11.98 11,502,394.67 100.00%

Rural Health Services Project I Social ADF Loan 17.12.98 30.06.09 22.09.99 29,670,000.00 65.15%

Rural Health Services Project I Social ADF Loan 17.12.98 8,852,537.93 100.00% Privatisation Technical Multi-Sector ADF Grant 08.03.01 30.06.09 08.03.01 3,000,000.00 99.92% Assistance Project Capacity Building Of Mofed Multi-Sector ADF Grant 15.01.02 30.06.09 15.01.02 519,171.00 92.23% Humanitarian Flood-Relief Multi-Sector ADF Grant 17.05.07 31.12.07 333,237.81 0.00% Assistance Ethiopia-Creation Of Agriculture ADF Loan 16.05.05 31.12.11 09.01.06 9,550,000.00 8.49% Sustainable Tsetse Ethiopia_Djibouti Power ADF Loan 16.05.05 30.12.09 08.08.06 20,880,000.00 42.09% Interconnection - Et Protection Of Basic Services Ii Multi-Sector ADF Grant 20.01.09 31.12.11 20.01.09 110,000,000.00 45.48%

Total 673,555,116.84 47.38%

23 Appendix 3

MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Kenya - Related Projects Financed by the Bank and Other Donors USD Project Title Donor Region million North and South Rift Roads 2000 Districts Rural Roads Maintenance Programme AfDB 29 Valley Districts Multinational: Mombasa - Nairobi - Addis Ababa Road AfDB Eastern Province 54 Corridor Development: Isiolo - Moyale Road (A2): Phase I Multinational: Arusha – Namanga - Athi River Road AfDB Rift Valley Province 72 Development: Athi River - Namanga Road (A104) Nairobi/ Central Nairobi - Thika Highway Improvement (A2) AfDB 166 Provinces Muranga, Maragwa, Roads 2000 Maintenance Programme AFD 29 Nyandarua AFD Rift Valley 26 Mai Mahiu – Narok Road KfW Rift Valley 26 BADEA / Wote - Makindu Road (E707) Eastern Province 25 OPEC BADEA / Emali - Oloitokitok Road (C102) Rift Valley 30 OPEC BADEA / Dundori - Ol Kalou - Njabini Road (C69) Central 0.2 OPEC Kipsigak- Serem- Shamakhoko Road China Rift Valley 16

Gambogi - Serem Road (D329) China Rift Valley 4 Rehabilitation and expansion of the JKIA - Museum Hill - China Nairobi 27 Gigiri Road Construction of the Eastern By-pass China Nairobi 113 Agricultural Sector Programme Support - Agricultural Roads DANIDA Coast, Eastern 4 Sub-component Northern Corridor Rehabilitation Programme – Phase II EC Kenya 87 Strengthening of Capacity on Supervision and Operations JICA Nairobi 3 for Roads Maintenance Works through Contracting Construction of Nairobi Missing Links No. 3, 6 & 7 JICA Nairobi 13

Mombasa Port Development Project JICA Mombasa 223

Roads 2000 Maintenance Programme KfW Rift Valley , Nyanza 12

Roads 2000 Maintenance Programme SIDA Nyanza 25

World Bank 160 Northern Corridor Transport Improvement Project Kenya NDF 15 Northern Corridor Transport Improvement Project - World Bank Kenya 253 Additional financing Northern Corridor Rehabilitation Programme – Phase III EC Kenya 82

Roads 2000 Maintenance Programme Phase. II EC Eastern Province 15

KfW 17 Rural Road Rehabilitation in Mt. Kenya Region & Central Eastern / Central Kenya Province EC 31

Dualling of Nairobi-Dagoretti Corner Road (C60/C61) JICA* Nairobi 11 North Eastern Construction of the Garissa - Modogashe Road BADEA/OPEC* 45 Province TOTAL FOR ONGOING PROJECTS 1,612 * Not concluded

24 Appendix 3

MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Ethiopia - Related Projects Financed by the Bank and Other Donors

Road Amount Contract Name Donor Length USD Million (km) Butajira-Hossaina AfDB 95 19.67 Hossaina-Sodo AfDB 94 19.26 Jimma-Bonga AfDB 107 62.07 Bonga-Mizan AfDB 120 67.22 Wacha-Maji AfDB 175 70.17 Sub-total 591 238.40 Nazareth-Assela World Bank 79 16.04 Assela-Dodola Junction World Bank 117 36.10 Dodola Junction-Goba World Bank 130 33.62 Gondar-Debark World Bank 99 62.50 Adigrat-Adiabun World Bank 109 25.62 Adiabun-Shire World Bank 92 38.81 Gobgob-Gashena World Bank 86 20.54 Gashena-Woldia World Bank 108 33.55 Aposto-Irbamoda World Bank 94 59.80 Irbamoda-Wadera World Bank 109 55.89 Wadera-Negele World Bank 65 26.23 Dera-Magna World Bank 119 24.34 Magna-Mechara World Bank 120 42.36 Assosa-Blue Nile World Bank 70 18.10 Blue Nile-Guba World Bank 66 21.77 Nekempt-Mekenajo World Bank 127 27.21 Sub-total 1,590 542.46 Addis Ababa-Jimma EU 342 36.73

Dembi-Bedele BADEA 62 21.25 Metu-Gore BADEA 26 11.19 Gore-Gambella BADEA 144 67.94 Sub-total 232 100.38 Mekenajo-Nejo OPEC Fund 61 12.54 Nejo-Mendi OPEC Fund 70 13.37 Sub-total 131 25.91

Azezo-Gint BADEA/OPEC/SAUDI 87 22.36

Gint-Metema BADEA/OPEC/SAUDI 98 22.52

Assosa-Kurmuk BADEA/OPEC/SAUDI 97 45.50

Sub-total 282 90.38 Goha Tsion-Dejen JICA 41 28.89 Addis Ababa-Ambo KfW 112 15.61 Ambo-Gedo KfW 65 27.32 Sub-total 177 42.93 Total 3,386 1,106.08

25 Appendix 4 Map of Project Area

26 Appendix 5 Mombasa-Nairobi-Addis Ababa Road Corridor Development Program Cost Component/Action Phase Year Source of Finance (UA M)

Studies 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 AfDB EU JICA GOE GOK Others Detail Design Isiolo-Moyale (Kenya) Phase 1 1.20 Detail Design Moyale-Ageremarian (Ethiopia) Phase 1 1.00 Detail Design Inland Container Terminal (Ethiopia) Phase 1 0.35 Detail Design Awasa Ageremariam (Ethiopia) Phase 2 0.65 Detail Design Dual Carriageway (Kenya) Phase 2 3.00 Sub-Total Studies 6.20 Infrastructure Improvements Construction Isiolo - Merille River (Kenya) Phase 1 50.00 Expansion of Mombasa Port (Kenya) Phase 1 175.00 Sub-Total Construction Phase 1 225.00 Construction Merille River Marsabit (Kenya) Phase 2 96.99 Construction Marsabit - Turbi (Kenya) Phase 2 112.20 Construction Ageremariam-Yabelo (Ethiopia) Phase 2 43.99 Construction Yabelo-Mega (Ethiopia) Phase 2 47.72 Construction of Road Stations & OSBP Phase 2 9.33 Sub-Total Construction Phase 2 310.23 Construction Turbi-Moyale - Kenya Phase 3 130.00 Construction Mega-Moyale (Ethiopia) Phase 3 50.00 Construction Ageremariam-Awasa (Ethiopia) Phase 3 120.00 Construction of Inland Container Terminal (Ethiopia) Phase 3 15.00 Sub-Total Construction Phase 3 315.00 Policy and Operational Actions Bilateral Trade Agreement Kenya-Ethiopia Phase 2 Road Transit Transport Agreement Phase 2 Trade and Transport Facilitation Program Phase 3 5.00 Program Total Cost 861.43 53 175 313 320 Legend Provided or Pledged Financing Year in which Funding was Secured/Expected Phase 3 Potential Funding Source

27 ANNEX A MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Country and Sector Brief

Kenya Economic Outlook

With a population of 38.6 million (UN estimate) and a land area of 569 thousand square kilometers, Kenya has the largest GDP in eastern Africa. Kenya averaged 5.4% economic growth during 2002-2007, although this suffered in the post election unrest in 2008. Nevertheless poverty (45.9% in 2007) is still a problem with the poorest 20% of the population receiving only 6% of national income. Kenya is not well endowed with mineral resources, but has rich agricultural land and abundant wildlife. The lack of adequate infrastructure (transport, electricity and telecommunications) seriously inhibits economic growth. Among its regional trading partners, Kenya exports mostly manufactured goods.

Over the past 5 years there has been a small movement away from agriculture and industry and toward services, largely tourism. In 2007, 23% of real GDP was in agriculture, 16% in industry and 60% in services. Agriculture is characterized by a commercial export sector and a large subsistence sector. Kenya is the most industrialized country in East Africa. Industry emphasizes agro-processing, textiles and consumer goods, while services include the booming tourism and telecommunications sector. The construction sector grew by 6.9% in 2007 and is expected to remain strong. Between 2000/1 and 2005/6, Kenya was able to hold its budget deficit to an average 1.6%. Nevertheless, recovery efforts and infrastructure rehabilitation have raised the 2008/9 budget deficit to 5.4%.2 Kenya’s economic growth rate fell to between 2 and 2.5% in 2008 as a result of post-election violence and global factors. The Government’s official growth forecast of 4 to 4.5 in 2009 is probably overly optimistic as the global slowdown begins to affect tourism and horticulture exports and the impact of the drought is felt.3

Inflation: Inflation in Kenya is strongly influenced by food prices which are volatile due to periodic drought and rising demand. It climbed from 11.7% in 2004 to 14.5% in 2006, but dropped to 9.7% in 2007. This was nevertheless high in relation to its neighbors – Uganda at 6.1%, Tanzania at 7% and Sudan at 8%.4

Investment and Growth Strategies: Vision 2030 guides development spending. The Government plans to invest US$25 billion in key growth sectors, such as infrastructure, skills training and social services. The goal is to make Kenya a middle income country by 2030. In keeping with this goal, the 2008/9 budget provides KSh 65 billion for road works, rural electrification, port dredging and the submarine fiber optic cable. Agriculture accounts for about 20% of wage employment plus jobs in the agro-processing area and informal sector. Liberalization in tea marketing is leading to expansion and the horticultural sector is attracting substantial foreign investment. Mining is a minor part of the economy, however, there is some international investment planned. Kenya is already the most industrialized country in East Africa. With tax concessions for industrial growth, the sector is achieving healthy growth rates.

Ethiopia Economic Outlook

With a population between 74 and 81 million living in an area 1.2 million square kilometers, Ethiopia’s economy has been growing quite rapidly since reforms began in 1991. Ethiopia’s GDP remains strongly influenced by the yields of its rain-fed agriculture, which also affects the agro-processing industries and the service economy. Ethiopia has considerable mineral resources which have yet to be developed. The GDP growth rate was 11.1% in 2006-7, with an annual average between 2002/3 and 2006/7 of 8.7%.

2 Economist Intelligence Unit, “Kenya Country Profile 2008”, pp. 17-22. 3 The Times, “What Crunch Means for Africa”, March 12, 2009. 4 Economist Intelligence Unit, op. cit., p. 23. 28 ANNEX A In 2006/7, 43% of Ethiopia’s GDP was from agriculture and related activities, 12.5% from industry and 38.2% from services. About 80% of the population draws its livelihood from agriculture, including livestock. The road system is geared to delivery and redistribution of agricultural produce from Addis Ababa, making intra-regional trade more difficult. There is a recent effort to design roads that foster intra-regional trade as well. The project road will meet this objective by linking Southern Ethiopia directly to East Africa and the Port of Mombasa. The services sector grew by 13.5% in 2006/7. It is led by trade, hotels and restaurants at 14.7%, real estate at 7.6% and transport and communications at 5.2%. Industrial growth has been strong, growing by 9.4% in 2004/5, 10.2% is 2005/6 and 11% in 2006/7. Manufacturing is centered at Addis Ababa and Dire Dawa, but the government is seeking to increase its role in regional capitals.5

Inflation: Inflation is strongly influenced by food prices, which have a 60% weighting in the national consumer price index. Even with good harvests, the high price of fuel has kept the inflation rate high. Government protection of food prices to maintain a production incentive for growers is another factor. The inflation rate for 2007 was 17.2 % and the average between 2003 and 2007 is 12.7%.6

Investment and Growth Strategies: The government has an active program for strengthening the agricultural sector. It is encouraging greater trading in food crops, partial land tenure reform, improved coffee marketing and domestic processing, further increasing the export horticulture industry and local and foreign private investment in the livestock industry. Ethiopia is one of the largest livestock producers in Africa. About 10% GDP comes from livestock and 30% of the agriculture labor force is in livestock. Since opening the sector to private investment, it has become a significant export earner. Transport will play a key role in expansion of this sector. Exploration of mineral, oil and gas resources has been encouraged by the government. Manufacturing accounts for a small percentage of GDP. It is led by food, beverages, textiles/garments and cottage industries. The government conducted some privatization of SMEs in the 1990s, but most firms are still in state ownership, especially the larger ones. There are a number of large foreign investor/Ethiopian owned consortia. The government is seeking foreign investors to strengthen the leather products sector.

Regional Trade within COMESA

Both countries are members of COMESA (Common Market for Eastern and Southern Africa). COMESA is Africa’s largest trading bloc with 19 member countries, land area of 12 million square kilometers, population of 389 million and a combined annual import and export trade of US$14 billion. It began as a preferential trade agreement and has now formed a Free Trade Area, which Kenya has joined, but Ethiopia is still studying to determine whether to join.

The following tables demonstrate the current trade among COMESA members. Exports from Kenya to COMESA countries in 2007 increased by 14.3%, accounting for 69.5% of total exports to African countries. Exports to EAC countries increased by 20.8% in 2007. Imports from COMESA went up by 62.8% while those from EAC more than doubled in 2007. The major sources of Kenyan imports within the block are Egypt, Uganda, Tanzania, Swaziland and Mauritius. The table also demonstrates the positive balance of trade Kenya has been able to maintain within COMESA. The continual growth in exports and imports confirms the potential of trade among East African countries and the impact of reducing tariffs and a transition from reliance on customs duties to increased production based tax in fostering economic and revenue growth.

It should be noted that COMESA countries are also the leading export destination for Uganda having now exceeded EU exports. Total exports for Uganda rose 40% between 2006 and 2007, which is attributed to higher commodity prices, aggressive marketing with local industries

5 Economist Intelligence Unit, “Ethiopia Country Profile 2008”, pp. 22-24. 6 Ibid., p. 31

29 ANNEX A to produce for the export market and relative peace and recovery in Southern Sudan. This suggests that trade with Uganda via the project corridor offers good opportunities for Ethiopia.

Table A1: Total Kenyan Trade with COMESA Member States, 2001-2007

IMPORTS EXPORTS Year CIF Value USD Percent increase/ FOB Value USD Percent increase/ Trade balance decrease decrease 2001 629 ,002,506 629,002,506 2002 121,460,404 669,444,786 64.29% 547,984,382 2003 155,439,389 29.97% 809,310,027 20.89% 653,870,638 2004 183,456,635 18.02% 939,678,502 16.10% 756,221,867 2005 204,094,211 11.24% 1,182,752,146 25.86% 978,657,935 2006 241,886,174 18.51% 1,038,803,320 87.82% 796,917,146 2007 421,671,069 74.32% 1,271,174,065 22.36% 849,502,996

Average 2003-07 241,309,496 1,048,343,612 807,034,116 Average 2005-07 289,217,151 1,164,243,177 875,026,026 Source: Kenya National Bureau of Statistics, Economic Survey 2008 , p. 136.

Ethiopian imports from COMESA countries have shown a constant increase during this period. Exports have shown much more volatility, but in most years an increase in value. A high percentage of Ethiopia’s exports are agriculturally based and the volatility reflects the impact of periodic droughts on production. During the first three years, there is a favorable balance of trade, but it is negative in the latter four years. The overall figures suggest the potential for increased trade growth with the improved road connection between the regions.

Table A2: Total Ethiopian Trade with COMESA Member States (2001-2007)

IMPORTS EXPORTS TRADE BALANCE Year CIF Value USD Percent increase/ FOB Value USD Percent increase/ decrease decrease 2001 47,707,456 11.54% 78,015,817 31.65% 30,308,361 2002 54,011,120 13.21% 63,695,512 -18.36% 9,684,393 2003 91,255,846 68.96% 141,737,366 122.51% 50,475,520 2004 101,334,854 11.04% 48,870,276 -65.52% -52,464,578 2005 136,988,885 35.18% 92,223,537 88.71% -44,765,348 2006 191,784,706 40.00% 92,382,820 0.17% -99,401,886 2007 196,408,118 2.41% 119,465,249 29.32% -76,942,869

Average 2003-07 143,554,481 98,935,850 -44,618,631 Average 2005-07 175,060,569 101,357,202 -73,703,367 Source: Statistics Provided by the Ministry of Trade and Industry, Addis Ababa, Ethiopia

Opportunities for Trade between East African and the Horn of Africa Countries

Some people interviewed argued that East African countries produce similar products making trade with outside regions more attractive. Nevertheless, the tables just presented suggest that there is considerable opportunity for intra-regional trade within East Africa and that the free trade area and customs union have a strong impact on this trend. The very fact that the East African countries rely heavily on agricultural commodities, means that in times of drought, the best source of food and other agricultural commodities may be a neighboring country with better weather conditions in that year.

All of Ethiopia’s top 10 exports to the COMESA region are agricultural, including live animals. Ethiopia’s top 10 imports from COMESA countries are petroleum products, cement, vegetable oils and cigarettes. Kenya is a major trading partner, as well as Uganda, Sudan and Djibouti. Kenya exports to Ethiopia include in order of value products of iron and steel, tobacco,

30 ANNEX A vegetable materials, cleansing preparations, insecticides, paper and paperboard, vegetable fats, aluminium, stationery and sugar confectionery. Kenyan imports from Ethiopia include edible vegetables, spices, tools, coffee, engineering equipment, metal containers, oil seeds, used clothing and iron. In both directions, there is a flow of both agricultural commodities and manufactured goods. To Uganda, Ethiopia exports coffee, vegetables and cuttings, also candles, synthetic fibre, footwear and handbags. From Uganda, Ethiopia imports both agricultural commodities and heavy equipment. With the amount of project equipment imports to Ethiopia in recent years, this should be an area of growth for the corridor. With Sudan and Djibouti, it is necessary to identify which are goods in transit and which are imports and exports. With Sudan, Ethiopia exports primarily agricultural products and imports primarily petroleum products. This suggests there is a diversity of demand and product areas that can be expanded.

The Regional Transport Gateways

Djibouti Port: The Port of Djibouti has been a major port for Ethiopia for the past 100 years, with the exception of 1977 - 1998. The war with Eritrea, left Ethiopia a land-locked country. Currently 98% of Ethiopian traffic uses the Port of Djibouti. Before the Eritrean conflict, Djibouti Port volume ranged from 1.2 to 1.7 million tonnes a year including 200,000 – 400,000 tonnes of domestic traffic. In 2007, port traffic reached 7.5 million tonnes of which 5.6 million tonnes is Ethiopian transit traffic.

The Port of Djibouti has been managed by Dubai World since May 2000. The aim of the concession is to provide efficient service, market the port internationally and attract foreign investment. There has been growth in all areas of port activity in the period from 2005-7. The high volume of Ethiopian traffic has brought significant revenue and job creation to Djibouti through port charges, handling, forwarding, ship repairs and other indirect employment.

Mombasa Port - Cargo traffic increased 10.7% from 14.40 million tonnes in 2006 to 15.96 million tonnes in 2007. A major problem is the imbalance with 81.8% of the total cargo being imports. This disadvantages both the shipping lines and the inland transport operators and thereby affects tariffs. The container traffic is well above the volume for which the port was designed. A second terminal is planned for 2013, about the time that the project road will be completed. In the meantime, container congestion is a problem. Moving unloaded cargo immediately to inland depots and consolidating for shipment at inland depots is advantageous in maintaining efficient operations at the port. Kenya Ports Authority is currently implementing a port community based, integrated information system in which all inputs will be made electronically and where possible remotely as well. Once installed, this system can be used to provide advanced arrival information and document handling through the entire port and inland intermodal system. Cargo owners, logistics companies, customs and other border agencies will all be able to input information electronically and track cargo processing and movement, thereby enabling logistics companies to plan operations for maximum efficiency. Transport on through bills of lading to Nairobi, Kampala, or even Isiolo or Moyale will address some of the congestion at the port, make Mombasa more competitive with other corridors and make movement of goods more seamless. Intra-regional and Overseas Trade Corridors

East Africa is served by several main routes emanating from the key regional ports. The Northern Corridor connects the Port of Mombasa with Nairobi, Kampala, Kigali and Bujumbura. It is also considered to include routes through Uganda and Rwanda to DRC and several northward routes to southern Sudan. A second major artery connects Nairobi to Tanzania through Namanga. Tunduma-Dodoma-Namanga-Moyale is one of the six priority corridors for the East African Community (EAC). Once improved through this project and EAC efforts, it will link Ethiopia – Kenya – Tanzania – Zambia into a trading system as well. The road network also incorporates connections to Kisumu, Entebbe, Mwanza and other regional centers. Therefore the Addis Ababa –Nairobi – Mombasa route, not only connects Ethiopia to an

31 ANNEX A alternative port, but also to a road network that connects it to all of East Africa and beyond to DRC and Zambia. As a result, the project road enables much greater penetration of Ethiopian products into East African markets and of East African products into markets in the Horn of Africa.

In addition to direct shipments from the Port of Mombasa, the Port operates an inland depot at Nairobi which would also be served by this route. It enables overseas goods to have a direct bill of lading to Nairobi and to be warehoused and cleared by customs there for onward shipment on the project road to Ethiopia and the Horn region. The Nairobi depot is served by road and rail from Mombasa allowing for competition on volumes and price. It would allow a more flexible road transport system, shortening the total road distance from Ethiopian/Horn origins and destinations and allowing transporters to build roundtrips based on a combination of regional and/or overseas cargoes. By reducing time and increasing two-way loads it would reduce cost and increase vehicle utilization (number of trips per year) on the route. It also increases the potential income from warehousing and logistics services in Nairobi. Several inland container depots are under discussion on both the Kenya section of the highway and the Ethiopian section of the highway so that direct bills of lading can be used further inland.

The Ethiopian road network emanates from Addis Ababa, which is the distribution and consolidation hub for the country. The project road will provide East Africans with good access to the Ethiopian market and distribution system to surrounding population centers within Ethiopia and to Somalia, especially Somaliland, Djibouti and bordering areas of Sudan. The development of this road would enhance the role of Addis Ababa as a transport hub for the Horn region utilizing dry ports that it is establishing to facilitate trade. This economic opportunity would be enhanced by capacity building for the Ethiopian logistics and road transport companies. Trade and Transport Facilitation

To be a competitive corridor, the goal of the project should be seamless movement throughout the corridor for travellers, tourists and commercial cargo. COMESA has developed instruments to facilitate cross-border travel and trade. Both Kenya and Ethiopia are members of COMESA and have implemented most of the instruments. Kenya and Ethiopia signed a bilateral transport and traffic agreement in 1979 that establishes reciprocal recognition of licenses, registration and access. A new draft for this agreement has been written, but not yet signed and ratified. Prior to this, a bi-lateral working group, including both public and private sectors, should review transport operations between the two countries and what works well on other corridors. Based on this analysis, the proposed agreement should be modified to provide for a full cross-border and transit regime. It should be negotiated and then signed by the two countries prior to completion of construction. This road provides a major corridor linking all of the East African Community and beyond to the Horn of Africa. It is unlikely to realize its potential unless the transit regime is reviewed.

Various measures should be instituted during the course of construction so that they are completed by the inauguration of the Regional Corridor. Regulations need to be standardized and the COMESA facilitation instruments fully implemented in both countries. This entails conclusion and implementation of the revised road transport agreement between Ethiopia and Kenya. The Agreement refers on a number of issues to obeying the rules of the country traveled in. As much as possible, these regulations should be harmonized and stated clearly in the agreement. Recognizing the need for controls along the route, such as weighbridges, customs controls or security checks, they need to be minimized and coordinated as much as possible, so that they do not become bottlenecks. Examples for agreement include:

Overload limits, vehicle dimensions, road worthiness and enforcement: There should be agreement on all four of these so that vehicles can be loaded for the route without being forced to load for the lowest weight. This was the goal for setting a limit for the whole COMESA region. Kenya is currently investing in new weighbridges because of the problems with keeping

32 ANNEX A the calibration consistent. Vehicles should be weighed when they leave the port or shipper depot, once when they cross the border and on arrival at their destination, if necessary to check load integrity. Seals should be introduced as much as possible to avoid the need for inspections of cargo at borders or enroute. Common road worthiness standards and inspections should be developed. Enforcement methods should be similar in the two countries.

Community-based system: This system is now being implemented. It will enable the port, customs, and logistics companies to input and access information electronically thereby simplifying and expediting the process of clearance. It will support through bills of lading to Nairobi. This would mean that the shipping line would take responsibility for shipment to Nairobi and the landside transport and logistics would begin at Nairobi to the final destination. With the development and improvements at the Port of Djibouti, these improvements at Mombasa are particularly important as well as maximizing direct trader input.

Customs reform: The East Africa Trade and Transport Facilitation Project, funded by the World Bank and African Development Bank, is providing assistance to the Revenue Agencies in Kenya, Uganda, Rwanda and Tanzania to facilitate improvements in the transit regime on the Northern and Central Corridors. Several measures are being adopted that can be applied on the Mombasa – Nairobi – Addis Ababa Corridor when it is completed.

Data exchange. Since both countries use the CD-20, they should be able to exchange data electronically. An interface has been written so that the Simba system of Kenya can communicate with the ASYCUDA system of Uganda. This interface can be adapted for use for customs data exchange between Kenya and Ethiopia, which also uses ASYCUDA. It will require insuring that field codes developed at the national level are reconciled or an interface built so that both systems can read the field codes of the other. Once done, it is possible to make declarations in one country that can be downloaded in the other country and converted from an export or transit document to an import document without re-entering all the data. Tracking system for cargo. The cargo tracking system being developed for the Northern Corridor can also be adapted for use on the Mombasa – Nairobi -- Addis Ababa Corridor. The tracking system has been tested between Kenya and Uganda. Once any problems have been resolved, it can be used for the project corridor. Once the fiber optic cable is all laid along the Kenyan leg, the border posts should have full access to headquarters and between the two countries. Interconnection at the border should also be planned to allow for information exchange between the border facilities. Common customs bond. This COMESA instrument is in the final development stage. It has been piloted on the Kenya – Uganda border and is now being rolled out to the rest of the Northern Corridor. A single bond in the amount of the highest of the individual country bonds is lodged with the insurance provider. The tracking system is used to acquit the bond as the cargo leaves each country and make it applicable in the next country until it is fully canceled out when the cargo reaches the final destination. This system will be ready for implementation by the time Phase 3 is completed and will be a major facilitation improvement on the route. Risk management systems. These systems are used to identify which shipments form a threat of duty avoidance. Once implemented the number of manual inspections can be greatly reduced. This saves time, cost and potential breakage or other damage to cargo.

33 ANNEX A One-Stop-Border-Post - As a regional corridor and Trans African Highway, new border posts need to be constructed that enable efficient movement of vehicles, persons and goods through the border. Both countries assume they can design joint tourism packages and attract cross- border tourists. Tourists are very sensitive to disorganized borders and unfriendly officers. To decrease the time spent at borders and increase interagency cooperation, many borders are being converted to one stop border posts (OSBP) in which exit and entry procedures are implemented in a single facility during a single stop. It is recommended that the border posts funded under the project are designed for one stop operation. This recommendation was discussed with the Kenya Shippers Council and Ministries of Works, Transport and Trade in Kenya and the Revenue Authority and Chamber of One‐stop border procedures Commerce in Ethiopia. All were

Cross‐border movements from Kenya to Ethiopia and from Ethiopia to Kenya : Juxtaposed facilities very supportive. Lessons Learned: The East Africa Trade and Transport Kenya Ethiopia Pedestrians Facilitation Project (EATTFP) Passenger cars Common control area supports the design and Freight trucks Kenyan exit controls implementation of One Stop Security fence Ethiopian entry controls Border Posts (OSBP) to improve around perimeter cooperation and reduce time and Pedestrians Common control area paperwork at borders. As the Passenger cars countries of the EAC seek to Ethiopian exit controls Freight trucks Kenyan entry controls implement, a number of lessons are being learned. There are a Border crossing number of OSBP projects in Southern Africa which may also provide some lessons learned that would benefit implementation at Moyale.

34 ANNEX A Table A3 - Status of Implementation of Road Transport Facilitation Programs in COMESA Country Harmonized Axle Load Max. COMESA COMESA Overload MWG HFX % Road Transit Limit Length Carrier Transit Control Performance Charges 22.0m License Plates Angola ------Nil Burundi - - - - - 37.5 Comoros N/A N/A N/A N/A N/A N/A N/A N/A N/A DR Congo - - - - - 37.5 Djibouti ------25.0 Egypt ------Nil Eritrea - - 75.0 Ethiopia - - - 62.5 Kenya 100.0 Madagascar N/A N/A N/A N/A N/A N/A N/A N/A N/A Malawi - 87.5 Mauritius N/A N/A N/A N/A N/A N/A N/A N/A N/A Namibia - - Yes - - - - - 12.5 Rwanda - - - - - 37.5 Seychelles N/A N/A N/A N/A N/A N/A N/A N/A N/A Sudan - - - - - 37.5 Swaziland - - - 62.5 Uganda - 87.5 Zambia - 87.5 Zimbabwe - Yes 87.5 No. of Countries Implemented 16 16 16 16 16 16 16 16 No. of Countries Implementing 10 13 8 9 7 2 9 11 Percentage Implementation 62.5 81.3 50 56.3 43.8 12.5 56.3 68.8

ABBREVIATIONS/NOTES N/A Not Applicable due to geographical location CCL COMESA Carrier License CS Coupon System for payment of road transit charges HFX High Frequency X-border Land Mobile Radio Communications system MWG Multi-Disciplinary Working Group HTRC Harmonized Road Transit Charges COMESA Transit Plates Fitted at the front and rear of heavy goods commercial vehicles involved in COMESA transit operations Overload Control In application of fees based on pavement damage (fourth Power Law) and the use of COMESA procedures and certificate of overload control

35 ANNEX B1 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Lessons Learned PCR Intervention Project Date Rating Lessons Learned Areas Amount

1. Delays in project start-up resulting in implementation lags and cost over-runs caused by inadequate design. Important to carry out detailed design reviews before launching bids. This brings out deficiencies in original design and avoids costly modifications. 2. Delays in project execution due to lack of counterpart funds would lead to delay in the project February KENYA: Ziwa execution. As a measure to ensure adequate counterpart funds are available, the Bank has included 2006 - Kitale Road as loan condition, depositing funds into a special account on quarterly basis to finance project Road 1.4 Upgrading expenditures. In this project, the risk for poor budgeting resulting in lack of counterpart funds has been UA17.04 Highways (overall) Project minimised since the project shall cover all project expenditures except for compensation and million (PCR) resettlement costs. (ADF) 3. Although the Roads Department of the executing agency was well staffed with technical skills, weaknesses were noticed during project implementation. Since the project on Kenya side will be coordinated by a newly established authority, the project has included in the design TA to support the newly established Highway Authorities.

4. Implementation slippage caused by modifications in scope of works during project execution. This results in extension of the contract period and related additional costs. Sufficient care has been ETHIOPIA: April taken by the Bank and the Borrower in identifying all project components and review of the detail Alemgena – 2007 Road 2.4 designs by project appraisal. Butajira Road UA18.5 Highways (overall) 5. Considerable implementation delays due to lack of knowledge of Bank’s procurement rules and Project million procedures by the Executing Agency. This problem has been overcome through Bank’s (PCR) (ADF) procurement workshops, easy access to information through the Bank’s Field Office and on-going T.A programs financed by the Bank and the World Bank.

ETHIOPIA: 6. Execution of large works through Force Account should be avoided. Experience has shown that Road Aug. this may result in construction delays and at times is not cost effective because of poor logistics Maintenance 2005 management, inventory controls and workmanship. The Bank should be cautious in the use of Road 2.2 and UA43.75 Force Account even though this is one of the Procurement mode in the Bank’s “Rules of Procedure Highways (overall) Rehabilitation million for Procurement of Goods and Works”. Its adoption should be restricted to small maintenance Project (ADF) works and activities. (PCR)

36 ANNEX B2 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Project Detail Costs

Project Categories Cost AfDB Financing EU Financing Ethiopia Gov. Kenya Gov. Amount Amount Amount Amount Amount Country Percent Percent Percent Percent UA (M) UA (M) UA (M) UA (M) UA (M) 1. Civil Works 1.1 Civil works Merille River - Marsabit 96.99 74.18 76% 22.81 24% Kenya 1.2 Civil works Marsabit-Turbi 112.10 112.10 100% Kenya 1.3 Civil Works Ageremariam - Yabelo 43.99 36.51 83% 7.48 17% Ethiopia 1.4 Civil Works Yabelo - Mega 47.72 39.61 83% 8.11 17% Ethiopia 1.5 Road Stations & OSBP (Ethiopia) 4.32 4.32 100% Ethiopia 1.6 Road Stations & OSBP (Kenya) 5.01 5.01 100% Kenya Sub-Total Civil Works 310.13 197.55 64% 74.18 24% 15.59 5% 22.81 7% 2. Consulting Services 2.1 Supervision Merille River-Marsabit 1.88 1.88 100% Kenya 2.2 Supervision Marsabit-Turbi 1.88 1.88 100% Kenya 2.3 Supervision Ageremariam - Yabelo 2.13 2.13 100% Ethiopia 2.4 Supervision Yabelo - Mega 2.13 2.13 100% Ethiopia 2.5 Design Dual Carriageway - Kenya 3.00 3.00 100% Kenya 2.6 Evaluation & Knowledge Building 0.26 0.26 100% Kenya 2.7 Project Audit - Ethiopia 0.06 0.06 100% Ethiopia 2.8 Project Audit - Kenya 0.08 0.08 100% Kenya Sub-Total Consultancies 11.42 9.54 84% 1.88 16% 3. Institutional Support Kenya 3.1 ICT Equipment & Sofware 1.03 1.03 100% Kenya 3.2 Specialized Equipment & Software 0.30 0.30 100% Kenya 3.3 Staff Training 0.57 0.57 100% Kenya 3.4 Five-Year Business Plans 0.23 0.23 100% Kenya 3.5 Business Process Development 0.19 0.19 100% Kenya 3.6 Procurement & FM Capacity 0.19 0.19 100% Kenya 3.7 Project Coordination Cost 0.13 0.13 100% Kenya Sub-Total Institutional Support 2.63 2.63 100% 4. Compensation & Resettlement 4.1 Ethiopia Comp. & Resettl. 1.23 1.23 100% Ethiopia 4.2 Kenya Conp. & Resettl. 3.34 3.34 100% Kenya Sub-Total Compensation 4.57 1.23 3.34 Total 328.76 209.72 64% 76.06 23% 16.82 5% 26.16 8%

37 ANNEX B2 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Expenditure Schedules by Component Year Component Total 2010 2011 2012 2013 2014 1. Civil Works 1.1 Civil works Merille River - Marsabit 29.10 29.10 29.10 9.70 96.99 1.2 Civil works Marsabit-Turbi 33.63 33.63 33.63 11.21 112.10 1.3 Civil Works Ageremariam - Yabelo 13.20 13.20 13.20 4.40 43.99 1.4 Civil Works Yabelo - Mega 14.32 14.32 14.32 4.77 47.72 1.5 Road Stations & OSBP (Ethiopia) 1.08 1.51 1.73 4.32 1.6 Road Stations & OSBP (Kenya) 1.25 1.75 2.01 5.01 Sub-Total Civil Works 90.24 92.57 93.51 33.81 310.13 2. Consulting Services 2.1 Supervision Merille River-Marsabit 0.47 0.47 0.47 0.28 0.19 1.88 2.2 Supervision Marsabit-Turbi 0.47 0.47 0.47 0.28 0.19 1.88 2.3 Supervision Ageremariam - Yabelo 0.53 0.53 0.53 0.32 0.21 2.13 2.4 Supervision Yabelo - Mega 0.53 0.53 0.53 0.32 0.21 2.13 2.5 Design Dual Carriageway - Kenya 1.50 1.50 3.00 2.6 Evaluation & Knowledge Building 0.08 0.08 0.10 0.26 2.7 Project Audit - Ethiopia 0.012 0.012 0.012 0.012 0.012 0.06 2.8 Project Audit - Kenya 0.017 0.017 0.017 0.017 0.017 0.08 Sub-Total Consultancies 3.61 3.53 2.03 1.31 0.93 11.42 3. Institutional Support Kenya 3.1 ICT Equipment & Sofware 1.03 1.03 3.2 Specialized Equipment & Software 0.30 0.30 3.3 Staff Training 0.29 0.29 0.57 3.4 Five-Year Business Plans 0.11 0.11 0.23 3.5 Business Process Development 0.09 0.09 0.19 3.6 Procurement & FM Capacity 0.09 0.09 0.19 3.7 Project Coordination Cost 0.03 0.04 0.04 0.03 0.13 Sub-Total Institutional Support 1.94 0.62 0.04 0.03 2.63 4. Compensation & Resettlement 0.00 4.1 Ethiopia Comp. & Resettlement 1.23 1.23 4.2 Kenya Comp. & Resettlement 3.34 3.34 Sub-Total Compensation 4.57 4.57 Total 100.37 96.73 95.58 35.15 0.93 328.76

Expenditure Schedules by Source of Finance

Year Source of Finance Total 2010 2011 2012 2013 2014 African Development Bank 61.55 62.48 61.33 23.61 0.75 209.72 European Union 22.72 22.72 22.72 7.70 0.19 76.06 Government of Ethiopia 5.91 4.68 4.68 1.56 0.00 16.82 Government of Kenya 10.19 6.84 6.84 2.28 0.00 26.15 Total 100.37 96.73 95.58 35.15 0.93 328.76

38 ANNEX B3 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Implementation Arrangements

Regional Coordination The implementation of the project will be done on a country basis following the arrangements agreed to with each government. Therefore, the project components will be implemented in parallel and independently. However, close cooperation is necessary for the adoption of a Road Transit Agreement and harmonization of transport rules and regulations as well as for the project to achieve its long term development impacts. A Regional Project Coordination Committee (RPCC) will provide overall cross-border coordination of the project. The RPCC will be co-chaired by the Permanent Secretary of Ministry of Roads in Kenya and the State Minister of Ministry of Works and Urban Development in Ethiopia. Its membership will consists of General Managers of Ethiopian Roads Authority and Kenya National Highway Authority, a representative of IGAD, a representative of COMESA, key stakeholder ministries in charge of transport, immigration, customs, tourism, and livestock. The joint committee will raise coordination/harmonization issues that may hamper or negatively affect the development of the road corridor and advise on the necessary corrective measures. The establishment of the RPCC, its composition and terms of reference shall be agreed upon between Ethiopia and Kenya in an MOU. The signing of the MOU will be a dated covenant of the loan agreements. Executing Agency in Kenya The Executing Agency for the Kenyan Project components will be the Kenya National Highway Authority (KENHA) under the oversight of PS Ministry of Roads. The Director General of KENHA will nominate a Senior Engineer whose qualifications and experience shall be acceptable to the Bank to be the Project Manager. The Project Manager will be the key contact person for all issues related to the project and shall ensure proper co-ordination, monitoring and supervision of implementation. The Letter of appointment of the Project Manager and his terms-of-reference shall be forwarded to the Bank prior to loan negotiations. Project Implementation Consultative Committee (PICC) – While KENHA is the sole executing agency of the project, the smooth execution of the project requires the full participation of several key stakeholder Ministries and Agencies. Therefore the need to establish a high-level consultative forum - the PICC - to advise the executing agency to steer and resolve all cross cutting issues. The PICC shall hold regular interval meetings and will be chaired by the PS Ministry of Roads. The PICC shall include the following Ministries or Agencies: Ministry of Finance, Ministry of Transport, Ministry of Northern Kenya, Ministry of Water and Irrigation, Ministry of Information and Communications, Ministry of State for Provincial Administration and Internal Security, Ministry of State for Immigration and Registration of Persons, Ministry of Trade and Industry, Ministry of Tourism, Kenya Roads Board (KRB), National Environment Management Authority (NEMA), the Kenya Wildlife Service, and the National AIDS Council. The PICC shall be constituted at the initiative of PS- MOR. The Letter of Appointment of the PICC and its terms-of-reference shall be forwarded to the Bank prior to loan negotiations.

Executing Agency in Ethiopia The Executing Agency for the Ethiopia Project components will be the Ethiopian Roads Authority (ERA). The Director General of ERA will nominate a Senior Engineer whose qualifications and experience shall be acceptable to the Bank to be the Project Manager. The Project Manager will be the key contact person for all issues related to the project and shall ensure proper co-ordination, monitoring and supervision of implementation. The Letter of appointment of the Project Manager and his terms-of-reference shall be forwarded to the Bank prior to loan negotiations.

39 ANNEX B3

Responsibilities of Executing Agencies Pre-award activities – (i) Prepare project implementation plan; (ii) Prepare bidding documents; (iii) invite bids according to ADB procedures; (iv) Conduct evaluation of bids; (v) undertake contract negotiations, and select consultants and contractors according to ADB procedures; (vi) Follow up on all actions agreed with the Bank, related to project implementation. Project Management Activities – (i) Supervise project implementation; (ii) Supervise and monitor consultants, and contractors; (iii) Facilitate taking-over of right-of-way for the road, quarries, and camp sites; (iv) Ensure timely payments to consultants and contractors; (v) Prepare and submit progress reports; (vi) Ensure timely execution and submission of audit reports; (vii) Monitor implementation of Environmental and Social Management Plan; (viii) Maintain all project records.

Implementation Supervision by the Bank The executing Agencies shall regularly provide the Bank with quarterly progress reports for the project including the implementation of environmental protection measures in the established format covering all aspects of the concerned components. In addition, monitoring of the project implementation will be done through the Bank’s supervision mission program, in accordance with the Bank Group’s Operations manual. A provisional supervision program is shown in Table B3-1 below. Table B3-1 Provisional Supervision Program Staff Input Agencies/Ban Date Activity Skill-Mix (Staff Week) k Task Manager/ KEFO/ETFO Launching ERA/ KENHA/ November 2009 Infra Spec/ Disbursement 5 Mission AfDB Officer/ Procurement Officer Task Manager/ KEFO/ETFO ERA/ KENHA/ June 2010 Supervision 4 Infra Spec AfDB Task Manager/ KEFO/ETFO ERA/ KENHA/ November 2010 Supervision 4 Infra Spec/ AfDB Task Manager/ KEFO/ETFO ERA/ KENHA/ May 2011 Supervision 4 Infra Spec AfDB Division Manager/ Task Mid -Term Manager/ KEFO/ETFO Infra ERA/ KENHA/ October 2011 5 Review Spec/ Disbursement Officer/ AfDB Environmental Officer Task Manager/ KEFO/ETFO ERA/ KENHA/ May 2012 Supervision 4 Infra Spec AfDB Task Manager/ KEFO/ETFO ERA/ KENHA/ October 2012 Supervision 4 Infra Spec AfDB KEFO/EFTO Infra Spec/ ERA/ KENHA/ May 2013 Supervision 4 Environmental Officer AfDB ERA/ KENHA/ October 2013 PCR KEFO/EFTO 5 AfDB

40 ANNEX B4 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Financial Management and Disbursement Arrangements

Financial Management The Finance and Administration Division of Kenya National Highway Authority will be responsible for financial management and reporting procedures for the project components in Kenya. A finance officer from the Division will be assigned to the project. A well-documented Financial Management Manual, which outlines internal control procedures as well as financial reporting arrangement to Government and Donors, has been developed. The manual has been subject to review by the the Bank appraisal team. The manual describes the accounting system, the accounting records, supporting documents, computer files, authorizations procedures for transactions, financial reporting and disclosures, and contract administration and monitoring procedures. The Accounting System is fully computerized and operational. The Finance and Administration Division would be able to monitor the expenditures of the project and meet the financial reporting and auditing requirement under Donor funded projects. The financial reporting under on-going road projects supported by IDA and ADF was reviewed and found acceptable. The Finance Division of ERA will be responsible for the financial management and reporting for the project components in Ethiopia. The Division has been strengthened through an IDA financed technical assistance which has put in place an Accounting and Financial System Manual to enhance accountability, managerial autonomy, and financial control. The division is fully staffed with over thirty accountants, accounting clerks, and other support staff. The division accounting and financial information is based on the ACCPAC software package provided under a technical assistance support from GTZ. ERA has good internal control systems, which include segregation of duties, physical control of assets, clear channels of commands for authorization and approval, and appropriate supervision.

The Financial Divisions of the two executing agencies will open and maintain separate accounts for the project, and maintain all the necessary documentation and records supporting project related disbursement and financial transactions. The financial statements and project accounts will be audited annually during project implementation following the Bank’s Guidelines for Project Audit.

Disbursement Arrangements Disbursement Conditions - The first disbursement on each loan will not be made until the loan enters into force and the Borrower has fulfilled all the conditions precedent to first disbursement as stipulated in the loan agreement. Prior to submitting the first request for disbursement, the borrower shall communicate to the Bank the person (persons) authorized to sign the withdrawal applications together with the authenticated specimen signature(s).

Disbursement Method - The Disbursement methods applicable to the various components of the project are summarized below and are explained in detail in the Bank Disbursement Handbook.

Table B4-1 – Disbursement Arrangements Amount Disbursement Project Components UA Million Method 1. Civil Works 1.1 Civil works Marsabit-Turbi 117.11 Direct Payment 1.2 Civil Works Ageremariam-Yabelo 39.23 Direct Payment 1.3 Civil Works Yabelo-Mega 40.90 Direct Payment 2. Consulting Services 2.1 Supervision Marsabit-Turbi 1.88 Direct Payment 2.2 Supervision Ageremariam-Yabelo 2.13 Direct Payment

41 ANNEX B4 Amount Disbursement Project Components UA Million Method 2.3 Supervision Yabelo-Mega 2.13 Direct Payment 2.4 Design Dual Carriageway - Kenya 3.00 Direct Payment 2.5 Evaluation & Knowledge Building 0.26 Direct Payment 2.6 Project Audit - Ethiopia 0.06 Direct Payment 2.7 Project Audit - Kenya 0.08 Direct Payment 3. Institutional Support Kenya 3.1 ICT Equipment & Software 1.03 Special Account 3.2 Specialized Equipment & Software 0.30 Special Account 3.3 Staff Training 0.57 Special Account 3.4 Five-Year Business Plans 0.23 Special Account 3.5 Business Process Development 0.19 Special Account 3.6 Procurement & FM Capacity 0.19 Special Account 3.7 Project Coordination Costs 0.13 Special Account

A change to a method other than that agreed upon in this table will require the prior approval of the Bank.

Minimum Amount For Withdrawal Application - Unless otherwise agreed, the minimum amount for any disbursement under the direct payment is UA 20,000 (see page 2 paragraph 1.2.4 of the Disbursement Handbook).

Correspondent Bank - Where the beneficiary is not located in the country of the currency of payment, the application should indicate the correspondent in that country of the beneficiary's bank. The correspondent's name, full address, telex number and swift code, if any, should be shown.

Beneficiary's Bank - The full name and address of a beneficiary, his/her account number and name and full address of his/her bank, should be accurately indicated in the application. The telex and swift code, if any, should be stated.

Currency of Payment - An application should not be in more than one currency of payment. For example, if the borrower requires payments in US dollars and Euros, then separate applications should be submitted for the two currencies. No application carrying more than one currency of payment will be processed.

Channeling Disbursement Applications - All applications must be addressed to the Director of Financial Control Department, African Development Bank, Temporary Relocation Agency (TRA), 13 Avenue du Ghana, B.P.323, 1002 Tunis Belvedere, Tunisia.

42 ANNEX B5 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Procurement Arrangements

The procurement arrangements under the project are summarized in Table 1. All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules and Procedure for Procurement of Goods and Works, or as appropriate Rules and Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents.

Table B5-1 - Summary of Procurement Arrangements

Cost (UA Million) Pre- Bank Selection Project Categories Bank Qualification Prior- Total Procedure Funded (Y/N) Review 1. Civil Works 1.1 Civil works Marsabit-Turbi 117.11 117.11 ICB N Y 1.2 Civil Works Ageremariam - Yabelo 46.15 39.23 ICB N Y 1.3 Civil Works Yabelo - Mega 49.88 40.90 ICB N Y 2. Consulting Services 2.1 Supervision Marsabit-Turbi 1.88 1.88 QCBS N Y 2.2 Supervision Ageremariam - Yabelo 2.13 2.13 QCBS N Y 2.3 Supervision Yabelo - Mega 2.13 2.13 QCBS N Y 2.4 Design Dual Carriage - Kenya 3.00 3.00 QCBS N Y 2.5 Evaluation & Knowledge 0.26 0.26 QBS N Y 2.6 Project Audit - Ethiopia 0.06 0.06 LCS N Y 2.7 Project Audit - Kenya 0.08 0.08 LCS N Y 3. Institutional Support 3.1 ICT Equipment & Sofware 1.03 1.03 Shopping N Y 3.2 Specialized Equipment 0.30 0.30 Shopping N Y 3.3 Staff Training 0.57 0.57 SS N Y 3.4 Five-Year Business Plans 0.23 0.23 QCBS N Y 3.5 Business Process Development 0.19 0.19 QCBS N Y 3.6 Procurement & FM Capacity 0.19 0.19 QBS N Y Force 3.7 Project Coordination 0.13 0.13 N N Account

Total 225.31 209.41

Civil Works - The procurement of civil works will be carried out under International Competitive Bidding (ICB) procedures, with post-qualification of contractors. The civil works in Kenya for the Marsabit-Turbi Road are valued at UA 117.11 million, and will be packaged in one contract. The civil works in Ethiopia are valued at UA 96.03 million and will be packaged in two lots: the Ageremariam-Yabelo road section (UA 46.15 million) and the Yabelo-Mega road section (UA 49.88 million).

Construction Supervision - The consulting services for the construction supervision will be packaged in three (3) lots corresponding to the above civil works packages: Marsabit Turbi (UA 1.88 million) in Kenya; and Ageremarian-Yabelo (UA 2.13 million) and Yabelo-Mega (UA 2.13 million) in Ethiopia. The supervision consultancies will be procured based on short-lists of qualified consulting firms. The selection procedure will be based on Quality and Cost- Based Selection.

Feasibility and Design Consulting Services - The feasibility and Design Consulting services for dual carriageway of Mombasa-Mariakani and Kenol-Sagana-Marua valued at UA 3.00 million will be acquired on the basis of a short-list of qualified consulting firms. The selection procedure will be based on Quality and Cost- Based Selection.

43 ANNEX B5 Consultancy Services for Evaluation and Knowledge Building - The Consulting services for Evaluation and Knowledge Building, valued at UA 260,000, will be acquired by soliciting proposals from three universities or research institutions. The selection procedure will be based on Quality Based Selection (QBS).

Audit Services - The financial audit services will be subcontracted to firms of auditors to be procured through short-lists, subject to clearance by the Auditor General of Ethiopia and Kenya National Audit Office prior to call for bids. The technical audits will be acquired on the basis on short-lists of Expert Engineers. The selection procedure for both audits, at the costs of UA 60,000 and UA 80,000 for Ethiopia and Kenya respectively, will be based on establishing the Least- Cost Selection (LCS).

Consulting Services under the Institutional Support - The consultancies of Business Plans and Business Process Development, estimated at UA 230,000 and UA 190,000 respectively, will be procured based on short-lists of qualified consulting firms. The selection procedure will be based on QCBS. Individual consultants for assisting in the functions of procurement and financial management totalling UA 190,000 would be procured based on QBS.

Staff Training - All staff training for the Executing Agencies in Kenya, estimated at UA 570,000, will be procured on the basis of Single –Source Selection in accordance with a comprehensive training program prepared by PS (MOR) and approved by the Bank.

Procurement of Goods – The procurement of ICT systems (UA 1.03 million) and specialized equipment UA 300,000, for the Highway Authorities in Kenya will be through Shopping.

Project Coordination Cost – Project Coordination Cost in Kenya estimated at UA 130,000 will be procured through force account in accordance with annual budgets approved by the Bank.

National Procedures and Regulations - The national procurement laws and regulations of Kenya and Ethiopia specifically the Kenya Public Procurement Act of 2005, and the Ethiopia Public Procurement Proclamation 430 of 2005 have been reviewed and determined to be acceptable.

Executing Agencies – The Kenya National Highway Authority (KENHA) will be the executing agency for the components of the project located in Kenya except for the Institutional Support that will be managed directly by the Permanent Secretary-Ministry of Roads. The Ethiopian Roads Authority (ERA) will be the executing agency for the components of the project located in Ethiopia. The resources, capacity, expertise, and experience of the two executing agencies have been reviewed and found adequate to carry out the procurement activities.

Procurement Plan - As part of the preparation of the project the Borrower shall prepare and, before negotiating the Financing Agreement, furnish to the Bank for its approval, a Procurement Plan acceptable to the Bank setting forth: (a) the particular contracts for the goods, works, and/or services required to carry out the project during the initial period of at least 18 months; (b) the proposed methods for procurement of such contracts that are permitted under the Financing Agreement, and (c) the related Bank review procedures. The Borrower shall update the Procurement Plan annually or as needed throughout the duration of the project.

General Procurement Notice - The GOE and GOK requested the authorization of the Bank to initiate an Advance Contracting because of the high priority accorded to the Project and the need to start construction works in early 2010. The Bank approved the request and the GPN will be published on 31 May 2009. The advance action is being undertaken in accordance with the Bank’s Procurement Rules. The Government of Ethiopia and Kenya have been advised that approval of advance action does not commit the Bank to financing the Project.

Review Procedures - The following documents are subject to pre-review and approval by the Bank.

44 ANNEX B5 General Procurement Notices Invitation for pre-qualification/ Specific Procurement Notice/ Invitation for EOI Tender Documents and Requests for Proposals from consultants Tender Evaluation Reports, Evaluation of Consultants' Proposals, Pre-qualifications Draft Contracts, if the Form of Contract document in the Standard Bidding Document has been amended.

Procurement Schedules

Table B5-2 - Procurement Schedule Civil Works Activity Action/Agency Target Date General Procurement Notice (APA) ADB/GOE/GOK 30 April 2009 Preparation of Preq. Questionnaire GOE/GOK 15 April 2009 No-objection Questionnaire ADB 15 May 2009 Invitation for Prequalification ADB/GOE/GOK 31 May 2009 Closing for Prequalification GOE/GOK 15 July 2009 Prequalification Report & Bidding to ADB GOE/GOK 15 August 2009 No-objection Preq. & Bidding Documents ADB 15 September 2009 Issue of Bidding Documents GOE/GOK 20 September 2009 Opening of Bids GOE/GOK 20 November 2009 Evaluation of Bids Report GOE/GOK 20 December 2009 No-Objection of the Bank ADB 15 January 2010 Negotiation and Award of Contract GOE/GOK 15 March 2010 Construction Period (36 Months) 01 May ‘10-30 April ‘13

Table B5-3 - Procurement Supervision/Design Consultancies Activity Action/Agency Target Date General Procurement Notice (APA) ADB/GOE/GOK 30 April 2009 Invitation for Expression of Interest ADB/GOE/GOK 31 May 2009 Closing for EOI GOE/GOK 15 July 2009 Evaluation of EOI, Short List & RFP GOE/GOK 15 August 2009 No-objeDSction Short listAD &B RFP Docs ADB 15 Sept 2009 Issue of RFP Documents GOE/GOK 20 September 2009 Opening of Proposals GOE/GOK 10 November 2009 Evaluation of Proposals Report GOE/GOK 10 December 2009 No-Objection of the Bank ADB 30 December 2009 Negotiation and Award of Contract GOE/GOK 30 January 2010 Supervision Period (37+12 Months) 01 April ’10-30 April ‘14

45 ANNEX B6 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Audit Arrangements

1. Objective

In accordance with Bank policy, Borrowers are requested to commission external auditing of Bank –funded projects and submit annual audit reports no later than six months after the end of each fiscal year. The objective of the audit of the Project’s financial statements is to enable the auditors to express a professional opinion on the financial position of the Project and on the statement of receipts and expenditures covering the whole period of the Project implementation activities. The audit should also enable the auditors to give an opinion on the statement of the revolving fund bank account (special account if any) as well as compliance with the provisions of the loan agreement and the Bank rules and procedures in respect to project management.

2. Scope

The audit shall be carried out in accordance with International Standards of Auditing (ISA) or International Organisation of Supreme Audit Institutions (INTOSAI) audit standards and will include such tests and controls, as the auditors consider necessary under the circumstances. ERA and KENHA shall prepare detailed terms of reference (TOR) for the audit to be agreed upon with the Bank during loan negotiations.

3. Selection of External Auditors

The audit services will be subcontracted to firms of auditors to be procured through short- lists, subject to clearance by Auditor General of Ethiopia and Kenya National Audit Office, prior to call for bids. The selection procedure will be based on establishing the comparability of technical proposals and selection of the lowest financial offer. The external audits will be financed from the proceeds of the loans.

4. Audit Opinion

Besides a primary opinion on the financial statements, the audit report on the project financial statements should include a separate paragraph each commenting on the items described in the TOR, especially, compliance with the loan covenants, Bank’s rules and policies; the disbursement and procurement guidelines; and the control environment in which the project is being managed.

5. Management Letter

The scope of the engagement as set out in the TOR should require the auditor to provide a Management Letter with reference to the executing agency. This is a report on the internal controls and operating procedures of the entity, covering all aspects included during the normal course of the audit. Because an auditor is unlikely to cover all activities of a client during an annual audit, the Management Letter may address only those specific matters that came to the attention of the auditor during the review.

46 ANNEX B7 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Summary of Financial and Economic Analysis Methodology The economic viability of the project has been assessed within the broad framework of Cost Benefit Analysis using the Highway Development Management Tool (HDM) - IV which is found to be appropriate. The Nairobi – Thika Highway is divided into four links on the basis of homogeneity of traffic with characteristics of the links varying from urban- high traffic to peri- urban and finally to rural. The project road condition data input into the HDM IV has been in the “with and without” project scenarios using the characteristics of the different road sections. HDM IV allows for modelling over the analysis period of each link, the interaction between traffic volume, composition, road condition, geometry and characteristics and the vehicle operating costs for the “with” and “without” project scenarios. For the economic analysis, financial construction and maintenance costs have been converted into economic costs by applying a conversion factor of 0.78. The measures of project worth used are the EIRR, NPV, BCR and the FYRR. A discount rate of 12.0% which is the opportunity cost of capital in Ethiopia and Kenya has been used for the economic evaluation. The base year taken for economic evaluation is 2010, the year in which construction is expected to commence with a construction period of 36 months and first year of opening the facility to traffic put at 2013. In addition to the 3 years construction period, the analysis period also take into account a service life of 20 years ending in 2033. All appraisal components have been inputted into the model in USD and output values are also in USD. Investment costs have been distributed over three years of construction period in line with the projected implementation schedules at 30, 40 and 30 percent of costs assumed to be incurred in the first, second and third year respectively.

Appraisal Assumptions Maintenance of the existing road has been fair and consists mainly of routine maintenance undertaken yearly and involves day to day repairs and maintenance of road pavement, structures cleaning of drainage system etc. Selection of the maintenance strategy, in the “without project” case follows this historic maintenance pattern. The strategies incorporated into the appraisal and fitted in the model are scheduled work items rather than responsive as follows:

“Without project” do minimum: this is essentially the historic routine maintenance practice comprising edge repairs, cleaning of culverts, crack resealing/patching or grading, maintenance of road signs and road markings, drainage clearance, collection of litters etc; and periodic maintenance of re-gravelling the gravel section in Kenya every 4 years and resealing with SBST every 6 years for the paved sections in Ethiopia.

“With project” moderate paved standard: involves routing maintenance, patching 5 percent of the surface area each year, and periodic maintenance of overlay/resealing every 6 to 7 years.

Residual Value Residual values have been calculated for a road operating life of 20 years based on various investment components of the project made up of general, earthworks, drainage structures, ancillary & road works, bridges, and design and supervision services. This has been estimated after 20 years of service life at 25% of original economic investment cost. Costs

The costs taken into account are the Road Agency costs in the “with” and without project situations which include both the cost of routine and periodic maintenance, the investment cost of upgrading the project road to higher standard facility. The capital cost of the project taken

47 ANNEX B7 into account include the financial base cost for civil works plus the physical contingencies and the consultancy services for supervision of civil works and project audit amounting to USD 441.97 million. These are converted to economic cost using the conversion factor of 0.78. The financial contingencies are not taken into account, as they do not constitute consumption of economic resources. The economic investment cost amounts to USD 344.74 million to be disbursed over the period 2010 to 2013.

Benefits

The benefits include road user benefits in terms of Vehicle Operating Cost Savings, time savings for passengers and cargo, road maintenance savings as a result of the new facility. Accident cost savings are not quantified and valued due to incomplete documentation and therefore not taken into account in the estimation of project benefits. Time savings would result from the free flow of traffic under the new facility and has been estimated for both passengers and cargo as difference in travel time under the ‘with and without’ project situations. The time values for passengers in different categories of vehicles are estimated based on income and employment, income distribution of Ethiopia and Kenya as applicable to the Project Influence Area and purpose of trip. Work related travels are put at 80.2% while the remaining is non- work related and is valued at 30.0% of work time value. Value of cargo time is estimated by inventory method. Based on origin destination surveys and classified traffic counts, vehicle wise weighted average value cargo is used and the time value is calculated using ongoing market rate of interest. The forecast vehicle operating costs savings are derived from the road-planning model HDM-IV.

Result of Cost – Benefit Analysis

The economic evaluation using the measures of investment worth based on most likely traffic forecast scenario resulted in an Economic Internal Rate of Return of 21.7% which is higher than the current opportunity cost of capital of 12.0% in Ethiopia and Kenya. Other measures of project investment worth in the base case scenario indicated a FYRR of 11% and a NPV of USD 91.54 million at 12.0% discount rate. The result of the analysis confirms the viability of the intervention in the project.

Sensitivity Analysis

Sensitivity testing has been made on the result of the base case scenario with respect to all measures of investment worth for the project road and the results indicated in the Table below confirm the project viability. Switching value for capital works costs indicated that the costs would have to go up by more than 81.7% before project viability is threatened and while the result with respect to benefits indicated that benefits would drop by over 67.32% before the project economic rate of return fall below the 12.0% which is the opportunity cost of capital in |Kenya.

Table B7-1 - Cost Benefit Analysis Results and Sensitivity Tests

Change EIRR NPV FYRR Scenario (%) (%) (USD million) (%) Base Case - 21.7 91.54 11% Capital Costs +15.0 16.0 67.49 Benefits -15.0 14.3 60.32 +15.0/- Costs &Benefits 12.5 52.73 15.0

48 ANNEX B8 MOMBASA – NAIROBI – ADDIS ABABA ROAD CORRIDOR – PHASE II PROJECT Environmental and Social analysis

B8.1 Environmental review, key findings and recommendations

B8.1.1 Kenya has various sector specific legal instruments that cover environmental and social issues such as public health; soil erosion; protected areas; endangered species; water rights and water quality; air quality, noise and vibration; occupational health and safety; cultural, historical, scientific and archaeological sites; land use; resettlement; etc. The Environmental Management and Co-ordination Act (EMCA) of 1999 provides a framework for integrating environmental considerations into the country’s overall economic and social development, improves the legal and administrative co-ordination of the diverse sectoral initiatives and harmonizes the sector specific legislation touching on the environment in a manner designed to ensure greater protection of the environment. Some pertinent regulations under the act cover Environmental Impact Assessment and Audit, Waste Management, Fossil Fuels Emissions, and Water Quality. As such there is no resettlement and compensation framework policy for the roads sector in Kenya. So guidance is sought through existing legislation. In this context, the Constitution of Kenya addresses expropriation of private land and Trust Land (the latter making up most of the land bordering the project road corridor, apart from urban land). The Land Acquisition Act provides for land to be acquired or granted access to for the purpose of a project, while the Registered Land Act provides for absolute proprietorship over land (exclusive rights), and such land can be acquired by the State under the Land Acquisition Act in the project area. The Land Adjudication Act provides for ascertainment of interests prior to land registrations under the Registered Land Act.

B8.1.2 Sustainable development and environmental rights are entrenched in the Constitution of Ethiopia (1995), and are further supported by means of various policies and proclamations. The Environmental Policy of Ethiopia (April 1997) aims to promote sustainable social and economic development through sound management and use of natural, human-made and cultural resources. The National Policy on Women ensures equal access of men and women to the Country’s resources and specifically promotes participation by women decision making processes. Other sectoral policies of relevance include those on Water Resources, Wildlife, Population, Health, and HIV/AIDS. In addition, proclamations have been made on EIA; Environmental Pollution Control; Research and Conservation of Cultural Heritage; Development, Conservation and Utilisation of Wildlife; and Forest Development, Conservation and Utilisation, Water Resources Management and Public Health. EPA has prepared Environmental Impact Assessment Guidelines, while ERA has produced a manual on Environmental Procedures. Legislation relevant to resettlement and compensation are the Proclamation on Expropriation of Land for Public Purposes and Compensation (No. 455/2005) which regulates land acquisition and compensation for the purpose of public projects, sets time limits for acquisition, and provides the principles for compensation for properties on affected land as well as for displacement compensation; and the Proclamation on Land Use and the Right of Way (No.47/1975) which states that the Government shall pay fair compensation for property found in the ROW. Guidelines for resettlement and compensation for the road sector are contained in ERA’s Resettlement and Rehabilitation Policy Framework, which requires a resettlement action plan to be prepared if more than 200 persons are affected by a project. The principles of the Policy Framework correlate with the African Development Bank’s Involuntary Resettlement Policy (2003).

B8.1.3 While legal frameworks for sustainable environmental and social management exist in both countries, enforcement is weak due to a number of reasons, for example lack of manpower and resources, lack of capacity and a failure to understand the implications of environmental degradation. The responsibility for sustainable environmental management of the project must therefore rest with the project proponents, in this case the Ethiopian Roads Authority’s Environmental Monitoring and Safety Branch and the Kenyan Ministry of Roads’

49 ANNEX B8 Environmental and Social Unit, who need to ensure that environmental best practices are employed both during and after construction, and so reliance on law enforcement is obviated.

B8.1.4 The road project will enhance the livelihoods of the people in the direct and wider project area in a number of ways. Ageremariam is a major coffee producing area, while the rest of the region is a key livestock-keeping zone and has potential for tourism. The project road will provide improved access to markets for coffee and livestock. Ease of access to scenic or fauna-rich localities will trigger tourism, which will provide some direct and knock-on employment opportunities, and training skills, to the local people. Crucially the road will provide connectivity to a region that is very remote, and this in itself will bring development. The improved road will also enable emergency relief aid to reach people that may be affected by drought, a cyclical - and previously somewhat predictable - phenomenon whose recurrence is becoming more frequent and erratic as a result of climate change.

B8.1.5 Risks to health due to pollution have been addressed in the ESIAs for both project roads. Sedimentation and water pollution resulting from excavation, spillage of hazardous substances will be mitigated by carrying out cross-drainage works during the dry season, and properly storing and handling hazardous substances. Water resource conflicts can be managed by developing water supply sources specifically for the construction works and the campsite requirements, and consulting with the local communities before doing so in order to ensure that their water supplies are not threatened. Air, dust and noise pollution will be reduced by restricting traffic speeds and regular watering of detours and other active construction sites (where water is available), regular and effective maintenance of construction equipment and vehicles, and locating contractor’s site establishments away from sensitive receptors like settlements, water sources, schools, health centres and places of worship. Road workers will be provided with appropriate protective personal clothing.

B8.1.6 Expansion of urban centres as a result of increased development will put a demand on fuelwood, but will also allow charcoal to be delivered to markets some distance away. This has serious implications on the natural vegetation of the project area, and could also affect the microclimate along some sections of the road that were previously wooded. The regional and district forest authorities will have to develop mechanisms to control this problem, and will have to propose energy alternatives.

B8.1.7 Climate Change

The project area is generally characterized by very low rainfall (ranging between 150-350mm per year in Kenya) hence would be susceptible to drought due to climate change. These areas are classified as arid and semi-arid lands. For that matter, increases in temperatures would exacerbate water shortages for both human and animal consumption. An extensive program of gravity fed water distribution coordinated by the Oromia Pastoralist Area Development Commission is underway in Ethiopia. Already identified are 22 underground water sources to be distributed through an aggregate of 2000 km water pipe articulation system covering the area. Similar initiatives are being implemented through the Ministry of Northern Kenya such as the Arid Lands Resource Management Project and the Drought Management Initiative supported by World Bank and European Commission, respectively. In addition, the project has incorporated water supply provision in some areas along the project road. In areas, especially around Marsabit, Moyale and Ageremariam, where rainfalls are high (above 1000mm), and hence prone to flush floods, the project design has incorporated storm drains and drainage systems away from homes and property, raised level of road embankment and intensified erosion protection measures by grassing, sodding and mulching.

The road project will result in increased traffic volumes, which will lead to an increase in greenhouse gas emissions, although the overall impact is likely to be minimal. While the project may not have incorporated direct measures to curb emissions, both countries have, in place legislation and guidelines for dealing with air pollution. For instance the Kenyan Environmental Management and Coordination Act has provisions for controlling air pollution and guidelines are

50 ANNEX B8 being developed with support from UNEP; and EPA in Ethiopia has prepared guidelines “Ambient Environment Standards for Ethiopia” with assistance from UNIDO. These offer an opportunity to begin monitoring gas emissions and putting into place mitigation measures. The project on its part has made provisions for financing an elaborate program of tree planting along the perimeter of the road reserve to act as a carbon sink.

B8.2 Stakeholders

B8.2.1 For the Marsabit – Turbi section of the project road, meetings were held at Merille, Laisamis, Logologo, Marsabit, Sololo, Turbi and Moyale, where district officers, counsellors, chiefs, other local government representatives, local committees/CBOs (including women groups), religious leaders, elders, and members of the communities (including women and youth) participated. Informal discussions were also held with road users and transport operators (truckers, public service vehicle operators, vehicle owners and bus inspectors). Consulted stakeholders, particularly in Kenya, included the Kenya Wildlife Services both at national and district levels. Issues regarding safety and prevention of animal kills were raised and particular spots which are crossing corridors have been identified and measures taken to control speed and warn vehicle operators of the situation. On the Ethiopian side, similar places were identified but more so in relation to livestock crossing areas. For the preparation of the Resettlement Plan, extensive consultations were held to brief the project affected persons on land acquisition requirements and procedures.

B8.2.2 The stakeholders main concerns (Kenyan side) related to the resettlement process, specifically the modalities for the payment of compensation, receiving fair compensation, entitlements not being recognized (either because legal titles are not available for all land, or because transfers were incomplete), discrepancies in valuation, lack of information on the land acquisition process, and damage to existing infrastructure. In addition, stakeholders were concerned about the impacts on their livelihoods (for example whether they would be denied access to their grazing lands), whether there would be opportunities for employment, and interaction between immigrant workers and the local communities. In the ESIA, ESMP and the RP, recommendations have been made for inclusion / consideration of these concerns into the design, construction, and operation of the project, and the implementation of the resettlement plans.

B8.2.3 Along the Moyale - Yabelo section of the project road, formal consultations were conducted at the meetings held at four key locations: Moyale town, Mega and Dharitu villages and Dubuluk, Yabelo and Ageremariam Representatives of different groups such as woreda (district) and kebele administrations, municipal representatives, woreda sector offices, and the local communities including elders, women and youth participated in these consultations. NGOs and CBOs operating in the area were also consulted.

B8.2.4 The consultations in Ethiopia, revealed that as livestock is the economic mainstay of the project area, the upgrading of the road will improve much needed access both domestic and export markets. In addition the road will assist in the development of the agriculture sector and the local economy, and thus it will serve to advance the socio-economic status of the local population. It was noted that the road is badly deteriorated and required major maintenance, and that the existing carriageway width was too narrow. Livestock kills occurred occasionally, particularly where they congregate at watering points. Other concerns related to construction activities causing deforestation and loss of rangelands, disturbance to and killing of wildlife, accident risks to pedestrians and livestock, hindrance to livestock movement, and dust pollution. The stakeholders recommended that the upgraded road follow the existing alignment so that all the towns and villages are not bypassed, and destruction to existing buildings and business activities is minimised. The design has taken these considerations into account: realignments have only been made in order to conform to DS3 standards, and provisions have been made to enhance road safety through introducing speed limits, having warning signs and

51 ANNEX B8 pedestrian crossings and implementing road safety campaigns. The EMP in the ESIA addresses issues raised regarding deforestation, impacts on wildlife and dust pollution.

B8.2.5 The project road(s) being national cross-border roads, consultations to determine their need and priority involved national and central Government’s process. The Vision 2030 has prioritised infrastructure as a catalyst to development and the subsequent development of the MTP has isolated transport infrastructure as a priority sub-sector for development. Similar process has taken place in Ethiopia where transport infrastructure is one of the sub-pillars of PASDEP. In both instances, regional and local representatives have influenced the improvement of these roads as a critical investment to stimulate growth in the Regions. The recently created Ministry of Northern Kenya reiterated the importance of this road as a necessary development to link North-Eastern Region to the rest of Kenya and also to harness the potential for doing trade with Ethiopia. On the part of Ethiopia, opening up a reliable alternative route to the sea is very important for the country, but more so for southern Ethiopia which is rich in livestock, coffee and tourism which stands to benefit from synergies with the Kenyan tourism sector.

B8.3 Gender analysis

B8.3.1 The demographic data shows a balance in sexual balance in Masarbit district (Kenya). The 2008 population projection shows a population of 151,297 people. While the population level as of 2005, shows 311,659 in the three districts traversed by the project road in Ethiopia (Moyale, Dire and Yabelo). The sex ratio in Ethiopia is 80.5 in favor of women where women numbered 176,311 as opposed to 130,348 in the three districts of. The number of female headed households is equally high (43%) making it very hard for women to fend and provide for household requirements single handedly. As the livestock culture dwindles further due to persistent droughts, most men have resorted into moving away in search of employment leaving families behind.

B8.3.2 Gender Inequality: The entire region faces high gender inequality in development as women and youth participation in development is very low. In most cases, there are very few women and youth involved in leadership and decision making at all levels, where traditional and cultural practices are dominant. Despite efforts made by the government and development agencies to bridge the gap in the region, gender disparities still exist and this has increased poverty especially in rural areas where the majority of people live. The most affected are women as they are discriminated against and have less economic opportunities to exploit.

B8.3.3 Limited Economic Opportunities: Women and youth have limited economic opportunities and less autonomy than men. Subsequently, their access to education and training together with support services is limited. As a result, women are not able to contribute actively in development, causing them to rely heavily on their male counterparts who dominate all the leadership positions.

B8.3.4 Control Over Property: Women have less control over property and other resources. Men dominate resources and women are left with no share although they contribute significantly in resource acquisition. Women have very little participation in the way decisions are made, customary law, cultural attitudes, and rigidities to gender roles overburden women. Women perform many domestic chores including cooking, fetching water and firewood, child caring and attending to the husband, together with caring for livestock and other property. Women are also expected to construct the dwelling houses (tukuls). Although the women take an active role in income earning mainly from sale of milk, they are however, denied a chance to use this for any gainful economic use to improve their standards of living.

B8.3.5 Gender Discrimination: Gender discrimination also affects economic growth by increasing poverty. In Marsabit District, boys are preferred to girls. This leads to discrimination in education whereby a boy child is taken to school leaving a girl child to do domestic chores.

52 ANNEX B8 Even if a girl child is taken to school, she is expected to drop out and get married at a young age without being given an opportunity to decide herself, as evidenced by the low total enrolment rate in secondary school for girls. This leads to limited opportunities for the girl-child to undertake meaningful employment. This discrimination against women has implications on education, with 80% of the population being illiterate.

B8.3.6 Participation in Decision making: Over the entire project area, women have very little participation in customary decision-making and are not involved in rangeland management decisions. Women and youth have limited economic opportunities and less autonomy than men. Subsequently, their access to education and training together with support services is limited. As a result, women are not able to contribute actively in development, causing them to rely heavily on their male counterparts who dominate all the leadership positions. Although women are increasingly involved in trade and other income generating activities, their incomes are used directly on household needs, and not necessarily on their wellbeing.

B8.3.7 Employment Opportunities for Women: While gender-related criteria were not specifically considered in defining target beneficiaries of this project, it is expected that the benefits derived from the project transcend gender. Consultations carried out in the project area have shown that the project has potential to take into consideration all aspects that will enhance the participation of both women and men during construction and as beneficiaries of the road during operation. While there are no specific guidelines in the two countries to enhance the recruitment of women at construction site, experience shows that women can and are willing to work on construction sites as was the case with the optic fibre laying project implemented along the project road on both Kenya and Ethiopia sides. Women may participate in road building as direct employees (in digging, sign control (flagging), sweeping, etc.).

B8.3.8 Secondary Opportunities for Income Generation: Secondary opportunities as service providers will result from the workforce creating a demand for services, such as catering, cleaning or the supply of provisions (especially fuelwood). In the settlements, these services are usually provided by women. The road will facilitate easier access to health facilities, and this has a direct bearing on women and children who need these services most. Although the project road may facilitate access to education facilities, this will only make a difference as secondary school level. The traditions and culture of the area would not easily permit girls to attend schools residing away from home. Improved transport services and existence of secondary schools in the vicinity (like the situation in Ethiopia) will enhance chances for girls to attend secondary education. Feedback received from the NGOs and CBOs operating in the area indicates that there would, however, be need to stimulate demand for education, both primary and nsecondary, among the pastoralist communities through CBOs and NGOs who will be able to reach the communities now that the road will have been improved.

B8.3.9 Spread of HIV/AIDS/STI: The construction workers are likely to be predominantly male, and may not all be sourced from the local communities, particularly as the population is mainly nomadic. Interaction between the workforce and local women and girls may lead to family conflicts and unwanted pregnancies and prostitution. In addition, this propagates the spread of HIV/AIDS/STI. The ESMPs for both road sections have proposed the implementation of HIV/AIDS awareness and prevention campaigns. The ESMPs have proposed specific gender- related indicators to be monitored during construction: i) the number of women employed by the contractors, ii) complaints received on gender bias, iii) reported cases of rape involving the contractor’s employees.

B8.3.10 Water Provision: The project has incorporated specific activities that will benefit communities but more so women. In Kenya, the project will make provision for drilling boreholes and installing water pumps. Given that the project area is arid and semi-arid, water is very scarce and is fetched from as long distances as 40 km. While most of it is drawn on donkey backs, women especially girls have to drive them. This water will be useful for both human and animal consumption. Time saved from this will be put into other use including income generating activities.

53 ANNEX B8

B8.3.11 Self-help Groups: Self-Help women’s groups/projects have been formed across the project area. These groups have the objective of providing services to the community, e.g. water projects. Self-Help projects also have the objective of uplifting the living standards of the community. Other reasons for establishing self-help groups/projects include alleviation of poverty, improving nutrition, and increasing employment opportunities. The overall aim is to assist a large number of women’s groups. The activities pursued in the women’s group projects are focused on supporting a gender based revolving credit scheme, health education, and advocacy of women rights.

B8.4 Social analysis

B8.4.1 Regional Integration and Facilitation: On a regional level, the rehabilitation of the entire road from Merille River – Marsabit – Moyale – Ageremariam will play a key role in facilitating development of northern Kenya and southern Ethiopia as well as providing a crucial link between the two countries, and access to the port of Mombasa by Ethiopians. This is expected to enhance regional trade, and marketing of coffee from the Ageremariam area and livestock from the rest of the project region will become more efficient and cheaper. The potential for tourism in the area may also be unleashed. Current oil exploration activities in Northern Kenya will benefit from easier access to this remote region. A large part of the project area is prone to drought and famine, and the provision of relief food and other forms of humanitarian aid is therefore frequently necessary. The improved road is expected to enable rapid emergency response.

B8.4.2 Employment and Income Opportunities: At a more local level, during construction it is estimated that approximately 2000 skilled and un-skilled jobs will be created in total (1500 in Ethiopia and 500 in Kenya). Although women are not usually associated with employment of construction sites, evidence obtained in both Kenya and Ethiopia shows that women will equally take advantage of the job opportunities in areas which they can participate as indicated above. Indirectly, this will lead to jobs being created in service sectors (accommodation, food, provision of groceries) as a result of the demand for these services by the workforce. Once the road is complete, access to social and economic amenities such as health facilities, schools and markets will be enhanced. Vehicle operating costs will be reduced, which implies that there will be a greater number of transport providers; thus travel costs may reduce due to competition. Markets will be reached more quickly and cheaply, which will encourage productivity. This in turn should translate into increased earnings. Better access to health facilities also reflects on productivity levels. Thus the upgraded project road is expected to enhance the standard of living and socio-economic welfare of the people living within its zone of influence, as well as other road users from further afar.

B8.4.3 Road Side Amenities: Furthermore, the project has incorporated in its design provision of amenities and facilities for income generation. In Kenya, the project will construct road side amenities which will include space for laying and selling merchandise by road side which is a domain of women. In these amenities will be cold rooms for milk and animal preservation. As has been observed, milk, goat and sheep meat are the sources of income for daily domestic needs and are a concern of women. The project will therefore consider construction of small slaughter houses (for goats and sheep) and milk houses with simple processors. These are the two main activities that benefit women most and would potentially boost their income by expanding the market and adding value. Provision of these facilities will be in collaboration with the local district sector representatives and the local offices of the Ministry of Northern Kenya. On the Ethiopian side, there already exist women associations which would manage and operate the facilities. Approximately 3 locations have the economic potential for these ventures. According to the Oromia Pastoralist Area Development Commission, sample slaughter house designed have been obtained from Kenya and would cost approximately ETB140,000 each including equipment. Similarly, the a milk house and processors would cost ETB138,000 each.

54 ANNEX B8 B8.4.4 Environmental Protection: While the project has a comprehensive list of actions and measures to be implemented in environmental mitigation and protection, the project has made a provision for planting of over 8500 tree seedlings along the project area on the Ethiopian side, and a correspondingly large number of trees on the Kenyan side. This will serve as a carbon sink for gas emissions from motor vehicles and also serve as a measure for erosion control given that the area experiences excess soil erosion through overgrazing.

B8.4.5 Security Enhancement: Local security is a major problem in the project area. The area is endemic to conflicts between rival pastoralist groups over resources mainly grazing land and water; leading into insecurity and banditry. The project has built into its cost, a provision for maintaining security for construction workers, and it is planned that the design of the roadside amenities will include security enhancing facilities and space. Initiatives are already in place at both district and community levels (in Kenya) to establish security through sensitization and orientation campaigns for peace through the Peace Committees. Once the road is operational, vehicles travelling at high speed would be less susceptible to bandit attacks, and if any do occur, it will be easier for security officers to be reached and to travel to crime scenes.

B8.4.6 Dislocation and Property Damage: The most significant negative impact of the project, which was a major concern raised during stakeholder consultations, will be the need land take, destruction of buildings, loss of trees and crops, and loss of livelihoods. Along the Marsabit – Turbi section, property and assets belonging to 89 households will be affected, as well as crops and trees and fences. Along the Moyale – Yabelo section of the project road, an estimated 524 households (2620 people), 6 hectares of farmland, and some 1800 trees (not privately owned) will be affected. Full Resettlement Action Plans have been prepared for both sections of the project road, and it is imperative that these are properly implemented.

B8.4.7 HIV/AIDS awareness and prevention: Although the project area, especially on Kenyan side, the HIV/AIDS epidemic is still at its infancy, with prevalence rates of 1.3% among men and 5.2% among women in Marsabit, concerns are justifiably high that with the construction works the situation may be made worse. The situation on the Ethiopian side is less bleak with spot checks conducted in Moyale showing 6% rate. The project has set aside a provisional sum that will cater for HIV/AIDS awareness and prevention campaigns for construction workers and communities during implementation of the project. In collaboration with the National Aids Council (NAC, Kenya) representatives at district and constituency levels and NGOs and CBOs active in the area; the contractor will sub-contract services of experts to implement the HIV/AIDS programs. During operation, the Ministry of Roads will be responsible for ensuring that programs and activities will continue. NAC has the responsibility of coordinating and lobbying for resources to be made available through various service providers. The Ministry of Roads, through the AIDS Focal Point, shall ensure adequate budget for a continued program of HIV/AIDS prevention and awareness. In Ethiopia, the EMSB has a full fledge unit dealing with HIV/AIDS/STI issue for workers at ERA, contractor workers and communities. In each case, the contractors will be obliged to sub-contract the services for delivering the HIV/AIDS/STI component. Some elements of the TORs for such services have been provided in Annex C1 below. Provisional sums of USD312,000 and USD50,000 have been provided for Kenya and Ethiopia, respectively for HIV/AIDS mitigation measures.

B8.4.8 Road Safety: Road accidents are bound to occur during construction and more so during operation. Statistics in Kenya show that between 2000 and 2004, there was an average of 2732 fatalities per year. The situation in Ethiopia is equally bad with reported 2160 fatalities in 2007/08 corresponding to a fatality rate of 80/10,000. In addition to sound engineering designs that meet road safety standards, the project has made a provision for road safety programs to be implemented during construction and operation. The Ministry of Roads (in Kenya), in collaboration with the National Road Safety Council, will ensure that information, education and communication (IEC) materials are produced and awareness and educational activities are implemented for the communities, road users, motorists and school children along the zone of influence of the road. In addition, especially during operation, road safety campaigns will have to consider the interaction of motor vehicles, non-motorized traffic (NMT), domestic and wild

55 ANNEX B8 animals. In this respect, the design has put in place measures to allow NMT and to calm speed in built up areas, near schools and known animal (elephant) crossing corridors of Masarbit National Park.

B8.4.9 The road sections on the Ethiopian side pass through areas of high animal density (cattle, goats, sheep and camels). In addition, several of the small towns along the road have high risk of pedestrian accidents. The mission is therefore recommending that, in has also taken into consideration additional measures such as clear road signs, rumble trips to be constructed in areas of animal crossing, and humps in towns and villages with high human activity. With regard to access, the design has included foot steps in areas which have steep cuts. Such cases are obvious at Mega. ERA working with the National Road Safety Coordinating Office will conduct intensive and extensive safety campaigns in the project area.

B8.4.10 Conflict Over Resources: In as much as the project will provide water points, its distribution and ownership will have to be carefully worked out in conjunction with the local communities and local authorities. As mentioned above, scarcity of water and grazing land have been sources of ethnic conflicts on both sides of the project. As development begins to take off in the project area, it is likely that the urban centres will expand. Higher immigration rates to urban centres along the project road will lead to greater demand on infrastructure services on the same resources. This may exacerbate the problem. To ensure that both the contractor and communities are served with adequate water, the project will make a provision for supply of water for human and animal consumption. Various options ranging from borehole drilling, construction of dry river basin dams (lagahs) and earth pans will be explored in Kenya. The contractor will work in collaboration with the Northern Water Services Board, Water Resources Management Authority alongside the Ministry of Water to determine the most appropriate technology and site selection for the facilities. On the Ethiopian side, the Oromia Pastoralist Area Development Commission has embarked on a large gravity fed water supply project. Over 22 sites have been identified with adequate and good quality water to be sourced. The water will be pumped to high ground and distributed over the whole region covering and aggregate of 2000 km of piping. This is part of the modernization of the pastoralist areas.

B8.4.11 Monitoring of Social Impacts: The social impacts of the project along the Marsabit – Turbi section will be monitored by the Ministry of Road’s ESU, with support from the District Roads Engineers, and the District Environmental Officers. Along the Moyale - Yabelo section of the road, monitoring will be by the ERA’s EMSB, with support from the Regional and woreda administrations. In both cases, NGOs and CBOs operating in the area will be monitoring specific aspects within their respective competencies.

56 ANNEX B9

MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIDOR PHASE II PROJECT Project Preparation and Appraisal

Project Processing Milestones Activity Date Identification October 2003 Preparation (Kenya) 1 Dec 2008 Preparation (Ethiopia) 8 Dec 2008 PCN Review by OpsCom 11 March 2009 Appraisal (Kenya) 15 March 2009 Appraisal (Ethiopia) 25 March 2009 Presentation to Senior Management (OpsCom) 03 June 2009 Negotiations 5-6 June 2009 Board Approval 01 July 2009 Planned Date of Effectiveness Dec 2009 Planned Date of Mid-term Review June 2012 Planned Closing date Dec 2014

Bank Staff or Consultants who worked on the Project Name Title Unit

Amadou Oumarou Chief Transport Engineer/Team Leader OINF.2 Noel Kulemeka Principal Socio-Economist OINF.2 Dereje Kidane Infrastructure Specialist ETFO Tom Opiyo Infrastructure Specialist KEFO Arundhati Willetts Consultant - Environmentalist OINF.2 Lynn Harmon Consultant – Transport Facilitation OINF.2

Key Institutions Consulted during Project Preparation and Appraisal Ethiopia Kenya Ministry of Finance & Economic Development Ministry of Finance Ethiopian Roads Authority Ministry of Roads Ministry of Women’s Affairs Ministry of Public Works Environmental Protection Agency (EPA) Office of Deputy PM & Ministry of Trade Oromia Pastoralist Development Commission Ministry of Northern Kenya National Road Safety Coordination Office Ministry of Information and Communication Action For Development (AFD) Ministry of State for Immigration Moyale District Representatives Ministry for Provincial Admin & Internal Security Mega Town - Dire District Representatives Ministry of Transports & Communications Ethiopian Chamber of Commerce Ministry of Water and Irrigation Ethiopian Revenue and Customs Authority Ministry of Gender & Social Development Ethiopian Road Transport Authority National Environment Management Agency Ministry of Trade & Industry National Aids Council Ministry of Transport and Communication Kenya Wildlife Services Akakas Logistics Private Limited Company Masarbit District Representatives Department of External Trade Port Community Based System Team Kenya Shippers Counci Kenya International Forwarding Agents

57 ANNEX C1 MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIDOR PHASE II PROJECT Application of the Bank Road Unit Cost Study Recommendations

OBJECTIVES/RECOMMENDATIONS ACTIONS

Objective 1: Ensuring accuracy of project cost estimates

Ascertain that project design or design review is carried out by The road studies were funded through an AfDB renowned consulting firms recruited under appropriate selection grant. The design of the road was prepared by process as per Bank guidelines and with TORs requesting reputable international firms. The firms were selected specifically a supply chain analysis of contractors’ market as following the Bank’s procurement rules. The well as of key inputs availability and projected prices in estimated costs were reviewed by the Bank to determining the engineer’s cost estimates (Countries and Bank) ensure that they reflected the current economic conditions and the anticipated rise in the costs of inputs in the region. The engineer’s cost estimates were determined using first principle methodology and were further checked and validated against the rates of successful recent bids on similar projects.

Require sufficient level of geotechnical investigation at design The geotechnical studies were completed in stage (Bank and countries) accordance with generally accepted best practices. These were reviewed by Bank staff engineers and the executing agencies and found acceptable.

Conduct systematic updates of cost estimates in case of project The Project Engineering Design was completed in delays, thorough cost review at appraisal and full design March 2009 and is therefore up to date. reviews if more than 2 years have elapsed since initial design (Bank and countries)

Encourage, if warranted, the standardization of project design The selected road design was validated by both requirements at national level or at regional level in the case of countries and complies with the design standards of multinational corridors (Bank and other donors) Kenya and Ethiopia.

Objective 2: Further enhancing competition in tenders

Systematically review on a country basis the merits of promoting Bidding for the major civil works is through participation of local contractors, and define associated international competitive bidding and post- measures in the project design by the appraisal team - e.g. qualification of contractors. Given the extremely tender packaging, national preference, prequalification criteria, difficult conditions and remoteness of the project site, etc. (Bank and countries) participation of local contractors will be mainly through sub-contracting of items such as road stations, drainage structures, and general concrete works.

Ensure appropriate tender advertising and execution, as well as Bank Staff reviewed Procurement capacity of both thorough review of implementing agencies’ procurement agencies during appraisal. Advertising of procedures and capacity (Bank) procurement notices will be through UNDB. Technical Assistance under the Project will reinforce procurement capacity of KeNHA. Bank Staff will conduct spot assessment during project implementation.

Monitor procurement for competitiveness, and intervene when Procurement of Road Works will be through tenders veer towards limited competition (Bank and countries). International Competitive Bidding (ICB) procedures with post-qualification to ensure large participation.

Objective 3: Strengthening knowledge management on road cost and construction industry

Support development of updated national databases on Databases of contractors are already operational in contractors active in the road and construction markets, using both Ethiopia and Kenya. The TA under the project information from project implementation and PCRs (countries, will assist the Road Agencies in Kenya in improving Bank and donors) the database.

58 ANNEX C1

OBJECTIVES/RECOMMENDATIONS ACTIONS

Monitor changes of international and local prices of key inputs, Monitoring to be done by the Bank and the Executing as early warning signal of contract price increases (countries) Agencies in Kenya and Ethiopia

Systematically apply FIDIC conditions for price adjustment Standard Bidding Document with Price Adjustment formula in contracts (countries and Bank) Formula per FIDIC will be applied under the Project

Organize internal and external workshops on Will be followed-up by the Bank findings/recommendations of the study and the proposed action plan (Bank)

Objective 4: Minimizing project implementation delays

Assess in depth the capacity of implementing agencies and Bank Staff assessed the capacities of the Executing include adequate capacity strengthening in project components Agencies during appraisal. A technical assistance to as needed (Bank and countries) strengthen the capacity of KeNHA was deemed necessary and included in the project. Ensure effective project supervision and compliance with realistic procurement timetables (Bank) The Bank will conduct regular and continuous supervision of the project. Bank supervision will be enhanced and more effective thanks to the field offices in Ethiopia and Kenya.

Continue, as far as possible, minimizing non-essential The loan conditions precedent to first disbursement conditions precedent to loan effectiveness or disbursement, e.g. were reduced to the minimum to uphold Bank policy by excluding conditions linked to sector policy reform that for compensation of project affected persons. The should be advanced through development policy or sector sector or policy reforms to support the project reform loans (Bank) development objectives were included as dated covenants.

Consider systematically using advanced procurement actions Advanced Contracting was requested by the two (Bank and countries) countries and was approved by the Bank.

Maintain continuity in project supervision and implementation The countries will undertake under the loan staff (Bank and countries) agreement to minimized turnover of project coordinators. In the Infrastructure Department, average tenure of task managers is more than 5 years.

Assess the possible use of alternative procurement methods, The Bank Procurement Department is in the process such as the design-build-maintenance approach, and the way of developing the necessary guidelines for alternative forward towards improvement/harmonization of associated procurement methods. procurement guidelines (Bank and other donors)

Continue supporting road sector institutional reform and The opening of Bank field offices in Kenya and capacity building (Bank and countries) Ethiopia has strengthened sector policy dialogues with the two countries. The technical Assistance under the current project is in support of the GOK institutional reforms in the road sector.

Objective 5: Preparing better for possible price increases

Agree with Borrowers on a mitigation plan in case of price Will be closely monitored increases higher than the projects’ contingencies, including options such as increased counterpart funds and other measures. (Countries and Bank)

Justify price and physical contingencies in project cost The contingencies applied followed the best estimates to reflect adequately the projects’ and countries’ practices and took into account the specific design specifics, the perceived soundness of design cost estimates, and input supply risks of the projects as well as the and the expected future variations in prices of key inputs (Bank) specificities of Kenya and Ethiopia.

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