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PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB199 Project Name Northern Corridor Transport Improvement Region AFRICA Sector Roads and highways (80%);Aviation (20%) Project ID P082615 Borrower(s) GOVERNMENT OF KENYA Implementing Agency Ministry of Roads, Public Works and Housing Ministry of Works Building Ngong Road, P.O. Box 30260, Nairobi Tel. 254-2-723101

Ministry of Transport and Communications Transcom House, Ngong Road P.O. Box 52692, Nairobi Tel. 254-2-729200 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)

Safeguard Classification [ ] S1 [X] S2 [ ] S3 [ ] SF [ ] TBD (to be determined) Date PID Prepared February 3, 2004 Date of Appraisal December 17, 2003 Authorization Date of Board Approval April/May 2004

1. Country and Sector Background

After two decades of weakening economic growth, low productivity and high unemployment, the new government in Kenya has launched its Economic Recovery Strategy for Wealth and Employment Creation for the period 2003-07 (ERSWEC, October 2003). The first priority is to restore the economy on a path of high growth as a condition for the achievement of all other developmental objectives. The strategy calls for redefining the role of the state as a facilitator for private sector growth and investment. This will entail strengthening policy and regulatory functions of the state and transferring productive and service delivery activities to the private sector. Within this framework, the government has committed itself to maintaining a stable macroeconomic framework, reforming the financial sector and strengthening its regulations to increase savings and investment, implementing mechanisms for private sector participation in provision of infrastructure services, and establishing a competitive environment which is able to attract increased private investment in productive sectors such as tourism, industry and trade.

The main objective of the Government in the transport sector is to spur private sector led economic growth through reducing the cost of doing business in Kenya and increasing its competitiveness in the domestic, regional and international markets. However, the sector is constrained by lack of adequate funds; institutional inefficiencies; weaknesses in the policy, legal and regulatory environment; poor safety and security standards at the airports and Mombasa port; and lack of adequate institutional capacity and human resource skills. As a result, the transport costs and travel times are high and reliability is low.

To address these issues, the Government has taken a number of steps, such as: (i) establishment of a Road Maintenance Fund fed by a fuel levy that generates about $110 million annually which would be just adequate to maintain a core network of strategic roads that are in maintainable condition; (ii) setting up of the Kenya Roads Board with representation from road users, Government agencies and other stakeholders to oversee the allocation and utilization of the Road Fund; (iii) development of rural roads and labor based construction and maintenance strategy (Roads 2000 Strategy); (iv) decentralization of the flow of funds and decision making that has enabled funds for road maintenance to reach every district of the country; (v) significant improvement in axle load control; (vi) setting up of two national task forces to draw up a national transport policy and prepare a plan of action for institutional reforms in the road sector; (vii) operational improvements at the Port of Mombasa; (viii) enactment of the Civil Aviation Act of 2002 and establishment of the autonomous Kenya Civil Aviation Authority; and (ix) initiation of public-private partnerships including the concessioning of Grain bulk cargo handling in Mombasa Port, Cargo handling in Nairobi Airport and the privatization of Kenya Airways. The Government has also taken steps to concession the Kenya Railways, amend the Roads Act to permit concessioning of roads, and improve the legal and regulatory framework for the transport sector.

2. Objectives

The new government that recently came to power sought and secured the electoral mandate of the people on the pledge to work together with all progressive forces to bring about comprehensive political and economic change. In line with that pledge, the government has prepared its economic recovery strategy (ERSWEC) emphasizing the creation of productive employment to address simultaneously three challenges: the social problem, under-utilization of production capacity, and poverty reduction. Through improving the Northern Transport Corridor, the project is expected to enhance domestic and regional trade and create job opportunities in the construction industry. Similarly, enhancing the safety and security status of civil aviation and major airports will enable direct flights to and from USA which would promote tourism and increase trade under the AGOA. It will also reduce insurance costs for Kenyan airlines and have an indirect impact on trade and tourism from other developed countries.

The specific Project Development Objectives are to: (a) increase efficiency of road transport along the Northern Corridor to facilitate trade and regional integration; (b) enhance aviation safety and security to meet international standards; and (c) promote private sector participation in the management, financing and maintenance of road assets.

Country Assistance Strategy. The project is designed to contribute to two important objectives emphasized by the CAS currently under preparation (draft CAS dated November 2003): (i) economic growth and (ii) improving governance. One of the key components of the growth strategy of Kenya's new Government under its Economic Recovery Program is the promotion of reliable and least cost infrastructure services, particularly roads, ports, water and communications. Over the last several years, the private sector has consistently pointed out the poor state of roads as one of the most critical constraints to the competitiveness of Kenya's goods and services and to promotion of tourism. Similarly, the creation of an autonomous Roads Agency and strengthening of the newly created Kenya Civil Aviation Authority and the Kenya Roads Board will contribute significantly to improving governance in the transport sector.

3. Rationale for Bank Involvement

The Bank has played a leading role in the development of the road sector since independence and has maintained a continuous dialogue with government on appropriate strategies for the transport sector. The recent report “Kenya Transport Sector Memorandum” was prepared as part of an AAA financed by the Bank and discussed extensively with the Government including at a stakeholders’ meeting in Nairobi on November 11, 2003. The report is being revised as a result of the feedback from the participants and forms the basis for the involvement of the Bank and other Development Partners in the transport sector. Work is also under way to develop a new strategic plan for the road sector, which will have as its principal objective the attainment of sustainability through assured funding for adequate routine and periodic maintenance. External funding will then concentrate on the improvement of the network rather than remedying the effects of inadequate maintenance. Achieving sustainability, however, will require substantial assistance to remove the backlog of periodic maintenance, strengthening and rehabilitation work that has accumulated so far. Further assistance by the Bank, within an agreed strategy for the sector, will help mobilize other development partners to maintain or extend their funding in the sector.

The Bank has accumulated a great deal of knowledge and experience in transport sector reform in the region over the last 10 years under the Sub-Saharan Africa Transport Program (SSATP) and more specifically under one of its components, the Road Management Initiative (RMI). This has provided the Bank with the good will of the beneficiaries and development partners in creating a cooperative framework where sector reforms have gradually been shaped, implemented and monitored. This will also help ensure, for the road sector, further institutional and financial sustainability of road management by helping to define and implement efficient, effective and sustainable policy frameworks, institutional arrangements, financial management systems, and financing mechanisms, which have been tested and endorsed under the RMI.

Moreover, through its worldwide involvement, the Bank has gained substantial experience related to multi-year performance-based contracts for road network management and maintenance. The private sector in Kenya is reasonably well developed and well suited to carrying out area-wide rehabilitation and maintenance of roads under longer term performance based contracts (or concessions where feasible) such as those being carried out in Latin America (Brazil, Argentina, Chile), USA (Virginia, Oregon, Washington DC), Spain, New Zealand, UK, and recently in Africa (Chad) and India. Maintenance costs have been known to have reduced by 10-15 percent after such arrangements are set up. Through the private sector participation component of the project, the experience gained worldwide will be put into practice in Kenya. A pilot performance based contract will be implemented under the project, which will allow the Government to gain experience in this area and to gradually expand the concept to a larger part of the road network.

In the transport sector as a whole, the Bank has been involved, especially through the PPIAF, in policy developments involving private sector participation in financing and operation of transport infrastructure. It has been involved worldwide in Ports modernization and Airport infrastructure financing projects. It has also recently helped to develop a policy framework in air transport safety and security in West and Central Africa, consistent with the objectives of GOK in this respect.

4. Description

The proposed project will consist of the following eight components: A. Rehabilitation of Northern Corridor. This component comprises: (a) strengthening and rehabilitation of about 360 km of selected priority road sections along the Northern Corridor to cope with projected traffic and provide efficient and reliable road transport services; (b) improvement of the Airport North Road connecting the Mombasa Highway to the old Embakasi airport (about 7 km); and (c) consultant services for supervision of works. B. Roadside Amenities and HIV/AIDS Mitigation. This component involves: (a) Roadside Amenities comprising the identification and construction of proper bus and truck stops at key locations including parking areas and utilities infrastructure; construction of booths for sale of local produce and products by roadside communities; bicycle paths and pedestrian sidewalks; and any other roadside features to enhance the safety and socioeconomic impact on the roadside communities and road users. It will also include re- settlement and rehabilitation of any Project Affected People (PAPs) as appropriate, and mitigation of negative environmental impacts; and (b) HIV/AIDS Mitigation Measures. In collaboration with the National HIV/AIDS program, the International Transport Federation and the Truckers Association, this component will provide for specific interventions along the Northern Corridor, including awareness and information dissemination, kiosks for provision of public health and social awareness services for HIV/AIDS, distribution of condoms, strengthening of local health centers as needed, voluntary counseling and testing, and support and care for affected persons. The civil works contracts will contain appropriate clauses for HIV/AIDS mitigation measures. C. Private Sector Participation in Road Management and Maintenance. This component will promote public-private partnership in the road sector and comprises: (a) technical assistance for facilitating concessioning of selected sections of the Northern Corridor road link; and (b) initiating a pilot program of long-term performance based maintenance and management of a selected sub-network (about 300 km) of lower volume roads. D. Road Safety Improvement. This component is designed to reduce the number of fatalities and crashes on the road network and comprises the formulation, implementation and monitoring of a three year road safety program consisting of, inter alia: (i) road safety education, (ii) public awareness campaign, (iii) public transport safety support, (iv) emergency services support, (v) law enforcement support, (vi) hazardous location improvement, (vii) Road Safety Unit’s organizational strengthening and capacity building, and (viii) construction of five children’s Traffic Safety Parks.

E. Institutional Strengthening in the Roads Sector. This component will support government’s efforts in capacity building and consolidating or promoting further institutional and policy reforms in the roads sector, including establishment of an autonomous National Highways Authority; strengthening the Materials, Research and Development Department of MRPWH; supporting the Kenya Roads Board; and conducting selected feasibility, engineering and design studies. F. Support to the Kenya Airports Authority (KAA). This component will provide support in the form of civil works, consultant services, purchase of equipment, training, etc. to improve the operations, search and rescue capacity, and the safety and security standards at the Nairobi Jomo Kenyatta International Airport (JKIA), Mombasa Moi International Airport (MIA), Wilson Airport and Kisumu Airport. G. Support to the Kenya Civil Aviation Authority (KCAA). This includes: (a) support to the KCAA for safety inspection, training, implementation of reforms and purchase of equipment and implementation of GNSS/GPS enroute and approach procedures; and (b) support to the East African School of Aviation for training of trainers, purchase of training equipment for airworthiness, air traffic control systems, and engineering services.

H. Support to the Ministry of Transport and Communications. This comprises strengthening of MOTC through technical assistance and training, and includes sector studies related to maritime laws and regulation, regional trade and transport facilitation.

5. Financing

Source: ($m.) BORROWER/RECIPIENT 68 INTERNATIONAL DEVELOPMENT ASSOCIATION 207 IDA GRANT FOR POOREST COUNTRY 0 Total 275

6. Implementation Project Management

There are primarily four Project Implementing Agencies (PIAs), namely, MORPWH, KAA, KCAA and MOTC. Each Implementing Agency has an empowered Project Technical Team (PTT) responsible and accountable for implementation of its respective components on a day-to-day basis in line with procedures governing project preparation and implementation relevant to each of the PIAs. A Team Leader will lead each PTT. The project is an integral part of the respective implementing agencies investment program and each PTT is fully staffed by the agency’s regular staff. Overall, project coordination will be by a Project Coordinating Team (PCT) comprising of Team Leaders of each implementing agency. The PCT will be responsible for overall reporting and coordination of the project and will raise any issues that may hamper the smooth preparation and implementation of the project to a Project Oversight Committee (POC). The Team Leader, Roads component (MORPWH) will head the PCT, deputized by the Team Leader from MOTC. MORPWH will provide the secretariat. The POC will be co-chaired by Permanent Secretaries of MORPWH and MOTC and will provide overall oversight, policy direction and resolve any issues/bottlenecks that may ensue during project preparation and implementation. The POC will comprise PS MOTC; PS MORPWH; Managing Director, KAA; Director General, KCAA, and Chief Engineer (Roads), MORPWH.

Financial Management The PTT for each Implementing Agency will be responsible for financial management and procurement responsibilities under the project. Accordingly the management of the Special and Project Accounts will be carried out by the PTTs in accordance with sound accounting principles and standard guidelines acceptable to IDA. The PTTs will oversee these Accounts, and verify invoices and approve payments. The PTT will also prepare all financial management reports, financial statements, payment requests and any other relevant documentation as required by POC and IDA. The PTTs will ensure that the special and project accounts are audited as required and contracting, procurement, disbursement and financial management are carried out efficiently. All the necessary documentation supporting project related disbursement and financial transactions will be maintained by each PTT for inspection by IDA supervision missions, Government, and independent auditors.

The proposed project will be fully integrated into the activities of the MORPWH, MOTC, KCAA, KAA and the accounting and budgeting systems will therefore be fully compatible with the Government systems. MORPWH and MOTC will both have an accountant on the project teams to handle the financial management matters.

Retroactive Financing:

The credit will provide for retroactive financing equivalent to 10% of the proposed credit amount, to finance expenditures incurred before credit approval.

Procurement

Procurement of works and goods will be carried out in accordance with the Guidelines: Procurement under IBRD Loans and IDA Credits (January 1995 edition- revised January and August 1996, September 1997, and January 1999). Bank’s Standard Bidding Document ( SBD) and standard bid evaluation forms will be used for works and goods procured under ICB. SBD recently prepared by KAA will be used for works and goods procured under NCB. Selection of consultants will be carried out in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers (January 1997 edition - revised September 1997, January 1999, and May 2002). Bank standard Request for Proposals (RFP) and evaluation forms will be used where applicable.

The project is expected to facilitate simplification and streamlining of procurement procedures to reduce protracted delays because of duplication of checks and verifications undertaken by MOF before countersigning. Since each Ministry has an elaborate system for procurement processing, including a well established Tender Committee, it is felt that in the interest of reducing delays, MOF should delegate full authority to the implementing Ministries under the proposed project to conclude and sign off on contracts. This is not an issue with the parastatals such as the KAA, KCAA and EASA. However, for the Roads Department, the situation is expected to improve as soon as the National Highways Authority is established.

7. Sustainability

The project is likely to be implemented successfully and in a timely fashion because of the early and full involvement of the key stakeholders and the project team. The timely flow of counterpart funds will be critical, but so far all indications are that the government is committed to funding this project in a timely manner given its high priority and regional significance. The government has included the project in its fiscal budget and has invested a substantial amount of resources and manpower in conducting some of the environment, design and engineering studies (e. g. Mau Summit to Kisumu road section).

The benefits of the project are likely to be sustained because maintenance and management of the Northern Corridor, after rehabilitation, is to be concessioned to the private sector and funded from tolls. Similarly, the KAA and the KCAA have made proposals to the government for retaining directly some of the airport and aviation licensing charges, which will allow them to continue to maintain the high standard of safety and security required for continuous growth in air traffic from USA and Europe. The upcoming options study for private sector participation in the aviation sector financed by a grant from PPIAF, should also lead to greater involvement of the private sector in the operation and management of airports.

8. Lessons Learned from Past Operations in the Country/Sector

Previous experience with road sector projects, and their implementation record in Kenya hold a number of useful lessons:  Project design must reflect the intent, interests and priorities of the beneficiaries and the stakeholders to ensure ownership of the project and particularly the reform process.  There must be an emphasis on capacity building of project agencies. Experience in Kenya and elsewhere confirm that sustained project impact depends less on the physical works financed and more on well-managed, well-financed executing agencies  Preparation and implementation of the project by the responsible ministries of roads and transport will ensure the integration and follow-up activities within these ministries. The decision by the Government to set up an "all inclusive" Project Technical Teams and a Project Coordination Team to prepare and implement the project will avoid previous experiences where the focus was more on physical works and less on financial management and other institutional aspects  Explicit provision for adequate (and assured) domestic funding for maintenance must be made for project-financed infrastructure to ensure sustained benefits after project completion  In general, any first effort in a sector, or a subsector, needs to be supported by a sustained sector dialogue aimed at defining and implementing the necessary institutional and financial reforms to achieve goals and policies. Follow-up operations, appropriately timed, are required to cement the gains and extend the policy and institutional reforms which may be left incomplete by the predecessor project These lessons are particularly relevant for the proposed Northern Corridor Transport Improvement project. The proposed public- private partnership element of the project is the first of its kind in Kenya's road sector. It aims at improving the long term maintenance environment of the roads by facilitating concession of selected sections of the Northern Corridor and initiating a pilot program of long-term performance based maintenance and management of a selected sub-network of lower volume roads. Project preparation effort and project design reflect deliberate and sustained dialogue between IDA and GOK. In addition, based on prior experience, the project, through the Project Technical Teams (PTT) will emphasize upstream implementation of reporting, auditing and accountability measures to ensure early detection and remedy of implementation problems. Moreover, the establishment of the inter- ministerial Reform Task Force (RTF) to spearhead the implementation of the reform agenda in the road sector, will ensure ownership and contribute to make the road sector more efficient and sustainable.

9. Safeguard Policies (including public consultation)

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [x ] [ ] Natural Habitats (OP/BP 4.04) [ ] [ ] Pest Management (OP 4.09) [ ] [x ] Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [x ] Involuntary Resettlement (OP/BP 4.12) [x ] [ ] Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ ] [x ] Forests (OP/BP 4.36) [ ] [x ] Safety of Dams (OP/BP 4.37) [ ] [x ] Projects in Disputed Areas (OP/BP/GP 7.60)* [ ] [x ] Projects on International Waterways (OP/BP/GP 7.50) [ ] [x ]

Safeguard Screening Category S2 Environmental Screening Category B Safeguard Studies to the InfoShop MM/DD/YY

10. List of Factual Technical Documents

Detailed design studies for the various road sections of the Northern Corridor listed in component A Environmental Assessments of the road sections listed in Component A Resettlement policy framework issued by the Government in November, 2003 List to be updated after the appraisal mission end of February, 2004.

11. Contact point Contact: Anil S. Bhandari Title: Lead Transport Specialist. Tel: (202) 458-8943

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Fax: (202) 473-8326 Email: [email protected]

12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop

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