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Report No AB84 Initial Project Information Document (PID)

Project Name -MG-TRANSPORT INFRASTRUCTURE fNVESTMENT PROJECT Region Africa Regional Office Sector Roads and highways (82%); Ports; waterways and shipping(l4%); Aviation (4%) Project ID P082806 Supplemental Project

Public Disclosure Authorized Borrower(s) REPUBLIC OF MADAGASCAR Implementing Agency MINISTRY OF TRANSPORT AND MINISTRY OF PUBLIC WORKS Address Program Executive Secretariat Address' Vice Premier Office of Economic Programs, Ministry of Transport, Public Works and Regional Planning, , Madagascar Contact Person Jean Berchmans Rakotomaniraka Tel. 261 33 11 159 42 Fax. Email rjb_sepst@dts mg Environment Category A Date PID Prepared May 15, 2003 Auth Appr/Negs Date September 10, 2003 Bank Approval Date November 13, 2003

1. Country and Sector Background Public Disclosure Authorized The transport sector plays a key role in Madagascar's growth and poverty alleviation strategy. Increased foreign investment, development of the country's eco-tourism and mining potential, and growth in agricultural output all depend on the efficiency of transport services and the availability of appropriate transport infrastructure. Unfortunately, three decades (1970-2000) of inappropriate sector policies have led to a serious deterioration of the country's transport infrastructure. It is estimated that during that period the country lost on average about 1000 kilometers of roads per year due to lack of maintenance In April 2000, after almost ten years of sector dialogue and no lending in the sector, the country adopted a comprehensive transport sector policy and strategy, which aims at (i) focusing the government's role on sector oversight and coordination; (ii) creating jointly public-private controlled and user financed agencies for sub-sector management and regulatory functions; (iii) divesting operational activities to the private sector, through privatization and concessioning arrangemenlts; (iv) development of the local private sector for works design and execution; and (v) rehabilitation of the transport infrastructure to appropriate levels. The transport sector APL assists the government, jointly with other donors, users and the private sector, to implement this policy and strategy. Public Disclosure Authorized

In January 2003 the Government merged the former Ministry of Public Works, Ministry of Transport and Meteorology, and the Ministry of Regional Planning and put them under the leadership of the Vice Prime Minister. In the process of this reorganization a very light structure was adopted reflecting the role of the 2 PID

Ministry as an oversight and coordination agency. The new Ministry (VPM) is well positioned to implement and oversee the comprehensive transport sector policy and strategy.

Following are the main sub-sector issues and the Government's strategy to address them:

The Road Sub-sector:

The road networkof Madagascar has been gazetted, based on thCharte routiere, as 2,560.2 km of national primary roadsRoutes Nationales Primaires RNP - also called the structural network, connecting the provincial capitals with the national capital), 4,753.8 km of secondary national roads ( Routes Nationales SecondairesL RNS), 4,549 km of temporary national roatsu(es Nationales Temporaires - RNT), 12,250 km of provincial roaoiAtes Provinciales- RP), and 7,500 km of communal (local government) roads (though not yet gazetted) for a total of 31,612 km. Of these only 5,855 km are currently in good and fair condition. Of the roads in good and fair condition 4,074 km are paved. 25,757 km of the road network are in bad condition, and therefore are in need of rehabilitation. Most of the roads in bad condition are only seasonally practicable, and some not at all, inducing very high costs on users. The road network and its condition in 2002 Type of Road Length (km) In good or fair Of which bituminous In bad condition (km) surface (km) condition (km) RNP 2560 1616 1577 944 RNS 4753 1319 1277 3434 RNT 4549 1000 800 3549 RP 12250 1070 70 11180 RC 7500 850 350 6650 Total 31612 (100%) 5855 (19%) 4074 (13%) 25757 (81%)

Through a six year paving, rehabilitation and maintenance program (2003 - 2008) the Government intends to bring the share of good roads to 60% (which includes 100% of all national roads), and the share of paved roads to 23%, as shown in the table below.

The planned condition of the road network in 2008

Type of Road Length (km) In good or fair Of which bituminous In bad condition (km) surface (km) condition (kin) RNP 2560 2560 2521 0 RNS 4753 4753 2827 0 RNT 4549 4549 1280 0 RP 12250 5750 250 6500 RC 7500 1450 410 6050 Total 31612 (100%) 19062 (60%) 7288 (23%) 12550 (40%)

Following is the necessary investment and maintenance program 2003 -2008 to get the network to the above condition:

Madagascar Road Program 2003 - 2008 Cost and Financing

Type of Works |Finance |Million US Dollar 3 PID

National Roads (RNP/RNS) - APL-3 - Routine maintenance RMF 60 - Periodic maintenance of gravel roads RMF 14 - Periodic maintenance of paved roads RMF/Government/donors 92 - Rehabilitation of gravel roads Government/Donors 182 - Rehabilitation of paved roads Government/Donors 74 - Paving of gravel roads Government/Donors 152 - New construction (urban roads in Tana) Government/Donors 9 Sub-total 583 Rural Roads (RNT/RP/RC) - APL-2 - Routine Maintenance RMF 44 - Periodic maintenance RMF 61 - Rehabilitation Government/Donors 167 Sub-total 272 Total 855

Road Management:Road management in Madagascar has been weak, leading to the loss and degradation of over 80% of the network over the last 30 years. In its sector policy and strategy the government plans a complete overhaul and renewal of road management, as follows: (i) creation of a user-financed and controlled second generation Road Maintenance Fund (RMF) (see next chapter below); (ii) creation of six provincial and one central road agencies (PRA and CRA) for the management of contracts; and (iii) restructuring of the Provincial Roads Departments (PRD).

The PRD are deconcentrated units of the VPM at provincial level. They have formerly been executing agencies for works on national roads within provincial boundaries, most of which was done by force account. They are now being restructured to become programming agencies for all works on all roads (national, provincial and communal) withinl provincial boundaries.

The PRAs and the CRAare independent and autonomous contract management agencies (AGETIP-like) overseen by a Board of Directors and financed by a percentage of the contracts they manage. The PRAs manage all works on provincial and communal roads, as well as routine maintenance on national roads, while the CRA manages large contracts (periodic maintenance, rehabilitation, upgrading including paving and construction of national roads). Both PRAs and the CRA are currently being created, and PRD staff is being equipped and trained with finance from APLI.

The Road Maintenance Fund (RMF): Madagascar established a Road Maintenance Fund (RMF) in 1999. The purpose of the RMF is to finance the maintenance of all roads in Madagascar. The RMF is a second generation road fund with a legal basis, governed by a Board with a majority of private sector road user representatives, with a small secretariat (with five high level staff), and to be financed from road user charges. A recent audit revealed important shortcomings of the RMF during past years. Consequently a revised decree was agreed upon between Government and donors and was adopted in March 2003 New management of the RMF is being recruited and a new Board constituted. Technical assistance is being provided to the RMF by the European Union (EU).

The table below summaries the maintenance funding requirement for 2003 - 2008 and expected sources of income. The current fuel levy of U$5 cents equivalent per liter of fuel would have to be increased to US$7 cents in 2005, and a heavy vehicle licence fee would have to be introduced in 2004 to match the increasing needs due to the increase of the network in good and fair condition as a consequence of the rehabilitation program. Local governments (provinces and communes) are contributing 10% to all 4 PID maintenance works. Persisting financing gaps are planned to be filled by donor and HIPIC (IPPTE) contributions. Also some "backlog" periodic maintenance will be financed by donors in 2003 and 2004.

(Amounts in US $ million) 2003 2004 2005 2006 2007 2008 Total Maintenance Requirement 28.0 32.6 38.3 43.9 49.6 55.5 - of which expected from fuel levy 22 1 23 4 29.8 31 6 39.1 41 4 - of which expected from heavy vehicle licence fee 0.0 2.5 5.0 5.3 5 6 6 0 - of which co-financed by local governments 0 7 0 8 0 9 1 0 1.1 1 3 - of which financed by EU 1 5 1 1 0 0 0 0 0 0 0 0 - of which IPPTE 3.7 4 8 2.6 6.0 3 8 6 8

The road maintenance planning and execution cycle is planned as follows: (i) at an annual transport sector conference in May each year the RMF will give out unit rates for the different maintenance works (based on advise from VPM) and budget envelopes to the different road owners; (ii) based on this the PRD would then, on behalf of the road owners, prepare the programs for the following year and submit them to the RMF by end of August; (iii) thereafter the RMF will consolidate the different plans and approve them by the end of October (for this peak period the RMF will employ the services of consultants); (iv) during the period of November to December, the CRA and PRA will procure the respective works and services contracts; and (v) by January each year the maintenance (normally annual) contracts can commence.

Rail Transport:

The rail network of Madagascar consists of the Northern and Southern Railways. The Northern Railway with a network of 732 km has been concessioned to a private operator (MADARAIL) in January 2003. The Northern Railway connects the country's main port in Toamasina with the capital Antananarivo and . The line has substantial commercial potential but is badly in need of rehabilitation The concessionnaire plans a five year $35m investment program to get the railway running again and to be able to compete with the parallel road. The Southern Railway with a track length of 163 km connects Fianarantsoa with the port of Manakara, is planned to be concessioned, jointly with the port of Manakara, to a private operator. Due to its limited commercial viability, however, substantial public investment ($17m) is planned through government funding, supported by various donors in the framework of the APL2, parallel to the concessioning. While through the APLI, the concessioning of the Northern Railway was supported, the APL2 supported the concessioning of the Southern Railway. No further support to the railways is planned in the framework of the APL. However, the investment program on the Northern Railway will likely require some further public support in future (a credit to the Government to be on-lent to the concessionnaire at commercial rates). Such support is planned in the framework of the planned PRSCs or future SIL

Maritime, River and Canal Transport, and Coastal Protection:

In keeping with the principles adopted about the restructuring of the transport sector as a whole, the Government initiated the institutional transformation of the port and waterborne transport sector with a view to (i) focusing the public sector role on strategic planning and regulation, and (ii) establishing the sector regulatory and planning body at arm's length from the Government's line ministries, so that it can be insulated to a large extent from political and budgetary uncertainties. The groundwork to prepare for this transformation has been initiated and largely completed under APLI, supported by a technical assistance contract, so that the institutional and legal frameworks underlying the new organization are now ready to be enacted by Parliament, which is scheduled to take place in May 2003. Simultaneously, the financial and budgetary aspects have been reviewed in depth, with an objective to make the sector 5 PID practically self-financing from a public perspective, with as little contribution as possible from the national budget. Employment implications, training needs, requirements for reassignment and retrenchment of staff have also been assessed in detail, so that the new structure can be up and running as quickly as possible following parliamentary approval.

In complement to the setting up of the central planning and regulatory body, the Agence Portuaire, Maritime et Fluviale (APMF), the reform of the sector also includes the establishment of Ports a Gestion Autonome, and ports under Global Concession schemes, the objective being to have all commercial activities concessioned to private operators under contracts awarded and managed, either by the Ports a Gestion Autonome, or by the APMF for the ports under Global Concessions. The corresponding legislation is also due to be enacted by Parliament during the May 2003 session

The private sector, through the national Employers' Association (GEM) and professional port and legal maritime associations, has been closely involved in the work leading to the new institutional and framework now close to be enacted. In particular, the principle of representation at parity between the public and private sectors in the APMF board has been endorsed by both parties, a significant evolution the from the initial formulas proposed at the outset of the process. This is consistent with the fact that and port users will actually directly cover, through the port and maritime fees, most of the operating in development costs of the sector, while the Governmlent will naturally retain its prominent role discharging statutory missions pertaining to safety, environment protection and security.

Air Transport: six Air transport services are provided in Madagascar on the regional and international haul through regular airlines (Air Madagascar, Air , , Air , Inter air, Comores Air Services, Flying Corsair), and on the domestic haul through Air Madagascar, Malagasy airlines and Malagasy services and a dozen non regular charter and taxi private airlines. Air transport services are supported through a network of 55 airports open to public air transport of which 29 have asphalted runways. newly Different institutions manage different airports: (i) the Aviation Civile de Madagascar (ACM), the created regulatory authority in charge of the sector oversight manages 40 secondary and smaller airports; Paris (ii) the Aeroports de Madagascar (ADEMA), a company owned jointly by GoM and Aeroports de Nosy (ADP) which manages until 2006 the 12 biggest airports (of which 5 international airports Ivato, Be, Antsiranana, Toamasina, and ) under an affermage type contract; and (iii) the ASECNA, which manages 3 airports as well as air navigation in the Antananarivo region.

The air transport sector is viewed by the Malagasy Government as crucial to promote broad-based growth PRSP in support of tourism, manufacturing exports, two sectors targeted for their growth potential in the urban and to ensure an efficient grid network throughout the country for trade and communications from To centers to enclaved and remote towns domestically and outside the great island of Madagascar. promote an efficient air transport system, i.e. improve quality and access to air services and reduce costs, this since 1997, Madagascar has embarked on a liberalization reform of its sector. The first phase of reform supported by PATESP and APLI from 1998 to 2001 involved the adoption of a new civil aviation umbrella law, setting up a new regulator Aviation Civile de Madagascar (ACM) in charge of overseeing the sector and enforcing technical and economic regulation, the removal of monopoly of Air Madagascar both on domestic, regional and international routes, and opening the sector to charters and new entrants to domestically and internationally. As a result of these efforts, tourism increased from 40,000 in 1997 of 178,000 in 2000, 59 destinations were serviced, and passenger traffic amounted to almost I million which 55% were on the domestic network. This growth came to a halt in 2002 with a 70% traffic 2002 collapse following September 11, 2001 and the Malagasy political crisis between January and July 6 PID further exacerbated the condition of the aviation sector. In 2002, only 26 destinations were serviced and the level of seats offered went back to levels pre-1996. Most airports require urgent rehabilitation, in particular safety and security equipment, telecommunications and radio navigation and expansion of terminals and runways, road access improvements to bring infrastructure to international safety and operations standards.

To relaunch the economy, and boost exports manufacturing and tourism to 500,000 passengers by 2008, the Government formulated a strategy whose objective is to restore access and quality services and reduce costs. This strategy involves the acceleration of the reform and the modernization of its infrastructure to accommodate future growth. The priorities are to pursue the building of the regulatory authority, to finalize secondary legislation in line with international best practices (both initiatives under APLI-TSSRP), support to Air Madagascar to restore services under Emergency Credit and under the proposed APL3 increase the involvement of the private sector in the airport network by granting last-resort finanlce either through concessional funds or guarantees within public-private partnerships so that the airport infrastructure network are rehabilitated to international standards of security, safety, and efficiently managed to adequately accommodate market needs. To start immediate implementation of the airport modernization plan under the current challenging environment, the GoM has ordered to international consultants an assessment of its airport system airport including the following: (i) a review of the commercial and financial condition of the aviation industry at large and its 55 public airports in Madagascar; (ii) an assessment of existing installations and appropriate investment requirements for commercial, security and safety rehabilitation; and (iii) the elaboration of options of disengagement for the Government to consider (concession, affermage and management contract), and their respective financing schemes (public/subsidy/commercial/multilateral lenders). Preliminary conclusions indicate that investments needs of the 55 airports amount to US$100 million over the next fifteen years. Urgent priority needs in the next five years amount to US$38 millions and include: the upgrading of all airports with safety and security equipment, telecommunication and radars, the modernization of Ivato passenger terminal and construction of a freight terminal to accommodate growing exports.

2. Objectives The Transport Infrastructure Investment Project (TIIP) supports the interim CAS objectives, and, in conjunction with the first two phases of the sector APL, the objectives of the country's transport sector policy and strategy. The project's development objective is to rehabilitate the country's major transport infrastructure in order to reduce transport cost and to facilitate trade.

3. Rationale for Bank's Involvement Through its long-lasting association with Madagascar, IDA has developed a deep knowledge of the country's transport sector. The Bank was instrumental in its assistance to the Government to formulate its transport sector policy and strategy.

Through Sub-Saharan African Transport Program (SSATP) the Bank has been strongly associated with the reform process in road management and financing and the concessioning of port and airport operations to the private sector. Through the SSATP Madagascar can profit from similar reforn experiences in the region.

Due to its global outlook and experience the Bank has important advantage to offer in respect of the reforms of the maritime transport and civil aviation sub-sectors. In addition, the World Bank Group, through its various institutions involved in the private financing of infrastructure and through its various risk mitigation instruments (IFC/MIGA/World Bank guarantees), is in a unique place to leverage as much as possible private financing to complement and minimize public investments. 7 PID

The Bank's comparative advantage in contributing to the reform and development of the transport sector -is well recognized by the stakeholders active in Madagascar, including the donors community, the private sector, and the NGO's.

4. Description 1) National Road Construction, Upgrading, Rehabilitation and Maintenance (US$585 million)

The national roads upgrading, rehabilitation and maintenance program aims at bringing all the primary and secondary national roads (7313 km) to good and fair condition by end of 2008. To achieve this, total investments and maintenance finance amounting to $583 million is required. Out of this the Road Maintenance Fund is planned to finance about $100m, the Government about $100m, other donors about $283m (the bulk of which the EU), and IDA $100m. The program is planned to achieve: (i) the construction of a ring road around Antananarivo (partly on existing alignment) and a new airport access road of a total length of 30 km; (ii) paving of 627 km of gravel roads to bituminous standard; (iii) the rehabilitation of 683 km of bituminous roads; (iv) the rehabilitation of 2178 km of gravel roads; (v) the periodic maintenance of 2065 km of paved roads; (vi) the routine maintenance of all roads that are in good and fair condition (which is increasing annually); and (vii) minimal maintenance works on roads not yet rehabilitated to keep them from further deteriorating, and, if possible, to keep them open during rainy season (from $500/km on national paved roads and $150/km on rural roads) until rehabilitation works are started under the program.

Of the above, IDA will finance the following:

1.1 RN2 and RN44/RN3A package (US$50 million)

The RN2 links the capital Antananarivo with the main port of Toamasina. Traffic levels are relatively high with about 1500 vehicles per day and a high share of heavy trucks. It is expected that through the rehabilitation of the Northern Railway (which has been concessioned to a private operator) much of the heavy loads, and particularly fuel transports, will in future be made by rail, thus relieving the road. The RN44 branches off from the RN2 at . The RN44 links to the main rice growing area of the country at the lake Alaotra. The road is in a dismal condition and mostly impassible during rainy season. During a recent survey it was found that trucks take up to 13 hours for the 120 kilometers, if they pass at all.

This large package is being created in response to the government's wish to attract new contractors to the country. Currently there are only two large scale contractors operating in Madagascar and it would be highly desirable to attract new contractors in order to enhance competition in the sector. This package, other large packages financed by the EU, and the entire transport sector program should assist to make Madagascar attractive for new large capacity contractors. A special outreach and information campaign will be made to make this happen.

The package consists of the following works: - paving of RN44 from Morarano to the junction with RN3A ( 112km - traffic about 300 vehicles per day) - rehabilitation of the RN44 from Ambatondrazaka to Vohitraivo (69km) to gravel road standard - heightening of about a 2 km section of the embankment on the RN3A near the junction with RN44 which is frequently flooded, and - provision of an overlay (periodic maintenance) on RN2 between Antananarivo and (249km). 8 PID

There will be a few limited re-alignments in areas prone to road side erosion (lavaks).

1.2 RN7 (US$13 million)

This road can be considered "the spine" of the road network of Madagascar. It is the highest trafficked road with traffic levels of about 2000 vehicles per day and a high share of trucks. Works consist of 295 kilometers of periodic maintenance (bituminous overlay), in various sections, on the RN7 between Antananarivo and Fianarantsoa and beyond.

1.3 RN32 (US$10 million)

This secondary national road branches from the RN6 that connects Antananarivo with Antsiranana, at Ansohihy and connects to Mandritsara, an important departmental capital in a major agricultural production zone. Works consists of the rehabilitation of 186km of an existing bituminous road which is quite badly deteriorated (70% of its length is in poor condition). Due to low traffic levels,full rehabilitation is not justified and appropriate intervention levels need to be defined during design. A possible approach will be to rehabilitate to bituminous level only the first half of the road where traffic levels are higher, and to rehabilitate the second half of the road to gravel standard.

1.4 RN9 (US$10 million)

This secondary national road connects Toliara with Morombe. The coast north of Toliara has an important touristic potential. The existing earth road of a length of 204 kilometers is in very poor condition and not motorable during the rainy season. A modest upgrading to a gravel road is planned at an estimated cost of US$50,000 per kilometer.

1.5 RN5A (US$13 million)

This earth road which is in very poor condition branches from RN6 at Ambilobe and leads eastwards to Iharana (159km). It connects the main vanilla growing areas with the main north-south axis. Current traffic is about 130 vehicles per day and it is planned to rehabilitate the road to gravel road standard at a cost of about $80,000 per kilometer. All bridge and culvert works were completed more than a decade ago but the road was never completed.

Designs for all the above works are being prepared (with APLI financing) and bidding document are expected to be available at the end of 2003. Immediately thereafter bidding will be done so that works can commence in April/May 2004 after the rainy season. Works duration will be between 24 and 36 months.

1.6 Replacement of ferries (US$6 million)

This sub-component will be detailed during pre-appraisal.

2) Road Safety and Axle Load Control Component (US$2 million) 9 PID

While road accident ratios in Madagascar are high compared to the vehicle fleet and vehicle kilometers driven, due to low motorization and poor road conditions total road accident occurrence is still relatively modest. In 1999 the Ministry of Finance and Economy reported 445 deaths and 3645 injured due to road accidents. That would amount to about 15 deaths per 100 million vehicle kilometers (about 15 times worse than in best performing countries). About a quarter of these accidents happen in Antananarivo. It can safely be expected that with improved road condition and expected economic growth, the situation will quickly get worse if not checked. As well, it has been observed that overloaded vehicles contribute substantially to rapid road deterioration. Existing measures to control axle loads (the maximum axle weight is 13 tons) have not proven effective. For the above reasons, the government has requested a road safety and axle load component to be added to the project.

This component is still to be developed during the forthcoming pre-appraisal mission, but will likely include (i) capacity building, including training and awareness raising activities; (ii) repair of the existing vehicle weight control facilities; (iii) repair and improvement of the vehicle control facilities; etc. An appropriate institutional set up and financing mechanism (through the RMF or the vehicle control units?) still needs to be agreed upoIn.

3) Ports and Canal of Pangalanes (US$11 million)

3.1 Port Rehabilitation

Toamasina: the project will finance rehabilitation of berths and operational areas as surveyed under APLI, and help as needed with the concessioning of container operations.

Mahajanga: the project will finance rehabilitation of existing operational areas, complementing the works already carried out under APLI, and a limited extension made necessary to accommodate the increasing number of containers now passing through the port, carrying in particular high-value seafood products.

Nosy-Be/Antsiranana: the project will finance limited rehabilitation of existing infrastructure to prevent possible collapse, with a priority on Nosy-Be.

3.2 Waterway Transport

The project will finance dredging of the Canal des Pangalanes to restore minimum navigational depth between Toamasina and Manakara, and will help in concessioning the operational maintenance of the canal to a private operator.

3.3 Coastal Protection

The project will support financing of the littoral protection works in Toamasina and Morondava.

3.4 Miscellaneous

The project will finanice rehabilitation of basic coastal navigation aids, as well as services and supplies to help make Madagascar compliant with the IMO-MARPOL convention to which it will become a party member in May 2003.

4) Airport Safety and facilitation of public-private partnership (US$6 million) 10 PID

The project includes two major components based on the GoM priorities for air transport:

4.1. Upgrading the safety and security of the whole Malagasy airport network (except Ivato ) to international standards and complement where possible private sector participation and other bilateral agencies (component cost:L US$3 million). Urgent requirements for safety and security amount to US$20 million of which US$16 million fd3 gecuring and rehabilitating runways, and taxiing anld parking zones, and US$4 million for (ii) aeronautical telecommunication equipment, (iii) meteorological equipment, (iv) rescue and fire safety equipment, and (v) airport security equipment. It is proposed to finance safety and security equipment and complement participation of other donor agencies such as AFD and European Union who have indicated their interest in covering additional safety equipment and securing airport facilities.

4.2. Supporting public-private partnershipsto modernize the airport system (component cost: US$3 million). The review of airport has indicated that Ivato could be concessioned and investments financed on a private commercial basis depending on the level of risk mitigation which could be provided to commercial lenders. It is proposed to accompany the concession process with a partial risk guarantee to cover government and public entities default under the concession agreement. The airport review has also highlighted that assuming a reasonable increase in extra-aeronautical revenues, only 5 of the 7 provincial airports (Toamasina, Mahajanga, Antsiranana, Tolagnaro and Sainte-Marie) would be considered cost-effective. A financial review and model based on annual revenues, expenses and estimated cash flows of airports helped assess airport investment financing requirements and concluded that financing could be conducted through (i) non-reimbursable investment (government subsidy or equity investment by the investor) or (ii) a fixed interest loan with annual payments over 10 years. It is therefore envisaged to propose an affermage of 7 airports (Nosy Be, Antsiranana, Toamasina, Tolagnaro, Sainte Marie, Mahajanga) requiring some financing and investment subsidies (total urgent investment needs US$7 million). These provincial airports are critical from an economic development point of view and a public standpoint but their current volume would not allow full recovery. It has been determined that a maximum of 20% of investments could be raised commercially and the bulk would need to come from concessional sources of financing. APL3 could thus finance and provide a portion of the government-financing subsidy for the development of the lot of 7 airports (Nosy Be, Antsiranana, Toamasina, Tolagnaro, Sainte Marie, Mahajanga) in complement of risk mitigation instruments to boost up private lending and in complement of other donors such as AFD and EU. APL3 could also finance (possibly under preparation of future phases below) technical advisory services to structure the proposed project financing for the public private partnership

5) Studies for the preparation of future phases (US$4 million)

An amount of US$4 million is allocated for feasibility studies, preliminary and detailed design, and preparation of bidding documents for future needs in the sector, to be financed either through a fourth phase of the APL, a SIL or through future annual tranches of the PRSC. 1) National Roads Rehabilitation and Maintenance 2) Road Safety 3) Ports and canal of Pangalanes 4) Airports 5) Studies for future phases

5. Financing Total ( US$m) BORROWER $100.00 11 PID

IBRD IDA $100.00 FRANCE: FRENCH AGENCY FOR DEVELOPMENT $12.00 AFRICAN DEVELOPMENT BANK $40.00 EAST AFRICAN DEVELOPMENT BANK $19.00 EC: EUROPEAN COMMISSION $254.00 JAPAN: JAPAN INTERNATIONAL COOPERATION AGENCY (JICA) $10.00 LOCAL SOURCES OF BORROWING COUNTRY $165.00 Total Project Cost $700 00

6. Implementation The Program Executive Secretariat (PES) of the VPM will initially be responsible for the implementation of the project as it is responsible for APLI and APL2 with IDA and the African Development Bank support. PES might need strengthening during the initial peak period of implementation. Gradually, however, it is planned to transfer responsibilities from PES to VPM departments and agencies, and eventually PES will be dissolved. During project pre-appraisal a detailed transition plan will be prepared.

7. Sustainability The sustainability of investments financed in the TIIP is based on the institutional reforms that have already been made or are on-going such as: (i) the merger of the transport sector ministries and its focussing on oversight and coordination; (ii) the creation of user-financed sub-sector agencies such as the RMF, AMC, APMF and ATT (Agence de transport terrestre); (iii) the creation of contract management agencies PRA and CRA; (iv) the concessioning of the operations of the railways, major ports and airports to the private sector; (v) the privatization of parastatals, such as AIRMAD; and (vi) the creation of a conducive regulatory framework for all of the above. All these reforms have been initiated, some have been completed and others are on-going. Their successful completion is considered a condition for the sustainability of the investments made into the sector.

8. Lessons learned from past operations in the country/sector This project builds up on the experiences gained from the implementation of the APL-1 and 2. It continues in a sector-wide approach (SWAP) jointly with all donors to address the key issues of the sector in order to ensure that it is conducive to the envisaged economic growth and poverty alleviation.

9. Environment Aspects (including any public consultation) Issues : Environmental degradation is a major concern in Madagascar, given the country's unique ecological environiment. Resulting devastating effects are wide-ranging from situation of rice fields to destruction of transport infrastructure. This project will finance the rehabilitation of existing transport infrastructure including national roads, ports and airports.

Transport Sector Environmental Assessment (TSEA4 The entire APL program consists of various phases, which support the various transport sub-sectors. Prior to program appraisal, a sectorial environmental assessment was prepared. The TSEA, comprising three volumes, provides an overview of the context in which the sector operates. The TSEA report: (i) defines and analyzes the general environmental impacts related to each sub-sector, (ii) identifies the potential environmental impacts of activities planned under APLI, and (iii) recommends a plan for environmental management. The TSEA report provides project managers in the transport sector with a permanent working document enabling them to develop a clearer understanding of the situation at each project site, taking social, biological, and physical factors into account. The TSEA was prepared and disclosed in accordance with World Bank 12 PID guidelines and national environmental policies concerning infrastructure and environmental protection.

A proiect specific EA including an EMiQ currently being prepared. A first draft is expected to be available by end of April 2003. A final draft is planned to be available by June 30, 2003 and disclosure is expected by end of June 2003. The EA and EMG will be rather specific in terms of the roads component where all sub-projects are clearly defined, where detailed design is on-going and which are considered as "first year projects". In respect of the ports and airports, investments are planned as residuals to private sector investments as part of concessioning agreements with private sector operators. Since this process is only commencing now, investments are considered as "second year investments". Any such investment can only be done after environmental audits have been prepared for the respective facilities and have approved by the Bank and disclosed.

10. List of factual technical documents:

11. Contact Point:

Task Manager Dieter E. Schelling The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 202-473-5722 Fax: 202-473-8326

12 For information on other project related documents 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

Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.

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