AFRICAN DEVELOPMENT BANK GROUP

MULTINATIONAL

BUSEGA-MPIGI AND KAGITUMBA-KAYONZA-RUSUMO ROADS PROJECT

APPRAISAL REPORT

OITC DEPARTMENT May 2016

TABLE OF CONTENTS Acronyms & Abbreviations i Loan Information ii Project Summary iv Result-Based Logical Frameworks vi Project Timeframe viii

I. STRATEGIC THRUST AND RATIONALE 1 1.1 Project Linkages with Country Strategy and Objectives 1 1.2 Rationale for Bank’s Involvement 1 1.3 Donors Coordination 2

II. PROJECT DESCRIPTION 2 2.1 Project Objectives 3 2.2 Project Components 4 2.3 Technical Solution Retained and Other Alternatives Explored 4 2.4 Project Type 4 2.5 Project Cost and Financing Arrangements 4 2.6 Project’s Target Area and Population 5 2.7 Participatory Processes for Project Identification, Design and Implementation 6 2.8 Bank Group Experiences and Lessons Reflected in Project Design 6 2.9 Key Performance Indicators 7

III. PROJECT FEASIBILITY 7 3.1 Economic and Financial Performance 7 3.2 Environmental and Social Impacts 8

IV. IMPLEMENTATION 11 4.1 Implementation Arrangements 11 4.2 Monitoring 13 4.3 Governance 13 4.4 Sustainability 14 4.5 Risk Management 16 4.6 Knowledge Building 16

V: LEGAL INSTRUMENTS AND AUTHORITY 16 5.1 Legal Instrument 16 5.2 Conditions Associated with Bank’s Intervention 16 5.3 Compliance with Bank Policies 17

VI. RECOMMENDATION 17

Appendices I. Country’s Comparative Socio-Economic Indicators I II. Table of ADB’s Portfolio in Uganda and Rwanda III III. Key Related Projects Financed by the Bank and Other Development Partners in Uganda V and Rwanda IV. Map of the Project Area VII V. Project Cost and Financing Arrangements VIII

Currency Equivalents As of 31 March 2016 1UA = 1 SDR 1UA = UGX4625.39 1UA = RWF1052.98 1UA = USD1.40882 1UA = EUR1.23744 1UA = JPY158.675 1USD = UGX 3283.164 1USD = RWF 747.4206

Fiscal Year Uganda/Rwanda: 01 July-30 June

Weights and Measures 1 metric tonne = 2204 pounds (lbs). 1 kilogram (kg) = 2.200 lbs. 1 meter (m) = 3.28 feet (ft) 1 millimeter (mm) = 0.3937 inch (“) 1 kilometre (km) = 0.62 mile 1 square kilometre (km2) = 0.386 square mile 1 hectare (ha) = 0.01 km2 = 2.471 acres

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Acronyms and Abbreviations AADT Annual Average Daily Traffic MININFRA Ministry of Infrastructure AC Asphalt Concrete MoFPED Ministry of Finance, Planning & Econ Devt ADB African Development Bank MoWT Ministry of Works and Transport ADF African Development Fund NC Northern Corridor AIF African Investment Facility NDP National Development Plan CC Central Corridor NEMA National Environment Management Authority CPIA Country Policy and Institutional Assessment NEPAD New Partnership for Africa’s Development CSP Country Strategy Paper NGO Non-Government Organization DANIDA Danish International Development Agency NPV Net Present Value DBST Double Bitumen Surface Treatment OMC Operation and Maintenance Concession DFID Department for International Development OSBP One Stop Border Post DP Development Partner OPRC Output and Performance Based Road Contract DRC Democratic Republic of Congo PAP Project Affected Persons EAC Eastern Africa Community PBA Performance Based Allocation EA-RISP E asternE Africa Regional Integration PIDA Program for Infrastructure Devt for Africa Strategy Paper QCBC Quality and Cost Based Selection EDPRSII Econ Devt & Poverty Reduction Strategy EIRR Economic Internal Rate of Return RAP Resettlement Action Plan ESIA Environmental and Social Impact Assessment REMA Rwanda Environmental Management Authority ESMP Environmental and Social Management Plan RMF Road Maintenance Fund EU European Union RSDP Road Sector Development Program FE Foreign Exchange RSSP Road Sector Support Project GDP Gross Domestic Product RWF Rwanda Francs GOR Government of Rwanda RWFO Rwanda Field Office GOU Government of Uganda RTDA Rwanda Transport Development Agency HDM - 4 Highway Devt &Management Model 4 SPIU Single Project Implementation Unit HIV/AIDS Human Immuno Virus/Acquired Immune STI Sexually Transmitted Infections Deficiency Syndrome. TMC Term Maintenance Contract ICB International Competitive Bidding TMEA Trade mark East Africa IDA International Devt Association / World Bank UA Unit of Account IFC International Finance Corporation UGFO Uganda Field Office JPCC Intergovernmental Panel on Climate Change UGX Uganda Shillings JICA Japan International Cooperation Agency UNRA Uganda National Roads Authority LC Local Currency URF Uganda Road Fund MCC Milk Collection Centers UTSDPG Uganda Transport Sector Devt Partners Group MINECOFIN Ministry of Finance & Economic Planning VOC Vehicle Operating Costs

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Loan Information

Client’s information BORROWERS: Governments of Uganda and Rwanda EXECUTING AGENCIES: Uganda National Roads Authority and Rwanda Transport Development Agency Financing plan

Source Amount (UA) Instrument Uganda ADB 64.44 million (USD 91 million) Loan ADF 42.5 million Loan GOU 29.19 million Counterpart Financing TOTAL COST 136.13million Rwanda ADF 66.56 million Loan EU-AITF 15.91 million Investment Grant JICA 40.0 million Loan GOR 8.64 million Counterpart Financing TOTAL COST 131.11 million GRAND TOTAL 267.25 million

ADF and ADB’s key financing information ADF Loan Currency Unit of Account (UA) Interest Type Not Applicable Interest Rate Spread Not Applicable Service Charge 0.75% per annum on amount disbursed and outstanding Commitment Fee 0.50% per annum on the un-disbursed loan amount Tenor 40 years Grace Period 10 years ADB Loan Currency United States Dollar (USD) Loan type Fully Flexible Loan (FEL) Interest Rate Base Rate + Funding Cost Margin + Lending Margin ++ + Maturity Premium Base Rate Floating Base Rate based on 6-month LIBOR Funding Cost Margin Refer to Footnote1

Lending Margin 60 basis points (0.60%) Maturity Premium2 Refer to Footnote Fees Refer to Footnote Tenor Up to 25 years inclusive of Grace Period Grace Period Up to 8 years Average Loan Maturity 16.75 years Entire Project EIRR (Base case scenario) 18.2% NPV (Base case scenario) USD64.26 million

1 The six months adjusted average of the difference between: (i) the refinancing rate of the Bank as to the borrowings linked to 6- month LIBOR and allocated to all its floating interest loans denominated in USD and (ii) 6-month LIBOR ending on 30 June and on 31 December. This spread shall apply to the 6-month LIBOR which resets on 1 February and on 1 August. The Funding Cost Margin shall be determined twice per year on 1 January for the semester ending on 31 December and on 1 July for the semester ending on 30 June. 2 The Maturity Premium is based on the Average Loan Maturity, which is defined as the weighted average time to repay a loan, calculated as the average number of years until each principal repayment amount of the loan is due, weighted by the principal repayment amounts. Loans with – an Average Loan Maturity less than or equal to 12.75 years will incur no (Nil) Maturity Premium; an Average Loan Maturity greater than 12.75 years and up to 15 years will incur 10 bps (0.10%) Maturity Premium; an Average Loan Maturity greater than 15 years and up to 17 years will incur 20 bps (0.20%) Maturity Premium. ii

Timeframe - Main Milestones (expected) Negotiation April 2016 Project approval May 2016 Effectiveness October 2016 Last Date of Disbursement (ADB&ADF) 31 December 2020 Last repayment (ADB Loan) June 2041 Last repayment (ADF Loan) June 2056

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Project Summary Project Overview: The Project is a multinational operation covering Uganda and Rwanda. The Uganda side of the project road (Busega-Mpigi) is located in Central Uganda and forms part of the Northern Corridor. The Rwanda side of the project road (Kagitumba-Kayonza-Rusumo) lies on two of the most important Program for Infrastructure Development in Africa (PIDA) transport corridors, the Northern and Central Corridors. The road is located in the eastern part of Rwanda and is a regional priority road connecting Rwanda with Uganda and Tanzania. The project roads are vital missing links, which support the regional integration objectives of partner states of East Africa Community (EAC) and Great Lakes Region. This is an important project that will contribute to socio-economic development, poverty reduction and regional integration between Uganda, Rwanda and Tanzania.

The overall project cost for the two countries is estimated as UA 267.25 million. The Uganda project cost is UA 136.13 million and is to be financed by African Development Bank (ADB) and African Development Fund (ADF) loans and Government of Uganda (GOU) counterpart funding. The project involves the construction of a four-lane express highway (23.7km). The Rwanda project cost estimate is UA 131.1 million to be financed by African Development Fund (ADF) and Japan International Cooperation Agency (JICA) loans, European Union (EU) grant and Government of Rwanda (GOR) counterpart contribution. It comprises the rehabilitation of 208 km. In both countries, the project also includes (i) consultancy services for the supervision of the civil works and technical audits. (ii) pipeline projects; training and support for capacity building for cross-border women traders and traders in Busega Market; (iii) a study to finalize the Road Sector Development Program 3 in Uganda; (iv) two cross-border markets at Kagitumba and Rusumo and (v) Technical Assistance for Rwanda Transport Development Agency (RTDA) and capacity building and support to the Transport Sector Working Group (TSWG) secretariat. The construction period of the roads is 2 ½ years. Project Beneficiaries: The direct beneficiaries of the project outputs are traders and transporters using the Northern Corridor via Mirama Hills/Kagitumba and the Central Corridor, via Rusumo and 2.14 million people living within the Busega-Mpigi and Kagitumba-Kayonza-Rusumo areas. The outcomes of the project are reduction in transport costs; increased economic empowerment of women and improved performance of the transport sector institutions. The project will contribute to poverty reduction by improving household incomes and well-being through increased access to markets and social services. Additional benefits will emanate from jobs created during construction, sub-contracts for supply of goods and services and roadside socio-economic activities. The beneficiaries will participate in the project through involvement during public consultations; employment during implementation and monitoring through representation at various district and local committees. Project Rationale and Need: The roads meet the regional integration objective of member countries of EAC, Great Lakes Region and national social-economic growth strategies. The project is also aligned with the Eastern Africa Regional Integration Strategy Paper (EA-RISP), which supports development infrastructure which has an impact on regional transport and integration. The rationale behind the project roads is that the improvement of the road will support regional integration and economic co-operation between Uganda, Rwanda and Tanzania. It will also promote the effort of the Governments in poverty reduction through improvement of road infrastructure by providing all weather access for the supply of farm inputs and evacuation of produce to major market centers, thus improving the well-being and quality of life of the local population.

Bank’s Value Added: The Bank’s added value stems from its long experience in the financing of road projects in both countries. In Rwanda, the rehabilitation of the 208 km road is the biggest multi-Development Partner (DP) financed project, with the Bank co-financing with the EU and JICA. In Uganda, this is the sixth project and in Rwanda it is the eighth project of the Bank in the

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road sub-sector in the last ten years. The rationale for Bank’s intervention is to assist the countries’ aspirations of improving the transportation services and regional integration while contributing to green growth (afforestation to increase CO2 intake; adequate drainages to harness excessive flooding occurrence) and inclusiveness (through creation of roadside markets, cross-border markets, clean water to households, and women empowerment). The project will benefit from the Bank’s extensive experience in the road sub-sector in both countries in implementing similar projects in an environmentally and socially acceptable manner.

Knowledge Management: Knowledge will be built in the Ministry of Works and Transport (MoWT) in Uganda and RTDA in Rwanda through the implementation of the capacity building component of the project and the counterpart training offered by the supervision consultants. The knowledge built will be captured through quarterly reports, supervision missions and the project completion report and will be shared with the Executing Agencies and other DPs. The Operations and Maintenance Concession and Term Maintenance Contract of the roads will also provide additional experience of preserving road infrastructure in the two countries.

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MULTINATIONAL: UGANDA–RWANDA (BUSEGA-MPIGI AND KAGITUMBA-KAYONZA-RUSUMO ROADS) PROJECT RESULTS-BASED FRAMEWORK Country and project name: Uganda /Rwanda: Multinational: Busega-Mpigi and Kagitumba-Kayonza-Rusumo Roads Project Purpose of the project: to contribute to improving road transportation and trade facilitation along the Northern and Central Corridors and to contribute to improving transport services in the central Uganda and eastern Rwanda. PERFORMANCE INDICATORS MEANS OF RESULTS CHAIN Indicator RISKS/MITIGATION MEASURES Baseline Target VERIFICATION (including CSI) 1.1 - Improved economic and social 1.1 - GDP per capita 1.1- Uganda USD 788; 1.1- Uganda USD 1039 increase of Uganda Bureau of Statistics and welfare of persons in the zone of Rwanda USD709 in 31.9% and Rwanda USD1240 an Rwanda and National Institute of

influence of the corridor 2015 increase of 75% in 2020 Statistic of Rwanda (NISR) 2.1- Rwanda trade volume 1.2 - Enhanced trade and regional with Uganda and Tanzania 2.2 - Rwanda –Uganda 1.2 To increase to 2.27 million tons Customs statistics; Trade integration 0.66 million tons; (Rwanda with Uganda) and 0.53 statistics from the EAC IMPACT Rwanda-Tanzania 0.15 million tons (Rwanda with Tanzania ) Secretariat, COMESA, WTO, million tons in 2014 by 2020 UNCTAD, National Statistical Offices Data 2.1 - Reduction in transport costs 2.1- Average passenger 2.1 - USD1.0 Uganda and 2.1- USD 0.6 Uganda and USD 4 fare / person Uganda side USD 5 (Rwanda) in 2015 (Rwanda) in 2020. UNRA, RTDA, EAC, Risk: Overloading; and Rwanda side of the NCTTCA, Transit transport Mitigation: The project incorporates two weighbridges in Rwanda along the corridor. road surveys; customs statistics, Reduced by 60% to USD0.303 in GOU/GOR, national statistics, The OSBP at Mirama/ Kagitumba has Composite vehicle USD0.754 in Uganda and Uganda and by 31% to USD 0.445 in new baseline data, Consultant’s weighbridge facilities; operating costs (VOCs)/ USD 0.659 in Rwanda in Rwanda in 2018 Progress Report, and Bank vehicle km 2015 Risk: Sustainability review reports; Mitigation: The risk is mitigated by both Reduced average travel time by 67% Average vehicle travel time About 1.0 hr ( Uganda) countries having established Road Agencies to 0.3hr in Uganda and 50% to 3hrs in Project Completion Report Uganda side and Rwanda and 6 hrs for Rwanda in and Funds. The inclusion of private sector

Rwanda in 2020 side of the road 2015. participation in Operation and Maintenance

for Uganda and a five-year Term 2.2 Increased economic empowerment 2.2- Number of women Uganda Transport Sector Maintenance for Rwanda. of women border traders through border traders 2.2- Nil local jobs 2.2 - By 2020, 1,600 women traders at Performance Report; training the border trained (800 in each country) Rwanda Joint Sector Review Risk: Climate change.

Transport sector/ backward Mitigation: The design of the drainage has OUTCOMES 2.3 - By 2020, Uganda - 3 number 2.3 - Sector policies, laws report every year provided adequate structures in accordance 2.3 - Improved performance of 2.3 Uganda - Nil sector policies, laws or reforms and reforms undertaken with the EAC, Uganda and Rwanda Uganda Ministry of Works/Rwanda Rwanda – Nil undertaken Drainage Manuals. Ministry of Infrastructures and their Rwanda - 6 number sector policies,

Road authorities ( UNRA and RTDA) laws or reforms Risk: Counterpart funding for Uganda

Mitigation: The three-Year Rolling MTEF

serves to minimize the risk. The MTEF is reviewed annually with DPs and the GOU before finalization of the budget

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3.1 - Construction and rehabilitation 3.1- Km of climate resilient 3.1- Nil km of road 3.1- 23.7 km 4-lanes express highway Quarterly Progress Reports, Risk: Implementation delays of road section and other community road constructed in Uganda constructed constructed in Uganda; disbursement and financial Mitigation: use of advance contracting; facilities - km of climate resilient - 208km rehabilitated in Rwanda; reports from the executing early engagement of stakeholders; close road rehabilitated Rwanda; - Nil km rehabilitated in - 10 MCCs rehabilitated and supplied follow up and supervision by the Executing agencies - number of MCCs; Rwanda with potable water and Agencies of both countries, conditions to -boreholes for communities - 10 boreholes drilled in Nyagatare Bank supervision mission first disbursement being reasonable and kept in Nyagatare - Nil MCCs rehabilitated; (Rwanda) for community use by 2020 reports to minimum; and commencement of RAP - number of cross-border - Boreholes drilled by - cross-border trade markets near Progress reports from the compensation as early as possible; trade markets constructed 2015 Kagitumba and Rusumo constructed executing agency - Nil cross-border market Project completion report Risk: Cost overruns; by 2015 3.2- 4 sessions carried out for each of Mitigation: Critical review of the design 3.2 - Social sensitization and 3.2- Number of 3.2 – N/A the 100 schools and 200 communities and provision of adequate contingencies in awareness program about sensitization and awareness in Rwanda and 38 villages in Uganda the cost estimates to cover unexpected cost HIV/AIDS/STI, Gender, Road safety, campaign by 2020 youth traders (50% female) increases; use of current cost estimates and Drug Abuse 3.3- By 2018 full implemented the proper supervision;

3.3- Implementation of 3.3 - Nil Number of tree ESMP and 1500 trees planted in 3.3 - ESMP & RAP including tree ESMP & RAP Uganda and 40,000 in Rwanda by 2019

OUTPUTS seedlings planted and planting completed 100% resettlement of PAPs RAP implementation 3.4- 2 sets of feasibility and bidding 3.4 - Project pipeline and Road Sector 3.4- Studies completed 3.4 - N/A documents and Road Sector Development Study Development Study produced by 2018.

3.5- 5 women associations capacitated 3.5- Capacity building and 3.5- Number of people 3.5- Nil Number trained in Rwanda (reaching 291 individual Institutional support; Persons trained trained; no. of women in various field in women); and 2 women associations in various fields; women trained for traders at the border; Rwanda and in Uganda; enrolling 100 women in Uganda. 100 entrepreneurship; Knowledge Number of women MCC cooperative members of MCC cooperative disseminated in cross-border 3 associations (Rwanda) and; members; members; formalities MCC cooperative Number of women with members; knowledge about cross- border trading formalities COMPONENTS INPUTS Uganda: Total Project cost UA 395.5 million Civil Works: Busega–Mpigi road (23.7 km) Uganda: UA m Sources of financing (m UA) Consulting Services: design review and construction supervision; Ten-Year RSDP 3 study; Capacity Improvement and signalization of Civil works 83.38 Uganda

Namungoona-Nansana-Wakiso-Kakiri road study; training and capacity building for cross-border women and youth traders in Mirama Consultancy services including audit 6.38 ADB64.44 Institutional Hills and Kampala (Busega market), sensitization of HIV/AIDS, STI, TB tree planting and Gender; baseline data collection and support and studies 2.35 ADF 42.50 monitoring of ESMP implementation; road safety; technical and financial Audit and capacity building component for Ministry of Works Compensation 29.19 GOU 29.19 and Transport. Base Cost 121.3 Total 136.13 Compensation and Resettlement Contingencies 14.844 Rwanda Project cost 136.13 Civil works : Kagitumba-Kayonza-Rusumo Road (208km) Rwanda: Rwanda Consulting Services: design review and construction supervision; ; Road & Bridge Asset Management as well as feasibility and detailed Civil works 98.80 ADF 66.56

KEY ACTIVITIES KEY engineering design studies of pipeline projects; sensitization of HIV/AIDS, STI, TB and Gender; baseline data collection and monitoring Consultancy services including audit 5.27 JICA 40.00 of ESMP implementation; milk collection centers, boreholes in Nyagatare. road safety; construction of cross-border trade market Institutional support, Ancillary and studies 4.74 EU 15.91 Technical Audit; Institutional support to Transport sector; capacity building and support to the T-SWAP secretariat Compensation 4.42 GOR 8.64Base Compensation and Resettlement Cost 113.23 Total 131.11 Contingencies 17.88 Project cost 131.11

3 Training for cross-border women traders at Rusumo and Ugandan women in collaboration with UWEAL (Uganda Women Entrepreneurs Association Limited) and Rwanda Institute of Cooperatives and Entrepreneurial Management (RICEM) under the Ministry of Industry’s Single Project Implementation Unit (SPIU). * Contribution of the SWAP secretariat in transport sector dialogue vii

PROJECT TIMEFRAME

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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE BOARD OF DIRECTORS ON PROPOSED LOANS TO UGANDA AND RWANDA FOR THE BUSEGA-MPIGI AND KAGITUMBA-KAYONZA-RUSUMO ROADS PROJECT

Management submits the following Report and Recommendation on a proposed ADB Loan of USD 91 million and ADF Loan of UA 42.5 million to the Government of Uganda to finance the Busega-Mpigi road; and an ADF loan of UA 66.56 million and a grant of EUR 20 million from EU-AITF to the Government of Rwanda to finance the Kagitumba-Kayonza-Rusumo road. I STRATEGIC THRUST & RATIONALE 1.1 Project Alignment with Country Strategy and Objectives 1.1.1 Regional trade is key to the socio-economic development of Uganda and Rwanda, which are landlocked countries. The Multinational Uganda-Rwanda (Busega–Mpigi and Kagitumba-Kayonza- Rusumo) roads are vital missing links on the Northern Corridor (NC) and Central Corridor (CC), which supports the regional trade and integration objectives of partner states of East Africa Community (EAC), namely, Uganda, Rwanda, Tanzania, Kenya and Burundi and Great Lakes Region, which include Democratic Republic of Congo (DRC). The project roads connect Uganda and Rwanda at the border post of Mirama Hills/Kagitumba and Rwanda and Tanzania at the border post of Rusumo. In Uganda, the Busega–Mpigi road is highly congested especially at Busega with over 26,000 vehicles per day on a 2-lane road whereas in Rwanda, the Kagitumba-Kayonza-Rusumo road, which was constructed 26 years ago, is in need of urgent rehabilitation. The two countries consider this project as a key development priority. 1.1.2 Regionally, the project roads are priorities in the Transport Strategy of the EAC. In Uganda, the intervention is in line with the National Vision 2040 and is also one of the priority roads in the National Development Plan (NDP) II for the period covering 2015-2020. In Rwanda, the project is consistent with the Government’s Vision 2020 and the second phase of Rwanda’s Economic Development and Poverty Reduction Strategy (EDPRS II) for 2013-2018, which through its two pillars - economic transformation, and rural development - focuses on the improvement of external and internal connectivity, access to basic social services and regional integration to support the socio-economic development objectives of the country. 1.2 Rationale for Bank’s involvement 1.2.1 The rationale for Bank’s intervention is to assist the country’s aspirations of improving transportation services and regional integration while ensuring green and inclusive growth. This is in line with Bank’s Ten Year Strategy (2013-2022), which prioritizes support to infrastructure development. The project also meets four of the High Fives by contributing to the integration of the EAC countries; improving the quality of life of people in the zone of influence by providing socio-economic facilities, contributing to agriculture development and food security; and facilitating industrialization through reduced transportation and logistics costs. The project is aligned with the infrastructure plan of the Eastern Africa Regional Integration Strategy Paper (EA-RISP). The project has also mobilised resources from other development partners including a grant from European Union - Africa Infrastructure Trust Fund (EU-AITF) and co-financing from Japan International Cooperation Agency (JICA). 1.2.2 In Uganda, the project conforms to the key development policies of the Bank and its assistance strategy to Uganda. The 2011-2016 Bank Group Results Based Country Strategy Paper (CSP) for Uganda focuses on two main pillars namely (i) Infrastructure development and increased agriculture productivity and (ii) Human capacity improvement and skills development for poverty reduction. The project is in line with Pillar I of the CSP. In Rwanda, the project is in line with the 2012-2016 CSP for Rwanda. The CSP pillars are (i) Infrastructure Development and (ii) Private Sector Development. The 1

CSP includes Kagitumba-Kayonza-Rusumo road as pipeline for 2015 intervention. The continued support of the Bank is crucial and logical as the Bank has significant experience in the subsector and has built a comparative advantage due to its previous interventions. 1.3 Donors Coordination Table 1.1: Overview of Major Development Partners Assistance (Uganda and Rwanda) Size Sector or sub-sector GDP Exports Labor Force Road Transport cont. Uganda * 3.0 n.a n.a Road Transport cont. Rwanda ** 3.8 n.a n.a Players - Public Annual Expenditure (Average)

GOUa Donors GORb Donors

UA 335.3 m UA 160.6m UA155.4 m UA51.48m

67.6% of the total 32.4% of the total 75.1% 24.9% Level of Donor Coordination Existence of Thematic Working Groups - Uganda / Rwanda [Y] [Y] Existence of SWAps or Integrated Sector Approaches - Uganda / Rwanda [Y] [Y] ADB's Involvement in donors coordination*** Uganda / Rwanda [M] [L] * and ** 2013/2014 for transport; as most appropriate *** L: leader, M: member but not leader, none: no involvement ‘a’ and ‘b’ for 2013/2014

1.3.1 In Uganda the Bank is one of the leading Development Partners (DP) in the transport sector. Other major DPs are the EU, World Bank (WB), JICA, Department for International Development (DFID), Danish International Development Agency (DANIDA), Islamic Development Bank, the Government of China and Trade Mark East Africa (TMEA). There is good co-ordination of activities of DPs in the country under the Uganda Transport Sector Development Partners Group (UTSDPG) that provides a platform for DPs to discuss sector policy reforms, as well as financing and implementation issues. The Bank actively participates in all sector coordination activities and overall there is effective planning and investment co-ordination in the sector. 1.3.2 In Rwanda, DPs, including the Bank maintain sustained dialogue with the Government through the Development Partners Coordination Group (DPCG), which is the highest-level coordination forum. In accordance with the September 2013 revised Donor Division of Labor (DoL), DPs interventions are aligned with the EDPRS-II priorities. Each DP limits its support to three core sectors based on track record in the sector, mandate and expertise. The Bank is involved in three core sectors, namely, Energy, Transport and Private Sector Development (PSD), and Youth Employment. Moreover, the Bank is co-chairing the transport and PSD, and Youth Employment Sector Working Groups. With regard to the Transport Sector, the Sector Working Group (SWG) includes the EU, WB, JICA and the Bank. II PROJECT DESCRIPTION 2.1 Project Objectives 2.1.1 The sector goal of the project is to contribute to socio-economic development, poverty reduction and regional integration through an improved and sustainable transport system that links centers of economic activity. The project objectives are two-fold: at regional level (for both countries), the objective is to contribute to improving road transportation and trade facilitation along the Northern and Central Corridors. At the national level, the objective is to contribute to improving transport services in the eastern Rwanda (Kagitumba-Kayonza-Rusumo area) and in central Uganda (Kampala, Wakiso and Mpigi districts) to stimulate and support local economic activities by reducing transport costs and travel time, and decreasing traffic congestion on the heavily traveled Kampala-Mpigi road section.

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2.1.2 The expected project outcomes are reduction in transport costs; increased economic empowerment of women; and improved performance of transport sector institutions. The expected outputs include (i) construction and rehabilitation of roads, (ii) ancillary activities including, sensitization and afforestation; (iii) studies; and (iv) provision of institutional support and capacity building.

2.2 Project Components 2.2.1 The project components are outlined in Table 2.1 and 2.2 below. Table 2.1: Project Components (Uganda) No Component name Cost(UAm) Component description 1 Civil works for the 98.21 . Construction of a new four-lane express highway on a new construction of Busega-- alignment with four grade-separated interchanges Mpigi express highway (23.7km) in one lot and cross-cutting issues. 2 Supervision Consultancy; 6.38 . Design Review and construction supervision; financial and technical audit. . Quality Assurance; . Contract management; and Baseline data collection; . Financial and Technical audits. 3 Studies and . Ten Year Road Sector Development Program 3 study; Institutional support. . Pipeline road project study; 2.35 . capacity building for MoWT; Training and capacity building for cross border women traders at Mirama Hills and vendors (mainly women and youth) in Kampala (Busega Market); and . Road safety audit 4 Compensation 29.19 . Compensation of PAP Total 136.13

Table 2.2: Project Components (Rwanda) No Component name Cost(UAm) Component description 1 Civil works for the rehabilitation 116.27 . Rehabilitation to a class 2 paved standard with a of Kagitumba-Kayonza-Rusumo carriageway width of 7.4 m. road (208km) in three lots and cross-cutting issues 2 Supervision Consultancy services; 5.35 . Design Review and construction supervision; technical audit . Quality Assurance; . Contract management; and Baseline data collection; . Technical audits. 3 Studies; Institutional support . Pipeline road project studies; and ancillary works . Cross-border markets near Rusumo and Kagitumba; . Capacity building for RTDA and trade facilitation; . Technical assistance for RTDA; 5.06 . Training and capacity building for cross-border women trader at Kagitumba and Mirama Hills . Support to the Transport Sector Working Group (T- SWAP) secretariat; . Road safety audit; and . Monitoring-evaluation of project socio-eco impact. 4 Compensation 4.42 . Compensation of PAP Total 131.11

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2.3 Technical Solution Retained and Other Alternatives Explored 2.3.1 For both Uganda and Rwanda three options were considered for the intervention as outlined in Table 2.3 and 2.4 below. The technical solution retained is based on conformity to the specified geometric design parameters; minimising interference with traffic flow on the expressway; and socio-environmental considerations like minimising impact to sensitive areas like swamps. For Uganda and Rwanda, the retained solutions are presented in Tables 2.1(1) and 2.2 (1) respectively. Table 2.3: Project Alternatives Considered and Reasons for Rejection (Uganda) Alternative Brief description Reasons for rejection Options 1 Option 1 new road construction south  The option has higher construction costs and therefore are of the existing Road. less economically viable than the selected option  Additional challenges for the accommodation of traffic during construction. Options 2 Reconstruction and dualization of the  The requirement for motorway with rapid entry and exit of Reconstruct existing road. traffic would not be achieved. ion of  Excessively high land and property acquisition costs and existing loss of environment and socio-economic activities to achieve road the required level of services.

Table 2.4: Project Alternatives Considered and Reasons for Rejection (Rwanda) Alternative Brief description Reasons for rejection Option 1 Resealing/Overlay of existing Due to the degradation of the existing pavement, the pavement current base course cannot accommodate the heavy traffic; non-compliance with Rwanda and regional standards (requires AC in wearing course). Option 2 DBST with 20 or 25cm of GCS as sub The road is on the NC and CC and DBST would not base course. conform to other regional standards (AC in wearing course) despite a higher EIRR of 20.3%. 2.4 Project Type 2.4.1 The project is a stand-alone operation in support of the priorities identified by the two Governments, an approach that is similar to other projects previously undertaken by the Bank. The modality of operation suits the type of works typical of civil works contracts for road projects for monitoring and achievement of the defined outputs and outcomes. The project approach would guarantee that the funds are targeted to the areas identified by the Governments. 2.5 Project Cost and Financing Arrangements 2.5.1 The overall project cost estimate (net of taxes) is Unit of Account (UA) 267.25 million or USD 376.5 million of which the foreign exchange is UA 186.92 million or 69.9%, and the local cost is UA 80.34 million or 30.1% of the total. The Uganda side of the project cost estimate is UA 136.13 million (Uganda Shillings (UGX) 629.65 billion); of which UA 85.55 million (62.8%) is in foreign exchange and UA 50.58 million (37.2%) in local cost. The Rwanda side of the project cost estimate is UA131.11 million (Rwanda Francs (RWF) 138.05 billion); of which UA101.34 million (77.3%) is in foreign exchange and UA29.7 million (22.7%) in local cost.

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Table 2.5 - Project Cost Estimates by Component (Net of Taxes) (UA and USD million) Unit of Account (million) in USD COMPONENT % FE FE LC Total million Civil works 145.74 36.44 182.18 256.7 80.0 Consultancy Services including audit 9.32 2.33 11.65 16.4 80.0 Studies and capacity building 5.67 1.42 7.09 10.0 80.0 Others (Compensation) 0.00 33.61 33.61 47.4 0.0 Base Cost 160.73 73.80 234.53 330.4 68.5 Physical Contingency 14.57 3.65 18.22 25.7 Price Contingency 11.60 2.90 14.50 20.4 Total Project cost 186.90 80.34 267.25 376.5

2.5.2 In Uganda, the project is to be financed from ADB resource of USD 91 million (UA64.44million); ADF-13 Performance Based Allocation (PBA) of UA20 million; UA 22.5 million from the Regional operation (RO) envelope and GOU counterpart funding of UA 29.19 million. The Rwanda side is to be financed by ADF-13 PBA of UA44.06 million, the Regional operation (RO) envelope of UA22.5 million; JICA loan of UA40 million; EU Grant of UA15.91 million and GOR counterpart financing of UA 8.64 million. The EU grant is to finance the civil work of Lot 1 section 1 (Kagitumba-Bugaragara) and part of the institutional support, ancillary works and studies and was approved on 30 June 2015. JICA has granted a conditional approval to co-finance the project on 24 September 2015 with a loan amount of UA40 million to be utilized for Kayonza-Rusomo section. The source of finance is indicated in Table 2.6 below. The details of the project cost (Appendix V) and justification for Bank’s high contribution for Rwanda is presented in Appendix VI and further details in Annex B2. Table 2.6 Source of Finance (UA Million – net of taxes) Uganda Rwanda SOURCE FE LC Total % FE LC Total % ADB 64.44 0.00 64.44 47.34 0.00 0.00 0.00 0.00 ADF-PBA 6.98 13.02 20.00 14.69 26.12 17.94 44.06 33.61 ADF-RO 14.13 8.37 22.50 16.53 22.50 0.00 22.50 17.16

JICA 0.00 0.00 0.00 0.00 40.00 0.00 40.00 30.51

EU 0.00 0.00 0.00 0.00 12.73 3.18 15.91 12.13 GOU/GOR 0.00 29.19 29.19 21.44 0.00 8.64 8.64 6.59 Total 85.55 50.58 136.13 100.00 101.35 29.76 131.11 100.00

Percentage 62.85 37.15 100.00 77.30 22.70 100.00

2.6. Project’s Target Area and Population 2.6.1 The project target area are central Uganda and eastern Rwanda, served by the Northern and Central road corridors. In Uganda, the road runs for 23.7 km starting from Kampala City traversing Wakiso district, and terminating at Mpigi town. In Rwanda, the road project starts at Kagitumba (border with Uganda) and runs for 208 km traversing Nyagatare, Gatsibo, Kayonza, Ngoma and Kirehe districts and terminating at Rusumo (border with Tanzania). The populations directly served by this road are 1.04 million in Uganda of which 550,316 are female. In Rwanda, the project shall serve a population of 1.1 million of which 766,704 are female. This is within the overall population of Eastern Rwanda of 2.6 million. The population will benefit from the socio- economic activities included in the project. The project will contribute to the improvement of trade between Rwanda, Uganda and Tanzania currently estimated at 0.81million metric tons and 5 projected to increase to 2.8 million metric tons by 2020. Among the outcomes shall be improved living conditions through direct and indirect employment opportunities; reduced travel time especially on the Busega–Kyengera section, which experiences heavy traffic congestion; reduced transport costs, fares, and rates. These project outcomes will lead to improved agriculture production and productivity in the project zone of influence. 2.7 Participatory Process for Project Design and Implementation 2.7.1 The project benefitted from wide consultations within relevant Government agencies, Development Partners, and the private sector in both countries. The design and implementation arrangements benefitted from several public and stakeholder consultations during the preparation of the Environmental and Social Impact Assessment (ESIA) and Resettlement Action Plan (RAP) reports. The participants included local communities and authorities, political leaders and Non- Government Organizations (NGOs). Key concerns raised during the consultations have been incorporated in the project design and these include: creation of local employment opportunities during construction; concern over land disputes that must be carefully considered during resettlement; timely compensation; contamination of water sources (wells); establishment of a grievance mechanism; and the potential spread of HIV/AIDS and STIs. There will be continuous consultations during the life of the project where UNRA and RTDA will participate in public sector stakeholders meetings and regular DP meetings of the UTSDPG and DPCG. Local communities, NGOs and other stakeholders will participate in various fora put in place for implementation and monitoring of the project. 2.8 Bank Group experience, lessons reflected in project design Status and impact of prior Bank Intervention in the Sector

2.8.1 In Uganda the Bank Group has a long standing experience in the road sub-sector that commenced in 1975; and to date, it has financed fifteen projects and sixteen studies in the transport sector for a total value of UA 515.37 million. Thirteen projects and sixteen studies have been completed and satisfactorily executed. The Bank has two on-going operations, namely, the Kigumba-Masindi-Hoima-Kabwoya road (135 km) and the Rukungiri-Ishasha and Bumbobi- Lwakhakha roads (123 km). The entire Bank portfolio comprises 15 on-going operations as at March 2016, amounting to UA590.4 million, of which the transport sector accounts for 24%. The portfolio has one problematic (in the social sector) and no potentially problematic or aged project. 2.8.2 In Rwanda, since 1974, the Bank has approved 150 operations, with a total commitment, net of cancellations, amounting to UA 1.09 billion. The Bank Group’s on-going portfolio in Rwanda as at March 2016 comprises 24 operations with a total commitment of UA 440 million, of which the transport sector accounts for 33% and does not have any problematic or aged project. The Bank is also supporting various capacity building initiatives. The on-going transport operations are the upgrading works of Rusizi-Mwityazo and Karongi-Rubengera road (70km), upgrading works of Rubavu-Gisiza road (47.9km) and Transport Sector support Project: upgrading of Base-Gicumbi– Rukomo road (51.5km). 2.8.3 The Bank’s Post evaluation undertaken for the completed projects has indicated that the Bank interventions in both countries have led to opening up of isolated and inaccessible areas to markets, health, education and other social services and improved the quality of transport services and trade and regional integration. Lessons Learned and Reflected in project Design

2.8.4 The project design has taken into account lessons learnt from Bank’s on-going as well as previous interventions in the sub-sector. Such lessons include (i) the need to contain start-up delays 6 caused by unnecessary loan conditionality, right-of-way acquisition, and procurement. This has been taken into account by streamlining loan conditions, requiring staged compensation by sections and allowing advance contracting to reduce delays in procurement; (ii) the need to improve timely release of counterpart funds - this is addressed in the Medium Term Expenditure Framework (MTEF) by placing the projects in the ‘core area’ of the consolidated budget (Uganda); (iii) the need to monitor compliance with project technical specifications has been mainstreamed by making provision for regular technical audits of the project to ensure technical compliance and value for money; (iv) to avoid cost over-runs, critical review of the detailed design documents by the Executing Agencies (EA) during project processing was carried out to avoid modification of the scope of works during project implementation; (v) premature failure of the pavements is mitigated by the inclusion of weighbridges on the project road to monitor vehicle axle load (vi) addressing road accidents through enhanced road safety measures and awareness campaign; and (vii) to minimize delays in procurement and disbursements, UGFO and RWFO will follow-up on required activities by the EA. The Bank has approved the Governments requests for advance contracting for works and supervision services. 2.9 Key performance indicators 2.9.1 At completion of project implementation three key outcomes are expected; (i) reduction in transport costs; (ii) improved economic empowerment of women through training; and (iii) improved performance of the Transport Agencies. Progress towards achieving the outcomes shall be through observing the outcome targets which include: (i) comparison of the before and after project transport fares and rates; (ii) reduction in average travel times; (iii) reduction in composite Vehicle operating costs; (iv) women training; (v) enactment and implementation of sector policies, laws and reforms. The output indicators will be measured during implementation as sections of the road are opened to traffic and after project completion. In the medium term (2017), progress shall be gauged by completion of at least 50% of each lot. There will also be full compliance with Environmental and Social Management Plan (ESMP), complete RAP implementation, at least 100 schools and 200 communities in Rwanda and 38 villages in Uganda sensitized about HIV/ADS and road safety. Other performance indicators to be monitored include created job opportunities during construction. Long-term impacts will be determined by increase in incomes as well as regional trade. 2.9.2 The supervision consultants will be responsible for the collection of baseline data (disaggregated by gender) at the beginning of project implementation. This includes (i) trade data of Rwanda with Uganda and Tanzania, (ii) costs and travel time for specific types of vehicles and trips, (iii) transport fares and freight charges, (iv) accessibility index, (v) road accidents, (vi) jobs created in construction and maintenance with gender deferential in roles and responsibilities, (vii) HIV/AIDS prevalence, (viii) utilization of health facilities by expectant women; (ix) girls secondary school attendance; (x) the implementation of the ESMP, and (xi) income /poverty indicators. UNRA, RTDA and the Bank will review the indicators as sections of the road are opened to traffic and at project completion. The EA will also review the indicators after three years of project completion. Furthermore, additional sources of data shall include quarterly progress reports, financial and technical reports, audit reports, disbursement records, Bank supervision mission and mid–term review reports. III PROJECT FEASIBILITY 3.1 Economic and financial performance 3.1.1 The methodology for the economic analysis is based on cost benefit analysis by comparing the “with” and “without” project scenarios over a period of 30 years for the expressway and 20 years for the road rehabilitation, using the Highway Development and Management Model (HDM- 7

4). A discount rate of 12%, a residual value of 34% for the construction and 20% for the rehabilitation; and construction period of 30 months for Busega-Mpigi and 24 months for Kagitumba–Kayonza and Kayonza-Rusumo roads respectively starting October 2016 are adopted. The economic costs include both the capital investment and maintenance costs. The principal benefits of the project are derived from reductions in road user costs (RUC), comprising vehicle operating costs (VOC) and passenger time costs, as a result of the lower road roughness and higher average travel speeds for the normal, generated and diverted traffic. The details of the traffic and economic analysis results for the roads are presented in Annex B7. The summary of the economic analysis for the entire project is shown in Table 3.1.

Table 3.1 - Summary of the Economic Analysis Parameter Entire project Economic Internal Rate of Return (EIRR) 18.2% Net Present Value (NPV) in US$ 64.26million Sensitivity of EIRR of concurrently 20% increase in cost and 20% decrease in traffic 12.35% 3.2 Environmental and Social Impacts Environmental 3.2.1. The project road is classified as Category I due to the potential environmental and social impacts likely to be experienced during the construction of the 23.7km Busega-Mpigi Expressway which is on a proposed new alignment through sensitive ecosystems such as wetlands and forest areas. The project also includes the rehabilitation of the 208km Kagitumba-Kayonza-Rusumo road generally following the existing alignment but with a minor re-alignment at Cyunuzi. There are over 200 persons physically and economically displaced as a result of the road works. A summary of the ESIA and RAP study reports have been posted on the Bank’s website on 5 August 2015, and distributed to the Board on 2 September 2015. 3.2.2. The potential negative environmental impacts anticipated from the proposed project include (i) Impacts on surface water courses and wetlands; (ii) Environmental pollution from liquid and solid waste generation from construction camps and work sites; (iii) Sedimentation of watercourses and wetlands during construction; (iv) Loss of vegetation due to diversions and material sourcing; (v) Soil erosion from exposed areas during earthworks; (vi) Dust and fugitive emissions from construction equipment, asphalt and crushing plants; (vii) Soil and water contamination from oils, grease and fuels; (viii) Social disruption including physical and economic displacement of persons living within the new road Right of Way (RoW) in Uganda and the existing road reserve in Rwanda; and (viii) Socially related infections associated with interactions including HIV/AIDS and other communicable diseases. 3.2.3. Mitigation measures for adverse impacts have been identified and included in the ESMP. These include (i) construction of an elevated roadway on concrete decks across the wetlands; (ii) construction work at all wetland must be preceded by production of methods statement. (iii) no stockpiling of construction materials in a distance of 200-300m of a wetland; (iv) development and implementation of a waste management plan as a contractual obligation; (v) construction of bridges and culverts during the dry season and provision of protection measures for streams to limit sediment transport into watercourses; (vi) limit clearance of vegetation to areas where it is absolutely necessary; (vii) re-vegetation of degraded areas upon completion; (viii) suppression of dust by watering the diversions and haulage routes; suppression of dust in the crushers by installing sprinkler system and maintaining equipment to manufacturer’s standards; (ix) implementation of the RAP; and (x) undertaking sensitization campaigns on HIV/AIDs along the project road during construction. The costs for mitigation measures (implementing ESMP) excluding compensation are estimated as USD 480,000 in Uganda and in Rwanda USD1.853 million.

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3.2.4. Positive impacts identified include; (i) facilitation of regional integration and cross-border trade with Uganda and Tanzania. The project is of significance because of the centrality of its location in connecting the Northern Corridor and Central Corridor in East Africa. It is an international link to Rwanda, Tanzania, DRC and Burundi; (ii) creation of employment opportunities for the host communities especially during construction; (iii) increase in Road Safety; (iv) reduction of travel time; and (v) improving drainage systems. Climate Change: 3.2.5 In compliance with the Bank’s Climate Safeguards System, the project has been classified as Category 2, requiring the implementation of mitigation and adaptation measures to increase the resilience of communities along the project road and the infrastructure from the effects of climate change. The Intergovernmental Panel on Climate Change (IPCC) fourth assessment report on climate change models projected an increase in average temperatures in Uganda of up to 1.5oC in the next 20 years and up to 4.3oC by 2080. Changes in rainfall patterns and annual totals are also expected. Prediction models indicate an increase in rainfall of 10-20%. It is estimated that runoff will increase in the magnitude of 10-20%. Recent rainfall data shows an element of variation which may explain the recurrent floods.

3.2.6 Rwanda has experienced a temperature increase of 1.4°C since 1970, higher than the global average, and can expect an increase of up to 2.5°C by the 2050s from 1970. Rainfall is highly variable in Rwanda but average annual rainfall may increase by up to 20% by the 2050s from 1970. Projections for East Africa over Rwanda and Burundi show an increasing trend in rainfall intensity for both rainy seasons. This is likely to cause floods and storms which can result in landslides, crop losses, health risks and damage to infrastructure. Temperature rise may increase the spread of vector, air and water-borne diseases, impacting on animal and human health, and could negatively affect crop yields, impacting food security and export earnings.

3.2.7 Adaptation Strategies included in the design are: (i) In some areas, where the road had been lifted, the carriageway is to be constructed on piers. The wetland and channels below will continue discharging surface water. This will improve resilience to flooding characteristic in flood prone areas; (ii) Raised embankments have been planned for areas were piers terminate, this will ensure that the road is above the flood plain of the Mayanja, Kato and Lubigi streams; (iii) Drainage facilities especially culverts have been increased in number and size. The current road has 600mm culverts and will be replaced by 900mm culverts at shorter intervals; (iv) Concrete pipe culverts and box culverts have been designed to replace galvanized iron culverts that are prevalent in Kagitumba-Kayonza-Rusumo Road; (v) All cut slopes shall be protected by either stone pitching or concrete surfaces. (vi) A series of bridges have been designed taking into account shorter recurrent flood return periods of 1 in 50 years; (vii) On gentler slopes grass planting will occur to prevent erosion; (viii) Back benching of steep slopes shall be undertaken to avoid excessively steep slopes; (ix) Stream courses shall be protected by bar racks to avoid clogging by rubble and waste hence reduce flooding incidences on the road sections. Management Resilience building strategies proposed include; (i) Undertake integrated catchment based planning to ensure coordination of environmental management of the many development projects in the project influence areas; (ii) Sensitize residents on appropriate waste management approaches; (iii) Develop early warning systems to reduce flood causality. Gender 3.2.8 The project does not envisage gender based negative impacts, but rather has been designed to enhance project benefits to both women and men. The project being a regional road that connects Tanzania, Rwanda and Uganda, trade is an important factor that will enhance the benefits to the people. Working with the two countries’ Ministries of Trade and Industry and Commerce

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(MoTI/MINICOM), the project shall facilitate trading activities at the two borders of Rusumo and Kagitumba through provision of border markets which are mostly operated by women (80%). The construction of the two cross-border markets near Kagitumba and Rusumo in Rwanda will help reduce the cost of doing business and improve competitiveness of goods in neighboring markets, strengthen market linkages between producers, traders and consumers.

3.2.9 The project shall also mount a capacity building program and institutional support. There will be tailor made training programs for women traders and entrepreneurs where 800 women shall be trained in Rwanda and 800 trained in Uganda. The program shall be implemented in collaboration with Uganda Women Entrepreneurs Association Limited (UWEAL); and Rwanda Institute of Cooperatives and Entrepreneurial Management (RICEM) under the MINICOM’s Single Project Implementation Unit (SPIU).

3.2.10 The project has included gender sensitization and awareness and gender mainstreaming which shall be guided by the policies and strategies of the Gender Monitoring Office in Rwanda which has shown commitment to gender equality, and the positive developments this has brought about in the country. On the Uganda side, the activity shall be collaborated with the Ministry of Gender and Social Welfare. The project shall aim at including women and youth in all aspects including participation through employment opportunities where at least 30% of arising jobs shall be earmarked for women (360 jobs in Uganda and 540 in Rwanda).

Social 3.2.11 The project will induce significant positive social impacts both as economic benefits and improved wellbeing of the people in the project areas. During construction, there will be at least 600 direct jobs created on the Uganda side, and equally, 1800 jobs in Rwanda. Many more jobs shall be realized as the road works will trigger secondary needs for goods and services. The road being regional implies that citizens of the connected countries will experience positive multiplier impacts from increased trade. Reduced time of travel and the subsequent reduction in cost of vehicle operations shall translate into more time for the commuters for other economic activities and reduced transportation costs in real terms.

3.2.12 Included in the project design are other benefit enhancing and mitigation measures for any envisaged negative outcomes such as the potential increase in the spread of communicable diseases like HIV/AIDS, TB and Malaria. On the other hand, road safety becomes an issue during road works and once the roads are open to traffic. The project will conduct HIV/AIDS, STI and TB campaigns for both construction workers and communities within the road corridors. In Rwanda, HIV/AIDS and road safety activities implemented on other projects shall be emulated. Through a consulting firm, 100 schools and 200 local community associations shall be reached with messages on the communicable diseases and road safety. Information pamphlets in local language will be adopted for this project comprising behavioral change and road safety messages, signage, and road users’ information. In Uganda, the project will source the services of the ‘Nominated Service Provider’, with appropriate skills mix, to implement sensitization of HIV/AIDS awareness and prevention campaigns, gender sensitization and road safety campaigns. It is expected that at least 38 villages shall be reached.

3.2.13 The project will also give support to trade facilitation and construction of border markets at Rusumo and Kagitumba. Working with the MINICOM in Rwanda, the project shall facilitate trading activities at the two borders through provision of training and capacity building programs for the informal (mostly women, 80%) and formal traders. The main objective of this inclusive cross-border trade capacity development initiative is to improve the livelihoods and earnings of cross-border traders, through increased trade of Rwanda with Uganda and Tanzania, and reduce

10 poverty among women and youth. The project has, therefore, included trade facilitation component for different groups in the two countries of Rwanda and Uganda. The MoTI in Uganda, Uganda Revenue Authority and the Ministry of EAC Affairs with support from WB and TMEA have prioritized strengthening and operationalizing the cross-border activities. The project has made provisions for additional training for operational departments such as customs, immigration and revenue authorities. The objectives include easing up the processes for informal traders; imparting information and knowledge on the operations of One Stop Border Post (OSBP), the different protocols that have been agreed upon between countries within the EAC. JICA and TMEA have financed construction of Rusumo and Kagitumba OSBPs respectively and both are operational.

3.2.14 In Rwanda, additional country specific initiatives project shall include, in Rwanda, support to rural communities through enhancing raw milk trading and transportation. The support shall be in form of rehabilitation of at least 10 Milk Collection Centers (MCC) to increase handling capacity and provision of 10 water boreholes to improve milk quality. This initiative shall be linked to the feeder road development program financed by USAID. The project area has a production capacity of 10,700m3 (10.7 million liters) of milk per year from 28 cooperatives with 6,204 members among which 1,006 are women. About 1,600 women traders at the border shall be trained (800 in each country); 5 women associations capacitated in Rwanda (reaching 291 individual women); and 2 women associations enrolling 100 women in Uganda will be trained. As part of the livelihood restoration campaign, in Uganda, the project shall support venders (mainly women and youth) at Busega market. The support shall be through training and capacity building in various business oriented areas. Involuntary resettlement 3.2.15 The project shall have significant social impacts, mainly resulting from land acquisition or clearance of the RoW. Most of these shall be losses of land, buildings and structures (including fences, hedges and gates); crops and trees; loss of livelihood enterprises; and loss of community assets such as water points, schools, health facilities and cultural properties such as graves. Associated impacts include those compounded by nature of being socially and economically disadvantage/vulnerable groups like the widows, unemployed, orphans and the elderly. On the Ugandan side, according to the census carried out, it is estimated that project affected persons (PAPs) are 748 within 150 households. On the Rwandan side, it is estimated that there will be 565 PAPs with 63 households that will be physically displaced, and an additional 50 households will lose agricultural land due to the deviation. Among the 63 households are 50 commercial houses, to be partially affected and 13 residential houses. In response to these potential impacts, the project has prepared full RAPs for each side of the project. Estimated budgets of UGX 135.02 billion has been provided for the Uganda RAP while RWF 4.6 billion has been allocated for the Rwanda RAP implementation. Both Governments have agreed to commence the acquisition of the RoW. IV IMPLEMENTATION 4.1 Implementation Arrangements Executing Agencies (EA)

4.1.1 Uganda National Roads Authority (UNRA) and Rwanda Transport Development Agency (RTDA) will be the implementing agencies in Uganda and Rwanda respectively. Both EA have in the past satisfactorily implemented similar road projects financed by the Bank and other DPs. RTDA has the institutional capacity to handle this project. UNRA is undergoing restructuring, which started in October 2015. The recruitment started with the internal staff, which was concluded on 31 December 2015. Positions that were not filled through internal advertisements were thereafter advertised in the public print media. By end of January 2016, nine (9) Directors, most of the Heads

11 of Departments and Managers, were appointed and in total about 35% of the established posts (1595) of five Directorates were filled and the recruitment process of the entire staff is expected to be completed by June 2016. The staffing and organogram are addressed in the Technical Annex under B3.1. The safeguard unit of UNRA will have seven staff and three positions have already been filled.

The EAs through the nominated Project Coordinators assisted by engineers, procurement, environmental, social and finance experts will be responsible for coordination of the activities, and serve as contact persons for all the parties involved in the project. 4.1.2 In Uganda, the construction will be under one contract for 30 months. The road will have an Operations and Maintenance Concession (OMC), which will be procured not later than six (6) months prior to the completion of the construction. The private sector concessioner (OMC) will build the toll plaza to finance the maintenance. In Rwanda, the rehabilitation will be implemented under three contracts (Kagitumba-Gabiro and Gabiro-Kayonza for 24 months and Kayonza- Rusumo for 30 months). The road will have a Term Maintenance Contract (TMC), to be procured in the final year of construction to ensure that the TMC are in place by the time the works are completed. The cost of the TMC is not included in the loan but will be financed by GOR. Procurement

4.1.3 All procurement of goods, works under Open Competitive Bidding (OCB) and acquisition of consulting services will be carried out in accordance with the Bank’s Procurement Policy for Bank Group Funded Operations dated August 2015 as amended from time to time, using the relevant Bank Standard Bidding Documents and provisions stipulated in the Legal Agreement. UNRA and RTDA shall prepare an acceptable Procurement Plan for their respective countries and submit to the Bank for approval before negotiation. In order to expedite project implementation, the Bank has approved the request of both governments for advance contracting for the civil works and for construction supervisions. The summary and detailed procurement arrangements are explained in Technical Annex B 5.

Financial Management 4.1.4 Uganda -The Financial Management (FM) capacities of UNRA is found to be adequate but with weaknesses as 47% of the 90 positions are open by January 2016 and the remaining positions are expected to be filled by June 2016. There are delays in the audit process as demonstrated in the audit process management of Bank financed projects. Meetings between the Bank, UNRA and the Office of the Auditor General have been held to ensure there are no delays in future audit engagements. The results of the assessment indicate that the FM risk rating for the project is substantial because UNRA’s restructuring is still ongoing and there are many positions not filled. The accounting system lacks the robustness needed for an organization the size of UNRA; However UNRA is in the process of migrating to a more robust system. 4.1.5 The project will substantially make use of the Uganda’s Public Financial Management (PFM) systems. The project financial statements will be audited by the Auditor General using the Bank’s audit TOR. The audited project financial statements will be submitted to the Bank within six months after the close of the fiscal year. UNRA will second an Accountant to the project who will be in charge of the financial transactions of the project. 4.1.6 Rwanda - The project will make use of the country’s PFM systems and the Finance Director of RTDA will be responsible for the FM of the project. Two accountants are seconded to the SPIU to manage the financial operations of all donor funded projects. To supplement the existing two

12 accountants, RTDA should appoint a new Project Accountant to be responsible for maintaining financial records and reporting for the project. The project will use the Integrated Financial Management Information System (IFMIS) to capture and report on all its financial transactions based on the International public Sector Accounting Standards (IPSAS) cash basis. RTDA have in total three (3) accountants, one budget officer, one Financial Specialist and one Director of Finance dealing with daily accounting and financial aspects of all RTDA projects. . The results of the assessment indicate that the FM overall risk rating is Moderate after mitigating measures. 4.1.7 The project will follow the GOR financial year of 1st July to 30th June and its financial statements which will be prepared within three months of the end of the financial year, and will be audited by the Country’s Auditor General using the Bank’s audit terms of reference. RTDA will also be required to submit quarterly Financial Reports together with the Projects Progress report to the Bank no later than 45 days after the end of each quarter. RTDA is executing three other Bank funded road projects. For Project internal control, RTDA’s internal audit section will include the project in its annual audit planning and the project’s audit reports will be shared with the Bank as needed. This is an area which requires improvement because RTDA has only one auditor and has not been performing specific project internal audits. Disbursement Arrangements 4.1.8 The project will utilize both the special account and the direct payment methods of disbursement, as prescribed in the Bank’s Disbursement Handbook. 4.2 Monitoring 4.2.1 UNRA, RTDA, supervision consultants and Bank supervision missions will monitor the project. However, the day-to-day activities for the civil works will be supervised by the supervision consultants. The EAs through the respective Project Co-ordinators will submit Borrowers Quarterly Project Progress Report, which will include physical, financial, social and environmental indicators that the project has achieved. The reports will also provide updated information on project implementation, highlighting key challenges, and recommending action plans for resolving identified bottlenecks. 4.2.2 Monitoring of the implementation of the ESMP and RAP shall be the responsibility of the EA, respective environment management authorities, and concerned ministries. In all cases, local NGOs, CBOs and local administration shall also monitor the relevant activities. A consulting firm shall be engaged to carry out technical audits to independently determine the compliance with technical provisions, verification of implementation, good practice and ensuring that the expected quality is achieved. The technical audit shall determine any corrective timely actions to ensure quality is enhanced, and the sustainability of the asset is not compromised. The Bank shall conduct Supervision Missions (twice a year) and a mid-term review to monitor the project performance indicators and project compliance with the loan conditions; Banks procurement, financial management, rules, procedures and work plans. 4.3 Governance 4.3.1 Uganda – At national level, the Transparency International Corruption Perception Index (TICPI) ranked Uganda 127/178 in 2010 and 139/167 in 2015. The Country Policy and Institutional Assessment (CPIA) rating of Uganda has shown slight improvement from 4.1 in 2011 to 4.2 in 2012 but again declined to 4.1 in 2014. The CPIA Governance rating also declined from 3.5 in 2011 to 3.4 in 2014. The decline in CPIA was mainly attributed to the weaknesses in governance that led to wastage and leakage of public funds in some sectors. The transport sector has undergone significant policy reforms that have culminated in the separation of roles and responsibilities, with 13 respect to policy formulation, road development, maintenance, regulation and financing. The Ugandan government, with the support of the Bank, enrolled in the Construction Sector Transparency (CoST) initiative in September 2013, which is a country centered multi-stakeholder initiative designed to promote transparency and accountability in publicly-financed construction projects. 4.3.2 Rwanda has adopted a firm stance regarding the principle of good governance characterized by zero-tolerance policy for corruption, a strong anti-corruption agency and robust legislation including an anti-corruption law, laws on public tenders, laws on public finance, public officials’ conduct, among others that have contributed to improvements in governance rankings. The country’s ranking on the TICPI improved from rank 66/178 in 2010 to 44/167 in 2015. The Bank’s CPIA also shows an improvement in the overall score from 4.30 in 2011 to 4.81 in 2014. The CPIA Governance rating also improved from 4.1 in 2011 to 4.81 in 2014. 4.3.3 For the present project, specific measures have been put in place to mitigate any governance risks including: (i) Annual auditing of the project by an independent financial auditing firm for Uganda and the Auditor General in Rwanda to ensure the proper utilization of funds (ii) Semi- annual independent technical audits of the project to ensure compliance with technical specifications and value for money; (iii) Bank prior approval of all project procurement activities; and (iv) use of direct disbursement methods to channel funds to contractors and service providers. 4.4 Sustainability 4.4.1 In Uganda, the institutional arrangement for road maintenance include UNRA for maintenance planning and management, the Uganda Road Fund (URF) for maintenance financing, and private sector contractors for the execution of maintenance works. 4.4.2 UNRA has set up a road asset management system which includes both a Pavement Management System (PMS) and Bridge Management System (BMS) modules, now operational. To prevent overloading, UNRA is enforcing axle load control throughout the primary road network using seven fixed and two mobile weighbridges. An additional two fixed and four automated and weigh-in-motion weighbridges will be operational at strategically important locations. 4.4.3 The Uganda Road Fund (URF) derives its revenues mainly from road user charges like fuel levies, transit charges and overloading fees. The levies and fees are collected by the revenue authority and transferred to URF through budgetary appropriations. In 2014/15, UNRA received UGX261.44 billion representing 51% of the maintenance requirement of the overall network estimated at UGX 514.0bn. The maintenance funding gap is particularly affecting low volume gravel and earth rural roads. The URF resources are allocated in priority to the core national road network of 21,000 km which carries the overwhelming share of traffic. Currently 71% of the core national road network in good or fair condition. 4.4.4 In Rwanda, road maintenance management, financing and execution are the responsibility of RTDA, Rwanda Road Maintenance Fund (RMF) and private sector contractors. RTDA is staffed with capable staff for the maintenance planning and operation of the road network. The present project has included a technical assistance to put in place a computerized road asset management system. The control of overloading on the network is carried out by RTDA using 8 fixed and 8 mobile weighbridges. In addition, the present project will install two weighbridges along the corridor. 4.4.5 The Rwanda Road Maintenance Fund (RMF) is a second generation road fund established in 2006 to finance the maintenance of the road Network. The financial resources of the RMF come from road user charges levied on gas, oil and petrol (70% of resources) and road toll levied on foreign registered vehicles (about 30% of resources). In 2015 the Government increased the fuel 14 levy by 84% (from RWF 62.37/litre to RWF 115/litre). The increment is expected to bring the total amount to RWF 25 billion in 2015/16. With the additional resources, the RMF is expected to have sufficient funds to cover the routine maintenance requirements of the network. Currently, 73% of the 2,748-km national road network in Rwanda is in good or fair condition. 4.4.6 Given the high traffic volume on the Uganda road section, the government has commissioned a transaction advisor to prepare an Operation and Maintenance Concession with the support of the International Finance Corporation (IFC). The concessionaire will build toll plazas for revenue collection towards maintenance of the road. 4.5 Risk Management The following risks have been identified and mitigation measures are put in place. 4.5.1 Implementation delays: The following measures will mitigate the risk associated with implementation delays: i) ensure that conditions for effectiveness are reasonable ii) early engagement of stakeholders to get Parliament ratification (Uganda); iii) use of Advance Contracting, iv) commencement of RAP compensation by section; and v) close supervision by UNRA/RTDA and the Bank. 4.5.2 Cost Overruns: The risk of cost overrun will be mitigated by (i) critical review of the design reports; (ii) ensuring that the cost estimate takes into account recently awarded tenders; (iii) implementing the project according to time schedule; (iv) periodic technical audits; and (vi) close supervision.

4.5.3 Overloading: The project incorporates two weighbridges in Rwanda in addition to the existing facilities on the Corridor. The OSBP at Mirama Hills/Kagitumba has a weighbridge for overload control and the OMC will also operate weighbridge facilities.

4.5.4. Sustainability: GOR has a second generation road fund in place and has increased the fuel levy by 85% in 2015, enough to cover routine maintenance. GOU is planning the concession the Busega-Mpigi highway through an Operation and Maintenance Contract that will toll the road and collect fees for maintenance. 4.5.5. Climate Change: The risk of climate change due to excessive flooding occurrence on flat plains is mitigated by providing adequate drainages and structures in the design in accordance with the EAC, Uganda and Rwanda Drainage Manuals. Also afforestation component will increase CO2 sequestration. 4.5.6 Counterpart funding and compensation: In Uganda, the three-Year Rolling Medium Term Expenditure Framework (MTEF), which is reviewed annually with DPs and the GOU, serves to minimize the risk of failure to pay counterpart financing. GOU has already commenced on the compensation process and payments will be made by section before works commence. In Rwanda, there is no risk to pay counterpart fund as this has always been paid without any problem in previous Bank-funded projects. 4.6 Knowledge Building 4.6.1 The project has a training component for Uganda MoWT and for RTDA, which will enable knowledge building. In addition, there will be counterpart training offered by the supervision consultants as well as on-site training of UNRA and RTDA staff during construction. The effectiveness in knowledge building will be captured through quarterly reports, supervision missions and project completion report and will be shared with the EA and other DPs. The OMC and TMC of the roads will also provide additional experience of financing and implementing road infrastructure.

15

V LEGAL INSTRUMENTS AND AUTHORITY 5.1 Legal Instrument

5.1.1 The legal instruments for the Project loans are: for Uganda, an ADB Loan Agreement and an ADF Loan Agreement with the Republic of Uganda; and for Rwanda an ADF Loan Agreement with the Republic of Rwanda. The ADB and ADF loans to Uganda amount to USD91 million and UA 42.5 million, respectively, while the ADF loan and EU-ITF grant to Rwanda amount to UA 66.56 million and EURO 20 million respectively. The standard ADB and ADF loan terms and conditions will apply to each relevant loan. 5.2 Conditions Associated with Bank’s Intervention 5.2.1 Each of the loans shall be subject to the following terms and conditions: (A) Conditions Precedent to Entry into Force: The entry into force of the Loan Agreements shall be subject to the fulfilment by the Borrowers of the conditions set forth in Section 12.01 of the Bank’s, or as applicable, the Fund’s General Conditions Applicable to Loan Agreements and Guarantee Agreements (Sovereign Entities). (B) Conditions Precedent to First Disbursement: The obligations of the Bank and/or the Fund to make the first disbursement of each of the loans shall be conditional upon entry into force of the relevant Loan Agreement as stated in paragraph 5.2.1(A) above and the provision of evidence by the relevant Borrower, in a form and substance satisfactory to the Bank and/or the Fund, of the fulfilment of the following conditions: (i) Submission of an updated Resettlement Action Plan (RAP) for the relevant national component of the project in form and substance acceptable to the Bank and/or (as applicable) the Fund, together with a Works and Compensation Schedule detailing the sections into which the works will be divided and a timeframe for the compensation and/or relocation/resettlement of all Project Affected Persons (PAPs) in each section; (ii) For Rwanda, the opening of one special account denominated in USD in the National Bank of Rwanda; and for Uganda, the opening of one special account denominated in USD in Bank of Uganda, all for receipt of parts of the proceeds of the respective Loans; (C) Other Conditions: (i) For each Loan, the relevant Borrower shall provide evidence in form and substance acceptable to the Bank and/or (as applicable) the Fund confirming that prior to the commencement of the civil works on any section of the Project, all project-affected Persons in respect of such section of civil works have been compensated and/or resettled in accordance with the RAP and the Works and Compensation Schedule; and (ii) For Rwanda, the Borrower shall provide the Fund with a commitment letter for a 5-years Term Maintenance contract to be procured using Government of Rwanda resources in the final year of construction to ensure sustainability and thereafter allocate maintenance fund for the project road from the Road Maintenance Fund. For Uganda, the Borrower shall provide the Bank and the Fund with a commitment letter for an Operations and Maintenance Concession to be procured not later than six (6) months prior to the completion of the construction of the Uganda component of the Project. (D) Undertakings: The Borrowers are to (i) carry out, and cause their contractors to carry out the Project in accordance with: (a) The Bank’s rules and procedures; (b) national legislation; and (c) the recommendations, requirements and mitigation measures set forth in the ESMP prepared for the project and submit Quarterly ESMP Implementation Reports and Annual ESMP Report in accordance with the requirements of NEMA/REMA; (ii) undertake traffic counts on the 16 project roads on a bi-annual basis as from the commencement of the civil works and on the national paved road network every two years; (iii) provide the Bank/Fund with annual reports on measures adopted for the safety of the Project roads; (iv) submit to the Bank/Fund half-yearly reports on the implementation of the ESMP, RAP and HIV/AIDS, STI, Malaria, TB awareness and prevention program; and (iv) include the funds required as counterpart financing for the Project in their three years Mid-Term Expenditure Frameworks and in their annual budgets for all Fiscal Years when the Project is under implementation. 5.3 Compliance with Bank Policies

5.3.1 This project complies with all applicable Bank policies and does not require any exception. VI RECOMMENDATION Management recommends that the Board of Directors approve the proposed ADB loan of USD 91 million and ADF loan of UA 42.5 million to the Republic of Uganda for financing Multinational Busega-Mpigi road, and the proposed ADF loan of UA 66.56 million and the EU-AITF Investment grant for an amount of EUR 20.0 million to the Republic of Rwanda for financing the Multinational Kagitumba-Kayonza-Rusumo Roads Project, subject to the terms and conditions stipulated in this report, the Loan and Grant Agreements.

17

APPENDIX I: Uganda - Comparative Socio – Economic Indicators

I

Rwanda COMPARATIVE SOCIO-ECONOMIC INDICATORS

Develo- Develo- Year Rwanda Africa ping ped Countries Countries Basic Indicators GNI Per Capita US $ Area ( '000 Km²) 2014 26 30,067 80,386 53,939 Total Population (millions) 2014 12.1 1,136.9 6.0 1.3 2500 Urban Population (% of Total) 2014 20.0 39.9 47.6 78.7 2000

Population Density (per Km²) 2014 459.4 37.8 73.3 24.3 1500 GNI per Capita (US $) 2013 630 2 310 4 168 39 812 1000 Labor Force Participation - Total (%) 2014 85.7 66.1 67.7 72.3 Labor Force Participation - Female (%) 2014 52.3 42.8 52.9 65.1 500

Gender -Related Dev elopment Index Value 0

2008 2011 2012 2005 2007 2009 2010 2013 2007-2013 0.950 0.801 0.506 0.792 2000 Human Dev elop. Index (Rank among 187 countries) 2013 151 ...... Popul. Liv ing Below $ 1.25 a Day (% of Population)2008-2013 63.0 39.6 17.0 ... Rw anda Africa Demographic Indicators Population Grow th Rate - Total (%) 2014 2.7 2.5 1.3 0.4 Population Grow th Rate - Urban (%) 2014 4.3 3.4 2.5 0.7 Population < 15 y ears (%) 2014 42.1 40.8 28.2 17.0 Population Growth Rate (%) Population >= 65 y ears (%) 2014 2.4 3.5 6.3 16.3 8.0 Dependency Ratio (%) 2014 84.7 62.4 54.3 50.4 7.0 Sex Ratio (per 100 female) 2014 95.5 100.4 107.7 105.4 6.0 Female Population 15-49 y ears (% of total population) 2014 25.2 24.0 26.0 23.0 5.0 Life Ex pectancy at Birth - Total (y ears) 2014 64.5 59.6 69.2 79.3 4.0 Life Ex pectancy at Birth - Female (y ears) 2014 66.2 60.7 71.2 82.3 3.0 Crude Birth Rate (per 1,000) 2014 34.5 34.4 20.9 11.4 2.0 Crude Death Rate (per 1,000) 2014 6.9 10.2 7.7 9.2 1.0

0.0

2000 2009 2012 2008 2010 2011 2013 2014 Infant Mortality Rate (per 1,000) 2013 37.1 56.7 36.8 5.1 2005 Child Mortality Rate (per 1,000) 2013 52.0 84.0 50.2 6.1 Total Fertility Rate (per w oman) 2014 4.4 4.6 2.6 1.7 Rwanda Africa Maternal Mortality Rate (per 100,000) 2013 320.0 411.5 230.0 17.0 Women Using Contraception (%) 2014 52.5 34.9 62.0 ...

Health & Nutrition Indicators Phy sicians (per 100,000 people) 2004-2012 5.6 46.9 118.1 308.0 Life Expectancy at Birth Nurses (per 100,000 people)* 2004-2012 68.9 133.4 202.9 857.4 (years) Births attended by Trained Health Personnel (%) 2009-2012 69.0 50.6 67.7 ... 80 Access to Safe Water (% of Population) 2012 70.7 67.2 87.2 99.2 70 60 Healthy life ex pectancy at birth (y ears) 2012 55.0 51.3 57 69 50 Access to Sanitation (% of Population) 40 2012 63.8 38.8 56.9 96.2 30 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2013 2.9 3.7 1.2 ... 20 Incidence of Tuberculosis (per 100,000) 10

2013 69.0 246.0 149.0 22.0 0

2000 2009 2010 2014 2008 2011 2012 2013 Child Immunization Against Tuberculosis (%) 2013 99.0 84.3 90.0 ... 2005 Child Immunization Against Measles (%) 2013 97.0 76.0 82.7 93.9

Underw eight Children (% of children under 5 y ears) 2005-2013 11.7 20.9 17.0 0.9 Rw anda Africa Daily Calorie Supply per Capita 2011 2 148 2 618 2 335 3 503 Public Ex penditure on Health (as % of GDP) 2013 6.5 2.7 3.1 7.3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2011-2014 133.8 106.3 109.4 101.3 Primary School - Female 2011-2014 135.3 102.6 107.6 101.1 Infant Mortality Rate Secondary School - Total 2011-2014 32.6 54.3 69.0 100.2 ( Per 1000 ) Secondary School - Female 2011-2014 33.7 51.4 67.7 99.9 120 Primary School Female Teaching Staff (% of Total) 2012-2014 53.1 45.1 58.1 81.6 100 Adult literacy Rate - Total (%) 2006-2012 65.9 61.9 80.4 99.2 80 Adult literacy Rate - Male (%) 2006-2012 71.1 70.2 85.9 99.3 60 Adult literacy Rate - Female (%) 2006-2012 61.5 53.5 75.2 99.0 40 Percentage of GDP Spent on Education 2009-2012 4.8 5.3 4.3 5.5 20

0

2000 2010 2013 2008 2009 2011 2012 Environmental Indicators 2005 Land Use (Arable Land as % of Total Land Area) 2012 47.9 8.8 11.8 9.2 Agricultural Land (as % of land area) 2012 0.8 43.4 43.4 28.9 Forest (As % of Land Area) 2012 18.4 22.1 28.3 34.9 Rw anda Africa Per Capita CO2 Emissions (metric tons) 2012 0.1 1.1 3.0 11.6

Sources : AfDB Statistics Department Databases; World Bank: World DevelopmentII Indicators; last update : August 2015 UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available.

III

IV

Appendix III: Key Related Projects Financed by the Bank and Other DPs in Uganda- January 2016 Amount Financier Million Implementation Progress Project USD Construction of Jinja Nile Bridge JICA 111 Works are on-going and completion is expected in 2017

Upgrading of Atiak-Nimule road JICA 34 Works are on-going Rehabilitation of Mbarara-Katuna road EU 159 Works are on-going and completion is expected in 2016. Dualising of Kampala Northern Bypass EU/EIB 80 Works are on-going and completion is expected in 2017 Construction of Mbarara-Bypass EIB 30 Works are on-going and completion is expected in 2016. Upgrading of Ntungamo-Mirama Hills DFID/TMEA 20 Works are on-going and completion is expected in 2016 Upgrading of Masaka-Bukakata BADEA/OPEC 32 Works are on-going and completion is expected in 2016 Tirinyi-Pallisa-Kumi/Kamonkoli BADEA/OPEC 78 Works expected to commence in 2016 Upgrading of Vurra-Arua, Koboko-Oraba road IDA 74 Works are on-going and completion is expected in 2015. Upgrading of Gulu-Atiak road IDA 68 Works are on-going and completion is expected in 2015. Upgrading of Kyenjojo-Kabwoya IDA 75 Works suspended Upgrading of Kigumba-Masindi-Hoima- ADF/DFID 122 Works commenced in 2015 Kabwoya road Upgrading of Rukungiri-Ishasha & Bumbobi- ADF 100 Works to commence in 2016 Lwakhakha Kampala – Entebbe Express way CEB 360 Works are on-going and completion is expected in 2017

V

VI

Appendix IV: Map of the Project Area - Multinational Uganda – Rwanda (Busega-Mpigi in Uganda) and Kagitumba-Kayonza-Rusumo (Rwanda) Roads

This map has been drawn by the African Development Bank Group exclusively for the use of readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgment concerning the legal status of a territory or any approval or acceptance of these borders.

VII

APPENDIX V: Project Cost and Financing Arrangements

1. In Uganda, the project cost estimate net of taxes is UA136.13 million (UGX629.65 billion), which is made up of UA 85.55 million (62.8 %) in foreign exchange (FE) cost and UA 50.58 million (37.2 %) in local cost. In Rwanda, the project cost estimate net of taxes is UA131.11 million (RWF138.05billion), which is made up of UA101.35 million (77.3%) in foreign exchange cost and UA29.76 million (22.7%) in local cost. The project cost by components, source of finance, category of expenditure and expenditure schedule by component are presented under Tables1.1 to 1.4 with further details included in Annex B2

Table 1.1 Project Cost Estimates by Component (UGX billion; RWF billion and UA million–net of taxes)

Uganda Rwanda Rwandan Francs (RWF Ugandan Shillings (billion) Unit of Account (million) Unit of Account (million) COMPONENT billion) FE LC Total FE LC Total FE LC Total FE LC Total

Civil works 83.23 20.81 104.03 79.04 19.76 98.80 308.53 77.13 385.66 66.70 16.68 83.38 Consultancy Services 4.44 1.11 5.55 4.21 1.05 5.27 including audit 23.61 5.90 29.51 5.10 1.28 6.38 Studies and capacity 3.99 1.00 4.99 3.79 0.95 4.74 building 8.70 2.17 10.87 1.88 0.47 2.35 Others 0.00 0.00 0.00 4.65 4.65 0.00 4.42 4.42 (Compensation) 135.02 135.02 29.19 29.19

Base Cost 220.2274 561.06 47.61 121.30 91.66 27.57 119.23 87.05 26.18 113.23 340.83 73.69

Physical Contingency 10.40 1.98 9.88 30.85 7.71 38.57 6.67 1.67 8.34 8.32 2.08 7.90

Price Contingency 1.60 8.00 24.03 6.01 30.04 5.20 1.30 6.50 6.74 1.68 8.42 6.40

Total Project cost 106.72 31.33 138.05 101.349 29.76 131.11 395.72 233.95 629.65 85.55 50.58 136.13

Table 1.2 Source of Finance (UA Million – net of taxes)

Uganda Rwanda SOURCE FE LC Total % FE LC Total % ADB 64.44 0.00 64.44 47.34 0.00 0.00 0.00 0.00 ADF-PBA 6.98 13.02 20.00 14.69 26.12 17.94 44.06 33.61 ADF-RO 14.13 8.37 22.50 16.53 22.50 0.00 22.50 17.16

JICA 0.00 0.00 0.00 0.00 40.00 0.00 40.00 30.51

EU 0.00 0.00 0.00 0.00 12.73 3.18 15.91 12.13 GOU/GOR 0.00 29.19 29.19 21.44 0.00 8.64 8.64 6.59 Total 85.55 50.58 136.13 100.00 101.35 29.76 131.11 100.00

Percentage 62.85 37.15 100.00 77.30 22.70 100.00

1.2 In Uganda, the project is to be financed by ADB and GOU. The proposed financing from ADB (USD 91 million), which is equivalent to UA64.44 million and ADF (UA 42.5 million) will cover the 78.56% of the total project cost, amounting to UA 106.94 million (UGX 494.64 billion). The GOU will finance 21.44% of the total project cost, amounting to UA 29.19 million (UGX 135.02 billion) and the GOU has agreed to provide the required counterpart funding.

VIII

1.3 In Rwanda, the project is to be co-financed by ADF, JICA, EU and GOR. The proposed financing from ADF, JICA and EU will cover the 93.41% of the total project cost, amounting to UA122.47 million (RWF128.966 billion). JICA co-financing is directed to Lot 3, Kayonza– Rusumo with loan funding of UA 40 million. The European Union (EU) grant is to finance the civil work of Lot 1 section 1 (Kagitumba-Bugaragara) and part of the institutional support, ancillary works and studies. The EU has approved the co-financing of the project by providing an investment grant amount of UA 15.91 million (Euro 20 million), through the African Investment Facility (AIF) on 30 June 2015. JICA has granted a conditional approval to co- finance the project with a loan amount of UA40 million on 24 September 2015. The GOR will finance 6.59% of the total project cost, amounting to UA 8.64 million (RWF9.09 billion) and the GOR has agreed to provide the required counterpart funding. The project cost by Country by Category of Expenditure and Expenditure schedule by Component are shown below in Tables 1.3 and 1.4 respectively. The ADB loan for Uganda (UA64.44 million equivalent to USD91 million) will be utilized for the civil works covering foreign components, whereas the ADF loan utilization by category of expenditure is in Table 1.5 Table 1.3 Project Cost by Category of Expenditure (UA Million – net of taxes) Uganda Rwanda CATEGORY OF FE LC TOTAL FE LC TOTAL EXPENDITURE Civil Works 78.57 19.64 98.21 93.02 23.26 116.27 Supervision 4.70 1.18 5.88 4.28 1.07 5.36 Studies, ancillary works and 2.28 0.57 2.85 4.05 1.01 5.06 Institutional Support Compensation 0.00 29.19 29.19 0.00 4.42 4.42 TOTAL 85.55 50.58 136.13 101.35 29.76 131.11

Table 1.4 Expenditure Schedule by Component (UA Million – net of taxes)

Uganda Rwanda COMPONENTS 2016 2017 2018 2019 2020 TOTAL 2016 2017 2018 2019 2020 TOTAL Civil Works 19.64 39.28 34.37 4.91 0.00 98.21 23.25 49.54 37.71 5.77 0.00 116.27 Supervision 1.18 1.76 1.76 1.18 0.00 5.88 1.07 2.30 1.72 0.27 0.00 5.36 Institutional Support , Ancillary Works and 0.71 1.30 0.60 0.13 0.13 2.85 2.37 2.45 0.08 0.08 0.08 5.06 Studies Compensation & 14.60 14.60 0.00 0.00 0.00 29.19 2.21 2.21 0.00 0.00 0.00 4.42 Resettlement Total 36.12 56.94 36.73 6.21 0.13 136.13 28.90 56.50 39.51 6.12 0.08 131.11

Table 1.5 ADF loan utilization by category of expenditure in UA million

CATEGORY OF EXPENDITURE FE LC TOTAL Civil Works 14.13 19.64 33.77 Supervision 4.70 1.18 5.88 Studies, ancillary works and Institutional Support 2.28 0.57 2.85 Compensation 0.00 0.00 0.00 TOTAL 21.11 21.39 42.50

IX

APPENDIX VI: Justification for Bank financing of higher proportion

Uganda

The proposed 23.7km Busega-Mpigi express highway is programmed under the Uganda 2011- 16 CSP. The project will be implemented during the period 2016 to 2019 at a total cost of UA 136.13 million. Uganda’s contribution comprises of an ADB Loan of USD91 million; and an ADF Loan UA of 42.5 million. The GOU counterpart financing is 21.44%, instead of 50% and the justification is summarized as follows and the detail is in the Technical Annex B2.

Uganda’s commitment to implement the overall National Development Plan (NDPII) Infrastructure development is one of the key objectives set out by the NDPII. Government of Uganda aims at increasing the quantity of total national paved road network from 3,795 kilometers to 6000 kilometers. Uganda’s medium term expenditure plans are aligned with strategic budget priorities, which includes infrastructure development in roads and energy; agricultural production and productivity; human resource development; employment generation; private sector development; and improvement of public service delivery. As such, the proposed 33 km express highway is consistent with the country’s key objectives to increasing the quantity of total national paved road network, and to forge functional integration within the East African Community.

Uganda’s budgetary allocation to sector’s targeted by the Bank’s assistance The overarching objective of the Bank’s Country Strategy Paper (CSP) 2012-16 for Uganda is to support infrastructure development with focus on transport, energy and agricultural infrastructure; and skills and technology development. These areas of emphasis are in agreement with Uganda’s Vision 2040, the National Development Plan II (2015/16-2019/20) and the Bank’s Ten-Year Strategy 2013-2022. The Bank’s support to Uganda has been channeled through both Policy-Based Operations and project financing. The entire Bank portfolio comprises 20 on-going operations as at January 2016, amounting to UA816.23 million, of which the transport sector accounts for 18%. Developing infrastructure in all the sectors is given high importance in the country, which is in line with the Bank’s 10-year strategy (2013-2022), and Uganda’s national development priorities under NDPII.

Uganda’s budget performance, and debt levels Uganda’s budgeting process remains highly consultative and transparent. Following the introduction of new tax related policies, domestic Revenue/GDP significantly increased from 11.9% in FY 2013/14 (after GDP rebasing) to an estimated 13.1% in FY 2014/15. However, the revenue performance still slightly fell short of the revenue target of 13.7% in the budget proposal. The budget estimates for FY 2014/15 was 22.5% of GDP (or UGX 16,101bn), however the outturn fell short of target reaching 18.6% of GDP in FY 2014/15 owing to delayed implementation of the development projects. Total expenditure is projected to rise by 49% to US$ 8.58bn in FY 2015/16 from $6.23bn in FY2014/15. This FY 2015/16 budget is equivalent to 22.5% of GDP. During February 2015, the Government unveiled a new law, the Public Finance Management Act (PFMA 2015) which provides an enhanced framework for managing public finance, and accountability for improved public service delivery. The PFMA Act is expected to improve absorptive capacity of public expenditure. In terms of Debt Sustainability, Uganda’s public debt-to-GDP ratio is projected to rise to 34% during the FY 2015/16. However, the Fifth PSI Review for Uganda recently concluded that Uganda remains at low risk of debt distress in spite of ongoing large infrastructure investments in energy and transport. X

Conclusion The Government contribution is for financing of the entire compensation and resettlement expenses and partly the supervision consultancy services. The relatively low counterpart fund of GOU (21.44%) is due to: (i) the fact that all local taxes for all works and services will be paid by the GOU (ii) ADF allocation has been reduced under the ADF-13 replenishment cycle and the available ADF resources were insufficient to cover all the pipeline projects in Uganda. Ideally, roads should have concessional financing; (iii) GOU has committed to increasing the quantity of total national paved road network by 58% from 3,795 km in 2013/14 to 6000 kilometres by 2020 and (v) GOU’s overall budget for Fiscal Year 2015/16 is USD 8.58 billion; of which 18% is devoted to transport and this shows the priority assigned to the transport sector. The debt level is projected to a Nominal Debt to GDP Ratio of 34% on account of large infrastructure projects; but Uganda’s Debt Service to Revenue at 9.1%, remains sound. To reduce the GOU’s financial burden in this project, the Bank’s contribution has been increased. See Technical Annex B.2.3

Rwanda The proposed 208km Kagitumba-Kayonza-Rusumo (KKR) road project is programmed in the Rwanda 2012-16 CSP for implementation in 2016. The project will be implemented during the period 2016 to 2019 at a total cost net of taxes and duties of UA 131.11 million, comprising a loan of UA 66.56 million (out of which UA 44.06 million is from PBA and UA 22.50 million is from the Regional Operations Window) from ADF resources, a grant of UA 15.91 million from the European Union, a loan of UA 40 million from the Japanese International Cooperation Agency and Government counterpart contribution of UA 8.64 million (6.59%). The counterpart funding represents 6.59% of the project’s financing cost, which is below the minimum requirement of 10%. The guiding principles outlined in the revised Bank Policy on Expenditure Eligible for Bank Group Financing (ADF/BD/WP/2007/72/Rev.2, section 4.2.2) on a case-by-case basis, allows for ADF financing up to a limit that does not exceed 100% for a project.

Pursuant to Section 4.2.2 of the Policy on Expenditure Eligible for Bank Group Financing, the level of the Government counterpart funding for the ADF resources was determined on the basis of three criteria: i. the country’s commitment to implement its overall development programme; ii. the financing allocated by the country to sectors targeted by Bank assistance; iii. the country’s budget situation and debt level.

In conclusion, the foregoing arguments in Annex B2 confirm that reducing the GOR’s counterpart funding to 6.59% of the total project cost will ensure that the country’s limited resources are freed-up for increased investments in poverty reduction and growth generating sectors. This will also contribute to the EDPRS-2 overarching objective of achieving shared growth, structural change, and economic transformation.

XI