Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 46757-BW

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$186.00 MILLION

TO THE

REPUBLIC OF BOTSWANA

FOR AN

INTEGRATED TRANSPORT PROJECT Public Disclosure Authorized

May 1,2009

Africa Transport Sector Country Department AFCS 1 Africa Region

Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective - April 4,2009 Currency Unit = Botswana Pula Pula 1.00 = US$ 0.129 US$ 1 = Pula7.698

FISCAL YEAR April 1 - Mach31

ABBREVIATIONS AND ACRONYMS

AADT Average Annual Daily Traffic AAS Administration Accounts Section AC Asphalt Concrete ADS Acquired Immune Deficiency Syndrome BEDIA Botswana Export Development and Investment Authority BITP Botswana Integrated Transport Project BR Botswana Railway BWP Botswana Pula CAAB Civil Aviation Authority ofBotswana CPS Country Partnership Strategy CQS Consultant Qualifications Selection DBES Department ofBuilding and Engineering Services DCA Department of Civil Aviation DEA Department of Environmental Assessment DRTS Department ofRoad Transport and Safety DTRP Department for Town and Regional Planning DEA Department of Environmental Affairs EA Environmental Assessment ERR Economic Internal Rate ofReturn EMP Environmental Management Plan ESMF Environmental and Social Management Framework FDIC Fkdkration Internationale des Inge'nieurs Conseils (International Federation of Consulting Engineers) FM Financial Management FMS Financial Management Specialist FS Financial Statements GABS Government Accounting and Budgeting System GCC Gaborone City Council GDP Gross Domestic Product GOB Government ofBotswana GPN General Procurement Notice HDM-4 Highway Development and Management Version 4 HIV Human Immunodeficiency Virus IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association FOR OFFICIAL USE ONLY

IFMIS Integrated Financial Management and Information System IFR Interim Unaudited Financial Report LIB Limited International Bidding M&E Monitoring and Evaluation MFDP Ministry ofFinance and Development Planning MLG Ministry ofLocal Government MWT Ministry ofWorks and Transport NCB National Competitive Bidding NDP National Development Program NMTMP National Multi-Modal Transport Master Plan NPV Net Present Value OFID OPEC Fund for International Development OP Operational Policy (World Bank) OPEC Organization ofPetroleum Exporting Countries OPRC Output and Performance Based Road Contracting PDO Project Development Objectives PPADB Public Procurement and Assets Disposal Board PPP Public Private Partnership PS Permanent Secretary QBS Quality Based Selection QCBS Quality and Cost-based Selection RAP Resettlement Action Plan RD Road Department RFP Request for Proposal WF Resettlement Policy Framework SAA Senior Administration Assistants SADC Southern African Development Community SBD Standard Bidding Documents (by the World Bank) SMU Special Project Management Unit TOR Terms ofReference TRG Transport Reference Group TSG Technical Support Group UNDB United Nations Development Business USA United States ofAmerica USD United States Dollar voc Vehicle Operating Cost VSL Variable-Spread Loan WB World Bank

Vice President: Obiageli Katryn Ezekwesili Country Director: Ruth Kagia Sector Director: Inger Andersen Sector Manager: C. Sanjivi Rajasingham Task Team Leader: Supee Teravaninthorn

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

BOTSWANA Integrated Transport Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B. Rationale for Bank involvement ...... 5 C . Higher level objectives to which the project contributes...... 6

I1. PROJECT DESCRIPTION ...... 7 A . Lending instrument ...... 7 B. Project development objective (PDO) and key indicators ...... 7

C . Project components ...... ;...... 8 D. Lessons learned and reflected in the project design...... 11 E. Alternatives considered and reasons for rejection ...... 13

I11. IMPLEMENTATION ...... 15 A . Partnership arrangements...... 15 B. Institutional and implementation arrangements...... 15 C . Financial management arrangements., ...... 16 D. Monitoring and evaluation ofoutcomesh-esults...... 17 ... E. Sustainability ...... 18 F. Critical risks and possible controversial aspects ...... 18 G. Loan conditions and covenants ...... 21

IV. APPRAISAL SUMMARY ...... 23 A . Economic and financial analyses ...... 23 B. Technical ...... 24 C . Fiduciary ...... 24 D. Social...... 26 E. Environment ...... 27 F. Safeguard policies ...... 28 G. Policy exceptions and readiness ...... 28 Annex 1: Country and Sector ...... 29

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 36

Annex 3: Results Framework and Monitoring ...... 37

Annex 4: Detailed Project Description...... 42

Annex 5: Project Costs ...... 50

Annex 6: Implementation Arrangements ...... 52

Annex 7: Financial Management and Disbursement Arrangements ...... 55

Annex 8: Procurement Arrangements ...... 67

Annex 9: Economic Analysis ...... 80

Annex 10: Safeguard Policy Issues ...... 87

Annex 11: Project Preparation and Supervision ...... 90

Annex 12: Documents in the Project File ...... 91

Annex 13: Statement of Loans and Credits ...... 92

Annex 14: Country at a Glance ...... 93

Annex 15: Maps...... 95 IBRD Map No. 36909 BOTSWANA

INTEGRATED TRANSPORT PROJECT

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTTR

Date: May 1,2009 Team Leader: Supee Teravaninthorn Country Director: Ruth Kagia Sectors: Roads and highways (55%); Urban Sector Director: Inger Andersen Transport (25%); General transportation sector Sector Manager: C. Sanjivi Rajasingham (15%); Railways (5%) Themes: Regional integration (P);Other urban development (S); Asset preservation Project ID: P102368 Environmental screening category: Category B Lending Instrument: Specific Investment Loan (SIL)

3. Project Financing Data [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ 3 Other:

For Loans/Credits/Others: Total Bank financing (US$ million): 186.00 Proposed terms: Commitment-linked IBRD Flexible Loan in US dollar with a variable spread and level repayments of principal. The loan will be payable in 27 years (including 8 years grace period). The loan includes all ofthe embedded options (currency conversion, interest rate conversion and

Source Local Foreign Total RnrrnwerBorrower I 59.759 7 I 119139.5 5 I 199199.2 3 - International Bank for Reconstruction and 73.8 112.2 186.0* Development (IBRD) Total ( inclusive of taxes) 133.5 251.7 385.2

Borrower: The Republic ofBotswana

Responsible Agency: Ministry ofWorks and Transport, Botswana 2nd Floor, Room 204 Private Bag 007 Botswana Tel: 267 395 8504 Fax: 267 391 3303

i FY 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Annual 14 20 14 13 15 16 18 18 18 20 20 Cumulative 14 34 48 61 76 92 110 128 146 166 186

Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C. Does the project require any exceptions from Bank policies? Ref: PAD IKG. Have these been approved by Bank management? Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Ref: PAD III.F. Does the project meet the Regional criteria for readiness for implementation? Ref: [XIYes [ ]No PAD IKG. Project development objective -- Ref: PAD ILB. The primary development objective ofthe project is to enhance the efficiency of the transport system by building modern business management capacity, and improving the strategic planning aspects of inter-regional transport and critical transport infrastructure.

Project description Ref: PAD ILC. Technical Annex 4.

Component A: Capacity Building, Institutional Strengthening, and Training. This component comprises provision of technical advisory services to undertake; (i)a number of pre-investment activities; and (ii)a capacity-building, knowledge transfer, and institutional strengthening and training program. It aims to introduce strategic planning and transport integration, modem methods of management and contracting, technology improvement, knowledge development and sharing.

Component B: Road Sector Investment. This component introduces a pilot long term output and performance based road contracting (OPRC) method for a road asset management program covering some 800km of rural and semi-urban road in Kanye road depot, as well as the provision of technical advisory services to monitor the progress and quality of works. The work cycle will include all required activities in order to reach the designed level of service on the specific road network from an engineering to the final users’ satisfaction point ofview.

Component C: Urban Roads Infrastructure Investment. This component comprises the implementation of an urban traffic improvement program in Greater Gaborone city and technical advisory services to supervise construction of the improvement works under this component. The investment aims to solve the urgent urban congestions along the major city roads/streets and intersections introducing modem and advanced planning, design and implementation techniques.

.. 11 Which safeguard policies are triggered, if any? Re$ PAD IKF., Technical Annex 10 Safeguards policies that will be triggered are OP/BP 4.01 for environmental assessment (EA) and OP/BP 4.12 for involuntary resettlement.

Significant, non-standard conditions, if any, for: N/A

Board presentation: None.

Loan effectiveness: (i) The issuance ofthe relevant legal opinions according to the legal system ofBotswana. (ii) Technical Support Group for the Special Project Management Unit (SMU) to be fully recruited.

Covenants applicable to project implementation:

Financial The Government ofBotswana (GOB, the Borrower) shall: (i) maintain or cause to be maintained a financial management system including records, and accounts in accordance with the provisions ofSection 5.09 ofthe General Conditions. (ii) prepare and furnish to the Bank, not later than 45 days after the end of each quarter, interim unaudited financial reports for the Project covering such quarter, in form and substance satisfactory to the Bank; (iii) have the project’s Financial Statements (FS) audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each audit ofthe FS shall cover the period of one Fiscal Year. The audited FS for each such period shall be furnished to the Bank not later than six months after the end of such period, Le., by September 30 ofeach year; (iv) prepare the Audit Terms of Reference in consultation with the Bank, within three months of effectiveness ofthe loan agreement; (v) assign one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit, no later than one month from effectiveness date; and (vi) designate staff to be responsible for the production of the interim unaudited financial reports (IFR) by component and activity in the Accounts Unit, MWT no later than one month from effectiveness date.

Implementation (i) GOB shall establish a Transport Reference Group to provide overall policy direction and general oversight ofthe project; (ii) Road Department (RD) / Ministry of Works and Transport (MWT) has established a Special Project Management Unit (SMU) composed of qualified staff from MWT, RD, GCC and other participating government department; (iii) The SMU shall be responsible for implementing, managing and coordinating project activities, and it shall: (i)maintain at all times adequate financial management and procurement systems and procedures; (ii)carry out overall technical management and oversight of the project, including monitoring and evaluation of Output and Performance Based Road Contracts (OPRCs); and (iii) monitor technical and material output of the project to ensure that it is in line with the financial payments and statements to be prepared by the Ministry of Finance and Development Planning (MFDP);

... 111 (iv) RD/MWT to carry out, in conjunction with the Bank, a project mid-term review by June 30, 2014. No later than two months prior to the mid-term review, prepare relevant progress report to be discussed at the mid-term review; and (v) RD/MWT shall ensure that the project is carried out in accordance with the provision of the Bank’s Anti-corruption Guidelines.

Safeguards (i) A Resettlement Action Plan (RAP) and an Environmental Management Plan (EMP) would need to be prepared, when applicable, in accordance with the provision contained in the Resettlement Policy Framework and Environmental and Social Management Framework (ESMF) and the World Bank policy to that effect, and be duly implemented thereafter.

Reporting (i) Semi-annual progress reports for all components, including result indicators, as applicable, using the agreed format. These progress reports will include a summary of the actions and activities undertaken to implement the outcome of the regional integration study, and the progress in the local contracting industry development; (ii) Annual reports ofthe unit cost ofthe works under the OPRC component; and (iii) Annual training report and evaluation forms.

iv I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1 Key development issues in the country context-high levels of poverty, inequality, low human development indicators and the need for economic diversification

1. Botswana, a landlocked middle-income country (MIC) with a population of 1.9 people million in an area larger than France, is one of the world’s great development success stories. Botswana is one of only very few countries in the world to have sustained a long period of high growth thanks to its prudent management of natural resources (mainly diamonds).The economy has grown at an impressive rate, averaging about nine percent a year during the last four decades, since its independence in 1966. Its real gross domestic product (GDP) per capita has increased more than ten-fold since its independence - the fastest growth rate in GDP per capita in the world. It reached US$5,840 per capita in 2007 making Botswana one of only a handful of counties in sub-Saharan Africa to have reached the upper middle income group of countries. This success has mainly been driven by the mineral sector, which accounted for about 40 percent of GDP in 2007/08, with diamond mining constituting the bulk ofthe mining sector. Diamond export accounted for 60 percent of total merchandise goods exported in recent years. Mineral revenues accounted for roughly 40 percent of total government revenues in the last five budget years (2004-2009). Fiscal management ofmineral revenues has been prudent, with revenue channeled into public investment, and recurring expenditures largely limited to non-mineral revenue sources. Sizeable fiscal surpluses in recent years have been saved in the Pula Fund, and international reserves have been built up to US$9.2 billion at the end of 2008, about 21 months of imports. As a result, public external debt stands at less than three percent ofGDP, domestic public debt is low at 2.6 percent of GDP, while the interest burden is less than 0.3 percent of GDP and 0.8 percent of revenues. All this has been achieved against a backdrop ofpolitical stability and democratic government.

2. However, Botswana still faces a number ofdevelopment challenges leading to high levels of poverty, inequality and lagging human development outcomes. The country’s narrow economic base has been dominated by the mineral sector for the past decades. Private sector growth, while positive, has not been able to keep pace with the much faster growth of the mineral sector and government. The reliance on mining, a highly capital intensive sector, has also meant that the benefits of development have not yet been broadly shared. Disproportionate to its revenue contribution, diamond mining represents only a small share (3.4 percent) of total employment. The economy remains heavily dominated by the public sector, which accounts for 17 percent of GDP and 40 percent of all formal sector employment in the country. Slow growth in the non-mining private sector has meant that growth in employment opportunities has not been sufficient to absorb labor leaving the rural/agriculture sector. As such, the country’s overall unemployment rate has been persistently high over the past 15 years at nearly 20 percent with an unemployment rate of about 35 percent rate among Botswana’s youth. Botswana suffers from the world’s second highest Human Immunodeficiency Virus (HIV) adult prevalence rate at over 23 percent of the population. In addition, Botswana lags comparator upper middle income counties in terms of youth and adult literacy rates despite high levels ofbudget outlays. Infrastructure capacity and quality have not kept pace with growth, and the electricity, transport and water sectors, in particular, are now presenting bottlenecks to sustained growth. The threat of losing 70 percent of the current electricity supply by 2013 (when South Africa will stop all electricity exports to Botswana), achieving energy security has become an urgent national priority. Despite its upper middle-income status, one third of the

1 population lives below the internationally recognized poverty line of US$1 per person per day, a level much higher than many countries ofsimilar economic standing.

3. The situation is now fbrther exacerbated by the impacts ofthe global economic crisis, which is already affecting Botswana severely, and is likely to have even greater effect in the coming months and years. Economic growth is down, exports and government revenues have plummeted, and unemployment is on the increase. Since the global economic crisis unfolded in the fourth quarter of 2008, in the four months between October 2008 and January 2009, the value of Botswana’s diamond exports dropped by 51 percent as compared to a year earlier. Diamond prices have also fallen by close to 10 percent from their peak in August 2008, and further declines are expected, with analysts forecasting a total drop of 20-30 percent. In addition to diamonds, copper and nickel export values, which represent about 15 percent of total exports, have also dropped by over 50 percent since the crisis. Problems with mineral exports will affect not just those sectors but will have macroeconomic consequences as well. Economic growth for 2008-201 1 is projected to decline substantially from the 3.3 percent attained in 2007/08, fiscal deficits will emerge’after years of surpluses, and the current account balance will shrink substantially from the 19 percent surplus seen in 2007. Mine closures have already resulted in the loss ofabout 4500 mining jobs thus far.

4. As a small open economy, Botswana’s reliance on international trade means that what happens to exports and imports, particularly diamond exports, will be the main channel through which external economic developments are transmitted to the economy. The government expects diamond sales revenue to fall by half in the coming two years. Mine closures have resulted in the loss ofabout 4500 mining jobs thus far. How deeply the economic recession is felt, and how long it lasts will depend to a great extent on the duration of the downturn in diamond exports, which in turn depends on economic developments in the major rich-country markets. The United States ofAmerica (USA), Europe, and Japan together account for 76 percent of the diamond market, with the USA alone representing 45 percent (2006).

5. Nevertheless, Botswana is in a stronger position than many other mineral producing economies in the continent, with international reserves providing nearly two years’ worth of import cover, and a year’s worth of expenditures saved from previous years’ fiscal surpluses. The government is hoping that these savings will provide a cushion that will enable a gradual, rather than abrupt, adjustment to adverse circumstances. But trade and fiscal deficit financing will become an increasing challenge if the fall in exports stretches into the medium term.

6. Botswana has therefore long realized that it is essential to diversify the economy, with increasing reliance on the private sector to lead activities in sectors such as manufacturing, agro- processing, and services. In a sense, the global economic crisis has only served to heighten the attention of policy makers to this policy imperative. Economic “diversification” already became a major policy goal for the government in the formulation of its current ninth National Development Plan (2003/4 - 2008/9) and upcoming tenth National Development Plan (2009-2016) will focus. In October 2006, the Bank together with the Botswana Institution of Development Policy Analysis (BIDPA), jointly completed a study on “Diversifymg Botswana’s Export: An Overview”. In order to diversify the economy beyond Botswana’s principal export of diamonds, various reforms and investments in infrastructure were recommended to bring about new export opportunities, economic growth and job opportunities, among other measures. These included a review oftaxation policies, a comprehensive reform of vocational and educational training, a resolution of issues surrounding work permits, reform ofutilities, etc. With regard to the transport sector list, the study recommended reducing transport costs and improving trade facilitation.

2 2 Key development issues in the transport sector context - greater regional integration is the theme

7. Efficient and cost effective transport is viewed as one of the vehicles for growth and a necessary condition to increase competitiveness, and hence promote economic diversification. Botswana has been doing well in its transport sector after two decades of self reliance and inward looking development. However, the basic inward looking development stage has now reached its maximum benefit. The country can no longer afford to rely heavily on its domestic market and limit connections to its giant neighbor, South Africa. The smaller the economy, the more it has to increase its degree of openness and connect to a larger global market. Expanding its economy and enlarging its markets through effective regional collaboration should be seriously considered. Given the large geographical size ofthe country (10 percent larger than France), with a small but good quality pool of human resources, it does not have the economy of scale to base its growth on the domestic consumer market, nor to effectively compete in the area of labor-intensive manufacturing. On the contrary, the country could have a competitive edge in the area of highly skilled service providers, including transport services.

-Box 1: Current situation of various transport modes

Botswana has a relatively well-developed land transport infrastructure, road and railways. However, management ofthese assets could be improved. Roads are currently the predominant mode of transport for Botswana carrying over 90 percent of freight and passenger traffic. When Botswana achieved independence in 1966 it had 12 km of paved road. Today, after 40 years of continuous development and good governance, it has 6,000 km ofpaved road and 12,000 km of unpaved network (national and local government network included). The length ofthe network grew rapidly in the 1970s - OS, but slowed down significantly over the last five years, as the competing demands for limited public financial resources between the human development sectors (health, education, HIV/AIDS, etc.) and infrastructure sectors has increased. The total asset value of the primary and secondary network is estimated at Pula 10 billion, (US$1.3 billion equivalent) while the average annual maintenance expenditure is about Pula 100 million (US$13 million equivalent) per annum (a mere one percent of the total asset value). Such a level of expenditure is obviously far from adequate to maintain the road infrastructure at an optimal level. As a result, the deterioration of the road network with the increased traffic growth is progressing fast. The significant number of roads previously in excellent condition today needs various forms of rehabilitation. Moreover, the rapid growth of traffic in the urban and peri-urban areas around the capital Gaborone demands a substantial increase in additional road lanes and effective traffic management, while the existing road surface has not been maintained. Botswana’s railway, a 100 percent government owned parastatal, consists of a single main line of 900 km with three short branch lines. It links with the South Africa railway to the south and the Zimbabwe railway to the northeast. Its major business activities are freight traffic of soda ash - export, and raw materials for the textile industry - import. However, over the last five years its freight traffic has been very volatile with a generally downward trend. This is partly due to the increasing competition from the road sector and the outdated management practice, and partly to the monopolistic power of South Africa in controlling rail freight traffic routing. Market access to air transport is quite restrictive in comparison with road transport. Restrictions exist, in particular, for scheduled domestic and international air transport services. The bilateral agreement with South Africa has an important influence on access, frequencies, and prices to Botswana. In addition, improved airport facilities, management, and operation efficiency have become important and urgent issues for the air tranmort sub-sector.

3 Namibia and Angola to the west and Zambia, Zimbabwe and Box 2: Transport sector development eastern Africa to the east. Proximity to South Africa offers vision: the potential to link Botswana into regional supply chains. p Go regional- strive to be the second Botswana should seize this advantage ofits strategic location regiona1 hub Of and turn the challenge into an opportunity. It should upgrade Africa. At the national level- increase its transport infrastructure drastically and ready itself to take > through effective up the fbrther challenge of attracting businesses that are currently queuing at very congested centers in South Africa. Activelyacquire international The transport sector development vision for Botswana is to experience with to vast “go regional”; effect a paradigm shift from inward looking natural but getting and being “at the end ofthe line” to being outward looking maximum value for money is a key and positioning itself to be “the center or second hub” ofthe challenge.

9. Regional integration dimension of the project in line with SADC protocol: Botswana is one of the 14-member states of the Southern African Development Community (SADC) and has signed the 1994 Transport and Communications Protocol. The protocol emphasizes the regional integration of the member states through integrated transport development. Member states agreed to ensure and sustain the development of an adequate roads network in support of regional socio- economic growth by providing, maintaining, and improving all roads including primary, secondary, tertiary, and urban roads, and those segments which collectively constitute the so called “regional trunk road network”. In addition, the protocol also calls for member states to promote economically- viable integrated transport service provisions in the region characterized by higher performance standards and consistent levels of efficiency and reliability of all individual component parts of the transport chain. Using the 1994 protocol as a platform for further regional integration and collaboration, SADC has developed a “Corridor Development Initiative” using transport to facilitate the trade and investment in order to unlock inherent economic potential in specific southern African locations, with the following underpinning key principles and strategies:

Promote regional economic co-operation and integration in terms ofeconomic policy and strategy; Focus on existing transportatioddevelopment corridors; Greater regional competitiveness via regional integration and collaboration; Greater emphasis on the role ofthe private sector; and Institutional collaboration.

10. The scope and investment planned under the project is in line with the SADC spirit of using transport infrastructure and services as a conduit to achieve greater regional integration.

4 Box 3: Transport costs, an impediment to trade and export diversification.

Botswana is only four hours by road to Johannesburg, and nine hours to the Port of Durban. However, its high transport costs were quoted as a major constraint for the competitiveness of its non-diamond exports (beef, ostrich, textile, copper, nickel, and tourism). Transportation costs for imports of intermediate and capital inputs and exports Average Inland transport Air Freight to from Botswana are high in cost to Durban Ports Europe comparison to international (US$/20 ft container) /1 (US$/per kg)/2 competitors, such as Mauritius and South Africa Botswana 1,149 1,840 I AQL for tourism and textile, and Argentina or Brazil for beef. &caIIIUIca I It has been a double jeopardy Zimbabwe I L,LLU I for Botswana as combined inland and sea freight transport costs are high with the inland transport part constituting nearly 60 percent of total transport costs. The average cost to transport a 40 ft container to Durban from Gaborone is approximately Pula 14,500 (US$2,440) while the cost of shipping the same container from Durban to Baltimore, USA is US$2,500. Air passenger costs are also high, which have an impact on tourism and exports of services and high value products.

B. Rationale for Bank involvement

11. The priority for Botswana in the next decade is to focus on economic diversification through greater competitiveness and to achieve greater regional integration. It is clear that the magnitude of the investment needs will also require private capital. In addition, the increasing sophistication ofits development agenda makes the introduction of international development experience from other relevant countries more critical than ever before. Botswana is mindfil that given the critical juncture at which the country stands in relation to its infrastructure development vision and privatization program, it is important to draw lessons from the substantial body of global and African experience and best practice.

12. In the above context, the Government ofBotswana (GOB) views the Bank as a development partner not only in the area of resource transfer, but also (and more importantly) as a conduit for transferring knowledge and international experience from the global community. The breadth and depth of the next level of development aiming to position Botswana to be the second regional transport hub of southern Africa would require the development of a sophisticated intermodal Transport Master Plan for which the Bank has the needed and proven expertise that would bring added value to the client. The knowledge and analytical advice will be accompanied by physical investment. On the Bank’s side, the proposed intervention would present an opportunity to deepen the Bank’s understanding and support to Botswana’s ambitious and well balanced program of investment covering both institution building through a well coordinated pilot technical assistance program and blended with the physical investment activities for selected high valued assets.

13. Botswana, having developed its road network significantly in the past, has recently had a major problem in maintaining its Pula 10 billion (about US$1.3 billion equivalent) worth of road

5 assets. Therefore, it needs a sustainable and optimized management system that will preserve the road asset value, develop and introduce a modem monitoring system to ensure that the investment is maintained and sustained in an optimal and real time manner, providing “value for money’’. The Bank has a distinguished and leading role in bringing in the private sector to achieve sustainable results in the road sector through the multi-year performance and output based road and management contracts in other parts of the world. The Bank had first introduced such contracts in Argentina, Brazil and Uruguay in the early 1990s and it is currently scaling up its usage in Africa and Asia. In Africa, examples are Chad, Uganda, Nigeria, Liberia, Zambia, and Madagascar, while in Asia the examples are in India and Philippines where the Bank is helping the governments to developing similar schemes, based on the Bank’s Output and Performance-Based Road Contracting (OPRC) sample document. The Bank is, therefore, well qualified and experienced to support the government’s reform efforts, drawing from its extensive involvement in similar reform programs. This project will introduce, as a pilot operation, the modem asset management method (OPRC) to Kanye road depot catchment area, which is one of the most traveled road networks in Botswana. Once proven to be successful, it will be replicated to other parts ofthe road network in the country.

14. Involvement of multilateral and bilateral institutions in the past decades includes support from the African Development Bank (AfDB), OPEC Fund for International Development (OFID), Kuwait Fund for Arab ,Economic Development, and China-Exim Bank. Botswana now requires substantial support in the road sector and increasing Bank’s engagement would not only be to prepare the ground for a new sustainable initiative but also to promote further private sector investment. With the Bank taking the role of a financier and facilitator of best practice, Botswana is expected to promote institutional reforms, right-sizing its civil service, including a possibility for establishment of an autonomous Roads Authority, and introducing the use of long term performance and output based contracts to manage the entire national roads network. This will not only attract large investors in the road sector, but will also result in increased competition, reduced prices for road construction and ultimately lower road user costs.

C. Higher level objectives to which the project contributes

15. The Botswana Integrated Transport Project (BITP) is aligned with the Bank’s partnership strategy agreed with GOB. The project closely follows the specific strategies considered under the Country Partnership Strategy (CPS) for 2009-2013 (scheduled to be presented to the Board on May 21,2009). As indicated in one ofthe four Strategic Elements in the CPS, Increased Competitiveness - Infrastructure and the Investment Climate, efficient, secure and cost effective infrastructure is the key for Botswana’s continued economic growth and increased competitiveness. Hence, the government has called on the Bank to partner in improving Botswana’s hard strategic infrastructure, including in the transport and electricity sectors, to benefit from both the Bank’s knowledge and financing.

16. Given the country and sector vision, the higher level objective of the project is to assist the Government of Botswana (GOB) to take the first bold step in revamping and modernizing its entire transport system. It aims to start with enhancing its system efficiency in order to eventually take up the challenge of its ambitious vision by positioning itself to be the feeder hub for southern Africa. The proposed project aims to provide the necessary capacity building and the infrastructure improvement which will, over time, increase its competitive edge required for opening up the opportunity for export diversification. It would open up employment opportunities in the private sector, help balance the income and wealth distribution to benefit disadvantaged groups of the population, and reduce poverty in-line with the Millennium Development Goals (MDGs).

6 11. PROJECT DESCRIPTION

A. Lending instrument

17. The Bank will finance the project through a specific investment loan. The borrower has reviewed various lending options and has selected a Commitment-linked IBRD Flexible Loan, in US dollars with variable spread, and with level repayments ofprincipal. The loan will be payable in 27 years (including an eight year grace period) and the front-end fee will be paid from the Borrower’s own resources upon loan effectiveness. Debt service payment dates will be May 15 and November 15 of each year. The loan includes all of the embedded options (currency conversion, interest rate conversion and caps/collars).

B. Project development objective (PDO) and key indicators

18. The primary development objective ofthe project is to enhance the efficiency ofthe transport system by building modern business management capacity, and improving the strategic planning aspects of inter-regional transport and critical transport infrastructure. The outcomes/results frameworks ofthe PDO are:

(i) On building modern business management capacity: (a) The successful introduction ofthe modern method ofroad asset management starting with the implementation ofthe pilot OPRC scheme in Kanye Road Depot, and replicate in other districts once it is proven successful. (b) Introduction ofmodern traffic management and technical solutions to effectively reduce traffic congestion in Gaborone City.

(ii) On improving strategic planning aspects ofinter-regional transport and critical transport infrastructure, the outcome indicators are the successfd implementation of major strategic vision for regional integration ofBotswana. The various studies to be completed under the project aim to provide strategic and policy guidance to achieve such vision. The studies will also form part ofnational master plan to effectively direct the critical transport infrastructure investment.

19. The achievement of the PDO will be monitored using the following key performance indicators:

(i) Length ofroads under long term OPRC rehabilitation and maintenance; (ii) Level of satisfaction by road users; (iii)Reduction ofaverage vehicle operating costs per kilometer on OPRC roads; (iv) Decrease in number ofannual road accidents on project roads; (v) Reduction ofaverage travel time in Gaborone city; and (vi) The various studies to be completed under the project aim to provide strategic and policy guidance to achieve such vision. The studies will also form part ofnational master plan to effectively direct the critical transport infrastructure investment.

7 C. Project components

20. The project seeks to achieve the above mentioned development objectives through investing in the following three major components (see details for each component in Annex 4). The overall estimated cost ofthe project is US$385.2 million (inclusive oftaxes and contingencies), out ofwhich US$186.0 million will be financed by the World Bank and the remaining amount of US$199.2 million by GOB. There is a possibility that the government will also request funding from OFID. The involvement of OFID would be a bilateral arrangement between OFID and GOB and would help lighten the load ofthe counterpart funding from GOB. The effects ofsuch co-financing ofthe project would be addressed at the time that OFID makes the financing available. Table 1 summarizes the components and their estimated costs (also see Annex 4 for a detailed description ofsub-components and Annex 5 for a detailed cost break down).

2 1. Comoonent A: Capacity Building, Institutional Strengthening, and Training, estimated at US$20.7 million (inclusive oftaxes) proposed to be financed as follows:

Component AI: pre-investment activities estimated at US$8.5 million; of which US$O.lO million was financed by GOB, and the remaining amount (US$8.4 million) will be financed by the World Bank, of which US$5.7 million will be financed under a retroactive financing arrangement. Briefly, this component comprises (a) development of regional integration vision for Botswana; (b) studies of three new railway links; (c) development of conceptual design and preparation of bidding documents for about 800 kilometers ofOutput and Performance-Based Road Contracting (OPRC) for Kanye road depot; (d) feasibility study for Gaborone City traffic improvements; (e) development of environmental and social management framework (ESMF) for OPRC contracts; and (f) pre-investment capacity building program for staff training in transport planning and project management

Component A2: Capacity building, knowledge transfer and institutional strengthening, and training investment planned during project implementation phase, estimated to cost US$12.2 million all of which will be financed by the Bank. Briefly, this includes: (a) development ofa national multi-modal transport master plan, including a transport master plan for the Greater Gaborone city (b) training of various government agencies in Ministry of Works and Transport (MWT) and technical assistance support to Transport Hub, (c) technology and logistical upgrade for MWT; (d) preparation ofdetailed designs and bidding documents for selected intersection in Greater Gaborone city; (e) carrying out of independent technical and financial audits; and (f) a program of training and development to strengthen the local consulting and contracting industry.

22. Commnent B: Road Sector Investment, estimated at US$236.8 million, inclusive oftaxes out ofwhich US$122.7 million will be financed by the Bank, and the remaining US$ll4.1 million by the GOB. The cost split for this component is US$228.2 million for civil works and US$8.6 million for construction monitoring supervision. The Bank will finance 50 percent ofthe works and 100 percent of construction monitoringsupervision. The investment activity comprises the execution of a road asset management program for some 800km ofrural and semi-urban road using the long term output and performance based road contracting (OPRC) method covering road network in Kanye road depot. The work cycle will include all required activities in order to reach the designed level of service on the specific road network from an engineering to the users’ satisfaction point ofview.

8 23. Component C: Urban Roads Infrastructure Investment, estimated to cost US$8 1.4 million, inclusive of taxes out of which US$42.8 million will be financed by the Bank and US$38.7 million by the GOB. The total cost split for this component is US$77.3 million for civil works and US$4.1 million for construction supervision services. The Bank will finance 50 percent of works and 100 percent of supervision costs. The investment activity comprises the implementation of an urban roads improvement program in Greater Gaborone city aiming to solve the urgent urban congestions along the major city roads/streets and intersections by introducing modern and advanced planning, design and implementation techniques.

9 Table 1: Project Scope, Components and Cost Estimates Investment Estimated Bank YOof Bank activities/ cost Financing Financing categories inclusive Component of taxes (US$m) (US$m) A: Capacity Building & Institutional Strengthening and 20.7 20.6 Training Al. Pre-investment activities Capacity 8.5 8.4 building A1. 1 . Regional Integration and A1 Transport Corridor cons. 1.4 1.4 100 (Retroact& financing) Al.2. Technical Assistance and Study for 3 Railway Lines cons. 2.7 2.7 100 A1.3. Conceptual Design for OPRC Cons. 1.2 1.2 100 (Retroactive financing) Al.4. Greater Gaborone Transport Multimodal Study cons. 0.9 0.9 100 (Retroactive financing) AI.5. Environmental, Social and Resettlement Frameworks for cons. 0.1 - - OPRC A1.6. Training of RD Staff in Pre-project Period Training 0.1 0.1 100 (Retroactive financing) A1.7. Transport Support Group for RD (3 specialists for 2 years) cons. 2.1 2.1 100 (Retroactive financing) A2. Capacity building, knowledge transfer and institutional Capacity 12.2 12.2 strengtheningtraining building A2.1. National Multi-Modal Transport Master plan Cons. 2.6 2.6 100 A2.2. Training of various Government Institutions and Support to Training I 2.1 2.1 100 Transport Hub cons. A2.3. Technological and Logistic Upgrade of MWT Goods 2.1 2.1 100 A2.4. Detailed Designs and Bidding Documents for Selected cons. 3.1 3.1 100 Gaborone Intersections A2.5. Technical Monitoring and Audit cons. 1.3 1.3 100 A2.6. National Consulting and Constructing Industry cons I 1.o 1.o 100 development training B: Road Sector Investment (inclusive of taxes) Physical 236.8 122.7 Investment B 1.1, OPRC- Road Works Works 228.2 114.1 50 B 1.2. Consulting Serviceshlonitoring ofOPRC cons. 8.6 8.6 100 C: Urban Roads Infrastructure Investment (inclusive of Physical 81.4 42.8 taxes) Investment C. 1.1 Gaborone City Urban Roads and Intersections Works 77.3 38.7 50 Improvement C. 1.2 Consulting Services for Supervision on Construction cons. 4.1 4.1 100 Total cost (inclusive of taxes, net of contingencies) 338.9 186.0 Total estimation ofprice and physical contingencies 46.3 - -

Note: Total amount eligible for retroactive financing is US$5.7 million.

10 D. Lessons learned and reflected in the project design

24. The Bank has not operated in Botswana for almost two decades; therefore there is not a distinctive lesson from a previous Bank’s operation in the country. However, as the economic situation, which in the past depended heavily on diamond production, is changing fast, the need for reforms and adjusting the way of doing business becomes evident in all sectors especially in transport. The sector is increasingly calling for massive involvement of the private sector through PPP, for scaling up regional integration, for a balanced use of different modes of transport, and for better utilization ofresources emphasizing the “value for money” principle, etc. All ofthese demand a change in the openness of the country and its exposure to the international markets. The country presently is actively involved in creating an international transport hub environment, considering the use of various cost recovery methods (tolls, shadow rates, etc.) and improving the management and monitoring systems for its public asset management. However, tying physical interventions to successful implementation of reform measures bears the risk of getting into a gridlocked situation and further deteriorating road assets. Instead, capital investments and reform measures have to be pursued simultaneously with reasonable linkage between their implementation.

25. Given the above, the Bank and the GOB have designed this project with focused attention placed on formulating specific sector strategy supported by physical interventions. The project therefore proposes to facilitate engaging the private sector through implementation of long term OPRCs at a time when support from key decision makers for private sector participation is strong and road users’ demand for better and safer transport is mounting. In addition, the project supports sophisticated traffic management options including implementation of multilevel interchanges and other measures to facilitate the already unbearable traffic conditions on major Gaborone city streets.

26. While pursuing the physical interventions, the BITP will at the same time focus on capacity building and improved institutional arrangements by introducing professional planning methods leading to safer, modern, and optimized road asset management, through the introduction of Transport Multimodal Planning, traffic improvements, and development of various cost recovery options for major transport facilities. Neither of these efforts will be conditional on the other, but all will go hand in hand and closely coordinated. For instance, well-functioning OPRC arrangements require lean, competent government counterpart units to manage and enforce them. The Roads Department (RD) special unit in charge of the project is expected to be the counterpart unit and its establishment and operation is being supported by the project.

27. OPRC experience. The Bank has been involved in promoting output and performance based contracts in a number of countries in Latin America (Argentina, Brazil, and Uruguay), South Asia (India), and Africa (Chad and Zambia) and the lessons drawn from such experiences that are relevant in the context ofBotswana have been appropriately incorporated in the project design including:

Greater fiscal predictability, reliability and easier monitoring ofresults; Rehabilitation and maintenance works are combined under one model and implementation strategy, thus making it easy to monitor and measure; The project has defined all risks involved, quantify them, and propose mitigation measures for each of the risks involved, proportioning them to the party best fit to mitigate it; Rehabilitation and maintenance works must comply with the designed level of pavement deflection, roughness, rut depth, cracking or raveling and minimum level of

11 skid resistance, and other elements spelled out within the agreed level of service (from the road users’ point ofview); 0 Regular monthly visual inspections of maintenance activities must focus on facility condition, roadside environment and other road inventory; 0 For the entire financed works, the payment model will cover the rehabilitatiordimprovement works as well as maintenance works, making sure that the contractor has the required incentives to carry out the maintenance works after completion ofrehabilitation works; 0 The rehabilitation solutions need to be closer to the economically optimum strategy recommended by life cycle cost analysis, such as by using the World Bank’s Highway Development and Management Version 4 (HDM 4) model, or equivalent; 0 The period during which rehabilitation works are to be executed should be dependent on the design of the contractor who undertakes to assume the risks involved before achieving the payment terms upon full compliance with the design level ofservice. 0 Adjustments for inflation should be made throughout the contract period, on a monthly basis, starting one year after bid submission date; 0 A corridor management approach should be adopted whereby the service provider is also required to manage road safety, axle load control, roadside user facilities, right-of- way encroachment and traffic flow; 0 There should be increased consistency in the rehabilitation and maintenance activities through long term network management rather than short term road by road section interventions; 0 Success in the implementation of OPRCs is highly dependent on: (i)good management of the programs at the road authority level, and (ii)the government’s capacity to meet with their financial obligations, thus, regularly honoring the payments due to the contractors; and 0 Longer duration ofperformance based contracts (up to 10 years) are prescribed to allow the contractor to spread the risks and provide for justifiable periodic maintenance cycles - and where OPRCs are being tried for the first time, it is necessary that the Bank remains involved throughout the contract period.

28. The OPRC concept will be implemented in Botswana for the first time under the project, and as a pilot scheme. Depending on the successful implementation of the pilot OPRC scheme, the Ministry ofWorks and Transport/Roads Department’s (MWT/RD) long term vision is to replicate the method on the entire national (primary and secondary) road networks of the country comprising about 9,000 km.

29. A more detailed description focusing on a few salient features of OPRC compared to conventional types ofcontract is presented in Annex 4.

30. The human resource situation and training needs for MWT/RD. There has been an acute shortage of qualified human resources in the RD due to the construction boom in the neighboring country, South Africa, and the recent pro-active activities in the private sector in Botswana. The department lost 14 engineers in the last eight months. Although GOB approved an increase in a scarce skills allowance for engineers by a 40 percent salary top up, the professional drain continues. The establishment of RD has a full staffing plan of 1,727 staff, but currently about 51 vacant positions need to be filled (although not all of them are for rare skilled professionals). If this trend continues, it will significantly weaken the quality and performance ofRD. In addition to the decision

12 made by the Permanent Secretary (PS) ofMWT to overcome this short-term critical shortage ofrare skilled manpower in the country by immediately procuring at least three internationally experienced and knowledgeable specialists for RD, the project will assist the MWT to step up its short-term, long- term, and skills enhancement training. MWT is operating an average of about US$l.O million training budget per year. A training plan is also prepared annually to match the annually available budget, but this appears to be largely a supply-based HR planninghaining program. Under the project, the MWT is encouraged to assess the long term demand for its human resource based on the envisioned role of the MWT and the RD 5-10 years from now, and prepare the human resource and training plan accordingly. It will also prepare a rolling three-year training plan including long term training (college or graduate degree training), short-term training, and a skills enhancement study tour program. The US$2.1 million in the Component A of the project allocated for the training and technical advisory services support to Transport Hub should be very flexible when applied to all the three categories of training mentioned above (long term - 40 percent, short term - 30 percent and skills enhancement study tour - 30 percent). Although the project is designed for 10 years, due to the urgency ofthe human resource situation, the training budget could be drawn down quickly in the first three to four years ofthe project.

31. Technology and logistic upgrade of MWT. In addition to the capacity enhancement of human resources, GOB/MWT is fully aware ofthe efficiency gained from the appropriate investment and improvement in information technology. The project will support MWT’s various needs and requirements of its six departments in the area of internet technology development and integration in their overall management. Out of the MWT master plan for technology upgrade, the following were identified as the priority areas:

(i) The design and preparation ofthe Ministry’s Integrated Transport Information System. The Bank will cover mainly the three (out of six) departments ofthe Ministry, namely: (a) Department of Ministry Management, (b) RD, and (c) Department of Road Transport and Safety. (ii) The Information and Communications Technologies Strategy for Roads Transport Sector will be developed. (iii) The Data Center for Transport will be enhanced and further strengthened. (iv) Training in the above activities will be developed and carried out, in and out of the country. (v) The total budget available for the above activities estimated at US$2.1 million including provision of related hardware/sohare, training and others that will be identified as project implementation progresses.

E. Alternatives considered and reasons for rejection

Lending Instrument - Specific Lending Instrument (SIL) versus Adaptable Program Lending (APL)

32. An Adaptable Program Lending was among the lending instrument alternatives considered for this project. The major features ofan Adaptable Program Lending include a series ofsucceeding loans (in phases) contributing to an overall objective of a large progam, spread over a number of years, each coming into effect only if various triggers have been fulfilled. An Adaptable Program Lending, as a program lending instrument, is usually characterized by major institutional reforms and organizational and implementation capacity levels to be achieved over an agreed period in which the overarching objectives and outcomes will be measured and sustained. Moreover, the Adaptable

13 Program Lending triggers must be met in quantitative and qualitative terms for a specific phase ofan Adaptable Program Lending while the outcomes of each phase must also be in line with the designed and planned targets before the next phase is considered. In this regard, Botswana has done well in the past, with implementing major investments in the sector, in general, and in the road subsector in particular. The civil service was a leading force in this achievement and goals. However, recent developments in the region in the past years, the economic boom in neighboring South Africa, and the robust development of the country's private sector, has drained the available resources for the government, thus leaving a considerable gap in its public sector implementation capacity. Introducing the OPRC methodology needs more sophisticated skills, but with less numbers of qualified in-house personnel because it reduces the number of transactions, transfers the contractual risks the implementing agency and provides better value for money. The OPRC types ofcontracts are usually large and complex, yet more easily manageable by the government through managing consultants who monitor and supervise their implementation. There is a need for specialized skills mix and skill improvement, but not for significant institutional changes nor for a new organizational set up at this time. Since this project involves only one road depot with the road network in similar and uniform condition, the use of a Specific Lending Instrument (SIL), was considered better suited to the clients' needs and expectations.

Rehabilitation and/or Maintenance

33. In many countries, there is still a debate as to whether performance-based contracting should be limited to maintenance only, while rehabilitatiodimprovementworks are carried out separately first under traditional schemes. Besides the shortcomings of traditional input-type contracting, such methods bear a number ofother disadvantages, among which are: (i)the sharing ofcontractual risks are very limited and basically all risks fall on government, (ii)dificulties in controlling final project cost, (iii)difficulties in controlling quality ofworks, (iv) potential for numerous claims as a result of strained relationship between the three parties involved in such types ofcontracts, namely, employer, engineer, and contractor, (v) short period of defects liability, and (vi) extensive number of transactions or contracts during the life of a facility require high government staff input and thus potentially opening the door for non transparent operations. The separation of rehabilitation and maintenance carries the risk of attracting fewer investors for the latter, because of the smaller contract size and the reluctance of maintenance contractors to assume liability for an asset rehabilitated by others. Separate rehabilitation also comes with all risks inherent to traditional works contracts and the associated disadvantages experienced in the past in Botswana and elsewhere. Moreover, the division of responsibility between design, construction and maintenance creates unnecessary inefficiencies and potential disputes.

34. Domestic firms sometimes claim that combining rehabilitation and maintenance into one contract operation exceeds their financial and human capacity and hence excludes them as potential bidders. In reality though, even if foreign contractors are awarded large rehabilitation and maintenance contracts, they often sub-contract a good proportion of the work to local firms. In any case, governments have some leeway to encourage local participation during the procurement process. Hence, the desire for participation of domestic contractors does not call for a separation of rehabilitation and maintenance but can be achieved by different means. For this project, the road links would be packaged so as to include contract sizes that would be commensurate with the capacity oflocal contractors.

14 OPRC as a pilot project

35. Pilot projects offer the advantage ofa trial and error process, which can be easily revised and adopted, whereas otherwise, dealing with the major investment related to rehabilitation and maintenance in the traditional way would carry the risk of yet another unsustainable one-time intervention. OPRCs have the distinct advantage ofpassing on the construction quality, cost and time risks to the private sector which is best placed to deal with them. Furthermore, in relation to the large budget outlays in the road sector and the size and duration ofthe OPRC, the two to three civil works . contracts to be awarded under the project should be considered as a pilot phase, to be followed with more ofsuch contracts when the method is proven successful.

111. IMPLEMENTATION

A. Partnership arrangements

36. Project preparation has taken place in coordination and partnership with a broad spectrum of agencies involved in the transport sector in Botswana, including the MWT, the RD, the Department Road Transport and Safety (DRTS), the Gaborone City Council (GCC), the Department for Town and Regional Planning (DTRP), the Department of Environmental Affairs (DEA), the Ministry of Local Government (MLG), the Ministry of Lands and Housing, the Ministry of Environment, Wildlife and Tourism, the Public Enterprises Evaluation and Privatization Agency, and the Public Procurement and Assets Disposal Board (PPADB). This partnership will be maintained during project implementation through continued involvement of these agencies in the consultations and supervision required. In addition, at a later stage of the project preparation the OFID expressed interest in participating in the project and OFID sent a representative to join the World Bank pre- appraisal mission. The probable investment participation from OFID may come in the form of parallel financing to reduce GOB contribution to the project. The effects ofsuch co-financing ofthe project would be addressed at the time that OFID makes the financing available. In any event a tri- partite information sharing partnership will be maintained throughout project implementation.

B. Institutional and implementation arrangements

37. Since the project is of a multidisciplinary nature, it requires constant and extensive consultation with various stakeholders in order to achieve a high level of synergy. Two project specific oversight groups are established:

(i) Transport Sector Reference Group (TRG): The Permanent Secretary (PS) of MWT chairs the TRG on a monthly, or on an “as needed” basis, with members from the MFDP, the MLG, the DTRP, the GCC, the Botswana Railway (BR), the Civil Aviation Authority of Botswana (CAAB), and the PPADB, the Botswana Economic Development and Investment Authority (BEDIA). The TRG functions as a higher level steering committee to guide the operation aiming to forge forward a full synergy creation for this multi-disciplinary investment.

15 9 Ministry of Finance and Development 9 Ministry of Works and Transport (MWT)

Planning (MFDP) 0 Planning and Budgeting Department

9 Ministry of Local Government (MLG) 0 Road Department (RD)

9 Gaborone City Council (GCC) 0 Botswana Railway (BR) 9 Department of Town and Regional Dept. of Road Transport and Safety Planning (DTRP) (DRTS) 9 Botswana Economic Development and 0 The Civil Aviation Authority of Investment Authority (BEDIA) Botswana (CAAE3) 9 Public Procurement and Asset Disposal 0 The Transport Policy unit Board (PPADB)

(ii) At the day-to-day project administration level, a Special Project Management Unit (SMU) has been established under the RD. It is headed by a dedicated Project Manager who is a senior official of RD, and composed of qualified staff from MWT, RD, GCC, and other relevant government agencies. A team of technical specialists [Technical Support Group (TSG)] is currently being recruited in key areas of expertise. The SMU was set up to coordinate and prepare the pre-investment activities required to start the investment. The same team will be expanded and totally dedicated to the project with capacities strengthened to handle the physical and financial implementation of this US$385.20 million worth of investment when it is ready to roll out activities. The detailed implementation arrangement and organization chart are presented in Annex 6,

C. Financial management arrangements

Project oversight

38. At the policy decision level, the TRG, chaired by the PS, MWT has been established to provide guidance to the project. The TRG consists of active members drawn from MFDP, MLG, DTRP, GCC, BR, CAAB, and PPADB.

Project coordination and implementation

39. The RD, one of the six departments in MWT (including the administrative department in the headquarters) will implement the project. For this purpose, the SMU being charged with responsibility for preparing and coordinating the project pre-investment activities will also be expanded to assume the responsibility for day-to-day administration of the project. The SMU will draw its membership from MWT, MFDP, RD, GCC, and the technical support group.

40. The RD is headed by a Director, who reports to the PS, MWT. There are currently 89 engineers in the department. The engineers manage Development and Maintenance projects. RD has thirteen maintenance depots. There are currently four project management engineers in the Development section. In addition, there are about 17 project officers, also engineers. RD consists of six main sections (Development, Maintenance, Materials, Roads Training Center, Administration, and Supplies).The finance and Accounts units are in the Administration section and the staff in the Accounts Section are posted by the Accountant General to complement the RD Administration Accounts staff. They are however, fbnctionally responsible to the Director, RD. The Accountant

16 General also posts accounting staff to the Accounts Unit in each Ministry, including MWT, and is responsible for monitoring the activities, efficiency and effectiveness ofthe Units and staff.

41. The capacity in the MWT internal audit unit needs to be strengthened in terms of staffing. The unit is responsible for the internal audit fbnctions ofMWT, its six departments and the over 40 departmental units spread throughout the country. Due to capacity constraints, annual internal audit visits to some of the departments and units are not regular. The MFDP has agreed to provide one additional internal audit staff to the MWT Internal Audit Unit to strengthen the unit. Also, the financial management (FM) staff will need training on World Bank Financial Management and Disbursement policies and procedures to facilitate compliance with Bank fiduciary requirements.

D. Monitoring and evaluation of outcomes/results

42. Assessment of achievement of results indicators. The achievement ofthe project objectives will be measured based on a combination of output and outcome indicators, as shown in the Results Framework (Annex 3). These indicators will track final and intermediate project outcomes.

43. The responsibility for monitoring and evaluation (M&E) rests with the RD in the MWT. The list of performance indicators was discussed during project appraisal and confirmed during loan negotiations. Baseline data for the performance indicators will be obtained for almost all the indicators during the first year of implementation. The indicators for tracking physical road conditions exist from the previous studies for the OPRC and the city traffic improvement works subcomponents, but may differ according to the specific civil works package, presently under design by consultants. They will be based on the contractually designed levels of service and the baseline data for each will be part of the bidding documents. Once awarded, the contractor will have to monitor and report on the compliance with the levels of service through its management unit which is an integral part of the management arrangements for contractors involved in OPRC. This self- monitoring will be verified by a monitoring consultant on behalf ofRD. Monthly joint inspections of the road will be carried out by the contractor and RD monitoring consultant and payments will be made per unit of road length for sections with satisfactory outcomes within specified compliance parameters. Therefore, while the overall M&E responsibility rests with RD, the actual data collection may only be partially carried out by RD and by the contractor. For the indicators not included in the performance based contract, RD will have collect the data periodically and report regularly on the progress. Overall, RD will have the responsibility to monitor and report. The performance indicators for the OPRCs will be monitored jointly by the service provider and the client, based on payments and penalties contractually related to the required performance standards. The performance of OPRCs will be compared to the performance of non-concession and other roads maintained by traditional methods. However, the ultimate test of the success of OPRCs will be measured and evaluated against periodic user surveys (annual or bi-annual) and against the frequency ofcomplaints from the public. Such user satisfaction surveys have been successfblly used in USA, New Zealand, and Israel, and these may be modified to suit Botswana conditions.

44. Pre-bid invitations. The pre-bid meetings and workshops will provide appropriate feedback from pre-qualified contractors regarding the terms and conditions of the contract and the feasibility of adopting the specified performance standards, such that the specifications would be appropriately adjusted in subsequent bid invitations. Therefore, the pilot OPRC, having two to three civil works contracts, maybe bid in two different phases, i.e., the first civil works contract will be bid followed

17 by the second one several months after learning fom experience with the first contract, incorporating lessons learned into the second and third civil works contracts before their actual bidding.

45. Potential problems to monitor and solve. The OPRC, specifically if undertaken for the first time, in certain countries could attract higher costs than anticipated. This is a result of the lack of experience of the market and the lack of understanding ofpotential risks, which a contracting entity tries to mitigate by including higher than expected calculated costs. However, the experience indicates that in later phases, when subsequent OPRC are tendered, the price goes down substantially. In order to mitigate such problem, there are several options. One option is to reduce the level of service requirements to meet the budgetary provisions, the second is to provide long term political and financial risks guarantee through international insurance companies, or World Bank instruments, and the last option is to reduce the volume of the works by shortening the length of treated roads.

E. Sustainability

46. Two strategic approaches, complementary to each other, have been introduced in the design ofthe project. These approaches will provide a solid basis for the overall sustainability ofthe project. The first approach, relates to the capacity building and knowledge component, which is based on: (i) providing strong and solid capacity building for modem planning and making strategic decisions so as to enhance stability in the delivery and management of transport modes, in general, and of road sub- sector specifically to ensure the institutionalization of road asset management; and (ii)the longer term vision of the country in using transport as a means to foster economic growth and a platform for economic diversification and development. The second complementary strategic approach pertains to the physical component and is based on: (i)increasing involvement of private sector in the transport business so as to ensure greater efficiency, cost effectiveness, innovation and competitiveness; and (ii)the strong commitment from the GOB (MFDP, MWT, and GCC) to give its priority attention to alleviating traffic congestion, and improving road safety conditions in Gaborone city, thus ensuring the sustainability ofurban traffic improvement activities.

47. In addition, the overall project’s sustainability will be enhanced by: (i)the continued institutional strengthening activities within MWT within the overall regional integration vision of Botswana, and within RD in modem methods ofroad asset management; and (ii)the commitment of MFDP to adhere to the best “value for money’’ principle when investing in the sector. This is important to ensure the highest level of efficiency expected from the sector if it is to play an effective infrastructure role as a major platform to sustain the country’s continued economic success story.

F. Critical risks and possible controversial aspects

48. The following table sets out the key financial management risks that may impact the efficient and effective management ofthe project. Measures are also proposed to mitigate these risks.

18 Table 2: Critical Risks and Mitigation Measures

Toproject development objective Road sector governance and management Botswana has an excellent positive record in this L ofproject respect, possesses powerful and knowledgeable governance institutions and has been a role model in sub-Sahara Africa. Supervision by Bank staff will enhance the already working systems. In addition, the engagement of technical assistance will ensure the required training and enhancement of management aspects.

Unfamiliarity with Bank procedures on Botswana has well developed safeguard L fiduciary aspects and safeguards frameworks and enforcement institutions, but needs workshops, additional training and mentoring. Procurement and FM will be enhanced by extensive training at the start of the project. Poor response to long term output and Periodic workshops will be held to advertise the M. performance based contracting method. contracting method and explain key features. Contractors will be pre-qualified.

Costs of construction turn out to be far in The proposed design and performance standards M excess of anticipation either due to would have to be adjusted in accordance with disproportionate inflation, lack of adequate financing constraints or additional financing competition, higher design proposals by sought from government or IBRD. Should the bidders, or high risk perception by the costs turn out to be high because ofa high risk private sector. premium, alternatives would be explored to reduce the risks.

19 Risk Mitigating Measures

Financial Management: Independent annual external audit ofthe M The nature and size of the project and financial statements (FS) and annual technical contracts involves high risk exposure for audit will be carried out and reports submitted to contract and financial management. the Bank on September 30 and December 3 1, respectively.

The strengthened internal audit unit will conduct regular audit of the project financial activities to ensure use of funds for purposes intended.

The annual technical audit report will be submitted to the PS, MWT for action, and shared with the Auditor General and Bank supervision team for review for prompt action on audit observations and queries.

Adherence to the government stipulated service standards will ensure prompt payment to contractors

The proposed engagement ofthe specialists, procurement, Transport and contract engineers, will also help to mitigate the risk.

Delay ofthe audit of the project FS beyond The project FS will be produced by May 3 1 S six months after the end of the government each year and audited between June and fiscal year. Annual audit reports are issued August. Audit reports together with audited FS, by the Auditor General within 12 months the auditor’s management letter and ofthe end of the fiscal year as allowed by management response to the letter will be the Finance and Audit Act. submitted to the Bank by September 30 each year, i.e., within 6 months ofthe government’s year end.

Use ofthe outdated Financial Instructions The Act has been reviewed by a legal firm M and Procedures, and the Finance and Audit contracted by the government, and the draft Act Act of 1993. was in circulation for comments. zternal Control iadequate internal audit review ofproject MFDP will provide one additional internal audit M stivities due to weak internal audit capacity. staff to the MWT Internal Audit Unit to strengthen the Unit as discussed with MFDP.

20 To Component Results

Unsatisfactory procurement ofcontracts Extensive training ofstaff in the RD on M procurement methods and procedures with extra oversight from Bank staff during project supervision. Also, highly experienced engineering firms will assist with the design and supervision oflarge civil works contracts. Annual technical audit will be carried out throughout project implementation period.

Contractors perform poorly and compromise on quality

periodic inputs from world-wide OPRC experts, especially in the initial stages.

Overall Risk Rating L I Note: High Risk - H, Substantial Risk - S, Moc rate Risk - M, Low or negligible Risk - L

l-Box 4: Current procurement and safeguard practice in Botswana I On procurement, the GOB has a well organized PPADB which is an independent board set up to overlook, and approve all types of public procurement in the country. The status of procurement in the country generally warrants the transparency of the process involving “value for money” principles. PPADB’s procurement rules and guidelines seem to be very close to those of the Bank guidelines. During preparation of the project, PPADB issued a waiver which exempts the project from the PPADB procurement review and approval processes.

On the environment and social safeguard aspects, there seems to be a slight discrepancy between national guidelines and Bank guidelines. The main objective of the country’s policy guidelines on compensation is to provide fair and just compensation to affected persons/groups, while the main thrust of OPBP 4.12 goes beyond compensation payment to addressing the restoration of their livelihoods of those affected. Overall, the country’s legislation and regulatory framework for environmental protection is very strong and appropriate to carry out its vision for development to the next level.

G. Loan covenants applicable to project implementation

49. The following are covenants discussed and confirmed during loan negotiations:

The setting up of the SMU composed of qualified staff from MWT, RD, GCC and other participating government department; The final recruitment of a TSG consisting of an adequate team of procurement, transport planning, engineering and contract management specialists, and other experts as needed and

21 in sufficient numbers, all of whom shall have qualifications, experience and terms of reference acceptable to the Bank; The Interim Unaudited Financial Reports (IFR) format; 0 GOB’Sbudget provision for counterpart funds. The Procurement Implementation Plan (PIP).

Effectiveness Conditions: 0 The issuance ofthe relevant legal opinions according to the legal system ofBotswana. Technical Support Group for the SMU to be fully recruited.

Covenants: Financial Maintain or cause to be maintained a financial management system including records, and accounts in accordance with the provisions ofSection 5.09 ofthe General Conditions. Prepare and furnish to the Bank, not later than 45 days after the end of each quarter, interim unaudited financial reports for the Project covering such quarter, in form and substance satisfactory to the Bank; Have the project’s Financial Statements (FS) audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each audit of the FS shall cover the period of one Fiscal Year. The audited FS for each such period shall be furnished to the Bank not later than six months after the end of such period, i.e., by September 30 ofeach year; Prepare the Audit Terms of Reference in consultation with the Bank, within three months of effectiveness ofthe loan agreement; Assign one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit, no later than one month from effectiveness date; and Designate staff to be responsible for the production of the interim unaudited financial reports (IFR) by component and activity in the Accounts Unit, MWT no later than one month from effectiveness date.

Implementation GOB shall establish a Transport Reference Group to provide overall policy direction and general oversight ofthe project; 0 MWT/RD has established a Special Project Management Unit (SMU) composed of qualified staff from MWT, RD, GCC and other participating government department; The SMU shall be responsible for implementing, managing and coordinating project activities, and it shall: (i)maintain at all times adequate financial management and procurement systems and procedures; (ii)carry out overall technical management and oversight of the project, including monitoring and evaluation of Output and Performance Based Road Contracts (OPRCs); and (iii)monitor technical and material output ofthe project to ensure that it is in line with the financial payments and statements to be prepared by the Ministry ofFinance and Development Planning (MFDP); RD/MWT to carry out, in conjunction with the Bank, a project mid-term review by June 30, 2014. No later than two months prior to the mid-term review, prepare relevant progress report to be discussed at the mid-term review; and 0 RD/MWT shall ensure that the project is carried out in accordance with the provision of the Bank’s Anti-corruption Guidelines.

22 Safeguards 0 A Resettlement Action Plan (RAP) and an Environmental Management Plan (EMP) would need to be prepared, when applicable, in accordance with the provision contained in the Resettlement Policy Framework (WF), and Environmental and Social Management Framework (ESMF)' and the World Bank policy to that effect, and be duly implemented thereafter.

Reporting 0 Semi-annual progress reports for all components, including results indicators, as applicable, using an agreed format. These progress reports will include a summary of the actions and activities undertaken to implement the outcome of the regional integration study, and the progress in the local contracting industry development; Annual reports ofthe unit cost ofthe works under the OPRC component; and Annual training report and evaluation forms.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

Economic (Cost-benefit) internal rate of return (EIRR) = 3 1%, NPV (12% discount rate) = US$85.2 million

50. The economic evaluation covers the major project component (OPRC) that accounts for over 70 percent of the total investment cost. The principal measured benefits ofthe project are savings in VOC, time savings to vehicle occupants, and enhanced road safety. Based on the actual traffic count conducted in 2005 on the 800 kilometers of road network in the Kanye road depot, and the historic pattern of traffic growth in the same area, coupled with market data for road improvement cost estimate, the estimated overall EIRR'for the OPRC component is 31 percent in the base-case scenario. The economic net present value (NPV), based on a 12 percent discount rate is estimated at US$85.2 million. A sensitivity analysis assuming 18 percent cost increase, or 20 percent benefit reduction (through reduction oftraffic) or both was applied with a result ofEIRR reduction to 27,26, and 23 percent, respectively, as per able 3 below. An analysis of the evaluation results and a description of the method used to derive them are provided in Annex 9 and are summarized as follows:

Table 3: Summary of Economic Evaluation Results and Sensitivity Analysis

EIRR (in %) NPV (US$ million, 12%) Best Estimate 31 85.2 Sensitivity analysis If cost increased by 18% 27 77.8

0 Iftraffic reduced by 20% 26 53.5 Ifcost increase by 18% and 23 46.1 traffic reduced by 20%

' Both the RPF and ESMF were disclosed in-country on December 12,2008 and at the InfoShop on December 23, 2008.

23 B. Technical

5 1. The OPRC contracts will encompass an entire road maintenance depot in the southern part of the country, the area most,traveled and with the highest traffic volumes. The roads are basically surfaced with asphalt concrete (AC) over a base course. The road conditions in general are fairly good and will need, as the first intervention during the initial five-year period, only maintenance works (routine and periodic overlay) or rehabilitatiodwidening, followed by appropriate rehabilitation and continue with maintenance in the second five year period. Towards the end ofthe contract period, the roads will be transferred to the government under prescribed conditions related to pavement life. The survey ofthe candidate roads was carried out in 2006 to establish their condition. The findings were presented in the summary table (Annex 4, Table 1) and the consultants selected for assisting RD to prepare for the OPRC civil works contracts will verify and update them if necessary. All roads, except the few which are still gravel and which will be surfaced sometime during the contract period, have relatively good riding quality with the average International Roughness Index (IRI) ranging approximately between 2.5 and 5.5. However, based on the pavement deflections (which fell between 0.92 mm and 1.722 mm) and the projected axle loading, it was determined that the structural capacity of all the pavements of the project roads had remaining life of above five years, except for a few which fall below two years. The technical solutions to ensure reasonable performance during and at the end ofthe long term contract period were determined to comprise AC overlays with thicknesses ranging from 40-60 mm followed by annual routine maintenance and periodic maintenance interventions within ten years.

52. The options for cost recovery over the duration of the contracts include various financial models. At least two options could be considered: (i)a model where payment levels could turn to the cash flow needs as tendered by the service provider, but based on delivery schedule of clearly defined outputs, or (ii)a model where constant monthly payments could be calculated on the basis of outputs averaged over the rehabilitation phase and followed by constant monthly payments during the maintenance period irrespective of the cash flow needs. The chosen option will be decided once the conceptual designs are ready and the recommendations by the design consultants are agreed upon. In any case, appropriate performance and guarantee bonds will be designed to cover the potential risks involving performance and quality of the works by contractors, as well as the quality offacilities at the time ofhanding over to the government at the end ofthe contract period.

53. Regarding the civil works related to the urban road component, the feasibility studies, followed by the detailed designs of the adopted technical options will be implemented under supervision of internationally recognized consultants and contractors. The traffic improvement options such as traffic management with traffic signalization and enhanced public transport models will be taken into consideration.

C. Fiduciary

54. Financial Aspect. The financial management capacity assessment concluded that the financial management system meets the minimum requirements of the Bank’s policy on financial management, OP/BP 10.02. There is, however, the need to strengthen the internal audit capacity at the MWT. The project task team has provided basic training to the RD, MWT, and MFDP staff on Bank Financial Management and Disbursement policies and procedures. Considering the fact that GOB has not taken loans from the Bank in the past two decades, staff in the project implementing

24 entity, MWT and MFDP will in this respect, be encouraged to participate in Bank's periodic training and courses organized by Bank recognized institutions.

55. The overall conclusion ofthe assessment is that the FM arrangement proposed for the project meets the minimum requirements of the Bank subject to the implementation of the actions described in paragraph 10 of the FM Annex 7. The FM risk is assessed as Moderate. Implementation of the proposed mitigating measures will reduce the risk rating to Low.

56. Procurement. The Bank carried out a cursory assessment of the country procurement environment in October 2007. Botswana has a Procurement Act and Regulations (2006) to regulate the procurement practice in the country. The Botswana PPDAB is a statutory body with functions defined in the Act. This body combines both regulatory function and operational functions (the latter by reviewing all procurement transactions above a set threshold). The standard bidding documents (SBD). were prepared and distributed electronically to user agencies in July 2007. The Bank's assessment suggested areas for improvement in the procurement systems and shared the same with PPADB and concerned stakeholders. Procurement under the project will be carried out in accordance with the World Bankk "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers' dated May 2004, revised October 2006, and the provisions stipulated in the Legal Agreement. The Bank's SBDs shall be used for procurement ofworks and goods under International Competitive Bidding (ICB) and the Bank's standard Request for Proposal (RFP) shall be used for large value contracts involving selection ofinternational consultants.

57. National Competitive Bidding (NCB) shall follow the GOB'S procurement procedures, provided that the following provisions are applied to the use of the NCB documents: (i)foreign bidders shall be allowed to participate in NCB; (ii)registration or classification of bidders shall not be used as a condition for bidding; (iii)use of preference system based on citizens' degree of ownership shall not be used; (iv) use of points system and bracketing in the evaluation of bids for goods shall not be used; (v) negotiations shall not be held with a successful bidder for procurement of goods; (vi) invitation to bid will be published in a national newspaper of wide circulation; (vii) bidding documents shall clearly specify bid evaluation and post qualification criteria; (viii) the bidding period shall not be less than four weeks, and bids shall be opened publicly; (ix) in accordance with paragraph 1.14 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Loan shall provide that: (a) the bidders, suppliers, contractors and subcontractors shall permit the Bank, at its request, to inspect their accounts and records relating to the bid submission and performance ofthe contract, and to have said accounts and records audited by auditors appointed by the Bank; and (b) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1,14(a)(v) of the Procurement Guidelines; and (x) contract awards shall be published. Alternatively, the Bank's SBDs may be used and adapted for NCB.

58. Procurement activities under the project will be carried out by the RD with technical assistance from the MWT and GCC respectively for their components. Overall, the capacity to execute the procurement function is average and the risk has been assessed to be moderate. The agency capacity has been carried out and risk mitigation actions are summarized in Annex 8. The main risk is lack offamiliarity with Bank's procurement procedures as the agencies have for the most part been procuring using GOB funds and procurement systems and the shortage ofexperienced staff at the RD to be dedicated to the project (as the relevant senior staff have to manage several projects

25 in parallel). The risk mitigation actions (as outlined in Annex 8) include: (i)recruitment of an experienced procurement specialist (engineering) to support the procurement processing (which is mainly expected to be in the first two years); and (ii)assist in building internal procurement capacity in the RD.

59. Readiness for implementation, which was achieved by appraisal, from the procurement side include:

Procurement for pre-investment activities had been ongoing well; Draft Procurement Plan has been prepared and agreed during negotiations; Bank provided two half day procurement training seminars to relevant staff of the RD, Ministry of Local Government (MLG) and GCC on key principles and procedures in Bank’s procurement; During preparation of the project, PPADB issued a waiver to the project from PPADB procurement review and approval. This is on the basis of (i)assurances given by the Bank that the Bank carries out rigorous prior review (or post review as per agreed thresholds) of the implementing agencies’ procurement decisions and independent procurement reviews; and (ii)Articles 4 and 6 (external obligations) of the Botswana Public Procurement Act allow PPADB to exercise some flexibility in granting a waiver to projects with external financing. PPADB rightly demanded that the GOB’S contribution to the project should be traceable (this was subsequently confirmed by the Ministry of Finance and Development Planning (MFDP)). The waiver was given on July 10,2008.

0 Selection of Technical Support Group (TSG), including a procurementlengineering specialist, to strengthen the capacity of the RD has been initiated and is expected to be completed by May, 2009.

0 General Procurement Notice (GPN) has been advertised locally and in the United Nations Development Business (UNDB) Online and the DgMarket.

D. Social

60. In 2008, diamonds accounted for about 65 percent of the total export from Botswana. However, diamond mining only represents 3.4 percent of total employment. Slow growth in the non- mining sector has limited employment opportunities for the labor surplus from the agricultural sector. Despite a slight recent drop to 17.6 percent, the country’s unemployment rate has been persistently above 20 percent over the last 15 years and this problem affects mostly the youth. From the social perspective, the proposed project will contribute to addressing the issue of high unemployment by supporting the diversification of Botswana’s economy beyond diamond mining through the promotion of regional transport services. Furthermore, the introduction, as pilot, of a modem asset management method using the OPRC to one ofthe most traveled road networks in Botswana (under Kanye road depot) is expected to attract large investors in the road sector, which will result in increased competition, reduced prices for road construction and ultimately lower transport costs for service users. A key social indicator retained to measure success is users’ satisfaction, which will be monitored through annual or biannual surveys, and by the number and frequency ofcomplaints from the public.

26 6 1. From a social safeguards perspective, the implementation of civil works under the physical investment component is expected to remain within the existing road reserves. However, for the urban traffic component, this cannot be ascertained until feasibility studies are completed; and for the OPRC pilot road, the nature ofthe planned civil works might change over the course ofthe contract for any unforeseen reasons, requiring additional land acquisition beyond the existing road reserves. A RPF consistent with the World Bank’s OP 4.12 and the country’s laws and regulation on land acquisition and compensation has been prepared, approved, and disclosed in-country on December 12, 2008, and at the InfoShop on December 23, 2008. This RPF will set forth the procedures and operational principles that will guide the preparation and implementation ofspecific RAP ifnew land were to be acquired during project implementation. The proposed project does not trigger OP 4.10 because it does not involve any new road construction into areas inhabited by indigenous peoples.

62. Social implication of Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome (HIV/AIDS): The high rate of HIV/AIDS in the country is another threat to the social and HR situation. It is understood that 10 years ago the country was not well prepared to cope with such high HIV/AIDS incidence. However, during the past several years GOB has addressed the challenge together with international partners. Although national prevention efforts still require substantial strengthening, the Ministry of Health has enabled a rapid expansion of the national treatment program. The treatment of HIV/AIDS is provided free of charge to HIV positive citizens in Botswana. Discrimination against HIV/AIDS patients in any work place is not permitted. Within the MWT, there are six hll-time HIV/AIDS coordinators, one in each of its six departments (five business departments and one administrative department). The coordinators are responsible for tracking all HIV/AIDS patients in the work place and providing the needed counseling, including refemng and transporting them to appropriate treatment centers provided free of charge by the government. At the grass roots level, there are HIV/AIDS point persons operating at the level ofroad maintenance depots and construction camps. They disseminate HIV/AIDS prevention information at the workers’ camps before construction starts. All prevention materials such as condoms and test kits are supplied free of charge. The HIV/AIDS related expenditures in the MWT have been about US$250,000-350,000 per year. This did not include the medical treatment which was provided under the national treatment program. The concept in this operation calls for the HIV/AIDS affected population to be properly treated, while those that are not affected are to be adequately protected. Aside from putting the HIV/AIDS clause in the OPRC and civil works contracts, the project will actively support the ongoing initiatives ofMWT and GOB and ensure that knowledge dissemination and appropriate prevention measures are aggressively distributed at construction sites and along trucking routes. A parallel Bank-financed HIV/AIDS project (approved by the Board in July 2008) supports the GOB’S objectives in the area of prevention. The project will coordinate and benefit from the HIV/AIDS project when both are operating in the same geographical locations/districts.

E. Environment

63. The physical investments financed under the BITP focus on the rehabilitation and output based long term asset preservation of existing road networks (approximately 800 km) and the improvements to major intersections in Gaborone. Potential adverse impacts are likely to be minor and localized and, therefore, the project is classified as environmental category “B” in accordance with OP4.0 1, Environmental Assessment (EA). An Environmental and Social Management Framework (ESMF) has been prepared for these physical investments and was disclosed in-country on December 12,2008 and at the InfoShop on December 23, 2008. The objective ofthe ESMF is to ensure that the rehabilitation and output based maintenance works will be carried out in an

27 environmentally and socially sustainable manner. The ESMF thus provides a procedures manual for environmental and social screening of sub-projects and sample environmental management and monitoring plans for these sub-projects. The ESMF has been prepared in accordance with national legislation on EA and the World Bank Operational Policy on Environmental Assessment (OP/BP 4.01) and presents the policy, principles, and’procedures for EA in the sub-sector.

64. Regarding the implementation of the component for improvement of the major city of Gaborone’s intersections and individual road segments have not yet been designed. The preparation of EAs and EMPs for these road segments, including consultation with project affected groups and non-governmental organizations as appropriate, will be prepared when the design consultants are on board and prior to actual commencement of the works. All sub-projects will be screened for environmental impacts and appropriate studies carried out based on this initial screeninglscoping.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.0 1) [XI [I Natural Habitats (OPBP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OPBP 4.1 1) [I [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [I [XI Forests (OPBP 4.36) [I [XI Safety of Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OPBP 7.60)* [I [XI Projects on International Waterways (OPBP 7.50) [I [XI

G. Policy exceptions and readiness

65. The project meets the readiness criteria for project preparation, closely follows all the applicable Bank policies, and does not require any exceptions.

* By supporting theproposedproject, the Bank does not intend to prejudice thefinal determination of theparties’ claims on the disputed areas

28 Annex 1: Country and Sector Integrated Transport Project

A. Botswana - an African Success Story, with Challenges

1. Botswana is one of the world’s great development success stories. One of only very few countries in the world to have sustained a long period of high growth, it is also a rare example of a country that has escaped the ‘natural resource curse’, despite its abundant diamond resources. Political stability, mature democratic processes, good policies and strong institutions have underpinned effective economic management for over four decades.

2. This exemplary success in good governance, macroeconomic and fiscal management has, however, not yet been matched by broad improvements in human development outcomes. This . apparent contradiction manifests itself today in high poverty and unemployment rates and in Botswana’s ranking as the fifth most unequal country in the world. The government recognizes that unless inequality is reduced and human development indicators rise, future economic growth cannot be sustained. At no stage has this been more evident than at this time ofglobal economic turmoil.

3. In order to reduce poverty and inequality, the key challenge for Botswana is to diversify the economy away from diamonds. Today, despite major efforts towards diversification, the diamond and the public sectors still dominate the economy. There is a growing recognition in the country at the highest political level that a greater focus on public sector effectiveness, including more effective implementation of policies and programs, as well as less dependency by citizens on the state for development solutions is required. Botswana is in need of a more competitive and dynamic private sector that can generate more employment. To make this a reality, however, skills development must be more responsive to the needs ofthe labor market.

4. Botswana also suffers from the second highest Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome (HIV/AIDS) adult prevalence rate in the world and the pandemic is a significant drain on the economy and on society. Furthermore, infrastructure capacity and quality have not kept pace with growth, and the electricity, transport and water sectors in particular are now presenting bottlenecks to sustained growth. With the threat of losing 70 percent of the current electricity supply by 2013, when South Africa will stop all electricity exports to Botswana, achieving energy security has become an urgent national priority.

5. In addition to these challenges, Botswana is also strongly affected by the global economic meltdown since late 2008. The consequences are a sharp decline in gross domestic product (GDP) growth caused by plummeting demand in particular for diamonds, triggering a closing ofmines and exacerbating already high unemployment rates, especially among youth, a burgeoning fiscal deficit and rapidly worsening balance ofpayments. In some sense, this scenario is a ‘fast forward’ glimpse into the future when Botswana will run out of diamonds, and it serves as an urgent reminder of the need to diversify the economy in order to sustain past gains and achieve sustainable development in the future.

6. The government is responding swiftly to the immediate challenges while building for the future and looking for the “silver lining” beyond the crisis. It is getting the economy ready for life after diamonds by developing a twenty first century physical and human capital base, containing the

29 crippling HIV/AIDS pandemic, increasing the effectiveness ofpublic sector spending and improving environmental management which is essential for the large and growing tourism industry. To meet the immediate crisis, the government - just as this strategy is being finalized - is realigning the budget and reassessing policy priorities, improving public sector efficiency to ensure targeting and effectiveness and investing with urgency in the electricity sector to ensure domestic energy security.

7. In the medium term, the government aims for greater competitiveness by providing critical infrastructure investments and skills upgrading for the f’bture, by increasing the effectiveness of social spending, education and HIV/AIDS programs and by building the foundation for diversification through private sector growth in non-extractive industries, with regional integration as one driver.

8. After a long hiatus in the relationship, the World Bank has been requested to gradually and selectively scale-up levels of support, always driven by client-demand as with other development partners. In line with this request, the overall strategic objective of the Bank’s engagement in Botswana is to help the government use all of its resources (both non-renewable and renewable) to sustain growth and defeat poverty and inequality.

9. Based on the dialogues between the government and the Bank, a Country Par@ership Strategy (CPS) for FY09-13 was presented to the Board on May 21, 2009. It lays out the Bank’s program for Botswana for a period of five years in response to government’s requests for Bank assistance. The program is centered around four strategic elements, including:

Enhancing Public Sector Effectiveness; Fighting HIV/AIDS and Improving Education Outcomes; 0 Increased Competitiveness - Infrastructure and the Climate for Investment and Growth; and The Environment.

B. Increased Competitiveness - Role of Transport Sector

10. One of Botswana’s major economic challenges is promoting diversification away from minerals, and diamonds in particular, to prepare for the post-diamond era, to create jobs and reduce vulnerability caused by dependence on a single commodity. Well aware of the challenge, the government has placed considerable emphasis over the past twenty years on promoting economic diversification, but change has been slow to materialize. A number of reasons help to explain the difficulty in achieving significant diversification of the Botswana economy, and concerted efforts to lift some of the constraints will be a key to achieving long term growth beyond natural resources. Botswana only has a small domestic market, and any substantial investment growth will need to be motivated by opportunities for regional and global trade - making competitiveness a critical policy goal. Yet non-mining private investment [including foreign direct investment (FDI)] has been low and is insufficient to support high growth. Attracting foreign direct investment beyond the mining sector has been difficult as Botswana, is in several respects, a high cost country - including high transport and utility costs and relatively high labor costs.

30 11. A joint study by the World Bank and the Botswana Institute for Development Policy Analysis (BIDPA) on export diversification* highlighted the need for greater regional integration as a major cross-cutting theme for Botswana’s economic diversification. Given its small size, Botswana cannot “go it alone”. Linked to the need for regional integration and a necessary condition for increased competitiveness is the provision of efficient and cost effective transport. Indeed, due to its geographic location at the center of the southern Africa region, Botswana can connect to a larger regional market and could position itself as an effective land-bridge connecting South Africa and Namibia to Zambia, Angola and Eastern Africa. Botswana has done well in its transport sector expanding its paved road coverage from 12 kilometers at independence to more than 6,000 kilometers today. However, the sector faces several challenges including fast deterioration of infrastructure characterized by the lack of a sustainable network development and management approach, and insufficient funds for the long-term sustainability of the already made investments. The insufficiency is coupled with lack of knowledge and experienced professionals, and lack of modem transport assets management, methods and technologies.

C. Current situation of Transport Sector

12. Roads. The road is the predominant mode of transport for Botswana as over 90 percent of freight and passenger traffic is carried by road. The table below indicates the size and type of road network in the country. The primary and secondary network is under the responsibility of the Ministry of Works and Transport (MWT), while the tertiary and access network falls under the Ministry ofLocal Government (MLG).

Primary Secondary Tertiary Access TOTAL (km) 4,065 4,850 10,000 18,915 (under local government) Of which: TarBitumen 6366 Gravel 1250 Earthhand 1299

13. The total asset value of the primary and secondary network is estimated at Pula 10 billion, and the average annual maintenance expenditure is about Pula 100 million per annum (a mere one percent of the total asset value). Such a level of expenditure is obviously far from adequate to maintain the road infrastructure at an optimal level. The competing demand for limited public financial resources between the human development sectors (health, education, HIV/AIDS, etc) and the infrastructure sectors will become increasingly prominent. This situation has resulted in MWT investigating other financing and investment options, including actively engaging private capital and sharing the investment benefit and risk between public and private sectors. The area-wide output and performance based road contract (OPRC) is the option that MWT has decided to pilot under this project. The Bank, with its international experience in this new mode of contract, was invited to participate in piloting this new concept of total asset management for the road network. Out of the 9,000 km ofprimary and secondary network, 800 km was selected for a pilot project to determine the suitability ofthe new method ofasset management for Botswana. The Bank agreed to contribute and

* Prospects for Export Diversification (2006). Botswana Institute for Development Policy Analysis and the World Bank.

31 participate in this pilot program from the start to the end ofits investment cycle, i.e., from conceptual design, to implementation, monitoring and final evaluation.

Box 1: Some uniaue features of the tranmort sector in Botswana: Botswana-% geographical charaiteristics contribute to relatively high cost of infrastructure development, which is being addressed through greater emphasis on regional integration. Botswana is a large country (10 percent larger than France in total land area), with low population density (less than 2 million) and is land-locked. All of these factors complicate the provision of infrastructure and transport services and contribute to the associated investment and operating cost. The current transport networks are basically developed to service the relatively small economy. However, all these land and air transport facilities are aging and require serious rehabilitation. Botswana has a road network of about 18,000 km of which 50 percent are under the responsibility of local governments and the remaining 50 percent under the central government. Of the 9,000 km of road under the responsibility of central government two-third (6,000 km) are paved. The country has about 900 km of narrow gauge railway network running along the north-south corridor leading from the border of Zambia to the border of South Africa, and four major airportdair strips connecting major towns and important tourism areas. Inter-model optimization among various modes of transport (especially between road and rail) could be improved. Road is increasingly carrying traffic that should be economically carried by the railway, e.g., petroleum, construction materials. The reasons for such modal split should be addressed, i.e., was it the result of: biased tariff structure, lack of railway capacity, lack of appropriate equipment on railways, or others? The government budget is gradually facing problems with funding the increasing needs of the transport sector. This pattern started to show up through an accumulation ofperiodic maintenance backlog. Taking road sub-sector for example, the ministry’s total expenditures on roads in 2008 was US$lOO million (about 2.0 percent of total budget expenditures), of which about US$SO million was for development and US$20 million for maintenance. This is far from sufficient for maintaining the system of assets worth about US$2 billion. Rapid increase in the rate of motorization and urbanization will lead to congestion in major cities sooner than expected. Botswana has a vehicle population ofabout 250,000 vehicles most of which are in major cities and towns. This is about 150 vehicles per 1,000 people (compared to five vehicles per 1,000 people in Uganda). The rate of motorization is considered high, and is growing exceptionally fast, especially in major cities. Congestion at several traffic junctions and mass transit areas becomes a growing concern for Gaborone city. The direct and indirect economic cost of congestion (through time lost and energy wasted) will become a serious economic issue that warrants the relevant authority to look for immediate solutions. The sector could consider enhancing “value for money” from its investment not only from tight control of physical investment cost, but also from quality of planning and professional management. Experience elsewhere shows that investment in road surface expansion is not always an answer to congestion. An improvement in traffic management could yield 20-30 percent of expected result with much lower cost and speedier intervention. Institutional and capacity buildings are areas that the sector could benejit from training and exposure to international experience. Although Botswana is doing well in its transport sector after two decades of self reliance and inward looking development, the inward looking development stage has reached its maximum benefit. Further growth and modernization of the sector could be effectively planned by taking into consideration other international experience and best practice.

14. Railways. Botswana Railways (BR) was established in 1987 by an Act ofParliament passed in 1986. Under this act BR was constituted and administered as a commercial enterprise of the government, with its own financial structure and accounts. The business on railways has not been growing since the last four to five years. The following table shows BR’s business performance in the financial year (2005/06).

32 Table 2: Botswana Railways business performance (2005-2006)

15. In line with recent legislation, BR is forging ahead to establish partnerships with private organizations. Areas being considered include:

0 A Joint Venture Company with a private entity to manage/maintain the signaling system of BR; A Joint Venture Company with a private entity(ies) to develop BR properties;

0 Wagon and Locomotive major maintenance facility as a joint venture with private; and

0 New Rail Line Developments. (A Public-Private Infrastructure Advisory Facility (PPIAF) grant of US$490,000 is provided for carrying out phase 1 of the pre-feasibility study for the new rail line development. The second phase of the pre-feasibility study is included under component A ofthis project.)

16. Aviation. In spite of its recent growth, Botswana’s aviation sector remains small by world standards and, unfortunately, is unable to cover its costs. Indeed, a cursory review of the revenues and costs generated by the sector shows that, in 2005, the Department of Civil Aviation (DCA) which had the responsibility to manage Botswana’s air traffic and airports collected a total of Pula 23.7 million or US$3.7 million from airspace and airport users. This figure represented only 28.8 percent of DCA’s budget (2006/2007) of Pula 82.3 million (US$13.7 million equivalent) which implies that, today, the Government ofBotswana (GOB) roughly subsidizes the sector’s operations in the amount US$9.0 million per year. More interestingly, since only 17 percent ofDCA’s budget was dedicated to equipment acquisition, the existing subsidies pay for recurring costs which do not contribute directly to the sector’s growth.

17. While the situation described above reflects in part the low level of user charges levied in Botswana, it also underscores the small volume ofdemand ofthe sector itself as well as the necessity to right size the DCA which, with 868 employees, is by any standard significantly overstaffed even when accounting for its expanded responsibilities (i.e. airport management). For instance in Senegal, less than 600 employees provide airport management, air traffic control, and sector regulatory functions for a sector that handles annually more than 1.8 million passengers, or three times as much as Botswana’s.

D. Preparing Transport to face the regional integration challenge

18. In the President’s Budget Speech last year he clearly acknowledged the role of transport as “. . ..a key platform for economic development, trade competitiveness, as well as domestic and regional integration ... ” Given the critical role of transport in the country’s development vision (referred to as Vision 2016), the MWT had accordingly issued the Sectoral Key Issue Paper which is the key programming statement of the sector’s contribution to the 10th National Development Program (NDP- 10). The Sectoral Key Issue Paper highlighted the new direction oftransport in NDP- 10, which is summarized in the following:

33 19. Roads. In the road sub-sector, the past decades saw a sustained drive to construct the national road network of primary and secondary roads, as well as tertiary level roads. This has been an important factor in enabling the economy to become more efficient and competitive and for providing communities across the country with access to services and economic opportunities. As the network is now in place, during NDP-10 there will be a shift in MWT priorities:

from new construction to maintenance ofthe existing road asset base; by phasing out of force account maintenance into long term output and performance based contacts; and by increasing the role of private sector to supplement in-house capacity to supervise delivery ofroad project.

20. The above shift of investment direction is the first bold step to revamp the management of road sector in order to improve its operational efficiency, modernize the mode ofmanagement, and ensure the “value for money” principle. The shift ofinvestment direction and operational method will be piloted through the OPRC component in the proposed World Bank financed Botswana Integrated Transport Project (BITP) to be implemented during the NDP-10 planned period.

2 1. Railways. In the railways sub-sector, the challenge has long been how to continue to provide essential freight services, particularly to serve mineral export traffic, on a profitable and sustainable basis. This has been complicated by uncertainties over traffic, particularly transit traffic and traffic contingent on possible new mineral developments. In practice, BR’s railway operations have not been profitable and it has not accumulated reserves enough to finance asset replacement.

22. With a series of major mineral projects expected to go ahead during NDP-10, there is a possibility of large increases in rail traffic. It is also expected that during NDP-10, the World Bank funded BITP will provide for feasibility studies for the proposed Trans-Kalahari Railway project and possibly for other links to connect the BR main line with the South African network at Ellisras and to extend the railway north to Kazungula. These studies will also consider options for private sector participation in construction and operation ofthe proposed railway lines, with a view to relieving BR ofthe associated construction and operating risks, and shifting government’s role to coordination and regulation. Depending on the findings of the studies, detailed design and implementation may be initiated during NDP- 10.

23. Aviation. During NDP-9 the government approved legislation to establish the Civil Aviation Authority of Botswana (CAAB) while dismantling the DCA. The approved legislation is being implemented in NDP-10 when CAAB will becomes fully operational and its capacity will be gradually built up. The CAAB provides airport facilities and services on a commercial basis, and performs the role of regulator of air transport services until such time as the proposed multi-sector regulator is introduced. The CAAB is responsible for completing various development projects during NDP- 10 including the air cargo hub concept development, aviation security improvements, and improvement of airport facilities at Kasane, Ghanzi, Hukuntsi, Tsabong, Seronga, Tsodilo, Rakops, and Serowe/Palapye; as well as airport improvements carried over from NDP 9 at Gaborone, Francistown and Maun. A further priority for NDP-IO will be to upgrade security at Botswana’s airports in order to conform to international standards.

34 24. As a result of the privatization proposal that is being considered by the government, or through separately implementing this aspect of the Air Transport Policy, it is expected that Air Botswana’s exclusive rights will be revoked, thereby ushering in an era of competition between private carriers subject to regulation. The main challenge for NDP-IO will be to implement this new approach to providing air transport services. If the proposed joint venture with South Afican Airlink is selected, the government’s main role will be to oversee the performance of the new airline, and complete the winding down of Air Botswana, An important challenge will be to ensure that the CAAB retains sufficient regulatory capacity to competently regulate the economic and technical aspects ofan airline industry subject to competition.

25. In sum, the challenge for the transport sector in the NDP-10 is to increase efficiency through effective management, acquire international expertise and best practice experience through effective involvement of multi-lateral development partners and increasing involvement of the private sector. The Bank, under the proposed project is the key partner to the government in its endeavor to move beyond domestic integration to the next level ofregional integration.

35 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Integrated Transport Project

Bank funded projects Sector Issues Supervision Ratings v PDO I IP Completed in the lastjive years: None I I 0 Projects under preparation; Botswana Integrated Transport Need to increase efficiency through effective management and acquire international expertise and best practice experience through increasing involvement of private sector. 1 Other development Agencies Status Duration financed Project

Ongoing 30 months Road (96 km)

I Kuwait Fundfor Arab Economic Development: Construction of Tsabong-Middlepits Ongoing 24 months Road (100 km)

OPEC Fund for International Development (OFID): Construction ofMiddlepits-Bokspits Ongoing 36 months Road (155 km)

Arab Bank for Economic Development in Africa (jointly with OFID above Construction of Bokspits-Middlepits Ongoing 36 months ,Road (155 km)

36 Annex 3: Results Framework and Monitoring Integrated Transport Project

Table 1: Results Framework

PDO Project Outcome Indicators Use of Project Outcome Information

To enhance the efficiency of the transport system by:

1. building modem business Length ofroads under long term Scale up of OPRC: Assess if such method management capacity OPRC rehabilitation and attracted sufficient number of capable through: maintenance. investors and the level of service (a) the successful Level of satisfaction by road users. satisfactorily to end user. introduction of the Reduction of average VOC per veh- modem method ofroad km on OPRC roads. asset management Decrease in number of annual road starting with the accidents on project roads. implementation of the Reduction of average travel time in Effective management of urban traffic. pilot OPRC scheme in Gaborone city. Kanye Road Depot, and replicate in other districts once it is proven successful; and (b) introduction of modem traffic management and technical solutions to effectively reduce traffic congestion in Gaborone City.

2. improving strategic The various studies to be completed The increasing interest in international planning aspects of inter- under the project aim to provide transit traffic traveling on A1 and A2 regional transport and strategic and policy guidance to transport corridors. critical transport achieve such vision. The studies infrastructure through the will also form part of national successful master plan to effectively direct the implementation ofmajor critical transport infrastructure strategic vision for investment. regional integration of Botswana.

37 Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring

Component A ( Indicators in Result Agreement)

Satisfactory progress 0 Studies completed satisfactory to 0 Measure staff and leadership commitment towards implementation GOB and the Bank. Components toward project implementation and other of various studies leading action plans agreed and adopted agenda related to transport sector. to physical investments leading to improvement of physical and better multimodal investment and better multimodal planning of the transport planning of transport sector sector infrastructure, infrastructure.

Component B: Road Sector Investment Road Management Long term contracts fully financed Timely change of pre-qualification and improved though the use and the 800km road in Kanye depot evaluation criteria to ensure successful of OPRC method. successfully rehabilitated and under bids. long term OPRC contracts.

Capacity ofRD staff Measured by: Lessons to be drawn for subsequent improves through 1. number ofprequalified bidders bidding process so as to increase the satisfactory procurement for first OPRC contract bids for interest of the private sector so that functions. OPRC awarded under open OPRC terms and conditions could competition. progress satisfactorily. 2. first OPRC contract awarded successfully. 3. increasing number of contracts successfully awarded within the bidproposal validity period. 4. decreasing in number of complaints on procurement process.

Satisfactory financial increasing skills in financial Cost control adjustment. management by RD. management and on time financial reports.

Component C: Urban Roads Investment

D Improved traffic 0 Increasing numbers ofroad 0 Traffic situation improved by traffic management in Gaborone users expressing satisfaction management solutions, results City resulting in better with project roads and traffic incorporated in detailed designs. traffic circulation conditions. (reduction in travel time and VOC).

38 Arranpements for results monitoring

1. The responsibility for monitoring and evaluating the project’s progress rests with the Road Department (RD) ofthe Ministry of Works and Transport (MWT). The RD will arrange to complete the missing baseline data for the performance indicators early during the implementation of the project. The indicators tracking the physical road condition are inherent in the output and performance based road contract (OPRC) and may differ according to the individual contract package. The indicators will be based on the contractually stipulated levels of service and the baseline data for each will be part ofthe bidding documents. Once awarded, the contractor will have to monitor and report on the compliance with the levels of service stipulated in the contract. This self-monitoring will be verified monthly and at random by a monitoring consultant and RD staff.

2. RD will employ an internationally qualified firm as the overall OPRC coordinating consultant, who among others, will provide the specialized resource persons as needed (such as OPRC specialist, contracts specialist, legal specialist, training specialist, etc.). With the assistance of the coordinating consultant, RD will hire separately a consultant (preferably local) to monitor the performance of each OPRC contract, under the direction of, and reporting to, the coordinating consultant. While the overall monitoring and evaluation responsibility rests with RD, the actual data collection may be carried out either by RD or by the coordinating consultant. Due to the nature of OPRCs, monitoring and evaluation (M&E) is of paramount importance because the contractor’s payments depend on his performance. Performing regular and professional M&E is in the interest of both the Client (who will demand value for money) and the contractor (who needs to know the state ofthe road assets under the contract for management and planning purposes).

3. The monitoring and evaluation ofall other indicators agreed to in the Results Framework will require data collection by RD, but does not preclude the institution from partially outsourcing the collection process.

4. In the evaluation of Pavement Condition Performance Indicators at network level, as expressed by Level of Service indicators governing the quality of the project roads, several major aspects influencing smooth ride, comfort of users, and durability of pavement structures (pavement life), will be substantially improved. Among the most important are (i)Skid resistance class A and B (good and satisfactory) with skid number above 35 and 26-35, respectively, must be achieved if the road(s) are to be accepted as qualifying; and (ii)Road Roughness - International Roughness Index (IRI) for asphalt concrete roads pavement, class A and B (good and satisfactory) must achieve below 2.81 and 2.81-4.37 respectively, if the roads are to be accepted as qualifjmg.

39 G G % %

a IE2

0 d

I P 3

3 3 P P sss > 2 1 000 88

0 P g 3 0 % Q F -3 z z

0 g 3s 0 IA 0 Q E 3 A d z

0 0 rcl A

I Annex 4: Detailed Project Description Integrated Transport Project

1. The project aims to support and enhance the efficiency of the transport system and competitiveness of transport services, by building modem business capacity in the public administration, improving inter-regional and critical transport infrastructure and empowering private sector participation. The Government of Botswana (GOB) and the Bank, through the design of the project and its three investment components, A, B, and C, focus on a two pronged development approach, i.e., institutional and human resource capacity building and learning ofmodem methods of construction, while simultaneously undertaking actual physical investments to test new methods, increase the country’s connectivity with the region and provide analytical bases for better and optimal use oftransport modes. The pilot Output and Performance Based Road Contracting (OPRC), which is the centerpiece ofthe project, if successful, will then be replicated over the entire country’s road network of about 9,000 km of primary and secondary roads. Accordingly, the Component A will comprise of various activities spanning from economic sector work, studies, and designs to training, technology and logistic upgrade of the Ministry of Works and Transport (MWT). The Components B and C, complement physical investment designed and prepared under the first Component A, specifically related to the most predominant transport mode of rural and urban roads infrastructure. Total overall cost ofthe project is estimated at US$385.2 million (inclusive of taxes), out ofwhich the Bank will finance about US$186 million. There is a possibility that the government will also request funding from OPEC Fund for International Development (OFID) on a bilateral basis to lighten the load of counterpart funding by GOB. The effects of such co-financing of the project would be addressed at the time that OFID makes the financing available.

Component A: Capacitv Building, Institutional Strengthening, and Traininp:

2. This component, with a total estimated value ofUS$20.7 million (inclusive oftaxes) includes two groups of sub-components. The sub-component A1 - pre-investment activities in an amount of US$8.5 million; and the sub-component A2 - capacity building during the project period in the amount ofUS$12.2 million.

A.l Pre-Investment Activities:

3. Provision oftechnical advisory services to undertake a number ofpre-investment activities in this sub-component:

(i) Regional Integration Vision of Botswana and A1 Road-Rail Transport Corridor, (estimated at US$1.4 million inclusive of taxes). The study relates to the overall regional dimension and A 1 road-rail international transport corridor, focusing on the two complimentary modes. It would assess and prepare the way forward for achieving the greater regional integration. In regards to the regional dimension, the study will review the current transport situation including its related activities associated with the local and regional transport links, potential markets, procedures, etc. and identify major steps to achieve regional transport integration. With respect to the national dimension, the study will carry out a traffic forecast and simulation involving the rail and road transport in the country’s most critical north-south corridor (A1 corridor). Since the government has strategically decided to involve private sector in the A1 corridor development, a thorough study with better prediction and simulation ofpotential traffic

42 is, therefore, strongly recommended. The study is expected to present various options related to the potential commercialization of the corridor traffic, and substantiated with a time bound action plan to realize them.

(ii) The TA and study of the three new railway links -- Mmamabula-Ellisras, Mosetse- Kazungula, and Trans-Kalahari lines (estimated at US$2.7 million inclusive of taxes). The Phase Iof the study covering traffic demand analysis and pre-feasibility studies for the Trans-Kalahari line is financed under the Public-Private Infrastructure Advisory Facility (PPIAF) grant, and procurement is about to conclude. The second phase of the pre-feasibility study, as well as the feasibility and engineering design will be financed under this loan. The TA and the study are complementary and focus on development of rail transport and facilities as related to the potential diversification of the economy and use ofthe country’s mineral resources.

(iii)Conceptual design for Output and Performance Based Contracting (OPRC) (estimated at US$1.3 million inclusive of taxes). A consulting service is being contracted to help the Road Department (RD) prepare the designs and bidding documents for the 800 kilometers ofOPRC contracts in Kanye road depot;

(iv) Feasibility study for Gaborone City traffic improvements (estimated at US$900,000 inclusive oftaxes). The study will review the traffic patterns in Greater Gaborone Area, propose physical improvements in addition to modern traffic management options and prioritize the potential urban roads investments. These prioritized investments will then be subjected to detailed designs including preparation ofbidding documents;

(v) Environmental, social and resettlement frameworks for OPRC (completed at US$lOO,OOO inclusive of taxes). It will develop the required guidelines, standards and procedures which will govern these aspects in the long term road performance contracts; and

(vi) Capacity building and training prior to the project investment (estimated at US$lOO,OOO inclusive of taxes). This is in addition to the US$2.1 million (inclusive of taxes) for financing of a Technical Support Group (consisting of specialists in procurement, transport planning and contract management) to assist RD for two years during the project preparation and early implementation period. The US$lOO,OOO allocation is intended for immediate training need for staff in all areas related to transport planning and project management.

A.2 Capacity Building during the project period

4. Provision oftechnical advisory services to undertake a capacity building knowledge transfer, and institutional strengthening and training program, including:

(i) National multi-modal transport master planning study (estimated at US$2.6 million inclusive oftaxes). The study aims to provide an efficient and cost effective integrated transport system, instead ofthe current planning practice where each transport mode has been planned separately with limited scope to interface, thereby losing opportunity for creating synergy and optimization between the transport modes. The study will culminate with preparation ofNational Multi-Modal Transport Master Plan (NMTMP),

43 including Master Plan for the Greater Gaborone City. Given the country’s strategic vision of regional integration, it is important to design and manage the national vision for transport sector which provides a competitive alternative to the already developed regional power houses. The NMTMP will therefore include an analysis of the present situation in the sector as related to all modes oftransport, forecast future expansions and integrate the sub sectors into a comprehensive and integral tool governing the country’s needs. It will also incorporate Gaborone City transport needs and provide for institutional alternatives related to annual updating and enforcement of the recommendations of the master plan. The study will build on the transport sector policy currently under preparation by the MWT, and the Greater Gaborone traffic assessment update study (recommended under this project);

(ii)Knowledge Transfer and Institutional Strengthening at an estimated cost of US$4.2 million (inclusive of taxes), ofwhich US$1.4 million would be for short and long term training of various governmental institutions related to transport sector, and US$0.7 million for technical assistance support to Transport Hub in the MWT. The training would focus on modem practices of management, skills enhancement and professional capacity improvement. The support to Transport Hub will encompass various activities and provide for a longer term technical assistance in the area where critical knowledge gap is identified and needed. The remaining US$2.1 million would be used for technology and logistic upgrade ofthe various offices in the Ministry and the RD, which will need this technology in order to benefit from the managerial and road information aspects ofthe OPRC component;

(iii)Detailed designs and preparation of bidding documents for selected improvement within Greater Gaborone City (estimated at US$3.1 million inclusive of taxes). This activity will provide all the engineering design and bid preparation for the urban transport component for actual physical investment included as Component C in the project. The expected improvements will span ftom the improved trafic management options inclusive of traffic light management and traffic command centers, to construction of complex intersections involving split level interchanges to allow for solutions to alleviate acute traffic congestions and for future traffic growth;

(iv) Technical Monitoring and Audit of Project (estimated at US$1.3 million inclusive of taxes). This activity will provide for GOB to review and monitor the project components implementation, carry out independent technical and financial audits and use the outcomes to realign and adjust the components as necessary. It is also meant for checking through independent parties the “value for money” principles embedded in the project; and

(v) Training and Development of National Consulting and Contracting Industry of Botswana (estimated at US$l.O million inclusive of taxes). This activity provides for training and development of the local industry in planning, scheduling, contracting methods and other modem facilities related to the sector so as to enable them to be competitive in the globalization and integration with the regional markets, where neighboring or international super powers may dominate the local markets.

44 Component B: Road Sector Investment:

5. This component, with a total estimated value ofUS$236.8 million (inclusive oftaxes), out of which US$122.7 million will be financed by the Bank and includes: (i)the road asset investment for two to three civil works contracts planned and prepared to use the OPRC method of contracting (US$114.1 million); and (ii)the contracts supervisiodmonitoring estimated to cost US$8.6 million over the period ofthe contracts implementation.

(i)Road Asset Management - OPRC contracts estimated at US$228.2 million, out of which US$114.1 million will be financed by the Bank and the remaining US$114.1 million by GOB. This sub-component probably will be implemented in three-four civil works contracts depending on the size ofsuch package and ability ofthe market to absorb the investment. The GOB has recognized the benefits of asset management approaches such as that of OPRC and wishes to apply this innovative contracting method to a pilot project involving all roads included in the most traveled network, Kanye depot area, in southern part of the country. As described earlier, OPRC offers numerous advantages compared to traditional input-type contracts. The selected pilot project is an area-wide OPRC, which in this case includes about 800 km ofrural and semi urban roads, majority of which were paved by asphalt concrete (AC) and some of them are still at gravel standard. Depending on the successful implementation of the pilot OPRC scheme, MWT/RD long term vision is to replicate the method to the entire national (primary and secondary) road networks of the country comprising about 9,000 km. The entire area- wide network represents an organic unity and a homogeneous selection, within which the traffic circulates in its origin and destination operation are under similar conditions. The entire network includes several roads divided into logical sections, depending on the nature of traffic, origin destination patterns and other physical characteristics. The network will be then subjected to a conceptual design which will define several aspects of the OPRC contracts, such as possible level ofservice sustainable for Botswana, financial model for cost recovery, duration of the project (10 years), type and forms of contract guarantees, mode of payments and remedies and other necessary elements that will be then tendered under an international competitive bidding (ICB) procedure in compliance with the World Bank procurement guidelines.

45 Table 1: Basic Roads Database for OPRC - Kanye District Roads Depot

Homogeneous Surface AADT Road Section Route Section Length Width Type (2005) Name No. Number 0 0 (AC/ST) (vpd) Lobatse south - Ramatlabama A1 1 45.04 11 ST 450 B/post

Mankgodi jnc - A2/A10 roundabout A10 1 43.08 9.5 ST 3004

Poineer Gate B/post - Sekoma A2 1 9.87 11 ST 348 Poineer Gate B/post - Sekoma A2 2 36.02 12 ST 1742 Poineer Gate B/post - Sekoma A2 3 15.48 12 ST 933 Poineer Gate B/post - Sekoma A2 4 7.6 9.5 ST 3004 Poineer Gate B/post - Sekoma A2 5 73.95 10.5 ST 1603 Poineer Gate B/post - Sekoma A3 6 71.34 10.7 ST 528

Pitsane - Mabule Border Post BlOl 1 15.45 UG 425 Pitsane - Mabule Border Post BlOl 2 26.44 10 ST 185 Pitsane - Mabule Border Post BlOl 3 41.66 8.7 ST 185 Pitsane - Mabule Border Post BlOl 4 56.79 6.5 UG 185

Mathethe t/off (A143102) - B102 1 38.17 8.7 ST 85 Lorolwane Mathethe t/off (A143102) - B102 2 85.75 6 UG 85 Lorolwane

Mogobane t/off - Ranaka jct. B105 1 48.95 9.7 ST 397 (A243105)

Mankgodi - Moshupa east B108 1 6.5 9.5 ST 320 (A1043108) Mankgodi - Moshupa east B108 2 17.09 4.5 UG 320 (A 1043 108)

Boatle - Molepolole central Blll 1 19.66 10.7 ST 320 (A12431 11) Boatle - Molepolole central Blll 2 7.33 10 ST 320 (A1243111) Boatle - Molepolole central Blll 3 36.22 11.7 ST 320 (A1243111) ~~~

Digawanajunction -Goodhope B20 1 12.43 8.7 ST 345 Digawanajunction -Goodhope B20 1 10.8 7 UG 345

Kanye -Ramatlabama junc. B202 88.83 11.7 ST 285 Kanye -Ramatlabama junc. B202 13.36 10.7 ST 1742 Total Network in pilot program 827.81

Notes: UG - Upgrading; ST - Sing1 rreatment (bitumen); AC - Aspha Concrete

46 (ii)Contracts supervisiodmonitoring over the implementation period. This activity is estimated at US$8.6 million (inclusive of taxes), or about 3.5 percent of the total contracts value. This entire amount will be financed by the Bank. The component provides for monitoring activities during the contract duration, which is different from the traditional supervision services performed under the input-Fkdkration Internationale des Ingknieurs Conseils (International Federation of Consulting Engineers (FIDIC)) based contracts. Input based contracts require full time day-to-day quality and quantity control, with payment measurement based on the amount of input. The output based contracts require different type of monitoring services to be performed by experienced road management who will review the contractors’ finished product and approve them for payment, provided that the finished road sections have reached the designed level of service both in qualitative and quantitative aspects. The monitoring will work closely with the contractor’s management unit which prepare the necessary documentation and facilitate the monitoring services. The payment will be carried out in accordance with the relevant conditions of the works contract. In absence of full compliance, remedy measures will be used to make the contractor meet the required standard. At the end of the contract period, the road network will be handed over to the client at a specified condition.

Box 1. Special Feature of OPRC

OPRCs are designed to increase the efficiency and effectiveness of road asset management. Ultimately they also lead to Total Asset Management systems where a Road Authority delegates the entire cycle of interventions and financing to an independent entity and thus release itself of tasks for which the private sector provides better, faster and more optimized options, innovations and results. It reduces governance problems, creates additional fiscal space in the country’s economy and budgetary constraints and provide for real “value for money”. They aim is to ensure that the physical condition of the roads under contract is adequate for the need of road users, over the entire period of the contract - normally seven to ten years for AC standard of roads. OPRCs significantly expand the role of the private sector, from simple execution of works to management and conservation of road assets. Under traditional input-based arrangements, a contractor is responsible for the execution of works, and is paid on the basis of unit prices for different work items, i.e., the contract is based on the “inputs” to the works. The results have often been sub-optimal. Roads did not last as long as they should have, because of the perverse incentive structure inherent in such arrangements. The contractor would try to carry out the maximum amount of works, in order to maximize turnover and profits. With the defects liability being limited to mostly one year, there would be less pressure on doing a quality job. But even if the works were carried out with satisfactory quality and according to plan and specifications, the overall road quality would be determined largely by the quality of the design given to the contractor, for which he is usually not accountable. OPRC addresses this main shortcoming of conventional contracting by creating smart incentive structures for the contractor. Overall, the main advantages of OPRCs can be summarized as follows: cost savings in managing and maintaining road assets ranging from 20 percent - 45 percent; 0 expenditure certainty (fixed price contracts with monthly regularity avoid unexpected variations); leaner road agencies (reduction ofroad agency’s in-house workforce and general administrative costs); 0 improved and sustained condition of contracted road assets; 0 better satisfaction of road users; 0 secured financing for multi-year maintenance program (long-term contracts); better planning and use ofresources, improved governance; and 0 reduced number of contracts which otherwise would need to be carried out and administrated by the Road Authority during the same long term contract period.

47 Under OPRCs, bidders compete by proposing fixed lump-sum prices for bringing the road to a designed level of service and then maintaining it at that level over the contract period. The level of service is defined from a road user’s perspective and may include factors such as average travel speeds, riding comfort, safety features, etc. A fundamental feature of the OPRC is that the winning bidder must not or will not necessarily and in all cases be a traditional works contractor, but can be any type of private entity having the necessary technical, managerial and financial capacities to fulfill the contract obligations. The “concessioner” is not paid directly for “inputs” or physical works, which it will undoubtedly have to carry out, but for outputs or outcomes, i.e., for all required activities, rehabilitation, improvement, maintenance services ensuring continuous compliance with the specified level ofservice. In order to be entitled to the payment, the roads under contract must comply with the level of service as specified in the bidding document.

The contracting entity is responsible for designing and carrying out the works, services and actions that are necessary in order to achieve and maintain the agreed level of service. In such cases, it decides when, where and what to implement, hence undertakes to bear the majority of risks, which otherwise would stay with the clients. Therefore, it has a strong financial incentive to be both efficient and effective whenever it undertakes work. The contracting entity needs to have professional management capability to define, optimize and carry out on a timely basis the physical interventions which are needed in the short, medium and long term, in order to guarantee that the roads comply with the agreed levels of service.

In OPRC, the contracting entity must continuously monitor and control the conditions and level of service for all roads or road sections under the contract. This will not only be necessary to fulfill the contractual requirements, but is also an activity which will provide him with the information needed to: (i)know the degree of his own compliance with level of service requirements, and (ii)define and plan, in a timely fashion, all physical interventions required to ensure that service quality indicators never fall below the indicated thresholds. Together with his periodic invoice, the investor will report the result of his own evaluation of compliance with the required level of service, based on his own monitoring system which is mandatory. His statement will then be verified by a monitoring consultant on behalf of the employer (usually the road agency) through inspections. If the level of service is not met in any given month, the payment for that month may be reduced based on a schedule given in the contract or even suspended.

As explained earlier, OPRC transfers a significant burden of risk onto the investor. Therefore, the role of the Road Administration will also change significantly. Its main tasks will be the management of contracts and their enforcement by verifying compliance with the level of service and all other applicable legislation and rermlations.

Component C: Urban Roads Infrastructure Investment:

6. This component with a total estimated value of US$Sl.S million (inclusive of taxes), out of which US$42.8 million will be financed by the Bank and includes: (i)Gaborone City road asset investment planned (US$3 8.7 million) prepared under the traditional input based contracting (FIDIC); and (ii)the contract supervision over the period of the contracts implementation (US$4.1 million).

(i) Gaborone City Urban Roads Improvement Program - civil work contracts estimated at US$77.3 million, out of which US$38.7 million is financed by the Bank and US$38.7 million by GOB. The works will be designed under the component A1 of the project which will present a few solutions to the improvement of traffic circulation on the major intersections which today are fully congested and represent the major burden to the day-to-day traffic pattern and transport efficiency of road users. The contracts will be subjected to ICB and it is expected that some ofthe local contractors

48 will be able to compete successfblly for the contracts. The works may include widening ofthe existing intersections, construction ofmultilevel intersections, channelization and signalization.

(ii) Supervision on construction of Urban Roads intersections improvements. This activity is estimated at US$4.1 million, which will be financed entirely by the Bank. This sub component provides for day-to-day supervision ofall contract activities related to the input type of contract. It will include all activities spelled out in the traditional civil works contracts as per FIDIC IV amended rules and will involve ICB type of selection ofconsultants.

49 Annex 5: Project Costs Integrated Transport Project

Taxes Local Foreign estimation Total

Project Cost By Component and/or Activity US$m US$m US$m US$m A: Capacity Building, Institutional Strengthening and Training 5.05 15.01 0.60 20.66 A1 . 1. Regional Integration and A1 Transport Corridor 0.30 1.10 0.04 1.44 Al.2. TA and Studies for 3 Railways Lines 0.60 2.00 0.08 2.68 A1.3. Conceptual Design for OPRC 0.25 0.96 0.04 1.25 A1 -3. Feasibility Study for Gaborone City Traffic Improvement 0.15 0.70 0.03 0.88 Al.4. Environmental, Social and Resettlement Frameworks for OPRC 0.10 0.00 0.10 I A1S. Training ofRD staff in Pre-project Period I 0.10 0.10 I A.1.6. Transport Support Group for RD (3 specialist for 2 years period) 0.40 1.60 0.06 2.06

A2.1. National Multi-Modal Transport Master Plan 0.50 2.00 0.08 2.63 A2.2. Training ofvarious Government Institutions & Technical Assistance to Transport 1.00 1.oo 0.06 2.06 Hub A2.3. Technological and Logistic Upgrade ofMWT 0.20 1.80 0.06 2.06 A2.4. Detailed Designs and Bidding Document for Selected Gaborone Intersections 0.60 2.40 0.09 3.09 A2.5. Technical Monitoring and Audit 0.50 0.75 0.04 1.29 A2.6. National Consulting and Constructing Industry Development 0.40 0.60 0.03 1.03

B: Road Sector Investment 71.36 134.90 30.54 271.04 B 1.1, OPRC- Road Works 69.70 128.26 30.29 228.24 B 1.2. Consulting Servicesh4onitoring ofOPRC 1.66 6.64 0.25 8.55 Total estimation ofprice and physical contingencies for component B 12.06 22.19 34.25

C: Urban Roads Infrastructure Investment 24.19 46.82 10.44 93.51 C. 1.1 Gaborone City Urban Roads and Intersections Improvement 23.39 43.62 10.32 77.33 C. 1.2 Consulting Services for Supervision on Construction 0.80 3.20 0.12 4.12 Total estimation ofprice and physical contingencies for component C 4.21 7.85 12.06

Total Base-line Costs (net of contingencies and taxes) 100.60 196.73 297.33 Total estimation ofprice and physical contingencies 16.27 30.04 46.3 1 Total cost including contingencies 116.87 226.77 343.63 Total estimation oftaxes and levies 16.63 24.94 4 1.57 Total Project cost inclusive of taxes and contingencies 133.50 251.71 385.21 Base line WB GOB Project Cost By Component and/or Activity cost US$ US$ US$ million million million A: Capacity Building, Institutional Strengthening and Training 20.66 20.56 0.10 (inclusive of taxes) A1.l . Regional Integration and A1 Transport Corridor 1.44 1.44 - (Retroactive financing) Al.2. TA and Studies for 3 Railways Lines 2.68 2.68 - (Retroactive financing) AI.3. Conceptual Design for OPRC 1.25 1.25 - (Retroactive financing) AI-3, Feasibility Study for Gaborone City Traffic Improvement 0.88 0.88 - (Retroactive financing) A1-4. Environmental, Social and Resettlement Frameworks for OPRC 0.10 - 0.10 A1.5. Training of RD staff in Pre-project Period I 0.10 0.10 -

Al.6. Transport Support Group for RD (3 specialists for 2 years) 2.06 2.06 - (Retroactive financing) I A2.1. National Multi-Modal Transport Master Plan 2.63 2.63 - A2.2. Training of various Government Institutions & Techhnical 2.06 2.06 -

A2.3. Technological and Logistic Upgrade of MWT 2.06 2.06 - A2.4. Detailed designs and Bidding Documents for selected Gaborone 3.09 3.09 - Intersections A2.5. Technical Monitoring and Audit 1.29 1.29 - A2.6. National Consulting and constructing Industry Development 1.03 1.03 -

B: Road Sector Investment (inclusive of taxes) 236.79 122.67 114.12 B 1.1. OPRC- Road Works 228.24 114.12 114.12 B 1.2. Consulting ServicesMonitoring of OPRC 8.55 8.55 -

C: Urban Roads InfrastructureInvestment (inclusive of taxes) 81.45 42.78 38.66 C. 1.1 Gaborone City Urban Roads and Intersections Improvement 77.33 38.66 38.66 C. 1.2 Consulting services for Supervision on Construction 4.12 4.12 -

Total cost (inclusive of taxes, net of contingencies) 338.90 186.01 152.89 Total estimation ofprice and physical contingencies 46.3 1 0.00 46.3 1 Total cost inclusive of taxes and contingencies 385.21 186.01 199.20

Total Financing Required 385.21 186.01 199.20

51 Annex 6: Implementation Arrangements Integrated Transport Project

Institutional Framework

1. A schematic representation ofthe institutional framework of the transport sector in Botswana is shown in Figure 1 below. There are six departments under the Ministry of Work and Transport (MWT), i.e. Department of Building and Engineering Service (DBES), Department of Road Transport and Safety (DRTS), Department of Central Transport Organization (CTO), Civil Aviation Authority of Botswana (CUB), and the Road Department (RD). In addition, it has oversight responsibility over the business development of Botswana Railway (BR), and Air Botswana (Air BW) which are state-owned enterprises. The .planning and management of each department falls within the realm of two Deputy Permanent Secretaries of MWT who report to the Permanent Secretary. Figure 1: Organization chart of MWT and its Road Department

Ministry of Works and Transport

Road Department

Admin. ccounts Training NChief Engineer --Development-- -- Maintenance- I I I I I ,.. ' ',. . , ,(, , . . , "

1

[?u$lEng.l PREII I 1 PREII 41 PREII PRE I1 PRE I1 PRE I1 PRE I1 PRE I1 Design & E Bridges & Contracts1 Central North West South Traffic

52 2. The RD is directly responsible for planning, budgeting and implementing the development and maintenance works of all national roads (primary and secondary network of about 9,000 km of which 6,000 km is paved), while all urban roads and tertiary roads including rural access roads are managed by the Ministry of Local Government (MLG). RD is also responsible for providing technical support to MLG as and when needed on the design standard and construction quality ofthe urban and rural roads. The asset value of national road network under the direct charge of RD is worth about Pula 10 billion (about US$1.3 billion equivalent). Under the Director of Road, there are two chief engineers one overseeing all road development projects, while the other is in charge of all road maintenance activities organized under 13 road maintenance depots. The RD is the largest department in the MWT, both in terms of staff employed, and budget spent each year. With its annual investment budget of about US$90- 100 million in road sector (development and maintenance combined), RD staff have sufficient opportunity to involve and familiarize themselves with standard procurement practice and project management in road sector.

Overall Direction and Leadership

3. Since this project is of a multidisciplinary nature, it requires constant and extensive consultation with various stake holders as to achieve creation ofa high level ofsynergy. Two project- specific oversight groups are being established:

(i) Transport Sector Reference Group (TRG): The Permanent Secretary (PS) of MWT chairs on a monthly, or on an “as needed” basis the TRG, with members from the MFDP, the MLG, the Department of Town and Regional Planning (DTRP), the Gaborone City Council (GCC), the Botswana Railway (BR), the Civil Aviation Authority of Botswana (CAAB), the Botswana Economic Development and Investment Authority (BEDIA), and the Public Procurement and Assets Disposal Board (PPADB). The TRG hnctions as a higher level steering committee to guide the operation aiming to forge forward a full synergy creation for this multi- disciplinary investment.

Transport Sector Reference Group (TRG), chaired by PS/MWT with representatives from stake holders which include: > Ministry of Finance and Development > Ministry of Work and Transport (MWT)

Planning (MFDP) 0 Planning and Budgeting Department

P Ministry ofLocal Government (MLG) 0 Road Department (RD)

P Gaborone City Council (GCC) 0 Botswana Railway (BR) > Department ofTown and Regional 0 Dept. of Road Transport and Safety Planning (DTRP) (DRTS) Botswana Economic Development and > 0 The Civil Aviation Authority of Investment Authority (BEDIA) Botswana (CAAB) > Public Procurement and Asset Disposal The Transport Policy unit Board (PPADB) 0

(ii) Special Project Management Unit (SMU): Since the largest component of the project (about 60 percent of the World Bank financing) is dealing with the management ofroad asset which currently falls under the jurisdiction ofRD, and the second largest component (about 25 percent ofBank financing) is dealing with urban transport for which RD has to provide technical guidance at the construction stage, it was thus decided that RD will have the overall implementation and coordination responsibility of the project. RD has set up a SMU to coordinate and implement all

53 components and sub-components ofthe project, and act as a focal point ofinteraction with the Bank. At a day-to-day project administration level, a project implementation team headed by a dedicated project manager and composed of qualified staff from MWT, RD, GCC, and relevant government agencies, has been set up to coordinate and prepare the pre-investment activities required to start the investment. A team of technical specialists [Technical Support Group (TSG)] is currently being recruited. This team will further be expanded and totally dedicated to the project, with capacities strengthened to handle the physical and financial implementation of this US$385.2 million worth ofinvestment. Figure 2 summarizes the organization and the set up ofthe SMU.

Figure 2: Organization Structure of the SMU

Ministry of Works chaired by PSiMWT with representatives and Transport ' from MFDP, MLG. GCC. DTRP, BEDIA

internal monitoring A -._ _.-.-.-'

Technical Support Group 1 1 Component B Component C

54 Annex 7: Financial Management and Disbursement Arrangements Integrated Transport Project

Executive Summary

1. In accordance with the World Bank-Financed Investment Operations Financial Management Practices Manual dated November 3, 2005; the Bank conducted a financial management (FM) assessment of the Roads Department (RD) in the Ministry ofWorks and Transport (MWT) with the objective of ensuring that an adequate financial management system is in place for the implementation ofthe project.

2. The FM assessment identified the fiduciary risks that the RD may face in the implementation of the project and proposed measures to mitigate the risks, as shown in Table 1 below. While the government FM system was considered adequate for the implementation of the project, the findings of the assessment was that the capacity in the MWT internal audit unit and the RD Accounts Section need to be strengthened in terms ofstaffing. Also, staff would need training on World Bank Financial Management and Disbursement policies and procedures to facilitate compliance with the Bank fiduciary requirements. The overall conclusion of the assessment is that the FM arrangement proposed for the project meets the minimum requirements of the Bank subject to the implementation ofthe actions described in paragraph 13 below.

3. The financial management risk is assessed as Moderate based on the proposed use of the Government of Botswana’s (GOB) financial management system. The system is capable of managing the project expenditure efficiently and effectively, accounting for utilization of the loan proceeds, ensuring effective internal controls, producing the project FS, and conducting timely audit ofthe statements. Implementation ofthe proposed risk mitigating measures will reduce the risk rating to Low.

Overview of the Project and ImplementationArrangements

4. The main components:

A. Capacity building, institutional strengthening, and training; B. Roads sector investment; and C. Urban roads infrastructure.

5. Component A comprises of: (i)pre-investment activities costing US$8.5 million ofwhich the Bank will finance US$8.4 million, about 99 percent of the cost. These activities include studies, training, and the conceptual design for the Output and Performance-based Road Contracting (OPRC) method, which is described as the centre-piece of the proposed project; and (ii)capacity building, including studies, technical monitoring and audit of the project. The project will be financed by the GOB and the Bank. Details ofthe project description are given in Annex 4. The possibility ofOPEC Fund for International Development (OFID) providing financing to reduce GOB’S contribution to the project is being discussed. The effects of such co-financing will be addressed at the time that OFID makes the financing available.

6. At the policy decision level, the Transport Sector Reference Group (TRG), chaired by the Permanent Secretary (PS), MWT has been established to provide guidance to the project. The RD,

55 one of the five business departments in MWT, will implement the project through the Special Project Management Unit (SMU), which is currently charged with the responsibility of preparing and coordinating the pre-investment activities ofthe project. The team will be expanded to be responsible for the day-to-day administration ofthe project. Membership ofthe team include: MWT, MFDP, RD, Gaborone City Council (GCC), and the technical support group. The RD is headed by a director, who reports to the PS, MWT. There are currently 89 engineers in the department. The engineers manage development and maintenance projects. RD has thirteen maintenance depots. There are currently four project management engineers in the Development section. In addition, there are about 17 project officers, also engineers. RD consists of six main sections (Development, Maintenance, Materials, Roads Training Center, Administration, and Supplies).The finance and accounts units are in the administration section and the staff in the accounts section are posted by the Accountant General to complement the RD administration accounts staff. They are however, hnctionally responsible to the Director, RD. The Accountant General also posts accounting staff to the accounts unit in each ministry, including MWT, and responsible for monitoring the activities, efficiency and effectiveness ofthe units and staff.

Project Oversight

7. There will be two project specific oversight bodies, the TRG and the SMU. The TRG will provide overall strategic guidance and oversight to the project, and will be chaired by the PS, MWT. Its membership will include the MFDP, the Ministry of Local Government (MLG), Department of Town and Regional Planning (DTRP), the GCC, the Botswana Railways (BR), the Civil Aviation Authority of Botswana (CAAB), and the Public Procurement and Assets Disposal Board (PPADB). The SMU will have the overall implementation and coordination responsibility of the project. This unit will be headed by the Project Manager. Membership ofthe Unit will include: MWT, RD, GCC, and Technical Support Group (TSG) specialists as appropriate. Details of the project oversight are given in Annex 6.

Country Issues

8. The Bank has not carried out any country level analytic work in the recent past. Therefore, there is no comprehensive source for the country issues that impact on the financial management arrangements proposed for the project. The European Commission has however, recently completed a Public Expenditure and Financial Accountability (PEFA) assessment with World Bank support.

9. GOB’S financial management system is based on an outdated Finance and Audit Act, which is currently under review. This is complemented by Financial Instructions and Procedures (FIP) of 1993. GOB uses an integrated financial management and infohation system (IFMIS), which was installed about five years ago. The system was rolled out to all the ministries and departments, including the MWT and the RD between 2004 and 2006. Financial statements (FS) are produced on monthly basis, reviewed and reconciled with the ledgers, by the respective ministries and departments. The system also produces the annual FS for audit and maintains records of all donors and produces monthly receipts and expenditure statements by donor budget votes. Each donor agrees its reporting format with the government. Procedures for safeguarding assets of the government are covered in the Financial Instructions and Procedures Manual of 1993,

56 Risk Assessment and Mitigation Measures

10. The following table gives details of the financial management risks identified during the assessment and the proposed mitigating measures.

Table 1: Risk Mitigation Measures

Rating Risk mitigation measures Residual Condition of risk Negotiations or Effectiveness oI/N) IInherent Risk Countiy Level

1. Non-compliance with M GOB currently uses the Government No GOB’S Financial Accounting and Budgeting system, Instructions and Procedures GABS (a module of the IFMIS) for (FIP) 1993. expenditure management, budgeting, accounting and reporting, and will be used for the implementation ofthe project. GABS manual is available.

Finance and accounts staff are trained in GABS and provided with adequate resources.

2. Use ofthe outdated M The Act is being reviewed by a legal No Finance and Audit Act. firm contracted by the government, and the draft Act was in circulation for comments.

Finance and accounting M MFDP will be responsible for the L No staff may not have submission ofWithdrawal Applications knowledge ofBank to the Bank. financial management and disbursement policies and MFDP is familiar with financial procedures. management and disbursement procedures of Donor funded projects, although not fully with the Bank’s policies and procedures.

RD will be responsible for the preparation ofthe agreed IFRs. The RD Accounts Section staff participated in the basic World Bank FM and Disbursement Workshop delivered in June and November 2008. The MWT and MFDP staff also participated in the

57 workshop.

FM staff of the participating Ministries and Departments will be encouraged to participate in the Bank’s periodic financial management and disbursement workshops, as well as courses organized by the Bank recognized training institutions. Project Level

1. Non or late provision of M Counterpart fund allocation will be No counterpart funds may provided for in GOB’s annual budget impact successful and released through MWT following implementation ofthe GOB’s budgeting and accounting project. (GOB is procedures. Provision was being made contributing 52% of the for the budget allocation in the total cost ofthe project). Development Plan for FY2009/2010.

2. The nature and size of M Independent annual external audit of the No the project and contracts FS and annual technical audit will be involve high risk exposure carried out and reports submitted to the for contract processing and Bank on September 30 and December execution and financial 3 1 respectively. management. The strengthened internal audit unit will conduct regular audit of the project financial activities to ensure use of funds for purposes intended.

The annual technical audit report will be submitted to the PS, MWT for action, and shared with the Auditor General and Bank supervision team for review for prompt action on audit observations and queries.

Adherence to the government stipulated service standards will ensure prompt payment to contractors.

The proposed engagement ofthe specialists in procurement, transport, and contract engineers will also help to mitigate the risk.

58 Control Risk:

Budgeting

RD may not prepare clearly L RD will follow GOB’s procedures in L No defined budget and closely the implementation of the project. monitor variances. The Budget preparation is clearly defined Department is not familiar and variances monitored. with the Bank’s requirements. Use of IFR for both reporting and disbursement purposes will also be useful in monitoring budget variances. The project oversight bodies will also monitor budget variances. Accounting

RD may not have L The project will use GOB’s accounting L No accounting procedures system and manual in the manual for project implementation of the project. Use of implementation. the government IFMIS system is incorporated into the project design. Internal Control

Inadequate internal audit M MFDP will provide one additional L No review ofproject activities internal audit staff to the MWT Internal due to weak internal audit Audit Unit to strengthen the Unit as capacity. discussed with MFDP.

Funds Flow 4

Delay in the preparation M Regular periodic training will be L No and submission of provided by the Bank to ensure staff of Withdrawal Applications the MFDP, MWT and RD become and Interim unaudited familiar with the Bank’s policies and Financial Reports (IFR) to procedures on Financial Management the World Bank for release and Disbursement. Submission of of funds due to limited applications to the Bank will be experience in Bank monitored for timeliness. The project disbursement procedures. will also sponsor some ofthe accounts staff on training in World Bank financial management and disbursement policies and procedures.

MFDP is however experienced in some other Donors’ project financial management requirements, including renortin E.

59 Financial Reporting

Delay in the preparation of S The Accountant General will prepare M No the project annual FS and submit the project FS to the Auditor The Finance and Audit General by May 3 1 each year. Act allows preparation of Agreement reached during the appraisal FS within eight months of ofthe project in November 2008. GOB’s fiscal year. Auditing

Annual audit report may S The project audit will be conducted M No not be issued timely. between June and August each year. The Finance and Audit The audit report together with the Act allows submission of Auditor General’s management letter on audit report within 12 the audit and management’s response months of GOB’s fiscal will be submitted to the Bank year. within six months of GOB’s fiscal year end, i.e. on September 30, each year. Agreement reached during the appraisal ofthe project in November 2008. Overall FM Risk Rating M L

I I Risk Rating: S (Substantia , M (Moderate), L (Low)

Major Strengths

11. The financial management system incorporates an adequate internal control system, including suitable authorization procedures, segregation of duties and responsibilities, and reliable budgeting system. The RD, MWT and MFDP are able to meet the 10 working day service standard stipulated in the GOB Customer Service Standards Document issued by the Public Service Management. This is very important, considering the size ofthe project and the need to make prompt payments to contractors once the invoices are received in the Accounts Section.

Weakness and Action Plan

12. Capacity constraint in the internal audit unit of the MWT is a key weakness. Internal audit visits to RD are not.regular as a result ofthe inadequate staffing positions in the unit. Currently, the software capable ofproducing the interim unaudited financial report (IFR) by component or activity available at MWT is not inter-phased with the Government Accounting and Budgeting System (GABS). The inter-phasing is planned for the end ofApril 2009.

13. The following financial management action plan is recommended to strengthen the financial management arrangements.

60 Action Responsible Entity Due Date Provide one additional internal MFDP One month after effectiveness audit staff to the M’WT Internal Audit Unit to strengthen the Unit as discussed with MFDP. Identify staff to be responsible MWT One month after effectiveness for the production of the IFR by component and activity in the Accounts Unit, MWT. Submit finalized audit TORS MFDP 3 months after effectiveness to the Bank

Budgeting

14. The Botswana Integrated Transport Project (BITP) will use GOB’S budgeting system. As with all projects being implemented by the ministries and departments, MWT will submit and defend the annual draft budget for the project before the Budget Review Committee, chaired by the Secretary, Development and Budget, MFDP. The committee will submit the draft budget as discussed to the Estimate Committee, chaired by the PS, Finance. After due discussion and necessary changes to the draft budget, it will be submitted to the Cabinet. The Finance and Estimates Committee (a committee of Parliamentarians) will review and submit the budget to Parliament in February each year. The annual approved budget, including the expected Bank financing will then be provided for in the government development budget (under the MWT budget).

Accounting

15. GOB will use its accounting system to account for the sources and uses ofthe project funds, and in accordance with the terms of the Loan agreement. For this purpose, the Generally Accepted Accounting Principles (GAAP) and its accounting standards will be used in preparing the project annual FS, using the modified cash accounting basis. The budget and accounting procedures are well documented in the GABS procedures manual. The MWT and RD accounts units/section staff are trained in the use ofthe system.

16. RD has an Accounts Section as well as an Administration Accounts Section (AAS). The AAS staff are posted by MFDP budget department, while the AS staff are posted by the Accountant General. The AAS is in the Administration Unit ofRD. The section is responsible for the preparation of payment vouchers, revenue collection, issuance of imprests, preparation of claims, leave concession, transfer allowance, maintenance of ledgers, filing of documents, and collection of cheques from MWT. The AAS is headed by an Administration Officer and expected to be assisted by five Senior Administration Assistants (SAA). The section was recently divided into Development and Recurrent Units. The development unit will be responsible for the accounting functions of the project.

17. The Accounts Section, headed by a Chief Accounts Officer, is responsible for receiving and reviewing payment vouchers, as well as for the reconciliation ofpayments under correct codes within the budget. It also reconciles the general ledger with the vote ledger. The Chief Accounts Officer will

61 be responsible for the accounting hnctions of the project at RD level and by the Principal Accountant at MWT.

18. At MWT level, the Accounts Unit, Administration Accounts Unit, Planning Unit, and the Internal Audit Unit will be directly involved in the implementation ofthe project. The RD Accounts Section will submit checked payment vouchers to MWT Accounts Unit for verification and submission to the office of the Accountant General twice a week (Mondays and Wednesdays) for issuance ofcheques, which is done electronically. Checks are written within 48 hours as stipulated in the government’s “Customer Service Standards”.

Planning Unit (PU)

19. The Planning Unit coordinates implementation of MWT projects, as well as monitor project implementation progress. The unit is headed by the Chief Economist (Projects), and assisted by three planning officers. The unit conducts site visits, and on monthly basis to some of the departments in MWT. However, capacity constraints do not allow regular visits as expected.

Internal Control and Internal Auditing

20. GOB’S internal control system, proposed for the implementation of the project will provide assurance of accountability at all levels, carrying out of the project activities in an orderly and efficient manner, adherence to policies and procedures, and reliability ofthe accounting records and information.

21. MWT maintains the internal audit unit, which is responsible for the internal audit functions ofthe six departments, including the Headquarters, in the ministry and the over 40 departmental units spread throughout the country. The unit is headed by a principal internal auditor and assisted by an internal auditor and an assistant internal auditor. The unit operates on an annual audit plan approved by the PS, MWT. However, internal audit visits to the departments and units are not regular due to capacity constraints. MFDP had also indentified the need for additional internal audit staff in MWT and posted an additional internal auditor to MWT as opposed to two discussed in June 2008. MWT will ensure that the unit proddes adequate internal audit hnctions (as approved in the unit’s annual plan) to RD covering projects implemented by the Department. The unit will also submit to the PS, MWT, annual reports on the BITP. The Auditor General and the World Bank supervision missions will have access to these reports.

Funds Flow and DisbursementArrangements

22. Table 3 below provides the allocation of the loan proceeds, which will be disbursed over a period of 10 years.

23. BITP will use the Advance disbursement method and Report-based disbursement procedure. GOB will maintain a United States Dollar (USD) denominated Designated Account for the project at the Bank of Botswana. The project may also use the: (i)Direct Payment disbursement method involving direct payments to contractors and suppliers of goods and services; (ii)Reimbursement method, whereby GOB will be reimbursed for payments made for eligible expenditures under the project; and (iii)Special Commitment disbursement method. The Bank’s disbursement letter, which was discussed during the loan negotiations, provides additional instructions on the project disbursement arrangements.

62 24. MFDP will be responsible for submitting withdrawal applications supported by quarterly IFRs. Upon effectiveness of the loan, RD will submit the “Project Memo” requesting for funds to MWT for appraisal after which it will be submitted to MFDP through the Director of Development Budget, for review and approval by the Minister of Finance, The request will be for an estimated expenditure for the first 6 months of the life of the project, and in respect of which MFDP will submit a withdrawal application to the Bank. Subsequent requests will be on a quarterly basis for six monthly estimated expenditure, taking into account the unutilized balance of earlier issued financial warrant. MFDP will issue a “Financial Warrant” to MWT, covering the approved Project Memo and MWT will give a copy ofthe warrant to RD as authority to spend.

Table 3: Flow of Funds Diagram

IBm

MFDP I

Suppliers and - consultants (Direct payment)

Contractors and Suppliers

~

Notes:

Submission ofWithdrawal Applications with supporting documentation to IBRD

Disbursements by IBRD and payments to contractors and suppliers ,-b

Issuance ofFinance Warrants and copy to RD +-w

Submission ofProject Memo and quarterly IFRs (RD/MWT) +-+

63 Allocation of Loan Proceeds

25. The following table summarizes the loan proceeds by disbursement category:

Category Amount of the Loan % of Expenditures Allocated to be financed (US$) (inclusive of tax) 1. Works 50% a) Part B ofthe Project 114,100,000 b) Part C ofthe Project 38,700,000 2.Consultants’ Services, Training, 100% and Goods a) under Part A. 1 ofthe project, 8,300,000 other than Part A. 1 (e) b) under Parts A.2, B and C of 24,900,000 the project

26. A retroactive financing arrangement of US$5.7 million will be provided to cover payments made prior to loan signing ofthe project but on or after February 1, 2009. The expenditures made eligible are those activities under Component A. 1 ofthe project.

OPEC Fund for International Development (OFID) Contribution

27. In the event that OFID makes a financial contribution towards the project implementation, it is understood that OFID will administer the disbursement arrangements ofits contribution.

Financial Reporting

28. The main objective of the financial reporting is to enable the production of sufficiently detailed and regular information to assist in the management and monitoring of the implementation of the project. RD will produce the Interim unaudited Financial Reports (IFRs) on a quarterly basis. For this purpose, MWT will assign a staff ofthe Accounts Unit to be responsible for the production ofthe Component/Activity Report. The format and content ofthe reports were agreed at negotiation.

29. At the end ofeach quarter, MFDP will submit to the Bank, withdrawal applications supported by IFRs for withdrawal of funds to meet estimated eligible expenditures for the ensuing six months. The IFRs, to be submitted within 45 days ofthe end of the quarter to which they relate, will report sources and uses of hnds by disbursement categories and project activity/ component; actual and budgeted expenditures, both cumulatively and for the period covered by said report. The reports will show separately, funds provided by the Bank, and GOB, and explain variances between the actual and planned uses of such funds. The IFRs will also include: a narrative summary of implementation highlights for the quarter, which will help readers to understand the financial reports better; the Designated Account activity statement; and a summary statement of eligible expenditures subject to Bank’s prior review.

64 30. The Accountant General will also produce the annual project financial statements (FS) by May 3 1 each year, and will comprise:

(i) A Statement.of Sources and Uses of Funds provided by GOB and all donors contributing to the financing ofthe project, (ii) The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on Statement of Cash Receipts and Payments being cross referenced to any related information in the notes. (iii)A Management Assertion that the Project funds have been expended in accordance with the terms ofthe loan agreements and for the intended purposes.

Auditing Arrangements

31. The Project’s FS will be audited by the Auditor General, who is required by section 124 of the Constitution to audit the public accounts ofBotswana and ofall officers, courts and authorities of GOB. The audit will be carried out in accordance with the International Organization of Supreme Audit Institutions (INTOSAI) auditing standards issued by the International Federation of Accountants (IFAC). GOB will submit the Audit Terms of Reference (within three months of effectiveness of the loan agreement) to the Bank to ensure adequacy of the scope of the audit, drawing attention to particular risk areas identified during project preparation. The audit report to be prepared by August 3 1 each year, including the management letter, and management’s response to the letter, will be submitted to the Bank within six months of the end of GOB’s fiscal year, September 30 each year.

32. The Public Accounts Committee (PAC), as an oversight body meets regularly to review audit reports and ensures that prompt actions are taken on audit recommendations, by the responsible government officials. GOB’S annual audit reports are published online and are also on sale by government printers and available on request. BITP’s audit reports will also be covered in the publication.

Audit Report Due Date Project specific financial statements Within six months after the end ofeach fiscal year, i.e., by September 30 each year.

Covenants applicable to project implementation:

33. The following financial management issues were discussed, confirmed and agreed during the loan negotiations:

(i) GOB’s approval ofannual allocation ofcounterpart hnd requirements for FY2009/10; and (ii) The format ofthe IFRs.

34. Financial covenants:

Maintain or cause to be maintained a financial management system including records, and accounts in accordance with the provisions of Section 5.09 of the General Conditions.

65 Prepare and hrnish to the Bank, not later than 45 days after the end of each quarter, interim unaudited financial reports for the Project covering such quarter, in form and substance satisfactory to the Bank; Have the project’s Financial Statements (FS) audited in accordance with the provisions of Section 5.09 (b) ofthe General Conditions. Each audit ofthe FS shall cover the period of one Fiscal Year. The audited FS for each such period shall be furnished to the Bank not later than six months after the end ofsuch period, Le., by September 30 ofeach year; Prepare the Audit Terms ofReference in consultation with the Bank, within three months ofeffectiveness ofthe loan agreement; Assign one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit, no later than one month from effectiveness date; and Designate staff to be responsible for the production of the interim unaudited financial reports (IFR) by component and activity in the Accounts Unit, MWT no later than one month from effectiveness date.

Supervision Plan

35. The project overall risk rating is Moderate. However, during the first year of the project implementation, two supervision missions will be conducted to ensure that the project financial management arrangements are operating effectively given that this would be one of the of the first two Bank financed projects to be prepared after two decades. The first supervision mission after effectiveness will take the form ofan FM Specialist (FMS) visiting RD, MWT and MFDP to review financial management systems and procedures to ascertain that the systems’ efficiency and effectiveness have been maintained at the project implementation levels. Subsequently, and in addition to the quarterly desk review of the IFRs and annual audit reports, the on-site supervision visits will be based on the project’s updated risk rating.

Governance and Accountability

36. The FM assessment did not record issues of governance and accountability. The GOB’S Directorate ofCorruption and Economic Crimes (DCEC) is described as an effective body. Cases of corruption or financial crime against the state are promptly investigated and concluded with appropriate action taken by government.

Overall Conclusion

37. The overall conclusion ofthe assessment is that the FM arrangement proposed for the project meets the minimum requirements ofthe Bank subject to the actions described in paragraph 13 above. The financial management risk is assessed as Moderate. Implementation of the proposed mitigating measures will reduce the risk rating to Low.

66 Annex 8: Procurement Arrangements Integrated Transport Project

A. General

1. Procurement under the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised October 2006 (referred to herein as the Procurement Guidelines) and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, revised October 2006 (referred to herein as the Consultant Guidelines) and the provisions stipulated in the Legal Agreement. Bank’s Standard Bidding Documents (SDB) shall be used for procurement of goods under International Competitive Bidding and Bank’s Standard Request for Proposal (RFP) shall be used for selection of consultants. For National Competitive Bidding (NCB), Government of Botswana’s SDB which have been reviewed and generally found acceptable may be used.

2. The following provisions shall apply in the Government of Botswana (GOB) NCB bidding documents under this project: (i)foreign bidders shall be allowed to participate in NCB; (ii) registration / classification of bidders shall not be used as a condition for bidding; (iii)use of preference system based on citizen degree of ownership shall not be used; (iv) use of point system and bracketing in the evaluation ofbids for goods shall not be used; (v) negotiations shall not be held with successful bidder for procurement of goods; (vi) publication of invitation to bid in a national newspaper ofwide circulation; (vii) NCB bidding documents shall clearly specify bid evaluation and post qualification criteria; (viii) bidding period shall not be less than four weeks and bids shall be opened publicly; (ix) in accordance with paragraph 1,14(e) of the Procurement Guidelines, each bidding document and contract financed out ofthe proceeds of the Loan shall provide that: (a) the bidders, suppliers, contractors and subcontractors shall permit the Bank, at its request, to inspect their accounts and records relating to the bid submission and performance ofthe contract, and to have said accounts and records audited by auditors appointed by the Bank; and (b) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines; and (x) contract awards shall be published. Alternatively, Bank’s SDB may be used and adapted for NCB. The general descriptions of various items under different expenditure category are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and timeframe would be agreed on between the Borrower and the Bank in the Procurement Plan. The prior review and procurement method thresholds indicated below are intended for the initial Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvement in institutional capacity.

3. Procurement of Civil Works (US$351.8 million equivalent). The civil works envisaged under the Project is comprised of (i)Road asset management; and (ii)Gaborone City Urban Roads Improvement Program. The Road Asset management contract (estimated at US$262.4 million) includes civil works contracts over a 10 year period. This will be based on Performance Based Procurement (Output Based Procurement) as per paragraph 3.14 of the Guidelines where payments are made for measured outputs which will be defined in the technical specifications including how they will be measured. Mechanism for an independent verification will also be in place. Bank’s standard prequalification documents and sample bidding documents for Output and Performance based contracts will be used for this purpose. The Gaborone City Urban Roads Improvement

67 Program (estimated at US$89.4 million) will be based on conventional civil works contracts applying Bank’s standard prequalification documents and the use of Bank’s standard bidding documents for large works. In addition, other methods such as different levels of turn-key contracts ranging from Design, Build, Transfer (DBT) to Design, Build, Maintain, Operate and Transfer (DBMOT), may also be considered.

4. Procurement of Goods. (Estimated to cost US$2.1 million equivalent). Goods procured under this Project will include technology and logistic upgrade for the Ministry of Works and Transport (MWT). Goods estimated to cost US$500,000 equivalent or more per contract shall be procured under International Competitive Bidding (ICB) procurement method. Goods estimated to cost less than US$500,000 will be procured on the basis ofNCB. Goods that are estimated to cost less than US$50,000 equivalent per contract may be procured through shopping procedures as set forth in the Procurement Guidelines and described above. Where practical, the goods to be purchased will be grouped and be procured in one contract.

5. Direct contracting for goods. Direct contracting is contracting without competition (single source) and may be an appropriate method under the following circumstances:

An existing contract for goods, awarded in accordance with procedures acceptable to the Bank, may be extended for additional goods of a similar nature. The Bank shall be satisfied in such cases that no advantage could be obtained by further competition and that the prices on the extended contract are reasonable. Provisions for such an extension, if considered likely in advance, shall be included in the original contract. Standardization of equipment or spare parts, to be compatible with existing equipment, may justify additional purchases from the original supplier. For such purchases to be justified, the original equipment shall be suitable, the number ofnew items shall generally be less than the existing number, the price shall be reasonable, and the advantages of another make or source of equipment shall have been considered and rejected on grounds acceptable to the Bank. The required equipment is proprietary and obtainable only from one source. The contractor responsible for a process design requires the purchase ofcritical items from a particular supplier as a condition ofa performance guarantee. In exceptional cases, such as in response to natural disaster.

6. Selection of Consultants (Estimated to cost US$28.4 million equivalent). Consulting services under the project will include: (i)pre-investment activities-Regional Integration study, conceptual design for Output and Performance Based Road Contracting (OPRC) and feasibility study for Gaborone City Traffic Management, and recruitment of three specialists (contract management, engineering, procurement, and transport planning). To speed up project implementation, this was planned to be financed by GOB and procurement is ongoing with contract award expected shortly. However, under the recent financial crisis, the government requested for a retroactive financing arrangement for these activities; and (ii)Consulting services during the project period includes multimodal transport planning, detailed design and bidding documents preparation for the Gaborone intersections, supervision services for OPRC and Gaborone Urban Roads Improvement program and national consulting and contracting industry development. Except as detailed below, consulting services will be selected through competition among qualified short-listed firms based on Quality and Cost-Based Selection (QCBS). Consultants for financial audits and other repetitive services estimated to cost less than US$50,000 equivalent per contract may be selected through Least-Cost Selection (LCS) method. Consulting services by firms estimated to cost less than US$lOO,OOO

68 equivalent may be selected on the basis of Selection Based on the Consultant Qualifications (CQS). As appropriate, other selection methods such as Fixed Budget, Quality-Based Selection (QBS) may be used for selection of consulting firms. Individual consultants shall be selected on the basis of Individual Consultant Selection method as per Section V ofthe Consultant Guidelines.

7. Single-Source Selection of Consultants (SSS). Single-Source Selection may be appropriate only if it presents a clear advantage over competition: (i)for tasks that represent a natural continuation ofprevious work carried out by the firm, (ii)in emergency cases, such as in response to disasters and for consulting services required during the period of time immediately following the emergency, (iii)for very small assignments, or (iv) when only one firm is qualified or has experience ofexceptional worth for the assignment.

8. Training (Estimated to cost US3.2 million equivalent). This will include training of project implementation team and various government institutions and for national consulting and contracting industry development. Training services estimated to cost US$ 100,000 equivalent or more shall be procured on the basis ofQCBS or QBS as appropriate. Training services estimated to cost less than US$lOO,OOO equivalent per contract may be procured through CQS method. When appropriate, training may also be procured on the basis of Direct Contracting subject to review and approval by the Bank. The project will formulate an annual training plan and budget which will be submitted to the Bank for its prior review and approval. The annual training plan will, inter alia, identify: (i)the training envisaged, (ii)the justification for the training, how it will lead to effective performance and implementation of the project and or sector, (iii)the personnel to be trained, (iv) the selection methods of institutions or individuals conducting such training, (v) the institutions which will conduct training, if already selected, (vi) the duration of proposed training, and (vii) the cost estimate of the training. A report by the trainee, upon completion oftraining, would be mandatory.

9. Short Lists of Consultants. Short-list of consultants for services estimated to cost less than US$200,000 equivalent per contract may be comprised entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines.

10. Special Arrangements. To speed up implementation, the GOB will finance some of the pre- investment activities as mentioned above and the balance of these pre-investment activities will be financed under retroactive financing. All these pre-investment activities will follow Bank’s procurement procedures.

11. Prior review by the Bank. The Borrower shall seek World Bank’s prior review in accordance with Appendix 1 of both Procurement and Consultant Guidelines for contracts above the thresholds as agreed in the Procurement Plan. For purposes of the initial Procurement Plan, the Borrower shall seek Bank prior review for (i)all works exceeding US$3 million equivalent; (ii)all goods contract estimated to cost US$500,000 equivalent or more; (ii)all consultancy contracts with firms estimated to cost US$200,000 equivalent or more; (iii)all contracts with individual consultants estimated to cost US$lOO,OOO equivalent or more; (iv) all direct contracting and single source selection estimated to cost US$l,OOO equivalent and above; and (v) annual training plan. These prior review thresholds will be reviewed annually and any revisions based on reassessment of the implementing agencies capacity will be agreed with the Borrower in an updated Procurement Plan. All other contracts will be post reviewed during annual procurement post review missions and compliance verification monitoring.

69 12. Procurement Plan. The Borrower, at pre-appraisal and appraisal, developed a Procurement Plan for project implementation, which provides the basis for the procurement and selection methods. The plan has been discussed in detail and was subsequently reviewed and revised appropriately during negotiations. This plan will form the basis for procurement for the first 18 months. The plan will be available at Roads Department (RD) offices and also be available in the project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

13. Assessment of the capacity of agencies to implement procurement. Most of the components of the project are for roads improvement and related capacity building and will be executed fully by the RD. The RD will also carry out all procurement required by the Gaborone City Council (GCC) (the large civil works contract) and the capacity building for Ministry of Works and Transport (MWT) with technical input from these respective agencies. Capacity of implementing agencies was assessed by a World Bank procurement team in October 2007 and updated in June 2008 and November 2008. The results ofthe assessment and key findings are as follows:

(i) RD: This department will be the principal implementing and coordinating agency for the Project. The result of the agency capacity assessment of this department is summarized below:

Quality, transparency and efficiency of procurement: The Department prepares annual work plans for projects it undertakes using its own funding. However, procurement planning and regular follow up of compliance is not systematically carried out. As regards to preparation ofbidding documents, the department, with the assistance ofits consultants, prepares bidding documents on the basis ofnational bidding documents but has little familiarity with Bank's standard bidding documents since most of their contracts are normally financed by GOB. Evaluation ofbids is carried out by a committee assigned on ad hoc basis and then, as per the standard procedures and reviewed by the department before submission to the Public Procurement and Asset Disposal Board (PPADB) for review. Contracts are normally signed with provisions ofcontract.

Appropriateness of organizational and institutional capacity: The procurement unit of the department is mainly for small supplies and does not have significant role in major infrastructure contracts. Major procurement such as design, rehabilitation and construction of roads) is normally executed by principal engineers or project managers assisted by consultants. Some of the principal engineers are international experts on contractual basis. The principal engineers leading the design, procurement and implementation of infrastructure contracts are experienced professionals from within and outside Botswana. The department does not have its own procurement manual and relies on the user guide issued by PPADB. External financial audit is normally carried out by the Auditor General who also carries out performance audit of PPADB on an annual basis. On appeal mechanism for bidders, the PPADB regulations have clear procedures including the formation of an independent committee. Some private consultants interviewed suggest that the provisions on appeal mechanism should be enforced in practice. Overall, the current capacity ofthe RD to undertake procurement is considered as Average.

70 (ii) MWT: has a supplies unit which is responsible for procurement of office supplies and logistics and coordinate requests from all other departments. The unit has a staff complement of four, of which two are graduates with professional training in purchasing. Departments within the Ministry lead in the procurement of consultancy services and procurement of large-value contracts. The departments have well qualified staff with experience in procurement of large-value contracts. The Ministry through its Central Transport Organization is also responsible for procurement of vehicles for all government organizations. The Central Transport Organization was assessed and was found to have adequate capacity. Like the Roads Department, the Ministry’s procurement experience is mostly on GOB procurement practices as their main source of funds has been GOB. Overall, the capacity of the Ministry to undertake procurement is assessed as average. As mentioned above, all procurement for MWT under this proposed Project will be carried out by the RD with technical assistance ofthe MWT.

(iii) GCC: Due to the structure of the government, the PPADB Act applies only to central government. An assessment of the GCC (which is considered to possess relatively higher capacity compared to other town and district councils) shows areas demanding attention, including the need for comparable but simplified procurement regulations, guidelines, and standard bidding documents. The procurement practice does not seem to be adequately regulated. From the assessment, it was not evident that the principal engineers in the city council carrying out major procurement have the necessary skills in public sector procurement. Procurement decisions are approved by the councilors and there is a perception of political interference. Sample procurement documents for the assessment could not be easily traced. Overall, the capacity of the council to undertake procurement is assessed as average. As mentioned previously, all procurement for the council under the project will be carried out by the RD with technical assistance ofthe council.

14. Coordination for Procurement Activities: Pre-investment activities experienced delays due to lack of clarity in the coordination of procurement activities. The PPADB has provided a waiver not to review procurement documents under the project. The RD does not have a strong organizational structure to coordinate procurement activities under all components. It was therefore agreed that the Ministerial Tender Committee will coordinate procurement activities ofthe project. In undertaking this coordination role, the Ministerial Tender Committee will: (i)receive from technical departments (roads, the ministry itself, and GCC) finalized and approved tender documents; (ii) arrange for advertisement of the tenders in national press, Government Gazette and the United Nations Development Business (UNDB) Online; (iii)manage the receipt and opening of tenders and proposals; (iv) prepare minutes of tender or proposal opening and share them with the Bank; (v) coordinate with technical departments to undertake evaluation of tenders; and (vi) arrange for submission ofthe tender evaluation report to the Bank for no objection after it has been prepared and reviewed by technical specialists. To adequately fulfill this role, the Ministerial Tender Committee will require to have: (i)a copy of the agreed procurement plan covering all entities indicating expected bid opening dates; (ii)a tender box placed at a place accessible by bidders but secure enough for security ofbids; (iii)a large room for opening ofbids with a clock for time keeping; and (iv) a dedicated staff for managing the coordination ofprocurement activities. The Ministerial Tender Committee has one full time staff who is a qualified quantity surveyor. However with the volume of work envisaged under the project, the ministry agreed to strengthen the secretariat ofthe Ministerial Tender Committee with additional staff,

71 15. Private Sector perception: During the agency assessment, a few national and international firms were visited to get their impression of the public sector procurement in Botswana in general and the RD in particular. Discussions were also carried out with representatives of the construction industry. The private sector appreciates the efforts made by the GOB to reform its public procurement but considers that there are areas for improvement. A brief check list of the areas for improvement as expressed by the private sector is presented below.

Consulting industry

16. Consultants interviewed as part of the capacity assessment shared a few helpful points to further enhance the procurement systems and processes:

Terms of Reference (TOR): Consultants mention assignments with a number of uncertainties in the TOR, including lack of investigations and preliminary examinations but are still required to submit a fixed lump sum amount. Consultants suggest that the scope of work in the TOR should be reasonably adequate to enable comparable understanding by the consultants and to enable reasonable costing ofthe proposals.

Short listing: The interviewed consultants consider that the two ends ofthe spectrum i.e. picking directly from a list of registered firms vs. advertising directly for proposals need reconsideration and that selection of consultants shall be based on a properly advertised request for expressions of interest and a short list to be drawn from the long list of applicants.

0 Complaint mechanism: Private sector consultants appreciate the new complaints mechanism in the regulations but express their doubts on whether it is being enforced in practice. They complain that in several instances, they may not get the result of their technical evaluation on time and may not be given the opportunity for being debriefed at the end ofthe selection process.

Bid/proposal evaluation period: Consultants consider that the time that it sometimes takes to evaluate proposals could be relatively long and that this could affect their overall planning situation.

Evaluation of proposals: Consultants doubt iftechnical evaluation is being carried out in a professional manner and that their perception is strengthened by the alleged fact ofnot getting any feed back on their proposals.

Public opening of financial proposals: Consultants requested that the public opening of financial proposals should be mandatorily carried out and that technical scores and financial proposal should be read aloud and recorded.

Construction industry

17. The industry appreciates competitive processes and value for money. It shared a few points:

Allocation of risks in bidding documents: Due consideration would need to be given to allocation ofrisks in bidding documents: “Risk shall be allocated to the party best suited to take it”. Otherwise, the industry thinks that tender prices could go unreasonably high

72 or in the worst case scenario a bidder may bid unreasonably low with all the complications during execution. An example cited by the industry is borrow pit risks.

Selection of lowest evaluated and qualified bidder: Due attention should be given to ensure the selection of the lowest evaluated and substantially responsive bid (as per the regulation) by carefblly assessing not only prices but responsiveness to the requirements ofthe bidding documents (technical, commercial).

0 Quality of evaluators: Specialized and/or high value procurement demand appropriately qualified evaluators in bidproposal evaluation teams. As needed, approving bodies may draw in input from specialists in the field and there is a need for adequately staffing key departments (such as RD).

Means to encourage the national construction industry. Current public/private consultations in Botswana are highly encouraged and would need to continue. Means to develop the national construction industry should continue (it is noted that this project has a subcomponent for capacity building of the national consulting and constructing

’ industry).

18. Based on the agency capacity assessment as summarized above and the assessed country procurement environment, the overall capacity of the implementing agencies to undertake procurement is considered average and the risk is Moderate.

19. The following risk mitigation measures are proposed for the project:

Item Action Proposed Proposed Completion Date 1. A TSG comprising engineeringlprocurement specialist, May 2009 transport planning specialist and contracts management specialist will be recruited to strengthen the capacity ofRD. Principal engineers being assigned for this Project and other June 2009 selected relevant staff from the government will be trained in international procurement and contract administration practices. Assign additional staff to MTC to manage and coordinate the Well in progress procurement activities. MTC members should attend a short streamlined seminar on June 2009 international procurement practices. 2. - Project launch workshop-sensitizing all key stakeholders. Upon effectiveness - Sensitization ofprivate sector on the procurement arrangements and reauirements for this Droiect. Upon effectiveness 3 - Study tour to countries that have implemented performance based road contracts- for TRG, SMU, Project manager and December, 2009 relevant RD staff. 4. - Completion ofall ofthe consultants’ selection process for the pre-investment activities (financed by the government) - due June 2009 to high downstream impact Bank has been supporting in the review process. 5. - Draft procurement planning for the project shall be ready done

- Monitor procurement plan vs. actual Throughout the life time of the Project

73 Item Action Proposed Proposed Completion Date - Disclose procurement plan and any subsequent updates in Initial plan: upon Bank’s Bank’s internal and external websites. approval of the Loan and subsequent updates upon Bank’s review and No- objection. 6. - Consultancy for the fmt year procurement activity signed. May 2009

- Bank’s standard bidding documents and RFPs shall be used Throughout the lifetime of for all goods, works and non- consulting services procurement the Project. RD has already under this project involving international competition started using Bank’s (thresholds to be specified in the procurement plan). All standard RFPs even for consulting assignments shall be on the basis ofBank’s procurement ofthe pre- standard request for proposals. investment activities financed by the government. - Highly recommended to use Bank’s standard bidding documents for NCB (Bank’s SBD- small works is a tested document for NCB purposes; and Bank’s SBD goods, is appropriate for NCB with minor adaptations).

- If the government opts to use its national bidding documents for NCB, it shall be with the safeguards indicated in this Annex 8 - Paragraph 2. - Enforce effective complaint handling mechanism. Throughout the lifetime of the project. 9. - Publish contract awards in international media for ICB and/or Throughout the lifetime of international consulting assignments (UNDB on line and on the project. dgMarket, and national media for NCB and/or assignments involving national consultants- as per Bank’s Procurement Guidelines and Consultant Guidelines requirement (the Public procurement Act also requires disclosure ofcontract wards). 10. - Obtain PPADB’s waiver not to review procurement Done; July 10,2008, documentshequests for the project; and - Ensure that an appropriate and effective internal procurement Throughout the lifetime of review process is established within RDNWT prior to the Project. submission for Bank’s prior review and no objection requests.

Implementation Readiness

20. The following actions were initiatedcarried out during the preparation ofthis Project:

Procurement for pre-investment activities has been ongoing well before pre-appraisal; 0 Draft Procurement Plan has been prepared and agreed during negotiations; 0 Bank provided two half day procurement training seminars to relevant staff of the RD, Ministry of Local Government (MLG) and GCC on key principles and procedures in Bank’s procurement; During preparation of the project PPADB has agreed to issue a waiver for the Project from the PPADB procurement review and approval. This is on the basis of (i)assurance given by the Bank that the Bank carries out rigorous prior review (or post review as per agreed thresholds) of the implementing agencies’ procurement decisions and independent procurement reviews on a regular basis; and (ii)Articles 4 and 6 (external obligations) ofthe Botswana Public Procurement Act allow ofPPADB to exercise some

74 flexibility in granting a waiver to projects with external financing. PPADB rightly demanded that the GOB'S contribution to the Project should be traced (this was subsequently confirmed by the Ministry of Finance and Development Planning (MFDP). The waiver was acquired on July 10,2008. Selection of Technical Support Group (TSG), including a procurement'engineering specialist, to strengthen the capacity of the RD has been initiated and expected to be completed by May 2009. General Procurement Notice (GPN) has been advertised locally and in UNDB Online.

Frequency of Procurement Supervision

21. In addition to the prior review supervision, the capacity assessment of the implementing agencies has recommended Bank's supervision missions to visit the field twice a year in the first year and once a year thereafter to carry out post review of procurement actions. Compliance verification will be carried out by independent consultants at least once in the life time ofthe project to:

0 verify that the procurement and contracting procedures and processes followed for the projects were in accordance with the loan agreement; 0 verify technical compliance, physical completion and price competitiveness of each contract in the selected representative sample; review and comment on contract administration and management issues as dealt with by participating agencies; 0 review capacity ofparticipating agencies in handling procurement efficiently; and 0 identify improvements in the procurement process in the light of any identified deficiencies.

General Procurement Notice (GPN) and Contract award Disclosure Requirements

22. The Borrower has prepared a GPN based on the formats discussed during appraisal mission and the GPN was advertised in DgMarket and UNDB Online in addition to local papers. For each contract procured through ICB and large-value consultant assignments above the defined thresholds, a specific procurement notice will be placed in DgMarket, UNDB Online and local papers of wide national circulation.

23. Contract awards done through ICB procurement method shall be consistent with Paragraph 2.60 of the Guidelines: Procurement under IBRD Loans and IDA Credits, May 2004 revised October 2006. Within two weeks of receiving the World Bank's "no objection" to the recommendation of contract award, the Borrower shall publish in UNDB Online and in DgMarket the results identifying the bid and lot numbers and the following information:

name ofeach bidder who submitted a bid; bid prices as read out at bid opening; name and evaluated prices ofeach bid that was evaluated; name ofbidders whose bids were rejected and the reasons for their rejection; and 0 name ofthe winning bidder, and the price it offered, as well as the duration and summary ofthe scope ofthe contract awarded.

75 24. Contract Awards done through Direct Contracting procurement method shall be consistent will Paragraph 3.7 of the Guidelines: Procurement under IBRD Loans and IDA Credits, May 2004. After the contract signature, the Borrower shall publish in UNDB Online and in DgMarket the:

0 name ofthe contractor, price, duration, and 0 summary scope ofthe contract.

25. This publication may be done quarterly and in the format of a summarized table covering the previous period.

26. Contract Awards for Consultancies shall be consistent with Paragraph 2.28 of the Guidelines: Selection and Employment of Consultants by World Bank Borrowers, May 2004 revised October 2006. After the award of contract, the borrower shall publish in UNDB Online and in DgMarket the following information:

names ofall consultants who submitted proposals, 0 technical points assigned to each consultant, 0 evaluated prices ofeach consultant, 0 final point ranking ofthe consultants, and 0 name of the winning consultant and the price, duration, and summary scope of the contract .

27. The same information shall be sent to all consultants who have submitted proposals.

0 name ofthe consultant to which the contract was awarded, theprice,

0 duration, and

0 scope ofthe contract.

28. This publication may be done quarterly and in the format of a summarized table covering the previous period.

Details of the Procurement Arrangements Involving International Competition

29. Details ofthe procurement arrangements are provided in Attachment 1 below:

76 Attachment 1: Procurement Implementation Plan

I. General

30. Project information: Botswana, Government ofBotswana, Botswana Integrated Transport 31. Project ID: P102368 32. Project Implementing Agencyhes: Roads Department, MWT and Gaborone City Council 33. Bank’s approval Date of the procurement Plan: April 21,2009 34. Date of General Procurement Notice: October 2007 35. Period covered by this procurement plan: June 2008 - June 20 13 36. All costs indicated in the Plan are net of taxes

11. Goods and Works and non-consulting services

Prior Procurement Method Prior Review Threshold Comments Review ($1 Threshold 1. ICB and LIB (Goods) >=500,000 2. NCB (Goods) First contract only

3. ICB (Works) >=3,000,000 4. NCB (Works) First contract only 5. ICB (Non-Consultant Services) >=500,000 6. Direct contracting (goods or >=1,000 works)

37. Prequalification. Bidders for: (i)Road asset Management (OPRC - civil works), and (ii) Gaborone city Urban Roads Improvement Program shall be prequalified in accordance. with the provisions ofparagraphs 2.9 and 2.10 ofthe Guidelines.

38. Proposed Procedures for CDD Components (as per paragraph. 3.17 of the Guidelines: N/A

39. Reference to (if any) Project OperationaVProcurement Manual: N/A

77 Contracts under the Project (planned to be under ICB) 1 2 3 4 5 6 7 Comment5 Ref Contract Estima-ted Procure Prequali Domes- Review No. Description cost ($) -ment fic-ation tic Pref. by Bank Method (yeslno) (yesho) (Prior I Opening Post) 1. Road Asset No Yes Manageme 262,400,000 nt (OPRC- Civil works) 2. Gaborone 89,400,000 -r No Yes July 20 1 1 November City Urban 2014 Roads Improveme nt Program 3. Technology 2,100,000 No Yes October February 1, and logistic 2009 201 1 upgrade of MWT

40. Any Other Special Procurement Arrangements: N/A

111. Selection of Consultants

4 1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment ofConsultants:

Selection Method Procurement Prior Review Comments method Threshold ($) threshold ($) 1. Competitive Methods >=200,000 All contracts (Firms) -QCBS 2. Single Source (Firms & >=1,000 All contracts individuals) 3. CQ ~=200,000 None 4. Individual consultants >=100.000 All

42. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than US$200,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines.

43. Any Other Special Selection Arrangements: Depending on speed ofprocurement contracts for OPRC conceptual design and Regional Integration may have retroactive financing from World Bank.

78 Consultancy Assignments with Selection Methods and Time Schedule

1 2 3 8 Ref. Description of Assignment Estimated No. Comments ($) cost (Prior I Post 1. Technical Support Group 2,100,000 Dec 2008 June 2012 Each specialist (EngineeringA’rocurement, estimated at Transport Planner and about Contracts Management US$500,000 Specialist over three I T years 2 Conceptual Design for Total 1,250,000 July 2008 March 2010 Asset Management contracts 7- 3 Greater Gaborone Transport 900,000 July 2008 March 20 10 Multimodal Study (Traffic improvement) 4 Regional Transport sector 1,440,000 December March 20 10 integration study 2008 5 Detailed designs and bidding 3,100,000 May2010 June 2011 Depends on documents for selected city Gaborone intersections (2 contracts) multimodal study 6 Multimodal Transport Master 2,600,000 June 2010 June 201 1 Depends on Plan completion of Gaborone multimodal study 7 Monitoring and technical 8,550,000 February January services for road asset 2010 201 1 improvement program (OPRC-2 contracts) 8 Supervision services for 4,120,000 Depends on Gaborone City urban roads award ofcivil improvement program (2 works for contracts) Gaborone 9 Environmental, Social and 100,000 January January Awarded Resettlement Framework 2008 I 2009

79 Annex 9: Economic Analysis Integrated Transport Project

1. Economic evaluation summary. The economic analysis of the project covers mainly the 800 km of the pilot road asset management component (Component B) which constitutes about 70 percent of the total investment cost. The Output and Performance Based Road Contracting (OPRC) road improvement component is mostly rehabilitation and some upgrading works using the asset preservation and management concepts with a long term OPRC on national roads network in Kanye road depot over a period ofup to 10 years. The principal measured benefits ofthe project are savings in vehicle operating costs, time savings to vehicle occupants and enhanced road safety. The estimated overall economic internal rate ofreturn (Em) for the OPRC component is 3 1 percent in the best-case scenario. The economic net present value (NPV) based on a 12 percent discount rate, is estimated at US$85.2 million.

Investment program N-PV EIRR (in %) (US$ million, 12%) Rehabilitation and asset management program of 85.2 31 800km area-wide national road network in Kanye I District

2. An analysis ofthe evaluation results and a description ofthe method used to derive them are summarized as follows:

3. MethodoIogy. The economic evaluation ofthe 800 km ofnational road OPRC component is based on conventional road cost-benefit analysis methodology that quantifies road benefits mainly from savings in vehicle operating costs (VOC), travel time costs and agency maintenance costs. To carry out the economic analysis: (i)traffic volumes used as a basis for determining time and VOC and savings and capacity were determined based on recent traffic counts; (ii)user and agency recurrent costs were estimated using the Highway Development and Management Model - version 4 (HDM-4) model; (iii)capital costs were estimated as per the road condition survey of RD done in 2005 resulting in a full recommendation of road sections that require asset preservation using overlay, reseal, fog spray/seal/seal, reconstruction, etc., with relevant cost estimate; and (iv) the rehabilitation and maintenance costs were estimated as per the Ministry of Works and TransporVRoads Department (MWT/RD) standard. Economic prices were used in the evaluation. These were estimated by eliminating taxes and other transfer payments from financial prices.

4. Traffic Projections. MWT/RD has completed an actual traffic count in 2005. The actual traffic counts were converted into the average annual daily traffic (AADT). Projected traffic was divided into two main categories: (i)normal traffic which continue to grow even without improving the condition of the road network; and (ii)generated traffic, which may occur as a result ofthe road network condition improvement undertaken under the project which is assumed at 15 percent ofthe normal traffic growth. Normal traffic growth rates are estimated based on projections ofpopulation growth and per capita income growth of Botswana. Starting with a relatively low traffic base, couple with the high level ofper capita income growth (about 10 percent per year) in the last two decades, the traffic growth assumption is shown in Table 2 below.

80 Table 2: Assumption of Traffic Growth

I 1 2005 I 2006-2012 I 2013-2028 I Normal traffic growth rate (%) Actual traffic count 8 5 Generated traffic (20% ofnormal growth) Actual traffic count 1.6 1 I Total mowth rate used for economic evaluation I I 9.6 I 6 I

5. User costs. The HDM-4 model was used to estimate road user and agency costs for the national road rehabilitation. Costs were estimated for a “without project” (do-minimum) scenario and for a “with project” scenario; and the differences were reflected as costshenefits in the economic analysis. VOC for the various vehicle types are estimated based on the empirical relationships between road roughness and VOC/km. All financial costs are converted into economic costs by excluding taxes and tariffs applied to each item of labor and material inputs. The following table summarized the road user cost per vehicle kilometer on a paved road in good condition with average operation speed of80 km/hr.

Passenger Small Large Small Truck Large Truck Car Bus Bus (2-axle) (4-axle) Vehicle Operating costs 0.83 1.46 2.32 1.71 3.3 Time cost 0.61 1.18 2.47 0.1 0.2 Total 1.44 2.64 4.79 1.81 3.5

6. Agency Costs. Road agency costs are estimated by MWT/RD following its feasibility study done in 2005-2006 after the survey of the needed intervention on the 800 km of national road network in Kanye road depot and can be summarized below:

Table 4: Estimated Financial Cost for the Needed Intervention (10 years cycle)

Years 1-5 Years 6-10 Rehabilitation/ Rehabilitation/ improvement improvement 1 Total US$ I US$h US$ I US$h

7. Economic parameter and price. The economic cost of capital for Botswana is estimated to be 15 percent. This was the discount rate used for the project. The economic price applied for the cost-benefit calculation is assumed to be about 10 percent less than financial cost which is relatively small because tax and duties in Botswana in general is found to be relatively low comparing to its neighboring South Africa.

81 8. Evaluation Result. Applying the above assumption, and costs and benefits parameters, the analysis is based on a 20-year life cycle. The cost comprise capital interventions required on the 800 km ofnational road under the pilot OPRC program in the time horizon often years and with a design life of 15 years. The following tables show the results of the economic evaluation ranging from the best-case scenario, to the sensitivity calculation assuming 18 percent cost increase or 20 percent traffic reduction, or both. Table 5 below summarizes the economic evaluation with the sensitivity analysis :

EIRR (in %) NPV (US$ million, 12%) Best Estimate 31 85.2

Sensitivity analysis , If cost increased by 18% 27 77.8 Iftraffic reduced by 20% 26 53.5 If cost increase by 18% and traffic 23 46.1 reduced bv 20%

82 sn \o a 3

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Y I; Y N NO 1 Annex 10: Safeguard Policy Issues Integrated Transport Project

1. Main environmental safeguards issues. An Environmental and Social Management Framework (ESMF) has been prepared for the rehabilitation and long term maintenance of existing road networks (approximately 800 km) and the improvements to major intersections in Gaborone. The main objective ofthe ESMF is to operationalize the Botswana Environmental Impact assessment (EIA) Act of 2005, the Ministry of Works and Transport (MWT) Road Sector Guidelines and the World Bank’s OP4.01 within the road sub-sector. In addition to these, the ESMF provides a comprehensive review ofthe relevant institutional policies and legal framework in Botswana, and of the Bank’s safeguards policies.

2. With regard to equivalence and acceptability of the Botswana environmental assessment (EA) system as it relates to the Bank’s Operational Policy, the ESMF concludes that although the two systems are in most respects equivalent, there still exist some gaps in the Botswana EA system, and then the ESMF provides measures for bridging the gaps between the two policy systems. Specifically, with regard to the gap concerning the disclosure process, it was agreed that the notice of public disclosure would appear once per week for three consecutive weeks in the national press (Daily News). After disclosure in the country on December 12, 2008, the Road Department (RD) gave authority to the World Bank to disclose the Resettlement Policy Framework (RPF) and the ESMF at the Infoshop. The documents were submitted to the InfoShop on December 23,2008.

3. The ESMF and RPF were made available at the following locations for public access:

The Department ofEnvironmental Affairs Library in Gaborone, The National Library in Gaborone, The National Library in Kanye,

0 The Roads Department in Gaborone, and

0 The Roads Department website.

4. The notice of pubic disclosure appeared three times (once a week for three weeks) in the national press (Daily News).

5. In terms of implementation practice, the ESMF identifies several human resource constraints which would need to be addressed within the Department of Environmental Assessment (DEA) and RD. The RD also lacks several key management tools that would help maintain consistent and timely environmental assessment inputs. The RD needs to address following issues in order to benefit from the work ofthe former environmental specialist at the RD and to maintain a good level ofcompliance standard:

One additional environmental specialist needs to be recruited RD needs to expedite the process of recruiting at least one more environmental specialist in addition to the seconded DEA official who is handling all environmental work for the department. They should also explore options for engaging an external consultant to ensure that adequate environmental and social impact management capacity is in place before any disbursements begin on investments;

87 Data management system for environmental and social management needs to be put in place. At present there is no one place where EAs are kept and no easily accessible management system that records approvals, conditions, site visit notes, monitoring, communications, etc.

6. The ESMF provides a practical Procedures Manual that integrates the environmental assessment process into the road development process. The procedures manual mainstreams the EA guidelines for the road sector developed by the RD previously, in order to ensure that the technical information and experience are not lost in the process.

7. A training program targeted at relevant stakeholders and audience is provided in the ESMF. The training program intended to raise awareness in the sub-sector and also outline a more substantive training for engineers in the RD. In order to ensure that the RD retains environmental and social management capacity, the training program recommends training sessions for several dedicated environmental engineering disciplines within the department.

8. One of the main sections of the ESMF is the detailed Roads Infrastructure Development Guideline which provides detailed design standards for roads according to the various road categories in Botswana and design standards for bridges, providing information on bridge selection; bridge type; bridge height; bridge span, and superstructure type. This section uses existing information and integrates it into the ESMF by incorporating legislation and sub-sector guidelines into the road development process, thus providing a more inclusive framework.

9. Main social safeguards issues: A gap analysis between the national compensation guidelines for Tribal Areas (revised April 2004) and the World Bank OP 4.12 was conducted during project preparation, with the following main findings:

(i) In practice as well as in principles, there is an agreement on the key aspects ofthe World Bank policy on involuntary resettlement and the national framework for land acquisition and compensation in many areas especially in the consultation of project affected parties, land for land compensation (customary land rights), framework for compensation, etc.

(ii) The main gap in the national compensation guidelines and the World Bank 4.12 is related to their main objectives. In substance, the World Bank OP 4.12 policy document is to minimize land acquisition and when this is not possible, restore, if not improve the livelihood of affected persons to pre-project level. The national compensation guidelines have no such development objective and are mainly an operational guidance to acquire land and compensate assets’ losses for public interest investments. As a result, key elements ofa resettlement action plan would not be captured by the provisions ofthe compensation guidelines. These elements include: a socio-economic impact analysis of a sample representative of the affected communities or group, the identification of accompanying measures to help the affected people restore their livelihood or if possible improve their living standards, the monitoring and evaluation of the implementation of the resettlement /compensation plan.

88 10. In order to address this gap, a RPF was prepared to set forth the principles and procedures that would guide potential land acquisition and compensation. This RPF is consistent with the national legislation and regulation as well as World Bank OP 4.12.

11. The key stakeholders involved in the implementation ofthe RPF and the ESMF include:

The consultant for the conceptual design ofthe OPRC. This consultant would ensure that the social safeguards specifications ofthe RPF are included in the bidding documents for the contractor; The contractor for the output and performance based road contract (OPRC) will be in charge of implementing the social safeguards specification included in the OPRC. It will most probably involve various design aspects; The Monitoring Consultant would ensure that the social safeguards specifications are effectively implemented, and would evaluate the impacts of land taking and compensation on Affected persons; The RD, through its Environmental Expert, would ensure oversight of the implementation ofthe RPF by the Contractor through the Monitoring Consultant; and It was hrther agreed that a Resettlement Coordinator would be hired by the contractor in case of land acquisition and compensation during the implementation of the OPRC contract.

12. The RPF will be disclosed in the locations as indicated in paragraph 3 and 4 above.

13. Capacity to implement the RPF: The staffing plan for environmental and social management capacity at RD finalized by October 15, 2007, was fully implemented. However, the capacity to implement the country’s compensation guidelines is low with respect to valuation methodology, and consultation with affected persons. A stakeholders’ workshop will be organized to disseminate the RPF, discuss gaps between the country’s laws and regulations on the one hand, and the provisions of the World Bank OP 4.12 on the other hand, discuss issues related to the compensation of affected assets, the consultation with affected people, and the grievance redress system. The budget, date, and participants to the workshop will be fbrther determined by the RD and the World Bank.

89 Annex 11 : Project Preparation and Supervision Integrated Transport Project

Planned Actual PCN review January 30,2007 Initial PID to PIC January 25,2007 Initial ISDS to PIC March 1,2007 Appraisal February 2,2009 February 2,2009 Negotiations April 1,2009 April 15,2009 BoardRVP approval May 2 1,2009 Planned date ofeffectiveness December 3 1,2009 Planned date ofmid-term review June 30,2014 Planned closing date January 3 1, 2020

Key institutions responsible for preparation ofthe project: The RD under the MWT

Other institutions working in close collaboration with RD/MWT include: TheMWT: o Planning and Economic Department o Transport Hub Coordinator Office The Gaborone City Council

Bank staff and consultants who worked on the project included: Name Title Unit Supee Teravaninthorn Lead Transport Economist AFTTR Yitzhak Kamhi Senior Transport and Planning Engineer and AFTTR Institution Advisor / Consultant Yvette L. Djachechi Senior Social Sector Specialist AFTCS Lungiswa Thandiwe Gxaba Senior Environmental Specialist AFTEN Tesfaalem Iyesus Lead Procurement Specialist AFTPC Modupe A. Adebowale Senior Financial Management Specialist AFTFM Renganaden Soopramanien Senior Counsel LEGAF Rodrigo Archondo-Callao Highway Engineer ETWTR Suzanne Morris Senior Financial Officer LOAFC Simon Chirwa Procurement Specialist AFTPC Ricardo Tejada Financial Specialist BDM Anne Njuguna Program Assistant AFTTR

Bank funds expended to date on project preparation: 1. Bank resources: US$ US$494,07 1 ofwhich US$246,000 is fixed cost and US$248,000 is variable cost 2. Trust funds: Not available

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$ 150,000 2. Estimated annual supervision cost: US$ 100,000 per year

90 Annex 12: Documents in the Project File Integrated Transport Project

1. Inception Report - Consultancy Service for the Preparation of the Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF) by Arid Environmental Consultancy (Pty) Ltd, May 30,2008.

2. Prefeasibility Study of Three New Rail Links - Trans-Kalahari Railway, Mmamabula- Ellisras, and Mosetse-Livingstone.

3. Request for Proposal for Consultancy Services for the Greater Gaborone Multimodal Transportation Study, October 2007.

4. Multinational BotswandZambia: The SADC North-South Transport Corridor Improvement Study.

5. Request for Proposals for Consulting Services for Preparation and Design ofa Pilot Project for Area Wide Output- and Performance-based Road Contracts (OPRC), April 2007.

6. Request for Proposals for the Study on Regional Integration ofBotswana’s Transport Sector.

91 Annex 13: Statement of Loans and Credits Integrated Transport Project

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fm. Rev’d P102299 09 BW-HIVIAIDS Project SIL (FY09) 50 50

Total: 50.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00

BOTSWANA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity **Quasi Partic. Loan Equity **Quasi Partic. Equity Equity 2001/08 AfrbnkCorp 0.00 7.07 13.55 0.00 0.00 7.07 0.00 0.00 2005/08 Letshego 14.59 3.97 0.00 0.00 14.59 3.97 0.00 0.00 0 Petra Diamonds 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 Total portfolio: 14.59 11.58 13.55 0.00 14.59 11.58 0.00 0.00 ** Quasi Equity includes both loan and equity types.

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

92 Annex 14: Country at a Glance Integrated Transport Project

Botswana at a glance 4/6/09

Sub- Upper Key Development Indicators Saharan middle Botswana Africa income Age distribution, 2007 (2008) I Male Femle Population, mid-year (millions) 1.9 800 823 Surface area (thousand sq. km) 582 24,242 41,497 Population growth ("A) 1.3 2.4 0.6 Urban population (Oh of total population) 60 36 75

GNI (Atlas method, US$ billions) 11.5 762 5,750 GNI per capita (Atlas method, US$) 6,100 952 6.987 GNI per capita (PPP, international $) 12,420 1,870 11,868

GDP growth 1%) 4.0 6.2 5.8 15 10 5 0 5 10 15 GDP per capita growth ("A) 2.7 3.7 5.1 percent

(most recent estimate, 2003-2008)

Poverty headcount ratio at $1.25 a day (PPP, "A) 50 Poverty headcount ratio at $2.00 a day (PPP, %) 72 Under4 rnortallty rate (per 1,000) Life expectancy at birth (years) 50 50 70 Infant mortality (per 1,000 live births) 90 94 22 200 7 I 180 Chiid malnutrition ("A of children under 5) 27 160 140 Adult literacy, male (% of ages 15 and older) 80 69 94 120 Adult literacy. female (% of ages 15 and older) 82 50 92 100 Gross primary enrollment, male (% of age group) 109 99 112 80 60 Gross primary enrollment, female (% of age group) 107 88 109 40 20 Access to an improved water source (% of population) 95 58 95 0 Access to improved Sanltation facilities (% of population) 42 31 83 I 1990 1895 20w 2006

Net Aid Flows 1980 1990 2000 2008

(US$ millions) Net ODA and official aid 105 145 31 65 Growth of GDP and GDP per capita (YO) Top 3 donors (in 2006): European Commission 6 8 4 28 12 United States 12 15 1 25 10 Germany 15 19 7 3 8 6 Aid (% of GNI) 10.4 3.9 0.5 0.6 4 Aid per capita (US$) 106 106 18 37 2 0 2 Long-Term Economic Trends -4

Consumer prices (annual % change) 12.5 11.4 8.5 12.7 GDP implicit deflator (annual % change) 10.2 6.3 12.0 4.3

Exchange rate (annual average, local per US$) 0.8 1.9 5.1 6.8 Terms of trade index (2000 = 100) 119 100 52 1980-90 1990-2000 200048 (average annual growth %) Population. mid-year (millions) 1.o 1.4 1.7 1.9 3.2 2.3 1.2 GDP (US$ millions) 1,061 3,792 6,177 12,126 11.0 5.8 5.0 (% of GDP) Agriculture 14.7 4.9 2.4 1.8 2.5 -1.2 -0.8 industry 50.7 61 .O 58.9 50.2 11.3 5.6 4.5 Manufacturing 5.1 5.1 4.4 3.4 11.4 3.8 4.5 Services 34.6 34.1 38.6 48.0 15.2 7.5 5.3

Household final consumption expenditure 52.0 33.2 23.2 34.5 6.3 6.4 2.0 General gov't final consumption expenditure 21.3 24.1 22.9 19.6 14.9 6.0 4.7 Gross capital formation 40.1 37.4 35.0 32.1 7.6 5.2 3.6

Exports of goods and services 53.1 55.1 52.6 46.6 12.5 4.3 5.0 Imports of goods and services 66.4 49.8 33.7 47.0 9.2 4.4 4.3 Gross savings 27.4 41.6 51.7 34.0

Note: Figures in italics are for years other than those specified. 2008 data are preliminary. .. indicates data are not available a. Aid data are for 2006.

Development Economics, Development Data Group (DECDG).

93 Botswana

Balance of Payments and Trade 2000 2008 I Governance Indicators, 2000 and 2007 (US$ millions) Total merchandise exports (fob) 2,682 4,714 Total merchandise imports (cif) 2,005 5,668 I Voice an0 accoLntabi ty 1 1 Net trade in goods and services 68 1 -557 Pollticalstability Current account balance 547 -283 Regulatwy quality as a % of GDP 8.9 -2.3 Rule of law Workers' remittances and compensation of employees (receipts) 26 117 Control of corruption

Reserves. including gold 6,300 9,100

Central Government Finance Country's percentlle rank (0-100) haher ~81~8impfy bener refinas (% of GDPj Current revenue (including grants) 42.8 35.5 Source: Kaufmann-Kraay-Masbuui. Wodd Bank Tax revenue 36.6 21.9 Current expenditure 25.5 25.6 Technology and Infrastructure 2000 2007 Overall surplusldeficit 7.1 -1.5 Paved roads (% of total) 56.0 33.2 Highest marginal tax rate (%) Fixed line and moblle phone Individual 25 25 subscribers (per 100 people) 21 83 Corporate 15 15 High technology exports (% of manufactured exports) 0.5 0.4 External Debt and Resource Flows Envlronment (US$ millions) Total debt outstanding and disbursed 453 382 AQriCUltUral land (% of land area) 46 46 Total debt service 69 53 Forest area (Oh of land area) 22.1 21.1 Debt relief (HIPC, MDRI) - - Nationally protected areas (% of land area) 30.9

Total debt (% of GDP) 7.3 3.1 Freshwater resources per capita (cu. meters) 1,307 Total debt service (% of exports) 2.0 0.8 Freshwater withdrawal (% of internal resources) 8.1

Foreign direct investment (net inflows) 57 279 CO2 emissions per capita (mt) 2.5 2.4 Portfolio equity (net inflows) -6 62 GDP per unit of energy use (2005 PPP $ per kQ of oil equivalent) 9.2 11.7 Composltlon of total external debt, 2008 Energy use per capita (kQ of oil equivalent) 1,065 1,032

(US$ mi//ionsj

OWr muffl. IBRD Ihnl,234 Total debt outstanding and disbursed 16 0 Disbursements 0 0 Principal repayments 7 I Interest payments 1 0

US$ millions IDA Total debt outstanding and disbursed 9 6 Disbursements 0 0 Private Sector Development 2000 2008 Total debt service I 0

The required to start a business (days) 76 iFC (fiscal year) Cost to start a business (% of GNI per capita) 2.3 Total disbursed and outstanding portfolio 2 6 Time required to register property (days) I1 of which IFC Own account 2 6 Disbursementsfor IFC own account 1 0 Ranked as a major constraint to business 2000 2007 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 I Access tolcost of financing 24.3 Anticompetitive or informal practices 11.6 MlGA Gross exDosure Stock market capitalization (% of GDP) 15.8 47.7 Bank capital to asset ratio (%) 10.3 9.7

Note: Figures in italics are for years other than those specified. 2008 data are preliminaly. 4/6/09 .. indicates data are not available. - indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

94 Annex 15: Maps Integrated Transport Project

95

Sehithwa IBRD 36909 ANGOLA ZAMBIA Kasane Makgadikgadi Lake CHOBE Ngami Salt Pans NGAMILANDZIMBABWE NORTH- NGAMILAND Maun Bot EAST eti NORTH- Rakops EAST Francistown Orapa Francistown

NAMIBIA Lake CENTRAL Ghanzi Xau GHANZI Serowe Letlhakane

Area of M otlo KWENENG KGATLENG Map uts e SOUTHERNMolepolole Mochudi CENTRAL KGALAGADI GABORONE Selebi-Phikwe Kanye SOUTH- Seruli LobatseGHANZIEAST Tshabong SOUTH AFRICA Sefophe

Okwa Serowe ane Lots Palapye Kalahari

Desert Mahalapye

Kang KWENENG

KGATLENG SOUTH AFRICA Sekoma Molepolole Mochudi Jwaneng Khakhea SOUTHERN GABORONE Lorolwane KGALAGADI Kanye SOUTH- Werda e Lobatse leb EAST Mose

Ramatlabama To po Pretoria Molo Mabule Tshabong BOTSWANA

po INTEGRATED TRANSPORT lo o M PROJECT SOUTH PROJECT ROADS To AFRICA Kimberley MAIN ROADS RAILROADS MAIN TOWNS

0 50 100 Kilometers DISTRICT CAPITALS* NATIONAL CAPITAL 0 25 50 Miles DISTRICT BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. INTERNATIONAL BOUNDARIES The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank * The town councils of Francistown, Group, any judgment on the legal status of any territory, or any Gaborone, Lobatse, and Selebi-Pikwe endorsement or acceptance of such boundaries. have status equal to Districts.

APRIL 2009