Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 32170-CV

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED CREDIT

IN THE AMOUNT OF SDR 9.9 MILLION (US$ 15.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF

FOR A

Public Disclosure Authorized ROAD SECTOR SUPPORT PROJECT

April 22, 2005

Transport Unit Country Department 14 Africa Region

This document has a restricted distribution and may be used by recipients only in the

Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28,2005) CurrencyUnit = CVE 83.579CVE = US$l US$1.53057 = SDR 1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BADEA Arab Bank for Economic Development CAS Country Assistance Strategy CCA Corzselho Consultivo de Estrndas - Road Consultative Council CVE Cape Verde Escudos CV-FMR Fundo de Mnnutenqiio Rodovidria - Road Maintenance Fund DFID Department for Intemational Development (UK) DGISB General Directorate of Infrastructure and Basic Sanitation DGTR General Directorate of Road Transport Services EMP Eiivironineiital Management Plan EU European Union FMR Financial Monitoring Report FR Fundo Rodovicirio - Road Fund GEP Directorate ofPlanning GMANS Gestdo e Mnriutencdo por Nivel de Servicio - Perfoniiance-Based Maintenance Contracts GPOBA Global Partnership for Output-Based Aid GPRSP Growth and Poverty Reduction Strategy Paper HDM4 Highway Design Standards Model IE Ivistituto de Estrndas - Road Agency IGOPP General Inspectorate of Public and Private Construction Works IRR Intemal Rate ofRetum ITP Infrastructure and Transport Project LEC Civil Engineering Laboratory M&E Monitoring and Evaluation MCC Millennium Challenge Corporation (USA) MIT Ministry of Infrastructure and Transport NPV Net Present Value PCU Project Coordination Office PIU Project Implementation Unit RA Road Agency (also referred to as Instituto de Estrndas) RED Roads Economic Decision Model RSSP Road Sector Support Project SIL Sector Lending Instrument SSATP Sub-Saharan Africa Transport Policy Program voc Vehicle Operating Costs

Vice President: Gobind T. Nankani Country ManagedDirector: Madani M. Tall Sector Manager: C. Sanjivi Rajasingham Task Team Leader: Gylfi Palsson CAPE VERDE FOR OFFICIAL USE ONLY Road Sector Support Project

PROJECT APPRAISAL DOCUMENT

CONTENTS Page

A. STRATEGIC CONTEXT AND RATIONALE ...... 3 1. Country and sector issues ...... 3 2 . Rationale for Bank involvement ...... 4 3 . Higher level objectives to which the project contributes...... 5

B. PROJECT DESCRIPTION ...... 5 1. Lending instrument ...... 5 2 . Program objective and Phases ...... 5 3 . Project development objective and key indicat ...... 5 4 . Project components ...... 7 5 . Lessons leamed and reflected in the project design ...... 9 6 . Alternatives considered and reasons for rejection ...... 10

C. I&IPLEhIENTATION ...... 10 1. Partnership arrangements (if applicable) ...... 10 2 . Institutional and implementation arrangeme ...... 10 3 . Monitoring and evaluation ofoutcomesiresults ...... 11 4 . Sustainability ...... 11 5 . Critical risks and possible controversial aspects ...... 11 6 . Credit conditions and covenants ...... 12

D. APPRAISAL SUMMARY ...... 13

1. Economic and financial analyses ...... 13 2 . Technical ...... 15 3 . Fiduciary ...... 16 4 . Social...... 16 5 . Environment ...... 17 6 . Safeguard policies ...... 17 7 . Policy Exceptions and Readiness ...... 18 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. . Ii .

Annex 1: Country and Sector or Program Background ...... 19 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 25 Annex 3: Results Framework and Monitoring ...... 26 Annex 4: Detailed Project Description...... 32 Annex 5: Project Costs ...... 41 Annex 6: Implementation Arrangements ...... 43 Annex 7: Financial Management and Disbursement Arrangements ...... 46 Annex 8: Procurement Arrangements ...... 52 Annex 9: Economic and Financial Analysis ...... 62 Annex 10: Safeguard Policy Issues...... 74 Annex 11: Project Preparation and Supervision ...... 78 Annex 12: Documents in the Project File ...... 79 Annex 13: Statement of Loans and Credits ...... 80 Annex 14: Country at a Glance ...... 81 Annex 15: Letter of Sector Policy ...... 83

MAPS: IBRD 33961 IBRD 33964 IBRD 33966 IBRD 33963 IBRD 33962 IBRD 33965 A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues Cape Verde is an archipelago, consisting of ten islands, covering an area of 4,039 square kilometers. In the year 2000, the population was about 463,000, living on nine ofthe ten islands. The country has few natural resources that can be exploited economically. In the years prior to 2000, the economy grew at an annual rate of 6.4%, with the growth sectors being services, tourism, fishing and light industry. In 2002 the overall poverty rate for the country was estimated at 37%, with a poverty rate of5 1.3% in rural areas and 24.5% in urban areas.

Cape Verde’s Growth and Poverty Reduction Strategy Paper (GPRSP) is organized along five strategic pillars: (i)Promote good govemance, reinforcing effectiveness and guaranteeing equity; (ii)Promote competitiveness to foster economic growth and employment creation; (iii)Develop and upgrade human capital; (iv) Develop the infrastructures, promote land use planning and protect the environment; and (v) Improve the effectiveness and sustainability of the social security system.

The GPRSP’s long-term growth and transformation strategy focuses on exploiting advantages offered by the country’s geographic location, i.e. promoting air and maritime infrastructure for sea-linked industries, such as fish processing and commercialization, as well as establishing Cape Verde as an air transport hub for goods and passengers, with continued development of tourism potential. Strong emphasis is also placed on agricultural development, aimed at establishing a national agro-food system to ensure an adequate and permanent supply of food products to the population, through distribution and the commercialization of the agricultural products. A dependable road system, linked with air and sea connections, is a fundamental element in establishing effective input, marketing and distribution systems to pursue these strategies.

The road network consists of 1,350 km spread among the nine inhabited islands. These relatively small island networks are characterized by: (i)major roads (often a “ring road” around the island) which extend from each island’s principal port and airport to municipalities and serve many small town and rural communities; (ii)secondary roads which serve smaller ports and fishing and agricultural communities farther off the main axes; and (iii)and municipal town roads and tracks leading to very small communities or homesteads. The technical characteristics of the islands’ roads reflect the volcanic origins of the archipelago and the ready availability of basalt stone - most roads are paved with basalt cobblestones, with either an “improved” or a “basic” standard, although the availability of suitable basalt varies among the islands.

Due to the lack of maintenance, certain sections of each island’s network have deteriorated seriously, while in other cases, lack of investment has left the basic network incomplete. Traditionally, road network management has been hampered by the absence of a dedicated road management agency, while responsibilities for managing various portions of the network have not been clear. There has been no systematic program for maintenance, which is frequently postponed in the face of competing priorities. Until recently, all road works (investment and maintenance) were managed by the General Directorate of Infrastructures and Basic Sanitation

3 I

(DGISB) in the Ministry of Infrastructure and Transport (MIT), who is responsible for all construction in the country. The official road classification system, which dates to the colonial period, has never been officially updated to account for administrative and physical changes in the country.

The Government is addressing the above constraints through a balanced approach of meeting critical road infrastructure needs, accompanied by institutional reform and capacity building to ensure rational planning, sustainable maintenance and delivery of transport services. The approach is articulated in its Letter of Transport Sector Policy (Annex 16), which lays out a strategic vision for the Road Sector. The Government has started the reform of the sector: A new Road Agency was created in June 2003 and has been operational since August 2004 and a second generation Road Maintenance Fund is in the process of being created. The Road Maintenance Fund will finance only programmed routine and periodic maintenance, plus a provision for annual emergency works.

This strategy had its origins in the Government’s Strategic Programme for Infrastructure and Land Use, submitted to the Consultation Meeting with Development Partners in April 2003, and adopted as part of the National Development Plan as issued by the Government in August 2003.

2. Rationale for Bank involvement The rationale for the World Bank’s involvement is that improved and sustainably maintained road networks underpin economic growth, poverty reduction and national integration strategies. The absence of complete and reliable island road networks constitutes a serious constraint to development, and Cape Verde’s efforts to remedy this situation. The World Bank has been assisting the transport sector in Cape Verde since July 1993 through the Infrastructure and Transport Program (ITP) (Credit Nos. IDA-24660 and IDA-24661). With support from this Program, the Government took its first steps towards rationalizing management of its Road Sector. Through ITP, an ongoing Road Sector dialogue has been established, which has been enriched by the Government’s participation in the World Bank-sponsored Sub-Saharan Africa Transport Policy Program (SSATP).

The Strategic Programme noted above presents an overall multi-modal vision for the development of Cape Verde’s intra-island, inter-island and external transport networks, supported by a CVEl5 billion (US$177 million at current exchange rates) Road Infrastructure Investment Plan. To implement the Plan, the Government had at the Programmes’ creation allocated domestic resources and already secured donor funding for selected road investments, amounting to some US$64 million and leaving a financing gap ofUS$113 million.

While the Government may not be successful in securing full funding for all proposed road sector investments, the integrity ofthe plan would nevertheless be sustained as long as the sector reforms are undertaken, since the investments are self-standing within a coherent sector management framework.

The Govemment has further prioritized the remaining funding needs for the road sector in a US$44.6 million Road Sector Support Progam, including support to a comprehensive reform of

4 the management of the sector. This Road Sector Support Project supports a US$15 million slice of the Program. The Government is in discussion with donors for parallel funding of the Program.

The World Bank’s involvement will fill an otherwise unmet need for supporting sector reform and capacity building, since other donor commitments are exclusively for particular physical investments. In addition, while other donors are improving certain portions of the road networks, there are still gaps in the islands’ road networks that need to be filled and key links that need rehabilitation. This project will provide financing which will contribute to meeting these needs.

3. Higher level objectives to which the project contributes The project will contribute to the higher-level poverty reduction objectives, stated in the GPRSP, of promoting economic growth and improving living conditions. This will be done by supporting improved management ofthe roads and infrastructure sectors and improving mobility and access to social services and economic opportunities on targeted islands. A CAS for Cape Verde has recently been completed (Report No. 30941-CV) and the project has been identified as part ofthe CAS’ low case scenario.

B. PROJECT DESCRIPTION

1. Lending instrument The project will be financed under a Sector Investment Loan (SIL).

2. Program objective and Phases Not Applicable.

3. Project development objective and key indicators

Development objective: The proposed Credit will enhance the Borrower’s road sector management. This will be achieved through: (i)institutional reform of the road sector and improved functioning of related civil works markets; and (ii)better access to social and economic opportunities due to improved mobility for affected populations.

Outcome indicators: 0 The asset value ofthe national road network is increased and sustained; and 0 Overall indicators of socio-economic benefits due to improved mobility are achieved along the road segments rehabilitated by the project: Economically iustified roads: 0 Reduction in vehicle operating costs, as reflected in ex-post project economic analysis. Socially iustified roads: 0 Mobility ratio: a increase in the percentage of adult population in affected communities who made at least 5 trips during the previous month;

5 0 Travel time ratio: a decrease in the percentage of the population in affected communities that take more than 30 minutes to reach the nearest market; and 0 Comparative travel cost ratio: a reduction in the percentage differential between the composite cost/km/kg on the Project’s socially justified roads and the project’s economically justified roads.

Intermediate results and indicators: Component 1: Institutional Support: Road sector management and related mavket institutions are strengthened and functional. Road Maintenance Fund 0 A Second Generation Road Maintenance Fund is created and functions in accordance with the Government’s Letter ofSector Policy. 0 The Road Maintenance Fund establishes and manages annual road maintenance budgets, in accordance with the Government’s Letter ofSector Policy. Road Agency 0 The Road Agency completes the National Road Plan.

0 The Road Agency submits to the Road Maintenance Fund annual road network maintenance plans. 0 The Road Agency implements annual road network maintenance plans within the planned execution period and within budget.

0 Pilot Performance-Based Road Maintenance and Management contracts are implemented. Civil Engineering Laboratorv (LEC) 0 LEC increases its professional staffing level by at least 2 to meet its responsibilities. 0 The LEC achieves financial self-sufficiency for its operational costs related to testing and training. General Inspectorate ofPublic and Private Works (IGOPP) 0 IGOPP increases its professional staffing level by at least 2 to meet its responsibilities. 0 Statutes and regulations for IGOPP and works standards are revised. 0 IGOPP implements an agreed Annual Work Plan. Ministry of Infrastructure and Transport through the following Units: A. General Directorate of Infrastructure and Basic Sanitation (DGISB) 0 DGISB implements all contracts under its responsibility within 15% the planned execution period and within budget. B. Studies and Planning Unit (GEP) 0 Quarterly and annual reports are produced by the various MIT services for use in ministerial planning based on a data base and associated management information system. Program Coordination Office (PCO) 0 The PCO reports annually on the Road Sector, with a focus on progress towards project outcome and results indicators. 0 The PCO manages RSSP activities in conformance with legal and fiduciary requirements, as stated in the Credit Agreement.

6 Component 2: Road Infrastructure: Prioritized investments to achieve basic connectivity and improve mobility are made on targeted island networks. Roads rehabilitated: Maio 6. Alcatraz- (1 1 km) Sgo Nicolau 7. Ribiera Brava-Tarrafal (27 km) S2o Vicente 10. Intersection-Baia do Norte (3 km)

4. Project components IDA will join with other donors in financing a package of sector reforms, capacity building and civil works to meet priority needs in the road network. IDA will take a lead role in the institutional aspects, particularly road management, while financing selected civil works to fill priority gaps not covered by other donor or domestic resources.

Component 1: Institutional Support - Total including contingencies: US$ 5.1 million: Bank FinancinP US$5.0 million This component will support the Government’s program for reforming management of the Road Sector. In addition, support will be provided to the Ministry of Infrastructure and Transport (MIT), who is undertaking to enhance its capacity to assume its role as sector planner and guarantor of quality, in the face ofexpanding infrastructure and civil works sectors. The Project will also support policy and strategy formulation and implementation for the Transport Sector at large through continuous sector dialogue. The component will consist ofthe following:

. Support to Road Sector Program Coordination Office (PCO), for the management of the project and overall road and transport sector coordination. Technical assistance and capacity building to the Road Agency (IE) and Road Maintenance Fund (CV-FMR), with a focus on establishing capacity, methods and procedures for road network management and securing adequate financing for road maintenance and annual emergency works. IDA funds will not be used to finance the fund itself. 1 Assistance to Civil Engineering Laboratory of Cape Verde (LEC), aimed at meeting the country’s growing need for construction testing facilities, related training and research. 1 Assistance to the General Inspectorate of Public and Private Works (IGOPP), aimed at meeting the need to reinforce capacity to regulate civil works. 1 Assistance to the Ministry of Infrastructure and Transport through the following Units: o A. Assistance to General Directorate of Infrastructure & Basic Sanitation (DGISB), aimed at improving DGISB’s capacity to procure and Tanage road and other infrastructure projects. o B. Assistance to the Studies and Planning Unit (GEP), focused on establishing a functioning information management system for the MIT. . Other Studies and Technical Assistance, to support project monitoring and evaluation and other sector management needs as they arise.

7 Support for the implementation of pilot road maintenance and management contracts, which will be financed with Cape Verde funds through the Road Maintenance Fund.

Component 2: Road Infrastructure - Total Program Including Contingencies: $39.5 million; Bank Financing: US$lO.O million

Priority Road Network Improvements. In its Priority Strategic Programme for Infrastructure and Land Management, the Government identified potential road network improvements on each ofthe nine inhabited islands. Among these projects, the Government has identified a program of eleven top priority improvements on five islands. Two broad types of interventions will be carried out: (i)filling a gap in an incomplete island network through road upgrading on an existing earth track or the construction of small bridges; and (ii)rehabilitating key links that are in a deteriorated state. Proposed interventions are based on: (i)cost-benefit analysis of service level options for roads and bridges with significant traffic levels; and (ii)cost-effectiveness analysis for roads with light traffic levels. IDA will fund up to US$lO.O million out of the total program amounting to US$39.5 million. The Govemment is in discussion with donors for parallel financing of the RSSP Program. Existing Financing gap is expected to be closed in 2005. Below is a summary list of the investment program (project #9 was dropped on technical grounds), followed by the expected distribution of financing and a summary description of the projects financed by the IDA credit.

’ Total I I Road j Km Description “SS I hl* 1 Orgaos- (Santiago) 10 Asphalt rehabilitation of principal secondary road 3.29 2 Cruz Grande-Calhetona (Santiago) 14 Asphalt rehabilitation of principal secondary road 5.20 3 Volta Monte- (Santiago) I5 Cobblestone rehabilitation to isolated area 3.1 1 4 -Porto Ricao (Santiago) 16 Mixed CobblestoneiAsphalt to isolated area 3.71 Fonte Lima-Joao Bernardo-Librao 8 Cobblestone rehabilitation to isolated area 2.53 (Santiago) Cobblestone rehabilitation to complete island’s ring 6 Figuera-Alcatraz (Maio) 3.62 road 7 Ribeiera Brava-Tarrafal (Sa0 Nicolau) 27 Asphalt rehabilitation of principal secondary road 8.13 Tarrafal-- 19 Cobblestone rehabilitation to isolated area 4.74 (Sa0 Nicolau) 9 Caleijao-Cabecalinho (Sa0 Nicolau) 5 Project rejected on technical grounds 0.00 Salamansa Intersection- Baia do Norte 3 Asphalt rehabilitation of access road to tourist site 0.62 (Sa0 Vicente) Bridge to commercial center; present access through 11 2 Bridges at Ribeira Grande 2.3 1 river bed 2 Bridges at Vila das Pombas & Liaison Bridge to commercial center & access road; present l2 2.21 Eito (Santo Antao) access through river bed TOTAL 39.48

RS

8 Lot 4 (7) 8.13 1.55 6.58 0.00 Lot 5 (10) 0.62 0.12 0.51 0.00 Lot 6 (8) 4.74 4.74 Total 39.48 2.36 10.02 22.36 4.74

Roads financed under the IDA Credit:

Maio Island Road # 6: Alcatraz-Fiaueira (11 km) The road is currently an earth road, passable only with 4 wheel drive vehicles, and thus presents a gap in the island’s basic network. The rest ofthe island ring- road is characterized by 6-meter width cobblestone. The road provides direct access to communities engaged in fishing, small scale agriculture, livestock and production of gypsum and ornamental stones for construction. Intervention will involve reconstructing the road section to improved cobblestone standard.

Slo Nicolau Island Road # 7: Ribiera Brava-Tarrafal (27 km) This is the principal road of the island, linking the main city ofRibeira Brava with the second major town ofTarrafal, site ofthe island’s main port and fishing and commercial center, including a tuna canning factory. The road passes through several river basins, including the irrigated zone fed by the Galerie de Faja. It directly serves a population of 8,100, not counting the town of Ribiera Brava. It is virtually the lifeline for all marketing of agricultural, livestock and fishing products, as well as access to social and administrative services. Intervention will involve upgrading to asphalt paved standard.

Silo Vicente Island Road # 10: Salamansa-Norte de Baia (3 km) This road provides basic access to a presently isolated fishing community of some 1,170 people. It would involve the construction of a cobblestone road on a presently earth road accessed only by 4x4 vehicles. It can also be considered the first segment ofan eventual access road to future tourist development sites.

5. Lessons learned and reflected in the project design The project design reflects several lessons learned in Cape Verde and similar countries, through the Sub Saharan Africa Transport Policy Program (SSATP) and sector projects. First, it has been shown that the application ofpurely economic investment criteria is not sufficient for securing minimum access requirements, in support of economic development and poverty reduction activities, particularly on small island networks. Rather, investment and maintenance programs need to have a network and service-level perspective, so as to understand connectivity needs within the islands and their linkages to maritime and air transport nodes. Economic analysis tools are then applied to achieve economically justifiable and/or cost effective technical solutions for achieving minimum access service levels on the network as a whole. Second, the technical approach for road management reflects Cape Verde’s successful and cost-effective approach for lower volume roads of using basalt cobblestones, which are in abundance in the country. Third, the project design supports one of the main conclusions of the Government’s Priority Strategic Programme - that physical investment must be accompanied by viable maintenance management systems and sustainable finance arrangements, if the benefits of these investments are not to be

9 short-lived. In this regard, past experience in Cape Verde has shown that without a dedicated agency for road management, one cannot hope to achieve a standard of service needed to support economic development and poverty reduction objectives. The project will benefit from Cape Verde’s participation in the SSATP, which promotes exchange of knowledge and experience in road sector management among over 30 member countries in Sub Saharan Africa.

6. Alternatives considered and reasons for rejection Alternative approaches were considered in designing the selection methodology for physical investments to be financed under the project. In particular, it was thought that the application of a multi-criteria analysis could be applied to select all project-financed investments. However, it rapidly became clear, given the limited size of the network, together with each island’s topographic features and population distribution, that the core networks for ensuring basic connectivity are well established, and the gaps in these core networks have been identified in the Priority Strategic Programme and selected for investment under the RSSP Program. It was therefore decided to select those gaps and critical sections in the Programme that are not covered by other donors or projects.

Another alternative considered was to include a subcomponent dealing with municipal level feeder roads. This would involve the development of municipal rural accessibility plans, as well as limited funds for rural road rehabilitation. However, given the limited size of the entire network and the limited capacity of the municipalities, the revised classification system has brought most rural roads into the “national” road network, under the direct management of the Road Agency. Several ofthese roads already are included in the priority package financed under the investment program. Therefore it was determined that this subcomponent was no longer relevant. The Road Agency will assist the municipalities in managing their limited urban roads and very small access tracks.

C. IMPLEMENTATION

1. Partnership arrangements The Government is completing discussions with the Millennium Challenge Corporation (MCC) (USA) for parallel funding of significant part of the proposed program and has approached the OPEC Fund for funding of remaining financing gap. IDA specific interventions have been determined based on consultation with MCC.

The overall road sector development program includes participation by several donors already engaged in the country, namely, the European Union (EU)/Luxembourg, Portugal, African Development Bank, BADEA, and the Kuwait Fund. In addition, the consultancy services for the design of the Pilot Performance Based Road Maintenance Component is funded by a grant from the Global Partnership for Output-Based Aid (GPOBA), which receives most of its financing from the United Kingdom Department for International Development (DFID).

2. Institutional and implementation arrangements The project will be managed directly by the Ministry of Infrastructure and Transport (MIT), through a Program Coordination Office (PCO), attached directly to the Minister’s Office. The primary responsibility of this Office will be to ensure overall management of the project and

10 coordination of other related donor support for the overall Transport Sector Program, as well as technical and fiduciary oversight ofthe Road Sector Support Project.

The PCO and the Road Agency have inherited key elements of the capacity of the recently completed Infrastructure and Transport Project (ITP) Project Implementation Unit (PIU), which was located outside the Ministry. The transfer of these resources to the MIT ensures that the technical, procurement and financial management capacity built during ITP, in conformance with World Bank requirements, is retained for the new project, but that this capacity is integrated into the Ministry organizational structure.

3. Monitoring and evaluation of outcomes/results Project Monitoring and Evaluation (M&E) will be the responsibility of the PCO, who will monitor progress against agreed-upon performance monitoring indicators, as shown in the Results Framework.

Outcome and results indicator information will be collected by the PCO, and reported in regular semi-annual reports and in audit reports on the basis of the project implementation plan, which has been agreed during Credit appraisal. For the Institutional Strengthening Component, the indicators will track the implementation of key sectoral reforms and improved sector management. For the Road Infrastructure Component, the indicators will track achievement of annual physical targets. Baseline demographic, social and mobility indicators have been collected during project preparation and follow up surveys will be carried out for post-project comparisons. The monitoring activities will verify if program and project objectives are being achieved. Advances towards the development objective of improved access will be evaluated annually for completed roads, as well as for all roads at the end ofthe project.

4. Sustainability The Government’s commitment to and ownership of the project may be seen in the concrete steps it has taken to reform road sector institutions, as set out in the Letter of Transport Sector Policy. This includes maintaining a Road Agency and the commitment to establish a Road Maintenance Fund to ensure stable and sustainable maintenance financing. The Government has also committed significant domestic resources to the achievement ofthe overall Priority Strategic Programme for Infrastructures and Land Use Management, to which the RSSP Program contributes.

Critical to the sustainability ofthe project will be effective Road Agency and Road Maintenance Fund on a solid footing. The project addresses this factor in the design by emphasizing institutional support to both these agencies. The Government will undertake with IDA an early assessment of the efficiency of the institutional arrangements, nine months following effectiveness ofthe credit.

5. Critical risks and possible controversial aspects No major financial management or procurement risk is anticipated at this stage. The tables in Annex 7 and Annex 8 identify the key risks that project management may face in achieving the objectives of the Credit and provide a basis for determining how management should address these risks.

11 Other risks that have been identified and associated mitigation measures are shown in the following table.

Risk Risk Rating with Mitigation

Government does not approve sufficient fuel levy and/or heavy vehicle fees to maintain road network. Joint Govemment-Bank formal assessment of road maintenance funding and M The Road Maintenance Fund is subject to performance targets and agreed remedial pressure to allocate funds outside programmed actions if necessary. maintenance and earmarked emergency funds.

Macro-economic factors (such as inflation or poor investment environment) or political Monitoring surveys of mobility indicators L instability adversely influence the provision of and regular dialogue on GPRSP social and economic opportunities where road implementation in transport and infrastrticture is improved by the project. infrastructure.

Component 1 Institutional Strengthening Oh erlapping responsibilities between the Road Joint and early formal assessment of Agency and the General Directorate for institutional targets will be carried out to Infrastructure provide the basis for a joint assessment with the Government on: (i)the performance of each target institution and the effectiveness ofthe project’s support measures for each M target institution; (ii)continued political will to pursue and augment the road sector Management deficiencies and poor use of project management reforms as stated in the Letter resources by target institutions. of Sector Policy; and (iii)possible readjustment in management or institutional arrangements to implement the road sector management reforms.

Failure to increase IGOPP and LEC staff levels. Investment activity defrayed until staffing is L effected.

Component 2: Road Infrastructure Funding gap for overall program. L

Implementation delays due to time required and Recycling ofcobblestones from asphalted M limited labor for cutting of cobblestones. roads.

Low contractor performance. Adequate financial and procurement M Procurement delays. systemsioperations manual. Table in Annex 7 identifies the key financial risks and provides a basis for determining how management should address these risks.

Ineffective supervision by DGISB Annual performance reviews and agreed L remedial actions taken when necessary. Joint and early formal assessment of institutional targets

No major financial management risk is anticipated.

12 6. Credit conditions and covenants

Effectiveness conditions The effectiveness conditions ofthe Credit are:

1 the operational Manual has been issued by the Borrower and approved by the Association;

1 the independent auditors referred to in Section 4.01 (b) (i)of the Development Credit Agreement have been contracted by the Borrower as provided in said Section; . the financial management system for the project has been established as provided in Section 4.01 (a) ofthe Development Credit Agreement.

Covenants The Govemment will: Fumish the World Bank not later than six months after the end of each fiscal year audited financial statements that adequately reflect the operations, resources and expenditures related to the project, as well as for the Road Maintenance Fund 1 By (a) no later than December 31, 2005: (i)establish the Road Maintenance Fund, with a structure and functions acceptable to the Association; and (ii)finance the first year of operations ofthe CV-FMR, through the collection ofUser Fees, with a minimum annual revenue stream CVE300,000,000; and (b) thereafter gradually adjust the annual financing of the CV-FMR, through the collection of User Fees, to meet maintenance needs of the country’s road network. 1 Carry out an early implementation review jointly with the World Bank, on or about May 3 1, 2006, to review the effectiveness of institutional arrangements for road planning and management under the project; . Carry out an in-depth mid-term review jointly with the World Bank, two years after the Effective Date on the progress achieved in the implementation ofthe project. 1 By September 30, 2006 will present a sector strategy acceptable to the World Bank covering air, maritime and port transport and institutions therein, including Public Private Partnership options .

D. APPRAISAL SUMMARY

1. Economic and financial analyses Economic Analysis. Given the island character of the country, the prime objective ofthe road networks is to ensure a continuous network linking the population with social services, employment opportunities, local markets and ports and airports. As noted, parts of these networks are in a state of deterioration, while other parts are still incomplete, due to lack of investment. In this context, the program roads were divided into three categories for purposes of economic analysis:

1 Roads with significant initial traffic levels, for which a cost-benefit analysis is conducted based on vehicle operating cost (VOC) savings. For these roads, the main objective is to reduce the cost of travel, as expressed in VOC savings.

13 . Bridges, for which a cost-benefit analysis is conducted based on quantified non-VOC economic benefits. For these investments, the main objective is to remove a critical transport constraint that has an effect on economic activity. Rural access and “social” roads, for which a cost-effectiveness approach is undertaken. For these roads, the main objective is to ensure basic minimum access requirements to isolated populations to social and administrative services and market opportunities.

The design and cost estimates for the road projects considered three technical options - cobblestone, double surface treatment (DBST) and asphalt paved. For roads with little or no existing traffic, the least cost solution is cobblestone and therefore the DBST and asphalt pavement options were not considered. For the two bridge projects (#11 & #12), the least-cost option, considering the high traffic levels on the approaching roads, was considered to be a box culvert design. For Project # 4, Assomada-Porto Rincao (Santiago) a mixed solution involving asphalt only on the first section of 7 km, which is currently cobblestone with relatively high traffic (over 400 vpd); with the remaining 9 km ofearth track upgraded to cobblestone. Project # 9, Caleijao-Cabecalinho (Sa0 Nicolau), was removed from the program because it entails the construction of a new road through an existing mountain area, resulting in rather high per km costs.

Economic cost-benefit analysis utilizing VOC benefits was carried out on roads # 1, 2, 4 and 7, utilizing the RED (Roads Economic Decision Model), developed by the World Bank for low volume roads. All road projects yield at least 12% internal rate of return for all three levels of service. The roads generally show a small difference in the rate of return between cobblestone and double surface treatment, with a relatively higher rate ofreturn for asphalt pavement. On the average, costs increase by 35% from cobblestone to DBST, then another 11% percentage points when moving to asphalt. These results suggest that the added cost of double surface treatment does not offer significantly higher vehicle operating cost benefits than that of cobblestone, while the added cost of asphalt pavement is more than compensated by the higher savings in vehicle operating costs, vis-a-vis the cobblestone surfacing.

NPV = Net present value @ 12% in US$ m.

It is concluded that for roads 1, 2 and 7, asphalt paving is economically justified and recommended. Although the rate ofreturn is marginally higher for asphalt solution on Road # 4, the mixed solution (part cobblestone, part asphalt) is still recommended, given the high traffic levels found on the first half of the road, and little existing traffic on the second half. The sensitivity analysis shows that the results are generally more sensitive to a reduction in VOC benefits than an increase in investment or maintenance costs (Annex 9). Given the conservative assumptions on baseline traffic and traffic growth, these results appear reasonably robust.

14 Since the main justification for the two bridge projects (# 11 and #12) is to address a cut off in transport service, benefits were quantified in terms of the lost revenue due to a transport blockage. This was done by conservatively estimating the number ofblockage days per year and the lost revenue oftransport passengers and drivers, assuming that 25% oftravel is work-related. The results shown in the table below indicate a strong economic rate of retum based on these assumptions for both sets of bridge investments. In both cases, sensitivity tests involving increasing costs and decreasing benefits still yeld rates ofretum of 12 % or higher.

(Santo Antao) 18.5% 0.923 15.6% 0.598 14.8% 0.390 12.3% 0.055 Project 12: Pont de Vila das Pombas et Liaison Eito (Santo Antao) 17.1% 0.689 14.4% 0.379 14.2% 0.281 11.9% -0.019

For the remaining roads, least-cost technical solutions were sought to achieve the objectives of increased mobility to rural populations. In addition to the 3 basic solutions evaluated formally, the gravel road option was considered, but was felt not appropriate in Cape Verde, particularly in view of: (i)mountainous terrain; (ii)higher risk of wash outs; and (iii)higher routine maintenance costs. Thus, the cobblestone option is judged the least cost alternative, given these technical factors. However, the appraisal revealed that experience is showing an increasing shortage of skilled stonecutters and the time required for cutting new stones could significantly lengthen the time needed to complete the works. For this reason, a program of recycling stones from roads being upgraded from cobblestone to asphalt will be incorporated into the program.

Cost recovery. Local contributions to investment costs will be made by the Government. Routine and periodic maintenance on the network will be financed by the new Road Maintenance Fund. The Fund’s resources are generated by user fees (primarily a fuel levy), which are to be securely transferred to the fund. This mechanism should provide adequate and reliable funding for routine maintenance on the roads rehabilitated under the project, as well as on the national network at large. The project will provide institutional support to the Road Agency and Road Maintenance Fund in the planning and implementation of the annual maintenance programs.

Fiscal Impact. The operationalization ofthe Road Maintenance Fund will reduce the burden of expenditure from the national budget for sustainable road maintenance, by relying on road user charges. Once the Road Maintenance Fund is operational, a portion ofthe Road Agency’s fixed operational and variable costs for road maintenance activities will be covered by the Road Maintenance Fund, while its other fixed and variable costs related to road investment planning will be covered by the Government.

2. Technical Technical solutions. Three technical solutions for road surfacing were evaluated during the feasibility stage: (i)cobblestone; (ii)double-surface treatment (DBST); and (iii)asphalt concrete. On balance, it was found that the relatively high investment cost of DBST was not fully

15 compensated by reduced vehicle operating costs and its high skill requirements for implementation argued against this solution. Gravel road options were also considered, but this was considered not suitable, given high slopes, shortage of material and lack of experience in gravel road maintenance. Hence the basic choice was between cobblestone and asphalt concrete. Regarding the latter, calculations were made to arrive at the least-cost admissible structure, given project traffic levels. In this case, the recommended structure has: (i)5 cm asphalt pavement; (ii) 15 cm crushed stone base; and (iii)15 cm crushed stone foundation, which yields pavement strength values well within the maximum admissible thresholds for the projected traffic levels. However, for each solution, special attention is attached to drainage, environment protection and enhancement and to preserving and improving the traditional local aspects of roads on cobble stones and walls on masonry.

There is an increasing shortage of skilled labor for cutting cobblestones, which could result in execution delays because of the long time necessary for stone cutting. The adopted solution to this problem is to recycle stones from roads being upgraded to asphalt standard. Accordingly, procurement packages combine asphalt standard roads with nearby roads to be cobblestoned.

Technical capacity. The new Road Agency is beginning with technical capacity inherited from the previous IDA-financed project. In addition, the General Directorate of Infrastructure and Basic Sanitation (DGISB) has experience and technical capacity for overseeing the IDA- financed construction contracts. Since the Road Agency is just getting started, the project will finance short term technical assistance to strengthen its technical and management capacity. This will be defined in the context ofthe Action Plan specified in the Attachment B to the Letter of Sector Policy, and may include such topics as operationalizing the road management data base and preparing the National Road Plan. In addition, the Second Generation Road Maintenance Fund will require assistance in establishing itself on a sound footing. This will also require technical assistance in areas such as putting in place and implementing procedures for revenue collection and disbursement and selecting and supervising auditors.

3. Fiduciary The Financial Management and Procurement Assessments were completed during appraisal. An action plan (see Annexes 7 and 8) for setting up satisfactory financial management and procurement systems in the PCO is being implemented and the systems will be in place by credit effectiveness.

4. Social The primary beneficiaries of the project are the rural and urban populations in the five islands where the project will intervene. In addition, the populations in the other four inhabited islands should also benefit from more reliable and affordable access resulting from improved road sector management. Improved access over continuous island road networks are viewed as a prerequisite and facilitator ofall other development and poverty reduction programs.

Other direct benefits ofthe project investments will include increased employment for men and women, particularly where cobblestone technologies will be applied. Moreover, by securing annual funding through the Road Maintenance Fund and programming annual maintenance plans through the Road Agency, the project will promote a stable contracting environment, thus

16 encouraging the development of local firms in civil engineering and construction. The project is not expected to have any controversial aspects, since the road rights ofway are well established and commonly accepted, given the limited size ofthe network and topographic conditions.

Direct participation has occurred during the design phase of individual roads, where, as part of the Environmental Management Plan process, local consultations took place and any mitigation measures have been coordinated between design consultants and adjacent populations. Other stakeholders will be from the private sector, such as local contractors, design engineers, consultants, transport service providers and traders. All these will benefit directly from the implementation of the overall project, which will provide business opportunities during the project period and beyond, through the annual road maintenance programs.

5. Environment The project is placed in environmental screening category B. This category is justified, since all these projects are on existing alignments and they do not directly affect protected areas or identified sensitive natural habitats. An Environmental Impact Study, dated September 2004, was carried out for the twelve prospective projects originally considered for project financing. The Study included a project description, institutional and legal framework, an overall description of environmental and social baseline conditions on each of the islands, potential environmental and social impacts and mitigation measures. For each individual project, the study describes specific conditions and presents an Environmental Management Plan (EMP).

6. Safeguard policies Safeguard Policies Triggered by the Project Yes No ti11 ironmenla1 Assessment (OI’/BI’/Gt) 4.01) [XI [I Natural Habitats (OI’/Rf’ 4.04) [I [XI Pest Management (OP 3.00) [I [XI Cultural Property (OP‘i 1 1.03, being revised as OP 4.1 1) [I [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (Or) &..zO, being revised as OP 4. IO) [I [XI Forests (OP/RP 4.36) [I [XI Safety ofDams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BI-’/CJI’ 7.60)* [I [XI Projects on International Waterways (OJ/BP/GP 7.50) [I [XI

Abbreviated Resettlement Plan. The construction of two bridges on the Vila das Pombas and 1 km liaison between Vila das Pombas and Eito will involve a widening of the road, which is presently only 3 meters wide at the south end. This will involve minor land taking conceming existing stonewalls, which will require compensation, but no resettlement of people. For this reason the Involuntary Resettlement (OP/BP 4.12) is triggered and an Abbreviated Resettlement Plan has been prepared based on consultations with the affected persons and the Municipality (see Annex 10).

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties‘ claims on the disputed areas

17 Consultations. Consultations were carried out during the development of individual road Environmental Management Plans and the Abbreviated Resettlement Plan.

Disclosure. The draft Environmental Impact Study has been made available in the country for comment on January 14,2004 and was made available to the Infoshop on January 11,2005. The Abbreviated Resettlement Plan was locally disclosed on January 3 1, 2005 and made available to Infoshop on February 9, 2005 in the form ofa revised Environmental Impact Study.

7. Policy Exceptions and Readiness There are no World Bank policy exceptions sought for this project.

Principal readiness criteria have been met. The Govemment has proposed and is implementing needed fiduciary arrangements for implementation of the project. Project staff is in place, counterpart funds have been budgeted for the initial year and will be deposited before effectiveness. Tender documents for all works have been prepared, and are being repackaged into lots. The Govemment has disclosed the environmental assessment in country and authorized IDA to disclose. Capacity for M&E is in place and principal indicators have been agreed on.

18 Annex 1: Country and Sector or Program Background CAPE VERDE: Road Sector Support Project

Country Context Cape Verde is an archipelago, consisting of ten islands, covering an area of 4,039 square kilometers. In the year 2000, the population was about 435,000, living on nine of the ten islands. The country has few natural resources that can be exploited economically. In the years prior to 2000, the economy grew at an annual rate of 6.4%, with the growth sectors being services, tourism, fishing and light industry. In 2002 the overall poverty rate for the country was estimated at 37%, with a poverty rate of5 1.3% in rural areas and 24.5% in urban areas.

Cape Verde’s Growth and Poverty Reduction Strategy Paper (GPRSP) (revised September 2004) is organized along five strategic pillars: (i)Promote good governance, reinforcing effectiveness and guaranteeing equity; (ii)Promote competitiveness to foster economic growth and employment creation; (iii) Develop and upgrade human capital; (iv) Develop the infrastructures, promote land use planning and protect the environment; and (v) Improve the effectiveness and sustainability ofthe social security system.

The GPRSP’s long-term growth and transformation strategy focuses on exploiting advantages offered by the country’s geographic location, i.e. promoting air and maritime infrastructure for sea-linked industries, such as fish processing and commercialization, as well as establishing Cape Verde as an air transport hub for goods and passengers, with continued development of tourism potential. Strong emphasis is also placed on agricultural development, aimed at establishing a national agro-food system to ensure an adequate and permanent supply of food products to the population, through distribution and the commercialization of the agricultural products. Clearly, a dependable road system within each island is a fundamental element in establishing effective input, marketing and distribution systems to pursue these strategies. Pillar 4 ofthe GPRSP states:

“The enhancement of infrastructures seeks, in the first place, to open up certain islands and facilitate the integration of the goods and sewices markets. It is a necessary condition to promote a specialization process that will enable certain islands a greater specialization in the activities in which they hold potential comparative advantages and enhance the coat-tail effect of growth in certain sectors, such as tourism, over other sectors of the economy.”@. 70 GPRSP)

In respect ofroad infrastructure, the GPRSP notes that although network coverage has improved, the road network on many islands is still incomplete, in terms ofproviding adequate basic access to support of economic growth and social development. It draws on sector studies to identify key institutional constraints associated with the management of the road network, and takes particular note of the need for maintenance to preserve and reduce vulnerability of the overall network. The GPRSP identifies four pillars as the basis for road sector management, which are aligned with the overall strategy to redefine public and private roles, enhance transparency and introduce commercial principles into management ofpublic services:

19 “Introduce [road] management systems based on commercial principles, with an appvopriate regulatory framework; . Place emphasis on the level of sewice to respond to user needs, making a minimum sewice available to the entire population; Introduce policies, institutional frameworks and financing mechanisms that permit continuous maintenance of the infrastructure, so as to guarantee its durability; and Re-focus the roles of the public and the private sectors. The Government shall play more and more the role of planner and regulator while the private sector will play the role of executor and manager. ”(page 71 GPRSP)

Road Network The road network consists of 1,350 km spread among the nine inhabited islands. The location and type of roads in Cape Verde is governed by the island character of the country and the particular topography and population distribution found on each island. In addition, the technical characteristics of roads reflect the volcanic origins of the archipelago and the ready availability of basalt stone - most roads are paved with basalt cobblestones, with either an “improved” or a “basic” standard. A summary inventory of the road network was carried out in the year 2000, which showed the following distribution ofthe network among the islands:

CaDe Verde Road Network Km Paved Island Total Improved Basic Earth Asphalt Cobblestone Cobblestone Tracks Santo Antiio 319.2 0 103.6 15.8 199.8 1 Siio Vicente 101.6 10.2 35.1 18.0 38.3 Siio Nicolau 143.9 0 0 85.5 58.4 S- a1..- 29.1 29.1 0 0 0 Boavista 54.3 0 27.5 26.8 0 Maio 63.7 0 27.0 5.0 31.7 Santiago 1 347.0 0 232.9 68.8 45.3 Fogo 237.6 0 5.9 197.5 34.2 Brava 53.7 0 5.7 37.4 10.6 Total 1387 0 326 358 138

Source: National Road Inventory, May 2000

These relatively small island networks are characterized by: (i)major road which extend from each island’s principal port and airport to municipalities and many rural communities along these roads; (ii)secondary roads which serve smaller ports and fishing and agricultural communities farther off the main axes; and (iii)and municipal town roads and tracks leading to very small communities.

The National Road Inventory indicated that about 42% of the network was considered in poor condition, 33% in fair condition and 25% in good condition, distributed as follows:

20 Good 25% 41% 43% 29% 0Yo Fair 33% 31% 52% 37% 10% Poor 42% 27% 6% 34% 90% Total 100% 100% 100% 100% 100%

The above information however, is deemed very approximate, and needs to be updated with a new road network inventory, which will provide a more dependable basis for network management and maintenance.

Road Sector Management In general, the administration of the road system has been hampered by the lack of an agency dedicated to road management, while responsibilities for management of various portions of the network have not been clear. Until recently, all road works (investment and maintenance) were managed by the General Directorate of Infrastructures and Basic Sanitation (DGISB) in the Ministry of Infrastructure and Transport (MIT), who is responsible for all construction in the country. The official road classification system, which dates to the colonial period, has never been officially updated to account for administrative and physical changes in the country. In addition, there has been no systematic program for maintenance, which has been frequently postponed in the face of emergency operations.

In 1999, the Government created a Road Fund (Fundo Rodovihvio - FR), which was to be responsible for road maintenance financing and whose resources were to be generated through a portion of existing tax on the price of petroleum products (as opposed to a dedicated levy). The Road Fund never worked satisfactorily because of three fundamental problems: (i)the income destined for the Fund passed through Treasury and the full amount was rarely passed on; (ii) there has not existed a road network management plan that defines levels of service, annual maintenance programs to achieve these levels, and adapting the annual program to expected income levels; and (iii)as noted above, there has been no single agency to formulate and execute road maintenance programs.

Progress to Date and the Accessibility Challenge In 1993, an IDA credit agreement was signed to co-finance the Infrastructure and Transport Project (ITP). This involved a multi-donor effort to upgrade transport infrastructure and improve sector management, with overall coordination assumed by the World Bank. Under ITP, the modernization ofports, airports and highways was financed, complemented by technical studies and activities to improve administration ofthe roads, maritime and civil aviation sub-sectors. In the road sector, 17 projects were carried out, of which nine involved rehabilitation, six were upgrading and two were new construction projects. This resulted in improved connectivity of the network, a 7% increase in the share ofpaved roads and a 10% increase of the percentage of roads considered in good condition between 1990 and 2000.

21 Despite this progress, the country still faces a fundamental accessibility challenge. Due to the lack ofmaintenance, certain sections of each island’s network have deteriorated seriously, while in other cases, lack of investment has left the basic network incomplete. For example, on the island of Maio, the single cobblestoned ring, which circles the island and serves most of the communities has a 11 km section, which is a dirt track and barely passable by an all terrain vehicle causing a missing link. On the island of Santiago, roads off the main ring road leading to rural and fishing villages and small ports are only partly cobblestone paved, with major sections still dirt track, often on windy and mountainous terrain; while, the major east-west road in the center of the island, serving a numerous communities and major towns, is in a rapid state of deterioration and requires urgent intervention.

Government Response In response to the above, the Government has taken concrete action to reform the management of the Road Sector, expressed in its Letter of Sector Policy (Annex 16). The Letter lays out a strategic vision for the Road Sector, namely: (i)each island has a basic road network which links administrative centers, markets, ports and airports; (ii)each island has a system of local roads that provide rural communities with at least minimum reliable access to markets, services and the core network; and (iii)the country has an efficient, transparent and sustainable system for managing and maintaining its core and local road networks.

To these ends, the Government will: (i)rationalize management ofthe road network, in line with its overall policy ofpromoting commercial management approaches and sustainable maintenance financing based on user-fees; and (ii)progressively establish a “maintainable network” through a priority investment program on the basic road networks. This will involve:

Classification of the Road Network. A revised Road Classification has been drafted and is in process of approval. This Road Classification divides the road network into “national roads”, which constitute the major part of each island’s road network linking population, administrative and economic centers with ports and airports; and “municipal roads”, which includes urban and smaller feeder roads.

Reformed Institutions. The new Road Agency (Instituto de Estradas - IE) was created on June 2, 2003 by Resolution 10/2003. It has been operational since August 2004 and is staffed with competitively recruited road engineering, planning, contracting, and financial management personnel. The IE is directly responsible to the Minister of Infrastructure and Transport. Its activities are overseen by a Road Consultative Council (Conselho Consultivo de Estradas - CCA), consisting of representatives from ministries and public sector stakeholders, as well as the private sector and road users. A new Road Maintenance Fund (Fundo de Manutenqn‘o Rodoviaria - CV-FMR) is in the process ofbeing created to replace the present Road Fund. The CV-FMR will finance only maintenance (programmed routine and periodic maintenance, plus a provision for annual emergency works, reflecting average need over the past few years). The CV-FMR will have a simple and limited structure, and will be overseen by the Road Consultative Council. In its Letter of Sector Policy the Government has established an Institutional Action Plan for the Road Agency and Road Maintenance Fund.

22 Assignment of Responsibilities. The Road Agency will be responsible for overall planning and management of the nation’s road network. Within this framework, it will plan investment and maintenance of the national roads, as well as investment on municipal roads. The Road Agency will directly manage road maintenance contracts, while the General Directorate of Infrastructure and Basic Sanitation will manage investment contracts. The municipalities, for their part, are responsible for maintenance of their respective municipal networks, albeit with technical assistance and guidance from the Road Agency.

Funding Sources. Funds for road maintenance will be generated from user fees and will be deposited directly to the new Road Maintenance Fund, while road investment will be financed by Government and donor funds. The user fees are defined as: (i)a levy on the price offuel; (ii)an insurance levy on heavy vehicles; and (iii)other similar user fees which may be determined. The level of these fees will be determined based on an annual analysis submitted to the Road Maintenance Fund by the IE and approved by the Minister of Infrastructure and Transport, with advice from Road Consultative Council.

Road Investment and Technical Management Strategy. The Government’s road investment strategy is linked to its capacity to maintain its network. Priority is given to filling key gaps in the each island’s core network, while progressively bringing the network up to maintainable standard. The Government recognizes that this is the only way to emerge from the current vicious cycle ofconstant emergency interventions throughout the network. To this end, the Road Agency is putting in place a technical road management strategy based on road user service levels. As part of this strategy the Road Agency will introduce on a pilot basis Performance- Based Road Maintenance and Management Contracts (Gestiio e Mnnutenc6o pov Nivel de Sewicio - GMANS), with funding from the Road Maintenance Fund.

These actions had their genesis in the Strategic Programme for Infrastructure and Land Use, submitted to the Consultation Meeting with Development Partners in Praia April 2003, and adopted as part ofthe National Development Plan as issued by the Government in August 2003. The Programme, developed under ITP with World Bank assistance, includes a four-year US$265 million investment plan. To implement the plan, the Government has allocated significant domestic resources and secured donor funding for the road, maritime and aviation sectors, together amounting to some US$65 million. The proposed Road Infrastructure Investment Plan totals CVEl5 billion (US$177 million at current exchange rates), ofwhich about US$64 million had been secured at the Programme’s creation through allocated domestic resources and secured donor funding for selected road investments, mainly from ABEDA, AfDB, Portugal, EU, Luxemburg and then ongoing ITP funding from IDA. The Road Sector Plan identifies critical priorities for establishing the core island road networks and lays out priorities for institutional reform and capacity building to ensure sustainable maintenance and delivery of road transport services.

While the Government may not be successful in securing full funding for all proposed road sector investments, the integrity ofthe plan would nevertheless be sustained as long as the sector reforms are undertaken, since the investments are self-standing within a coherent sector management framework.

23 The Government has further prioritized the remaining funding needs for the road sector in a US$44.6 million Road Sector Support Program, including support to a comprehensive reform of the management of the sector. This Road Sector Support Project supports a US$lS million slice of the Program. The Government is in discussion with donors for parallel funding of the Program.

These reforms also support the GPRSP’s goals of improved govemance, which focus on transparency in public management, through participation of citizens in the control and oversight of administrative activity, creating institutional conditions receptive to new public management techniques based on accountability and better evaluation ofthe use ofpublic resources.

World Bank Support While other donors are generally focused on particular physical investments, the World Bank operation would meet an otherwise unmet need to assist the Government to anchor its efforts in establishing fundamental institutional reform and building management capacity, particularly with regard to the newly formed Road Institute and establishment of a second generation Road Maintenance Fund, both of which involve new concepts and management approaches. In addition, the Project will provide financing for civil works to fill gaps and resolve critical spots and sections on the core road networks of five islands. Finally, the Project will assist the Road Agency in working with municipalities to plan and carry out priority accessibility improvements on the municipal rural feeder road networks.

24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CAPE VERDE: Road Sector Support Project

IDA. Multi-donor financed Infrastructure and Transport Project (ITP), including IDA amount of SDR 12.9 million closed on June 30, 2004. The project assisted the Govemment in increasing its intemational competitiveness through port modemization and reorganization of shipping as well as lessening erosion of the capital stock in the road network through road investments. The project contributed to enhanced public sector capacity in the sector and development of a local contracting industry. In the final years of the ITP, sector policy dialogue with Government was strengthened and deepened and many of the institutional reforms proposed under the RSSP agreed on. ICR completed with S rating, which OED concurred with.

BADEA. Cofinanced ITP. Also, along with the BAD, the Nigerian Social Fund and the Cape Verde Govemment, BADEA co-financed the project for the New Praia Airport with a total cost of 24.28 million Units of Account. The airport will be inaugurated during the 1st half of 2005 (BAD- 8.42 million Units of account- UA, BADEA- 6.46 million UA, Nigerian Social Fund - 6.0 million UA and Cape Verde Govemment - 3.4 million UA). This project will increase the airport’s capacity and security conditions as well as result in incremental tourism and exports promotion.

ADB- Cofinanced ITP (road sector). Cofinancing the works in the New Praia Airport, with the amount of 8.42 million Units ofaccount from the ADF.

EU. Cofinanced ITP (road sector). It is also co-financing, jointly with Luxemburg and Cape Verde Govemment, the construction of the Janela-Porto Novo road, in the global amount ofCVE 1.788.614.727 ( 70%- European Union and 30%- Luxemburg). The works are underway and scheduled for completion in 2006.

PORTUGAL Cofinanced ITP (port rehabilitation). It also financed the asphalting of the main arteries of the City of , in SZo Vicente, in the amount of CVE 275.000.000; the access road to the New Praia Airport in the amount of CVE 854.050.000; and the second roadway for the Road -Santa Maria, in the Island of Sal, in the amount of CVE 478.760.700. Portugal also recently guaranteed financing for asphalting a main road stretch in Santiago, Praia- SZo Domingos, and the construction of a circular road in the city of Praia. The works are scheduled to begin in 2005 and are estimated at 30 million EUROS.

EIB- Cofinanced ITP (port rehabilitation). It is currently financing a modemization program of air navigation operations, with the Airport and Aviation Security Company - ASA, in the amount of CVE 3.305.953.

OPEC Cofinanced ITP (port rehabilitation). Has expressed interest in parallel financing of RS SP .

KFW Cofinanced ITP (port rehabilitation).

25 Annex 3: Results Framework and Monitoring CAPE VERDE: Road Sector Support Project

Results Framework Project Development Objective Outcome Indicators Use of Outcome Information The objective of the project is to enhance The asset value of the national road qetwork management and socio- he Borrower’s road sector management network is increased and sustained. xonomic outcomes will indicate success n supporting the Government’s GPRSP Overall, indicators of socio-economic ;oal of establishing dependable and benefits due to improved mobility are ustainably maintained transport achieved along the road segments nfrastructure as part of its overall rehabilitated by the project: yowth and poverty reduction strategy. Economically justified roads: Reduction in vehicle operating costs, as ‘Jon-achievement of increasing road reflected in ex-post project economic met value would flag failure to analysis. nobilize sufficient funds for road ietwork maintenance and/or inadequate Sociallv justified roads: nanagement performance as indicated in Mobility ratio: an increase in the Zomponent I. percentage of adult population in affected communities who made at least Yon-achievement of socio-economic 5 trips during the previous month; benefits would indicate: (i)failure to ichieve Component 2 results; and/or (ii) Travel time ratio: a decrease in the macroeconomic, political or other factors percentage of the population in affected outside the project adversely influence communities that take more than 30 the provision of social and economic minutes to reach the nearest market; and opportunities where road infrastructure is improved by the project. Comparative travel cost ratio: a reduction in the percentage differential between the composite costikmikg on the Project’s socially justified roads and the project’s economically justified roads. Intermediate Results Results Indicators for Each Use of Results Monitoring One per Component Component Component One: Component One: Component One: Institutional Support Road Maintenance Fund Annual reviews of institutional targets Road sector management and related A Second Generation Road Maintenance will be carried out to provide the basis market institutions are strengthened and Fund is created and functions in for a joint assessment with the functional. accordance with the Govemment’s Government on: (i)the performance of Letter of Sector Policy. each target institution and the effectiveness of the project‘s support The Road Maintenance Fund establishes measures for each target institution; (ii) and manages annual road maintenance continued political will to pursue and budgets, in accordance with the augment the road sector management Government’s Letter of Sector Policy. reforms as stated in the Letter of Sector Policy; and (iii)possible readjustment in Road Agency management or institutional The Road Agency completes the arrangements to implement the road National Road Plan. sector management reforms.

The Road Agency submits to the Road Non-achievement of institutional targets Maintenance Fund annual road network would flag continued management maintenance plans. deficiencies in target institutions and/or lack of political will to pursue the The Road Agency implements annual reforms. road network maintenance plans within the planned execution period and within budget.

26 Proiect DeveloDment Obiective Outcome Indicators Use of Outcome Information

'ilot Performance-Based Road vlaintenance and Management contracts Ire implemented.

jeneral Directorate of Infra.& Basic janitation (DGISB) IGISB implements all contracts under ts responsibility within 15% the planned :xecution period and within budget.

3vil Engineering Laboratory (LEC) >EC increases its professional staffing eve1 by at least 2 to meet its .esponsibilities.

The LEC achieves financial self- iufficiency for its operational costs dated to testing and training.

3eneral Inspectorate of Public and Private Works (IGOPP) iGOPP increases its professional staffing level by at least 2 to meet its -esponsibilities.

Statutes and regulations for IGOPP and works standards are revised.

iGOPP implements an agreed Annual Work Plan.

Studies and Planning Unit (GEP) Quarterly and annual reports are produced by the various MIT services for use in ministerial planning based on a data base and associated management information system.

Program Coordination Office (PCO) The PCO reports annually on the Road Sector, with a focus on progress towards project outcome and results indicators.

The PCO manages RSSP activities in conformance with legal and fiduciary requirements, as stated in the Credit Agreement. Component Two: Component Two: Component Two: Road Infrastructure Malo Lower annual outputs would flag Prioritized investments to achieve basic #6. Alcatraz-Figueira (1 1 km) problems needing assessment and connectivity and improve mobility are SBo Nicolau remedial action, such as: (i)low made on targeted island networks. #7. Ribiera Brava-Tarrafal (27 km) contractor performance; (ii) slow SBo Vicente preparation of new road projects; and #IO. Salamansa-Norte de Baia (3 km) (iii)procurement delays; and (iv) ineffective supervisionicoordination by MIT.

27 W

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x :& E 2 x 4 x X X X X X

ElN X X X X X X

W 1: 1: I X X X X X X I? I: I: l X X X X X X X W 1: 1: I X X X X X X N vi If I X X X X X X X X X X X

X X X X

X X X X

X X X X 'c;

N X X X X

IX X X X X

e, e, e, e, e, 0 0 0 z P X z z z zzs Monitoring and evaluation methodology and arrangements. Project Monitoring and Evaluation (M&E) will be the responsibility of Program Coordination Office, in the Ministry of Infrastructure and Transport, who will monitor progress against agreed-upon performance monitoring indicators, as shown in the Results Framework.

Reporting. (i) Quarterly Financial Monitoring Reports will be prepared by the Program Coordination Office; (ii)Semi-annual progress reports (including financial and procurement status reports) will be established by the Program Coordination Office on the basis ofthe project implementation plan; (iii)World Bank’s supervision missions will take place twice a year, with an Early Implementation Assessment 9 months after effectiveness; and (iv) an Implementation Completion Report (ICR) will be prepared at the end of the Project and presented within six months ofthe credit closing date. Baseline and annual monitoring studies will assess the impacts ofthe entire Program. The monitoring activities will verify if program and project objectives are being achieved, as well as financial management and procurement aspects. Advances towards the development objective of improved access will be evaluated annually for completed roads, as well as for all roads at the end ofthe project.

31 Annex 4: Detailed Project Description CAPE VERDE: Road Sector Support Project

Component 1: Institutional Support - Total including contingencies US$5.1 million: IDA financing US$5.0 million This component will focus on strengthening MIT’s capacity to play a revised role of planning, regulating and overseeing quality in the rapidly expanding road and other civil works construction sectors in the country. It will have the following activities:

Support to Road Sector Program Coordination Office (PCO) The Project will support the Program Coordination Office (PCO) in the MIT, to ensure overall management of this Project, as well as coordination of other donor-related support for the National Transport Program. The Office has inherited technical, procurement and fiduciary management capacity established in the previous World Bank-financed Infrastructure and Transport Project (ITP). It is staffed with three national consultants: (i)a National Coordinator; (ii)a Financial Manager; and (iii)a secretary. Project support will include local consultant salaries, operating costs and office equipment.

Technical assistance and capacity building to the Road Agency and Road Maintenance Fund The Project will provided as-needed support to the newly created Road Agency and the Road Maintenance Fund. The Road Agency was established in August 2004 and is already staffed and operational, while the Road Maintenance Fund is presently being established and is expected to be operational in 2005. Through the PPF, the Project financed the preparation of a Road Sector Management Study, which has resulted in an Action Plan for the establishment of these two institutions (see Letter of Sector Policy - Annex 16). The PPF also financed initial computer equipment for the Road Agency, while the Government has financed office equipment and initial operational costs. During the project period, additional technical assistance, studies and training will be financed on an as-needed basis. Support activities will include, but not be limited to: road condition and traffic surveys, road asset valuation, road data base management, financial management, procurement, contract management and the management of pilot performance based road maintenance and management contracts (see below).

Assistance to Civil Engineering Laboratory of Cape Verde (LEC) The Project will provide assistance to the Civil Engineering Laboratory of Cape Verde, which is an autonomous public agency under the titular responsibility ofthe MIT. Through the PPF, the Project financed a diagnostic study ofthe LEC to determine its capacity to handle its mandate to to supervise and control the quality ofmaterials used in civil works sites. The study concluded that much of the Laboratory’s equipment is either out ofdate or in poor condition, its buildings are inadequate and its personnel need training. Based on the study’s recommendations, the Project will finance the acquisition of laboratory testing, information management, security and communications equipment; improvement ofphysical plant; vehicles; and training for personnel. The Government has committed to strengthen LEC staffing by two professional staff; a civil engineer and a lab technician. Also, LECs rate schedule for testing will be adjusted to ensure that it covers at minimum the lab operating costs. Future training provided by LEC should also be at

32 minimum cost based for the private sector although discounted fees would be made for training ofthe public sector. LECs research mandate would be a publicly funded

Assistance to the General Inspectorate of Public and Private Works (IGOPP) The Project will provide technical assistance support to the General Inspectorate of Public and Private Works (IGOPP), which is presently the core service for regulation ofall civil engineering works, including the inspection of all works, regulation of the civil engineering profession, certification of civil engineering and construction companies, standardization of procedures regarding contracts, public bidding and contract supervision. Through the PPF, a Diagnostic Study recommended that, as a long term measure, the regulatory functions should more appropriately be lodged in an independent body and removed from this Inspectorate. The support to IGOPP under the RSSP will be limited to strengthening its capacity under existing institutional structure. For this purpose, RSSP will only support selected activities amenable to that pursuit, principally training and procurement of needed equipment as well as review and proposing of amendments of existing statutes and regulations governing the inspectorate functions. In parallel with this support, the Government will revisit and amend the needed staffing ofIGOPP by at minimum two persons; a civil engineer and an architect.

Assistance to the Ministry of Infrastructure and Transport through the following Units: A. Assistance to the General Directorate of Infrastructure and Basic Sanitation (DGISB) The DGISB is responsible for implementation of all public works infrastructure development, including procurement and oversight of works and engineering design and supervisory services. As such, the DGISB will be the implementing agency for the road infrastructure component of the RSSP. Although the present staffing levels are considered adequate, the Directorate needs to reinforce its capacity to more effectively manage and oversee public works projects. In particular, its basic computer and information management systems and vehicle stock are outdated and in need of renewal. In addition, its staff needs additional and in-service training in areas such as procurement, English and French language and software utilization. The project will therefore assist the Govemment to meet these needs.

B. Assistance to the Studies and Planning Unit (GEP) The project will provide technical assistance support for the GEP, which is the core service for studies and planning for the Ministry. Through the PPF, the Project is assisting the GEP to modemize and update the ministry’s information management and external communication services, through the procurement of computer equipment and software for the MIT data base (MITPROJ), which was established, but has never been utilized. The Project will complete this assistance with technical assistance for updating and operationalizing the MITPROJ, the intranet system establishment of a ministry website, which provides linkages to sites ofrelevance to the Ministry ofInfrastructure and Transport.

Other Studies and Technical Assistance The Project will finance monitoring and evaluation studies, in particular a survey of the beneficiary population at the end of the project, annual audits and other studies and technical assistance, to be determined.

33 Pilot Performance Based Road Management and Maintenance Contracts (Gestio e Manuterzcio por Nivel de Servicio - GMANS). Cape Verdean funds, through the Road Maintenance Fund will wholly finance this activity. The objective is to test and adapt a new approach for assuring cost-effective road maintenance on the National Road Network through a service-level approach. This new approach is based on the principal that roads should essentially provide certain levels of service to road users. These service levels can be defined in terms of average speed, riding comfort and certain physical features of the road. Under the new system, there will be contracts between the Road Agency and private entrepreneurs, in which the entrepreneur will commit to provide those service levels. In turn, he will be paid a certain fixed monthly amount of money if he complies with the contract. He will have complete freedom to determine (i)what to do, (ii)how to do, (iii)when to do, and (iv) where to do, the necessary physical interventions in order to provide the agreed level of service. Cape Verde represents an opportunity to test this approach on cobblestone roads, for the first time. It should provide incentives for contractors to maintain the prescribed service levels in a cost-effective manner and on a permanent basis as long as the contract is valid, which in this case will be four years. Cape Verde has been selected as one of four countries to receive grant funds to finance the preparation of pilot performance based road management and maintenance (GMANS) contracts.

Based on an initial site visit in March 2004, an estimated 363 km were identified for pilot GMANS contracts. However, the exact roads and km to be included in the pilot program may change during the preparation of the contracts, which is underway in early 2005. The preparation of these contracts is being funded by a grant from the United Kingdom Department for Intemational Development (DFID), which is being managed by the World Bank in collaboration with the four partner countries. In Cape Verde, the works contracts will be financed by the Road Maintenance Fund (CV-FMR) and managed by the Road Agency (IE).

34 Component 2: Road Infrastructure - Total Prowam Including: Contingencies: $39.5 million; Bank Financing::US$lO.O million

Priority Road Network Improvements. In its Priority Strategic Programme for Infrastructure and Land Management, the Government identified potential road network improvements on each of the nine inhabited islands. Among these projects, the Government identified a program of eleven top priority improvements on five islands (one activity was dropped during appraisal). Two broad types of interventions will be carried out: (i)filling a gap in an incomplete island network through road upgrading on an existing earth track or the construction of small bridges; and (ii)rehabilitating key links that are in a deteriorated state. Proposed interventions are based on: (i)cost-benefit analysis of service level options for roads and bridges with significant traffic levels; and (ii)cost-effectiveness analysis for roads with light or no existing traffic levels. IDA will fund three of the road segments (roads # 6, 7 and 10) for up to USSlO.0 million out of the total program amounting to US39.5 million. Government is in the final phase of discussion with MCC, which has indicated that it is likely to fund seven ofthe road segments (roads # 1, 2, 3,4, 5, 11 and 12). If this materializes, the financing gap ofthe program will only consist ofroad # 8. The Government has initiated discussion with OPEC Fund for supporting that activity. Below is a summary list of the investment program, followed by a summary description of the projects.

Total ! Road Km Description css XI* 1 Orgaos-Pedra Badejo (Santiago) 10 Asphalt rehabilitation of principal secondary road 3.29 2 Cruz Grande-Calhetona (Santiago) 14 Asphalt rehabilitation of principal secondary road 5.20 3 Volta Monte-Ribeira Prata (Santiago) 15 Cobblestone rehabilitation to isolated area 3.1 1 4 Assomada-Porto Ricao (Santiago) 16 Mixed Cobblestone/Asphalt to isolated area 3.71

5 Fonte Lima-Joao Bemardo-Librao (Santiago) 8 Cobblestone rehabilitation to isolated area 2.53

35 Total I Road Km Description 1% \I* ,

6 Figtiera-Alcatraz (Maio) 11 Cobblestone rehabilitation to complete island's ring road 3.62 7 Ribeiera Brava-TaiTafal (Sa0 Nicolau) 27 Asphalt rehabilitation of principal secondary road 8.13 TaiTafal-Praia Branca-Ribeira da Prata (Sa0 8 Nicolau) 19 Cobblestone rehabilitation to isolated area 4.74 9 Caleijao-Cabecalinho (Sa0 Nicolau) 5 Project rejected on technical grounds 0.00

IO Salaniansa-Nord de Baia (Sa0 Vicente) 3 Asphalt rehabilitation of access road to tourist site 0.62 Bridge to commercial center; present access through river 11 2 Bridges at Ribeira Grande 0 bed 2.31 2 Bridges at Vila das Pombas & Liaison Eito Bridge to commercial center & access road; present 12 (Santo Antao) 0 access through river bed Total**

Santiago Island. Priority improvements to the Santiago Island network include: (i) rehabilitation of two heavily traveled east-west axes, while serving agricultural communities along their alignments; and (iii)rehabilitationheconstruction of three rural roads linking isolated agricultural and fishing communities to the main network.

Road # 1: Or@os-Pedra Badeio (10 km). This road is the primary east-west link in the southern part of the island. It is cobblestone surface, with an average width of 4 meters and 50 cm. shoulders. It is generally in poor condition - certain sections are considerably degraded and there is a lack of fine material between the paving stones, many of which have been washed away. The road lacks adequate drainage structures; culverts, in particular, are obstructed by stones and debris. Protection ofthe side slopes is inadequate. The road is located in the Ribeira Seca river basin, which one of the most agriculturally productive zones in the country, and which provides produce to the capital city of Praia. In addition to its regional importance, the road directly serves over 10 rural communities with a population of 3,693. Intervention will involve upgrading to paved asphalt standard.

Road # 2: Cruz Grand - Calhetona (14 km) This road is the primary east-west link in the center of the island, connecting the two major north-south axes, both of which culminate in the northern tourist area and town of Tarrafal. It is cobblestone surface with an average width of 5 meters. Constructed in 1995, it is in very bad condition, characterized by many potholes, loss of riding surface and deformation of the roadbed. Several sections are considered dangerous because of sliding conditions caused by erosion. Much of the road's deterioration is due to poor drainage. The road is heavily traveled and located in the Ribeira de Flamengos Seca and serves numerous communities with a population of6,472, practicing both irrigated and rainfed agriculture, serving the major markets of Tarrafal, Assomada and Praia. Intervention will involve upgrading to paved asphalt standard.

Road # 3: Volta Monte- Ribeira Prata (15 km) Located in the northwest part of Santiago Island, this road was formerly part of the north-south axis, but abandoned with the construction of the present ring road. It is on very windy, mountainous terrain. Although some of the original drainage structures exist, most of the road has reverted to dirt track, with only a few remnants of previous cobblestone surface. Over eleven farming and fishing communities, with a total

36 population of 2,850, along this road are severely isolated due to its poor condition. The area includes suitable grazing areas, yet the introduction of drilling and other water development equipment has been constrained because of lack ofaccess for drilling facilities. Intervention will involve reconstructing the road to improved cobblestone standard.

Road # 4: Assomada-RincBo (16 km) This road provides the sole access to seven communities and the fishing port ofRinciio to the rest of the island. It runs from the major town ofAssomada (population 50,000), on the main road, and serves another 3,500 farming and fishing populations, including the agricultural zone of ChBo de Tanque and the fishing port ofRincBo. The first 7 km from Assomada is cobblestone in very poor condition, while the rest is basically an earth track, requiring reconstruction. The 2 km section on the Achada Grande Plateau leading to RincBo contains very fine material, which makes access difficult especially during the rainy season. Intervention will involve reconstructing the road to asphalt standard for the first 7 km and cobblestone standard for the remaining 9 km.

Road # 5: Fonte Lima-JoBo Bernard0 (9 km) This road links 10 rural communities with a population of 4.100 to the main north-south axis and the rest of the island. The first 250 meters off the main road are cobblestone, after which the road is a narrow earth track, permitting passage only of light vehicles and small trucks, often without capacity for two-way traffic. The alignment is very windy and on steep slopes, particularly after the village of Toupana. Intervention will involve reconstructing the road to improved cobblestone standard.

Maio Island. Improvement to the Maio Island network involves filling a gap in the principal ring road around the island.

Road # 6: Alcatraz-Fiaueira (11 km) The road is currently an earth road, passable only with 4 wheel drive vehicles, and thus presents a gap in the island’s basic network. The rest ofthe island ring road is characterized by 6-meter width cobblestone and 0.5 m shoulders. The road provides direct access to communities engaged in fishing small scale agriculture, livestock and production of gypsum and ornamental stones for construction. Intervention will involve reconstructing the road to improved cobblestone standard.

Sao Nicolau Island Improvement of the Sao Nicolau Island Network involves: (i)rehabilitating the major axis linking the island’s administrative center with its primary port, and serving numerous communities in mountainous terrain; and (ii)a continuation of the main axis to less populated, but isolated zones.

Road # 7: Ribiera Brava-Tarrafal (27 km) This is the principal road of the island, linking the main city of Ribeira Brava with the second major town ofTarrafal, site ofthe island’s main port and fishing and commercial center, including a tuna canning factory. The road passes through several river basins, including the irrigated zone fed by the Galerie de Fajii. It directly serves a population of 8,100, not counting the town of Ribiera Brava. It is virtually the lifeline for all marketing of agricultural, livestock and fishing products, as well as access to social and administrative services. Following a northern route from Ribeira Brava, it loops around a mountainous area to the south where it arrives at Tarrafal. The road is currently cobblestone in a deteriorating condition; the width is mostly 5 meters, in some places as narrow as 4 meters.

37 For a 5 km stretch Faja de Baixo - Cachaco, the alignment is very narrow and consists of only rough stones. Intervention will involve upgrading to asphalt paved standard.

Road # 8: Tarrafal-Praia Branca-Ribiera Prata (19 km) This road is the continuation of the principal road of the island from Tarrafal, circling the island’s western and northwestern areas. The road is currently cobblestone. The first 6.5 km are in fair condition, with a width of 5 m. Most drainage structures are in good condition, however, the Irish crossings are in need ofrepair. The remaining section is in poor condition; the cobblestones are not cut or laid in parallel and are considerably damaged. The last sections are mountainous and narrow, with irregular cobblestone coverage. The last km before the village of Ribeira pose serious danger of falling stones and unstable slopes. The road links agricultural production areas to the port of Tarrafal. A tourism village is being constructed at km 1.5 from Tarrafal. Intervention will involve establishing a uniform width of 6 meters improved cobblestone surface and establishment of adequate drainage structures.

Road # 9: CaleiiZo-Cabecalinho-Tarrafal (6 km) This is presently only a footpath through a mountainous zone. If a road was built, it would link the two sections from Ribeira Brava to Tarrafal which presently loop around the north (Road # 7), and would reduce the traveling distance between Ribeira Prata and Tarrafal by about 10 km. A main difficulty to construct this road is the steep incline up the mountain, about 650 meters, between Calejao and Cabecalinho. For this reason, this project has been dropped from the program.

Siio Vicente Island Road # 10: Salamansa-Norte de Baia (3 km). This road provides basic access to a presently isolated fishing community of some 1,170 people. It would involve the construction of a cobblestone road on a presently earth road accessed only by 4x4 vehicles. It can also be considered the first segment of an eventual access road to future tourist development sites.

Santo Antiio Island Improvement to the Santo AntZo Island network involves ensuring all weather access to two major towns, located at the confluence of rivers and cut off during heavy rains. Both towns are located on the island’s primary network, which has a minimum level of service and the absence ofthese bridges prevents connectivity to significant levels oftraffic.

Road # 11: Bridges at Ribeira Grande (200 m) and Ribeira Torre (60 m) In the northeast, the town of Ribeira Grande (population 21,480) is located at the confluence of two seasonal rivers: Ribeira Grande and Ribeira da Torre. The island’s main road from Porto Novo arrives along the Ribiera Grande, and at a certain point, four roads converge along these rivers at the town. When it rains, the river banks flood the southem end of the town on the road to Paul. Intervention will involve the construction of two small bridges, one on the Ribeira Grande and one on the Ribeira da Torre, as well as protection works along the river banks.

Road # 12: Bridges at Villa da Pombas and Liason Vila da Pombas - Eito The road from Eito to Paul (population 8,380) follows the Ribeira da Paul, then is located in the river bed, which makes travel impossible when it rains. Residents in the immediate area grow sugar cane, sold to an agro-industrial complex producing a sugar-based alcoholic drink, grog. It should also be noted that an EU funded project is constructing a road from Porto Novo along the west coast to Paul,

38 and the construction of this bridge would guarantee continuity along the cost to Ribeira Grande. Intervention will replace the present access within the riverbed to the adjacent side for a length of 1 km with a cobblestone road and construct a small bridge to assure access into the town ofPaul. These works will result in widening of the road, which is presently only 3 meters wide at the south end. This will involve minor land taking concerning existing stonewalls, which will require compensation. For this reason an Abbreviated Resettlement Plan has been prepared based on consultations with the affected persons and the Municipality (see Annex 10).

Estimated Cost - ROAD INFRASTRUCTURE TOTAL PROGRAM AND FINANCING

Physical Contingencies 1,827,584 463,736 109,114 1,035,216 219,517 Price Contingencies 1,096,550 278,242 65,469 621,129 131,710 Total Cost 39,475,811 10,016,704 2,356,872 22,360,661 4,741,574

RSSP Road Infrastructure Program - ExDected Bidding Packages (US$ M)

Lot 1 (1, 2, 3,4, 5) 17.84 17.84 0.00 Lot 2 (11,12) 4.52 4.52 0.00 Lot 3 (6) 3.62 0.69 2.93 0.00 Lot 4 (7) 8.13 1.55 6.58 0.00 Lot 5 (IO) 0.62 0.12 0.51 0.00 Lot 6 (8) 4.74 4.74 Total 39.48 2.36 10.02 22.36 4.74

39 I 2. Road Infrastructure I I I I

Component 1 Institutional Strengthening to MIT

Total Base Cost 3,335,500 1 3,225,000 110,500 Physical Contingencies 166,775 161,250 5,525 Price Contingencies 100,065 96,750 3,315 PPF Reimbursement* 1,500,000 1,500,000 0 Total Cost - Component 1 5,102,340 4,983,000 119,340

Component 2 Road Infrastructure

2.1 Works 10,911,442 8,729,154 2,182,288 2.2 Supervision 545,572 545,572 0 Base Cost 11,457,015 9,274,726 2,182,288 Physical Contingencies 572,851 463,736 109,114 - Price Contingencies 343,710 278,242 65,469 Total Cost - Component 2 12,373,576 10,016,704 2,356,872 I Total Project 17,475,916 I 14,999,704 1 2,476,212 I I I I I 1 * PPF expenditures constitute Institutional Support to MIT.

40 Annex 5: Project Costs CAPE VERDE: Road Sector Support Project

TOTAL IDA CREDIT Cape Total US$ IDA Verde Project Cost by Component andlor Activity million US$million US$million

Component 1 : Institutional Strengthening 3.34 3.23 0.11

Component 2: Road Infrastructure 11.46 9.27 2.18

Total Baseline Cost 14.79 12.50 2.29 Physical Contingencies 0.74 0.62 0.11 Price Contingencies 0.44 0.37 0.07 PPF Reimbursement 1.50 1.50 0.00

Total Project Costs I/ 17.48 15.00 2.48 Interest During Construction 0.00 0.00 0.00 Front-end Fee 0.00 0.00 0.00 Total Financing Required 17.48 15.00 2.48

Foreign Local US us Total US Project Cost by Category - Total Project $million $million $million Civil Works 3.71 8.67 12.38 Goods 0.01 0.80 0.80 Consultant's Services 1.38 2.05 3.43 Training and Workshops 0.34 0.37 0.72 Operating Costs 0.09 0.06 0.15

Total Project Costs 5.54 11.94 I7.48

______~ Foreign Local US us Total US Project Cost by Category - IDA $million $million $million Civil Works 2.97 6.93 9.90 Goods 0.01 0.80 0.80 Consultant's Services 1.38 2.05 3.43 Training and Workshops 0.34 0.37 0.72 Operating Costs 0.09 0.06 0.15

Total Project Costs 4.79 10.21 15.00

Local US us- Total US Project Cost by Category - Cape Verde $million $million $million Civil Works 0.74 1.73 2.48 Goods 0.00 0.00 0.00 Consultant's Services 0.00 0.00 0.00 Training and Workshops 0.00 0.00 0.00 Operating Costs 0.00 0.00 0.00

Total Project Costs 0.74 1.73 2.48

41 Implementation Period Table (US$ M including Contingencies)

Total Investment Costs 2.79 5.85 4.72 3.38 0.08 0.08 16.90 Total Recurrent Costs 0.15 0.09 0.09 0.09 0.09 0.09 0.58 Total 2.94 5.93 4.81 3.47 0.16 0.1 6 17.48

Financing Plan (US$ M including Contingencies)

Estimated IDA Disbursements (US$ M including Contingencies)

Total by Procurement Method (US$ million)

Total Civil Works 11 78 0 60 0.00 0.00 12 38 IDA financing 9 43 0 48 0 00 0 00 9 90

Goods 0.38 0 24 0 19 0 00 0.80 IDA financing 0.38 0 24 0.19 0 00 0 80

Consultant Services 0.00 0 00 3.43 0 00 3.43 IDA financing 0.00 0 00 3 43 0 00 3.43

Training and Workshops 0.00 0 00 0.72 0.00 0 72 IDA financing 0.00 0 00 0.72 0.00 0 72

Operating Costs 0.00 0 00 0.15 0.00 0.15 IDA financing 0.00 0 00 0 15 0.00 0.15

Total Project Costs 12.16 0 83 4.48 0.00 17 48 IDA financing 9.81 0 71 4.48 0 00 15 00

42 Annex 6: Implementation Arrangements CAPE VERDE: Road Sector Support Project

Overview

The project will be managed directly by the Ministry of Infrastructure and Transport (MIT), through a Program Coordination Office (PCO), attached directly to the Minister's Office. The primary responsibility of this Office will be to ensure overall management of the project and coordination of other related donor support for the overall Transport Sector Program, as well as technical and fiduciary oversight of the Road Sector Support Project. The below organization chart shows the location of the Program Coordination Office within the overall structure of the MIT.

Ministry Organization Chart showing Program Coordination Office

IGOPP DGISB DGOTH DGMP General General General General General General General Directorate Inspectorate Directorate of Directorate Directorate Directorate Directorate Studies & ofcivil Infrastructure of Land and of Maritime of Road PIann iiig Works & Basic Urban Transport Telecom- Sanitation Housing munication

I I I DSA

Civil Aviation Agency tioii Service I I 1 rRoads Ageiicy Telecomm Information Technology Agency

Civil Engineering Laboratory

43 Ministry of Infrastructure and Transport (MIT) The Ministry ofInfrastructure and Transport is the Government department responsible for formulating, coordinating and executing Govemment policies concerning the sectors of infrastructure, transport, communications land use and housing. The project will provide assistance to the following agencies within the MIT.

Program Coordination Office The Program Coordination Office and the Road Agency have inherited key elements of the capacity ofthe recently closed Infrastructure and Transport Project (ITP) Project Implementation Unit (PIU), which was located outside the Ministry. The transfer of these resources ensures that the technical, procurement and fiduciary management capacity built during PIT, in conformance with World Bank requirements, is retained for the new project, but that this capacity is integrated into the Ministry organizational structure. The Program Coordination Office will have a Program Coordinator, a Financial Manager and an Administrative Assistant.

This institutional solution has been chosen for several reasons. First, since the project is strongly focused on supporting key sector reforms and capacity building, it is deemed important that the management ofthis support be located “from within,” such that those implementing the reforms and benefiting from assistance are participants of the change processes from the beginning. Second, the Government feels that integrating the Office into the Ministry and some implementation responsibilities into the Road Agency will involve a more efficient utilization of project resources, given the availability of physical space and communications systems already in place. Finally, although the ITP Implementation Unit has performed extremely well, the Government wishes to improve the performance within the Ministry, and this can only be done by involving its personnel directly in the management ofthe Program.

General Directorate of Infrastructures and Basic Sanitation (DGISB) is the core service responsible for the execution of civil engineering and public works, namely of transports infrastructures, hydraulic works, basic sanitation and public buildings. It includes: (i) Directorate of Service ofProjects and Technical Studies; (ii)Directorate ofService ofWorks and Basic Sanitation; and (iii)Directorate ofService ofFinancial Monitoring ofWorks.

Road Agency (Instituto de Estradas - E)The IE was created by Decree No. 2/2003 on June 2, 2003. The decree defines the mandate of the Agency as to maintain, manage and safeguard the roads and bridges under its jurisdiction. This jurisdiction is defined as the “national roads.” However, the Agency is also mandated to work in close collaboration with the Municipalities, who are in principle responsible for the rest of the road network, designated as “municipal roads.” The attributes listed in article 2 ofthe decree are:

a) Implement the road infrastructure policy, within the overall perspective land management and economic development plans, as well as to maintain and manage the national roads and bridges. b) Safeguard the infrastructure, as well as its functionality, notably the right of way and areas adjacent to the roads. c) Formulate and implement the National Road Plan.

44 Define, in collaboration with other stakeholders, service levels of the roads, so as to ensure the quality, safety, comfort and safeguard national assets and the environment. Maintain and update the road network inventory, including physical characteristics and condition. Within the framework of its basic mandate, promote linkages between roads and other modes oftransport. Within the framework of its basic mandate, promote studies and knowledge development, which will advance technological and economic progress in the road sector. Manage the process of expropriation required for the road maintenance and management. Within the framework of its basic mandate, ensure the participation and collaboration with national (central and local governments) and international institutions in the road sector.

Under the Government’s Letter of Sector Policy (Annex 16), the Road Agency activities will be overseen by a Road Consultative Council (Conselho Consultivo de Estradas - CCA), consisting of representatives from ministries and public sector stakeholders, as well as the private sector and road users. Until the new Road Maintenance Fund is operational, the Government will cover the Road Agency’s initial equipment and operational costs. Part of this has been financed under the Project Preparation Facility (PPF) for the RSSP. Once the Road Maintenance Fund is operational, a portion of the Road Agency’s fixed operational and variable costs for road maintenance activities will be covered by the Road Maintenance Fund, while its other fixed and variable costs related to road investment planning will be covered by the Government. The Road Agency is in the process of putting in place a financial management system which will enable it to keep separate accounts for investment (Government-financed) and maintenance (Road Maintenance Fund-financed) activities. The Road Agency will be subject to annual financial and technical audits to ensure its effective and transparent management ofboth road maintenance and road investment funds. Based on a Road Sector Management Study, the Road Agency has established an Institutional Action Plan, which is appended to the Letter of Sector Policy.

Road Maintenance Fund (Fundo de Manutenq6o Rodoviaria - CV-FMR). A Road Maintenance Fund is in the process ofbeing created to replace the present Road Fund. The new Road Maintenance Fund will finance only maintenance (programmed routine and periodic maintenance, plus a provision for annual emergency works, reflecting average need over the past few years). These funds will derive from user fees. Road Maintenance Funds will be directly deposited in an account at the Central Bank of Cape Verde. The Road Maintenance Fund will have a simple and limited structure, consisting of an Administrative Directorate, including a Fiscal Management Unit; and the Road Consultative Council will oversee it. This Council will also assume the role of the Road Consultative Board, which will be consulted on all matters concerning road network management. It will negotiate and approve annual road maintenance program budgets proposed by the Road Agency (for both national and municipal road networks) and will effect payments for road maintenance activities, upon verification that such payments are certified and conform to the annual program. Based on a Road Sector Management Study, the Government has established an Institutional Action Plan for the Road Maintenance Fund, which is appended to the Letter ofSector Policy.

45 Annex 7: Financial Management and Disbursement Arrangements CAPE VERDE: Road Sector Support Project

Executive Summary and Conclusion The main conclusion of the Financial Management Assessment (FMA) is that the Program Coordination Office (PCO) located at the Ministry of Infrastructure (MIT) has the capacity to handle this project. However there is need to strengthen the system by (i)completing setup of a computerized financial management system, (ii)finalizing and adopting an administrative and accounting manual and appointing an external auditor with qualifications and experience satisfactory to the World Bank.

All the actions identified have been catered for in an action plan shown at the end of this annex. This action plan is being implemented and should be completed by credit effectiveness.

Staffing The PCO and the Road Agency have inherited key staff of the recently completed Infrastructure and Transport Project (ITP) Project Implementation Unit (PIU), which was located outside the Ministry.

The PCO staff consist of a Coordinator, an Accountant and an Administrative Assistant. The accountant has satisfactory qualifications and good knowledge of World Bank procedures. As far as financial management is concerned, he has the responsibility to collect and control invoices, maintaining the books, entering data in the system, follow up the management the project’s bank accounts, keep the books ofaccounts and prepare the financial reports. According to general financing mechanism in Cape Verde, the Treasury department will signed with the coordinator on the bank accounts.

Accounting and Financial Management Procedures and Computerized Management Information System Accounting Policies and Procedures A procedures manual is being developed and will provide all the required details on accounting and financial procedures. It will set out in particular the flow of accounting and financial information between the PCO, the treasury department, the World Bank and the beneficiaries as well as the modalities and formats of periodic reports. An overview of funding flows and cash management mechanisms is provided in the paragraph on disbursements. In terms of budgets, each year the beneficiaries will draw up a detailed budget for activities to be carried out. This budget will be consolidated by the PCO and after its validation by the Ministry ofinfrastructure, will be submitted to the World Bank for review.

Reporting and Monitoring The PCO will prepare and furnish to the World Bank a Financial Monitoring Report (FMR), in form and substance satisfactory to the World Bank, which:

(i) sets forth sources and uses of funds for the project, both cumulatively and for the period covered by said report, showing separately funds provided under the Credit, and explains variances between the actual and planned uses of such funds;

46 (ii) describes physical progress in project implementation, both cumulatively and for the period covered by said report, and explains variances between the actual and planned Project implementation; and (iii) sets forth the status of procurement under the project, as at the end of the period covered by said report.

The first FMR shall be furnished to the World Bank not later than 45 days after the end of the first calendar quarter after the Effective Date, and shall cover the period from the incurrence of the first expenditure under the project through the end of such first calendar quarter; thereafter, each FMR shall be furnished to the World Bank not later than 45 days after each subsequent calendar quarter, and shall cover such calendar quarter.

The PCO will also be required to produce, no later than June 30 of the following fiscal year, audited annual financial statements. These financial statements will be subject to periodic audits (see paragraph on audits). Formats for the FMRs and financial statements will be defined in the procedures manual. The format ofthe FMRs has been confirmed during negotiations.

Information system A sound computerized information system will be established at the PCO. This system will be updated in such a way as to furnish all of the following data: FMRs, Financial Statements, Withdrawal applications, Bank reconciliations and all financial reports.

External Audits External auditors with qualifications and experience satisfactory to the World Bank will conduct an annual audit of the project’s financial statements. This audit should be carried out in accordance with International Standards on Auditing (ISA), and will include such tests and controls as the auditor considers necessary under the circumstances.

Project Financial Statements The auditor will provide an opinion on annual financial statements and its scope will also be broadened to cover the Road Maintenance Fund.

Road Maintenance Fund The auditor will express an opinion on the financial statements of the Road Maintenance Fund. The audit report for the fiscal year ended must be submitted no later than June 30 following the end ofthat fiscal year.

The table bellow summarizes the audit requirements:

Audit report Due Date 1) Project financial statements June 30 2) Road Maintenance Fund June 30

47 Risks Analysis

At the country level The CFAA identified the Public Financial Management (PFM) risks. The general assessment of the fiduciary risk at the PFM level is moderate. However, the Government is taking actions to address the issues identified. The Government has given priority to improvements in these areas, as it has become evident that shortcomings in public sector performance are among the main constraints to economic development and poverty reduction in Cape Verde.

At the proiect level IDA has taken special measures to ensure adequate financial management of its portfolio. Project management staff is appointed on a competitive basis and Bank funding is following special mechanisms to mitigate fiduciary risk. Independent and competent auditing firms invariably audit IDA projects.

The table bellow below identifies the key risks at the project level and provides a basis for determining how management should address these risks.

Risk Assessment HM L N Corn ni en ts Inher en t Risk 1. Corruption X The risk assessment is very 2. Poor governance X low in Cape Verde 3. Weak Judiciary X. 4. Weak Management capacity X Overall Inherent Risk X Control Risk 1. Implementing Entity X Idem inherent risk 2. Funds Flow X 3. Counterpart funds X 4. Staffing X 5. Accounting Policies and X Procedures 6. Intemal Audit X Idem inherent risk 7. Extemal Audit X Idem inherent risk 8. Reporting and Monitoring X Idem inherent risk 9. Information Systems X Overall Control Risk X Idem inherent risk H: High / M: Moderate / L: low / N/A: Not Applicable

Impact of Procurement Arrangements No major impact on the FMA is deriving from the procurement assessment.

Disbursement Method and Special Account The project aims at using from the start quarterly FMRs method for disbursement purposes. As financial management systems and preparation for FMR based disbursement are still being

48 finalized, and to ensure successful and uninterrupted implementation from the start of the project, allowance is also made for transaction based disbursement based on Special Account replenishment, direct payment and Special Commitment.

Special Account The Special Account will be managed by the PCO and the Treasury Department. It will be located at the Central Bank. If the project will use transaction based disbursement, the total allocation of the Special Account will be US$1.0 million which is equal to the average four months of expenditures. Upon credit effectiveness, the borrower will request the World Bank to deposit in this account an advance representing 50 percent of the authorized allocation, or US$ 0.5 million. The balance of the advance may be deposited when total expenditures plus special commitments are equal to SDR 1.3 million. The Special Account will be used for all expenditures equivalent to less than 20 percent of the authorized allocation, and requests for reimbursement will be submitted monthly. Reimbursements deposited by the World Bank into this Special Account will be made against these requests supported by appropriate documentation.

Use of Statements of Expenditures (SOEs) The procedures described in this paragraph will only apply if the project is using transaction- based disbursement. Disbursements for all expenditures will be made by the World Bank against full documentation, with the following exceptions: (a) contracts for works in an amount not exceeding US$500,000; (b) contracts for goods in an amount not exceeding US$250,000; (c) consulting contracts in an amount not exceeding US$200,000; and (d) cash payments, training and operating costs, which will be reimbursed on the basis of SOEs. All supporting documentation for SOEs will be retained at PCO and must be made available for review by periodic World Bank review missions and extemal auditors.

The schema offunding flows is described bellow.

WORLD BANK PROJECT Credit Account ACCOUNT

ACCOUNT

Accounts of Suppliers, Consultants, or all other contractor

---- Direct Payments SA: Managed by the PCO and the treasury Department

49 Disbursements by category: The following table sets out the expenditure categories to be financed out of the Credit proceeds. The allocations for each expenditure category are the following:

I Categories Credit Allocated YOof expenditures in US$ equivalent to be financed

(1) Works 9,900,000 80% (2) Goods 730,000 100% of foreign expenditures 90% of local expenditures (3) Consultants’ services and audits 2,035,000 100% (4) Training and Workshops 685,000 100% (5) Operating costs 150,000 100% (6) Reimbursement of Project 1,500,000 Amount due pursuant to Section Preparation Facility (PPF) 2.02 (b) of the DCA TOTAL 15,000,000

Percentapes of disbursement catepories With the new country Financing Parameters for Cape Verde approved by the World Bank, the Govemment has expressed the needs to finance 100% of expenditures under the Credit for the consultants’ services and the operating costs categories, and for goods category, 100% of foreign expenditures and 90% of local expenditures. On this basis, the Govemment is exempting international consultants and import of goods from taxation. This will not impact the financial evaluation ofthe project as the Government is ready to contribute up to 20% for the civil works.

Counterpart Funds The Govemment must make all arrangements necessary to ensure the timely mobilization of the counterpart funds needed for project implementation. The Borrower will include in each annual budget proposed to its legislature, and make available each year of Project implementation, promptly as needed, in Escudos de Cab0 Verde, equivalent of Dollars, the required amounts as counterpart funds for the Project.

Financial Covenants The standard financial covenants will be included in the DCA.

Supervision Plan On a regular basis (at least once per year), the system will be reviewed and assessed. The FMRs will be reviewed as well as the audit reports.

Action Tasks Entity I Target Completion Date Procedures Elaboration of the administrative and PCO 1 accounting manual Selection of a consultant satisfactory to Completed IDA Draft Manual Completed Final Manual including IDA’S May30,2005 comments

50 Action Tasks Entity Target Completion Date kternnl Audit Recruitment of an auditor satisfactory to IDA

Expression of interest 1 PCO 1 Completed 1 Request for Non Objection on the RFP . PCO 1 Completed including the short list 1 World Bank’s non-objection on the 1 IDA Completed request for proposals package 1 Requests for proposals sent out ’ PCO 1 Completed 1 Proposals received ‘ PCO Completed 1 Technical evaluation completed and 1 PCO Completed approved by IDA

1 Financial evaluation completed and 4 PCOiIDA 1 May 30,2005 contract awarded and approved by IDA 1 Selection of the consultant PCO . Completed 1 Updating the accounting system PCO 1 June 15.2005 satisfactory to IDA

Counter art Annual needs of counterpart funds Ministry of 1 Annually, during the k~included in the budget of the state Finance / MIT preparation of the - do - budget of the state

51 Annex 8: Procurement Arrangements CAPE VERDE: Road Sector Support Project

General Procurement for the proposed project will be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the World Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement of Works: Works procured under this project would include, inter alia: (i) improvement of physical plant of the Engineering Laboratory of Cape Verde (LEC), (ii)roads and bridges construction and rehabilitation. The procurement will be done using the World Bank's Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the World Bank.

Procurement of Goods: Goods procured under this project would include, inter alia: (i)office equipment, (ii)vehicles, (iii)acquisition of laboratory testing, (iv) information management system, (v) security and communications equipment. The procurement will be done using the World Bank's SBD for all ICB and National SBD agreed with or satisfactory to the World Bank.

Procurement of non-consulting services: non-consulting services may include related services such as transportation, insurance, installation, commissioning, training and initial maintenance. Bidding documents to be used on such cases will be agreed with the World Bank.

Selection of Consultants: will consist, inter alia, on (i)road condition and traffic surveys, road asset valuation, road data base management, financial management, procurement and contract management technical assistance for the Road Agency, (ii)training for all MIT's services concerned by the program, (iii)revision of the legislation and regulations for housing, public works and construction, (iv) technical assistance for updating and operationalizing the MIT data base (MITPROJ), (v) establishment of a ministry website, which provides linkages to sites of relevance to the Ministry of Infrastructure and Transport, (vi) annual audits of the project, (vii) survey of the beneficiary population at the end of the project, (viii) monitoring and evaluation, (ix) technical assistance to design of civil works, preparation of Standard Bidding Documents and supervision ofworks.

Short lists of consultants for services estimated to cost less than $ 100,000 equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions of paragraph 2.7 ofthe Consultant Guidelines.

52 Operating Costs: incremental recurrent expenditures incurred on account of the project implementation, including office supplies, fuel and maintenance of vehicles, maintenance of equipment, telephone and other communications charges, costs related to administration of civil works, bank and services fees, travel and supervision, but excluding salaries of officials of the Borrower’s civil service (unless expressly agreed with the World Bank, based on the Country Financing Parameters). They will be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the World Bank

The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the Administrative and Financial Procedure Manual.

Assessment of Capacity of Agencies to Implement Procurement Procurement activities will be carried out by two entities:

Project Coordination Office (PCO), located at the Ministry of Infrastructure and Transports (MIT), will be responsible for procurement related to institutional support to MIT (component 1 of the Project), in particular small works, some equipment (office equipment, vehicles, equipment for the laboratory - LEC) and selection of consultants. The PCO does not have a specific procurement department but it is staffed with capable staff. The Coordinator has procurement experience since he was coordinator for the IDA funded Infrastructure and Transport Project (ITP) for almost ten years, and has attended several procurement trainings (locally and intemationally). He will be responsible for the procurement at the PCO level, and some support can be provided, as needed, by the General Directorate for Infrastructure and Basic Sanitation (DGISB) from the MIT, especially procurement related to works.

The General Directorate for Infrastructure and Basic Sanitation (DGISB) from the MIT will be responsible for procurement of road construction and rehabilitation, at national and municipal level as ,well as selection of consultants for works supervision. Studies and bidding documents will be under responsibilities of consultants that have already been recruited under the PPF. Contract management and quality check will be under responsibilities ofthe DGISB.

The PCO is staffed by a Coordinator (with procurement experience), an accountant and a secretary while the DGISB is staffed by 14 graduate engineers and architects (and one staff under recruitment), including the Director, eight of which have Procurement knowledge and experience.

DGISB is the state department responsible for procurement of civil works at the Govemment level and has extensive experience with IDA procurement rules as contract manager for works under the ITP. DGISB also manages procurement of civil works for almost all development partners for Cape Verde, applying their rules or national rules. As per the CPAR report (June 2004), the only procurement structured law goveming procurement is the Decree-Law 3 1/94 (and related regulations) on civil works.

DGISB has appointed two staff with procurement knowledge and experience, a civil and industrial engineer, who have extensive experience on civil works procurement and contract

53 management, in particular using BAD, BADEA and European Union procedures. A regional training on procurement of works and selection of consultants is recommended, especially considering that the project will be under the new Guidelines procedures.

A Procedural Manual is being prepared and will be agreed with the World Bank by effectiveness. It will include, in addition to the procurement procedures, the SBDs to be used for each procurement method, as well as model contracts for works and goods procured.

The record keeping system at DGISB is good and allows easy access to information. The PCO has also a satisfactory archive system due to extensive experience in project management.

An assessment ofthe capacity of the implementing agencies to implement procurement actions for the project has been carried out. The assessment reviewed the organizational structure for implementing the project and the interaction between the project staff responsible for procurement and the relevant Ministry central unit for administration and finance.

Most of the issues and risks concerning the procurement component for implementation of the project have been identified and include:

0 procurement plan (PP) and general procurement notice (GPN) have been finalized, 0 prepare and agree with the World Bank on a Procedural Manual by effectiveness, 0 provide additional training, specially for staff in DGISB, use new SBD and RfP based on 2004 Guidelines.

The corrective measures which have been agreed are described in the Attachment 1, at the end of this Technical Annex.

The overall project risk for procurement is average.

Procurement Plan The Borrower, at appraisal, finalized a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the World Bank during appraisal, and is available at the PCO ofthe RSSP Project, Ministry of Infrastructures and Transports, Praia - Cape Verde. It will also be available in the project’s database and in the World Bank’s external website. The Procurement Plan will be updated in agreement with the World Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Frequency of Procurement Supervision In addition to prior review supervision to be carried out from World Bank offices, the capacity assessment of the implementing agency has recommended field supervision missions at least every six months to carry out post review ofprocurement actions.

54 Details of the Procurement Arrangements Involving International Competition The RSSP program will be funded by the Government of Cape Verde, IDA and the Millennium Challenge Corporation (USA), which has indicated it will follow World Bank procedures and the institutional arrangement.

Goods, Works, and Non Consulting Services (a) List of contract packages to be procured following ICB and direct contracting:

3 Road 10 0.59 ICB NO Yes Prior July 26, 2005 IDAiGoCV 4 Works for 0.55 ICB No Yes Prior October 3 1, IDA LEC (Civil 2005 Engineering Laboratory)

5 Road 1, 2, 3, 17.0 ICB No Yes Prior June 28,2005 MCC 4&5 6 Bridge 11, 12 4.31 ICB KO Yes Prior July 6,2005 MCC 7 Road 8 4.52 ICB No Yes Prior April 7, 2006 tbd

EQUIPMENT 8 Laboratory 0.33 ICB NO No Prior June 26,2006 IDA equipment

(b) ICB contracts estimated to cost above US$ 250,000 for goods and US$ 500,000 for works per contract and all direct contracting will be subject to prior review by the World Bank (unless determined differently in the procurement plan).

Consulting Services (a) List ofconsulting assignments with short-list of intemational firms.

2 3 4 5 6 7

Ref. Description of Estimated Selection Review Expected Comments No. Assignment Method by Bank Proposals cost (Prior I Submission (financers) Post) Date (us$xlooo) Technical assistance 100 QCBS Post Sept. 7, IDA to IGOPP 2005 Technical assistance 98 QCBS Post July 30, IDA to LEC 2005

55 I5

(b) Consultancy services estimated to cost above US$ 200,000 per contract and all single source selection ofconsultants (firms) will be subject to prior review by the World Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$ 100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

56 ii

Bi -e,

0E 3

a 9

..

L 0

Annex 9: Economic and Financial Analysis CAPE VERDE: Road Sector Support Project

Economic Analysis

Overall Methodology and Tools Applied

The economic analysis methodology is adapted to the particular context and type of roads existing in Cap Verde. In particular, the overall road network is relatively small (1,350 km in all nine inhabited islands), and on highly varied terrain, within each island. Given the island character of the country, in which survival depends on links to air and sea transport, the prime objective of the island networks is to ensure a continuous network linking the population with social services, local markets and finally, to ports and airports. As noted, parts ofthese networks are in a state ofdeterioration, while other parts are still incomplete, due to lack ofinvestment.

Traditional economic analysis tools include cost-benefit analysis, which apply the Highway Design Standards Model (HDM4) and the Roads Economic Decision Model (RED). These tools utilize expected reductions in vehicle operating costs (VOC) as the principal economic benefits. However, it is generally accepted that the traditional VOC-based economic analysis can be inadequate to capture the full benefits of low volume road investments, or investments where there is currently little or no existing baseline traffic. In certain cases, such as bridges and new roads leading to development zones, various approaches are used to quantify economic benefits, based on reasonable relationships which can be discerned between a road investment and surrounding economic activity. In other cases, however, where a road investment is essentially improving basic access to rural populations, adequate quantification of social or other economic benefits requires a large amount of data which is rather expensive and difficult to monitor. In such cases, the concept of “cost-effectiveness to achieve a desired result” is often applied. In these cases, the cost-effectiveness indicator for purposes ofcomparing alternative investments is usually the “least cost solution”, given technical and other parameters specific to the investment.

In this context, the project roads have been divided into three categories for purposes of economic analysis:

0 Roads with significant initial traffic levels, for which a cost-benefit analysis is conducted based on VOC savings. For these roads, the main objective is to reduce the cost oftravel, as expressed in VOC savings. 0 Bridges for which a cost-benefit analysis is conducted based on quantified non-VOC economic benefits. For these investments, the main objective is to remove a critical transport constraint, which has a profound affect on economic activity. 0 Rural access and “social” roads, for which a cost-effectiveness approach is undertaken. For these roads, the main objective is to ensure basic minimum access requirements to isolated populations to social and administrative services and market opportunities.

62 The following table summarizes the prospective projects and the evaluation methods applied.

I 1 1 OreBos-Pedra Badelo (Santiago) I 11 1 298 1 Cost-benefit-VOC 1 ~ 2 Cruz Grand - Calhetona (Santiago) 15 440 Cost-benefit - VOC 3 Volta Monte- Ribeira Prata (Santiago) 15 9 Cost-effectiveness Assomada-RincBo (Santiago) 4 -Achada Grande 9 46 Cost-benefit - VOC -Tabarette 7 497 5 Fonte Lima-JoBo Bernard0 (Santiago) 9 32 Cost-effectiveness 6 Alcatraz-Figuetra (Malo) 11 None Cost-effectiveness 7 Ribiera Brava-Tarrafal (Si0 Nicolau) 27 290 Cost-benefit - VOC -8 Tarrafal-Praia Branca-Ribiera Prata (SHo Nicolau) 22 97 Cost-effectiveness 9 CaleijBo-Cabqalinho-Tarrafal (Si Nicolau) 8 None Cost-effectiveness IO Salamansa-Norte de Baia-Calhau (SBo Vicente) 11 None Cost-benefit - Non-VOC 2x 11 Bridge at Ribeira Grande (Santo Antgo) (2) 5521765% Cost-benefit - Non-VOC 6Om Br + 200m Bridge Vila das Pombas et le Liaison Vila das Pombas-Eito l2 40m Br IIkm 671,410* Cost-benefit - Non-VOC (Santo AntBo)

Traffic Study

Present traffic levels. Twelve hour traffic counts were carried out on evaluated roads for one or two-day periods in August 2004. These results were validated with 7-day traffic counts also carried out in December 2004, from which it was determined that average daily traffic levels were similar and daily variations are relatively low, confirming the use of one or two day counts as a basis for average vehicle traffic per day. The below table provides the results of traffic counts for all the project roads

Average Daily Traffic Counts on Roads (7 AM to 7 PM)

hloto Car Pick- 1 RIini Small Large Total # Project Xame Up \VD Bus Truck Truck

Orgiios-Pedra Badejo

63 Caleij Bo-Cabeqalinho-Tarrafal INoTrafiicI ------191 (

Les ponts de Ribeira Grande (Santo Antgo) Ribeira Grande- 21-22 Aug - 57 190 99 125 27 4 502 Porto de Sol 11 Les ponts de Ribeira WGrande (Santo Antgo) RibeiraGrande- 21-22Aug - 100 244 91 197 31 32 695 Paul Pant de Vila das Pombas et le Liaison Viladas Pombas-Eito 23 Aug 49 103 148 16 167 (Santo Antso)-Pont de Vilas 23 Sept 52 24 610 Das Ponbas Pant de Viladas Pombas et le 12 Liaison Vila das Pombas-Eito 23 Aug 8 54 140 53 93 26 7 373 (Santo Antso)-Vila Das Ponbas-Elto

It was estimated that night traffic would amount to 3% from 7 PM to 12 PM; and 7% for the hours 12 PM to 7 AM; for a total of 10% ofthe 12 hour daily traffic counts. Although during the December counts, 18% of daytime traffic was counted, the 10% figure was retained as a conservative estimate. This was added to the counted traffic levels to estimate the baseline traffic for the year 2004, as follows:

BaselineTraffic Levels in the Without Project Scenario - 2004 (vehicles per day)

Proj I Total Traffic I Counted i Sighttime 2o04 1 1 1 1 OrgBos-Pedra Badejo (Santiago) 1 271 1 27 I 298 I 345 1

, , Detournement Salamansa-Norte de Baia-Calhau (SBo No traffic

64 Traffic composition. The traffic counts revealed a predominance ofpickup trucks on the three Santiago roads followed by all terrain vehicles, light trucks and minibuses. On San Nicolau, traffic is more evenly spread among pickups, all terrain vehicles and minibuses, with light trucks less in evidence. In all cases, heavy trucks account for only 4-7% of total traffic. While the composition oftraffic may change somewhat due to road improvements, particularly an increase in small vehicles and mini-buses, there is no data upon which to base such an assumption. Therefore, the same composition ofvehicle types was assumed in the traffic projections.

Future traffic growth rates. Since there is virtually no historical traffic growth data in Cape Verde, two main indicators were considered as a basis for traffic projections: growth in national income (GNP) and growth in the vehicle fleet. Historically, Cape Verde has experienced steady GNP in the last decade: 6.3% between 1993 and 2000; and 7.1% between 1997 and 2000. However there was a deceleration of economic activity in 2001, although since then, the economy is on an upward trend, with rates of 4.7%, 4.9% and 5.3% respectively in 2001, 2002 and 2003. In addition to remittances, the “tertiary” sector has dominated this growth, with strong performance of tourism and hotel services, as well as transport, banking, insurance and telecommunications. Important growth is also being seen in light manufacturing. In the last ten years, the vehicle fleet has grown at a rate of 12.6%, also in the last three years at 12%, which is consistent with the strong growth in the transport sector. Based on these trends, a conservative growth rate of 5% was assumed throughout the 15-year analysis period. Generated traffic. Future traffic levels are based on: (i)normal traffic, which is traffic that would continue to exist without the project; (ii)generated traffic, which is traffic that is suppressed because of the bad road conditions and the high VOC’s; and (iii)in some cases diverted traffic, the latter being traffic which today is using an altemative road, but which will switch to the new road because it is shorter and/or better. Because of the limited size of the network and altemative routes, diverted traffic was not considered. However, generated traffic was assumed to occur based on a cost-demand elasticity factor of0.5.

Based on the above assumptions, the following traffic levels at first year, 5-year and 15-year time horizons were projected:

Traffic Proiections (Vehicles Der davl Proj 1 Project Name 2007 2012 2020 NO. I 1 1 1 OrsBos-Pedra Badeio (Santiago) I 315 I 588 I 1,011 I 2 Cruz Grand - Calhetona (Santiago) 554 868 1,492 3 Volta Monte- Ribeira Prata (Santiago) 11 17 30

65 Assomada-Rincio (Santiago) - Achada Grande 58 91 157

4 Assomada-Rincilo (Santiago) - Tabarette 626 98 1 1,685 5 Fonte Loma - Bernard0 (Santiago) 37 52 78 6 Alcatraz-Figueira (Maio) 7 Ribiera Brava-Tarrafal (San Nicolau) 366 573 984 Tarrafal-Praia Branca-Ribiera Prata (San Nicolau) 122 191 328 8 Tarrafal-Praia Branca-Ribiera Prata (San Nicolau) 19 30 52 9 Calei jio-Cabecalinho-Tarrafal (SHo Nicolau) 10 Dttournement Salamansa-Norte de Baia-Calhau (Si0 Vicente) Les ponts de Ribeira Grande (Santo Antilo) Ribeira Grande-Paul 695 1,089 1,872 Pont de Vila das Pombas et le Liaison Vila das Pombas-Eito 1 1 963 1,508 2,592 (Santo Antilo)-Pont de Vilas Das Ponbas Pont de Vila das Pombas et le Liaison Vila das Pombas-Eito 845 1,324 2,275 (Santo AntBo)-Pont de Vilas Das Ponbas 12 Pont de Vila das Pombas et le Liaison Vila das Pombas-Eito 517 809 1,391 (Santo AntBo)-Vila Das Ponbas-Eito

Technical Options and Estimated Costs

Investment costs. The design and cost estimates considered three technical options - cobblestone, double surface treatment (DBST) and asphalt paved. For roads with little or no existing traffic, the least cost solution is cobblestone and therefore the DBST and asphalt pavement options were not considered. For Project # 4, Assomada-Porto Rincao (Santiago) a mixed solution was introduced, involving asphalt only on the first section of 7 km, which is currently cobblestone with relatively high traffic (over 400 vpd); with the remaining 9 km of earth track (with little existing traffic) upgraded to cobblestone. For the two bridge projects (#11 & #12), the least-cost option, considering the high traffic levels on feeder roads, was considered to be a box culvert design (listed below under the “cobblestone” option). Below is a summary of the estimated costs for each option.

Project 7: Ribeiera Brava-Tarrafal (Sao Nicolau) 26 3,836,591 147,561 5,876,468 226,018 7,043,305 270,896 Project 8: Tarrafal-Praia Branca-Ribeira da Prata 19 4,181,282 220,067 5,817,979 306,209 6,344,666 333,930 (Sa0 Nicolau) Project 9: Caleijao-Cabecalinho (Sa0 Nicolau) 5 4,724,720 944,944 NIA NIA NIA NIA

66 I I I I I I I I I Average Costikm with #9 141 234,206 Average Costikm without #9 120 204,592 216,211 304,018 % Increase in average costikm (without #9) over 35% 49% cobblestone

Project # 9, Caleijao-Cabecalinho (Sa0 Nicolau), entails the construction of a new road through an existing mountain area, resulting in rather high per km costs, even for cobblestone. In addition, it was noted that a new alignment should be sought and therefore it was recommended not to pursue this project at this time. For this reason, the average per km costs was calculated with and without Project # 9. As can be seen, average investment cost/km rises by 37% from cobblestone to DBST, however this cost rises by only another 11 percentage points when upgrading to asphalt pavement. For Project # 4, Assomada-Porto Ricao (Santiago) a mixed solution #4a (cobblestone for 9 km; asphalt for 7 km) was also considered, because ofthe high traffic levels existing on the section which is currently cobblestone. A residual value of 30% of the investment cost was assumed at the end ofthe evaluation period.

Maintenance Costs. Annual maintenance costs were estimated as they relate to each technical option. Although there is little current data on maintenance costs, the following assumptions were made

0 Labor costs: maintenance worker = 1000 ecv/day skilled worker = 1600 ecv/day 0 Maintenance ofdrains and slopes: 6 times/year @ 100 ml/day/worker 0 Cleaning of forms and culverts: 2 timeslyear @ 4 workers/day/culvert 0 Local repairs ofriding surface: 1 time per year o Cobblestone: 3% ofriding surface o DBST: 5% ofriding surface o Asphalt: 1% ofriding surface

0 Periodic Maintenance: o Cobblestone: renew 25% surface every 10 years o DBST: renew surface every 6 years o Asphalt: renew surface every 15 years

67 The above assumptions yielded the following average costs/km:

Routine Periodic Maintenance ' hlaintenance Average CostEear Average Cost ' Cobblestone 2,097 12,504 DBST 3,485 62,143 Asphalt 1,924 127,3 17

These assumptions will be reviewed and revised during the project based on actual experience by the Road Agency.

Cost-Benefit Evaluation based on Vehicle Operating Costs

Economic context. An economic cost-benefit analysis was carried out utilizing VOC benefits on roads # 1, 2, 4 and 7. These are economically important secondary roads, with 2004 daily traffic levels ranging from 290 to 490 vehicles per day and serve agricultural and fishing populations. The following summarizes the key characteristics ofthese roads:

Roads using. Cost - Benefit Analvsis based on VOC Population Directly Served Located in the Ribeira Seca river basin, which is one (Santiago) of the most agriculturally productive zones in the country, and which provides produce to the capital 3,693 city of Praia. In addition to its regional importance, the road directly serves over 10 rural communities. 2 Heavily traveled and located in the Ribeira de (Santiago) Flamengos Seca and serves numerous communities practicing both irrigated and rainfed agriculture, 6,472 serving the major markets of Tarrafal, Assomada and Praia. Assomada-RincBo (Santiago) Provides the sole access to seven communities and the fishing port of RincBo to the rest of the island. It runs from the major town of Assomada (population 10,500 7,000), on the main road, and serves another 3,500 farming and fishing populations, including the agricultural zone of ChBo de Tanque and the fishing

~ I I port of Rincio. Ribiera Brava-Tarrafal (SBo 1 290 Principal road of the island, linking the main city of Ribeira Grande with the second major town of Tarrafal, site of the island's main port and fishing and commercial center, including a tuna canning factory. The road passes through several river 8,100 + basins, including the irrigated zone fed by the Galerie Ribiera de Faja. It directly serves a population of 8,100, not Grande counting the town of Ribiera Grande. It is virtually the lifeline for all marketing of agricultural, livestock and fishing products, as well as access to social and administrative services.

68 Evaluation method. The RED (Roads Economic Decision Model) was utilized, which was developed by the World Bank specifically for very low volume roads. The advantage of the RED model is that it can be used for the analysis of road projects where relatively little exact information is available. It is able to substitute actual information on road roughness by estimating present road roughness as a function of observed vehicle speeds. Although the RED model allows for the introduction of exogenous benefits (such as social and other benefits), this feature was not used. The economic benefits taken into consideration are exclusively Vehicle Operation Costs (VOC) benefits from normal traffic and generated traffic. Due to the limited size of the network, diverted traffic was not considered relevant. In the absence of any reliable information on accidents, road safety benefits were also excluded from the analysis.

Shadow pricing. Benefit and cost calculations were adjusted to reflect economic values, or their opportunity cost. In particular, taxes were deducted from the imported elements of vehicle operating costs, such as fuel and tires. For construction costs, financial prices were divided into labor and equipmentlmaterials. Labor was further distinguished among local skilled, local unskilled and foreign, while equipment/materials was divided into local and foreign costs. An analysis of the local labor market shows about 20% unemployment, which suggests an opportunity cost of local labor lower than the market wage, although it is also noted that increasingly unskilled labor is coming from other West African countries willing to work for lower wages. To account for these factors, an adjustment coefficient of0.7 was applied to reflect the opportunity cost of labor, given local unemployment, as well as the abundance of workers from West Africa willing to work for lower wages. In addition, financial costs of imported equipment/materials were adjusted downward by 0.15 so as to eliminate the tax element in these costs, which are merely transfer payments and distort their actual opportunity cost to the economy.

Results. The table below summarizes the results ofthe analysis. All road projects yield at least 12% internal rate of return for all three levels of service. The roads consistently show a small difference in the rate of return between cobblestone and double surface treatment, with a relatively higher rate ofreturn for asphalt pavement. These results suggest that the added cost of double surface treatment does not offer significantly higher vehicle operating cost benefits than that of cobblestone. On the other hand, the added cost of asphalt pavement is more than compensated by the higher savings in vehicle operating costs, vis-a-vis the cobblestone surfacing.

NPV = Net present value @ 12% in US$ m

It is concluded that for roads 1, 2 and 7, asphalt paving is economically justified and recommended. For road # 4, the mixed solution (part cobblestone, part asphalt) is recommended, given the high traffic levels found on the first half of the road, and little existing traffic on the

69 second half. The sensitivity analysis (Annex 9) shows that the results are generally more sensitive to a reduction in VOC benefits than an increase in investment costs. Given the conservative assumptions on baseline traffic and traffic growth, these results appear reasonably robust.

The sensitivity analysis shows that the results are generally more sensitive to a reduction in VOC benefits than an increase in investment costs. For the recommended options, Roads # 2 and #4a maintain rates of return above 12% for both increased cost and decreased benefit scenarios; while Roads # 1 and 7 fall marginally below. In the worst case scenario (cost + 20%; benefits - 20%), the economic rates ofreturn are: 7.8% for Road # 1; 11.5% for Road # 2, 10.2% for Road # 3; and 8.9% for Road # 7. Given the conservative assumptions on baseline traffic and traffic growth, these results appear reasonably robust in relation.

Further sensitivity analyses on the recommended solutions showed that changes in assumptions on maintenance costs do not significantly alter these results. Rather, they confirm that the vehicle operating cost savings from a smoother riding surface more than compensate the higher investment cost for asphalt pavement.

Asphalt 16.0% 2.000 13.1% 0.635 12.5% 0.235 10.0% 1.131

70 NPV = Net present value @ 12% in US$ m.

Cost-Benefit Analysis for Bridges Economic context. The main economic justification for the bridges on San Ant50 Island is to resolve a situation in which two major towns experience a blockage in traffic when it rains, as well as major slow downs of traffic at all other times. Both towns serve surrounding agricultural areas and also are located on the island’s main ring road, part of which is currently under construction. The continued absence of these bridges will thus prevent continuous movement along the main road, diminishing the value ofthe current construction activity. The main roads leading to the bridge sites are cobblestone surface, with an acceptable level of service and have average daily traffic ranging from 410 to 760 vehicles per day. The two projects are briefly described below:

Rte. Porto In the northeast, the town of de Sol: located at the confluence of two seasonal rivers: Grande: 552 Ribeira Grande and Ribeira da Torre. The 2 1,480 island’s main road from Porto Novo arrives Rte. along the Ribiera Grande, and at a certain point, Paul: four roads converge along these rivers at the 765 town. When it rains, the river banks flood the southem end of the town on the road to Paul.

71 at Vila das Pombas Br.+ Viladas follows the Ribeira da Paul,'then is located in and Liaison Vila das lkm Pombas: the river bed, which makes travel impossible Pombas-Eito (Santo 67 1 when it rains. Residents in the immediate area Antgo) grow sugar cane, sold to an agro-industrial Rte. complex producing a sugar-based alcoholic Eito: drink, grog. It should also be noted that an EU 410 funded project is constructing a road from Porto Novo along the east coast to Paul, and the construction of this bridge would guarantee continuity along the cost to Ribeira Grande.

Evaluation method. Since the main justification for the bridges is to address a cut off in transport service, the Consultant has quantified benefits in terms of the lost revenue due to a transport blockage. For this, the Consultant first determined from local interviews that the towns are cut off on average 4 times per year for 4-5 days. From this, he conservatively assumed that the towns experience 8 days in which they are effectively cut off. The Consultant then estimated the lost revenue per day of blockage, based on the counted vehicles per day, the number of passengers per vehicle and the average daily income ofpassengers and drivers. This was further reduced by 25%, based on the assumption that only '/4 of all travel is work-related. Finally, annual revenue losses from the blockage were derived by multiplying the daily loss by 8 days blockage per year. The table below summarizes the results of this calculation for the two bridges.

Calculation of Daily Lost Revenue of Bridge Users

#11 Traffic

@Pd)

Revenue (ecv/day)

#12

Traffic Ponbas 62 108 53 61 107 30 8 429 (VPd) Rte. Eito 126 121 60 142 205 64 29 747 Total 188 229 113 203 312 94 37 1,176 Work Related (25%) 47 57 28 51 78 24 9 294

72 Revenue Personsivehicle 2 10 2 2 15 1.5 1.5 (ecv/day) Average revenueiday 2,000 1,000 2,000 2,000 1,000 2,000 2,000 Total revenue lost/day 188,253 573,247 112,938 203,029 1,168,073 70,192 28,086 2,343,817

Results. The results shown in the table below indicate a strong economic rate ofreturn for both sets of bridge investments. In both cases, sensitivity tests involving increasing costs and decreasing benefits still yield rates ofreturn higher than 12 %.

Cost-effectiveness Analysis for Socially Justified Roads For the remaining roads, least-cost technical solutions were sought to achieve the objectives of increased mobility to rural populations. In addition to the 3 basic solutions evaluated formally, the gravel road option was considered, but was felt not appropriate in Cape Verde, particularly in view of: (i)mountainous terrain; (ii)higher risk of wash outs; and (iii)higher routine maintenance costs. Thus, the cobblestone option is judged the least cost alternative, given these technical factors. However, the appraisal revealed that experience is showing an increasing shortage of skilled stone cutters and the time required for cutting new stones could significantly lengthen the time needed to complete the works. For this reason, a program ofrecycling stones from roads being upgraded from cobblestone to asphalt will be incorporated into the program.

Cost recoverv Local contributions to investment costs will be made by the Government. Routine maintenance on the network will be financed by the newly operational Road Fund. The Fund’s resources are generated by user fees (primarily a fuel levy), which are to be directly transferred to the fund without passing through the Treasury. In theory, this mechanism should provide adequate and reliable funding for routine maintenance on the roads rehabilitated under the project. The project will provide institutional support to the Road Institute and Road Fund in the planning and implementation ofthe annual maintenance programs.

Fiscal Impact The operationalization of the Road Maintenance Fund will reduce the burden of expenditure from the national budget for sustainable road maintenance, by relying on road user- charges. Once the Road Maintenance Fund is operational, a portion of the Road Agency’s fixed operational and variable costs for road maintenance activities will be covered by the Road Maintenance Fund, while its other fixed and variable costs related to road investment planning will be covered by the Government.

73 Annex 10: Safeguard Policy Issues CAPE VERDE: Road Sector Support Project

Safety of Dams (OP 4.37, BP 4.37) No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) No

Environmental Screening Category The project is placed in environmental screening category B. This category is justified, since all these activities are on existing alignments and they do not directly affect protected areas or identified sensitive natural habitats.

Environmental Studies An Environmental Impact Study, dated September 2004, was carried out for the original twelve prospective projects being considered for project financing (one activity was dropped at appraisal), by the consulting firm carrying out the feasibility study, Simon & Christiansen, Luxembourg. The study included a project description, institutional and legal framework, an overall description of environmental and social baseline conditions on each of the islands, potential environmental and social impacts and mitigation measures. For each individual project, the study describes specific conditions and presents an Environmental Management Plan (EMP).

Safeguards Related Risks and Measures Taken The construction of two small bridges on the Vila das Pombas and 1 km liaison between Vila das Pombas and Eito will involve a widening of the road, which is presently only 3 meters wide at the south end over a length of 200 meters. Although no people will be resettled, this will involve minor land taking, triggering the Involuntary Resettlement Safeguards Policy. An Abbreviated Resettlement Plan has been prepared with local consultations involving the affected persons and the municipality, approved and disclosed, which is summarized below:

Property owner People Impact on the Properties Expected compensation affected Type ofland Area, m2 Georgina Melo 1 Agriculture 200 200 m2of land in the land (sugar neighborhood

74 Farmer worker People Impact on the Properties Expected compensation affected Type of land Area, m2 Antonio Jose Santos 6 Agriculture 200 $US 3,000 land (sugar (250.000 ECV) cane)

The Paul Municipality will give the land owner 200 m2of land with similar characteristics in the neighborhood, as compensation. For sugar cane plantation on this land, the farmer will be compensated in cash (ECV250.000), which will be covered by the project.

Consultation Processes The Environmental Impact Study included local consultations at each of the project sites. The results ofthese consultations provided input to the technical designs ofeach project.

Safeguard Related Impacts and Mitigation Main impacts. The main environmental impacts identified during the construction period involve potential destruction to agricultural land, walls or other structures along the roads, resulting from earth excavation and disposal of cut material. Also noted is potential pollution of soil and groundwater resources from spillage of petroleum products and paving materials. Potential negative impacts of contractors’ construction camps include groundwater or soil pollution from sanitary facilities and the increased risk of HIV/AIDS and other sexually transmitted diseases. Temporary air quality impacts will result from excessive dust and uncontrolled emissions from construction vehicles. Borrow areas, if not protected during, and rehabilitated after use, can pose a public safety hazard and lead to land degradation and/or erosion. Impacts during the operational period include increased risk of accidents due to higher speeds along the improved roads, potential increase in air emissions and the above impacts associated with road maintenance contracts.

Impact Reduction Measures during Construction. Specific measures to reduce potential impacts of physical works will be taken; regarding the detailed design, construction tenders, construction process and contractor performance monitoring. Contracts will contain requirements for proper management ofconstruction waste; control measures for waste fuel, oil and lubricants; reduction of noise and dust levels; and rehabilitation of areas used for construction detours, and sites used to temporarily store construction materials. Contractors will be required to provide and maintain equipment with proper noise abatement controls.

Contract Clauses. The project will utilize the Standard Bidding Documents for Small Works, May 2004 (less than US$ 10 million). This standard contract does not include specific provisions addressing environmental and health and safety issues, thus such issues will be specified in a special section of the Technical Specifications. This will include: (i)specific clauses for proper management the worksite and construction camps; and (ii)the road-specific Environmental Management Plan (EMP).

HIV/AIDS Awareness Program. Additionally, contractors will be required to carry out an HIV/AIDS Awareness Program for Contractor Employees and Others. This will be based on the

75 standard format for engaging communications specialists developed by the Cape Verde Committee to fight HIVIAIDS (CCS-SIDA).

Pre-Tender Conference. To ensure full understanding of the above clauses and HIV/AIDS Awareness Program by the contractors, all pre-qualified contractors will attend a Pre-Tender Conference, where they will be briefed concerning their responsibilities to address environmental, health and safety issues. These briefings will outline specific provisions of the construction tender documents and contracts, as laid out in the Part 11, Conditions of Particular Application (COPA).

Management of Operational Impacts. The Project will address management ofimpacts during maintenance operations identified earlier for each road. These may be implemented through financial support from the Road Maintenance Fund to avoid deterioration of the rehabilitated road and associated dust and safety problems. Maintenance contractors will be required to follow procedures similar to those for the construction contractors concerning proper disposal of construction waste, control measures for waste fuel, oil and lubricants and adoption ofhealth and safety measures for personnel. Expected increases in traffic levels are not expected to be so high as to bring about a significant increase in air pollution, and this may in fact decrease due to smoother and less dusty roads and improved vehicle standards. Suspended dust caused by vehicles will be reduced by the rehabilitation of the roads, due to the large number of road subprojects, which include resurfacing, and sealing operations.

Capacity and Commitment of Implementing Institutions Procurement of consulting and construction contractors will be managed by the Road Agency, which has inherited the ITP-established knowledge of World Bank-compatible procurement procedures, which include appropriate contract clauses and pre-bid conferences noted above. The General Directorate of Infrastructure and Basic Sanitation, who also has been successfully implementing ITP-financed contracts, including any environmental issues, will oversee contract execution. In addition, the Coordinator in the RSSP-financed Road Sector Coordination Office, who is fully familiar with World Bank environmental requirements, will verify compliance with Environmental Management Plans, for each RSSP-funded project.

Mitigation Funding Cost ofDesign Measures. The quantities, specifications and estimated costs ofdesign measures to avoid or mitigate negative impacts have been assessed by the design consultant and incorporated into the works bidding documents. The contractor will execute all required works and will be reimbursed through pay items in the bill ofquantities, which will be financed by the project.

Temporary Land Acquisition. Temporary acquisitions for diversions, camps, borrow areas and other work sites will constitute a community contribution. Additional costs of rehabilitating all such areas to their original state will be incurred by the contractor and borne by the project, as a pay item in the bill ofquantities.

HIV/AIDS Awareness Program. The quantities, specifications and estimated costs of the HIV/AIDS Program will be assessed by the design consultant and incorporated into the works

76 bidding documents. The contractor will execute the program through a subcontract and will be reimbursed through pay items in the bill of quantities, which will be financed by the project.

Abbreviated Resettlement Plan Costs. Under the Abbreviated Resettlement Plan, the Paul Municipality will give the owner 200 m2 of land with similar characteristics in the neighborhood as compensation. For sugar cane plantation on this land, the farmer will be compensated in cash (ECV250.000 - equivalent ofUS$3,000), with Government counterpart funds.

Operational Costs. During operations, the costs of mitigation in the course of maintenance contracts will be incurred by the contractor and bome by the employer, who may be the Road Fund, Government or local government, and reimbursed as a pay item in the bill of quantities. The maintenance of water harvesting, footpaths and other social measures will be the responsibility of the community. In addition, the community will be expected to carry out basic cleaning of drains and culverts as part of their contribution to maintenance. The cost of safety and driver information campaigns will initially be borne by the project; however the communities will be responsible for continuous community education and safety campaigns. Selected safety audits will be carried out by the project, in conjunction with communities.

Monitoring and Supervision Arrangements During the construction period, the Consultant Resident Engineer (RE) will be responsible for monitoring compliance by the contractor of all environmental related issues as specified in the contact clauses, EMP and Abbreviated Resettlement Plan. This will be reported in the RE’S monthly reports, which will be monitored by the DGISB. The RSSP Project Coordination Office will also verify compliance with contract clauses prior to payment.

Supervision Arrangements Following its exercise ofprior review, the World Bank will monitor the implementation of road specific EMPs and the Abbreviated Resettlement Action Plan. The World Bank will also carry out targeted and spot review of specific social cases and resettlement plans involving land donation and asset replacement, as part ofregular supervision, or separate missions.

77 Annex 11 : Project Preparation and Supervision CAPE VERDE: Road Sector Support Project

Planned Actual PCN review December 18,2003 December 18,2003 Initial PID to PIC March 15,2004 Initial ISDS to PIC February 5,2004 Appraisal February 7,2005 February 7,2005 Negotiations March 24, 2005 March 24,2005 Board/RVP approval May 19,2005 Planned date ofeffectiveness August, 2005 Planned date ofmid-term review August, 2007 Planned closing date August 3 1,201 0

Key institutions responsible for preparation ofthe project: 0 Ministry ofInfrastructure and Transport (MIT)

World Bank staff and consultants who worked on the project included:

Name Title Unit Gylfi Palsson Task Team Leader AFTTR Linda Patnelli Language Program Asst. AFTTR Canne Megueulle Temporary AFTTR Eduardo Brito Senior Counsel, Country Lawyer LEGAF for the Republic of Cape Verde Suzanne Morris Senior Finance Officer Ibou Diouf Engineer AFTTR Serigne Omar Fye Sr. Environmental Spec. AFTS 1 Fily Sissoko Financial Mgmt. Spec. AFTFM Laurent Mehdi Brito Procurement Specialist AFTPC Abdelghani Inal Consultant Carlos Fonseca Consultant

World Bank funds expended to date on project preparation: 1. Bank resources: US$160,400 2. Trust funds: da 3. Total: US$160,400

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$35,000 2. Estimated annual supervision cost: US$120,000

78 Annex 12: Documents in the Project File CAPE VERDE: Road Sector Support Project

- Project Concept Note (PCN)

- Project Information Document (PID)

- Integrated Safeguards Data Sheet (ISDS)

- Feasibility and Design Study

- Environmental Assessment (Rapport de faisabilite - Etude d’Impact sur 1’Environnement)

- Abbreviated Resettlement Plan

- Road Management Study

- Socio-economic Baseline Study

- Public and Private Works and Property Markets - Action Plan for Implementing the Restructuring (IGOPP Study)

- Plan du Development Final de 1’Evaluation des Necessites et plan d’Action du Laboratoire d’Ingenierie Civile (LEC)

79 Annex 13: Statement of Loans and Credits CAPE VERDE: Road Sector Support Project

(As of April 2005) Difference between expected and actual Original Amount in US$ Millions disbursements

Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. ID Rev’d

PO78860 2005 CV-PRSC (FY05) 0.00 15.00 0.00 0.00 0.00 14.84 0.00 0.00 PO74055 2003 Growth and 0.00 11.50 0.00 0.00 0.00 10.11 -2.82 0.00 Competitiveness Project PO74249 2002 CV HIV/AIDS APL 0.00 9.00 0.00 0.00 0.00 2.64 -1.11 -2.00 (FY02) PO40990 1999 CV ENERGYIWATER 0.00 17.50 0.00 0.00 0.00 7.38 7.32 0.00 PROJECT PO42054 1999 CV-GEF Energy & Water 0.00 0.00 0.00 4.70 0.00 3.85 3.85 3.85 SIL ( FY99) Total: 0.00 53.0 0.00 4.70 0.00 32.82 7.16 1.85

CAPE VERDE STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars (As of February 2005)

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1992 AEF Growela 0.15 0.00 0.00 0.00 0.15 0.00 0.00 0.00 2004 CECV 6.63 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 6.78 ,o 0.00 0.00 0.00 0.15 0.00 0.00 0.00

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

80 Annex 14: Country at a Glance CAPE VERDE: Road Sector Support Project

4122105 I - Sub- Lower- POVERTY and SOCIAL Cape Saharan middle- Verde Africa income 1 Development diamond' 2004 Population, mid-year imillionsJ 0.48 703 2,655 Life expectancy GNI per capita (Atlas method, US5J 1,690 490 1,480 I GNI (Atlas method, US$ billions) 0.81 347 3,934 r Average annual growth, 1998-04 I Population (%J 2.6 2.3 0.9 I Labor force (%J 3.8 2.4 1.2 ~ GNI Gross per + + primary Most recent estimate (latest year available, 1998.04) capita enrollment Poverty (% of population below national poverty line) Urban population (% of total populationi 66 36 50 Life expectancy at birth (years) 69 46 69 i infant mortality (per 1,000 live birlhs) 34 103 32 Child malnutrition (% of children under 5) 11 Access to improved water source Access to an improved water source (% ofpopulation) 74 58 81 Illiteracy (% ofpopulation age 15+J 24 35 10 Gross primary enroilmeit (% of school-age populationJ 144 87 112 Cape Verde Male 146 94 113 Lower-middle-income group Female 143 80 111

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984 1994 2003 2004 Economic ratios' GDP (US5 billions) 0.10 0.41 0.80 0.94 Gross domestic InvestmentiGDP 54.8 43.4 20.2 21.6 Trade Exports of goods and servicesiGDP 29.9 16.8 31.7 31 2 Gross domestic savlngsiGDP -5.6 2.8 -14.0 -12.9 Gross national savingsiGDP 11.1 36.2 10.8 11.2 Current account balanceiGDP -44.0 -9.1 -9.7 -8.4 Interest paymentslGDP 2.9 0.6 0.3 0.2 Total debtlGDP 74 4 36.7 45.4 40.4 Total debt servicelexports 10 0 4.3 5.3 2.8 Present value of debtlGDP 24.3 27.3 24.2 Present value of debtiexports 66.8 56.6 53.3 Indebtedness 1984.94 1994-04 2003 2004 2004-08 (average annual growth) GDP 6.4 5 9 5.0 5.5 5.5 Cape Verde GDP per capita 4 3 3.2 2.4 2.9 2.9 Lower-middle-income group Exports of goods and seruces -1 8 12.7 5.9 3.6 7.1

STRUCTURE of the ECONOMY 1984 1994 2003 2004 (% of GDPJ Agriculture 10.1 12.8 6.8 6.8 Industry 16.8 19.8 19.7 20.2 Manufacturing .. 9.5 8.0 0.5 Servlces 73.0 67.4 73.4 73.0 Private consumption 96.7 78.8 99.3 98.2 General government consumption 8.8 18.3 14.7 14.8 Imports of goods and Servlces 90.3 55.3 66.3 63.7

1984-94 1994-04 2003 2004 Growth of exports and imports (%) (average annual growthi z Agriculture 4.6 5.4 1.5 1.5 Industry 8.8 5.6 4.5 4.5 Manufacturing 13.1 6.6 4.7 4.7 Servlces 6.1 6.1 5.7 6.4 Private consumption 4.9 8.2 1.o 4.3 General government consumption 13.8 2.3 31.9 5.7 Gross domestic investment 4.0 -0.9 1.5 12.8 Imports of goods and services 1.9 8.0 2.2 1.4

Note 2004 data are preliminaryestimates Group data are for 2003 *The diamonds show four key indicators in the country (in bold) compared with its Income-group average If data are missing the diamond will be incomplete

81 Cape Ve'evde

PRICES and GOVERNMENT FINANCE 1984 1994 2003 2004 ~ Inflation (Oh) Domestic prices z (% change) Consumer prices 11 3 34 3.0 20 Implicit GDP deflator 60 77 2.8 25 Government finance (% of GDP. includes current grants) Current revenue 22 4 30 8 23.5 25 7 Current budget balance 07 10 2 2.5 38 Overall surplusldeficit -45 0 -18 9 -8.1 -7 4

TRADE 1984 1994 2003 2004 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 3 20 53 56 400 - Bananas 0 I Fish 1 Manufactures 2 Total imports (cif) 209 303 335

Food 65 65 68 100 Fuel and energy 5 26 26 Capital goods 98 111 117 1 98 99 00 01 02 03 04 Export price index (1995=1001 96 133 136 Import price index /1995=100) 92 133 136 c Exports Iimports Terms of trade (1995=100) 104 100 100

BALANCE of PAYMENTS 1984 1994 2003 2004 Current account balance to GDP (Yo) (US$ millions) I Exports of goods and services 31 69 253 292 Imports of goods and SerQces 93 224 529 596 Resource balance -62 -155 -275 -305 Net income -4 -4 -12 -1 1 Net current transfers 121 210 237 Current account balance -45 -38 -77 -79 Financing items (net) 40 35 80 85 Changes in net reserves 5 3 -3 -6 Memo: Reserves including gold IUS$ millions) 41 74 93 120 Conversion rate (DEC. local/US$i 84 9 81 9 97.7 90 0

EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 (US$ millions) :omposition of 2004 debt (US$ mill.) Total debt outstanding and disbursed 76 151 362 378 IBRD 0 0 0 0 IDA 1 27 131 133 Total debt service 5 6 20 12 IBRD 0 0 0 0 IDA 0 0 1 1 Composition of net resource flows Official grants 40 63 59 68 Official creditors 13 6 10 16 Private creditors 1 0 0 0 Foreign direct investment 0 2 31 38 Portfolio equity 0 0 World Bank program Commitments 0 8 0 0 <.IBRD E - Bilateral Disbursements 1 27 15 3 I . IDA D - Other multilateral F - Pnvate Principal repayments 0 0 0 0 >.IMF G - Short-term Net flows 1 26 15 3 Interest payments 0 0 1 1 Net transfers 1 26 14 2

Development Economics 4122105

82 Annex 15: Letter of Transport Sector Policy CAPE VERDE: Road Sector Support Project

Republic of Cape Verde Ministry of Infrastructure and Transport

Letter of Transport Sector Policy (March 8,2005)

Introduction

1. Under the Govemment’s Development Programme approved in March 2001, a main strategic goal is to develop basic economic infrastructure and promote urban and rural planning for balanced development. Cape Verde’s Poverty Reduction Strategy Paper (PRSP) is organized along five strategic pillars: (i)good governance; (ii)competitiveness to favor economic growth and employment creation; (iii)development and upgrading human capital; (iv) development of basic infrastructure, promoting regional development and protecting the environment; and (v) improving the effectiveness and sustainability of social protection system. The PRSP singles out the development ofroad infrastructure as a strategic development priority, without which growth vectors cannot develop. In this context, the Government has formulated a Strategic Programme for Infrastructure and Land Use 2002-2005. The Strategic Programme is based on in-depth analyses of the current situation and projected needs for the Transport, Water and Basic Sanitation, Land Management and Energy Sectors.

2. The underlying principle of the Government’s infrastructure development strategy is to clearly divide responsibilities between the public and private sectors. In general, the public sector’s role is to set policy, plan, legislate, arbitrate and regulate the processes involved with the construction, modernization and maintenance of basic economic and social infrastructure. The private sector is charged with the provision ofplanning, technical and implementation services as well as investment resources, within the policy and regulatory framework established by the State.

3. In line with these principles, the Government advocates private provision of transport services. Road transport and maritime services are now, with few exceptions, provided by the private sector and the Govemment is committed to increase the presence ofthe private sector in the port and aviation sectors. The Government is currently pursuing this goal and intends by mid 2006 to introduce concessioning ofport operations in larger ports and privatize the State airline.

4. The Govemment recognizes the strong interrelationship of the road sector with the maritime, port and aviation sectors and therefore will also, within the Road Sector Support Program, address with its partners related strategic and policy issues in the transport sector.

5. This Letter ofTransport Sector Policy summarizes the Government’s strategic objectives, policies and action plans for the Road Sector, as articulated in the Strategic Programme, and based on further analyses concerning road sector management and sustainable development of the road network.

83 Overview of the Road Sector

6. Cape Verde’s road network consists of 1,350 km spread among the nine inhabited islands, Between 1990 and 2000, the size of the network increased by 25%, with the percentage of roads in good condition increasing from 14% to 25%. While progress has been made by expanding road network coverage, gaps remain to achieve basic connectivity on the core and feeder road networks. In addition, although the now decommissioned Road Fund had existed since 1997, because of inappropriate financing mechanisms, it did not achieved reliable maintenance financing, which has led to increasing maintenance backlog and imperils the benefits previously obtained. Moreover, the institutional responsibility for road management has been subsumed under general infrastructure development, which, combined with inadequate Road Fund arrangements, has not lent itself to rational network management, nor to systematic road maintenance planning.

Strategic Objectives

7. The strategic objective ofthe Road Sector is to facilitate commerce and ensure access to social and administrative services through a continuous and sustainably maintained road network. As Cape Verde is an archipelago, this objective will be pursued by ensuring that:

. Each island has a core road network which links administrative centers, markets, ports and airports; . Each island has a system of local roads that provide rural communities with at least minimum reliable access to markets, services and the core network; and

1 The country has an efficient, transparent and sustainable system for managing and maintaining its core and local road networks.

Overall Policies

8. The above strategic objectives will be pursued through two principal policies:

Rationalize management of the road network, in line with the Government’s overall policy of promoting commercial management approaches and sustainable maintenance financing based on user-fees; and

1 Progressive establishment of a “maintainable network” through a priority investment program on the core and local road networks.

Strategic Measures

9. Overview. The Government is taking major steps in revamping institutional arrangements for management of the Road Sector. This involves: (i)reclassifying the road network and clearly assigning responsibilities and funding sources, for both investment and maintenance; (ii)creating a new Road Agency, dedicated to the planning and management ofthe road network, and a Road Consultative Council, with public and private sector participation;

84 (iii)establish a “Second Generation” ’ Road Maintenance Fund, whose sole mandate is to finance road maintenance through road user fees, also overseen by the Road Consultative Council; and (iv) focusing investment programs to fill critical gaps and progressively bringing the core network up to maintainable standard, while improving accessibility for populations in isolated areas. With World Bank assistance, the Government commissioned a Road Sector Management Study, which has provided the basis for action plans to implement these reforms, which are summarized in the Attachment.

10. Classification of the Road Network. The Government recognizes that the first requirement for effective road network management is a functional road classification, with clear assignment of responsibilities and sources of funding. Accordingly, a revised Road Classification has been drafted and is in process of approval. This Road Classification divides the road network into “national roads”, which constitute each island’s core road network linking population, administrative and economic centers with ports and airports; and “municipal roads”, which includes urban and feeder roads linking rural zones to larger centers and the island core networks.

11. Responsibilities. The distribution of road network responsibilities is based on Cape Verde’s particular geographic and administrative characteristics, as well as the size of the road network. The newly created Road Agency (Institute de Estradas - E) (described below in paragraph 1l), is responsible for overall planning and management of the nation’s road network. Within this framework, the IE plans investment and maintenance ofthe national roads, as well as investment on municipal roads. The IE directly manages road maintenance contracts, while the General Directorate of Infrastructure and Basic Sanitation manages investment contracts. The municipalities, for their part, are responsible for maintenance of their respective municipal networks, albeit with technical assistance and guidance from the IE. The IE develops annual investment plans and budgets for the entire network (national and municipal), which are submitted for funding through the national budget and donor support. Annual maintenance plans and budgets for the national roads will be prepared by IE and submitted to the new Road Maintenance Fund (described below in paragraph 12). In parallel, each municipality will submit its respective maintenance plan and budget (using standard formats and technical norms established by the IE) to the Road Maintenance Fund, who will be assisted in reviewing these plans by the IE. The IE will directly manage maintenance contracts on the national network; and will provide assistance and oversight to the municipalities for contract management on their local networks.

12. Funding Sources. Funds for road maintenance will be generated from user fees and will be deposited directly to the new Road Maintenance Fund, while road Government and donor funds will finance investment. The user fees are defined as: (i)a levy on the price offuel; (ii)an insurance levy on heavy vehicles; and (iii)other similar user fees, which may be determined. The level of these fees will be determined based on an annual analysis submitted to the Road Maintenance Fund by the IE and approved by the Minister ofInfrastructure and Transport, with advice from Road Consultative Council.

’ The main characteristic of the Second Generation Road Maintenance Funds is secure funding for maintenance, generated from road user fees.

85 13. Creation of a new Road Agency. The new Road Agency (IE) was created on June 2, 2003 by Resolution 10/2003. It has been operational since August 2004 and is staffed with competitively recruited road engineering, planning, contracting, and financial management personnel. The IE is directly responsible to the Minister of Infrastructure and Transport. Its activities will be overseen by a Road Consultative Council (Conselho Consultivo de Estradas - CCA), consisting of representatives from ministries and public sector stakeholders, as well as the private sector and road users. Until the new Road Maintenance Fund is operational, the IE’s initial equipment and operational costs will be covered by the Government. However, once the Road Maintenance Fund is operational, a portion of the IE’s fixed operational and variable costs for road maintenance activities will be covered by the Road Maintenance Fund, while its other fixed and variable costs related to road investment planning will be covered by the Government. The IE is in the process ofputting in place a financial management system which will enable it to keep separate accounts for investment (Government-financed) and maintenance (Road Maintenance Fund-financed) activities. The IE will be subject to annual financial and technical audits to ensure its effective and transparent management of both road maintenance and road investment funds. Based on a Road Sector Management Study, the IE has established an Institutional Action Plan (Attachment B).

14. Creation of a New Road Maintenance Fund. A new Road Maintenance Fund is in the process of being created to replace the present Road Fund. The new Road Maintenance Fund (Fundo de Manutenq6o de Estradas - FME) will finance only maintenance (programmed routine and periodic maintenance, plus a provision for annual emergency works, reflecting average need over the past few years). These funds will derive from user fees as described above in paragraph 10. FME funds will be directly deposited in an account at the Central Bank ofCape Verde. The FME will have a simple and limited structure, consisting of an Administrative Directorate, including a Fiscal Management Unit. It will be overseen by a Road Consultative Council. This Council will also assume the role ofthe Road Consultative Board, which will be consulted on all matters concerning road network management. It will negotiate and approve annual road maintenance program budgets proposed by the IE (for both national and municipal road networks) and will effect payments for road maintenance activities, upon verification that such payments are certified and conform to the annual program. Based on a Road Sector Management Study, the Government has established an Institutional Action Plan for the FME (Attachment B).

15. Road Investment and Technical Management Strategy. The Government’s road investment strategy is linked to its capacity to maintain its network. Priority is given to filling key gaps in the each island’s core network, while progressively bringing the network up to maintainable standard. The Government recognizes that this is the only way to emerge from the current vicious cycle of constant emergency interventions throughout the network. To this end, the IE is putting in place a technical road management strategy based on road user service levels. These user-oriented service levels will be defined in terms oftraffic levels and will provide the basis for establishing technical standards and norms for investment and maintenance on various types ofroads. As part ofthis strategy the IE will introduce on a pilot basis Performance-Based Road Maintenance and Management Contracts (Gestio e Manutencijo por Nivel de Sewico - GMANS), with funding from the New Road Maintenance Fund.

86 Annex 15 - Attachment A: Organization Chart of Reformed Road Sector Institutions CAPE VERDE: Road Sector Support Project

Planning and Management Finance

Infrastructure and Road Maintenance Fund Transport Fondo de ManutenGdo de Estradas (FME) Road Agency lnstituto de Estradas Administrative Council Conselho AdmistraGao

Ad mi nistrat ive Road Consultative Board Council Conselho Consultativo de Conselho Estradas (CCA) 1AdmistraGao

Technical Administrative Financial Administrative Directorate Directorate Manager Support I I I 14 I

87 Annex 15 - Attachment B: Action Plans for Road Agency and Road Maintenance Fund CAPE VERDE: Road Sector Support Project

Phase Action Target Date Resp. Establish IE Offices, Staff and Administrative Council Sept. 04 Govt. Establish Road Consultative Council March 05 Govt. Revise legislation July 05 Govt. Install accounting system Jan. 05 1 IE Organization -Establish procurement procedures May 05 I IE Install road management data base + Training July 05 I€ Formulate Training Plan July 05 IE

Operation - Network Management Yr. 1 Carry out initial road condition survey July 05 I€ Carry out initial traffic survey July 05 IE Operationalize road management data base July - Aug 05 I€ Prepare National Road Plan July - Sept 05 IE Formulate First Consolidated Network Management Plan (Maintenance Sept 05 IE & Investment - 200512006)

I (Maintenance & Investment - 2007)

~ I I

88 Road Maintenance Fund (FME)

Operation - Y r.2 Prepare Second Year Annual Report

89

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