The World Bank Aviation Modernization Project (P156971)

Public Disclosure Authorized

Project Information Document/

Integrated Safeguards Data Sheet (PID/ISDS)

Public Disclosure Authorized Concept Stage | Date Prepared/Updated: 12-Oct-2016 | Report No: PIDISDSC19671

Public Disclosure Authorized Public Disclosure Authorized

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The World Bank Aviation Modernization Project (P156971)

BASIC INFORMATION

A. Basic Project Data

Country Project ID Parent Project ID (if any) Project Name Kenya P156971 Aviation Modernization Project (P156971) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA Aug 21, 2017 Nov 30, 2017 Transport & ICT

Lending Instrument Borrower(s) Implementing Agency Investment Project Financing The National Treasury Kenya Civil Aviation Authority,Kenya Airports Authority

Financing (in USD Million) Financing Source Amount International Bank for Reconstruction and Development 200.00 International Development Association (IDA) 85.00 Total Project Cost 285.00

Environmental Assessment Category Concept Review Decision B-Partial Assessment Track II-The review did authorize the preparation to continue

Other Decision (as needed)

Type here to enter text

B. Introduction and Context

Country Context

1. Kenya is the largest and more diversified economy in East Africa, with a larger manufacturing and services sectors than it neighbors. Kenya’s economic performance remains solid, underpinned by strong infrastructure spending and consumer demand, which are driving economic growth. The World Bank estimates that growth will be 5.7 percent in 2016, a 0.3 percent increase from the estimate in 2015. A stable macroeconomic environment, continued investment in infrastructure, improved business environment, exports, and regional integration will help sustain the growth momentum. Kenya has been ranked the second best destination of Foreign Direct Investments in Africa.

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The World Bank Aviation Modernization Project (P156971)

2. Kenya’s total area is 581,309km2 with a population of 44.9 Million1 in 2014, having increased rapidly over the last 30 years. The country is urbanizing rapidly with about 11.3 million, or 25 percent living in urban areas. Kenya exhibits an extensive, but uneven distribution of infrastructure. The transport system infrastructure consists of a single commercial seaport; a single-track rail network consisting of a mainline and a few branch lines; an oil pipeline connecting the port through Nairobi to Western Kenya towns of Eldoret and Kisumu; and a classified road network of approximately 161,000km. There are four international airports at Nairobi, Mombasa, Eldoret and Kisumu. The passenger terminals at airports in Nairobi and Kisumu have recently been expanded, though capacity constraints still remain.

Sectoral and Institutional Context

3. The public sector owns, maintains and manages the infrastructure and provides a limited range of transport services (port) while the private sector provides most transport services (road passenger transport, road freight transport, urban transport, rail freight and passenger services, air transport services, and some bulk cargo port services). A standard gauge railway is currently under construction from Mombasa to Nairobi and plans are underway to extend it to Western Kenya towns of Kisumu and Malaba border town with Uganda. The Government also has plans to construct a second port at Lamu with new road links to Ethiopia (A13/14) and South Sudan (A10). The private sector dominates the provision of transport services, though the public sector owns the port, airports, and oil pipeline. The transport activity is concentrated along the Northern Corridor, which connects Mombasa, Nairobi, and Uganda border. This corridor is both Kenya’s primary transport artery and main sea-access for the landlocked countries of Uganda, Rwanda, Burundi, and South Sudan and Eastern part of Democratic Republic of Congo.

4. The transport system has been identified by the private sector as an impediment to economic growth. The port and key airports notably Jomo Kenyatta International Airport (JKIA) experience congestion. Major towns are congested making them unattractive destinations for business. Air transport has increasingly become important to the economy of Kenya. It provides connection of Kenya to the global economy, sustains the tourist industry, and has facilitated the entry of Kenya into the global fresh flower and horticulture markets. This demonstrates that if given the opportunity and incentives, Kenya can develop world-class logistic chains. Until recently, Kenya Airways (KQ) had become a market leader in Africa while JKIA has attracted a number of major airlines at the moment numbering 38, of which, 29 are for passengers and nine for cargo and connecting to various destinations in the world, thereby transforming the airport into a hub for East Africa. A number of new airlines continue to express interests in commencing operations at JKIA. Passenger terminals at JKIA require investment to meet international service standards and security requirements particularly after the fire gutted and destroyed completely part of the terminals in 2013.

5. The Government withdrew its intervention in the provision of airfreight services. The flower and horticulture sectors “took off” when GoK stopped trying to control freight rates and simply allowed the market to work. There followed a major expansion in charter freight services. From a bureaucratic allocation of scarce capacity, the flower and horticulture firms now make commercial decisions on what to fly, where to fly it and with whom to fly it. The public sector retains, however, the ownership and management of the airports and control of air traffic control and navigation.

1 http://wdi.worldbank.org/table/2.1

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The World Bank Aviation Modernization Project (P156971)

6. International class gateways to the global economy are crucial for Kenya’s development. Increased provision of air-freight services at JKIA has demonstrated that gateways themselves can become growth centers for export oriented processing and manufacturing from imported raw materials or components. However, for the country and economy, the gateways must be linked to the major economic and population centers, through line-haul transport – whether road, rail, air or a combination of the three. Efficient, cost effective, long-distance, line-haul transport is essential for Kenya: most of the major production/population centers are located at least 500 km from the port. Efficient, cost-effective transport for transport users is dependent on infrastructure, management, regulation, and competition. The recently completed Bank-financed projects notably the Northern Corridor Transport Improvement Project (NCTIP) and East Africa Trade and Transport Facilitation Project (EATTFP), and those currently under implementation including Kenya Transport Sector Support Project (KTSSP), National Urban Transport Improvement Project (NUTRIP) and Eastern Africa Regional Transport, Trade and Development Facilitation Project (EARTTDFP) as well as those in the pipeline such as the North Eastern Transport Improvement Project (NETIP) and Mass Rapid Transit Improvement Project (MARTRIP) focused or focus on supporting government efforts to address these issues and complement the national development programs.

7. Kenya’s air transport services have outstripped those in Uganda, Tanzania and, in relative terms, Ethiopia. Nairobi remains the major hub for East Africa and with KQ rivaling the services provided by Ethiopian Airlines at Addis Ababa. Air-freight is not a constraint to the export of fresh produce found in neighboring countries. However, Ethiopian Airlines makes direct flights to the United States (US) as Bole Airport has FAA Category 1 security clearance and the Ethiopian Civil Aviation Authority is categorized as satisfactory.

8. The Kenya Airports Authority (KAA), a parastatal, is responsible for managing Kenya’s airports, and Kenya Civil Aviation Authority (KCAA) is responsible for ensuring that the aviation safety and security in Kenya meet International Civil Aviation Organization (ICAO) standards and by extension International Aviation Safety Assessment (IASA) category 1 standards. The KAA manages four International Airports at JKIA, Moi international Airport (MIA), Eldoret International Airport, and Kisumu International Airport. It also manages a further seven (7) domestic airports at Wilson, Isiolo, Malindi, Lamu, Lokichoggio, Wajir and Manda. In 2015 total traffic through these airports were 8.97 million passengers, 264,000 aircraft movements, and 263,600 tons of cargo. JKIA in particular handled 72 percent or 6.5 million passengers, 38 percent or 100,260 aircraft movements and 85 percent or 244,000 tons of cargo, illustrating its critical importance in the air sub-sector and the economy of Kenya.

9. A master plan for developing Kenya’s airports was prepared in 2011 and indicates KAA’s investment requirements. KAA plans to update the master plan following: (a) the fire tragedy at JKIA in August 2013 that destroyed part of the international passenger terminals disrupting the execution of an expansion plan at the airport, and (b) the slowdown in the expansion plan of Kenya Airways expansion the main operator at JKIA; and (c) security concerns in the region that has adversely affected the tourist industry a key driver in Kenya’s air industry. A loss- making entity in 2002, KAA became profitable after a 2005 GoK decision spearheaded under a Bank-financed Northern Corridor Transport Improvement project (NCTIP) to allow it to retain operational revenues. GoK is currently finalizing a proposal to re-organize the management of Kenya’s airports, including possibly transfer of airstrips to counties consistent with the Constitution.

10. The demand for KAA services is growing (refer Table 1). The growth in traffic experienced a decline in 2012 mainly due to the security concerns in the Eastern Africa region, which adversely affected tourism, one of the main

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The World Bank Aviation Modernization Project (P156971)

driving force of the air industry. There has been no major terrorist attack incident since April 2015 and this has seen a rebound in tourism contributing to the growth in traffic. Passenger capacity constraints are growing at JKIA as traffic surged from 4.8 million passengers in 2008 to 6.5 million in 2015 (a 35 percent increase) against a design capacity of 7.0 million at JKIA. MIA, the second most important airport in Kenya, handling 1.1 million passengers and 60 percent of all tourist traffic in 2009, but the traffic levels have been on a decline dropping from 1.5 million in 2011 to 1.2 million in 2015. KQ is competing with the services provided by major airlines in Africa notably South African Airways and Ethiopian Airlines. However, KQ is suffering financially with low volume growth due to lack of competitiveness. The airline has recorded a loss of about US$500 million over the past two years. A restructuring plan is underway which includes possible staff cuts and disposing of some aircrafts. KQ cannot make direct flights to the US due to security issues that are beyond the airport’s control and of a regional nature. By contrast, the private sector has added capacity to handle fresh produce exports out of JKIA, keeping pace with growing demand.

11. KAA’s operational performance is shown in Table 1. KAA has consistently made profits recording a net profit of KES4.40 billion in 2015 a rebound from loss making in 2002.

Table 1: KAA’s Eight Year Profile of Operational Performance

Year 2008 2009 2010 2011 2012 2013 2014 2015

Aircraft movements (‘000) 195 201 226 266 265 256 270 264 Passengers (million) - JKIA 4.80 5.10 5.49 6.29 6.27 5.95 6.39 6.48 Passagers (million) – MIA 0.87 1.11 1.27 1.47 1.35 1.28 1.37 1.23 - Other airports 0.73 0.69 0.76 0.96 0.96 1.01 1.13 1.25 - All airports 6.40 6.90 7.52 8.72 8.58 8.23 8.88 8.97 Freight (‘000 tons) all airports 321.82 282.67 248.78 305.99 296.40 262.48 279.91 263.65 Revenue Generated (KES billion) 5.30 5.9 6.11 7.35 8.36 11.2 13.5 12.89 Net Profit/(Loss) (KES billion) 1.25 0.99 1.72 1.68 2.47 3.4 6.6 4.4

Source: Kenya Airports Authority

12. Strengthening the regulatory function is key - aviation safety and security oversight capacity has improved significantly in the recent past. The challenge is modernizing its oversight operations by embracing ICT systems rather than the current manual processes. Enabling KCAA to obtain regulator status allowed it to offer better remuneration to its key staff. While KCAA is allowed to retain generated revenue, it is currently not generating enough to meet its growing needs, due to the low level of its current charges (among the lowest in the region); its net operating profit fell from KES394 million in 2008 and has remained below the KES437 million level recorded in 2011 (see Table 2). In this context, in 2012 KCAA submitted a proposal to the Minister responsible for Transport (Ministry of Transport) to raise its user charges who (without compromising the competitiveness of Kenya as an aviation hub) approved implementation of the same but its implementation has not been concluded.

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The World Bank Aviation Modernization Project (P156971)

13. As air traffic grows, KCAA’s mandate to provide regulatory, safety and security oversight of all aviation-industry stakeholders, consistent with international conventions and protocols, has become more demanding. In particular, KCAA is required to provide aviation navigation services and develop air traffic management systems to facilitate the safe movement of aircraft in Kenya’s airspace. The number of aircrafts registered in Kenya increased from 936 in 2008 to 1,330 in 2015 (up by 42 percent) while licensed aviation personnel (including pilots, cabin crew, and aircraft maintenance personnel) increased from 5,131 to 8,872 (a 73 percent increase) during the same period. Because it can only provide relatively low remuneration packages, KCAA finds it difficult to recruit and retain qualified and experienced flight safety inspection personnel, and this in turn makes it difficult for it to provide effective oversight.

14. To function as an autonomous regulator with the support of the World Bank through KTSSP, KCAA has resolved the conflicts of interest situation by moving the location of its headquarters out of KAA premises. The functional separation of its responsibility to regulate air navigation services and management of the East African School of Aviation (EASA) from its responsibility to provide such services is a move in the right direction, though it may not resolve isolating and paying the key regulatory staff competitive remuneration from the rest of the organization.

15. Nevertheless, KCAA needs to upgrade further its air navigation systems and regulatory capacity by automation of the current manual processes and procedures in provision of its services and enhancing further the capacity of the EASA as a regional center of excellence. For instance, the Directorate of Aviation Safety and Security Regulations and Standards (ASSR) responsible for issuance and renewal of various licenses and certificates as part of its performance of the function of aviation safety and security oversight manages all the processes manually. This causes inefficiencies with pilots and other aviation related experts having to travel to KCAA headquarters for these services. With the rapid growth of the aviation industry in Kenya over the last eight years (refer Table 2) there has been a corresponding substantial increase in the number of licenses and certificates issued/renewed each year hence the need to automate the system.

Table 2: Kenya Civil Aviation Authority Eight Year Profile of Operational Performance

Year 2008 2009 2010 2011 2012 2013 2014 2015

Aviation Personnel licenses* 5,131 5,543 5,807 5,854 6,719 7,397 7,999 8,872 Total Aircraft in register 936 988 1,056 1,088 1,165 1,195 1,268 1,330 Total aircraft maintenance 91 93 98 98 86 85 118 122 organizations Valid Air operator certificates 68 75 75 73 73 76 78 82 Training Simulator 44 44 44 18 18 19 20 22 Air Service Licenses 3,239 3,478 3,505 3,527 3,315 3,105 2,802 2,892 and clearances Ground Inspections 1,080 1,242 1,606 1,621 1,312 1,801 801 1,273 Activities EASA students population 837 862 1,514 1,015 985 1,000 1,605 1,230

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The World Bank Aviation Modernization Project (P156971)

Revenue Generated 1,936 2,213 2,380 2,687 3,782 3,759 3,652 4,272 (KES million) Net Income (KES million) 397 197 288 437 225 106 202 323 Note: * Relates to Personnel licenses for Air Transport Pilot licenses, Commercial Pilot license, Private Pilot License, Student Pilot License, Cabin Crew License and Aircraft Maintenance License.

16. KCAA is on track in achieving compliance with international requirement, as well as JKIA in meeting Category 1 security requirements. The support has contributed to enhancing the capacity of KCAA enabling the Authority to offer services that comply with international standards and practices. For instance, the International Civil Aviation Organization (ICAO) conducted a safety oversight audit of KCAA in 2008 and the latest in August 2013. The 2008 audits scored Kenya (in this case KCAA) 66 percent in terms of compliance to ICAO Standards and Recommended Practices compared with 78.4 percent in 2013. These results rank Kenya third in Africa behind Egypt and Gambia, and the score is way above the World average of 61 percent. However, one of the key challenges that still remains is KCAA’s ability to retain the key flight inspectorate staff unless the remuneration packages offered remain competitive and embracing ICT in its operations and service provision.

Relationship to CPF

17. The objective of Kenya‘s long-term development strategy, Vision 2030, is transforming the country into a middle-income country. Under its economic pillar, Gross Domestic Product (GDP) is expected to grow at 10 percent per annum. This requires the removal of bottlenecks for growth through reforms and increased investment in infrastructure, including the promotion and implementation of Information and Communication Technologies with the objectives of unlocking existing potential and productivity, promoting competitiveness, and improving access to public services.

18. Meanwhile, the World Bank‘s Country Partnership Strategy (CPS) 2014-2018, Poverty Assessment of 2006, and the Multi-Donor Infrastructure Diagnostic for Kenya (2008-09) point to the need to significantly invest in infrastructure improvement since poverty reduction as well as increase in shared prosperity as it closely and directly associated with investments in these areas. The proposed project will support two main pillars of the CPS namely, (i) competitiveness and sustainability – growth to eradicate poverty; and (ii) building consistency and equity.

C. Proposed Development Objective(s)

Improve security and service provision at Jomo Kenyatta International Airport to meet international standards and enhance public oversight capabilities for the aviation sector in Kenya.

Key Results (From PCN)

19. The proposed PDO results indicators are as follows:

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The World Bank Aviation Modernization Project (P156971)

(a) Time value of cargo at JKIA;

(b) Time value of passengers at JKIA;

(c) Number of security incidents at airports under KAA management; and

(d) Number of accident and incidents in Kenya.

D. Concept Description

20. International class gateways to the global economy are critical for the Kenya’s development, as they have become growth centers. There have been some major improvements with respect to the availability of airfreight services, passenger terminal facilities, and rehabilitation of the runway at JKIA. The fire incident at JKIA in 2013 that destroyed part of the terminal facilities thereby reducing its capacity, disorganizing the expansion plan, and leading to the installation of unprecedented temporary facilities which have to be replaced if JKIA is to remain competitive. The project will include the tentative components of which GoK has requested IBRD financing for component A while IDA for components B, C and D.

21. Component A: Improve the Passenger Terminal Capacity at JKIA and Institutional Strengthening (IBRD US$ 200 million). This component will involve support to KAA through the following:

(a) Design and implement the modernization of Terminals 1-B, C and D at JKIA by renovating and expansion; providing a new baggage-handling system;

(b) Capacity building and training of manpower in safety, security and airports management;

(c) Update the national airport master plan and strategic environment management plan; and

(d) Technical assistance towards internal structural reorganization of KAA and strengthening institutional capacity.

22. Component B: Enhance Security at major Airports under KAA (IDA US$60 million). This component will involve support to KAA through the following:

(a) Design and install an integrated system to enhance security at major airports and institutional strengthening; and (b) Support to KAA training school.

23. Component C: Strengthen the Aviation Oversight capacity (IDA US$20 million). This will be achieved by supporting KCAA to strengthen capacity as follows:

(a) Enhance management information systems by augmenting ICT infrastructure and install modern Data centers for host application systems, networks and communication systems for: (i) the new KCAA Headquarters; (ii) EASA; (iii)

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The World Bank Aviation Modernization Project (P156971)

Communication links between KCAA Stations; and (iv) installation of data centers security systems (a redundant firewall);

(b) Installation of communication equipment to integrate operations at KCAA headquarters and key airports including Wilson, Eldoret, Malindi and Kisumu;

(c) Upgrade the Local Area Network (LAN) at EASA;

(d) Upgrade air navigation training equipment at EASA;

(e) Establish a Teleconferencing Centre and hostel facilities at EASA;

(f) Automation of the Operations of the Directorate of Aviation Safety and Security Regulations and Standards (ASSR); EASA and other corporate functions; and

(g) Training manpower in safety, security, and oversight in the civil aviation industry.

24. Component D: Institutional Strengthening of Oversight function of the State Department of Transport (IDA US$5 million). This will involve:

(a) Supporting the capacity of state department to oversee planned and on-going programs and enhance its monitoring and evaluation function; (b) Supporting the oversight body for architects and quantity surveyors; and (c) Supporting the coordination of the implementation of the project.

SAFEGUARDS

A. Project location and salient physical characteristics relevant to the safeguard analysis (if known)

The project will be implemented at the Jomo Kenyatta International Airport (JKIA) & Wilson Airport in Nairobi, Eldoret International Airport in Eldoret, Malindi Airport in Malindi and Kisumu International Airport in Kisumu. With the exception of the JKIA where re-construction of terminal facilities will take place, no major civil works are anticipated at the other locations. Communication equipment will be installed at the other airports, and no significant adverse environmental and social impacts are expected therefrom. Sites for reconstruction of terminals and the communication equipment are secured and no land acquisitions are expected. No displacement of people, loss of assets or access to assets, or loss of income and livelihood sources are expected.

B. Borrower’s Institutional Capacity for Safeguard Policies

The Kenya Airports Authority (KAA) and Kenya Civil Aviation Authority (KCAA) will be the lead implementing agencies for the project. These institutions have excellent track record of implementing numerous donor-supported civil aviation operations associated with new constructions and rehabilitation works, including many financed by the World Bank, across the country. The Authorities are conversant with the World Bank’s Safeguard Operational Policies and have applied these diligently in projects it has implemented. The experience gained will help both KAA and KCAA to

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The World Bank Aviation Modernization Project (P156971)

ensure compliance during implementation of the proposed project. An initial capacity assessment of the two implementing entities carried out by the World Bank Safeguard Team indicates that teams are well capacitated to oversee implementation of activities that will be outlined in the ESMP or abbreviated RAP.

C. Environmental and Social Safeguards Specialists on the Team

Gibwa A. Kajubi, Edward Felix Dwumfour

D. Policies that might apply

Safeguard Policies Triggered? Explanation (Optional) The initial scoping of the project interventions suggests that the potential environmental and social impacts (especially social) will be moderate. The anticipated impacts include poor air quality, increased noise levels at the project sites, soil pollution and erosion and localized flooding, construction camp impacts, impacts related material sourcing. Road safety concerns (traffic accidents) during construction are likely to be significant, as well as related health and safety construction related impacts. The project will not result in permanent land acquisition. The Environmental Assessment category Environmental Assessment OP/BP 4.01 Yes assigned this project is Category B since anticipated impacts are not expected to be sensitive, irreversible and unprecedented; they are likely to be localized, not cumulative and easily manageable. Since the actual sites for the terminal at JKIA is known site-specific ESIA/ESMP and an abbreviated Resettlement Action Plans (RAP) will be prepared. These applicable safeguard instruments will be prepared by the Borrower in a participatory and consultative manner and publicly disclosed in country and at the Bank’s InfoShop before Appraisal.

Natural Habitats OP/BP 4.04 No

Forests OP/BP 4.36 No

Pest Management OP 4.09 No

During the screening prior to the preparation of ESIA, any likely impacts on physical cultural resources which are protected by law or are of importance to Physical Cultural Resources OP/BP 4.11 Yes the communities will be identified. Chance find provisions will be incorporated in the ESIA/ESMP to ensure that the appropriate preventive or mitigation

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The World Bank Aviation Modernization Project (P156971)

measures are formulated and executed. Applicability of this policy will be crosschecked during project preparation. The project will be implemented in towns where Indigenous Peoples OP/BP 4.10 No geographically and historically no marginalized and underserved groups are observed. The proposed civil works will be carried out in existing space, on land heavily secured by the Government security and airport agencies. There will be no involuntary resettlement of residential structures. However, during construction there may be some economic displacement/impacts under Component A (a). An assessment will be made to Involuntary Resettlement OP/BP 4.12 Yes determine how the civil works may impact on business operating in the terminals through the renovations and expansions. If this will be the case, there will be need for an abbreviated RAP to determine what such impacts are and how to avoid them or mitigate them. Thus, OP 4.12 may be triggered as a precaution. Safety of Dams OP/BP 4.37 No

Projects on International Waterways No OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 No

E. Safeguard Preparation Plan

Tentative target date for preparing the Appraisal Stage PID/ISDS

Mar 31, 2017

Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing should be specified in the Appraisal Stage PID/ISDS

ESIA and Abbreviated RAP will be prepared before Appraisal.

CONTACT POINT

World Bank Josphat O. Sasia Lead Transport Specialist

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The World Bank Aviation Modernization Project (P156971)

Borrower/Client/Recipient

The National Treasury Mr. Henry Rotich Cabinet Secretary [email protected]

Implementing Agencies

Kenya Civil Aviation Authority Capt. Gilbert Kibe Director General [email protected]

Kenya Airports Authority Mr. Nicholas Bodo Ag. Managing Director [email protected]

FOR MORE INFORMATION CONTACT

The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop

APPROVAL

Task Team Leader(s): Josphat O. Sasia

Approved By

Safeguards Advisor: Nathalie S. Munzberg 27-Oct-2016

Practice Manager/Manager: Aurelio Menendez 03-Nov-2016

Country Director: Thomas O'Brien 17-Nov-2016

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