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World Bank Document 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 Nov 17, 2016 Page 1 of 12 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. Nov 17, 2016 Page 2 of 12 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 Nov 17, 2016 Page 3 of 12 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
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