Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 35784-GW PROJECT APPRAISAL DOCUMENT ON A PROPOSED IDA GRANT Public Disclosure Authorized IN THE AMOUNT OF SDR 10.3 MILLION (US$15.0 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA BISSAU FOR A MULTI-SECTOR INFRASTRUCTURE REHABILITATION PROJECT Public Disclosure Authorized May 24,2006 Energy Group Infrastructure Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Public Disclosure Authorized Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 30,2006) Currency Unit = FCFA 550FCFA = US$1 US$1.46139 = SDRl FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADF African Development Bank BOAD West African Development Bank B.O.T. Build, Operate, Transfer EAGB Guinea Bissau Electricity and Water Company EDF/LYSA Power Company ofFrance / Water Company ofLion FCFA West African Franc FM Financial Management FMS Financial Management System IDA International Development Association ISA International Standards ofAuditing ISN Interim Strategy Note GDP Gross Domestic Product GOGB Government ofthe Republic of Guinea Bissau MDGs Millennium Development Goals MIRP Multi-Sector Infrastructure Rehabilitation Project MPWCTP Ministry of Public Works, Construction and Town Planning through the Directorate General ofRoads and Bridges (MPWCTP) LICUS Low Income Countries Under Stress LSDP Letter of Sector Development Policy OMGV Organization Pour la Mise en Valeur du Fleuve Gambie PER Public Expenditure Review PIU Project Implementation Unit POS Private Operation Scheme (Private Generator of 15MW) PPP Public-Private Partnership PRSP Poverty Reduction Policy Paper PSRDP Private Sector Rehabilitation and Development Project Vice President: Gobind T. Nankani Country Manager/Director: Madani M. Tall Sector Manager: Subramanian V. Iyer Task Team Leaders: Boris Enrique Utria and Matar Fall GUINEA-BISSAU Multi-sector Infrastructure Rehabilitation Project CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 5 1. Country and sector issues.................................................................................................... 5 2 . Government Policy. Strategy and Programs ....................................................................... 9 3 . Rationale for Bank involvement ....................................................................................... 12 4 . Higher level objectives to which the project contributes .................................................. 13 B. PROJECT DESCRIPTION ............................................................................................... 13 1. Lending instrument ........................................................................................................... 13 2 . Project development objective and key indicators ............................................................ 14 3 . Project components ........................................................................................................... 15 4 . Summary ofthe proposed related investments by BOAD and IDA PSRDP .................... 18 5 . Lessons learned and reflected in the program and project design .................................... 19 6 . Alternatives considered and reasons for rejection ............................................................ 21 C. IMPLEMENTATION ........................................................................................................ 23 1. Partnership arrangements .................................................................................................. 23 2 . Institutional and implementation arrangements ................................................................ 23 3 . Monitoring and evaluation ofoutcomes/results ................................................................ 24 ... 4 . Sustainability ..................................................................................................................... 24 5 . Critical risks and possible controversial aspects ................................................................ 25 6 . Loadcredit conditions and covenants ............................................................................... 28 D. APPRAISAL SUMMARY ................................................................................................. 29 1. Economic and financial analyses ...................................................................................... 29 2 . Technical ........................................................................................................................... 31 3 . Fiduciary ........................................................................................................................... 32 4 . Social................................................................................................................................. 32 5 . Environment ...................................................................................................................... 33 6 . Safeguard policies ............................................................................................................. 34 7 . Policy Exceptions and Readiness ...................................................................................... 35 Annex 1: Country. Sectors and Program Background ........................................................... 36 Annex 2: Energy Sector Policy Note ......................................................................................... 46 Annex 3: Draft National Power Sector Rehabilitation and Development Program............. 57 Annex 4: Draft National Water Sector Rehabilitation and Development Program............. 63 Annex 5: Detailed MIRP Project and Program Description .................................................. 70 Annex 6: MIRP Project and Program Costs ........................................................................... 80 Annex 7: Major Related Projects Financed by the Bank........................................................ 83 Annex 8: Implementation Arrangements ................................................................................. 84 Annex 9: Financial Management and Disbursement Arrangements ..................................... 86 Annex 10: Procurement Arrangements .................................................................................... 99 Annex 11: Results Framework and Monitoring .................................................................... 107 Annex 12: Economic and Financial Analysis ......................................................................... 112 Annex 13: Safeguard Policy Issues.......................................................................................... 126 Annex 14: Project Preparation and Supervision ................................................................... 128 Annex 15: Documents in the Project File ............................................................................... 129 Annex 16: Statement of Loans and Credits ............................................................................ 130 Annex 17: Country at a Glance ............................................................................................... 131 Annex 18: Map IBRD 34679 .................................................................................................... 133 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Background 1.1 Guinea-Bissau is one of the world’s poorest countries, and is ranked 172nd out of 177 countries in the 2004 United Nations Human Development Index. More than two-thirds of the population lives under the poverty line, with an average GDP per capita of US $195 per annum over the period 1997-2000 (see Annex 1 for details on country and sector issues). 1.2 Guinea Bissau entered into a period ofarmed social conflict in 1998 which resulted in the dismantling of large segments of the economy, social disruption and physical destruction of economic, infrastructure and social service delivery assets and systems. A new Government was elected in 2000, which was able to undertake as series of successful recovery activities, but the country continued to suffered from lack of political and social stability, frequent changes of government, unsustainable fiscal situation, low economic growth, weak capacity, and gradually deteriorating social and infrastructure systems and services delivery capacity. A refonn-minded transition Government was put in place following the parliamentary elections of March 2004. That new Government established an encouraging record in the area of economic management and launched the preparation of a highly participatory Poverty Reduction Strategy. The performance and tangible commitment of that government led to a renewal of donors and IMF support. The presidential election of August 2005 was followed by a brief period of political tension. In October 2005 a new government took possession and in November 2005 a ministerial re-organization took place. Those changes forced the rescheduling of a planned Donor Conference on Guinea Bissau, and a delay in the mobilization of pledged investment facilities and donor funding to the country. By January 2006 the government had stabilized and on March 16, 2006 a new government program was approved providing the necessary political