The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) REPORT NO.: RES53982 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF BF-TRANSPORT SECTOR MODERNIZATION AND CORRIDOR TRADE FACILITATION PROJECT APPROVED ON JANUARY 12, 2017 TO BURKINA FASO TRANSPORT WESTERN AND CENTRAL AFRICA Regional Vice President: Ousmane Diagana Country Director: Clara Ana Coutinho De Sousa Regional Director: Franz R. Drees-Gross Practice Manager/Manager: Jean-Francois Marteau Task Team Leader(s): Cheick Omar Tidiane Diallo The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) ABBREVIATIONS AND ACRONYMS ASYCUDA Automated System for Customs Data CMU Country Management Unit CPC Certificate of Professional Competences DPO Development Policy Operation African Financial Community Franc FCFA Communauté Financière Africaine Unique Association of Road Transporters of Burkina Faso FUTRB Faitière Unique des Transporteurs Routiers du Burkina Faso ICT Information and Communications Technology IDA International Development Association IP Implementation Progress IPCG Individual Partial Credit Guarantee MU Moderately Unsatisfactory PFI Partner Financial Institutions PIM Project Implementation Manual PIU Project Implementation Unit Transport Sector Modernization and Corridor Trade Facilitation Project PAMOSET Projet d’Appui à la Modernisation du Secteur des Transports et la Facilitation du Commerce PDO Project Development Objective PPCG Partial Portfolio Credit Guarantee RTFCC Regional Trade Facilitation and Competitiveness Credit Financing and Interbank Guarantee Company in Burkina SOFIGIB Société de Financement et de Garantie Interbancaire The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P156892 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 12-Jan-2017 30-Jun-2023 Organizations Borrower Responsible Agency Burkina Faso Project Development Objective (PDO) Original PDO The proposed PDO is to improve the efficiency and safety of transport services on the Burkinabe section of the Ouagadougou (BurkinaFaso) - Abidjan (Ivory Coast) road transport corridor. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-59410 12-Jan-2017 03-Mar-2017 29-Jun-2017 30-Jun-2023 20.00 17.51 2.96 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Update on overall project implementation 1. The Transport Sector Modernization and Corridor Trade Facilitation Project (PAMOSET) in Burkina Faso along the Ouagadougou – Abidjan Corridor (“the Corridor”, hereby) supports the objectives of the Regional Trade Facilitation and Competitiveness Credit (RTFCC) Development Policy Operation (DPO)1, in tandem with a twin project recently completed in Cote d’Ivoire also called PAMOSET2. The RTFCC DPO series directly supports joint efforts by the Burkinabe and Ivorian Governments to reduce trade and transport costs, in order to improve the competitiveness of the tradable sectors of the economy. The US$23 million PAMOSET project is financed through an IDA Credit of US$20 million and counterpart funding of US$3 million. 2. The PAMOSET Project Development Objective (PDO) is to improve the efficiency and safety of transport services on the Burkinabe section of the Corridor. The main project activities are: (i) the institutional support of private transport operators and government technical services to comply with the new reform related to the professionalization of the transport sector; (ii) the renewal of one hundred and fifty (150) heavy cargo trucks with twenty or more years of age through a scrapping scheme; (iii) the modernization of customs and trade facilitation; and (iv) the improvement of road safety along the corridor. 1 The RTFCC DPO series consisted of a first one (P129282) approved in June 2015 and closed in December 2015, and a second one (P158333) approved in December 2016 and closed in December 2017. As a direct result of the support provided under the RTFCC DPO series, the Governments of BF and CdI planned to apply in a systematic manner axle load control legislation on the different corridors. In order to support and sustain the implementation of some of the RTFCC DPO series longer term transport and customs- related reforms, as well as to mitigate their potential negative impacts on vulnerable stakeholders, the governments of BF and CdI requested the WB’s continued support through a Technical Assistance (TA) type project, which resulted in the approval of the twin PAMOSET in both countries. 2 Cote d’Ivoire’s PAMOSET (P156900) was approved on July 5, 2016 and closed on December 31, 2021. Its Implementation Completion and Results (ICR) Report was sent to the Board on October 7, 2022. The ICR Report rated the achievement of the outcome as “Moderately Unsatisfactory”, the Bank Performance as “Moderately Satisfactory”, and the Monitoring and Evaluation (M&E) Quality as “Modest”. The Project Development Objective (PDO) “to improve the efficiency and safety of transport services on the Ivorian section of the Abidjan (Côte d’Ivoire) – Ouagadougou (Burkina Faso) road transport corridor” was partially achieved as the core activity supporting the fleet renewal scheme was canceled and the realized value of casualties by project completion (140 casualties) showed an increase of 27.3 percent compared to the baseline (110 casualties). The project was restructured twice: (i) in May-2021 to extend the project’s closing date by six months through December 2021 and to make changes in the Results Framework, Disbursements Arrangements and Institutional Arrangements; and (ii) in November 2021 to cancel financing in the amount of US$15.78 million in undisbursed funds of which approximately US$ 14.2 million corresponding to funds allocated to the fleet renewal scheme under Component 2 which was cancelled, and to reduce and reallocate between disbursement categories the counterpart funding to better reflect the needs of the scrapping mechanism. The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) 3. Progress towards achieving the PDO is rated Moderately Unsatisfactory (MU) because the remaining time is not sufficient to meet the CO2 emissions reduction per annum target, which requires scrapping 150 old trucks and replacing them with an equivalent number of newer fuel-efficient trucks. Similarly, the overall Implementation Progress (IP) is also rated MU because the recruitment of an operator in charge of the vehicle scrapping scheme has not been completed. 4. All key activities under Component 1 – Institutional strengthening and capacity building support for public and private sector participants in the transport sector, have been fully implemented. The new training programs, which align with the new criteria for access to the profession in the trucking industry, were prepared and completed by the government. A total of two hundred and two (202) instructors were trained in the new standards, exceeding a ninety (90) instructors target. A total of two hundred and three (203) heavy vehicle fleet managers was awarded with a Certificate of Professional Competences (CPC). Through this component, the project financed the preparation and adoption of the legal framework by the government, which resulted in the establishment of a professional transport operators organization called “Faitière Unique des Transporteurs Routiers du Burkina Faso (FUTRB) in 2020. Similarly, the interconnection of Information and Communication Technology (ICT) systems of the General Directorate of Land and Maritime, in charge of transport services, with the law enforcement (i.e., Police and Gendarmerie), the General Directorate of Customs, the Motor Vehicle Control Center and the General Directorate of Taxes was financed. Lastly, this component financed the digitalization of the driver license examination in the first pilot site in Ouagadougou in selected sites. 5. The two key activities under Component 2 – Development of a heavy cargo truck renewal scheme, (i) scrapping one hundred and fifty (150) old trucks, and (ii) replacing them with equivalent number of newer fuel-efficient trucks, could not yet be implemented due to constraints of transport operators in accessing loans to buy newer fuel-efficient trucks, despite the mitigation measures already proposed under the project, notably the scrapping premium3 and the Individual Partial Credit Guarantee (IPCG). The government counterpart funding to pay for the scrapping premium has been fully disbursed to a special account managed by the Project Implementation Unit (PIU), ready for use once the credits are approved. Amongst the thirty-eight (38) loan applications totaling one hundred and twenty (120) vehicles received between October 2021 and June 2022, only two (2) applications totaling five (5) trucks were approved by commercial banks. The utilization rate of the partial credit guarantee is 6 percent as it has only been used to guarantee the loans of the two (2) trucks from the five (5) approved applications. Hence, the execution is underperforming significantly in comparison with the project’s target. Based on the lesson learned from the first year of the fleet renewal process, the main causes of the high rejection rate of the commercial banks are: (i) the cost of financing for operators is significantly higher than expected as the price of purchasing new trucks has increased due to the economic crisis and inflation, especially after factoring tax costs currently estimated as 30 percent of purchasing costs; (ii) the IPCG proposed to facilitate access to commercial loan is not a first loss and therefore is not attractive to the banks; and (iii) most loan applications are not supported by long term contracts guaranteeing the loan monthly repayment. 6. All the key activities under Component 3 – Support to customs modernization and trade facilitation on the Burkinabe section of the Corridor were fully implemented. The interconnection of the customs management systems of Burkina Faso with Cote d’Ivoire’s information systems has been effective since February 2019 thanks to the technical assistance of the project. The technical assistance provided financing for the operationalization of the Automated System for Customs Data (ASYCUDA) between the two countries, including transfer of knowledge to customs ICT staff, and the bilateral meetings between the customs authorities. 7. All the key activities under Component 4 – Road safety on the Burkinabe section of the Corridor were fully implemented. As such, the following actions were taken along the Corridor: (i) road user awareness campaigns were 3 About US$ 20,000 will be paid to buy each old trucks for scrapping The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) conducted; (ii) road safety message signs were installed; and (iii) traffic control operations were conducted by the Police and Gendarmerie. This component also financed the acquisition of latest generation speed radars and mobile weighbridges for the road safety agency. The contract for the installation of missing and damaged traffic signs along the Corridor were completed. 8. Fiduciary Performance. Financial management and procurement arrangements remain unchanged. This restructuring will not impact on financial management arrangement, which will remain unchanged. The project is in full compliance with the World Bank’s financial management requirements and there are no overdue audit reports or interim financial reports. For the new activities relating to the matching grant, the project implementation manual (PIM) will be updated by adding the management decision approved by the World Bank describing the implementation arrangement for such activities as part of the PIM. A training session conducted by the fiduciary team of the World Bank will also be facilitated to agree on the reporting template and the disbursement guidelines. B. Rationale for restructuring 9. Political Instability. The implementation of the project was negatively affected by two (2) military coups in 2022 that triggered OP 7.30. During the first coup, in January 2022, disbursements were paused for approximately four (4) months and no government was in place for approximately two (2) months to make decisions about the project. For the second coup, in September 2022, disbursements were for approximately four (4) months and no government was in place for about one (1) month. Key meetings with stakeholders (i.e., transport operators and commercial banks) to be chaired by the line minister with the objective to disclose and communicate on the commercial banks loan approval requirements could not take place. The negotiations with the potential scrapping operator initiated by the former government failed. 10. All the objectives of the project were met by the closing date of December 31, 2022 except for the CO2 emissions reduction per annum which depends on scrapping one hundred and fifty (150) old trucks and replacing them with equivalent number of newer fuel-efficient trucks. As such: (i) the project has enabled the formal registration of one hundred and ninety-one (191) transport operators following the new criteria to access the trucking profession; (ii) the border crossing time at the Niangoloko post in the Burkina Faso – Cote d’Ivoire border was reduced from ten (10) hours to less than three (3) hours as a result of the financed project activities; (iii) the percentage of missing or damaged traffic signs replaced on the Burkinabe section reached 53 percent; the number of beneficiaries from the project reached four thousand and thirty (4,030) million, with more than 50 percent being female. 11. As covered in paragraph 5, only two (2) applications were approved by commercial banks for the heavy cargo truck renewal scheme for a total of five (5) trucks, which is significantly below the minimum target until mid-2022. Following the proposed change of design of the guarantee proposed in the project restructuring request of the government, and in spite of the political and security situation over the past months, major improvement has already been made on the demand side during the past 6 months (due to a closing date extension from June 30, 2022 to December 31, 2022) as number of applications significantly increased from 30 applications totaling 85 trucks in June 2022 to one hundred and thirty-eight (138) applications totaling three hundred and nine (309) trucks in December 2022 based on these proposed arrangements. The PAMOSET has sent out request of expression of interest to commercial banks to test their interests and a total of eleven (11) commercial banks have responded positively for a total credit which is able to facilitate the renewal of approximately five hundred (500) trucks. The government and the Bank agreed in November 2022 on the following measures in order to reach this stated goal on the supply and demand side: (i) on the supply side, conversion of the funds already disbursed from an IPCG to a Partial Portfolio Credit Guarantee (PPCG); (ii) on the The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) supply side, direct financial assistance in form of matching grant4 to reduce the loan cost for the transport operators. All these mitigations measures are simple to apply. Therefore, a restructuring the PAMOSET’s to allow the team to test such measures, finalize the revised implementation arrangements and secure the fleet renewal scheme, will prove that the PDO will remain achievable with a subsequent extension not exceeding twenty-four (24) months after the original closing date. 12. A PPCG has four main advantages over the existing IPCG, namely: (i) its automaticity as the commercial bank does the analysis of a demand for credit; if the credit is granted and it meets the eligibility criteria, it is automatically entered on the guarantee. SOFIGIB automatically enters the guarantee without redoing the analysis. The automaticity contributes to avoiding adverse selection where the commercial banks pick and choose the credits to be covered by the guarantee; (ii) the process of issuing guarantee is faster; (iii) the silent nature of the PPCG where the borrower does not know that his/her credit is covered by the guarantee; and lastly, (iv) a claim is paid within thirty (30) days if the credit object of the claim meets the eligibility criteria. 13. In light of this, on November 30, 2022, the World Bank received a request from the Ministry of Economy, Finance, and Development of Burkina Faso to restructure the project in order to implement corrective measures which will enable the renewal of at least 150 truck through the: (i) retroactive extension of the closing date from December 31, 2022, to December 31, 2023; (ii) conversion of the current IPCG to a PPCG; and (iii) the reduction of the IDA allocation for the partial credit guarantee by 3 billion African Financial Community Franc (FCFA) in order to finance a matching grant (30% percent of the total cost of the truck) for the fleet renewal and replacement program. The Country Management Unit (CMU) has requested for this retroactive extension to be of six (6) months only (i.e., from December 31, 2022, to June 30, 2023) to prove that the action plan is effective to achieve the PDO, which was approved on February 2, 2023. 14. In addition to the requests from the government captured in paragraph 13, this restructuring will be used to update the results framework by revising the definition of the indicator related to CO2 reduction to mention that the truck renewal comprises both used (but newer) and new trucks manufactured within the last ten (10) years and with a motor model with emissions standards aligned with Euro-5 or above. Introducing the acquisition of used newer trucks for this renewal and scrapping scheme will make guarantees more cost-effective, hence retaining the interest of eleven (11) commercial banks for a total credit which is able to facilitate the renewal of approximately five hundred (500) trucks, as covered in paragraph 11. II. DESCRIPTION OF PROPOSED CHANGES The Team recommends a Level 2 restructuring to streamline activities and prove achievement of the PDO (with a subsequent extension not exceeding twenty-four [24] months after the original closing date) by: I. Financing an endowment for a PPCG scheme by converting the current IPCG (already disbursed to SOFIGIB) to a PPCG 4 The matching grant is designed to cover 30% of the buying price. The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) PPCGs shall be provided exclusively to mitigate the credit risk on loans/credits to eligible transport operators, and that such loans will at all times be underwritten, priced, signed, documented, monitored and serviced in accordance with the relevant PFI’s credit guidelines and using its standard documentation. The current IPCG will be converted into a PPCG. II. Updating implementation arrangement to introduce under component 2 a matching grant scheme to eligible transport operators for purchasing newer trucks eligible for the fleet renewal program About 3 billion FCFA out of the total 5.6 billion FCFA already disbursed for the IPCG will be utilized as a Matching Grant to partially finance (about 30% of the cost of trucks) the trucks to be bought by the transport operators eligible to the fleet renewal program and who has already obtained approval of their loans by partner financial institutions (PFI) participating in the transport window of the PPCG. The 3 billion FCFA will be housed in a special account in a commercial bank managed by the PIU. The PIM will be modified to include a section on (i) procedures for the award and payment of the matching grant, (ii) fiduciary control mechanism, and (iii) template matching grant agreement. The procedures for the award and payment of the matching grant are the following: 1. The PFI will notify the PIU once the loan application to buy a newer truck is approved 2. The PIU will disburse the grant (30% of the truck cost including taxes) into a designed commercial bank account with the PFI. The approval of the loan is a precondition for receiving the matching grants and the PFI is participating into the PPCG. 3. The PIU will also disburse the scrapping premium (10 million FCFA) into the same designed commercial bank account with the PFI. 4. The Transporter will pay the down-payment for the loan into the account 5. The bank will finally disburse the loan to complete the truck cost 6. The bank will pay to the truck dealer the advance payment to place the order 7. The bank will pay the remainder once the truck is delivered. Only financing the cost of trucks are eligible under the matching grants. The only eligible criteria to benefit the grant is loan approval by the PFI. The PIU is in charge of managing the funds dedicated to financing the matching grants. III. Updating results framework by revising outstanding Project Development Objective Indicator The current outstanding Project Development Objective Indicator reads “CO2 emissions reduction per annum by scrapping one hundred and fifty (150) trucks and replacing them with an equivalent number of new trucks (tC02)”. This restructuring proposed that instead of “new” trucks, used trucks are also introduced in order to retain the interest of commercial banks as this would make acquisition costs more accessible. The proposed change is that the indicator is changed to “CO2 emissions reduction per annum by scrapping one hundred and fifty (150) trucks and replacing them with an equivalent number of newer trucks (tC02)”. Newer trucks are defined as trucks manufactured within the last ten (10) years and with a motor model with emissions standards aligned with Euro-5 or above. These restructurings do not have Environmental and social safeguards implications. The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Disbursements Arrangements ✔ Institutional Arrangements ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Institutional strengthening and Institutional strengthening and capacity building support for capacity building support for public and private sector 2.90 No Change public and private sector 2.90 participants in the transport participants in the transport sector sector Development of a heavy cargo Development of a heavy cargo 14.00 Revised truck renewal and scrapping 14.00 truck renewal scheme scheme Support to customs Support to customs modernization and trade modernization and trade 3.00 No Change 3.00 facilitation on the Burkinabe facilitation on the Burkinabe section of the Corridor section of the Corridor Road safety on the Burkinabe Road safety on the Burkinabe 2.10 No Change 2.10 section of the Corridor section of the Corridor Project management, Project management, 1.00 No Change 1.00 monitoring, and evaluation monitoring, and evaluation TOTAL 23.00 23.00 . The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) . Results framework COUNTRY: Burkina Faso BF-Transport Sector Modernization and Corridor Trade Facilitation Project Project Development Objectives(s) The proposed PDO is to improve the efficiency and safety of transport services on the Burkinabe section of the Ouagadougou (BurkinaFaso) - Abidjan (Ivory Coast) road transport corridor. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Improve efficiency of transport services on Burkinabé section of Ouaga-Abj road transport corridor Direct project beneficiaries(Number) 0.00 3,000.61 3,000.75 3,000.89 4,030.00 4,170.00 4,170.00 (Core) (Number (Thousand)) Female beneficiaries (Percentage) sub Type: 0.00 0.00 50.19 50.18 50.16 50.14 50.14 Supplemental (Core) (Percentage) CO2 emissions reduction per annum by scrapping 150 trucks and replacing 0.00 0.00 0.00 0.00 0.00 0.00 8,000.00 them with an equivalent number of newer trucks (tCO2) (Tons/year) Action: This indicator has been Revised The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Number of transport companies professionalized 0.00 0.00 0.00 0.00 0.00 72.00 150.00 through the project (Number) (Number) Border Crossing time at Niangologo (CI/BF border) 10.00 10.00 10.00 10.00 3.00 3.00 3.00 (Hours) (Hours) Improve safety of transport services on Burkinabé section of Ouaga-Abj road transport corridor Missing/damaged traffic signs replaced per section 0.00 0.00 0.00 0.00 0.00 0.00 53.00 on the Burkinabe portion of the corridor (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Institutional strengthening and capacity building support for public and private sector participants in the transport sector Instructors trained in accordance with new 0.00 0.00 15.00 40.00 65.00 90.00 90.00 standards (Number) Percentage of heavy vehicles fleet managers trained in accordance with 0.00 0.00 0.00 15.00 30.00 50.00 50.00 new standards of training (Percent) (Percentage) The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Heavy vehicles fleet managers awarded a CPC 0.00 0.00 0.00 0.00 0.00 200.00 200.00 (Number) Development of a heavy cargo truck renewal scheme Number of newer long haul trucks put in service 0.00 0.00 0.00 0.00 0.00 0.00 150.00 (Number) (Number) Action: This indicator has been Revised Support to customs modernization and trade facilitation on the Burkinabe section of the Corridor Electronic transmission of transit document collected by Burkinabé customs is No No No No Yes Yes Yes provided in real-time to CI Customs(Yes/No) (Yes/No) Customs clearance time at destination (Ouagadougou) 10.00 10.00 10.00 10.00 10.00 6.00 6.00 (Hours) Identified operators to be certified as AEO in place No No No No Yes Yes Yes (Yes/No) Partnerships with CSOs/CBOs established to provide feedback on No No Yes Yes Yes Yes Yes progress in addressing illegal practices on the The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Burkinabe section of the Corridor (Yes/No) Decrees to implement the AEO status are available No No No No No No Yes (Yes / No) (Yes/No) (Yes/No) IO Table SPACE . The World Bank BF-Transport Sector Modernization and Corridor Trade Facilitation Project (P156892)