Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB1519 Project Name INFRASTRUCTURE SERVICES Region AFRICA Sector General energy sector (15%); General water, sanitation and flood protection sector (25%); General transportation sector (40%); Sub- national government administration (15%); General information and communications sector (5%) Project ID P057761 Borrower(s) Governmnet of Malawi Implementing Agency Ministry of Economic Planning and Development Government of Malawi Malawi Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared May 26, 2006 Date of Appraisal Authorization April 21, 2006 Date of Board Approval June 27, 2006 1. Country and Sector Background Located in the southern part of East Africa, Malawi has about 11.6 million people of whom, more than 54 percent live below the country’s poverty line. The gross domestic product (GDP) of the country is only about US$1.9 billion (about US$164 per capita). There is very little diversification of the economy. Agriculture is by far the dominant economic activity, with tobacco and a few other farm products providing Malawi with about 80 percent of its export revenues. Most of the population (around 85 percent) is engaged in some type of agricultural activity, at times forced to shift from growing cash crops to subsistence food crops due to drought and the reduced availability of maize, the major food staple. As a result of heavy reliance on rain fed agriculture, Malawi continues to experience fluctuating but generally low growth rates (averaging about 3.5% per year). There has been very little reduction in poverty since 1998, due in large part to low economic growth, food insecurity, substantial inequality in income distribution, high rates of infant and maternal mortality and short life expectancy countrywide due in part to the prevalence of AIDS. Small and medium enterprises (SMEs) make a significant contribution to Malawi's economy. These enterprises, which include firms with up to 50 employees, provide livelihoods for over 1.7 million people or about 40 percent of the total working population. On average, the country’s SMEs together generate annual gross sales of about MK 47 billion (US$790 million based on 2000 exchange rates). Their total annual profit of MK 16.7 billion amounts to about 16 Page 2 percent of Malawi’s GDP (in 2000 prices). Most of Malawi’s SMEs are family-owned and typically revolve around simple agro-processing activities, such as maize grinding and food conservation. Other common businesses include hotels, restaurants, and other amenities that cater to people who come to the town market centers. Focal areas of the proposed project: The project will support the Government’s efforts to improve household welfare and strengthen economic growth by providing coordinated infrastructure services necessary for expanding social and economic activities outside the country’s two major cities. Malawi has fifty towns and several hundred market centers away from these cities. The project will provide core infrastructure services in about thirty market centers in five economic corridors located along the country’s main road system. These corridors are the following: · Rumphi-Nyika-Chitipa (northern region) · Ntcheu-Tsangano-Mwanza (central/southern region) · Mangochi-Cape McLear (southern region) · Zomba-Phalombe-Mulanje (southern region) · Bangula-Tengani - Nsanje- Makoko (southern region) The selected economic corridors represent Malawi’s three main geographical divisions – north, central and south. Their selection took place during project preparation in consultation with District Assemblies, taking into account a number of factors, including population, existing businesses and social services, poverty levels and potential demand for the infrastructure services that the project will provide. The ranking of the centers for selection to participate in the project assigned a heavy weight to those with significant potential for three priority areas of the Government’s strategy for economic growth and development – agro-business, mining, and tourism. The coordinated infrastructure services that the project will provide in support of these key activities will cover one or more of the following sectors on an as-needed basis in each area – electricity, telecommunications, water and sanitation, and roads. The population that the project is likely to affect directly, those living in the market centers, is about 160,000, or nearly 14 percent of Malawi’s total population. In addition, the feeder roads that the project will construct are likely to have an even larger impact as they will bring the market centers within closer access of people living in the hinterlands. Market centers in Malawi typically consist of: (a) small shops selling basic necessities in towns such as cooking oil, soap, sugar and salt, meat and fish, and clothes; (b) service providers such as maize mills, bicycle repair shops, tailors, battery charging stations; and (c) entertainment establishments, such as video stores and bars. Some of the services operate throughout the week, such as mills that grind maize--the staple subsistence food for most of households-- into flour, as well as sellers of potatoes and vegetables. Usually each market center has one or two market days a week when there is an influx of people from the catchment area. On average, 5,000 people live within a two- kilometer radius of a market center. Many more people live in the surrounding rural areas. They are mostly subsistence farmers who go to the market centers on foot along Page 3 tracks and un-surfaced roads. The market centers also typically have some public infrastructure, usually a clinic, primary and secondary schools, and a police post. The approach of building up infrastructure within market centers (electricity, water/sanitation and telecommunications), coordinated with the construction of roads to reach them, also eventually could facilitate the use of these centers as key development tools for knowledge expansion. For example, these services combined could support as a platform for launching the development of community instruction centers with audio visual equipment, computers, and Internet access. The centers could serve as the base for conducting outreach programs in developmental areas of concern for the thousands of people living in isolated areas who come to the centers once or twice a week. The programs could deal with important areas of concern such as expanding adult literacy, improving health awareness, and developing the skills for starting and maintaining small and medium businesses. 2. Objectives The objective of the project is to improve household welfare and strengthen economic growth in market centers and surrounding rural areas through the provision of core infrastructure services. The project would: · finance coordinated priority investments in roads, water supply and sanitation, electricity and telecommunications within corridors with economic growth potential; and · assist the Government of Malawi in developing a coordinated approach to planning and implementing infrastructure development in these areas. 3. Rationale for Bank Involvement In Malawi, the Bank has experience with projects in the water, roads and private sector development and has been involved in policy dialogue in all of the infrastructure sectors. The Bank also has experience in designing and supervising multi-sector infrastructure projects in Africa (Madagascar and Mali) and in other regions (Chile and Peru). Furthermore, there are no other international agencies in Malawi providing the same type of strategic support for infrastructure development linked to key economic activities. The Bank is also gearing its involvement towards greater support at areas outside major urban areas. Africa Action Plan. At the regional level, the proposed project will support several economic and social objectives of the World Bank's Africa Action Plan (AAP). The first and foremost objective that the project will support is the closing of the "infrastructure gap" in Africa to achieve the economic growth required for a substantial reduction in poverty. Coordinating investments in roads, water, electricity and telecommunications to support priority economic sectors in the project areas will do just that. 4. Description Page 4 The project's components would form part of integrated infrastructure packages to address the varying needs of the market centers in each of the five economic growth corridors that the proposed project would cover. These packages would begin to address the infrastructure imbalances between urban and rural areas and would vary by area in terms of priorities of the districts in each of the corridors. The following sections summarize the key elements of the components in each of the sub-sectors. Electrification . This component will bring electricity to the businesses, public institutions, and inhabitants in the project areas. In particular, the project will finance the construction of power lines that will connect the market centers to the national grid, transformers, poles, low voltage distribution networks and consumer meters. The project will use low cost distribution technologies in areas where load characteristics permit the use of such technologies. The component will finance measures that reduce the cost of connection to electricity and will provide public lighting in the market centers so many more (and not just those with home connection) benefit from electrification. The project will also finance the connection of all schools and clinics in the market centers and teacher and health worker housing to electricity supply. ICT . This component would provide subsidies needed under an output-based aid (OBA) scheme to improve access to telecommunications and information services in the project areas. The options include the provision of rural telephone connections to communities, using public phones and privately operated kiosks as well as connections to interested households and businesses. It also proposes to provide Internet access and ICT services by establishing small- scale, multi-purpose community telecenters in the project areas. Water supply and sanitation . The project will finance the establishment of a water association to oversee water supply systems, and a local utility operator to handle routine operations and maintenance, plus construction of a water supply scheme serving each market center. In total 150,000 people in 24 towns will obtain an improved water supply through the project. In addition, schools, clinics and other social institutions would receive water and sanitation services. Roads . This component will finance the rehabilitation of about 150 km of secondary and tertiary roads and the construction of 350 km of feeder roads to improve transportation accessibility to and from the project corridors in general and the market centers in particular. The road works will entail spot improvements (sectional re-gravelling, strengthening/replacing drainage structures, provision of additional drainage, minor adjustment to road widths if necessary); periodic maintenance activities (resealing, resurfacing, re-gravelling, strengthening of base material) using design standards for low volume roads. Major pavement realignments are not envisaged to avoid unnecessarily high standards that would affect cost. The project also will finance technical assistance to support the establishment of community contractors for road maintenance. Institutional Strengthening and Capacity Building . It will provide technical assistance and training support, including environmental training, to the various governmental agencies and the private sector engaged in infrastructure service delivery. Also in line with current efforts at Page 5 greater decentralization of planning authority, the project will provide this support to the district authorities in each of the economic growth corridors, who will be key partners in project implementation. The component also will finance the project’s management costs. It also will support activities associated with the screening of project areas for environmental and social impacts, preparation and implementation of related Environmental Impact Assessments (EIAs) and Resettlement Action Plans (RAPs), if required, as well as the costs of the project’s monitoring and evaluation. 5. Financing Source: ($m.) BORROWER/RECIPIENT 1.3 INTERNATIONAL DEVELOPMENT ASSOCIATION 40 BILATERAL AGENCIES (UNIDENTIFIED) N/A Total 41.3 6. Implementation The Ministry of Economic Planning and Development will be in charge of the overall project, including the design of the infrastructure packages and administrative aspects such as project accounting, disbursements, reporting, scheduling, and monitoring and evaluation. The respective sector entities will be responsible for implementing their respective investment components. 7. Sustainability The IDA grant will finance the capital cost of infrastructure in the market centers. The sustainability of this infrastructure will depend on the quality of the operations and maintenance as well as systems for financing their costs. Each of the infrastructure sectors will implement its own strategy to sustain the investments that the project will finance, as discussed below. Electricity : Sustainability of the electricity component is expected to be underpinned by (a) increasing revenue per unit of electricity sales (improved cost recovery) and (b) reducing the per customer unit cost of grid extension. ICT. The Malawi Communication Regulatory Authority’s (MACRA) capacity to establish and implement the new framework for access expansion will be the key to the success of the project's telecommunications component. In this context, the project’s technical assistance components provide for a major capacity-building effort to ensure that MACRA acquires the skills and capabilities necessary to run large-scale subsidy programs by the end of the project. Water Supply and Sanitation . The local District Assembly, with the support of the Regional Water Boards, will establish a financially autonomous Water User Association in each market center where water supply and sanitation investments will take place under the proposed project. The Regional Water Boards with the assistance of local consultants will assist the Water User Associations to prepare a business plan. The Ministry of Irrigation and Water Development Page 6 will appraise the business plans together with the local district assembly to confirm that appropriate institutional arrangements are in place and that water sales will cover recurrent and replacement costs. Roads . The road sector will use existing capacity created through the establishment of the National Roads Authority to design, construct and maintain project roads within their network. The National Road Authority will work on strengthening the capacity of municipalities in project areas to manage the road networks within their jurisdiction. The project will support the establishment and training of community- based contractors to handle maintenance activities. The establishment of the Road Fund will assure financing for maintenance the maintenance of roads financed by the project. 8. Lessons Learned from Past Operations in the Country/Sector From past project experience in Malawi. More than a decade ago, the Bank financed the Malawi Infrastructure Project (Credit 2069-MAI). This project covered three infrastructure sectors – roads, water and public building construction. It took place between June 1990 and December 1995 in a Bank and country context quite different from today. Nevertheless, two key lessons remain valid for this project. The first is the need for a strong strategic and institutional context. The design of the project has benefited substantially from the Africa Action Plan, which emphasizes the need to close the infrastructure gap in the region, along with the MDGS and the Country Assistance Strategy (CAS), which demonstrate the commitment of the Government of Malawi and the Bank to develop a solid infrastructure platform for economic growth and poverty reduction. The second lesson is the need to align Bank supervision resources to the multi-sector nature of the project. The supervision budget for the project, which spans four infrastructure sectors, will require more supervision resources than the usual single sector project. The design of the project’s water supply and sanitation component, which provides for the development of community based Water User Associations, takes account of the Bank’s experience with the National Water Development Project (Credit 2753-MAI). A key positive lesson learned from this project is that a district-based, community-driven model for water supply and sanitation services has been highly successful in the sustainable management of these services. Furthermore, this model has set the standard for donor-supported rural water supply and sanitation systems. From successful rural electrification programs. The project’s design also takes account of several lessons from an ESMAP study that highlights successful rural electrification programs in the developing world. The first is that financial viability through cost recovery is probably the single most important factor that determines the long-term effectiveness of rural electrification programs, and that subsidies should not be provided for any recurrent losses. The second is that tariffs set at realistic levels advance adequate cost recovery, provide incentives for end users to switch from high-cost substitutes and receive vastly improved service. The third is that using technologies that reduce the costs of electricity connection charge and offering installment plans to pay for these costs can extend the benefits of electricity supply to much larger numbers of low- income rural families than the use of conventional connection Page 7 technologies. The fourth is the importance of community involvement in the electrification process. In line with the above l essons, the project’s preparation work has identified ways to reduce both the cost of line construction and household connection. A tariff study completed in 2005 has recommended tariffs required for cost recovery. The study also has recommended a special tariff for rural consumers that will help them control their costs and assist the utility in its cost recovery. The implementation of the electrification component will involve the community by consulting with District Assemblies in the design of lighting for market centers and offering households a choice between conventional full household wiring and ready boards that will meet basic electricity requirements at lower cost. From coordinated infrastructure projects in other countries . The project’s approach of supporting investments in multiple infrastructure sectors simultaneously derives from the positive experience of an emerging portfolio of projects that link infrastructure investments to specific productive activities. One example is the Chile Infrastructure for Territorial Development Project, which the Bank’s Board approved in January 2005. The Project Appraisal Document (PAD) notes that studies in other countries, such as Peru, show that when several infrastructure services become available simultaneously in the same rural area, the impact is greater than the sum of the individual effects when the services are provided individually in separate areas. 9. Safeguard Policies (including public consultation) The project has been assigned the environmental category B, and the safeguards classification is S2. It has triggered OP 4.01 Environmental Assessment, OP 4.12 Involuntary Resettlement, and OP 7.50 Projects on International Waterways. Because it was not possible to assess, prior to appraisal, the locations and potential negative, localized impacts of the investments prior to appraisal, the Government prepared an Environmental and Social Management Framework (ESMF) dated February 2006, consistent with the requirements of OP 4.01. Also the Government prepared a Resettlement Policy Framework (RPF), dated February 2006, consistent with the requirements of OP 4.12. Both documents were approved and disclosed in Malawi on February 22, 2006, and at the Bank’s InfoShop on February 27, 2006. The ESMF was prepared in consultation with all relevant stakeholders at the local and national levels (for details see appendix 9 of the ESMF). The ESMF has recorded their views. Consistent with this framework, the project will support the implementation of an Environmental Training Program as well as the inclusion of HIV/AIDS measures into construction contracts. The RPF outlines policies and procedures to be followed in the event that some investments require land acquisition. The RPF provides guidelines for the development of appropriate mitigation and compensation measures, for impacts caused by project activities whose exact locations were not known prior to appraisal. The RPF will serve as a practical tool Page 8 to guide the preparation of any Resettlement Action Plans (RAPs) for project activities during the implementation of the project. Consistent with the provisions of OP 7.50, the Bank, on behalf of the Borrower, sent notification letters to Malawi’s riparian countries (Zambia, Zimbabwe, Tanzania, Angola, Mozambique, Botswana, and Namibia) on March 6, 2006, informing them about the project and its potential impact on international waters, and seeking their comments, if any, by April 30, 2006. As of April 30, 2006, the Bank has received no objections from the riparian states and on May 1, 2006, the Country Manager requested approval for further processing of the project from the Regional Vice President, thereby completing the notification requirements of OP 7.50. Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Cultural Property (OPN 11.03) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X 10. List of Factual Technical Documents a) Initial Assessment, 2005 b) Cross Sectoral Linkages to Electricity Access, ESD, May 2005 c) Inventory of Development projects, 2005 d) Environmental and Social Management Framework, February 2006 e) Resettlement Policy Framework, February 2006 f) Consultancy Services to prepare Monitoring and Evaluation Database for Infrastructure Services project, draft report, A. Phiri, January 2006 g) Inception Report for Feasibility Study, Norconsult, February 2006 h) Results of the Assessment of the Capacity of Implementing Agencies to carry out Procurement under the Proposed Infrastructure Services Project (ISP), WB, March 2006 i) Low cost innovation in the provision of electricity, draft report, I. Davies, March 2006 j) Feasibility Studies for provision of Coordinated Infrastructure Services, Norconsult, April 2006 Page 9 11. Contact point Contact: Paivi Koljonen Title: Sr Energy Econ. Tel: (202) 473-3229 Fax: Email: Pkoljonen@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop