Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-7192-RW MEMORANDU'M AN) RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMENTAL CREDIT of SDR 33.09 MILLION TO THE RWANDESE REPUBLIC FOR THE TRANSPORT SECTOR PROJECT NOVEMBER 10, 1997 Transport, Group 2 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 Bank authorization. CURRENCY EQUIVALENT Currency Unit Rwanda Franc (RWF) US $ 1.00 RWF 306.0 (average for 1996) SDR 1.00 US $ 1.36 SYSTEM OF WEIGHT AND MEASURES Metric US Equivalent 1 meter (m) 3.28 feet (ft) 1 square kilometer (km2) 0.386 square miles (sq. mi) I hectare 2.47 acres (a) 1 metric ton (m ton) 2,204 pounds (lb.) FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DRC Democratic Republic of Congo ERC Emergency Recovery Credit ERRC Emergency Reintegration and Recovery Credit EU European Union GDP Gross Domestic Product GOR Government of Rwanda IDA International Development Association MINITRANSCO Ministry of Transport and Communications MINITRAPE Ministry of Public Works SDC Swiss Development Cooperation SME Small and Medium Enterprise VOC Vehicle Operating Cost Vice President: Callisto Madavo, AFR Country Director: Nils Tcheyan, AFCO9 Sector Manager: Maryvonne Plessis-Fraissard, AFTT2 Task Team Leader Aubert Zohor6, Sr. Fin. Analyst, AFTT2 FOR OFFICIAL USE ONLY RWANDA SUPPLEMENTAL TRANSPORT SECTOR PROJECT CREDIT AND PROJECT SUMMARY Borrower: Rwandese Republic Implementing Agencies: Ministry of Public Works and Ministry of Transport and Communications Beneficiaries: Ministry of Public Works and Ministry of Transport and Communications; City of Kigali; Communities in Kibuye area International and local civil works contractors Credit Amount: SDR 33.09 million (US $ 45 million equivalent) Terms: Standard IDA terms with 40 years maturity Financing Plan: See Schedule A Economic Rate of Return: 13% (for the main road) Poverty Category: Not applicable Project ID Number: P-7192-RW Map: IBRD 29191 There is no Staff Appraisal Report. This memorandum is based on the findings of the supervision missions of the ongoing operation and those of a joint GOR and Bank September 1997 preparation mission. The Bank supervision team includes, Messrs. A. Zohor6, Senior Financial Analyst (Team Leader); C. A. Gannon, Senior Economist; P. Henault, Highway Engineer; R. Venkateswaran, (Res. Rep.); and Ms. M. C. Uwanyiligira, Operations Officer (Res. Mission, Kigali). Ms. Julienne Kouam6, Jos6e Bamvi-Koua, and Nathalie Lopez-Diouf provided assistance in processing this report. Mr. Nils 0. Tcheyan is the Country Director, and Ms. Maryvonne Plessis-Fraissard is the Sector Manager. 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 Bank authorization. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO RWANDA FOR SUPPLEMENTAL FINANCING TO THE TRANSPORT SECTOR PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Rwandese Republic, for SDR33.09 million (US$45 million equivalent). The proposed credit would be on standard IDA terms with a maturity of 40 years. This credit is a supplemental financing to the ongoing Transport Sector Project to ensure its successful completion by: (i) consolidating the positive results recently achieved in improving the policy and practices for road maintenance management, and (ii) completing the urgent reconstruction of the weakest link of the main roads network linking Rwanda to its neighbor to the West, to assist the new government in its efforts to create adequate conditions for resettlement, social cohesion and move towards regional economic integration and development. Country Economic and Sector Background 2. The Economic and Social Context. Rwanda has experienced falling per capita income and increasing poverty since the late 1980s. Almost all social indicators have fallen significantly since then. Per capita income declined from a peak of US$380 in 1987 to US$250 in 1993. This rapid decline was due partly to the civil unrest in the country and partly to weak policies and mismanagement of resources. The situation was worsened by the civil war of 1994 which took over 1 million lives and a flight of approximately 2 million to neighboring countries. GDP fell sharply in 1994 by 49 percent of its 1990 level, and per capita income was estimated at US$150. 3. The new Government of National Unity, formed in July 1994 at the end of the war, inherited a shattered economy and debilitated economic and social institutions. The economy rebounded in 1995, and continued its upward swing in 1996, fueled by relative political stability, credible macro-economic management and large external aid flows. This trend is continuing in 1997, following the massive return of over 1.2 million refugees in the last months of 1996. Nevertheless, GDP at the end of 1996 had only recovered to 70 percent of its 1990 level and per capita income was estimated at US$180 at the end of 1996, making Rwanda one of the poorest countries in the World. A prolonged period of conflict from 1990, culminating in the genocide of 1994, has left the economy structurally very fragile. 4. The Government of Rwanda (GOR) has been working with the support of the international community to address the social and economic problems, rehabilitate infrastructure, and rebuild administrative, judicial and social institutions. Progress was made in resettling internally displaced persons, reintegrating refugees, providing assistance to vulnerable groups, and enhancing peace and security. Recently, the focus of government policy has shifted from relief and humanitarian assistance, to development, although humanitarian efforts targeted at vulnerable groups are continuing and Rwanda is still facing the prospect of heavy budget deficits for some years to come. 5. The Government's development objectives include the promotion of national reconciliation, economic and social integration of all vulnerable groups including refugees, the reform of the economy for rapid and sustainable growth. The Government is putting priority on agriculture and rural development, to improve rural incomes and reduce poverty. The key elements of its strategy are to assist farmers to increase productivity in food and export crops, promote rural markets and non-agricultural enterprises, develop high value export crops, and reduce internal and external transport costs. Regional 2 trade and commerce is important to the Rwandese economy. Rwanda is positioning itself to gain from the enhanced prospects for peace and economic upturn in Eastern Africa and the Great Lakes Region by improving its internal infrastructure and external links. 6. Sector Background. Rwanda is a landlocked country with a hilly to mountainous topography and densely settled population living almost exclusively from subsistence farming and tea and coffee production. In this setting, sound transport infrastructure is crucial in reducing the isolation of the country from its neighbors, and that of one region of the country from another. Infrastructure has been given a high priority in Rwandese development planning and has become particularly necessary in the new regional setting. The policy objectives encouraged by IDA and other donors are to: (i) improve international transport connections; (ii) upgrade to paved standard, the key roads of the network to facilitate the country's access and its social and administrative integration; (iii) lower transport costs for the rural areas to improve the returns to the farmers; (iv) ensure better management and financing of the maintenance of the road network in general; and (v) improve road safety. 7. Rwanda has a reasonably good network of primary roads and a good base of feeder roads. However, the secondary and feeder roads have suffered from a prolonged period of poor maintenance due to the civil war and poor management of resources of the old Road Fund. This situation is worsening with the scarcity of resources, as the current Road Fund is collecting only about US$4 million per annum, compared to US$10 million per annum, pre-war level. The situation is more critical in the agricultural area of Kibuye which misses an essential link to the capital, and where poor maintenance of feeder roads leading to markets is affecting the income of about 1.5 million farmers. Equally affected, is the densely populated area of Kigali, where the lack of maintenance of the road network is endangering the hilly neighborhoods, particularly, because of a lack of proper drainage works. Rwanda is also lacking equipment (damaged during the war), regulations and enforcement measures for heavy vehicle axle load control, mainly at the borders. This contributes to damaging the road network. Collection of funds cover currently less than 20 percent of the road maintenance needs, and it is estimated that 2 to 3 years are needed to reach the pre-war level of funding, making it necessary for donors such as IDA to fill the gap now, and to participate in the road maintenance program. This would help ensure the sustainability of the new road maintenance policy of privatization, while the pre-war level of road maintenance funds is being restored. 8. The current Government of Rwanda has shown strong commitment in implementing sound road maintenance policy. Reforms were undertaken to replace the former force account by private contractors and create a Road Fund dedicated to road maintenance. The transport sector investments and institutional measures included in the ongoing project were aimed in particular at supporting this policy. The original credit for the current Transport Sector Project was for SDR31.1 million and became effective in March, 1991. The original objectives of the project were to (i) protect capital investment in roads through improved maintenance; (ii) strengthen institutions in the sector through better planning and resource mobilization; (iii) promote communal development and better economic integration through improved communal roads; (iv) improve access to the Kibuye Prefecture; (v) support lake transport; and (vi) improve road safety. This program also had important policy dimensions such as streamlining the regulatory environment, financing of sectoral expenditures, and improving institutional arrangements and responsibilities in the sector. In the execution of the above program, discussions had stalled with the previous government on privatization of road maintenance, refocussing the functions of the Road Directorate to planning and supervision of works to be executed by the private sector, and better financial discipline in the management of the Road Fund. 3 Background and Rationale for the Supplemental Credit and Project 9. Bank Strategy and Donor Support. After the war, the Bank strategy and donor support focused on providing emergency assistance to jump-start the economy. Leveraging Bank resources with other donors funding was an integral part of this strategy. Particularly, the Board approved in January 1995 an Emergency Recovery Credit (ERC) of US$50 million equivalent for a broad economic sectors support, and in June 1997, an Emergency Reintegration and Recovery Credit (ERRC) of US $50 million equivalent was approved to finance selected activities of the national budget. In addition to this, the Bank prepared a framework for restructuring the portfolio of 12 projects to ensure its relevance to the immediate problems being faced by the country. The ongoing Transport Sector operation represents 20 percent of this portfolio and includes a grant of SWF15 million from the Swiss Development Cooperation (SDC). The project disburses to local and international civil works contractors and consultants, about US$1.5 to 2.0 million quarterly to assist in establishing capacity for road maintenance by the private sector, reconstruction of the main road links in the west of the country, and in establishing a sustainable mechanism for management and financing of road maintenance. With the exception of the ERRC and the Private Sector Development Project, all the credits in the Bank portfolio are scheduled to close before the end of 1998. 10. The Country Assistance Strategy is being prepared in close consultation with Government. The CAS is emphasizing the transition from post-war emergency to sustainable growth, and has three related principal themes: (i) social and economic reintegration of refugees and vulnerable groups and national reconciliation; (ii) consolidation of the economic recovery and reconstruction; and (iii) laying the basis for accelerated sustainable growth. Urban and rural infrastructure maintenance and improvement would support and sustain the economic recovery and growth. This includes expanding the level of maintenance of the primary and secondary road network, strengthening the institutional capacity to sustain this activity in the future, and upgrading the essential road links to neighboring countries to facilitate resettlement, access of farmers to markets, improve revenues and rural household welfare through reduced transport costs, and to support regional integration. The CAS is scheduled for discussions with the Executive Directors in March 1998. 11. Progress and Experience Under the Ongoing Operation. When project execution was resumed after the 1994 civil war, the ongoing Transport Sector project was about 3 years old and 20 percent executed. Its objectives were refocussed to better address the changed country conditions and the critical needs identified post-war. Namely, the project was restructured to achieve: (i) the completion of the Gitarama-Kibuye road to reduce transport cost for farmers, mainly coffee and tea farmers, and improve the integration of the Kibuye Prefecture into the rest of the region; (ii) better management capacity in the sector; (iii) the transformation of the National Road Fund by setting up a new Road Maintenance Fund, independently managed by a board comprised mainly of road users and aimed at effectively collecting and allocating funds to priority needs, and facilitating the payment of maintenance works to be executed by private entrepreneurs, including local SMEs. This replaced the former inefficient force account practices; (iv) better road safety, especially in the populated area of Kigali where road accidents have reached a crisis level. 12. Status of the Gitarama-Kibuye Road Reconstruction. The Gitarama-Kibuye road links the capital Kigali to the coffee and tea producing region of Kibuye and links Rwanda to the Kivu region of the Democratic Republic of Congo (DRC). It serves about 20 percent of the national population which depends mainly on this road for access of their production to markets. The reconstruction of the Gitarama-Kibuye road was resumed in September 1996 on the section (35 km) cofinanced by IDA and 4 the SDC, and this section is scheduled to be completed around August 1998. Besides this road section, the project has completed the reconstruction of two earth roads from Kibuye to the DRC border in the north and south, which are essential to complete the network in the west of Rwanda. The works on the remaining critical section of 40 km of the Gitarama-Kibuye road which were to be financed by the European Union (EU), as originally agreed, did not resume. The cost for this section is estimated at US$23 million. The EU recently informed the Government that it would require an additional year in order to resume on this section because the contract which had been let was cancelled and the entire process would have to be restarted again. In light of this delay and given the social and economic importance of this road for the country, the Government requested the EU to reallocate its funds to other priorities in the sector which are not time sensitive and to provide support for improvement in aviation sector management. Following those discussions with the EU and in order to capitalize on the respective achievements of each institution in the sector, the GOR requested this supplemental credit from IDA to focus on strengthening the road maintenance policy and management, and completion of the critical Gitarama-Kibuye road section of the main network . 13. Status of Road Maintenance Policy. The post-war Government of 1994 has fully supported a policy of privatization of the execution of road maintenance works. Here, substantial progress has been achieved; in particular, (i) the management of the Road Maintenance Fund has improved and is working reasonably well, and (ii) the function of the Road Directorate has been concentrated on planning and supervision of works to be executed by private contractors, with the purpose of phasing out the former force account arrangements. The old Road Fund (Fonds Routier National) was made operational, and taking advantage of the new situation, its legal, institutional and managerial set-up was revised. A new law has been drafted. That draft law, based on the current best practices of road fund schemes in Africa, will remedy most of the defects of the old Fonds Routier National. It includes provisions for (i) independent decision-making power vested into a board with major representation of road users; (ii) ensuring the sound and secure collection of revenues from road user charges; and (iii) preventing misallocation of funds, This Pew law has obtained support in cabinet and is being finalized for parliamentary discussion, 14. Limitations exist however, to make this new policy sustainable as follows: (i) there is now the need to strengthen the capacity of the Road Directorate to perform its new duties; (ii) the privatization of the road maintenance is still embryonic and requires a critical mass of investment to serve as a vehicle to provide on the job training of the private contractors and staff of the Road Directorate for planning and supervision of works to improve efficiency and effectiveness; (iii) it is critical to supplement now the limited resources of the Road Fund to expand the current level of maintenance and help anchor the new practices until the Fund reaches or exceeds its pre-war potential. 15. Status of the Road Safety Program. A national road safety program is being completed, including rehabilitation of traffic lights in Kigali, markings and signals in urban areas; a traffic code has been established and institutional support is being provided to the Directorate of Transport to enhance its capacity in traffic flow management and planning, A vehicle control center is planned. Remaining issues include, establishment of regulations and enforcement for axle load limits and driving licensing management. 16. Rationale for IDA Supplemental Financing. The new situation has seriously curtailed the ability of the Government to complete an important road link, its own resources being far too limited to fill the gap. This greatly impedes access of the tea and coffee farmers of the Kibuye area to markets. Their income is currently, 10 to 15 times lower than that of the coffee farmers of other regions, partly due 5 to transport cost premium charged by the few buyers who reach the area. In addition to this, 5 percent of the green leaves tea production is discarded, about 300 T in 1996, for lack of quick access to the factory. 17. Delaying further the completion of this investment will increase its cost and impede resettlement and the economic and social development in the Kibuye area. After the war, IDA has played an important role in the Transport Sector in assisting GOR to rebuild institutional capacity, bring the focus on improvement and maintenance of road assets as an integral part of rebuilding social cohesion and establishing the framework for development. IDA's continued presence through this supplemental financing would help consolidate the results achieved and complete an essential road link to promote agricultural production and exports, to contribute to improvement in the income of the rural households of the area. The financing of road maintenance for two years to help train private sector contractors to improve efficiency and effectiveness, maintain the level of financing necessary during the establishment of the new Road Fund and to strengthen the capacity of the Road Directorate to plan and supervise road maintenance activities, is likely to have a sustained impact on such activities in the future. 18. In summary, a key element of the Government's program for economic recovery and the Bank's assistance strategy is to strengthen infrastructure and its sustainable management. A related priority is to improve the condition of the few remaining weak links in the main roads network and to establish new institutional arrangements for efficient management, financing, and maintenance of the road system. The supplemental credit is designed to squarely serve this strategy. Project Objectives 19. In line with the new country conditions, the project will pursue and complete the program of policies formulated by the GOR for the initial credit. Specifically, the supplemental credit would: (i) improve road access in the Kibuye area to assist in voluntary resettlement, social cohesion, and support re-establishment of agriculture activities, especially, production of coffee and tea for export; (ii) improve the main road link to an economically significant neighboring country, the DRC; (iii) consolidate progress achieved in transport policy by providing support to the institutions for a sustainable private sector based road maintenance activity; and (iv) pursue improvements in road safety. Project Description 20. To achieve the objectives above, the supplemental credit, with a total estimated cost of US$45 million equivalent, would include the components below; due to the current budgetary constraints of the GOR, IDA would finance 100 percent of the cost of the project, excluding local taxes and duties. (a) upgrading and paving of the remaining critical 40 km section of the Gitarama-Kibuye road (US$23 million, 51 percent of project cost) to realize the full benefits of improving this main road link; (b) rehabilitation and maintenance by SMEs of 550 km of secondary/feeder communal roads linked to the Gitarama-Kibuye road (US$8.5 million, 19 percent of project cost), in order to facilitate farm-to-main road access as well as improved social connections from villages to regional centers and to support privatization of road maintenance; (c) rehabilitation and maintenance by SMEs of 80 Km of urban roads in the capital city of Kigali (US$8.8 million, 19.6 percent of project cost), to mainly improve drainage systems and to support the privatization of road maintenance; 6 (d) acquisition and installation of equipment for measurement and control of vehicle axle load, traffic signals and markings (US$2.5 million, 4.5 percent of project cost); (e) Technical assistance (US$2.0 million, 4.5 percent of project cost) for design and supervision of works; on the job training of small and medium scale road construction and maintenance contractors; establishment of procedures, sanctions and training for enforcement of vehicle axle load control and updating of road safety regulations; and country wide sensitization campaigns for road safety; and (f) operating costs (US$0.2 million), for project related costs of office supplies, consumable and costs related to travel by project staff. Project Implementation 21. The proposed supplementary project would not require additional implementation capacities beyond those already existing for the ongoing project and would help consolidate them. The larger rehabilitation and upgrading works are currently supervised by specialized engineering firms. Concerning the road maintenance issue, the Ministry of Public Works (MINITRAPE) has undertaken reforms with the Road Directorate and established a Road Maintenance Unit which is being trained and equipped to prepare contract documents and assess tenders for maintenance-related tasks to be carried out by the private sector, and to monitor the fulfillment of those contracts. The unit assisted by specialized engineers would become a central element for improvement in the efficiency and effectiveness of the private contractors for road maintenance. The Ministry of Transport and Communications (MINITRANSCO) will oversee the implementation of the road safety campaigns and vehicle axle load control. A management accounting system is already in place and the ongoing project is satisfactorily audited annually. Project Sustainability 22. The Government has already taken adequate measures to put in place a sound base for the sustainable management and financing of road maintenance by (i) approving a new law on the Road Fund to be independently managed by road users and (ii) reorganizing the Road Directorate. It has also strengthened collection measures to provide adequate funds for road maintenance in the future. The project would reinforce this set-up by training local civil works contractors selected on a competitive basis and staff of the Road Directorate to improve road maintenance capacity, efficiency and effectiveness. 23. The proposed financing of communal and urban roads maintenance works would provide a leverage to monitor and ensure the successful implementation of the privatization of road maintenance. This project should help anchor and expand the use and capacity of private contractors started under the ongoing project and help fill the gap due to the current low level of resources while the Road Funds capacity is being build up. This is likely to have a sustained positive impact on the sector. Environment Impact 24. The rehabilitation and maintenance of urban and communal roads included in the project are not expected to generate any significant environmental problems since the works would be done on existing road ways, utilizing existing quarries and asphalt plants. 25. An environmental assessment of the Gitarama-Kibuye road paving was carried out in 1990 during the preparation of the ongoing project. It recommended that particular. attention be given to (i) the 7 disposal of excess material from road work, (ii) the relocation of any families displaced by the works and (iii) road safety. The Government responded satisfactorily to those recommendations as follows: (a) excess material from road work was carried to and arranged in specially engineered areas and provided additional usable land in a country where such issue is a critical one. Local and international non governmental organizations requested that these areas be used to promote community activities which included income generating activities. This arrangement will remain in the new project. The appropriate dispositions will be included in the works contract. (b) with regards to the relocation of displaced families, the 1990 assessment identified 16 families for which appropriate dispositions were proposed by the Government. When the project activities resumed in 1995 after the civil war, a combination of the effects of the destruction of property and displacement of people by the war, and a redesign of the technical specifications to the existing road way, have eliminated the need for relocation. However, the works will affect some farms. Government has satisfactorily agreed with the farmers and budgeted a reasonable compensation. This approach will be followed in the new project. (c) Concerning road safety, a redesign of the technical specifications to the existing road way has reduced the maximum speed from 100 km per hour to about 60 km per hour. This, together with appropriate markings and signals to be installed, should help improve the road safety conditions. Agreements 26. The agreed actions, as amended, would apply to this supplemental financing. No additional actions are required except for the needed legal opinion on the supplemental agreement as a condition of effectiveness. Economic Justification of the Gitarama-Kibuye Road 27. Completion of a Sealed Main Roads Network. The Kigali-Kibuye road provides the only central east-west link across the country. However, the present road is largely unengineered and its condition is bad; in dry weather, the road surface is very rough and in wet weather the road is largely impassable. As a result, traffic volumes are low. Most existing traffic between the vicinity of Kibuye and Kigali takes a circuitous route (approximately twice as long). Kibuye is the only prefecture not linked to the capital, the main business center, by a paved road that provides year-round, all weather passability. Under the present circumstances, use of the road is not viable for most potential traffic. Also, the lack of transport security and reliable access are matters of serious concern. The broad corridor covered by the road involves a population of approximately 1.5 million, or one-fifth of the national total. The 35 km section of the road from Kibuye towards Gitarama is being upgraded to sealed under the current project. The remaining section of 40 km from Gitarama towards Kibuye proposed in this project is the critical remaining weak link. Completion of this section would link the prefectures of Kibuye, Gitarama and Kigali with a sealed, all-weather road. 28. Basis of Economic Rate of Return. The ERR for the Gitarama-Kibuye road, all sections, was evaluated at 13 percent in 1989 and is estimated conservatively to remain at that level. This estimate was based primarily on savings in vehicle operation costs (VOC) quantified for the analysis on the basis of the general methodology of the Highway Design Model (HDM). Growth in traffic was estimated at 4 percent annually. The civil war of 1994 and the economic and social disruption, together with the neglect of maintenance, have distorted the current profile of demand for road use. However, the economic 8 scenario which was used in the original economic analysis remains pertinent, because there is strong evidence that previous levels of key economic activities are being restored. People are returning to their areas, rebuilding their houses and resuming productive lives. Coffee and tea production has recovered from the 1994 lows, and are 60 percent and 100 percent of 1990 levels respectively. Coffee production is expected to reach the pre-war level by 1999 and tea production is expected to double. 29. This assessment is conservative as other substantial benefits which have not been quantified will accrue: time savings (which is essential for quality and high value of green tea); reduction of damage to freight (which is substantial for many agricultural products). For example, in 1996, 5 percent of the total tea leaves production of 6,000 T was discarded due to poor road transport conditions. The 1989 appraisal estimated the VOC for a light truck on this road for example at US$1.00 per vehicle-km. The prolonged lack of maintenance on this road has contributed to an increase in almost all elements of the VOC. It is now estimated, for the same vehicle, at US$3.40 per km. Significant improvement in VOC should occur with completion of the road works. 30. In addition, this economic assessment does not include the likely contribution of this road towards improved social accessibility and national cohesion which are critical today to return Rwanda on the path to development. The planned improvement of many secondary and communal roads linking up with the Gitarama-Kibuye main road, not included in the previous project, enhances further the benefits of the investment. These additional feeder roads should help share farm income gains and other expenditure savings from lower transport costs, among a larger number of local small scale farmers. Reduced transport costs via savings in VOCs and travel time, as well as year-round passability, should contribute to improving rural welfare. These savings can be expected to be passed on to road users in the form of higher net incomes to farmers, lower prices of delivered goods to rural households, and greatly improved accessibility of rural communities to basic social services, especially health clinics, hospitals, and schools (see Map). For example, the income of the coffee farmers of the Kibuye area would improve. They sell now at RWF300 to 320 per kilo while elsewhere, the farmer's income is RWF700 to 800 per kilo. This loss in revenues for the Kibuye area is partially attributable to the additional cost of transport due to the condition of the primary and secondary roads. Their current revenue, therefore, should be expected to improve substantially. 31. Economic Alternative. The economic justification above, relies on the re-establishment (and expansion) of economic activities to the pre-war level. To fully address the potential risk of this assumption, the recommendation to upgrade the proposed Gitarama-Kibuye road section to sealed standards was weighted against the alternative of improving this section to gravel standards as an interim step. The results of this comparison show that, (i) construction cost of such an option would be only 15 percent below that of a sealed, all weather road; (ii) the annual maintenance cost was 10 times greater and (iii) the road needed to be reconstructed every two years (against a 15 year life cycle for the sealed one) under the current road maintenance environment, given the high rainfall (over 1200 mm per year) in the road corridor and the steep to hilly terrain. Under such circumstances, a sealed road is the best and least- life-cycle-cost alternative. Other Benefits of the Supplemental Project 32. The supplemental project directly supports the Government's strategy to move the economy from relief and humanitarian assistance to development. Completion of the upgrading to paved standard of the Gitarama-Kibuye section, in combination with the financing of needed road maintenance activities at a critical time, can be expected to yield real benefits to Rwanda, especially in the following areas: 9 (i) Improved Regional Transport. The proposed 40-km road section will not only complete the critical Gitarama-Kibuye road link but it will allow full realization of the benefits that will flow from the completion of the entire length of the road from Kigali to Kibuye, which represents the central east-west link in Rwanda's road network. This link is part of the regional road network which links Western Rwanda with eastern Congo, both north and south of Lake Kivu. The re-establishment of sub-regional road links is an overall objective of the Bank and the Government. This objective has now become even more relevant given the new political conditions prevailing in the Great Lakes region. The ongoing project is not only upgrading a major section of the Gitarama-Kibuye road, but it has already rehabilitated the roads between Kibuye and the Congo borders to the north and south. As a result, if the reconstruction/upgrading of the proposed 40-km remaining road section was not undertaken, economic benefits (originally associated with the current transport sector project) would be significantly reduced. More generally, completion of the link to paved standard, promotes the integration of the western region of Rwanda with the rest of the country. (ii) Benefits Associated with Rural Restoration and Development. The proposed upgrading will ensure reliable and viable transport services along the corridor and thereby alleviate prevailing constraints in the efficient movement of major agriculture commodities, mainly coffee and tea. The Kibuye region has a reputation for producing some of the best tea and (arabica) coffee in the world. This road will play a very visible role in underpinning confidence for reestablishing farms and crops that were abandoned during the civil war and mass exodus. In addition, it will give support to information diffusion and extension services for improving agricultural productivity. (iii) Benefits of Social, Economic and Political Integration. Lower transport costs and improved accessibility will foster social and economic exchange and will assist in the voluntary resettlement and reintegration of the large numbers of refugee returnees by opening-up farm restoration opportunities and related employment possibilities. Also most important at present, improved accessibility will also promote national integration, cohesion, and security. (iv) Benefits of road maintenance activities. These would be : (a) avoidance of costly reconstruction expenditures at a later date through more timely maintenance; (b) reduction of road accident risks from improved road; (c) improvement of efficiency and effectiveness of private contractors and the Road Directorate ; (d) improvement of the Road Fund for better cost recovery and financial support for future road maintenance. (v) Benefits oflmproved Sector Policy. The supplemental credit will facilitate continued dialogue with the consolidation of a number of key areas for sector reform and more efficient institutional arrangements. Among the most important are passage of the new road fund legislation, implementation of vehicle axle load limits and their enforcement, revision of road user charges, and strengthening of the new focus of the Road Directorate on developing its capability to manage the road system and contracting the delivery of road maintenance to the private sector. (vi) Benefits of Local Employment. Temporary road construction jobs using SMEs and longer- term road maintenance employment for local villagers will flow from the project. Employment of local labor is 800 to 1200 people per month on the ongoing works. Labor intensive works on communal roads involve from experience, 15,000 to 30,000 people per month for works similar to those under the project. Based also on past experience, part of the earnings often can be saved and used to generate the initial capital for the creation of other sustainable commercial activities, such as shops, restaurants and other small businesses. 10 (vii) Benefits of Road Safety. The road safety program would continue to contribute to a reduction in the number of serious accidents. The existing Gitarama-Kibuye road is poorly engineered and in many areas has no well-formed shoulders. Its improvement can be expected to improve road safety. (viii) Other Potential Benefits. A number of development prospects are possible in the longer term in the Kibuye prefecture. These include domestic and foreign tourism along Lake Kivu, adoption of Kibuye as a transshipment location for cement and beer products from the south destined primarily for Kigali, and timber from the Congo, and the bottling of natural methane gas from proven sources in Lake Kivu. Project Objectives Categories 33. The project would contribute directly to the re-establishment of a conducive framework for sustainable development by improving and preserving an essential link of the country's road infrastructure and by providing resources at a critical time for road maintenance. It would also make a significant contribution to reenergizing the private sector through the privatization of road maintenance works. The project would also assist in improving farmers income by providing reliable access roads to markets at lower transportation costs. Poverty-alleviation Measures. 34. The supplemental credit is primarily designed to support the GOR economic growth strategy. However, while the project is not specifically and directly targeted at poverty reduction, it will substantially assist the rural communities in the west of Rwanda, especially in the prefecture of Kibuye, where poverty and food insecurity are particularly acute. The project will assist in alleviating poverty by lowering transport costs facing poor farmers and providing reliable all weather passability for access to basic health and education services by poor rural households. Since road services (haulage of freight and passenger services) are becoming reasonably competitive, the benefits of improved road conditions, particularly reduced VOCs, can be expected to be passed on to users with a positive impact on farmer income and lowering of prices of delivered goods to village communities. 35. In addition, the proposed improvement of several secondary and communal feeder roads linking important productive areas to the Gitarama-Kibuye main road, will increase VOC savings and extend the share of project benefits to those local populations not living directly adjacent to the main road. Today, many poor farmers do not have access to motorized transport due to the bad condition of secondary/communal roads. This specific project component is therefore likely to directly improve the welfare of households in rural communities, the majority of whom are poor. The incomes of poor rural households would also be supplemented during project implementation through the employment of local villages ( including women) in road construction activity and later, in routine road maintenance. Participatory Approach 36. The project preparation involved government officials of the Ministry of Public Works, the Ministry of Finance, and the Ministry Transport and Communications, as well as local authorities and constituents in the Kibuye area, and officials of the City of Kigali for the selection of the communal and urban roads. The traffic police, the association of road haulers has been involved in the preparation and implementation of the road safety program. 11 Risks. 37. The main project risk is a resurgence of political instability and violence in Rwanda. The return of 1.3 million refugees from neighboring countries has reduced the risk of instability from outside of the country. There are still internal security problems; however, they have not disrupted ongoing construction activities and maintenance activities have also continued. Secondly, the sustainability of road maintenance activities would depend on the ability of the Road Fund to mobilize greater resources and to manage well. Legal and institutional reforms supported by the supplemental credit, are expected to improve the functioning of the Road Fund. This includes measures to improve revenue collection so that user fees, mainly the portion of fuel levy for the Road Fund, are deposited directly into a separate account. Recommendation 38. I am satisfied that the proposed supplemental credit will comply with the Articles of Agreement, and recommend that the Executive Directors approve it. James D. Wolfensohn President by Gautant Kaji Washington DC November 10, 1997 attachments 12 Schedule A Page 1 of 1 RWANDESE REPUBLIC SUPPLEMENTAL TRANSPORT SECTOR PROJECT PROJECT COST SUMMARY' (in US$ million) (US$ million) 2 LOCAL FOREIGN TOTAL FOREIGN AS % OF TOTAL Gitarama-Kibuye 4.0 16.0 20.0 80 Communal Roads 3.4 5.1 8.5 60 Periodic Maintenance 3.4 5.3 8.8 60 of urban roads Equipment 2.5 2.5 100 Consultant Services 0.4 1.6 2.0 82 Project Administration 0.2 0.2 33 Base Cost 11.4 30.5 42.0 Physical Contingencies 0.5 1.8 2.3 78 Price Contingencies 0.2 0.5 0.7 71 Total 12.1 32.9 45.0 73 * Figures may not add up due to roundings. Excluding taxes and duties. 2 100% IDA financing (Net of Duties and Taxes). 13 Schedule B Page 1 of I RWANDESE REPUBLIC SUPPLEMENTAL TRANSPORT SECTOR PROJECT SUMMARY OF PROPOSED PROCUREMENT ARRANGEMENTS' (In US$ million) PROJECT ELEMENT PROCUREMENT METHOD ICB NCB OTHER TOTAL 1. Civil Works a. Gitarama-Kibuye 23.0 - - 23.0 b. Communal road - 8.5 - 8.5 c. Periodic maintenance of urban roads - 8.8 - 8.8 2. Equipment 2.5 - - 2.5 3. Consultant Services 2.0 2.0 4. Operating Expenses 0.2 0.2 TOTAL 25.5 17.3 2.2 45.0 DISBURSEMENT CATEGORIES AND PERCENTAGES (In US$ million) Category Amount of Credit Percent of Expenditure (US$ million) to be financed 1. Civil works 40.3 100% 2. Equipment 2.5 100% 3. Consultant Services 2.0 100% 4. Operating Expenses 0.2 100% Total 45.0 ESTIMATED DISBURSEMENTSI (In US$ million) IDA FY 98 99 2000 2001 Annual 1.5 18.9 17.4 7.2 Cumulative 1.5 20.4 37.8 45.0 1 100% IDA financing (Net of Duties and Taxes). 2 Communal and urban road maintenance contracts will be in small lots of US $100,000 to 500,000 to be handled by local SMEs; NCB would be most appropriate 14 Schedule C Page 1 of 1 TIMETABLE OF KEY PROJECT PROCESSING EVENTS (4) Time Taken to Prepare : 4 months (b) Prepared by A. Zohord (Team Leader); C. Gannon (Sr. Economist); M.C. Uwanyiligira; R. Venkateswaran (Res, Mission, Kigali) (c) Appraisal / Negociations : September 1997 (d) Planned Date of Effectiveness: March 1998 (e) Completion of works : December 2000 (f Closing : June 2000 15 Schedule D Page 1 of 3 Disbursement System: Part I - Summary Statement of Loans and Credits Page: Country: RWANDA Program: PFDBR-25 FDB data as of 10/31/1997 - COS data as of 11/19/1997 Date: 11/19/97 at 16.04.26 Aniunt in us$ million (less Cancellations) Loan or riscal Undis- Closing Credit No. year Baorrower Puzpose Bank DA bursed date Credits 39 Credits(s) closed 424.00 1.32 17830-RW 1987 RWANDA WATER SUP. II 15.00 1.99 06/30/1998:R) 21360-RW 1990 RWANDA TRANS.SECT. 40.00 16.60 12/31/1998(R) 21890-RW 1991 RWANDA SECONO CCMUNICATION 12.80 6.16 12/31/1998(R) 22270-:W 199: RWANDA EDUCAT:ON SECT.CR. 23.30 9.37 09/30/1998(R) 22720-RW 1991 RWANDA HEALTH & POPULATION 19.60 14.99 12/31/1999(R) 23880-RW 1992 RWANDA FOOD SEC & SCCIAL AC 19.10 5.62 12/31/1998(R) 24560-RW 1993 RWANDA ENERGY SECTOR 26.00 21.51 12/31/1998 25410-IW 1994 RWANDA PR:VATE SECTOR 12.00 10.52 06/30/1999 29690-RW 1997 RWANDA EMERG.REINTRECOV CR 50.00 41.02 12/31/1996 TOTAL Number Credits - 9 217.80 127.66 TOTAL*** 641.20 of which repaid 29.85 Total held by Bank DA 611.95 Annunt sold 4.38 of which repaid 4.38 Total undis.oursed 128.98 Notes: Not yet effective Not yet signed *** Total Approved, Repa.lments, and Outstanding balance represent both active and inac:Jve Loans and Credits. (R) Zndlcates !ormally revised closing date. (A) Indicates Ad'ustment Loans and Credits. For Loans, the Net Approved and Bank Repaymenes are historical value, Credits are all in markec value. The signing, elfective, and closing dates are based upon the Loan Department offical data and are not taken from the COS system 16 Schedule D Page 2 of 3 Disbursement System: Part II - List of Closed Adjustments Country: RWANDA Program: PFDBR25 FDB data as of 10/31/1997 - COS data as of 11/19/1997 Date: 11/19/97 at 16.04.26 Amount in US$ million (less Cancellations) Loan or riscal Undis- Closing Credit No. Year Borrower Purpose Bank IDA bursed date credits 2271-RW 1991 RWANDA SAL 1 55.07 12/31/1994(R) TOTAL Closed Adjustment Credits - 1 55.07 TOTAL Closed Adtustment ENANDA = 1 $5.07 17 Schedule D Page 3 of 4 RWANDESE REPUBLIC PROJECTS IMPLEMENTATION AND DISBURSEMENT STATUS 1. The Rwanda portfolio included 12 operations during FY97. There were three operations in the social sectors (Education, Health and Population, Food Security and Social Action), four in infrastructure (Transport, Communication, Water Supply and Energy), three focusing on Economic management (Sectoral and Pre-investment project, ERC, ERRC), one private sector development project and one agriculture project (closed in October 1996). Overall performance of the Rwanda portfolio improved during FY97. Disbursements on investment projects more than doubled from US$13.97 million in FY96 to 30.52 in FY97 while the fast disbursing Emergency Recovery Credit (ERC) disbursed almost all the remaining balance of US$4.36 million. 2. The Rwanda portfolio has an average age of 5.8 years and except for the ERRC and the Private Sector Development project, the rest of the projects are closing in December 1998. Following the QAG review of the 1996 ARRP, the Bank organized a CPPR mission to address all major portfolio and policy issues with the Government in November 1996. The CPPR mission agreed with the Government on an action plan which served as a framework for follow up activities throughout the year on both generic and project specific issues. The action plan called for a major effort to improve the overall portfolio performance and strengthening of project capacity. A mini CPPR was carried out in June 1997 to assess the progress made since the November 1996. The Rwanda portfolio management in FY97 was characterized by (i) a sustained effort to take action that would help enhance performance such as systematic implementation of action plans and monitoring performance indicators; (ii) an increased partnership between the Bank and the Government through CPPR follow-up monthly meetings; (iii) an increased supervision effort (the average supervision effort per project was 20.1 staff weeks, slightly up from 19.4 staff weeks in FY96) combined with a more visible role of the Resident Mission under the Resident Representative's leadership in his capacity as co-pilot along with the Country Operations Director; (iv) use of staff in the Burundi Resident Mission to address procurement, accounting and SOE issues; and (v) a stepped up policy dialogue on sectoral and macro levels including community participation which led to the identification of new lending operations, medium term development policies and public expenditure management which laid the ground for the recently approved ERRC. Overall, these efforts have resulted in significant improvement in disbursement on investment operations compared to the FY96; improvement in procurement, accounting and auditing; and to some extent, in management and ownership. 3. There was a significant improvement in the financial management of projects over the FY 97. All the projects, except Communications II, have put in place computerized accounting and financial systems. There are no outstanding audit report. With a new financial management specialist on board in the Resident Mission to oversee both in Rwanda and Burundi, portfolio financial management, there should be further improvements in this area during FY98 and subsequent improved quality of audit reports. 18 Schedule D Page 4 of 4 4. An overall improvement in project ratings was achieved during the FY97. There were four problem projects for DO ratings representing 33.3 percent of the portfolio compared to 50 percent in FY96. Due to limited capacity and financing gaps for some projects, the percentage of problem projects for IP remained unchanged in FY97 compared to the previous year. 5. The lack of adequate capacity remains a constraint that hampers the implementation of the portfolio. Neverthess, improvements were made in FY97 through efforts to strengthen project management and to increase Government commitment and ownership of projects, particularly after the November 1996 CPPR. Specific efforts to train project managers, and to develop disbursement and procurement skills were undertaken by the Resident Mission. 6. The management of the Rwanda portfolio will continue to be carried out in a risky environment characterized by political and security uncertainties, fiscal and debt problems, capacity and absorption weaknesses. However, the Bank remains ready to take necessary action that would help mitigate major risks, the positive partnership with the Government which was strengthened over the FY97 constitutes a conducive factor to enhanced portfolio performance. 19 Rwanda at a glance 8/28197 Sub- POVERTY and SOCIAL Saharan Low- Rwanda Africa income Development diamond* Population mid-1996 (millions) 6.7 600 3,229 GNP per capita 1996 (US$) 190 490 500 Life expectancy GNP 1996 (billions US$) 1.3 294 1,601 Average annual growth, 1990-96 Population (%6) -0.6 2.7 1.7 GNP Gross Labor force (6) 2.0 2.6 1.7 per -- primary Most recent estimate (latest year available since 1989) capita enrollmeht Poverty: headcount index (% of,population) 51 Urban population (% of total population) 6 31 29 i Life expectancy at birth (years) 39 52 63 Infant mortality (per 1,000 live births) 133 92 69 Access to safe water Child malnutrition (6 of children under 5) 28 1. .. Access to safe water (% of population) .. 47 53 Illiteracy (% of population age 15+) 40 43 34 a Gross primary enrollment (%A of school-age population) 77 72 105 Male 78 78 112 Low-income group Female 76 65 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1995 1996 Economic ratios* GDP (billions US$) 0.6 1.7 1.1 1.3 Gross domestic investment/GDP 13.7 17.3 13.2 13.6 Openness of economy Exports of goods and services/GDP 9.2 10.8 5.7 6.1 Gross domestic savings/GDP 5.2 8.2 -11.1 -2.5 Gross national savings/GDP 14.3 14.7 11.9 2.5 Current account balance/GDP .. -3.7 -1.3 -11.5 Interest payments/GDP .. 0.2 0.0 0.7 Savings Investment Total debt/GDP 4.2 21.3 95.9 85.3 Total debt service/exports .. 9.9 28.6 44.0 Present value of debt/GDP .. Present value of debtlexports . . -. Indebtedness 1975-85 1986-96 1995 1996 1997-05 (average annual growth) Rwanda GDP 6.1 -5.5 24.6 13.3 5.9 - Low-income group GNP per capita 2.9 -7.8 21.3 7.8 2.8 Exports of goods and services 7.4 -12.0 -4.5 40.5 6.9 STRUCTURE of the ECONOMY ______________ (% C of GDP) 1975 1985 1995 1996 Growth rates of output and investment (%) Agriculture 52.4 45.7 37.8 40.3 100 Industry 20.2 24.8 15.9 14.4 so Manufacturing 13.1 15.0 15.4 14.0 Services 27.3 29.5 46.3 45.3 o 92 5 95 96 Private consumption 78.2 80.5 101.5 92.2 -so General government consumption 16.6 11.3 9.6 10.3 . GD1 --+-GDP Imports of goods and services 17.7 19.9 30.0 22.3 1975-85 1986-96 1995 1996 (average annual growth) Growth rates of exports and imports (%) Agriculture 4.7 -4.7 20.9 11.1 100 Industry 7.5 -9.6 2.0 15.3 8o 60 - Manufacturing 6.7 -7.4 14.4 13.8 40 Services 10.7 -4.0 37.5 17.0 20 Private consumption 6.6 -2.2 -22.8 0 General government consumption 2.9 -3.4 53.7 34.7 -4s Gross domestic investment 11.4 -7.2 74.4 7.0 -o Imports of goods and services 11.0 3.7 -54.0 1.3 Exports -- Imports Gross national product 6.1 -5.5 24.6 13.3 Note: 1996 data are preliminary estimates. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 20 Rwanda PRICES and GOVERNMENT FINANCE 1975 1985 1995 1996 i Domestic prices Inflation (%) (% change) so- Consumer prices 30.2 1.8 22.0 9.0 60 Implicit GDP deflator 88.0 4.6 25.0 11.7 40 Government finance 20 (%A of GDP) o 1 . 9 Current revenue .. 14.5 19.1 17.4 91 92 93 94 95 96 Current budget balance .. 4.6 6.0 3.4 GDP def. -+"CPf Overall surplus/deficit .. -1.8 -2.5 -6.6 TRADE 1975 1985 1995 1996 (millions US$) Export and import levels (mill. US$) Total exports (fob) .. 119 47 62 50 Commodity 1 .. 86 38 44 Commodity 2 .. 17 4 9 Manufactures .. 5 1 1 309 Total imports (cif) .. 274 238 249 20o Food .. 41 56 50 Fuel and energy .. 51 22 25 too Capital goods .. 56 50 50 oM Export price index (1987=100) .. 77 163 154 9 1 9 3 9 5 9 Importprice index (1987=100) .. 77 129 133 iExports simports Terms of trade (1987=100) .. 100 126 115 BALANCE of PAYMENTS 1975 1985 1996 1996 (millions US$) Current account balance to GDP ratio (%) Exports of goods and services 64 154 63 81 o . Imports of goods and services 124 328 333 297 Resource balance -60 -174 -270 -216 Net income 9 Net current transfers 55 116 247 80 Current account balance, -1o before official capital transfers -9 -63 -14 -151 Financing items (net) 22 78 60 169 Changes in net reserves -13 -14 -46 -18 -1s Memo: Reserves including gold (mill. US$) 26 113 99 107 Conversion rate (local/US$) 92.8 101.3 290.0 311.4 EXTERNAL DEBT and RESOURCE FLOWS (millions USS) Composition of total debt, 1996 (mill. US$) Total debt outstanding and disbursed 24 365 1,066 1,117 IBRD 0 0 0 0 G IDA 13 152 512 536 E 3 Total debt service 0 16 24 38 IBRD 0 0 0 0 IDA 0 2 12 8 Composition of net resource flows D Official grants 0 0 0 0 Official creditors 12 71 54 37 Private creditors 0 -3 0 0 Foreign direct investment 0 0 0 0 Portfolio equity 0 0 0 011 World Bank program Commitments 18 17 50 0 A - IBRD E - Slateral Disbursements 5 30 35 43 B - IDA D - Other multilateral F - Private Principal repayments 0 0 6 4 C - IMF G - Short-term Netflows 5 29 29 38 _ Interest payments 0 1 7 4 Net transfers 5 28 22 35 Development Economics 8/28/97 MAP SECTION 一么一 一