Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 32170-CV

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 9.9 MILLION (US$ 15.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF CAPE VERDE

FOR A

ROAD SECTOR SUPPORT PROJECT

April 22, 2005

Transport Unit Country Department 14 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28,2005)

Cur rencyUni t = CVE 83 .579CVE = U S $ l US$1.53057 = SDR 1

AfDB BADEA CAS C C A C V E

DFID DGISB DGTR E M P EU FMR FR GEP G M A N S GPOBA GPRSP H D M 4 IE IGOPP IRR ITP L E C M&E M C C MIT N P V PCU P I U RA RED RSSP SIL SSATP voc

CV-FMR

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS Afr ican Development Bank Arab Bank for Economic Development Country Assistance Strategy Corzselho Consultivo de Estrndas - Road Consultative Council Cape Verde Escudos Fundo de Mnnutenqiio Rodovidria - Road Maintenance Fund Department for Intemational Development (UK) General Directorate o f Infrastructure and Basic Sanitation General Directorate o f Road Transport Services Eiivironineiital Management Plan European Un ion Financial Monitoring Report Fundo Rodovicirio - Road Fund Directorate o f Planning Gestdo e Mnriutencdo por Nivel de Servicio - Perfoniiance-Based Maintenance Contracts Global Partnership for Output-Based Aid Growth and Poverty Reduction Strategy Paper Highway Design Standards Mode l Ivistituto de Estrndas - Road Agency General Inspectorate o f Public and Private Construction Works Intemal Rate o f Retum Infrastructure and Transport Project C iv i l Engineering Laboratory Monitor ing and Evaluation Millennium Challenge Corporation (USA) Ministry o f Infrastructure and Transport Net Present Value Project Coordination Off ice Project Implementation Un i t Road Agency (also referred to as Instituto de Estrndas) Roads Economic Decision Mode l Road Sector Support Project Sector Lending Instrument Sub-Saharan Afr ica Transport Pol icy Program Vehicle Operating Costs

V i c e President: Gobind T. Nankan i Country ManagedDirec tor: Madan i M. T a l l

Sector Manager: C. Sanj iv i Rajasingham Task Team Leader: Gylfi Palsson

FOR OFFICIAL USE ONLY CAPE VERDE Road Sector Support Project

PROJECT APPRAISAL DOCUMENT

CONTENTS Page

A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 3 1 . 2 . 3 .

Country and sector issues .................................................................................................... 3

Rationale for Bank involvement ......................................................................................... 4

Higher level objectives to which the project contributes .................................................... 5

B . PROJECT DESCRIPTION ................................................................................................. 5 Lending instrument ............................................................................................................. 5

2 . Program objective and Phases .......................... ........................................................... 5

3 . Project development objective and k e y indicat .......................................................... 5 Project components ............................................................................................................. 7

Alternatives considered and reasons fo r rejection ............................................................ 10

1 .

4 . 5 . 6 .

Lessons leamed and reflected in the project design ............................................................ 9

C . I&IPLEhIENTATION ........................................................................................................ 10

1 . Partnership arrangements (if applicable) ...... ................................................. 10

2 . Institutional and implementation arrangeme ............................................................ 10

3 . Moni tor ing and evaluation o f outcomesiresults .......... .................................................. 11

4 . Sustainability ..................................................................................................................... 11

Cri t ical r isks and possible controversial aspects ............. ......................................... 11

Credit conditions and covenants ....................................................................................... 12

5 . 6 .

D . APPRAISAL SUMMARY ................................................................................................. 13

1 . Economic and financial analyses ...................................................................................... 13

2 . Technical ........................................................................................................................... 15

3 . Fiduciary ................................................................................................................. 16

4 . Social ....................... ..................................................................................................... 16

5 . Environment ...................................................................................................................... 17

6 . Safeguard policies ............................................................................................................. 17

7 . Pol icy Exceptions and Readiness ...................................................................................... 18

This document has a restricted distribution and m a y be used b y recipients only in the performance o f their official duties . I t s contents m a y not be otherwise disclosed without W o r l d Bank authorization .

. Ii .

Annex 1: Country and Sector or Program Background ......................................................... 19

Annex 2: Ma jo r Related Projects Financed by the Bank and/or other Agencies ................. 25

Annex 3: Resul ts Framework and Monitoring ........................................................................ 26

Annex 4: Detailed Project Description ...................................................................................... 32

Annex 5: Project Costs ............................................................................................................... 41

Annex 6: Implementation Arrangements ................................................................................. 43

Annex 7: Financial Management and Disbursement Arrangements ..................................... 46

Annex 8: Procurement Arrangements ...................................................................................... 52

Annex 9: Economic and Financial Analysis ............................................................................. 62

Annex 10: Safeguard Policy Issues ............................................................................................ 74

Annex 11: Project Preparation and Supervision ..................................................................... 78

Annex 12: Documents in the Project F i l e ................................................................................. 79

Annex 13: Statement of Loans and Credits .............................................................................. 80

Annex 14: Country at a Glance ................................................................................................. 81

Annex 15: L e t t e r o f Sector Policy .............................................................................................. 83

MAPS: IBRD 33961

IBRD 33964

IBRD 33966

IBRD 33963

IBRD 33962

IBRD 33965

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues Cape Verde i s an archipelago, consisting o f ten islands, covering an area o f 4,039 square kilometers. In the year 2000, the population was about 463,000, living o n nine o f the ten islands. The country has few natural resources that can be exploited economically. In the years pr ior to 2000, the economy grew at an annual rate o f 6.4%, with the growth sectors being services, tourism, fishing and light industry. In 2002 the overall poverty rate for the country was estimated at 37%, with a poverty rate o f 5 1.3% in rural areas and 24.5% in urban areas.

Cape Verde’s Growth and Poverty Reduction Strategy Paper (GPRSP) i s organized along f ive strategic pil lars: (i) Promote good govemance, reinforcing effectiveness and guaranteeing equity; (ii) Promote competitiveness to foster economic growth and employment creation; (iii) Develop and upgrade human capital; (iv) Develop the infrastructures, promote land use planning and protect the environment; and (v) Improve the effectiveness and sustainability o f the social security system.

The GPRSP’s long-term growth and transformation strategy focuses o n exploit ing advantages offered by the country’s geographic location, i.e. promot ing air and marit ime infrastructure for sea-linked industries, such as fish processing and commercialization, as w e l l as establishing Cape Verde as an air transport hub for goods and passengers, with continued development o f tourism potential. Strong emphasis i s also placed o n agricultural development, aimed at establishing a national agro-food system to ensure an adequate and permanent supply o f food products to the population, through distribution and the commercialization o f the agricultural products. A dependable road system, linked w i t h air and sea connections, i s a fundamental element in establishing effective input, marketing and distribution systems to pursue these strategies.

The road network consists o f 1,350 km spread among the n ine inhabited islands. These relatively small island networks are characterized by: (i) major roads (often a “ring road” around the island) wh ich extend f rom each island’s principal por t and airport to municipalit ies and serve many small town and rura l communities; (ii) secondary roads wh ich serve smaller ports and fishing and agricultural communities farther o f f the m a i n axes; and (iii) and municipal t own roads and tracks leading to very small communities o r homesteads. The technical characteristics o f the islands’ roads reflect the volcanic origins o f the archipelago and the ready availabil ity o f basalt stone - most roads are paved with basalt cobblestones, with either an “improved” o r a “basic” standard, although the availabil ity o f suitable basalt varies among the islands.

D u e to the lack o f maintenance, certain sections o f each island’s network have deteriorated seriously, whi le in other cases, lack o f investment has le f t the basic network incomplete. Traditionally, road network management has been hampered by the absence o f a dedicated road management agency, wh i le responsibilities for managing various portions o f the network have not been clear. There has been no systematic program fo r maintenance, wh ich i s frequently postponed in the face o f competing priorities. Until recently, a l l road works (investment and maintenance) were managed by the General Directorate o f Infrastructures and Basic Sanitation

3

I

(DGISB) in the Min is t ry o f Infrastructure and Transport (MIT), who i s responsible for a l l construction in the country. The of f ic ia l road classification system, which dates to the colonial period, has never been off icial ly updated to account for administrative and physical changes in the country.

The Government i s addressing the above constraints through a balanced approach o f meeting crit ical road infrastructure needs, accompanied by institutional reform and capacity building to ensure rational planning, sustainable maintenance and delivery o f transport services. The approach i s articulated in i t s Letter of Transport Sector Policy (Annex 16), wh ich lays out a strategic vision for the Road Sector. The Government has started the reform o f the sector: A new Road Agency was created in June 2003 and has been operational since August 2004 and a second generation Road Maintenance Fund i s in the process o f being created. The Road Maintenance Fund wil l finance on ly programmed routine and periodic maintenance, plus a provision for annual emergency works.

This strategy had its origins in the Government’s Strategic Programme for Infrastructure and Land Use, submitted to the Consultation Meeting with Development Partners in Praia April 2003, and adopted as part o f the National Development Plan as issued by the Government in August 2003.

2. Rationale for Bank involvement The rationale for the W o r l d Bank’s involvement i s that improved and sustainably maintained road networks underpin economic growth, poverty reduction and national integration strategies. The absence o f complete and reliable island road networks constitutes a serious constraint to development, and Cape Verde’s efforts to remedy this situation. The W o r l d Bank has been assisting the transport sector in Cape Verde since July 1993 through the Infrastructure and Transport Program (ITP) (Credit Nos. IDA-24660 and IDA-2466 1). With support f rom this Program, the Government took i ts f i r s t steps towards rationalizing management o f i t s Road Sector. Through ITP, an ongoing Road Sector dialogue has been established, wh ich has been enriched by the Government’s participation in the W o r l d Bank-sponsored Sub-Saharan Af r i ca Transport Pol icy Program (SSATP).

The Strategic Programme noted above presents an overall mult i-modal v is ion for the development o f Cape Verde’s intra-island, inter-island and external transport networks, supported by a C V E l 5 b i l l i on (US$177 m i l l i on at current exchange rates) Road Infrastructure Investment Plan. To implement the Plan, the Government had at the Programmes’ creation allocated domestic resources and already secured donor funding for selected road investments, amounting to some US$64 m i l l i on and leaving a financing gap o f US$113 mi l l ion.

While the Government m a y not be successful in securing full funding for a l l proposed road sector investments, the integri ty o f the p lan wou ld nevertheless be sustained as long as the sector reforms are undertaken, since the investments are self-standing within a coherent sector management framework.

The Govemment has further priori t ized the remaining funding needs fo r the road sector in a US$44.6 m i l l i on Road Sector Support Progam, inc lud ing support t o a comprehensive re fo rm o f

4

the management o f the sector. This Road Sector Support Project supports a US$15 mi l l ion slice of the Program. The Government i s in discussion w i th donors for parallel funding o f the Program.

The Wor ld Bank’s involvement wi l l fill an otherwise unmet need for supporting sector reform and capacity building, since other donor commitments are exclusively for particular physical investments. In addition, while other donors are improving certain portions o f the road networks, there are s t i l l gaps in the islands’ road networks that need to be f i l l ed and key links that need rehabilitation. This project wil l provide financing wh ich wi l l contribute to meeting these needs.

3. Higher level objectives to which the project contributes The project wil l contribute to the higher-level poverty reduction objectives, stated in the GPRSP, o f promoting economic growth and improv ing living conditions. This wil l be done by supporting improved management o f the roads and infrastructure sectors and improv ing mob i l i t y and access to social services and economic opportunities o n targeted islands. A CAS for Cape Verde has recently been completed (Report No. 30941-CV) and the project has been identif ied as part o f the CAS’ l o w case scenario.

B. PROJECT DESCRIPTION

1. Lending instrument The project wi l l be financed under a Sector Investment Loan (SIL).

2. Program objective and Phases N o t Applicable.

3. Project development objective and key indicators

Development objective: The proposed Credit wi l l enhance the Borrower’s road sector management. This will be achieved through: (i) institutional re form o f the road sector and improved functioning o f related c i v i l works markets; and (ii) better access to social and economic opportunities due to improved mobi l i ty for affected populations.

Outcome indicators: 0

0

The asset value o f the national road network i s increased and sustained; and Overall indicators o f socio-economic benefits due to improved mob i l i t y are achieved along the road segments rehabilitated by the project: Economically iust i f ied roads: 0

Socially iust i f ied roads: 0 Mobility ratio: a increase in the percentage o f adult populat ion in affected

Reduction in vehicle operating costs, as reflected in ex-post project economic analysis.

communities who made at least 5 trips during the previous month;

5

0

0

Travel time ratio: a decrease in the percentage o f the population in affected communities that take more than 30 minutes to reach the nearest market; and Comparative travel cost ratio: a reduction in the percentage differential between the composite cost/km/kg o n the Project’s socially just i f ied roads and the project’s economically just i f ied roads.

Intermediate results and indicators: Component 1: Institutional Support: Road sector management and related mavket institutions are strengthened and functional. Road Maintenance Fund

0

0

A Second Generation Road Maintenance Fund i s created and functions in accordance with the Government’s Letter o f Sector Pol icy. The Road Maintenance Fund establishes and manages annual road maintenance budgets, in accordance with the Government’s Letter o f Sector Policy.

0 The Road Agency completes the National Road Plan. 0 The Road Agency submits to the Road Maintenance Fund annual road network

maintenance plans. 0 The Road Agency implements annual road network maintenance plans within the

planned execution period and within budget. 0 Pi lo t Performance-Based Road Maintenance and Management contracts are

implemented.

LEC increases i t s professional staffing leve l by at least 2 to meet i ts responsibilities. The LEC achieves financial self-sufficiency for i t s operational costs related to testing and training.

IGOPP increases i t s professional staffing level by at least 2 to meet i t s responsibilities. Statutes and regulations for IGOPP and works standards are revised. IGOPP implements an agreed Annual W o r k Plan.

Road Agency

Civil Engineering Laboratorv (LEC) 0

0

General Inspectorate o f Public and Private Works (IGOPP) 0

0

0

A. General Directorate o f Infrastructure and Basic Sanitation (DGISB) Ministry of Infrastructure and Transport through the fo l lowing Units:

0 DGISB implements a l l contracts under i t s responsibility within 15% the planned execution period and within budget.

Quarterly and annual reports are produced by the various MIT services for use in ministerial planning based o n a data base and associated management information system.

B. Studies and Planning Unit (GEP) 0

Program Coordination Of f ice (PCO) 0

0

The PCO reports annually o n the Road Sector, w i t h a focus o n progress towards project outcome and results indicators. The PCO manages RSSP activities in conformance with legal and fiduciary requirements, as stated in the Credit Agreement.

6

Component 2: Road Infrastructure: Priorit ized investments to achieve basic connectivity and improve mobility are made on targeted island networks. Roads rehabilitated: M a i o 6. Alcatraz-Figueira (1 1 km) Sgo Nico lau 7. Ribiera Brava-Tarrafal (27 km) S2o Vicente 10. Salamansa Intersection-Baia do Nor te (3 km)

4. Project components IDA wil l j o i n w i th other donors in financing a package o f sector reforms, capacity building and c i v i l works to meet pr ior i ty needs in the road network. IDA wil l take a lead role in the institutional aspects, particularly road management, while financing selected c i v i l works to fill pr ior i ty gaps not covered by other donor o r domestic resources.

Component 1 : Institutional Support - Total including contingencies: US$ 5.1 million: Bank FinancinP US$5.0 mill ion

This component wi l l support the Government’s program for reforming management o f the Road Sector. In addition, support wi l l be provided to the Ministry o f Infrastructure and Transport (MIT), who i s undertaking to enhance i t s capacity to assume i t s role as sector planner and guarantor o f quality, in the face o f expanding infrastructure and c i v i l works sectors. The Project wi l l also support po l icy and strategy formulation and implementation for the Transport Sector at large through continuous sector dialogue. The component wi l l consist o f the following:

. Support to Road Sector Program Coordination Office (PCO), for the management o f the project and overall road and transport sector coordination. Technical assistance and capacity bui ld ing to the Road Agency (IE) and Road Maintenance Fund (CV-FMR), with a focus on establishing capacity, methods and procedures for road network management and securing adequate financing for road maintenance and annual emergency works. IDA funds wil l not be used to finance the fund itself. Assistance to Civ i l Engineering Laboratory of Cape Verde (LEC), aimed at meeting the country’s growing need for construction testing facilities, related training and research. Assistance to the General Inspectorate o f Public and Private Works (IGOPP), aimed at meeting the need to reinforce capacity to regulate c i v i l works. Assistance to the Ministry o f Infrastructure and Transport through the following Units: o A. Assistance to General Directorate of Infrastructure & Basic Sanitation

(DGISB), aimed at improv ing DGISB’s capacity to procure and Tanage road and other infrastructure projects.

o B. Assistance to the Studies and Planning Unit (GEP), focused o n establishing a functioning information management system for the MIT.

Other Studies and Technical Assistance, to support project moni tor ing and evaluation and other sector management needs as they arise.

1

1

1

.

7

Support for the implementation o f pilot road maintenance and management contracts, which wi l l be financed with Cape Verde funds through the Road Maintenance Fund.

Road j Km I

I

Component 2: Road Infrastructure - Total Program Including Contingencies: $39.5 million; Bank Financing: US$lO.O million

’ Total I hl *

Description “SS

Priority Road Network Improvements. In its Priority Strategic Programme for Infrastructure and Land Management, the Government identif ied potential road network improvements on each o f the nine inhabited islands. Among these projects, the Government has identif ied a program o f eleven top pr ior i ty improvements o n f ive islands. T w o broad types o f interventions wi l l be carried out: (i) filling a gap in an incomplete island network through road upgrading o n an existing earth track or the construction o f small bridges; and (ii) rehabil itating key l i n k s that are in a deteriorated state. Proposed interventions are based on: (i) cost-benefit analysis o f service level options for roads and bridges with significant traffic levels; and (ii) cost-effectiveness analysis for roads with light traffic levels. IDA wil l fund up to US$lO.O m i l l i on out o f the total program amounting to US$39.5 mi l l ion. The Govemment i s in discussion with donors for parallel f inancing of the RSSP Program. Exist ing Financing gap i s expected to be closed in 2005. Be low i s a summary l i s t o f the investment program (project # 9 was dropped o n technical grounds), fo l lowed by the expected distribution o f f inancing and a summary description o f the projects financed by the IDA credit.

1 2 3 4

6

Orgaos-Pedra Badejo (Santiago) 10 Asphalt rehabilitation o f principal secondary road 3.29 Cruz Grande-Calhetona (Santiago) 14 Asphalt rehabilitation o f principal secondary road 5.20 Volta Monte-Ribeira Prata (Santiago) I 5 Cobblestone rehabilitation to isolated area 3.1 1 Assomada-Porto Ricao (Santiago) 16 Mixed CobblestoneiAsphalt to isolated area 3.71

2.53 Fonte Lima-Joao Bernardo-Librao (Santiago)

3.62 Figuera-Alcatraz (Maio)

8 Cobblestone rehabilitation to isolated area

Cobblestone rehabilitation to complete island’s ring road

7

9

11

Ribeiera Brava-Tarrafal (Sa0 Nicolau) 27 Asphalt rehabilitation o f principal secondary road 8.13

4.74 Tarrafal-Praia Branca-Ribeira da Prata (Sa0 Nicolau)

Salamansa Intersection- Baia do Norte (Sa0 Vicente)

2 Bridges at Ribeira Grande

19 Cobblestone rehabilitation to isolated area

Caleijao-Cabecalinho (Sa0 Nicolau) 5 Project rejected on technical grounds 0.00

0.62

2.3 1

3 Asphalt rehabilitation o f access road to tourist site

Bridge to commercial center; present access through river bed

l2

RS

8

2.21 2 Bridges at Vila das Pombas & Liaison Eito (Santo Antao) TOTAL 39.48

Bridge to commercial center & access road; present access through river bed

L o t 4 (7) L o t 5 (10) L o t 6 (8) Total

Roads financed under the IDA Credit:

8.13 1.55 6.58 0.00 0.62 0.12 0.51 0.00 4.74 4.74

39.48 2.36 10.02 22.36 4.74

M a i o Island Road # 6: Alcatraz-Fiaueira (11 km) The road i s currently an earth road, passable on ly with 4 wheel drive vehicles, and thus presents a gap in the island’s basic network. The rest o f the island ring road i s characterized by 6-meter width cobblestone. The road provides direct access to - communities engaged in fishing, small scale agriculture, l ivestock and production o f gypsum and ornamental stones for construction. Intervention wi l l invo lve reconstructing the road section to improved cobblestone standard.

S l o Nicolau Island Road # 7: Ribiera Brava-Tarrafal (27 km) This i s the principal road o f the island, linking the ma in c i ty o f Ribeira Brava w i t h the second major town o f Tarrafal, site o f the island’s ma in port and fishing and commercial center, including a tuna canning factory. The road passes through several river basins, including the irrigated zone fed by the Galerie de Faja. I t directly serves a populat ion o f 8,100, not counting the town o f Ribiera Brava. I t i s virtual ly the l i fel ine for a l l marketing o f agricultural, l ivestock and fishing products, as we l l as access to social and administrative services. Intervention wil l involve upgrading to asphalt paved standard.

Silo Vicente Island Road # 10: Salamansa-Norte de Baia (3 km) This road provides basic access to a presently isolated fishing community o f some 1,170 people. I t w o u l d involve the construction o f a cobblestone road o n a presently earth road accessed on ly by 4x4 vehicles. I t can also be considered the f i r s t segment o f an eventual access road to future tourist development sites.

5. Lessons learned and reflected in the project design The project design reflects several lessons learned in Cape Verde and similar countries, through the Sub Saharan Af r i ca Transport Pol icy Program (SSATP) and sector projects. First, i t has been shown that the application o f pure ly economic investment criteria i s not sufficient for securing minimum access requirements, in support o f economic development and poverty reduction activities, particularly o n small island networks. Rather, investment and maintenance programs need to have a network and service-level perspective, so as to understand connectivity needs within the islands and their linkages to marit ime and air transport nodes. Economic analysis tools are then applied to achieve economically just i f iable and/or cost effective technical solutions for achieving minimum access service levels o n the network as a whole. Second, the technical approach for road management reflects Cape Verde’s successful and cost-effective approach for lower volume roads of using basalt cobblestones, wh ich are in abundance in the country. Third, the project design supports one o f the main conclusions o f the Government’s Pr ior i ty Strategic Programme - that physical investment must be accompanied by viable maintenance management systems and sustainable finance arrangements, if the benefits o f these investments are no t t o be

9

short-lived. In this regard, past experience in Cape Verde has shown that without a dedicated agency for road management, one cannot hope to achieve a standard o f service needed to support economic development and poverty reduction objectives. The project wil l benefit f rom Cape Verde’s participation in the SSATP, which promotes exchange o f knowledge and experience in road sector management among over 30 member countries in Sub Saharan Afr ica.

6. Alternatives considered and reasons for rejection Alternative approaches were considered in designing the selection methodology for physical investments to be financed under the project. In particular, i t was thought that the application o f a multi-criteria analysis could be applied to select a l l project-financed investments. However, i t rapidly became clear, given the l imi ted size o f the network, together with each island’s topographic features and population distribution, that the core networks for ensuring basic connectivity are w e l l established, and the gaps in these core networks have been identif ied in the Pr ior i ty Strategic Programme and selected for investment under the RSSP Program. I t was therefore decided to select those gaps and crit ical sections in the Programme that are not covered by other donors o r projects.

Another alternative considered was to include a subcomponent dealing with municipal level feeder roads. This wou ld invo lve the development o f municipal rural accessibility plans, as we l l as l imi ted funds for rura l road rehabilitation. However, given the l im i ted size o f the entire network and the l imi ted capacity of the municipalities, the revised classification system has brought most rural roads in to the “national” road network, under the direct management o f the Road Agency. Several o f these roads already are included in the pr ior i ty package financed under the investment program. Therefore i t was determined that this subcomponent was n o longer relevant. The Road Agency wi l l assist the municipalit ies in managing their l imi ted urban roads and very small access tracks.

C. IMPLEMENTATION

1. Partnership arrangements The Government i s completing discussions with the Mi l lenn ium Challenge Corporation (MCC) (USA) for parallel funding o f significant part o f the proposed program and has approached the OPEC Fund for funding o f remaining financing gap. IDA specific interventions have been determined based o n consultation with M C C .

The overall road sector development program includes participation by several donors already engaged in the country, namely, the European U n i o n (EU)/Luxembourg, Portugal, Af r ican Development Bank, BADEA, and the Kuwa i t Fund. In addition, the consultancy services fo r the design of the Pi lot Performance Based Road Maintenance Component i s funded by a grant f rom the Global Partnership for Output-Based Aid (GPOBA), wh ich receives most o f i t s f inancing f rom the United K ingdom Department for International Development (DFID).

2. Institutional and implementation arrangements The project wi l l be managed directly by the Ministry o f Infrastructure and Transport (MIT), through a Program Coordination Of f ice (PCO), attached direct ly to the Minister’s Office. The pr imary responsibility o f this Of f ice wil l be to ensure overall management o f the project and

10

coordination o f other related donor support for the overall Transport Sector Program, as w e l l as technical and f iduciary oversight o f the Road Sector Support Project.

The PCO and the Road Agency have inherited key elements o f the capacity o f the recently completed Infrastructure and Transport Project (ITP) Project Implementation Unit (PIU), wh ich was located outside the Ministry. The transfer o f these resources to the MIT ensures that the technical, procurement and financial management capacity bu i l t during ITP, in conformance w i th Wor ld Bank requirements, i s retained for the new project, but that this capacity i s integrated into the Ministry organizational structure.

3. Monitor ing and evaluation of outcomes/results Project Mon i to r ing and Evaluation (M&E) wil l be the responsibility o f the PCO, who wil l monitor progress against agreed-upon performance monitoring indicators, as shown in the Results Framework.

Outcome and results indicator information wi l l be collected by the PCO, and reported in regular semi-annual reports and in audit reports on the basis o f the project implementation plan, wh ich has been agreed during Credit appraisal. Fo r the Institutional Strengthening Component, the indicators wi l l track the implementation o f key sectoral reforms and improved sector management. F o r the Road Infrastructure Component, the indicators wi l l track achievement o f annual physical targets. Baseline demographic, social and mob i l i t y indicators have been collected during project preparation and fo l low up surveys wi l l be carried out for post-project comparisons. The moni tor ing activities wi l l ver i fy if program and project objectives are being achieved. Advances towards the development objective o f improved access wil l be evaluated annually for completed roads, as we l l as for a l l roads at the end o f the project.

4. Sustainability The Government’s commitment to and ownership o f the project m a y b e seen in the concrete steps i t has taken to re form road sector institutions, as set out in the Letter o f Transport Sector Policy. This includes maintaining a Road Agency and the commitment to establish a Road Maintenance Fund to ensure stable and sustainable maintenance financing. The Government has also committed significant domestic resources to the achievement o f the overal l Priori ty Strategic Programme for Infrastructures and Land Use Management, to wh ich the RSSP Program contributes.

Crit ical to the sustainability o f the project wil l be effective Road Agency and Road Maintenance Fund o n a solid footing. The project addresses this factor in the design by emphasizing institutional support to bo th these agencies. The Government wil l undertake with IDA an early assessment o f the efficiency o f the institutional arrangements, n ine months fo l lowing effectiveness o f the credit.

5. Critical risks and possible controversial aspects N o major financial management o r procurement risk i s anticipated at this stage. The tables in Annex 7 and Annex 8 ident i fy the k e y r isks that project management m a y face in achieving the objectives o f the Credit and provide a basis fo r determining h o w management should address these risks.

11

Other r isks that have been identif ied and associated mit igation measures are shown in the fo l lowing table.

Risk

Government does no t approve sufficient fuel levy and/or heavy vehicle fees to maintain road network.

The Road Maintenance Fund i s subject to pressure to allocate funds outside programmed maintenance and earmarked emergency funds.

Macro-economic factors (such as inflation or poor investment environment) or polit ical instabil ity adversely influence the provision o f social and economic opportunities where road infrastrticture i s improved b y the project.

Component 1 Institutional Strengthening Oh erlapping responsibilities between the Road Agency and the General Directorate for Infrastructure

Management deficiencies and poor use o f project resources b y target institutions.

Failure to increase IGOPP and L E C staff levels.

Component 2 : Road Infrastructure Funding gap for overall program.

Implementation delays due to time required and l imi ted labor for cutting o f cobblestones.

L o w contractor performance. Procurement delays.

Ineffective supervision by DGISB

N o major financial management risk i s anticipated.

Joint Govemment-Bank formal assessment o f road maintenance funding and performance targets and agreed remedial actions if necessary.

Mon i to r ing surveys o f mob i l i t y indicators and regular dialogue on GPRSP implementation in transport and infrastructure.

Joint and early formal assessment o f institutional targets w i l l be carried out to provide the basis for a jo in t assessment with the Government on: (i) the performance o f each target institution and the effectiveness o f the project’s support measures for each target institution; (ii) continued polit ical w i l l to pursue and augment the road sector management reforms as stated in the Letter o f Sector Policy; and (iii) possible readjustment in management or institutional arrangements to implement the road sector management reforms.

Investment activity defrayed until staffing i s effected.

Recycl ing o f cobblestones f rom asphalted roads.

Adequate financial and procurement systemsioperations manual. Table in Annex 7 identif ies the key financial risks and provides a basis for determining h o w management should address these risks.

Annual performance reviews and agreed remedial actions taken when necessary. Joint and early formal assessment o f institutional targets

Risk Rating with Mitigation

M

L

M

L

L

M

M

L

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6. Credit conditions and covenants

Effectiveness conditions The effectiveness conditions o f the Credit are:

1 the operational Manual has been issued by the Borrower and approved by the Association;

1 the independent auditors referred to in Section 4.01 (b) (i) o f the Development Credit Agreement have been contracted by the Borrower as provided in said Section; the financial management system for the project has been established as provided in Section 4.01 (a) o f the Development Credit Agreement.

.

Covenants The Govemment w i l l :

Fumish the Wor ld Bank no t later than six months after the end o f each fiscal year audited financial statements that adequately reflect the operations, resources and expenditures related to the project, as w e l l as for the Road Maintenance Fund By (a) n o later than December 31, 2005: (i) establish the Road Maintenance Fund, with a structure and functions acceptable to the Association; and (ii) finance the first year o f operations o f the CV-FMR, through the collection o f U s e r Fees, with a minimum annual revenue stream CVE300,000,000; and (b) thereafter gradually adjust the annual f inancing o f the CV-FMR, through the collection o f User Fees, to meet maintenance needs o f the country’s road network. Carry out an early implementation review jo in t l y with the Wor ld Bank, on or about M a y 3 1, 2006, to review the effectiveness o f institutional arrangements for road planning and management under the project; Carry out an in-depth mid- term review jo in t l y with the Wor ld Bank, two years after the Effective Date on the progress achieved in the implementation o f the project. By September 30, 2006 wil l present a sector strategy acceptable to the W o r l d Bank covering air, marit ime and port transport and institutions therein, including Public Private Partnership options .

1

1

. 1

D. APPRAISAL SUMMARY

1. Economic and financial analyses Economic Analysis. Given the island character o f the country, the pr ime objective o f the road networks i s to ensure a continuous network linking the population with social services, employment opportunities, local markets and ports and airports. As noted, parts o f these networks are in a state o f deterioration, wh i l e other parts are s t i l l incomplete, due t o lack o f investment. In this context, the program roads were divided in to three categories for purposes o f economic analysis:

1 Roads with significant in i t ia l traff ic levels, for wh ich a cost-benefit analysis i s conducted based o n vehicle operating cost (VOC) savings. Fo r these roads, the ma in objective i s t o reduce the cost of travel, as expressed in V O C savings.

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. Bridges, for which a cost-benefit analysis i s conducted based o n quantified non-VOC economic benefits. For these investments, the ma in objective i s to remove a crit ical transport constraint that has an effect o n economic activity.

Rural access and “social” roads, for which a cost-effectiveness approach i s undertaken. For these roads, the ma in objective i s to ensure basic minimum access requirements to isolated populations to social and administrative services and market opportunities.

The design and cost estimates for the road projects considered three technical options - cobblestone, double surface treatment (DBST) and asphalt paved. Fo r roads with l i t t le o r n o existing traffic, the least cost solution i s cobblestone and therefore the D B S T and asphalt pavement options were not considered. For the two bridge projects (#11 & #12), the least-cost option, considering the high traffic levels o n the approaching roads, was considered to be a box culvert design. Fo r Project # 4, Assomada-Porto Rincao (Santiago) a mixed solution invo lv ing asphalt on ly o n the f i r s t section o f 7 km, which i s currently cobblestone with relatively high traffic (over 400 vpd); with the remaining 9 km o f earth track upgraded to cobblestone. Project # 9, Caleijao-Cabecalinho (Sa0 Nicolau), was removed f rom the program because i t entails the construction o f a new road through an existing mountain area, resulting in rather high per km costs.

Economic cost-benefit analysis u t i l iz ing VOC benefits was carried out o n roads # 1, 2, 4 and 7, u t i l iz ing the RED (Roads Economic Decision Model), developed by the Wor ld Bank for l o w volume roads. All road projects y ie ld at least 12% internal rate o f return for al l three levels o f service. The roads generally show a small difference in the rate o f return between cobblestone and double surface treatment, w i t h a relatively higher rate o f return for asphalt pavement. On the average, costs increase by 35% f rom cobblestone to DBST, then another 11% percentage points when mov ing to asphalt. These results suggest that the added cost o f double surface treatment does not offer significantly higher vehicle operating cost benefits than that o f cobblestone, while the added cost o f asphalt pavement i s more than compensated by the higher savings in vehicle operating costs, vis-a-vis the cobblestone surfacing.

NPV = N e t present value @ 12% in U S $ m.

I t i s concluded that for roads 1, 2 and 7, asphalt pav ing i s economically just i f ied and recommended. Although the rate o f return i s marginal ly higher for asphalt solution o n Road # 4, the mixed solution (part cobblestone, part asphalt) i s s t i l l recommended, given the high traff ic levels found o n the f i rst h a l f o f the road, and l i t t le existing traff ic o n the second half. The sensitivity analysis shows that the results are generally more sensitive to a reduction in VOC benefits than an increase in investment o r maintenance costs (Annex 9). Given the conservative assumptions o n baseline traff ic and traffic growth, these results appear reasonably robust.

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Since the ma in justif ication for the two bridge projects (# 11 and #12) i s to address a cut o f f in transport service, benefits were quantified in te rms o f the lost revenue due to a transport blockage. This was done by conservatively estimating the number o f blockage days per year and the lost revenue o f transport passengers and drivers, assuming that 25% o f travel i s work-related. The results shown in the table below indicate a strong economic rate o f re tum based o n these assumptions for both sets o f bridge investments. In both cases, sensitivity tests invo lv ing increasing costs and decreasing benefits s t i l l y e l d rates o f re tum o f 12 % or higher.

(Santo Antao) Project 12: Pont de V i la das Pombas et Liaison Ei to (Santo Antao)

18.5% 0.923 15.6% 0.598 14.8% 0.390 12.3% 0.055

17.1% 0.689 14.4% 0.379 14.2% 0.281 11.9% -0.019

For the remaining roads, least-cost technical solutions were sought to achieve the objectives o f increased mob i l i t y to rural populations. In addition to the 3 basic solutions evaluated formally, the gravel road option was considered, but was felt not appropriate in Cape Verde, particularly in v iew of: (i) mountainous terrain; (ii) higher risk o f wash outs; and (iii) higher routine maintenance costs. Thus, the cobblestone option i s judged the least cost alternative, given these technical factors. However, the appraisal revealed that experience i s showing an increasing shortage o f ski l led stonecutters and the t ime required for cutting new stones could significantly lengthen the time needed to complete the works. Fo r this reason, a program o f recycl ing stones f r o m roads being upgraded f rom cobblestone to asphalt wil l be incorporated in to the program.

Cost recovery. Loca l contributions to investment costs will be made by the Government. Routine and periodic maintenance on the network wil l be financed by the new Road Maintenance Fund. The Fund’s resources are generated by user fees (primari ly a fuel levy), wh ich are to be securely transferred to the fund. This mechanism should provide adequate and reliable funding for routine maintenance o n the roads rehabilitated under the project, as w e l l as on the national network at large. The project wi l l provide institutional support to the Road Agency and Road Maintenance Fund in the planning and implementation o f the annual maintenance programs.

Fiscal Impact. The operationalization o f the Road Maintenance Fund wil l reduce the burden o f expenditure f rom the national budget for sustainable road maintenance, by re ly ing o n road user charges. Once the Road Maintenance Fund i s operational, a port ion o f the Road Agency’s f ixed operational and variable costs for road maintenance activities wi l l be covered by the Road Maintenance Fund, whi le i t s other f ixed and variable costs related to road investment planning will be covered by the Government.

2. Technical Technical solutions. Three technical solutions fo r road surfacing were evaluated during the feasibil i ty stage: (i) cobblestone; (ii) double-surface treatment (DBST); and (iii) asphalt concrete. On balance, i t was found that the relat ively high investment cost o f D B S T was not fully

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compensated by reduced vehicle operating costs and its high s k i l l requirements for implementation argued against this solution. Gravel road options were also considered, but this was considered not suitable, given high slopes, shortage o f material and lack o f experience in gravel road maintenance. Hence the basic choice was between cobblestone and asphalt concrete. Regarding the latter, calculations were made to arrive at the least-cost admissible structure, given project traffic levels. In this case, the recommended structure has: (i) 5 c m asphalt pavement; (ii) 15 c m crushed stone base; and (iii) 15 c m crushed stone foundation, wh ich yields pavement strength values w e l l within the max imum admissible thresholds for the projected traffic levels. However, for each solution, special attention i s attached to drainage, environment protection and enhancement and to preserving and improv ing the traditional local aspects o f roads o n cobble stones and walls o n masonry.

There i s an increasing shortage o f skil led labor for cutting cobblestones, wh ich could result in execution delays because o f the long t ime necessary for stone cutting. The adopted solution to this problem i s t o recycle stones f rom roads being upgraded to asphalt standard. Accordingly, procurement packages combine asphalt standard roads w i t h nearby roads to be cobblestoned.

Technical capacity. The new Road Agency i s beginning with technical capacity inherited f rom the previous IDA-f inanced project. In addition, the General Directorate o f Infrastructure and Basic Sanitation (DGISB) has experience and technical capacity for overseeing the IDA- financed construction contracts. Since the Road Agency i s just getting started, the project wi l l finance short term technical assistance to strengthen i t s technical and management capacity. This wil l be defined in the context o f the Ac t ion Plan specified in the Attachment B to the Letter o f Sector Policy, and may include such topics as operationalizing the road management data base and preparing the National Road Plan. In addition, the Second Generation Road Maintenance Fund wil l require assistance in establishing i tse l f o n a sound footing. This wil l also require technical assistance in areas such as putting in place and implementing procedures for revenue collection and disbursement and selecting and supervising auditors.

3. Fiduciary The Financial Management and Procurement Assessments were completed during appraisal. An action p lan (see Annexes 7 and 8) for setting up satisfactory financial management and procurement systems in the PCO i s being implemented and the systems wil l be in place by credit effectiveness.

4. Social The pr imary beneficiaries o f the project are the rura l and urban populations in the five islands where the project wi l l intervene. In addition, the populations in the other four inhabited islands should also benefit f rom more reliable and affordable access resulting f r o m improved road sector management. Improved access over continuous island road networks are viewed as a prerequisite and facilitator o f a l l other development and poverty reduction programs.

Other direct benefits o f the project investments wil l include increased employment fo r men and women, particularly where cobblestone technologies will be applied. Moreover, by securing annual funding through the Road Maintenance Fund and programming annual maintenance plans through the Road Agency, the project wil l promote a stable contracting environment, thus

16

encouraging the development o f local f i r m s in c iv i l engineering and construction. The project i s not expected to have any controversial aspects, since the road rights o f way are we l l established and commonly accepted, given the l imi ted size o f the network and topographic conditions.

Direct participation has occurred during the design phase o f individual roads, where, as part o f the Environmental Management Plan process, local consultations took place and any mit igation measures have been coordinated between design consultants and adjacent populations. Other stakeholders wi l l be f rom the private sector, such as local contractors, design engineers, consultants, transport service providers and traders. All these wi l l benefit directly f rom the implementation o f the overall project, wh ich wi l l provide business opportunities during the project period and beyond, through the annual road maintenance programs.

5. Environment The project i s placed in environmental screening category B. This category i s justified, since a l l these projects are o n existing alignments and they do not directly affect protected areas or identif ied sensitive natural habitats. An Environmental Impact Study, dated September 2004, was carried out for the twelve prospective projects originally considered for project financing. The Study included a project description, institutional and legal framework, an overall description o f environmental and social baseline conditions o n each o f the islands, potential environmental and social impacts and mit igation measures. For each individual project, the study describes specific conditions and presents an Environmental Management Plan (EMP).

6. Safeguard policies Safeguard Policies Triggered by the Project Yes N o ti11 ironmenla1 Assessment (OI’/BI’/Gt) 4.01) [ X I [I Natural Habitats (OI’/Rf’ 4.04) [I [ X I

Pest Management (OP 3.00) [I [ X I Cultural Property (OP‘i 1 1.03, being revised as OP 4.1 1) [ X I

Involuntary Resettlement (OP/BP 4.12) [X I [I Indigenous Peoples (Or) &..zO, being revised as OP 4. I O ) [X I

Forests (OP/RP 4.36) [I [ X I

Safety o f Dams (OP/BP 4.37) [I [ X I

Projects in Disputed Areas (OP/BI-’/CJI’ 7.60)* [I [XI

Projects o n International Waterways (OJ/BP/GP 7.50) [I [ X I

[I

[I

Abbreviated Resettlement Plan. The construction o f t w o bridges o n the V i l a das Pombas and 1 km liaison between V i l a das Pombas and E i to wi l l invo lve a widening o f the road, wh ich i s presently on ly 3 meters wide at the south end. This wil l invo lve m ino r land taking conceming existing stonewalls, wh ich wi l l require compensation, but n o resettlement o f people. Fo r this reason the Involuntary Resettlement (OP/BP 4.12) i s triggered and an Abbreviated Resettlement Plan has been prepared based o n consultations with the affected persons and the Munic ipa l i ty (see Annex 10).

* By supporting the proposedproject, the Bank does not intend to prejudice the f ina l determination of the parties‘ claims on the disputed areas

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Consultations. Environmental Management Plans and the Abbreviated Resettlement Plan.

Consultations were carried out during the development o f individual road

Disclosure. The draft Environmental Impact Study has been made available in the country for comment o n January 14,2004 and was made available to the Infoshop on January 11,2005. The Abbreviated Resettlement Plan was local ly disclosed on January 3 1, 2005 and made available to Infoshop o n February 9, 2005 in the fo rm o f a revised Environmental Impact Study.

7. Policy Exceptions and Readiness There are n o Wor ld Bank pol icy exceptions sought for this project.

Principal readiness criteria have been met. The Govemment has proposed and i s implementing needed fiduciary arrangements for implementation o f the project. Project staff i s in place, counterpart funds have been budgeted for the in i t ia l year and wil l be deposited before effectiveness. Tender documents for a l l works have been prepared, and are being repackaged in to lots. The Govemment has disclosed the environmental assessment in country and authorized IDA to disclose. Capacity for M&E i s in place and principal indicators have been agreed on.

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Annex 1: Country and Sector or Program Background

CAPE VERDE: Road Sector Support Project

Country Context Cape Verde i s an archipelago, consisting o f ten islands, covering an area o f 4,039 square kilometers. In the year 2000, the population was about 435,000, living on nine o f the ten islands. The country has few natural resources that can be exploited economically. In the years pr ior to 2000, the economy grew at an annual rate o f 6.4%, w i t h the growth sectors being services, tourism, fishing and light industry. In 2002 the overall poverty rate for the country was estimated at 37%, with a poverty rate o f 5 1.3% in rural areas and 24.5% in urban areas.

Cape Verde’s Growth and Poverty Reduction Strategy Paper (GPRSP) (revised September 2004) i s organized along f ive strategic pillars: (i) Promote good governance, reinforcing effectiveness and guaranteeing equity; (ii) Promote competitiveness to foster economic growth and employment creation; (iii) Develop and upgrade human capital; (iv) Develop the infrastructures, promote land use planning and protect the environment; and (v) Improve the effectiveness and sustainability o f the social security system.

The GPRSP’s long-term growth and transformation strategy focuses on exploit ing advantages offered by the country’s geographic location, i.e. promoting air and marit ime infrastructure for sea-linked industries, such as fish processing and commercialization, as we l l as establishing Cape Verde as an air transport hub for goods and passengers, with continued development o f tourism potential. Strong emphasis i s also placed o n agricultural development, aimed at establishing a national agro-food system to ensure an adequate and permanent supply o f food products to the population, through distribution and the commercialization o f the agricultural products. Clearly, a dependable road system within each island i s a fundamental element in establishing effective input, marketing and distribution systems to pursue these strategies. P i l lar 4 o f the GPRSP states:

“The enhancement of infrastructures seeks, in the f i rst place, to open up certain islands and facilitate the integration of the goods and sewices markets. I t is a necessary condition to promote a specialization process that w i l l enable certain islands a greater specialization in the activities in which they hold potential comparative advantages and enhance the coat-tail effect of growth in certain sectors, such as tourism, over other sectors of the economy.”@. 70 GPRSP)

In respect o f road infrastructure, the GPRSP notes that although network coverage has improved, the road network on many islands i s s t i l l incomplete, in terms o f prov id ing adequate basic access to support o f economic growth and social development. I t draws o n sector studies to ident i fy key institutional constraints associated with the management o f the road network, and takes particular note o f the need for maintenance to preserve and reduce vulnerabil ity o f the overall network. The GPRSP identif ies four pi l lars as the basis for road sector management, wh ich are aligned w i th the overall strategy to redefine public and private roles, enhance transparency and introduce commercial principles in to management o f publ ic services:

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“Introduce [road] management systems based on commercial principles, with an appvopriate regulatory framework;

Place emphasis on the level of sewice to respond to user needs, making a minimum sewice available to the entire population;

Introduce policies, institutional frameworks and financing mechanisms that permit continuous maintenance of the infrastructure, so as to guarantee its durability; and

Re-focus the roles of the public and the private sectors. The Government shall play more and more the role of planner and regulator while the private sector wi l l play the role of executor and manager. ”(page 71 GPRSP)

.

Island

Santo Antiio Siio Vicente Siio Nicolau S a1

R o a d N e t w o r k The road network consists o f 1,350 km spread among the nine inhabited islands. The location and type o f roads in Cape Verde i s governed by the island character o f the country and the particular topography and population distribution found on each island. In addition, the technical characteristics o f roads reflect the volcanic origins o f the archipelago and the ready availability o f basalt stone - most roads are paved with basalt cobblestones, wi th either an “improved” or a “basic” standard. A summary inventory o f the road network was carried out in the year 2000, which showed the following distribution o f the network among the islands:

Km Paved

Total Improved Basic E a r t h Asphalt Cobblestone Cobblestone Tracks

319.2 0 103.6 15.8 199.8 1 101.6 10.2 35.1 18.0 38.3 143.9 0 0 85.5 58.4 29.1 29.1 0 0 0

CaDe V e r d e R o a d N e t w o r k

- ..-

Boavista M a i o

54.3 0 27.5 26.8 0 63.7 0 27.0 5.0 31.7

Santiago 1 Fogo Brava Total

347.0 0 232.9 68.8 45.3 237.6 0 5.9 197.5 34.2

53.7 0 5.7 37.4 10.6 1387 0 326 358 138

Source: National Road Inventory, May 2000

These relatively small island networks are characterized by: (i) major road which extend from each island’s principal port and airport to municipalities and many rural communities along these roads; (ii) secondary roads which serve smaller ports and fishing and agricultural communities farther o f f the main axes; and (iii) and municipal town roads and tracks leading to very small communities.

The National Road Inventory indicated that about 42% o f the network was considered in poor condition, 33% in fair condition and 25% in good condition, distributed as follows:

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Good Fair Poor Total

The above information however, i s deemed very approximate, and needs to be updated w i th a new road network inventory, wh ich wi l l provide a more dependable basis for network management and maintenance.

25% 41% 43% 29% 0 Yo 33% 31% 52% 37% 10% 42% 27% 6% 34% 90%

100% 100% 100% 100% 100%

Road Sector Management In general, the administration o f the road system has been hampered by the lack o f an agency dedicated to road management, while responsibilities for management o f various portions o f the network have not been clear. Until recently, a l l road works (investment and maintenance) were managed by the General Directorate o f Infrastructures and Basic Sanitation (DGISB) in the Ministry o f Infrastructure and Transport (MIT), who i s responsible for a l l construction in the country. The of f ic ia l road classification system, wh ich dates to the colonial period, has never been off icial ly updated to account for administrative and physical changes in the country. In addition, there has been no systematic program for maintenance, wh ich has been frequently postponed in the face o f emergency operations.

In 1999, the Government created a Road Fund (Fundo Rodovihvio - FR), which was to be responsible for road maintenance financing and whose resources were to be generated through a port ion o f existing tax on the price o f petroleum products (as opposed to a dedicated levy). The Road Fund never worked satisfactorily because o f three fundamental problems: (i) the income destined for the Fund passed through Treasury and the full amount was rarely passed on; (ii) there has not existed a road network management p lan that defines levels o f service, annual maintenance programs to achieve these levels, and adapting the annual program to expected income levels; and (iii) as noted above, there has been n o single agency to formulate and execute road maintenance programs.

Progress to Date and the Accessibility Challenge In 1993, an IDA credit agreement was signed t o co-finance the Infrastructure and Transport Project (ITP). This involved a multi-donor effort to upgrade transport infrastructure and improve sector management, with overall coordination assumed by the W o r l d Bank. Under ITP, the modernization o f ports, airports and highways was financed, complemented by technical studies and activities to improve administration o f the roads, marit ime and c i v i l aviat ion sub-sectors. In the road sector, 17 projects were carried out, o f wh ich nine invo lved rehabilitation, six were upgrading and two were new construction projects. This resulted in improved connectivity o f the network, a 7% increase in the share o f paved roads and a 10% increase o f the percentage o f roads considered in good condition between 1990 and 2000.

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Despite this progress, the country st i l l faces a fundamental accessibility challenge. Due to the lack o f maintenance, certain sections o f each island’s network have deteriorated seriously, whi le in other cases, lack o f investment has left the basic network incomplete. Fo r example, on the island o f Maio, the single cobblestoned ring, wh ich circles the island and serves most o f the communities has a 11 km section, which i s a dirt track and barely passable by an a l l terrain vehicle causing a missing link. On the island o f Santiago, roads o f f the ma in ring road leading to rural and fishing villages and small ports are on ly partly cobblestone paved, with major sections st i l l dirt track, often o n windy and mountainous terrain; while, the major east-west road in the center o f the island, serving a numerous communities and major towns, i s in a rapid state o f deterioration and requires urgent intervention.

Government Response In response to the above, the Government has taken concrete action to re fo rm the management o f the Road Sector, expressed in i t s Letter of Sector Policy (Annex 16). The Letter lays out a strategic v is ion for the Road Sector, namely: (i) each island has a basic road network which links administrative centers, markets, ports and airports; (ii) each island has a system o f local roads that provide rura l communities with at least minimum reliable access to markets, services and the core network; and (iii) the country has an efficient, transparent and sustainable system for managing and maintaining its core and local road networks.

To these ends, the Government will: (i) rationalize management o f the road network, in l ine w i th its overall po l i cy o f promoting commercial management approaches and sustainable maintenance financing based o n user-fees; and (ii) progressively establish a “maintainable network” through a pr ior i ty investment program o n the basic road networks. This wil l involve:

Classification of the Road Network. A revised Road Classification has been drafted and i s in process o f approval. This Road Classification divides the road network in to “national roads”, wh ich constitute the major part o f each island’s road network linking population, administrative and economic centers with ports and airports; and “municipal roads”, wh ich includes urban and smaller feeder roads.

Reformed Institutions. The new Road Agency (Instituto de Estradas - IE) was created o n June 2, 2003 by Resolution 10/2003. I t has been operational since August 2004 and i s staffed with competit ively recruited road engineering, planning, contracting, and financial management personnel. The IE i s directly responsible to the Min is ter o f Infrastructure and Transport. I t s activities are overseen by a Road Consultative Counci l (Conselho Consultivo de Estradas - CCA), consisting of representatives f rom ministries and publ ic sector stakeholders, as w e l l as the private sector and road users. A new Road Maintenance Fund (Fundo de Manutenqn‘o Rodoviaria - CV-FMR) i s in the process o f be ing created to replace the present Road Fund. The C V - F M R wil l finance on ly maintenance (programmed routine and periodic maintenance, plus a provision for annual emergency works, reflecting average need over the past few years). The CV-FMR will have a simple and l imi ted structure, and will b e overseen by the Road Consultative Council. In i t s Letter of Sector Policy the Government has established an Institutional Ac t ion Plan for the Road Agency and Road Maintenance Fund.

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Assignment of Responsibilities. The Road Agency wil l be responsible for overall planning and management o f the nation’s road network. Within this framework, i t wil l p lan investment and maintenance o f the national roads, as we l l as investment on municipal roads. The Road Agency wi l l directly manage road maintenance contracts, while the General Directorate o f Infrastructure and Basic Sanitation wi l l manage investment contracts. The municipalities, for their part, are responsible for maintenance o f their respective municipal networks, albeit with technical assistance and guidance f rom the Road Agency.

Funding Sources. Funds for road maintenance wil l be generated f rom user fees and wil l be deposited direct ly to the new Road Maintenance Fund, while road investment wi l l be financed by Government and donor funds. The user fees are defined as: (i) a levy o n the price o f fuel; (ii) an insurance levy o n heavy vehicles; and (iii) other similar user fees wh ich m a y be determined. The level o f these fees wil l be determined based o n an annual analysis submitted to the Road Maintenance Fund by the IE and approved by the Minister o f Infrastructure and Transport, with advice f rom Road Consultative Council.

Road Investment and Technical Management Strategy. The Government’s road investment strategy i s l inked to i t s capacity to maintain i t s network. Priori ty i s given to filling key gaps in the each island’s core network, wh i le progressively bringing the network up to maintainable standard. The Government recognizes that this i s the only w a y to emerge f rom the current vicious cycle o f constant emergency interventions throughout the network. T o this end, the Road Agency i s put t ing in place a technical road management strategy based o n road user service levels. As part o f this strategy the Road Agency wi l l introduce o n a p i lo t basis Performance- Based Road Maintenance and Management Contracts (Gestiio e Mnnutenc6o pov Nivel de Sewicio - GMANS), with funding f rom the Road Maintenance Fund.

These actions had their genesis in the Strategic Programme for Infrastructure and Land Use, submitted to the Consultation Meet ing w i t h Development Partners in Praia April 2003, and adopted as part o f the National Development Plan as issued by the Government in August 2003. The Programme, developed under ITP with W o r l d Bank assistance, includes a four-year US$265 m i l l i on investment plan. To implement the plan, the Government has allocated significant domestic resources and secured donor funding for the road, mar i t ime and aviation sectors, together amounting to some US$65 mi l l ion. The proposed Road Infrastructure Investment P lan totals C V E l 5 b i l l i on (US$177 m i l l i on at current exchange rates), o f wh ich about US$64 m i l l i on had been secured at the Programme’s creation through allocated domestic resources and secured donor funding for selected road investments, ma in ly f rom ABEDA, AfDB, Portugal, EU, Luxemburg and then ongoing ITP funding f rom IDA. The Road Sector P lan identifies cri t ical priorit ies for establishing the core island road networks and lays out priorit ies for institutional reform and capacity building to ensure sustainable maintenance and del ivery o f road transport services.

Whi le the Government m a y not be successful in securing full funding for a l l proposed road sector investments, the integrity o f the p lan wou ld nevertheless b e sustained as long as the sector reforms are undertaken, since the investments are self-standing within a coherent sector management framework.

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The Government has further priori t ized the remaining funding needs for the road sector in a US$44.6 m i l l i on Road Sector Support Program, including support to a comprehensive reform o f the management o f the sector. This Road Sector Support Project supports a U S $ l S m i l l i on slice o f the Program. The Government i s in discussion w i th donors for parallel funding o f the Program.

These reforms also support the GPRSP’s goals o f improved govemance, wh ich focus o n transparency in public management, through participation o f citizens in the control and oversight o f administrative activity, creating institutional conditions receptive to new public management techniques based o n accountability and better evaluation o f the use o f publ ic resources.

World Bank Support Whi le other donors are generally focused o n particular physical investments, the Wor ld Bank operation wou ld meet an otherwise unmet need to assist the Government to anchor i t s efforts in establishing fundamental institutional re form and building management capacity, particularly with regard to the new ly formed Road Institute and establishment o f a second generation Road Maintenance Fund, both o f wh ich invo lve new concepts and management approaches. In addition, the Project wi l l provide financing for c i v i l works to fill gaps and resolve crit ical spots and sections on the core road networks o f five islands. Finally, the Project wil l assist the Road Agency in work ing w i t h municipalit ies to p lan and carry out pr ior i ty accessibility improvements o n the municipal rural feeder road networks.

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Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

CAPE VERDE: Road Sector Support Project

IDA. Multi-donor financed Infrastructure and Transport Project (ITP), including IDA amount o f SDR 12.9 mi l l ion closed on June 30, 2004. The project assisted the Govemment in increasing i t s intemational competitiveness through port modemization and reorganization o f shipping as well as lessening erosion o f the capital stock in the road network through road investments. The project contributed to enhanced public sector capacity in the sector and development o f a local contracting industry. In the final years o f the ITP, sector pol icy dialogue with Government was strengthened and deepened and many o f the institutional reforms proposed under the RSSP agreed on. ICR completed with S rating, which OED concurred with.

BADEA. Cofinanced ITP. Also, along with the BAD, the Nigerian Social Fund and the Cape Verde Govemment, BADEA co-financed the project for the New Praia Airport with a total cost o f 24.28 mi l l ion Units o f Account. The airport wi l l be inaugurated during the 1st hal f o f 2005 (BAD- 8.42 mi l l ion Units o f account- UA, B A D E A - 6.46 mi l l ion UA, Nigerian Social Fund - 6.0 mi l l ion UA and Cape Verde Govemment - 3.4 mi l l ion UA). This project wi l l increase the airport’s capacity and security conditions as well as result in incremental tourism and exports promotion.

ADB- Cofinanced ITP (road sector). Cofinancing the works in the New Praia Airport, with the amount o f 8.42 mi l l ion Units o f account from the ADF.

EU. Cofinanced ITP (road sector). I t i s also co-financing, joint ly with Luxemburg and Cape Verde Govemment, the construction o f the Janela-Porto Novo road, in the global amount o f C V E 1.788.614.727 ( 70%- European Union and 30%- Luxemburg). The works are underway and scheduled for completion in 2006.

PORTUGAL Cofinanced ITP (port rehabilitation). I t also financed the asphalting o f the main arteries o f the City of Mindelo, in SZo Vicente, in the amount o f C V E 275.000.000; the access road to the New Praia Airport in the amount o f C V E 854.050.000; and the second roadway for the Road Espargos-Santa Maria, in the Island o f Sal, in the amount o f C V E 478.760.700. Portugal also recently guaranteed financing for asphalting a main road stretch in Santiago, Praia- SZo Domingos, and the construction o f a circular road in the city o f Praia. The works are scheduled to begin in 2005 and are estimated at 30 mi l l ion EUROS.

EIB- Cofinanced ITP (port rehabilitation). I t i s currently financing a modemization program o f air navigation operations, with the Airport and Aviat ion Security Company - ASA, in the amount o f C V E 3.305.953.

OPEC Cofinanced ITP (port rehabilitation). Has expressed interest in parallel financing o f RS SP .

KFW Cofinanced ITP (port rehabilitation).

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Annex 3: Results Framework and Monitoring

CAPE VERDE: Road Sector Support Project

Project Development Objective The objective of the project i s to enhance he Borrower’s road sector management

Intermediate Results One per Component

Component One: Institutional Support Road sector management and related market institutions are strengthened and functional.

Results Framework Outcome Indicators

The asset value o f the national road network i s increased and sustained.

Overall, indicators o f socio-economic benefits due to improved mobility are achieved along the road segments rehabilitated by the project: Economically justified roads: Reduction in vehicle operating costs, as reflected in ex-post project economic analysis.

Sociallv justified roads: Mobility ratio: an increase in the percentage o f adult population in affected communities who made at least 5 trips during the previous month;

Travel time ratio: a decrease in the percentage o f the population in affected communities that take more than 30 minutes to reach the nearest market; and

Comparative travel cost ratio: a reduction in the percentage differential between the composite costikmikg on the Project’s socially justified roads and the project’s economically justified roads.

Results Indicators for Each Component

Component One: Road Maintenance Fund A Second Generation Road Maintenance Fund i s created and functions in accordance with the Govemment’s Letter o f Sector Policy.

The Road Maintenance Fund establishes and manages annual road maintenance budgets, in accordance with the Government’s Letter o f Sector Policy.

Road Agency The Road Agency completes the National Road Plan.

The Road Agency submits to the Road Maintenance Fund annual road network maintenance plans.

The Road Agency implements annual road network maintenance plans within the planned execution period and within budget.

U s e of Outcome Information qetwork management and socio- xonomic outcomes wil l indicate success n supporting the Government’s GPRSP ;oal o f establishing dependable and ustainably maintained transport nfrastructure as part of its overall yowth and poverty reduction strategy.

‘Jon-achievement o f increasing road m e t value would flag failure to nobilize sufficient funds for road ietwork maintenance and/or inadequate nanagement performance as indicated in Zomponent I.

Yon-achievement o f socio-economic benefits would indicate: (i) failure to ichieve Component 2 results; and/or (ii) macroeconomic, political or other factors outside the project adversely influence the provision o f social and economic opportunities where road infrastructure i s improved by the project.

Use of Results Monitoring

Component One: Annual reviews o f institutional targets wil l be carried out to provide the basis for a joint assessment with the Government on: (i) the performance o f each target institution and the effectiveness o f the project‘s support measures for each target institution; (ii) continued political wi l l to pursue and augment the road sector management reforms as stated in the Letter o f Sector Policy; and (iii) possible readjustment in management or institutional arrangements to implement the road sector management reforms.

Non-achievement o f institutional targets would flag continued management deficiencies in target institutions and/or lack o f political wi l l to pursue the reforms.

26

Proiect DeveloDment Obiective

Component Two: Road Infrastructure Prioritized investments to achieve basic connectivity and improve mobility are made on targeted island networks.

Outcome Indicators

'ilot Performance-Based Road vlaintenance and Management contracts Ire implemented.

jeneral Directorate o f Infra.& Basic janitation (DGISB) IGISB implements all contracts under ts responsibility within 15% the planned :xecution period and within budget.

3 v i l Engineering Laboratory (LEC) >EC increases i ts professional staffing eve1 by at least 2 to meet i ts .esponsibilities.

The LEC achieves financial self- iufficiency for its operational costs dated to testing and training.

3eneral Inspectorate of Public and Private Works (IGOPP) iGOPP increases i ts professional staffing level by at least 2 to meet i t s -esponsibilities.

Statutes and regulations for IGOPP and works standards are revised.

iGOPP implements an agreed Annual Work Plan.

Studies and Planning Unit (GEP) Quarterly and annual reports are produced by the various M I T services for use in ministerial planning based on a data base and associated management information system.

Program Coordination Office (PCO) The PCO reports annually on the Road Sector, with a focus on progress towards project outcome and results indicators.

The PCO manages RSSP activities in conformance with legal and fiduciary requirements, as stated in the Credit Agreement. Component Two: Malo #6. Alcatraz-Figueira (1 1 km) SBo Nicolau #7. Ribiera Brava-Tarrafal (27 km) SBo Vicente # I O . Salamansa-Norte de Baia (3 km)

U s e of Outcome Information

Component Two: Lower annual outputs would flag problems needing assessment and remedial action, such as: (i) low contractor performance; (ii) slow preparation o f new road projects; and (iii) procurement delays; and (iv) ineffective supervisionicoordination by MIT.

27

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Monitor ing and evaluation methodology and arrangements. Project Moni tor ing and Evaluation (M&E) wil l be the responsibility o f Program Coordination Office, in the Ministry o f Infrastructure and Transport, who wil l monitor progress against agreed-upon performance monitoring indicators, as shown in the Results Framework.

Reporting. (i) Quarterly Financial Moni tor ing Reports wi l l be prepared by the Program Coordination Office; (ii) Semi-annual progress reports (including financial and procurement status reports) wil l be established by the Program Coordination Off ice on the basis o f the project implementation plan; (iii) Wor ld Bank’s supervision missions wi l l take place twice a year, w i th an Ear ly Implementation Assessment 9 months after effectiveness; and (iv) an Implementation Completion Report (ICR) wi l l be prepared at the end o f the Project and presented within six months o f the credit closing date. Baseline and annual monitoring studies wi l l assess the impacts o f the entire Program. The monitoring activities wi l l ver i fy if program and project objectives are being achieved, as we l l as financial management and procurement aspects. Advances towards the development objective o f improved access wi l l be evaluated annually for completed roads, as we l l as for a l l roads at the end o f the project.

31

Annex 4: Detailed Project Description

CAPE VERDE: Road Sector Support Project

Component 1 : Institutional Support - Total including contingencies US$5.1 million: IDA financing US$5.0 million

This component wi l l focus o n strengthening MIT’s capacity to p lay a revised ro le o f planning, regulating and overseeing quality in the rap id ly expanding road and other c i v i l works construction sectors in the country. I t wil l have the fo l lowing activities:

Support to Road Sector Program Coordination Office (PCO) The Project wi l l support the Program Coordination Off ice (PCO) in the MIT, to ensure overall management o f this Project, as we l l as coordination o f other donor-related support for the National Transport Program. The Of f ice has inherited technical, procurement and fiduciary management capacity established in the previous Wor ld Bank-financed Infrastructure and Transport Project (ITP). I t i s staffed with three national consultants: (i) a National Coordinator; (ii) a Financial Manager; and (iii) a secretary. Project support wi l l include local consultant salaries, operating costs and office equipment.

Technical assistance and capacity building to the Road Agency and Road Maintenance Fund The Project wi l l provided as-needed support to the newly created Road Agency and the Road Maintenance Fund. The Road Agency was established in August 2004 and i s already staffed and operational, whi le the Road Maintenance Fund i s presently being established and i s expected to be operational in 2005. Through the PPF, the Project financed the preparation o f a Road Sector Management Study, wh ich has resulted in an Ac t ion Plan for the establishment o f these two institutions (see Letter o f Sector Pol icy - Annex 16). The PPF also financed in i t ia l computer equipment for the Road Agency, wh i le the Government has financed off ice equipment and in i t ia l operational costs. During the project period, additional technical assistance, studies and training wi l l be financed o n an as-needed basis. Support activities wi l l include, but not be l imi ted to: road condit ion and traff ic surveys, road asset valuation, road data base management, f inancial management, procurement, contract management and the management o f p i lo t performance based road maintenance and management contracts (see below).

Assistance to Civil Engineering Laboratory of Cape Verde (LEC) The Project wi l l provide assistance to the Civil Engineering Laboratory o f Cape Verde, wh ich i s an autonomous public agency under the titular responsibil i ty o f the MIT. Through the PPF, the Project financed a diagnostic study o f the LEC to determine i t s capacity to handle i t s mandate to to supervise and control the quality o f materials used in c i v i l works sites. The study concluded that much o f the Laboratory’s equipment i s either out o f date o r in poor condition, i t s buildings are inadequate and i t s personnel need training. Based o n the study’s recommendations, the Project wi l l finance the acquisition o f laboratory testing, information management, security and communications equipment; improvement o f physical plant; vehicles; and training for personnel. The Government has committed to strengthen LEC staffing by two professional staff; a c i v i l engineer and a lab technician. Also, L E C s rate schedule for testing wil l be adjusted to ensure that i t covers at minimum the lab operating costs. Future training provided by LEC should also be at

32

minimum cost based for the private sector although discounted fees wou ld be made for training o f the publ ic sector. LECs research mandate wou ld be a publ icly funded

Assistance to the General Inspectorate of Public and Private Works (IGOPP) The Project wil l provide technical assistance support to the General Inspectorate o f Public and Private Works (IGOPP), which i s presently the core service for regulation o f a l l c i v i l engineering works, inc lud ing the inspection o f a l l works, regulation o f the c i v i l engineering profession, certification o f c i v i l engineering and construction companies, standardization o f procedures regarding contracts, publ ic bidding and contract supervision. Through the PPF, a Diagnostic Study recommended that, as a long term measure, the regulatory functions should more appropriately be lodged in an independent body and removed f rom this Inspectorate. The support to IGOPP under the RSSP wil l be l imi ted to strengthening i t s capacity under existing institutional structure. For this purpose, RSSP wil l on ly support selected activities amenable to that pursuit, principal ly training and procurement of needed equipment as w e l l as review and proposing o f amendments o f existing statutes and regulations governing the inspectorate functions. In parallel w i t h this support, the Government wi l l revisit and amend the needed staffing o f IGOPP by at minimum two persons; a c i v i l engineer and an architect.

Assistance to the Ministry of Infrastructure and Transport through the following Units: A. Assistance to the General Directorate of Infrastructure and Basic Sanitation (DGISB) The D G I S B i s responsible for implementation o f a l l publ ic works infrastructure development, including procurement and oversight o f works and engineering design and supervisory services. As such, the D G I S B wil l be the implementing agency for the road infrastructure component o f the RSSP. Although the present staffing levels are considered adequate, the Directorate needs to reinforce i t s capacity to more effectively manage and oversee public works projects. In particular, i t s basic computer and information management systems and vehicle stock are outdated and in need o f renewal. In addition, i t s staff needs additional and in-service training in areas such as procurement, English and French language and software uti l ization. The project wi l l therefore assist the Govemment to meet these needs.

B. Assistance to the Studies and Planning Unit (GEP) The project wi l l provide technical assistance support for the GEP, wh ich i s the core service for studies and planning for the Min is t ry . Through the PPF, the Project i s assisting the GEP to modemize and update the ministry’s information management and external communication services, through the procurement o f computer equipment and software for the MIT data base (MITPROJ), wh ich was established, but has never been utilized. The Project wi l l complete this assistance with technical assistance for updating and operationalizing the MITPROJ, the intranet system establishment o f a ministry website, wh ich provides linkages to sites o f relevance to the Ministry o f Infrastructure and Transport.

Other Studies and Technical Assistance The Project will finance monitoring and evaluation studies, in particular a survey o f the beneficiary population at the end o f the project, annual audits and other studies and technical assistance, to be determined.

3 3

Pilot Performance Based Road Management and Maintenance Contracts (Gestio e Manuterzcio por Nivel de Servicio - GMANS). Cape Verdean funds, through the Road Maintenance Fund wil l whol ly finance this activity. The objective i s to test and adapt a new approach for assuring cost-effective road maintenance on the National Road Network through a service-level approach. This new approach i s based o n the principal that roads should essentially provide certain levels o f service to road users. These service levels can be defined in terms o f average speed, riding comfort and certain physical features o f the road. Under the new system, there wil l be contracts between the Road Agency and private entrepreneurs, in wh ich the entrepreneur wi l l commit to provide those service levels. In turn, he wi l l be pa id a certain f ixed month ly amount of money if h e complies with the contract. H e wil l have complete freedom to determine (i) what to do, (ii) h o w to do, (iii) when to do, and (iv) where to do, the necessary physical interventions in order to provide the agreed level o f service. Cape Verde represents an opportunity to test this approach o n cobblestone roads, for the f i r s t time. I t should provide incentives for contractors to maintain the prescribed service levels in a cost-effective manner and o n a permanent basis as long as the contract i s valid, which in this case wi l l be four years. Cape Verde has been selected as one o f four countries to receive grant funds to finance the preparation of p i lo t performance based road management and maintenance (GMANS) contracts.

Based o n an in i t ia l site visit in March 2004, an estimated 363 km were identif ied for p i lo t G M A N S contracts. However, the exact roads and km to be included in the p i lo t program may change during the preparation o f the contracts, wh ich i s underway in early 2005. The preparation o f these contracts i s be ing funded by a grant f rom the Un i ted K ingdom Department for Intemational Development (DFID), which i s being managed by the Wor ld Bank in collaboration with the four partner countries. In Cape Verde, the works contracts wi l l be financed by the Road Maintenance Fund (CV-FMR) and managed by the Road Agency (IE).

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Component 2: Road Infrastructure - Total Prowam Including: Contingencies: $39.5 million; Bank Financing:: US$lO.O million

Road

Priority Road Network Improvements. In i t s Priority Strategic Programme for Infrastructure and Land Management, the Government identified potential road network improvements on each o f the nine inhabited islands. Among these projects, the Government identified a program o f eleven top priority improvements on five islands (one activity was dropped during appraisal). Two broad types o f interventions wil l be carried out: (i) filling a gap in an incomplete island network through road upgrading on an existing earth track or the construction o f small bridges; and (ii) rehabilitating key l i n k s that are in a deteriorated state. Proposed interventions are based on: (i) cost-benefit analysis o f service level options for roads and bridges with significant traffic levels; and (ii) cost-effectiveness analysis for roads with light or no existing traffic levels. IDA will fund three o f the road segments (roads # 6, 7 and 10) for up to USSlO.0 mi l l ion out o f the total program amounting to US39 .5 million. Government i s in the f inal phase o f discussion with MCC, which has indicated that i t i s likely to fund seven o f the road segments (roads # 1, 2 , 3,4, 5, 11 and 12). If this materializes, the financing gap o f the program wil l only consist o f road # 8. The Government has initiated discussion with OPEC Fund for supporting that activity. Below i s a summary list o f the investment program, followed by a summary description o f the projects.

Total ! Km Description css XI*

1 2 3 4

5

Orgaos-Pedra Badejo (Santiago) 10 Asphalt rehabilitation o f principal secondary road 3.29 Cruz Grande-Calhetona (Santiago) 14 Asphalt rehabilitation o f principal secondary road 5.20 Vol ta Monte-Ribeira Prata (Santiago) 15 Cobblestone rehabilitation to isolated area 3.1 1 Assomada-Porto Ricao (Santiago) 16 Mixed Cobblestone/Asphalt to isolated area 3.71

Fonte Lima-Joao Bemardo-Librao (Santiago) 8 Cobblestone rehabilitation to isolated area 2.53

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Road Total I

Km Description 1% \I* ,

6 7

8 9

Santiago Island. Priority improvements to the Santiago Island network include: (i) rehabilitation o f two heavily traveled east-west axes, while serving agricultural communities along their alignments; and (iii) rehabilitationheconstruction o f three rural roads linking isolated agricultural and fishing communities to the main network.

Figtiera-Alcatraz (Maio) 1 1 Cobblestone rehabilitation to complete island's r ing road 3.62 Ribeiera Brava-TaiTafal (Sa0 Nicolau) 27 Asphalt rehabilitation o f principal secondary road 8.13

TaiTafal-Praia Branca-Ribeira da Prata (Sa0 Nicolau) 19 Cobblestone rehabilitation to isolated area 4.74 Caleijao-Cabecalinho (Sa0 Nicolau) 5 Project rejected on technical grounds 0.00

Road # 1: Or@os-Pedra Badeio (10 km). This road i s the primary east-west link in the southern part o f the island. I t i s cobblestone surface, with an average width o f 4 meters and 50 cm. shoulders. I t i s generally in poor condition - certain sections are considerably degraded and there i s a lack o f f ine material between the paving stones, many o f which have been washed away. The road lacks adequate drainage structures; culverts, in particular, are obstructed by stones and debris. Protection o f the side slopes i s inadequate. The road i s located in the Ribeira Seca river basin, which one o f the most agriculturally productive zones in the country, and which provides produce to the capital ci ty o f Praia. In addition to i t s regional importance, the road directly serves over 10 rural communities with a population o f 3,693. Intervention wil l involve upgrading to paved asphalt standard.

I O

11

12

Road # 2: Cruz Grand - Calhetona (14 km) This road i s the primary east-west link in the center o f the island, connecting the two major north-south axes, both o f which culminate in the northern tourist area and town o f Tarrafal. I t i s cobblestone surface with an average width o f 5 meters. Constructed in 1995, i t i s in very bad condition, characterized by many potholes, loss o f riding surface and deformation o f the roadbed. Several sections are considered dangerous because o f sliding conditions caused by erosion. Much o f the road's deterioration i s due to poor drainage. The road i s heavily traveled and located in the Ribeira de Flamengos Seca and serves numerous communities wi th a population o f 6,472, practicing both irrigated and rainfed agriculture, serving the major markets o f Tarrafal, Assomada and Praia. Intervention wil l involve upgrading to paved asphalt standard.

Salaniansa-Nord de Baia (Sa0 Vicente) 3 Asphalt rehabilitation o f access road to tourist site 0.62

Bridge to commercial center; present access through river

Bridge to commercial center & access road; present

2 Bridges at Ribeira Grande 0 bed 2.31

2 Bridges at V i l a das Pombas & Liaison Eito (Santo Antao) 0 access through river bed Total**

Road # 3: Volta Monte- Ribeira Prata (15 km) Located in the northwest part o f Santiago Island, this road was formerly part o f the north-south axis, but abandoned with the construction o f the present ring road. It i s on very windy, mountainous terrain. Although some o f the original drainage structures exist, most o f the road has reverted to dirt track, with only a few remnants o f previous cobblestone surface. Over eleven farming and fishing communities, with a total

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population o f 2,850, along this road are severely isolated due to i t s poor condition. The area includes suitable grazing areas, yet the introduction o f drilling and other water development equipment has been constrained because o f lack o f access for drilling facilities. Intervention wi l l invo lve reconstructing the road to improved cobblestone standard.

Road # 4: Assomada-RincBo (16 km) This road provides the sole access to seven communities and the fishing por t o f Rinciio to the rest o f the island. I t runs from the major t own o f Assomada (population 50,000), on the main road, and serves another 3,500 farming and fishing populations, including the agricultural zone o f ChBo de Tanque and the fishing port o f RincBo. The f i rst 7 km f rom Assomada i s cobblestone in very poor condition, whi le the rest i s basically an earth track, requiring reconstruction. The 2 km section o n the Achada Grande Plateau leading to RincBo contains very f ine material, wh ich makes access dif f icult especially during the ra iny season. Intervention wi l l invo lve reconstructing the road to asphalt standard for the f i rst 7 km and cobblestone standard for the remaining 9 km.

Road # 5: Fonte Lima-JoBo Bernard0 (9 km) This road links 10 rural communities with a population o f 4.100 to the main north-south axis and the rest o f the island. The f i rst 250 meters o f f the main road are cobblestone, after wh ich the road i s a narrow earth track, permitt ing passage only o f light vehicles and small trucks, often without capacity for two-way traffic. The alignment i s very windy and o n steep slopes, particularly after the vil lage o f Toupana. Intervention wi l l invo lve reconstructing the road to improved cobblestone standard.

M a i o Island. Improvement to the M a i o Island network involves filling a gap in the principal ring road around the island.

Road # 6: Alcatraz-Fiaueira (11 km) The road i s currently an earth road, passable on ly w i t h 4 wheel drive vehicles, and thus presents a gap in the island’s basic network. The rest o f the island ring road i s characterized by 6-meter width cobblestone and 0.5 m shoulders. The road provides direct access to communities engaged in fishing small scale agriculture, l ivestock and production o f gypsum and ornamental stones for construction. Intervention wi l l invo lve reconstructing the road to improved cobblestone standard.

Sao Nicolau Is land Improvement o f the Sao N ico lau Island Network involves: (i) rehabil itating the major axis linking the island’s administrative center with i t s pr imary port, and serving numerous communities in mountainous terrain; and (ii) a continuation o f the m a i n axis to less populated, but isolated zones.

Road # 7: Ribiera Brava-Tarrafal (27 km) This i s the principal road o f the island, linking the ma in c i ty o f Ribeira Brava with the second major t o w n o f Tarrafal, site o f the island’s ma in port and fishing and commercial center, including a tuna canning factory. The road passes through several r iver basins, including the irrigated zone fed by the Galerie de Fajii. I t direct ly serves a population o f 8,100, not counting the t o w n o f Rib iera Brava. I t i s v i r tua l ly the l i fe l ine for a l l marketing o f agricultural, l ivestock and f ishing products, as w e l l as access to social and administrative services. Fo l low ing a northern route f rom Ribeira Brava, i t loops around a mountainous area to the south where it arrives at Tarrafal. The road i s currently cobblestone in a deteriorating condition; the width i s most ly 5 meters, in some places as narrow as 4 meters.

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For a 5 km stretch Faja de Baixo - Cachaco, the alignment i s very narrow and consists o f only rough stones. Intervention w i l l involve upgrading to asphalt paved standard.

Road # 8: Tarrafal-Praia Branca-Ribiera Prata (19 km) This road i s the continuation o f the principal road o f the island from Tarrafal, circling the island’s western and northwestern areas. The road i s currently cobblestone. The first 6.5 km are in fair condition, wi th a width o f 5 m. Most drainage structures are in good condition, however, the Irish crossings are in need o f repair. The remaining section i s in poor condition; the cobblestones are not cut or laid in parallel and are considerably damaged. The last sections are mountainous and narrow, wi th irregular cobblestone coverage. The last km before the village o f Ribeira pose serious danger o f falling stones and unstable slopes. The road l i n k s agricultural production areas to the port o f Tarrafal. A tourism village i s being constructed at km 1.5 from Tarrafal. Intervention wil l involve establishing a uniform width o f 6 meters improved cobblestone surface and establishment o f adequate drainage structures.

Road # 9 : CaleiiZo-Cabecalinho-Tarrafal (6 km) This i s presently only a footpath through a mountainous zone. If a road was built, i t would link the two sections from Ribeira Brava to Tarrafal which presently loop around the north (Road # 7), and would reduce the traveling distance between Ribeira Prata and Tarrafal by about 10 km. A main difficulty to construct this road i s the steep incline up the mountain, about 650 meters, between Calejao and Cabecalinho. For this reason, this project has been dropped from the program.

Siio Vicente Island Road # 10: Salamansa-Norte de Baia (3 km). This road provides basic access to a presently isolated fishing community o f some 1,170 people. I t would involve the construction o f a cobblestone road on a presently earth road accessed only by 4x4 vehicles. I t can also be considered the first segment o f an eventual access road to future tourist development sites.

Santo Antiio Island Improvement to the Santo AntZo Island network involves ensuring all weather access to two major towns, located at the confluence o f rivers and cut o f f during heavy rains. Both towns are located on the island’s primary network, which has a minimum level o f service and the absence o f these bridges prevents connectivity to significant levels o f traffic.

Road # 11: Bridges at Ribeira Grande (200 m) and Ribeira Torre (60 m) In the northeast, the town o f Ribeira Grande (population 21,480) i s located at the confluence o f two seasonal rivers: Ribeira Grande and Ribeira da Torre. The island’s main road from Porto Novo arrives along the Ribiera Grande, and at a certain point, four roads converge along these rivers at the town. When i t rains, the river banks flood the southem end o f the town on the road to Paul. Intervention wil l involve the construction o f two small bridges, one on the Ribeira Grande and one on the Ribeira da Torre, as well as protection works along the r iver banks.

Road # 12: Bridges at V i l la da Pombas and Liason V i l a da Pombas - Eito The road from Eito to Paul (population 8,380) follows the Ribeira da Paul, then i s located in the river bed, which makes travel impossible when i t rains. Residents in the immediate area grow sugar cane, sold to an agro-industrial complex producing a sugar-based alcoholic drink, grog. I t should also be noted that an EU funded project i s constructing a road from Porto Novo along the west coast to Paul,

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and the construction o f this bridge would guarantee continuity along the cost to Ribeira Grande. Intervention wil l replace the present access within the riverbed to the adjacent side for a length of 1 km with a cobblestone road and construct a small bridge to assure access into the town o f Paul. These works wi l l result in widening o f the road, which i s presently only 3 meters wide at the south end. This will involve minor land taking concerning existing stonewalls, which wil l require compensation. For this reason an Abbreviated Resettlement Plan has been prepared based on consultations with the affected persons and the Municipality (see Annex 10).

Physical Contingencies 1,827,584 463,736 109,114 Price Contingencies 1,096,550 278,242 65,469 Total Cost 39,475,811 10,016,704 2,356,872

Estimated Cost - ROAD INFRASTRUCTURE TOTAL PROGRAM AND FINANCING

1,035,216 219,517 621,129 131,710

22,360,661 4,741,574

Lot 1 (1, 2, 3 ,4, 5) Lot 2 (11,12) Lot 3 (6) Lot 4 (7) Lot 5 (IO) Lot 6 (8) Total

RSSP Road Infrastructure Program - ExDected Bidding Packages (US$ M)

17.84 17.84 0.00 4.52 4.52 0.00 3.62 0.69 2.93 0.00 8.13 1.55 6.58 0.00 0.62 0.12 0.51 0.00 4.74 4.74

39.48 2.36 10.02 22.36 4.74

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I 2. Road Infrastructure I I I I

Total Base Cost Physical Contingencies Price Contingencies PPF Reimbursement* Total Cost - Component 1

Component 1 Institutional Strengthening to MIT

3,335,500 1 3,225,000 110,500 166,775 161,250 5,525 100,065 96,750 3,315

1,500,000 1,500,000 0 5,102,340 4,983,000 119,340

2.1 Works 10,911,442 8,729,154 2,182,288 2.2 Supervision 545,572 545,572 0 Base Cost 11,457,015 9,274,726 2,182,288 Physical Contingencies 572,851 463,736 109,114

- Price Contingencies 343,710 278,242 65,469 Total Cost - Component 2 12,373,576 10,016,704 2,356,872

Component 2 Road Infrastructure

I Total Project 17,475,916 I 14,999,704 1 2,476,212 I I I I I 1 * PPF expenditures constitute Institutional Support to MIT.

40

Annex 5: Project Costs

CAPE VERDE: Road Sector Support Project

Foreign Local US us

Project Cost by Category - Total Project $million $million Civil Works 3.71 8.67 Goods 0.01 0.80 Consultant's Services 1.38 2.05 Training and Workshops 0.34 0.37

Operating Costs 0.09 0.06

Total Project Costs 5.54 11.94

TOTAL IDA CREDIT Cape

Total US$ IDA Verde Project Cost by Component andlor Activity million US$million US$million

Total US $million

12.38 0.80 3.43 0.72

0.15

I 7.48

Component 1 : Institutional Strengthening 3.34 3.23 0.11

______~

Project Cost by Category - IDA Civil Works Goods Consultant's Services Training and Workshops Operating Costs

Total Project Costs

Component 2: Road Infrastructure 11.46 9.27 2.18

Total Baseline Cost 14.79 12.50 2.29

Price Contingencies 0.44 0.37 0.07 PPF Reimbursement 1.50 1.50 0.00

Physical Contingencies 0.74 0.62 0.11

Foreign Local US us Total US $million $million $million

2.97 6.93 9.90 0.01 0.80 0.80 1.38 2.05 3.43 0.34 0.37 0.72 0.09 0.06 0.15

4.79 10.21 15.00

Total Project Costs I / 17.48 15.00 2.48 Interest During Construction 0.00 0.00 0.00

Front-end Fee 0.00 0.00 0.00 Total Financing Required 17.48 15.00 2.48

Project Cost by Category - Cape Verde Civil Works Goods Consultant's Services Training and Workshops Operating Costs

Total Project Costs

Local US us- Total US $million $million $million

0.74 1.73 2.48 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.74 1.73 2.48

41

Implementation Period Table (US$ M including Contingencies)

Total Investment Costs Total Recurrent Costs Total

2.79 5.85 4.72 3.38 0.08 0.08 16.90 0.15 0.09 0.09 0.09 0.09 0.09 0.58 2.94 5.93 4.81 3.47 0.16 0.1 6 17.48

Financing Plan (US$ M including Contingencies)

Estimated IDA Disbursements (US$ M including Contingencies)

Total by Procurement Method (US$ million)

Civil Works

IDA financing

Goods IDA financing

Consultant Services IDA financing

Training and Workshops IDA financing

Operating Costs IDA financing

Total Project Costs IDA financing

11 78

9 43

0.38 0.38

0.00 0.00

0.00 0.00

0.00 0.00

12.16 9.81

0 60

0 48

0 24 0 24

0 00 0 00

0 00 0 00

0 00 0 00

0 83 0 71

0.00

0 00

0 19 0.19

3.43 3 43

0.72 0.72

0.15 0 15

4.48 4.48

0.00

0 00

0 00 0 00

0 00 0 00

0.00 0.00

0.00 0.00

0.00 0 00

Total 12 38

9 90

0.80 0 80

3.43 3.43

0 72 0 72

0.15 0.15

17 48 15 00

42

Annex 6: Implementation Arrangements

CAPE VERDE: Road Sector Support Project

Overview

The project wi l l be managed directly by the Min is t ry o f Infrastructure and Transport (MIT), through a Program Coordination Off ice (PCO), attached directly to the Minister 's Office. The pr imary responsibil i ty o f this Off ice wil l be to ensure overall management o f the project and coordination o f other related donor support for the overall Transport Sector Program, as well as technical and fiduciary oversight o f the Road Sector Support Project. The be low organization chart shows the location o f the Program Coordination Off ice w i th in the overall structure o f the MIT.

Ministry Organization Chart showing Program Coordination Office

General Directorate Studies & PI ann i iig

IGOPP General

Inspectorate o f c i v i l Works

DGISB General

Directorate o f Infrastructure

& Basic Sanitation

DGOTH General

Directorate o f Land and

Urban Housing

DGMP General

Directorate o f Maritime

General Directorate

of Road Transport

General Directorate

Telecom- munication

I I I DSA

Civil Aviation Agency

I I

Roads Ageiicy r Telecomm Information Technology

Agency

t ioi i Service 1

Civil Engineering Laboratory

43

Ministry of Infrastructure and Transport (MIT) The Ministry o f Infrastructure and Transport i s the Government department responsible for formulating, coordinating and executing Govemment policies concerning the sectors o f infrastructure, transport, communications land use and housing. The project wi l l provide assistance to the fo l lowing agencies within the MIT.

Program Coordination Office The Program Coordination Off ice and the Road Agency have inherited key elements o f the capacity o f the recently closed Infrastructure and Transport Project (ITP) Project Implementation Unit (PIU), which was located outside the Min is t ry . The transfer o f these resources ensures that the technical, procurement and fiduciary management capacity built during PIT, in conformance with W o r l d Bank requirements, i s retained for the new project, but that this capacity i s integrated in to the Min is t ry organizational structure. The Program Coordination Of f ice wi l l have a Program Coordinator, a Financial Manager and an Administrative Assistant.

This institutional solution has been chosen for several reasons. First, since the project i s strongly focused on supporting key sector reforms and capacity building, i t i s deemed important that the management o f this support be located “from within,” such that those implementing the reforms and benefit ing f rom assistance are participants o f the change processes f rom the beginning. Second, the Government feels that integrating the Of f ice in to the Min is t ry and some implementation responsibilities in to the Road Agency wi l l involve a more efficient ut i l izat ion o f project resources, given the availabil ity o f physical space and communications systems already in place. Finally, although the ITP Implementation U n i t has performed extremely well, the Government wishes to improve the performance w i th in the Ministry, and this can only be done by involv ing its personnel directly in the management o f the Program.

General Directorate of Infrastructures and Basic Sanitation (DGISB) i s the core service responsible for the execution o f c i v i l engineering and public works, namely o f transports infrastructures, hydraulic works, basic sanitation and public buildings. I t includes: (i) Directorate o f Service o f Projects and Technical Studies; (ii) Directorate o f Service o f Works and Basic Sanitation; and (iii) Directorate o f Service o f Financial Mon i to r ing o f Works.

Road Agency (Instituto de Estradas - E) The IE was created by Decree N o . 2/2003 o n June 2, 2003. The decree defines the mandate o f the Agency as to maintain, manage and safeguard the roads and bridges under i t s jurisdiction. This jurisdict ion i s defined as the “national roads.” However, the Agency i s also mandated to work in close collaboration with the Municipalit ies, who are in principle responsible for the rest o f the road network, designated as “municipal roads.” The attributes l isted in article 2 o f the decree are:

a) Implement the road infrastructure policy, within the overall perspective land management and economic development plans, as w e l l as to maintain and manage the national roads and bridges.

b) Safeguard the infrastructure, as w e l l as i t s functionality, notably the right o f way and areas adjacent to the roads.

c) Formulate and implement the Nat ional Road Plan.

44

Define, in collaboration w i th other stakeholders, service levels o f the roads, so as to ensure the quality, safety, comfort and safeguard national assets and the environment. Ma in ta in and update the road network inventory, including physical characteristics and condition. Within the framework o f its basic mandate, promote linkages between roads and other modes o f transport. Within the framework o f i ts basic mandate, promote studies and knowledge development, wh ich wi l l advance technological and economic progress in the road sector. Manage the process o f expropriation required for the road maintenance and

management. Within the framework o f i t s basic mandate, ensure the participation and collaboration with national (central and local governments) and international institutions in the road sector.

Under the Government’s Letter o f Sector Pol icy (Annex 16), the Road Agency activities wi l l be overseen by a Road Consultative Counci l (Conselho Consultivo de Estradas - CCA), consisting o f representatives f rom ministries and public sector stakeholders, as w e l l as the private sector and road users. U n t i l the new Road Maintenance Fund i s operational, the Government wi l l cover the Road Agency’s in i t ia l equipment and operational costs. Part o f this has been financed under the Project Preparation Faci l i ty (PPF) for the RSSP. Once the Road Maintenance Fund i s operational, a port ion o f the Road Agency’s f ixed operational and variable costs for road maintenance activities wi l l be covered by the Road Maintenance Fund, whi le i t s other f ixed and variable costs related to road investment planning wil l be covered by the Government. The Road Agency i s in the process o f putt ing in place a financial management system which wi l l enable i t to keep separate accounts for investment (Government-financed) and maintenance (Road Maintenance Fund-financed) activities. The Road Agency wi l l be subject to annual f inancial and technical audits to ensure i t s effective and transparent management o f bo th road maintenance and road investment funds. Based o n a Road Sector Management Study, the Road Agency has established an Institutional Act ion Plan, wh ich i s appended to the Letter o f Sector Policy.

Road Maintenance Fund (Fundo de Manutenq6o Rodoviaria - CV-FMR). A Road Maintenance Fund i s in the process o f be ing created to replace the present Road Fund. The new Road Maintenance Fund wil l finance on ly maintenance (programmed routine and periodic maintenance, plus a provision for annual emergency works, ref lect ing average need over the past few years). These funds wil l derive f rom user fees. Road Maintenance Funds wil l be directly deposited in an account at the Central Bank o f Cape Verde. The Road Maintenance Fund wil l have a simple and l imi ted structure, consisting o f an Administrative Directorate, inc lud ing a Fiscal Management Unit; and the Road Consultative Counci l will oversee it. This Counci l wil l also assume the role o f the Road Consultative Board, wh ich wil l be consulted o n a l l matters concerning road network management. I t wil l negotiate and approve annual road maintenance program budgets proposed by the Road Agency (for bo th national and municipal road networks) and wil l effect payments for road maintenance activities, upon verif ication that such payments are certif ied and conform to the annual program. Based o n a Road Sector Management Study, the Government has established an Institutional Ac t ion Plan for the Road Maintenance Fund, wh ich i s appended to the Letter o f Sector Pol icy.

45

Annex 7: Financial Management and Disbursement Arrangements

CAPE VERDE: Road Sector Support Project

Executive Summary and Conclusion The ma in conclusion o f the Financial Management Assessment (FMA) i s that the Program Coordination Off ice (PCO) located at the Min is t ry o f Infrastructure (MIT) has the capacity to handle this project. However there i s need to strengthen the system by (i) completing setup o f a computerized financial management system, (ii) finalizing and adopting an administrative and accounting manual and appointing an external auditor with qualifications and experience satisfactory to the Wor ld Bank.

All the actions identif ied have been catered for in an action p lan shown at the end o f this annex. This action p lan i s being implemented and should be completed by credit effectiveness.

Staffing The PCO and the Road Agency have inherited key staff o f the recently completed Infrastructure and Transport Project (ITP) Project Implementation Unit (PIU), wh ich was located outside the Minis try.

The PCO staff consist o f a Coordinator, an Accountant and an Administrative Assistant. The accountant has satisfactory qualifications and good knowledge o f Wor ld Bank procedures. As far as financial management i s concerned, he has the responsibil i ty t o collect and control invoices, maintaining the books, entering data in the system, fo l low up the management the project’s bank accounts, keep the books o f accounts and prepare the financial reports. According to general financing mechanism in Cape Verde, the Treasury department wil l signed with the coordinator o n the bank accounts.

Accounting and Financial Management Procedures and Computerized Management Information System Accounting Policies and Procedures A procedures manual i s being developed and wil l provide a l l the required details o n accounting and financial procedures. I t wi l l set out in particular the f l ow o f accounting and financial information between the PCO, the treasury department, the W o r l d Bank and the beneficiaries as w e l l as the modalities and formats o f periodic reports. An overview o f funding flows and cash management mechanisms i s provided in the paragraph o n disbursements. In terms o f budgets, each year the beneficiaries wil l draw up a detailed budget for activities to be carried out. This budget wil l be consolidated by the PCO and after i t s validation by the Ministry o f infrastructure, wil l be submitted to the Wor ld Bank for review.

Reporting and Moni tor ing The PCO will prepare and furnish to the W o r l d Bank a Financial Mon i to r ing Report (FMR), in form and substance satisfactory to the Wor ld Bank, which:

(i) sets forth sources and uses o f funds for the project, bo th cumulatively and for the period covered by said report, showing separately funds prov ided under the Credit, and explains variances between the actual and planned uses o f such funds;

46

(ii) describes physical progress in project implementation, both cumulatively and for the period covered by said report, and explains variances between the actual and planned Project implementation; and

sets for th the status o f procurement under the project, as at the end o f the period covered by said report.

(iii)

Audit report 1) Project f inancial statements 2) Road Maintenance Fund

The first FMR shall be furnished to the Wor ld Bank not later than 45 days after the end o f the first calendar quarter after the Effective Date, and shall cover the period f rom the incurrence o f the first expenditure under the project through the end o f such f i rst calendar quarter; thereafter, each FMR shall be furnished to the Wor ld Bank not later than 45 days after each subsequent calendar quarter, and shall cover such calendar quarter.

Due Date June 30 June 30

The PCO will also be required to produce, no later than June 30 o f the fo l lowing fiscal year, audited annual f inancial statements. These financial statements wil l be subject to periodic audits (see paragraph o n audits). Formats for the FMRs and financial statements wi l l be defined in the procedures manual. The format o f the FMRs has been confirmed during negotiations.

Information system A sound computerized information system wil l be established at the PCO. This system wil l be updated in such a w a y as to furnish al l o f the fo l lowing data: FMRs, Financial Statements, Withdrawal applications, Bank reconciliations and a l l f inancial reports.

External Audits External auditors with qualifications and experience satisfactory to the W o r l d Bank wi l l conduct an annual audit of the project’s financial statements. This audit should be carried out in accordance w i t h International Standards on Auditing (ISA), and wi l l include such tests and controls as the auditor considers necessary under the circumstances.

Project Financial Statements The auditor wi l l provide an opinion o n annual f inancial statements and i t s scope wil l also be broadened to cover the Road Maintenance Fund.

Road Maintenance Fund The auditor wi l l express an opinion on the financial statements o f the Road Maintenance Fund. The audit report for the fiscal year ended must be submitted n o later than June 30 fo l lowing the end o f that fiscal year.

The table be l low summarizes the audit requirements:

47

Risks Analysis

In her en t Risk 1. Corruption 2. Poor governance 3. Weak Judiciary

At the country level The C F A A identif ied the Public Financial Management (PFM) risks. The general assessment of the fiduciary risk at the PFM level i s moderate. However, the Government i s taking actions to address the issues identified. The Government has given pr ior i ty to improvements in these areas, as i t has become evident that shortcomings in public sector performance are among the ma in constraints to economic development and poverty reduction in Cape Verde.

Risk Assessment H M L N Corn ni en ts

X X l o w in Cape Verde X .

The risk assessment i s very

A t the proiect level IDA has taken special measures to ensure adequate financial management o f i t s portfolio. Project management staff i s appointed o n a competitive basis and Bank funding is fo l lowing special mechanisms to mitigate fiduciary risk. Independent and competent auditing f i r m s invariably audit IDA projects.

4. Weak Management capacity Overall Inherent Risk Control Risk

The table be l low below identifies the key risks at the project level and provides a basis for determining h o w management should address these risks.

X X

1. Implementing Entity 2. Funds F l o w 3. Counterpart funds 4. Staffing 5. Accounting Policies and

Procedures 6. In temal Audit

X I d e m inherent risk X X X X

X I d e m inherent risk 7. Extemal Audit 8. Reporting and Mon i to r ing

Overall Control Risk 9. Information Systems

X I d e m inherent risk X I d e m inherent risk X X I d e m inherent risk

H: High / M: Moderate / L: low / N/A: Not Applicable

Impact of Procurement Arrangements No major impact o n the FMA i s deriving f rom the procurement assessment.

Disbursement Method and Special Account The project aims at using f rom the start quarterly FMRs method for disbursement purposes. As financial management systems and preparation for FMR based disbursement are s t i l l being

48

finalized, and to ensure successful and uninterrupted implementation f rom the start o f the project, allowance i s also made for transaction based disbursement based o n Special Account replenishment, direct payment and Special Commitment.

Special Account The Special Account wil l be managed by the PCO and the Treasury Department. I t wi l l be located at the Central Bank. If the project wi l l use transaction based disbursement, the total allocation o f the Special Account wil l be US$1.0 mi l l ion which i s equal to the average four months o f expenditures. U p o n credit effectiveness, the borrower wi l l request the Wor ld Bank to deposit in this account an advance representing 50 percent o f the authorized allocation, o r U S $ 0.5 mi l l ion. The balance o f the advance m a y be deposited when total expenditures plus special commitments are equal to SDR 1.3 mi l l ion. The Special Account wil l be used for a l l expenditures equivalent to less than 20 percent o f the authorized allocation, and requests for reimbursement wil l be submitted monthly. Reimbursements deposited by the W o r l d Bank in to this Special Account wi l l be made against these requests supported by appropriate documentation.

Use o f Statements o f Expenditures (SOEs) The procedures described in this paragraph wil l on ly apply if the project i s using transaction- based disbursement. Disbursements for a l l expenditures wi l l be made by the Wor ld Bank against full documentation, with the fo l lowing exceptions: (a) contracts for works in an amount not exceeding US$500,000; (b) contracts for goods in an amount not exceeding US$250,000; (c) consulting contracts in an amount not exceeding US$200,000; and (d) cash payments, training and operating costs, wh ich wi l l be reimbursed o n the basis o f SOEs. All supporting documentation for SOEs wil l be retained at PCO and must be made available for review by periodic W o r l d Bank review missions and extemal auditors.

The schema o f funding f lows i s described bel low.

WORLD BANK Credit Account

PROJECT ACCOUNT

ACCOUNT

Accounts o f Suppliers, Consultants, or all other

contractor

- - - - Direct Payments

SA: Managed by the PCO and the treasury Department

49

Disbursements by category: The fo l low ing table sets out the expenditure categories to be financed out o f the Credit proceeds. The allocations for each expenditure category are the following:

(1)

( 3 ) (4) (5) (6)

(2)

I Categories

Works 9,900,000 80% Goods 730,000 100% of foreign expenditures

90% of local expenditures Consultants’ services and audits 2,035,000 100% Training and Workshops 685,000 100% Operating costs 150,000 100% Reimbursement o f Project 1,500,000 Amount due pursuant to Section Preparation Facility (PPF) 2.02 (b) o f the DCA

Credit Allocated in US$ equivalent

TOTAL

YO of expenditures to be financed

15,000,000

Action

Percentapes o f disbursement catepories With the new country Financing Parameters for Cape Verde approved by the W o r l d Bank, the Govemment has expressed the needs to finance 100% o f expenditures under the Credit for the consultants’ services and the operating costs categories, and for goods category, 100% o f foreign expenditures and 90% o f local expenditures. On this basis, the Govemment i s exempting international consultants and impor t o f goods f rom taxation. This wil l not impact the financial evaluation o f the project as the Government i s ready to contribute up to 20% for the c i v i l works.

Tasks Entity I Target Completion Date

Counterpart Funds The Govemment must make a l l arrangements necessary to ensure the t imely mobil izat ion o f the counterpart funds needed for project implementation. The Borrower wi l l include in each annual budget proposed to its legislature, and make available each year o f Project implementation, prompt ly as needed, in Escudos de Cab0 Verde, equivalent o f Dollars, the required amounts as counterpart funds for the Project.

Financial Covenants The standard financial covenants wil l be included in the D C A .

Supervision Plan On a regular basis (at least once per year), the system wil l be reviewed and assessed. The FMRs wil l be reviewed as we l l as the audit reports.

Procedures Elaboration of the administrative and accounting manual

Draft Manual Final Manual including IDA’S comments

Selection o f a consultant satisfactory to IDA

PCO 1 Completed

Completed May30,2005

50

Action Tasks

Recruitment o f an auditor satisfactory to IDA

1

1

Expression o f interest Request for Non Objection on the RFP including the short list World Bank’s non-objection on the request for proposals package

1 Requests for proposals sent out 1 Proposals received 1 Technical evaluation completed and

1 Financial evaluation completed and

1 Selection of the consultant

approved by IDA

contract awarded and approved by IDA

1 Updating the accounting system satisfactory to IDA Annual needs o f counterpart funds included in the budget of the state

kternnl Audit

Entity

1 PCO . PCO

1 IDA

’ PCO ‘ PCO 1 PCO

4 PCOiIDA

PCO PCO

Ministry o f Finance / MIT

- do -

Counter art k~

Target Completion Date

1 Completed 1 Completed

Completed

1 Completed Completed Completed

1 May 30,2005

. Completed 1 June 15.2005

1 Annually, during the preparation o f the budget of the state

51

Annex 8: Procurement Arrangements

CAPE VERDE: Road Sector Support Project

General Procurement for the proposed project wi l l be carried out in accordance with the Wor ld Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004; and "Guidelines: Selection and Employment o f Consultants by Wor ld Bank Borrowers" dated M a y 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and t ime frame are agreed between the Borrower and the Wor ld Bank in the Procurement Plan. The Procurement Plan wi l l be updated at least annually o r as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement o f Works: Works procured under this project wou ld include, inter al ia: (i) improvement o f physical plant o f the Engineering Laboratory o f Cape Verde (LEC), (ii) roads and bridges construction and rehabilitation. The procurement wil l be done using the Wor ld Bank's Standard Bidding Documents (SBD) for a l l ICB and National S B D agreed with or satisfactory to the Wor ld Bank.

Procurement o f Goods: Goods procured under this project wou ld include, inter alia: (i) office equipment, (ii) vehicles, (iii) acquisition o f laboratory testing, (iv) information management system, (v) security and communications equipment. The procurement wi l l be done using the Wor ld Bank's S B D for a l l I C B and National S B D agreed with or satisfactory to the Wor ld Bank.

Procurement o f non-consulting services: non-consulting services may include related services such as transportation, insurance, installation, commissioning, training and in i t ia l maintenance. Bidding documents to be used o n such cases wil l b e agreed with the Wor ld Bank.

Selection o f Consultants: wil l consist, inter alia, o n (i) road condition and traffic surveys, road asset valuation, road data base management, f inancial management, procurement and contract management technical assistance for the Road Agency, (ii) training for a l l MIT's services concerned by the program, (iii) revision o f the legislation and regulations for housing, publ ic works and construction, (iv) technical assistance fo r updating and operationalizing the MIT data base (MITPROJ), (v) establishment o f a ministry website, wh ich provides linkages to sites o f relevance to the Ministry o f Infrastructure and Transport, (vi) annual audits o f the project, (vii) survey o f the beneficiary population at the end o f the project, (viii) monitoring and evaluation, (ix) technical assistance to design o f c i v i l works, preparation o f Standard Bidding Documents and supervision o f works.

Short l i s ts o f consultants for services estimated to cost less than $ 100,000 equivalent per contract m a y be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

52

Operating Costs: incremental recurrent expenditures incurred on account o f the project implementation, including off ice supplies, fuel and maintenance o f vehicles, maintenance o f equipment, telephone and other communications charges, costs related to administration o f c i v i l works, bank and services fees, travel and supervision, but excluding salaries o f officials o f the Borrower’s c i v i l service (unless expressly agreed w i th the Wor ld Bank, based o n the Country Financing Parameters). They wil l be procured using the implementing agency’s administrative procedures wh ich were reviewed and found acceptable to the Wor ld Bank

The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the Administrative and Financial Procedure Manual.

Assessment o f Capacity of Agencies to Implement Procurement Procurement activities wil l be carried out by two entities:

Project Coordination Office (PCO), located at the Min is t ry o f Infrastructure and Transports (MIT), wi l l be responsible for procurement related to institutional support t o MIT (component 1 o f the Project), in particular small works, some equipment (office equipment, vehicles, equipment for the laboratory - LEC) and selection o f consultants. The PCO does not have a specific procurement department but i t i s staffed w i t h capable staff. The Coordinator has procurement experience since he was coordinator for the IDA funded Infrastructure and Transport Project (ITP) for almost ten years, and has attended several procurement trainings (locally and intemationally). H e wil l be responsible for the procurement at the P C O level, and some support can be provided, as needed, by the General Directorate for Infrastructure and Basic Sanitation (DGISB) f rom the MIT, especially procurement related to works.

The General Directorate for Infrastructure and Basic Sanitation (DGISB) f r o m the MIT wil l be responsible for procurement o f road construction and rehabilitation, at national and municipal level as ,well as selection o f consultants for works supervision. Studies and bidding documents wil l be under responsibilities o f consultants that have already been recruited under the PPF. Contract management and quality check wi l l be under responsibilities o f the DGISB.

The PCO i s staffed by a Coordinator (with procurement experience), an accountant and a secretary whi le the D G I S B i s staffed by 14 graduate engineers and architects (and one staff under recruitment), including the Director, eight o f wh ich have Procurement knowledge and experience.

D G I S B i s the state department responsible for procurement o f c i v i l works at the Govemment level and has extensive experience with IDA procurement rules as contract manager for works under the ITP. D G I S B also manages procurement o f c i v i l works for almost a l l development partners for Cape Verde, applying their rules o r national rules. As per the CPAR report (June 2004), the only procurement structured l aw goveming procurement i s the Decree-Law 3 1/94 (and related regulations) o n c i v i l works.

D G I S B has appointed two staff with procurement knowledge and experience, a c i v i l and industrial engineer, who have extensive experience o n c i v i l works procurement and contract

53

management, in particular using BAD, BADEA and European U n i o n procedures. A regional training o n procurement o f works and selection o f consultants i s recommended, especially considering that the project wi l l be under the new Guidelines procedures.

A Procedural Manua l i s being prepared and wil l be agreed with the Wor ld Bank by effectiveness. I t wi l l include, in addition to the procurement procedures, the SBDs to be used for each procurement method, as well as model contracts for works and goods procured.

The record keeping system at D G I S B i s good and allows easy access to information. The PCO has also a satisfactory archive system due to extensive experience in project management.

An assessment o f the capacity o f the implementing agencies to implement procurement actions for the project has been carried out. The assessment reviewed the organizational structure for implementing the project and the interaction between the project staff responsible for procurement and the relevant Min is t ry central un i t for administration and finance.

Mos t o f the issues and r isks concerning the procurement component for implementation o f the project have been identif ied and include:

0

0

0

procurement p lan (PP) and general procurement notice (GPN) have been finalized, prepare and agree w i t h the Wor ld Bank o n a Procedural Manua l by effectiveness, provide additional training, specially for staff in DGISB, use new S B D and RfP based on 2004 Guidelines.

The corrective measures wh ich have been agreed are described in the Attachment 1, at the end o f this Technical Annex.

The overall project risk for procurement i s average.

Procurement Plan The Borrower, at appraisal, f inalized a procurement p lan for project implementation wh ich provides the basis for the procurement methods. This p lan has been agreed between the Borrower and the Wor ld Bank during appraisal, and i s available at the PCO o f the RSSP Project, Ministry o f Infrastructures and Transports, Praia - Cape Verde. I t will also be available in the project’s database and in the W o r l d Bank’s external website. The Procurement Plan wi l l be updated in agreement with the W o r l d Bank annually or as required to ref lect the actual project implementation needs and improvements in institutional capacity.

Frequency of Procurement Supervision In addition to pr ior review supervision to be carried out f r o m W o r l d B a n k offices, the capacity assessment o f the implementing agency has recommended f ie ld supervision missions at least every six months to carry out post review o f procurement actions.

54

Details o f the Procurement Arrangements Involving International Competition The RSSP program wil l be funded by the Government o f Cape Verde, IDA and the Mi l lenn ium Challenge Corporation (USA), wh ich has indicated i t wi l l fo l low Wor ld Bank procedures and the institutional arrangement.

3 4

5

6 7

8

Goods, Works, and N o n Consulting Services (a) List o f contract packages to be procured fo l lowing I C B and direct contracting:

Road 10 0.59 ICB N O Yes Prior July 26, 2005 IDAiGoCV Works for 0.55 ICB N o Yes Prior October 3 1, IDA LEC (Civil 2005 Engineering Laboratory)

Road 1, 2, 3, 17.0 ICB N o Yes Prior June 28,2005 MCC 4 & 5 Bridge 11, 12 4.31 ICB K O Yes Prior July 6,2005 MCC Road 8 4.52 ICB N o Yes Prior April 7, 2006 tbd

EQUIPMENT Laboratory 0.33 ICB N O N o Prior June 26,2006 IDA equipment

2

Description of Assignment

Technical assistance to IGOPP Technical assistance to LEC

(b) ICB contracts estimated to cost above U S $ 250,000 for goods and U S $ 500,000 for works per contract and a l l direct contracting wil l be subject to pr ior review by the W o r l d Bank (unless determined differently in the procurement plan).

3 4 5 6 7

Estimated Selection Review Expected Comments

cost (Prior I Submission (financers)

(us$xlooo)

Method by Bank Proposals

Post) Date

100 QCBS Post Sept. 7, IDA

98 QCBS Post July 30, IDA 2005

2005

Consulting Services (a) L i s t o f consulting assignments with short-list o f intemational f i rms .

Ref. No.

55

I 5

(b) Consultancy services estimated to cost above US$ 200,000 per contract and a l l single source selection o f consultants ( f i rms) wil l be subject to prior review by the Wor ld Bank.

(c) Short l i s ts composed entirely o f national consultants: Short lists o f consultants for services estimated to cost less than U S $ 100,000 equivalent per contract may be composed entirely o f national consultants in accordance w i t h the provisions o f paragraph 2.7 o f the Consultant Guidelines.

56

B i

E e, - 0 3

ii

a 9

L 0

. .

Annex 9: Economic and Financial Analysis

CAPE VERDE: Road Sector Support Project

Economic Analysis

Overall Methodology and Tools Applied

The economic analysis methodology i s adapted to the particular context and type o f roads existing in Cap Verde. In particular, the overall road network i s relatively small (1,350 km in a l l nine inhabited islands), and on highly varied terrain, w i th in each island. Given the island character o f the country, in which survival depends o n links to air and sea transport, the pr ime objective o f the island networks i s to ensure a continuous network linking the population with social services, local markets and finally, to ports and airports. As noted, parts o f these networks are in a state o f deterioration, whi le other parts are s t i l l incomplete, due to lack o f investment.

Traditional economic analysis tools include cost-benefit analysis, wh ich apply the H ighway Design Standards M o d e l (HDM4) and the Roads Economic Decision M o d e l (RED). These tools uti l ize expected reductions in vehicle operating costs (VOC) as the principal economic benefits. However, i t i s generally accepted that the traditional VOC-based economic analysis can be inadequate to capture the full benefits o f l o w volume road investments, o r investments where there i s currently l i t t le o r n o existing baseline traffic. In certain cases, such as bridges and new roads leading to development zones, various approaches are used to quanti fy economic benefits, based on reasonable relationships wh ich can be discerned between a road investment and surrounding economic activity. In other cases, however, where a road investment i s essentially improving basic access to rural populations, adequate quantif ication o f social o r other economic benefits requires a large amount o f data which i s rather expensive and d i f f icu l t to monitor. In such cases, the concept o f “cost-effectiveness to achieve a desired result” i s often applied. In these cases, the cost-effectiveness indicator for purposes o f comparing alternative investments i s usually the “least cost solution”, given technical and other parameters specific to the investment.

In this context, the project roads have been divided in to three categories for purposes o f economic analysis:

0 Roads with significant in i t ia l traffic levels, for wh ich a cost-benefit analysis i s conducted based o n VOC savings. For these roads, the ma in objective i s to reduce the cost o f travel, as expressed in VOC savings. Bridges for wh ich a cost-benefit analysis i s conducted based o n quanti f ied non-VOC economic benefits. Fo r these investments, the ma in objective i s t o remove a crit ical transport constraint, wh ich has a profound affect o n economic activity. Rural access and “social” roads, for wh ich a cost-effectiveness approach i s undertaken. For these roads, the ma in objective i s t o ensure basic minimum access requirements to isolated populations to social and administrative services and market opportunities.

0

0

62

The fo l lowing table summarizes the prospective projects and the evaluation methods applied.

~

2

3

I 1 1 OreBos-Pedra Badelo (Santiago) I 1 1 1 298 1 Cost-benefit-VOC 1 Cruz Grand - Calhetona (Santiago) 15 440 Cost-benefit - VOC

Volta Monte- Ribeira Prata (Santiago) 15 9 Cost-effectiveness Assomada-RincBo (Santiago)

4 Cost-benefit - VOC -Achada Grande 9 46 -Tabarette 7 497

5

6

7

8

Fonte Lima-JoBo Bernard0 (Santiago) 9 32 Cost-effectiveness

Alcatraz-Figuetra (Malo) 1 1 None Cost-effectiveness

Ribiera Brava-Tarrafal ( S i 0 Nicolau) 27 290 Cost-benefit - VOC

Tarrafal-Praia Branca-Ribiera Prata (SHo Nicolau) 22 97 Cost-effectiveness - 9

I O

Traffic Study

CaleijBo-Cabqalinho-Tarrafal ( S i Nicolau) 8 None Cost-effectiveness

Salamansa-Norte de Baia-Calhau (SBo Vicente) 1 1 None Cost-benefit - Non-VOC

Present traffic levels. Twelve hour traffic counts were carried out o n evaluated roads for one or two-day periods in August 2004. These results were validated with 7-day traffic counts also carried out in December 2004, f rom wh ich i t was determined that average dai ly traff ic levels were similar and dai ly variations are relatively low, confirming the use o f one or two day counts as a basis for average vehicle traff ic per day. The below table provides the results o f traff ic counts for a l l the project roads

11

l2

Average Daily Traffic Counts on Roads (7 A M to 7 PM)

5521765% Cost-benefit - Non-VOC 2x 6Om Br + 200m

40m Br I Ikm 671,410* Cost-benefit - Non-VOC

Bridge at Ribeira Grande (Santo Antgo) (2)

Bridge Vi la das Pombas et l e Liaison Vi la das Pombas-Eito (Santo AntBo)

hloto Car Pick- 1 RIini Small Large Total # Project Xame Up \VD Bus Truck Truck

Orgiios-Pedra Badejo

63

I N o T r a f i i c I - 1 - 1 - 1 - 1 - I - 1 - I - j Caleij Bo-Cabeqalinho-Tarrafal 1 9 1 (<Bo Nicolau)

lo

1 1

12

,-- - Detournement Salamansa- Norte de Baia-Calhau (SBo No Traffic - Vicente)

Les ponts de Ribeira Grande

Porto de Sol L e s ponts de Ribeira WGrande (Santo Antgo) RibeiraGrande- 21-22Aug - 100 244 91 197 31 32 695 Paul Pant de Vila das Pombas et l e

(Santo Antso)-Pont de Vilas 23 Sept 52 24 610 Liaison Viladas Pombas-Eito 23 Aug 49 103 148 16 167

Das Ponbas Pant de Viladas Pombas et le Liaison Vila das Pombas-Eito (Santo Antso)-Vila Das Ponbas-El to

(Santo Antgo) Ribeira Grande- 21-22 Aug - 57 190 99 125 27 4 502

8 54 140 53 93 26 7 373 23 Aug

I t was estimated that night traffic wou ld amount to 3% f rom 7 P M to 12 PM; and 7% for the hours 12 P M to 7 AM; for a total o f 10% o f the 12 hour dai ly traffic counts. A l though during the December counts, 18% o f daytime traff ic was counted, the 10% figure was retained as a conservative estimate. This was added to the counted traffic levels to estimate the baseline traffic for the year 2004, as follows:

Proj I

BaselineTraffic Levels in the Without Project Scenario - 2004 (vehicles per day)

Total Traffic I Counted i Sighttime 2o04 1 1 1 1 OrgBos-Pedra Badejo (Santiago) 1 271 1 27 I 298 I 345 1

, , No traffic Detournement Salamansa-Norte de Baia-Calhau (SBo

64

Traffic composition. The traff ic counts revealed a predominance o f pickup trucks o n the three Santiago roads fo l lowed by a l l terrain vehicles, light trucks and minibuses. On San Nicolau, traffic i s more evenly spread among pickups, a l l terrain vehicles and minibuses, w i t h l ight trucks less in evidence. In a l l cases, heavy trucks account for on ly 4-7% o f total traffic. Wh i le the composition o f traffic m a y change somewhat due to road improvements, particularly an increase in small vehicles and mini-buses, there i s no data upon wh ich to base such an assumption. Therefore, the same composition o f vehicle types was assumed in the traffic projections.

Pro j

Future traffic growth rates. Since there i s virtual ly n o historical traffic growth data in Cape Verde, two main indicators were considered as a basis for traffic projections: growth in national income (GNP) and growth in the vehicle fleet. Historically, Cape Verde has experienced steady GNP in the last decade: 6.3% between 1993 and 2000; and 7.1% between 1997 and 2000. However there was a deceleration o f economic activity in 2001, although since then, the economy i s on an upward trend, with rates o f 4.7%, 4.9% and 5.3% respectively in 2001, 2002 and 2003. In addition to remittances, the “tertiary” sector has dominated this growth, with strong performance o f tourism and hotel services, as w e l l as transport, banking, insurance and telecommunications. Important growth i s also being seen in l ight manufacturing. In the last ten years, the vehicle fleet has grown at a rate o f 12.6%, also in the last three years at 12%, wh ich i s consistent w i th the strong growth in the transport sector. Based o n these trends, a conservative growth rate o f 5% was assumed throughout the 15-year analysis period.

Generated traffic. Future traff ic levels are based on: (i) normal traffic, wh ich i s traff ic that wou ld continue to exist without the project; (ii) generated traffic, wh ich i s traffic that i s suppressed because o f the bad road conditions and the high VOC’s; and (iii) in some cases diverted traffic, the latter be ing traffic wh ich today i s using an altemative road, but wh ich wil l switch to the new road because i t i s shorter and/or better. Because o f the l imi ted size o f the network and altemative routes, diverted traffic was not considered. However, generated traff ic was assumed to occur based on a cost-demand elasticity factor o f 0.5.

Project N a m e 2007 2012 2020 1

Based on the above assumptions, the fo l lowing traff ic levels at f i rst year, 5-year and 15-year t ime horizons were projected:

NO.

Traff ic Proiections (Vehicles Der davl

I

2 3

1 1 1 OrsBos-Pedra Badeio (Santiago) I 3 1 5 I 588 I 1,011 I Cruz Grand - Calhetona (Santiago) 554 868 1,492

Volta Monte- Ribeira Prata (Santiago) 11 17 30

65

4

5

6 7

8

9

Assomada-Rincio (Santiago) - Achada Grande 58 91 157

Assomada-Rincilo (Santiago) - Tabarette 626 98 1 1,685

Fonte Loma - Bernard0 (Santiago) 37 52 78

Alcatraz-Figueira (Maio)

Ribiera Brava-Tarrafal (San Nicolau) 366 573 984 Tarrafal-Praia Branca-Ribiera Prata (San Nicolau) 122 191 328

Tarrafal-Praia Branca-Ribiera Prata (San Nicolau) 19 30 52

Calei jio-Cabecalinho-Tarrafal (SHo Nicolau)

Technical Options and Estimated Costs

10

1 1

12

Investment costs. The design and cost estimates considered three technical options - cobblestone, double surface treatment (DBST) and asphalt paved. For roads with l i t t le o r n o existing traffic, the least cost solution i s cobblestone and therefore the D B S T and asphalt pavement options were not considered. Fo r Project # 4, Assomada-Porto Rincao (Santiago) a mixed solution was introduced, invo lv ing asphalt on ly o n the f i rs t section o f 7 km, which i s currently cobblestone with relatively high traff ic (over 400 vpd); with the remaining 9 km o f earth track (with l i t t le existing traffic) upgraded to cobblestone. For the t w o bridge projects (#11 & #12), the least-cost option, considering the high traff ic levels o n feeder roads, was considered to be a box culvert design (listed below under the “cobblestone” option). Be low i s a summary o f the estimated costs for each option.

Dttournement Salamansa-Norte de Baia-Calhau ( S i 0 Vicente) Les ponts de Ribeira Grande (Santo Antilo) Ribeira Grande-Paul 695 1,089 1,872

963 1,508 2,592 Pont de V i la das Pombas et l e Liaison Vi la das Pombas-Eito (Santo Antilo)-Pont de Vilas Das Ponbas

845 1,324 2,275 Pont de V i l a das Pombas et l e Liaison Vi la das Pombas-Eito (Santo AntBo)-Pont de Vilas Das Ponbas

517 809 1,391 Pont de V i la das Pombas et l e Liaison Vi la das Pombas-Eito (Santo AntBo)-Vila Das Ponbas-Eito

Project 7: Ribeiera Brava-Tarrafal (Sao Nicolau) Project 8: Tarrafal-Praia Branca-Ribeira da Prata (Sa0 Nicolau) Project 9: Caleijao-Cabecalinho (Sa0 Nicolau)

66

26 3,836,591 147,561 5,876,468 226,018 7,043,305 270,896

19 4,181,282 220,067 5,817,979 306,209 6,344,666 333,930

5 4,724,720 944,944 N I A NIA NIA NIA

I I I I I I I I I

Average Costikm with #9

Average Costikm without #9 % Increase in average costikm (without #9) over cobblestone

141 234,206

120 204,592 216,211 304,018

35% 49%

Project # 9, Caleijao-Cabecalinho (Sa0 Nicolau), entails the construction o f a new road through an existing mountain area, resulting in rather high per km costs, even for cobblestone. In addition, i t was noted that a new alignment should be sought and therefore i t was recommended not to pursue this project at this time. Fo r this reason, the average per km costs was calculated with and without Project # 9. As can be seen, average investment cost/km r ises by 37% f rom cobblestone to DBST, however this cost rises by only another 11 percentage points when upgrading to asphalt pavement. Fo r Project # 4, Assomada-Porto Ricao (Santiago) a mixed solution #4a (cobblestone for 9 km; asphalt for 7 km) was also considered, because o f the high traffic levels existing o n the section wh ich i s currently cobblestone. A residual value o f 30% o f the investment cost was assumed at the end o f the evaluation period.

Maintenance Costs. Annual maintenance costs were estimated as they relate to each technical option. Although there i s l i t t le current data o n maintenance costs, the fo l lowing assumptions were made

0 Labor costs: maintenance worker = 1000 ecv/day

0

0

0

skil led worker = 1600 ecv/day Maintenance o f drains and slopes: 6 times/year @ 100 ml/day/worker Cleaning o f forms and culverts: 2 timeslyear @ 4 workers/day/culvert Loca l repairs o f riding surface: 1 t ime per year

o Cobblestone: 3% o f riding surface o DBST: 5% o f riding surface o Asphalt: 1% o f riding surface

0 Periodic Maintenance: o Cobblestone: renew 25% surface every 10 years o DBST: renew surface every 6 years o Asphalt: renew surface every 15 years

67

The above assumptions yielded the fo l lowing average costs/km:

Routine Periodic Maintenance ' hlaintenance

Average CostEear Average Cost '

These assumptions wi l l be reviewed and revised during the project based o n actual experience by the Road Agency.

Cobblestone DBST Asphalt

Cost-Benefit Evaluation based on Vehicle Operating Costs

2,097 12,504 3,485 62,143 1,924 127,3 17

Economic context. An economic cost-benefit analysis was carried out ut i l iz ing VOC benefits o n roads # 1, 2, 4 and 7. These are economically important secondary roads, w i th 2004 dai ly traffic levels ranging f rom 290 to 490 vehicles per day and serve agricultural and fishing populations. The fo l lowing summarizes the k e y characteristics o f these roads:

Roads using. Cost - Benefit Analvsis based on VOC

2

(Santiago)

(Santiago)

Assomada-RincBo (Santiago)

~

I I

Ribiera Brava-Tarrafal (SBo 1 290

Located in the Ribeira Seca river basin, which i s one of the most agriculturally productive zones in the country, and which provides produce to the capital city o f Praia. In addition to i ts regional importance, the road directly serves over 10 rural communities. Heavily traveled and located in the Ribeira de Flamengos Seca and serves numerous communities practicing both irrigated and rainfed agriculture, serving the major markets o f Tarrafal, Assomada and Praia. Provides the sole access to seven communities and the fishing port o f RincBo to the rest o f the island. I t runs from the major town o f Assomada (population 7,000), on the main road, and serves another 3,500 farming and fishing populations, including the agricultural zone o f ChBo de Tanque and the fishing port o f Rincio. Principal road o f the island, linking the main city o f Ribeira Grande with the second major town o f Tarrafal, site o f the island's main port and fishing and commercial center, including a tuna canning factory. The road passes through several river basins, including the irrigated zone fed by the Galerie de Faja. I t directly serves a population o f 8,100, not counting the town o f Ribiera Grande. I t i s virtually the l i fel ine for all marketing o f agricultural, livestock and fishing products, as well as access to social and administrative services.

Population Directly Served

3,693

6,472

10,500

8,100 + Ribiera Grande

68

Evaluation method. The RED (Roads Economic Decision Model) was utilized, wh ich was developed by the Wor ld Bank specifically for very l o w volume roads. The advantage o f the RED model i s that i t can be used for the analysis o f road projects where relatively l i t t le exact information i s available. I t i s able to substitute actual information o n road roughness by estimating present road roughness as a function o f observed vehicle speeds. A l though the RED model allows for the introduction o f exogenous benefits (such as social and other benefits), this feature was not used. The economic benefits taken in to consideration are exclusively Vehicle Operation Costs (VOC) benefits f rom normal traffic and generated traffic. Due to the l imi ted size o f the network, diverted traffic was not considered relevant. In the absence o f any reliable information o n accidents, road safety benefits were also excluded f rom the analysis.

Shadow pricing. Benefit and cost calculations were adjusted to reflect economic values, o r their opportunity cost. In particular, taxes were deducted f rom the imported elements o f vehicle operating costs, such as fuel and tires. Fo r construction costs, f inancial prices were divided in to labor and equipmentlmaterials. Labor was further distinguished among local skilled, local unski l led and foreign, whi le equipment/materials was divided in to local and foreign costs. An analysis o f the local labor market shows about 20% unemployment, wh ich suggests an opportunity cost o f local labor lower than the market wage, although i t i s also noted that increasingly unskilled labor i s coming f rom other West Af r ican countries willing to work for lower wages. To account for these factors, an adjustment coefficient o f 0.7 was applied to reflect the opportunity cost o f labor, given local unemployment, as well as the abundance o f workers f r o m West Af r ica willing to work for lower wages. In addition, f inancial costs o f imported equipment/materials were adjusted downward by 0.15 so as to eliminate the tax element in these costs, wh ich are merely transfer payments and distort their actual opportunity cost to the economy.

Results. The table below summarizes the results o f the analysis. All road projects y ie ld at least 12% internal rate o f return for a l l three levels o f service. The roads consistently show a small difference in the rate o f return between cobblestone and double surface treatment, w i t h a relatively higher rate o f return for asphalt pavement. These results suggest that the added cost o f double surface treatment does not offer significantly higher vehicle operating cost benefits than that o f cobblestone. On the other hand, the added cost o f asphalt pavement i s more than compensated by the higher savings in vehicle operating costs, vis-a-vis the cobblestone surfacing.

NPV = Net present value @ 12% in US$ m

I t i s concluded that for roads 1, 2 and 7, asphalt pav ing i s economically just i f ied and recommended. For road # 4, the mixed solution (part cobblestone, part asphalt) i s recommended, given the high traffic levels found o n the f i rst h a l f o f the road, and l i t t le existing traffic o n the

69

second half. The sensitivity analysis (Annex 9) shows that the results are generally more sensitive to a reduction in V O C benefits than an increase in investment costs. Given the conservative assumptions o n baseline traffic and traffic growth, these results appear reasonably robust.

Asphalt

The sensitivity analysis shows that the results are generally more sensitive to a reduction in VOC benefits than an increase in investment costs. For the recommended options, Roads # 2 and #4a maintain rates o f return above 12% for both increased cost and decreased benefit scenarios; whi le Roads # 1 and 7 fa l l marginally below. In the worst case scenario (cost + 20%; benefits - 20%), the economic rates o f return are: 7.8% for Road # 1; 11.5% for Road # 2, 10.2% for Road # 3; and 8.9% fo r Road # 7. Given the conservative assumptions o n baseline traffic and traffic growth, these results appear reasonably robust in relation.

16.0% 2.000 13.1% 0.635 12.5% 0.235 10.0% 1.131

Further sensitivity analyses o n the recommended solutions showed that changes in assumptions o n maintenance costs do no t significantly alter these results. Rather, they conf i rm that the vehicle operating cost savings f rom a smoother riding surface more than compensate the higher investment cost for asphalt pavement.

70

NPV = Net present value @ 12% in US$ m.

Cost-Benefit Analysis for Bridges Economic context. The ma in economic justif ication for the bridges o n San Ant50 Island i s to resolve a situation in wh ich two major towns experience a blockage in traffic when i t rains, as we l l as major s low downs o f traffic at a l l other times. B o t h towns serve surrounding agricultural areas and also are located o n the island’s ma in ring road, part o f wh ich i s currently under construction. The continued absence o f these bridges wi l l thus prevent continuous movement along the ma in road, diminishing the value o f the current construction activity. The ma in roads leading to the bridge sites are cobblestone surface, w i t h an acceptable level o f service and have average dai ly traffic ranging f rom 410 to 760 vehicles per day. The two projects are br ie f ly described below:

Rte. Porto de Sol:

In the northeast, the town of located at the confluence o f two seasonal rivers:

island’s main road from Porto Novo arrives along the Ribiera Grande, and at a certain point, four roads converge along these rivers at the town. When it rains, the river banks flood the southem end of the town on the road to Paul.

Grande: 552 Ribeira Grande and Ribeira da Torre. The 2 1,480

Rte. Paul: 765

71

at Vila das Pombas and Liaison Vila das Pombas-Eito (Santo Antgo)

Br.+ lkm

Viladas Pombas:

67 1

Rte. Eito: 410

Ponbas Rte. Eito Total Work Related (25%)

follows the Ribeira da Paul,'then i s located in the river bed, which makes travel impossible when i t rains. Residents in the immediate area grow sugar cane, sold to an agro-industrial complex producing a sugar-based alcoholic drink, grog. I t should also be noted that an E U funded project i s constructing a road from Porto Novo along the east coast to Paul, and the construction o f this bridge would guarantee continuity along the cost to Ribeira Grande.

62 108 53 61 107 30 8 429 126 121 60 142 205 64 29 747 188 229 113 203 312 94 37 1,176

47 57 28 51 78 24 9 294

Evaluation method. Since the ma in just i f icat ion for the bridges i s to address a cut o f f in transport service, the Consultant has quantif ied benefits in terms o f the lost revenue due to a transport blockage. For this, the Consultant f i rst determined from local interviews that the towns are cut o f f on average 4 times per year for 4-5 days. F rom this, he conservatively assumed that the towns experience 8 days in which they are effectively cut off. The Consultant then estimated the lost revenue per day o f blockage, based o n the counted vehicles per day, the number o f passengers per vehicle and the average dai ly income o f passengers and drivers. This was further reduced by 25%, based o n the assumption that on ly '/4 o f al l travel i s work-related. Finally, annual revenue losses f rom the blockage were derived by multiplying the dai ly loss by 8 days blockage per year. The table be low summarizes the results o f this calculation for the two bridges.

Calculation o f Daily Lost Revenue o f Bridge Users

#11 Traffic

@Pd)

Revenue (ecv/day)

#12

Traffic (VPd)

72

Revenue (ecv/day)

Results. The results shown in the table be low indicate a strong economic rate o f return for bo th sets o f bridge investments. In bo th cases, sensitivity tests invo lv ing increasing costs and decreasing benefits st i l l yield rates o f return higher than 12 %.

Personsivehicle 2 10 2 2 15 1.5 1.5 Average revenueiday 2,000 1,000 2,000 2,000 1,000 2,000 2,000 Total revenue lost/day 188,253 573,247 112,938 203,029 1,168,073 70,192 28,086 2,343,817

Cost-effectiveness Analysis for Socially Justified Roads For the remaining roads, least-cost technical solutions were sought to achieve the objectives o f increased mob i l i t y to rural populations. In addition to the 3 basic solutions evaluated formally, the gravel road option was considered, but was felt not appropriate in Cape Verde, particularly in v iew of: (i) mountainous terrain; (ii) higher risk o f wash outs; and (iii) higher routine maintenance costs. Thus, the cobblestone option i s judged the least cost alternative, given these technical factors. However, the appraisal revealed that experience i s showing an increasing shortage of ski l led stone cutters and the t ime required for cutting new stones could significantly lengthen the t ime needed to complete the works. For this reason, a program o f recycl ing stones from roads being upgraded f rom cobblestone to asphalt wil l be incorporated in to the program.

Cost recoverv Loca l contributions to investment costs wil l be made by the Government. Routine maintenance o n the network wi l l be financed by the new ly operational Road Fund. The Fund’s resources are generated by user fees (primari ly a fue l levy), wh ich are to be directly transferred to the fund without passing through the Treasury. In theory, this mechanism should prov ide adequate and reliable funding for routine maintenance o n the roads rehabilitated under the project. The project wil l provide institutional support to the Road Institute and Road Fund in the planning and implementation o f the annual maintenance programs.

Fiscal Impact The operationalization o f the Road Maintenance Fund wil l reduce the burden o f expenditure f rom the national budget for sustainable road maintenance, by re ly ing on road user- charges. Once the Road Maintenance Fund i s operational, a por t ion o f the Road Agency’s f ixed operational and variable costs for road maintenance activities will be covered by the Road Maintenance Fund, wh i le i t s other f i xed and variable costs related to road investment planning wil l be covered by the Government.

73

Annex 10: Safeguard Policy Issues

CAPE VERDE: Road Sector Support Project

Safety o f Dams (OP 4.37, BP 4.37) Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)

N o N o N o

Environmental Screening Category The project i s placed in environmental screening category B. This category i s justified, since a l l these activities are o n existing alignments and they do not directly affect protected areas or identif ied sensitive natural habitats.

Property owner People Impact o n the Properties affected Type o f land Area, m2

Georgina M e l o 1 Agriculture 200 land (sugar

Environmental Studies An Environmental Impact Study, dated September 2004, was carried out for the original twelve prospective projects being considered for project f inancing (one activity was dropped at appraisal), by the consulting firm carrying out the feasibil i ty study, Simon & Christiansen, Luxembourg. The study included a project description, institutional and legal framework, an overall description of environmental and social baseline conditions o n each o f the islands, potential environmental and social impacts and mit igation measures. For each individual project, the study describes specific conditions and presents an Environmental Management Plan (EMP).

Expected compensation

200 m2 o f land in the neighborhood

Safeguards Related Risks and Measures Taken The construction o f two small bridges o n the V i l a das Pombas and 1 km liaison between V i l a das Pombas and Ei to wi l l involve a widening o f the road, wh ich i s presently on ly 3 meters w ide at the south end over a length o f 200 meters. A l though n o people will be resettled, this wil l invo lve minor land taking, triggering the Involuntary Resettlement Safeguards Policy. An Abbreviated Resettlement Plan has been prepared with local consultations invo lv ing the affected persons and the municipality, approved and disclosed, wh ich i s summarized below:

74

Farmer worker

Antonio Jose Santos

The Paul Munic ipa l i ty wi l l give the land owner 200 m2 o f land with similar characteristics in the neighborhood, as compensation. Fo r sugar cane plantation o n this land, the farmer wi l l be compensated in cash (ECV250.000), wh ich wi l l be covered by the project.

People Impact on the Properties Expected compensation affected Type o f land Area, m2 6 Agriculture 200 $US 3,000

land (sugar (250.000 ECV) cane)

Consultation Processes The Environmental Impact Study included local consultations at each o f the project sites. The results o f these consultations provided input to the technical designs o f each project.

Safeguard Related Impacts and Mitigation Main impacts. The main environmental impacts identif ied during the construction period invo lve potential destruction to agricultural land, walls o r other structures along the roads, resulting f rom earth excavation and disposal o f cut material. A lso noted i s potential po l lu t ion o f soi l and groundwater resources f rom spillage o f petroleum products and paving materials. Potential negative impacts o f contractors’ construction camps include groundwater o r soi l po l lu t ion f rom sanitary facilities and the increased risk o f H I V / A I D S and other sexually transmitted diseases. Temporary air quality impacts wi l l result f rom excessive dust and uncontrolled emissions f rom construction vehicles. Bor row areas, if not protected during, and rehabilitated after use, can pose a publ ic safety hazard and lead to land degradation and/or erosion. Impacts during the operational period include increased risk o f accidents due to higher speeds along the improved roads, potential increase in air emissions and the above impacts associated w i t h road maintenance contracts.

Impact Reduction Measures during Construction. Specific measures to reduce potential impacts o f physical works wi l l be taken; regarding the detailed design, construction tenders, construction process and contractor performance monitoring. Contracts wil l contain requirements for proper management o f construction waste; control measures for waste fuel, o i l and lubricants; reduction o f noise and dust levels; and rehabil itation o f areas used for construction detours, and sites used to temporarily store construction materials. Contractors wil l be required to provide and maintain equipment with proper noise abatement controls.

Contract Clauses. The project wi l l ut i l ize the Standard Bidding Documents for Small Works, May 2004 (less than U S $ 10 mil l ion). This standard contract does no t include specific provisions addressing environmental and health and safety issues, thus such issues wil l be specified in a special section o f the Technical Specifications. This will include: (i) specific clauses for proper management the worksite and construction camps; and (ii) the road-specific Environmental Management Plan (EMP).

HIV /A IDS Awareness Program. Additionally, contractors wil l b e required to carry out an H I V / A I D S Awareness Program for Contractor Employees and Others. This wil l be based o n the

75

standard format for engaging communications specialists developed by the Cape Verde Committee to fight H I V I A I D S (CCS-SIDA).

Pre-Tender Conference. T o ensure full understanding o f the above clauses and H I V / A I D S Awareness Program by the contractors, al l pre-qualified contractors wi l l attend a Pre-Tender Conference, where they wi l l be briefed concerning their responsibilities to address environmental, health and safety issues. These briefings wi l l outl ine specific provisions o f the construction tender documents and contracts, as la id out in the Part 11, Conditions o f Particular Application (COPA).

Management of Operational Impacts. The Project wi l l address management o f impacts during maintenance operations identif ied earlier for each road. These m a y be implemented through financial support f rom the Road Maintenance Fund to avoid deterioration o f the rehabilitated road and associated dust and safety problems. Maintenance contractors wil l be required to fo l low procedures similar to those for the construction contractors concerning proper disposal o f construction waste, control measures for waste fuel, o i l and lubricants and adoption o f health and safety measures for personnel. Expected increases in traffic levels are not expected to be so high as to bring about a significant increase in air pollution, and this m a y in fact decrease due to smoother and less dusty roads and improved vehicle standards. Suspended dust caused by vehicles wi l l be reduced by the rehabilitation o f the roads, due to the large number o f road subprojects, wh ich include resurfacing, and sealing operations.

Capacity and Commitment o f Implementing Institutions Procurement o f consulting and construction contractors wi l l be managed by the Road Agency, wh ich has inherited the ITP-established knowledge o f W o r l d Bank-compatible procurement procedures, wh ich include appropriate contract clauses and pre-bid conferences noted above. The General Directorate o f Infrastructure and Basic Sanitation, who also has been successfully implementing ITP-financed contracts, including any environmental issues, will oversee contract execution. In addition, the Coordinator in the RSSP-financed Road Sector Coordination Office, who i s fully familiar with W o r l d Bank environmental requirements, wil l ver i fy compliance w i t h Environmental Management Plans, for each RSSP-funded project.

Mitigation Funding Cost ofDesign Measures. The quantities, specifications and estimated costs o f design measures to avoid or mitigate negative impacts have been assessed by the design consultant and incorporated into the works bidding documents. The contractor wil l execute a l l required works and wil l be reimbursed through pay items in the bil l o f quantities, wh ich wil l be financed by the project.

Temporary Land Acquisition. Temporary acquisitions for diversions, camps, borrow areas and other work sites wi l l constitute a community contribution. Addi t ional costs o f rehabil itating a l l such areas to their original state wil l be incurred by the contractor and borne by the project, as a pay i tem in the bill o f quantities.

HIV /A IDS Awareness Program. The quantities, specifications and estimated costs o f the H I V / A I D S Program will be assessed by the design consultant and incorporated in to the works

76

bidding documents. The contractor wil l execute the program through a subcontract and wi l l be reimbursed through pay items in the bil l o f quantities, which wi l l be financed by the project.

Abbreviated Resettlement Plan Costs. Under the Abbreviated Resettlement Plan, the Paul Munic ipa l i ty wi l l give the owner 200 m2 o f land with similar characteristics in the neighborhood as compensation. For sugar cane plantation o n this land, the farmer wi l l be compensated in cash (ECV250.000 - equivalent o f US$3,000), w i th Government counterpart funds.

Operational Costs. During operations, the costs o f mit igation in the course o f maintenance contracts wi l l be incurred by the contractor and bome by the employer, who m a y be the Road Fund, Government o r local government, and reimbursed as a pay i tem in the bill o f quantities. The maintenance o f water harvesting, footpaths and other social measures will be the responsibility o f the community. In addition, the community wi l l be expected to carry out basic cleaning o f drains and culverts as part o f their contribution to maintenance. The cost o f safety and driver in format ion campaigns wi l l in i t ia l ly be borne by the project; however the communities wi l l be responsible for continuous community education and safety campaigns. Selected safety audits wil l be carried out by the project, in conjunction w i t h communities.

Monitoring and Supervision Arrangements During the construction period, the Consultant Resident Engineer (RE) wil l be responsible for monitoring compliance by the contractor o f a l l environmental related issues as specified in the contact clauses, EMP and Abbreviated Resettlement Plan. This wil l be reported in the RE’S month ly reports, wh ich wil l be monitored by the DGISB. The RSSP Project Coordination Of f ice wi l l also ver i fy compliance with contract clauses pr ior to payment.

Supervision Arrangements Fol lowing i t s exercise o f pr ior review, the Wor ld Bank wi l l monitor the implementation o f road specific EMPs and the Abbreviated Resettlement Ac t ion Plan. The W o r l d Bank wi l l also carry out targeted and spot review o f specific social cases and resettlement plans invo lv ing land donation and asset replacement, as part o f regular supervision, o r separate missions.

77

Annex 11 : Project Preparation and Supervision

CAPE VERDE: Road Sector Support Project

Planned Actual PCN review December 18,2003 December 18,2003 Initial PID to PIC March 15,2004 Initial ISDS to PIC February 5,2004 Appraisal February 7,2005 February 7,2005 Negotiations March 24, 2005 March 24,2005 Board/RVP approval M a y 19,2005 Planned date o f effectiveness August, 2005 Planned date o f mid-term review August, 2007 Planned closing date August 3 1,201 0

Key institutions responsible for preparation o f the project: Ministry o f Infrastructure and Transport (MIT) 0

World Bank staff and consultants who worked on the project included:

Name Tit le Unit Gylfi Palsson Task Team Leader AFTTR Linda Patnelli Language Program Asst. AFTTR Canne Megueulle Temporary AFTTR Eduardo Brito Senior Counsel, Country Lawyer LEGAF

Suzanne Morr is Senior Finance Officer Ibou D iou f Engineer AFTTR Serigne Omar Fye Sr. Environmental Spec. AFTS 1 Fily Sissoko Financial Mgmt. Spec. A F T F M Laurent Mehdi Brito Procurement Specialist AFTPC Abdelghani Inal Consultant Carlos Fonseca Consultant

for the Republic o f Cape Verde

World Bank funds expended to date on project preparation: 1. Bank resources: US$160,400 2. Trust funds: d a 3. Total: US$160,400

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$3 5,000 2. Estimated annual supervision cost: US$120,000

78

Annex 12: Documents in the Project File

CAPE VERDE: Road Sector Support Project

- Project Concept Note (PCN)

- Project Information Document (PID)

- Integrated Safeguards Data Sheet (ISDS)

- Feasibil i ty and Design Study

- Environmental Assessment (Rapport de faisabilite - Etude d’Impact sur 1’Environnement)

- Abbreviated Resettlement Plan

- Road Management Study

- Socio-economic Baseline Study

- Public and Private Works and Property Markets - Act ion Plan for Implementing the Restructuring (IGOPP Study)

- Plan du Development F ina l de 1’Evaluation des Necessites et p lan d’Action du Laboratoire d’Ingenierie C iv i le (LEC)

79

Annex 13: Statement o f Loans and Credits

CAPE VERDE: Road Sector Support Project

(As o f April 2005) Difference between expected and actual

disbursements Original Amount in US$ Millions

Project FY Purpose ID

IBRD I D A SF GEF Cancel. Undisb. Orig. Frm. Rev’d

PO78860 2005 CV-PRSC (FY05) 0.00 15.00 0.00 0.00 0.00 14.84 0.00 0.00

PO74055 2003 Growth and 0.00 11.50 0.00 0.00 0.00 10.11 -2.82 0.00 Competitiveness Project

PO74249 2002 C V HIV/AIDS APL 0.00 9.00 0.00 0.00 0.00 2.64 - 1 . 1 1 -2.00 (FY02)

PO40990 1999 C V ENERGYIWATER 0.00 17.50 0.00 0.00 0.00 7.38 7.32 0.00

PO42054 1999 CV-GEF Energy & Water 0.00 0.00 0.00 4.70 0.00 3.85 3.85 3.85

PROJECT

SIL ( FY99)

Total: 0.00 53.0 0.00 4.70 0.00 32.82 7.16 1.85

CAPE VERDE STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f US Dollars

(As o f February 2005)

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1992 AEF Growela 0.15 0.00 0.00 0.00 0.15 0.00 0.00 0.00

2004 CECV 6.63 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total portfolio: 6.78 ,o 0.00 0.00 0.00 0.15 0.00 0.00 0.00

FY Approval Company

Approvals Pending Commitment

Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

80

Annex 14: Country at a Glance

CAPE VERDE: Road Sector Support Project

4122105 I -

POVERTY and SOCIAL

2004 Population, mid-year imillionsJ GNI per capita (Atlas method, US5J GNI (Atlas method, US$ billions)

Average annual growth, 1998-04

Population (%J Labor force (%J

Most recent estimate (latest year available, 1998.04)

Poverty (% of population below national poverty line) Urban population (% of total populationi Life expectancy at birth (years) infant mortality (per 1,000 live birlhs) Child malnutrition (% of children under 5) Access to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+J Gross primary enroilmeit (% of school-age populationJ

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1984

GDP (US5 billions) 0.10 Gross domestic InvestmentiGDP 54.8 Exports of goods and servicesiGDP 29.9 Gross domestic savlngsiGDP -5.6 Gross national savingsiGDP 11.1

Current account balanceiGDP Interest paymentslGDP Total debtlGDP Total debt servicelexports Present value of debtlGDP Present value of debtiexports

-44.0 2.9

74 4 10 0

1984.94 1994-04 (average annual growth) GDP 6.4 5 9 GDP per capita 4 3 3.2 Exports of goods and seruces -1 8 12.7

Cape Verde

0.48 1,690 0.81

2.6 3.8

66 69 34

74 24

144 146 143

1994

0.41 43.4 16.8 2.8

36.2

-9.1 0.6

36.7 4.3

24.3 66.8

2003

5.0 2.4 5.9

Sub- Saharan

Africa

703 490 347

2.3 2.4

36 46

103

58 35 87 94 80

2003

0.80 20.2 31.7

-14.0 10.8

-9.7 0.3

45.4 5.3

27.3 56.6

2004

5.5 2.9 3.6

Lower- middle- income

2,655 1,480 3,934

0.9 1.2

50 69 32 11 81 10

112 113 111

2004

0.94 21.6 31 2

-12.9 11.2

-8.4 0.2

40.4 2.8

24.2 53.3

2004-08

5.5 2.9 7.1

1 Development diamond'

I Life expectancy

r

I I per + capita

~ GNI Gross + primary

enrollment

i

Access to improved water source

Cape Verde Lower-middle-income group

Economic ratios'

Trade

Indebtedness

Cape Verde Lower-middle-income group

STRUCTURE of the ECONOMY

(% of GDPJ Agriculture Industry

Servlces

Private consumption General government consumption Imports of goods and Servlces

Manufacturing

(average annual growthi Agriculture Industry

Servlces

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1984 1994 2003 2004

10.1 12.8 6.8 6.8 16.8 19.8 19.7 20.2

.. 9.5 8.0 0.5 73.0 67.4 73.4 73.0

96.7 78.8 99.3 98.2 8.8 18.3 14.7 14.8

90.3 55.3 66.3 63.7

1984-94 1994-04 2003 2004

4.6 5.4 1.5 1.5 8.8 5.6 4.5 4.5

13.1 6.6 4.7 4.7 6.1 6.1 5.7 6.4

4.9 8.2 1 .o 4.3 13.8 2.3 31.9 5.7 4.0 -0.9 1.5 12.8 1.9 8.0 2.2 1.4

Growth of exports and imports (%) z

Note 2004 data are preliminaryestimates Group data are for 2003

*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

81

Cape Ve'evde

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP. includes current grants) Current revenue Current budget balance Overall surplusldeficit

TRADE

(US$ millions) Total exports (fob)

Bananas Fish Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=1001 Import price index /1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and SerQces Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold IUS$ millions) Conversion rate (DEC. local/US$i

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1984

11 3 6 0

22 4 0 7

-45 0

1984

3

1984

31 93

-62

-4

-45

40 5

41 84 9

1984

76 0 1

5 0 0

40 13 1 0 0

0 1 0 1 0 1

1994

3 4 7 7

30 8 10 2

-18 9

1994

20 0 1 2

209 65 5

98

96 92

104

1994

69 224

-155

-4 121

-38

35 3

74 81 9

1994

151 0

27

6 0 0

63 6 0 2 0

8 27 0

26 0

26

2003

3.0 2.8

23.5 2.5

-8.1

2003

53

303 65 26

111

133 133 100

2003

253 529

-275

-12 210

-77

80 -3

93 97.7

2003

362 0

131

20 0 1

59 10 0

31

0 15 0

15 1

14

2004

2 0 2 5

25 7 3 8

-7 4

2004

56

335 68 26

117

136 136 100

2004

292 596

-305

-1 1 237

-79

85 -6

120 90 0

2004

378 0

133

12 0 1

68 16 0

38

0 3 0 3 1 2

z ~ Inflation ( O h )

Export and import levels (US$ mill.)

400 - I 100

1 98 99 00 01 02 03 04

c Exports I imports

I Current account balance to GDP (Yo)

:omposition of 2004 debt (US$ mill.)

<. IBRD E - Bilateral I . IDA D - Other multilateral F - Pnvate >. IMF G - Short-term

Development Economics 4122105

82

Annex 15: Letter o f Transport Sector Policy

CAPE VERDE: Road Sector Support Project

Republic o f Cape Verde Ministry o f Infrastructure and Transport

Letter o f Transport Sector Policy (March 8,2005)

Introduction

1. Under the Govemment’s Development Programme approved in M a r c h 2001, a main strategic goal i s to develop basic economic infrastructure and promote urban and rural planning for balanced development. Cape Verde’s Poverty Reduction Strategy Paper (PRSP) i s organized along f ive strategic pillars: (i) good governance; (ii) competitiveness to favor economic growth and employment creation; (iii) development and upgrading human capital; (iv) development o f basic infrastructure, promoting regional development and protecting the environment; and (v) improving the effectiveness and sustainability o f social protection system. The PRSP singles out the development o f road infrastructure as a strategic development priority, wi thout wh ich growth vectors cannot develop. In this context, the Government has formulated a Strategic Programme for Infrastructure and Land Use 2002-2005. The Strategic Programme i s based o n in-depth analyses o f the current situation and projected needs for the Transport, Water and Basic Sanitation, Land Management and Energy Sectors.

2. The underlying principle o f the Government’s infrastructure development strategy i s to clearly divide responsibilities between the public and private sectors. In general, the public sector’s role i s to set pol icy, plan, legislate, arbitrate and regulate the processes invo lved with the construction, modernization and maintenance o f basic economic and social infrastructure. The private sector i s charged with the provision o f planning, technical and implementation services as we l l as investment resources, within the po l i cy and regulatory framework established by the State.

3. In l ine w i t h these principles, the Government advocates private prov is ion o f transport services. Road transport and marit ime services are now, with few exceptions, prov ided by the private sector and the Govemment i s committed to increase the presence o f the private sector in the port and aviation sectors. The Government i s currently pursuing this goal and intends by mid 2006 to introduce concessioning o f port operations in larger ports and privatize the State airline.

4. The Govemment recognizes the strong interrelationship o f the road sector with the maritime, port and aviation sectors and therefore wil l also, within the Road Sector Support Program, address with i t s partners related strategic and po l i cy issues in the transport sector.

5. This Letter o f Transport Sector Po l i cy summarizes the Government’s strategic objectives, policies and action plans for the Road Sector, as articulated in the Strategic Programme, and based o n further analyses concerning road sector management and sustainable development o f the road network.

83

Overview o f the Road Sector

6. Cape Verde’s road network consists o f 1,350 km spread among the nine inhabited islands, Between 1990 and 2000, the size o f the network increased by 25%, with the percentage of roads in good condit ion increasing f rom 14% to 25%. While progress has been made by expanding road network coverage, gaps remain to achieve basic connectivity o n the core and feeder road networks. In addition, although the n o w decommissioned Road Fund had existed since 1997, because o f inappropriate financing mechanisms, i t did not achieved reliable maintenance financing, wh ich has led to increasing maintenance backlog and imperils the benefits previously obtained. Moreover, the institutional responsibility for road management has been subsumed under general infrastructure development, which, combined with inadequate Road Fund arrangements, has not lent i tself to rational network management, nor to systematic road maintenance planning.

Strategic Objectives

7. The strategic objective o f the Road Sector i s to facilitate commerce and ensure access to social and administrative services through a continuous and sustainably maintained road network. As Cape Verde i s an archipelago, this objective wi l l be pursued by ensuring that:

. Each island has a core road network wh ich links administrative centers, markets, ports and airports;

Each island has a system o f local roads that provide rural communities with at least minimum reliable access to markets, services and the core network; and

The country has an efficient, transparent and sustainable system for managing and maintaining i t s core and local road networks.

. 1

Overall Policies

8. The above strategic objectives wil l be pursued through two principal policies:

Rationalize management o f the road network, in l ine with the Government’s overall po l icy o f promoting commercial management approaches and sustainable maintenance financing based o n user-fees; and

Progressive establishment o f a “maintainable network” through a pr io r i t y investment program on the core and local road networks.

1

Strategic Measures

9. Overview. The Government i s taking major steps in revamping institutional arrangements for management o f the Road Sector. This involves: (i) reclassifying the road network and clearly assigning responsibilities and funding sources, for bo th investment and maintenance; (ii) creating a n e w Road Agency, dedicated to the p lanning and management o f the road network, and a Road Consultative Council, with public and private sector participation;

84

(iii) establish a “Second Generation” ’ Road Maintenance Fund, whose sole mandate i s to finance road maintenance through road user fees, also overseen by the Road Consultative Council; and (iv) focusing investment programs to fill crit ical gaps and progressively bringing the core network up to maintainable standard, whi le improv ing accessibility for populations in isolated areas. With World Bank assistance, the Government commissioned a Road Sector Management Study, wh ich has provided the basis for action plans to implement these reforms, wh ich are summarized in the Attachment.

10. Classification of the Road Network. The Government recognizes that the first requirement for effective road network management i s a functional road classification, with clear assignment o f responsibilities and sources o f funding. Accordingly, a revised Road Classification has been drafted and i s in process o f approval. This Road Classification divides the road network in to “national roads”, wh ich constitute each island’s core road network linking population, administrative and economic centers with ports and airports; and “municipal roads”, wh ich includes urban and feeder roads linking rura l zones to larger centers and the island core networks.

11. Responsibilities. The distribution o f road network responsibilities i s based o n Cape Verde’s particular geographic and administrative characteristics, as we l l as the size o f the road network. The new ly created Road Agency (Institute de Estradas - E) (described be low in paragraph 1 l), i s responsible for overall planning and management o f the nation’s road network. Within this framework, the IE plans investment and maintenance o f the national roads, as w e l l as investment o n municipal roads. The IE directly manages road maintenance contracts, wh i le the General Directorate o f Infrastructure and Basic Sanitation manages investment contracts. The municipalities, for their part, are responsible for maintenance o f their respective municipal networks, albeit with technical assistance and guidance f rom the IE. The IE develops annual investment plans and budgets for the entire network (national and municipal), wh ich are submitted for funding through the national budget and donor support. Annual maintenance plans and budgets for the national roads wil l be prepared by IE and submitted to the new Road Maintenance Fund (described below in paragraph 12). In parallel, each munic ipa l i ty wi l l submit i t s respective maintenance p lan and budget (using standard formats and technical norms established by the IE) to the Road Maintenance Fund, who wil l be assisted in rev iewing these plans by the IE. The IE wil l directly manage maintenance contracts o n the national network; and wi l l provide assistance and oversight to the municipalit ies for contract management o n their local networks.

12. Funding Sources. Funds for road maintenance wil l be generated f rom user fees and wil l be deposited directly to the new Road Maintenance Fund, wh i le road Government and donor funds wil l finance investment. The user fees are defined as: (i) a levy o n the price o f fuel; (ii) an insurance levy o n heavy vehicles; and (iii) other similar user fees, wh ich m a y be determined. The level o f these fees wi l l be determined based on an annual analysis submitted to the Road Maintenance Fund by the IE and approved by the Min is ter o f Infrastructure and Transport, with advice f rom Road Consultative Council.

’ The main characteristic of the Second Generation Road Maintenance Funds is secure funding for maintenance, generated from road user fees.

85

13. Creation of a new Road Agency. The new Road Agency (IE) was created on June 2, 2003 by Resolut ion 10/2003. I t has been operational since August 2004 and i s staffed w i t h competit ively recruited road engineering, planning, contracting, and financial management personnel. The IE i s directly responsible to the Minister o f Infrastructure and Transport. I t s activities wil l b e overseen by a Road Consultative Council (Conselho Consultivo de Estradas - CCA), consisting of representatives f rom ministries and public sector stakeholders, as well as the private sector and road users. U n t i l the new Road Maintenance Fund i s operational, the IE’s in i t ia l equipment and operational costs wi l l be covered by the Government. However, once the Road Maintenance Fund i s operational, a port ion o f the IE’s f ixed operational and variable costs for road maintenance activities wi l l be covered by the Road Maintenance Fund, whi le i t s other f ixed and variable costs related to road investment planning wil l be covered by the Government. The IE i s in the process o f putting in place a financial management system wh ich wi l l enable i t to keep separate accounts for investment (Government-financed) and maintenance (Road Maintenance Fund-financed) activities. The IE wil l be subject to annual f inancial and technical audits to ensure its effective and transparent management o f bo th road maintenance and road investment funds. Based on a Road Sector Management Study, the IE has established an Institutional Ac t ion Plan (Attachment B).

14. Creation o f a New Road Maintenance Fund. A new Road Maintenance Fund i s in the process o f be ing created to replace the present Road Fund. The new Road Maintenance Fund (Fundo de Manutenq6o de Estradas - FME) will finance on ly maintenance (programmed routine and periodic maintenance, plus a provision for annual emergency works, reflecting average need over the past few years). These funds wil l derive f rom user fees as described above in paragraph 10. FME funds wil l be directly deposited in an account at the Central Bank o f Cape Verde. The FME wil l have a simple and l imi ted structure, consisting o f an Administrative Directorate, including a Fiscal Management Un i t . I t wil l be overseen by a Road Consultative Council. This Counci l wi l l also assume the role o f the Road Consultative Board, wh ich wil l be consulted o n a l l matters concerning road network management. I t wi l l negotiate and approve annual road maintenance program budgets proposed by the IE (for bo th national and municipal road networks) and wi l l effect payments for road maintenance activities, upon verif ication that such payments are certif ied and conform to the annual program. Based o n a Road Sector Management Study, the Government has established an Institutional Ac t ion Plan for the FME (Attachment B).

15. Road Investment and Technical Management Strategy. The Government’s road investment strategy i s l inked to i t s capacity to maintain i t s network. Pr ior i ty i s given to filling k e y gaps in the each island’s core network, wh i le progressively bringing the network up to maintainable standard. The Government recognizes that this i s the on ly w a y to emerge f rom the current vicious cycle o f constant emergency interventions throughout the network. T o this end, the IE i s putting in place a technical road management strategy based o n road user service levels. These user-oriented service levels wil l be defined in terms o f traff ic levels and wil l provide the basis for establishing technical standards and norms for investment and maintenance o n various types o f roads. As part o f this strategy the IE will introduce o n a p i l o t basis Performance-Based Road Maintenance and Management Contracts (Gestio e Manutencijo por Nivel de Sewico - GMANS), with funding from the N e w Road Maintenance Fund.

86

Annex 15 - Attachment A: Organization Chart o f Reformed Road Sector Institutions

CAPE VERDE: Road Sector Support Project

Technical Directorate

Planning and Management

Administrative Directorate

Finance

Financial Manager

Infrastructure and Transport

Administrative Support

Road Agency lnstituto de Estradas

Ad mi nistrat ive Council

Conselho 1 AdmistraGao

Road Maintenance Fund Fondo de ManutenGdo de

Estradas (FME)

Administrative Council Conselho

AdmistraGao

Road Consultative Board Conselho Consultativo de

Estradas (CCA)

I I I 1 4 I

87

Annex 15 - Attachment B: Action Plans for Road Agency and Road Maintenance Fund

CAPE VERDE: Road Sector Support Project

Phase Action Target Date Establish IE Offices, Staff and Administrative Council Sept. 04 Establish Road Consultative Council March 05 Revise legislation July 05

Resp. Govt. Govt. Govt.

Install accounting system Jan. 05 1 IE Organization Establish procurement procedures

~

I (Maintenance & Investment - 2007)

May 05 I IE

I I

- Install road management data base + Training July 05 I€ Formulate Training Plan July 05 IE

88

Operation - Yr. 1

Network Management

Carry out initial traffic survey July 05 IE

Prepare National Road Plan July - Sept 05 IE Formulate First Consolidated Network Management Plan (Maintenance Sept 05 IE & Investment - 200512006)

Carry out initial road condition survey July 05 I€

Operationalize road management data base July - Aug 05 I€

Road Maintenance Fund (FME)

Operation - Y r.2 Prepare Second Year Annual Report

89

MAP SECTION