AIDE-MEMOIRE

Mozambique

Implementation Support Mission (November09 - 20, 2015) Roads and Bridges Management and Maintenance Project, Phase II (RBMMP2)

Credit Number 4308 MZ, 4892-MZ, 5346-MZ; Grant Number H9040-MZ; SPCR-PPCR Grant Number TF15898; SPCR-PPCR Credit Number TF15923;

GFDRR Grant Number TF17375

I. INTRODUCTION AND ACKNOWLEDGEMENT

1. A World Bank team led by Kulwinder Rao (Task Team Leader) carried out an implementation support mission in Maputo, Mozambique from November 09-20, 2015. Other members of the mission team were Atsushi Iimi (Senior Economist), Ross Hughes (Senior Natural Resource Management Specialist), Amos Malate (Procurement Specialist), Eden Dava (Social Safeguards Consultant), Elvis Langa (Financial Management Specialist), and Salma Chande (Program Assistant). Ahead of the main mission, John Bryant Collier, Senior Environmental Specialist, carried out an environmental safeguards implementation support mission from October 23-27,2015.

2. The main objectives of the mission were to:

a. Review progress of the ongoing RBMMP2 Project and support the Road Fund (RF) and National Road Administration (ANE) with its implementation;

b. Attend the bi-annual meeting of Integrated Road Sector Program (PRISE); and c. Dialogue with the government on policies and future engagements in the transport

sector.

3. The Bank team held discussions with the Minister of Public Works, Housing, and Water Resources (MOPHRH), RF, ANE, and other stakeholders involved in the implementation of the Project. The team also met with senior officials of several other ministries, including the Ministry of Agriculture and Food Security (MASA), the Ministry of Industry and Trade (MIC), the Ministry of Transport and Communications (MTC) , and the Ministry of Land, Environment and Rural Development (MIT ADER). The mission thanks the Government of Mozambique, ANE, and the Road Fund for extending excellent cooperation and support during its stay. The team also held bilateral discussions with European Union (EU) and United Kingdom's Department for International Development (DfIO). The list of the persons met is attached as Annex 1.

II. CONTEXT

4. The third Additional Financing to the ongoing RBMMP2, approved on March 31, 2015 in the amount of US$73.6 million, was declared effective on July 23, 2015. The pending activities mainly relate to Phase 2 of Emergency Works in Gaza Province and the Pilot Program for Climate Resilience component. The project disbursements have been slower than expected in the light of delays in the procurement of related works and services.

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5. The bi-annual PRISE meeting was held on November 13, 2015 in Maputo. Besides the . report card of PRISE for the first half of 2015, the Road Sector (ANE and RF) shared the draft Road Sector Strategy (2015-19) and the draft Transport Master Plan (TMP), which were prepared with the assistance of the EU and Korean Exim Bank respectively. The Bank team made a presentation on transport connectivity and growth potential in Mozambique. (Copies of these documents are placed in the Bank files.)

6. The scope of the next transport operation has been under discussion for the past six months. An emerging consensus is that rural accessibility, alongside the well-functioning primary network, is critical to boost agricultural production and promote inclusive growth, particularly in the northern and central provinces. This view is shared among all stakeholders including ministries and other Development Partners (DP) and is consistent with the draft Transport Master Plan and the Road Sector Strategy shared during PRISE meeting. The Bank has decided not to proceed with the third phase of the ongoing Adaptive Program Lending. Instead, a new operation that meets the Government's evolving priorities for the sector is under consideration.

III. KEY FINDINGSIPROGRESS OF IMPLEMENTATION

7. PRISE Bi-Annual Meeting: The physical and financial achievements of PRISE implementation during the first half of 2015 are relatively low: a 12 percent physical achievement and 26 percent budget execution. The slowdown in implementation is attributed to two main reasons; (i) the floods in Zambezi and Nampula in January of 2015 and (ii) the delay in approval of the annual state budget that, in tum, delayed procurement of planned road interventions. The final budget ofMTN 18.0 billion is about 74 percent of the overall projected budget demand of MTN 24.3 billion. At the end of December 2014, roughly 74 percent of the classified road network was in good or fair condition.

8. The draft Transport Master Plan (TMP) emphasizes four key themes: (i) expansion of highway network for increased mobility; (ii) improvement of bridges and culverts through integrated management of the network; (iii) sustainability and resilience; and (iv) enhanced connectivity for reduction of regional economic disparities. The plan identifies four north­ south corridors and eight east-west corridors as priorities. The TMP envisages US$91 billion investments in the sector by 2040. The linkage between the TMP and the medium­ term draft sector strategy or investment plans is not explicitly established. The TMP is yet to be shared widely beyond the sector. The Road, Sector agreed to circulate the draft TMP document and the draft Road Sector Strategy immediately to a wider group, including all main DPs and main ministries, so as to facilitate finalizing the drafts in time for next PRISE meeting in April 2016.

9. The objective of the Draft Road Sector Strategy is to define guiding principles for both i) the management of road infrastructure during the implementation of the Government's Fi ve­ Year Program 2015-19 and ii) infrastructure planning for the medium-term by shaping the Five-Year Government Program 2020 - 24. The strategy focuses on three key areas: i) asset preservation through preventive maintenance; ii) Interurban mobility; and iii) improving

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rural connectivity. As per the draft version, resources would be allocated to asset preservation, interurban mobility, and rural connectivity in a ratio of 4:3:3 for the next five years.

10. The Bank team presented preliminary findings of a draft spatial analysis report on transport infrastructure needs and economic potentials in Mozambique. The draft analysis report highlights the importance of i) maintenance of the primary road network, which carries the majority of existing road traffic; ii) port access, which is critical to support business and regional trade; iii) rural access, which is currently estimated at 18% but would not exceed 45% even if all existing classified roads were in 'good' condition; and iv) urban transport, which is made increasingly important by a trend of accelerating urbanization. The report will be finalized by April 2016.

11. Lacking coordination: Several ministries are developing strategies and investment plans that have direct bearing on the transport sector. However, these visions, strategies, and investment plans are fragmented and are yet to be harmonized. The coordination mechanism needs to be strengthened to ensure consistency across the government and avoid duplication of efforts. Annex II provides summary information on the various transport-linked programs planned by different ministries.

12. Given its geographic advantages, Mozambique can play an important role in regional trade and transport integration. However, the Government's strategic thinking regarding regional integration is unclear. Ports and railroads may be underutilized from a regional point of view, partly because these assets are managed by the private sector under a weak regulatory environment or because there is no strong entity coordinating sectoral issues managed by individual ministries (MASA, MIC, MTC, MIT ADER, and MOPWH).

13. The next transport operation: The Road Sector is considering afresh the objectives and scope of next Bank-supported transport operation in the light of new information and draft road strategy. There are early indications that the next operation will stress equally on interurban movement and rural connectivity, i.e. an integrated road infrastructure development approach targeting primary/secondary roads along with lower-tier feeder and non-classified roads. The Road Sector agreed to confirm, through the Ministry of Economy and Finance, the Government's final priority for Bank support in the transport sector by December 20,2015.

14. Meeting with the European Union (EU): The Ban team continued dialogue with the ED delegation, which is currently preparing the next five-year unified action program under EDFl1. ED's action program is likely to include about €700 million in investment, about half of which is likely be allocated to rural development in Nampula and Zambezia. The detailed sectoral allocation will be determined based on the ongoing identification studies, but a provisional notion is that rural transport, energy, and agriculture (including food security and value chain development) would be allocated one-third each. It was agreed that harmonized planning and implementation is critical to make rural road investments· effective

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and sustainable given the significance of unmet needs and that an appropriate coordination mechanism would be examined in this regard.

15. Impact Evaluation of APL: The Bank team provided extensive comments on the draft TOR for impact evaluation of APL 2. The objective of the TOR is to quantify the socioeconomic impacts of the program (APL2 and perhaps APLl as well). Since the design of the APL did not include appropriate data collection instruments in support of the evaluation framework, the extent of existing data merits careful examination. Moreover, it is challenging to evaluate the impacts of large-scale infrastructure projects like the APL. Hence, it is important not to be too ambitious but focus on several issues that are more readily observable given the available data and literature.

16. Phase One Emergency Works (under GFDRRlDflD Grant TF17375): Two drifts on Lot 4 on Mahambe - Maqueze road have sustained erosion damage that requires immediate attention. To address the situation, ANE has signed two contracts and intends to complete repairs by December 31, 2015. The Bank team requested further details of the reasons for the damage. The Flood Response Team (FRT) agreed to share with the Bank all relevant information related to these additional works in Gaza Province, including the report prepared by the supervising consultant. At the time of the mission stay, the contractors were still mobilizing.

17. To mitigate possible delay in the completion of additional works referred to in paragraph 16, ANE is considering the extension of the closing date of GFDRR grant from December 31, 2015 to March 31, 2016. A formal request, if required, will be shared with the Bank team no later than December 10, 2015.

18. Preparation of Phase 2 Emergency Works in Gaza province: Preparation is delayed by nearly seven months. The engineering consultant (Mis TNM) has struggled to finalize the work scope in a manner that ensures a 'build-back-better' approach and balances the risk allocation to ensure a successful outcome. The draft final report was resubmitted during the mission stay in Maputo. The Bank team also participated in a meeting between the ANE, the Road Fund, and the consultant.

19. The Bank team provided preliminary comments on the draft final conceptual design report received during the mission and identified persisting gaps and inconsistencies in the report. The consultant agreed to finalize the draft bidding documents based on the preliminary comments and submit by November 27, 2015 [still pending as of December 1, 2015].The consultant will also revise the conceptual design report in parallel.

20. Pilot Program on Climate Resilience Component: Preparation of new national roads standards is progressing extremely slowly. This activity is being supported by the Pilot Program on Climate Resilience (PPCR). The technical design of the terms of reference was completed earlier this year and, after some delays, the Request for Proposals (RFP) was issued. The deadline for submission of proposals was September 16, 2015. ANE indicated

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that the technical review report, the preparation of which has also been delayed, would be submitted to the Bank for review by November 20, 2015 [Pending as of December 1, 2015].

21. The Bank team also discussed the climate vulnerability assessment of classified roads in the lower Limpopo Valley in Gaza and West Inhambane Provinces. This work is now ongoing and will include a comprehensive vulnerability assessment of the overall road network followed by an economic analysis of potential improvements for enhancing climate resilience. The Bank team noted that technical review comments on the consultants' inception report, provided by the World Bank, failed to reach the consultants undertaking this assignment. Meanwhile, the consultant submitted a subsequent report on October 30, 2015. There has also been limited engagement with the Unidade das Mudancas Climaticas under MIT ADER, leading to weak reporting and lack of technical guidance on climate change aspects of vulnerability. The team strongly urges ANE to improve communication and collaboration with the UMC to ensure that PPCR reporting needs are met and to more effectively harness existing technical capacity on climate change within the Ministry.

22. The Bank team also discussed the prior action and end of series result indicator for the Third Climate Change Development Policy Operation (CCDPO 3). The Bank team agreed that strengthened climate risk screening prior action (e.g. a risk screening requirement) would replace the introduction of roads standards in the results framework of the project and that the End of Program indicator would be adjusted accordingly. The prior action will strengthen a newly established requirement (approved by the Minister for Public Works and Housing in November 2015) that mandatory climate screening be undertaken for new road projects with guidelines and procedures for implementing this reform. ANE confirmed that this reform can be introduced by mid-January 2015. The Bank team also agreed that the wording of the results indicator would be adjusted to, "Percentage of projects on (classified) roads on that are planned, constructed, re-constructed or upgraded from 2016 onwards in pilot provinces in compliance with mandatory requirements for climate risk screening".

23. Road Projects in Growth Poles Project: No Objection was provided on September 18, 2015 for consultancy services contracts for (i) the rehabilitation of R702 Nacala Porto - Nacala-a- Velha, in Nampula Province and for preparation of conceptual engineering design, tender documents, and (ii) support in the process of bidding and supervision using the DBMOT methodologies for R605 road: Cruz. N304 Mphulo - Tsangano - Ulongue and R604 Cruz. N304 Ulongue - Domue - Furancungo, in Tete Province. While MOPHRH approved these contracts on October 13, 2015, the Comissao de Relacoes Economicas Externas-(CREE) approval took about another month. The consultant is expected to mobilize at site by end November 2015.

24. The Road Data collection contract is progressing smoothly. It is expected the data collection will be complete by mid-December and the whole project will conclude in February, 2016. The test pit & structures survey is complete in seven provinces, namely: Maputo, Gaza, Inhambane, Sofala, Zambezia, Nampula, and Cabo Delgado; the Falling Weight Deflectometer (FWD) survey is complete in seven provinces, namely: Maputo,

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Gaza, Inhambane, Sofala, Zambezia, Nampula, and Cabo Delgado; and the Road Management Data Acquisition System (ROMDAS) survey is finished in three provinces, namely: Maputo, Gaza, and Inhambane.

25. Review of other ongoing project activities: The Light Detection and Ranging (LIDAR) surveying services are complete. ANE has handed over the data to the consultant preparing the Phase Two Emergency Works designs. All except one of the design consultancy services are complete or nearing completion. The progress of these design consultancies is included in Annex III.

26. Quarterly Progress Report: The Bank team expressed concerns that Project Quarterly Progress Report ending September 30, 2015 is delayed. The Bank team pointed out that such a report is due within 45 days after the end of each quarter. The RF agreed to submit the report by November 25,2015.

27. The team also explained its comments on the July - September 2015 Quarterly Progress Report of the FRT. It was agreed that the FRT will revise the report as per the discussions with the Bank and re-submit by November 30, 2015.

28. Cell Phone Data Project: The project has not progressed since the last mission even though the National Communications Institute (INCM) has agreed to facilitate making the anonymized cell phone data available. The RF agreed to confirm immediately the sector's intention to proceed further to University of Tokyo (Prof. Shibasaki) and propose a formal contractual relationship. The next steps of mobilizing the necessary staff in Mozambique to anonymize the data will follow.

IV. ENVIRONMENTAL AND SOCIAL SAFEGUARDS

29. While it is clear that the Environmental and Social Management Framework (ESMF) for the project has been properly followed during works undertaken over the past year, the Environmental and Social Safeguards rating for the project remains "Moderately Satisfactory" (MS) due to the project's failure to improve its safeguards reporting and documentation as agreed during earlier implementation review missions. In order to improve the safeguards section in quarterly progress reports, a template with the main information that needs to be gathered to adequately monitor safeguards by the contractor was shared with ANE during the February 2014 Implementation Support Mission. Unfortunately, neither that template nor any other type of improved reporting on safeguards has been introduced to project reporting. Improving safeguards reporting and documentation should be a priority for both the Road Fund and ANE as they move into the works under Phase 2. Further discussion of Safeguards is found in Annex V.

V. DISBURSEMENT AND FINANCIAL MANAGEMENT

30. Financial Management: The mission noted that there has been some progress with regards to the Primavera Enterprise Resource Planning (ERP) software, however, the RF is still facing technical challenges regarding the functionality of some modules in the system. The

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system provider is aware of the constraints and it is engaged in an intervention to respond RF's needs. Apart from these constraints, project transactions remain updated at central and provincial levels.

31. The internal audit consultancy activities are behind schedule. The RF intends to request a time extension of the contract. The consultancy aims to provide technical assistance to RF's Gabinete de Auditoria Interna's support in the implementation of its risk, governance, and control activities.

32. Fluctuations in exchange rates between the Bank's SDR and the USD and between the Euro and the USD continue to negatively impact the amount of funds available for the project. The continuous monitoring of the fluctuations remains of paramount importance to avoid over-commitment of funds.

33. A review of the commitments and activities under IDA Credit 4892 suggests a need for reallocation of funds between categories. To avoid negative balances in categories and update Client Connection records, the RF, through the MEF, will submit the request for reallocation no later December 31, 2015.

34. Counterpart Funding. As per project agreements, the Government is to contribute US$42.5 million to the project. An amount of US$10.0 million has been allocated to the project from the Government budget. Furthermore, an amount of US$ 11.3 million has been committed for 2016.

35. There have been several instances of delayed payments to the contractors and the consultants especially when the payments are to be made outside Mozambique. The sector agreed to review its processes and streamline the procedures to ensure payment timelines are adhered to. Revised timelines will be incorporated in the Project Implementation Manual and shared with the Bank. The Bank team also agreed that the RF would report on the status of invoices to be paid in their quarterly reports, with clarifications regarding any delayed payments. In addition, it was recommended that the RF formally communicate with the previous Chief Accountant with regards to any differences in the payments to be made and settle the dispute.

36. RF's December 31, 2014 audit report and management letter were timely submitted to the Bank and the auditors issued an unqualified opinion on the Financial Statements. The Bank follow-up noted that the RF has satisfactorily resolved the new issues identified in the management letter. Meanwhile, the RF continues to work on some of the previously identified issues, but these do not prevent it from reporting on the use of project funds in a timely and reliable manner.

VI. PROCUREMENT:

37. The Bank team is closely following the recommendations of the FY15 post procurement review and notes that progress is being made to correct deficiencies identified in the review. The Bank team noted that most of the activities in the procurement plan have been initiated

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or concluded. A revised procurement plan, taking into account the discussions of the mission, will be submitted to the Bank by November 30, 2015. In general, the project is improving. A detailed assessment will be conducted during the FY16 post procurement review exercise, and the performance rating will be revised accordingly. The overall performance of the implementing agency, based on the findings for procurement, is rated as Moderately Satisfactory (MS).

VII. AGREEMENTS REACHEDINEXT STEPS

N. Activity Original! Responsible Action taken

Revised Entity/Official

Timeframe

Share the draft Transport Master November 30,

1 Plan and draft Road Sector Strategy 2015

RF Pending for consultation and feedback Prepare and submit to the Bank ToRs

Received. Under 2 for impact evaluation of the works June 30, 2015 ANE(GAT)

discussion. implemented under APL2 program

GoM to set up the priorities for the Mid Received on November 11,

3 next transport operation and submit Jul y.lDecember PCAlDG 2015. Plans to

to the Bank 20,2015 resubmit it.

Prepare a detailed program for usage 4 of DFID/GFDRR balance and submit July 7,2015 ANE (FRT) Completed.

to the Bank

5 Submit damage assessment report November 30,

ANE(FRT) Pending linked to Lot 4 works 2015

6 Submit request to extend GFDRR December 10,

RF/ANE Not due yet. grant, if required 2015 Submit to the Bank the draft

Mid July 2015/ conceptual designs and tender

7 documents for Phase 2 of emergency

November 27, ANE(FRT) Pending.

works. 2015

8 Submit to the Bank the RFP for June 19,2015, ANE Completed preparation of design standards Submit for Bank review the technical

November 20, 9 evaluation report for revision of road ANE Pending

design standards and specifications. 2015

Prepare and approve at Ministerial No later than

10 level the procedures and guidelines

January 8, ANE Pending for climate risk screening of roads projects

2016.

11 Submit the Addendum to the

June 16, 2015 ANE Completed Contract for the Consultancy

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N. Activity Original! Responsible Action taken

Revised Entity/Official

Timeframe

Services for updating the road conditions in paved classified roads

Review the Quarterly Progress June 26,2015 Completed with

12 Report and submit to the Bank

!November 25, RF/ANE delay. Next report 2015 is pending

13 Submit to the Bank the draft MOU

June 17, 2015 RF Completed for AF3

14 Submit the Legal Opinion Document

July 10, 2015. Completed for the AF3

Submit the action/completion plan RF Pending 15 for the ERP July 15, 2015

Through the MEF, submit the request December 31, 16 for the reallocation of funds relating to

2015 RF Not due yet. H4892 Improve Safeguards Reporting and

17 Documentation in Quarterly Progress January 2015 RF/ANE Pending Reports.

VIII. DISCLOSURE

38. It was agreed with Road Fund and ANE that the aide memoire shall be publicly disclosed.

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ANNEX I LIST OF PARTICIPANTS AND PEOPLE MET

Name Institution Address/Desi znation 1 His Excelence Carlos B. Minister 2 CecilioGrachane FE czrachanerdrfe. zov.mz 3 AtanasioMuzunhe ANE amuzunhersiane. gOY .mz 4 FredericoCastelo FE castelordife. zov .mz 5 Joaolvlutombene FE mutombeneeafe, zov.mz 6 Carlos Fortes FE cforteseizfe. zov.mz 7 LazaroMoiane FE lmoianerzife. zov .mz 8 AderitoGuilamba ANE azuilambarraane.zov.mz 9 Rezinaldo Sitoe FE rezinaldorstfe.zov.mz 10 CaladoOuana ANE couanacaane.zov.mz 11 Silvestre Elias ANE seliaseaane. gOY .mz 12 Angelina Sitoe ANE asitoeeiiane.zov.mz 13 Anibal Nuvunza ANE anuvunaaral ane. zov, mz 14 Mizuel Coanai ANE mcoanaieaane.zov.mz 15 Tania Munhecuete ANE taniarezane, zov.mz 16 EmiliaTembe ANE etemberaane. llOV .. mz 17 Francisco Alvaro FE fal varo(n) fe. zov.mz 18 Peter Wenz FE owen !T(n)fe. zov.mz 19 Raul Cossa ANE raulcossaeaane. zov.mz 20 Leonel Arlindo da Silva ANE lsilvaeaane. zov.mz 21 Baptista de Melo RF bdemeloeafe. zov.mz 22 Belmira Sarmento ANE bsarmentoeaane. zov.mz 23 Jose CarlosEdo Monfort EU iose-carlos.edo-monfort(a)eeas.eurooa.eu 24 Phil Outram DflD Infrastructure Advisor 25 CelmaLaforte DflD PrOQTam Officer 26 Olizario do Anios Banze MITADER olebanze0lhotmail.com 27 DadvMendes ANE dmendesrziane, zov.mz 28 Rubina Noormahomed ANE momahomedeazmail.com 29 Ambrosio Sitoi MTC Ambrosioadolfoeavahoo.com.br

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ANNEX II DEVELOPMENT PROGRAMS PREPARED BY DIFFERENT MINISTRIES

Estrela Program

1. The Ministry of Land, Environment and Rural Development (MITADER) is implementing a 5-year integrated rural development program (Estrela), which supports water supply, mini-hydro, financial access, agricultural logistics and rural access in 6 provinces (Cabo Delgado, Niassa, Nampula, Zambezia, Tete and Manica). While the program expects significant contribution from the private sector (especially, energy and banking), the government allocated a budget $150 million to the program. Energy and water supply are two priority. The tendering process for water supply works are ongoing. For roads, 500 km of priority roads connecting priority facilities (such as mini-hydro stations and agricultural logistic facilities) have been identified. It remains unclear whether the budget is sufficient to work on 500 km of secondary and/or tertiary roads. It is also unclear how the program is coordinated with the other existing activities, such as district road investment financed by ANE and managed by district governments.

Meeting with Ministry of Transport and Communications

2. Using spatial data and mapping techniques, the Ministry of Transport and Communications has prepared yet another view to develop new corridors, such as Maputo­ Massangena-Dondo, which could be either road or rail corridors. No supporting economic evidence to justify these corridors was presented in the meeting, and there is no clear strategy to materialize these investment plans.

Meeting with the Ministry of Trade and Industry

3. Regional integration. The mission discussed regional integration issues with the Ministry of Trade and Industry. The basic approach is to establish one-stop border posts (OSBPs) with neighboring countries. The Milange-Mocuba integrated corridor project funded by EU includes the OSBP at Milange. Two more border points exist with Malawi: ZobuelMwanza (MOZ/MAL), and CalomuelDedza (MOZ/MAL). Significant transit traffic exists on road Zobue­ Tete-Cuchamano, a border with Zimbabwe (Cuchamano/Nyamapanda). The efficiency of border crossing remains a challenge at least on the Malawi side. It takes 19 hours at Mwanza and 24 hours at Dedza. The Malawi Government is implementing a regional project (SATTF2) to reduce the procedures required and integrate the information sharing structure across agencies involved. Interagency cooperation seems to be missing in Mozambique as well. Many ministries and agencies (e.g., agriculture, trade and industry, finance, the central bank, health) are involved in the border crossing issue. The International Cooperation Division in the Ministry of Trade and Industry seems to be a natural coordinating entity, but the responsibility remains unclear. An intra-governmental coordination mechanism needs to be clarified further.

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ANNEX III STATUS OF ONGOING CONSULTANCY SERVICES

1. Consultancy Services for Design Review of Road Nl between 3 de Fevereiro and Incoluane in Maputo Province -A dispute had arisen between the consultant and ANE regarding missing information: ANE has formally terminated the expired contract with Mis Consulting Engineering Services (India) Pvt. Ltd. Revised TORs are under preparation.

2. Preparation of Conceptual Designs and Preparation of Bidding Documents for Output and Performance Based Road Contract (OPRC) for Nl: PambaralRio Save (122 Km): The consultants have submitted the draft Final report in August 17, 2015. The Bank team had shared detailed comments with the consultant and ANE. Revised submission is expected shortly. The contract closing date is December 1, 2015. A study tour planned under this contract did not materialize due to visa issue faced by the sector team. This delay might require further extension of the contract. During the course of its stay, the Bank team learnt of pending invoices (totaling USD 327,695.78 and ZAR 1,559,448.56) of the consultant, some dating back from October 2013. Acting in good faith, the consultant had chosen not to highlight this issue until now. Most of the payments were released during the mission stay. The sector agreed to review its payment processes and streamline those to avoid repeat of such instances in future.

3. Consultancy Services for the Detailed Engineering Studies and Design for the Rehabilitation of Road N2 between Matola, Boane and Namaacha in Maputo Province - The consultant has submitted the Final Design, and draft bidding documents in July, 2015.

4. Consultancy Services for the Detailed Engineering Design for the Rehabilitation of Road Nl: Rio Save/Muxungue (109 km): The consultant has submitted the draft Final Design Report during the first half of October, 2015 and ANE is still reviewing.

5. Consultancy services for the Detailed Engineering Design for the rehabilitation of Road Nl: Inchope/Gorongosa (72km): The consultant submitted the draft final design report by the end of June, 2015, and ANE is reviewing the submission.

6. Consultancy Services for the Detailed Engineering Design for the Rehabilitation of Road Nl: Gorongosa/Caia (244 km): Draft final report is expected later this month, i.e. November 2015.

7. Consultancy services for the Detailed Engineering Design for the Rehabilitation of Roads NIINI0: Quelimane I Nicoadala I Namacurra (70 km): The assignment.is complete (as of July 2015).

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ANNEX IV FINANCIAL MANAGEMENT REVIEW

1. The Bank team noted that there has been some progress with regards to the Primavera ERP, however, the RF still facing technical challenges regarding the functionality of some modules in the system. The system provider is aware of the constraints and it is envisaged an intervention to respond RF's needs. Apart from these constraints, we noted that project transactions remain updated at central and provincial levels.

2. Although activities have commenced, the internal audit consultancy activities are behind schedule and the RF will request a time extension on the contract. The consultancy aims at providing technical assistance to RF's GAU's support in the implementation of its risk, governance and control activities.

3. Fluctuations in exchange rates between the Bank's SDR and the USD, as well as between the Euro and the USD continue to negatively impact the amount of funds available in the project (see attached). The continuous monitoring of the fluctuations remains of paramount importance to avoid over commitment of funds.

4. The Bank team also agreed that the RF would submit on their quarterly reports the status of invoices to be paid, with clarifications as to any delayed payments. In addition, it was recommended that the RF formally communicated with the previous Chief Accountant with regards to any differences in the payments to be made.

5. RF's December 31,2014 audit report and management letter were timely submitted to the Bank and the auditors issued an unqualified opinion on the Financial Statements. The Bank followed up on the findings of the management letter and noted that the RF has resolved the new issues identified on the management letter. The RF also continues to work on some of the previously identified issues, but which do not prevent it from timely and reliably reporting on the use of project funds.

FM REVIEW: FINDINGS AND ACTION PLAN

• Accounting. Accounting transactions continue to be captured and summarized on the Primavera accounting software and e-SIST AFE; however, the RF still facing technical challenges regarding the functionality of some modules in the system. The system remains updated and the technical assistance contract provides assistance to RF in terms of customer's needs. The project works with a qualified and experienced staff in the financial sector responsible for all aspects related to project FM, which participated in the Fiduciary Clinics which took place on September 1 and 2.

• Internal Controls. The Bank team reviewed all issues raised in Management Letter and noted that the RF followed up on findings raised on audit. No significant internal control issues were identified on RF.

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• Funds Flow. The amounts disbursed as a percentage of the total Credit 48920; Credit H9040; TF 15898 and TF 17375 represent 90.94%; 6.17%; 1.83% and 100%, respectively as illustrated on the below chart. However, we also noted that some withdrawal applications have taken longer than 30 days to be signed, and we urge the RF to be more diligent with the signing of the applications. We recommend that the RF submits withdrawal applications within 1 week of receiving the clearance from the Bank, and the Bank will also submit the clearances within 1 week of receiving the IFRs.

The Bank team recommended the continued monitoring of the commitment amounts, particularly given the exchange rate fluctuations. Table of commitments to be inserted by RF.

The disbursements rates and exchange rate gains/losses of the project are presented below: RF·TABLE OF UNDISBURSED AT CURRENCY EXCHANGE RATE

~ ': s I . j Undisbursed In Commitment ! Undisbursed at , !, Equivalent , Exchange Rate

Project ID (Loan/Grant Number' Percent Disbursed Currencv U d b d 'SD negoriatious Exchange L ~ ~'N __ " _--'''''''''''_'''>'' ~ .. "" .................. """"XDR"-...-...-"""." ........... "" n IS wse in U: Rate osses

i IDA 48920 90.94 2,383,236,751 3,283,957.00 I 3,715,312,04 431,355.04

! IDA 53460 2,100,000.00 \ 2,893,674,00 i 3,150,000,00 256,326.00 I

-:=~-- ---~-;:~~~~f.~l __ ·~~~t~ ,-~;,~;,,-~~ ,............--~--. ~- .. " , ~ :_5:fl98 """ .• "' "' .. ~:~~. .'" ",., j" ""." ,.-... ., _ .:_, ,.M •• ,, __ ,.~ ..

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POSH25

As explained in the above table, the exchange rate fluctuations are having an impact on the availability of the funds in the project. The table above indicates the net of funds lost based on the undisbursed funds in the operations whose commitment currencies are different from the currencies of majority of contracts. In addition, the percentage of disbursements seems low on some lines due to the procurement processes which are still ongoing.

• Financial Reporting. The IFRs have been generally submitted timely and in a satisfactory manner and there are no overdue IFRs. The reports have been presented in accordance with the agreed formats during negotiations. The project also sends quarterly reports to the National Directorate of Public Accounting (DNCP).

• External Audit. The December 31, 2014 audit report and management letter were submitted to the Bank within the time specified on Legal Agreement. The auditors issued an unqualified opinion on the Financial Statements of the project. The Bank reviewed the management letter and also submitted the respective review letter to the RF. The RF has followed up on the new issues identified on the management letter, while some of the older issues are also being resolved. However, some recommendations' cost-benefit do not justify their implementation such as electronic tolls.

FM Action Plan

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Table IV.I: New Actions: Issues Agreed Actions By Whom By When

1. Withdrawal Submit withdrawal RF 1 week after applications applications timely. . . receivmg

clearance.

2. Clearance of IFRs Provide timely clearance of WE 1 week of IFRs receiving IFRs

3. Reallocation of funds Through the MEF, submit the RF December 31, request for the reallocation of 2015 funds.

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ANNEXV ENVIRONMENT AND SOCIAL SAFEGUARDS

1. Environmental and Social Safeguards: While it is clear that the ESMF for the project has been properly followed during works undertaken over the past year, the Environmental and Social Safeguards rating for the project remains "Moderately Satisfactory" (MS), due to the projects failure to improve its safeguards reporting and documentation as agreed during earlier implementation review missions. A template with main aspects to be gathered during project implementation to monitor adequate implementation of environmental and social safeguards by the contractor was shared with ANE during the February 2014 Implementation Review Mission in order to improve the safeguards section in quarterly progress reports. Unfortunately, neither that template nor any other type of improved reporting on safeguards has been introduced to project reporting. Improving safeguards reporting and documentation should be a priority for both the Road Fund and ANE as they move into the works under Phase 2.

2. Emergency Works: The emergency works financed under the December 2013 RBMMP 2 additional financing were divided into two phases with different Safeguards requirements:

a. Phase 1 works were the smaller, urgent restoration works -the eight contracts have been basically completed in accordance with the ESMP updated for the additional financing.

b. Phase 2 works are for more complicated "build back better" works and the proposed climate resilient road infrastructure (both of which will be undertaken on existing roads and will not involve new construction or resettlement implications). These contracts are being prepared under a design, build, maintain approach and are expected to be awarded in the coming months.

c. During the design portion, the contractor will also prepare a site specific ESIA and ESMP, based on the framework ESMP, for implementation as the works are being carried out. As in the case of the urgent works, supervision and reporting on the implementation of the ESMPs will be required of the Resident Engineer contracted to supervise the works. As agreed earlier:

1. The RBMMP-2 Safeguards Team will review the draft contracts for the contractors and resident engineers to ensure they meet the agreed environmental and social safeguards requirements;

11. The RBMMP-2 Safeguards Team will share the Portuguese version of the ESMP being prepared with the contractors and resident engineers for these activities; and

111. The RBMMP-2 Safeguards Team will meet with and agree on the format for reporting on ESMP implementation by the resident engineers in their monthly progress reports before any works commence.

IV. The RBMMP-2 Safeguards Team will ensure a better collaboration between the contractor and local communities during the project implementation stage. Although, no resettlement is foreseen in the project, a better collaboration and establishment of adequate communication channels with local communities, will maximize social positive impacts of the project.

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3. Field Visit. The Bank team joined ANE on a field visit to Lot 4, the Mahambe - Maqueze road, which was also visited last year. Construction has been complete for nearly a year and that particular section is due to be turned over from the contractor to ANE on October 29,2015. As such the major environmental and social safeguards issues, as per the ESMP has been covered and adequately dealt with during last year, for this particular road. The Bank team noted the following general and safeguards points (photographs were provided to ANE and RF after the visit):

a. The majority of the road and the box culverts installed appear to be in good shape and well maintained;

b. The burrow pits used during construction, with the exception of the one remaining open for maintenance, have been properly rehabilitated; however, the mission recommended that grass be planted on the rehabilitated slopes in those burrow pits;

c. Since the last mission visit, the dip structures (approximately KM 22) show indications of renewed downstream erosion since construction was completed;

d. Additionally is a significant crack on the downstream side of the first dip structure, that may be the result of the downstream erosion;

e. There is also the beginnings of some significant erosion along the road surface near the dip structures and box culverts - KM 22-27; and

f. It doesn't appear that the slopes below the road, particularly in the area of the structures discussed above, have been planted with grass or other erosion preventing plants -

. resulting in the beginnings of erosion that could threaten the road.

4. For points c.-f. above, the Bank team recommended maintenance work be carried out immediately, as the December rainy season is fast approaching. The Bank team noted that the recommended maintenance work was set to begin December 2, 2015. ANE should also review these issues the contractor before accepting handover of the road.

5. Follow-up. The Bank team and ANE agreed that with the launch of Phase 2, the RBMMP Safeguards Team will improve their reporting and documentation of the monthly and quarterly progress reports fully on those site visits through the Quarterly Supervision Report. Supervision is required Emergency works would include monthly site visits by the Safeguards Specialist assigned to the Emergency Unit as well as quarterly visits that include the ANE Environment and Social Specialist based in Maputo.

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