Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 46757-BW

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$186.00 MILLION

TO THE

REPUBLIC OF BOTSWANA

FOR AN

INTEGRATED TRANSPORT PROJECT

May 1,2009

Africa Transport Sector Country Department AFCS 1 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents mav not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS Exchange Rate Effective - April 4,2009

Currency Unit = Botswana Pula Pula 1.00 = US$ 0.129

U S $ 1 = Pula7.698

AADT A A S A C A D S BEDIA BITP BR BWP CAAB CPS CQS DBES D C A DEA DRTS DTRP DEA EA ERR EMP ESMF F D I C

FM FMS FS GABS GCC GDP GOB GPN HDM-4 HIV IBRD I C B IDA

FISCAL YEAR April 1 - M a c h 3 1

ABBREVIATIONS AND ACRONYMS

Average Annual Dai ly Traffic Administration Accounts Section Asphalt Concrete Acquired Immune Deficiency Syndrome Botswana Export Development and Investment Authority Botswana Integrated Transport Project Botswana Railway Botswana Pula C iv i l Aviation Authority o f Botswana Country Partnership Strategy Consultant Qualifications Selection Department o f Building and Engineering Services Department o f Civ i l Aviation Department o f Environmental Assessment Department o f Road Transport and Safety Department for Town and Regional Planning Department o f Environmental Affairs Environmental Assessment Economic Internal Rate o f Return Environmental Management Plan Environmental and Social Management Framework Fkdkration Internationale des Inge'nieurs Conseils (International Federation of Consulting Engineers) Financial Management Financial Management Specialist Financial Statements Government Accounting and Budgeting System Gaborone City Council Gross Domestic Product Government o f Botswana General Procurement Notice Highway Development and Management Version 4 Human Immunodeficiency Virus International Bank for Reconstruction and Development International Competitive Bidding International Development Association

FOR OFFICIAL USE ONLY

IFMIS IFR LIB M&E MFDP MLG MWT N C B NDP NMTMP NPV OFID OP OPEC OPRC PDO PPADB PPP PS QBS QCBS RAP RD RFP WF S A A SADC SBD S M U TOR TRG TSG UNDB U S A U S D voc VSL WB

Integrated Financial Management and Information System Interim Unaudited Financial Report Limited International Bidding Monitoring and Evaluation Ministry o f Finance and Development Planning Ministry o f Local Government Ministry o f Works and Transport National Competitive Bidding National Development Program National Mult i-Modal Transport Master Plan Net Present Value OPEC Fund for International Development Operational Policy (World Bank) Organization o f Petroleum Exporting Countries Output and Performance Based Road Contracting Project Development Objectives Public Procurement and Assets Disposal Board Public Private Partnership Permanent Secretary Quality Based Selection Quality and Cost-based Selection Resettlement Action Plan Road Department Request for Proposal Resettlement Policy Framework Senior Administration Assistants Southern African Development Community Standard Bidding Documents (by the World Bank) Special Project Management Unit Terms o f Reference Transport Reference Group Technical Support Group United Nations Development Business United States o f America United States Dollar Vehicle Operating Cost Variable-Spread Loan World Bank

Vice President: Obiageli Katryn Ezekwesili

Sector Director: Inger Andersen Sector Manager: C. Sanjivi Rajasingham

Country Director: Ruth Kagia

Task Team Leader: Supee Teravaninthorn

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

BOTSWANA Integrated Transport Project

CONTENTS

Page

I . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1

A . B . C .

I1 . A . B . C . D . E .

I11 . A . B . C . D . E . F . G .

I V . A . B . C . D . E . F . G .

Country and sector issues .................................................................................................... 1 Rationale for Bank involvement ......................................................................................... 5 Higher level objectives to which the project contributes .................................................... 6

Lending instrument ............................................................................................................. 7

Project components .............................. ; ............................................................................. 8

Alternatives considered and reasons for rejection ............................................................ 13

Partnership arrangements.. ................................................................................................ 15

Institutional and implementation arrangements.. .............................................................. 15

Financial management arrangements., .............................................................................. 16

Monitoring and evaluation o f outcomesh-esults.. .............................................................. 17

Sustainability ..................................................................................................................... 18

Critical risks and possible controversial aspects ............................................................... 18 Loan conditions and covenants ......................................................................................... 21

PROJECT DESCRIPTION ............................................................................................. 7

Project development objective (PDO) and key indicators .................................................. 7

Lessons learned and reflected in the project design .......................................................... 11

IMPLEMENTATION .................................................................................................... 15

. . .

APPRAISAL SUMMARY ............................................................................................. 23 Economic and financial analyses ...................................................................................... 23

Technical ........................................................................................................................... 24

Fiduciary ........................................................................................................................... 24

Social ................................................................................................................................. 26 Environment ...................................................................................................................... 27

Safeguard policies ............................................................................................................. 28

Policy exceptions and readiness ........................................................................................ 28

Annex 1: Country and Sector .................................................................................................... 29

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 36

Annex 3: Results Framework and Monitoring ........................................................................ 37

Annex 4: Detailed Project Description ...................................................................................... 42

Annex 5: Project Costs ............................................................................................................... 50

Annex 6: Implementation Arrangements ................................................................................. 52

Annex 7: Financial Management and Disbursement Arrangements ..................................... 55

Annex 8: Procurement Arrangements ...................................................................................... 67

Annex 9: Economic Analysis ...................................................................................................... 80

Annex 10: Safeguard Policy Issues ............................................................................................ 87

Annex 11: Project Preparation and Supervision ..................................................................... 90

Annex 12: Documents in the Project File ................................................................................. 91

Annex 13: Statement of Loans and Credits .............................................................................. 92

Annex 14: Country at a Glance ................................................................................................. 93

Annex 15: Maps ........................................................................................................................... 95 IBRD Map No . 36909

BOTSWANA

Source

INTEGRATED TRANSPORT PROJECT

Local Foreign Total

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTTR

Source

Date: M a y 1,2009 Country Director: Ruth Kagia Sector Director: Inger Andersen Sector Manager: C. Sanjivi Rajasingham

Team Leader: Supee Teravaninthorn Sectors: Roads and highways (55%); Urban Transport (25%); General transportation sector (1 5%); Railways (5%) Themes: Regional integration (P);Other urban development (S); Asset preservation Environmental screening category: Category B Project ID: P102368

Local Foreign Total

Lending Instrument: Specific Investment Loan (SIL)

Borrower International Bank for Reconstruction and

3 . Project Financing Data

59.7 139.5 199.2 73.8 112.2 186.0*

[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ 3 Other:

- I 59 7 I 119 5 I 199 3

For Loans/Credits/Others: Total Bank financing (US$ million): 186.00 Proposed terms: Commitment-linked IBRD Flexible Loan in U S dollar with a variable spread and level repayments o f principal. The loan will be payable in 27 years (including 8 years grace period). The loan includes al l o f the embedded options (currency conversion, interest rate conversion and

Development (IBRD) Total ( inclusive of taxes) 133.5 251.7 385.2

Rnrrnwer

Borrower: The Republic o f Botswana

Responsible Agency: Ministry o f Works and Transport, Botswana 2nd Floor, Room 204 Private Bag 007 Botswana Tel: 267 395 8504 Fax: 267 391 3303

i

FY Annual Cumulative

[ ]Yes [XINO Does the project depart from the CAS in content o r other significant respects? Ref: PAD I. C. Does the project require any exceptions from Bank policies?

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 14 20 14 13 15 16 18 18 18 20 20 14 34 48 61 76 92 110 128 146 166 186

Ref: PAD I K G. Have these been approved by Bank management? I s approval for any pol icy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Ref: PAD III. F. Does the project meet the Regional criteria for readiness for implementation? Ref: PAD I K G. Project development objective -- Ref: PAD ILB. The primary development objective o f the project i s to enhance the efficiency o f the transport system by building modern business management capacity, and improving the strategic planning aspects o f inter-regional transport and critical transport infrastructure.

Project description Ref: PAD ILC. Technical Annex 4.

[ ]Yes [XINO

[XIYes [ ] N o

[XIYes [ ] N o

Component A: Capacity Building, Institutional Strengthening, and Training. This component comprises provision o f technical advisory services to undertake; (i) a number o f pre-investment activities; and (ii) a capacity-building, knowledge transfer, and institutional strengthening and training program. I t aims to introduce strategic planning and transport integration, modem methods o f management and contracting, technology improvement, knowledge development and sharing.

Component B: Road Sector Investment. T h i s component introduces a p i lo t long term output and performance based road contracting (OPRC) method for a road asset management program covering some 800km o f rural and semi-urban road in Kanye road depot, as we l l as the provision o f technical advisory services to monitor the progress and quality o f works. The work cycle will include a l l required activities in order to reach the designed level o f service on the specific road network f rom an engineering to the final users’ satisfaction point o f view.

Component C: Urban Roads Infrastructure Investment. T h i s component comprises the implementation o f an urban traffic improvement program in Greater Gaborone c i ty and technical advisory services to supervise construction o f the improvement works under this component. The investment aims to solve the urgent urban congestions along the major ci ty roads/streets and intersections introducing modem and advanced planning, design and implementation techniques.

.. 11

Which safeguard policies are triggered, if any? Re$ PAD I K F . , Technical Annex 10 Safeguards policies that will be triggered are OP/BP 4.01 for environmental assessment (EA) and OP/BP 4.12 for involuntary resettlement.

Significant, non-standard conditions, if any, for: N/A

Board presentation: None.

Loan effectiveness: (i) (ii)

The issuance o f the relevant legal opinions according to the legal system o f Botswana. Technical Support Group for the Special Project Management Unit (SMU) to be fully recruited.

Covenants applicable to project implementation:

Financial The Government o f Botswana (GOB, the Borrower) shall: (i) maintain or cause to be maintained a financial management system including records, and accounts in accordance with the provisions o f Section 5.09 o f the General Conditions. (ii) prepare and furnish to the Bank, not later than 45 days after the end o f each quarter, interim unaudited financial reports for the Project covering such quarter, in form and substance satisfactory to the Bank; (iii) have the project’s Financial Statements (FS) audited in accordance with the provisions o f Section 5.09 (b) o f the General Conditions. Each audit o f the FS shall cover the period o f one Fiscal Year. The audited FS for each such period shall be furnished to the Bank not later than six months after the end o f such period, Le., by September 30 o f each year; (iv) prepare the Audit Terms o f Reference in consultation with the Bank, within three months o f effectiveness o f the loan agreement; (v) assign one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit, no later than one month from effectiveness date; and (vi) designate staff to be responsible for the production o f the interim unaudited financial reports (IFR) by component and activity in the Accounts Unit, MWT no later than one month from effectiveness date.

Implementation (i) GOB shall establish a Transport Reference Group to provide overall pol icy direction and general oversight o f the project; (ii) Road Department (RD) / Ministry o f Works and Transport (MWT) has established a Special Project Management Unit (SMU) composed o f qualified staf f from MWT, RD, GCC and other participating government department; (iii) The S M U shall be responsible for implementing, managing and coordinating project activities, and it shall: (i) maintain at a l l times adequate financial management and procurement systems and procedures; (ii) carry out overall technical management and oversight o f the project, including monitoring and evaluation o f Output and Performance Based Road Contracts (OPRCs); and (iii) monitor technical and material output o f the project to ensure that i t i s in line with the financial payments and statements to be prepared by the Ministry o f Finance and Development Planning (MFDP);

... 111

(iv) RD/MWT to carry out, in conjunction with the Bank, a project mid-term review by June 30, 2014. N o later than two months prior to the mid-term review, prepare relevant progress report to be discussed at the mid-term review; and (v) RD/MWT shall ensure that the project i s carried out in accordance with the provision o f the Bank’s Anti-corruption Guidelines.

Safeguards (i) A Resettlement Action Plan (RAP) and an Environmental Management Plan (EMP) would need to be prepared, when applicable, in accordance with the provision contained in the Resettlement Policy Framework and Environmental and Social Management Framework (ESMF) and the Wor ld Bank pol icy to that effect, and be duly implemented thereafter.

Reporting (i) Semi-annual progress reports for a l l components, including result indicators, as applicable, using the agreed format. These progress reports will include a summary o f the actions and activities undertaken to implement the outcome o f the regional integration study, and the progress in the local contracting industry development; (ii) Annual reports o f the unit cost o f the works under the OPRC component; and (iii) Annual training report and evaluation forms.

iv

I. S T R A T E G I C CONTEXT AND RATIONALE

A. Country and sector issues

1 human development indicators and the need for economic diversification

K e y development issues in the country context-high levels of poverty, inequality, low

1. Botswana, a landlocked middle-income country (MIC) with a population o f 1.9 people mi l l ion in an area larger than France, i s one o f the world’s great development success stories. Botswana i s one o f only very few countries in the wor ld to have sustained a long period o f high growth thanks to i t s prudent management o f natural resources (mainly diamonds).The economy has grown at an impressive rate, averaging about nine percent a year during the last four decades, since i t s independence in 1966. I t s real gross domestic product (GDP) per capita has increased more than ten-fold since i t s independence - the fastest growth rate in GDP per capita in the world. I t reached US$5,840 per capita in 2007 making Botswana one o f on ly a handful o f counties in sub-Saharan Afr ica to have reached the upper middle income group o f countries. This success has mainly been driven by the mineral sector, which accounted for about 40 percent o f GDP in 2007/08, with diamond mining constituting the bulk o f the mining sector. Diamond export accounted for 60 percent o f total merchandise goods exported in recent years. Mineral revenues accounted for roughly 40 percent o f total government revenues in the last f ive budget years (2004-2009). Fiscal management o f mineral revenues has been prudent, with revenue channeled into public investment, and recurring expenditures largely limited to non-mineral revenue sources. Sizeable fiscal surpluses in recent years have been saved in the Pula Fund, and international reserves have been built up to US$9.2 b i l l ion at the end o f 2008, about 21 months o f imports. As a result, public external debt stands at less than three percent o f GDP, domestic public debt i s l o w at 2.6 percent o f GDP, whi le the interest burden i s less than 0.3 percent o f GDP and 0.8 percent o f revenues. All this has been achieved against a backdrop o f polit ical stability and democratic government.

2. However, Botswana s t i l l faces a number o f development challenges leading to high levels o f poverty, inequality and lagging human development outcomes. The country’s narrow economic base has been dominated by the mineral sector for the past decades. Private sector growth, while positive, has not been able to keep pace with the much faster growth o f the mineral sector and government. The reliance on mining, a highly capital intensive sector, has also meant that the benefits o f development have not yet been broadly shared. Disproportionate to its revenue contribution, diamond mining represents only a small share (3.4 percent) o f total employment. The economy remains heavily dominated by the public sector, which accounts for 17 percent o f GDP and 40 percent o f al l formal sector employment in the country. Slow growth in the non-mining private sector has meant that growth in employment opportunities has not been sufficient to absorb labor leaving the rural/agriculture sector. As such, the country’s overall unemployment rate has been persistently high over the past 15 years at nearly 20 percent with an unemployment rate o f about 35 percent rate among Botswana’s youth. Botswana suffers from the world’s second highest Human Immunodeficiency Virus (HIV) adult prevalence rate at over 23 percent o f the population. In addition, Botswana lags comparator upper middle income counties in terms o f youth and adult literacy rates despite high levels o f budget outlays. Infrastructure capacity and quality have not kept pace with growth, and the electricity, transport and water sectors, in particular, are now presenting bottlenecks to sustained growth. The threat o f losing 70 percent o f the current electricity supply by 2013 (when South Afr ica will stop a l l electricity exports to Botswana), achieving energy security has become an urgent national priority. Despite i t s upper middle-income status, one third o f the

1

population l ives below the internationally recognized poverty l ine o f US$1 per person per day, a level much higher than many countries o f similar economic standing.

3. T h e situation i s now fbrther exacerbated by the impacts o f the global economic crisis, which i s already affecting Botswana severely, and i s l ike ly to have even greater effect in the coming months and years. Economic growth i s down, exports and government revenues have plummeted, and unemployment i s on the increase. Since the global economic crisis unfolded in the fourth quarter o f 2008, in the four months between October 2008 and January 2009, the value o f Botswana’s diamond exports dropped by 51 percent as compared to a year earlier. Diamond prices have also fallen by close to 10 percent f rom their peak in August 2008, and further declines are expected, with analysts forecasting a total drop o f 20-30 percent. In addition to diamonds, copper and nickel export values, which represent about 15 percent o f total exports, have also dropped by over 50 percent since the crisis. Problems with mineral exports will affect not just those sectors but will have macroeconomic consequences as well. Economic growth for 2008-201 1 i s projected to decline substantially from the 3.3 percent attained in 2007/08, fiscal deficits will emerge’after years o f surpluses, and the current account balance wil l shrink substantially from the 19 percent surplus seen in 2007. M ine closures have already resulted in the loss o f about 4500 mining jobs thus far.

4. As a small open economy, Botswana’s reliance on international trade means that what happens to exports and imports, particularly diamond exports, will be the main channel through which external economic developments are transmitted to the economy. The government expects diamond sales revenue to fal l by ha l f in the coming two years. M ine closures have resulted in the loss o f about 4500 mining jobs thus far. H o w deeply the economic recession i s felt, and how long it lasts wil l depend to a great extent on the duration o f the downturn in diamond exports, which in turn depends on economic developments in the major rich-country markets. The United States o f America (USA), Europe, and Japan together account for 76 percent o f the diamond market, with the USA alone representing 45 percent (2006).

5. Nevertheless, Botswana i s in a stronger position than many other mineral producing economies in the continent, with international reserves providing nearly two years’ worth o f import cover, and a year’s worth o f expenditures saved f rom previous years’ fiscal surpluses. The government i s hoping that these savings will provide a cushion that will enable a gradual, rather than abrupt, adjustment to adverse circumstances. But trade and fiscal deficit financing will become an increasing challenge if the fal l in exports stretches into the medium term.

6. Botswana has therefore long realized that i t i s essential to diversify the economy, with increasing reliance on the private sector to lead activities in sectors such as manufacturing, agro- processing, and services. In a sense, the global economic crisis has only served to heighten the attention o f pol icy makers to this pol icy imperative. Economic “diversification” already became a major pol icy goal for the government in the formulation o f i t s current ninth National Development Plan (2003/4 - 2008/9) and upcoming tenth National Development Plan (2009-2016) will focus. In October 2006, the Bank together with the Botswana Institution o f Development Policy Analysis (BIDPA), jo in t ly completed a study on “Diversifymg Botswana’s Export: An Overview”. In order to diversify the economy beyond Botswana’s principal export o f diamonds, various reforms and investments in infrastructure were recommended to bring about new export opportunities, economic growth and job opportunities, among other measures. These included a review o f taxation policies, a comprehensive reform o f vocational and educational training, a resolution o f issues surrounding work permits, reform o f utilities, etc. With regard to the transport sector list, the study recommended reducing transport costs and improving trade facilitation.

2

2 theme

K e y development issues in the transport sector context - greater regional integration i s the

7. Ef f ic ient and cost effective transport i s v iewed as one o f the vehicles fo r growth and a necessary condi t ion to increase competitiveness, and hence promote economic diversification. Botswana has been doing w e l l in i t s transport sector after two decades o f se l f reliance and inward l ook ing development. However, the basic i nward look ing development stage has now reached i ts m a x i m u m benefit. The country can n o longer afford to r e l y heavi ly o n i ts domestic market and limit connections to i t s giant neighbor, South Afr ica. The smaller the economy, the more i t has to increase i t s degree o f openness and connect to a larger global market. Expanding i ts economy and enlarging i ts markets through effective regional collaboration should be seriously considered. G iven the large geographical size o f the country (10 percent larger than France), with a small but good qual i ty p o o l o f human resources, i t does no t have the economy o f scale to base i ts growth o n the domestic consumer market, no r to effectively compete in the area o f labor-intensive manufacturing. On the contrary, the country could have a competit ive edge in the area o f highly ski l led service providers, inc lud ing transport services.

- Box 1: Current situation of various transport modes

Botswana has a relatively well-developed land transport infrastructure, road and railways. However, management o f these assets could be improved. Roads are currently the predominant mode o f transport for Botswana carrying over 90 percent o f freight and passenger traffic. When Botswana achieved independence in 1966 it had 12 km o f paved road. Today, after 40 years o f continuous development and good governance, it has 6,000 km o f paved road and 12,000 km o f unpaved network (national and local government network included). The length o f the network grew rapidly in the 1970s - OS, but slowed down significantly over the last five years, as the competing demands for limited public financial resources between the human development sectors (health, education, HIV/AIDS, etc.) and infrastructure sectors has increased. The total asset value o f the primary and secondary network i s estimated at Pula 10 billion, (US$1.3 bi l l ion equivalent) while the average annual maintenance expenditure i s about Pula 100 mill ion (US$13 mi l l ion equivalent) per annum (a mere one percent o f the total asset value). Such a level o f expenditure i s obviously far from adequate to maintain the road infrastructure at an optimal level. As a result, the deterioration o f the road network with the increased traffic growth i s progressing fast. The significant number o f roads previously in excellent condition today needs various forms o f rehabilitation. Moreover, the rapid growth o f traffic in the urban and peri-urban areas around the capital Gaborone demands a substantial increase in additional road lanes and effective traffic management, while the existing road surface has not been maintained. Botswana’s railway, a 100 percent government owned parastatal, consists o f a single main l ine o f 900 km with three short branch lines. I t l i nks with the South Africa railway to the south and the Zimbabwe railway to the northeast. I ts major business activities are freight traffic o f soda ash - export, and raw materials for the textile industry - import. However, over the last five years i t s freight traffic has been very volatile with a generally downward trend. This i s partly due to the increasing competition from the road sector and the outdated management practice, and partly to the monopolistic power o f South Africa in controlling rai l freight traffic routing. Market access to air transport i s quite restrictive in comparison with road transport. Restrictions exist, in particular, for scheduled domestic and international air transport services. The bilateral agreement with South Africa has an important influence on access, frequencies, and prices to Botswana. In addition, improved airport facilities, management, and operation efficiency have become important and urgent issues for the air tranmort sub-sector.

3

Namibia and Angola to the west and Zambia, Zimbabwe and eastern Afr ica to the east. Proximity to South Afr ica offers the potential to link Botswana into regional supply chains. Botswana should seize this advantage o f i t s strategic location and turn the challenge into an opportunity. It should upgrade i t s transport infrastructure drastically and ready i tself to take up the fbrther challenge o f attracting businesses that are currently queuing at very congested centers in South Africa. The transport sector development vision for Botswana i s to “go regional”; effect a paradigm shift from inward looking and being “at the end o f the line” to being outward looking and positioning i tself to be “the center or second hub” o f the

9. Regional integration dimension o f the project in line with SADC protocol: Botswana i s one o f the 14-member states o f the Southern Afr ican Development Community (SADC) and has signed the 1994 Transport and Communications Protocol. T h e protocol emphasizes the regional integration o f the member states through integrated transport development. Member states agreed to ensure and sustain the development o f an adequate roads network in support o f regional socio- economic growth by providing, maintaining, and improving a l l roads including primary, secondary, tertiary, and urban roads, and those segments which collectively constitute the so called “regional trunk road network”. In addition, the protocol also calls for member states to promote economically- viable integrated transport service provisions in the region characterized by higher performance standards and consistent levels o f efficiency and reliability o f a l l individual component parts o f the transport chain. Using the 1994 protocol as a platform for further regional integration and collaboration, SADC has developed a “Corridor Development Initiative” using transport to facilitate the trade and investment in order to unlock inherent economic potential in specific southern African locations, with the fol lowing underpinning key principles and strategies:

Box 2: Transport sector development vision: p Go regional- strive to be the second

regiona1 hub Of

Africa. > At the national level- increase

through effective

Actively acquire international experience with to vast natural but getting maximum value for money i s a key challenge.

Institutional collaboration.

Promote regional economic co-operation and integration in terms o f economic pol icy and strategy; Focus on existing transportatioddevelopment corridors; Greater regional competitiveness via regional integration and collaboration; Greater emphasis on the role o f the private sector; and

10. transport infrastructure and services as a conduit to achieve greater regional integration.

The scope and investment planned under the project i s in line with the SADC spirit o f using

4

Box 3: Transport costs, an impediment to trade and export diversification.

Botswana i s only four hours by road to Johannesburg, and nine hours to the Port o f Durban. However, i ts high transport costs were quoted as a major constraint for the competitiveness o f i ts non-diamond exports (beef, ostrich, textile, copper, nickel, and tourism). Transportation costs for imports o f intermediate and

Average Inland transport

(US$/20 ft container) /1

Air Freight to

(US$/per kg)/2 cost to Durban Ports Europe

Botswana 1,149 1,840 I A Q L

&caIIIUIca I Zimbabwe I I L,LLU

capital inputs and exports from Botswana are high in comparison to international competitors, such as Mauritius and South Africa for tourism and textile, and Argentina or Brazil for beef. I t has been a double jeopardy for Botswana as combined inland and sea freight transport costs are high with the inland transport part constituting nearly 60 percent o f total transport costs. The average cost to transport a 40 ft container to

Durban from Gaborone i s approximately Pula 14,500 (US$2,440) while the cost o f shipping the same container from Durban to Baltimore, USA i s US$2,500. Air passenger costs are also high, which have an impact on tourism and exports o f services and high value products.

B. Rationale for Bank involvement

11. The priority for Botswana in the next decade i s to focus o n economic diversification through greater competitiveness and to achieve greater regional integration. It i s clear that the magnitude o f the investment needs will also require private capital. In addition, the increasing sophistication o f i t s development agenda makes the introduction o f international development experience from other relevant countries more critical than ever before. Botswana i s mindfil that given the critical juncture at which the country stands in relation to i ts infrastructure development vision and privatization program, i t i s important to draw lessons from the substantial body o f global and African experience and best practice.

12. In the above context, the Government o f Botswana (GOB) views the Bank as a development partner not only in the area o f resource transfer, but also (and more importantly) as a conduit for transferring knowledge and international experience from the global community. The breadth and depth o f the next level o f development aiming to position Botswana to be the second regional transport hub o f southern Afr ica would require the development o f a sophisticated intermodal Transport Master Plan for which the Bank has the needed and proven expertise that would bring added value to the client. The knowledge and analytical advice will be accompanied by physical investment. On the Bank’s side, the proposed intervention would present an opportunity to deepen the Bank’s understanding and support to Botswana’s ambitious and wel l balanced program o f investment covering both institution building through a wel l coordinated p i lo t technical assistance program and blended with the physical investment activities for selected high valued assets.

13. Botswana, having developed i t s road network significantly in the past, has recently had a major problem in maintaining i t s Pula 10 b i l l ion (about US$1.3 b i l l ion equivalent) worth o f road

5

assets. Therefore, i t needs a sustainable and optimized management system that will preserve the road asset value, develop and introduce a modem monitoring system to ensure that the investment i s maintained and sustained in an optimal and real time manner, providing “value for money’’. The Bank has a distinguished and leading role in bringing in the private sector to achieve sustainable results in the road sector through the multi-year performance and output based road and management contracts in other parts o f the world. The Bank had first introduced such contracts in Argentina, Brazi l and Uruguay in the early 1990s and i t i s currently scaling up i t s usage in Africa and Asia. In Africa, examples are Chad, Uganda, Nigeria, Liberia, Zambia, and Madagascar, while in Asia the examples are in India and Philippines where the Bank i s helping the governments to developing similar schemes, based on the Bank’s Output and Performance-Based Road Contracting (OPRC) sample document. The Bank is, therefore, we l l qualified and experienced to support the government’s reform efforts, drawing from i ts extensive involvement in similar reform programs. This project will introduce, as a p i lo t operation, the modem asset management method (OPRC) to Kanye road depot catchment area, which i s one o f the most traveled road networks in Botswana. Once proven to be successful, i t wil l be replicated to other parts o f the road network in the country.

14. Involvement o f multilateral and bilateral institutions in the past decades includes support from the African Development Bank (AfDB), OPEC Fund for International Development (OFID), Kuwai t Fund for Arab ,Economic Development, and China-Exim Bank. Botswana now requires substantial support in the road sector and increasing Bank’s engagement would not only be to prepare the ground for a new sustainable initiative but also to promote further private sector investment. With the Bank taking the role o f a financier and facilitator o f best practice, Botswana i s expected to promote institutional reforms, right-sizing i t s c iv i l service, including a possibility for establishment o f an autonomous Roads Authority, and introducing the use o f long te rm performance and output based contracts to manage the entire national roads network. This will not only attract large investors in the road sector, but will also result in increased competition, reduced prices for road construction and ultimately lower road user costs.

C. Higher level objectives to which the project contributes

15. The Botswana Integrated Transport Project (BITP) i s aligned with the Bank’s partnership strategy agreed with GOB. T h e project closely follows the specific strategies considered under the Country Partnership Strategy (CPS) for 2009-2013 (scheduled to be presented to the Board on M a y 21,2009). As indicated in one o f the four Strategic Elements in the CPS, Increased Competitiveness - Infrastructure and the Investment Climate, efficient, secure and cost effective infrastructure i s the key for Botswana’s continued economic growth and increased competitiveness. Hence, the government has called on the Bank to partner in improving Botswana’s hard strategic infrastructure, including in the transport and electricity sectors, to benefit from both the Bank’s knowledge and financing.

16. Given the country and sector vision, the higher level objective o f the project i s to assist the Government o f Botswana (GOB) to take the f i rs t bo ld step in revamping and modernizing i t s entire transport system. It aims to start with enhancing i t s system efficiency in order to eventually take up the challenge o f i t s ambitious vision by positioning itself to be the feeder hub for southern Africa. The proposed project aims to provide the necessary capacity building and the infrastructure improvement which will, over time, increase i t s competitive edge required for opening up the opportunity for export diversification. It would open up employment opportunities in the private sector, help balance the income and wealth distribution to benefit disadvantaged groups o f the population, and reduce poverty in-line with the Mil lennium Development Goals (MDGs).

6

11. PROJECT DESCRIPTION

A. Lending instrument

17. T h e Bank will finance the project through a specific investment loan. The borrower has reviewed various lending options and has selected a Commitment-linked IBRD Flexible Loan, in U S dollars with variable spread, and with level repayments o f principal. The loan will be payable in 27 years (including an eight year grace period) and the front-end fee will be paid from the Borrower’s own resources upon loan effectiveness. Debt service payment dates wil l be M a y 15 and November 15 o f each year. The loan includes a l l o f the embedded options (currency conversion, interest rate conversion and caps/collars).

B. Project development objective (PDO) and key indicators

18. The primary development objective o f the project i s to enhance the efficiency o f the transport system by building modern business management capacity, and improving the strategic planning aspects o f inter-regional transport and critical transport infrastructure. The outcomes/results frameworks o f the PDO are:

(i) On building modern business management capacity: (a) The successful introduction o f the modern method o f road asset management

starting with the implementation o f the p i lo t OPRC scheme in Kanye Road Depot, and replicate in other districts once it i s proven successful.

reduce traffic congestion in Gaborone City. (b) Introduction o f modern traffic management and technical solutions to effectively

(ii) On improving strategic planning aspects o f inter-regional transport and critical transport infrastructure, the outcome indicators are the successfd implementation o f major strategic vision for regional integration o f Botswana. The various studies to be completed under the project a im to provide strategic and pol icy guidance to achieve such vision. The studies will also form part o f national master plan to effectively direct the critical transport infrastructure investment.

19. indicators:

The achievement o f the PDO will be monitored using the fol lowing key performance

(i) Length o f roads under long term OPRC rehabilitation and maintenance; (ii) Level o f satisfaction by road users; (iii) Reduction o f average vehicle operating costs per kilometer on OPRC roads; (iv) Decrease in number o f annual road accidents on project roads; (v) Reduction o f average travel time in Gaborone city; and (vi) The various studies to be completed under the project a im to provide strategic and

pol icy guidance to achieve such vision. The studies wil l also form part o f national master plan to effectively direct the critical transport infrastructure investment.

7

C. Project components

20. The project seeks to achieve the above mentioned development objectives through investing in the fol lowing three major components (see details for each component in Annex 4). The overall estimated cost o f the project i s US$385.2 mi l l ion (inclusive o f taxes and contingencies), out o f which US$186.0 mi l l ion wil l be financed by the Wor ld Bank and the remaining amount o f US$199.2 mi l l ion by GOB. There i s a possibility that the government will also request funding from OFID. The involvement o f OFID would be a bilateral arrangement between OFID and GOB and would help lighten the load o f the counterpart funding from GOB. The effects o f such co-financing o f the project would be addressed at the time that OFID makes the financing available. Table 1 summarizes the components and their estimated costs (also see Annex 4 for a detailed description o f sub-components and Annex 5 for a detailed cost break down).

2 1. US$20.7 mi l l ion (inclusive o f taxes) proposed to be financed as follows:

Comoonent A: Capacity Building, Institutional Strengthening, and Training, estimated at

Component A I : pre-investment activities estimated at US$8.5 mill ion; o f which US$O.lO mi l l ion was financed by GOB, and the remaining amount (US$8.4 mill ion) will be financed by the Wor ld Bank, o f which US$5.7 mi l l ion will be financed under a retroactive financing arrangement. Briefly, this component comprises (a) development o f regional integration vision for Botswana; (b) studies o f three new railway links; (c) development o f conceptual design and preparation o f bidding documents for about 800 kilometers o f Output and Performance-Based Road Contracting (OPRC) for Kanye road depot; (d) feasibility study for Gaborone City traffic improvements; (e) development o f environmental and social management framework (ESMF) for OPRC contracts; and (f) pre-investment capacity building program for staff training in transport planning and project management

Component A2: Capacity building, knowledge transfer and institutional strengthening, and training investment planned during project implementation phase, estimated to cost US$12.2 mi l l ion a l l o f which will be financed by the Bank. Briefly, this includes: (a) development o f a national multi-modal transport master plan, including a transport master plan for the Greater Gaborone city (b) training o f various government agencies in Ministry o f Works and Transport (MWT) and technical assistance support to Transport Hub, (c) technology and logistical upgrade for MWT; (d) preparation o f detailed designs and bidding documents for selected intersection in Greater Gaborone city; (e) carrying out o f independent technical and financial audits; and (f) a program o f training and development to strengthen the local consulting and contracting industry.

22. Commnent B: Road Sector Investment, estimated at US$236.8 mill ion, inclusive o f taxes out o f which US$122.7 mi l l ion will be financed by the Bank, and the remaining U S $ l l 4 . 1 mi l l ion by the GOB. The cost split for this component i s US$228.2 mi l l ion for c iv i l works and US$8.6 mi l l ion for construction moni tor ing supervision. The Bank wil l finance 50 percent o f the works and 100 percent o f construction monitoringsupervision. The investment activity comprises the execution o f a road asset management program for some 800km o f rural and semi-urban road using the long term output and performance based road contracting (OPRC) method covering road network in Kanye road depot. The work cycle will include a l l required activities in order to reach the designed level o f service on the specific road network from an engineering to the users’ satisfaction point o f view.

8

23. Component C: Urban Roads Infrastructure Investment, estimated to cost US$8 1.4 mill ion, inclusive o f taxes out o f which US$42.8 mi l l ion wil l be financed by the Bank and US$38.7 mi l l ion by the GOB. The total cost split for this component i s US$77.3 mi l l ion for c iv i l works and US$4.1 mi l l ion for construction supervision services. The Bank will finance 50 percent o f works and 100 percent o f supervision costs. The investment activity comprises the implementation o f an urban roads improvement program in Greater Gaborone city aiming to solve the urgent urban congestions along the major ci ty roads/streets and intersections by introducing modern and advanced planning, design and implementation techniques.

9

Table 1: Project Scope, Components and Cost Estimates

Component

Investment Estimated Bank YO of Bank activities/ cost Financing Financing categories inclusive

of taxes (US$m) (US$m)

A: Capacity Building & Institutional Strengthening and 20.7 20.6 Training

Al. Pre-investment activities Capacity 8.5 8.4 building

A1 . 1 . Regional Integration and A 1 Transport Corridor cons. 1.4 1.4 100 (Retroact& financing) Al.2. Technical Assistance and Study for 3 Railway Lines cons. 2.7 2.7 100 A1.3. Conceptual Design for OPRC Cons. 1.2 1.2 100

Al.4. Greater Gaborone Transport Multimodal Study cons. 0.9 0.9 100

A I .5. Environmental, Social and Resettlement Frameworks for cons. 0.1 - -

(Retroactive financing)

(Retroactive financing)

OPRC A1.6. Training o f RD Staff in Pre-project Period Training 0.1 0.1 100

A1.7. Transport Support Group for RD (3 specialists for 2 years) cons. 2.1 2.1 100 (Retroactive financing)

(Retroactive financing)

strengtheningtraining building A2. Capacity building, knowledge transfer and institutional Capacity 12.2 12.2

A2.1. National Mult i-Modal Transport Master plan Cons. 2.6 2.6 100 A2.2. Training o f various Government Institutions and Support to Training I 2.1 2.1 100 Transport Hub cons. A2.3. Technological and Logistic Upgrade o f MWT Goods 2.1 2.1 100

A2.4. Detailed Designs and Bidding Documents for Selected cons. 3.1 3.1 100 Gaborone Intersections A2.5. Technical Monitoring and Audit cons. 1.3 1.3 100 A2.6. National Consulting and Constructing Industry cons I 1 .o 1 .o 100 development training B: Road Sector Investment (inclusive of taxes) Physical 236.8 122.7

B 1.1, OPRC- Road Works Works 228.2 114.1 50 Investment

B 1.2. Consulting Serviceshlonitoring o f OPRC cons. 8.6 8.6 100

C: Urban Roads Infrastructure Investment (inclusive of Physical 81.4 42.8 taxes) Investment C. 1.1 Gaborone City Urban Roads and Intersections Works 77.3 38.7 50 Improvement C. 1.2 Consulting Services for Supervision on Construction cons. 4.1 4.1 100

Total cost (inclusive of taxes, net of contingencies) 338.9 186.0

Total estimation o f price and physical contingencies 46.3 - -

Note: Total amount eligible for retroactive financing i s US$5.7 million.

10

D. Lessons learned and reflected in the project design

24. The Bank has not operated in Botswana for almost two decades; therefore there i s not a distinctive lesson from a previous Bank’s operation in the country. However, as the economic situation, which in the past depended heavily on diamond production, i s changing fast, the need for reforms and adjusting the way o f doing business becomes evident in a l l sectors especially in transport. The sector i s increasingly calling for massive involvement o f the private sector through PPP, for scaling up regional integration, for a balanced use o f different modes o f transport, and for better utilization o f resources emphasizing the “value for money” principle, etc. All o f these demand a change in the openness o f the country and i t s exposure to the international markets. The country presently i s actively involved in creating an international transport hub environment, considering the use o f various cost recovery methods (tolls, shadow rates, etc.) and improving the management and monitoring systems for i t s public asset management. However, tying physical interventions to successful implementation o f reform measures bears the risk o f getting into a gridlocked situation and further deteriorating road assets. Instead, capital investments and reform measures have to be pursued simultaneously with reasonable linkage between their implementation.

25. Given the above, the Bank and the GOB have designed this project with focused attention placed on formulating specific sector strategy supported by physical interventions. The project therefore proposes to facilitate engaging the private sector through implementation o f long term OPRCs at a time when support from key decision makers for private sector participation i s strong and road users’ demand for better and safer transport i s mounting. In addition, the project supports sophisticated traffic management options including implementation o f multi level interchanges and other measures to facilitate the already unbearable traffic conditions o n major Gaborone city streets.

26. While pursuing the physical interventions, the BITP will at the same time focus on capacity building and improved institutional arrangements by introducing professional planning methods leading to safer, modern, and optimized road asset management, through the introduction o f Transport Mult imodal Planning, traffic improvements, and development o f various cost recovery options for major transport facilities. Neither o f these efforts will be conditional on the other, but al l will go hand in hand and closely coordinated. For instance, well-functioning OPRC arrangements require lean, competent government counterpart units to manage and enforce them. The Roads Department (RD) special unit in charge o f the project i s expected to be the counterpart unit and i t s establishment and operation i s being supported by the project.

27. OPRC experience. The Bank has been involved in promoting output and performance based contracts in a number o f countries in Lat in America (Argentina, Brazil, and Uruguay), South Asia (India), and Afr ica (Chad and Zambia) and the lessons drawn from such experiences that are relevant in the context o f Botswana have been appropriately incorporated in the project design including:

Greater fiscal predictability, reliabil i ty and easier monitoring o f results; Rehabilitation and maintenance works are combined under one model and implementation strategy, thus making i t easy to monitor and measure; The project has defined a l l r i sks involved, quantify them, and propose mitigation measures for each o f the r isks involved, proportioning them to the party best fit to mitigate it; Rehabilitation and maintenance works must comply with the designed level o f pavement deflection, roughness, rut depth, cracking or raveling and minimum level o f

11

0

0

0

0

0

0

0

0

0

skid resistance, and other elements spelled out within the agreed level o f service (from the road users’ point o f view); Regular monthly visual inspections o f maintenance activities must focus on facil i ty condition, roadside environment and other road inventory; For the entire financed works, the payment model will cover the rehabilitatiordimprovement works as we l l as maintenance works, making sure that the contractor has the required incentives to carry out the maintenance works after completion o f rehabilitation works; The rehabilitation solutions need to be closer to the economically optimum strategy recommended by l i f e cycle cost analysis, such as by using the Wor ld Bank’s Highway Development and Management Version 4 (HDM 4) model, o r equivalent; The period during which rehabilitation works are to be executed should be dependent on the design o f the contractor who undertakes to assume the risks involved before achieving the payment terms upon full compliance with the design level o f service. Adjustments for inflation should be made throughout the contract period, on a monthly basis, starting one year after bid submission date; A corridor management approach should be adopted whereby the service provider i s also required to manage road safety, axle load control, roadside user facilities, right-of- way encroachment and traffic flow; There should be increased consistency in the rehabilitation and maintenance activities through long term network management rather than short term road by road section interventions; Success in the implementation o f OPRCs i s highly dependent on: (i) good management o f the programs at the road authority level, and (ii) the government’s capacity to meet with their financial obligations, thus, regularly honoring the payments due to the contractors; and Longer duration o f performance based contracts (up to 10 years) are prescribed to allow the contractor to spread the r isks and provide for justifiable periodic maintenance cycles - and where OPRCs are being tried for the first time, it i s necessary that the Bank remains involved throughout the contract period.

28. The OPRC concept will be implemented in Botswana for the f i rs t t ime under the project, and as a p i lo t scheme. Depending on the successful implementation o f the pi lot OPRC scheme, the Ministry o f Works and Transport/Roads Department’s (MWT/RD) long term vision i s to replicate the method on the entire national (primary and secondary) road networks o f the country comprising about 9,000 km.

29. conventional types o f contract i s presented in Annex 4.

A more detailed description focusing on a few salient features o f OPRC compared to

30. The human resource situation and training needs for MWT/RD. There has been an acute shortage o f qualified human resources in the RD due to the construction boom in the neighboring country, South Africa, and the recent pro-active activities in the private sector in Botswana. The department lost 14 engineers in the last eight months. Although GOB approved an increase in a scarce sk i l l s allowance for engineers by a 40 percent salary top up, the professional drain continues. The establishment o f RD has a full staffing plan o f 1,727 staff, but currently about 51 vacant positions need to be f i l led (although not a l l o f them are for rare skilled professionals). If this trend continues, i t will significantly weaken the quality and performance o f RD. In addition to the decision

12

made by the Permanent Secretary (PS) o f MWT to overcome this short-term critical shortage o f rare skilled manpower in the country by immediately procuring at least three internationally experienced and knowledgeable specialists for RD, the project will assist the MWT to step up i t s short-term, long- term, and sk i l l s enhancement training. MWT i s operating an average o f about US$l.O mi l l ion training budget per year. A training plan i s also prepared annually to match the annually available budget, but this appears to be largely a supply-based HR planninghaining program. Under the project, the MWT i s encouraged to assess the long te rm demand for i t s human resource based on the envisioned role o f the MWT and the RD 5-10 years from now, and prepare the human resource and training plan accordingly. I t will also prepare a rol l ing three-year training plan including long term training (college or graduate degree training), short-term training, and a ski l ls enhancement study tour program. The US$2.1 mi l l ion in the Component A o f the project allocated for the training and technical advisory services support to Transport Hub should be very flexible when applied to a l l the three categories o f training mentioned above (long term - 40 percent, short term - 30 percent and sk i l l s enhancement study tour - 30 percent). Although the project i s designed for 10 years, due to the urgency o f the human resource situation, the training budget could be drawn down quickly in the first three to four years o f the project.

31. Technology and logistic upgrade of MWT. In addition to the capacity enhancement o f human resources, GOB/MWT i s fully aware o f the efficiency gained from the appropriate investment and improvement in information technology. The project will support MWT’s various needs and requirements o f i t s six departments in the area o f internet technology development and integration in their overall management. Out o f the MWT master plan for technology upgrade, the fol lowing were identified as the priority areas:

(i) The design and preparation o f the Ministry’s Integrated Transport Information System. The Bank wil l cover mainly the three (out o f six) departments o f the Ministry, namely: (a) Department o f Ministry Management, (b) RD, and (c) Department o f Road Transport and Safety. The Information and Communications Technologies Strategy for Roads Transport Sector will be developed. The Data Center for Transport will be enhanced and further strengthened. Training in the above activities will be developed and carried out, in and out o f the country. The total budget available for the above activities estimated at US$2.1 mi l l ion including provision o f related hardware/sohare, training and others that will be identified as project implementation progresses.

(ii)

(iii) (iv)

(v)

E. Alternatives considered and reasons for rejection

Lending Instrument - Specific Lending Instrument (SIL) versus Adaptable Program Lending (APL)

32. An Adaptable Program Lending was among the lending instrument alternatives considered for this project. The major features o f an Adaptable Program Lending include a series o f succeeding loans (in phases) contributing to an overall objective o f a large progam, spread over a number o f years, each coming into effect only if various triggers have been fulfil led. An Adaptable Program Lending, as a program lending instrument, i s usually characterized by major institutional reforms and organizational and implementation capacity levels to be achieved over an agreed period in which the overarching objectives and outcomes will be measured and sustained. Moreover, the Adaptable

13

Program Lending triggers must be met in quantitative and qualitative terms for a specific phase o f an Adaptable Program Lending while the outcomes o f each phase must also be in l ine with the designed and planned targets before the next phase i s considered. In this regard, Botswana has done wel l in the past, with implementing major investments in the sector, in general, and in the road subsector in particular. The c iv i l service was a leading force in this achievement and goals. However, recent developments in the region in the past years, the economic boom in neighboring South Africa, and the robust development o f the country's private sector, has drained the available resources for the government, thus leaving a considerable gap in i ts public sector implementation capacity. Introducing the OPRC methodology needs more sophisticated skills, but with less numbers o f qualified in-house personnel because it reduces the number o f transactions, transfers the contractual r isks the implementing agency and provides better value for money. The OPRC types o f contracts are usually large and complex, yet more easily manageable by the government through managing consultants who monitor and supervise their implementation. There i s a need for specialized skil ls mix and skill improvement, but not for significant institutional changes nor for a new organizational set up at this time. Since this project involves only one road depot with the road network in similar and uniform condition, the use o f a Specific Lending Instrument (SIL), was considered better suited to the clients' needs and expectations.

Rehabilitation and/or Maintenance

33. In many countries, there i s s t i l l a debate as to whether performance-based contracting should be l imited to maintenance only, while rehabilitatiodimprovement works are carried out separately first under traditional schemes. Besides the shortcomings o f traditional input-type contracting, such methods bear a number o f other disadvantages, among which are: (i) the sharing o f contractual risks are very l imited and basically a l l risks fal l on government, (ii) di f icu l t ies in controlling final project cost, (iii) difficulties in controlling quality o f works, (iv) potential for numerous claims as a result o f strained relationship between the three parties involved in such types o f contracts, namely, employer, engineer, and contractor, (v) short period o f defects liability, and (vi) extensive number o f transactions or contracts during the l i fe o f a facility require high government staff input and thus potentially opening the door for non transparent operations. The separation o f rehabilitation and maintenance carries the r i sk o f attracting fewer investors for the latter, because o f the smaller contract size and the reluctance o f maintenance contractors to assume l iabi l i ty for an asset rehabilitated by others. Separate rehabilitation also comes with a l l r isks inherent to traditional works contracts and the associated disadvantages experienced in the past in Botswana and elsewhere. Moreover, the division o f responsibility between design, construction and maintenance creates unnecessary inefficiencies and potential disputes.

34. Domestic f i r m s sometimes claim that combining rehabilitation and maintenance into one contract operation exceeds their financial and human capacity and hence excludes them as potential bidders. In reality though, even if foreign contractors are awarded large rehabilitation and maintenance contracts, they often sub-contract a good proportion o f the work to local f irms. In any case, governments have some leeway to encourage local participation during the procurement process. Hence, the desire for participation o f domestic contractors does not call for a separation o f rehabilitation and maintenance but can be achieved by different means. For this project, the road links would be packaged so as to include contract sizes that would be commensurate with the capacity o f local contractors.

14

OPRC as a pilot project

35. Pilot projects offer the advantage o f a trial and error process, which can be easily revised and adopted, whereas otherwise, dealing with the major investment related to rehabilitation and maintenance in the traditional way would carry the risk o f yet another unsustainable one-time intervention. OPRCs have the distinct advantage o f passing on the construction quality, cost and time r isks to the private sector which i s best placed to deal with them. Furthermore, in relation to the large budget outlays in the road sector and the size and duration o f the OPRC, the two to three c iv i l works contracts to be awarded under the project should be considered as a p i lo t phase, to be followed with more o f such contracts when the method i s proven successful.

.

111. IMPLEMENTATION

A. Partnership arrangements

36. Project preparation has taken place in coordination and partnership with a broad spectrum o f agencies involved in the transport sector in Botswana, including the MWT, the RD, the Department Road Transport and Safety (DRTS), the Gaborone City Council (GCC), the Department for Town and Regional Planning (DTRP), the Department o f Environmental Affairs (DEA), the Ministry o f Local Government (MLG), the Ministry o f Lands and Housing, the Ministry o f Environment, Wi ld l i fe and Tourism, the Public Enterprises Evaluation and Privatization Agency, and the Public Procurement and Assets Disposal Board (PPADB). This partnership will be maintained during project implementation through continued involvement o f these agencies in the consultations and supervision required. In addition, at a later stage o f the project preparation the OFID expressed interest in participating in the project and OFID sent a representative to j o i n the Wor ld Bank pre- appraisal mission. The probable investment participation from OFID may come in the form o f parallel financing to reduce GOB contribution to the project. The effects o f such co-financing o f the project would be addressed at the time that OFID makes the financing available. In any event a tri- partite information sharing partnership will be maintained throughout project implementation.

B. Institutional and implementation arrangements

37. Since the project i s o f a multidisciplinary nature, i t requires constant and extensive consultation with various stakeholders in order to achieve a high level o f synergy. Two project specific oversight groups are established:

(i) Transport Sector Reference Group (TRG): The Permanent Secretary (PS) o f MWT chairs the TRG on a monthly, or on an “as needed” basis, with members f rom the MFDP, the MLG, the DTRP, the GCC, the Botswana Railway (BR), the Civil Aviat ion Authority o f Botswana (CAAB), and the PPADB, the Botswana Economic Development and Investment Authority (BEDIA). The TRG functions as a higher level steering committee to guide the operation aiming to forge forward a full synergy creation for this multi-disciplinary investment.

15

9 Ministry o f Finance and Development Planning (MFDP)

9 Ministry o f Local Government (MLG) 9 Gaborone City Council (GCC) 9 Department of Town and Regional

Planning (DTRP) 9 Botswana Economic Development and

Investment Authority (BEDIA) 9 Public Procurement and Asset Disposal

Board (PPADB)

(ii)

9 Ministry o f Works and Transport (MWT) 0 Planning and Budgeting Department 0 Road Department (RD) 0 Botswana Railway (BR)

0

0 The Transport Policy unit

Dept. o f Road Transport and Safety (DRTS) The Civil Aviation Authority o f Botswana (CAAE3)

At the day-to-day project administration level, a Special Project Management Unit (SMU) has been established under the RD. It i s headed by a dedicated Project Manager who i s a senior off icial o f RD, and composed o f qualified staf f from MWT, RD, GCC, and other relevant government agencies. A team o f technical specialists [Technical Support Group (TSG)] i s currently being recruited in key areas o f expertise. The S M U was set up to coordinate and prepare the pre-investment activities required to start the investment. The same team will be expanded and totally dedicated to the project with capacities strengthened to handle the physical and financial implementation o f this US$385.20 mi l l ion worth o f investment when it i s ready to ro l l out activities. The detailed implementation arrangement and organization chart are presented in Annex 6,

C. Financial management arrangements

Project oversight

38. At the pol icy decision level, the TRG, chaired by the PS, MWT has been established to provide guidance to the project. The TRG consists o f active members drawn from MFDP, MLG, DTRP, GCC, BR, CAAB, and PPADB.

Project coordination and implementation

39. The RD, one o f the six departments in MWT (including the administrative department in the headquarters) will implement the project. For this purpose, the S M U being charged with responsibility for preparing and coordinating the project pre-investment activities will also be expanded to assume the responsibility for day-to-day administration o f the project. The S M U will draw i t s membership from MWT, MFDP, RD, GCC, and the technical support group.

40. The RD i s headed by a Director, who reports to the PS, MWT. There are currently 89 engineers in the department. The engineers manage Development and Maintenance projects. RD has thirteen maintenance depots. There are currently four project management engineers in the Development section. In addition, there are about 17 project officers, also engineers. RD consists o f six main sections (Development, Maintenance, Materials, Roads Training Center, Administration, and Supplies).The finance and Accounts units are in the Administration section and the staff in the Accounts Section are posted by the Accountant General to complement the RD Administration Accounts staff. They are however, fbnctionally responsible to the Director, RD. The Accountant

16

General also posts accounting staff to the Accounts Unit in each Ministry, including MWT, and i s responsible for monitoring the activities, efficiency and effectiveness o f the Units and staff.

41. The capacity in the MWT internal audit unit needs to be strengthened in terms o f staffing. The unit i s responsible for the internal audit fbnctions o f MWT, i t s six departments and the over 40 departmental units spread throughout the country. Due to capacity constraints, annual internal audit visits to some o f the departments and units are not regular. The MFDP has agreed to provide one additional internal audit staff to the MWT Internal Audit Unit to strengthen the unit. Also, the financial management (FM) staff will need training on Wor ld Bank Financial Management and Disbursement policies and procedures to facilitate compliance with Bank fiduciary requirements.

D. Monitoring and evaluation o f outcomes/results

42. Assessment of achievement of results indicators. The achievement o f the project objectives will be measured based on a combination o f output and outcome indicators, as shown in the Results Framework (Annex 3). These indicators will track final and intermediate project outcomes.

43. The responsibility for monitoring and evaluation (M&E) rests with the RD in the MWT. The l i s t o f performance indicators was discussed during project appraisal and confirmed during loan negotiations. Baseline data for the performance indicators wil l be obtained for almost a l l the indicators during the first year o f implementation. The indicators for tracking physical road conditions exist from the previous studies for the OPRC and the city traffic improvement works subcomponents, but may differ according to the specific c iv i l works package, presently under design by consultants. They wil l be based on the contractually designed levels o f service and the baseline data for each wil l be part o f the bidding documents. Once awarded, the contractor will have to monitor and report on the compliance with the levels o f service through i t s management unit which i s an integral part o f the management arrangements for contractors involved in OPRC. This self- monitoring will be verified by a monitoring consultant on behalf o f RD. Month ly jo in t inspections o f the road will be carried out by the contractor and RD monitoring consultant and payments will be made per unit o f road length for sections with satisfactory outcomes within specified compliance parameters. Therefore, while the overall M&E responsibility rests with RD, the actual data collection may only be partially carried out by RD and by the contractor. For the indicators not included in the performance based contract, RD will have collect the data periodically and report regularly on the progress. Overall, RD will have the responsibility to monitor and report. The performance indicators for the OPRCs will be monitored jo in t ly by the service provider and the client, based on payments and penalties contractually related to the required performance standards. The performance o f OPRCs will be compared to the performance o f non-concession and other roads maintained by traditional methods. However, the ultimate test o f the success o f OPRCs will be measured and evaluated against periodic user surveys (annual o r bi-annual) and against the frequency o f complaints from the public. Such user satisfaction surveys have been successfblly used in USA, N e w Zealand, and Israel, and these may be modif ied to suit Botswana conditions.

44. Pre-bid invitations. The pre-bid meetings and workshops will provide appropriate feedback from pre-qualified contractors regarding the terms and conditions o f the contract and the feasibility o f adopting the specified performance standards, such that the specifications would be appropriately adjusted in subsequent bid invitations. Therefore, the pi lot OPRC, having two to three c iv i l works contracts, maybe bid in two different phases, i.e., the first c iv i l works contract will be bid followed

17

by the second one several months after learning fom experience with the f i rs t contract, incorporating lessons learned into the second and third c iv i l works contracts before their actual bidding.

45. Potential problems to monitor and solve. T h e OPRC, specifically if undertaken for the f i rs t time, in certain countries could attract higher costs than anticipated. Th is i s a result o f the lack o f experience o f the market and the lack o f understanding o f potential risks, which a contracting entity tries to mitigate by including higher than expected calculated costs. However, the experience indicates that in later phases, when subsequent OPRC are tendered, the price goes down substantially. In order to mitigate such problem, there are several options. One option i s to reduce the level o f service requirements to meet the budgetary provisions, the second i s to provide long term polit ical and financial r isks guarantee through international insurance companies, or Wor ld Bank instruments, and the last option i s to reduce the volume o f the works by shortening the length o f treated roads.

E. Sustainability

46. Two strategic approaches, complementary to each other, have been introduced in the design o f the project. These approaches will provide a solid basis for the overall sustainability o f the project. The first approach, relates to the capacity building and knowledge component, which i s based on: (i) providing strong and solid capacity building for modem planning and making strategic decisions so as to enhance stability in the delivery and management o f transport modes, in general, and o f road sub- sector specifically to ensure the institutionalization o f road asset management; and (ii) the longer term vision o f the country in using transport as a means to foster economic growth and a platform for economic diversification and development. The second complementary strategic approach pertains to the physical component and i s based on: (i) increasing involvement o f private sector in the transport business so as to ensure greater efficiency, cost effectiveness, innovation and competitiveness; and (ii) the strong commitment from the GOB (MFDP, MWT, and GCC) to give i t s priori ty attention to alleviating traffic congestion, and improving road safety conditions in Gaborone city, thus ensuring the sustainability o f urban traffic improvement activities.

47. In addition, the overall project’s sustainability wi l l be enhanced by: (i) the continued institutional strengthening activities within MWT within the overall regional integration vision o f Botswana, and within RD in modem methods o f road asset management; and (ii) the commitment o f MFDP to adhere to the best “value for money’’ principle when investing in the sector. Th is i s important to ensure the highest level o f efficiency expected f rom the sector if it i s to play an effective infrastructure role as a major platform to sustain the country’s continued economic success story.

F. Critical risks and possible controversial aspects

48. and effective management o f the project. Measures are also proposed to mitigate these risks.

The fol lowing table sets out the key financial management risks that may impact the efficient

18

Table 2: Critical Risks and Mitigation Measures

To project development objective

Road sector governance and management o f project

Unfamiliarity with Bank procedures on fiduciary aspects and safeguards

Poor response to long term output and performance based contracting method.

Costs o f construction turn out to be far in excess o f anticipation either due to disproportionate inflation, lack o f adequate competition, higher design proposals by bidders, or high risk perception by the private sector.

Botswana has an excellent positive record in this respect, possesses powerful and knowledgeable governance institutions and has been a role model in sub-Sahara Africa. Supervision by Bank staff will enhance the already working systems. In addition, the engagement o f technical assistance will ensure the required training and enhancement o f management aspects.

Botswana has well developed safeguard frameworks and enforcement institutions, but needs workshops, additional training and mentoring. Procurement and FM will be enhanced by extensive training at the start o f the project.

Periodic workshops will be held to advertise the contracting method and explain key features. Contractors will be pre-qualified.

The proposed design and performance standards would have to be adjusted in accordance with financing constraints or additional financing sought from government or IBRD. Should the costs turn out to be high because o f a high risk premium, alternatives would be explored to reduce the risks.

L

L

M .

M

19

Financial Management:

The nature and size o f the project and contracts involves high risk exposure for contract and financial management.

Delay o f the audit o f the project FS beyond six months after the end o f the government fiscal year. Annual audit reports are issued by the Auditor General within 12 months o f the end o f the fiscal year as allowed by the Finance and Audit Act.

Use o f the outdated Financial Instructions and Procedures, and the Finance and Audit Act o f 1993.

zternal Control iadequate internal audit review o f project stivities due to weak internal audit capacity.

Risk Mitigating Measures

Independent annual external audit o f the financial statements (FS) and annual technical audit will be carried out and reports submitted to the Bank on September 30 and December 3 1, respectively.

The strengthened internal audit unit will conduct regular audit o f the project financial activities to ensure use o f funds for purposes intended.

The annual technical audit report will be submitted to the PS, MWT for action, and shared with the Auditor General and Bank supervision team for review for prompt action on audit observations and queries.

Adherence to the government stipulated service standards will ensure prompt payment to contractors

The proposed engagement o f the specialists, procurement, Transport and contract engineers, will also help to mitigate the risk.

The project FS will be produced by M a y 3 1 each year and audited between June and August. Audit reports together with audited FS, the auditor’s management letter and management response to the letter will be submitted to the Bank by September 30 each year, i.e., within 6 months o f the government’s year end.

The Act has been reviewed by a legal firm contracted by the government, and the draft Act was in circulation for comments.

MFDP will provide one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit as discussed with MFDP.

M

S

M

M

20

To Component Results

Unsatisfactory procurement o f contracts

Contractors perform poor ly and compromise o n quality

Overall Risk Rating

Note: High Risk - H, Substantial Risk - S, Moc

Extensive training o f staff in the RD o n procurement methods and procedures with extra oversight f rom Bank staff during project supervision. Also, highly experienced engineering f i r m s will assist with the design and supervision o f large c i v i l works contracts. Annual technical audit will be carried out throughout project implementation period.

M

periodic inputs f rom world-wide OPRC experts, especially in the in i t ia l stages.

L I

rate Risk - M, Low or negligible Risk - L

Box 4: Current procurement and safeguard practice in Botswana

O n procurement, the GOB has a well organized PPADB which i s an independent board set up to overlook, and approve all types o f public procurement in the country. The status o f procurement in the country generally warrants the transparency o f the process involving “value for money” principles. PPADB’s procurement rules and guidelines seem to be very close to those o f the Bank guidelines. During preparation o f the project, PPADB issued a waiver which exempts the project from the PPADB procurement review and approval processes.

l - I

O n the environment and social safeguard aspects, there seems to be a slight discrepancy between national guidelines and Bank guidelines. The main objective o f the country’s policy guidelines on compensation i s to provide fair and just compensation to affected persons/groups, while the main thrust o f O P B P 4.12 goes beyond compensation payment to addressing the restoration o f their livelihoods o f those affected. Overall, the country’s legislation and regulatory framework for environmental protection i s very strong and appropriate to carry out i ts vision for development to the next level.

G. Loan covenants applicable to project implementation

49. The fo l l ow ing are covenants discussed and conf i rmed during loan negotiations:

The setting up o f the S M U composed o f qualif ied staf f from MWT, RD, GCC and other participating government department; The f inal recruitment o f a TSG consisting o f an adequate team o f procurement, transport planning, engineering and contract management specialists, and other experts as needed and

21

in sufficient numbers, al l o f whom shall have qualifications, experience and terms of reference acceptable to the Bank; The Interim Unaudited Financial Reports (IFR) format; GOB’S budget provision for counterpart funds. The Procurement Implementation Plan (PIP).

0

Effectiveness Conditions: 0 The issuance o f the relevant legal opinions according to the legal system o f Botswana.

Technical Support Group for the S M U to be fully recruited.

Covenants: Financial

Maintain o r cause to be maintained a financial management system including records, and accounts in accordance with the provisions o f Section 5.09 o f the General Conditions. Prepare and furnish to the Bank, not later than 45 days after the end o f each quarter, interim unaudited financial reports for the Project covering such quarter, in form and substance satisfactory to the Bank; Have the project’s Financial Statements (FS) audited in accordance with the provisions o f Section 5.09 (b) o f the General Conditions. Each audit o f the FS shall cover the period o f one Fiscal Year. The audited FS for each such period shall be furnished to the Bank not later than six months after the end o f such period, i.e., by September 30 o f each year; Prepare the Audit Terms o f Reference in consultation with the Bank, within three months of effectiveness o f the loan agreement; Assign one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit, no later than one month from effectiveness date; and Designate staff to be responsible for the production o f the interim unaudited financial reports (IFR) by component and activity in the Accounts Unit, MWT no later than one month f rom effectiveness date.

Implementation

0

GOB shall establish a Transport Reference Group to provide overall pol icy direction and general oversight o f the project; MWT/RD has established a Special Project Management Unit (SMU) composed o f qualified staff from MWT, RD, GCC and other participating government department; The S M U shall be responsible for implementing, managing and coordinating project activities, and it shall: (i) maintain at a l l times adequate financial management and procurement systems and procedures; (ii) carry out overall technical management and oversight o f the project, including monitoring and evaluation o f Output and Performance Based Road Contracts (OPRCs); and (iii) monitor technical and material output o f the project to ensure that i t i s in line with the financial payments and statements to be prepared by the Ministry o f Finance and Development Planning (MFDP); RD/MWT to carry out, in conjunction with the Bank, a project mid-term review by June 30, 2014. No later than two months prior to the mid-term review, prepare relevant progress report to be discussed at the mid-term review; and RD/MWT shall ensure that the project i s carried out in accordance with the provision o f the Bank’s Anti-corruption Guidelines.

0

22

Safeguards 0 A Resettlement Action Plan (RAP) and an Environmental Management Plan (EMP) would

need to be prepared, when applicable, in accordance with the provision contained in the Resettlement Policy Framework (WF), and Environmental and Social Management Framework (ESMF)' and the Wor ld Bank pol icy to that effect, and be duly implemented thereafter.

EIRR (in %)

Reporting 0 Semi-annual progress reports for a l l components, including results indicators, as applicable,

using an agreed format. These progress reports will include a summary o f the actions and activities undertaken to implement the outcome o f the regional integration study, and the progress in the local contracting industry development; Annual reports o f the unit cost o f the works under the OPRC component; and Annual training report and evaluation forms.

N P V (US$ mill ion, 12%)

IV. APPRAISAL SUMMARY

Best Estimate

A. Economic and financial analyses

31 85.2

Economic (Cost-benefit) internal rate of return (EIRR) = 3 1%, NPV (12% discount rate) = US$85.2 mi l l ion

Sensitivity analysis If cost increased by 18%

If cost increase by 18% and 0 If traffic reduced by 20%

traffic reduced by 20%

50. The economic evaluation covers the major project component (OPRC) that accounts for over 70 percent o f the total investment cost. The principal measured benefits o f the project are savings in VOC, time savings to vehicle occupants, and enhanced road safety. Based on the actual traffic count conducted in 2005 on the 800 kilometers o f road network in the Kanye road depot, and the historic pattern o f traffic growth in the same area, coupled with market data for road improvement cost estimate, the estimated overall E I R R ' f o r the OPRC component i s 31 percent in the base-case scenario. The economic net present value (NPV), based on a 12 percent discount rate i s estimated at US$85.2 mill ion. A sensitivity analysis assuming 18 percent cost increase, o r 20 percent benefit reduction (through reduction o f traffic) o r both was applied with a result o f EIRR reduction to 27,26, and 23 percent, respectively, as per able 3 below. An analysis o f the evaluation results and a description o f the method used to derive them are provided in Annex 9 and are summarized as follows:

27 77.8 26 53.5 23 46.1

Table 3: Summary o f Economic Evaluation Results and Sensitivity Analysis

' Both the RPF and ESMF were disclosed in-country on December 12,2008 and at the InfoShop on December 23, 2008.

23

B. Technical

5 1. The OPRC contracts will encompass an entire road maintenance depot in the southern part o f the country, the area most,traveled and with the highest traffic volumes. The roads are basically surfaced with asphalt concrete (AC) over a base course. The road conditions in general are fairly good and will need, as the first intervention during the init ial five-year period, only maintenance works (routine and periodic overlay) or rehabilitatiodwidening, followed by appropriate rehabilitation and continue with maintenance in the second five year period. Towards the end o f the contract period, the roads will be transferred to the government under prescribed conditions related to pavement life. The survey o f the candidate roads was carried out in 2006 to establish their condition. The findings were presented in the summary table (Annex 4, Table 1) and the consultants selected for assisting RD to prepare for the OPRC civ i l works contracts wil l veri fy and update them if necessary. All roads, except the few which are s t i l l gravel and which wil l be surfaced sometime during the contract period, have relatively good riding quality with the average International Roughness Index (IRI) ranging approximately between 2.5 and 5.5. However, based on the pavement deflections (which fel l between 0.92 mm and 1.722 mm) and the projected axle loading, it was determined that the structural capacity o f a l l the pavements o f the project roads had remaining l i fe o f above five years, except for a few which fal l below two years. The technical solutions to ensure reasonable performance during and at the end o f the long term contract period were determined to comprise AC overlays with thicknesses ranging from 40-60 mm followed by annual routine maintenance and periodic maintenance interventions within ten years.

52. The options for cost recovery over the duration o f the contracts include various financial models. At least two options could be considered: (i) a model where payment levels could turn to the cash f low needs as tendered by the service provider, but based on delivery schedule o f clearly defined outputs, o r (ii) a model where constant monthly payments could be calculated on the basis o f outputs averaged over the rehabilitation phase and followed by constant monthly payments during the maintenance period irrespective o f the cash f low needs. The chosen option will be decided once the conceptual designs are ready and the recommendations by the design consultants are agreed upon. In any case, appropriate performance and guarantee bonds will be designed to cover the potential r isks involving performance and quality o f the works by contractors, as we l l as the quality o f facilities at the time o f handing over to the government at the end o f the contract period.

53. Regarding the c iv i l works related to the urban road component, the feasibility studies, followed by the detailed designs o f the adopted technical options wil l be implemented under supervision o f internationally recognized consultants and contractors. The traffic improvement options such as traffic management with traffic signalization and enhanced public transport models will be taken into consideration.

C. Fiduciary

54. Financial Aspect. The financial management capacity assessment concluded that the financial management system meets the minimum requirements o f the Bank’s pol icy on financial management, OP/BP 10.02. There is, however, the need to strengthen the internal audit capacity at the MWT. The project task team has provided basic training to the RD, MWT, and MFDP staf f on Bank Financial Management and Disbursement policies and procedures. Considering the fact that GOB has not taken loans from the Bank in the past two decades, staff in the project implementing

24

entity, MWT and MFDP wil l in this respect, be encouraged to participate in Bank's periodic training and courses organized by Bank recognized institutions.

55. The overall conclusion o f the assessment i s that the FM arrangement proposed for the project meets the minimum requirements o f the Bank subject to the implementation o f the actions described in paragraph 10 o f the FM Annex 7. The FM risk i s assessed as Moderate. Implementation o f the proposed mitigating measures wil l reduce the risk rating to Low.

56. Procurement. The Bank carried out a cursory assessment o f the country procurement environment in October 2007. Botswana has a Procurement Ac t and Regulations (2006) to regulate the procurement practice in the country. The Botswana PPDAB i s a statutory body with functions defined in the Act. T h i s body combines both regulatory function and operational functions (the latter by reviewing a l l procurement transactions above a set threshold). The standard bidding documents (SBD). were prepared and distributed electronically to user agencies in July 2007. The Bank's assessment suggested areas for improvement in the procurement systems and shared the same with PPADB and concerned stakeholders. Procurement under the project will be carried out in accordance with the Wor ld Bankk "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004, revised October 2006; and "Guidelines: Selection and Employment o f Consultants by Wor ld Bank Borrowers' dated M a y 2004, revised October 2006, and the provisions stipulated in the Legal Agreement. The Bank's SBDs shall be used for procurement o f works and goods under International Competitive Bidding (ICB) and the Bank's standard Request for Proposal (RFP) shall be used for large value contracts involving selection o f international consultants.

57. National Competitive Bidding (NCB) shall fol low the GOB'S procurement procedures, provided that the fol lowing provisions are applied to the use o f the NCB documents: (i) foreign bidders shall be allowed to participate in NCB; (ii) registration or classification o f bidders shall not be used as a condition for bidding; (iii) use o f preference system based o n citizens' degree o f ownership shall not be used; (iv) use o f points system and bracketing in the evaluation o f bids for goods shall not be used; (v) negotiations shall not be held with a successful bidder for procurement o f goods; (vi) invitation to bid will be published in a national newspaper o f wide circulation; (vii) bidding documents shall clearly specify bid evaluation and post qualification criteria; (viii) the bidding period shall not be less than four weeks, and bids shall be opened publicly; (ix) in accordance with paragraph 1.14 (e) o f the Procurement Guidelines, each bidding document and contract financed out o f the proceeds o f the Loan shall provide that: (a) the bidders, suppliers, contractors and subcontractors shall permit the Bank, at i t s request, to inspect their accounts and records relating to the bid submission and performance o f the contract, and to have said accounts and records audited by auditors appointed by the Bank; and (b) the deliberate and material violation by the bidder, supplier, contractor or subcontractor o f such provision may amount to an obstructive practice as defined in paragraph 1,14(a)(v) o f the Procurement Guidelines; and (x) contract awards shall be published. Alternatively, the Bank's SBDs may be used and adapted for NCB.

58. Procurement activities under the project will be carried out by the RD with technical assistance from the MWT and GCC respectively for their components. Overall, the capacity to execute the procurement function i s average and the risk has been assessed to be moderate. The agency capacity has been carried out and risk mitigation actions are summarized in Annex 8. The main risk i s lack o f familiarity with Bank's procurement procedures as the agencies have for the most part been procuring using GOB funds and procurement systems and the shortage o f experienced staff at the RD to be dedicated to the project (as the relevant senior staff have to manage several projects

25

in parallel). The risk mitigation actions (as outlined in Annex 8) include: (i) recruitment o f an experienced procurement specialist (engineering) to support the procurement processing (which i s mainly expected to be in the first two years); and (ii) assist in building internal procurement capacity in the RD.

59. include:

Readiness for implementation, which was achieved by appraisal, from the procurement side

Procurement for pre-investment activities had been ongoing well;

Draft Procurement Plan has been prepared and agreed during negotiations;

Bank provided two ha l f day procurement training seminars to relevant staf f o f the RD, Ministry o f Local Government (MLG) and GCC on key principles and procedures in Bank’s procurement;

During preparation o f the project, PPADB issued a waiver to the project from PPADB procurement review and approval. This i s on the basis o f (i) assurances given by the Bank that the Bank carries out rigorous prior review (or post review as per agreed thresholds) o f the implementing agencies’ procurement decisions and independent procurement reviews; and (ii) Articles 4 and 6 (external obligations) o f the Botswana Public Procurement Ac t allow PPADB to exercise some flexibil i ty in granting a waiver to projects with external financing. PPADB rightly demanded that the GOB’S contribution to the project should be traceable (this was subsequently confirmed by the Ministry o f Finance and Development Planning (MFDP)). The waiver was given on July 10,2008.

Selection o f Technical Support Group (TSG), including a procurementlengineering specialist, to strengthen the capacity o f the RD has been initiated and i s expected to be completed by May, 2009.

General Procurement Notice (GPN) has been advertised locally and in the United Nations Development Business (UNDB) Online and the DgMarket.

0

0

D. Social

60. In 2008, diamonds accounted for about 65 percent o f the total export from Botswana. However, diamond mining only represents 3.4 percent o f total employment. Slow growth in the non- mining sector has limited employment opportunities for the labor surplus from the agricultural sector. Despite a slight recent drop to 17.6 percent, the country’s unemployment rate has been persistently above 20 percent over the last 15 years and this problem affects mostly the youth. From the social perspective, the proposed project will contribute to addressing the issue o f high unemployment by supporting the diversification o f Botswana’s economy beyond diamond mining through the promotion o f regional transport services. Furthermore, the introduction, as pilot, o f a modem asset management method using the OPRC to one o f the most traveled road networks in Botswana (under Kanye road depot) i s expected to attract large investors in the road sector, which will result in increased competition, reduced prices for road construction and ultimately lower transport costs for service users. A key social indicator retained to measure success i s users’ satisfaction, which will be monitored through annual o r biannual surveys, and by the number and frequency o f complaints from the public.

26

6 1. From a social safeguards perspective, the implementation o f c i v i l works under the physical investment component i s expected to remain within the existing road reserves. However, for the urban traffic component, this cannot be ascertained until feasibility studies are completed; and for the OPRC pi lo t road, the nature o f the planned c iv i l works might change over the course o f the contract for any unforeseen reasons, requiring additional land acquisition beyond the existing road reserves. A RPF consistent with the Wor ld Bank’s OP 4.12 and the country’s laws and regulation on land acquisition and compensation has been prepared, approved, and disclosed in-country on December 12, 2008, and at the InfoShop on December 23, 2008. T h i s RPF will set forth the procedures and operational principles that wil l guide the preparation and implementation o f specific RAP if new land were to be acquired during project implementation. The proposed project does not trigger OP 4.10 because it does not involve any new road construction into areas inhabited by indigenous peoples.

62. Social implication o f Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome (HIV/AIDS): The high rate o f HIV/AIDS in the country i s another threat to the social and HR situation. It i s understood that 10 years ago the country was not well prepared to cope with such high HIV/AIDS incidence. However, during the past several years GOB has addressed the challenge together with international partners. Although national prevention efforts s t i l l require substantial strengthening, the Ministry o f Health has enabled a rapid expansion o f the national treatment program. The treatment o f H IV/AIDS i s provided free o f charge to HIV positive citizens in Botswana. Discrimination against HIV/AIDS patients in any work place i s not permitted. Within the MWT, there are six h l l - t ime HIV/AIDS coordinators, one in each o f i t s six departments (five business departments and one administrative department). The coordinators are responsible for tracking a l l H IV/AIDS patients in the work place and providing the needed counseling, including refemng and transporting them to appropriate treatment centers provided free o f charge by the government. At the grass roots level, there are HIV/AIDS point persons operating at the level o f road maintenance depots and construction camps. They disseminate H IV /A IDS prevention information at the workers’ camps before construction starts. All prevention materials such as condoms and test kits are supplied free o f charge. The HIV/AIDS related expenditures in the MWT have been about US$250,000-350,000 per year. This did not include the medical treatment which was provided under the national treatment program. The concept in this operation calls for the HIV/AIDS affected population to be properly treated, while those that are not affected are to be adequately protected. Aside from putting the HIV/AIDS clause in the OPRC and c iv i l works contracts, the project will actively support the ongoing initiatives o f MWT and GOB and ensure that knowledge dissemination and appropriate prevention measures are aggressively distributed at construction sites and along trucking routes. A parallel Bank-financed HIV/AIDS project (approved by the Board in July 2008) supports the GOB’S objectives in the area o f prevention. The project will coordinate and benefit from the HIV/AIDS project when both are operating in the same geographical locations/districts.

E. Environment

63. The physical investments financed under the BITP focus o n the rehabilitation and output based long term asset preservation o f existing road networks (approximately 800 km) and the improvements to major intersections in Gaborone. Potential adverse impacts are l ike ly to be minor and localized and, therefore, the project i s classified as environmental category “B” in accordance with OP4.0 1, Environmental Assessment (EA). An Environmental and Social Management Framework (ESMF) has been prepared for these physical investments and was disclosed in-country on December 12,2008 and at the InfoShop on December 23, 2008. The objective o f the ESMF i s to ensure that the rehabilitation and output based maintenance works will be carried out in an

27

environmentally and socially sustainable manner. T h e ESMF thus provides a procedures manual for environmental and social screening o f sub-projects and sample environmental management and monitoring plans for these sub-projects. The ESMF has been prepared in accordance with national legislation on EA and the World Bank Operational Policy on Environmental Assessment (OP/BP 4.01) and presents the policy, principles, and’procedures for EA in the sub-sector.

64. Regarding the implementation o f the component for improvement o f the major city o f Gaborone’s intersections and individual road segments have not yet been designed. The preparation o f EAs and EMPs for these road segments, including consultation with project affected groups and non-governmental organizations as appropriate, will be prepared when the design consultants are on board and prior to actual commencement o f the works. All sub-projects will be screened for environmental impacts and appropriate studies carried out based on this initial screeninglscoping.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OPBP 4.0 1) [XI [ I Natural Habitats (OPBP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OPBP 4.1 1) [I [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [I [XI Forests (OPBP 4.36) [I [ X I Safety o f Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OPBP 7.60)* [I [XI Projects o n International Waterways (OPBP 7.50) [I [XI

G. Policy exceptions and readiness

65. applicable Bank policies, and does not require any exceptions.

The project meets the readiness criteria for project preparation, closely follows al l the

* By supporting theproposedproject, the Bank does not intend to prejudice thefinal determination of theparties’ claims on the disputed areas

28

Annex 1: Country and Sector

Integrated Transport Project

A. Botswana - an African Success Story, with Challenges

1. Botswana i s one o f the world’s great development success stories. One o f on ly very few countries in the wor ld to have sustained a long period o f high growth, it i s also a rare example o f a country that has escaped the ‘natural resource curse’, despite i t s abundant diamond resources. Political stability, mature democratic processes, good policies and strong institutions have underpinned effective economic management for over four decades.

2. This exemplary success in good governance, macroeconomic and fiscal management has, however, not yet been matched by broad improvements in human development outcomes. This apparent contradiction manifests itself today in high poverty and unemployment rates and in Botswana’s ranking as the fifth most unequal country in the world. The government recognizes that unless inequality i s reduced and human development indicators rise, future economic growth cannot be sustained. At no stage has this been more evident than at this time o f global economic turmoil.

.

3. In order to reduce poverty and inequality, the key challenge for Botswana i s to diversify the economy away from diamonds. Today, despite major efforts towards diversification, the diamond and the public sectors s t i l l dominate the economy. There i s a growing recognition in the country at the highest polit ical level that a greater focus on public sector effectiveness, including more effective implementation o f policies and programs, as we l l as less dependency by citizens on the state for development solutions i s required. Botswana i s in need o f a more competitive and dynamic private sector that can generate more employment. T o make this a reality, however, sk i l l s development must be more responsive to the needs o f the labor market.

4. Botswana also suffers f rom the second highest Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome (HIV/AIDS) adult prevalence rate in the wor ld and the pandemic i s a significant drain on the economy and on society. Furthermore, infrastructure capacity and quality have not kept pace with growth, and the electricity, transport and water sectors in particular are now presenting bottlenecks to sustained growth. With the threat o f losing 70 percent o f the current electricity supply by 2013, when South Afr ica will stop a l l electricity exports to Botswana, achieving energy security has become an urgent national priority.

5. In addition to these challenges, Botswana i s also strongly affected by the global economic meltdown since late 2008. The consequences are a sharp decline in gross domestic product (GDP) growth caused by plummeting demand in particular for diamonds, triggering a closing o f mines and exacerbating already high unemployment rates, especially among youth, a burgeoning fiscal deficit and rapidly worsening balance o f payments. In some sense, this scenario i s a ‘fast forward’ glimpse into the future when Botswana will run out o f diamonds, and it serves as an urgent reminder o f the need to diversify the economy in order to sustain past gains and achieve sustainable development in the future.

6. The government i s responding swiftly to the immediate challenges while building for the future and looking for the “silver lining” beyond the crisis. It i s getting the economy ready for l i fe after diamonds by developing a twenty f i rs t century physical and human capital base, containing the

29

crippling HIV/AIDS pandemic, increasing the effectiveness o f public sector spending and improving environmental management which i s essential for the large and growing tourism industry. T o meet the immediate crisis, the government - just as this strategy i s being finalized - i s realigning the budget and reassessing pol icy priorities, improving public sector efficiency to ensure targeting and effectiveness and investing with urgency in the electricity sector to ensure domestic energy security.

7. In the medium term, the government aims for greater competitiveness by providing critical infrastructure investments and ski l ls upgrading for the f’bture, by increasing the effectiveness o f social spending, education and HIV/AIDS programs and by building the foundation for diversification through private sector growth in non-extractive industries, with regional integration as one driver.

8. After a long hiatus in the relationship, the Wor ld Bank has been requested to gradually and selectively scale-up levels o f support, always driven by client-demand as with other development partners. In l ine with this request, the overall strategic objective o f the Bank’s engagement in Botswana i s to help the government use a l l o f i t s resources (both non-renewable and renewable) to sustain growth and defeat poverty and inequality.

9. Based on the dialogues between the government and the Bank, a Country Par@ership Strategy (CPS) for FY09-13 was presented to the Board on M a y 21, 2009. It lays out the Bank’s program for Botswana for a period o f f ive years in response to government’s requests for Bank assistance. The program i s centered around four strategic elements, including:

Enhancing Public Sector Effectiveness;

0

The Environment.

Fighting HIV/AIDS and Improving Education Outcomes; Increased Competitiveness - Infrastructure and the Climate for Investment and Growth; and

B. Increased Competitiveness - Role of Transport Sector

10. One o f Botswana’s major economic challenges i s promoting diversification away from minerals, and diamonds in particular, to prepare for the post-diamond era, to create jobs and reduce vulnerability caused by dependence on a single commodity. We l l aware o f the challenge, the government has placed considerable emphasis over the past twenty years on promoting economic diversification, but change has been slow to materialize. A number o f reasons help to explain the dif f iculty in achieving significant diversification o f the Botswana economy, and concerted efforts to lift some o f the constraints wil l be a key to achieving long te rm growth beyond natural resources. Botswana only has a small domestic market, and any substantial investment growth will need to be motivated by opportunities for regional and global trade - making competitiveness a critical pol icy goal. Yet non-mining private investment [including foreign direct investment (FDI)] has been l o w and i s insufficient to support high growth. Attracting foreign direct investment beyond the mining sector has been diff icult as Botswana, i s in several respects, a high cost country - including high transport and utility costs and relatively high labor costs.

30

11. A jo in t study by the Wor ld Bank and the Botswana Institute for Development Policy Analysis (BIDPA) on export diversification* highlighted the need for greater regional integration as a major cross-cutting theme for Botswana’s economic diversification. Given i ts small size, Botswana cannot “go it alone”. Linked to the need for regional integration and a necessary condition for increased competitiveness i s the provision o f efficient and cost effective transport. Indeed, due to i t s geographic location at the center o f the southern Afr ica region, Botswana can connect to a larger regional market and could position i t se l f as an effective land-bridge connecting South Afr ica and Namibia to Zambia, Angola and Eastern Africa. Botswana has done wel l in i t s transport sector expanding i t s paved road coverage from 12 kilometers at independence to more than 6,000 kilometers today. However, the sector faces several challenges including fast deterioration o f infrastructure characterized by the lack o f a sustainable network development and management approach, and insufficient funds for the long-term sustainability o f the already made investments. The insufficiency i s coupled with lack o f knowledge and experienced professionals, and lack o f modem transport assets management, methods and technologies.

Primary Secondary

4,065 4,850

Of which:

C. Current situation o f Transport Sector

Tertiary Access TOTAL (km)

10,000 18,915 (under local government)

12. Roads. The road i s the predominant mode o f transport for Botswana as over 90 percent o f freight and passenger traffic i s carried by road. The table below indicates the size and type of road network in the country. The primary and secondary network i s under the responsibility o f the Ministry o f Works and Transport (MWT), while the tertiary and access network falls under the Ministry o f Local Government (MLG).

TarBitumen Gravel Earthhand

6366 1250 1299

13. The total asset value o f the primary and secondary network i s estimated at Pula 10 billion, and the average annual maintenance expenditure i s about Pula 100 mi l l ion per annum (a mere one percent o f the total asset value). Such a level o f expenditure i s obviously far from adequate to maintain the road infrastructure at an optimal level. The competing demand for l imited public financial resources between the human development sectors (health, education, HIV/AIDS, etc) and the infrastructure sectors wil l become increasingly prominent. This situation has resulted in MWT investigating other financing and investment options, including actively engaging private capital and sharing the investment benefit and risk between public and private sectors. The area-wide output and performance based road contract (OPRC) i s the option that MWT has decided to p i lo t under this project. The Bank, with i t s international experience in this new mode o f contract, was invited to participate in pi lot ing this new concept o f total asset management for the road network. Out o f the 9,000 km o f primary and secondary network, 800 km was selected for a p i lo t project to determine the suitability o f the new method o f asset management for Botswana. The Bank agreed to contribute and

* Prospects for Export Diversification (2006). Botswana Institute for Development Policy Analysis and the World Bank.

31

participate in this p i lo t program from the start to the end o f i t s investment cycle, i.e., from conceptual design, to implementation, monitoring and final evaluation.

Box 1: Some uniaue features of the tranmort sector in Botswana: Botswana-% geographical charaiteristics contribute to relatively high cost of infrastructure development, which i s being addressed through greater emphasis on regional integration. Botswana i s a large country (10 percent larger than France in total land area), with low population density (less than 2 million) and i s land-locked. All o f these factors complicate the provision o f infrastructure and transport services and contribute to the associated investment and operating cost. The current transport networks are basically developed to service the relatively small economy. However, all these land and air transport facilities are aging and require serious rehabilitation. Botswana has a road network o f about 18,000 km o f which 50 percent are under the responsibility o f local governments and the remaining 50 percent under the central government. O f the 9,000 km o f road under the responsibility o f central government two-third (6,000 km) are paved. The country has about 900 km o f narrow gauge railway network running along the north-south corridor leading from the border o f Zambia to the border o f South Africa, and four major airportdair strips connecting major towns and important tourism areas. Inter-model optimization among various modes of transport (especially between road and rail) could be improved. Road i s increasingly carrying traffic that should be economically carried by the railway, e.g., petroleum, construction materials. The reasons for such modal split should be addressed, i.e., was it the result of: biased tariff structure, lack o f railway capacity, lack o f appropriate equipment on railways, or others? The government budget is gradually facing problems with funding the increasing needs of the transport sector. This pattern started to show up through an accumulation ofperiodic maintenance backlog. Taking road sub-sector for example, the ministry’s total expenditures on roads in 2008 was US$lOO mill ion (about 2.0 percent o f total budget expenditures), o f which about US$SO mi l l ion was for development and US$20 mill ion for maintenance. This i s far from sufficient for maintaining the system o f assets worth about US$2 billion. Rapid increase in the rate of motorization and urbanization will lead to congestion in major cities sooner than expected. Botswana has a vehicle population o f about 250,000 vehicles most o f which are in major cities and towns. This i s about 150 vehicles per 1,000 people (compared to five vehicles per 1,000 people in Uganda). The rate o f motorization i s considered high, and i s growing exceptionally fast, especially in major cities. Congestion at several traffic junctions and mass transit areas becomes a growing concern for Gaborone city. The direct and indirect economic cost o f congestion (through time lost and energy wasted) will become a serious economic issue that warrants the relevant authority to look for immediate solutions. The sector could consider enhancing “value for money” from its investment not only from tight control of physical investment cost, but also from quality of planning and professional management. Experience elsewhere shows that investment in road surface expansion i s not always an answer to congestion. An improvement in traffic management could yield 20-30 percent o f expected result with much lower cost and speedier intervention. Institutional and capacity buildings are areas that the sector could benejit from training and exposure to international experience. Although Botswana i s doing well in its transport sector after two decades o f se l f reliance and inward looking development, the inward looking development stage has reached i t s maximum benefit. Further growth and modernization o f the sector could be effectively planned by taking into consideration other international experience and best practice.

14. Railways. Botswana Railways (BR) was established in 1987 by an A c t o f Parliament passed in 1986. Under this act BR was constituted and administered as a commercial enterprise o f the government, with i t s own financial structure and accounts. The business on railways has not been growing since the last four to five years. The fol lowing table shows BR’s business performance in the financial year (2005/06).

32

Table 2: Botswana Railways business performance (2005-2006)

15. organizations. Areas being considered include:

In l ine with recent legislation, BR i s forging ahead to establish partnerships with private

0 A Joint Venture Company with a private entity to manage/maintain the signaling system o f BR; A Joint Venture Company with a private entity(ies) to develop BR properties;

0 Wagon and Locomotive major maintenance facility as a jo in t venture with private; and 0 N e w Rai l L ine Developments. (A Public-Private Infrastructure Advisory Facil ity

(PPIAF) grant o f US$490,000 i s provided for carrying out phase 1 o f the pre-feasibility study for the new ra i l l ine development. The second phase o f the pre-feasibility study i s included under component A o f this project.)

16. Aviation. In spite o f i t s recent growth, Botswana’s aviation sector remains small by wor ld standards and, unfortunately, i s unable to cover i t s costs. Indeed, a cursory review o f the revenues and costs generated by the sector shows that, in 2005, the Department o f Civil Aviation (DCA) which had the responsibility to manage Botswana’s air traffic and airports collected a total o f Pula 23.7 mi l l ion or US$3.7 mi l l ion f rom airspace and airport users. T h i s figure represented only 28.8 percent o f DCA’s budget (2006/2007) o f Pula 82.3 mi l l ion (US$13.7 mi l l ion equivalent) which implies that, today, the Government o f Botswana (GOB) roughly subsidizes the sector’s operations in the amount US$9.0 mi l l ion per year. More interestingly, since only 17 percent o f DCA’s budget was dedicated to equipment acquisition, the existing subsidies pay for recurring costs which do not contribute directly to the sector’s growth.

17. While the situation described above reflects in part the l o w level o f user charges levied in Botswana, it also underscores the small volume o f demand o f the sector i tself as we l l as the necessity to right size the DCA which, with 868 employees, i s by any standard significantly overstaffed even when accounting for i t s expanded responsibilities (i.e. airport management). For instance in Senegal, less than 600 employees provide airport management, air traffic control, and sector regulatory functions for a sector that handles annually more than 1.8 mi l l ion passengers, o r three times as much as Botswana’s.

D. Preparing Transport to face the regional integration challenge

18. In the President’s Budget Speech last year he clearly acknowledged the role o f transport as “. . ..a key platform for economic development, trade competitiveness, as well as domestic and regional integration ... ” Given the critical role o f transport in the country’s development vision (referred to as Vision 2016), the MWT had accordingly issued the Sectoral K e y Issue Paper which i s the key programming statement o f the sector’s contribution to the 10th National Development Program (NDP- 10). The Sectoral K e y Issue Paper highlighted the new direction o f transport in NDP- 10, which i s summarized in the following:

33

19. Roads. In the road sub-sector, the past decades saw a sustained drive to construct the national road network o f primary and secondary roads, as well as tertiary level roads. This has been an important factor in enabling the economy to become more efficient and competitive and for providing communities across the country with access to services and economic opportunities. As the network i s now in place, during NDP-10 there will be a shift in MWT priorities:

from new construction to maintenance o f the existing road asset base; by phasing out o f force account maintenance into long term output and performance based contacts; and by increasing the role o f private sector to supplement in-house capacity to supervise delivery o f road project.

20. The above shift o f investment direction i s the f i rst bo ld step to revamp the management o f road sector in order to improve i t s operational efficiency, modernize the mode o f management, and ensure the “value for money” principle. The shift o f investment direction and operational method will be piloted through the OPRC component in the proposed Wor ld Bank financed Botswana Integrated Transport Project (BITP) to be implemented during the NDP-10 planned period.

2 1. Railways. In the railways sub-sector, the challenge has long been how to continue to provide essential freight services, particularly to serve mineral export traffic, on a profitable and sustainable basis. This has been complicated by uncertainties over traffic, particularly transit traffic and traffic contingent on possible new mineral developments. In practice, BR’s railway operations have not been profitable and it has not accumulated reserves enough to finance asset replacement.

22. With a series o f major mineral projects expected to go ahead during NDP-10, there i s a possibility o f large increases in ra i l traffic. I t i s also expected that during NDP-10, the Wor ld Bank funded BITP will provide for feasibility studies for the proposed Trans-Kalahari Railway project and possibly for other links to connect the BR main l ine with the South African network at Ellisras and to extend the railway north to Kazungula. These studies will also consider options for private sector participation in construction and operation o f the proposed railway lines, with a view to relieving BR o f the associated construction and operating risks, and shifting government’s role to coordination and regulation. Depending on the findings o f the studies, detailed design and implementation may be initiated during NDP- 10.

23. Aviation. During NDP-9 the government approved legislation to establish the Civil Aviat ion Authority o f Botswana (CAAB) while dismantling the DCA. The approved legislation i s being implemented in NDP-10 when CAAB will becomes fully operational and i t s capacity will be gradually built up. The CAAB provides airport facilities and services on a commercial basis, and performs the role o f regulator o f air transport services until such time as the proposed multi-sector regulator i s introduced. The CAAB i s responsible for completing various development projects during NDP- 10 including the air cargo hub concept development, aviation security improvements, and improvement o f airport facilities at Kasane, Ghanzi, Hukuntsi, Tsabong, Seronga, Tsodilo, Rakops, and Serowe/Palapye; as we l l as airport improvements carried over from N D P 9 at Gaborone, Francistown and Maun. A further priori ty for NDP-IO will be to upgrade security at Botswana’s airports in order to conform to international standards.

34

24. As a result o f the privatization proposal that i s being considered by the government, or through separately implementing this aspect o f the Air Transport Policy, it i s expected that Air Botswana’s exclusive rights wil l be revoked, thereby ushering in an era o f competition between private carriers subject to regulation. The main challenge for NDP-IO will be to implement this new approach to providing air transport services. If the proposed jo in t venture with South A f i c a n Airlink i s selected, the government’s main role will be to oversee the performance o f the new airline, and complete the winding down o f Air Botswana, An important challenge will be to ensure that the CAAB retains sufficient regulatory capacity to competently regulate the economic and technical aspects o f an airline industry subject to competition.

25. In sum, the challenge for the transport sector in the NDP-10 i s to increase efficiency through effective management, acquire international expertise and best practice experience through effective involvement o f multi-lateral development partners and increasing involvement o f the private sector. The Bank, under the proposed project i s the key partner to the government in i t s endeavor to move beyond domestic integration to the next level o f regional integration.

35

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

Integrated Transport Project

Sector Issues Bank funded projects v Supervision Ratings

Completed in the lastjive years: None

0 Projects under preparation; Botswana Integrated Transport Need to increase efficiency through

effective management and acquire international expertise and best practice experience through increasing involvement o f private sector.

Status 1 Other development Agencies financed Project

Duration

Road (96 km) Ongoing

I Kuwait Fund for Arab Economic

30 months

Development: Construction o f Tsabong-Middlepits Ongoing Road (100 km)

24 months

OPEC Fund for International Development (OFID): Construction o f Middlepits-Bokspits Road (155 km)

Ongoing

Arab Bank for Economic Development in Africa (jointly with OFID above , Construction o f Bokspits-Middlepits

36 months

Road (155 km) Ongoing 36 months

PDO I IP

I I

36

PDO

To enhance the efficiency o f the transport system by:

1. building modem business management capacity through: (a) the successful introduction o f the modem method o f road asset management starting with the implementation o f the pilot OPRC scheme in Kanye Road Depot, and replicate in other districts once it i s proven successful; and (b) introduction o f modem traffic management and technical solutions to effectively reduce traffic congestion in Gaborone City.

2. improving strategic planning aspects o f inter- regional transport and critical transport infrastructure through the successful implementation o f major strategic vision for regional integration o f Botswana.

Annex 3: Results Framework and Monitoring

Integrated Transport Project

Table 1: Results Framework

Project Outcome Indicators

Length o f roads under long term OPRC rehabilitation and maintenance. Level o f satisfaction by road users. Reduction o f average VOC per veh-

Decrease in number o f annual road

Reduction o f average travel time in

km on OPRC roads.

accidents on project roads.

Gaborone city.

The various studies to be completed under the project aim to provide strategic and policy guidance to achieve such vision. The studies will also form part o f national master plan to effectively direct the critical transport infrastructure investment.

Use o f Project Outcome Information

Scale up o f OPRC: Assess if such method attracted sufficient number o f capable investors and the level o f service satisfactorily to end user.

Effective management o f urban traffic.

The increasing interest in international transit traffic traveling on A1 and A2 transport corridors.

37

Intermediate Outcomes

Component A

Satisfactory progress towards implementation o f various studies leading to physical investments and better multimodal planning o f the transport sector infrastructure,

Component B: Road Sector Investment

Road Management improved though the use o f OPRC method.

Capacity o f RD staff improves through satisfactory procurement functions.

Satisfactory financial management by RD.

Component C: Urban Roads Investment

D Improved traffic management in Gaborone City resulting in better traffic circulation (reduction in travel time and VOC).

Intermediate Outcome Indicators

( Indicators in Result Agreement)

0 Studies completed satisfactory to GOB and the Bank. Components action plans agreed and adopted leading to improvement o f physical investment and better multimodal planning o f transport sector infrastructure.

Long term contracts fully financed and the 800km road in Kanye depot successfully rehabilitated and under long term OPRC contracts.

Measured by: 1. number o f prequalified bidders

for f irst OPRC contract bids for OPRC awarded under open competition.

2. f i rst OPRC contract awarded successfully.

3. increasing number o f contracts successfully awarded within the bidproposal validity period.

complaints on procurement process.

4. decreasing in number o f

increasing sk i l l s in financial management and on time financial reports.

0 Increasing numbers o f road users expressing satisfaction with project roads and traffic conditions.

Use o f Intermediate Outcome Monitoring

0 Measure staf f and leadership commitment toward project implementation and other agenda related to transport sector.

Timely change o f pre-qualification and evaluation criteria to ensure successful bids.

Lessons to be drawn for subsequent bidding process so as to increase the interest o f the private sector so that OPRC terms and conditions could progress satisfactorily.

Cost control adjustment.

0 Traffic situation improved by traffic management solutions, results incorporated in detailed designs.

38

Arranpements for results monitoring

1. The responsibility for monitoring and evaluating the project’s progress rests with the Road Department (RD) o f the Ministry o f Works and Transport (MWT). The RD will arrange to complete the missing baseline data for the performance indicators early during the implementation o f the project. The indicators tracking the physical road condition are inherent in the output and performance based road contract (OPRC) and may differ according to the individual contract package. The indicators will be based on the contractually stipulated levels o f service and the baseline data for each will be part o f the bidding documents. Once awarded, the contractor will have to monitor and report on the compliance with the levels o f service stipulated in the contract. This self-monitoring wil l be verified monthly and at random by a monitoring consultant and RD staff.

2. RD will employ an internationally qualified firm as the overall OPRC coordinating consultant, who among others, will provide the specialized resource persons as needed (such as OPRC specialist, contracts specialist, legal specialist, training specialist, etc.). With the assistance of the coordinating consultant, RD will hire separately a consultant (preferably local) to monitor the performance o f each OPRC contract, under the direction of, and reporting to, the coordinating consultant. Whi le the overall monitoring and evaluation responsibility rests with RD, the actual data collection may be carried out either by RD or by the coordinating consultant. Due to the nature o f OPRCs, monitoring and evaluation (M&E) i s o f paramount importance because the contractor’s payments depend on his performance. Performing regular and professional M&E i s in the interest o f both the Client (who will demand value for money) and the contractor (who needs to know the state o f the road assets under the contract for management and planning purposes).

3. The monitoring and evaluation o f a l l other indicators agreed to in the Results Framework wil l require data collection by RD, but does not preclude the institution from partially outsourcing the collection process.

4. In the evaluation o f Pavement Condition Performance Indicators at network level, as expressed by Level o f Service indicators governing the quality o f the project roads, several major aspects influencing smooth ride, comfort o f users, and durability o f pavement structures (pavement life), will be substantially improved. Among the most important are (i) Skid resistance class A and B (good and satisfactory) with skid number above 35 and 26-35, respectively, must be achieved if the road(s) are to be accepted as qualifying; and (ii) Road Roughness - International Roughness Index (IRI) for asphalt concrete roads pavement, class A and B (good and satisfactory) must achieve below 2.81 and 2.81-4.37 respectively, if the roads are to be accepted as quali f jmg.

39

G % %

a IE 2

G

0 d

I P 3

3

3 P > P 2 1 s s s

0 0 0

0

F

E

P 3 3

-

s 3 3

8 8

0 % Q g

z z

0 0 IA A

Q g z 0

d

0 0 rcl A

I

Annex 4: Detailed Project Description Integrated Transport Project

1. The project aims to support and enhance the efficiency o f the transport system and competitiveness of transport services, by building modem business capacity in the public administration, improving inter-regional and critical transport infrastructure and empowering private sector participation. The Government o f Botswana (GOB) and the Bank, through the design o f the project and i t s three investment components, A, B, and C, focus on a two pronged development approach, i.e., institutional and human resource capacity building and learning o f modem methods o f construction, while simultaneously undertaking actual physical investments to test new methods, increase the country’s connectivity with the region and provide analytical bases for better and optimal use o f transport modes. The pi lot Output and Performance Based Road Contracting (OPRC), which i s the centerpiece o f the project, if successful, wil l then be replicated over the entire country’s road network o f about 9,000 km o f primary and secondary roads. Accordingly, the Component A will comprise o f various activities spanning from economic sector work, studies, and designs to training, technology and logistic upgrade o f the Ministry o f Works and Transport (MWT). The Components B and C, complement physical investment designed and prepared under the f i rs t Component A, specifically related to the most predominant transport mode o f rural and urban roads infrastructure. Total overall cost o f the project i s estimated at US$385.2 mi l l ion (inclusive o f taxes), out o f which the Bank will finance about US$186 mill ion. There i s a possibility that the government wil l also request funding from OPEC Fund for International Development (OFID) o n a bilateral basis to lighten the load o f counterpart funding by GOB. The effects o f such co-financing o f the project would be addressed at the time that OFID makes the financing available.

Component A: Capacitv Building, Institutional Strengthening, and Traininp:

2. This component, with a total estimated value o f US$20.7 mi l l ion (inclusive o f taxes) includes two groups o f sub-components. The sub-component A1 - pre-investment activities in an amount o f US$8.5 mill ion; and the sub-component A 2 - capacity building during the project period in the amount o f US$12.2 mill ion.

A.l Pre-Investment Activities:

3. this sub-component:

Provision o f technical advisory services to undertake a number o f pre-investment activities in

(i) Regional Integration Vision o f Botswana and A1 Road-Rail Transport Corridor, (estimated at US$1.4 mi l l ion inclusive o f taxes). The study relates to the overall regional dimension and A 1 road-rail international transport corridor, focusing on the two complimentary modes. It would assess and prepare the way forward for achieving the greater regional integration. In regards to the regional dimension, the study wil l review the current transport situation including i t s related activities associated with the local and regional transport links, potential markets, procedures, etc. and identify major steps to achieve regional transport integration. With respect to the national dimension, the study will carry out a traffic forecast and simulation involving the ra i l and road transport in the country’s most critical north-south corridor (A1 corridor). Since the government has strategically decided to involve private sector in the A1 corridor development, a thorough study with better prediction and simulation o f potential traffic

42

is, therefore, strongly recommended. The study i s expected to present various options related to the potential commercialization o f the corridor traffic, and substantiated with a time bound action plan to realize them.

(ii) The TA and study o f the three new railway links -- Mmamabula-Ellisras, Mosetse- Kazungula, and Trans-Kalahari lines (estimated at U S $ 2 . 7 mi l l ion inclusive o f taxes). The Phase I o f the study covering traffic demand analysis and pre-feasibility studies for the Trans-Kalahari line i s financed under the Public-Private Infrastructure Advisory Facil ity (PPIAF) grant, and procurement i s about to conclude. The second phase o f the pre-feasibility study, as we l l as the feasibility and engineering design wil l be financed under this loan. The TA and the study are complementary and focus on development o f ra i l transport and facilities as related to the potential diversification o f the economy and use o f the country’s mineral resources.

(iii) Conceptual design for Output and Performance Based Contracting (OPRC) (estimated at US$1.3 mi l l ion inclusive o f taxes). A consult ing service i s being contracted to help the Road Department (RD) prepare the designs and bidding documents for the 800 kilometers o f OPRC contracts in Kanye road depot;

(iv) Feasibility study for Gaborone City traffic improvements (estimated at US$900,000 inclusive o f taxes). The study will review the traffic patterns in Greater Gaborone Area, propose physical improvements in addition to modern traffic management options and prioritize the potential urban roads investments. These pr ior i t ized investments will then be subjected to detailed designs including preparation o f bidding documents;

(v) Environmental, social and resettlement frameworks for OPRC (completed at US$lOO,OOO inclusive o f taxes). It will develop the required guidelines, standards and procedures which will govern these aspects in the long term road performance contracts; and

(vi) Capacity building and training prior to the project investment (estimated at US$lOO,OOO inclusive o f taxes). T h i s i s in addition to the US$2.1 mi l l ion (inclusive o f taxes) for financing o f a Technical Support Group (consisting o f specialists in procurement, transport planning and contract management) to assist RD for two years during the project preparation and early implementation per iod. The US$lOO,OOO allocation i s intended for immediate training need for staff i n a l l areas related to transport planning and project management.

A.2 Capacity Building during the project period

4. and institutional strengthening and training program, including:

Provision o f technical advisory services to undertake a capacity building knowledge transfer,

(i) National multi-modal transport master planning study (estimated at US$2.6 million inclusive o f taxes). The study aims to provide an efficient and cost effective integrated transport system, instead o f the current planning practice where each transport mode has been planned separately with l imited scope to interface, thereby losing opportunity for creating synergy and optimization between the transport modes. The study wil l culminate with preparation o f National Mult i-Modal Transport Master Plan (NMTMP),

43

including Master Plan for the Greater Gaborone City. Given the country’s strategic vision of regional integration, i t i s important to design and manage the national vision for transport sector which provides a competitive alternative to the already developed regional power houses. The NMTMP will therefore include an analysis o f the present situation in the sector as related to a l l modes o f transport, forecast future expansions and integrate the sub sectors into a comprehensive and integral tool governing the country’s needs. I t will also incorporate Gaborone City transport needs and provide for institutional alternatives related to annual updating and enforcement o f the recommendations o f the master plan. The study wil l build on the transport sector pol icy currently under preparation by the MWT, and the Greater Gaborone traffic assessment update study (recommended under this project);

(ii) Knowledge Transfer and Institutional Strengthening at an estimated cost o f US$4.2 mi l l ion (inclusive o f taxes), o f which US$1.4 mi l l ion would be for short and long te rm training o f various governmental institutions related to transport sector, and US$0.7 mi l l ion for technical assistance support to Transport Hub in the MWT. The training would focus on modem practices o f management, skil ls enhancement and professional capacity improvement. The support to Transport Hub will encompass various activities and provide for a longer term technical assistance in the area where critical knowledge gap i s identified and needed. The remaining US$2.1 mi l l ion would be used for technology and logistic upgrade o f the various offices in the Ministry and the RD, which will need this technology in order to benefit from the managerial and road information aspects o f the OPRC component;

(iii) Detailed designs and preparation of bidding documents for selected improvement within Greater Gaborone City (estimated at US$3.1 mi l l ion inclusive o f taxes). This activity will provide a l l the engineering design and bid preparation for the urban transport component for actual physical investment included as Component C in the project. The expected improvements will span f tom the improved t ra f i c management options inclusive o f traffic light management and traffic command centers, to construction o f complex intersections involving split level interchanges to allow for solutions to alleviate acute traffic congestions and for future traffic growth;

(iv) Technical Monitoring and Audit o f Project (estimated at U S $ 1.3 mi l l ion inclusive o f taxes). This activity will provide for GOB to review and monitor the project components implementation, carry out independent technical and financial audits and use the outcomes to realign and adjust the components as necessary. It i s also meant for checking through independent parties the “value for money” principles embedded in the project; and

(v) Training and Development o f National Consulting and Contracting Industry of Botswana (estimated at U S $ l .O mi l l ion inclusive o f taxes). This activity provides for training and development o f the local industry in planning, scheduling, contracting methods and other modem facilities related to the sector so as to enable them to be competitive in the globalization and integration with the regional markets, where neighboring or international super powers may dominate the local markets.

44

Component B: Road Sector Investment:

5. This component, with a total estimated value o f US$236.8 mi l l ion (inclusive o f taxes), out o f which US$122.7 mi l l ion will be financed by the Bank and includes: (i) the road asset investment for two to three c iv i l works contracts planned and prepared to use the OPRC method o f contracting (US$114.1 million); and (ii) the contracts supervisiodmonitoring estimated to cost US$8.6 mi l l ion over the period o f the contracts implementation.

(i) Road Asset Management - OPRC contracts estimated at US$228.2 million, out o f which US$114.1 mi l l ion will be financed by the Bank and the remaining US$114.1 mi l l ion by GOB. T h i s sub-component probably will be implemented in three-four c iv i l works contracts depending on the size o f such package and abil ity o f the market to absorb the investment. The GOB has recognized the benefits o f asset management approaches such as that o f OPRC and wishes to apply this innovative contracting method to a pi lot project involving a l l roads included in the most traveled network, Kanye depot area, in southern part o f the country. As described earlier, OPRC offers numerous advantages compared to traditional input-type contracts. The selected p i lo t project i s an area-wide OPRC, which in this case includes about 800 km o f rural and semi urban roads, majority o f which were paved by asphalt concrete (AC) and some o f them are s t i l l at gravel standard. Depending on the successful implementation o f the pi lot OPRC scheme, MWT/RD long term vision i s to replicate the method to the entire national (primary and secondary) road networks o f the country comprising about 9,000 km. T h e entire area- wide network represents an organic unity and a homogeneous selection, within which the traffic circulates in i t s origin and destination operation are under similar conditions. The entire network includes several roads divided into logical sections, depending on the nature o f traffic, origin destination patterns and other physical characteristics. The network will be then subjected to a conceptual design which will define several aspects o f the OPRC contracts, such as possible level o f service sustainable for Botswana, financial model for cost recovery, duration o f the project (10 years), type and forms o f contract guarantees, mode o f payments and remedies and other necessary elements that wil l be then tendered under an international competitive bidding (ICB) procedure in compliance with the Wor ld Bank procurement guidelines.

45

Table 1: Basic Roads Database for OPRC - Kanye District Roads Depot

Road Section Name Lobatse south - Ramatlabama B/post

Mankgodi jnc - A2/A10 roundabout

Poineer Gate B/post - Sekoma Poineer Gate B/post - Sekoma Poineer Gate B/post - Sekoma Poineer Gate B/post - Sekoma Poineer Gate B/post - Sekoma Poineer Gate B/post - Sekoma

Pitsane - Mabule Border Post Pitsane - Mabule Border Post Pitsane - Mabule Border Post Pitsane - Mabule Border Post

Mathethe t/off (A143102) - Lorolwane Mathethe t/off (A143102) - Lorolwane

Mogobane t/off - Ranaka jct . (A243105)

Mankgodi - Moshupa east (A1043108) Mankgodi - Moshupa east (A 1 043 108)

Boatle - Molepolole central (A12431 11) Boatle - Molepolole central (A1243111) Boatle - Molepolole central (A1243111)

Digawana junction -Goodhope Digawana junction -Goodhope

Kanye -Ramatlabama junc. Kanye -Ramatlabama junc.

Total Network in pilot program

Notes: UG - Upgrading; ST - Sing1

Route No. A1

A10

A2 A2 A2 A2 A2 A3

BlOl BlOl BlOl BlOl

B102

B102

B105

B108

B108

B l l l

B l l l

B l l l

B20 1 B20 1

B202 B202

Homogeneous Section Number

1

1

1 2 3 4 5 6

1 2 3 4

1

2

1

1

2

1

2

3

Length

45.04 0

43.08

9.87 36.02 15.48 7.6

73.95 71.34

15.45 26.44 41.66 56.79

38.17

85.75

48.95

6.5

17.09

19.66

7.33

36.22

12.43 10.8

88.83 13.36

827.81

Width

11 0

9.5

11 12 12 9.5 10.5 10.7

10 8.7 6.5

8.7

6

9.7

9.5

4.5

10.7

10

11.7

8.7 7

11.7 10.7

Surface

(AC/ST) ST

Type

ST

ST ST ST ST ST ST

UG ST ST UG

ST

UG

ST

ST

UG

ST

ST

ST

ST UG

ST ST

AADT (2005) (vpd) 450

3004

348 1742 933

3004 1603 528

425 185 185 185

85

85

397

320

320

320

320

320 ~~~

345 345

285 1742

rreatment (bitumen); AC - Aspha Concrete

46

(ii) Contracts supervisiodmonitoring over the implementation period. This activity i s estimated at US$8.6 mil l ion (inclusive o f taxes), or about 3.5 percent o f the total contracts value. This entire amount will be financed by the Bank. The component provides for monitoring activities during the contract duration, which i s different from the traditional supervision services performed under the input-Fkdkration Internationale des Ingknieurs Conseils (International Federation o f Consulting Engineers (FIDIC)) based contracts. Input based contracts require full time day-to-day quality and quantity control, with payment measurement based on the amount o f input. The output based contracts require different type o f monitoring services to be performed by experienced road management who will review the contractors’ finished product and approve them for payment, provided that the finished road sections have reached the designed level o f service both in qualitative and quantitative aspects. The monitoring will work closely with the contractor’s management unit which prepare the necessary documentation and facilitate the monitoring services. The payment will be carried out in accordance with the relevant conditions o f the works contract. In absence o f full compliance, remedy measures will be used to make the contractor meet the required standard. At the end o f the contract period, the road network will be handed over to the client at a specified condition.

Box 1. Special Feature of OPRC

OPRCs are designed to increase the efficiency and effectiveness o f road asset management. Ultimately they also lead to Total Asset Management systems where a Road Authority delegates the entire cycle o f interventions and financing to an independent entity and thus release i tse l f o f tasks for which the private sector provides better, faster and more optimized options, innovations and results. I t reduces governance problems, creates additional fiscal space in the country’s economy and budgetary constraints and provide for real “value for money”. They aim i s to ensure that the physical condition o f the roads under contract i s adequate for the need o f road users, over the entire period o f the contract - normally seven to ten years for A C standard o f roads. OPRCs significantly expand the role o f the private sector, from simple execution o f works to management and conservation o f road assets. Under traditional input-based arrangements, a contractor i s responsible for the execution o f works, and i s paid on the basis o f unit prices for different work items, i.e., the contract i s based on the “inputs” to the works. The results have often been sub-optimal. Roads did not last as long as they should have, because o f the perverse incentive structure inherent in such arrangements. The contractor would try to carry out the maximum amount o f works, in order to maximize turnover and profits. With the defects liability being limited to mostly one year, there would be less pressure on doing a quality job. But even if the works were carried out with satisfactory quality and according to plan and specifications, the overall road quality would be determined largely by the quality o f the design given to the contractor, for which he i s usually not accountable. OPRC addresses this main shortcoming o f conventional contracting by creating smart incentive structures for the contractor. Overall, the main advantages o f OPRCs can be summarized as follows:

0

0

0

0

0

cost savings in managing and maintaining road assets ranging from 20 percent - 45 percent; expenditure certainty (fixed price contracts with monthly regularity avoid unexpected variations); leaner road agencies (reduction o f road agency’s in-house workforce and general administrative costs); improved and sustained condition o f contracted road assets; better satisfaction o f road users; secured financing for multi-year maintenance program (long-term contracts); better planning and use o f resources, improved governance; and reduced number o f contracts which otherwise would need to be carried out and administrated by the Road Authority during the same long term contract period.

47

Under OPRCs, bidders compete by proposing fixed lump-sum prices for bringing the road to a designed level o f service and then maintaining it at that level over the contract period. The level o f service i s defined from a road user’s perspective and may include factors such as average travel speeds, riding comfort, safety features, etc. A fundamental feature o f the OPRC i s that the winning bidder must not or will not necessarily and in all cases be a traditional works contractor, but can be any type o f private entity having the necessary technical, managerial and financial capacities to fulfill the contract obligations. The “concessioner” i s not paid directly for “inputs” or physical works, which it will undoubtedly have to carry out, but for outputs or outcomes, i.e., for all required activities, rehabilitation, improvement, maintenance services ensuring continuous compliance with the specified level o f service. In order to be entitled to the payment, the roads under contract must comply with the level o f service as specified in the bidding document.

The contracting entity i s responsible for designing and carrying out the works, services and actions that are necessary in order to achieve and maintain the agreed level o f service. In such cases, it decides when, where and what to implement, hence undertakes to bear the majority o f risks, which otherwise would stay with the clients. Therefore, it has a strong financial incentive to be both efficient and effective whenever it undertakes work. The contracting entity needs to have professional management capability to define, optimize and carry out on a timely basis the physical interventions which are needed in the short, medium and long term, in order to guarantee that the roads comply wi th the agreed levels o f service.

In OPRC, the contracting entity must continuously monitor and control the conditions and level o f service for all roads or road sections under the contract. T h i s will not only be necessary to fulfill the contractual requirements, but i s also an activity which will provide him with the information needed to: (i) know the degree o f his own compliance with level o f service requirements, and (ii) define and plan, in a timely fashion, all physical interventions required to ensure that service quality indicators never fall below the indicated thresholds. Together with his periodic invoice, the investor will report the result o f his own evaluation o f compliance with the required level o f service, based on his own monitoring system which i s mandatory. His statement will then be verified by a monitoring consultant on behalf o f the employer (usually the road agency) through inspections. If the level o f service i s not met in any given month, the payment for that month may be reduced based on a schedule given in the contract or even suspended.

As explained earlier, OPRC transfers a significant burden o f risk onto the investor. Therefore, the role o f the Road Administration will also change significantly. I t s main tasks will be the management o f contracts and their enforcement by verifying compliance with the level o f service and all other applicable legislation and rermlations.

Component C: Urban Roads Infrastructure Investment:

6. This component with a total estimated value o f US$Sl.S mi l l ion (inclusive o f taxes), out o f which US$42.8 mi l l ion will be financed by the Bank and includes: (i) Gaborone City road asset investment planned (US$3 8.7 mill ion) prepared under the traditional input based contracting (FIDIC); and (ii) the contract supervision over the period o f the contracts implementation (US$4.1 million).

(i) Gaborone City Urban Roads Improvement Program - civil work contracts estimated at US$77.3 mill ion, out o f which US$38.7 mi l l ion i s financed by the Bank and US$38.7 mi l l ion by GOB. The works will be designed under the component A1 o f the project which will present a few solutions to the improvement o f traffic circulation on the major intersections which today are fully congested and represent the major burden to the day-to-day traffic pattern and transport efficiency o f road users. The contracts will be subjected to ICB and i t i s expected that some o f the local contractors

48

will be able to compete successfblly for the contracts. The works may include widening o f the existing intersections, construction o f multi level intersections, channelization and signalization.

(ii) Supervision on construction of Urban Roads intersections improvements. T h i s activity i s estimated at US$4.1 million, which will be financed entirely by the Bank. This sub component provides for day-to-day supervision o f a l l contract activities related to the input type o f contract. It will include a l l activities spelled out in the traditional c iv i l works contracts as per F IDIC IV amended rules and will involve I C B type o f selection o f consultants.

49

Annex 5: Project Costs

Integrated Transport Project

Project Cost B y Component and/or Activity A: Capacity Building, Institutional Strengthening and Training A1 . 1. Regional Integration and A1 Transport Corridor

Al.2. TA and Studies for 3 Railways Lines

A1.3. Conceptual Design for OPRC

Al.4. Environmental, Social and Resettlement Frameworks for OPRC

A1 -3. Feasibility Study for Gaborone City Traffic Improvement

Taxes Local Foreign estimation Total

U S $ m U S $ m U S $ m U S $ m 5.05 15.01 0.60 20.66 0.30 1.10 0.04 1.44

0.60 2.00 0.08 2.68

0.25 0.96 0.04 1.25

0.15 0.70 0.03 0.88

0.10 0.00 0.10

I A 1 S. Training o f RD staff in Pre-project Period I 0.10 0.10 I A.1.6. Transport Support Group for RD (3 specialist for 2 years period)

A2.1. National Mult i-Modal Transport Master Plan

A2.2. Training o f various Government Institutions & Technical Assistance to Transport

A2.3. Technological and Logistic Upgrade o f MWT

A2.4. Detailed Designs and Bidding Document for Selected Gaborone Intersections

A2.5. Technical Monitoring and Audit A2.6. National Consulting and Constructing Industry Development

Hub

B: Road Sector Investment B 1.1, OPRC- Road Works

B 1.2. Consulting Servicesh4onitoring o f OPRC

Total estimation o f price and physical contingencies for component B

C: Urban Roads Infrastructure Investment C. 1.1 Gaborone City Urban Roads and Intersections Improvement

C. 1.2 Consulting Services for Supervision on Construction

Total estimation o f price and physical contingencies for component C

Total Base-line Costs (net of contingencies and taxes) Total estimation o f price and physical contingencies

Total cost including contingencies Total estimation o f taxes and levies

Total Project cost inclusive of taxes and contingencies

0.40 1.60 0.06 2.06

0.50 2.00 0.08 2.63

1.00 1 .oo 0.06 2.06

0.20 1.80 0.06 2.06

0.60 2.40 0.09 3.09

0.50 0.75 0.04 1.29

0.40 0.60 0.03 1.03

71.36 134.90 30.54 271.04 69.70 128.26 30.29 228.24

1.66 6.64 0.25 8.55

12.06 22.19 34.25

24.19 46.82 10.44 93.51 23.39 43.62 10.32 77.33

0.80 3.20 0.12 4.12

4.21 7.85 12.06

100.60 196.73 297.33 16.27 30.04 46.3 1

116.87 226.77 343.63 16.63 24.94 4 1.57

133.50 251.71 385.21

Project Cost By Component and/or Activity

A: Capacity Building, Institutional Strengthening and Training (inclusive of taxes)

A1 .l . Regional Integration and A1 Transport Corridor (Retroactive financing) Al.2. TA and Studies for 3 Railways Lines (Retroactive financing) A I .3. Conceptual Design for OPRC (Retroactive financing) A I -3, Feasibility Study for Gaborone City Traffic Improvement (Retroactive financing) A 1 -4. Environmental, Social and Resettlement Frameworks for OPRC

A1.5. Training o f RD staff in Pre-project Period I 0.10 0.10 -

Base line WB GOB cost US$ US$ US$

million million million 20.66 20.56 0.10

1.44 1.44 -

2.68 2.68 -

1.25 1.25 -

0.88 0.88 -

0.10 - 0.10

Al.6. Transport Support Group for RD (3 specialists for 2 years) (Retroactive financing)

I

2.06 2.06 -

A2.1. National Multi-Modal Transport Master Plan

A2.2. Training o f various Government Institutions & Techhnical

2.63 2.63 - 2.06 2.06 -

A2.3. Technological and Logistic Upgrade o f M W T 2.06 2.06 - A2.4. Detailed designs and Bidding Documents for selected Gaborone

A2.5. Technical Monitoring and Audit

A2.6. National Consulting and constructing Industry Development

Intersections

B: Road Sector Investment (inclusive of taxes)

51

3.09 3.09 -

1.29 1.29 -

1.03 1.03 -

236.79 122.67 114.12 B 1.1. OPRC- Road Works B 1.2. Consulting ServicesMonitoring o f OPRC

228.24 114.12 114.12 8.55 8.55 -

C: Urban Roads Infrastructure Investment (inclusive of taxes) C. 1.1 Gaborone City Urban Roads and Intersections Improvement C. 1.2 Consulting services for Supervision on Construction

Total cost (inclusive of taxes, net of contingencies)

Total cost inclusive of taxes and contingencies

Total Financing Required

Total estimation o f price and physical contingencies

81.45 42.78 38.66 77.33 38.66 38.66 4.12 4.12 -

338.90 186.01 152.89 46.3 1 0.00 46.3 1

385.21 186.01 199.20

385.21 186.01 199.20

Annex 6: Implementation Arrangements

Integrated Transport Project

Institutional Framework

1. A schematic representation o f the institutional framework o f the transport sector in Botswana i s shown in Figure 1 below. There are six departments under the Ministry o f Work and Transport (MWT), i.e. Department o f Building and Engineering Service (DBES), Department o f Road Transport and Safety (DRTS), Department o f Central Transport Organization (CTO), C iv i l Aviation Authority o f Botswana ( C U B ) , and the Road Department (RD). In addition, i t has oversight responsibility over the business development o f Botswana Railway (BR), and Air Botswana (Air BW) which are state-owned enterprises. The .planning and management o f each department falls within the realm o f two Deputy Permanent Secretaries o f MWT who report to the Permanent Secretary.

Figure 1: Organization chart of MWT and its Road Department

Ministry o f Works and Transport

Road Department

Admin. ccounts Training NChief Engineer

I I -- Maintenance- I

--Development--

I I

' ' , . . , ,(, , . . , " , . .

1

PRE I1 PRE I1 PRE I1 PRE I1 PRE I1 Central North West South Traffic

[?u$lEng.l PREII I 1 PREII 41 PREII 1 Design & E Bridges & Contracts

52

2. The RD i s directly responsible for planning, budgeting and implementing the development and maintenance works o f a l l national roads (primary and secondary network o f about 9,000 km o f which 6,000 km i s paved), while al l urban roads and tertiary roads including rural access roads are managed by the Ministry o f Local Government (MLG). RD i s also responsible for providing technical support to MLG as and when needed on the design standard and construction quality o f the urban and rural roads. The asset value o f national road network under the direct charge o f RD i s worth about Pula 10 b i l l ion (about US$1.3 b i l l ion equivalent). Under the Director o f Road, there are two chief engineers one overseeing a l l road development projects, while the other i s in charge o f a l l road maintenance activities organized under 13 road maintenance depots. The RD i s the largest department in the MWT, both in terms o f staf f employed, and budget spent each year. With i t s annual investment budget o f about US$90- 100 mi l l ion in road sector (development and maintenance combined), RD staff have sufficient opportunity to involve and familiarize themselves with standard procurement practice and project management in road sector.

Overall Direction and Leadership

3. Since this project i s o f a multidisciplinary nature, it requires constant and extensive consultation with various stake holders as to achieve creation o f a high level o f synergy. Two project- specific oversight groups are being established:

(i) Transport Sector Reference Group (TRG): The Permanent Secretary (PS) o f MWT chairs on a monthly, or on an “as needed” basis the TRG, with members f rom the MFDP, the MLG, the Department o f Town and Regional Planning (DTRP), the Gaborone City Council (GCC), the Botswana Railway (BR), the Civil Aviat ion Authority o f Botswana (CAAB), the Botswana Economic Development and Investment Authority (BEDIA), and the Public Procurement and Assets Disposal Board (PPADB). The TRG hnctions as a higher level steering committee to guide the operation aiming to forge forward a full synergy creation for this multi- disciplinary investment.

Transport Sector Reference Group (TRG), chaired b y PS/MWT with representatives f rom stake holders which include:

> Ministry o f Finance and Development Planning (MFDP)

P Ministry o f Local Government (MLG) P Gaborone City Council (GCC) > Department o f Town and Regional

Planning (DTRP) > Botswana Economic Development and

Investment Authority (BEDIA) > Public Procurement and Asset Disposal

Board (PPADB)

> Ministry o f Work and Transport (MWT) 0 Planning and Budgeting Department 0 Road Department (RD) 0 Botswana Railway (BR) 0

0

0 The Transport Policy unit

Dept. o f Road Transport and Safety (DRTS) The Civi l Aviation Authority o f Botswana (CAAB)

(ii) Special Project Management Unit (SMU): Since the largest component o f the project (about 60 percent o f the Wor ld Bank financing) i s dealing with the management o f road asset which currently falls under the jurisdiction o f RD, and the second largest component (about 25 percent o f Bank financing) i s dealing with urban transport for which RD has to provide technical guidance at the construction stage, it was thus decided that RD will have the overall implementation and coordination responsibility o f the project. RD has set up a S M U to coordinate and implement a l l

53

components and sub-components o f the project, and act as a focal point o f interaction with the Bank. At a day-to-day project administration level, a project implementation team headed by a dedicated project manager and composed o f qualified staff f rom MWT, RD, GCC, and relevant government agencies, has been set up to coordinate and prepare the pre-investment activities required to start the investment. A team o f technical specialists [Technical Support Group (TSG)] i s currently being recruited. This team will further be expanded and totally dedicated to the project, with capacities strengthened to handle the physical and financial implementation o f this US$385.2 mi l l ion worth o f investment. Figure 2 summarizes the organization and the set up o f the SMU.

Ministry o f Works and Transport '

Figure 2: Organization Structure o f the SMU

chaired by PS iM WT with representatives f rom MFDP, MLG. GCC. DTRP, BEDIA

internal monitoring A

- . _ _.-. - . - '

Technical Support Group

1 1 Component B Component C

54

Annex 7: Financial Management and Disbursement Arrangements

Integrated Transport Project

Executive Summary

1. In accordance with the Wor ld Bank-Financed Investment Operations Financial Management Practices Manual dated November 3, 2005; the Bank conducted a financial management (FM) assessment o f the Roads Department (RD) in the Ministry o f Works and Transport (MWT) with the objective o f ensuring that an adequate financial management system i s in place for the implementation o f the project.

2. The FM assessment identified the fiduciary risks that the RD may face in the implementation o f the project and proposed measures to mitigate the risks, as shown in Table 1 below. W h i l e the government FM system was considered adequate for the implementation o f the project, the findings o f the assessment was that the capacity in the MWT internal audit unit and the RD Accounts Section need to be strengthened in terms o f staffing. Also, staff would need training on Wor ld Bank Financial Management and Disbursement policies and procedures to facilitate compliance with the Bank fiduciary requirements. The overall conclusion o f the assessment i s that the FM arrangement proposed for the project meets the minimum requirements o f the Bank subject to the implementation o f the actions described in paragraph 13 below.

3. The financial management risk i s assessed as Moderate based on the proposed use o f the Government o f Botswana’s (GOB) financial management system. The system i s capable o f managing the project expenditure efficiently and effectively, accounting for utilization o f the loan proceeds, ensuring effective internal controls, producing the project FS , and conducting timely audit o f the statements. Implementation o f the proposed risk mitigating measures will reduce the risk rating to Low.

Overview of the Project and Implementation Arrangements

4. The main components:

A. Capacity building, institutional strengthening, and training; B. Roads sector investment; and C. Urban roads infrastructure.

5. Component A comprises of: (i) pre-investment activities costing US$8.5 mi l l ion o f which the Bank will finance US$8.4 mill ion, about 99 percent o f the cost. These activities include studies, training, and the conceptual design for the Output and Performance-based Road Contracting (OPRC) method, which i s described as the centre-piece o f the proposed project; and (ii) capacity building, including studies, technical monitoring and audit o f the project. The project will be financed by the GOB and the Bank. Details o f the project description are given in Annex 4. The possibility o f OPEC Fund for International Development (OFID) providing financing to reduce GOB’S contribution to the project i s being discussed. The effects o f such co-financing will be addressed at the time that OFID makes the financing available.

6. At the policy decision level, the Transport Sector Reference Group (TRG), chaired by the Permanent Secretary (PS), MWT has been established to provide guidance to the project. The RD,

55

one of the five business departments in MWT, will implement the project through the Special Project Management Unit (SMU), which i s currently charged with the responsibility o f preparing and coordinating the pre-investment activities o f the project. The team will be expanded to be responsible for the day-to-day administration o f the project. Membership o f the team include: MWT, MFDP, RD, Gaborone City Council (GCC), and the technical support group. The RD i s headed by a director, who reports to the PS, MWT. There are currently 89 engineers in the department. The engineers manage development and maintenance projects. RD has thirteen maintenance depots. There are currently four project management engineers in the Development section. In addition, there are about 17 project officers, also engineers. RD consists o f six main sections (Development, Maintenance, Materials, Roads Training Center, Administration, and Supplies).The finance and accounts units are in the administration section and the staff in the accounts section are posted by the Accountant General to complement the RD administration accounts staff. They are however, hnctional ly responsible to the Director, RD. The Accountant General also posts accounting staff to the accounts unit in each ministry, including MWT, and responsible for monitoring the activities, efficiency and effectiveness o f the units and staff.

Project Oversight

7 . There wil l be two project specific oversight bodies, the TRG and the SMU. The TRG will provide overall strategic guidance and oversight to the project, and will be chaired by the PS, MWT. I t s membership will include the MFDP, the Ministry o f Local Government (MLG), Department o f Town and Regional Planning (DTRP), the GCC, the Botswana Railways (BR), the Civil Aviation Authority o f Botswana (CAAB), and the Public Procurement and Assets Disposal Board (PPADB). The S M U will have the overall implementation and coordination responsibility o f the project. Th is unit wil l be headed by the Project Manager. Membership o f the Unit will include: MWT, RD, GCC, and Technical Support Group (TSG) specialists as appropriate. Details o f the project oversight are given in Annex 6.

Country Issues

8. The Bank has not carried out any country level analytic work in the recent past. Therefore, there i s no comprehensive source for the country issues that impact on the financial management arrangements proposed for the project. The European Commission has however, recently completed a Public Expenditure and Financial Accountability (PEFA) assessment with Wor ld Bank support.

9. GOB’S financial management system i s based on an outdated Finance and Audit Act, which i s currently under review. This i s complemented by Financial Instructions and Procedures (FIP) o f 1993. GOB uses an integrated financial management and i n f o h a t i o n system (IFMIS), which was installed about f ive years ago. The system was rol led out to a l l the ministries and departments, including the MWT and the RD between 2004 and 2006. Financial statements (FS) are produced on monthly basis, reviewed and reconciled with the ledgers, by the respective ministries and departments. The system also produces the annual FS for audit and maintains records o f a l l donors and produces monthly receipts and expenditure statements by donor budget votes. Each donor agrees i t s reporting format with the government. Procedures for safeguarding assets o f the government are covered in the Financial Instructions and Procedures Manual o f 1993,

56

Risk Assessment and Mitigation Measures

10. assessment and the proposed mitigating measures.

The fol lowing table gives details o f the financial management risks identified during the

Table 1: Risk Mitigation Measures

I Inherent Risk Countiy Level

1. Non-compliance with GOB’S Financial Instructions and Procedures (FIP) 1993.

2. Use o f the outdated Finance and Audit Act.

Finance and accounting staff may not have knowledge o f Bank financial management and disbursement policies and procedures.

Rating

M

M

M

Risk mitigation measures

GOB currently uses the Government Accounting and Budgeting system, GABS (a module o f the IFMIS) for expenditure management, budgeting, accounting and reporting, and will be used for the implementation o f the project. GABS manual i s available.

Finance and accounts staf f are trained in GABS and provided with adequate resources.

The Act i s being reviewed by a legal firm contracted by the government, and the draft Act was in circulation for comments.

MFDP wil l be responsible for the submission o f Withdrawal Applications to the Bank.

MFDP i s familiar with financial management and disbursement procedures of Donor funded projects, although not fully with the Bank’s policies and procedures.

RD will be responsible for the preparation o f the agreed IFRs. The RD Accounts Section staff participated in the basic World Bank FM and Disbursement Workshop delivered in June and November 2008. The MWT and MFDP staff also participated in the

Residual risk

L

Condition of Negotiations

or Effectiveness oI/N)

N o

N o

N o

57

Project Level

1. Non or late provision o f counterpart funds may impact successful implementation o f the project. (GOB i s contributing 52% o f the total cost o f the project).

2. The nature and size o f the project and contracts involve high risk exposure for contract processing and execution and financial management.

M

M

workshop.

FM staff o f the participating Ministries and Departments will be encouraged to participate in the Bank’s periodic financial management and disbursement workshops, as well as courses organized by the Bank recognized training institutions.

Counterpart fund allocation will be provided for in GOB’s annual budget and released through MWT following GOB’s budgeting and accounting procedures. Provision was being made for the budget allocation in the Development Plan for FY2009/2010.

Independent annual external audit o f the FS and annual technical audit will be carried out and reports submitted to the Bank on September 30 and December 3 1 respectively.

The strengthened internal audit unit will conduct regular audit o f the project financial activities to ensure use o f funds for purposes intended.

The annual technical audit report will be submitted to the PS, MWT for action, and shared with the Auditor General and Bank supervision team for review for prompt action on audit observations and queries.

Adherence to the government stipulated service standards will ensure prompt payment to contractors.

The proposed engagement o f the specialists in procurement, transport, and contract engineers will also help to mitigate the risk.

N o

N o

58

Control Risk:

Budgeting

RD may not prepare clearly defined budget and closely monitor variances. The Department i s not familiar with the Bank’s requirements.

Accounting

RD may not have accounting procedures manual for project implementation.

Internal Control

Inadequate internal audit review o f project activities due to weak internal audit capacity.

Funds Flow

Delay in the preparation and submission o f Withdrawal Applications and Interim unaudited Financial Reports (IFR) to the World Bank for release o f funds due to limited experience in Bank disbursement procedures.

L

L

M

M

RD will follow GOB’s procedures in the implementation o f the project. Budget preparation i s clearly defined and variances monitored.

Use o f IFR for both reporting and disbursement purposes will also be useful in monitoring budget variances. The project oversight bodies will also monitor budget variances.

The project will use GOB’s accounting system and manual in the implementation o f the project. Use o f the government IFMIS system i s incorporated into the project design.

MFDP will provide one additional internal audit staff to the MWT Internal Audit Unit to strengthen the Unit as discussed with MFDP.

4

Regular periodic training will be provided by the Bank to ensure staf f o f the MFDP, MWT and RD become familiar with the Bank’s policies and procedures on Financial Management and Disbursement. Submission o f applications to the Bank will be monitored for timeliness. The project wi l l also sponsor some o f the accounts staff on training in World Bank financial management and disbursement policies and procedures.

MFDP i s however experienced in some other Donors’ project financial management requirements, including renortin E.

L

L

L

L

No

No

No

No

59

Financial Reporting

S

S

M

Delay in the preparation o f the project annual FS The Finance and Audit Act allows preparation o f FS within eight months o f GOB’s fiscal year. Auditing

The Accountant General will prepare and submit the project FS to the Auditor General by May 3 1 each year. Agreement reached during the appraisal o f the project in November 2008.

The project audit will be conducted between June and August each year. The audit report together with the Auditor General’s management letter on the audit and management’s response will be submitted to the Bank within six months o f GOB’s fiscal year end, i.e. on September 30, each year. Agreement reached during the appraisal o f the project in November 2008.

I

Annual audit report may not be issued timely. The Finance and Audit Act allows submission o f audit report within 12 months o f GOB’s fiscal year.

Overall FM Risk Rating

Risk Rating: S (Substantia

Major Strengths

M

M

L I I

, M (Moderate), L (Low)

N o

N o

1 1. The financial management system incorporates an adequate internal control system, including suitable authorization procedures, segregation o f duties and responsibilities, and reliable budgeting system. The RD, MWT and MFDP are able to meet the 10 working day service standard stipulated in the GOB Customer Service Standards Document issued by the Public Service Management. This i s very important, considering the size o f the project and the need to make prompt payments to contractors once the invoices are received in the Accounts Section.

Weakness and Action Plan

12. Capacity constraint in the internal audit unit o f the MWT i s a key weakness. Internal audit visits to RD are not.regular as a result o f the inadequate staffing positions in the unit. Currently, the software capable o f producing the interim unaudited financial report (IFR) by component o r activity available at MWT i s not inter-phased with the Government Accounting and Budgeting System (GABS). The inter-phasing i s planned for the end o f April 2009.

13. management arrangements.

The following financial management action plan i s recommended to strengthen the financial

60

Action Provide one additional internal audit staff to the M’WT Internal Audit Unit to strengthen the Unit as discussed with MFDP. Identify s ta f f to be responsible for the production o f the IFR by component and activity in the Accounts Unit, MWT. Submit finalized audit TORS to the Bank

Budgeting

Responsible Entity Due Date MFDP One month after effectiveness

MWT One month after effectiveness

MFDP 3 months after effectiveness

14. The Botswana Integrated Transport Project (BITP) will use GOB’S budgeting system. As with al l projects being implemented by the ministries and departments, MWT will submit and defend the annual draft budget for the project before the Budget Review Committee, chaired by the Secretary, Development and Budget, MFDP. The committee will submit the draft budget as discussed to the Estimate Committee, chaired by the PS, Finance. After due discussion and necessary changes to the draft budget, i t will be submitted to the Cabinet. The Finance and Estimates Committee (a committee o f Parliamentarians) will review and submit the budget to Parliament in February each year. The annual approved budget, including the expected Bank financing will then be provided for in the government development budget (under the MWT budget).

Accounting

15. GOB will use i t s accounting system to account for the sources and uses o f the project funds, and in accordance with the terms o f the Loan agreement. For this purpose, the Generally Accepted Accounting Principles (GAAP) and i t s accounting standards will be used in preparing the project annual FS, using the modif ied cash accounting basis. The budget and accounting procedures are wel l documented in the GABS procedures manual. The MWT and RD accounts units/section staff are trained in the use o f the system.

16. RD has an Accounts Section as we l l as an Administration Accounts Section (AAS). The A A S staff are posted by MFDP budget department, while the AS staff are posted by the Accountant General. The A A S i s in the Administration Unit o f RD. The section i s responsible for the preparation o f payment vouchers, revenue collection, issuance o f imprests, preparation o f claims, leave concession, transfer allowance, maintenance o f ledgers, filing o f documents, and collection o f cheques from MWT. The A A S i s headed by an Administration Officer and expected to be assisted by five Senior Administration Assistants (SAA). T h e section was recently divided into Development and Recurrent Units. The development unit will be responsible for the accounting functions o f the project.

17. The Accounts Section, headed by a Chief Accounts Officer, i s responsible for receiving and reviewing payment vouchers, as we l l as for the reconciliation o f payments under correct codes within the budget. It also reconciles the general ledger with the vote ledger. The Chief Accounts Officer will

61

be responsible for the accounting hnctions o f the project at RD level and by the Principal Accountant at MWT.

18. At MWT level, the Accounts Unit, Administration Accounts Unit, Planning Unit, and the Internal Audit Unit will be directly involved in the implementation o f the project. The RD Accounts Section will submit checked payment vouchers to MWT Accounts Unit for verification and submission to the office o f the Accountant General twice a week (Mondays and Wednesdays) for issuance o f cheques, which i s done electronically. Checks are written within 48 hours as stipulated in the government’s “Customer Service Standards”.

Planning Unit (PU)

19. The Planning Unit coordinates implementation o f MWT projects, as we l l as monitor project implementation progress. The unit i s headed by the Chief Economist (Projects), and assisted by three planning officers. The unit conducts site visits, and o n monthly basis to some o f the departments in MWT. However, capacity constraints do not allow regular visits as expected.

Internal Control and Internal Auditing

20. GOB’S internal control system, proposed for the implementation o f the project will provide assurance o f accountability at a l l levels, carrying out o f the project activities in an orderly and efficient manner, adherence to policies and procedures, and reliabil i ty o f the accounting records and information.

21. MWT maintains the internal audit unit, which i s responsible for the internal audit functions o f the six departments, including the Headquarters, in the ministry and the over 40 departmental units spread throughout the country. The unit i s headed by a principal internal auditor and assisted by an internal auditor and an assistant internal auditor. The unit operates on an annual audit plan approved by the PS, MWT. However, internal audit visits to the departments and units are not regular due to capacity constraints. MFDP had also indentified the need for additional internal audit s ta f f in MWT and posted an additional internal auditor to MWT as opposed to two discussed in June 2008. MWT will ensure that the unit proddes adequate internal audit hnctions (as approved in the unit’s annual plan) to RD covering projects implemented by the Department. The unit will also submit to the PS, MWT, annual reports on the BITP. The Auditor General and the Wor ld Bank supervision missions will have access to these reports.

Funds Flow and Disbursement Arrangements

22. period o f 10 years.

Table 3 below provides the allocation o f the loan proceeds, which will be disbursed over a

23. BITP will use the Advance disbursement method and Report-based disbursement procedure. GOB will maintain a United States Dollar (USD) denominated Designated Account for the project at the Bank o f Botswana. The project may also use the: (i) Direct Payment disbursement method involving direct payments to contractors and suppliers o f goods and services; (ii) Reimbursement method, whereby GOB will be reimbursed for payments made for eligible expenditures under the project; and (iii) Special Commitment disbursement method. The Bank’s disbursement letter, which was discussed during the loan negotiations, provides additional instructions on the project disbursement arrangements.

62

24. MFDP will be responsible for submitting withdrawal applications supported by quarterly IFRs. Upon effectiveness o f the loan, RD will submit the “Project Memo” requesting for funds to MWT for appraisal after which it will be submitted to MFDP through the Director o f Development Budget, for review and approval by the Minister o f Finance, The request will be for an estimated expenditure for the first 6 months o f the l i f e o f the project, and in respect o f which MFDP will submit a withdrawal application to the Bank. Subsequent requests will be on a quarterly basis for six monthly estimated expenditure, taking into account the unutilized balance o f earlier issued financial warrant. MFDP will issue a “Financial Warrant” to MWT, covering the approved Project Memo and MWT will give a copy o f the warrant to RD as authority to spend.

Table 3: Flow of Funds Diagram

IBm

MFDP - I Suppliers and consultants

(Direct payment)

Contractors and Suppliers

~

Notes:

Submission o f Withdrawal Applications with supporting documentation to IBRD

Disbursements by IBRD and payments to contractors and suppliers

Issuance o f Finance Warrants and copy to RD +-w

Submission o f Project Memo and quarterly IFRs (RD/MWT)

,-b

+-+

63

Allocation of Loan Proceeds

Category

1. Works a) Part B o f the Project b) Part C o f the Project

2.Consultants’ Services, Training, and Goods

a) under Part A. 1 o f the project, other than Part A. 1 (e) b) under Parts A.2, B and C o f the project

25. The following table summarizes the loan proceeds by disbursement category:

Amount of the Loan % of Expenditures Allocated to be financed

(US$) (inclusive of tax) 50%

114,100,000 38,700,000

100%

8,300,000

24,900,000

26. A retroactive financing arrangement o f US$5.7 mi l l ion will be provided to cover payments made prior to loan signing o f the project but on or after February 1, 2009. The expenditures made eligible are those activities under Component A. 1 o f the project.

OPEC Fund for International Development (OFID) Contribution

27. i s understood that OFID wil l administer the disbursement arrangements o f i t s contribution.

In the event that OFID makes a financial contribution towards the project implementation, i t

Financial Reporting

28. The main objective o f the financial reporting i s to enable the production o f sufficiently detailed and regular information to assist in the management and monitoring o f the implementation o f the project. RD will produce the Interim unaudited Financial Reports (IFRs) on a quarterly basis. For this purpose, MWT will assign a s ta f f o f the Accounts Unit to be responsible for the production o f the Component/Activity Report. The format and content o f the reports were agreed at negotiation.

29. At the end o f each quarter, MFDP will submit to the Bank, withdrawal applications supported by IFRs for withdrawal o f funds to meet estimated eligible expenditures for the ensuing six months. The IFRs, to be submitted within 45 days o f the end o f the quarter to which they relate, will report sources and uses o f hnds by disbursement categories and project activity/ component; actual and budgeted expenditures, both cumulatively and for the period covered by said report. The reports will show separately, funds provided by the Bank, and GOB, and explain variances between the actual and planned uses o f such funds. The IFRs will also include: a narrative summary o f implementation highlights for the quarter, which wil l help readers to understand the financial reports better; the Designated Account activity statement; and a summary statement o f eligible expenditures subject to Bank’s prior review.

64

30. M a y 3 1 each year, and will comprise:

The Accountant General will also produce the annual project financial statements (FS) by

Audit Report Project specific financial statements

(i) A Statement.of Sources and Uses o f Funds provided by GOB and al l donors contributing to the financing o f the project,

(ii) The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on Statement o f Cash Receipts and Payments being cross referenced to any related information in the notes.

(iii) A Management Assertion that the Project funds have been expended in accordance with the terms o f the loan agreements and for the intended purposes.

Due Date Within six months after the end o f each fiscal year, i.e., by September 30 each year.

Auditing Arrangements

31. The Project’s FS wil l be audited by the Auditor General, who i s required by section 124 o f the Constitution to audit the public accounts o f Botswana and o f a l l officers, courts and authorities o f GOB. The audit will be carried out in accordance with the International Organization o f Supreme Audit Institutions (INTOSAI) auditing standards issued by the International Federation o f Accountants (IFAC). GOB will submit the Audit Terms o f Reference (within three months o f effectiveness o f the loan agreement) to the Bank to ensure adequacy o f the scope o f the audit, drawing attention to particular risk areas identified during project preparation. The audit report to be prepared by August 3 1 each year, including the management letter, and management’s response to the letter, will be submitted to the Bank within six months o f the end o f GOB’s fiscal year, September 30 each year.

32. The Public Accounts Committee (PAC), as an oversight body meets regularly to review audit reports and ensures that prompt actions are taken on audit recommendations, by the responsible government officials. GOB’S annual audit reports are published online and are also on sale by government printers and available on request. BITP’s audit reports will also be covered in the publication.

Covenants applicable to project implementation:

33. loan negotiations:

The following financial management issues were discussed, confirmed and agreed during the

(i) GOB’s approval o f annual allocation o f counterpart hnd requirements for FY2009/10; and (ii) The format o f the IFRs.

34. Financial covenants:

Maintain or cause to be maintained a financial management system including records, and accounts in accordance with the provisions o f Section 5.09 o f the General Conditions.

65

Prepare and hrnish to the Bank, not later than 45 days after the end o f each quarter, interim unaudited financial reports for the Project covering such quarter, in form and substance satisfactory to the Bank; Have the project’s Financial Statements (FS) audited in accordance with the provisions o f Section 5.09 (b) o f the General Conditions. Each audit o f the FS shall cover the period o f one Fiscal Year. The audited FS for each such period shall be furnished to the Bank not later than six months after the end o f such period, Le., by September 30 o f each year; Prepare the Audit Terms o f Reference in consultation with the Bank, within three months o f effectiveness o f the loan agreement; Assign one additional internal audit s ta f f to the MWT Internal Audit Unit to strengthen the Unit, no later than one month f rom effectiveness date; and Designate s ta f f to be responsible for the production o f the interim unaudited financial reports (IFR) by component and activity in the Accounts Unit, MWT no later than one month from effectiveness date.

Supervision Plan

35. The project overall risk rating i s Moderate. However, during the first year o f the project implementation, two supervision missions will be conducted to ensure that the project financial management arrangements are operating effectively given that this would be one o f the o f the f i rs t two Bank financed projects to be prepared after two decades. The f i rs t supervision mission after effectiveness will take the form o f an FM Specialist (FMS) visiting RD, MWT and MFDP to review financial management systems and procedures to ascertain that the systems’ efficiency and effectiveness have been maintained at the project implementation levels. Subsequently, and in addition to the quarterly desk review o f the IFRs and annual audit reports, the on-site supervision visits will be based on the project’s updated risk rating.

Governance and Accountability

36. The FM assessment did not record issues o f governance and accountability. The GOB’S Directorate o f Corruption and Economic Crimes (DCEC) i s described as an effective body. Cases o f corruption or financial crime against the state are promptly investigated and concluded with appropriate action taken by government.

Overall Conclusion

37. The overall conclusion o f the assessment i s that the FM arrangement proposed for the project meets the minimum requirements o f the Bank subject to the actions described in paragraph 13 above. The financial management risk i s assessed as Moderate. Implementation o f the proposed mitigating measures will reduce the risk rating to Low.

66

Annex 8: Procurement Arrangements

Integrated Transport Project

A. General

1. Procurement under the project will be carried out in accordance with the Wor ld Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004, revised October 2006 (referred to herein as the Procurement Guidelines) and “Guidelines: Selection and Employment of Consultants by Wor ld Bank Borrowers” dated M a y 2004, revised October 2006 (referred to herein as the Consultant Guidelines) and the provisions stipulated in the Legal Agreement. Bank’s Standard Bidding Documents (SDB) shall be used for procurement o f goods under International Competitive Bidding and Bank’s Standard Request for Proposal (RFP) shall be used for selection o f consultants. For National Competitive Bidding (NCB), Government o f Botswana’s SDB which have been reviewed and generally found acceptable may be used.

2. The fol lowing provisions shall apply in the Government o f Botswana (GOB) NCB bidding documents under this project: (i) foreign bidders shall be allowed to participate in NCB; (ii) registration / classification o f bidders shall not be used as a condition for bidding; (iii) use o f preference system based on citizen degree o f ownership shall not be used; (iv) use o f point system and bracketing in the evaluation o f bids for goods shall not be used; (v) negotiations shall not be held with successful bidder for procurement o f goods; (vi) publication o f invitation to bid in a national newspaper o f wide circulation; (vii) N C B bidding documents shall clearly specify bid evaluation and post qualification criteria; (viii) bidding period shall not be less than four weeks and bids shall be opened publicly; (ix) in accordance with paragraph 1,14(e) o f the Procurement Guidelines, each bidding document and contract financed out o f the proceeds o f the Loan shall provide that: (a) the bidders, suppliers, contractors and subcontractors shall permit the Bank, at i t s request, to inspect their accounts and records relating to the bid submission and performance o f the contract, and to have said accounts and records audited by auditors appointed by the Bank; and (b) the deliberate and material violation by the bidder, supplier, contractor o r subcontractor o f such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) o f the Procurement Guidelines; and (x) contract awards shall be published. Alternatively, Bank’s SDB may be used and adapted for NCB. The general descriptions o f various items under different expenditure category are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and timeframe would be agreed on between the Borrower and the Bank in the Procurement Plan. The prior review and procurement method thresholds indicated below are intended for the init ial Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvement in institutional capacity.

3. Procurement o f Civil Works (US$351.8 million equivalent). The c iv i l works envisaged under the Project i s comprised o f (i) Road asset management; and (ii) Gaborone City Urban Roads Improvement Program. The Road Asset management contract (estimated at US$262.4 mill ion) includes c iv i l works contracts over a 10 year period. This will be based on Performance Based Procurement (Output Based Procurement) as per paragraph 3.14 o f the Guidelines where payments are made for measured outputs which will be defined in the technical specifications including how they wil l be measured. Mechanism for an independent verification will also be in place. Bank’s standard prequalification documents and sample bidding documents for Output and Performance based contracts will be used for this purpose. The Gaborone City Urban Roads Improvement

67

Program (estimated at US$89.4 mill ion) will be based on conventional c i v i l works contracts applying Bank’s standard prequalification documents and the use o f Bank’s standard bidding documents for large works. In addition, other methods such as different levels o f turn-key contracts ranging from Design, Build, Transfer (DBT) to Design, Build, Maintain, Operate and Transfer (DBMOT), may also be considered.

4. Procurement of Goods. (Estimated to cost US$2.1 million equivalent). Goods procured under this Project will include technology and logistic upgrade for the Ministry o f Works and Transport (MWT). Goods estimated to cost US$500,000 equivalent o r more per contract shall be procured under International Competitive Bidding (ICB) procurement method. Goods estimated to cost less than US$500,000 will be procured on the basis o f NCB. Goods that are estimated to cost less than US$50,000 equivalent per contract may be procured through shopping procedures as set forth in the Procurement Guidelines and described above. Where practical, the goods to be purchased will be grouped and be procured in one contract.

5. source) and may be an appropriate method under the following circumstances:

Direct contracting for goods. Direct contracting i s contracting without competition (single

An existing contract for goods, awarded in accordance with procedures acceptable to the Bank, may be extended for additional goods o f a similar nature. The Bank shall be satisfied in such cases that no advantage could be obtained by further competition and that the prices on the extended contract are reasonable. Provisions for such an extension, if considered l ikely in advance, shall be included in the original contract. Standardization o f equipment or spare parts, to be compatible with existing equipment, may justify additional purchases from the original supplier. For such purchases to be justified, the original equipment shall be suitable, the number o f new items shall generally be less than the existing number, the price shall be reasonable, and the advantages o f another make or source o f equipment shall have been considered and rejected on grounds acceptable to the Bank. The required equipment i s proprietary and obtainable only f rom one source. The contractor responsible for a process design requires the purchase o f critical items from a particular supplier as a condition o f a performance guarantee. In exceptional cases, such as in response to natural disaster.

6. Selection of Consultants (Estimated to cost US$28.4 million equivalent). Consulting services under the project will include: (i) pre-investment activities-Regional Integration study, conceptual design for Output and Performance Based Road Contracting (OPRC) and feasibility study for Gaborone Ci ty Traffic Management, and recruitment o f three specialists (contract management, engineering, procurement, and transport planning). To speed up project implementation, this was planned to be financed by GOB and procurement i s ongoing with contract award expected shortly. However, under the recent financial crisis, the government requested for a retroactive financing arrangement for these activities; and (ii) Consulting services during the project period includes multimodal transport planning, detailed design and bidding documents preparation for the Gaborone intersections, supervision services for OPRC and Gaborone Urban Roads Improvement program and national consulting and contracting industry development. Except as detailed below, consulting services will be selected through competition among qualified short-listed f i rms based on Quality and Cost-Based Selection (QCBS). Consultants for financial audits and other repetitive services estimated to cost less than US$50,000 equivalent per contract may be selected through Least-Cost Selection (LCS) method. Consulting services by f i rms estimated to cost less than US$lOO,OOO

68

equivalent may be selected on the basis o f Selection Based on the Consultant Qualifications (CQS). As appropriate, other selection methods such as Fixed Budget, Quality-Based Selection (QBS) may be used for selection o f consulting f i rms. Individual consultants shall be selected on the basis o f Individual Consultant Selection method as per Section V o f the Consultant Guidelines.

7. Single-Source Selection o f Consultants (SSS). Single-Source Selection may be appropriate only i f it presents a clear advantage over competition: (i) for tasks that represent a natural continuation o f previous work carried out by the firm, (ii) in emergency cases, such as in response to disasters and for consulting services required during the period o f time immediately following the emergency, (iii) for very small assignments, or (iv) when only one firm i s qualified or has experience o f exceptional wor th for the assignment.

8. Training (Estimated to cost US3.2 million equivalent). This will include training o f project implementation team and various government institutions and for national consulting and contracting industry development. Training services estimated to cost US$ 100,000 equivalent or more shall be procured o n the basis o f QCBS or QBS as appropriate. Training services estimated to cost less than US$lOO,OOO equivalent per contract may be procured through CQS method. When appropriate, training may also be procured on the basis o f Direct Contracting subject to review and approval by the Bank. The project will formulate an annual training plan and budget which will be submitted to the Bank for i t s prior review and approval. The annual training plan will, inter alia, identify: (i) the training envisaged, (ii) the justification for the training, how it will lead to effective performance and implementation o f the project and or sector, (iii) the personnel to be trained, (iv) the selection methods o f institutions or individuals conducting such training, (v) the institutions which wil l conduct training, if already selected, (vi) the duration o f proposed training, and (vii) the cost estimate of the training. A report by the trainee, upon completion o f training, would be mandatory.

9. Short Lists o f Consultants. Short-list o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be comprised entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

10. Special Arrangements. To speed up implementation, the GOB will finance some o f the pre- investment activities as mentioned above and the balance o f these pre-investment activities wil l be financed under retroactive financing. All these pre-investment activities wil l fol low Bank’s procurement procedures.

11. Prior review by the Bank. The Borrower shall seek Wor ld Bank’s prior review in accordance with Appendix 1 o f both Procurement and Consultant Guidelines for contracts above the thresholds as agreed in the Procurement Plan. For purposes o f the init ial Procurement Plan, the Borrower shall seek Bank prior review for (i) al l works exceeding US$3 mi l l ion equivalent; (ii) al l goods contract estimated to cost US$500,000 equivalent or more; (ii) al l consultancy contracts with f i r m s estimated to cost US$200,000 equivalent o r more; (iii) al l contracts with individual consultants estimated to cost US$lOO,OOO equivalent or more; (iv) a l l direct contracting and single source selection estimated to cost US$l,OOO equivalent and above; and (v) annual training plan. These prior review thresholds wil l be reviewed annually and any revisions based o n reassessment o f the implementing agencies capacity will be agreed with the Borrower in an updated Procurement Plan. All other contracts wil l be post reviewed during annual procurement post review missions and compliance verification monitoring.

69

12. Procurement Plan. The Borrower, at pre-appraisal and appraisal, developed a Procurement Plan for project implementation, which provides the basis for the procurement and selection methods. The plan has been discussed in detail and was subsequently reviewed and revised appropriately during negotiations. Th is plan will form the basis for procurement for the f i rst 18 months. The plan wil l be available at Roads Department (RD) offices and also be available in the project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

13. Assessment o f the capacity of agencies to implement procurement. Most o f the components of the project are for roads improvement and related capacity building and will be executed fully by the RD. The RD will also carry out a l l procurement required by the Gaborone City Council (GCC) (the large c iv i l works contract) and the capacity building for Ministry o f Works and Transport (MWT) with technical input from these respective agencies. Capacity o f implementing agencies was assessed by a Wor ld Bank procurement team in October 2007 and updated in June 2008 and November 2008. The results o f the assessment and key findings are as follows:

(i) RD: This department will be the principal implementing and coordinating agency for the Project. The result o f the agency capacity assessment o f this department i s summarized below:

Quality, transparency and efficiency of procurement: The Department prepares annual work plans for projects it undertakes using i t s own funding. However, procurement planning and regular fol low up o f compliance i s not systematically carried out. As regards to preparation o f bidding documents, the department, with the assistance o f i t s consultants, prepares bidding documents on the basis o f national bidding documents but has l itt le familiarity with Bank's standard bidding documents since most o f their contracts are normally financed by GOB. Evaluation o f bids i s carried out by a committee assigned on ad hoc basis and then, as per the standard procedures and reviewed by the department before submission to the Public Procurement and Asset Disposal Board (PPADB) for review. Contracts are normally signed with provisions o f contract.

Appropriateness of organizational and institutional capacity: The procurement unit o f the department i s mainly for small supplies and does not have significant role in major infrastructure contracts. Major procurement such as design, rehabilitation and construction o f roads) i s normally executed by principal engineers o r project managers assisted by consultants. Some o f the principal engineers are international experts on contractual basis. The principal engineers leading the design, procurement and implementation o f infrastructure contracts are experienced professionals from within and outside Botswana. The department does not have i t s own procurement manual and relies on the user guide issued by PPADB. External financial audit i s normally carried out by the Auditor General who also carries out performance audit o f PPADB on an annual basis. On appeal mechanism for bidders, the PPADB regulations have clear procedures including the formation o f an independent committee. Some private consultants interviewed suggest that the provisions on appeal mechanism should be enforced in practice. Overall, the current capacity o f the RD to undertake procurement i s considered as Average.

70

(ii) MWT: has a supplies unit which i s responsible for procurement o f office supplies and logistics and coordinate requests from a l l other departments. The unit has a staff complement o f four, o f which two are graduates with professional training in purchasing. Departments within the Ministry lead in the procurement o f consultancy services and procurement o f large-value contracts. The departments have wel l qualified staf f with experience in procurement o f large-value contracts. The Ministry through i t s Central Transport Organization i s also responsible for procurement o f vehicles for a l l government organizations. The Central Transport Organization was assessed and was found to have adequate capacity. L ike the Roads Department, the Ministry’s procurement experience i s mostly on GOB procurement practices as their main source o f funds has been GOB. Overall, the capacity o f the Ministry to undertake procurement i s assessed as average. As mentioned above, a l l procurement for MWT under this proposed Project will be carried out by the RD with technical assistance o f the MWT.

(iii) GCC: Due to the structure o f the government, the PPADB Ac t applies only to central government. An assessment o f the GCC (which i s considered to possess relatively higher capacity compared to other town and district councils) shows areas demanding attention, including the need for comparable but simplified procurement regulations, guidelines, and standard bidding documents. The procurement practice does not seem to be adequately regulated. From the assessment, it was not evident that the principal engineers in the city council carrying out major procurement have the necessary ski l ls in public sector procurement. Procurement decisions are approved by the councilors and there i s a perception o f polit ical interference. Sample procurement documents for the assessment could not be easily traced. Overall, the capacity o f the council to undertake procurement i s assessed as average. As mentioned previously, a l l procurement for the council under the project will be carried out by the RD with technical assistance o f the council.

14. Coordination for Procurement Activities: Pre-investment activities experienced delays due to lack o f clarity in the coordination o f procurement activities. The PPADB has provided a waiver not to review procurement documents under the project. The RD does not have a strong organizational structure to coordinate procurement activities under a l l components. It was therefore agreed that the Ministerial Tender Committee will coordinate procurement activities o f the project. In undertaking this coordination role, the Ministerial Tender Committee will: (i) receive from technical departments (roads, the ministry itself, and GCC) finalized and approved tender documents; (ii) arrange for advertisement o f the tenders in national press, Government Gazette and the United Nations Development Business (UNDB) Online; (iii) manage the receipt and opening o f tenders and proposals; (iv) prepare minutes o f tender o r proposal opening and share them with the Bank; (v) coordinate with technical departments to undertake evaluation o f tenders; and (vi) arrange for submission o f the tender evaluation report to the Bank for no objection after it has been prepared and reviewed by technical specialists. T o adequately fulfill this role, the Ministerial Tender Committee will require to have: (i) a copy o f the agreed procurement plan covering a l l entities indicating expected bid opening dates; (ii) a tender box placed at a place accessible by bidders but secure enough for security o f bids; (iii) a large room for opening o f bids with a clock for time keeping; and (iv) a dedicated s t a f f for managing the coordination o f procurement activities. The Ministerial Tender Committee has one full time s t a f f who i s a qualified quantity surveyor. However with the volume o f work envisaged under the project, the ministry agreed to strengthen the secretariat o f the Ministerial Tender Committee with additional staff,

71

15. Private Sector perception: During the agency assessment, a few national and international f i r m s were visited to get their impression o f the public sector procurement in Botswana in general and the RD in particular. Discussions were also carried out with representatives o f the construction industry. The private sector appreciates the efforts made by the GOB to reform i t s public procurement but considers that there are areas for improvement. A br ie f check l i s t o f the areas for improvement as expressed by the private sector i s presented below.

Consulting industry

16. further enhance the procurement systems and processes:

Consultants interviewed as part o f the capacity assessment shared a few helpful points to

Terms o f Reference (TOR): Consultants mention assignments with a number o f uncertainties in the TOR, including lack o f investigations and preliminary examinations but are s t i l l required to submit a fixed lump sum amount. Consultants suggest that the scope o f work in the TOR should be reasonably adequate to enable comparable understanding by the consultants and to enable reasonable costing o f the proposals.

Short listing: The interviewed consultants consider that the two ends o f the spectrum i.e. picking directly from a l i s t o f registered f i rms vs. advertising directly for proposals need reconsideration and that selection o f consultants shall be based on a properly advertised request for expressions o f interest and a short l i s t to be drawn from the long l i s t o f applicants.

0 Complaint mechanism: Private sector consultants appreciate the new complaints mechanism in the regulations but express their doubts on whether it i s being enforced in practice. They complain that in several instances, they may not get the result o f their technical evaluation on time and may not be given the opportunity for being debriefed at the end o f the selection process.

Bid/proposal evaluation period: Consultants consider that the time that it sometimes takes to evaluate proposals could be relatively long and that this could affect their overall planning situation.

Evaluation of proposals: Consultants doubt if technical evaluation i s being carried out in a professional manner and that their perception i s strengthened by the alleged fact o f not getting any feed back on their proposals.

Public opening of financial proposals: Consultants requested that the public opening o f financial proposals should be mandatorily carried out and that technical scores and financial proposal should be read aloud and recorded.

Construction industry

17. The industry appreciates competitive processes and value for money. I t shared a few points:

Allocation o f risks in bidding documents: Due consideration would need to be given to allocation o f r isks in bidding documents: “Risk shall be allocated to the party best suited to take it”. Otherwise, the industry thinks that tender prices could go unreasonably high

72

or in the worst case scenario a bidder may bid unreasonably l o w with al l the complications during execution. An example cited by the industry i s borrow pit risks.

2.

Selection of lowest evaluated and qualified bidder: Due attention should be given to ensure the selection o f the lowest evaluated and substantially responsive bid (as per the regulation) by carefblly assessing not only prices but responsiveness to the requirements o f the bidding documents (technical, commercial).

international procurement practices. Project launch workshop-sensitizing al l key stakeholders. Sensitization o f private sector on the procurement arrangements and reauirements for t h i s Droiect.

- -

0 Quality of evaluators: Specialized and/or high value procurement demand appropriately qualif ied evaluators in bidproposal evaluation teams. As needed, approving bodies may draw in input from specialists in the field and there i s a need for adequately staffing key departments (such as RD).

3

4.

5.

Means to encourage the national construction industry. Current public/private consultations in Botswana are highly encouraged and would need to continue. Means to develop the national construction industry should continue (it i s noted that this project has a subcomponent for capacity building o f the national consulting and constructing

’ industry).

- Study tour to countries that have implemented performance based road contracts- for TRG, SMU, Project manager and relevant RD staff. Completion o f al l o f the consultants’ selection process for the pre-investment activities (financed by the government) - due to high downstream impact Bank has been supporting in the review process. Draft procurement planning for the project shall be ready

Monitor procurement plan vs. actual

-

- -

18. Based on the agency capacity assessment as summarized above and the assessed country procurement environment, the overall capacity o f the implementing agencies to undertake procurement i s considered average and the risk i s Moderate.

19. The fol lowing risk mitigation measures are proposed for the project:

Item

1.

Action Proposed

A TSG comprising engineeringlprocurement specialist, transport planning specialist and contracts management specialist w i l l be recruited to strengthen the capacity o f RD. Principal engineers being assigned for t h i s Project and other selected relevant staff from the government w i l l be trained in international procurement and contract administration practices. Assign additional staff to M T C to manage and coordinate the procurement activities. M T C members should attend a short streamlined seminar on

Proposed Completion Date

M a y 2009

June 2009

Well in progress

June 2009

Upon effectiveness

Upon effectiveness

December, 2009

June 2009

done

Throughout the l i f e time o f the Project

73

Item

6.

9.

10.

Action Proposed - Disclose procurement plan and any subsequent updates in

Bank’s internal and external websites.

- Consultancy for the fmt year procurement activity signed.

Bank’s standard bidding documents and RFPs shall be used for al l goods, works and non- consulting services procurement under this project involving international competition (thresholds to be specified in the procurement plan). Al l consulting assignments shall be on the basis o f Bank’s standard request for proposals.

-

- Highly recommended to use Bank’s standard bidding documents for N C B (Bank’s SBD- small works i s a tested document for N C B purposes; and Bank’s SBD goods, i s appropriate for N C B with minor adaptations).

- If the government opts to use i t s national bidding documents for NCB, it shall be with the safeguards indicated in th is Annex 8 - Paragraph 2. Enforce effective complaint handling mechanism.

Publish contract awards in international media for I C B and/or international consulting assignments (UNDB on line and on dgMarket, and national media for N C B and/or assignments involving national consultants- as per Bank’s Procurement Guidelines and Consultant Guidelines requirement (the Public procurement Act also requires disclosure o f contract wards). Obtain PPADB’s waiver not to review procurement documentshequests for the project; and Ensure that an appropriate and effective internal procurement review process i s established within RDNWT prior to submission for Bank’s prior review and no objection requests.

- -

- -

Proposed Completion Date

Ini t ial plan: upon Bank’s approval o f the Loan and subsequent updates upon Bank’s review and No- objection. M a y 2009

Throughout the lifetime o f the Project. RD has already started using Bank’s standard RFPs even for procurement o f the pre- investment activities financed by the government.

Throughout the lifetime o f the project. Throughout the l i fe t ime o f the project.

Done; July 10,2008,

Throughout the lifetime o f the Project.

Implementation Readiness

20. The following actions were initiatedcarried out during the preparation o f this Project:

0

0

Procurement for pre-investment activities has been ongoing we l l before pre-appraisal; Draft Procurement Plan has been prepared and agreed during negotiations; Bank provided two ha l f day procurement training seminars to relevant staff o f the RD, Ministry o f Local Government (MLG) and GCC on key principles and procedures in Bank’s procurement; During preparation o f the project PPADB has agreed to issue a waiver for the Project from the PPADB procurement review and approval. T h i s i s on the basis o f (i) assurance given by the Bank that the Bank carries out rigorous prior review (or post review as per agreed thresholds) o f the implementing agencies’ procurement decisions and independent procurement reviews on a regular basis; and (ii) Articles 4 and 6 (external obligations) o f the Botswana Public Procurement Ac t al low o f PPADB to exercise some

74

f lexibil i ty in granting a waiver to projects with external financing. PPADB rightly demanded that the GOB'S contribution to the Project should be traced (this was subsequently confirmed by the Ministry o f Finance and Development Planning (MFDP). The waiver was acquired on July 10,2008. Selection o f Technical Support Group (TSG), including a procurement'engineering specialist, to strengthen the capacity o f the RD has been initiated and expected to be completed by M a y 2009. General Procurement Notice (GPN) has been advertised locally and in UNDB Online.

Frequency of Procurement Supervision

21. In addition to the prior review supervision, the capacity assessment o f the implementing agencies has recommended Bank's supervision missions to visit the f ield twice a year in the first year and once a year thereafter to carry out post review o f procurement actions. Compliance verification wil l be carried out by independent consultants at least once in the l i fe time o f the project to:

0

0

0

0

verify that the procurement and contracting procedures and processes followed for the projects were in accordance with the loan agreement; verify technical compliance, physical completion and price competitiveness o f each contract in the selected representative sample; review and comment on contract administration and management issues as dealt with by participating agencies; review capacity o f participating agencies in handling procurement efficiently; and identify improvements in the procurement process in the light o f any identified deficiencies.

General Procurement Notice (GPN) and Contract award Disclosure Requirements

22. The Borrower has prepared a GPN based on the formats discussed during appraisal mission and the GPN was advertised in DgMarket and UNDB Online in addition to local papers. For each contract procured through ICB and large-value consultant assignments above the defined thresholds, a specific procurement notice will be placed in DgMarket, UNDB Online and local papers o f wide national circulation.

23. Contract awards done through ICB procurement method shall be consistent with Paragraph 2.60 o f the Guidelines: Procurement under IBRD Loans and IDA Credits, May 2004 revised October 2006. Within two weeks o f receiving the Wor ld Bank's "no objection" to the recommendation o f contract award, the Borrower shall publish in UNDB Online and in DgMarket the results identifying the bid and lo t numbers and the fol lowing information:

0

name o f each bidder who submitted a bid; bid prices as read out at bid opening; name and evaluated prices o f each bid that was evaluated; name o f bidders whose bids were rejected and the reasons for their rejection; and name o f the winning bidder, and the price it offered, as we l l as the duration and summary o f the scope o f the contract awarded.

75

24. Contract Awards done through Direct Contracting procurement method shall be consistent wil l Paragraph 3.7 o f the Guidelines: Procurement under IBRD Loans and IDA Credits, May 2004. After the contract signature, the Borrower shall publish in UNDB Online and in DgMarket the:

0 name o f the contractor, price, duration, and

0 summary scope o f the contract.

25. previous period.

This publication may be done quarterly and in the format o f a summarized table covering the

26. Contract Awards for Consultancies shall be consistent with Paragraph 2.28 o f the Guidelines: Selection and Employment of Consultants by World Bank Borrowers, May 2004 revised October 2006. After the award o f contract, the borrower shall publish in UNDB Online and in DgMarket the following information:

0

0

0

0

names o f all consultants who submitted proposals, technical points assigned to each consultant, evaluated prices o f each consultant, final point ranking o f the consultants, and name o f the winning consultant and the price, duration, and summary scope o f the contract .

27. The same information shall be sent to all consultants who have submitted proposals.

0

theprice, 0 duration, and 0 scope o f the contract.

name o f the consultant to which the contract was awarded,

28. previous period.

This publication may be done quarterly and in the format o f a summarized table covering the

Details of the Procurement Arrangements Involving International Competition

29. Details o f the procurement arrangements are provided in Attachment 1 below:

76

Attachment 1 : Procurement Implementation Plan

Prior Review Threshold 1. 2.

I.

30. 31. 32. 33. 34. 35. 36.

11.

37.

Procurement Method Prior Review Threshold Comments ($1

ICB and LIB (Goods) >=500,000 NCB (Goods) First contract only

General

3. 4. 5. 6.

Project information: Botswana, Government o f Botswana, Botswana Integrated Transport Project ID: P102368 Project Implementing Agencyhes: Roads Department, MWT and Gaborone City Council Bank’s approval Date of the procurement Plan: April 21,2009 Date of General Procurement Notice: October 2007 Period covered by this procurement plan: June 2008 - June 20 13 All costs indicated in the Plan are net of taxes

ICB (Works) >=3,000,000 NCB (Works) First contract only ICB (Non-Consultant Services) >=500,000

works) Direct contracting (goods or >=1,000

Goods and Works and non-consulting services

Prequalification. Bidders for: (i) Road asset Management (OPRC - c iv i l works), and (ii) Gaborone city Urban Roads Improvement Program shall be prequalified in accordance. with the provisions o f paragraphs 2.9 and 2.10 o f the Guidelines.

38. Proposed Procedures for CDD Components (as per paragraph. 3.17 of the Guidelines: N/A

39. Reference to (if any) Project OperationaVProcurement Manual: N/A

77

Contracts under the Project (planned to be under ICB) 1

Ref No.

1.

2.

3.

2

Contract Description

Road Asset Manageme nt (OPRC- Civil works) Gaborone City Urban Roads Improveme nt Program Technology and logistic upgrade o f M W T

3

Estima-ted cost ($)

4

262,400,000

89,400,000

2,100,000

5

Procure -ment

Method

Prequali fic-ation (yeslno) -r

July 20 1 1

October 2009

6

November 2014

February 1, 201 1

Domes- tic Pref. (yesho)

1.

2.

3. 4.

No

No

No

Selection Method Procurement Prior Review Comments method Threshold ($)

threshold ($) Competitive Methods >=200,000 All contracts (Firms) -QCBS Single Source (Firms & >=1,000 All contracts individuals) CQ ~=200,000 None Individual consultants >=100.000 All

7

Review by Bank (Prior I Post)

Yes

Yes

Yes

Comment5

Opening

40.

111. Selection of Consultants

Any Other Special Procurement Arrangements: N/A

4 1. Appendix 1 to the Guidelines Selection and Employment o f Consultants:

Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in

42. Short l is t comprising entirely o f national consultants: Short l i s t o f consultants for services, estimated to cost less than US$200,000 equivalent per contract, may comprise entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

43. Any Other Special Selection Arrangements: Depending on speed o f procurement contracts for OPRC conceptual design and Regional Integration may have retroactive financing f rom Wor ld Bank.

78

Consultancy Assignments with Selection Methods and Time Schedule

1 Ref. No.

1.

2

3

4

5

6

7

8

9

2 Description of Assignment

Technical Support Group (EngineeringA’rocurement, Transport Planner and Contracts Management Specialist

Conceptual Design for Total Asset Management contracts Greater Gaborone Transport Multimodal Study (Traffic improvement) Regional Transport sector integration study Detailed designs and bidding documents for selected city intersections (2 contracts)

Multimodal Transport Master Plan

Monitoring and technical services for road asset improvement program (OPRC-2 contracts) Supervision services for Gaborone City urban roads improvement program (2 contracts) Environmental, Social and Resettlement Framework

3 Estimated

cost ($)

2,100,000

1,250,000

900,000

1,440,000

3,100,000

2,600,000

8,550,000

4,120,000

100,000

(Prior I Post 7-

I

Dec 2008 June 2012 T July 2008 March 2010

July 2008 March 20 10

December March 20 10 2008 May2010 June 2011

June 2010 June 201 1

February January 2010 201 1

January January 2008 I 2009

8

Comments

Each specialist estimated at about US$500,000 over three years

Depends on Gaborone multimodal study Depends on completion o f Gaborone multimodal study

Depends on award o f c iv i l works for Gaborone Awarded

79

Annex 9: Economic Analysis

Integrated Transport Project

Investment program

Rehabilitation and asset management program o f 800km area-wide national road network in Kanye

1. Economic evaluation summary. The economic analysis o f the project covers mainly the 800 km o f the pi lo t road asset management component (Component B) which constitutes about 70 percent o f the total investment cost. The Output and Performance Based Road Contracting (OPRC) road improvement component i s mostly rehabilitation and some upgrading works using the asset preservation and management concepts with a long term OPRC on national roads network in Kanye road depot over a period o f up to 10 years. The principal measured benefits o f the project are savings in vehicle operating costs, time savings to vehicle occupants and enhanced road safety. The estimated overall economic internal rate o f return ( E m ) for the OPRC component i s 3 1 percent in the best-case scenario. The economic net present value (NPV) based on a 12 percent discount rate, i s estimated at US$85.2 mill ion.

N-PV EIRR (in %)

85.2 31 (US$ million, 12%)

I District

2. summarized as follows:

An analysis o f the evaluation results and a description o f the method used to derive them are

3. MethodoIogy. The economic evaluation o f the 800 km o f national road OPRC component i s based on conventional road cost-benefit analysis methodology that quantifies road benefits mainly f rom savings in vehicle operating costs (VOC), travel t ime costs and agency maintenance costs. To carry out the economic analysis: (i) traffic volumes used as a basis for determining time and VOC and savings and capacity were determined based on recent traffic counts; (ii) user and agency recurrent costs were estimated using the Highway Development and Management Mode l - version 4 (HDM-4) model; (iii) capital costs were estimated as per the road condition survey o f RD done in 2005 resulting in a full recommendation o f road sections that require asset preservation using overlay, reseal, fog spray/seal/seal, reconstruction, etc., with relevant cost estimate; and (iv) the rehabilitation and maintenance costs were estimated as per the Ministry o f Works and TransporVRoads Department (MWT/RD) standard. Economic prices were used in the evaluation. These were estimated by eliminating taxes and other transfer payments from financial prices.

4. Traffic Projections. MWT/RD has completed an actual traffic count in 2005. The actual traffic counts were converted into the average annual daily traffic (AADT). Projected traffic was divided into two main categories: (i) normal traffic which continue to grow even without improving the condition o f the road network; and (ii) generated traffic, which may occur as a result o f the road network condition improvement undertaken under the project which i s assumed at 15 percent o f the normal traffic growth. Normal traffic growth rates are estimated based on projections o f population growth and per capita income growth o f Botswana. Starting with a relatively l o w traffic base, couple with the high level o f per capita income growth (about 10 percent per year) in the last two decades, the traffic growth assumption i s shown in Table 2 below.

80

Table 2: Assumption of Traffic Growth

Normal traffic growth rate (%) Generated traffic (20% o f normal growth)

I 1 2005 I 2006-2012 I 2013-2028 I Actual traffic count 8 5 Actual traffic count 1.6 1

Vehicle Operating costs Time cost Total

I Total mowth rate used for economic evaluation I I 9.6 I 6 I

Passenger Small Large Small Truck Large Truck Car Bus Bus (2-axle) (4-axle) 0.83 1.46 2.32 1.71 3.3 0.61 1.18 2.47 0.1 0.2 1.44 2.64 4.79 1.81 3.5

5. User costs. The HDM-4 model was used to estimate road user and agency costs for the national road rehabilitation. Costs were estimated for a “without project” (do-minimum) scenario and for a “with project” scenario; and the differences were reflected as costshenefits in the economic analysis. VOC for the various vehicle types are estimated based on the empirical relationships between road roughness and VOC/km. All financial costs are converted into economic costs by excluding taxes and ta r i f f s applied to each item o f labor and material inputs. The following table summarized the road user cost per vehicle kilometer on a paved road in good condition with average operation speed o f 80 km/hr.

1 Total improvement improvement US$ I U S $ h U S $ I U S $ h

6. Agency Costs. Road agency costs are estimated by MWT/RD fol lowing i t s feasibility study done in 2005-2006 after the survey o f the needed intervention on the 800 km o f national road network in Kanye road depot and can be summarized below:

Table 4: Estimated Financial Cost for the Needed Intervention (10 years cycle)

Years 1-5 Years 6-10 Rehabilitation/ Rehabilitation/

7. Economic parameter and price. The economic cost o f capital for Botswana i s estimated to be 15 percent. T h i s was the discount rate used for the project. The economic price applied for the cost-benefit calculation i s assumed to be about 10 percent less than financial cost which i s relatively small because tax and duties in Botswana in general i s found to be relatively l o w comparing to i t s neighboring South Africa.

81

8. Evaluation Result. Applying the above assumption, and costs and benefits parameters, the analysis i s based on a 20-year l i fe cycle. The cost comprise capital interventions required on the 800 km o f national road under the pi lot OPRC program in the time horizon o f ten years and with a design l i fe o f 15 years. The following tables show the results o f the economic evaluation ranging from the best-case scenario, to the sensitivity calculation assuming 18 percent cost increase or 20 percent traffic reduction, o r both. Table 5 below summarizes the economic evaluation with the sensitivity analysis :

Best Estimate Sensitivity analysis ,

If cost increased by 18%

If cost increase by 18% and traffic reduced bv 20%

If traffic reduced by 20%

EIRR (in %) NPV (US$ million, 12%) 31 85.2

27 77.8 26 53.5 23 46.1

82

n

\o s a 3

u 0 E; II

m 00

I I I I I ?I I I I I I i

s 0 e4 h P

a I s 2 h P

Y

I; Y

!I I I 1 I I I

I I I I t

N N O 1

Annex 10: Safeguard Policy Issues

Integrated Transport Project

1. M a i n environmental safeguards issues. An Environmental and Social Management Framework (ESMF) has been prepared for the rehabilitation and long term maintenance o f existing road networks (approximately 800 km) and the improvements to major intersections in Gaborone. The main objective o f the ESMF i s to operationalize the Botswana Environmental Impact assessment (EIA) Ac t o f 2005, the Ministry o f Works and Transport (MWT) Road Sector Guidelines and the Wor ld Bank’s OP4.01 within the road sub-sector. In addition to these, the ESMF provides a comprehensive review o f the relevant institutional policies and legal framework in Botswana, and o f the Bank’s safeguards policies.

2. With regard to equivalence and acceptability o f the Botswana environmental assessment (EA) system as it relates to the Bank’s Operational Policy, the ESMF concludes that although the two systems are in most respects equivalent, there s t i l l exist some gaps in the Botswana EA system, and then the ESMF provides measures for bridging the gaps between the two pol icy systems. Specifically, with regard to the gap concerning the disclosure process, it was agreed that the notice o f public disclosure would appear once per week for three consecutive weeks in the national press (Daily News). After disclosure in the country on December 12, 2008, the Road Department (RD) gave authority to the Wor ld Bank to disclose the Resettlement Policy Framework (RPF) and the ESMF at the Infoshop. The documents were submitted to the InfoShop on December 23,2008.

3. The ESMF and RPF were made available at the following locations for public access:

The Department o f Environmental Affairs Library in Gaborone, The National Library in Gaborone, The National Library in Kanye,

0 The Roads Department in Gaborone, and 0 The Roads Department website.

4. national press (Daily News).

The notice o f pubic disclosure appeared three times (once a week for three weeks) in the

5. In terms o f implementation practice, the ESMF identifies several human resource constraints which would need to be addressed within the Department o f Environmental Assessment (DEA) and RD. The RD also lacks several key management tools that would help maintain consistent and timely environmental assessment inputs. The RD needs to address fol lowing issues in order to benefit from the work o f the former environmental specialist at the RD and to maintain a good level o f compliance standard:

One additional environmental specialist needs to be recruited RD needs to expedite the process o f recruiting at least one more environmental specialist in addition to the seconded DEA official who i s handling a l l environmental work for the department. They should also explore options for engaging an external consultant to ensure that adequate environmental and social impact management capacity i s in place before any disbursements begin o n investments;

87

Data management system for environmental and social management needs to be put in place. At present there i s no one place where EAs are kept and no easily accessible management system that records approvals, conditions, site visit notes, monitoring, communications, etc.

6. The E S M F provides a practical Procedures Manual that integrates the environmental assessment process into the road development process. The procedures manual mainstreams the EA guidelines for the road sector developed by the RD previously, in order to ensure that the technical information and experience are not lost in the process.

7. A training program targeted at relevant stakeholders and audience i s provided in the ESMF. The training program intended to raise awareness in the sub-sector and also outline a more substantive training for engineers in the RD. In order to ensure that the RD retains environmental and social management capacity, the training program recommends training sessions for several dedicated environmental engineering disciplines within the department.

8. One o f the main sections o f the ESMF i s the detailed Roads Infrastructure Development Guideline which provides detailed design standards for roads according to the various road categories in Botswana and design standards for bridges, providing information on bridge selection; bridge type; bridge height; bridge span, and superstructure type. This section uses existing information and integrates i t into the ESMF by incorporating legislation and sub-sector guidelines into the road development process, thus providing a more inclusive framework.

9. M a i n social safeguards issues: A gap analysis between the national compensation guidelines for Tribal Areas (revised April 2004) and the Wor ld Bank OP 4.12 was conducted during project preparation, with the following main findings:

(i) In practice as we l l as in principles, there i s an agreement on the key aspects o f the Wor ld Bank pol icy on involuntary resettlement and the national framework for land acquisition and compensation in many areas especially in the consultation of project affected parties, land for land compensation (customary land rights), framework for compensation, etc.

(ii) The main gap in the national compensation guidelines and the Wor ld Bank 4.12 i s related to their main objectives. In substance, the Wor ld Bank OP 4.12 pol icy document i s to minimize land acquisition and when this i s not possible, restore, if not improve the l ivelihood o f affected persons to pre-project level. The national compensation guidelines have no such development objective and are mainly an operational guidance to acquire land and compensate assets’ losses for public interest investments. As a result, key elements o f a resettlement action plan would not be captured by the provisions o f the compensation guidelines. These elements include: a socio-economic impact analysis o f a sample representative o f the affected communities or group, the identification o f accompanying measures to help the affected people restore their l ivelihood or if possible improve their living standards, the monitoring and evaluation o f the implementation o f the resettlement /compensation plan.

88

10. In order to address this gap, a RPF was prepared to set forth the principles and procedures that would guide potential land acquisition and compensation. T h i s RPF i s consistent with the national legislation and regulation as well as Wor ld Bank OP 4.12.

1 1. The key stakeholders involved in the implementation o f the RPF and the ESMF include:

The consultant for the conceptual design o f the OPRC. T h i s consultant would ensure that the social safeguards specifications o f the RPF are included in the bidding documents for the contractor; The contractor for the output and performance based road contract (OPRC) will be in charge o f implementing the social safeguards specification included in the OPRC. I t wil l most probably involve various design aspects; The Monitoring Consultant would ensure that the social safeguards specifications are effectively implemented, and would evaluate the impacts o f land taking and compensation on Affected persons; The RD, through i t s Environmental Expert, would ensure oversight o f the implementation o f the RPF by the Contractor through the Monitoring Consultant; and It was hr ther agreed that a Resettlement Coordinator would be hired by the contractor in case o f land acquisition and compensation during the implementation o f the OPRC contract.

12. The RPF will be disclosed in the locations as indicated in paragraph 3 and 4 above.

13. Capacity to implement the RPF: The staffing plan for environmental and social management capacity at RD finalized by October 15, 2007, was fully implemented. However, the capacity to implement the country’s compensation guidelines i s l o w with respect to valuation methodology, and consultation with affected persons. A stakeholders’ workshop wil l be organized to disseminate the RPF, discuss gaps between the country’s laws and regulations on the one hand, and the provisions o f the Wor ld Bank OP 4.12 on the other hand, discuss issues related to the compensation o f affected assets, the consultation with affected people, and the grievance redress system. The budget, date, and participants to the workshop will be fbrther determined by the RD and the Wor ld Bank.

89

Annex 11 : Project Preparation and Supervision Integrated Transport Project

Planned Actual PCN review January 30,2007 Initial PID to PIC January 25,2007 Initial ISDS to PIC March 1,2007 Appraisal February 2,2009 February 2,2009 Negotiations April 1,2009 April 15,2009 BoardRVP approval May 2 1,2009 Planned date o f effectiveness December 3 1,2009 Planned date o f mid-term review June 30,2014 Planned closing date January 3 1 , 2020

Key institutions responsible for preparation o f the project: The RD under the MWT

Other institutions working in close collaboration with RD/MWT include: TheMWT:

o Planning and Economic Department o Transport Hub Coordinator Office

The Gaborone City Council

Bank staff and consultants who worked on the project included: Name Title Unit Supee Teravaninthorn Lead Transport Economist AFTTR Yitzhak Kamhi Senior Transport and Planning Engineer and AFTTR

Yvette L. Djachechi Senior Social Sector Specialist AFTCS Lungiswa Thandiwe Gxaba Senior Environmental Specialist AFTEN Tesfaalem Iyesus Lead Procurement Specialist AFTPC Modupe A. Adebowale Senior Financial Management Specialist AFTFM Renganaden Soopramanien Senior Counsel LEGAF Rodrigo Archondo-Callao Highway Engineer ETWTR Suzanne Morris Senior Financial Officer LOAFC Simon Chirwa Procurement Specialist AFTPC Ricardo Tejada Financial Specialist BDM Anne Njuguna Program Assistant AFTTR

Institution Advisor / Consultant

Bank funds expended to date on project preparation: 1. Bank resources: US$ US$494,07 1 o f which US$246,000 i s fixed cost and US$248,000 i s

variable cost 2. Trust funds: Not available

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$ 150,000 2. Estimated annual supervision cost: US$ 100,000 per year

90

Annex 12: Documents in the Project File Integrated Transport Project

1. Inception Report - Consultancy Service for the Preparation o f the Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF) by Arid Environmental Consultancy (Pty) Ltd, May 30,2008.

2. Prefeasibility Study o f Three New Rail Links - Trans-Kalahari Railway, Mmamabula- Ellisras, and Mosetse-Livingstone.

3. Request for Proposal for Consultancy Services for the Greater Gaborone Multimodal Transportation Study, October 2007.

4. Multinational BotswandZambia: The SADC North-South Transport Corridor Improvement Study.

5. Request for Proposals for Consulting Services for Preparation and Design o f a Pilot Project for Area Wide Output- and Performance-based Road Contracts (OPRC), April 2007.

6. Request for Proposals for the Study on Regional Integration o f Botswana’s Transport Sector.

91

Annex 13: Statement of Loans and Credits Integrated Transport Project

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. F m . Rev’d

P102299 09 BW-HIVIAIDS Project S IL (FY09) 50 50

Total: 50.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00

BOTSWANA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

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

2001/08 AfrbnkCorp 0.00 7.07 13.55 0.00 0.00 7.07 0.00 0.00 2005/08 Letshego 14.59 3.97 0.00 0.00 14.59 3.97 0.00 0.00 0 Petra Diamonds 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00

Total portfolio: 14.59 11.58 13.55 0.00 14.59 11.58 0.00 0.00

** Quasi Equity includes both loan and equity types.

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

92

Annex 14: Country at a Glance

Integrated Transport Project

Botswana a t a glance 4/6/09

Key Development Indicators

(2008)

Population, mid-year (millions) Surface area (thousand sq. km) Population growth ("A) Urban population ( O h of total population)

GNI (Atlas method, US$ billions) GNI per capita (Atlas method, US$) GNI per capita (PPP, international $)

GDP growth 1%) GDP per capita growth ("A)

(most recent estimate, 2003-2008)

Poverty headcount ratio at $1.25 a day (PPP, "A) Poverty headcount ratio at $2.00 a day (PPP, %) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Chiid malnutrition ("A of children under 5)

Adult literacy, male (% of ages 15 and older) Adult literacy. female (% of ages 15 and older) Gross primary enrollment, male (% of age group) Gross primary enrollment, female (% of age group)

Access to an improved water source (% of population) Access to improved Sanltation facilities (% of population)

Botswana

1.9 582 1.3 60

11.5 6,100

12,420

4.0 2.7

50 90

80 82

109 107

95 42

Sub- Saharan

Africa

800 24,242

2.4 36

762 952

1,870

6.2 3.7

50 72 50 94 27

69 50 99 88

58 31

Upper middle income

823 41,497

0.6 75

5,750 6.987

11,868

5.8 5.1

70 22

94 92

112 109

95 83

Age distribution, 2007 I Male Femle

15 10 5 0 5 10 15 percent

Under4 rnortallty rate (per 1,000) I 200 7

180 160 140 120 100 80 60 40 20

0

1990 1895 20w 2006 I

Net Aid Flows

(US$ millions) Net ODA and official aid Top 3 donors (in 2006):

European Commission United States Germany

Aid (% of GNI) Aid per capita (US$)

Long-Term Economic Trends

Consumer prices (annual % change) GDP implicit deflator (annual % change)

Exchange rate (annual average, local per US$) Terms of trade index (2000 = 100)

Population. mid-year (millions) GDP (US$ millions)

Agriculture industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation

Exports of goods and services Imports of goods and services Gross savings

Manufacturing

1980

105

6 12 15

10.4 106

12.5 10.2

0.8

1 .o 1,061

14.7 50.7 5.1

34.6

52.0 21.3 40.1

53.1 66.4 27.4

1990 2000

145 31

8 4 15 1 19 7

3.9 0.5 106 18

11.4 8.5 6.3 12.0

1.9 5.1 119 100

1.4 1.7 3,792 6,177

(% of GDP) 4.9 2.4

61 .O 58.9 5.1 4.4

34.1 38.6

33.2 23.2 24.1 22.9 37.4 35.0

55.1 52.6 49.8 33.7 41.6 51.7

2008

65

28 25 3

0.6 37

12.7 4.3

6.8 52

1.9 12,126

1.8 50.2 3.4

48.0

34.5 19.6 32.1

46.6 47.0 34.0

Growth of GDP and GDP per capita (YO)

12 10

8 6 4 2 0 2

-4

1980-90 1990-2000 200048 (average annual growth %)

3.2 2.3 1.2 11.0 5.8 5.0

2.5 -1.2 -0.8 11.3 5.6 4.5 11.4 3.8 4.5 15.2 7.5 5.3

6.3 6.4 2.0 14.9 6.0 4.7 7.6 5.2 3.6

12.5 4.3 5.0 9.2 4.4 4.3

Note: Figures in italics are for years other than those specified. 2008 data are preliminary. .. indicates data are not available a. Aid data are for 2006.

Development Economics, Development Data Group (DECDG).

93

Botswana

Balance of Payments and Trade

(US$ millions) Total merchandise exports (fob) Total merchandise imports (cif) Net trade in goods and services

Current account balance as a % of GDP

Workers' remittances and compensation of employees (receipts)

Reserves. including gold

Central Government Finance

(% of GDPj Current revenue (including grants)

Current expenditure

Overall surplusldeficit

Highest marginal tax rate (%)

Tax revenue

Individual Corporate

External Debt and Resource Flows

(US$ millions) Total debt outstanding and disbursed Total debt service Debt relief (HIPC, MDRI)

Total debt (% of GDP) Total debt service (% of exports)

Foreign direct investment (net inflows) Portfolio equity (net inflows)

2000

2,682 2,005

68 1

547 8.9

26

6,300

42.8 36.6 25.5

7.1

25 15

453 69 - 7.3 2.0

57 -6

2008

4,714 5,668 -557

-283 -2.3

117

9,100

35.5 21.9 25.6

-1.5

25 15

382 53 - 3.1 0.8

279 62

Composltlon of total external debt, 2008

O W r muffl. I h n l , 234

US$ millions

Private Sector Development

T h e required to start a business (days) Cost to start a business (% of GNI per capita) Time required to register property (days)

Ranked as a major constraint to business (% of managers surveyed who agreed)

Access tolcost of financing Anticompetitive or informal practices

Stock market capitalization (% of GDP) Bank capital to asset ratio (%)

2000

2000

15.8 10.3

2008

76 2.3 I 1

2007

24.3 11.6

47.7 9.7

I Governance Indicators, 2000 and 2007

I Voice an0 accoLntabi ty 1 1

Polltical stability

Regulatwy quality

Rule of law

Control of corruption

Country's percentlle rank (0-100) haher ~ 8 1 ~ 8 impfy bener refinas

Source: Kaufmann-Kraay-Masbuui. Wodd Bank

Technology and Infrastructure

Paved roads (% of total) Fixed line and moblle phone

High technology exports subscribers (per 100 people)

(% of manufactured exports)

Envlronment

AQriCUltUral land (% of land area) Forest area (Oh of land area) Nationally protected areas (% of land area)

Freshwater resources per capita (cu. meters) Freshwater withdrawal (% of internal resources)

CO2 emissions per capita (mt)

GDP per unit of energy use (2005 PPP $ per kQ of oil equivalent)

Energy use per capita (kQ of oil equivalent)

2000

56.0

21

0.5

46 22.1

8.1

2.5

9.2

1,065

2007

33.2

83

0.4

46 21.1 30.9

1,307

2.4

11.7

1,032

(US$ mi//ionsj

IBRD Total debt outstanding and disbursed Disbursements Principal repayments Interest payments

IDA Total debt outstanding and disbursed Disbursements Total debt service

16 0 0 0 7 I 1 0

9 6 0 0 I 0

iFC (fiscal year) Total disbursed and outstanding portfolio 2 6

of which IFC Own account 2 6 Disbursements for IFC own account 1 0 Portfolio sales, prepayments and

repayments for IFC own account 0 I

MlGA Gross exDosure

Note: Figures in italics are for years other than those specified. 2008 data are preliminaly. .. indicates data are not available. - indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

4/6/09

94

Annex 15: Maps Integrated Transport Project

95

Sehithwa

RakopsRakopsOrapaOrapa

LetlhakaneLetlhakane

SeruliSeruli

MahalapyeMahalapye

SefopheSefophe

PalapyePalapye

JwanengJwanengSekomaSekoma

LorolwaneLorolwane

MabuleMabule

RamatlabamaRamatlabama

KangKang

WerdaWerda

KhakheaKhakhea

FrancistownFrancistown

SeroweSerowe

MolepololeMolepolole

KanyeKanye

TshabongTshabong

MochudiMochudi

LobatseLobatse

Selebi-PhikweSelebi-Phikwe

GABORONEGABORONE

G H A N Z IG H A N Z I

KGALAGADIKGALAGADI

K W E N E N GK W E N E N G

S O U T H E R NS O U T H E R N

KGATLENGKGATLENG

NORTH-NORTH-

EASTEAST

SOUTH-SOUTH-EASTEAST

N G A M I L A N DN G A M I L A N D

C E N T R A LC E N T R A L

S O U T HS O U T HA F R I C AA F R I C A

S O U T HS O U T HA F R I C AA F R I C A

RakopsOrapa

Letlhakane

Seruli

Mahalapye

Sefophe

Palapye

JwanengSekoma

Lorolwane

Mabule

Ramatlabama

Kang

Werda

Khakhea

Selebi-Phikwe

Francistown

Serowe

Molepolole

Kanye

Tshabong

Mochudi

Lobatse

GABORONE

G H A N Z I

KGALAGADI

K W E N E N G

S O U T H E R N

KGATLENG

NORTH-

EAST

SOUTH-EAST

N G A M I L A N D

C E N T R A L

S O U T HA F R I C A

S O U T HA F R I C A

LakeNgami

LakeXau

MakgadikgadiSalt Pans

Okwa

Molo

po

Molopo

Moselebe

Motloutse

Lotsane

Boteti

To Kimberley

To Pretoria

K a l a h a r i

D e s e r t

Maun

KasaneKasane

MochudiMochudi

Kasane

Francistown

SeroweGhanzi

Molepolole

Kanye

TshabongTshabongTshabong

Mochudi

Lobatse

G H A N Z I

KGALAGAD I

KWENENG

SOUTHERN

KGATLENG

NORTH-EAST

SOUTH-EAST

N G A M I L A N D

C E N T R A L

CHOBE

ANGOLANA

MIB

IAZ AMB IA

Z IMBABWE

S O U T H A F R I C A

GABORONE

Area ofArea ofMapMapArea ofMap

This map was produced by the Map Design Unit of The World Bank. The boundaries , co lors , denominat ions and any other informat ionshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal s tatus of any terr i tory, or anyendorsement or acceptance of such boundaries .

IBRD 36909

APRIL 2009

BOTSWANAINTEGRATED TRANSPORT

PROJECTPROJECT ROADS

MAIN ROADS

RAILROADS

MAIN TOWNS

DISTRICT CAPITALS*

NATIONAL CAPITAL

DISTRICT BOUNDARIES

INTERNATIONAL BOUNDARIES

* The town councils of Francistown,Gaborone, Lobatse, and Selebi-Pikwehave status equal to Districts.

0 50 100 Kilometers

0 25 50 Miles