Mombasa - Nairobi – Addis Ababa Road Corridor Project Phase II

67 Pages·2009·2.96 MB·English

by  Full Name

Language: English
Original: English

PROJECT: MOMBASA - NAIROBI – ADDIS ABABA
ROAD CORRIDOR PROJECT PHASE II

COUNTRIES: KENYA & ETHIOPIA

PROJECT APPRAISAL REPORT
Date: June 2009

Team Leader: A. OUMAROU, Transportation Engineer, OINF.2

Team Members N. KULEMEKA, Socio-Economist, OINF.2
D. KIDANE, Infrastructure Specialist, ETFO
Appraisal Team
T. OPIYO, Infrastructure Specialist, KEFO

Sector Manager: J. RWAMABUGA, OINF.2
Sector Director: G. MBESHERUBUSA, OINF
Regional Director: D. GAYE, OREA/OREB

R. SHERMAN Procurement Specialist, ORPF.1
L. EHOUMAN Transport Economist, OINF.1
Peer Reviewers
P. KARANI Environmental Officer, OWAS
M. AJIJO Consultant Transport Economist, ONRI
TABLE OF CONTENTS

I. STRATEGIC THRUST & RATIONALE................................................................................................1
1.1. PROJECT BACKGROUND.......................................................................................................1
1.2. PROJECT LINKAGES WITH COUNTRIES STRATEGIES AND OBJECTIVES..............................1
1.3. KEY DEVELOPMENT ISSUES.................................................................................................2
1.4. RATIONALE FOR BANK’S INVOLVEMENT...............................................................................2
1.5. DONORS COORDINATION......................................................................................................3
II. PROJECT DESCRIPTION.......................................................................................................................3
2.1. CORRIDOR DEVELOPMENT PROGRAM AND PHASING.........................................................3
2.2. PROJECT DEVELOPMENT OBJECTIVES................................................................................4
2.3. PROJECT COMPONENTS.......................................................................................................4
2.4. TECHNICAL SOLUTION RETAINED AND OTHER ALTERNATIVES EXPLORED.........................5
2.5. PROJECT TYPE......................................................................................................................6
2.6. PROJECT COST AND FINANCING ARRANGEMENTS..............................................................6
2.7. PROJECT’S TARGET AREA AND BENEFICIARIES..................................................................7
2.8. PARTICIPATORY PROCESS FOR PROJECT DESIGN AND IMPLEMENTATION........................8
2.9. BANK GROUP EXPERIENCE, LESSONS REFLECTED IN PROJECT DESIGN...........................9
2.10. KEY PERFORMANCE INDICATORS..................................................................................10
III. PROJECT FEASIBILITY...................................................................................................................10
3.1. ECONOMIC AND FINANCIAL PERFORMANCE.......................................................................10
3.2. ENVIRONMENTAL AND SOCIAL IMPACTS............................................................................11
IV. IMPLEMENTATION..........................................................................................................................12
4.1. IMPLEMENTATION ARRANGEMENTS...................................................................................12
4.2. MONITORING.......................................................................................................................14
4.3. GOVERNANCE.....................................................................................................................14
4.4. SUSTAINABILITY..................................................................................................................15
4.5. RISK MANAGEMENT.............................................................................................................16
4.6. KNOWLEDGE BUILDING.......................................................................................................17
V. LEGAL INSTRUMENTS AND AUTHORITY.....................................................................................17
5.1. LEGAL INSTRUMENT............................................................................................................17
5.2. CONDITIONS ASSOCIATED WITH BANK’S INTERVENTION..................................................17
5.3. COMPLIANCE WITH BANK POLICIES...................................................................................18
VI. CONCLUSIONS AND RECOMMENDATION................................................................................18
6.1 CONCLUSION........................................................................................................................18
6.2 RECOMMENDATIONS...........................................................................................................19

ETHIOPIA – COMPARATIVE SOCIO-ECONOMIC INDICATORS..........................................................20
KENYA – COMPARATIVE SOCIO-ECONOMIC INDICATORS...............................................................21
KENYA - BANK GROUP ONGOING PROJECTS AS OF MAY 2009.........................................................22
ETHIOPIA - BANK GROUP ONGOING PROJECTS AS OF MAY 2009....................................................23
KENYA - RELATED PROJECTS FINANCED BY THE BANK AND OTHER DONORS...............................24
ETHIOPIA - RELATED PROJECTS FINANCED BY THE BANK AND OTHER DONORS..........................25
MAP OF PROJECT AREA...................................................................................................................26
MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIDOR DEVELOPMENT PROGRAM.........................27
COUNTRY AND SECTOR BRIEF.........................................................................................................28
LESSONS LEARNED...........................................................................................................................36
PROJECT DETAIL COSTS..................................................................................................................37
IMPLEMENTATION ARRANGEMENTS................................................................................................39
FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS................................................41
PROCUREMENT ARRANGEMENTS.....................................................................................................43
AUDIT ARRANGEMENTS...................................................................................................................46
SUMMARY OF FINANCIAL AND ECONOMIC ANALYSIS.....................................................................47
ENVIRONMENTAL AND SOCIAL ANALYSIS........................................................................................49
PROJECT PREPARATION AND APPRAISAL........................................................................................57
APPLICATION OF THE BANK ROAD UNIT COST STUDY RECOMMENDATIONS.................................58
Currency Equivalents
As of 01.04.2009

1 UA = 1 SDR
1 UA = 1.4674 USD
1 UA = 119.696 KES
1 UA = 16.2183 ETB
Fiscal Year
8 July – 7 July (Ethiopia)
1 July – 30 June (Kenya)
Weights and Measures

1metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (“)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
Acronyms and Abbreviations

ADB African Development Bank KeNHA Kenya National Highway Authority
ADF African Development Fund KES Kenya Shilling
ADT Average Daily Traffic KPA Kenya Ports Authority
AFD Agence Francaise de Developpement KRB Kenya Roads Board
AIDS Acquired Immune Deficiency Syndrome LC Local Cost
ASAL Arid & Semi Arid Lands MoFED Ministry of Finance and Economic Development
CBO Community Based Organization MTP Medium Term Plan
COMESA Common Market for Eastern & Southern Africa NACC National AIDS Control Council
EAC East African Community NEPAD New Partnership for Africa's Development
EIRR Economic Internal Rate of Return NGO Non-governmental Organization
ERA Ethiopian Roads Authority NPV Net Present Value
ESAP Environmental and Social Assessment Procedures OPADC Oromia Pastaralist Area Development Commission
Plan for Accelerated and Sustained Development to End
ESIA Environmental and Social Impact Assessment PASDEP
Poverty
ESMP Environmental and Social Management Plan PAP Project Affected Persons
ETB Ethiopian Birr PCR Project Completion Report
EU European Union PID Project Implementation Document
FE Foreign Exchange PS Permanent Secretary
FTA Free Trade Area RAP Resettlement Action Plan
GOE Government of Ethiopia RFP Request for Proposals
GOK Government of Kenya RRA Rural Roads Authority
GPN General Procurement Notice RSDP Road Sector Development Program
HDM Highway Design and Maintenance Standard Model SPN Specific Procurement Notice
ICB International Competitive Bidding STI Sexually Transmitted Infection
IDA International Development Association TA Technical Assistance
IGAD Intergovernmental Agency for Development TEU Twenty-foot Equivalent Unit
JICA Japan International Cooperation Agency VOC Vehicle Operating Costs
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Loan Information
Client’s information

BORROWERS: ETHIOPIA
KENYA

EXECUTING AGENCY: ETHIOPIAN ROADS AUTHORITY
KENYA NATIONAL HIGHWAY AUTHORITY

Financing plan

Source Amount (UA) Instrument
ADF 210,000,000 Loan
EUROPEAN UNION 76,000,000 Grant
GOV. OF ETHIOPIA 16,820,000 Counterpart
GOV. OF KENYA 26,180,000 Counterpart
TOTAL COST 328,760,000

ADB’s key financing information

Loan currency Unit of Account (UA)
Interest type* Not Applicable
Interest rate spread* Not Applicable
Service Charge* 0.75% on amount disbursed and outstanding
Commitment fee * 0.50% on the un-disbursed loan amount
Tenor 50 years
Grace period 10 years
NPV (base case) US$ 91.54 million
EIRR (base case) 21.7%

Timeframe - Main Milestones (expected)

Concept Note approval March, 2009
Project approval July, 2009
Effectiveness December, 2009
Last Disbursement December, 2015
Completion December, 2014
Last repayment December 2059

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PROJECT SUMMARY

Project Overview

The Mombasa-Nairobi-Addis Ababa Road Corridor Project aims at promoting trade and
regional integration between Ethiopia and Kenya by improving transport communications
between the two countries. The project involves the construction to bitumen standard of 438
km road sections including 245 km Merille River-Marsabit-Turbi road section in Kenya and
193 km Ageremariam-Yabelo-Mega road section in Ethiopia. The total cost of the project is
UA 328.76 million. The project is co-financed by the Bank Group (64%), the European Union
(23%) and the Governments of Ethiopia and Kenya (13%). The expected outcomes of the
project include reduced transport and shipping costs between Kenya and Ethiopia; reduced
transit time for import and export goods; and increased volume of Ethiopian transit goods
using the port of Mombasa. The development of the corridor will expand market sizes
beyond national boundaries and foster a conducive and enabling environment for the private
sector and for attracting foreign direct investments. In addition to enhancing trade and
strengthening regional integration, the project will contribute to poverty reduction in both
countries by increasing access to markets and social services for the surrounding areas, and
communities, and by empowering women and other disadvantaged groups through
adequate roadside socio-economic infrastructure and services.

Needs Assessment

Ethiopia and Kenya share more than 1000 km of common border, and have a combined
population of more than 100 million people. Yet, there is currently not a single all-weather
road connecting the two countries. The main road connecting Addis Ababa to Nairobi has
more than 700 km of missing links. The poor condition of the road represents a major
constraint to trade between the two countries. The development of the Mombasa-Nairobi-
Addis Ababa transport corridor is warranted by the anticipated great trade potential between
Kenya and Ethiopia and to a lesser extent between the Horn and East Africa countries to
include Uganda, Tanzania, Eritrea, and Djibouti. The corridor will also serve as the most cost
effective transit route to Mombasa Port for import/export goods to/from southern Ethiopia.

Bank’s Added Value

The rationale for Bank involvement is threefold: (a) The Bank is already involved in the
financing of the first phase of the project and the feasibility studies for the second phase.
Therefore, the continued support of the Bank is logical; (b) the objective of the project to
address the development constraints caused by poor transport infrastructure and regional
interconnectivity is in line with the Bank medium term strategy (2008-2012) on promoting
infrastructure development and regional integration; and (c) by supporting this flagship
regional integration project, the Bank will continue to play a leadership role in the
implementation of the key priorities of NEPAD’s infrastructure action plan.

Knowledge Management

The project provides a good opportunity to expand the knowledge on the impact of regional
infrastructure on cross-border trade and on appropriate legal and institutional arrangements
for transport facilitation particularly regarding the operation of one-stop-border posts. The
project component on Monitoring, Evaluation, and Knowledge Building was designed
specifically to capture the knowledge during project implementation and disseminate it
amongst policy makers, regional economic communities, and development agencies.

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MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIDOR PHASE II PROJECT
RESULTS-BASED FRAMEWORK
PERFORMANCE ASSUMPTIONS/
HIERARCHY OF OBJECTIVES EXPECTED RESULTS REACH INDICATIVE TARGETS
INDICATORS RISKS
Sector Goal Impacts Beneficiaries Impacts Indicators Impacts Targets 1 Favorable
macro-
1 Promote trade and regional 1 Increased Intra-regional trade between Ethiopia 1 Volume of trade 1 Trade between Ethiopia and Kenya estimated to grow economic
integration. and Kenya and Eastern & Horn of Africa regions Populations from US$ 48 M (2007) to US$ 200 M (500%) by 2017 conditions and
of Ethiopia, Source: Kenya and Ethiopia Customs 2 Intra-COMESA trade for Ethiopia, Eritrea, Djibouti terms of trade.
Kenya, statistics; Trade statistics from currently stagnant, to grow at part or above the 11%
COMESA COMESA, IGAD, UNCTAD, WTO COMESA average by 2017;
Member
States
Project Objective Outcomes Beneficiaries Outcomes Indicators Outcomes Targets 1 Ethiopia &
Kenya remain
1 To improve transport 1 Transport and logistics costs between Addis Freight 1 Transport and shipping costs 1 Port of Mombasa transit goods to/from Ethiopia to committed to
communications between Kenya and Ababa and Nairobi are reduced; transit and Shippers, 2 Transit time for imports and increase from zero in 2009 to 500,000 t in 2014; and regional
Ethiopia for the benefit of both travel times are reduced Exporters and exports to over 1000,000 t or 20% of total Ethiopian sea fret by cooperation
countries and the region. 2 Port of Mombasa becomes cost-effective Importers 3 Volume of transit goods to/from 2018. within
alternative for Ethiopia’s import/export shipping Transport Ethiopia using the port of 2 Average transport cost of US$ 0.50 per veh-km on the COMESA.
3 Technical and Operational Capacity of Kenya Operators Mombasa corridor in 2009 reduced by 20% by 2011; and by 50% 2 Peace and
4 RaImloopanrdgo vAthegede cenoccrioernisdo oimsr isct raenndg tshoecniaeld w elfare of towns Bcoumsimneusnsi ty 45 PAeverfroargmea hnocues oefh Roloda idnsc oAmgeen cies 3 bNTyraa i2nro0sb1iti4 ai.n n d2 0tr0a9v erel dtiumcee do fb 5y d2a0y%s b(1e tdwaeye) nb yA 2d0d1is1 a; nadn d smKteaanbinyiltaiat yian inesd d in
by 60% (3 days) by 2014 Ethiopia.
Source: Ethiopia Roads Transport
4 Technical, Operational, Financial Management &
Authority, Port of Mombasa, NCTTCA
Procurement capacity of Roads Agencies adhere to
Transit transport surveys; customs
broadly accepted good practices by 2011.
statistics, Financial & Procurement
Capacity Assessment of AfDB or World 5 30% average household income increase by 2017 in
Bank, AfDB project M&E the project zone of influence.
Activities/Inputs Outputs Beneficiaries Output Indicators Output Targets 1 Availability of
counterpart
1 Construction of Merille River- 1 Road between Merille River and Turbi (245 km) Contractors, 1 Km of road constructed and open 1 80 km of road in Ethiopia and 110 km of road in Kenya funding.
Marsabit-Turbi road in Kenya (UA in Kenya constructed to bitumen standard consultants, to traffic. completed and opened to traffic by project mid-term in 2 Security
209.09 M). 2 Road between Ageremariam and Yabelo (193 Business 2 Design Reports, Business Plan 2012 situation does
2 Rehabilitation of Ageremariam- km) in Ethiopia rehabilitated to AC standard. community, Reports, Process Management 2 245-km Merille River-Turbi road in Kenya and 193-km not prevent
Yabelo-Mega road in Ethiopia (UA 3 Technical Reports, Specifications and Cost population in Reports validated by GOK and Ageremariam- Yabelo road in Ethiopia completed and execution of
91.71 M). Estimates for dualling of Mombasa-Nairobi the project Road Agencies. opened to traffic by 2014. works
area Kenya
3 Consulting services for construction completed. 3 Number of Roadside Socio- 3 All Technical Design Reports, Business Plan Reports, 3 Effective
Roads
supervision, design, evaluation, and 4 Roadside socio-economic infrastructure Agencies and Economic infrastructure built. & Process Management Reports validated by coordination of
audit services (UA 11.42 M) constructed their staff 4 Number of ICT & Survey stakeholders by 2011. project
4 Construction of OSBP and Roadside 5 ICT & Survey Equipment & Software acquired Equipment & Software Acquired 4 Three Road Stations and one OSBP built in Ethiopia; implementation
socio-economic infrastructure (UA 6 5-Year business plans for Road Agencies 5 Number of staff-weeks of training Two Road Stations and one OSBP built in Kenya by 4 Construction
9.33 M), 2013. costs
completed 6 Number of people sensitized to
5 RTeocahdnsi cAagl eAnscsieissta (nUcAe 2fo.6r 3K eMn)y. a 7 Management & Staff of Roads Agencies trained road safety, STDs, and HIV/AIDS 5 r1e8la0t epdie cseosft woaf rceo macpquuteirre dst abtyio 1n2s/,1 s0e. rvers, printers and ewsitchainla tion
in various areas 7 Number of jobs created predictable
6 Compensation & Resettlements (UA 6 172 staff-weeks of training in road management, M&E,
8 Population of project area and road users bounds
4.57 M) financial management, procurement delivered by
sensitized to Road Safety, STIs, and HIV/AIDS Source: ERA/ KENHA management
2011.
9 Employments created reports, Progress reports, supervision
reports, Completion reports 7 3000 people (50% women) sensitized to road safety,
STIs, and HIV/AIDS by 2014.
8 2000 skilled and unskilled jobs (30% women) created
by 2014.
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PROJECT IMPLEMENTATION TIMEFRAME

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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP
TO THE BOARD OF DIRECTORS ON PROPOSED LOANS TO ETHIOPIA AND KENYA
FOR THE MOMBASA-NAIROBI-ADDIS ABABA ROAD CORRIOR PHASE II PROJECT

Management submits the following Report and Recommendation on proposed loans for UA
85.00 million to the Federal Democratic Republic of Ethiopia and for UA 125.00 million to the
Republic of Kenya to finance the Mombasa-Nairobi-Addis Ababa Road Corridor Phase II
Project.
I. STRATEGIC THRUST & RATIONALE
1.1. Project Background
1.1.1 The project road is an important section of the Trans-African Highway Cairo-Cape
town. Within Ethiopia and Kenya, the road is a link on the main Addis Ababa – Nairobi -
Mombasa corridor (see map in Appendix 1). The Kenyan section of the road between Isiolo
and Moyale is about 525 km and was constructed as a gravel road in 1974. On the Ethiopian
Side of the border, the road is entirely bitumen-paved from Moyale to Addis Ababa.
However, the section of the road between Moyale and Ageremariam is more than 40 years
old. It has deteriorated and requires reconstruction/rehabilitation. In July 2003, the GOK and
the GOE approached the Bank to request the financing of the road under the Bank
multinational window. Owing to the low level of project preparation for some of the missing
links and the need to mobilize the required financing, the corridor development had to be
carried out in phases. For the first phase, the ADF Board of Directors approved a loan of UA
33.60 million and a grant of UA 2.55 million to finance the construction of the 136-km Isiolo-
Merille section of the road in Kenya and the feasibility and design studies for 366 km road
section in Kenya and another 302 km of road section in Ethiopia in readiness for the second
phase. After a slow start due to procurement delays and insecurity in the project area, the
implementation of the first phase is now progressing at a satisfactory pace with the
contractual completion date set for April 2010. The feasibility and detail design studies of the
remaining missing links have been completed and provide the basis for this second phase of
the project.
1.2. Project linkages with countries strategies and objectives
1.2.1 The Mombasa-Nairobi-Addis Ababa Road Corridor Project is in line with Ethiopia’s
and Kenya’s Poverty Reduction Strategies as well as the Bank Group’s assistance strategies
to the two countries. Ethiopia’s second Poverty Reduction Strategy (2005-2010), known as
the Plan for Accelerated and Sustained Development to end Poverty (PASDEP) accords
high priority to infrastructure development to support industrialization and development and
commercialization of agriculture. Within the context of the fifth pillar of PASDEP,
Strengthening the Infrastructure backbone of the Country, Ethiopia’s five-year Road Sector
Development Strategy III is putting emphasis on expanding the road network and improving
regional trade corridors and port linkages. In support of Ethiopia’s PASDEP, Infrastructure
Development is one of the three pillars of the Bank Group Country Strategy Paper (CSP)
2006-2009. The Ageremariam-Moyale section of the Mombasa-Nairobi-Addis corridor is
programmed for Bank financing under the ADF-XI Indicative Lending Program for Ethiopia in
the CSP. It will contribute to PASDEP and CSP objectives of improving trade corridors and
linkages to ports.

1.2.2 Kenya’s development strategy, Vision 2030 and the Medium Term Plan (MTP) 2008-
2012 identifies infrastructure development as the main pillar in the GOK’s quest in
transforming Kenya into a globally competitive economy and in expanding intra-regional
trade with neighboring countries. The MTP underscored also the importance of infrastructure
to enhance incomes and social welfare in rural areas. In support of the MTP, one of the two
1
the pillars of the Bank Group Kenya Country Strategy Paper 2008-2012 is Infrastructure
Development for Enhanced Growth. The development of the Mombasa-Nairobi-Addis road
corridor with a branch to southern Sudan is one the key regional infrastructure programs
under the MTP. The project is programmed for Bank financing under ADF-XI Indicative
Lending Program in the CSP. The project outcomes will contribute to the objective of the
CSP and the MTP by enhancing trade expansion into neighboring countries and
strengthening Kenya’s position as a natural transport hub for East Africa.
1.3. Key Development Issues
1.3.1 Ethiopia and Kenya share more than 1000 km of common border, and have a
combined population of more than 100 million people. Yet, there is currently not a single all-
weather road connecting the two countries. The main road connecting Addis Ababa to
Nairobi has more than 700 km of missing links including 366 km of gravel road in Kenya and
more than 300 km of low standard and deteriorated paved road in Ethiopia. The poor
condition of the road represents a major constraint to trade between the two countries.
COMESA trade statistics show for example that the value of trade between Kenya and
Uganda in 2007 is 10 times more important than trade between Kenya and Ethiopia, despite
the fact that Uganda has only 25 million people compared to the estimated 75 million for
Ethiopia. This disparity, and the apparent marginalization of the horn of Africa countries from
the recent intra-COMESA trade boom are largely explained by the lack of reliable road
transport infrastructure to link them to the rest of the region, which is consistent with the
findings of a World Bank study which estimated the elasticity of the flow of trade with respect
to transport costs to about –3. It implies for example that the volume of trade between two
countries would drop by 20%, if transport costs between them were to increase by 10%.

1.3.2 Ethiopia, as a landlocked country, relies on the neighbouring transit countries for its
sea freight. In order to reduce transport cost and improve the competitiveness of the
Ethiopian economy, the Government is striving to diversify its access to seaports as much as
possible. About 20% of the Ethiopian sea freight traffic originating or destined to southern
and south-western Ethiopia would normally be attracted to the Mombasa port, which has this
region of Ethiopia as its natural catchment area via Moyale. However, the poor condition of
the corridor forces the totality of this traffic to transit through more distant ports.

1.3.3 While addressing the road infrastructure bottleneck is paramount to foster trade
between the two countries, it should go hand in hand with reforms programs in the areas of
transport facilitation and trade liberalization – the so-called non-physical barriers. Both
Ethiopia and Kenya are members of COMESA; but while Kenya has also joined the
COMESA Free Trade Area (FTA), Ethiopia has not and continues to trade on preferential
terms applying 10% discount to duties granted to “the Most Favored Nation” to all COMESA
member states except Djibouti and Sudan with which it has bilateral agreements. Ethiopia
and Kenya are at an advance stage of negotiating a bilateral trade agreement. The proposed
improvement of the transport connectivity between the two countries underscores the need
for Ethiopia and Kenya to move quickly to conclude the agreement. From the Facilitation
standpoint, both countries have ratified the key COMESA instruments and common
standards to facilitate regional transport and trade including harmonized axle load limits,
harmonized transit charges, regional carrier licensing, regional third-party motor vehicle
insurance, Regional Customs Bond Guarantee, and Single Customs Document. The two
countries are in the process of re-engineering an existing transport transit agreement to take
into account the recent development in transport facilitation and the status and condition of
the transport and communication infrastructure along the corridor.
1.4. Rationale for Bank’s involvement
1.4.1 The rationale for Bank involvement is threefold: (a) The Bank is already involved in
the financing of the first phase of the project and the feasibility studies for the second phase.
2