Document of The World Bank FOROFFICIAL USEONLY ReportNo: 30871-YE PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR26.6MILLION (US$40.0 MILLIONEQUIVALENT) TO THE REPUBLIC OF YEMEN FORA SECONDRURALACCESS PROJECT INSUPPORTOFTHE SECONDPHASE OF THE RURALACCESS PROGRAM October 11,2005 Finance, Private Sector Development and Infrastructure Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 31,2005) Currency Unit = Yemeni Rial (YR) 186 YR = US$ 1 US$1.50803 = SDR 1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ADT Average Daily Traffic M O F MinistryofFinance CAS Country Assistance Strategy M O L A MinistryofLocalAdministration CMO Central Management Office (Rural MOPD MinistryofPlanning and Access Program) Development CPAR Country Procurement Assessment M O T Ministryo fTransport Report PAD Project Appraisal Document EA Environmental Assessment PCN Project Concept Note EIA Environmental Impact Assessment PIP Project Implementation Plan EMP Environmental Management Plan PIU Project Implementation Unit FMS FinancialManagementSpecialist PMR Project Management Report GCRB General Corporation for Roads and RAMP RuralAccess Master Plan Bridges RAP RuralAccess Program GOY Government o fYemen RED Roads Economic Decision Model HDM The HighwayDesign and RMF RoadMaintenance Fund Maintenance Standard Model R O Y Republic o fYemen ICR Implementation Completion Report SDR Standard DrawingRights IDA Intemational Development SEA Sectoral Environmental Assessment Association SFD Social Fundfor Development IRR Intemal Rate of Retum TOR Terms o f Reference LAL Local Authority Law voc Vehicle Operating Cost MPWH MinistryofPublic Works and Highways Vice President: Christiaan Poortman Country Director: EmmanuelMbi Sector Director: HosseinRazavi Sector Manager: HediLarbi Task Team Leader: Jean-Charles Crochet FOROFFICIAL USEONLY YEMEN. REPUBLIC OF Second RuralAccess Project CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues.................................................................................................... 1 2. Rationale for Bank involvement ......................................................................................... 3 3. Higherlevelobjectives to which the project contributes.................................................... 3 B . PROJECTDESCRIPTION ................................................................................................. 4 1. Lendinginstrument............................................................................................................. 4 2. Program objective and Phases ............................................................................................ 4 3. Project development objective and key indicators.............................................................. 5 4. Project components ............................................................................................................. 5 5. Lessons learned andreflected inthe project design............................................................ 6 6. Alternatives considered and reasons for rejection.............................................................. 7 C . IMPLEMENTATION .......................................................................................................... 7 1. Partnership arrangements .................................................................................................... 7 2. Institutional and implementation arrangements .................................................................. 8 3. Monitoringand evaluation o f outcomesh-esults.................................................................. 9 4. Sustainablllty..................................................................................................................... . . 10 5. Criticalrisks and possible controversial aspects............................................................... 11 6. Credit conditions and covenants ....................................................................................... 12 D APPRAISAL SUMMARY . ................................................................................................. 12 1. Economic and financial analyses...................................................................................... 12 2. Technical........................................................................................................................... 13 3. Fiduciary ........................................................................................................................... 14 4. Social................................................................................................................................. 14 5. Environment...................................................................................................................... 16 6. Safeguard policies............................................................................................................. 17 7. Policy Exceptions and Readiness...................................................................................... 19 This document has a restricted distribution and may be used by recipients only in the performance of their official duties I t s contents may not be otherwise disclosed . jwithout World Bank authorization. Annexes Annex 1: Country and ProgramBackground .......................................................................... 20 Annex 2: Major RelatedProjects Financedby the Bank and/or other Agencies .................27 Annex 3: Results Framework and Monitoring ........................................................................ 28 Annex 4: Detailed Project Description ...................................................................................... 32 Annex 5: Project Costs............................................................................................................... 35 Annex 6: Implementation Arrangements ................................................................................. 36 Annex 7: Financial Management and DisbursementArrangements ..................................... 40 Annex 8: Procurement ................................................................................................................ 52 Annex 9: Economic and Financial Analysis ............................................................................. 66 Annex 10: Safeguard Policy Issues ............................................................................................ 71 Annex 11: Project Preparation and Supervision ..................................................................... 76 Annex 12: Documents in the Project File ................................................................................. 77 Annex 13: Statement of Loans and Credits .............................................................................. 78 Annex 14: Country at a Glance ................................................................................................. 79 Annex 15: Map (IBRD No .33979)............................................................................................ 81 .(iv). REPUBLIC OF YEMEN SECOND RURALACCESS PROJECT PROJECT APPRAISAL DOCUMENT MIDDLEEAST AND NORTHAFRICA FINANCE, PRIVATE SECTOR AND INFRASTRUCTURE Date: October 11,2005 Team Leader: Jean-Charles Crochet Country Director: EmmanuelMbi Sectors: Roads andhighways (85%); General Sector Manager: HediLarbi public administrationsector (15%) Themes: Rural services and infrastructure (P); Decentralization (S) Project ID: PO85231 Environmental screening category: Full Assessment Lending Instrument:Adaptable Program Credit [ 3 Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: ~~ For Loans/Credits/Others: Total Bank financing (USsm.): 40.00 Source Local Foreign Total BORROWEWRECIPIENT 9.87 0.00 9.87 INTERNATIONAL DEVELOPMENT 15.79 24.21 40.00 ASSOCIATION Total: 25.66 24.21 49.87 Borrower: RepublicofYemen, Ministryof Planningand International Cooperation Sana'a, Republic o f Yemen Tel: (967-1) 256 078 Fax: (967-1) 250 605 Responsible Agency: RuralAccess Program Central Management Office Sana'a, Republic ofYemen Tel: (967-1) 465 226 Fax: (967-1) 409 626 Project implementation period: Start: November 30,2005 End: May 31,2010 Expected effectiveness date: March31, 2006 Expected closing date: November 30,2010 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Re$ PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? NA [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ]No Project development objective Re$ PAD 23.2, TechnicalAnnex 3 The long term objective o f the Rural Access Program is an improved livelihood and reduced isolation for the rural population through improved year-round access to markets and services. By the end o f the Program, it is expected that, along project roads, transport rates, price o f essential commodities, and travel time will be reduced by 30%, 15%, and 30% respectively. In parallel, the institutional capacity to manage efficiently rural roads programs will have been established. The Second Rural Access Project's specific development objective i s to reduce isolation o f the rural population with highincidence o f poverty. By the end of the project, about 250,000 people located in district centers and within 2.5 km o f the project roads in rural areas, who do not currently have reliable access to Governorate centers, will be provided with such access. Project description [one-sentence summay of each component] Re$ PAD B.4, Technical Annex 4 (i) Upgrading o f at least 200 km of intermediate rural roads and at least 75 km o f village access roads (USD 34.09 million). (ii)Institutional support andcapacity buildingto strengthen, at the central andlocal levels, institutional and technical capability for rural road planning, engineering, environmental and social analysis, management and implementation (USD 3.45 million). (iii)Maintenance of about 950 km of roads under perfonnance-based management and maintenance o f roads contracts and support to the Road Maintenance Fund(USD 12.33 million). The proposed operation constitutes the second phase of the RuralAccess Program, an adaptable program lending (APL)approach for the improvement o f rural roads in Yemen. The first phase operation approved on June 7, 2001, was aimed at setting up sound institutional and technical arrangements for the program and testing these through the planning and execution o f pilot sub- projects. The second phase operation i s intended to extend the arrangements piloted during - (vi)- ?haseI, continue the capacity buildingeffort (especially through the introduction o fmodern road naintenance systems), and establish the basis for a decentralized management o f the program, while expanding the population benefitingfrom improvedroad access. The seven triggers to move from Phase Ito Phase I1have beenmet as follows: 1. Five pilot road sub-projects have been completed, through which methods and standards have Jeen successfully tested, adjusted on the basis o f experience, and adopted; 2. Draft Rural Accessibility Master Plans have been prepared for five Governorates, based on a nulti-criteria economic and social methodology agreed by the Government and, for the remaining thirteen Governorates, the preparationo fthese master plans i s well underway; 3. An assessment o f the old rural road project portfolio in the national budget has been :ompleted and clear priorities defined for rural road investments, which are mostly going to be financed by donors; 4. A rolling rural road investment plan has been prepared on the basis o f which donor projects %rebeingselected; 5. Technical preparation and bidding documents have been completed for the first year o f the Phase I1project; and 6. A Sector Environmental Assessment (SEA) for the Phase I1project has been completed and publicly disclosed and the first year road works program does not include any category A sub- projects. 7. A 10-year National Road Master Plan has beenprepared, which includes a new classification o f the road network and a plan for the management and financing o f the secondary rural and local roads. The new classification has not beenenacted yet since the Government has decided to submit it to the Parliament for approvalwithin the context o f a new road law, which is still being prepared. This delay does not affect the fulfillment o f the program's development objectives since reduced isolation o f the largest possible share o f the rural population during the program's period will be best achieved by allocating resources to a well defined core network o f priority rural roads inthe vicinity o fwhich most o f the rural populationlives. This core network has been clearly established and i s receiving most o f the available funding including all funds from donor agencies. Which safeguard policies are triggered, ifany? Re$ PAD D.6, Technical Annex 10 (i) Environmental Assessment (ii) Habitats Natural (iii) Property Cultural (iv) Involuntary Resettlement Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: None Loadcredit effectiveness: - Employment o f such qualified staff in adequate numbers and restructuring o f RAPCMO's organization, in such ways as needed in IDA'S opinion for RAPCMO to carry out its responsibilitiesunder the project; - Restructuringo fthe Steering Committee so that its membership andterms o freference are - (vii) - satisfactory to IDA. Covenants applicable to project implementation: - Disbursements for Project Component 3 to be contingent upon establishment o f a fully functional financial management system for RMFIU; - RAPCMO andRMFIUto be maintained throughout project implementationwith staffing, structure, resources, and facilities acceptable to IDA; - Principles o f operation ofthe RAPCMO (including decisionmaking autonomy, and staffing policies) to be acceptable to IDA throughout project implementation; - Methodologies and procedures for sub-project assessment, selection, design, and implementation to continue to be acceptable to IDA throughout project implementation; - RAPCMO to keep current a detailed eighteen-monthrollingwork program; -- Implementation o fa financial management strengtheningprogramfor the RAPCMO; Implementation o f a financial management and procurement strengthening program for RMFIU; - Minimumannual road maintenance funding o f YR 3.1 billionby 2006, YR 3.9 billion by 2007, and YR 4.8 billionby 2008 andthereafter. - (viii) - A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues One o f the main characteristics o f Yemen and an essential factor o f its current socio- economic development and highpoverty i s the isolation o f much o f the rural population, about 75% o f the country's total population. This i s due to historical and geographical circumstances, especially the rugged and mountainous conditions inthe northwest o f the country where most o f the population lives. It i s also the result o f the long term neglect o f the rural roads network. Developing rural areas and reducing isolation are key elements o f Yemen's 2003-2005 Poverty Reduction Strategy Paper (PRSP). Indeed, the first o f the PRSP's three main objectives is: "Achievement of economic growth, creation of j o b opportunities and expansion of the economic opportunitiesfor thepoor by remedying the structural causes of poverty, focusing on the prevention of poverty, and providing sustainable means of livelihood" (page 5). Better rural roads are essential for this. In general, improving infrastructure i s one o f the four main axes o f intervention (pillars) to meet the PRSP's objectives. The PRSP also emphasizes that past infrastructure improvements were biased towards the urban areas and the more fortunate groups, to the detriment o f the rural population. In the transport sector, the specific PRSP goals are: "Adding 3,300 km of asphalt roads and 2,950 km of gravel roads, besides the reinforcement and maintenance of about 3,194 km of asphalt roads, so as to achieve interconnection and to reinforce the transport traffic and facilitate the flow of commodities and sewices and movement of people, aside from maintaining the existing roads to ensure the safety of their use and their sustainability (page 55); and "Connecting rural areas to markets, easing access to services through the expansion of the roads network" (page 57). By late 2004, Yemen has made good progress towards the PRSP output targets for the transport sector. The length o f paved roads added to the network inrecent years has been about 900 m y e a r . Overall, the length o f the paved road network has doubled in the period between 1990 and 2003. During the past years, funding for the road sector has been about US$ 100 million per year, with roughly half coming from external sources. The capability to plan and implement programs in the road sector has also made much improvement. Despite these achievements, some serious issues remain, as outlined below and described inAnnex 1. Insufficient coverage of rural areas with all-weather roads. One o f the most critical constraints to economic growth and poverty alleviation is the land transportation challenge facing Yemen. In spite o f the rapid growth o f the paved road network, paved roads still constitute only about 12% of the total road network o f roughly 63.000 km and most o f the secondary and tertiary network i s in poor or very poor condition. In fact, about 75% o f the roads are very rough earth roads or rudimentary tracks which can be used only by light four-wheel-drive vehicles at very low speed and at high costs, and which often get interrupted by rains. As a result, only about 28% o f households throughout the country have access to all-weather paved roads. The provision o f roads o f - 1 - appropriate standards i s especially challenging, given that a large proportion o f the population lives in small settlements in rugged terrain relatively far from trunk roads. This situation is a primary obstacle for economic growth and improving the living conditions in rural areas, especially those distant from the main cities. The Government (specifically, the Ministry of Public Works and Highways - MPWH) i s directly addressing this issue through its ongoing Rural Access Program (RAP) that started in 2001under an adaptable program credit (Phase I)fi-omIDA. Otherprograms, such as the Social Fund for Development, improve small-scale village access tracks through participatory andlabor-intensive work methods. Institutional Challenges. The road sector also faces institutional challenges and, in particular, deficiencies in budget allocation processes, especially for the rural road network. This often leads to commitments for rural road projects that: (i)are not approved by Parliament; (ii) receive only very little funding through the annual budgets; and (iii) because o f low funding, are not completed and do not lead to sustainable accessibility improvements for the rural poor. The RAP i s designed to address this issue. It is a parallel system that uses a rational and participatory process o f RuralAccessibility Planning to identify rural road projects. Final selection, design, and implementation of projects are based on sound, objective, technical, economic, and environmental criteria. This process was piloted and adjusted during the Phase Iproject, and it has proven successful. The Government and donors are gradually puttingmore money into the RAP, while budget allocations for the traditional inefficient system are being reduced. Over time this will lead to the gradual disappearance o f the old practice, as Governorate and District Governments, as well as local communities, will recognize that they will "get their roads" much better through the RAP than by exercising political pressure on the central Government. In addition, the RAP has introduced rational methods for procuring and managing road contracts, and has initiated the necessary strengthening o f the contracting industry and the consulting profession in the road sector. These improvements still needto be reinforced. Inadequate maintenance of the road network. Despite the establishment o f an independent Road Maintenance Fund (RMF) with its own revenue source and maintenance planning capability, andbudget allocation of substantial resources, the road sector still suffers from inadequate road maintenance funding and management. The need for regular maintenance funding for all roads (including municipal roads) has been estimated at YR 4.8 billion (US$ 26 million) per year. However, in 2004, the combined resources allocated to road maintenance through the RMF and other budget allocations were only YR 2.3 billion (US$ 12.5 million). In addition, there is a backlog o f road rehabilitation works, which i s only partially addressed through road resurfacing projects funded through the general road budget and executed by the MPWH. Currently, the maintenance funding shortfall mainly affects the unpaved road network. Paved roads in Yemen have proved to be much more resilient because o f low rain, good construction materials, and the prevalence o f rocky terrain. About 64% o f paved roads are in very good or good condition. The Government i s addressing the maintenance issue in three ways. First, the Parliament has approved a law which would channel 5% o f the price of fuel to the RMF, which, at present fuel price and consumption levels, would result in - 2 - approximately YR 5 billion (US$ 27 million) per year. This would be sufficient to cover the maintenance needs o f the entire road network. The practical implementation o f this law has been closely linked, however, to the reduction or elimination o f he1 subsidies, a step that has proven very difficult, but has been taken recently. Secondly, given the relatively l o w cost and high resilience o f road pavements in Yemen, the Government i s upgrading many unpaved roads to paved standards, through the RAP and through projects implemented by the MPWH. Thirdly, in order to address the maintenance management issue, the Government intends to continue to strengthen the RMF and introduce in Yemen the concept o f long-term contracts for performance-based management and maintenance o f roads (PMMR), which constitute a more integral approach to road maintenance and favors the participation o fprivate firms inthe planning and execution o f roadmaintenance. 2. Rationale for Bank involvement The rationale for Bank involvement is that the reduction o f rural isolation through improved rural access roads constitutes a key element for poverty reduction in Yemen, and that continued Bank assistance i s important for strengtheningongoing efforts by the Government, as described above, and mobilizing other donors' resources. More specifically, the three following reasonsjustify Bank involvement: (i) now that the RAP i s attracting a significant number o f donors (Arab Fund, USAID, EUamong others), there i s a need for coordination and leadership in the support to the sector, which the Bank has successfully provided under the Phase Iproject and is uniquely placed to continue to provide; (ii) through its involvement inrural access road programs worldwide, the Bank can effectively disseminate knowledge and support the capacity building efforts o f the Government inthis area; and (iii) Bank also has wide experience inroad maintenance the issues, in particular the establishment o f more reliable funding arrangements based on user charges, and in the introduction o f PMMR. Other donors have indicated that their participation inthe RAP i s contingent on the continued participation and leadership o f the Bank. 3. Higher level objectives to which the project contributes The project is designed so as to be closely aligned with the PRSP and especially its priority objectives of improving access to basic social services, production inputs, and consumer goods, and promoting economic growth and the creation o f job opportunities by encouraging agricultural production and activities associated with it. As such, the project will significantly contribute to poverty reduction. It will also contribute directly to the Government's higher level objectives in the transport sector by increasing the coverage o f all weather roads in rural areas, developing institutional capabilities in the road sector, and testing better systems for road maintenance. In addition, the project will support the Government's decentralization process through the establishment o f regional rural roads offices to be responsible for planning and implementation o f rural access projects. The project i s included inthe Country Assistance Strategy (CAS). - 3 - B. PROJECTDESCRIPTION 1. Lendinginstrument Adaptable Program Credit (APC). 2. ProgramobjectiveandPhases The long term objective o f the RAP i s an improved livelihood and reduced isolation for ?he rural popula?ion. This objective i s to be achieved through the improvement o f clusters o f rural roads, including intermediate access roads linking district centers with each others and to the mainroad network, combined with adjacent village access roads. Inparallel, the institutionalcapacity to manage efficiently rural roads programs is to be established. Implementation o f the Program started with the effectiveness (March 18,2002) o f the Phase ICredit. Progress in meeting the program objectives i s measured by three specific indicators (transport rates along program roads, price o f essential commodities at rural markets served by program roads, and access time). The Program's three phases are briefly describedbelow (see also Annex 1): Phase I:Institutionalstrengtheningand definition of appropriate standards. Phase Iis settingupthe institutional andtechnical foundation for anefficient ruralroad improvement program and testing the planned approach through the establishment o f the Rural Access Program Central Management Office (RAPCMO) and the execution o f 15 pilot projects o frural road clusters. Phase 11: Access improvement and decentralizednetworkmanagement.This Phase i s the subject o f the present Project Appraisal Document. It i s intended to roll out nationwide the institutionaland technical processes piloted during Phase I(including the participatory road selection processes and the proper management o f environmental and social impacts), continue the capacity building effort, and establish the basis for a decentralized management o f the program, while expanding the population benefiting from improved road access. This phase will be implemented fiom mid-2005 until mid- 2010. In parallel to the Bank own funding, it will include large funding from other donors for projects preparedand implemented within the same institutional and technical framework. Phase 111: Expanding the coverage of access improvement and consolidation of gains. This phase will expandcapacity buildingat the regional level andimprove access in rural areas not yet covered under Phases Iand 11. It is also expected to fully institutionalize the processes developed through the first two phases and achieve sustainable management and maintenance o f rural roads in Yemen. Phase I11will be implementedbetween2009 and 2012. After a one year delay inits start, Phase Ihas made good progress and will be completed bymid2006. The keyinstitutional and technical objectives ofPhase Iare being met fully and preliminary indications show that the program's targets are being reached. In - 4 - addition, overall good results have been achieved regarding the triggers that had been agreed between the Government and the Bank for the initiation o f Phase I1 o f the Program. As shown inAnnex 1, with one justified exception which has no impact on the fulfillment o f the program's development objectives, these triggers have been met in substance or fully. Triggers for Phase I11o f the Program were agreed at Negotiations. They include those described in the PAD for the Phase Iproject, to which were added two new triggers targeting progress inroadmaintenance. The list o ftriggers for Phase I11i s inAnnex 1. 3. Projectdevelopmentobjectiveandkey indicators The Phase I1development objective i s to reduce isolation o fthe rural population enabling them to better reach markets and access services (social and administrative). Progress towards this objective will be measured through the overall program indicators (see above) as well as the number o f persons who will have gained reliable low cost year- round road access through the project. The target for the end of Phase I1 i s 250,000 persons. Details, including on the indicators for monitoring progress towards the intermediate results, are inAnnex 3. 4. Projectcomponents The project will have three components which are briefly described below (Annex 4). Component 1: Rural Access Roads. This component is designed to address the sector issue o f insufficient coverage of rural areas with all-weather roads. It will mainly consist o f the planning, execution and supervision of works contracts to upgrade existing rural roads and tracks. The result o f this component will be that at least 200 km o f intermediate rural access roads and 75 km o f village access roads are improved (IDA- financed roads only). As in Phase I,most physical works will be carried out by local small and medium-size contractors, and design and supervision will be done by a mix o f local and foreign consultants. The target group for this component is the rural population inthe areaofinfluenceoftheroads to be improved. Component 2: Institutional Support and Capacity Building. This component is designed to address the sector issue o f institutional challenges inthe rural road sector. It builds on the results o f the Phase Iproject and will mainly consist o f training and technical support services carried out by local and foreign consultants. The result of this component will be that institutional and technical capability for rural road planning, engineering, environmental and social analysis, management and implementation is strengthened at the central and local levels. More explicitly, it i s expected that, by the end o f the project: (i) decentralized rural road management offices are hnctional; (ii) three at least 200 local professionals from the public and private sectors have received an average o f 10 days o f relevant high quality training; (iii) constraints to the development and efficiency o f the road maintenance and construction industry and road sector consulting profession have beenidentifiedand adequate improvement measures have been designed; - 5 - and (iv) the implementation o f the RAP continues to be managed professionally and in conformance with legal and fiduciary requirements. The direct target group for this component consists o f Yemeni road sector professionals from both the public and private sectors. Component 3: Road Maintenance. This component i s designed to address the sector issue o f inadequate maintenance of the road network. It will mainly consist o f the planning, execution and supervision o f several pilot contracts to introduce PMMR in Yemen and the strengthening o f the road maintenance management capability o f the RMF. The results of this component would be that (i) least 950 km o f roads are at properly maintained by the FWF through P M M R contracts with private firms and (ii) a modem Pavement Management System i s functional and able to produce sound assessments o f priority road maintenance and improvement expenditures for the primary road network of Yemen. The target group for this component consists o f the users o f the maintained roads who will benefit from sound pre-defined road service levels during the contracts' period. 5. Lessons learned and reflected in the project design Major lessons learned from previous projects in the transport sector in Yemen, particularly the Phase Iproject, are discussed below. These lessons which are consistent with the Bank's experience with similar projects in other countries have been incorporated inthe designo f the Phase I1project. First, in Yemen as in most countries, institutional performance can be substantially improved if it takes place within a transparent framework o f well defined procedures and technical guidelines, if staff i s recruited on the basis o f merit, adequately motivated and remunerated, and offered sound work conditions, and if the institution can perform its daily tasks without outside interference. This has been the case for the RAPCMO and will be continued under Phase11. Second, the Yemeni road maintenance and construction industry and consulting profession have shown that they can develop relatively fast and reach satisfactory quality levels ifthey perform under a competitive and transparent selection process and professional supervision. At the same time, capacity constraints are expected to be bindinginthe near future as the RAP'Ssize is greatly expanded with the participation o f other donors. The project therefore includes significant activities for the development o f local contractors and consultants. Some contracts will also be procured in larger packages inorder to attract intemational contractors. Third, the rural population has shown that it is interested mostly by access and that high technical standards only have marginal benefits. Inaddition, the costs o f improving rural roads may be lowered substantially if appropriate design and implementation methods are selected. On this basis, continued attention will be paid under Phase I1 to appropriate standards, taking also into account the future costs o froad maintenance. - 6 - Fourth, social framework agreements have shown o f high practical value in rural road projects to maximize net benefits and avoid conflicts. These written and signed agreements initiated under Phase Ibetween the RAPCMO and the local beneficiaries o f each road improvement project, which involve significant community participation in project design, have almost completely eliminated the difficulties and work stoppages which were commonplace earlier. The use o f social framework agreements will be further strengthened inPhase I1o fthe RAP. 6. Alternativesconsideredand reasonsfor rejection The altematives that were considered for the RAP at the time o f preparation o f Phase I are discussed inthe corresponding PAD. Inbrief, these were (i) focus solely on either to intermediary or village access roads, (ii) to limit IDA'Sinvolvement to one large stand alone 5 or 6-year project, and (iii) if an adaptable program concept was selected, to embark on large scale road improvement as soon as Phase I. The reasons for rejections o f altematives (i) and (ii) been confirmed by experience. It has been indeed highly have beneficial to provide clusters o f intermediary and village access roads. Better knowledge o f rural roads has also shown that the needs were vast and that both capacity buildingand sheer investments needed IDA's long term presence. As far as the third alternative is concerned, it has in fact been partly implemented since RAPCMO's capacity has developed faster than expected and the relatively low unit cost o f road works has made it possible to improve a far larger set o f roads. Experience has therefore validated the choices made at the outset and the program has proven flexible when circumstances have warranted a change. Regarding the proposed Phase 11, there appears to be only one other alternative inproject design, which would be to exclude the pilot road maintenance component in order to simplify the project and not take risks with innovative PMMR contracts. However, the fact that poor roadmaintenance i s an increasingly important issue inYemen, and the high potential rewards from introducing P M M R contracts, if successful, are strong enough arguments to justify the rejection o f this alternative. C. IMPLEMENTATION 1. Partnershiparrangements The successful implementation o f Phase Ihas generated not only strong political and popular support for the RAP inside Yemen, but also very substantial interest fi-om extemal donors to participate in the financing o f the program. Already under Phase I, two donors (EU and USAID) have joined the RAP, both o f which have vowed to continue their support in parallel to IDA's Phase 11. The Arab Fund has also recently approved a credit o fUS$ 85 million for rural road improvements. Depending on the final outcome o f on-going discussions between the Government and donor agencies, the total size o f extemal financing for the RAP will be between US$ 150 and 180 million, to be complemented by Government counterpart financing o f about 15- - 7 - 20%, equivalent to about US$ 30 million. This would mean that, inthe next four to five years, the RAP would be more than three times bigger than during Phase I,allowing the improvement o f about 1500 km o f intermediate rural access roads and some 300 km o f village access roads. The implications in terms o f size o f the RAPCMO and capacity o f the construction industry are being taken into account. External partners inthe RAP have also expressed the wish that the Bank continue to be a leading partner, despite its relatively reduced financial contribution, in order to ensure continued conceptual and technical coherence o f the program and high standards of its management and supervision. 2. Institutionalandimplementationarrangements Project Components 1 and 2 will be implementedby the RAPCMO. Project Component 3 will be implementedby the RMF. Overall guidance and supervisionwould be provided by a steering committee. The RAPCMO is an autonomous agency o f the MPWH. It was created under the Phase I project. It is staffed by well trained, experienced staff, recruited competitively, and provided with attractive work conditions andbenefits. It has fully proved its capability. It has, in particular, developed sound work methods and procurement and financial management systems, which will continue to be used under the Phase I1project, with some improvements (see D.3 below). It has also developed the capacity to manage adequately the numerous consultants and construction contracts that are needed for fulfillingits tasks. As a credit condition, the principles o f operation o fthe RAPCMO (see Annex 6) as well as the methodologies, and procedures for sub-project assessment, selection, design, and implementation will be continuously acceptable to IDA throughout project implementation. As noted above, however, the RAPCMO i s evolving into the national agency for implementation o f rural roads programs. It therefore needs additional staff and an organizational structure that i s adapted to its new size. About ten staff members are currently beingrecruited. A draft new structure has also been prepared. The completion of staff recruitment and the implementation o f the new structure are conditions o f credit effectiveness. Also, to ensure consistency between its work load and staff and resources, the RAPCMO will keep current, as a credit condition, a detailed eighteen-month rollling work program. Other factors in the RAPCMO's evolution inthe coming years will be (i) the setting up o f three regional offices, and (ii) need, in a the longer term perspective, to gradually establish the RAPCMO as a legally autonomous entity with hnding o f its operating costs that i s appropriate and mostly independent o f donor agencies. The project will assist the RAPCMO in these changes. It will in particular provide training and technical assistance to ensure the RAPCMO's continued project implementation capability and the integration o f new staff, to assist in the development o f the regional offices, and to assess the pro and cons o f future corporatization o f the RAPCMO. The RMFis an autonomous State agency incharge o fthe maintenance o fnational andrural roads. Since its creation in 1995, it has gradually developed the technical and institutional capability to plan and administer road maintenance in an effective way. The RMF has - 8 - recently designated a special unit - Road Maintenance Fund Implementation Unit (RMFIU) - for the implementation of Project Component 3. This unit will need strengthening as explained in Annexes 7 and 8. Inparticular, the establishment o f a fully functional financial management system for RMFIU i s a condition o f disbursement for Project Component 3. Implementation o f an action plan for developing financial management andprocurement i s also a credit condition. Giventhe innovative nature o f the PMMR contracts usedinProject Component 3, the RMFwill needsupport for their design andimplementation. Intemationalconsultants willbeused for thispurpose. As a credit condition, the RAPCMO and RMFIUwill be maintained throughout project implementation with staffing, structure, resources, and facilities acceptable to IDA. Oversight o f the RAPCMO, RMFIU, and the overall Project will be assured by the Steering Committee. This committee, which was established under Phase I,will be restructured. Its main duties will be to approve policies and work programs, appoint key staff, coordinate, and review performance in project implementation (Annex 6). Its membership will be limited to five high level representatives, two from MPWH (the Minister as chairperson ofthe Committee andthe Deputy Minister for Roads), andone o f each o f the Ministry o f Planning and International Cooperation (MPIC), the Ministry o f Finance (MOF), and the Ministry o f Local Administration (MOLA). The General Manager o f the RAPCMO and the Chairman o f the RMF will participate inthe meetings o f the Steering Committee but not in the Committee's decision making process. As a condition o f credit effectiveness, the Steering Committee will be restructured so that its membership and terms o f reference are satisfactory to IDA. This will be maintained throughout project implementation. Disbursements will be made separately by the RAPCMO and the RMF. There would be two separate special accounts, one for each organization. The Borrower's share o f project funding would be provided by the national budget under normal State procedures. Availability o f counterpart funds has never been a difficulty under the Phase Iproject. Both the W C M O and the RMFwill prepare semi-annual progress monitoring reports in accordance with a format acceptable to IDA. These reports will include sufficient operational and financial information, particularly on the status o f the RAPCMO's work program, implementation o f all contracts, and expenditures. 3. Monitoring and evaluation of outcomes/results Both the RAPCMO and the RMFwill monitor progress against agreed-upon program and project performance monitoring indicators, as shown in the Results Framework. As far as program and project outcome indicators are concerned, the mechanisms established during Phase Iwill be used. Inthe past years, the W C M O has organized surveys to collect data related to the rural access indicators before and after completion o f improvements on each intermediate rural road and adjacent village access roads. The RAPCMO has also established a data base, on which the information is stored and may be regularly extracted and used by management to monitor progress. This will be - 9 - continued under Phase 11. As far as results indicators are concerned, they are either simple quantitative work outputs which the RAPCMO and the RMF can easily prepare or qualitative indicators which the Bank supervision mission will assess. All results will be regularly reported inthe semi-annual progress reports. A key area for continuedmonitoring will bethe environment for contract implementation and enforcement. There is for instance, an ongoing contractual dispute with a foreign contractor under a now-closed IDA-financed project. With World Bank support and encouragement, a technical opinion has been prepared by independent experts on the level o f contribution that the Bank could finance out o f the value o f the disputed claims. Government has accepted the opinion and i s prepared to use it as a basis for negotiations but the contractor has not. In view o f this, the Bank expects to continue its effort to support bothparties inreaching a satisfactory solution. 4. Sustainability The RAP enjoys strong andwidespread political andpopular support inYemen. It is also firmly anchored in both the Government's PRSP and the CAS. The Government's commitment has beendemonstrated through the ready availability of counterpart funding. The RAP i s also supported by several other donors, who count on the Bank to continue to plan and monitor the program, and to provide regular technical support. . Within this supportive context, the long term sustainability o f the project's roads will depend on the provision o f adequate funding for road maintenance and the increased capability to use funding efficiently. The situation regarding maintenance and the measures being taken by Government are described in Part A.l o f this PAD. During Phase I,annual maintenance funding was increased to about the target agreed with the Bank (YR 2.5 billion). As a credit condition, the Government will ensure that the funding o f maintenance is gradually increased to YR 3.1 billion in 2006, YR 3.9 billion in2007, and finally at least YR 4.8 billion (the present estimate ofmaintenanceneeds) in 2008 and thereafter. In parallel, road maintenance management needs further strengthening. This will be the main objective o f Project Component 3. It will introduce and test in Yemen best-practice approaches for maintenance management. These approaches will be mainstreamed if successful. In addition, it will assist the RMF in developing its planning and monitoring capabilities as well as its management systems and institutional knowledge. - 10- 5. Critical risks and possible controversial aspects Risk RiskMinimizationMeasure To project development Ibjective 'oor selection o f sub-projects M A sound planning andprioritization process for rural road investments has been establishedunder the Phase Iproject. This process is now well accepted. Through the Rural Accessibility Master Plans, local communities have also been increasingly involved inthe selection o f sub-projects To component results Lack o f counterpart hnds M This has not been a problem inPhase I, couldbecome one if but Yemen's macroeconomic and fiscal situation changes. The programmatic approach allows the total size o f the program to be adapted to the government resources available. ?oor quality o f implementation M The principles upon which the RAPCMO has successfully operated Ifruralroadupgrading sub- underPhase I(autonomy, decision makingbasedon objective xojects and road maintenance criteria, competent and motivated staff) will continue. These 3ecause o f . reduce the risk o f inadequate project management andpoor inadequate project selection o f contractors and consultants. Specific support will also management be providedto the RMF inthe implementationo f Project Component 3. Training o f Government and RAPCMO staff as inadequate performance o f well as o f contractors and consultants will be providedunder the contractors and consultants project. Foreign contractors and consultants will also be used to supplement the capacity o f local ones. Technical audits will continue to be used. Lack o f relevance o f the M The terms o f reference for technical assistance and training will be :ethnicalassistance and training prepared on the basis o f a careful assessment o f needs. They will xogram andresistance to also include actions for motivating the trainees and knowledge :hange receiving institutions. Efforts will be made to select consultants who are sensitive to the country's specific circumstances. Overall RiskRating M No possible controversial aspects havebeenidentified. - 11- 6. Credit conditionsand covenants . Effectivenessconditions: Employment o f such qualified staff in adequate numbers and restructuring o f . RAPCMO's organization, in such ways as needed in IDA'Sopinion for RAPCMO to carry out its responsibilities under the project Restructuring o f the Steering Committee so that its membership and terms o f reference are satisfactory to IDA . Covenantsandother conditions: Disbursements for Project Component 3 to be contingent upon establishment o f a fully functional financial management system for RMFIU .. RAPCMO and RMFKJ to be maintained throughout project implementation with staffing, structure, resources, and facilities acceptable to IDA Principles o f operation o f the RAPCMO (including decision making autonomy, and staffing policies) to be acceptable to IDA throughout project implementation Methodologies and procedures for sub-project assessment, selection, design, and implementation to continue to be acceptable to IDA throughout project implementation RAPCMO to keep current a detailed eighteen-monthrollingwork program Implementation o f a financial management strengthening program for the RAPCMO . Implementation o f a financial management and procurement strengthening program for RMFIU Minimumannual roadmaintenance fundingofYR 3.1 billionby2006, YR 3.9 billion by 2007, andYR 4.8 billionby2008 and thereafter D. APPRAISAL SUMMARY 1. Economicandfinancialanalyses The economic analysis o f all intermediary roads proposed for improvement, as a result o f the participatory process o f rural accessibility planning and screening, will be done using the Roads Economic Decision Model (RED). The RED was developed by the World Bank specifically for the economic analysis o f low-volume roads, based on some elements o f the more widely known HDM (Highway Design and Maintenance Model). The RED utilizes expected reductions in vehicle operating costs (VOC) as the principal economic benefits. This constitutes a conservative approach, since it is now widely accepted that the traditional VOC-based economic analysis i s insufficient to capture the filleconomicandsocialbenefitsoflow-volumeruralroadinvestments, inparticularin the context o f projects in poor areas. On the other hand, a truly reliable quantification o f all benefits, in particular social benefits, would require a large amount o f data, which is far too expensive to collect and to monitor for each road to be improved under the project. It therefore seems reasonable to use the RED to verify if a minimum required -12- threshold intemal rate o f retum (IRR) can be attained on the basis o f VOC savings only. This threshold will be an IRR o f 12%. Based on the experience gained inPhase I, many o f the intermediate rural roads in Yemen reach that threshold, because o f the significant traffic levels on those roads. However, the Bank will consider applying a lower threshold where the isolation and poverty o f specific rural communities warrant the road improvement works, notwithstanding a comparatively modest IRR.For example, incases where the absolute poverty rate inthe road's zone o f influence is 5% above the national average, the threshold might be reduced to, say, 9%. More details on the economic analysis are in Annex 9, including the basic assumptions and the results for five intermediate roads that are being startedunder Phase Iand will be completed under Phase 11.The results for the five roads show IRRs between 16% and 36% inthe base case and acceptable outcomes inthe sensitivity scenarios. For village access roads, it was agreed that a differenttype o f threshold would be applied, which i s the maximum amount spent on the road improvement per beneficiary (or the marginal cost of the village access road divided by the number o f inhabitants o f the village). Based on the experience o f Phase I, threshold value was set at a maximum the o f US$ 75 per beneficiary. This amount will be revised annually duringPhase I1inorder to ensure realism and responsiveness to changing socio-economic circumstances. Fiscal Impact: Project cost will be US$ 49.9 million, with the Government o f Yemen (GOY) providing US$9.9 million (about 20%). The US$ 3.5 million needed inthe peak year as counterpart funds would represent about 4% o f 2005 total budget allocation to the road sector from the Government's own resources. This Project i s thus not expected to have major implications for the nationalbudget. 2. Technical During Phase Io f the RAP, much effort has gone into the development o f adequate technical design specifications for the rural road improvements to be carried out under the program. One challenge was to find an equilibrium between the objectives o f keeping the costs low and still providing adequate service levels to road users. Another objective pursued was the inclusion o f secondary benefits into the road design, such as water harvesting, terrace building, the use o f local materials, labor-based techniques whenever appropriate, different types o f surfacing, etc. A complete rural road design manual has been developed and applied for the about 15 roads presently completed or under execution duringPhase I.Overall, the design criteria which havebeen adopted and applied are considered satisfactory. However, further efforts will be made during Phase I1to simplifythe RAPrural roads design manualwithout sacrificing the quality o fworks, and to translate the manual into the Arabic language. The RAP i s also in the process o f developing a manual for construction supervision, in order to ensure that supervision by the numerous local and foreign consultants used under the program is carried out in accordance to technically sound and uniform standards. - 1 3 - 3. Fiduciary Financial Management. An assessment o f the financial management (FM) arrangements for the Project was carried out inFebruary2005 (Annex 7). From the FMperspective, the RAPCMO has managed the implementation o f the Phase Iproject in an acceptable manner. For the implementation o f Project Components 1and 2 o f the Phase I1project, it will continue to use the same FM arrangements while ensuring some enhancements such as updating its accounting software and financial policies and procedures to reflect changes in the operations o f Phase I1 and reinforcing its FM staff to support new requirements. Therefore, as a credit condition, the RAPCMO will implement a financial management strengthening program satisfactory to IDA. Regarding Project Component 3, the RMF has already taken significant steps towards the development o f acceptable FMarrangements at the newlyestablishedRMFIU,including the assignment o fa director and a financial officer from its current staff. It has also devoted a well equipped space to RMFlU's activities and staff. Yet, as RMFlU has no prior experience in implementing Bank financed projects, the establishment o f a fully functional financial management system is a condition o f disbursement for Project Component 3 as described inAnnex 7. Implementation o f a satisfactory financial management strengthening program (including mostly training) i s also a credit condition. Procurement. An assessment o f the procurement arrangements for the Project was carried out in October 2004 (Annex 8). It showed that the RAPCMO had performed well under the Phase Iproject and had full capability to implement Project Components 1 and 2. It will need, however, to recruit an additional procurement specialist, provide procurement training to its new technical specialists, and adopt a clear matrix o f responsibility for the procurement function under Phase 11. Regarding Project Component 3, the RMF has taken useful steps to build the procurement capacity o f RMFlU, including the recruitment o f international consultants who will assist inthe preparation and procurement o f P M M R contracts. RMFlU will also benefit from the experience o f the RAPCMO. In order to further enhance its capability, the RMF will, as a credit condition, implement a strengtheningprogram satisfactory to IDA (Annex 8). 4. Social Primary beneficiaries and other affected groups. The primary beneficiaries of the project are the rural population in areas which have lower-than-average access to markets and basic services. These areas generally have high concentration o f rural poor, o f which women constitute a disproportionately high fraction. The primary beneficiaries will participate both directly and indirectly. Direct participation will occur during the design phase o f individual roads, when local consultations take place and mitigation measures are coordinated between design consultants and the landowners adjacent to the road. Indirect participation will be through elected District Councils, which will be involved in the decision-making process related to accessibility planning and prioritization o f individual interventions. Other stakeholders are from the private sector, such as local contractors, design engineers, consultants, transport service providers and traders. They - 14- benefit from the overall program, which provides significant business opportunities and, inthe caseo ftransporters andtraders, largecost savings. Social Framework Agreements. During Phase I,the RAP laid the groundwork for systematically addressing social issues inthe planningand implementation o f rural roads. This has been done by incorporating social issues into standard procedures for project screening, planning, assessmento f impacts and formulation o fmitigation or enhancement measures for the final design and implementation o f each road project. The participatory mechanism for implementing these procedures is the road-specific Social Framework Agreement (SFA), which is developed through consultations with beneficiaries during the project design stage and appended to each road's Environmental Management Plan (EMP). Separate consultations are held for men and women. The SFA lays out all areas o f potential social concern, with agreed and specific mitigation or enhancement measures to address these concerns. The SFA also formalizes the beneficiary committee and serves as a framework through which unforeseen problems will be solved during the course o f construction. Rural Accessibility Planning. During Phase I,a methodology for rural accessibility planning has been established and applied for all 18 o f Yemen's rural Governorates. These plans provide a transparent and systematic framework for identifying priority rural road investments at the decentralized levels. This participatory methodology includes criteria that focus on providing basic access to the poorer areas, as well as gender-related access concems. During Phase 11, community participation is expected to become a routine feature o f the rural accessibility planning process. In the medium term, elected Councils will gradually develop capacity to assume an active role in improving rural access roads andtheir management and maintenance. Land Acquisition/Resettlement. Road improvements during Phase Iwere purposefully selected to occur within existing right-of-ways only, thus avoiding any significant land acquisition or resettlement issues. During Phase I, the SFAs have also proved useful in establishing frameworks through which unforeseen land acquisition issues are resolved, particularly where the roads pass through densely populated areas. In such cases, small parcels o f land have been donated by their owners, confirmed through the beneficiary committee, because o f the existing Government policy and practice which allows compensation only for assets located on the land, but not for the land as such. During Phase 11, it is allowed that certain rural roads will require altered alignments and more significant land acquisition or displacement o f buildings. For this reason, a Sectoral Environmental Assessment (SEA) has been prepared, which contains a Resettlement Policy Framework (RPF), laying out the standard procedures for preparing a resettlement action plan acceptable to IDA if and when potential land acquisition or resettlement i s identified duringthe initial screening (see section D.6 below). The treatment of other social issues is described in Annex 10 (archeological and historical sites, graveyards and burials, and local employment). - 1 5 - 5. Environment Environmental institutions and policy framework. The Republic o f Yemen has established institutions and responsibilities for environmental management. A National Environmental Action Plan (NEAP)was developed in 1995 and, the following year, the Environmental Protection Law was enacted. Since 2001, the Government has taken additional steps to consolidate environmental management through the creation o f (i) the Ministry o f Tourism and Environment in2001 (converted to the Ministry o f Water and Environment in 2003); and (ii) Environmental Protection Agency (EPA) with a the mandate to develop and implement the environmental policies and legislation. In October 2002, the EPA prepared the "Environment and Sustainable Investment Program 2003-2008", which i s the framework for the Government Environmental Policy. Although the Environmental Protection Law provides a broad framework for environmental management and the establishment o f sectoral legislation, there i s as yet no comprehensive regulatory framework for the road sector. For this reason, the RAPCMO established an Environmental and Social Management Unit.Through this Unit, a standard environmental and social management process has been put in place, which has been tested during Phase I.For Phase 11, a SEA has been prepared, which provides a programmatic framework for all roads to be improved under the program. The SEA includes Policy Frameworks for Involuntary Resettlement, Natural Habitats and Cultural Resources (see Section D.6), which will be triggered when such issues are identified duringroadproject screening or inthe course o f implementation. Mitigation through avoidance environmentally-sound technical designs. A key aspect o f the Program's Environment and Social Framework Agreement is the participation o f environmental and social specialists during the screening, design and implementation stages o f the road project cycle. In this way, potential environmental and social issues may be avoided or significantly reduced through design considerations and meaningful analysis o f alternatives. Phase Icarried out test sections on the pilot roads and village access roads, addressing such design issues as: (i) water harvesting on mountain roads; (ii)narrower platforms, and relatedto a reduced need for cutting into slopes andnegotiate earth movements; (iii) more durable road surfacing on steep slopes to avoid erosion; (iv) slope stabilization on sections o f the roads where slopes are unstable; (v) controlled disposal at designated sites o f excess material cut from the hillside slopes; and (vi) embankment design and wadi hydrology. Based on these experiences, revised design standards have been developed, which will be regularly updated based on cumulative experience. Reduction of potential impacts of physical works. Specific measures to reduce potential impacts o f physical works will be identified for each road during the design and implementation stages regarding the detailed design, construction tenders, construction process and contractor performance monitoring. Contracts will contain requirements for proper management of construction waste; control measures for waste fbel, oil and lubricants; recycling o f oily wastes, reduction o f noise and dust levels; safety inblasting; and rehabilitation o f areas used for construction detours, and sites used to temporarily - 16- store construction materials. Contractors will be required to provide and maintain equipment with proper noise abatement controls. RAPCMO has incorporated these and other Environment, Health and Safety Regulations into its standard bidding and contract documents. These regulations provide contractors and consultants guideposts for these practices, many o fwhich are new concepts. The regulations contain a standard RAP EMP Table, which i s a comprehensive checklist to be adapted to each road project for implementation and monitoring. The project has thus provided an opportunity to introduce such regulations, where they didnot previously exist inthe road sector. Management of Operational Impacts. The Project will address operational impacts for each road through maintenance contracts under the RMF, which will avoid deterioration of the rehabilitated road and associated dust and safety problems. Maintenance contractors will be required to follow procedures similar to those for the construction contractors concerning proper disposal of construction waste, control and recycling measures for waste fuel, oil and lubricants and adoption ofhealth and safety measures for personnel. Expected increases intraffic levels are not expected to be so high as to bring about a significant increase inair pollution, and this may infact decrease due to smoother and less dusty roads and improved vehicle standards. Suspended dust caused by vehicles will be reduced by the rehabilitation o f the roads, due to the large number of road subprojects which include sealing. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04)* [XI [ I Pest Management (OP 4-09) [I [XI Cultural Property (OPN 11.03, being revisedas OP 4.11)* [XI [ I Involuntary Resettlement (OP/BP 4.12)" [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OPBP 4.37) [I [XI Projects inDisputedAreas (OP/BP/GP 7.60)* [I [XI Projects on International Waterways (OP/BP/GP 7.50) [ I [XI * These policies will be triggered only if significant issues are identified during individual project screening under the program. Agreed Policy Frameworks (see below) will then apply in the design and implementation of these individual projects. Safeguard Policy Frameworks.Because the location o f all project roads is not yet known, safeguards policy compliance will be assured through a programmatic approach. In particular, an Environment and Social Management Process has been agreed and put in place during Phase Ifor the identification, screening, implementation and monitoring o f all project roads improved under the project. Environmental screening of individual projects could possibly trigger three safeguard policies: Involuntary Resettlement (OD 4.30); Natural Habitats (OP 4.04, BP 4.04, GP); and Cultural Property (OPN 11.03). - 17- Accordingly, the Program's Environmental and Social Framework Agreement contains Policy Frameworks for these three policies, which would be applied when triggered. Details of the Environment and Social Management Process and the Policy Frameworks are presented inAnnex 10. Environmental screening category. The project has been placed into environmental screening category "A", based on the possibility that some project roads may involve departure from existing realignments, or impact on natural habitats or cultural resources. As noted above, Policy Frameworks have been developed, to be applied if such cases occur. It should be noted that, for the most part, projects are expected to keep within existing alignments, and the screening and design activities are geared towards avoiding or minimizing effects on landholdings andbuildings,physical cultural resources or cause significant conversion, loss or degradation o f critical natural habitats. Annex 10 summarizes the main results ofthe SEA. Implementation capacity. The Environment and Social Management Unit will be responsible for the overall implementationo f the safeguards policies. DuringPhase I, this unithas built up a good knowledge and capacity inenvironment and social management, through field application o f the environmental review process on the pilot roads. The Unit is also responsible for the monitoring of socio-economic impact indicators. During Phase 11, the Unit will need to convert its role from one of "doing" to one of "managing and supervising" local consultants. It is envisioned that the Unit will retain its role of initial screening and categorization, but then utilize consultants to carry out subproject EAs and prepare EMPs and social framework agreements. To increase the pool o f capable consultants, the Unit will carry out training andrefresher courses. For Phase I1category B roads, EAs, EMP and SFA will be completed by consulting firms selected to do the preliminary designs and construction supervision. Category A EAs will be carried out by separate consultants. Consultations. Regional consultations were carried out during the preparation o f the SEA at four road locations between July and October 2003. Separate consultations were held with women. Consultations revealed an overwhelming desire for improved access and willingness to collaborate with the Program. Positive impacts noted include reduced transport costs and travel time, improved comfort and safety, increased mobility, stimulus to economic development, improved community cohesion and intercommunity cooperation and improved accessibility to social services and markets. Concerns expressed included effects on water harvesting and safety. Women's concerns focused on job opportunities and impacts on water harvesting and irrigation systems, displacement of graveyards, and disruption of travel patterns for water and wood gathering. Disclosure. The draft Sectoral EA was made available in the country for comment on January 10, 2005 at the RAPCMO's office and website, the Environmental Protection Authority and the Governorate offices o f MPWH. The Sectoral EA was also made available at the InfoShop on January 10,2005 - 1 8 - 7. Policy Exceptionsand Readiness The project does not require any exceptions from Bank policies. Phase Io f the Rural Access Program (RAP) has been under successful implementation since 2001, and the Bank's appraisal team confirms that Phase I1o f the project is ready for implementation, based on the following readiness criteria: 0 Proven financial management and procurement arrangements are inplace for the RAPCMO. 0 Project staff andconsultants have beenmobilized. 0 Flow o f counterpart funds has not been a problem untilnow. 0 Procurement o f works has been completed for the initial contracts to be financed under Phase 11, and there is a pipeline o f additional sub-projects under preparation. 0 The SEA has been disclosed. 0 Indicators havebeen specified and baseline data collected. - 19- Annex 1: CountryandProgramBackground YEMEN, REPUBLIC OF: SecondRuralAccess Project A. The RoadSector RoadNetwork and Traffic. The paved roadnetwork inYemen grew rapidly from about 2,900 km in 1980 to 6,631 kmin2001, and 7,236 km at the end of 2003. In2004 alone, an additional 735 km o f sealed roads were completed, whilst a fbrther 2,146 km were under construction. Due to the relatively young age o f most paved roads in Yemen, about 64% o f them are in very good or good condition while 21% are in fair condition and 15% are inpoor to very poor condition. The gravel roadnetwork stood at 11,027 kmat the end of 2003. Most o f those roads are in a rudimentary state with little or no gravel surfacing. In addition, there are over 44,000 km o f tracks and trails, some of which are motorable most o fthe year with four-wheel drive vehicles. The MPWHhas plannedto develop inthe long- term a fbrther 9,263 km of paved road projects and almost 3,000 km o f gravel roads. Construction contracts have been signed for those projects without however having been budgeted.The estimated average daily traffic (ADT) volumes on paved roads, basedon the last national traffic count o f 1998, range from around 14,000 ADT (near Sana'a) to just under 1,000 ADT on most ofthe network. For the first few years after unification in 1990, traffic grew rapidly, at around 8% per annum, and i s now about 5%, reflecting continued increase in trade and transport among various parts o f the newly unified country, and including oil exploratiodproduction related traffic. Institutional Arrangements. Within the GOY, the Ministry of Public Works and Highways (MPWH)has overall responsibility for planning, construction and maintenance o f all roads inYemen, as well as for policy-making andregulation inthe road sector. Prior to 1998, when the road authority function was moved to the MPWH, this fbnction was performed by the General Corporation for Roads and Bridges (GCRB), a public sector authority under MPWH. In January 1998, a Presidential Decree (PD Nr. 5 o f 1998) redefined the mandate o f GCRB to exclusively act as a GOY-owned contractor and to perform work under contract, mainly for the MPWH but also for Governorate administrations. This has left the Ministrywith a muchbigger work load without additional staff with the right kind o f experience. With limitedstaff, MPWHhas taken the challenge o f building the institutional capacity to effectively manage the road network. It has had difficulties, however, to retain sufficient qualified technical and managerial staff under present civil service constraints. Within that context, the Ministry decided to strengthen the role and responsibilities of agencies or external directorates and to delegate to them manyroadmanagement functions. Ithas already passedon its responsibility for routine and periodic maintenance on all roads to the RMF, whilst retaining full management control over major rehabilitation, new construction and development works. Similarly, the Central Management Office (CMO) for RuralRoads was established to implement the RAP. Since 1998, the General Corporation for Roads and Bridges acts as a general road contractor, under MPWH, and operates with full financial autonomy. It can rely on its 22 - 20 - branches located throughout the country to perform construction and maintenance activities for central and local governments. For international projects, GCRB may be selected through international competitive biddingprocesses, for which it can apply market prices. For the remaining locally-funded projects, GCRB i s directly contracted by the M P W H and has to apply the prevailing unit prices set by MPWH's Cabinet. Those prices can be, insome cases, well below costs, a mainproblem that needsto be addressed. GCRB has increased its staff over time, from 3,200 in 1997 to about 5,500 staff (of which about 2,000 are employed on a daily basis) today. In 2005, GCRB started a five-year contract with the RMFto handle the routine maintenance o fthe whole pavednetwork. A Road Maintenance Fund (RMF) was established (Law No. 22 of 1995) in 1996under the IDA-supported Transport Rehabilitation Project to improve the maintenance o f roads and to enhance cost recovery in the road sector. An additional he1 levy was set up to provide the RMF with an annual budget o f about YR 6-700 million (US$ 3.2 to 4.5 million). Due to the continuous increase in the paved network, these revenues were insufficient to keep the mainroad network in a stable condition. A significant amendment to the RMF law was thus adopted in 2000 to increase the fuel levy to 5% of the pump price (representing annual revenues o f about YR 5 bn) and put the road network on a fee- for-service basis. To date this law has not been implemented, leading to a critical situation where the RMF has to handle a constantly increasing number o f tasks but with tight resources. UnderPhaseI1ofRAP, the RMFwill sign multi-yearperformance-based contracts, for a total lengtho f about 950 km. These pilot projects are expected to expand the role o f the private sector and the effectiveness of maintenance by letting contractors identify the best ways to meet pre-defined performance standards. The overall responsibility for rural roads under the Rural Access Project (RAP) i s with the Central Management Office (RAPCMO). A Rural Roads Steering Committee, chaired by the Ministero f Public Works and Highways, provides the necessary oversight, control and guidance to the W C M O . To date, the RAFCMO has launched 22 rural road projects under IDA-hnding, for a total length of roads close to 540 km, and three additional rural road projects financed by USAID and the European Union. With new donors (Arab Fund, FAD) ready to support the Rural Access Program, the Government decided in 2004 to transform the RAPCMO into a Government Agency responsible for implementation o f the national program for rural roads. A decree establishing such Agency is expected to be issued in a near future. It should further strengthen the principles o f autonomy, competent staffing, and transparent decision-making, which led to the success o f the RAPCMO. Public Expenditures in the Road Sector. Over the two decades 1980-2004, public expenditures in the road sector have been mainly concentrated on construction o f new roads, to the detriment o f roadmaintenance. Budgets have been allocated so as to support the ambitious expansion plans set by the Government for the paved network. This situation is unlikely to change in the future as the Ministry o f Public Works has planned to build further 9,263 km ofpavedroads inthe long term. To finance the expansion o f the sealed network, the Government is increasingly relying on foreign donors' assistance. In 2005, foreign contributions are expected to become the major source o f financing for the -21 - MPWH, representingabout 60% o fthe total budget (YR 37.3 bn), compared to only 30% in2001. There are currently four issues in the budget allocation process: (i) new road projects are started irrespective o f whether or not they are inthe approved budget; at the heart o f the problem i s the system o f making politically driven annual commitments for local road projects that are not fully funded; (ii) MPWH has not been able to prioritize its actions, thus launching too many road projects with too little budget allocations; consequently a lot o f projects do not show much progress and stay in the budget for up to 10 years or more; it is estimated that, at present, GCRB has committed itself to execute 140 projects, or more than double its current ongoing projects; (iii)allocations for preparation (feasibility study and design) and supervision o f new projects are inadequate, and quality and timeliness o f the works executed i s suffering; and, (iv) there i s an overall lack o f inter-ministerial cooperation and coordination in the budget process. To address such issues, the Government has gone towards a major decentralization process, through the new Local Authorities Law (Law No. 4 o f 2000), that would provide local authorities direct responsibility for planning, development, finance, services and social affairs, all within a limited budget envelope. Although the practical implementation o f the law will be slow and tedious, due to limited capacities at the local level, it is expected to bring better budget discipline and prioritization in the road sector. For the time being, the Government has developed a strategy based on five main components: (i) contracts are only signed for new projects for which financing i s assured in the approved budget; in reality this has not led yet to a reduction in the number o f projects, due to difficulties in cancellation o f ongoing works contracts; (ii) road budget i s rationalized somewhat the and projects are completed sooner than three years ago, although there is still room for improvement; (iii) a rolling multi-year investmentprogram is created with better control o f new projects entering the program; (iv) more fundingi s included for feasibility studies and for detailed design studies for new projects; and (v) funding is concentrated on the highestpriority projects to reduce implementation periods to between2 to 4 years. B. The RuralAccess Program The overall purpose and long-term development objective o f the Yemen RAP is an improved livelihood and reduced isolation for the rural population. To achieve that objective, year-round access to markets and services (both social and administrative) have to improve, especially in the rural areas where the large majority o f the country's poor live. The Program also supports the Government's decentralization process, which has been initiated in the year 2000, and complements and enhances several community- basedprograms inYemen, such as the Social FundProject and the Public Works Project. The Program reduces isolation by ensuring that rural people have reliable access through the local, regional and national road networks. This will be done by financing improvements to a "cluster" or "sub-network" o f rural roads. The centerpiece o f this approach will be to improve rural access roads which link larger centers indistricts to the main road network, here referred to as "intermediary rural roads". These rural roads carry a substantial level o f traffic in Yemen, are generally in very poor condition and are - 22 - excluded from village-level infrastructure programs. These investments would be complemented on a limited scale by improvements to smaller access roads that link isolated villages to the improved intermediary roads, thereby promoting a continuous flow o f goods and people to markets and services, and strengthening the poverty reduction impact. During Phase I,the institutional and technical basis o f the program were established. InPhases I1and 111, the Program focus will gradually be scaled up. The non-physical parts o f the Program are also important and focus on capacity-building at all levels inthe public and the private sectors relatedto rural roads. The Program addresses poverty by improving overall mobility in rural Yemen and reducing the isolation o f villages and communities. Between 1992 and 1998, Yemen's rate o f poverty almost doubled, growing from 19% to about 33%, with about half that in absolute poverty. The PRSP o f May 2002 identified a number o f key factors contributing to poverty conditions, including high population growth, low labor force participation, scarcity o f cultivable land and water, insufficient infrastructure and inadequate access to main social services. Isolation aggravates and sustains these poverty conditions in the rural areas, which manifest themselves inilliteracy, poor health and low employment and income. In 1994, the combined basic and secondary enrollment rate was just 55%, with the overall rate o f female enrollment at 24%. Due to isolation, only 50% of the population had direct access to health services. The country's purchasing power parity (PPP) per capita o f income is half the average for all low income countries. In a 1997 study, 43% o f mothers stated that the reason they did not deliver their babies at a health clinic was due to reasons o f access. A study in rural Taiz Governorate showed that transportation comprised 32% o f the total cost o f a health visit. The critical constraint o f accessibility i s being addressed under the RAP based on knowledge about where the poor are located and how well they are served by existing roads. Identification and selection o f road improvements under the Program i s being carried out through better planning systems based on rural accessibility master plans which have been developed as part o f the Phase Iproject. Poverty and gender issues are taken into account, to the extent possible, in the identification and prioritization process o f individual rural road projects. The sustainability o f this process i s being ensured through institutionalizing participatory activities which engage communities and districts inaccessibilityplanning at the centralanddecentralized levels. The Program is beingimplementedinthree phaseswhich are described below Phase I:Institutional strengthening and definition of appropriate standards. Phase Io f the Program focuses on creating an adequate institutional, technical and participatory framework for planning, prioritizing and implementingrural access improvements. With the purpose o f testing the new framework, Phase Iincluded the pilot implementation o f physical access improvements o f (i) about 22 intermediate rural roads located in several rural Governorates, and (ii)key village access roads located adjacent to those intermediate roads, using appropriate technical and environmentalhocial standards. All Phase Iroads have avoided any resettlement or land acquisition. DuringPhase I, baseline data on poverty and gender in Yemen have been gathered and used inthe preparation of detailed rural accessibility master plans for Yemen's 18 rural Governorates. Phase Ihas - 23 - included the preparation o f a SEA and the development o f a kamework to deal with land acquisition and resettlement, should it occur during.the program. Phase Ialso included the preparation o f the designs and bid documents (and sin some cases the beginning o f works) for parts o f the roads to be financed under the next phase o f the Program and concludes with the formal adoption o f a rural accessibility master plans for Yemen's rural Govemorates. Phase Io f the RAP also served as a vehicle to finance the rehabilitation o f the 114 km long A1 h e r - A1 Naqabah road section o f the Aden - Mukhalla road. This road project was originally part o fthe Transport Rehabilitation Project (TRP - Cr. 2819-Yem), but had to be dropped from the credit to make room for a much needed reallocation o f funds to cover the costs of addressing emergency repairs to the runway and taxiway o f the Aden airport, which had shown accelerated deterioration after suffering war damages duringthe 1994 civil unrest inYemen. A supplemental credit for the TRP to finance the A1 Ahmer - A1 Naqabah road was requested by the Government, but it was agreed to include such financing inthe following operation inthe sector. The Phase Iproject o f the RAP provided the first opportunity to do so, and this roadrehabilitation project was thus included as a separate Part B o f Phase I, although strictly speaking it i s independent from the RAP. Phase 11: Access improvement and decentralized network management. Phase I1o f the Program will focus on (i) physical rural access improvements to areas with widespread poverty, poor accessibility and latent rural development potential, utilizing the planning (identification and selection) process developed in Phase I;and (ii) continued capacity- building at appropriate levels for the management and, inparticular, the maintenance o f the intermediary rural road network, including improvements o f contractors and consultants, the monitoring of key indicators, the implementation o f EMPs, and the management o f local participatory processes. This will also include the financing o f village access roads adjacent to the intermediary project roads, the preparation o f the thirdphase and a detailed review and assessment ofthe first two phases. Phase 111:Expanding the coverage of access improvement and consolidation of gains. Phase I11 would expand rural access improvements and capacity building to critical intermediary access roads not yet covered under Phase 11. It would continue to support village access road development. Capacity building to achieve sustainable management and maintenance o f rural roads, usingthe demand-driven and poverty-based approach for identification and prioritization o f rural road subprojects as initiated in Phases Iand I1 (rural accessibilityplanning) would also continue under Phase 111. C.Triggers for Initiation of Phase I1and Phase I11of the Program Duringthe processing o fthe PhaseIcredit, the Government andthe Bank agreed on a set of triggers for the initiation o f Phase I1o f the Program. Each o f these triggers is listed below andits situation reviewed. With one justified exception, all triggers have been met insubstanceor hlly. - 24 - (a) Proposed technical and environmental standards for rural roads have been tested, verified and adopted for Phase I1 through the completion o f at least four pilot road projects: Complied with. Five pilot road projects have been completed, and the implementation o f several additional ones i s well advanced. Through these projects, standards have beensuccessfully tested, adjusted on the basis o f experience, and formally adopted. They are consistent with traffic demand and aim at optimizing the cost effectiveness o f investments. (b) A rational methodology for planning, prioritizing and budgeting o f rural road investments has been adopted: Complied with in substance. Draft Rural Accessibility Master Plans for five Govemorates have been prepared, based on a multi-criteria economic and social methodology agreed by the Government. For the remaining thirteen Govemorates, the preparation o f these master plans is well underway. Threshold levels for investmentsinvillage access roads have also been determined and agreed between the Government and the Bank. (c) An assessment has been completed for the current (2001) rural road project portfolio in the MPWH and a plan adopted for a reduction o f the number o f projects under construction, so as to allow their completion within 4-5 years with the allocated budget funds: Complied with in substance. The assessment o f the 2001 rural road portfolio o f the M P W H was carried out. As described earlier, the Government and the Bank have agreed on a strategy to move away from the traditional system o f ad-hoc programming and budgeting o f rural road projects, and towards a rational system o f planning and prioritization o f rural road investments. The RAP i s an essential part o f that strategy. (d) Budgetinginthe RAPCMO for rural road investments is based on a rollingthree- year plan to be updated annually: Complied with in substance. This is made more complex by the RAP'Ssuccess in attracting substantial donor funding. RAPCMO has prepared a three year plan for projects to be funded by IDA and other donors. A clearly prioritized 10-year pipeline o f rural road projects to be implemented mostly through the RAP is also being established through the Rural Accessibility Master Plans, which provide the basis for a rollingplanning process. (e) Technical preparation and bidding documents have been completed for the first year o f the Phase I1program o f roads: Complied with. The identification, design, and procurement o f projects has become a continuous activity withinRAPCMO. Projects are ready that will commit about one halfo fthe credit for Phase 11. (0 A legal reclassification o f the road network has been enacted, and a long term strategy adopted by the Government on the management and financing o f secondary (rural) roads and roads under the ownership o f the Governorates and Districts: Complied withpartially. The PRSP issued in May 2002 provides a sound strategic fkamework for the rural roads sector. In addition, the Government has completed a 10-year National Road Master Planwhich includes, among many other elements, (i) a new classification o f the road network, and (ii) a planfor the management and financing o f the secondary rural - 25 - and local roads. It i s the Government's intention to submit the new road classification to the Parliament for approval within the context of a new road law, the preparation o f which requires much consensus building at political level and i s a lengthy process. This delay does not affect the fulfillment of the program's objectives since reduced isolation o f the largest possible share o f the rural population during the program's period will be best achieved by allocating resources to a well defined core network of priority rural roads in the vicinity o f which most o f the rural population lives. This core network has been clearly established and is receiving most o f the available resources including all funds from donor agencies. (g) A sectoral environmental assessment (SEA) has been completed as well as Category A EAs for roads in the Phase I1first year program: Complied with. The SEA for the RAP has been completed and publicly disclosed inYemen and at the Bank. The SEA includes the procedures to be applied for all category A sub-projects. The first year program i s ready and does not include any category A sub-projects. The following achievementshave been agreed as triggers for the initiation ofPhaseI11of the Program. Phase Iof the Programcompletedsatisfactorily; At least two thirds o f the civil works planned under Phase I1 o f the Program completed (measured by disbursement for civil works); Technical preparation and bidding documents completed for the first year (25%) o fthe Phase I11program o froads; EAs for Category A roads or EMPs for Category B roads in Phase I11first year program completed; Satisfactory budget allocation for road maintenance in the preceding fiscal year; and Satisfactory completion o f road maintenance management strengtheningactivities underPhase 11. - 26 - Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies YEMEN,REPUBLICOF: SecondRuralAccess Project Sector issue Project Latest Supervision Ratings (Bank-financed projects only) IDA-financed Poor access, institutional Rural Access Program (Phase I) weaknesses s i Rural development Social Fundfor Development Employment generation ThirdPublic Works Project S Other development agencies European Union Food Security Program (Khamis Bani Sa'ad - Alquata'a and Shafer - A1 Sali roads) USAID Kamis A1Wathat - Kouydinah road UNDP Programs Environment and Eco-Tourism Government Capacity and Institutional Reform Poverty Alleviation and Employment Generation Arab Fund Programo f about 1,000 kmroad improvementbeingstarted Arab Fund+ OPEC Al-Beidah-Mukeiras-LowdarRoad Omani Government Roads inMahra Govemorate IP/DO Ratings: HS (Highly Sati actory), S (Satisfactory), U(Unsatisfactory), HU(High1 Jnsatisfactory) - 27 - Annex 3: ResultsFrameworkandMonitoring YEMEN, REPUBLIC OF: SecondRuralAccess Project ResultsFramework ProgramPurpose EndofProgramIndicators: Use of Indicator Information: Improved livelihood and reduced Transport rates along each (JA isolation for the rural population programroad for goods and through improved year-round passengers are reduced on access to markets and services. average by 30%. Phase I: Price o f essential Institutional Strengthening and commodities at specific definition o f appropriate technical markets along program roads and environmental standards are reduced o n average by Phase II: 15% (wheat, flour, sugar, Access improvement and rice water bottle cooking oil, strengthened road network ghee, petroleum, diesel, management kerosene, gas cylinder, Phase III: cement). Expanding the coverage o f access Average access time from the improvements and consolidation villages benefiting from each o f gains programroad to the closest markets and services are reduced o n average by 30%. PDO OutcomeIndicators Use of OutcomeInformation Isolation is reduced for about 250.000 persons located in Lower number o f beneficiaries 250,000 persons inrural areas district centers and within 2.5 km would flag either insufficient with highincidence o fpoverty, o f the project roads inrural areas, implementation progress or enabling them to better reach who do not currently have shortcomings in screening and markets and access services reliable year round access to selection o f project roads. (social and administrative). Governorate centers, will be provided with such access by the end o f the project. Use ComponentOne:RuralAccess ComponentOne: ComponentOne: Roads 1 At least 200 kmo f Lower annual outputs would flag Rural Access Roads are improved intermediate rural roads are problems needing assessment and to ensure year round access. paved inaccordance with remedial action, such as: (i) low acceptable industry standards. contractor performance; (ii) slow I At least 75 kmo fvillage preparation of new roadprojects; access roads are improved in and (iii)procurement delays. accordance with acceptable I industrv standards. ComponentTwo: Institutional ComponentTwo : ComponentTwo: Support and Capacity Building 1 At least 3 decentralizedrural Non-achievement of targets Institutionaland technical roadmanagement offices are would flag poor overall capacity for roadplanning, functional. organization and management management and implementation 1 At least 200 local and/or lack o f political will. i s strengthened at the central and professionalsitechnicians decentralized levels. from the private and public sector have received o n average 10 days o f relevant I - 28 - highquality training. I Constraints to the development and efficiency o f the road maintenance and construction industry and road sector consulting profession have been identified and adequate improvements measures have been designed I RAP i s managed professionally and in conformance with legal and fiduciary requirements. Component Three:Road Component Three: Component Three: Maintenance I At least 950 kmo froads are Lower output would flag The RMFmaintains identified properly maintainedby the problems needing assessment and road sub-networks to adequate RMFthrough performance- remedial action, such as: pre-defined service levels. basedroad maintenance and inadequate preparation andor management contracts. supervision o f maintenance I A modernPavement contracts. Management System i s functional and able to produce sound assessments o f priority maintenance and improvement expenditures for the primary road network o f Yemen. - 29 - - 3 0 - 0 5e d g 2 m Y 0 s 0 m 0 m cl m m s s m 0 m m vl o\ F s m 0 m Fm 0 W s 0 0 0 I 2 z0 s m m 8 I N s 0 8 m 0 s 0 8 s 8 m 0 - 31 - Annex 4: DetailedProjectDescription YEMEN, REPUBLIC OF: SecondRuralAccess Project ProjectComponent1: Rural Access Roads (USD 34.09 million) This component will include the upgrading o f intermediate rural roads (linking Governorate capitals to District centers or District centers among themselves) and o f village access roads (linking villages to the intermediary rural roads). The works will generally comprise earthworks, slope protection, drainage structures, repair or reconstruction o f some minor bridges and culverts, and provision o f pavement layers including bituminous surfacing. The technical standards will be those tested and validated through the Phase Iproject. These standards have been the subject o f several technical audits and have been adjusted on the basis o f experience throughout the Phase I project. They are adapted to the relatively low traffic generally found on these roads and the capabilities o f Yemeni contractors. Unit costs will vary with the condition o f the existing roads and related structures, and the terrain. They are estimated between USD 90,000 and USD 140,000 per kilometer for intermediary rural roads and between USD 35,000 and 50,000 for village access roads. Most contracts will be for improving a set o f about 20 to 30 km o f intermediate and village access roads. Their cost will be in the USD2.0 - 3.0 million range. Basedon the experience o fthe Phase Iproject, civil works are expected to be mainly carried out by local small and medium size contractors and to last 20-24 months per contract. Given emerging constraints in the local construction industry, however, some contracts will be tendered as packages so as to attract foreign contractors. It is estimated that about 200 km o f intermediary rural roads and 75 km o f village access roads will be upgraded in the project. The separate cost o f road works i s estimated at USD 31.48 million. The roads will be selected from a long list already prepared on the basis o f the first draft o f the rural accessibility master plans and agreed by Government. Each candidate intermediary rural road will be screened, and then submittedto environmental, social, and economic analysis on the basis of the procedures established through the Phase Iproject. The village access roads will necessarily be roads that connect intermediary rural roads upgraded through the project to nearby villages. They will have to have a marginal investmentcost o fless than USD 75 perbeneficiary. Since the Phase I1roads will bepart o f a much larger nationwide program financed by several donors, with IDA being only a minor source o f funds, the roads may be located in any part o f Yemen. This is not expected to be a problem as the RAPCMO has the capability to adequately implement contracts over the entire country. It has been agreed with the Government that, since the RAP has developed into a continuous national program, it was important that part o f the Phase I1road works be started under funding from the Phase Iproject and continued with funding from the Phase I1project. This will also accelerate disbursements o f the Phase Icredit and expedite the start o f the Phase I1project. About nine contracts representing about one quarter of the PhaseI1funding for improving rural access roads will thus be started under Phase I. - 32 - Project component 1 also includes consultancy services for design and supervision o f road works (including the detailed design o f the first year road works program o f the third`phase). The estimated cost o f these services, which will be provided by a mix o f local and foreign consultants (with measures taken to encourage the development o f local consultants), is USD 2.60 million. As with the road works, consultancy contracts will be procured and will start being executed under the Phase Iproject and their funding will be taken over by the Phase I1credit upon exhaustion o f the first credit. Some o f the design work started under the Phase Iproject and continued under Phase I1will be for roads that will be financedby the Arab Fund. This was agreed at the Governrnent's request inorder to accelerate the start o f the Arab Fund financed project, which is also implemented by the RAPCMO. This also recognizes and reinforces the institutional achievements o f the Phase Iand the emerging role o f RAPCMO as the national agency for implementation o f rural roads programs. ProjectComponent2: InstitutionalSupportandCapacityBuilding(USD3.45 million) This project component will mainly include the provision o f training, services o f local . and foreign consultants, and equipment for the following activities: Establishment and operations o f at least three regional offices o f RAPCMO for the supervision o fworks requiredunder the Program; Development o f the capability o f the M P W H and RAPCMO, to manage the road sector, including follow up on the rural accessibility master plans, development o f planning and budgetingprocesses, continuous review and adjustment o f technical standards for roads and road works, improvement in procurement and contract implementation, development o f management systems, development o f the capability to address environmental and social issues, review o f the first two phases o f the RAP, and an assessment o f the possible alternatives for restructuring RAPCMO to ensure sustainable achievement o f the Program's objectives; Development of the Yemeni road maintenance and construction industry and road sector consulting profession, particularly through (i) the preparation o f industry guidance manuals; (ii)the development o f a training capability on project management, work planning, cost accounting, bid preparation, contract documents, legal aspects, works supervision, and the environmental and social aspects of project preparation and implementation, and (ii) the carrying out o f a review o f the institutional, financial, and regulatory framework for contractors . and consultants; Any assessment study o f the transport sector issue as may be needed to achieve the objectives o f the Program; Operations o fRAPCMO and its regional offices. - 33 - ProjectComponent3: RoadMaintenance(USD 12.33 million) This project component will include the maintenance o f about 950 km o f roads under performance-based management and maintenance o f roads (PMMR) contracts. It will introduce in Yemen this innovative type of contract, which should help remedy current weaknesses inthe management o froad maintenance. The specific roads to be maintained have already been proposed by the RMF. They were selected so as to make this experiment both feasible and valuable. The main features o f the contracts and the procedures for their procurement, supervision, and management will be established through a consultancy started under the Phase Iproject and completed under the Phase I1 project. It is expected that the contracts will cost about USD 10.92 million in total and will be implementedover a four-year period. The project component will also include consultants' services, training, and equipment, for (i)supervising the P M M R contracts; and (ii)strengthening the maintenance management capability o f the RMF, including especially (a) improving the road data base and the planning/budgeting/monitoringsystems o f the RMF; (b) clarifying the technical and organizational options for maintaining the different classes and types o f roads; and (c) supporting, as may be required, the activities o f the RMF, including for the improvement o froad safety. - 34 - Annex 5: ProjectCosts YEMEN, REPUBLICOF: SecondRuralAccess Project Local Foreign Total ProjectCost by Component US$ US$ US$ million million million Rural Access Roads 14.82 14.82 29.64 Road works (27.37) Design and supervision services (2.26) Institutional Support and Capacity Building 2.22 0.81 3.03 Technical assistance services (0.32) Training (0.35) Equipment (0.36) Operating costs of RAPCMO (2.00) Road Maintenance 5.32 5.45 10.77 Road works (9.50) Supervision services (0.30) Technicalassistance services (0.65) Training (0.20) Equipment (0.12) Total Baseline Cost 22.36 21.08 43.44 Physical Contingencies 1.52 1.44 2.96 Price Contingencies 1.78 1.69 3.47 TotalProjectCost' 25.66 24.21 49.87 Interest during construction Front-end Fee - - TotalFinancingRequired 25.66 24.21 49.87 'Identifiable taxes and duties are US$ 1.70 million and the total project cost, net oftaxes, i s US$48.17 million. Therefore, the share o fproject cost net o f taxes is 96.6%. - 35 - Annex 6: ImplementationArrangements YEMEN, REPUBLIC OF: SecondRuralAccess Project The RAPCMO will be the implementingagency for Project Components 1(Rural Access Roads) and 2 (Institutional Support and Capacity Building). The RMF will be the implementing agency for Project Component 3 (Road Maintenance). These two organizations will be responsible for ensuring full compliance with IDA fiduciary requirements for the project components under their authority. Inaddition, the RAPCMO will be responsible for ensuring compliance with World Bank environmental and social safeguard policies for all three project components. Basic information on these implementing agencies i s provided below. RuralAccess ProgramCentralManagementOffice (RAPCMO). Duringthe preparation o f Phase Io f the RAP in 2000, the decision was taken to create the RAPCMO to beresponsible for the management and coordination o fPhases Ito I11o f the program. Duringthe execution o f Phase 1,the RAPCMO has developed steadily and, on the whole, performed very well in all o f its functions. The RAPCMO's central office in Sana's is staffed with well-qualified personnel (currently four engineers, two environmental specialists, and additional financial and administrative staff) recruited through an open and competitive process. As shown in the organizational chart below, the RAPCMO has four units: (i)Engineering/Planning; (ii) Environmental and Social Management; (iii) Procurement and (iv) Financial Management and Administration. It is led successfully by an experienced General Manager. OrgarizationChart RuralAccess Prqjram I Steming Cormittee Chairp": MristerdPublicWorks-and High~mys Rd-finiskation Pr0GU-d Plaming Erwim-rt and and A G G ~ U ~ S Design Social Swmuision Managermrt During Phase I,the RAPCMO has also initiated the establishment o f three regional offices in Hadramout, Hoddeidah and Taiz. This has had mixed results mostly because - 36 - the volume of works has not been sufficient to justify the presence o f highly qualified engineers in these offices. This will change in the coming years as the size o f RAP will be multiplied by a factor o f about three (as discussed inPart C.1 above). DuringPhase 11, the regional offices will be fully established. Their role will be the follow up and monitoring of project implementation under the management and supervision o f the central office o f the RAPCMOinSana'a. Given the steady rise o f project activities during Phase Iand the firther heavy increase expected very soon because o f the preparation and execution o f large projects under a variety o f funding sources, it is necessary that the RAPCMO quickly recruits additional staff in the areas o f engineering, environmental/social, procurement and financial managemedaccounting. It i s estimated that about 10 additional RAPCMO staff are now required. While some o f the additional work may be carried out by local consultants, the increase in the RAPCMO's staffing as mentioned above i s essential to ensure that it will be able to carry out successfully the Phase I1project as well as the projects under other donors' funding. The RAPCMO i s currently in the process o f recruiting such additional staff. Further staff may be hired in 2006 depending on the speed at which other donors' project come on stream. The newly hired staff will require training in order to fully understand the program as well as the RAP'S procedures, standards and working methods. The organizational structure o f the RAPCMO will also need to be adjusted to correspond to its expanded size and volume o f work. It i s agreed that RAPCMO would have four main departments, namely: (a) Administration and Finance, (b) Procurement, (c) Design and Supervision, and (d) Planninflrogramming and Environment/Social Management. These departments would be well structured. Underpinningthese changes is the Government intention that the RAPCMO would become the agency in charge o f implementing the Government's entire rural roads program. It has been agreed that the principles that led to the success o f the RAPCMO (as well as the success o f similar agencies in other countries) will continue to be applied: (i) decisions regarding all aspects o f sub-project preparation and implementation will be made on the basis o f transparent, rational, technical, economic, environmental, and social policies and criteria; (ii) the RAPCMO will be able to operate autonomously within the scope o f its mandate; (iii) the RAPCMO will have a full time general manager and department directors with high technical skills and proven experience in similar ' activities; and (iv) competitive remunerations and adequate working conditions will be provided to staff at all levels. During the Phase Iproject, the RAPCMO has developed sound methodologies and procedures for the selection o f sub-projects, including their environmental, social, and economic analysis. These procedures, which are noted inAnnexes 9 and 10, will be used under Phase I1and, as has been the case under Phase I,will be kept under review and improved continuously. Any change in substance will be agreed with IDA. As part o f these procedures, which are used on a continuous basis, the RAPCMO produces screening, environmental assessment, women's consultations, traffic counts, and economic evaluation reports under standard formats agreed with IDA in order to inform the Government and obtain IDA'Sclearance for each sub-project. - 37 - The RAPCMO has also developed sound principles and standards for the design o f sub- projects. These are also kept under review and improved continuously with IDA'S concurrence. Consultants are used for the preparation o f sub-projects' environmental and social analysis as well as for engineering and supervision o f road works. The RAPCMO has developed standard terms o freference for the services o fthese consultants. Part o f the success o f the RAPCMO has been due to its ability to attract and motivate highquality staff through good salaries and work conditions. To make this possible, the Phase Icredit has thus paid for 80% o f the RAPCMO's operations. This will be continued under Phase 11. Road Maintenance Fund. The RMFwas established in 1995 underthe IDA financed Transport Rehabilitation Project to improve the maintenance o f roads and to enhance cost recovery inthe road sector. The RMF is an autonomous State agency. With technical assistance funded by IDA, it has gradually developed the technical and institutional capacity to plan and administer in an effective way the State financed maintenance program for national and rural roads. The RMF manages directly the funds that it receives from a fie1 levy as well as from the national budget. It has about sixty employees, many o f them road engineers, and has an organization adapted to its role. The RMF has created a special unit - RMFIU - for implementation o f Project Component 3 and, in particular, for carrying out procurement and financial management for such component. This unit will need strengthening as explained inAnnexes 7 and 8. Giventhe innovative nature o fthe PMMR contracts used in Project Component 3, the RMFwill also need support for their design and implementation. A qualified consulting firm is being recruited under the Phase Iproject to initiate this support, particularly in the design o f the contracts. It is expected that another hlly experienced firm will assist the RMF in the management o f the contracts and the supervision o fmaintenance works. Project Coordination and Oversight. Oversight o f the RAPCMO, RMFIU, and the overall Project would be assured by a Steering Committee. This committee, which was established under Phase I,will be restructured. Its membership will be limited to five high level representatives, two from MPWH (the Minister as chairperson o f the Committee and the Deputy Minister for Roads), and one of each o f the Ministry o f Planning and International Cooperation (MPIC), the Ministry o f Finance (MOF), and the Ministry of Local Administration (MOLA). The General Manager o f the RAPCMO and the Chairman o f the RMF will participateinthe meetings of the Steering Committee but not inthe Committee's decision making process. Any relevant agency may be called upon to participate in discussions whenever needed. - 38 - The Steering Committee's main duties and functions will be to: (i) approve plans and design criteria for rural roads; (ii) approve staff service rules and manuals o f procedures; , (iii)approve employmentcontracts for senior staffofRAPCMO; (iv) approve annual budgets for the Project; (v) approve reports on the progress in implementingthe Project prior to submitting same to the Association; (vi) employ the financial auditors; and (vii) approve contracts for the provision o f goods and consultants' services, and for the carrying out o f works, whose price shall exceed the equivalent o f $200,000. It i s well understood that the Steering Committee's role would be focused on the approval o f policies and general plans and the monitoring o f progress in implementation o f these plans, and would not include involvement in management nor the exercise o f prior control on matters o f execution. The RAPCMO and the RMF will have responsibility for the approval o f contracts under USD200,000. Contracts above US$l,OOO,OOO will be referred to the HighTender Board for final approval, inaccordance with the Yemeni legislation. Furtherinformation on financial management andprocurement arrangements is in Annexes 7 and 8. Flow of Funds The Borrower's share o f project funding would be provided by the annual national budget under normal State procedures. Availability o f counterpart funds has neverbeen a difficulty under the Phase Iproject. Monitoring and Reporting Both the RAPCMO and the RMFwould prepare semi-annual progress monitoring reports in accordance with a format acceptable to IDA. These reports will include sufficient operational and financial information, particularly on the status o f the RAPCMO's work program, implementation o f all contracts, any problems that may have arisen and corrective actions being taken and expenditures. These reports will also provide an updated procurement plan and disbursement and commitment tables. In addition, monitoring and evaluation will be conducted continuously from the Bank's country office inSana'a, and, as inPhaseI,throughregular semi-annual supervisionmissions. - 39 - Annex 7: FinancialManagementandDisbursementArrangements YEMEN, REPUBLIC OF: SecondRuralAccess Project ExecutiveSummaryandConclusions: An assessment of the financial management (FM) arrangements for the Project was undertaken in February 2005 to determine whether these arrangements are acceptable to the Bank. This project, referred to in this annex as RAP-2, will be implemented by two implementing agencies, RAPCMO and RMF. The first project, RAP-1, was instead implementedexclusively byRAPCMO (referred to inthis annex as CMO). The CMO, from a financial management perspective, has managed the implementation o f RAP-1 in an acceptable manner. CMO will implement Project Components 1 & 2 of RAP-2. It will continue to use the same FM arrangements while ensuring some enhancements such as updating its accounting software and financial policies and procedures to reflect changes in the operations o f the new phase and reinforcing its FM staff to support the requirements o f RAP-2. The RMF will implement Project Component 3. It has already taken significant steps towards the development o f acceptable financial management arrangements at the Implementation Unit (RMFIU) that it has recently established. RMF has assigned a Director, Financial Officer, Procurement Officer, and Engineer from the current RMF staff. It has also devoted a well equippedspace to the RMFIUactivities and staff. Yet, as the RMFIU has no prior experience in implementing Bank financed projects, the establishment o f a fully functional financial management system will be a condition o f disbursement for Project Component 3, as explained inthe action planbelow. Required Actions BY Completion Date I Establish a fully functional financial managementsystem at RMFPIU: Draft Financial Management Manual RMFIU As condition of disbursement for Project Component 3 Create a chart o f accounts and simple RMFIU As condition o f reporting and recording system disbursement for Project Component 3 Issue first set o f Financial Monitoring RMFIU As condition o f Reports (FMR) disbursement for Proiect ComDonent 3 Launchthe process o f auditor recruitment RMFIU As condition o f disbursement for Proiect Comoonent 3 I I J - 1 IAs CreditCovenant Required Actions IBy I Completion - 40 - Date 1 RMFto implement the following activities: Training o f accounting staff on World RMFIU Three months after Bank relevant guidelines effectiveness 2 CMO to implement the following activities: Revise the Financial Manual to reflect CMO Three months after activities and FM set-up for RAP-2. effectiveness Finalize the appointment o f an additional CMO Three months after accounting staff effectiveness Quarterly and comprehensive set o f CMO- 45 days after each Financial Monitoring Report(FMR) should Auditor quarter be issued, reviewed, and sent to IDA Updating accounting software to reflect CMO Three months after changes peculiar to operations o f RAP-2. effectiveness Launching the process o f auditor CMO Three months after Financial Management Analysis 1. Country Financial Management Risks: As reported and outlined in the CAS o f 2002, inadequate governance in Yemen i s a critical issue. The Country Financial Accountability Assessment (CFAA) report (2003) indicated that there had been some progress recently in the fiscal area, particularly in terms o f budget expenditure classification and consolidation o f investment and current budget. There is, however, a lack o f progress on achieving budget comprehensiveness as well as on implementing a broader fiscal framework beyond the annual budgeting cycle. Efforts to move forward in reforming budget implementation, cash management, accounting and reporting have been pinned on the design and implementation o f the Bank-supportedAFMIS system, which i s underway, although experiencing significant delays. On the other hand, the draft Reports on the Observance o f Standards and Codes (ROSC) Accounting and Auditing report (2003) stated that, at present, the accounting and auditing practices inYemen suffer from institutional weaknesses in regulation, compliance, and enforcement o f standards and rules. Although some companies claim compliance with International Accounting Standards (IAS), full compliance is not readily achieved. There i s also inadequate adherence to International Standards on Auditing (ISA) and professional ethics. These factors, as well as the poor quality o f education and training in accounting, have contributed to the generally observed weaknesses o f the financial reporting and auditing regime. - 41 - InherentRisk Based on the findings o f the various ESW conducted recently, serious weaknesses were identified in the accounting and auditing professions in Country financial Yemen. Management Risk High MMinclude: Moderate -Hire an independent qualified private audit firm. -Ring-fence the project implementation and funds. Although the experience with timeliness of local funds contribution to Bank Counter Part Funds Moderate funded projects in Yemen i s quite Moderate mixed, there was a high level o f commitment inRAP-1. 2. ProjectFinancialManagementRisk: Control Risk - CMO: The CMO has managed the FM implementation o f RAP-1 in an acceptable manner.However, inRAP-2, some risks exist which needto be considered. Issue/ Risk Comment/ RiskMitigationMeasures (MM) Implementing Significant RAP CMO has managedthe implementation Moderate Agency o fRAP Iinan acceptable manner. However, inRAP 2, more donors may be involved. MMinclude: - Reliable FMsystem will capture and reflect different sources of funds. - Coordination with donors with regardto reporting and auditing requirements. Information Moderate The FMsoftware used inRAP-1did not Moderate System allow issuingcomplete set o f FMRs. Furthermore, RAP-2 requirements are different. -42 - MMinclude: - CMO will continueto use the current FM software after updatingit for changes peculiar to operations o f the new phase. Staffing Significant CMO had an experienced qualified Financial VIoderate Manager inRAP-1involved indevelopment o f computerizedaccounting system, FMR and FMManual. MMinclude: -- The CMO will renew his contract CMO will hire an additional accountant to provide assistance and to allow for segregation o f duties. Financial Moderate The CMO had comprehensive policies and Low Policies and procedures manual inArabic. Procedures MMinclude: - The manualwill betranslated to English - to facilitate Bank supervision. Itwill also be updated to reflect changes inphaseI1(eg. changesto chart of accounts). Flow o f Funds Moderate Special Account will be used for IDA credit Low proceeds. For highvalue contracts, direct payments will be used Internal Audit Moderate No internal audit exists at CMO level. Moderate However, MOP and MOF conduct a 100% ex-ante audit over all expenditures. Reporting and Significant CMO has been issuing quarterly financial Moderate Monitoring reports (FMRs) without procurement and physical progress. MMinclude: - CMO will issue a complete set o fFMR including procurement and physical progress reports. - FMRwill be quarterly reviewed by private auditor. External Audit High An independent qualified private auditor acceptable to IDA will be hired to audit C M O accounts according to TORSupon which IDAwould grant its annual No- Obiection. _I OverallControlRiskBeforeMM - 43 - Control risk -RMFIU: The RMFhas no prior experience inimplementingWorld Bank financed projects, which renders the implementation o f its component more risky. Issue/ Risk Comment/ RiskMitigation Measures(MM) Implementing Although the project designi s not very vfoderate Agency High complex, RMFIUhas no prior experience with implementingBankprojects. MMinclude: - Adequate training on Bank guidelines will beprovided to accountants. - Initialoversight by CMO and close supervision by Bank FMS will be provided. Staffing High Staff has no prior experience with Bank Moderate guidelines. MMinclude: - A financial officer is already assigned from RMF staff to RMFIU. - H e started to have onjob training through CMO FM. Information Moderate Basedon the relatively low volume o f Moderate System transactions and the expected simplenature o fpayments (equal monthly installments under PMMRcontracts), RMFIUwill tentatively use simple recording and reporting. Upon kture findings, the needfor a more complex automated software will be assessed. Financial Significant RMFIUhas no policies andprocedures Moderate Policies and manual inplace. Procedures MMinclude: - RMFIUwill develop its own manual as a condition o f disbursement o f Project Component 3, inlight of C M O manual, while taking into considerationthe specific nature o f its operations (e.g. PMMRcontracts) Flow of Funds Moderate Special Account will be used for IDA credit Low proceeds. For highvalue contracts, direct paymentswill be used. InternalAudit Moderate No internal audit exists at RMFIUlevel. Moderate However, MOPIC and MOF conduct a 100%ex-ante audit over all exDenditures. - 44 - Reporting and High RMFlUhas no prior experience with Bank Moderate Monitoring reporting guidelines. MMinclude: - RMFwill design its first FMRtemplate before credit effectiveness with the - FMRwill be quarterlyreviewed by the assistance o f CMO. same auditor. Extemal Audit High An independent qualified private auditor Moderate acceptable to IDA will be hiredto audit PIU accounts according to TORSuponwhich IDAwould mant its annual No-Obiection. Overall ControlRisk Overall Control Risk Before MM Moderate BeforeMM 3. Institutionaland ImplementationArrangements. The C M O will be responsible for Components 1 and 2 o f the program. The RMF, on the other hand, will be responsible for the procurement and financial management o f Component 3. The Rural Roads Steering Committee, chaired by the Minister o f MPWH, will provide oversight, control andguidance of/to the CMO and the RMF. 4. The C M O General Manager (GM) has been designated officially as overall coordinator o f the project. Reporting to the GM i s the Financial Manager, who i s supported by a cashier, who handles petty cash. The CMO Information Specialist i s responsible for providing technical support for the C M O hardware and software including the accounting software. Both the Finance Officer and the Information Specialist demonstrate a reasonable knowledge and understanding o f World Bank procurement, disbursement, project accounting, financial reporting and auditing guidelines and procedures. The CMO has initiated the recruitment o f an additional accountant for further segregation o f duties andto assist the Finance Officer. 6. The RMF is an autonomous State agency. It generates its revenues from the collection o f YR 0.5 per liter o f gas, in accordance with the law issued by the Government, as well as from budget h d s provided by the MPWH. The RMF i s headed by a Chairman; it has a Finance Department headed by the General Director. RMF has set-up the RMFlU to manage Component 3 o f RAP-2. This unit will be headed by a director with Engineering, Procurement and Accounting staff reporting to him. The RMF Chairman will assign one qualified accounting staff from the RMF Finance Department to handle the accounting o f Component 3 o f RAP-2. Uponprogress o fwork, the needfor an additional accountant will be reviewed. 7. Accountingsystem. The project will use the International Public Sector Accounting Standards (IPSAS) cash basis o f accounting and the outline o f budget components for financial reporting. The books o f accounts for the project will be maintained on double- entrybookkeepingprinciples. It is agreed that Project Accounting (cash basis) will cover - 45 - all sources o f Bank hnded project transactions and all utilization o f said funds. All project-related transactions will be recorded in books o f accounts and supporting documents will be kept at CMORMFIU. Direct disbursements made by the Bank and from the Special Accounts will be included in the project accounting system. Funds received from different sources would be identified separately and reflected in project accounts, FMRand FS. 8. Project-related transactions and activities are distinguished at the data-capture stage. An identifiable Trial Balance for the project capturing all projects receipts, expenditures, and other payments under the project is prepared. A Chart o f Accounts for the project has been developed for RAP-1 and will be used and updated for RAP-2. The Chart o f Accounts shall conform to the classification o f expenditures and sources o f funds as indicated in the project documents (Project Operational Manual, Program Appraisal Document). The Chart o f Accounts allows data to be captured in a manner to facilitate financial reporting of project expenditures by: (i)project components; (ii) subcomponents, (iii) expenditure categories, and (iv) disbursement categories. A system of reconciliation between the Project Financial Statementdfinancial reports and the legal books of accounts has been defined under RAP-1 and will be utilized in RAP-2. The RMF will prepare its own Chart o f Accounts and will complete this as a condition o f disbursemento fProject Component 3. 9. Information System. The CMO will maintain its books o f accounts using a computerized accounting system that was also used for RAP 1 managed under its responsibility, prepare and disseminate the financial management reports, and ensure timely transmission of these documents to the Board. The automated accounting books will reflect the government contribution, the balances related to the amounts disbursed, reflecting the transactions o f the special accounts and the remainingbalance at the end o f each period. The Financial Manager i s in charge of the issuance o f the annual project financial statements and the quarterly Financial Monitoring Reports (FMRs) as well as the submission o fthese documents on a timely basis to IDA and to the auditors. 10. The RMF currently uses manual and computerized systems in parallel and reconciliation betweenthese two systems are performed. The financial statement reports are prepared manually. The RMFIUwill set-up its own accounting books for the project as a condition o f disbursement o f Project Component 3. Based on the relatively low volume o f transactions and the expected simple nature o f payments (equal monthly installments under PMMR contracts), the RMFIU plans to tentatively use a simple system(such as Excel or Access) for recording andreporting financial transactions and to produce financial monitoring reports in a consistent manner. Upon future findings, the need for a more complex automated software will be assessed. 11. Budgetingsystem. An annual budget for procurement and disbursement is issued by C M O based on its Project Implementation Plan. The proposed annual budget (Government contribution) i s submitted to the Project Steering Committee, which i s in- charge o f approving the C M O budget. This is included inthe overall budget o f MPWH, - 46 - sent to the Ministry o f Finance (MOF) for approval and eventually sent for final approval to the Parliament. 12. The budget approved for the CMO i s deposited to the local Project Account opened at the Central Bank o f Yemen in the name o f the RAP-2 CMO. At the beginning o f the year, half o f the budget i s deposited into the CMO's Project Account at the Central Bank and the remaining balance i s deposited only upon request o f the CMO, when the funds are needed. The same process will apply to the RMFIU. 13. Financial Policies and Procedures. The financial policies and procedures are crucial for ensuring transparency, providing clarity regarding financial aspects to the various stakeholders and finance staff, ensuringuniformity, and enforcing accountability. These policies inter-alia cover the following aspects: (i) expenditures that would be treated as project expenditures including their classification; (ii)expenditures, which would be eligible for reimbursement from IDA credit; and (iii)project accounting policies. These policies include aspects such as efficient management and deployment o f funds, internal controlpolicies, etc. 14. In RAP-1, CMO financial policies and procedures manual outlined: (a) job responsibilities within the financial department, (b) accounting principles and policies (eg. evaluation o f non USD expenses), (c) accounting system, and (d) operational procedures (eg. for withdrawal from Special Account, replenishment, payments to contractors, etc), (e) the accounting cycle and entries, the chart o f accounts, and templates o f forms to be used. The manual will be updated to reflect changes inphase I1 (eg. changes to chart o f accounts), and the use o f an imprest account. Since it was issued inArabic language. it needs to be translated to Englishto facilitate and streamline Bank supervision. 15. RMFIU has no policies and procedures manual in place. It will develop its own manual as a condition o f disbursement o f Project Component 3, inlight o f C M O manual, while taking into consideration the specific nature o fits operations (eg. PMMR contracts) 16. Flow of Funds. To ensure that funds are readily available for project implementation, the CMO'and RMFIUwould each open, maintain and operate a Special Account (SA) at the Central Bank o f Yemen. Deposits into, and payments from the SAs, will be made in accordance with the provisions stated in the credit agreement. Disbursement under this credit will be made according to the transaction-based disbursement procedures that include withdrawal applications for direct payment, reimbursement and requests for the issuance o f special commitments. Withdrawal applications and replenishments o f the SA will be preparedand sent by the CMO and the RMFIU signed by authorized signatories. The name and corresponding specimen o f signature o f each o f the authorized signatories will be submitted to IDA at effectiveness andbefore submission o fthe first withdrawal application. 17. For both CMO and RMFIU, procurement is done at the C M O R M F I U level. No contracting i s made at the regional offices. Invoices, together with supporting - 47 - documentation, are submitted by the various consultants, contractors and suppliers to the procurement officer who reviews them against payment terms o f contract/physical progress and then forwards them to the financial department. The financial officer reviews the payment package for completeness and accuracy in accordance with IDA guidelines and submits it for approval o f the project director. Upon director's approval the financial officer prepares a check or a withdrawal application which i s duly signedby authorized signatories. 18. Internal Controls. A fiduciary responsibility o f control o f the budget execution and monitoring rests with the Project Steering Committee. For CMO, the financial manager will have two staff in the Finance section, an accountant and a cashier, with job descriptions that indicate segregation o f duties to ensure there is internal control in the system. The C M O has also engaged the services o f an information specialist to verify the accounting data inthe systemprior to generating the FMRs. For the RMFIU, the size o f staff in the financial department do not allow for complete segregation o f duties. Due to the expected relatively low volume o f transactions, only one financial officer has been assigned to the financial section o f the RMFIU. For both implementing agencies, in accordance to IDA requirements, appointment o f an independent private auditor acceptable to the IDA will be completed for RAP-2. In addition to the issuance o f an opinion on the project financial statements, the external auditor will be requiredto submit an annual management letter highlightinghis observations on the internal control system, 19. Reportingand Monitoring. Each o f the C M O and the RMFIU will issue monthly financial reports (FR), quarterly financial monitoring reports (FMR) and annual project financial statements (PFS): Report Frequency PreparationDueDate Responsibility Sent to FR Monthly 10 days from end o fmonth C M O / M O P I C N O F RMFIU FMR Quarterly 3 weeks from end o f quarter C M O / MOPIC/MOF RMFIU IDA PFS Annually 3 months from end o f fiscal C M O / M O P I C N O F vear RMFIU IDA (zLJ Monthly un-audited FR. These reports will be prepared on a monthly basis and will not be sent to the Bank. However as part o f Bank supervision, they will be reviewed and reconciled with the monthly withdrawal applications and quarterly FMR. The format o f these reports should be quite simple (listing o f sources and uses o f funds and Bank reconciliation. (b) Ouarterlv reviewed FMR. The format and content of FMRwill be agreed upon by negotiations, and included inthe financial management manual. FMR include financial, procurement and physical progress information. There should also be an introductory narrative discussions o f project developments and progress during each quarter. Reviewed FMR would be submitted to the IDA not later than 45 days after the end o f each quarter. - 48 - (CJ Annually audited PFS. The PFS should include: (i) statement o f sources and a uses o f funds indicating funds received from various sources, project expenditures, and assets and liabilities o f the project; (ii) schedules classifying project expenditures by components, subcomponents and expenditure categories; (iii)a Special Account Reconciliation Statement; and (iv) a Statement of Withdrawals made on the basis o f Statements o f Expenditure (SOEs). Audited PFS would be submitted to the IDA not later than 6 months after the end o f the Fiscal Year. Audit Arrangements 20. Two separate annual project financial statements for Project Components 1and 2 and Project Component 3 accounts will be audited by independentprivate auditors acceptable to IDA under two separate contracts. There will also be two separate audits o f the Special Accounts managed by the CMO and the RMF. Each implementing agency will be responsible for the process o f contracting its auditor in accordance with procedures agreed between the Government and IDA. Audit reports will be submitted within six (6) months after the end o f the fiscal year. Reviewed FMRs would be submitted to the IDA not later than 45 days after the end o f each quarter. ~Report DueDate Responsibility Sent to Language Scope FMR 45 days Extemal MOPIC/MOF ArabdEnglish Review from end Auditor IDA o f quarter PFS 6 months Extemal MOPIC/MOF Arabic/English Audit from end Auditor IDA o f fiscal Year 21. The audit would be comprehensive andwould cover all aspects o f the project (i.e., all sources and uses o f funds, and expenditures incurred). The audit will be carried out in accordance with htemational Standards on Auditing. Terms o f Reference (TOR) for this assignment should cover an audit o f financial transaction, the SOEs, SAs, FMRs, and an assessment o f the accounting financial management system, including review o f intemal control mechanisms. The CMO and the RMF would provide the auditor with access to project-related documents and records, and information required for the purposes o f the audit. The auditors would carry out a concurrent audit during the fiscal year, to bring to management's attention any issues, which need to be addressed. This would strengthen intemal controls, andwould also facilitate early completion o fthe annual audit. DisbursementArrangements 22. Disbursement. IDA funds will be deposited in two Special Accounts (SA) to be opened at the Central Bank o f Yemen, inthe name o f the C M O for RAP-2 and the RMF PIU respectively. Withdrawal applications and replenishments o f the SAs will be signed - 49 - by authorized signatories. Each withdrawal application will be signed by authorized representatives whose names and corresponding specimens o f their signatures will be submitted to IDA. 23. For both CMO & RMFIU, the proceeds o f the credit will be disbursed using transaction-based system (replenishment and reimbursement with full documentation or SOEs, direct payments, applications for special commitments). The signatories to the WASwill include a representative o f the MPWH, with either the CMO General Manager or the FWF Chairman, as applicable. 24. Allocation o f Credit proceeds. The allocation o f credit proceeds by disbursement category and percentage to be financed i s shown inthe table below: Amount of Credit CATEGORY Allocated % of Expendituresto be (US$ Financed million) (i) Works Civil (a) for road upgrading(Project 25.10 84% Component 1) (b) for roadmaintenance (Project 6.30 60% Comuonent 3) (ii)Goods 100% o f foreign ,I (a) for Project Components 1and 2 0.40 expenditures, 100% o f (b) for Project Component 3 0.13 local expenditures (ex- factory) and 90% o f local expenditures (iii)Consultants' Services 90% for firms and (a) for Project Component 1 2.44 87% for individuals (b) for Project Component 2 0.34 (b) for Project Component 3 1.09 (iv) Training 100% (a) for Project Components 1and2 0.36 (b) for Project Component 3 0.11 (v) Incremental Operating Costs for Project 1.73 80% Components 1and 2 (including C M O staff salaries). (vi) Unallocated 2.00 Total 40.00 25. Use of Statements of Expenditures (SOEs). Full documentation for expenditures under contracts requiring the Bank's prior review would be submitted with the corresponding application. Disbursements for contracts valued at less than US$l,OOO,OOO for works, US$lOO,OOO for goods; and US$lOO,OOO for services for consulting firms, andUS$50,000 for services o f individual consultants would be made on -50- the basis o f Statements o f Expenditures (SOE). Documentation to support these expenditures would be maintained by the CMO and the RMF, and would be made available for review by visiting Bank missions and for project auditing. 26. Special Account (SA). Two Special Accounts would be maintained in the Central Bank of Yemen for RAP-2, and would be operated by the C M O and RMF, respectively, jointly with the MOF. The SAs would be operated in accordance with IDA'Sand Government's jointly agreed operational policies. The authorized allocations o f the Special Accounts will be US$2,500,000 for the CMO with an initial advance o f $1,500,000 until withdrawals from Credit Account and special commitments issued by IDA reach SDR 5,000,000 under Components 1 and 2 o f the Project, and will be US$500,000 for the RMF with an initial advance o f $300,000 until withdrawals from Credit Account and special commitments issued by IDA reach SDR 1,000,000 under Component 3 o f the Project. These allocations represent a four-month average o f project expenditures to be financed through the SAs. The Special Accounts would be replenished monthly or at least once every quarter. Advances into the RMF's Special Account will not be deposited until the condition of disbursement i s fulfilled (see Paragraph C.2. - Institutional andimplementationarrangements). 27. Direct Payments and Special Commitments. The minimum amount for applications for direct payments, reimbursements,, and for special commitment will be 20% of the authorized allocation to the SA. SupervisionPlans. 28. Until early 2006, the development o f RMFIU financial management system will be monitored in detail by the Bank's FMS. The update o f C M O financial management system to reflect changes peculiar to RAP-2 will be monitored as well by the Bank's FMS. 30. Subsequently, as required, the Bank FMS will conduct periodic supervision missions. FMRs and audit reports will be reviewed by the Bank FMS and issues identified will be followed up. In general, during supervision missions project's financial management and disbursement arrangements (including a review o f sample o f SOEs and movements inthe Special account) will be reviewed to ensure compliance with Bank minimum requirements. A financial management rating for ISR purpose will also be developedreviewed twice a year. More intensive supervisionwill be devoted to RMFIU inthe initial stagesas itis newto implementation o fBank financedprojects. 31. Upon closing o f RAP-2, both the C M O and the RMF should prepare a list o f assets accumulated during the life o f the program, and these assets should be turned over formally to the MPWWMOF. - 51 - Annex 8: Procurement YEMEN, REPUBLICOF: SecondRuralAccess Project A. Background A Country Procurement Assessment Report (CPAR) for Yemen was carried out in late December o f CY2000. The report showed that the current procurement legislation (Law No. 3 of 1997 concerning Government Tenders, Auctions and Stores, and corresponding regulations introducedby Decree No. 234 o f 1997) was a significant improvement over the previous legislation o f 1991,but was not yet up to international standards, notably in the following areas: (i) in the legislation; (ii) gaps absence o f use o f Standard Bidding Documents (SBD's) by public agencies; and (iii) conflicts with procurement guidelines of donors, including IDA'S. Evenwhere reasonable rules existed, they were not necessarily followed. As a transition strategy, until a revised procurement law i s enacted, the CPAR recommended a set of national Standard Bid Documents (SBDs) for goods, works and services. This is under preparation together with a comprehensive National Procurement Manual (NPM)to support capacity buildingo f the Government's procurement function at all levels. IDA, through an IDF Grant for procurement capacity building, and the Government o f the Netherlands are supporting the development o f the NPMand requisite SBDs, which also includes preparation o f a separate volume on procurement procedures for local authorities. The assignment to prepare and roll out the NPM through pilot workshops and training-of-trainers for civil servants in core spending ministries is expected to be completed by the end o f 2005. B. Use of Bank Guidelines Inthe interim, procurement for the proposedRAP PhaseI1project would be carried out inaccordance with World Bank "Guidelines:Procurement Under IBRD Loans and IDA Credits", May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers", May 2004, and the provisions stipulated in the Development Credit Agreement (DCA) at Negotiations. The General description o f various items under different expenditure categories are described below and summarized in Table A. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, pre-qualification requirements above specific thresholds, estimated contract costs, prior review requirements, and time frame for contract processing will be finalized by Negotiations. The Procurement Plan will be updated at least every six months or as required to reflect the actual project implementation needs and improvements in institutional capacity at the RAPCMO at the center, its regional branches, as well as the RMF. C. ProcurementCapacityof RAPCMO. A formal procurement capacity assessment o f the RAPCMO was carried out in October 2004 in accordance with the OPCPR Guidelines dated July 15, 2002. Procurement activities for Components 1 and 2 under the proposed Phase I1project will be carried out by the W C M O as has beenthe case since 2001 for the Phase Iproject. The assessment - 52 - reviewed inter alia the organizational structure, procurement staffing levels, and procurement administration and filing and system, inthe context o f implementing a much largerRAPPhase I1program. Despite the overall nationwide limitations in handling procurement effectively, the RAPCMO has emerged as one o f the very few agencies in the Yemen context that can deliver its projects efficiently and in a cost-effective manner. During Phase Iin contrast with the rest o f MPWH and even other implementing agencies, the implementation arrangements were such that the RAPCMO has been able to retain a reasonable degree o f autonomy; this has helped it maintain the necessary independence and reasonable degree o f transparency inhandling the important volume o f procurement for consultancy services and civil works that it has had to carry out. Since the start o f the RAP in 2001, the procurement capacity o f the RAPCMO has been satisfactory overall. Despite some deficiencies identified during a recent audit inthe area o f proper o f procurement filing, and compliance with D C A with respect to publicity and invitations, the RAPCMO has demonstrated its ability to deliver many subprojects in reasonable time. An experienced Procurement Manager with a long experience in IDA procurement is on board and the CMO has recently recruited a Procurement Assistant to ensure maintenance o f proper procurement administration o f the subprojects. A number o f CMO staff have received procurement training provided by ILO and the World Bank. However, in order to be able to maintain and improve upon the current overall capacity to carry out an acceptable level o f compliance with the requirements o f the D C A with respect to procurement when the RAP expands further under the proposed Phase 11, the RAPCMO i s recruiting an additional procurement specialist. All new technical staff that are currently being recruited (see Annex 6) would also participate in Procurement and Financial Management in-depth training prior to project launch, in order to enhance implementationcapacity for the Phase I1project. In addition, it is proposed that the RAPCMO specify a clear matrix of responsibility as regards the procurement function during implementation o f Phase I1 led by the experienced Procurement Manager anchored at the RAPCMO. In view o f the above, the procurement risk for Project Components 1and 2 for implementation by the RAPCMO i s rated as Average. D. ProcurementCapacity of the RMF A formal procurement capacity assessment o f the RMF was carried out in October 2004 inaccordance with the OPCPR Guidelines dated July 15, 2002. The RMFhas a cadre of staff who has knowledge and experience in a range o f activities involved with road network maintenance and management. However, the performance o f the RMF as pointed out in the ICR o f the Transport Rehabilitation Project closed in 2002 with regard to procurement aspects was such that there were persistent problems o f successfully completing procurement packages under Bank guidelines during implementation. Under Component 3 (Road Maintenance), procurement activities in Phase 11, which the RMF will undertake, will for the most part consist o f planning for and managing the - 53 - implementation o f several pilot PMMR contracts with the private sector for maintaining about 950 km o f roads. During the capacity assessment, one o f the key findings was that RMF staff inthe Technical Audit Department have begunto familiarize themselves with the trial sample bidding documents for PMMRs, and, in particular, have utilized these documents for procuring a P M M R contract with the General Directorate o f Construction o f Road and Bridges (GCRB). The GCRB has recently been restructured to operate as a parastatal reporting to MPWH, but i s ineligible for IDA financing, as it does not meet the autonomy and commercially operated entity criteria o f IDA guidelines. Nonetheless, this initial exposure to PMMR contracts has in the mission's view been a useful capacity building first step for RMF staff, which now need to scale-up their skills inprocuring and managing performance based road maintenance inaccordance with IDA guidelines and sample PMMR biddingdocuments. The RMF management is now in the process o f establishing an Implementation Unit (RMFIU) with a core staff o f Engineers, ProcurementKontract Management Specialist, and Financial Management Specialist to spearhead the procurement and management o f P M M R contracts for financing under Component 3 o f the proposed Phase I1project. In addition, during the implementation phase, the RMF will undertake to take all steps necessary including the preparation o f a study on identifying the necessary steps it needs to take for transforming the current Directorate of Routine Maintenance o f the RMF to the Directorate o f Performance Based Road Maintenance Contracts. Giventhe overall procurement risk rating o f the RMF component as High, the mitigation measures identified in the capacity assessment are summarized in the following Action Plan. ActionPlan Activity Issue 1Actions 1Responsibility TimeLine I Establish Project Determine a suitable RMF Completed ImplementationUnit locationfor the RMFIU at with core staff the RMFbuilding Additional IT IT equipment & furniture RMF September 30, equipment and procured usingPhase I 2005 furniture for new P I U resources, as required Implementation RMF Unit(RMFIU) Staff designated to be Provide procurement Before June 30, members o f the training abroad for at least 2006 RMFIUdo not have two staff inRMFIU in-depth experience with IDAprocurement Supported continually by IDA 2005 to 2008 procedures World Bank staff and documents for guidance. - 54 - Issue Actions Limited Experience o f P M M R consultants RMF October 30, RMFIUstaffto appointed 2005 prepare P M M R contracts Consultants provide prior EWFIU in-depth training on November 2005 planning, designing to June2006 execution and supervision o fperformance-based contracts for the Implementation management and of Performance maintenance o f roads Based assets) Management& Maintenance Special training offered onRMF ofRoads supervising P M M R M a y 31,2006 (PMMR) Projects Preparation o f P M M R Prepare Procurement Plan RMFIU ByNegotiations Procurement Plan and for first year activities documents Prepare selection process 2006 steps. Advertise, Issue BDs,evaluate, and award P M M R contracts. Established a Satisfactory filing system procurement filing establishedand archive RMFIU December I system inthe RMFIU procurement files o n a 31,'2005 satisfactory to IDA continuous basis Procurement Records Management Records o n claims and Keep adequate records for P I U From 2006 on dispute resolutions all procurement processes including importantly, claims and disputes resolutions under P M M R contracts E.ProcurementArrangements Advertisement A General Procurement Notice (GPN) will be issued inthe United Nations Development Business and DGMarket, to advertise for major consulting assignments (as w e l l as obtain expressions of interest) and for any ICB for works and goods, not less than eight weeks - 55 - prior to the publication o f the first Specific Procurement Notice (SPN). The GPN will be updated annually for all outstanding procurement. The GPNwill also be published inthe national press or official gazette for purposes of obtaining expression o f interest for contracts under N C B and to obtain expression of interest from national consultants. Procurement Planning. The mission reviewed with the RAPCMO the procurement action plan for the first year investment and concluded that with the current capacity level and implementation arrangements, timely procurement actions could be carried out satisfactorily. A draft Detailed Procurement Plan (DPP) indicating the procurement method and processing time for each contract covering the first year of Phase I1implementationfor Components 1and 2 (see Table C below) was reviewed and agreed at Negotiations. The RMF would also be preparing a draft Procurement Plan for about three PMMR contracts expected to be financed under Project Component 3 for IDA review and approval. An updated procurement plan for both the RAPCMO and RMFproject components will be submitted for IDA review during every supervision. The progress reports forwarded to IDA will report on the procurement activities inappropriate degree o f detail. Procurement of Works Civil Works contracts financed by IDA are estimated to cost US$42.40 million, including physical and price contingencies. Bid packages, with an estimated contract value above US$l.O million equivalent would be procured using ICB procedures and documents and procedures, and they would be advertised inUNDB/DgMarketand local newspapers. Bid packages, with an estimated contract value below US$l.O million would be procured using NCB procedures and documents or national SBD if they become available and advertised in at least two local news papers. Component 3 o f the project (Road Maintenance) will include three or four P M M R contracts. These will be procured under ICB procedures and the Bank's Sample Bidding Document for PMMR contracts will be used. Procurement of Goods Contracts for Goods financed by IDA relate mainly to furniture, office equipment, computers, and vehicles. ICB and N C B procedures would apply for goods contracts estimated to cost above US$lOO,OOO and US$50,000 equivalent respectively. International and Local Shopping method would be applied for contracts estimated to cost belowUS$50,000 equivalent. Selection of Consultants Consulting services financed by IDA would be for: (i)studies, technical design, civil work supervision, preparation o f bidding documents, financial management support, technical audits, and financial audits; and (ii)consultancies on technical matters and training. Consultants financed by IDA would be hired in accordance with the Bank's - 56 - Guidelines for the Selection and Employment o f Consultants (May 2004). The CMO aand RMFlU would issue widely publicized procurement notices to get candidacies from consultants (firms and individuals). Services for lectures, advisory services, small studies and small works supervision assignments would be selected through comparison o f qualifications among Individual Consultants (IC) expressing interest inthe assignment, or approached directly. Based on agreed upon criteria, the CMO will maintain and update a long list o f qualified Individual Consultants which will be usedto establish short-lists. Training For training abroad and in-country, the training program containing names o f candidates, costs estimates, content o f courses, periods o f training and selection o f training institutions, will be approved by IDA annually. F. IDAPrior Review. Contracts above the prior review threshold would cover about 94% o f the contract amounts for works, goods, and consultants. Contracts for works financed by IDA, above a threshold value o f US$l,OOO,OOO equivalent, will be subject to IDA's prior review procedures. Contracts for goods financed by IDA, above the threshold value o f US$lOO,OOO equivalent, will also be subject to IDA's prior review procedures. Prior review will not apply to contracts for the recruitment o f consulting firms and individuals estimated to cost less than US$lOO,OOO and US$50,000 equivalent, respectively. Prior review for the selection o f consultants will include the review o f budgets, terms o f reference, short-lists, selection procedures, requests for proposals, evaluation reports, proposals for contract awards, and negotiated contracts. However, the exception to prior IDAreview will not apply, regardless o fthe contract value, to: (i) Terms ofReference the o f contracts; (ii) single-source hiring; (iii) assignments o f a critical nature as determined by IDA; and (iv) amendments o f contracts raising the contract value above the above- mentioned prior review thresholds. Documents related to procurement below the prior review thresholds will be maintained by the borrower for ex-post review by auditors (technical and financial audits) and by IDA supervision missions during project implementation, and for at least two years after the Project's closing date. G. Procedures Manuals During Phase I,a Procedures Manual on administrative procedures and internal organization was prepared and applied, and the same manual will be applied during Phase 11. The manual, which should be updatedperiodically, includes: (i) eligibility criteria for selecting sub-projects for implementation under the proposed project; (ii) procedures for calling for bids, selecting contractors, consultants, and vendors, and awarding contracts; (iii) organizationforsupervisionandcontrolofworks;(iv)financialmanagement, internal budgeting, accounting, and disbursement procedures; and (v) procedures for handingover completed works. - 57 - H. Agreements ReachedatNegotiations DuringNegotiations, the Government gave assurance that it will: (a) use and apply the Procedures Manual; (b) use the Bank's Standard Bidding Documents for ICB, the Standard Request for Proposals for the selection o f consultants, and the Standard Bid Evaluation reports; (c) update the procurement plan on a regular basis before IDA supervision missions, or more frequently if needed, and transmit it to IDA (including in particular a comparison o f target times and actual completion); and (d) carry out, during supervision missions, an assessment o f the effectiveness o f bidding procedures and performance, as they relate to the program's procurement experience, and propose for IDA and other donors' consideration any modification to the current procedures to the extent that those would accelerate procurement, while still maintaining compliance with the Bank's Procurement Guidelines and adequate control over contract awards and payments. The Government also gave assurance at negotiations that it will take the necessary measures to ensure that procurement phases do not exceed the following target time periods: Preparation of bidding documents for goods and consultant services 4 (6 for large contracts) Time given to biddersfor preparation of bids 4 (6-10 for ICB) Bidevaluation 2 (4 for large contracts) Signature o f contracts 2 (after IDA non-objection) Payments 3 (after submission of invoice) Table A: Project CostsbyProcurementArrangements (US$ millionequivalent) ProcurementMethod' Expenditure Category ICB NCB Other' N.B.F. TotalCost"' 1.Works 42.40 0.00 0.00 0.00 42.40 (33.00) (0.00) (0.00) (0.00) (33.00) 2. Goods 0.00 0.00 0.56 0.00 0.56 (0.00) (0.00) (0.56) (0.00) (0.56) 3. Services 0.00 0.00 4.61 0.00 4.61 (0.00) (0.00) (4.61) (0.00) (4.61) 4. Inc. Operating Cost 0.00 0.00 2.30 0.00 2.30 (0.00) (0.00) (1.84) (0.00) (1.84) 42.40 0.00 7.47 0.00 42.40 Total (33.00) (0.00) (7.00) (0.00) (40.00) */ Numbersmay not add due to rounding `Figures inparentheses are the amounts to be financed by the Credit. All costs include contingencies. - 58 - 2Includescivil works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incrementaloperating costs related to managing the project. Table A1: ConsultantSelectionArrangements (US$ millionequivalent) SelectionMethod Consultant Services ExpenditureCategory QCBS LCS SFB IC CQ Y.B.F. A. Firms 4.36 0.10 0.00 0.00 0.10 0.00 (4.36) (0.10) (0.00) (0.00) (0.10) (0.00) B.Individuals 0.00 0.00 0.00 0.05 0.00 0.00 (0.00) (0.00) (0.00) (0.05) (0.00) (0.00) Total 4.36 0.10 0.00 0.05 0.10 0.00 (4.36) (0.10) (0.00) (0.05) (0.10) (0.00) Table B: Thresholdsfor ProcurementMethodsand Prior Review ContractValue Contracts Subject to ExpenditureCategory Threshold ProcurementMethod Prior Review (US$ thousands) (US$ millions) 1.Works I 21,000,000 I I C B I ~llcontracts 1 < 1,000,000 NCB All contracts ~,000,000 12.Goods 2100,000 I C B All contracts < 100,000 NCB All contracts 2100,000 I 3. Services <50,000 IS, N S Firstthree contracts (Firms) 2100,000 QCBS All contracts QCBS Firstthree contracts r I < loo'ooo (National advertisement) < 100,000 1I CQ,LCS I I 4. Services Section V of consultants (Individuals) 250,000 Guidelines All contracts <50,000 Section V o f consultants Guidelines All TOR 5. Training - 59 - Totalvalue of contracts subject to prior review: US$49.3 million OverallProcurementRisk Assessment: Average Frequencyof procurementsupervision missionsproposed: One every six months (includesspecialprocurementsupervisionfor post-review/audits) - 60 - IT r -r- T n n/ - 61 - r r - 62 - r T rr rr n7- - 63 - rl- rr rr r- rl-rT r - r T rr T le a I c- rr rr T 5 f q 0 0 0 0 r '9 .o Annex 9: Economic andFinancialAnalysis YEMEN, REPUBLICOF: SecondRuralAccess Project Frameworkapproach. The RAP is the Government's framework under which it is carrying out large-scale rural road improvements, with financing from various external sources and the national budget. During Phase Io f the RAP, this framework was designed in terms o f road selection methodology, engineering criteria and design standards, economic analysis, procurement, financial management, environmentalhocial planning and monitoring, etc. The text below describes the methods and tools for economic analysis which will be applied under Phase 11. Methodologyfor economic analysis. The economic analysis o f intermediate rural access roads to be upgraded under the RAP will be done using the Roads Economic Decision Model (RED). The RED was developed by the World Bank specifically for the economic analysis o f low- volume roads, based on some elements o f the more widely known HDM (Highway Design and Maintenance Model). It has been used during Phase Iand will continue to be usedunder Phase I1to "test" all intermediary roads proposed for improvement, as a result o f the participatory process o f rural accessibility planning and screening. The RED utilizes expected reductions in vehicle operating costs (VOC) as the principal economic benefits. This constitutes a conservative approach, since it i s now widely accepted that the traditional VOC-based economic analysis i s insufficient to capture the full economic and social benefits o f low-volume rural road investments, in particular in the context o f projects in poor areas. On the other hand, a truly reliable quantification o f all benefits o f rural roads, inparticular social benefits, requires a large amount o f data, which i s far too expensive to collect and to monitor for each road to be improved. It therefore seems reasonable to use the RED to screen all candidate roads under the RAP in order to verify if a minimum required threshold internal rate o f return (IRR) can be attained on the basis o f VOC savings only. This threshold will be an IRR o f 12%. Based on the experience gained in Phase I,many o f the intermediate rural roads in Yemen reach that threshold, because o f the significant traffic levels on those roads and potential for traffic generation. However, the Bank will consider applying a lower threshold where the isolation and poverty o f specific rural communities warrant the road improvement works, notwithstanding a comparatively modest IRR. For example, in cases where the absolute poverty rate in the road's zone o finfluence i s 5% above the national average, the threshold mightbe reduced to, say, 9%. For village access roads, it was agreed during the preparation o f Phase Io f the RAP that a different type o f threshold would be applied, which was the maximum $-amount spent on the road improvement per beneficiary. In other words, the expected additional cost o f the village access road i s simply divided by the number o f inhabitants o f the village (beneficiaries). If the resulting figure i s below the threshold, the road is considered eligible. Based on the experience of Phase I, the threshold value was set at US$ 75 per beneficiary. This amount will be revised annually during Phase I1 in order to ensure realism and responsiveness to changing socio- economic circumstances. Economicevaluationof five Roads. The results o fthe economic evaluation conducted for five of the intermediate rural access roads that are being started under RAP Phase Iand will be - 66 - continued under RAP Phase I1 are presented below. For each o f these roads, the economic analysis compares three project alternatives: (i)a "without-project" scenario in which only emergency maintenance i s applied; (ii)an upgrade with pavement by bituminous surface treatment , which i s the "project" scenario; and (iii) an upgrade with pavement by asphalt concrete. Present traffic levels and composition. Traffic surveys on the network were conducted by categorizing vehicles into nine different groups: cars, utilities, three types o f buses (light, mediumand heavy), and four types o ftrucks (light, medium,heavy and articulated). For the five roads presentedinthis chapter, all traffic was concentrated duringthe dry season, as rains during the ninety-day long wet season made those roads impassable or inaccessible. It was observed that, for four roads out o f five, almost all traffic was composed o f utility vehicles, such as four- wheel drive passenger vehicles and pick-up trucks. This situation i s even more patent for those roads located in mountainous areas where, due to very bad geographic and road surface conditions, no passenger cars or buses were counted. Present Traffic Levels during the dry season (in No. of vehicles per day) AI Dhabab AI Manaom - 3 82 7 7 99 Orod -Soug AI Horiah 0 137 0 2 139 AI Madn -AI Shabareeg 52 37 2 15 106 AI Masqh -AI Aglain 0 41 0 2 43 AI Qabie Shaharah - 0 55 0 0 55 The improvement o f those four roads to paved standards should bring significant changes in traffic composition and lead, inthe future, to a situation closer to the one seen inthe A1Madn - A1Shabareeg road, where a wider variety of traffic was counted. After the projects' completion, it is expected that many o f the current utility vehicles will be replaced by passenger cars, small and medium-size buses, and light and medium-size trucks. However, inthe absence o f a reliable basis for estimating the change intraffic composition, traffic growth rates were applied similarly to all types o f vehicles. Consequently the proportion o f vehicle types will remain constant inthe model throughout the 15-year period o f evaluation. Future traffic growth rate. Inthe RED analysis, traffic on the improved road is composed of: (i) traffic,whichisofthesamenatureastheexistingtraffic;(ii) normal generated traffic, which i s traffic that is suppressed today because o f the bad road conditions and the high Vehicle Operating Costs (VOC); and (iii) divertedtraffic, or traffic that is currently using an altemative road, but will switch to the new road because it is shorter and/or inbetter condition. For all those different types o f traffic, average growth rates are applied duringthe 15-year period o f analysis. These growth rates have been set at 4.3% for the initial five years, 4.5% for the following five years, and 4.6% for the remainingperiod o f analysis. Compared to RAP Phase I, which was built on a conservative scenario where traffic growth rates were plannedto decrease significantly after the first five years (from 5% to 2%), RAP Phase I1i s based on the assumption that traffic growth rates will remain stable over the considered period o f time. - 67 - Generatedand diverted traffic. Within the RED model, the volume of generated traffic was calculated as a function o f the elasticity between transport cost and transport demand. Inthe case of RAP Phase 11, the price elasticity o f demand for transport was set at 1.2. This figure remains inthe lower range ofprice elasticity usually found indeveloping countries (between 0.6 and2). This conservative scenario was preferred as most roads upgraded under Phase I1will be located inremoteareas. As experienced previously inYemen, generated traffic mayhoweverbe stronger than first anticipated and could materialize soon after the completion o f the road. As far as diverted traffic is concerned, the five roads examined under this analysis were not probable alternatives to other existing roads, even once upgraded from unpaved to paved standards. Such roads are indeed unlikely to play the important function of links within the main road network. No divertedtraffic was therefore included inthe economic analysis of the five roads. IAlDhabab-AlManaom I 81 I 88 I 110 1 138 1 70 I 76 I 94 I 118 1 Orod-Soug AI Horiah 114 124 154 193 97 105 131 165 AI Madn -AI Shabareeg 87 95 118 147 69 75 93 116 w q h - A I Aglain I 39 I 43 I 53 I 66 I 36 I 39 I 49 I 62 I IAlQabie-Shaharah I 43 I 49 I 61 I 77 I 39 I 44 I 55 1 69 I Costs of the road improvements. The investment duration for most roads upgraded under RAP Phase I1was brought to two years to reflect the lessons learnt in Phase Io f the Program, during which road execution time ended up being about 18-24 months (compared to initially planned execution times o f 8-10 months). The estimated costs for the five roads presented inthis chapter are as follows: IAI Dhabab AI Manaom - I 2 I 115,200 I 18 I 2.074 I Orod Soug AI Horiah - 2 115,200 30 3.456 AI Madn -AI Shabareeg 2 76,800 23 1.766 AI Masqh -AI Aglain 2 105,600 17 1.795 AI Qabie Shaharah - 1 144,000 11 1.584 Summary of results for the five road projects and sensitivity analysis. For the five roads assessed inthis chapter, the Internal Rate o f Return(IRR) is between 16% and 36%, inthe base case scenario, i.e. well above the threshold o f 12% set for the Program. The economic analysis also includes a sensitivity analysis which estimates the IRR and the Net Present Value (NPV) in the case of: (i) increase by 25%; (ii) costs benefits decreaseby 25%; and (iii)simultaneous cost a increase o f 25% and a benefit reduction o f 25%. For the first three roads that, currently, have daily traffics between 75 and 105 vehicles per day, the IRR in the worst scenario never falls below 12%. For the two remaining roads, that are located in mountainous areas and have low first year daily traffics (between 36 and 41 vehicles per day), the IRR in the worst scenario will - 68 - be 7%, which is low but still acceptable given that the analysis does not account for unquantifiable social benefits. Yemen -Rural Access Improvement Program (Phase II) Economic Analysis Summary Table for five roads IRR 25% 20% 19% 14% IRR 36% 29% 28% 22% Orod Soug AI Horiah - NPV 4.623 3.960 2.805 2.142 IRR 25% 20% 19% 14% AI Masqh -AI Aglain IRR 16% 12% 11% 7?h NPV 0.390 0.006 -0.092 -0.476 IRR 17% 12% 11% 7% AI Qabie Shaharah - NPV 0.340 0.022 -0.063 -0.381 (NPV in $ million, at a 12% Discountrate) - 69 - Yemen Rural Access Improvement Program (Phase 11) - Economic Analysis Summary Data for five Rural Roads - Project Characteristics Length (km) 18 30 23 17 11 Terrain Type Rolling Mountainous Flat Mountainous Mountainous RoadType Earth Earth Gravel Earth Earth Bituminous Bituminous Project Surface Surface Bituminous Bituminous Bituminous Standard Standard Surface Standard Surface Standard Surface Standard InvestmentDuration(in n n n vears) L L L 2 1 Road Roughness Without Project 20 20 18 25 25 With Project 3 " J J 3 3 Socio-Economic Data Direct PopulationServed (persons) 15,000 15,000 15,000 7,000 15,000 Annual Normal DailyTraffic (veh/day) in 2004 75 105 80 36 41 Composition: Cars 3yo 49% Utility 83% 98% 35% 96% 100% LightBus 7yo Medium Bus 2Yo Heavy Bus LightTruck 1% 1% 10% 2% MediumTruck 6% 1Yo 2% 2Yo HeavyTruck 2% Artic. Truck Economic and Financial Analysis Financial Investment 1'000$/kml 115.20 115.20 76.8 105.60 144 Financial InvestmentCost I I I 1 I ($m) 2.07 3.46 1.77 1.80 1.58 - 70 - Annex 10: SafeguardPolicyIssues YEMEN, REPUBLIC OF: SecondRuralAccess Project SafeguardPoliciesTriggered I Policy IApplicability "These policies will be triggered only if significant issues are identifiedduring individual`project screeningunder the program. Agreed Policy Frameworks (see below) will then apply in the design and implementation of these individualprojects. EnvironmentalStudies and Assessments Phase IEnvironmentalManagementPlans. Phase Io f the RAP was placed in environmental screening category "B", because projects were purposefully screened and selected to limit civil works to improvement o f existing road alignments, with no need for land acquisition, resettlement or other significant environmental impacts. EAs and EMPs were carried out for each selected road project by the W C M O Environment and Social Unit and individual consultants trained by the Unit. These included local consultations with both men and women and resulted ina Social Framework Agreement, signedby a beneficiary committee, local authorities and the CMO. Phase I1and I11SectoralEnvironmentalAssessment. Phase I1o f the RAP has been placed into environmental screening category "A", given the possibility that some selected roads may involve departure from existingrealignments or fall into sensitive areas. Roads therefore may be identified during screening as "A" or "B". As all roads for the remainder o f the program are not yet identified, a SEA has been prepared, which assesses the range o f environmental issues that could confront rural road projects and establishes a programmatic framework for incorporating environmental and social considerations into the screening, planning and implementation o f all rural road projects carried out under the Program. During the scoping and screening phase, the scale and scope of potential impacts are assessed so as to categorize each subproject and determine whether any particular Safeguard Policies are triggered in ensuing studies. The SEA was preparedby Techniplan Consultants. - 71 - Road specific EnvironmentalAssessments. Under the procedures specified in the SEA, each prospective road project will undergo screening by the RAPCMO Environment and Social Unit. The EAs for roads screened as Category B will be carried out by individual consultants or the consulting engineers engaged for the design. The EAs for roads screened as Category A will be carried out by independent consultants. SafeguardsRelatedRisks and Measures Taken Involuntary Resettlement.Based on experience o f Phase Iand the SEA, the major safeguard- related risk involves the triggeringo f the Bank's Involuntary Resettlement Policy when technical design and safety considerations require a significant departure from existing rights o f way, and indoing so, the taking of property or land. For this purpose, a Resettlement Policy Framework has been prepared as part o f the SEA (Volume 2), which specifies criteria for when the Policy Framework is triggered, principles and procedures for preparing Resettlement Plans, methods for determining affecting affected persons and valuing assets, implementation processes and grievance mechanisms. Natural Habitats and Cultural Resources. As a nation-wide program, there is a possibility that RAP financed road subprojects could run through or adjacent to natural or critical natural habitats, or affect known or chance find cultural resources. In this context, a Natural Habitats Policy Framework and a Cultural Resources Policy Framework were prepared and also form part o fVolume 2 o f the SEA. ConsultationProcesses SEA Consultations.The preparation o fthe SEA included consultations with sector stakeholders in Sana'a and at four selected regional sites country in July - August 2004. They included separate consultations with local men and women, engineers and contractors, local government, research institutions, and NGOs. These consultations provided valuable input to the specification o f potential impacts and the mitigation and avoidance measures to be considered in the design o f RAP subprojects (as noted above). For example, women's consultations indicated the need to account for potential disruptions intraditional water harvesting structures, as well as footpaths to drinkingwater sources. Subproject Consultations.For all individual subprojects, local consultations with bothmen and women form an integral part o f the environment and social management process specified inthe SEA. These consultations result inthe Social Framework Agreement (SFA), which i s signed by the Beneficiary Committee, the Governor and the RAPCMO. SafeguardRelatedImpacts and .Mitigation Main impacts. Rural roads have a range o f potential positive and negative impacts, depending on their location within the country. Roads located in the escarpments are characterized by hairpin bends whereas in flat areas they follow rather straight alignments. These geometric features affect the volumes o f earthworks and consequent impacts on the environment. Water harvesting along and even on the road surface is routine practice and i s a major consideration in - 72 - rural road design, as i s cross-drainage, discharge to adjacent lands, flood protection and wadi hydrology. Slope stabilization i s a key issue in vertical alignment design to avoid landslides in the mountainous zones. Traditionally, rural roads designs inYemenhave featured a roadbed o f 7 meter width, with a road surface 6 meters wide and shoulders o f 0.5 meter on each side. In the case o f mountain roads, this design requires rather deep cuts into the mountainside to achieve the design width o f the roadbed, leading to the erosion o f exposed slope surfaces and often to slides o f slopes onto the road. In addition, such road widths can lead to land taking through populated or agricultural areas, which i s difficult to justify, giventhe volume o ftraffic on these roads. Mitigationthrough avoidanceand improved and environmentally-soundtechnicaldesigns. A key aspect o f the RAP'SEnvironment and Social management process is the participation of environmental and social specialists during the screening, design and implementation stages o f the roadproject cycle. Inthis way, potential environmental and social issues may be avoided or significantly reduced through design considerations and meaningful analysis o f alternatives. Phase Icarried out test sections on the pilot roads and village access roads, addressing such design issues as: (i)water harvesting on mountain roads; (ii) narrower platforms, and related to a reduced need for cutting into slopes and earth movements; (iii) more durable road surfacing on steep slopes to avoid erosion; (iv) slope stabilization on sections o f the roads where slopes are unstable; (v) controlled disposal at designated sites o f excess material cut from the hillside slopes; and (vi) embankment design and wadi hydrology. Based on these experiences, revised design standards are being developed, which will be regularly updated based on cumulative experience. Environmental Management Plans. Each road specific EA will include an EMP, which summarizes the impacts, mitigation measures and responsibilities for environmental and social impacts associated with the road. It will be summarized in a standard table, which will be an adaptation o f the SEA Environmental Management Plan Table. Capacityand Commitmentof ImplementingInstitutions The Environment and Social Management Unit at the CMO will be responsible for the overall implementation o f the safeguards policies. During Phase I,this two-person unit has built up a good knowledge and capacity in environment and social management, through field application o f the environmental review process on the pilot roads. The Unit i s also responsible for the monitoring o f socio-economic impact indicators. In its transition to Phase 11, the Unit i s converting its role from one o f "doing" to .one o f "managing and supervising" local consultants. To this end, the Unit has trained a pool o f local consultants inpreparing EAs, including women to conduct the women's consultations. Because o f the increasing workload, the Unit will be increased by two persons, so as to assure adequate screening and follow up monitoring o f the numerous subprojects. MitigationFunding Cost of DesignMeasures.The quantities, specifications and estimated costs o fdesign measures to avoid or mitigate negative impacts will be assessedby the design consultant and incorporated - 73 - into the works biddingdocuments. The contractor will execute all requiredworks andwill be reimbursedthrough pay items inthe bill o f quantities, which will be financed by the project. Temporary Land Acquisition. Temporary acquisition for diversions, camps, borrow areas and other work sites will constitute a community contribution, under the auspices o f the Beneficiary Committee and confirmed through Social Framework Agreement. Additional costs o f rehabilitating all such areas to their original state will be incurred by the contractor and bome by the project, as a pay iteminthe bill o f quantities. ResettlementCosts. All resettlement related costs will be governed by the Resettlement Policy Framework. The Policy Framework specifies that the costs o f replacing affected buildings will be borne by the project and will be reimbursedthrough pay items in the bill o f quantities. In conformance with Yemeni traditional rural practice, owners o f affected lands will not be compensated by the project incash for loss o f land, but the affected owners will donate such land for public purposes and community benefit. However, this donation will occur within the context o f a mutually signed community-based Agreement, which is appended to the SFA, and which specifies the terms underwhich the donation i s made. Natural Habitats and Cultural Resources. Mitigation measures involving civil works or habitat restoration will be funded as a Project cost and will be included in the Bill o f Quantities as a pay item to the contractor, who will implement the said measures to a specified standard at the agreed location(s). The project will not finance any recurrent costs, which must be bome by the Ministry o f Water and Environment (MWE), the agency responsible for management o f the critical natural habitat, or the community inthe case o fnon-critical habitats. Cultural Resources. Mitigation measures for protectionhestoration o f cultural resources sites involving civil works will be funded as a project cost and will be included in the Bill o f Quantities as a pay item to the contractor, who will implement the said measures to a specified standard at the agreed location(s). The costs o f conservation or other non-civil works mitigation will also be included in the project's financing. This may include, for example, the temporary secondment of, and logistical support to, a qualified archaeologist or cultural resource specialist to the project. The specialist will supervise the implementation o f relevant mitigation and management activities, as well as the treatment o f any chance finds. Relevant findings will be recorded in the Works Supervision reports. Aside from civil works directly related to the road, the project will not finance any recurrent costs, which must be born by GOAMM or other responsible agency. Operational Costs. During operations, the costs o f mitigation in the course o f maintenance contracts will be incurred by the contractor and borne by the employer, who may be the Road Fund, Government or local government, and reimbursedas a pay item inthe bill o f quantities. The maintenance o f water harvesting, footpaths and other social measures will be the responsibility o f the community. Inaddition, the community will be expected to carry out basic cleaning o f drains and culverts as part o f their contribution to maintenance. The cost o f safety and driver information campaigns will initially be borne by the project, however the communities will be responsible for continuous community education and safety campaigns. Selected safety checks will be carried out by the project, inconjunction with communities. - 74 - EnvironmentalCovenantsinDevelopmentCreditAgreement All subprojects will be planned and implemented in accordance with the environmental and social management process, as specified inthe SEA (Volumes Iand 11). MonitorinpArrangements The W C M O through its Environmental and Social Unit (E&SU) shall be responsible for monitoring o f the overall environmental and social management process. During road construction or maintenance, the Resident Engineer (RE) will be responsible for monitoring the Contractor's compliance with all contract clauses addressing environmental and social impact mitigation, to be carried out under the purview o f the General Safety, Health and Environmental Regulations. For this purpose, the RE will refer to the project-specific EMP and report on such compliance in his monthly reports. The E&SU shall maintain a dossier for each project road. This dossier will include: Initialrequests for support and all ensuing correspondence 0 Screening Report and all attachments 0 Draft and Final EA, EMP and SFA 0 Records o f all consultations at Govemorate and local levels 0 Copies o f Special Reports, such as Resettlement Plans, Natural Habitats Plans or Cultural Resources Plans, when applicable SupervisionArrangements Following its exercise o fprior review, the Bank will monitor the implementation o f road specific EAs, SFAs, Resettlement Plans and specific mitigation plans for Natural Habitats or Cultural Resources. As part o f regular supervision or separate missions, the Bank will also carry out targeted and spot review o f EMP implementation, including consultations and specific social cases and resettlement plans involving landdonation and asset replacement. EAs and other environment/social documents for category "A" sub-projects will be submitted to the Bank's MNA Environment and Social Cluster for early review in order to ensure that any issues are resolved well before final design and construction. - 75 - Annex 11: ProjectPreparationand Supervision YEMEN, REPUBLIC OF: SecondRuralAccess Project Planned Actual PCNreview 1/15/2004 InitialPID to PIC Initial ISDS to PIC 1/26/2004 Appraisal 1/30/2005 Negotiations 4/18/05 Board/RVP approval 11/20/2005 Planneddate o f effectiveness 03/31/2006 Planneddate o fmid-tennreview 03/01/2008 Planned closing date 11/30/2010 . Keyinstitutionsresponsiblefor preparationofthe project: . RuralAccess ProgramCentral ManagementOffice (RAPCMO) Road MaintenanceFund(RMF) Bankstaff and consultants who worked on the projectincluded: Name Title Unit Jean-Charles Crochet Sr. Transport Economist M N S I F Andreas Schliessler Sr. Transport Economist AFTTR Robert Fishbein Environment Specialist AFTTR Hisham Labadi Highway Engineer MNSHD Jerome Leyvigne Transport Specialist MNSIF Abdelghani Inal HighwayEngineer MNACS Richard James Operations Analyst MNCA3 Ghada Youness Sr. Counsel LEGMS Matthew Parish Counsel LEGMS Thao L e Nguyen Disbursement Officer LOAGl JohnBryant Collier Operations Officer MNSRE MikaelMengesha Sr. Procurement Specialist MNACS Josephine Masanque Sr. Financial Management Specialist MNACS Mohammed Yehya Abd ElKarim Financial Management Specialist MNACS Yaa Pokua Afiiyie Oppong Social Development Specialist (YP) MNSRE Tuyet Chuppe Program Assistant M N S R E Elena Gagieva Program Assistant M N S I F Bank hnds expendedto date on project preparation: 1. Bank resources: US$272,502 2. Trust funds: N/A Total: US$272,502 Estimated annual supervision costs: US$85,000 - 76 - Annex 12: Documentsinthe ProjectFile YEMEN, REPUBLIC OF: SecondRuralAccess Project . ....National Highway Master Plan, Government o fYemen, SMEC Consultants, 2004 Draft National Road Classification, Government o fYemen, SMEC Consultants, 2004 Draft Rural Accessibility Master Plans for Five Govemorates, Government o f Yemen, SMEC Consultants, 2005 Sector Environmental Assessment, Government o f Yemen, Techniplan Consultants, 2004 Resettlement, Natural Habitats, and Cultural Resources Policy Frameworks, Government o f Yemen, Techniplan Consultants, 2004 Screening reports and detailed economic analysis for five roads, RAPCMO, 2004 - 77 - Annex 13: Statement of Loans and Credits YEMEN, REPUBLIC OF: SecondRuralAccess Project Differencebetween expected and actual OriginalAmount inUS$ Millions disbursements Project FY Purpose ID IBRD IDA SF GEF Cancel. Undisb. Orig. Rev'd Frm' PO76185 2005 RY-BasicEducation Development Program 0 00 6500 000 000 000 6332 -1 70 0 00 PO74413 2004 RY-Groundwater & Soil Conserv Proj 0 00 40.00 000 000 000 4020 6 80 0 00 PO82498 2004 RY-SOCIAL FUND FOR DEVELOPMENT I11 0 00 60.00 000 000 000 58 59 17 76 0 00 PO82976 2004 RY-THIRDPUBLIC WORKS 0 00 45.00 000 000 000 41.79 0 45 0 00 PO57602 2003 RY URBAN WTR SUPPLY & SANITATION APL 000 13000 000 000 000 14190 5415 0 00 PO65111 2003 RY-PORTCITIES DEVELOPMENT PROGRAM 0 00 2340 000 000 000 2328 1043 0 01 PO64981 2003 RY-SANA'A BASIN WATER MGMNT oo PROJ 2400 000 000 000 2463 5 60 0 00 PO70092 2002 RY TAIZ MUNICIPAL DEV & FLOOD oo PROTEC 45.20 000 000 000 3041 2443 -2 15 PO76183 2002 RY Higher Education 0 00 5 00 000 000 000 5 73 179 0 00 PO43254 2002 RY-HealthReformSupport Proj (HRSP) 0 00 2753 000 000 000 3040 4 40 0 00 PO43255 2001 RY Basic EducationExpansionProject 0 00 5600 000 000 000 2603 4 64 0 00 PO62714 2001 RY-IRRIGATION IMPROVEMENT 0 00 21 30 000 000 000 1797 1444 0 00 PO70391 2001 RY-RURALACCESS IMPROVEMENT oo PROGRAM 4500 000 000 000 1970 1228 3 20 PO05906 2001 RY-RURAL WATER SUPPLY & SANITATION 0 00 2000 000 000 000 1622 1108 -0 74 PO50483 2000 RY CHILD DEVELOPMENT 0 00 28.90 000 000 000 1238 1012 0 00 PO50706 2000 RY-CIVIL SERVICEMODERN 0 00 3000 000 000 000 21 46 1902 0 00 PO05902 1998 RY-SouthemGOV AGRI PRIVATIZA 0 00 2470 000 000 401 5 93 10 20 0 00 Total YEMEN,REPUBLICOF :STATEMENT OFIFC's HeldandDisbursedPortfolio InMillionsofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1999 ACSM 8.00 0.00 0.00 0.00 8.00 0.00 0.00 0.00 2002 Ahlia Water 1.51 0.00 0.00 0.00 1.51 0.00 0.00 0.00 1998 Radfan 0 95 0 00 0.00 0 00 0.95 0.00 0 00 0 00 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic - 78 - Annex 14: Country at a Glance YEMEN,REPUBLICOF: SecondRuralAccess Proiect M. East POVERTYand SOCIAL R North Low- Yemen Africa income Development diamond' 2003 Population,mid-year (millions) 19.2 312 2,310 Lifeexpectancy GNI per capita (Atlas method, US$) 510 2,210 450 GNI (Atlas method, US$ billions) 9.8 689 1.038 7- Average annual growth, 199703 Population(%J 2.9 1.9 1.9 Laborforce (%) 3.0 2.9 2.3 SNI Gross primary Most recent estimate (latest year available, 199703) :apita enrollment Poveriy (% of populationbelownationalpovertyiine) 42 Urban population(% of totalpopulation) 25 58 30 Life expectancy at birth (yean) 57 69 58 i Infant mortality(per 7,000live births) 83 44 82 Child malnutrition(% of childrenunder5) 46 44 Access to improvedwater source Access to an improvedwater source (% OfpOpulatiOn) 69 88 75 Illiteracy(% ofpopulation age 15+J 50 31 39 Gross primaryenrollment I%of school-age population) 81 96 92 a"+A** Yemen, Rep Male 97 100 99 Low-incomegroup Female 64 92 85 KEY ECONOMIC RATIOSand LONG-TERMTRENDS 1983 1993 2002 2003 Economicratios' GDP (US$billions) 4.9 9.9 11.0 Gross domestic investmenffGDP 20.2 20.5 21 0 Exportsof goods and servicesiGDP 27.4 38.7 37.7 Trade Gross domestic savings/GDP -17.2 19.1 18.8 Gross nationalsavings/GDP -5.2 25.8 23.0 T Current account balance/GDP -25.5 5.4 1.8 Domestic InterestpaymentdGDP 0.4 0.5 0.5 Investment Total debffGDP 120.9 54.1 49.0 savings Total debt servicelexports 5.2 3.0 4.6 Presentvalue of debffGDP 35.9 32.5 1 Presentvalue of debffexports 68.3 65.5 Indebtedness 1983-93 1993-03 2002 2003 200347 (average annualgrowth) GDP .. 5.5 3.9 3.1 3.7 --- Yemen, Rep GDP per capita .. 2.5 0.8 0.1 0.6 Low-incomeorouo Exports of goods and services .. 5.4 8.6 2 1 -7.0 STRUCTURE of the ECONOMY 1983 1993 2002 2003 (% of GDPJ Agriculture .. 22.6 11.4 10.8 Industry .. 23.1 41.5 41.6 Manufacturing .. 12.7 5.4 4.9 Services .. 54.3 47.1 47.6 Privateconsumption 98.2 64.1 63.6 General government consumption 19.1 16.7 17.6 Importsof goods and services ...... 64.9 40.2 39.9 -GDI -GDP (average annualgrowth) Agriculture Industry Manufacturing Services Privateconsumption General government consumption Gross domestic investment 5 0 1 7 5 7 ---"Exports -.c1-lmports Importsof goods and services ~~ ~ Note: 2003 data are preliminary estimates * The diamonds show four key indicatorsinthe country (in bold)comparedwith its income-groupaverage. If data are missing.the diamond will be incomplete. - 79 - PRICES and GOVERNMENTFINANCE 1983 1993 2002 2003 Domestic prices Inflation ( O h ) I (% change) 45 T Consumer prices 35.8 6.8 11.9 30 ImplicitGDP deflator 19.2 4.9 12.5 15 Government finance (% of GDP,includes current grants) 0 Current revenue 15.2 33.9 33.9 -15 Current budget balance -9.5 6.0 5.0 GDPdeflator - 0 ' C P I Overall surplus/deficit -12.8 -0.7 -2.3i )*IIUUIUI*I I TRADE 1983 1993 2002 2003 (US$ millions) Export and Import levels (US$ mill.) Total exports (fob) 1,167 3,684 3,934 CNde oil (governmentshare) 277 1,600 1,828 "OoO T Crude oil (companyshare) 556 1,546 1,631 Manufactures 20 138 139 Total imports(cif) 2,138 2,932 2,932 Food 548 997 1,153 Fuel and energy 148 416 480 Capitalgoods 502 747 852 Export price index (1995=100) 100 134 154 97 98 99 00 01 02 Import priceindex (1995-700) 89 83 91 kk! Exports Imports Terms of trade (1995=100) 112 162 170 BALANCE of PAYMENTS 1983 1993 2002 2003 (US$ millions) Current account balanceto GDP (%) Exports of goods and services 1,344 3,861 4.222 Imports of goods and services 3,182 3,992 4,468 Resource balance -1,838 -131 -246 Net income -408 -718 -828 Net currenttransfers 998 1,384 1,274 Current account balance -1,248 535 199 Financingitems (net) 1,391 217 383 Changes in net reserves -144 -752 -583 Memo: Reserves includinggold (US$ millions) 148 4,056 4,445 Conversion rate (DEC, /ocal/US$) 4.6 48.6 175.7 183.4 EXTERNAL DEBT and RESOURCEFLOWS 1983 1993 2002 2003 (US$ millions) 1 Composltlon of 2003 debt (US$mlll.) Total debt outstandingand disbursed 2,796 5,923 5,352 5,394 IBRD 0 0 0 0 I IDA 253 726 1,350 1,417 G:438 Total debt service 85 119 158 252 IBRD 0 0 0 0 IDA 2 10 29 34 Compositionof net resource flows Officialgrants 231 109 3 55 Officialcreditors 454 49 60 60 Privatecreditors 14 10 0 0 Foreigndirect investment 8 897 39 -131 Portfolioequity 0 0 6 2 World Bank program Commitments 0 27 163 47 A - IBRD E Bilateral ~ Disbursements 55 46 83 89 B IDA - D Other multilateral ~ F Private Principalrepayments 0 5 19 23 C-IMF G Short-term -- Netflows 55 41 64 66 Interest payments 2 5 10 11 Nettransfers 53 36 54 55 Development Economics 9/20/04 - 80 - Annex 15: Map (IBRD No. 33979) YEMEN,REPUBLICOF: SecondRuralAccess Project - 81 - IBRD 33979 42° 44° REPUBLIC OF YEMEN 46° 48° 50° 52° 54° This map was produced by the Map Design Unit of The World Bank. RURAL ACCESS PROGRAM -- PHASES 1 AND 2* ROADS S A U D I A R A B I A The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any PERCENT OF HOUSEHOLDS UNDER FOOD POVERTY LINE judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. O Saddat ash Shuqqah FOOD POVERTY: TOWNS AND VILLAGES M RURAL ACCESS PROJECT (RAP) PHASE 1 10% ­ 14% GOVERNORATE CAPITALS RURAL ACCESS PROJECT (RAP) PHASES 1 AND 2* 15% ­ 19% NATIONAL CAPITAL A REP. OF YEMEN A14 20% ­ 24% AIRPORTS N An Nadirah-Damt, TOTAL LENGTH OF PROJECT Sanaw 18° 20 km (14+6) (INTERMEDIATE ROAD + VILLAGE ACCESS ROADS) 25% ­ 29% PORTS 18° PRIMARY ROADS 30% ­ 39% GOVERNORATE BOUNDARIES Thamud SECONDARY ROADS Habarut INTERNATIONAL BOUNDARIES A L - Hawf S A A D A H M A H A R A Damqawt Saadah A L - J O W F Zamakh Al Ghaydah H A D R A M O U T Mar'ayt Tabut AMRAN Tarim Maydi Nishtun H A J J A H A16 Al Hazm Shibam Al Ghuraf Haynin Seiyun 16° Al Jamimah Al Magrabah A2 Hawra Rural Access Project (RAP) Phase 1: Raydah Qishn A1 Thulla­Amran, 38.7 km (25.6+13.1). Al Luhayyah Hajjah Kuhlan SANA'A Azzaher Amran CITY M A R I B A2 Safir Kuhlan­Al Magrabah (Section 1), Bani Al Awan A1 Shabwah A5 Sayhut Al Qanawis Thulla Sana'a Al Ribat 23.8 km (15.8+8). Az Zaydiyah AL- Al Mahwit Salif MAHWIT Beni Shadad Marib A7 A3 At Taffah­Awin, 44.5 km (42+2.5). A10 Malhan District Center A9 Al Khadra Al Magharim Al Ghaydah A4 At Turbah­Tor Al Bahah, Al Kadan Khamis Bani Sa'd JIhanah Quaseyr Atud R Bajil S A N A ' A 18.7 km (8.8+9.9). e Nuqub S H A B W A Seham d Harib A5 Azzaher­Al Ribat, 43 km. Al Hodeidah A6 Bora'a Mabar Ar Riyan A21 A12 Bayhan Al Mukalla A6 Seham­Bora'a, 29 km. S Al Mansuriyah Dhamar Al Kura'a Ataq Ar Rawdah A7 Al Khadra­Beni Shadad, 27 km. e Wasit Nisab DHAMAR Rida Awin B2 a HODEIDAH Rural Access Project (RAP) Phases 1 and 2*: A15 A8 Akamat Al Agoud­Mudykhirah, 36 km. AL-BEIDA A3 A14 An Nadirah­Damt, 20 km (14+6). A20 Yarim Al Nagabah As Sufal A9 Qratiel Hamdan, 4 km. A18 IBB A15 Jabl Al Dar­Ribad Emran, 14 km. Al Nadirah At Taffah Al Beida B1 Al Huwaymi Al Mahfad Bir A10 Al Qanawis­Al Kadan, 34 km. Ali Al Udien Ibb A16 Al Qabie­Shaharah, 11 km. 14° AL- A22 Hays Al Hamiyah A11 Al Udien­Mudykhirah, 17 km. A11 A14 Qatabah Al Ahmer Mudykhirah A17 Orod­Souq Al Horiah, 31 km. DHALE'E Mudiyah A12 Bayhan­Al Harajh­Al Kura'a, 22 km. A13 Lawder A17 A8 Ahwar A18 Al-Mesqah­Al-Haqlain, 21 km (17+4). Akamat Al Agoud ABYAN A13 Abyn, 14 km (Rural roads only). Taiz A19 Al-Dhabab­Al-Manaom, 20 km. E R I T R E A B1-2 Al Ahmer­Al Huwaymi, 232.7 km. Shaqra A20 Al Madn­Al Shabareeq, 23 km. Mocha A19 A4 Jaar A21 Rusabah­Shareh­Al Qubah, 10.8 km. TAIZ At Tor Al Turbah G u l f o f A d e n Bahah Lahej Zinjibar A22 Lawer­Jisr Malihah, 22.8 km (18+4.8). LAHEJ Socotra (Yemen - Aden Governorate) At Ghadir Aden Turbah 0 25 50 75 100 KILOMETERS Barim ADEN * Roads to be financed only under Phase 2 have not been selected yet Samhah ETHIOPIA 'Abd al Kuri Darsah (Yemen - and are not represented in this map (Yemen - Aden Governorate) The Brothers Aden 0 25 50 75 100 MILES Governorate) (Yemen - Aden Governorate) 42° DJIBOUTI 44° 46° 48° 50° 52° 54° JUNE 2005