Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-514 7 -GUB

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

OF SDR 18.5 MILLION

TO THE

REPUBLIC OF GUINEA BISSAU

FOR AN

INFRASTRUCTURE REHABILITATION PROJECT

NOVEMBER 6, 1989

This docment has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS(As of December 1989)

Currency Unit G PesoUS$1.0 - G Pesos 2,600G Peso 1 Million - US$385US$1.0 SDR 1.27572SDR1.0 US$ 0.78387

MEASURES

lkm 0.62 miim 1.09 ydlsq km - 0.38 sq milha = 2.47 acresit 2.2 lbs11 0.26 gal

ABBREVIATIONS AND ACRONYMS

GUINEMAR National Shipping AgencyJAPG Port AuthorityMES Ministry of.Social InfrastructureRODOFLUVIAL Public Trucking and River Transport CompanySAP Structural Adjustment ProgramSET State Secretariat of TransportSILO DIATA Public Bus CompanyTAGB National Airline Company

FISCAL YEAR

Janur.ry 1 - December 31

FOR OFmFCIAL USE ONLY

REPUBLIC OF GuInKA BISSAU

INFRASTRUCTURE REHABILITATION PROJECT

CREDIT AND PROJECT SUIOARY

Borrower: The Republic of Guinea Bissau

Beneficiaries: Ministry of Social Infrastructure;State Secretariat of Transport;Municipality of Bissau.

Credit Amount: SDR 18.5 million(US$23.6 million equivalent)

Texu: Standard, with 40 years maturity.

Financing Plan: IDA US$23.6 millionCofinanciers US$14.9 millionGovernment USO 4.8 million

Total USS43.3 million

Economic Rate of Return: 48 percent covering about 72 percent oftotal project cost.

Staff Appraisal Report: Report No. 8070-GUB

Map: IBRD No. 21464

This document has a restricted distribution and may be used by recipients only in the performanceof their offilcial duties. Its contents may not otherwise be disclosed without World Bank authorization. ]

MEMORANDUM AND RECOMHENDATION OF THE PRESIDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORSON A PROPOSED CREDIT

TO THE REPUBLIC OF GUINEA BISSAUFOR AN INFRASTRUCTURE RERABILITATION PROJECT

1. The following memorandum and recommendation on a proposeddevelopment credit to the Republic of Guinea Bissau for SDR 18.5 million(US$23.6 million equivalent) is submitted for approval. The propoEed creditwould be on standard IDA terms, with 40 years maturity and would help financean Infrastructure Rehabilitation Project. The Project would be cofinancedby other donors for US$14.9 million equivalent.

2. Background and Strategy. Since independence in 1974, Guinea-Bissauhas faced the major task of rebuilding its economy which was heavily damagedduring the war of independence. The combination of excessive centralizationand weakness of the administration had resulted in a deep economic andfinancial crisis. To correct this situation, the Government has embarked ona comprehensive Structural Adjustment Program (SAP) with the objectives ofliberalizing trade, introducing more restrained fiscal policies andproduction incentives, correcting foreign exchange disparity, and othermarket-oriented measures. The SAP has been supported by two IDA StructuralAdjustment Credits, an IMF Structural Adjustment Facility and other bilateraland multilataral donor assistance, and has started producing positiveeffects. The infrastructure sectors have a key role in SAP. Improvedtransportation will contribute to broadening the market and freeingproductive forces, especially in agriculture. Road infrastructure, which waspartially improved during IDA's First and Second Highway projects, must befurther improved to provide adequate access to agriculture production areas.Furthermore, government strategy, as presented in its Transport Policy,focuses on strengthening the operations and financial management of allpublic transport companies and on training of skilled and semi-skilledpersonnel required for operations and management of the sector. In the urbansector the accent wlll be on improving the housing and sanitary conditionswhich deeply affect the productivity and health of the labor force.

3. Guinea-Bissau's transport sector comprises 2,630 km of roads, ofwhich about 752 are in poor condition and which, if well maintained, wouldbe generally adequate to meet the country's needs; a deep water port, managedby the port authority, JAPG, which receives most of the internationaltraffic, and 27 small coastal and river ports; and an international airportand 17 landIng strips for domestic traffic under the Department of CivilAviation. The country has no railway. Road and river transport take anequal share of the domestic freight traffic, with little going to airtransport. Regarding public transport companies, the country possesses anational airline, TAGB, which carries about 252 of the internationalpassenger traffic and all domestic traffic; RODOFLUVIAL which took overfreight transport from two previously existing public trading companies andpassenger river transport from the national shipping agency, GUINEMAR; anda bus company, SILO DIATA, which is severely constrained by lack of workshopequipment and spare parts. All have suffered from debt problems andinadequate revenues from operations. Despite the presence of theseparastatals, the private sector takes a significant share of the transport

- 2 a

sector market, particularly road tranoport, but its productivity is lowbecause of spare parts shortages and inadequate repair facilities.

4. lBatol Is Lor IDA ZLmMk!sL t. The IDA country assistance focuseson creating the conditions for long-term development of the economy andremedying financial imbalances by limiting new investments to the mostessential needs. The transport sector, which may require about 301 of publicinvestment over the next five years, is a critical area where failure toachieve a balanced development would Imply heavy losses in other sectors andslow down the impetus on liberalization created by the SAP. Continued IDAinvolvement will help to reduce this risk. Although other donors may beinterested in financing equipent and civil works, none has shown interestin supporting overall strengthening of the institutions. The resultsachieved under previous projects ouggast that this would best be done throughcontinued IDA participation. Biasau's sanitary conditions which recently ledto an epidemic of cholera, and the very poor living conditions of most of itspopulation justify involvement in municipal management and housing programs.Furthermore, IDA's support of tile project will intensify the policy dialogueon road maintenance financing and investment planning for the transport andurban sectors, and will help enlist the support of donors towards highpriority projects.

5. Project Obiectives. The objectives of the project will be to (a)consolidate progress made under the Bissau Port Project and the two highwayprojects and, in particular, establish sound and efficient infrastructuremaintenance capaecity; (b) remove bottlenecks to increased agriculturalproductivity, particularly in the South, by improving parts of the existingfeeder road network; (c) address weaknesses in the areas of road management,transport planning and financial management of the public transportcompanies, and further encourage private participation in the transportsectors (d) contribute to a more economical balance between the road andriver transport modest (e) implement a comprehensive training program formanagers, and skilled and semi-skilled personnel needed for theinfrastructure sectors; (f) improve municipal services in Bissau and othercenters; and (g) expand on the sites and services operation initiated underthe Social and Infrastructure Relief Project (Cr. 2020-GUB approved in May1989), as well as provision of demonstration houses, in order to more fullyaddress the need for low cost housing.

6. Prolect DescriBtion. Project components will comprise (a)institutional support to the Ministry of Social Equipment (MES) and its StateSecretariat of Transport (SET) to strengthen the planning and management oftransport and urban projects, and monitoring of transport companies,including training programs and sector studies; (b) assistance to the publictransport companies (SILC DIATA, RODOFLUVIAL, JAPG and TAGB) throughprovision of equipment and spare parts, tools and technical assistance tostrengthen their management and maintenance and to facilitate involvement ofthe private sector in their operations; (c) road infrastructurerehabilitation and maintenance including improvement of feeder roads andtraining of domestic contractors in labor-based road works; (d) urbandevelopment including preparation of a Housing Policy, establishing systemsfor housing finance, expansion of solid waste collection, distribution ofplots and houses, and developing municipal services in Bissau and othercenters. The total project cost is estimated at US$43.3 million equivalent

-3 -

with a foreign exchange component of US$34.3 million (792). A breakdown ofcosts and the financing plan are shown in Schedule A, Amounts and mrthodsof procurement and of disbursements, and the disbursement schedule are shownin Schedule B. A timetable of key project processing events and the statusof Bank Group operations in Guinea Bissau are given in Schedules C and D,respectively. A map is also attached. The Staff Appraisal Report No. 8070-GUB dated November 6, 1989. is also attached.

7. Actions Agreed. Agreement was reached with the Government on thefollowing: (a) the scope of restructuring SILO DIATA, GUINEMAR and TAGB, andaction plans for involving private participation in each of the publictransport companies, including changes required in their ownership ormanagement, to be implemented by January 1, 1992; (b) implementation of theTransport Policy and new transport regulations; (c) an action plan for TAGBto create a new company in Guinea Bissau involving a venture with aninternational aviation company; (d) restructuring of the Road Fund andimproved collection of road user charges; (e) the criteria for adjustingperiodically tariffs for services of the public transport companies and roaduse charges, as well as annual reviews of physical and financial performanceand action plans of MES, SET, Bissau Municipality and public transportcompanies; (f) annual auditing of the accounts of Bissau Municipality and allpublic transport companies; (g) operational and financial targets for thepublic transport companies; (h) a survey of occupants of existing dwellingson land to receive services; implementation of an action plan, including anyresettlement, to be agreed with IDA; (i) the three-year (1990-92) transportand urban investment programs; (j) annual reviews of rolling three-yeartransport and urban investment plans and annual budgets and expenditures; and(k) criteria for selecting priority investments including: the need toadequately fund rehabilitation and maintenance before new construction andupgrading; economic rates of return for investments to be at least 122; andany proposed investments in the urban and transport sectors over US$1.0million equivalent to be agreed with IDA. Conditions of Effectiveness are:(1) appointment of the coordinator, accountant and training advisor for theProject Coordination Unit in MES; (m) implementation of a revised system foradjusting tariffs for each public transport company; (n) undertaking measuressatisfactory to the Association to enable an increase in revenues for theRoad Fund; (o) assumption of SILO DIATA's foreign debt by the Government; (p)publication of new transport regulations; and (q) Participation Agreementsbetween MES and each public transport company. Agreement on criteria forallocating serviced plots and houses is a condition of disbursement for thesites and services and housing component.

8. Justification and Risks. The project would reduce transport costs,contribute to the training of Guinea Bissau's skilled manpower, stimulatelocal production and contribute to poverty alleviation by providing anopportunity for the public to purchase land for low-cost housing. It wouldprovide better access to agriculture production areas, and would contributeto a healthier environment for the urban population. The main risks are: (a)non-compliance with the transport policy; (b) Government reluctance tofacilitate private sector participation in works and transportation; and(c) delays in implementation due to constraints in the absorptive capacityof MES. The Government, however, has given its commitment to theimplementation of the transport policy and has agreed to measures to selectand fund infrastructure projects with emphasis on rehabilitation and

- 4 .

maintenance programs. Furthetmore, detailed action plans will be preparedfor private participation in each of the Public Transport Companies. Theestablishment of a Project Coordination Unit in MES and a TransportCoordination Unit in SET will ensure that Implementation of this multi.faceted project is well managed and that performance of the public transportcompanies are constantly monitored.

9. RecaMe_ tiou. I am satisfied that the proposed credit wouldcomply with the Articles of Agreement of the Association and recommend thatthe Executive Directors approve the proposed credit.

Barber B. ConablePrs ident

Attachments

Washington, D.C.November 6, 1989

-5

Schedule A

REPUBLIC OF GUWINE BISSAU

SOCIAL AND TINPISTROCTUHN RELIF PROJECT

SMER OF COST ESTDIATZS hIDFNANCN PLAN

Estimated CastsLocal Foreipn Total--------------US$ thousand-

A. Institutional Support 658.6 6,336.4 6,995.0

B. Transport Companies 78.6 2,792.4 2,871.0

C. Road Infrastructure Program 2,555.6 13,393.2 15,948.8

D. Urban Program 447.8 1,512.2 1,960.0

E. Road Maintenance Operations 3,176.0 4,764.0 7,940.0

Base Cost (December i989) 6,916.6 28,798.2 35,714.8

Physical Contingencies 301.0 1,672.2 1,973.2Price Contingencies 1,784.1 3,823.5 5.607.6

Total Project Cost 11 9,001.7 34,293.9 43,295.6

Local Foreign Total--------------- S$ million-------------

Financing Plan: 21

IDA 2.5 21.1 23.6Cofinanciers 1.7 13.2 14.9Government 4.8 _ 4.8

Total 9.0 34.3 43.3

1/ Project items are exempt from all taxes anti duties except for a smallamount from local contracts for road works anti maintenance.

21 Amounts are rounded.

-6- Schedule B

page 1 of 2REPUBLIC 0O GCUNEA B13SAIl

INPRsnTRUCTMtl REIUBJLITATIOB PROJECT

PROcusMENr METHOD AND DISIURSSMENTS A/

Project Element Procurement Method TotalICB LCB Other NA b/ Cost

e-___ -----e-e(US$ million)-------------------

Civil and building 13.8 2.7 - - 16.5works (5.7) (0.4) - - (6.1)

Road maintenance - - 0.8 - 0.8operations (0.8) - (0.8)

Equipment and 5.2 - 1.3 6.5materials except formaintenance cperations (1.9) - (0.3) - (2.2)

Consulting services - - 9.3 - 9.3and training (7.7) - (7.7)

Recurrent expenditure - - 8.7 - 8.7(5.3) - (5.3)

Refinancing PPF 1.5 1.5(1.5) (1.5)

TOTAL 19.0 2.7 20.1 1.5 43.3(7.6) (0.4) (14.1) (1.5) (23.6)

a/ Amounts financed by IDA are in parentheses.b/ Not applicable.

7 Schedule B

REPUBLIC OF GUINM-BISSAU page 2 of 2

INFRASTRUCTURE REBA ILI?ATION PROJECT

Allocation and Disbursement of IDA Credit

IDA Amount PercentCategory Description (USA millions) Financed

1 Civil and building 4.10 100? foreignworks, except sites and services, and 502 localand demonstration houses

2 Design and supervision of 2.00 100?all works

3 Sites and services and 1.30 100? foreigndemonstration houses and 95? local

4 Equipment and materials 1.90 1002 foreignexcept for maintenanceoperations

5 Technical assistance. including 4.30 100?studies and audits

6 Local and external training 0.80 100?courses, includingequipment and supplies

7 Road maintenance operations, 5.50excluding salaries and wages:

-expenditures before 10O2 foreignJan. 1, 1991 and 50Z local

-expenditures during 1991 1002 foreignand 1992 25Z local

-expenditures after Dec.31,1992 100? foreign

8 Refunding of PPF Advance 1.50 tmount due

9 Unallocated 2.20

TOTAL 23.60

Estimated IDA Disbursements:

IDA Fiscal Year: FY90 FY91 PY92 FY93 FY94 FY95 FY96

Annual 3.5 5.3 5.3 4.0 3.0 1.8 0.7Cumulative 3.5 8.8 14.1 18.1 21.1 22.9 23.6

UNPUILIC OF OSUZUi 5ZSSAV

ZNFUAS?1UCTUU RNHA3ZLXTASON PUDJECT

IM?TAUL OF 0Y mWoJICT PUO38tSINQ EVENTS

(a) Time taken to prepares 13 months

(b) Prepared bys Government with IDA assistance

(c) First IDA missions October 1987

(d) Appraisal mission departures November 1988

(e) Negotiations. October 1989

(f) Planned Date of Effectiveneses March 1990

(g) List of relevant PCRs and PPARsa First Highway ProjectPPAR No.6328

-9-SCHEDULE D

THE 5TATUS OF DANW GROUP OPERATIONS IN GUINEA-9ISSAU

S;,ATEIMENT OF BANK LOANS AND IDA CREDITS 1/

(As of September 80, 1989)

Credit FiscalNumber Year Borrower Purpoe Amount 2/ Undisbursed 3/

Four credits closed 81.38 0.00

1934-GUB 1988 Cuin a-Bissou Petroleum Exploration IX 18.10 0.781392-CUB 1984 Guin -Bissau Bissuu Port 16.O 1.73FOS-GUB 1984 Guln a-Biesau Roads I 4.00 8.001478-CUB 1984 cuin a-ioassu Roads S 4.00 0.01

A-014-CUB 1988 Guln s-Biessu Supplem.Recon t.Import 5.00 0.20A-028-GUB 1987 Guin a-Bissau Structural Adunt 5.00 0.071798-GUB 1987 Cuin( a-Bi'sau Structural Ad3unt 10.00 0.211799-CUB 1987 ouin a-Blssau Agricultural Se?vice 8.7 8.301800-GUB 1987 GuTn a-Bissau Pop, Health 4 Nutrition 4.20 1.181914-CUB 1988 Guin a-Bissau Educetion 4.30 3.661935-CUB 1988 GuIn -Bissau Technical Assistance I 9.70 8.872019-CUB 1989 Guinca-Bissau SAC sr 23.40 18.462020-GUB 1989 Quin(a-Bissau Social A Infra Rellf 5.00 4.91

Total number Credits a 13

Total 189.20 88.8of which has been paid 0.04

Total now outstanding 189.16

Total now held by DA 189.18

Total Undlebureod 388.8

I/ The status of the projects listed In this part Is deseribed in a sparate report on all Dank/IDA-finaneedprojects In execution, which Is updated twice ye '-y and circulated to the Executive Directors onApril 30 and October 31. There are no IFC investments In Cuinea-Bissau.

2/ IDA Credits after 1980 and Special Fund Credite are denominated In Special Drawing Rights. U.S. dollaramounts in table are ealculated using exchange rates prevailing at time of credit negotiatlons.

3/ Includes the exchange rate adjustment.

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