Document of The World Bank

Report No: ICR00001118

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA3288A, IDA32880)

ON A

CREDIT

IN THE AMOUNT OF SDR 73.8 MILLION (US$100 MILLION EQUIVALENT AT APPRAISAL )

TO THE

REPUBLIC OF MOZAMBIQUE

FOR A

RAILWAYS AND PORTS RESTRUCTURING PROJECT

December 28, 2009

Transport Unit Country Department AFCS2 Africa Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2009)

Currency Unit = New Metical (MN) SDR 1 = MN 15.80

US$1.00 = MN 26.65

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

BOT BRP CAS

Build, Operate, and Transfer Beira Railways Project Country Assistance Strategy

CFM DCA

Portos e Caminhos de Ferro de Moçambique, E.P. Development Credit Agreement

EIRR Economic Internal Rate of Return EMP Environment Management Plan EU FIRR

European Union Financial Internal Rate of Return

FMR Financial Management Reports GOM IDA

Government of Mozambique International Development Association

INAC Instituto Nacional de Aviação Civil M&E Monitoring and Evaluation MTC Ministry of Transport and Communications NPV Net Present Value PAS PDO

Project Account Section Project Development Objectives

PMR PPP

Project Management Report Public Private Partnership

ROCS I RPRP

Roads and Coastal Shipping Project Railways and Ports Restructuring Project

SRSAP Staff Redeployment and Social Adjustment Program USA United States of America USAID United States Agency for International Development

Vice President: Obiageli Katryn Ezekwesili

Country Director: Luiz Pereira Da Silva

Sector Manager: C. Sanjivi Rajasingham

Project Team Leader:Anil S. Bhandari

ICR Team Leader:Anil S. Bhandari

ICR Primary Author: Fang Xu

MOZAMBIQUE Railways and Ports Restructuring Project

CONTENTS

Data Sheet A. Basic Information........................................................................................................ i B. Key Dates .................................................................................................................... i C. Ratings Summary ........................................................................................................ i D. Sector and Theme Codes............................................................................................ ii E. Bank Staff................................................................................................................... ii F. Results Framework Analysis ..................................................................................... iii H. Restructuring (if any) ............................................................................................... vii I. Disbursement Profile ................................................................................................ vii 1. Project Context, Development Objectives and Design:............................................. 1 2. Key Factors Affecting Implementation and Outcomes ............................................. 7 3. Assessment of Outcomes ......................................................................................... 11 4. Assessment of Risk to Development Outcome........................................................ 19 5. Assessment of Bank and Borrower Performance .................................................... 19 7. Comments on Issues Raised by the Borrower/Implementing Agencies/Partners.... 23 Annex 1. Project Outputs, Costs and Financing ........................................................... 24 Annex 2: Output by components .................................................................................. 25 Annex 3. Economic and Financial Analysis ................................................................. 37 Annex 4. Bank Lending and Implementation Support/Supervision Processes............. 37 Annex 5. Beneficiary Survey Results ........................................................................... 39 Annex 6. Stakeholder Workshop Report and Results................................................... 41 Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR..................... 42 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 43 Annex 9. List of Supporting Documents ...................................................................... 44 Annex 10. Additional Supporting Data ........................................................................ 45

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A. Basic Information

Country: Mozambique Project Name: MZ-Railway & Port Restr (FY00)

Project ID: P042039 L/C/TF Number(s): IDA-32880,IDA-3288A

ICR Date: 12/29/2009 ICR Type: Core ICR

Lending Instrument: SIL Borrower: REPUBLICE OF MOZAMBIQUE

Original Total Commitment:

XDR 73.8M Disbursed Amount: XDR 73.8M

Revised Amount: XDR 73.8M

Environmental Category: C

Implementing Agencies: Ministry of Transport and Communications Portos e Caminhos de Ferro de Mocambique, E.P. (CFM)

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 11/18/1997 Effectiveness: 03/28/2000

Appraisal: 02/08/1999 Restructuring(s): 05/30/2007 06/07/2008

Approval: 10/14/1999 Mid-term Review: 02/07/2003

Closing: 06/30/2005 06/30/2009 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Satisfactory

Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 14 14

General public administration sector 19 19

General transportation sector 9 9

Ports, waterways and shipping 58 58

Theme Code (as % of total Bank financing)

Administrative and civil service reform 20 10

Decentralization 20 5

Improving labor markets 20 70

Social safety nets 20 10

State enterprise/bank restructuring and privatization 20 5 E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: Luiz Pereira Da Silva Phyllis R. Pomerantz

Sector Manager: C. Sanjivi Rajasingham Yusupha B. Crookes

Project Team Leader: Anil S. Bhandari Yash Pal Kedia

ICR Team Leader: Anil S. Bhandari

ICR Primary Author: Fang Xu F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The Project Objective is to substantially increase the operating efficiency of the three major port-rail systems in Mozambique and enable them to increase their share of the

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international freight traffic of the neighboring countries. The increased use of the port-railway systems in Mozambique should enable: (a) the neighboring countries to reduce the surface transport costs of their exports and imports resulting from use of shorter routes, increased efficiency of operations, and use of railways in preference to roads; (b) the ports and railways in Mozambique to move towards becoming financially self-sustaining; (c) Portos e Caminhos de Ferro de Moçambique, E.P. (CFM) to increase its net income (net of its own expenses and provision for long-term infrastructure replacements) and, consequently, be in a position to pay dividends to the Government of Mozambique (GOM); and (d) Mozambique to generate more foreign exchange. A related but equally important objective is to strengthen the transport sector policy, the regulatory framework, and the institutional capacity of the Ministry of Transport and Communications (MTC). Revised Project Development Objectives (as approved by original approving authority) PDO was not changed during the restructuring. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Staff rationalization. Reduced total staff at the end of the project Value quantitative or Qualitative)

19,200 5,200 (14,000 retrenched)

Date achieved 09/14/1999 06/30/2009 Comments (incl. % achievement)

Indicator 2 :

Concessions operationalized a) Nacala Port and Railways b) Maputo Port c) Beira Port Terminals d) Beira Railway System e) Ressano - Garsia Line f) Limpopo Line

Value quantitative or Qualitative)

None

a) to d) concessioned and operational; e) and f) to be concessioned jointly, however only after rehabilitation of Ressano-Garcia line (process will take longer than

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remaining project period)

Date achieved 09/14/1999 06/30/2008 Comments (incl. % achievement)

Indicator 3 : Increase in International traffic through ports and over the major railway systems

Value quantitative or Qualitative)

Ports: 8.2 million tons in 2002 Railways: 4.1 million tons in 2002

Ports: 10 million tons Railways: 7 million tons

Date achieved 01/01/2003 06/30/2009 Comments (incl. % achievement)

Indicator 4 : CFM restructured and Profitable Value quantitative or Qualitative)

CFM making losses and in serious debt

CFM' cash balance positive

Date achieved 01/01/2002 06/30/2008 Comments (incl. % achievement)

Indicator 5 : Fluvial Transport improved at selected jetties

Value quantitative or Qualitative)

Annual traffic at: Maputo: 1.90 millionInhambane: 0.57 million Quelimane: 0.36 million

Maputo: 3.40 million Inhambane: 0.70 million Quelimane: 0.63 million

Date achieved 05/30/2007 06/30/2009 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Transport Cost Study completed. Value (quantitative or Qualitative)

None Final report submitted to Government

Date achieved 12/01/2004 03/30/2005 Comments (incl. %

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achievement) Indicator 2 : Ressano-Garcia Line rehabilitated and traffic improved

Value (quantitative or Qualitative)

Concession canceled and traffic significantly reduced (less than 2.0 million tons)

Rail Traffic increased to 4.25 million tons

Date achieved 01/01/2005 06/30/2009 Comments (incl. % achievement)

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 06/05/2000 Satisfactory Satisfactory 0.00 2 11/20/2000 Satisfactory Satisfactory 1.92 3 04/20/2001 Satisfactory Satisfactory 2.84 4 12/20/2001 Satisfactory Satisfactory 5.09 5 04/30/2002 Satisfactory Satisfactory 12.69 6 10/01/2002 Satisfactory Satisfactory 24.47 7 04/22/2003 Satisfactory Satisfactory 31.48 8 10/22/2003 Satisfactory Satisfactory 34.42 9 05/25/2004 Satisfactory Satisfactory 46.06

10 11/16/2004 Satisfactory Satisfactory 56.01 11 03/23/2005 Satisfactory Satisfactory 65.31 12 08/29/2005 Satisfactory Satisfactory 68.01 13 12/28/2005 Satisfactory Satisfactory 68.94 14 06/22/2006 Satisfactory Satisfactory 78.43 15 12/29/2006 Satisfactory Satisfactory 83.38 16 06/27/2007 Satisfactory Satisfactory 94.69 17 12/13/2007 Satisfactory Satisfactory 97.01 18 06/26/2008 Satisfactory Moderately Satisfactory 99.02 19 12/23/2008 Satisfactory Satisfactory 105.08 20 06/28/2009 Satisfactory Satisfactory 105.86

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

05/30/2007 N S S 93.11 Amendment to legal agreement

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Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

and reallocation of funds.

06/07/2008 N S S 98.70 Changed circumstances in country and need to enhance developmental impact

I. Disbursement Profile

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1. Project Context, Development Objectives and Design: 1.1. Context at Appraisal 1. Introduction: Mozambique has enjoyed high economic growth since the mid 1990’s; however, it remains one of the poorest countries in the world with a gross domestic product (GDP) per capita of US$370 in 2008. A central pillar of the World Bank’s Country Assistance Strategy (CAS) for Mozambique called for promoting dynamic growth that is sustainable and based broadly on a geographical, environmental, and socio-economic viewpoint. The CAS also called for private sector led growth including the development of local enterprises as well as partnership with foreign capital. Along with continuing economic policy reforms, IDA, IFC, and MIGA were to combine efforts in support of the development of high potential growth sectors, transport being one such sector. Supporting the transport sector through the Railways and Ports Restructuring Project (RPRP) was an important component of the CAS strategy. Given their importance for the economy, successful concession of the Maputo, Beira, and Nacala port-railway systems was included as one of the key base case indicators. 2. The main issues in the transport sector were identified as follows: (a) the Railways and Ports in Mozambique were not financially self-sustaining; (b) the Parastatal Framework was inadequate for the business environment which was progressively becoming more competitive; (c) the organizational structure of Portos e Caminhos de Ferro de Mozambique, E.P. (CFM) was inappropriate to manage the changing nature of the railways and ports industry; (d) the Regulatory Framework in the transport sector was inadequate; (e) the analytical and decision making capacity of the Ministry of Transport and Communications (MTC) was weak; and (f) tertiary ports in Mozambique had an important role to play but needed to be rehabilitated in order to be more efficient. 3. The Government of Mozambique’s (GOM) strategy to address the transport sector issues, especially railways and ports, comprised: (a) a large scale involvement of the private sector in the operations and management of all the major ports and railways in the country; (b) entering into build, operate, and transfer (BOT) arrangements for railway networks requiring major rehabilitation such as the Sena line; (c) comprehensive restructuring of CFM including the retrenchment of surplus staff; (d) strengthening the Ministry of Transport and Communications (MTC) by training staff, refining the transport sector policy and establishing an appropriate regulatory framework for the transport sector; and (e) rehabilitation of key tertiary ports and passenger jetties along with the replacement of existing boats and ferries with modern ones. The original project assisted the GOM/CFM in implementing all the elements of the strategy except for the rehabilitation of passenger jetties and acquisition of new boats and ferries - items which were included later at the time of restructuring. 1.2. Original Project Development Objectives and Key Indicators

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4. According to the PAD and the DCA, the two Project Development Objectives (PDOs) are as follows:

(a) Increasing the operating efficiency of the Borrower’s three major port-rail systems thus enabling the Borrower to increase its share of international freight traffic from neighboring countries; and

(b) Strengthening the transport sector policy, the regulatory framework, and the institutional capacity of MTC.

5. Key Indicators: There were originally one outcome and six output indicators. The outcome indicator was: Increase the international traffic handled by the three major ports to ten (10) million tons per year and by the three major railway systems to seven (7) million tons per year.

6. The six output indicators were:

(a) CFM restructured and profitable with increase in its net income and, consequently, its ability to pay dividends to the GOM;

(b) CFM Staff rationalized and total staff reduced by 13,000 by the end of the project; (c) Concessions for the three major ports and railways – (i) Nacala Port and

Railways; ii) Beira Port Terminals and railway system; iii) Maputo Port and railways system (Ressano - Garcia Line and Limpopo Line) - finalized and operational;

(d) MTC restructured; (e) Regulatory body established; and (f) Tertiary port rehabilitation completed.

1.3. Revised PDO (as approved by original approving authority) and Key

Indicators, and Reasons/Justification

7. There were no changes in the PDOs. However, the project was restructured in 2007, two new activities, rehabilitation of the Ressano-Garcia line and rehabilitation of jetties, were added, and the component on rehabilitation of tertiary ports was dropped. Along with these changes: (i) two new intermediate indicators were introduced; (a) rehabilitation and traffic improvement of the Ressano-Garcia line; and (b) improvement of fluvial transport at selected jetties; and (ii) one output indicator pertaining to the rehabilitation of tertiary ports was dropped. 1.4. Main Beneficiaries (original and revised) 8. The main beneficiaries comprised all users of the rail and port systems as well as the general population who would benefit from more reliable rail and port operations and lower effective transport costs in Mozambique, specifically the following: (a) users of railway and port systems in Mozambique; (b) the neighboring countries of Zimbabwe, South Africa, Swaziland, Malawi, and Zambia; (c) industry supplying materials to railways and ports; (d) the GOM in general and MTC in particular; and (e) public sector

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entities such as CFM. Adding fluvial transport component in the project also introduced a new group of beneficiaries, such as, the passengers using ferry services (mainly low income groups including vendors, women and children) in Inhambane, Maxixe, Maputo and Catembe who benefitted from reduced coastal transport costs and safer operations. 1.5. Original Components Supported by the Project

9. The project originally comprised of the six following components (summarized from the DCA). 10. Component One - Concession of CFM major Ports and Railways (original allocation US$1.0 million; Actual cost US$1.81 million). This component was to: (a) strengthen the operational capabilities of CFM through technical advisory services to manage the concessioning process of Nacala, Beira and Maputo port and railway systems, and (b) provide financial support for any activities essential for the concessioning process. 11. Component Two - Staff Rationalization (original allocation US$73.5million; Actual cost US$77.8 million). This component was to assist CFM: (a) to carry out a program for the reduction of staff of CFM through retrenchment or early retirement, including support for the payment of negotiated and statutory severance payments; (b) to carry out a program of redeployment of said redundant CFM staff including counseling and training services; (c) to carry out a program to mitigate the adverse social impact of staff redundancy and rationalization, consistent with the Social Mitigation Plan; (d) to establish and operate a pension fund; (e) develop a system for the dissemination of information on a regular basis regarding the issues pertaining to its restructuring in general and staff rationalization program in particular; and (f) with related technical advisory services and limited amount of critical equipment. 12. Component Three - CFM Corporate Restructuring (original allocation US$2.6 million; Actual cost US$0.96 million). This component was to: (a) finance a study for creating a number of holding and subsidiary companies to take over some of the functions of CFM, and for establishing a technical regulatory unit within CFM; and (b) provide related technical advisory services and office equipment. 13. Component Four - Strengthening of MTC (original allocation US$1.7 million; Actual cost US$4.39 million). This component was to: (a) carry out a study to review the transport policy framework and the legal and institutional framework for concessions; (b) define the new functions of MTC, assess its organizational structure and staffing requirements - taking into account the Borrower’s civil service reform program; and (c) provide technical advisory services; 14. Component Five - Regulatory Framework (original allocation US$7.2 million; Actual expenditure US$0.90 million). This component was to: (a) carry out a study to review the options of setting up a regulatory body for either the railway sector or the transport sector and provide detailed design and structure of the accepted option; and (b) provide the equipment and technical advisory services for the launching of the new

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regulatory agency for supporting the functioning of the agency for an initial period of three to five years. 15. Component Six - Tertiary Port Rehabilitation (original allocation US$9.0 million, Actual expenditure US$0). This component was to: (a) assist MTC in carrying out a program of rehabilitation of the small ports of Angoche, Macuse, Mocimboa da Praia, and Pebane; and (b) provide technical advisory services for the supervision of the civil works in the said four ports, and the preparation of a study on the revitalization of the Inhambane Port.

1.6. Revised Components 16. In 2007 the project was restructured to make the following changes:

(a) Dropping the tertiary ports rehabilitation component. (Original allocation US$9 million; Actual cost US$0). Only one study pertaining to the Inhambane region and some technical assistance for the development of the port serving the region were retained and implemented by MTC;

(b) Introduction of a new component for the rehabilitation of key passenger jetties and purchase of new boats and ferries (Estimated cost - US$15.0 million, Actual cost US$8.78 million). A component comprising the rehabilitation of key jetties used for ferry services (passenger and minor cargo) in Maputo, Catembe, Inhambane, Maxixe; the study and engineering design for the rehabilitation of the Quelimane-Recamba wharfs; and procurement of new ferries and other vessels for water transport was introduced with a view to strengthening Mozambique’s fluvial transport; and

(c) Introduction of a new Sub-component for the rehabilitation of the Ressano-Garcia line (estimated cost - US$20 million, IDA allocation US$6.4 million, IDA Actual cost US$5.96 million). A sub-component comprising the rehabilitation of the Ressano-Garcia line as well as technical services to supervise the rehabilitation works was introduced with a view to making the line more efficient and reliable.

17. Justification for the changes made at restructuring. The justifications for the changes were as follows:

(a) Dropping the tertiary ports rehabilitation component: This sub-project had been under the spotlight since 1991, when it was first included as a component of the Road and Coastal Shipping Project but could not be implemented due to the need for diverting funds for urgent road rehabilitation. When RPRP was being prepared, the Government requested and the Bank Management agreed to consider its inclusion in the RPRP. The reappraisal and other government studies found this component to be economically feasible but since the dominant theme of RPRP was private participation in the management of the major railways and ports in the country, the proposed investment of this component was also linked to the successful concessioning of the said tertiary ports, more so because there was

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no satisfactory institutional arrangement for their operation and management. However, these ports could not be concessioned due to inadequate private sector interest and due to the rehabilitation of the road network which reduced the relevance of river transport. Consequently the importance and viability of the tertiary ports declined dramatically. After considerable discussion, the Government agreed that the rehabilitation could be postponed until there was better growth in the region and until there was renewed interest in the use of these ports such that the dropping of this component prevented sub-optimal use of scarce funds.

(b) Rehabilitation of passenger jetties and acquisition of new vessels. This

component was introduced at the request of the GOM and on the basis of a strong demand for ferry services, of the severe deterioration in the condition of the existing jetties and vessels, of the high economic rate of return of the proposed investment at an estimated cost of US$14 million, and its impact on poverty reduction.

(c) Rehabilitation of the Ressano-Garcia line. This task was initially expected to be

undertaken by the concessionaire as part of the concession of the Ressano-Garcia railway line (a part of the Maputo rail system). Subsequent to its cancellation, CFM and the South African Railways agreed on an interim strategy to increase the use of the line for traffic originating and terminating in the north-eastern part of South Africa. The strategy required that the line be rehabilitated by CFM to acceptable standards to enable the safe and efficient operation of longer trains. The rehabilitation was estimated at about US$20 million and since the tertiary ports rehabilitation was dropped, it was proposed that part of the rail line rehabilitation cost (US$5 million) be met from the proceeds of the IDA Credit. The Credit was to support: (i) procurement of rails for the rehabilitation of the line; and (ii) independent supervision of rehabilitation to ensure quality.

1.7. Other significant changes

18. Extension of Closing Date. The closing date of the project was extended four times as follows: (a) The first extension: In May 2005, the project was extended by 18 months from June 2005 to December 2006, to: (i) complete the retrenchment and social mitigation activities flowing from the concession of the railway and ports systems; (ii) complete CFM corporate restructuring; and (iii) reach an agreement for the concessioning of the Limpopo and Goba lines, which were partly closed during the floods in February and March 2000 and whose rehabilitation was only completed in October 2004. Another rationale for the extension was to keep the Bank involved as coordinator in the increasingly sensitive dialogue between the Government and the concessionaires. (b) The second extension: In December 2006 an interim extension from December 31, 2006 to May 31 2007 was granted to allow preparation of the Environmental Impact Assessment for the new jetty rehabilitation component which was introduced as part of the restructuring to take into account country realities –i.e. accommodate the Government’s urgent request to strengthen the fluvial transport system within the

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country; (c) The third extension: In May 2007, the project was restructured including the extension of the closing date by 13 months from May 31, 2007 to June 30, 2008 to accommodate the dropping of the Tertiary Ports component and the introduction of the new components, namely, the rehabilitation of the jetties, acquisition of ferries and passenger boats, and the rehabilitation of the Ressano-Garcia railway line. The latter was in line with a government strategy to rehabilitate this line to acceptable standards which was absolutely essential to re-gaining customers’ confidence after the concession failed. These changes required amendments in the DCA and reallocation of credit proceeds; and (d) The fourth and final extension by 12 months from June 30, 2008 to June 30, 2009 was made necessary to fine-tune the remaining activities and to reallocate the funds to complete: (i) the rehabilitation of jetties and delivery of ferries and boats; (ii) the extension of consultancy services pertaining to the Maritime Sector’s legal and regulatory framework; (iii) the establishment of a sustainable management of fluvial passenger and cargo transport system with Transmaritima, Lda; (iv) establishment of a unit within the Ministry of Transport and communications to monitor compliance with concession agreements and (e) complete the studies of the competitiveness of Maputo as a regional port and the analysis of coal transport on the Beira Railway. 19. By the initial closing date of June 30, 2005, about 70% of the credit had been disbursed and the CFM component was nearly completed, that is, all major ports and railways (except for the Maputo railway system) had been concessioned and the CFM staff had been reduced by about 70%. By December 31, 2006 (the first extension), major originally planned activities including the concession of the port-railway system, staff retrenchment, CFM restructuring and MTC strengthening had been completed and disbursements stood at 80%. By June 2007, about 95% of the credit had been disbursed. The project could have been closed at the original closing date and certainly by the end of June 2007. However, it was strongly felt that the use of the remaining small amount of credit and the Bank’s continuing involvement could effectively ensure outcomes far greater than envisaged under the Project, viz., improving the fluvial passenger transport, laying the basis for catalyzing the development corridors, and rehabilitating the Maputo rail system after the collapse of the concession. The benefit/cost ratio was considered enormous compared to the options of leaving these issues as they were or starting a new project to address them.

20. Amendment of Development Credit Agreement (DCA). There were three reallocations of credit proceeds. The first one, in 2004 was to increase funds for: (i) Category 2 – Goods by SDR6.39 million and (ii) Category 5 (b) - Severance Pay by SDR13.56 million (Schedule 1 of the DCA). Regarding item (i), delays in the concessioning of the Nacala and Maputo Port railway systems made it necessary for CFM to continue the maintenance of the above mentioned systems and to acquire essential maintenance equipment, which otherwise would have been the responsibility of the concessionaire. Regarding item (ii), at the project design stage it was difficult to correctly anticipate the number of staff that would become redundant, the timeframe in which these redundancies would take place, the exchange rate during the project implementation period, and the inflation rate which would trigger the wage increases. The second amendment (to Schedule 2 of the DCA) was made in 2007 due to the

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restructuring of the Project, and the third and last amendment was made in 2008, at which time the extension of the credit closing date was to fine-tune final expenditure estimates for the remaining activities and reallocate funds under Schedule 1. However, the components remained unchanged. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design, and Quality at Entry

21. Project preparation was conducted between 1997 and 1999. The operation was complex and it took close to two years to finalize the project design and bring the project to the Board because the team placed considerable emphasis on consensus building and ownership by discussing all options with GOM, CFM management and staff, staff unions, and other interested parties. The Project demonstrated very good understanding of the background, technical context, and political environment, and included taking calculated risks by proposing to undertake the following challenging tasks. First, private concessioning of the railways and ports was included as the cornerstone of the Project even though there was considerable skepticism in most countries in Africa regarding private participation in key public utilities. Second, to facilitate privatization and reduce operating costs, extensive staff retrenchment was advocated even as the Bank had just started to finance staff retrenchments - politically a sensitive issue with considerable reputational risk for the Bank. Third, CFM was an old bureaucratic institution and its restructuring to become a business and commercially-oriented entity involved major and difficult changes in the organizational structure (i.e. staffing, management system, attitude and culture). Fourth, restructuring and strengthening of MTC and facilitating a decision to introduce a regulatory framework for railways and ports involved major consensus building efforts. In spite of the complexity of these issues, the Project undertook to implement reforms that were critical for making the ports and railway systems more efficient and financially self-sustaining in the long-run. 22. Assessment of Project design. This project had incorporated the lessons learned from previous operations and the reality on the ground. The project design was comprehensive and in line with the prevailing government policies. The main lesson incorporated was that improving only the infrastructure would not bring efficiency to the port and railway systems and key institutional changes including private sector involvement in the management and operation of the systems was essential to improve service delivery. Hence the Project was designed to focus on concession of the railway-port systems, retrenchment of surplus staff and the restructuring of CFM (these comprising close to 80 percent of the project funding). The staff retrenchment package was well designed and included counseling, training and financial services for the affected staff that allowed a smooth retrenchment process and a useful post-retrenchment life for the affected staff. 23. The project had only one outcome indicator, namely, the increase in aggregate freight traffic. Though this indicator implied increase in operational efficiency and customer-based initiatives as these are essential for increasing traffic, this is probably not

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the most appropriate indicator for the increased port-railway efficiency because this target is dependent on exogenous factors, i.e. competition from the road sector, decisions and economic situation of the neighboring countries. An indicator like this could not be depended on to identify the causes of any shortfall in the achievement of the target. Other related key indicators pertaining to CFM restructuring, the staff retrenchment, the concessioning of the port and railway systems constituted output rather than outcome indicators. Regarding the second PDO, output indicators like MTC restructuring and the establishment of a regulatory body were specified as outcome indicators. 24. Assessment of risks: Most of the critical risks were identified and mitigation measures were prepared. For example, the concession agreements were structured to reduce the risk of low level of private interest in railway concessions by including a 40 percent shareholding by CFM, allowing concessionaires a free hand in setting tariff rates in accordance with market conditions, proving fiscal incentives and tax holidays in the initial years, and so on. The team also mitigated the risk of wasteful investment by linking the rehabilitation of tertiary ports to private concessioning. However, the team could not anticipate the speed and severity of Zimbabwe’s economic and political crisis, which was outside of the project’s control but adversely affected the railway freight traffic in Mozambique. The Project could not anticipate the decline of the South African Railways and its revised strategy to take limited interest in railway concessions in the region, which adversely impacted the concession of the Ressano-Garcia railways. Nevertheless, despite recognition of the low level of private sector interest in railway concessions in Africa, the Bank and GoM were rather optimistic about the timetable for concessioning which took much longer than anticipated. 2.2 Implementation Delays 25. The Project was approved in October 1999 and the Credit became effective in March 2000, but effective disbursements only started by the end of 2002. Shortly after the start of activities, the Project faced two major unexpected challenges which affected the disbursement rate and threatened the realization of Project outputs, namely: (a) the processing period for concessioning; and (b) excessive time required to get the implementation and monitoring arrangements in place for retrenchment. Furthermore, it was originally agreed that staff retrenchment was to start only after the successful conclusion of the concessions so that the people not selected by the concessionaire would be declared redundant. Since the concessioning was taking longer than expected, the retrenchment was further delayed. Against this backdrop, in agreement with GOM and CFM, a new rule for identifying surplus staff was developed to commence the retrenchment even as the concessioning process was underway. 26. Implementation constraints. There were a few setbacks during the implementation period, many of which were beyond the control of the GOM or CFM which led to delays in the concessioning process and to the eventual collapse of the Maputo railway concessions, namely: (a) the Limpopo line was heavily damaged due to floods and needed rehabilitation, the concession collapsed as a result (after the concessionaire abandoned the concession) and the effort of many years was lost; (b) the concession for the Ressano-Garcia line collapsed when South Africa Railways, a key

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partner of the concession consortium, pulled out of the concession due to a change in its strategy as it decided to focus on revitalizing its own railway system even as the concession negotiations were close to being finalized. As a result, the remaining partners were reluctant to continue the negotiation without South African Railways’ participation given that most of the traffic on this line was originating from South Africa; and (c) the concession for the port of Maputo was delayed because the selected concessionaire refused to sign the concession agreement until the Ressano-Garcia line, the feeding line for the port, was also successfully concessioned. The port concession became operational eventually, with GoM’s assurances to rehabilitate the Ressano-Garcia line, but this took much longer. 27. The GOM and the Project team responded to the unexpected challenges by measures including but not limited to: (a) coordinating with the United States Agency for International Development (USAID) to finance and monitor the rehabilitation of the Limpopo line; and (b) supporting the rehabilitation of the Ressano-Garcia line with financing from CFM and IDA. 28. Consequent to the above developments, the following decisions were taken: (a) dropping the tertiary ports rehabilitation and introducing the new component, namely, improvement of fluvial transport in order to increase access and mobility of the rural and urban poor; (b) launching a new Beira Railways Project with provisions for a BOT type concession on a Public-Private Partnership (PPP) basis when it became clear that the Beira railway system could not be concessioned without GOM supporting a substantial part of the large investments required for the rehabilitation of the Sena line; and (c) reaching an agreement with MTC for setting up a concession monitoring unit within MTC instead of establishing an independent regulatory body or continuing with the current arrangement of CFM monitoring the concessions. The project had four extensions of the closing date and took 9 years to implement instead of the planned 5 years. As explained in Paragraph 18 and section 2.2, the extensions were sought to respond to the changing business and economic environment and to maximize the benefits of the Project.

2.3. Monitoring and Evaluation (M&E) Design, Implementation and Utilization

29. M&E Design: The M&E framework specified the outcome, the intermediate and output indicators for the project components. The M&E framework also outlined appropriate methods to review the progress of these indicators. These methods included quarterly reports, disbursements for retrenchment, Bank supervision missions, frequent telephonic conversations, faxes, e-mails, and discussions with transaction consultants. However, as has been discussed in the project design section (section 2.1), the outcome indicators could have been more detailed to fully reflect the PDOs. 30. Implementation and utilization: Both CFM and MTC maintained the M&E system satisfactorily. They were able to track regularly the evolution of output indicators through supervision and quarterly reports. Monitoring was further enhanced by TA

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experts engaged under the project to conduct frequent reviews. M&E data was extensively utilized during implementation and remedial actions were taken where necessary. When the project was restructured, two new intermediate indicators were added to the M&E framework to better monitor the attainment of project objectives. 2.4. Safeguard and Fiduciary Compliance 31. Environment. The environmental category of the project was rated as ‘B’ at project appraisal. An environment assessment was conducted, and an environment management plan was prepared taking into account the safety and environment-related regulations included in Mozambique’s transport sector policy and railways-related legislation. The concession agreements included adequate provisions for minimizing environmental degradation and recommendations were implemented during supervisions. In addition, CFM created an environment unit with staff to focus on any emerging environmental issues. At the time of restructuring, an additional environmental impact assessment was done for the proposed rehabilitation works for the jetties and mitigation measures were included in the civil works contracts. Ratings were assessed as satisfactory during implementation. 32. Financial Management: Overall, the FM system in place was rated satisfactory. The quarterly Financial Monitoring Reports (FMRs) were received regularly and were fully compliant with the agreed formats. Audit reports were done annually and on a timely basis, and were unqualified except in 2005. The auditors had issued a qualified opinion on MTC. The Borrower and the Bank’s Financial Management Specialist worked out an action plan to remedy the issues as per the auditor’s recommendations. Since then, all major issues have been resolved and Bank procedures were followed. Strict control of the utilization of funds was maintained through: (a) ring-fencing of IDA funds; (b) a dedicated account was maintained for severance payments to which funds were transferred only after the severance payments, computed using a certified and secure software, were certified by independent auditors engaged for that purpose; (c) the dedicated accounts were specially audited and reimbursement was made on submission of all previous expenditures; (d) a special account was maintained in the PMU created in the MTC; and (e) all expenditures incurred below the prior-review threshold were regularly reviewed both by the project team as well as the independent auditors. 33. Counterpart funding: The commitment of the GOM remained strong throughout the Project. GOM fulfilled its obligation (US$20 million) upfront at project start. The only negative factor was the significant depreciation of the Metical (national currency) vis-à-vis the US$, resulting in a shortfall of US$4 million, which lowered the actual government contribution to US$16 million at the end of the project. Also CFM, one of the implementing agencies, contributed an additional US$8.7 million to the project, specifically toward the staff rationalization component to cover severance payments.

34. Procurement: Procurement under the project was also satisfactory. All contracts for goods, works, consultancy and other services followed the agreed procedures without

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any exception. No formal protests were lodged against the procurement decisions, except in the case of the procurement of ferries and boats. A complaint lodged by an individual was investigated by INT which found no evidence of any wrong-doing in the process. Another complaint by the sub-contractor (manufacturer) to the supplier of the ferries and boats is deemed to be an internal issue between the supplier and the manufacturer and has been brought to the attention of the Borrower to handle as appropriate. All prior-review thresholds were followed. 2.5. Expected Next Phase/Follow-up Operation

35. The current arrangements are expected to ensure sustainability of port and railway performance as well as the maintenance of the infrastructure in reasonable condition, especially the following: (a) Nacala, Beira, and Maputo ports and Nacala and Beira railway systems which are under long-term concessions. The concessionaires are expected to respond to the market better and keep the system efficient and competitive and are expected to remain geared to meet all traffic needs subsequent to the resumption of economic growth of the neighboring countries.; (b) CFM has established a special unit internally to keep track of the performance of the concessions and evolving issues in all these concessions and take timely action wherever required. (c) The Government has obtained funding from a Spanish Trust Fund to set up the concession monitoring unit within MTC to take-over the role of monitoring compliance of various concessions to agreed provisions in the contracts, especially performance standards; and (d) CFM maintains its ultimate responsibility for the development of ports and railways in Mozambique and its profitable financial status after restructuring will provide resources for carrying out such responsibility. In addition, given the strategic importance of the Nacala Corridor for landlocked neighbors, such as Malawi and Zambia, the AfDB, JICA and the World Bank are collaborating to review the corridor (Roads and Rail) to assess any further support needed to upgrade the transport infrastructure in that corridor. 36. For the unconcessioned Maputo railway system, CFM intends to further improve its performance and then consider alternative arrangements to operate and manage that line in the long run. In the interim, CFM is negotiating an operations agreement with South African Railways for the Ressano-Garcia Line which will ensure sustained traffic increase. 37. The Beira Railways Project (BRP) has been concessioned under a long-term BOT arrangement, which is expected to ensure orderly development of the system, particularly for transporting the coal from the Moatize coal mines that have been concessioned to the private sector, such as Vale from Brazil and Riversdale from Australia.

3. Assessment of Outcomes 3.1. Relevance of Objectives, Design and Implementation

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38. The relevance of objectives, design and implementation is rated as substantial because: (i) the PDOs are relevant and consistent with the CAS and the policies of the Government, particularly in reference to private sector involvement; (ii) the design and the implementation arrangements were clearly centered on achieving project development objectives through concessioning of major ports and railways which is expected to result in improved operating efficiency and consequently increased traffic. 39. The project design was comprehensive and aimed at supporting all actions for the creation of an enabling environment for the successful concessioning of the ports and railways and for improving their performance within Mozambique. The implementation effort remained focused on achieving the PDOs and appropriate adjustments were made when the environment and needs of the economy changed. 40. As mentioned in section 2.1, the design to a certain extent was somewhat ambitious and complex especially with regard to the concessioning of three major port and railway systems and retrenchment of close to 14,000 staff in the context that was prevailing in 1999 in Mozambique. Some activities such as the proposed pension study and tertiary ports rehabilitation, though important, were eventually dropped for the reasons explained earlier. Nevertheless, the dropping of these components did not diminish the possibility of achieving the PDOs 3.2 Achievement of Project Development Objectives 41. The overall PDO rating is Satisfactory. The project has two PDOs: (i) increasing the operating efficiency of Mozambique’s three major port-railway systems; and (ii) strengthening transport policy, the regulatory framework and capacity of MTC. The first PDO is rated satisfactory. On completion of the project, the efficiency of the port-railway system has been increased as measured by indicators like traffic, staff productivity and turnaround time. The second PDO is rated moderately satisfactory because it has been achieved only partially. The transport policy framework is in place; a separate regulatory body is not set up but instead the Government has decided to set up a concession monitoring unit within MTC; the institutional capacity of MTC has been sufficiently strengthened to enable it to take on many responsibilities that it was not adequately capable of doing before, such as, leading concession negotiations, planning large scale infrastructure projects on its own and preparing a national transport policy. Given that more than 70% of the IDA credit went to the first PDO related activities, the rating of first PDO is granted more weight, such that the weighted overall PDO achievement is rated satisfactory. The detailed evaluation of individual PDOs is as follows: 42. Project Development Objective 1: Increasing the operating efficiency of the Borrower’s three major port-rail systems thus enabling Mozambique to increase its share of the international freight traffic from the neighboring countries.

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43. This PDO is rated satisfactory because the project has substantially improved the operating efficiency of the three major port-railway systems. The increased efficiency is reflected by the various indicators summarized in Table 1.

Table 1: Railways and Ports Productivity Indicators

Unit 1999 2000 2005 2006 2007 2008 Rail Traffic (tons) million 3,960.8 3,454.2 4,059.0 4,002.6 3,822.4 4,351.9 Net ton-km (NTKM) million 721.2 604.8 767.0 775.1 736.3 694.8 Passenger kms (PKM) million 144.8 129.8 283.7 346.7 106.3 113.6 Total traffic units (NTKM+PKM)

million 866.0 734.6 1050.7 1121.8 842.6 848.4

Rail staff Numbers 10620* 10460 1801 1909 1962** 2021** Staff Productivity Traffic

units (000)/staff

82 70 583 588 429 400

Port Staff Numbers 6791* 4573 1414 1401 1519** 1627** Port Traffic (tons) million 6.89 6.73 10.89 11.43 11.09 11.34 Staff Productivity (All) Tons

(000)/staff 1.02 1.47 7.7 8.16 7.30 6.97

Data source: CFM report * Excludes staff engaged by CFM in other than rail and port activities ** Staff numbers increased since 2007 because concessionaires recruited additional staff. Such increase should be taken into account for computing productivity but not for computing staff retrenchment. 44. The port traffic in 2008 was 11.3 million tons, exceeding the target of 10 million tons. The rail traffic in 2008 was 4.3 million tons compared to 3.4 million tons in 2000 but is short of the target of 7.0 million tons (freight traffic in NTKM in 2008 was marginally less than that in 1999 mainly due to reduction in long-haul traffic from Zimbabwe). The railway traffic did not increase as expected due to various reasons, most of which were outside of the borrower’s control: (a) Beira railway - the downturn of Zimbabwe’s economy and dysfunction of Zimbabwe’s railway system have affected the traffic of Machipanda line and the incomplete rehabilitation of Sena line, which is non-operational; (b) Maputo railway - the low traffic is partly due to the downturn of Zimbabwe’s economy and partly due to the failure of the concessions and the need to rehabilitate the Ressano-Garcia line by CFM, which has only recently been completed; (iii) Nacala railway - poor performance of the concessionaire who has made inadequate infrastructural and rolling stock investments and does not have a competent railway operator on the ground. 45. Staff Productivity in the railways and ports has increased five and seven fold respectively. The productivity increase was mainly due to fewer staff working for the ports and railways and more traffic in the ports as a result of the project. Key indicators of operating efficiency in the ports and railways also improved as indicated in Table 2 below:

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Table 2: Indicators of Ports and Railways Operating Efficiency

Ports Ships calling on ports

Tons/ship/day TEUs/ship/day

1999 1353 2280 207 2008 1574 3658 297 % increase 16 16 43

Railways Wagon turnaround time

Derailments Locomotive reliability Comment

Unit Days Number Mean Kilometers between failure

1999 7.3 326 <10,000 Not tracked by CFM but is an estimate

2008 5.4 167 >30,000 Only for CCFB

%improvement

27 50

Data source: CFM report 46. The achievement of the first PDO can also be collectively measured by the achievement of individual components: 47. Component One: Concessioning of CFM Ports and Railways is rated as satisfactory. All the three major ports, Nacala, Maputo, and Beira, and two out of the three railway systems, Nacala and Beira, have been concessioned and the concessions are operational. Details are given in Table 3 below. The Maputo rail system has not been concessioned as the concessions broke down for reasons beyond the control of CFM/GOM and as explained in detail in section 2.2, Para 26. Table 3: Major Concessions in Operation System Concessionaire Takeover Date Term(years) Port of Beira (General Cargo, Container Terminals)

Cornelder December 2001 25

Port of Maputo MPDC April 2003 15 Nacala Rail CDN January 2005 15 Nacala Port CDN January 2005 15 Beira Rail CCFB December 2004 25 Port of Quelimane Cornelder March 2005 25

48. Component Two: Staff rationalization is rated as highly satisfactory. i) A total of 14,800 staff was retrenched/retired (exceeding the target of 13,000), and successfully received severance payments and other benefits through the proceeds of the

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Credit; ii) In addition to the retrenchment, about 1800 people were transferred to various concessionaries and 1200 left through natural transition that reduced the permanent staff of CFM from about 19, 400 at the end of 1998 to 1,600 with CFM and 1800 with concessionaires at the end of June 2009. (iii) Out of the 14,800 retrenched staff, 12,378 received counseling service and 6,121 received various training and financial services, to ensure a smooth retrenchment process and equip them with technical and managerial skills and readiness to exploit new formal or self employment opportunities; iv) Close to 7,000 staff were self-employed among which 900 created small-scale businesses that hired another 800 people, 553 established 46 associations in agriculture, tailoring, mechanics, poultry and bakery business, etc. In addition, 557 found new formal employment in the economy. 49. Component Three: Corporate Restructuring of CFM is rated as moderately satisfactory. CFM is now leaner with about 1,600 staff compared to a little more than 19,000 at the beginning of the project; with regard to financial status, CFM, which was unprofitable before the project, registered an operating surplus of more than US$50 million per year for the last four years (more than $80 million in 2009). However, a separate holding company was not established as planned, due in part to complex legal requirements and in part to the lack of obvious profitability. Yet special units have been established for monitoring CFM’s equity and interests in various concessions, joint ventures and partnerships, monitoring safety and operational requirements and rules, and strategy development; So far, CFM has not paid dividends to GOM because: (i) CFM has not yet reached an agreement with GOM on a dividend policy though the efforts to refine a “performance contract” are on-going and will include a policy on the disposal of surplus income; and (ii) CFM is keen to build a reserve for carrying out urgent repairs of the port and railway infrastructure if damaged as a consequence of “force majeure”. 50. Project Development Objective 2: Strengthening of the transport sector policy, the regulatory framework, and the institutional capacity of MTC. 51. This second PDO is rated as moderately satisfactory given the fact that the institutional capacity of MTC has been strengthened but a self-standing regulatory body has not been set up (see Para. 54). The achievements of the PDO’s related components are evaluated as follows: 52. Component Four: The strengthening of MTC is rated as moderately satisfactory. Activities under this component include: organizational reform and restructuring of MTC, preparation of an initial strategic plan, completion of seven critical studies, training of staff in various disciplines, and computerization of MTC. The completion of these activities has led to the increase in the knowledge base of the Ministry, enhancing the capacity of staff and increasing its overall efficiency and confidence. As mentioned earlier, MTC is assuming more responsibilities than before, such as, evaluating bids for concessions, leading concession negotiations, planning large scale infrastructure projects and preparing annual development strategy.

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53. Yet, there are some pending issues under this component that will require further attention: (a) while the structure of the ministry has been simplified, the new structure has still to be effectively functional. For example, the Economy and Investment directorate is not yet making comprehensive analysis of the investment proposals of the various companies under its control; (b) in spite of substantial training of staff, particularly in the economics discipline, there remains a need for developing more practical skills; and (c) the Strategic Plan needs to be refined to be more pragmatic and to focus on core values which also need to be defined more clearly. Overall, however, it would seem that greater effort could have been put into the institutional strengthening component (MTC) so that the second PDO (institutional strengthening) could have been achieved to a greater extent.

54. Component Five: The Regulatory Framework is moderately unsatisfactory. During project preparation, the Government agreed to carry out an independent study in two phases: (i) reviewing all the options of setting up a self-standing regulatory body; and (ii) a detailed design and structure for the selected option. Funds were allocated for the implementation of the selected option so that the establishment of the regulatory body would not suffer from lack of funding. However, the study did not provide clear recommendations and the market competition proved to be quite effective (the railway concessionaires have not increased railway tariff since the systems were concessioned). In addition, a self-standing regulatory body was found to be too costly for a small railway sector. The Government decided to wait and the Bank agreed with the decision. Instead, it was decided that a concession monitoring unit be established within MTC under the assistance of a Spanish Trust Fund. The main function of the unit would be to ensure that CFM and the concessionaires live up to their respective obligations under the concession contracts. The unit could be converted into a self-standing regulatory body later when justified. 55. New Component Six: Rehabilitation of Key Jetties at selected locations and provision of ferries and boats is rated satisfactory. The rehabilitation of jetties used for ferry services at Inhambane, Maxixe, Maputo and Catembe, as well as the study and engineering design for Quelimane-Recamba wharfs were completed. In total, six ferries and boats were acquired and put into use - one ferry in Maputo-Catembe, two passenger boats in Inhambane-Maxixe, one boat in Beira-Buzi, one sea-faring boat in Beira-Machanga and one ferry in Quelimane-Recamba. These transport services were highly rated in terms of satisfaction by the users - faster, safer and more comfortable service for passengers compared to the old slippery jetties and the small boats which could only ship 10 to 12 passengers, often without any cover or roof. The new boats (2 catamarans) have the capacity of accommodating 100 passengers and 2 tons of cargo; the two smaller ferries can carry, respectively, 58 passengers plus 10 tons and 90 passengers plus 2 pick-ups and 10 motorcycles. The larger ferry, operating at Maputo carries 293 passengers plus 4 trucks and 10 cars. Due to the improved ferry services, more local people are crossing the river either for school, work or for market opportunities which result in more exchange of economic activities between the two sides of the waterways (Annex 5).

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3.3. Efficiency 56. Improving the efficiency of port and railway system is rated satisfactory. The port and railway systems are now on track to provide better service in order to maximize their share of traffic and consequently profits. Actual freight traffic handled by the ports has exceeded the target. The freight traffic handled by the railways did not reach the target for reasons indicated in section 3.2., but the basic fundamentals exist for handling the increased traffic as soon as the economic situation of the neighboring countries improves. Table 1 shows significant increases in staff productivities, and as competition among ports and between road and rail transport increases, one expects the private sector to improve efficiency further in the interest of attracting more traffic. Similar results in the form of improved services are anticipated in the public sector, particularly the MTC, where restructuring and training has led to better planning, budgeting and policy making skills in the transport sector. 57. Efficiency of the Investments is rated satisfactory. The analysis (Annex 3) shows the following results compared to the estimates at the beginning of the project: Table 4: IRR and NPV

IRR (%) NPV (Million US$) Financial at ICR 23 45 Financial in PAD Not calculated 158 Economic at ICR 24 51 Economic in PAD 52.0 357.0

58. Financial and economic internal rates of return (IRR) and NPV are less on completion than at appraisal because of the reduction in railway traffic in the earlier years of the project, which have a big impact on the IRR as well as NPV. The reasons for less-than-expected traffic increase have been highlighted in section 3.2. Overall, the financial return (23%) and economic return (30%) are nevertheless satisfactory. Both FRR and ERR are also much lower because the CFM’s cash flow has been limited to, on average, US$50 million per annum given the downturn in the neighboring country’s economy and the world-wide financial crisis, both of which could not be visualized at the time of Project preparation. 3.4. Justification of Overall Outcome Rating

59. The overall outcome rating for the Project is Satisfactory. Given that: (a) the project objective is relevant to the higher development objectives of the country and in line with Mozambique’s longer-term growth strategy, wherein regional integration and trade underpin this growth strategy through the new economy (CAS Partnership Strategy, April 2007). For example, the GDP has averaged six percent annually since 1996 and transport is one of the sectors which has grown rapidly between 1996 and 2005; and (b) The PDOs have largely been achieved. The achievement of some indicators like staff retrenchment and port traffic is more than 100%. The implementation period was longer than original planned and the project got four closing date extensions. However, as

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explained in section1.7, the PDOs were largely achieved by the time of the first extension. The other three extensions were required to further enhance the project benefits with the addition of new components. 3.5. Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development 60. The ICR team did not undertake a specific assessment of gender aspects and poverty impacts of RPRP. However, based on limited interaction with beneficiaries such as ferry passengers, retrenched CFM staff, the project had a positive impact on social development and poverty reduction. For example, the improved ferry service has led to safer transportation and more economic exchanges; the professional skill of the retrenched staff was improved after job training such that the human capital was also strengthened.

(b) Institutional Change/Strengthening 61. There has been an increase in the capacity of both MTC and CFM. MTC is now more competent than before as mention earlier (paragraph 54). CFM’s increased capacity is reflected in its profitable financial status, diversified business and focus on the long-term development of the port-railway systems. In 2009, the railway and port sector presents a completely different picture when compared to 2000. More details of institutional change and impact of various components are given in Annex 2. (c) Other Outcomes and Impacts 62. There were three main unintended outcomes and impacts. First , the credit financed studies related to the development of corridors and supported the setting up of a corridor management unit which was not originally included as part of the Project design. This support has resulted in the setting up of information and of a data base for future development of these corridors and will lead to generating private sector interest to invest in the corridors. This effort is also supported by other donors and two PPIAF grant financed studies. Second, even though the floods of 2000 damaged the Limpopo line, its subsequent rehabilitation was accompanied by the widening of the culverts to cope with similar or even more severe floods in the future. As a result, the line is in a better shape. Finally , the breakdown of the concession for the Ressano-Garcia line led to the rehabilitation and modernization of the line which can now operate longer trains with a higher axle load and at higher speed and has the potential of attracting more bulk traffic, particularly coal and magnetite from South Africa.

Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 63. No formal beneficiary survey was undertaken but several beneficiary interactions were held with: (a) the railway systems in Malawi, Zimbabwe, South Africa, and Swaziland on service delivery, (b) staff and staff unions on retrenchment mitigation measures, (c) the concessionaires on their performance and support of the GOM, (d)

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passengers using the new boats and vessels, and (e) businesses and major exporters and importers in Mozambique and the neighboring countries using the ports and railways. These interactions yielded positive responses from beneficiaries on the results achieved by the project, especially with regard to the redeployment efforts made for the retrenched staff and the improvement of services in the ports of Beira and Maputo. According to the railway concessionaires, privatization has led to improved operating agreements and arrangements with the neighboring countries involving the sharing of locomotives and wagons, extended locomotive runs, and sharing of information.

4. Assessment of Risk to Development Outcome

4.1 The overall risk is assessed as moderate. 64. Three ports and two railways are under long-term (15-25 years) concessions. Compared with public sector management, the concessionaires, free from many restrictive procedures and rules, are expected to respond to the market more quickly and manage the system more efficiently to stay competitive. The freight traffic on railway and port systems is, therefore, expected to continue increasing with the recovery of the regional and global economies, especially after the Sena line becomes fully operational and after CFM and South African Railways have reached operating agreements with regard to operations on the Ressano-Garcia line. The already strengthened MTC capacity is only likely to be strengthened further as a result of more trained staff, strategic planning, and increased exposure to world-wide information through the extended use of the internet. 65. However, the risk to development outcomes is still considered as “moderate” due to the following pending issues. For the Port-railway systems: (a) the planned concession monitoring unit in MTC is yet to be set up and the delay in this mechanism could impose risks for the existing concessions especially when some unanticipated issues not covered by the concession contracts arise; (b) the traffic increase on the Ressano-Garcia line depends to a great extent on the traffic sharing agreement with South African Railways (SAR). While SAR has shown a willingness to cooperate, it could continue to focus on its domestic railway development and on implementing tariff policies and practices aimed at encouraging traffic to move to its own ports in which case the expected dramatic increase in freight traffic on the Ressano-Garcia line may not materialize. For the strengthening of the MTC, seven studies were conducted under this Project.

5. Assessment of Bank and Borrower Performance

Bank performance (a) Bank Performance in Ensuring Quality at Entry 66. The Bank’s performance in ensuring Quality at Entry is rated satisfactory for three main reasons: (a) the Bank’s appraisal team accurately identified key issues and made the right proposals that eventually led to a more efficient port-railway system that

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benefited the country. Full use was made of the existing information and studies in developing the project components and technical specialists were engaged to evaluate every proposal; (b) an adequate effort was made to build consensus and get full commitment from all stakeholders to ensure that the chances of failure due to contentious elements of staff retrenchment and privatization were minimized and the project could be well received and implemented; (c) appropriate provisions were made for technical assistance in the form of: (i) an expatriate railway expert and a local human resource specialist to help CFM implement its part of the project; and (ii) a project coordinator to head the implementation unit within MTC and help it to implement its part of the project and prepare regular reports. However, the project design had a few shortcomings as mentioned in section 2.1 such as inadequate definition of outcome indicators to fully reflect the PDOs; an ambitious timeline for completing the various concessions, and linking staff rationalization to concessioning which delayed staff retrenchment. The project attempted to address too many complex issues which turned out to be difficult to accomplish within the timeframe such as, setting up of a regulatory body, undertaking a pension study for the whole public sector and linking the improvement of tertiary ports to private sector interest in their operation. (b) Bank Performance in Quality of Supervision

67. The overall rating in quality of supervision is assessed as Satisfactory. This was a complex and difficult project, the implementation was full of challenges and unexpected issues such as concession breaking up and floods damaging the Limpopo line. The Bank team remained focused and results oriented while at the same time maintaining flexibility and making necessary changes to ensure successful achievement of the development outcomes. Such examples included restructuring the project to meet new demands, launching a separate Beira Railway Project to enable the concessioning of the Beira railway system as a public-private partnership with significant public sector inputs, and enhancing project benefits by addressing the fluvial transport needs of the coastal rural population.

(c) Justification of Rating for Overall Bank Performance

68. Overall, the Bank Performance is rated as satisfactory, given that the quality at entry and Bank supervision are both rated satisfactory.

Borrower Performance

(a) Government Performance Rating: Satisfactory 69. The GOM was fully committed to the achieving the development objectives in spite of the formidable challenges facing the country and an uncertain sentiment with regard to privatization. Such commitment included: (a) enunciating and implementing a policy of privatization of one of the most strategic enterprises in the country, knowing

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full well that the step would entail massive staff retrenchment and readjustment of roles; (b) providing full support for implementation including funding, personnel and policy adjustments. There was teething problems during the implementation yet, privatization and private-sector participation remained the corner-stone of government policy. The Ministry of Finance, in particular, helped solve staff retrenchment issues and expedited the concessioning process. On balance, GOM’s performance is rated satisfactory. (b) Implementing Agency Performance

Rating: Satisfactory

70. There were two implementing agencies for this project. The performance of CFM is rated as satisfactory, while the performance of MTC is rated as moderately satisfactory, with an overall combined rating as satisfactory. CFM successfully implemented staff rationalization, its own restructuring, and the concessioning of the port and railway systems. For staff rationalization, CFM established a staff rationalization unit to process more than 14,000 cases in an orderly manner and expeditiously and compassionately addressed any complaints from retrenched staff. CFM also fully supported the consultants engaged in providing counseling and training to the retrenched staff. For its own organizational restructuring, CFM management team led the effort. Through careful planning and implementation, it has turned CFM into a profitable entity with no dependence on Government financial support, a rare example in sub-Saharan Africa. For concessioning, CFM participated fully in the selection of concessionaires and took its responsibilities as a minor equity holder in the major concessions very seriously. 71. MTC took full advantage of the opportunities created by the project and has restructured and strengthened itself and implemented the project sub-components with diligence. Though the allocation for the MTC components was small, implementation involved dealing with knowledge-based and deeply-impacting investigations using specialist consultants, institutions, universities, and individuals with all the accompanying problems. MTC was not hesitant to submit alternative proposals within the allocated funds in order to optimally utilize the funds and was instrumental in developing and implementing new sub-components such as the development of corridors, fluvial transport, and a transport cost study. However, MTC delayed decisions on the setting up of a regulatory body and the implementation of the recommendations of several studies that were undertaken under this project, hence, leaving some key planned activities incomplete at the time of credit closure.

(c) Justification of Rating for Overall Borrower Performance

72. As a whole, the Borrower’s performance is rated satisfactory. This rating has been arrived at considering the weighted performance of the GOM and the two implementing agencies as described above.

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6. Lessons Learned

73. Lessons learned from the Project are as follows:

(a) The Project outcome indicators should be fully reflective of the PDOs. These indicators should be backed by an appropriate model or a set of equations in order to compute their values with clear identification for the control of relevant exogenous variables and their impact. For example, the outcome indicator of this project is traffic growth, as this indicator itself is a function of many variables such as efficiency of the railways and ports, economic growth in the neighboring countries, developments in the road sector, etc, a model with all the relevant parameters should have been designed to identify the impact of each variable. This would also facilitate improved monitoring by the implementing authorities, unambiguous evaluation of performance at every stage, and identification of timely corrective actions.

(b) The relative weights of various indicators should be identified at the project preparation stage so that the aggregate performance with respect to a particular PDO can be judged unambiguously. Taking example of this Project, it would have been useful to make a more informed judgment on the overall performance under each PDO if the methodology for integrating the results measured by port traffic, railway traffic, ports efficiency, railways efficiency, staff retrenchment, and capacity building had been specified during appraisal - not necessarily in quantitative terms only but even in a broad ranking form or by relative weights contributing to the specific PDO.

(c) Staff rationalization is complex and difficult; it could be successfully completed only if the rationalization design could integrate a good severance package, counseling services, job training and have provision for follow up services. More concretely: (i) the staff being retrenched should not be the only losers and the severance package should be enough to maintain them while they seek an alternative career; (ii) psychological, social, and financial counseling must be provided both in groups and individually to enable the staff to overcome the shock of retrenchment; (iii) adequate training and retraining should be arranged so that the staff can leverage their experience and skills towards another career; and (iv) guidance to staff should be continued for a number of years and the progress of staff monitored closely. The program under RPRP was successful because all the elements were observed and taken into consideration during the design and implementation of the program.

(d) Railway concessioning and revitalization is complex and time-consuming especially when the potential investors consider the risks of investing in Africa as high. Successful concessioning of the railways required a balanced risk sharing structure, a good understanding of the local business environment, working on the logistics chain as a whole, and having a good marketing strategy. More concretely: (i) The risks should be well balanced

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between the potential investors and the government; (ii) the concessionaire should be one who knows the business environment and respects the culture, has good communication skills or strategy and builds trust with all the stakeholders in the country, so that they can work together to solve problems and focus on development issues; (iii) the concessionaire, together with other stakeholders, should work on the whole logistics chain including shipping line, customs service, port and inland transport, so that traffic can flow smoothly; and (iv) marketing is as important as the other development strategies to generate more business.

(e) The lesson drawn from dropping the tertiary port rehabilitation component is: if investment for a component is delayed for any reason, the economic analysis must be repeated just before the investment is actually undertaken to make sure that the changed business environment has not diminished the economic feasibility.

7. Comments on Issues Raised by the Borrower/Implementing Agencies/Partners

Co-financiers. There were no co-financiers in this project.

Other partners and stakeholders. There were no other development partners.

74. CFM raised the following four issues regarding the railway and port concessions: (a) Does the public sector have a role to play? (b) What is the best approach for port concessions? Is a Master Lease Concession the best alternative? (c) Are Advisers necessary to structure a good deal? and (d) is competitive tendering the best approach to select a partner in a concession? 75. These issues invoke intense discussion around the world including within the World Bank with supporters on either side. The comments from the project team on these issues are: (a) The role of the Public sector is clearly very important in PPPs and in formulating policies and providing the required regulation and oversight; (b) Master Lease Concessions have been successful elsewhere in the world and have definite advantages and disadvantages over other methods, so there is no clear conclusion whether a Master lease concession is the best approach. Even in Mozambique, the Maputo port is under master concession while the Beira port is under landlord concession, both are successful; (c) Transaction Advisers could bring worldwide experience to bear on the complex procedures and processes that are required to implement privatization of public assets. They are not necessary, but do add value especially when the government does not have the requisite capacity; and (d) Negotiated contracts have advantages, however, in general competitive bidding has proved to produce better results.

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Annex 1. Project Outputs, Costs and Financing

(a) Project Cost by Component (in US$ million equivalent)Components Appraisal

Estimate US$

million

Estimate at Restructuring US$ million

Actual/Late Estimate

US$ million

Percentage of

appraisal

Concessioning of CFM Ports and Railways

1.00 1.60 1.81 181%

Staff Rationalization 96.44 81.00 77.81 81% Corporate Restructuring 2.60 2.60 0.96 37% Strengthening of MTC 1.70 6.00 2.57 151% Regulatory Framework 8.20 1.00 0.70 9% Tertiary Ports 10.06 0.00 0.00 0% Rehabilitation of Passenger Jetties and acquisition of new boats/ferries

0.00 15.00 16.55

Rehabilitation of the Ressano-Garcia line 0.00 6.40 5.45 Exchange Rate Adjustment 0.18 Total Project Cost 120.00 120.00 106.03 88% MDRI SPLIT 39.44 TOTAL 66.59

(b) Project Financing (in US$ million equivalent)

Source of Funds

Appraisal Estimate US$

million

Actual/Latest Estimate US$

million Percentage of

appraisal GOVERNMENT** 20.0 16.0 80% CFM 0.0 8.7 IDA 100.0 106.0 106% TOTAL 120.0 130.7 109%

** Government counterpart funding fully paid at project start, however actual cost was affected by the exchange rate fluctuation

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Annex 2: Outputs by Component Part A: Concession of CFM major Ports and Railways: 1. Design: It was agreed that the three major ports – Maputo, Beira, and Nacala – and the related railway systems would be concessioned. By the time the project became effective, the Portos e Caminhos de Ferro de Moçambique, E.P. (CFM) had already embarked on undertaking concessioning on a limited scale, having concessioned the coal, sugar, container, and citrus terminals of the Port of Maputo. CFM and the Government of Mozambique (GOM) had indicated their preference for the following equity structure: Winning bidder – 51 percent, CFM 33 percent, and the Mozambican public and key stakeholders – 16 percent (which shares would be warehoused with CFM until a methodology to identify such shareholders is identified). The general methodology was that a strategic partner would be identified through a competitive process but CFM reserved the right to identify a strategic partner directly. The credit was available for studies, transaction advisors, and any other assistance.

2. Implementation. The results at the close of the Project are as follows:

(a) The Port of Beira was concessioned prior to the project becoming effective. The concession was awarded to a consortium whose main foreign partner was a Dutch firm with which CFM had a relationship of many years through various port activities. The concession has been doing extremely well from the very beginning and in 2008, made a pre-tax profit of US$16 million;

(b) The Port of Maputo was concessioned with the concessionaire being identified on a competitive basis. The consessioning process took a long time during evaluation, negotiation, and operationalization as the Concessionaire insisted on the concessioning of the Ressano-Garcia line being concessioned before making the concession operational. The concession did not do well for many years but the ownership has now changed, the new concessionaire has streamlined operations, and the prospects now look much better;

(c) The Port of Nacala and the Nacala Railway system were concessioned on a negotiated basis and the concession was awarded to the SPDN, the Malawi railways concessionaire. It was expected that the same concessionaire for both sides of the corridor would provide synergy and avoid interface problems. However, the concession has not performed well at all. Performance has declined sharply, infrastructure has deteriorated, and accumulated losses have mounted. The main foreign partners appear to have abandoned the concession and the future looks very uncertain. The hope is that, as in the case of the concession for the port of Maputo, new investors will be forthcoming and with renewed management and investment, the corridor will be revitalized as the fundamentals of the corridors are strong;

(d) The Beira railway system was difficult to concession as the Sena Line, a part of the system, had been in disuse since 1984 and required extensive rehabilitation,

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A new project was launched to offer a BOT-type concession and the concessionaire was identified on a private-public partnership basis with considerable financing from the World Bank. The rehabilitation of the Sena Line is progressing well. However, the line will have to be further strengthened and its capacity increased considerably to be able to carry large quantities of coal. Some of the key issues of tariff and capacity are currently under discussion;

(e) The concession of the Limpopo and Goba lines, part of the Maputo railway system could not be signed though the concessionaire was identified through a competitive bid because the line suffered extensive damage due to floods just before the concession agreement was to be signed. Currently, the private interest in the line is low because of the sharp decline in freight traffic consequent to the decline in the Zimbabwean economy. The line is being managed by CFM after it was rehabilitated;

(f) The Ressano-Garcia line, also a part of the Maputo rail system, was also concessioned but the concession could not be signed because South African railways, a key partner of the concession consortium, pulled out of the consortium. The line has since been upgraded and is being managed by CFM. The Concession depends on the cooperation of South African Railways, which is not reported to be in favor of a private concession. However, CFM is in the process of reaching an agreement with South African Railways to operate on their lines by paying access charges and the prospects on increased traffic have brightened.

3. Issues. Even though the implementation of the concessions so far has been mixed – disappointing in some cases and encouraging in others - there are some issues where either the answers are not clear or some more post-project work would need to be done. These issues are discussed below:

(a) CFM’s Thirty-three percent equity participation in major port and railway concessions. Considerable concern has been expressed by many regarding this participation as this can be seen as a direct conflict of interest, with CFM indirectly assuming the roles of both the conceding authority and the concessionaire and additionally increases CFM’s risk exposure. However, CFM has explained that this participation has many benefits including the following: (a) the equity participations grants them a seat on the Board of Directors of the concessionaire and thus provides an opportunity to understand the concessionaires’ plans and strategy and even a chance to influence them ; (b) it provides an opportunity to CFM to offer its assets (locomotives, wagons, cranes etc.) as part of its equity, which assets will otherwise be difficult to sell; (c) CFM stands to gain in the form of dividends in an upswing of the business of the concessionaire; and (d) even the concessionaire welcomes this participation as this implies a partnership rather than a confrontation ;

(b) Master concession or landlord-type concession: Maputo and Nacala ports have been concessioned on a master concession basis with the existing terminal concessionaire being brought within the scope of the master concession. That

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means that the concessionaire is responsible for most services within the port including dredging. The Port of Beira has been concessioned with CFM retaining the landlord status. There is a worldwide debate on the merits of both types of concession. The current concessionaire seems to favor a master concession as that gives him greater flexibility and lesser interface problems whereas CFM seems to feel that a landlord-type concession is more lucrative for CFM and also presents less risk of failure. More analysis is required to make a meaningful comparison.

(c) Future of the Nacala port-railway system. As indicated above, the future of Nacala is a major issue laced with legal, institutional, and financial complexity. More effort is required to set a right course for the system.

(d) Future of the Ressano-Garcia line: As indicated above, the agreement for mutual use of the line in South Africa by CFM and of Ressano-Garcia could provide a promising framework for increasing freight traffic on the line. Other arrangements and partial sub-contracting could be used to make better use of the institutional arrangements.

(e) Future of the Limpopo and Goba lines: for quite some time, there could be a low interest in the concession because the traffic is low and an increase in traffic will depend a lot on the progress made in Zimbabwe. The line may have to be managed by CFM for a long time and in that case, there has to be a bigger focus on the efficient running of the railways. It does not mean that the line is being operated inefficiently but there is always room for improvement.

4. Evaluation: Overall, based on the complexity of the task of concessioning, and the unavoidable impact of the policies of neighboring countries but also on the results so far, the component is rated as moderately satisfactory. Part B: Staff Rationalization: 5. Design: It was clear from any number of past privatization efforts that concessioning would have been difficult, if not impossible, if the staff on roll had not been drastically reduced. In order to ensure staff reduction with the least possible pain and to be fair to those who had been retrenched, the severance package was finalized only after discussion with the staff and after conducting a survey and included many novel features such as:.

(a) allowing a severance package comprising a supplement of 27.5 percent on the pension of the retrenched staff computed by the Ministry of Finance and certified by the legal authority, which proved satisfactory to all staff - higher pension for relatively senior staff and higher pension for a longer period for relatively younger staff instead of paying a severance payment based on past service for the staff entitled to pension (I.e., those employed before 1989), ;

(b) the payment of the pension and the supplement could be cashed on the basis of net present value of the pension stream or; if the staff could continue to remain in

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the pension scheme and receive monthly pension from the Ministry of Finance with only the supplement paid in cash;

(c) the staff, who were employed after 1989 and were not participants in the Government-managed pension scheme, were to be paid severance at the rate of six months’ pay for every year of service completed, twice the legal entitlement but still low in cash terms because average service life was low and so were the wages; and

(d) an elaborate scheme was put in place for the counseling of retrenched staff, training them for future reemployment or self employment, and assisting them in seeking employment in the non-railway sector or open small businesses.

6. Severance computation software was developed and vindicated before being applied and strict security measures were taken to ensure that the package is not tempered with; all computations of severance payments and actual payments were certified by professional audit firm, also financed through the Credit. 7. It was announced that transparent and efficient procedures would be established to instill confidence in the staff that what had been promised would be delivered. In particular, it was widely announced that: (a) a separate staff retrenchment office managed by competent and experienced staff would be established to ensure strict and speedy compliance with retrenchment procedures; (b) severance computation software would be developed before being applied and strict security measures would be taken to ensure that the package would not be tempered with; and (c) all computations of severance payments and actual payments would be certified by a professional audit firm selected for this purpose. 8. Implementation. The following actions were taken under this component:

(a) a special workforce rationalization unit, manned by lawyers, a psychologist, Human resource experts and staff, and an IT specialist, was established;

(b) the staff rationalization program was implemented with considerable efficiency, as a result of which the permanent staff with CFM and various concessionaires stands reduced from around 19400 at the end of 1998 to around 3400 (1600 with CFM and 1800 with the concessionaires) at the end of June 2009. The reduction of staff by 16000 took place as follows: (i) natural attrition, deaths, dismissals, and abandonment – 1200; (ii) retrenchment – 14800. The retrenchment took place as follows: (i) Option A under which staff were paid full retirement benefits as a lump sum – 8100: (ii) Option B under which the staff remained under the retirement scheme but were paid the supplement and golden handshake – 700; (iii) Staff who were not a part of the retirement scheme, having joined after 1989 and were paid on the basis of the length of their service – 4800; and (iv) Staff who were paid only the golden handshake – 12003.

3 All figures have been rounded to the nearest hundred

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(c) Vigorous staff mitigation measures were taken, the details being as follows: (i) more than 12000 staff (about 80% of the retrenched staff) were provided psychological, career-related and financial counseling; (ii) 84 management courses (1496 staff), 344 professional courses (3925 staff), and 47 agricultural courses (700 staff) were held with a total of 6121 staff attending one or more courses; (iii) 3823 staff (about 25% of the retrenched staff) attended follow-up training programs;

(d) The mitigation measures resulted in the following: (i) staff in self-employment –7000; and (ii) staff employed in small-scale formal and informal firms – 900. In the self-employment or reemployment process, 263 staff were provided with micro finance and many more were provided with start-up assistance. Assistance was also provided to staff in different provinces, with 553 members to form 46 associations aimed at facilitating discussions of mutual interest; and

(e) Payments were made promptly and all complaints were duly and comprehensively addressed; and free training was also offered to dependents of the staff in case the staff was unable or incapable of going through any sort of training.

9. Issues. Even though the implementation went very well, there have been some issues where either the answers are not clear or some more post-project work would need to be done. These issues are discussed below:

(a) Complaints: It has been reported that close to 700 complaints (5% of the total retrenched) were made during the period of retrenchment and most were resolved to the entire satisfaction of the complainants. Most complaints pertained to computation errors due to deficiencies in data base regarding the date of birth, length of service etc. and CFM paid close to US$1 million (about 1.3% of the total amount of retrenchment) after rectification of the errors. However, seven cases are pending in courts, the complainants having challenged the basis of discounting rate and mortality assumption for computing the NPV. The complainants have a very weak case but the fact that the workers have access to courts is a sign of transparency;

(b) Statistics of staff reemployed or self-employed and sustainability: The numbers (7000 or so) are based on the estimates of consultants who managed the counseling and training of staff. The following issues have been raised during discussions: (i) an independent survey would have been better; (ii) it is not clear whether the small businesses started by the retrenched staff have been sustainable; (iii) no contacts were made with staff who did not opt for training to find out whether they were reemployed or otherwise; (iv) there is no mention whether the influx of the retrenched staff adversely affected the chances of the already-unemployed residents of Mozambique;

(c) Future plans: CFM still has around 1600 staff mainly because it is still operating and managing the southern railway system, the oil and grain terminals, and many other assets and businesses that have not been concessioned. There is no immediate plan to retrench any further staff but CFM does not plan to replace the staff lost through natural attrition except to balance the skill base. Even so, the plan is not clearly spelled out;

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(d) Staff wages and salaries: Even though 70 percent of the staff has been retrenched and another 15 percent transferred to concessionaires, the staff wages and salary bill continues to be roughly the same as before the start of the retrenchment. Some reasons for this were explained as follows: (i) wages and salaries of staff had to be substantially increased over the years to keep pace with the inflation and market averages; (ii) close to 3000 retired staff are awaiting settlement of their pension by the Ministry of Finance and who have to be paid their salaries until their pension is settled; and (iii) the remaining staff includes a relatively higher percentage of middle and high level management staff as very little such staff was taken over by the concessionaires. CFM needs to take the following post-Project actions: (i) make a separate list of the staff who are being paid as they are awaiting their retirement settlement; and (ii) take action to critically look at the staff wages and salaries; and

(e) Micro-financing : The micro-financing scheme has been claimed as being successful though on a small scale. Normal experience being otherwise, CFM should require the consultants to prepare a detailed note on this.

10. Evaluation: Overall, based on the complexity of the task and despite some of the issues discussed above, the component is rated highly satisfactory: Part C: Corporate Restructuring: 11. Design. Based on internal studies and brain-storming, CFM had created a broad blue print where by the original CFM was to continue as a holding company and many subsidiary companies were to be created for various commercial functions. The proposed corporate restructuring was aimed at increasing the capacity of CFM to effectively manage the concessions, resolve emerging problems, and efficiently manage the assets and businesses still remaining with CFM. 12. Implementation. The studies were undertaken and short-term experts were also employed by CFM to help it reach decision on the most appropriate structure. Resulting from the study recommendations, but mainly through its own thinking, CFM finally gave up on the idea of creating a structure of holding and subsidiary companies and provided the following reasons: (a) procedurally it was extremely difficult to create any more public companies as the Government was not prepared to take the risk of getting involved in more public companies and was in fact trying to divest the already existing companies; (b) Both the Government and CFM favored gradually involving the private sector through joint ventures for managing its assets and functions on a case by case basis rather than first creating separate companies; and (c) it was advised that the holding company-subsidiary structure would add considerably to the cost of CFM while the subsidiary companies were unlikely to sustain themselves. Instead, CFM created a new organization structure, the main features of which were as follows:

(a) A relatively flat structure with lesser authority levels; (b) A thin structure that employs much lesser staff; (c) A separate directorate created to manage CFM’s shareholding in different

businesses including the concessions of major ports and railway systems. CFM

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currently has close to 16 companies where it has equity or partnership in a joint venture (see Annex 3 for the list of companies along with CFM’s interest);

(d) A separate directorate created to undertake inspections and safety regulations until the Government establishes a regulatory authority;

(e) A separate directorate has also been created to effectively manage the real estate and property owned by CFM;

(f) Human resources directorate has been maintained though with considerably diminished staff to reflect lower workload consequent to reduction in staff;

(g) Finance, internal audit, and some operational directorates have been maintained and strengthened in the light of the diversification of CFM’s involvement;

(h) The regional directorates in the North and the Center were radically trimmed to discharge only overseeing functions; and

(i) The regional directorate in the South was also trimmed to maintain staff only for the management and operation of the rail system, which remains un-concessioned;

13. The review of the audited accounts of CFM for the years 2000 to 2008 indicates that its profitability has increased despite the decline in railway traffic mainly for the following reasons: (a) less maintenance cost because all concessioned infrastructure and leased assets are required to be maintained by the concessionaires; (b) CFM has taken action to reduce its wagons and locomotives and the resulting operating costs; (c) CFM has made the most of its redundant assets by creating joint ventures with private entities to manage these assets; (d) CFM has streamlined its organization and reduced its expenditure considerably; and (e) concession fees from port concessions have increased consequent to increase in port traffic. 14. Issues. Even though the implementation of CFM restructuring has gone quite well and CFM’s profits have shown an increasing trend, there are some issues where either the answers are not clear or some more post-project work would need to be done. These issues are discussed below:

(a) Equity in many loss-making companies: Annex 3 shows that CFM has a share holding in some companies that are making losses. While agreeing to the situation, CFM feels that these companies have good fundamentals and are expected to do better in the future;

(b) Effective utilization of assets: Even though CFM has made considerable effort to utilize the assets, it is not certain that more cannot be done. An intensive study, either internal or with the help of experts, could provide many new ideas on what could be done better or differently with the real estate, the railway assets, other assets, and cash reserves. The study could also recommend areas where joint ventures could prove useful.

(c) Further optimization of the structure: Though the structure has been streamlined, there is some feeling that it could be improved further and, in particular, there could be additional reductions of staff in high-paying positions, more involvement of the private sector in various activities and functions, outsourcing of some functions, and rationalization and consolidation of functions. CFM has indicated that it will intensify its efforts in the above areas. Inter-

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railway and inter-port comparisons: CFM now has a variety of structures for its ports and railways systems – concessions, BOT-type concession, self-management – but no comparative figures of efficiency, productivity and profitability are being maintained. These statistics could be difficult to obtain, but if an arrangement can be made with the concessionaires, even on a confidential basis, this might be useful for all concerned.

15. Evaluation: Overall, based on the complexity of the task of organization restructuring and despite some of the issues discussed above, the component is rated as “highly satisfactory”. Part D: Strengthening of MTC: 16. Design: This component comprised the following: (a) carrying out of a study or studies to: (i) review the Borrower’s transport policy framework; (ii) review the framework for concessions; (iii) define the new functions of MTC and assess MTC’s organizational structure in the framework of its evolving role; and (iv) determine staffing requirements, taking into account the Borrower’s civil service reform program; and (b) provide technical advisory services in connection with this Part component. 17. Implementation: Most studies and technical assistance planned have been carried out and additionally many more studies and TA were carried out also. Only one TA sub-component, i.e., planned earlier, viz., TA for strengthening the civil aviation directorate was not carried out because the Ministry took time to determine the structure of that directorate. As a whole, the following sub-components have been carried out:

(a) Seven studies: (i) MTC restructuring and strengthening study; (ii) study for the development of a strategic plan; (iii) transport studies; (iv) port security study; (v) review of development corridor initiatives; (vi) study of coal transport tariffs; and (vii) Maputo port competitiveness study;

(b) Training of (i) Road Safety Administration staff from different provinces including trip to South Africa; (ii) 10 MTC provincial directors in fundamentals of transport economics and logistics; (iii) 15 staff members of MTC in transport logistics (B .Tech Degree) at central and provincial level by a South African University; and (iv) 7 staff members of MTC, Public Transport Companies and Municipalities in Public Transport Reform and Planning;

(c) TA involving: (i) initial support for 4 economists recruited by MTC; (ii) support for an ICT specialist; (iii) support for the development of Corridors Special Program through financing of one Director at central level, administrative and financial staff for the Maputo, Limpopo, Beira and Nacala corridors as well as computers, accessories and vehicles; and (iv) support for a project coordination unit;

(d) Goods and services involving: (i) internet at the Ministry; (ii) .computers; (iii) a digital Private Automatic Branch Exchange (PABX); and (iv) vehicles.

18. The main impact of the above inputs can be recounted as follows:

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(a) The restructuring of the Ministry’s organization, which has been facilitated by the different studies and the TA is still on-going and changes are still being made

(b) Increasing the knowledge base of the Ministry; (c) Development of an initial strategic plan; (d) Enhancement of the capacity of MTC staff and that of various other staff in

municipalities and provinces connected with transport; (e) Computerization of MTC as well exposure to the internet and capacity to reach

data bases and specialist articles and transport research; and (f) Overall increase in confidence.

19. Issues: Even though the implementation of the MTC’s capacity strengthening program has gone quite well and MTC is much better off in terms of its structure, analytical capacity, and its knowledge base, there are some issues which answers are either not clear or some more post-project work needs to be done. These issues are discussed below:

(a) The Organization structure still needs to be fully functional: While the structure has been simplified, there is less evidence that it is fully functional. For example, the Economy and Investment directorate is not making comprehensive analysis of the investment proposals of the various companies under its control. A second review is essential and working norms have still to be established;

(b) The Concession Monitoring Unit has not been established: The setting up of the unit required considerable preparatory work and that has not been done. The World Bank has assisted the Government in making arrangements with the Spanish Trust Fund to finance studies and TA to assist MTC set up this unit;

(c) Staffing levels are still not optimal: In spite of substantial staff training, particularly in economics, more skill development is still required and some staff may be redundant as well. During supervision missions, MTC was urged to review the human resource models employed by some other ministries and introduce the same at MTC in order to have an effective human resource management; and

(d) The Strategic Plan needs to be refined: A good start was made and a first strategic plan had been developed. However, the report needs to be refined to be more pragmatic and to focus on core values which also need to be defined more clearly.

20. Evaluation: Overall, based on the complexity of the task of enhancing the capacity of MTC and despite some of the issues discussed above, the component is rated satisfactory.

Part E: Regulatory Framework:

21. Design: This component is comprised of the following: (a) the carrying out of a study to: (i) identify the scope, functions, and instruments for the economic regulatory framework for the transport sector; (ii) recommend the sectoral coverage and accountability relationships for the regulatory institution; (iii) define the staffing, internal organization, operating costs and financing mechanisms for a new regulatory agency; and

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(iv) prepare the necessary draft legislation; and (b) the acquisition of equipment and provision of technical advisory services to (i) enable the launching of the Borrower’s new regulatory agency and the preparation of its staff in the carrying out of the agency’s functions; (ii) support the functioning of the agency for an initial period of 3-5 years; and (iii) strengthen Instituto Nacional de Aviação Civil (INAC’s) capabilities in the technical regulation of the civil aviation subsector. 22. Implementation. Only phase I study for the identification of the scope, functions, and instrument for the regulatory framework was completed. Studies to detail the nature, structure, functions, regulations, modus operandi and financing of the transport sector regulatory bodies were not completed. Maritime legal and regulatory support and technical assistance to implement the recommendations was also not provided as the government could not decide on the final regulatory framework in spite of a stakeholders’ workshop and considerable internal thinking. It is noted that establishing a cost-effective and sustainable regulatory body is always difficult and since the institutions were evolved and concession agreements had not been finalized, the Ministry found it difficult to finalize a specific model for implementation. In the meantime, major regulations of the rail and port sectors are being done through the concession agreements and no major problems are being encountered. 23. The main impact of the above inputs has been to sensitize to the various options for regulating the transport sector and the costs and issues involved. However, the main tasks of actually establishing a regulatory framework have still to be completed. 24. Issues. Even though there are understandable reasons for a final decision to not have been made, the work of establishing an appropriate regulatory body has still not been completed and the following issues would need to be addressed in the near future:

(a) Identifying a cost-effective regulatory framework: Even though recommendations, have been made in the Phase I study more thinking has to go into identifying a cost-effective regulatory framework. This could involve the consolidation of existing regulatory bodies and considerable reorganization and staff rationalization. However, before a follow-up consulting study is launched, the Government has to develop some key options which could then be studied intensively. The Government also needs to study the experience of regulation of similar systems in other countries;

(b) The Concession Monitoring Unit has not been established (also discussed under MTC strengthening component): The setting up of the unit required considerable preparatory work that has not been done. The World Bank has made arrangements with the Spanish Trust Fund to finance studies and TA to assist MTC in set up this unit;

(c) Distinction needs to be made between policy and regulation. A clear distinction could enable the formation of a more appropriate regulatory body; and

(d) Compiling data on regulatory issues: Since concessions have been in operation for some time, it will be a good idea to critically examine the impact of non-regulation of the railway and port sectors in order to define the scope of any future regulatory body.

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25. Evaluation: Overall, based on the limited progress made but also realizing the complexity of the task, the component is rated as moderately satisfactory. Part F: Tertiary Ports: 26. Design: This component comprised the following: (a) assisting MTC in the carrying out of a program of rehabilitation of the small ports of Angoche, Macuse, Mocimboa da Praia, and Pebane; and (b) the provision of technical advisory services for: (i) the supervision of the civil works in the mentioned four ports, and (ii) the preparation of a study on the revitalization of the Inhambane Port. 27. Implementation: Economic and Social Study of the Inhambane Region and Rehabilitation was completed but the rehabilitation of small ports was dropped considering: (a) the decline in traffic after road rehabilitation; (b) an insufficient economic justification; and (c) a lack of interest of the private sector to seek concession of these ports. 28. The main impact of the above input was limited to a better understanding of the Inhambane Region. 29. Issues: The component was dropped except for the above-mentioned study. 30. Evaluation: Since the component was dropped, it has not been evaluated Part G: Rehabilitation of Passenger Jetties and Acquisition of new boats/Ferries (New component introduced at restructuring) (Estimated Bank financing – US$14.0 million, Actual Cost – US$13.36 million) 31. Design: The component comprised: (a) the rehabilitation of key jetties used for ferry services (passenger and minor cargo) in Maputo, Catembe, Inhambane, Maxixe, Quelimane, and Recamba; and (b) the procurement of new ferries and other vessels for water transport. The objective was to strengthen Mozambique’s fluvial transport.

32. Implementation: The following were implemented: (a) studies for (i) the Maputo and Catembe jetties rehabilitation; (ii) the maritime means of transport; (iii) the Quelimane- Recamba wharfs rehabilitation; (iv) the Transmaritima technical and financial Audit; and (v) the environmental impact Assessment of Rehabilitation of Jetties; (b) Technical assistance towards (i) the Inhambane – Maxixe Rehabilitation Supervision; and (ii) the Maputo – Catembe Rehabilitation supervision; and (c) goods and services towards: (i) the rehabilitation of the Inhambane and Maxixe Jetties; (ii) the rehabilitation of the Maputo and Catembe Jetties; and (iii) the supply of 6 Ferries and Boats. 33. The main impact of the component has been: (a) the restructuring of the Transmaritima; (b) the quality and economic use of resources; (c) the increased safety of

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maritime means of transport; (d) the Improved access to safe fluvial and maritime transport; and (e) the improved mobility for the poor

34. Issues. Even though the rehabilitation of jetties and procurement of boats and jetties was completed, there are certain remaining issues requiring attention :

(a) The Quelimane - Recamba wharfs rehabilitation: This has still to be done using Government resources;

(b) The Completion of the rehabilitation of the Inhambane – Maxixe and the Maputo – Catembe jetties: Some works are left incomplete and will have to be done using GOM finances;

(c) Procedures for the operation and the maintenance of boats and ferries; For some years, it has not been possible to recover the operating and maintenance costs from the revenues and firm financing arrangements need to be made based on tariffs and efficiency norms;

(d) Impact on private small boats: There appears to be dissatisfaction among private boat owners whose business has suffered as a result of the introduction of these ferries and boats. A plan needs to be devised to optimally utilize the existing private capacity.

35. Evaluation: Overall, based on the progress made and the works remaining, the component is rated satisfactory.

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Annex 3. Economic and Financial Analysis 1. The financial rate of return has been computed from the point of view of GOM and CFM (as the ultimate owners of the assets). The FRR has been computed on the basis of cost-benefit analysis of the “with” and “without” scenarios. The assumptions of investment and benefits are as follows: 2. Investments under the “with” scenario: (a) The main investments under the project by CFM/GOM comprised the investments using the proceeds of the Credit; (b) GOM and CFM did not make any investments using their own funds as long as the concessioning process was on and made some investments only after the concession in Ressano Garcia line failed (about US$15 million spread over four years or so) but that investment has been covered in the yearly cash flow and not logged as investment; (c) investments made by the concessionaires have not been considered as the concessionaires have been considered outside parties and as such the profits of the concessionaires have also not been considered; (d) The actual investment in each of the Project years has been considered as equal to the disbursement every year (as per the disbursement of Credit funds) with the total investment amounting to SDR60.6 million (US$86 million equivalent) (details in Annex 1); and (e) interest on the investment has been ignored; and (e) Investments under TA and the institutional components for MTC have not been considered as their benefits have also not been considered, being long-term and not easily quantifiable. 3. CFM’s Cash Flow: The cash flow figures have been taken from CFM’s audited statements and the cash flow = direct revenues from all CFM’s activities, concession fees and leasing charges) minus (operating costs and investments made by CFM including dredging of ports). 4. Net cash Flow: the net cash flow for CFM and GOM for all scenarios = IDA disbursements (investments) + Investments by GOM + CFM’s cash flow + concession fees to GOM 5. The “With” scenario is based on the Project with investments through the IDA Credit as indicated above; 6. The “Without” scenario is always difficult to imagine. The probabilities are: (a) GOM is unable to take a decision on staff retrenchment and concessioning but based on natural attrition and management effort, the railways and ports are maintained at the 2000 or slightly better level; (b) the increasing staff costs and low level of efficiency lead to gradual decline of the railways and ports if some investments are made or more rapidly if no investments are made; or (c) the investment is undertaken by CFM through a commercial loan but with considerable delay. A five-year delay is logical as deciding to take a commercial loan in order to finance severance payments is difficult. Scenario (c) has the least damaging effect for CFM in the long-term as without going through with the Project, the consequences would be even worse.

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7. The results of the analysis are as follows: 8. Cost-benefit analysis: Considering that CFM’s increased cash flow is only as a result of the Project, the NPV and the FRR amount to US$245 million and infinity respectively. The complete improvement in performance, however, cannot be considered as due only to the Project alone but also resulting from investments by the concessionaires and which have not been considered. Considering only 30% of CFM’s cash flow, the NPV and the FRR amount to US35 million and 18% respectively. It is obvious that the actual results lie somewhere in between. 9. “With” and “Without” Analysis: The five year delay, the level of investment and CFM’s cash flow has been considered as similar when put in juxtaposition. The NPV and the FRR under this analysis amount to US$45 million and 23% respectively. 10. Additional assumptions used in the calculation of Economic Internal Rate of Return (EIRR) are:

(a) In terms of economic analysis, both the GOM/CFM and the staff are considered as part of the economy and any transfers of funds between them are considered as transfers unless the balance constitutes a benefit or cost. As such the following adjustments have been made:

� Loss of wages and salaries have been considered a cost to the economy and offsets the benefit to CFM and are, therefore, subtracted from CFM’s financial cash flow where these had been taken as savings;

� Investment in severance payments has been considered a cost (investment) under the financial analysis but the part of severance payment paid as bonus and supplement payments to staff have been added back as these were not payments due to staff but considered as value additions by the retrenched staff in alternative employments;

(b) 30% of the retrenched staff has been assumed as re-employed or self employed (even though the actual re-employment or self employment has been much larger. By definition, the retrenched staff has been assumed to have been contributing no value to the economy and the 30% staff reemployed or self employed have added value, which has been conservatively assessed as equivalent toUS$600/year. The cumulative number of staff retrenched every year is very accurately documented.

(c) The benefit to consumers from the shift from road to rail has been ignored for two reasons: (i) these benefits will arise much later in the time frame of analysis and their discounted value will be much smaller; and (ii) given the world-wide economic slump, it is difficult to project when the shift will really take place and how much gain will be involved.

11. The Tables below project the financial and economic flows for the investment over the period 2001 - 2020 based on the above assumptions. The Tables also show the Financial Internal rate of Return (FIRR), FNPV, EIRR, and ENPV for the investment.

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12. The analysis shows the following results compared to the results estimated at the beginning of the project:

IRR (%) NPV (Million US$) Financial at ICR 23 45

Financial in PAD Not calculated (>12%) 158

Economic at ICR 24 51

Economic in PAD 52 357

13. Financial values are less because of the reduction in railway traffic mainly because of the down turn in the economy of all the countries, especially Zimbabwe and the failure of the concession of the Maputo rail system. Moreover, CFM’s cash flow has been limited to US$50 million per year in view of the recent experience of the world-wide financial crisis, which at the time of project preparation could not be foreseen. The actual could be much more. 14. Economic values are less because of the reduced rail traffic in the first years of the project which have a bigger impact on the financial NPV and also on the economic NPV. Economic values are also lower because the government responsibilities for pension payments had to be financed using the Credit amount and benefits of the funds saved by the Government have not been considered even though these payments have been considered as investments.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Maryvonne Plessis-Fraissard

Sector Manager AFTTR Management

Yash Pal Kedia Team Leader/Railway Engineer AFTTR Railway Uprety Kishor Sr. Counsel LEGES Legal Stephan Von Klaudy Principal Financial Specialist AFTTR Finance Pedro Geraldes Principal Transport Economist AFTTR Transport Sunita Kikeri Adviser GCMCG Private Sector Louis Thompson Consultant LCSTR Transport Philippe De Naurois Consultant MNSSD Finance Francesco Sarno Consultant AFTEN Cyprian Fisiy Director SDV Social Develop. Elizabeth Monowski Sr. Environment Specialist Ayse Kudat Lead Specialist Brian Levy Adviser PRMPS Anthony Hegart Chief Financial Management Officer OPCFM Finance Serigne Omar Fye Environment Specialist AFTEN Environment Carl Lundin Environment Specialist Adelaide Barra Program Assistant FEUUR Josiane Luchum Program Assistant AFTSP

Supervision/ICR Sanjivi Rajasingham Sector Manager AFTTR Management Anil Bhandari Senior Advisor/TTL AFTTR Engineering Yash Pal Kedia Consultant/Railway Engineer AFTTR Joao Tinga Financial Management AFTFM Finance Ntombie Siwale Sr. Program Assistant AFTTR Operations Farida Khan Operations Analyst AFTTR Operations Felly Kaboyo Operations Analyst AFTTR Operations Fang Xu Economist AFTTR Economics Jose Chembeze Transport Specialist AFTTR Transport Jyoti Bisbey Operations Analyst FEUFG Antonio Chamuco Procurement Specialist AFTPC Procurement Maria Nhassengo-Massingue

Procurement Assistant AFTPC Procurement

Jonathan Nyamukapa Sr. Financial Management Specialist AFTFM Finance Elvis Langa Consultant AFTFM Finance Paul Amos Consultant ECSSD Finance Rakhi Basu Transport Specialist Imogene Jensen Lead Transport Specialist EASIN V. Krishnakumar Manager AFTPC Procurement Ajay Kumar Lead Transport Economics AFTTR Robert Robelus Consultant AFTWR Environment George Tharakan Lead Transport Specialist SASDT Kavita Sethi Sr. Transport Economist AFTTR

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Tesfaalem Gebreiyesus Lead Procurement Specialist SARPS Lucien Aegerter Junior Professional Officer AFTTR Private Sector Slaheddine Ben Halima Consultant AFTPC Procurement

(b) Staff Time and Cost Stage of Project cycle Staff time & cost (Bank Budget only)

No. of Staff weeks US$ (including travel and consultant costs)

Lending

FY98 127,873

FY99 143,039

FY00

Total 270,912

Supervision/ICR

FY00 20.54 98,235

FY01 15.74 89,818

FY02 18.19 76,983

FY03 12.69 97,791

FY04 12.19 63,312

FY05 15.91 87,043

FY06 16.75 101,276

FY07 16.58 121,387

FY08 15.37 80,022

FY09 32.65 218,184

FY10 9.25 89,315

Total 185.86 1,123,364

Grand Total 185.86 1,394,276

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Annex 5. Beneficiary Survey Results No formal beneficiary surveys were conducted. However, the ICR team interviewed some retrenched CFM staff and visited the Inhambane ferry service and the response from the staff and the passengers was positive. The following pictures taken by the ICR team illustrate what has changed in the Inhambane ferry service due to the project.

Picture One: The new boat operating at Inhambane

Picture Two: Boats operating prior to the project

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Picture Three: Inside the new boat

Picture Four: New Jetty

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Annex 6. Stakeholder Workshop Report and Results

No stakeholder workshops were held. However, specific workshops were held to discuss consultants’ reports on regulation, development corridors, and transport study.

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Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR 1. The Government has not submitted its own full ICR by the time of the ICR review meeting. A partial ICR prepared by one of the implementing agencies, CFM, was sent to the Bank. In this partial ICR, CFM has pointed to what it considers are four misconceptions regarding the railway and port concessions. The CFM disagrees that: (a) the public sector has no role to play in the provision of ports and railway services; (b) the Master Lease Concession in Port Business is the best approach; (c) Advisers are necessary to structure a good deal; and (d) Tendering is the best approach to select a partner in concession. 2. Although CFM has not explicitly pointed at the World Bank as harboring these misconceptions it seems that this is what has been implied. However, the Project was based on the GOM’s policy that was articulated by the Minister of Transport and Communications (Mozambique) in many speeches in 1998-2000 including in a donors’ conference. The fact is that these issues invoke intense discussion all around the world including at the World Bank with supporters on either side. 3. With regard to the specific misconceptions cited by CFM, it is noted that:

(a) even before RPRP became effective, CFM had on its own concessioned at least five terminals in the port of Maputo as well two key terminals in the port of Beira and RPRP only supported the GOM and CFM in continuing the process in a more comprehensive way. Moreover CFM has continued to have a major role in all concessions (from a 31 percent to a 49 percent share in equity) and the World Bank has supported the GOM’s desire to have significant shares in the concessions;

(b) The Bank did suggest that a master concession for the port of Maputo would

lead to better performance but the final decision has been a joint decision made with GoM and CFM. In any case, the master concession is doing well;

(c) A possible implication of CFM’s statement is that the concessions finalized by

CFM without advisers have been more successful. In this regard, two clarifications are in order: (i) CFM has indeed acquired sufficient expertise and except in the case of the first concession, the Bank has not insisted on having advisors for processing of the transactions; and (ii) at CFM’s request, the Bank has financed an advisor to CFM who has been regularly advising CFM in all concessions;

(d) Tendering is considered everywhere as the best strategy to achieve optimum

results. CFM has a different point of view in which case it will then be better for CFM to undertake a comparative evaluation on the various methods of selecting a concessionaire in order to reach a definitive conclusion.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

None.

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Annex 9. List of Supporting Documents

Project Appraisal Document (June 15, 2001). Implementation Status and Results Reports (ISR). Development Credit Agreement (DCA) and Project Agreements with BPE and NEPA. Aide Memoires. Various memos and communications listed in project files and IRIS. Data presented by CFM and MTC Copies of study reports

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Annex 10. Additional Supporting Data

None.