Language: English Original: English

PROJECT: TRUNK ROAD REHABILITATION: BLANTYRE-ZOMBA

ROAD PROJECT COUNTRY: MALAWI

PROJECT APPRAISAL REPORT

Date: February 2009

Appraisal Team

Team Leader: : L. Kiggundu, Senior Transport Engineer, OINF.2 Team Members: D. Gebremedhin, Principal Transport Economist, OINF.2

N. Kulemeka, Principal Socio-Economist, OINF.2 R. Aron, Socio-Economist, OINF.2

B. Nkhoma, Infrastructure Specialist, MWFO S. Demissew, Environmentalist/Consultant

Sector Manager: J. Rwamabuga Sector Director: G. Mbesherubusa Regional Director: F. Black

Peer Reviewers

J.S. Kanyarubona, ORPC.2; E. Schroten, OWAS.2, W. Odhiambo, OSAN.3, L. Mukurasi, OSUS

TABLE OF CONTENTS Currency Equivalents i Fiscal Year i Weights & Measurements i Acronyms & Abbreviations i Loan Information ii Project Summary iii Result-Based Logical Frameworks iv Project Timeframe viii I. STRATEGIC THRUST AND RATIONALE 1 1.1 Project Linkages with Country Strategy and Objectives 1 1.2 Rationale for Bank’s Involvement 1 1.3 Donors Coordination 2 II. PROJECT DESRIPTION 2 2.1 Project Components 2 2.2 Technical Solution Retained and Other Alternatives Explored 3 2.3 Project Type 3 2.4 Project Cost and Financing Arrangements 4 2.5 Project Target Area and Population 5 2.6 Participatory Process of Project Identification, Design and Implementation 5 2.7 Experiences and Lessons Reflected in Project Design 5 2.8 Key Performance Indicators 6 III. PROJECT FEASIBILITY 6 3.1 Economic and Financial Performance 6 3.2 Environmental and Social Impacts 6 IV. IMPLEMENTATION 8 4.1 Implementation Arrangements 8 4.2 Monitoring 9 4.3 Governance 10 4.4 Sustainability 10 4.5 Risk Management 11 4.6 Knowledge Building 11 V. LEGAL INSTRUMENTS AND AUTHORITY 11 5.1 Legal Instrument 11 5.2 Conditions Associated with Bank’s Intervention 12 5.3 Compliance with Bank Policies 13 VI. RECOMMENDATION 13 Appendices I. Country’s Comparative Socio-Economic Indicators II. Table of ADB’s Portfolio in Malawi III. Similar Projects Financed by the Bank and Other Development Partners in Malawi IV. Project Map

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Currency Equivalents February 2009

1UA = MWK209.256 1USD = MWK132.934 1UA = USD1.57413

Fiscal Year 01 July-30 June

Weights and Measures 1 metric tonne (t) = 2,205 lbs. 1 kilogram (kg) = 2.205 lbs. 1 meter (m) = 3.281 ft 1 foot (ft) = 0.305 m 1 kilometre (km) = 0.621 mile 1 square kilometre (km2) = 0.386 square mile 1 hectare (ha) = 0.01 km2 = 2.471 acres

Acronyms and Abbreviations ADB = African Development Bank ADF = African Development Fund ARAP = Abbreviated Resettlement Action Plan BADEA = Arab Bank for Economic Development of Africa CBO = Community based Organization CO2 = Carbon Dioxide CSP = Country Strategy Paper DBST = Double Bitumen Surface Treatment ESIA = Environmental and Social Impact Assessment ESMP = Environmental and Social Management Plan EU = European Union FE = Foreign Exchange GOM = Government of Malawi LC = Local Currency MGDS = Malawi Growth and Development Strategy MWFO = Malawi Field Office NGO = Non Government Organization NPV = Net Present Value RA = Roads Authority RAP = Resettlement Action Plan RBCSP = Results-Based Country Strategy Paper RFA = Roads Fund Administration RFP = Request for Proposals RSP = Road Sector Programme RTRN = Regional Trunk Road Network SADC = Southern African Development Community STI = Sexually Transmitted Infections UA = Units of Account VOC = Vehicle Operating Costs

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Loan Information

Client’s information BORROWER: GOVERNMENT OF MALAWI EXECUTING AGENCY: ROADS AUTHORITY Financing plan

Source Amount (UA) Instrument ADF ADF GOM

22.980 million 1.124 million 2.609 million

Loan Grant Counterpart Financing

TOTAL COST 26.713 million ADF’s key financing information

Loan /Grant currency

UA

EIRR, NPV (base case) (19.3%, NPV: USD 13.94 million)

*if applicable Timeframe - Main Milestones (expected)

Concept Note approval February 2009

Project approval June 2009 Effectiveness November 2009 Completion August 2013 Last Date of Disbursement December 2013

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Project Summary Project Overview: The Trunk Road Rehabilitation Project: Blantyre-Zomba road is part of the North-South spine linking the southern part of Malawi to the central and northern regions and further on to Tanzania. The 60 km road is an important link on Route 29 of the SADC Regional Trunk Road Network (RTRN). The project is to be implemented over a five-year period for a total financial requirement of UA26.713 million, comprising UA25.53 million for the Blantyre-Zomba road and UA1.183 million for the feasibility and detailed engineering design of the Ntcheu-Tsangano-Neno-Mwanza road. Beneficiary Participation: The project outputs will directly benefit the people of the three districts of Blantyre, Chiradzulu and Zomba including residents of the two cities. The majority of road users are commuters travelling between the two cities for work, trading, agricultural activities and those seeking social services such as education and medical services. Administrators and social workers will also make use of the road to provide extension and outreach services. Notable impacts on the beneficiaries will include increased economic activities due to improved transport services with reductions in the cost of transport, travel time and improved road safety and ultimately improve the living standards of the communities in the zone of influence. There will be additional benefits from the project through acquisition of jobs during construction and obtaining sub-contracts for supply of goods and services. The communities along the road will also benefit from HIV/AIDS/STI and road safety awareness and campaigns. Project Rationale and Need: The project will contribute to the reduction of poverty by enhancing economic activities in the area and hence achieve the objectives of the Malawi Growth and Development Strategy (MGDS) which is in line with Bank Group Country Strategy Paper under Pillar I. The intervention has been identified by Government as first on the list of priority roads for rehabilitation in the Road Sector Programme (RSP 2007-2011). The project has a high economic rate of return and is environmentally sound and socially desirable. Bank’s Value Added: Bank has considerable experience in the road sector in the region including Malawi. The project has benefited from this experience in reviewing and interpreting the scope of works and detailed engineering design documents; and ensuring execution will be in an environmentally and socially acceptable manner. The Bank will bring, throughout the project cycle, engineering, environmental and economic expertise and experience to realize the objectives ad benefits of the project. Knowledge Management: The in-situ recycling strategy adopted for rehabilitation of the Blantyre-Zomba Road will contribute to knowledge generation on new techniques of best international practice in rehabilitation technology. The project will also support generation of knowledge through the capacity strengthening component.

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TRUNK ROAD REHABILITATION PROJECT: BLANTYRE-ZOMBA ROAD

RESULTS BASED-MATRIX FOR LOAN COMPONENT

Hierarchy of Objectives

Expected Results

Reach (Target Population)

Performance Indicators Source Method

Indicative Targets Timeframe

(Existence of Baseline?) Assumptions / Risks

Sector Goal: To promote economic growth and poverty reduction through a coordinated transport environment that fosters safe and competitive operation of commercially viable, financially sustainable and environmentally friendly transport services.

Impact: Improved transport services, enhanced economic activity and improved road safety

Beneficiaries: The Malawian population, agro- industry and businesses

Indicators: i. Road condition; ii. Agricultural production. iii. Road fatalities Data Source i. National Economic Reports ii. Roads Fund Administration and Roads Authority iii. Police records

Target Indicators

i. Increase in the national road network in fair to good condition from 50% in 2009 to 71% by 2020.

ii. Smallholder share of GDP increased from 23.6% in 2008 to 34.9% by 2030.

iii. Fatality rates reduced by XX percentage points from XXX/10,000 vehicles in 2009 to 2018.

Risks Government’s commitment to the objectives of MGDS. Mitigating Assumptions Government will maintain commitment;

Project Purpose: Improve the quality of transport services on the Blantyre-Zomba road and improve accessibility by the local communities to markets and social and economic services.

Medium Term Outcomes Improved transport services with reduction in the cost of transport, reduced travel time

Beneficiaries

(a) Road Users (b) Businesses and communities along the roads (c) Roads Authority

Indicators (a) Travel time (b) VOC (c) Road Condition Source of Data i. Road Authority Records ii. Surveys

Target Indicators (a) Average travel time reduced by 33% from 1.5 hrs in 2009 to 1 hr in 2013. (b) Vehicle operating costs per vehicle km reduced by 18% from U$0.66 /km in 2009 to U$0.54 /km in 2013. (c) Road network in the three districts in good condition increased from 74% in 2009 to 82% in 2013. .

Risks

(a) GOM’s commitment to the implementation of the Road Sector Programme (RSP); (b) Failure of implementation of Road Safety Strategy;

Mitigating Assumptions (a) GOM’s continued support

of Road Fund and projects in the RSP;

(b) Stakeholder participation in road safety initiatives;

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Activities: (a) Civil works for; Rehabilitation of the Blantyre-Zomba Road (60 km); (b) Consultancy services for supervision of civil works above; (c) Audit; and (d) Compensation and Resettlement Inputs: ADF loan UA22.98 million GOM counterpart: UA2.55 million

Short Term Outputs: (a) Rehabilitated 60 km of the Blantyre-Zomba road. (b) ESMP implemented

Beneficiaries

(a) Consultants and contractors (b) Members of Communities in zone of influence (c) Sub-contractors and suppliers (d) Roads Authority

Indicators (a) Consultants and contractors completed as per implementation schedule (b) Compensation and resettlement completed (c) Number of awareness campaigns in road safety and HIV/AIDS (which integrate special components for vulnerable/marginalised groups); (d) Number of local employees by gender (e) Km of road rehabilitated (Blantyre-Zomba). Sources of Data Project Progress Reports Bank Supervision Consultants’ reports

Target Indicators (a) Consultants appointed by Oct 2009 and civil works contracts awarded by July 2010. (b) Compensation and resettlement completed by July 2011. (c) Conduct road safety and HIV/AIDS awareness and prevention activities for 15 settlements (trading centres/villages) along the road and specifically target vulnerable/marginalized groups (women, youth, disabled, etc.). (d) At least 10% of unskilled and semi-skilled road construction and related workers to be women. e) 60 km of rehabilitated road (Blantyre-

Zomba) by December 2013.

Risks (a) Minimum time lapse between loan approval and project execution. (b) No significant effects on project costs from volatility of oil prices and effects on road construction materials. Mitigating Assumptions (a) Use of APA and AAA

and follow-up by MWFO;

(b) Provision for price escalation in cost estimates will mitigate effects of oil prices on material costs ;

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FEASIBILITY AND DETAILED ENGINEERING DESIGN STUDIES OF THE NTCHEU-NENO-TSANGANO-MWANZA ROAD RESULTS BASED-MATRIX SPECIFIC TO ADF GRANT

Hierarchy of Objectives

Expected Results

Reach (Target Population) Performance Indicators Source Method

Indicative Targets Timeframe

(Existence of Baseline?) Assumptions / Risks

Sector Goal: To promote economic growth and poverty reduction through a coordinated transport environment that fosters safe and competitive operation of commercially viable, financially sustainable and environmentally friendly transport services.

Impact: Improved transport services, enhanced economic activity and improved road safety

Beneficiaries: The Malawian population, agro- industry and businesses

Indicators: i. Increased percentage of road network in fair to good condition ii. Increase in agricultural produce. iii. Reduced road fatality Data Source i. National Economic Reports ii. Road Fund Administration and Roads Authority iii. Police records

Target Indicators

i. Increase in the road network in fair to good condition from 50% to 71% by 2015.

ii. Smallholder share of GDP increased from 23.6% to 34.9% by 2015.

iii. Fatality rates reduced by XX percentage points from XXX/10,000 vehicles in 2009.

Risks Government’s commitment to the objectives of MGDS ; Mitigating Assumptions Government will maintain commitment;

Project Purpose: To improve transport services between Ntcheu, Neno, Tsangano, and Mwanza.

Medium Term Outcomes Identification of most economic option of upgrading the Ntcheu-Neno-Tsangano-Mwanza road.

Beneficiaries Businesses, consultants and contractors

Indicators Submission of feasibility and detailed design reports to GOM Source/Method: National Statistics

Target Indicators Activities of consultant according to schedule

Risks (a) Adequate Capacity of

the Roads Authority to supervise the studies;

Mitigating Assumptions (a) Roads Authority

retains qualified and experienced staff;

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Activities: Feasibility and detail engineering design studies of the Ntcheu-Neno-Tsangano-Mwanza road.

Inputs: ADF Grant UA1.124millions GOM counterpart; UA0.059 million

Short Term Outputs: Reports for the studies and bidding documents for the Ntcheu-Neno-Tsangano-Mwanza road

Beneficiaries Regional and eligible international, consultants 3.2 Regional Contractors

Indicators Award of consulting services contract Commencement and completion of consultancy activities Source / Method : Quarterly and annual reports, Interim and final design reports, project progress reports

Target Indicators Feasibility, design and bidding documents submitted by December 2012.

Risks (a) Delay in reviewing of

reports. (b) The Roads Authority to

respects the time line of the implementation schedule;

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Project Timeframe: Blantyre-Zomba Road Rehabilitation Project Activity 2009 2010 2011 2012 2013

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 I. Civil Works 1. Compensation, Resettlement 2. PQ of Contractors 3. Bidding/Contract Award 4. Works Execution 5. Defects Liability II. Contract Supervision 1. Short-list/RFP 2. Contract Award 3. Mobilization 4. Pre-contract Services 5. Works Supervision 6. Defects Liability Period

Project Timeframe: Ntcheu-Tsangano-Neno-Mwanza Road Studies I. Consulting Services 1. Short-list/RFP 2. Contract Award 3. Mobilization 4. Services

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TRUNK ROAD REHABILITATION BLANTYRE-ZOMBA ROAD PROJECT

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO MALAWI

Management submits the following report and recommendation on a proposed loan for UA22.98 million to finance the Trunk Road Rehabilitation: Blantyre-Zomba Road and a proposed grant for UA1.124 million to finance the Feasibility and Detailed Engineering Design of the Ntcheu-Tsangano-Neno-Mwanza Road in Malawi.

I – STRATEGIC THRUST & RATIONALE

1.1 Project Linkages with Country Strategy and Objectives The Malawi Growth and Development Strategy (MGDS-2006-2011), the country’s second generation poverty reduction strategy, identifies infrastructure development and rehabilitation as one of the five themes for poverty reduction. The strategy further identifies transport infrastructure development as one of the six key priority-focus areas on which quick progress must be made to accelerate the attainment of the MGDS objectives. The Results Based Country Strategy Paper Mid-Term Review (RBCSP 2005-2009) dialogue with Government reinforced this emphasis by highlighting the need for future Bank intervention to focus on transport infrastructure to enhance competitiveness and the servicing of other sectors such as agriculture, health and education and is consistent with Pillar I of the Country Strategy Paper which puts emphasis on internal and regional transport networks.

1.2 Rationale for Bank’s involvement 1.2.1 The Bank’s intervention is consistent with the country’s aspirations to improve the transportation services. The Blantyre-Zomba road is part of Route 29 of the SADC Regional Trunk Road Network (RTRN) linking southern Malawi to the northern part of the country and further north to the border with Tanzania. As such the road has been identified by GOM as first on the priority list of roads for rehabilitation intervention under the Road Sector Programme (RSP 2007-2011) to improve the quality of transport services for easy access. The Ntcheu-Tsangano-Neno-Mwanza road is to serve the south-western part of the country renown for its agricultural potential. The feasibility study will determine the most economic option of upgrading the road for taking further to detailed engineering design and preparation of bidding documents. 1.2.2 The Bank Group has extensive experience in implementing transport projects in Malawi. The Bank has completed 18 operations, which have provided lessons used during project design of this proposed intervention.

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1.3 Donors Coordination Size

Sector or subsector*

GDP Exports Labor Force

Transport [5.9%] [%] [%]

Players - Public Annual Expenditure (2007/08)

Government Donors

EU 34% UA

m 13.976 13,212 World Bank 8%

% 51 49 JICA 7%

DfID 1%

Level of Donor Coordination Existence of Thematic Working Groups [Y] Existence of SWAPs or Integrated Sector Approaches [Y] ADB's Involvement in donors coordination*** [Member] * as most appropriate ** Years [yy1 to yy2] *** for this sector or sub-sector **** L: leader, M: member but not leader, none: no involvement Comments on Donor coordination: There is good co-ordination of activities of donors in the country in the transport sector through a Transport Donor Coordination Group (TDCG) that provides a platform on which the development partners discuss financing and implementation issues in the sector. The group is currently led by the EU. Government has also set up a Consultative Transport Forum with participation of Government stakeholders and donors to ensure Government-led donor co-ordination.

II – PROJECT DESCRIPTION

2.1 Project Components The project comprises components as outlined below: Table 2.1: Project Components

Nr. Component name Est. cost (UA million)

Component description

1 Civil works for rehabilitation and widening

23.981

In-situ recycling of the existing surfacing and pavement layers overlaid with a crushed stone base and Double Bitumen Surface treatment (DBST) and widening of the carriageway, to 7.0m with 1.5m shoulders on either side involving;

Mobilization of contractor Camp site construction Road construction Defects Liability Period

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2 Design review, pre-contract and supervision services

1.18

Preparation of bidding documents, pre-bid meeting and site inspection, bid evaluation, to award of contract;

Quality Assurance Baseline data collection

3 Road Safety 0.047

Public Awareness campaigns Media broadcasting

4 ESMP, Compensation Resettlement, etc..

0.253

Compensation of PAP Environmental Mitigation Social mitigation

5 Feasibility& Detail Engineering Design Studies

1.183

Preparation of preliminary design and cost estimates for different options of intervention;

Project Inception Field Investigations Reporting

6 Audit 0.069

Financial audits Technical audit

2.2 Technical Solution Retained and Other Alternatives Explored 2.2.1 A number of alternatives were considered to select the most cost effective solution based on best rehabilitation option, design life, traffic demand, costs and benefits to the road users and the public at large. A DBST surfacing on 200mm crushed stone base on 150mm recycled and stabilized existing pavement layers was retained as the most technically feasible and economically viable solution. Table 2.2: Project Alternatives Considered and Reasons for Rejection

Alternative name Brief description

Reasons for rejection

Asphalt Concrete (AC)

40 mm asphalt concrete surfacing on 200mm crushed stone base on in-situ recycled, stabilized existing layers.

Not economically viable

Asphalt Concrete (AC)

40 mm asphalt concrete surfacing on 100mm crushed stone base on in-situ recycled, stabilized existing layers.

Unsuitable for traffic loading over design life

…

Patch and Seal Patch existing surfacing and

overlay with asphalt concrete layer Not technically sound …

The strategy of in-situ recycling of the existing pavement layers is the latest innovative technology in road rehabilitation that minimizes exploitation of new material sources. The normal specifications in road construction will be used to minimize risk of pre-mature failure.

2.3 Project Type The project is a stand-alone operation supporting the RSP that puts emphasis on the development and improvement of road infrastructure to open up the rural areas for easy access to inputs and markets, access to health, education and other social facilities and

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services, at reduced cost of transport. The modality of intervention is preferred due the special expertise required for the civil works contract for the most economic and technically feasible rehabilitation strategy. Initiatives of basket financing in the roads sub-sector (SWAp) spearheaded by the EU are being explored by the Transport Donor Coordination Group (TDCG) of which the Bank is part. 2.4 Project Cost and Financing Arrangements Table 2.3: Summary of Project Cost Estimates by Component (UA million-net of taxes)

MWK million UA million Component FE LC Total FE LC Total

Civil works 3,302.06 931.19 4,233.25 15.78 4.45 20.23 Supervision 165.31 46.04 211.35 0.79 0.22 1.01 Road Safety 6.28 2.09 8.37 0.03 0.01 0.04 Others (ESMP, Compensation, etc..) - 48.13 48.13 - 0.23 0.23 Studies and capacity building 198.37 10.88 209.25 0.950 0.050 1.00 Audit 12.56 - 12.56 0.060 - 0.060 Base Cost 3,684.58 1,038.33 4,722.91 17.61 4.96 22.57 Physical Contingency (10%) 368.46 103.83 472.29 1.761 0.496 2.257 Price Contingency (FE-3%, LC-7%) 242.11 152.55 394.66 1.157 0.729 1.886 Total 4,295.15 1,294.71 5,589.86 20.528 6.185 26.713

Table 2.4: Sources of Finance (UA million - net of taxes) SOURCE Foreign Local Total % Currency Currency Blantyre-Zomba Road ADF 19.41 3.57 22.98 90 GOM - 2.55 2.55 10 Total 19.41 6.12 25.53 100 Percentage 76 24 100 Feasibility and Detail Design Studies and Capacity Building (AU million – net of taxes) ADF 1.124 - 1.124 95 GOM - 0.059 0.059 5 Total 1.124 0.059 1.183 100 Percentage 95 5 100 Table 2.5: Project Cost by Category of Expenditure (UA million-net of taxes)

CATEGORY FE LC Total % FE Civil Works 18.396 5.585 23.981 89.8 Services 2.420 0.059 2.479 9.3 Other (ESMP, Compensation) - 0.253 0.253 0.9 Total project cost 20.816 5.897 26.713 100

Table 2.6: Sources of Finance by Category (UA million- net of taxes) CATEGORY ADF GOM TOTAL Civil Works 21.684 2.297 23.981 Supervision 1.180 - 1.180 Road Safety 0.047 - 0.047 Other (ESMP, Compensation) - 0.253 0.253 Studies & capacity building 1.124 0.059 1.183 Project Audit 0.069 - 0.069 TOTAL 24.104 2.609 26.713

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Table 2.7: Expenditure Schedule by Category (UA million- net of taxes) CATEGORY 2009 2010 2011 2012 2013 TOTAL Civil Works - 4.660 11.055 7.627 0.639 23.981 Consulting Services

Supervision 0.085 0.386 0.374 0.296 0.039 1.180 Road Safety - 0.002 0.018 0.019 0.008 0.047

Audit Services - 0.013 0.019 0.020 0.017 0.069 Other (ESMP, Compensation) 0.253 - - - - 0.253 Studies& capacity building 0.082 0.329 0.365 0.363 0.044 1.183 Total 0.420 5.390 11.831 8.325 0.747 26.713

2.5 Project’s Target Area and Population The Project road traverses three districts of Blantyre, Chiradzulu and Zomba. The project road is approximately 60 km beginning in Blantyre City and ending in Zomba City. The beneficiaries of the project include dwellers of the three districts, communities along the road, business operators, traders and commuters. Outcomes include increased economic activities due to improved transport services with reductions in the cost of transport, travel time and improved road safety and ultimately improve the living standards of the communities.

2.6 Participatory Process for Project Identification, Design and Implementation The identification process was embedded in the national consultation processes during preparation of the Malawi Growth and Development Strategy (2006-2011) which prioritised transport infrastructure. Project design has benefited from inputs and feedback collected from key informant interviews, group discussions, observations and public meetings in which a wide range of beneficiaries and key stakeholders including district and city assemblies, civil society and NGOs; and development partners active in the roads sub-sector.

2.7 Bank Group experience, lessons reflected in project design Bank experience in the road sector has identified that (i) to avoid modification of the scope of works during project execution the detailed engineering design documents require critical review by the Bank and Executing Agencies during project processing; (ii) high turn-over of staff in the Executing Agencies results in non-adherence to the implementation schedule agreed to at appraisal; (iii) lack of familiarity by the Executing Agencies to the Bank Procurement and Disbursement Procedures results in implementation delays. The lessons have been taken into account during project design through review of the documentation prior to the preparation of the project and advising the Executing Agency on Bank requirements prior to project appraisal. As far as capacity is concerned, the Roads Authority being an autonomous entity has experienced improvement in the retention of qualified and experienced technical staff which has improved its management capacity of road projects. The RA therefore has a stable compliment of staff because it offers attractive remuneration and conditions of service. To minimize delays in procurement and disbursements, the Field Office in Lilongwe will provide and follow-up on required activities by the Executing Agency.

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2.8 Key performance indicators Six outcomes and outputs have been identified to be monitored in the Results-Based Logical Framework. The output indicators will be measured during project implementation as sections of the road are opened to traffic and after project completion. The identified outcomes, include improvement of transport services, enhanced economic activity, improved living standards, reduction in cost of transport, reduced vehicle operating costs and travel time and improved road safety. The supervision consultant will be responsible for the collection of baseline data at various intervals throughout the project as means of ensuring that the intended targets are achieved. Implementation progress will be triggered by ensuring timely appointment of consultant, awarding civil works contracts; and timely compensation and resettlement. Main source of data will be progress reports and supervision reports.

III – PROJECT FEASIBILITY

3.1 Economic and financial performance The methodology for the economic analysis is based on cost benefit analysis by comparing the “with” and “without “ project scenarios over a period of 15 years, using the Highway Development and Management Model (HDM-4). A discount rate of 12%, a residual value of 15% and rehabilitation period of 2 years starting January 2011 are adopted. The economic costs consist of (i) the capital investment costs and (ii) the routine and periodic maintenance expenses. The benefits consist of savings in (i) vehicle operating costs; (ii) motorized traffic travel time for passenger and cargo; and (iii) non motorized transport traffic travel and operation. The traffic and economic analysis results are presented in Annex (B7). The summary of the economic analysis is presented in Table 3.1.

Table 3.1: Summary of the Economic Analysis FIRR, NPV (base case) (Not Applicable) Economic Internal Rate of Return(EIRR) 19.3% Net Present Value (NPV) in US$ 13.94million Sensitivity of EIRR of concurrently 20% increase in cost and 20% decrease in traffic

14.0%

3.2 Environmental and Social impacts Environment

3.2.1 The road project has been classified as Category 1 in accordance with ESAP. The ESIA Summary and RAP have been posted on the Bank website prepared in January 2009. Major adverse impacts of the project are biological and physical disturbance to vegetation, discharge of pollutants, dust, fumes and waste. Social impacts will include disturbance to about 56 households, loss of agricultural land and crops, induced spread of HIV/AIDS/STI. 3.2.2 Mitigation measures include use of standard equipment, appropriate environmental designs, use of water to control dust, good catchment management to curb sedimentation and inclusion of specific environmental clauses in the contract. Positive outcomes include control of communicable diseases, implementation of road safety awareness and campaigns and afforestation. The cost for enhancement are UA47,000 for road safety and UA253,000 for ESMP implementation.

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Climate Change

3.2.3 The road project would contribute, though to a small extent, towards global climate change. During construction machines and equipment will emit CO2 and so will the case be during operation where an increase in the volume of traffic would increase the emission to the atmosphere. The improved road will reduce traffic congestion and ease traffic flow which will reduce gas emissions. Mitigation and adaptation measures include tree planting along the road vicinity with community participation since vegetation cover serves as CO2 sinks. In addition, there will be control against over clearing of vegetation. There will also be control over type and condition of machines and equipment that emit fumes. Furthermore, Government will have to consider laws and regulations to control the purchase of over-aged vehicles. Motorists would have to be educated and sensitized on limiting vehicle idling and maintain vehicle fitness, over-speeding and vehicle fitness. There will be need for strict monitoring and inspection of contractor’s plant and equipment.

Gender 3.2.4 While men and women will both be affected by the project, women will bear a disproportionate burden. The expected negative impacts on women include dislocation, loss of property and land, and increased vulnerability to HIV/AIDS. Mitigation measures have been developed and budgeted for in the ESMP. These measures will be further supported by the inclusion of CBOs as independent monitors. The expected positive impacts on women include additional employment opportunities (temporary and permanent), reduced travel time, diminished transport costs, and increased access to health and educational facilities for women and girls. The project integrates an economic empowerment component, allowing for women business groups to strengthen their financial and technical capacity as suppliers for potential construction works. Social 3.2.5 The road project will contribute towards poverty reduction both during construction and operation phase. Approximately 130 people will get direct employment during implementation. In addition, employment will be created through sub-contractors and suppliers linked to the project. The sub-sectors which employ an estimated 62% of the work force (both in formal and informal sectors) will receive a boost from the road project including: services, manufacturing and agro-based industries such as dairy farming, poultry, horticulture, etc. The road will facilitate commuters traveling between Blantyre and Zomba including those seeking employment and students. 3.2.6 During operations, positive impacts will include increased economic activities which will increase income earning opportunities. There will be reduced time of travel and cost hence improving access to markets for inputs, raw materials and products. There are a few large commercial estates growing tobacco, tea and coffee, which will benefit from the road. The road will ease access to social services such post primary education, referral hospitals, etc. Negative impacts could also arise from the rehabilitated road. Over-speeding on the improved road may result in an increase in road accidents. The spread of HIV/AIDS may get worse among construction workers as they mix with local communities and long distance truck drivers. Malaria may also be an issue especially if campsite accommodation is not well protected.

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Involuntary Resettlement 3.2.7 The project will affect approximately 56 households out of which 38 will require to be resettled. The type of assets affected include residential and business structures, crops, plants, and trees several commercial dairy farms will also be affected. Public infrastructure such as walls and fences will be affected alongside public utilities (telephone and power lines and water pipes). An abbreviated resettlement action plan (ARAP) has been prepared taking into consideration that the number of households requiring resettlement is below the minimum threshold. The resettlement and compensation costs are estimated at UA0.253 million a provision of which has been provided for in the project total cost.

IV – IMPLEMENTATION 4.1 Implementation Arrangements Institutional 4.1.1 The civil works will be implemented in a single contract over a 24 months contract period. The feasibility and detailed engineering studies will be conducted over a 15 month period which will include training sessions targeting the public and private sectors to build capacity and expertise in undertaking environmental and social impact assessments. The Roads Authority (RA) will be responsible for the execution of the civil works and supervision of the studies. The RA is a legally autonomous agency responsible for overall planning, construction, maintenance, and management of the country's core road network. The RA has successfully supervised similar road projects funded by donors including the Bank and has sufficient experience and capacity for the execution of the proposed project. The RA through the Directorate of Construction will assign a civil engineer to be the project coordinator with a minimum of five years of experience and qualifications that are acceptable to the Bank. This is a condition of the loan. He/She will be responsible for overall monitoring of the activities of the project, and serve as a contact person for all the parties involved in the project. He/She will liaise with the consultant, prepare and forward the quarterly progress reports to the Bank and liaise with the Bank during the preparation of the Project Completion Report. He will in addition collaborate with the RA Environmental Officer to monitor the environment and social management plan. 4.1.2 The contractor will be responsible for implementing ESMP measures while resettlement and compensation will be the responsibility of RA in coordination with the District and City Assemblies. Limited capacity exists to follow up and assist the vulnerable to resettle. Involvement of CBOs and NGOs would be important. The road safety component will be implemented through a service provider that will as much as possible utilize the services of the National Road Safety Council (NRSC).

Procurement 4.1.3 The Procurement Section of the RA will be responsible for co-ordinating the procurement activities for the project. All procurement of goods, works, and related services, and acquisition of consulting services financed by the ADF will be in

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accordance with the Bank’s Rules and Procedures for the Procurement of Goods, Works and Related Services and Rules and Procedures for the Use of Consultants, using the relevant Bank Standard Bidding Documents.

Disbursement 4.1.4 The loan will be disbursed for two categories of expenditure including civil works and consulting services for design review/supervision and Audit Services. The Direct Payment Disbursement Method will be used for all payments against standard documentation as specified in the Bank’s ‘Disbursement Handbook’.

Financial Management

4.1.5 The Finance Department of RFA through the Senior Accountant will be responsible for the financial management and reporting for the project. The Department has experience in financial management of donor funded projects, is fully staffed and therefore has the capacity to manage the finances of the project. An accounting and financial system using the accounting system package SUN systems is operational and has enhanced accountability, managerial autonomy and financial control. A financial management manual has been prepared to provide guidance on procedures and guidelines on financial transactions. The financial management of the RA therefore is in line with the new Public Finance Management Act (PFMA) which is based on principles of transparency, accountability for restoration of fiscal control and good governance to support economic reform. The Financial Department will open and maintain a separate account for the project, and maintain all the financial records of the projects. Procedures for project audit will be in accordance with Bank Rules. 4.2 Monitoring 4.2.1 An experienced consulting firm procured in accordance with Bank Rules and Procedures will supervise the civil works contract and monitor the day to day activities on site. The Executing Agency (RA) through the project coordinator will submit monthly reports prepared by the consultant and quarterly reports prepared by the RA in Bank's format. These reports will include physical, financial, social and environmental indicators, the project has achieved. The reports will also provide updated information on project implementation, highlighting key issues and problem areas, and recommending action plans for resolving identified bottlenecks. Copies of these reports will be reviewed by the Infrastructure Specialist in the Regional Office in Lilongwe to advise the RA prior to submission to Tunis. In addition, the project will be monitored through the Bank’s field supervision missions (twice a year), and a mid-term review in the second year of implementation to identify any major constraints facing the project and provide the required corrective measures.

4.2.2 Based on the Environmental and Social Management Plan (ESMP), the mitigation measures will be supervised by the consultant and monitored by the officers responsible for the environment and social issues within the RA in collaboration with the Project Coordinator. The RA will utilize its environmental guidelines for road works to ensure the effective implementation of the ESMP. The oversight role of the Directorate of Environmental Affairs will be sought on a regular basis to ensure compliance with environmental standards. With regard to monitoring of environmental and social

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mitigation measures would be through the ESMP and RAP which has monitorable indicators for compliance. 4.2.3 At 85% completion the Bank and the Executing Agency will start preparing a Project Completion Report for submission to the Bank as specified in the General Conditions. This report, the consultant’s final project report and the Executing Agency’s performance statistics and financial performance will form the basis of post-evaluation of the project.

4.3 Governance

4.3.1 The Government of Malawi has shown commitment to fight corruption and related crimes leading to improved transparency and accountability. In order to sustain the fight against corruption, the Government of Malawi launched a National Anti-Corruption Strategy in February 2009 which aims at bringing all stakeholders together in fighting the graft. Further, Malawi is implementing a Citizens Charter programme with a view to improve public service delivery, transparency and accountability. Through the Common Approach to Budget Support (CABS), donors and government have also put the anti-corruption fight high on agenda by incorporating corruption indicators on the Performance Assessment Framework (PAF) matrix. 4.3.2 Malawi is drawing closer to the fourth multiparty general elections in May 2009. The Malawi Electoral Commission which is an independent body has successfully conducted voter registration and received nominations for presidential as well as parliamentary candidates. These timely preparations should help the Commission to conduct successful elections that would provide an environment conducive for the implementation of the project. 4.4 Sustainability 4.4.1 Government has identified transport infrastructure development as one of the priority focus areas to attain the objectives of the MGDS and an RSP prepared as a medium term action plan. To that effect an autonomous Roads Fund Administration was established and has ring fenced financing (from fuel levies and transit fees) for road maintenance. The Road Fund revenue has increased annually on the average by 18% from US$7.4 million in 2000 to 19.27 million in 2007.

4.4.2 With respect to the project road maintenance, the contractor will be responsible during the construction phase and defects liability period. The RA will be responsible for maintenance of the road through finance from the Road Fund after completion. The financial requirement for routine maintenance amounts to USD210,000 per year, starting 2014 and USD7.32 million for periodic maintenance in 2020. In 2007/08 the Road Fund spent USD36.00 million for the routine maintenance of the entire network part of which was from its revenues totaling US$19.24 million. There was a shortfall in the requirement of USD16.76 million which the Development Partners supported to close the gap. The fuel levy has recently been increased by 102% which has doubled the Road Fund Revenues. On top of this Government is planning to widen the source of revenues by incorporating road tax, overload fees and a portion of the car licence fees in order to cover fill the gap in the periodic maintenance requirement. Development Partners, especially the EU has earmarked Budget Support of EUR50 million for routine and

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periodic maintenance and EUR10 million for capacity building for 2011-2013. Thus with Road Fund revenue and Development partners support sustainability of the project road is therefore assured.

4.5 Risk Management

4.5.1 Cost Overrun: The risk of increase in project costs due to the volatility of oil prices and prices of construction materials has been mitigated by basing the cost estimates on tender rates of recently awarded contracts and provisions have been made for a contingency amount to cater for possible escalation of prices of materials, labour and fuel. The bid documents will make provisions for the bidders to list special materials that are sensitive to oil prices to compensate and reduce pressure on the contractor.

4.5.2 Counterpart Financing: According to the RBSCP (2005-2009) Mid-Term Review, payment of counterpart financing which has been an issue on past Bank operations has improved due to improvement of Government’s budget control effectiveness and efficiency. Enhanced effectiveness and efficiency is expected with a better management environment resulting from improved governance. Counterpart financing is therefore assured.

4.5.3 Bank Rules and Procedures: The establishment of the Malawi Field Office (MWFO) has provided an avenue that can provide information and follow-up on loan effectiveness requirements and Bank procurement and disbursement procedures to ensure that the project implementation schedule is adhered to. The staff at MWFO in consultation with Head Office will be able to deliver support to the Executing Agency on a daily basis both at pre-implementation and implementation stages of the project.

4.6 Knowledge Building

Knowledge will be built in the RA through counterpart training offered by the supervision consultant on the recycling technique adopted for the project. The project has incorporated a capacity strengthening component to support knowledge building in the environmental and social economic field for both public and private sector personnel that are involved in transport sector investment projects

V – LEGAL INSTRUMENTS AND AUTHORITY

5.1 Legal Instrument An ADF loan will be used to finance the Blantyre-Zomba Road Rehabilitation Project and an ADF grant used to finance the Feasibility and Detailed Engineering Design Studies for the Ntcheu-Tsangano-Neno-Mwanza Road and capacity building.

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5.2 Conditions Associated with Bank’s Intervention ADF Loan (A) Conditions Precedent to Entry Into Force:

The entry into force of the loan Agreement shall be subject to Section 12.01 of the Revised General Conditions Applicable to the African Development Fund Loan Agreements and Guarantee Agreements.

(B) Conditions Precedent to First Disbursement:

The obligations of the ADF to make the first disbursement of the loan shall be conditional upon entry into force of this Loan Agreement as provided above and the Borrower shall have to the satisfaction of the Fund:

(i) The legal right of way (ROW) in respect of the land for the first section

has been acquired in accordance with the Abbreviated Resettlement Action Plan (ARAP);

(ii) All relevant project-affected persons for the first section will have been

fully and adequately compensated in accordance with ARAP prior to commencement of construction works; and

(C) Other Conditions

(i) Appointed a Project Coordinator from RA, a civil engineer with qualifications and experience acceptable to the Fund for project co-ordination functions;

(ii) Before commencement of activities for each of the subsequent sections of

the road, that the legal right-of-way in respect of land for that section has been effectively acquired in accordance with RAP;

(iii) All relevant project-affected persons and properties for the subsequent

sections will have been fully and adequately compensated in accordance with ARAP prior to commencement of construction works;

ADF Grant Conditions Precedent to Entry into Force of the Grant Agreement The Protocol Agreement shall enter into force upon signature by the Recipient and the Fund.

(B) Conditions Precedent to First Disbursement of the Grant

The obligations of the Fund to make the first disbursement of the grant shall be conditional upon entry into force of this Grant Agreement as provided above; and

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(i) Appointed a Coordinator from RA with relevant qualifications and experience acceptable to the Fund for co-ordination of the studies;

5.3 Compliance with Bank Policies This project complies with all applicable Bank policies.

VI – RECOMMENDATION

Management recommends that the Board of Directors approve the proposed loan

of UA 22.98 million for the Rehabilitation of the Blantyre-Zomba Road and a grant of UA1.124 million for the Feasibility and Detailed Engineering Design Studies of the Ntcheu-Tsangano-Neno-Mwanza Road to the Government of Malawi for the purposes and subject to the conditions stipulated in this report.

APPENDIX I - MALAWI: COMPARATIVE SOCIO-ECONOMIC INDICATORS

Year Malawi Africa Developing Countries

Developed Countries

Basic Indicators

Area ( '000 Km²) 118 30

307 80 976 54 658

Total Population (millions) 2007 13.9 963.7 5 448.2 1 223.0 Urban Population (% of Total) 2007 18.4 39.8 43.5 74.2 Population Density (per Km²) 2007 117.5 31.8 65.7 23.0 GNI per Capita (US $) 2006 170 1 071 2 000 36 487 Labor Force Participation – Total (%) 2005 46.3 42.3 45.6 54.6 Labor Force Participation - Female (%) 2005 48.5 41.1 39.7 44.9 Gender -Related Development Index Value 2005 0.432 0.486 0.694 0.911 Human Develop. Index (Rank among 174 countries) 2005 164 n.a. n.a. n.a. Popul. Living Below $ 1 a Day (% of Population) 2006 45.0 34.3 … … Demographic Indicators Population Growth Rate - Total (%) 2007 2.6 2.3 1.4 0.3

Population Growth Rate - Urban (%) 2007 4.7 3.5 2.6 0.5

Population < 15 years (%) 2007 46.9 41.0 30.2 16.7 Population >= 65 years (%) 2007 3.1 3.5 5.6 16.4 Dependency Ratio (%) 2007 99.0 80.1 56.0 47.7 Sex Ratio (per 100 female) 2007 98.9 99.3 103.2 94.3 Female Population 15-49 years (% of total population) 2007 22.2 24.2 24.5 31.4 Life Expectancy at Birth - Total (years) 2007 48.3 54.2 65.4 76.5 Life Expectancy at Birth - Female (years) 2007 48.4 55.3 67.2 80.2 Crude Birth Rate (per 1,000) 2007 40.7 36.1 22.4 11.1 Crude Death Rate (per 1,000) 2007 14.8 13.2 8.3 10.4 Infant Mortality Rate (per 1,000) 2007 89.4 85.3 57.3 7.4 Child Mortality Rate (per 1,000) 2007 131.8 130.2 80.8 8.9 Total Fertility Rate (per woman) 2007 5.6 4.7 2.8 1.6 Maternal Mortality Rate (per 100,000) 2004 984.0 723.6 450 8 Women Using Contraception (%) 2006 41.7 29.9 61.0 75.0 Health & Nutrition Indicators

Physicians (per 100,000 people) 2004 2.1 39.6 78.0 287.0

Nurses (per 100,000 people) 2004 56.3 120.4 98.0 782.0 Births attended by Trained Health Personnel (%) 2006 53.6 50.4 59.0 99.0 Access to Safe Water (% of Population) 2006 76.0 62.3 80.0 100.0 Access to Health Services (% of Population)* 2004 35.0 61.7 80.0 100.0 Access to Sanitation (% of Population) 2006 88.2 45.8 50.0 100.0 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 14.1 4.7 1.3 0.3

Incidence of Tuberculosis (per 100,000) 2005 409.4 300.7 275.0 18.0 Child Immunization Against Tuberculosis (%) 2006 99.0 83.7 85.0 93.0 Child Immunization Against Measles (%) 2006 85.0 75.4 78.0 93.2 Underweight Children (% of children under 5 years) 2006 19.4 28.6 27.0 0.1 Daily Calorie Supply per Capita 2004 2 077 2 436 2 675 3 285 Public Expenditure on Health (as % of GDP) 2005 8.7 2.4 1.8 6.3 Education Indicators Gross Enrolment Ratio (%)

Appendix II: Table of ADB’s portfolio in Malawi

Project

Date

Approved

Loan/Grant Amount (UA

million)

Amount Disbursed (UA million)

%

Disbursed Smallholder Irrigation Project

26/12/1998 Loan: 5.020 Grant:0.000 Total: 5.020

4.8 96

Smallholder Outgrowers Sugarcane Production Project

15/12/1999 Loan: 8.930 Grant:0.000 Total: 8.930

6.7 85

Support to Secondary Education Phase IV

21/11/2001 Loan: 15.00 Grant: 0.00 Total: 15.00

12.2 81

Skills & Income Generation

06/01/2002 Loan: 9.590 Grant:0.000 Total:9.590

7.5 78

Lake Malawi Artisanal Fisheries Development

29/01/2003 Loan: 6.930 Grant: 0.840 Total: 7.770

4.2 54

Support to Health Sector Program SWAp

24/11/2005 Loan: 0.00 Grant:15.00 Total: 15.00

3.2 21

Smallholder Crop Production & Marketing

07/07/2006 Loan: 0.00 Grant:15.00 Total: 15.00

1.4 9

Poverty Reduction Support Loan

11/04/2007 Loan:14.890 Grant: 0.000 Total:14.890

0 0

National Water Development Program

02/07/2008 Loan: 15.20 Grant: 10.70 Total: 25.90

0 0

Local Economic Development

Loan: 14.00 Grant: 0.00 Total: 14.00

0 0

Appendix III: Similar Projects Financed by the Bank and Other Development Partners in Malawi

Supervision Ratings Project Financier Amount

million Implementation Progress

Development Objectives

Karonga-Chitipa Road Upgrading

Taiwan USD45.00 S S

Zomba-Jali-Phalombe-Chitakale

OPEC/BADEA/Kuwait Fund

USD57.09 F S

Thyolo-Bangula Road Rehabilitation

OPEC/BADEA/Kuwait Fund

USD64.15 P P

Liwonde-Naminga OPEC/BADEA/Kuwait Fund

USD22.68 S S

Masasa-Golomoti EU USD6.30 S S Mangochi-Monkey Bay EU USD11.50 S S Lilongwe-Nsipe EU USD11.40 S S Mzuzu-Urban EU USD3.90 S S Kalwe, Liwaladzi, Katsikizi, Lisasadzi Bridges

EU USD2.70

Blantyre City Roads JICA USD14.98 S S Infrastructure Services World Bank USD6.00 S S

Appendix IV: Map of the Project Area