Document of The World Bank Report No: 17930-TUN PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT EQUAL TO FRF222.5 MILLION TO THE REPUBLIC OF TUNISIA AND A PROPOSED LOAN IN THE AMOUNT EQUAL TO FRF78.2 MILLION TO OFFICE DES PORTS NATIONAUX TUNISIENS WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA FORA TRANSPORT SECTOR PROJECT IN SUPPORT OF THE FIRST PHASE OF THE TRANSPORT REFORM AND INVESTMENT PROGRAM JUNE 3, 1998 Infrastructure Development Group Middle East and North Africa Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective May 1, 1998) Currency Unit = Tunisian dinar Tunisian dinar I = US$0.88 US$1 = Tunisian dinar 1.14 FISCAL YEAR ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BOT Build-Operate-Transfer C&F Cost and Freight CP Performance Contract (Contrat Programme in french) CPG Compagnie des Phosphates de Gafsa CTN Compagnie Tunisienne de Navigation DGPE Direction Generale de la Planification et des Etudes (Ministry of Transport) ECAL Economic Competitiveness Adjustment Loan ERR Economic Rate of Return EU European Union FOB Free on Board GDP Gross Domestic Product GoT Government MEDA Mesures dA'ccompagnement (referring to the European Commission financial assistance program for Southern Mediterranean countries) MERR Modified Economic Rate of Return MT Ministry of Transport OPNT Office des Ports Nationaux Tunisiens PIP Project Implementation Plan SMLT Socidte du M6tro Leger de Tunis SNCFT Societe Nationale des Chemins de Fer Tunisiens SNT Societe Nationale des Transports SNTRI Societe Nationale des Transports Intergouvernorats SOTRAFER Societe de Travaux Ferroviaires STAM Societe Tunisienne d'Acconage et de Manutention TA Technical Assistance WTO World Trade Organization Vice President Mr. Kemal Dervi§ Country Director Mr. Christian Delvoie Sector Director Mr. Jean-Claude Villiard Task Manager Mr. Michel Loir Tunisia Transport Sector Project CONTENTS A. Project Development Objective .......................................................................2 1. Project development objective and key performance indicators ..................................... 2 B. Strategic Context .......................................................................4 1. Sector-related CAS goal supported by the project ..........................................................4 2. Main sector issues and Government strategy ..................................................................4 3. Sector issues to be addressed and strategic choices .........................................................5 4. Key conditions for subsequent loan ......................................................................S5 C. Description Summary of the First Operation .......................................................................6 1. Project components .......................................................................6 2. Key policy and institutional reforms supported by the project ....................................... 7 3. Benefits and target population .......................................................................7 4. Institutional and implementation arrangements ..............................................................7 D. Program and Project Rationale .......................................................................9 1. Project alternatives considered and reasons for rejection ................................................ 9 2. Major related projects financed by the Bank and/or other development agencies .......... 9 3. Lessons learned and reflected in proposed project design ............................................... 9 4. Indications of Borrower commitment and ownership ..................................................... 10 5. Value added of Bank support in this project ................................ 10 E. Summary Program and Project Analysis ............................................................1.......... 1 I. Economic ...................................................................... 11 2. Financial ...................................................................... 11 3. Technical ...................................................................... 12 4. Institutional ...................................................................... 12 5. Social ...................................................................... 12 6. Environmental assessment ...................................................................... 12 7. Participatory approach ...................................................................... 13 F. Sustainability and Risks ...................................................................... 13 1. Sustainability ...................................................................... 13 2. Critical risks ...................................................................... 14 3. Possible controversial aspects ...................................................................... 15 G. Main Loan Conditions ........................................................................ 15 1. Conditions of disbursement .................................................................. 1 5 2. Dated covenants ................................................................... 5 3. Financial covenants .................................................................. 16 H. Readiness for Implementation ........................................................................ 16 I. Compliance with Bank Policies ........................................................................ 16 Annexes Annex la. and lb. Project Design Summary .17 Annex Ic. Transport Policy Letter .22 Annex 2. Detailed Project Description .29 Annex 3. Estimated Project Costs .36 Annex 4. Cost-Benefit Analysis Summary .37 Annex 5. Procurement and Disbursement Arrangements .39 Table A. Project Costs by Procurement Arrangements .40 Table B. Thresholds for Procurement Methods and Prior Review .41 Table C. Allocation of Loan Proceeds .42 Annex 6. Documents in the Project File .43 Annex 7. Statement of Loans and Credits .45 Annex 8. Country at a Glance .47 Map: IBRD 29610 Tunisia Transport Sector Project Project Appraisal Document Middle East and North Africa Regional Office Infrastructure Development Group Date: June 1, 1998 Task Team Leader/Task Manager: Michel Loir Country Manager/Director: Christian Delvoie Sector Manager/Director: Jean-Claude Villiard Project ID: 43700 Sector: Transportation Program Objective Category: Lending Instrument: Adaptable Program Loan Program of Targeted [ Yes [X] No Intervention: Adaptable Program Data APL Indicative Financing Plan Estimated Implementation Borrower (Bank FY) IBRD Others Total Commitment Closing date US$million US$million US$million date APL Phase 1 50.0 30.2 80.2 June 1998 Decemb. 2002 -Government & OPNT APL Phase 2 32.0 5.0 37.0 June 2001 Decemb.2005 -Government Total 82.0 35.2 117.2 _ Project Financing Data [X] Loan [] Credit [] Guarantee [ Other [Specify] For Loans/Credits/Others: Amount: two loans totaling FRF300.7M (US$50 equivalent) Proposed terms: [ Multicurrency [X] Single currency: French Franc Grace period (years): 5 [ Standard Variable [ Fixed [X] PIBOR- based Years to maturity: 17 Commitment fee: 0.75% Service charge: 0% Financing plan: project costs equivalent to US$80.2m (rounded) Source Local Foreign Total Government (GoT) for IBRD financed components 13.8 1.0 14.8 IBRD 18.3* 31.7 50.0 OPNT 7.4 1.1 8.5 GoT/grant financing for components not financed by IBRD 1.3 5.6 6.9 Total 40.8 39.4 80.2 * of which US$16.8m is to finance severancefor redundant railway staff Borrower: Two loans : (i) The Republic of Tunisia (Ministry of Transport) - FRF222.5M (US$37M eqivalent), and (ii) OPNT - FRF78.2M (US$13M equivalent). Guarantor: The Government of Tunisia for the OPNT loan. Responsible agency(ies): Ministry of Transport; OPNT; SNCFT. Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 Total Annual 13.5 14.1 12.7 7.7 2.0 50.0 Cumulative 13.5 27.6 40.3 48.0 50.0 Project implementation period: 4 years Expected effectiveness date: 10-31-1998 Expected closing date: 12-31-2002 OSD PAD Fonn: July 30, 1997 Page 2 Background In the years following independence, Government transport policy favored central planning and a large public sector. Nineteen eighty-six marked a turning point: a general move toward market-oriented policies in an outward looking economy soon translated into measures designed to increase private sector participation in the transport market. Liberalization, then privatization, of trucking exemplified such local commitment to reforms. The number of sectors considered "strategic," hence bound to be firmly under Government control, dwindled over the years. Joining the World Trade Organization (WTO) and signing the Free Trade Agreement with the European Union (EU) in 1995 was another decisive move to open the economy, thus creating even stronger incentives to make the local production more competitive abroad. Better and cheaper transport will contribute to that objective. The Transport Strategy Study was the outcome of a collaborative work carried out in 1995 by a Bank team and the Tunisian administration. It was presented in a seminar held in March 1996 in Tunis and approved by the Government (GoT). The Transport Sector Project will help implement that strategy. Bank assistance will be provided in the form of an Adaptable Program Loan (APL). The specific features of the program and the project associated with the first phase of the APL are presented below. A: Program and Project Development Objective 1. Program development objective and key performance indicators (see Annex 1): The paramount objective is to reduce economic distances and facilitate integration of Tunisia into the global economy by providing traders with enhanced opportunities and the skills to be competitive abroad, starting with Europe. The program supported by the current APL, described in a Policy Letter dated May 27, 1998 submitted by the GoT (see annex 1c), focuses on essential reforms and modernization investments needed in the 1998-2005 period to eliminate main infrastructure bottlenecks to faster growth and bring local living standards up to those now prevailing in the southern part of the European Union. The relatively short period formally covered by the program responds to the GoT willingness to keep its own planning horizon. However, there is overall agreement on the thrust of the longer term reforms, and continued dialogue with the Bank is expected on their implementation. The objectives of the program are to (a) increase the efficiency and quality of transport services by expanding and modernizing transport equipment, introducing a market framework conducive to competitive delivery, and ensuring that the environmental impact of transport activities is reduced; and (b) reduce the financial burden of the transport sector on the Government's budget by increasing the participation of the private sector in transport investment and service delivery, and by improving the performance of the remaining public enterprises. Progress toward achievement of these objectives will be measured through a set of indicators presented below. Key program indicators 1997 2002 2005 Transport investments as a percent of GDP about 2.5% about 3.0% about 3.5% Private sector share of transport investments about 25% about 35% over 50% Transport subsidies as a percent of GDP about 0.8% about 0.4% about 0.2% Share of public transport in Tunis about 55% about 55% about 55% Share of unleaded gas in total gas consumption about 4% about 20% about 33% Sulphur content of diesel (as a percent of weight) about 0.4% below 0.05% below 0.05% Lead content of gasoline about 0.40g/l below 0.1g/l g below 0.1 5g/l *Standard contract terms: C&F for "cost & freigth" and FOB for "free on board". Page 3 2. Project development objective and key performance indicators (see Annex 1): The project would implement the first phase of the program and pursue the same broad objectives (i.e., the promotion of better, cheaper, and less polluting transport services), but would focus on the port and railway subsectors and on strengthening the overall transport sector management. Specific project goals are: (a) privatizing port services and promoting private investments in ports by setting up a new cargo handling organization and constructing new port facilities under Build-Operate- Transfer (BOT) schemes; (b) Facilitating access of foreign investors to trade-related transport activities as a way to foster technological transfer and bring in capital; (c) commercializing the railway parastatal (Societe Nationale des Chemrins de Fer Tunisiens or SNCFT) and making it financially autonomous through a combination of institutional changes for higher operational efficiency (implementation of an organization along four business lines, namely: suburban and inter-city passenger traffic, freight and phosphate traffic), tariff adjustments and full, transparent compensation for the service obligations imposed by Government; and (d) increased use of less polluting fuels (lower-lead or lead-free gasoline, cleaner diesel). These objectives would require the introduction of important regulatory and sector reforms, including port legislation and regulations, the modernization of customs procedures, the implementation of trade facilitation measures, the revision of the institutional framework for railways, and the modification of pricing mechanisms in the affected subsectors. Progress will be monitored through the evolution of the following indicators: Key project technical indicators 1997 2000 2002 Average port productivity: -tons of GC* per ship/hour at berth about 32 about 35 about 40 -TEU handled per crane/hour 10 12 14 Private sector share of general cargo handling about 35% 80% close to 100% Budget support to railways as a percent of revenues** about 80% about 50% about 40% Traffic unit per staff employed in the railways 450 559 600 Reduction of travel time for railway passengers: - Tunis-Sousse - -30' - Tunis Ghardimaou -15' Small trucks share of ton-kms (intercity traffic) about 40% about 35% about 30% * general cargo **ratio of annualized subsidies to traffic revenues Key project reforms indicators Completion date New port legislation and related regulations in effect by end of 1998 Full implementation of the CTN restructuring plan by December 31, 2000 New railway legislation and related regulations by June 30, 2000 Full implementation of the STAM restructuring plan by December 31, 2001 Freedom to establish prices except for urban transport by December 31, 2001 Liberalization of bus and truck imports by December 31, 2001 Page 4 B: Strategic Context I. Sector-related Country Assistance Strategy (CAS) goal supported by the program (see Annex 1): CAS document number: No. 15799-TUN Date of latest CAS discussion: June 25, 1996 - Deepening structural reforms and redefinition of the role played by Government in the economy. - Modernization of services (opening transport to private sector, liberalizing transport services, raising the quality of trade-related services). - Upgrading of the environmental management. 2. Main sector issues and Government strategy: Overall, the mobility of people and freight is hampered by: (a) trade constraints that limit access to transport equipment imports are particularly damaging for trucking and bus transport, since locally produced vehicles are of lower quality; (b) regulatory and structural issues which curtail private sector participation and competition in many market segments (urban and interurban bus transport in particular), and stifle entrepreneurship and private investments in cargo handling facilities; intrinsically inefficient sector monopolies, further weakened by an obsolete organization and limited autonomy, which hurts perfonnance of the bus and railway companies; (c) restrictive labor practices, especially in ports where dockworkers enjoy undue employment privileges granted by an outdated 1949 decree; (d) a deficit of sector management capacity: there is no adequate transport database, and a shortage of trained staff to deal with transport pricing, taxation, or infrastructure cost recovery, or to enforce financial discipline. Decisions come slowly: for instance, the port agency's exact liabilities to Treasury have not yet been determined and the apportionment of land ownership among the bus transport parastatal in Tunis, Societe Nationale de Transport (SNT), and the two companies that were unbundled from it, Societe du Metro Leger de Tunis (SMLT) and Societe Nationale des Transports Intergouvernorats (SNTRI), is only now being worked out after years of inaction. Institutional weaknesses account for a severe underfunding of bus transport public service obligations, which in turn entails costly, often belated financial restructurings and prevents the smooth growth of service provision in major cities. They also account for the loosely targeted and economically inefficient subsidization of SNCFT, which, in turn, is bound to provide transport services to the Compagnie des Phosphates de Gafsa (CPG) at below-cost tariffs, as well as for the poor coordination of urban transport modes and ill-equipped, poorly organized transport interfaces; and (e) very low levels of road safety. The Government has started addressing some of these issues, partly under the Economic Competitiveness Adjustment Loan (ECAL). The reform programs in the port and railway subsectors are now well defined, from plans to modernize management and equipment to clarification and streamlining of the financial relationships between public enterprises and the Government. Laws granting CTN a priority on chartered cargo transport and restricting the scope of private cargo handling have already been abrogated. The restructuring of CTN and plans for restructuring STAM are underway, and comprehensive legislation on Tunisian ports and maritime trade (Code de Commerce Maritime) has been submitted to Parliament, which is expected to vote on it before the end of 1998. This legislation also provides for elimination of the dock labor special employment status granted by the 1949 decree. The Page 5 performance contract signed with the SNCFT on February 13, 1998 includes provisions for staff redundancies, which are critical for improving the efficiency and financial performance of the enterprise. Reforms in urban and inter-city transport will take time to mature, but a strategy has already been prepared that calls for decentralization of management, as well as increased transparency in pricing, subsidy and accounting policies. The GoT also intends to change the monopolistic structure of these markets, with the expectation of privatization, full or partial, in the long term. 3. Sector issues to be addressed and strategic choices: The project would support the GoT strategy to address most of the above issues. Choices were made regarding the specific subsectors and the depth of the reforms that would be sought under the whole program and under its first phase. The program would: (a) foster increased competition in ports, urban transport (through subcontracting some services by the parastatals in general, and by concessioning of seat-only bus services on a much broader scale, in particular in Tunis), and in inter-urban bus transport (currently a de facto monopoly of SNTRI, a public company); (b) strengthen public capacity to plan transport investments and monitor the interaction of market forces, and help design a new regulatory framework that will reduce GoT control; (c) develop effective coordination and funding mechanisms in urban transport; (d) commercialize and, when feasible, privatize selected public enterprises; and (e) improve overall transport sector finance. The program would also provide the framework for resolving environmental issues but will not finance related activities. Theproject would address broadly the same issues as the program but will focus only on the port and railway subsectors, and on overall transport sector management. A second phase under the program will focus on urban and interurban bus transport reforrns. The liberalization of transport equipment imports and the revamping of the transport taxation system will not be addressed other than through the continuous dialogue between the GoT and the Bank on the global transport reform. Liberalization of transport imports will proceed in accordance with provisions of the WTO and the Free-Trade agreement with the EU. As far as transport taxation is concerned, the ongoing PHRD-financed study on transport taxation will review restructuring options and lay down benchmarks of progress toward implementation of the preferred option from the sector's perspective. Concrete measures, however, will have to be decided by GoT with the broader objective of macrofinancial stability. Road safety issues will be tackled under the next operation on highways. 4. Key conditions for subsequent loan Consideration of the second phase loan would be contingent upon satisfactory implementation of the agreed investment plan for transport over 1997-2001, and of the program and the project, with at least 50 percent of each of the two project loans already committed. Other benchmarks that would have to be met are as follows: (a) for the sector: * transport investments share of GDP: about 2.8 percent; * private sector share in sector investment: over 30 percent; * transport subsidies below 0.5 percent of GDP; * share of public sector in total transport service delivery in Tunis of about 55 percent; (b) for the ports and railways: * new port and railways regulations and legislation in place; * STAM and CTN restructured; * budget support to the SNCFT less than 60 percent of revenues; Page 6 (c) for urban transport: * financial restructuring of the public bus companies completed; * greater managerial autonomy granted to public bus companies, including the right to contract out lines or services; * establishment of a local management institution; * implementation of a system ensuring full compensation of public service obligations imposed by GoT on bus companies signed and introduction of new urban transport financing mechanisms; (d) for interurban transport: * a privatization plan has been approved for SNTRI and bids have been invited from private firms for concessioning of SNTRI lines, representing no less than 50 percent of total traffic revenue; * an organization has been set up to regulate and monitor private concessions. Processing of any second loan would be carried out in accordance with relevant standard Bank policies and practices. C: Description Summary of the First Operation 1. Project components (see Annex 2for a detailed description and Annex 3 for a detailed cost breakdown): The project will include investments pre-identified as part of the Ninth Plan. The corresponding feasibility studies are at various stage of preparation and fully completed for those relating to first-year investments. All investments to be financed will comply with agreed technical and economic eligibility criteria (see para.C4 (f)). Port investments would modernize and rehabilitate infrastructure in order to allow for higher productivity and faster turnaround of ships in conditions of growing traffic. They include rebuilding commercial berths in Bizerte, a longer and redesigned breakwater in Gabes for better protection of berthed ships from wave action, and a new oil jetty in Rades to accommodate tankers twice the size of those currently received. Their costs are estimated at US$21 million, or about 15 percent of total port investments under the Ninth Plan. Railway investments would renew and improve the infrastructure and equipment on the core network to make railway services more cost efficient and competitive. Under phase 1 of the APL, planned investments would consist of modernization of the railway trunk line between Tunis and Sfax; track renewal on the international line to Algeria (between Tunis and Ghardimaou); and construction of two track overpasses to relieve congestion in Tunis southern suburbs (Hamman-Lif and Ezzahra). In total, these investments are costed at close to US$28 million, or about 10 percent of all railway investments scheduled under the Ninth Plan. Financing would also be provided for the redundancy costs of SNCFT. Technical assistance would also be provided, mainly focused on the management capacity of the Ministry of Transport (MT), development of a good transport database, establishment of an electronic data interchange system for use by the port community and traders, decentralization of urban transport management, preparation of the enterprise restructuring and privatization activities anticipated under the project, and development of an urban transport master plan for Tunis, Sfax and Sousse, including identification of measures for improved traffic management. Port investment feasibility and pricing studies, and technical assistance to implementation of the new railway organization, plus training, are also included in the project. Page 7 Component Category Cost Including % of Contingencies (US$M) Total l) Railway component Total of 46.8 of which 58.3% - infrastructure improvement - physical 28.1 - severance for redundant staff - policy 16.8 - technical assistance and studies - capacity building/policy 1.9 2) Port component total of 21.6 of which 26.6% - berth rehabilitation/construction - physical 20.4 - technical assistance and studies - capacity building/policy 1.2 3) Sector management component total of 11.8 of which - Bank financed TA - capacity building/policy 4.9 15.1% - GoT financed TA. - capacity building/policy 6.9 Total 80.2 100% 2. Key policy and institutional reforms supported by the project: The project would support implementation of reforms in the areas of: (a) sector management: (i) restructuring transport taxes; (ii) increased pricing autonomy by sector entities; (iii) establishment and enforcement of anti-pollution norms for fuels and vehicles; (b) railway management: (i) implementing new legislation and regulation that will enable commercialization of SNCFT, including a new statute, a concession agreement, the phasing out of GoT subsidies and the specification of the financial obligations of each party; (ii) upfront financial restructuring and tariff revisions; (iii) closure of noneconomic lines; (c) privatization and restructuring of port activities, including: (i) completing the restructuring of CTN and STAM, divesting the commercial activities handled by the port agency (OPNT), and progressive divestiture of the cross-equity participation by the public enterprises in shipping and ports as part ofGoT action to disengage from commercial activities and transfer them to the private sector; (ii) restructuring the port tariffs and providing for their more independent regulation; and (iii) establishing a new port concession framework and inviting bids for construction of a container berth in Rades under a BOT scheme. 3. Benefits and target population: The project would benefit the entire Tunisian population by removing transport bottlenecks to faster economic growth and higher intemational competitiveness, and reducing the adverse environmental impact of vehicle emissions by promoting the use of cleaner fuels. It would generate savings through increased port competition, and work toward elimination of market distortions and a more efficient interrnodal allocation of traffic, thereby stimulating trade and production. The project would also mitigate the social impact of redundancies on affected railway workers while making the SNCFT more competitive and less of a burden on the GoT budget. Finally, it would also have a positive impact on SNCFT staff, which would enjoy healthier working conditions, and for the local population, as risks of pollutants seeping into the water table would be mitigated through provision of soiled water treatment facilities and connection of the workshops pipes to the sewerage network. 4. Institutional and implementation arrangements: (a) Implementation period. 1998-2005 for the program, 1998-2002 for the project. The implementation period of the first phase would broadly match the implementation of investments included in the Ninth Plan (1997-2001). (b) Executing agencies. The Ministry of Transport (DGPE, or Direction Generale de la Planifi cation et des Etudes); SNCFT and OPNT for the railway and port components, respectively. The staffing needs and the institutional capacity of these agencies have been appraised and are considered satisfactory. Page 8 (c) Project coordination. DGPE would act as a secretariat and head of the project coordinating committee. The directorate has already performed this function satisfactorily during project preparation, when it was charged with execution of the PHRD grant. (d) Project oversight. A Coordinating Committee headed by the Ministry of Transport would be created by December 31, 1998. Other committee members would include representatives of the ministries of Transport, Finance, Cooperation Internationale, Environment and Territory Conservation and Developpement Economique, and of the private sector (Shippers' Council, a leading professional organization such as the Federation Nationale des Transports, FNT). The Coordinating Committee would meet twice a year to review implementation progress, with the minutes of each meeting sent to the Bank. Project oversight would build on the supervision capacity that already exists to monitor implementation of the performance contracts entered into by all transport parastatals under the Ninth Plan. (e) Monitoring and evaluation arrangements. A Bank review of the transport investment plan would take place in the field each year by the end of April: DGPE would submit a report in a format acceptable to the Bank on the execution of the Ninth Plan for transport, including both physical and institutional targets. A second yearly Bank field review would take place by the end of October and would verify that the draft current and capital budgets in the transport sector are fully consistent with the agreed plan, and that investments proposed for financing under the Bank loan and not yet fully appraised meet the agreed financial, economic and environmental criteria. A mid-term review would be held in October 2000. (f) Project investment selection. The objectives, scope and timing of technical assistance and main studies have been agreed with Govermment at appraisal and are described in the legal documents. The list may be modified as dictated by new circumstances. The same is true of investments. Those currently proposed and not yet fully appraised would be subject to verification that they are in full compliance with eligibility criteria, including sound engineering, an economic rate of return of at least 10 percent, a procurement plan along the Bank procurement guidelines, and an analysis of environmental impacts, including planned mitigation measures. Such verifications would take place during the October meetings. (g) Appraised investments to be launched during the first year of project implementation amount to about US$28 million (56 percent of the two loans' total and some two-thirds of their total without technical assistance), and have already been agreed to by GoT and the Bank during negotiations. These investments include US$8 million for the railway severance program, US$6.5 million for modernization of the Tunis-Sousse railway track, and about US$6 million for the rehabilitation of the port of Bizerte. (h) Accounting, financial reporting and auditing arrangements. The financial management systems of the implementing agencies, SNCFT and OPNT, have been reviewed and found satisfactory. Financial reporting is satisfactory and timely. Auditing by a commercial auditor is standard practice. A new chart of accounts was introduced in 1997 and future financial statements would fully conform to international standards and practices. The ongoing experience with the Ministry of Transport as the executing agency for the PHRD grant is also satisfactory. Project accounts would be kept by DGPE, SNCFT and OPNT, respectively, based on a model acceptable to the Bank. DGPE would also register transactions in and out of the Special Account to be set up for implementation of the railway component and the sector management component of the project. SNCFT and OPNT would have their full financial statements audited by a commercial auditor, whose reports would be submitted to the Bank within 6 months starting in FY1998. The scope of the SNCFT audit would be extended to cover audit of the Project Accounts and the Special Account kept by DGPE. The auditors are generally selected on a competitive basis for contracts covering three years, a practice that was found acceptable at appraisal. Audit requirements are applicable from FY1998 onward. Page 9 D: Program and Project Rationale 1. Project alternatives considered and reasons for rejection: An adjustment operation was envisaged but rejected, as the time required for the agreed reforms to be effected would be longer than the implementation period of a fast disbursing operation. In addition, the planned reforms require investment and institutional support in an integrated way. An APL was considered the most appropriate instrument, as it provides the Bank with the opportunity to assist the transport sector through a longer period and in a more flexible way at a time some of the specific reforms in key subsectors are yet to be defined. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): Project Sector Issues Bank-financed IP DO Rural Roads Project (Loan 3840-TUN; US$51.5 1. Road infrastructure: ill defined S S million)- ongoing management responsibilities and financing gaps for local roads; excessive reliance on Force Accounts; a large and inefficient equipment fleet; need to improve methods of selection and programming of road works at the center. Economic Competitiveness Adjustment Loan 2. Macroeconomic and fiscal S S (Loan 4069-TUN; US$37.5 million; FF193.9 framework: inadequate regulations million)- ongoing and weak public monopolies in trade related areas (maritime transport, customs code; dock labor employment; trade logistics; port tariffs and management) Public Enterprise Reformn Loan (Loan 3109- 3. Public sector management: U TUN; US$130 million); closed on June 30, 1993 restructure and reduce budgetary (PPAR no.14812) transfers to public enterprises, including SNCFT, and divest those operating on a potentially competitive market. Other development agencies 1. The African Development Bank recently financed rehabilitation of the flood-damaged southern railway network. 2. The European Investment Bank is quite active in the project-related sectors: two loans in equal amounts of Ecu25 million were granted to OPNT and SNCFT in recent years. 3. Guaranteed export credits totalling US$25 million were secured from France by SNCFT in September 1997. IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The project design draws on the experience of past projects in Tunisia, as well as on lessons learned in other countries. Specifically, the urban transport reform in London was believed relevant to Tunis, since Page 10 it was also done in stages. The railway reform draws, among others, from the ongoing Bank Railway Restructuring Project in Morocco. The port reform is also based on best practice cases in America and Asia. Lessons learned in Tunisia are that: (a) clearly defining GoT objectives is critical, especially when privatization and other sensitive reforms are involved; (b) sector reforms, particularly restructuring of public enterprises, need expert assistance to overcome technical obstacles and time to mature; such requirements are best addressed in the context of a program that provides an overall policy framework and is supported by a series of projects. Monitorable benchmarks to verify continuous progress toward institutional objectives and sustain GoT resolve to meet them are essential. A continuous dialogue and close follow-up on the impact of changing conditions on program objectives and timetable are as important as initial definitions and expectations; (c) finally, introducing private competition in a market segment currently controlled by aparastatal must be done in the context of a broader privatization strategy rather than in isolation; otherwise, private participation will remain marginal, since GoT may easily come under pressure from the incumbent to limit new private entry. 4. Indications of Borrower commitment and ownership: The GoT sought Bank support in defining the transport strategy for the Ninth Plan (1997-2001). The main recommendations of the strategy were endorsed by GoT in early 1996, and their implementation has already started under the Economic Competitiveness Adjustment Loan, or ECAL and a PHRD grant. The commitment to reform is exemplified by actions already taken or being prepared: (a) The railway reform is well advanced: the new legislation has been drafted, approved by the GoT and sent to Parliament for voting on before the end of 1998; the performance contract was signed on February 13, 1998; a first step toward implementation of the new organization along business lines, the head of the future phosphate transport unit has been selected and is expected to be appointed by the board on its next meeting in early June 1998; (b) The GoT has moved decisively on the implementation of critical actions, including the politically sensitive port reform designed in particular to eliminate the cargo handling public monopoly and restrictive dock worker practices: new legislation on ports and maritime trade has been submitted to Parliament for a vote in coming months. The preparation work for restructuring the public cargo handling company, STAM (Societe Tunisienne d'Acconage et de Manutention) is already far advanced. 5. Value added of Bank support in this project: Having assisted in formulating the transport strategy, the Bank is well prepared to help in its implementation. The proposed institutional changes have yet to take root in Tunisia, and the MT would more easily adjust to the new functions that go with privatization and market deregulation if it can tap the Bank's international experience. Because the reform agenda is substantial and would have impacts well beyond the limits of the transport sector, it can also be inferred that Bank and other donor support would give MT some needed extra weight to overcome possible obstacles. Finally, other donors would also be able to sharpen their interventions in the sector through exchange of information with the Bank. More broadly, the APL would provide a most suitable framework for an in-depth dialogue on sector development, while focusing on key subsectors in a gradual, harmonized way. Page 1 1 E: Summary Program and Project Analysis 1. Economic (supported by An7nex 4. Detailed assessments are in thze project file). Program The program is designed to increase transport productivity, mainly through implementation of reforms conducive to improved allocation of scarce public resources and increased participation of private capital. Because of the predominantly qualitative aspects of Bank support to the program (the Bank support to investments over 7 years is not expected to exceed 10 percent of total financing needed), the great diversity of investment subprojects across the transport sector, and the still uncertain nature of transport investments beyond the Ninth Plan (2002 and after), an overall measure of the program value added is not practical. Such an aggregate measure would call for the definition and integration of the many parameters linking transport efficiency to economic growth in Tunisia. Without going into the complexities of a full economic analysis, it is safe to say that reforms to eliminate some of the most constraining economic bottlenecks are bound to generate very high returns. Project Cost-benefit analysis was used to assess the economic justification of specific investment components. At present, the economic evaluation has been carried out for investments expected to be launched in the first year of project implementation, namely: (a) quay rehabilitation at Bizerte: NPV (at 1 0%)=US$ 6.2 million; ERR= 20% (b)track doubling on the Tunis-Sousse line: NPV (at 10%)=US$ 10.1 million; ERR= 14% (c) redundancy program at SNCFT: NPV (at 10%)=US$ 29 million; Modified ERR=22%. Finally, investments eligibility criteria would require a minimum IRR of 10 percent for all investments to be financed. The methodology to be used for the economic evaluation has been agreed with the GoT and is included in the Project Implementation Plan (PIP). 2. Financial: NPV=US$ (not applicable); FRR= (not applicable) Annex 5 presents a full financial assessment of SNCFT and OPNT; it does measure the aggregate impact of project related flows, but does not calculate the financial return of specific project activities. The financial evaluation deals with the overall financial health of the company. Fiscal impact of the program and project: To help the railway company to compete with other land transport modes, the GoT would subsidize it at about US$80 million per year during the Ninth Plan, which is about 20 percent less than the subsidy would be without the railway reform. The rationale for maintaining subsidies to inter-urban collective taxis, which impose an annual burden of US$5 million on the budget, will be reassessed. As the Tenth Plan starts, the railway company will be expected to pay its way, and the GoT will only continue servicing past loans and will compensate SNCFT for the delivery of services that it imposes on the railway company. Overall, the GoT budget will contribute no more than US$40 million in 2002, and this amount will decrease to US$15 million (at constant 1997 prices) once the GoT loans are fully repaid. Annual subsidies to the urban transport currently amount to some US$40 million for operations and US$15 million for investments. In addition, financial restructuring needs have accumulated in relation to a funding gap equivalent to some US$20 million per year. For SRTG alone, the financial rescue plan is costed at US$70 million. Phase 2 would eliminate the funding gap and, with productivity improvements due to materialize over the years, the bus companies would then be expected to pay their way by the end Page 12 of the program, when they will collect no more than US$50 million from the budget (at constant 1997 prices) as compensation for low fare transport of students. Overall, subsidies to transport would be reduced from about 0.8 percent of GDP in 1997 to 0.2 percent seven years later. Given that, once rehabilitated, public enterprises would be able to pay taxes on their benefits, as would the larger group of private firms in transport, subsidies to the sector would be largely outweighed by its contributions to Treasury (profitable public enterprises in air transport and ports already contribute about US$100 million in taxes and dividends annually). 3. Technical (project): The feasibility studies of projected investments to start in the first year of implementation of the first phase of the APL have been reviewed and found satisfactory. Feasibility studies of other investments will be carried out soon after project start. In particular, the feasibility study for extension of the breakwater in Gabes will be financed by the loan to OPNT. The other port feasibility studies, financed from other sources, will still be subject to Bank review and approval. 4. Institutional: The project addresses a series of important institutional reforms which were described earlier. Specific institutional issues relate to: (a) the technically-based SNCFT organization, which must be changed along business lines to enhance its commercial function; a decree to establish the new organization would be prepared in accordance with recommendations of studies financed under the PHRD grant and the loan to the Republic of Tunisia, and to be issued within the next two years; and: (b) the need for a clear apportionment of land ownership among three public companies (Societt Nationale des Transports Intergouvernorats, SNT and Societe du Metro Leger de Tunis). A plan for the resolution of this issue was agreed during appraisal, and its conclusion and implementation will be assessed during the mid-term review of the project. In addition, the national shipping line is being restructured and main options envisaged by GoT are either to sell it in block to private interests or transform it into a holding, retaining the ownership of the fleet, which would be operated by private shipowners. 5. Social (program andproject): The railway severance program covers about 1500 staff (close to 20 percent of total). Basically, SNCFT must cut labor costs if it is to ever meet the challenge of road transport competition. Social costs would be minimized by the fact that the great majority of staff to be made redundant are less than 10 years away from nornal retirement and entitled to pension benefits. Fewer than 10 percent of those laid off are expected to remain perrnanently unemployed. Extensive consultations with the unions have taken place. All of the approximately 620 staff to be laid off at the end of June 1998, 501 of which are regular, have volunteered to leave. For urban bus transport, the severance program should affect some 1,100 staff, mostly in Tunis, who are clearly redundant; releasing them would enable bus companies to cut costs which, together with targeted subsidization and improved compensation systems, would pave the way to their return to financial sustainability. Social aspects are to be looked at as a trade-off between compromising the well being of a few employees and reducing the current woes of the great mass of bus riders. The project would indeed correct the current anomaly that deprives the urban poor of good, affordable transport: the priority given to students and school children diverts buses from nornal services and leaves adult riders with costly, insufficient services (in large cities, 12 percent of the budget of low-income people is reportedly spent on transportation). 6. Environmental assessment (program and project). Environmental Category [ A [X] B []C (a) Justification/rationale for category rating. The project does not include major new construction in the Port and Railways components. The fully appraised investments starting in the first year of project implementation are about rehabilitation and modernization of existing facilities which will bear no adverse impact on the environment. Later years investments, of which the construction of an oil jetty in Page 13 Rades is the only one deserving careful attention, will be subject to an environmental assessment (EA) acceptable to the Bank. This was reflected in the Loan Agreement. Tunisia has developed good EA procedures at the MinisWere de 1'Environnement et de l'Amenagement du Territoire, and would be reviewing the EA prior to submitting it to the Bank. The project also includes some investments targeted to improve the environment, for instance at the railway workshops, and for construction of rail overpasses to relieve severe road traffic congestion which is known to be a major source of air pollution. (b) The environmental policy studies on the impact of transport on the environment, led to an action plan in which the thrust of recommendations is on prevention more than mitigation of transport-related pollution. The two main objectives are to create monitoring capacities for air pollution in large cities, and to establish norms within a new policy to phase out leaded gasoline and put cleaner fuels on the market. It was agreed during negotiations that the GoT would submit to the Bank, not later than December 31, 1999 its action plan aimed at mitigating transport induced air pollution. Program indicators include targets for use of cleaner fuels. The mid-term review will check progress toward implementing actions designed to meet the environmental objectives under the sector management component, and discuss measures that would be taken in the remaining years of project implementation. 7. Participatory approach a. Primary beneficiaries and other affected groups: Primary beneficiaries Identification/preparation Implementation Operation Beneficiaries/community groups Unions CON CON Academic institutions Local government CON CON/COL CON/COL Professional organizations CON CON/COL CON Other donors (EU) CON CON/COL CON b. Other key stakeholders: The Shippers' Council, FNT, APIE (Agency for Promotion of Foreign Investments), and API (Agency for promotion of investment) are expected to provide needed linkages between the public administration and the business community. The unions would be an important catalyst for reforns dealing with conditions of employment, and they would be in a position to smooth out problems during execution of the severance programs scheduled under the project. F: Sustainability and Risks 1. Sustainability: Project sustainability would hinge on the success of actions to liberalize commercial vehicle imports, restructure transport taxation, design and maintain a regulatory framework conducive to private sector participation in transport activities and healthy competition in the transport market, reorganize the railway company, and set up a targeted and balanced system of subsidies. The GoT has already started action in these areas. The strategy supported by the program and the project is conducive to an improved financial and institutional framework for the transport sector, whereby project sustainability is likely. Page 14 2. Critical risks (reflecting assumptions in thefourth column of Annex 1). From Project to Program Development Objectives Main Risk Risk Rating Risk Minimization Measure -GoT continued commitment to the reform N -Adaptable lending will ensure continuous program may waver. dialogue with Government on pending transport issues. -Lack of a good funding mechanism for M - A reliable funding mechanism under urban transport. APL2. -Pressures from transport enterprises and M - Creation of a management structure under weak public management hinders good urban APL2, including regulation mechanism by transport regulations and planning. which users and operators can make their views known. From Project Outputs to Project Development Objectives Main Risk Risk Rating Risk Minimization Measure -Limited access by foreign investors and M -Pilot concessions will be promoted under private operators in ports and shipping. the program to quell fears of foreign domination. Legal restrictions will be removed/softened. -Lack of term financing for private investors N -The Bank-supported financial sector in transport. reform will help create a more demand- responsive market. -Ineffective enforcement of new regulations N - Second phase APL will provide continued by the public administration. assistance to sector management. -Failure to disseminate efficient trade - The MEDA program funded by the EU logistics among traders and transport M will help effective dissemination of best entrepreneurs. practice in logistics. From Project Components to Outputs Main Risk Risk Rating Risk Minimization Measure -Loose coordination of project entities. M -Coordination mechanism at MT established. -Continued subsidization by SNCFT of N -Signing of a new contract between SNCFT phosphate rail transport. and CPG is a dated covenant. -Procrastination on closing loss-making N -Project conditionality (dated covenant). railway services. -Delays in launching actions to modernize M -Coordination with the EU which is to fund customs procedures and promote trade related actions within its MEDA program. facilitation in the port and maritime sectors. Overall project risk rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) Sustained GoT commitment to the proposed reforms would be the most critical determinant of project success. Some of the reforms, especially those related to restructuring of the public enterprises (privatization, redundancies, greater autonomy) are politically sensitive. Taking into account theupfront actions already undertaken (amendment of laws to eliminate the CTN chartering right and open all ports to private competition; submission to Parliament of the port and maritime trade laws; submission to Parliament of railway laws on financial rehabilitation, the new SNCFT statute, and the railway police) or underway (preparation of STAM and CTN restructuring plans; finalization of draft decrees on the SNCFT statutory mission - Cahier des Charges - and on the railway concession agreement, launching of Page 15 studies to reorganize phosphate transport, and nearing completion of the study on low-density passenger railway services), the risks are considered to be acceptable. The APL design reduces such risks and would enable all parties to reassess the local ownership of reforms. 3. Possible controversial aspects: (a) The project would finance layoffs of excess staff in public transport enterprises, and the Bank may be accused as a promoter of job destruction. (b) The project would favour larger foreign participation in transport activities as a way to transfer technologies and know-how to Tunisia; this could be misconstrued as an attempt to recolonize the local economy. (c) Finally, the project would seek closure of uneconomical railway services, and social groups affected may denounce it as insensitive to their needs if they have to pay more for unsubsidized replacement bus services. G: Main Loan Conditions 1. Condition of disbursement Before financing of the port infrastructure works, the Bank will have to approve the feasibility and environmental assessment studies for their design and planning, and be satisfied with the financial and economic criteria applicable therefor. 2. Dated covenants (a) Publication of Decree approving the new Cahier des Charges of SNCFT and the railway concession agreement by March 31, 1999. (b) Signing of an agreement acceptable to the Bank by December 31, 1999 between GoT and OPNT on the settlement of liabilities under the Gabes management account, and, by June 30, 1999, on the repayment of the Third Port local loan. (c) Establishment of a pilot phosphate transport unit within SNCFT by March 31, 1999. (d) Signing of a new railway tariff contract, satisfactory to the Bank, between SNCFT and CPG by March 31, 1999. (e) No later than March 31, 1999, submission to GoT by SNCFT of a methodology and formal guidelines to determine the financial profitability of passenger services. (f) Before June 30, 1999 agreement between SNCFT and GoT on the methodology and guidelines to be used to determine the financial profitability of passenger services. (g) From June 30, 1999 onward, full entitlement for SNCFT to either discontinue any of its passenger services that does not meet the financial profitability criteria or to be fully compensated by theGoT for financial losses incurred in continuing such service as a public service obligation. (h) Signing of contracts by June 30, 1999 between the GoT and SNCFT for provision of passenger transport in the southern suburb of Tunis and the area of Sousse-Sahel as a fully compensated public service obligation. (i) Publication of a decree implementing the SNCFT reorganization along business lines by June 30, 2000. (j) Revision of OPNT's tariff by 9.3 percent (weighted average increase at unchanged traffic level and structure) no later than December 31, 1998, to be applied from the following Fiscal Year; revision and restructuring of the OPNT tariff by another 9.3 percent no later than December 31, 2000 also to be applied from the following Fiscal Year, together with the implementation of a more independent port pricing regulation system. (k) Carrying out of a mid-term review around October 31, 2000. Terms of reference for the review were agreed at negotiations and would include the review and agreement on: (i) progress in implementation of trade facilitation measures and modernization of the port organization and Page 16 equipment; (ii) progress in the implementation of the railway staff redundancy program; (iii) status of the transfer of land titles to SNTRI, SNT, and SMLT on the land formerly owned by the single company which was recently split into three; (iv) the pricing policies for ports, railway, and land transport; (v) status of implementation of the urban and inter-city subsector reforms; and (vi) progress achieved in carrying out the program and moving toward agreed milestones triggering phase 2 of the APL, and recommendations on future action designed to meet project objectives during the remaining years of implementation. (I) Submission by the GoT no later than December 31, 1999 of its action plan for mitigation of transport induced air pollution. 3. Financial covenants (a) For OPNT, maintaining from 1998 onward: (i) a working ratio of 0.50 or less; (ii) a debt to equity ratio of no more than 55-45; (iii) a current ratio of no less than 1. (b) For SNCFT: (i) lowering the labor cost to operating revenue ratio to no less than 0.6 in 1998, 0.55 in 1999, 0.53 in 2000, 0.50 in 2001, and 0.45 in following years; (ii) maintaining the debt service ratio above 1.2 from 1999 onward; (iii) maintaining the current ratio above I from 1999 onward. H. Readiness for Implementation [X] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [X] The procurement documents for the first year's activities are complete and ready for the start of project implementation. [X] A draft Project Implementation Plan was reviewed during appraisal and a revised version is being finalized to incorporate Bank comments and changes reflecting the outcome of negotiations. I. Compliance with Bank Policies [X] This project complies with all applicable Bank policies. Task Manager: Michel Loir Sector Director: Jean-Claude Villiari Country Director Christian Delvoie Annex la. Transport Reform and Investment Program. Long Term Design Summary Narrative summary Measurable indicators Monitoring & supervision Assumptions and risks CAS Objective (CAS Objective to Bank Mission) -future CAS reviews - Limited incidence of drought. Faster economic growth and global - Acceleration of GDP growth to over 5% after 2000. -Portfolio management and - Continuation of social peace. market integration - Budget deficit to GDP: < 3% after 2000. discussion with government. - Steadfast govemment commitment to a market- - Free flow of goods between Tunisia and the EU in 2009. -Sector and project work. based/outward looking economy. Development Objectives From development objectives to goals - Sector investment share of GDP rising to 3.5% in 2005. - Sample impact studies 5 y. -Timely progress on macroeconomic reforms ensuring Co*eficient, sey(sstained & quality - Sector revenues: labor productivity increase of 50% after closing date of APLI that transport savings are passed on to consumers. trmsotn is availabe to traders and (sector GDP per transport staff) between 1998 and 2005. - Monitoring tools to develop -Achievement of a strong financial sector, peqe. - Private sector share of transport investment rising from with rirst loan support. - Thorough implementation of the free-trade agreement with 23% in the eighth plan to over 50% in 2005. - Supervision reports of the European Union and full meeting of obligations under the Transport pollution risks are - Reduction of transport subsidies from about 0.8% of GDP successive loans World Trade Organization agreement. mitigated in najor cities to about 0.2% in 2005. - ICRs of successive loans. - The risk of emergence of private monopolies and cartels - In 2005, the lead content of gas not exceeding 0,15g/1; - PADs for APL2 and, if (local or foreign) is contained through efficient sector market share of unleaded gas in total gas consumption above 1/3; needed, the follow up monitoring and management by the ministry of transport. share of sulphur below 0,05% of diesel weight. operation. Program Outputs From Program output to DOs I. Sector Management 1. Sector Management -Statistics maintained by - Transport reforms are followed through; policies are The capacity building in public - A new transport data base is opeational in 2000. OPNT, SNCFr. and other adjusted as needed to fit changing circumstances. management is effective: good - Master plans for national and urban transport are public entities involved. planning and policy making help available in 2001 and updated regularly thereafter. - Enactment of a satisfactory customs code and liberalization achieve cheaper and better transport. - No transport tax distortions after 2005. -Ad hoc surveys in studies of transport equipment imports. 2. Railways 2. Railways carried out during preparation The reform program to make SNCFT - "Commercialization" of railways effective in 2001. to be repeated at mid-term of - Local management has built human and financial capacity compebtive and financially - loss-making services discontinued after June 1999 unless phase I and one year after its to harmonize transport and urban development plans. autonomous is brought to fruition. requested and fully compensated by GoT. completion. > Performance enhancing investments - Tunis-Gabes and Tunis-Ghardimaou track modemization - Professionalization of transporters. to have been done. works are completed by 2005. - Special monitoring system to - at least 10% of intercity traffic railroaded in 2005. be set up at MT will measure - Competition among transporters without market failures 3. Ports & shipping 3. Ports & shipping project impacts. permit cost savings to be effectively passed on to users. The reform program toward private - New port legislation implemented in 1998. sector led operations is completed. - Towage is privatized in 2002. - PADs of phase 2 and 3. - Within the framework of the WTO and EU agreements, Pmgramm investments to renovate and - Full restructuring of CTN by 2001 and STAM by 2002. foreign firms are allowed in local port,freight forwarding and expand ports have been - A BOT container berth in Rades starts operating in 2005. - Supervision reports of phase multimodal activities and contribute to technological transfer. implemented. 4. Urban and interurban transport 2 and 3. 4. Urban and interurban transport - A new management structure is set up in Tunis in 2001. - Govemment is investing timely in road infrastructure, The reform to provide affordable - A stable funding mechanism is operational in 2001 - ICR for phase 1. maintains it adequately. Road safety issues are adressed. while financially sustainable public - Public transport share of traffic stays above 50% in Tunis. transport in and between cides is - In 2005, private sector participation reaches 5% of bus - Development of a national air pollution monitoring network. brought to fruition; privatization of transport in Tunis and nearly 100% of nationwide services Is in progress; performance interurban bus transport. enhancing invesments are completed. _ Preram Components Key Performance Indicators Monitoring & supervision From Components to Output I) Loan amount of USS 50 million of which US$13 million MT periodic reporting on - Continued commitment by government to project reforms I ) APL Phase I for OPNT. execution of the Ninth Plan. and transport strategy agreed with the Bank; Govemment and/or Grant financing of about US$30 Reform and modernization of the million Project coordination unit at - Good project management and efficient coordination of railway and maritime sector MT reporting along pre- entities involved; [see description in APLI logframel established guidelines. 2) Loan (s) totalling about USS 32 million launched when - Good Bank supervision; thorough Mid-term review. 2) APL PhLg 2 nagreed milestones of prgram implementation are met Reporting by public entities (expected date: 2001) for: receiving project support. - Good performance by consultants; Urban transport reform and public - severance payments to some 1I 00 redundant staff of the transport rehabilitation. public Iransport companies; Bank supervision missions. - Private transporters are able to change behavior from a - capacity building in urban transport management; government dependent mind set and perceptions to swift - investments designed to enhance productivity of urban Annual project auditing. response to market incentives public transport. Regular contacts with the EU - Possible launching of a follow-up operation (Sector about progress of their Investment Loan or another APL, depending on needs and financial assistance program constraints at the time the decision is made). for Southem Mediterranean -____________________________________ countries (MEDA program) a' Annex l.b Trans ort Reform and Investment Program. Design Summary for Phase I Narrative Sommury Key Performance Indicators Monitoring and Supervision Critical Assumptions and Risks CAS Objective From CAS Objectives to Bank Mission Fasitr economic growth and global market integration through: Acceleration of GDP growth to over 5% after 2000. -future CAS reviews - Limited incidence of drought. reduction of public deficit - Budget deficit to GDP: < 3% after 2000. -Portfolio management and - Continuation of social peace. liberalization and improved trade-related services; - Private investment > 50% of total investment by 2002. discussion with govemment. - Steadfast govemment commitment to a market- increased private sector participation. -Sector and project work. based/outward looking economy. Development Objectives From development objectives to goals A Costeffide.n4 -re4f-srtd&qat tm rtisalalik - Sector investment share of GDP rising to 3 % in 2002. - Monitoring tools to develop -Timely progress on macroeconomic reforms to&adsandpepk.by: - Sector revenues: labor productivity increase of 30% (sector with first loan support. (producers in industry, mining and agriculture GDP per transport staff) between 1998 and 2002. - Supervision reports of can then take advantage of decreased transport - setting up an institutional framework conducive to Private sector share of transport investment to rise from 23% successive loans. costs to expand their market shares). private participation in maritme and port activities; in the eighth plan to over 35% in 2002. - ICRs of successive loans. -Achievement of a strong financial sector. - reforming the railways to promote commercial - Reduction of transport subsidies from about 0.8% of GDP - PADs for Phase 2 of the APL - Liberalization of vehicle imports and dynamism: to less than 0.4% in 2002. and, if its need is confirmed, the elimination of tax distortions on the transport - refornning bus transport to make it sustainable and - No more financial rehabilitation of transport enterprises. follow up operation. market. keep it affordable for low income revenue users - Small trucks share of t-km: from 40% to less than 1/13.%. - Successful decentralization of managerial and B. Transport pollution risks are mitigated in major in 2002. financial responsibilides for urban transport. cities through: - In 2002: lead content of gas not exceeding 0,15g/l; share of - Successful implementadon of the EU financed unleaded gas in total gas consumption above 20%; share of assistance to revision of the customs code and - resort to cleaner fuels; sulphur below 0,05% of diesel weight development of trade facilitation measures. - good nonitoring of the air quality. - The risk of emergence of private monopolies and cartels (local or foreign) is contained through efficient sector market monitoring and I ___________________________________________ ___________________________I____________ ______________________ m anagem ent by the M inistry of Transport. smnall trucks are defined as those of less than 3.5 gross ton-weight. Narmrtive Summary Key Perrormance Indicators Monitoring and Supervision Critical Assumptons and Risks APLI Outputs From Outputs to Development Objectives A. Ingplmenmation oef rforMr aloeg the aereed strafev 1. Railways For the railways: -Statistics maintained by OPNT, - The urban transport reformn is implemented. a.Commercialize SNCFr. - Passing of legislation, issuance of related regulations: 1998. SNCFT, and other public entities b.Reorganize SNCFT along its lines of business. - Decree to establish the new organization before June 2000. involved. - Foreigners can access to local port,freight c.Cancel railways loss-making services not compensated by GoT. - Closure of current loss-making services by June 1999. -Ad hoc surveys in studies carried forwarding and multimodal activities to 2. Ports & shipping for ports: out during preparation to be foster technological transfer. a)Transfortn OPNT as a landlord port. a) Implementation of the new port legislation: 1998. repeated at mid-term of phase I b)Open ports to competitive private cargo handling. b) Private share of general cargo handling: near 100% in 2002. and one year after its completion. - The government commitment to complete c)Develop private port management under concessions c) Bids for container quay BOT in Rades invited by June -Reporting on plan execution by reforms is sustained. d)Restructure STAM and CTN. 1999. Ministere du Developpernent e) Privatize towage. d) STAM restructured by 2001 and CTN by 2002. Economique and MT; - Enactment of a satisfactory customs code 3. Sector Management e) Towage privatized by 2002. - Special monitoring system to be and liberalization of transport equipment a)Remove restrictions to import of commercial vehicles. for sector management: set up at MT will mneasure project imports. b)Streamline transport user charges. a) liberalization measures effective by 2001. impacts. c)Uberalize trucking for vehicles of less than 12 GTW. b) Plan to correct transport tax distortions adopted by 2000. - The ECAL reforms are fully completed. d)Promote market based pricing of services. c) Reguladons in effect before the end of 1998. Appraisal of APL2: data 4. Preparation of APL2: d) Pricing freedom from 2001 except for urban transport. collection and discussions with - Good term financing for transport - assistance to definition of financial and management reforms for 4. Preparation of APL2: government and other equipment is made available to operators urban transport. - Completion of the PHRD study: October 1998. stakeholders involved in the (particularly for purchase of cargo handling B. Vlgrading and rehabilitation of transport facilitie: TA: Ihe - Adoption by Government of a Reform Plan before 2001. program. equipment). project will generally help implement the IXth Investment Plan. ............ ...........- ..-- More direct output from activities included in the project are: -Ex-post project ERRs in general; Bank supervision reports during - Professionalization of transporters. -Implementation rate of the Ninth Plan: >90%. implementation of Phase 1. 0 I. Railways -Full disbursement of the Bank loan for Phase 1. - Effective enforcement of revised a) Trck modernization between Tunis and Sousse. For the railways: Assessment by professional regulations by the administration in matters b) Better tramffc control. a) Passenger travel time Tunis-Sousse cut by 30' by 2002. associations of impacts of of professional and technical norms, road c) Environmentally safer workshops. b) Avge.delays of passenger trains: cut by half on that line, dissemination of trade and safety and fiscal obligations; d) Better management and impmved costing. c) Completion of modernization works by 2001; transport logistics under the c) Leaner but better trained staff. d) Full coverage of costs by phosphate tariff: 1999; project. - Good dissemination of efficient trade 2. Ports & shipping e) Traffic units per SNCFT staff up lo 600 in 2002. logistics among transporters and traders. a) Rehabilitated and upgraded port infrastnscture. For ports: Regular meeting with the EU to b) More efficient port management. a) Tons handled/hour/ship at berth up 25% in 2002. discuss progress of actions led by - Govemment is investing timely in road c) Improved port pricing. b) Port transit time for general cargo cut by 30% in 2002. them for revision of the customs infrastructure, maintains it adequately. 3. Sector management: c) Combined port bill for containers reduced by 30% in 2002. reform, trade facilitation and port a) Timely adoption of the transport plan for 2002-2006. For sector management: productivity improvements. - Implementation of anti-pollution norms on b) Creation of a comprehensive sector data base. a) the draft plan is ready by June 2001; transport fuels and of a pollution monitoring c) Capacity building at the MT: trained staff is available. b) A national MIS for transport is operational in 2001. ICR for phase I of the APL. network. d) Large application by operators in the sector largely of modem c) Physical and financial indicators published from 2000 trade & transport logistics. onward within three months. e) Streamlining of customs procedures and access to new ED] d) Share of tunisian operators in total international transport: systems in support of trade facilitation. contracts: no less than 35% in value. e) "Liasse unique" and SITAIP projects operational by 2000. 4. PrWsraration of APL2: - sound city tmansport master plans. 4. Preparation qf[APL2: - updating of plans completed by March 2001. , Narrative Sunmmry Key Perfornmance Indicators Monitoring and Supervision I Critical Assumptions and Risks Phan 1. Project Components Bank eligibility criteria to be met by subprojects are: From Components to Outputs (i) ex-ante ERR of at least 10%; Operations of the Project A. Funding priority exetnditures in: (ii) compliance with Bank procurement rules; coordination unit along pre- - Continued commitment by govemrnment to (iii) no unmnitigated harm to the environment; established guidelines, project reforms and transport strategy 1. Railways Lontt amount earmarked for Railways: US$32.1 m. agreed with the Bank; (a) 72 km of track doubling between Tunis and Sousse (a) Launching of works: January 98; completion: Dec 2000. MT periodic reporting. (b) Track renewal on the Tunis-Ghardimaou line. (b) Launching of works: January 99; completion Dec2001. - Enough autonomy granted to transport (c) Construction of road overpasses at Hammam Lif and Ezzahra. (c) Launching of works; January 99; completion June 2000. Reporting by project associated PEs; (d) Upgrading of the wotkshops'envionment. (d) Launching of works: June 99; completion December 99. entities (public enterprises directly (e) Financing severance for railway staff. (e) 1500 redundancies financed by Dec 2001. supported by the project. - Good project management and efficient 2. Ports & shipping Loan amount earmarked for xorts: US$ 13 m. coordination of entities involved; (a) rehabilitation of the comnmercial berths at Bizerte. (a) launching of works: Dec. 98; completion:Dec 2000. Bank supervision missions. (b) Extension and redesign of the Gabes breakwater. (b) launching of works: Jan 2000; completion June 2001. - Good Bank supervision: thorough Mid- (d) construction of an oil jetty at Rades. (c) launching of works: Jan 2001; completion: June 2002. Annual project auditing. term review. B. Tecncal assistance (_A). studie and trainine B. Resources allocated to technical assistance: US$16.4 m: Bank sector missions and - Good performance by consultants; - Bank Loan: total financing of US$9.4 m. backstopping from headquarters. - GoT financing: (i) some US$3.5 m. to finance TA related - Increase of the railway tariff for to customs and port reforms, and trade facilitation., including phosphate; needed hardware and software (ii) US$3.5m for an air quality monitoring network. - Eatly closure of uneconomic railway Bank finaid: services. 1. Railways 1. Railways (US$2 m) (a) MIS development along the new organization. (a) Launching of study: January 1999. - Willingness by transporters and traders to (b) TA to implement the new railway organization. (b) Launching of study: January 1999. actively participate to project activities for t (c) training and study trips. (c) Training over January 1999-December 2001. good dissemination of best practices in 2. Ports & shipping 2. Ports & shipping (US$2.3 m) logistics. (a) Studies for institutional development (prmotion of BOT (a) Bidding documents for port BOT ready by May 1999; schemes. privatization). other studies caried out over January 1999-Dcember 2001. - Early apprval and implementation of the (b) Feasibility studies of port investment sub-projects. (b) Execution over January 1999-December 1999. BU grant. (c) Tariff restructuring and regulation study. (c) Execution over January 1999-October 1999. (d) Development of an integrated data transmission system and of a (d & e) Execution over January 1999-December 2001. - Launching of APL Phase 2.. single trade document ("liasse unique"). (e) TA to implementation of port reforms. (f) Execution over January 1999-December 2000. (D) Training. 3. Sector management(US$5.1 m). 3. Sector management (a & b) Execution over January 1999-December 2001. (a) Ad-hoc expert assistMce to MT and enterprises it oversees. (b) TA to developmnent of a transport data base. (c) Execution over January 2000-Marech 2001. (c) Update of urba transport master plans (Tunis,Sfax, Sousse). (d) Execution over January 1999-March 2001. (d) Study for prepartion of a national transport plan. (e) Installation of facilities over June 99-June 2000. (e) Creation of an air-quality monitoring network in major cities. (f) Execution over January 1999-June 2000. (f) Staff training at MT. 4. Urban transport (p.m.) 4. Urban transport Ongoing study by consultant fimanced by a PHRD grant. (a) Technical assistanc to definition of reforms; Bank sector and supervision missions plus back-stopping at (b) Bank dialogue with governnent on options and facilitation of headquarters. decisions. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Page 22 Annex lc UNOFFICIAL TRANSLATION TRANSPORT POLICY LETTER May 27, 1998 Mr. President, The transportation sector plays an important role in concretizing the strategies and objectives of the development process, especially with regards to the support it brings to other sectors. Over the past few years, the transport sector has undergone many reforms in the that have targeted a reduction of expenditures through liberalization, reorganizing- and restructuring its various activities. During the Eighth Plan (1992-1996) (8th Plan), these reforms focused primarily on the development of the regulatory framework and its liberalization, sector restructuring and improvement of its services. With regard to the legal and regulatory framnework, new laws concerning shipping and freight forwarding sea-bounded professions as well as land transportation have been promulgated. These measures led to the birth of new private enterprises which, by competing with each other, increased the sector's capacity to respond to market needs. As far as restructuring of the sector is concerned, Performance Contracts were signed with certain public enterprises, and freight enterprises were completely privatized. Investments during the same period reached around DT 1,473 million (1996 rates). Thanks to these reforms, the transport sector delivered a good performance, particularly with regard to annual growth reached 6.6 percent. The Ninth Plan (1997-2001) is expected to reinforce the reforms that were undertaken during the previous Plan so as to be able to reach a level of competitively sufficient to support the productive sectors and exporters, and the national economy thereby facilitating its integration into the world economy, especially now that the agreements with the World Trade Organization and for free-trade with the European Union have been signed. Page 23 In this regard, the Tunisian Government has now drawn up a new development strategy for the years 1997 to 2010. The Ninth Plan endorses this strategy which consists of the following keypoints: I. Promote quality investments to increase equipment productivity by adapting it to economic needs, while ensuring a reinforcement of road infrastructure, and improving road maintenance. 2. Encourage private initiatives to invest in infrastructure projects, especially through concessions. 3. Assist in directing State intervention with regard to urban transportation compensation. 4. Make means of transportation available and take the necessary measures to renew the existing fleet in order to bring both maintenance and gas consumption costs down and to protect the environment from pollution. 5. Adapt the legal framework to a more liberal transportation sector and introduce greater flexibility in the management of public enterprises to reduce expenses and increase productivity. 6. Develop multimodal transport in order to increase productivity by means of decreasing transportation costs and improving traffic fluidity. 7. Promote domestic and foreign partnership in the transport sector. 8. Transfer the development of commercial services from the public to the private sector in order to increase their productivity and bring down users' costs. 9. Review the role of the central administration in order to delegate certain technical tasks to specialized units. Bearing in mind these principles, the Ninth Plan is expected to be around 6 percent per annum. This growth would result mostly from the shipping industry's increased production levels and from the positive impact of increased economic activity in the area of land transport and of air transport on the tourist sector. Total investments should reach an estimated DT 2,372 million (1996 rates), with: 336 million for the railroad subsector, 781 million to the highway subsector, 625 million to the shipping subsector and 630 million to air transportation. Though greater flexibility is given to the private sector, the State remains responsible for common good. Deprived of the direct means of intervention in managing the economy provided by a vast public sector, the State now needs to reinforce its presence in other areas where its involvement remain essential, such as the long term planning of infrastructure, the legal and regulatory framework, and regulating and controlling the smooth functioning of the market. Measures will be taken to supply the public administration in charge of the transportation sector with the necessary physical to fulfill these responsibilities in the most efficient way. The Tunisian Government intends to continue the same policy during the Tenth Plan (2002-2006), by focusing on improving the quality of services, privatizing competitive activities Page 24 and by reinforcing the role played by local communities in the organization of public transport services. This is the general context in which the various actions undertaken by the Govermnent should be approached. Ports and Shipping (a) The implementation of the Compagnie Tunisienne de Navigation (CTN) restructuring Plan will be completed at the latest by 2001, following a strategy which, whether supported by private investments or not, will enable CTN to face the competition emanating from Tunisian and foreign shipowners, with no commercial privileges or subsidies, but also without any constraint as far as the choice of suppliers and services providers is concerned. (b) The laws and taxes regulating the shipping sector will be adjusted before December 2001 in order to allow private ship owners to choose freely their areas of activity and means of production within the framework of the country's general sector policy. Financial systems that would enable private ship owners to develop and modernize their fleet would need to be made available for them. (c) The legal and regulatory framework for ports will be in place before the end of 1999. The consolidated port administration (ONPT and Direction de la Marine marchande) will withdraw from the commercial activity: before December 1999 for consigrnent of goods; and before June 30, 2002 for haulage. When the opportunity arises, equipment of ports will be assigned to the private sector. (d) Implementation of the restructuring plan for the Tunisian Stevedoring and Handling Company (STAM - Societe Tunisienne d'Acconage et de Manutention) will be completed before 2002. This plan will remain compatible with the development of private handling activities in ports. As of 2000, STAM will no longer benefit from any direct or indirect Government assistance and distortions of competition in the handling market will be prevented or addressed. (e) Private enterprises will be allowed to handle cargo in the ports of Rades and La Goulette before December 31, 2000. (f) Cargo handling in Tunisian ports will be reorganized before December 31, 2000. The goal is to reach an agreement concerning the relation between the port authority and the service enterprises, and to develop ways and means to acquire necessary equipment to increase productivity in port installations. (g) Development of specialized port terminals will be a priority within the concession system for construction and operation over a fixed period of time. This policy will be initiated for the construction of the new container wharf of Rades with the goal of launching concession bidding before June 30, 2000. (h) Finally, OPNT tariffs will be restructured and modernized. A system regulating OPNT's tariffs will simultaneously be put in place as well as enterprises providing port services with a view to limiting arbitrary practices and strengthening the role of the port community in the decision-making process. These actions will be implemented at the latest by December 31, 2000. Page 25 Railroad transportation The strategy consists of transforming SNCFT into a commercial enterprise, which will be competing with other types of transport and will be specializing on market windows where it has real comparative advantages. To the extent that this strategy materializes, the railway company will be able to assume its own financing, thereby reducing the burden of subsidies to the sector on the State budget and strengthening its management autonomy. (a) Changing the institutional franework The objective is to clarify the enterprise relationship with its overseeing entity, determine the Government's assistance in financing the renewal and maintenance of fixed facilities, and define the public service responsibilities that the State could impose on the railway company, but the costs of which should be fully compensated by the State. With respect to the restructuring of the institutional framework, the Government has already submitted to the Chamber of Deputies three draft laws relating to the revision of SNCFT statutes, discharge of its liabilities and reform of railroad policy. The implementation decrees will shortly follow approval of this legislation. (b) Reorganization of the SNCFT by activities The reorganization of the SNCFT by sector of activities is one of the necessary tools that will enable the enterprise to operate on a trade-oriented management mode. It consists of creating within the enterprise four separate specialized units capable of dealing efficiently with the following issues: phosphate transportation, long distance travel services, suburban travel services and freight transportation. Each unit would be in charge of the commercial aspects of its activities as well as the exploitation of the human and material resources with which the unit would be provided. The SNCFT has suggested contracting through an independent consultant the creation and implementation of the new organization. (c) Price cuts This effort will take place on several levels. First, the Ninth Plan provides for the carrying out of an investment program in a total amount close to DT 300 million. Improvements in productivity and security resulting thereof will allow the enterprise to reduce production costs. Second, the Performance contract requires that SNCFT adjusts its manpower according to the needs of the expected traffic. Hiring during the period of the Ninth Plan will be limited to the needs for maintenance or reinforcement of essential functions, and a reduction in manpower (almost 1,500 permanent as well as temporary staff) is expected to take place before the end of the year 2001. Finally, passenger services with low traffic will be streamlined. Should they be maintained, the State would compensate any losses suffered by the enterprises in the framework of a specific contract. (d) Increasing the participation of the private sector Within its policy to streamline management and reduce costs, the company will progressively reduce the importance of works through force account and will subcontract with the private sector for such services as printing, maintenance of production material, catering and any other services that would be available at lower cost in a market open to competition. Page 26 (e) Financial autonomy In the framework of the Ninth Plan, the State is providing an exceptional financial support to SNCFT in order to help the company adjust technically. This aid will increase its infrastructure capacity to the point that SNCFT will be able to compete with road transports and recover part of the freight and container traffic, as well as any other traffic where the company has a comparative advantage. Before the end of the year 2003, State support will be limited to the construction of new lines and track renewal, against payment by SNCFT of a fee to refund the renewal costs. Road transportation of freight The liberalization of this sector has been completed, and the Governnent is resolved to maintain a competitive market and contractual freedom regime. It will be responsible for ensuring that the market runs smoothly and will equip itself with sufficient information resources to allow for the correction of attempts at creating cartels and prevention of private monopolies. The creation of a Transport Observatory (Observatoire des Transports) to become operational before December 31, 2001 will specifically address this issue. To prevent unauthorized public transport from continuing to threaten the stability of the market and compromise the existence of well organized trucking companies providing quality service, the Government will enforce controls on major highways; it will also develop means for controlling the technical quality of vehicles at the regional level. Public transport in cities The improvement of public transport is one of the main thrusts of the Tunisian transport development policy with the emphasis being placed on transports by bus. This means of transportation is currently undergoing operating constraints, and is subject to poor coordination with other urban transport systems, and to financing constraints that prevent it from developing normally and slowing down the rapid growth of private transport. These constraints give rise to a relative inefficiency of the services while imposing a heavy financial burden on the State. The reduced transport tariff for university and school-age students decreases the service supply to other consumers, and costs the State more than DT5O million a year. The development of bus services is regarded as a means of alleviating urban congestion and reducing the pressure imposed by the demand in transport on the rapidly increasing costs of urban sanitation development. The Government's strategy is to create conditions allowing a financially viable public transportation system by bus that develops according to its needs. The main actions lie first with management: there is a need to reinforce participation of local communities in decision-making concerning the adaptation of supply and demand for public transportation, in order to better adapt services to the constraints of the urban development and coordinate the means available. Participation of the private sector will also be encouraged. The other essential component of the reform will be the establishment of a stable financing system for urban transportation. Other actions concern the financial reorganization of bus enterprises and the establishment of a new compensation system for public service obligations. Page 27 The details governing the administrative and financial reform plan for urban transportation by bus have not yet been decided upon. The following decisions have been made by the Government in order for the reforms to materialize before December 31, 2001. (a) First, the Government deemed it necessary to analyze further the diagnosis on the deficiencies noted above, and a consultant was hired for that purpose early in 1998; his report will be ready before the end of 1998. An ad hoc committee will then be created to review the consultant's proposals and set up a complete action plan to be submitted for the Government's approval before December 31, 2000. The implementation of the urban transports management and finance reform will follow the adoption of the required legal and regulatory texts expected before the end of 2001. (b) At the same time, a committee was set up in January, 1998 to define the conditions for the financial reorganization of the regional bus transportation companies (SRTG). Its deliberations and reports will lead to an action plan providing for the reorganization of these enterprises in 1999. (c) A cost-cutting policy will be actively implemented with about 800 employees of SRTG and SNT expected to be laid off in the next three years. Technical assistance will be provided to bus enterprises for improving management of their material, better programming of their services and a better control over their financial situations. Surveys will be carried out to gain a better appreciation of the characteristics of their markets and improve their line cost accounting systems by line. These activities will be undertaken between 1999 and 2001. (d) Studies will be launched in 2000 to update the transportation guidelines for the big cities. These studies will deal with the technical aspects of transport coordination; infrastructure development needs; population increase and transport constraints imposed by increasing urbanization; economic policy measures which will affect influence the distribution demand between various transportation systems, with a particular accent on streamlining parking in cities. (e) Finally, the Government finally plans to develop private concessions and subcontracting of bus services. The objective is for these services to reach at least 5 percent of the public bus transport market before the end of the year 2005. Intercity passengers transport by bus Intercity passenger transport is dominated at present by individual transport and private group transport using relatively small size vehicles, where services for hire play an increasing role. Public transportation by bus is offered exclusively by SNTRI and the STRGs. Railway transport is the monopoly of SNCFT. The combined share of the public carriers market only represents 15 percent of the demand for intercity transport. An increased role for public intercity transport is one of the Government's objectives for two main reasons: offering road users cheaper services and reinforcing road security that has been seriously jeopardized by the rapid development of collective taxi services. To complement the actions which are anticipated to give new impetus to the railway system, the Government intends to promote transportation by bus. The management rigidity that characterizes public companies does not allow them to be market responsive, and leads to a budget deficit for management and limit both their investment choices and their financial capacities. Page 28 The Government therefore intends to commit itself towards liberalization and progressive privatization of intercity transportation by bus. The main steps are as follows: (a) SNTRI and its network will be restructured in order to serve a better client and make profits. Among the measures envisaged are the salary cuts, debt reduction and final settlement of problems arising from disputed property. (b) The private sector will be admitted progressively into the intercity bus transportation market. (c) An organization will be set up before December 31, 2000 to manage the interurban coach transportation market and line franchising. (d) SNTRI will be restructured before December 31, 2001. Air transport This sector is undergoing significant changes internationally. The development strategy lies upon: (a) seeking strategic partners to help national operators to reinforce their competitive capacities on the international market; (b) adapting airport capacities to increase traffic as well as to improve services offered to passengers and airlines; (c) reinforcing freight services by increasing the storage capacity and simplifying customs procedures; (d) streamlining costs and transferring commercial businesses to the private sector, adapting the regulatory framework and promulgating the Civil Aviation. The Government is satisfied with the excellent cooperation between Tunisia and the World Bank and acknowledges the significant contribution of your Institution to financing the different sectors of the Tunisian economy. We are happy that the Bank is willing to participate in the financing of the reform and investment program of the transports sector defined in this letter. Sincerely, The Minister of Transports [Stamp and signature] Hohssine CHOUCK Page 29 Annex 2 Transport Sector Project Detailed Project Description PHASE I OF THE PROGRAM Project Component 1: Port and Trade Facilitation - US$25.0million (total cost of component) 1. This component is designed to foster physical and institutional conditions for efficient port operations as part of a general strategy to promote international competitiveness of Tunisia. The project will accordingly support implementation of the port investment program under the Ninth Plan with a focus on essential rehabilitation and upgrading of port infrastructure to remove potential bottlenecks to the anticipated traffic growth and, at the same time, facilitate development of modern shipping and port technologies. On the institutional side, the project will smooth out implementation of the new port laws and regulations. One important aspect is to help the Office National des Ports Tunisiens (OPNT) strengthen its new "Landlord Port" functions, attract private capital to finance new port terminals under build-operate-transfer (BOT) schemes and to take over services previously handled by OPNT like towage. Following the decision to open cargo handling in La Goulette and Rades to private competition, the project will also set up a market organization conducive to higher port productivity through development of private firms strong enough to invest in modem equipment. Finally, the project will address trade facilitation needs in order to ensure that users will take full advantage of better ports by moving their goods faster through customs. Action will be taken to modernize customs procedures as needed to allow for definition and introduction of simplified clearance procedures that are in use at leading ports of the world, to simplify trade documents along international standards, to develop modem data exchange systems for faster transmission and processing of error free documents and to disseminate modern trade logistics among the port and traders community. 2. To achieve these goals, the Project Port and Trade Facilitation Component would include: A. Civil works: (a) Commercial Berths Rehabilitation in Bizerte: four of the five existing berths (400 meter long at -9m) are in precarious condition and need to be rebuilt at an estimated cost of US$9.5 million (first-year investment) (b) Breakwater Extension in Gabes: the existing breakwater is not well designed and the incoming swell can generate agitation in the port basin that hamper ship to shore operations and may even cause damages to ships and structures; the investment has been estimated at an approximated cost of US$4.8 million. (c) Oil Berth Rades: the existing capacity is insufficient to match future traffic needs and construction of a new jetty will not only bring it to the needed level but also allow larger tankers in the port which will reduce freight rates; the investment is estimated at a cost of US$6.1 million. Page 30 B. Technical Assistance and Training: Bank Financed (a) Feasibility studies ofport investments: * Breakwater design in Gabes: model based studies will be developed to identify the best technical options for the extension: US$490,000. (b) Capacity building and technical assistance program: • Development of the Rades Container Terminal under a BOT scheme including preparation in stage one of engineering documents and in stage 2 of the bidding documents for the concession: US$210,000. * Assistance to restructuring and modernization of the OPNT tariff and to definition of a price regulation structure covering all port services: US$160,000. * Training to OPNT staff (human resource management and development of new "landlord" port functions: US$110,000). B. Technical Assistance and Training: Financed by Government * Construction of the oil berth in Rades, including an environmental assessment: US$1 10,000. * Identification of dumping sites for dredged materials: as ports are dredged every four to seven years, the accumulation of possibly contaminated dredging materials is a growing concern for Tunisia which has to meet its obligations under the international conventions it has signed: US$200,000. * Expert services to modernize customs procedures: US$600,000. * Expert services to help the Ministry of Commerce develop a single trade document ("Liasse Unique"), an electronic data interchange system including its port application known as the SITAIP project ("Systeme Integre de Traitement Automatise des Inforrnations Portuaires"): US$1,600,000. * Assistance in finalizing and implementing the detailed regulations derived from the new port law: US$450,000. * Assistance to implementation of the new organization of port cargo handling, including definition of equiment requirements and financing systems that should be available to private firms: US$265,000. * Assistance to restructuring of port activities including divestiture by OPNT of towage services, definition of a port concessions regime, drafting of standard concessions contracts and of standard procurement guidelines and protocols; legal advisory services for negotiations of port concession contracts: US$265,000. * Improvement of port statistics: US$110,000. * Advisory services for dissemination of modern trade logistics within the port and traders community, using professional organization (e.g. shippers'council) as intermediaries to deliver information and training: US$ 110,000. Page 31 Project Component 2 - Railways modernization and restructuring- US$ 47million (rounded) 3. The project is to allow the railway company to become a fully-commercial enterprise, competing efficiently with road transport while costing less to taxpayers. Capacity constraints have developed over the years. The project will help government finance an investment package designed to catch up with deferred modernization on the main corridor Tunis-Sousse-Sfax and place SNCFT on a level playing field with its competitors. During the Eighth Plan, road transport along the corridor was boosted by construction of the Tunis-Sousse motorway and rapid growth of subsidized collective taxis (known as Louages), while railway competitive position declined and service quality deteriorated. A study carried out as part of project preparation showed that there was a real potential for railway passenger traffic growth in the Tunis-Sousse-Sfax corridor which cannot materialize unless the railway capacity is upgraded. The commissioning to traffic in early 1997 of a stretch of double track between Tunis and Sousse led to a surge in traffic confirming the rail transport demand elasticity to service quality. In addition to track modernization, the project will support institutional development essential to future sustainability of the railways, namely: commercialization with a new organization along lines of business and substitution of targeted compensations at a smaller scale for the current lump sum subsidies that bear heavily on the government budget. In order to achieve the financial rehabilitation objective, the project will help SNCFT finance severance of excess staff and close uneconomical passenger services. 4. Investments funded by the project are mainly comprised of: (a) Rail infrastructure improvement (US$28 million) * modernization and capacity increase on 72 km of the Tunis-Sousse line; * track renewal between Tunis and Ghardimaou (Algerian border); * construction of road overpasses over the railway line in Tunis southern suburbs (in Hamman Lif and Ezzahra); * improvement of the workshops to mitigate adverse environmental impacts. The Bank will not finance the installation of rails on the Tunis-Sousse and Tunis- Ghardimaou lines under Part BI and B2 of the project (related costs are estimated at about to US$9 million). It is in the proven interest of SNCFT to authorize its subsidiary, SOTRAFER, to bid for such works but the Bank procurement guidelines do not allow for it. (b) Severance payments (US$17 million) * Financing severance for about 1,500 staff during the 1998-2001 period. (c) Consulting services and technical assistance (US$2 millions) * technical assistance and consulting services to modernize railway management, with special reference to (i) implementation of a corporate organization along lines of business; (ii) traffic management; and (iii) traffic costing. * training of railway staff at middle and upper management level. Page 32 Project Component 3 Sector Management - US$8 million (rounded) 1. Sector management must adapt to ongoing policy changes. Liberalization and privatization will decentralize decision to many individual operators and the Ministry of Transport will see its regulatory and market monitoring functions greatly enhanced whereas the ones dealing with central planning and overseeing of public enterprises will be waning. Decentralization of power to local Governments is another policy change that has implications on the way the sector should be managed, particularly as regards urban transport which at present suffers from diluted responsibilities and poor coordination detrimental to development of public services with adverse effects on the environment. The project objective is to facilitate the redistribution of functions within the various layers of Government, to build the needed capacity wherever they are needed and to develop quality and timeliness of transport statistics to guide sector policy makers and help identify market failures. Finally, better sector management calls for better trained transport staff. Skills available in the public transport administration are not yet fully tailored to responsibilities exerted. Few are those who have received specialized training on matters they have to handle or acquired a professional experience in previous transport-related employments outside the civil service. On the job training opportunities are scarce and often ill- targeted. The wide array of tasks to perform by each individual is a further obstacle to deepening of knowledges and acquisition of strong expertise in any particular field. The project will therefore aim at strengthening human resource management in the public sector and develop those skills needed for more effective handling of key responsibilities (operating computerized information systems, transport economics and market mechanisms, regulations and legal aspects of concessioning, financial management, awareness of new transport technologies, trade logistics). 2. Content of the Bank financed technical assistance program (US$4.75 million) (a) Ad-hoc services for implementation of transport reforms: US$400,000. (b) Preparation of transport master plans for Tunis, Sfax and Sousse: US$1.5 million. (c) Technical assistance to development of a transport data base including provision of needed equipment: US$500,000. (d) Preparation of a national transport plan: US$2 million. (e) Expert services for improvement of human resources management at the ministry of transport and provision of training to its staff: US$350,000. 3. Other actions to be financed by Government sources (US$3.6 million) Another important objective of the project is to prevent growing air pollution by transport in traffic congested cities. As part of project preparation, a PHRD financed study designed a core network of 19 air quality monitoring stations covering six cities (Tunis, Sfax, Sousse, Bizerte, Gabes and Kairouan). The total capital cost involved has been estimated by the consultant as equivalent to US$3.6 million with the following breakdown: Page 33 US dollar thousands (a) 19 fixed monitoring stations: 2,000 (b) supporting equipment 1,300 (c) zero span checking system 175 gross sub-total 3,475 less: existing equipment 550 net sub-total 2,925 (d) laboratories, data centers, vehicles 430 (e) additional building at CITET 200 (f) additional parking at CITET 20 (g) buildings in Sfax and Sousse 50 Total capital cost: 3,625 The recommendations of the PHRD financed study which also includes phasing out of leaded gasoline consumption and the imposition of stricter anti-pollution norms for fuel and vehicle imports will be reviewed by GoT as a first step toward policy definition. Page 34 PHASE II OF THE PROGRAM Urban transport- USS37million (tentative cost of Phase 2) 5. Making better public transport available in major cities is the only way to contain the surge of private vehicle uses in cities that the rapidly rising motorization is bound to produce. Without good public transport, particularly for commuting between home and the work place, preventing urban traffic congestion will imply spending much more massively on infrastructure modernization and development. In addition, good and affordable public transport services is essential for the urban poor as it enhances chances to find and keep a job. At present, public transport is plagued by the underfunding of public service obligations: transport parastatals do not generate enough revenue to expand their services at the appropriate pace. The few private concessions of seat-only bus services that were authorized in Tunis operate at too small a scale to have an impact on the unsatisfied demand. Another weakness is the lack of coordination between transport modes operated by parastatals in Tunis. The light-rail system, the railways and the public bus company could reach higher operational efficiency by better coordinating their services. This latter issue is partly the result of an overly centralized system. 6. The strategy to make public transport more efficient is four-pronged. (a) A larger private sector participation in urban transport is desirable as a way to lift sector performance in terms of cost effectiveness and service quality. It will be sought through development of private concessions for seat-only bus services in major cities and contrating out of part of their transport services by the public bus companies. (b) Public enterprises will remain a major provider of mass transport services in a transition period that can span up to ten years: it is therefore critical that they be freed of excess costs related to maintenance deficiencies and a generally oversized labor force. (c) To become financially sustainable, urban transport must be filly funded. The project will help streamline the compensation systems and bring their level commensurate to costs incurred by the transport companies which also implies tapping to the extent possible sources other than the general government revenue. (d) Management of urban transport must be decentralized at local government level with participation by users and the community; at the same time, capacity building will have to provided so that the needed expertise and management tools become available locally. 7. Components currently envisaged for financing under the project are the following. (a) Severance payments (US$ 17million) About 1,100 staff would be declared redundant as part of a plan to improve productivity and financial viability of the public bus operations. These redundancies would be distributed among enterprises as follows: SNT: about 370 employees (out of a total staff of 4,800) SRTG:430 employees. SNTRI: 300 employees Page 35 (b) Construction of bus depots; construction and equipment of workshops (US$17 million). The former investments are needed as the bus fleet has expanded in late years and will continue growing as the Ninth Plan provides for substantial capacity investments designed to meet the objective of at least maintaining the public transport share of total urban traffic; the latter to be part of the bus depot complex will ensure a high availability rate of the bus fleet. (c) Financial support to sector (US$3 million). The assessment of technical assistance needs is still tentative. The project could finance the following: (a) feasibility studies for development of the Tunis light-rail system; (b) traffic surveys, development of preventive maintenance and training of the SNT staff. Technical assistance will likely be needed to facilitate the effective decentralization of urban transport management. Last, the technical assistance to sector management provided under phase 1 of the APL may have to be extended in selected areas to its phase 2. Proposed Milestones for triggering Phase Two of the APL The consideration of the second phase loan would be contingent upon satisfactory implementation of the agreed investment plan for transport over 1997-2001, and of the Program and the Project, with at least 50% of each of the project loans already committed. Other benchmarks are as follows: (a) for the sector: * transport investments as % of GDP: about 2.8%; * private sector share in sector investment: over 30%; * transport subsidies below 0.5% of GDP; * share of public sector in total transport service delivery in Tunis of about 55%; (b) for the ports and railways: * new port and railways regulations and legislation in place; * Restructuring of STAM and CTN completed; * budget support to the SNCFT less than 60% of revenues; (c) for urban transport: * financial restructuring of the public bus companies completed; * larger managerial autonomy granted to public bus companies, including the right to contract out lines or services, and establishment of a local management institution; * implementation of a system ensuring full compensation of public service obligations imposed by GoT on bus companies signed and establishment of new urban transport financing mechanisms; (d) for interurban transport: * a privatization plan has been approved for SNTRI and bids have been invited from private firms for concessioning of SNTRI lines representing no less than 50% of total trafic revenue; * an organization has been set up to regulate and monitor private concessions. Page 36 Annex 3 Transport Sector Project Estimated Project Costs Project Component Local Foreign Total 1- Bank Financed Components ---------------------US S million--------- A. Railway component I. Infrastructure improvements Ia) track doubling and modernization on the Tunis-Sousse line; 7.61 7.61 15.22 I b) track renewal on the intemational line to Algeria: Tunis-Ghardimaou 2.17 2.17 4.34 I c) upgrading of the workshops environment; 0.39 0.40 0.79 Id) road overpasses at Hamman Lif 2.03 2.03 4.06 2. Severance 15.79 0.00 15.79 3. Technical assistance and training 3a) MIS development along the new organization by line of business; 0.15 0.60 0.75 3b) technical assistance; 0.10 0.40 0.50 3c) training and study trips. 0.10 0.40 0.50 sub-total railways 28.34 13.61 41.95 B. Port component and tradefacilitation component 1. Infrastructure improvements: la) rehabilitation of commercial berths at Bizerte; 2.86 5.32 8.18 1 b) enhanced breakwater protection at Gabes; 1.41 2.63 4.04 Id) contruction of an oil jetty at Rades; 1.84 3.42 5.26 2. Technical assistance and studies: 2a) model-based study of breakwater works at Gabes; 0.09 0.36 0.45 2b) engineering study for the container terminal extension at Rades (BOT); 0.04 0.16 0.20 2c) financial and tariff restructuring study; 0.03 0.12 0.15 2d) training of OPNT staff; 0.02 0.08 0.10 sub-total port 6.29 12.09 18.38 C. Sector management component: a) Transport master plans for major cities; 0.27 1.12 1.39 b) Technical assistance to development of a transport data base; 0.09 0.37 0.46 c) National transport plan study; 0.35 1.49 1.84 d) Ad-hoc consulting services for implementation of reforms 0.11 0.26 0.37 e) T.A. to human resource management; training of the MT staff.; 0.07 0.26 0.33 sub-total sector management 0.89 3.50 4.39 Total Bank financed baseline costs 35.52 29.20 64.72 Physical contingencies 1.51 2.02 3.53 Price contingencies 2.37 2.21 4.58 Total Bank financed project costs 39.40 33.43 72.83 11- Components financed by the Governent A. Port studies 0.02 0.08 0.10 - feasibility studies ofthe oil jetty in Rades 0.04 0.15 0.19 - dumping sites for dredging materials sub total port studies 0.06 0.23 0.29 B. Trade facilitation - streamlining of customs procedures 0.05 0.50 0.55 - development of trade and port electronic interchange 0.30 1.20 1.50 - support to implementation of the new port legislation 0.10 0.30 0.40 - assistance to reorganization of cargo handling 0.05 0.20 0.25 - assistance to restructuring of port activities 0.05 0.20 0.25 - improvement of port statistics 0.01 0.09 0.10 -dissemination of modem trade logistics. 0.02 0.08 0.10 sub total trade facilitation 0.58 2.57 3.15 C. Development of pollution monitoring systems in major cities] 0.70 2.70 3.40 Total non Bank financed baseline costs 134 5.50 6.84 contingencies2 0.09 0.39 0.48 Total non Bank financed costs 1.43 5.89 7.32 Total project cost 40.83 39.32 80.15 Note Costs have been calculated using COSTAB except for non Bank financed components, the costs of which are still tentative. They include physical contingencies of 10% on infrastructure works and have been updated to account for inflation at the following rates: I) local: 3.8% in 1998 and 3.5% thereafter; 2) international: 1.9% from 1998 onward. This cost corresponds to development of the minimum network needed to have an impact. Financial contingencies only. They amount to 7% of baseline costs as for the Bank financed components. Page 37 Annex 4 Transport Sector Project Cost Benefit Analysis Summary 1- Track improvement on the Tunis-Sousse line (in million mid-1997 tunisian dinar) Present Value of Flows Fiscal Impact Economic Financial Analysis Analysis Taxes Subsidies Benefits: -savings on trend traffic 24.0 8.5 on sales -gains on diverted traffic 11.0 9.8 on input Costs: construction and 24.9 5.0 24.5 maintenance Net Benefits: 10.1 23.3 24.5 IRR: 13.8% Main Assumptions: The marginal costs of railway services would fall 30 percent after completion of works. Passenger traffic would increase by 25 percent and freight traffic by 17 percent after completion of works. Trend traffic for passengers would grow by 3.5 percent annually before-2001 and by 6 percent thereafter. For freight, the trend traffic would grow by 4 percent annually. Switching values of critical items: Investments would have to be 40 percent more expensive for the ERR to fall to a marginally acceptable 10 percent. Rail cost differentials would have to be reduced by 47 percent to bring the ERR down to 10 percent. Diverted freight and passenger traffic would have to be 15 percent of their best estimates to bring the ERR down to 10 percent. 2- Berth reconstruction at Bizerte (in million mid-1997 tunisian dinar) Present Value of Flows Fiscal Impact Economic Financial Analysis Analysis Taxes Subsidies Benefits: -on recaptured traffic 7.8 -on avoided traffic diversion 3.7 -avoided repairs and clearing 0.5 Costs: construction and maintenance 5.8 1.5 Net Benefits: 6.2 1.5 IRR: 19.8% Main Assumptions: The commercial quay is deteriorating fast and it is believed that it can collapse within 4 years. One of the berth has already been closed to traffic. Should the quay collapse, only one berth would be available in Bizerte; traffic to and from the Bizerte area (75% of total) would be diverted through Rades-La Goulette and travel by road or rail. The economic life of the rebuilt quays will be unaffected by construction of a new bridge. The reconstructed quay will allow recouping the unitized cargo from and to the Bizerte area that are currently routed through Tunis. Page 38 Switching values of critical items: Had the existing berth not collapsed before 2017, the ERR would still be equivalent to 13.5%. Only when a combined bridge and outer port solution becomes operational by 2006 (then ending the economic life of the rebuilt berth) is the ERR falling to 10%. 3- Railway staffseverance program (in million mid-1997 tunisian dinar) Present Value of Flows Fiscal Impact Economic Financial Analysis Analysis Taxes Subsidies Benefits: -cost savings for the railways 35.8 35.8 -production of re-hired staff 7.5 Costs: -payment of severance 13.8 13.8 -dependency costs 0.5 -training costs 0.2 1 1 1 _ Net Benefits: 28.8 13.8 35.80 IRR: 139%* I_I_I_ I the modified rate of return assuming reinvestment of annual benefits at 12% is 22% Main Assumptions: 1) A total of about 1,500 staff will be covered by the severance program of which 278 are "casual" workers in fact employed on a continuous basis to carry out track works. Based on the age group distribution of the SNCFT personnel and the experience of previous similar programs, about three-fourth of redundancies would involve staff more than 45 year-old. Such assumption implies that the program is largely about facilitating pre-retirement: 2) Younger workers affected who needs to be reemployed elsewhere to sustain themselves and their family are only few. The labor market is increasingly tight for workers with experience and the odds of their rehiring are rather good. The economic analysis assumes that less than 8% of the redundant railway staff, most of whom in the "casual" worker category, will remain unemployed. 3) The main economic benefits accrue to SNCFT. Cost savings will allow both to sustain remaining employment, maintain or expand market the railways market share, and finance needed investments to that effect. One could argue that the real beneficiary will in fact be the Government since keeping current staffing unchanged would force it to subsidize SNCFT indefinitely. Switching values of critical items: 1) Since the program will be financed by the Government, the public funds needed to make severance payments may be deemed to have a cost higher than their nominal value since their raising through tax and other means limits private consumption and investments. To reduce the modified ERR to 12%, the shadow cost of public funds (SCPF) would have to be increased by a factor of 3.2 which is unlikely in Tunisia. However, taking the stance that the real beneficiary of the program is the Government, the SCPF would then apply to cost savings also and, since they largely outweigh the severance payments, one would infer that the higher the SCPF, the higher the ERR). 2) The marginal output of rehired staff is of lesser importance in the result as many of the redundant staff would just retire. Even if all those in need of a new job would remain unemployed, the modified ERR would still be around 20%. 3) Should SNCFT be unable to sustain its operations despite cost savings generated by the severance program and forced to close its business, the benefits of the program would be short- lived. The modified ERR would be reduced to 12% if such closure would occur in 2008. Page 39 Annex 5 Transport Sector Project Procurement and Disbursement Arrangements Procurement methods 1. The proposed arrangements of procurement methods are presented in Table A. The procurement of civil works and goods will be carried out in accordance with the Bank procurement guidelines of January 1995, revised in January and August 1996, and September 1997. Civil works under the port component will all be procured under ICB. Civil works under the railway component corresponding to construction of the two road overpasses in Hamman Lif will be procured under International Competitive Bidding (ICB) using the Bank's standard bidding documents. National competitive bidding procedures, which were reviewed and found acceptable to the Bank, will apply to improvement of the workshop environment and civil works for modernization of stations and construction of the track base between Tunis and Sousse. Small works of less than US$50,000 per contract will be procured under national shopping procedures up to a maximum amount of US$300,000. Procurement of goods such as the ballast, turnouts, fasteners and other miscellaneous equipment for the Tunis-Sousse and Tunis- Ghardimaou modernization program will be procured under ICB. However, some of the components used to fasten rails, which are of semi-proprietary nature and can only be provided by a limited number of suppliers, will be procured under Limited International Bidding (LIB) up to a cumulative amount not exceeding US$2.5 million. International shopping procedures will apply to procurement of goodscosted US$50,000 or less per contract up to a cumulative amount of US$200,000. National shopping procedures will apply to procurement of goods costed US$10,000 or less per contract up to a cumulative amount of US$100,000. Consultants will be selected in accordance with the Bank's Guidelines for the Selection and Employment of Consultants dated January 1997 and revised in September 1997. Consultant activities relate to studies, short term expert advice and training. Only firms will beshortlisted. The selection will usually be based on quality and cost. However, contracts for technical feasibility studies for the port and the railway investments, which would cost US$100,000 per contract or less, will be awarded on a least- cost basis. Furthermore, the shortlist may be limited to local consultants for studies (a) on development of a transport database and on human resource management and training at the MT, costed at US$200,000 per contract, and (b) on environmental, technical and economic aspects of the railway investments, and on accounting and training development at SNCFT, costed at US$100,000 or less. Prior Review Threshold 2. All contracts for works exceeding US$500,000 and contracts for goods and equipment exceeding US$350,000 would be subject to prior review by the Bank. For consultant services, all contracts valued at US$100,000 and above, together with the terms of reference and the shortlist would also be subject to prior review. This provision would also apply to port feasibility studies, not financed by the Bank but which relate to investments that the Bank would finance. The expected number of contracts is relatively limited and the prior review of contracts for works, goods and consultant services would apply to at least 80 percent of the value of Bank financed procurement. The Bank's review process is presented in Table B. Disbursement 3. Loan proceeds will be disbursed against: (a) 60 percent of the cost of civil works; (b) for goods, 100 percent of foreign expenditures, 100 percent of local expenditures, ex- factory cost, and 80 percent of local expenditures for other items procured locally. Page 40 (c) 100 percent for consultants services and training. The proposed allocation of loan proceeds between categories is presented in Table C. 4. Disbursement will be made on the basis of Statements of Expenditures (SOEs) for civil works under contracts not exceeding US$500,000, goods under contracts not exceeding US$350,000, consulting services under contracts not exceeding US$100,000 and for training contracts not exceeding US$50,000. Severance payments will all be disbursed on the basis of SOEs. Supporting documents for SOEs will not be submitted to the Bank but will be retained by SNCFT and made available for review by Bank staff during supervision. The SOEs will be audited annually. Special account 5. To facilitate project implementation, a special account will be established at the Central Bank to facilitate disbursements of the loan to the Republic of Tunisia. The maximum authorized allocations will be equal to FRF12,000,000. This maximum amount will be reached when the aggregate amount of withdrawals from the loan account plus the total of outstanding special commitments are equal to FRF30,000,000. Retroactive financing 6. Eligible severance payments under the railway component could be financed by retroactive financing. Some 620 staff will be laid off by end of June 1998 and they are entitled to receive severance payments at the time they leave. Any delay would jeopardize the success of the overall severance program. The loan to the Republic of Tunisia may not be signed before the end of June, and the GoT cannot substitute its own resources for the Bank loan proceeds. Retroactive financing covers that risk. It was agreed during negotiations that the total amount of retroactive financing will not exceed 15 percent of the loan to the Republic of Tunisia, or FRF33,375,000 (US$5.5 million equivalent). Table A: Project Costs by Procurement Arrangements (in US$million equivalent) Expenditure Category Procurement Method Total Cost ICB NCB Other N.B.F (incl. cont) 1. Works (a) port rehabilitation & upgrading works 20.2 (12.1) 20.2 (12.1) (b) railway tracks & workshops 4.1 (2.4) 6.2 (3.7) 0.3 (0.2) 10.6 21.2 (6.3) 2. Goods (a) materials & equipment for the railways 3.3 (3.3) 1.0 (1.0) 2.8 (2.8)* 7.1 (7.1) 3. IBRD-fmanced technical assistance and training (a) port studies and training 0.9 (0.9) 0.9 (0.9) (b) SNCFT studies and training 1.9 (1.9) 1.9 (1.9) (c) sector management studies & training 4.9 (4.9) 4.9 (4.9) 4. Miscellaneous (a) severance for SNCFT 16.8 (16.8) 16.8 (16.8) 5. Non IBRD-financed components 0.3 6.9 7.2 Total 27.6 (17.8) 7.2 (4.7) 27.9 (27.5) 17.5 80.2 (50.0) Note: * LIB (Limited International Bidding): US$2.5 million maximum; international and national shopping: maximum US$300,000. N.B.F. = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan/IDA credit. Page 41 Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review 1. Works Port rehabilitation, track above US$ 3.0 m ICB above US$0.5 million works, facilities for land transport up to US$ 3.Om NCB above US$0.5 million up to US$50,000 National shopping none 2. Goods above US$350,000 ICB and LIB US$0.35million and above below US$350,000 NCB none below US$50,000 International shopping none below US$10,000 National shopping none 3. Services Consulting services, training US$100,000 and above Shortlisting (national and US$100,000 and above:Terms of international) reference, shortlist, letter of invitation, contracts below US$100,000 Shortlisting (national and none international) Page 42 Annex 5 (continued) Transport Sector Project Table Cl: Allocation of Loan Proceeds: OPNT Expenditure Category Amount in Financing Percentage US$million 1) Civil works 60% la- port rehabilitation and improvement 12.1 2) Technical assistance and training 100% 2a- financial and institutional studies 0.2 2b- port investrnent feasibility studies 0.6 2c- port training 0.1 Total 13.0 Table C2: Allocation of Loan Proceeds: Republic of Tunisia Expenditure Category Amount in Financing Percentage US$million A. Railway component 1) Civil works 6.4 60% 2) Goods 7.0 100% of foreign expenses; 100% of local expenses (ex-factory cost) and 80% of local expenses for other items procured locally 3) Technical assistance and training 3a- MIS development; 0.8 100% 3b- Training and study trips 1.1 100% 4) Severance payments 16.8 subtotal railways 32.1 B. Sector management component 1) Studies and expert services 4.8 100% 3) training 0.1 100% sub-total sector management 4.9 Grand total 37.0 Page 43 Annex 6 Transport Sector Project Documents in the Project File Transport strategy The Bank transport strategy for the Ninth Plan is spelled out in two reports: * Transport Strategy Study. Summary Grey Cover report Mr. 14846-TUN * Tunisie: "Etude sur la Strategie des Transports". 1997. Full report in French published in the MENA series. Sector issues and project rationale 1. Urban transport: note prepared by Claude Archambault Project costs Project costs have been calculated using the Bank Costab model. Economic analysis * Track doubling on the Tunis-Sousse line. * Reconstruction of the commercial quay at the port of Bizerte. * The staff severance program at SNCFT. Financial analysis * Financial evaluation of OPNT, the national port authority in Tunisia. * Financial evaluation of the railway company, SNCFT. * The macrofinancial picture: the transport sector net intake of budget funds. The Project Implementation Plan (PIP) A draft has been submitted in January 1998. Comments were made during the January-February 1998 mission. The PIP will be finalized at the time of negotiations. Preparation studies 2. A PHRD grant (US$870,000) was used to finance 8 preparation studies. These studies to eventually be part of the project file (the diagnosis report is already available only for the first two studies listed hereafter) are referenced as: (a) BCEOM. Study of sector's training needs (b) ICEA-Comete. Study of the transport concession frameworks (c) Systra. Study on the organization and coordination of urban transport. (d) GEM. Study on how to promote multimodal transport. Page 44 (e) GOPA: Study on transport user charges (f) CANAC. Study on the reorganization of phosphate rail traffic. (g) Systra. Study of little used passenger railway services 3. The French trust fund financed a study on the parking policy in Tunis. The report is already in the project file under the following reference: Patrick Carles: "Le stationnement a Tunis" - Rapport et annexe- SARECO - June 1997. 4. The French trust fund financed a study on the economic feasibility of railway passenger traffic on the Tunis-Gabes corridor: Systra: "Etude de la competitivite du transport ferroviaire voyageurs intervilles sur l'axe Tunis- Sousse-Gabes". Final report dated June 1996. 5. The French trust fund financed expert services to review the implications of the free-trade agreement between the European Union and Tunisia. The related report is referenced as follows: Ovadia Salama: "Note sur la comp6titivite des transporteurs tunisiens face aux mutations en cours du march6 international et, plus particulierement, du grand marche europeen" April 1995 - Organization and Development Associates. 6. The Dutch trust fund financed expert services to analyze the impacts of the growing motorization on the urban environment and proposed policy actions to achieve the objective of cleaner transport. Three reports have been submitted: MVA Consultants: Tunisia Transport Sector Investment Project. Diesel Related Particulate Pollution. November 1997. CHEM Systems. Pre-Feasibility Study Into Lead Phase Down in Tunisian Gasoline. November 1997. ERM Netherlands B.V.. Development of The Air Quality Monitoring Network in Tunisia. November 1997. Status of Bank Group Operations in Tunisia IBRD Loans and IDA Credits in the Operations Portfolio Difference Between expected Original Amount in US$ Millions and actual Loan or Fiscal disbursements a/ Project ID Credit Year Borrower Purpose No. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Number of Closed Loans/credits: 165 Active Loans TN-PE-5680 IBRD3782A GOVERNMENT/SONEDE WATER SUPPLY AND SEW 16.26 0.00 0.00 15,05 16,49 0.00 TN-PE-5680 IBRD37830 GOVERNMENT/SONEDE WATER SUPPLY AND SEW 29.00 0.00 0.00 21.56 16.49 0.00 TN-PE-5721 IBRD3661A GOVERNMENT AGRICULTURAL SEC INV 33.64 0.00 0.00 29.65 30.46 .60 TN-PE-5725 IBRD3601A GOVERNMENT SECOND FORESTRY 54.61 0.00 0.00 52.41 17.26 1.51 DEVELOPMENT TN-PE-5726 IBRD3456A GOVT. OF TUNISIA HIGHER EDUCATION 43.36 0.00 0.00 40.62 40.90 .30 TN-PE-5733 IBRD3691A GOVT. DEV.OF MTS NW REGION 13.90 0.00 1.50 12.13 3.16 0.00 TN-PE-5738 IBRD3308A GOV. OF TUNISIA HOSPITAL MGT. & FIN. 9.89 0.00 0.00 8.76 8.98 4.14 TN-PE-5743 IBRD3786A GOV. OF TUNISIA SECONDARY EDUCATION 56.98 0.00 0.00 54.19 30.28 0.00 TN-PE-5745 IBRD4036A GOVT. OF TUNISIA 2ND EMPL. & TRG. 57.66 0.00 0.00 56.41 8.66 0.00 TN-PE-5748 IBRD3671A RANKS OF TUNISIA PRIVATE INVESTMENT 10.36 0.00 0.00 9.73 1.00 0.00 TN-PE-5748 IBRD3673A BANKS OF TUNISIA PRIVATE INVESTMENT 9.35 0.00 0.00 4.01 1.00 0.00 TN-PE-5748 IBRD3674A BANKS OF TUNISIA PRIVATE INVESTMENT 2.28 0.00 0.00 1.80 1.00 0.00 TN-PE-5748 IBRD36770 BANKS OF TUNISIA PRIVATE INVESTMENT 10.00 0.00 0.00 .04 1.00 0.00 TN-PE-5748 IBRD36780 BANKS OF TUNISIA PRIVATE INVESTMENT 6.00 0.00 0.00 .19 1.00 0o00 r TN-PE-5749 IBRD3840A GOV'T OF TUNISIA RURAL ROADS 28.24 0.00 0.00 27.63 .29 0.00 go TN-PE-43700 IBRD43510 1998 GOVT OF TUNISIA TRANSPORT SECTOR INV 13.00 0.00 0.00 12.90 15.84 0.00 TN-PE-43700 IBRD43580 1996 GOVT OF TUNISIA TRANSPORT SECTOR INV 37.00 0.00 0.00 36.69 15.84 0.00 TN-PE-50418 IBRD42780 1998 ASIL 2 42.00 0.00 0.00 40.67 6.00 0.00 TN-PE-5741 IBRD42970 1998 GOV. OF TUNISIA HIGHER EDUC. II 80.00 0.00 0.00 78.52 0.00 0.00 TN-PE-5746 IBRD42940 1998 GOVT. OF TUNISIA HEALTH SECTOR LOAN 50.00 0.00 0.00 49.08 0.00 0.00 TN-PE-46832 IBRD42020 1997 CPSCL MUNICIPAL DEV. II 80.00 0.00 0.00 68.46 16.50 0.00 TN-PE-5731 IBRD41740 1997 GOV. OF TUNISIA GREATER TUNIS SEWER 10.00 0.00 0.00 9.40 0.00 0.00 TN-PE-5731 IBRD41750 1997 GOV. OF TUNISIA GREATER TUNIS SEWER 50.00 0.00 0.00 46.67 0.00 0.00 TN-PE-5736 IBRD41620 1997 GOV. OF TUNISIA NATURAL RESOURCE MGM 26.50 0.00 0.00 23.91 -.04 0.00 TN-PE-40208 IBRD40370 1996 GOT IND. SUPPORT INSTITU 38.70 0.00 0.00 31.91 6.03 0.00 TN-PE-5720 IBRD3892A 1995 BNA RURAL FINANCE 43.49 0.00 0.00 40.33 28.02 0,00 Total 852.22 0.00 1.50 772.72 266.16 6.55 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 50.05 3,192.04 3,242.09 of which has been repaid: .14 1,703.67 1,703.81 Total now held by IBRD and IDA: 850.59 1,493.50 2,344.09 Amount sold 0.00 39.56 39.56 Of which repaid : 0.00 39.56 39.56 Total Undisbursed 772.72 0.00 772.72 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590). Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system will be used (HS - highly Satisfactory, S - satisfactory, U = unsatisfactory, HU = highly unsatisfactory) : see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Note: Disbursement data is updated at the end of the first week of the month. Page 46 Annex 7 Tunisia STATEMENT OF IFC's Committed and Disbursed Portfolio As of 31 -Aug-98 (In US Dollar Millions) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1973/75 Sousse-Nord 0.00 .63 0.00 0.00 0.00 .63 0.00 0.00 1986/92198 SITEX 1.25 2.92 0.00 0.00 1.25 2.92 0.00 0.00 1991 SOMOTEX 2.81 0.00 0.00 0.00 2.81 0.00 0.00 0.00 1993 Ideal Sanitaire 0.00 1.02 0.00 0.00 0.00 1.02 0.00 0.00 1995 Maghreb IM Bank 0.00 .33 0.00 0.00 0.00 .33 0.00 0.00 1997 Aminex TUN 0.00 .61 0.00 0.00 0.00 .61 0.00 0.00 1998 BIAT 0.00 2.25 0.00 0.00 0.00 2.25 0.00 0.00 1998 Tuninvest 0.00 4.72 0.00 0.00 0.00 1.18 0.00 0.00 Total Portfolio: 4.06 12.48 0.00 0.00 4.06 8.94 0.00 0.00 Approvals Pending Commitment Loan Equity Quasi Partic 1998 BIAT 0.00 5.00 0.00 0.00 Total Pending Commitment: 0.00 5.00 0.00 0.00 Page 47 Annex 8 Tunisia at a glance 10/1/98 M. East Lower- POVERTY and SOCIAL & North middle- Tunisia Africa income Development diamond* 1997 Population, mid-year (millions) 9.3 283 2,285 I Life expectancy GNP per capita (Atlas method, USS) 2,090 2,060 1,230 GNP (Atlas method, USS billions) 19.4 583 2,818 Average annual growth, 1991-97 Population (Y%) 1.8 2.3 1.2 GNP Gross Labor force (%l) 3.0 3.2 1.3 per prmary Most recent estimate (latest year available, 1991-97) capita enrollment Poverty (% of population below national poverty line) Urban population (% of total population) 63 57 42 Life expectancy at birth (years) 70 67 69 Infant mortality (per 1,000 live births) 29 48 36 Child malnutrition (% of children under 5) 9 . .. Access to safe water Access to safe water (% of population) 99 71 84 Illiteracy (% of population age 15+) 33 39 19 Gross primary enrollment (% of school-age population) 116 97 1 Tunisia Male 119 102 116 Lower-middle-income group Female 112 91 113 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1996 1997 Economic ratios* GDP (US$ billions) 4.5 9.0 19.5 19.0 Gross domestic investmentVGDP 30.7 26.6 24.1 24.6 Trade Exports of goods and services/GDP 29.1 30.2 42.3 42.3 Gross domesticsavings/GDP 25.7 19.5 22.6 23.7 T Gross national savings/GDP 25.0 16.8 21.2 23.1 Current account balance/GDP -6.2 -7.8 -3.3 -4.0 Domestic Investment Interest payments/GDP 0.8 3.4 2.6 2.7 Savings Total debt/GDP 28.4 65.9 50.3 53.5 Total debt servicelexports 6.8 28.0 16.4 12.7 Present value of debt/GDP .. .. 46.0 Present value of debtexports .. .. 100.6 Indebtedness 1976-86 1987-97 1996 1997 1998-02 (average annual growth) GDP 4.6 4.3 7.0 5.4 5.1 Tunia GNP per capita 1.9 2.1 -0.5 9.7 3.4 Lower-middle-income group Exports of goods and services 3.5 5.3 -1.3 10.3 6.5 STRUCTURE of the ECONOMY 1976 1986 1996 1997 Growth rates of output and Investment ( (% of GOP) 3 Agriculture 17.8 13.0 13.7 13.3 30 Industry 25.2 30.5 28.5 27.4 20 Manufacturing 10.5 15.8 18.2 17.7 10- Services 57.1 56.5 57.8 59.4 - -10 92 0 9 Private consumption 59.1 62.7 61.1 60.5 -20 General govemment consumption 15.2 17.8 16.3 15.8 -GDI OGDP Imports of goods and services 34.0 37.3 43.8 43.2 1976-86 1987-97 1996 1997 Growth rates of exports and imports (%) (average annual grow/h) Agriculture 2.4 3.9 29.5 3.0 s T Industry 5.7 4.8 3.5 6.2 a +A Manufacturing 8.3 6.7 3.4 7.1 s Services 4.7 4.3 5.9 3.9 Private consumption 5.9 3.7 4.3 4.9 . 92 93 94 95 97 General govemment consumption 6.0 3.8 3.3 4.3 Gross domestic investment 2.1 6.4 9.8 10.4 10 Imports of goods and services, 4.4 5.0 -3.5 8.7 - Exports Olmports Gross national product 4.6 4.1 1.1 11.5 I Note: 1997 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Page 48 Annex 8 Tunisia PRICES and GOVERNMENT FINANCE o1976 1986 1996 1997 Infation (%) Domestic prices (% change) 101 Consumer prices 5.4 6.2 3.8 3.7 Implicit GDP deflator 2.9 3.5 4.3 4.7 Government finance 2 (% of GDP, includes current grants) | Current revenue .. 30.6 25.2 26.2 92 93 94 95 96 97 Current budget balance 5.8 4.1 3.5 -GOP deflator * CPI Overall surplusldeficit .. -5.4 -4.3 -3.8 j TRADE -- m1976 1986 1996 1997 Export and Import levels (US$ millions) (US$ millions) Total exports (fob) 789 1,768 5,519 6,087 10,000 Fuel 334 428 578 700 Cotton 35 132 183 331 7.500 Manufactures 359 1,175 4,695 4,460 * Total imports (cif) 1,531 2,901 7,749 8,423 s o 0 Food 189 361 628 722 2,5D0 Fuel and energy 170 252 647 581 Capital goods 489 636 1,562 1,645 0 91 92 93 94 Qs95 97 Exportprice index (1995= 100) .. 62 115 108 Importprice index (1995=100) .. 63 113 107 mExports !Imports Termsoftrade(1995=100) .. 97 101 101 BALANCE of PAYMENTS (US$ mnillions) 1976 1986 1996 1997 Current account balance to GDP ratio (%) Exports of goods and services 1,311 2,722 7,969 9,101 0 Imports of goods and services 1,533 3,364 8,297 9,642 Resource balance -222 -642 -328 -541 -2 Net income -192 -422 -1,134 -1,049 -4 Net current transfers 133 359 820 841 Current account balance -281 -705 -642 -749 Financing items (net) 262 513 951 1,040 Changes in net reserves 19 192 -309 -290 -10 Memo: Reserves including gold (US$ millions) .. 378 1,970 2,716 Conversion rate (DEC, local/US$) 0.4 0.8 1.0 1.1 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1996 1997 (US$ millions) Total debt outstanding and disbursed 1,279 5,943 9,821 10,151 IBRD 128 789 1,610 1,434 G:1,165 A:14A34 IDA 64 64 47 45 Total debt service 100 876 1,466 1,277 Co positic on- 45 n IBRD 18 137 303 275 IDA 1 1 2 2 Composition of net resource flows F: 2,537 Official grants 44 69 140 65 D:1,920 Official creditors 131 180 104 151 Private creditors 49 117 377 294 Foreign direct investment 110 63 238 306 Portfolio equity 0 0 0 0 E: 2,877 World Bank program Commitments 65 184 174 167 A - IBRD E - Bilateral Disbursements 34 171 202 127 a - IDA D- Other mutUlateral F - Private Principal repayments 9 78 190 175 C-IMF G - Short-term Net flows 25 93 12 -48 ------ Interest payments 10 61 116 103 Net transfers 16 33 -103 -151 Development Economics 10t1198 IBRD 2961t0 - - -: ~ ~ ~ ~ ~ ~ ~~~ ~ ~ ~~~- , : -, I-- _--- . 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