world bank document · 2016. 7. 13. · yash pal kedia, task team leader and gualberto lima-campos,...

Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No. 19305-MOZ

vIPLEMENTATION COMPLETION REPORT

REPUBLIC OF MOZAMBIQUE

MAPUTO CORRIDOR REVITALIZATION (TECHMCAL ASSISTANCE) PROJECT

(Credit 2454-MOZ)

June 28, 1999

Transport IEastern and Southern Africa Region

This document has a restricted distribution and may be used by recipients only in the performanc4of their official duties. Its contents may not be disclosed without World Bank authorization.

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CURRENCY EQUIVALENT

Monetary unit = Metical (NT)

(MT/US$, period average)

1992 1993 1994 1 1995 1 1996 1997 19982,516.5 3,874.2 6,038.6 9,024.3 11,293.8 11,543.6 12,180.0

Source: International Financial Statistics, IMF.

WEIGHTS AND MEASURESMetric System

FISCAL YEAR OF BORROWERJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

CAS = Country Assistance StrategyCFM = Caminhos de Ferro de MocambiqueCFM(S) = Caminhos de Ferro de Mocambique (Sul)ESRP = Economic and Social Rehabilitation ProgramGOM = Government of MozambiqueGSA = Government of South AfricaIDA = International Development AssociationMCRP = Maputo Corridor Revitalization (Technical Assistance) ProjectMOP = Memorandum of the PresidentMoU = Memoranda of UnderstandingMTC = Ministry of Transport and CommunicationsMPF = Ministry of Planning and FinancePPF = Project Preparation FacilityRPRP = Railways and Ports Restructuring ProjectTA = Technical AssistanceTEU = Twenty-Foot Equivalent Unit (= 20-foot container)ODA = Overseas Development AdministrationUSAID = United States Agency for International Development

Vice President: Mr. Callisto E. MadavoCountry Director: Ms. Phyllis R. PomerantzTechnical Manager: Mr. Yusupha B. CrookesTask Team Leader: Mr. Yash P. Kedia

FOR OFFICIAL USE ONLY

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF MOZAMIBIQUE

MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT(CREDIT 2454-MOZ)

Page No.PREFACE

Table of ContentsEVALUATION SUMMARY. i

PART I - PROJECT IMPLEMENTATION ASSESSMENT ....................................... I

A. Background ................................................................. 1B. Project Objectives ............................................................... 2C. Achievement of Project Objectives . ................................................................ 3D. Major Factors Affecting the Project ................................................................. 9E. Project Sustainability ................................................................ 10F. Bank Performance ................................................................ 10G. Borrower Performance . 11H. Assessment of Outcome ............................................................... 11I. Future Operations ............................................................... 12J. Key Lessons Learned ................................................................ 12

PART II - STATISTICAL TABLES ............................................................... 13

TABLE 1: Summary of Assessments ............................................................... 14TABLE 2: Related IDA Credits ........................ ....................................... 15TABLE 3: Project Timetable ............................................................... 16TABLE 4: Credit Disbursements: Cumulative Estimated and Actual ............ ............... 16TABLE 5: Key Indicators for Project Implementation ............................ .................... 16TABLE 6: Key Indicators for Project Operation .......................................................... 16TABLE 7: Studies Included in the Project ............................................................... 17TABLE 8: Project Costs ............................................................... 18TABLE 9: Project Financing ............................................................... 18TABLE 10: Economic Costs and Benefits ............................................................... 18TABLE 11: Status of Legal Covenants in Credit Agreement . ......................................... 19TABLE 12: Bank Resources: Staff Inputs ............................................................... 20TABLE 13: Bank Resources: Missions ............................................. .................. 21

Annex 1: ICR Mission Aide Memoires ............................................................... 22Annex 2: Borrower Contribution to the ICR ............................................................... 35

MAP: IBRD No. 30307

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.




PREFACE

This is the Implementation Completion Report (ICR) for the Maputo CorridorRevitalization (Technical Assistance) Project, for which Credit 2454-MOZ in the amountof SDR 6.6 million (US$9.3 million equivalent) was approved on January 19,1993 signedon February 12, 1993 and made effective on September 27, 1993.

The Credit was closed on December 31,1998 one year later than the originalclosing date. The final transaction took place on March 16, 1999 at which time a balanceof SDR 2.5 million was canceled.

Yash Pal Kedia, Task Team Leader and Gualberto Lima-Campos, Consultantprepared the ICR. Preparation of the ICR started during the Bank's final supervisionmission on January 1998 and the implementation completion mission on November 1998.The report is essentially based on material in the project file and data provided by theGovernment of Mozambique. The Borrower contributed to the preparation of this ICRand prepared its own evaluation of the project's execution. The report is included asAnnex 2 to the ICR.




EVALUATION SUMMARY

INTRODUCTION

(i) The revitalization of Mozambique's three main port-railway systems, (Nacala,Beira and Maputo) was made a key element of the Government of Mozambique's (GOM)Economic and Social Rehabilitation Program (ESRP), formulated immediately after thesigning of the peace agreement in 1992. At the request of GOM, the Bank agreed tosupport GOM's plans to revitalize the Maputo port-railway system through the MaputoCorridor Revitalization Project (MCRP) as a first step towards revitalizing all the mainports and railways systems in Mozambique. The Development Credit Agreement forMCRP was signed on February 12, 1993 and the Credit became effective onSeptember 27, 1993.

(ii) The main Project objective was to assist the Government of Mozambique (GOM)in identifying and implementing strategies that would lead to the long-term viability ofthe Maputo port-railway system. The strategy proposed during the Project preparation toachieve the long-term viability objective comprised two key elements: (a) Government'sdivestiture of direct involvement in the management and operation of those transportfacilities in the corridor on the most commercially advantageous terms and establishmentof an appropriate regulatory framework to regulate such divestiture; and (b) staffrationalization comprising retrenchment of staff considered surplus and laborredeployment measures to adequately cushion them against the impact of loss ofemployment.

(iii) A subsidiary and related objective of the Project was to assist the Government inimplementing actions to enhance the performance of the Maputo port-railway system inthe interim, i.e., until the concessioning of the system. Two key actions were identifiedas: (a) a diagnostic study to enable CFM to evaluate its past performance, resources,commercial strategies, managerial and technical capabilities, and market and financialprospects; and (b) physical inputs in the form of critical equipment in order to relievebottlenecks in the container terminal operations and to strengthen communications withthe systems in the neighboring countries. During implementation developing consensusand commitment in favor of concessioning emerged also as an interim objective.

(iv) The Project objectives were fully consistent with the Government's priorities andwere very explicit in the Memorandum of the President (MOP) for the MCRP. Theobjectives also supported IDA's country assistance strategy at the time of appraisal.

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IMPLEMENTATION EXPERIENCE AND RESULTS

(v) The Project is assessed as satisfactory.

(vi) The Project implementation helped develop a consensus and commitment in favorof the concessioning within GOM. During the Project's preparation and implementation,the Bank staff held substantial and fruitful discussions with the Government and CFMofficials on adopting the concessioning option, which would offer all the advantages ofprivate participation in the operation and management of the ports and railways whileallowing GOM to retain their ownership.

(vii) The concessioning process was substantially achieved. The process initiated bythe Government in the divestiture of direct involvement in the management and operationof transport facilities in the corridor is considerably advanced and is likely to becompleted by the end of 1999. Three port terminals have been concessioned, a jointventure with a private partner has been created to manage the Container Terminal; andMemoranda of Understanding (MoU) for the master concession of the Port of Maputo,and the rail network package comprising the Limpopo rail link, the Goba rail link, theMarshaling yard and the Railway Workshop have been signed with different privateconsortia. In addition, GOM is in the process of developing an alternative option for theconcession of the Ressano Garcia railway line subsequent to the failure of negotiationswith a potential concessionaire.

(viii) Even though no progress was made in the retrenchment of surplus staff due tocancellation of the USAID grant, a comprehensive staff rationalization plan for theredundant work force was finalized and formally communicated to the Bank. This plan isscheduled to be implemented under the proposed Railways and Ports RestructuringProject (RPRP).

(ix) CFM's operational and financial performance showed a modest improvement.The performance of the Maputo port and railway system has improved since 1994 interms of the traffic carried as well as reduction in the overall yearly financial losses. Theequipment for the container terminal was also successfully commissioned, contributingdecisively to the elimination of bottlenecks.

(x) Additionally, there were two key outcomes that were not fully anticipated at thetime of project finalization, viz., building of capacity within CFM and GOM formanaging the concessioning process, and a great boost to the inflow of capital for theoverall development of the Maputo Corridor, including construction works on a cross-border toll road, a US$1.4 billion aluminum smelter, two new power lines and numeroussmaller projects such as manufacturing and service establishments, housing, offices,hotels, leisure facilities, shopping centers and casinos.

(xi) Even so, the Project suffered from delays during the early stages ofimplementation, poor response from the potential bidders, and lengthy negotiations.First, GOM officials were in general cautious in accepting the idea of privatizing portsand railways as they viewed these as a strategically important geo-political asset forMozambique. It was only through a continuous and persistent dialogue between the Bank

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and GOM that a decision in favor of concessions was finally made. Second the decision-making process was slow and the concerned Ministers were not always aware of thediscussions and recommendations. It was only after a high-level committee comprisingthe Ministers of Transport and Communications and Planning and Finance wasestablished that the pace of decision-making process accelerated. Third, USAIDcancelled the Grant Agreement for the labor retrenchment and redeployment componentand as a result, the staff rationalization plan could not be implemented. Finally, therelations between the consultants engaged to provide investment and advisory servicesand GOM/CFM officials remained indifferent and acrimonious resulting in prolongeddiscussions, disagreements, and loss of time.

(xii) The Bank's identification was highly satisfactory since the introduction of theidea of private participation in the management and operations of ports and railwaysunder MCRP was a path-breaking concept. Through the identification process, the Bankwas able to convince the Government of the need to look at a radically different strategicapproach to the ports and railways systems. This approach ran counter to the prevailingorthodoxy both inside and outside the Bank, which characterized the railways and portsas strategic or patrimonial assets that needed to be managed wholly within the publicsector. The potential impact of this concept is now fully appreciated. The Bank'spreparation and appraisal was satisfactory. The Bank's supervision was satisfactory asthe Bank kept up a close monitoring of the Project and maintained a continuous andpersistent dialogue with the Borrower on the advantages of involving the private sectoron the management of port facilities which was crucial for Government acceptance of theidea of concessioning the corridor facilities. The Borrower's performance was overallsatisfactory as regards project identification, preparation and implementation.

(xiii) The sustainability is likely for two reasons: (a) because the agreements andcontracts that define the concessions and other forms of private participation in theoperation and management of the railways and ports are legally-binding on both theconcessionaires and the Government, compliance is expected to be far better than onecould expect in the past from similar agreements between the Government and thepublicly-managed entities; and (b) the Project has helped establish a strategic directionfor the whole port and railway sub-sectors in the country. The forthcoming Railways andPorts Restructuring Project (scheduled for Board presentation in FY2000) is designed todeal comprehensively with issues of concessioning of all remaining railway and portsystems including what is remaining to be concessioned under the Maputo port-railwaysystem, staff rationalization, regulatory framework, and the corporate restructuring ofCFM itself. As a result, not only would the restructuring/concessioning becomeprogressively irreversible, appropriate institutional arrangements would have been madeto deal with any problems between the concessionaires and the Government.

FUTURE OPERATIONS AND KEY LESSONS LEARNED

(xiv) The RPRP was negotiated in May 1999 and the Credit is likely to be approved bythe Board in early FY2000. The Project will aim at addressing all issues pertaining to theconcessioning of all the ports and railways in the country and restructuring of CFM in acomprehensive manner. The main objective of RPRP will be to substantially increase theoperating efficiency of the three major port-rail systems in Mozambique and enable them

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to capture the maximum possible share of the available freight traffic, mostly theexport/import traffic from the neighboring countries.

(xv) The following lessons can be learned from the Maputo Corridor Revitalization(Technical Assistance) Project:

(a) Developing genuine ownership of a dramatic shift in business and politicalstrategy, as in the privatization program in this case, is a complex process.Although the main objective of the MCRP focused on the divestiture of theGovernment's involvement in the management and operation of the corridorfacilities, there was no clear indication of Project ownership when the Projectstarted to be implemented since most GOM officials were reluctant aboutprivatization of corridor facilities. The Project proved to be an effective toolin establishing continuous, persistent, and intensive dialogue between theBank and the borrower leading to government's full commitment to theProject objectives.

(b) Committees comprising lower-ranking officials without adequate authority arenot adequate in advancing a process as complex as the one involvingconcessioning. The establishment of a High-Level Committee comprisingMinisters having adequate decision-making power proved critical inaccelerating the decision-making process and in contributing to theachievement of the Project objectives.

(c) While undertaking concessioning or privatization of a complex railway and/orport system, it would be a better idea to commence the concessioning processwith one or two key components of the system and to use the lessons toimprove the process for the rest of the system. The concessioning of theMaputo Corridor has offered many experiences that have made or areexpected to continue to make the concessioning of the other Mozambiquecorridors less time-consuming and more efficient and effective.




PART I - PROJECT IMPLEMENTATIONASSESSMENT

A. BACKGROUND

1. Until 1975, Mozambique's three main port-railway systems, Nacala, Beira andMaputo, carried most of the overseas traffic of the neighboring land-locked countries,viz., Malawi, Zimbabwe, Swaziland, as well as the north-eastern provinces of SouthAfrica. The income from the regional overseas traffic (about US$250.0 million attoday's prices at its peak) financed most of the large structural deficit in the country'sbalance of trade. However, after independence in 1975, this traffic declinedprecipitously, from about 18.0 million tons in 1973 to about 1.6 million tons in 1991, dueto the violent internal conflict and the consequent damage to the transport infrastructure,disruption of transport operations, and the massive exodus of the managerial class, aswell as the weakening of the structure of economic incentives and management in thecountry.

2. Recognizing the potential of the port-railway systems in Mozambique ingenerating foreign exchange and accelerating the country's economic growth, therehabilitation and revitalization of these systems were made key elements of theGovernment of Mozambique's (GOM) Economic and Social Rehabilitation Program(ESRP), formulated immediately after the signing of the peace agreement in 1992. At therequest of GOM, the Bank agreed to support GOM's plans to revitalize the Maputo port-railway system through the Maputo Corridor Revitalization Project (MCRP) as a firststep towards improving the performance Mozambique's major railway and port systems.The Project was the second intervention by the Bank in the railways and port sub-sectorsin Mozambique. The first intervention was in the Beira port-railway system and its focuswas on increasing operating efficiency of the system through technical assistance,training, and investments in operating assets to bridge capacity gaps in the system. Whilethe main objective of MCRP was about the same, the focus was on institutional changeincluding substantial private participation in the operation and management of theMaputo port-railway system.

3 . The initial revitalization effort was restricted to the Maputo port-railway systemand was not extended to all the ports and railways in Mozambique with a view tocontaining the risk of failure. The choice of Maputo as a pilot instead of Beira or Nacalawas made for two reasons. First the strategic calculations at that time was that a delay inthe taking up of the revitalization of the Maputo port-railway system might havetriggered investments in the competing ports of Durban and Richards Bay, thus reducing

-2 -

the opportunity for the port of Maputo to ever increase its market share of theinternational traffic from the neighboring countries, particularly the north-eastern regionof South Africa. Second the demonstration effect of revitalization would have beenmuch greater in the case of Maputo because of the large volume of traffic handled by thesystem and the potential market of the system when compared to Beira and Nacala.

B. PROJECT OBJECTIVES

4. The main Project objective was to assist the Government of Mozambique (GOM)in identifying and implementing strategies that would lead to the long-term viability ofthe Maputo port-railway system, a key objective of the Government in the transportsector. The strategy proposed during the Project preparation to achieve the key sectoralcomprised two key elements: (a) Government's divestiture' of direct involvement in themanagement and operation of transport facilities in the corridor on the mostcommercially advantageous terms and establishment of an appropriate regulatoryframework to regulate such divestiture; and (b) staff rationalization comprisingretrenchment of staff considered surplus and labor redeployment measures to adequatelycushion them against the impact of loss of employment2 . Being dependent on thesuccessful implementation of the divestiture and staff rationalization strategy, theachievement of the main objective of long-term viability was not expected during thelifetime of the Project. Therefore, concessioning and staff rationalization wereconsidered as surrogate objectives for the purpose of evaluation.

5. A subsidiary and related objective of the Project was to assist the Government inimplementing actions to enhance the performance of the Maputo port-railway system inthe interim, i.e., until the concessioning of the system. Two key actions were identifiedas: (a) a diagnostic study to enable CFM to evaluate its past performance, resources,commercial strategies, managerial and technical capabilities, and market and financialprospects; and (b) the physical inputs in the form of critical equipment in order to relievebottlenecks in the container terminal operations and to strengthen communications withthe systems in the neighboring countries.

6. Even though experience everywhere else had revealed the inadequacy of thepublicly-managed railways to respond effectively to the changing business environmentand market competition, the majority of GOM and CFM officials, like everyone else inthe region, were highly skeptical of any strategy involving divestiture and privatemanagement and operations. In particular, CFM felt that a phase of internal restructuringand commercialization of ports and railways should precede any privatization effort. Toprovide comfort to GOM/CFM and some donor agencies, who were also skeptical of theconcessioning option and favored some other forms of public-private partnerships, thestrategy was appropriately modified to provide for a study to identify the right optionafter evaluating various options for the restructuring and/or privatization of the Maputo

Since divestiture was to be achieved through award of concessions to private operators/groups, divestiture andconcessioning have been used interchangeably in the text ahead.

2 The severance payments were proposed to be financed through a separate USAID program of providing budgetarysupport to the Govermment, for which USAI) had allocated close to US$30 million and this aspect is not discussedin this report.

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port-railway system. It could be argued that, in the face of GOM's weak commitment, itwas probably advisable not to go ahead with the Project. On the other hand, it was feltthat a consensus and commitment in favor of divestiture could be built more quickly andmore convincingly through the Project, rather than by maintaining a dialogue outside ofthe Project. Finally, it was agreed to go ahead with the Project and the development of aconsensus and commitment in favor of divestiture also emerged as a key element ofProject strategy and as an interim objective.

7. The Project objectives were fully consistent with the Government's ESRP. Theywere also in confonnity with the Government's priorities as expressed by the Minister ofFinance in a Letter of Development Policy dated April 30, 1992 addressed to thePresident of the World Bank, i.e., "... continuing the establishment of an appropriatebusiness environment by enhancingprivate sector-based growth throughrestructuring/privatizing large state enterprises... and rehabilitating the economic andsocial infrastructure." The Project objectives were very explicit in the Memorandum ofthe President (MOP) for the MCRP. The objectives also supported IDA's countryassistance strategy at the time of appraisal, as stated in the Bank's Country AssistanceStrategy (CAS) of 1992 and articulated in the MOP for the Economic Recovery Program(Cr. 23 84-MOZ) "to establish an economic environment conducive to economic growth... and support the rehabilitation of key economic and social infrastructure. The overallapproach is to strengthen key institutions, policies andfunctions in a way that will beconducive to increased productivity ofpublic resources, enhancedprivate sector growthand reduced poverty... Our operations would support the rehabilitation of keyinfrastructure, restructuring andprivatization ofstate enterprises...

8. The Project was estimated to cost a total of US$10.5 million. IDA's contribution,SDR 6.6 million (US$9.3 million equivalent), represented 89% of the initial Project cost.Cofinancing by the United States Agency for International Development (USAID), theOverseas Development Administration of UK (ODA) and GOM was initially indicated asUS$0.6 million (6%), US$0.1 million (1%), and US$0.5 million (5%). The final Projectcost was US$5.9 million, 56% of initial estimate, since USAID cancelled its contributionand about 35% of the IDA Credit was not utilized.

C. ACHEEVEMENT OF PROJECT OBJECTIVES

9. The objectives of the MCRP were to a large extent achieved and the Project isoverall rated as satisfactory. Achievement of the various objectives is discussed in thefollowing paragraphs.

C.1 Consensus and Commitment-Building

10. This interim objective of consensus and commitment-building in favor ofconcessioning (as discussed in paragraph 6) was substantially achieved. The three maintransport corridors have always occupied an important position in the economy andpolitical history of Mozambique and are viewed as a strategically important geo-politicalasset in the Region. A consequence of this history has been the political concern aboutkeeping the ownership of the corridors' infrastructure and other long-lived assets in thehands of the state in order to guard them against their use in ways inconsistent with

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perceived Mozambican national interests. During the Project's preparation andimplementation, the Bank staff held substantial and fruitful discussions with Governmentand CFM officials on adopting the concessioning option, which would offer all theadvantages of private participation in the operation and management of the ports andrailways while allowing GOM to retain their ownership. Even so, GOM remainedcautious and took considerable time to finally take a decision in favor of concessioning in1996.

11. The following also helped in building consensus and commitment-building infavor of concessioning: (a) study tours by key CFM and GOM officials to Brazil,Argentina, USA, and UK, where railway and port concessioning/privatization had madesubstantial headway and had met with considerable success in terms of increased traffic,lowering of tariffs, increased quality of service, and lowering of fiscal burden on theirrespective governments; (b) exposure of CFM/GOM staff to the Policy Options Seminarorganized by the Southern African Transport and Communications Commission(SATCC) in 1996; (c) the Options Study report, which unequivocally recommendedconcessioning of the ports and railways; and (d) macro-economic dialogue between theBank and GOM, which highlighted the role of privatization in accelerating the country'seconomic growth.

C.2 Concessioning

12. This objective of concessioning (as discussed in paragraph 4) was substantiallyachieved. The concessioning of Maputo port and railway facilities is still not completed,but the concessioning process has advanced to an extent so as to make the award ofconcessions an almost certainty. The current concessioning status is as follows: (i) threeport terminals (Sugar, Citrus, and Matola Coal) have been concessioned, with the graphillustrating how traffic increased in the three port terminals after they were concessioned

Port Terminals Traffic

- +Coal Terminal -U-Citrus Terminal -- Sugar Terminal

900

800 -700-600-

o 500 400-

300-

200-100

1992 1993 1994 1995 1996 1997Year

in 1995; (ii) a joint venture with a private partner has been created to manage theContainer Terminal; (iii) Memoranda of Understanding (MoU) for the masterconcessions for of the Port of Maputo and the rail network package comprising theLimpopo rail link, the Goba rail link, the Marshaling yard, and the Railway Workshophave been signed with different private consortia; and (iv) GOM is in the process of

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developing an alternative option for the concession of the Ressano Garcia railway linesubsequent to the failure of the negotiations with a potential concessionaire.

13. MoUs for the master concessions were expected to be followed by identificationof staff and operating assets to be taken over by the MOU signatories and signing offormal concession agreements between CFM and the identified concessionaires.However, some differences appear to have emerged on the final terms of the concessionagreements. The main reasons for these differences are embedded in the overallcomplexity of concessioning the ports and railways in general and the Maputo port-railway system in particular. The concessioning of the Maputo port-railway systememerged as particularly complex due to: (a) its connection to three neighboring countrieswith different and often conflicting business interests and operating requirements; (b) ahigh degree of perceived risk of operating within Mozambique; (c) an uncertainty aboutthe future of the railway systems in the neighboring countries; and (d) a considerabledifference between the country and the potential bidders with regard to the expectationsfrom the concession. It is possible that the on-going negotiations with the preferredbidders may take some more time to finalize or may even fail necessitatingcommencement of negotiations with the next preferred bidder, but given the fundamentalviability of the Maputo port-railway system and the commitment and capability of theborrower, the successful outcome of the process is not in doubt. Further developments inthis regard are proposed to be monitored through the proposed follow-on Railways andPorts Restructuring Project (RPRP), which has already been negotiated between IDA andGOM.

14. Three main interventions, designed to help GOM in achieving the concessioningobjective, comprised: (i) Investment and Advisory Services including a diagnostic study;(ii) Legal Framework Study; and (iii) Environment Analytical Study.

15. The Investment and Advisory Services comprised three phases. The first phase,comprising a diagnostic study of the Maputo port-railway system, led to recommen-dations for the improvement of the financial and operational performance of the Maputoport-railway system as well as traffic and financial projections. The second phase,comprising a privatization options study, led to the adoption of the concessioning optionsubsequent to the identification and evaluation of various options. The third phasecomprised investment and advisory services for assisting GOM in implementing theagreed concessioning option including, inter alia, the preparation of the biddingdocuments and tender rules, the evaluation of the proposals received from potentialconcessionaires, negotiations with the preferred bidders, and the finalization of theconcession agreements. These services were provided mainly by one consultant but anumber of short-term consultants were also engaged for specific tasks and for providingsecond opinions on key issues. Almost all phases of the advisory services were markedby indifferent and somewhat acrimonious relations between GOM/CFM officials and themain consultants. As a result, only phase two and part of phase three could be consideredas satisfactory. Even so, the final result turned out to be satisfactory due tosupplementary inputs of short-term consultants.

16. The Legal Framework Study reviewed the existing legal framework govemingconcessions of ports and railways. The study recommendations were useful in clarifying

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the legal authority of CFM in awarding concessions and the role of a future regulatorybody. The recommendations of the study could not be implemented as the scope of thestudy was restricted to the Maputo Corridor and subsequent discussions favored aregulatory framework encompassing the whole transport sector, the studies for which arescheduled to be undertaken under the proposed follow-on Project. The study alsoresulted in enhancing the government's awareness of the issues pertaining to theregulatory framework

17. Under ODA financing, a consultant carried out a Study on EnvironmentalAnalytical Study. A draft version of the report was submitted to GOM, which CFM(S)reviewed and commented. The recommendations of the study were expected to lead toagreements on the liability of the potential concessionaires with regard to environmentalmanagement. However, at Project closing, the consultant had not yet submitted to GOMthe report's final version. In the meantime, GOM had taken the decision ofconcessioning all corridor facilities and it became necessary to enlarge the scope of theenvironmental study to cover the whole CFM network of ports and railways. Acomprehensive environment audit has since been completed.

C.3 Staff Rationalization

18. This objective of staff rationalization (as discussed in paragraph 4) was partiallyachieved. Staff rationalization was considered critical to the successful concessioning ofthe Maputo port-railway system as well as for the improvement of its operational andfinancial performance. USAID had agreed to the financing of this component under adifferent program to the extent of US$30.0 million. This financing was conditional onprogress being made towards restructuring of CFM and the privatization of railways andports. Delay in the decision for concessioning/restructuring and change in USAIDpriorities, however, led to cancellation of the grant. Subsequently, after the Governmenthad taken a firm decision on concessioning, a comprehensive staff rationalization plan forthe redundant work force was prepared and communicated to the Bank. This Plan isscheduled to be implemented under the proposed RPRP.

C.4 Interim Performance

19. Diagnostic Study. The study was satisfactorily completed. One of the key tasksundertaken by the main consultants engaged to provide advisory services was anoperations' diagnostic study leading to recommendations for improvement of CFM'sperformance. The diagnostic study covered all rail and port functions - operations,marketing, maintenance and finance. However, the consultants' recommendations werenot initially well received by CFM. Subsequent discussions did lead to some refinementand agreement, but CFM remained somewhat skeptical. Even so, some recommendationswere implemented while some others were implemented after appropriate modificationby CFM. As a result, CFM's performance has shown a modest improvement asillustrated in the table below. It is clear that the study with its analysis, identification ofthe causes of poor performance, and recommended actions did make a difference, thoughthe overall impact was much lower than expected. However, major improvements areexpected only after the entire concessioning process of ports and railways is completed.

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Item Unit 1993 1994 1995 1996 1997 1998(*)Rail Total Freight Traffic Million Tons 3.1 2.6 3.1 4.1 3.8 4.1Rail International Freight Million Tons 2.2 2.2 2.8 3.6 3.2 3.3Port Total Freight Traffic Million Port Tons 6.6 6.5 7.5 8.4 9.0 7.6Port Transit Freight Traffic Million Port Tons 5.9 6.1 7.1 6.9 7.2 5.6Operating Ratio Percentage 180 176 150DeficitlRevenue Percentage 80 77 50

(*) First 10 months

20. Asset Revaluation. The Project also funded studies to revalue and reconcile CFMassets in order for CFM to complete the accounts and have them audited. Currently,there are no outstanding audit reports. However, in spite of substantial efforts andimprovements, the intemal controls still need strengthening. In addition, although notinitially foreseen, the Project financed Technical Assistance (TA) to support CFM'sfinancial management through the contracting of a long term consultant. Overall, this TAhad a positive impact on CFM performance in particular through an upgrading offinancial and managerial skills and the adoption of new organizational procedures.

21. Physical Inputs. The Project financed the acquisition of US$ 1.1 million inequipment for the port container terminal: two forklifts, three trailers, three tugmastersand diversified spare parts. The commissioning of the equipment in 1996 along with thetransfer of the management to a private sector-led joint venture company had aremarkable impact on the terminal performance as illustrated by the graph below. Theport container terminal traffic, which reached its lower level of 5,800 TEUS in 1995,

Container Tenninal Traffic

40

C

°030 -

20

*10

0

1992 1993 1994 1995 1996 1997 1998 1999 2000Est Est.

Year

steadily started to increase after 1996. It is currently in the region of 19,000 TEUS andestimated to increase to 30,000 TEUS by 2000, which will represent more than 400%increase as compared to 1995 traffic. The value of the equipment acquired under Projectfunding was agreed as CFM's minority equity share in the new company.

C.5 Unanticipated Outcomes

22. The project implementation produced two important unanticipated outcomes:(i) the building of capacity for managing the concession process; and (ii) the launching ofinitiatives for the development of the Maputo Corridor.

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23. The project implementation resulted in an extensive build-up of capacityregarding the management of the concession process. The Inter-agency committeecomprising representatives of CFM and different Ministries including MCT, took intenseinterest in all aspects of the concessioning process, i.e., preparation of biddingdocuments, financial modeling and ascertaining the value of concessions, evaluation ofproposals, negotiations, and writing concession agreements. This exposure along withthe study tours, the continuous dialogue with the Bank and the potential concessionaires,and the monitoring of the various port terminals already operating under concessions,helped GOM to enhance its knowledge and confidence in dealing with concessioningissues. At the final stages of the process, GOM was conducting negotiations almost byitself with the assistance of a few individual consultants and developing its own strategiesfor the concessioning of the other port-railway systems. The capacity-building has takenplace to the extent that CFM does not find the need for outside assistance except for somespecific legal and financial aspects. In addition, the experience gained by GOM andCFM through the Maputo Corridor concessioning process would enable theconcessioning of the other port-railway systems, viz., Nacala and Beira to beaccomplished more speedily and more satisfactorily.

24. Maputo Corridor Development After the 1994 political change in South Africa,the Project became the core element in a joint effort of GOM and the Government ofSouth Africa (GSA) to promote broad regional development along the Maputo Corridorbased on revitalization of the transport links. The Maputo Corridor initiative wasformally enacted in 1995 by a bilateral Agreement for the Co-ordination of the MaputoInvestment Corridorwhich laid down the following major objectives: (i) to implementkey upgrading of existing, and provision of new, transport links within the Corridor inpartnership with the private sector; (ii) to promote establishment of industry andutilization of the natural resources within the Corridor; (iii) to enhance socialadvancement, especially that of disadvantaged groups; and (iv) to ensure environmentalsustainability of Corridor development. The Agreement, followed in 1996 by aninvestors' conference, sparked a number of major investment initiatives. Constructionworks on a cross-border toll road, linking Witbank (Northern South Africa) to Maputo,and designed to complement the rail/port rehabilitation, commenced in mid-1998. AUS$1.4 billion aluminum smelter, the biggest private-sector project to date inMozambique, was launched as first major industrial activity. Two new power lines beingbuilt will supply electricity from South Africa for aluminum production as well as for theMaputo metropolitan area. An iron/steel project, designed to be the first major user ofMozambican gas, is under preparation, with construction start expected for 2001. At thesame time, numerous smaller projects along the corridor are being implemented and/oron the drawing board, including manufacturing and service establishments, housing,offices, hotels, leisure facilities, shopping centers and casinos. These smallerdevelopments are driven by the expectations created by the Corridor initiative, a gradualimprovement of cross-border movements, and the already noticeable economic spill-overeffects of the first large investments. Cross-border cooperation has also commenced atprovincial and municipal levels, and efforts are under way to improve the institutionaland planning framework to facilitate the achievement of integrated development on bothsides of the Corridor.

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D. MAJOR FAcToRs AFFECTING THE PROJECT

25. As indicated in Section C, the outcomes of the Project have been consideredsatisfactory in spite of the Project being complex and unsupported by any previousexperience or lessons in privatization/concessioning of railways. Even so, the Projectsuffered from delays during the initial period of consensus building, poor response fromthe potential bidders, and lengthy negotiations and the closing date had to be extendedonce for a year. The factors within the Government's control that affected the Projectadversely include: (a) GOM's cautious approach to concessioning; (b) ineffectivedecision-making process in the early stages of project implementation; and(c) inadequate pre-qualification process. The factors outside the GOM's control thataffected the Project include: (i) the cancellation of the USAID grant; and (ii) inadequacyand inexperience of the consultants providing advisory services.

D.1 Factors within Government Control

26. GOM's Cautious Approach. GOM officials were in general cautious inaccepting the idea of privatizing ports and railways as they viewed these as a strategicallyimportant geo-political asset for Mozambique. As a result, GOM officials and theconsultants providing Investment and Financial Advisory Services ended up with verydetailed, and sometimes heated, discussions on the restructuring options. This led tosome delay in decision in favor of concessioning. In addition, limited capacity of GOMin carrying out procurement activities and preparing terms of reference also contributedto initial delay in engaging the consultants. It was only through a continuous andpersistent dialogue between the Bank and GOM that a decision in favor of concessionwas finally made.

27. Slow Decision-Making Process. In order to coordinate Project implementation,GOM established an Inter-agency committee with representatives of CFM and differentMinistries including MTC and MPF. Although the Inter-agency committee metregularly, it had limited decision-making power. The decision-making process was slowand the concerned Ministers were not always aware of the discussions andrecommendations. It was only after a high-level committee comprising the Ministers ofTransport and Communications and Planning and Finance was established that the paceof decision-making process accelerated.

D.2 Factors Outside Government Control

28. Cancellation of the USAID Grant. Cancellation of the USAID grant affected theimplementation of the Labor Redeployment Strategy Component. USAID had preparedthe Component and agreed to its financing but later cancelled the Grant Agreement on thegrounds that the grant was dormant and the restructuring of the CFM was moving tooslow. As a result, the preparation of the staff rationalization plan could not beimplemented. In the meantime, the Bank agreed to the financing of this activity underthe proposed RPRP. At Project closing, the preparation of the staff rationalization planfor the redundant work force was completed and its implementation was awaiting theapproval of RPRP.

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29. Inadequacy of Consultants. The consultants engaged to provide investment andadvisory services did not turn out to be experienced, failed to grasp the complexity of theassignment, and did not field competent staff for the purpose. During discussions ontheir recommendations, they adopted a defensive attitude, which led to a progressivelyincreasing confrontation between the Inter-agency committee and the consultants. As aresult, the effectiveness of the consultants was adversely affected and the projectimplementation was delayed. GOM finally decided not to use the consultants for theevaluation of the proposals received by them and subsequent negotiations.

E. PROJECT SUSTAINABIIrTY

30. Sustainability is likely. By involving the private sector through long-termconcession agreements or joint venture companies and implementing a staffrationalization plan the Maputo Corridor System facilities are likely to becomefinancially self-sustaining. In addition, the RPRP, which has already been negotiated andis likely to be approved by the Board in early FY2000, will assure continuity inimplementing the concessions of port and railway facilities and complement therestructuring of CFM. Moreover, the implementation of the regulatory framework to beprocessed under RPRP is expected to be instrumental in addressing any post privatizationissues during the long period of the concession.

F. BANK PERFORMANCE

31. The Bank's identification was highly satisfactory. The introduction of the idea ofprivate participation in the management and operations of ports and railways underMCRP was in reality a path-breaking concept. Even though this concept has now beenrecognized as the real key to the long-term ports and railways, it was not a part of theBank Project portfolio in the early 90's. Moreover, the concept was introduced at a timewhen both GOM and the donor community were highly skeptical. The potential impactof this concept is now fully appreciated.

32. The Bank's preparation and appraisal were satisfactory. Project identification andpreparation started in September 1991, appraisal took place in March 1992, negotiationswere conducted in November 1992 and the Board approved the Credit in February 1993.About 18 months elapsed between identification and Board presentation, which can becompared very favorably with the average time spent for Project preparation in Sub-Saharan Africa of 38 months at that time. From Identification to Effectiveness about 69staff-weeks were spent which also compares very favorably with the average staff-weeksspent on Project preparation in Sub-Saharan Africa of 125 staff-weeks at that time.

33. The Bank's supervision performance was satisfactory. Regular supervisionmissions took place, comprising a total of 69 staff weeks. During supervision the Bankkept up a close monitoring of the Project and maintained a continuous and persistentdialogue with the Borrower on the advantages of involving the private sector on themanagement of port facilities which was crucial for Govermnent acceptance of the ideaof concessioning the corridor facilities. In addition, when it became clear that GOMwould not be able to provide counterpart funds, the Bank promptly agreed to amend DCAto increase to 100% the expenditures to be financed.

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34. The Project closing date, initially set at December 31, 1997 was extended for oneyear to facilitate implementation of the privatization/concession process. The Project wasfinally closed on December 31, 1998. At Project closing, cumulative creditdisbursements had only reached 62% of the total credit amount in particular because thecost of advisory services turned out to be much lower than estimated and the US$2.1allocated to contingencies was not used. A balance of SDR 2.5 million was cancelled onMarch 16,1999.

G. BORROWER PERFORMANCE

35. The Borrower's perfonnance was satisfactory as regards project identification andpreparation. It participated fully in discussions concerning Project componentidentification. Negotiations took place in November 1992. The Borrower met allconditions of negotiations on time. However, the deadline for Credit effectiveness wasextended once to allow the Borrower to meet the required conditions. Signed onFebruary 12, 1993, and planned to be effective on May 31, 1993, the Credit becameeffective only on September 27, 1993.

36. The Project was implemented by the Ministry of Transport and Communications(MTC) with the assistance of an Inter-agency committee. The Borrower's performanceduring Project implementation was overall satisfactory. However, Project ownership wasdifficult to achieve and implementation was slow in the beginning because GOM andCFM were initially reluctant to the idea of privatizing corridor facilities. The pace ofimplementation improved, nevertheless, after GOM took a firm decision in favor ofconcessioning.

H. ASSESSMENT OF OUTCOME

37. The outcome of the Project is assessed as satisfactory since both the main and thesubsidiary objectives have been achieved to a large extent. First, the process initiated bythe Government in the divestiture of direct involvement in the management and operationof transport facilities in the corridor has almost been completed and, subject tosuccessful negotiations, concessioning of the port of Maputo and the connecting railwaynetwork is likely to be completed by the end of 1999. Secorld even though no progresswas made in the retrenchment of surplus staff due to cancellation of the USAID grant, acomprehensive staff rationalization plan for the redundant work force was finalized andformally communicated to the Bank. This plan is scheduled to be implemented under theproposed RPRP. Third, the performance of the Maputo port and railway system hasimproved since 1994 in terms of the traffic carried as well as reduction in the overallyearly financial losses. Finally, the equipment for the container terminal was alsosuccessfully commissioned, contributing decisively to the elimination of bottlenecks andto the subsequent privatization. Additionally, there were two key outcomes that were notfully anticipated at the time of project finalization, viz., building of capacity within CFMand GOM for managing the concessioning process, and a great boost to the inflow ofcapital for the overall development of the Maputo Corridor.

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1. FUTURE OPERATIONS

38. In May 1997, the Bank started discussions with the Borrower on the identificationof the RPRP. The Project was negotiated in May 1999 and is likely to be approved bythe Board in early FY2000. The Project will aim at addressing all issues pertaining to theport and railway sub-sectors and restructuring CFM in a comprehensive manner. Themain objective of RPRP will be to substantially increase the operating efficiency of thethree major port-rail systems in Mozambique and enable them to increase the marketshare of the international freight traffic. This should enable: (i) the concessioned portsand railways to become financially self-sustaining as a result of substantial increase inrevenues and cost reductions; (ii) CFM to increase its earnings from concession/leasingfees and pay dividends to GOM after meeting its expenses and its liability for long-terminfrastructure replacement; (iii) the neighboring countries to reduce the surface costs oftheir exports and imports as a result of increased use of shorter routes, increasedefficiency of operations, and use of railways in preference to roads; and (iv)Mozambique to generate more foreign exchange as a result of the neighboring countriesbeing required to pay in foreign exchange for the use of rail and port facilities inMozambique.

J. KEY LESSONS LEARNED

39. The following lessons can be learned from the Maputo Corridor Revitalization(Technical Assistance) Project:

i) Developing genuine ownership of a dramatic shift in business and politicalstrategy, as in the privatization program in this case, is a complex process.Although the main objective of the MCRP focused on the divestiture of theGovernment's involvement in the management and operation of the corridorfacilities, there was no clear indication of Project ownership when the Projectstarted to be implemented since most GOM officials were reluctant aboutprivatization of corridor facilities. The Project proved to be an effective tool inestablishing continuous, persistent, and intensive dialogue between the Bank andthe borrower leading to government's full commitment to the Project objectives.

ii) Committees comprising officials without adequate authority are not helpful inadvancing a process as complex as one involving concessioning. Theestablishment of a High-Level Committee comprising ministers having adequatedecision-making power proved critical in accelerating the decision-makingprocess and in contributing to the achievement of the Project objectives.

iii) While undertaking concessioning or privatization of a complex railwayand/or port system, it would be better to commence the concessioning processwith one or two key components of the system and to use the lessons to improvethe process for the rest of the system. The concessioning of the Maputo Corridorhas offered many experiences that are expected to make the concessioning of theother Mozambique corridors less time-consuming and more efficient andeffective.

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PART I - STATISTICAL ANNEXES

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Table 1: Summary of Assessments

A. Achievement of Objectives NotSubstantial Partial Negligible Applicable

Macro policies x

Sector policies xFinancial objectives _ x

Institutional development: _

Consensus and Comitment Building x

Concessioning x

Staff Redeployement x

Physical objectives x .

Poverty reduction xGender issues x

Other social objectives _ xEnvironmental objectives xPublic sector management _ xPrivate sector development x

Operation Effciency Improvement x

B. Project Sustainability Likely j Unlikely Uncertain

C. Bank Performance Highly

Satisfactory Satisfactory Deficient

Identification xPreparation Assistance x

Appraisal x

Supervision x

D. Borrower Performance Highly

Satisfactory Satisfactory Deficient

Identification x

Preparation Assistance xAppraisal x

Supervision x

E. Assessment of Outcome Highly Satisfactory Unsatisfactory HighlySatisfactory Unsatisfactory

x

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Table 2: Related IDA Credits

Year ofCredit Title Purpose Approval Status

Preceding Operations

Beira Transport To assist the Government to rehabilitate 1989 CompletedCorridor Project and upgrade the Beira Tansport Corridor(Cr. 2065-MOZ) in order to restore its cost efficient

transit funtions.

Following Operations

First Roads and Coastal To develop the institutional capacity 1992 ActiveShipping Project of the road sector agencies and(Cr. 2374-MOZ) implementing policy reforms in the

trucking and coastal shippingsub-sectors.

Second Roads and Coastal To improve road transport by 1994 ActiveShipping Project rehabilitating priority roads and by(Cr. 2599-MOZ) resuming regular maintenance activities

and strengthening the capacity of theroad sector.

Railway and Port To substantially increase the operating 1999 UnderRestructuring Project efficiency of the three major port-rail (scheduled) preparation(MZ-PE-42039) systems in Mozambique and enable them

to increase its share of the availablefreight traffic, mostly the export/importtraffic from the neighboring countries.

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Table 3: Project Timetable

Steps in project cycle Date planned Date actual

Identification (Executive Project Summary)Preparation September 1991 September 1991Appraisal March 1992 March 1, 1992Negotiations November 9, 1992 November 16, 1993Board Presentation October 15, 1992 January 19, 1993Signing February 12, 1993Effectiveness May 31, 1993 September 27, 1993Midterm ReviewProject Completion December 31, 1997 December 31, 1998Loan/Credit Closing June 30, 1998 March 16, 1999

Table 4: Credit Disbursements: Cumulative Estimated and Actual(US$ million)

FY93 FY94 FY95 FY96 FY97 FY98 FY99AppraisalEstimate 0.5 0.6 0.9 1.2 2.8 9.2 9.3

Actual 0.6 2.5 4.8 5.6 5.8Actual as %of Estimate 0% 0% 67% 208% 171% 61% 62%

Date of Final Transaction: March 16, 1999

Table 5: Key Indicators for Project Implementation

Not applicable.

Table 6: Key Indicators for Project Operation

Not applicable.

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Table 7: Studies Included in Project

Study Purpose as defined at Status Impact of StudyAppraisal/Redefined

Investment and To evaluate past performance, resources, Completed CFM is implementingFinancial and the scope for improvements in studyAdvisory Services operating efficiency of the system as well recommendations

as the means through which improvementscould be achieved.

Environmental To review the existing standards of DraftAnalysis occupational Report

health and safety and pollution abatement Completedgoverning port and railway operations, torecommend the standarts to be compliedwith and to assess the investmentrequirements to comply with.

Labor Redeployment To prepare detailed options for the CanceledStrategy redeployement of surplus staff.

Revaluation of Fixed To revaluate CFM fixed assets Completed CFM fixed assetsAssets revaluated

Legal Framework To update and streamline the existing Completed StudyStudy legal framework governing concessions recommendations

of public service adopted

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Table 8: Project Costs(US$ million)

Project Components Appraisal Estimates ActualLocal Foreign Total Local Foreign Total

1 Investment Advisory Services 0.7 5.0 5.7 0.1 4.4 4.5

2 Legal Advisory Services 0.1 0.6 0.7 0.0 0.1 0.13 Enviromnental Analysis 0.0 0.1 0.1 0.0 0.1 0.1

4 Labor Redeployment Strategy 0.2 0.4 0.6 0.0 0.0 0.05 Port Handling & Communications 0.0 1.2 1.2 0.0 1.1 1.1

Equipment

6 Audits 0.0 0.1 0.17 Contingencies 0.2 2.0 2.2 0.0

Total 1.2 9.3 10.5 0.1 4.6 5.9

Table 9: Project Financing(US$ million)

Source Appraisal Estimates Actual

Local Foreign Total Local Foreign Total

IDA Credit 0.5 8.8 9.3 0.1 5.7 5.8

ODA 0.1 0.1 0.0 0.1 0.1

USAID 0.2 0.4 0.6 0.0 0.0 0.0

Government 0.5 0.5 0.0 0.0 0.0

Total 1.2 9.3 10.5 0.1 5.8 5.9

Table 10: Economic Costs and Benefits

Not applicable

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Table 11: Status of Legal Covenants in Credit Agreement

Covenant Fulfillment Description ofSection Type Status Date Covenant Comments

3.04 (a) M NC CFM to submit to IDA on a Consultants were appointed toquartly basis, a summary of undertake comprehensiveadministrative, financial and studies with regard to thetechnical measures taken to performance of CFM South,remove any impediments to including the containercarry out its action plan to terminal. However before theachieve the projections of action plans could beoperating performance and monitored, the containermaintenance activity in the terminal was concessioned.container terminal.

3.04 (b) M NC CFM to submit to the IDA on a The Borrower was not insemianual basis, a multi-year positon to prepare such a plan.investment plan for the Maputo As such the terms of referenceCorridor of the main diagnostic study

included the preparation of theinvestment plan. Since theGovernment had no funds, thedecision was taken toconcession the whole Corridor.

3.04 (c) M CD CFM to submit to IDA on a CFM accounts were in totalanual basis, an audit report on disarray, in particular theCFM's consolidated annual Capital Assets. The creditaccounts. financed consultants to

reconcile and revalue the assetto enable CFM to complete theaccounts and get them audited.At the closing date, the auditsaccounts for 1994, 1995 and1996 had been received andthose for 1997 were ready.

3.05 M C The borrower to prepare andsubmit to IDA quarterlyprogress reports.

3.06 M NC The Borrower to carry out No need of carrying out a mid-jointly with IDA a mid-term term review.review.

4.01 F C For all withdrals for the Credit No audit reports areAccount the Borrower to outstanding.maintain records and accountsand have them audited andsubmit audit to IDA.

Key to Covenant Type Key to Covenant Status

F = Financial C = Covenant complied with CP = Complied with partiallyM = Management CD = Complied with after delay NC = Not complied with

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Table 12: Bank Resources: Staff Inputs

Stage Planned Revised Actual

Project Cycle Weeks US$ '000 Weeks US$ '000 Weeks US$ '000

Through Appraisal 40.1 70.8

Appraisal-Board 9.7 23.1

Board-Effectiveness 19.2 33.0

Supervision 69.3 186.1

Completion 9.5 18.1 9.5 18.1 9.5 18.1

Total - - - - 147.8 331.1

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Table 13: Bank Resources: Missions

Stage of Monthl Number Days Specialized Staff Performance Rating Types ofProject Cycle Year of in skills Implement. Developmen Problems

Persons Field represented Status Objectives

Through AppraisalIdentificationPreparationPre-appraisal

Appraisal throughBoard ApprovalAppraisalPost-AppraisalPre-Board

Pre-effectivenessSupervision

Supevision 1 Apr-93 1 10 00 2 1Supervision 2 Feb-94 2 5 00, FA 2 1Supervision 3 Apr-95 1 10 RE s sSupervision 4 Dec-95 2 9 RE, FA S SSupervision 5 Jul-96 1 8 RE s sSupervision 6 Oct-96 2 10 RE, PE s S PPSupervision 7 Dec-96 1 8 RE s s PPSupervision 8 May-97 2 10 RE, FS S S PPSupervision 9 Jul-97 3 8 RE, PE, TE s SSupervision 10 Oct-97 6 8 RE, PE, TE, FA, PS S SSupervision I1 Jan-98 2 9 RE, TE s S

Completion Nov-98 1 10 CO S S

Key to specialized staff skillsFA = Financial Analyst 00 = Operations Officer PE = Port EngineerPSS = Private Sector Specialist RE = Railway Engineer TE = Transport Econonist

Key to Performance ratingI = Problem Free 2 = Moderate Problems 3 = Major Problems 4 = Major Problems. Corrective

action to be takenHS = Highly Satisfactory S = Satisfactory U Unsatisfactory HU = Highly Unsatisfactory

Key to ProblemsAF = Availability of Funds PMP = Project Management Perfoxmance SP = Study ProgressCLC = Compliance with Legal Covenants PP = Procurement Progress TP = Training ProgressFP = Financial Performance TAP = Technical Assistance Progress

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ANNEX I

AIDE-MEMOIRES

This section includes two Aide Memoires focusing respectively on: (i) the actionsto be taken by the Borrower in terms of completing their own part of the ImplementationCompletion Report (ICR) (Attachment 1); and (ii) the design of the follow-on Railwaysand Ports Restructuring Project to serve as the operational plan for the Maputo CorridorRevitalization Project (MCRP) (Attachment 2).

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ATTACHMENT 1

MOZAM:BIQUE

MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT

(Credit 2454-MOZ)

WORLD BANK MISSON - NOVEMBER 1998

AIDE MEMOIRE

A World Bank mission comprising Gualberto Lima-Campos, consultant, was inMaputo from November 16 to 24 to collect information for the preparation of the MaputoCorridor Revitalization (Technical Assistance) Project (Credit 2454-MOZ)Implementation Completion Report (ICR). The mission would like to thank theGovernment for their cordial reception and assistance. A list of people met is attached.

Most of the necessary economic/financial data and institutional informationregarding project implementation and operation results were collected. Furthermore, asneeded, additional information would eventually be required to complete the report.

The Bank expects to receive the Borrower's own evaluation report on the projectby February 28, 1999. This report will be added unedited to the ICR. If the report islonger than ten pages, a summary should be attached. The report should include: anassessment of the project objectives, design, implementation, and operation experience;an evaluation of the borrower's own performance during the evolution andimplementation of the project, with special emphasis on lessons learned that may berelevant in the future; and an evaluation of the performance of the Bank and any co-financiers during the evolution and implementation of the project.

In addition, the evaluation report prepared by the Bank, consisting of an analyticalassessment and statistical tables, will be sent to the Borrower for comments, if any. TheBank will then consider to incorporate these comments.

The final ICR, which will include the Bank's and the Borrower's contributions,will be published before June 30, 1999 and will be sent to the Borrower and theconcerned donors.

Maputo, November 24, 1999

Gualberto Lima-Campos

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LIST OF PERSONS MET

Anibal Portimao Secretario Geral, Ministerio dos Tranportes e Comunicacoes

Oscar Diniz Administrador para a Area Financeira, CFM

Anibal Laice Director de Engenharia e Aprovisionamento, CFM

Alberto Elias Chefe Gabinete de Projectos, CFM

Arun Pai Acessor Financeiro, CFM

Gabriela Filipe Departamento de Financas, CFM

Delfmo Aleluia Departamento de Arquitetura e Planeamento Fisico, CFM

David Cotty Director, Mozambique Intemational Port Services

Anna Bewes ODA

Luis Santos USAID

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ATTACHMENT 2

MOZAMBIQUE

RAIL AND PORT RESTRUCTURING PROJECT (RPRP)PRE-APPRAISAL MISSION

DECEMBER 1998

AIDE MEMOIRE

1. This Aide-Memoire summarizes the principal findings, conclusions, andagreements arrived at during a comprehensive discussion held between December 7 to10, 1998 at the World Bank headquarters between a Mozambican delegation led byMr. Rui Fonseca, the President and Chairman of CFM and the World Bank team led byMr. Yash Pal Kedia (Team Leader/Sr. Railway Engineer). The members of theMozambican delegation and the World Bank team are listed atAppendix 1.

2. The main objective of the discussion was to review the progress of preparation ofRPRP, reconfirm the timing for appraisal (January 1999), and identify actions still to betaken prior to appraisal. The discussions revealed that the various components of theProject have been prepared and the Project is ready for appraisal. The few tasks thatremain to be completed were identified during the discussions and are expected to becompleted by the proposed date of appraisal, i.e., January 18, 1999. The followingparagraphs indicate the current status of preparation, the actions to be taken prior toappraisal, and the level and type of assistance required for the various Projectcomponents.

Concessioning of Port-Rail Systems

3. Current Status. The current status of concessioning of the various port and railfacilities is as follows:

a) For CFM (S), the Government of Mozambique (GOM) has signedMemoranda of Understanding with (i) Consorcio 2000 for the concession ofthe Limpopo and Goba rail links, Marshaling yard, and the workshop; and(ii) Maputo Harbour Consortium for the master concession of the port ofMaputo and the coal terminal at Matola. Negotiations with Transnet for theconcession of the Ressano-Garcia rail link might be canceled on the basis ofthe last offer made by Transnet, which was considered unsatisfactory. In caseof failure and to remedy the situation, CFM has already started withdeveloping an alternative option.

b) For CFM (N), a proposal for the port of Nacala and the linking rail systemwas submitted by a consortium of rail and port business groups on a solesource basis in May 1998, and after evaluation the first round of negotiations

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was conducted in November 1998. The second round of negotiations isscheduled for January 20, 1999.

c) For CFM (C), concessions have been awarded for the operations andmanagement of the container and general cargo terminals, as also a coldstorage terminal. Additionally, ajoint venture between CFM and privatepartners has been established to develop a grain handling terminal. CFM hasapproached a number of private partners with respect to concessioning of themarine services. So far, the interest demonstrated has not been sufficient toproceed with either a competitive bid or a sole source contract.

d) CFM's Chairman and President informed the Bank that CFM intends toconcession the Machipanda line together with the Sena Line, in order tofacilitate the mobilization of capital for rehabilitation of the latter. Since theplans for the different commercial projects linked to Sena are quite advanced,preparation of the Machipanda/Sena concessioning project is being pursuedactively and it is planned as a target to start re-construction of Sena line byJune 1999.

4. Actions prior to Appraisal. It was agreed that CFM will:

a) Prepare a plan and time schedule of how to proceed with the concessioning ofthe Ressano Garcia line.

b) Prepare a contingency plan and time schedule for the case the currentnegotiations on the concession of the Nacala port/rail system cannot beconcluded successfully.

c) Prepare a plan and time schedule for concessioning of the Machipanda/Senarail lines and the Beira marine services. Should CFM wish the Bank's supportfor investments in the Machipanda/Sena lines, Cuamba-Lichinga line etc.,these would be considered in the context of a separate project.

d) The delegation expressed the concern related to key structural reformssuggested under the Highly Indebted Poor Countries (HIPC) Initiative forconcluding the concessioning of the ports and railways by June 1999. Thedelegation expressed that, while CFM is actively pursuing the process ofconcessioning, given the complexity of the concessioning process, CFM is notin a position to commit itself to sign all the MOUs and concession agreementsby June 30, 1999. In view of this concem, it was agreed that the Bank teamwill intemally clarify the interpretration of the monitoring indicators withregard to the concessioning of CFM ports and railways as indicated under theHIPC Initiative.

5. Assistance under the Project. A sum of US$1.0 million has already been allocatedunder PPF.

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Staff Rationalization

6, Current Status. CFM has a permanent staff strength of 18,818 of which 15,248have joined before 1.1.1989 and 3,570 after 1.1.89. Further, there are 3,052 staff incasual permanent category. The estimated staff requirements are 8,171 thus leaving asurplus of 13,699. Two types of compensation packages have been designed and alreadyagreed with the Unions - one for staff joining before 1.1.89, and the second for staffjoining thereafter.

a) Packagesforstaffjoiningbefore 1.1.89

* Normal retirement cases as of 31.12.98 -ffmancial incentive of 6months salary.

* Early retirement cases - (i) financial incentive of 6 months salary, and(ii) complementary pension equal to difference between pensionpayable by MPF and pension calculated as per formula presented byCFM. In case the pension fund is not established in time, thecomplementary pension would be paid either as lump sum or ininstallments not exceeding the project implementation period.

b) Packages for staffjoining after 1.1.89, andfor casualpermanent staff

financial incentive of 6 months salary; andD six months salary for every two years service.

c) Alternate package

a For staff choosing not to opt for the designated packages, a secondalternative would be offered, which is payment of 80% of the lastsalary drawn up to a maximum of 5 years. The monthly paymentwould be made until either (i) he/she gets a job, or (ii) he/she is offereda job by CFM.

d) Staff availing of above packages would not be re-employed by CFM

7. Actions prior to Appraisal

a) Distribution of 13,699 surplus staff under normal retirement, early retirementand compensation categories, and computation of respective monetaryamounts of packages.

b) Clarification from MPF on the commitment to pay any difference in pensionderived from CFM salaries.

c) Clear understanding on discount rate and mortality tables proposed to beutilized to compute present value of pension if lump sum or installmentpayments are chosen.

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8. Assistance under the Project. While the normal pension obligations would beassumed by the MPF, the extra benefits listed above would be covered under the project.The current estimate for the total amount of these packages - on a NPV basis - is US$40million.

Pension Fund

9. Current Status. The consultant has presented a draft report, which does not addressthe main issues of the design of the pension fund, and the initial amount required to startthe fund.

10. Actions prior to Appraisal. The contracted consultant should commit to completethe assignment as described in the terms of reference by January 8, 1999.

11. Assistance under the Project. Any assistance required would depend on theconclusions of the consultant's assignment. For the surplus staff, the option of a lumpsum payment or payments in several installments over the project period would beconsidered if the pension fund is not established in time. For existing staff, the currentcontributions to the MPF state pension scheme would continue to be deducted until thepension fund is established or a different scheme implemented.

Staff, Retrenchment, Redeployment and Social Mitigation

12. Current Status. The following is envisaged:

a) A technical unit in CFM in charge of all aspects of staff retrenchment andredeployment, such as counseling, employment services, training, smallenterprise promotion, agriculture and extension services assistance. The unitwould comprise of a unit head, a social scientist, a psychologist, 2 economists,2 engineers, and one administrative accountant, and a few field counselors.The unit is envisaged for a period of 5 years, and initial contracts would be for2 years for the key members.

b) Pilot projects comprising of 10-15 staff would be designed and initiated, andthe investment financed on a credit basis up to a maximum of US$100,000 perproject. The priority areas for these projects are expected to be in agriculture,small-scale agro-industry, and small-scale construction units.

c) Tailor-made programs for training would need to be designed. Appropriateoptions would be determined including the use of existing training institutionsin Mozambique and distance learning.

13. Actions prior to Appraisal

a) Proposal for selection of consultants to:

design and set up technical unit and prepare job descriptions for itsmembers; and

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define criteria for preparation and appraisal of pilot projects, as also asupervision and monitoring system.

b) The consultant report on social mitigation should be completed by mid-December 1998.

14. Assistance under the Project

a) The costs of the technical unit would be financed under the project and areestimated at US$2.5 million. This would include the costs of personnel, aswell as of equipment.

b) An amount of US$2.0 million would be allocated for the proposed pilotprojects, though initially its use would be limited to US$0.5 million, theremainder to be drawn after review of the experience of the first schemes.

c) The training component has been estimated at US$1.5 million and wouldcover the costs of course fees, distance learning etc.

d) The assistance under the project for social mitigation would be defined basedon the consultant report and is estimated at US$0.5 million.

Corporate Restructuring

15. Current Status. The strategy to be followed by CFM has already been agreed withthe MPF and the MTC. Basically, minority stakeholdings in emerging business activitiesto be detained by CFM, will be managed separately under a "holding concept" through anew company, CFM, SA. Still to be incorporated. CFM, EP, in turn, will be thedominant shareholder in CFM, SA, (80%) with the remaining equity to be subscribed bythe future staff pension fund.

16. Actions prior to Appraisal. Terms of reference for a study on CFM's corporaterestructuring, including, inter alia: (i) review of the legal framework for the new role ofCFM, EP as the conceding authority and for CFM, SA as a shareholder in theconcessionaire companies; (ii) preparation of adjustments, if required, on the statutes ofCFM, EP; (iii) preparation of the articles of association for CFM, SA; and (iv) definitionof the internal organization, structure and regulations for CFM, EP and CFM, SA.

17. Assistance under the Project. A study would be financed under the proposedproject as per the above Terms of Reference. The implementation of the neworganizational framework would also be assisted under the proposed RPRP through TA,equipment, and dissemination activities. An estimated US$2.0 million would beallocated under the project.

Transport Policy and MTC Structure

18. Current Status. GOM's transport policy was lastly revised in 1996. Although itwas recognized that no major policy changes are required to accommodate the proposed

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RPRP, some adjustments at the margin may be deemed necessary to reflect the changingrole of the State in the sector. This will reflect the new role of Government agencies inregulating the provision of transport services and in conceding infrastructure facilities.

19. Actions prior to Appraisal. To the above extent, terms of reference for a review ofthe transport policy framework and MTC's structure will be prepared. These will cover,inter alia: (i) review of the new framework for transport policy; (ii) definition of the newfunctions of MTC to discharge its new role; (iii) assessment of MTC's neworganizational structure vs. this changing role; (iv) staffing requirements, taking intoaccount the GOM's civil service reform program; and (v) follow-up of legal andinstitutional arrangements for concessions, including the preparation of model(s) forconcession agreement(s)/contract(s).

20. Assistance under the Project. An amount of US$1.0 million would be providedunder the Project to finance a study as per the above TOR, and to implement the acceptedfindings and recommendations.

Regulatory Framework

21. Current Status. Technical regulation functions would be discharged by CFM, EP,as part of its functions as the conceding authority. In addition, CFM, EP will monitor thecompliance of regulatory clauses (such as environment safety of operations, andinfrastructure condition) as built-in the concession agreements. Regulatory functionsrelated to competition, protection of consumer interests, promotion of a sound businessenvironment, settlement of disputes, and institutional facilitation would be vested with anew independent Regulatory Unit under MTC.

22. Actions prior to Appraisal. TOR would be prepared for a study covering the: (i)scope, functions, and instruments for the regulatory framework; (ii) sectoral coverage ofthe new Regulatory Unit; (iii) staffing, internal organization, costs and financingmechanisms for the Unit(s); and (iv) required draft legislation.

23. Assistance under the Project. US$1.0 million would be provided under the projectto finance the study as per TOR above, and to finance equipment and any requiredtechnical cooperation requirements for the implementation of the Unit(s) and/or itsoperation during the start-up period.

Tertiary Ports

24. Current Status. Under the ROCS 1 project, IDA financing was provided forinvestments in small ports, to be undertaken as part of their concessioning to privateoperators. Since the closing date of the ROCS 1 project is June 30, 1999, this componentwill be included and followed under the proposed RPRP. The component will includethe ports of Mocimboa da Praia, Pebane, and Macuse, for which the concessionagreements have already been negotiated. It would also include the port of Angoche forwhich the concession agreement still remains to be prepared. As part of the concessionagreements for these four ports, MTC is committed to undertake a total investment ofUS$8.5 million, as estimated under the ROCS 1.

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25. Actions prior to Appraisal. For the four ports indicated above, MTC would reviewthe available investment estimates, undertake environmental assessment, and review theeconomic and financial analysis if so warranted. IDA-financing would be used under thePPF for the proposed RPRP for the environmental assessments and for the economic andfinancial analysis if so deemed necessary. Furthermore, TOR for a study on therevitalization of the port of Inhambane will be prepared.

26. Assistance under the Project. Finance would be provided under the proposedproject for investments in the ports of Mocimboa da Praia, Pebane, Macuse, andAngoche. Physical investments in these ports will be confirmed during appraisal. Therevitalization study for the Inhambane Port, estimated at US$0.5 million, will also befinanced under the Project.

Advisory Services for the Concessioning of Airports

27. Current Status. The GOM has decided to admit private participation in theprovision and management of airport infrastructure and related services. To this extent,ongoing initiatives include the leasing of selected operating facilities, the creation of aregulatory authority (INAC), and the decision to concede main airport infrastructure.

28. Action prior to Appraisal. Terms of Reference will be prepared for the provision ofadvisory services to enable the concession to the private sector of infrastructure facilitiesin main airports. These services will include: (i) selection of airports capable ofattracting private participation; (ii) preparation of a financial model to assess potential netcash-flow generating capabilities; (iii) assessment of viability of private investor'sinvolvement, and of income accruing to the State from concession fees; (iv)recommendation as to the structure and level of concession fees; (v) preparation ofconcession and other bidding documents; and (vi) assistance to the bidding process, andadvise in the evaluation of proposals and in the selection of preferred bidder.

29. Assistance under the Project. Finance would be provided under the proposedRPRP for the consultant services as per the above TOR. An amount of US$1.0 millionwill be confirmed during appraisal.

Economic and Financial Analysis

30. Current status. The NEL consultants made a presentation on their draft final reportand recommendations. Overall, the Consultants' findings were considered acceptablebased on the assumptions made at this stage, e.g., full debt restructuring, channeling ofconcession fees and dividends to CFM, and subsequent distribution of a portion to ainfrastructure fund as required. Comments offered at this stage on the economic andfinancial analysis will be incorporated in the final version of the report to be finalized byDecember 18, 1998.

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Project Implementation Plan

31. Current Status. The proposed Project is scheduled to be implemented over a periodof five years. Most components such as staff rationalization, CFM restructuring, settingup of regulatory framework, the studies pertaining to the Ministry structure are expectedto be completed over a period of three years. However, the Project component pertainingto staff counseling, redeployment, and retraining is likely to take at least five years due tothe large number of staff involved and the need to monitor and mitigate any possibleadverse social impact. A detailed project implementation plan will now be prepared.

32. Actions prior to Appraisal. It was agreed that CFM will prepare a detailed PIPusing an appropriate software and with the assistance of short-term consultants, ifrequired using PPF funds.

Procurement Plan

33. Actions prior to Appraisal. It was agreed that CFM will prepare a detailedProcurement Plan using an appropriate software and with the assistance of short-termconsultants, if required using PPF funds. The Procurement Plan will, inter alia, (i)identify all items of goods and services, studies, and training; (ii) the method ofprocurement; (iii) the timing of procurement; and (iv) a timetable for completing all thesteps involved in a procurement process including issue of no objections by the Bank.

Timetable for Appraisal and Board Presentation

34. The appraisal of the proposed RPRP is tentatively scheduled to commence onJanuary 18, 1999. However, it was pointed out by the Mozambican delegation that on itsreturn, the suitability of this date will be confirmed to the Bank. Subject to successfulappraisal, negotiations can be scheduled to commence March 8, 1999.

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35. Project Profile and Cost. An indicative project cost table is indicated below:

Summary of Project Profile

Approximate Cost without ContingencyStaff Equipment/

Item Consultancy Training Redundancy Works TotalConcessioning 1.0 -1.0Staff 40.0 40.0RationalizationPension Fund _

Staff 6.5 6.5Redeployment &Social MitigationCorporate 1.0 0.5 0.5 2.0RestucturingTransport Policy 1.0 1.0& MTC StructureRegulatory 1.0 1.0ReformTeriary Ports 0.5 8.5 9.0Concessioning of 1.0 1.0Airports

Sub-Total 12.0 0.5 40.0 9.0 61.5Contingencies 8.5

Total 70.0

Rui Fonseca Yash Pal KediaPresident and Chairman of the Board Team LeaderCFM World Bank

December 11, 1998

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APPENDIX 1

LIST OF ATTENDEES

Mozambique Delegation

Messrs. Rui Fonseca, President/Chairman of the Board of CFMA. Elias, Executive Director, Privatization Unit, CFMS.M. Bhat, Adviser, CFM BoardMiguel Guebuza, Manager, CFMEstevao Uamusse, Ministry of Transport and CommunicationsAugusto B. Sumburane, Ministry of Planning and FinanceArun Pai, Adviser, CFM

World Bank Team

Messrs./Mmes.: Yash P. Kedia, Team Leader/Sr. Railway EngineerPedro Geraldes, Principal Transport SpecialistStephan von Klaudy, Principal Financial SpecialistSunita Kikeri, Sr. Private Sector Development SpecialistPhilippe de Naurois, ConsultantJosiane Luchmun, Team Assistant

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ANNEX 2

BORROWER CONTRIBUTION TO THE ICR

The unedited Borrower's contribution to the ICR is attached. However, the totalamount of the Credit utilized was only US$5.9 million and not US$7.0 million asmentioned in the attached Borrower's report. Out of the US$5.9 million, about US$3.0million was spent on core advisory services for the concessioning proccess.

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ANNEX 2

REPUBUCA DE M0QAMSQUE

MINISTERIO DOS TRANSPORTES E COMUNICAC6ES

I O ror Lhe aniount of ftunds eapnt in theo\ hole process of the Maputo Coffidor Revitalization Project (close to USS smillionJ, the

value for money obtained has been poor. It is generally expected when there is an opentender, advenised widely in national, regional papers and in international journals, theresponse would be strong both in terms of the number of bids and the credentials of thebid&lh:s. Only vhan Lhe repsonse is good, could ono expeo competitive bids. Theresponse being far below expectations, the en d result has not weexn =r&uuur&ing both interms of money and time.

2.0 The performance of the rrainconsultants, Paribas & Partners, has been extremely poor especially in areas such asmarketing of the tender, preparad6iniof the financial model.

30 o The two main benefits of the processhar\e been (a) the development of the legal side of the bidding procesis Including tenderrules etc. and (b) preparation of Transaction documents such as Concession Agreement,Articles of Association.

4.0 ( It is genetally assumedtlzah ifthere is an open tender prosps, the ten4er proces4 is transparent. However Thisassumption would be valid, only when the response to the tedd.r is strong and there is astrong competition. Because of ol'Ipitcipatioh. tho bidderisErVie not approached theissue with the required seriousness.Instead it appears, the bidaervare taking advantage ofthe poor response and appearto havdehidden agendas, They havefound any nurnber of(fiimsr) reasons to derail the process. What is required is a clear set of rules, a clear set ofselection procedures td choose ihernght pOztner.

5,0 The tendering process does not bring mnoretransparency per se. Transparency is buit up through an ethical and professionalapproach in carefilly selecting a strategic partnership enabling the creation of corporatejoint ventures in the different concessions based on the followi*n critena:

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a) internationally recognized large experience and know-how in transport, logisticsand distribution industry;

b) capacity and ability to improve and substantially increase trade flows through theMozambican corridors and ports; this means tangible additional values areaccrued to what the company has;

c) strong financial capability to implement new investments needed as well as toaccurately process due maintenance to international standards,

d) capacity to achieve high level of returns; this means more payments Lo CFM, and*) global networking with ocean going trade and transport industry as a whole.

Further tendering process in a business like approach is a costly and time-consuming exercise and no assurances are given for a better result than throughdirect negotiations done by a professional institution.

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