THE WORLD BANK

Office of the German Executive Director

1818 H Street, N.W., Washington, DC 20433 - U.S.A.
Tel. (202) 458-1183 Fax (202) 477-7849
E-Mail: ihoven@worldbank.org

DATUM : 3. August 2012 Seitenanzahl: 2

VON: Ingrid-G. Hoven, Exekutivdirektorin

AN: E-Mail:
BMZ 411 , Berlin referat411@bmz.bund.de
BMZ 411 , Berlin (Sekretariat) janine.koerner@bmz.bund.de
BMZ 412, Berlin referat412@bmz.bund .de
BMF I C 5, Berlin IC5@bmf.bund.de
BMWI V C 3, Berlin buero-vc3@bmwi. bLind.de
AA 401 , Berlin 401-R1 @auswaertiges-amt.de
Bundesbank F34, Frankfurt mdbs@bundesbank.de
KfW AS, Frankfurt sonja.stoehr@kfw.de
GIZ 0410, Eschborn martina.kampmann@giz.de
DEG, Koln pb@deginvest.de
AfDB, Mr. Kohlmeyer, Tunis c.kohlmeyer@afdb.org
ADB, Mr. Westreicher, Manila ewestreicher@adb. erg
EBRD, Mr. Schwarzer, London schwarzj@ebrd.com
lOB, Ms. Metzger, Washington, DC ulrikem@iadb.org
IMF, Mr. Temmeyer, Washington, DC oedgrall@imf. erg
DIE, Bonn die@die-gdi.de
GTAI, Guenter Maier, Washington, DC guenter.maier@gtai.de
Deutsche Botschaft, Washington, DC reg4@wash. auswaertiges-amt. de
Standige Vertretung EU, Brussel pol-wz-1-eu@brue.auswaertiges-amt.de
Standige Vertretung FAO, Rom germanrepfao@rom.diplo.de
Standige Vertretung OECD, Paris wi-7 -oecd@pari. auswaertiges-amt.de
Standige Vertretung , Genf reg1-io@genf.diplo.de
Standige Vertretung UN, New York reg1-vn@newy.diplo.de

Tgb.Nr.: 3655/2012
Bearbeiter: Thomas Feidieker
Berichtsname: 2012-08-02 GEDO 3655 National Urban Transport Improvement Project
Board 02.08.12
Pfad: M:\Aktenplan - Neu\03- Countries & Regions\03.4 SUBSAHARA AFRICA
REGION (AFR)\03.4.19 Kenya\2012-08 Urban Transport Project

Kenya: National Urban Transport Improvement Project

Board Meeting am: 02.08.2102

BMZ-Stellungnahme: 24.07.2012
Dokumentname: IDA/R2012-0188
 -2-

Ergebnis der Diskussion:

In der Sitzung des Aufsichtsrates am 02.08.2012 wurde das ,National Urban Transport
Improvement Project' (IDA Kredit in Hohe von US$ 300 Mio.) vom Direktorium im Hinblick auf
seinen Beitrag zur Verkehrsinfrastruktur einer wachsenden Metropole begrO~t und gebilligt.

Unsere Stellungnahme:
In mOndlicher Stellungnahme begro~ten wir das Projekt und verwiesen insbesondere vor dem
Hintergrund einer wachsenden Okonomie auf den Stellenwert einer angemessenen urbanen
Verkehrsinfrastruktur. In einer schriftlichen Stellungnahme mit AUT, CAN, CHE, FRA, ESP, NDL
und UK (siehe Anlage) befragten wir den Stab, wie die lnstandhaltung der urbanen
Transportkorridore gewahrleistet werde und inwieweit die Ma~nahme die institutionellen
Kapazitaten zur lnstandhaltung starke.

Weitere wichtige Punkte der Diskussion:

Mehrere Exekutivdirektoren (AUT, CAN, US) begro~ten vor dem Hintergrund der Erfahrungen mit
Korruption in Kenia die enge Einbindung der bankinternen Untersuchungseinheit ,Integrity'.
Gleichwohl sei verwunderlich, dass es in dem Dokument keinen Hinweis auf Erfahrungen mit
vergangenen Stra~enbauprojekten in Kenia gabe (AUT). Wichtig sei, diese Erfahrungen mit
einzubeziehen. FRA betonte vor diesem Hintergrund, dass die regulatorischen
Rahmenbedingungen und das Monitoring gestarkt werden mOssten. CHE und CAN au~erten
Zweifel, dass die privaten Kleinbustransportunternehmer (Matatus) der Reorganisation und
OberfOhrung in ein offentliches Busverkehrssystem zustimmen werden, da sie dann zu abhangig
Beschaftigten wOrden. Dies sei ein extrem schwieriger Transitionsprozess, der frOhzeitige
Einbindung und umfangreiche Konsultationen erfordere. Auch sei die BOndelung von
Zustandigkeiten und die Restrukturierung eine gro~e Herausforderung bei der institutionellen
Reform. Gleichwohl -betonte ESP, wOrden die Erfahrungen in Lateinamerika zeigen , dass der
langfristige Nutzen eines offentlichen Nahverkehrssystems immens sei. lm Hinblick auf
Privatsektorbeteiligung sei fraglich, wieso IFC keine gro~ere Rolle spiele. Zudem solle
Management darauf hinwirken, dass durch die Beschaftigung von lngenieurinnen eine
angemessene Genderbilanz bei den geplanten Bauarbeiten der Transportkorridore erreicht werde.

Management raumte ein, dass es erhebliche lmplementierungsrisiken gabe. ,Integrity' habe bisher
keine Anzeichen fOr Betrug feststellen konnen. Gleichwohl habe man vorbeugend die
Ausschreibungsverfahren geandert und gestrafft, urn den Korruptionsrisiken im
Beschaffungsprozess besser begegnen zu konnen . Zudem gabe es eine bewahrte
Zusammenabreit mit Drittmonitoring durch die Universitat von Nairobi. lm Hinblick auf den
Projektansatz sowie dessen Auswirkungen seien die Matatus frOhzeitig eingebunden worden ,
fanden intensive Konsultationsprozesse statt und sei Management zuversichtlich, dass man den
Transitionsprozess schaffen wOrde . lm Moment gehe es primar urn die bauliche Erstellung der
urbanen Transportkorridore sowie der kreuzungsfreien Querungen. IFC wOrde zu einem spateren
Zeitpunkt eingebunden werden.
 CONFIDENTIAL
EDS2012-0855

July 31 , 2012
05 :55:52 PM

Statement by Ambroise Fayolle, Gino Alzetta, Ingrid

Hoven, Juan Jose Bravo, Jorg Frieden, Marie Lucie Morin,
Ruud Treffers, Stewart James
Date of Meeting: August 2, 2012

Kenya- National Urban Transport Improvement Project

We welcome the World Bank's support for Kenya' s National Urban Transport Improvement Project. We
would also like to take this opportunity to thank staff for the useful bilateral meeting ahead of the
Board ' s discussion.

Overall Context
Kenya's population growth and levels of urbanization have continued to increase rapidly in recent
decades. This has placed severe pressure on existing transportation services, and in particuhr, on the
urban road network. Traffic congestion has direct and significant impacts on both overall macroeconomic
growth, but al so, on the quality of life ofNairobi ' s residents. These pressures are predicted to continue to
expand significantly in the coming years. As such, the logic for this intervention is well founded and
takes into account the provisions of various important government policies including the Integrated
National Transport Policy and the Roads Policy. We would welcome further clarity on the following
Issues :

Upgrading Urban Infrastructure

In relation to the upgrading of infrastructure, such works will result in significant short to medium-term
employment opportunities. In the context of the WDR on jobs, could sta elaborate on the roposed
mechanisms for stafjin these o s an or ensurin t r u h o en and trans arent recruitment
processes? Also, could staff elaborate on what tangible opportunities they foresee for female
organizations and workers, and how they can access the opportunities generated by the construction and
operation of these new services in the long-term ? In that regard, we would also welcome some clarity on
the targets on female users (page 31) which suggest no change on the baseline percentage figure year on
year. Will the new facilities be designed specifically with the needs ofjemales users in mind, and if so,
how?

Beyond building costs, maintaining such infrastructure to ensure that it continues to be productive and
safe in the future is a key issue. How can proper maintenance be achieved and to what extent does
Component C target improving the institutional capacities [or maintenance?

Developing Mass Transit Corridors

In relation to the development of Bus Rapid Transit (BRTs) , we welcome the consideration of such
seryices in developing countries. However, given the need to ensure that such services do not end up
being a major draw on fiscal resources, we would like to hear more about possible tolling structures,
and how affordable these new services are likely to be for the poorest commu~ities.
 2

Institutional and Policy Reforms

In relation to the institutional and policy reforms, we welcome the Government of Kenya's (GoK) reform
package - this will be essential given that many current transportation companies operate in an
environment with minimal regulation. Given the significant number of current institutions and agencies,
it is particularly welcome to see the proposals to establish one authority for the greater Nairobi area to
ensure coherence across the sector. Furthermore, we welcome the involvement of the Department of
Institutional Integrity (INT) in the Road Sector Governance and Integrity Improvement Action Plan
(GAP) and expect that GAP and the strengthened oversight bodies will contribute further to increased
transparency and accountability in the transport sector. We particularly appreciate the adoption of
rigorous investigation and estimation of costs, higher scrutiny of bids and qualifications, stringent due
diligence of bidders, consultants and suppliers, as well as post-qualification of bidders for large work
contracts.

We also welcome the Bank' s advisory support to the GoK to facilitate greater mobilization of the private
sector in urban transport.

Consultation Process
Genuine consultation with all stakeholders will be essential fort ong-term c ess of this project. It is
reassuring to hear that the owners of Nairobi's 16,000 private b es (matatus ) H e shown a willingness
to adapt and to support this project. Could staff indicate what are to e key obstacles to this
continued dialogue and what are likely to be the areas of greatest contention?

In conclusion, there are a number of risks associated with the project, as outlined in the PAD, however,
we are satisfied that staff are well aware of these issues, and have the requisite flexibility built into the
project to adapt where necessary. Finally, we would like to reiterate our support for this project and to
wish staff and the GoK success in its implementation.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its content:
may not otherwise be disclosed without the consent of the Executive Director concerned .
 CONFIDENTIAL
EDS2012-0851
July 31, 2012
04:05:46 PM

Statement by Javed Talat, Renosi Mokate and Agapito

Mendes Dias
Date of Meeting: August 2, 2012

Kenya- National Urban Transport Improvement Project

We welcome this discussion and thank Management and the Africa Region for bringing this
important infrastructure project to the Board for consideration.

We are fully supportive of this credit for Kenya's transport system as it seeks to improve the
accessibility and efficiency of road transport, improve institutional capacity and arrangements,
and promote private sector participation in the operations, all of which are key to the successful
implementation of Kenya's long term development strategy (Vision 2030). This investment has a
number of positive socio-economic benefits including that of improving mobility of the urban
low-income population and reducing traffic congestion within the Nairobi municipality, thereby
reducing the cost of doing business. We are also pleased to note that this project will address
road safety concerns and contribute to the facilitation of trade at both the national and regional
levels.

We commend the efforts of the Government of Kenya (GOK) in reforming the transport sector
through its Integrated National Transport Policy, which together with the 2010 Constitution sets
the tone for a long term vision for the sector. We also note with satisfaction, several key
measures that are being implemented under the Governance and Integrity improvement Action
Plan, which has improved transparency and accountability. This we believe will have a positive
- impact on competition in the bidding process, while ensuring value for money in transport
infrastructure construction in the country.

We are pleased to note that Management has taken on board past lessons in implementing
Bank-financed transport projects in Kenya. While noting that the overall risk rating of this
project is high, we encourage Management to continue its strong dialogue with the authorities in
order to effectively address any challenges that may arise.

Additionally, and in view of the complex nature of this project, we call for a more proactive
approach in addressing any major shortfalls that may arise in the course of its implementation. A
good communication strategy would be requi~ed in this regard. Regarding the institutional and
implementation arrangements, we welcome the mainstreaming of the project into the operations
of the five agencies that will carry out its execution. Notwithstandin the ex erience of most of
---f'-.!i>--"'- these agencies in the implementation of infrastructure projects, we find that such a large num er
 2

cof implementing bodies may add to the complexity of the project if the oversight and I
coordination are not performed adequately. We therefore expect the supervision works that will
be undertaken in the context of this project to provide the Ministry of Roads and the GoK with
the necessary early warnings for successful coordination of the various implementation agencies.

Going forward, we find that the success of Kenya's Transport Sector Investments Plans hinges on
the viable solutions that can be found to the challenges identified in sectoral studies, particularly
the construction of critical missing road links and the development of mass transit corridors,
including rail and Bus Rapid Transit (BRT) systems. We urge Management to step up the Bank's
support in these areas and would welcome further staff's comments on the following: (i) steps
taken thus far in sharing with the GoK experience athered b the Bank in the areas o JJJIJcmd
i& t ai Transit systems; (ii) the level ofparticipation ofprivate bus and matatu operators in
the stakeholder consultations that were conducted m the context oj the pro;ect and the likelihood
of obtaining their adherence to the policy reforms and operations undertaken by the GoK in the
Transport sector; and (iii) ways in which the lessons learnt {rom the "failed " concession under
,the NCTIP can inform the Bank's work in the structuring o[PPPs in the Africa Region. -

We would encourage IFC's early engagement with the GoK to advise on private sector
participation; in this regard, does IFC intend to provide financing to the private sector for
transport infrastructure or services ? If so, we are of the view that communicating the intention
early would result in confidence being provided to the sector, which may result in a positive
crowding-in effect.

With these remarks, we reiterate our strong support for this credit and we wish the GoK and the
Bank Group success in implementing this project.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its content:
may not otherwise be disclosed without the consent of the Executive Director concerned .
 CONFIDENTIAL
EDS201 2-0852

July 31 , 2012
05 :14:43 PM

Statement by Mukesh Nandan Prasad

Date of Meeting: August 2, 2012

KENYA- NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT

We appreciate the need for intervention in infrastructure rovisioning in Kenya, and

support e current operation for establishing the National Urban Transpo Improvement
Project. The transport infrastructure is a bottleneck in the economically important Northern
Corridor, adversely impacting efforts to accelerate economic growth . Accident rates are high ,
and there is heavy air pollution.

The project aims to improve the efficiency of road transport along the Northern Corridor;
improve the institutional capacity and arrangements in the urban transport sub-sector; and
promote private sector participation in the transport system. These objectives are aligned well
with the Bank's Africa Strategy on governance and public sector capacity. However, an
important pillar of the strategy, employment, may be adversely impacted , at least in the short
run .

We would like staff to clarify the following:

It might be difficult for a newly created NMTA to discharge its role efficiently, and in
an acceptable time frame. The . I merge existing units into a new Nairobi
Metropolitan Transport Authort y (NMTA) , hich will coordinate and regulate public
ransport, and recommend pric1 nvestment policy. One of the major items of
infrastructure to be built is a Bus Rapid Transit (BRT), and NMTA will conduct its feasibility
study, decide upon operational design, and further integration with other public transport
modes. It is not clear how and when NMTA will get equipped to discharge those
responsibilities efficiently.

-- The draft Integrated National Transport Policy (INTP) of 2004, has only recently been
~pproved by the Cabinet but has not been adopted by Parliament as yet. NUTRIP is
the urban component of INTP, and if the required approvals are not in place, the project will
get affected .

There is likelihood of opposition from the existing mini-bus operators. The proposal
recognizes that the current urban transport is dependent upon the matatu , the local
mini-bus, and perceives this scenario as a high risk area in going forward . While we are
encouraged that further action on BRT will be taken in consultation with matatu owners as
stakeholders, we request staff to explain how this will be ensured .

The BRT may cause short term unemployment. The 16000 matatus in Nairobi provide
direct employment to thousands of drivers and crew. Matatus may see a significant
 2

decrease with the BRT, even with their retention on feeder services. There may be long
term spin-offs, but the short term unemployment will need to be addresse~ -
,.--

With these comments, we wish the staff, and the government of Kenya success in
implementation of the project.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its content~
may not otherwise be disclosed without the consent of the Executive Director concerned .
 CONFIDENTIAL
EDS20 12-0853

July 31 , 2012
05:29:45 PM

Statement by Anna Brandt, Ian Solomon

Date of Meeting: August 2, 2012

Kenya National Urban Transport Improvement Project

We ,rJelcome the discussion on the Kenya National Urban Transport Improvement Project
(NUTRIP). We ~Qort the proposed USD 300 million IDA financed project, which will support
Kenya's economic development strategy and will contribute to the development of mass rapid
transit. We note that this project is the Bank's first urban transport project in Kenya in nearly 10
years . We are pleased the Bank is re-engaging in this important sector and taking on a project
of this scale, particularly since the backlog in transportation infrastructure has hampered
Kenya's economic growth over the last several decades.

We are glad to see that NUTRIP will support the expansion of the Northern Corridor Road
Network, which is the primary road network for Nairobi and one of the most important road
arteries for Kenya. We agree with staff that the decongestion of the Northern Corridor that
passes through Nairobi and the development of new infrastructure surrounding the city are
critically important to Nairobi's future as a modern growth-generating urban capital. If the Bank
and the Government of Kenya (GoK) get this project right, it can serve as a model for the rest of
the country and the surrounding region.

We welcome the Bank's plans to help the GoK develop a mass transits stem that includes bus
r.apid transit and commuter ra1l ne works . WI e Important for both systems to be
complementary and well integrat~d into Kenya's mass transit system . We hope that the
establishment of public private partnerships (PPP) in the transport sector will contribute to
meaningful cooperation between key stakeholders in the sector. We thank the Bank for
incorporating lessons learned from PPPs in Kenya's power sector to the transport sector. We
appreciate the Bank's continued dialogue with private sector concessionaires who are already
engaged in the transport sector, notably commuter rail. We ask the Bank to ~ontinue to help the
GoK to mobilize private finance through PPPs and when appropriate facilitate (not crowd out)
the private sector's engagement in the sector. Could management describe how the Bank will
work with IFC and MIGA to encourage private sector development of the transport sector?
' D --- .
A key component of attracting and ultimately sustaining private sector interest in the transport
sector will be through regulatory reforms. We ask the Bank to continue to work closely with
authorities in order to ensure that key reforms in the transport sector are adopted and
implemented as planned. We note the Bank's efforts to date, which includes the signing of the
Road Sector Governance and Integrity Improvement Action Plan with the GoK. We hope that
the establishment of the National Metropolitan Transport Authority (NMTA) and the National
Road Transport and Safety Authority (RSTA) will soon fo llow. Placing all public transport issues
such as licensing regulating public transport and traffic manage'ment under one agency- the
NMTA- is a step in the right direction and is a long overdue reform. The RSTA should improve
S"afety, quality and reliability of the sector, part'icularly among the largely unregulated matatu
 2

(mini-bus) transport network, which represents the backbone of the public transport system and
33 percent of the urban commuter traffic. In sum, we hope that these reforms will improve
accountability, governance and safety in the transport sector.

With that, we thank management and staff for their work on this project and wish Kenya
success.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its content:
may not otherwise be disclosed without the consent of the Executive Director concerned .
 '<-"--ELOp-lf
CONFIDENTIAL
EDS20 12-0854

(m} July 31, 2012

05:30:21 PM

Statement by Dyg Sadiah Binti Abg Bohan

Date of Meeting: August 2, 2012

Kenya- National Urban Transport Improvement Project

We welcome the discussion on a pr9posed credit in the amount of SDR 193 .5 million (US$ 300
million equivalent) to the Republic of Kenya for a National Urban Transport Improvement Project and
we would like to thank the Bank for continuing its great support to Kenya particularly the transport
sector.

We acknowledge Government of Kenya's long term development strategy which aims to

modernize the country into a middle-income country (MIC) by 2030. However, during the transition
period, the issue of urbanization is most challenging for Kenya. From data given, the urban population is
substantially rising, projected to reach 47 percent in 2030, while urban services/transport services are
totally insufficient.

We took note of the objectives of this project which aims to: (i) improve the efficiency of road
transport along the northern corridor; (ii) improve the institutional capacity and arrangements in the
urban transport subsector; and (iii) promote the private sector participation in the operation, financing
and management of transport systems. In addition, the proposal is timely and complements the country's
long term mission. Therefore, we are very supportive of this project.

We share our concern on the overall implementation risk particularly project stakeholder risk
and implementing agency risk and are pleased to note that the mitigation measures have been addressed
in the paper.

However, we see that there are 15 organizations related to the transport sector zve em
are the implementing agencies of this project. So are there an concerns regardi the coordination
process between the five implementing agencies and the other ten agencies?

Furthermore, the implementation of the project (in both framework and operational arenas)
would take time and could provide full services in the next 5-6 years so we would like to know how the
Bank could help the Government o[Kenya in easing the problem of urbanization in the short term?

With those comments, we would like to reiterate our strong support to this project and wish the
Government of Kenya and management successful operations.
 CONFIDENTIAL
EDS2012-0857
August 1, 2012
02:51:12 PM

Statement by Vishnu Dhanpaul

Date of Meeting: August 2, 2012

Kenya - Proposed Credit for the National Urban Transport Improvement Project

We support this proposed US$300 million equivalent credit to the Republic of Kenya. We
acknowledge the country's realities in the transport sector and noted that in addition to issues in
other areas of the sector, the use of the roads are at levels beyond its design capacity, resulting in
major bottlenecks that hamper the free flow of people, goods and services. The problems are very
noticeable in the Northern Corridor, the country's main artery, that passes through the middle of
Nairobi. A JICA study determined that the estimated costs of congestion in Nairobi to be at
unbearable levels for an economy that needs to compete based on lean cost structures. In the
context of this reality, we support the emphasis on the roads sector.

We took note of the fact that the project document stresses that infrastructure for transport has
been neglected in Kenya for the last three decades and that this neglect is not limited to civil
works. Institutional arrangements and governance have also taken a toll, and we noted the
revival of government activities to tackle shortcomings in this area. It is encouraging to ~ee the
progress made by the government, in partnership with the private sector, in the tackling of many
issues that need to be addressed. However, we also noted the challenges ahead, and urge the
Bank to continue its work in assisting the country in its vast reform process.

We welcome Component C of the proposal, which will specifically aim at improving the
institutional capacity in the sector. We urge the Bank to emphasize institutional strengthening so
that Kenya can get the best out of this operation. We consider that the outcome of this project is
highly dependent upon improvements in institutional capacity before implementation.

The Bank's experiences have shown that transport projects are risky and challenging. This
project, due to the specifics of Kenya and the ambitious albeit needed set of interventions, further
increases the standard risks of transport projects.

In parallel to the immediate interventions that are needed to improve infrastructure in Kenya, the
country is involved in developing a comprehensive study of the Northern Corridor from
Mombasa to Malaba, as described in pages 10-11. All activities related to this project will need
to be undertaken in a flawless manner to avoid the type of delays the country witnessed with the
2003 failed concession. In our opinion, these tasks cannot be achieved without robust
institutional capacity.
 2

In closing, we concur with the Risk Assessment that rates overall implementation risks as high.
We urge the Bank management and staff to be vigilant in the supervision of this important
project for Kenya, to maximize its impact in the country.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its content1
may not otherwise be disclosed without the consent of the Executive Director concerned .
 CONFIDENTIAL
EDS2012-0856

August 1, 2012
01:56:36 PM

Statement by Ayman Alkaffas

Date of Meeting: August 2, 2012

Kenya- National Urban Transport Improvement Project

We support the proposed credit in the amount of SDR 193.5 million (US$ 300 million equivalent) to the
Republic of Kenya for a National Urban Transport Improvement Project. We note the importance of this
project as an urban transition is well underway in Kenya with about 30 percent of the population residing
in urban areas in 2011; this number is projected to rise to 47 percent ofthe population in 2030. Thus, we
concur that the urban transition will be a determining factor of Kenya's growth prospects, stability, and
citizens' quality of life. We are pleased to note that the Bank is re-engaging in the urban transport sector
in Kenya and that this has already enhanced the momentum of the Government which has agreed to
implement key reforms.

Having said that, we have the following comments:

First, M&E: While we are pleased to see that the Government has proposed to engage one
of the accredited universities Kenya with adequate experience as the M&E consultant, we
urge the team to pay close attention to this aspect and involve enough M&E specialists to
ensure that all components are followed-up on in a timely manner to recognize any issues
along the way. Noting the complex nature of the project execution, with the involvement of
5 agencies, as well as a Project Oversight Committee, a Project Coordinator, a Mass Rapid
Transit Consultative Committee, and Project Implementation Teams within each
implementing agency; how will the Bank ensure that constant M&E will be a priority?

Second, Communications Strategy: We are pleased to note the commitment to a

Communications Strategy by having a Communications Specialist on the Bank's team based
in Kenya, working with the Communications Specialists from KeNHA, KURA, KRC, MoT
and MoR. The PAD states that a major risk is the 'likely resistance from transporters and
bus operators to the introduction of any new regulatory framework for public transport,
phasing out matatus and City Council of Nairobi (CCN) required to cede its current
responsibility of traffic management and parking management to the proposed Nairobi
Metropolitan Transport Authority (NMTA)'. Could staff elaborate on the 'adequate
measures' (referred to in Annex 4) to be included in the project to mitigate this risk?

Third, Promotion of the Private Sector: We appreciate and highly support that the project
seeks to promote the private sector's participation in the operation, financing and
management of transport systems. This is in line with the Country Partnership Strategy's
aim to establish more public-private partnerships for key sectors including transport. Could
staff elaborate on the cooperation with IFC and MIGA in this regard?
 2

With these remarks, we wish staff and the Government of the Republic of Kenya all success with the
implementation ofthis project.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its content:
may not otherwise be disclosed without the consent of the Executive Director concerned .
 ~'-! E LOp
4 CONFIDENTIAL

{~}
STS2012-0151
August 1, 2012

Staff Statement to the Board

Date of Meeting: Thursday, August 2, 2012

Kenya- Proposed Credit for the National Urban Transport Improvement Project

We acknowledge with thanks the receipt of individual statements from Mmes/Messrs. Bohan,
Dhanpaul, Alkaffas and Prasad and joint statements from Mmes/Messrs. Brandt, Solomon and
Talat, Mokate and Agapito and Fayolle, Alzetta, Hoven, Bravo, Frieden, Morin, Treffers,
Mendes Dias and James. We provide detailed responses below.

1. Messrs/Mme. Talat, Mokate, Mendes Dias urged Management to step up the Bank's support
in the _development of mass transit corridors, including rail and Bus Rapid Transit (BRT)
systems and welcomed further staffs comments on the:

Steps taken thus far in sharing with the GoK experience gathered by the Bank in the areas of
BRT and Light Rail Transit systems;

As a first step, the Government of Kenya (GoK) officials (from MoT, MoR, KURA, City
Council ofNairobi among others) facilitated by the Bank have visited Colombia and Mexico on
a study tour. This has helped to understand mass transit systems in action and appreciate the
implementation issues up front. Secondly, based on the Bank' s experience on successful
introduction ofBRT systems elsewhere, the GoK has been advised on the critical role champions
play in spearheading and encouraging strong political will to deal with the deep, vested interests
linked to the provision of efficient transport services including, introduction of new regulatory
framework to counter indiscipline and .disregard for safety and environment regulations in the
urban transport sector. The Bank is working with GoK and has made available empirical
information that would educate the public and other key stakeholders on the potential benefits
and cost effectiveness that BRTs offer, as many such projects have been able to demonstrate
win-win outcomes. Closer to home, the examples of Dar-es-salaam, Accra and Abuja, all
facilitated by the Bank, have acted as a catalyst to promote similar BRTs in Kenya.

2. Messrs/Mme. Talat Mokate Mendes Dias Prasad Fa olle Alzetta Hoven

Frieden, Morin, Treffers, James requested comments on the level of participation o private us
and matatu operators in the stakeholder consultations that were conducted in the context of the
project and the likelihood of obtaining their adherence to the policy reforms and operations
undertaken by the GoK in the Transport sector. Could staff indicate what are likely to be the key
obstacles to this continued dialogue and what are likely to be the areas of greatest contention?

As part of the project design, two consultative committees have been formed and have started
operating (Ref. PAD page item No. 68 and Page 21, Item No. 70). These are (i) the Mass Rapid
-tlansit Consultative Commlftee, comprising key stakeholders including representation from the
Matatu Owners Association, Matatu Welfare Association, private bus operators, and the City
Council of Nairobi, among many others that deliberate and provide technical and policy advice
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 '
to the Project Oversight Committee and (ii) the Project Oversight Committee, responsible for
resolving any bottlenecks that would hinder project implementation. The key stakeholders
appointed their own representatives with requisite experience on the subject matter. Already
matatu owners are forming co-operatives in readiness of participating in the proposed new
arrangements (PAD page 9, item No. 29).

3. Messrs/Mme Talat, Mokate and Mendes Dias requested comments on the ways in which the
lessons learnt from the "failed" concession under the Nairobi Urban Toll Road Project can
inform the Bank's work in the structuring of public private partnerships (PPPs) in the Africa
Region

The lessons learnt from the Kenya experience include that: (a) there are significant risks in
structuring PPPs for toll roads on a single project-by-project basis compared to the option of a
comprehensive PPP program with individual pipeline projects; (b) inadequate capacity within
the implementing agencies on formulating, structuring, negotiating and managing PPPs is a
major bottleneck and a deliberate effort has to be made for its development in parallel; (c)
creation of a regulatory framework and tolling policy is critical; and (d) it is essential to conduct
due diligence of the sponsors, particularly with regard to the existence and level of integrity
compliance systems within the organizations of the sponsors, much earlier in the process of
concessioning to avoid delays and loss of extra effort.

For these reasons, under NUTRJP the initial effort will be in exploring the best alternative ways
of structuring the enhancement of capacity at Kenya National Highways Authority (KeNHA) on
mobilizing private sector financing and structuring PPPs in an expeditious manner. Through
NUTRJP, the Bank will facilitate knowledge sharing with other road authorities with similar
responsibilities, with special focus on how KeNHA would raise private sector financing for
viable toll roads and tender competitive contracts for construction and management of such
projects. The effort will also be assisted through a proposed infrastructure finance PPP project,
which was negotiated at the end of July and will be before the Board for discussion in the
coming weeks.

4. Messrs/Mme Talat, Mokate, Mendes Dias, Brandt and Solomon encouraged IFC's early
engagement with the GoK to advise on private sector participation; and in this regard inquired if
IFC intends to provide financing to the private sector for transport infrastructure or services? If
so, they are of the view that communicating the intention early would result in confidence being
provided to the sector, which may result in a positive crowding-in effect. They asked the Bank to
continue to help the GoK to mobilize private finance through PPPs and when appropriate
facilitate (not crowd out) the private sector's engagement in the sector. They asked management
to describe how the Bank will work with IFC and MIGA to encourage private sector
development of the transport sector?

IFC has been actively involved in the transport sector in Kenya since 1995 when we advised the
GoK on the privatization of Kenya Airways. In 2001 IFC subsequent support was a direct
financing to Kenya Airways. Furthermore, early .this year IFC participated in a rights issue and is
currently considering a $80 million debt investment to support the airline's fleet expansion.

IFC also advised the GoK on the concessioning of the Kenya/Uganda railway and followed this
with debt financing : In the ports sector IFC supported the development of a privately-owned
Bulk Grain Terminal at the Port of Mombasa in the late 1990s, and has been engaged in dialogue
on .other port-related projects since, including periodic discus~ions on the possible concessioning
of other port facilities at Mombasa. We are also engaged with the GoK and stakeholders on a
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possible role in supporting private financing and provision of services of the expansion of Jomo
Kenyatta International Airport.

IFC was involved in the development ofthe Nairobi Toll Road, an initiative that was eventually
abandoned. IFC, jointly with the Bank, continues to monitor the sector for other toll-road
possibilities in the country including several possible investments in the logistics sector with
local operators. The opportunities flowing from the proposed project are in line with IFC's
ongoing interest in Kenya.

The Bank and IFC have an established working relationship in the transport sector that has seen
the privatization of Kenya Airways led by the IFC; concessioning of Kenya-Uganda Railways
led by IFC with IDA support towards retrenchment of Kenya Railways excess staff, creation of
pension scheme for staff, offering IDA Partial Risk Guarantees and dealing with resettlement
issues related to improvement of selected rail lines within Nairobi; Bank worked closely with
IFC and MIGA on the "failed" road concession. This working relationship will continue in
supporting the GoK put together the right policies and regulations to promote private sector
participation such as PPP legislation. NUTRIP will serve as a vehicle to increase the use of PPPs
in the urban transport sub-sector in developing the mass transit corridors (e.g. in full
collaboration and coordination with all public and private sector initiatives so that there is no
duplication or crowding out of the private sector interest .

5. Mr. Prasad sought further clarification on the following issues:

(a) It might be difficult for a newly created Nairobi Metropolitan Transport Authority (NMTA)
to discharge its role efficiently, and in an acceptable time frame. The project will merge existing
units into a new NMTA, which will coordinate and regulate public transport, and recommend
pricing and investment policy. One of the major items of infrastructure to be built is a Bus Rapid
Transit (BRT), and NMTA will conduct its feasibility study, decide upon operational design, and
further integration with other public transport modes. It is not clear how and when NMTA will
get equipped to discharge those responsibilities efficiently.

It is recognized that it would be difficult for the newly created NMT A to be fully operational
immediately on its establishment. There is likely to be a transition period. The capacity, to be
created in the current implementing agency, Kenya Urban Road Authority (KURA), under the
project, will be transferred to the newly created NMT A. This has been noted in the project (Ref.
PAD page 55 item No. 4). In the meantime, KURA will execute this project activity until and
when NMTA is ready to takeover.

(b) The draft Integrated National Transport Policy (INTP) of 2004 has only recently been
approved by the Cabinet but has not been adopted by Parliament as yet. NUTRIP is the urban
component ofiNTP, and if the required approvals are not in place, the project will get affected.

The majority of the investment components ofNUTRIP are focused on relieving congestion and
improving public transport in major cities. These components are an integral part of already
adopted transport plans. INTP largely informs the policy and institutional reform agenda for
urban transport sub-sector and a number of recommendations in the INTP have already been
implemented, including the concessioning of Kenya Railways, streamlining of ownership
structure in the road sub sector that has resulted in creation of autonomous road authorities;
establishment of a regulatory framework for both the construction industry and consulting and
engineering profession, among others. The approval of INTP will affect some aspects of the
Kenya Urban Roads Authority (KURA), the implementing agency of the BRT component,
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particularly when the NMA is created. Meanwhile there is strong political support for the INTP
and it is likely to be approved by Parliament, with minor amendments. In addition, the GoK
could still establish NMTA ahead of the adoption of NMTA as has been the case with the
implementation of the other aspects in the INTP discussed above. GoK has agreed on
establishing NMTA by December 2014 (Ref. PAD Page iv, legal covenants)

(c) The BRT may cause short term unemployment. The 16000 matatus in Nairobi provide direct
employment to thousands of drivers and crew. Matatus may see a significant decrease with the
BRT, even with their retention on feeder services. There may be long term spin-offs, but the
short term unemployment will need to be addressed.

Government already has plans for replacing the matatus with larger buses and it is expected to
put in place incentive schemes, such as concessionary long term loans, to enable current matatu
owners and operators to participate in the transition and so to minimize the risk of resistance. On
corridors where BRT is introduced, the new stations will attract a greater number of passengers
and create new routes for matatus . Nevertheless, the exact impact on employment with matatus
will only be known after the studies have been completed, and appropriate plans would have to
be worked out to address the issue of short-term-unemployment, if any, before a follow-up
project can be finalized (such as re-training programs for affected persons to be absorbed in mass
transit delivery, including station maintenance, bus repairs, etc.).

6. Messrs/Mme. Fayolle, Alzetta, Hoven, Bravo, Frieden, Morin, Treffers, James expressed
support for the proJect and sought clarlhcatwn on the following issues:

(a) Upgrading Urban Infrastructure: In relation to the upgrading of infrastructure, such works
will result in significant short to medium-term employment opportunities. In the context of the
WDR on jobs, could staff elaborate on the proposed mechanisms for staffing these jobs, and for
ensuring thorough open and transparent recruitment processes? Also, could staff elaborate on
what tangible opportunities they foresee for female organizations and workers, and how they can
access the opportunities generated by the construction and operation of these new services in the
long-term? In that regard, we would also welcome some clarity on the targets on female users
(page 31) which suggest no change on the baseline percentage figure year on year. Will the new
facilities be designed specifically with the needs of females users in mind, and if so, how?

Kenya has a relatively strong and vibrant private sector and there are no restrictions on labor
movements. Hence construction of infrastructure, which is likel to enerate most of the
employment during the 1mp emen a wn peno , w1 1 enable recruitment of staff from within the
construction sector. The Bank will discuss, as part of project implementation, the inclusion of
wording in the bidding documents to encourage recruitment of local labor with a special
consideration for women and youth where the rate of unemployment is highest at present. The
project includes an indicator to measure the percentage of women among the beneficiaries of the
project. The results framework assumes a fixed value throughout. This data is currently not
available and the project aims to establish a baseline and track any changes during
implementation.

In the meantime, for public sector jobs, the new constitution reaffirms affirmative action: at least
30% employees of any organization should be females.

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.

Indeed, maintaining existing and newly developed infrastructure has been a serious concern in
Kenya, as elsewhere in the Africa Region. Key issues have been lack of capacity for planning
and implementation and inadequate allocation of state resources for maintenance. However, in
Kenya, the issue of financing has been largely addressed through the creation of the Road Fund
and dedication of the fuel levy for maintenance. Unde.r the on-going NCTIP and KTSSP, spec1hc
Sub-components have been financed by the WB to strengthen the institutional capacity of the
Kenya Roads Board (KRB) which is managing the Road Fund.

Most of the maintenance works are carried out by private sector. In addition, the GoK is
embracing long term performance based maintenance contracting. Already under a
Bank-financed Northern Corridor Transport Improvement Project (NCTIP) some four road
contracts (300km) have been let out under this concept. The government through KeNHA has
equally let out a number of contracts under this arrangement, particularly on recently improved
roads. The NCTIP is facilitating capacity building of the road agencies in this respect
particularly in training on the management of such contracts. NUTRIP will deepen this approach
to maintenance.

(c) Developing Mass Transit Corridors: In relation to the development of Bus Rapid Transit
(BRTs), we welcome the consideration of such services in developing countries. However, given
the need to ensure that such services do not end up being a major draw on fiscal resources, we
would like to hear more about possible tolling structures, and how affordable these new services
are likely to be for the poorest communities.

The building of the BRT infrastructure is ex ected to be financed el b the ublic sector,
wli1 e t e operatiOn and maintenance is expected to be structured as a PPP with largely private
sector financing and participation. The TORs for the study to structure the BRT as a PPP will
have a specific provision to examine the financial viability. The passenger volumes on many of
these corridors are extremely high. The operations are expected to be financially viable even
with the current low fares prevailing in the public transport sector. Nevertheless, should it
become necessary to keep the fares affordable among the poorer communities, the need for
Public Service Obligation contracts will be examined so as not to preclude use of the newly
developed infrastructure by the poorer segments of the society.

(d) Institutional and Policy Reforms: In relation to the institutional and policy reforms, we
welcome the Government of Kenya's (GoK) reform package- this will be essential given that
many current transportation companies operate in an environment with minimal regulation.
Given the significant number of current institutions and agencies, it is particularly welcome to
see .the proposals to establish one authority for the greater Nairobi area to ensure coherence
across the sector. Furthermore, we welcome the involvement of the Department of Institutional
Integrity (INT) in the Road Sector Governance and Integrity Improvement Action Plan (GAP)
and expect that GAP and the strengthened oversight bodies will contribute further to increased
transparency and accountability in the transport sector. We particularly appreciate the adoption
of rigorous investigation and estimation of costs, higher scrutiny of bids and qualifications, l
stringent due diligence of bidders, consultants and suppliers, as well as post-qualification of
bidders for large work contracts.

So far some of these measures have yielded successful results, such as increased number of bids
for specific tenders, more competitive prices, and greater public awareness of government
programs. These positive effects will continue to be monitored, and where feasible, third party
monitoring (especially using NGOs/CSOs) will be encouraged.
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7. Ms. Bohan expressed support for the NUTRIP project and requested clarification on how
the Bank could help the Government ofKenya in easing the problem of urbanization in the short
term, given that the implementation of the project (in both framework and operational arenas)
would take time and could provide full services in the next 5-6 years so we would like to know

Provision has been made under the project for immediate intervention mainly related to activities
that may not need major investments and a long time to be implemented (Ref. PAD page 35 on
traffic management interventions in Nairobi). Such measures to be implemented in the
short-term include minor junction improvements, rehabilitation of existing traffic lights, and slip
road construction, among others.

Coordination among numerous organizations managing different and sometimes overlapping

aspects of urban transport has been a key challenge in the delivery and management of public
transport services in urban areas, not only in Kenya, but world-wide. Hence, the consolidation of
responsibilities under one authority (the proposed NMTA) is very essential and there are
examples of such successful initiatives supported by the Bank in Nigeria (LAMATA) and Dar es
salaam (DART) that would be replicated under NUTRIP. The five implementing agencies have
already been involved in various national projects in the country and coordination among them
has worked reasonably well under MoT and MoR. Furthermore, the project provides for an
inter-ministerial oversight committee arrangement to ensure adequate coordination and timely
decision-making during implementation. This informed the design of the project implementation
arrangements, with an overall coordination ministry (MoR) and an oversight body (Project
Oversight Committee) to resolve any bottleneck that emerges.

8. Mr. Alkaffas requested clarification on how the Bank will ensure that constant M&E will be a
priority.

The selection process for an M&E consultant is underway. The TOR requires competent
consultants and will ensure that all aspects will be monitored regularly during project
implementation.

9. Mr. Alkaffas also requested clarification on the adequate measures (referred in Annex 4) to
be included in the project to mitigate this risk.

The project describes a clear communicating strategy (PAD Annex 3 item 67).

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