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Document ofThe World BankReport No: 68508 v1Restructuring PAPERON APROPOSED Project restructuring of regional communication infrastructure program (APL1)MADAGASCAR communications infrastructure project (cip 3)CREDITMarch 29, 2007TO THEREPUBLIC OF MADAGASCARApril 26, 2012This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.ABBREVIATIONS AND ACRONYMSAPLAdaptable Program LoanARTECAutorité de Régulation des Technologies de Communications (ICT Regulatory Authority)BPBank ProceduresCIP3Madagascar Communications Infrastructure ProjectCPSteering Committee (Comité de Pilotage)CTBNTechnical Committee for the national backbone (Comité Technique pour le Backbone National)DODevelopment ObjectiveEASSyEastern Africa Submarine SystemESMFEnvironmental and Social Management FrameworkFMFinancial ManagementFMRFinancial Monitoring ReportFMSFinancial Management SystemGPGeneral PoliciesGDPGross Domestic ProductGNIGross National IncomeICTInformation and Communications TechnologyIDAInternational Development AssociationIFCInternational Finance CorporationIPImplementation ProgressIRRInternal Rate of ReturnISPInternet Service ProviderIXPInternet Exchange PointsLIONLower Indian Ocean NetworkMWMicrowaveMTPCMinistère des Télécommunications, des Postes et de la Communication (Ministry for Telecommunications, Post and Communication)M&EMonitoring and EvaluationOMERTOffice Malgache d’Etudes et de Régulation des Télécommunications (Malagasy Office for Research and Telecommunication Regulation)ODOperational DirectivesOPOperational ManualPADProject Appraisal DocumentPCPersonal ComputerPPPPublic Private PartnershipRCIPRegional Communications Infrastructure ProgramRAPResettlement Action PlanRPFResettlement Policy FrameworkSBDStandard Bidding DocumentsSDHSynchronous Digital HierarchySEExecutive Secretariat (Secrétariat Exécutif)SMESmall and Medium EntrepriseTELMATelecom MalagasyUS$United States DollarsUSUnited States of AmericaWBGWorld Bank GroupVice President: DOCPROPERTY VicePresident \* MERGEFORMAT Obiageli EzekwesiliActing Regional Integration Director:Elizabeth LuleCountry Director:Haleh BridiSector DirectorJosé Luis IrigoyenActing Sector Manager:Doyle GallegosTask Team Leader:Isabel NetoAfrica Regional Communications Infrastructure ProjectMADAGASCARP094103ContentsPageA.SUMMARY5B.PROJECT STATUS6C.PROPOSED CHANGES7ANNEX 1: Results Framework and Monitoring14Regional Communications Infrastructure ProjectRESTRUCTURING PAPERSUMMARYThe Madagascar Communications Infrastructure Project, Credit No. 4285-MAG, P094103 was first approved in March 2007. The current closing date is April 30, 2012. The Project Development Objective for Phase I (APL1) is to (i) to contribute to lower prices for international capacity and extend the geographic reach of broadband networks (the “connectivity development objective") and ( ii) contribute to improved Government efficiency and transparency through e-government applications (the "transparency development objective"). The PDO for Madagascar is a subset of the APL PDO, with only the connectivity development objective applying. When the 2009 crisis in Madagascar erupted, the project was at very early implementation stages, with only a few initial consultancies having started. Given that the activities as had originally been envisaged involved key policy decisions, all project activities (except for the project management unit) had been put on hold due to the Bank's application of OP7.30 to the country. Following MD’s decision on May 11, 2011 to resume disbursements on the entire Madagascar portfolio, the country team set out on the preparation of a comprehensive portfolio restructuring package (guided by the ISN under preparation at the time) to adapt to the current operating environment. The Interim Strategy Note (ISN) was presented to the Board in February 2012. The original project development objective continues to be relevant and achievable, but changes in the approach and selected components and indicators are required. The extension of closing date would allow for completion of activities under the project, which suffered from serious delays following the political crisis in Madagascar. In the context of the ISN and following government’s request dated April 25, 2012, the project is now being restructured, and the main proposed changes are to (i) cancel activities for which policy decisions are needed (and that the government is not likely to be able to take for the foreseeable future) or that are no longer relevant in a total amount of SDR 10,100,000 (US $ 15 m. equivalent) with the corresponding national IDA of these resources (one third, i.e., $5m) being freed up for use in other operations in the Madagascar portfolio; (ii) change the approach for the backbone component; (iii) extend the credit closing date by an additional 20-months to allow for completion of the activities, from April 30, 2012 to December 31, 2013, with the corresponding changes in implementation and disbursement projections; (iv) reallocate funds across disbursement categories; and (v) revise the indicators to exclude the indicators on which the project will no longer have an impact, and adjusting the end values for proposed indicators to reflect the extension and the reality on the ground. This is the second restructuring of the project. The first restructuring was approved in July 26, 2011, and consisted of the extension of the project closing date by 9 months, from July 31, 2011 to April 30, 2012. The proposed changes and their consistency with the original principles and arrangements. Changes and reallocations are consistent with the original PDO and generally with the Regional Program principles and the Project description as originally approved. The proposed changes are also consistent with the breakdown in regional/national IDA allocation – ie activities are still all eligible for regional funds, as they have not changed in their nature. PROJECT STATUSProject Status. As of February 2, 2012, out of the signed amount of SDR 20.2m (equivalent to $30m USD), SDR 1.34m (equivalent to $2.09m USD) has been disbursed representing 6.67% of the signed amount. The amount undisbursed is SDR 18.85m (equivalent to $29.21m USD) and the amount committed is SDR 1.2m (equivalent to $1.8m) representing 5.8% of the signed amount. This compares with figures for the overall RCIP APL1 of 32% disbursements and 54% of the funds having been committed.Progress so far. The Madagascar Communications Infrastructure Project, Credit No. 4285-MAG, P094103 was first approved in March 2007. When the 2009 crisis in Madagascar erupted the project was at very early implementation stages, with only a few initial consultancies having started. Given that the activities as had originally been envisaged involved key policy decisions, all project activities (except for the project management unit) had been put on hold due to the Bank's application of OP7.30 to the country, which means that apart from some initial consultancies, no other project activities have been implemented. Despite the crisis the sector has continued to grow, although at reduced rates, and since project approval two submarine cables (EASSy and LION) have landed in Madagascar. Ratings on progress towards the PDO and implementation progress are currently moderately satisfactory, but these ratings also reflect operations in Kenya and Burundi, in addition to Madagascar, which are all participating in RCIP Phase I (APL1). In Kenya, project activities are progressing well, after some initial delays, as well as the project indicators, as can be consulted in the latest ISR, and an additional financing has just been approved for the project in March 2012. In Burundi, the main project component is the development of a backbone network through a Public Private Partnership (PPP); negotiations of the PPP took over a year and a half, required an extension of the project, and have only recently been concluded. However, the supply contract for the network has now been signed, and works are expected to start during the second quarter of 2012, allowing implementation and disbursement to accelerate. Fiduciary ratings – including financial Management and procurement are satisfactory. The implementing entities are compliant with the Bank's financial management requirements; and there are no overdue audit reports and interim financial reports from these entities.Following MD’s decision on May 11, 2011 to resume disbursements on the entire Madagascar portfolio, the credit closing date was extended by 9 months from July 31, 2011 until April 30, 2012 to allow for sufficient time to prepare a more comprehensive restructuring package and to align it with the overall portfolio actions within the framework of the Interim Strategy Note (ISN). The original project development objective continues to be relevant and achievable, but changes in the approach and selected activities and indicators are required.PROPOSED CHANGES Results/indicators. The indicators are being revised to exclude the indicators on which the project will no longer have an impact (only intermediate), align with core sector indicators, and adjust the end values to reflect the proposed extended project closing date of December 31, 2013 and the reality on the ground. The revised targets are presented in Annex 1. Several of the original targets have been surpassed, even with most of the project activities on hold. This can be explained because other unforeseen events took place during this period; for example, not only one (as expected at time of project approval), but two submarine cables landed in Madagascar during this period, thereby accelerating sector growth. Also, despite the lack of liberalization of the data segment in Madagascar, several operators have in practice started providing those services, increasing competition and reducing prices. Through this restructuring, selected indicators have been removed where there was no longer an attribution to project activities (e.g., number of ISPs or number of university PCs connected to broadband) and one additional indicator was added (‘number of towers constructed’) where there will be a full attribution. The target values have been calculated by trying to estimate what would be the cumulative/aggregate contribution of the project, together with other factors, to sector growth (see Annex 1 for revised targets for volume of international traffic, teledensity, internet subscribers, among others).Components. The proposed changes in project components are as follows:Cancel activities for which policy decisions are needed (and that the government is not likely to be able to take for the foreseeable future) or that are no longer relevant: these include the technical assistance for policy reform, capacity purchase, and setting up of a virtual landing station. These changes will result in a cancellation of SDR 10,100,000 (US $ 15 m. equivalent) with the corresponding national IDA of these resources (one third, i.e., $5m) being freed up for use in other operations in the Madagascar portfolio;Slightly increase the costs needed for project management, to reflect the extension of the project;Restructure the backbone component to focus on “passive” infrastructure and extend backbone networks and mobile services to rural remote areas. Originally the project had foreseen the liberalization of capacity resale in Madagascar, and the subsequent build out of a national backbone network to be used by all the operators. In the absence of liberalization of capacity resale, however, building out a full backbone network would mean that a single operator (TELMA) would be allowed to operate it. Through this restructuring, a new approach is being proposed in which the common rollout of infrastructure will focus on passive elements only (i.e., towers and energy solutions rather than active equipment such as antennas and switches) that all operators will be allowed to use and share to set up their active elements (i.e., antennas) for backbone deployment and/or base station installation (i.e., to increase transmission capacity and improve coverage of the network. This would mean that the benefits of infrastructure sharing would still be realized, even in a non-liberalized environment, therefore still guaranteeing the principles of open access on which the RCIP program is based. These towers would be set up in partnership with the private sector. Where relevant, a set of sub-projects will be implemented to provide marginal energy services to the rural communities where these towers are located. It is expected that the tower+energy extension sub-projects will be executed in two rounds (see implementation schedule below).The table below describes the changes in project components being proposed (as described in the Financing Agreement).Original componentRevised componentPart 1. Enabling EnvironmentProvision of technical assistance to:Promote liberalization of and legal and regulatory reforms related to national and international telecommunications infrastructure and other relevant infrastructure, including regulatory and legal reform in the field of telecommunications (including competition law and policy).Support capacity-building of Ministry of Telecommunications, Posts and Communication and ARCT for the implementation of the sector policy and sector reforms, including training.Finance additional studies for the development of the national backbone.Develop the legal and regulatory framework with respect to, inter alia, e-transactions security, privacy and data protection, access to information, network security, intellectual property rights, cyber crime, public private partnerships and standards.Formulate arrangements, disbursement and governance mechanisms to enable the building of the national backbone, the establishment of a joint regional infrastructure access point and internet exchange point, capacity purchase schemes and the establishment of a capacity pool related to the national backbone.Increase capacity of the Recipient to monitor and evaluate the results of the Program, to meet environmental and social safeguards and communicate about the Project.Provision of technical assistance to:Promote liberalization of national and international telecommunications infrastructure.Finance additional studies for the development of the national backbone.Develop the legal and regulatory framework of the public private partnerships..Formulate arrangements, disbursement and governance mechanisms to enable the building of the national backbone and the establishment of joint regional infrastructure.Increase capacity of the Recipient to monitor and evaluate the results of the Program, to meet environmental and social safeguards and to communicate about the Project.Part 2. Connectivitya.Finance capacity purchase schemes for targeted users, in particular universities and the Recipient;b.Support for the establishment of joint regional infrastructure access point and a joint internet exchange point; andc.Support the building of a national backbone through the implementation of Sub-Projects (with a contingency to address environmental, social and resettlement issues, including resettlement compensation).Part 2. Connectivitya.Support for the establishment of joint regional infrastructure through financing telecommunication infrastructure, namely elements of the national backbone and its extension to rural remote areas, through the implementation of sub-projects (with a contingency to address environmental, social and resettlement issues, including resettlement compensation).Part 3. Project ManagementSupport the Executive Secretariat with respect to activities pertaining to the management of the Project.Part 3. Project ManagementSupport the Executive Secretariat with respect to activities pertaining to the management of the Project.Safeguards. The project’s management of environmental and social safeguards is satisfactory overall. The restricting of the backbone component to focus on “passive” infrastructure has the same scope and activities as the original project. Therefore, the safeguards category “B” remains unchanged, and it is expected that these amendments will not trigger any new safeguard measures. safeguard policies that applied to the parent project remain unchanged: OP 4.01 Environmental Assessment, and OP 4.12 Involuntary Resettlement. The parent project safeguard instruments - Environmental and social Management Framework (ESMF), and Resettlement Policy Framework (RPF) - remain applicable. These documents do not require any modification.Institutional arrangements. The institutional arrangements for the project will be left unchanged. Procurement. Procurement arrangement under the project remains unchanged except the introduction of new procurement method "Procurement under Public Private Partnership (PPP) arrangements" to take into account the selection of a private operator to construct and maintain a tower network and rent access to private operators. Applicable Guidelines are those published by the Bank in January 2011. The client’s procurement officer is still in place. FinancingProject Costs and cancellation., the restructuring would result in the removal of certain project activities, which would result in a cancellation of $15 m. in the amount of the credit (10.1 SDR). Distribution of the amount to be cancelled with regards to the different project components would be as follows:Project Cost By Component and/or ActivityTotalUS$?m.Current allocationTotalUS$?m.Disbursed TotalUS$?m.For future activitiesTotalUS$?m.Proposed revised allocationTotal $amount to be cancelledCOMPONENT 1 - Technical assistance to MTPC, ARTEC, capacity building, M&E2.940.350.881.231.71(a) Regulatory TA0.30.110.070.18(b) Policy and Regulatory Capacity Building0.350.020.060.08(c) Complementary studies for the development of backbone elements0.50.020.390.41(d) e-legislation and regulatory framework0.1(e) PPP framework development0.30.190.120.31(f) M&E Capacity Building0.180.010.040.05(g) Design of Purchase of capacity0.17(h) Assistance in formation of the capacity pool0.2(i) Environmental studies0.1(j) Project Communications0.20.200.20(k) Additional Technical Assistance0.54COMPONENT 2 – Connectivity24?12.0112.0111.99(a) Virtual landing station and IXP1.5(b) Rollout of national backbone elements.18.5(c) Purchase of capacity for targeted users4(d) Primary links – Zone 15.25.2(e) Primary links – Zone 24.644.64(f) Primary links – Zone 3??2.172.17?COMPONENT 3 - PROJECT MANAGEMENT1.360.910.851.76-0.40(a) Executive Secretary0.320.230.130.36(b) Technical Manager0.30.090.050.14(c) Procurement Specialist0.110.090.050.14(d) Financial Management Specialist0.110.100.070.17(e) M&E Specialist0.100.100.070.17(f) Communications Specialist 0.100.020.040.06(g) Office Equipment0.030.030.03(h) Incremental Operating Cost0.180.190.340.53(i) Audit0.080.020.030.05(j) Environmental0.030.010.030.04(k) Chief account?0.030.040.07?Total Baseline Cost28.31.2613.741513.30Contingencies for resettlement11.00Price Contingencies0.70.70Unallocated??15??Total Project Costs1301.2613.741515Interest during constructionFront-end Fee?????Total Financing Required301.2613.741515Financing Plan: The disbursement projections were revised as follows: FYProjected (USD)Projected (SDR)Cumulative (USD)Cumulative FY%of original credit%of revised creditBefore Q3 FY122.89m(actual)1.35m(actual)2.08m(actual)1.35m(actual)6.67%13.34%Q4 FY120.650.442.731.798.86%17.72%Q1 FY132.171.474.903.2516.08%32.16%Q2 FY130.570.385.473.6317.98%35.96%Q3 FY133.822.599.296.2230.81%61.63%Q4 FY132.431.6511.727.8838.99%77.97%Q1 FY142.751.8714.489.7448.24%96.47%Q2 FY140.530.3615.0010.1050.00%100.00%Total15.00m10.10mReallocations: The following reallocations are being proposed. Most values per disbursement categories are being lowered because of the cancellation of project activities. The operating costs are going up to reflect the extension of the credit closing date and the increased costs for the project which reflect the reality in the country after the political crisis.Category of ExpenditureAllocation(SDR)% of FinancingCurrentRevisedCurrentRevisedCurrentRevised(1) Goods-3,550,00020,000100%100%(2) Works-170,000100%100%(3) Consultants’ services, including audits-2,450,0001,500,000100%100%(4) Training-240,000120,000100%100%(5) Operating Costs-120,000370,000100%100%(6) Subprojects under Part 2(c) of the Project-12,450,0008,090,000100%100%(7) Unallocated-1,220,000TOTAL AMOUNT20,200,00010,100,000Closing date: The closing date for the credit is being extended by additional 20 months from April 30, 2012 until December 31, 2013. This extension meets the OP/BP 13.30 criteria. Project objectives continue to achievable provided that the closing date is extended, although there will be changes in the project indicators. A number of changes and revisions proposed in this Restructuring Paper also help achieve the PDO. The proposed extension is necessary to allow for completion of activities under the project, which suffered delays in initial years of project implementation due mainly to the political crisis that has erupted in Madagascar in early 2009. The Recipient has in place an action plan to complete the project (see table below). According to that plan, implementation of all contracts should be completed by December 31, 2013. An extension of 20 months would allow for completion of those contracts. This will be the second extension of the project, with the first one having been for 9months from July 31, 2011 to April 30, 2012, which was approved in July 26, 2011 as a bridge period to prepare the in-depth restructuring. Implementation schedule: The proposed implementation plan is as follows: TimelinePriority activitiesQ3 FY12Prepare 1st round of tower+energy project (ie develop technical specs, draft business model, procurement and disbursement arrangements for the subprojects)Q4 FY12Finalize arrangements and launch the 1st round of the tower+energy projectQ1 FY13Evaluate the tender for the 1st round of the tower+energy projectQ2 FY13Implementation of 1st round startsPrepare and launch 2nd round of tower+energy project (ie adaptation to arrangements used for the first round and launching of the tender process for the 2nd round)Q3 FY13Evaluate the tender for the 2nd round of tower+energy projectQ4 FY13Implementation of 2nd round startsQ1 FY14Conclusion of 1st round’s implementationQ2 FY14Conclusion of 2nd round’s implementationLegal covenants: There are no changes in the legal covenants of the project, and a disbursement condition will still be maintained regarding disbursements towards the backbone support under Part 2 of the project (i.e., connectivity/ support to tower plus energy projects).ANNEX 1:Results Framework and MonitoringAfrica: Regional Communications Infrastructure ProjectResults FrameworkRevisions to the Results FrameworkComments/Rationale for ChangePDOCurrent ProposedTo contribute to lower prices for international capacity and extend the geographic reach of broadband networksNo changeThe original PDO will remain the same.PDO indicatorsCurrent Proposed change*Volume of International traffic (Mbit/s simplex)Continued with revised target value (11,870Mbit/s) at the end of the project (current value of 1,240Mbit/s already exceeded the initial target value of 1,000Mbit/s).Access to Internet Services (number of subscribers per 100 people)Continued with revised target value of 2.97% at the end of the project (current value of 1.66% already exceeded the initial target value 1.15%).Teledensity (Access to Telephone Services (fixed mainlines plus cellular phones per 100 people))Continued with revised target value of 56.12% at the end of the project (current value of 43.8% already exceeded the initial target value of 10%).Price of wholesale international E1 capacity linkContinued with revised target value of US$1,464 at the end of the project (current value of US$1,776 is still above the initial target value of US$1,500).Direct Project Beneficiaries (number), of which female (%)NewIntermediate Results indicatorsCurrent Proposed change*Increased protection of intellectual property & of electronic transactionsDrop Unclear attribution to the project. Number of ISPsDrop Cancellation of related activities.Number of market players buying capacity at the landing station Drop Cancellation of the virtual landing station activity.Price of Internet Access[monthly price for 256kb connection]Continued with revised target value of US$40 at the end of the project (current value of $46 already exceeded the initial target value of $80).Retail price of internet services (per Mbit/s per Month, in US$)”New This is core indicator, and suggested to monitor in addition to the current 256 kbit/s connection price indicator.Number of localities (communes) with broadband accessContinued with revised target value of 131 at the end of the project (current value of 51 already exceeded the initial target value of 40).Number of university PCs connected to broadbandDrop Cancellation of capacity purchase activities.Number of towers constructedNewThis indicator was added to measure the progress of the expansion of backbone networks and mobile services to rural remote areas supported through the projet.Revised PRoject Results FrameworkProject Development Objective (PDO): To contribute to lower prices for international capacity and extend the geographic reach of broadband networks —No ChangePDO Level Results IndicatorsCoreUOMBaselineOriginal ProjectStart(2007)Progress To Date(2011)Cumulative Target ValuesFrequencyData Source/MethodologyResponsibility for Data CollectionComments201220131. Volume of International traffic (Mbit/s simplex) FORMCHECKBOX Mbit/s200Mbits1240Mbit/s(as of Dec 2011)857011870YearlyOMERT/OperatorsOMERT2. Access to Internet Services (number of subscribers per 100 people) FORMCHECKBOX Number0.231.66 (as of Dec 2011)2.432.97YearlyOMERTOMERT/PICOM3. Teledensity (Access to Telephone Services (fixed mainlines plus cellular phones per 100 people)) FORMCHECKBOX Number6.0043.80(as of Dec 2011)51.27 56.26YearlyPICOMOMERT/PICOM4. Price of wholesale international E1 capacity link FORMCHECKBOX US$/MonthUS$ 10,000/MonthUS$1,776/Month(as of dec 2011)US$1,464 US$1,464YearlyOMERT/OPERATORSOMERT/PICOM Average of the prices used by operators5.. BeneficiariesDirect Project Beneficiaries (number), of which female (%) FORMCHECKBOX Numbers00280,6692450660Yearlysocio-economic surveyPICOMPeople in the communities directly benefiting from the connectionOf which female (%) FORMCHECKBOX Percentage (%)0051%51%Yearlysocio-economic survey reportPICOMIntermediate Results and IndicatorsIntermediate Results IndicatorsCoreUnit of MeasurementBaselineOriginal ProjectStart(2007)Progress To Date(2011)Target ValuesFrequencyData Source/MethodologyResponsibility for Data CollectionComments20122013Intermediate Result 1: (Component One): Enabling Environment- DroppedIntermediate Result 2: (Component Two): Connectivity—No Change1. Price of Internet Access FORMCHECKBOX 256 kbit/s per Month, in US$US$ 100US$46.47 (as of dec 2011)US$45US$40YearlyOMERT/ ARTECOMERT/PICOM2. Retail price of internet services FORMCHECKBOX Per Mbits/ per month, in US$US$1208.61$186(as of dec 2011)$ 180$ 160YearlyOMERT/ ARTECOMERT3. Number of localities (communes) with broadband access FORMCHECKBOX Numbers2051(as of Dec 2011)91131YearlyOMERT/ ARTECOMERT4. Number of towers constructed FORMCHECKBOX Numbers00 13 93Yearly PICOMPICOM ................
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