AFRICAN DEVELOPMENT FUND

KENYA

MOMBASA-MARIAKANI HIGHWAY PROJECT

APPRAISAL REPORT

OITC/EARC February 2015

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TABLE OF CONTENTS

I. STRATEGIC THRUST & RATIONALE ................................................................................................. 1

1.1. PROJECT LINKAGES WITH COUNTRY STRATEGIES AND OBJECTIVES ..................................... 1

1.2. RATIONALE FOR BANK’S INVOLVEMENT .............................................................................. 1

1.3. DONORS COORDINATION ....................................................................................................... 2

II. PROJECT DESCRIPTION ........................................................................................................................ 2

2.1. DEVELOPMENT OBJECTIVES AND PROJECT COMPONENTS .................................................... 2

2.2. TECHNICAL SOLUTION RETAINED AND OTHER ALTERNATIVES EXPLORED ........................... 3

2.3. PROJECT TYPE........................................................................................................................ 3

2.4. PROJECT COST AND FINANCING ARRANGEMENTS ................................................................. 3

2.5. PROJECT’S TARGET AREA AND BENEFICIARIES ..................................................................... 5

2.6. PARTICIPATORY PROCESS FOR PROJECT DESIGN AND IMPLEMENTATION ............................. 5

2.7. BANK GROUP EXPERIENCE AND LESSONS REFLECTED IN PROJECT DESIGN .......................... 6

2.8. KEY PERFORMANCE INDICATORS .......................................................................................... 6

III. PROJECT FEASIBILITY ..................................................................................................................... 6

3.1. ECONOMIC AND FINANCIAL PERFORMANCE .......................................................................... 6

3.2. ENVIRONMENTAL AND SOCIAL IMPACTS............................................................................... 7

IV. IMPLEMENTATION .......................................................................................................................... 10

4.1. IMPLEMENTATION ARRANGEMENTS .................................................................................... 10

4.2. MONITORING ....................................................................................................................... 11

4.3 GOVERNANCE ...................................................................................................................... 12

4.4 SUSTAINABILITY ................................................................................................................. 12

4.5. RISK MANAGEMENT ............................................................................................................ 13

4.6. KNOWLEDGE BUILDING ....................................................................................................... 14

V. LEGAL INSTRUMENTS AND AUTHORITY ...................................................................................... 14

5.1. LEGAL INSTRUMENT ............................................................................................................ 14

5.2. COMPLIANCE WITH BANK POLICIES .................................................................................... 15

VI RECOMMENDATION............................................................................................................................. 15

APPENDIX I: COUNTRY COMPARATIVE SOCIO-ECONOMIC INDICATOR ...................................... I

APPENDIX II: TABLE OF ADB’S PORTFOLIO IN THE COUNTRY .......................................................II

APPENDIX III: RELATED ONGOING PROJECTS FINANCED BY THE BANK AND DONORS ...... III

APPENDIX IV: MAP OF PROJECT AREA .................................................................................................. IV

APPENDIX V: JUSTIFICATION FOR LESS THAN 10% CONTRIBUTION BY GOK ........................... V

Currency Equivalents As of 01.12.2014

1 UA = 1 SDR

1 UA = USD 1.53481

1 UA = KES 131.222

1 UA = EURO 1.18938

Fiscal Year

Kenya: 1 July – 30 June

Weights and Measures

1 metric tonne = 2,204 pounds (lbs)

1 kilogram (kg) = 2.200 lbs

1 meter (m) = 3.28 feet (ft)

1 millimeter (mm) = 0.03937 inch (“)

1 kilometer (km) = 0.62 mile

1 hectare (ha) = 2.471 acres

i

Acronyms and Abbreviations

AADT Annual Average Daily Traffic KES Kenya Shilling

ADB

(AfDB) African Development Bank KfW German Development Bank

ADF African Development Fund KNBS Kenya National Bureau of Statistics

AFD Agence francaise de development LCS Least Cost Selection

AIDS Acquired Immune Deficiency Syndrome MTP Medium Term Plan

AITF Africa Infrastructure Trust Fund NACC National AIDS Control Council - Kenya

CBO Community Based Organization NC Northern Corridor

COMESA Common Market for Eastern and Southern Africa NCTTCA Northern Corridor Trade and Transport Co-

ordination Authority

CSP Country Strategy Paper NEMA National Environment Management Authority

DFID Department for International Development NGEC National Gender and Equality Commission

DRC Democratic Republic of Congo NGO Non-governmental Organization

EAC East African Community NMT Non-Motorised Transport

EIB European Investment Bank NPV Net Present Value

EIRR Economic Internal Rate of Return NTSA National Transport Safety Authority

EOI Expression of Interest PAP Project Affected Persons

ESAP Environmental and Social Assessment Procedures PCR Project Completion Report

ESIA Environmental and Social Impact Assessment PIDA Program for Infrastructure Development in

Africa

ESMP Environmental and Social Management Plan PWD Persons with Disabilities

EU European Union QCBS Quality and Cost Based Selection

FE Foreign Exchange RAP Resettlement Action Plan

GHG Green House Gas RFP Request for Proposals

GOK Government of Kenya RSIP Road Sector Investment Program

GPN General Procurement Notice SPN Specific Procurement Notice

HDM Highway Development and Management System SSATP Africa Transport Policy Program

HIV Human Immunodeficiency Virus STI Sexually Transmitted Infection

ICB International Competitive Bidding TMEA Trade Mark East Africa

JICA Japan International Cooperation Agency UA Unit of Account

KeNHA Kenya National Highways Authority USD United States Dollar

KENAO Kenya National Audit Office VOC Vehicle Operating Costs

KRB Kenya Roads Board WTO World Trade Organisation

ii

Loan Information

Client’s information

BORROWER: REPUBLIC OF KENYA

EXECUTING AGENCY: KENYA NATIONAL HIGHWAYS AUTHORITY

Financing plan

Source Amount (UA)

million

Instrument

ADF 80.00 Loan

GOV. OF KENYA 8.54 Counterpart

KfW 42.03 Loan

EUROPEAN INVESTMENT BANK 42.03 Loan

AFRICA INFRASTRUCTURE TRUST FUND 16.82 Grant

TOTAL COST 189.42

ADB’s key financing information

Loan currency

Unit of Account (UA)

Interest type Not Applicable

Interest rate spread Not Applicable

Service Charge 0.75% on amount disbursed and outstanding

Commitment fee 0.50% on the un-disbursed loan amount

Tenor 40 years

Grace period 5 years

NPV (base case) USD 384 million

EIRR (base case) 33.9%

Timeframe - Main Milestones (expected)

Concept Note approval

September, 2014

Project approval by ADF March, 2015

Loan Agreement Signing June 2015

Effectiveness September, 2015

Last Disbursement June, 2021

Completion December, 2020

Last repayment December, 2055

iii

PROJECT SUMMARY

Project Overview

1. The project road is an important section of the Northern Corridor (NC) which links the port of

Mombasa in Kenya with the land-linked eastern and central African countries of Uganda, Rwanda,

Burundi and the Democratic Republic of Congo (DRC). The Mombasa-Mariakani road is situated in

Mombasa and Kilifi Counties of Coastal Kenya. The Project consists of the dualling of 41.7 km of the

Mombasa–Mariakani Highway with grade separated junctions and associated soft components

including training of unemployed youth, capacity building consultancy services for mainstreaming

gender in road sub-sector and to improve sustainability of road maintenance. The total cost of the

Project is UA 189.42 million. The Project is co-financed by the Bank Group (42.2%), German

Development Bank (KfW) (22.2%), European Investment Bank (22.2%), Africa Infrastructure Trust

Fund (8.9%) and Government of Kenya (4.5%). The overall implementation period is 5 years (2015 –

2020) with additional maintenance period of 5 years. Project beneficiaries are corridor residents who

will have greater economic opportunities and improved access to social services and goods. Regional

beneficiaries include producers, manufacturers and traders who will have an improved access on the

main corridor to the Port of Mombasa easing movement of exports and imports at a reduced time and

cost.

Needs Assessment

2. The Northern Corridor is a very important corridor of the region carrying significant proportion of

the imports and exports from the port of Mombasa and onto the hinterland. More than 90% of the

regional and domestic traffic is carried by road along the corridor. The port of Mombasa is currently

handling annually about 22.1 million Dead Weight Tonnes of import and export goods. The current

traffic congestion along the corridor and at the junctions is negatively affecting the import/export

transport, as well as the environment. Improvement of the corridor, as well as access to the port, will

significantly enhance the efficiency of import and export related trades, thereby widening economic

activities, regional integration and the region’s global competitiveness due to the strategic role the port

of Mombasa plays in the region.

Bank’s Added Value

3. Bank financing for the proposed Project will significantly compliment the efforts of the

Government to improve the road condition of the NC, access to the Mombasa Port and Bank’s other

support in the region such as the Mombasa – Nairobi – Addis Ababa corridor and the Timboroa –

Eldoret Road Rehabilitation along the NC, for facilitation of transport and trade. This intervention will

also assist the East African Community and partner states in the harmonization of transport regulations,

the implementation of effective transit operations on the corridor and reduced journey time, as well as

cost, of import-export activities in the region. The Bank’s rich experience in implementing such core

infrastructure projects in the country and the region will ensure timely and satisfactory completion of

the Project. The Project is well aligned with the Bank’s Ten Year Strategy (2013-2022) which

addresses, among others, infrastructure development and regional integration.

Knowledge Management

4. A component of this Project will specifically assess the impacts of investments made in the road

sub-sector in Kenya in a bid to evaluate these impacts, develop monitoring mechanisms and draw

lessons. The knowledge to be obtained from the study will assist the Bank and countries in the region in

systematically monitoring and maximizing the impact of future interventions in the sector through

improved project design and management.

iv

MOMBASA – MARIAKANI HIGHWAY PROJECT

RESULTS-BASED FRAMEWORK

Country and project name: Kenya/ Mombasa – Mariakani Highway Project

Purpose of the project: To improve transport of import and export goods and passengers traffic along the Northern Corridor

RESULTS CHAIN

PERFORMANCE INDICATORS MEANS OF

VERIFICATION RISKS/MITIGATION MEASURES Indicator

(including CSI) Baseline Target

IMP

AC

T Increased regional and international

trade for Kenya and Eastern and

Horn of Africa regions using the

port of Mombasa.

Volume of Import

Export trade handled

at Mombasa port.

22.1 million tons

in 2013.

Total import export trade using the port

of Mombasa to increase to 29 million

tons by 2020.

Customs statistics;

Trade statistics from

COMESA, WTO,

KNBS, Kenya Ports

Authority data.

OU

TC

OM

ES

Reduction in transport cost

Improved air quality along the

project road.

Travel time between

Mombasa and Malaba

reduced

Total annual average

VOC per Veh. Km

CO2 concentration

3.2 days in 2014

for trucks

USD 0.83

4.5 MT in 2014

Reduced by 20% in 2020

Reduced to USD 0.56 in 2020

Decrease by 38% in 2020

KeNHA, Port of

Mombasa, NCTTCA

Transit transport

surveys; customs

statistics, Consultant’s

progress reports, Bank

review reports.

Project completion

report

Risk: Sustainability of maintenance financing, axle load control on

the corridor and road safety particularly for pedestrians

Mitigation: The Project will include five years of maintenance

period. Construction of pedestrian infrastructure is also included in

the Project. KeNHA is improving the management of weighbridge

station by contracting it out to private sector.

Risk: Road accident once the condition of the road is improved

Mitigation: Road safety audit of the design was done; Foot-Over-

Bridge crossings are provided for pedestrian; and safety awareness

training and campaign will be conducted as part of the Project.

OU

TP

UT

S

Upgraded road

Social sensitization and awareness

program about HIV/AIDS/STI,

Gender, Road safety, Drug Abuse

Provision of roadside trading

facilities

ESMP & RAP including tree

planting

km of road upgraded

Number of

sensitization and

awareness campaigns

Number of container

kiosks set up

Implementation of

ESMP & RAP

Nil

Nil

Nil

Nil

By 2019, 41.7 km of road completed

4 sessions carried out at each of the 6

populated locations1 by 2018

by 2018, three container kiosks set up

for use by youth traders (50% female)

By 2018 full implemented the ESMP and

1500 trees planted by 2017 completed

100% resettlement of PAPs

Progress, disbursement

and financial reports

from the executing

agency

Bank supervision

mission reports

Progress reports from

the executing agency

Project completion

report

Risk: Project implementation delay

Mitigation: Use of Advance Contracting, and close supervision by

KeNHA and the Bank supervision team. Commencing the process

of RAP in order to finalize it before signing of the contract will

also help to mitigate delays.

Risk: Project cost overrun

Mitigation: use of current cost estimates, including reasonable

amount of contingency in the project and close supervision.

Risk: lack of co-financing

Mitigation: GOK as well as the co-financiers have shown strong

commitment for the realization of this project. Bank to closely

follow up the final approval of the funds.

1 Changamwe, Miritini, Mazeras, Mariakani, Kwa Jomvu, Madafuni

v

Project pipeline prepared

Guideline on Gender

Mainstreaming

Impact of investment on road sub-

sector assessed

Capacity building for planning and

management of maintenance

contracts

Youth vocational training

Studies completed

Guideline developed

Impact assessment

report prepared

Manual prepared and

training conducted

Youth trained

N/A

N/A

N/A

N/A

N/A

Design of one pipeline project completed

by 2018

Guideline for mainstreaming gender in

the road sub-sector developed and

approved by 2018

Impact of investment on the road

subsector on the development agenda of

GOK assessed and monitoring

mechanism established.

Maintenance management manual and

five years maintenance action plan

prepared.

150 and 300 youth by 2016 and 2018

respectively, 50% young women

KE

Y A

CT

IVIT

IES

COMPONENTS INPUTS

Road Civil Works: Mombasa - Mariakani (41.7km)

Consultancy services and training

Institutional support

Compensation and Resettlement

Contingencies

UA 142.54 million

UA 11.18 million

UA 1.63 million

UA 5.86 million

UA 28.21 million

Total Cost: UA 189.42 million

vi

MOMBASA – MARIAKANI HIGHWAY PROJECT

Indicative Project Time Frame

1

REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF DIRECTORS ON A

PROPOSED LOAN TO KENYA FOR THE MOMBASA – MARIAKANI HIGHWAY PROJECT

Management submits the following Report and Recommendation on a proposed loan of UA 80.00 million to the

Republic of Kenya to finance the Mombasa – Mariakani Highway Project.

I. STRATEGIC THRUST & RATIONALE

1.1. Project linkages with country strategies and objectives

1.1.1 Road transport plays a significant role in the socio – economic development of the country

carrying more than 90% of motorized freight and passenger traffic. Poor infrastructure, including

roads, was identified as one of the major constraints to the development endeavours of the Government

of Kenya (GOK). The GOK launched its long-term development strategy, Vision 2030 in 2008, and

the second five-year Medium Term Plan (MTP II) for the period 2013-2017. The MTP has three

overarching pillars namely, economic, social and political, which are anchored on several foundations

including macroeconomic stability, continued governance reforms and expansion of economic

infrastructure. The development of physical infrastructure in the MTP is seen as the basis for socio-

economic transformation. The Road Sector Investment Programme (RSIP) 2010-2024, which is to be

implemented in successive five year programmes, outlines and guides the development and

maintenance of the road sub-sector.

1.1.2 The above national strategies and plans are in line with the Bank’s Ten Year Strategy (2013-

2022), which prioritizes support to infrastructure development and promotion of regional integration as

key areas for the Bank’s future assistance. The project road is also identified in the current CSP (2014-

2018) of the country. In addition, the Project is well aligned with the regional infrastructure strategic

pillar of the East African Regional Integration Strategy Paper (RISP) (2011-2015), which focuses on

Regional Transportation/Trade Facilitation Infrastructure and aims to promote seamless connectivity

within the EAC region.

1.2. Rationale for Bank’s involvement

1.2.1 The Second MTP of the country builds on the successes of the first MTP (2008-2012), which

include increasing the scale and pace of economic transformation through infrastructure development.

Under the MTP II, the factors on which the transformation of the economy is pegged, include, among

others, modernization of infrastructure and, wider access to African and global markets. For the

transport sector, the MTP II’s priorities include, among others, expansion and rehabilitation of roads;

improving the efficiency of the Mombasa port; and, construction of the standard gauge railway line

from Mombasa to Malaba. The target for the roads sub-sector also includes constructing and

rehabilitating of national and regional highways. The MTP II aims at achieving a road network with 75-

80 per cent of the classified roads in good condition.

1.2.2 The main objective of the Bank’s Assistance Strategy (CSP 2014 – 2018) under Pillar I, is to

create job opportunities by establishing a more conducive environment for the private sector through

investments in physical infrastructure. Specifically, the Bank’s investments in transport will increase

transport connectivity, reduce transport cost and improve reliability of travel times, all in line with

Kenya’s MTP II. This project is also aligned to the East Africa Regional Investment Strategy Paper

(EA-RISP), which supports the development of infrastructure impacting regional transport and

integration. The Mombasa – Mariakani project is identified in the CSP as a priority project as it will

improve the import-export transport between the port of Mombasa and the rest of Kenya, the land-

linked countries of Uganda, South Sudan, Rwanda, Burundi, and eastern part of the Democratic

Republic of Congo.

2

1.2.3 The Project forms part of the Northern Corridor and the Mombasa – Nairobi – Addis Ababa

transport corridors, and its implementation is expected to boost regional integration and trade along the

two transport corridors. The Project is part of the EAC Infrastructure Priority Projects (2012-2020) and

the EAC Road Network Project. Moreover, it is a priority in the continental Programme for

Infrastructure Development in Africa (PIDA). The Bank has also financed the design of the Project.

Financing the proposed Project will assure Bank’s continued involvement and support for the transport

sector in Kenya as well as for regional integration given the very important role that the Mombasa port

plays in the region.

1.3. Donors coordination

1.3.1 Donor coordination in Kenya is carried out at both sector and national levels. The apex aid

coordination body is the Development Partnership Forum (DPF) attended by heads of diplomatic

missions and aid agencies, and heads of government departments. The DPF discusses key policy issues,

and agrees on a set of deliverables. The Roads and Transport Sector Donor Working Group meets

regularly to harmonize donors’ responses and positions with respect to institutional, policy and projects

financing and implementation issues. Other major donors involved in the sector include the World

Bank, EU, AFD, China, DFID, TMEA and JICA. The Bank is one of the leading financiers in the road

sub sector in Kenya. The Bank chaired the Roads and Transport Sector Development Working Group

until 2010. The chairmanship of the group is held on a rotational basis and currently it is chaired by the

EU.

Sector or subsector Size

GDP Exports Labor Force

Construction* 4.2

Players - Public Annual Expenditure (average)

GOK * Donors

UA 657 Million (65%) UA 349 million (35%)

Level of Donor Coordination Existence of Thematic Working Groups: Yes Existence of SWAPs or Integrated Sector Approaches: Yes ADF's Involvement in donor coordination**: M

* Average of the last five years(2009 – 2013) ** L: leader, M: member but not leader, none: no involvement

II. PROJECT DESCRIPTION

2.1. Development Objectives and Project components

2.1.1 Development Objectives: Development objectives of the Project are to increase trade and

regional integration and to contribute to the GOK’s social and economic development and poverty

reduction efforts by providing a more efficient and effective transport system. The objective of the

Project is to improve transport of import and export goods and passengers traffic along the Northern

Corridor. The Project will also contribute towards restoring the road network and improving economic

and social welfare of people living in urban, peri-urban and rural areas along the project road.

2.1.2 Project Components: A brief description of the components is as follows

A Road construction civil works (UA 142.54 million)

This component involves dualling of Mombasa – Mariakani (41.7 km) road including construction of

drainage structures, grade separated junctions, pedestrian foot bridges across the road, road safety

features, walkways, street lightings, environmental and social mitigation measures. It will also include

the maintenance of the road for five years following the completion of the work. The civil works will

be tendered as two (2) independent lots. Lot 1: Mombasa – Kwa Jomvu (11.3 km) and Lot 2: Kwa

Jomvu – Mariakani (30.4 km).

3

B Consulting Services and training (UA 11.18 million)

This component includes (i) construction supervision services for the road civil works described above

(the supervision services will also be divided into two (2) lots corresponding to the civil works

contracts); (ii) Impact assessment of investments in the road sub-sector; (iii) Provision for studies of

Marua – Nanyuki – Lewa road (150km); (iv) Project Audit; (v) HIV/AIDS, gender, road safety

awareness and sensitization, and monitoring of ESMP; and (vi) Vocational training of unemployed

youth.

C Institutional Support (UA 1.63 million)

The technical assistance will include consultancy services for (i) Development of Road Sub-sector

Guideline on Gender Mainstreaming; (ii) Capacity building on planning and management of road

maintenance contracts; and, (iii) Project Coordination.

D Compensation and resettlement (UA 5.86 million)

This component makes provision for the adequate compensation and resettlement of Project Affected

Persons (PAPs) identified in the Project Environmental and Social Impact Assessments, and relocation

of utilities.

2.2. Technical solution retained and other alternatives explored

2.2.1 The upgrading of Mombasa – Mariakani Highway will follow the existing corridor to the extent

possible with dualling, widening and junctions improvement as well as drainage enhancements. The

alternatives considered for the Project, therefore, were mainly based on the pavement design options

and economic implications. The three alternatives considered were: i) asphalt concrete pavement; ii)

cement concrete pavement; and, iii) cement concrete pavement only on highly trafficked and loaded

lanes. Other alternatives considered included selection between signalized roundabouts and grade

separated junctions.

2.2.2 The adopted design solutions of cement concrete pavement on highly trafficked sections and

the rest of the road section on asphalt concrete with interchanges at Changamwe, Mikindani and Kwa

Jomvu junctions has considered the current condition of the road; and the forecasted traffic pattern

along the corridor and at the junctions.

2.3. Project type

2.3.1 The project type is a stand-alone operation within the framework of MTP-II. The ADF

financing will support upgrading of the identified road project and related studies. The investments

against which funds are to be disbursed are well defined and specific. Therefore, the specific project

loan has been chosen as the most appropriate instrument for the intervention of the Bank in this

operation.

2.4. Project cost and financing arrangements

Project cost

2.4.1 The overall Project cost estimate (net of taxes) is UA 189.42 million of which the foreign

exchange cost is UA 138.14 million or 73% of the total, and the local cost is UA 51.28 million or 27%

of the total. The Project cost estimates are based on feasibility and detailed engineering design studies

of the Project as well as in consideration of unit prices of similar recent international tenders in the

Project area. The Project cost estimates by component and by category of expenditure are indicated in

Table 2.1, and 2.2 respectively. Detailed costs and expenditure schedules are provided in Annex B2.

4

Table 2.1 - Project Cost Estimates by Component (UA million)

Component Foreign

Exchange

Local

Cost

Total %

foreign

A. Road Construction Civil Works 105.48 37.06 142.54 74

B. Consultancies & Training 10.62 0.56 11.18 95

C. Institutional support 1.47 0.16 1.63 90

D. Resettlement & Compensation - 5.86 5.86 0

Total Base Cost 117.57 43.64 161.21

Contingencies 20.57 7.64 28.21

Project Cost net of taxes 138.14 51.28 189.42 73

Project Cost with tax (VAT 16%) 138.14 80.49 218.63 63

Table 2.2 – Project Cost by Category of Expenditures Net of taxes (UA Million)

Category Foreign

currency Cost

Local

currency Cost Total Cost

% of

foreign

Works 105.48 37.06 142.54 74

Services 12.09 0.72 12.81 94

Miscellaneous (Compensation) 5.86 5.86

Total Base Cost 117.57 43.64 161.21

Contingencies 20.57 7.64 28.21

Project Cost 138.14 51.28 189.42 73

Source of finance

2.4.2 The proposed project components will be jointly financed by ADF, KfW, EIB, AITF and GOK.

The Bank financing will come from the ADF-XIII Performance Based Allocation (PBA) amounting to

UA 80 million representing 42.2% of the total project cost; KfW, EIB, AITF will provide 53.3% of the

total cost. The financiers will cover all the foreign exchange costs and part of the local costs. The GOK

will finance 4.5% to cover part of the local cost which includes compensation and maintenance costs.

The financing plans by source of finance for the Project and project costs to be financed under ADF

loan are presented in Table 2.4 and Table 2.5 respectively. The expenditure schedule by component is

also presented in Table 2.6. Detailed costs and expenditure schedules are provided in Annex B2.

Table 2.4: Sources of financing net of taxes (UA million)

Source Foreign currency

Cost

Local currency

Cost

Total % of

Total

ADF (Loan) 61.88 18.12 80.00 42.2

KfW (Loan)/ EIB (Loan)/

AITF (Grant)

76.26 24.62 100.88 53.3

GOK (Counterpart)* - 8.54 8.54 4.5

Total 138.14 51.28 189.42 100

* Justification for less than 10% contribution by GOK is attached as Appendix V

Table 2.5: Summary of Project Cost to be financed under ADF loan (UA Millions)

Component Cost Estimates % Contribution

Total AfDB GOK AfDB GOK

A. Mombasa - Mariakani Civil Works (Lot

1: Mombasa – Kwa Jomvu) 63.45 62.04 1.41 97.8 2.2

B. Consultancy services and training 5.44 5.44 - 100 -

C. Institutional support 0.60 0.60 - 100 -

D. Compensation and Resettlement 2.29 2.29 100

Base Cost 71.78 68.08 3.70

Contingencies 12.56 11.92 0.64

Project Cost net of taxes (VAT 16%) 84.34 80.00 4.34 94.9 5.1

Project Cost with VAT (16%) 97.40 80.00 17.4

5

Table 2.6: Expenditure Schedule by Component net of taxes (UA Million)

component 2015 2016 2017 2018 Total

A. Civil Works 9.52 19.04 19.04 15.85 63.45

B. Consultancies & training 0.45 1.80 2.03 1.16 5.44

C. Institutional Support 0.30 0.30 0.60

D. Compensation and Resettlement 1.14 1.15 - 2.29

Base Cost 11.11 22.29 21.37 17.01 71.78

Contingencies 1.94 3.90 3.74 2.98 12.56

Project Cost net of taxes 13.05 26.19 25.11 19.99 84.34

2.5. Project’s target area and beneficiaries

2.5.1 The project road constitutes a primary artery for access into and from the out-lying areas within

Sub-counties of Mombasa and Changamwe in Mombasa County, Kinango in Kwale County and Rabai

in Kilifi County. The combined population directly impacted by the Project in the three counties is

1,131,458 while that of the population of the immediate zone of influence of the project road is 284,946

(2009 census). Economic activities in the zone of influence include tourism, shipping, commerce and

farming. The benefits to these populations will be the elimination of congestion resulting in improved

transportation of goods and services; enhanced access to economic centres such as markets, places of

work, and customers patronising businesses along the road. Indirectly, the proposed project is expected

to diversify economic activities of the local business community from tourist related enterprises to

retail, and support transport related service enterprises. Further, the neighbouring communities stand to

benefit from improved access to social facilities such as health and medical facilities, schools and

places of worship thereby resulting into enhanced community welfare. The Project, in addition to

improvements in urban drainage, service roads and pedestrian walkways and footbridges at key centres,

will bring in orderliness to traffic and safety on the road and in so doing reduce accidents. Beyond the

project area, the project road is the main import/export gateway for Kenya and the East and Central

Africa countries of Uganda, DR Congo, Rwanda through Malaba, South Sudan through Lodwar,

Ethiopia through Moyale and northern Tanzania through Voi-Taveta.

2.6. Participatory process for project design and implementation

2.6.1 During the ESIA studies, public consultations were undertaken to gain public views, concerns

and potential benefits in regard to the proposed upgrading of the project road. The consultations created

awareness and identified positive and negative socio-economic impacts of the road project, proposed

mitigation measures to address the potential impacts during the project cycle and created a sense of

commitment by the community. Methods used included consultative meetings, interviews, formal and

informal focus group discussions with communities living within the vicinity of the roads. In addition,

consultative meetings involved various other stakeholders at national, County, and local levels, including

lead ministries, relevant government agencies, transporters and NGOs. During field visits organized by

the Bank, feedback was received on the project from local authorities, local leaders, NGOs, transport

operators and other stakeholders.

2.6.2 The issues raised during consultation include: creation of employment opportunities to locals

resident in the project area, spread of HIV/AIDS, increased road accidents, provisions for NMT,

pedestrian crossing and pressure on natural resources, such as water. These issues have been

incorporated in the project’s design and also included in the ESMP. The Bank has also held fruitful

consultations with KfW, EIB, EC delegation, the World Bank and JICA during the preparation and

appraisal missions that focused on lessons learned and coordination of the implementation of projects.

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2.7. Bank Group experience and lessons reflected in project design

Status and Impact of Prior Bank Intervention in the Sector

2.7.1 The Bank Group has, since 1967, participated in the financing of 24 operations in the transport

sector in Kenya amounting to UA 785.1 million. Currently, there are seven ongoing transport projects

in the country. These projects are neither problematic nor potentially problematic. The projects

financed by the Bank have made significant contribution towards improving mobility, providing access

to socio-economic opportunities for several millions of people and facilitating regional integration. The

proposed project design has taken into account lessons learned from previous interventions in the

Country as well as recommendations of the Bank’s Independent Development Evaluation department

(IDEV) findings. The lessons relate to sustainability of results, evaluation of development impacts,

delays in project start-up, delays in implementing the RAP and project cost overrun. Two transport

projects have been completed recently and the PCRs are under preparation.

Lessons Learned and Reflected in Project Design

2.7.2 Based on the lessons learned from assessment of previous interventions, the project design has

included three additional components. These components are: (i) assessment of development impacts of

investments on the road subsector and establishing monitoring mechanism for the same. This study will

facilitate quantification and monitoring of project impacts at the national level and also enable better

design of future projects aimed at maximizing positive project impacts. In addition, it will help to

establish improved KPIs for Transport Governance Indicator as suggested by Africa Transport Policy

Program (SSATP); (ii) capacity building for planning and management of maintenance contracts,

which will enable the authority to properly plan and manage maintenance works for sustainability of

investments in the sub-sector; and (iii) development of a guideline to mainstream gender in road

projects in Kenya to enhance participation of women in all operations of road projects.

2.8. Key performance indicators

2.8.1 Some baseline data have been collected as part of the project preparation by the design

consultant and the Bank mission. Additional baseline data along the Nairobi – Mombasa corridor will

be collected by an independent consultant and the supervision consultant at the beginning of project

implementation which will include (i) transport costs and travel time for additional specific types of

vehicles and trips, (ii) accident rates, (iii) jobs created in construction and maintenance, (iv) Gender

deferential roles and responsibilities, and (v) HIV/AIDS prevalence.

2.8.2 The indicators will be measured at project inception, completion, and three years post

completion. Where relevant, indicators will be disaggregated by gender. Measuring of the indicators

will help to evaluate the degree of achievement of the project objectives. Indicators for monitoring and

evaluating project outcomes are included in the Project Logical Framework.

III PROJECT FEASIBILITY

3.1. Economic and financial performance

3.1.1 The economic analysis was carried out using the HDM-4 software based on a cost-benefit

analysis with the project case and no-project situation over a 20-year analysis period. A 12% discount

rate and a 40% and 20% residual value were used for concrete and asphalt pavements respectively.

The costs taken into consideration were investment costs (costs, net of taxes and customs duty, of

works and works monitoring, including physical contingencies), and vehicle maintenance and

operating costs. For the economic analysis, these financial costs were converted into economic costs

by applying a Standard Conversion Factor (SCF) of 0.80. The economic benefits are calculated as the

difference between the “with the project” and “without the project” scenarios. The benefits include

road user incremental benefits in terms of Vehicle Operating Cost savings, time savings for passengers

and cargo, and road maintenance savings because of the new facility. The current Annual Average

Daily Traffic (AADT) on the different project road sections range from 13,000 to 49,400 vehicles per

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day. Traffic forecasting took into account: (i) congestion on the road network; (ii) overloading control

and associated law enforcement and its impact on route choice; (iii) local land use development, e.g.

port expansion; (iv) development of the Standard Gauge Railway between Mombasa and Nairobi. The

annual growth rates of normal traffic are estimated at 2% for light vehicles and 1-2% for heavy trucks

at different sections from 2014 on and 1-2% for light vehicles and 0.5-2% for trucks from 2021 on.

Additional heavy vehicles generated by expansion of port of Mombasa are also taken into account.

3.1.2 The measures of project worth used are the EIRR and NPV. Table 3.1 below gives a summary

of the economic analysis, whose details are presented in Annex B7. An assessment of the investment

cost of constructing the road sections of the Project (2014 prices) gives an Economic Internal Rate of

Return of 33.9% for the entire project. A 20% rise in the investment cost and a 20% drop in benefits

(the most unfavorable situation) results in a 24.4% internal rate of return for the entire project. Hence,

it can be concluded that the development solution chosen for the project road sections is economically

viable. Switching value analysis indicates that the Project would become only unviable when the costs

of civil works increase over 200%, which is highly unlikely in the face of declining oil price – a major

component of the project cost over time.

Table 3.1: Key Economic Performance Indicators

EIRR (base case) 33.9%

NPV (12% Discount) USD 384 million

EIRR (20% decrease in benefits) 28.4%

EIRR (20% increase in costs) 29.3%

EIRR (+20% costs & -20% benefits) 24.4%

3.2. Environmental and social impacts

Environment

3.2.1 The Proposed Project Road has been classified by the Bank as Category 1 due to the potential

disruption of urban activities likely to be experienced during construction. The proposed project

intervention will lead to loss of business premises for certain socio-economic groups in particular for

some poor and vulnerable groups along the project corridor. The number of affected persons exceeds

200 persons. A summary of the ESIA and RAP have been prepared and were approved and posted on

the Bank’s website on 7 November 2014 and distributed to the Board on 10 November 2014 under

reference ADF/BD/IF/2014/163.

3.2.2 The negative environmental impacts associated with the project implementation are expected

from the construction phase and these include: (i) Environmental pollution from emissions (dust) into

the air from work areas and construction equipment; (ii) Damages to land and soil arising from

materials extraction, spoil disposal, waste disposal from camp sites and work areas as well as disposal

of used oil and grease; (iii) Disruption of drainage along the built-up areas. This is specifically noted

along some areas including Changamwe – Jomvu – Miritini where natural drainage outfalls have

already been compromised by residential and commercial development activities. (iv) Noise and

vibrations to the neighbouring premises arising from construction equipment, deviated traffic and other

sources; (v) Social related infections associated with interactions including HIV/AIDS and other

communicable diseases; (vi) Social and economic disruptions during the construction phase involving

business facilities, informal livelihoods activities, dwellings and social amenities.

3.2.3 Mitigation measures for adverse impacts have been identified and included in the ESMP. These

include (i) compensation and relocation of PAPs; (ii) inclusion of the necessary environmental clauses

in the project construction contract document so as to ensure the implementation of the ESMP (iii)

development of utilities relocation plan and effective liaison with utility providers to ensure minimal

damage and disruption of services; (iv) restoration of borrow sites and quarries; (v) prevention of

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pollution of surface water especially at Makupa Causeway; (vi) road safety awareness and sensitization

to reduce the risks of accidents; (vii) development of detailed traffic management plans to guide traffic

during construction; (viii) ensuring independent environmental supervision during construction phase.

The total ESMP implementation cost is estimated as KES 132,000,000.

3.2.4 Positive impacts include (i) facilitation of regional trade through improving efficiency of traffic

flow out of the Port and Mombasa City (ii) reduction in Green House Gas (GHG) emissions; (iii)

reduction in travel time and cost of travel; (iv) reduction in traffic congestion in Mombasa city and its

environs; (v) creation of employment opportunities especially for the youth through capacity building

program and linkage with the opportunities in the construction sector including the Project; (vi)

improved access to social services and (vii) land along the corridor will get appropriate value.

Climate Change

3.2.5 Studies show that in ideal conditions small vehicles running on petrol emits between 130g –

265g of CO2 per km while heavy vehicles (commercial trucks) running on diesel could emit up to

between 242g – 295g CO2 per km. The current average daily traffic through Kenyatta Avenue –

Changamwe Junction is 37,000 vehicles per day of which 12,000 are heavy trucks while Miritini-

Mazeras-Mariakani has an average of 9,500 vehicles per day. The estimated CO2 emission in 2014 is

4.5 million tonnes. The proposed project interventions will improve traffic flow which will result in

CO2 emission reduction of between 1.8M tonnes and 1.97M tonnes (between 38% – 43% reduction).

This is a direct indication of the benefits associated with Climate Change mitigation.

3.2.6 Adaptation measures incorporated in the design include; improving storm water drainage from

the road to mitigate flooding impacts; use of appropriate flood return periods for the sizing of bridges,

culverts and longitudinal drains; tree planting in relation to sequestering carbon emissions from road

traffic; and re-vegetation of borrow sites.

Gender

3.2.7 The most predominant potential negative impact of the Project shall be the relocation and

destruction of businesses and sources of livelihoods which are a common feature along the project

road. Women are actively participating in various economic activities predominantly in food and hotel

businesses, hawking and retailing, boutiques and tailoring. Of the total businesses sampled along the

entire stretch, 48% of enterprises belonged to women. In order to ensure adequate treatment of women

and men during project implementation, the resettlement action plan will take into consideration gender

dynamics and inequalities both within the family and in the business sector with regards to decision

making, and ownership of assets. Compensation will be paid directly to the affected woman, youth or

man and not through middlemen. In cases of family businesses, compensation shall be paid jointly in

presence of both the wife and husband; and if the land/property is hereditary then the sons and

daughters shall also be involved.

3.2.8 The positive impacts of the Project will however outweigh the negatives emanating from the

specific project design and interventions. In-keeping with the vision of National Gender and Equality

Commission (NGEC) in Kenya which strives to achieve “A society that upholds gender equality,

dignity and fairness for all” whose motto is guided by a mission “To effectively and efficiently promote

gender equality and freedom from discrimination of all persons in Kenya”, the Project will ensure equal

job opportunity for all during project implementation. The Kenyan Constitution has put the minimum

quota of 30% for either gender. In addition, the contractors and employers shall be obliged to develop a

code of conduct to ensure no abuse takes place at the working areas. Appropriate facilities including

rest places and ablution facilities shall be provided for both women and men. NGEC has agreed to

work with KeNHA in ensuring appropriate messages and procedures are followed by the service

providers in this respect.

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3.2.9 The Gender Analysis done as part of the project preparation revealed that there is need for the

road transport sub-sector to prepare guiding principles for the full participation of women, youth and

people with disabilities in the planning and implementation of road transport development projects. In

response, this Project has included among its activities the development of guidelines on Gender

Mainstreaming in the Road Transport Sub-sector. This is in line with the Bank’s Ten Year Strategy

which emphasizes gender mainstreaming and women empowerment. The Guidelines will enable

monitoring of outcomes intended in the uplifting of both men and women. NGEC which, among others,

is charged with the responsibility of monitoring and reviewing Government’s institutions’ performance

on gender inclusion will collaborate and benefit from this exercise. The Project has set aside USD

291,600 to assist KeNHA in collaboration with NGEC to develop sector specific indicators and

guidelines as part of the Gender and Inclusion Monitoring Framework.

Social

3.2.10 The most singled out outcome of the Project is reduction in traffic congestion in the city centre

and an improved transportation network. This will usher in more and varied business opportunities; and

reduce cost (lower fares) and time within which the population can access the town centres, markets,

schools and health facilities. Reduced accidents, incidents, less traffic on the roads, easier

transportation of good and services including farm inputs, job opportunities will all be created, hence

more investment and development including tourism and commerce. More specifically, during project

implementation it is expected that at least 12,000 person-months will have been employed throughout

the implementation period. This will contribute towards poverty reduction in the affected areas through

increased disposable incomes realized from employment of skilled and unskilled local labour. In

addition spending by the road contractor(s) as well as road users on purchase of supplies (consumables

and road construction materials, e.g. gravel, etc.) and accommodation services will all result in

increased aggregate income for the area.

3.2.11 As part of the endeavour to achieve inclusive growth, and based on the feedback from the ESIA

studies, Mombasa has an acute problem of youth unemployment resulting into anti-social behaviour.

The project shall, therefore, ensure that women, youth and people with disabilities (PWD) are

empowered during the recruitment at the implementation stage. In order to prepare these special groups

for the immediate job opportunities and beyond, the Project includes a training and capacity building

program for local unemployed youth (men, women, PWD) at a cost of USD 291,600. This will be a

training program to be implemented by the local technical and vocational training institutes. The

program shall be on a self-selection basis following training needs assessment and skills gaps, and shall

be short term. The training program will be launched ahead of commencement of construction works to

give first hand opportunity to the trainees to obtain employment. In addition, the training program shall

include modules that will go beyond construction trades but those that would be sought by the labour

market. In order to ensure gender equality, the participants shall have to be at least 50% young women.

3.2.12 The project design has included other benefit enhancement measures (see Annex B8 for details)

which include: (i) construction of roadside amenities including truck parking. This will be done in

collaboration with the Northern Corridor Transport and Trade Coordinating Authority and NTSA who

have allocated land at the Miritini Motor Vehicle Inspection Unit site; (ii) Road Safety educational

campaigns shall be carried out along the road stretch by a designated service provider who will ensure

that all road users and operators are educated about the road use, adequate provision and interpretation

of signage during both implementation and operation; (iii) Footbridges, Walkways and Access Roads

will be constructed to ease access and safety in crossing the project road after completion; (iv) Side-

walks and Street lighting will be provided to improve safety and security in largely habited areas; and

(v) Boreholes will be handed over to the responsible public institutions to improve the water supply

situation of the population. This will include additional boreholes for communities in water scarce

areas, and where feasible, filtration basins shall be integrated before storm water is discharged into

natural drainages for animal/agricultural use in rural areas.

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3.2.13 During community consultations, the most commonly mentioned social negative impacts

included displacement, loss of income, business, livelihoods and increased immorality leading to

increased spread of HIV/AIDS and STI, and drugs and alcoholism. The issues related to displacement

and income losses have been dealt with under the resettlement action plan (RAP) prepared for the

Project. The potential increase in communicable diseases especially HIV/AIDS and STI and malaria

will be mitigated through special interventions in the Project. The Project has included in its design

implementation of a sensitization, awareness, prevention and treatment activities to cater for the

prevention of the spread of HIV/AIDS, STI and avoidance of drug and substance abuse. Among the

activities will be the establishment of at least one wellness centre at the proposed truck parking location

at Miritini or Kwa Jomvu. The design and operation shall benefit from the experience of National

AIDS Control Council (NACC). In addition, NACC shall facilitate formation of the Technical Working

Groups (TWG) both at headquarters and at counties (Mombasa, Kilifi); identification of potential

service providers and drawing up of TORs. KeNHA will play a leading role in establishing the TWGs

so that the service provider starts work ahead of the main contractor.

Involuntary resettlement

3.2.14 As mentioned above, one of the significant negative impacts of the Project will be the

potential for dislocation of businesses and sources of livelihoods for PAPs who have depended on the

road corridor for their livelihoods. Following the census carried out, 488 households will be impacted

representing 1352 PAPs owning 394 structures, 39 fences, 97 trees and 3 prayer houses. Others to be

affected will include people with land ownership claims whose land will be compulsorily acquired for

incorporation of road junctions amounting to the equivalent of 25 ha. As a mitigation measure, a full

Resettlement Action Plan (RAP) has been prepared and shall be implemented by KeNHA in

collaboration with the National Land Commission (NLC) which is charged, by the Constitution, to

implement land acquisition and vet and execute compensation payments to affected people. A total

budget of KES 677.7 million (including implementation costs) has been set aside by KeNHA. A loan

condition has been developed to ensure that affected persons are fairly and timely compensated.

IV IMPLEMENTATION

4.1. Implementation arrangements

Executing Agency

4.1.1 The Kenya National Highways Authority (KeNHA) will be the Executing Agency for the

Project. The Director General of KeNHA shall also designate a Project Coordinator, acceptable to the

Bank, for the day-to-day management of the Project. KeNHA is well versed with Bank procedures and

currently is implementing donor financed projects including those financed by the Bank. The road

works and the supervision services will be undertaken by competent contractors and consultants

respectively. The ESMP implementation shall be the responsibility of the Contractors. The Supervising

Engineers’ staff shall include an Environmental and Social Expert to supervise the ESMP

implementation. ESMP internal monitoring shall be undertaken by KeNHA’s Environmental and

Social Experts while external monitoring will be undertaken by the National Environment Management

Authority, the National Lands Commission and the Directorate of Occupational Health and Safety. The

RAP implementation shall be carried out by KeNHA.

Procurement

4.1.2 Applicable documents: All procurement of goods, works, and related services and acquisition of

consulting services financed under the ADF resource will be in accordance with the Bank’s Rules and

Procedures for Procurement of Goods and Works May 2008 edition (Revised July 2012) and Rules and

Procedures for the Use of Consultants, May 2008 (Revised July 2012) using the relevant Bank

Standard Bidding Documents, and the provisions to be stipulated in the Financing Agreement. The

GOK has requested for Advance Contracting to fast track project implementation and it has been

accepted by the Bank. The Procurement plan for the project components was discussed and agreed.

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4.1.3 Civil works to be financed by the Bank will be procured on the basis of International

Competitive Bidding (ICB) under post-qualification arrangements. Consultancy services will be

procured mainly on the basis of Quality and Cost Based Selection (QCBS) through short-lists of

qualified consulting firms established through expressions of interest (EOIs). Audit services and the

training service provider institutes will be procured through Least Cost Selection (LCS) method.

4.1.4 Assessment of the Procurement Section of KeNHA, which is responsible for the procurement

activities of the Executing Agency, was made through discussions with pertinent officials of KeNHA

and review of the relevant documents in use. Generally, it has been adjudged that Procurement Section

of KeNHA is competent enough to conduct procurements envisaged under the Project. The

Procurement Specialist to be procured under ongoing project financed by AfDB will also enhance the

capacity of the procurement unit. Detailed procurement arrangements are provided in Annex B5.

Financial Management and Disbursement Arrangements

4.1.5 The FM of the project components will be carried out by KeNHA. The capacity of KeNHA has

been assessed as adequate for purposes of carrying out the FM of the Project. It has 20 qualified

accountants and robust Budgeting, Accounting, Internal Control and Reporting systems. The Inherent

Risks as well as the Control Risks were assessed by the team and found to range between low and

moderate.

4.1.6 The annual financial statements will be audited by the office of Auditor General. The Annual

Audit Report, complete with a Management Letter will be submitted to the Bank no later than six

months after the end of each fiscal year. The executing agency may, subject to the approval of the

Bank, utilize any of the Bank’s four disbursement methods explained in the Disbursement Handbook

but the direct payment method will be the preferred disbursement method for payments to contractors

or service providers upon recommendations of their satisfactory performance by the project authorized

consultant and officials. The internal audit of the executing agency will complement the oversight of

the management. Further disbursement details are provided in Annex B4.

4.2. Monitoring

2.2.3 The overall procurement, project supervision and monitoring falls under the Director General

of KeNHA. The authority is well organized with qualified and experienced professionals. KeNHA will

assign Project Coordinator (PC) for the close follow up and timely responses. The PC with other

experts from the authority will attend tripartite monthly progress meetings and conduct site visits to

discuss and address issues related to progress of works. KeNHA will also be in charge of monitoring

the Result Based Logical Framework in consultation with appropriate institutions. The monitoring of

environmental and social mitigation measures will lie with Environmental and Social Unit of the

executing agency and the relevant government agencies as indicated above in para 4.1.1. On the

Financial Management and Auditing aspects, the existing accounting and reporting systems of the

authority is capable of producing accurate and reliable information regarding project resources and

expenditures. In addition to the Bank’s implementation support and review of the performance of the

Project during supervision missions and during the mid-term review, the authority will produce

Quarterly Borrowers Progress Reports and submit to the Bank. The Bank’s implementation monitoring

time frame is indicated in Table 4.1

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Table 4.1 – Implementation Monitoring Timeframe

Timeframe Milestone Monitoring process /

feedback loop

Q4 – 2015 Project Launching Supervision and Progress Report

Q4 – 2015 Advance Procurement of Civil Works Completed Procurement Plan/Progress Report

Q2 – 2017 50% of Civil Works completed mid-term review Midterm Review & Progress Report

Q2 – 2018 Substantial completion of civil works Supervision and Progress Report

Q2 – 2019 End of Defects Liability period Supervision and Progress Report

Q2 – 2019 Project Completion Project Completion Report

2.3 Governance

2.3.1 The 2010 constitution of Kenya addressed shortcomings of the previous constitution by

dividing central power between the Executive, Legislative and Judiciary. It also instituted a devolved

system of governance. The decentralized government structure is expected to improve Kenya’s

governance over the medium-term. At sector level GOK continued to address governance issues by

taking various actions. These include: the outsourcing of weighbridge management and operation to

private sector, setting up independent tender committee within the road authorities to oversee

procurement processes and ensure consistency with international practices, separation of roles of

Employer and Engineer in works contracts to avoid conflict of interests, training of road authorities

staff on procurement, financial management and contract management to address fiduciary issues.

GOK has established National Construction Authority in December 2011 with a mandate to streamline,

overhaul and regulate the construction industry in Kenya and establish a code of conduct for the

industry.

2.3.2 The Project will be carried out within the PFM systems of GOK. This implies that it will adopt

all the Governance and Anti -Corruption policies and guidelines of the country. The Internal audit of

the Authority and that of the Ministry will complement the oversight of the Management. The proposed

technical audit service will further help in providing assurance that funds will be used for intended

purposes only with due regard to economy and efficiency.

2.3.3 The specific governance risk mitigation measures of the Project include: (i) an independent

Audit by the office of Auditor General to ensure that funds are used efficiently and for the intended

purposes; (ii) appointment of independent technical audit consultant; (iii) Bank prior review and

clearance of all project procurement activities; and (iv) effective road construction supervision

arrangements through separation of Engineer and Employer roles.

2.4 Sustainability

2.4.1 The overall responsibility for the management of the roads sub-sector under the current

Constitution of Kenya (2010), is shared between the national government, (through the Ministry of

Transport and Infrastructure (MOTI) and its three agencies), for national trunk roads, while the

responsibility for management of the other roads fall under the management of the 47 County

Governments. Mombasa – Mariakani is a link on the core international/national road network. Some

challenges that may affect project sustainability under this new arrangement, which the Government is

addressing, include: unclear division of responsibilities between the two levels, capacity constraints at

the County Governments, and coordination of investments at the two levels to create an integrated road

network. MOTI has experience in management of maintenance of roads; however, to strengthen the

capacity specifically on planning and management of maintenance contracts, a component is included

under this project.

2.4.2 Other sustainability issues being addressed include: the management of axle load control

through installation of additional weighbridges; and the recent signing of self-regulatory charter among

key private and public sector institutions.

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2.4.3 The sustainability of the Project will depend both on the ability of KeNHA to implement timely

maintenance and to enforce axle load control on the project road. Road maintenance funds managed by

the Kenya Roads Board (KRB) have increased annually on the average by 3.2% from KES 23.6 billion

in 2009/10 to KES 25.2 billion in 2013/14. The Fund allocates highest percentage, 40%, of its

collection to KeNHA, the Authority responsible for national road network. The allocation by KRB for

KeNHA for the fiscal year 2012/13 was around KES 11 billion which was completely utilized. At the

end of fiscal year 2013/14 69 % of the national road network was in good and fair conditions. Under

Phase 2 of the RSIP (2015 – 2019), the total road maintenance funding requirements was estimated at

KES 263 billion over the 5 years. Thus, the annual road maintenance need is about KES 52.5billion.

With the current trend of annual increase in collection of the fuel levy fund, there will be a financing

gap of about KES 25 billion annually.

2.4.4 The Government is currently considering alternative road development and maintenance

financing mechanisms such as incorporating long-term infrastructure bonds and public private

partnerships (PPP), increasing the fuel levy and axle load charges, introducing levies on motor vehicle

insurance and annual licenses, and levies on outdoor advertisements. The Ministry of Transport and

Infrastructure is also reviewing the standard contract documents with a view of rationalizing

construction and maintenance costs and also exploring the use of alternative road construction materials

and technology with a view to reducing road construction and maintenance costs and increasing the

design life of the roads.

2.4.5 Another financing mechanism being considered is the contractor facilitated annuity for the

development of 2,000 km of roads in its phase I of implementation starting in 2015. The approach will

be based on the Finance-Design-Build-Maintain contract framework. Other on-going initiatives

include: measures to improve the sustainability of road investments through long-term maintenance

schemes, with payments based on service availability; frameworks for tolling of heavily trafficked

highways, such as the Nairobi-Thika Highway; and, a PPP framework to lay ground for private sector

participation in development and maintenance of roads forming the Northern and the Great North Road

Transport Corridors.

2.4.6 With respect to the Project, maintenance of the completed sections will be the responsibility of

the project contractor during the construction phase, defects liability period and thereafter for a period

of 5 years. An amount of USD 338,000 has been included for this in the project financing framework.

KeNHA will be responsible for maintenance of the road through financing from the road fund upon

expiry of the contractor’s contract.

4.5. Risk management

The design of the Project assumes several risks which might affect the attainment of project objectives.

The risks and mitigation measures are discussed as follows:

4.5.1 Sustainability: the sustainability of the investment made in the Project will be affected by

shortage of maintenance financing, axle load control on the corridor and road accidents especially for

pedestrians. To mitigate these risks, GOK has also improved the management of axle load control by:

contracting out weighbridge stations to the private sector; engaging Ethics Anti-Corruption

Commission in monitoring corruption at the weighbridges; monitoring of cargo using intelligent

tracking systems; and introducing punitive fines for over-loaded axles. Self-regulatory charter on

vehicle load control was also signed by key private and public stakeholders operating along the corridor

in October 2014.

4.5.2 To improve the sustainability, the project design has also included five (5) years of maintenance

period after construction is complete. Cement concrete pavements are designed in areas where the

gradients are relatively steep and there are frequent heavy trucks turning. Capacity building in planning

and management of maintenance contracts is also one of the components included in the Project to

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improve the maintenance planning and management in the Authority. This will improve the capacity of

KeNHA in planning and management of maintenance contracts.

4.5.3 Increased road accident: the issue of road safety is very important in road projects during

construction as well as operation. To this effect, road safety mitigation measures will be tackled from

two angles on this project. From the engineering and design point of view, a road safety audit was

carried out on the detail design and will also be carried out prior to opening of the road to the public.

The design of foot-over bridges included in the Project is an example of mitigation measure and will

significantly improve the safety of the road for pedestrians. From the law enforcement point of view,

necessary equipment, such as speed cameras, will be procured to improve the monitoring activities

during operation.

4.5.4 Implementation delays: the risk of delay in project start up as well as during the

implementation period will be mitigated by use of Advance Contracting procedure, and close

supervision by KeNHA and the Bank supervision team. Commencing the process of compensation of

the PAPs and Right of Way clearance in order to finalize before the signing of the works contract will

also significantly mitigate the delays. Compensation of PAPs prior to the commencement of

construction is included as part of loan condition.

4.5.5 Project cost overrun: Increase of costs of the Project above appraisal estimates may impact on

timely achievement of the outputs. This risk is mitigated by: critical review of the design reports; use of

current reasonable cost estimate; and, provision of reasonable contingencies in the cost estimates.

4.5.6 Co-financing risk: shortage of financing for Lot 2 and its related consultancy services will have

a risk in achieving the project objectives. However, the witnessed strong commitment of GOK to

realize this project and the commitment of the co-financiers to partner with the Bank in this project is

very encouraging. The co-financiers have also appraised the project and are processing the project for

financing within their organization.

4.6. Knowledge building

4.6.1 Road projects require huge investment and also do have high impact on structuring the geo-

economy space of the country. It is necessary to systematically monitor and evaluate these impacts in a

specific country. The component of the Project which will specifically address the impact of investment

made in the road sector in the country will enable valuation of these impacts, develop monitoring

mechanism and draw lessons. The knowledge to be obtained from the study will help the Bank and

countries in the region to systematically monitor the impacts and to maximize the impact of future

interventions in the sector.

4.6.2 The other study which is also part of the projects is the development of guideline for

mainstreaming gender in road projects. These will assist in enhancing the participation of women in

road projects, which is now requiring attention not only in Kenya but also in the region.

V LEGAL INSTRUMENTS AND AUTHORITY

5.1. Legal instrument

5.1.1 The Bank instrument to finance this operation is an ADF concessionary loan. The loan amounts

to UA 80 million from ADF-XIII PBA. The standard ADF loan terms and conditions applicable to

“advance only” countries will govern the loan.

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Conditions Precedent to the Entry into Force of the Loan Agreement

5.1.2 The entry into force of the Loan agreement shall be subject to the fulfillment by the Borrower of

the provisions of Section 12.01 of the General Conditions Applicable to Loan Agreement and

Guarantee Agreement of the Fund (Sovereign Entities).

Conditions Precedent to First Disbursement of the Loan

5.1.3 The obligation of the Fund to make the first disbursement of the Loan shall be conditional upon

the entry into force of the Loan Agreement and the fulfillment by the Borrower, to the satisfaction of

the Fund, of the following condition

(i) Submission of an updated Resettlement Action Plan together with a schedule (the Works

and Compensation Schedule) detailing inter alia: (A) the sections into which the contract for the civil

works will be divided; and (B) a timeframe for the compensation of the Project Affected Persons

(PAPs) with respect to all such sections, in each case in form and substance satisfactory to the Fund;

Other Condition of the Loan

5.1.4 The other condition of the loan is:

The Borrower will provide evidence, in form and substance acceptable to the Fund, that prior to

commencement of construction on any section of the civil works, all PAPs with respect to such section

have been compensated in accordance with the RAP and any updates to the RAP as well as the Works

and Compensation Schedule.

Undertakings

5.1.5 The Borrower undertake as follows:

i) To implement and report on the implementation of the Environmental and Social Impact

Assessment, the Environment and Social Management Plan and the RAP on a quarterly basis in form

acceptable to the Fund;

ii) To make timely provisions in the Borrower’s annual budgets for the funds required as the

Borrower’s counterpart contribution to the cost of the Project so as to avoid Project implementation

delays.

5.2. Compliance with Bank Policies

(√) This project complies with all applicable Bank policies.

VI RECOMMENDATION

6.1 The project road is an important section of the Northern Corridor and the Mombasa – Nairobi -

Addis Ababa Road Corridor. The implementation of the Project will greatly contribute to improving

transport and communication infrastructure in Kenya and all the neighbouring countries using the

Mombasa Port, and will facilitate regional integration.

6.2 Management recommends that the Board of Directors approve the proposed ADF loan of UA

80 million to the Republic of Kenya for the purposes of financing the Project described in this report

and subject to the conditions stipulated above.

APPENDIX I

I

Appendix I: Country Comparative Socio-Economic Indicator Indicator Year Kenya Africa Developing

Countries

Developed

Countries

Chart

Basic Indicators

Area ('000 Km²) 580.4 30,046.4 80,976.0 54,658.4

Total Population (millions) 2013 44.4 1,109.0 5,628.5 1,068.7

Urban Population (% of Total) 2013 24.8 40.2 44.8 77.7

Population Density (per Km²) 2012 71.7 34.5 66.6 23.1

GNI per Capita (US $) 2012 860.0 1,691.5 2,780.3 39,688.1

Labor Force Participation - Total (%) 2013 36.8 37.4 0.0 0.0

Labor Force Participation - Female (%) 2013 46.3 42.5 39.8 43.3

Gender -Related Development Index Value 2007 0.5 0.5 .. 0.9

Human Develop. Index (Rank among 169

countries)

2012 145.0 .. .. ..

Propel. Living Below $ 1 a Day (% of Population) 2005 43.4 .. 25.0 ..

Demographic Indicators

Population Growth Rate - Total (%) 2013 2.7 2.5 1.4 0.7

Population Growth Rate - Urban (%) 2013 4.4 3.4 2.4 1.0

Population < 15 years (%) 2013 42.2 40.9 29.2 17.7

Population >= 65 years (%) 2013 2.7 3.5 6.0 15.3

Dependency Ratio (%) 2013 82.2 77.3 52.8 ..

Sex Ratio (per 100 female) 2013 99.6 100.0 934.9 948.3

Female Population 15-49 years (% of total

population)

2013 24.3 24.0 53.3 47.2

Life Expectancy at Birth - Total (years) 2013 61.7 59.2 65.7 79.8

Life Expectancy at Birth - Female (years) 2013 63.6 60.3 68.9 82.7

Crude Birth Rate (per 1,000) 2013 34.9 35.3 21.5 12.0

Crude Death Rate (per 1,000) 2013 8.2 10.4 8.2 8.3

Infant Mortality Rate (per 1,000) 2013 51.0 61.9 53.1 5.8

Child Mortality Rate (per 1,000) 2013 76.0 97.4 51.4 6.3

Total Fertility Rate (per woman) 2013 4.4 4.6 2.7 1.8

Maternal Mortality Rate (per 100,000) 2010 360.0 415.3 440.0 10.0

Women Using Contraception (%) 2013 50.7 34.9 61.0 75.0

Health & Nutrition Indicators

Physicians (per 100,000 people) 2011 18.1 52.6 77.0 287.0

Nurses (per 100,000 people)* 2011 79.2 .. 98.0 782.0

Births attended by Trained Health Personnel (%) 2009 43.8 .. 39.0 99.3

Access to Safe Water (% of Population) 2012 61.7 68.8 84.0 99.6

Access to Health Services (% of Population) 2000 77.0 65.2 80.0 100.0

Access to Sanitation (% of Population) 2012 29.6 39.4 54.6 99.8

Percent. of Adults (aged 15-49) Living with

HIV/AIDS

2009 6.3 3.9 161.9 14.1

Incidence of Tuberculosis (per 100,000) 2012 272.0 223.6 .. ..

Child Immunization Against Tuberculosis (%) 2012 84.0 83.1 89.0 99.0

Child Immunization Against Measles (%) 2012 93.0 74.6 76.0 92.6

Underweight Children (% of children under 5

years)

2009 16.4 .. 27.0 0.1

Daily Calorie Supply per Capita 2009 2,092.0 2,564.7 2,675.2 3,284.7

Public Expenditure on Health (as % of GDP) 2011 1.8 5.9 4.0 6.9

Education Indicators

Gross Enrolment Ratio (%) .. .. .. ..

Primary School - Total 2009 113.3 101.8 106.0 101.5

Primary School - Female 2009 112.0 97.8 104.6 101.2

Secondary School - Total 2009 60.2 45.4 62.3 100.3

Secondary School - Female 2009 57.1 41.9 60.7 100.0

Primary School Female Teaching Staff (% of Total) 2009 43.9 43.7 .. ..

Adult Literacy Rate - Total (%) 2007 72.2 .. 19.0 ..

Adult Literacy Rate - Male (%) 2007 66.9 .. .. ..

Adult Literacy Rate - Female (%) 2007 78.1 .. .. ..

Percentage of GDP Spent on Education 2010 6.7 5.3 .. 5.4

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2011 9.7 8.4 9.9 11.6

Annual Rate of Deforestation (%) 2000 0.5 0.6 0.4 -0.2

Annual Rate of Reforestation (%) .. .. .. ..

Per Capita CO2 Emissions (metric tons) 2010 0.3 1.1 .. ..

0

2000

201

0

201

1

201

2

GNI per Capita (US $)

Kenya

2

2,5

3

201

0

201

1

201

2

201

3

Population Growth Rate -

Total (%)

Kenya

40

60

80

201

0

201

1

201

2

Access to Safe Water (% of Population)

Ke…

0

200

200

02

00

12

00

22

00

32

00

42

00

52

00

62

00

72

00

82

00

9

Secondary School - Total

Kenya

APPENDIX II

II

APPENDIX II: TABLE OF ADB’S PORTFOLIO IN THE COUNTRY

November 2014

PROJECT NAME Main Sector Financing

Source

Approval

Date Closing

Date

Approved

UA million Disb.

Ratio

% Loan(L) Grant(G)

A. Public – National

1. Outer Ring Road improvement project Transport/

Roads ADF Loan 13.11.2013 31.12.2018 77.04 0.56 0

2. Timboroa - Eldorert " ADF Loan 24.11.2010 31.12.2016 35.00 0

3. Nairobi - Thika Highway Improvement " ADF Loan 21.11 2007 31.12.2012 117.85 3.15 L:91;

G;46

4. Thwake multipurpose water development Water & San. ADF Loan 30.10.2013 31.12.2019 61.68 1.21 0

5. Small and medium towns water supply " ADF Loan 03.11.2009 31.12.2015 70.00 44

6. Scaling up rainwater management " AWF 17.07.2014 31.12.2014 0.59 100

7. Kisumu UN-Sewered " AWF 17.07.2014 31.12.2017 1.03 0

8. Nairobi River Bain Rehabilitation " ADF Loan 06.12.2010 31.12.2015 35.00 54

9. Expanding branded toilet

entrepreneurship " AWF 03.01.2014 17.09.2017 0.62 0

10. Mombasa - Nairobi Power transmission

line Power ADF Loan 06.05.2009 31.12.2013 50.00 49

11.Power transmission improvement project " ADF Loan 06.12.2010 31.12.2013 46.70 26

12. ADF-PRG for Turkana power " ADF Loan 02.10.2013 03.03.2015 17.50 0

13. Menengai Geothermal development " ADF Loan 14.12.2011 31.12.2017 80.00 62

14. Menengai Geothermal development " Others 14.12.2011 31.12.2017 5.12 11.95 L:31;

G:27

15. Support to HEST Social ADF Loan 14.11.2012 30.06.2018 28.00 11

16. Support to TIVET " ADF Loan 16.12.2008 31.12.2014 25.00 62

17. Community empowerment project " ADF Loan 17.12.2007 30.06.2015 17.00 76

Sub Total National 665.89 19.11

B. Public – Multinational

18. Mombasa--Addis Ababa Road Corridor

Ph. II Transport/Roads ADF Loan 01.07.2009 31.12.2015 125.00 57

19. Mombasa – Addis Ababa Road Corridor

Ph II " ADF Loan 30.11.2011 31.12.2018 120.00 35

20. Arusha - Athi River Road Dev. Project " ADF Loan 13.12.2006 31.12.2014 49.24 92

21. Arusha – Taveta – Voi Road project " ADF Loan 16.04.2013 31.12.2018 75.00 8

22. Nile Equatorial Lakes Electric Grid Power ADF Loan 16.06.2010 31.12.2016 39.77 17

23. Ethio-Kenya electricity Highway ADF Loan 19.09.2012 31.12.2018 75.00 1

24. East Africa Center of Excellence Social ADF Loan 03.10.2014 31.12.2019 25.00 0

25. Kenya Drought Resilience Agriculture ADF Loan 19.12.2012 31.12.2018 37.41 1

Sub Total Multinational (Kenya) 546.42

Total (Kenya) 1,212.31 19.11

APPENDIX III

III

APPENDIX III: RELATED ONGOING PROJECTS FINANCED BY THE BANK AND DONORS

Project Title Donor Region USD million

Timboroa – Eldoret Project AfDB Rift Valley Province 56

Mombasa-Nairobi-Addis Road Corridor Project III AfDB Eastern Province 180

Arusha – Namanga - Athi River Road Development AfDB Rift Valley 74

Upgrading of Mwatate-Taveta AfDB Taita/Taveta 112

Outer Ring Road upgrading AfDB Nairobi 115

Mombasa-Nairobi-Addis Road Corridor Project II AfDB Eastern Province 187

Construction of the Garissa - Modogashe Road BADEA/OPEC North Eastern

Province 87

Northern Corridor Rehabilitation Programme –

Phase II EC Kenya 82

Northern Corridor Rehab. Programme – Phase III EC Kenya 122

Merille River -- Marsabit Road EC Northern Kenya 223

Mombasa Port Development Project JICA Mombasa 175

Northern Corridor Transport Improvement Project WB/NDF Kenya 17

Mombasa Southern Bypass Road and Kipevu New

Container Terminal Link Road JICA Mombasa 253

Northern Corridor Transport Imp. Project -

Additional World Bank Kenya 300

Kenya Transport Sector Support Project World Bank Kenya 45

Rehabilitation of Kericho-Nyamasaria Road A1 World Bank Kericho/Kisumu 95

Rehabilitation of Mau summit-Kericho Road

(B1/A1) World Bank Baringo/Kericho

80

Rehabilitation of Nyamasaria- Kisumu-Kisian Road

(A1) Including Kisumu Bypass World Bank Kisumu

68

Rehabilitation of Kisumu-Kakamega (A1) World Bank Kisumu 52

Rehabilitation of Kakamega-Webuye World Bank Kakamega 29

Rehabilitation of Webuye-Kitale World Bank Bungoma 39

Rehabilitation of Maji ya Chumvi-Bachuma Gate

(A109) World Bank Kwale

51

3 Interchanges on, Nakuru-Njoro Turn off, Nakuru-

Nyahururu Mau Summit Kericho Turn off World Bank Nakuru

32

Construction of Nairobi Southern Bypass China Nairobi/Kiambu 202

Construction of One Stop Border Posts World Bank Kenya 30

TOTAL 2,706

IV

APPENDIX IV: MAP OF PROJECT AREA

V

APPENDIX V: JUSTIFICATION FOR LESS THAN 10% CONTRIBUTION BY GOK

Based on the Bank’s Policy on Expenditure Eligible for the Bank Group financing, this

operation is proposing government financial contribution of less than 10% of the total project

cost net of taxes, justified as follows:

V.1 Country Commitment to Implement Its Overall Development Program: Kenya’s

development strategy is the MTP II (2013 - 2017). The Government is committed to

implementing the MTP II and continues to both mobilize resources for the purpose and to

strengthen the linkage between the plan and the national budget. The Government is also under

obligation to provide 15% of its resources to 47 County Governments while also providing for

all sectorial investment.

V.2 Financing Allocated by the Country to Sectors Targeted by Bank Assistance:

Government continues to prioritize infrastructure (of which transport and energy subsectors are

the largest components) in its annual budget allocations as indicated in Table 1.

Table 1: Budget allocation

V.3 Country Budget Situation and Debt Level: The current budget situation is summarized

in Table 2 below. Less than 5% of government spending is dependent on foreign aid. According to a

debt sustainability analysis (DSA) concluded by the National Treasury jointly with the IMF in

October 2014, Kenya’s debt burden in relation to thresholds for a comparator ‘medium performer’

country would decline substantially over the next ten years. Hence, there is space for the uptake of

more debt. The analysis incorporates as a key assumption contracting the US $ 2 billion sovereign

debt in 2013/14. The findings of the DSA include: Present value of debt to GDP ratio projected to

decline from 40% (spot on target) in 2013 to 36% by 2023; The present value of debt to revenue

ratio projected to decline from 156% (below the target of 250%) in 2013 to 144% by 2023. The debt

service to revenue ratio projected to decline from 22% (below the target 30%) in 2013 to 22% in

2023. Table 2: Budget situation

Description Budget year

2013/14 likely 2014/15

budgeted

Total Expenditure as % of GDP 25.4 27.2

Domestic Revenues as % of GDP 19.2 20.5

Share of Foreign Loans and Grants in

total Budget 7.7 10.1

Share of General Budget Support in

total Budget 0 0

Foreign Loans and Grants as % of GDP 2 3

Description

Budget year

2013/14

2014/15

Financing allocated to

infrastructure (million KES)

2,796 3,100

Share of infrastructure in the total

budget (%)

22% 22.6

Financing allocated to transport

sector(million KES)

758 904

VI

V.4 Country Tax Initiatives: The PFM Act 2012, the VAT Act 2013 and a Finance Act 2014

all provide that the Government must seek to charge VAT on all productive investments regardless

of the source of investment financing. It is therefore a requirement that since 2nd September 2013, all

Development Partner funded projects must include VAT. It is therefore imperative that this

investment includes a VAT component, which when attributed to the government, lowers its actual

investment expenditure significantly.