WASHINGTON, January 24, 2006 – The World Bank Board of Directors today approved three International Development Association (IDA) credits, and a grant of a combined total of US$199.02 million and Partial Risk Guarantees for up to US$60 millions to improve trade and transport services in three member states of the East African Community (Kenya, Tanzania and Uganda) as well as in Rwanda, which is currently seeking membership of the community.
The three East African Community member countries received IDA credits: Kenya (US$120.62 million), Tanzania (US$37 million) and Uganda (US$26.4 million) while Rwanda, which is expected to become a community member in 2006, obtained an IDA grant (US$15 million).
In addition, IDA Partial Risk Guarantees (PRG) for amounts of up to US$45 million and US$15 million, respectively was approved in support of the Joint Railway Concession in Kenya and Uganda, which is being concessioned to the Kenyan and Ugandan subsidiaries of the Rift Valley Railways Holdings Ltd.(RVRH), whose Lead Investor is a South African company. This will be the first time IDA will be providing Partial Risk Guarantees for a transport Project.
The IFC Advisory Services is acting as transaction adviser to the Government of Kenya for the Kenya Railway Concession. The Project is one of the first where several instruments of the World Bank Group have been utilized in a complementary manner such as IDA Credits, IDA PRGs, and IFC’s Advisory Services. IFC Infrastructure Department may also consider debt financing in support of the Investment Program of the Concessionaire for the development of the Railways.
The threefold objective of the East Africa Trade and Transport Facilitation Project approved by the Board is to (i) improve the trade environment through the effective implementation of the East African Community Customs Union Protocol adopted in March 2004; (ii) enhance the efficiency of transport and logistics services along key transport corridors by reducing non tariff barriers and uncertainty of transit time; and (iii) improve railway services in Kenya and Uganda.
The Protocol, for which a Customs Management Law was approved on 31 December 2004 and became effective on 1 January 2005, is aimed at boosting regional trade, integration and cooperation through the implementation of a common external tariff and reduced internal tariffs in each of the four participating countries.
The project will also improve the efficiency of trade supply chains and main trade routes, from the main gateways (the Mombasa and Dar-es-Salaam ports) to the main business centers, notably through the reduction of port clearance delays. On average at the moment, dwell time in the Port of Mombasa is about 13 days and average transport time between Mombasa and Kampala is an estimated five-to-six days. However, approximately 5 percent of containers still spend more than four weeks in the Port of Mombasa and arrive in more than nine days in Kampala.
“The benefits of the project go far beyond the four countries directly benefiting from World Bank funding, as Burundi, eastern Democratic Republic of Congo and Southern Sudan mostly rely on Dar-es-Salaam and Mombasa for their external trade,” explained Jean-François Marteau, the
World Bank Task Team Leader for the project.
It will also help to lower transport costs by improving road and rail infrastructure along the main transport corridors and lowering the number of load controls and other barriers notably at the region’s main border crossings.
The support provided under the project will also enable the successful concessioning of the largest rail concession in East Africa so far, by supporting inter alia the Kenyan government and the Kenya Railways’ obligations related to retrenchment payments, with the private concessionaire funding the infrastructure improvement. The project will also ensure appropriate follow up of safety related issues
“The Partial Risk Guarantees will be provided to the investors in support of political and non-commercial risks and should help to ensure the long term sustainability of the two concessions. Furthermore, the PRGs will also help to mobilize debt and equity financing for the substantial investments in the railway systems of the two countries and are, therefore, considered critical to the successful Financial Closure and Takeover of the Concessions,” said Farida Mazhar, the Guarantee Team Leader.
In preparing the project, the World Bank relied on a partnership with the African Development Bank (AfDB) for the grant funding of the regional institutions, which is prepared in parallel with this project and is expected to be approved by the AfDB before June 2006.
[1] The credits are provided on standard International Development Association (IDA) terms, with a commitment fee of 0.35 percent, a service charge of 0.75 percent over a 40 year period of maturity which includes a 10-year grace period.
