AIR COTE D IVOIRE MODERNIZATION & EXPANSION PROGRAM

Transcription

1 AFRICAN DEVELOPMENT BANK GROUP Public Dsclosure Authorized Public Disclosire Authorized PROJECT: COUNTRY: AIR COTE D IVOIRE MODERNIZATION & EXPANSION PROGRAM COTE D IVOIRE PROJECT APPRAISAL REPORT PICU DEPARTMENT October 2017

2 TABLE OF CONTENTS 1. STRATEGIC THRUST AND RATIONALE OF THE PROJECT Project Linkages with Country Strategy and Objectives Rationale for the Bank s Involvement Donor Coordination PROJECT DESCRIPTION Project Objectives and Components Technical Solution Retained and Alternative Solutions Considered Project Type Project Cost Estimate and Financing Mechanisms Project Area and Beneficiaries Participatory Approach to Project Identification, Design and Implementation Bank Group Experience and Lessons Reflected in Project Design Key Performance Indicators PROJECT FEASIBILITY Financial & Economic Performance Environmental and Social Impact Implementation Arrangements Monitoring and Evaluation Governance Sustainability Risk Management Knowledge Development LEGAL FRAMEWORK Legal Instrument Conditions Associated with the Bank s Intervention Conformity with Bank Policies RECOMMENDATION APPENDIX 1: SUMMARY OF ISSUES TO CLARIFY DURING THE INFORMAL BOARD SESSION ON ACI ANNEX I: COUNTRY MAP ANNEX II: COMPARATIVE SOCIO-ECONOMIC INDICATORS OF CÔTE D IVOIRE ANNEX III: NATIONAL ACTIVE PROJECTS AS OF MAY 2017 ANNEX IV: ORGANISATIONAL STRUCTURE OF AIR CÔTE D IVOIRE ANNEX V: AIR CÔTE D IVOIRE: FINANCIALS ANNEX VI : ORGANISATIONAL STRUCTURE OF AIR CÔTE D IVOIRE LIST OF TABLES No Title Page 1 Estimated Project costs per component 7 2 Source of Financing 7 3 Project activities financed by ADB Sovereign Loan and ADF PBA 8 4 Air Côte D Ivoire Operational Data 12 5 Schedule for New Capital increase 12 6 Sensitivity Analysis 13 7 Economic Analysis 13 8 Project Monitoring and Supervision Schedule 18 9 Project Risk Matrix 19

3 ACI AfDB ADF AFRAA ANAC BFE CFA CPPR CSP DSCR EBIT GoC GDP ICAO IDEV IFMIS IAAG INP-HB NDP NPV PCR PDP PFM PPP PRG RPK SMH SOE SPV TA WAEMU WCA Currency Equivalents August 2017 UA 1 = USD UA 1 = EUR UA 1 = CFA Euro 1 = USD Fiscal Year 1st January 31st December Weights and Measures 1 metric ton = 2204 pounds 1 metre (m) = 3.28 feet 1 millimetre (mm) = inch 1 kilometre (km) = 0.62 mile 1 hectare (ha) = acres Acronyms and Abbreviations : Air Côte D Ivoire : African Development Bank : African Development Fund : Africa Airline Association : Autorité Nationale de l Aviation Civile : Buyer Furnished Equipment : Communauté Financière Africaine : Country Portfolio Performance Review : Country Strategy Paper : Debt Service Cover Ratio : Earnings before Interest and Tax : Republic of Côte D Ivoire : Gross Domestic Product : International Civil Aviation Organization : Independent Development Evaluation : Integrated Financial Management and Information System : Institut Aeronautique Amaury de la Grange : Institut National Polytechnique Félix Houphouët-Boigny : National Development Plan : Net Present Value : Project Completion Report : Pre Delivery Payments : Public Financial Management : Public Private Partnership : Partial Risk Guarantee : Revenue Passenger Kilometers : Short Medium Haul : State Owned Enterprise : Special Purpose Vehicle : Technical Assistance : West African Economic and Monetary Union : West and Central Africa

4 Borrower: Project Area: PROJECT INFORMATION SHEET Client Information REPUBLIC OF CÔTE D IVOIRE REGIONS OF ABIDJAN, CÔTE D IVOIRE AND WEST AFRICA Executing Agencies: AIR CÔTE D IVOIRE ADB Loan Financing Terms Financing Plan SOURCE EUR (million) UA (million) CFA (million) % of % of FE LC Total Cost FE LC Total FE LC Total Cost Component Project A. Aircraft Acquisition (5 No) Cost , , % 87% ADB Sovereign (Loan) , , % 20% ADB Non-Sovereign (Loan) , , % 17% INVESTEC (Loan) , , % 10% Commercial Banks (Loan) , , % 27% Air Cote d'ivoire (Equity) , , % 13% B. Technical Assistance , , % 5% ADF PBA (Loan) , , % 2% Air Cote d'ivoire (Equity) , , % 3% C. Credit Enhancement , , % 7% ADF PBA (Guarantee) , , % 7% D. Audit % 1% ADF PBA (Loan) % 1% TOTAL PROJECT COST , , , % 100% Key African Development Bank (AfDB) Financial Information Loan currency: Euro (EUR) Type of Loan: Fully flexible loan Maturity: 20 years, including the grace period Grace period: 5 years Average Loan Maturity TBD (function of the maturity, grace period and amortization profile) Repayments: Six monthly instalments Interest rate: Base rate + Funding margin + Lending spread + Maturity premium Base rate: Floating base rate (EURIBOR EUR - 6 months, reset each 1st February and 1st August). A free option for determination of the base rate is available Funding margin: The Bank s funding margin is revised every 1 st January and 1 st July and applied every 1 st February and 1 st August with the base rate Lending spread: 80 basis points (0.80%) Maturity premium: 0.20% Option to convert the Base Rate In addition to the free option to fix the floating Base Rate, the borrower may reconvert the fix rate to floating or refix it on part or full disbursed amount. Transaction fees are payable 1 Option to cap or collar the Base Rate The borrower may cap or set both cap and floor on the Base Rate to be applied on part or full disbursed amount Transaction fees are payable Option to convert loan currency The borrower may convert the loan currency for both undisbursed or disbursed amounts in full or part to another approved lending currency of the Bank Transaction fees are payable Front-end fees 0.25% of the loan amount, Commitment fee 0.25% per year of non-disbursed amount starts to accrue 60 days after the date of signature of the loan agreement and is payable on the set payment dates. FRR Not Applicable ENPV (baseline scenario): US$ million ERR (base-case scenario): 17.6% 1 Conversion options and transaction fees are subject to the Bank Conversion Guidelines ii

5 ADF Partial Risk Guarantee & ADF Loan Financing Terms FINANCING INSTRUMENT ADF PRG ADF LOAN Purpose Guarantee to cover lease payments from ACI TA & Audit to the SPV Commitment Currency UA UA Disbursement/Guaranteed Obligations currency Amount EUR EUR EUR million equivalent (US$20 million) Interest Rate NA 1% Service charge NA 0.75% Commitment Fee NA 0.50% Guarantee Fee Equivalent to an ADF loan service charge of NA 0.75% per annum on the face value of the drawn portion of the Guaranteed Amount. Front-end Fee 1.00% of the face value of the Guarantee. NA Standby Fee Equivalent to an ADF loan commitment fee NA of 0.50% per annum and will be charged on the face value of undrawn portion of the Guaranteed Amount Other Fees Legal and other out of pocket expenses NA incurred by the ADF during the initiation, appraisal and underwriting process of a guarantee, other than the Banks traditional operational expenses, will be charged to the beneficiary Tenor 12 years 25 years Grace Period 2 years 5 years EUR4.264 million equivalent (US$5 million) Duration Processing Milestones (projected) Activities (Month, Year) Approval of the concept note May 2017 Project approval September 2017 Effectiveness October 2017 Last disbursement December 2023 Completion July 2022 iii

6 General Overview of Project PROJECT SUMMARY 1. The Ivorian economy has performed quite well in the past decade, whilst demonstrating resilience to economic headwinds. The economy grew 8.9% in 2015 and 8.4% in While growth is expected to slow slightly in 2017 at 7.3%, mainly due to decline in agricultural exports, the economy is expected to rebound to 8.1% in Diversification of the economy and the quality of same is essential to support and sustain economic growth. In view of diversification, Côte D Ivoire s geographical location alongside its commercial and demographic assets, positions it as an aviation hub in West and Central Africa region (WCA), with the ease to connect traffic from within the continent and to the outside world. The Government of the Republic of Côte D Ivoire (GoC) is keen to leverage this national advantage to develop Abidjan into a hub and to respond to the growing demand for an aviation hub to serve the WCA region. This objective is well defined in the country s National Development Plan (NDP ) and its Vision 2040, and Air Côte D Ivoire (ACI), a national carrier, is expected to play a crucial role towards its actualization. The proposed Air Côte D Ivoire Modernization & Expansion Program ( the Project ) is aimed at repositioning ACI to deliver on this mandate. 2. The Project is a PPP intervention with a mix of financing, knowledge, and policy solutions. It involves: (i) acquisition of 5 Airbus 320 series aircrafts 2 via a lease buyback (bankruptcy remote Special Purpose Vehicle (SPV)) structure, (ii) an ADF Partial Risk Guarantee (PRG) with guarantee coverage of EUR million (equivalent US$20 million) with only US$4.264 million or UA3.552 million of the country s PBA will be set aside to backstop ACI s annual lease payment commitments to the SPV that has been created to ring-fence the aircrafts, (iii) Technical Assistance Package for aviation industry capacity development - training of pilots and aviation technicians, and a business plan towards establishing an Aviation Training center of excellence, and support to improving aviation business climate with regard to Tax, Fees, and Charges and (iv) financial and procurement audit of the components financed by the Bank. The Project will beef-up the Airline s capacity to execute its 10 year growth strategy ( ). The total project cost is estimated at EUR million. The Project is first of its kind for the Bank with a novel transaction structure which records another first in the use of the Bank s Partial Risk Guarantee for the Transport sector in Africa. 3. The Project supports the regional integration strategies (RISPs) for West Africa and Central Africa ( : both RISPs period) which promotes investments in regional transport infrastructure and transport facilitation measures to boost regional integration. It is also in line with the Bank s Country Strategy Paper (CSP) for Côte D Ivoire which anchors on two pillars: (i) Strengthening of governance and accountability and (ii) Infrastructure development in support of economic recovery. The Project aligns with the Bank s Ten Year Strategy (TYS), and Hi5 priorities in terms of (i) Integrate Africa by improving air connectivity in WCA region and enhancing intra-regional trade and (ii) Improving the quality of life of the people of Africa through Tourism and its related jobs creation and private sector development. The Project also complements the Bank s Transport policy in supporting core transport/aviation infrastructure development, regional integration, and technical skill capacity building. It is tandem with the Bank s Private Sector Development Strategy in developing productive and competitive enterprises. This Project would contribute towards job creation, private sector development, tourism, and improve access to transport to +73 million people under ADF 14 cycle. Needs Assessment 4. Despite growing at an annual average of +9% between 2009 and 2014 (above global average of 5.8%, and Africa average of 6.1%) with projected growth at 7% from now till 2020, West and Central Africa region remains the most poorly connected and disadvantaged aviation market in the continent with huge 2 The acquisition of five aircrafts including: two A320CEO, three A320NEO (with the option to convert the last two A320NEO aircrafts to A319NEO as per the purchase agreement signed with AirBus and based on traffic demand/competition). iv

7 suppressed demand a situation that as hampered regional growth and integration. While intra-africa trade is currently at 18% - the lowest globally, a deeper analysis of the regional economic communities (RECs) is even more unpromising. Intra-trade of total Africa trade in ECOWAS (8.9%) and CEMAC (2.1%) lag behind other RECs e.g. SADC (19.3%), EAC (18.4%) due to poor regional transportation links air, road, and sea. 5. Today, WCA region experiences an aviation market failure. While other regions in the continent have developed aviation hubs and air corridors with significant boost on regional economic growth - Johannesburg (Southern Africa), Casablanca and Cairo (Northern Africa), Addis Ababa and Nairobi (Eastern Africa), all backed by strong national carriers with considerable public support, WCA region is lacking there is no national carrier in the region that can support intra-regional connectivity and no viable hub(s), albeit Lomé (home to ASKY) which appears as an emerging hub, but is quite small compared to: (i) the region s market size and (ii) to busier airports such as Lagos, Abidjan, and Accra. Insufficient and/or poorly developed nature of other modes of transport makes air transport a vital and inevitable alternative to link countries in the WCA region. This Project would therefore support ACI - a young Short and Medium Haul (SMH) Airline with positive signs of growth, to contribute towards addressing the connectivity deficit in WCA region by improving air connectivity, enhancing market competition, and boosting regional trade and integration. It is noted that the airport of Abidjan is undergoing an expansion process including construction of a new terminal and parallel taxiway to support ACI s business plan and the Abidjan Hub Development Agenda. The funds for the airport expansion have been secured and procurement has already commenced. Value-added for the Bank 6. The Bank is already supporting the aviation sector in WCA and the continent at large. These include: i) infrastructure development such as the new terminal construction at the Kotoka International Airport in Accra, Ghana, and construction of the Blaise Diagne International airport in Dakar, Senegal, etc; ii) promotion of aviation safety through the PASTACO and COSCAP projects; iii) aircraft financing to Ethiopian airlines; iv) Technical Assistance support to AFCACA on implementation of the YD. Given these foregoing interventions, the Bank is seeking to develop a strategic framework to guide its interventions and provide solutions on addressing the bottlenecks of Africa s Aviation industry. The approach paper provided to date indicate that the main challenges and cost structures (60% aggregate) include Aircraft financing, Fuel & Oil cost, Maintenance & Overhaul, crew cost, and capacity building. The Bank s role in this Project will create broad-based value and comprehensively addresses the above challenges and growth needs of ACI, without which the transaction will otherwise be very costly and hardly bankable. The solution provides long term financing for ACI at cost-effective terms, crowds-in commercial lenders, and positions ACI on its ramp up growth plan, with increased operational capacity and cost efficiency. Through the Technical Assistance package, the capacity of the region s aviation industry will be further enhanced. Knowledge Management 7. The project will provide the Bank an opportunity to deepen its knowledge on aviation finance, beefup understanding on the key issues affecting the industry, and maximizing the impact of the aviation sector in stimulating regional integration, trade, job creation, and economic growth. The monitoring and evaluation of impact from the Project have been specifically designed to build and disseminate this knowledge to the entities in charge of aviation policies at the national and regional levels. The key lessons and knowledge gained in designing this novel transaction structure could serve as a model to be replicated in future aviation finance projects. v

8 Results-Based Logical Framework of the Project Country and project name: Air Cote D Ivoire (ACI) Modernization & Expansion Program Purpose of the project: is to develop the Air transport sector in West and Central Africa through the modernization and expansion of ACI and beefing up its capacity to implement its 10 year growth strategy ( ) with the ultimate aim to drive national/regional economic integration and trade IMPACT OUTCOMES OUTPUTS KEY ACTIVITIES RESULTS CHAIN (i) Aviation contribution to economic growth (ii) Regional integration and Trade facilitation i) Improved National and Regional connectivity ii) Increased no. of passengers iii) Boost in Tourism iv) Improved aviation industry capacity v) Increased Airport Capacity (i) Aircraft Acquisition is successful (ii) Training of Pilots and Technicians is concluded (iii) Jobs creation (iv) Consultancy for Business Plan for INP-HB is concluded (v) Aviation Policy study is concluded (vi) Resource Mobilization from Commercial banks via ADF PRG is successful (vii) Financial audit services completed A. Aircraft Acquisition B. Technical Assistance i) Pilot Training Program PERFORMANCE INDICATORS Indicator (incl. CSI) Baseline Target (i) Percentage of GDP (ii) Passenger Traffic & % cargo growth facilitate by aviation (ACI) i) No. of Domestic and Regional connections ii) No. of Passengers iii) Revenue generated from tourism iv) % of local pilots and technicians v) Capacity of airport (passengers/yr) i) No. of Aircrafts purchased and ringfenced in SPV ii) No of Pilots and Technicians trained iii) No. of direct and indirect jobs created (gender disaggregated) iv) Business plan is approved v) Aviation policy study recommendations adopted by Government vi) Commercial lenders leveraged by PRG vii) Audit reports completed COMPONENTS ii) Aviation Technical Training Program iii) Study to improve Aviation Policy environment iv) TA Business Plan INP-HB C. Partial Risk Guarantee to backstop ACI lease payment D. Audit (i) 2.7% (ii) 719,972 PAX, 0% 2016 (i) 4% (ii) over 1.2 million PAX, 35% By 2030 i) 3 Domestic, 19 Regional i) 5 Domestic; 23 Regional destinations ii) 719,972 passengers ii) 1,039,329 passengers iii) CFA346bn iii) CFA563bn iv) 20% iv) 60% v) 3 million passengers/yr v) 8+ million passengers / yr 2016 By 2026 (i) 0 (ii) 0 (iii) 529 direct; 1,600 indirect jobs (iv) 0 (v) 0 (vi) 0 (vii) INPUTS (i) A320/A319 (x5) purchased (ii) 47 pilots, 45 Technicians trained (35% female) (iii) 684 direct; 3,000 indirect (35%) (iv) Business Plan is adopted (v) Aviation policy study adopted (vi) At least US$111.5 million commercial lending is mobilized (vii) All Audit reports cleared and accepted by the Bank By 2020 MEANS OF VERIFICATION Ministry of Plan Annual Report World Travel & Tourism Council Report ANAC Annual Reports Air Cote D Ivoire (ACI) Annual Report INP-HB Program Reports Supervision Reports Project report. completion RISKS/MITIGATION MEASURES Risks ACI Modernization & Expansion Program is not implemented and ACI is unable to execute its 10 year strategy. INP-HB fails to execute Business Plan for the TA Training Program. Mitigation Measures Broad stakeholders engagement is sustained. ACI and INP-HB have requisite experience and commitment to fully implement the 10 year strategy and TA program respectively. Risks (detailed matrix captured in table 9) i) Financing; ii) Environmental; iii) Operational; iv) Regulation; v) Market Mitigation measures i)adf PRG will help leverage commercial lenders to close the transaction; ii) New fleet will result in reduced CO2 emissions and carbon footprint; iii) New acquisition will improve cost structure; iv) ANAC and ICAO regular inspections and audits; v) ACI s implementation of its business plan vi

9 ID Task Name Implementation Schedule Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Project Approval 2 Loan Signature 3 Loan Effectiveness 4 Delivery of 1st Aircraft 5 Delivery of 2nd Aircraft 6 Delivery of 3rd Aircraft 7 Delivery of 4th Aircraft 8 Delivery of 5th Aircraft 9 Training of Pilots (5No batches) (77) Training of Technicians (5No batches) (120) Study to improve Aviation Policy environment Strategy and Business Plan for INP- HB 11 Financial Audit vii

10 MANAGEMENT REPORT AND RECOMMENDATION TO THE BOARD OF DIRECTORS ON THE PROPOSAL TO AWARD A LOAN TO CÔTE D IVOIRE TO FINANCE THE AIR CÔTE D IVOIRE MODERNIZATION & EXPANSION PROGRAM Management hereby submits this report and recommendation concerning a proposal to award ADB sovereign loan of EUR million (US$ million equivalent), an ADF loan of UA3.552 million (EUR4.264 million or US$5.000 million) and an ADF Partial Risk Guarantee ( PRG ) of EUR million (US$ million equivalent of which EUR4.264 million or US$5.000 million equivalent or UA3.552 million will be set aside from Côte D Ivoire s PBA) to the Republic of Côte D Ivoire to finance the Air Côte D Ivoire Modernization & Expansion Program. 1. STRATEGIC THRUST AND RATIONALE OF THE PROJECT 1.1 Project Linkages with Country Strategy and Objectives Côte D Ivoire s geographical location alongside its commercial and demographic assets, positions it as an aviation hub in West and Central Africa region (WCA), with the ease to connect traffic from within the continent and to the outside world. The Government of the Republic of Côte D Ivoire (GoC) is keen to leverage its national advantage to develop Abidjan into a hub and to respond to the growing demand for an aviation hub to serve the WCA region. This objective is articulated in the country s National Development Plan (NDP ) of which Air Côte D Ivoire (ACI), a national carrier, plays a very critical role towards its actualization. The proposed Air Côte D Ivoire Modernization & Expansion Program ( the Project ) is aimed at repositioning ACI to deliver on this mandate The Project supports the regional integration strategies (RISPs) for West Africa and Central Africa ( : both RISPs period) which promotes investments in regional transport infrastructure and transport facilitation measures to boost regional integration, aligned with the Economic Community of West African States (ECOWAS) Vision 2020, and Economic Community of Central African States (ECCAS) Vision It is also in line with the Bank s Country Strategy Paper (CSP) for Côte D Ivoire, which anchors on two pillars: (i) Strengthening of governance and accountability and (ii) Infrastructure development in support of economic recovery. The Project aligns with the Bank s Ten Year Strategy (TYS), and Hi5 priorities in terms of (i) Integrate Africa by improving air connectivity in WCA region and enhancing intra-regional trade and (ii) Improving the quality of life of the people of Africa through Tourism and its related jobs creation and private sector development. The Project also complements the Bank s Transport policy in supporting core transport/aviation infrastructure development, regional integration, and technical skill capacity building. It is tandem with the Bank s Private Sector Development Strategy in developing productive and competitive enterprises. 1.2 Rationale for the Bank s Involvement Addressing Aviation Market Failure in West and Central Africa (WCA) Region The 1970s/80s saw African airlines accounting for over 60% of inter-africa traffic with positive consequences on trade and integration. Over the same period, almost all the countries in WCA region were connected by airlines notably Ghana Airways, Nigeria Airways, and Air Afrique - which covered 11 States. Unfortunately, these airlines failed, due to mismanagement and a complex ownership structure (particularly for Air Afrique), leaving a huge vacuum. Today, WCA region faces an aviation market failure. While other regions in the continent have developed aviation hubs and air corridors with significant boost on regional economic growth - Johannesburg (Southern Africa), Casablanca, and Cairo (Northern Africa), Addis Ababa and Nairobi (Eastern Africa), all backed by strong national carriers with considerable public support, WCA region is lacking there is no national carrier in the region that can support intra-regional connectivity and no viable hub(s), albeit Lomé (home to ASKY) which appears an emerging hub, but is small compared to the region s market size and to busier airports such as Lagos, Abidjan, and Accra. It is to be noted that airport infrastructure expansions and upgrades are presently ongoing in several WCA cities, as such there is considerable capacity to cater for current and near future passenger traffic demand. In Abidjan in particular, the main international airport is currently undergoing an expansion program which includes construction of a new terminal and parallel taxiway to support ACI s business plan and the Abidjan Hub Development Agenda. The funds for the airport expansion have been secured and procurement has already commenced. 1

11 1.2.2 Furthermore, although 12 airlines (mainly domestic airlines in Nigeria) operate in WCA region, there is little or no competition on the regional market, which is presently served by ASKY. All Attempts by countries in the region to grant Fifth Freedom rights 3 (quite extensive than any part of the continent) to airlines from outside the region and the continent 4 have not sufficiently tackled the issue of poor and fragmented regional connectivity and integration. There is a growing consensus among development partners that the use of concessional finance to support directly the private sector could be justified in situations of market failures. The Bank s intervention would help to address gaps in WCA region aviation market, improve air connectivity, and enhance market competition Promoting private sector development in an ADF country Access to Aviation Finance for Africa Airlines is limited and inadequate, and where available is quite expensive particularly for startup airlines such as Air Côte D Ivoire, due to perceived and real risks. Air Côte D Ivoire sought financing from commercial banks but was unable to obtain long-term financing for its aircraft acquisition. Indeed, very few commercial banks could offer short to medium term financing but at prohibitive terms, with required guarantees from the state, which the government was not in a position to provide. There is no aviation leasing platform on the continent while access to aircraft lease market abroad is also more costly for Africa Airlines compared to their counterparts in other regions (Europe, Asia, North America etc.). Export Credit Agencies (ECAs) have played a useful role, and remain a source of financing, however they have become unstable source of financing recently During the ADF14 replenishment, the Fund mandated the Bank to promote innovative financing and policy solutions to address the peculiar needs of the private sector in ADF countries and to crowd in resources from the private sector via the use of guarantees. Under the recent Presidency of Germany, the G20 strongly called on Multilateral Development Banks (MDBs) to scale up innovative financing solutions to mobilize more private sector investment in Africa, by de-risking investments to crowd in private capital, and promoting Public Private Partnerships (PPPs). Also, a number of bilateral and development partners have embraced the use of blended finance, as a way to align the financial returns of projects with their socio-economic returns 5. The Bank has also leveraged blended finance in availing ADF resources through a sovereign entity that invested into a private sector project, while the ADB directly funded the private sector component of the transaction. Other interventions have been via dedicated trust funds such as the Sustainable Energy Fund for Africa (SEFA), and the Green Environment Fund (GEF) etc The Bank s intervention on this project is a PPP solution, which aligns with the above objectives in supporting a state owned enterprise with significant socio-economic returns of regional dimension. The Bank is deploying a combination of innovative financing and policy tools which include an ADF PRG to de-risk the transaction and crowd in about US$112 million from commercial banks a leverage factor (1:22 times - ADF PBA allocation to private capital mobilised). Blended finance from ADB Sovereign and Non-Sovereign windows to support private sector development via facilitating long term cost effective financing to a start-up Airline operating from an ADF country, with positive signs of growth, and goal to contribute towards addressing the connectivity deficit in WCA region. The Bank s support is also improving aviation business climate by supporting reforms in aviation Tax, Fees, and Charges, while building industry capacity through the training of pilots and aircraft technicians. Without the Bank s intervention the transaction would hardly be bankable Supporting Regional public good to boost regional integration The regional economic communities (RECs) in WCA region - ECOWAS and Central African Economic and Monetary Community (CEMAC), have the core mandate to drive regional economic integration. While both RECs have made progress in restoring peace, containing conflicts, and facilitating the free movement of goods 3 The fifth freedom right is the right for one to fly between two foreign countries on a flight originating or ending in one's own country. 4 Non-African airlines carry over 75% of traffic from the continent, most of which are outbound from the continent with limited impact on intra-regional traffic. 5 The World Bank, IFC, the EU via the EU Africa Investment Facility, the Intra-American Development Bank and bilateral development banks such as KfW and CDC have all deployed blended finance facilities to crowd in capital and promote private sector development. 2

12 and people, the initial aspirations of regional integration have not been met, particularly in deepening trade and economic cooperation. WCA region remains the most poorly connected and underserved in the continent a situation that as hampered regional growth. While intra-africa trade is currently at 18% - the lowest globally- a deeper look into the RECs is even more depressing. Intra-trade of total Africa trade in ECOWAS (8.9%) and CEMAC (2.1%) trail other RECs e.g. SADC (19.3%), EAC (18.4%) due to poor regional transportation connectivity 6 air, road, and sea Insufficient and/or poorly developed nature of other modes of transport makes air transport a vital and inevitable alternative to link countries in WCA region. Overcoming disadvantages arising from geographic isolation and fragmentation, is a key focus of the ADF which aims to address the gaps/challenges of regional integration, and to link countries to regional markets. The foregoing also complements the objectives of Integrate Africa priority of the Hi5s which aims to create regional value chains, leverage complementarities and reduce the costs of movement of goods, services and people in order to exploit the continent s huge market potential. The project supports the aspiration of the RECs in WCA region towards regional integration and would create a considerable regional public good in a region with the most disadvantaged aviation market, by facilitating connections to 23 destinations and boosting regional integration and trade. The project will ultimately contribute to the overarching goal of ADF14 to improve access to transport to +73 million people In addition to the above, it is worth noting that this Project is expected to positively contribute to inclusive growth, through its support to three core dimensions of inclusion, namely economic, spatial and social inclusion. More specifically, the following outcomes are expected: i) contribution to economic inclusion: the project is expected to help increase economic opportunities for 400 people through the creation of new direct jobs for them. This corresponds to 1.27 job per million invested, which is considered as satisfactory. ii) contribution to spatial inclusion: It is expected that Air Cote d Ivoire s expansion and modernization plan will help further unlock 6 transitions states (including Democratic Republic of Congo, Mali, Liberia, Sierra Leone, Togo and Central Africa Republic) by generating incremental traffic on Air Cote d Ivoire s regional routes connecting them with other countries. In particular, as a result of the project, Central Africa Republic will be added to Air Cote d Ivoire s destinations network, which should further integrate this transition state with the rest of the continent. iii) contribution to social inclusion: The project is expected to contribute to narrow the gender gap in economic opportunities in Cote d Ivoire by creating 136 new female jobs. This represents 34% of total incremental jobs to be created under the plan, which is higher than the share of female employment in the non-agricultural sector in Côte d Ivoire (21%). 1.3 Donor Coordination Aid coordination is structured at the national and sectoral levels with the formation of working groups, establishment of the External Resources Mobilization Committee (COMOREX) and preparation in 2014 of a Joint Aid Coordination Programme. The National Coordination and Financing System established is a five-level system comprising the National Development Commission chaired by the Presidency of the Republic, and then a first general coordination level chaired by the Prime Minister s Office, which consists of inter-ministerial coordination bodies and the COMOREX platform, followed by ministerial coordination bodies (technical secretariats) co-chaired by the Ministries of the Economy and Planning and lastly sectoral coordination groups There is also a Development Partner (DP) consultation mechanism which helps to define the common positions and guidelines for discussions with the Government. It is organised into three levels, namely the Ambassadors and Mission Heads Consultative Framework, the heads of cooperation committees and thematic groups. The EU chairs the "Infrastructure" thematic group comprising the "Transport", "Water and Sanitation", and "Energy and ICT" sub-groups. In addition to the abovementioned mechanism, regular consultations are held with the Government to address specific issues. Details of the donors activities are presented in Annex III. 6 Africa regional integration index report (2016) - ECOWAS and ECCAS have a regional infrastructure index of and respectively below average of the 8 RECs in the continent. 3

13 2. PROJECT DESCRIPTION 2.1 Project Objectives and Components Project Objectives The overall objective of the project is to boost national/regional economic growth and integration by developing the aviation sector in West and Central Africa. This will promote job creation, trade, tourism, and private sector development. Specifically, the project will improve national/regional connectivity and support the Abidjan aviation hub concept. It will also address the human capital deficit in the aviation sector by supporting the training of pilots and aviation technicians while facilitating a business plan to establish a regional aviation training center of excellence, at INP-HB, Yamoussoukro. Project Design The Project is first of its kind for the Bank with a novel transaction structure (see Figure 2 for transaction structure), which leverages blended finance of ADB Sovereign and Non-Sovereign resources, and ADF Partial Risk Guarantee (PRG), to address market failure in the most disadvantaged aviation market in the continent, using global best practice and widely used lease buy back aviation finance principles. The Project records a major mark as the first use of the Bank s PRG for the Transport sector in Africa The Project consists of the following main components: The funding of the Technical Assistance Package and ADF PRG will be funded by the Performance-Based Allocation (PBA) of Côte D Ivoire under ADF-14. A. Aircraft Acquisition EUR million (equivalent to UA million). This component entails acquisition of 5 Airbus A320 series aircrafts 7, including Buyer Furnished Equipment (BFE) aligned to ACI s specification. The purchase will replace five A s currently being dry leased on costly terms. Delivery of the aircrafts is as follows: 1 st aircraft was delivered in July2017, 2 nd aircraft is due in October 2017, while the remaining 3 aircrafts will be delivered in 2020/2021. B. Technical Assistance (TA) Package EUR million (equivalent to UA million) i) Aviation Technical Training Program EUR million (equivalent to UA million): This component will cover Aviation Technical Training Program of additional 77 Aircraft Pilots and 120 Technicians over ACI s business plan period ( ). The executing agency for this component will be INP-HB. The Bank will co-finance this component via an ADF loan EUR3.496 million EUR2.676 million for the 1 st and 2 nd batch of Pilot training (in 2017 and 2018) and EUR0.820 million for the 1 st batch of Aircraft Technician training (in 2018). ACI will contribute EUR9.432 million towards the training program and will cover the costs for training of the 3 rd, 4 th and 5 th batch of pilots and the 2 nd, 3 rd, 4 th and 5 th batch of aviation technicians commencing 2019 to The TA intervention will boost ACI s capacity and cost efficiency, and by extension address the glaring technical capacity gap in the region s aviation market/industry. To achieve a better gender balance in the Aviation work force, the TA will strive to achieve a 35:65 female to male balance by 2025 from the 10:90 female to male ratio in the program presently. ii) Study To Improve Aviation Policy Environment Support for reform in Tax, Fees & Charges (TFCs) EUR0.324 million (equivalent to UA0.270 million): This component would provide technical assistance support towards improving aviation business environment via a study aimed to reform aviation market Tax, Fees, and Charges (TFCs). iii) Development of Aviation Training Program and Business Plan for INP-HB EUR0.341 million (equivalent to UA0.284 million): This component would finance a business plan to establish a regional aviation training center of excellence at INP-HB, Yamoussoukro under PPP, and INP-HB will be the executing agency. The center is expected to serve the region s aviation market/industry 7 The acquisition of five aircrafts including: two A320CEO, three A320NEO (with the option to convert the last two A320NEO aircrafts to A319NEO as per the purchase agreement signed with AirBus and based on traffic demand and competition). 4

14 by offering aviation training program in both English and French, thereby attracting candidates across the region. Both the theory and practical components of the training will be in-country saving valuable forex. C. ADF Partial Risk Guarantee (PRG): This component will provide a vital ADF PRG 8 with guarantee coverage of EUR (US$ million equivalent of which only EUR4.264 million or US$5.000 million or UA3.552 million of the country s PBA will be set aside) to backstop ACI s annual lease payment commitments to the Special Purpose Vehicle that has been created to ring-fence the aircrafts (see transaction structure Figure 1). The PRG is covering the risk of breach of contract (failure by the state-owned entity ACI to make payment under the lease agreement). It will use a letter of credit (L/C) structure via a commercial bank (L/C Bank) to be selected by the Bank and ACI. The PRG will backstop the failure by the L/C Applicant (ACI) to reimburse the L/C Bank amounts drawn by the L/C Beneficiary (the SPV) under the L/C, following the occurrence of a breach of contract. The PRG will cover both principal and interest payments under the L/C. It would help crowd-in cost-effective financing of up to EUR million from Commercial Lenders to the Project at competitive tenor and terms about 6 times multiplier factor of the guarantee coverage to the PRG. The ADF PRG will have a cross-guarantee with GoC, whereby the Government undertakes to repay to the Fund any amount paid under the guarantee. D. Audit EUR0.102 million (equivalent to UA0.085 million): This component covers the project s financial audit over 3 years and procurement audit (in 2019). 2.2 Technical Solution Retained and Alternative Solutions Considered Technical Consideration In deciding for a retained solution, ACI made both technical and financing considerations. On the technical side, ACI considered 4 Aircraft types suitable for short and medium haul flights from 4 manufacturers in line with its fleet structure, network plan, specifications, and market. See section to for details of the technical consideration during the procurement process. Financing Consideration Following the above technical consideration, ACI made the following financing considerations: Doing Nothing ACI currently operates at a very high operating cost structure, which is unsustainable the airline s current fleet include 10 aircrafts - 5 of which are leased. Apart from its current expensive leases most of which are nearing the end of their respective terms and also aging aircrafts, it seems implausible for the Airline to maintain or renew these leases to drive its 10 year business plan ( ). Replacing these leases with expensive lease contracts is also not cost effective, particularly for a startup Airline as ACI. There is no aviation leasing platform in the continent for African Airlines. In developed markets, lease rates for African Airlines are more expensive (1.25-2% of the aircraft s market value) plus security deposit (2 3 months payments) compared to Airlines from other regions (<1% of the aircraft s market value) and with little or no security deposit Aircraft Acquisition - Corporate Finance Option ACI has been operating for about 5 years and has a lean balance sheet (as expected from a start-up airline) to support corporate acquisition of its fleet requirements. The Airline is only expected to achieve profitability from ACI therefore has limited access to on-balance sheet finance, which if possible is prohibitive. As a result, the Airline could only consider 2 Aircraft acquisitions, which was inadequate to execute its business plan. In addition commercial lenders had requested for a full sovereign guarantee, which GoC was not in the position to grant, and even where plausible, would only have marginal impact on the terms, given that the sovereign rating of Cote D Ivoire is Ba3 (Moody), and B+ (Fitch). 8 The ADF PRG is a leveraged instrument which will use only 25% of the nominal value of the guarantee of the country s performancebased allocation (PBA) - a leverage effect of the guarantee coverage to the Fund s resources of 4:1. 5

15 2.2.5 Aircraft Acquisition - Blended Finance Option 9 In the quest for a cost effective option to finance its 10 Year business plan, ACI engaged with the Bank who then supported the Airline in structuring a novel transaction solution, which would allow ACI acquire 5 Aircrafts via a lease buyback bankruptcy remote SPV structure. The SPV helps to ring fence the assets away from ACI, thereby giving lenders some comfort and rights over the assets (if things go wrong), especially as aircrafts are movable assets with a well-developed liquid secondary market. This structure is suited for a start-up airline such as ACI with limited balance sheet, but can also be valuable for even matured airlines The Government and ACI analyzed and reviewed the above options and decided on Airbus and the Aircraft Acquisition - Blended Finance Option. 2.3 Project Type Transaction Structure The transaction structure is presented in figure 1 below. The proposed project is a PPP lease buyback transaction structure with a bankruptcy remote Special Purpose Vehicle (SPV) was created on 21 st September 2017 under the name BAGOE domiciled in Mauritius 10 managed by an Administrator/Purposed Trust. The SPV is a non-operational entity, created with the main purpose to ring fence and own (take legal title) the aircrafts via the assignment of the Aircraft Purchase Agreement. The SPV will act as the Aircraft Lessor and will enter into an Aircraft Lease Agreement with ACI which will act as the Aircraft Lessee, where ACI will make quarterly lease payments to the SPV, and the SPV will in turn service its debt to lenders. Figure 1: Proposed Transaction Structure (Aircraft Acquisition) On lending structure: The Bank will sign a Loan Agreement with the Republic of Côte d Ivoire with respect to the ADB Sovereign loan (EUR million). This support will be applied at the SPV level as Public Tranche. It is therefore proposed that the loan to Côte d Ivoire be on-lent to the SPV. The financial terms applicable to the on-lent resources will be the one applicable to the ADB Sovereign financing to Côte d Ivoire while the repayment period will be determined according to the specific conditions relating to the duration of the SPV. The SPV will reimburse the Borrower through the lease payments and the on lending agreement to be concluded with the SPV will contain appropriate reporting, audit and other fiduciary provisions Justification for on lending at ADB public sector financial conditions The Bank s Onlending Policy (the On-Lending Policy ) requires that project loans granted to member countries from ADB ordinary resources should be on-lent to enterprises on no more favorable conditions than those 9 Source OECD - Blended finance is the strategic use of public or private funds, including concessional tools, to mobilise additional capital flows (public and/or private) to emerging and frontier markets 10 Mauritius is a well-known tax efficient environment for incorporating SPVs. Most, if not all of the project finance SPVs (financed by the Bank) are created in Mauritius. The setup cost of the SPV is borne by ACI. 6

16 that would have been offered by the enterprise by the Bank if the enterprise were the direct borrower. The duration and grace period should be determined by the capacity of the project and the enterprise to manage the repayment scheme. Section 30 of the On-Lending Policy on clause 30 also provides guidance to justify circumstances where On-lending from Government to an enterprise could be considered below market rate, particularly with regard to the financial state of the enterprise. The support of Côte d Ivoire towards the transaction structure (SPV which is a shell to ring fence the aircraft off the balance sheet of ACI) is justified as it is geared towards supporting the financial state of ACI. Also ACI as a carrier focused on WCA region fulfils a regional public good. As a startup Airline with a lean balance sheet, ACI has limited capacity to pursue such acquisition and execute its business plan. This is evident from the Airline s inability to attract long term cost effective financing. The proposed on-lending terms (which matches the capacity of the firm to manage repayment) will for the Airline achieve a blend effect with about EUR95 million commercial financing crowded in. This would support the financial and economic performance of the project an objective that aligns with the views of development partners to leverage blended finance as a way to align the financial returns of projects with their socio-economic returns (in this case of regional significance). The support from the Government is also financially sustainable as the government is not passing on a subsidy to the Airline but directly passing over its cost for facilitating the ADB Sovereign loan to ACI through the SPV The SPV will enter into a Loan Agreement with Lenders - ADB Non-Sovereign (EUR million or US$ million) as Private Tranche, and Commercial lenders as Commercial Tranche (EUR million or US$ million), given their respective terms of financing, and with GoC (via a special escrow account structure to be created). The escrow account interfaces between GoC and the SPV - as per its jurisdiction GoC cannot interface directly with the SPV. ADB Non-Sovereign and commercial lenders would be senior lenders to the SPV The SPV will lease the Aircrafts to ACI (under similar terms and conditions extended by lenders to the SPV) as borrower under the financing agreement. The SPV would then enter into a Lease agreement with ACI under which the Airline makes quarterly lease payments to the SPV. On final payment under the Lease agreement, the title to the Aircraft(s) would be transferred back to ACI. On receiving the quarterly lease payments from ACI, the SPV will service the debt to lenders/other financing parties in a waterfall arrangement which repays the senior lenders first and then GoC As part of the PRG guarantee structure, a Letter of Credit (L/C) Bank will be competitively selected to backstop the lease payment obligations of ACI. ACI will enter into a Reimbursement and Credit Agreement with the L/C Bank in which it will undertake to repay the L/C Bank for the amounts drawn under the L/C by the SPV plus accrued interests within a specified period from the date of each drawing. In an event of ACI s lease payment default, the SPV will therefore be able to draw from the L/C bank to fulfill the loan repayment obligation. The ADF Guarantee is only called by the L/C Bank when ACI fails to repay the L/C Bank. ADF PRG actually guarantees the L/C Bank against ACI default The Bank will enter into a guarantee agreement with the L/C bank. As is required pursuant to the Strategic Framework and Operational Guidelines for the African Development Fund Partial Risk Guarantee Instrument, the Republic of Côte D Ivoire will enter into an counter indemnity agreement with the ADF pursuant to which Côte D Ivoire undertakes to repay the Fund on demand for any and all payments made by the Fund to the L/C bank. 2.4 Project Cost Estimate and Financing Mechanisms Project Costs by Component The total Project cost, net of taxes and customs duties, including financial contingencies, is EUR million or UA million or CFA165, million at the August 2017 exchange rate of UA1 = CFAF or EUR

17 Table 1: Estimated Project costs per component Table 2: Source of Financing SOURCE EUR (million) UA (million) CFA (million) % of % of FE LC Total Cost FE LC Total FE LC Total Cost Component Project A. Aircraft Acquisition (5 No) Cost , , % 87% ADB Sovereign (Loan) , , % 20% ADB Non-Sovereign (Loan) , , % 17% INVESTEC (Loan) , , % 10% Commercial Banks (Loan) , , % 27% Air Cote d'ivoire (Equity) , , % 13% B. Technical Assistance , , % 5% ADF PBA (Loan) , , % 2% Air Cote d'ivoire (Equity) , , % 3% C. Credit Enhancement , , % 7% ADF PBA (Guarantee) , , % 7% D. Audit % 1% ADF PBA (Loan) % 1% TOTAL PROJECT COST , , , % 100% Table 3: Project activities financed by ADB Sovereign Loan and ADF PBA Financing Arrangements The financing structure of the project is done under a debt to equity ratio of 85:15. GoC/ACI have contributed / pre-financed EUR million (US$ million) as counterpart funding (more than its 15% equity contribution for the whole project) to cover Pre-delivery payments (PDP) to date for all the five aircrafts as well as Buyer Furnished Equipment (BFE) payment and part delivery payment for the first aircraft delivered in July This pre-payment counterpart funding demonstrates the strong commitment of GoC/ACI, and by extension its Abidjan Hub development On the debt side, the Bank is considering the following comprehensive financing package alongside side other financiers: 8

18 Aircraft Acquisition ADB Sovereign Debt Tranche ADB Sovereign Loan EUR million (US$ million) to GoC, applied at the SPV level for the benefit of ACI. The Bank s ADB Sovereign financing would cover the delivery payment of the second Aircraft (US$ million or EUR million) and ongoing PDP and BFE payments (up to US$ million or EUR million) sufficient to cover PDP payments till the financial close of the Private financing (estimated by July 2018). Côte D Ivoire s access to the ADB window aligned with due credit assessment - reviewed in April 2017 by RDVP and Credit Risk Committee (CRC), which supported this Project s presentation to the Board in September ADB Non-Sovereign Debt Tranche ADB Non-Sovereign Loan EUR million (US$ million) ADB Non-Sovereign Loan to the SPV to cover the cost of the 3 remaining Aircrafts whose delivery are due in 2020/2021. This part of financing will be presented to the Board alongside the Public Debt, on the same day, but as a separate PAR. Commercial Debt Tranche Commercial Banks EUR million (US$ million) would come from commercial banks Standard Chartered, Investec (already financed), and Societe Generale have already indicated interest. ACI will issue a competitive RFP to crowd in the commercial lenders. Payments from this tranche will cover the cost of the 3 remaining Aircrafts that are due in 2020 and Investec Financing (EUR million or US$ million) Given the delivery date of the first Aircraft in July, 2017, ahead of the Bank s proposed Board approval (September, 2017), ACI solicited alternative financing from Investec. Investec financed the delivery payment of the first Aircraft to the tune of EUR million or US$ million. The Bank engaged with Investec and confirmed that Investec s financing would be considered as part of the commercial tranche of the project. As at when the Bank considers a Board approval for the project, the terms of Investec financing would be re-negotiated between ACI and Investec, and brought under the above transaction structure thus Investec would benefit from the ADF PRG. Equity Due to delays in ascertaining Côte D Ivoire access to ADB window, the Bank could not meet up with the debt financing for the first aircraft delivery. As a result, ACI financed the PDP and BFE with additional equity participation of EUR million (USD20 million) alongside Investec s financing of EUR million (US$ million). In line with the above, the following scheme has been agreed: The Bank Sovereign loan will refund part of the equity surplus (approximately EUR9.100 milion) (above the 15% equity limit agreed with ACI) advanced by the company for the payment of PDP for acquisition of the aircrafts (with the exception of the 1 st aircraft which has already been delivered). Following the Bank s refund, ACI will have a balance of EUR6.06 million to complete its 15% equity contributions for the five aircrafts. This balance will go towards PDP and BFE (from December 2018 to July 2021) for the three remaining aircrafts due for delivery in 2020 & Project Area and Beneficiaries While ACI is based in Abidjan, the project area will cover (6) major regional economic centres in the country and benefit their district populations through trade and tourism facilitated by air connectivity services from ACI. These include: i) Abidjan District (Abidjan, 4.7 million), ii) Denguélé District (Odienne, 289,779), iii) Savanes District (Korhogo, 1.6 million), iv) Montagnes District (Man, 2.4 million), v) Vallée du Bandama (Bouaké, 1.4 million) and vi) Bas-Sassandra (San Pédro, 2.3 million). Over the life of ACI s business plan, it is expected that the project area would expand to 7 regional economic centres. The project will support the tourism industry across the country. 9

19 2.5.2 In addition, the project area will also cover locations in West and Central Africa region via regional air connectivity network of the Airline. This would help boost both national/regional integration and promote trade within and beyond the WCA region. It is to be noted that million passenger traffic would be facilitated via ACI network by 2030 with increased cargo volumes by 35% between now and Participatory Approach to Project Identification, Design and Implementation Consultations were carried out at the highest levels across several stakeholder groups: Government the Presidency, Ministries of Finance, and Plan, as well as Senior Managements of ACI and INP-HB. The Bank supported the Airline and GoC in structuring the transaction (an innovative lease buyback bankruptcy remote SPV transaction structure) which accommodated the 5 Aircrafts required by ACI s business plan. This was followed by extensive consultations between the Government and ACI on the optimal option which delivered value for money - Aircraft Acquisition - Blended Finance Option. The Bank also engaged with INP-HB on establishing a regional center of excellence on aviation training in the WCA region to train Pilots and Aeronautic Technicians, an outcome which will see the project develop a business plan for the center under PPP, while supporting the training of the Pilots (77) and Technicians (120) required by ACI s business plan. Periodic monitoring/evaluation will be carried out by INP-HB for the trainees and certification, while ACI and ANAC (Autorité Nationale de l Aviation Civile) will oversee the performance of the airline s operations. The Bank will periodically monitor the project with scheduled follow-ups, reviews, and supervision missions. 2.7 Bank Group Experience and Lessons Reflected in Project Design The Bank s engagement in the transport sector in Cote D Ivoire, dates back from To date the Bank has financed 22 operations (mainly in the road sub sector) to a tune of UA million, of which 20 operations are completed, including Henri Konan Bédié (HKB) Abidjan, toll bridge project There are 5 ongoing operations (progressing well) to enhance regional integration between Cote d Ivoire and its neighboring countries namely - (i) study on San Pedro port extension, (ii) road development and transport facilitation program within the Manu River Union - consisting Côte D Ivoire, Guinea and Liberia, (iii) road development and transport facilitation program along the San Pedro Boundiali - Zantiébougou -Bamakowere corridor, and (iv) study on Lagos - Abidjan Super Highway project. (v) Abidjan Urban Transport Project with the aim to link Abidjan city to the international corridors. The completed projects have contributed sizably to economic growth via improved mobility, access to socioeconomic opportunities and rural areas to urban center linkages The Bank has historically supported the Aviation sub-sector in the WCA region. In 2005, the Bank financed (UA4.6 million ADF Grant) the COSCAP project to improve civil aviation safety and consolidate the Yamoussoukro Decision, to integrate WCA into the global air transport market. The Project Completion Report (PCR) for the project was concluded in Also in 2015, the Bank approved UA11 million ADF Grant, to finance the PASTA-CO project, to help ECOWAS and CEMAC establish a Regional Safety Oversight Organization and Regional Accident and Incident Investigation Organization in WCA. Lessons learnt Lessons learned from the Bank s operations in the country, and from other development partners, suggest the crux need to ensure high project quality at entry, and to promote PPP to enhance implementation capacity and ensure sustainability. There is the need to minimize delays following approval, late availability of counterpart funds, and slow project management arrangements. The proposed project takes the above lessons into account. The project is structured as PPP via its lease-buy structure, which promotes sustainability. A dedicated team has been put in place at ACI and INP-HB to oversee the implementation of the project. Counterpart funding from GoC/ACI has already been committed into the pre delivery payments for the first two aircrafts, thereby eliminating any delays. The project enjoys close oversight from ACI s senior management to ensure successful execution locations plus the hub - Abidjan 10

20 2.7.5 Whilst the proposed project would be the Bank s first direct aviation project in the country, the Bank has financed similar aircraft acquisition transaction with Ethiopia Airlines, where strong operational capacity was identified as a success factor. ACI benefits from its strategic partnership with Air France which has impacted positively on its operations. Within 5 years of operation ACI has risen to be the 3 rd market leader in the WCA region. Though an SOE, ACI operates in an autonomous fashion with regard to its operations and decisions. The Project also captures lessons from the COSCAP project on promoting air safety, while the proposed Technical Assistance Package would beef-up ACI s operational capacity, boost air safety, and improve enabling environment. 2.8 Key Performance Indicators The Project will support air connectivity and economic activities in 7 (2026) regional economic centers within the country from 3 (2016). From a regional integration perspective, the Airline would improve regional air connections from 19 (2016) to 23 (2026), facilitating passenger traffic from 719,972 (2016) to 1,039,329 (2026) and projected to reach about 1.2 million+ (2030). Aviation contribution to GDP would grow from 2.7% of GDP (2016) to 4% (2030). The project will also create jobs (direct ~529 (2016) to ~ 684 (2020) operations (cabin, air and, ground crew) and aviation related services, and indirect jobs ~1600 (2016) to ~ 3000 (2020) in tourism and other private sector jobs induced by the Abidjan hub development. Aviation is a sector with high propensity for gender inclusion, as such the project would promote jobs for women. The project will also address the human capital deficit in the aviation sector by supporting the training of additional 77 pilots and 120 aviation technicians (of which 35% are targeted to be women) required by ACI to delivery its business plan by The Project will support the establishment of a regional aviation training center at INP-HB, Yamoussoukro under PPP, to offer regional technical training for pilots and aviation. A business plan to establish the center will be delivered under this Project. The identified key performance indicators and expected outcomes at project completion are presented in the results-based logical framework. The baseline situation for these indicators as defined in the logical framework will be verified and an assessment will be conducted at mid-term and at project completion by a consultancy firm Apart from these outcome and achievement indicators in the logical framework, project implementation performance indicators will also be monitored. They were selected based on the Bank's institutional performance indicators defined in Presidential Directive No. 02/2015 on the design, implementation and cancellation of sovereign Bank Group operations. These are essentially: (i) deadlines for implementation and fulfilment of conditions precedent to first disbursement; (ii) procurement deadlines; (iii) average project progress status indicator (PI); and (iv) changes in the disbursement rate in accordance with the expenditure schedule. These indicators will be monitored during supervision missions and in the daily management of the project. 3. PROJECT FEASIBILITY 3.1 Financial & Economic Performance Operational Performance - The financial position and viability of ACI continues to improve. The Airline s revenue has grown steadily from its inception in ACI s revenue grew by 83% from 27.8 billion CFA (US$48.8 million) in 2013 to 50.9 billion CFA (US$89.4 million) in The Airline also had 16.5% year on year growth reaching 86.5 billion CFA (US$151.9 million) in 2016, and is expected to grow further by 17% in Figure 3: Air Côte D IvoireRevenue Profile Total Revenue (mil in XOF) Transport Revenue (mil in XOF) Other Revenue(mil in XOF) 11

21 3.1.2 A closer look at EBITDA margins reinforce the same progressive trend from -66.8% in 2013 to % in 2016, showing strong operational fundamentals. EBITDA margins are expected to trend to positive figures from 2017 (3.47%), and projected to grow to double digits 13.8% in 2020 and 20.2% in The Global aviation industry (characteristic of its low margins) EBITDA margins was 8.3% in 2015, up from 4.7% in ACI is a start-up Airline, and as typical, it is not unusual to have negative EBITDA margins at the early stage of its development, given continuing investments being made to pursue growth. To further buttress the strength of ACI s core operations, about 93% of the Airline s revenue come from Transport revenue (passenger tickets). Whilst reassuring, the foregoing also demonstrates the potential for ACI to grow other revenue such as cargo/freight revenue, a business line ACI plans to further develop with positive impact on boosting intra Africa trade in the region. 100,00% Figure 4: Air Côte D Ivoire EBITDA Margins 0,00% EBITDA Margin -100,00% ACI has increased passenger numbers over the years from 398,761 in 2014 to a projected 834,833 in 2020, with an average load factor of 64% - which measures its capacity utilization. However, ACI s load factor is below industry average in Africa (68.2%) and when compared with its main competitor ASKY (at 70.8% in 2015). The Airline would need to improve its load factor to continually boost revenue. With higher load factor, profitability increases, as the fixed costs are spread across more passengers. It is expected that as the economies in the region recover from the recent economic headwind, and with improved services, route and frequency optimization, and the launch of strategic partnerships and code share arrangements with Air Burkina, Air France, and Kenya Airways, ACI would be able to improve its load factor. Table 4: Air Côte D Ivoire Operational Data Load Factor (%) 67% 65% 64% 62% 63% 65% 65% Passenger Traffic 398, , , , , , ,833 Passenger growth (%) 42% 16% 15% 5% 2% 4% Debt Capacity of ACI - ACI has financed its growth via a mixture of debt and equity. GoC has over the years demonstrated its commitment to the Airline. However, this is to support ACI s start-up phase, as GoC plans to divest from the Airline once it becomes fully profitable. Debt Service Coverage Ratios (DSCRs) appear relatively okay following the project with Minimum DSCR (1.66x) and Average DSCR (3.84x) at base case scenario. However, ACI would need to manage short term liquidity challenges, particularly as it relates to the repayment of its existing debt with Afrexim Bank and EDC which in 2016 was XOF 41 billion (US$72.8 million), that would impact negatively on coverage ratios. To address this issue the Board this year, approved a new general capital increase for the Airline (which is being implemented) to a tune of 67 billion CFA (USD 118 million) over a 3 year period of which the GoC has already advanced billion CFA (US$35.5 million) out of its share of 38.6 billion (US$68.6 million) as follows (see below Table 5) with the following payment timelines: 50% to be paid in 2017, 30% in 2018, and 20% in The new equity injection will support the free cash flows of the Airline and as well enable ACI comply with OHADA minimum equity regulatory requirements 12. It is expected that part of the new equity injection would be used to pay down the existing debt this would be made an undertaking on the loan agreement on the Public window and a loan condition on the Private window. 12 OHADA rules - equity after losses should not to be lower than 50% of the nominal share capital. 12

22 Table 5: Schedule for New Capital increase Sensitivity Analysis The Sensitivity analysis on the project was performed on average ratios and presented below. It demonstrates the project s capacity to withstand several down side scenarios. However it is to be noted that this only dependent on ACI s ability to execute its business plan. Table 6: Sensitivity Analysis Min. DSCR Avg. DSCR Min. ICR Base case 1.66x 3.84x 4.40x Changes in passengers volume (5% down) 1.30x 2.90x 3.34x Changes in price (5% down) 1.27x 2.81x 3.25x Changes in frequencies and block hours (10% down) 1.29x 2.94x 3.32x Changes in flight related cost (10% up) 1.55x 3.51x 4.08x Changes in fuel price (10% up) 1.54x 3.48x 4.04x Combined: prices (5% down) & flight related cost (5% up) 0.87x 2.21x 3.29x Economic Analysis ACI is bound to have considerable economic benefits in line with boosting regional economic integration and trade, externalities towards private sector development, particularly SMEs in the tourism and aviation related sector, and improving the competitiveness of the Abidjan hub development. This would lead to job creation, economic diversification, and growth. The economic analysis below looked at various stakeholders group - Government of Côte D Ivoire, Service providers. Passengers, Society, Passengers, investors. It is expected that GoC would gain increased tax income from growth in private sector activities stimulated by ACI. Passenger would enjoy better connectivity and choice, and the industry would benefit from improved technical capacity in terms training for pilots and technicians. The Project would deliver an estimated Economic NPV of US$32 million (at 12% discount rate real). Table 7: Economic Analysis SUMMARY STAKEHOLDERS/DISTRIBUTIVE IMPACT, In Thousand USD [SUM] 12%] Government 50,195 20,473 Corporate Income Tax (CIT) (10,808) (1,890) Tax on Tickets 37,226 13,964 Labor Incone Tax Value-added-Tax 10,202 3,304 Withholding tax (on profits) 9,988 3,949 Import tarifs 2, Society 1, Incremental earnings to labor 1, Cost of Environmental Degredation Avoided - - Passengers 106,836 44,002 Nationals 32,051 13,201 ECOWAS 53,418 22,001 Others 21,367 8,800 Service Provider 63,587 24,249 ACI 63,587 24,249 Net foreign exchange premium to Cote d'ivoire 4,273 (7,406) Total Externality from ACI Investment to Economy 226,480 81,798 ACDI Investors 25,592 (49,531) Net financial returns to ACDI Investors (Lenders & Shareholders) 25,592 (49,531) Total Net Benefit to Stakeholders [Economy] 252,072 32,268 Financial IRR (Incremental) 2.3% Financial NPV (49,531) USD '000 Economic IRR (Incremental) 17.6% Economic NPV 32,227 USD ' Environmental and Social Impact Environment This Project is classified as a category 4b (Medium to Low risk) in line with the Bank s Integrated Safeguards System (ISS) and Environmental and Social Assessment Procedures (ESAP). The Environmental and Social Management System (ESMS) developed by ACI reflects the systems and 13

23 mechanisms in place to manage the environmental and social risks associated with the procurement, operation, and decommissioning of aircrafts. The environmental, health, and safety risks identified are mainly related to the maintenance and operation centers and include: surface/ground water and soil pollution through waste disposal, noise, olfactory and vibratory nuisance generated by the aircrafts as well as the emission of Volatile Organic Compounds (VOCs); impacts on health and safety and energy use. ACI activities do not involve any resettlement During appraisal, the Environmental and Social Management System (ESMS) was assessed and found to be complaint with the Bank s ISS. Since commencing operations, ACI has made consistent effort to comply with environmental and social standards and sustainability issues of its various stakeholders. The Airline s first formal safeguard policy was issued in A recent ESMS was developed in 2017 with the proactive support of the Bank s E&S specialist, aligned with the operational safeguard policies of the Bank and IFC. The new ESMS covers 9 key areas including amongst others - the E&S policy and commitment of the management, various management programs, increased capacity and organizational skills, preparation and response to emergency situations, commitment of different stakeholders, external communication and permanent dialogue with potentially affected communities It is to be noted that ACI s ESMS would be published prior to the board date. ACI would be expected to take the following next steps (i) assign an E&S coordinator and forward of his/her resume to the Bank a condition to first disbursement (ii) a commitment to constitute and train the committee in charge of the implementation of the environmental and social regulatory system, and (iii) present a proposal of an outline of the annual environmental monitoring report, attached to the loan agreement The environmental monitoring report will be transmitted to the Bank on an annual basis as per the ISS requirements and will report on the implementation of the mitigation measures included in the ESMS. Besides the Bank s ISS policy and procedures, ACI is required to comply with host country requirements as well as global industry safety standards. Climate Change In term of Greenhouse Gas Emissions (GHG), the aircrafts A320 series are more environmental friendly and are 15% more fuel efficient. The new aircrafts will reduce the CO2 emissions by more than 900 tons per year and will emit 10% less of nitrogen oxide (NOx) comparing to the previous A 320 version. In terms of additional mitigation measures, the Airport operator (AERIA) is working to construct a new parallel taxiway to reduce the waiting time of aircrafts and consequently the emission of GHG. ACI is also supporting the National Forest Conservation and Development program in partnership with the Forest Development Corporation (SEDEFOR). Gender Air Côte D Ivoire is applying an employment equity strategy, despite the challenges in attracting women in operations-heavy work streams. As such, women are increasingly encouraged to participate in the job market and represented in all aspects of its operations including for pilots and technicians. As part of the intervention, the project comprises a technical assistance component to address the human capital deficit in the aviation sector by supporting the training of additional 77 pilots and 120 aviation technicians for ACI (of which 35% are targeted to be women), at INP-HB, Yamoussoukro. The Project will also facilitate the establishment of a regional aviation training center at INP-HB, which would support Airlines operating in the region, proffering more opportunities for gender inclusion with regional impact. The Bank intervention would promote youth empowerment and employability via increased access to the training program with the evolution towards a bilingual curriculum As a first step however to achieving gender equity, the Aircrafts would have gender/women friendly features including: baby carriers (the existing ones don t have them and it complicates women traveling with babies). The project will also put in place measures to facilitate pregnant women and parents traveling with infants, elderly persons and people living with disability, to pass as business class passengers, and avoid the queueing. 14

24 Social Situation and Youth Employment According to AEO (2017) the service and industry sector contributes about 50% of GDP and 22% of employment of the working population. With respect to technical education and vocational training, the youth without basic education are trained in a job adapted to market needs, however significant challenges remain. Substantial investment are needed to rehabilitate classrooms, equip colleges, recruit teachers, implement re-tooling workshops and initiate content review of curriculum. Given the vast, untapped potential in the interior of Côte D Ivoire and its neighboring countries, implementation of this project will unlock new economic centers, build local knowledge, enhance youth engagement to develop businesses across value chains in tourism and other related sectors. An anticipated domino effect is increased private sector investment driven by the Abidjan hub development, which would result in job creation and ultimately support the achievement of the Bank s Hi5s. 3.3 Implementation Arrangements Executing Agency The Implementing Agencies for the project include: (i) ACI for the Aircraft Acquisition program and operation, and INP-HB for the TA Training program Air Côte D Ivoire (ACI) - ACI is the national carrier of Côte D Ivoire. The airline commenced operations in 2012 as a Short Medium Haul (SMH) airline. In a very short time, the airline rose to become the 3 rd regional market leader (offered capacity), behind ASKY and Arik Air. ACI currently has 63 billion CFA share capital, with a planned capital increase to 130 billion CFA in September GoC is a majority shareholder 57.54%, alongside Goldenrod Investment 23.41%, Air France (strategic and technical partner) 11.11%, and BOAD 7.94%. ACI has 529 permanent staff with 65% of the workforce located in the Flight Operations Department. As one of the market leaders in the WCA region, the airline is well positioned to act as implementation agency for the aircraft acquisition and operation. ACI operates a hub strategy which interconnects traffic from western to Central Africa Operations & Maintenance The 5 aircrafts will be manufactured and delivered by Airbus with airworthiness certification. The aircrafts will immediately enter into service and commence flight operations as part of Air Côte D Ivoire s fleet in accordance with existing fleet management plan. ACI has considerable experience currently operating its 10 aircrafts. The national regulator ANAC (Autorité Nationale de l Aviation Civile), under the supervision of ICAO (International Civil Aviation Authority), has renewed on an annual basis the technical and operational licenses granted to ACI. In order to ensure full respect of ANAC rules, ACI technical team is composed of two complementary and dedicated teams namely: i) CAMO (Continuity Airworthiness Management Organization) focused on design and control of ACI s maintenance systems, procedures, and tasks; and ii) AMO (Approved Maintenance Organization) - in charge of the execution of maintenance and repairs. The CAMO team consists of 9 staffs (mainly senior technicians) and the AMO team is composed of 71 staffs (mainly technicians, support being provided by senior staff). The operating rules of the two organs are formally described in internal manuals approved by ANAC. To strengthen its maintenance capacity, the company is also operating an aircraft hangar (2,250 square meter) at the Abidjan airport INP-HB is the country s elite engineering and technology institution focused on training high quality human capital for the country and the sub region, it was established in 1996 and based in Yamoussoukro, Côte D Ivoire. INP-HB has a staff strength of about professional staff, and administrative and technical staff, with a current student size of about 3000 coming from 15 countries. The institution is notable for delivering high quality programs in the sub region. With regard to Aviation/Aeronautics, in November 2015, ACI partnered with INP-HB, and AIRWAYS College, France, to begin the training of 15 pilots. In April 2016, ACI partnered with INP-HB and Institut Aeronautique Amaury de la Grange (IAAG) to train 20 mechanical and aeronautical technicians. INP- HB commenced an aviation training program in 2015, through strategic partnerships with AIRWAYS College, France, to train pilots and with IAAG, France to train mechanical and aeronautical technicians. INP-HB is both a WAEMU and World Bank regional center of excellence. The Bank s team undertook a site visit to the institution during the preparation/appraisal mission, the assessment concluded that the institution has the requisite capacity to execute the TA. 15

25 3.3.5 Regulatory Environment The national regulator of the aviation industry is ANAC (Autorité Nationale de l Aviation Civile). ANAC has put in place a regulatory framework, which oversees all aspects of civil aviation, including air safety and operating procedures. ACI undergoes an annual review and certification for its fleet of aircrafts, pilots, maintenance staff, and processes. Routine inspections and audits are also performed annually. ACI is a member of ICAO (International Civil Aviation Organization), which promotes international civil aviation standards, and also part of the Africa Airline Association (AFRAA), which advocates and facilitates cooperation among African airlines. ICAO oversees the activities of ANAC Market liberalization - the Yamoussoukro Decision (YD, 1999) was a key step towards opening up the Aviation market in Africa. The Decision (YD) was adopted by all the African States in 1999 and to date 20 States have shown solemn commitment on its expeditious implementation of which 11 countries (more than half) are located in the WCA region. WCA region has the highest number of states implementing the Y.D, granted 5th freedom rights to airlines and has actualised the Single African Air Transport Market (SAATM); therefore ACI (which is a short medium haul airline focused on WCA region only)and other airlines in WCA region do not face major market access challenges. Notwithstanding, due implementation and monitoring of the YD would be beneficial to the Aviation industry in Africa at large. This would result in reduced air fare, improved connectivity and growth in passenger traffic. On modelling 12 countries, it was estimated that full implementation of YD across these countries could lead to a GDP increase of +US$1,297 million. The Bank will further support efforts to liberalise the aviation market in WCA and the continent at large through a multi-pronged approach: i) under this project the Bank s financing would support study to provide better understanding of Tax Fees and Charges (TFC) issues and provide a roadmap towards the normalisation of the TFCs in Cote D Ivoire and the WCA region; with a view to extending this to cover the other regions in the continent; ii) provide finance and technical assistance support to the African Civil Aviation Commission (AFCAC) - the body entrusted by the AU with the responsibility of Executing Agency (EA) of the YD to facilitate, coordinate and ensure the successful implementation of the YD; iii) play an advocacy role through dialogue with the AU and RECs and through specific sector dialogues with Member Countries to push the YD implementation agenda; iv) help develop the structure and complete the legal framework in which to apply the YD Airport Capacity Côte D Ivoire has 3 international airports located in Abidjan, Yamoussoukro, and Bouaké. The Abidjan Felix Houphouet Boingny international Airport covers 90% of the air traffic of Côte D Ivoire and generate 95% of the overall revenue of the sector. It is operated by AERIA, under a PPP concession which runs out in The Airport has witnessed growth in passenger traffic by 23% between 2012 and 2013, reaching 1.3 million passengers in 2014, 1.6 million in 2015, and a further increase by 11% totalling 1.8 million in The current Airport passenger capacity is 3 million, however plans are underway by the operator/authorities to build a new terminal to expand capacity to 8 million passengers/year by 2020, in line with the Abidjan Hub Development goal and the expansion ACI s operations. Several investments have already been committed up the tune of 41 billion CFA starting 2017 to 2020 to construct a parallel taxiway for simultaneous landing and take-off, and 10 additional aprons to accommodate ACI s A320s. The foregoing investment is backed by Propaco (CFA10 billion), and BOAD and BCICI (CFA8 billion), the remaining CFA24 billion is covered by equity from AERIA. Tenders have been launched and contract award and implementation are underway. Procurement Arrangements The procurement of goods and the acquisition of consulting services financed by the Bank under the Project will be carried out in accordance with the Procurement Framework for Bank Group-Funded Operations dated October 2015 and in line with the provisions of the Financing agreement. More specifically, procurement will be conducted following the Bank s Procurement Methods and Procedures (PMP) using the Bank s relevant Standard Bidding Documents for the recruitment of consulting services for which PMP was considered to be more appropriate The procurement process followed by ACI to purchase the 5 new aircrafts was found generally acceptable based on the Bank s due diligence of the process. The Bank needed to ensure that the 16

26 procurement process was conducted in line with internationally accepted best practices namely the principles of transparency, competition, equity and that the outcome of the process achieved value for money. The due diligence report providing details on the review by the Bank can be found at Annex B5, Para. B 5.10 of the Technical Annexes. Given the specific type of goods to be purchased, The Board of ACI via its Strategic Committee evaluated and identified 4 manufacturers given the aircraft type and its fleet network, and launched a procurement process in These manufacturers were: Airbus, Embraer, Bombardier and Boeing. Based on information from ACI, it is to be noted that at the time (2014) these were the only aircraft manufacturers in the world, meeting the required specifications The four manufacturers submitted their bids which were reviewed by the above-mentioned Strategic Committee. The bids were evaluated including preliminary discussions with the manufacturers. Bombardier and Airbus were selected for the second phase of the negotiations while Embraer and Boeing were dismissed for a number of reasons. As regards Boeing, the reasons for disqualification were: the impossibility to deliver the new generation B-737 MAX aircrafts before 2021; purchase price was US$5 million higher than price for similar Airbus A319; lack of a maintenance and/or training center in Côte D Ivoire, and no offer was provided to help establish same; high PDP Payments for aircrafts to be delivered in 2021; and no bridging solution to enable ACI to operate efficiently until the deadline for new aircrafts delivery according to the approved ACI business plan. The reasons for disqualifying Embraer were: new generation aircrafts only available in 2019; the combination of Embraer 195 (105 seats) and the Embraer 175 (75 seats) were not convenient for high density routes; no aircraft bigger than 105 seats; the aircrafts are long and narrow, with seating chart in economy and business only convenient for local flights and uncomfortable for longer flights; the baggage compartment is narrow and long, making loading and offloading difficult especially in cases of passenger late or no show ; and impossibility to carry fuel for long flights The negotiations with Airbus and Bombardier led to Airbus as the final choice. Bombardier s offer had too many constraints notably reservations on manufacturers guarantees and the unavailability of aircrafts in the short term which negatively impacts ACI s operational risks and transition cost Considering that the financing of aircrafts is to be done through the ADB window, the Bank has ensured that all four Manufacturers satisfy the country of origin requirement under article 17 (1) (d) of the agreement establishing the African Development Bank (ADB) which stipulates that the proceeds from any loan, investment or other financing within the context of Bank operations will be used to procure goods, works and services, provided by bidders from eligible Bank member countries. Bidders from non-member countries of the Bank are not eligible even if they offer the said goods, works and services from eligible member countries Procurement Risks and Capacity Assessment (PRCA): The assessment of procurement risks at the Country, Sector, and Project levels and of procurement capacity at the Executing Agency (EA), were undertaken for the project and the output have informed the decisions on the procurement regimes (BPS, Bank or Third party) being used for specific transactions or groups of similar transactions under the project. The appropriate risks mitigation measures have been included in the procurement PRCA action plan proposed in Annex B5, Para. B 5.8 of the Technical Annexes. Financial Management Financial management of the project will be handled by the existing accounts department of Air Côte D Ivoire, using the company s existing financial management procedures, as customised to incorporate bank specific requirements. ACI has adequate and qualified finance and admin staff, from which a project accountant would be identified in addition to the Administrator of the SPV. The accountant would report to the Head of Finance, who will be the point person for financial management matters for the project, and will use the company s existing accounting software for maintaining required project accounting records to ensure completeness, transparency and full traceability of project related transactions. Quarterly interim unaudited financial reports showing all funds receipts by the project, and their uses, will be required to be produced and submitted to the Bank within 30 days of the end of the quarter reported on, while annual financial statements will also be produced and presented for audit at the end of each financial year. ACI internal audit section will also be requested to incorporate reviews of project related activities in their annual work program. 17

27 Disbursement The direct disbursement and reimbursement methods will be used for Bank-financed activities under this project, in accordance with the Bank s Disbursement Handbook. Counterpart funds out of Air Côte D Ivoire will be mobilized and used in accordance with the company's own procedures. Audit In accordance with the Bank's reporting requirements, a financial and accounting audit will be undertaken at the end of each financial year by an independent/qualified external auditor competitively selected based on terms of reference approved by the Bank. The purpose of this audit is to validate the accuracy of the financial statements prepared by the project management, and provide an opinion regarding the proper use of project resources, in accordance with the Bank approved terms of reference. The yearly audit report will be submitted to the Bank no later than 6 months after the end of the year audited. The audit contract would be for a period of 3 years, renewable annually based on satisfactory performance, after which mandatory auditor rotation would apply. Audit fees will be paid directly by the Bank after validation of submitted reports. At the same time, the project is subject to audit by the Court of Auditors, in accordance with Decree No Monitoring and Evaluation The estimated implementation period is approximately 5 years considering that the procurement process for the aircrafts is already completed. The project is scheduled to be completed on in 2021 and closed in December 2022 after submission of the latest monitoring and evaluation reports. Project monitoring and evaluation will comprise internal and external monitoring, supervision missions from the Bank, a mid-term review and a final evaluation including completion reports from ACI. Quarterly project implementation report shall be drafted by ACI and forwarded to the Bank. Table 8: Project Monitoring and Supervision Schedule Proposed date Activity Man-weeks Oct/Nov 2017 Launching & Inspection / Inauguration of 2 nd Aircraft 4 July & Dec 2018 Supervision 4 July 2019 Mid-term review of the project 7 July 2020 Supervision 4 Completion Report 6 Total Governance In area of governance at the national level, the authorities of Côte D Ivoire have promoted transparency and accountability in public finance management by aligning with the WAEMU budgetary classification and nomenclature standards, as well as preparing an interface between the budget execution system and the procurement system. However, there is need for improvements regarding the review of the annual Finance Law and reports by Parliament, spending effectiveness, internal control effectiveness and the mobilization of domestic resources. In addition, the country s perceived level of corruption is still high according to the Transparency International Corruption Perceptions Index (ranked 108th out of 176 countries in 2016), with a score of 34 on a scale of At the Sector level, the technical and funding support of the EU is helping the Government to carry out a sector transport policy and strategy within a program-based approach for transport infrastructure development. The Ministry of Transport is the line Ministry for Aviation Corporate Governance, The Chief Executive Officer ( CEO ) of ACI reports to the Board of Directors. Ivorian nationals, with broad experience in the airline industry, manage the company and constitute the top management. The Airline operates with a high degree of autonomy with minimal political interference in its operations. ACI s operations are regulated by the Ivorian Law N (September, 1997) applicable to all SOEs with GoC participation. The Airline is also subject to provisions applicable to private and commercial companies. 18

28 3.5.4 ACI s Board of Directors is composed of 11 members, of which 6 represent GoC (including the Chairman). The Board of Directors also include 2 representatives for GoldenRod Investment, 2 from Air France and 1 from BOAD. There are 3 Board sub-committees including (i) a Strategic committee in charge of designing and implementing strategic orientations of the company (fleet acquisition, development of new routes etc); (ii) Nominations and Remuneration committee approve HR policies, validate internal and external promotions and review wages increase and performance compensations; and (iii) Audit and Risk committee to design and improve internal audit procedures and financial related items, and risk management Given the current governance structure of ACI (particularly the Board) which has a heavy government representation, the Bank has worked and agreed with both ACI and the Government to improve this structure to align with global best practice. This would include amongst others the introduction of two independent Board members with aviation sector expertise and a downward scaling of Government representation (Public officials) at the Board. Refer to section 4.2 for more details. 3.6 Sustainability The transaction structure and financing arrangement offers considerable room for ACI to execute its business plan and boost its sustainability. The approved new general capital increase for the Airline - 67 billion CFA (USD 118 million) over the next 3 years, which is already being implemented will support the Airline, particularly to pay down the existing debt and address short term liquidity issues. ACI expects to post positive EBITDA from this year and become more profitable. While GoC has provided substantial support to ACI at its start-up phase, it plans to divest from the Airline to private investors, once it becomes fully profitable On the operational side, ACI s Maintenance Division has built up significant experience in maintenance processes. Air France continues to provide technical assistance on A320 & A319 aircrafts, while partnerships and Operation and Maintenance contracts (O&M) are in place with well recognized industry experts, - SAMCO (for technical assistance on Q400), Safran (for trend monitoring on A320 & A319), Lanema (for weather forecast and wheels revisions) and Star Kan Aviation (for aircraft cleaning). Furthermore, ACI has concluded plans in partnership with Airbus to construct and operate a new Airbus A320 and A330 maintenance hangar at the Felix Houphouet Boingny Airport. 3.7 Risk Management Risks related to the achievement of project outcomes are mainly operational and market risks. ACI would need to maintain operational excellence in executing its strategy and continue to manage a cost effective operations structure. Whilst market demand projections are favourable for ACI, the Aviation sector remains exposed to exogenous risk beyond ACI s control. The management of ACI have extensive experience in managing SMH carriers and well knowledgeable about the African market. This will help mitigate the above risks Risks Related to Project Implementation: Below is a risk matrix for the project. Table 9: Project Risk Matrix Risk Mitigation Rating Financing - likelihood The Bank will leverage its AAA rating to attract cost effective financing at competitive Low - that the project will not be terms from commercial banks: Standard Chartered Bank, Société Générale, have Medium. bankable/ achieve indicated interest. Investec Aviation has already financed. The Bank s blended financial close financing solution would make ACI s lease payment cost effective than otherwise would have been the case without the Bank s comprehensive intervention. Environmental the risk that the Aircrafts are relatively not environmental friendly Operational likelihood that the project will not improve cost-efficient Regulation the risk that ACI operates unchecked The Aircraft acquisition would improve the carbon foot print of ACI. A320 series are notable for fuel efficiency (15%) and environmental friendliness reduced CO 2 emissions by more than 3,600 tons/year and lower noise. The Bank s will ensure ACI complies with expected international environmental and social management standards. The expansion plan/fleet structure will improve ACI cost structure. The Project will also help beef up ACI s operational capacity to support its growth strategy. These will help mitigate the risk. ACI undergoes an annual review and certification for its fleet of aircrafts, pilots, maintenance staff, and processes. Routine inspections and audits are also performed 19 Low - Medium Medium Low - Medium

29 Market the risk of insufficient demand for the project/aci annually by ANAC. ACI is a member of ICAO (International Civil Aviation Organization), which promotes international civil aviation standards. Past/future market projections show progressive passenger and cargo demand traffic to leverage ACI s business plan. However, this will depend largely on how ACI effectively executes its business plan. The management of ACI have extensive experience in managing SMH carriers and conversant with the African market. They have been responsible for the rapid growth of the airline. External market factors beyond the control of ACI may pose a risk. 3.8 Knowledge Development The project will provide the Bank an opportunity to deepen its knowledge on aviation finance, beef-up understanding on the key issues affecting the industry, and maximising the impact of the aviation sector in stimulating regional integration, trade, job creation, and economic growth. The monitoring and evaluation of impact from the Project have been specifically designed to build and disseminate this knowledge to the entities in charge of aviation policies at the national and regional levels. The key lessons and knowledge gained in designing this novel transaction structure could serve as a model to be replicated in future aviation finance projects. 4. LEGAL FRAMEWORK 4.1 Legal Instrument The legal instruments associated with this project include inter alia: i) For the ADB Sovereign Loan: a loan agreement between the Bank and the Republic of Côte D Ivoire (the Borrower ); ii) For the ADF Loan: a loan agreement between the Fund and the Borrower; and iii) For the ADF Partial Risk Guarantee: (a) a guarantee agreement between the Bank and the Letter of Credit commercial bank which will be selected and (b) a counter-indemnity agreement between the Bank and the Borrower. 4.2 Conditions Associated with the Bank s Intervention A. Conditions Precedent to Loan Effectiveness Effectiveness of the loan agreement and the counter-indemnity agreement shall be subject to fulfilment by the Borrower of the conditions set forth in Section of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the Bank and the Fund (Sovereign Entities) Effectiveness of the guarantee agreement shall be subject to its signature by the Fund and the commercial bank concerned, as well as signature of the counter-indemnity agreement and additional conditions that may be negotiated with the commercial bank following its selection B. Conditions Precedent to First Disbursement of the ADB and the ADF loans In addition to the conditions for effectiveness mentioned under paragraph above, first disbursement of the loans shall be as follows: ADB Loan: The first disbursement of the ADB loan shall be subject to fulfilment by the Borrower of the following conditions to the satisfaction of the Bank: (i) Evidence of the creation of the SPV in form and substance satisfactory to the Bank; (ii) Evidence of the execution of an on-lending agreement between Côte d Ivoire and the SPV, in form and substance satisfactory to the Bank; and (iii) Evidence of the establishment of a special escrow account dedicated for the deposit of the lease payments and transmission to the Bank of the escrow account agreement in form and substance satisfactory to the Bank; ADF Loan: The first disbursement of the ADF loan shall be subject to fulfilment by the Borrower of the following condition to the satisfaction of the Fund: (i) Evidence of the establishment of a training plan satisfactory to the Fund. Medium 20

30 C. Other conditions applicable to the ADB and ADF loans Furthermore, the Borrower should fulfil the following conditions, to the satisfaction of the Bank/the Fund: (i) Cause ACI to assign, by [15th December 2017] an E&S coordinator which qualifications and experience are satisfactory to the Bank/the Fund. D. Undertakings: (i) The Borrower endorse the conclusions and implement the pertinent recommendations resulting from the study on improving the Aviation Policy Environment; and (ii) The Borrower shall comply with the timeline agreed upon for the new general capital increase on To support the listing of ACI as and when the airline achieves financial stability. (iii) The Government undertakes to cause ACDI to comply with the statutory capitalization requirements provided for by the applicable company laws (OHADA); (iv) The Government undertakes to cause ACDI to adopt Compliance Policies, namely Anti-Money Laundering and Anti-Corruption Policies, in form and substance satisfactory to the Bank [Bank s Integrity Department (PIAC) is to provide assistance in that respect]; (v) The Government undertakes to cause ACDI s corporate documentation to be amended in such a manner to introduce two (2) independent members in the Board of Directors who will have proven experience in the aviation sector; and (vi) The Government shall cause ACDI to take appropriate steps for the purpose of (i) introducing in its bylaws a provision by virtue of which no single Class C Shareholder will be entitled to hold a stake equal or higher than a blocking minority determined on the basis of the applicable company laws, and (ii) ensuring that, within three years of the date of signature of the Bank s Public Sector Loan Agreement, no single Class C Shareholder, unless otherwise agreed by the Bank, will hold a stake representing more than 20% of the share capital, it being understood that such a restriction will apply until full repayment of the Bank s Private Sector Loan; 4.3 Conformity with Bank Policies This project complies with all the Bank s applicable policies. 5. RECOMMENDATION Management hereby submits this report and recommendation concerning a proposal to award an ADB sovereign loan of EUR million, an ADF loan of UA3.552 million (EUR4.264 million million) and an ADF Partial Risk Guarantee ( PRG ) of EUR million (UA3.552 million will be set aside from Côte d Ivoire s PBA) to the Republic of Côte d Ivoire to finance the Air Côte d Ivoire Modernization & Expansion Program in accordance with the conditions set forth in this report. 21

31 COUNTRY MAP ANNEX I I

32 ANNEX II COMPARATIVE SOCIO-ECONOMIC INDICATORS Côte D'Ivoire COMPARATIVE SOCIO-ECONOMIC INDICATORS Year Côte D'Ivoire Africa Develo- Developing ped Countries Countries Basic Indicators Area ( '000 Km²) ,067 97,418 36,907 Total Population (millions) , , ,187.1 Urban Population (% of Total) Population Density (per Km²) GNI per Capita (US $) Labor Force Participation *- Total (%) Labor Force Participation **- Female (%) Sex Ratio (per 100 female) Human Develop. Index (Rank among 187 countries) Popul. Liv ing Below $ 1.90 a Day (% of Population) GNI Per Capita US $ Côte D' Ivoire Africa Demographic Indicators Population Growth Rate - Total (%) Population Growth Rate - Urban (%) Population < 15 y ears (%) Population years (%) Population >= 65 y ears (%) Dependency Ratio (%) Female Population y ears (% of total population) Life Ex pectancy at Birth - Total (y ears) Life Ex pectancy at Birth - Female (y ears) Crude Birth Rate (per 1,000) Crude Death Rate (per 1,000) Infant Mortality Rate (per 1,000) Child Mortality Rate (per 1,000) Total Fertility Rate (per woman) Maternal Mortality Rate (per 100,000) Women Using Contraception (%) Health & Nutrition Indicators Phy sicians (per 100,000 people) Nurses and midwiv es (per 100,000 people) Births attended by Trained Health Personnel (%) Access to Safe Water (% of Population) Access to Sanitation (% of Population) Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS Incidence of Tuberculosis (per 100,000) Child Immunization Against Tuberculosis (%) Child Immunization Against Measles (%) Underw eight Children (% of children under 5 y ears) Prev alence of stunding Prev alence of undernourishment (% of pop.) Public Ex penditure on Health (as % of GDP) Education Indicators Gross Enrolment Ratio (%) Primary School - Total Primary School - Female Secondary School - Total Secondary School - Female Primary School Female Teaching Staff (% of Total) Adult literacy Rate - Total (%) Adult literacy Rate - Male (%) Adult literacy Rate - Female (%) Percentage of GDP Spent on Education Population Growth Rate (%) Côte D'Ivoire Infant Mortality Rate ( Per 1000 ) Africa Life Expectancy at Birth (years) Côte D' Ivoire Africa Environmental Indicators Land Use (Arable Land as % of Total Land Area) Agricultural Land (as % of land area) Forest (As % of Land Area) Per Capita CO2 Emissions (metric tons) Côte D' Ivoire Africa Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update : UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; : Data Not Available. * Labor force participation rate, total (% of total population ages 15+) ** Labor force participation rate, female (% of female population ages 15+) June 2017 II

33 MAJOR RELATED PROJECTS FINANCED BY THE BANK AND OTHER DEVELOPMENT PARTNERS OF THE COUNTRY ANNEX III INFRASTRUCTURE NATURE OF WORKS AMOUNT (CFAF Million) Extension of the North motorway Tarring of the Boundiali-Bolona road km Tarring of the Abobo-Anyama road 5.6 km Urban road networks Agboville Bingerville - Abobo Construction of an 85.9 km-long double-lane motorway Abidjan-Bassam motorway Widening of the Place Akwaba - Gonzagueville expressway (double-lane) into three lanes over a km distance; Widening into three lanes of the kmlong Gonzagueville - Grand Bassam motorway; Reinforcement of the existing road (single-lane) over a distance of km ; 05 footbridges IMPLEMENTATION PERIOD Date of end of commissioning: December 2013 Tarring of single-lane road Date of end of commissioning: December 2013 Tarring of double-lane road Date of end of commissioning : March 2015 Urban road works Date of end of commissioning: March Date of end of commissioning: September 2015 Bolona-Tengréla road 40 km Tarring works Date of end of commissioning: June 2016 Reinforcement of the Aboisso- Noé road Tarring of the Bouna-Doropo- Burkina border road Reinforcement of the Pont Comoé-Agnibilekro-Abengourou road Reinforcement of the Adzopé- Akoupé-Pont comoé road Reinforcement of the Ferké- Ouangolo road Tarring of the Agboville-Rubino- Cechi road Reinforcement of 60.9 km of the existing single-lane Aboisso-Noé road; Rehabilitation and widening of the km-long and km-long double-lane urban roads in Aboisso and Noé respectively; widening of Aboisso and Noé bridges Tarring of the Bouna-Doropo- Burkina Faso Border single-lane road over a 91 km-long distance ; construction of 3 54m-long reinforced concrete slab bridges (4 spans ) ; Related infrastructure Reinforcement of 87.5 km of the existing road - urban section with 2x3.5m and 2x1.5m shoulder and a 3m parking area in some places - Abengourou section with 2x6m and 2x2m interlocking paving stone shoulder Reinforcement of 78 km of the existing single-lane road + 5 km of urban road in Adzopé + 3 km of urban road in Akoupé Reinforcement of the North road: Section Ferké-Ouangolo section covering a distance of 46 km Tarring of the single-lane Agboville-Rubino-Cechi road: - 6 km of urban road; - 60 km of interurban road Date of end of commissioning: June Date of end of commissioning: July Date of commissioning: September Date of end of commissioning: October Date of end of commissioning: September Date of end of commissioning: September 2017 FINANCING BADEA - OFID IsBD FSD FKDEA - STATE BOAD -STATE BOAD -STATE IDA Eximbank-China STATE IDB - STATE IDA BOAD - BADEA FSD FKDEA - STATE European Union C2D C2D Eximbank-China STATE REMARKS Works ongoing 30% executed Works ongoing 34% executed Works ongoing 2% executed Works ongoing 46% executed Works ongoing 25% executed Works ongoing 17% executed Works ongoing Commenceme nt stage III

34 ANNEX III Tarring of the Odienné-Gbéléban road Tarring of the Boundiali-Odienné road Reinforcement of the Grand Bassam-Aboisso road Tarring of the Danané- Guinea Border road Tarring of the Blolequin- Touleupleu- Libéria Border road Tarring of the Tabou-Prollo road Construction of the Yamoussoukro-Tiebissou highway Reinforcement of the Bouaké- Ferké road Widening of the Boulevard de Marseille and tarring of the Yopougon IZ road network Interchange on Bld VGE HKB bridge or 3 rd bridge Jacqueville bridge Béoumi bridge Construction of the Azito bridge Rehabilitation of the FHB bridge Construction of the 5 th bridge in Abidjan Tarring of 72 km of the Odienné- Gbéléban road Development and tarring of 135km of the single-lane Boundiali-Odienné road, including the Madinani and Tiemé access roads Reinforcement of 73 km of the existing single-lane Grand Bassam - Aboisso road Tarring of 47 km of the singlelane interurban road Tarring of 65km of the singlelane interurban road Tarring of 36.5 km of the singlelane interurban road Development and tarring of the 30km-long Yamoussoukro- Tiebissou highway, a 6.5km-long expressway, 2 bridges and 2 interchanges (Lolobo and Tiebissou) Reinforcement of 232 km of the existing road (single-lane) Widening of 7 km of the doublelane Boulevard de Marseille and adjoining roads Development and tarring of km of the single-lane Yopougon industrial zone road Construction of a 6m-wide singlelane one-way 3-level interchange of about m comprising: 16 engineering structures; and 06 reinforced soil access ramps km-long crib bridge 30 50m-long three-lane spans Construction of a single-lane 608 m-long bridge with 15 spans (that is 2 end spans measuring 37.58m and 13 intermediate spans measuring m) Construction of a 304 m-long single-lane bridge over river Bandama; Construction of a 94 m-long single-lane bridge over river Kan; Rehabilitation of 32 km of the Béoumi-Kounahiri earth road Construction of a m-long single-lane pre-stressed concrete bridge Rehabilitation of a 372m-long bridge with a new foundation and reinforcement of the bridge deck Construction of a bridge link between Yopougon and plateau Date of end of commissioning: September Commencement date: January Commencement date: November Commencement date: November Commencement date: November Commencement date: November Commencement date: March Commencement date: June Commencement date: November Engineering structure completed in December Engineering structure completed in December Engineering structure completed in March Date of end of commissioning: November Commencement date: January Commencement date: January Commencement date: August 2016 Eximbank-China STATE IDB - STATE IDA - STATE AfDB - STATE Af DB- STATE AfDB - STATE IDB - STATE C2D FER (BOAD) BOAD - STATE PPP : BOUYGUES STATE BOAD BADEA OFID - STATE AFD - STATE BOAD BIDC- STATE C2D - STATE PPP Works ongoing Commenceme nt stage Procurement process ongoing Procurement process ongoing Procurement process ongoing Procurement process ongoing Procurement process ongoing Procurement process ongoing Procurement process ongoing Procurement process ongoing Bank participation to the tune of Works ongoing 91% executed Procurement process ongoing Procurement process ongoing IV

35 CÔTE D IVOIRE: NATIONAL ACTIVE PROJECTS AS OF MAY 2017 ANNEX IV V