FOR OFFICIAL USE ONLY Report No: PAD3243 PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF US$72.0 MILLION FROM THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ACTING AS ADMINISTRATOR OF THE SINT MAARTEN: HURRICANE IRMA RECONSTRUCTION, RECOVERY AND RESILIENCE TRUST FUND TO SINT MAARTEN FOR A SINT MAARTEN AIRPORT TERMINAL RECONSTRUCTION PROJECT September 18, 2019 Transport Global Practice Latin America And Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective: July 31, 2019 Currency Unit = Netherlands Antillean Guilder (Na f.) Na f. 1.80 = US$ 1 FISCAL YEAR January 1 - December 31 Regional Vice President: Axel Van Trotsenburg Country Director: Tahseen Sayed Khan Regional Director: Franz Drees-Gross Practice Manager: Juan Gaviria Task Team Leader(s): Satoshi Ogita Regional Vice President: Axel van Trotsenburg Country Director: Tahseen Sayed Khan Senior Global Practice Director: Guangzhe Chen Practice Manager: Juan Gaviria Task Team Leader(s): Satoshi Ogita ABBREVIATIONS AND ACRONYMS BHS Baggage handling system CBCS Central Bank of Curaçao and Sint Maarten CMU Country Management Unit DA Designated Account DaLA Damage and Loss Assessment EBITDA Earnings before interest, taxes, depreciation, and amortization EHS Environmental Health and Safety EIB European Investment Bank ESCP Environmental and Social Commitment Plan ESMP Environmental and Social Management Plan ESS Environmental and Social Standard FAA Federal Aviation Administration FM Financial Management FY Fiscal Year GBV Gender Based Violence GDP Gross Domestic Product GoSM Government of Sint Maarten GRM Grievance Redress Mechanism GRS Grievance Redress Service HVAC Heating, ventilation, and air conditioning ICAO International Civil Aviation Organization IFR Interim Unaudited Financial Report IFRS International Financial Reporting Standards IPF Investment Project Financing M&E Monitoring and Evaluation MWFRS Main wind force resting system NRPB National Recovery Program Bureau NRRP National Recovery and Resilience Plan OM Operations Manual PAD Project Appraisal Document PDO Project Development Objective PJIA Princess Juliana International Airport PJIAE Princess Juliana International Airport Operating Company N.V. PJIAH Princess Juliana International Airport Holding Company N.V. PPSD Project Procurement Strategy for Development SEP Stakeholder Engagement Plan SDTF Single Donor Trust Fund SORT Systematic Operations Risk-Rating Tool STEP Systematic Tracking and Exchanges in Procurement TA Technical Assistance TEATT Ministry of Tourism, Economic Affairs, Transport and Telecommunication TF Trust Fund TOR Terms of Reference TTL Task Team Leader WB World Bank The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) TABLE OF CONTENTS DATASHEET ................................................................................. Error! Bookmark not defined. I. STRATEGIC CONTEXT ...................................................................................................... 9 A. Country Context................................................................................................................................ 9 B. Sectoral and Institutional Context .................................................................................................. 11 C. Relevance to Higher Level Objectives............................................................................................. 12 II. PROJECT DESCRIPTION.................................................................................................. 13 A. Project Development Objective ..................................................................................................... 13 B. Project Components ....................................................................................................................... 13 C. Project Beneficiaries ....................................................................................................................... 14 D. Results Chain .................................................................................................................................. 15 E. Rationale for Bank Involvement and Role of Partners ................................................................... 15 F. Lessons Learned and Reflected in the Project Design .................................................................... 16 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 17 A. Institutional and Implementation Arrangements .......................................................................... 17 B. Results Monitoring and Evaluation Arrangements......................................................................... 18 C. Sustainability................................................................................................................................... 18 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 18 A. Technical, Economic and Financial Analysis (if applicable) ............................................................ 18 B. Fiduciary.......................................................................................................................................... 20 C. Legal Operational Policies ............................................................................................................... 21 D. Environmental and Social ............................................................................................................... 21 V. GRIEVANCE REDRESS SERVICES ........................................................................................ 22 VI. KEY RISKS ..................................................................................................................... 23 VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 25 ANNEX 1: Detailed Project Description .......................................................................... 29 ANNEX 2: Implementation Arrangements ..................................................................... 34 ANNEX 3: Implementation Support Plan ....................................................................... 45 ANNEX 4: Economic and Financial Evaluation ................................................................ 47 ANNEX 5: Map .............................................................................................................. 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name St Maarten Sint Maarten Airport Terminal Reconstruction Project Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P167974 Moderate Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [✓] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [✓] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 18-Sep-2019 31-Dec-2022 Bank/IFC Collaboration No Proposed Development Objective(s) The development objective to restore the passenger capacity of Princess Juliana International Airport to pre- Hurricane Irma levels with improved resilience towards hurricanes. Components Component Name Cost (US$, millions) Page 1 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Reconstruction of the PJIA terminal facilities 107.00 Capacity Building of and Project Management by PJIAE 0.50 Capacity Building of and Project Management by the Government of Sint Maarten 0.50 Support of PJIAE Operations 21.00 Organizations Borrower: Sint Maarten Government Implementing Agency: Princess Juliana International Airport Operating Company N.V. National Recovery Program Bureau PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 129.00 Total Financing 129.00 of which IBRD/IDA 0.00 Financing Gap 0.00 DETAILS -NewFinEnh1 Non-World Bank Group Financing Counterpart Funding 7.00 Borrower/Recipient 7.00 Trust Funds 72.00 Free-standing Single Purpose Trust Fund 72.00 Other Sources 50.00 EC: European Investment Bank 50.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2020 2021 2022 2023 Page 2 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Annual 2.00 30.00 30.00 10.00 Cumulative 2.00 32.00 62.00 72.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Transport Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of No country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or No men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) No SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ High 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Substantial 5. Institutional Capacity for Implementation and Sustainability ⚫ High 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ Substantial 9. Other Page 3 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 10. Overall ⚫ High COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Relevant Community Health and Safety Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant Biodiversity Conservation and Sustainable Management of Living Natural Not Currently Relevant Resources Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Not Currently Relevant Local Communities Cultural Heritage Not Currently Relevant Financial Intermediaries Not Currently Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS). Page 4 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Legal Covenants Sections and Description Schedule 2, Section I.A.1. The Recipient shall maintain throughout Project implementation, with composition, resources, terms of reference and functions acceptable to the World Bank, the National Recovery Program Bureau: (a) to be responsible for the implementation of the Recipient’s National Recovery and Resilience Plan and specifically to manage the program of projects financed by the Trust Fund, and (b) to be responsible for the overall Project management, monitoring and reporting, and for the implementation of Component 3 of the Project. Sections and Description Schedule 2, Section I.A.2 (a). For the purposes of carrying out the Project, by no later than October 1, 2019, the Recipient shall cause the Project Implementing Entity to include in its proposed annual budget an amount equivalent to seven million Dollars (USD 7,000,000) as Counterpart Funds for the Project. Sections and Description Schedule 2, Section I.A.2 (b). The Recipient shall cause the Project Implementing Entity to furnish to the World Bank, on a semesterly basis, beginning October 1, 2019, or on such other date acceptable to the World Bank, until the completion of the Project, a financing plan, and evidence of the availability of the minimum Counterpart Funds required for the execution of the Project during the corresponding period, as the allocation of such funds for each such period may be amended from time to time with the agreement of the World Bank, all of which shall be to the acceptance of the World Bank. Sections and Description Schedule 2, Section I.A.3. The Recipient shall provide, or cause the Project Implementing Entity to provide, as promptly as needed, funds, facilities, adequate staffing with appropriate qualifications and terms of reference, and other resources: (a) required for the successful implementation of the Project; and (b) necessary or appropriate to enable the Project Implementing Entity to perform its obligations under the Project Agreement and the Subsidiary Agreement. Sections and Description Schedule 2, Section I.A.4. The Recipient shall cause the Project Implementing Entity to perform all obligations of the Project Implementing Entity set forth in the Project Agreement and the Subsidiary Agreement. Sections and Description Schedule 2, Section I.A.5 (a). For the purpose of carrying out Component 4 of the Project the Recipient shall provide, or cause the Project Implementing Entity to provide, evidence of the Project Implementing Entity’s earnings before interest, taxes, depreciation, and amortization (“EBITDA�) and debt service, during each applicable calendar quarter period for which financing under Component 4 is requested, so as to establish and enable verification of, to the satisfaction of the World Bank, the Select PJIAE Operating Expenditures eligible for financing under the Project. Sections and Description Schedule 2, Section I.B. To facilitate the carrying out of Components 1, 2 and 4 of the Project, the Recipient shall make the proceeds of the Grant available to the Project Implementing Entity under a Subsidiary Agreement between the Recipient and the Project Implementing Entity, under terms and conditions approved by the World Page 5 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Bank. Sections and Description Schedule 2, Section I.C.1. The Recipient shall ensure, and cause the Project Implementing Entity to ensure in respect to Components 1, 2 and 4 of the Project, that the Project is carried out in accordance with the Environmental and Social Standards, in a manner acceptable to the World Bank. Sections and Description Schedule 2, Section I.C.2. The Recipient shall ensure, and cause the Project Implementing Entity to ensure in respect to Components 1, 2 and 4 of the Project, that the Project is implemented in accordance with the Environmental and Social Commitment Plan (“ESCP�), in a manner acceptable to the World Bank. Sections and Description Schedule 2, Section I.D. The Recipient shall prepare and maintain, and ensure that the Project Implementing Entity prepares and maintains in respect of Components 1, 2 and 4 of the Project, throughout Project implementation, an Operations Manual in substance, form, and manner acceptable to the World Bank, and shall ensure the Project is carried out in accordance with the Operations Manual Sections and Description Schedule 2, Section I.C.4. The Recipient shall, and shall cause the Project Implementing Entity to: (a) take all measures necessary on its part to collect, compile, and furnish to the World Bank through regular reports, with the frequency specified in the ESCP, and promptly in a separate report or reports, if so requested by the World Bank, information on the status of compliance with the ESCP and any management tools and instruments referred to therein, all such reports in form and substance acceptable to the World Bank; and (b) promptly notify the World Bank of any incident or accident related to or having an impact on the Project which has, or is likely to have, a significant adverse effect on the environment, the affected communities, the public or workers, in accordance with the ESCP, the instruments referenced therein and the Environmental and Social Standards. Sections and Description Schedule 2, Section I.C.5. The Recipient shall, and shall cause the Project Implementing Entity to, maintain and publicize the availability of a grievance mechanism, in form and substance satisfactory to the World Bank, to hear and determine fairly and in good faith all complaints raised in relation to the Project, and take all measures necessary to implement the determinations made by such mechanism in a manner satisfactory to the World Bank. Sections and Description Schedule 2, Section I.E. The Recipient shall: (a) prepare and furnish, and cause the Project Implementing Entity to prepare and furnish, to the World Bank not later than October 1st of each year during the implementation of the Project, a proposed Annual Work Plan and Budget; (b) afford the World Bank a reasonable opportunity to exchange views with the Recipient and Project Implementing Entity, and shall thereafter ensure that the Project is implemented with due diligence during said following year, in accordance with such Annual Work Plan and Budget as shall have been approved by the World Bank; and (c) not make or allow to be made any change to the approved Annual Work Plan and Budget without the World Bank’s prior written approval. Page 6 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Conditions Type Description Effectiveness Section 5.01 (a), (b) and Section 5.02. Legal opinions acceptable to the World Bank evidencing that the Recipient and the Project Implementing Entity, as relevant, have duly authorized or ratified the executed Grant Agreement, Project Agreement and Subsidiary Agreement. Type Description Effectiveness Section 5.01 (b). The Recipient and the Project Implementing Entity have executed a Subsidiary Agreement, acceptable by the World Bank, in accordance with Section I.B of Schedule 2 to the Grant Agreement. Type Description Effectiveness Section 5.01 (c). The Recipient and Project Implementing Entity have adopted an Operations Manual satisfactory to the World Bank. Type Description Effectiveness Section 5.01 (d). The Co-financing Agreement between the Recipient, Project Implementing Entity, and the Co-financier has been duly executed and delivered by all relevant parties. Type Description Effectiveness Section 5.01 (e). If the World Bank so requests, provision of evidence that the condition of the Project Implementing Entity, as represented or warranted to the World Bank at the date of the Project Agreement, has undergone no material adverse change after such date. Type Description Disbursement Schedule 2, Section III.B.1(b). For Category 1 (Project Component 1) and Category 4 (Project Component 4), no disbursements will be made until all conditions precedent to the effectiveness of the Co-financing Agreement or to the right of the Recipient to make withdrawals under it (other than the effectiveness of the Grant Agreement) have been fulfilled. Type Description Disbursement Schedule 2, Section III.B.1(b). For Category 1 (Project Component 1) and Category 4 (Project Component 4), no disbursements will be made until the Recipient and the Donor have mutually concluded that measures agreed upon in support of the corporate governance of PJIA have been satisfactorily adopted. Type Description Disbursement Schedule 2, Section III.B.1(b). For Category 1 (Project Component 1) and Category 4 (Project Component 4), no disbursements will be made until the Project Implementing Entity has appointed at least one individual qualified to fulfill the environmental and social safeguard requirements for the Project, in accordance with Sections I.A.3 and I.C.2(c) of Schedule 2 to the Grant Agreement. Page 7 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Page 8 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) I. STRATEGIC CONTEXT A. Country Context 1. Sint Maarten is a high-income constituent country1 of the Kingdom of the Netherlands in the Caribbean. It occupies the southern half of an island shared with the French overseas collectivity of Saint Martin. It is the most densely populated country in the Caribbean with a population of roughly 40,000 and a per capita Gross Domestic Product (GDP) of US$25,2814 as of 2017.2 Sint Maarten and Curaçao form a currency union with a joint central bank, the Centrale Bank van Curaçao en Sint Maarten (Central Bank of Curaçao and Sint Maarten, or CBCS) and a shared currency, the Netherlands Antillean guilder (NA f.), which maintains a fixed exchange rate to the U.S. dollar. Sint Maarten is currently rebuilding from damage caused by Hurricane Irma, a category 5 hurricane, that ravaged the island in September 2017, striking a drastic blow to the island’s economy. 2. Sint Maarten is highly vulnerable to adverse climatic events due to its location within the hurricane belt and has been exposed to high winds and numerous hurricanes. For the past decades, the country has been exposed to high winds and intense storms: Donna in 1960 (Category 3), Luis in 1995 (Category 4), and Irma 2017 (Category 5 on Saffir-Simpson scale). Due to the size of the country, a single storm has the potential to directly impact the entire population. High winds, rainfall and flooding are the principal risk factors while the country is also vulnerable to earthquakes. Coastal areas are exposed to flood risk from storm surge and tsunamis. Increased urbanization along with climate change and limited country capacity to build with resilience adds to its vulnerability to natural hazards. These hazards have had catastrophic impacts on the economy, which relies on tourism. 3. Sint Maarten’s economy relies on tourism which accounts for 45 percent of its GDP and 73 percent of its foreign exchange in 2016. The economy is driven by retail and wholesale trade, hotels and restaurants, real estate, transport and communication, yacht repair, and harbor services. Prior to Hurricane Irma, Sint Maarten’s capital, Philipsburg, was the second most visited port in the Caribbean, and its airport served as a hub for several nearby smaller islands. In addition, activities in the transport, storage and communication sector also related to tourism contributed 11 percent of GDP. Between 2012 and 2016, Sint Maarten received a yearly average of 1.8 million cruise passengers and 500,000 visitors arriving by air, who together spent about US$820 million a year.3 Sint Maarten’s nominal GDP was estimated at about US$1.07 billion in 2016. The airport, which is the economic gateway to the island, is a critical infrastructure asset for the tourism industry and the overall economy. 4. The impact of the Hurricane Irma was significant. While loss of life was limited, Hurricane Irma caused damages and losses estimated at US$ 1.38 billion and US$ 1.35 billion (129 percent of GDP respectively) affecting 90 percent of all infrastructure and large parts of the natural environment. Of these total damages, approximately 130 percent of GDP in damages were in private housing, tourism and commerce sectors, and the publicly owned airport and harbor.4 The economy contracted by a cumulative 12.5 percent in the aftermath of Hurricane Irma 1 Sint Maarten is one of the four constituent countries of the Kingdom of the Netherlands, along with Netherlands, Aruba, and Curacao. 2 From Central Bank of Curaçao and Sint Maarten, based on 2018 estimates. 3 Data from the International Monetary Fund (IMF) and Statistical Yearbook, 2017, Department of Statistics Sint Maarten. 4 National Recovery and Resilience Plan (2018). Page 9 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) during 2017-18. Growth is projected to rebound in 2019 and the economy is expected to return to its pre- Hurricane Irma real GDP level by 2025. However, a sharp decline in tax revenue has cut public resource availability, while the need for public expenditure to rebuild public infrastructure and assist the affected population has risen sharply. 5. The tourism sector is still on the way to recovery since it was significantly affected by the Hurricane. While there were a total of 4,115 hotel and timeshare rooms on the Dutch side before the hurricanes, only 2,141 rooms were officially available in March 2019, which is 54 percent of the pre-Irma count. Of the 58 hotel and timeshare properties that report to the St Maarten Hospitality and Trade Association (SHTA), 44 were open and 14 were still closed. In March 2019, overnight arrivals were at 56 percent of arrivals during that same month pre-hurricane in 2017. Indications are that occupancy rates for hotels that have re-opened have been higher than average since April 2018. Meanwhile, the airport is running only with 60 percent peak-time passenger capacity of the pre- hurricane levels. Cruise arrivals have returned to pre-hurricane levels, However, as most of the income on the island was derived from overnight stays of tourists arriving by air, recovery of the airport is critical to tourism recovery. 6. The social and economic effects of Hurricane Irma and the disaster’s impact on poverty are likely significant. In the absence of a national poverty line for Sint Maarten, a UNDP benchmark for poverty based on minimum wage 5 indicates that 26.87 percent of households (approximately 3,762 households) are poor and live on revenues at or below the minimum wage (NAf 1.530.53 or approximately US$850 per month in 2017). Although little is known about the distribution of disaster impacts and their effect on vulnerable groups in Sint Maarten, international experience indicates that the poorest and most vulnerable groups were disproportionately affected by the disaster, including Sint Maarten’s large number of female-headed households (38.7 percent of all households), who, post-hurricane, depend on the income of women, many of whom work in the tourism industry. 7. In 2018, the National Recovery and Resilience Plan (NRRP) was prepared based on the Damage and Loss Assessment (DaLA) and prioritized the reconstruction of critical infrastructure including the airport. The NRRP set the following priorities: (a) the basic needs of the people of Sint Maarten—such as food, shelter, health and psychosocial care, education, and livelihoods, (b) the urgent preparations for the hurricane season and (c) the multisectoral approach to restarting and revitalizing the economy. Among priority activities, the NRRP recommended the immediate reconstruction of the airport together with hospital and hotels as island’s critical infrastructure, as well as support to struggling small- to medium-sized enterprises in their recovery efforts. 8. Rapid economic recovery and reconstruction are critically needed, in particular, for the tourism-related sector as an economy driver of the island and a fully reconstructed and functional airport is essential to boost tourism levels and return to passenger traffic to pre-Hurricane Irma levels. A greater volume of tourists would support hotel recovery and result in a significant rise in tax revenue. Reconstruction of the airport will also increase employment opportunities in the construction and hospitality sectors. 5 Developed by UNDP in 2015. Page 10 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) B. Sectoral and Institutional Context 9. Princess Juliana International Airport (PJIA) is the main international airport serving the entire island of Saint Martin, for both Dutch and French sides. This airport also serves as an important air hub in the region for Saba and St. Eustatius (part of the Kingdom of The Netherlands) as well as other smaller islands such as Anguilla and St. Barthélemy. In 2016 the airport handled over 1.8 million passengers and 62,144 aircraft movements. PJIA is operated by Princess Juliana International Airport Operating Company N.V. (PJIAE). PJIAE is fully owned by the Princess Juliana International Airport Holding Company N.V. (PJIAH), which in turn is owned 100 percent by the Government of Sint Maarten (GoSM). The GoSM is the Concessor, while PJIAH is the Landlord with PJIAE being the tenant, operator, and concessionaire of the airport and all its facilities. 10. PJIA’s terminal building and facilities were severely damaged during Hurricane Irma and Hurricane Maria, and have not been fully functional since then. The passenger airport terminal, a four-story building with an area of 30,500 square meters, the air traffic control tower, and other airport facilities such as firefighter building were severely damaged by strong wind and rainwater. The roof of the terminal building was destroyed, the entrance doors were blown out. Due to the roof damage, salty water (mix of rainwater and salt spray from the large breaking waves at sea) entered the building, resulting in significant damage to equipment and the facilities inside and subsequent mold growth. The main steel structure of the building and the building foundation survived the storm well. The current building structure is 13 years old, quite solid, and has sustained practically with no damages other than the roof and the entrance doors. The windows (except one) also withstood the category 5 impact. 11. Since the Hurricanes, the passenger demand has dramatically dropped and as a result, PJIAE’s revenues have lowered too. As the passenger terminal was not functional due to the damage, PJIA resumed operating using temporary tents on October 10, 2017. Passenger demand recovered to 30 percent by the end of 2017 compared to the pre-Irma level in 2016. The demand has slowly increased during 2018 and was around 70 percent of pre- Irma level in the first quarter of 2019. In December 2018, right before the high season started, a part of the ground floor of the terminal was re-opened to passengers so that the terminal could accommodate around 60 percent of the original peak capacity. Meanwhile, the hotel industry is recovering steadily and the GoSM estimated that 67 percent of room capacity will be available by the end of March 2019. The reconstruction works require at least 18-month duration. An increased airport capacity will help drive growth in the tourism industry, which will, in turn, strengthen the economic recovery of the island. 12. The reconstruction of the PJIA terminal was prioritized in the NRRP as one of the most critical activities for economic recovery. An estimate of direct damage to all airport facilities currently amounts to approximately US$173 million. The NRRP recommended to focus on repairing and rebuilding the airport and related facilities to higher standards to ensure resilience of critical infrastructure to future disasters. 13. Reconstruction of the airport terminal with improved resilience to hurricanes is a high priority for the GoSM to promote a swift recovery process given the importance of tourism to the Sint Maarten economy as well as the sustainability of the airport operation. Restoring airport capacity is vital to economic recovery considering high economic dependency of the tourism sector on tourists’ arrivals through the airport. The terminal reconstruction will promote more tourists to come back to the islands and improve financial situation of PJIAE through receiving more revenues from passengers as well as terminal venders most of which are currently closed. A more resilient airport will ensure sustainable airport operation as well as disaster relief and emergency Page 11 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) activities during the future natural disaster events. In the long-term, the reconstruction will contribute to sustainable economic growth of Sint Maarten. 14. Due to the significantly lowered number of passengers following the damage caused by Hurricane Irma, PJIAE’s financial situation has worsened. The company has been unable to abide by all terms of its agreement with existing bondholders. In 2006, PJIAE constructed a terminal building and expanded the airport’s facilities. The debt incurred for these works was refinanced in 2012 by the issuance of fixed-rate senior secured notes that also included an additional amount for certain capital expenditures, fees and expenses. This debt was still being paid when the Irma and Maria hurricanes struck. In light of limited revenues due to lower passenger traffic and current debt obligations, financial support from other sources was needed to reconstruct PJIAE’s terminal. Through this project, the Sint Maarten Reconstruction, Recovery and Resilience Trust Fund (TF) responds to these needs by providing a grant from the TF, and leveraging financing from the European Investment Bank (EIB) and counterpart funds from PJIAE. C. Relevance to Higher Level Objectives 15. The proposed project is a key element of Sint Maarten’s National Recovery and Resilience Plan (NRRP). The NRRP outlines the Government’s vision, principles and a proposed approach for rebuilding a “better and stronger Sint Maarten� following Hurricane Irma. It aims at accelerating the restoration of the social and economic infrastructure, based on a consensus of all stakeholders, and following the “Build Back Better� principle. The NRRP vision emphasizes the need to restore business activities as a priority while acknowledging the need to address the significant social disruption generated by the disaster. 16. In line with the Strategic Framework of the Sint Maarten Reconstruction, Recovery and Resilience Trust Fund financed by the Government of Netherlands, this project (i) promotes sustainable economic recovery by restoring the country’s main economic asset and (ii) builds the long term resilience through financing reconstruction in a manner that allows PJIAE to regain its financial footing and by ensuring that hurricane resilient and climate smart green principles are central. By providing a parallel technical assistance in support of the Government of Sint Maarten’s adopted Action Plan to improve corporate governance of the airport companies and management 6 , the World Bank through the TF and the Government of the Netherlands are also strengthening the corporate governance of these companies and governance of the sector as a whole. 17. The project is aligned with the World Bank’s twin goals of ending extreme poverty and boosting shared prosperity. It will target the most in-need and vulnerable population immediately affected by the hurricane, help the country to recover and resume growth, and contribute to strengthening the economic and social resilience of the country in the future, thus contributing to sustainable and inclusive growth. 18. The project takes a Maximizing Finance for Development approach. The project, together with some short-term bridge loans from the Government of the Netherlands and the Government of Sint Maarten to cover cash shortfalls for operation, will help PJIAE to rebuild its function despite the financial constraints caused by the hurricane and to return the operating company to a sound financial footing. Restoring PJIAE’s profitability will put the company in a favorable position to continue to leverage private financing on the market as a sustainable enterprise in the long run. 6Council of Ministers, Adoption of Action Plan for the implementation of the Corporate Governance Assessment of PJIAE and PJIAH, March 2019. Page 12 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 19. The development objective is to restore the passenger capacity of Princess Juliana International Airport to pre- Hurricane Irma levels with improved resilience towards hurricanes. PDO Level Indicators 20. The PDO indicators for the proposed project include: • Passenger handling capacity of the terminal (Number) • Resistance of terminal building to Irma-level hurricanes (Yes/No) B. Project Components 21. The proposed project will contribute to the reconstruction program of the Princess Juliana International Airport (PJIA) through restoring the passenger terminal function. PJIA’s reconstruction program aims at restoring the airport function with improved resilience to the future hurricanes and safety of the airport. The program includes the reconstruction of the passenger terminal as well as the other key airport facilities such as air traffic tower, firefighter facilities, fuel farm relocation, runway rehabilitation. As requested by the GoSM, the project will focus on the terminal reconstruction, which is the most critical and the biggest work to recover the passenger capacity of the PJIA. 22. The project will reconstruct the terminal facilities damaged by hurricanes while keeping the existing building structure. While the terminal facilities inside the building were seriously damaged by wind and rain intruded through destroyed doors and roof, the building structure7 itself has withstood practically with no damage except the roof. Accordingly, PJIAE is implementing a series of the works, including: (i) Preliminary internal cleaning and demolition (completed); (ii) Terminal roof emergency repair (completed) with betterment to enhance resilience (completed in May 2019); (iii) Partial terminal reconstruction (Package 1) to reopen the limited area of the ground floor of the terminal (completed in December 2018); and (iv) mold remediation of the entire terminal for Package 2 (to be completed by November 2019); and (v) full terminal reconstruction (Package 2). The works under (i)-(iv) are fully financed from PJIAE’s own financing resources and concluded before the (v) Package 2 starts (see Annex 1 for detailed descriptions of components). 23. The project will support PJIAE and the GoSM in implementing the terminal reconstruction program, focusing on Package 2 works. The project is a US$129 million operation financed by a US$72 million World Bank managed Trust Fund Grant (TF), US$50 million European Investment Bank (EIB) loan, and US$7 million of counterpart funds. The proposed project includes the following four components. 7 The original building was designed according to the Dutch building codes. Page 13 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Component 1: Reconstruction of the PJIA terminal facilities (US$107 million, of which US$50 million will be financed by the World Bank managed Trust Fund, US$50 million by European Investment Bank loan and US$7 million by the counterpart funds) 24. The component supports the reconstruction of the PJIA terminal facilities to restore airport function and to improve its resilience to hurricanes. The component will support, among others, the Package 2 works of the terminal reconstruction, consisting of terminal facility restoration and equipment reinstallation. The planned works will include, inter alia, passenger boarding bridges, entrance doors, dry walls, furniture/counters, electrical and IT systems, baggage handling system, security installations and firefighter facilities. Passenger boarding bridges and entrance doors will be replaced with better resilience to hurricanes. Component 2: Capacity Building of and Project Management by PJIAE (US$0.5 million financed by the World Bank managed Trust Fund) 25. The component supports activities related to project management and capacity building for PJIAE. The component will support PJIAE in (a) project implementation, management, and monitoring and evaluation, including in respect to the environmental, social and fiduciary aspects of the Project; and (b) capacity building activities to PJIAE to improve airport resilience and air traffic safety. The activities will be defined based on the need’s assessment during the implementation. The component will also finance training and operating costs required for these activities. Component 3: Capacity Building of and Project Management by the Government of Sint Maarten (US$0.5 million financed by the World Bank managed Trust Fund) 26. The component will support capacity building and project management activities for the Government of Sint Maarten. The component will support the GoSM on matters of project management and on capacity building in areas including airport governance and air traffic regulation, determined based on needs assessed during Project implementation. The component will also finance training and operating costs required for these activities. Component 4: Support of PJIAE Operations (US$21 million financed by the World Bank managed Trust Fund) 27. The component will provide support to the operations of PJIAE through the financing of Select PJIAE Operating Expenditures so that PJIAE can continue PJIA’s operations without interruption during the reconstruction period. The PJIA operating expenditures financed by this component will be limited to expenditures incurred for the salaries and benefits of PJIAE personnel and other non-procurable operating expenditures including utilities up to the amount of part of the debt service payments that the PJIAE’s earnings before interest, taxes, depreciation, and amortization (EBITDA) cannot cover, during the terminal construction works under component 1 of the Project. Details on the considerations for Select PJIA Operating Expenditures that can be financed by this component, will be set forth in the Project Operations Manual. C. Project Beneficiaries 28. The direct beneficiary group is air travelers, which include tourists, travelers visiting friends and relatives, Sint Maarten residents, public administration and business travelers and recipients of education, training and specialized health services who will benefit from augmented capacity and more availability of flights as well as Page 14 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) higher service quality of the airport. The secondary target group includes: (i) tourism sector, which will benefit from the recovery of air transport services and a more attractive Sint Maarten’s destination area; (ii) workers, who will benefit from job creation during the reconstruction, and after construction both directly in airport operational activities, as well as indirectly in businesses and services attracted to the area by the increased tourism activity; (iii) airlines, which will benefit from the recovery of the passenger demand after the reconstruction, as of September 2018 there were 22 commercial airlines; and (iv) other islands in the region, such as Anguilla and St. Barthélemy, that will benefit through tourism (and the consequent increase in economic activity) and better connectivity from Sint Maarten airport’s enhanced capability to serve as a hub for the region. D. Results Chain 29. Results chain of the project is shown in the Figure 1. Figure 1. Theory of Change Problem: Limited airport capacity is bottleneck of the island’s tourism recovery. Critical assumptions: PJIAE continues its operation through the reconstruction period. E. Rationale for Bank Involvement and Role of Partners 30. The World Bank brings international and institutional expertise as well as technical support to such post- disaster situations. The World Bank’s global experience in disaster risk management and response, its capacity to mobilize technical expertise in a broad range of relevant sectors, as well as its longstanding history of managing funds and activities on behalf of donors, attest to the institution’s comparative advantage in managing the Trust Fund and supervising its activities. The World Bank technical, fiduciary and safeguard oversight has been put into place to ensure that project is well designed and implemented, access to funds is timely, and funds are effectively and transparently used, which are very critical for such a visible and relatively large project in the economy of Sint Maarten. Further, the project is being vetted by adequate financial, social, and environmental safeguards and procurement and institutional arrangements. In addition, supervisory systems including reporting and monitoring capacities as well as systematic project management help ensure that projects meet objectives. Page 15 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 31. The involvement of the Bank-managed Trust Fund will support a fast reconstruction of the PJIA facilities, help PJIAE in achieving a sound financial situation and as a result, promote a rapid economic recovery of Sint Maarten. The financing of the TF will ensure that the airport reconstruction is completed as quick as possible, so that PJIAE uses accumulated cash and revenues for operating expenses and re-generates sufficient additional revenue after the reconstruction to service the debt and to continue their business in a sustainable manner. This will significantly contribute to tourism sector recovery of the island. 32. EIB will co-finance the project. EIB will provide support to Component 1. Concretely, the Component 1 at US$107.0 million will be financed by a US$50 million WB TF, US$50 million EIB loan, and the US$7 million counterpart fund. The Bank will agree with EIB the implementation arrangement prior to the project effectiveness and document them in the Principles of Collaboration. EIB will delegate to the WB the responsibility to review and to clear procurement-related documents. Meanwhile, the Bank and EIB will apply its own environmental and social safeguard policy to the entire project individually and accordingly Common Approach is not envisaged. The Bank and EIB will closely collaborate and share information related to the project implementation if necessary. F. Lessons Learned and Reflected in the Project Design 33. The design of the project incorporates the “Building Back Better� principle. Building back better means that the repaired or replaced assets are more resilient, but also that the recovery process is shorter and more efficient, and that the entire recovery process does not leave anyone behind—i.e. that even the poorest and most vulnerable receive the support they need to fully recover8. The project will improve resilience of the terminal to hurricanes so that the airport can continue its operation without disruption throughout the future hurricane seasons. Furthermore, as the airport is a key infrastructure for emergency and rescue activities in such a small island, the project will contribute to fast recovery processes and indirectly support the poor and vulnerable people through facilitating timely assistance during emergency. 34. The design of the project also considers lessons learned from other Bank financed projects of airports, especially those related to the “green airport’ concept9. These take into account that, in order to be able to meet the International Civil Aviation Organization’s (ICAO) goal of sector-wide, carbon-neutral growth from 2020, airport-based measures will need to be incorporated in the design and operation of new airports that help reduce energy consumption. The project will take advantage of materials, technologies, and practices developed or matured since its opening in 2006 that contribute towards reducing the environmental impact, such as high performance exterior insulated glazing, LED lighting and lighting control or higher efficiency HVAC equipment and baggage handling system (BHS). 8 Stephane Hallegatte, Jun Rentschler, Brian Walsh, GFDRR, Building Back Better, 2018 9 Charles E. Schlumberger, Binyam Reja, Transport & ICT GP, Green Airports, 2015 Page 16 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 35. PJIAE will be the executing agency of the Components 1, 2 and 4 of the project and be responsible for implementation of all the technical tasks under these components, such as preparation of designs, bidding documents, work supervision and contract management. PJIAE has mobilized a technical team to implement works and has already initiated certain works such as cleaning and demolition, temporary terminal opening, and design preparation for the Package 2 terminal reconstruction. PJIAE has hired an engineering firm for the design preparation, supervision of the works, and coordination with various contractors under the Package 2. The technical team of PJIAE are considered sufficiently qualified to implement technically the proposed works and supervise the planned works. 36. PJIAE is primarily responsible for safeguard and fiduciary aspects of the project following the Bank’s procurement policy. PJIAE will ensure compliance with financial management guidelines and procedures, procurement guidelines, social and environmental management. PJIAE, with technical support of an engineering company or consultants, will manage safeguard and procurement process for the proposed work. PJIAE will manage and monitor the flow of the TF proceeds to ensure that the fund flow is made following the procedures acceptable to the Bank, including payments to contractors. Since this is the first World Bank engagement in PJIAE, their implementation capacity is limited in terms of complying with Bank policies and procedures on fiduciary and safeguards. Accordingly, the Bank team will be providing guidance to PJIAE throughout implementation. 37. The National Recovery Program Bureau (NRPB) will be responsible for overall monitoring and reporting of the project progress, implementation of Component 3, and coordination with the relevant government agencies. NRPB, a newly established agency under the GoSM in 2019, will monitor, evaluate, and report progress towards achieving the PDO as well as implement all activities under Component 3, including fiduciary aspects under the component. NRPB will closely coordinate for the entire project implementation with the Ministry of General Affairs, the Ministry of Finance, the Ministry of Tourism, Economic Affairs, Transport and Telecommunication (TEATT) and other governmental agencies in the areas of civil aviation safety, customs, immigration, and quarantine, as well as, if necessary, through the Ministry of General Affairs with the French government as PJIA also serves as a main airport for the French side of the island. NRPB will be the owner of all bank accounts for this project and be a co-signatory (with PJIAE) on the release of payments from such project bank accounts to contractors, suppliers and consultants. 38. The project provides a grant to the GoSM, then the GoSM will on-lend proceeds to PJIAE. The key elements of the on-lending terms were agreed between the Bank and the GoSM. The basic on-lending conditions, such as maturity and interest rate, will be slightly more concessional than the EIB loan. As the TF proceeds will be on-lent to PJIAE, PJIAE will need to repay to the GoSM under the agreed on-lending terms. Reflows from the on-lending loan will be capitalized in a separate account owned by the Government of Sint Maarten and a decision on the use of these reflows is expected to be made at midterm of the project implementation period. Page 17 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) B. Results Monitoring and Evaluation Arrangements 39. NRPB will be responsible for monitoring, evaluating, and reporting progress related to the project according to the Results Framework while PJIAE will provide required data and information on Components 1, 2 and 4 to NRPB. PJIAE will monitor the PDO-level and intermediate results indicators for the project with technical inputs from PJIAE. NRPB will prepare the progress reports and submit these to the Bank. C. Sustainability 40. The project is designed to ensure sustainability of the operation of PJIA with improved resilience to hurricanes and provision of financial support. The project will improve physical resilience of the terminal building so that the terminal stands with future Irma-level hurricanes and ensures a continuation of the operation. In addition, the provision of the financial support will ensure the financial sustainability of PJIAE so that PJIAE will continue its operation until reconstruction is complete. The financial analysis demonstrated that PJIAE will be financially sound after the completion of the reconstruction due to the expected recovery of the passenger demand. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis (if applicable) (i) Technical Analysis 41. The project will reconstruct the terminal facilities damaged by hurricanes while keeping the existing building structure. The current building structure is 13 years old, quite solid, and has sustained practically with no damages other than the roof. The windows (except one) also withstood the category 5 impact. The proposed plan has a certain advantage compared to the replacement of the building since the terminal replacement would most likely cost US$300 million given similar construction and would require at least two year-long works in addition to demolition of the existing building, which will be longer than the proposed plan for 18 months. (See the details in Annex 1) 42. The project includes several upgrades to the terminal to improve its ability to withstand the Irma-level hurricanes (stronger than Category 5 hurricanes) in the future. Concretely, revolving doors on the front of the terminal will be replaced with sliding glass doors and the interface between the passenger boarding bridges and the terminal building will be strengthened to prevent them from being displaced by high winds. Together with the roof betterment, that was already started by PJIAE and funded by their own resource, the terminal building will become resilient to the Irma-level hurricanes. 43. The project supports the �Green Airport� concept through providing improvements to the terminal to reduce its environmental impact, taking advantage of materials, technologies, and practices developed or matured since its opening in 2006. The project will provide improved sustainability and energy efficiency than the original construction, for example, high performance exterior insulated glazing, LED lighting and lighting control, higher efficiency HVAC equipment and BHS system, and etc. Page 18 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) (ii) Economic Analysis The project will contribute to accelerate the economic recovery of the entire island which highly depends on the tourism industry. In 2016, tourism accounted for 45 percent of Sint Maarten’s GDP and 73 percent of its foreign exchange revenues. In addition, activities in the transport, storage and communication sector also related to tourism contributed 11 percent of GDP. Currently, passenger traffic is only about 60 percent of that achieved pre-Irma and limited airport capacity would constrain traffic growth and island tourism recovery since temporary facilities in the ground floor of the terminal are unlikely to provide sufficient capacity to accommodate peak period demand as hotel recovery reaches 75 percent, perhaps in mid- to late-2019. The airport can thus become the bottleneck of the island’s tourism recovery. 44. The economic assessment estimated potential loss in tourism revenues due to delay in the terminal reconstruction and the recovery of passenger demand. The assessment is based on data related to tourist average stay and expenditure provided by Sint Maarten’s Tourism Bureau (average stay of 8.4 nights and expenditure of US$101.69 per day) and passenger traffic forecasts provided by PJIAE and adjusted by the WB assuming 60 percent of enplaned passengers come with touristic purposes and considering 60 percent and 80 percent passenger volume of pre-Irma levels for 2019 and 2020, before traffic grows according to previous estimations after terminal reopening by the end of 2020. 45. Economic assessment demonstrates that the project will provide significant economic benefits to Sint Maarten. The economic loss in the tourism revenue due to 2-year delay in the terminal reconstruction would be US$ 450 million with a 6 percent discount rate. The cost of the project for these calculations is the one corresponding to the essential works that remain to be funded, US$143 million, which includes the financing from the WB and EIB, as we all PJIAE’s own resources and insurance payments. These parameters yield Economic Internal Rate of Return of 131 percent and Net Present Value of US$309 million based on 6 percent discount rate. (iii) Financial Analysis 46. The project will fill a financial gap of the reconstruction program of US$100 million. Based on the current cost estimation of the reconstruction program and available financial resources of PJIAE, the financial analysis concluded that at least US$100 million need to be provided by an external fund to complete the reconstruction program while operating the airport without disruption. The project, together with co-financing of EIB loan, will fill this gap through providing a grant to the GoSM. Furthermore, an additional US$1 million is included in the project for assisting PJIAE and the GoSM in project management and capacity building. 47. A comprehensive financial analysis confirmed that PJIAE continues to be financially sustainable with the financing of the WB TF and EIB. The financing of the WB TF and EIB loan, will be provided in the form of loans from the GoSM to PJIAE on top of the existing debts (bonds) and could generate an extra financial burden on PJIAE’s cash flow. Accordingly, the full financial analysis was conducted based on the detailed financial data provided by PJIAE and assuming the conservative demand projection, concretely, the traffic demand is expected to increase significantly only after the full reopening of the terminal to 92 percent of the pre-Irma level (or 2016 level), and fully recover to the pre-Irma level by 2025. The analysis demonstrated that the PJIAE will be able to keep its operation and debt services during the implementation of the project under the proposed financing of the WB TF and EIB loan assuming that all the insurance proceeds are available. Page 19 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 48. PJIAE is projected to be financially viable with a project Financial Internal Rate of Return (FIRR) as of June 2019 of 14 percent (equity FIRR of 24 percent) and PJIAE’s financial situation will go back to normal after the completion of the reconstruction. Projections show that, once the reconstruction is completed and the terminal is reopened at full capacity, the project will generate enough cash to continue the operation and to service the debt for most years, even when considering both the new debt and the existing bonds. However, during the reconstruction period, available financial resources to meet operating expenses including debt service will be tight. While the financial analysis concluded that PJIAE will be able to continue PJIA operation during the implementation of the project under a normal circumstance, any significantly adverse event, such as other hurricanes or economic crisis, could reduce available financial resources. Accordingly, the project includes support to operating expenditures of PJIAE to ensure that PJIAE can conclude the project without interruption in its operation. B. Fiduciary (i) Financial Management 49. The financial management responsibilities for components 1, 2, and 4 (totaling US$128.5 million) of this project will be undertaken by PJIAE while Component 3 (totaling US$0.5 million) undertaken by NRPB. The financial statements of PJIAE are audited annually by a Big 4 international accounting firm. PJIAE is very experienced in accounting, reporting and managing construction projects but has no experience with World Bank-financed projects. The Finance Division of PJIAE will be responsible for the financial management aspects for components 1, 2, and 4. NRPB’s financial management team will be responsible for financial management aspects of the relatively small component 3. An FM assessment was therefore conducted on PJIAE and NRPB in accordance with a Bank Directive - Financial Management Manual for World Bank Investment Project Financing (IPF) Operations (OPCS5.05-DIR.01, issued February 10, 2017). It was concluded that PJIAE has adequate FM systems that should provide, with reasonable assurance, accurate and timely information on the status of funds as required by the World Bank. As for NRPB, the FM function is currently performed by the Interim Recovery Committee. Once the NRPB’s FM team becomes operational, an FM assessment will be performed on the NRPB to ensure that it can manage the FM functions for component 3. (ii) Procurement 50. Procurement for the project shall be carried out in accordance with the World Bank's Procurement Regulations for Investment Project Financing (IPF) Borrowers for Goods, Works, Non-Consulting, and Consulting Services, dated July 1, 2016, revised November 2017 and August 2018, hereinafter referred to as Procurement Regulations. The project shall be subject to the World Bank’s Anticorruption Guidelines, dated October 15, 2006, and revised in January 2011. All procurement under Components 1 and 2 will be carried out by PJIAE while the component 3 will be conducted by NRPB. No procurement is expected in Component 4 as the component will finance only non-procurable expenditure. 51. The Bank policies on procurement will be applied to the terminal reconstruction works the project will finance. While neither PJIAE nor the engineering consultant firm hired to support the execution have prior experience implementing World Bank financed projects, they have experience procuring goods, services, and works for airport construction and rehabilitations. PJIAE has a procurement team with the necessary skills and experience Page 20 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) for successful execution of the project. The Project Procurement Strategy for Development (PPSD) was prepared, and the first version of the procurement plan covering at least the first 18 months of project implementation were prepared by PJIAE, based on the PPSD results and agreements resulting from negotiation with the World Bank. 52. The Bank will sign the Principles of Collaboration with EIB on project implementation arrangement, including procurement. The project will be jointly co-financed by the Bank and EIB, the Bank and EIB agreed that the Bank procurement policy is applicable to the procurement process under the project. The agreement will be documented in the Principles of Collaboration by effectiveness. .C. Legal Operational Policies . Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No . . D. Environmental and Social . . environmental and social risks is rated as moderate. The 53. The environmental risk is expected to be Moderate. This rating is given for three main reasons: (i) the project will recruit environmental and social specialists to ensure that project related risks are appropriately monitored and mitigated. In addition, the contractor(s) will be required to have, as part of their staff, an Environmental Health and Safety Officer to work closely with the construction crews; (ii) the Bank's work primarily focuses on renovation works such as plumbing, installation of equipment, painting, drywall, electrical works and so on. These works are generally less risky; and (iii) From an environmental standpoint, the riskiest part of the Airport remodeling are mold remediation and roof repairs, both of which pose risks to workers in terms of air pollution and fall risk. As part of project preparation PJIAE carried out an ESMP for the Project consistent with ESS1. PJIAE also completed a mold remediation in the ground floor of the Airport Terminal (the area currently temporarily open to passengers), followed by a mold audit. To confirm that mold had been properly remediated, a World Bank air pollution consultant reviewed and cleared the mold audit for this specific area. PJIAE has used the results of the audit for the preparation of a mold monitoring and remediation plan, which has been adapted and included in the ESMP. According to the mold monitoring and remediation plan, the rest of the mold remediation will take place in the remaining part (the major part) of the Airport Terminal building. Similarly, an audit will be performed as part of PJIAE mold monitoring activity and the World Bank will confirm the findings and that the mold is fully remediated prior to the beginning of the works financed under the Grant Agreement in these remediated locations. 54. The social risk is expected to be Moderate This is because Component 4 Support of PJIAE Operations would finance the salaries and benefits of PJIAE personnel during the terminal construction works under component 1 Page 21 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) of the Project. In this regard, all provisions of ESS 2 will apply to all the workers of PJIAE under the category “Project� and or “Direct Workers.� ESS 5 is not relevant. Labor influx is very limited. It is estimated that about 100-150 workers will be employed most of them through contractors and from the local labor market. The contractors are expected to be international firms that follow good environmental and worker safety and health practices that are equivalent to Bank safeguards requirements. The PJIAE has labor laws in alignment with many of the requirements of the ESS 2. The PJIAE has prepared an LMP which is included in the ESMP. A Stakeholder Engagement plan (SEP) was consulted upon with key stakeholders. These instruments and requirements will be shared with the PJIAE staff. Under ESS2 a labor Code of Conduct will be prepared. ESMP, LMP, and SEP were disclosed in the Bank’s website on September 12, 2019. 55. Permanent and/or temporary displacement are not expected. The civil works are renovation of the current structures on the same foot print. There will be no new major structural or construction works posing significant risks or impacts. The PJIAE affirmed that there are no outstanding legacy issues tied to land ownership or compensation payments related to the land on which the airport is built. There are no Indigenous Groups in the project area. The PJIAE will hire a social development specialist to monitor the implementation of the social safeguards. 56. A Stakeholder Engagement Plan (SEP) has been prepared, consulted upon and disclosed. PJIAE has an existing stakeholder engagement mechanism in place which is detailed in the ESMP and describes the different stakeholders of the Project and how PJIAE currently engages its stakeholders including through: circulation of monthly newsletters, conducting monthly facilitation meetings and maintaining a news webpage. The project also has a Stakeholder Engagement Plan. 57. The project related risks to GBV is low. An assessment on Gender Based Violence (GBV) was undertaken while data was not available for some indicators. The project will mainly employ local population, the works will be executed in a controlled and secure area at the airport, and there is capacity to monitor GBV risks through hiring of a Social Development Specialist. No risks on GBV were mentioned during the consultations. 58. The project will put all the necessary measures to mitigate and respond to GBV risks including: a) including requirements in the bidding documents on GBV, for instance a Code of Conduct signed by all contractor’s staff and trainings on its contents, b) enhancing the Grievance Redress Mechanism (GRM) with multiple entry channels to place complaints, c) awareness raising to stakeholders on GBV risks and mitigation measures and capacity building to the project implementation unit and d) strong monitoring framework through the PJIAE and supervision engineer to ensure that all the mitigation measures are in place and working accordingly. V. GRIEVANCE REDRESS SERVICES 59. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s Page 22 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non- compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress- service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. VI. KEY RISKS 60. The overall risk rating for this Project is assessed to be High. The main reasons for the rating are the high risks associated with the political and governance, and institutional capacity for implementation and sustainability. 61. Political and Governance risk is rated high. While this risk is largely outside the Project’s control, the level is considered high. The governance scheme over the airport operation is highly complex and the decision making related to the airport, including the project, could be highly political. In addition, there are high expectations by the population and the tourism industry toward early re-opening of the airport. As mitigation measures, the Project will apply the following: (a) design and implement a stakeholder engagement plan to inform the public transparently about the progress with project activities including the procurement and implementation of the main contract, (b) assessment of the corporate governance of PJIAE as part of the due diligence process, and (c) a close monitoring of project progress by the Bank team. 62. The risk of technical design of project or program is substantial. The proposed terminal reconstruction adopts technically unique approach by keeping the structure and restoring mainly the internal facility and equipment. Also, there are some other works that should be completed by PJIAE before the proposed work starts, such as roof works and mold remediation. Also, there is a certain risk of increase in a financial cost of the proposed works which might require additional financing resources. While this is the best estimation at this moment, there is always a possibility that actual costs are higher due to many factors such as inflation, price hike of particular materials (petroleum etc.), construction market, level of bidding competition, etc., although the cost already includes a certain contingency (4.5 percent of price contingency and 5 percent of physical contingency). Considering the complexity, the risk of the technical design is considered as Substantial. 63. The risk for institutional capacity for implementation and sustainability is high. This is for two reasons: (i) country capacity has been constrained in general by the hurricane damage; and (ii) this is the first World Bank engagement in the country, so the counterparts, including PJIAE and the line ministry, know little about the World Bank requirements, and the World Bank needs to gain familiarity with the government and local systems. In addition, government capacity to handle the financial issues of PJIAE is also limited. The Bank will provide the necessary implementation support, including bringing in international expertise where relevant. Implementation support also includes adequate resources to support project implementation and capacity building. 64. Fiduciary risk is substantial, largely due to lack of familiarity of the counterparts with the Bank requirements, particularly on financial management and procurement. The Bank will be providing sufficient guidance on FM Page 23 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) and procurement to the GoSM and PJIAE. Under Component 4, operating expenditures of PJIAE will be financed only on a reimbursement basis so that a fiduciary risk can be mitigated. 65. The environmental and social risks are expected to be moderate since civil works will focus on renovation of the current structure. There will be no new major structural or construction works posing significant risks or impacts. The contractors are expected to be international firms that follow good environmental and worker safety and health practices that are equivalent to Bank safeguards requirements. There will be no displacement or relocation of any individuals or households since the project will be carried out on the existing airport property. 66. The stakeholder risk is expected to be substantial since the project involves various stakeholders that can have significant impact on the project, including the project funding. In particular, the presence of the existing bondholders is seen as a substantial risk since they can influence PJIAE’s financing strategy for the reconstruction program, for example, through limiting the use of a part of PJIAE’s cash, which is legally permitted under the indenture of the bond. The GoSM and PJIAE agreed with the bondholders a series of the conditions required for successful implementation of the project. . Page 24 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: St Maarten Sint Maarten Airport Terminal Reconstruction Project Project Development Objectives(s) The development objective to restore the passenger capacity of Princess Juliana International Airport to pre-Hurricane Irma levels with improved resilience towards hurricanes. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name DLI Baseline End Target Restore to pre-Irma levels the passenger capacity of Princess Juliana International Airport Passenger handling capacity of the terminal (Number) 1,000,000.00 2,500,000.00 Improve resilience of the terminal against hurricanes Resistance of terminal building to Irma-level hurricanes (Yes/No) No Yes PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Reconstruction of the PJIA passenger terminal Completion of package 2 terminal reconstruction works (Percentage) 0.00 100.00 Page 25 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) RESULT_FRAME_TBL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Contractor for strengthened jet bridges Installation of strengthened jet bridges (Text) Strengthened jet bridges not installed Strengthened jet bridges installed installation contracted Contractor for resilient entrance doors Installation of resilient entrance doors (Text) Resilient entrance doors not installed Resilient entrance doors installed contracted Contractor of Baggage Handling System Restoration of Baggage Handling System (Text) Baggage Handling System not restored Baggage Handling System Restored contracted PJIAE submits quarterly reports describing claims received through GRM and how issues were No Yes Yes resolved (Yes/No) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Annual passenger handling capacity of the terminal. The baseline value for the passenger handling capacity is estimated at 1 million Project Passenger handling capacity of the given that the current Annual Progress - PJIAE terminal temporary terminal facility report on part of the ground floor can handle up to around 60% of the pre-Irma passenger volume of 1.8 million. The target is the Page 26 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) originally designed capacity of 2.5 million to which the project aims at restoring Resistance of terminal building to Irma-level Based on the two Project hurricanes through intermediate indicators Resistance of terminal building to Irma- Annual progress PJIAE strengthened jet bridges on doors and jet level hurricanes report and more resilient entrance bridges. doors. ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Based on the physical Completion of Package 2 Project Progr Completion of package 2 terminal Annual progress of the Package PJIAE terminal reconstruction ess report reconstruction works 2 works. works. Project Progr Installation of strenghtened Annual - PJIAE Installation of strengthened jet bridges ess report jet bridges Installation of the main entrance doors of the PJIA Project Progr Annual PJIAE Installation of resilient entrance doors terminal building with ess report resilience to Irma-level hurricanes. Project Restoration of Baggage Annual Progress PJIAE Restoration of Baggage Handling System Handling System Report Page 27 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) PJIAE submits to the Bank Quarterly quarterly environment and environment PJIAE submits quarterly reports describing Semi social safeguard reports and social - PJIAE claims received through GRM and how Annual including claims received safeguard issues were resolved through GRM and how reports issues were resolved ME IO Table SPACE Page 28 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) ANNEX 1: Detailed Project Description COUNTRY: Sint Maarten Sint Maarten Airport Terminal Reconstruction Project Component 1: Reconstruction of the PJIA terminal facilities A. Project background 1. The project will assist PJIAE in reconstructing the PJIAE terminal facilities, which was heavily damaged by hurricanes in September 2017 (Category 5+ Hurricane Irma on September 6 and Category 3 Hurricane Maria on September 16), and has not been fully functional since then. 2. The passenger airport terminal, which was originally built in 2006, had a handling capacity of 2.5 million passenger per year. The terminal, a fully air-conditioned four-story building with an area of 30,500 square meters, includes 13 boarding gates - 4 passenger boarding bridges and 9 bus gates - 46 check-in positions, all equipped with Common Use Terminal Equipment and 12 self-service check-in terminals. The four-story building has a structural steel frame with reinforced concrete floors on concrete piers. The exterior walls consist of metal and glass panels. The roof assembly consists of galvanized cold-formed steel hat channels in two layers with steel plates and a waterproof PVC membrane in between and a roof profile cladding on top. The facilities available at each level of the terminal are summarized below: • Level -1: Basement - Fully Integrated Outbound Baggage Handling System, Utility Corridor; • Level 0: Ground Floor - Check-in Area, Airline Offices, Departure Lounge West, Baggage Handling Systems (Outbound, Inbound), Arrivals, Customs, Meet & Greet Area, Food Court; • Level 1: First Floor - Security Screening Area, Departures, Business Lounge & Shopping Area, Offices, Arrivals, Customs; • Level 2: Second Floor - Airport Executive Offices, Utility Rooms, Meeting Rooms. 3. The original terminal structure was categorized as a Class 3 building, with a required design lifetime of 50 years and designed in accordance with strength design to support safely the factored loads in load combinations defined in the Dutch regulations. The terminal was designed for both hurricane and earthquake resistance following the Dutch building code, concretely, TGB 1990 (Loadings and deformations), TGB 6720 (Concrete structural requirements and calculation methods) and TGB 6770 (Steel structures). For special loadings also UBC (1997) and Eurocode (NVN-ENV 1998) were applied, and design provisions for earthquake resistance of structures were taken into account. The terminal was designed for wind speeds up to 135 mph and a design ultimate wind load (velocity pressure) of 1.5 x 3.75= 5.63 kN/m2 and had survived hurricanes up to category 3 (129mph) since the completion without significant changes. Required safety factors for loads were: 1.2 x dead loads, 1.5 x live loads and wind loads, and 1.0 x earthquake loads. 4. The hurricanes in September 2017 devastated the building roof of PJIA, allowing significant amounts of rain and salty sea water to saturate the entire airport terminal. Despite the damages, that rendered the building Page 29 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) non-functional and unsafe for its intended use, the existing steel superstructure and foundations of the terminal were found to be intact and do not require any rehabilitation works. The damages caused by the hurricanes on the airport infrastructure are summarized below: • Roof: About 76 percent of the terminal roof was no longer in place and the remaining roofing material, expansion joints, flashings and roof accessories were compromised by wind-driven rain and do not meet performance requirements. • Exterior Building Elevation: Through exposure to Category 5+ hurricane winds, a significant amount of metal wall panels, trim, and granite panels as well as the glass panes have been compromised by wind- driven rain and will not meet performance requirements. • Interior of the Terminal: Due to severe damage to the roof, it was unsafe to energize the building to provide lighting and air-conditioning after the hurricanes. All levels of the terminal building’s interior have become saturated with rainwater and salt water, resulting in moisture which created an environment conducive for mold growth and corrosion. A combination of high humidity, excessive and continued moisture intrusion from the damaged building roof and limited air flow within the facility has further contributed to the damage. Meanwhile, no storm surge nor flood was reported in the building. 5. After the hurricane event, PJIAE performed a damage assessment of roofs and facades and to provide advice on improved resilient design standard to hurricanes. PJIAE conducted a structural assessment of the existing roof and floor bearing steel constructions. Because of the wind-loads caused by hurricane Irma it was necessary to research any damage of the steel structure before other steps will be taken in the renovation of the building. PJIAE concluded that, despite the fact that the old design velocity pressure is about 85 percent of the new design velocity pressure, the main wind force resting system (MWFRS) of the terminal has proven to resist hurricanes like Irma, therefore strengthening the MWFRS was not necessary. The assessment advised that new construction parts, repairs or replacements must follow the new proposed design with wind velocity pressure of 6.60 kN/m2 instead of 5.63 kN/m2 used for the original design in 2003. The roof and other reconstruction designs follow this new standard. 6. The vast majority of internal facilities, equipment, and furniture of the PJIA terminal need to be replaced or repaired due to extensive water and mold damage. PJIAE’s plan is to reconstruct the terminal keeping the existing foundation and steel building superstructure, and rebuilding the whole internal installation with the strengthened roof. This approach is considered appropriate given speed and cost advantages and the nature of the damage to the facility. Further, the previous terminal provided a high level of service without any major design flaws, therefore design changes are not needed. 7. The terminal reconstruction includes a series of works and the project will finance the Package 2 terminal reconstruction work. The terminal reconstruction works consist of the following: (i) Preliminary internal demolition (completed) – Demolition of the internal facilities, equipment, and furniture of the terminal and exterior building elevations that were damaged. (ii) Terminal roof emergency repair (completed) and betterment to enhance resilience (completed in May 2019): replacement of about 14,000 square meters of roof assembly as well as all associated expansion joints, flashings, copings and accessories and installation of a 2-layer waterproof membrane. (iii) Partial terminal reconstruction (Package 1) to reopen the limited area of the ground floor of the Page 30 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) terminal (completed in December 2018). (iv) Mold remediation of the entire terminal (to be completed by October 2019) (v) Package 2 terminal work to restore the entire terminal building function. 8. PJIAE will remediate mold before starting the terminal reconstruction and monitor the air quality: Due to public health risks associated with the mold, PJIAE has carried out mold removal works using USEPA approved anti-microbial biocide. PJIAE will continue to carry out the sampling and analysis of air for mold spores; and will commission an audit to ensure mold remediation is completed before commencement of works in any newly remediated area. The design of the reconstruction works includes use of humidity and mold resistant sheetrock throughout the terminal to prevent future mold. B. Details of the Package 2 Works 9. The 2nd package of the terminal reconstruction will focus on terminal facilities and equipment reconstruction. A summary of the works proposed under the Project are: • Interior Construction: new partitions, interior doors and hardware, interior signage, restroom fittings/accessories, countertops, millwork, etc.; • Stairs: New stair finishes, clean/replace handrail and guardrail on all stair towers; • Interior Finishes: Entirely new finishes throughout the airport; • Conveying Systems: Elevators and escalators to be remediated and refurbished or replaced where damaged beyond repair. This includes 1st floor to 2nd floor escalators, public/staff and service elevators; • Plumbing: Existing plumbing (domestic water, waste, vent and storm drainage piping, sanitary fixtures, roof drains, etc.) to be remediated and repaired; • HVAC: Remediation of all utility rooms and mechanical equipment and replacement of distribution devices, controls, etc.; • Fire Protection: Existing fire protection piping to be replaced where damaged and replacement of all sprinkler heads; • Electrical: All electrical systems including power distribution, lighting, fire alarm, communications systems, etc.; • Baggage Handling System: The drivers and belts, ticket counters, security screening systems, power from power distribution panels and controls for the baggage handling system; • Furnishings: Entrance/walk-off mats and window treatments; • Passenger Boarding Bridges: Replacement of all four existing passenger boarding bridges (this includes new pre-conditioned air and 400Hz systems). • Universal Access: Restore Airport Terminal’s facilities for the disabled to ensure universal access. These include restoration of ramps, elevators and toilets for the disabled. • Firefighter facilities: storage of firefighter equipment. 10. Resilience and Climate Benefit: The project includes several upgrades to the terminal to improve its ability to withstand the Irma-level hurricanes in the future. Concretely, revolving doors on the front of the terminal will be replaced with sliding glass doors and the interface between the passenger boarding bridges and the terminal building will be strengthened to prevent them from being displaced by high winds. In addition, the roof betterment, that was already started by PJIAE and funded by their own resource, also enhances its resilience together. The new roof design includes changes to strengthen the top layer of the roof structure so that it can withstand Irma-level hurricane wind. A 2-layer waterproof membrane is being installed across the Page 31 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) entire terminal roof which should prevent water from entering the building. All of these will also contribute to adopt the airport infrastructure to a climate change. 11. Green concept: The terminal reconstruction project provides a natural opportunity to make improvements to the terminal to reduce its environmental impact, taking advantage of materials, technologies, and practices developed or matured since its opening in 2006. The project will provide improved sustainability and energy efficiency than the original construction, including, but not limited to: • High performance exterior insulated glazing • LED lighting to reduce energy consumption and longer lifespan (less waste, lower maintenance). • Lighting control and occupancy sensors to turn off lights in rooms that are not occupied. • Higher efficiency HVAC equipment. • LED monitors consume less power than LCD monitors. • Higher efficiency BHS system. • Pre-conditioned Air (PCA) and 400hz systems on the passenger boarding bridges will reduce the need for diesel powered service equipment. 12. The Package 2 work is expected to last for 18 months in total and is divided into the 4 phases. The 2nd package of the terminal reconstruction is comprised of four phases: phase 2.1 ticketing and concourse (52 weeks), phase 2.2 corridor (10 weeks), phase 2.3 meet/greet hall (5 weeks) and phase 2.4 the rest (5 weeks). It is expected that after completion of phase 2.1 that area will be opened for operation, thus enabling a capacity increase. Component 2: Capacity Building of and Project Management by PJIAE 13. The component supports activities related to project management and capacity building for PJIAE. The component will support PJIAE in (a) project implementation, management, and monitoring and evaluation, including in respect to the environmental, social and fiduciary aspects of the Project; and (b) capacity building activities to PJIAE to improve airport resilience and air traffic safety. The activities will be defined based on the need’s assessment during implementation. The component will also finance training and operating costs required for these activities. 14. Air traffic safety improvement could be one of the areas of capacity building. In 2012, US Federal Aviation Administration (FAA) has assigned Sint Maarten an International Aviation Safety Assessment (IASA) Category 2 rating. According to the FAA announcement10, a Category 2 rating means a country either lacks laws or regulations necessary to oversee air carriers in accordance with minimum international standards, or that its civil aviation authority – equivalent to the FAA for aviation safety matters – is deficient in one or more areas, such as technical expertise, trained personnel, record keeping or inspection procedures. Meanwhile, ICAO plans to conduct a safety audit in 2019. Component 3: Capacity Building of and Project management by the Government of Sint Maarten 15. The component will support capacity building and project management activities for the Government of Sint Maarten. The component will support the GoSM on matters of project management and on capacity building in areas including airport governance and air traffic regulation, determined based on needs assessed 10 https://www.faa.gov/news/press_releases/news_story.cfm?newsId=13313 Page 32 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) during Project implementation. The component will also finance training and operating costs required for these activities. Component 4: Support of PJIAE Operations 16. The component will provide support to the operations of PJIAE through the financing of Select PJIAE Operating Expenditures so that PJIAE can continue PJIA’s operations without interruption during the reconstruction period. The PJIA operating expenditures financed by this component will be limited to expenditures incurred for the salaries and benefits of PJIAE personnel and other non-procurable operating expenditures including utilities (all of which shall be deemed as reasonable and agreed upon by the World Bank) up to the amount of part of the debt service payments that the PJIAE’s earnings before interest, taxes, depreciation, and amortization (EBITDA) cannot cover, during the period beginning October 31, 2019, or the date of the Bank’s notice to the Recipient confirming the Recipient’s and PJIAE’s fulfillment of the disbursement conditions for this component of the Project, whichever date is later, until the completion of the terminal construction works under Component 1 of the Project. Details on the considerations for Select PJIA Operating Expenditures that can be financed by this component, will be set forth in the Project Operations Manual. Expenditures proposed for financing under this component will be subject to the Bank’s prior verification, or verification by another party that is satisfactory to the World Bank, of the PJIA’s operating revenues and operating expenditures for the applicable period of withdrawal, and all eligible expenditures will be financed on a reimbursement basis. Page 33 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) ANNEX 2: Implementation Arrangements COUNTRY: Sint Maarten Sint Maarten Airport Terminal Reconstruction Project Project institutional and implementation arrangements 1. PJIAE will be the executing agency of the Components 1, 2 and 4 of the project and be responsible for implementation of all the technical tasks under the two components, such as preparation of designs, bidding documents, work supervision and contract management. PJIAE has mobilized a technical team to implement works and has already initiated some works such as cleaning and demolition, temporary terminal opening, and design preparation for the Package 2 terminal reconstruction. PJIAE has hired an engineering firm for the design preparation, supervision of the works, and coordination with various contractors under the Package 2. The technical team of PJIAE are considered sufficiently qualified to implement technically the proposed works and supervise the planned works. PJIAE is responsible for proving inputs related to Components 1, 2 and 4 for Operations Manual to NRPB throughout Project implementation. 2. PJIAE will be responsible for safeguard and fiduciary aspects of components 1, 2 and 4 of the project following the Bank’s safeguard and fiduciary policies. PJIAE will ensure compliance with financial management guidelines and procedures, procurement guidelines, social and environmental management. PJIAE, with a technical support of an engineering company or consultants, will manage safeguard and procurement process for the proposed work. PJIAE will manage and monitor the flow of the TF proceeds to ensure that the fund flow is made following the procedures acceptable to the Bank, including payments to contractors. Since this is the first World Bank engagement with PJIAE, their implementation knowledge of Bank operations is limited in terms of Bank fiduciary and safeguard policies. Accordingly, the Bank team will be providing guidance to PJIAE through supervision. 3. The National Recovery Program Bureau (NRPB) will be responsible for overall monitoring and reporting of project progress, implementation of Component 3, and coordination with the relevant government agencies. NRPB, a newly established agency under the GoSM in 2019, will monitor, evaluate, and report progress towards achieving the PDO as well as implement all activities under Component 3, including fiduciary aspects under the component. NRPB will prepare and maintain an Operations Manual throughout Project implementation, using the inputs from PJIAE on Components 1, 2 and 4. NRPB will closely coordinate the entire project implementation with the Ministry of Tourism, Economic Affairs, Transport and Telecommunication (TEATT) and other governmental agencies in the areas of civil aviation safety, customs, immigration, and quarantine, as well as, if necessary, the French government as PJIA also serves as a main airport for the French side of the island. NRPB will be the owner of all bank accounts for this project and be a co-signatory (with PJIAE) on the release of payments from such project bank accounts to contractors, suppliers and consultants. Page 34 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Financial Management – Components 1, 2, and 4 (PJIAE) 4. Risk assessment. The FM responsibilities for components 1, 2, and 4 of this project will be undertaken by PJIAE, whose financial statements are audited annually by a Big 4 international accounting firm. PJIAE is very experienced in accounting, reporting and managing construction projects but has no experience with World Bank-financed projects. The Finance Division of PJIAE will be responsible for the overall financial management aspects of components 1, 2 and 4 this project. Given that PJIAE is inexperienced with implementing World Bank-financed projects and applying World Bank financial management procedures, the overall financial management risk rating of this project is Substantial. Mitigating measures include hands-on support from the World Bank FM team to PJIAE, which aims to reduce this risk as implementation gets under way and PJIAE becomes more familiar with the financial management policies and procedures of the World Bank. 5. Staffing. The overall financial management responsibility of these project components will be undertaken by the Finance Division of PJIAE. The Director of Finance, who reports directly to the Chief Finance Officer, will have the overall responsibility for the financial management aspects of these project components. These project components will be incorporated into the daily work of the Finance Division, which is made up of a team of 14 individuals (i.e., chief financial officer, director of finance, accounting and reporting manager, procurement manager, senior clerks, clerks, etc.). The Bank’s FMS will provide hands-on training on the World Bank’s policies and guidelines to the FM staff. 6. Budgeting. A budget for all the activities of these project components for the entire implementation period will be prepared at the beginning of the project by PJIAE and reviewed and approved by the World Bank for reasonableness. This budget will be periodically reviewed and updated as needed to reflect the progress of implementation. Quarterly variance analysis (actual versus budgeted expenditures) should also be prepared and be provided as part of the quarterly progress reports. 7. Accounting and internal controls. Project transactions will be accounted for using PJIAE’s current accounting software (Exact) which will be backed up periodically. PJIAE currently prepares its own financial statements using accrual basis of accounting in accordance with International Financial Reporting Standards (IFRS) and the relevant provisions of Book 2 of the Civil Code applicable for Sint Maarten. However, for the purposes of this project, PJIAE will account and report all transactions under a modified cash basis in a separate entity created within Exact in order to reconcile with the disbursement information from the World Bank’s Client Connection system. The chart of accounts will be designed by sources of finance, project components, sub- components, activities and disbursement categories. The daily operations of the project will be guided by an operations manual which will incorporate the financial management procedures. The manual will be updated throughout the life of the project as needed to reflect the current procedures and processes. 8. Reporting and external audit. Unaudited Interim Financial Reports (IFRs), covering components 1, 2 and 4 of this project only, are required quarterly and should be submitted to the Bank within 45 days of each calendar quarter. Annual external audits commissioned by PJIAE and performed by acceptable (‘no objection’ from the World Bank) auditors are required with each audit covering one fiscal year (ending December 31). The annual project audit reports will only reflect the sources and uses of funds for components 1, 2 and 4 of the project and will not include normal operations of PJIAE. Project audit reports are due to the World Bank no later than six months after the end of each audit period. Page 35 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 9. Flow of funds arrangements. The following disbursement methods will be available: Advance, Reimbursement and Direct Payment; with Advance and Direct Payment being the primary methods of disbursement. PJIAE will be responsible for preparation and submission to the World Bank for all component 1, 2 and 4 project-related withdrawal applications requesting advances or documentation of expenditures. Advances from the World Bank will be provided to a Designated Account (DA-WB) maintained by PJIAE at the Centrale Bank van Curacao en Sint Maarten (CBCS). Another Designated Account (DA-EIB) will also be opened at CBCS and will be for all advances from EIB. Payments to vendors, contractors, and suppliers over US$ 500,000 will be paid directly from these two DA accounts or via Direct Payment (for the WB portion) from the WB to the contractor. Advances are not allowed for Component 4. 10. Some funds will also be periodically transferred from the DA-WB and DA-EIB to a separate pooled project bank account, to be opened at a local commercial bank, to finance payments less than US$500,000. NRPB will be the owner of all bank accounts (DA-WB, DA-EIB and project account) for this project and be a co-signatory (with PJIAE) on such bank accounts. 11. Advances are based on six-months cash forecast, and subsequently, quarterly Interim Financial Reports (IFRs) will be used for the documentation of expenditures. The minimum application size for Direct Payments and Reimbursements can be found in the Disbursement Letter. The overall disbursement arrangements will follow standard disbursement policies and procedures established in the Disbursement Guidelines for Investment Project Financing dated February 2017, and in the Disbursement and Information Letter of the project. 12. Disbursement for Component 1 and 4 will only take place after all the disbursement conditions for each component have been met. Page 36 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Figure 2: Funds flow of the Project – Components 1, 2 and 4 USD (payments over $500,000) Designated Account - EIB EIB USD (Central Bank) Luxemburg NRPB USD Project Account – EIB /WB (Pooled Account at Vendors, Contractors, Suppliers USD Commercial Bank) (Goods, Works and Services) Designated Account- WB USD NRPB WB USD (Central Bank) Washington, DC NRPB USD (payments over $500,000) Direct Payments (USD) WB EXACT Client Connection Accounting Washington, DC System IFRs PJIAE IFRs $ Funds Flow (Currency) Reporting System/Process PIU – Project Implementation Unit EIB – European Investment Bank WB – World Bank NRPB – National Recovery Program Bureau IFRs – Interim Financial Reports PJIAE – Princess Juliana International Airport Operating Company Page 37 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Financial Management – Component 3 (NRPB) 13. Risk assessment. The FM responsibilities for Component 3 of this project will be undertaken by the NRBP. The FM team at the NRPB is not yet operational as all FM functions at the NRPB are currently handled by FM personnel from the Interim Recovery Committee. Once the NRPB’s FM team becomes operational, an FM assessment will be performed on the NRPB to ensure that it can manage the FM functions for component 3. Given that NRPB is inexperienced with implementing World Bank-financed projects and applying World Bank financial management procedures, the overall financial management risk rating of this project is Substantial. Mitigating measures include hands-on support from the World Bank FM team to the NRPB, which aims to reduce this risk as implementation gets under way and NRPB becomes more familiar with the financial management policies and procedures of the World Bank. 14. Staffing. NRPB is currently in the process of hiring two FM staff for the NRPB with one being permanent and the other being a short-term consultant. Both of the FM staff are experienced finance personnel with only the short-term consultant having previous experience with Bank-financed projects. The Bank’s FM specialist will provide hands-on training on the Bank’s policies and guidelines to these FM staff. 15. Budgeting. A budget for all the activities of the project component for the entire implementation period will be prepared at the beginning of the project by NRPB and reviewed and approved by the World Bank for reasonableness. This budget will be periodically reviewed and updated as needed to reflect the progress of implementation. Quarterly variance analysis (actual versus budgeted expenditures) should also be prepared and be provided as part of the quarterly progress reports. 16. Accounting and internal controls. Project transactions for Component 3 will be recorded on cash basis accounting principles and will be maintained in the accounting system, QuickBooks. A separate profile will be established for this project in QuickBooks. Although the project will have an operation manual, the daily financial management functions of the project will be guided by a financial procedural manual used to govern all Bank-financed projects, managed by the NRPB. This manual was previously prepared by the IRC and will also be used by the subsequent NRPB. The manual will be updated as needed during the life of the project to reflect the current procedures and process. 17. Reporting and external audit. Unaudited Interim Financial Reports (IFRs), covering component 3 only, is required quarterly and should be submitted to the Bank within 45 days of each calendar quarter. One external audit commissioned by NRPB and performed by acceptable (‘no objection’ from the World Bank) auditors are required for one audit covering the entire life of project component 3. The one project audit report will only reflect the sources and uses of funds for Component 3 of the project. The one project audit report will be due to the World Bank no later than six months after the closing date of this project. 18. Flow of funds arrangements. The following disbursement methods will be available: Advance, Reimbursement, and Direct Payment, with Advance being the primary method of disbursement. Advances will be provided to the component 3-specific Designated Account (DA-3) maintained by the NRPB at the Central Bank of Curacao and Sint Maarten. Funds will be periodically transferred from the Designated Account to a segregated US dollar operating account to finance project activities. The operating account will be maintained at the Windward Island Bank Ltd. Page 38 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 19. Advances are based on six-months cash forecast, and subsequently, quarterly Interim Financial Reports (IFRs) will be used for the documentation of expenditures. The minimum application size for Direct Payments and Reimbursements can be found in the Disbursement Letter for the project. The overall disbursement arrangements will follow standard disbursement policies and procedures established in the Disbursement Guidelines for Investment Project Financing dated February 2017, and in the Disbursement and Information Letter of the project. Figure 3: Funds flow of the Project – Component 3 Project Account Vendors, Contractors, Suppliers USD (At commercial Bank) (Goods, Works and Services) Designated Account -3 USD NRPB WB USD (Central Bank) Washington, DC NRPB Direct Paym ents (USD) WB QuickBooks Client Connection Accounting Washington, DC System IFRs NRPB IFRs $ Funds Flow (Currency) Reporting System/Process PIU – Project Im plementation Unit WB – World Bank NRPB – National Recovery Program Bureau IFRs – Interim Financial Reports Procurement 20. Procurement will be carried out in accordance with World Bank Procurement Regulations for IPF Borrowers (July 2016, revised November 2017 and August 2018) (Procurement Regulations). A project procurement strategy for development (PPSD) was prepared by the client and describes how procurement in this operation will be structured to support the PDOs and to deliver value for money under a risk-based approach. The PPSD Page 39 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) provides adequate supporting market analysis for the selection methods that will be further detailed in the procurement plan. The mandatory procurement prior review thresholds detailed in Annex I of the Bank’s Procurement Procedure will be observed. All procurement procedures, including roles and responsibilities of different participating entities and units, will be defined within the project operations manual. 21. Procurement Plan. In accordance with paragraph 5.9 of the Procurement Regulations, the World Bank’s Systematic Tracking and Exchanges in Procurement (STEP) system will be used to prepare, clear, and update procurement plans and conduct all procurement transactions for the project. The first version of the procurement plan was prepared by the borrower in accordance with the results provided by the PPSD and was agreed with the World Bank. A summary of the PPSD will include the recommended procurement approach for higher risk or higher value contracts. • Civil Works. The project will finance civil works. This includes the Terminal Reconstruction Project. In addition to the primary building components, the general contractor will be responsible for coordinating the work and scheduling and providing site access of other contractors installing different equipment and systems. • Goods. Goods to be financed under this project include Baggage Handling System; Self-serve baggage drop; Electronic Visual Information Display System; Visual Guidance Docking System; Passenger Boarding Bridge; Security Screening Equipment; Hold room Seating; and furniture. • Non-consulting Services. Financial audit for the project will be financed as non-consulting service. • Consulting Services. The project will finance environmental and social safeguard consultants for PJIAE. • Operating costs. Operating costs refer to reasonable recurrent expenditures that would not have been incurred by the GoSM and PJIAE in the absence of the project. The project will finance operating costs needed for project logistical support, such as office supplies, publication of procurement notices, office and equipment maintenance and repair, communication, translation and interpretation, travel and supervision costs, banking charges, audits, as relevant, and other miscellaneous expenses directly associated with the Project. 22. Bidding Procurement Documents. The standard bidding documents of the World Bank will be used for all contracts subject to international competitive procurement and those contracts as specified in the procurement plan tables in STEP. For bidding processes with a national market approach, the bidding and request of quotations documents will be discussed and agreed with the World Bank. 23. Capacity Assessment. PJIAE, the main implementing agency, has an existing project management team with a proven track record of managing and delivering construction projects for airport and aviation related facilities. The project management team consists of a project director with over 40 years of aviation project delivery experience, supported by the various departments/divisions of PJIAE including technical division, air traffic services, operations, planning, passenger services, security, rescue, and firefighting and prevention. PJIAE has also contracted with an internationally-renowned engineering firm specialized in airport terminal constructions to supplement their internal management capacity. The Bank team will support PJIAE in all procurement processes and provide training in the Procurement Regulations of the Bank. Concerning the Page 40 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) contract management capacity, the PJIAE team has extensive experience in managing and establishing protocols for aviation related general construction contracts. These include policies and procedures, as well as to provide design management review, enforce quality and safety standards, construction oversight, including budget and schedule development, procurement and reporting. 24. Key Procurement Issues. The key issues concerning procurement for project implementation include: (i) the lack of prior experience of PJIAE implementing projects financed by the World Bank; ii) contractors from North America hesitant to participate in World Bank procurement process; iii) reduced availability of local labor; iv) aviation construction industry is very busy and may limit the response of contractors with required experience; and v) risk of multiple contractors working at the same time. Mitigation measures to deal with project specific procurement risks are being defined in the PPSD. 25. Frequency of Procurement Supervision. In addition to prior reviews, supervision is to be carried out by the World Bank. The capacity assessment of implementing agencies recommends annual supervision missions to visit the field to carry out post review of 1:10 procurement actions. 26. Main Procurement Activities. The project’s main procurement activities are listed in Table 1. The procurement method, lots, and market approach of each prior-review process will be finalized once bidding documents are prepared. Table 1: Procurement Activities No. Description Prior or post Market approach Procurement method review 1 Terminal Reconstruction Prior International Request for Bids Project Competition 2 Passenger Boarding Bridges Prior International Request for Proposal (PBB) Competition 3 Baggage Handling System Prior International Request for Proposal (BHS) Competition 4 Self-serve baggage drop Prior International Request for Proposal system (SSBDS) Competition 5 Security Screening Equipment Prior International Request for Proposal (SSE) Competition 6 Elevators Prior Single Source 7 Digital Signage (DS) Prior International Request for Competition Quotations 8 PBX Telephone Exchange Prior National Competition Request for Quotations 9 Furniture, Fixtures & Prior International Request for Appliances (FF&A) Competition Quotations 10 Hold Room Seating Prior Single Source Page 41 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Environment and Social Safeguards 27. The project will apply the Environmental and Social Standards (ESSs). The Project risk classification is Moderate, based on the type of project, nature of project activities and capacity of the Airport Authority and the NRPB to implement environmental and social safeguards. Project activities include construction of airport terminal interior facilities (new partitions, interior doors, restroom facilities, new stairs, interior finishes); conveying systems refurbish or replacement (elevators, escalators); plumbing repair (domestic water, waste, vents, storm drainage piping, sanitary fixtures, roof repairs); HVAC (electrical systems, including power distribution, lightning, fire alarm, communications system); baggage handling system (drivers and belts, ticket counters, securing screening systems, power distribution panels and controls); furnishing (facades includes walk-off-mats and window treatment); and the replacement of all four existing passenger boarding bridges (this includes new pre- conditioned air and 400Hz Ground Power Units). Proposed activities will be located within the existing terminal building / airport boundary. PJIAE carried out an environmental and social assessment for the proposed project. This project does not pose any indirect or long-term environmental or social impacts. The environmental and social risks and impacts from the proposed activities are temporary in nature and limited to the construction period. 28. To address any potential negative environmental and social impacts and risks of project activities, PJIAE will apply ESS1, ESS2, ESS3, ESS4, and ESS10. Labor Management procedures, Energy efficiency measures, mold spores monitoring and control measures, emergency response measures to address events including both- natural and man-made hazards and a Stakeholder Engagement Plan have been developed and were disclosed. The ESMP will be available at the PJIAE website. Works contractors will have in place their own C- ESMPs, with Codes of Conduct and mitigation measures derived from Project’s ESMP. ESS2 will address issues regarding labor; environment, occupational health and safety (EHS). Labor management procedures will be addressed in accordance to this standard. ESS3 will address pollution prevention and management as well as resources efficiency. The Airport terminal will be upgraded to endure Category 5+ winds and rain; full insulated roof to protect from sun heat; higher efficiency HIVAC equipment and LED monitors and lightning will be installed. ESS4 will address potential risks and impacts of the construction activities on the passengers and other airport users. Project’s ESMP includes measures to avoid/ minimize transmission of infectious diseases which may be associated with labor influx; mitigation measures for storage, handling, transportation and disposal of hazardous materials such as fuels will also be reflected in Contractors’ ESMPs. Mold remediation will be undertaken prior to the reconstruction of works financed under the project. PJIAE will engage with an international mold remediation contractor and an independent environmental consultant to monitor air quality and conduct relevant testing. The design of the reconstruction works includes the use of humidity and mold resistance materials (sheetrock, woodwork, etc.) throughout the terminal to prevent future mold issues. In addition, PJIAE will continue to address emergency events, both natural and man-made hazards, through its existing Emergency Response Plan. While no cultural heritage (superficial or sub-surface) has been identified that would trigger ESS8, the Works contract and Contractors’ ESMP will include a standard chance finds clause with corresponding processes and procedures. 29. ESS2 Labor and Working Conditions; will apply to ensure sound worker-management relationships and promote safe and healthy working conditions for both local and imported labor. The ESS2 will apply to all workers on the project including (a) direct workers; (b) contracted workers; (c) primary supply workers; and (d) community labor/community workers). ESS2 applies to project workers including fulltime, part-time, temporary, seasonal and migrant workers. The numbers of imported labor are not expected to be large. About 150 workers Page 42 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) will be engaged by the Contractor during the implementation of the project, and most of these workers are expected to be hired locally. The project will ensure that each worker is clear about the terms and conditions of their employment and remuneration and other relevant factors as per the national laws and detailed in ESS2. PJIAE has developed standalone labor management procedures applicable to the project based on Labor regulations of GoSM. Workers code of conduct, which contains obligations of all project staff will be prepared and adherence to the Code of Conduct will be a condition of employment for all the project staff. Youth labor. The Project will not employ a child under the age of 15. Youth under the age of 18 will not be engaged in any high-risk construction activities. The project utilizes an existing Grievance Redress Mechanism (GRM) to deal with those that involve workers employed by the Contractor, which the Department of Labor under the GoSM has. The Labor Affairs Agency, an executing division of the Department of Labor, is tasked with monitoring compliance with the labor legislation and settling complaints resulting from the labor relations between employers and employees. The GRM will make clear the handling procedures for sexual harassment and abuse cases. The GRM will be included in the Environment and Social Commitment Plan (ESCP). 30. The SEP and Information Disclosure are critical for keeping all the key users and stakeholders of the airport informed of the progress in the repairs leading to full operational capacity. A Stakeholder Engagement Plan (March 2019) has been developed and is included in the Environmental and Social Management Plan (ESMP). The PJIAE’s Engagement Plan has included discussions with Government agencies that provide oversight of the airport terminal, airliners representatives, ground transport operators, passengers (who currently use a temporary POD terminal), and vendors who operated business at the closed terminal. Other stakeholders are: airport staff, airline offices, Customs Department, Immigration and Border Protection Service, shop and restaurant owners in the airport, passengers and taxi operators. PJIAE has an existing stakeholder engagement mechanism in place which is detailed in the ESMP and describes the different stakeholders of the Project and how PJIAE currently engages its stakeholders including through: circulation of monthly newsletters, conducting monthly facilitation meetings and maintaining a news webpage. Reconstruction activities are being shared with the stakeholders to obtain their feedback. This process will be continued to include all PJIAE staff and during the implementation of the Project through its completion. Stakeholder consultations should be a two-way dialogue open to feedback, this in turn should be recorded and reported on as part of the monthly and quarterly reporting process. PJIAE’s Communication Officer will be responsible for the arrangement of the meetings and communications and implementing their SEP. The environment and social specialist will oversee the consultations related to social safeguards issues as well as monitor the implementation of the social safeguard instruments (the GRM, LMP and Codes of Conduct). 31. PJIAE has an existing grievance redress mechanism (GRM) in place to receive concerns and grievances from key stakeholders affected by the project and the public. The PJIAE will monitor an existing GRM to receive the complaints and will address all these complaints within a reasonable time, protect against retaliation and allow for escalation of complaints if not resolved by the GRM this should be reported to NRPB. A summary of the grievances received should be included in the monthly and quarterly reports. If grievances are repeated, unresolved or submitted by several people, this should be escalated to NRPB. The GRM should be broadly communicated to all stakeholders. In addition, the GoSM has a separate Grievance Redress Mechanism (GRM) to deal exclusively with those that involve workers employed by the Contractor for construction activities. PJIAE’S Communications officer at PJIA will be responsible for managing the project GRM. 32. Project’s Environmental and Social Management Plan will require close and careful monitoring during implementation. Project will be the first in Sint Maarten to follow the ESF. While NRPB will monitor PJIAE’s on Page 43 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) safeguards issues, the Bureau’s capacity to effectively monitor the environmental and social safeguard standards is yet to be built. PJIA will recruit an environmental and social specialist to ensure that project related environmental and social risks are appropriately monitored and mitigated, a condition for disbursement. PJIAE’s project site engineer will be responsible for the supervision of the contractors. In addition, contractors will be required to have, as part of their staff, an Environmental Health and Safety (EHS) Officer to work closely with the construction crews. PJIAE will also carry out regular trainings throughout project implementation. Contractors, PJIAE personnel, and key stakeholders will participate in training sessions addressing environmental and social risks and impacts awareness, ESS, and EHS guidelines. Page 44 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) ANNEX 3: Implementation Support Plan COUNTRY: Sint Maarten Sint Maarten Airport Terminal Reconstruction Project Strategy and Approach for Implementation Support 1. The strategy for implementation support (IS) draws on the risk profile of the project and aims to enhance PJIAE’s delivery of the proposed interventions. The Task Team Leader (TTL) of the project would be based at World Bank headquarters (WB HQ). The team supporting the TTL, would be a mix of personnel based at WB HQ and Country Offices in the region. The team will undertake supervision missions 2 to 3 times a year, with flexibility in the frequency of missions especially for the first semester given the launching of the bidding processes. Regular supervision by the Bank will be conducted to follow-up on project component progress and provide tailored support to GoSM and PJIAE to effectively implement the project. WB support will focus on the following areas: (a) Strategic: Implementation support missions will meet with the GoSM and PJIAE to: (i) review project activities, (ii) re-confirm strategic alignment of project activities to the PDO; and (iii) ensure the necessary coordination among respective stakeholders. (b) Technical: The World Bank project team will consist of technical specialists who will review and supervise the execution of project components, ensure the activities keep in-line with the PDO, and advise on adjustments to the design and procurement plan when necessary. The support will also focus on contract management and improving proficiency and efficiency in implementation according to Bank guidelines. (c) Safeguards: Bank environmental and social specialists will support PJIAE to apply the World Bank’s operational policies, procedures and good practice. These specialists will provide expert knowledge to appropriate staff and contractors to ensure the Bank safeguards are incorporated into the project and across all components and activities. These specialists will also conduct regular supervision on implementation of the safeguard instruments and provide capacity building of counterpart staff through hands on support and training on the ESF. (d) Fiduciary (Procurement and Financial Management): The Bank’s FM and procurement specialists will play a key role during the first phase of the project as it is the first time PJIAE has been working with the Bank. In general, the FM and Procurement specialists will provide timely, targeted training to PJIAE through periodic supervision missions during implementation. These specialists will help: (i) develop PJIAE’s knowledge and understanding of Bank rules and procedures; (ii) introduce PJIAE to Bank Procurement regulations and prepare them to apply them; (iii) help strengthen GoSM’s and PJIAE’s capacity to manage the flow of funds, accounting, and reporting, in line with FM guidelines; and (iv) support the GoSM and PJIAE in building its overall FM and procurement capacity to improve and facilitate project management (in the context of this project, and in general). Supervision of the project’s FM arrangements will be conducted based on the FM risk of the project and in response to GoSM and PJIAE’s needs. Procurement supervision will also be carried o ut periodically, preferably jointly with the regularly-scheduled Bank supervision missions. (e) Financial: Since PJIAE’s financial stability is a key for the successful implementation of the project, the team will include a financial specialist who will monitor and review PJIAE’s financial performance and ensure that PJIAE’s implementation capacity will be sufficient from the financial viewpoint. Page 45 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) (f) Client relations: The TTL will: (i) coordinate Bank supervision to ensure consistent project implementation, as specified in the legal documents (i.e. Grant Agreements, Project Operations Manual); and (ii) meet regularly with PJIAE to gauge project progress in achieving the PDO and address implementation roadblocks as they may arise. Page 46 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) ANNEX 4: Economic and Financial Evaluation COUNTRY: Sint Maarten Sint Maarten Airport Terminal Reconstruction Project Economic Evaluation 1. The project will contribute to accelerate the economic recovery of the entire island which highly depends on the tourism industry. In 2016, tourism accounted for 45 percent of Sint Maarten’s GDP and 73 percent of its foreign exchange revenues. In addition, activities in the transport, storage and communication sector also related to tourism contributed 11 percent of GDP. Currently, passenger traffic is only about 60 percent of that achieved pre-Irma and limited airport capacity would constrain traffic growth and island tourism recovery since temporary facilities operating from the ground floor of the terminal are unlikely to provide sufficient capacity to accommodate peak period demand as hotel recovery reaches 75 percent, perhaps in mid- to late-2019. The airport can thus become the bottleneck of the island’s tourism recovery. 2. The economic assessment estimated potential loss in tourism revenues due to delay in the terminal reconstruction and the recovery of passenger demand. Based on passenger traffic forecasts (provided by PJIAE) and data related to tourist average stay and expenditure (provided by the Tourism Bureau of the GoSM), the economic loss related to reconstruction of the terminal was estimated as reduction in tourism revenue in Sint Maarten. The following summarizes key assumptions of the estimation. • Passenger traffic forecasts during the reconstruction: Before the terminal reopening, passenger volume is estimated as 60 percent and 80 percent of the Pre-Irma (2016) level in 2019 and 2020 respectively. • Passenger traffic forecast after the reconstruction: The baseline scenario of departing passenger volume (enplaned passengers) assumes a steady increase in passengers without considering the capacity limitation due to the current unavailability of the terminal facilities. Thus, it was adjusted so that such an increase in passengers would coincide with the reopening of the terminal at the end of 2020. From that point on, the traffic would grow according to PJIAE’s estimations. • Passenger Traffic under the without-project scenario: It is assumed that the reconstruction delays for 2 years due to a lack of financial resources. Accordingly, the passenger traffic stays at 60 percent until the end of 2022 and then the traffic grows the same speed of the with-project scenario with a 2-year delay. • Number of tourists: Statistics show that approximately 60 percent of the passengers that arrive to Sint Maarten come as tourists. • Tourism expenses per tourist by air: Average stay of 8.4 nights and average expenditure of $101.69 per day. 3. Enplaned passengers would reach pre-Irma levels 4 years after the completion of the project in 2025. Based on the above assumption, the passengers will recover rapidly during the reconstruction period and further increase slowly after the reconstruction. This assumption is considered reasonable as the hotel industry recovery highly depends on the reconstruction of the airport and if the reconstruction clearly starts, investments to the hotel industry will go up as well. As a potential competitor of PJIA, another airport, Grand Case Airport, exists in the French side in the island and has a plan to extend its runway from 1,600m to 2,000m. However, even after the extension it will be able to accommodate only turboprops such as ATR 72, but not jet airliners, such as Boeing 737, connecting the US and Europe. Accordingly, there is very little possibility that a part of PJIA demand is transferred to the Grand Case airport. Page 47 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) Figure 4: Enplaned passengers, 2008-2018 (actuals), 2019 – 2040 (estimations with / without project case) 4. Economic assessment demonstrates that the project will provide significant economic benefits to Sint Maarten. The economic loss in the tourism revenue due to 2-year delay in the terminal reconstruction would be US$ 450 million with a 6 percent discount rate. The cost of the project for these calculations is the one corresponding to the essential works that remain to be funded, US$143 million, which includes the financing from the WB and EIB, as we all PJIAE’s own resources and insurance payments. These parameters yield Economic Internal Rate of Return of 131 percent and Net Present Value of US$309 million with a 6 percent discount rate. Financial Analysis 5. PJIAE operates the principal airport on the island of Sint Maarten. In 1997 the Council of Ministers (formerly Island Council) of Sint Maarten granted a concession to PJIAE, to operate the airport (following problems with the financing of the airport expansion in the early 1990s, which led to financial problems at the airport). The concession was initially given for a period of 20 years ending 2017 and since then was extended to 2030. The concession gives PJIAE the right to maintain, develop and operate the airport facilities as well as to conduct all financial and commercial activities related to the airport business on Sint Maarten. The concession can be revoked if PJIAE does not adhere to the regulations of the concession agreement. 6. The Government of Sint Maarten owns 100 percent of the airport holding company, Princess Juliana International Airport Houdstermaatschappij N.V. (PJIAH). PJIAH is treated under the law as a Government Owned Corporation, as 100 percent of shares of PJIAH are owned by the government. The Minister of Tourism, Economic Affairs, Transport and Telecommunication (TEATT) is the shareholder representative. PJIAH owns approximately 50 percent of the airport assets used by the operating company. PJIAE has a lease agreement with the Holding Company for the commercial use of the airport facilities (including buildings, etc.), and rent is paid from the operating company to the holding company for the use of the assets. PJIAE is a wholly-owned subsidiary of PJIAH. Page 48 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 7. PJIAE generates revenues through both aeronautical and non-aeronautical activities. Aeronautical charges include the usual landing, aircraft parking and passenger charges, but also include some air traffic management (ATM) services (ground, tower and approach – en route traffic is controlled from Puerto Rico). ATM services are provided from facilities within the airport (in the ATC tower). Aeronautical charges are approved by the Sint Maarten government, but there is no formal method setting profitability targets. 8. PJIAE is given the objective of being financially self-sufficient. PJIAE has traditionally not received direct subsidies from Government, and public service obligations are relatively limited. The airport has been self- financing, deriving its revenues from both aeronautical and non-aeronautical sources to cover its annual operating costs and finance charges. Under the terms of the past lease agreement, PJIAE N.V. is allowed to keep the Airport Departure Fee (ADF), which it collects on behalf of Government. In addition, government agencies (immigration and Customs) do not pay for the use of offices at the airport, which is another direct contribution to government. The company is also fully responsible for air traffic control. 9. Prior to the 2017 Irma and Maria Hurricanes, PJIAE was a profitable operation. In 2016 (the last full year before the hurricane hit), PJIAE handled in excess of 1.8 million passengers. Enplanements were around 860 thousand, a 3 percent increase over the previous year. The average growth of enplanements over the previous 5 years was around 3.5 percent annually with a steady positive trend. This reflected also into a positive trend of financial performance resulting in 2016 in revenues of US$65 million, a 3.2 percent increase over the previous year, and net income of US$5.1 million, a 2 percent increase over the previous year. 10. Hurricane Irma, a category 5 hurricane, hit the island on September 6, 2017, with winds of more than 185 mph (296km/h) leaving a trail of devastation throughout the country. During the landfall, the storm’s eye passed directly through Sint Maarten exposing it to the highest wind velocities in the storm. Irma was shortly followed by another smaller-scale hurricane, Maria, on 19th of September further damaging the country’s infrastructure. The terminal building and the air traffic control tower were severely damaged by wind and rainwater. Operations were provisionally restarted using tents (pavilions) and, by mid-December 2018, a section of the terminal was opened to handle arrivals and departures, albeit at a lower capacity. Traffic through these provisional facilities dropped to an average of about 30% of the pre-Irma traffic. Traffic will remain lower than pre-Irma level during the reconstruction period but had recovered to about 60% by the end of 2018. 11. As the financial situation of PJIAE has been significantly worsened due to the reduction in its revenue. Given the situation of lower traffic that PJIA airport is going through and the outstanding balance of existing bonds, the low capacity of the airport to service debt prevents from securing additional commercial financing on a project finance basis. Consequently, PJIAE requested a financing support to the GoSM. 12. Funds from the TF alongside funds from a loan by the European Investment Bank (EIB) are intended to fill the financing gap for the reconstruction program. The WB reached out to EIB to provide financing at concessional terms to complement the funds from the TF that is managed by the WB in order to address the US$100 million financing gap identified during the stakeholder meetings in October 2018. The financing from both the TF and EIB is channeled through the Government of Sint Maarten, that, in turn, plans to on-lend the funds to PJIAE at terms similar as EIB. The funding from TF may include a component for Technical Assistance to help PJIAE comply with WB conditions, such as Environmental and Social Safeguards. Page 49 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) 13. The financing is structured to reduce the impact during the reconstruction and address concerns of the existing bondholders. Not only the low interest rate, but also the long maturity and grace period will reduce the impact on cash flows during the reconstruction period. This is necessary given that lower traffic and lower revenues after Irma will put strain on the company’s cash flows to cover operating costs and service both the existing and the new debt, until the reconstruction is completed, and the terminal is restored to its nominal operating capacity. 14. Financial projections show that the proposed financing is sustainable. The financial projections are divided into two distinct periods: (i) reconstruction phase and (ii) return to normal operations. The financing package is sized to cover all the capital needs and to allow PJIAE to cover operating costs and debt service during this phase. However, during this phase, the cash generation is not sufficient to meet the revenue level required in the existing bonds’ indenture. Once the airport returns to normal operations, the revenue generation is projected to cover all operating expenses and debt service with satisfying the requirement of the bonds’ indenture. 15. The project is financially viable with a financial internal rate of return (FIRR) for the project estimated at 13 percent and a FIRR for the equity of around 23 percent. Despite the high initial investment and negative cash flows (after debt service) during the reconstruction period, the profitability during normal operations is high resulting in attractive FIRRs. The high level of equity FIRR results from a high leverage of the project and attractive terms of the debt (both the existing commercial bonds and the more concessional financing from TF and EIB). However, the Government of Sint Maarten, as sole shareholder of the airport, will likely realize a lower FIRR given that dividend distributions are limited by the indenture of the existing bond for as long as the bonds are outstanding. Page 50 of 51 The World Bank Sint Maarten Airport Terminal Reconstruction Project (P167974) ANNEX 5: Map COUNTRY: Sint Maarten Sint Maarten Airport Terminal Reconstruction Project Figure 5: Sint Maarten – Saint Martin map Page 51 of 51