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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA-35381) ON CREDITS Report No: ICR IN THE AMOUNT OF SDR 11.8 MILLION (US$ 15.0 MILLION EQUIVALENT) AND SDR 3.4 MILLION (US$ 5.0 MILLION EQUIVALENT) TO BOSNIA AND HERZEGOVINA FOR A COMMUNITY DEVELOPMENT PROJECT AND ADDITIONAL FINANCING Human Development Sector Unit South East Europe Country Unit Europe and Central Asia Region March 31, 2010

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of March 18, 2010) Currency Unit = Convertible Mark (BAM) BAM 1.00 = US$ 0.71 US$ 1.00 = BAM 1.42 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF Additional Financing BH Bosnia and Herzegovina CAS Country Assistance Strategy CDP Community Development Project ETF Employment and Training Foundation DCA Development Credit Agreement DEF Development and Employment Foundation FBH Federation of Bosnia Herzegovina FSD Foundation for Sustainable Development FMS Financial Management Systems FOA Financial and Operational Assessment FOAP Financial and Operational Action Plan FY Fiscal Year GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDA International Development Association IMF International Monetary Found KPI Key Performance Indicator LACI Loan Administration Change Initiative LDF Local Development Foundation LDP Local Development Project LIP First Local Initiatives Project LIPII Second Local Initiatives Project LSMS Living Standards Measurement Survey MIS Management Information System MoT Ministry of Treasury M&E Monitoring and Evaluation MoF Ministry of Finance NGO Non Governmental Organization OM Operational Manual PAD Project Appraisal Document PGA Performance Grant Agreement PIU Project Implementation Unit PWEP Energy Public Works and Employment Project RS Republika Srpska SA Special Account SEE South East Europe SOSAC Social Assistance Adjustment Credit TA Technical Assistance TOR Terms of Reference WB World Bank Vice President: Philipe H. Le Huerou Country Director: Jane Armitage Sector Manager: Kathy A. Lindert Project Team Leader: Maniza B. Naqvi ICR Team Leader: Richard Florescu

3 BOSNIA AND HERZEGOVINA COMMUNITY DEVELOPMENT PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners..20 Annex 1. Project Costs and Financing...21 Annex 2. Outputs by Component...22 Annex 3. Economic and Financial Analysis...24 Annex 4. Bank Lending and Implementation Support/Supervision Processes...25 Annex 5. Beneficiary Survey Results...26 Annex 6. Stakeholder Workshop Report and Results...26 Annex 7. Summary of Borrower s ICR and/or Comments on Draft ICR...33 Annex 8. Comments of Co-financiers and Other Partners/Stakeholders...42 Annex 9. List of Supporting Documents...43 MAP IBRD 33375

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5 A. Basic Information Country: Bosnia and Herzegovina Project Name: Community Development Project Project ID: P L/C/TF Number(s): IDA-35380,IDA ICR Date: 03/31/2010 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: XDR 15.1M Environmental Category: F STATE OF BOSNIA AND HERZEGOVINA XDR 11.8M Disbursed Amount: XDR 15.1M Implementing Agencies: ODRAZ; Development Employment Fund The RS IDB-Development and Employment Fund Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 12/20/2000 Effectiveness: 03/26/ /26/2002 Appraisal: 04/23/2001 Restructuring(s): Approval: 06/26/2001 Mid-term Review: 04/17/2004 Closing: 03/31/ /31/2009 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Moderate Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory i

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General water, sanitation and flood protection sector Other social services Primary education Roads and highways Sub-national government administration Theme Code (as % of total Bank financing) Conflict prevention and post-conflict reconstruction Municipal governance and institution building Participation and civic engagement Rural services and infrastructure Social safety nets 22 8 E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Johannes F. Linn Country Director: Jane Armitage Christiaan J. Poortman Sector Manager: Kathy A. Lindert Michal J. Rutkowski Project Team Leader: Maniza B. Naqvi Maniza B. Naqvi ICR Team Leader: ICR Primary Author: Richard Florescu Richard Florescu F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Project Development Objectives (from Project Appraisal Document) ii

7 1. Primary objective: improvement of basic services and facilities (through investments in non-revenue generating socially oriented projects and programs) for low-income and poor communities in under-served municipalities. 2. Secondary objective: improvement of governance and capacity of local governments to deliver services to the poor through better partnerships between poor communities and their local governments in investment identification and decision making. The project is also aimed at building the capacity of municipalities to lead community development processes, thus increasing the voice of local communities in investment planning. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised. (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Number of subprojects identified in participatory approach and implemented. Value 502 subprojects quantitative or None (281 in FBH and subprojects subprojects Qualitative) 221 in RS) Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original Indicator. (incl. % OVER-ACHIEVED. The AF added a target of 60 new sub-projects achievement) Indicator 2 : Quality of work. Value quantitative or Qualitative) NA NA NA NA Date achieved 03/31/ /31/ /09/ /30/2009 Comments (incl. % achievement) Original Indicator. This indicator was not defined and hence it was difficult to measure. However considering that all the sub-projects continue to produce effects in one or more years after completion, it can be considered as acheived. Quality and quantity of services delivered to beneficiaries. Indicator 3 : Value Refer to Indicator 9, 10, Refer to Indicator Refer to Indicator quantitative or NA 11 9, 10, 11 9, 10, 11 Qualitative) Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original indicator. ACHIEVED. Monitored by 3 key performance sub-indicators: (incl. % i) one for quality of serv in terms of impact [KPI 9], ii) one for quantity in terms achievement) access to municipal serv [KPI 10], iii) one for access to social serv. [KPI 11] Indicator 4 : Level of employment Value quantitative or Qualitative) NA NA NA NA Date achieved 03/31/ /31/ /09/ /30/2009 iii

8 Comments (incl. % achievement) Indicator 5 : Value quantitative or Qualitative) Original Indicator. CDP supported investments in non-revenue generating socially oriented programs. The civil works contracts contributed to maintaining employment at their existing levels. The in-kind citizens participation was only temporary. Number of poorly developed municipalities implementing subprojects identified in participatory approach. None 80 municipalities NA 88 of poorest municipalities Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original Indicator. (incl. % ACHIEVED. achievement) Indicator 6 : Demonstrated consultation mechanism for meeting communities needs. Value quantitative or Qualitative) No consultation mechanisms in place. Conduct Participatory Community Assessments (PCAs) Establish Community Action Groups (CAGs). NA 60,000 citizens involved in PCAs, in all participating municipalities. 6,000 citizens members of the CAGs, in all participating municipalities. Date achieved 03/31/ /30/ /09/ /30/2009 Comments Original Indicator. (incl. % ACHIEVED. achievement) Indicator 7 : Collection of user-fee charges. Value quantitative or Qualitative) NA NA NA NA Date achieved 03/31/ /31/ /09/ /30/2009 Comments (incl. % achievement) Indicator 8 : Value quantitative or Qualitative) Original Indicator. CDP was meant to support non-revenue generating sub-projects. However, the interviews revealed that the collection of user-fee charges was not a problem even for poorest communities. Level of satisfaction with municipal services. In FBH 51.6% of respondents and 61.8% in RS considered that NA NA NA their living conditions improved due to delivery of municipal services. Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original Indicator. iv

9 (incl. % achievement) Indicator 9 : Value quantitative or Qualitative) Source: Impact Evaluation Study. September 2006 Improvement of quality of services provided to beneficiaries. On average 3 hours spent by residents of rural communities to get to schools, health services, markets. 326 regular lines of public transportation. On average 1.5 hours spent. 450 regular lines of public transport. NA In the FBH 1.5 hours spent to get to schools, health services, markets. In the RS 60 min. 496 lines of public transportation (368 in FBH and 128 in RS). Date achieved 03/31/ /31/ /09/ /30/2009 Comments (incl. % achievement) Original Indicator. OVER-ACHIEVED. However it is noted that this indicator is just an imperfect proxy that does not measure the quality of accessed services (health, education). Indicator 10 : Increase of quantity (access) to basic services provided to beneficiaries. Value quantitative or Qualitative) 7,000 km of all season local roads. 110,000 households have access to all season local roads. 95,000 households have regular 24h water supply 10% increase in km of all season roads. 150,000 households have access to all season roads. 15% increase in no. of households with regular water supply. NA 8,149 km of all season local roads (3,834 km in the FBH and 4,315 in RS). 200,214 households have access to all season local roads (135,214 in the FBH and 65,000 in RS). 119,209 households have 24h water supply (82,318 in the FBH and 36,891 in RS). Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original Indicator. (incl. % OVER-ACHIEVED achievement) Indicator 11 : Improved access of social infrastructure in participating municipalities. Value quantitative or Qualitative) 137 playgrounds. 200 playgrounds. 141 operating libraries, 200 active centers youth, internet, culture of social sport centers. infrastructure. 15,000 of active members 20,000 active of sport, culture clubs members. and associations. NA 187 playgrounds (125 in the FBH and 62 in the RS). Over 219 operating libraries, youth, internet, culture, sport centers. Active members 44,220 (14,220 in the FBH and about v

10 30,000 in RS). Date achieved 03/31/ /31/ /09/ /30/2009 Comments (incl. % achievement) Original Indicator. ACHIEVED. (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Level of co-financing (as % of IDA credit) from Borrower (Government, canton, municipality, community/citizens). Overall level of cofinancing was 15% form IDA 60.6% of IDA NA NA credit. credit (57.4% in FBH and 75.4% in RS. Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original Indicator. (incl. % OVER-ACHIEVED. achievement) Indicator 2 : Local governments implementing systemic Participatory Budget Planning (PBP). Value (quantitative or Qualitative) 3 municipalities apply PBP systematically. 20% of budget investments made following PBP practices in the FBH and 8% in RS. NA 20 municipalities use PBP practices systematically. 70% of budget investments made using PBP practices in FBH and 50% in RS. 32 municipalities use PBP systematically (14 in the FBH and 18 in the RS). 70% of budget invest made using PBP in FBH and 50% in RS. Date achieved 01/09/ /31/ /30/ /30/2009 Comments New Indicator, informally introduced on the occasion of AF (Project Paper, (incl. % November 2006). ACHIEVED. achievement) Indicator 3 : Average cost of subprojects. Value (quantitative or Qualitative) NA US$ 50,000/ subproject NA US$ 75,582/ subproject Date achieved 03/31/ /31/ /09/ /30/2009 Comments Original Indicator. vi

11 (incl. % achievement) ACHIEVED G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 12/18/2001 Satisfactory Satisfactory /21/2002 Satisfactory Satisfactory /16/2002 Satisfactory Satisfactory /02/2003 Highly Satisfactory Highly Satisfactory /21/2003 Highly Satisfactory Highly Satisfactory /28/2004 Satisfactory Satisfactory /16/2004 Satisfactory Satisfactory /04/2005 Satisfactory Satisfactory /09/2005 Satisfactory Satisfactory /26/2005 Satisfactory Satisfactory /01/2006 Satisfactory Satisfactory /10/2006 Satisfactory Satisfactory /27/2006 Satisfactory Satisfactory /09/2007 Satisfactory Satisfactory /03/2008 Satisfactory Satisfactory /24/2008 Satisfactory Satisfactory /24/2009 Satisfactory Satisfactory /31/2009 Satisfactory Satisfactory H. Restructuring (if any) Not Applicable vii

12 I. Disbursement Profile viii

13 1. Project Context, Development Objectives and Design The Community Development Project (CDP) was approved on 26 January The International Development Association (IDA) Credit was signed on October 19, 2001 and it became effective on March 26, An Additional Financing was approved on January 9, 2007 for which the IDA Credit was signed on June 5, 2007, becoming effective on November 2, Context at Appraisal Country background. Bosnia and Herzegovina (BH) is a post-war country and, as envisaged in the Dayton Peace Agreement, BH evolved into a single sovereign state with a decentralized administrative structure. The State of Bosnia and Herzegovina is the central authority and the Federation of Bosnia and Herzegovina (FBH henceforth referred as the FBH) and Republika Srpska (RS) are its two constituent Entities. [For the purpose of easy reading of the ICR, the reference to the two Entities will be listed in alphabetical order]. The two Entities at the time of appraisal and to date are politically, administratively, and fiscally autonomous. They had and today have different governance structures: the Federation is decentralized, being composed of 10 Cantons with significant fiscal authority and their constituent municipalities. The RS is centralized, with relatively few functions decentralized to its constituent municipalities and no mid-level governments. Following the end of the devastating war, BH launched an intensive and ambitious recovery program (Priority Reconstruction and Recovery Program endorsed by the BH in 1995). The Program relayed on international technical and financial assistance, with a particular focus on rebuilding the infrastructure damaged by the war and securing long term peace. By the end of 2000, most of the road, telecom, power, water and educations services were back in place, close to the pre-war availability levels. During the first four years of reconstruction, BH registered strong (but less sustainable) economic growth rates (69 percent in 1996, 30 percent in 1997, 13 percent in 1998 and 10 percent in 1999 affected by Kosovo crisis). This growth was accompanied by significant increases in the income and welfare of the population, with per capita incomes more than doubled, from US$456 at end of 1995 to US$1,080 in However, most of the population was still worse off than before the war with high regional disparities present both on economic growth and welfare. Half of the population of the RS was below the poverty line and substantial differences existed among the FBH s cantons, with Sarajevo and West Herzegovina having the lowest poverty incidence. Sector background. The rebuilding of the damaged infrastructure was initially supported by a series of IDA financed projects including the Emergency Public Works and Employment Project (PWEP P045310), whose objective was to improve infrastructure damaged by the war and to create short-term jobs through grant financing of small scale infrastructure projects. The PWEP was largely based on a social fund model with municipalities able to apply for project financing in accordance with clear eligibility and appraisal criteria. The project successfully achieved its objectives. The Community Development Project (CDP) was designed as a follow-up operation built on the PWEP implementation capacity, providing grants to communities in under-served and low-income municipalities. The CDP complemented the Local Development Project (LDP) that strengthened the institutional and financial capacity of the more developed local governments and piloted a credit line as a source of long-term financing for infrastructure in creditworthy municipalities.

14 The CDP aimed to address the following strategic sector objectives: Strengthening the institutional capacity of poor municipalities to work with their communities, rather than creating this capacity in a Social Fund type of institution for this purpose; Focusing on building trust and cohesiveness at the local level between government and citizens through contractual arrangements on governance issues; Strengthening mechanisms for community participation in service delivery and increasing local government transparency and public accountability; and Creating the possibility of channeling funds directly to poor communities for communitybased initiatives, including minority areas or in support for refugees return in areas excluded under the Lautenberg provision, if demonstrated that these groups would be direct beneficiaries. Rationale for World Bank assistance. The rationale for a new IDA financed operation derived from the need to continue the improvement of the infrastructure focusing on poor communities, not targeted by the two previous projects (PWEP and LDP). The successful implementation of these projects provided confidence for continuing the Bank s support within the framework of social investment lending instruments. The approach used for the CDP, differed from the PWEP in the sense that it included a wider range of decision makers in the implementation of the works and management of resources. This approach provided more appropriate mechanism to work with municipalities and strengthen their capacities to better target programs and projects to low-income and under-served communities. The Project was designed as a performance grant operation to municipalities. The Project s focus on the poorer municipalities and communities was also considered as a rationale for creating the enabling environment for safe and viable conditions under which people could return home and rebuild their lives. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objectives of the project, as listed in the PAD, were: Improvement of basic services and facilities for low-income and poor communities in underserved municipalities (through investments in non-revenue generating socially oriented projects and programs). Improvement of governance and capacity of local governments to deliver services to the poor through better partnerships between poor communities and municipalities in investment identification and decisions. The Project was to build the capacity of municipalities to lead community development processes, thus increasing the voice of local communities in investment decisions. The Key Project Outcome Indicators, originally approved, were as follows: (i) Number of subprojects created; (ii) Quality of work; (iii) Quality and quantity of services provided to beneficiaries; (iv) Level of employment; (v) Number of final municipalities; (vi) Demonstrated consultations mechanisms for meeting communities needs; (vii) Collection of user-fee charges; and (viii)level of satisfaction with municipal services. 6

15 1.3 Revised PDO (as approved by original approving authority), Key Indicators, and Reasons/justification The PDO was not revised during project implementation. An Additional Financing (AF) credit in the amount of US$5.0 million equivalent was approved in The PDO remained the same with the AF. The AF was approved because of the high demand for financing of a higher number of identified eligible sub-projects and because of the satisfactory performance of the original project. At the time, some of the Key Indicators were informally revised, to better reflect the results that could be attributed to the Project. Since then, the following additional outcome indicators were also monitored until the Project closed: (i) Improved access to basic services (water supply, local roads) in poor communities, in participating municipalities; (ii) Improved quality of basic services (water supply, local roads) in participating municipalities; (iii)capacity of participating municipalities for systemic participatory budget planning (PBP); and (iv) Improved access and quality of social infrastructure in participating municipalities. 1.4 Main Beneficiaries The PAD included the following beneficiaries: poor municipalities and their communities were jointly eligible for receiving performance grants based on joint proposals submitted to Project Implementation Units (PIUs). Thus the Project focused on: Those municipalities and communities which were not eligible under the LDP (e.g. those which were poor, badly managed and undeveloped); Poor municipalities, which had been categorized and identified as the poorest, through a consensus from a range of stakeholders; and from these municipalities, those which demonstrated interest in participating in the Project; Municipalities with a high degree of damage and displacement, and where people started to return; and Minority communities who were poor within the municipalities. 1.5 Original Components (as approved) The Project aimed at improving the quality of basic infrastructure and services in poor communities with low-income municipalities, while seeking to strengthen their institutional and financial capacity to manage such services over the long-term. The scope and content of the components remained unchanged with the additional financing (see Section 1.7). To achieve this, the following components were included in the Project: Component 1: Performance based Grant Agreements (US$15.31 million equivalent or 86.85% of total project cost at appraisal). This component provided grants as a mechanism to support nonrevenue generating investments to low-income municipalities and their poor communities. It focused on improving service delivery, cost recovery, financial management capacity of local governments, public accountability, and community participation. The grant applications were to support investments with high social benefits such as: water supply, rural roads, bridges, schools, clinic, market places etc, or services such as maintenance, waste collection, community recreation, parks, lighting, day care etc. Component 2: Institutional Capacity Building (US$0.75 million equivalent or 4.25% of total project cost at appraisal). Given the successful experience of the Public Works and Employment Project, the municipalities were considered to be a key implementing partner. Hence this component 7

16 was intended to build capacity at municipality levels to reach poor clients, through strong partnerships with communities in identifying, implementing, and maintaining non-revenue generating investments. The preparation of proposals for performance grants and the completion of the contractual agreements were considered to be central to the participation of communities in decision making and governance strengthening. Component 3: Project Implementation (US$1.57 million equivalent or 8.90% of total project cost at appraisal). This component financed the costs of the implementing agencies. The Project was designed to be implemented by two implementing agencies (PIUs) - one in the Federation and the second in the RS. These two PIUs were also responsible for implementation of the PWEP, in partnership with municipalities, citizens associations, and NGOs. The PIUs were responsible for coordinating project implementation, monitoring the activities and their results, and carrying out financial management and procurement obligations. 1.6 Revised Components No revision of the project components was conducted during the project life. 1.7 Other significant changes Additional Financing (AF). The Additional Financing for SDR 3.4 million (US$ 5 million equivalent) increased the amounts allocated to project components, but the components remained unchanged. Component 1: Performance based Grant Agreements (US$20.31 million or 85.95% of revised total projects costs) Component 2: Institutional Capacity Building (US$1.25 million or 5.29% of revised total projects costs) Component 3: Project Implementation (US$2.07 million or 8.76 % of revised total projects costs) Extension of closing date. The Credit s closing date was extended four times as follows: Original Project. Although the activities of the original project were completed by the initial credit closing date (March 31, 2005), two subsequent closing date extensions (first extension until August 31, 2006 and second extension until December 31, 2006) were granted to bridge the AF, whose effectiveness was significantly delayed due to the late formation of the new governments, following the October 2006 elections. The extension was for a total of 54 months Additional Financing. The Credit for the AF closing date was initially set for August 31, 2008, but given the delays in effectiveness its closing date had to be extended by 12 months, until August 31, 2009 to allow sufficient time to complete implementation. 8

17 2. Key Factors Affecting Implementation and Outcomes The project did not encounter factors that had a significant impact on its implementation and outcomes. 2.1 Project Preparation, Design and Quality at Entry The Implementation Completion and Results Report (ICR) team rates design and quality at entry Satisfactory. The project objectives, as well as its design, were relevant to the country s overall situation in the post-conflict period, when reconstruction was the first priority. Also, the Country Assistance Strategy dated June 2000 acknowledged reconstruction as one of the main priorities. The project supported this CAS priority by: (i) strengthening and consolidating the governance arrangements for creating a solid foundation for broad-based self-sustaining growth and democratic participation, and (ii) building social sustainability by establishing affordable and equitable social services. The Project s structure was kept simple with only three components, most of the project funds being directed to the first component (approximately 86 percent including AF), supporting the performance grants to low income municipalities and their poor communities. The other project components were designed to support the proper implementation of the first component, including complementary activities that enabled the proper identification of the targeted municipalities, institutional capacity building, and development and enhancement of the participatory process. The design of the CDP drew lessons from previous Bank-financed interventions in the sector, including by making important changes in terms of targeting and process approach. Thus, the CDP targeted weak municipalities and their poor communities, and proposed an approach that promoted citizens participation in the decision-making process in municipal investment planning and financing, while the PWEP targeted the most developed municipalities that identified and proposed projects by themselves, as they were identified by their boards. The Implementation Completion Report for the PWEP provided several key lessons which guided the design of the CDP, such as: (i) investments in infrastructure have to be based on criteria including sustainability, social, economic and environment impacts; (ii) need for improving the decision making mechanisms in the identification of investments at the municipal level, so that they are inclusive of communities and provide conditions for sustainable local level institutions; and (iii) the institutional capacity building process is key to local development and the provision of services in an efficient, equitable, and sustainable manner. These lessons, were discussed during the CDP preparation, in a consultation workshop held in Sarajevo (September 2000), which recommended that the following principles be considered (among others) for the design of the CDP: (i) education of all the participant stakeholders about the project; (ii) small financial support be provided to the unskilled communities for the preparation of their proposals; (iii) flexibility should exist in relation to the amount available per sub-project; (iv) particular attention be paid to the slow pace implementation sub-projects to prevent the loss of people commitment to the sub-project; and (v) education, capacity building and administrative processes used for the PWEP be applied to the CDP as well, with special emphasis on transparency and accountability. The implementation was carefully structured to enable a pilot phase to be conducted in the beginning of project life, in 20 municipalities (10 in each Entity) before the full scale project launch. The pilot was undertaken to check the suitability of the proposed design features related to the community participation in the identification of needs and establishment of priorities, and the feasibility of the co-financing requirements. The good results obtained in the pilot phase confirmed the appropriateness of the design, revealing a great interest for the participatory process, as well as strong willingness of the citizens for contributing (both cash and in kind) to the sub-projects. 9

18 Risk Assessment. The proper assessment of the risk factors that could have impeded the project implementation and sustainability as well as the appropriate identification of the related mitigation measures, contributed to the successful implementation of the project. Three critical factors that could have affected the project sustainability were identified: poor institutional capacity at the local level, financial constraints, and legal impediments. To prevent the possible adverse impact of these factors, several risk mitigation measures were identified, considered in project design, and monitored during implementation such as: (i) provision of technical assistance to the municipalities; (ii) enhancement of participatory processes to build up ownership and enable the mobilization of community contribution; and (iii) enabling legal framework for the signing of the contracts for services and civil works, jointly by the PIUs, municipalities, contractors and communities. 2.2 Implementation The ICR mission rates implementation as Satisfactory. The project was successful in delivering most of its outputs under the three components and achieving all of its expected outcomes. The Project was coordinated by two separate implementation units, one in the FBH and one in the RS, both of them established as Government agencies. In the FBH, the implementation was undertaken by the Foundation for Sustainable Development (FSD/ODRAZ abbreviation in local language), which resulted from the merger of two other previously operating foundations: Employment and Training Foundation and Local Development Foundation. FSD has been coordinated by a Board of Executive Directors, chaired by the Minister of Finance and comprising of seven Ministers from the line Ministries with responsibilities relevant to this project. The Board met regularly and provided policy guidance and approved the major decisions related to project implementation. In the RS, the Project was implemented by the Development and Employment Fund (DEF), previously known as Employment and Training Foundation. During project implementation, the DEF was integrated within the structure of the RS Investment and Development Bank (publicly owned banking institution), reporting to its Management Board. The above-mentioned foundations (both previous and newly emerged) had extensive experience in the implementation of World Bank-financed projects, so that no particular efforts were required to develop implementation capacity at the beginning of the project life. They were properly staffed in terms of number and technical expertise, for the entire duration of the project implementation. Both implementation units (FSD and DEF) continue to function, currently implementing similar type of programs with financial support from Entities budgets. A Mid Term Review (MTR) was carried out during the period March 15-April 17, The MTR was mainly seen as an in-house joint learning exercise for a team of project stakeholders, including the staff from the implementing agencies, local consultants, and municipalities, and was targeted to the future actions that were to be implemented in the second part of the project life. As part of the MTR, a public opinion survey was conducted among the beneficiaries of selected sub-projects. Some of main conclusions of the MTR are selectively listed below: Project beneficiaries were mostly satisfied with the results achieved in infrastructure subprojects and considered these achievements as positive for restoring hope for better life. The participatory approach for the identification and prioritization of community needs was extremely successful, and represented a remarkable departure from the previous PWEP Project. 10

19 Apart from the tangible benefits of improved infrastructure, the community participation promoted by the CDP facilitated the process of reintegration of people into local communities and municipalities. Participation of community and municipality stakeholders was higher at the stage of subprojects identification and lower at the stage of the decision making during the implementation of the sub-projects. The report made also several recommendations, which were considered during the remaining project implementation period, including the AF. Over the life of the project, the implementation performance (including AF) was satisfactory. Disbursements were low in the first two years of project life due to the lengthy processes of consultations at community levels, but this did not affect the overall project performance. Thus, by the time the AF was approved, the CDP had fully disbursed the initial allocation of US$15 million, and basically completed all the planned activities. Notably, due to the evolution of the exchange rates and strengthening of the Euro, the credit amount SDR converted in dollar equivalent became US$17.32 million (USS$2.32 million higher than initially anticipated), which resulted in the implementation of a higher number of sub-projects. As noted earlier, the AF was approved in November The request was made as a result of the high demand from the participating municipalities and their communities for financing a higher number of sub-projects in the pipeline, which although eligible, could not be supported by the CDF initial allocation. The implementation arrangements for the AF were the same as the ones in place under the original project. A total of 502 sub-projects were financed in 80 of the poorest municipalities, covering a wide range of small investment needs in utility and social infrastructure and services areas. Initially, a number of 400 sub-projects were planned to be implemented. All the sub-projects were identified, prepared, and implemented using a full participatory approach, involving more than 60,000 citizens in the consultations held at various stages of sub-project cycle. This led to a significant increase in social capital and stability at the community level, as well as to the increased awareness of citizens about their rights and obligations. Thus, the CDP participatory procedures were internalized in the regular activities of the municipalities, and also promoted a high level of co-financing from the municipalities, communities, and citizens. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design, implementation, and utilization of M&E is rated Moderately Satisfactory. Design: Besides the key performance indicators initially considered for monitoring the project results, the PAD included a larger number of performance output indicators. Most of the key performance indicators were appropriate to measure the PDOs. However, some of the indicators such as: quality of work, level of employment and collection of user-fee charges, remained non-measured until the end of the project implementation, either because they were not clearly defined or data was not available. For these indicators, the MTR Report (2004) and Impact Assessment Study (2006) provided some progress information, as perceived by the stakeholders and beneficiaries interviewed. Given the above mentioned deficiencies, the M&E section was rated Moderately Satisfactory. Other selected indicators were regularly monitored during the project implementation (as part of the ISRs). When the AF was approved, some of the ISR indicators were detailed to be more relevant for assessing the PDOs. These were systematically updated until the credit closing date. The Results 11

20 Framework Analysis section of the Datasheet presents the key performance indicators (as initially approved), their baseline and target values (as defined during the early stages of project implementation) and their final values (at ICR time), which were used for the evaluation of the achievement of PDOs (Section 3.2 of the ICR). Implementation and utilization: The M&E was based on fairly complex management information systems (MISs) developed by the PIU in each Entity. These MISs incorporated data resulting from the day to day implementation reports, periodical reports, supervision missions, and internal and external evaluations, and proved to be useful sources of information in the final evaluation conducted at the ICR stage, and for decision making during implementation. In the FBH, the implementing agency (FSD/ODRAZ) opened and maintained a Web Page ( in two languages (local and English), where rich information about the CDP has been presented. Thus, information regarding project features, procedures, implementation progress, sub-projects, and related contracts (values, workload, co-financing) is posted. In the RS, the implementing agency (DEF) has in its MIS a significant amount of information related to the participatory processes organized at the municipality and community levels. 2.4 Safeguard and Fiduciary Compliance Environmental Safeguard Compliance Review The CDP was categorized as a Financial Intermediary (FI) project. Since the Project was designed to support non-revenue generating community-level investments that were not precisely identified at the time of Project Appraisal, each sub-project was to be screened during appraisal of the individual subprojects. The procedures were outlined in the Project Operational Manual - POM (the section on Environment corresponding to an Environmental Management Framework). In addition, Annex 11 of the PAD included Terms of Reference (ToR) for environmental assessment procedures during sub-project appraisals. Approval of the ToR was a condition of effectiveness. The ToR included a checklist for a number of impacts, along with suggested mitigation measures for the different type of projects such as water supply, minor construction, rural roads, small-scale irrigation, domestic wastewater and sewerage, and solid waste management. Most of the investments were rather small in scope such as the public lighting systems, pavement of existing roads and electrification, and the key impacts associated with such activities were to include adequate construction permits and proper waste management disposal sites designated by the municipalities along with proper safety measures. The CDP POM highlighted that it was the responsibility of the CDP s engineers to take into account the impact on the physical, biological, and social environment of the concerned municipalities. In addition, the CDP staff were to screen projects according to the Environmental Guidelines and Checklist included in the POM. The checklist provided an easy-to-use screening list with positive and negative points associated with each answer, where a negative total would immediately call for adequate mitigation measures. The PIUs systematically monitored the proper use of the checklists and provided adequate evidence, having all these lists on project records. The compliance with the environmental safeguards was rated as satisfactory throughout the entire project implementation supervision. Procurement is rated Satisfactory. Both PIUs were staffed with experienced staff and properly monitored the procurement activities conducted in a decentralized manner by the recipient municipalities. All procurement activities were executed in accordance with World Bank s Guidelines, and competitive procedures were adequately followed. No major procurement related problems were encountered during project implementation. Procurement was rated satisfactory throughout the whole implementation period. 12

21 Financial management is rated Satisfactory. In October 2009 (after the credit closing date), the World Bank conducted a final review of the financial management arrangements at both implementing agencies. The review of the financial management arrangements confirmed that the financial management system, including accounting, budgeting, and reporting, was adequate and satisfied the World Bank s requirements, during the entire project implementation life. Also the two implementing agencies had adequate internal controls. The audited financial statements were mostly received by due date and the auditors opinions on the financial statements were unqualified during the entire implementation period and only minor points were raised in the management letters. The final audit of financial statements for 2009 is expected to be done by June 30, Regular quarterly Interim Unaudited Financial Statement (IFRs) were submitted on time and found acceptable to the World Bank. Apart from slow disbursements during the first two years of implementation due to delays in effectiveness, disbursements proceeded as planned and proceeds of both credits were almost entirely disbursed. 2.5 Post-completion Operation/Next Phase In the post-completion phase, the participating municipalities secured budgetary resources to cover maintenance costs, in addition to the revenues obtained from the user fees formally collected for the provision of various services. No further investment operation is envisaged following the completion of the CDP at this stage. However, during the ICR discussions, almost all the counterparts who the team met recognized that, although a lot has been accomplished, a lot remains to be done. The participating municipalities interviewed in both Entities mentioned that there is a high demand for such programs and many other eligible proposals are already in the pipeline waiting for financial support. Moreover, the RS Government is exploring the possibility of accessing further financial support from the Bank to continue the implementation of similar programs in other municipalities, while the FBH already provides budget support for further financing of selected eligible sub-projects. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The Project s objectives were clear and valid for the entire project life, and continue to be relevant to the country s social and economic development today. These objectives as well as project design responded adequately to the typical conditions of post-conflict countries. The latest Country Partnership Strategy for BH, dated November 12, 2007, acknowledges the improvement of infrastructure and service delivery as critical needs for FY08-FY11, especially in the poor rural areas, where almost 80 percent of the country s poor live. The relevance of the CDP to the country s current context is also confirmed by the senior decision makers from both Entities and State level, who noted during ICR discussions that still much needs to be done to improve the infrastructure and service delivery especially in the poor areas, and expressed the intention to secure new financial resources to continue implementing such programs. For reasons elaborated above, the relevance of objectives, design, and implementation arrangements was Substantial. 3.2 Achievement of Project Development Objectives Overall rating for outcomes. For reasons elaborated below, the achievement of Project Development Objectives is rated Satisfactory. 13

22 The primary project development objective - improvement of basic services and facilities (through investments in non-revenue generating socially oriented projects and programs) for lowincome and poor communities in under-served municipalities - was measured by five outcome indicators: number of sub-projects created [KPI 1], quality of work [KPI 2], quality and quantity of services provided to beneficiaries [KPI 3, detailed in Data Sheet under KPI 9, KPI 10 and KPI 11], level of employment [KPI 4], and number of final municipalities [KPI 5]. In addition, the ICR assessed overall project achievements against the project objectives, taking into account other relevant indicators, monitored by the project, particularly those related to project beneficiaries and social capital. Number of sub-projects identified in participatory approach and implemented [KPI 1]. The initial target for this indicator of 400 sub-projects was increased to 460 sub-projects as a result of the Additional Financing. By credit closing, 502 sub-projects were implemented (281 in the FBH and 221 in the RS) exceeding by 42 units (9.1 percent increase) the above mentioned revised target, mainly as a result of a higher level of co-financing provided by the Government and participating municipalities and communities (citizens). The overall average level of co-financing (60.6 percent from the IDA credit), from various counterparts (Entity, canton, municipality and citizens) was four times higher that the initial estimates (15 percent from IDA credit). By Entities, it varied from 57.4 percent from the IDA credit in the FBH to 75.4 percent in RS [Intermediate Output Indicator 1 IO 1]. Quality of work [KPI 2]. Although listed as a KPI, this indicator was neither defined in the PAD nor the Project Paper for AF. As it was not quantified it was difficult to measure. However, the regular site visits conducted during the project implementation supervision, as well as the MTR (2004) and the impact assessment (2006) revealed that all the sub-projects implemented continued to produce effects in one or more years after their completions. Also, since not a single contract out of the 502 implemented was terminated due to quality reasons it can be considered that the quality of the works was satisfactory. Quality and quantity of services to beneficiaries was monitored by three key performance subindicators: (i) one for quality of services, in terms of impact of their utilization [KPI 9], (ii) one for quantity, in terms of access to municipal services [KPI 10], and (iii) one for access to social services [KPI 11] as presented below: (i) The improvement of the quality of these services, as measured by [KPI 9], shows that the average time spent by the rural residents to reach schools, health services and markets, halved from 3 hours to 1.5 hours in the FBH, and reduced to 60 minutes in the RS as a result of increased local transportation provision. Thus, target of 450 regular lines of public transportation was also exceeded, reaching the number of 496 lines (368 in the FBH and 128 in the RS). However, it is noted that the quality indicator measuring the access time to education and health services is an imperfect proxy that does not measure the quality of accessed services. The quality of these services could have been measured through other sector specific indicators, which were not defined either during the preparation or implementation stages. (ii) Access to a wide range of types of small infrastructure and services has improved. Thus, the Project supported the increase of available all-season local roads to the population from the poor communities by 16.4 percent, from 7,000 km to 8,149 km (3,834 km in the FBH and 4,315 in the RS) exceeding the original target of a 10 percent increase [KPI 10]. The number of households having access to these kinds of roads, exceeded by 33.4 percent the original target of 150,000 households, reaching the number of 200,214 households. Also the access to regular 24 hour water supply was improved, having 119,209 households benefiting (82,318 in the FBH and 36,891 in the RS), compared with original target of 109,250. (iii) The improvement of access to social infrastructure was also observed in the participating municipalities. Initially it was estimated that 200 playgrounds, 200 active centers of social interest (libraries, youth centers, internet facilities, music associations, culture centers, sport clubs) were to exist at the end of project implementation in the participating municipalities [KPI 11]. With a 14