RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WATER SECTOR SUPPORT PROJECT CREDIT. February 13, 2007 TO THE UNITED REPUBLIC OF TANZANIA

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WATER SECTOR SUPPORT PROJECT CREDIT February 13, 2007 TO THE UNITED REPUBLIC OF TANZANIA June 29, 2011 Report No: 1

2 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank NBI Nile Basin Initiative ASDP Agricultural Sector Development Program NCB National Competitive Bidding BWO Basin Water Office NEMC National Environmental Management Council CBOs Community Based Organizations NGO Non-Governmental Organization CAG Controller and Auditor General NPV Net Present Value CFAA Country Financial Accountability Assessment CWB Central Water Board O&M Operation and Maintenance DP Development Partners PEFAR Public Expenditure and Financial Accountability Review DPG Development Partners Group PFMRP Public Financial Management Reform Program DWSSP Dar es Salaam Water Supply and Sewerage PIM Program Implementation Manual Project ESMF Environment and Social Management PM Procurement Manual Framework EWURA Energy and Water Utility Regulation Authority PMO- RALG Prime Minister s Office Regional Administration and Local Government GEF Global Environmental Facility PMU Procurement Management Unit GEMS Global Environment Monitoring Systems PPA Public Procurement Act GoT Govt of United Republic of Tanzania PRSC Poverty Reduction Strategy Credit IAEA International Atomic Energy Agency PRSP Poverty Reduction Strategy Paper ICB International Competitive Bidding RBMSIIP River Basin Management and Small Holder Irrigation Improvement Project IDA International Development Association RPF Resettlement Policy Framework IFMS Integrated Financial Management System RWSS Rural Water Supply and Sanitation IFR Interim Unaudited Financial Report SADC Southern African Development Community JAST Joint Assistance Strategy-Tanzania SC SWAP Steering Committee Sector Wide Approach to Planning LCD Liters/Capita/Day TASAF Tanzania Social Action Fund LGA Local Government Authority TPRI Tanzania Pesticide Research Institute LGCDG Local Government Capital Development Grant TWRAS TWGs Tanzania Water Resources Assistance Strategy Technical Working Groups LGDG Local Government Development Grant USRP Urban Sector Rehabilitation Project LGSP Local Government Support Project LVEMP Lake Victoria Environnemental Management UWSA Urban Water and Sewerage Authority Project M&E Monitoring and Evaluation UWSS Urban Water Supply and Sanitation MDGs Millennium Development Goals WMO World Meteorological Organization MIS Management Information System WRM Water Resources Management MKUKUTA National Strategy for Growth and Reduction WSDP Water Sector Development Program MoF MoHSW of Poverty Ministry of Finance Ministry of Water Ministry of Health and Social Welfare WSDS Water Sector Development Strategy MTEF Medium Term Expenditure Framework WSS Water Supply and Sanitation NAO National Audit Office WSSP Water Sector Support Project NAWAPO National Water Policy WSWG Water Sector Working Group Acting Vice President: Country Manager/Director: Sector Director: Sector Manager Task Team Leader: Obiageli Ezekwesili John McIntire Jamal Saghir Junaid Ahmad Satoru Ueda 2

3 TANZANIA WATER SECTOR SUPPORT PROJECT P CONTENTS A SUMMARY B PROJECT STATUS C PROPOSED CHANGES D APPRAISAL SUMMARY ANNEX RESULTS FRAMEWORK AND MONITORING Page 3

4 WATER SECTOR SUPPORT PROJECT RESTRUCTURING PAPER SUMMARY 1. This Restructuring Paper seeks the approval of the Country Director (AFCE1) to introduce changes to the Water Sector Support Project (WSSP). 2. The objective of the WSSP is to assist the Recipient in: (a) improving integrated water resources management by strengthening water sector institutions; and (b) expanding access to water supply and sanitation services. 3. WSSP constitutes a key part of Water Sector Development Program (WSDP) the Sector Wide Approach Program (SWAp) which incorporates all activities undertaken in the water sector in Tanzania, funded by the IDA, other Development Partners (DPs) and the Government of Tanzania (GoT). Four DPs, i.e. Germany s KfW, the Netherlands, France s AFD and IDA (additionally AfDB has recently agreed to join the basket) signed an MOU in February 2007 to establish a common basket fund to finance a subset of WSDP activities. All fiduciary and safeguard under WSDP follow the WB rules and is supervised by the WB in coordination with other DPs. 4. The WSSP IDA Credit was approved by the Board on February 13, 2007 for a total amount of SDR million (about US$200 million equivalent) and declared effective on July 26, The current closing date of WSSP is February 29, Whilst the project has shown some good progress, there is still a need to enhance quality of implementation linked to planning, budgeting, monitoring and reporting. The joint supervision missions in March/April and September 2010 concluded that the project needs restructuring to revise the institutional arrangements of the Ministry of Water () and about 300 implementing agencies to enhance the implementation capacity and oversight mechanism. The GoT s Controller and Auditor General (CAG) Special Audit Report in September 2010 and an independent Technical Audit in January 2011 covering the period of July 2007 June 2010 also raised similar issues and confirmed the needs for enhanced implementation arrangements. 6. Due to these shortcomings, during the MTR Mission in March/April 2010, the implementation progress rating was downgraded from Moderately Satisfactory (MS) to Moderately Unsatisfactory (MU) and has remained there. The PDO rating was also downgraded from MS to MU during the Restructuring Mission in September To address those issues, this project restructuring (Level 2) is proposed. Changes to be introduced to the WSDP include the following: First, a new Steering Committee comprising 4

5 a small number of GoT officials (Permanent Secretaries of key ministries) and DPs representatives will be established to provide oversight over the project. The Water Sector Working Group (WSWG) will continue as a forum for dialogue in the sector. Also, the current four (4) Thematic Working Groups will be converted into Technical Working Groups aligned to the four project components. Second, the will manage budget, finance, procurement and contracts as well as performance monitoring using a new Management Information System (MIS) from the beginning of FY12. Third, the will enhance its program management capacity by appointing a full time manager/coordinator of the WSDP, responsible for oversight, coordination and consolidation of reporting for activities under the four project components. IDA and other DPs will also continue providing intensive technical assistance. 8. The budget of the entire SWAp program has increased from the original US$951 million to US$1,255 million as of May The revised amount includes some DPs commitments beyond FY11/12. Amongst all, AfDB has agreed to join the water sector basket fund under the Rural Water Supply and Sanitation Program II in the amount of UA 65 million (approximately US$ 97 million). The AFD approved a contribution to the basket in the amount of Euro 30 million in September However, since the unit costs of both urban and rural water components have sharply increased over the last years and some original targets have become unrealistic despite the overall increased budget, the performance targets are downscaled to reflect the current unit costs. Also, initial delays in procurement processing particularly for component 1 have also contributed to the downscaling of some performance targets. Accordingly, financing plan and results framework are proposed to be revised as attached. 10. The proposed changes will not have a major effect on the original Project Development Objective (PDO) which will be maintained. No new safeguard policies are triggered and the restructuring will not involve any exceptions to the Bank policies. With enhanced implementation arrangements introduced under this proposed restructuring (Level 2), the Bank and other DPs will assist in implementing the project in a satisfactory manner within the remaining project timeframe. PROJECT STATUS 11. With about a year remaining in the original timeframe, the project is off track to meet its objectives. While has made progress in implementing planned activities, actual outputs have been lower than expected, because of a lack of capacity to prepare and monitor budgets, workplans, financial/contractual records, output/outcome indicators, etc. This is due in part to inadequate program management arrangements, insufficient technically-proficient staff, and slow progress in establishing a Management Information System (MIS). 12. So far, IDA has disbursed US$118 million out of its contribution of US$200 million. Other DPs have disbursed around US$444 million of their (revised) contribution of US$804 million 5

6 and the GOT has expended 122 million out of its original commitment of US$251 million. Table 1 below shows the original allocations and the disbursements as of June 15, T WSDP O B D C U US PAD D J D R C C C C U T 13. The following is a summary of achievements under each of the projects four components: 14. Component 1 Strengthening of Water Resources Management Framework. This component is intended to strengthen 9 Basin Water Offices (BWOs) and to prepare basinwide Integrated River and Lake Management and Development Plans (IRLMDP) and priority water resources development schemes. So far, the has prepared a water quality management and pollution control strategy and is supporting several transboundary water management activities. The capacities of the 9 BWOs are being strengthened with new equipment for rainfall, hydrological and hydro-geological monitoring, and a water resources management financing study is underway for completing the BWOs business plans. The preparation of the IRLMDP for all BWOs is progressing, but will be completed for three BWOs by the end of the project compared to six in the original target. 15. Component 2 Scaling up of Rural Water Supply and Sanitation Services. This component is intended to enhance the capacity of the Local Government Authorities (LGAs) and to rehabilitate / expand rural water supply and sanitation schemes. All 132 LGAs have received funding through the Local Government Development Grant system to conduct rehabilitation of existing water supply schemes, prepare District Water Supply and Sanitation Plans and design new water supply schemes. So far around 8,990 water points have been rehabilitated or constructed serving an estimated 2.2 million people. However, due to increased unit costs, LGAs have reduced the number of villages per district from ten to three in average for designing new schemes. For sanitation and hygiene, campaign and demonstration activities have been delayed due to lack of ring-fenced budget line, clear program framework linking activities with results, and non participation of the Ministry of Health and Social Welfare (MoHSW). The launch of a Water Point Mapping (WPM) program for tracking rural water supply and sanitation access has been delayed but is underway and will be readied by the end of 2011 for operational use. 6

7 16. Component 3 Scaling up of Urban Water Supply and Sewerage Services. This component is intended to enhance the capacity of 19 Urban Water Supply and Sewerage Authorities (UWSAs), DAWASA, around 130 regional and district town utilities, national multi-village schemes, and gazetted small towns as well as rehabilitate and construct new water supply and sewerage systems. So far 68,000 new piped household connections and 900 kiosks have been constructed. As a result, a total of about 1.2 million additional people have been provided access to safe water. Although design works for additional new schemes are progressing, the number of schemes and beneficiaries will be lower than originally projected due to higher unit costs than original estimates. Twelve UWSAs have attained Category A status (financially autonomous utility) so far compared to eight at the beginning of the project. 17. Component 4 Sector Institutional Strengthening and Capacity Building. This component is intended to enhance the capacity of with the provision of new offices, equipment, technical assistance, training, and the establishment of Management Information System (MIS). Most of the rehabilitation work at s office in Ubungo has been completed and the buildings have been used since January Office equipment, such as computers and accessories, communication and networking equipment, and motor vehicles have been procured and distributed to most of the 300 implementing agencies. However, the capacity of project management and coordination is still weak due to delay in mobilization of professional technical experts and completion / operationalization of the MIS. The preparation of capacity development plans for most implementing agencies have also been delayed to the 4 th year and need further review and prioritization. 18. Despite the progress and the achievements to date, the needs to improve the quality of planning, budgeting, monitoring and reporting. The has not been able to accurately prepare and monitor budget, work plan, financial / contractual records, output / outcome indicators, etc. due to the lack of an adequate program management framework, professional support staff and a working MIS. Thus, the cannot satisfactorily fulfill required actions in accordance with the Memorandum of Understanding (MoU), Program Implementation Manual (PIM) and Financing Agreements (FAs), as detailed in the aide-memoires of March/April and September 2010 supervision missions, the Controller and Accounting General (CAG) Special Audit Report (September 2010) and the Technical Audit Report (January 2011). The coordination mechanism between the and around 300 implementing agencies (including 132 Local Government Authorities (LGAs), 9 Basin Water Offices (BWOs) and around 130 Water Supply and Sanitation Authorities (UWSAs/ DUWSAs)), needs to be enhanced to allow for the efficient and effective management of a program of this size. 19. Since the mid-term review (MTR) mission in March/April 2010, the implementation progress rating has been downgraded to Moderately Unsatisfactory. In particular, due to s weak contractual and financial management capacity, which resulted in unreliable disbursement projections, the DPs were able to release funds only against the project s contractual obligations as per the procurement plan and a limited amount of advance for prioritized capacity building activities in November 2010 and May This disbursement procedure 7

8 will continue until the MOW s financial management capacity is sufficiently enhanced with a fully functional MIS and the disbursement projections become more reliable. 20. Despite all these challenges, the MOW has been gradually enhancing its financial management capacity with IDA s intensive technical support. Although the undocumented basket advance had amounted to US$73 million up to October 2010, the has been able to document the use of all basket advances through IFRs for FY09/10 Q4 and FY10/11 Q1 and Q2. Based on the action plan in response to mission aide memoires as well as technical and financial audit reports, the Bank team and other DPs have discussed and agreed on remedial measures with, which are reflected in this RP as well as attached amendments to FA, MoU and PIM. PROPOSED CHANGES 21. The proposed restructuring will introduce the following changes: 22. Adjust the Results Framework to reflect current conditions: All three PDO targets have been modified considering changes in budget allocation, unit costs, and technology mix. For intermediate targets, 7 targets have no change, 10 targets will be modified and 2 targets will be dropped considering revised budget allocation, M&E capacity and data availability. Due to rapid population growth, and increased unit costs, and community preference for higher technology, the target number of community water points and household connections in urban and rural areas will be reduced. Indicators are to be changed from percentage based coverage to incremental number of service population (based on the number of household connections and community water points) as per required core indicators. It should be noted that the revised performance targets are based on the entire WSDP budget covering the GOT funds, earmarked funds and basket funds, as in the original results framework. Results indicators and their targets are to be revised as per Annex Changes to Components: Changes will be introduced to Components 2, 3, and 4 as follows: For Component 2, the implementation arrangement for sanitation and hygiene subcomponent (including small towns) will be modified in such a manner that the subprogram would now fall under the guidance /oversight of MoHSW with MOW retaining overall coordination responsibility. A revised fund flow arrangement through MoHSW has been agreed; a dedicated budget for promoting household installation of sanplats and hand washing facilities in program villages has been established with revised targets. For Component 3, although household connection works to existing sewerage networks will be continued, most new sewerage development works will be postponed to the next phase of the WSDP, and thus the sewerage coverage target will be dropped. This is because the bulk of budget for Component 3 will need be dedicated to meeting urban water supply requirements. 8

9 For Component 4, capacity building activities for BWOs, LGAs as and UWSAs / other water utilities will be transferred to Component 1, 2, and 3 respectively for direct implementation of beneficiary entities with required budgets. 24. Strengthened Project Oversight and Institutional arrangements: In order to strengthen the oversight mechanism of project implementation between GoT and DPs, it was agreed to revise the MOU to take into account the following changes: introducing a new Steering Committee (SC), comprising permanent secretaries of, Ministry of Finance (MoF), Prime Minister s Office Regional Administration and Local Government (PMO-RALG) and Ministry of Health and Social Welfare (MoHSW) as well as representatives of key DPs so that they can discuss and agree on critical matters, such as budget allocation, expenditures and performance records, cross-ministerial issues (particularly for Component 2) and required actions in a more efficient manner. In addition, the four Thematic Working Groups will be transformed into Technical Working Groups (TWGs) aligned to each of the four components, which will allow them to deal with component specific issues and actions with representatives of key implementing agencies in a focused manner. In particular, the TWG 4 will review cross cutting issues, including budget, IFRs and actual fund transfer from Basket Holding Account to Exchequer Account of implementing agencies. The TORs for the SC and the 4 TWGs are stipulated in the MOU. 25. The will also enhance its program management capacity by upgrading the Program Coordination Team to a Program Management Unit with a dedicated program manager/coordinator who can more effectively coordinate with other departments of MOW and implementing agencies. The has also recruited three external professionals for financial management, procurement and monitoring and evaluation (M&E). A Procurement Specialist has been on board since April 2011 and a Financial Management Specialist and a M&E Specialist have begun working since early June Financing: For financing aspects, changes will be introduced for (i) project costs and (ii) financing plan. 27. Project Costs: Table 2 shows the original and revised budget allocation of the entire WSDP as well as the IDA allocation by component. Table 3 shows the original IDA allocation and disbursed amount in SDR. No changes are introduced in IDA allocation by component. T R B A C U US WSDP O B A WSDP R B A WSSP IDA A D WSSP IDA J C C C C 9

10 U D T A N N WSSP IDA T IDA A D U SDR O B A D J U J C C C C U D T A N N WSSP IDA 28. Financing Plan: The financing plan has been adjusted to reflect changes in the amounts provided by various DPs (Table 4); and an increase in the total WSDP budget from US$951 million to US$1,255 million financed by basket, earmarked and GoT funds. The revised amount includes some DPs commitments beyond FY11/12. AfDB has committed an additional UA 64.7 million to WSDP, which covers subsequent phase activities, and will also join the basket from FY11/12 although the fund is dedicated for rural water supply and sanitation. In FY10/11, AFD has committed Euro 30 million to the basket. The additional DP funding, including AfDB and AFD funds, will therefore be disbursed beyond the current closing date of the WSSP project. 10

11 T O R WSDP F P M U US S O R D B G T T G T W B IDA A D B G K W D G F D A T B US M C A O JICA F G A DB AFD WSP W A GEF IUCN WWF S G SECO BADEA UN H T T WSDP N IDA SDR USD SDR USD N A DB B FY RWSS N F P J P 29. Disbursement arrangements: The current disbursement method based on IFRs will be maintained. However, as the current disbursement projection is not reliable due to lack of operational MIS and contract database, DPs will continue disbursing funds according to disbursement projections based on a list of contractual payment schedule and priority activities reviewed and agreed between and DPs until the builds up its capacity to project semi-annual disbursement based on MIS in a more accurate manner. and DPs have confirmed that basket funds will be released only to implementing agencies which would fully comply with the MOU s reporting obligations in order to create performance- 11

12 based incentive mechanism. A newly established high level SC and TWG 4 will review the WSDP work plan, budget, expenditure records and fund flows in a more effective manner. 30. For Component 2, funds will continue to be transferred from the Water Basket Holding Account to the Exchequer, from where the majority of funds will be released to the LGAs on a formula basis according to the Local Government Development Grants (LGDG) system. PMO-RALG will monitor the use of the LGA funds under the LGDG and ensure that the LGAs prepare financial reports on a quarterly basis as per the MoU and FAs. In line with the new implementation structure for sanitation and hygiene activities, funds will also be transferred from the basket holding account to Exchequer designated to MoHSW, RASs and LGAs in line with the agreed work plan /budget. 31. Financial Management: This restructuring will introduce significantly tightened measures for financial management. Major modifications include: (i) enhanced oversight mechanism of fund transfer from Water Basket Holding Account to the Exchequer account of the and implementing agencies by the TWG 4 and the SC, (ii) enhanced financial management capacity by the Office of Chief Accountant (CA) of aided by a professional financial management specialist (under recruitment); (iii) Quarterly IFRs to be prepared based on the MIS, which is loaded and maintained with verified data from the IFRs of the Implementing Agencies (IAs); and (iv) enforcement of and compliance with the requirements of IFRs and internal auditing with the principle of no fund release to IAs without sufficient reporting. Detailed arrangements will be incorporated into the FA, MoU and PIM. The has agreed to operationalize the MIS by June 30, 2011, and the Bank is providing technical assistance for loaded data verification. 32. Procurement: The has retained an expert procurement specialist to enhance Procurement Management Unit s capacity and conduct on the job training since April Also, Dar es Salaam Water and Sewerage Authority (DAWASA) will be given a full-fledged procurement processing authority under the overall management of considering DAWASA s adequate procurement management capacity. Detailed arrangements are covered by MoU and PIM. 33. Safeguards: No changes will be introduced in the safeguard policies triggered during appraisal: Environmental Assessment (OP4.01), Involuntary Resettlement (OP 4.12), Safety of Dams (OP 4.37) and Projects on International Waterways (OP 7.50). However, considering the increased number of sub-projects, including 23 Category A sub-projects, which would require full ESIA and RAP, will establish a safeguard unit under Directorate of Water Resources and enhance its management and coordination capacity with IAs as agreed during the mission in September The team will ensure that these ESIAs and RAPs are disclosed for 120 days prior to the decision to commence the sub-project activities. 34. Closing date: Whilst the closing date of the first phase of the WSDP SWAp is June 30, 2012, the current closing date of the WSSP is February 29, A four month extension will be required to synchronize WSSP with WSDP. This will be done as soon as the implementation status is upgraded from MU to satisfactory. 12

13 35. Implementation schedule: The revised implementation schedule for the remaining period is elaborated in the FY 11/12 Work Plan, Budget and Restructuring Plan of the in June APPRAISAL SUMMARY Economic and financial analysis 36. The economic analysis for WSSP was conducted on the basis of a framework project in which the investments identified are only indicative since they are demand driven rather than pre-selected. 37. For Component 1: Water Resources Management, the changes proposed above will have no direct impact on the economic analysis. The policy goal of the water resources management interventions is to improve the capacity and the enabling environment to implement effective and sustainable system for water allocation, water quality management and water sources protection. These capacity building measures for 9 BWOs will be implemented as planned. However, most priority water resources infrastructure investment works will be delayed to the future phase, as more time is needed for confirming optimal investment planning and economic viability of key infrastructure through ongoing feasibility studies. 38. For Component 2: Rural Water Supply and Sanitation, the economic analysis was based on economic comparisons of potential water supply technologies. As noted in the Technical section below, because several of the parameters used to conduct the economic analysis (as per the RWSS guidelines) were changed during implementation, the EIRR for technology installed under this component will be affected. Technology choices made by communities leaned heavily towards higher cost options and thus fewer beneficiaries than expected at appraisal With respect to financial analysis, PIM described the implementation procedure of 5% contributions by LGAs and /or community toward their schemes. 39. Component 3: Urban Water Supply and Sewerage: As noted in the Technical section below, because unit costs and technology mix were changed during implementation, the EIRR for this component will be affected. The unit costs have sharply increased compared to the original ones, which were significantly lower. 40. As a result of these changes and the overestimation of benefits at the outset of the project the coverage targets were taken directly from the National Strategy for Growth and Reduction of Poverty (MKUKUTA) the original target of incremental population of 9.9 million with improved access to clean and safe water: 6.4 million in rural areas and 3.5 million in urban areas 1 is unrealistic. For rural water supply schemes, the incremental 1 The PAD indicates inconsistent target of incremental beneficiary population for rural and urban areas. Component 2 and 3 description indicated 8 million in rural and 4.6 million in urban areas but with no back up information (page 8-9). Annex 1 water supply projection Table indicates 7.8 million in rural and 3.5 million in urban areas from as per MKUKUTA, but the rural target access rate is 69% instead of 65% as per results framework. By applying 65% target, the benefit population in rural is estimated as 6.4 million instead of 7.8 million. 13

14 population benefitting from the project is likely to be around 3.7 million and for urban areas, the incremental benefit population will be around 1.9 million. Technical 41. For Component 1: Water Resources Management. There is no impact from the changes proposed above on the technical design of the project. 42. For Component 2: Rural Water Supply and Sanitation, most of the parameters for the original technical design of WSDP have been maintained (unit consumption per capita per day, distance). However, key changes to the design of the component were noted at Restructuring Mission. First, the assumption that 48% of the rural schemes would be hand pump schemes, no longer holds. work plans for the remaining period of WSSP showed that only 5% of communities have selected hand pumped schemes, while 42% have selected gravity schemes and 53% have selected pumped schemes. In response to the mission findings, MOW is working with LGAs to ensure that priority is given to those subprojects which enable the greatest number of people to benefit. Second, changes to unit costs were revisited with MOW to ensure that these are realistic and useful in guiding project implementation. The following proposed indicative per capita costs for future rural water supply investments are considered reasonable over the remaining project period: (a) for boreholes with hand pumps: a range of US$ (compared to the original range of US$ 8-25) (b) for borehole pumped schemes: a range of US$ (original range of US$ 29-43); (c) for gravity schemes: a range of US$ (original range of US$ 34-51): and (d) for small reservoirs: a range of US$ (original range of US$ 9-10). It was agreed that all schemes be capped at the upper limit and any projects that exceed the agreed unit costs be reviewed by MOW and reported to the TWG For Component 3: Urban Water Supply and Sanitation, while no significant changes to the technical design have been made, it is clear that the original assumptions used were overly optimistic. First, the original budget was formulated on the assumption that 80% and 20% of population would be covered by public standpipes and private household connections respectively. However, the restructuring report (April 2011) showed that public standpipes cover the population of 35%, 58%, and 74% in Dar es Salaam, the 19 UWSAs and the small towns, respectively. Second, the unit cost per capita has also been revised for US$ for household connections and US$65-85 for public standpipes based on the experience of the first 2.5 years and other recent projects, compared to the original range of average costs of US$19-37, which was not realistic. Third, not on a technical but relevant matter, the urban population growth was originally estimated as 3% per annum, which however turned out to be 6%, 5% and 4.2% per annum in Dar Salaam, regional utilities, and small towns respectively, which also made the original target of 90% coverage in 2012 unrealistic. It was agreed that prioritization of water supply schemes be carefully reviewed based on a clear criteria by and reported to the TWG 3. Financial Management 14

15 44. For the first three years, the MOW has not been able to provide financial information in a reliable and timely manner. Since the MTR, the situation has been gradually improved with intensive support and guidance from IDA financial management specialist who enabled the MOW to reconcile funds received, disbursed and accounted-for, resulting in the production of an acceptable IFR. Currently only the IFR for FY10/11 Q3 is outstanding and being finalized, which was due at the end of May The PMO-RALG has not yet submitted the relevant IFR for the LGAs. The however has not yet been able to build up adequate capacity and systems to prepare accurate and timely IFRs based on IFRs from the Implementing Agencies. 45. The GoT National Audit Office (NAO) submitted a qualified Financial Audit report for FY08/09 in January 2010, which has been accepted. However, the NAO withdrew it in February 2010 after a review meeting with DPs and resubmitted a revised version in April Subsequently, the DPs, NAO and the agreed to conduct a Special Audit to assess the effectiveness of the financial management system and provide recommendations for strengthening the system. The report was submitted and presented in September, 2010 at the Joint Water Sector Review. The report raised critical accountability issues, which are consistent with the missions findings and recommendations (March/April and September 2010) as well as the Bank FM consultant s report (June 2010). The main accountability issues raised were in the areas of planning and budgeting, accounting, funds flow and disbursements, internal audit and controls, institutional arrangements, performance monitoring and procurement. The MOW has agreed and been undertaking required remedial actions, as detailed in the attached Annex. No clear incidence of ineligible expenditure during project supervision or in the course of audit by internal or external auditors has been reported. 46. The Designated Account is operated by the Accountant General who maintains a cash book and prepares a bank reconciliation statement at the end of every month. The quarterly IFRs include a worksheet on the cash movement in the Designated Account. Reconciliations are made for (i) disbursements from the Designated Account, (ii) fund releases to Implementing Agencies, and (iii) accountability of the funds expended. The IFRs also keep track through opening cash, receipts, payments and detailed cash balances. IFRs have been shared with and accepted by DPs. Risk 47. The overall implementation risk is still rated Substantial and the major risks identified at the start of the project are still relevant. Changes introduced through this restructuring are likely to contribute towards lowering risks as the additional mitigation measures listed below will be implemented. With the enhanced oversight mechanisms being put in place by the government, the team will be able to more closely monitor the implementation progress with other development partners in the key areas below. 48. Implementation Capacity - Program management and coordination capacity of : At appraisal, this was identified as a Substantial risk but the risk rating has become Higher than originally anticipated. The additional measures introduced since the restructuring 15

16 mission should mitigate this risk further. For example, the has agreed to appoint a dedicated program manager for a newly created program management unit and recruit three external professionals for financial management, procurement and M&E. The Procurement Specialist has been on board since April 2011, and the Financial Management Specialist and the M&E Specialist have begun working since early June In addition, to address capacity constraints at local level, decentralized workshops are also being implemented and planned e.g. capacity for fiduciary management and MIS operation. 49. Program monitoring and reporting system: This was not identified as a risk at Appraisal. However it has been identified as a key risk as the M&E systems planned for WSDP were not operational and it was proving difficult to monitor technical and financial progress of the program. Although the has agreed to operationalize the MIS by June 30, 2011, it may take another two months to complete loading and verifying data for LGAs under component 2 due to the number of IAs. This has been indicated as a Temporary Process Action of Performance Assessment Framework under the General Budget Support Program for GoT. The Bank is providing technical support for financial data verification. has also retained a consulting firm to conduct Water Point Mapping to monitor all community water points using a Geographical Information System (GIS) as previously mentioned. 50. Financial accountability: This was identified as a High risk at appraisal and was considered to be mitigated by financial management supervision, internal audit, annual assessment by Public Financial Management Reform Program, linkage with M&E including output and outcome, independent technical audit, etc. However, the rating remains the same: despite intensive Bank FM supervision, those measures turned out to be insufficient to secure proper FM system in place. In order to further mitigate the specific risks faced to date including concerns raised by CAG and through various financial management consultancies and supervision missions, this restructuring has introduced several remedial measures to sufficiently strengthen and/or enhance the financing management and disbursement procedures reflected in the FA, MOU and PIM (see attachments). The Bank will continue providing intensive technical support for in order to strengthen financial management capacity and allow more intensive supervision (see Changes for financial management section). 51. Inter-institutional coordination between sector ministries: The risk was rated as Moderate and remains to be the same particularly for Component 2 - Rural water supply and sanitation. This restructuring will mitigate this risk through the establishment of a new SC and TWGs aligned with each component, allowing stronger representation from those ministries including PMO-RALG. 52. Procurement capacity: the risk was rated High but has been moderated to Modest at MTR through intensive procurement review and support by a dedicated Bank procurement / operational consultant, although the workload of the Bank procurement team turned out to be extremely high. The has recruited an external procurement specialist for enhanced procurement oversight and on-the-job-training (See changes in procurement). The team will continue providing intensive procurement supervision including special procurement review. Restructuring Action Plan 16

17 53. The team will assess the progress of restructured program and effectiveness of newly introduced oversight mechanism and instruments within the next six months through the Joint Water Sector Review and supervision mission scheduled for September October 2011 based on the Restructuring Action Plan (Annex 2). The team will also assess the need for extending the project from February 2012 to June 2012 to align the timetable with that of other donors and take into account the scope of remaining works. The team will propose extension of closing date as soon as the project implementation status is upgraded to satisfactory. 54. The team considered four months extension along with this restructuring. However, it concluded that should first demonstrate improved project implementation in line with the newly agreed arrangements in this RP and amended MOU and FA before proposing closing date extension. 17

18 ANNEX 1 Results Framework and Monitoring Tanzania WSSP PDO Current (a) Improving integrated water resources management by strengthening water sector institutions and (b) expanding access to water supply and sanitation services Revisions to the Results Framework Proposed No change Comments/ Rationale for Change PDO indicators Current Indicator One: 6 out of 9 Basin Water Offices fully operational and implementing an approved plan for the integrated basin water management Indicator Two: Improved population s access to clean and safe water: (a) Rural area (from 53% to 65%) and (b) Urban area (from 73% to 90%) Indicator Three: Improved access to sanitation facilities: (a) Sewerage (to 30%), (b) Basic Sanitation (to 95%), and (c) Schools (to 100%) Intermediate Results indicators Current (as per restructuring PP 2008) Component 1 Intermediate Result indicator One: Central Water Board functional Intermediate Result indicator Two: All 9 BWO capturing essential IWRM information Intermediate Result indicator Three: Number of approved Integrated Proposed change Indicator is still valid, but the target has been adjusted from 6 to 3 People provided with access to Improved Water Sources under the project (number) Urban Rural People with access to Improved Sanitation under the project (number) a. In urban areas b. In rural areas Direct Project beneficiaries (number), of which female (%) Proposed change No change No change Target basins are reduced from 9 to 3 Due to delay in the preparation of integrated basin water management plan, some of which are under implementation by other programs and partners. Consultancies procurement will have been processed for all 9 basins by the end of Alignment with CORE indicator wording and reduced targets compared to the original due to increased unit costs and technology mix change. Alignment with CORE indicator and with revised project scope and measures. The project is restructured to focus on improved sanitation and hygiene. Also change the target from access ratio (percentage) to number of population (500,000) with improved sanitation covering both rural and urban (small towns) areas Inclusion of mandatory CORE indicator Due to decreased budget allocation and delayed implementation 18

19 Revisions to the Results Framework River and Lake Basin Development and Management Plans Intermediate Result indicator Four: 40 % of program sub-catchment and water use associations fully functional Intermediate Result indicator Five: All 9 BWOs adopt national sustainable financing options for IWRM Intermediate Result indicator Sic:45 watersheds and 25 groundwater recharge areas legally gazetted as protected areas Intermediate Result indicator Seven: Increase smallholder irrigation schemes with improved water use efficiency from 8% to 15% Intermediate Result indicator Eight: All 9 BWOs granting, monitoring, and enforcing water rights and pollution control # of priority water resources investment completed Component 2 Intermediate Result indicator One: About 41,900 water systems developed in program area Intermediate Result indicator Two:80% of program village water committees registered as legal entities Reduced from 40% to 20% No change Basin-wide IWRM plans developed (3) will cover this. Dropped No change Dropped Improved community water points constructed or rehabilitated under the project (number) No change Comments/ Rationale for Change Due to decreased budget allocation and delayed implementation Basin-wise IWRM plans cover watershed and protected areas in a more comprehensive manner. The original target of 65 small holder irrigation schemes with improved water use efficient (from 8% to 15%) was unrealistic with no budget allocation. Also, due to GOT s ministerial reshuffling, the irrigation mandate has moved from to MoA. Most water resources investment works are delayed to future phase due to reduced budget allocation and delayed preparatory studies. Alignment with CORE indicator and adjustment of the target. The original target of water points indicated as 41,900 (corresponding to 10.5 million beneficiary population) seems to be too ambitious considering the original target of incremental beneficiary population as 6.4 million. The original target should be around 25,600 points considering the average service population of 250 per water point. The reduction of water points from 25,600 to 14,790 is due to choice of more expensive technical options, increased unit costs, and unrealistic original targets. Intermediate Result indicator Three: 100% of program districts with fullystaffed RWSS teams implementing a No change 19

20 fully participatory sector plan Component 3 Intermediate Result indicator One: Utilities expand coverage of service area with potable and reliable water (from 73% to 90%) Revisions to the Results Framework New piped household water connections that are resulting from the project intervention (number) Comments/ Rationale for Change Alignment with core indicator. The new target of incremental household connections is 192,000. Intermediate Result indicator Two: Utilities expand coverage of service area with sewerage service (from 17% to 30%) Intermediate Result indicator Three: 95% of households have access to basic sanitation Intermediate Result indicator Four: 20 UWSAs registered as Category A Component 4 Intermediate Result indicator One: Water Sector Working Group and Thematic Working Groups Operational Intermediate Result indicator Two: 100% of RWSS funding transferred through LGCDG system Intermediate Result indicator Three: MOW develops and implements national MIS Intermediate Result indicator Four: Number of strengthened private sector companies, NGOs, CBOs, and training institutions contributing WSS sector Dropped Dropped at the intermediate level, as access is captured at the PDO level. Indicator still valid, but reduced target from 20 to 15 Committee, Water Sector Working Group and 4 Technical Working Groups operational (yes/no) Indicator still valid, but reduced target from 100% to 90% No change Report assessing the water related institutions and the achieved results developed (yes/no) No adequate budget for expansion of sewerage service system. Due to delay in management capacity enhancement and cost recovery of UWSAs Modified with addition of Steering Committee and reformed four Technical Working Groups in line with project components to enhance the project oversight mechanism. Details are described in the institutional change section of this RP and MoU. and MoHSW needs budget allocation for its oversight and limited number of sub projects. As the number of institutions may not indicate capacity development of water sector related institutions, a report will be prepared summarizing the impacts at the end of the project. 20

21 Project Development Objective (PDO): ANNEX 1-2 Results Framework and Monitoring TANZANIA: WATER SECTOR SUPPORT PROJECT (Note: The performance targets are for the entire WSDP as in the original results framework.) (a) Improving integrated water resources management by strengthening water sector institutions and (b) expanding access to water supply and sanitation services PDO Level Results Indicators Basin Water Offices fully operational and implementing an approved plan for the integrated basin water management People provided with access to Improved Water Sources under the project (number) a. In urban areas b. In rural areas People with access to Improved Sanitation under the project (number) a. In urban areas b. In rural area Direct Project beneficiaries (number), of which female (%) Core Unit of Measur ement Baseline Original Project Start (2007) Progress To Date (2011) Cumulative Target Values number X number 0 2,247,000 1,244, Frequency 3,700,000 1,900,000 X number ,000 X Number % 0 1,804, ,154, Data Source/ Methodology Responsibility for Data Collection and MoHSW and MoHSW Comments The indicator has changed from access rate (%) to incremental number of beneficiary population The indicator has changed from access rate to incremental number of beneficiary population. New indicator 21

22 Intermediate Results and Indicators Intermediate Results Indicators Core Unit of Measur ement Baseline Original Project Start (2007) Progress To Date (2011) Target Values 2012 Frequency Data Source/ Methodology Responsibility for Data Collection Comments Intermediate Result 1: Strengthening of the Water Resources Management Institutions Central Water Board functional number All 9 BWO capturing essential IWRM information number Number of approved Integrated River and Lake Basin Development and Management Plans 40 % of program sub-catchment and water use associations fully functional All 9 BWOs adopt national sustainable financing options for IWRM All 9 BWOs granting, monitoring, and enforcing water rights and pollution control number percent number number Intermediate Result 2: Scaling-up o f Rural WSS Services to meet MDGs 22

23 Intermediate Results and Indicators Intermediate Results Indicators Improved community water points constructed or rehabilitated under the project (number) Number of villages which signed the declaration to improve household sanitation 80% of program village water committees registered as legal entities 100% of program districts with fully-staffed RWSS teams implementing a fully participatory sector plan Core Unit of Measur ement Baseline Original Project Start (2007) Progress To Date (2011) Target Values X number 68,225 77,213 83,015 number percent percent Frequency Data Source/ Methodology and MoHSW report Responsibility for Data Collection and MoHSW Comments Newly added indicator Intermediate Result 3: Scaling up of Urban WSS Services to meet MDGs New piped household water connections that are resulting from the project intervention (number) X number 310, , , UWSAs registered as Category A number Intermediate Result 4: Support to Sector Institutional Strengthening and Capacity Building Committee, Water Sector Working Group and 4 Technical Working Groups operational (yes/no) Yes/No No Yes Yes (SC, WSWG, and 4 TWGs) % of RWSS funding transferred through LGCDG system percent

24 Intermediate Results and Indicators Intermediate Results Indicators MOW develops and implements national MIS Core Unit of Measur ement Baseline Original Project Start (2007) Progress To Date (2011) Target Values Yes/No No No Yes 2012 Frequency Data Source/ Methodology Responsibility for Data Collection Comments Report assessing the water related institutions and the achieved results developed (yes/no) Yes/No No No Yes 24

25 Annex 2: Tanzania Water Sector Development Program Restructuring Action Plan Actions Targeted Date Note 1. Enhance Program Management Capacity (i) Appoint a dedicated manager /coordinator for WSDP Program Management Unit (PMU) (ii) Fully operationalize MIS loaded with verified data (iv) Jointly assess the performance and capacity of WSDP PMU in terms of program management and coordination considering the quality and timeliness of all required reports as per MOU and FA (v) Completion and operationalization of Water Point Mapping July 31, 2011 August 31, 2011 December 10, 2011 December 31, Consolidate planning, budgeting, reporting, procurement and financial management has informed DPs that they would appoint a director for PMU in January 2011, but not yet done. A list of all signed contracts generated by MIS is to be shared with DPs and IAs for final checking by July 31, The PMU includes a dedicated manager/coordinator and recently recruited three experts (FM, procurement and M&E). A workshop for WPM is to be held by the mid January 2012 to report the final result of this consultancy. (i) Fund use report for the 2 nd basket fund disbursement (around US$21 million) in May 2011 (ii) Share with DPs a detailed budget/work plan and Procurement Plan with required modifications (iii) Share with DPs a list of all signed contracts with the amount of paid and unpaid commitments based on MIS (iv) Submit IFRs FY11/12 Q1 and onward based on IFRs of Implementing Agencies (IAs) using MIS, along with a list of non/insufficient reporting IAs July 31, 2011 August 31, 2011 August 31, 2011 September 30, 2011 and thereafter 60 days after each quarter ends The 3 rd basket fund release request along with a list of contractual obligations and planned critical activities can be sent to DPs together. Including GoT and earmarked funded activities and covering all contractual obligations Thereafter, the list should be shared with DPs on a monthly basis. 3. Ensure compliance with MoU and FAs (i) Sharing with DPs Water Sector Status Report for FY10/11 program implementation (ii) Sharing with DPs Technical Audit Report for FY10/11 (iii) Sharing with DPs WSDP Financial Statement for FY10/11 for NAO Financial Audit August 31, 2011 December 31, 2011 September 30, 2011 NAO audit due is December 31,