IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-3967/ ARTF / ARTF ) IN THE AMOUNT OF SDR 17 MILLION US$25 MILLION EQUIVALENT

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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-3967/ ARTF / ARTF ) IN THE AMOUNT OF SDR 17 MILLION US$25 MILLION EQUIVALENT AND US$8.8 MILLION (ARTF GRANTS) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR A KABUL URBAN RECONSTRUCTION PROJECT Sustainable Development Department Urban and Water Unit Afghanistan Country Management Unit (KURP) February 28, 2013 Report No: ICR2242

2 CURRENCY EQUIVALENTS Currency Unit = Afghani (Afs) US$ 1.00 = Afs FISCAL YEAR: December 21-December 20 ABBREVIATIONS AND ACRONYMS AFMIS Afghanistan FM Information System JRC Judicial Reform Commission (JRC) AKTC Agha Khan Trust for Culture KSP Kabul Solidarity Program ARDS Afghanistan Reconstruction and Dev Services KURP Kabul Urban Reconstruction Project ARTF Afghanistan Reconstruction Trust Fund LTTC Land Tenure Technical Committee AUWSS Afghanistan Urban Water Supply and Sanitation M&E Monitoring & Evaluation CBO Community Based Organization MoUDA Ministry of Urban Development Affairs CIDA Canadian International Development Agency MTR Mid Term Review CHMP Cultural Heritage Management Plan NATO North Atlantic Treaty Organization CR Conformance Report O&M Operation and Maintenance DCA Development Credit Agreement PD&C Planning, Design and Contracts Management DOS Department of Sanitation, KM PDO Project Development Objective EIA Environment Impact Assessment PIM Project Implementation Manual ERL Emergency Recovery Loan PMU Project Management Unit FM Financial Management PSC Program Steering Committee FMR Financial Monitoring Reports SDU Special Disbursement Unit GCS Gozar Community Sura TQM Turquoise Mountain Foundation GTZ German Technical Cooperation TA Technical Assistance ICRR Implementation Completion and Results Report TF Trust Fund IDA International Development Association TSS Transitional Support Strategy IP Implementation Progress TSU Technical Support Unit IRA Islamic Republic of Afghanistan UNHCR UN High Commissioner for Refugees IUFR Interim Unaudited Financial Report USAID United States Agency for International Development Vice President: Country Director: Sector Manager: Project Team Leader: ICR Team Leader: Isabel M. Guerrero Robert J. Saum Ming Zhang Deepali Tewari Deepali Tewari ii

3 Afghanistan Kabul Urban Reconstruction 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 Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5&6. Beneficiary Survey Results and Stakeholder Workshop Report Annex 7. Summary of Borrower's ICRR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents iii

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5 A. Basic Information Country: Afghanistan Project Name: Project ID: P L/C/TF Number(s): ICR Date: 02/28/2013 ICR Type: Core ICR Lending Instrument: ERL Borrower: Original Total Commitment: Revised Amount: XDR 17.10M Environmental Category: B Kabul Urban Reconstruction Project IDA-39670/ARTF /ARTF ISLAMIC REPUBLIC OF AFGHANISTAN XDR 17.10M Disbursed Amount: XDR Implementing Agencies: Ministry of Urban Development Affairs (MoUDA) Co-financiers and Other External Partners: US$3.2m from the ARTF TF was applied by MoF for Consultancy Expenditures in There was no other co-financing. B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 07/31/2003 Effectiveness: 08/05/ /05/2004 Appraisal: 04/19/2004 Restructuring(s): 02/18/2010 Approval: 07/29/2004 Mid-term Review: 11/22/2007 Closing: IDA 03/31/ /31/ ARTF 03/31/ /30/ The delivery date for the ICR of the Credit was extended on May 12, 2011 from September 30, 2011 to June 30, 2012 by SARDE (approved by Paul Birmingham) to coincide with the closing date of the ARTF funded Kabul Urban Reconstruction Project (P111825, TF092073). Subsequently the closing date of the ARTF was extended to April 30, 2012, making due the ICRs for both on October 30, The ICR Team subsequently was unable to gain access to key documents in IRIS for the previous six months, because an internal audit identified that a number of IRIS documents had been mis-classified as "Official Use Only" or "Public" even though they contained confidential information. To remedy the problem, the Bank's "wbdosc support team" launched the Content Remediation Project which automatically reclassified selected IRIS documents to "Confidential" as they were transferred to WBDocs. This made many of the documents needed for the ICR unavailable. The remedy took longer than expected because of missing data in the incoming documents and other technical issues with the access groups. There was a long turn around time for each document that the ICR Team requested access to. iv

6 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Moderately Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: Unsatisfactory Unsatisfactory Quality of Supervision: Moderately Implementing Satisfactory Unsatisfactory Agency/Agencies: Overall Bank Performance: Moderately Unsatisfactory Overall Borrower Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Yes Moderately 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) Central government administration 1 1 General water, sanitation and flood protection sector Roads and highways Sub-national government administration 35 7 Theme Code (as % of total Bank financing) Land administration and management 13 Municipal governance and institution building 24 7 Other urban development 25 4 Pollution management and environmental health 13 Urban services and housing for the poor v

7 E. Bank Staff Positions At ICR At Approval Vice President: Isabel M. Guerrero Praful C. Patel Country Director: Robert Saum Alastair J. Mckechnie Sector Manager: Ming Zhang Sonia Hammam Project Team Leader: Deepali Tewari 2 Richard Beardmore ICR Team Leader: ICR Primary Author: Deepali Tewari Deepali Tewari F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The original Project Development Objectives were to assist the Borrower in: (i) improving capacity of the Ministry of Urban Development and Kabul Municipality in urban management 3 ; and (ii) supporting the integration of selected neighborhoods into the urban fabric of Kabul Municipality through the reconstruction and rehabilitation of urban services and facilities 4. These objectives were to be achieved by carrying out reconstruction and rehabilitation of urban infrastructure in select neighborhoods (with an allocation of US$24.19m) and enhancing the managerial capacity of the Ministry of Urban Development and Housing and the Kabul Municipality (KM) (with an allocation of US$0.55m). Revised Project Development Objectives (as approved by original approving authority) The revised PDO was to upgrade urban infrastructure to improve the delivery of basic urban services in under-serviced communities in Kabul Municipality 5. 2 Assumed Task Team Leadership five months before close of the Project. 3 With an allocation of 2.2% of the Credit proceeds. 4 With an allocation of 96.8% of the Credit proceeds. 5 This revised PDO was aligned with the budget allocation for results to be achieved, which was not the case at Appraisal. vi

8 (a) PDO indicators (s) 6 Indicator Indicator Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Number of people in approximately 45 gozars 7 who receive improved urban services. 250,000 92, ,480 Date achieved July 2004 February 2010 April 30, 2012 The restructured Project achieved its target to upgrade 19 gozars with about Comments 92,000 people. Actual beneficiaries were 141,480 (2009 Project census surveys). Today this number is probably higher due to densification. 6 These indicators are extracted from the ISRs that drew on indicators from the Technical Annex (equivalent of a Project Appraisal Document) and monitored over the implementation of the Project. 7 The term gozar in Afghanistan refers to a city residential area with a defined boundary. A traditional gozar in Kabul could consist of anything from 100 houses to 1000 or more houses. Each gozar has a Wakil (representative) registered with the Municipality. Any one of the 22 districts of Kabul consists of many gozars. Targets established at Appraisal of KURP therefore, were based on averages of estimates, and would assume technical meaning by way of costs only once detailed surveys were completed these took place only after the PMU was established and technical assistance was in place some years into implementation. 8 There are some discrepancies in Project documentation this figure is 92,400 in some documents, and 92,000 elsewhere. vii

9 (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Number of hectares of urban land, including both formal and informal settlements, subject to infrastructure improvements. Actual Value Achieved at Completion or Target Years Value quantitative or 1000 ha 600 ha 618 ha Qualitative Date achieved November 2007 February 2010 April Indicator target achieved. Appraisal targets had to be revised by the time of the MTR because (i) site Comments surveys made apparent that average gozar size was 70% higher, (ii) construction costs escalated with delays due to both an increase in oil prices and a deteriorating security situation. Indicator 2 Final Financial accounts prepared yearly Value quantitative or Qualitative 10% 100% Not Revised Not Revised Date achieved February 2004 November 2007 November 2007 April 30, 2012 Indicator target achieved. Comments Annual financial accounts (of the Municipality) are prepared. Kabul Municipality s revenues increased to 3 billion Afs from 700 million Afs between 2006 and 2012 (increase of 400%). Indicator 3 Physical development plan for Kabul Value quantitative or 6 structure plans and proposal for next 1 structure plan 1 structure plan Qualitative Project Date achieved November 2007 November 2007 April 2012 Indicator target achieved. Comments A Structure Plan for Kabul, completed in June 2009 became an input to JICA S support for the master plan for New Kabul City. Indicator 4 No. of kms new roads, reconstructed roads; number of kms repaired drains Value quantitative or 160 km Dropped N/A Qualitative Date achieved November 2007 November 2007 April 2012 Component F of KURP which included construction of main roads, drainages Comments and traffic management was cancelled during restructuring. However, approximately km of secondary and tertiary roads was constructed as part of upgrading. viii

10 G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 12/02/2004 Satisfactory Satisfactory /03/2005 Moderately Satisfactory Satisfactory /31/2005 Moderately Satisfactory Moderately Satisfactory /19/2005 Moderately Satisfactory Moderately Satisfactory /22/2005 Unsatisfactory Unsatisfactory /23/2006 Unsatisfactory Moderately Unsatisfactory /19/2006 Unsatisfactory Moderately Unsatisfactory /28/2006 Unsatisfactory Moderately Unsatisfactory /28/2007 Moderately Moderately Unsatisfactory Unsatisfactory /20/2007 Moderately Satisfactory Moderately Satisfactory /30/2008 Satisfactory Moderately Satisfactory /23/2008 Moderately Satisfactory Moderately Satisfactory /29/2009 Satisfactory Satisfactory /30/2009 Satisfactory Satisfactory /24/2010 Satisfactory Satisfactory /06/2010 Moderately Satisfactory Moderately Satisfactory /21/2011 Moderately Satisfactory Moderately Satisfactory /26/2012 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) Development Credit Agreement (March 2010) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Yes S S Reason for Restructuring & Key Changes Made Restructuring was undertaken to improve the Project s overall performance management and implementation, and to 9 At the time of the last ISR the new TTL who took over just before closing Project rated the DO rating satisfactory in light of the achievements despite a very difficult context. This was downgraded in light of the intense learning about the Project during the ICR process, marking a disconnect. ix

11 Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Reason for Restructuring & Key Changes Made reallocate the proceeds of the IDA Credit 10. I. Disbursement Profile 10 The cumulative impact of multiple factors had impacted the Project s performance, including MoF s unwillingness to use technical assistance judiciously when needed for consultants to undertake design and project management, protracted negotiations to get agreement on appropriate technical standards different from national standards for infrastructure design, delays in concluding contracts and processing of invoices due to the highly centralized system of disbursements that exist in MoF, limited capacity in the contracting industry etc. (for details refer to paragraph # 25 in Section 2.2) x

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13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. The Kabul Urban Reconstruction Project (KURP) 11 was appraised soon after major changes in the political and military situation in Afghanistan in the aftermath of September 11, 2001 a context of conflict, transition, and the emergency for reconstruction 12. The country s infrastructure was devastated, and most Afghans had had little or no access to basic municipal services. The majority of State Institutions were ineffective, institutional and legal frameworks were unclear, including for municipalities 13, and institutional capacities were severely limited. Urban population growth was estimated to be double the annual national population growth rate of 2.8 percent. Urban development challenges were particularly acute in Kabul, which had experienced a 15% increase in population between 1999 and 2002 due to migration of landless refugees and internally displaced people. Land and real estate transactions had gone unrecorded for decades, land markets were dysfunctional and informal settlements of improvised houses on public land outside the limits of the land use master plan prepared in 1978, had mushroomed all over Kabul. 2. A key challenge in urban areas for the Islamic Republic of Afghanistan (IRoA) newly created in December 2003, was the proliferation of informal settlements in Kabul that were home to almost 80 percent of the city s population. Representing a fixed capital investment of US$2.5 billion 14, not including the value of land, these settlements were home to about 2.4 million people living without access to basic municipal services. Although urban development and urban management was high on the Government s agenda and included in the Government s budget for National Priority Programs, there was no appropriate model for urban development that integrated informal settlements into the main fabric of the city. Investment needs in urban areas were estimated to be US$815.0 million over ; donor commitments for it stood at US$40.0 million. 3. The Bank s Transitional Support Strategy (TSS) of March 2003, based on the Government s reconstruction strategy, was to provide financial and non-financial assistance in areas where the Bank had a comparative advantage: (i) improving livelihoods; (ii) fiscal strategy, institutions, and management; (iii) governance and public administration; and (iv) enabling private sector development. Urban issues were to be addressed through analytic services, institutional capacity building, and pilot initiatives. 11 Initially called Emergency Urban Reconstruction Project, the word emergency was dropped after Appraisal to better reflect the Government s desire for implementation of programs of a developmental nature. 12 The Project was delivered within seven months as an Emergency Recovery Loan (ERL) as are all projects in Afghanistan. KURP predates the Bank s current enhanced understanding and policies for development in post conflict and fragile countries. 13 The Municipal Act of 1927 had been abrogated during the Taliban regime with its own Law. This Law had been declared void through a Presidential decree of 2000, but no new Law had been passed. 14 Economic Sector Work, Kabul Policy Notes, World Bank, data interpreted from satellite imagery. 1

14 By way of analytic services, the Bank prepared six Urban Policy Notes for Kabul 15. Institution capacity building and pilot initiatives were supported by this project, the Kabul Urban Reconstruction Project (KURP). The Project aimed to introduce contemporary techniques of urban planning, initiate programs for community based upgrading of informal urban neighborhoods, urban land use planning, and initiate modernization of the urban land management system. Delivered within seven months as an Emergency Recovery Loan (ERL), KURP predates the Bank s current enhanced understanding and policies for development in post conflict and fragile countries. Rationale for Bank Involvement 4. Donor engagement 16 in the urban sector was small and no donor was supporting the delivery of a comprehensive integrated package of basic municipal services in infrastructure-deficient planned and unplanned settlements. The identification of this gap provided a niche where the Bank has a comparative advantage, given over four decades of support for urban upgrading and integrated urban development around the world and its ability to facilitate and sustain reform processes over an extended period of time with sizable investment. It was uniquely positioned to respond to opportunities and challenges by: (a) applying a systematic and long term approach to urban development; (b) using the leverage of its lending volume and advisory capability to induce and accelerate institutional and policy reforms and demonstrate sustainable approaches to address shelter and urban development issues; and (c) making use of its extensive international experience and converting the lessons learnt into best practices Original Project Development Objectives (PDO) and Key Indicators (as approved) 5. The PDO as stated in the Technical Annex (equivalent of a Project Appraisal Document) was to provide improved delivery of basic urban services in vulnerable communities in Kabul Municipality through the upgrading of urban infrastructure and enhancing the managerial capacity of MUDH and Kabul Municipality. The PDOs as stated in the Development Credit Agreement (DCA), were worded a little differently: to assist the Borrower in: (i) improving capacity of the Ministry of Urban Development and Kabul Municipality in urban management 18 ; and (ii) supporting the integration of selected neighborhoods into the urban fabric of Kabul Municipality through the reconstruction and rehabilitation of urban services and facilities Between September 2004 and January 2005 Kabul Urban Land Crisis: A summary of issues and recommendations (Series # 1); Why and how should Kabul upgrade its informal settlements (Series # 2); Should Kabul grow by expanding to a new town or by building up its existing suburbs? (Series # 3); What are the sources of conflict in urban land tenure? (Series # 4); Will formal documents of title and the courts resolve all land disputes? (Series # 5); Conflict over property rights and resolution of disputes in Kabul: Conclusions (Series # 6). 16 Donor engagement in the urban sector had been small but growing European Union, GTZ, UNHCR, UN-HABITAT, Japan, MEDAIR, CARE, USAID, Italian Aid, CIDA. 17 Technical Annex, Kabul Urban Reconstruction Project, Report # T7629-AF, July 1, US$ 0.26m (1.04%) of total IDA credit was allocated to achieve this result. 19 US$ 24.19m (96.8%) of IDA credit was allocated to achieve this result. 2

15 6. With almost 97% of the Credit proceeds allocated to area upgrading, the key PDO indicator was the number of people in approximately 45 gozars who receive improved urban services and enhanced security of land tenure (Target: 250,000 people). 7. Output indicators for the different Parts of the Credit as stated in the Technical Annex were: (i) Number of hectares of urban land, including both formal and informal settlements subject to infrastructure improvements (Target: 1000 hectares with allocation of US$24.19m from the Credit proceeds, i.e. 96.8% of the Credit proceeds) (ii) Quality of manuals of procedures, skills developed; number of plot holders given enhanced security of tenure (Target: 5000 plot holders, with allocation of US$0.26m from the Credit proceeds, i.e. with 1.04% of the Credit proceeds) (iii) Increases in own revenue as percent of base (Target: 100%); Months after FY end required to produce Annual audit reports (Target 6 months, with 0% allocation of Credit proceeds). (iv) Physical development plans; Project proposals (Target 6 plans; 1 Project proposal with 0% of Credit proceeds) (v) Number of km new roads, reconstructed roads; number of km repaired drains (Target: 160 kms with 0% allocation of the Credit proceeds) 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 8. The revised PDO for the Credit after first-order restructuring on March 25, 2010 was to upgrade urban infrastructure to improve the delivery of basic urban services in under-serviced communities in Kabul Municipality, making the PDO s scope commensurate with the allocation of Credit proceeds (refer to paragraph # 21 for description of the changes). 9. The revised PDO Indicator in the DCA was: Number of people in approximately 16 gozars who receive improved urban services (Target: 92,000 people 20 ) 10. The cumulative impact of multiple factors led to significant delays in the start-up of the Project, and is discussed in detail in Section 2.2. Delays in implementation set in as the Ministry of Finance remained reluctant to use Credit proceeds for consultancy expenditures. With delays, construction costs in Afghanistan rose as international oil prices increased - almost all construction materials in Afghanistan are imported. Delays were exacerbated with deterioration in domestic security conditions. Financing was finally secured by the Bank for Consultancy expenditures in March from an 20 The target population was based on the interpretation of data from Ikonos satellite imagery of 2004 which had indicated that informal settlements had between 20 to 28 houses per hectare. Once the PMU and technical assistance to the PMU was in place, but before census surveys in each gozar were done, in target areas were done, KURP used an average of 25 houses per hectare with 6 people per household to establish targets achievable within the available Credit proceeds. 21 Grant Agreement for the Feasibility Study Facility Project (TAFSU) from the Afghanistan Reconstruction Trust Fund was made available in 2003 to the Government of Afghanistan to assist in; (a) 3

16 ARTF Grant managed by MoF, the PMU and technical assistance was put in place, a reassessment of targets achievable with the US$24.19m allocation for upgrading was done, and targets scaled back from 45 to 19 gozars. With 3 of the 19 gozars being located in the historic part of Kabul where unit prices would be higher, it became clear that the budget for upgrading was insufficient for the revised target of upgrading 19 gozars. Additional co-financing from the Afghanistan Reconstruction Trust Funds (ARTF) was secured to address the shortfall for upgrading the 3 historic gozars, and in 2010 the Project was restructured in response to the Ministry of Finance s (MoF) request to improve the Project s overall performance management and implementation. 11. The ICR team finds inconsistencies in documentation particularly with respect to Project outcomes/outputs and targets in Bank s internal documents: Implementation Status and Results Reports (ISRRs), Aide Memoires, Legal Agreements and Project Restructuring papers. For example, the Implementation Status Report (ISR) Sequence # 8, December 28, 2006 set a target to upgrade 600 hectares with an estimated population of 92,400 in 19 gozars. However in the ISRR Sequence # 15 the target is to upgrade 600 hectares with an estimated population of 92,000. The DCA of the Project at restructuring (January 28, 2010) of the restructured Project recorded the reduced geographical scope for the upgrading area (from 1000 hectares to 600 hectares) and number of gozars from 45 to 16, but the target number of beneficiaries was not consistent with the ARTF Project Paper of 2008 which stated that the historic gozars were home to 40,000 people. The ARTF Grant Agreement however states that the targeted beneficiaries from the ARTF Grant in the 3 historic gozars were 11,059 in which case the targeted beneficiaries from the IDA Credit alone would be 92,000 less 11,059, i.e. 80,991 people. These inconsistencies do not materially affect the achievement of targets after restructuring. 12. The Revised Intermediate Outcomes as stated in the DCA Attachment 3, were: (i) Number of hectares of urban land, to infrastructure improvements (Target: 600 hectares) (ii) Final account prepared yearly (iii) Physical development plan for Kabul. 1.4 Main Beneficiaries 13. Direct beneficiaries from upgrading of 618 hectares of land at the time of Project completion stands at 142,215, which was the population, recorded at the time of census surveys done between 2006 and As discussed in Annexes 3, 5 and 6, communities in the neighboring gozars benefited from a cleaner environment due to reduced dust as roads were paved; greater security due to street lighting; better access as taxis and other developing capacity to define needs for developmental projects and programs, and to prepare projects and programs that are suitable for funding by development partners and commercial sources; and (b) commencing the process of developing local technical and professional consulting capacity. US$3.2 million from this TF was made available for consultancy expenditures in

17 transport vehicles that now penetrate into areas that were inaccessible before; enhanced access to ancillary facilities like education centers for children / adults / women that have sprung up; more economic activity e.g. shops; and higher values of their property as a result of infrastructure improvements 22. Infrastructure improvements have increased real estate demand, and there has been neighborhood densification as residents have added rooms to rent. Women and children were the prime beneficiaries of investments in water supply, as was the Afghanistan Urban Water Supply and Sewerage Corporation (AUWSSC), whose revenues from Project areas increased by 36% from the target area, as the Project provided 5,121 new house or public tap connections. This revenue is likely to increase once the water production and distribution investments supported by KfW, originally scheduled for completion in 2006, are completed in the future, as 3,264 connections provided by KURP do not currently have water. 14. The Project also generated 855,000 man days of skilled and unskilled employment. In addition, engineers from small contracting firms benefited from training delivered by the PMU and their Technical Assistance (TA) consultants in areas like Project management, finance, materials testing, environment and social safeguards etc. Many of these small firms grew, some getting absorbed into bigger companies as a result of the capacity built under KURP, although this was not a specific indicator tracked during implementation Original Components (as approved) (KURP-IDA Cr. 3967, and ARTF Grant TF# ) 15. With 3 out of the 6 components of KURP to be financed by the Credit, KURP consisted of the following parts as described in the DCA 24 : Part A: Area Upgrading in Kabul Municipality (US$25.11: US$24.19 from the Credit, or 96.8% of the Credit proceeds and an expected US$0.92 from donors): Carrying out an area-upgrading program in areas under Kabul Municipality s jurisdiction focusing on poor, infrastructure-deficient, planned and unplanned neighborhoods by providing improved water supply, sanitation, solid waste management, access roads, hill-side steps, drainage and street lighting services and facilities. Part B: Land Tenure Regularization (US$0.64: US$0.26 from the Credit or 1.04% of the Credit proceeds and US$0.38 expected financing from donors): Developing an appropriate capacity, appropriate methodologies, and procedures to regularize urban land-tenure in the Borrower s territory, including: (i) the carrying out of pilot schemes to test methodologies and assess capacity in four identified communities; 22 Beneficiary Assessment done just prior to the closing of the Project. 23 from KURP PMU, September 26, 2012, confirmed during meeting on 22 October, It is unusual for a Bank Legal Agreement to include PDOs, component descriptions, and an agreement for results to be achieved from a Project on the basis of an expectation that donor resources (usually off budget in Afghanistan) would be secured. This was the case with KURP the impacts are the following: while the IDA Credit was for US$25.0m, the overall Project costs appear to be US$52.0m; result indicators for which financing was not available were tracked throughout the Project life leading to poor performance ratings; and there is a lack of clarity for efficiency analysis in the ICR: US$25m or US$52m? 5

18 and (ii) capacity-building and training in the Afghan Cartography Office, the Kabul Makhzan 25, and other Project implementing agencies. Part C: Engineering and Management Support for the Borrower s Urban Agencies (US$4.32m: US$0.55 from the Credit or 2.2% of the Credit proceeds and US$3.77 expected financing from donors): Provision of engineering and Project management support including: (i) technical assistance by the Technical Support Unit to support the Program Management Unit, the Project Support Team, and the planning and design consultants; (ii) goods for the Ministry of Urban Development, Kabul Municipality, and the Afghan Cartography Office; (iii) auditing, monitoring and evaluation services, and (iv) incremental operating expenses. This component was also designed to be co-financed with other donors. IDA financing for the component was US$ 0.55m. Part D: Overall Capacity Building for Kabul Municipality (US$0.3m: No financing from the Credit, all expected from donors: Assisting Kabul Municipality by: (i) strengthening its revenue generation, financial management, budgeting and planning (other than town planning); (ii) capacity building for various departments including: (A) the planning and finance department and related sub-departments, (B) the income department, (C) the properties department, and (D) the control office; and (iii) the development, design, and implementation of simple operating procedures to improve efficiency. There was no IDA financing for this component. Part E: Preparation of Structure Plans and a Future Urban Project (US$1.64: No financing from the Credit, all expected from donors): Assisting the Ministry of Urban Development, Kabul Municipality, and other Participating Municipalities in: (i) preparing physical development plans; and (ii) building planning capacity, and (iii) preparing feasibility study for a future urban Project focusing on city-wide urban services in Kabul Municipality and other Participating Municipalities. The total cost of the component was estimated to be US$ 1.64m. Part F: Improvements to Main Roads, Drainage, and Traffic Management in Kabul (US$20.0m with no financing from the Credit). A program involving construction and rehabilitation of major streets and drains in Kabul Municipality that will include: (i) construction of new roads; (ii) reconstruction, repair, and overlay of existing roads; and (iii) repair of primary drainage channels and secondary drainage systems; and (iv) traffic management improvements. This component was designed to be co-financed through donor support. Total cost estimate for this component was US$ 20m. 16. The components financed from the ARTF Grant were described as follows in the ARTF Grant Agreement: Part A: Area Upgrading in the Historic Old City of Kabul (US$3.6m): Carrying out an area-upgrading program in the Historic Old City of Kabul through the 25 The government agency which is the repository of land titles, deeds and other documents. 6

19 improvement of basic tertiary infrastructure and services, including water supply, sanitation, solid waste management, access roads, drainage and street lighting services and facilities, in response to community needs and demands. Part B: Engineering and Project Management Support (US$1.76m): Providing engineering and Project management support for: (i) the development of methodologies and construction standards appropriate for the preservation of the cultural heritage of the Historic Old City of Kabul; (ii) the design, planning, and supervision of interventions in accordance thereof for the upgrade of infrastructure in the Historic Old City of Kabul; and (iii) the carrying out of capacity-building and training activities for Project implementing agencies. Part C: Support to Cultural Heritage (US$0.24m): Strengthening the capacity of MoUDA s Department for the Safeguarding of Afghanistan s Urban Heritage in order to develop policies for the regulation and upgrade of urban areas of historical and cultural interest. This component also supported implementation of a social and environmental impact assessment to inform the area upgrading plan for the Historic Old City of Kabul. Project Costs: KURP-IDA Cr and ARTF Grants (as approved) 17. The table below provides a composite overview of the entire Project before restructuring, the Credit as well as the two ARTF Grants, TF for US$ 3.2m for TA, and # TF for US$5.6m for upgrading 3 historic gozars. The total IDA support at the time of appraisal was envisaged to be US$ 25 million. The total cost with IDA Credit and anticipated donor funding at the time of appraisal was estimated to be US$ 52 million (although this was never realized, and the improvements to main roads and drains envisaged was packaged under another IDA supported Project, the Kabul Urban Roads Improvement Project). IDA Credit US$25.0m IDA Components Part A: Area Upgrading in Kabul Municipality Part B: Land Tenure Regularization Part C: Engineering and Management Support for the Borrower s Urban Agencies % % % Unrealized Donor Financing ARTF Funds for Historic gozars (US$5.6m) ARTF Components 0.92 Part A: Area Upgrading in 0.38 the Historic Old City of Kabul 3.77 Part B: Engineering and Project Management Support ARTF (US$3.2m) from TAFSU 3.6 None 1.76** 3.2* 7

20 Part D: Overall Capacity Building for Kabul Municipality Part E: Preparation of Structure Plans and a Future Urban Project Part F: Improvements to Main Roads, Drainage, and Traffic Management in Kabul None 0.3 Total 52.0 None 1.64 Part C: Support to Cultural Heritage None None 1.6 Revised Components 18. The table below provides a composite overview of the Project after reallocation of Credit proceeds for Consultancy services to supplement the MoF managed Technical Assistance and Feasibility Study (TAFS) Grant # that enabled the establishment of the PMU and its TA (2006), and Project restructuring (2010). The components financed through ARTF are stated above under paragraph 17. IDA financed Components (US$ 25m) Part A: Area Upgrading in Kabul Municipality Part B: Land Tenure Regularization Part C: Engineering and Management Support for the Borrower s Urban Agencies Part D: Overall Capacity Building ARTF financed Components (US$5.6m) Part A: Area Upgrading in 0.03 the Historic Old City of Kabul 3.2 Part B: Engineering and Project Management Support None ARTF (TAFSU) 3.6 None 1.76** 3.2* 26 About US$ 0.3 m from TF was provided for Part D: capacity Building for Kabul Municipality 8

21 for Kabul Municipality Part E: Preparation of Structure Plans and a Future Urban Project Part F: Improvements to Main Roads, Drainage, and Traffic Management in 1.4 Part C: Support to Cultural Heritage None 0.24 None Kabul Total Total Financing for KURP: US$33.8m 1.7 Other significant changes 19. Finance for Consultancy services: As stated in paragraph 10, Ministry of Finance s reluctance to use Credit proceeds to finance consultancy services, US$3.2 million was made available from the Technical Assistance and Feasibility Studies Facility 27 (TAFS, TF 50970) funded through ARTF in December 2006 for co-financing of technical assistance for Project management as well as engineering preparation and supervision of works. Another US$5.6m was made available to finance the civil works in historic gozars through the ARTF TF for US$ 5.6 million to cover the short fall for civil works from the Credit. 20. Reallocation of Credit proceeds: A reallocation of funds amongst disbursement categories in April 2006 enabled the Credit to finance consultancy services 28, recruit staff for the Project Management Unit (PMU) to replace ministerial staff seconded to the Project, and make up for the lack of co-financing for the land tenure component at the time of Appraisal. Credit proceeds were reallocated from Component A (urban upgrading) to Component C (Engineering and Management Support) and Component E (Preparation of Structural Plans). At the time of approval, co-financing not identified was intended to finance consultant services. No co-financing was identified, and a reallocation of funds amongst 27 TF ARTF Grant Agreement for the Feasibility Study Facility Project was made available in 2003 to the Government of Afghanistan to assist in; (a) developing capacity to define needs for developmental projects and programs, and to prepare projects and programs that are suitable for funding by development partners and commercial sources; and (b) commencing the process of developing local technical and professional consulting capacity. It was not earmarked for any specific project but for the preparation of identifying and preparing projects and programs that would be suitable for donor support. US$3.2 million from this facility was provided to KURP. 28 There was also an increase in the cost of consulting services due to inflation and a decree from the Ministry of Finance on the tax liability of consultants. Memo to CD, April 26,

22 disbursement categories was done in April 2006 so that the Credit could finance consultancy services, including the PMU staff which were recruited replacing ministerial staff seconded to the project, as well as the land tenure component due to the absence of co-financing. 21. Amendments to the DCA and extensions in the closing date of the Credit: The DCA was amended twice, a level 2 restructuring the first time, and a level 1 restructuring the second time?: For the first time on March 24, 2009 to (i) extend the closing date of the Project from March 31, 2009 to March 31, 2010; and (ii) provide for an increase in the Special Account Authorized Allocation. No changes were made to the PDO or the PDO indicators, and the amendment required no exception to Bank policies. The second time on March 25, 2010 to (i) extend the closing date of the Project from March 31, 2010 to March 31, 2011; (ii) cancel components that were expected to be financed by other donors at Appraisal; (iii) reduce the allocation of funds for upgrading by 8%; and (iv) revise the PDO and output targets (paragraph 13). This revision was necessary, among other reasons, to comply with the Government s request to include all planned and unplanned areas within the administrative boundary of a gozar for upgrading, so the average area covered by the project was higher than the average gozar size used for budgeting in Extension of the closing date of the ARTF Grant: The closing date of the ARTF Grant TF#50970 was extended three times to enable completion of works in historic areas, largely because of the deteriorating security situation in Kabul since 2009 which caused unpredictable mobility restrictions in the city, affecting the movement of contractors that naturally led to delays in construction. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 23. The urban agenda and the program outlined by the Ministry of Urban Development Affairs (MoUDA) to which KURP tried to respond, was extremely ambitious 29. Despite Project design supported by a qualified Bank team with required skills, the team failed to exercise judicious selectivity in the scope of the Project - the components chosen were neither straightforward nor simple, nor was there adequate time to prepare them, nor were there adequate resources. There were also multiple interlocutors for such components, increasing the number of entities that would be involved in the implementation of the Project and consequently the complexity. In fact, the municipal finance component was not managed by the KURP PMU but by the MoF. 29 MoUDA s program had the following elements: (i) Planning and Management aimed to strengthen MoUDA s capacity for planning and removing barriers to reconstruction; (ii) Housing to include serviced land for self-help housing / grants for reconstruction and upgrading, and land policy interventions to increase the supply of land; (iii) Infrastructure to increase provision of residential water supply, power, roads, sewage treatment in Kabul and solid waste management in Kabul and five cities, (iv) Government Building reconstruction especially in the provinces to complement the civil service reform program. 10

23 This complexity was further exacerbated by the inclusion of unfunded components that needed implementation and monitoring arrangements different from the rest of the Project making the Project unmanageable. There was no budget for contingencies and therefore little recourse when consultancy packages were awarded at twice the estimated budget. A lack of knowledge of the capacity of the local construction industry in when preparation took place, led to unrealistic time schedules for contract execution which ultimately made contract management even more challenging than is the case in a country where security conditions impact the market. Had the Project included only two components, Infrastructure and Project Management, it is conceivable that the Project s implementation performance may have been both better and faster. 24. The focus of the Project was upgrading of under-serviced urban settlements. A number of key lessons on urban upgrading from international experience were incorporated in the component s design 30. The introduction of urban upgrading as a concept in any country is challenging, as such settlements are commonly perceived as illegal. The component challenged the mind sets of the Afghans who had returned to the country to assume influential positions in government this leadership had not only a strong nostalgia for the green Kabul they had left behind 31, but were also motivated to see Kabul develop rapidly, i.e. in a planned manner, as unplanned development was not seen as development despite the enormous private investment in such areas. Upgrading requires significant advocacy and knowledge sharing which takes time, to bring about a change in mind-set from perceiving unplanned settlements as illegal and therefore worthy only of demolition and urban renewal. The policy notes on Kabul and Upgrading prepared by the Bank did win champions for the concept at the highest levels in the MoF and MoUDA, but there was little time to cultivate the champions needed in KM where the Project investments were made Implementation 25. The cumulative impact of multiple factors caused the Project to perform poorly in its early years. These factors ranged from (i) the new leadership being slow to acknowledge challenges of implementation managed through government employees with little motivation or commitment; (ii) the MoF s unwillingness to use Credit proceeds for technical assistance judiciously when needed although the Credit proceeds were intended to finance this 32 ; (iii) frequent personnel changes on the client side; (iv) inadequate experience and capacity for procurement in conformity with Bank requirements; (v) protracted negotiations to agree on appropriate technical standards and design norms with the engineers of KM and reaching agreement for delivering water connections for households without land tenure rights; (vi) delays in concluding 30 (i) The importance of ownership of investments by stakeholders who are responsible for operations and maintenance; (ii) Flexible design standards that reduce costs and minimize disruption so that upgrading can go to scale, and (iii) Ihe importance of beneficiary participation. 31 This had been identified as a risk at the concept stage, and a decision was taken to focus on Kabul alone, as opposed to additional cities, to minimize the risk. 32 During Negotiations, the financing of all Consultancy services, apart from US$100,000, was removed from IDA financing and was to be co-financed (Restructuring paper, February 2009). 11

24 contracts and processing invoices due to the highly centralized system of financial management in Afghanistan where no Project funds are provided at the Project level, and all payments are made by the MoF severely affecting disbursements; (vii) delays due to limited capacity in the construction industry for cash flow management and adherence to technical specifications; and, (viii) timely and accurate submission of invoices with supporting documentation to the MoF. Project management and implementation arrangements were not in place at Project effectiveness, and much of the design work that is usually done for infrastructure Projects before Appraisal, did not start until some two years and five months into implementation, when TA and Project Management Unit staffing was in place Agreement on use of Credit Proceeds for TA took time. Reluctance on the part of MoF to use the Credit proceeds for establishing a Project Management Unit (PMU) and procuring the TA created a two year delay both these were imperative to initiate detailed design work so procurement of contractors for civil works could begin. In December 2006, US$3.2 million was made available from the ARTF TF # for cofinancing of TA, along with a commitment by the Bank to seek financing for the PMU in MoUDA as required by the DCA. 27. Project Management and Implementation Arrangements: The Project s design called for the PMU to be supported by firms that provided TA for Project management known as the Technical Support Unit (TSU), and firms known as the Planning Design and Contracts Management (PD&C) firms that were responsible for community mobilization, preparation of upgrading plans, detailed designs and supervision of works. All procurement in Afghanistan is managed by the Afghanistan Reconstruction and Development Service (ARDS) whose capacity limitations (which still exist) caused a two year delay in procuring TA for the PMU whose procurement was not completed till February Furthermore, it took the Bank time to persuade the MoF to allow KURP to establish its own procurement capacity with staff recruited at market salaries, and ultimately the Government made an exception for KURP. 28. Final selection of upgrading areas and a revision of key assumptions: The original target of 250,000 vulnerable 34 beneficiaries established in 2004 had to be revised once detailed studies were completed to finalize gozar selection. Meanwhile upgrading work had been undertaken in the historic parts of Kabul by other donors 35 and provided some guidance on higher upgrading costs in historic areas that was not available during 33 KURP Mid Term Review Report, November A study to determine eligibility criteria was undertaken, based on vulnerability and service deficits, and a scoring system for the criteria and related indicators developed based on secondary data and district administrator interviews. A preliminary list of neighborhoods viable for upgrading were developed (approximately 90 neighborhoods) based on the scoring system and screened through the findings of a sample survey to more narrowly define the preliminary selection to approximately 60 which best meet vulnerability and service deficiency criteria. Service deficits were identified and prioritized through interviews with municipal, ministry, district and neighborhood representatives, in addition to the household survey. 35 The Agha Khan Trust for Culture (AKTC) and the Turquoise Mountain Foundation (TQM) had begun work in a neighborhood called Murad Khana. 12