IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-12150) ON A GRANT IN THE AMOUNT OF US$ 8.0 MILLION TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE

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1 Public Disclosure Authorized Document of The World Bank Report No: ICR Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-12150) ON A GRANT IN THE AMOUNT OF US$ 8.0 MILLION Public Disclosure Authorized UNDER THE MULTI-DONOR TRUST FUND FOR KHYBER PAKHTUNKHWA, FEDERALLY ADMINISTERED TRIBAL AREAS (FATA), AND BALOCHISTAN TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE FATA URBAN CENTERS PROJECT Public Disclosure Authorized April 24, 2016 Social, Urban, Rural, and Resilience Global Practice Pakistan Country Management Unit South Asia Region

2 CURRENCY EQUIVALENTS Exchange Rate as of 30, September 2015 Currency Unit = Pakistan Rupees (PKR) US$1.00 = PKR (At Effectiveness: US$1.00 = PKR At Additional Financing: US$1.00 = PKR 98.68) FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS ACS ADB AF BP BPS CPS DA DM&E DNA DO EA EPP ERR or EIRR ESMF ESMP ESSAF FATA FC FDA FCR FM FUCP FY GDP GoP IBRD ICRR Additional Chief Secretary Asian Development Bank Additional Financing Bank Procedure Beneficiary Perception Survey Country Partnership Strategy Designated Account Directorate of Monitoring & Evaluation Damage and Needs Assessment Development Objective Environmental Assessment Emergency Project Paper Economic Rate of Return or Economic Internal Rate of Return Environmental and Social Management Framework Environmental and Social Management Plan Environmental and Social Screening and Assessment Framework Federally Administered Tribal Areas Frontier Corps FATA Development Authority Frontier Crimes Regulations Financial Management FATA Urban Centers Project Fiscal Year Gross Domestic Product Government of Pakistan International Bank for Reconstruction and Development Implementation Completion and Results Report i

3 IDA IFRs IP IRR ISR KP LG&RD M&E MC MDTF MTR NGO NPV O&M OP PA PCNA PDO SOPs TARUCCI TPMU TTL VOC VLD WB International Development Association Interim Financial Reports Implementation Progress Internal Rate of Return Implementation Status and Results Khyber Pakhtunkhwa Local Government & Rural Development Monitoring and Evaluation Municipal Committee Multi Donor Trust Fund Mid-Term Review Non-Government Organization Net Present Value Operation and Maintenance Operational Policy Political Agent Post Crisis Needs Assessment Project Development Objective Standard Operating Procedures Tribal Areas Rural-to-Urban Centers Conversion Initiative TARUCCI Project Management Unit Task Team Leader Vehicle Operating Costs Voluntary Land Donation World Bank Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Sector Manager: Ming Zhang Project Team Leader: Shahnaz Arshad ICR Team Leader: Shahnaz Arshad ii

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5 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 PAKISTAN FATA Urban Centers Project CONTENTS 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. Grant Preparation and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Grantee s ICR Annex 7. List of Supporting Documents MAP..48 iii

6 A. Basic Information DATA SHEET Country: Pakistan Project Name: FATA Urban Centers Project (FUCP) Project ID: P L/C/TF Number(s): TF ICR Date: 03/07/2016 ICR Type: Core ICR Lending Instrument: ERL Grantee: Original Total Commitment: Revised Amount: USD 8.00M Environmental Category: B Implementing Agencies: FATA Secretariat Cofinanciers and Other External Partners: NA B. Key Dates GOVERNMENT OF PAKISTAN USD 7.00M Disbursed Amount: USD 7.49M Process Date Process Original Date Revised / Actual Date(s) Concept Review: 08/23/2011 Effectiveness: 04/12/2012 Appraisal: NA Restructuring(s): 07/01/ /18/2015 Approval: 04/03/2012 Mid-term Review: 06/21/ /21/2014 Closing: 06/30/ /30/2015 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Grantee Performance: Satisfactory Significant Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Satisfactory Performance: Performance: Satisfactory iv

7 C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No No Indicators Moderately Satisfactory QAG Assessments (if any) Quality at Entry (QEA): None Quality of Supervision (QSA): None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General transportation sector General water, sanitation and flood protection sector Health 15 0 Sub-national government administration Theme Code (as % of total Bank financing) Municipal governance and institution building Other urban development Urban services and housing for the poor E. Bank Staff Positions At ICR At Approval Vice President: Annette Dixon Isabel M. Guerrero Country Director: Patchamuthu Illangovan Rachid Benmessaoud Practice Manager/Manager: Ming Zhang Ming Zhang Project Team Leader: Shahnaz Arshad Shahnaz Arshad ICR Team Leader: ICR Primary Author: F. Results Framework Analysis Shahnaz Arshad Suhaib Rasheed; Sohaib Athar Project Development Objectives (from Project Appraisal Document) The project development objective of FUCP was to improve urban services and management in Khar, Bajaur Agency and develop a framework for urban management in FATA. v

8 Revised Project Development Objectives (as approved by original approving authority) Not Applicable (a) PDO Indicator(s) Indicator Indicator 1 : Value Quantitative or Qualitative) Comments (incl. % achievement) Indicator 2 : Value Quantitative or Qualitative) Comments (incl. % achievement) Indicator 3 : Value Quantitative or Qualitative) Comments (incl. % achievement) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Percentage of project beneficiaries satisfied with quality of project provided priority urban services Target exceeded, based on results from an independent Beneficiary Satisfaction Survey. Percentage of Khar population who perceive that delivery of priority urban services is being improved through the project Target exceeded, based on results from an independent Beneficiary Satisfaction Survey. Framework for improved urban spatial planning, investment decision-making, and service improvement planning, developed for FATA, and piloted in selected towns. Weak spatial and investment planning, and service coverage data for FATA s towns. Target exceeded. - Urban structure plans, service coverage maps, and priority investment lists prepared for 3 towns in FATA. Urban structure plans, service coverage maps, and priority investment lists prepared for 5 towns in FATA. vi

9 (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (Quantitative or Qualitative) Comments (incl. % achievement) Indicator 2 : Value (Quantitative or Qualitative) Comments (incl. % achievement) Indicator 3 : Value (quantitative or Qualitative) Comments (incl. % achievement) Indicator 4 : Value (Quantitative or Qualitative) Comments (incl. % achievement) Indicator 5 : Value (Quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years New (or restored) piped household water connections that are resulting from the project intervention ,200 Target achieved. The rehabilitated and extended water supply network can provide up to 2,200 connections. Urban roads rehabilitated under the project Achieved results exceed the target. Number of street lights installed/restored in Khar Achieved results exceed the target. Number of people in Khar provided with access to regular solid waste collection under the project. 0 1,000 Secondary collection from 13 garbage collection points servicing around 30,000 people Target exceeded through the collection and transport of solid waste from interim collection sites. Direct project beneficiaries (number), of which female (percentage). 0 20,000 & 50% 40,000 & 48% Population Census - gender ratio for Khar. vii

10 Indicator Comments (incl. % achievement) Indicator 6 : Value (Quantitative or Qualitative) Comments (incl. % achievement) Indicator 7 : Value (Quantitative or Qualitative) Comments (incl. % achievement) Indicator 8 : Value (Quantitative or Qualitative) Comments (incl. % achievement) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Target of direct project beneficiaries exceeded by 100%. Actual Value Achieved at Completion or Target Years Number of urban centers in FATA with structure plans developed under the project Achieved results exceed the target. Structure Plans for Khar (Bajaur Agency), Landi Kotal (Khyber Agency), Ghalanai (Mohmand Agency), Parachinar and Sadda (both in Kurram Agency) have been finalized after reflecting comments from stakeholders. Number of urban centers in FATA with existing service delivery coverage and physical infrastructure mapped under the project Achieved 167% of planned targets. Number of urban centers in FATA with demand-based priority investments for service delivery improvement identified under the project Achieved 167% of planned targets. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 11/26/2012 Satisfactory Satisfactory /19/2013 Satisfactory Satisfactory /21/2013 Satisfactory Satisfactory /17/2014 Satisfactory Satisfactory /27/2014 Satisfactory Moderately Satisfactory /08/2015 Satisfactory Moderately Satisfactory /07/2015 Moderately Satisfactory Satisfactory 7.49 viii

11 H. Restructuring (if any) Board Restructuring Approved Date(s) PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions 07/01/2014 N S S /18/2015 N S MS 7.49 I. Disbursement Profile Reason for Restructuring and Key Changes Made Additional financing of USD 1.0 million to scale-up the project. PDO level indicators and Intermediate indicators revised to reflect scaled-up project scope. Extension of closing date by three months to allow for completion of infrastructure subprojects. ix

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13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. FATA: The Federally Administrated Tribal Areas (FATA) lie in the mountainous north west of Pakistan alongside the Afghanistan border, and are mainly inhabited by Pashtun tribes. FATA is governed directly by the Government of Pakistan (GoP) through the office of the Governor of Khyber Pakhtunkhwa (KP) province. FATA is comprised of seven Agencies and six Frontier Regions. 2 The administrative head of each tribal agency is the Political Agent (PA) who is a civil servant appointed by the Governor. In 2006 the GoP established the FATA Secretariat to run the affairs of the region in a more streamlined manner under the advice of the Governor. 2. Conflict Background: FATA remained on the frontlines of the decades-long conflict in Afghanistan beginning with the Soviet invasion of that country in the late 1970s and the resulting guerrilla war. The region saw an extreme deterioration in law and order, as militants from Afghanistan were pushed into FATA and took advantage of the governance vacuum to create strongholds across the region. In addition to having a strong detrimental effects on the security environment of the region and the country, it also exacerbated the socio-economic disparity between this region and the rest the country. 3. GoP launched a full-scale military operation against the armed militants in early The region experienced an internal displacement of about 2 million people from the conflict area in the period of a few months. Considerable damage was also caused to physical and social infrastructure. In July 2009, the GoP lifted restrictions on the return of the temporarily displaced population, as a first step to boost confidence among residents. It also initiated an early recovery process to address the needs of the displaced population and to reestablish administrative control. It requested the donor community, including the Bank, for support with creating a post-conflict development framework for these areas to reduce social and economic disparities with the rest of the country. 4. Sector Background: FATA has the lowest level of urbanization in the country and per the last population census of 1998, less than 3% of the population resided in areas officially designated as urban. Local Governments (LGs) have historically existed in only three towns of FATA, i.e., Parachinar and Sadda (in Kurram Agency), and Miranshah (in North Waziristan Agency) as Municipal Committees (MCs). Other towns have been administered only by the office of the PA. The coverage and quality of municipal infrastructure and services in FATA remains much lower than similar-sized settlements in other parts of the country. The absence of appropriate institutional structures has led to ad hoc management of towns in FATA. Moreover, absence of land settlement and tenure mechanisms result in either collective (tribal) holding or undocumented and informal private ownership of land. However, despite these problems, the urban centers still represent the most vital opportunities for the majority of the tribal population for accessing essential services, venues for trade, and wider economic opportunities. 5. Government Response and Bank Involvement: At the request of GoP in late 2009, the Bank and three other development partners 3 conducted a Post Crisis Needs Assessment (PCNA) for KP and FATA, in collaboration with the FATA Secretariat and the Government of KP 2 The Agencies are Bajaur, Khyber, Kurram, Mohmand, Orakzai and North and South Waziristan. The Frontier Regions (FRs) are Bannu, Dera Ismail Khan, Kohat, Lakki Marwat, Peshawar and Tank. Each FR borders a settled District of the same name that is part of the Khyber Pakhtunkhwa province. 3 Including the Asian Development Bank, European Commission, and United Nations. 1

14 province. The PCNA process was innovative and involved extensive grassroots consultations with the conflict affected communities in FATA and groups representing various stakeholders such as of civil society (maliks 4, media, NGOs), and public services (military, civil service, police, etc). The PCNA identified drivers of conflict in the region and developed a framework of strategic priorities to address them in order to improve socio-economic outcomes. 6. GoP subsequently requested the Bank to administer a Multi Donor Trust Fund (MDTF) for the recovery and rehabilitation of the crisis-affected areas in KP, FATA and Balochistan. The MDTF was established in 2010, and is supporting implementation of a program for reconstruction and development. Concurrently, the FATA Secretariat conceived its flagship Tribal Areas Rural to Urban Centers Conversion Initiative (TARUCCI), as a strategy for the long term social and economic transformation in FATA. It aims to encourage the rural tribal population to move to towns through provision of better security, job opportunities, and quality of life and in turn become more urbane. This is in line with findings of the World Development Report 2011 on conflict, which recognizes rapid urbanization as a potential stress factor that needs to be managed better 5, which FUCP has supported through the operationalization of an urban management framework. The FATA Secretariat requested assistance for TARUCCI from the MDTF. FUCP was conceived to support piloting the TARUCCI Program in one of the 14 urban centers for municipal services. 7. The project was aligned with the Pakistan Country Partnership Strategy (CPS) which considered addressing longstanding economic deprivation and social inequities in the northwest frontier region of Pakistan as critical to dealing with conflict. It helped support two pillars of the CPS, namely: improving infrastructure to support growth; and improving security and reducing the risk of conflict. It supported the former by providing essential infrastructure; and the latter by providing priority municipal services to the crisis-affected population to help rebuild citizen-state trust and improve the perception of state responsiveness. 1.2 Original Project Development Objectives (PDO) and Key Indicators 8. The Project Development Objective (PDO) was to improve urban services and management in Khar, Bajaur Agency and develop a framework for urban management in FATA. The PDO is the same in the Emergency Project Paper and the Grant Agreement Key PDO indicators were: a) Percentage of project beneficiaries satisfied with quality of project provided priority urban services (to measure improved urban services and management in Khar ). b) Percentage of Khar population who perceive their priority urban service needs are being addressed (to measure improved urban services and management in Khar ). c) Implementation of new urban management system initiated in Khar (to measure improve urban services and management in Khar and develop a framework for urban management in FATA ). 4 Tribal elders and community decision-takers who sit on jirgas (local community assemblies). 5 World Bank, World Development Report 2011: Conflict, Security, and Development, Table 1.1 in Overview chapter. Available at < 6 The words Bajaur Agency are not included in the PDO in the Grant Agreement; Khar is the headquarter town of Bajaur Agency. 2

15 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. The PDO was not revised. The key performance indicators were revised with the approval of additional financing on July 1, The revision of indicators is shown in Table 1 below. Table 1: Revision to PDO Indicators Original As appearing in Emergency Project Paper for initial grant, dated April 3, 2012 Percentage of project beneficiaries in Khar satisfied with quality of project provided priority urban services. Percentage of Khar population who perceive their priority urban service needs are being addressed. Implementation of new urban management system. Revised As reflected in Emergency Project Paper for Additional Financing dated July 1, 2014 Revision of target value from 100% to 60%. Percentage of Khar population who perceive that delivery of priority urban services is being improved through the Project. Framework for improved urban spatial planning, investment decision-making, and service improvement planning developed for FATA, and piloted in selected towns. Reasons for Revision Most project beneficiaries were expected to benefit only from a subset of the overall service delivery investments, due to the different spatial footprint of service coverage of each of the proposed investments. This would affect beneficiary satisfaction and hence required a revision of target value. Revised to facilitate a ready comparison between baseline and final values, with improvements directly attributable to Project activities. Revised indicator aligned with targeted improvements in urban management, and also covered scaling up of activities to additional towns in FATA. 11. This Implementation Completion and Results Report (ICRR) discusses the results of the Project in achieving the revised result indicators to achieve the PDO. 1.4 Main Beneficiaries 12. Infrastructure investments directly benefitted 40,000 people of Khar 7 and indirectly benefited the entire population of the town estimated to be 58, The institutional strengthening component benefitted TARUCCI Project Management Unit (TPMU), the Directorate of Local Government & Rural Development (LG&RD), and the Municipal Committee (MC), Khar established under this project. 7 Each infrastructure subproject has a different set of beneficiaries, but due to the location of the subprojects there is significant overlap between the beneficiary areas. The figure of 40,000 represents the higher end for the number of beneficiaries of all subprojects. Beneficiaries for the roads rehabilitation subproject have been estimated as the population residing within 500 meters radius of the road. However, given the importance and location of the road in the context of Khar town, the entire population of the town is likely to have benefitted from it. 48% of the total beneficiaries are assumed to be women, based on the gender ratio in Khar per the 1998 Population Census. 8 Source: Khar Structure Plan Report

16 1.5 Original Components 13. The project consisted of two components: (i) priority infrastructure investment projects; and (ii) technical assistance and implementation support. 14. Component One: Priority Infrastructure Investments in Khar (US$6 million - 86% of total project financing; revised to US$6.4 million - 80% of revised total project financing): Carrying out of priority infrastructure investments, including rehabilitation, reconstruction, expansion, and upgradation of water supply, sanitation, solid waste management, streetlights, drains, roads, firefighting, and a general bus terminal, in Khar, through acquisition of goods and the carrying out of works. The component also included associated land acquisition and resettlement and rehabilitation, including compensation, of project affected persons Component Two: Technical Assistance and Implementation Support (US$1 million - 14% of total project financing; revised to US$1.6 million - 20% of revised total project financing): This component supported: a. Design and development of an overall urban management framework for FATA, including development of a conceptual framework, an implementation roadmap, and guidelines in relation to areas such as structural and spatial planning and demarcation of urban boundaries, strengthening of institutional structures, such as FATA Secretariat, and their business processes and procedures, and the development of a communications strategy, through the provision of consultants services and the carrying out of training; b. Preparation for the implementation of priority infrastructure investments in a pilot urban center (Khar, Bajaur Agency), including carrying out of surveys to establish demand for proposed services and assessments for the preparation of investments under component one, development of geographic information system maps and spatial plans for the future growth of such center and in relation to infrastructure and services, development of land records, capacity building in relation to local governance, finance, and management of service provision, and enhancement of local government capacity to increase funding from internal sources, in Khar, through the provision of consultants services and the carrying out of training; c. Strengthening of the TARUCCI Project Management Unit (TPMU), the Directorate of Local Government & Rural Development (LG&RD), and the Municipal Committee for Khar, including capacity building for the purposes of project implementation, through the acquisition of goods, provision of consultants services and the carrying out of training; and d. Project management, through the financing of operating costs. 1.6 Revised Components 16. In July 2014 an additional financing of US$1 million was approved from the savings of FATA s share of MDTF funds to scale-up the project. An additional US$0.4 million was allocated to Component-1 and the menu of eligible investments was expanded to additional municipal infrastructure and services including: rescue and firefighting equipment, parks development and 9 Land acquisition was not financed under the project due to the absence of formal land settlement and land records in FATA. A mechanism for Voluntary Land Donation was devised under the Environmental and Social Management Plan (ESMP) to obtain land for infrastructure subprojects. Compensation was provided to affected persons under the ESMP. 4

17 public toilets. US$0.6 million was allocated to Component-2 to enable the planning process to be undertaken in additional towns. 1.7 Other Significant Changes 17. In June 2015 the closing date of the project was extended by three months from June 30, 2015 to September 30, 2015 to enable the completion of on-going infrastructure investments and technical assistance activities in an orderly manner, and to ensure full operationalization of the newly established MC Khar. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 18. Soundness of Background Analysis: FUCP integrated local knowledge of past operations, as well as knowledge garnered through the rigorous PCNA process, the conflict analysis framework developed under it, and consultations with conflict affected communities undertaken for the first time in FATA. FUCP s design responded to two of the four strategic objectives of the PCNA: (a) enhance responsiveness and effectiveness of state to restore citizen trust; and (b) ensure provision of basic services. FUCP was designed to support the phased implementation of a portion of the overall TARUCCI approach. The project sought to respond to the immediate need to undertake high impact investments in the post-crisis context in order to restore public confidence and facilitate early economic recovery. 19. Assessment of Project Design: Project Design was realistic and simple, and piloted the TARUCCI concept in one town for municipal service delivery with just two components and one implementing agency. This was appropriate for the fragile post-conflict context where government capacity has historically been weak, and because the implementing agency had never worked with the Bank before. Khar town in Bajaur Agency was selected as the pilot town for implementation of project interventions against a selection criteria of towns, of which security and ease of access were overriding factors. By design, the Bank s support was to start small, learn lessons, and then scale-up. A participatory framework for beneficiary-level decision making over public expenditures was deemed critical to demonstrate the responsiveness of Government and to restore the trust of citizens in the state. 20. The project s design appropriately allocated adequate resources for targeted technical assistance and implementation support. Support was also included to strengthen the capacity of MC Khar that was to be established as part of the project as a critical component of the urban management framework being developed for FATA and being piloted in Khar. 21. FUCP was designed as an urban CDD operation to promote strong engagement with communities in Khar to ensure their ownership of the project. It ensured citizen participation in identifying and prioritizing municipal service needs. The selection of priority infrastructure investments under the planning exercise responded to the highest ranked priorities of the community. Systematic communications was integral to the design of all phases of the project. For example, the project was launched at a Grand Jirga in Khar with a view to engage the citizens upfront. An Environmental and Social Management Framework and a Grievance Redress 5

18 Mechanism were implemented, and the community sensitized in helping protect investments from vandalism. 22. The project focused on quick wins based on demand and prioritization of services, such as the installation of solar powered streetlights in response to a key security need identified by the community, and to help reestablish citizen trust in the state. The design of the project also anticipated the complexities of land needs for small investments due to the absence of a formal land settlement system in the area, and included a mechanism for voluntary donation of land. In a highly data scarce environment, the project s design included mechanisms for fresh data collection. It prioritized the completion of a city-wide planning exercise, done by a technical firm, to address data gaps and provide reasonable estimates of baseline data such as: absence of organized solid waste collection and disposal as service providers had left town due to the conflict; barely functional drains along streets for sewage and storm water due to garbage and vegetation; intermittent and unreliable water supply; and almost 80 percent of the existing 240 streetlights being damaged and non-functional Implementation 23. The Bank Task Team could not visit the project area during project preparation or implementation due to security and travel advisories for FATA. Therefore, the team utilized technology based measures like geo-referenced photographs through Global Positioning System (GPS)-enabled cameras for physical asset verification. Moreover, implementation support was provided by reviewing detailed reports from the implementing agency (including visual documentation), and a third party monitoring agent engaged by MDTF. The restrictions necessitated greater vigilance by the Task Team for quality assurance and compliance with Bank fiduciary and safeguard requirements. 24. Project implementation benefited from a variety of initiatives funded through the Technical Assistance component, and delivered by competitively selected national firms. These included: a. Planning Exercise: A robust planning process was undertaken for Khar town at the commencement of FUCP implementation. It provided important inputs to urban governance and investment planning such as critical information on existing service delivery coverage and quality; GIS maps with spatial representation of population distribution, growth trends, commercial activity, and existing service delivery infrastructure; an urban structure plan, and analyses of likely growth and development scenarios; and institutional requirements for service delivery improvements; b. Detailed Feasibility and Engineering Designs for priority infrastructure investments and implementation supervision of civil works were carried out by Engineering Consultants; c. Strategic Communications and Community Engagement through multiple channels and modes was undertaken. The tribal environment and post-conflict context of FUCP necessitated the use of strong participatory mechanisms to engage local communities. In response, the project utilized a number of such mechanisms. The Project launch was organized as a Grand Jirga in Khar, attended by political representatives, community elders, and professional groups. Similarly, communities were directly engaged during the planning exercise to develop a demand based list of priority investments. The use of toll free numbers promoted community 10 Source: Structure Plan for MC Khar, FATA Secretariat (2013). 6

19 participation in monitoring of interventions, as well as O&M of investments such as solar street lights. FUCP also developed and implemented a communications strategy which ensured the use of local radio, television, documentaries, banners, and posters for engaging the citizens of Khar. Due to the high gender disparities and the general absence of women in the public space in FATA, established NGOs/CSOs were utilized particularly to engage women during the planning process and ensure implementation of social safeguards. Focus group discussions were held with women from the community on their priority municipal service needs. 25. Enhanced Scope after MTR and Additional Financing (AF): Project MTR identified significant savings, primarily due to variations in the USD-PKR exchange rate. Additional financing after the MTR enabled the scaling up of the project by enhancing the scope of existing activities and plan new investments (see Section 1.6 above). 26. Delayed Completion of Infrastructure Investment Contracts and Extension of Project Closing Date: Implementation of a number of infrastructure investment contracts encountered some delays, resulting in contracts having to be extended and requiring the project closing date to be extended by three months. The water supply sub-project however, was completed four months after project closure with government funding of PKR 2.53 million (USD 24,170). 27. The main factors behind the delays in contract completion were: a. Delayed Land Acquisition: Voluntary land donation was envisioned as the sole method of land acquisition, based on the screening protocols included in the ESMP for each investment. Handing over of land parcels donated by residents proved a stumbling block in many cases, due to shared or contested ownership or land donors reneging on agreements. The identification of alternative sites, agreements with new owners, and requisite changes in detailed engineering designs to account for new locations, required time. b. Security and Adjudication Issues: Fewer than expected firms expressed interest in bidding for infrastructure contracts. Contractors from areas distant from the Agency either did not participate, or included a high security premium in bids. The security situation also slowed construction due to uncertain access for workers and field supervision staff, and delayed supply of materials. Instances were reported involving forced evacuation of field supervision staff for certain periods. The FCV context and recurring terrorist incidents in the project area caused delays in completion of activities, as well as addition of a security premium and other unforeseen overheads to estimated costs an important lesson learned for operating in such an environment. Similarly, enforcement of contracts and application of remedies by the implementing agency remained difficult, since FATA is outside the purview of Pakistan s formal judicial system and most contractors belonged to the area. c. Factors beyond the Control of the Government and the Bank: The uncharacteristically long and wet winter in resulted in slow mobilization of labor in snowy conditions and increased curing/setting time for concrete works. The roads sub-project suffered a lengthy delay due to a major mudslide. 28. Dropped Investments: Land acquisition issues caused two sub-projects - development of a family park and the construction of public toilets at two locations included under the AF to be dropped (estimated at PKR 30 million - USD million). The changing sites and resulting modifications in engineering designs delayed their readiness for implementation, and it was too late to award these contracts and expect substantial completion by project closure. However, they remain a priority need for the residents of Khar and can be readily implemented as soon as another 7

20 source of funding becomes available. The financing allocated to these investments was reallocated to other subprojects and fully utilized. 29. Issues with Government Counterparts: Political interference from the highest levels in FATA adversely impacted Project progress in 2014, as questions were raised on sub-project selection. TPMU staff was able to respond to all concerns and amicably resolve this issue. However it caused delays and adversely impacted implementation progress. The pace of implementation was also adversely impacted in early 2015 by a number of inquiries initiated by FATA Secretariat s Directorate of M&E (DM&E) and the Bajaur Political Agent. In particular, the handing over of containers and bins for solid waste collection to the newly-established MC by TPMU has been pending due to reservations expressed by the PA office on their specifications. 30. Delay in the Establishment of MC Khar: MC Khar was notified in November However, it s staffing and operationalization was significantly delayed due to a federal government ban on recruitment of staff. Officials for the MC could only be hired in December 2014, after the ban was lifted. Nevertheless, institutional strengthening and capacity building activities for the MC were successfully completed before project closure. These included trainings on the mandate and responsibilities of local administrations, emergency response and firefighting, as well as optimal use of the equipment provided. 2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 31. M&E Design: The project M&E was appropriate to measure the achievement of the PDO and its elements. It focused on community needs and satisfaction, and was aligned with the objectives of the government and MDTF to help improve citizen-state trust and support peace building efforts. A community survey to evaluate satisfaction of beneficiaries was envisaged to confirm improvements in service delivery through investments in infrastructure and urban management institutions. PDO level indicators also attempted to capture progress towards the development of an urban management framework that can be replicated in other towns in FATA. 32. Due to paucity of information on population, priority needs, and service delivery, baseline information and target values for intermediate indicators could not be defined at the start of the project. Instead, the M&E framework took advantage of extensive data collection undertaken through the planning process at the start of implementation, which provided values for selected indicators which were used as baselines. Target values for indicators were appropriate for the scope of the prioritized investments. A number of intermediate outcome indicators were added to the results framework at MTR to address the scaling up of investments through AF. 33. M&E Implementation and Utilization: The project used monitoring and reporting mechanisms to provide information for regularly and routinely updating results against intermediate outcome indicators. MDTF also employed a Third Party Monitoring Agent (TPMA) that validated project results independently. Findings from TPMA s quarterly reports strongly corroborate information collected from internal reporting mechanisms on progress of interventions. 11 Notification is a written order issued by the government. 8

21 34. The beneficiary perception survey - covering beneficiaries of roads, street pavement and drainage, and solar street lights - could only be undertaken by an independent firm contracted by the Bank after project closing, due to the late completion of several infrastructure investments. The water supply sub-project was not covered by the survey as it had not been completed at the time of the survey. The results of the survey are presented in Section 3.6 and in Annex Safeguard and Fiduciary Compliance Fiduciary 35. Procurement and Contract Management were satisfactory throughout, and procurement activities were implemented in accordance with procurement plans. There was strict adherence to the project s disclosure policies and all procurement related documents were publically disclosed on FATA Secretariat s website. 36. Financial Management: TPMU s financial management (FM) team was effective in managing the designed FM arrangements. Project accounting records were kept up to date and financial reports were shared with the Bank on time. External audits and internal audits were conducted on time and the auditors issued clean audit reports. Safeguards 37. Environmental Safeguard ratings remained satisfactory throughout implementation. TPMU successfully implemented environmental aspects of the ESMP developed for the project. Mitigation checklists were prepared prior to initiating each sub-project; environmental monitoring was conducted for sub-projects; environmental training was provided to personnel of MC Khar and the contractors; and the status of all activities undertaken was documented in ESMP Quarterly Progress Reports (QPR) on a regular basis. TMPU also prepared a final ESMP report for the entire Project duration. 38. Social Safeguard ratings remained satisfactory throughout implementation. Social activities included community consultations during identification, planning, and implementation, in particular with women through a local NGO; and voluntary land donation (VLD) for subprojects. Impact mitigation and monitoring checklists were prepared and a Grievance Redress Mechanism functioned satisfactorily. VLD procedures were disseminated in the form of an Urdu leaflet during community consultations. VLD agreements and No Objection Certificates (for government land) were obtained as a part of the ESMP. A consultation session was held with 83 local women who were sensitized about sub-project benefits. Sub-project impact mitigation and monitoring checklists were prepared by TPMU, and were reviewed by the Bank before implementation. Monitoring was regular and monitoring reports were systematically shared with the Bank as part of the ESMP QPR. 39. The successful implementation of environmental and social safeguards is a considerable achievement, given the conflict-affected and fragile environment of FATA, and the limited prior experience of project staff with Bank safeguard requirements. 2.5 Post-completion Operation / Next Phase 40. Arrangements are in place for the MC Khar to take over responsibilities of operation and maintenance of completed infrastructure sub-projects. FATA Secretariat has approved its funding 9

22 from government budget, and a full-time Chief Officer has recently been appointed. Moreover, training has been provided to MC staff in the appropriate use of equipment provided under the project including for fire engines, bucket vehicle for the maintenance of solar street lights, tractors and trolleys for solid waste management, and a water bowser. The long term viability of MC Khar will however depend (as in the rest of the country) on the support it receives from the higher levels of government, and the local political and administrative leadership. 41. FATA Secretariat is keen to enhance and scale-up the TARUCCI program and build on the successes of this project, based on implementation experience and lessons learned. TPMU staff has been retained for the transitional period, while a follow-on project is being prepared. The follow-on project will help institutionalize the participatory and demand-driven approach for investment planning across all/more urban centers in FATA. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation: Rating High 42. Based on the ratings of High for each element, the Relevance of Objectives, Design and Implementation is also rated High. Relevance of Objectives: Rating - High 43. The crisis situation has persisted in the FATA region, and government has prioritized the return of temporarily displaced persons and economic recovery within the affected areas as a priority objective. The PDO continues to be relevant for the Government s development priorities in Khar/FATA. The urbanization that the project has helped foster has provided the Government with a platform for reducing gaps in municipal service delivery cost effectively and initiating urban management systems in FATA. TARUCCI remains a key recovery and development intervention for FATA. FATA Secretariat has outlined its vision of an enhanced and scaled-up TARUCCI-plus program, for which it is seeking support from development partners. 44. The World Bank Group s Country Partnership Strategy for Pakistan for has as one of its pillars/themes the reduction of conflict and fragility, and focuses on improving citizenstate trust in KP, FATA and Balochistan. FUCP objectives are directly aligned with the CPS as well as Government s efforts to rebuild areas affected by terrorism and militancy through provision of improved governance and services. Relevance of Design and Implementation: Rating - High 45. The project design and implementation, as assessed in sections 2.1 and 2.2, remain relevant in the current context. The government has taken keen interest in FUCP s implementation experience and, learning from it, intends to scale up the model for urban management and provision of municipal services piloted in Khar to other towns in FATA. The focus on improving public services in post-crisis urban centers and creating a framework for their sustainable management is aligned to global experience on post-conflict areas, as an instrument to facilitate recovery and promote economic development and stability. 46. The detailed planning exercise conducted under the project in Khar, as well as four other towns of FATA, has provided a ready roadmap for investments in priority municipal infrastructure for these towns. These investments can be made by GOP s own resources or with the assistance of development partners including the Bank. The reliance on best practices in procurement and 10

23 contract management of civil works, engineering design, and implementation supervision has resulted in a high quality of investments in Khar, and created a model for replication. The involvement of the community in project design and implementation remains relevant in FATA, given the adverse security environment and GOP s efforts to bring peace and stability to the region. Based on experience of FUCP, GOP also intends to operationalize land registration systems in FATA to address implementation bottlenecks and promote public and private investment. The MDTF also remains a relevant financing instrument for Bank s assistance in the crisis-affected regions of Pakistan. 3.2 Achievement of Project Development Objectives: Rating - Substantial 47. The PDO has three elements that reinforce each other: (a) improve urban services in Khar, Bajaur Agency; (b) improve urban management in Khar; and (c) develop a framework for urban management in FATA. Achievement of each of these elements is discussed below and rated. Based on the ratings of High for element (a) and Substantial for the other two, achievement of the PDO is rated Substantial. Improving Urban Services in Khar: Rating - High 48. The Project contributed towards significant improvements in municipal service delivery through demand-driven investments prioritized by residents of Khar town in Bajaur Agency. Subprojects undertaken are summarized below vis-à-vis the targets established: a) Installation of Solar Street Lights: 532 solar-powered streetlights have been installed and operationalized (against a target of 450) in critical areas e.g., along the main road passing through the central commercial area (old town), in public use spaces (such as the Agency Headquarter Hospital), the intercity bus stand, and major residential neighborhoods. b) Rehabilitation and Improvement of Urban Roads: 4.3 kilometers of all-season road rehabilitation (against the original target of 2.3 kilometers) has provided improved access to an estimated 40,000 beneficiaries. 12 c) Street Pavement and Improved Drainage has covered approximately 14 kilometers of streets (approximately 45,000 square meters of paved area) along with improved, concrete lined wastewater drains to reduce environmental and health impacts of poor sanitation. d) Rehabilitation, Expansion, and Improvement of Water Supply Networks: Five new tube wells have been constructed (three solar-powered and two conventional tube wells, each with an overhead reservoir), and two existing tube wells have been rehabilitated under FUCP. The sub-project was completed four months after project closure with government funding of PKR 2.53 million (US$ 24,170). The sub-project has provided 900 household connections so far (i.e., meeting the target). It has additional capacity for a further 1,300 household connections. Besides improving the quantity of water supplied to households, the new system has also improved quality by removing contaminants, as confirmed by tests undertaken by TPMU. e) Solid Waste Collection: Tractors and trolleys provided to the MC Khar for transportation (secondary collection) of solid waste are currently in use after being handed over. The MC is regularly collecting and transporting waste from thirteen garbage disposal sites and collection points in town, serving approximately 30,000 people (against the target of 1,000). The primary collection envisaged under the AF can however only be achieved when the bins and garbage containers are taken over by the MC Khar. The previous PA, Bajaur Agency (who took charge 12 Estimated population residing within 500 meters radius of the road. 11

24 in the last year of the project) did not agree with their specifications as discussed in section 2.2. TPMU is in touch with the new PA on the issue. 49. Results of Beneficiary Perception Survey. A rigorous survey of beneficiaries conducted in January 2016 indicates that almost 100 percent of respondents (including non-beneficiaries) perceive an improvement in the delivery of priority urban services due to the project, and 93% of beneficiaries report satisfaction with the infrastructure subprojects. 13 Since there has been no other sources of financing of such a scale during the project period, these improvements can be attributed to the project. The positive results of the beneficiary survey justify the High rating of this element of the PDO. Improving Urban Management in Khar: Rating - Substantial 50. The operationalization of MC Khar represents a key institutional achievement towards improving urban management, resulting in a dedicated entity mandated with service delivery, O&M of infrastructure assets, and resolution of services-related complaints. The project supported MC Khar via training and capacity building, provision of essential equipment, renovation of office space, and payment of salaries to essential staff recruited at the MC for a transitional period. The municipal infrastructure developed under the project has been handed over to the MC by TPMU along with appropriate training. FUCP also supported development of a long term Structure Plan for Khar, which provides important inputs to urban governance and capital investment planning. Develop a Framework for Urban Management in FATA: Rating - Substantial 51. The Urban Management Framework developed under the project comprises the following principal components (and can be scaled up to other towns in FATA under TARUCCI): a) A planning and diagnostic toolkit involving data collection, service delivery mapping, and demand driven investment planning; b) An engineering design and supervision model for typical investments attuned to the local operational environment; c) An effective communications strategy and toolkit to manage interactions with the community in an FCV setting; d) Community mobilization and safeguards process templates; e) Capacity building of officials hired for TPMU in key competencies; and f) A trained and strengthened MC, equipped for O&M of municipal service delivery and responsive to citizen complaints. 52. Planning Process for Additional Towns: The project helped undertake a planning process for four more towns in FATA: Landi Kotal (Khyber Agency), Ghalanai (Mohmand Agency), Sadda and Parachinar (both in Kurram Agency). Structure Planning reports for these towns have been completed which provide data on the existing population, built up area, commercial activity, quality and coverage of public services, as well as prioritized infrastructure investment needs for improving service delivery based on citizen feedback. The design and implementation of these identified priority investments can be undertaken by the Government as soon as funds become available, either through its own resources or assistance of development partners. 13 Summary findings of the survey are provided in the Results Framework Analysis in the Data Sheet and in section 3.6, with details in Annex 5. 12

25 3.3 Efficiency: Rating Substantial 53. Ex-ante economic analysis was not conducted as the project was prepared as an emergency operation in a post-crisis setting, and the specific sub-projects were demand-driven and were identified only during project implementation. An ex-post economic analysis of the four infrastructure sub-projects has been carried out. The EIRR of the sub-projects ranges from 23 to 32 percent. Sensitivity analysis indicates that these findings remain stable even with a large reduction in expected benefits or a large increase in capital and incremental O&M costs (see Annex 3 for details). Table 2. Summary Results of the Economic Analysis for Subprojects in Khar Sr # Name of Sub-project Capital Cost Share of Design & Supervision Cost Total Cost of Subproject NPV a EIRR PKR mn PKR mn PKR mn USD mn 1 Rehabilitation and Improvement of Roads % 2 Installation of 532 Solar Street Lights % 3 Street Pavements and Drainage Improvement % 4 Rehabilitation and Expansion of Water Supply Conventional and Solar % a: Using discount rate of 12 percent for the roads subproject and 10.1 percent for the remaining subprojects. Note: All amounts are in PKR million while amounts under Total Cost of sub-projects are in PKR and USD millions. 54. Increase in Property Values: The beneficiary perception survey shows 14, and TPMU has reported anecdotally, that there has been an increase in residential and commercial land values in Khar town, as the urban environment has improved substantially. However, this increase in property value has not been included in the economic analysis as there is inadequate information on the magnitude of the property value increase and its distribution across property types. In addition, the extent to which such increases can be attributed to the project is uncertain. 55. Efficiency is rated Substantial instead of High despite the large NPVs and EIRRs because two subprojects, namely water supply and solid waste management, were incomplete at project closing. The water supply subproject was delayed due to land issues and changes in tube well sites needing revisions in engineering designs and costs. It was completed four months after project closing. While the tractors and trolleys provided to the MC for transportation (secondary collection) of solid waste are in use for regularly collecting and transporting waste from thirteen garbage disposal sites and collection points in town, primary collection from bins is yet to commence, as these have not yet been taken over by the MC Khar (as discussed in sections 2.2 and 3.2 above). 14 See Section 3.6 and Annex 5 for details. 13

26 3.4 Justification of Overall Outcome Rating: Rating Satisfactory 56. Based on ratings of High for Relevance of Objectives and Relevance of Design, as well as the ratings of Substantial for Achievement of the PDO and Efficiency, the overall Outcome of the project is rated Satisfactory. 3.5 Overarching Themes, Other Outcomes and Impacts 57. Contribution to Improving the Security Environment: A major intangible benefit of the streetlights sub-project has been its contribution to improving the security environment in Khar. Prior to the sub-project, security agencies would impose a curfew in Khar after sunset. The installation of solar-powered streetlights covering the major thoroughfare and public places in the town has improved the ability of security personnel to patrol after dark and has contributed to the lifting of the curfew. It has also substantially increased communities sense of security, and participation in commercial and social activities after dark. 58. Poverty Impacts and Social Development: The project has improved equitable access to municipal services as a result of the inclusive and broad-based process used to identify development priorities. This has led to more rational investment decision making, better management of urban services, and investments in improving service coverage and quality which are generating significant benefits to the communities in living standards and public health, as well as economic benefits. 59. Institutional Change / Strengthening: As discussed in Section 3.2 above, the project has achieved important results in establishing and strengthening MC Khar as an entity mandated for urban management and service delivery. This also provides a model for establishing similar entities in other FATA towns. 60. Project Investments have contributed to Social Change: Based on anecdotal evidence, the improvement in the urban environment of Khar is attracting people from surrounding rural and tribal areas to migrate and settle in Khar. A discussion with the president of the local business association, who also has a real estate business, revealed that over the past two years there has been a substantial increase in land values in Khar due to high demand as a result of increased migration and settlement from surrounding rural areas. This is partly due to improvements in the security environment and livability of the town as a result of the project. This validates the TARUCCI concept, which underpins this project. This trend could help in the long term sustainability and relevance of the PDO. However, more evidence will be needed to confirm this trend. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 61. A beneficiary perception survey was conducted by an independent firm for three infrastructure sub-projects funded by the project (i.e., excluding the water supply sub-project, which had not been completed at the time of the survey). The results of the survey are overwhelmingly positive, and report high levels of beneficiary satisfaction. All of the respondents (including non-beneficiaries) perceived an improvement in the delivery of priority urban services due to the project. Summary results are given below; detailed results are provided in Annex-5. 14

27 a) Roads Rehabilitation: Almost all respondents reported that the current condition of roads as good compared to the bad condition of the same roads before the project. Large majorities of respondents said that the sub-project has increased the property value of their home or shop; improved ease of travel and commute for their households; reduced fuel consumption costs and vehicle maintenance costs; helped increase their business activities; and expanded business opportunities in the area. b) Solar Streetlights: More than 90 percent of respondents reported that the solar streetlights installed are working well, while three-quarters reported that before the project there were either no streetlights or they were broken. Large majorities of respondents said that the new streetlights have provided the following benefits: ease in commuting/access, especially for attending evening prayers in the mosque; ease of access for guests visiting the house or customers visiting shops; and improved safety. c) Street Pavement and Drainage Improvement: Almost all respondents reported that the current condition of streets was good compared to their condition before the project e.g. streets overflowing with sewage, drains clogged or blocked, and obstructions. About seventy percent felt that the sub-project has increased the property value of their home or shop. 4. Assessment of Risk to Development Outcome: Rating - Significant 62. Risk to Sustainability of Infrastructure Investments Significant: The project has supported establishment and strengthening of MC Khar for O&M of infrastructure assets and service delivery, and has engaged with beneficiary communities to build ownership of assets created. However, the MC has yet to fully take over its mandated responsibilities and positions of certain technical staff are yet to be filled. The government is committed to support the requisite capacity building for the MC and the sustainability of project interventions. A full-time Chief Officer has recently been appointed, and requisite finances for the MC have been allocated. An MDTF-funded follow-on operation is under consideration. However, delays in donor commitments has translated into a timing gap. 63. In order to ensure optimal safeguarding and O&M of all investments over their expected useful life, MC Khar will need to: (a) establish an effective monitoring and inspection system with officials identified for the job; (b) disseminate the availability of the toll free Grievance Redress line for use by residents to report any deterioration in service; and (c) ensure that regular preventive and routine maintenance of infrastructure assets is carried out by designated and trained MC staff. 64. Risks to the Framework for Urban Management in FATA Significant: There could be changes in the political and governance environment of FATA, primarily due to its role in militancy in the country. These changes are difficult to predict, but may impact the sustainability of the project s outcomes, if ownership of the project s underlying concept of TARUCCI reduces at the highest level in FATA. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Ensuring Quality at Entry: Rating Satisfactory 65. As discussed in detail in Sections 1.1 and 2.1, the Bank adequately understood and responded to the highly complex political, social, and development post-crisis context in which 15

28 the project was to be designed and executed. The preparatory work in the shape of the PCNA was extremely rigorous and of high quality, and fed into the project design. The Bank engaged productively with government counterparts in responding to their strategic needs, as outlined in TARUCCI, ensuring that the project had a clear objective and the design of project components was relevant to this context and objective. It identified various risks, and included measures to manage these risks. The Bank ensured that extensive consultations were held with the communities as part of the project design and implementation to obtain their views and build ownership. (b) Quality of Supervision: Rating - Satisfactory 66. As discussed in detail in Sections 2.2, 2.3, and 2.4, the Bank responded promptly and in a judicious manner to various implementation challenges. A number of delays were due to the complex political, social, and security environment of FATA and were beyond the control of the government and the Bank. The delays caused by factors within the control of the government were addressed by the Bank promptly. 67. The Bank Task Team s inability to visit the project area due to the adverse security environment necessitated greater vigilance on its part for quality assurance and compliance with the Bank s fiduciary and safeguards requirements. 68. The Mid-Term Review conducted in June-July 2014, and additional financing approved soon after, were used to further refine the results framework. Implementation support documentation (ISRs, aide memoires and discussion notes, and management letters) provided adequate information on project status and agreed actions to address the identified issues, especially on technical matters, institutional development and capacity building, and safeguards and fiduciary compliance. The Bank s fiduciary and safeguards staff built the capacity of TPMU staff on the rules and procedures to be applied during project implementation. The overall level of fiduciary and safeguards compliance remained satisfactory throughout the project. 69. Community consultations were carried out at various stages during project preparation and implementation, including under the planning exercise, which helped inform the priorities for municipal infrastructure. In addition, lessons learned in managing infrastructure development subprojects for municipal services in another project in Punjab 15 were also effectively utilized. (c) Justification of Rating for Overall Bank Performance: Rating - Satisfactory 70. Given the satisfactory performance of the Bank in ensuring quality at entry and in quality of supervision, Bank performance overall is rated Satisfactory. 5.2 Borrower Performance (a) Government Performance: Rating - Moderately Satisfactory 71. The concept of TARUCCI was initiated by the FATA leadership as a critical tool to improve economic development and social cohesion in FATA by improving public services and citizen-state trust. FATA Secretariat s ownership of the project remained strong and commitment to achieve the PDO was high during both project preparation and implementation. 15 Punjab Municipal Services Improvement Project (P083929), focusing on small and medium-sized cities, implemented over June 2006 to November

29 72. However, FATA s unique governance structure (as explained in Section 1.1), coupled with changes in senior political and administrative leadership, slowed the pace of implementation. Disagreements between the PA, Bajaur Agency, the implementing agency, and FATA Secretariat also led to delays. In the final year of the project, a new PA did not have full ownership of project interventions, leading to operational issues. The Project Director was changed at critical junctures, and the position did not have a full-time appointment for extended periods. However, one of the acting Project Directors (holding a dual charge as PD of another MDTF-funded project) remained with the project for two years and played an important role in accelerating project implementation and achieving project results. (b) Implementing Agency Performance: Rating - Satisfactory 73. TPMU was effective in project management, including financial management, procurement arrangements, safeguard compliance and reporting activities. It was successful in engaging the required competencies and technical skill sets to implement the infrastructure subprojects, consistently engage and mobilize communities, and train staff at the newly established MC Khar in infrastructure O&M. It was able to work efficiently in the complex operating environment of FATA, and responded promptly to implementation issues by reaching out to the Bank. 74. Financial management arrangements at TPMU were satisfactory and provided reasonable assurance that project funds were used for purposes intended. Regular submission of progress reports and other information allowed effective tracking of implementation progress and initiating corrective actions when needed. A robust Environmental and Social Management Plan (ESMP) was developed and satisfactorily applied to subprojects. ESMP implementation included extensive consultations with stakeholders, including sessions with women, households, and owners of businesses. Community stakeholders were extensively engaged from project launch to closure. 75. TPMU activities were constrained due to the Project Director being changed at critical junctures by the FATA Secretariat, and the post lying vacant for extended periods (c) Justification of Rating for Overall Borrower Performance: Rating - Satisfactory 76. Since the project outcome has been Satisfactory despite a Moderately Satisfactory rating for Government performance and a Satisfactory rating for Implementing Agency performance, the overall Borrower performance is rated as Satisfactory to be consistent with the Outcome rating. 6. Lessons Learned 77. The lessons learned are summarized below: a. Starting small to learn lessons for scaling up pays dividends, particularly in an FCV environment. FUCP was envisaged as a project to pilot the operationalization of TARUCCI in one town and develop an urban management framework for the entire FATA. The approach piloted for one town could then be implemented in all other towns of FATA by utilizing this framework. This approach has provided valuable experience on scaling up of TARUCCI to other urban centers in FATA. b. Post-crisis contexts are data scarce. While information is being collected for data-based decisions, it is critical to roll out visible but quickly implementable investments immediately to restore trust of affected communities with authorities and build goodwill. 17

30 c. Although planning, baseline data collection and detailed engineering design require significant time, close interaction with communities in these phases pays dividends during implementation of investments. d. Early operationalization of implementation arrangements, preferably during preparation, is critical to enable effective implementation from the start. This is particularly so in FCV contexts where implementation capacities of even higher levels of government are constrained, and experience of working with development partners is low. e. Delays and cost escalations need to be catered for in an FCV context, since security incidents may continue intermittently during implementation. Security premium and other unforeseen costs got added to the estimated subproject costs as explained in section 2.2. While exact price escalation and delays are hard to predict upfront, reasonable contingency planning is needed. f. Contractual controls may not work optimally in situations where adjudication and arbitration mechanisms are weak or non-existent. Alternative mechanisms for dispute resolution and performance tracking need to be developed, in addition to schedule of payments and deliverables. Performance based mechanisms including incentives and penalties may be useful to a degree, and need to be built-in to isolate the effect of external factors such as security incidents, forced stoppage of work, etc. g. Land acquisition can become a serious challenge in areas where land registration systems do not exist or have broken down due to the conflict. It is important to account for this risk in project design, and develop appropriate mechanisms for acquiring land for project interventions in such contexts. The implementation of these mechanisms needs to be regularly reviewed; under FUCP the envisaged Voluntary Land Donation mechanism encountered problems leading to delays. However, the government is considering inclusion of land settlement under TRAUCCI-plus for the urban centers of FATA. h. Dearth of requisite staff and skillsets in counterparts can not only delay project progress, but also risk sustainability of interventions. Project design should therefore incorporate the necessary technical assistance and capacity building for staff at all levels of the project, especially hands-on training in procurement, contract management, social and environment safeguards, and citizen engagement. i. A well-structured and implemented communications strategy can play a valuable role in increasing community awareness of, and support for, project activities. j. Community-driven development (CDD) works well even in an urban context, to develop ownership and promote strong engagement of stakeholders. k. Continuity of key staff in the implementing agency and Bank Task Team benefits project implementation and ensures institutional memory. l. Initiatives in an FCV context need to ensure just-in-time responsiveness to unforeseen issues and challenges. m. Continuity of funding and longer term engagement to build on results achieved under a project, are critical to realize outcomes and impacts. 7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors 78. The Grantee s Completion Report does not raise any issues that require a response from the Task Team. It complements the assessment of this ICR, and is in overall agreement with the assessments made herein. Moreover, comments of the Secretary, Planning & Development Department of FATA Secretariat confirm that FUCP in piloting the Government s TARUCCI program has greatly improved the municipal infrastructure and services in Khar, and in turn the socio economic and security situation. The concept of encouraging urbanization in FATA has shown success as envisaged, and will slowly lead to social transformation. The FUCP concept will be replicated in other Agencies of FATA. 18

31 Annex 1: Project Costs and Financing (a) Project Cost by Component (in USD million equivalent) Components Appraisal Estimate (USD millions) Revised Estimate (USD millions) Percentage of Appraisal Component % Component % Total Project Costs % Project Preparation Costs - - Total Financing Required % (b) Financing Source of Funds Type of Cofinancing Appraisal Estimate (USD millions) Actual/Latest Estimate (USD millions) Percentage of Appraisal Trust Funds - MDTF for Crisis Affected Areas of NWFP/FATA/Balochistan % 19

32 Annex 2: Outputs by Component 1. The project consisted of two components: (a) demand-driven priority infrastructure investments in municipal service delivery in Khar town, Bajaur Agency; and (b) technical assistance to improve urban management in Khar and develop and pilot a framework for urban management for FATA. Component-1: Demand-driven Priority Infrastructure Investments in Khar 2. Installation of Solar Street Lights: The project funded the installation of 532 solarpowered street lights in Khar town. Each light contains a 50W LED bulb and is supported by two batteries. The street lights have been placed in critical locations, e.g., along the main road passing through the central commercial area (old town), around public use spaces such as the Agency Headquarter Hospital (the main public health facility in Bajaur Agency), intercity bus stand, and in residential neighborhoods. These lights are currently fully operational. 3. The installation of 450 solar-powered street lights was undertaken as a quick investment sub-project in response to a key security need identified by the community and taking into account the unreliable electric supply in Khar. An additional 82 street lights were installed in Khar town through the AF, beyond the original project targets. The early installation of street lights led to a number of benefits for communities in Khar, including an increased perception of security by residents, a significant economic impetus to businesses operating in the Khar Old Town area, and greater convenience for patients and attendants at the Agency Headquarter Hospital. The investment also generated enthusiasm and goodwill among communities for the Project, which facilitated implementation of subsequent infrastructure investments. 4. Rehabilitation and Improvement of Urban Roads: The project funded the rehabilitation and improvement of a major road section in Khar from Shuhada Chowk to the end of the Old Bazar (0.95 km), and Captain Sajjad Shaheed Road (3.4 km) totaling 4.35 km. This is well above the original target of 2.3 km. The roads sub-project is providing access to an estimated 40,000 beneficiaries who are living within a 500 meter radius of these road sections. This road serves an important part of the overall communication network of the town and has gained significance as a bypass road, because of security restrictions on the main Munda-Khar Road. The condition of the existing road was very poor, with a cracked surface, settlement, and ponding. The scope of the roads sub-project was increased after the approval of the AF in Physical works suffered delays due to a major landslide along one section of the road. This led to revisions in the engineering design and cost estimates, as well as a major variation in the ongoing contract, due to the addition of a longer and higher retaining wall. 6. Street Pavement and Improved Drainage: The project funded street pavements and improvement of drainage over an area of about 45,000 square meters in the residential areas of Khar. This included concrete lining of drains to reduce environmental and health impacts of poor sanitation. It is estimated that the population living within a 500 meter radius of these improved streets is 20,000. The Structure Plan for Khar that was developed under the project identified street paving and drainage as a priority investment, particularly for residents of the Old Town area. 20

33 7. Rehabilitation, Expansion, and Improvement of Water Supply Network: The project funded the rehabilitation and expansion of the water supply system in Khar by constructing five new tube wells (three solar-powered and two conventional tube wells, with overhead reservoirs attached to each), and rehabilitating two existing tube wells. The solar option was chosen due to persistent shortage of grid-supplied electricity in the area. The Structure Plan for Khar identified piped water supply as a priority investment. This sub-project become operational in the first quarter of 2016, with capacity for 2,200 connections: 900 households have already taken connections to the water supply network. Over time the water supply network is expected to serve a much larger proportion of the town population. Besides improving the quantity of water supply for households, the new system has also improved quality by removing contaminants, as shown by tests undertaken by TPMU. 8. Solid Waste Collection: The Project assisted MC Khar in establishing a system for solid waste collection and transportation through the initial recruitment of staff, provision of training (including health and safety aspects), and procurement of essential equipment. In view of constraints related to limited capacity, human resources, revenue, and experience available at MC Khar in the early years, it was agreed that the planned system would initially focus on secondary collection and transportation of solid waste from existing dump sites located within Khar, instead of primary collection. The system is operational with MC Khar regularly collecting and transporting waste from all five existing garbage disposal sites in Khar, and eight garbage collection points in the Civil Colony Area serving approximately 30,000 people (against the target of 1,000). The primary collection which was envisaged under the AF will however only be achieved when the bins and garbage containers provided are taken over by the MC Khar. The previous PA, Bajaur Agency (who took charge in the last year of the project) did not agree with their specifications as discussed in section 2.2. TPMU is in touch with the new PA on the issue. Component-2: Technical Assistance for Urban Management 9. Establishment and Operationalization of Municipal Committee (MC) Khar: The project helped establish and operationalize a Municipal Committee (MC) at Khar, with responsibility for managing municipal services. This represents a key institutional achievement towards improving urban management, as it resulted in the establishment of a dedicated entity mandated with service delivery, O&M of infrastructure assets, and resolution of complaints related to service deterioration or interruption. The Project supported MC Khar through funding renovation of its office space, payment of salaries to essential staff recruited at MC Khar for a transitional period, training and capacity building, and provision of essential equipment. 10. The recruitment of essential staff at MC Khar was significantly delayed due to a ban on hiring by FATA Secretariat. In response, the Project facilitated recruitment against key positions through financing salaries of staff for an interim period till project closure. The Project also supported the renovation and furnishing of MC Offices, once a suitable building was identified and made available. 11. FUCP supported the establishment of a grievance redress and complaint resolution mechanism at MC Khar using a telephone short code along with dedicated staff. Critical equipment was also provided to MC Khar to operationalize such functions as solid waste collection, firefighting, and maintenance of street lights. This included: 21

34 Three small and two medium tractors equipped with hydraulic trolleys, a large tractor with a front loader, and 35 solid waste collection bins for the collection and transportation of solid waste. Two fire fighting vehicles and 10 fire suits, along with training in firefighting provided to civil defense, levies, and MC staff. Water bowser. Bucket vehicle for O&M of Solar Street Lights. 12. Development of Structure Plans: The Project supported the development of a comprehensive Structure Plan for Khar. The process of developing it provided important inputs to urban governance and investment planning, including: (a) critical baseline information on existing service delivery coverage and quality; (b) GIS maps with spatial representation of population distribution, growth trends, commercial activity and existing service delivery infrastructure; (c) urban structure plan and analyses of likely growth and development scenarios; and (d) institutional requirements for service delivery improvements. The planning process helped fulfill immediate needs for investment planning, such as: lack of baseline data on service delivery to assess gaps in existing services; and lack of detailed maps for towns displaying spatial distribution of existing population and location. 13. The planning exercise also highlighted the significant efforts and lead times required for undertaking such a process to ensure rigor and requisite quality. It collected baseline information and helped identify demand-driven priority investments to be funded through the project. Based on this experience, FUCP supported planning activities in four other urban centers in FATA - Landi Kotal (Khyber Agency), Ghalanai (Mohmand Agency), Sadda and Parachinar (both in Kurram Agency) - to facilitate the ready undertaking of infrastructure investments under TARUCCI. 22

35 Annex 3: Economic and Financial Analysis 1. This Annex provides the results of the ex-post economic analysis of four FUCP infrastructure investment sub-projects. Ex-ante economic analysis was not conducted for any subproject as: (a) FUCP was prepared as an Emergency operation for a post-conflict setting; and (b) the sub-projects were demand-driven and were only identified during the implementation stage. Their selection and design was through a participatory planning exercise involving the citizens of Khar. 2. The four sub-projects account for 74 percent of the total capital cost under the project. Sr # Table 3: Costs of Sub-projects Included in the Economic Analysis Name of subproject Capital Cost (PKR mill) Share of design & supervision cost (PKR mill) Total Cost of Sub-project (PKR mill) Total Cost of Subproject (USD mill) 1 Rehabilitation and Improvement of Roads Installation of 532 Solar Street Lights Street Pavements and Drainage Improvement Rehabilitation and Expansion of Water Supply Conventional and Solar Methodology 3. The NPV and EIRR of each infrastructure sub-project has been determined by quantifying, to the extent possible, the economic benefits accruing from the investment over a time period of 20 years; comparing these benefits with the capital and incremental O&M costs attributable to the project (at economic prices); and determining the present value of the resultant net economic flows. The analysis of the roads rehabilitation sub-project is based on the Highway Development and Management Model (HDM-4) of the World Bank. The discount rate used for the roads sub-project is 12 percent; it is 10.1 percent for the remaining three sub-projects. 16 A sensitivity analysis has been carried out to determine the impact on the NPV and EIRR of changes in expected costs and benefits. 4. In addition to the capital cost (cost of construction), a share of design and supervision consultancy costs has been attributed to the sub-projects in the following manner: (a) costs pertaining to design have been attributed to each sub-project proportional to its capital cost; and (b) costs pertaining to supervision have been attributed to each sub-project proportional to the duration of its construction. 16 This is based on the new World Bank technical note on Discounting Costs and Benefits in Economic Analysis of World Bank Projects which suggests the use of the Ramsey formula with certain assumptions to determine the discount rate. Pakistan s annual average GDP growth rate from 1960 till 2014 is 5.05% (GDP at market prices in constant 2005 USD and constant Rupees. Source: World Development Indicators). Plugging into the Ramsey formula using 2 (the upper bound) for the elasticity of marginal utility of consumption yields a discount rate of 10.1%. The discount rate for the roads project is taken as 12% as that is the standard for evaluating all roads infrastructure projects in the country. 23

36 5. Economic prices are assumed to be 0.85 times financial prices, and all costs and benefits have been converted to economic prices. Inflation is assumed at 5 percent for the life of the subprojects, and household size is assumed to be 8.1 in Khar, Bajaur Agency 17. The Structure Plan for MC Khar prepared in and approved by FATA Secretariat estimated that the population growth rate of the town will range from 1.8 percent (low end) to 3.6 percent (high end). The economic analysis assumes a mid-point of this range, at 2.7 percent, as the annual population growth rate. All other assumptions are outlined in the discussion of each sub-project. Economic Analysis of Solar Street Lights Sub-project 6. O&M Costs: In addition to the capital cost, it has been assumed that batteries for the 532 street lights will be replaced every five years, costing PKR29.92 million each time. This is the cost of two batteries per street light, with each battery costing about PKR 29,000. LED bulbs will be replaced after ten years, costing PKR1.012 million 18. Incremental O&M costs have been assumed to be two percent of initial capital cost for the first year, to be increased by the rate of inflation annually. 7. Quantification of Benefits: Benefits attributable to the sub-project have been quantified in monetary terms to the extent possible using reasonable assumptions. Anecdotal evidence and the results of beneficiary perception survey (Annex 5) suggest that the installation of solarpowered street lights has had substantial positive effects in Khar town. However, only some of these benefits can be quantified, which include: Increase in income and business opportunities of shops (retail sector) in areas that are now lit, due to increase in number of hours of operation for these shops; Potential savings in the cost of electricity by using solar power compared to the cost that had been incurred under grid or other fuel-powered electricity. 8. Increase in Income of Shops (retail sector) due to Increase in Hours of Operation: There is a perennial shortage of grid supplied power in Khar, at times up to 18 hours a day. Thus, prior to the installation of street lights, shops in Khar closed around sunset. Discussions with project management and stakeholders, and the results of beneficiary perception survey (Annex 5) show that the installation of street lights has illuminated large parts of the main commercial center, which is along the main thoroughfare of the town. As a result many shops are now open in the evening and shopkeepers report an increase in business activity due to the increase in operating time. 9. This benefit has been quantified in monetary terms using the calculations and assumptions provided below: The number of shops is assumed to grow linearly every year at the population growth rate. It is assumed that two-thirds of the total number of shops in the town have benefitted from street lights, as these lights illuminate most of the main commercial centers of the town. 17 Source: FATA Development Indicators Household Survey , Planning & Development Department, FATA Secretariat (2015). This household size of 8.1 is less than the household size of 10.2 for Khar tehsil, Bajaur Agency reported in the 1998 Population Census. There has not been a population census since then. 18 Source: PC-1 pro forma submitted to FATA Secretariat and discussions with TPMU staff. 24

37 Average monthly income per shop is estimated at PKR 7,000 19, which has been converted to an hourly income. It is assumed that each shop is now open for an additional 2.5 hours due to the street lights sub-project. Thus the incremental daily income per shop due to the sub-project is estimated and converted to an annual figure. This is applied to all the shops that are considered beneficiaries. 10. Potential Savings in Cost of Electricity: Streetlights powered by conventional grid power would have been subject to power tariffs for public lighting, which is not the case for solarpowered streetlights. This potential cost saving has been calculated as follows: The notified tariff for public lighting is PKR15 per KWh of electricity consumed. 20 This analysis has increased this tariff by 30 percent to account for taxes and various surcharges. The total power consumed by the 532 streetlights annually is determined using their wattage (50W), and ten hours of operation daily. The annual saving in the cost of electricity is estimated at PKR1.86 million. This has been assumed to be constant for the duration of the analysis. 11. Economic Benefits Not Quantified: A major intangible benefit of this sub-project has been its contribution to improving the security environment of Khar. FATA has been embroiled in violent conflict for decades, with Khar being no exception. Prior to the sub-project, security forces imposed a nightly curfew in Khar after sunset. The installation of solar-powered streetlights covering the major thoroughfare and public places of the town has improved the ability of security forces to patrol after dark, and has contributed to the lifting of the curfew. It has also substantially increased the confidence of the community, who are now able to participate in commercial and social activities after dark with greater ease. 12. The sub-project has contributed to the substantial increase in residential and commercial land values in Khar town in areas where streetlights are installed. More detail is provided on the increase in land values later in this Annex. 13. NPV, ERR, and Sensitivity Analysis: Based on the estimations and assumptions outlined above, the sub-project yields an NPV of PKR116 million at 10.1 percent discount rate and an EIRR of 32 percent. To assess the impact of changes in expected costs and benefits on the NPV and EIRR, three scenarios are evaluated, which are reported in Table below. These results show that the sub-project yields high economic benefits even with either a reduction in expected benefits or an increase in expected costs. Table-4: NPV and EIRR of Solar Street Lights Sub-project and Sensitivity Analysis Sr NPV (PKR Scenario EIRR # mill) 1 Base case % 2 Scenario 1: Reduction in all benefits by 20% 65 22% 19 Based on Structure Plan for MC Khar, FATA Secretariat. 20 As notified by the National Electric Power Regulatory Authority (NEPRA) for Tribal Areas Electric Supply Company (TESCO) in March

38 Sr # 3 4 Scenario Scenario 2: Increase in battery and LED replacement costs by 10% increase in O&M cost by 20% (for first year) increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Scenario 3: Reduction in all benefits by 20% increase in battery and LED replacement costs by 10% increase in O&M cost by 20% (for first year) increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) NPV (PKR mill) EIRR % 54 20% Economic Analysis of Street Pavement and Drainage Sub-project 14. The project funded street pavements and improvement of drainage over an area of about 45,000 square meters in the residential areas of Khar town, Bajaur Agency. This included concrete lining of drains to reduce environmental and health impacts of poor sanitation. It is estimated that the population living within a 500 meter radius of these improved streets is 20, Costs Attributable to Sub-project: In addition to the capital costs incurred at the start of the sub-project, it is assumed that the cost of major mid-life rehabilitation after ten years will be 20 percent of the initial capital cost. Incremental O&M costs have been assumed to be 1 percent of initial capital cost for the first year, to be increased by the rate of inflation annually. 16. Quantification of Benefits: Benefits attributable to the sub-project have been quantified in monetary terms to the extent possible using reasonable assumptions. Reports from beneficiaries and the implementing agency suggest that street pavement and drainage improvements have led to the following benefits: (a) reduction in the accumulation of solid waste in the streets, leading to health benefits; (b) substantial reduction in the breeding of mosquitoes, leading to health benefits; (c) improvement in ease of access for households situated along or in the immediate vicinity of improved streets; (d) increase in property/land value in the streets that have been improved and in their immediate vicinity; (c) for streets that are wide enough for vehicular traffic, a decrease in vehicle travel time and possible reduction in vehicle maintenance costs; (d) savings in monthly sanitation expenditures of households; and (e) reduction in labor days lost due to adverse health impacts of poor sanitation. However, only the following benefits can be quantified: Economic impact of potential health improvements, such as safe confinement and disposal of fecal matter due to drainage improvement. o Savings in monthly sanitation expenditures for households, and reduction in labor days lost, may be accounted for by quantifying this benefit. Value of time saved for households due to improved access to residences due to street pavement and drainage. 17. Economic Impact of Health Improvement: Economic benefits have been estimated by considering potential health benefits due to improved drainage and street pavement using a national-level analysis recently conducted by the Water and Sanitation Program, a Trust Fund 26

39 managed by the World Bank 21. It estimated the annual per capita economic cost of inadequate sanitation (PKR 2,163 at 2006 prices) and then estimated the impact of various health (water and sanitation) interventions in reducing these costs. One such intervention is safe confinement and disposal of fecal matter which, according to the analysis, can reduce the economic cost of poor sanitation by 30 percent (PKR649 per capita per year at 2006 prices). This analysis uses this number in the following manner: PKR649 is converted from 2006 prices to 2015 prices using the rate of inflation stated above. Since this is a national-level estimate, it is conservatively assumed that the economic benefits of water and sanitation interventions in FATA will be 30 percent less than the national average. The resultant value is PKR705 per capita per year in 2015 prices. It is assumed that these benefits will accrue to the entire beneficiary population of this subproject. The number of beneficiaries is 20,000 in 2015 and increases annually at the population growth rate described earlier. 18. Value of Time Saved by Households due to Improved Access: The value of time saved by households due to improved access to residences and places of work after the completion of street pavement and drainage improvements is estimated as follows: It is assumed that per capita income in FATA is half the per capita national income (GNI) 22 for Pakistan, given the high level of underdevelopment and poverty in the area. Estimated per capita income for FATA is converted to an hourly rate to determine the value of working time per hour. The value of non-working time is assumed at one third of working time. It is assumed that the sub-project has on average reduced travel time by ten minutes per day due to the improvement in access to houses and places of work and business, and that two adults per household are affected by this time saving, which is valued as working time. 19. NPV, EIRR, and Sensitivity Analysis: Based on the estimations and assumptions outlined above, the sub-project yields an NPV of PKR 90 million at the 10.1 percent discount rate and an EIRR of 25 percent. The results show that the sub-project yields substantial economic benefits to the community. To assess the impact of changes in expected costs and benefits on the NPV and EIRR, three scenarios are evaluated; see Table below. These results show that the subproject yields high economic benefits even with a reduction in expected benefits or an increase in expected costs. Table-5: NPV and EIRR of Street Pavement and Drainage Sub-project Sr NPV (PKR Scenario EIRR # mill) 1 Base case 90 25% 2 Scenario 1: Reduction in all benefits by 20% 51 19% 21 World Bank (2011), The Economic Impacts of Inadequate Sanitation in Pakistan. Washington, DC: World Bank. Available at < 22 Per capita Gross National Income (GNI), , at current prices: PKR 153,060. Source: Pakistan Bureau of Statistics. 27

40 Sr # 3 4 Scenario Scenario 2: Increase in mid-life major rehabilitation cost by 20%, increase in O&M cost by 20% (for first year) and increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Scenario 3: Reduction in all benefits by 20% increase in mid-life major rehabilitation cost by 20% increase in O&M cost by 20% (for first year) increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) NPV (PKR mill) EIRR 85 25% 47 18% Economic Analysis of Water Supply Sub-project 20. The project funded the rehabilitation and expansion of the water supply system in Khar by constructing five new tube wells (three solar-powered and two conventional, with overhead reservoirs attached to each), and rehabilitating two existing tube wells. This sub-project became operational in the first quarter of 2016, and 900 households have been given connections to the water supply network. Over time the network is expected to serve a larger proportion of the town population. The solar option has been chosen due to persistent shortage of grid-supplied power in the area. Besides improving the quantity of water supply for households, the new system has also improved the quality by removing contaminants, as shown by tests done by the implementing agency. 21. Costs Attributable to Sub-project: In addition to the capital costs incurred at the start of the sub-project, it is assumed that the costs of major mid-life rehabilitation after ten years will be 50 percent of the initial capital cost. Incremental O&M costs have been assumed to be as follows: Solar-powered component: 2.5 percent of the initial capital costs of the solar-powered component for the first year, to be increased by the rate of inflation annually. Conventional component: 5 percent of the initial capital cost of conventional component for the first year, to be increased by the rate of inflation annually. 22. Quantification of Benefits: The following benefits attributable to the sub-project have been quantified in monetary terms to the extent possible using reasonable assumptions: Economic impact of potential health improvements from improved access to adequate quantity and improved quality of water for households. Value of time saved by households in collecting water from shallow wells or other sources. 23. Economic Impact of Health Improvements: The sub-project improved the quantity and quality of water supplied by the construction of new tube wells for groundwater pumping, rehabilitation of existing tube wells, rehabilitation and expansion of the water supply distribution network, and the construction of overhead reservoirs for storage. To quantify the impact of this intervention on the health of households, reference has again been made to the national-level analysis done by the Water and Sanitation Program and published by the World Bank, titled The Economic Impacts of Inadequate Sanitation in Pakistan (2011). It estimates that improved access 28

41 to an adequate quantity and improved quality of water can reduce the economic cost of poor sanitation by 30 percent and 36 percent respectively, estimated at PKR650 and PKR779 per capita per year in 2006 prices. 24. The following additional estimations and assumptions are made to quantify this impact for the purpose of this analysis: PKR649 and PKR779 are converted from 2006 prices to 2015 prices, using the rate of inflation stated above. Since this is a national-level estimate, it is conservatively assumed that the economic benefits of water and sanitation interventions in FATA will be 30 percent less than the national average. The resultant values are PKR705 and PKR846 per capita per year in 2015 prices. It is assumed that these benefits will accrue to every household that is connected to the water supply network developed under the sub-project. The current number of beneficiary households is 900 (number of connections) which is assumed to grow linearly every year by 30 percent. The beneficiary population each year is obtained by multiplying number of connections with the household size. 25. Value of Time Saved by Households due to Improved Access to Water: The value of time saved by households due to improved access to water and reduction in time to collect water has been estimated using the same approach used to estimate value of time in the economic analysis of the street pavements and drainage sub-project i.e., it is assumed that the sub-project has helped households save an average of ten minutes per day, and that two adults per household are affected by this time saving, which is valued as working time. 26. NPV, EIRR, and Sensitivity Analysis: Based on the estimations and assumptions outlined above, the sub-project yields an NPV of PKR192 million at a 10.1 percent discount rate and an EIRR of 29 percent. To assess the impact of changes in expected costs and benefits on the NPV and EIRR of the sub-project, three scenarios are evaluated which are reported in Table below. These results show that the sub-project yields high economic benefits even with either a reduction in expected benefits or an increase in expected costs. Table-6: NPV and EIRR of Water Supply Sub-project and Sensitivity Analysis Sr NPV (PKR Scenario EIRR # mill) 1 Base case % 2 Scenario 1: Reduction in all benefits by 20% % Scenario 2: Increase in mid-life major rehabilitation cost by 20%, 3 increase in O&M cost by 20% (for first year) % increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) 4 Scenario 3: Reduction in all benefits by 20% increase in mid-life major rehabilitation cost by 20% increase in O&M cost by 20% (for first year) % 29

42 Sr # Scenario increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) NPV (PKR mill) EIRR Economic Analysis of Roads Rehabilitation Sub-project 27. The project funded the rehabilitation and improvement of major road sections in Khar town totaling 4.35 km: (a) from Shuhada Chowk to the end of the Old Bazar (0.95 km); and (b) Captain Sajjad Shaheed Road (3.4 km). The road serves an important part of the overall communication network of the town and has gained significance as a bypass road because of security restrictions on the main Munda-Khar Road. The condition of the existing road was very poor with cracked surface, settlements, and ponding. Lack of proper drainage, especially during the rainy season, and collection of sewerage water were causing ponding. 28. Methodology: The analysis compares life cycle road agency and user costs with and without the investment to determine NPV (at a 12 percent discount rate) and EIRR, using the Highway Development and Management Model of the World Bank (HDM-4). The main assumptions are: The roughness level of the existing road is taken as 7 IRI and only routine maintenance (do nothing) is costed in the without project case. For the improvement strategy ( with project case), improved drainage provisions with asphaltic concrete surface have been applied to the road, giving IRI levels of 2.5 with asphalt wearing course. It is assumed that an overlay will be added after 10 years (scheduled maintenance) to reduce the IRI back to 2.5. The condition, traffic data, and costs of the existing roads have been taken from the PC-I document of the sub-project. Traffic surveys have been carried out by design consultants on the road section from dawn to dusk, during the detailed engineering design. These surveys were done in and have been projected to the level of 2016 using a growth rate of 4.5 percent per annum. The data has already been adjusted to AADT level using standard factors for similar roads in the Province. Traffic counts have been forecast for the next twenty years, using a growth rate of 4.5 percent. 24 These forecasts include normal traffic with normal growth rate, and generated/ induced traffic which comes after completion of the road due to increased economic activity and ease of travelling on the new road. 29. Costs: In addition to capital costs (including share of design and supervision consultancy costs) incurred at the start, the incremental costs discussed below are expected to be incurred during the life of the sub-project. 23 The annual average daily traffic (AADT) was 1,537 in 2013 as per traffic count survey. 24 This growth rate has been determined as follows: The elasticity of traffic growth with respect to GDP growth has been determined as close to 1.0 in a 1983 JICA study titled The Study on National Transport Plan in Islamic Republic of Pakistan, while Pakistan s GDP growth rate for the period 2000 to was about 4.5 percent. 30

43 30. Vehicle Operating Costs: Vehicle operating costs depend upon road conditions, vehicle characteristics, utilization, and prices. Road conditions with and without project have been described above. For vehicle characteristics, default values of the HDM-4 model have been used. Other input data, such as prices of vehicles and other inputs as well as utilization of vehicles, have been used at standard values as per the prevailing practice in the sector, for each type of motor vehicle (e.g., motorcycles, cars, wagons, buses and trucks). Economic costs have been computed by deducting taxes and duties from market prices. 31. Road Improvement and Maintenance Costs: Improvement costs for the road sub-project were established based on engineering design and the capital costs. The residual value of the asset after twenty years has been taken as 10 percent. Maintenance costs based on the unit rates for various maintenance operations are given below. Table-7: Unit Maintenance and Operations Costs Economic Prices Financial Prices Patching Edge Repair Reseal DST TST AC 50mm Rehabilitation / Overlay (PKR per KM) million million 32. Quantification of Benefits: The main quantifiable benefits of the investment are: (a) savings in Vehicle Operating Costs (VOCs) for existing and generated / induced traffic after improvement; and (b) savings in the travel time. Other intangible benefits which may occur but have not been considered include: increase in the rents or land value of shops along the improved road; and reduced time to commute for shopping etc. 33. Savings in Travel Time: The value of time has been determined by estimating the value of working time for bus and wagon passengers, by dividing per capita national income by 360 days and 8 working hours a day. The value of time of motorcycle and car passengers was taken as 1.5 and 3 times higher than bus passengers respectively. The value of non-working time was taken as one-third of working time. The total number of passengers is assumed to be 40 in a bus and 10 in a wagon / van, and work related passenger trips are assumed to be 75 percent of total trips. 34. Generated Traffic and Savings in Vehicle Operating Costs: Savings in VOC are generated through better road surface conditions, and apply to normal traffic as well as generated/induced traffic. Generated traffic is the growth in traffic along a roadway associated with the decrease in user costs in utilizing that roadway and an elasticity factor, and is the traffic generated by improving the project road. For this analysis, the percentage change in user costs (savings) by vehicle type is estimated. These savings are factored in by assumed demand elasticity for cars and other vehicles to calculate the level of generated traffic. Each percentage reduction in vehicle operating and travel time costs will induce more traffic to use the improved facility. For this sub-project, it is estimated that vehicle operating costs will be reduced by 50 percent by 31

44 improving the road. A demand elasticity of 0.5 has been assumed for passenger vehicles, implying that 25 percent additional passenger traffic will start using this road after its improvement (i.e., generated traffic). A demand elasticity of 1 has been assumed for freight traffic, implying that 50 percent more trucks will start using this road after its completion. 35. NPV, EIRR and Sensitivity Analysis: Based on the assumptions outlined above and estimations of the HDM-4 model of the Bank, the sub-project yields an NPV of PKR201 million at 12 percent discount rate and an EIRR of 23 percent. The results show that the sub-project yields substantial economic benefits for the community. The switching value (factor that will reduce the EIRR to 12 percent) is 1.91 for increase in costs and 0.52 for decrease in benefits. To assess the impact of changes in expected costs and benefits on the NPV and EIRR of the sub-project, four scenarios are evaluated which are reported in below. These results show that the sub-project yields high economic benefits even with a reduction in expected benefits or an increase in expected costs. Table-8: NPV and EIRR of Roads Rehabilitation Subproject and Sensitivity Analysis Sr # Scenario EIRR 1 Base case 23% 2 Scenario 1: Reduction in vehicle operating costs by 10% 21.5% 3 Scenario 2: Increase in capital cost by 10% 21.6% 4 Scenario 3: Increase in capital cost by 10% Reduction in vehicle operating costs by 10% 5 Scenario 4: One year delay in construction 21.8% Conclusions of the Economic Analysis 36. In summary, based on the estimations and assumptions outlined above, all four sub-projects yield substantial positive net benefits and high economic internal rates of return (EIRR), as shown in below. This shows that these sub-projects are extremely beneficial for the community and will provide strong value for money. The sensitivity analyses show that these findings remain stable even with a reduction in expected benefits or an increase in expected costs, as shown in below. Sr # Table-9: Summary of Economic Analysis for Sub-projects in Khar Total Cost incl. share of NPV Name of Subproject Design & Supervision (PKR (PKR mill) mill) a 20% EIRR 1 Rehabilitation and Improvement of Roads % 2 Installation of 532 Solar Street Lights % 3 Street Pavements and Drainage Improvement % 4 Rehabilitation and Expansion of Water Supply Conventional and Solar % a: Using discount rate of 12 percent for the roads subproject and 10.1 percent for the remaining subprojects. 32

45 Sr # Table-10: Results of Sensitivity Analysis for Sub-projects in Khar NPV (PKR Scenario mill) Sub-project: Solar Streetlights 1 Base case % 2 Scenario 1: Reduction in all benefits by 20% 65 22% 3 4 Scenario 2: Increase in battery and LED replacement costs by 10%; increase in O&M cost by 20% (for first year); increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Scenario 3: Reduction in all benefits by 20%; increase in battery and LED replacement costs by 10%; increase in O&M cost by 20% (for first year); increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Sub-project: Street Pavement and Drainage Improvement EIRR % 54 20% 1 Base case 90 25% 2 Scenario 1: Reduction in all benefits by 20% 51 19% 3 4 Scenario 2: Increase in mid-life major rehabilitation cost by 20%, increase in O&M cost by 20% (for first year) and increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Scenario 3: Reduction in all benefits by 20%; increase in mid-life major rehabilitation cost by 20%; increase in O&M cost by 20% (for first year); increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Sub-project: Water Supply 85 25% 47 18% 1 Base case % 2 Scenario 1: Reduction in all benefits by 20% % 3 4 Scenario 2: Increase in mid-life major rehabilitation cost by 20%; increase in O&M cost by 20% (for first year); increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Scenario 3: Reduction in all benefits by 20%; increase in mid-life major rehabilitation cost by 20%; increase in O&M cost by 20% (for first year); increase in annual inflation of 1 percentage point (thus increasing subsequent O&M cost every year) Sub-project: Roads Improvement and Rehabilitation % % 1 Base case % 2 Scenario 1: Reduction in vehicle operating costs by 10% 21.5% 3 Scenario 2: Increase in capital cost by 10% 21.6% 4 Scenario 3: Increase in capital cost by 10%; Reduction in vehicle operating costs by 10% 5 Scenario 4: One year delay in construction 21.8% Increase in Property Values Attributable to the Project 37. TPMU has anecdotally confirmed that there has been a substantial increase in residential and commercial land values in Khar town, part of which is directly attributable to the four subprojects discussed in this annex. A discussion with the president of the local business association, 20% 33

46 who is also involved in the real estate business, revealed that one reason for this increase is high demand for land in the city, due to recent migration and settlement from surrounding rural areas. This is partly due to the substantial improvements in the environment and livability of Khar town as a result of project-funded infrastructure sub-projects. 38. This discussion has revealed that the value of commercial land in Khar town has increased by an estimated average of 51 percent for single shops (roughly 120 sq. ft. area) from late 2013 till late 2015, and an average of 41 percent for double shops (roughly 240 sq. ft. area) in the same period. The value of residential land has increased by an estimated average of 53 percent in the same period. 39. The improvement in the livability of Khar thus seems to be helping attract people from surrounding rural/tribal areas to settle down in the town. This is a significant development as it will help validate the TARUCCI concept which underpins this project. If this trend is indeed true, it will help in the achievement of the PDO and its long term sustainability. However, this increase in property value has not been included as one of the quantifiable benefits in the economic analysis of any of the sub-projects, because more evidence is needed on its magnitude and distribution across property types. Financial Analysis of Sub-projects 40. A financial analysis of the sub-projects has not been conducted as currently there are no user fees (e.g., monthly water tariff) or charges for installing a new water connections in FATA. Since the entire region has been conflict affected for several decades and suffers from high poverty and underdevelopment, there is no culture of charging user fees for the limited municipal services provided by the government, even in towns that have historically had an MC. 41. This is however now changing, and FATA Secretariat has instructed the Directorate of LG&RD to develop an Action Plan for MCs in FATA to begin charging user fees for services, beginning with MC Khar. Once implemented, this will ensure better financial sustainability and O&M of local infrastructure assets in FATA. 34

47 Annex 4. Grant Preparation and Implementation Support/Supervision Processes (a) Task Team Members Lending/Grant Preparation Names Title Unit Shahnaz Arshad Task Team Leader, Senior Urban Specialist SASDU Suhaib Rasheed Urban Analyst SASDU Tahir Akbar Urban Analyst SASDU Sameena Dost Senior Counsel LEGES Chau-Ching Shen Senior Finance Officer CTRFC Raja Rehan Arshad Track-3 Team Leader GFDRR Uzma Sadaf Senior Procurement Specialist SARPS Javaid Afzal Senior Environmental Specialist SARDI Omar Khalid Environment Specialist SARDI Syed Waseem Kazmi Senior Financial Management Specialist SARFM Chaohua Zhang Lead Social Development Specialist SASDS Samina Mussarat Islam Social Development Specialist SASDS Anwar Ali Bhatti Disbursement Analyst SACPK Lilian MacArthur Senior Program Assistant SASDO Shabir Ahmad Senior Program Assistant SASDO Abid Hussain Chaudhry Program Assistant SASDO Shahnaz Meraj Program Assistant SASDO Janis D. Bernstein Quality Assurance SASDU Stephen Karam Peer Reviewer, Lead Urban Economist ECSS6 Jean Mazurelle Peer Reviewer, ex-country Manager, Afghanistan OPCSC Supervision/ICR Names Title Unit Shahnaz Arshad Task Team Leader, Senior Urban Specialist GSURR Kevin Taylor Technical Advisor GWA06 Deepali Tewari Lead Urban Specialist GSURR Suhaib Rasheed Urban Analyst GSURR Sohaib Athar Urban Specialist GSURR Sameena Dost Senior Counsel LEGES Chau-Ching Shen Senior Finance Officer WFALN Uzma Sadaf Senior Procurement Specialist GGO06 Waqas Mushtaq Procurement Specialist SACPK Javaid Afzal Senior Environmental Specialist GENDR Omar Khalid Environment Specialist GENDR Syed Waseem Kazmi Senior Financial Management Specialist GG024 Qurat ul Ain Hadi Financial Management Specialist GGO24 Salma Omar Senior Social Development Specialist GSU06 Imran ul Haq Social Development Specialist GSU06 35

48 Anwar Ali Bhatti Disbursement Analyst SACPK Lilian MacArthur Senior Program Assistant GSU18 Ghulam Farid Senior Program Assistant SACPK Shabir Ahmad Senior Program Assistant SACPK Shahnaz Meraj Program Assistant SACPK Deepali Tewari Quality Assurance GSURR Paul Kriss Peer Reviewer, Lead Urban Specialist GSURB Jean Mazurelle Peer Reviewer, ex-country Manager, Afghanistan OPCSC (b) Staff Time and Cost Stage of Project Cycle Lending Supervision/ICR Staff Time and Cost (Bank Budget Only) USD (including travel and No. of staff weeks consultant costs) Total: NA Total: NA 0.00 (all costs charged to BETF) 36

49 Annex 5: Beneficiary Survey Results 1. A beneficiary survey was conducted by an independent survey firm to assess the perceptions of project beneficiaries of improvements in municipal service delivery that can be attributed to the infrastructure subprojects funded by FUCP in Khar. 2. Scope of Beneficiary Survey: The survey focused on three large infrastructure subprojects that had started to provide benefits to residents of Khar for at least six months before the conduct of the survey. These subprojects were: (a) Rehabilitation of roads; (b) Installation of Solarpowered streetlights; and (c) Street pavement and improvement of drainage. The water supply subproject was not included in the scope as it had not been operational for the desired duration at the time of the survey, and thus its benefits had not fully matured by that time. 3. Methodology of Survey: The survey was conducted by drawing a random sample from the universe of beneficiaries of the subprojects to provide inferences within a reasonable margin of error. Table-4 below shows the sample size of the survey. Survey questionnaires were developed for each of the subprojects, and included a set of questions that were common to each questionnaire. Enumerators were hired from the project area and trained on survey protocols. The questionnaires were field-tested and then administered over a period of one week in January Three types of respondents were questioned: households, shops/businesses, and travelers/ passersby. The results were tabulated and reported by the survey firm to the Bank. Table-4: Sample Size and Margin of Error Sr # Sub-project Sample Size Estimated number Margin of of Beneficiaries Error a 1 Street pavement and drainage ,000 7% 2 Roads ,000 8% 3 Solar streetlights ,000 8% 4 Total beneficiaries ,000 4% 5 Non-beneficiaries 36 6 Total respondents ,000 4% a: At 95% confidence level Results of Beneficiary Survey 4. The results of the survey are overwhelmingly positive and report very high levels of satisfaction of beneficiaries from the subprojects. All respondents were aware of the project s interventions and 81 percent were aware of multiple interventions. A full 100 percent (including non-beneficiaries) perceived that there has been an improvement in the delivery of priority urban services due to the project. A large majority of respondents have been residents of Khar for more than three years, and live or work in areas close to the subprojects. 5. Roads Rehabilitation Subproject: Almost all the respondents reported that the current condition of roads as good, while three-quarters reported that the condition of the same roads was bad before the project. 83 percent of respondents in the households and shops/businesses category felt that the roads subproject has increased the property value of their home or shop. All respondents in the households and travelers/passersby category felt that it has improved the ease of travel and commute for their households. More than 80 percent of respondents in this category 37

50 felt that it has reduced fuel consumption cost (per unit travelled), and vehicle maintenance cost. All respondents in the shops/businesses category said that the roads subproject has helped increase their business activities, and also expanded business opportunities in the area. Nine out of ten of all respondents used these roads multiple times a week. 6. Solar Streetlights Subproject: More than 90 percent respondents reported that the solar streetlights installed under FUCP are working perfectly, while three-quarters reported that before the project there were either no streetlights or they were broken down. Almost all respondents said that the new streetlights were repaired if they had broken down. More than 95 percent respondents reported that these new streetlights have provided the following benefits: (a) ease in commuting/ access especially when attending evening prayers in the mosque; (b) ease of access for guests visiting the house or customers visiting the shop; and (c) improvement in safety. When asked to list the benefits of the streetlights, 18 percent said they can now more easily travel and walk within the town in the illuminated areas, while 15 percent said they are now less afraid about incidents of crime. An additional 7 percent listed multiple benefits of these streetlights. Almost all the respondents in the shops/businesses category reported that customers now find it easier to visit their shops in the evening increasing business activities in the area, while 85 percent of them reported that the duration of their business hours has increased due to the subproject. 7. Street Pavement and Drainage Improvement Subproject: Almost nine out of ten respondents reported that the current condition of streets was good, while a slightly higher number reported that the condition of the same streets was bad before the project. Almost all respondents reported that improvement of drains had accompanied street pavement work, and three quarters said that the width of streets had also been increased under the subproject. 95 percent of the respondents reported facing problems before the subproject like streets overflowing with sewage; existing drains clogged or blocked; and obstructions. The severity of this problem was rated high by nine out of ten respondents. 88 percent of the respondents said that they faced none of these problems after the subproject. Almost all respondents in the households and travelers/passersby category felt that it has improved the ease of access, and reduced travel time for their family members and guests coming to their homes. Seven out of ten respondents in the households and shops/businesses category felt that the streets pavement and drainage subproject has increased the property value of their home or shop. Almost all respondents in the shops/businesses category said that the subproject has helped increase their business activities and expanded business opportunities in the area. Nine out of ten of all respondents used these streets multiple times a week. 38

51 Annex 6: Grantee s ICR A. Background 1. TARUCCI (Tribal Areas Rural to Urban Centers Conversion Initiative) is a unique initiative of development for tribal areas to establish properly planned urban centers in the headquarters of all the tribal agencies and change the rural-tribal society into a more urbanized one which will be characterized by all the civic facilities such as housing townships for families of government officials, teachers, doctors, officers of local garrisons and local populace to encourage the local tribesmen to take up abode in urban areas. FATA Urban Centers Project (FUCP) was an MDTF funded project working under the Umbrella of TARUCCI Program. The objective of the project was to improve urban services and management in Khar, Bajaur Agency and to develop a framework for urban management in FATA. The project commenced on 12 th April, 2012 at a total cost of PKR 750 million (USD 8 million) and completed on 30 th September, 2015, with a total utilization of PKR million. This was a pilot project out of the 15 urban centers identified under TARUCCI program. It will be replicated in other Agency headquarters of FATA. B. Project Development Objectives 2. The objective of FUCP was to improve urban services in Khar, Bajaur Agency and to develop institutional and financial frameworks for the management of urban centers in FATA. 3. The objective of FUCP to improve municipal services in Khar was the need of the hour in the current scenario in FATA, to develop citizen-state trust. The Bank intervention was timely and well planned to achieve the objective successfully. This was done by establishment of a functional MC which was provided with all the necessary equipment and infrastructure. C. Design 4. The design of the project was such that the FUCP was housed in TARUCCI PMU which provided logistic and administrative support to the project. It was a well-designed project which was a good example of Government Donor collaboration where the core team of individual consultants was hired from the market by FUCP while the team was facilitated by TARUCCI for smooth implementation of the project. The Steering and Apex Committees were part of the project design which assisted the project in oversight and policy guidelines respectively. This made certain that FATA Secretariat was on board throughout the project life. The involvement of the World Bank was ensured as their approval was required in all stages of the project cycle. In the project design the timeframes were clearly earmarked for planning, detail engineering design and implementation. D. Implementation a. Infrastructure Development: The project initially started a planning process by hiring a consultancy firm to develop a spatial plan for Khar. During the planning process a participatory exercise was carried out to identify the needs and priorities of the communities. Based on the recommendations of the spatial plan, the engineering design & supervision firm developed feasibilities and design of the prioritized infrastructure schemes which included road, solar Street lights, street pavement and water supply system in Khar. b. Establishment of Municipal Committee in Khar: An MC was established in Khar by acquiring and refurbishing a building from the Political Administration Khar. This MC was 39

52 provided with all the necessary office furniture and equipment. To enable the newly established MC to deliver the basic municipal services to the local community, it was also provided with firefighting trucks, water bowser, a bucket vehicle, tractors and hydraulic trolleys. Basic necessary trainings were also imparted to the newly recruited MC staff. c. Urbanization in FATA: As a step towards promoting of the urbanization in the entire Fata, four more spatial plans have been prepared for Landi Kotal, Ghalanai, Sadda and Parachinar. The detail of activities undertaken by FUCP is given below: Sr. No Activities Physical Targets Physical Achievements Financial Utilization PKR (million) 1 Spatial Plan for Khar Solar Street Lights Fire Fighting Vehicles Bucket vehicle Repair &Renovation of MC Khar office, Bajaur Road 4.35 Km DWSS Conventional DWSS Solar Street Pavement & Drainage sq meter sq meter Solid Waste Management L/S L/S Furnishing, Equipment and goods for MC Khar L/S L/S Spatial Plan for Ghalanai, Landikotal, Parachinar & Sadda Environmental and Social Management Plan (ESMP) Consultancy for Design & Supervision Water Bowser Fire suits Additional Solar Street Lights Communication Strategy consultancy The above mentioned initiatives have been completed by the project at a total cost of PKR M out of PKR 750 M allocated for the project. In addition to the costs stated above, the FATA Secretariat spent an additional PKR million after the project closing date of 30 September 2015 on infrastructure subprojects to complete pending works. The breakup of this additional spending is as follows: PKR million on Roads; PKR million on DWSS Conventional; and PKR 2.0 million on DWSS Solar. d. Grievance Redress Mechanism (GRM): To provide an opportunity to the local people to log their complaints or provide their feedback and suggestions a localized Grievance Redress Mechanism was established in MC Khar. For more complex issues a Grievance Redress Committee was also established within this mechanism, which was headed by the Political Agent. A hotline was provided to facilitate the local people especially the women to register their complaints/suggestions. 40

53 This participatory monitoring system for GRM was very useful during project implementation and the local communities made best use of it by providing their feedback / suggestions to the project authorities on regular basis during sub-project execution. The detail of complaints as of 30 September 2015 is listed below: Total Number of Grievances Received (Nos.) Grievances Redressed (Nos.) Grievances Pending (Nos.) Notes The pending complaints were regarding nonfunctional solar lights which have also been rectified/ redressed by MC Khar. e. Capacity Building Activities: Capacity building was an ongoing activity throughout the project life in almost all the sectors. ESMP trainings were imparted to all the implementation actors including contractor, consultants, FUCP field engineers and other stakeholders. The capacity of the MC staff was enhanced by providing them trainings in MC management, accounting and financial matters. They were also given repeated trainings in firefighting, bucket vehicles operation and maintenance of solar street lights. E. Operational Experience 5. Except for the initial one year of the project, there was no dedicated Project Director, due to which the activities of the project were affected. The Political Administration Khar was not very supportive of the project which caused delay in the progress. 6. As per the grant agreement, MDTF funds can t be utilized for acquisition of land due to which some pivotal projects could not be undertaken especially the construction of public latrines, landfill site for solid waste and a Family Park. Moreover, due to this constraint there was delay in obtaining land for tube wells and OHRs for the water supply subproject. 7. The environmental and social safeguards components of the project were lumped together though these were completely different field of operations and require to be bifurcated for better implementation and reporting of each of these sectors. 8. The procurement wing of FUCP consisted of only one person (procurement specialist) which was insufficient to handle all the responsibilities of the procurement process. F. Assessment of Outcomes a) Relevance of Objectives: The objectives of FUCP were quite relevant as provision of basic municipal infrastructure and establishment of an MC will facilitate the urbanization of Khar. This will lead to improve citizen state trust in the present geopolitical situation of FATA. Therefore the Bank s interventions were timely and objectively planned. The objective was successfully achieved by the establishment of a functional MC and provision of basic municipal infrastructure facilities. The objective of urbanization in FATA was continued by developing four more spatial plans for Landi Kotal, Ghalanay, Sadda and Parachinar. 41

54 b) Achievements of Objectives: The project has significantly achieved its development objectives, which are shown in the table below: S. No. 1 2 Description Input Output Establishment of functional municipal committee, Khar Improvement in Urban Services. PKR 750 million *Black topped road, *Tube wells *Solar Street lights, Baseline Indicator 15 km road 6 No. 0 Outcome Targets after Completion of Project km road 11 No. 532 solar street lights Target Impact Approx people of MC area are being benefited from the municipal services *Fire brigade vehicles Bucket vehicle *Street pavement *Solid waste management, Water Browser sqm Nil 0 2 No.s Vehicles 1 bucket vehicle sqm Solid waste management system in place 1 No. water bowser The provision of municipal services and establishment of a well-equipped MC has contributed to the socio-economic growth of Khar. The provision of basic infrastructure and facilities has improved the business activities and has enhanced the living standard of the residence of Khar. These factors attracted the people living in rural areas of Bajaur agency to settle in the vicinity of Khar town which has resulted in the increase of land prices both commercial and residential. G. Assessment of Bank and Borrower Performance a) Bank s Performance: Rating - Satisfactory 9. The Bank s performance is rated as Satisfactory, based on a cumulative analysis as listed below: Criteria Rating Justification Strategic Relevance and Approach Technical, Financial, and Economic Aspects Satisfactory Satisfactory The bank s intervention was quite relevant and timely as the concept of urbanization was introduced in FATA in the shape of TARUCCI. The urbanization in FATA will lead to better standard of living and economic opportunities for the residents of the region. The project was prepared after thorough consultation with FATA Secretariat, Political Administration, LG&RD FATA, and appropriate interventions were designed to support urbanization. 42

55 Criteria Rating Justification The guidelines for procurement, finance and contract management were provided. The tools for infrastructure implementation and developmental interventions were also clearly outlined. Policy and Institutional Aspects Implementation Arrangements Monitoring & Evaluation Arrangements Satisfactory Satisfactory Satisfactory The project s institutional framework was practical enough to cater to the challenges faced during implementation. The Bank s Task Team conducted various consultative meetings with FATA Secretariat which included customized interventions to assist Local Government in fulfilling its mandated responsibilities of establishing an MC in Khar. The Bank s assistance and support was available to TPMU from the beginning of the project. Regular meetings were held with the stakeholders to discuss the issues on hand. Various supportive documents and institutional development related technical inputs were provided from time to time. Obstacles encountered in the implementation of certain project components were taken up with FATA Secretariat and solutions were recommended. The project activities were effectively monitored by the Bank through various briefings from the officials of FUCP and consultants. Periodic reports were obtained from implementing agency on infrastructure and institutional development components indicating the progress of the project. A third party monitoring consultancy was hired by the Bank which regularly monitored the ongoing activities at field level while an internal audit was also carried out by an independent audit firm ion regular basis. 10. The Bank s overall performance is considered satisfactory. The Project Development Objective was significantly achieved. Bank provided both technical and financial support. It is understood that during the design and development of the project, some of the decisions made were very relevant and in harmony with the realities of FATA background. However, if any gaps existed during the implementation phase, the Bank realized and provided timely support to TPMU.. The Bank was well-informed about the major constraints during the implementation of the project that were beyond FUCP control. Therefore, the Bank approved extension request once for three months beyond the originally planned completion date. b) Borrower Performance: Rating - Satisfactory 11. The Borrower s performance rating is based on the below analysis. Criteria Rating Justification Ownership of the Project by FATA Secretariat. Institutional Arrangement for Sustainable Service Delivery Adequacy of Stakeholders Consultation Satisfactory Satisfactory Satisfactory The FATA Secretariat was committed to achieve the Project Development Objective by utilizing all resources at its disposal. It showed ownership of the project during the design, preparation, and implementation. However certain issues arose during project implementation with the Political Administration due to lack of clarity regarding certain roles and responsibilities. To ensure the sustainability of service delivery a municipal committee was established to provide smooth services to the local reside of Khar town. A Grand Jirga was held in Khar to launch the project, in which all stakeholders like MNA s, Senators, Religious Figures, Public Servants, Political Administrations and members of the community from all walks of life participated. This was followed by consultations held with the people of Khar during preparation of the Spatial Plan and also through the implementation of the project. 43

56 Criteria Rating Justification Moreover, FATA Secretariat, World Bank, political administration and concerned line agencies were kept on board throughout the project. Dedicated Project Director Achievement of Targets Below Satisfactory. Satisfactory Except for the initial few months there was no fulltime Project Director throughout the project. The project achieved all the set targets. H. FUCP Performance (Self-Assessment) 12. FUCP has adopted systematic approach to design and implement FUCP s Institutional Development and Infrastructure Development components, keeping in view the challenge of working in FATA. Technical support throughout the project period was obtained through selected skilled human resource according to the scale and requirement of the project interventions. FUCP teams conducted thorough field visits to suggest practical measures within the given constraints for suggesting improvements for both institutional and infrastructure development initiatives. 13. The procurement and contract management in the various infrastructure sub-projects was managed by FUCP, particularly in respect of time extensions, variations, performance guarantees, payment certificates, and completion certificates etc. Periodic contract management audits were also carried out by FUCP and relevant third parties. Further, all project-funded infrastructure schemes have followed the FUCP developed Environmental and Social Framework to ensure that their design and implementation adheres to highest standards and do not leave any significant negative impact. Environmental & Social safeguards aspects for sub-projects have been managed in compliance with relevant Bank policies. I. Lessons Learnt a) The impact of FUCP in promoting urbanization in Khar is very visible and would ultimately lead to social transformation and migration from rural to urban areas within the agency. The project on a larger scale if replicated across FATA will have tremendous effect in the overall development of the region. b) The project specific staff was not on board at the time of establishment of the project office and preparation of Umbrella PC-1 which resulted in inadequate office facilities and a unrealistic Umbrella PC-1. c) The project completed its life without a full time dedicated Project Director which affected the pace of the project and proper coordination with the political administration and FATA Secretariat. d) A representative field office would have been a source of facilitation for the project which would have solved the day to day issues arising in the field. e) The project should have the facility to help establish a MC in the targeted township so that if there are any delays in the establishment of the MC due to cumbersome government procedures, the project will be in a position to expedite the creation of the new MC as was witnessed in case of Khar. f) The concerned political administration should be sensitized to the working of donor funded projects. g) More realistic time frame should be given to the planning process (Spatial Planning) and detailed engineering design so that targets are achieved well in time. 44

57 h) FATA has its own unique work culture, where things move slowly and less smoothly as compared to the settled areas, this should be reflected in developing more realistic work plans. i) Funds for acquisition of land should be available within the project as this issue created a number of problems during implementation of the project. j) Proper time and funds should be allocated within the project for retention of the staff to close the project in an orderly manner. J. Remarks of Coordinator PCNA, FATA Secretariat 14. A Post Crisis Need Assessment (PCNA) was carried out in The PCNA provided the underpinnings for peace building in FATA. These have been organized into four strategic objectives which are: a) enhance responsiveness and effectiveness of state to restore citizen trust; b) stimulate employment and livelihood opportunities; c) ensure provision of basic services; and d) reconciliation and counter extremism. Following the PCNA the FATA Secretariat launched the TARUCCI program to attain three of the four strategic objectives of PCNA. The program known as Tribal Areas Rural to Urban centers Conversion Initiatives (TARUCCI) was envisioned to attain these objectives through urbanization in 14 townships in FATA. 15. FATA region has the lowest level of urbanization in the country. At the same time municipal infrastructure and services in FATA remain significantly below par compared to other part of the country. 16. FATA Urban centers Project (FUCP) was launched under the umbrella of TARUCCI to improve urban services and management in Khar and develop a framework for urban management in FATA. FUCP was launched on 12 th April 2012 at a cost of USD 7 million which was increased to USD 8 million. 17. Under the project a spatial plan was developed in consultation with all the stakeholders including local community, FATA Secretariat, political administration and line departments. This process identified the needs and priorities of the people of Khar. 18. FUCP developed / provided municipal infrastructures which consist of solar street lights, metaled road, solar and conventional DWSS, street pavement & drainage. To ensure the sustainability of the municipal services the project assisted in establishment of Municipal Committee in Khar. The newly formed MC was equipped with fire fighting vehicles, water bowser, bucket vehicle, equipment for solid waste management as well as office furniture and IT equipment. 19. The impact of the FUCP interventions is quick and visible for example with the provision of solar powered lights the local people feel secure and shops remain open till late in night which in turn leads to more business activities. In addition to solar lights the improved sanitation, better connectivity, clean drinking water has improved the overall living and business environment. This has led to increase in land costs and rents of shops. Another phenomenon observed is the rural to urban migration taking place as a number of families have started to settle in the vicinity of Khar town. 45

58 20. All of the above stated facts indicate that trust of the citizens in the state has improved which is the biggest achievement of FUCP. K. Remarks of Secretary, Planning & Development Department, FATA Secretariat 21. Addressing the challenges faced by Khyber Pakhtunkhwa and FATA after prolonged insurgency and counter insurgency the World Bank has supported the implementation of PCNA s developmental strategy designed to restore the infrastructure and the basic facilities for the people of the said areas. 22. The ongoing MDTF funded projects are contributing to this concept for the prosperity of the people of FATA. These projects will not only uplift the socio-economic stature of the region but will also contribute towards peace building efforts. 23. TARUCCI program is a major initiative of FATA Secretariat to ensure development in the region. Its pilot project FUCP has greatly improved the municipal infrastructure and services in Khar. 24. Due to the interventions of FUCP the socio economic and security situation have improved. The concept of urbanization in FATA has shown its success as was envisaged and the people of FATA have accepted the idea. This will slowly and steadily bring social transformation through urbanization. 25. Keeping the acceptance and utility of FUCP concept it will be replicated in other agencies of FATA for which four more spatial plans have been prepared by FUCP. All these plans have been approved by both FATA Secretariat and the World Bank. 46

59 Annex 7. List of Supporting Documents 1. WB, ADB: Post Crisis Damage and Needs Assessment (DNA), WB, ADB, EU, UN: Post Crisis Needs Assessment (PCNA), WB: Country Partnership Strategy and Country Partnership Strategy FATA Secretariat: FATA Sustainable Development Plan KP, FATA and Balochistan MDTF Administration Agreement FATA Secretariat: Structure Plan for MC Khar (2013); Structure Plans for MCs Landi Kotal, Ghalanai, Sadda and Parachinar, Centre of Excellence for Rural Development (CERD): Beneficiary Perception Survey for Municipal Infrastructure Sub-projects in Khar, Bajaur Agency, MDTF Third Party Monitoring Agent s Quarterly Reports 47

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