Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF US$2 MILLION TO THE PALESTINE LIBERATION ORGANIZATION (PLO) (FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY) FOR THE Report No: 65657-GZ ADDITIONAL FINANCING FOR THE MUNICIPAL DEVELOPMENT PROJECT FOR THE SUPPORT OF PHASE I OF THE MUNICIPAL DEVELOPMENT PROGRAM Sustainable Development Department Middle East and North Africa Region January 3, 2012 This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank s Policy on Access to Information.
CURRENCY EQUIVALENTS (Exchange Rate Effective October 31, 2011) Currency Unit = New Israeli Shekel (NIS) NIS1 = US$ 0.277 US$ = NIS 3.609 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF AFD BTC FARV FP s FPPM GAM GTZ/GIZ IBRD IDA IFRs IFMIS KFW MDLF MDP MoF MoLG MOPAD NGO NIS OSS PA PAD PDO PRDP SDIP TFGWB WBG Additional Financing Agence Française de Développement Belgian Development Agency (formerly: Belgian Technical Cooperation) Fixed Asset and Registration Valuation Funding Partners Financial Management and Procurement Procedures Manual Grant Allocation Mechanism German Technical Cooperation International Bank for Reconstruction and Development International Development Agency Interim Financial Reports Integrated Financial Management Information System German Bank for Development Municipal Development and Lending Fund Municipal Development Project for the Support of Phase 1 of the Municipal Development Program Ministry of Finance Ministry of Local Government Ministry of Planning & Administrative Development Non Governmental Organization New Israeli Shekel One Stop Shops Palestinian Authority Project Appraisal Document Project Development Objective Palestinian Reform and Development Plan Strategic Development and Investment Planning Trust Fund for Gaza and West Bank West Bank and Gaza Vice President: Country Director: Acting Sector Director: Sector Manager: Task Team Leader: Inger Andersen Mariam Sherman Emmanuel Mbi Franck Bousquet Soraya Goga
WEST BANK AND GAZA ADDITIONAL FINANCING FOR THE MUNICIPAL DEVELOPMENT PROJECT FOR THE SUPPORT OF PHASE I OF THE MUNICIPAL DEVELOPMENT PROGRAM Table of Contents I. Introduction... 6 II. Background and Rationale for Additional Financing in the amount of USD $ 2.0 Million... 7 III. Proposed Changes... 9 IV. Appraisal Summary... 11 Annex 1: Results Framework and Monitoring... 13 Annex 2: Operational Risk Assessment Framework (ORAF)... 19 Annex 3: Use of Project Funds and revised estimate of project costs... 21 Annex 4: Procurement and Financial Management Arrangements... 22
WEST BANK AND GAZA ADDITIONAL FINANCING FOR THE MUNICIPAL DEVELOPMENT PROJECT FOR THE SUPPORT OF PHASE I OF THE MUNICIPAL DEVELOPMENT PROGRAM ADDITIONAL FINANCING DATA SHEET Country Director: Mariam Sherman Sector Manager/Director: Franck Bousquet Team Leader: Soraya Goga AF Project ID: P127162 Expected Effectiveness Date: February 19, 2012 Lending Instrument: Specific Investment Grant Basic Information - Additional Financing (AF) Basic Information - Original Project Sectors: Sub-national government administration (35%); Power (23%); Roads and highways (18%); General public administration sector (12%); Other social services (12%) Themes: Access to urban services and housing (25%);Other social protection and risk management (25%);Municipal finance (24%);Social safety nets (13%);Pollution management and environmental health (13%) Environmental category: Partial Assessment Expected Closing Date: April 30, 2013 Project ID: P111741 Environmental category: Partial Assessment Project Name: Municipal Development Project Expected Closing Date: April 30, 2013 Lending Instrument: Specific Investment Grant AF Project Financing Data [ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other: Proposed terms: N/A AF Financing Plan (US$m) Source tal Project Cost: Cofinancing: Borrower: tal Bank Financing: Trust Fund for Gaza and West Bank Parallel Financing tal Amount (US $m) 43.3 14.8 4.0 2.0 22.5
Client Information Recipient: Palestine Liberation Organization Responsible Agency: Municipal Development and Lending Fund (MDLF) Al Bireh, Al Rashmawi Building, 3rd floor West Bank and Gaza Contact Person: Arch. Abdel Mughni Nofal Telephone No.: (970-2) 296-6610, 295-0684 Fax No.: (970-2) 295-0685 Email: abednofal@mf-palestine.org AF Estimated Disbursements (Bank FY/US$m) FY 2012 2013 Annual 0.48 1.52 Cumulative 0.48 2 Project Development Objective and Description Original project development objective is to improve municipal management practices for better transparency. The PDO of the proposed Additional Financing remains unchanged. Project description: Part 1: Provide grant allocations to municipalities for capital investments and service provision Part 2: Support municipal innovations and efficiency Part 3: Provide capacity building for municipalities and the MDLF Part 4: Support project management including monitoring and evaluation, audits and technical assistance to municipalities in implementing sub-projects. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management? Conditions and Legal Covenants: [X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No N/A Financing Agreement Reference Amendment to the Grant Agreement Amendment to the Grant Agreement Description of Condition/Covenant Revision of Subsidiary Agreement Revision of On-granting Agreement Date Due By effectiveness By effectiveness
I. INTRODUCTION 1. This Project Paper seeks the approval of the Executive Directors to provide an additional grant in an amount of US$ 2.00 Million to the Palestine Liberation Organization (for the benefit of the Palestinian Authority), West Bank and Gaza, for the Municipal Development Project for the Support of Phase 1 of the Municipal Development Program, P111741, from the Trust Fund for Gaza and West Bank. The request for Additional Financing builds on a request from the Palestinian Authority transmitted on 29 September, 2011. 2. The original project, the MDP (P111741, TF 095351) was approved by the Board of Directors of the World Bank on August 13, 2009 through Special Financing from the Trust Fund for Gaza and West Bank (TFGWB) and will close on April 30, 2013. 3. In accordance with OP/BP 13.20, the Additional Financing (US$2.00 Million) would be used to finance implementation of expanded activities to scale up the project s impact and development effectiveness primarily through support for additional grants for municipal infrastructure (an estimated 98.3% of the additional financing), and to finance cost overruns to complete some original project activities (an estimated 1.7% of the additional financing). 4. The project is co-financed by Denmark and Sweden (through a World Bank administered Multi-Donor Trust Fund), financed in parallel by Germany (through GiZ and KfW), France (through AfD) and Belgium (through BTC) and benefits from matching financing (10% of donor contributions) from the Palestinian Authority (PA). The Donors and the World Bank are collectively referred to as the Funding Partners (FPs). 5. The MDP is implemented in two cycles. The FPs (including the World Bank) contributed an estimated Euro 33.00 Million 1 to the project in 2009 and 2010. The financing was used primarily to finance to Cycle 1 which is now in the final stages of completion. This Additional Financing will be used to finance activities under Cycle 2 of the project. The cost of Cycle 2 is estimated at approximately Euro 33.00 Million. The other FPs (i.e. other than the World Bank) have committed to providing the required remaining financing through parallel financing mechanisms (France, Germany and Belgium) and through co-financing through a World Bank administered Multi-Donor Trust Fund (Sweden and Denmark) for Cycle 2 of the project. 6. The Project Development Objective (PDO), project design, implementation and fiduciary arrangements of the proposed additional financing will remain unchanged from the original project. The PDO is to improve municipal management practices for better transparency. Project design supports the PDO through the allocation of a performance based municipal grants 2 for capital investments (Part 1), support to municipal innovations and efficiency (Part 2), capacity building for municipalities and the Municipal Development and Lending Fund (Part 3) and project implementation support and management costs (Part 4). The Municipal Development and Lending Fund (MDLF) continues in its role as the project implementing entity. The additional 1 All Euro amounts are estimated as the FPs provided financing in several different currencies. 2 The grant allocation to municipalities is determined through a formula consisting of performance (40%), population (40%) and need (20%). -6-
financing will assist in the further institutionalization of the performance based grant allocation system, and, therefore, the Palestinian Authority s goal of municipal fiscal autonomy. II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING IN THE AMOUNT OF USD $ 2.00 MILLION 7. Link with Interim Strategy (IS): The proposed financing aligns with the goals of improving local governance and supporting fiscal reform and public infrastructure, identified in the Interim Strategy of the World Bank (2008-2010) as it: (i) supports the PA in providing transparent grant transfer to municipalities; (ii) assists municipalities in improving their performance and their financial systems and (iii) provides a grant to finance sub-projects that could include infrastructure. 8. Link with Sector Strategy: The multiphase Municipal Development Program 3 operationalizes the Palestinian Authority s goal of strengthening local governments through enhancing their efficiency and effectiveness and assisting in supporting their fiscal stability through supporting performance based grants and capacity building packages. Such a goal was outlined in the Palestinian National Development Plan 4 (2011-2013). 9. The Original Grant: On August 13, 2009, the Board of Directors of the World Bank approved US$10.00 Million in Special Financing for the Municipal Development Project for the Support of Phase 1 of the Municipal Development Program from the Trust Fund for Gaza and West Bank (TFGWB) 5. Upon fulfillment of all legal covenants, the credit became effective on January 26, 2010. Between November 12, 2009, and October 28, 2010, agreements were signed with the Palestinian Authority for the financing of MDP by GTZ, KfW, AFD, and Belgium 6, and for the World Bank administered Multi-Donor Trust Fund (Danish and Swedish Co-financing) for the equivalent of approximately Euro 33.00 Million. The expectation and the commitment was that these Funding Partners would contribute additional funds for the second and third years of MDP 7. The Original Grant will close on April 30, 2013. 3 The multiphase national Municipal Development Program has a three stage hierarchy of objectives: a) Sector- Level Objective: strengthen municipal governance to enable municipalities to become creditworthy; b) Program Level Objective: Support municipalities in providing better coverage and improved coverage of services over the medium term; c) Municipal Development Program Phase 1 Objective: improve municipal management practices for better transparency. 4 Palestinian Authority, 2010. The Palestinian National Development Plan has as a strategic objective to empower local government and bring services closer to the people. Accelerating fiscal decentralization appears as a priority policy under that strategic objective. 5 This TF financed the Bank program in West Bank and Gaza. 6 GTZ on November 12, 2009; KfW on December 6, 2009; AFD on April 6, 2010, the co-financed MDTF TF 96770 administered by the World Bank on behalf of Sweden and Denmark on June 10, 2010 and Belgium on October 28, 2010 (only for Cycle 2). 7 Page 5 of the Original Project Appraisal Document states: In addition to the Bank, six other Donors have committed to financing the program'. The funding amount reflected below (i.e. referring to the financing table) is only for commitments made in 2009 but Donors are expected to put additional funds in the second and third years of MDP (Phase 1), totaling over US$ 100 million by the end of Phase 1. -7-
10. Objective of the Original Project: The Project Development Objective (PDO) is to improve municipal management practices for better transparency. This is the necessary condition for improving service delivery in subsequent phases. support the PDO, a project consisting of four component parts through which funds are disbursed was designed: Part 1: Municipal Grants for Capital Investments allocates performance-based grants for capital investments or operating expenditures through a transfer formula based on population, need and municipal performance. (US$46.10 Million, US$7.60 Million from TFGWB) Part 2: Support to Municipal Innovations and Efficiency promotes learning and innovation to promote municipal development (US$3.70 Million, US$0.70 Million from TFGWB). Part 3: Capacity-Building for Municipalities and the Municipal Development and Lending Fund (MDLF) supports municipalities to graduate to a higher performance category, and supports the implementing entity to build its capacity (US$5.23 Million, US$0.60 Million from TFGWB) Part 4: Project Implementation Support and Management Costs finances project management (US$2.00 Million, US$1.10 Million from TFGWB). 11. Project Performance: MDP is meeting its Key Performance Indicator targets and is, in some cases, exceeding these. Sixty-eight percent of municipalities have graduated to a higher performance category, thus exceeding the target of fifteen percent for this performance indicator. Sixty-nine percent of municipalities disclosed information in at least two of the following three areas: (a) financial data and municipal budgets; (b) municipal ranking; and (c) projects and achievements. This exceeds the PDO indicator target for 2011 of thirty percent. In addition, key outcome indicators for each of the Parts are being met. These include: (i) the project has met its target of 100 % of investments financed under Part 1 that were identified in the municipal Strategic Development and Investment Plans (SDIPs) for those municipalities which have a SDIP; (ii) four new municipalities have been legally recognized following an amalgamation process (target is six); and (iii) MDLF performance in project management has been consistently rated as satisfactory. 12. Implementation Progress (IP): The Implementation Status and Results Report (ISR) ratings for Project Development Objective (PDO) and overall IP have been consistently rated either "Satisfactory" or Moderately Satisfactory since Board approval and both are currently rated as Satisfactory. Disbursement for the project (including all FP financing) was at 90% as at end October, 2011. Disbursement to the designated account for the World Bank financing stands at 70% (US$ 7.07 Million) as of September 30, 2011. 13. The PA is in compliance with all legal covenants. There are no unresolved fiduciary, environmental, social, or other safeguard concerns. OP4.01 (Environmental Assessment) and OP 4.09 (Pest Management) were triggered. However, all sub-projects currently implemented have complied with category B status. Procurement is rated as satisfactory and the implementing entity has hired qualified procurement specialists who have acceptable experience. The Financial Management rating is moderately satisfactory. FM arrangements during the first cycle, including staffing, accounting reporting, budgeting and flow of funds and audit arrangements, are considered to be adequate for providing timely and reliable information. -8-
However, an MS rating has been retained as the MDLF s internal audit function does not follow a risk based approach. 14. Rationale for Borrower Request: The PA regards the grant allocation system, described under Part 1, as a nascent inter-governmental fiscal transfer mechanism, initially financed primarily by Donors with the PA providing a matching 10% grant to the project. The intent of the transfer mechanism supported by the grant is to (i) provide an incentive for municipalities to improve performance; (ii) introduce transparency in the flow of transfers to municipalities; (iii) introduce a measure of stability in the flow of transfers to municipalities so that they are able to undertake sound long term investment decisions. The PA, supported by the Funding Partners, therefore perceives of the transfer as being a regular (yearly or biennial) source of financing for municipalities. 15. Consequently, the implementation of the MDP was divided into two, including Cycle 1 (2009-2011) and Cycle 2 (2011-2013), to reflect the intent of the PA in providing a regular transfer to municipalities for capital investment. Approximately Euro 31.00 Million (including the WBGTF Original Project Financing of US$10.00 Million) of the Euro 33.00 Million, which was the final amount committed by all the Funding Partners (including the World Bank), was allocated to Cycle 1 in its entirety. This occurred on the assumption that additional donor financing would be available for Cycle 2 as per the PA s agreements with the Funding Partners (except for the World Bank). 16. The Implementing Entity (the Municipal Development and Lending Fund) projects that it requires Euro 32.20 Million primarily to scale up the project for implementation of Cycle 2 so as to meet the sector objectives. The projected financing was based on: (i) a Cycle 2 allocation to municipalities that reward them if they graduated up to a performance category; (ii) financing for additional capacity-building packages to assist municipalities in meeting additional performance targets; and (iii) completion of all outstanding activities as contained in the original Project Appraisal Document (see Annex 3). The Funding Partners have responded positively, taking the opportunity provided by the successful implementation of Cycle 1 to finance Cycle 2 and, therefore, support the PA in meeting its sectoral goals (see paragraph 9 and footnote 1). The Funding Partners and the PA will contribute Euro 30.80 Million towards Cycle 2 of the project. 17. The proposed additional grant would be used to finance implementation of expanded activities to scale up the original project s impact and development effectiveness primarily through support for additional performance based grants for municipal infrastructure (an estimated 98.3% of the total additional financing). A portion of the funds (1.7% of the total additional financing) would also be used to finance cost overruns to complete some original project activities as a result of an increase in costs. III. PROPOSED CHANGES 18. Proposed Changes: The Project Development Objective (PDO), project design, implementation and fiduciary arrangements will remain unchanged from the original project. -9-
19. The Additional Financing (US$2.00 Million) will primarily be used to finance activities to scale up the project s impact and development effectiveness and also to cover cost overruns. (See Table 1: Proposed Budget for Additional Financing). There will be no extension of the closing date. The MDLF prepared the Original Project implementation in two cycles (Cycle 1, 2009-2011 and Cycle 2, 2011-2013). This AF finances Cycle 2. 20. More specifically, an estimated 98.3% of the funds (US$ 1.97 Million) would be used to finance additional municipal grants and the required project management costs for municipalities in West Bank and Gaza under Part 1 of the project. The remaining Funding Partners will allocate an estimated additional US$ 34.80 Million (estimated at Euro 26.00 Million) for this activity. The remaining Funding Partners will also allocate an estimated US$ 2.00 Million to scale up Part 3 of the project. This would include an estimated 56 additional municipalities will receive strategic development and investment plan packages; an estimated 20 additional municipalities will receive fixed assets registration and valuation packages; an estimated 13 additional municipalities will receive financial policies and procedures manual packages. 21. An estimated 1.7% of the funds (US$ 0.03 Million) would be used to finance a cost overrun associated with the implementation of the Integrated Financial Management Information System (IFMIS) system as part of improving the financial management of municipalities. The financing of the IFMIS is key in supporting municipalities in moving to a ranking of A, which denotes a creditworthy municipality. In addition, the remaining Funding Partners would provide an estimated US$ 0.10 Million for completion of activities to support One Stop Shops under Part 2 of the project and US$ 2.00 Million to provide support to an estimated 12 municipalities for Operations and Maintenance capacity building packages (see Annex 3). 22. The proposed activities are similar in type and scope to the original investment project, do not comprise any changes to the initial project design, and only expand, replicate, and strengthen the ongoing activities. 23. The prior review procurement thresholds were raised to reflect changes in the procurement thresholds for the West Bank and Gaza (See Annex 4). 24. The Results Framework Outcome Indicators and Use of Intermediate Outcome Monitoring will also remain unchanged. However, the targets have been revised to reflect this financing request. The target for PDO Indicator 1 has been increased from 25% to 30% and the target for PDO Indicator 2 has been increased from 50% to 60%. Yearly targets for the Results Framework Monitoring will be changed to reflect that the project was implemented in two cycles rather than on a yearly basis. The projects outcomes and intermediate outcome indicators will be monitored to ensure that they continue to meet or exceed their targets, although the Results Framework remains unchanged. 25. The number of targeted municipalities will increase from 132 to 134 to reflect the change in the number of municipalities in West Bank and Gaza. The proposed changes in allocations for each Part are listed in Table 1 below. -10-
Table 1: Proposed MDP Cycle 2 Budget and Allocation of TFWBG in Euro Millions Component Original Cost (Cycle 1) Original Cost TFGWB Propos ed Cost Cycle 2 TFGWB AF Revised Cost Revised Cost TFGWB Part 1: Municipal Grants 25.00 5.50 26.50 1.28 51.50 6.78 Part 2: Support to Municipal Innovations and Efficiency 1.20 0.50 0.70 0 1.90 0.50 Part 3: Capacity-Building 1.90 0.65 2.20 0.02 4.10 0.67 Part 4: Project Implementation 3.00 0.76 2.80 0.19 5.80 0.95 Support and Management Costs tal 31.10 7.41 32.20 1.49 63.30 8.90 tal in US$ Equivalent 8 41.00 10.00 43.00 2.00 84.00 12.00 IV. APPRAISAL SUMMARY 26. Economic and Financial: An economic and financial analysis was not undertaken as part of the original project preparation as the sub-projects are demand driven and remained unknown until after the projects effectiveness. Instead, a methodology was elaborated and agreed to be used for the economic and financial cost-benefit of sub-project investments. This methodology will also apply to the sub-projects financed under this Additional Financing request. 27. Technical: The Transfer Mechanism formula, which forms the basis for allocation of grants to municipalities, was effectively piloted in Cycle 1. Municipal allocations, using the formulae, have been finalized taking into account performance improvements and updated population figures. 28. The sub-projects would continue to be selected on the basis of a municipality s Strategic Development and Investment Plan (which are prepared through community participation), when such a plan is available and community consultations, when such a plan is not available, as was required in the original project. All sub-projects will continue to meet the eligibility criteria as outlined in the Operations Manual and legal agreements. Most required capacity building packages that will be supported in Cycle 2 have been already implemented in some municipalities through Cycle 1 (SDIP, FARV, FPPM and budget guidelines), or through other Donor financed projects (IFMIS, OSS). For most municipalities, sub-projects have already been prioritized either as part of an SDIP process or through the prioritization process that occurred at the start of the Original Project. 29. Institutional: The MDLF, through Cycle 1, has proved an effective agency for implementing the Municipal Development Project. All required staff for project implementation has been hired, and capacity of most staff is sound and has been proven through the implementation of Cycle 1 (the original project). 8 Note that these are estimated based on an exchange rate of 1.3 on 21 November, 2011. -11-
30. Procurement: Procurement under this AF will be carried out in accordance with the World Bank Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published by the World Bank in January 2011. The selection of consultants will be carried out in accordance with the World Bank Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published by the World Bank in January 2011. The procurement arrangements of the original project will apply to this Additional Financing. A procurement plan (PP) for contracts under Part 2, 3, and 4 was prepared by MDLF and agreed with the Bank. The procurement risk rating for the project is Moderate; and the same risk rating would hold for this AF. In accordance with the Bank policies, prior review thresholds for West Bank and Gaza have recently been increased and will apply to this AF. (See Annex 4 for details) 31. Financial Management: Activities proposed under the AF will be under the same categories of the original project, and will be implemented by the same implementing entity, the Municipal Development and Lending fund (MDLF). The same FM and disbursement arrangements of the original project will apply to this AF. The current reporting arrangements are satisfactory and will be extended to this AF. The current audit arrangements are satisfactory and there will remain unchanged for this AF. The overall financial management risk of the ongoing project is considered Substantial and the same risk rating would hold for this AF. Mitigating measures have been introduced and include centralizing the FM and disbursements at the MDLF through direct payment on behalf of municipalities to contractor/suppliers/consultants both in West Bank and Gaza. FM risk after mitigating measures is Moderate. 32. Parallel financing: Other Funding Partners (Germany, France, and Belgium) will continue to provide their contribution to the MDP on parallel financing basis to be disbursed through separate bank account. Parallel financing activities will be included in the project procurement plan for Parts 2, 3 and 4. For Part 1, the MDLF will allocate available funds from all donors including Bank to targeted municipalities based on the Grant allocation mechanism. 33. Environmental Safeguards: Since the types of sub-projects funded remain unaltered from the original project design, the Environment Category for this project remains B Partial Assessment. Operational Policy 4.01 remains triggered with the requirement that an environmental assessment will be prepared for activities that involve infrastructure construction. In addition, Operational Policy 4.09 on Pest Management remains triggered in the event that municipalities, particularly in Gaza where the project supports operations and maintenance, may require financing for pesticides for mosquitoes for instance. A Pest Management Plan has been included as part of the Environment Management Plan. The EMP was re-disclosed on 17 November, 2011, as required. 34. Social Safeguards: Since the project will maintain its original design, there are no changes in the applicability of social safeguards. The Bank s Operational Policy 4.12 will not apply because the project will not finance any investments or sub-projects that involves the involuntary taking of lands resulting in their relocation or loss of shelter, loss of assets or access to assets, or loss of income sources or other means livelihood for individuals and community members. The project s Operational Manual (OM) includes a negative list which clearly prohibits activities which would result in the triggering of the Bank s OP 4.12. -12-
ANNEX 1: RESULTS FRAMEWORK AND MONITORING Additional Financing for the Municipal Development Project for the Support of Phase 1 of the Municipal Development Program Results Framework PDO Current (PAD) improve municipal management practices for better transparency Revisions to the Results Framework Proposed No Change Comments/ Rationale for Change PDO indicators Current (PAD) Proposed change The percentage of municipalities that graduate up the performance category in which they are classified by the end of phase 1 The percentage of municipalities that apply at least two public disclosure methods (publically available SDIPs, Annual External Audits, project related data, municipal budgets and performance rankings by the end of Phase 1. Intermediate Results indicators Current (PAD) Percentage of investments financed that were identified in the Municipal Strategic Development and Investment Plans Percentage of investment financed under MDP Phase 1 that are operational and in an adequate state of usability according to Technical Audits The number of municipal amalgamation initiatives supported by the end of Phase 1 The number of Energy Efficient projects for enhancing municipal revenues that are implemented Pilots of one-stop-shops implemented in at least 3 municipalities in Gaza The percentage of municipalities that graduate up the performance category in which they are No change to indicator. Change in target from 25% to 30%. No change to indicator. Change in target from 50% to 60%. Proposed change* No change No Change No Change Changed from 2 to 4 No Change No Change The target has been changed to reflect the impact of the AF The target has been changed to reflect the impact of the AF The target has been changed to reflect the number of projects that have been implemented. -13-
currently classified by the end of phase 1 Procedures for Operations and Maintenance are established an piloted in at least 5 municipalities MDLF satisfactory performance as measured by meeting targets it defined in the Annual Work Plan Revisions to the Results Framework No Change No Change Comments/ Rationale for Change -14-
Core REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO): improve municipal management practices for better transparency PDO Level Results Indicators 1. PDO Level Indicator: The percentage of municipalities that graduate up the performance category in which they are currently classified by the end of phase 1 UOM 9 Percentage Baseline Original Project Start (2008) Progress Date (2011) Cumulative Target Values 2010 2011 end of Cycle 1 2012 2013 end of Cycle 2 0 68 15 30 Frequency Consolidated Semiannual and annual Progress Reports Published annual municipal rankings Annual Review of GAM Rankings Data Source/ Methodology Manual for the Grant Allocation Mechanism Questionnaires collected periodically from municipalities Submitted annual municipal budgets Responsibilit y for Data Collection MDLF External consultancies/ audits Comments The end graduation rate may be lower than the current progress. What has been measured currently at the end of Cycle 1, is if a performance indicator has been met by the municipality. At the end of Cycle 2, what will be measured is if additional indicators have been met and if previously met indicators have been sustained. Hence, this should be viewed as a two part indicator with a target for cycle 1 and a target for cycle 2. 9 UOM = Unit of Measurement. -15-
Core 2. PDO Level Indicator : The percentage of municipalities that apply at least two public disclosure methods (publically available SDIPs, Annual External Audits, project related data, municipal budgets and performance rankings by the end of Phase 1. Percentage 0 69 30 60 Consolidated Semiannual and annual Progress Reports LTC quarterly reports MDLF supervision Verification by LTCs MDLF LTCs The end disclosure rate may be less than the current rate as it will measure if the disclosure methods have been sustained over the course of the project. Intermediate Results and Indicators Intermediate Results Indicators Unit of Measurement Baseline Original Project Start (2009) Progress Date (2011) Target Values 2010 2011 2012 2013 (proje ct end target) Frequency Data Source/ Methodology Responsibility for Data Collection Comments Intermediate Result 1: Implementation of Municipal Grants for Capital Investments 1. Intermediate result indicator: Percentage of investments financed that were identified in the Municipal Strategic Development and Investment Plans % 0 100 100 100 Consolidated Semiannual and annual Reports LTC Quarterly Reports Municipal Application forms Municipal Strategic Development and Investment Plans MDLF LTCs 2. Intermediate result indicator: Percentage of investment financed under MDP that are operational and in an adequate state of usability according to Technical Audits % 0 Not yet due 80 80 Technical Audits MDP Implementation Completion Report LTC Quarterly Reports MDLF reporting Selection of sample of completed infrastructure investments annually Verification of MDLF MDLF - outsourcing of external assessment -16-
Core Intermediate Results and Indicators Intermediate Results Indicators Unit of Measurement Baseline Original Project Start (2009) Progress Date (2011) Target Values 2010 2011 2012 2013 (proje ct end target) Frequency Data Source/ Methodology LTCs Responsibility for Data Collection LTCs Comments Qualitative and quantitative surveys in municipalities Intermediate Result 2: Support to Municipal Innovations and Efficiency 3. Intermediate result indicator: The number of municipal amalgamation initiatives supported by the end of Phase 1 Number 4 4 6 MDLF Consolidated semiannual and annual progress reports World Bank and Donor Joint Supervision mission reports Site Visits Verification from MDLF Joint annual reviews MDLF World Bank/Funding Partners 4. Intermediate result indicator: The number of Energy Efficient projects for enhancing municipal revenues that are implemented Number 0 4 4 MDLF Consolidated semiannual and annual progress reports World Bank and Donor Joint Supervision mission reports Site visits to pilot municipalities MDLF verification World Bank and Donor Joint Supervision missions MDLF World Bank/Funding Partners 5. Intermediate results indicator: Pilots of one-stop-shops implemented in at least 3 municipalities in Gaza Number 0 Guidelines prepared in draft. Assessme nt of other Guidelines prepared 3 3 MDLF Consolidated semiannual and annual progress reports World Bank and Site visits to pilot municipalities World Bank and Donor Joint MDLF External consultancies -17-
Core Intermediate Results and Indicators Intermediate Results Indicators Unit of Measurement Baseline Original Project Start (2009) Progress Date (2011) OSS under prep. Target Values 2010 2011 2012 2013 (proje ct end target) Frequency Donor Joint Supervision mission reports Data Source/ Methodology Supervision missions Responsibility for Data Collection World Bank/Funding Partners Comments Intermediate Result 3: Capacity Building for Municipalities 6. Intermediate result indicator: Procedures for Operations and Maintenance are established and piloted in at least 5 municipalities O & M adhoc Not yet due O & M procedures established O & M procedures piloted in 5 municipalities 5 municip alities are implem enting O & M procedu res MDLF Consolidated Semiannual and annual reports World Bank and Joint Donor Supervision mission reports MDLF verification World Bank and Donor Joint Supervision missions MDLF External consultancies World Bank/Funding Partners Intermediate Result 4: MDP Management 7. Intermediate result indicator : MDLF satisfactory performance as measured by meeting targets it defined in the Annual Work Plan Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfac -tory Annual Joint Donor supervision mission Reports Financial and Institutional Compliance Audit Joint Donor Supervision Missions MDLF - external consultancy Donors -18-
ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) Project Stakeholder Risks Rating Moderate The importance of the MDLF and the MDP has been highlighted in both the PA 2009-2011 Plan (the PRDP) and the 2011-2013 Plan (the PNDP). However, changes in Government may lead to changes in priorities and affect strategic choices. The incentive system of the MDP would be jeopardized if municipalities receive financing from other Donors without having to achieve performance targets. Thus far other Donors financing municipalities have joined the project, or focused on alternate issues that do not affect the performance incentives (e.g., amalgamation). However, there is a likelihood that other Donor agencies, who currently do not support the MDP, may not subscribe to the performance targets set out by the PA and followed in the MDP. Continuous dialogue with the PA, the MoF and the MoLG on the role of the MDLF. Resp. Bank Stage: Prep/Impl Due Date: Continuous Status: Ongoing Continuous push for the Draft MDLF Law to be signed Resp. Bank Stage: Impl Due Date :Continous Status: Ongoing Continued engagement with Donors through Sector Working Groups meetings. Continued interaction with MOPAD, MoF, and MoLG. Resp. Bank/Donors Stage: Prep/Impl Due Date: Continuous Status: Ongoing Implementing Agency Risks (including fiduciary) Capacity Rating: Moderate After initial recruitment problems, the MDLF, by the October 2010 mission reached its full staff complement. However, there is still a risk that the performance of the MDLF may suffer due to the lack of availability of necessary skills and experienced staff to manage the project. Furthermore, capacity in some Risk Management: Continuous on-the-job training and capacity building is part of project design and costs. Thus far training has included project management, human resource development, and management for development results, conflict resolution as well as various computer skills training. The MDLF has completed a training needs assessment to ensure that skills match institutional requirements. municipalities is still low. Resp: Client Project Risks Design Rating: Moderate Sub-project design and implementation was delayed, especially in the Gaza strip. Stage: Implementation Due Date :15 Dec, 2011 Status: Completed Risk Management: The MDLF have hired additional staff for the Gaza strip, and local technical consultants are also closely supervising works in Gaza to avoid delays. Resp: Client Stage: Implementation Due Date :Continous Status: Ongoing Social & Environmental Rating: Low There is a risk that the effective management of social and environmental safeguards is overlooked due to lack of staffing or necessary technical skills or the MDLF does not select subprojects based on public participation Risk Management: The MDLF has hired two social specialists (one in West Bank and one in Gaza Strip) and an environmental specialist to help ensure that safeguards related risks are managed properly. EMPs are prepared for sub-projects and municipalities chose subprojects with community involvement in the absence of a strategic development and -19-
investment plan (SDIP). SDIPs (through which municipalities also chose sub-projects) focus on the quality of community involvement. Community participation is a condition for MDLF s subproject selection. Resp: Client Stage: Implementation Due Date :Ongoing Status: Started Program & Donor Rating: Moderate Since the MDP is financed by a total of seven donors, a risk exists that donors decide to make significant changes on design and disbursement issues Risk Management: The Funding Partners have conducted joint supervision missions and a joint Mid-Term Review mission, upon which this AF request is based. Continued joint supervision missions and monthly co-ordination meetings also together with the MDLF and the Donors occurs and will continue to occur under the AF. The PA have not provided its full committed funds to the project, due to its poor financial situation. The Board of the MDLF continues to pressure the PA to ensure that all committed funds are provided to the project. Resp: Client and Stage: Implementation Due Date :Ongoing Status: Started Donors Delivery Monitoring & Sustainability Rating: Moderate The implementation of Cycle 1 was somewhat delayed. Risk Management : MDLF has already undertaken Cycle 1 of the MDP and are applying lessons learnt to the planning and implementation of Cycle 2 Due Date :October, 30, Status: Resp: MDLF Stage: Preparation 2011 Completed Risk Management: Funding Partners will meet MDLF monthly to track progress and will also conduct scheduled supervision missions 2 times a year. -20-
ANNEX 3: USE OF PROJECT FUNDS AND REVISED ESTIMATE OF PROJECT COSTS Table 1: Use of Funds Part Part 1: Municipal Grants Part 2: Support to Municipal Innovations and Efficiency Strengthening Newly Amalgamated Municipalities Energy Efficiency One Stop Shops Part 3: Capacity Building Part 4: Project Implementation Support and Management Costs Use of Financing Scaling Up to provide a second cycle of grant financing No additional financing is required. Activities are complete. No additional activities anticipated. Not yet started. Financing would be provided by other FPs. Scaling up and Cost Overuns Scaling up: Additional packages will be provided: an additional 56 municipalities will receive strategic development and investment plan packages; 20 additional municipalities will receive fixed assets registration and valuation packages; 13 additional municipalities will receive financial policies and procedures manual packages. Cost overrun: This AF will finance cost overrun of the Integrated Financial and Information Management Systems. Other Funding Partners would finance Operations & Maintenance packages. N/A Table 2: Donor Commitments to MDP in estimated Million Euros 10 Financing Partner Original: 2009 Cycle 1 Actual AF: 2011 Cycle 2 Pledge World Bank 7.60 (approx) 1.40 (approx.) AFD 3.20 6.00 KfW 7.50 9.5 Denmark/Sweden MDTF 10.50 (approx.) 11.00 (approx) PA 2.40 3.00 GIZ 0.45 0.30 Belgium 1.00 tal 31.65 32.20 tal in Million US$ Equivalent 41.0 43.30 10 Note that the World Bank, Danish and Swedish amounts are estimated due to currency fluctuations. World Bank financing is committed in US$ while Danish and Swedish funds are committed in Danish and Swedish Kroner respectively. -21-
ANNEX 4: PROCUREMENT AND FINANCIAL MANAGEMENT ARRANGEMENTS 1. Procurement under this AF will be carried out in accordance with the World Bank Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published by the World Bank in January 2011. Consultant selection will be carried out in accordance with the World Bank Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published by the World Bank in January 2011. 2. The same procurement arrangements of the original project apply to the Additional Financing. The MDLF has responsibility for the oversight of project procurement. The MDLF will serve as the Bank s main counterpart for all project procurement aspects and would ensure that project procurement is carried out in accordance with the grant agreement and the procurement plan. A procurement plan (PP) for contracts under Windows 2, 3, and 4 was prepared by MDLF and agreed with the Bank. Procurement for municipal sub-projects under Window 1 will be carried out by Recipient municipalities in accordance with the signed Grant Implementation Agreement (GIA), sub-project procurement plan and MDP Procurement Manual, updated in October 2011, and under direct supervision by the MDLF. Procurement performance for the original project and has been rated satisfactory. MDLF has qualified procurement staff with adequate experience implementing procurement following the Bank Guidelines. Its performance has constantly improved throughout project implementation. The procurement capacity for the municipalities has as well improved; additional procurement training and coaching will be provided by the Local Technical Consultants. 3. The project s procurement risk rating is moderate; the same risk rating would hold for this AF. In accordance with the Bank policies, prior review thresholds for West Bank and Gaza have recently been increased. The revised prior review thresholds for moderate risk rating implementing agencies will apply to this AF. 4. Financial management arrangements: All activities proposed under the additional financing will be under the same categories as with the original project, and will be implemented again by the MDLF. The same FM and disbursement arrangements of the original project and will apply to this Additional Financing, which will be implemented according to the existing Financial Manual of Procedures and the respective Grant Agreement. 5. Current FM Performance: The project s financial management arrangements which include staffing, accounting reporting, budgeting and flow of funds and audit arrangements, are adequate. In addition, a computerized accounting system along with a Comprehensive Financial manual of policies and procedures are in place. The Annual Audits and Quarterly IFRs were received on time, and the Internal Audit function has been activated since mid December 2009. The findings of these audits are reported directly to the MDLF board of Directors. However, the MDLF should apply a risk based approach to their internal audit. Consequently, FM performance is rated as moderately satisfactory. 6. Parallel financing: Other funding partners will continue to provide their contribution to the MDP on parallel financing basis. Each will disburse its funds through separate bank account and which will be spent on the agreed on activities and included in the project procurement plan -22-
for window 2, 3 and 4. For window 1 sub-grants to municipalities, MDLF will allocate available funds from all donors including Bank to the targeted municipalities based on the Grant allocation mechanism, there will be no cost sharing between the Bank and any other donor fund. Disbursement will continue to be centralized at the MDLF, through direct payment on behalf of municipality to all suppliers/contractors/consultants on behalf of municipalities following the payment and internal controls procedures detailed in the financial manual of policies and procedures, related original supporting documents will be maintained at the MDLF project files. Separate accounting records will be maintained for each donor, quarterly IFR and annual audit FS will be comprehensive covering the whole project activities and funding sources and will provide separate reporting for each donor. The existing manual of policies and procedures includes procedures for managing different donors funding. Procedures include having separate bank account for each financier, keeping separate accounting records, and regularly reconcile accounts with project records. 7. Interim Financial Reports (IFRs): The current reporting arrangements are satisfactory and will be extended to the additional financing. Hence, IFRs for the proposed additional financing will be part of the existing project IFRs, with additional separate reporting related to each trust fund. IFRs will be prepared and submitted to the Bank on a quarterly basis by no later than 45 days after the end of the previous quarter. 8. Audit Arrangements: The proposed additional financing financial records will be audited annually as part of overall MDP project by an independent external auditor acceptable to the Bank, in accordance with internationally accepted auditing standards and terms of reference acceptable to the Bank. Audit arrangement will be extended to cover the proposed AF as well as the other sources of funds. Consolidated Financial statement for the MDP project and additional separate for the Bank funding will be audited and submitted to the Bank and other funding partners not later than six months after the end of fiscal year. 9. Disbursement Arrangements: Separate Designated Account (DA) in Euro will be opened by the MoF under the CTA at the Bank of Palestine. The same disbursement arrangements as under the original financing will be used for the proposed additional financings; quarterly Interim Financial Reports (IFR) based applications, accompanied with withdrawal applications, reconciled bank statement and copies of bank statements. At grant effectiveness, an initial advance equivalent to a six-month cash forecast, which will be the ceiling of the DA, will be disbursed to the new Designated Account. The quarterly audited IFR will document the disbursed amounts for the quarter, the commitment for the coming quarter and the next six months cash forecast, according to which the replenishment and payment from the World Bank will be done. The IFR will continue to be subject to review by an independent auditor to certify the physical achievements and the corresponding resources used. Separate accounting records will be maintained for this AF, by configuring the existing accounting system and opening a separate cost center. 10. Current FM Risk Rating of the Project. The overall financial management risk of the ongoing project is considered substantial due the project structure, providing support to Municipalities in both West Bank and Gaza; the same risk rating would hold for this AF. Mitigating measures have been introduced and in place, which include centralizing the FM and disbursements at the MDLF level through direct payment on behalf of municipalities to -23-