Mozambique

Municipal Development Project - Credit No. 3549-MZ

Proposed Amendment of the Development Credit Agreement

BACKGROUND

Project Implementation Experience

1. The objectives of the Project are to assist th Borrower in: (i) operationalizin the legal and institutional framework for municipal governance; (ii) developing a sustainable training and technical assistance system and increase the capacity of municipal officials and personnel; and (iii) establishing an operating mechanism for providing grants to municipalities through a pilot program in five cities to finance capital investments for municipal capacity building and infrastructure.

2. with results agreed as follows: Component (i) operationalizing the legal and institutional framework for municipal governance: The Mid-Term Review (MTR) concluded that despite a start-up delay of 14 months, the component has achieved 80% of its Key Performance Indicators (KPIs) and is clearly on track to reach its development objective.

Project Implementation Experience was recently reviewed during a Mid Term Review

Component (ii) developing a sustainable training and technical assistance system and increase the capacity of municipal officials and personnel: Significant progress has been made in reaching the major objectives of the capacity building component, namely establishing the capacity building system for municipalities in the context of the public sector training system and implementation of the programs to meet specific capacity building targets with impact on the ground (while testing approaches and learning methodologies which may be used in future programs). The component team has focused efforts to date on defining the system, a needs assessment, preparation of manuals and training of instructors and training. This preparation combined with municipal elections in November 2003 meant it was not feasible to carry out capacity building with municipal officials before 2004. In addition to commencing activities on the ground in 2004, particular efforts are needed by the team to ensure quality and develop and monitor effective learning strategies as part of the program. The component has achieved 67% of its KPIs and is on track to meeting its development objective.

Component (iii) establishing and operating a mechanism for providing grants to municipalities through a pilot program in five cities to finance capital investments for municipal capacity building and infrastructure: The MTR determined that the pilot is achieving its objectives of establishing, operating and testing a mechanism for providing grants to municipalities to finance capital investments. However, there are key issues that need to be analyzed and finalized before the mechanism for providing these grant funds to all 33 municipalities can be established. In general the execution of works has been satisfactory and a positive social impact can be felt by communities as drainage, garbage collection and market booth ,

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construction were on each municipality’s list of priority activities and a number of these have now been constructed. The technical and financial management performance has also significantly improved in year 2 in most municipalities and four out of five municipalities received at least qualified audit opinions on their 2002 municipal accounts. Procurements plan quality improved considerably for year 2 although there are delays in implementation of the 2003 procurement plan. A number of changes need to be made to the pilot Municipal Grants Fund (MGF) in line with experience in years 1 and 2 and the findings of the MTR. These include the sustainability of the institutional arrangements, the evaluation criteria used to determine eligibility for municipal participation and the level of financing to be received, the replicability of the current model and the nature and objectives of the technical assistance. It also appears that the mechanism is most viable for mid-sized and smaller municipalities and perhaps not for the largest such as Maputo, and possibly Beira. All of these issues will need to be addressed in the context of the participating municipalities as well as in preparation for entry of the additional 3 municipalities into the program. This component’s development objective is likely to be achieved and it has achieved 25% of its KPI by mid-term review.

3. realistic and achievable. However, there are a number of steps the Government of Mozambique needs to take to restructure the project to ensure these objectives are attained.

Overall the MTR agreed that the Project’s overall development objective remains

Proposed Amendments

4. The proposed amendment would: (i) increase the number of cities named in the project development objective and included in Component 3 (Municipal Grants) from five to eight for the remainder of the project; and (ii) specifically include provisions under Component 4 (Project Management and Technical Assistance) for consultancies to evaluate the pilot and provide recommendations to the Government of Mozambique for a future program that would include all 33 municipalities.

Costs, Benefits and Risks After Amendments

5. expected subproject cycle at municipal level which has led to one less cycle of investments than initially planned. This is due to the slower than expected pace of learning-by-doing at municipal level and the need to constantly review and improve the pilot grants fund mechanism. There are therefore funds to bring three new smaller municipalities into the Grants Fund pilot and to conduct a number of studies to evaluate the pilot in more depth.

The proposed amendment would incur no additional cost. This is due to the longer than

6. municipalities within the pilot grants fund mechanism and therefore provide a more robust set of experiences from which to improve the mechanism and roll it out to the remaining

The benefits of the amendment are that it would increase the number of participating

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municipalities in Mozambique in future. Finally the design of a future set of mechanisms for the GOM to support municipal development will depend crucially on careful analysis of the pilot and lessons learned.

7. citizens in the three new cities. It would also enable a more thorough evaluation of the pilot that would be important to scale-up the learning and benefits from the project as a whole in future.

The increased number of municipalities would scale-up immediate project impact for

8. pilot at no additional cost and also propose additional studies to ensure a more robust evaluation of lessons learned.

The proposed amendments are risk mitigating in nature as they expand the size of the

The World Bank INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION

1818 H Street N.W. (202) 477-1234 Washington, D.C. 20433 U.S.A. Cable Address: INDEVAS

Cable Address: INTBAFRAD

DRAFT [date]

Mr. Adriano Maleiane Governor Banco de Moqambique Avenida 25 de Setembro 1695 P.O. Box 423 Maputo, Mozambique

Dear Sir:

MOZAMBIQUE: Municipal Development Project Amendment to the Development Credit Apreement (Credit No. 3549 MOZ)

, We refer to the Development Credit Agreement (the Agreement) for the above-

mentioned Project, dated August 15, 200 1 , between the Republic of Mozambique (the Borrower) and the International Development Association (the Association). We also refer to your letter, dated January 5,2004, requesting specific amendments to the Agreement.

We are pleased to inform you that the Association agrees to your request and proposes to amend the Agreement as follows:

1. Schedule 1, Part A (General), Paragraph 3 (c) is amended to read as follows:

“(c) payments made under Category 1, 2 (a) and 3 (b) of the table in paragraph A.l of the Schedule for: (i) Maputo until its respective Project Account has been opened and the amount equivalent to $14,000 (counterpart contribution) has been deposited accordingly; (ii) Beira until its respective Project Account has been opened and the amount equivalent to $10,000 (counterpart contribution) has been deposited accordingly; (iii) Nampula until its respective Project Account has been opened and the amount equivalent to $1 0,000 (counterpart contribution) has been deposited accordingly; (iv) Quelimane until its respective Project Account has been opened and the amount equivalent to $7,000 (counterpart contribution) has been deposited accordingly; (v) Pemba until its respective Project Account has been opened and the amount equivalent to $7,000 (counterpart contribution) has been deposited accordingly; (vi) Nacala until its respective Project Account has been opened and the amount equivalent to $7,000 (counterpart contribution) has been deposited accordingly; (vii) Dondo until its respective Project Account has been opened and the amount equivalent to $7,000 (counterpart contribution) has been deposited accordingly; and (viii) Xai-Xai until its respective Project Account has been opened and the amount equivalent to $7,000 (counterpart contribution) has been deposited accordingly.”

RCA 248423. EB WUI 64145 €2 FAX (202) 477-6391

Mr. Adriano Maleiane 2 April ,2004

2. Schedule 1, Part B (Special Account), Paragraph 3 (b) is amended to read as follows:

“(b) withdraw from the Special Account and deposit into each Municipal Account an amount not exceeding $160,000 for Maputo, $140,000 for Beira, $120,000 for Nampula, $80,000 for Quelimane, $80,000 for Pemba, 80,000 for Nacala, 80,000 for Dondo, and 80,000 for Xai-Xai and thereafter replenish said Municipal Accounts in accordance with Schedule 1 to this Agreement.”

3. Schedule 1, Part B (Special Account), Paragraph 9 (a) is modified to read as follows:

“9. (a) The Borrower shall withdraw from the Special Account and deposit into each Municipal Account the funds to assist the municipalities to pay for MG under Part B of the Project. Such withdrawals or deposits shall be in amounts sufficient to assist each municipality to pay for such MG provided that in no event the Borrower shall cause the amount held in any Municipal Account to exceed the amounts determined by the PCU in accordance with the PIM or the equivalent of: (i) $350,000 for Maputo; (ii) $300,000 for Beira; (iii) $200,000 for Nampula; (iv) $200,000 for Quelimane; (v) $150,000 for Pemba; (vi) $ 150,000 for Nacala; (vi;) $ 150,000 for Dondo; and (viii) 150,000 for Xai-Xai, whichever is the smaller;”

4. Schedule 2 (Description of the Project), first paragraph is modified to read as follows:

“The objectives of the Project are to assist the Borrower in: (i) operationalizing the legal and institutional framework for municipal governance; (ii) developing a sustainable training and technical assistance system and increase the capacity of municipal officials and personnel; and (iii) establishing an operating mechanism for providing grants to municipalities through a pilot program in eight cities to finance capital investments for municipal capacity building and infrastructure”

5. added and will read as follows:

Schedule 2, Part C (Project Management and Technical Assistance), a new paragraph 4 is

“ 4. Studies will be conducted to evaluate the project experience overall and in particular the pilot grants fund mechanism, in order to identify options and recommendations to develop and expand support by the Government of Mozambique to all municipalities in future.”

6. The following event is specified as condition of effectiveness of this Agreement, namely, Grant Participation Agreements have been signed between the Borrower and three new municipalities (Nacala, Dondo, and Xai-Xai) and evidence has been furnished satisfactory to the Association that such agreements are binding upon the respective MG Municipality in accordance with its terms.

Mr. Adriano Maleiane 3 April ,2004

All other provisions of the Agreement, except as herein amended, shall remain in full force and effect.

Please indicate your agreement with the foregoing, on behalf of the Borrower, by countersigning, dating and returning to us the enclosed copy of this letter. This amendment will become effective at the satisfactory completion of provision described in Paragraph 6 of this Agreement.

Sincerely,

CONFIRMED:

REPUBLIC OF MOZAMBIQUE

By: Authorized Representative

Johannes Zutt Acting Country Director Angola and Mozambique

Africa Region

Date: