Document of The World Bank Report No: 1 8900-BD PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 100 MILLION ($US$ 138.6 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR THE MUNICIPAL SERVICES PROJECT FEBRUARY 3, 1999 Infrastructure Sector Unit Bangladesh Country Unit SouthAsia Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document ofThe World Bank
Report No: 1 8900-BD
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 100 MILLION ($US$ 138.6 MILLION EQUIVALENT)
TO THE
PEOPLE'S REPUBLIC OF BANGLADESH
FOR THE MUNICIPAL SERVICES PROJECT
FEBRUARY 3, 1999
Infrastructure Sector UnitBangladesh Country UnitSouth Asia Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective June 1998)
Currency Unit = TakaTaka 46.5= US$ I
US$ =
FISCAL YEARJuly 1 June 30
ABBREVIATIONS AND ACRONYMS
ADB - Asian Development BankCAS - Country Assistance StrategyCAG - Comptroller and Accountant GeneralDOE - Department of EnvironmentDPHE - Department of Public Health EngineeringERR - Economic Rate of ReturnFOAP - Financial and Operational Action PlanGOB - Government of BangladeshHSD - Housing and Settlements DirectorateIDA - International Development AssociationLACI - Loan Administration Change InitiativeLGED - Local Government Engineering DepartmentMDA - Municipal Development AgreementMDF - Municipal Development FundMLGRDC - Ministry of Local Government, Rural Development and CooperativesMOHW - Ministry of Housing and WorksMPRC - Municipal Performance Review CommitteeMSU - Municipal Support UnitNGO - Non Governmental OrganizationNPV - Net Present ValuePMU - Project Monitoring UnitPPA - Participatory and Partnership ApproachPSU - Pourashava Support UnitRAJUK - Capital Planning AuthorityUNDP - United Nations Development Program
Vice President: Mieko NishimizuCountry Manager/Director: Frederick Temple
Sector Manager/Director: Frannie F. HumplickTask Team Leader/Task Manager: Jonathan S. Kamkwalala
BANGLADESHMUNICIPAL SERVICES PROJECT
CONTENTS
Page
A. Project Development Objective
1. Project development objective 22. Key performance indicators 2
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 23. Sector issues to be addressed by the project and strategic choices 4
C. Project Description Summary
1. Project components 42. Key policy and institutional reforms supported by the project 53. Benefits and target population 64. Institutional and implementation arrangements 7
D. Project Rationale
1. Project alternatives considered and reasons for rejection 102. Major related projects financed by the Bank and other development agencies 113. Lessons learned and reflected in proposed project design 124. Indications of borrower commitment and ownership 135. Value added of Bank support in this project 13
1. Sustainability 182. Critical risks 193. Possible controversial aspects 20
G. Main Loan conditions
1. Effectiveness conditions 202. Other 20
H. Readiness for Implementation 21
1. Compliance with Bank Policies 21
Annexes
Annex 1: Project Design Summary 22Annex 2: Detailed Project Description 26Annex 3: Estimated Project Costs 34Annex 4: Cost Benefit Analysis Summary 35Annex 5: Financial Summary 43Annex 6: Procurement and Disbursement Arrangements 46Annex 7: Project Processing Schedule 55Annex 8: Documents in Project File 56Annex 9: Statement of Loans and Credits 57Annex 10: Country at a Glance 59
MAP(S)[BRD 30030 - First Phase Project Towns
ii
BANGLADESH
Municipal Services Project
Project Appraisal Document
South Asia Regional OfficeInfrastructure Sector Unit
Date: August 17, 1998 Team Leader: Jonathan S. KamkwalalaCountry Manager/Director: Frederick Thomas Temple Sector Manager/Director: Frannie F. HumplickProject ID: 41887 Sector(s): UM - Urban Management, UY - Other Urban
DevelopmentLending Instrument: Specific Investment Loan (SIL) Theme(s):
Poverty Targeted Intervention: No
Project Financing DataFI Loan Z Credit D Grant F] Guarantee O Other (Specify)
For LoansJCredits/Others:Amount (US$m)Proposed Terms: O To be defined Z Multicurrency E Single currency
EO Standard Variable 1 Fixed Ol LIBOR-based
Grace period (years): 10Years to maturity: 40Commitment fee: 0.5%
Fin_ni PAm: D To bin-:d
Government 15.4 0.0 15.4IBRD 0.0 0.0 0.0IDA 94.8 43.8 138.6
Total: 110.2 43.8 154.0
Borrower: The People's Republic of BangladeshGuarantor: N.A.Responsible agency:The Local Government Engineering Department (LGED), Municipalities, Proposed Municipal Development FundImplementing agency(ies):
The principal objective of the proposed project is to improve environmental and infratructureservice delivery in urban areas. Specifically the project will: (a) strengthen the institutional capacity ofselected municipal corporations and secondary towns to plan, finance, implement and operate urbaninfrastructure services in an efficient and sustainable manner, (b) improve resource mobilization andallocation, and fiscal discipline through the creation of an improved financing mechanism for urbaninfiastructure investment; and (c) support Government of Bangladesh (GOB) and municipalities to reduceurban poverty and improve environmental conditions of urban comrmunities through the financing of criticalurban infrastructure and services.
2. Key performance indicators: (see Annex 1)
B: Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 17453 Date of latest CAS discussion: 03/31/98
The Bank's fundamental challenge as laid out in the latest Bangladesh Country Assistance strategy(dated March 6, 1998) is to assist GOB to overcome institutional constraints that hamper domesticcapacity to pursue sound development activities. In the urban sector, the CAS objective is to improve thecoverage and efficiency of basic urban services to support private sector growth and urban povertyreduction through the formulation and implementation of appropriate strategies for institutional andfinancial reforms in municipalities, as well as supporting fiscal decentralization. The CAS also supports aconstituency for change in approach to urban investment by involving Government institutions and otherstakeholders, as well as improving the institutional capacity of smaller towns to balance mega-city growth.The proposed project is consistent with the CAS, as it directly addresses the issue of weak institutional andfinancial capacity of local governments and seeks to promote sound urban management. The Bank'ssupport to the project will help GOB and municipalities focus on addressing institutional and financialweaknesses in the urban sector as a way of bringing about sustainable service delivery.
2. Main sector issues and Govermment strategy:
The urban population in Bangladesh has been growing rapidly at about 4.2% per annum. Whilsttill the early 1990s this rapid urbanization occurred mainly in the four metropolitan areas of Dhaka,Chittagong, Khulna and Rajshahi, lately the smaller municipalities have also been experiencing highgrowth rates. As a result, GOB's interventions have both sought to prevent the deterioration of servicedelivery in larger cities and to forestall service deterioration in fast growing secondary cities. The mainissues facing the urban sector in Bangladesh are: (i) inadequate urban infrastructure services, fueled byrapid urban growth; (ii) weak managemnent and financial capacity of municipalities; (iii) fragmentation ofurban sector responsibilities among numerous central government agencies; and (iv) an increasing level ofurban poverty and accompanying enviromnental degradation.
Inadequate Service Provision: Severe deficiencies exist in urban infrastructure services,including water supply, sanitation, and solid waste management. It is estimated that only about 42% of theurban population has access to safe water supply. The level of sanitation coverage is even lower. Only
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urban population has access to safe water supply. The level of sanitation coverage is even lower. OnlyDhaka has a waterborne sewerage system, which serves only about 15% of the population. In addition,only about 20% of solid waste generated in urban areas is collected. The lack of these services has led toserious environmental degradation in urban areas which disproportionately affects the poor. As the futureeconomic growth of the country depends on the competitiveness of urban areas, enhancing the efficiencyand coverage of urban services becomes a high government priority.
Weak Sector Capacity: This manifests itself primarily in 3 ways: (i) weak institutional andfinancial capacity of municipalities contributes to poor service delivery and weak or non-existent operationsand maintenance systems. Lack of adequate maintenance expenditures and inadequate user charges andcost recovery practices further exacerbate the problem; (ii) poor resource mobilization efforts in manymunicipalities is caused by the lack of timely reassessment and undervaluation of property, and inadequaterevenue collection. Thus, municipalities are unable to realize the full financial potential of property taxes.Furthermore, the linkage between taxes and the receipt of services is extremely weak; (iii) as aconsequence, there is over-dependency on intergovernmental transfers which can represent up to 50% of amunicipality's revenues. However, such grants are in turn dependent on GOB's own fiscal well-being; thustheir reliability as source of municipal revenues is limited. This uncertainty and lack of a predictable,rational basis for intergovernmental transfers makes it difficult for municipalities to develop an effectiveplanning process. These weaknesses are further compounded by: central planning of all projects; lack ofaccountability; inadequately trained key staff at the national and local government levels; and an outdatedregulatory framework for municipal operations.
Fragmentation of Urban Responsibilities: At the central government level, several ministriesare responsible for supervision of, support to, and investments in the urban sector. The Ministry of LocalGovernment, Rural Development and Cooperatives (MLGRDC) and the Ministry of Housing and Works(MOHW) share the responsibilities of developing and providing urban services and infrastructure, throughthe Local Govermment Engineering Department (LGED) and the Department of Public Health Engineering(DPHE) respectively, both under MLGRDC, and the Housing and Settlements Directorate (HSD) andRAJUK, under MOHW. This situation is not conducive to coordinated development of the sector, leadingto inefficient use of scarce resources and impeding decentralization.
Growing Urban Poverty and Environmental Degradation: Some 11 million of the 25 millionurban dwellers live in poverty with monthly household income of less than US$75. The social, economicand political impacts of uncontrolled growth and urban expansion on this segment of the population aredisproportionately high. Many are unemployed, and live in squatter areas un-served by basicinfrastructure. The lack of adequate municipal services has led to environmental degradation in urbanareas, with serious consequences including pollution of surface and groundwater resources, increasedincidences of waterborne and other diseases, traffic congestion and increased air pollution.
Government Strategy: While GOB's vision on the direction and pace of urban reform is notclearly articulated, recent initiatives indicate that efforts are being made to tackle urban sector problems.Following the completion of a Municipal Finance Management Study conducted by IDA, GOB plans toestablish a commission to formulate an appropriate strategy for urban local government policy reforms andfiscal decentralization. In addition, GOB also prepared (with UNDP assistance) a National ProgramDocument for the Urban Sector, to build consensus among policy-makers and donors to address strategic,institutional and financial issues. In the light of the above noted weaknesses facing this sector, GOB facesa daunting challenge. IDA and other donor support is crucial to advance the process of reform which GOBhas initiated. The recently completed Urban Strategy prepared with IDA support, maps out a program of
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required policy, institutional and financial reforms to underpin and sustain the investments to be made inthis sector. This is in turn would translate into improved service delivery at municipal level. The proposedproject is consistent with this strategy in that it seeks to bring about sustainable urban service provision byfocusing institutional and financial reforms at the municipal level.
3. Sector issues to be addressed by the project and strategic choices:
The project would help improve deficient urban services by investing in physical infrastructure andby strengthening institutional and financial capacity of municipalities. Sector issues to be addressed by theproject would include: (i) urgent need for basic urban services, particularly in low-income areas, throughthe implementation of the physical investment program in the project; (ii) weak local governmentinstitutions through the provision of technical assistance to improve the institutional and financial capacityof participating municipalities; (iii) poor local resource mobilization and cost recovery through theestablishment of a Municipal Development Fund; (iv) neglect of operations and maintenance aspects ofinfrastructure services by focusing on rehabilitation, and provision of technical assistance towardsmaintenance activities; and (v) improved sustainability to service provision through the involvement of thecommunity and other stakeholders in the planning, implementation, and operations and maintenance ofthese services, through a participatory and partnership approach (PPA).
C. Project Description Summary
1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):
Phase I - Physical Investments US - Urban 38.6 25.1 32.5 84.2(Water Supply, Drainage, Urban EnvironmentRoads, Sanitation, Solid WasteManagement, Slum Improvement, BusTerminals, and Markets)Phase I - Land Acquisition UY - Other 1.1 0.7 0.0 0.0
UrbanDevelopment
Phase I Flood Rehabilitation UY - Other 16.2 10.5 16.2 100.0UrbanDevelopment
Phase I - Technical Assistance (Project BI - Institutional 6.8 4.4 6.8 100.0Implementation Support, Institutional DevelopmentDevelopment, Training, Studies, etc.)Phase I - Project Staffing BI - Institutional 0.1 0.1 0.0 0.0
DevelopmentPhase I - Incremental O&M Costs BI - Institutional 1.0 0.6 1.0 100.0
Development
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Special Consideration: Chittagong Hills UY - Other 7.6 4.9 7.6 100.0Tracts Urban
DevelopmentPhase II - Municipal Development BF - Public 78.0 50.6 70.0 89.7Fund Line of Credit Financial
ManagementPhase II - Technical Assistance BI - Institutional 4.0 2.6 4.0 100.0(Institutional Development to the MDF, DevelopmentTechnical Support to MSU andMunicipalities)Phase II - Incremental O&M Costs BI - Institutional 0.6 0.4 0.5 83.3
Development
Total Project_Costs 154.0 100.0 138.6 90.0
Total Financing Required 154.0 100.0 138.6 90.0
2. Key policy and institutional reforms supported by the project:
The proposed project will support a set of inter-related policy and institutional reforms whichtogether are expected to leverage further reforms in the urban sector in Bangladesh. The expected policyand institutional reforms are described below.
POLICY REFORMS
* Graduation from Grant Dependency: The project constitutes a shift away from the prevailingemphasis in Bangladesh on grants as the major basis for financing most urban infrastructureinvestments. Financing shall be provided in a package comprising loans and grants. The determinationof the exact proportion of loans and grants will be based on: (i) the type of sub-project to be financed;and (ii) the financial capacity of the municipalities in question. Over time, it is expected that asmunicipalities become more financially sustainable, they will gradually shift away from grant financingto more commercial terms of financing for their infrastructure needs. To support this approach,agreement was reached on a uniform GOB policy for municipal sub-projects, requiring that all bilateraland multilateral assistance for components eligible under the MDF would be passed on tomunicipalities on comparable terms to those under the MDF.
* Stimulating Institutional and Management Reforms: To stimulate institutional and financialreforms, the implementation approach would link institutional and financial performance to thefinancing of the municipality's physical investment program. Prior to financing of physicalinfrastructure, municipalities will undergo a Municipal Assessment to identify weaknesses and needs,prepare a Financial and Operational Action Plan (FOAP), and agree to implement this plan in parallelwith the agreed investment program. Under the MDF, the Municipal Assessment will determine themunicipality's eligibility to access funding, and whether technical assistance is needed to improveinstitutional and financial performance. This approach will provide the incentive for municipalities toimprove institutional and financial performance as a way to access financing from the project.
* Supporting GOB's Decentralization Efforts: The project's technical assistance program wouldsupport the Government's policy of creating strong and efficient local government institutions,including the recently announced initiative for fiscal and administrative decentralization. Currently,
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municipalities do not have the capacity to handle increased fiscal and political devolution even if itwere to occur. The project would support GOB's policy toward greater decentralization by buildingtheir technical, fiscal and administrative capacities, which would prepare them to handle increasedresponsibilities as envisaged under the new policy. In addition, a study under the project would supportthe establishment of a transparent and accountable system of fiscal transfers. The project would alsohelp strengthen LGED's capacity to provide training and support to municipalities through assisting insetting up better curriculum and training trainers of various fields related to municipal operations.
INSTITUTIONAL REFORMS
* Establishing a Municipal Development Fund: The project would support the establishment of aMunicipal Development Fund (MDF) through which eligible municipalities would borrow to financeurban investments. The MDF will: (i) mobilize resources for urban infrastructure; (ii) create fiscaldiscipline and financial accountability; (iii) enhance transparency in decision making for investmentsin municipalities; (iv) make available revolving funds for municipal development projects; and (v) usedebt/loans to improve commitment by municipalities to institutional reforms. The Fund will beoperated on a professional basis, and services for sub-project analysis and processing will likely becontracted out. Ultimately, the MDF would act as a catalyst to assist the transition of municipalities toaccess commercial financing to meet their investment needs.
* Improving Municipal Performance: A Municipal Performance Review Committee (MPRC) will beestablished to provide advice and oversight for improving the capacity of municipalities. The MPRCwill be assisted by a Municipal Support Unit (MSU), to be established under the project. The MSUwill provide institutional support to municipalities to improve their planning, financial and managementcapacity; and provide feedback on performance of municipalities to the MPRC. The MSU will beestablished by institutionalizing the current Pourashava Support Unit (PSU) which was establishedunder an ADB financed project to provide institutional and financial support to the municipalities(pourashavas) participating in the project. The track record of PSU has been limited to date by itsweak capacity mainly due to the project-based nature of its operations. Initially, this project wouldsupport institutionalizing the MSU as a permanent unit within LGED (rather than a project supportunit) to make its operations sustainable beyond the life of this and other donor financed projects. Theestablishment of the MPRC and the MSU would provide the two pronged approach of guidance andassistance required to transform municipalities into efficient institutions (bottom-top approach) as wellas a mechanism for the regulation of the performance of municipalities (top-bottom approach).
* Enhancing Demand-Driven Delivery: The project would encourage the adoption of a needs-basedapproach to the provision of urban infrastructure at municipal level, through the adoption of aparticipatory and partnership approach (PPA) involving all key stakeholders including beneficiaries,NGOs and municipal officials. The communities will also be involved in evaluating the performnance ofthe municipalities in the delivery of municipal services, based on a program of public disclosure ofinformation, to be implemented as a pilot under the project.
3. Benefits and target population:
(i) Direct Benefits: The main expected benefits of the project are twofold: improved institutionalcapacity; and improved levels of service to urban populations in participating municipalities. Improved
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institutional capacity would be achieved by the development of skills and know-how of staff at national andmunicipal levels; and the adoption of efficient and streamlined practices and systems which promotetransparency and fiscal discipline. Improved service delivery would be achieved through more efficientdelivery of urban infrastructure services, improved coverage, and the enhancement of sustainabledevelopment.
(ii) Economy-wide Benefits: These would include: (a) enhanced resource generation, with aconsequent reduced dependency on government transfers; (b) contributing to improved financial,managerial and institutional capacity and enhanced performance by municipalities; (c) incrementallyimproved enviroment, health and productivity in urban populations with consequent savings in health carecosts and a positive impact on poverty alleviation. These benefits would result in increased tax andrevenue collection and savings; and demonstrated management practices and institutional processes whichcan contribute to overall improvements in governance.
(iii) Beneficiaries: The principal direct beneficiaries of the project are; (a) the residents of participatingmunicipalities who would receive improved infrastructure services; and (b) staff at both national and locallevels, who will benefit from capacity building. Long-term project sustainability through communityparticipation in operation and maintenance of urban infrastructure will be achieved through the adoption ofPPA. This will also encourage greater involvement of women in planning and managing activities that willdirectly contribute to improving their living conditions.
4. Institutional and implementation arrangements:
Implementation Approach: The project will be implemented in two phases, to allow for theexperience of the first phase in institutional and financial capacity development to be built into theimplementation of the second phase. This particularly applies to the pilot testing of the approach ofundertaking a municipal assessment and preparation of a FOAP prior to agreeing to the physicalinvestment program which will form part of the operational structure of the MDF. In addition, theadoption of a phased approach will allow the gradual development of a demand-driven investment pipelinefor the MDF. The organizational structure for project implementation will thus mirror the project'sproposed institutional and policy reforms. This structure involves a flexible approach whereby the project'sinitial implementation arrangements will undergo a transition to more permanent entities between phases Iand II; or possibly be phased out, as needed.
Organizational Arrangements: (i) LGED will be the GOB counterpart agency for the project.Implementation of phase I physical investments and MDF sub-projects will be undertaken by the respectivebeneficiary municipalities. LGED has established a Project Management Unit (PMU), headed by aDirector, to manage and coordinate project activities during the first phase. The PMU will work closelywith the municipalities in preparing implementation plans, providing technical assistance for preparatorywork, implementing and monitoring civil works and interfacing with the Bank. At the municipal level,Project Implementation Units (PIUs) will be created to be staffed by existing municipal staff, with supportfrom LGED field staff. The PIU will be headed by the Chief Executive Officer (in case of citycorporations) or Municipal Chairman (in case of municipalities) and will report to the PMU. (ii) A projectsteering committee headed by the Secretary, Ministry of Local Government, Rural Development andCooperatives, with provide policy oversight and guidance in the implementation of the project. During thesecond phase, the MDF will have its own in-house project monitoring functions. Under this phase, theMSU will manage the institutional development activities for the pourashavas, while the PMU will bephased out.
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The First Phase: This would cover the first two years, and will finance pre-identified physicalinvestments in fourteen municipalities and two city corporations, in parallel with institutional strengthening.The management reform process at the municipal level will include: (a) municipalities and two citycorporations participating in this phase will be required to first undertake a municipal assessment toidentify institutional weaknesses; (b) to develop a program of operational and financial managementimprovements, involving administrative and organizational changes which would strengthen the budgeting,financial and accounting systems including revenue enhancement measures; (c) assisted by technicalsupport under the project, each participating municipality will then prepare a Financial and OperationalAction Plan (FOAP) which will include institutional strengthening actions to improve its institutional andfinancial capacity and to implement the investment program, against agreed institutional and fnancialperformance indicators; and (d) thereafter, each municipality will prepare and sign a MunicipalDevelopment Agreement with GOB, whereby the municipality agrees to implement FOAP and the agreedphysical investment program within an agreed time frame. For its part GOB will agree to finance theinvestment program and provide the required technical assistance.
The PPA will be also piloted during this phase in selected communities and for certain categoriesof sub-projects (water hydrants, garbage collection, public toilets and sanitation) The proposedimplementation arrangements for this involve a collaborative effort between LGED, municipalities, NGOsand communities, including provision for micro-services enterprises.
The Second Phase: This will cover the next three years (years three to five) and will beimplemented through the MDF which would be established during the first phase. The establishment of anindependent MDF entity during Phase I is the condition which triggers the commencement of Phase II. Allmunicipalities meeting the two-tiered eligibility criteria -- management reform and sub-project norms --will be eligible to access funding from the MDF. Municipalities which did not participate in the first phasewill be provided technical assistance to undertake the management reform outlined above, as needed, and tohelp prepare sub-projects and strengthen institutional and financial capacity. Sub-projects under this phasewill have to meet eligibility criteria established by the MDF, which would include -- financial, economicand technical feasibility, and environmental and social safeguards. Terms and finanical conditions to thesecond phase are shown in Attachment 1 to Annex 2.
Flow of Project Funds: During the first phase, funds for physical investments, and technicalassistance would be channeled through LGED. In the second phase, funds for physical investments wouldbe channeled through the MDF, while project funds to be used for technical assistance for training,incremental operations and maintenance costs to the Municipal Support Unit, and institutionaldevelopment of the municipalities would still be channeled through the LGED. In addition, LGED wouldalso coordinate funding for the technical support to municipalities to prepare acceptable physicalsub-project proposals, as well as in implementing the Financial and Operational Action Plan through theMSU. Technical assistance for the MDF will be disbursed directly to the MDF. In developing sub-projectproposals, municipalities would have the choice of seeking independent consulting assistance, or indeveloping such proposals in-house, using LGED staff.
Project Monitoring Arrangements: During phase I, the PMU, (with the assistance of the MSUon institutional and financial matters) will prepare quarterly progress reports, in accordance with a formatoutlined in the Project Implementation Plan. The purpose of these reports will be to provide authorities andIDA with timely and updated information on implementation of project components, highlighting issues andproblems. The progress reports will cover: (a) physical progress achieved against agreed implementationand disbursement indicators; (b) issues and problem areas, including comments on actions to addressidentified problems; and, (c) work programs and cost estimates for the coming quarter, including revised
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estimates for the current quarter. Monitoring indicators for the physical program will include water qualityindicators; improved urban infrastructure; improved sanitation and waste collection. For institutional andfinancial indicators, this will include consolidation of indicators on the financial and institutionalperformance of individual municipalities, and will include indicators like tax collection levels; revenueperformance; capital and revenue budget estimates for the following year, etc. During the second phase,quarterly progress reports will be required from the Municipal Development Fund. Performance andmonitoring indicators will also be required from each municipality borrowing from the MDF as part of therequirements under the Financial and Operational Action Plan. Progress reports from the MDF willinclude lending commitment levels, lending portfolio status; loan maturities; non-performing loans, etc.The progress reports will be submitted to the relevant authorities and IDA within one month of the end ofthe review period in question. These reports will be part of the Project Monitoring Reports required underthe new Loan Administration Change Initiative (LACI) guidelines (see Financial ManagementArrangements below).
The project will be supervised jointly by Bank staff and GOB at least three times during the firsttwo years. Annual implementation reviews, and a mid term review at the end of the first phase will becarried out to assess progress. During the second phase, supervision will focus on evaluation of thelending quality of the MDF in terms of sub-project quality, cost effectiveness, compliance with financial,institutional, economic criteria, including environmental and social assessments, and the effectiveness oftechnical assistance to municipalities and central government institutions. Within six months of the closingof the project, LGED and the MDF will prepare an Implementation Completion Report, for submission toIDA and GOB authorities.
Financial Management Arrangements: A review of the financial management, accounting andauditing capability of LGED was undertaken to ensure that it meets the Bank's guidelines, particularly theBank's focus LACI. Because of the phased approach, the arrangements for financial management for eachphase are different. In the first phase, in view of the multiplicity of municipalities involved in theimplementation of the project, responsibility for financial management will be coordinated by the ProjectManagement Unit (PMU). The PMU will gather required information from all municipalities involved inthe project and prepare consolidated financial statements for the project. It will also maintain consolidatedaccounts for all project expenditures on which annual audits will be carried out. A computerized financialreporting system will be established in the PMU, which will provide quarterly reports. The PMU willco-ordinate with different stakeholders participating in the project, including NGOs and other governmentagencies for reliable and timely preparation of fnancial management reports that will be required under theproject. A Finance Unit has been created in the PMU which will be responsible for fnancial managementand to carry out the necessary internal controls, accounting and reporting responsibilities.
For the Municipal Development Fund, the financial, accounting and reporting requirements willinclude the maintenance of proper books of accounts, records and documents as required under theBangladesh Companies Act 1994, in line with other commercial financial institutions. This will includerecords adequate to allow monitoring the progress of sub-project investments, as well as quarterlymanagement reports consisting of sources and uses of funds, special account information, sub-projectprogress information, and balance sheet. The MDF will appoint independent audit firms who are affiliatedto internationally accepted auditors to conduct annual audits of the MDF's accounts. The terms ofreference for such audits and selection method of the firm will be reviewed by IDA, and the cost forconducting such audit will be eligible for financing under the project. The audit reports will be submittedto IDA, GOB and other govermnent authorities within six months of the end of the fiscal year. The MDFwill appoint suitably qualified staff to manage the financial management system, including preparation ofaccounts, internal control systems, and sub-project related activities.
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The financial management reports generated from the system will provide an adequate basis fordecisions concerning disbursement under the program. With the above arrangements in place, therequirements of fnancial management system for both phases will be consistent with IDA's operationalpolicies as indicated in OP/BP 10.02 (Financial Management). Key aspects of the financial managementsystems for the first phase are shown in the Attachment to Annex 5.
D: Project Rationale
1. Project alternatives considered and reasons for rejection:
* Traditional Urban Lending vs. the MDF Approach: The project team considered the merits of atraditional urban project, with pre-selected municipalities and components, versus lending through theMDF. However, experience with this approach shows that simply identifying and implementing aseries of projects does not bring about sustainable improvements in service provision and institutionalcapacity building, because of the centralized and supply driven allocation of resources inherent in suchan approach. Thus, a more long term and sustained approach to infrastructure and municipalfinancing, involving a demand-driven selection of sub-components, following well established criteria,creates ownership to sub-projects, thus enhancing sustainability. In this context, the MDF approachwas considered optimal in terms of providing long term and sustainable infrastructure financing as wellas capacity building for municipalities.
* Traditional Grant financing vs. Loan Grant Financing Mix Another alternative which wasconsidered related to the nature of financing to be provided. The traditional approach of grantfinancing as an alternative to lending was considered to be inconsistent with the objective of promotingfinancial accountability and creating fiscally sustainable municipalities. Experience shows that grantfinancing has caused a dependency in institutions and municipalities in Bangladesh which is notconducive to the development of adequate cost recovery mechanisms for service provision, and localresource mobilization by seeking alternative and more commercial sources of municipal finance.Thus, the project approach is to seek and analyze alternatives financing mechanisms which engendergreater municipal accountability as well as promote local resource mobilization to ensure long termsustainability of sub-projects. This approach involves a financing package consisting of proportions ofloans and grants which are determined by the revenue generating potential of the sub-projects, therebyleveraging the funding for greater cost recovery in projects, necessary to repay the loan portions.
* Single Project vs. Phased Approach: The project involves a phased approach to institutional reformsand investment programs. This is considered to be the best approach, given the weak institutional andfinancial capacity of the municipalities, whereby it is necessary to test the program in a few selectedmunicipalities (i.e., whether the strategy to link institutional and financial reform to physicalinvestments provides the needed incentives to improved institutional performance). A top-downapproach to infrastructure investments is considered unsustainable since there would be no incentivefor municipalities to improve service provision and operational efficiency. This phased approach wouldalso allow for incorporation of lessons from the first phase into the structuring of the second phase.
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2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).
(Bank-financed proects only)Implementation Development
Bank-financed Progress (IP) Objective (DO)Address problems of poor drainage, Urban Development Project S Usanitation and urban environmental (closed 6/30/98)conditions, and lack of adequatelow-income housing in Dhaka andChittagong.Address poor institutional and fimancial First Dhaka Water Supplycapacity of the Dhaka Water Supply Project (Cr. 368-BD), 1973Sector, and increase service provisionand efficiency in Dhaka . Second Dhaka Water Supply
Project (Cr. 941-BD), 1979
Third Dhaka Water SupplyProject (Cr. 1734-BD), 1986
Fourth Dhaka Water Supply U UProject (Cr. 2926-BD), 1996,ongoing
Address problems of inadequate water First Chittagong Water Supplysupply in Chittagong City. Project (Cr. 367-BD), 1973
Second Chittagong WaterSupply Project (Cr. 100 I-BD),1983
Other development agencies
Address problems poor institutional Secondary Townscapacity of local authorities to sustain Infrastructure Developmenturban infrastructure services, and Project Iimprove service provision in urbanareas. Secondary Towns
Infrastructure DevelopmentProject II
IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)
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3. Lessons learned and reflected in the project design:
The Bank's experience with urban projects has changed over time, with elements of success andfailure. Urban assistance in the first decade focused on poverty alleviation through investments in basicinfrastructure and housing for low income residents. The objective was to test the feasibility of providinglow cost improvements that could be replicated to large numbers. Despite some achievements, many ofthese multi-sectoral urban projects acquired poorly integrated and ill-prepared components that were toocomplex to be implemented effectively. During the 1980s, the emphasis of urban development projectsshifted towards the strengthening of the policy, financial and institutional frameworks of the urban sector,with a focus on municipal development projects that aimed to effect broad capacity-building and financialreforms within the municipal government, as well as single sector projects in urban areas, e.g., water andsanitation, transport, etc. Most urban projects received high performance ratings on development impact,but less than satisfactory ratings on institutional performance and sustainability. Factors that accountedfor problem projects included disbursement delays, poor financial performance, shortage of counterpartfunds, and macroeconomic issues. The mixed performance in earlier years indicated that while the projectdesigns were sound and well executable within individual projects, the innovations were seldom replicable,and therefore not sustainable, due to the lack of involvement by beneficiaries, often in a political context inwhich such projects were implemented by specialized agencies answerable to the central government.
The Bangladesh experience with the urban sector reflects this experience. In Bangladesh,IDA's involvement with the urban sector includes the Urban Development Project (Cr. 1930-BD), approvedin FY88, focusing on drainage improvements in-Dhaka and Chittagong, and slum upgrading in Dhaka. Theproject faced implementation problems in its earlier years, mainly related to the weak implementationcapacity of the municipal authorities, land acquisition and resettlement for the main drainage components.IDA has also financed five urban water supply projects (two in Chittagong and three in Dhaka). Physicalprogress on the completed projects was satisfactory; however, the institutional and financial performancewas not. The Fourth Dhaka Water Supply Project was approved in December 1996, and is underimplementation. The lessons from these projects as well as overall Bank experience with urban projects arebeing taken into account in the designing the proposed project. In particular, such lessons involve: (a)emphasis on generating commitment and interest of stakeholders; (b) establishing the willingness of theauthorities to borrow before committing funds, (c) requiring a sustained commitment on the Bank's side tocontinue the urban agenda and dialogue beyond the life of the project, and, (d) advance attention to matterslike land acquisition, project design and procurement arrangements during project preparation. Lessonsfrom the completed water supply projects show that: (a) to achieve sustainable institutional and policyimprovements, emphasis must be placed on addressing underlying institutional problems rather thanachievement of institutional and financial targets; and (b) a clear link needs to be established betweenunderlying problems, project objectives and the project components. These issues have been addressed inthe project through the demand-driven approach inherent in the Municipal Development Fund. While thisis the first time that an MDF is being established in Bangladesh, the key lessons learned from othercountries' experiences are that the sustainability of such a lending mechanism is dependent on thecreditworthiness of its borrowers, and the need for a strong commercial orientation of the fund operation,without political interference. The need for a Financial and Operational Action Plan from municipalities asa pre-requisite to borrowing under the project, attempts to establish this creditworthiness, and theestablishment of the MDF as an autonomous agency would make it commercially oriented andautonomous.
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4. Indications of borrower commitment and ownership:
GOB and municipal officials share the concerns of IDA and the donor community about thedeteriorating urban conditions, and the weak institutional and fnancial capacity of municipalities. To meetthe growing challenge posed by urbanization, GOB recently announced a policy to decentralizedecision-making to local government as a way to improve urban sector efficiency and service provision.While implementation of such a policy poses a major challenge, the decision indicates the centralauthorities' willingness to work with municipal leaders, regardless of political affiliation, to address urbanissues, including institutional aspects. GOB is committed to the project, because it believes that the focuson institutional and policy reforms under the project and the technical assistance to the municipalities forinstitutional development, would be the most cost-effective way to achieve improved urban sectorinstitutional efficiency and service provision, in an environment where resources for infrastructuredevelopment are limited. To enhance borrower commitment, a structured consultation process with theGovernment and municipalities has been part of project preparation, and a workshop was held during theappraisal of the project during which different stakeholders, municipal officials and central governmentauthorities provided their views and support on the project scope, implementation arrangements, andinstitutional development mechanisms. These stakeholders' views have been incorporated in the projectdesign. GOB also understands that institutional reforms in the urban sector take time, and hopes that theproposed project represents the first step in a long-term dialogue between itself, donors and municipalofficials to improve municipal efficiency and service provision.
The Government has also showed its commitment to the proposed project and urban sector reformin general by endorsing the Municipal Finance Management Sector Study, which formed the basis for thereforms under the project. Following the endorsement of the sector study, the Government plans to establishan urban local government reform commission to prepare a program of reforms for the sector, consistentwvith the policy recommendations of the sector study, which include fiscal autonomy and better governanceof municipalities.
5. Value added of Bank support in this project:
The Bank has supported the development of the Bangladesh's urban sector through only one urbanproject and five water supply projects, although it has maintained the dialogue on key issues in thedevelopment of the sector. While the ADB has been the lead donor agency in the sector, donorco-ordination on policy reforms has been limited. Therefore, IDA's continued involvement will first offerthe opportunity to lead and shape the urban development agenda, particularly on policy reforms, and to useits leverage to help the Government prepare and implement institutional and financial reforms in the sectorthat are likely to have the maximum impact, as well as provide an umbrella framework for the donorcommunity. Second, IDA's participation in the project will allow the application of its wide urbanexperience to help the Government and donors to work together and coordinate response to the urbanchallenge. Third, the project will provide the much needed additional funds to help the Govemrnent andlocal municipalities meet financing gaps in providing basic urban services.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
The proposed project would support development of Bangladesh's municipal sector and improve
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urban service provision in selected municipalities. The investments will result in substantial direct andindirect benefits, including improved urban environment, better health and higher employment generationpotential for the residents.
Components for the first phase were evaluated by cost-benefit analysis as discussed in Annex 4.Sub-projects for which cost-benefit analyses were carried out yielded a weighted (by investment cost)average rate of return of 26.4%. Overall, the project is economically viable and sensitivity analyses showthat the returns are robust.
Investments in roads include rehabilitation and widening of existing roads, which would result insavings in vehicle operating and travel time costs. The economic rate of return for road investments isestimated to be 38.3%.
Investments in proposed bus terminals would result in substantial benefits to both bus operatorsand passengers in terms of improved traffic management, lower turn around times, reduced congestion inand around the terminal facilities and improved passenger access. The economic rate of return for theterminals is estimated to be 25%;
Improved drainage facilities would help mitigate urban degradation and provide conditionsconducive to improved health. Improved drainage would also reduce road flooding, especially duringmonsoon, and result in higher road capacities. Economic benefits are computed by assessing "willingness"to pay for improved drainage facilities. The economic rate of return for drainage investments is estimatedto be 22%;
Rehabilitation of water supply in Khulna includes replacement of existing wells, pumps, flowmeters, street hydrants, hand pumps and pipes and valves. This would result in a reduction in water lossesand improvements in water delivery mechanisms. The economic rate of return is based on expected numberof households affected by supply improvements and willingness to pay for improved services, and isestimated to be 27.5%;
In case of solid waste management, sanitation and slum improvements, the investments for each ofthe sub-components are relatively small (less than US$ 1 00,000 and, therefore, quantitative economicanalysis has not been carried out. Each of the components were identified on a least cost basis.
For the second phase investments, the economic analysis for individual sub-projects will beconducted by the project sponsors, following guidelines to be prepared as part of the project review policiesfor the MDF. The MDF will review this economic analysis during sub-project appraisal to assureeconomic viability of the concerned sub-projects. The minimum acceptable economic rate of returnapplicable in Bangladesh would be also be applied to sub-projects financed under the MDF. In general, itis expected that most municipal sub-projects financed under the project would have high economic rates ofreturn, due to the severe service deficiencies in most of the municipalities. In terms of macro-economicimpact, sub-projects financed under the MDF would have a positive fiscal impact on Governmentresources, since a successful and well functioning MDF would have the effect of leveraging municipalresources to mobilize external resources and fiscal discipline, thus reducing the resource demand bymunicipalities on the central government.
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2. Financial (see Annex 5): NPV=US$ million; FRR= %
The total project cost is estimated at US$ 154.0 million equivalent of which US$ 67 million(including contingencies) comprises infrastructure investments and technical assistance in the first phase.This amount includes a component for the Chittagong Hills Tracts, and flood rehabilitation for cities andmunicipalities affected by the 1998 floods. In the second phase, a line of credit in the amount of US$ 70million would be provided to finance sub-project investments. In the second phase, technical assistance inthe amount of US$ 4.0 million would be provided to support institutional strengthening of municipalitiesand in support of the Municipal Development Fund. The cost of the project is expected to be financed froman IDA credit of US$ 138.6 million, (representing about 90% of the project amount) with the remainingamount US$ 15.4 million to be financed by GOB and the municipalities.
Fiscal Impact:
The overall burden on government finances as a result of Phase 1 investments would be small:funding requirements for the municipal and city governments represent less than 10% of their respectivetotal revenues. As most of the funding would be made available as a grant to municipalities, debt serviceimpacts on local governments would be small. Implementation of the project would increase urbanproductivity, introduce fiscal discipline, improve public sector resource allocation and strengthen capacityof local government's in preparing, financing and implementing a program of urban improvements. Thenet fiscal impact of these improvements is expected to substantially outweigh project investments.
3. Technical:
The first phase physical investments will focus mainly on rehabilitation/repair of existing urbaninfrastructure in two cities and 14 pourashavas. The majority of works are relatively small, and includeurban roads, drainage, water supply, sanitation, solid waste management, bus terminals, markets, and slumimprovement. These schemes were identified based on the needs and priorities of particular municipalitiesin consultation with communities. The works under these components do not require complex design orconstruction techniques, and are within the technical capability of LGED and the municipalities toimplement. Engineering designs for these works have been reviewed by the Bank. Design & SupervisionConsultants will further review the designs to assure technical quality and timeliness. Bank's supervisionmission will also monitor the technical soundness carefully during implementation.
For the second phase investments which will be financed through MDF, municipalities will preparesub-project proposals for consideration by the MDF whose appraisal process for the sub-projects willinclude an assessment of the technical soundness of the proposed sub-project, including the technicalcapability of the municipality to implement the sub-projects. This will also include an assessment of theadequacy of the maintenance provision for the specific sub-projects. In addition, technical assistance willbe provided, through LGED, to assist municipalities in the preparation of technically viable sub-projects.
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4. Institutional:
a. Executing agencies: The executing agency for the first phase is the Local Government EngineeringDepartment (LGED). LGED is the prime engineering organization providing technical assistance tomunicipalities and is rated by both service users and donors as one of the most efficient and effective publicsector organizations in Bangladesh. The competitive advantage of LGED lies in an effective managementcadre, in providing technical assistance and support to municipalities, which includes senior technicalsupervision, preparation of master plans and mapping, skilled manpower, and training of municipalemployees in engineering and other technical areas. Technical support will be provided under the project(through the proposed MSU) to help LGED enhance the institutional capacity of municipalities. In thesecond phase, the project will be executed by the Municipal Development Fund, an agency that will beestablished as an autonomous institution, with its own professional staff and management. Technicalassistance will be provided to the MDF to assist in capacity building. Under the second phase, LGED(through the MSU) will still be involved in providing technical assistance to municipalities particularly inimplementing the institutional and financial management measures under the project. Guidelines, programsand institutional arrangements for the capacity building have been prepared and are part of the PIP.
b. Project management: A PMU to be established in LGED will assist in managing the implementation ofthe project in the first phase. The PMU will be headed by a Project Director. A Project SteeringCommittee will oversee implementation of the project, particularly on the policy aspects. The SteeringCommittee will be supported by the Municipal Performance Review Committee during projectimplementation.
5. Social:
A social assessment (SA) was carried out during project preparation, based on the findings of thefeasibility study report. The main objectives of the social assessment were to: (a) ensure that projectobjectives and incentives for change are appropriate and acceptable to beneficiaries; (b) establish theappropriate framework for their participation; and, (c) minimize or mitigate adverse social impacts. Acombination of secondary data and qualitative methods was used to carry out the social assessment, whichwas undertaken in site-specific project locations of six municipalities and one city corporation. All keystakeholders were consulted extensively during the assessment, and will continue to be consulted during theremaining part of the project cycle. The SA concluded that all activities under the project are acceptable tothe beneficiaries and no adverse social impacts are foreseen.
The social assessment also included the preparation of an Environmental and Social Framework toaddress the negative impacts of sub-components that have not yet been identified. Such sub-componentsinclude those under the MDF, and the expected impacts include resettlement of the population that may bedisplaced or suffer loss of assets and/or income as a result of project implementation. The frameworkprovides guidelines to assess the social and environmental impacts of all sub-projects, and any sub-projectsnot meeting these standards would not be eligible for financing.
In addition, in order to promote an understanding of the project objectives among stakeholders,generate their interest as well as participation, and evaluate the commitment of local governmentorganizations, the project team organized a workshop with relevant GOB agencies, NGOs, and stakeholdergroups. The implementing agency will also hold workshops on the findings of SA and participatory andpartnership approach before project effectiveness.
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Resettlement
None of the sites inventoried to date involve involuntary resettlement or loss of income for affectedpeople. No affected people were found living or engaged in business activities at any of the sites.
During the first phase, a total of 1.79 hectares of land will be required for bus terminals and publictoilets. Some of the land required for these components has not yet been acquired, although the process ofland acquisition is underway. During the first year of the first phase, implementation will commence withthose components for which land has already been acquired.
For land that has already been identified (i.e., 1 site for a bus terminal and others for public toilets),LGED has submitted a letter confirming that this land is free of encumbrances, involve no involuntaryresettlement, and the owners are in agreement with the value and amount of the land being transferred,including immovable structures that form part of the transfer.
For land that has not yet been identified, for first phase investments, as well as for second phaseinvestments under the MDF, an Environmental and Social framework will guide the identification of projectaffected people, their entitlements, and the preparation and implementation of resettlement plans. Theframework has been endorsed by the Government.
Prior to appraisal, in the inventoried sites, a full census and a socio-economic survey wereundertaken to register and document the status of the potentially affected people, their assets and sources oflivelihood in the project locations. The census provided a cut off date for determining who may be entitledto relocation assistance or other benefits from the project. The socio-economic survey provided a baselineagainst which mitigation measures and support would be measured. The survey also examined people'sassets, social networks, and other forms of support such as access to common property resources. A list ofproject locations which have completed the IDA requirements such as census and socio-economic surveyand are considered for inclusion in the first year is included in the project files.
6. Environmental assessment: Environment Category Z A 1 B LI C
The project has been assigned Environmental Assessment Category "B". For phase 1 physicalworks (years 1 and 2), an environmental analysis has been completed. The necessary avoidance andmitigation measures have been incorporated into sub-project designs and bidding documents to addressenvironmental impacts. Overall, the project will have positive environmental impacts in reducingincidences of disease, improving environmental conditions in urban areas, and reducing incidences offlooding. In water supply subcomponents, special care will be taken to ensure that both microbiologicaland chemical (including arsenic) containments are taken into consideration.
For the second phase, an overall environmental framework (ESF) has been developed, andsub-projects will be expected to meet this framework as part of the eligibility criteria for sub-projectfinancing as well as an integral part of the operating procedures of the MDF. This framework specifies: (a)screening criteria for categorizing the sub-projects; (b) norms, standards and procedures, including aResettlement Policy Framework and the Land Acquisition Assessment; (c) processing steps and milestones;(d) institutional responsibilities; (e) range of environmental and social impacts and catalogue of genericmitigation measures; and (f) interface with Department of Environment (DOE), Local GovernmentEngineering Department (LGED) and the Bank that the MDF will follow in the development, appraisal and
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implementation of sub-projects. Municipalities would be responsible for sub-project preparation anddesign, and technical assistance will be provided to ensure that sub-project proposals meet environmentaland social standards set in the framework. The MDF will review, appraise and monitor the sub-projectsaccording to the ESF framework. Larger projects with significant, environmental impacts will be referredto the DOE for concurrent approval.
7. Participatory Approach (key stakeholders, how involved, and what they have influenced or mayinfluence; if participatory approach not used, describe why not applicable):
a. Primary beneficiaries and other affected groups:
The municipalities and the entire municipal population including the poor and women will benefitfrom the improved coverage of services as well as upgrades of the existing municipal infrastructure. Anyimprovements in municipal service coverage and quality will have a disproportionately positive impact onthe municipality's lower income groups, as they are the least likely to receive these services at present.
b. Other key stakeholders:
The NGOs in the municipalities, Ministry of Local Government, the project team and the otherdonors.
Participatory Approach:
The project aims to adopt participatory and partnership approach (PPA) to encourage greaterpourashava and community involvement in developing and executing municipal and infrastructure projects.The expected level of participation will be in three critical aspects, namely: (i) information sharing betweenLGED and beneficiaries; (ii) consultation; and, (iii) collaboration or joint decision making with the abovelisted primary beneficiaries and stakeholders of the project. Due to the innovative nature of the PPA inurban infrastructure delivery, the first two years of the project implementation will be used to develop thePPA tools and techniques and field test them in selected sub-component locations. Lessons learned will bemainstreamed in the second phase of the project. Efforts to launch pilot projects are underway. Detailednotes on the PPA are included in the project files.
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F: Sustainability and Risks
1. Sustainability:
The sustainability of the project will basically depend on municipalities' capacities to efficientlymanage, operate and maintain the assets to be created under the project, to continue to deliver urbanservices after project implementation, and to mobilize local resources to finance these services. A majorissue and key risk to this sustainability is limited capacity of the municipalities, which in turn affects costrecovery for municipal services. The project's design involving the preparation of a financial andoperational action plans as a pre-requisite to the physical investment program, including the preparation ofa Municipal Development Agreement which encompasses the implementation of the action plan andinvestment program is expected to enhance sustainability. Second, the technical assistance to be providedunder the project to municipalities, focusing on institutional and financial capacity improvements, willensure sustainability.
In the second phase, the design approach, which involves a two part eligibility criteria formunicipalities wishing to borrow from the municipal development fund will help to mitigate institutionalrisks and thereby improve the project's sustainability. This approach involves assessment of the technicalviability of the sub-project as well as the municipal capacity and organizational structure which is neededfor long term sustainability. Technical assistance will be provided to municipalities that prepare bankableprojects but do not have the technical and institutional capacity to manage the sub-project.
In addition, community participation in designing, implementing, and maintaining the infrastructureto be financed under the project would promote local ownership and, therefore, likely increase projectsustainability. Such participation would be actively encouraged under various aspects of the project(through the PPA) and would be included as a checklist under the prescribed eligibility criteria for theMunicipal Development Fund.
The risk mitigating measures are summarized below.
2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):
Risk Risk Rating Risk Minimization MeasureFrom Outputs to Objectivea) Institutional Risk: Weak H a) Technical assistance for projectimplementation capacities of implementation and for institutionalmunicipalities strengthening; LGED role in technical
support will mitigate municipalweaknesses in implementation.
b) Policy Risk: GOB's lack of M b) Required up-front actions by GOB incommitment to address municipal policy changes were agreed beforehand.institutional reformc) Operational Risk: Establishment of M c) Comprehensive studies andthe MDF is delayed or unsuccessful preparation period to establish the MDF
during the first phase.d) Successful establishment of MDF is
an essential indicator which triggers thesecond phase
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d) Implementation Risk: Loan may S e) Various MDF design, proceduraldisburse slowly at first in Phase II due features of MDF formulated to addressto user unfamiliarity with MDF user familiarity issues and streamlining
of application proceduresf) Strong and appropriate publicity
during the first phase, and outreach bothprior to and after establishment ofMDF to reduce distance between MDFand sub-borrowersg) Priority to small and simplesub-project during the initial part of thesecond phase.
From Components to Outputsa) Environmental and Social risk: Lack N a) An Environmental and Socialof adherence to acceptable Framework to be put in place to ensureenvironmental and social standards in environmentally and socially soundcomponent design sub-projectsb) Procurement risks: Delays in the M Very minimal land requirements in theacquisition of land for some project project. Where land acquisition iscomponents necessary, executing agency will
identify land and resettlement needs,procurement needs and procedures.
c) Financing risk: Counterpart Fund N Financing plan has been endorsed by theare not available Government, and the project is included
in the Annual Development Program;priority to small and simple projects.
Overall Risk Rating M Systematic supervision by IDA toensure overall coordination, focusing oninstitutional capacity building. Thedifferent risks are related, and measuresto reduce one risk during supervisionwill also reduce other risks.
Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)
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3. Possible Controversial Aspects
One of the possible controversial aspects of the project relates to the proposed mechanism for resourceallocation under the Municipal Development Fund. Traditionally in Bangladesh resource allocation hasbeen centrally driven, with GOB deciding the funding allocations to different projects. Under the MDF,municipalities will have to demonstrate a commitment to institutional and financial reform before they canbecome eligible for funding. This could create resentment from those municipalities that are lagging inreforms, but have traditionally received funding from the central government. Another possiblecontroversial aspect is the possible politicization of the resource allocation mechanism, with funding forsub-projects going to politically powerful but non-eligible municipalities. This risk has been mitigated byagreement to set up the Municipal Development Fund as an autonomous agency under the Ministry ofFinance, with financing decisions made by a Steering Committee/Board of Directors from differentspectrum of the society.
G: Main Loan Conditions
1. Effectiveness Conditions
Signing of at least six Subloan Agreements covering the on-lending terms for the components inthe first phase;
Award of the contract for the Design and Supervision Consultants for the project
2. Other [classify according to covenant types used in the Legal Agreements.]
Establishment by GOB of a Municipal Performance Review Committee to monitor theperformance of municipalities and recommend appropriate action, by June 30, 1999;
Issuance by GOB of the Bangladesh Urban Management Policy Statement by June 30, 1999inform and substance as agreed at credit negotiation;
For each sub-project submitted to the Municipal Development Fund, the Municipality wouldsatisfy the sub-project criteria established for such sub-project by the Municipal Development Fund.
by July 31, 2000, establishment of the Municipal Development Fund as an autonomous agencyunder the Companies Act of 1994, and have it operational and staffed by December 31, 2000;
carry out a mid-term review of the project by July 2000, but in any case prior to the establishmentof the Municipal Development Fund.
H. Readiness for Implementation
0Z 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.D 1. b) Not applicable.
1 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.O 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.1 4. The following items are lacking and are discussed under loan conditions (Section G):
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1. Compliance with Bank Policies
Z 1. This project complies with all applicable Bank policies.II 2. The following exceptions to Bank policies are recommended for approval. The project complies withall other applicable Bank policies.
,4 ed _ _ __ _ _ __)I Jonathan S. Kamkwalala A Frannie F. Humplick Frederick Thomas TempleI Team Leader / Sector Manager/Director / Country Manager/Director
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Annex 1: Project Design Summary
BANGLADESH: Municipal Services Projecte :e-forma..nc-
Hierarchy of O bj in4icato Monitoring, valuaon i umptionsSector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Improve the coverage and Improve the quality of urban CAS discussions and review Government is committed toefficiency of basic urban services; on Urban Sector Performance, undertake and support urbanservices to support private Encourage greater decen- including periodic update of reform agendasector growth and urban tralization of responsibility to urban strategypoverty reduction local governments;
Improve financialperformance of municipalities;andPromote greater private sectorand community participation.
Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:1. Institutional capacity of 1.1 Municipalities able to MSU evaluation reports The government decentralizesselected municipal plan, prioritize and implement planning and fiscalcorporations and secondary service improvements by end responsibilitytowns strengthened of project: Phase 1: 16;
2. Public sector resource 2.1 MDF created and MSU evaluation reports Government committed toallocation and fiscal discipline operational for on-lending to operate MDF as discussedimproved in selected municipalities; with the Bankmunicipalities 2.2 Municipal Performance
Review Board established andoperational by end of Phase 1.
3. Urban poverty reduction 3.1 Physical investments MSU evaluation reports Commitment to implementand environmental targeting poverty and demand driven approaches byimprovements addressed environmental improvements the community
implemented throughcommunity participation Enabling environment created
for community organizationsto function
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Output from each Output Indicators: Project reports: (from Outputs to Objective)component:1. Policy reforms and 1. I Municipal Development PMU Monitoring reports and Municipalities have theinstitutional strengthening Fund established by July 1, Bank's supervision reports required technical competence
2000 and staff to implement reform1.2 Municipal Performance programReview Committee establishedby June 30, 19991.3 Municipal Support Unit(MSU) fully staffed andworking, as agreed with theBank, by July 1, 19991.4 Partnership andParticipatory Approach (PPA)designed, in agreement withthe Bank, by September 30,1999;1.5 All Phase I participatingcity corporations andmunicipalities implementFinancial and OperationalAction Plan (FOAP) by June30, 2000;1.6 At least 40 othermunicipalities implementFOAP by June 30, 2004
2. Physical Investments PMU Monitoring Reports and Municipalities adequatelyBank's supervision staffed and functional capacity
fully established.
Support forcommunity-managed effortsby municipalities
2.1 Roads constructed/ 2.1.1 50% of the Phase I roadrehabilitated works completed by June 30,
20002.1.2 100% of the Phase Iroad works completed by June30, 2001
2.2 Drainage facilities 2.2.1 67% (25km) completedimproved by June 30, 2000
2.2.2 100% (37 km)completed by June 30, 2001
2.3 Construction of public 2.3.1 68% (32 toilets)toilets completed completed by June 30, 2000
2.3.2 100% (47 toilets)completed by June 30, 2001
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2.4 Rehabilitation of water 2.4.1 75% (9 km) of watersupply facilities completed lines completed in Khulna by
June 30, 20002.4.2 100% (12 kIn) of waterlines completed in Khulna byJune 30, 2001
2.5 Municipal markets 2.5.1 50% (8) completed byupgraded June 30, 2000
2.5.2 100% (16) completed byJune 30, 2001
2.6 Bus/truck terminals 2.6.1 Two new bus terminalsconstructed or rehabilitated in constructed by June 30, 2000;each city corporation and and seven new bus terminalsmunicipality constructed by June 30, 2001
2.6.2 Three bus terminalsrehabilitated by June 30, 2000;and two bus terminalsrehabilitated by June 30, 20012.6.3 Two new truckterminals constructed by June30, 2001
2.7 Facilities for solid waste 2.7.1 Disposal sitesmanagement put in place identified/improved in all
sixteen phase I participatingcities and municipalities byJune 30, 20012.7.2 All community binsconstructed and operational byJune 30, 20012.7.3 All waste transportequipment procured andoperational by June 30, 2001
3. Studies Bank's supervision reports Consultants are procured in atimely manner
3.1 Environmental 3.1.1 Draft action plansManagement Action Plans submitted to the Bank for(EMAPs) for Khulna and clearance by December 31,Rajshahi completed 1999
3.1.2 Final plans submittedby June 30, 2000;
3.2 Hydro-geological 3.2.1 Draft report submittedinvestigation studies for for Bank's clearance byKhulna completed Decernber 31, 1999;
3.2.2 Final report submittedby March 31, 2000;
3.3 Micro-credit study 3.3.1 Draft report submittedcompleted for Bank's clearance by
December 31, 1999;3.3.2 Final report submittedto the Bank by June 30, 2000
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Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)For details, please see Annex Monthly disbursements Counterpart funds made2 for project components and reports availablecost table Implementation capacity
exists in municipalitiesCooperation of projectagencies is assured
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Annex 2: Project Description
BANGLADESH: Municipal Services Project
By Component:
Project Component I - US$35.8 millionFirst PhaseCivil Works(a) Water Supply: Rehabilitation of existing systems, and equipment purchase for Operations and
Maintenance (O&M). This component will cover twelve municipalities, and include urgent works such asrehabilitation of hydrants, valve chambers, and overhead tanks. A standard O&M package (repairing tools,spare parts, motor cycle, bicycle, and computer) is proposed to be provided for most of the participatingmunicipalities. Khulna, which has severe water supply problems, will receive a largest amount includingrehabilitation of 12 km of the distribution system
(b) Sanitation: The sanitation component under the first phase will include construction of public toiletsin 15 municipalities and a pilot small-bore sewerage program in Khulna. A total of 47 public toilets areplanned to be constructed during the first phase, providing latrines and washing facilities for men andwomen. A pilot small-bore sewerage system will be constructed in a densely populated low income area(Khalishpur) in Khulna. Communities and/or the private sector will be involved in operations andmaintenance of public toilets as well as the pilot sewerage in Khulna through a participatory andpartnership approach (PPA). Detailed note on the PPA is included in the project files. This component willbe implemented only in locations which have completed the IDA requirements such as census andsocio-economic survey. A list of locations which have completed the IDA requirements and are consideredfor inclusion in the first year of the first phase is included in the project files. The remaining sites, uponcompletion of IDA requirements, can be considered for inclusion the second year of the first phase.
(c) Roads and Drainage: The first phase investments in roads and drainage will also focus on upgradingand rehabilitation of existing network and systems. Road improvements will include renovation ofdeteriorated roads, conversion of earthen, gravel, or brick roads to bitumen roads, road widening, bridgerenewal, and construction of footpaths and culverts. Drainage improvements will include drainreconstruction and conversion of earthen drains to brick-walled drains. The first phase will include a totalof about 220 km road improvements and about 37 km of drainage improvements. PPA will be used in draincleaning, and public awareness campaign will be conducted to keep drains clear from solid waste dumping.
(d) Bus and Truck Terminals: Construction and rehabilitation of bus and truck terminals for all theparticipating city corporations and municipalities during the first phase. This component will beimplemented only in locations which have completed the IDA requirements such as census andsocio-economic survey. A list of locations which have completed the IDA requirements and are consideredfor inclusion in the first year of the first phase is included in the project files. The remaining sites, uponcompletion of IDA requirements, can be considered for inclusion in the second year of the first phase.
(e) Slum Improvement: The slum improvement component will be implemented, on a pilot basis, in Khulnaand about five municipalities (to be identified). It is expected that physical investments will includeimproved water supply, on-site sanitation facilities, footpaths, street lighting, etc. Slum communities willhave to be organized (with NGOs' assistance) and identify their needs and priority investment programs forthemselves. Communities will be actively involved in planning, implementation, and operation andmaintenance phases. This component will be further developed in connection with PPA preparation,
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including selection criteria of slum communities.
(f) Solid Waste Management: The solid waste management component in the first phase will focus onimproving primary collection by providing communal bins, handcarts and rickshaw vans. PPA will beadopted in site selection for communal bins and in primary garbage collection (from households tocommunal bins). In addition, the existing disposal systems will be improved in Khulna and Rajshahi fromopen dumping to controlled dumping. The other municipalities without a formal disposal site will beassisted in identifying a suitable disposal site through TA programs.
(g) Markets: Upgrading and/or rehabilitation of 16 existing municipal markets in the municipalitiesparticipating in this phase.
(h) LandAcquisition: Land for the implementation of bus/truck terminal and sanitation components. Theland acquisition plan will follow the "Environmental and Social Frame-Work". Municipalities areresponsible for acquiring the necessary land, and the process is on-going.
(a) Solid Waste Equipment: Procurement of equipment for solid waste collection such as handcarts andrickshaw vans to improve primary collection. In Khulna and Rajshahi, refuse transportation vehicles suchas tipping trucks and trailers will be purchased after the preparation of Environmental Management ActionPlans (E-MAP).
(b) Motor Vehicles and Computers: Procurement of motor vehicles to be used by the personnel located inthe field and for computer equipment and consumables to be used by support personnel at each of thepourashavas
Project Component 3 - US$ 7.9 millionFirst Phase
Technical Assistance
(a) Institutional Development: The bulk of the technical assistance will be targeted at an institutionaldevelopment component which will: (i) strengthen and institutionalize the Pourashava Support Unit ofLGED into a Municipal Support Unit (MSU) including decentralizing its functions to support citycorporations and pourashavas; and (ii) create municipality performance monitoring unit within the MSUwhich will develop a municipality information data base and related application systems. The MSU willconsist of: (a) a Central Support Unit located at LGED; (b) a City Corporation Unit, located at the CityCorporations; and (c) advisors assigned for groups of 3 pourashavas located in the field. In addition aMonitoring Unit will be set up centrally. Consultants for the project will be recruited for the Central andCity Corporation Support Units as well as for the Monitoring Unit. The consultants will be responsible fordesigning and setting up systems and procedures and for training MSU personnel. Staff on revenue budgetwould be recruited by LGED/municipalities during the course of the project. These personnel wouldoverlap with the consultants and be trained so as. to be able to take over support and monitoringresponsibilities at the end of the project.
(b) Municipal Data Base: Technical assistance will be provided under the project to create and implementa municipal information data base and related application systems. Terms of Reference and the requirement
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specifications for the data base are on file. Provision for development of the database/systems and fortraining and implementation has been provided under the project .
(c) Community Development and Participation: Under this component TA will be provided for (i)acquiring the services of NGOs to develop a community participation program; (ii) conduct a communityparticipation workshop; and (iii) conduct a micro-credit study. As part of the strengthening of the PSU, theproject will finance community participation consultants to work with the MSU at various levels.
(d) Municipal Development Fund. The project will finance technical assistance for establishing theMunicipal Development Fund. This would involve: (i) preparation of the structure and incorporating theMDF as a legal entity, involving drafting, discussing and finalizing the legal constitution document(memorandum and articles of association of the company), finalizing the ownership structure (shareholding,representation on the Board of Directors), registration with the concerned government agencies and filing ofall the required documentation; (ii) establishing the management structure of the MDF, including definingthe initial organization structure, writing job descriptions and assisting in recruiting suitable individuals toman key positions; and (iii) drafting policies and procedures both for operational areas and for financialmanagement and accounting. Implementing systems and procedures, possibly including the implementationof computerized application systems. The completion of all technical assistance activities listed in thisparagraph are indicators whose completion shall trigger the implementation of Phase 11.
(e) Studies: Phase 1 of the project includes two studies: (i) preparation of Environmental ManagementAction Plans (E-MAP) in Khulna and Rajshahi for sanitation and solid waste management, aiming atextension of desired and affordable services to under-serviced/low-income areas and linking communitylevel services to city-wide macro-services; (ii) a hydrogeological investigation for Khulna to collect datafrom wells and piezometers for incorporation in a groundwater model.
(a) Project Implementation: Technical assistance will be provided under the project to finance design andconstruction supervision for a period of about two years initially, to be extended on a need basis during thesecond phase.
(g) Training: Training will be provided to MSU, LGED and municipality staff. The majority of thetraining will be on-the-job, to improve institutional and financial performance, including accounting,planning and management, etc.
(h) Project Staffing: The project will include financing for additional staff for MSU and MDF.
(i) Incremental O&MA: The project will finance incremental O&M costs for the assets created/rehabilitatedunder the project, but on a declining basis and operating costs of the MSU, also on a declining basis.
Project Component 4 -US$7.6 millionFirst PhaseSpecial Consideration:Chittagong Hill Tracts Component:This component, to be implemented through five years of the project will finance physical investments in
three municipalities of Rangamati, Bandarban and Khagrachari in the Chittagong Hills Tracts, which haveso far lagged behind other municipalities in service provision and urban development. The specificphysical components will be identified during project implementation.
Project Component 5 -US$16.2 million
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First PhaseSpecial Consideration:Flood Damage Rehabilitation:
This component will finance the rehabilitation efforts of municipalities that have been affected by the 1998floods. Actual rehabilitation components will be determined when the needs assessments have beencompleted.
Project Component 6 - US$78.0 millionSecond PhaseMunicipal Developnent Fund:A Municipal Development Fund (MDF) will be established at the beginning of Phase II to start operating
at the beginning of the third year of project execution. The Fund will finance municipal subprojectsconsisting of civil works, equipment, goods, and technical assistance. The MDF will be established as anautonomous agency, with resources provided through a line of credit of US$ 70 million from IDA andGovernment of Bangladesh contributions. Details of the operation of the Fund, and its structure are shownin the attachment to this annex.
Project Component 7 -US$4.6 millionSecond Phase
Technical Assistance
(a) Technical Support to the MDF: Technical support would be provided to the MDF to provide specialistexpertise in sub-project appraisal, including technical review of proposals for compliance withenvironmental, social, economic and financial feasibility of subprojects.
(b) Technical Support to Municipalities: Technical support will be provided to municipalities to helpprepare acceptable sub-project proposals, and implement agreed Financial and Operational Action Plans tomake them eligible for MDF financing.
(c) Incremental Operational and Maintenance Costs: Incremental operational and maintenance costs forthe MDF, and the MSU in the first three years would be financed under the project.
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Attachment 1THE BANGLADESH MUNICIPAL DEVELOPMENT FUND
I. Objectives of the Fund: The main objective of the Bangladesh Municipal Development Fund,(hereinafter called the Fund) is to provide for a rational basis for resource allocation to municipalitiesbased on transparent, objective eligibility criteria. This independent agency is expected to review andappraise subproject proposals which are submitted by municipalities and approve those which meet theeligibility criteria. The main functions of the Fund would include the entire project cycle activitiesincluding appraisal, review, provision of technical assistance for ascertaining municipal capacity, approvaland fund disbursement, through commercial banks.
II. Incorporation of the Fund& The Fund will be incorporated as an autonomous legal entity, underthe companies Act, 1994, as a company limited by guarantee. The Fund will be free to conduct businessappropriate to a Municipal Development Fund, except obvious restrictions such as accepting deposits fromthe public, and raising capital from the financial markets. The Fund would have Memorandum andArticles of Association, which will lay out corporate, operational and governance rules and rules andcriteria for members and management in its articles. The Fund would be staffed by a core group ofprofessional staff and all technical assistance activities will be outsourced. The Fund will be governed byan independent Board of Directors which will comprise representatives drawn from all relevant agenciesand sectors, with the requisite technical and professional background. The Fund will be overseen by theMinistry of Finance as well as the Local Government Department of the Ministry of Local Government,Rural Development and Cooperatives.
III. Investment Policies and Eligibility Criteria: Fund lending would be administered on the basis ofthe following policies and criteria:
(a) Lending and Financing Policies: The financing package will consist of a blend of grants andloans whose proportions will be determined by the nature of the subproject for which financing issought, and the status of the municipality that is seeking financing (i.e., whether the municipality is aclass A, B, or C category). For all projects, Class A, B, or C municipalities will be expected tocontribute a minimum of 3%, 5%, or 10% respectively as contribution in cash or in kind. Fornon-revenue generating sub-projects, the financing package will consist of up to 90% grant with aminimum of 10% of the financing being a loan and a municipal contribution, as described above. Forrevenue generating projects, the financing mix will involve at least 50% loan and the remainder asgrant and municipal contribution. Repayment terms include interest at 9%, with repayment notexceeding 20 years, including up to 5 years grace.
(b) Eligible Sub-sectors: While most subsectors under municipal jurisdiction will be eligible forfinancing under the Fund, the focus will be lending for water supply, urban roads, drainage, sanitation,solid waste management, markets, bus terminals, among others. In determining which sub-sectors tosupport, the over arching principle for lending will be the promotion of demand driven publicinvestments. However, certain sectors may be more popular with the Fund, given the nature of thefinancing packages which are based on the revenue generating potential of the projects. The Fund willbalance investments across sector to avoid overexposure to any one particular sub-sector.
(c) Municipal Eligibility: Upon applying for financing through the Fund, a municipality will undergoa Municipal Assessment to determine the specific institutional and financial weaknesses. Based on the
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results of the Municipal Assessment, a Financial and Operational Action Plan (FOAP) will be preparedthat will set forth the specific targets that are consistent with the eligibility criteria. As part of theeligibility, municipalities seeking financing from the Fund will be required to fill selected key posts,focused mostly on senior level positions and positions in the finance, engineering and health areas.
(d) Lending Limits: Initially each borrower will be limited to no more than 5% of the total funds in theFund. Total annual debt service by the municipality, including debt from proposed Fund financing,must be less than 15% of the municipality's total budget.
(e) Subproject Eligibility: In addition to the evaluation of municipalities' financial and institutionalcapacity, each project proposal submitted for financing through the Fund will be evaluated to insurethat it meets the following criteria:
Project Cost: Projects will be limited to a maximum total cost established by the Fund. This isdesigned to comply with the objective of providing basic, simple infrastructure and insure thatfunds will be available for as many projects as possible.
Capital Contribution: Each project must include a minimum of 3% of the cost to be provided bythe municipality, depending on the class of the municipality in question. This is an importantaspect of the Fund's principles that is intended to instill an ownership in the project.
Cost Recovery: Municipalities must provide a program indicating cost recovery mechanisms forrevenue generating projects that is reasonable and conservative. It is an underlying principle of theFund to encourage a system of commercial pricing of services and adequate cost recovery whereverpossible.
Private Sector: In developing projects, municipalities must assess whether in-house or privatesector provision of service is the most cost effective. This must include consideration of currentstaff levels and make sure that objective standards are applied to such evaluations, rather thatsimply rationalizing the existence of current staff.
Implementation: Each project must have adequate implementation arrangements and schedules.
Property Records: The project must include an agreed plan for updating property records andinclude adequate valuation.
Procurement: The project must comply with the Bank's procurement guidelines, and use SBD'sagreed for the project, approved by the Bank.
Capital Improvement program: The project must also be part of an overall program of capitaland works improvement (including new and rehabilitation) program. This should encourage aplanned, programmatic approach toward capital infrastructure planning and necessitate interestedmunicipalities to undertake a CIP exercise.
Viability: Each project must include information to demonstrate its technical viability and costeffectiveness.
Environmental, Social and Resettlement: Each sub-project must ensure that it meets all of the
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Bank's requirements for environmental and social impacts, consistent with the Environmental andSocial Framework agreed and adopted by the Fund.
Land Use: Each project must be consistent with the local land use and development plan
Resolution: Each project must include a resolution by the municipality demonstrating that a PPAframework has been followed wherever necessary, and that the municipality supports the project.
Economic Rate of Return: The economic rate of return of return for sub-projects financed by theFund shall at least be 12 percent.
IV Fund Resources: An initial amount of US$ 70.5 million will be made available by GOB from theIDA credit. Of this amount, US$70 million will be for onlending by the Fund, while US$ 0.5 million willbe for the operation of the fund in the initial years. Other multilateral and bilateral financing may be madeavailable to increase the total funds available to the Fund. Repayment of principal and interest frommunicipalities will be available for further on-lending to municipalities.
V. Appraisal Process: The sub-loan application and selection process will ensure transparency andfairness. As part of the appraisal, a financial analysis will be conducted. The purpose of this analysis is toprovide an evaluation of the potential borrower's history in key financial areas including assessment,collection rates and levies for all taxes, own source revenues as a percent of total revenues, maintenance asa percent of total expenditures and development/capital expenditures as a percent of total expenditures. Inaddition to supplying this information on application, it is also intended that updated information will besupplied on a regular basis.
VI Loan Security: The principal security for sub-loans from the Fund will include the cost recovery fromthe sub-projects in question, execution of subsidiary lending agreement, and a lien on the revenues of themunicipality backed by a letter of continuity.
VI. Fees and Charges: The basis of any fees and charges for the processing of the sub-loans shall befixed by the Fund, and shall depend on the Funds' cost in processing such loans.
VIII Disbursement Conditions and Arrangements: The financing packages for the sub-loans which areapproved by the Fund will be disbursed either directly to the participating municipality or through aparticipating commercial bank with which the municipality will have an account, such as the projectaccount. The advantages of having a participating commercial bank is that such bank can handledisbursements and remittances to all municipalities, as opposed to dealing with varied accounts in a varietyof banks where the municipality currently holds its accounts. Such bank will not charge any spread as itdoes not take any risk and any participation fee will be negligible, as this would constitute an opportunityfor such bank to receive more business/accounts of the municipalities, such as revenue accounts.
IX Environmental and Social Compliance: A covenant of the IDA credit will stipulate that the Fund'soperating procedures must provide for compliance with environmental and social analysis in a mannerwhich is acceptable to the Bank and which satisfies Bank standards for such analysis. Additionally,suggested frameworks will be adopted by the Fund to mainstream environmental and social analysis foreach subproject which is presented to the Fund for appraisal.
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X Auditing and Budgeting: It is imperative that subprojects funded by the Fund are audited annually andindependently in order to ensure financial integrity of the project transactions. The Fund will be auditedannually, in accordance with BangladesWs Companies Act of 1994. Also, budgeting procedures forsubproject funds funded under the Fund must meet Bank standards. It is expected that the municipalassessment, which will be undertaken at the outset when a municipality applies to the Fund, and subsequentadjustments which the municipality will make to meet recommendations in order to become eligible willensure that the accounting and budget management means and methods of the participating municipalitywill be adequate.
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Annex 3: Estimated Project Costs
BANGLADESH: Municipal Services Project
L.ocal FoTiWP--oct Cot: - US;$milion USt$r:ilkin US Snmilion
Total ProjectCosts 110.2 43.8 154.0Total Financing Required 110.2 43.8 154.0
Other includes land acquisition and incremental operating costs.
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Annex 4: Cost Benefit Analysis SummaryBANGLADESH: Municipal Services Project
Summary of Benefits and Costs:I: Introduction
1. The proposed project would support the development of Bangladesh's municipal sector andimprove urban service provision in selected municipalities. The project will be implemented in two phases.Phase 1 will cover the first two years of project implementation and includes an investment programconsisting of rehabilitation of works and limited development of urban infrastructure (water supply,drainage, sanitation, urban roads, solid waste management, bus terminals) in two cities and fourteenpourashavas. Only Phase 1 investments are subjected to detailed economic analysis. Total base projectcost for the Phase I is estimated at US $63.5 million, of which civil works components are US $52.3million (82% of the total). The civil works components include: (a) water supply; (b) drainage; (c) urbanroads; (d) sanitation; (e) solid waste management; (f) bus and truck terminal; (g) markets; and (h) slumupgrading. The investrnents will result in substantial direct and indirect benefits, including improved urbanenvironment, better health and higher employment generating potential for the residents. Detailedcost-benefit analysis is conducted for all sub-projects with a cost of more than US$200,000. Othersub-projects, with lower capital cost, are subjected to least cost analysis.
Table 1: Summary of Cost-Benefit Analysis Results
Project Components Base Cost % of Base Cost ERR(Phase I) |(US$ million)
Project, including civil works andTA 63.5 100.0% 19.1%
II. Urban Roads
3. Background. The project consists of about 160 roads in all participating cities and pourashavas.Some of them are very small investments. As a framework for economic analysis, only the largesub-projects (more than US$200,000) are subject to full economic feasibility analysis. Small projectsusually involve resurfacing of roads. The benefits of road sub-projects are savings in vehicle operating
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costs and savings from decreased travel time due to improved road conditions for all types of motorized andnon-motorized vehicles. Economic benefits of the two major road investments are calculated in detail and itis assumed that equivalent benefits would be realized from smaller road investments. The two roads inJoypurhat (Sadr-Paharpur road) and Nilphamari (Syedpur-Goalpara road) involve widening andrehabilitation of 5.5 km and 1.8 km long road sections (at a cost of more than US$200,000 each). Theroads are based on planning and design criteria, which have been established on the basis of earlier Bankfinanced roads projects in the country.
4. Methodology. Road improvements will benefit existing users and will attract some additionalusers. Total benefits would include reduction in average cost of travel (vehicle operating costs and traveltime cost) for the existing users plus half of unit benefits to additional users. The total benefits can begeneralized as:
ql= traffic volume on the road in the base year "without" the projectq2= traffic volume on the road expected to use the road "with" the projectcl= unit cost of travel on the road in the base year (VOC+TTC)c2= unit cost of travel " with" the project
5. Data Base
(i) Traffic Counts. Twelve hours traffic count data was collected on project roads, which wasconverted to 24 hour traffic using factors of 35% for market days and 20% for non-market days.Average annual daily vehicle traffic is obtained by assuming wet season to be 17 weeks in a yearand traffic during dry season to be 20% higher than the wet season. A set of questions wereprepared for conducting field surveys and one person in each station along the road was stationedto collect information on traffic flow for all vehicles, in both directions. The data was collected forone week on two main roads: (a) Saidpur-Goalpara road (Nilphamari) which is 1.8 km long; and(b) Sadar-Paharpur road (Joypurhat), 5.5 km long.
(ii) Vehicle Operating Cost. Vehicle operating costs were calculated at 1997/98 prices for allclass of vehicles (both motorized and non-motorized) and pedestrians, at different levels of roadroughness ranging from good (IRI=5-6m/km) to bad HBB and earthern roads (IRI=14-1 8m/km)(see tables 1 and 2). For motorized vehicles, data for calculating operating costs were derivedfrom interviews with bus and truck operators, vehicle traders and vehicle body builders.
(iii) Travel Time Cost. Travel time costs were estimated based on average vehicle occupancy foreach vehicle type (see tables 1 and 2). Available information from the Bank financed Rural Roadsproject was utilized to estimate travel time costs for different road roughness index.
6. Economic Analysis. Total annual net benefits derived from widening and rehabilitation ofSaidpur-Goalpara and Sadr-Paharpur road for all transport modes are estimated to be Taka 5.3 million(including savings in VOC and TTC) and Taka 7.5 million, respectively. The economic rate of return(ERR) for Saidpur-Goalpara road is estimated to be 30% (including savings in VOC and TTC) and 30%for Sadar-Paharpur road. Economic benefits resulting from investments in all urban roads are derivedassuming that equivalent benefits are derived from smaller roads and is estimated to be 30.4%. These
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results are consistent with the current RHD findings that the minimum traffic threshold required to justifythe upgrading of earth or HBB roads is 100 vehicles per day. In addition, as these roads serve agriculturalor densely populated residential areas and have significant non-motorized traffic, upgrading of these roadswould bring substantial benefits to the community in terms of reduced transport costs to the market or workplaces and increased incomes. VOC estimates for non-motorized vehicles are based on existing studies onsimilar roads undertaken as part of other Bank funded projects. The relationships for deriving VOCinformation for motorized modes are obtained from Bangladesh Road and Highway Department's HDMUnit.
III. Bus Terminals
7. Investments at the bus terminals would include layout redesign for providing more bus bays,paving, drainage, sites of ticket kiosks, passenger waiting areas and other facilities. The bus terminalswould result in substantial benefits to both bus operators and passengers in terms of improved trafficmanagement, lower turn around times, reduced congestion in and around the terminal facilities, improvedpassenger access, better facilities for passengers (rest areas, toilets, etc.). The investments would providefor a substantial increase in bus and passenger throughputs, improved operations, separation of busparking from public areas, improved environment for operators and commuters. The economic return frominvestments in bus terminals is computed by assessing savings in bus VOC and bus passenger travel timecosts that result from the expected shortening of bus delays. After rehabilitation, number of buses usingthe two terminals would increase by about 20%. Savings in passenger travel time is computed by using asimple model that links bus delay and passenger waiting times with the frequency of arrivals anddepartures. ERR for the two bus terminals is estimated at 21.6%.
VI. Drainage
8. Improved drainage facilities would help mitigate urban degradation and provide conditionsconducive to improved health. Improved drainage would also reduce road flooding, especially duringmonsoon, and result in higher road capacities. It is difficult to evaluate economic benefits resulting fromeach individual investment in drainage and benefits are computed for the total investment in this componentimpacting all participating cities and pourashavas. Economic benefits were computed by assessinghousehold's willingness to pay for improved drainage services. While some of the drainage schemes areexpected to benefit the entire resident population, rough estimates of households benefiting from theproposed investments were obtained. It is estimated that during the first year about 50,000 householdswould benefit and increase to 200,000 in subsequent years. Surveys were conducted to assess "willingness" to pay for improved drainage services. On average, residents in lower income groups (belowTaka 1,500 per month) expressed a willingness to pay Taka 15 per month, increasing to Taka 30 per monthfor the upper income group (more than Taka 4,000 per month). Economic rate of return for drainageinvestments is estimated to be 22%. The investments would result in a number of additional benefits whichare difficult to be quantified. These include: (a) improved road service reliability during the monsoonperiod; and (b) reduced maintenance cost as the roads will not deteriorate as fast as in absence of gooddrainage facilities.
V. Water Supply.
9. Similar to urban roads projects, water supply sub-projects are also classified according to theircosts. The project consists of a number of small investments to rehabilitate water supply network, at a costof between US$10,000 and US$25,000 each. The only major investment in this sub-project is in Khulna(at a cost of about US$1.5 million), involving replacement of existing wells, distribution system, pumps,
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flow meters, street hydrants, hand pumps, and pipes and valves. The capacity of many existing wells hasdeclined resulting in a reduction in yield. This can be attributed primarily to age and lack of maintenanceas many of the wells were constructed prior to 1980s. As part of Phase I investments, six well swill requireregeneration. Provision has also been made for replacement pumps and motors, rehabilitation/upgrading ofelectric equipment at wells and pumps. Existing water losses will be reduced and efficiency of waterdelivery mechanisms improved. Rehabilitation will be required in areas with older distribution systems.Surveys have shown that much of the leakage occurs through badly made house connection and pipedamage. This would result in a reduction in water losses and improvements in water delivery mechanisms.Economic analysis is based on a user based demand survey, which sought responses on questions like:willingness to pay for improved water services, number of days lost due to water-related sickness and totalhousehold expenditure on medical expenses related to those sicknesses. ERR for the proposed investmentsis estimated to be 27.6%.
VI. Economic Return of Total Project
10. In addition to physical investments, the project comprises of a technical assistance packageconsisting of: (a) support to municipalities to help identify, prepare and implement sustainable investmentprograms; (b) support to municipalities to improve financial and institutional capacity as well as to developsustainable operational and maintenance practices; (c) assistance to central government institutions tosupport institutional development efforts; and (d) assist in the development, formulation and establishmentof a MDF. These investments would result in creating more sustainable municipal services program.These benefits are difficult to quantify. However, considering only the quantifiable benefits resulting fromphysical investments and comparing with the total cost of the project, project ERR is estimated to be19.1%. This reflects a considerably conservative estimate, considering exclusion of a number ofnon-quantifiable benefits from the cost-benefit analysis, including: (a) environmental benefits; (b) improvedquality of life; (c) long-term benefits of sustainable municipal services; and (d) better health and higheremployment generating potential.
Main Assumptions:The basic assumptions used in this analysis are:
economic costs are based on 1998 prices;a standard conversion factor of 0.9, which is the latest World Bank estimate for Bangladesh, is used toconvert financial costs to economic costs;annual operation and maintenance costs for roads sub-component is assumed to be 0.5% of capital costand periodic (every 6 years) maintenance cost 3% of capital cost;annual increase in traffic volume for each of the modes is 2%;life of road and drainage works is assumed to be 20 years, but the increase in benefits are set to freezewhen the road capacity becomes saturated by the growth of traffic;shadow wage rate factor of 0.87 is used for skilled and 0.67 for unskilled labor to reflect unemploymentand under-employment of labor;taxes (such as trade licenses) and rents have been excluded from calculation of economic benefits; andIRI (roughness index) is assumed to be 18 "without" project and 6 "with" project case
Sensitivity analysis / Switching values of critical items:Quantitative sensitivity analyses were carried out as part of the economic analyses for sub-projects in watersupply, drainage and roads. For water supply project, inability to maintain the distribution system,resulting in reduction in available water by 20% was examined. In addition, the effect of 20% increase in
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costs was also examined. For drainage sub-project, sensitivity scenario consisted of increasing investmentcosts by 20% and reducing potential benefits by 20% was examined. For roads, lower traffic growth andhigher construction costs were examined. The result of these scenarios are presented in table 2.
Table 2: Sensitivity Analysis Results
Risk Scenario ERR
Water supplyIncrease in cost by 20% 23.6%Decrease in available water by 20% 22.1%Combined impact of cost overrun & reduced benefits 16.2%
DrainageIncrease in cost by 20% 17.6%Reduction in potential benefits by 20% 16.4%Combined impact of cost overrun & reduced benefits 12.2%
RoadsTraffic growth rate (2%) 27.8%Increase in costs by 20% 23.7%Combined impact of cost overrun & reduced benefits 17.6%
9. Project Risks. The main risk of this project is delays in implementation of the variouscomponents. To mitigate this risk, detailed engineering designs and bidding documents were finalizedbefore negotiations. The facilities provided under the project may not also be well maintained which wouldreduce their service life and make them unsustainable. To mitigate this risk, as part of project design,NGOs and local communities are being involved in maintenance of facilities (latrines, drainagecomponents, solid waste, etc.). Feedback mechanisms are also being developed between the community,service providers and municipal authorities to improve accountability and ensure sustainability in serviceprovision. Financial and accounting systems of municipal authorities would be strengthened as part of thetechnical assistance under the project to ensure that municipalities can adequately address the issue ofmaintenance. Another risk is the possibility that the Government would not follow through with thereforms proposed under the project. To minimize this risk, a two phased program is proposed, with thesize of investments during Phase II being a function of reforms carried out during the first phase. Detailedperformance monitoring targets to be realized during the first two years of project implementation havebeen agreed with the Government.
10. Distribution of Benefits. Almost 40% of the population in each of the participating city andpourashava is classified as "poor" (monthly income below Taka 3,000) and 15% as "hard-core poor"(income below Taka 1,700 per month). As the income used to determine these poverty levels is low, apopulation with a monthly income of above Taka 3,000 would also be considered poor in any other context,except for a small proportion of persons at the top end. Apart from the slum improvement component, theproject does not include activities specifically targeted at poverty alleviation. However, improvements tomunicipal services would benefit the poor more than upper-income bracket population as they are seriouslyexposed to a poor urban environment and more likely to benefit from general improvements in municipal
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services. Higher income residents are in a better position in a service-poor environment to rely on privatewater supply and private latrines. The project would also increase employment opportunities, especiallyfor unskilled labor. Women would benefit, in particular both from improved access to municipal servicesand from specific project activities, such as improved health care and better sanitation. Household surveys,conducted as part of project preparation, revealed specific disadvantages to women from poor municipalservices.
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Table 1: Economic Analysis for Road Investments in Nilphamari(US$ Million)
Year Capital Cost Total Benefit Net Benefits1999 6.800 0 -6.82000 9.300 0 -9.32001 0.081 5.3 5.22002 0.081 5.4 5.3
An assessment of the financial management system of LGED was carried out during appraisal ofthe project, to ensure that the arrangements meet the Bank's guidelines under the new Loan AdministrationChange Initiative (LACI). LGED has sound and adequate financial management systems in place with theexception of computerized system for preparing Project Monitoring Reports that are required under theproject. In view of multiplicity of municipalities involved in the implementation of the project, it isimportant that the responsibility for financial management during the first phase is well coordinated by theProject Management Unit (PMU) in LGED. The PMU will co-ordinate with different stakeholdersparticipating in the project, including NGOs and other government agencies for reliable and timelypreparation of financial management reports. A Finance Unit has already been created in the PMU whichwill be responsible for financial management and to carry out the necessary internal controls, accountingand reporting responsibilities. The Finance Unit will gather required information from all involved in theproject and prepare consolidated financial statements for the project. It will also maintain consolidatedaccounts for all project expenditures on which annual audits will be carried out. A computerized financialreporting system will be established in the Finance Unit by May 30, 1999 that will provide quarterlyreports.
For the Municipal Development Fund, the financial, accounting and reporting requirements willinclude the maintenance of proper books of accounts, records and documents as required under theCompanies Act 1994, in line with other commercial financial institutions. Agreement has been reached thatthe MDF will utilize the experience on financial management standards from phase I and will recruitqualified staff prior to the commencement of phase II.
Key aspects of the financial management system are as follows:
3 Staffing: To make this project LACI compliant from inception, LGED would recruit adequate andsuitably qualified and experienced financial staff in the Finance Unit of PMU who understand therelevant accounting concepts and IDA guidelines An organogram showing the required number of stafftogether with their qualification, reporting relationship and job description was prepared and discussedwith LGED. The Finance Unit will be headed by a professionally qualified accountant supported bythree staff. All supporting staff should have sufficient computer literacy in addition to their accountingknowledge. LGED has already identified the required number of qualified staff, who have worked insimilar projects in the past, and will recruit these experienced staff by June 30, 1999. Once the creditbecomes effective, the selected municipalities will appoint key existing trained staff within their projectunits who will be responsible for keeping track of project funds as well as preparing timely financialreports.
* Accounting:_ To ensure that project funds are utilized for the intended purpose, LGED has taken theinitiative to establish a computerized accounting system in the Finance Unit that is acceptable to IDA.The accounting structure will reflect the relevant expense accounts, broken down into types ofexpenditures for all project components. The accounting system will also be fully integrated with allother financial management systems of the Government. Steps will be taken to modernize theaccounting systems of the selected municipalities so that an uniform accounting system can bemaintained which will facilitate timely preparation of Project Monitoring Reports by the Finance Unit.In order to ensure that computerized system works and generates accurate and timely ProjectMonitoring Reports at project start up, the Government has hired a consultant to develop software that
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meets the IDA's reporting requirements.
* Internal Control System: LGED has adequate financial and operational controls in place that meet theessential requirements of internal control systems. Its relatively decentralized administrativearrangements would help ensure that the project resources will be used as per project policies,procedures and guidelines. The PMU's organization plan showing the functional/reporting relationshipamong units including the Finance Unit is provided in the PIP.
* Financial Reporting: The Finance Unit will prepare interim quarterly Project Monitoring Reportsand annual financial statements of the project. Project Monitoring Reports will show: (a) FinancialStatements with a summary of the project financial status that includes: Sources and Uses of Funds for'each quarter'; 'year to-date'; and 'cumulative costs of the project to-date'; Use of Funds by ProjectActivities ; Project Balance Sheet; Cash Withdrawal; Cash Forecast; Output Monitoring Report and aSpecial Account Statement; (b) Summary of project status and explanation of variances in key projectindicators and (c) Procurement Management Report. The specific formats for these reports wereprepared and discussed with LGED and are included in the PIP.
* Audits: The Comptroller and Auditor General (C&AG), through the Directorate of Audits, ForeignAided Projects, carries out the audits of foreign-aided projects. Annual audit reports will be submittedto IDA no later than six months after the end of each fiscal year.
3 Financial and Operational Audits: Independent audit firms will carry out annual financial audit of theproject accounts and operational audits. The terms of reference and selection method of such auditfirms shall be reviewed by IDA and the costs for conducting such audits will be eligible for financingunder the project. The operational audits will undertake a thorough verification : (i) that funds havebeen used in accordance with the conditions of DCA and only for intended purposes; ii) that goods andservices procured under the project are in line with the terms of DCA; iii) that all necessary supportingdocuments, records and accounts have been kept in respect of all project ventures; iv) that clearlinkages exists between the book of accounts and reports presented to the Bank; v) that adequatefinancial and operational controls are in place to meet project objectives; vi) that weaknesses in thefinancial management systems are identified and recommendations are given for their improvements;and, vii) that counterpart funds have been provided and used in accordance with the conditions of theDCA, with due regard to economy and efficiency. The PMU will prepare the consolidated projectfinancial statements on which audit will be carried out. Two such audits will be carried out, one priorto the mid-term review and the other one year prior to Credit Closing.
* For Phase II, the MDF will appoint an audit firm which is affiliated to internationally reputed firms.The TOR and selection method of such a firm will be reviewed by IDA and the cost for conductingsuch audit will be eligible for financing under the project.
With the above arrangements in place, PMR based disbursements could begin at project start upand the requirements of Financial Management System for the project will be consistent with IDA'soperational policy as required in OP/BP 10.02
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Annex 6: Procurement and Disbursement Arrangements
BANGLADESH: Municipal Services Project
Procurement
When a contract for goods or works is financed in part or in whole from IDA funds, the Bank's Guidelinesfor Procurement under IBRD Loans and IDA Credits, (January 1995, Revised January and August 1996and September 1997) shall apply. Consultant Services financed in part or in whole from IDA funds, willbe procured in accordance with Bank's Guidelines: Selection and Employment of Consultants by WorldBank Borrowers, (January 1997, revised September 1997).
Procurement methods (Table A)
Procurement of Goods and works (including related services) will be undertaken in accordance with thefollowing procedures:
Civil Works: (US$34.7 million). Since most of the contracts (over eighty five percent) are expected to beof small size and scattered amongst the Municipalities, these works are unlikely to attract the interest offoreign bidders and therefore will be procured though National Competitive Bidding (NCB) proceduresacceptable to IDA as described in Attachment 1. Very small works estimated to cost less than US$20,000,up to an aggregate amount not to exceed US$ 2.2 million, shall be procured by solicitation of pricequotations from at least three qualified bidders eligible under the guidelines.
Goods: (US$3.9 million). Procurement of vehicles, garbage trucks, and tractors and trailers ( in anaggregate amount of $1.8 million) will be done through International Competitive Bidding (ICB)procedures. Goods amounting to some US$1.4 million of equipment for storage bins, handcarts, rickshawvans, secondary collection, computers, and motorbikes will be carried out through NCB proceduresacceptable to IDA as described in Attachment 1. Urgently required items or groups of items estimated tocost less than US$50,000 per contract (in an aggregate amount not to exceed US$0.7 million) will beprocured following National Shopping procedures.
Technical Assistance/Services: (US$12.6 million). Services of Consulting Firms estimated to costequivalent of US$100,000 or more shall be procured through Quality- and Cost-Based Selection (QCBS)methods and those less than the equivalent of US$100,000 will be procured through either Fixed Budget orSingle-Source methods. Individual consultants will be selected in accordance with Section V of theGuidelines for Consultants.
Some of the major services under the project are:
(i) Project Management and Design and Supervision(ii) Project Support Units(iii) Development of Municipal Database(iv) Study of EMAP in Khulna and Rajshahi
Procurement Responsibilities
Procurement responsibilities for goods and works will be carried out by the municipalities, with thehelp of consultants hired by LGED. Consultants will be selected by LGED as the executing agency.
Use of Standard Documents
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For ICB procurement, the use of the Bank's Standard Bidding Documents (SBD) for goods,modified by the Government and agreed by IDA is mandatory. For NCB procurement, the municipalitieswill use the SBDs for goods and works (trial edition) modified by the Bank's Bangladesh Dhaka Office(BDO). Consultants' proposals will be invited using the Bank's Standard Request for Proposals (RFP).The Bank's Standard Bid Evaluation Form for Goods and Works (April 1996, modified by BDO) will beused.
Table 6A: Project Costs by Procurement Arrangements(in US$ million equivalent - including contingencies)
xp0e0diture Coatgory P0 rou re t 'ethodIC NC 0th'r t...TtlCs
Phase I:1. Worksa) Rehabilitation of hydrants, valve chambers, 31.4 2.2 33.6overhead tanks, roads, drainage improvement and (27.4) (1.8) (29.2)development of sites2. Goodsa) Storage bins, handcarts, and rickshaw vans 1.4 0.7 2.1
(1.2) (0.6) (1.8)b) Vehicles (garbage trucks), including tractors and 1.8 1.8trailers (1.5) (1.5)3. Technical Assistance/Servicesa) Project Management and Design and 1.3 1.3Supervision (1.2) (1.2)b) Institutional Support and Strengthening 4.2 4.2(expatriate consultants) (3.8) (3.8)c) Training .9 .9
Sub-total (Phase-One) (1.5) (28.6) (263) _ _ (56.4)Phase II:1. Municipal Development Fund 78.0 78.0
(70.0) (70.0)2. Chitta2ong Hill Tracts 7.6 7.6
(7.6) (7.6)3. TA-Institutional Support 4.6 4.6
(4.6) (4.6)902 90.2
Sub-tOWtal (Phase-Two) (82.2 82.2)
Te-i U :talT; 'Pro,ject Costs EiS i18 1.2i 15ttt;lBi05 :4.0
Note: N.B.F. = Not Bank FinancedFigures in parenthesis are the amounts to be financed by the Bank loan/IDA credit
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Prior review thresholds (Table B)Good and Works
Procurement Plan
Prior to the invitation to bid for contracts the proposed Procurement Plan shall be submitted toIDA for its review and approval. Procurement of goods and works shall be undertaken in accordance withsuch approved Procurement Plan.
For both Phases of the project, the first contracts for goods and civil works for each of themunicipalities, regardless of value, and thereafter each contract estimated to cost the equivalent ofUS$100,000 or more for goods and US$200,000 or more for works will be subject to prior review by IDA.All other contracts for civil works or goods would be subject to random post review by IDA.
Technical Assistance
Selection Plan
Prior to issuance to consultants of any requests for proposals, the proposed plan for selection ofconsultants shall be furnished to IDA for its review and approval. Selection of all consultant services shallbe undertaken in accordance with such approved Selection Plan.
IDA's prior review will be required for all services contracts estimated to cost US$100,000equivalent or more for firms, and US$50,000 equivalent or more for individuals. Other procurementarrangements subject to prior review by IDA will include: all single source contracts with consulting firms,amendments to contracts of consulting firms raising the contract price of those contracts to the equivalentof US$ 100,000 or more, amendments to contracts of individual consultants raising the contract price ofthose contracts to the equivalent of US$50,000 or more, and terms of reference for technical assistance,including studies and training.
Disbursement
Allocation of loan proceeds (Table C)Loan proceeds: Disbursements under the proposed Credit will be made as indicated in Table C.
Use of statements of expenditures (SOEs):Full documentation of all contracts requiring Bank's prior review will be sent to the Administrator insupport of withdrawal applications. Expenditures for individual contracts of goods and services, for whichprior review is not required, will be disbursed against Statement of Expenses (SOEs); all recordsevidencing such information must be retained by the Local Government Engineering Department (LGED)until at least one year after the Bank has received the audit report for the fiscal year in which the lastwithdrawal from the Credit is made. All withdrawal applications in respect of civil works will beaccompanied by certificates from the Supervision Consultants attesting that the works and materials meetthe design standards and specifications agreed by Administrator, and that the payments are in accordancewith the completed works. Accredited private auditors will conduct financial audits, including samplechecks of payment certificates.
Special account:
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A Special Account of US$ 15 million will be established at the Bangladesh bank to meet anticipatedexpenditures of about three months. Eligible payments greater than one third of the Special Accountamount may be paid by the Bank directly to suppliers at a specific request of GOB. The special accountwill be replenished on the basis of reimbursed claims for eligible expenditures received by IDA.
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Table B: Thresholds for Procurement Methods and Prior Review
C oer atVae Contracts Subject toThreshold Procurement Prior Review
ExiprwItu" C, tiFy (U thoIsands) Mehod (US$ milions)1. Works US$20,000 equivalent NCB The first contract for
or more each of themunicipalities
regardless of value, andall contracts estimated
to cost US$200,000and above
less than US$20,000 By obtaining at least Nonethree quotations
2. Goods US$100,000 equivalent ICB Yesor more
less than US$100,000 NCB The first contract foreach of the
municipalitiesregardless of value
less than US$50,000 National Shopping None3. Services US$100,000 equivalent QCBS Yes
or more
less than US$100,000 Single-Source Yes
less than US$100,000 Fixed Budget TOR
Individuals US$50,000 Qualification and Yesequivalent or more Experience
Individuals less than Qualification and TORUS$50,000 Experience
4. Miscellaneous
Total value of contracts subject to prior review:
Overall Procurement Risk Assessment
Average
Frequency of procurement supervision missions proposed: One every 6 months (includes special
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procurement supervision for post-review/audits)
Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.
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Table C: Allocation of Loan Proceeds
Egpehltute M Cegory Amount In US$Mf fIn Financring Percentage_Civil Works 28.8 90%Equipment and Materials 3.1 100% of foreign expenditures, 100%
of local expenditures (ex factorycost) and 80% of local expenditures
for other items procured locallyConsulting 11.0 100%services/technical assistanceMiscellaneous 0.0
a) Operations & 1.2 100%Maintenance
b) Land 0.0 0%Acquisition/ResettlementFlood Damage 16.2 (to be determined)RehabilitationMunicipal Development 70.0 (to be determined)FundUnallocated 8.3 100%
Total Project Costs 138.6
Total 138.6
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Attachment 1
Procurement Capacity Development
Institutional Capability
LGED is one of the few public institutions in Bangladesh that has reasonable implementationcapacity, including procurement, having implemented donor financed projects before. However, becausethe project will be dealing with municipalities, who may not have adequate experience in the Bank'sprocurement procedures, it is important to define the guidelines regarding National CompetitiveProcedures, which the municipalities will follow. However, in addition to defining these procurementprocedures, the project would also support the municipalities with training and technical assistance inprocurement matters.
Acceptability of NCB
To address the shortcomings experienced in earlier IDA funded projects, NCB procedures willensure that:
(a) no numerical limitation is placed on qualified firms. Prior registration of local firms may be made acondition of qualification to bid, but unregistered eligible foreign bidders will be permitted to participate inthe bidding. Any foreign bidder who is recommended for award of a contract, however, may be required toregister before the award is made.
(b) all bidders/contractors shall provide Bid/Performance Security as indicated in the bidding/contractdocuments;
(c) a bidder's Bid Security will apply only to a specific Bid, and a contractor's Performance Security willapply only to the specific contract under which it was furnished and not to any other losses unrelated to thecontract;
(d) receiving and opening of bids at more than one place is not acceptable. If the receiving of bid at morethan one place is unavoidable, the bids must be opened at one place within one hour of receipt of bids, andthe opening statement shall be shared with the bidders;
(e) notice inviting bids should be advertised at least in one widely circulated national daily newspaper.Bidders must have at least 28 days time from the date of publication of the invitation in the newspaper orthe date of availability of the Bidding Documents, whichever is later, to prepare their bids unlessspecifically agreed otherwise with IDA;
(f) no bid should be rejected on the grounds of pre-established percentage (greater or less) of the estimatedcost;
(g) if, in response to a properly advertised invitation to bid, a single bid is received, and if it is found to betechnically responsive and the price is reasonable, such a bid should be considered for contract award;
(h) re-bidding and/or negotiations of bid prices should not be carried out without IDA's prior concurrence;
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(i) extension of bid validity is not acceptable, except for justified exceptional circumstances;
(j) there should not be any restrictions on the means of delivery of bids; and
(k) lottery in awarding of contracts, for identical bids in the cases of Bid Price quoted on a percentage ofestimated cost of Works, is not acceptable to IDA; to avoid the same Bid Price quoted by Bidders, thebidding documents should stipulate, inter alia, that:
(1) the Bidders shall quote the Bid Price with three decimal points (e.g. 5.123% above or belowthe estimated cost) and shall never quote Bid Price in whole integer (5% above or below theestimated cost); and
(2) when two or more Bids quote the same Price, an investigation shall be made to determine anyevidence of collusion, following which:
if collusion is determined, parties involved shall be disqualified, and the award then made to the lowestevaluated and qualified bidder; and
if no evidence of collusion can be confirmed, then fresh bids shall be invited.
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Annex 7: Project Processing Schedule
BANGLADESH: Municipal Services Project
Project Schedufe Planned AI-tia
Time taken to prepare the project (months) 15 27First Bank mission (identification) 04/01/96Appraisal mission departure 06/15/98 06/13/98
Meenakshy Santhadevi Social Assessments and Resettlement
Pinki Chaudhuri Municipal Development Fund
Arun Banerjee Financial and Operational Issues
Zahed Khan Urban Issues
Suraiya Zanath Financial Management Issues
Paula Reed Procurement Issues; Project Support
Akhtar Hamid Legal Counsel
Vimala Abraham Disbursement
Razia Sultana Project Support
Peer Reviewers: Dana Weist (TWURD), Municipal Development Funds; Zhi Liu (TWUTD); Economic
Issues; Carl Bartone (TWURD), Technical Aspects.
Outside Consultants: Rick Tilghman (Municipal Development Fund), and, Omer Morshed (Financial and
Institutional Issues).
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Annex 8: Documents in the Project File*BANGLADESH: Municipal Services Project
A. Project Implementation Plan
1. Summary of Project Scope and Objectives2. Detailed Project Description3. Description of Main Risks4. Financing Plan5. Project Implementation Arrangements6. Project Implementation Plan7. Monitoring and Evaluation
B. Bank Staff Assessments
I. Feasibility Study: MSP and Strengthening Institutional and Financial Management Components2. Feasibility Study: Khulna Water Supply Project, 19963. TOR for the preparation of FOAP's for 14 towns and two city corporations4. TOR for Design and Construction Supervision5. Proposal for Implementation of Revised Accounting and Computer Systems in 14 Municipalities6. Financial and Operational Action Plans for 14 towns and two City Corporations7. Accounting, Financial Reporting, Auditing and Budgeting Arrangements8. Proposal for the establishment of a Bangladesh Municipal Development Fund9. Social and Environmental Impact Assessment
10. Economic Analysis of Roads, Bus Terminals, Drainage and Water Supply Investments
C. Other
1. Urban Financial Policy Statement2. Social/Environmental Framework3. Municipal Finance Management Sector Study4. Draft Charter for the Bangladesh Municipal Development Fund
*Including electronic files
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Annex 9: Statement of Loans and Credits
BANGLADESH: Municipal Services Project
Difference between expect-and actual
Original Amount in US$ Millions disbursements atProject ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frn Rev
Number of Closed Projects: 135BD-PE-37294 1999 GOB ROAD REH. MAINT. III 0.00 273.00 0.00 285.73 0.00 0.00
Population (%) 1.6 1.9 21Labor force 1%J 2.1 2.2 2.3 GNP Gross
per primaryMost recent estmate(ltestyear available, 199t-97) capita enrollment
Poverty (% of population below national poverty line) 36Urban population (% of total population) 19 27 28Life expectancy at birth (years) 58 62 59Infant mortahty (per 1,000 live b/i/tW:) 75 71 78Child malnutrition (% of children under S) 68 63 61 Access to safe waterAccess to safe water (% of population) 79 77 71Illiteracy (% of population age 15+) 62 51 47Gross primarV enrollment (% of school-age popution) 96 99 91 Bangladesh
Imports of qoods and services 6.9 7.5 16.9 9.7 Exports ttIrmportsGross national product 4.9 4.5 5.5 5.4
Note: 1997 data are preliminary estimates.
*The diamonds show four kev indicators in the countrv (in bold) comoared with its income-arouD averaae. If data are missina. the diamond willbe incomplete.
