Document of The World Bank FOR OFFICIAL USE ONLY Report No: 60211-LR PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 2.6 MILLION (US$ 4.00 MILLION EQUIVALENT) TO THE REPUBLIC OF LIBERIA FOR AN EMERGENCY MONROVIA URBAN SANITATION PROJECT March 15, 2011 Urban and Water Country Department AFCW1 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 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 of The World Bank
FOR OFFICIAL USE ONLY
Report No: 60211-LR
PROJECT PAPER
ON A
PROPOSED ADDITIONAL CREDIT
IN THE AMOUNT OF SDR 2.6 MILLION (US$ 4.00 MILLION EQUIVALENT)
TO THE
REPUBLIC OF LIBERIA
FOR AN
EMERGENCY MONROVIA URBAN SANITATION PROJECT
March 15, 2011
Urban and Water Country Department AFCW1 Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
AF Additional Financing CAS Country Assistance Strategy DA Designated Account EIA Environmental Impact Assessment EIPSC Emergency Infrastructure Project Supplemental Component EMP Environmental Management Plan EMUS Emergency Monrovia Urban Sanitation (Project) EPA Environmental Protection Agency EPP Emergency Project Paper ESIA Environmental and Social Impact Assessment FM Financial Management FMRs Financial Monitoring Reports GOL Government of Liberia HR Human Resources IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Financing Corporation IFR Interim Financial Reports LICUS Low Income Countries Under Stress LRTF Liberia Reconstruction Trust Fund MCC Monrovia City Corporation M&E Monitoring and Evaluation MIS Monitoring and Information System MLME MOF
Ministry of Lands Mines and Energy Ministry of Finance
MOU Memorandum of Understanding MPW Ministry of Public Works NGO Non Governmental Organization PDO Project Development Objective PFM Project Financial Management PFMU Project Financial Management Unit PIM Project Implementation Manual PIU Project Implementation Unit PRS Poverty Reduction Strategy RAPs Resettlement Action Plans
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RVP Regional Vice President SIL Specific Investment Loan SIU Special Implementation Unit SMEs Small and Medium Enterprises TA Technical Assistance UN United Nations UNDP United Nations Development Program
Vice President: Obiageli Ezekwesili Country Director: Ishac Diwan Country Manager
AF Project Financing Data [ ] Loan [ X ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: repayable in 40 years, including a grace period of 10 years
AF Financing Plan (US$m) Source Total Amount (US $m)
Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IBRD IDA New Recommitted
4.0 0.0 0.0 4.0 0.0 4.0 4.0 0.0
Client Information Recipient: Ministry of Finance Responsible Agency: Monrovia City Corporation Contact Person: Mr. Peter Ofori-Asumadu, Project Manager, PIU/MCC Telephone No.: +231-6-144-849 Fax No.: N/A Email: [email protected]
Project Development Objective and Description Original project development objective: To increase access to solid waste collection service in Monrovia. Revised project development objective: Same PDO as above Project description:
• Component 1: Solid waste collection. The funds will be used to fund solid waste collection and disposal, in order to reach original project outcome indicator of 330 tons collected and disposed municipal waste per day.
• Component 2: Building institutional and technical capacity at MCC. No additional funds will be required for this component.
• Component 3: Development of sanitary landfill cells. The funds will be used for construction of landfill disposal cells and procurement of related equipment.
Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)
[X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No
Does the project require any exceptions from Bank policies? Have these been approved by Bank management?
[ ]Yes [X] No [ ]Yes [ ] No
Conditions and Legal Covenants: Financing Agreement
Reference Description of Condition/Covenant Date Due
4.01 Additional Condition of Effectiveness
Project Implementation Manual has been updated by the Recipient in form and substance satisfactory to the Association
Condition of Effectiveness
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Schedule 2, Section II, B. 1. (a)
MCC modifies its memorandum of understanding with the PFMU (the “FM MOU”), in a manner satisfactory to the Association, as necessary to conform the financial management arrangements for the Project to include the activities undertaken under Component C of the Project
No later than three months after the Effective Date
Schedule 2, Section II, B. 2.
Recipient shall prepare and furnish to the Association interim un-audited Financial Reports for the Project covering the quarter, in form and substance satisfactory to the Association
Not later than forty-five (45) days after the end of each quarter,
Schedule 2, Section II, B. 3.
The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one (1) Fiscal Year of the Recipient, commencing with the Fiscal Year in which the first withdrawal under the Credit Account was made
Not later than six (6) months after the end of such period
Schedule 2, Section IV, B. 1. (a)
No withdrawal shall be made for payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not to exceed five hundred thousand (500,000) SDR equivalent (US$800,000) may be made for payments made prior to this date but on or after the Retroactive Financing Date, for Eligible Expenditures under Category 4 related to works and goods for the construction of landfill cells
Schedule 2, Section IV, B. 1. (b)
No withdrawal shall be made under Category (4), in respect of payments for expenditures under contracts for works for the landfill cells under Component C of the project, prior to the preparation, review and disclosure of the relevant RAP, if needed, in accordance with the provisions of paragraph (b) of Section I.E of Schedule 2 to this Agreement
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I. INTRODUCTION
1. This Project paper seeks the approval of the Executive Directors to provide Additional Financing (AF) for the Emergency Monrovia Urban Infrastructure (EMUS) project in the amount of USD 4.0 million. This proposed AF builds on a request from the Government dated December 3, 2010, and will be 100% IDA credit.
2. The proposed AF would finance expenditures associated with (i) the completion of original project activities that could not be funded due to cost overrun, and (ii) additional activities in response to circumstances that arose during the implementation of the EMUS project. Original project activities with higher than anticipated cost include waste collection and disposal. Proposed additional activities include the construction of landfill cells at Whein town disposal facility in Monrovia, Liberia. These landfill cells were originally to be funded under the Emergency Infrastructure Project Supplemental Component (EIPSC), implemented by UNDP
3. The Developmental Objective (DO) of the original project will remain unchanged, as described in the EMUS Emergency Project Paper (EPP) approved by the Regional Vice President (RVP) on October 6, 2009, but there is a refinement of the results framework.
4. The proposed additional activities of construction of landfill cells under a new project component, which triggered a change in the environmental safeguard category of the EMUS project from B to A, hence the restructuring of the project.
II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING
The context 5. Development in Liberia has been set back by years of conflict. Liberia’s economy, institutions, and human capacity were devastated by the country’s 14 year civil war, which ended in 2003. Rehabilitation of infrastructure and the provision of basic services remains the country’s greatest post-war challenge. However needs exceed available resources and the Government has reached out to donors for assistance in order to maintain sustainable peace and development through the delivery of basic services and infrastructure to its population.
The original project 6. The EMUS project is funded by the Liberia Reconstruction Trust Fund (LRTF), which is a multi-donor trust fund for Liberia set up in 2008. The LRTF pools funds from bi- and multi-lateral partners in order to address the vast funding gap to rebuild and rehabilitate infrastructure in country. In December 2008, at the request of the Government, the Oversight Committee of the LRTF agreed to allocate USD 18.4 million for the EMUS project.
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7. The EMUS project was processed under the streamlined procedures of Operations Policy 8.00 Rapid Response to Crises and Emergencies. It was approved by the RVP of the Africa Region of the World Bank in October 2009. OP 8.0 was used due to (a) urgently needed funding for the delivery of a basic municipal service; and (b) prevailing sanitary conditions hampering social and economic recovery.
8. Objective and scope of the original project. The project development objective (PDO) is to increase access to solid waste collection service in Monrovia. This would be achieved through: (a) investments in selected areas of the primary collection system to expand service coverage at the household level; (b) investments in the secondary collection system to collect, haul and dispose waste captured through primary collection; (c) a public education campaign on handling and disposal of solid waste; and (d) technical assistance to the Monrovia City Corporation (MCC) to enhance municipal capacity for proper revenue administration, financial management, and management of the solid waste service. The above PDO of the original project will remain unchanged.
9. Project components. The original project has two components outlined below:
(a) Component 1: Solid waste collection (USD 11.2 million). The objective of this component was to assist MCC to provide solid waste services and increase the volume of collected and disposed waste from approximately 30% of daily generated waste to 45%. This would be achieved through: (i) technical assistance to small and medium enterprises which provide door-to-door collection service; (ii) construction of transfer stations, provision of equipment, and assistance towards financing the operating cost of service delivery; and (iii) a public awareness campaign to sensitize the population towards safe handling of solid waste.
(b) Component 2: Building institutional and technical capacity at MCC (USD 4.9 million). This component aimed to strengthen the capacity of MCC for proper revenue administration, financial management, and technical oversight to the provision of solid waste services in Monrovia. The following activities would be financed: (i) technical assistance (TA) for a financial and organizational audit followed by assistance for the implementation of selected action items identified by the audit; and (ii) TA for project implementation and supervision.
10. Project implementation record and results to date. All three Implementation Status Reports (ISRs) since the project became effective in December 2009 have been classified as satisfactory for both Project Development Objective (PDO) and overall Implementation Progress (IP). As of January 2011, 13 months after project start, 25% of EMUS funds have been disbursed, ahead of the original disbursement schedule.
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11. The Government’s commitment to the project remains strong. All components are being implemented satisfactorily, and mainly on schedule. Based on current performance, the targets selected for the performance indicators are likely to be either reached or exceeded. The EMUS project has allowed the Government to demonstrate visible and tangible improvements in the lives of its citizens. The project’s PDO is expected to be achieved successfully.
12. All activities under the project are progressing well as indicated below for each of the components.
(a) Component 1: Waste collection. Solid waste collection and disposal continues uninterrupted and the serviced areas in Monrovia are clean. About 210 tons of municipal waste are being collected daily. This amount is expected to increase after the introduction of two transfer stations, currently under construction. A review of the primary collection system was carried out and a roadmap was identified and agreed upon with the MCC. Technical assistance to small enterprises delivering door-to-door collection is currently being procured. The project’s communications plan has been developed and approved by MCC and has begun its implementation phase.
(b) Component 2: Building institutional and technical capacity at MCC. The financial and organizational audits at MCC have been completed. Prioritized activities resulting from the audit recommendations to be supported under longer term TA to MCC to strengthen its capacity for proper revenue administration and financial management have commenced in early 2011. The first round of on-the-job training by the Engineer for MCC employees has been completed successfully and benefitted the Solid Waste, Community and M&E Departments of the municipality. The MCC and the Ministry of Finance (MOF) have opened a special solid waste account to hold solid waste revenues. The MOF has confirmed its readiness to transfer its contribution to the account in years 3 and 4 of the project as provisioned in the original project.
13. All conditions on disbursement and all dated legal covenants have been fulfilled on time. These include:
(a) Conditions on disbursement: i. PIU at MCC established, satisfactory to the Bank. ii. The FM MOU between the PFMU/MOF and MCC has been entered into. iii. The Transitional MOU between the MCC and the Special Implementation Unit
(SIU) has been entered into. iv. With respect to expenditures under contracts for works for each solid waste
transfer station, community consultations, Environment Management Plan (EMP), RAP (if needed) for the two transfer stations completed and disclosed prior to commencing works –completed on time.
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(b) Dated Legal Covenants: i. Three key staff at PIU (Project Manager, Procurement and Sanitary Engineer)
were appointed within 3 months from Effectiveness. ii. PIM adopted within 3 months from Effectiveness. iii. The project’s Auditor was appointed no later than 4 months from Effectiveness. iv. The Project’s Oversight Committee was set up no later than 3 months from
Effectiveness. v. The FM MOU was signed within 3 months from Effectiveness. vi. The Transitional MOU was signed within 3 months from Effectiveness.
14. As per the original Grant Agreement, the Infrastructure Implementation Unit (IIU) at the Ministry of Public Works (MPW) was the project implementation agency in the transitional period until the Project Implementation Unit (PIU) at the Monrovia City Corporation (MCC) was adequately staffed to take over implementation. The PIU had its key personnel on board by the end of March 2010, and was fully staffed shortly thereafter. Full transfer of project implementation responsibilities from the IIU to the PIU took place on May 13, 2010. Since then, the performance of the PIU has been fully satisfactory. It has strong and committed management, and dedicated staff.
15. Overall safeguard compliance (Environmental Assessment OP/BP 4.01 and Involuntary Resettlement OP/BP 4.12) is rated satisfactory. The new component is expected to trigger safeguards (OP/BP 4.01 and all required safeguard documents have already been prepared and also disclosed in country and in the InfoShop (discussed further below). The EMPs are incorporated in the respective bidding documents, and compliance with them is being monitored closely. The abbreviated RAPs (seven households affected by the project) are being implemented and monitored.
16. Procurement activities were handled initially by the IIU and then by the PIU, upon the corresponding transfer of implementation responsibilities. The PIU has a qualified and experienced procurement specialist with access to appropriate tools and knowledge to enable the entity to carry out its functions effectively. The last procurement review carried out during the August 2010 supervision mission, was satisfactory. As mentioned earlier, initial delay of approximately six months was experienced in some activities due to longer preparation of bidding documents by the Consultant. The PIU has, however, been catching up and current progress is satisfactory. Procurement processes are in line with the Bank Procurement Guidelines, i.e. with “Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers, published by the Bank in January 2011”, and with "Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers, published by the Bank in January 2011". Project Procurement Plan has been updated and approved by the Bank as necessary. The implementation of contracts already awarded is proceeding well under the supervision of the Engineer.
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17. The project’s financial management performance is rated satisfactory. As a result of a sound control environment (qualified fiduciary staff, adequate manual of procedures supported by a computerized accounting system, and internal auditor), the project complies with financial management requirements, such as timely submission of financial reports, including: (a) two withdrawal application were submitted in February and September 2010 respectively and disbursements of USD3.65 million were made to the project’s designated account (DA); (b) unaudited interim financial reports for the first three quarters were submitted and cleared by the Bank; (c) the project’s Annual Work Plan and Budget were prepared and cleared on time; (d) the external auditor for the project was hired within 4 months of effectiveness as required in the Grant Agreement.
Rationale for Additional Financing 18. Country macro-economic situation. Liberia has been strongly affected by the global economic slowdown. In the latter half of 2008, growth slowed down from the original projection of 8.6 percent to 7.1 percent. GDP growth fell further to less than 5 percent in 2009. The global economic slowdown has affected economic growth primarily through the channels of lower primary commodity (export) prices and the effects on planned investments in related sectors. Good quality labor force data is not available in Liberia but reports from key employers in the mining and the commercial agriculture sub-sectors suggest that employment in these sectors has been adversely affected. The estimate for growth in 2010 is 6.3 percent, moderately better, but the Government faces significant challenges to improve infrastructure and deliver critical basic services in this post-conflict environment where the expectations from the population for concrete peace dividends remain very high.
19. Solid waste and sanitation in Monrovia. The recently re-introduced solid waste management system in Monrovia is gradually picking up in improving the quality of life of the population. Although significant efforts and improvement are being made on the ground under the EMUS project, the scale and nature of needs remains significant. To address these needs, the proposed AF will build on the momentum of the project’s satisfactory implementation, to allow the project to achieve original project objectives, and enhance the project’s development impact through additional activities.
20. The proposed AF has been requested by the Government in order to cover a cost overrun on the solid waste collection and disposal component of the EMUS project, as well as a funding gap for the development of landfill cells for waste disposal. The primary reason for the cost overrun was an increase in overall collection and disposal costs by about 35% since the start of the project. The cost increase was demonstrated in higher bid prices than original estimates, which were compiled soon after the service was re-introduced and in the absence of quality data on unit prices and the capacity of the local industry. Since that time, the market has started to mature and several new players have joined the industry. Required service standards were also enhanced. Initially, contractors were operating under emergency conditions with lower
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performance standards. Current performance standards require enhanced sophistication of operations and compliance with additional norms, which increases the cost.
21. The original project budgeted $1 million for continuation of collection contracts until the transfer stations were built and $6.4 million for collection under the expanded system. During the first 14 months of the project, the project spent $2.35 million on collection, or $168,000 per month. A bidding process is underway to fund long term collection contracts in a system where contractors supply all of their own equipment for collection. Bids were received on February 28, 2011 and are in the process of being evaluated. These contracts include operation and maintenance of the transfer stations and a higher level of solid waste collection as Monrovia moves to collect 45% of daily generated solid waste, up from 30% at the project outset.
22. The AF also proposes to fund the construction of landfill cells at the current disposal site at Whein Town, Monrovia. This was not envisaged under the original EMUS project. Instead, support for landfill cells was provided under the EIPSC, implemented by UNDP. Currently, available funds under EIPSC have been largely expended, while available disposal space at Whein town is inadequate to accommodate incoming waste due to: (i) while Whein Town was intended as an interim facility until the Government acquired land for a permanent landfill, the Government has yet to acquire that land and, as a result, Whein Town remains the only available and regulated disposal site; and (ii) the available space at the landfill is rapidly being depleted. As a result, unless new cells are developed, Monrovia would run out of safe disposal options.
23. The proposed AF would assist the Government to achieve its strategy to continue to deliver a basic service to the population. The support will also contribute to better local health and environment by supporting improved sanitation conditions for the population of Monrovia.
24. Consistency with Country Strategy. The proposed AF continues to support the Country Assistance Strategy (CAS), which was prepared jointly in 2009 by the World Bank, the African Development Bank and the International Finance Corporation. The CAS is fully aligned with the country’s Poverty Reduction Strategy (PRS) and is designed to support Liberia’s transition from post-conflict recovery to long-term development. It seeks to address some key constraints on growth as well as to enhance the policy and institutional framework to ensure that growth is increasingly pro-poor. As such, the CAS is set to pursue three strategic themes: (i) rebuilding core state functions and institutions; (ii) rehabilitating infrastructure to jump-start economic growth; and (iii) facilitating pro-poor growth. In the area of urban development, the CAS envisages assistance to “sustain earlier emergency work in the area of solid waste collection” as well as “efforts to improve municipal revenue collections, introduce financial controls, consolidate operations, and build capacity at the sub-national level”. The proposed AF is aligned with the CAS of Liberia.
25. Considerations for alternative financing. In mid-2010, Liberia reached the Highly Indebted Poor Country (HIPC) completion point, which makes it eligible for IDA credits. In
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addition, a recent agreement was reached with the Paris Club of government creditors to cancel debt worth more than USD 1.2 billion. Despite these developments, Liberia remains one of the most resource constrained countries in the world, depending heavily on external assistance.
26. The Government’s desire for heavy investment in the transport sector has utilized the bulk of LRTF resources and the need for additional funding in that sector is still very significant. Other bi- and multi-lateral donors are providing assistance for social and productive sectors. With the exception of a small TA grant by USAID and a recently approved small Gates Foundation grant for community participation in sanitation, the solid waste sector is supported only by the World Bank under the EIPSC and EMUS projects. Since no additional resources are available for financing of solid waste collection and disposal activities, the proposed AF seeks IDA funds.
27. Operations Policy for proposed AF. The AF instrument governed by OP/BP 13.20 is the preferred mechanism for the project as it permits additional and expanded activities that would scale up the project’s impact and development effectiveness. There are cost-effectiveness gains in implementing the scale-up activities as part of the on-going operation, building on implementation arrangements already in place, and the scale-up can feasibly be accommodated in the context of the original project.
III. PROPOSED CHANGES
28. For the activities covered under the proposed AF, no change is required to the original PDO, which is to increase access to solid waste collection service in Monrovia, Liberia. The proposed AF will finance both original activities experiencing cost overrun and additional activities that will require project restructuring, changing the environmental safeguard category from B to A.
29. A third component will be added for additional activities. This component will fund construction of additional cells at Whein Town landfill. Whein Town is the only place in Greater Monrovia authorized for the disposal of solid waste. The landfill will reach capacity in 2011, necessitating the construction of additional cells in order to allow for safe solid waste disposal. As this was not envisioned in the original project, it will be necessary to change the environmental category from B to A in order to accommodate construction of landfill cells under this project. Following is a description of the activities under the three components that have an estimated combined cost of US$5.5 million (USD 4 million proposed AF plus USD 1.5 million to be reallocated from original contingency budget):
(a) Component 1: Solid waste collection (USD 3.2 million). The funds will be used for solid waste collection and disposal, in order to reach original project outcome indicator of 330 tons of municipal waste collected and disposed per day.
(b) Component 2: Building institutional and technical capacity at MCC. No additional funds will be required for this component.
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(c) Component 3: Development of sanitary landfill cells (USD 2.3). The funds will be used for construction of landfill disposal cells and procurement of related equipment.
30. The costs and financing allocation, by component, for the original project and for the proposed additional financing are presented below. Note that for Component 2 while the cost remains unchanged, there will be a reallocation between subcomponents. The reason is that the contracts for financial and organizational management were awarded for 1 million less than estimated, while the technical supervision has increased due to construction delays, particularly on the works implemented under the UNDP.
Project Cost by Component (in USD million) Original Project Cost
Component 2: TA to MCC 4.9 0.0 4.9 Subcomponent 2.1: Financial and Organizational Mgmt TA 2.0
1.0
Subcomponent 2.2: Implementation and Technical Supervision 2.9
3.9
Component 3: New cells at Whein Town Sanitary Landfill 0.0 2.3 2.3
Audit, Training, Operating Cost 0.5 0.0 0.5
Contingency 1.8
1.8 TOTAL 18.4 4.0 22.4
31. Institutional arrangements. The AF will be implemented using the same institutional, procurement and disbursement arrangements as for the original project, as they have been assessed to be acceptable by Bank fiduciary teams.
32. The PIU at MCC will remain the implementing entity assisted by a supervision engineering firm. The PFMU at MOF will continue to carry out the financial management for the AF as for the original project. Oversight of project implementation will continue to be carried out at two levels, one at the level of major stakeholders, and the second – at intra-organizational level –i.e., the Project Oversight Committee and the Project Management Committee respectively. Both committees have been established and are fully functional.
33. Environmental and Social Safeguards. The proposed activities under Component 1 and 2 are identical in type and scope to the original investment program. Two safeguard policies were triggered: Environmental Assessment (OP 4.01) and Involuntary Resettlement (OP 4.12). The
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EMPs and abbreviated RAPs (for two small transfer stations) that were prepared and disclosed in-country and at the InfoShop (as described above) are being implemented in the original project.
34. The proposed additional activity under Component 3, i.e. construction of landfill disposal cells, requires a full Environmental Impact Assessment (EIA) and will change the environmental assessment category of the project from B to A. The borrower prepared an EIA for the landfill in 2008 in connection with the Liberia Emergency Infrastructure Supplemental Credit (P103276). This EIA includes an EMP that was updated in July 2010 and is included in the Operations Manual. It was reviewed by the Bank and disclosed in December 2008 and is being used for EMUS and the proposed additional financing. The EMP that includes an operations manual for the landfill has been updated and disclosed. No additional land acquisition is involved as the new cells can be accommodated within the existing site boundaries which are uninhabited.
35. Closing date. The original closing date of the EMUS project is December 31, 2013. It is expected that activities supported under the AF will be completed within the timeframe of the original project, i.e. December 31, 2013. No extension of the closing date is therefore proposed.
Project Outcome Indicators 36. The original M&E framework developed under the EMUS project has been revised to take into account the additional activity of landfill cell construction. The PIU will continue to be responsible for monitoring project outputs and results.
IV. APPRAISAL SUMMARY
37. Technical appraisal. Solid waste collection and disposal activities do not require new technical appraisal as they will follow the same design under the original project. For the construction of landfill cells, experience has been gained through the EIPSC project which funded the construction of similar cells at the same location – Whein Town.
38. The 25 acre land allocated for land filling at Whein Town has been in use for emergency waste disposal since the earlier site at Fiamah exhausted its capacity in 2008. Environmental management at Whein Town has improved dramatically. Currently, the solid waste brought to the land fill site is deposited in an interim cell, 10,000 m2 in size that can be filled up to 20 meter height. A clay liner was constructed by borrowing 6000 m3 clay from a 35 km distance to create a barrier to prevent migration of leachate from landfill to the subsoil, and an under-drainage system was constructed above the liner to collect leachate from within the landfill. The cell is expected to last for just a few months, which underscores the importance of avoiding delay in contracting for the final development of the landfill.
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39. Another cell, with estimated lifespan of eight months, is currently under construction at Whein Town landfill and will include a geosynthetic-clay liner for improved protection. Designs for final development under the proposed AF have also been completed by the Engineer and include landfill cells lined with 1,5mm High Density Polyethylene (HDPE) geomembrane. Material excavated and not used to form the leachate ponds and platform for the infrastructure will be used as part of the cell construction and stockpiled for future landfill operations. It is expected that a sufficient volume of clay material will be obtained from site to construct the single clay layers in the liners. Retroactive financing has been provided in the legal agreement to cover the ongoing construction of a new cell and the procurement of the geosynthetic liner and other landfill equipment which have already started.
40. Landfill operation is part of the original project and therefore not appraised here.
41. Institutional. No change in institutional arrangements is planned. Implementation arrangements will capitalize on existing structures and modus operandi. As discussed above, the PIU is fully staffed (project manager, procurement specialist, environmental engineer, accounts officer, M&E officer, a communications officer/social liaison, and support staff), and is led by dedicated management. Implementation progress is satisfactory.
42. Economic considerations. The Project will improve solid waste management for the city of Monrovia and surrounding areas, generating economic benefits from improved sanitary and environmental conditions for the population leading to reduced exposure to diseases. Clearing waste from communities will also increase property values over the long term and will preserve existing urban infrastructure by preventing flooding of roads, houses and other infrastructure in low lying areas. Additionally, the residents around the landfill area will experience benefits with sanitary landfill cells constructed and operated in line with EMP standards. Waste pickers operating at the landfill will benefit from improved conditions for collection and safety. An estimation of these general benefits has not been attempted due to the lack of reliable baseline data and difficulties in estimating the value of benefits associated with spill-over effects, including a drastic reduction in filth, odor, rodents and flies. The financial benefits are equally difficult to calculate for the same reason. However, the following is an attempt to compare the costs and benefits of a do-nothing scenario and a do-something scenario for creation of incremental landfill cells at Whein Town landfill serving the greater Monrovia region. Given that the complementary elements of solid waste management in the City of Monrovia – including financing secondary collection contracts, operations of the landfill, and construction and operation of two transfer stations - have already been accounted for through the end of 2013 in the initial project, this assessment will refer only to the incremental cost of building additional landfill cells at the existing landfill site.
43. Do-Nothing Scenario. Under the do-nothing scenario, the present landfill will reach full utilization by March, 2011. As there are currently no other areas in Greater Monrovia suitable for dumping, alternatives include the following: 1) burning waste, which will pollute the air that
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the residents breathe, 2) burying waste, which may pollute the groundwater as chemicals leach into the aquifer, 3) dumping waste into the river, which will pollute the river, kill the fish, and lead to breeding grounds for disease, 4) fester in the city, rotting and emitting a foul odor and attracting flies and rodents, and serving as a breeding ground for disease, or 5) dump in open drains which get clogged and lead to flooding of city streets. While none of these effects are easy to quantify, the potential impact group includes the majority of Monrovia’s population of one million. Any adverse effect to the water supply has the potential to negatively impact the more than two thirds of that population who get their drinking water from groundwater sources and do not boil it before consumption. In addition, festering garbage in the city is a nuisance for everyone and can lead to flooding, which may cause serious damage to the city streets. Failure to build these additional cells will render the existing investment of constructing solid waste transfer stations ($2.5 million) wasted, and will cause the cancellation of the bidding processes for the collection contracts and landfill operations contract that are underway.
44. Do-Something Scenario. Under this scenario, the project will finance the construction of four additional landfill cells, properly lined to prevent leachate from entering the water table, and improved leachate treatment ponds. The complementary waste management services that already exist under the project will be able to function as designed and result in a cleaner city with a reduced disease burden on the population and preservation of road and other urban infrastructure. The City of Monrovia has introduced a dumping tariff that is initially subsidized but will move toward full cost recovery of approximately $15/ton by project end. The City of Monrovia is currently invoicing a user fee monthly to organizations that dump at the landfill. The MCC follows up regularly to ensure payment. Collection funded under the EMUS project is exempt from this tipping fee, in order not to increase the cost of each contract. The MCC can change this arrangement in the future, if desirable. Any tipping fees generated by the MCC are deposited into the Solid Waste Account set up under EMUS and will form part of the project funding in years 3 and 4 of the project. There is no additional cost for the land, which the city owns, or operation and maintenance of the landfill cells, which is already being funded under the project.
45. Procurement. The procurement management at the EMUS is highly satisfactory. The project has a procurement specialist who is well versed in the Bank’s procurement procedures. Documents submitted for the Bank’s clearance were also satisfactory. A Post Procurement Review (PPR) was carried out in December 2010. The reviewer noted with satisfaction that procurement was conducted in accordance with the Bank’s procurement guidelines. The project’s procurement plan has also been updated. The PIU has since December, 2010 been using PROCYS for the submission of procurement documents for the Bank’s clearance.
46. With regard to cost overruns of existing activities provided under the original Project, the Additional Financing will likely provide complementary funds to finance such activities, that might have procurement initiated prior to the date of signing of the legal agreement. On an exceptional basis only and subject to IDA’s prior no-objection, the original procurement
12
provisions and Anti-Corruption guidelines of the original Project shall apply for procurement initiated prior to the Retroactive Financing Date (the date that is twelve months prior to the signing date of the legal agreement). For procurement initiated on or after the Retroactive Financing Date, the revised Anti-Corruption Guidelines1
47. Financial management. The financial management arrangements under the project have been so designed to facilitate project implementation and support both fiduciary and developmental needs. While the proposed financial management arrangements of the project satisfy the Bank’s minimum requirements under OP/BP 10.02, the overall financial management residual risk is rated ‘Medium -L’. As it does for all infrastructure projects in Liberia, the PFMU in the Ministry of Finance (MOF) will be responsible for the financial management of EMUS.
and the procurement provision under the legal agreement for the Additional Financing shall apply.
48. Created in 2006 (with the assistance of the Bank) as a centralized unit in the MoF, PFMU performs the financial management functions of donor funded projects in Liberia. The PFMU is headed by a Unit Manager who is responsible for ensuring the overall direction of work at the unit. Under the direction and supervision of the Unit Manager, the entire PFMU accounting team made of two other qualified accountants, an internal auditor and a number of support staff is responsible for all the day-to-day financial management functions of almost all IDA funded projects in Liberia. PFMU has satisfactory budgeting, accounting, internal controls and financial reporting processes in place that will support the effective and efficient utilization of resources for the proposed EMUS Additional Financing project. The current capacity of the PFMU is adequate to manage the FM arrangements of existing projects in their portfolio. However, the related operational costs including stationery, mailing withdrawal applications, and printing project FM reports to be incurred by the unit in performing their duties under the project should form part of the costs that the project shall bear.
49. PFMU will open a USD denominated DA at a commercial Bank approved by the Bank. Funds from IDA, will be deposited into this account for project execution. The processing of eligible expenditure payments will be managed by the authorized signatories of the EMUS project and supporting documents transferred to PFMU for payment. The project will use report-based disbursements through the use of quarterly Interim Financial Report on the sources and uses of project funds. A forecast of the first 6 months expenditures will form the basis for the initial withdrawal of funds from the Credit, and subsequent withdrawals will equally be based on the net cash requirements for subsequent 6 months. Withdrawal applications shall be submitted to the Bank quarterly.
50. The project will follow a cash basis of accounting and financial reporting and will submit, within 45 days of each GoL fiscal quarter, quarterly interim financial reports (IFRs) of the project activities. At a minimum, the constituents of the IFRs will be: (a) Actual and 1 Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and updated January 2011
13
Forecast Cash Flow Statement according to Components, Sub-components and Activities; (b) Summary Statement of Expenditures according to Categories; (c) Designated Account Reconciliation Statement; (d) Physical Progress Report; and (e) Procurement Status Monitoring Report. The annual audited financial statements of the project shall be submitted to IDA within 6 months of the end of the GoL’s fiscal year (i.e. by June 30 each year). PFMU will appoint an external auditor who will conduct the audits on the project financial statements on terms of reference as will be agreed within two months of project effectiveness. The audited financial statements of the project will be submitted to IDA within 6 months of the end of each GoL fiscal year.
51. Overall financing and disbursement arrangements will not change. The disbursement schedule is expected to be as follows: 10% in FY11, 75% in FY12, 15% in FY13.
52. Environmental. Results from the leachate testing carried out by a lab in Ghana in August 2010 show that the existing leachate treatment system is robust. Comparing influent and effluent samples (and recognizing this is a one-time “snapshot” of performance), the ammonia nitrogen concentration in the effluent was 40% of that in the influent. For total dissolved solids, the effluent concentration was 35% of the influent, and for chemical oxygen demand (COD), the effluent concentration was less than 5% of the influent. Since the first test, reeds planted as a constructed wetland to polish the effluent from the treatment lagoons have added to the level of pollutant removal. A second test of the water quality in December 2010 showed an even greater reduction of impurities, with more than 95% removal or conversion of ammonia occurring. Nitrate in the effluent is 20% of that in the influent, suggesting 80% removal.
53. The new cells will be equipped with liners to prevent groundwater contamination. The EMP and operations manual include intensive monitoring programs for groundwater quality above and below the landfill, quality of water supply wells in the vicinity (including the two new deep wells MCC has constructed for the community), and performance of the leachate treatment system. Baseline water sampling has been conducted, and the results have been reviewed by the supervising engineer and the Bank. The Project PIU has an environmental engineer who is following up environmental issues during project implementation and particularly on the implementation of the EMP.
54. Social. The overall social impact of the additional activity is positive. The land for the Whein Town landfill was acquired from a single owner by the Government of Liberia, represented by officials from MPW and Ministry of Land Mines and Energy (MLME), in a commercial transaction for US$ 75,000 in February 2008, in conjunction with EIPSC. The site was not occupied or being actively used for anything except occasional laterite quarrying. There were only a few residences within sight of the landfill. Formal consultations with the local community were held on September 5, 2008 as part of the Environmental Assessment (EA) process, and 39 members of the Whein Town and Caine Village communities including the Whein Town Chief attended. Government officials from EPA, Forest Development Authority,
14
MCC Council, and MCC Solid Waste Department participated. UNDP and World Bank were present as observers, and the solid waste supervising engineer supported the process. Local citizens raised concerns about their needs for water supply, protection of water resources, health care, transportation, health and safety, odors and vermin, and employment. Most of these concerns have been addressed in the updated EMP for the project. In general, the citizens accepted the plan for the landfill as a good solution to the solid waste problems but expressed some skepticism about implementation of the EMP. Recently, the MCC has drilled two deep wells for community use, and this will provide immediate health benefits because, as the project’s water quality baseline shows, the shallow wells in current use are all contaminated by bacteria unrelated to the landfill. All parties have agreed on the importance of continuing communication during the life of the landfill. Bank supervision missions have confirmed that the operating contractor and the engineer are maintaining liaison with the community.
55. Scavengers are present at Whein Town landfill and MCC has decided that scavenging may continue provided it is carried out in an organized and safe manner. A socio-economic survey was carried out and identified the profile of scavengers, including some children. The PIU/MCC have procured boots, gloves, and nose masks for 58 registered scavengers and children have been prevented from scavenging. After holding a series of community meetings, the PIU has distributed this equipment on the condition that scavengers must wear this equipment, along with the vests they received previously, any time they are picking waste at the landfill. Safety requirements related to operating equipment at the site have also been discussed with the community and the scavengers. MCC staff is currently responsible for scavenger control; they monitor the use of equipment and safety requirements in collaboration with the MCC police and prevent those without proper safety equipment from working on the active face of the landfill. The issue of scavenger control will require continuous monitoring from the client but the project will not restrict their access to resources and livelihoods, nor will they need to be resettled.
56. The original concept of engaging a social specialist to provide support to the EMUS project has changed. Given that a social specialist consultant has been hired under the National Public Awareness subcomponent, the consultant will provide the necessary support to EMUS. In addition, the combination of responsibilities allows a more intensive supervision by engaging with communities and scavengers.
V. RISKS
57. The overall risk rating in the parent project was Substantial. Since effectiveness, the implementation performance of the project is satisfactory and the main risks identified during initial project preparation have not materialized. However, since the original project is beginning its second year of implementation, some of the original risks remain. It is proposed that the overall risk associated with the AF be rated as Medium-I, as the risks still exist, especially unavailability of Government funds for solid waste collection and limited capacity of the MCC
15
in contract management and monitoring. Annexes 2 (ORAF) provides further details on the risks and corresponding mitigation measures. Note that the risks have mainly remained unchanged between the original project and this additional financing. Hence the former rating of substantial is still applicable. However the Bank changed the risk rating system in July 1, 2010 and the substantial risk corresponds now to Medium-I, as indicated in the ORAF.
I. Terms and Conditions for Project Financing
58. The proposed AF would consist of a total amount of USD 4.0 million IDA credit. Country financing parameters allow for 100% project financing, including taxes. The financing parameters also allow for recurrent cost financing when required.
59. Conditions and covenants:
(a) Effectiveness: • Project Implementation Manual has been updated by the Recipient in form and substance
satisfactory to the Association (b) Disbursement: • No withdrawal shall be made for payments made prior to the date of this Agreement,
except that withdrawals up to an aggregate amount not to exceed five hundred thousand (500,000) SDR equivalent (US$800,000) may be made for payments made prior to this date but on or after the Retroactive Financing Date, for Eligible Expenditures under Category 4 related to works and goods for the construction of landfill cells
• No withdrawal shall be made under Category (4), in respect of payments for expenditures under contracts for works for the landfill cells under Component 3 of the project, prior to the preparation, review and disclosure of the relevant RAP, if needed, in accordance with the provisions of paragraph (b) of Section I.E of Schedule 2 to the Financing Agreement
(c) Dated Legal Covenants: • No later than three months after the Effective Date, ensure that MCC modifies its
memorandum of understanding with the PFMU (the “FM MOU”), in a manner satisfactory to the Association, as necessary to conform the financial management arrangements for the Project to include the activities undertaken under Component 3 of the Project
• The Recipient shall prepare and furnish to the Association not later than forty-five (45) days after the end of each quarter, interim un-audited Financial Reports for the Project covering the quarter, in form and substance satisfactory to the Association
• The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one (1) Fiscal Year of the Recipient, commencing with the Fiscal Year in which the first withdrawal under the Credit Account was made. The audited Financial Statements for each such period shall be furnished to the Association not later than six (6) months after the end of such period
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60. Exceptions to Bank policies: none
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ANNEX 1: REVISED RESULTS FRAMEWORK AND MONITORING INDICATORS
Revisions to the Results Framework Comments/ Rationale for Change
PDO Current (EPP) Proposed Increased access to municipal solid waste services in Monrovia
No change N/A
PDO indicators Current (EPP) Proposed change* Households with access to door to door solid waste collection (number, % increase)
Number of people in urban areas provided with access to regular solid waste collection under the project
Core indicator introduced at the time of the first ISR
Direct project beneficiaries (number), of which are female (%)
Core indicator introduced at the time of the first ISR
Intermediate Results indicators Current (EPP) Proposed change* Component 1: Increased coverage and efficiency of the solid waste collection system Volume of waste collected compared to total waste produced (tons, %)
Volume of waste collected, percent of total waste produced (tons, %)
N/A
Vehicle turn-around time (hours) No change N/A Targeted households which dump domestic waste in non-designated areas (% of targeted HH)
No change N/A
Transfer stations built (number) No change N/A SMEs provided with training (number)
No change N/A
People reached by awareness campaigns (%)
No change N/A
Households with access to door to door solid waste collection (% increase)
Moved from PDO indicator to intermediate indicator
N/A
Component 2: Improved capacity of MCC to provide appropriate enabling support and resource functions for better management of the solid waste collection Special Municipal Solid Waste account for revenue from solid waste established (yes/no)
No change N/A
MCC staff trained in financial management i.e. revenue administration, budgeting, accounting (% of relevant staff)
No change N/A
Component 3: Increased landfill capacity for safe disposal N/A Landfill disposal cells (cub. m) New indicator to reflect proposed
additional activity * Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value
** and *** “Core indicators” introduced at the time of the first ISR.
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REVISED PROJECT RESULTS FRAMEWORK
Project Development Objective (PDO): To increase access to solid waste collection service in Monrovia. No change
PDO Level Results Indicators2
Cor
e Unit of
Measurement
Baseline Original Project Start
(2010)
Progress To Date (2010)3
Cumulative Target Values
4
Frequency
Data Source/ Methodology
Responsibility for Data
Collection Comments 2011 2012 2013
(final)
1. Number of people in urban areas provided with access to regular solid waste collection under the project
Beneficiaries5 Direct project beneficiaries (number), of which are female (%)
Number 0 274,000,
50% 320,000,
50% 344,000,
50% 360,000,
50% Annually Annual Survey Consultant/PIU N/A
Intermediate Results and Indicators
Intermediate Results Indicators
Cor
e
Unit of Measurement
Baseline Original Project Start
(2010)
Progress To Date (2010)
Target Values
Frequency Data Source/ Methodology
Responsibility for Data
Collection Comments 2011 2012 2013
(final)
Intermediate Result 1: Increased coverage and efficiency of the solid waste collection system
1. Volume of waste collected, percent of total waste produced tons, % 210
30% 210 30%
280 40%
330 45%
330 45% Quarterly MIS reports Engineer/PIU N/A
2 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance – please see http://coreindicators). 3 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 4 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the “Comments” column. 5 All projects are encouraged to identify and measure the number of project beneficiaries. The adoption and reporting on this indicator is required for investment projects which have an approval date of July 1, 2009 or later (for additional guidance – please see http://coreindicators).
4. Transfer stations built number 0 0 2 2 2 Annually MIS reports Engineer/PIU N/A
5. SMEs provided with training number 0 0 5 10 10 Quarterly MIS reports PIU
N/A
6. People reached by awareness campaigns % 0 0 20% 40% 60% Annually Annual
survey PIU N/A
7. Households with access to door to door solid waste collection
number 5,300 6,500 8,000 10,000 10,000 Annually Annual Survey PIU
N/A
Intermediate Result 2: Improved capacity of MCC to provide appropriate enabling support and resource functions for better management of the solid waste collection
8. Special Municipal Solid Waste account for revenue from solid waste established (yes/no)
yes/no no yes yes yes yes Annually Bank Account
Financial Controller
9. MCC staff trained in financial management i.e. revenue administration, budgeting, accounting (% of relevant staff)
% 0 10% 40% 80% 80% Annually MIS Reports PIU
Intermediate Result 3: Increased landfill capacity for safe disposal
Project Development Objective(s) Description: The Project Development Objective is to increase access to solid waste collection service in Monrovia.
PDO Level Results Indicators:
1. Number of people in urban areas provided with access to regular solid waste collection under the project 2. Direct project beneficiaries (number), of which are female (percent)
The main risk, a potential lack of collaboration among the donors of the LRTF, is unlikely to happen. The Bank, Borrower, and Donors have kept a long-standing collaborative relationship in the infrastructure sector; with the proven effectiveness of the Bank’s role as a facilitator. General public perception of the Bank’s and other donor’s involvement in recovery is generally very positive.
Maintain long-standing collaborative relationship in the infrastructure sector
Implementing Agency Risks
M-I The main risks are an insufficient capacity of the MCC/PIU in contract management, performance monitoring and supervision that could not prevent fraud and corruption. However, despite some shortcomings, the PIU has proven, under the ongoing project, that it is making progress in its technical and managerial capacity to implement the proposed project. The TAs financed under the on-going project have helped the PIU in improving staff skills and instituting key fiduciary
The Project will continue supporting TA for and operating cost of PIU. TA will be provided throughout the life of the Project and for all needed functions. The fact that the PIU operates within the MCC is providing a hands-on capacity building to MCC staff who will remain beyond project closing. In addition, the Bank and other donors will continue to provide assistance to the Government’s effort to tighten
22
requirements and procedures. In addition, there is a strong leadership at MCC that is paying attention to systemic reforms and a Project Management Committee has been formed and is operational. Under the ongoing operation, there has been no allegation or conviction for fraud and corruption. The PFMU is staffed with qualified accountants, including one certified accountant, and has the internal controls and monitoring mechanisms. The unit’s ability to prevent fraud and corruption has been strengthened since the internal audit unit was established.
fiduciary management of investment projects; independent audit and supervision
Project Risks
• Design M-I
The main risk relates to the complexity in the technical design and construction arrangements for landfill cell development
Qualified Engineer (firm) has been engaged for daily supervision. Designs were completed under ongoing projects by the same Engineer and have been reviewed and cleared by the Bank. Close supervision by Bank team is envisaged. Environmental safeguards are being utilized and environmental triggers are monitored closely.
• Social & Environmental M-I
The GOL has been consistently committed to addressing social and environmental issues in previous and on-going projects. GOL has maintained a contract with a qualified international consulting firm throughout the development of the Whein Town disposal site. The consultant has been responsible for landfill design, preparation of bidding documents, preparation of the EMP and operations manual, and advice on construction and operations at the landfill. MCC has maintained open dialogue with neighboring communities and has met a major community need by providing deep wells for safe and reliable drinking water. MCC has agreed to allow scavengers controlled access to the landfill, with strict requirement for health and safety, so
The proposed Project safeguards arrangements will allow proper checks and balances to address potential risks: The EIA includes an updated and more detailed Environmental Management and Monitoring Plan for the landfill, an operations manual, and design features including liners and a robust leachate treatment system to minimize environmental risks.
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that their livelihoods are not disrupted and the benefits they provide in the form of reducing the volume of waste and recycling materials can continue.
• Program & Donor H
This risk relates to possible delays or partial/full unavailability of Government funds for solid waste collection. Under the original project, MCC is expected to channel all revenue from solid waste into a dedicated solid waste account. While this process has commenced and is in line with projections, the risk remains that future contributions may be less than projections. In addition, MOF’s contribution, while confirmed by the MOF, is not due until FY12; a risk exists it may be delayed.
The Bank provides advisory assistance to set up a financing mechanism for operating cost of solid waste and advise government of size and timing of required contributions. Besides, the MCC has been implementing measures to increase oversight that and fight corruption that is increasing revenues from other sources such as billboards. Other sources of funds will be assessed including potential carbon funds from the landfill operation.
• Delivery Quality M-I
The Project sets out clearly defined and measurable criteria to evaluate output and performance of the contracting entities. Under the proposed arrangement that devises independent monitoring by project manager, contract management by the PIU, and TA to support the PIU functions, the likelihood of such risks will be kept low. Also, the scale-up activities are fairly straightforward and traditional; hence do not require substantial technical/managerial capacity beyond what is already presented.
With expected improvement in PIU’s management and supervision capacity, this risk will be lowered.
Overall Risk Rating at Preparation Overall Risk Rating During Implementation Comments
M-I M-I
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ANNEX 3: FINANCIAL MANAGEMENT ASSESSMENT AND DISBURSEMENT ARRANGEMENTS
LIBERIA - Emergency Monrovia Urban Sanitation Project - Additional Financing 1. Introduction. In accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on March 2010, a financial management assessment was done to assesses the continuing adequacy or otherwise of the financial management arrangements for implementing the additional financing of the Emergency Monrovia Urban Sanitation project (EMUS).
2. The objective of the assessment was to determine whether PFMU has acceptable financial management arrangements, which will ensure: (1) the funds are used only for the intended purposes in an efficient and economical way; (2) the preparation of accurate, reliable and timely periodic financial reports; and (3) safeguard the entity’s assets. In line with existing financial management arrangements in Liberia, the financial management of the project will be carried out through the Project Financial Management Unit (PFMU) at the Ministry of Finance (MoF), which has over the years developed financial management structures, functions, and responsibilities acceptable to the IDA. The Project will thus rely on the already existing fiduciary arrangements established by the PFMU for the financial management of donor funded projects in Liberia. The FM risk has been assessed as Medium-I. But, with the articulated risk mitigation measures through the use of PFMU during implementation, this FM risk will residually fall to Medium-L.
3. Country Issues. A PEMFAR was conducted in 2007 that included an analysis of Liberia’s PFM strengths and weaknesses. The findings from the PEMFAR showed that the government has taken considerable actions to improve public financial management since 2006. Government revenues have increased several folds since 2002/03, and expenditure controls have been strengthened through the establishment of the cash management committee and the interim commitment control system. However, the government still needs to address weaknesses in its financial management systems, specifically within the areas of the legal and regulatory framework; internal and external audit functions; procurement and concessions; budget planning, formulation and execution; accounting, recording and reporting; human resources and payroll management; cash and debt management and aid management. The government’s developmental and poverty reduction priorities are anchored in the PRSP which is generally aligned with the budget although there is no formal poverty reducing expenditure tracking systems. The budget cycle is coordinated by an inter-ministerial Budget Committee and spending ministries are consulted early in the budgeting process. All revenues are by law deposited into a revenue bank account at the Central Bank and expenditure from this account is strictly in accordance with annual cash plans and allotments. However, majority of donor expenditure is project based and not executed through the government budget. The country lacks a sufficient number of qualified accountants to serve the public and private sector. A PFMU/MOF provides
25
centralized project financial management for donor projects. The PFMU is staffed with qualified consultants with experience in managing donor-funded projects. Fiduciary risks for donor-funded projects are mitigated by the use of the PFMU, which has internal controls and procedures and practices acceptable to the Bank. The lack of qualified PFM personnel is a major constraint to the implementation of PFM reforms to address the weaknesses identified in the PEMFAR. At the moment key agencies such as the MOF are staffed with foreign experts under the Governance and Economic Management Program (GEMAP) and World Bank’s technical assistance provided to the Resource Management Unit. Notwithstanding capacity constraints, the government is making progress in PFM reforms. The Cabinet approved the Internal Audit strategy in June 2008 that will see the establishment of an internal audit cadre and a charter clarifying the roles and responsibilities for internal controls. The MOF has moved from a single entry recording system to an interim accounting system that is now used to prepare budget outturn reports. The interim system provides a foundation for migrating to IFMIS that will eventually handle all the accounting and recording for the consolidated funds with arrangements to capture and report on donor-funded projects. A PFM Law and its enabling regulations and manuals are being prepared that will further strengthen the legal and regulatory framework. In the area of procurement, the Public Procurement and Concessions (PPC) Act came into effect in January 2006, as Liberia’s first significant step towards subjecting public sector contracts to transparency and meaningful competition. These measures in financial management and procurement will put in place appropriate structures and processes to promote transparency and accountability and mitigate the fiduciary risk in utilizing public funds both at the country and project level.
4. Overview of Project and Institutional Arrangements. The proposed AF has been requested by the Government in order to cover a cost overrun on the solid waste collection and disposal component of the EMUS project, as well as a funding gap for the development of landfill cells for waste disposal. The primary reason for the cost overrun was an increase in overall collection and disposal costs by about 35% since the start of the project. The cost increase was demonstrated in higher bid prices than original estimates, which were compiled soon after the service was re-introduced and in the absence of quality data on unit prices and the capacity of the local industry. Since that time, the market has started to mature and several new players have joined the industry. Required service standards were also enhanced. Initially, contractors were operating under emergency conditions with lower performance standards. Current performance standards require enhanced sophistication of operations and compliance with additional norms, which increases the cost. The AF also proposes to fund the construction of landfill cells at the current disposal site at Whein Town, Monrovia. This was not envisaged under the original EMUS project. Instead, support for landfill cells was provided under the Emergency Infrastructure Project Supplemental Component (EIPSC), implemented by UNDP. Currently, available funds under EIPSC have been largely expended, while available disposal space at Whein town is inadequate to accommodate incoming waste due to: (i) while Whein Town was intended as an interim facility until the Government acquired land for a permanent
26
landfill, the Government has yet to acquire that land and, as a result, Whein Town remains the only available and regulated disposal site; and (ii) the available space at the landfill is rapidly being depleted. As a result, unless new cells are developed, Monrovia would run out of safe disposal options.
5. The Lead Implementing partner will be the Project Implementation Unit (PIU) at Monrovia City Corporation (MCC). The Unit is staffed with a Project Manager and a Procurement Specialist and a Project Accountant. An Administrative Assistant to support the Project Accountant has also been recruited. Consistent with the previous arrangements for EMUS, the financial management functions and responsibilities for the project will be handled by the PFMU of the Ministry of Finance. The PFMU has a Unit Manager/ Head who is responsible for ensuring the overall direction of work at the unit. The unit is also staffed with two qualified accountants, a qualified Internal Auditor and supporting accounting staff. Specifically, the PFMU will be tasked with the following responsibilities: operate an efficient financial management system acceptable to the IDA, establish effective accounting and transaction processing procedures to support the payment of all eligible expenditure, provide internal audit services and periodically review the control environment to ensure that policies and procedures are being complied with, prepare on a timely basis quarterly financial reports and any other financial reports as may be requested by the IDA and the EMUS Project Management Unit(PIU). Lastly, in consultation with EMUS PIU ensure that the financial statements of the project are audited and conform to the financial covenants as per the Grant Agreement.
6. Budgeting. The PFMU and the EMUS PIU will work together to prepare an annual budget for the project based upon the agreed program to be financed. Most of the activities of the key components are already known and these will be included in the project annual budgets. The annual project budget will be reviewed and agreed with the World Bank, and No objections will be issued by the World Bank task lead for activities agreed upon in the budget.
7. Accounting. Accounting for the use of the project funds, using a cash basis of accounting, will be carried out by the PFMU using a robust accounting system (SUN Accounting system) that provides for adequate segregation of function, accurate recording of all accounting transactions of the project. The system is also capable of producing accurate periodic financial reports including interim un-audited financial reports (IFR) and annual project financial statements that considered acceptable to the Bank. A project Fixed Assets register will be maintained at all times to correctly reflect assets acquired or created under the project.
8. Funds Flow and Disbursement Arrangements. Funds will be disbursed directly into a Designated Account set up and managed by PFMU. This account will be established in US Dollars at a commercial Bank acceptable to the IDA. PFMU will submit withdrawal applications for the initial deposit and subsequent replenishment as per the Disbursement Letter. Banking and payment processing will be managed centrally by the PFMU in order to ensure adequate control and financial monitoring. All expenditure approvals and initiation of
27
processing of payments will be done at the EMUS project coordination unit and supporting documents transferred to the PFMU for effecting the payments to third parties. The report-based disbursement method (Interim Financial Reports) will be used as a basis for the withdrawal of credit proceeds. The project provides for the use of ‘advances, reimbursements, special commitments and direct payments as disbursement methods under the project, and these will be specified in the disbursement letter. An initial advance will be provided for the implementing entity, based on a forecast of eligible expenditures against each component, linked to the appropriate disbursement category. These forecasts will be premised on the annual work plans that will be provided to IDA and cleared by the task team leader. Replenishments, through fresh withdrawal applications to the Bank, into the designated accounts will be made subsequently, at quarterly intervals, but such withdrawals will equally be based on the net cash requirements that are linked to approved work plans. Supporting documentation will be retained by the implementing agencies for review by the IDA missions and external auditors. Any advances made for contracts will be secured a bank guarantee or performance based bonds and a retention amount withheld. Retroactive financing has been provided in the legal agreement to cover the ongoing construction of a new cell and the procurement of the geosynthetic liner and other landfill equipment which have already started. Cost overruns related to activities initiated prior to the Retroactive Financing Date established in the additional financing agreement, for which there are no proceeds remaining under the original agreement to finance the corresponding contract, may be financed on an exceptional basis only and subject to the Association’s prior no-objection and in accordance with other provisions established in the financing agreement.
Component 2: TA to MCC 4.9 0.0 4.9 Subcomponent 2.1: Financial and Organizational Mgmt TA 2.0
1.0
Subcomponent 2.2: Implementation and Technical Supervision 2.9
3.9
Component 3: New cells at Whein Town Sanitary Landfill 0.0 2.3 2.3
Audit, Training, Operating Cost 0.5 0.0 0.5
Contingency 1.8
1.8 TOTAL 18.4 4.0 22.4
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9. Financial Reporting and Monitoring. The PFMU will be responsible for preparing the quarterly interim unaudited financial reports. The financial reports will be submitted to the Bank within 45 days of each fiscal quarter after prior review by the EMUS Project Coordinator. The constituents of the quarterly project IFRs, that will be submitted to IDA within 45 days of each calendar quarter, shall be as follows: (a) Actual and Forecast Cash Flow Statement according to Components, Sub-components and Activities; (b) Summary Statement of Expenditures according to Disbursement Categories; (c) Designated Account Reconciliation Statement; (d) Physical Progress Report; and (e) Procurement Status Monitoring Report. The project will also prepare annual financial statements at the end of each GoL fiscal year in accordance with International Public Sector Accounting Standards (PSAS) – cash basis. The audited financial statements should be submitted to the Bank within 6 months of the end of the fiscal year. The financial statements will comprise, at a minimum, of: (a) Sources and uses of funds (summary of Expenditures shown under the main program headings and by main categories of expenditures for the period); (b) Notes to the financial statements, including background information on the project, the accounting policies, detailed analysis and relevant explanation of the main accounts/major balances, etc. In addition, the project shall provide, as an annex to the financial statements, an inventory of fixed assets acquired according to asset classes, dates of purchase, location, and cost.
10. External Auditing Arrangements. Independent and qualified auditors, acceptable to the Bank, would be selected to carry out the audit of the project, which includes both, the original and the additional financing activities. The selection of auditors shall be on competitive basis and in accordance with the Bank's procurement guidelines and would be selected within four months of project. The TOR of the auditors will be cleared by the Bank. The project financial statements including movements in the designated accounts will be audited in accordance with International Standards on Auditing (ISA) and a single opinion will be issued to cover the project financial statements in accordance with the Bank’s audit policy. The auditors’ report and opinion in respect on the financial statements, including the management letter, would be furnished to the World Bank within six months of the close of each GoL fiscal year.
11. Project Risks and Mitigation Measures. The table below shows the risks that may hinder the achievement of project objectives, together with mitigating measures on how these risks will be addressed.
Inherent Risk Risk
Rating Risk Mitigation Measure Condition for
Effectiveness/Negotiations?
Residual Risk Rating
Country Level The 2007 PEMFAR identified weaknesses in the country financial management systems with specific reference to budget execution, external
H The Bank and other donors are currently supporting the GoL through two core investment operations to enhance the public financial management system. The IFMIS will go-live in July to
No H
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audit, legal and regulatory framework for PFM.
establish a readiness to manage budgeting and budget execution processes, and facilitate improved audit practices, among other things. Training is also being imparted on the implementation of the new PFM Law and Regulations (2009).
Entity Level The political arm of the Entity Management may unduly interfere with, and/or override, project financial management controls.
H A strong and independent project financial management unit in existence (PFMU) and under the control auspices of the MoF will manage the fiduciary aspects of the project.
No S
Project Level Being that EMUS Coordination unit is relatively new, it may be unfamiliar with Bank procedures, and thus lead to delays in implementation of key components of the project.
H
As implementation of the fiduciary management arrangements under the project will be catered for under the direct control of the strong and independent PFMU, the otherwise resource constraints at the project implementation unit will be obviated.
No
S
Overall Inherent Risks: H S Control Risk: Budgeting Delays in preparing detailed budget estimates and annual work plans.
M
The PFMU tasked with FM responsibilities will assist in finalizing the budgets.
No
L
Accounting The EMUS Coordination unit does not have a full complement of required accounting staff to supplement the independent PFMU team in rendering payments requests for PFMU processing.
S
PFMU is staffed with competent Project Accountants who will perform the accounting tasks of the project as well as support the EMUS in submitting regular payment requests. In addition, the internal control arrangements at the PFMU in terms of segregation of duties and use of internal control tools are well matured. PFMU staff will train available government staff to improve their capacity during project implementation.
No
S
Fund Flows Possible delays in processing withdrawal applications leading to problems in honoring payments to third parties.
M
The PFMU will be responsible for preparing and submitting withdrawal applications, and there are acceptable service standards for settlement of bills.
No
L
Internal Controls Risk of non compliance with internal control procedures.
S
PFMU, managing the fiduciary aspects under the project, is staffed with a qualified Internal Auditor who reports directly to the Minister of Finance. The IA performs periodic internal control reviews and issues a report to the Minister, with evidence of follow up.
No
M
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External Audit Delays in the submission of audit reports and the timeliness of management follow up on audit issues.
S
To ensure timeliness of audit compliance, an acceptable auditor has already been engaged as part of the original project, and the PFMU traditionally provides the draft accounts well in time for audits to be conducted
No
M
Overall Control Risk. S M 12. Conclusion. A description of the project’s financial management arrangements above indicates that they satisfy the Bank’s minimum requirements under OP/BP10.02. Nevertheless, the fiduciary environment in Liberia, while improving tremendously, is not without risks. The assessment of the overall FM risk therefore remains at ‘Medium-L’. This is particularly as a result of a series of PFM reforms that are ongoing but gains on which are tempered by the apparent complexity of first performance based operation. Nevertheless, the FM arrangements under the project satisfy the Bank’s minimum requirements under OP/BP 10.02.
13. Supervision Plan. The FM supervision missions’ objectives will include that of ensuring that strong financial management systems are maintained for the project at the PFMU, and there is adequate FM implementation guidance provided to EMUS by the PFMU throughout project life. Equally, annual field visits to PFMU and EMUS will be conducted to ensure that their internal control procedures remain robust. The supervision will include desk reviews of IFRs, testing of expenditures, review of audit reports, and evaluation of the efficiency of the payment processing, internal control processes, and funds flow arrangements.
