Document of The World Bank FOR OFFICIAL USE ONLY Report No: 56851-ML PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR43.2 MILLION (US$70 MILLION EQUIVALENT) TO THE REPUBLIC OF MALI FOR AN URBAN LOCAL GOVERNMENT SUPPORT PROJECT May 13, 2011 Urban and Water Unit (AFTUW) Sustainable Development Department Country Department AFCW3 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. CURRENCY EQUIVALENTS (Exchange Rate Effective April 25, 2011) Currency Unit = CFA franc FCFA 449.95 = US$1 US$1.6062 = SDR1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AFD Agence française de développement – French Development Agency ANICT Agence nationale d’investissement des collectivités territoriales – Local Government Investment Agency ARS Africa Regional Strategy BCEAO Banque centrale des États de l’Afrique de l’ouest – West African Central Bank CFCT Centre de formation des collectivités territoriales – Training Institute of the Ministry of Local Government CIP Capital Investment Program CGSP Contrôle général des services publiques – Inspector General CO Country Office CPS Cellule de planification et de statistiques – Planning and Statistical Unit CQS Selection Based on Consultants’ Qualifications CSO Civil Society Organization DA Designated Account DNCT Direction nationale des collectivités locales – National Directorate of Local Governments DNTCP Direction nationale du trésor et de la comptabilité publique – Treasury and Public Accounting Department DNUH Direction nationale de l’urbanisme et de l’habitat – National Department of Urban Planning and Housing ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan ESW Economic and Sector Work EU European Union FBS Selection under a Fixed Budget FCFA Franc de la Communauté financière de l’Afrique – African Financial Community Franc FNACT Fonds national d’appui aux collectivités territoriales – Local Government Support Fund FY Fiscal Year GNI Gross National Income GoM Government of Mali GPN General Procurement Notice GPRSF Growth and Poverty Reduction Strategy Framework IC Individual Consultant ICB International Competitive Bidding IEC Information, education, communication IFR Interim Financial Report LCS Least-Cost Selection LG local government MATCL Ministère de l’administration territoriale et des collectivités locales – Ministry of Local Government ii MI Medium risk, driven by impact ML Medium risk, driven by likelihood MLAFU Ministère du logement, des affaires foncières et de l’urbanisme – Ministry of Housing, Land Management and Urban Planning MMC Mandatory Minimum Condition MoU Memorandum of Understanding MTR mid-term review n.a. not applicable NCB National Competitive Bidding NPV net present value O&M operation and maintenance OISE Outil informatisé de suivi-évaluation – Local Government Database ORAF Operational Risk Assessment Framework OSR own source revenue PA Performance Assessment PAP Participation Action Plan PBG Performance-Based Grant PBGS Performance-Based Grant System PCU Project Coordinating Unit PDI Programme de développement institutionnel - Institutional Development Program PDUD Projet de développement urbain et de décentralisation – Urban Development and Decentralization Project PIM Project Implementation Manual PMTC Project Monitoring and Technical Committee PPA Project Preparation Advance PRED Programme de Reforme Economique pour le Développement – the government’s financial management information system PSC Project Steering Committee QBS Quality-Based Selection QCBS Quality- and Cost-Based Selection RAP Resettlement Action Plan RPF Resettlement Policy Framework SDVM Stratégie de développement des villes du Mali – Strategy for the Development of the Cities of Mali SSS Single-Source Selection TA Technical Assistance ToR Terms of Reference UCBMT Urban Capacity Building Mobile Team ULG Urban Local Government ULGSP Urban Local Government Support Project UNC- Unité nationale de coordination, Projet sectoriel de transport II – National Coordination PST2 Unit, Second Transport Sector Project UNDB United Nations Development Business WA Withdrawal Applications WAEMU West African Economic and Monetary Union Regional Vice President: Obiageli K. Ezekwesili Country Director: Ousmane Diagana Sector Director: Jamal Saghir Sector Manager: Junaid Kamal Ahmad Task Team Leader: Zié Ibrahima Coulibaly iii   Table of Contents I.  Strategic Context ..................................................................................................................... 1  A.  Country Context ............................................................................................................... 1  B.  Sectoral and Institutional Context.................................................................................... 1  C.  Higher Level Objectives to which the Project Contributes ............................................. 6  II.  Project Development Objective .............................................................................................. 6  A.  Project Development Objective ....................................................................................... 6  1.  Project Beneficiaries ..................................................................................................... 6  2.  PDO Level Results Indicators ...................................................................................... 7  III.  Project Description............................................................................................................... 7  A.  Project Financing ........................................................................................................... 13  1.  Lending Instrument..................................................................................................... 13  2.  Project Financing Table .............................................................................................. 13  B.  Lessons Learned and Reflected in the Project Design ................................................... 14  IV.  Implementation .................................................................................................................. 15  A.  Institutional and Implementation Arrangements ........................................................... 15  B.  Results Monitoring and Evaluation ............................................................................... 16  C.  Sustainability.................................................................................................................. 17  V.  Appraisal Summary .............................................................................................................. 19  A.  Economic and Financial Analysis .................................................................................. 19  B.  Technical ........................................................................................................................ 20  C.  Financial Management ................................................................................................... 20  D.  Procurement ................................................................................................................... 22  E.  Social.............................................................................................................................. 23  F.  Environment................................................................................................................... 24  Annex 1: Results Framework and Monitoring.............................................................................. 26  Annex 2: Detailed Project Description ......................................................................................... 33  Annex 3: Implementation Arrangements ...................................................................................... 49  Annex 4: Operational Risk Assessment Framework (ORAF) ...................................................... 67  Annex 5: Implementation Support Plan ........................................................................................ 70  Annex 6: Team Composition ........................................................................................................ 73  iv   PAD DATA SHEET Mali Urban Local Government Support Project PROJECT APPRAISAL DOCUMENT Africa Region AFTUW Date: May 13, 2011. Sectors: Sub-national government administration Country Director: Ousmane Diagana (70%), Roads and highways (15%), General Sector Director: Jamal Saghir water, sanitation and flood Protection (15%). Sector Manager: Junaid Kamal Ahmad Themes: Municipal governance and institution Team Leader(s): Zié Ibrahima Coulibaly building (60%), Decentralization (40%). Project ID: P116602 EA Category: B - Partial Assessment. Lending Instrument: Specific Investment Loan. Project Financing Data: Proposed terms: Standard IDA terms with a maturity of 40 years, including a grace period of 10 years. [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Amount (US$M) Total Project Cost: 70.00 Cofinancing: 0.00 Borrower: 0.00 Total Bank Financing: 70.00 IDA 70.00 New 70.00 Recommitted 0.00 Borrower: Republic of Mali, Ministry of Economy and Finance Responsible Agency: Ministry of Housing, Land Affairs and Urban Planning Contact Person: Mamadou Ouane, Project Coordinator Telephone No.: (+223) 20236815 Fax No.: (+223) 20236815 Email: africemes@hotmail.com Estimated Disbursements (Bank FY/US$ m) FY 2012 2013 2014 2015 2016 2017 Annual 3.0 7.0 10.5 15.5 19.5 14.5 Cumulative 3.0 10.0 20.5 36.0 55.5 70.0 v Project Implementation Period: Start: June 7, 2011 End: June 30, 2017 Expected effectiveness date: October 31, 2011 Expected mid-term review: 36 months after effectiveness date Expected closing date: June 30, 2017 Does the project depart from the CAS in content or other significant respects? ○ Yes    ● No If yes, please explain: not applicable. Does the project require any exceptions from Bank policies? ○ Yes ● No Have these been approved/endorsed (as appropriate by Bank management? ○ Yes ○ No Is approval for any policy exception sought from the Board? ○ Yes ● No If yes, please explain: not applicable. Does the project meet the Regional criteria for readiness for implementation? ● Yes ○ No If no, please explain: not applicable. Project Development objective: The project development objective is to support strengthened institutional performance of targeted urban local governments. Project description: Component 1: Performance-Based and Capacity Support Grants for Secondary Cities. This component will support the municipalities of Kayes, Sikasso, Ségou and Mopti to improve their management capabilities and accountability through two sub-components: (A) Performance-based investment grant, and (B) Capacity support grant. Component 2: Priority Infrastructure Investment, Institutional Restructuring, and Capacity Support Grants for Bamako. This component will support the District of Bamako to address acute flooding problems and improve its management capabilities and accountability through three sub- components: (A) Phased grant for roads and drainage rehabilitation, (B) Capacity support grant, and (C) Institutional restructuring grant for the consolidation of the District of Bamako and its six communes into an institutionally more effective single metropolitan authority. Component 3: Institutional Capacity Strengthening. This component will provide support to central ministries and agencies (especially MLAFU and MATCL) in fulfilling their respective roles in support of urban development in a context of decentralized management of local resources and basic services delivery to the population through three sub-components: (A) Capacity building for project municipalities, (B) Support to central government agencies in fulfilling specific functions contributing to project objectives, and (C) Support to targeted strategic studies, including assistance in developing a strategy for restructuring and implementing the institutional arrangements for managing the greater Bamako metropolitan region. Component 4: Project management, monitoring and evaluation. This component will finance management of the project and reporting on overall project progress. vi Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) ● Yes ○ No Natural Habitats (OP/BP 4.04) ○ Yes ● No Forests (OP/BP 4.36) ○ Yes ● No Pest Management (OP 4.09) ○ Yes ● No Physical Cultural Resources (OP/BP 4.11) ○ Yes ● No Indigenous Peoples (OP/BP 4.10) ○ Yes ● No Involuntary Resettlement (OP/BP 4.12) ● Yes ○ No Safety of Dams (OP/BP 4.37) ○ Yes ● No Projects on International Waters (OP/BP 7.50) ○ Yes ● No Projects in Disputed Areas (OP/BP 7.60) ○ Yes ● No Conditions and Legal Covenants: Financing Agreement Description of Condition/Covenant Date Due Reference Article IV (i) The Recipient has prepared and adopted, Effectiveness in form and substance satisfactory to the Association, the Project Implementation Manual. Schedule 2, Section II, B, 4 (ii) Three months following the Effective Three months after Date, purchase appropriate computer effectiveness hardware and accounting software to facilitate timely preparation of financial reports Schedule 2, Section II, B, 4 (iii) Six months following the Effective Six months after Date, the PCU shall have recruited an effectiveness external auditor with terms of reference and qualifications satisfactory to the Association Schedule 2, Section II, B, 4 (iv) Three months following the Effective Three months after Date, the PCU shall have recruited an effectiveness internal auditor with terms of reference and qualifications satisfactory to the Association vii Section IV, B (v) No withdrawal shall be made under Withdrawal condition Category (3) unless the Recipient’s draft law on the greater Bamako region has been adopted by the Recipient’s parliament under terms satisfactory to the Association; or under Category (2)(c) unless the Recipient’s draft law on the greater Bamako region has been adopted by the Recipient’s parliament under terms satisfactory to the Association and the Association has assessed favorably the capacity of the newly created entity responsible for the administration of the greater Bamako region to carry out Part 2 (c) of the Project. Section V (vi) By not later than December 31, 2011, December 31, 2011 the recipient shall appoint independent assessment evaluation experts, with qualifications, experience, and terms of reference satisfactory to the Association. viii I. Strategic Context A. Country Context 1. Mali remains one of the poorest countries in the world, with significant challenges to long term development posed by demographic trends and climate change. GNI per capita is US$680 (Atlas method, 2009), placing Mali as 178 out of 182 countries in the UNDP’s 2009 Human Development Index. The national poverty rate decreased from 55.6 percent in 2001 to 47.4 percent in 2006. GDP is estimated to have grown on average by 4.6 percent over the 2007- 2009 period, some way off the PRSP target of 7 percent needed to significantly reduce poverty and limited by a 3.6 percent annual population increase.1 While the Malian economy has traditionally been built around agriculture, which currently accounts for 37 percent of GDP and employs the majority of the labor force, the urban sector is taking on increasing importance in the country’s economic development and demographic transition. The secondary and tertiary sectors, located mainly in cities, account for about 57 percent of GDP and contributed 3.3 percentage points (70 percent) to GDP growth on average between 2004 and 2008. B. Sectoral and Institutional Context 2. The country’s demographic transformation is reflected in an increasing incidence of poverty in urban areas. About 4.6 million people live in cities, or 33 percent of the population of 14.5 million. While poverty is decreasing overall, the opposite trend is seen in urban areas with an increase in the incidence of poverty from 24.1 to 25.5 percent between 2001 and 2006. The poverty index is higher and progress towards achieving MDGs is slower in urban areas outside Bamako.2 The urban population is estimated to be growing at 5.1 percent per year3 and the capital, Bamako, with a population of 1.8 million, has an even faster growth rate of 5.4 percent. Thus the Greater Bamako area has been absorbing a disproportionately larger share of the rural- urban migration. A significant dimension of the population growth in Bamako has taken place in its peri-urban areas, translating into population growth rates of 10 to 15 percent in the municipalities surrounding Bamako, and increasing the pressure on government to re-examine the current institutional and political boundaries and structures of the capital. Bamako hosts almost half of the country’s urban population and eight times as many people as the second largest city, Sikasso. Only seven cities have populations of over 100,000. 3. The backlog in already low levels of basic services is increasing. Current funding trends do not take into account the pressures faced by growing urban centers. The 2007 Mali urban sector stocktaking ESW showed that, while there are serious deficiencies in the levels and quality of essential basic services in the urban areas, the larger secondary cities (above 100,000 inhabitants) actually lag behind both Bamako and the smaller urban centers in terms of access to water and electricity. Apart from stand-alone major infrastructure projects in Bamako (a third 1 According to the preliminary results of the 2009 census. 2 Municipal poverty profile 2008. Profil de pauvreté des communes du Mali. Observatoire du Développement Humain Durable et de la Lutte contre la Pauvreté. 2008. 3 A detailed rural/urban breakdown is not yet available from the 2009 census. 1 bridge over the Niger River and a road interchange), urban local governments (ULGs) receive virtually no transfers from the center for infrastructure investments and they have severe constraints that limit their ability to maintain their existing assets. The government does allocate some maintenance funds for Bamako, but far from commensurate with the most basic maintenance needs. An estimated 50 percent of the population of Bamako lives in areas without drainage, with obvious effects on hygiene and water-borne diseases. Activities are ongoing in Bamako to improve solid waste management (SWM), but management of household waste remains a perennial problem in all major cities. 4. The fiscal structure for the allocation of resources to urban local governments does not support sound investment planning and service delivery. The cities lack adequate resources to fulfill their functional mandates. The resources ULGs do receive in general, and for the project cities in particular, are well below levels required to address local service needs, as well as being unpredictable both in terms of quantity and frequency. When funds do become available, they are usually earmarked according to priorities established at the center and/or through donor priorities. This is in contrast to their need for discretionary resources that allow them to determine their priorities in line with local requirements, and for which they are able to plan and implement on a systematic, multi-year basis. In general, to the extent that transfers to local governments do take place, they pass through the local government support fund (Fonds National d’Appui aux Collectivités Territoriales – FNACT). The formal performance criteria for allocating funds are not dependent on local governments alone and are further made redundant by geographically and sectorally targeted donor-funded investments, which make up the majority of FNACT resources. The level and timing of transfers is unpredictable, as FNACT drawing rights are often announced to local governments halfway into the budget year. The mechanism also builds on conditional tranche release of funds, project by project, and so does not support the free exercise of local government mandates. The fiscal resources and municipal own resources are generally also inadequate, with even the larger ULGs only achieving about US$5.0 to US$6.0 in total municipal revenues raised/received per capita. Performance of project cities varies between US$3.8 (Ségou) and US$8.0 (Mopti), with Bamako at US$5.8, and with municipal own-sourced income accounting for approximately two thirds of these resources. Virtually all the own-sourced funds are applied to recurrent expenditures. 5. Ambiguities in the transfer of functional assignments from central to local authorities constrain the development of local capacity and the effective delivery of local services. A National Decentralization Policy Framework was adopted in 2005 with the primary objective of increasing local governments’ responsibilities, accountability, and skills. Considerable progress has been made in the adoption of legal instruments, but challenges remain. The government’s institutional development program (PDI) aims to strengthen the budgetary process, adopt a transparent framework for the transfer of financial resources to regional and local administrations, reinforce human resource capacity, particularly at the local level, and establish participatory monitoring and evaluation systems. However, implementation has been slow, hindered by a legacy of alternative institutional structures designed to bypass weak local government capacities and blurred lines of responsibility between deconcentrated central agencies that continue to perform functions assigned to local governments. These ambiguities are exacerbated by the limited capacity of the deconcentrated agencies to provide their mandated functions of oversight and support, and by the lack of effective capacity support systems 2 available to local authorities. Consequently, in the absence of clear lines of responsibility, the reliance on proxy implementation agencies, and with weak support systems, the cities have been unable to develop capacity through “learning by doing”. 6. As a result of fiscal and institutional constraints, accountability of the cities for service delivery performance, both to the formal structures of central government, and to the cities’ constituencies, is limited. Since the cities cannot depend on reliable fund flows and have uncertain roles in the investment cycle for the creation and operation of services, their accountability for the delivery of these services is undermined. Consequently, expectations both at central level and from the cities’ communities are low, and this in turn removes any incentive for the cities to perform effectively. This is reflected in expenditure trends, with on average over two thirds of Project ULG budgets being spent on personnel and related operating costs, with limited resources available for investment needs. Recent studies suggest that many positions are not filled, with only a minority of ULGs having qualified staff in key municipal positions, and the absence of capital resources may be a contributing factor. At levels averaging around US$2 per capita per year over the past three years (ranging from US$0.70 to US$2.70 for the four secondary cities targeted under the project), this represents a major investment deficit in fast- growing and increasingly important urban areas. Accountability is further compromised by the absence of clear performance indicators, inadequate capacity to monitor and assess performance, and planning and budgeting procedures that are not transparent and predictable enough to foster a credible social contract between the local authorities and their communities. 7. Fiscal and functional assignment constraints further challenge the capacity and incentives for performing effectively. Bamako, while having some capacity issues, generally is relatively well endowed with skills, though its experience in implementing substantial works projects is somewhat limited. The staffing establishments for the four secondary cities provide for a Secretary-General (SG, the LG chief operating officer), as well as Directors of the two key departments (Finance and Engineering). Overall complements in the four cities range from about 40 to 120 people, of whom only a very limited number have higher level qualifications (post- secondary education). Amongst the four secondary cities, all have suitably qualified SGs, but are less well endowed for the other two departments. All four cities have qualified financial officers for revenue-side financial management (Treasury Department officials serving at the local level), but only one has formally qualified financial staff managing expenditure-side functions (the others have post-secondary qualifications, but not in finance). For the Technical (Engineering) Departments, two have qualified engineers as well as additional technical staff, and the other two rely on staff with some post-secondary training. 8. Given that their functional responsibilities and expenditure management requirements are going to increase significantly, LG organizational capacity remains low, particularly regarding administration, planning and project execution skills. The government does operate a Training Institute (CFCT) under the Ministry of Local Government (MATCL), but the curriculum will have to be augmented to address some of the skill gaps that have been identified. In addition, the cities will have to reorient their relatively well-funded recurrent budgets to recruit key skills and to refocus on efficiency gains to more effectively operate and maintain existing and proposed investments. Further, international experience indicates that, in addition to supply-side inputs, capacity building support requires strong incentives on the demand side if it 3 is to have an impact. Consequently, focused and deepened capacity support measures will need to be developed that are integrated with and enable the cities to respond to opportunities for accessing significantly increased fiscal resources that are conditioned on performance by the cities. 9. To address these challenges, the government of Mali (GoM) has adopted the Strategy for the Development of the Cities of Mali (SDVM, 2009), which is aimed at fostering a more effective economic contribution of cities to poverty reduction and growth, based on improved performance in basic service delivery, coverage and quality, including land and environmental management, and enhancing public investments in infrastructure. The SDVM estimates that for the period 2009-2015, approximately US$875 million will be needed to fund basic investments in the country’s urban areas. Building on the experiences of the Urban Development and Decentralization Project4, the Strategy aims to strengthen the role of secondary cities in order to relieve the pressure on Bamako. To this end, GoM wishes to introduce reforms in the fiscal system that: (a) direct a greater share of resources to the ULGs, (b) build on objective allocatory criteria for fund flows to the cities, (c) ensure the flows are predictable and timely in relation to annual budget cycles, (d) clarify responsibilities for service delivery, and (e) are transparent and hold city management accountable against agreed performance criteria. 10. GoM therefore proposes to introduce performance-based municipal grants (i.e. discretionary grants) to selected cities to invest in public services and infrastructure to deliver on their expanding functional mandates in line with local needs, together with the necessary capacity building inputs to allow them to enhance their performance. GoM recognizes that this approach has the potential to serve as a powerful incentive for city governments to perform effectively. The overall strategic vision is to begin directing a greater proportionate share of budgetary resources to the cities, and to concurrently initiate a program focused on the secondary city system, starting on a limited scale (four secondary cities) and, based on experience, expanding to all secondary cities. The current operating procedures and oversight arrangements for FNACT do not match the fiscal structure envisaged under the project, and government has determined that standard Treasury systems would be utilized and integrated with the performance-based features being introduced under the project. The experience gained during project execution would then inform the fiscal structures to be adopted and mainstreamed, including the possible restructuring of FNACT to serve as the transfer instrument. This initiative will be complemented by the proposed Bank-funded Decentralization Technical Assistance Project aimed at strengthening governance and public financial management in the Malian context of decentralization 11. An assessment of the current local government fiscal system indicates that public expenditure by major cities represents less than 1 percent of GDP. Regional capitals receive on average about 10 times less resources per capita through the FNACT than the average for their region. This underlines the extent to which ULGs depend on own-source revenues to finance their budgets. This assessment provides further evidence in support of Government’s policy reflected in the SDVM, to introduce a shift towards a significantly increased share of the capital development budget being allocated to urban areas, GoM is expected to gradually adjust its fiscal 4 Projet de développement urbain et de décentralisation, PDUD (1997-2005). Total government and donor financing: US$150 million; IDA financing: US$80 million. 4 system of allocations to urban local governments, based on the experience gained under this project, to that of a primarily performance-based block grant for the discretionary use of the cities, and to augment the flows to levels consistent with those established under the project (though at lower, sustainable levels, since the project envisages jump starting the program with investments that also address major backlog needs). 12. Government has also determined that a different initiative is required for the Bamako region. There are several reasons for this, including: (a) the region comprises several adjacent urban local governments and a metropolitan structure needs to be created; (b) the scale of both backlog and new investment needs is significantly greater than that of the secondary cities; and (c) the capacity and performance requirements for the Bamako metropolitan authority will be substantially different from those of the other urban areas. Consequently, a new law is being proposed by the government which would undertake a political and administrative reorganization of Bamako into a single local government entity, to replace the present setup of a district council and six communes all operating independently of each other. The restructuring is still in the design phase and envisages incorporating the surrounding local governments into a Greater Bamako administrative unit, covering the entire urban region. In the interim, there are some urgent investment needs confronting Bamako regarding drainage and periodic flooding. 13. A number of activities are ongoing to improve access to services in urban areas, but no coordinated effort has so far materialized to implement the SDVM and link it to the execution of government’s decentralization policy. Some bilateral donors (Switzerland, Denmark, France, Luxembourg, and Belgium) and the Bank have been supporting limited activities in specific regions or cities and the EU provides budget support for decentralization. The rationale for World Bank involvement is based on the comparative advantage of the Bank’s extensive experience in the urban sector and, in particular its experience with supporting urban development within the context of a sound decentralization framework. Bank involvement also ensures that the level of investment made available will be sufficient to provide the requisite incentives for implementing the reforms embodied in government’s decentralization strategy. At a time when other donors have largely withdrawn, Bank engagement will also maintain its current role as a dialogue partner with government on urban policies at the national level, including exposure to similar international and regional experience, the introduction of a results- based focus to sector development, and an emphasis on enhancing governance systems as part of urban management. The proposed Project is coordinated with a Bank-financed Governance and Budget Decentralization Technical Assistance Project which, while focusing specifically on the social sectors and not on the urban sector, will address the constraints to the effective functioning of FNACT. The Project is anchored in government’s decentralization policy and its SDVM strategy for enhancing the role of the cities in the country’s economic development program. It is also informed by the 2009 World Bank Urban and Local Government Strategy, focusing on the core elements of the city system: city management, finance, and governance. The objective is to deepen dialogue around pro-poor urban policies and city economies as initial steps to further operationalize the SDVM, utilizing the decentralization framework established by the government. 5 C. Higher Level Objectives to which the Project Contributes 14. The higher level goals of the project, to which achievement of the Project Development Objective (PDO) will contribute, are improved service delivery and enhanced governance and accountability at the local level, in the urban areas of Mali, built around an effective fiscal framework that would allow predictable resource transfers to urban local governments. Improved local government performance will positively affect the services received by the poor, and it will also, through expanding both the level and efficiency of public sector investment, have positive impacts on the cities’ contribution to local economic development. 15. In seeking to achieve these goals, the design of the proposed project forms an integral part of the CAS in support of the GPRSF and is fully aligned with the Africa Regional Strategy (ARS) through supporting the underlying foundation in terms of both demand and supply sides activities for improved governance and strengthened public sector capacity. The project is specifically foreseen in the CAS to support decentralization under Strategic Objective II: Strengthening Public Sector Performance. This will be done through building of local administration capacity and support to community development and citizen participation in setting investment priorities. The assistance provided to urban centers will improve their capacity to mobilize and manage resources and implement infrastructure projects using their own funds. This is in line with especially the second pillar of the GPRSF, targeting consolidation of public sector reforms, and also corresponds to the expected focus of the GPRSF II (2012-2017) on deepening decentralization and allocating resources to local governments commensurate with their mandate. The project is designed in accordance with the principles of the ARS, in which a major area of engagement for the Bank is to support the development of fiscal, administrative and urban planning capacities in African cities. The Project further focuses drainage and flood protection for Bamako, which is relevant to disaster risk management and climate change in the context of vulnerability and resilience. II. Project Development Objective A. Project Development Objective 16. The project development objective is to support strengthened institutional performance of targeted urban local governments. 1. Project Beneficiaries 17. The primary project beneficiaries are the inhabitants of the project cities. The main benefit will come from overall improved urban and municipal management and direct involvement in setting investment priorities. Concrete investments and maintenance activities financed with the proceeds of the performance grants will benefit this entire target group either directly or indirectly. Municipal councils and administrations for the project secondary cities and the Bamako District Council and administration will benefit from support to improving their capacity to carry out their mandate. At the national level, the main project beneficiaries are MATCL and the Ministry of Housing, Land Management and Urban Planning (MLAFU), and the statistical and planning units (CPS) covering the two targeted ministries. 6 2. PDO Level Results Indicators 18. Achievement of the PDO will be measured by the following key performance indicators: (i) All four urban local governments under the project meet the Mandatory Minimum Criteria (MMCs) for access to performance grant funds for the final year of the project. This will measure the minimum capacity of the ULGs to implement their mandate (see MMCs in Annex 2). (ii) A minimum of 80 percent of the ULGs targeted under the project receive a score of 75 points or above on their final performance assessments. This will measure the formal aspects of service delivery. (iii) Ten percent increase, in the four targeted secondary cities, in scores on citizen’s perception of their engagement with local government councils and their perceptions of urban management. This will measure the subjective aspects of municipal and urban management. (iv) A performance-based grant system is established in the four secondary cities and ready to roll out to other ULGs. To this end, a post-project strategy for further development and expansion of local government performance-based grant system in Mali should be adopted. 19. Achievement of these targets would be measured primarily through annual performance assessments developed under the project. In addition, several intermediate results indicators have been identified to track progress toward objectives, as well as to track physical progress under the project. Project cities will report on their investments by type and sector to facilitate incorporation of core indicators, if and when they become relevant, based on the demand-driven nature of the project. III. Project Description 20. The project will target five cities: Bamako, the capital, and four secondary cities (Kayes, Sikasso, Ségou and Mopti)5. Particular emphasis is placed on the secondary cities in order to increase their economic competitiveness with Bamako, and hence their ability to capture a greater share of the demographic shift to the urban areas, in line with the SDVM objectives. The criteria set by the government for the selection of cities to be included in the project are based on population size, economic potential, and continuity with the previous urban operation. 21. The key design principle for the project is to create the appropriate supporting institutional framework and the direct delegation of responsibility and accountability to the ULGs for improved performance in local service delivery. To achieve the PDO, a framework will be built around three interdependent elements: (a) a performance-based fiscal system that establishes predictable fiscal flows to ULGs, (b) an annual independent performance assessment, 5 Population size according to the 2009 census: Bamako: 1,809,106. Sikasso: 225,753. Ségou: 130,690. Kayes: 127,368. Mopti: 114,296. 7 disclosed to the public and (c) capacity support that will underpin the ULG’s ability to meet the specified performance criteria. The approach under the project is designed to establish the framework described above and to introduce it in a selected number of secondary ULGs through a decentralized fiscal management system. 22. The project consists of four components. Component 1 provides annual performance- based investment grants and capacity support grants to four secondary cities. Component 2 provides funding to construct and/or rehabilitate critical drainage and related road networks in Bamako, a grant supporting implementation of the restructuring of the greater Bamako urban region and including the preparation of a development and investment program, and a capacity support grant to Bamako focused on establishing sustainable asset management systems and financing. Component 3 funds institutional capacity strengthening and comprises targeted capacity building support to the ULGs and those central agencies with primary urban and decentralization related responsibilities. It includes technical assistance for selected studies and advisory services including, in particular, support for the restructuring of Bamako, and for an assessment and design of a fiscal structure for ULG resource transfers that can be mainstreamed. Component 4 finances project management, including monitoring and evaluation, as well as management of the project and reporting on overall project progress. Component 1: Performance-Based and Capacity Building Grants for Secondary Cities (US$29.0 million - 100% IDA) 23. This component, which comprises two sub-components, will be implemented by the four secondary cities, working interdependently with the capacity building support elements under component 3 and is intended to operationalize a Performance-Based Grant (PBG) for the four secondary cities of Kayes, Sikasso, Ségou and Mopti. The component will be implemented through Participating City Grant Participation Agreements (PCGPAs) to be entered into between each ULG and the government. Sub-component 1-A: Performance-based investment grant (US$27.0 million – 100% IDA) 24. The sub-component finances annual performance-based grants to the four ULGs for infrastructure-related expenditures. Access to these funds by the ULGs, and the amount of funds they qualify to receive each year, will depend on how well they score on annual performance assessments (PAs), to be undertaken by an independent consulting firm financed under component 3 and recruited by the Project Coordination Unit (PCU) for this purpose. The grants will be spread over a period of five years, after a one-year start-up period. The start-up period has been provided to enable the cities to undertake priority capacity building activities, address critical recruitment requirements (which are given additional force by setting staffing targets as important considerations for satisfying the annual PAs), and undertake essential planning and consultation activities that would address key access and PA requirements, as well as allowing some space for an initial performance assessments to take place within the normal budget cycle. Potential investments, decided by the ULG councils in consultation with their communities, will be in accordance with the ULGs’ functional responsibilities as defined in law, circumscribed by a negative list of ineligible investments. The mayors of each project town will present summary financial and narrative reports semi-annually (July and January) to their councils on the status of implementation of their annual budgets. 8 25. The size of the allocation for each city is determined by the total five-year funding envelope for this component, apportioned across the ULGs according to the agreed allocation formula based on population size (per the 2009 census). The formula would establish the indicative five-year envelope each city could expect (on average US$6.75 million per city). The annual allocation for each city is based on a rising curve of increasing amounts each year, to take account of startup requirements and capacity constraint considerations (indicative annual allocations, the review cycle, and the procedures for applying the performance criteria are set out in Annex 2). Allocations would also be subject to annual variation as determined by the evaluation of each ULG, undertaken through the annual PA process. The allocations represent an average annual per capita amount of about US$9.0 (an approximately four-fold increase over current levels) and is considered both consistent with government’s policy of redirecting resources to the urban areas over time, and also realistic given current capacity in situ, and the depth and intensity of proposed capacity support systems to be introduced under the project. It should be noted that, while this is a substantial increase, when viewed in terms of total revenue (taking account of the estimated US$5.0 to US$6.0 per capita total average revenue managed by the project cities), the increase is in the order of slightly more than double current own-managed expenditure levels. 26. The annual allocation comprises two parts. The core allocation, representing 50 percent of the annual entitlement, will be subject only to the ULG meeting a set of Mandatory Minimum Conditions (MMCs), which are largely based on legal requirements and are considered essential to the ULGs meeting core functional standards. Failure to meet any one of the MMCs in the areas of: (a) planning and budgeting, (b) administration and municipal finances, (c) project implementation and service provision, (d) accounting and audits, and (e) participation, transparency and accountability (presented in Annex 2) will disqualify the ULG from receiving any part of the grant for the forthcoming year. The MMCs have the advantage of being objectively verifiable (either attained or not) to facilitate evaluation and transparent decision- making regarding the core grant allocation. 27. The second part of the annual allocation (the remaining 50 percent of the grant) will comprise the performance dimension of the grant and will be subject to the PA process, which will be undertaken annually for each ULG participating in the project. The process of data gathering for the PAs is to be aligned with existing procedures used in the context of EU- financed technical assistance, but with the data required for the PAs to be added to the list of information currently collected. One of the functions of the independent evaluation firm, in undertaking the PAs, will be to audit the quality of the data and supplement it as necessary. The performance criteria will comprise a set of more comprehensive performance requirements in the same areas as the MMCs, but will be more qualitative in nature (see Annex 2). The scoring of the PAs will be undertaken according to a points system whereby each of the 14 performance criteria will be assigned a score, with a maximum possible total score for all the criteria combined being 100 points. The number of points assigned to each criterion out of the overall total of 100 points, to be weighted according to considerations of relative importance, will be agreed between the government and the Association and recorded in the Project Implementation Manual (PIM). In assessing whether a ULG satisfied the requirements of a particular criterion, the scoring will not be based on an all or nothing system, but on one that allows for partial 9 scores, and the partial scores will be based on the PA taking into account pre-determined factors considered important in grading performance for that criterion. These factors, and the process for determining partial scores, will be set out in the PIM. 28. Each ULG must achieve the minimum requisite score of 75 percent on its annual PA to be eligible to receive the incentive component of the grant for the forthcoming year (50 percent of the total grant for that year). A ULG that is ineligible one year in the program either due to its inability to satisfy the MMCs (and so receiving 0 percent of the grant), or its inability to achieve the requisite PA score (and receiving only 50 percent of the grant), may be eligible the following year, subject to meeting the MMCs and minimum score on the relevant PA. The findings of the annual performance assessments will be final, will not be subject to appeal or change, and will be submitted in the form of reports with findings and recommendations, as well as suggestions on issues to be addressed by each ULG. The reports will pass through the National Directorate of Local Government (DNCT) for data quality confirmation and then to the PSC for verification and translation into the allocations to be received by each city following the application of the distribution formula, subject to the outcome of the annual PAs (see Implementation Arrangements below and Annex 2 for details on data collection and the annual grant and performance assessment cycle). The review of the reports of the PAs and the related process of determining annual ULG allocations will be undertaken by the PSC in consultation with the Bank, and the decision of the final allocations will be subject to Bank no objection. The results of the annual PAs and the decision on the allocation to each ULG will be made public in the local media. Detailed arrangements will be elaborated in the PIM. Three independent audits of the PA process will also be undertaken over the life of the project. Sub-component 1-B: Capacity support grant (US$2.0 million – 100% IDA). 29. The sub-component will comprise two parts. One provides grant funding of US$150,000 per ULG for the preparation of asset inventories, and related condition analyses and for developing annual operation and maintenance (O&M) plans, as well as training to maintain and update these plans. The second provides a capacity support grant of up to US$70,000 per annum per ULG to assist them in enhancing their performance. The capacity grant will provide discretionary resources to the ULGs, but limited to hiring short term expertise, as needed, for specific tasks related to the project and/or for studies and preparatory activities related to project investments or to assist the ULGs to meet the MMCs or PA criteria. The ULGs will be required to prepare annual proposals (with TORs where necessary) on the use of their capacity support grant, in the timeframe of the normal budget cycle, to be submitted to the PCU for review and approval. The proposals must demonstrate specific linkages to the ULGs’ efforts to satisfy the PA requirements. The prior review requirement by the PCU does not apply to the funding for the asset inventory exercise. Component 2: Priority Infrastructure Investment, Institutional Restructuring, and Capacity Support Grants for Bamako (US$24.5 million - 100% IDA) 30. This component, which comprises three sub-components, will be implemented by the Bamako District Council working interdependently with the capacity building support elements under component 3 and is intended to finance urgently needed investments in flood management works in the Bamako District together with related support for the maintenance of existing assets 10 through technical capacity assistance. Also included is support for establishing and making operational a new metropolitan authority that integrates the seven local authorities currently in place, creating an institutionally more effective structure for addressing the needs of the Bamako urban area. The component will be implemented through a Grant Participation Agreement (BGPA) to be entered into between the local government of Bamako District and the government. Sub-component 2-A: Phased grant for roads and drainage rehabilitation (US$19.0 million – 100% IDA) 31. Sub-component 2-A provides grants for the funding of urgently required, high priority flood management works in the District of Bamako. The works would take the form of drainage and related road rehabilitation and would be built in four phases, with release of funds for each phase subject to Bamako District achieving agreed operation and maintenance targets as verified by independent consultants/technical auditors financed under component 3 (elaborated in Annex 2). Sub-component 2-B: Capacity support grant (US$1.5 million – 100% IDA) 32. The sub-component will comprise two parts. One (US$250,000) will finance the preparation of an asset inventory, asset condition analysis, and operation and maintenance strategy and plan, all to be updated annually, for the Bamako District. The District will also use these funds to buy training in the operation and maintenance of the asset management system, also to be updated annually. The second part will make funds available in amounts of up to US$250,000 per annum to the Bamako District for capacity support in supervising the implementation of the drainage works and satisfying related O&M obligations. These funds would serve as discretionary resources for hiring technical assistance for specific tasks, bringing in short term expertise, or undertaking relevant studies, all to be related to the District’s efforts to ensure effective implementation of the works and/or the satisfaction of the O&M requirements. The District would be required to prepare annual proposals to be submitted to the PCU for review and approval within the timeframe of the annual budget cycle. Sub-component 2-C: Institutional restructuring grant (US$4.0 million – 100% IDA) 33. Sub-component 2-C provides a grant to be made available at the time of the establishment of the new metropolitan authority to implement the provisions of the law creating the authority. The sub-component would assist in putting in place the administrative and political organizational and accountability structure required under the law, making it operational, and undertaking the preparation of a 3 to 5-year development and investment program, including feasibility and engineering design requirements where appropriate. Component 3: Institutional Capacity Strengthening (US$11.55 million - 100% IDA) 34. This component, operating interdependently with components 1 and 2, will be implemented under the management of the PCU, and finances capacity building support to strengthen the ULGs to develop sound strategic management, administrative, financial and 11 technical management systems and capabilities to effectively deliver local services. Assistance will include several complementary initiatives as follows: Sub-component 3-A: Capacity building for project municipalities (US$7.5 million – 100% IDA) 35. This sub-component will support capacity building activities for the four targeted secondary cities and Bamako to enable them to more effectively carry out their mandate as follows: (i) access to demand-driven, “just in time”, on-the-job assistance to be provided by an Urban Capacity Building Mobile Team (UCBMT) comprising expertise covering the five themes addressed in the annual performance assessments (the effectiveness, operating arrangements and staffing profile of the mobile team will be assessed for the mid-term project review). Given its critical role in capacity development, recruitment of the team has been initiated and the team is projected to be in place by March 1, 2012; (ii) funding for ULG officials and staff to attend training modules offered by CFCT; (iii) establishment and dissemination of a framework for preparing and operating asset management registries and maintenance plans that can be standardized across all ULGs; and (iv) peer-to-peer learning and exchanges. Sub-component 3-B: Support to central government agencies (US$1.75 million – 100% IDA) 36. The component will support: (i) central and deconcentrated departments to carry out their mandate of assistance to LGs; (ii) recruitment of an independent performance assessment team, and setting up and operating the annual performance evaluation system of the four secondary ULGs, including logistical support to the assessment team; (iii) establishment and use of an urban and local government database; and (iv) support to DNHU in for project management. Sub-component 3-C: Support to targeted strategic studies (US$2.3 million – 100% IDA) 37. The component comprises the following: (i) support to the government for undertaking the requisite analyses, studies and preparatory activities (including stakeholder consultations) to finalize the proposed structure, accountability system and regulatory framework for the restructuring of the greater Bamako region into an integrated metropolitan institutional system; (ii) annual external financial audits of the four secondary ULGs; (iii) following the MTR, identification of, and preparatory support to, additional secondary towns for their prospective participation under component 1; (iv) mid-term and end of project reviews of: (a) the performance of the mobile teams, (b) quality and independence of the PA system (in the form of independent, external technical audits, including at the end of the first assessment, at MTR and at project closing), (c) the application, effectiveness and quality of the use of the funds under the Urban Grant, and (d) the effectiveness of the consultative and accountability performance requirements under the project, including citizen satisfaction/scorecard surveys; and (v) an assessment of the fiscal transfer system to LGs as experienced under the project, and the options for developing a standard system to be mainstreamed to all ULGs. This latter analysis will also be coordinated with the Bank-financed Governance and Budget Decentralization Technical Assistance Project, which includes studies on the financial framework for LGs and resource allocation criteria. 12 Component 4: Project Management, Monitoring and Evaluation (US$3.2million - 100% IDA) 38. The component will finance the PCU to undertake management of the project and reporting on overall project progress, including operating expenses of the PCU, project evaluations, citizen score card surveys, project financial and technical audits, and IEC activities in support of the project objective. A. Project Financing 1. Lending Instrument 39. The lending instrument chosen for the Bank support is a Specific Investment Loan (SIL). The SIL is considered the most appropriate instrument to assist the GoM with implementing its program of institutional reform of urban local government, including support to the introduction of a grant system, and introducing a capacity building system for urban local government. 2. Project Financing Table 40. Total project financing requirements are estimated at US$70 million, inclusive of price and physical contingencies. The table below provides a breakdown of project costs by component and sub-component. IDA % IDA 1. Performance-Based and Capacity Building Grants for Secondary Cities 29.00 100% A. Performance-based investment grant 27.00 B. Capacity support grant 2.00 2. Priority Infrastructure Investment and Capacity Support for Bamako 24.50 100% A. Phased grant for roads and drainage rehabilitation 19.00 B. Capacity support grant 1.50 C. Institutional restructuring grant 4.00 3. Institutional Capacity Strengthening 11.55 100% A. Capacity building for project municipalities 7.50 B. Support to central government agencies 1.75 C. Support to targeted strategic studies 2.30 4. Project management, Monitoring and Evaluation (incl. PPA refinancing) 3.20 100% Unallocated 1.75 Total costs 70.00 100% 13 B. Lessons Learned and Reflected in the Project Design 41. The Bank has gathered substantial international experience from local government strengthening programs that it has supported over the past decade, especially in Sub-Saharan Africa and South Asia. Many of these have design features with parallels to the Project, and a number of important lessons have emerged from this experience, as well as previous Bank engagement and ESW in the urban sector in Mali. 42. Overall lessons learned in regard to urban development in Mali, in the context of the government’s ongoing decentralization program, demonstrate the strong potential of cities to contribute to economic growth, but this is contrasted with underperformance of the sector and lack of ownership and incentive to improve performance from key stakeholders. The 2007 urban sector assessment identified key cross-cutting measures, associated with selected activities that should be made the focus of government’s urban development strategy. The sector work recommended that the strategy should be initiated in a limited number of cities, to be selected based on their significant potential for stimulating local economic development and consolidating the urban network. This approach is reflected in the criteria for choosing the project cities. Experience from the Social and Urban Development Project in Koutiala (Swiss funding) shows the value added of continuous technical assistance to project cities and inclusion of project beneficiaries in selecting investment priorities. 43. Evidence is emerging globally that incentives provided by performance-based grant systems (PBGSs) have resulted in genuine improvements in LG performance, especially in core administrative and financial areas. PBGSs have also led to improvements in handling of cross- cutting issues such as poverty targeting and the environment.6 In Mali and elsewhere, the results of supply-side capacity building measures aimed at local governments have been disappointing in the absence of demand-side incentives. Conversely, capacity building initiatives and training are considerably more effective in a systems perspective, when linked to creation of demand on the part of local governments. With appropriate incentives, local governments have responded by inculcating capacity building activities into their ongoing operations. The Project adopts this approach through basing access to the grant funds on improvements in institutional performance which local governments will be able to achieve through the capacity building activities (both supply- and demand-driven) included in the Project. 44. Maintaining the integrity of PBGS is critical. Political pressures from LGs can weaken the resolve of officials or politicians to implement funding reductions, seriously compromising the integrity of the system. Recent global comparative studies7 have suggested a checklist of issues that must be addressed, including: (a) the measurability of the performance indicators, (b) the ability of sub-national governments to deliver on these indicators, (c) the adequacy of the support provided, (d) the credibility of the national commitment to the achievement of the indicators by beneficiaries, and (e) the ability of the beneficiary to sustain the results over time. In fact, this list corresponds quite well to the shortcomings of the PDUD and the Project is 6 See UNCDF: Performance-Based Grant Systems. Concept and International Experience. United Nations Capacity Development Fund, 2010. 7 See Dumas, V. and Kaiser, K. “Sub-National Performance Monitoring: Issues and Options for Higher Levels of Government”. Draft, June 28, 2010. 14 focused on measurability, verifiability and objectivity of performance criteria in combination with capacity support measures to allow the ULGs to attain performance targets and provide decision-makers with clear criteria as basis for funding decisions. IV. Implementation A. Institutional and Implementation Arrangements 45. The project will be implemented over a period of six years, thus ensuring five full planning and budgeting cycles for providing performance grants to the ULGs. Project implementation arrangements are based on Decree No. 10-176/PM-RM (25 March 2010), establishing the overall institutional framework for the national Fourth Urban Project, for which the ULGSP is the first operation to provide financing. 46. The MLAFU will be the government body directly responsible for project implementation. In particular, MLAFU will be responsible for overall coordination, supervision and M&E. A Project Coordination Unit (PCU) has been established within the MLAFU to assist it with its day to day project management responsibilities. The PCU is led by a Project Coordinator and is staffed by a financial specialist, a procurement specialist, and an infrastructure specialist. Its management responsibilities will include preparation of work plans and budgets, progress reports, and communications and outreach. It will oversee adherence to procurement and safeguards requirements as well as financial management and reporting. In addition to these routine functions, it will have primary responsibility for implementing the project and, in particular, for ensuring that the UMCBT functions effectively in its support to the secondary cities, that the external audits take place as required, and that the annual performance assessments take place in a timely manner. 47. A Project Steering Committee (PSC) is established as part of the national Fourth Urban Project will be chaired by the Minister of Urban Development, seconded by the Minister of Local Government as vice-chair. The PSC’s principal functions are to: (a) provide the project with overall guidance, (b) facilitate coordination of project operations, and (c) ensure coherence between the project and other GoM and donor-supported programs in the urban and local government sectors. The Project Monitoring and Technical Committee (PMTC), chaired by the Secretary General of MLAFU, seconded by the Secretary General of MLG as vice-chair, will be responsible for following up on the implementation of PSC recommendations and decisions. 48. The DNCT will have direct responsibility for ensuring that data feeding into the annual performance assessment cycle for the four secondary cities is collected, reviewed by local stakeholders, and entered into the DNCT database in a timely manner and according to the guidelines and procedures to be set out in the Project Implementation Manual (PIM). This follows current practice in the context of EU-funded budget support for decentralization and will contribute to strengthening the existing database maintained by DNCT. The performance assessment function will be done by an independent team of consultants. The team will audit the data and the data collection process to verify its reliability, collect or supplement unreliable or insufficient data as needed, and undertake the independent assessment of performance. The PCU will be responsible for the recruitment and facilitation of the logistical aspects of the work of the 15 independent performance evaluation team. The evaluation team will, however, coordinate with DNCT regarding accessing data and addressing substantive issues that may arise, and it will present its assessment reports of the ULG’s performance through DNCT directly to the PSC. 49. While the PCU is the lead implementing agency for the project as a whole, the District of Bamako and the four ULGs of Kayes, Mopti, Ségou and Sikasso are at the heart of the project’s implementation arrangements. With some variation for the specific case of Bamako (for which the investment package is known), each ULG will be responsible for annual planning and budgeting and for implementing investment projects. Planning and budgeting by the secondary ULGs will involve community and public participation. These ULGs will also be fully responsible for the procurement and supervision of public works financed out of their block grant allocations. Any delegation of procurement and implementation functions by the ULGs will be spelled out in clear contracts, signed by the mayors. ULGs will be expected to undergo regular performance assessments, the results of which will have budgetary consequences. 50. A PIM, acceptable to the Bank, and describing all implementation and monitoring and evaluation arrangements, the sequence of project activities and expected implementation schedule and financial management procedures, the functioning of the performance assessment and grant allocation and utilization system, and procurement procedures for the ULGs will be completed as a condition of effectiveness. The PIM will provide ULGs with clear guidelines and procedures for planning, budgeting, procurement, contract management, and financial management arrangements. B. Results Monitoring and Evaluation 51. The project monitoring and evaluation framework is largely based on the existing process to collect data feeding into the local government database maintained by the DNCT, which is the basis for the annual independent performance assessment of the four secondary urban local governments. Current practice used for the Local Government Database (OISE) in the context of EU-funded budget support for decentralization relies on DNCT requesting the information from the prefect, who in turn gets the information from the mayor. The local development committee (with participation of civil society representatives and the regional representatives of deconcentrated departments) then meet to validate data before it is transmitted to the DNCT via the prefect. Following this procedure will contribute to strengthening the existing procedures and database maintained by DNCT. Concrete activities consist of:  At the national level, through component 3, the DNCT will be capacitated to ensure regular collection and monitoring of data related to the annual ULG performance assessments and intergovernmental transfers. Capacity gaps related to collection of data on performance indicators will be filled. The PCU will be responsible for consolidating data into project monitoring reports, which will be used both by MLAFU for the ministry’s monitoring purposes and by World Bank implementation support missions for project management and reporting purposes.  Through components 1 and 2, the project will provide support in reforming and strengthening reporting systems at the local government level. To complement this, 16 component 3 will provide support to LGs to strengthen their ability to report on all LG resources.  Through component 3 the CPSs covering the urban and local government sectors will receive technical assistance to setting in place an urban and local government database, drawing on data available through the OISE.  The annual performance evaluations, supported by mid-term and end-of-project evaluations and citizen score cards, will provide MLAFU and MATCL with data to measure the performance of all four participating secondary LGs. 52. The project thus contributes to developing the government’s internal performance monitoring and financial reporting system through direct support to LGs and support to reforms in the reporting and budgeting system to facilitate simplified and timely reporting from LGs to central government. In addition, there will be formal mid-term and final evaluations of the project itself (covering social, environmental and economic aspects). Separate independent reviews will also be commissioned as needed to examine overall impact of the project on local government institutional performance, service delivery and governance issues, and training. C. Sustainability 53. Institutional arrangements. Mali currently utilizes an intergovernmental transfer mechanism under the Local Government Support Fund (FNACT) which is operated by the Local Government Investment Agency (ANICT). This mechanism has encountered a number of difficulties to its efficient operation, and is under review (including with the assistance of funds under this project). Consequently, in the interim, the project will be using standard Treasury systems for the transfer of funds. The intention is to use the project to establish a robust system built on the existing institutional architecture to the extent possible, identify adjustments required, if any, and then determine the most effective placement of the system, institutionally, taking into account any reforms that may have occurred or be in prospect for FNACT and ANICT. These activities are coordinated with the Bank-financed Governance and Budget Decentralization TA Project, which will contribute over time to addressing ANICT’s effectiveness and clarifying what role it might most appropriately play. 54. Fiscal predictability and sustainability. Currently, the allocation of resources to urban local governments is significantly lower than that of countries with similar economies. Recent government policy commitment is to address this distinction by introducing a program whereby allocations under the capital budget will be shifted towards providing a greater share of the resources to urban areas. Thus the government intends to use the project to assess a restructuring of its medium term expenditure plans. Specifically, it is expected that funds currently typically earmarked against project-specific expenditures will be shifted towards discretionary allocations to urban governments, and combined with shifts in distribution of overall resource envelopes within the broader expenditure framework towards urban local government priorities. This is expected to translate into significantly greater and more predictable discretionary funds being made available annually to the cities, at levels significantly higher than at present. As part of this initiative, the project is intended to help design and implement the systems for introducing these changes and to serve as a bridge while the increases are introduced at manageable increments. The targeted level of funding will seek to address both prevailing backlogs, as well as the rapid 17 growth of the cities’ populations and economies. The project will provide levels of funding that accelerate the process of catching up on a history of systematic under-investment in urban areas. 55. Absorptive capacity of the cities. Although ULGSP transfers will represent a significant increase in overall municipal revenues, there are indications that ULGs should be able to absorb and use such funds effectively. Urban local governments already finance and manage relatively high levels of recurrent expenditure, suggesting that they are able to cover essential payroll and operational costs and implying, in turn, that basic “capacities” exist. In addition, the project will be providing ULGs with substantial capacity building support in a variety of forms, and the linkage of the effective use of this support with access to significantly increased levels of investment resources has proven internationally to be a powerful incentive. 56. Service-delivery and physical asset sustainability. The project development objective reflects the long-term relationship between enhanced institutional capacity at local level and accountability and improved local service delivery. With regard to the sustainability of local infrastructure assets, the project supports a capacity building program, with specific support provided for asset management and maintenance. The program will be putting specific emphasis on sensitizing elected officials and training ULGs staff to ensure that sufficient budgetary provision is made for infrastructure assets operation and maintenance, and that these activities are discharged on a routine basis. Existing recurrent revenue levels of the cities are relatively high, suggesting a fairly good base to develop more effective use of these resources, particularly in the areas of recruiting suitably qualified key personnel, developing reliable asset registries and condition analyses from which to build asset management plans, and using these tools and increased expertise to redirect a greater share of recurrent funds and utilize them more efficiently. V. Key Risks 57. A number of risks related to the implementation and sustainability of the proposed project have been identified, including: (a) the link between urban development and decentralization (especially in areas related to fiscal and administrative decentralization) and continued government commitment to deepen this link; (b) coordination between national level government stakeholders for the project and local governments; (c) capacity constraints in local governments (including procurement, financial management, reporting and safeguards compliance); (d) irregular external and internal oversight of contracts; and (e) institutional and financial sustainability of project interventions and in particular the performance-based grant as a transfer mechanism. 58. The project design takes into consideration the above mentioned risks through the following mitigating measures: (a) strengthen coordination of the project through mutually dependent interventions with the Bank-funded technical assistance in decentralization (overall reforms to inter-governmental fiscal framework); (b) technical assistance support to address capacity constraints at central level agencies and increase outreach capacities to LGs, including in procurement oversight and management, fiscal reforms, and financial management; (c) targeted capacity support program and training to participating LGs combined with supply- and demand-based TA (mobile team, formal training courses, and capacity support grant); (d) 18 procurement support to MLAFU to carry out oversight of LG procurement; and (e) addressing sustainability challenges through incentive-based improvements to urban local governments with better management, higher revenues and improved social accountability. In addition, the project approach of supporting systemic improvements rather than focusing on ring-fenced project funding will contribute to improvements in the overall functionally of the intergovernmental fiscal framework (including budgeting, reporting, audits, procurement, social accountability, and revenue) for the participating cities, with the ability to roll out the approach to all urban local governments in Mali. V. Appraisal Summary A. Economic and Financial Analysis 59. Urban local governments will choose to invest from a list of functional responsibilities as defined in law, circumscribed by a negative list of ineligible investments. Ex-ante benefits associated with the project’s physical investments from the PBGs cannot be quantified since the choice of investments will result from an annual local planning process. However, there is evidence to support the hypothesis that such investments do have substantial benefits (quantifiable and non-quantifiable). This conclusion is based on analyses done for similar projects in Ethiopia, Uganda, Ghana, and Tanzania. Transferring substantial amounts of resources to project ULGs under a performance-based grants approach over project lifetime and providing them with increased capacities for revenue mobilization will position ULGs to deliver critical basic local public goods and services. Moreover, in terms of cost-benefit analysis, the project seeks to strengthen local institutional systems (e.g. procurement, financial management, quality oversight, citizen participation), leading to increased resources available to address service and infrastructure deficits and improved operational efficiencies. Introducing increased focus on maintenance as part of ULG performance criteria, will also likely result in increased allocative efficiencies and more rational and strategic choices between new investments and maintenance of existing assets, thus increasing the overall rate of return of ULG investment expenditure. While these benefits are expected to be significant, it is difficult to determine their magnitude and flow over time. 60. The urban audits carried out as part of project preparation suggest that the main infrastructure needs of the ULGs are in the areas of road rehabilitation and/or resurfacing, street lighting, drainage, health and education facilities, public infrastructure such as markets and local bus and transport terminals, and small solid and liquid waste management facilities. Experience from elsewhere and from recently completed projects in Mali (Transport Corridors Improvement Project, National Rural Infrastructure Project) shows that these types of investments generally have substantial benefits. Road rehabilitation, a major priority according to the urban audits, generally has rates of return higher than opportunity cost of capital of 12 percent. 61. ULGs do not currently undertake economic analyses of their small-scale infrastructure projects. However, they will carry out feasibility analyses prior to construction in order to assess technical and financial feasibility. In the absence of more hard data on economic rates of return and economic costs and benefits of local level investments resulting from the PBGs, the project proposes to monitor the cost-effectiveness of local level investments by conducting an economic 19 analysis of a range of sub-projects as part of the MTR and end-of-project evaluations. These analyses will also serve as a tool for the ULGs to improve value for money of investments. 62. The feasibility studies carried out for component 2-A (Priority infrastructure investments for Bamako) calculates net present value (NPV) and economic rates of return using the Highway Development and Management (HDM-4) model. All investments are found to have positive NPV and rates of return between 15 and 39 percent. B. Technical 63. In accordance with current practice, officials at the ULG level are responsible for finalizing technical designs for investments that may be financed using the performance grants. These procedures include planning, procurement and execution, which are supported by the UCBMT to be put in place to support the ULGs. 64. The project will also strengthen processes for community participation in project planning, including through social audit approaches to oversight of ULGs performance. High levels of community awareness of ULG sub-projects together with improved reporting by ULGs on their expenditure activities upwards (supported under components 1, 2, and 3) is expected to lead to improved technical project quality. There is also extensive international evidence to show that when investments are identified through community participation processes, there are strong incentives for improved operation and maintenance. 65. During project implementation, detailed designs of infrastructure and cost estimates, preparation of bidding documents, including ESMPs and RAPs as appropriate, will be undertaken for the subprojects in each participating municipality. The procedures for doing this are set out in the PIM. Advance preparation of the detailed designs and bidding documents has been undertaken for the trunk infrastructure works in Bamako to allow start up of implementation as soon as the project becomes effective. For the secondary cities, construction supervision consultancies will be procured for effective supervision of the works either under the direct responsibility of municipalities for small-scale works or through delegated contract management arrangements for larger investments at the discretion of, and under the management of, the ULGs themselves. Capacity support will also be provided to enable municipalities to implement the RAPs, as appropriate, prior to commencement of works and in the implementation and monitoring of the ESMPs. C. Financial Management 66. A financial management assessment of the implementing entity, i.e. the Project Coordination Unit (PCU) established within and under the oversight of the MLAFU has been conducted by the Bank in accordance with the Financial Management Manual issued on March 1, 2010. The assessment has concluded that the proposed financial management arrangements to be put in place before effectiveness are acceptable in regards to the Bank’s minimum requirements under OP/BP10.02. 20 67. The overall financial management risk of the project is rated Medium Impact (MI) due significantly to (i) the implementation of a new approach of direct support to LGs and (ii) relative weak capacities of the targeted ULGs substantiated by the independent urban audit report issued on February, 2011. This audit concluded that minimum acceptable FM arrangements are in place with appropriate staffing in accordance of the local government code (Code des Collectivités Territoriales) but need to be reinforced to address the weaknesses. The risk at the local government level is rated MI. The following mitigation measures have been agreed in order to lower the risk to ML: (a) the elaboration of a Project Implementation Manual (PIM) including financial, administrative and accounting procedures before effectiveness; (b) the purchasing of appropriate computer hardware and accounting software not later than three months after effectiveness; (c) the involvement of Contrôle Général des Services Publics (CGSP) to carry out internal audits covering ULG’s activities on a regular and periodic basis; (d) the recruitment of an external auditor with qualifications and ToRs acceptable to the Bank not later than 6 months after effectiveness; (e) the recruitment of an internal auditor not later than 3 months after effectiveness for at least the first 12 months following effectiveness; and (f) recruitment, no later than six months after effectiveness, of the UCBMT (including a financial management specialist) to provide technical assistance to the ULGs. 68. Upon implementation of the proposed mitigation measures, the residual risk rating will change from MI (corresponding to previous “substantial” rating) to ML (corresponding to previous “moderate” rating scale used). 69. In line with the Paris Declaration, the project will focus on improving the capacity of ministries and central systems. A gradual approach for using the country system will be considered subject to the implementation of the action plan. This will be done in light of the Bank Economic Sector Work on Mali PFM system.8 70. Two designated accounts will be opened: (i) DA-A in a commercial Bank, before effectiveness for transactions under all components of the project except component 1-A and (ii) DA-B in the Central Bank (BCEAO) for the component 1-A, from which funds will flow to the four (4) involved ULG’s regional treasury accounts (operational accounts) under performance criteria. Both accounts will be managed (signature, authorization and record of transactions in the national system) by the Treasury (a public accountant designated for the project) in line with the gradual use of country systems and the instruction of the Ministry of Finance (09 00001- MEF-SG-21OCT.2009) 71. Through the DA-A the disbursement will be report-based. The replenishment of the account will therefore be made through Interim Financial Reports (IFR) produced by the PCU using the six (6) monthly forecasts as for the initial advance on the credit. 72. At ULG level, in addition to the annual administrative and management reports to be annexed to the IFR (cf. above comment), the mayor and his financial unit will prepare a semi- annual report that will be sent to the local government council and copied to the government (MATCL) that will review and redirect it to the PCU. The report of each of the four (4) ULGs 8 Mali: Country Systems review for project Financial Management, Final version Dec. 2009. 21 will also be annexed to the due IFR and will cover the summary of expenditures by sources of funds. 73. For activities to be financed under component 1-A, annual allocations based on performance criteria (as described in the PAD) will be transferred to the ULG’s regional accounts twice a year through the semester-basis IFR. 74. The FM arrangements are described in the Annex 3 and will be detailed in the accounting, administrative and financial procedures and the Disbursement Letter. 75. A Project Implementation Manual (PIM) including financial, administrative and accounting procedures should be elaborated before effectiveness and stated as effectiveness condition in the financing agreement. In addition to the adequate staffing already in place, the elaboration of the PIM will contribute to satisfy the Bank’s minimum requirements under OP/BP10.02 by effectiveness. D. Procurement 76. The Bank has assessed the country procurement regulation and found the principles and most of the procedures in compliance with Bank standards for procurement. However, in order that NCB procedure for goods and works becomes acceptable to IDA, some special provisions will be required (as detailed in Annex 3) regarding small contracts, advertisement, access for foreign bidders to participate in NCB, limitation of domestic preference, time to submit bids, evaluation and award process, standard bidding documents, fraud and corruption clauses in bidding documents, inspection by the Bank and obstructive practices, and debarment under national system. A procurement assessment carried was carried out in the five project municipalities and the PCU in September 2010. The assessment reviewed the organizational structure for implementing the project and the interaction between staff responsible for procurement and other relevant technical units of local government. 77. The overall procurement risk is rated High. The keys risks for procurement are: (a) inadequate capacity of municipalities to handle the volume of procurement for their respective activities under the project, (b) possible delays in the procurement process and poor quality of contract deliverables, and (c) inconsistencies between the national procurement procedures and the Bank procurement guidelines in the use of the National Competitive Bidding. 78. To address the above risks areas, the following actions are envisaged: (a) Intensive capacity building for procurement staff and ULG engineers including staff involved in the procurement decision-making process and tender committee members, customized and hands-on training on procurement focusing on: procurement planning, preparation of bidding documents, evaluation of bids or proposals, and procurement documents filing; (b) Preparation of standard bidding documents for NCB procurement that incorporate a list of identified exceptions to the Public procurement Code that take account of the Bank’s fraud, anti-corruption and other procurement provisions; (c) Appointment of two proficient and experienced procurement specialists to support the development of procurement capacity of municipalities through the mobile team (UCBMT) funded under the project; the consultants would have specific 22 performance criteria in their TOR to measure the effective knowledge transfer to staff within municipalities. It is essential that at all times responsibility for all procurement-related activities remains directly with the staff of the participating municipality; (d) preparation of a section in the PIM that comprises a simplified procurement manual detailing all applicable procedures, instructions and guidance for implementing the NCB procedures as modified and reflected in the procurement manual in the PIM. This should be disseminated to staff involved in the project implementation during the project launch workshop; (e) Capacity appraisal of all municipalities during the first year of the project. These appraisals will help identify core gaps and specific weaknesses for each participating cities in procurement and suitable training provided; (f) The use of procurement agents contracted directly by the ULGs and responsible directly to them, for assistance in the event that international competitive bidding is required; (g) Set up adequate records management for projects documents, including adequate space and office furniture for filing; (h) The Bank will conduct a project launch workshop that will include a program dedicated to procurement and the use of the simplified procurement manual; and (i) exposure of the LG staff to best practices elsewhere and/or other cities. 79. The capacity assessment of the implementing entities has recommended: (a) supervision missions every six months to visit the field, and (b) at least one annual post procurement review. Post-reviews consist of reviewing technical, financial and procurement reports on procurement actions carried out by the PCU by Bank staff or consultants selected and hired by the Bank according to procedures acceptable to the Bank. For activities carried out by the municipalities, such reviews would be carried out by the PCU (or agents it hires on its behalf), and the Bank would participate as appropriate. E. Social 80. The social impacts of the proposed project activities are expected to be positive. The activities to be undertaken by the ULGs will improve their capacity to deliver better services, be transparent, use resources effectively and thereby improve the living conditions of their respective communities. 81. The issue of social accountability is a focus for the project, with civil society and Community Based Organizations (CBOs); Chefs de Quartiers are expected to play an important role in the project implementation. The project will support the rehabilitation and construction of infrastructure and urban services that will help improve the living conditions of many people living in project cities. The project beneficiaries will have improved access to all-year passable roads in neighborhoods that will be drained in Bamako. The project will increase the capacity of local governments to manage urban services, resulting in positive changes to living conditions. 82. From a social safeguards perspective, the activities likely to be undertaken by the ULGs using the grant funds may impact on livelihoods, restrict access and may involve land take. Given this potential, the project triggers the World Bank policy on involuntary resettlement, OP 4.12 for which the Government has prepared a Resettlement Policy Framework (RPF) to guide the response to any potential social impacts. The preparation of the framework is critical because overall the exact location and types of sub-projects to be undertaken by the respective ULGs are not known at this stage. The framework therefore outlines the broad intervention areas to guide compliance to the safeguards policies as a way of avoiding the impacts altogether or reducing the 23 impacts through appropriate mitigation measures like compensation and livelihood restoration where applicable. The RPF has been prepared through a consultative process and disclosed in the country as well as at the World Bank’s Infoshop prior to appraisal. Resettlement Action Plans will be prepared during activity implementation when required. 83. It is worth mentioning that for the District of Bamako part of the expected investments were identified during project preparation. However, during the preparation mission, the team conducted a field mission in Bamako to assess the potential social impact of the identified civil works. It has noticed minor activities (temporary streets-sellers and 5 kiosks are encroaching the corridor). As the PAP numbers are relatively minor (less than 16 persons in total) and the impact will be temporally limited, it has been agreed with the Mayor of Bamako to undertake a consultation with these PAPs to establish an agreed memorandum of understanding to be followed up prior to and during implementation of project activities. F. Environment 84. The project is classified as category B. The environmental safeguard issues of the proposed ULGSP are associated with the activities of the PBG. The project will provide performance-based funds to municipalities that can be used for civil works in accordance with the ULGs’ functional responsibilities as defined in law, circumscribed by a negative list of ineligible investments 85. The overall environmental impact of the project is expected to be positive. Significant positive impacts to the natural and socioeconomic environments will be achieved by the participating ULGs. However, negative impacts may arise such as minor/moderate soil and water resources pollution, increasing of noise level in resident areas, potential health risks on surrounding communities, which occur essentially during construction and likely during exploitation phase if accurate and anticipated mitigation measures were not set in place. These impacts will be temporal, localized, and proper mitigation measures prior to, during and after construction, could minimize or even eliminate them. 86. At the time of project preparation, apart from the Bamako component, the exact location, nature and number of investments and/or services are not yet known. Thus, an ESMF for the overall project has been prepared to ensure that all investments will be adequately screened for their environmental and social impacts, and that correct procedures are followed to mitigate and minimize any risk or negative through ESMP as necessary. A draft Environmental and Social Impacts Assessment (ESIA) report is available for the Bamako component. 87. The ESMF and RPF were disclosed in-country and in the Infoshop on April 25, 2011 prior to project appraisal. The project will contribute to the ESMP implementation and follow through at national and local levels, including through building adequate capacity in each municipality to assist with the implementation of the ESMF and RPF. 24 Overall readiness 88. A number of mitigation measures are foreseen to address the highlighted weaknesses, specifically regarding fiduciary aspects in ULGs, but most of these relate to activities to be implemented as part of the project support to strengthening ULG performance. The UCBMT will play a central role in supporting capacity strengthening of ULGs in financial management and procurement. The ULGs will only begin accessing the investment grant funds 12 to 15 months after the project becomes effective, providing them the opportunity during that time to benefit from the intensive capacity support initiatives provided under the project. In addition, the annual allocations of the investment funds start relatively slowly and increase incrementally, year by year. The ULGs will also be able to use procurement agents to the extent they perceive this as necessary to overcome initial capacity constraints. Specific additional provisions have been included to address fiduciary concerns, including: (a) the purchasing of appropriate computer hardware and software for the PCU, (b) the elaboration of an MoU with CGSP for internal audit activities, (c) preparation of standard bidding documents for NCB procurement, and (d) preparation of the PIM. Concerning social and environmental safeguards, the necessary studies have been completed, and adequate capacity strengthening is to be provided to ULGs during implementation. The project design has taken into account fiduciary and safeguards challenges by being realistic in designing the procedures, standards and flexibility needed in an evolving institutional environment. Based on these measures, the project is deemed ready for implementation. 25 Annex 1: Results Framework and Monitoring MALI: URBAN LOCAL GOVERNMENT SUPPORT PROJECT Project Development Objective (PDO): To support strengthened institutional performance of targeted urban local governments. PDO Level Results Unit of Measure Baseline Cumulative Target Values Frequency Data Source/ Responsi- Description Indicators Core (FY11) FY12 FY13 FY14 FY15 FY16 FY17 Methodology bility for (indicator Data definition etc.) Collection Indicator One: Percentage 0 (No n.a. 50 75 75 100 100 Annual Annual DNCT According to the Percentage of urban local performance independent responsible conditions set out governments meeting evaluation performance for the data in the PIM for the mandatory minimum done yet)9 evaluation collection four secondary conditions for access to report process, cities. First performance grant funds PCU to performance contract the evaluation to be independent completed in audit and June 2012 performance evaluation team Indicator Two: Percentage 0 (No n.a. 20 40 60 80 80 Annual Annual DNCT According to the Percentage of urban local performance independent responsible performance governments achieving at evaluation performance for the data criteria set out in least 75 points on the done yet) evaluation collection the PIM. First annual performance report process, performance evaluation PCU to evaluation in contract the June 2012, with independent different criteria audit and for the four performance secondary cities evaluation and Bamako to team obtain 75 points (Bamako will only be evaluated on performance in operation and maintenance of infrastructure) 9 Assessment of local governments has been undertaken as part of project preparation, but no performance measurements that would enable scoring is yet in place. 26 Indicator Three: Percentage 0 n.a. n.a. 5% n.a. n.a. 10% Three times Citizen score DNCT to This indicator Increase in scores on during the card surveys lead citizen covers the four citizen’s perception of project score card secondary cities, their engagement with (effectiven survey on the basis of local government councils ess, MTR score card and their perceptions of and project surveys. The urban management closing) increase is based on the baseline – 5% increase in score at the time of MTR (compared to the 2011 baseline) and 10% increase at the end of the project (compared to the 2011 baseline) Indicator Four: A Number PBGS does 0 0 0 1 1 1 Annual Annual DNCT performance-based grant not exist. Adjustm PBGS performance system is established in FNACT exists ents to exists assessments all project cities and ready but does not PBGS with and MTR used to roll out to other ULGs support LGs made operatio- to track in the exercise nal progress and of their strategy make mandate and for roll- adjustments to is not out PBGS. Final performance (ICR) based. evaluation to determine readiness of PBGS to roll- out. Indicator Five: Direct Number (%) 0 (0%) 0 33,000 48,000 75,000 88,000 88,000 Annual Project CPS of Population of project beneficiaries (50.4%) (50.4%) (50.4%) (50.4%) (50.4%) progress MLAFU to project cities (number), of which reports, surveys collect data benefiting female (percentage) feeding into directly from urban investments. database Numbers included in results framework are based on known investments in 27 Bamako and will be updated based on demand- driven investments by secondary cities 28 INTERMEDIATE RESULTS Intermediate Result (Component One): Unit of Measure Baseline Cumulative Target Values Frequency Data Source/ Responsi- Description Core (FY11) Methodology bility for (indicator FY12 FY13 FY14 FY15 FY16 FY17 Data definition etc.) Collection Intermediate result Percentage of 0 (No grant n.a. 100 100 100 100 100 Annual Copy of letter DNCT indicator One: ULGs allocations notifying ULGs Local governments are available at of allocations informed of the project outset) and newspaper allocations for the clippings subsequent year before the start of the budgeting process Intermediate result Percentage of 0 (No funds n.a. 100 100 100 100 100 Annual Treasury DNCT Release of indicator Two: Timely funds released accounts based on allocated funds release of funds to local available at Treasury by tranche no governments project outset) reporting later than January 15 and July 15 for the same year Intermediate result Percentage At appraisal, n.a. 25% 50% 50% 75% 75% Annual Budget reports DNCT to Target values to indicator Three: the ULGs and technical collect data, be determined in Percentage of ULGs have a audits PCU to the PIM getting 100 percent of downward report score on percentage trend in own variation between actual revenue own source revenue collection (OSR) collected and the OSR targeted in the budget, according to performance evaluation criteria Intermediate result Percentage 0% 75 100 100 100 100 100 External budget DNCT Indicator relates indicator Four: Municipal audit reports to the four budget reports timely for four secondary cities generated and acceptable secondary external audits cities 29 Intermediate result List with 0 n.a. List List List List List Annual LG investment CPS of List can be used indicator Five: numbers and available available available availabl available plans and MLAFU to to inform any Disaggregated list of type of and and e and and physical collect data additional core investments by type and subprojects updated updated updated updated progress feeding into indicators to be sector10 reports11 urban included in the database M&E framework Intermediate result Percentage 0% n.a. 50% 75% 75% 100% 100% Annual Existence of PCU Percentage of indicator Six: Asset asset inventory secondary cities inventory completed and with annual completing and updated yearly update updating inventory annually, including condition analysis Intermediate Result (Component Two): Intermediate result Number 0 0 20,000 20,000 47,000 60,000 60,000 Annual Works PCU indicator One: Number of supervision people in urban areas reports provided with access to all-season roads within a 500 meter range under the project Intermediate result Kilometers 0 0 1.6 1.6 4.1 6.2 6.2 Annual Works PCU indicator Two: Roads supervision rehabilitated (non-rural) reports Intermediate result Number 0 0 13,000 28,000 28,000 28,000 28,000 Annual Works PCU Beneficiaries indicator Three: Number supervision from drainage of people with access to reports works include improved drainage in the people living in areas served by the drainage project catchment areas 10 If financed investments are done in areas where CORE indicators exist (energy, water, urban etc), the applicable CORE indicator will be included in the ISR. 11 As sub-projects are not yet known for the secondary cities (and therefore beneficiaries), it is not appropriate to set targets. The indicator will be monitored during project implementation. 30 Intermediate result Kilometers 0 0 1.6 3.3 3.3 3.3 3.3 Annual Works PCU indicator Four: Drainage supervision constructed reports Intermediate result Number 0 0 1 1 1 1 1 Annual Existence of PCU Asset inventory indicator Five: Asset asset inventory to include inventory completed and with annual condition updated yearly for update analysis Bamako Intermediate result Number 0 0 0 1 1 1 1 Annual Availability of DNCT Local indicator Six: New New New reporting law governing government metropolitan authority in local local on progress the new elections take place for Bamako and gov. for gov.fully Bamako place subject to operational Bamako operatio- metropolitan enactment of law in place nal authority and governing the after publication of new Bamako local election results metropolitan gov. by MTR. authority. This is elections Presence of not a trigger of development any Bank and investment financing strategy for Bamako, adopted by the new authority before project closing Intermediate Result (Component Three): Intermediate result Percentage 0% 0% 20% 50% 70% 75% 75% Annual ULG semi- DNCT Indicator below indicator One: Percentage annual 100 percent to of elected representatives summary take into account and key LG staff having financial as natural turnover followed a minimum well as package of training narrative according to the training progress plan to be prepared by reports to each ULG council 31 Intermediate result Percentage 0% 100% 100% 100% 100% 100% 100% Annual Annual PCU indicator Two: Local independent government performance performance assessments conducted on evaluation time report Intermediate result Number 0 0 0 0 1 1 1 Annual Project PCU indicator Three: Strategy progress report for Greater Bamako available Intermediate result Number 0 0 0 0 1 1 1 Annual Project CPS / PCU indicator Four: Urban progress report and local government database established and operational with annual reports produced Intermediate results Number 0 0 0 1 1 1 2 By MTR Existence of DNCT indicator Five: and project evaluation Performance evaluation of closing report Urban Capacity Building Mobile Team carried out 32 Annex 2: Detailed Project Description 1. The project will target five cities: Bamako, the capital, and four secondary cities (Kayes, Sikasso, Ségou and Mopti)12. Particular emphasis is placed on the secondary cities in order to increase their economic competitiveness with Bamako, and hence their ability to capture a greater share of the demographic shift to the urban areas, in line with the SDVM objectives. The cities were selected based on criteria of population size, economic potential (existence of an industrial zone or special economic zones), and continuity with the previous urban operation, the PDUD. The project will allow the participating cities to achieve: (a) effective and responsive planning to meet service delivery priorities identified by citizens (allocative efficiency/participation objective), (b) improved financial management and more effective operations and management of infrastructure assets (sustainability objective), (c) improved dissemination to the public of budgets/plans and achievement of performance measures (accountability objective), and (d) effective implementation of the annual capital investment plans (service delivery improvement objective). All these outcomes will be included in the annual performance assessments, as described below. Design considerations 2. In the past alternative institutional structures have been utilized to offset limitations in ULG capacity, such as project implementation units and delegated contract management. However, as described in the lessons learned section in the main text, experience both in Mali and elsewhere indicates that capacity can only be developed effectively when actual responsibility is transferred to the ULGs themselves. Consequently, the key design principle for the project will be to create the appropriate supporting institutional framework and the direct delegation of responsibility and accountability to the ULGs for improved performance in local service delivery. To achieve the PDO (“to support strengthened institutional performance of targeted urban local governments“), a framework will be built around creating a “virtuous circle” comprising three interdependent elements: (a) a fiscal system that establishes predictable fiscal flows to ULGs, but subject to incentives for performing well, (b) an independent assessment of performance that is disclosed to the public, and that intermediates the amount of the annual fiscal transfer the city qualifies to receive, and (c) “just-in-time” access to a menu of capacity support measures that will strengthen the ULG’s ability to meet the performance criteria on which it is being assessed, and hence gain full access to the fiscal transfers available to it. 3. The approach under the project is designed to establish the framework described above and to test it on a selected number of ULGs through a decentralized fiscal management relying on (a) the Treasury under the Ministry of Economy, and (b) the two oversight ministries respectively responsible for decentralization and urban development i.e. MATCL and MLAFU. Project preparation has been focused on utilizing existing structures to the extent possible. Hence, the possibility of transferring resources through FNACT to the ULGs was examined carefully. However, it became apparent that following the procedures of FNACT, as managed by ANICT, would entail a projectized approach, with ANICT holding responsibility for approving ULG investments, and thus substantially diminishing the transparent and direct accountability of 12 Population size according to the 2009 census: Bamako: 1,809,106. Sikasso: 225,753. Ségou: 130,690. Kayes: 127,368. Mopti: 114,296. 33 the ULGs to their electorates. The prospective role of ANICT in the fiscal transfer process remains to be further examined. The Bank is about to launch, in parallel with the ULGSP, an initiative with the government through a Governance and Budget Decentralization Technical Assistance Project that is designed, together with other components, to assess and clarify ANICT’s role, and strengthen its effectiveness. The experience gained from the ULGSP, taken together with that of the Technical Assistance Project, is expected to be translated into adjustments to the existing fiscal transfer and oversight architecture for scaling up and mainstreaming into the government’s fiscal and performance support and monitoring systems for all urban local governments in Mali. An assessment of the overall process will be undertaken, and will from part of a mid-term review of general project progress that is proposed to take place 36 months after effectiveness, in order to make adjustments as necessary. The assessment will be repeated at project end to determine whether and how to mainstream/scale up the system. 4. The project consists of four components. Components 1 and 2 target secondary cities and Bamako respectively, but with differences in approach due to the ongoing administrative restructuring of Bamako and its special infrastructure needs, as outlined in the context section. While Component 1 (Performance-Based Investment and Capacity Building Grants for Secondary Cities) will focus on the implementation of the entire local government mandate, Component 2 (Priority Infrastructure Investment, Institutional Restructuring, and Capacity Support Grants for Bamako) will focus on infrastructure supply and related O&M arrangements, in line with the infrastructure being financed in Bamako. It also includes a grant supporting the establishment of an integrated metropolitan authority for Bamako. Component 3 (Institutional Capacity Strengthening) comprises targeted capacity building support to the five ULGs ranging from formal training to on-the job assistance, as well as support to the central agencies with primary local government/urban-related responsibilities, and technical assistance for selected studies and advisory services, including assistance with the proposed institutional reform for Greater Bamako. Finally, Component 4 (Project Management, Monitoring and Evaluation) finances management of the project and reporting on its overall progress with implementation. Project components Component 1: Performance-Based and Capacity Building Grants for Secondary Cities (US$29.0 million - 100% IDA) 5. This component will operate interdependently with project component 3 and is intended to operationalize the PBG for the secondary cities and support strengthening the ability of ULGs to provide and sustain the delivery of local services. The component comprises two sub- components: (A) a Performance-based Investment Grant, and (B) a Capacity Support Grant. The component will be implemented through Participating City Grant Participation Agreements (PCGPAs) signed between each ULG and the government. Sub-component 1-A: Performance-based investment grant (US$27.0 million – 100% IDA) 6. The sub-component finances annual performance-based grants to the four ULGs for infrastructure-related expenditures spread over a period of five years, with a one-year start-up phase. Potential investments, to be decided solely at the discretion of the ULG councils, in consultation with their communities, would be limited to those that are in accordance with the 34 ULGs’ functional responsibilities as defined in law, circumscribed by a negative list of ineligible investments Allocation Criteria 7. The size of the allocation for each city is determined by the total five-year funding envelope for this component, apportioned across the ULGs according to a formula based on population size as established in the 2009 census. The formula would establish the indicative five-year envelope each city could expect, divided into annual installments based on a modest allocation for the first year to take account of capacity limitations and, with the gradual strengthening of ULG capabilities supported under the project, followed by annual increments thereafter. Each year’s allocation would, additionally, still be subject to variation as determined by an annual performance assessment (PA). Table 1 shows the indicative grant allocation envelopes for each ULG. Table 1: Indicative Grant Allocation for Secondary Cities Share of secondary Indicative City Population city population allocation (US$M) Sikasso 225,753 38% 10.3 Ségou 130,690 22% 5.9 Kayes 127,368 21% 5.7 Mopti 114,296 19% 5.1 Total, four cites 598,107 100% 27.0 8. Using the average annual allocation for each ULG, the following formula has been derived to determine distribution of the indicative 5-year allocations: year 1 – 50 percent; year 2 – 80 percent; year 3 – 120 percent; year 4 – 150 percent and year 5 – 100 percent, and is illustrated in Table 2 and Figure 1 below. To further mitigate capacity-related risks, the annual allocations will be disbursed in two equal amounts every fiscal year: the first will be on January 15 and the second on July 15. The full annual allocation will be disbursed from the Bank to the Treasury on the basis of the allocation formula and the outcome of the performance assessment, with the Treasury disbursing half into the ULGs account on January 15, and the other half into the ULGs account on July 15, subject to receipt, by March 31, of the ULGs annual final administrative accounts for the preceding FY. Table 2: Indicative disbursement schedule for ULGs Indicative Year 1 (50%) Year 2 (80%) Year 3 (120%) Year 4 (150%) Year 5 (100%) ULG 5-year allocation 1 2 Total 1 2 Total 1 2 Total 1 2 Total 1 2 Total Kayes 5.75 0.29 0.29 0.58 0.46 0.46 0.92 0.69 0.69 1.38 0.86 0.86 1.73 0.58 0.58 1.15 Mopti 5.16 0.26 0.26 0.52 0.41 0.41 0.83 0.62 0.62 1.24 0.77 0.77 1.55 0.52 0.52 1.03 Ségou 5.90 0.30 0.30 0.59 0.47 0.47 0.94 0.71 0.71 1.42 0.89 0.89 1.77 0.59 0.59 1.18 35 Sikasso 10.19 0.51 0.51 1.02 0.82 0.82 1.63 1.22 1.22 2.45 1.53 1.53 3.06 1.02 1.02 2.04 Totals 27.00 1.35 1.35 2.70 2.16 2.16 4.32 3.24 3.24 6.48 4.05 4.05 8.10 2.70 2.70 5.40 Figure 1: Annual distribution of indicative allocation of performance grants to the secondary cities 3.50 3.00 2.50 Kayes 2.00 Mopti US$ (millions) 1.50 Segou Sikasso 1.00 0.50 - YR 1 YR 2 YR 3 YR 4 YR 5 Years 9. The allocation corresponds to an indicative five year allocation of about US$45 per capita, or US$9 per capita annually, roughly a four-fold increase over current levels. While this represents a significant increase, it has been assessed as reasonable in the context of the project for several reasons: (a) it serves as a lead into government’s policy of steadily increasing the share of the capital budget being allocated to the cities; (b) it provides an adequate level of incentive for the ULGs to undertake the performance reforms and improvements built into the grant; (c) it is big enough to have visible impact and enhance prospects for establishing a social contract between the ULGs and their communities; (d) it is linked to several intensive capacity building support measures to strengthen the ULGs’ absorptive capacity; (e) it builds on the recurrent budgets of the ULGs which demonstrate fiscal space for improved operation and maintenance of existing assets as well as new investments, subject to improved efficiencies in asset management; and (f) it can serve to address elements of the infrastructure backlogs characterizing the secondary cities, and in so doing support government policy of enhancing the ability of the secondary cities to attract a larger share of rural-urban migration. Performance Assessment Criteria 10. The annual allocation will comprise two parts. One, the core allocation, will represent 50 percent of the annual entitlement, and will be subject only to the ULG meeting a set of Mandatory Minimum Conditions (MMCs), most of which are essential legal requirements. Failure to meet any one of the MMCs (presented in Table 3 below) will disqualify the ULG from receiving any part of the grant for the forthcoming year. The MMCs have the advantage of being 36 objectively verifiable (either attained or not) to facilitate evaluation and transparent decision- making regarding grant allocation. 11. The second part of the annual allocation, which will represent the remaining 50 percent of the grant, will comprise the performance dimension of the grant and will be subject to the PA, which will be undertaken annually for each ULG participating in the project by a team of independent evaluators financed under component 3 and recruited by the PCU. The performance criteria will comprise a set of more comprehensive performance requirements in the areas of: (a) planning and budgeting, (b) administration and municipal finances, (c) project implementation and service provision, (d) accounting and audits, and (e) participation, transparency and accountability. 12. The scoring of the PAs will be undertaken according to a points system whereby each of the 14 performance criteria will be assigned a score, with a maximum possible total score for all the criteria combined being 100 points. The number of points assigned to each criterion out of the overall total of 100 points, to be weighted according to considerations of relative importance, will be agreed between the government and the Association and recorded in the PIM. In assessing whether a ULG satisfied the requirements of a particular criterion, the scoring will not be based on an all or nothing system, but on one that allows for partial scores, and the partial scores will be based on the PA taking into account pre-determined factors considered important in grading performance for that criterion. These factors, and the process for determining partial scores, will be set out in the PIM. Each ULG must achieve an overall minimum score of 75% on its annual PA to be eligible to receive the incentive component of the grant for the forthcoming year (50 percent of the total grant for that year), as well as achieving at least 50% for each sub-section (A through E) of the PA criteria. A ULG that is ineligible one year in the program either due to its inability to satisfy the MMCs (and so receiving 0 percent of the grant), or its inability to achieve the requisite PA score (getting only 50 percent of the indicative total annual grant), may be eligible the following year, subject to meeting the MMCs and minimum score on the relevant PA. The findings of the independent evaluators will be final and the results of their assessment will be submitted to the Project Steering Committee (PSC) for purposes of determining the forthcoming year’s allocations. A review to determine allocations based on the independent PA reports will be undertaken by the PSC, and the final allocation will be subject to the Bank’s no objection. Should the ULG fail to meet the MMCs or the PA in any given year, the funds will be assigned to the same ULG’s indicative envelope for the remaining years of the project. In the event that a ULG does not meet the MMCs for two successive years, 100 percent of its allocation for the first of those two years will be reallocated amongst the other ULGs according to the same allocation criteria (population). The same principle will apply to the PA, but in this case the reallocation would only affect 50 percent of the grant for that year. Table 3: Mandatory Minimum Conditions and Performance Criteria Mandatory Minimum Performance-based Indicators Comments on Performance- Conditions (MMC) based Indicators A. Planning and budgeting 1. Annual budget adopted by the 1. Preparation and thereafter Currently the ULGs do carry out local government council of the annual updating of three-year investment planning, in principle Participating City within the time capital investment programs aligned to a 5-year Economic and 37 prescribed by law. (CIPs) completed annually, and Social Development Plan. adopted by the local government However, the current practice is council of the Participating City to adapt the plans in an ad hoc by not later than September 30 manner to allow the ULGs to each year throughout the access funds transferred via the Implementation of the Project. FNACT when they are announced late in the budget year. 2. Adoption of an annual To operationalize the budget. procurement plan by the mayor of the PC by not later than January 1 each throughout the Implementation of the Project. 3. Inclusion in the annual Assuring that ULGs are municipal budget of the PC of: programming for the necessary (i) own source revenue collection maintenance needs. targets established pursuant to the revenue enhancement plan; and (ii) adequate funding for operations and maintenance requirements as derived from the asset management plans B. Administration and municipal finance 2. Continued appointment of a 4. Continued appointment of Several ULGs do not have qualified secretary-general of the heads of municipal technical qualified staff in place in these local government council of the services and financial key positions. PC each year throughout the departments each year Implementation of the Project throughout the Implementation of the Project. 5. Preparation and annual Monitoring the intention to carry updating of an own source out sound management of assets revenue (OSR) enhancement plan and generation of revenue from to be completed and adopted by market infrastructure. the local government council of a PC by June 30 each year throughout the Implementation of the Project 6. Percentage variation of not Evaluating the success of the more than 45% between actual effort to carry out sound OSR collected and the OSR management of assets and amount targeted in the budget. generation of revenue from market infrastructure. 7. Preparation of an annual asset Links the investment and budget inventory by the local planning processes with the government council of a PC by quality of expenditure, keeping not later than June 30 each year track of the value of municipal throughout the implementation of assets. the Project including: (i) a condition analysis, (ii) a maintenance and improvement 38 plan linked to the CIP, (iii) an estimate of funding requirements for the forthcoming fiscal year. 8. Variance between asset Measures capacity to achieve management plan/budget and satisfactory O&M standards and actual implementation of not sustainability of investments. more than 20%, measured in terms of: (i) funds utilized, and (ii) works completed. C. Project implementation and service provision 3. Investments undertaken 9. A minimum level of 70 Measures capacity to implement consistent with eligible percent of expenditures planned an investment program. expenditures. in budget for capital investments achieved. 10. Demonstrated capacity to Measures capacity to address effectively implement the efficiency objectives in procurement plan in a timely implementing an investment manner and to understand program. procurement procedures. 11. Demonstrated capacity to Ensures that the ULGs are effectively manage social and respecting acceptable safeguards environmental issues in norms for infrastructure planning accordance with the Safeguards and that the ULGs are not Instruments. subjecting their citizens to undue nuisances caused by investments. D. Accounting and audits 6. External audit without adverse 12. Demonstrated capacity to To verify that ULGs are opinion or identification of implement external audit addressing any shortcomings in mismanagement. recommendations in a timely accounting practices. manner. E. Participation, transparency and accountability 5. Budgetary procedures 13. Public consultations for To keep track of whether the concerning public consultation in preparing the three year capital ULGs are adhering to essential the preparation of the annual investment plans and the annual requirements regarding citizen budget of the PC in accordance budget are undertaken in participation in urban and with the Recipient’s legal accordance with the Recipient’s municipal management. requirements. legal and regulatory requirements. 14. Mayor of the PC provide ULGs are strengthening semi-annual financial and accountability linkages upwards, narrative progress reports to local and to their citizens. government council of the Participating City, the Recipient’s government and thereafter discloses the information to the public within seven working days of approval. 39 Performance Assessment Cycle 13. At the start of the project, the four secondary cities will be provided with indicative allocations for each year of project implementation, with funding for five consecutive years commencing in FY2013. Hence the PA process will start in 2012 (based on the achievements of the 2011financial year). The assessment process runs through June of each year, following which the DNCT receives the evaluations. The evaluations are final, with DNCT only conducting a quality control review of the accuracy and consistency of the collected data (to be undertaken according to procedures elaborated in the PIM before submitting the assessments to the PSC. The review of the reports of the PAs and the related process of determining annual ULG allocations will be undertaken by the PSC in consultation with the Bank, and the decision of the final allocations will be subject to Bank no objection. Based on the performance evaluation (Table 5 below sets out, for each MMC and assessment criterion, the year from which the data will be derived for the particular year under review) the PSC notifies the ULGs, in July of year n, in advance of the investment planning and budget process, of their allocation for year n+1. These allocations will be made publicly available in newspapers, through local radios and other online instruments at the same time the cities are notified. Once confirmed, the findings are final. To ensure reliability of the process, an independent audit of the process, by a firm of auditors competitively selected, will be undertaken at the end of years one, three (MTR) and five of the grant cycle. In addition to the described formal verification process and the audits, the World Bank will carry out quality assurance of the assessment process through spot checks as part of project supervision. Figure 2: Local government budgetary cycle and the performance assessment process.   1st tranche for FY N disbursed 1 Jan 1 Dec 1 Feb Commune budget for FY N+1 approved 1 Nov LG budget report 1 Mar submitted Commune budget for FY N+1 adopted by Council & submitted to Govt. PA team selected 1 Oct 1 Apr & mobilized Draft Commune budget for FY N+1 prepared and presented to communities Community consultations 1 Sep begin on CIP 1 May Community consultations Annual PA end on CIP begins 1 Jun Allocation for FY 1 Aug N+1 officially announced 1 Jul Annual PA ends nd 2 tranche for FY N disbursed 40 14. The ULG financial year runs from January 1 to December 31. The timelines for activities in this component are based on the existing annual public expenditure management cycle of ULGs. The annual timeline for each financial year of the project will be included in the PIM. Based on actual grant allocations, community consultations on investment priorities are completed by September 30, at which time the draft budget is prepared by the Mayor. The draft budget is submitted to the LG council and discussed in a public budgetary session during October, before being finalized by the Mayor and adopted by the council by October 31. The budget then has to be submitted to the oversight ministry (MATCL) and approved by December 31. A light evaluation process will confirm that the indicated grant amount allocated reconciles with figures presented in the ULG budgets. The tables below set out the performance assessment timeline and its linkages to the budget cycle. Table 4: Years, periods and dates for MMC indicators Malian FY for which allocation is to be made: MMCs (summary) 2013 2014 2015 2016 2017 1. Budget adopted Budget for FY Budget for FY Budget for FY Budget for FY Budget for FY on timely basis 2012, 2013, 2014, 2015, 2016, prepared in prepared in prepared in prepared in prepared in 2011 2012 2013 2014 2015 2. Secretary Inapplicable Over the 12 Over the 12 Over the 12 Over the 12 General in months prior months prior months prior months prior place to assessment, to assessment, to assessment, to assessment, FYs 2012-13 FYs 2013-14 FYs 2014-15 FYs 2015-16 3. Investment Inapplicable Expenditures Expenditures Expenditures Expenditures expenditures in FY 2012 in FY 2013 in FY 2014 in FY 2015 are eligible 4. Clean external Accounts for Accounts for Accounts for Accounts for Accounts for audit FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 5. Open and Inapplicable Budget Budget Budget Budget public budget session 2012 session 2013 session 2014 session 2015 session Table 5: Years, periods and dates for Performance Criteria indicators Performance Criteria FY for which allocation is to be made: (summary) 2013 2014 2015 2016 2017 1. Existence of 3-year By June 2012 By June 2013 By June 2014 By June 2015 By June 2016 investment plans 2. Existence of annual FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 procurement plan 3. Operations and Inapplicable Inapplicable FY 2013 FY 2014 FY 2015 maintenance expenditures 4. Qualified staff in FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 finance and technical departments 41 5. Existence of By June 2012 By June 2013 By June 2014 By June 2015 By June 2016 revenue enhancement plan 6. Increases in own- Inapplicable Inapplicable FYs 2012-13 FYs 2013-14 FYs 2014-15 source revenues 7. Asset inventory & Inapplicable By June 2013 By June 2014 By June 2015 By June 2016 asset management plan 8. Implementation of Inapplicable Inapplicable FYs 2012-13 FYs 2013-14 FYs 2014-15 asset management plan (expenditures, etc.) 9. > 70% of Inapplicable Inapplicable FY 2013 FY 2014 FY 2015 investment budget executed 10. Implementation of Inapplicable FY 2012 FY 2013 FY 2014 FY 2015 procurement plan and compliance with procurement procedures 11. Application of Inapplicable FY 2012 FY 2013 FY 2014 FY 2015 ESMF procedures 12. Implementation of Inapplicable FY 2012 FY 2013 FY 2014 FY 2015 audit recommendations 13. Community Inapplicable FY 2012 FY 2013 FY 2014 FY 2015 consultations 14. Regular reporting Inapplicable July-Dec July-Dec July-Dec July-Dec to LG councils 2012, Jan- 2013, Jan- 2014, Jan- 2015 Jan- June 2013 June 2014 June 2015 June 2016 15. Accountability for all ULG funding, including the PBG, will be subject to the requirements of budget and planning and accounting rules and procedures of the government, which are based on the associated laws and regulations in effect. All expenditures must conform to the functions assigned to ULGs in legislation, circumscribed by a negative list. The full list of ineligible expenditures (including activities excluded for environmental or social reasons, having negative trade characteristics, activities which exclude people or provide private/individual profit, and specifically purchase of vehicles for administrative purposes, construction of housing for LG officials, and funding of entertainment or meals for guests) will be included in the PIM. Sub-component 1-B: Capacity support grant (US$2.0 million – 100% IDA). 16. The sub-component will comprise two elements. The first provides grant funding for each of the four participating ULGs in the amount of US$150,000 to establish a basis for sound operational and maintenance systems and management. This would include: (a) creation of asset registries for the key services for which ULGs have primary responsibility, (b) completion of condition analyses of these assets, (c) establishment of a data management system of the asset condition register for ensuring that up-to-date records can be established and maintained, (d) preparation and operation of an O&M management plan, (e) updating the asset registry and 42 condition assessment annually and revising the O&M management plan to reflect the new information, (f) ensuring that the O&M plan is reflected in the annual budget, and (g) purchasing of training to assist with setting up, operating and maintaining the asset management system. The system would be based on a common framework to be developed by the PCU on behalf of MLAFU. 17. The second element comprises demand-driven capacity support of up to US$70,000 per annum per ULG, based on the needs established by each ULG to assist them to enhance their ability to meet the requirements of the performance assessments. While the UCBMT (which is recruited and managed by the PCU) will assist the ULGs in determining their needs, which can span the whole range of their mandate as addressed under the five themes covered by the performance evaluation, the funds under 1-B are specifically available to the ULGs to recruit, to their own accounts, short-term expertise and/or to commission specific studies and analyses to assist them to undertake the work needed to meet the performance requirements. In line with the objective of making the ULGs responsible for their own performance and evaluation, the capacity grant will provide discretionary resources the ULGs can use for technical assistance and/or studies to help them meet the MMCs or PAs, including hiring short term expertise for specific, MMC and/or PA-related requirements. The size of the allocation for each city is determined per year, within the US$70,000 ceiling, based on priority needs identified through the organizational and financial audits carried out during project preparation, as well as the findings of the annual PAs. The ULGs will be required to prepare annual proposals on the use of their capacity support grant in the context of the normal budget cycle, to be submitted to the PCU for review and approval. The proposals must demonstrate specific linkages to the ULGs’ efforts to satisfy the PA requirements. Component 2: Priority Infrastructure Investment, Institutional Restructuring, and Capacity Support Grants for Bamako (US$24.5 million - 100% IDA). 18. The component will be operating interdependently with project component 3 and is intended to address the delivery of essential flood-related infrastructure works in the Bamako District, together with satisfactory operation and maintenance practices, and to support the establishment of institutional arrangements for managing the greater Bamako urban area. The component comprises three sub-components: (A) Phased grant funding of road and drainage system rehabilitation, (B) Capacity support grant, and (C) Assistance with implementation of the law, once enacted by government, for establishing a unified and integrated metropolitan authority for Bamako. The component will be implemented through a Bamako Grant Participation Agreement to be signed between the local government of the District of Bamako and the government. Sub-component 2-A: Phased grant for roads and drainage rehabilitation (US$19.0 million – 100% IDA) 19. This sub-component will finance critical infrastructure investments for the rehabilitation of drainage and related road works required for urgent health and safety reasons. These investments have been identified as a high priority by government. However, this sub-component will not be subject to the performance requirements to be applied to the ULGs participating in component 1 because Government has taken the decision to integrate the Bamako District 43 Council and the six urban communes that fall within the same general physical region comprising the greater urban area of Bamako into a single, unified institution. Setting performance indicators for the separate entities while they are in the process of being restructured was viewed as ineffectual. Consequently, since the drainage investments are considered essential, it was determined to proceed with them, subject to the District of Bamako meeting agreed annual operating and maintenance targets. 20. The drainage works comprise four packages, each physically distinct and independent of the other three, and each falling entirely within a single urban commune. The allocation of funds to each package will be commensurate with the amounts estimated for its construction as determined by the technical studies. Each of the four packages is to be treated as a sequential phase of construction. Works for the first phase will be launched directly upon project effectiveness. Thereafter, sequential release of funds for the remaining three phases would be subject to an assessment of whether Bamako had met agreed operation and maintenance targets (see sequencing requirements below and O&M provisions under sub-component 2-B). Failure to meet these targets will result in withholding of the grant for the next proposed phase until the requisite standards have been satisfied. The District council will retain full responsibility and accountability in implementing the project. 21. In order for this sub-component to proceed, the District of Bamako administration must confirm which package (and in which commune) will come first. This confirmation would comprise part of an implementation plan the District would submit that would show the sequencing of all four packages it was proposing. Submission of the implementation plan would represent a condition for the release of funds for the first package. The release of funds for the second package would be subject to progress with asset management by the District (supported under sub-component 2-B) as follows: (a) completion of preparation of an inventory of all physical assets for which the District of Bamako is responsible, as well as a related condition analysis according to a format to be provided by the PCU; and (b) preparation of an asset management plan for the forthcoming FY with resource requirements identified and shown to be included in the FY13 budget. The assessment would be timed to precede the beginning of FY13. For release of funds for packages three and four, there would be an annual performance assessment to be undertaken prior to the commencement of the forthcoming FY, and the assessment would be based on successfully undertaking the following actions: (a) the updating of the asset inventory and condition analysis to reflect current status; (b) a revised asset management plan reflecting the updates and indicating the funding levels required; (c) evidence that these funding levels are included in the budget for the forthcoming year: and (d) an evaluation of the implementation of the asset management plan for the year preceding the next package that demonstrates that 75 percent of the plan has been implemented (as measured by physical works and expenditure levels). Progress towards meeting these O&M targets will be verified by independent consultants/technical auditors to be financed under component 3. The arrangements and process for undertaking the assessments is detailed in the PIM. Sub-component 2-B: Capacity support grant (US$1.5 million – 100% IDA) 22. The sub-component comprises two parts. One part (US$250,000) would address operation and maintenance performance by the Bamako District, would be linked to the process elaborated under sub-component 2-C below, and would include: (a) creation of asset registries 44 for the key services for which the District has primary responsibility, (b) completion of condition analyses of these assets, (c) establishment of a data management system of the asset condition register for ensuring that up-to-date records can be established and maintained, (d) preparation and operation of an O&M management plan, (e) updating the asset registry and condition assessment annually and revising the O&M management plan to reflect the new information, (f) ensuring that the O&M plan is reflected in the annual budget, and (g) purchasing of training to assist with the setting up, operating and maintaining the asset management system. The system would be based on a common framework to be developed by the PCU on behalf of MLAFU. 23. The other part of these funds (US$1.25 million) will be available in amounts of up to US$250,000 per annum to the Bamako District to assist it in supervising the implementation of the drainage and road works. These funds would serve as discretionary resources for hiring technical assistance for specific tasks or bringing in short term expertise, as needed. The District would be required to prepare annual proposals in the timeframe of the normal budget cycle, to be submitted to the PCU for prior review and approval. Sub-component 2-C: Institutional restructuring grant (US$4.0 million – 100% IDA) 24. Sub-component 2-C provides a grant of US$4.0 million to enable the newly established metropolitan authority to become fully operational. This component would depend on both the legal constitution of the new Authority and the election of its first chief executive and council members (currently targeted for mid 2014) taking place before it could be initiated. Regarding support to the restructuring, it would comprise the following elements: (a) a review and the preparation of proposals for any revisions to the regulations proposed under the new law; (b) preparation of a detailed structure plan for the new authority in the framework of the law, that addresses both political and administrative accountabilities and that is adopted by the council; (c) preparation of a strategy and action plan that is adopted by the new council for establishing and making operational the new structure; and (d) addressing in the strategy such issues as: (i) the integration of the separate accounts of the seven entities into a unified set of accounts; (ii) the preparation and approval of a single unified, consolidated budget for the new authority; (iii) completion of a unified asset inventory and condition analysis (iv) entering into service agreements with economic service providers; and (v) preparation of a communications and accountability plan. A participatory process for stakeholder involvement in the above initiatives would be designed with support under this sub-component. 25. Subject to progress being made with the above activities, this sub-component would also support the following: (a) preparation of a three- to five-year development plan for the metropolitan region that would include arrangements for community participation and that would focus on initiatives to integrate the district and the six communes, and would address critical infrastructure backlog concerns including access to basic services; (b) in consultation with communities, prepare both a three-year investment program based on the development plan, as well as a budget derived from the first year investment priorities established in the investment program; and (c) initiate, as appropriate, selected feasibility analyses and engineering studies. 26. It should be noted that the legal procedures for formally establishing the new Authority have not been completed and their passage may not take place in time to implement the activities 45 described above. There is funding under the project to begin identifying and preparing additional secondary cities to be in position to participate under the grant mechanism being introduced under component 1. Consideration could be given at the mid-term review, depending on progress with the establishment of the Bamako metropolitan authority, to reallocate these funds (US$4.0 million) to the additional ULGs, or to the four ULGs already participating in the project should the funds currently available under component 1 be fully and effectively utilized. Component 3: Institutional Capacity Strengthening (US$12.8 million - 100% IDA) 27. This component, operating interdependently with components 1 and 2, finances capacity building support to strengthen the ULGs to develop sound strategic management, administrative, financial and technical management systems and capabilities to effectively deliver local services. It will be coordinated and managed by the PCU. Assistance will include several complementary initiatives as follows: Sub-component 3-A: Capacity building for project municipalities (US$7.5 million – 100% IDA) 28. This sub-component will finance supply-driven capacity building activities to local government, in line with the minimum skills needed for them to carry out their mandate as follows: (i) Mentoring and “just-in-time” support in the form of a mobile team (UCBMT) comprising expertise aligned with the five themes covered by the performance evaluation. The mobile team would comprise 7 members as follows: a senior municipal administrator with extensive experience in the operation of urban local governments and the budget planning cycle, a municipal finance expert, a community development specialist, two procurement experts, an engineer, and a safeguards specialist. The mobile team would spend three to five days per month with each ULG, as needed, and is intended to provide on-the-job guidance, as well as respond on a timely basis to special requests for assistance. The PCU would be responsible for overseeing the operation of the UCBMT and providing logistical support. However, it is important that there be a direct line of communication and accountability between each ULG and the UCBMT. Hence, for day to day purposes, including ULG needs for non-routine inputs from the UCBMT, each city would contact the mobile team directly and it would adjust its program accordingly, informing the PCU ex-post of any change. The adjustment of the routine visits to accommodate the special requirements of the cities would thus be, first, undertaken by the UCBMT and then provided to the PCU for information. To this end, it will be important for the PCU, in consultation with the UCBMT, to establish a monthly operational framework that sets out fixed visits to the towns with time allowed for unscheduled support. In the event of non-responsiveness or the need to revisit the overall schedule, the PCU would then take the lead. The structure and role of the mobile team will be reviewed at the time of the MTR and adjustments made as necessary. This feature is designed to balance the need for intensive front-end support to assist the ULGs in responding effectively to the start-up demands of the project with the objective of not creating unsustainable long-term dependencies on technical assistance (US$7.2 million). 46 (ii) Training courses/modules to be provided by CFCT targeting: (a) the elected councilors, and (b) the responsibilities of key positions in the financial, technical and administrative departments of the ULGs. Some provision is made for developing new modules as determined during implementation (US$100,000). (iii)Preparation and dissemination of a framework for setting up and operating asset management registries and maintenance plans that can be standardized across all ULGs (US$100,000). (iv) Provision for peer-to-peer learning and exchanges, including regional interaction through exchange with countries more advanced on decentralization (US$100,000). Sub-component 3-B: Support to central government agencies (US$1.75 million – 100% IDA) 29. This sub-component comprises the following elements: (i) Support to central and deconcentrated departments, particularly DNCT, Treasury, DNUH and DNACPN to carry out their mandate of assistance to the ULGs (US$400,000 million). (ii) Operation of an independent consulting firm to undertake annual performance evaluations, to be recruited by the PCU. Subject to satisfactory performance, the firm would remain the same for the duration of the project, and is expected to spend about ten weeks per year undertaking the assessments, preparing the reports of its findings, and being available to respond to points of clarification or explanation. As part of this sub- component, DNCT would seek to establish the modalities for establishing and operating a performance evaluation mechanism to continue after the project (US$1.0 million). (iii) Under the direction of the DNCT, and building on the system currently in place and supported by EU funded technical assistance, this element of the sub-component would contribute to expanding the urban sector and local government database, together with the requisite training to keep the data base current. The initial focus of the database will be on building the data base around selected indicators that align with the primary performance criteria of the PAs, and which serve to give the most telling and useful information about the performance of the cities. The data base would be designed to provide simple real time reports on individual cities, as well as comparative reports across several (or all) cities and that can provide historic data to track trends in performance against key parameters. The data base would be built for application by the two CPSs covering the urban and local government sectors (US$200,000). (iv) This element of the sub-component would assist DNUH in fulfilling its overall responsibilities for project management (US$150,000). Sub-component 3-C: Support to targeted strategic studies (US$2.3 million – 100% IDA) 30. This sub-component provides support for the following studies and technical assistance: (i) Based on the law to be formally promulgated, preparation of a structure for integrating the Bamako District and the six communes comprising the urban area of greater Bamako into a single, unified institution responsible for the management and development of the metropolitan area of the capital. The structure would define the institutional political and 47 administrative accountability system for the newly created Bamako Metropolitan Authority, assist with determining the requisite regulatory framework, and contribute to the design of the organizational architecture for the new core departments and their proposed establishments (US$1.5 million would be earmarked for this component). (ii) Contracting with auditing firms to undertake external audits of the ULG entities (US$200,000). (iii)Initiating the identification of additional secondary ULGs that could be introduced to the fiscal system being tested under component 1 of the project, including assessing their capacities and supporting them to begin preparing for eventual participation in the program (US$200,000). (iv) Undertaking of mid-term and end of project reviews of: (a) the performance of the mobile teams, (b) audits of the PA system, (c) the application, effectiveness and quality of the use of the funds under the capital grant, and (d) the effectiveness of the consultative and accountability performance requirements under the project, including citizen satisfaction/scorecard surveys (US$250,000). (v) Assessing the fiscal transfer system to ULGs as experienced under the project, and the options for developing a standard system to be mainstreamed to all ULGS. This analysis will also be coordinated with the Bank-financed Governance and Budget Decentralization Technical Assistance Project, which includes studies on the financial framework for LGs and resource allocation criteria (US$150,000). Component 4: Project Management, Monitoring and Evaluation (including PPA reimbursement) (US$3.2 million - 100% IDA) 31. The component will finance management of the project and reporting on overall project progress, as follows: (i) Equipment for the PCU, salaries of PCU staff (none of them being civil servant) and operating expenditures (US$1 million). (ii) Project MTR and closing activities, including impact evaluations covering social, environmental, and economic aspects (at MTR and project closing) (US$250,000). (iii)Citizen score card surveys twice during the project (US$200,000). (iv) Annual financial audits and two technical audits (MTR and project closing), to be confirmed at appraisal (US$200,000). (v) Information, communication and education campaigns to inform citizens of the project approach and share experiences (US$150,000). 48 Annex 3: Implementation Arrangements 1. Project institutional and implementation arrangements i. Project administration mechanisms 1. The project will be implemented over a period of six years, thus ensuring five full planning and budgeting cycles for the ULGs. Project implementation arrangements are based on Decree No. 10-176/PM-RM (25 March 2010) establishing the overall institutional framework for the national Fourth Urban Project, for which the ULGSP is the first operation to provide financing. 2. The MLAFU will be the government body directly responsible for project implementation. In particular, MLAFU will be responsible for overall coordination, supervision and M&E. A Project Coordination Unit (PCU) has been established within the Ministry and will ensure that the project delivers results of a high quality. Specifically, the PCU will ensure that: (a) component 3 (capacity building) is implemented, (b) project activities are undertaken on a timely basis, (c) external audits are carried out on a timely basis, and (d) independent performance assessments of ULGs are conducted on a regular annual basis. The PCU will also ensure that social and environmental safeguards are put into place and properly operationalized. In addition, the PCU will function as a secretariat to the Project Steering Committee (PSC) and the Project Monitoring and Technical Committee (PMTC), with the added responsibility of ensuring that any recommendations and decisions of those Committees are followed up on. The PCU will also be expected to undertake information and communications activities relevant to the project and ensure that the project collaborates with other initiatives and programs. Finally, the PCU will provide regular narrative and financial reports. Project Steering Committee 3. The PSC will be chaired by the Minister of Urban Development, seconded by the Minister of Local Government as vice-chair. The PSC’s principal functions are to: (a) provide the project with overall guidance, (b) facilitate coordination of project operations, (c) ensure coherence between the project and other GoM and donor-supported programs in the urban and local government sectors, and (d) verify the annual PAs and translate them into the allocations to be received by each city following the application of the distribution formula, and subject to the outcome of the annual PA. The PSC will include the following members: (i) Representatives from Ministries involved in the urban sector; (ii) The President of the Association of Malian Municipalities; (iii)Representatives from civil society; (iv) The President of the Fourth Urban Project’s Technical Committee. 49 Project Monitoring and Technical Committee 4. The PMTC, chaired by the Secretary General of MLAFU, seconded by the Secretary General of MATCL as vice-chair, will be responsible for following up on the implementation of PSC recommendations and decisions. Specific PMTC tasks include: (i) Ensuring that the project’s activities are consistent with the overall urban development framework and with the objectives of the SDVM; (ii) Examining and reviewing all project documents and reports before they are formally submitted to the PSC; (iii)Monitoring project work plans and procurement plans to ensure that they are consistent with overall timelines and are implemented on a timely basis. 5. The PMTC will consist of the following members: (i) Representatives from the technical, administrative and financial departments of line ministries involved in the urban sector, as well as technical and administrative staff from the ULGs participating in the project; (ii) Representatives from professional organizations involved in construction and public works; (iii)The Coordinator of the Fourth Urban Project (who is also by function the Project Coordinator of the ULGSP). Urban Local Governments 6. The District of Bamako and the four ULGs of Kayes, Mopti, Ségou and Sikasso are at the heart of the project’s implementation arrangements. With some variation for the specific case of Bamako (for which the initial investments are already determined), each ULG will be responsible for annual planning and budgeting and for implementing investment projects. Planning and budgeting will involve community and public participation. ULGs will also be wholly responsible for the procurement and supervision of public works financed out of their block grant allocations. Any delegation of procurement and implementation functions by the ULGs will be spelled out in clear contracts, signed by the mayors. ULGs will be expected to undergo regular performance assessments, the results of which will have budgetary consequences. The PIM will provide ULGs with clear guidelines and procedures for planning, budgeting, procurement, contract management, and financial management arrangements. Project Implementation Manual and Grant Participation Agreements 7. A Project Implementation Manual (PIM), acceptable to the Bank, and describing all implementation and monitoring and evaluation arrangements, the sequence of project activities and expected implementation schedule and financial management procedures, the functioning of the performance assessment and grant allocation and utilization system, and procurement procedures for the ULGs and Bamako will be completed as a condition of effectiveness. The PIM will provide ULGs and Bamako with clear guidelines and procedures for planning, budgeting, procurement, contract management, and financial management arrangements. The 50 participating secondary ULGs will each sign a Participating City Grant Participation Agreement (PCGPA) and the District of Bamako will sign a Bamako Grant Participation Agreement (BGPA), respectively, with the government to participate in the program. ii. Financial Management, Disbursements and Procurement a. Financial Management 8. Overall, the residual financial management risk for the project is assessed as Medium Impact (MI). Upon implementation of the proposed mitigation measures, the residual risk rating will change from MI to ML. 9. The Project Coordination Unit (PCU) established within and under the oversight of the Ministry of Housing, Land Affairs and Urban Planning will be the financial management unit for this project. A financial management specialist and a procurement specialist familiar with Bank procedures have already been recruited and compose with the coordinator the main part of the PCU team. Given the relatively weak capacities at the ULG level to fulfill the fiduciary tasks, the project will put in place a mobile team including a financial specialist and two procurement specialists, to bring support during the project implementation. This support will also include the assistance to the recruitment of sufficient qualified staff for the ULGs as needed. 10. In line with the Paris Declaration, the project will focus on improving the capacity of ministries and central systems. A gradual approach for using the country system will be considered subject to the implementation of the action plan. This will be done in light of the Bank Economic Sector Work on Mali PFM system.13 FM arrangements 11. The Project budget process (elaboration, implementation and follow up) will be documented in the manual of accounting financial and administrative procedures. The annual budgets in the light of the annual action plan and the related procurement plan will be coordinated and prepared by the PCU. They will be submitted to the Project Steering Committee (PSC) for approval as early as possible to allow their approval before the beginning of the year. The PSC will also approve changes in the budget and action plans. The annual budget will be managed through the PCU accounting software. The project’s budget execution will be also aligned with the national budget execution process through the record of the project’s transactions in PRED (Programme de Reforme Economique pour le Développement) to ensure the comprehensiveness of the budget execution reports. The related Finance law will then be updated to take into account the annual allocation of funds to be provided through the first year of the project implementation. 12. The ULG’s budget will follow the national budget process. The allocation from the project to ULGs will then be notified early enough to ensure timely elaboration of their 13 Mali: Country Systems review for project Financial Management, Dec 2008, final version Dec. 2009 51 respective annual investment programs: (i) indicative overall allocation for the duration of the project and (ii) actual allocation based on annual assessment notified to the ULGs. 13. Accounting: The accounting referential system will be SYSCOHADA (West African accounting referential system). The hardware and the accounting software will be in place not later than three (3) months after effectiveness and will be used to record all the project’s transactions following Bank guidelines. This system will be used to prepare the financial statements for the project. The FM team is already familiar with handling accounting and reporting activities through the software consistent with Bank procedures. In parallel the transactions will also be recorded in the national budgeting system by the Public accountant at central and regional level. The transactions will be recorded by the coordination unit following Bank guidelines thus ensuring appropriate reports on the use of the funds. During the first three months of effectiveness, the project activities could be recorded using an appropriate Excel spreadsheet and ensuring that the accounting documents are well classified. The project FM staff consists of one financial management specialist. The ULGs are staffed with one financial specialist and two administrators (régisseurs). 14. Fund Flows: Two designated accounts will be opened: (i) DA-A in a commercial Bank for transactions under all components of the project except component 1-A and (ii) DA-B in BCEAO for the component 1-A, from which funds will flow to the secondary ULG’s regional Treasury accounts (operational accounts) under performance criteria (beginning year 2013). Both accounts will be managed (signature, authorization and record of transactions in the national system) by the Treasury (a public accountant designated for the project) in line with the gradual use of country systems and the instruction of the Ministry of Finance (09 00001-MEF-SG- 21OCT.2009). In parallel, the transactions will be recorded by the coordination unit following Bank guidelines. 15. The DAs will be managed according to the detailed disbursement procedures described in the Administrative, Accounting and Financial Manual (included in the PIM) and the Disbursement Letter. 16. Internal controls and internal audit: The PCU is drafting a PIM including accounting, administrative and financial procedures before effectiveness. The manual will include provision to ensure adequate internal controls are in place for the preparation, approval and recording of transactions as well as segregation of duties. It will be subject to updating as needed. It is worth noting that the elaboration of the accounting, administrative and financial procedures is ongoing and is made by the fiduciary team in place. The PCU will consider appointing an internal auditor to carry out ex post reviews of the project activities before CGSP is fully on board and during the first twelve (12) months of effectiveness or more if necessary and based on the performance of the auditor. It will benefit from the support of the CGSP. In addition the internal controller (in the MLAFU and in ULGs) will ensure ex ante review of transactions. The annual performance assessments should be considered as part of the control process. 17. Financial reporting: The PCU will prepare quarterly Interim Financial Reports (IFRs) during project implementation encompassing activities for all components. The ULG will elaborate a semi-annual report that will be annexed to the IFR. The reporting format will be 52 documented in the administrative, financial and accounting procedures. Interim Financial Reports will be furnished to the Bank not later than 45 days after the end of the period (quarter or semester). Annual consolidated financial statements will be prepared by the PCU and will be subject to annual external audits. 18. The ULGs will align with their annual legal reporting requirement through (i) the annual administrative reports to be elaborated by the financial services unit of the ULG and approved by the mayor and (ii) the annual management report elaborated by the treasurer (receveur- percepteur). Both will be annexed to the IFR to be issued. In addition the mayor and his financial unit will prepare a semi-annual report to be sent to the ULG council, copied to the government (MATCL) and transmitted to the PCU. It will cover the summary of expenditures by category and sources of funds and a description of the ULG’s activities during the semester. The format of this report will be designed in the PIM. This report will serve as an input to the interim financial report (IFR) the PCU will elaborate each semester. In addition to this report, ULG’s Treasury account statement will also be provided by the public accountant (percepteur-receveur) to ascertain the materiality of the use of the funds. All evidences of the expenditures (administrative and management reports, invoices, contract, checks, etc.) should be made available for audit or supervision purposes. 19. The annual performance assessment will ascertain that project funds have been used for eligible expenditures. 20. External audit: The Financing Agreement will require the submission of Audited Financial Statements for the PCU to IDA within six months after year-end. An external auditor acceptable to the Bank will be recruited based on acceptable ToR that will include ISA 240 and 250 on fraud and corruption. The auditor will conduct an annual audit of the annual financial statements. A single opinion on the Audited Project Financial Statements in compliance with International Standards on Auditing (ISA) will be required. 21. The external auditors will prepare a Management Letter giving observations and comments (including comments from the auditees), and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the Financial Agreement. FM arrangements prior to effectiveness 22. A Project Implementation Manual including financial, administrative and accounting procedures should be elaborated before effectiveness and stated as such in the financing agreement. Other mitigation measures 23. The PCU has already recruited an experienced financial management specialist familiar with Bank procedures who can handle project financial activities. In addition, the PCU will start and/or keep on working on the following during the project preparation stage: (a) the purchasing of an appropriate computer hardware and accounting software to facilitate timely preparation of 53 financial reports not later than three months after effectiveness; (b) the involvement of CGSP to carry out internal audit covering ULG activities; (c) the recruitment of a reputed external auditor with ToR acceptable to the Bank not later than 6 months after effectiveness; (d) the recruitment of an internal auditor not later than 3 months after effectiveness for the first 12 months of effectiveness or more as needed; (e) the provision of technical assistance to the ULGs through a multidisciplinary mobile team (including a financial management specialist and a procurement specialist) to be set up not later than six (6) month after effectiveness. 24. In addition to the above and in line with the gradual use of country system, the Ministry of Finance through the Treasury should assign a public accountant (comptable assignataire) to the project. Fraud and corruption 25. The context of the project involving several entities (MLAFU and ULGs at decentralized level) implies risk of fraud and corruption. Therefore the MoU to be signed with the CGSP for internal audit activities and the external auditor ToR including fraud & corruption will be considered mitigation measures contributing to reduce that risk. In addition (i) two technical audits will be performed at mid-term and at the end of the project and (ii) an annual assessment serving as basis of funds allocation and disbursement will be performed. It will include transparence and social accountability issues (disclosure of information to communities, etc.). Supervision and monitoring 26. The PCU will send to the Bank quarterly Interim Financial Reports in addition with the annual external audits. The auditor will also provide a management letter assessing the internal control system at PCU and ULG level. The project overall rating is deemed Medium Impact. Based on that, the Bank FM team will conduct supervision missions on a bi-yearly basis. The first FM review will be carried out within 6 months of credit effectiveness. This detailed review will cover all aspects of financial management, internal control systems, and overall fiduciary control environment (both for the PCU and desk review of ULG administrative and management reports). Thereafter, the on-site supervision intensity will be based on risk - initially on the appraisal document risk rating and subsequently on the updated financial management risk rating during implementation b. Disbursement arrangements 27. The disbursement arrangements will be detailed in the manual of accounting, administrative and financial procedures (as part of the PIM). Through the DA-A the disbursement will be report-based. The replenishment of the account will therefore be made through Interim Financial Reports (IFR) using the six (6) monthly forecasts as for the initial advance on the credit. Subsequent replenishments will be made with consideration of the balance at the end of the period under which the request is made. For component 2-A, the criteria allowing the passage to the second and the third phases do not impact the flow of funds since payments are made based on the progress of activities. Therefore each quarter, the PCU through the IFR will made the request of replenishment based on the forecasts for the six(6) coming 54 months (as for the initial advance at effectiveness). If the criteria are not met by Bamako, then the replenishment request will not include the second phase amount for the six coming months (or only the remaining number of coming months under which the criteria is met). 28. The FM team of the PCU has acceptable experience in producing IFRs for a previous Bank funded project to adequately handle this requirement. 29. All documentation for all transactions shall be retained by the PCU and shall be made available for audit and to the Bank and its representatives, if requested. 30. For activities to be financed under component 1-A, disbursement under DA-B will also be report-based and performance based. Annual allocations based on performance criteria (as described in the PAD) will be transferred to the ULG’s regional accounts twice a year. The first advance will be released at the beginning of the year 2013 and the second at the beginning of the second semester following submission by each ULG of its annual financial accounts, using the six (6) monthly forecasts of the financial report to be prepared by the PCU. Each six months forecasts will be equal to the half of the annual allocation. The IFRs produced by the PCU on a quarterly basis will include ULGs activities subject to the elaboration by the ULGs of the semi- annual report. There will not be any fixed ceiling. 31. The disbursements to the ULGs will be made in an incremental manner: annual allocations to the ULGs will increase over time, in line with expected increases in their absorptive capacities. 32. The disbursement schedule for secondary ULGs is as follow: Year ULG Indicative 5-year allocation (USD) 1 2 3 4 5 Kayes 5.75 0.58 0.92 1.38 1.73 1.15 Mopti 5.16 0.52 0.83 1.24 1.55 1.03 Ségou 5.90 0.59 0.94 1.42 1.77 1.18 Sikasso 10.19 1.02 1.63 2.45 3.06 2.04 Total 27.00 2.70 4.32 6.48 8.10 5.40 33. In line with the gradual use of country systems all opened accounts will be managed (signature, authorization and record of transactions in national system) by the treasury at the central and regional level. Withdrawal Applications (WA) will be prepared by the coordination unit and submitted to the public accountant to sign and authorize disbursement to the designated accounts. The PCU will submit the signed WAs to IDA for processing. 34. The Treasury should consider opening pretty cash accounts (régie) as needed at central and decentralized level to ensure processing of all urgent expenditures without using the normal public expenditures channel. 55 Allocation of Credit Proceeds Category Amount of the Percentage of Credit expenditures to (expressed in US be financed Dollars) 1. Performance-based grants for secondary cities (Participating 100% City Grant Participation) 27,000,000 (a) for subprojects under Component 1(a) 2,000,000 (b) for capacity-building under Component 1(b) 2. Performance-based grants for Bamako (District of Bamako 100% Grant Participation) (a) for subprojects under Component 2(a) 19,000,000 (b) for capacity-building activities under Component 2(b) 1,500,000 (c) for institutional restructuring under Component 2(c) 4,000,000 3. Consultant services and goods for 3(c)(i) 1,500,000 100% 4. Consultants’ services, non-consulting services, goods, 11,850,000 100% training and operating costs under Component 3(a), 3(b), 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), and Component 4 5. Refinancing of Project Preparation Advance 1,400,000 100% 6. Unallocated 1,750,000 Total 70,000,000 56 Figure 3: Project fund flow arrangements Funds D A-A Authorization IDA Commercial Bank (All components except 1-A) Reporting D A- B BCEAO (FCFA) Invoices Treasury (Component 1-A) Goods and services Withdrawal (Components 3 and 4) PCU/MLAFU applications Kayes CU Sikasso CU Ségou CU Mopti CU Bamako District Treasury Kayes Treasury Sikasso Treasury Ségou Treasury Mopti Treasury Bamako Local contractors for public goods, works and services 57 c. Procurement 35. Benchmarking of Mali procurement regulations for National Competitive Bidding. The Bank has assessed the country procurement regulation and found the principles and most of the procedures in compliance with Bank standards for procurement. However, in order that NCB procedure for goods and works becomes acceptable to IDA, the following special requirements will be taken into account: (a) even though the Code does not apply to small contracts, the procedures will require that for such contracts, a competitive method be used (reference to other methods described; it is expected that in a near future, this limitation will no longer apply); (b) in addition to the advertisement of GPN in UNDB and in the Bank’s external website, bids will be advertised in national newspapers with wide circulation; (c) eligible firms, including foreign bidders shall be allowed to participate in National Competitive Bidding procedures; (d) no domestic preference shall be granted to domestic bidders or bidders from the WAEMU countries and for domestically manufactured goods; (e) bidders will be given four (4) weeks at least to submit bids from the date of availability of the bidding documents; (f) the evaluation and award process of alternative bids will be revised to be concordant with the Bank’s procurement Guidelines; (g) procurement entities shall use appropriate standard bidding documents acceptable to IDA; (h) each bidding document and contract financed out of the proceeds of the financing shall include provisions on matters pertaining to fraud and corruption as defined in paragraph 1.14(a) of the Procurement Guidelines; (i) in accordance with paragraph 1.14(e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Grant shall provide that: (1) the bidders, suppliers, contractors and subcontractors shall permit the World Bank, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the World Bank; and (2) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines; (j) The Association may recognize, if requested by the Borrower, exclusion from participation as a result of debarment under the national system, provided that the debarment is for offenses involving fraud, corruption or similar misconduct, and further provided that the Association confirms that the particular debarment procedure afforded due process and the debarment decision is final. 36. Capacity Assessment: A procurement assessment was carried out in five (5) Municipalities (Bamako, Kayes, Mopti, Ségou, and Sikasso) and the Project Coordination Unit in September 2010. The assessment reviewed the organizational structure for implementing the project and the interaction between staff responsible for procurement and other relevant technical units of local government. The key issues and risks concerning the procurement have been identified and include: (i) the fact that the government officials likely to be involved in project procurement through tender committees and national control system ensuring that the rules are respected and to handle complaints from bidders may not be familiar with procurement procedures; (ii) the staff in charge of procurement activities will need additional capacity in : (a) the procurement planning, the preparation of bidding documents or request for proposals, the evaluation of bids or proposals, the contract negotiation with consultants, the contract execution and supervision; and (b) procurement filing; and all these weaknesses may lead to delays in the procurement process; (iii) all the selected cities have critical concerns about procurement filing: the main issues pointed out are insufficient space or absence of space for filing, and the absence 58 of filing cabinets; (iv) risk of mobility of staff who have been well trained in procurement; and (v) possible difficulties or lack of motivation may be encountered for the involvement of regional staff in handling procurement due to low salaries and lack of opportunity for training. 37. The Project Coordination Unit (PCU) established within and under the responsibility of the Ministry of Housing and Land Affairs and Urbanism, will be responsible for the implementation of components 3 and 4. The Project Coordinator will be supported by a technical team comprising a financial management officer, a procurement specialist and an infrastructure specialist. The PCU will be in charge of day-to-day project management including communicating with IDA and the coordination between diverse partner institutions. An assessment concludes that the PCU staff have implemented in the past various World Bank funded projects. The assessment noted that the PCU is staffed with an experienced procurement specialist with experience in managing World Bank-funded projects who will assist in the overall coordination of procurement activities. The project risk for procurement is moderate for the PCU and high for the Municipalities of all selected cities. 38. The overall procurement risk is rated High. The key risks for procurement are: (i) lack of capacity of municipalities to handle the volume of procurement for their respective activities under the project; (ii) possible delays in the procurement process and poor quality of contract deliverables; (iii) inconsistencies between the national procurement procedures and the Bank procurement guidelines in the use of the National Competitive Bidding. 39. To address the above risks areas, the following actions are envisaged: (i) Intensive capacity building for procurement staff and municipality/city engineers including staff involved in the procurement decision-making process and tender committee members, customized and hands-on training on procurement focusing on: procurement planning, preparation of bidding documents, evaluation of bids or proposals, and procurement documents filing. (ii) Preparation of standard bidding documents for NCB procurement under Bank Procurement Guidelines, that incorporate a list of identified exceptions to the Public procurement Code that take account of the Bank’s fraud, anti-corruption and other procurement provisions. (iii) Appointment of additional two proficient and experienced procurement specialists to support and enhance the capacity of municipalities through a “mobile team” funded under the project; the consultants would have specific performance criteria in their TOR to measure the effective knowledge transfer to staff within municipalities. However, the overall responsibility for procurement performance lies with each participating municipality. (iv) Preparation of Project Implementation Manual with section on procurement detailing out all applicable procedures, instructions and guidance for handling procurement. This should be disseminated to staff involved in the project implementation during the project workshop. (v) Capacity appraisal of all municipalities during the first year of the project. These appraisals will help identify core gaps and specific weaknesses for each participating cities in procurement and suitable training provided. 59 (vi) The use of procurement agents (Delegated Project Management) in the context of international competitive bidding as needed. (vii) Set up adequate records management for projects documents, including adequate spaces and office furniture for filing. (viii) The Bank will conduct the project launch workshop dedicated to the specific procurement and the used of the simplified procurement manual. (ix) Exposure of the local government staff to best practices elsewhere and/or other cities. 40. The major actions planned to ensure the project's smooth implementation, the related responsible entity and the proposed timeframe are captured in the table below. Action Time Responsibility To commence Intensive capacity building for procurement staff and before effectiveness municipality/city engineers including staff involved in the PCU/Procurement with completion no procurement decision-making process and tender committee Consultants later than 6 months members after effectiveness Preparation of standard bidding documents for NCB Before UNC-PST2 procurement under Bank Procurement Guidelines effectiveness PCU To commence Appointment of additional two proficient and experienced before effectiveness UNC-PST2 procurement specialists to support and enhance the capacity with completion no PCU of ULGs through the mobile team (UCBMT) later than 3 months after effectiveness Preparation of Project Implementation Manual with section Before UNC-PST2 on procurement detailing out all applicable procedures, effectiveness PCU instructions and guidance for handling procurement To commence Conduct the project launch workshop dedicated to the before effectiveness UNC-PST2 specific procurement and the used of the simplified with completion no PCU / World procurement manual later than 3 months Bank after effectiveness One year after Capacity appraisal of all ULGs during the first year of the project PCU project implementation Set up adequate records management for projects During project PCU/ documents implementation Municipalities During project PCU/ Exposure of the local collectivities staff to best practices implementation Municipalities Procurement responsibility and components 41. Procurement of goods, works and services under component 1 will be implemented by the respective municipalities of Kayes, Sikasso, Ségou and Mopti. This component will be operating interdependently with project Component 3 and is intended to support strengthening the ability of ULGs to provide and sustain the delivery of local services. The PCU will review and provide non-objection to TORs for services under sub-component 1-B. 60 42. Procurement of goods, works and services under Components 2 will be implemented by the District of Bamako. It will be operating interdependently with project Component 3 and is intended to support strengthening the ability of the District of Bamako to provide and sustain the delivery of local services through the implementation of targeted investments programs. The PCU will review and provide non-objection to TORs for services under sub-component 2-B. 43. Procurement of goods, works and services under Components 3 and 4 will be implemented by the Project Coordination Unit (PCU). Procurement Arrangements A. Procurement Arrangements for component 1 and 2 to be managed by the district of Bamako and the municipalities of Kayes, Mopti, Ségou and Sikasso 44. Procurement for these components would be carried out using National Competitive Bidding for all works, goods and services contracts respectively below the equivalent of US$5 million (works), US$500,000 (goods) and services. Similarly, short-lists for consulting services estimated at a cost below equivalent of US$200,000 may comprise entirely national consultants (firms registered or incorporated in the country). For all contract above these amounts the international competitive bidding procedures described in the World Bank guidelines would apply. The procurement arrangement under the performance-based grant will be carried out using national procurement procedures for National Competitive Bidding (NCB), with exceptions to conform with Bank Procurement Guidelines. 45. Exception to National Competitive Bidding Procedures. The Bank has assessed the country procurement regulation and found the principles and most of the procedures in compliance with Bank standards for procurement. However, in order that NCB procedure for goods and works becomes acceptable to IDA, the following special requirements will be taken into account: (a) even though the Code does not apply to small contracts, the procedures will require that for such contracts, a competitive method be used (reference to other methods described; it is expected that in a near future, this limitation will no longer apply); (b) in addition to the advertisement of GPN in UNDB and in the Bank’s external website, bids will be advertised in national newspapers with wide circulation; (c) eligible firms, including foreign bidders shall be allowed to participate in National Competitive Bidding procedures; (d) no domestic preference shall be granted to domestic bidders or bidders from the WAEMU Countries and for domestically manufactured goods; (e) bidders will be given four (4) weeks at least to submit bids from the date of availability of the bidding documents; (f) the evaluation and award process of alternative bids will be revised to be concordant with the Bank’s procurement Guidelines; (g) Procurement entities shall use appropriate standard bidding documents acceptable to IDA; (h) each bidding document and contract financed out of the proceeds of the Financing shall include provisions on matters pertaining to fraud and corruption as defined in paragraph 1.14(a) of the Procurement Guidelines; (i) in accordance with paragraph 1.14(e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Grant shall provide that: (1) the bidders, suppliers, contractors and subcontractors shall permit the World Bank, at its request, to inspect their accounts and records relating to the bid 61 submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the World Bank; and (2) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines; (j) The Association may recognize, if requested by the Borrower, exclusion from participation as a result of debarment under the national system, provided that the debarment is for offenses involving fraud, corruption or similar misconduct, and further provided that the Association confirms that the particular debarment procedure afforded due process and the debarment decision is final. 46. In these 2 components, the project will use Shopping when the contract amount is below the equivalent of US$50,000. B. Procurement Arrangements for Components 3 & 4 to be managed by the PCU 47. Procurement for these components would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised October 2006, May 2010 and January 2011; and “Guidelines: Selection and Employment of Consultants by World bank Borrowers” dated May 2004, revised 2006, May 2010 and January 2011, and the provisions stipulated in the Legal Agreement. “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006, and as revised in January 2011, shall apply to the project. Procurement Plan (a) Component 1: It will not be possible to work out a procurement plan at appraisal as investments financed out of the proceeds of the grants will be demand-driven. The project would provide general work of public goods and services for which these grants are utilized and would establish a monitoring and evaluation system. Municipalities would make their own decisions on utilization of these grants; therefore this component will be implemented in a participatory manner. (b) Procurement plan for components 2, 3 and 4 of the project. The borrower at appraisal has developed a procurement plan for project implementation under Components 2, 3 and 4 which provides the basis for the procurement methods. This plan will be agreed between the Borrower and the project team during the negotiations. This plan will be updated annually or as needed to reflect the latest circumstances. For ICB contracts for goods and works, and consulting services contract estimated at a cost equal or above equivalent of US$200,000, the World Bank Standards Bidding Documents will be used. A summary of prior-review and procurement method thresholds for the project are indicated in the table below. 62 Expenditure Contract Value Procurement / Contracts Subject to Category Threshold (US$) Selection Method Prior Review ≥5,000,000 ICB All <5,000,000 NCB None (Post review) unless Works specified in the PP <50,000 Shopping None (Post review) All values Direct Contracting All ≥500,000 ICB All <500,000 NCB None (Post review) unless Goods specified in the PP <50,000 Shopping None (Post review) All values Direct Contracting All QCBS/ Other14 ≥ 200,000 All (QBS/FBS/LCS) Consulting CQS/ Other15 < 200,000 None (Post Review) Services - Firms (QBS/FBS/LCS) All values SSS All ≥100,000 IC – Qualification All Consulting Services – <100,000 IC – Qualification None (Post review) Individuals (IC) All Values IC – SSS All Frequency of Procurement Supervision 48. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the implementing entities has recommended: (i) supervision missions every six months to visit the field, and (ii) at least one annual post procurement review, the standard post-procurement reviews by Bank staff should cover at least 20 percent of contracts subject to post-review. Post-reviews consist of reviewing technical, financial and procurement reports on procurement actions carried out by PCU and by the municipalities by Bank staff or consultants selected and hired by the Bank according to procedures acceptable to the Bank. Missions in the first 18 months shall include a Bank Procurement Specialist or a specialized consultant. 49. Operating Costs: Operational costs would include project implementation-related expenditures such as in-country travel, office supplies, communication costs, per diem for project supervision activities in the field etc. 14 Shortlists for consultancy services for contracts estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 15 QBS, FBS, and LCS for assignments meeting requirements of paragraphs 3.2, 3.5, and 3.6 respectively, of the Consultant Guidelines. 63 50. Fraud and Corruption: All procurement entities as well as bidders and service providers, i.e., suppliers, contractors, and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraphs 1.14 and 1.15 of the Procurement Guidelines and paragraph 1.22 and 1.23 of the Consultant Guidelines, in addition to the relevant Articles of the Mali Public procurement Code which refers to corrupt practices. iii. Environmental and Social (including safeguards) 51. As the project aims to improve infrastructure and based on the physical investments to be financed by this Project, the proposed environmental category is B, although, OP/BP 4.01 and 4.12 are triggered as demonstrated in the ESMF document. In fact, there are no significant adverse and irreversible environmental and social impacts identified in the ESMF. During implementation of proposed investments, consultations will continue on a permanent basis to take place with non-governmental and community based organizations regarding the water and sanitation sectors potential environmental and social impacts issues. Environmental Assessment will be required for all the physical infrastructure in roads, drainage and markets improvements; and resettlement plans need to be prepared for the people to be possibly affected by the physical interventions. This requires the preparation of an Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF). Overall the project is rated as environmental Category B - Partial Assessment. To manage the potential environmental issues associated with the investments financed under the project, the borrower has carried out an Environmental and Social Management Framework (ESMF) to mitigate anticipated negative impacts for specific investments and sub-projects and has also prepared a Resettlement Policy Framework (RPF) to mitigate project social impacts during the implementation. The RPF document outlines the principles and procedures for resettlement and or compensation of subproject-affected people, and establishes standards for identifying, assessing and mitigating negative impacts of program supported activities. In addition, the RPF will guide the preparation and implementation of resettlement action plans (RAPs) for each individual sub project that triggers the involuntary resettlement policy. The ESMF describes environmental and social screening process for demand driven sub-projects and mitigation measures related to the project activities. As required, all sub-projects financed by the project will be pre-screened and will have to meet the environmental standards outlined in the ESMF. Proposed actions will also be included in the operations plans for these sites to minimize nuisance to surrounding communities as well as to avoid environmental and other social impacts. 52. The ESMF indicates that the impact of infrastructure will be globally positive, improving public services and the environment and hence quality of life for residents of the cities. 53. A review of the institutional capacities of the implementing institutions revealed that there is adequate institutional and regulatory framework for environmental management at national level. However, institutional capacities remain weak for Safeguard Policies implementation and supervision. The national legal framework for environmental management in Mali spells out the roles and responsibilities of different government ministries, departments and agencies as well as other stakeholders. Substantial progress in planning and implementation of safeguard measures has also been made over the years in a number of Bank-funded 64 operations. Notwithstanding this progress, significant institutional and technical capacity for environmental management still needs to be strengthened at all levels. Capacity building requirements are addressed in detail in the ESMF and the RPF and budgets provided for to implement the recommended capacity improvement measures. 54. The ESMF and RPF have been disclosed in Mali and at the Bank's Infoshop on April 25, 2011 prior to appraisal. The following table presents the Safeguard policies triggered by the project. Safeguard policies Triggered by the Project 55. The Safeguard Screening category is S2 and the Environmental Screening is category B- Partial. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [x] [ ] Natural Habitats (OP/BP 4.04) [ ] [x] Pest Management (OP 4.09) [ ] [x] Physical Cultural Resources (OP/BP 4.11) [ ] [ ] Involuntary Resettlement (OP/BP 4.12) [x] [ ] Indigenous Peoples (OP/BP 4.10) [ ] [x] Forests (OP/BP 4.36) [ ] [x] Safety of Dams (OP/BP 4.37) [ ] [x] Projects in Disputed Areas (OP/BP 7.60)* [ ] [x] Projects on International Waterways (OP/BP 7.50) [ ] [x] iv. Monitoring & Evaluation 56. Data for the projects outcome and results indicators will primarily come from the annual performance evaluations, supplemented with more in-depth evaluations at MTR and project closing. Capacity to collect data in the sector is relatively weak. The CPS covering the urban sector is in the process of operationalizing a database for the water sector (also covered by this CPS) and has some experience, but limited knowledge of the urban sector. The PCU has limited experience in M&E, but will rely on the independent team to carry out audits of the annual performance evaluation of the ULGs. The National Department of Local Government (DNCT) will have direct responsibility for ensuring that data feeding into the annual performance assessment cycle is collected, reviewed by local stakeholders, and entered into the DNCT database in a timely manner and according to the TORs. This follows current practice used for the Local Government Database (OISE) in the context of EU-funded budget support for decentralization, which relies on DNCT requesting the information from the prefect, who in turn gets the information from the mayor. The local development committee (with participation of civil society representatives and the regional representatives of deconcentrated departments) then meet to validate data before it is transmitted to the DNCT via the prefect. * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 65 57. The project contributes to developing the government’s internal performance monitoring system and financial reporting system through direct support to LGs and support to reforms in the reporting and budgeting system to facilitate simplified and timely reporting from LGs to central government. The project finances the setting in place of a database for the urban and local government sectors, for which the CPS is preparing TORs as part of project preparation. Costs associated specifically with project implementation are limited and relates to the citizen score card surveys and impact evaluations at MTR and project closing. Costs associated with setting in place of a database in support of a programmatic approach in the sector are also relatively limited, since the staff is in place and most of the needed hardware (IT-equipment) exists, but the software has to be developed. DNCT will be capacitated to ensure regular collection and monitoring of data related to intergovernmental transfers. 58. Day-to-day monitoring and evaluation of project activities will be carried out by the PCU. A quarterly monitoring table and progress reports will be prepared by the PCU and discussed during the Project Technical Monitoring Committee meetings. These reports will assess achievements against the agreed work plans and the overall project development objective. The PCU will be responsible for updating the work plans on an annual basis, taking into account the realizations to date, the strategic focus of the project, and feedback from the PSC and IDA. 59. In addition, targeted evaluations will be commissioned as needed to examine overall impact of the project on local government institutional performance, service delivery and governance issues, and training. Role of partners 60. Activities of development partners supporting urban development in Mali are generally few and far between. Some bilateral donors (Switzerland, Denmark, France, Luxembourg, and Belgium) and the Bank are supporting limited activities in specific regions or cities, but only the Swiss and French funding has a specific focus on urban development. The Swiss are in the process of aligning their support to the SDVM. Discussions are ongoing on how to incorporate, into the ULGSP, the experience gained in local economic development in the context of the Swiss-financed support to the Urban Local Government of Koutiala and the towns of two smaller districts (Youwarou and Niafunké). The Agence Française de Développement (AFD) is working directly with the District of Bamako to develop an urban development and sanitation project, with the infrastructure components to be implemented by two selected communes in the District (communes 2 and 5, complementary to the activities financed under component 2-B in communes 1, 4, and 6), and a provision for supporting the setting in place of a technical support unit at the District level. The EU is by far the largest donor in decentralization, providing budget support and technical assistance. The ULGSP has leveraged some EU-financed studies on revision of the local taxation system, implemented through the PDI as entry-point to more in- depth studies, and coordination will continue, ensuring that a high degree of consistency and coordination exists around support to the reform of the intergovernmental fiscal framework. However, the coordination and leadership of the two ministries (MATCL and MLAFU) is key to successful coordination of donors, and the Bank is supporting the government to assume this role. 66 Annex 4: Operational Risk Assessment Framework (ORAF) Negotiations and Board Package Version Project Development Objective(s) The project development objective (PDO) is to support strengthened institutional performance of targeted urban local governments. PDO Level Results 1. Percentage of urban local governments respecting mandatory minimum conditions for access to Indicators: performance grant funds. 2. Percentage of urban local governments achieving at least 75 points on the annual performance evaluation. 3. Increase in scores on citizen’s perception of their engagement with local government councils and their perceptions of urban management. 4. A performance-based grant system is established in all project cities and ready to roll out to other ULGs. 5. Direct project beneficiaries (number), of which female (percentage). Risk Category Risk Rating Risk Description Proposed Mitigation Measure Project High Resistance to change introduced by the project in The Project includes demand-side activities and Stakeholder Risks terms of improved management procedures in incentives to enable ULGs to live up to their legal municipal administrations, including adequate requirements to include citizens in setting priorities staffing levels and changes to management of and improving oversight. The Project further municipal assets. supports IEC activities to inform citizens on the mandate of LGs, allowing them to engage with elected officials regarding their performance. Citizens will also be involved in validating data to be used for the performance assessment of ULGs. Contractual approach with clear engagements of municipal administrations to specific performance targets. Implementing ML The MLAFU has limited capacity to assure PCU is staffed with the needed capacity to prepare Agency Risks implementation of the project. Urban development the project. The project will include capacity projects in Mali have not experienced serious strengthening in procurement (including through the 67 procurement issues and social and environmental UMCBT, training, and demand-driven incentives). safeguards pose low risks. Capacities and institutional arrangements in place for project safeguards supervision have been evaluated at appraisal and found acceptable. Transparency in resource disbursement is weak and The project requires annual external audits of LG  there is no tradition of scrutiny of LG performance accounts. Capacity building planned in the  by civil society. context of this project is expected to strengthen  the civil society capacities needed to effectively  exert oversight, including through strengthening of demand-side governance. The project will include a sound capacity building The recent external control of the LG investments program to strengthen PFM and procurement showed that all communal investments (which transit capacities, especially for local governments. Regular through ANICT) are potentially subject to and sound auditing procedures will be in place to mismanagement and misprocurement. ensure full compliance with Bank fiduciary standards. Project Risks M-L Design Building on lessons learned elsewhere, the points The principles and design of the performance-based system to be put in place for scoring during annual grant and performance assessment system was performance assessment will be finalized and completed during appraisal with input and included in the PIM by project effectiveness. This is participation from all project stakeholders, including a process that will require continued involvement of local government officials and staff. The agreements all stakeholders, based on the consensus on design of reached are reflected in the PAD. TORs for the the performance-based grant obtained during performance assessment and development of the appraisal. scoring system have been drafted by the PCU and were discussed as part of project preparation, Some risks are noted regarding the institutional and assuring necessary activities will be undertaken for financial sustainability of project interventions and having the detailed design of the assessment system in particular the performance-based grant as a in place by effectiveness. transfer mechanism. The DNCT will have the responsibility to maintain a good statistical system with sufficient data to monitor most of the project outcomes. The performance evaluation process of LGs will 68 highlight any areas in need of special attention. Sustainability issues are addressed through incentive-based improvements to urban local governments. In addition, the project approach of supporting systemic improvements will contribute to improvements in the overall functionally of the intergovernmental fiscal framework for the participating cities, with the ability to roll out the approach to all urban local governments in Mali. Social & Due to infrastructure investments, this operation is a Capacities and institutional arrangements in place Environmental category B project. The Borrower has experience for project safeguards supervision will have been with Bank safeguard policies. However, institutional evaluated during project preparation and found capacities remain weak for ensuring a sound acceptable. Additional support to ULGs in supervision of safeguards, especially in LGs. safeguards implementation will be provided. Key actions will be undertaken to ensure sound monitoring of safeguards and close supervision of mitigation measures during implementation. Program & Donor This project is a stand-alone operation. It is n.a. coordinated with other projects in the sector, but does not depend on any other co-financing. Delivery Quality The PCU might not be able to sustain project A performance-based approach is at the heart of the implementation due to limited prior ownership of the project, explicitly linking urban development with SDVM and link to the decentralization process. decentralization in a systemic way. Limited tradition for monitoring and evaluation in Building on and strengthening the existing Local the sector. Government Database (OISE) is an integral part of Project. Overall  Risk  Rating  at  Overall  Risk  Rating  During  Comments  Preparation  Implementation  Medium - I Medium - L (Medium Risk – High impact, low (Medium Risk – High likelihood, The overall risk rating for the project is set at Medium - L.   likelihood).  low impact).  69 Annex 5: Implementation Support Plan 1. The Implementation Support Plan (ISP) takes into account the nature of the project approach, which marks a departure from previous experiences in urban development in Mali, and the risks associated with this shift, as outlined in the ORAF. Implementation Support Strategy 2. Overall, the Bank will continue to support improved collaboration between the key ministries (MLAFU and MATCL) and work with donors in the urban and decentralization sector groups to assure strong coherence of interventions. However, the implementation of the project per se will depend on strong implementation support, to make sure the approach to urban development, with focus on the role of local governments and their interaction with citizens, can take hold. Technical advice will be necessary in urban development, decentralization, and intergovernmental transfers. The autonomy given to local governments to manage grant funds poses high risks (with high return), and the ISP lays out the necessary activities for the Bank to meet its fiduciary obligations in this context. Specific elements of the implementation support strategy are:  Field-based supervision. The TTL, fiduciary, transport, and environmental specialists are based in the CO. Any change to this would necessitate revisiting the ISP.  Supporting continued dialogue on sector reform, especially the link between urban development and decentralization.  Fiduciary risks are limited in terms of management of funds by central departments, but support to PCU and key ministerial departments (DNCT, DNTCP) will be necessary in the project start-up phase.  The Bank’s fiduciary responsibility in relation to the use of funds by local governments will be assured through implementation support missions to project cities twice a year, including a procurement specialist, to support the full implementation and respect of the project manual, and to verify the continued relevance of support measures in place (training of staff, technical assistance, mobile team, use of delegated contract management arrangements, etc.). As the risk of fraud and corruption is estimated to be high in local governments, the procurement specialist will also play a central role in early warning of bad practices. The transport specialist will also play a role in assuring quality of works contracted by local governments.  The project cities will receive support from the mobile team and on demand as needed, but the Bank will need to play a role in supporting the establishment of working relationships between deconcentrated departments and the local governments, and to support the local governments in fully taking on their role as providers of services.  Support to building M&E capacities in the Statistical and Planning Units covered by the Project. The Project is aligned to existing country M&E arrangements for the sectors, but capacities are weak and there remains a need for continued support to implementing the performance evaluation of local governments. 70 Implementation Support Plan 3. Based on the above strategy, the ISP builds on the following elements to ensure adequate technical support and due diligence:  The procurement specialist will play a central role in supporting cities in adopting a sound approach to procurement and to assure the Bank’s fiduciary obligations. Twice yearly implementation support missions will be carried out, with at least the TTL and Procurement Specialist. This will continue until the MTR or until the Bank is satisfied that sound practices are in place. Following this, implementation support missions covering all cities will be yearly for the remainder of the project.  Support to respect of environmental and social safeguards will need staffed missions to all project cities at least once a year. For the first year, the Project will further need targeted implementation support to social development (citizen participation).  A transport specialist will provide specific support to developing an operational road asset inventory during the project start-up phase and will participate to implementation support missions as needed. The infrastructure component for Bamako will be supervised on a regular basis from the CO.  The initial project phase will need support on intergovernmental transfers and M&E. Intergovernmental support will be needed on the field, provided by consultants, but ongoing M&E support can be provided from HQ.  The MTR mission will require participation of the entire spectrum of specialists having participated to appraisal. 4. The following skills mix and resources needs are estimated: Main focus in terms of support to implementation: Time Focus Skills Needed Resource Partner Role Estimate First twelve Start-up phase, Procurement, financial 150k Coordination with months first performance management, citizen AFD, Swiss, EU evaluation of participation, ULGs intergovernmental transfers/local government finances Until MTR First release of Procurement, financial 100k/yr Continued (yr. 2-3) grants management, 200k total coordination with intergovernmental AFD, Swiss, EU transfers/local government finances MTR MTR Procurement, financial 100k Participation of (yr. 3) management, citizen AFD, Swiss, EU participation, institutional restructuring, intergovernmental transfers/local government finances, M&E 71 Following Consolidation Procurement, financial 75k/yr Continued MTR (yr.4-6) and roll-out of management, 225k total coordination with Urban Grant intergovernmental AFD, Swiss, EU transfers/local government finances Total (6 years) 625k Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments (for duration of Project) Procurement 20 CO-based Twice yearly missions for start-up phase, then yearly Procurement 2 1 (HQ-based) To support CO-based procurement specialist during MTR Financial management 12 CO-based Participate to yearly supervision missions Intergovernmental 5 2 For start-up and MTR. Transfers Consultant M&E 6 2 (first year and Start-up phase, MTR, MTR) ongoing support Social development 6 3 (Two trips first Staff/consultant as year, MTR) available. Program Assistant 16 CO-based Ongoing team support Language Program 9 HQ-based Ongoing team support Assistant Environmental 12 CO-based Participate to yearly safeguards supervision missions and MTR Social safeguards 12 6 Participate to yearly supervision missions and MTR Legal 1 0 Staff weeks for any restructuring Disbursement 1 0 Transport 16 CO-based To participate to yearly supervision missions and supervise works in Bamako TTL 80 CO-based Ongoing implementation support to the client, frequent supervision missions for the first years, yearly thereafter Total 198 72 Annex 6: Team Composition World Bank staff and consultants who worked on the project: Name Title Unit Zie Ibrahima Coulibaly Senior Infrastructure Specialist, TTL AFTUW Christian Vang Eghoff Operations Officer AFCW3 Papa Mamadou Fall Infrastructure Specialist AFTTR Aoua Sow Toure Program Assistant AFMML Marie-Adele Tchakounte Language Program Assistant AFTUW Sitchet Aissata Zerbo Procurement Analyst AFTUW Mahamadou Bambo Sissoko Procurement Specialist AFTPC Cheick A. T. Traore Senior Procurement Specialist AFTPC Celestin Adjalou Niamien Financial Management Specialist AFTFM Aissata Diop Diallo Program Assistant AFCW3 Taoufiq Bennouna Senior Natural resources Mgmt Specialist AFTEN Abdoul-Wahab Seyni Senior Social Development Specialist AFTCS Diego Garrido Martin M&E Specialist AFTDE Daria Goldstein Senior Counsel LEGAF Wolfgang M. T. Chadab Senior Finance Officer CTRFC Tojoarofenitra Transport Specialist AFTTR Ramanankirahina Jeffrey S. Racki Urban Specialist, Project Design Consultant Michael Winter Local Finances Specialist, Intergovernmental Transfers Consultant Maman-Sani Issa Senior Environmental Specialist AFTEN Yao Badjo Senior Infrastructure Specialist, TTL until May AFTUW 24, 2010 Mamadou Alpha Barry Financial Analysis Specialist, Consultant Jan G. Janssens Sector Reform and Capacity Building Specialist, Implementation Arrangements Consultant Cheikh Brahim Cheikh Project Analyst, STT AFCW3 Abdalla Diarra Sissoko Urban Specialist, Consultant 73 74 The original had problem with text extraction. pdftotext Unable to extract text.