Document of The World Bank FOR OFFICIAL USE ONLY Report No: 56837-IN PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 37.1 MILLION (US$60 MILLION EQUIVALENT) TO INDIA FOR A CAPACITY BUILDING FOR URBAN DEVELOPMENT PROJECT June 17, 2011 Sustainable Development Unit India Country Management Unit South Asia Regional Office 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 29, 2011) Currency Unit = Indian Rupees (Rs.) US$1 = Rs.44.22 SDR 1 = USD1.621 FISCAL YEAR April 1 – March 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank M&E Monitoring and Evaluation AFS Annual Financial Statement MIS Management Information System ARCS Audit Reports Compliance System MOA Memorandum of Agreement BSUP Basic Services to the Urban Poor MOHUP Ministry of Housing and Urban Poverty A Alleviation CAG Comptroller and Auditor General MOF Ministry of Finance CA Chartered Accountant MOUD Ministry of Urban Development CAA Constitutional Amendment Act MSW Municipal Solid Waste CAS Country Assistance Strategy NCB National Competitive Bidding CAAA Controller Aid Accounts Audit NRW Non Revenue Water CAS Country Assistance Strategy NSS National Sample Survey Organization CDM Clean Development Mechanism O&M Operations and Maintenance CDP City Development Plan PAO Pay and Accounts Office CGA Controller General of Accounts PD Project Directors CSMC Central Sanctioning and Monitoring Committee PMB Programme Management Board CQ Consultant Qualifications PMU Project Management Unit DEA Department of Economic Affairs PPP Public Private Partnership DFID Department for International Development, UK PSC Project Steering Committee DGS&D Directorate General of Supplies and Disposal RAY Rajiv Awas Yojana DPR Detailed Project Report RFP Request for Proposal EWS Economically Weaker Sector RTI Right To Information Act FM Financial Management SBD Standard Bidding Document FMS Financial Management Specialist SLNA State Level Nodal Agency FSI Floor Space Index SP Social Protection GAAP Governance and Accountability Action Plan SRFP Standard Request for Proposals GDP Gross Domestic Product SWM Solid Waste Management GIS Geographic Information Systems TA Technical Assistance GOI Government of India TOR Terms of Reference GIZ German International Cooperation UIDSSM Urban Infrastructure Development Scheme for T Small and Medium Towns HR Human Resources UIG Urban Infrastructure and Governance IBRD International Bank for Reconstruction and ULB Urban Local Body Development IDA International Development Association ULCRA Urban Land Ceiling and Regulation Act IHSDP Integrated Housing and Slum Development UNDB United Nations Development Business Program IT Information Technology USAID United States Agency for International Development ITES Information Technology Enabled Services WBI World Bank Institute IUFR Interim Un-audited Financial Reports WSP Water and Sanitation Program JnNURM Jawaharlal Nehru National Urban Renewal Mission WSS Water Supply and Sanitation LIG Low Income Group Vice President: Isabel M. Guerrero Country Director: N. Roberto Zagha Sector Director: John H. Stein Sector Manager: Ming Zhang Task Team Leader: Songsu Choi i INDIA CAPACITY BUILDING FOR URBAN DEVELOPMENT CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE .................................................... 1 1. Country and sector issues........................................................................................... 1 2. Rationale for Bank Group Involvement ..................................................................... 5 3. Higher level objectives to which the project contributes ........................................... 5 B. PROJECT DESCRIPTION .................................................................................... 5 1. Lending instrument .................................................................................................... 5 2. Project development objective and key indicators..................................................... 5 3. Project components .................................................................................................... 6 4. Lessons learned and reflected in the project design................................................... 8 5. Alternatives considered and key choices made ......................................................... 8 C. IMPLEMENTATION ............................................................................................. 9 1. Partnership arrangements ........................................................................................... 9 2. Institutional and implementation arrangements (Annex 6). ...................................... 9 3. Monitoring and evaluation (Annex 3)....................................................................... 11 4. Sustainability............................................................................................................. 11 5. Critical risks .............................................................................................................. 12 6. Credit conditions ....................................................................................................... 14 D. APPRAISAL SUMMARY .................................................................................... 14 1. Economic and Financial Analyses ............................................................................ 14 2. Technical ................................................................................................................... 14 3. Fiduciary ................................................................................................................... 14 4. Social......................................................................................................................... 15 5. Environment .............................................................................................................. 15 6. Safeguard Policies ..................................................................................................... 16 7. Policy Exceptions and Readiness.............................................................................. 16 Annex 1: Country and Sector Background .................................................................. 17 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ..... 28 Annex 3: Results Framework and Monitoring ............................................................ 29 Annex 4: Detailed Project Description .......................................................................... 33 Annex 5: Project Costs ................................................................................................... 39 Annex 6: Implementation Arrangements ..................................................................... 40 Annex 7: Financial Management and Disbursement Arrangements ......................... 43 Annex 8: Procurement Arrangements .......................................................................... 52 Annex 9: Governance and Accountability Plan ........................................................... 65 Annex 10: Economic and Financial Analysis ............................................................... 70 Annex 11: Safeguard Policy Issues ................................................................................ 71 Annex 12: Project Preparation and Supervision ......................................................... 72 Annex 13: Documents in the Project File ..................................................................... 73 Annex 14: Statements of Loans and Credits ................................................................ 74 Annex 15: Country at a Glance ..................................................................................... 79 ii INDIA Capacity Building for Urban Development Project PROJECT APPRAISAL DOCUMENT South Asia Sustainable Development Sector Department Date: June 17, 2011 Team Leader: Songsu Choi Country Director: N. Roberto Zagha Sectors: General water, sanitation and flood Sector Manager/Director: Ming Zhang protection sector (15%); Sub-national government administration (85%) Themes: Municipal finance (P); Municipal governance and institution building (P);Other urban development (P) Project ID: P099979 Environmental screening category: Not Required Lending Instrument: Technical Assistance Credit Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total IDA financing (US$ m.): 60.00 Proposed terms: Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 0.00 0.00 0.00 International Development Association (IDA) 55.00 5.00 60.00 Total: 55.00 5.00 60.00 Borrower: Government of India Department of Economic Affairs Ministry of Finance, North Block New Delhi India 110001 Tel: +91-11-23093182 nilaya.mitash@gmail.com Responsible Agencies: Ministry of Urban Development (MOUD) Nirman Bhawan New Delhi India Email: jsnurm-mud@nic.in Ministry of Housing and Urban Poverty Alleviation (MOHUPA) Nirman Bhawan New Delhi India Email: jsray-mhupa@nic.in iii Estimated disbursements (Bank FY/US$m) FY 2012 2013 2014 2015 2016 Annual 8.0 18.0 18.0 14.0 2.0 Cumulative 8.0 26.0 44.0 58.0 60.0 Project implementation period: Start June 1, 2011 End: June 30, 2016 Expected effectiveness date: October 1, 2011 Expected closing date: June 30, 2016 Does the project depart from the CAS in content or other significant respects? Ref. [ ]Yes [X] No PAD A.3 Does the project require any exceptions from Bank policies? Ref. PAD D.7 [ ]Yes [X] No Have these been approved by Bank management? []Yes [X ] No Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated ―substantial‖ or ―high‖? []Yes [X ] No Ref. PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Ref. [X]Yes [ ] No PAD D.7 Project development objective: Ref. PAD B.2, Technical Annex 3 The project‘s development objective is that: selected Urban Local Bodies (ULBs) will have improved their systems and skills for urban management and urban poverty reduction. Project description : Ref. PAD B.3.a, Technical Annex 4 The Project will have three components: 1. Capacity Building for Strengthened Urban Management: This component will help States and Urban Local Bodies to improve systems for (i) financial management (FM); (ii) urban planning; (iii) service delivery; and (iv) governance in Urban Local Bodies. 2. Capacity Building for Effective Urban Poverty Monitoring and Alleviation: This component will help States and ULBs (i) improve skills of practitioners; (ii) recognize and incorporate innovative programs and best practices; and (iii) diagnose urban poverty and prepare alleviation strategies in ULBs. This component will also strengthen MOHUPA‘s capacity for urban poverty monitoring and evaluation. 3. Implementation Support: This component will support implementation via outreach activities with ULBs, as well as project procurement, FM and administration. Which safeguard policies are triggered, if any? Ref. PAD D.6, Technical Annex 10 None Significant, non-standard conditions, if any, for: Ref. PAD C.7 Negotiations and Board presentation: None Loan/credit effectiveness: None Covenants applicable to project implementation: None iv A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues 1. Background and key sector issues. Indian Urban Local Bodies (ULBs) play a particularly important role in the country‘s economic life, with about sixty percent of India‘s Gross Domestic Product (GDP) produced in urban agglomerations. Though the urban population represents only twenty eight percent of the total population, India counts three of the world‘s twenty-one mega-ULBs (Mumbai, 19mn; Delhi, 15mn; Kolkata, 14mn). Four other ULBs have a population between four and ten million (Chennai 6.5mn; Hyderabad 5.7mn; Bangalore 5.7mn; and Ahmedabad 4.05mn) and twenty eight other ULBs have a population between one and four million. In total there are over 5,000 ULBs, 300 of which have a population greater than 100,000. Looking to the future, the urban population is expected to increase from 282 million in 2000 to 590 million people in 2030. Larger ULBs will continue to look for ways to strengthen their participation in the global economy, while smaller ULBs will absorb most of the rural- urban migration and seek to strengthen linkages to the rural economy. 2. Indian policy makers face two key challenges in achieving the benefits associated with an urban agglomeration economy: (i) managing the urban space and (ii) alleviating urban poverty. 3. Managing the urban space. While Indian ULBs continue to attract millions of people, they have not fully achieved the development and economic benefits that urbanization could bring. This is evident from the high land prices, inadequate housing, congestion and weak service delivery in urban areas. Today, Indian ULBs are becoming centers of economic growth and yet have challenges of poverty alleviation. International benchmarks show Indian ULBs to be lagging on service delivery, and few Indian ULBs are creditworthy to access capital markets for funds for urban infrastructure. The areas that require urgent focus are water supply and sanitation, urban transportation, environment, affordable housing and the development of the capacity of ULBs to function successfully in a decentralized environment. Slums (informal settlements) have grown very fast over the last two decades, reaching about twenty five percent of urban housing over the last two decades. In some ULBs, such as Mumbai, the slum population is over one half of the total. These impediments are the result of weaknesses in the policy, financing and institutional frameworks that govern key aspects of urban management, i.e. urban finance, land use planning and regulation, and service delivery. Together, they negate the benefits of agglomeration economies in Indian ULBs by distorting land and housing markets, rendering ULBs non-creditworthy, and leaving them with expensive, yet poorly functioning, urban services. 4. Weak finances: ULBs suffer from a range of financial constraints: (i) a lack of buoyant and dynamic revenue streams, inadequate and poorly mobilized local revenues (e.g. property tax, user charges) and inadequate fiscal transfers from higher levels; (ii) weak asset/liability management; (iii) inadequate financial management (FM), assurance and information systems, and; (iv) non-transparent subsidy mechanisms. These foster a dependency on concessional or public finance. In principle, central and state support for ULBs is supposed to be matched by contributions from own source revenues and funds leveraged from private sector lender. In reality though, local revenue sources like property taxes and user charges are not effectively raised, and access to market finance is limited as ULBs lack credibility with potential lenders. 1 5. Outdated planning: Urban planning frameworks are weak in many local governments. Planning is often done by multiple agencies with overlapping responsibilities and inadequate coordination between them. Counterproductive urban planning regulations, including rigid master plans, zoning regulations, floor space indexes (FSI) and development controls are overly restrictive with respect to densities and spatial structure. Additionally, planning and land use management weaknesses are at the core of slum formation: (i) current land use and spatial planning (and enforcement) practices limit the supply of land available for building; and (ii) building regulations (e.g. floor space requirements) limit the density and supply of homes. At the same time, urban expansion and renewal often calls for restructuring city space, thus requiring redevelopment of existing settlements and activity zones. Resettlement is not adequately integrated into urban planning and appropriately factored into urban development institutions. Urban planning has also traditionally been approached through a top-down, narrow sectoral perspective. This has omitted topics such as environmental health and broader quality of life issues. These need better integration into the planning framework and decision making process. Further, an approach that includes the ULB and urban citizens as the key players in the planning process needs to be evolved. 6. Weak service delivery institutions (Water and Sanitation Services, Solid Waste Management): In the current institutional structure there is considerable overlap in responsibility for the functions of policy making, regulation and service provision. These require accountability and performance improvement. Service delivery is usually provided by departments within the city administration, which often are not financially independent, client-oriented or professionally specialized. There is a strong bias toward providing physical infrastructure (pipes, vehicles, collection bins) rather than providing financially and environmentally sustainable services to urban areas. Basic services are hampered by financial weaknesses, due to an inability to recover operations and maintenance (O&M) costs, as a minimum, from users and inefficiencies in service provision. Though under the Jawaharlal Nehru Urban Renewal Mission (JnNURM, see below) service level benchmarks have been introduced, the weak capacity of the ULBs is an impediment in the realization of optimum service delivery levels and efficiencies. 7. Governance and Intergovernmental constraints: The 74th Constitutional Amendment Act of 1993 (CAA) gives urban local bodies an independent status within the Constitution, with a key role to play in the provision of services. Nevertheless, systemic institutional weaknesses continue to be a challenge. The 11th Plan (Approach Paper, December 2006) cites the need for good governance and transparency. In the urban sector specific governance challenges affect performance. ULBs lack functional jurisdiction as responsibilities for urban services are fragmented and overlap considerably across state and local agencies leading to a lack of coordination. In many states, devolution of functions and responsibilities from states to ULBs has been done, but the transfer of funds and functionaries is partial and limited, while fiscal dependence on state governments remains high. Most Municipal Acts do not provide appropriate incentives for accountability. Citizen involvement in city decisions is low and needs further improvement in transparency and a systematic approach. The reforms under JnNURM, especially the Community Participation Law, and the introduction of an e-governance system are some of the initiatives taken by Government of India (GoI) to enhance participation and transparency in urban local bodies. 8. Alleviating urban poverty. Following national poverty trends, urban poverty has decreased steadily over the last 25 years, but the absolute numbers of urban poor continue to 2 grow. Urban poverty rates declined from 43.6 percent in 1983 to 25.7 percent in 2005 (NSSO 1983-84 and 2004-05 rounds). This decline in total and urban poverty incidence has been accompanied by an ―urbanization of poverty‖, as the urban poor account for a larger fraction of the total poor today than they did decades ago. This phenomenon, combined with overall population growth, has translated into increasing numbers of urban poor. Vulnerability— understood as the extent of susceptibility to poverty—has also increased in urban areas as a result of the rising pressure on urban amenities and facilities, growing informality in the labor market and the erosion of traditional informal support networks. 9. Determinants of urban poverty and vulnerability. Urban poverty is a complex phenomenon and there are specific characteristics of poverty and deprivation that are particular to the circumstances in which the urban poor live. Although far from constituting a homogenous group, the urban poor and vulnerable are generally characterized by a greater income volatility associated with informal employment, higher exposure to shocks arising from expenditure shocks such as increases in prices or expenditure on health needs, insecure living conditions, and poor service delivery compared to their rural counterparts. 10. Access to social services among the urban poor. Quality of social service delivery is generally poor in urban areas due to a variety of reasons. On the supply side, inadequate institutional arrangements, insufficient financing, and poor quality and quantity of inputs provided are important factors. On the demand side, factors affecting social service access include limited awareness about the availability of services, differing levels of ‗urban literacy‘ (familiarity with local language, common urban technologies and institutions and prior experience among the users of facilities), and the relatively high (implicit and explicit) costs of different services. 11. Access to social protection programs among the urban poor. While India has a range of central and state-specific social protection programs, the urban social protection system has been traditionally less focused and consequently, under financed. 12. Government’s urban development strategy. The Government‘s overarching urban development objective is to create economically productive, efficient, inclusive and responsive ULBs, by focusing on six strategic outcomes: (i) universal access to a minimum level of services; (ii) establishment of city wide frameworks for planning and governance; (iii) modern and transparent budgeting, accounting and FM; (iv) financial sustainability for ULBs and service delivery institutions; (v) utilization of e-governance; and (vi) transparency and accountability in urban service delivery and management. 13. The Government‘s flagship urban development program is the Jawaharlal Nehru National Urban Renewal Mission (JnNURM), which was launched in December 20051. The Mission targets 65 ULBs (7 with populations greater than 4 million, 28 greater than 1 million and 30 other ULBs of religious, historic or tourist importance). JnNURM is reform and incentive based: 1 Concurrent with the two sub-missions of JNNURM i.e. UIG and BSUP, the Government launched the Urban Infrastructure Scheme for Small and Medium Towns (UIDSSMT), with a similar policy and investment design, covering all ULBs/towns as per 2001 census except those covered under JNNURM. Similarly, the MOHUPA runs the Integrated Housing and Slum Development Program (IHSDP), with a similar policy and investment design as BSUP, covering all ULBs/towns as per the 2001 census except the 65 mission ULBs of JNNURM. Throughout the PAD references to JNNURM reforms are understood to include UIDSSMT and IHDSP. 3 in return for a commitment to adopt the obligatory reforms over a period of seven years, ULBs may access funds for investment and capacity building. As of March 2011, the Government of India (GOI) had committed to provide up US$ 14.43 billion in federal resources for these investments for qualifying ULBs a seven year period. States and ULBs are then expected to match the federal grants from own-source funds, the capital markets, public private partnerships (PPP), and bilateral and multilateral agencies. The investment component of the Mission consists of two sub-missions: (i) Urban Infrastructure and Governance (UIG), implemented by the Ministry of Urban Development (MOUD), with investments including (a) water, sanitation, sewerage and drainage; (b) solid waste management (SWM); (c) urban transport; (d) street lighting; and (e) environmental protection; and (ii) Basic Services to the Urban Poor (BSUP), implemented by the Ministry of Housing and Urban Poverty Alleviation (MOHUPA), with investments supporting integrated development of slums. More recently GOI launched the Slum- free City Planning Scheme (SFCP) of Rajiv Awas Yojana (RAY) a scheme working towards the goal of a slum-free India. 14. The essential building block of JnNURM is the reform program. The major element of the mandatory reform program relates to urban management; (i) adoption of modern accrual- based double entry system of accounting; (ii) introduction of a system of e-governance using IT applications, such as Geographic Information Systems (GIS); (iii) reform of property tax; and (iv) levy of reasonable user charges for municipal services. In addition, the JnNURM has been designed to assist in pro-poor development of Indian ULBs by enabling the provision of basic services to the poor and supporting integrated development of slums. These include: (i) internal earmarking of at least 25% funds within local body budgets for basic services to the urban poor; (ii) reservation of at least 20-25% of developed land in all housing projects (both public and private agencies) for Economically Weaker Sector (EWS)/ Low Income Group (LIG) category with a system of cross-subsidization; and (iii) States and ULBs are required to formulate and adopt an overarching policy on the provision of basic services to the urban poor addressing the 7- point charter pertaining to: provision of security of tenure at affordable prices, improved housing, water supply, sanitation, education, health and social security; the last three are to be tackled in convergence with departments dealing with education, health and social security as applicable. These reforms have been introduced to ensure that a dedicated budget is created at the city and state level for urban poverty alleviation and slum upgrading; the urban poor have access to land and are not squeezed out of the housing market due to mounting land prices; and that poor are systematically provided with basic services based on agreed milestones. 15. The weak capacity in ULBs, however, is slowing the implementation of both the urban management and poverty reduction reforms in many Mission ULBs, and thus hampering the achievement of the strategic outcomes sought by the Government. The scope and complexity of these urban capacity challenges is only now emerging. Many ULBs need a comprehensive package of assistance covering both urban management and poverty reduction. Others, particularly large urban areas, need more targeted assistance, e.g. in revenue management, capital budgeting or tariff design. While ULBs generally have a good understanding of the need to introduce reforms, many lack the capacity to prepare a credible step by step implementation plan to carry out the reforms. While the high level officials like Municipal Commissioners are often drawn from the national and State level administrative services and have considerable technical expertise and public administration backgrounds, many ULBs lack staff with the specialized professional training relevant to the management of ULBs and the services they need to offer. This is not only a matter of project management capacity, but also of the lack of systems 4 and policy tools to take strategic decisions, plan ahead, involve citizens, and monitor services. Basic information on the poor in ULBs is lacking, and systems are under developed to either improve the information or ensure that it gets strategically interpreted and utilized. There is also a tendency to treat urban poverty separately from the wider development of ULBs, which results in short-term and fragmented interventions, rather than strategic city-wide plans and approaches, and the systems to implement them. Most municipal officials have had little exposure to domestic and international best practices, which hampers the professionalization of ULB management. 2. Rationale for Bank Group Involvement 16. CAS linkage. The project is consistent with the Bank Group Country Strategy (CAS) discussed by the Executive Directors on December 11, 2008. The CAS aims to foster rapid and inclusive growth, sustainable development and service delivery. The proposed project would directly contribute to these CAS objectives by strengthening capacity for urban management and poverty alleviation, and by improving learning and innovation systems related to urban development. 17. Rationale for Group involvement. The critical issue now for India‘s urban sector is to implement a complex process of policy reform, institutional capacity, and investments through the third tier of government in urban areas i.e. the ULBs. The Bank is already providing support to urban development through lending, advisory work and knowledge building activities, and has on-the-ground experience of the main capacity constraints. Bank support for the project links this wide ranging experience directly with the Government‘s flagship programs for urban development. In doing so it supports the development of a requisite framework for action on capacity development that will assist the planning, delivery and monitoring of these efforts in India‘s ULBs. 3. Higher level objectives to which the project contributes 18. The project will contribute to the achievement of GOI‘s objective of creating economically productive, efficient, equitable, inclusive and responsive ULBs. Achieving this objective will help sustain high rates of economic growth, accelerate poverty reduction, and improve services, especially to the urban poor. B. PROJECT DESCRIPTION 1. Lending instrument 19. The lending instrument proposed is a free standing Technical Assistance (TA) Credit. 2. Project development objective and key indicators 20. The project‘s development objective is that: selected ULBs will have improved their systems and skills for urban management and urban poverty reduction. Successful completion of this project will result in: (i) more ULBs are able to better plan and manage resources and services; (ii) more ULBs are equipped to analyze local conditions and formulate comprehensive poverty alleviations strategies; (iii) more ULBs have access to knowledge and best practices on urban development and (iv) urban poverty policies and program guidelines that are informed by 5 international and domestic best practices and by data that has been systematically collected and analyzed. 21. The project will target 20 ULBs looking to improve both urban management and poverty reduction. A demand-driven approach is part of the project design, which is manifested in an element of self-selection among the ULBs. Notwithstanding this, regional variation will be sought, as will variation in city size. Similarly, lagging states may be targeted, though this will be subject to some constraints as some of these states have small urban populations and others are already receiving assistance from other donors. A certain amount of state clustering will also be incorporated for greater efficiency in implementation, and to improve ULB-level capacity for participating in the intergovernmental finance system. Finally, depending on local circumstances and expressed need, additional ULBs may participate in the project and opt for more targeted interventions, e.g. capacity building only for service delivery. 22. A detailed results framework to measure the impact of capacity building activities has been designed as part of the project and is presented in Annex 3. The project outcome will be that: 20 ULBs will be implementing (i) at least two urban management reforms, covering FM, urban planning, service delivery and governance; and (ii) urban poverty reduction strategies. 3. Project components 23. The project will have three components. (i) Capacity Building for Strengthened Urban Management (US$37.5 million). This component will support TA across several urban management topics. ULBs will select the desired package of assistance, based on an assessment of needs which will be undertaken with support from the Project Management Unit (PMU, see below). This demand driven, menu approach is in response to the variable capacity building needs faced by ULBs.  Financial and FM Reform: The project would support ULBs in the key areas of improving budgeting and planning, expenditure management, procurement planning and execution, revenue mobilization (including property tax, development charges and user charges), asset/liability management, accrual accounting, internal controls, auditing, FM information systems, procurement, capacity enhancement of municipal accountants, and IT standardization. Implementation and operational planning including developing strategies for project execution, and monitoring and review including effective quality control procedures will also be supported.  Framework for Urban Planning: The project would support ULB reforms to the urban planning process and land management, including pro-poor planning approaches.  Service Delivery: The project would support institutional design in ULBs for service delivery, tariff and subsidy design, the financing framework (including access to capital markets, public private partnerships (PPPs), and carbon finance), service delivery for the poor, strengthening project planning, implementation, performance planning and benchmarking, and monitoring, training and professionalization of service delivery and efficient management of social impacts. 6  Framework for Governance: The project would seek to improve the quality of the interactions between local officials and citizens through support for citizen awareness and participation (e.g. citizen scorecards, stakeholder forums government) and skills development for elected officials. In addition, to improve transparency, public consultations, citizens‘ forums and measures such as disclosure of finalized audited financial statements would be supported. (ii) Capacity Building for Effective Urban Poverty Alleviation and Monitoring ($18.5 million) These capacity building initiatives reflect the need to strengthen MOHUPA, share urban poverty alleviation experiences, and design strategies on urban poverty alleviation. It is anticipated that this component will further assist in the effective implementation of RAY.  Challenge Fund for Urban Poverty Alleviation. Grant funding will be provided to ULBs working on urban poverty alleviation via two windows: (i) to recognize and award particularly innovative practices in this area; and (ii) to government departments and institutions and parastatals interested in adopting and scaling up one or more of the ―best practices‖ identified through the first window. The sub-component will also provide funding for the administration of the Challenge Fund.  Creation of a Practitioners Network. Support will be provided to the Challenge Fund to constitute a network of practitioners with the objective of promoting information sharing and capacity building. The network will include government officials from the selected ULBs, academics and other actors active in the area of urban poverty alleviation both nationally and internationally, and is envisioned to serve as a platform for both peer-to- peer learning and the delivery of formal training. The network will also facilitate the dissemination and discussion of best practices identified and/or developed through the Challenge Fund.  Development of Training Materials on Urban Poverty and Service Delivery. Support will be provided to 4 National Resource Centers to develop training modules on urban poverty reduction and service delivery.  Preparation of ULB level Poverty Reduction Strategies. Support will be provided to ULBs to prepare diagnostics and poverty reduction strategies which build upon the existing and future planning instruments such as City Development Plans and Slum-free City Action Plans. Support will also be provided to improve databases and other tools needed for targeting and monitoring of service delivery in urban areas.  Strengthening of MOHUPA: The technical assistance will support policy analysis and development as well as build a comprehensive monitoring and evaluation (M&E) system in MOHUPA in coordination with the Resource Centers and ULBs. (iii) Implementation Support (US$4 million):  This component will support a national PMU for providing overall technical and managerial assistance during implementation. The PMU will assist in supporting the project, in the areas of (i) pipeline development; (ii) quality assurance; (iii) procurement 7 and procurement advisory services; (iv) FM; (v) reporting; (vi) M&E; and (vii) project administration. 4. Lessons learned and reflected in the project design 24. Past Bank-financed urban development projects in India focused on asset creation and expanding access to services. The current Bank projects take a different approach, recognizing that policy reform and institutional capacity must be addressed in a comprehensive fashion to ensure the efficiency and effectiveness of investments in infrastructure and service delivery. (Karnataka Municipal Reform Project, approved March 2006; $216mn; Third Tamil Nadu Urban Development Project, approved July 2005; $300mn; Karnataka Urban Water Sector Improvement Project, approved July 2005; $39.5mn; Andhra Pradesh Urban Reforms and Municipal Services Project, approved Dec 2009; $300mn). Though the Capacity Building for Urban Development project focuses exclusively on institutional development, it also reflects the essential lesson of linking project activities to the larger policy framework. 25. Technical Assistance projects (TA) projects have had mixed results for several reasons: (i) over-ambitious and complex designs have hampered the achievement of development objectives; (ii) weak links to reform programs have weakened the results chain; and (iii) supply driven TA has resulted in low demand. The project has incorporated these lessons into the design. This project focuses on achieving outcomes in selected ULBS, where those outcomes are linked to the aims of the GOIs flagship programs. The implementation design also calls for the PMU to undertake significant outreach activities to ensure that States and ULBs are taking advantage of capacity building opportunities under the project. Additionally, where "process steps" involved for accessing TA are cumbersome, disbursements may fail to meet expectations and the effectiveness of intervention may be diluted. Involving multiple tasks and agencies may result in delays in reaching physical and financial targets. The design of the project framework seeks to streamline the management of numerous requests to allow easy access and fast disbursement of the TA funds. 5. Alternatives considered and key choices made 26. Flexible multi-sector v. single-sector: Given the inter-linked, multi-sectoral range of the reform challenges facing the urban sector, a single sector design (e.g. service delivery) was considered too narrow and restrictive. To enhance the sustainability of this initiative, the design of the facility is diversified, multi-sectoral and open to States and ULBs that fit within the terms of the agreed development/ reform agenda. 27. State and ULB focus: Consideration was given to focusing project outcomes on improving capacity in the States as well as ULBs. While it was agreed that States may need to enhance capacity, it was decided to orient project outcomes to ULBs, where capacity weaknesses are sharpest. 8 C. IMPLEMENTATION 1. Partnership arrangements 28. The project has been developed within a capacity building framework in which other donors are currently participating. The Water and Sanitation Program (WSP) and the World Bank Institute (WBI) have participated in the conceptualization and design of the project, and, through their regular programs, will support complementary capacity building activites during implmentation. Other bilateral donors (Asian Development Bank (ADB), German International Cooperation (GIZ), and United States Agency for International Development (USAID) also have complementary capacity building programs under way. 29. The UK Department for International Development (DFID) has been particularly active in capacity building, especially in lagging states. Building on these lessons learned, it has committed approximately US$20 milliion to support a policy unit in MOHUPA, the development of state and ULB poverty reduction units, skills development for local officials and the development of pro-poor approaches on finance, planning and service delivery. These proposals are complementary to the World Bank Group‘s proposed project, particularly to help forge the state-local linkages required to approach the local government challenges in a federal system. 2. Institutional and implementation arrangements (Annex 6). 30. Following current practice, MOUD and MOHUPA will be the implementing agencies under the project, with specifically designated accountabilities. The respective Joint Secretaries (JnNURM Mission Director for MOUD and RAY for MOHUPA1) from the two ministries will be the Project Directors (PDs). The project will be implemented through a structure of two Programme Management Boards (PMBs), each chaired by the respective Secretary of MOUD and MOHUPA, and also comprising representatives from the Department of Economic Affairs (DEA) and the Planning Commission. Each PMB will provide overall oversight and guidance, as well as approve major work plans and activities, for each component under the responsibility of the respective Ministry (see below). Each PMB will be supported by a Project Steering Committee (PSC), which will be chaired by the respective Joint Secretaries from each ministry, and will also have representation from the DEA and the Planning Commission. Both the PSCs will in turn be assisted by a single common national level PMU, which will be established under the project for providing technical and managerial assistance during project implementation servicing and reporting to both ministries via their respective PMBs and PSCs. The organizational schematic for the project is shown in the chart below and detailed implementation arrangements are summarized in Annex 6. 1 After the present JnNURM Mission period is over the MoUD may nominate an officer not below the rank of Joint Secretary. 9 Chart: Implementation Arrangements 31. The project will associate with States and ULBs that are eligible for JnNURM, IHSDP, UIDSSMT and RAY support. In practice, as noted above, the participating States and ULBs will be selected to achieve a mix of large and small ULBs, as well as regional variation. 32. Component 1: Capacity Building for Strengthened Urban Management. Implementation of this component will be under the purview of MOUD, utilizing its PMB and PSC. Proposals for TA under this component will be reviewed by MOUD and sanctioned by its PMB. In reviewing these proposals MOUD will draw on the PMU. The MOUD may also call upon State Level Nodal Agencies (SLNAs, which already exist under JnNURM) to assist the ULBs in preparing capacity building projects and advising on procurement. This role is already within the purview of the SLNAs. Once the technical sanction for the TA proposals are received from the PSC and MOUD agrees to fund such proposals, MOUD would sign an MOU1 with the States and ULBs which would outline the following key areas: (i) objective of the study; (ii) expected outcomes; (iii) estimated cost and timeline; (iv) reporting requirements and (v) procurement and FM arrangements including the process of selection of consultants, certification of work, evaluation of the reports and outputs, and payment arrangements. 33. Component 2: Capacity Building for Effective Urban Poverty Monitoring and Alleviation. This component will be under the purview of MOHUPA, utilizing its PMB and PSC. Proposals for TA under this component will be reviewed by MOHUPA and sanctioned by its PMB. Four resource centers will also be selected by MOHUPA on the basis of an evaluation 1 The MOU format would be designed by the Ministries within three months of project launch. The sample MOU would be used as a base document and would be customized according to the relevant proposals. 10 of capacity and experience, and thus will oversee the development and installation of the training modules in these institutions. Other activities associated with ULBs – Challenge Fund, development of a practitioner‘s network, and poverty reduction strategies – will also be overseen by MOHUPA and directed at the same target group of participating ULBs. Once the technical sanction for the TA proposals are received from the PSC and MOHUPA agrees to fund such proposals, MOHUPA would sign an MOU with the State and ULBs which would outline the following key areas: (i) objective of the study; (ii) expected outcomes; (iii) estimated cost and timeline; (iv) reporting requirements and (v) procurement and FM arrangements including the process of selection of consultants, certification of work, evaluation of the reports and outputs, and payment arrangements. 34. The Challenge Fund would be provided to entities based on the wining proposal as approved by the Ministry as per the procedures agreed with the Bank. A sub-financing agreement would be entered between the beneficiary and the Ministry which will govern the usage of proceeds. 35. Component 3: Implementation Support. To strengthen the quality of the capacity building proposals and the achievement of desired outcomes, and to improve internal controls, the project will draw on the services of a Project Management Unit that will be financed under the project to augment the capacity of both Ministries to manage the project. The PMU will provide comprehensive management and administrative support to MOUD and MOHUPA for this project. Quarterly work plans and implementation reports in respect to Component 1 will be prepared by the PMU for the review and approval of the Joint Secretary (Mission Director) MOUD/PD, CBUD Project. Similarly, for Component 2, quarterly work plans and implementation reports will be submitted to the Joint Secretary (RAY) MOHUPA/PD, CBUD Project. The TOR of the PMU include: (i) implementation support, including startup and pipeline development; (ii) technical advisory services; (iii) quality assurance (iv) procurement and procurement advisory services; (v) M&E and reporting; (vi) project administration; (vii) project FM and (viii) reporting. 3. Monitoring and evaluation (Annex 3) 36. Broadly, the M&E system seeks to measure the outcomes associated with the various capacity building components under the project as well as the overall program management (institutional arrangements). Since under this program participating States and ULBs are not pre- identified and could potentially join the program anytime through the period of implementation, for the purposes of this M&E system certain assumptions have been made. These assumptions will also be informed by the needs assessments / consultations / dialogue with States and ULBs. State and ULBs would participate under this capacity building program over the implementation period of 5 years, with no new States and ULBs joining the program after year 4 so that the actual implementation gets completed in all States and ULBs by the end of the project period. 4. Sustainability 37. The project aims to improve sustainability in three ways: (i) at the ULB level through skills development, scaling up of good practices and improved systems for poverty reduction through good governance, better management, planning, and accountability, improved service delivery and strengthened FM. The latter aims to help ULBs better manage revenue (including 11 accessing new sources such as capital markets, PPPs, carbon finance), and expenditure; (ii) through a strengthened network of resource centers and practitioners; and (iii) in MOHUPA through better policy support. 5. Critical risks 38. As a capacity building initiative supporting the GOI‘s urban strategy, the project presents a somewhat different risk profile than a sector investment loan financing goods and works. These risks and mitigation measures are addressed through the project design, as noted below. 39. Ensuring an appropriate management and accountability structure for the project. The project follows a structure similar to JnNURM, wherein the two sponsoring ministries - MOUD and MOHUPA - will Chair respective committees (PMB and PSC). The respective Joint Secretaries/PDs will be assisted by a PMU, recruited under Bank procurement procedures and funded from the credit. The PMU will submit quarterly work programs for the review and approval of the Joint Secretaries. The TOR for the PMU has been approved by the Bank. 40. Ensuring support to Ministries in Procurement and FM: The PMU will assist the two Ministries in procurement and FM. 41. Ensuring that the capacity building is delivered as planned with expected levels of quality. A monitoring system will be established in the PMU to (i) track the contracting system for consultants, including grievance procedures; and (ii) evaluate the quality of services provided. The beneficiary States and ULBs will exercise quality control on the services provided. 42. Additional risks associated with project outcomes are identified below. Risks Risk Mitigation Measures Risk Rating with Mitigation To project development objective JnNURM will come up for renewal in 2012 11th Plan identifies need for urban development. Even if M and may be revised JnNURM is modified, the commitment to efficient, effective and inclusive ULBs will likely remain. Substantial breadth and depth of the urban Focus on a small group of self-selected ULBs. management skills needed to support implementation of JnNURM To component results 1. Capacity Building for Strengthening M Urban Management: Skill and system acquisition: Range of FM Finance profession well developed in India in the private upgrading needed is quite large. sector; good supply of professionals available to facilitate skill and system transfer. Institutional resistance to change: Potential Very high demand for system improvement expressed in resistance to developing new institutional consultation with prospective ULBs. framework. Difficulty for ULBs to develop multi-sectoral, city-wide plans. 12 2. Capacity Building for Effective Urban M Poverty Monitoring and Alleviation: 2a Challenge Fund: May have difficulty in The Challenge Fund is a pilot activity. The entity that will identifying innovative practices and then be expected to manage the process will be expected to additional difficulty in scaling up. provide ―handholding‖ during the initial rounds of identification and award. 2b. Network: Incentives for participation in Again a pilot activity. Initial estimate is that there is Network. significant interest in learning and sharing experiences among ULBs. 2c. Training Materials: Utilization and The institutions that will be selected will have considerable integration into curriculum: Ability of experience in providing training, including collaboration network institutions to incorporate new with WBI. curriculum into training programs. Ability of institutions to manage learning cohorts 2d .Urban Poverty Reduction Strategies: Pilots will be developed to incorporate lessons learnt. Possible difficulty in utilizing information and implementing methodology. 2e. Strengthening MOHUPA to utilize Strengthening of MOHUPA is underway with the information for better informed policy. establishment of a Policy and Program Support Unit staffed by qualified professionals. ULBs will be able to look to State and ULB nodal units for support in implementation. L 3. PMU Unit is unable to provide the range of Significant interest expressed by well qualified firms to services requested in the TOR to support date in providing these services and skills. the Project Directors. Overall risk rating M 13 6. Credit conditions 43. Project Covenant: The Challenge Fund will disburse money only after the proposals are cleared as per the Challenge Fund procedures and the required fiduciary assessment and reporting arrangements are agreed with the proposed Beneficiary. 44. Project Covenant: Internal Audit to be in place throughout the life of the project and conducted at periodic intervals. 45. Project Covenant: An FM Specialist to be in place throughout the life of the project. D. APPRAISAL SUMMARY 1. Economic and Financial Analyses 46. No economic and financial appraisals have been carried out as the ULBs have not been identified prior to loan negotiation. However, an economic analysis would be undertaken of capacity building in a selected ULB during project implementation. 2. Technical 47. The project directly supports the Borrower‘s flagship program for urban development, and more specifically, it strengthens local capacity for implementing critical urban policy reforms. Additionally, the project will support the development of capacity in ULBs to plan, implement and monitor investment projects consistent with the objectives of JnNURM and RAY for improving service delivery. This will include strengthening capital budgeting procedures, improving project planning, improving contracting, and developing supervision procedures. 3. Fiduciary 48. Financial Management (Annex 7) FM systems for this project will be based on government systems of accounting and reporting with all the controls and oversight that exists in the government system. It may be noted that FM systems for the Challenge Fund will be designed and agreed separately, once the implementation arrangement for the same is agreed. As a part of the due diligence, the FM assessment for the Challenge Fund would be conducted and an action plan would be agreed with the MOHUPA, and based on the implementation of the action plan the funds would be released for this sub-component. The assessment concludes that the proposed FM systems are satisfactory to support the project (assuming satisfactoriness of arrangements to support the Challenge Fund). 49. The two Ministries will operate two separate budget heads for expenditure under the project. Financial Adviser of the two Ministries, assisted by Director (Finance) and Chief Controller of Accounts will provide oversight over the financial management aspects of the project. The FM Specialist in the PMU will be a professional accountant who will oversee the FM aspects of the project and liaise with the Bank. 50. The funds flow system for the project will be simple and based on reimbursement of expenditures based on quarterly Interim Un-audited Financial Reports (IUFRs). These IUFRs will be reconciled annually with audited Annual Financial Statements (AFS). 14 51. Expenditures will be centralized1 (except for Challenge Fund) and will be made by the MOUD/MOHUPA as applicable on activities, through the Pay and Accounts Office (PAO) system. Quarterly reports submitted by the Ministries to the Controller General of Accounts (CGA) will comprise the accounting records for the project. Accounting for the project will be carried out on cash basis of accounting. The AFS for the project will be maintained by the PMU based on expenditure reported to the CGA by the two Ministries. The PMU would maintain detailed records which would be reconciled with PAO on a regular basis. 52. A single consolidated annual audit report will be submitted to the Bank. The audit will be carried out by the Comptroller and Auditor General (CAG), based on Terms of Reference (TOR) agreed with the Bank. 53. Internal control will be strengthened through procedures laid out in a Project FM Manual, which will be predicated on controls in government system. In addition, internal audit will be in place throughout the life of the project by a firm of Chartered Accountants empanelled with the CAG, as per a TOR which will be agreed with the Bank. 54. Procurement (Annex 8). The procurement capacity will be built by hiring a PMU with a dedicated procurement staff that will assist the implementing agencies in all procurement activities, including advisory support to the ULBs for the procurement related reforms. No procurement (other than the procurement of PMU) will take place until the PMU has been established. 55. States and ULBs may elect to improve their capacity for procurement under the project. Where the need is identified, the project may support working towards adoption of unified procurement regulations that apply to any use of public funds for the purchase of goods, works, and services, define appropriate management structures for procurement at the States and ULB level and help create a timeline for adoption of e-government procurement. These initiatives are geared towards improving the overall effectiveness of procurement by ULBs and help building their capacities. 4. Social 56. No specific social safeguards issues have been identified. The project will, however, provide TA for improving the capacity of ULBs to manage the social impact of urban development. The project will support a pro-poor approach to urban planning, budgeting, and service delivery. Governance improvements will give greater voice to urban stakeholders, especially the poor. 5. Environment 57. The activities directly supported by the project are not likely to cause any significant adverse environmental impacts and none of the safeguards are likely to be triggered. Indeed, through capacity building, the project has the potential to ameliorate significant issues related to the urban environment, e.g. lack of integrated planning, land use planning, environmental 1 It is envisaged that all payments would be done by the ministries at the Central level. (FM Annex). 15 sustainability of service delivery, and heightened citizen awareness and monitoring of environmental issues. 58. The project is designated in ‗Category C‘ for environmental screening where the responsibility for (potential, future) safeguard review and clearance has been transferred to the Sector Unit. 6. Safeguard Policies 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) [] [X] 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)1 [] [X] Projects on International Waterways (OP/BP 7.50) [] [X] 7. Policy Exceptions and Readiness 59. The project does not require any exception from Bank procedures and meets the South Asia Region‘s criteria for readiness. 1 By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 16 Annex 1: Country and Sector Background INDIA: Capacity Building for Urban Development Project 1. Urban sector background. Indian ULBs will be the locus and engine of much of the country‘s economic growth over the next two decades. Since 1960 India‘s total population has increased three fold, and the urban share has risen from seventeen percent to almost thirty percent. This population is spread across over 5,000 ULBs including three of the world‘s twenty one mega-ULBs, four ULBs with a population between four and ten million and another twenty eight with populations of more than one million. Between 2000 and 2030 the UN projects that India‘s urban population will increase from 282 million to 590 million persons (UN-HABITAT). Mega-city growth has and will continue to play a key role in driving Indian urban population growth. Therefore, it can be inferred that one facet of India‘s urban planning challenge is to accommodate an additional 10 million urban dwellers per year, provide them with adequate public services and infrastructure, create opportunities for economic development and ensure that urbanization is environmentally sustainable. However, rising urban inequality and deceleration in the pace of urban poverty reduction may hinder the achievement of the Plan target. 2. Managing the urban space. While Indian ULBs continue to attract millions of people, they have not been able to completely achieve the development and economic benefits that urbanization could bring. This is evident from the high land prices, inadequate housing, congestion and weak service delivery in urban areas. The high cost of urbanization is a critical constraint to urban development, the result of weaknesses in the policy, financing and institutional frameworks that govern key aspects of urban management, i.e. urban finance, land use planning and regulation, service delivery and governance. 3. Urban finance. The critical issue facing policy makers in the context of urban finance is: how can ULBs become financially viable entities that can raise the financial resources required to operate urban services effectively as well as undertake the capital investments to meet the demand supply gap? Five interconnected problems in urban finance need to be addressed:  ULBs are not sufficiently empowered and in most cases, do not have the autonomy of fiscal powers and full devolution of responsibility for delivering the urban services expected of them;  There is a mismatch between ULB revenue capacity and their expenditure requirement: they lack buoyant sources of own revenue because their tax bases and data are weak, and they are unable to fully recover charges for services rendered;  Most of the ULBs are not creditworthy on a stand-alone basis and, in most cases, lack an adequate supply of bankable projects that could be financed in domestic capital markets;  Due to these structural failures, ULBs are dependent on an inadequately targeted system of intergovernmental transfers, and borrowing from government owned financial institutions. These impose very little financial discipline and thus reinforce the lack of creditworthiness; and  ULB accounting system reforms and upgradation of systems are not yet fully in place. This hampers the possibility of ULBs successfully accessing credit, allowing for efficient budgeting and financial management. 17 4. A key reason for the financial weakness of ULBs in India has been the low levels of own source revenues - primarily property taxes and user charges. Property tax remains a vastly under- utilized source of revenue by ULBs, largely because property taxes rely on a valuation methodology that does not reflect market values. Similarly, user charges are another greatly under-utilized source of own revenue in ULBs. Water supply tariffs rarely cover O&M expenditures and many other urban services (such as sewerage) traditionally do not have a user charge associated with them. Expenditure management is also cause for concern. Expenditure assignments tend to be highly fragmented, and the absence of clear assignments diminishes the authority delegated to local government to make autonomous expenditure decisions. This is evident, for instance, from the assignment of expenditure responsibility for water supply across various states. The dichotomy wherein the capital expenditures are carried out by state level utilities (parastatals) and O&M by ULBs creates a number of distortions. This leads to an inability to do capital investment planning (since no single entity can be held accountable for the system as a whole), a bias towards undertaking capital investments over improving O&M of urban systems, and lack of incentives for cost recovery since the capital financing is not done in transparent manner and reflected on ULBs‘ balance sheets. 5. The High Powered Expert Committee has estimated investment for urban infrastructure over the 20-year period from 2012 to 2031 at USD 886 billion (Rs. 39.2 lakh crore at 2009-10 prices), which includes Rs. USD771 billion (Rs. 34.1 lakh crore) for a) asset creation, out of which the investment for the eight major sectors is USD701 billion (Rs. 31 lakh crore); b) USD 92 billion (Rs. 4.1 lakh crore) for renewal and redevelopment including slums; and c) USD22 billion (Rs. 1 lakh crore) for capacity building. The O&M requirements for the new and the old assets are projected at USD 450 billion (Rs. 19.9 lakh crore) over the 20-year period. ULBs need to access financial markets but their weak creditworthiness is the main constraint. What these various estimates serve to highlight is the fact that the enormous financing needs are unlikely to be met by current budgetary flows/fiscal transfers (from state and central government) into this sector and ULBs/Infrastructure entities would have to increasingly access debt/equity from financial markets. However, this has proved to be difficult primarily due to two demand side issues – weak ULB finances leading to lack of creditworthiness for borrowings and lack of a strong pipeline of bankable urban projects. The primary reason for the insufficient pipeline of bankable projects is the weak institutional capacity of ULBs and the unclear expenditure assignments, especially for capital expenditures. This has resulted in only a handful of ULBs raising bonds from the capital markets. The High Powered Expert Committee on Urban Infrastructure has reported the issue of just 22 municipal bonds (including taxable, tax-free and pooled finance) amounting to USD 276.79 million (Rs. 1224 crores). 6. Finally, the quality of FM in ULBs is widely recognized to be highly variable. While the governing federal and state legislation is comprehensive in areas such as financial control, budgeting and audit, there are significant weaknesses in implementation of the same at ULBs. Also, aspects of participatory planning and public accountability are weak in the present legislative framework. In most ULBs the current system of municipal accounting remains a single entry system and on a cash basis. The current accounting practices lead to certain problems: (i) no segregation between revenue and capital expenses; (ii) inability to prepare a complete balance sheet; (iii) limited information about assets and liabilities; (iv) non-recognition of depreciation and other non-cash expenses; and (v) omission of receivables and payables distorting the true and fair performance reporting of the urban local bodies. Apart from 18 individual city efforts, not all states have implemented double entry accrual-based accounting in all its urban local bodies. 7. Planning and land use regulations. A common trend across India is that most ULBs and metropolitan agglomerations are relying on outdated master plans. Planning surveys, projections of population, employment and land development do not provide an accurate basis for planning future urban development. Most plans are snap-shots of what the future should look like. Most plans do not sufficiently integrate economic assessments of the rapidly evolving structure of the local economy. 8. Historically, Indian ULBs were not able to adequately access funds and decision making power, which resulted in the current land use situation where planners impose a restrictive policy regime to attempt to bring down costs, limit infrastructure investments and impose controls on the spatial patterns of the city. Among the policies used to implement this system were a broad range of regulations. For instance, to protect tenants from the sorts of rent increases that would occur in such supply–constrained housing markets, binding rent controls were introduced in all major ULBs.1 Finally, in an effort to ―decongest‖, almost all Indian ULBs enacted FSI regulations, which effectively constrained building heights. FSI restrictions of one-fifth to one- tenth of the level of other ULBs in the world are common in Indian ULBs, with the result that India does not have as many high rise ULBs when compared to countries of comparable population size.2 An FSI set significantly below the level of its market equilibrium has a number of negative consequences and imposes large costs on the city‘s economy. It increases the demand for land across the city as more land is required for the same amount of floor space, and increases land prices. A uniform restriction on the FSI encourages non-productive use of housing capital, raises equilibrium housing prices and lowers city growth. Estimates suggest that the costs associated with low FSIs e.g. in Bangalore (India) may be as high as 3-6 percent of household wealth. 9. Service delivery institutions. There is a strong bias toward providing physical infrastructure (pipes, vehicles, collection bins, and flyovers) rather than providing reliable, affordable, and financially and environmentally sustainable services to urban areas. This bias is evident in water and sanitation where access to drinking water rose from 82% of the population in 1991 to 90% in 2001, but few cities have water service twenty four hours a day, seven days a week.3 Solid Waste Management (SWM) faces similar performance issues. A 2004 review of the status of SWM at the end of three years under the government issued Municipal Solid Waste (MSW) Rules revealed that in Class-1 ULBs the rate of compliance with MSW Rules ranged 1 In 1976 the Urban Land Ceiling and Regulation Act was implemented to prevent land speculation by putting a ceiling of 500 square meters on vacant land that could be held in private ownership. All land holdings in excess of the was to be returned to the government which could use it to house the poor. 2 Floor Area Ratios (FAR) (or Floor Space Indices, or FSI as they are referred to in India) are a common zoning regulation that limits the amount of floor area that can be constructed on a particular plot. They are set at 2.0 or less in many Indian ULBs, whereas they are 15 in Hong Kong and Portland, and 5 in Jakarta. For instance, in Ahmedabad the FAR is 1.8, in Hyderabad it is 1.75, and in Chennai it ranges from 1.0 to 1.75. ULBs in developed economies also had FAR restrictions that affected city development in the 19 th century. For instance, Montgomery (2003) describes the situation in New York City in the 1800s showing how the restrictions affected the city‘s development. However, the New York City FAR was more than three times higher than Mumbai‘s level over most of the past 30 years. 3 Bridging the Gap between Infrastructure and Service Report by World Bank, January 2006 19 between 72% and 1% for the different aspects of SWM1. The issues in this sector are related to technical viability, costs sustainability and institutional structures to manage them. 10. For both water and sanitation services and SWM, six principal constraints to improve service delivery are apparent:  Sector level governance is compromised by overlapping institutions and lack of accountability. By and large, multiple state and local government agencies are involved in most aspects of municipal service delivery, and the policy making and service delivery functions are mostly not separated. Basic services generally are provided by departments within a municipal corporation, which leads to more overlap, and makes it difficult to know either revenues or the costs of service provision. In this environment, Regulatory arrangements are ineffective so that tariffs for basic services and quality standards are neither set clearly nor robustly enforced. In this environment, existing Regulatory arrangements have not resulted in clean/robust enforcement of tariffs for basic services and quality standards.  Service is unreliable: Despite installed water production capacity often sufficient to provide a permanent water service, piped water is never distributed more than a few hours per day, including the seven mega-ULBs of Delhi, Mumbai, Kolkata, Hyderabad, Chennai, Ahmedabad and Bangalore. Most households, forced to cope with poor quality water supply and sanitation service, spend time and money on substitutes and treatment for waterborne diseases. User charges are low by international standards, but the cost of the alternatives on which users must rely far exceeds the full cost of providing good quality service.  Current management of service is not financially sustainable: Most urban basic services operations survive on large operating subsidies and capital grants provided by the states. Only a few mega-ULBs are able to recover the cost of water supply and sanitation or solid waste services from user charges.  Current management of service is not environmentally sustainable: Most ULBs compete with the agricultural sector to secure surface water rights and tend to deplete local aquifers used as substitute sources. Almost no city contributes significantly to the abatement of pollution in receiving bodies (despite the existence of waste water treatment capacity) and aquifers are being depleted by households and businesses developing their own sources.  The social dimension, involving basic services to slums or the very large informal sector in SWM, has been difficult to address. Large ULBs have indicators which reflect urban poverty and employment of its inhabitants in unorganized sectors including collection and recycling part of the solid waste. For efficiency and social reasons, these people need a more structured role in the overall SWM business. Ideally, they would be helped to perform their existing role better and with some increased rewards. 11. Governance and intergovernmental constraints The CAA underscores India‘s formal stance on accountability through decentralization. The government‘s intention is that decision- 1 Improving Management of Municipal Solid Waste in India Report by World Bank, May 2006 20 making process should be brought closer to the people so that they can express their preferences more effectively, and hold local governments and service providers accountable. The CAA identifies three types of urban local governments: municipal corporations for larger urban areas; municipalities for smaller ones; and nagar panchayats for areas in transition between rural and urban. The list of functions identified to be devolved to ULBs as part of CAA was enumerated in the 12th schedule and is shown in the box below. Box 1: Twelfth Schedule of Constitution of India 1. Urban Planning 2. Regulation of Land use and construction of buildings 3. Planning for economic and social development 4. Roads and bridges 5. Water supply for domestic, industrial and commercial purposes 6. Public Health, sanitation conservancy and SWM 7. Fire services 8. Urban forestry, protection of environment and promotion of ecological aspects 9. Safeguarding the interests weaker sections of society 10. Slum improvement and upgrading 11. Urban poverty alleviation 12. Provision of urban amenities and facilities such as parks, gardens, playgrounds 13. Promotion of cultural, educational and aesthetic aspects 14. Burials and burial grounds, cremation, cremation grounds and electric crematoriums 15. Cattle pounds, prevention of cruelty to animals 16. Vital statistics including registration of births and deaths 17. Public amenities including street lighting, parking lots, bus stops and public conveniences 18. Regulation of slaughterhouses and tanneries 12. Despite the constitutional requirement, accountability in local urban governance remains inadequate.  Incomplete functional assignment and devolution. The CAA requires state governments to assign the 18 functions shown in Box 1 above to ULBs. The functioning of the third tier depends on the devolution of resources (especially finance), transfer of subjects and the passing down of administrative control over civil servants. Post this amendment, states have met their legal obligations by passing conforming legislations, but the empowerment of ULBs/nagar palikas1 into local governments from mere state agencies has not been uniform across states..  Weak accountability: The current urban local government system is still far from achieving accountability: (i) administrative and financing arrangements make local service providers dependent on government, rather than accountable to citizens; and (ii) new instruments for engaging citizens in prioritization are in their infancy.  Public disclosure: The ‗Right to Information Act‘ (RTI) of 2005 and the Public Disclosure Law mark significant developments toward mandatory public reporting. In the past, information was mostly used internally: the new arrangements hold the promise of changing that system, and indeed has already begun. This will allow the citizens and other stakeholders to use the same information for ensuring better accountability. At the same time, this will also create incentives for the government to provide more reliable, regular and pertinent information. 1 Nagar palika is an urban local body that administers a city of population 20,000 or more. Under the Panchayati Raj system, it interacts directly with the state government, though it is administratively part of the district it is located in. Generally smaller district cities and bigger towns have a nagar palika. 21 13. Urban Poverty and Vulnerability - Trends. Following national poverty trends, urban poverty has decreased steadily over the last 25 years, but the absolute numbers of urban poor continue to grow. Urban poverty rates declined from 43.6 percent in 1983 to 25.7 percent in 2005. This decline in total and urban poverty incidence was accompanied by an ―urbanization of poverty‖, as the urban poor account for a larger fraction of the total poor today than they did decades ago. This phenomenon, combined with overall population growth, has translated into increasing numbers of urban poor. 14. Both urban poverty and vulnerability are concentrated in smaller urban centers, relative to metropolitan ULBs. However, metropolitan ULBs have higher inequality, worse living conditions and worse health outcomes among the poor compared to smaller urban centers. 15. Determinants of urban poverty and vulnerability. Factors that distinguish the urban from the rural poor include:  Income volatility and informal employment. While urban areas offer the advantages of concentration of economic activity through increased labor market and livelihoods opportunities, some features of the urban labor market continue to remain a cause for concern, including the persisting dualism with respect to the informality of contracts, working conditions and pay; rising contractual and part-time subsidiary employment; slower wage growth and rising inequality during the last decade. The informality of the labor market with poor working conditions and low pay is a significant determinant of their welfare. Poverty and vulnerability profiles from nationally representative NSS surveys suggest that households primarily engaged in casual labor, agricultural and allied activities and blue-collar production activities, construction or transportation work are the most vulnerable, followed by self-employed households while households engaged in regular wage work are the least vulnerable.  Vulnerability to shocks. Together with employment shocks, health, social and environmental shocks appear to be prevalent among the urban poor with clear consequences in terms of welfare. Health shocks (especially illness of the main earning member) are the single most important source of idiosyncratic risk for households and the most devastating in terms of their impact of overall household welfare. These are followed, in terms of magnitude of their impact on household consumption, by expenses associated with social obligations such as marriages and ritual celebrations, and by shocks associated with environmental hazards such as floods. The most common coping strategy in response to such shocks is borrowing, often at high interest rates, and labor market adjustment (by increasing number of hours worked and/or increased participation by women and children). While poverty may be temporarily reduced by borrowing, debt leaves the poor more vulnerable to future poverty.  Poor living conditions and insecurity of land tenure. Most urban poor reside in slums, with very limited to basic infrastructure and services, or are homeless. The problem of poor access is compounded by the reluctance of informal community dwellers to invest in local infrastructure due to the insecurity of tenure, while those with no fixed residence are largely invisible as far as the formal government mechanism for service 22 delivery is concerned. This reality imposes important challenges in terms of policy design and actual service delivery to the urban poor. 16. Access to civic services among the urban poor. The rapid growth of the urban population and the low investment in urban development has created deficiencies in basic amenities in the towns and ULBs. On the supply side, inadequate institutional arrangements, insufficient financing, and poor quality and quantity of inputs provided are important factors. On the demand side, there is the need to better mobilize the voice of the urban poor in governance processes of ULBs. 17. GOI Strategy. The realization of the 11th Plan‘s ambitious goals depends fundamentally on creating much more economically productive, efficient, equitable and responsive ULBs, measured against six strategic outcomes: (i) establishment of city wide frameworks for planning and governance; (ii) modern and transparent budgeting, accounting and FM; (iii) financial sustainability for ULBs and service delivery institutions; (iv) transparency and accountability in urban service delivery and management; (v) universal access to a minimum level of services; and (vi) utilization of e-governance. In December 2005, the JnNURM was approved.1 Under JnNURM, two sub-missions are organized with these objectives in mind: (i) Sub-mission for Urban Infrastructure and Governance, which focuses on urban management reforms; and (ii) Sub-mission on Basic Services to the Urban Poor that is devoted to urban poverty alleviation. 18. JnNURM is a comprehensive national urban policy reform agenda associated with the provision of grant (investment) resources, which will become available to 65 ULBs spread across all the states. JnNURM is structured to address three types of constraints to urban development: (i) policy framework, i.e. the governing framework of urban development, including goals, objectives, legislation and coordination among three levels of government; (ii) financial framework, i.e. the manner, conditions and institutions through which funds flow; and (iii) institutional framework, i.e. the capacity for ―doing‖ with respect to reaching goals and objectives; adopting best practices; undertaking M&E; and generating, assimilating and sharing knowledge. To become eligible for investment and capacity building resources, state and city governments have to agree to a set of GOI specified mandatory urban sector reforms (Box 2). Box 2: Jawaharlal Nehru National Urban Renewal Mission The main elements of the mandatory reform program are as follows. At the Level of ULBs, and Parastatal Agencies  Adoption of modern accrual-based double entry system of accounting;  Introduction of a system of e-governance using IT applications, such as GIS and MIS;  Reform of property tax with MIS;  Levy of reasonable user charges by ULBs and Parastatals;  Internal earmarking, within local bodies, of budgets for basic services to the poor;  Provision of basic services to the urban poor including security of tenure at affordable prices, improved housing, water supply and sanitation. At the Level of States 1 Concurrently with JNNURM the Government launched the Urban Infrastructure Development Scheme for UIDSSMT, with a similar policy and investment design, covering all ULBs/towns as per 2001 census except those covered under JNNURM. Similarly, the MOHUPA runs the Integrated Housing and Slum Development Programme (IHSDP), with a similar policy and investment design as BSUP, covering all ULBs/towns as per the 2001 census except the 65 mission ULBs of JNNURM. Throughout the PAD references to JNNURM are understood to include UIDSSMT and IHSDP. 23  Implementation of decentralization measures as envisaged in CAA (CAA);  *Repeal of Urban Land Ceiling and Regulation Act;  *Reform of Rent Control Laws balancing the interests of landlords and tenants;  Rationalization of Stamp Duty to bring it down to no more than 5 per cent;  Enactment of Public Disclosure Law to ensure release of information periodically to stakeholders;  Enactment of Community participation Law in institutionalizing citizen‘s participation;  Assigning ‗city planning functions‘ to elected ULBs or associating them with such functions. *These reforms are not mandatory for schemes relating to water supply and sanitation 19. Progress of JnNURM (Investment Component). As of March 2011, the central government had allocated US$ 14.43 billion to JnNURM projects in over 700 ULBs. 2813 projects have been approved, with total commitments amounting to US$ 24.79 billion, of which US$ 13.12 have been committed by the center. About 50 percent of the central funds have been released into project accounts. The share of infrastructure-focused UIG and UIDSSMT in total commitments is roughly 65 percent, and that of the pro-poor BSUP and IHSDP is 35 percent. Table 1: Overview of Investment Window of JnNURM (USD billion) March 2011 UIG BSUP UIDSSMT IHSDP JnNURM total Central funds allocated /envisaged 6.88 3.57 2.49 1.49 14.43 Total commitment 13.22 6.48 2.82 2.27 24.79 Central government share of total commitment 6.11 3.21 2.28 1.52 13.12 Funds released by the Centre into project accounts 2.83 1.53 1.57 0.93 6.86 Number of projects approved (Number of dwelling units 532 499 764 1018 2813 for BSUP & IHSDP funding in parenthesis) (1,066,161) (540,756) Number of projects completed (Number of dwelling units 105 Not 126 Not N.A. in parenthesis) Available Available (296,081) (121,421) Source: MOUD and MOHUPA. 20. Progress of JnNURM (Reform Component). Table 2 shows the progress of JnNURM reforms after six years. In terms of the progress with state level mandatory reforms, the Urban Land Ceiling Regulation Act (ULCRA) was repealed in all but two states; 20 states have set up district planning committees as part of the implementation of the 74th Constitutional Amendment Act; and 19 states have reported that they have enacted public disclosure law. The other state level reforms (except for setting up metropolitan planning committees) are reported to have been accomplished by more than one-third of the states, and most remaining states report progress towards implementing these reforms. 21. There has been mixed progress on mandatory reforms at the city level. Most of the 65 mission ULBs have reported accomplishing earmarking of budgets for the poor, and migrating to double-entry accounting, and more than one third have set up e-governance systems. Property tax reform has been moderate – while one-third of the ULBs have reported to reach the target coverage ratio, less than a quarter have been able to reach the required collection efficiency. The reform of user charges which requires ULBs to recover the full cost of operations and 24 maintenance of services, has shown very slow progress, as only 6 ULBs have reported to accomplish it. 22. Most optional reforms required actions at both the state and ULB levels. More than half of the 65 mission ULBs have undertaken reforms for streamlining the building approval process, simplification of conversion procedures, computerized land registration processes, byelaws for rainwater harvesting, and promotion of PPPs. Several ULBs have reported progress on other reforms, except for property titling which has not been implemented by any of the ULBs. The MOUD is considering a pilot project in one of the ULBs to demonstrate the approach to and benefits of property titling. 23. Although some of the reforms have been reported as fully accomplished, the depth of implementation needs to be assessed. So far, monitoring agencies commissioned by the Government have focused on tracking reforms, without assessing their impact, or checking whether the necessary follow up actions (like passing regulations) were taken to concretize reforms. Thus, it appears likely that by 2012, when JnNURM has been planned to conclude, the leading states and ULBs will have accomplished, at least in principle, an overwhelming majority of intended reforms, though the most difficult will remain incomplete (such as property titling). While some of the lagging states and ULBs may have advanced on most of the intended reforms, they are likely to require additional time to implement the reform agenda. 25 Table 2: Progress of Implementation of JnNURM Reforms State Level Mandatory Reforms 1 Implementation of decentralization measures per CAA 1a Transfer of 12th schedule functions 11 of 31 states/ UTs have achieved the reform 1b Setting up of District Planning Committee 20 of 31 states/ UTs have achieved the reform 1c Setting up of Metropolitan Planning Committee 6 of 31 states/ UTs have achieved the reform 2 Assignment of city planning function to elected ULBs 12 of 31 states/ UTs have achieved the reform 3 Repeal of Uniform Land Ceilings Regulation Act (ULCRA) 29 of 31 states/ UTs have achieved the reform 4 Reform of Rent Control Laws 9 of 31 states/ UTs have achieved the reform 5 Rationalization of Stamp Duty 11 of 31 states have brought down stamp duty to 5% 6 Enactment of Public Disclosure Law 19 of 31 states/ UTs have achieved the reform 7 Enactment of Community Participation law 12 of 31 states/ UTs have achieved the reform City Level Mandatory Reforms 1 Accrual-based double entry accounting in ULBs 36 of 65 ULBs have achieved the reform 2 e-Governance, including GIS/MIS 21 of 65 ULBs have achieved the reform 3a Reforms in Property Tax to achieve 85% coverage 21 of 65 ULBs have achieved the reform 3b Reforms in Property Tax to achieve 90% collection 15 of 65 ULBs have achieved the reform efficiency 4 Levy of reasonable user charges to cover full cost of O&M 6 of 65 ULBs now doing this 100%; another 8 ULBs are collecting 50% or more 4a Water supply 7 of 65 ULBs have achieved the reform 4b Solid waste 6 of 65 ULBs have achieved the reform 5 Internal earmarking of budgets for Basic service for the poor 50 of 65 ULBs have achieved the reform 6 Provision of Public services to the urban poor Qualitative reform - progress not measurable Optional Reforms Reforms 1 Streamlining approval processes for construction and 32 of 65 ULBs have achieved the reform development 2 Simplification of process for converting agricultural land 38 of 65 ULBs have achieved the reform 3 Introduction of property title certification system As none of the ULBs have achieved this reform, a study and a Pilot Project may be initiated by MoUD in the States 4 Earmarking at least 20-25% of development land in all 26 of 65 ULBs have achieved the reform housing project for EWS and LIG 5 Introduction of a computerized processes for land 35 of 65 ULBs have achieved the reform registration 6 Rain water harvesting 50 of 65 ULBs have achieved the reform 7 Recycled water 29 of 65 ULBs have achieved the reform 8 Administrative reforms to reduce establishment costs 14 of 65 ULBs have achieved the reform 9 Structural reforms 19 of 65 ULBs have achieved the reform 10 Encouraging PPP 44 of 65 ULBs have achieved the reform Source: MoUD 24. Issues to be addressed by the Project. The project aims to help the Government address the major constraints to urban development and specifically focuses on the capacity building requirements for successful urban management and poverty reduction, taking as its starting point the six strategic outcomes sought under JnNURM. The project is expected to:  Support States and ULBs in addressing a range of requirements related to FM, land use and planning, service delivery, governance and poverty reduction. 26  Target 20 ULBs for a comprehensive package of assistance on urban management and poverty reduction, bridging a significant gap in the past urban development efforts.  Support a differentiated approach to capacity building across a range of urban development requirements. In FM, for example, the required systems are generally well understood and the skills are currently being developed under existing programs. The capacity building requirement is ―how to‖ advice on implementation. In urban poverty reduction, however, the capacity building requirement is quite different. There is a much greater need for skills development, information collection and analysis, and greater interaction on policy between MOHUPA and ULBs.  Bring innovative practices to the forefront via the Challenge Fund and the network.  Improve M&E in MOHUPA and the targeted States and ULBs. 27 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies INDIA: Capacity Building for Urban Development Project Sector Issue Project Latest Supervision OED (ISR) Ratings Rating (Bank-financed projects only) Bank-financed Implementation Development Progress (IP) Objective (DO) Water and Sanitation Karnataka Urban Water Sector Improvement S S NA Project (L4730-IN; $39.50 million; will close in March 2011) Municipal Reforms Karnataka Municipal Reform Project (L4818- MS S NA IN; 216 million; will close in 2012) Economic Reforms TA for Economic Reforms (Cr. N045-IN; $45 MU S MU million; closed in Dec 2007) Promotion of private sector Tamil Nadu Urban Development Project III MS S NA investment in urban (L4798-IN; $300 million; will close in 2012) infrastructure Municipal Reforms Andhra Pradesh Municipal Development Project S S NA (L7816-IN; $300 million; will close in 2015) Other development agencies DFID Andhra Pradesh Urban Services for the Poor NA (on-going) DFID Kolkata Urban Services for the Poor (Ongoing) NA DFID Kolkata Environmental Improvement Project NA (Ongoing) DFID Madhya Pradesh Urban Services for the Poor NA DFID Bihar Strengthening Urban Management for NA Inclusive Growth Programme DFID Slum Improvement Project (completed) NA ADB Kerala Sustainable Urban Development NA (formerly Urban Infrastructure Development and Environment II) ADB North Karnataka Urban Sector Investment NA Program ADB Karnataka Urban Development and Coastal NA Environmental Management Project ADB Rajasthan Urban Infrastructure Development NA ADB Urban Water Supply and Environmental NA Improvement in Madhya Pradesh ADB Multi-sector Project for Infrastructure NA Rehabilitation in Jammu and Kashmir ADB Uttarakhand Urban Sector Development NA Investment Program USAID Financial Institutions Reform and Expansion NA Project (ongoing, various states) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), MS (Moderately Satisfactory), U (Unsatisfactory), MU (Moderately Unsatisfactory), HU (Highly Unsatisfactory) 28 Annex 3: Results Framework and Monitoring INDIA: Capacity Building for Urban Development Project 1. The project will put in place a system for measuring and tracking achievement of project intermediate and development outcome indicators. The framework for the same is as given in Table 4 below. Table 4: Results Framework PDO Project Outcome Indicators Use of Project Outcome information Selected ULBs will have 20 ULBs will be implementing: (i) at least two urban Progress review of introduction of improved their systems and management reforms covering FM, urban planning, new institutional mechanisms for skills for urban management service delivery and governance; and (ii) urban poverty urban management and poverty and urban poverty reduction. reduction strategies. reduction will be used to assess if any mid-course corrections / actions are required, including strengthening PMU‘s operations / closer engagement with ULBs, etc. Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Indicators Component 1: Participating 20 ULBs demonstrate any two of the following: PY-3: Evaluate degree of ULBs have improved capacity difficulty in implementing for urban management. Present finalized accounts under the new (accrual based) reforms accounting systems. Improvement in one aspect of FM, e.g. property tax, capital budgeting or medium term financial planning. Introduce land use planning processes Begun estimating the Operation and Maintenance cost of service provision for the main services (water supply, solid waste) Introduced a citizen interface measure (such as a citizen charter). Component 2: (i) Resource New curriculum being used in courses by 4 Resource PY-3: Evaluate relevance of centers have capacity to Centers for ULB officials curriculum to expressed needs of deliver training on urban ULB officials poverty reduction to ULB officials and (ii) innovative practices at Network and Challenge Fund fully operational PY-3: Evaluate uptake on ULB level are acknowledged, Challenge Fund and evaluate rewarded and replicated utilization of network. PY-3: Evaluate degree of (iii) ULBS have capacity to 20 ULBs have prepared poverty reduction strategies. difficulty in implementing undertake urban poverty reforms. diagnosis and have capacity to develop poverty reduction strategies (iv) ULBs MOHUPA has MOHUPA has undertaken analysis of land issues in PY-2: Evaluate utilization of capacity for urban poverty urban poverty reduction. analysis analysis and policy development M&E. Component 3: Effective PMU is able to foster States and ULB participation and project management able to assist States and ULBs in successfully completing procurement and capacity building activities. 29 2. Arrangements for results monitoring: Institutional Arrangements and Data Collection. As regards institutional arrangements for results monitoring, the PMU will assist in putting the results monitoring framework into operation on behalf of MOUD and MOHUPA. As and when capacity building activities are initiated in States and ULBs, the PMU would collate the baseline data from the capacity needs assessments of the ULB and then on completion of the capacity activities, the improvements achieved vis-à-vis baselines. This process would also be facilitated by the fact that the PMU would be carrying out both the initial capacity needs assessment as well as a ‗completion report‘ to assess the impact of completed capacity building activities at each ULB, besides collating periodic status reports from ULBs implementing the capacity building activities. 3. The detailed results monitoring arrangements, including target values for the results are as presented below. Such results monitoring would form part of the regular reporting requirements to the Bank from MOUD and MOHUPA and have been also included in the TOR of the PMU. 30 Arrangements for Results Monitoring Target Values Data Collection and Reporting PDO Outcome Baseline PY-1 PY-2 PY-3 PY-4 PY-5 Frequency & Data Collection Respons Indicators (cumulative Reports Instruments ibility values) 0 0 4 8 16 20 Twice a year, with Status reports by PMU 20 ULBs will be individual ULB PMU / MOAs implementing: (i) at least assessments as per signed by ULBs two urban management implementation under JnNURM reforms covering FM, cycles. urban planning, service delivery and governance and (ii) urban poverty reduction strategies. Component indicators 1.Capacity Building for Strengthened Urban Management No. of participating 0 0 2 4 10 20 Twice a year, with Assessment by PMU ULBs able to finalize individual ULB PMU / Periodic their accounts under assessments as per status reports by accrual accounting within implementation ULBs to PMU a period of one year of cycles. close of FY after initial installation of new accounting system, six months after second year and four months from third year onwards; No. of participating 0 0 4 8 16 20 Twice a year, with Assessment by ULBs able to individual ULB PMU / Periodic demonstrate improved assessments as per status reports by property tax implementation ULBs to PMU management, capital cycles budgeting procedure or medium term planning. No. of participating 0 0 4 8 16 20 Twice a year, with Assessment by PMU ULBs have begun individual ULB PMU / Periodic estimating the cost of assessments as per status reports by 31 service provision for the implementation ULBs to PMU main services (water cycles. supply, solid waste). No. of participating 0 0 4 8 16 20 Twice a year, with Assessment by PMU ULBs that have individual ULB PMU / Periodic introduced a citizen assessments as per status reports by interface measure (such implementation ULBs to PMU as a citizen charter); cycles. 2.Capacity Building for Effective Urban Poverty M&E No of participating 0 4 4 4 4 4 Twice a year Periodic status Resource Centers reports by PMU utilizing new curriculum No of participating 0 0 4 8 16 20 Twice a year, with Assessment by ULBs where Challenge individual ULB PMU / Periodic Fund has made awards assessments as per status reports by implementation ULBs to PMU cycles. No of participating 0 0 4 8 16 20 Twice a year, with Assessment by ULBs that have individual ULB PMU / Periodic developed poverty assessments as per status reports by reduction strategies implementation ULBs to PMU cycles. Degree (percent) of 0 40 100 100 100 100 Twice a year Periodic status operationalization of reports by diagnostic and reduction MOHUPA strategy 3. Overall Project Management (PMU) No. of participating 0 6 13 20 20 20 Twice a year, with Assessment by PMU ULBs wherein all individual ULB PMU / Periodic capacity building related assessments as per status reports by procurement was implementation ULBs to PMU completed for the ULB cycles. within 8 months of approval of capacity building support under the program. 32 Annex 4: Detailed Project Description INDIA: Capacity Building for Urban Development Project 1. The project will provide support for capacity building at the national, state and local levels in the areas of urban management and poverty monitoring and alleviation. Financial support for a PMU will also be provided. As a capacity building project, eligible expenditures will include goods and services. ULBs may elect to undertake the following activities in accordance with the State policies and felt needs. Project components Component 1: Capacity Building for Strengthened Urban Management ($37.5 million) 2. Finance and FM reform. This module will assist ULBs in institutionalizing links between planning and budgeting processes, revenue enhancement and expenditure management, developing asset management strategies, and putting in place effective financial controls. Each city‘s current systems would be analyzed and based on the same key areas of improvements required would be worked and an action plan for achieving the same would be worked out, developed into a workable/implementable proposal which would be supported by this component. The PMU is expected to assist in this activity to help the ULBs analyze the requirements and crystallize the requirements. Key area of capacities targeted will include:  Budgets: Preparation and tabling of multi-year budgets, and specifically budgeting for services for the poor;  Tracking: Developing internal processes for tracking inter-governmental transfers;  Implementing accounting reforms and ensuring compliance with uniform norms and standards for financial reporting, legislative compliance, implementing computerized accounting systems, , introducing accrual accounting, financial reporting systems, introducing MIS, introducing/ensuring IT standardization in line with the Integrated FM Frameworks introduced in the ULB;  Resourcing: Expenditure management, revenue mobilization (including property tax and user charges), capital markets access, procurement including PPPs, asset/liability management.  Implementation and operational planning: Procurement planning and execution (procurement plans, adoption of e-procurement, contract detailing and packaging); assessment of capacity of contractors / consultants / suppliers and implementing agencies, developing strategies for project execution; capacity building for project monitoring, procurement, FM, implementation review and monitoring, quality control procedures and formats, and developing contract management frameworks (key players, roles, authorities, reporting arrangements, bills preparation and clearance procedures, quality certification etc). 33 3. Framework for planning In order to make planning for the city at large and within sectors more strategic, systematic and realistic, the TA will provide assistance in any of the following areas:  Improved city-wide urban planning: improved and better researched and participatory City Development Plans (CDPs) and Master plans, addressing the current legal and systemic constraints to integrate planning across different parts of ULBs and multiple institutions; better land use planning and land management strategies; planning for urban development and redevelopment; metropolitan planning and local economic development. Specific planning challenges for example, include modernizing physical planning approaches and processes; enabling property title certification, improving land records management and the creation of project development plans.  Sector planning for different sectors, including broad strategies, definition of focus areas, linkage with land use plans, and planning for services for the core city, peripheral areas, slums/poorer areas; optimizing benefits of scale (such as having common solid waste landfills; sewage treatment plants for a group of ULBs); selection of options that are: economically beneficial, technically feasible, financially affordable (capital & O&M), environmentally and socially sustainable. 4. Service delivery. The proposed TA would support institutional design and establishment of systems for service delivery, including:  Developing project management capacity and systems for project planning and preparation: professionalization in municipal management and service delivery, including training and developing business practices and incentives; preparation of Detailed Project Reports (DPRs), implementation M&E (including service scorecards).  Process re-engineering: To enhance the efficiency of delivery systems, including improved coordination and streamlining of organizational structures. These would be backed by Performance Improvement Plans with indicators and benchmarking; Business Plans for the overall asset development, operations, maintenance and sustainable service provision; preparing clear-cut road maps or business plans to commit to improved service levels with clear indicators (e.g. staffing ratio, collection improvements, energy consumption, non-revenue water (NRW) reduction etc; providing sector finance overviews, for example in water supply and sanitation operations, reflecting true picture of costs, which is needed to make sound management and investment decisions and designing tariffs; developing financial models for assessing various investment / operational scenarios.  Tariff frameworks and subsidy design: establishing computerized billing, collection systems. 5. Framework for governance. This component focuses on governance, which although interrelated to FM reform, planning and service delivery, nonetheless requires specific attention as systemic institutional obstacles prevent effective and accessible service delivery, development and accountability. The focus is on systemic institutional weaknesses: ULBs‘ lack of functional 34 jurisdiction and their fragmented and overlapping responsibilities for services across state and local agencies; incomplete devolution from states to ULBs; fiscal dependence on State Governments; and an absence of effective mechanisms for citizen involvement and transparency in city decisions. Key elements in dealing with these aspects will include the following:  Support for the establishment and empowerment of citizen forums: This will focus on one or a combination of existing arrangements such as ward committees, or ULBs, to introduce new systems and approaches, such as sub-ward committees (area sabhas, or developing platforms for customer interface for service delivery agencies) where citizens are consulted or could raise concerns, individually or as interest groups;  Development and role clarification of municipal committees. Most executive and functional committees have been underutilized as instruments of local policy decisions, and have become insulated from councils and citizens;  Sensitization of elected officials: This will happen through training of councilors on local government policy, planning and strategy development, meeting procedures and effective participation in committees, budget analysis, constituency, media and public relations, as well as engaging in intergovernmental activities, i.e. working with or negotiating with other spheres of government;  Monitoring of services, and associated assistance to civil society: The monitoring of service levels across a range of public services is a fundamental element of reform, and needs to be as specific as possible, with quality, quantity and reliability all clearly benchmarked. Rigorous performance disclosure processes need to be introduced therefore to ensure that a full and fair picture of the ULB on a periodic basis is made available to all stakeholders, providing financial, operational and performance information. Consultants will therefore assist States and ULBs or other service agencies to disseminate to citizens/customers relevant information. Component 2: Capacity Building for Effective Urban Poverty Monitoring and Alleviation ($18.5 million) 6. This component seeks to build capacity at the central, state and local levels for policy formulation, implementation and monitoring in the area of urban poverty alleviation. For this purpose the proposed project will support the following activities: (i) promotion of knowledge systematization and learning, (ii) capacity building for strategic policy formulation and implementation and (iii) strengthening of information and monitoring systems. This component will further support the effective implementation of RAY. 7. Knowledge systematization and learning. There is a significant amount of experimentation and innovation taking place within the urban landscape in the areas of service delivery and, more generally, poverty alleviation. However most of these efforts are nascent at this stage, and are relatively small in scale compared to the size and needs of the population they are trying to serve. Moreover there is little systematization of the lessons learned through these various initiatives and, consequently, limited cross-fertilization, both spatially and across agents 35 working on urban poverty alleviation. The proposed TA will support two sets of activities aimed at fostering knowledge and information exchange and learning.  Challenge Fund for Urban Poverty Alleviation: Grant funding will be provided to institutions working on urban poverty alleviation under two windows. The first window (Recognition Window) will identify and grant awards (small scale goods or services) to particularly innovative practices in this area. This window will initially be open to both government and non-government actors. The second window (Replication Window) will provide resources and technical support to government teams interested in adopting and scaling up one or more of the ―best practices‖ identified through the first window. The Replication Window will sequentially target local governments throughout the life of the project. This sub-component will also provide funding for the administration of the Challenge Fund. The total financing under the Challenge Fund is US$5 million. The Fund would be used for providing grants to entities whose proposals are vetted and approved by the Ministry as per the agreed Operations Manual for the sub-financing which would be developed in the first year of the project. The maximum grant per entity would be US$500,000.00. The grants would be used for services, small number of goods and small quantities of incremental operating expenditures incurred in the city government if it is a part of the proposal. The funds can be disbursed by the Ministry to the entities once the Bank has completed the required fiduciary due diligence and have agreed on the reporting requirements.  Creation of practitioners’ network: Support will be provided to the Ministry to constitute a network of practitioners with the objective of promoting information sharing and capacity building. The network will include government officials from the participating ULBs, academics and other actors active in the area of urban poverty alleviation both nationally and internationally, and is envisioned to serve as a platform for both peer-to-peer learning and the delivery of formal training. The network will also facilitate the dissemination and discussion of best practices identified and/or developed through the Challenge Fund. 8. Capacity building for strategic policy formulation and implementation. Local-level capacity for policy formulation, planning and implementation in the areas of service delivery and, more generally, poverty alleviation is weak due to several factors. High turnover among city managers makes effective medium-term planning difficult, while lack of adequate information and tools and poorly defined professional profiles seriously hinder the ability of technical personnel to administer and monitor poverty alleviation programs. The proposed TA will support three sets of activities aimed at building capacity among city managers and technical staff for policy formulation and implementation.  Development of Training Materials on Urban Poverty and Service Delivery. Support will be provided to 4 National Resource Centers to development training modules on urban poverty reduction and service delivery. These modules could be used as stand- alone training materials or as a complement to the current curriculum for training of city managers sponsored by WBI. In addition, a new curriculum for lower level ULB officials (e.g. Community Development Officers) will also be developed with a strong 36 focus on planning, implementation and monitoring of urban poverty alleviation programs. It is expected that experiences supported and lessons learned through the Challenge Fund be systematized and incorporated into the curricula for city managers and technical staff as case studies.  Preparation of ULB-level Poverty Reduction Strategies. Assistance will be provided to States and ULBs to adopt ULB Poverty Alleviation strategies, including approaches to assess the needs of the urban poor and the efficacy/adequacy of existing programs. Specifically the exercise is expected to generate key information on the number, location, basic characteristics and living conditions of the urban poor, as well as a review of existing programs and their adequacy and effectiveness in view of the local poverty profile. Support will be provided to strengthen the capacity of ULBs, with a focus on improvement of existing databases and other monitoring tools necessary for both the development of needs assessment and regular program management, and improvement of targeting mechanisms for service delivery in urban areas. Support will be provided to these same ULBs to prepare poverty reduction strategies, which build upon the information, produced by the diagnostic exercise and are aligned to and complementary with existing and future planning instruments such as CDPs and Slum- free City Plans of Action. Strong emphasis will be placed on having city officials and staffs provide direct inputs into and are ultimately responsible for the preparation of the strategy.  Strengthening of MOHUPA. Support will be provided to MOHUPA for strengthening policy analysis and development related to the urban poor, e.g. land and the provision of affordable housing. The TA will strategically support certain activities including the design and implementation of an MIS, sample surveys, and process and impact evaluations. 9. First year pipeline and subsequent roll-out of activities. The first year12 a pipeline of activities includes the following:  Appointment of PMU  Initiate the Challenge Fund  Curriculum design for National Resource Centers  Initiation of poverty reduction strategies  Direct support to select ULBs on urban management. Table 6: Project Roll-out (First Year Activities) QE1 QE2 QE3 QE4July-septm (Oct-Dec 2011) (Jan-Mar 2012) (Apr-Jun 2012) 2012 Appointment of the PMU Initiation of the Challenge Fund 12 Project Year 1 (first year) implying the 1 st twelve months from the start of the project, which may or may not coincide with the GoI‘s financial year or the calendar year 37 Initiation of poverty reduction strategies Direct support to select ULBs on urban management Support to National Resource Centers 10. Component 3: Implementation Support ($4.0 million). This component will support a national Project Management Unit (PMU) for providing overall technical and managerial assistance during implementation. The PMU will assist the project, in the areas of (i) implementation support; (ii) technical advisory services; (iii) quality assurance; (iv) procurement and procurement advisory services; (v) FM; (vi) reporting; (vii) M&E; and (viii) project administration. (See Annex 6 – Implementation Arrangements). 38 Annex 5: Project Costs INDIA: Capacity Building for Urban Development Project Local Foreign Total Project Cost By Component and/or Activity US $million US $million US $million Capacity Building for Strengthened Urban 37.5 0 37.5 Management Capacity Building for Effective Urban Poverty 15.0 3.5 18.5 M&E Project Management Component 2.5 1.5 4 Total Baseline Cost 55 5 60 Physical Contingencies 0 0 0 Price Contingencies 0 0 0 Total Project Costs 55 5 60 Interest during construction 0 0 0 Front-end Fee 0 0 0 Total Financing Required 55 5 60 Note: While most expenditure is expected to be local currency, a provision of US$ 5 million of foreign currency expenditures has been made. 39 Annex 6: Implementation Arrangements INDIA: Capacity Building for Urban Development Project 1. Following current practice, MOUD and MOHUPA will be the implementing agencies under the project, with specifically designated accountabilities. The respective Joint Secretaries (JnNURM Mission Director for MOUD and RAY for MOHUPA) from the two ministries will be the Project Directors. The project will be implemented through a structure of two Programme Management Boards (PMBs), each chaired by the respective Secretary of MOUD and MOHUPA, and also comprising representatives from the Department of Economic Affairs (DEA) and the Planning Commission. Each PMB will provide overall oversight and guidance, as well as approve major work plans and activities, for each component under the responsibility of the respective Ministry (see below). Each PMB will be supported by a Project Steering Committee (PSC), which will be chaired by the respective Joint Secretaries/Project Directors from each ministry, and will also have representation from the DEA and the Planning Commission. Both the PSCs will in turn be assisted by a single common national level PMU, which will be established under the project for providing technical and managerial assistance during project implementation servicing and reporting to both ministries via their respective PMBs and PSCs. 2. The project will associate with States and ULBs that are eligible for JnNURM, IHSDP, UIDSSMT and RAY support. In practice, the participating ULBs will be selected to achieve a mix of large and small ULBs, regional variation, and inclusion of lagging states. Chart: Implementation Arrangements 40 3. Implementation of Component 1: Capacity Building for Strengthened Urban Management. Implementation of this component will be under the purview of MOUD. Proposals for TA under this component will be reviewed by MOUD and sanctioned by its PMB. In reviewing these proposals MOUD will draw on the PMU. 4. Implementation of Component 2: Capacity Building for Effective Urban Poverty Monitoring and Alleviation. This component will be under the purview of MOHUPA. Proposals for TA under this component will be reviewed by MOHUPA and sanctioned by its PMB. It will also select 4 Resource Institutions on the basis of an evaluation of their capacity and experience, and thus will oversee the development and installation of the training modules. Other activities associated with ULBs – Challenge Fund, development of a practitioners‘ network, ULB diagnostics, and poverty reduction strategies – will also be overseen by MOHUPA and directed at the same target group of 20 participating ULBs. 5. Component 3: Implementation Support. To strengthen the quality of the capacity building proposals and the achievement of desired outcomes, and to improve internal controls, the project will draw on the services of a Program Management Unit that will be financed under the project. As delegated by MOHUPA and MOUD, the PMU will provide comprehensive management and administrative assistance to MOUD and MOHUPA for this project. Quarterly work plans and implementation reports will be prepared by the PMU for the review and approval of the Mission Directors. 6. The TOR of the PMU shall be to assist the Boards and Mission Directors in the following functions:  Support implementation, startup and pipeline development: (i) developing a pipeline of prospective States and ULBs who might need capacity building support along with the details of TA requirements; (ii) actively disseminating and promoting capacity building service to States and ULBs; (iii) for those States and ULBs wishing to access capacity building support and meeting the eligibility criteria, carrying out detailed capacity needs assessments in any or all of the four focus areas of the project; (iv) providing assistance to ULBs in priority setting, identification of best practices, and proposal preparation for review by the PMB; and (v) developing and maintaining a website devoted to the project‘s implementation, including a list of participating ULBs, areas of support, proposals under preparation and contracts awarded; and (vi) ensuring compliance with the Participation Agreements described above.  Technical Advisory Services and Quality Assurance: (i) enlist and maintain a panel of technical experts/agencies (national and international) on various capacity building areas, to assist the States and ULBs; (iii) review consultant outputs at various stages and provide advice to States and ULBs.  Procurement and Procurement Advisory Services: (i) give expert inputs in formulation of TOR/ RFP and selection process; (ii) assist in short-listing consultants and manage the selection process; (iii) establish contract database, 41 develop and maintain website and help in managing contracts through the peirod of implementation; (iv) maintain overall list of contracts; and (v) help ULBs implement frameworks for monitoring and reporting on the effectivness of spending.  Monitoring and Evaluation: (i) track the project monitoring indicators; (ii) maintain project related baseline information derived from capacity assessments for the ULBs participating in the project; (iii) carry out impact assessments to record outcomes achieved under the project; and (iv) provide progress reports to MOUD and the World Bank.  Project Management and Administration: (i) review proposals from ULBs prior to submission to the PMB; (ii) assist ULBs and MOUD in completion of documentation required by the PMB and PSC; (iii) Monitor contract implementation and payments to consultants by the two Ministries, including a greivance mechansims for non-payment; (iv) ensure disclosure of project related documents.  Project FM: (i) prepare accounting and financial reporting of all moneys received under the project, (ii) submission of project accounts to audit in a timely way and for onward submission of audit reports to the Bank and (iii) ensure funds flow, accounting, audit, financial reporting and control are maintained as envisaged in the FM Manual. 42 Annex 7: Financial Management and Disbursement Arrangements INDIA: Capacity Building for Urban Development Project 1. As discussed in other annexes of the PAD, this project will have the following three components: (i) Capacity Building for Strengthened Urban Management (US$37.5 million). This component will support TA across several urban management areas like Financial Management Reform, Framework for Urban Planning, Service Delivery and Framework for Governance. This component will be implemented by MOUD. (ii) Capacity Building for Effective Urban Poverty Monitoring and Alleviation (US$18.5 million). These capacity building initiatives reflect the need for building information systems, sharing experiences, and designing strategies on urban poverty alleviation. This component will be implemented by MOHUPA (iii) Implementation Support (US$4 million). This component will support a national PMU for providing overall technical and managerial assistance during implementation. The PMU will be based in MOUD. SUMMARY FM ASSESSMENT Overall Accounting and FM System 2. FM systems for this project will be based on government accounting system with all the controls and oversight that exist in the government system. Budget heads have been created in both Ministries and based on approvals received through the respective PSCs; the funds would be accessed using the government fund release procedures. It may be noted that the FM systems for the sub-component of Challenge Fund will be designed and agreed separately, once the implementation arrangement for the same is agreed. As a part of the due diligence, FM assessment for the Challenge Fund would be conducted, an action plan would be agreed with the client, and based on the implementation of the action plan; the funds would be released for this sub-component. 3. Budgeting: The two Ministries will operate two separate budget heads for expenditure under the project. Suitable budget heads along with the required provision have been approved by the ministries. 4. Disbursement: Disbursements for the project will be simple and based on reimbursement of expenditures based on quarterly IUFRs. These IUFRs will be reconciled annually with audited AFS. Any difference between the expenditure reported in the IUFRs and those reported in the annual audit reports will be analyzed and those expenditures which are confirmed by the Bank as being not eligible for funding (refundable to IDA) would be adjusted in the subsequent disbursements. 5. Staffing: The Financial Advisor of MOUD and MOHUPA, assisted by Director (Finance) and Chief Controller of Accounts will provide oversight over the FM aspects of the project. The 43 Financial Management Specialist (FMS) in the PMU will be a professional accountant to oversee the FM aspects of the project and liaise with the Bank as well as support the FM reforms in ULB. 6. Accounting: All expenditures will be made by MOUD and MOHUPA using the Pay and Accounts Office (PAO) system in place in Central Line Ministries. Accounting for the project will be carried out on cash basis of accounting. The Annual Financial Statement (AFS) for the project will be maintained by the PMU based on expenditure reported to the CGA by the two Ministries. While the main accounts would be maintained by PAO, detailed accounts would be maintained by PMU for reporting 7. Reporting: Quarterly Interim Unaudited Financial Reports (IUFRs) will be submitted to the Bank within 45 days of end of each quarter. The formats of IUFRs has been prepared and agreed with the client. 8. Statutory Audit: A single consolidated annual audit report will be submitted to the Bank. The audit will be conducted by the C&AG, based on TOR agreed with the Bank. Once the negotiation is completed the TR would be formally shared with the C&AG. 9. Internal Audit: Internal control would be predicated on controls in the government systems. In addition, internal audit will be in place throughout the life of the project. The auditor will be selected from the panel of CA firms empanelled with the C&AG and audit will be conducted as per agreed TOR with the Bank. The audit will be carried out by auditors acceptable to the Bank. 10. FM Manual: FM Manual has been developed for the project, which includes arrangements for budgeting, funds flow, accounting, reporting, disbursement and audit, which have been approved by the respective Ministries for this project. 11. The assessment concludes that the proposed FM systems are satisfactory to support the project (assuming satisfactoriness of arrangements to support the Challenge Fund as well). RISK ASSESSMENT AND MITIGATION Risk Rating Risk Mitigating Measures Residual Risk Actions to be taken Incorporated into Project Design Rating Inherent Risk Country Moderate. The rating is in line with FM risk for India. Level Entity Level High. The risk will be mitigated by Substantial. Financial Management having an experienced and Specialist in PMU: (This is the first qualified finance professional in This will be a Bank project the PMU and documented Covenant in the Legal being financial procedures in the Agreement. The person implemented by Financial Management Manual should be in place these two (FMM). within 90 days of ministries and a Effective Date. new PMU would be set up). 44 Risk Rating Risk Mitigating Measures Residual Risk Actions to be taken Incorporated into Project Design Rating Project High This project will be implemented Substantial Level by MOUD and MOHUPA, (The risk assisted by PMU. PMU will be a associated with new set up with adequate the personnel with specialized skills administration in various aspects of project of the Challenge management, which would Fund has not mitigate this risk to certain extent. been assessed yet.) Overall Residual Inherent Risk Substantial Control Risk Budgeting Moderate Budget to be provided as per Moderate The budgets heads detailed work plans provided by have been created. ULB‘s and monitored by the, MOUD and MOHUPA. Accounting Substantial Country systems will be adopted Moderate and and reports submitted by the FM arrangements for Financial Ministries to CGA will be used for the Challenge Fund Reporting preparing project accounts. These need to be designed and arrangements are documented in disbursements for this the FMM. sub-component will be done only after the FM The risk associated with Assessment for CF is Accounting and Reporting may completed. This is, to change depending on the be appropriately arrangements for Challenge Fund. reflected in the legal agreement. Internal Substantial Internal audit will be instituted. In Moderate Legal agreement to Control addition, all the controls include : associated with the government Internal Auditors will system will be in force. Internal be in place within 180 audit will also cover the Challenge days from Effective Fund. Date. Internal Audit will be in place throughout the life of the project and an Audit Committee will be maintained during the project period. Funds Flow Moderate The risk is moderate because the Low The disbursements for mechanism chosen for funds flow the Challenge Fund is a simple one wherein funds will (CF) will be done only flow directly to MOUD and after FM Assessment MOHUPA through their budget for CF is completed. allocations. There is no further This is reflected fund flow to downstream entities appropriately in the like ULBs, except for Challenge legal agreement. Fund, which is yet to be designed. Auditing Moderate Audit of consolidated financial Low TOR of Statutory statements of the project will be Auditors are agreed (as existing conducted by the CAG based on with CAG 45 Risk Rating Risk Mitigating Measures Residual Risk Actions to be taken Incorporated into Project Design Rating audit agreed TORs. arrangements will be used for the project) Overall Residual Control Risk Moderate Overall FM Risk of the Project Moderate FM ASSESSMENT IN DETAIL Implementing Entity 12. MOUD and MOHUPA will be the implementing agencies under the project, with specifically designated accountabilities. The respective Joint Secretaries (JnNURM Mission Director for MOUD and RAY for MOHUPA) from the two ministries will be the Project Directors (for details refer annex 6). 13. The PMU envisaged for this project will function under the supervision and guidance of the respective ministries and assist them in implementation of the project. PMU includes a FM Specialist who would be responsible for carrying out the following key tasks (i) prepare annual budget requirement for the project ; (ii) maintain detailed accounting records for the project; (iii) timely reconciliation of project expenditure with the Pay and Accounts Office (PAO); (iv) compile quarterly financial reports and annual financial statements of the project and ensure timely submission to various stakeholders; (v) facilitate internal and statutory audit of project accounts and ensure submission of the same to various stakeholders as per agreed timelines; and (vi) ensure funds flow, accounting, financial reporting and controls are maintained as envisaged in the Financial Management Manual. The FMS is also expected to work with the ULBs on accounting and FM reforms. Staffing 14. The Financial Advisor of MOUD and MOHUPA, assisted by Director (Finance) and Chief Controller of Accounts, will provide oversight over the FM aspects of the project. Project specific FM coordination will be carried out by the FMS at the PMU, who will be a professional accountant with qualifications and experience acceptable to the Bank. The position of FMS will be maintained throughout the project. Budgeting 15. The costs related to GOI‘s package will be budgeted as an identifiable budget line item in the respective budgets of MOUD and MOHUPA. The detailed budget heads have been agreed with the project and the same has been incorporated in the respective budget of the two ministries. Accounting 16. Accounting for the project will be carried out on cash basis of accounting. All expenditures 46 will be made by MOUD and MOHUPA using the Pay and Accounts Office system in place at Central Line Ministries. All expenditures will be recorded at the time of payments. 17. The PMU will prepare AFS for the project based on consolidation of monthly expenditure reports provided by the two ministries to the CGA. Project AFS will comprise the following:  Statement of Sources and Application of Funds.  Schedules Annexed to Project Financial Statements: 1. Statement showing appropriate major heads of expenditure. (by Project Component and by Agency) 2. Reconciliation of Claims to Total Applications of Funds. The Project Financial Statements include reconciliation between expenditure reported as per the Statement of Sources and Application of Funds13 and expenditure claimed from IDA through IUFR based disbursement. Payment Mechanisms (other than Challenge Fund) 18. Technical Assistance and Capacity Building): States and ULBs will develop proposals for TA and Capacity Building in the identified areas of strengthening and reforms, and submit to MOUD/MOHUPA respectively for depending on the area of reforms. The respective Ministries would evaluate these proposals with inputs from the PMU and based on this process would select proposals which would be finally approved by their respective PSC. Once the proposals are approved, the respective ministries would sign a MOU14 with the ULB. The entire process to be followed by each Ministry is outlined in the diagram given below: 13 The statement will provide a reconciliation between expenditure reported as per the Statement of Sources and Application of Funds and expenditure claimed from the World Bank through IUFRs . 14 MOU would outline the following key areas: (i) objective of the TA, (ii) expected outcomes, (iii) estimated cost and timelines, (iv) reporting requirements, (v) procurement and FM arrangements including the process of selection of consultants, certification of work, evaluation of the reports and outputs and (v) how payments would be done. 47 Payments: The design of the project envisages centralized payments. There would be no further fund flows envisaged to downstream entities like ULBs (except for Challenge Fund). As the contract would be issued by the respective Ministries (MOUD/MOHUPA) the payments also would be made by the Ministries at the Central level. The initiation of payment would be done from the ULB who would send a certificate authorizing payment along with the required reports to the Ministries which will be assessed by the PMU. Thereafter, the Ministries through PAO would process the payments. The project will use country systems for payments and accounting and all expenditures would be made by the Ministries centrally using the Central Government Pay and Accounts Offices. This will ensure applicability of budget controls and mainstream project accounting. Payment Mechanism (Challenge Fund) 19. Challenge Fund (CF): It may be noted that FM systems for the sub-component of Challenge Fund will be designed and agreed separately, once the implementation arrangement for the same is agreed. IDA funds will not be disbursed until FM Assessment for the Challenge Fund is completed and an action plan would be agreed with the client. The implementation of the action plan would be monitored before releasing the funds. Following are the contours of the Challenge Fund broadly: a. CF would be provided to entities based on the wining proposal as approved by the Ministry as per the procedures to be agreed with the Bank b. A sub-financing agreement would be entered between the beneficiary and the Ministry c. The grant would be allocated for specific goods or services or IOC based on the proposal d. The grant would be to a maximum amount of $500,000.00 48 e. The grant would be transferred by the Ministry to the beneficiary, only after the fiduciary assessment for the entity has been completed by the Bank and the Bank has agreed to for an action plan and reporting requirements with the beneficiary which would be monitored during the period of the grant. f. The beneficiary would maintain such funds in a separate bank account so that the trail of the funds can be ascertained for any period. Even though the Ministry can transfer the amount of grants to the beneficiary, the IDA would disburse based on the actual expenditure incurred by the beneficiary which would be reported as part of IUFR. Internal Controls and Internal Auditing 20. Internal Controls: All controls associated with government system will be in force in the project. 21. Internal Audit: Internal audit will be put in place throughout the project and it will cover implementing entities on a risk based approach. The TOR of Internal Auditors has been agreed. The auditor will be selected from CA firms empanelled with the C&AG. The internal auditors for the Project will be appointed within 180 days after the Effective Date of the project. The audit will be carried out by auditors acceptable to the Bank. 22. Internal Audit will be conducted on Quarterly basis. The Internal Audit report should be submitted within 30 days from the end of Quarter to the respective Ministry. The report and the compliance would be submitted to the Bank on a regular basis within 60 days from the quarter end. Disbursement arrangements 23. The project will submit withdrawal applications to CAAA in DEA for onward submission to the Bank for reimbursement 24. Reimbursement of actual expenditures based on quarterly IUFRs. The IUFRs will be accompanied by detailed Statements of Sources and Application of Funds, which will report actual expenditures, and all other statements outlined in the IUFRs. The IUFRs will form the claim statements for the purposes of the Bank. 25. These IUFRs will reflect actual expenditure for project components. Any advances given by the project will be separately shown in the IUFRs and will not be eligible to be claimed. All expenditures reported in the IUFRs will be subject to confirmation/certification in the annual audit reports. Any difference between the expenditure reported in the IUFRs and those reported in the annual audit reports will be analyzed and those expenditures which are confirmed by the Bank as being not eligible for funding (refundable to IDA) would be adjusted in the subsequent disbursements. Financial Reporting 26. MOUD and MOHUPA will be required to submit quarterly expenditure information to the Bank through IUFRs, within 45 days of close of each quarter. These IUFRs will have to be 49 prepared by the PMU on behalf of the two Ministries by consolidating information and based on reconciliation with PAO records. The basis for reporting will be expenditure by the implementing entity and not releases/advances. Auditing 27. A single consolidated annual audit report for the project will be submitted to the Bank, which will be audited by the CAG as per the TOR which will be agreed with the Bank. These TORs will be included in the Financial Management Manual. The annual audit report consists of: (i) annual financial statements (ii) audit opinion and (iii) management letter highlighting weaknesses, if any, and identifying areas for improvement. The auditors would also provide reconciliation of expenditures reported in the IUFRs with the audited project financial statements and certify the claims. The annual audited project financial statements would be submitted to the Bank within 6 months of the close of GOI‘s financial year. 28. The following annual audit reports will be received by the Bank and monitored in Audit Reports Compliance System (ARCS): Audit Report Implementing Agency Due Date Annual Financial Statements MOUD/MOHUPA (based on consolidated 30 September financial statements of MOUD and MOHUPA) Disclosure of Financial Information 29. The project would be required to disclose the following:  IUFR for every quarter  Annual Project Financial Statements  Annual Project Audit report  Contract details (including contract amount , payments made package wise) Supervision Plan 30. Even though the risk rating of the project is Moderate, the project will require intensive supervision in the initial year (on quarterly basis till the systems are set up and stabilized) to review the implementation of the agreed FM arrangements and progress of implementation of the FM Reform component financed under the project. As the project progresses, more attention would be provided to the FM Reform component while half yearly reviews can be done in case of the fiduciary requirements. Arrangements regarding FM that will be included in the Legal Agreement (Apart from the general conditions for IUFR and statutory audit) 31. Financial Management Specialist, PMU: The Borrower shall appoint a FMS with qualifications acceptable to the Bank in the PMU no later than ninety days after the Effective Date and thereafter maintain throughout the period of Project implementation. 50 32. Internal Audit: The Borrower shall appoint internal auditors for the Project no later than 180 days after the Effective Date. 33. Challenge Fund: Challenge Fund would disburse money only after the Bank conducts the Fiduciary Assessment of the entity to which the fund is being provided. An action plan would be worked out with the entity and the implementation of the same would be monitored before releasing the payments. Action Points Table Pending Action By When By Whom Current Status 1) Budget heads to be created in the By Negotiations MOUD and Action budget of MOUD and MOHUPA and Project MOHUPA Completed costs to be provided in Borrower‘s Budget 2) Approval of FM Manual by MOUD By Negotiations MOUD and Action and Bank MOHUPA Completed 3) Agreement on design of IUFRs Action between MOUD and the Bank Completed 4) PMU FMS (CA) to be appointed. Within ninety days MOUD and Action after Effective Date MOHUPA ongoing 5) Appointment of Internal Auditors to Within 180 days after be completed Effective Date 51 Annex 8: Procurement Arrangements INDIA: Capacity Building for Urban Development Project A. General 1. Procurement for the proposed project will be carried out in accordance with the World Bank‘s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 1, 2006 & May 1, 2010 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised October 1, 2006 & May 2010 (Consultant Guidelines) and the provisions stipulated in the Legal Agreement. 2. This section covers methods of procurement & procurement procedure to be followed by the Borrower, and the Review procedure applicable to the Project. For each contract to be financed by the Credit the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 3. Procurement of Goods: Goods procured under this project would include office and IT equipment (desktop and laptop computers, printers, software etc.). No works are planned to be procured under the project. Bank‘s Standard Bid Documents for Goods will be used for procurements under ICB. 4. Selection of Consultants: Services of consultant firms will be required for Project Management Unit, MIS, Curriculum development and challenge fund management etc. For all consultant procurement, the Bank‘s Standard Request for Proposal (SRFP) document and pertinent Form of Contract shall be used. 5. Capacity Building Activities: In order for the ULBs to be able to utilize their resources effectively, their procurement capacity needs to be built. Generally ULBs have no past exposure to Bank funded projects and the best practices of public procurement as these have not engaged themselves in any Bank funded projects earlier. 6. The capacity building component, under the Project funding, is expected to help States and ULBs to improve their capabilities in procurement planning and implementation, contract/ supply management, developing strategies for project execution, project monitoring and to help them effectively adopt e-Procurement, as and when these institutions get ready to adopt it. 7. During project implementation, the PMU will work-out a comprehensive need based training plan for short and medium term training for concerned PMU/ULB/MOUD/MOHUPA staff/officer to enhance their procurement capacity. No procurement by the ULBs is envisaged under the project. 8. Challenge Fund for Urban Poverty Alleviation: Competing ULBs for Grants will follow selection/administrative procedures which are not relevant for procurement. 52 9. Procurement Documents and Conditions: a. ICB procedures will be as per Section II of the World Bank procurement guidelines. b. Shopping procedures shall be in accordance with the requirements of paragraph 3.5 of the World Bank procurement guidelines, and sample document for shopping procedures, as applicable, will be followed. c. Goods which meet the requirements of paragraph 3.6 of the World Bank procurement guidelines may be procured following Direct Contracting procedures. d. The limits for procurement methods can be reassessed during the Project implementation, and modification made if found justified by the Bank. e. For procurement under National Competitive Bidding, procedures as per paragraphs 3.3 and 3.4 of the Procurement Guidelines shall be followed. In addition, following conditions must be met in order for the bidding process under NCB to be acceptable to the Bank: i. Only the model bidding documents for NCB agreed with the GOI Task Force (and as amended from time to time) shall be used for bidding; ii. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of bids; iii. No special preference will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders, state-owned enterprises, small-scale enterprises or enterprises from any given State; iv. Except with the prior concurrence of the Bank, there shall be no negotiation of price with the bidders, even with the lowest evaluated bidder; v. Extension of bid validity shall not be allowed without the prior concurrence of the Bank (a) for the first request for extension if it is longer than four weeks; and (b) for all subsequent requests for extension irrespective of the period; vi. Re-bidding shall not be carried out without the prior concurrence of the Bank. The system of rejecting bids outside a margin or ―bracket‖ of prices shall not be used in the project; vii. Rate contracts entered into by Directorate General of Supplies & Disposals will not be acceptable as a substitute for NCB procedures. Such contracts will however be acceptable for any procurement under Shopping procedures; and viii. Two or three envelope system will not be used. 53 B. Assessment of the agency’s capacity to implement procurement 10. The management and procurement responsibilities will be handled by the respective Ministries with the assistance of a specialized project management consultant for the PMU with appropriate capacity in Procurement, FM, M&E & several technical areas as relevant to the project. The TORs and the RFP have included the requirements on the all mentioned key functions and were cleared by the Bank. This contract will be financed under the project and will cover the entire duration of project. 11. The selection of the PMU is under process. . Given this arrangement, the overall project risk for procurement is for the present considered ‗Substantial‘. The Bank will monitor the performance of the PMU consultant (including the procurement key staff) and reassess the risk rating periodically. 12. The following table summarizes key procurement risks and their mitigation measures: Table 7 Risk/ Risk Factors Rating Mitigation Measures Residual Risk Absence of permanent High MOUD is in advance stage of hiring a Substantial procurement arrangements in PMU at national level that will have MOUD and MOHUPA procurement key staff. The PMU will be responsible for managing and assisting the procurement activities and will provide periodic reports to MOUD and MOHUPA Inadequate capacity of MOUD High Consultant assistance has been Medium and MOHUPA in managing and provided to help MOUD/MOHUPA executing World Bank procedures hire the PMU. This hiring is subject to for procurement and delay in prior review of the Bank. hiring of the PMU at national level The PMU will provide assistance, once it is in place. Process of hiring is being closely monitored by MOUD/MOHUPA. No procurement (other than the PMU) will be done under the project till PMU has been established and the required procurement capacity has been built in PMU. Involvement of multiple ULBs for High The PMU will assist the Ministries to Substantial procurement, whose capacity has provide support to the States and not been assessed ULBs in their procurement activities, building their capacity and monitoring compliance with agreed Bank procedures. The entire procurement under the project will be carried-out at central level with the assistance of the PMU. A procurement manual is being developed based on the procurement guidelines of the Bank for all procurement under the project and 54 formats to guide procurement and thresholds based methods for goods, and services. The manual would also describe the proposed systems along with procurement management and administrative mechanism as well as Bidding Documents/RFPs, bidding formats, protocols for planning & scheduling along with an illustrative list of packages. This procurement manual will be reviewed and will be subject to acceptance by the Bank. Usage of the Procurement manual needs to be systematically disseminated up to the all the project implementation agencies level by procurement capacity building that shall be undertaken by the PMU. The Manual will be reviewed and ensured that Bank‘s concerns for transparency, fairness, economy and efficiency are met. In case of any inconsistency between the provisions under procurement manual and the provisions of the ―Bank‘s Guidelines, SRFP and SBDs,‖ the latter shall prevail. Overall Risk: Substantial 13. Given the lack of permanent arrangements at present, overall residual risk is being retained as Substantial. Procurement Risk and the progress on the various mitigation measures listed in the table above will be re-assessed/ reviewed after the PMU has started functioning. C. Implementation Arrangements for the project: 14. A Program Management Unit (PMU) will be established by a Consultant Firm after the process of hiring has been completed and the Consultant is on board. The PMU will work under the supervision of the respective Ministries and assist in the procurement activities under the project at central level and it will also provide support to the ULBs for capacity building on procurement to be undertaken by them (outside the project funds). The PMU will also assist the States and ULBs in the reforms component under the project. It will prepare a Model Procurement Manual for ULBs detailing various procurement processes under the project. It will undertake training programs and conduct workshops to make the ULBs aware of these procedures and help them to build capacity to carry out procurement in future. Specific details of these activities have been included in the TOR of PMU being selected by the project authorities, and as part of the procurement capacity assessment. 15. The respective Project Management Boards and respective Project Steering Committees will be assisted by the PMU, which will be established for providing overall technical and managerial support during project implementation (Please refer to Annex 6 on implementation arrangements). 16. The respective Project Directors (PDs) will coordinate on procurement matters and also putting in place a contract signing and monitoring mechanism in the respective ministries. 55 Project Management Component and Assignment of Procurement to PMU 17. The PMU will be responsible for assisting the Ministries in all procurement activities and documentation, including training and support to the ULBs in procurement. The prior review cases originating from the central Ministries or the States and ULBs will be forwarded to the Bank. In this the PMU shall assist the Ministries with its review and recommendations to the Bank. 18. The proposed PMU will be responsible to assist the respective Ministries, amongst other responsibilities, to develop shortlist of consultants, developing RFP/bid documents, assisting in selection process and proposal/bid evaluation reports following Bank procurement procedures, for various ULBs. 19. Disclosure Requirements: The provisions of the Bank‘s Procurement Guidelines and Consultant Guidelines on disclosure will be complied under the project. The Right to Information Act (RTI) 2005 both for on-demand disclosure and proactive disclosure of information is applicable to all the Government entities in India including MOUD and MHUPA. The RTI intent is to enhance the transparency of the decision making processes in compliance with the requirement under the said Act. This enhanced disclosure of information to the public is also expected to facilitate civil society oversight, to achieve greater adherence to transparency norms and quality of deliveries during project implementation D. Procurement Plan 20. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team [and is available at MOUD/MOHUPA. It will also be available in the project‘s database and in the Bank‘s external website. The Procurement Plan will be updated in agreement with the Borrowers‘ Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. E. Frequency of Procurement Supervision 21. In addition to the prior review to be carried out from Bank offices, it is recommended to carry out two supervision missions (one every six months) as part of the Bank supervision missions. This arrangement will be reviewed at the end of one year of the PMU being in place. 56 F. Procurement Arrangement 22. A procurement manual is being developed by the MHUPA and MOUD based on the procurement guidelines of the Bank for all procurement under the project and formats to guide procurement and thresholds based methods for goods and services. The manual would also describe the proposed systems along with procurement management and administrative mechanism as well as SBDs, bidding formats, protocols for planning & scheduling along with an illustrative list of packages. Usage of the Procurement manual needs to be systematically disseminated up to the all the project implementation agencies level by procurement capacity building that shall be undertaken by the PMU. The Manual will be reviewed by the Bank and will be subject to acceptance by the Bank before the start of procurement process (except for the selection of PMU) and it will be ensured that Bank‘s concerns for transparency, fairness, economy and efficiency are met. In case of any inconsistency between the provisions under procurement manual and the provisions of the ―Bank‘s Guidelines, SRFP15 and SBDs16,‖ the latter shall prevail. Procurement of Goods, Works and non-consulting services Methods of Procurement:  ICB contracts, above US $ 200,000 for goods  NCB contracts up to US $ 200,000 for goods  Limited Competitive Bidding/ Shopping, contracts up to US $ 10,000 for goods.  Rate contracts of Director General of Supplies and Disposal (DGS&D) are also acceptable as one of the quotations for shopping procedures.  Proprietary items, such as spare parts, and software, up to US $ 5,000 equivalent per contract meeting requirements stated in paragraph 3.6 of the Bank‘s Procurement Guidelines and petty items costing up to US $ 500 per contract may be procured through Direct Contracting. Prior Review Threshold. The Table below lays down the threshold values above which the procurement process will be subject to Prior Review by the Bank in accordance with Appendix 1 to the Procurement Guidelines. Table 8: Prior Review Threshold for Procurement of Goods Procurement Method Prior Review Threshold ICB (Goods) All contracts irrespective of value NCB (Goods) US $ 200,000 and first 2 contracts of each agency, irrespective of estimated cost. For all subsequent NCB procurement, the IA will use the bidding documents as cleared with the Bank under first 2 prior review cases. Shopping First 2 Contracts from all the implementing agencies Direct Contracting All contracts above US $ 100 each 15 Standard Request for Proposals 16 Standard Bidding Documents 57 Selection of Consultants 23. Methods of Procurement: The following methods of selection will be adopted depending upon size and complexity of assignment, as defined in the Consultant Guidelines: Procurement Method A. Firms (a) Quality and Cost based Selection (b) Quality-Based Selection (c) Selection Under a Fixed Budget (d) Least Cost Selection (e) Selection Based on Consultant‘s Qualifications (f) Single Source Selection B. Individuals (g) Procedures set forth in paragraphs 5.2 and 5.3 of the Consultant Guidelines for the Selection of Individual Consultants (h) Selection of Individual Consultants on sole source basis as per the Procedures set forth in paragraph 5.4 of Guidelines 24. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Consultancy Guidelines. Table 9: Prior Review Threshold for Consultant Selection Selection Method Prior Review Threshold Competitive Methods (Firms) US $ 200,000 Individual Consultants (Competitive Method) US $ 50,000 Single Source (Firms and Individuals) All 25. The Expression of Interest for consultancy services estimated to cost above US$200,000 equivalent per contract for firms shall be advertised in UNDB17 online and dgMarket and other provisions of paragraph 2.5 of the Consultant Guidelines. 26. Short list of consultants for services, estimated to cost less than US$500,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 27. Post Review: the Bank will conduct post review of the contracts entered into by the implementing agencies whether at the central, state, or districts levels. The concerned agencies will be required to make all relevant documentation available to the Bank or its nominated consultants, as and when required. The post review by the Bank will be conducted either by Bank staff or by its nominees in accordance with Paragraph 5 of Appendix 1 to the Bank‘s Procurement Guidelines. 17 United Nations Development Business 58 28. Any Other Special Selection Arrangements: The Bank‘s Guidelines and processes will be followed for procurements and selections even during preparation phase for being eligible for retroactive financing as per respective Guidelines. All no objections issued during this phase will be subject to signing of financing agreement and without any commitment by the Bank. 29. Use of e-Procurement for IDA funded procurement, if requested by the Borrower on a later date, shall be subject to satisfactory completion of assessment and acceptance by the World Bank. 59 Appendix-A Procurement Plan I GENERAL 1. PROJECT INFORMATION Country India Borrower Government of India Project Name Capacity Building for Urban Development Project Credit No. TBA Project Implementing i. Ministry of Urban Development Agencies (MOUD) ii. Ministry of Housing and Urban Poverty Alleviation (MHUPA) These agencies will be assisted by the Project Management Unit 2. BANK’S APPROVAL DATE OF THE PROCUREMENT PLAN Original : June 03, 2011 3. Date of General Procurement Notice: 30th September 2007 in UNDB issue no 711 4. Period covered by this procurement plan: Covers period of first 18 months. Procurement plan will be reviewed annually or as required for necessary modifications as the project progresses. 5. Guidelines: Procurement will be carried out in accordance with the World Bank‘s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October, 2006 and May 1, 2010 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised October 2006 and May 01, 2010 (Consultant Guidelines). This being a Technical Assistance project the procurement is limited to consulting services and goods. No procurement of works is envisaged under the project. II. Goods and non-consulting services. 1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement: 60 Procurement Prior Review Remarks Method Threshold 1. Goods US $ 200,000 All ICB Contracts subject to prior review irrespective of value. The first 2 contracts of any method (NCB/ Shopping) from each of the agencies/ULB irrespective of value. 2. Shopping First 2 Contracts from each of the agencies 3. Direct Contracting First 2 contracts and all contracts above US$ 100 Shopping (Goods): Applicable for items costing less than US $ 10,000 per contract after the proposal for procurements of goods and non-consultancy services under this method will be reviewed and agreed with the Bank. Direct Contracting: This method will be followed by the Project after the proposal for procurements of goods and non-consultancy services under this method supported by adequate justification by the implementing agencies/ULB has been reviewed and agreed with the Bank. 2. Prequalification. NOT APPLICABLE 3. Reference to (if any) Project Operational/Procurement Manual: Financial Manual as agreed with the Bank. The Procurement Manual for the Project is to be received from Implementing Agencies, reviewed and agreed with the Bank. 4. Any Other Special Procurement Arrangements: [including advance procurement and retroactive financing, if applicable] For the Project Management Unit being hired by the implementing agencies the procurement capacity building measures would be suggested during the implementation support. A procurement manual is being developed based on the procurement guidelines of the Bank for all procurement under the project and formats to guide procurement and thresholds based methods for goods and services. The manual would describe the proposed systems along with procurement management and administrative mechanism as well as SBDs, bidding formats, protocols for planning & scheduling along with an illustrative list of packages. The procurement manual once furnished to be the Bank and agreed in consultation with the Bank, its usage of needs to be systematically 61 disseminated up to the all the project implementation agencies level by procurement capacity building that shall be undertaken by the PMU. The Procurement Manual will be reviewed by the Bank and ensured that Bank‘s concerns for transparency, fairness, economy and efficiency are met. In case of any inconsistency between the provisions under procurement manual and the provisions of the ―Bank‘s Guidelines, SRFP and SBDs,‖ the latter shall prevail. The following Special Procurement arrangements will be applicable incase of National Competitive Bidding (NCB) proposed by the project for any of the goods packages. Procurement through NCB method shall be carried out in accordance with paragraph 3.3 and 3.4 of the Guidelines and the following provisions shall additionally apply: i. Only the model bidding documents for NCB agreed with the GOI Task Force (and as amended from time to time) shall be used for bidding; ii. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of bids; iii. No special preference will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders, state-owned enterprises, small-scale enterprises or enterprises from any given State; iv. Except with the prior concurrence of the Bank, there shall be no negotiation of price with the bidders, even with the lowest evaluated bidder; v. Extension of bid validity shall not be allowed without the prior concurrence of the Bank (a) for the first request for extension if it is longer than four weeks; and (b) for all subsequent requests for extension irrespective of the period; vi. Re-bidding shall not be carried out without the prior concurrence of the Bank. The system of rejecting bids outside a margin or ―bracket‖ of prices shall not be used in the project; vii. Rate contracts entered into by Directorate General of Supplies & Disposals will not be acceptable as a substitute for NCB procedures. Such contracts will however be acceptable for any procurement under shopping procedures; and viii. Two or three envelope system will not be used. 5. Procurement Packages with Methods and Time Schedule: No procurement of works is envisaged under the project. III. Selection of Consultants 1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants: 62 Selection Method Prior Review Threshold Consultancy Services (Firms) For QCBS : US $ 200,000 Consultancy Services US $ 50,000 (Individuals) Single Source Selection (SSS) All contracts irrespective of value and Direct Contracting (DC) 2. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than US $500,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 3. Any Other Special Selection Arrangements: The Expression of Interest for consultancy services estimated to cost above US$200,000 equivalent per contract for firms shall be advertised in UNDB online and dg Market and other provisions of paragraph 2.5 of the Consultant Guidelines. 4. Consultancy Assignments with Selection Methods and Time Schedule S # Description of Estimated Selectio Review Proposals Comments Assignment n by be Cost Method Bank Received (USD (Prior / by the Millions) Post) Project Authoriti es (Date) 1 2 3 4 5 6 7 1 Project Management 4.0 QCBS Prior 09/06/10 Unit for technical and Review managerial support 2 Develop comprehensive 2.0 QCBS Prior 01/07/12 M&E system, Poverty Review Alleviation Strategies and Curriculum 3 Challenge Fund QCBS Post 01/07/12 Management and 1.0 Review replication of innovative practices in urban poverty alleviation. 4 Technical assistance for 01/07/12 the reform of legislative 3.1 QCBS Prior inclusion of the poor Review 5 Technical Assistance to 01/07/12 Resource centers 0.75 QCBS Post Review 63 Note: * For the packages proposed by the Project to be selected under QBS, CQS and SSS methods, the respective implementing agency will provide adequate justification to the Bank and obtain Bank‘s no-objection on method of selection proposed by them before proceeding with the selection process. IV. Implementing Agency Capacity Building Activities with Time Schedule 1. This section will be updated after the PMU is mobilized. The Section will provide information on capacity building program finalized with the respective implementing agencies, such as annual calendar for the procurement training/workshop of the concerned implementing agency officials, ULBs as well as PMU. No. Expected outcome / Estimated Estimated Start Activity Description Cost Duration Date Comments 64 ANNEX 9: GOVERNANCE AND ACCOUNTABILITY PLAN INDIA: Capacity Building for Urban Development Project 1. Project Approach. The project aims at improving the framework for urban management and urban poverty reduction in ULBs. The project is designed as a sector level management improvement project. The principal sector level risk is reputational, i.e. there may be some reputational risk for the Bank in seeking to build capacity for a difficult and complex urban reform agenda. To some degree the demand driven nature of the project addresses this reputational risk: those ULBs that are most interested in reform will be most interested in accessing funds under the project. Thus while there is a degree of un-mitigated reputational risk associated with the project, it is not considered substantial. 2. Project level issues: The GAAP therefore focuses on project level measures to ensure the effectiveness of capacity building in the targeted ULBs. Most project level risks and mitigation are addressed in project design, especially in the role of the PMU. The PMU will assist the Ministries in implementation of the project. 3. Three project design issues affect the achievement of the PDO: Ensuring that the capacity building that is offered reflects the needs of ULBs and results in sufficient capacity to effect policy and institutional change. On the supply side, the capacity building components are aligned with the two sub-missions of JnNURM and the proposed RAY, thus ensuring consistency with the reforms and institution building that have already been thoroughly evaluated and agreed in the urban sector. On the demand side, a demand-driven approach is the basis for participation by ULBs in the project. ULBs themselves have a strong voice in the effectiveness of the capacity building assistance and tangible ways to measure it (e.g. accounting system functioning, poverty MIS functioning). To assist in implementation, JnNURM has assistance and oversight mechanisms (State Level Nodal Agencies). And DFID is supporting city level resource centers, building on experience gained in India. Ensuring an appropriate management and accountability structure for the project. The project is implemented by two Ministries (MOUD and MOHUPA), and thus has some risk of diffused accountability. To mitigate this, however, the project follows a structure similar to what is already being implemented under JnNURM, in which the two sponsoring ministries co-chair two central level committees. Ensuring support for the Ministries for project implementation. Though accountability is clearly situated with the respective Ministries. , their capacity for project implementation needs to be augmented. To mitigate this risk, the Joint Secretaries will be assisted by a PMU, recruited under Bank procurement procedures and funded from the loan. Risk mitigation depends on two factors: (i) a high quality PMU that must be contracted; and (ii) effective reporting by the PMU and control by the respective Joint Secretaries/PDs, embodied in the quarterly work programming reviews. Both these issues are addressed in the RFP (i.e. required skills, tasks, reporting and control) for the PMU. Additionally the PMU will be selected by the time of the project negotiations, thus minimizing potential delays in effectiveness. Nevertheless while the establishment of the PMU mitigates many important project risks, it also creates others. These are discussed in the table below 65 4. Detailed risks are described below. Risk Description Mitigation Steps Responsibility Timeline/Status FM Weak capacity of ULBs No FM done by ULBs. Government selects MOUD/MOHUPA Prior to negotiations PMU in accordance with Bank procurement guidelines. RFP identifies required FM skills and capacity in PMU. TOR of PMU explicitly describe FM role. 66 Procurement Weak procurement No procurement done capacity of ULBs, by ULBs. leading to potential for corruption or collusion Government selects MOUD/MOHUPA Prior to negotiations in bids, low PMU in accordance transparency in with Bank procurement procurement decision guidelines. RFP making, identifies required procurement skills and capacity in PMU. Assistance provided by PMU for Ministries to carry out procurement Quarterly work in accordance with programming reports to World Bank guidelines. Joint Secretaries. PMU maintains a project website describing contract opportunities and bid documents, results of Quarterly work EOI/RFP programming reports to Joint Secretaries. Compliance with RTI. Enhanced post reviews Bank Bank supervision by Bank supervision missions missions. Limited number of Contracts will be MOUD/MOHUPA Quarterly work bidders. grouped to reach a size programming reports to that is more desirable to Joint Secretaries potential bidders. PMU assists respective Ministries in procurement process and maintains a contracts database and project website. Poor contract PMU assists respective MOUD/MOHUPA Quarterly work management leads to Ministries in programming reports to payment for sub- procurement process Joint Secretaries standard work and maintains a contracts database and website. 67 Implementation MOUD and MOHUPA Day to day Joint Secretaries Quarterly work need implementation implementation support programming reports to support. vested in PMU Joint Secretaries. Challenge Fund is an There is substantial MOHUPA Joint Three awards are planned untested pilot in India. international experience Secretary (RAY) during the five year that has been implementation of the incorporated in the project design. Ready by effectiveness Operating Manual will be developed Improprieties in Administrator of the MOHUPA Joint Three awards are planned selection of Challenge Challenge Fund Secretary (RAY) during the five year Fund winners. operates according to implementation of the pre-determined project. procedures described in Operations Manual. Winners are selected by MOHUPA based on ranking of a panel of national and international experts that is convened by MOHUPA. Poor performance in PMU submits quarterly Joint Secretaries Quarterly work PMU hampers the work program to programming reports to achievement of PDO Mission Directors Joint Secretaries Poor quality of capacity Regular independent MOUD/MOHUPA Mid-term review year building review of capacity building activities Periodic workshops where beneficiaries can share experiences Training and capacity Training designed as a MOUD/MOHUPA building does not have process with follow-up the intended impact – it training and hand- is not properly holding ―institutionalized‖ User surveys At least one survey per /beneficiary assessment year conducted to confirm improvement in service delivery Delays in project Regular independent MOUD/MOHUPA Annual review implementation due to review of project complex institutional implementation and procedural experience and follow- arrangements up workshop to adjust existing processes Definition of service Service standards are standards for approval defined before processes effectiveness Non transparent Public disclosure on all MOUD/MOHUPA Website operational by decision making and key project activities effectiveness project implementation (e.g. TOR, bids, audits, reports) on a website 68 Establishment of a Complaints mechanism complaints mechanism operational by in collaboration with effectiveness existing institutions of accountability Lack of sufficient Assistance to interested MOUD/MOHUPA Quarterly work program participation users in the ULBs in needs reports to Joint design and assessments and priority Secretaries implementation of setting. capacity building activities Disclosure policy. As a TA project, disclosure issues mainly revolve around (i) the award of contracts; (ii) complaints associated with the award of contracts; and (ii) progress in building capacity in the areas identified in the two main project components (see above). The PMU is charged with maintaining a database and developing a website for this purpose. The Challenge Fund represents a special case. Its success will depend on broad participation from ULBs, thus implying that its rules, procedures, and benefits are widely disclosed. The awards process under the Challenge Fund will similarly be tracked via a website and will be judged by a panel of national and international experts. 69 Annex 10: Economic and Financial Analysis INDIA: Capacity Building for Urban Development Project No technical or financial analysis of the project has been undertaken. 70 Annex 11: Safeguard Policy Issues INDIA: Capacity Building for Urban Development Project Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X The activities envisaged in the project are not likely to cause any significant environmental impacts. Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) x Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X Environmental Category: C 1. The project is categorized as a Category C project from the Environmental Assessment point of view and it is unlikely that any of the Environmental or Social safeguards are triggered. 71 Annex 12: Project Preparation and Supervision INDIA: Capacity Building for Urban Development Project Planned Actual PCN review 12/14/2006 12/14/2006 Initial PID to PIC 01/30/2007 Initial ISDS to PIC 02/08/2007 Appraisal 02/12/2009 02/19/2009 Negotiations 03/16/2011 05/31/2011 Board/RVP approval 07/21/2011 Planned date of effectiveness 10/01/2011 Planned date of mid-term review 03/15/2014 Planned closing date 06/30/2016 Key institutions responsible for preparation of the project:  DEA, (Banking and Financial Sector Division), MOF GOI  Ministry of Urban Development  Ministry of Housing and Urban Poverty Alleviation Bank staff and consultants who worked on the project included: Project Team Songsu Choi TTL & Lead Urban Economist Barjor Mehta Sr. Urban Specialist Richard Clifford Consultant & Ex-TTL Arun Srivastav Consultant Raghu Kesavan Sr. Infra. Finance Specialist Anand K. Srivastava Procurement Specialist Carolina Sanchez Senior Economist N.V.V. Raghava Sr. Municipal Engineer Paramo Puja Vasudeva Dutta Social Protection Economist Aashish Mishra Research Analyst Chris Heymans Senior Municipal Development Asha Bhagat Consultant Specialist, WSP – SA Shruti Garga E. T. Consultant Sonia Chand Sandhu Senior Env. Specialist Priya Goel Senior FM Specialist Mary Ellen Hammond Junior Professional Associate Shonali Sen E. T. Consultant Meera Chatterjee Sr. Social Dev. Specialist Ashish Bhateja Senior Procurement Specialist Ellen Hamilton Sr. Urban Planner & Peer Reviewer S. Krishnamurthy FM Specialist Nabaroon Sr. WS Specialist & Peer Bhattacharjee Reviewer Satya Mishra Social Development Specialist Mamata Baruah Program Assistant Abha Joshi Ghani Sector Manager FEUUR Michelle Lisa Chen Program Assistant Vasudha Sarda Research Analyst Thawakar Bank funds expended to date on project preparation: 1. Bank resources: US$ 949,754 2. Trust funds: US$ 621,226 3. Total: US$1,570,980 Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$ 50,000 2. Estimated annual supervision cost: US$ 100,000 72 Annex 13: Documents in the Project File INDIA: Capacity Building for Urban Development Project 1. FM Needs Assessment Reports: Pune, Latur, Vadodara, Jaipur, Guwahati, Chennai, Ajmer, Agra, Nanded. 2. Concept and design of Challenge Fund 3. Study tours on slum upgrading: (i) Brazil; and (ii) Peru, Colombia; May 2009 and follow up conference in Mumbai June 2009 4. International Workshop on ―Scaling-up Upgrading and Affordable Housing: from National Policies to State Programs and City-wide Slum Free Interventions‖, January 2010, Udaipur, Rajasthan 5. International Workshop on Capacity Building for Inclusive Urban Development: Challenges and Way Forward, April 2011, New Delhi 73 Annex 14: Statements of Loans and Credits INDIA: Capacity Building for Urban Development Project Difference between expected and actual Original Amount in US$ Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev‘d ID P102624 2011 IN:Kerala Local Govt. & Service 0.00 200.00 0.00 0.00 0.00 202.36 0.00 0.00 Delivery P102329 2011 IN: Rajasthan Rural Livelihoods 0.00 162.70 0.00 0.00 0.00 169.00 0.00 0.00 Project P107649 2011 IN:Karnataka State Highway Improv 350.00 0.00 0.00 0.00 0.00 350.00 0.00 0.00 Pro II P114338 2011 IN: Eastern Dedicated Freight 975.00 0.00 0.00 0.00 0.00 975.00 0.00 0.00 Corridor-I P088520 2011 IN: Biodiver Cons & Rural Livelihood 0.00 15.36 0.00 0.00 0.00 15.58 0.00 0.00 P119085 2011 IN: National Ganga River Basin 801.00 199.00 0.00 0.00 0.00 997.93 0.00 0.00 Project P108258 2011 IN: E-Delivery of Public Services 150.00 0.00 0.00 0.00 0.00 150.00 0.00 0.00 P120836 2011 IN: Maharashtra Agric. 0.00 100.00 0.00 0.00 0.00 99.16 -4.66 0.00 Competitiveness P121515 2011 IN: NHAI Technical Assistance 45.00 0.00 0.00 0.00 0.00 40.39 -4.50 0.00 Project P122096 2011 IN: Bihar Kosi Flood Recovery 0.00 220.00 0.00 0.00 0.00 216.15 1.33 0.00 Project P124639 2011 IN: PMGSY Rural Roads Project 500.00 1,000.00 0.00 0.00 0.00 1,360.61 -150.00 0.00 P110051 2010 IN: Haryana Power System Improv 330.00 0.00 0.00 0.00 0.00 233.71 105.55 -95.47 Project P110371 2010 IN: Sustainable Urban Transport 105.23 0.00 0.00 0.00 0.00 97.44 34.56 0.00 Project P089985 2010 IN: Dam Rehabilitation & 175.00 175.00 0.00 0.00 0.00 345.97 8.00 0.00 Improvement P091031 2010 IN: CBldg for Indus Poll Mgt 25.21 38.94 0.00 0.00 0.00 60.63 -3.62 0.00 P092217 2010 IN:National Cyclone Risk Mitigation 0.00 255.00 0.00 0.00 0.00 262.20 -0.31 0.00 Proj P105990 2010 IN: West Bengal PRI 0.00 200.00 0.00 0.00 0.00 187.52 -15.85 0.00 P101650 2010 IN: A. P. RWSS 0.00 150.00 0.00 0.00 0.00 132.09 10.00 0.00 P096021 2010 IN: AP Road Sector Project 320.00 0.00 0.00 0.00 0.00 296.00 36.13 0.00 P097985 2010 IN: Integrated Coastal Zone Mgmt 0.00 221.97 0.00 0.00 0.00 222.35 11.01 -6.58 Project P100954 2010 IN: AP Water Sector Improvement 450.60 0.00 0.00 0.00 0.00 407.26 -25.54 0.00 Proj P119043 2010 IN: Microf-Scaling Up Sustnble & 200.00 100.00 0.00 0.00 0.00 205.44 -40.29 0.00 Resp P071250 2010 IN: Andhra Pradesh Municipal 300.00 0.00 0.00 0.00 0.00 277.90 -2.02 0.00 Development P102771 2010 IN: IIFCL - India Infras Finance Co 1,195.00 0.00 0.00 0.00 0.00 1,175.44 419.47 0.00 Ltd P115566 2010 IN: POWERGRID V 1,000.00 0.00 0.00 0.00 0.00 934.13 79.47 0.00 P113028 2010 IN: Mumbai Urban Transport Project- 430.00 0.00 0.00 0.00 0.00 428.49 -0.43 0.00 2A P102549 2010 IN: Tech Engr Educ Qual 0.00 300.00 0.00 0.00 0.00 280.04 2.20 0.00 Improvement II P100101 2009 IN: Coal-Fired Generation 180.00 0.00 0.00 0.00 0.00 179.55 45.50 0.00 Rehabilitation 74 P096023 2009 IN: Orissa State Roads 250.00 0.00 0.00 0.00 0.00 229.93 56.39 0.00 P112033 2009 IN: UP Sodic III 0.00 197.00 0.00 0.00 0.00 180.67 -7.84 0.00 P102331 2009 IN: MPDPIP-II 0.00 100.00 0.00 0.00 0.00 86.29 27.07 0.00 P093478 2009 IN: Orissa Rural Livelihoods Project 0.00 82.40 0.00 0.00 0.00 75.16 17.39 0.00 P100735 2009 IN:Orissa Community Tank 56.00 56.00 0.00 0.00 35.06 70.04 15.03 0.00 Management Proj P094360 2009 IN: Ntnl VBD Control&Polio 0.00 521.00 0.00 0.00 0.00 407.24 197.68 0.00 Eradication P102547 2008 IN: Elementary Education (SSA II) 0.00 1,350.00 0.00 0.00 0.00 510.55 -243.64 152.14 P101653 2008 IN: Power System Development 1,000.00 0.00 0.00 0.00 0.00 237.35 -196.57 125.60 Project IV P095114 2008 IN: Rampur Hydropower Project 400.00 0.00 0.00 0.00 0.00 223.79 87.29 0.00 P102768 2007 IN: Stren India's Rural Credit Coops 300.00 300.00 0.00 0.00 0.00 220.18 183.04 0.00 P100789 2007 IN: AP Community Tank 94.50 94.50 0.00 0.00 0.00 144.95 88.99 0.00 Management Proj P071160 2007 IN: Karnataka Health Systems 0.00 141.83 0.00 0.00 0.00 41.23 5.46 0.00 P075060 2007 IN: RCH II 0.00 360.00 0.00 0.00 0.00 180.54 158.02 0.00 P078538 2007 IN: Third National HIV/AIDS Control 0.00 250.00 0.00 0.00 0.07 122.21 107.77 0.00 Proj P078539 2007 IN: TB II 0.00 170.00 0.00 0.00 0.00 53.68 0.06 0.00 P083187 2007 IN: Uttaranchal RWSS 0.00 120.00 0.00 0.00 0.00 70.58 53.82 41.82 P090585 2007 IN: Punjab State Roads Project 250.00 0.00 0.00 0.00 0.00 115.62 63.80 0.00 P090592 2007 IN: Punjab Rural Water 0.00 154.00 0.00 0.00 0.23 117.47 98.53 -3.47 Supply&Sanitation P090764 2007 IN: Bihar Rural Livelihoods Project 0.00 63.00 0.00 0.00 0.00 25.48 -31.51 4.51 P090768 2007 IN: TN IAM WARM 335.00 150.00 0.00 0.00 0.00 312.84 179.54 0.00 P096019 2007 IN: HP State Roads Project 220.00 0.00 0.00 0.00 0.00 145.57 75.12 0.00 P099047 2007 IN: Vocational Training 0.00 280.00 0.00 0.00 0.00 145.68 27.84 0.00 P078832 2006 IN: Karnataka Panchayats 0.00 120.00 0.00 0.00 0.00 35.93 -43.07 0.00 Strengthening P079675 2006 IN: Karn Municipal Reform 216.00 0.00 0.00 0.00 0.00 145.25 141.59 0.00 P079708 2006 IN: TN Empwr & Pov Reduction 0.00 274.00 0.00 0.00 0.00 163.96 -4.22 0.00 P083780 2006 IN: TN Urban III 300.00 0.00 0.00 0.00 0.64 110.60 111.24 33.98 P086414 2006 IN: Power System Development 400.00 0.00 0.00 0.00 0.00 1.40 1.40 0.00 Project III P093720 2006 IN: Mid-Himalayan (HP) Watersheds 0.00 60.00 0.00 0.00 0.00 14.83 6.21 0.00 P092735 2006 IN: NAIP 0.00 200.00 0.00 0.00 0.00 97.56 40.58 7.54 P084632 2005 IN: Hydrology II 104.98 0.00 0.00 0.00 0.00 64.47 64.47 54.92 P084790 2005 IN: MAHAR WSIP 325.00 0.00 0.00 0.00 0.00 115.47 107.14 0.00 P084792 2005 IN: Assam Agric Competitiveness 0.00 154.00 0.00 0.00 0.00 38.51 29.63 16.35 P094513 2005 IN: Tsunami ERC 0.00 465.00 0.00 0.00 68.99 264.88 316.41 127.77 P086518 2005 IN: SME Financing & Development 520.00 0.00 0.00 0.00 0.00 128.39 -270.61 109.39 P073370 2005 IN: Madhya Pradesh Water Sector 394.02 0.00 0.00 0.00 6.62 221.32 227.94 0.00 Restruct P073651 2005 IN: Disease Surveillance 0.00 68.00 0.00 0.00 8.31 39.22 42.01 7.88 P077977 2005 IN: Rural Roads Project 99.50 300.00 0.00 0.00 0.00 9.17 0.62 0.00 P077856 2005 IN: Lucknow-Muzaffarpur National 620.00 0.00 0.00 0.00 0.00 18.37 18.37 0.00 Highway P075058 2005 IN: TN Health Systems 0.00 228.53 0.00 0.00 20.06 103.93 -3.04 -9.48 P050655 2004 IN: Rajasthan Health Systems Dev 0.00 89.00 0.00 0.00 0.00 21.01 15.63 5.81 P078550 2004 IN: Uttar Wtrshed 0.00 77.60 0.00 0.00 0.00 14.05 -3.71 0.00 P050649 2003 IN: TN ROADS 398.70 0.00 0.00 0.00 0.00 26.57 -24.00 0.00 P071272 2003 AP RURAL POV REDUCTION 0.00 315.03 0.00 0.00 0.00 48.78 -136.28 33.35 75 P071033 2002 IN: KARN Tank Mgmt 32.00 130.90 0.00 0.00 25.07 95.42 32.96 22.08 P040610 2002 IN: RAJ WSRP 0.00 159.00 0.00 0.00 25.84 49.37 16.37 -15.03 P050668 2002 IN: MUMBAI URBAN TRANSPORT 463.00 79.00 0.00 0.00 9.88 107.06 103.69 116.69 PROJECT P050653 2002 IN: KARNATAKA RWSS II 0.00 301.60 0.00 0.00 16.40 149.64 -18.90 1.00 P050647 2002 IN: UP WSRP 0.00 149.20 0.00 0.00 40.11 22.31 33.30 -11.96 Total: 14,310.74 10,898.56 0.00 0.00 257.28 16,126.86 2,275.01 718.84 INDIA STATEMENT OF IFC‘s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2005 ADPCL 39.50 7.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 AHEL 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0.00 2005 AP Paper Mills 35.00 5.00 0.00 0.00 25.00 5.00 0.00 0.00 2005 APIDC Biotech 0.00 4.00 0.00 0.00 0.00 2.01 0.00 0.00 2002 ATL 13.81 0.00 0.00 9.36 13.81 0.00 0.00 9.36 2003 ATL 1.00 0.00 0.00 0.00 0.68 0.00 0.00 0.00 2005 ATL 9.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Atul Ltd 16.77 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 BHF 10.30 0.00 10.30 0.00 10.30 0.00 10.30 0.00 2004 BILT 0.00 0.00 15.00 0.00 0.00 0.00 15.00 0.00 2001 BTVL 0.43 3.98 0.00 0.00 0.43 3.98 0.00 0.00 2003 Balrampur 10.52 0.00 0.00 0.00 10.52 0.00 0.00 0.00 2001 Basix Ltd. 0.00 0.98 0.00 0.00 0.00 0.98 0.00 0.00 2005 Bharat Biotech 0.00 0.00 4.50 0.00 0.00 0.00 3.30 0.00 1984 Bihar Sponge 5.70 0.00 0.00 0.00 5.70 0.00 0.00 0.00 2003 CCIL 1.50 0.00 0.00 0.00 0.59 0.00 0.00 0.00 2006 CCIL 7.00 2.00 0.00 12.40 7.00 2.00 0.00 12.40 1990 CESC 4.61 0.00 0.00 0.00 4.61 0.00 0.00 0.00 1992 CESC 6.55 0.00 0.00 14.59 6.55 0.00 0.00 14.59 2004 CGL 14.38 0.00 0.00 0.00 7.38 0.00 0.00 0.00 2004 CMScomputers 0.00 10.00 2.50 0.00 0.00 0.00 0.00 0.00 2002 COSMO 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 2005 COSMO 0.00 3.73 0.00 0.00 0.00 3.73 0.00 0.00 2006 Chennai Water 24.78 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 DQEL 0.00 1.50 1.50 0.00 0.00 1.50 1.50 0.00 2005 DSCL 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2006 DSCL 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Dabur 0.00 14.09 0.00 0.00 0.00 14.09 0.00 0.00 2003 Dewan 8.68 0.00 0.00 0.00 8.68 0.00 0.00 0.00 2006 Federal Bank 0.00 28.06 0.00 0.00 0.00 23.99 0.00 0.00 2001 GTF Fact 0.00 1.20 0.00 0.00 0.00 1.20 0.00 0.00 2006 GTF Fact 0.00 0.00 0.99 0.00 0.00 0.00 0.99 0.00 76 1994 GVK 0.00 4.83 0.00 0.00 0.00 4.83 0.00 0.00 2003 HDFC 100.00 0.00 0.00 100.00 100.00 0.00 0.00 100.00 1998 IAAF 0.00 0.47 0.00 0.00 0.00 0.30 0.00 0.00 2006 IAL 0.00 9.79 0.00 0.00 0.00 7.70 0.00 0.00 1998 IDFC 0.00 10.82 0.00 0.00 0.00 10.82 0.00 0.00 2005 IDFC 50.00 0.00 0.00 100.00 50.00 0.00 0.00 100.00 IHDC 6.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 IHDC 7.90 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Indecomm 0.00 2.57 0.00 0.00 0.00 2.57 0.00 0.00 1996 India Direct Fnd 0.00 1.10 0.00 0.00 0.00 0.66 0.00 0.00 2001 Indian Seamless 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 2006 JK Paper 15.00 7.62 0.00 0.00 0.00 7.38 0.00 0.00 2005 K Mahindra INDIA 22.00 0.00 0.00 0.00 22.00 0.00 0.00 0.00 2005 KPIT 11.00 2.50 0.00 0.00 8.00 2.50 0.00 0.00 2003 L&T 50.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00 2006 LGB 14.21 4.82 0.00 0.00 0.00 4.82 0.00 0.00 2006 Lok Fund 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 MMFSL 7.89 0.00 7.51 0.00 7.89 0.00 7.51 0.00 2003 MSSL 0.00 2.29 0.00 0.00 0.00 2.20 0.00 0.00 2001 MahInfra 0.00 10.00 0.00 0.00 0.00 0.79 0.00 0.00 Montalvo 0.00 3.00 0.00 0.00 0.00 1.08 0.00 0.00 1996 Moser Baer 0.00 0.82 0.00 0.00 0.00 0.82 0.00 0.00 1999 Moser Baer 0.00 8.74 0.00 0.00 0.00 8.74 0.00 0.00 2000 Moser Baer 12.75 10.54 0.00 0.00 12.75 10.54 0.00 0.00 Nevis 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 2003 NewPath 0.00 9.31 0.00 0.00 0.00 8.31 0.00 0.00 2004 NewPath 0.00 2.79 0.00 0.00 0.00 2.49 0.00 0.00 2003 Niko Resources 24.44 0.00 0.00 0.00 24.44 0.00 0.00 0.00 2001 Orchid 0.00 0.73 0.00 0.00 0.00 0.73 0.00 0.00 1997 Owens Corning 5.92 0.00 0.00 0.00 5.92 0.00 0.00 0.00 2006 PSL Limited 15.00 4.74 0.00 0.00 0.00 4.54 0.00 0.00 2004 Powerlinks 72.98 0.00 0.00 0.00 64.16 0.00 0.00 0.00 2004 RAK India 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1995 Rain Calcining 0.00 2.29 0.00 0.00 0.00 2.29 0.00 0.00 2004 Rain Calcining 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2005 Ramky 3.74 10.28 0.00 0.00 0.00 0.00 0.00 0.00 2005 Ruchi Soya 0.00 9.27 0.00 0.00 0.00 6.77 0.00 0.00 2001 SBI 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 SREI 3.21 0.00 0.00 0.00 3.21 0.00 0.00 0.00 2000 SREI 6.50 0.00 0.00 0.00 6.50 0.00 0.00 0.00 1995 Sara Fund 0.00 3.43 0.00 0.00 0.00 3.43 0.00 0.00 2004 SeaLion 4.40 0.00 0.00 0.00 4.40 0.00 0.00 0.00 2001 Spryance 0.00 1.86 0.00 0.00 0.00 1.86 0.00 0.00 2003 Spryance 0.00 0.93 0.00 0.00 0.00 0.93 0.00 0.00 2004 Sundaram Finance 42.93 0.00 0.00 0.00 42.93 0.00 0.00 0.00 2000 Sundaram Home 0.00 2.18 0.00 0.00 0.00 2.18 0.00 0.00 2002 Sundaram Home 6.71 0.00 0.00 0.00 6.71 0.00 0.00 0.00 1998 TCW/ICICI 0.00 0.80 0.00 0.00 0.00 0.80 0.00 0.00 2005 TISCO 100.00 0.00 0.00 300.00 0.00 0.00 0.00 0.00 2004 UPL 15.45 0.00 0.00 0.00 15.45 0.00 0.00 0.00 77 1996 United Riceland 5.63 0.00 0.00 0.00 5.63 0.00 0.00 0.00 2005 United Riceland 8.50 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2002 Usha Martin 0.00 0.72 0.00 0.00 0.00 0.72 0.00 0.00 2001 Vysya Bank 0.00 3.66 0.00 0.00 0.00 3.66 0.00 0.00 2005 Vysya Bank 0.00 3.51 0.00 0.00 0.00 3.51 0.00 0.00 1997 WIV 0.00 0.37 0.00 0.00 0.00 0.37 0.00 0.00 1997 Walden-Mgt India 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 iLabs Fund II 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 956.52 249.41 42.30 536.35 604.74 175.91 38.60 236.35 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2004 CGL 0.01 0.00 0.00 0.00 2000 APCL 0.01 0.00 0.00 0.00 2006 Atul Ltd 0.00 0.01 0.00 0.00 2001 Vysya Bank 0.00 0.00 0.00 0.00 2006 Federal Bank 0.01 0.00 0.00 0.00 2001 GI Wind Farms 0.01 0.00 0.00 0.00 2004 Ocean Sparkle 0.00 0.00 0.00 0.00 2005 Allain Duhangan 0.00 0.00 0.00 0.00 Total pending commitment: 0.04 0.01 0.00 0.00 78 Annex 15: Country at a Glance INDIA: Capacity Building for Urban Development Project 79 80 The original had problem with text extraction. pdftotext Unable to extract text.