Document of The World Bank Report No: 72901-YE RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF INTEGRATED URBAN DEVELOPMENT PROJECT (IUDP) PROJECT GRANT NO. H565-RY BOARD APPROVAL DATE: May 25, 2010 TO THE REPUBLIC OF YEMEN December 27, 2012 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 October 31, 2012) Currency Unit = YR (Yemeni Rial) 215.53YR = US$1 US$1 = SDR 0.65 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CBY Central Bank of Yemen DA Designated Account FM Financial Management FP&ERP AF 2 Flood Protection and Emergency Reconstruction Project Additional Financing 2 IDA International Development Association IUDP Integrated Urban Development Project PCDP 2 Second Port Cities Development Project PCU Project Coordination Unit PDO Project Development Objective PMU Project Management Unit SDR Special Drawing Rights Regional Vice President: Inger Andersen Country Director: Hartwig Schafer Sector Manager / Director: Franck Bousquet/Junaid Kamal Ahmad Task Team Leader: Ali Khamis YEMEN, REPUBLIC OF RY-INTEGRATED URBAN DEVELOPMENT PROJECT (IUDP) P107050 CONTENTS Page A. SUMMARY ........................................................................................................................... 4 B. PROJECT STATUS .............................................................................................................. 4 C. PROPOSED CHANGES ...................................................................................................... 5 D. APPRAISAL SUMMARY.................................................................................................... 8 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................. 9 RY-INTEGRATED URBAN DEVELOPMENT PROJECT (IUDP) RESTRUCTURINGPAPER A. SUMMARY 1. This Restructuring Paper proposes a level two restructuring of the Republic of Yemen – Integrated Urban Development Project (Grant H565-RY; P107050). As requested by the Borrower in its letter dated October 24, 2012, the proposed restructuring consists of the following: (i) Partial Cancellation and a Reduction of the Total Amount of the Grant: The total amount of the grant will be reduced and a portion of the grant will be cancelled with a value date of October 24, 2012, in response to revised cost estimates and a cancelled activity under a project component. (ii) Scale down of the Project Activities: One activity under Component 2 has been cancelled in order to reduce the scope of the project components. This activity is the support proposed for GALSUP for the State Land Management Pilot in Taiz. (iii) Revision of the Institutional Arrangements: Institutional arrangements have been revised to improve project implementation performance. 2. This restructuring, proposed in response to the Government of Yemen’s (Recipient) request, is within the broader context of the Bank’s renewed engagement in Yemen. It follows a sustained period of civil unrest and a deteriorating political and security situation which led the Bank to suspend disbursements in Yemen from July 28, 2011, to January 20, 2012. It is the first restructuring of the Integrated Urban Development Project. B. PROJECT STATUS 3. The IDA Grant for the Republic of Yemen – Integrated Urban Development Project – in the amount of SDR 14.5 million (US$22.0 million equivalent) was approved by the Board on May 25, 2010, signed on June 28, 2010, and declared effective on August 18, 2010. The Project’s development objectives are to: (i) improve access to basic services in select informal resettlements in urban areas of Taiz; and (ii) strengthen the dialogue on a national framework for urban upgrading. The project consists of three parts: Part A - Infrastructure in Taiz, focusing on improving basic urban infrastructure in the Al-Maftash, Medinet Al-Noor, and Al-Haraziya/Al-Arous settlements; Part B - Institutional Strengthening and Capacity-Building, focusing on strengthening the national dialogue on urban upgrading and building government capacity in Taiz regarding urban upgrading; and Part C - Project Management. -1- 4. Although the project had started well, implementation progress slowed as a result of the political unrest coupled with the suspension of disbursements by IDA. Even after the suspension was lifted, implementation continued to be hampered because of complaints from bidders related to two of the three main rehabilitation works contracts for the upgrading of Al-Maftash and Al-Haraziya/Al-Arous, and the refusal of the lowest evaluated bidder for the third contract to sign the contract based on the original bid for upgrading of the Medinet Al-Noor because of a price escalation. 5. Following the lifting on suspension of disbursements by the Bank, a decision was made to rebid all three civil works contracts. Since then, project implementation has accelerated significantly and bids for the three contracts—with a total estimated value of US$11 million—were opened on August 5, 2012, and subsequently signed in November 2012. This will represent a major milestone for project implementation as these three contracts constitute all of the planned physical construction to be undertaken under the project. As of October 31, 2012, commitments stand at less than 1% and disbursements stand at 6%, mainly through fund transfers to the designated account. 6. The current ratings for both the Achievement of the Project Development Objective and Overall Implementation Project (IP) are Moderately Unsatisfactory (MU). In the absence of progress, the ratings for social and environmental safeguards are also rated as MU. Procurement is rated as Moderately Satisfactory while Financial Management is rated as Satisfactory. C. PROPOSED CHANGES 7. The Government of Yemen has requested several changes to the project in order to streamline and strengthen implementation. It has requested a partial cancellation of Grant proceeds for two reasons: (1) expected project costs have declined, and consequently, financing needs have declined; and (2) one activity within Component 2 has been cancelled thus further reducing financing needed for project activities. This activity is the support proposed for the General Authority for Land, Survey and Urban Planning (GALSUP) for the State Land Management Pilot in Taiz. The Government has also requested a reallocation of part of the project budget to Component 3 in order to accommodate higher costs associated with administering a restructured project. This implies changes to the Results Indicators, Implementation Arrangements, Project Costs and Grant Allocations, as specified below. 8. Results Indicators. The Results Framework was updated to align it with the exact definition of IDA core indicators. The principal changes include the following:  PDO- Level Results Indicators: The required core IDA indicator “direct project beneficiaries (number), of which female (percentage)� was added and the wording of other outcome indicators was aligned with IDA core indicators.  Intermediate Results: The indicators under Component 1 on “number of new septic tanks�, “number of new street lights�, and “number of implementation communications and public awareness activities� were dropped as they do not relate -2- to significant project activities and/or are partially captured under other indicators. Under Component 3, the indicator on “progress reports on project implementation� and “number of annual training courses received by project management unit staff� were also dropped as these activities are part of standard supervision. Furthermore, the wording of the remaining intermediate results indicators was aligned with exact definition of IDA core indicators. 9. Implementation Arrangements. There are no changes to the implementation arrangements under IUDP as such. However, in order to improve performance of the urban project portfolio as a whole, it was decided to consolidate project management arrangements for all urban projects in Yemen. The Project Management Units (PMUs) for the Second Port Cities Development Project (PCDP-2), the Seiyun Field Units of the Flood Protection and Emergency Reconstruction Project Additional Financing 2 (FP&ERP AF 2) and the IUDP will report to a central Sana’a-based Project Coordination Unit (PCU) headed by a Project Director. This PCU will be responsible for the overall management of all three urban projects and will work closely with both field units and PCDP-2 who will report to the PCU but, at the same time, retain all its current functions in terms of procurement, financial management and safeguards. The basic PMU staffing for IUDP will remain the same except that the PMU Director would now be replaced with a PMU Manager, who will report to the Sana’a-based Project Director of the shared PCU. The proposed modifications to consolidate the Project management arrangements will not require an amendment to the Agreement. 10. Project Costs. Project costs were updated in order to reflect revised cost estimates. The proposed revised project cost estimates are provided below. Total Revised Project Cost by Component/ Activity (US$ Total million) (US$ million) Component 1: Infrastructure Provision of priority basic public services in Al-Maftash 4.0 2.30 Provision of priority basic public services in Al-Haraziya/Al-Arous 6.0 3.70 Provision of priority basic public services in Medinat al-Noor 6.25 4.40 Rehabilitation of GIS unit building 0.1 0.1 Consultancy Services Construction Supervision 0.55 0.55 Social Expert 0.10 0.10 Total Component 1 17.0 11.15 Component 2: Institutional Strengthening and Capacity-Building Elaboration and support of a National Framework for Upgrading 0.9 0.9 Establish and support core GIS Unit in Governorate of Taiz 0.5 0.5 Support GALSUP in State Land Management Pilot in Taiz 0.6 0.0 Provision of equipment for Accounting-based Financial 0.5 0.5 Management Information System in Taiz Total Component 2 2.50 1.9 Component 3: Project Management -3- Project Administration (PMU and Training) 1.30 2.50 Total Component 3 1.30 2.50 Total 20.8 15.55 Contingencies 1.2 2.33 Total Project Costs1 22.0 17.88 Amount to be cancelled 4.12 11. Reallocations. Reallocations of expenditures among categories are proposed in order to reflect revised cost estimates. Category of Expenditure Allocation (SDR) % of Financing Original Revised Current Revised (1) Goods, consultant services and training under 1,320,000 1,600,000 100% 100% Part A and B of the Project (2) Goods, consultant services, training and 860,000 1,600,000 100% 100% incremental operating costs under Part C of the Project (3) Works under Part A of 10,870,000 8,600,000 100% 100% the Project (4) Unallocated 1,450,000 0 Total 14,500,000 11,800,000 Cancelled amount 2,700,000 12. Reduction of the Amount of the Grant and Partial Cancellations. In light of the revised cost estimates and the cancellation of support for GALSUP in administering a state land management pilot in Taiz under Component 2 of the project, the Recipient requested a partial cancellation of SDR 2.70 million of the IDA grant. 13. Procurement. The PCU will maintain adequate staffing and other arrangements for effective procurement management, as per the Project’s Financing Agreement. A major procurement milestone has been reached with bids for the three main civil works contracts—with a total estimated contract value of US$11 million—opened on August 5, 2012. These contracts were signed in November 2012. The project’s Procurement Plan has been revised to take into account the proposed changes under this restructuring, and all contracts in the revised Procurement Plan which come under the purview of the Project Director regardless of their value will now be subject to prior review by the Bank. 14. Financial Management and Disbursement Arrangements. For IUDP and FP&ERP, the financial management (FM) and disbursement arrangements will remain the responsibility of the Sana’a-based PCU, staffed with a PCU Director, Financial Manager, an Accountant and others as per the Project’s Financing Agreement. The PCU will maintain adequate financial management arrangements through: (i) retaining adequate staffing arrangements; (ii) maintaining adequate internal control procedures based on an acceptable Financial Management Manual; (iii) maintaining an automated -4- accounting system capable of recording and reporting on all project transactions; and (iv) contracting an external auditor based on terms of reference acceptable to IDA. Based on a June 2012 assessment, the Project's financial management arrangements were found to be Satisfactory. 15. There are no proposed changes to the project’s Disbursement Arrangements as per the project’s Disbursement Letter. The project’s Designated Account (DA) ceiling will remain at US$1.1 million, maintained at the Central Bank of Yemen (CBY). The Project’s audit reports have been received in a timely fashion and deemed acceptable. There are no overdue audit reports. 16. Mid-Term Review. In light of the modified implementation schedule, the Mid- Term Review date was changed to take place 36 months after effectiveness instead of 24 months as planned at appraisal. D. APPRAISAL SUMMARY 17. Economic, Financial and Technical Analysis. None of the proposed changes would have a major effect on the original economic, financial or technical analysis of the project as appraised. 18. Social and Environmental. The proposed restructuring would not result in any changes to the appraised social and environmental aspects. The Integrated Environmental and Social Impact Assessments (IESIA) of the sites of the three works contracts which are currently in process were carried out by Dar Al Handasah during project preparation. There are no issues to be highlighted at this stage. 19. Exceptions to Bank Policy and risks. The proposed restructuring does not trigger new risks or exceptions to Bank policy. -5- ANNEX 1: Results Framework Revisions to the Results Framework Comments/ Rationale for Change PDO Current (PAD) Proposed To improve access to basic services in No change select informal settlements in urban areas in Taiz and strengthen dialogue on a national framework for urban upgrading. To strengthen dialogue on national No change framework for urban upgrading. PDO Indicators Current (PAD) Proposed change Number of people in targeted areas People in urban areas in Taiz Alignment with exact CORE provided with access to―improved provided with access to “Improved indicator wording sanitation. Sanitation� under the project (number). Number of people in targeted areas People in urban areas in Taiz Alignment with exact CORE provided with access to―improved provided with access to “Improved indicator wording water supply. Water Sources� under the project (number). Number of people in targeted areas People in urban areas in Taiz Alignment with exact CORE provided with access to all season roads provided with access to all-season indicator wording within a 500 meter range. roads within a 500 meter range under the project (number). Direct project beneficiaries Inclusion of mandatory Core (number), of which female indicator (percentage). Assessment of investment needs for No change urban upgrading at the national level. Intermediate Results Indicators Current (PAD) Proposed change Component 1: Infrastructure in Taiz Number of household connections to the Number of new sewer connections Alignment with exact CORE public sewerage network. constructed under the project. indicator wording Number of household connections to the New piped household water Alignment with exact CORE public water network. connections resulting from project indicator wording intervention (number). Kilometers of roads and pedestrian Roads rehabilitated (km), non-rural. Alignment with exact CORE pathways paved. indicator wording Number of new septic tanks. Dropped Not a significant project activity Number of new street lights. Dropped Not a significant project activity Number of implemented communication Dropped Part of ongoing supervision and public awareness activities. activities -6- Component 2: Institutional Strengthening and Capacity Building Report on the current situation of No change informal settlements and need for urban upgrading in Yemen. Establishment of a core Geographic No change Information Systems Unit in Taiz. Report on state land inventory in Taiz. Dropped Component 3: Project Management Progress reports on Project Dropped Part of regular project Implementation. supervision Number of annual training courses Dropped Part of ongoing supervision received by Project Management Unit activities staff. -7- Results Monitoring Indicators Target Values Data Collection and Reporting YR1 YR2 YR3 Reporting Data Collection Responsibility for Data Baseline (2013) (2014) (2015) Frequency Instruments Collection People in urban areas in Taiz provided with access to “Improved Sanitation� 0 12,000 19,500 19,500 under the project (number). People in urban areas in Taiz provided with access to “Improved Water 0 1,2000 19,500 19,500 Sources� under the project (number). Annual Progress Report Project Coordination Unit People in urban areas in Taiz provided with access to all-season roads within a 0 9,000 18,000 19,500 500 meter range under the project (number). Direct project beneficiaries (number), 12,000 19,500 19,500 0 of which female (percentage). (47%) (47%) (47%) Component 1 Number of new sewer connections 0 1,500 2,100 2,100 constructed under the project. New piped household water connections that are resulting from the 0 1,000 1,600 1,600 Annual Progress Report Project Coordination Unit project intervention (number). Roads rehabilitated (km) -non-rural. 0 6 16 20 Component 2 Establishment of a core Geographic No Yes Yes Yes Annual Progress Report Project Coordination Unit Information Systems unit in Taiz. Report on the current situation of informal No Yes End of Project Progress Report Project Coordination Unit settlements and need for urban upgrading in Yemen. Delivery of national framework for No No No Yes End of Project Project Coordination Unit urban upgrading. -8- MAYA EL-AZZAZI P:\YEMEN\SD\107050\SPN\RESTRUCTURING PACKAGE - NOV 2012\IUDP-P107050-RP-DEC-26-2012 (CLEAN).DOCX 12/26/2012 2:45:00 PM 9