The World Bank Water and Sanitation Development Project (P156634) REPORT NO.: RES36279 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE WATER AND SANITATION DEVELOPMENT PROJECT APPROVED ON APRIL 26, 2017 TO THE REPUBLIC OF KENYA WATER GLOBAL PRACTICE AFRICA REGION Regional Vice President: Hafez M. H. Ghanem Country Director: Carlos Felipe Jaramillo Regional Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Catherine Signe Tovey Task Team Leader: Pascaline Wanjiku Ndungu Iain Menzies The World Bank Water and Sanitation Development Project (P156634) ABBREVIATIONS AND ACRONYMS CWSB Coast Water Services Board CWWDA Coast Water Works Development Agency GBV Gender-Based Violence IA Implementing Agency IDA International Development Association IDA SUF International Development Association Scale Up Facility MoWS Ministry of Water and Sanitation MoWSI Ministry of Water, Sanitation and Irrigation NT National Treasury NWWDA Northern Water Works Development Agency PDO Project Development Objective RAP Resettlement Action Plan SEA Sexual Exploitation and Abuse WASREB Water Services Regulatory Board WSB Water Services Board WSDP Water and Sanitation Development Project WSP Water Service Provider WWDA Water Works Development Agency The World Bank Water and Sanitation Development Project (P156634) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P156634 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 26-Apr-2017 31-Oct-2022 Organizations Borrower Responsible Agency Water Services Regulatory Board,Mombasa Water and Sanitation Services Company,Tavevo Water and Sewerage Company Ltd,Kilifi - Mariakani Water and Sewerage Company Ltd,Malindi Water and Sewerage Company Ltd,Kwale Water and Sewerage Company Government of the Republic of Kenya Ltd.,Mavoko Water & Sewarage Co. Ltd,Eldoret Water & Sanitation Co. Ltd,Garissa Water and Saniation Company,Wajir Water and Sewerage Company,Northern Water Works Development Agency,Coast Water Works Development Agency,Ministry of Water, Sanitation and Irrigation Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to improve water supply and sanitation services in select coastal and northeastern regions in Kenya. OPS_TABLE_PDO_CURRENTPDO The World Bank Water and Sanitation Development Project (P156634) Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-60290 26-Apr-2017 21-Jun-2017 09-Mar-2018 31-Oct-2022 37.00 0 39.78 IDA-60300 26-Apr-2017 21-Jun-2017 09-Mar-2018 31-Oct-2022 263.00 13.37 262.27 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. Objective of the restructuring. This restructuring primarily proposes a change to the institutional arrangements to enhance and accelerate implementation, and to adjust the results framework to align with the expected delivery of key outputs. 2. Background. On April 26, 2017, The World Bank’s Board of Executive Directors approved a credit to the Republic of Kenya in the amount of US$300 million equivalent in the form of (a) an International Development Association (IDA) credit on regular terms in the amount of SDR 27,400,000 (equivalent to US$37 million) and (b) an IDA scale-up facility (SUF) credit in the amount of Euro 248,100,000 (equivalent to US$263 million) for the Water and Sanitation Development Project (WSDP) (P156634). The Project became effective on March 9, 2018; its closing date is October 31, 2022. 3. The Project Development Objective (PDO) is to improve water supply and sanitation services in select coastal and northeastern regions in Kenya. 4. The Project comprises four components. These are: (1) rehabilitation and expansion of urban water supply and sanitation services in the coastal region; (2) expansion of water supply and sanitation services in underserved north- eastern counties; (3) national performance-based financing (PBF) to support water and sanitation infrastructure investments and services; and (4) project management. The WSDP cost estimate and financing distribution at appraisal is presented in Table 1. The World Bank Water and Sanitation Development Project (P156634) Table 1. WSDP Project Cost (USD million equivalent based on exchange rate effective February 28, 2017) Components IDA Regular IDA-SUF Government Total 1. Rehabilitation and expansion of urban water 160.0 16.0 176.0 supply and sanitation services in the coastal -- region 2. Expansion of water supply and sanitation 37.0 63.0 10.0 110.0 services in marginalized northeastern counties 3. National performance-based financing 37.0 3.7 40.7 4. Project management 3.0 0.3 3.3 Total Project Cost 37.0 263.0 30.0 330.0 5. Implementation progress. The project is rated moderately unsatisfactory (MU) for both overall implementation progress and progress towards achievement of the PDO, given the slow progress of implementation. The project is the first Bank-financed operation to be implemented under the devolved structure where counties and their Water Services Providers (WSPs) are responsible for implementing county-specific project activities. The project also supports the historically marginalized north-eastern counties whose capacity for implementation of project activities is limited. In addition, although a new Water Act was enacted in 2016, the sector is still in transition and institutional mandates are yet to be fully unbundled. This lack of clarity has contributed to project implementation delays. 6. Currently, about US$39 million of the Credit is committed and US$12 million disbursed. Although the process of signing the County Participation Agreements (CPAs) and WSP Agreements was completed in May 2019 and an advance of US$5.6 million disbursed to the Designated Account (DA) for counties in June 2019, the funds are yet to be transferred to counties and WSPs. As per the Financing Agreement, the CPAs are required for the National Treasury (NT) to transfer IDA funds to the participating counties, who are responsible for implementing county-specific activities. The Ministry of Water and Sanitation (MoWS) is responsible for triggering the flow of funds to counties by approving the requests and annual work plans of each county/WSP, prior to the release of funds. This process of triggering funds flow was significantly delayed, as the MoWS sought further clarification from the NT and the Attorney General’s (AG’s) office on the financial accountability process. After a lengthy consultative process, formal assurances were provided to the MoWS by the NT, AG and Office of the President. On December 5, 2019, the MoWS sent to the NT the letter to trigger funds transfer to the counties. The transfer of funds to counties and subsequently to the WSPs is now expected to be completed by mid- January 2020. The uncertainty around the transfer of funds to counties has contributed to the slow implementation progress and low disbursements. The current disbursed amount reflects the advance to the DA for counties and what was provided to the three national-level entities: The MoWS, the Coast Water Services Board (a regional entity under the MoWS), and the Water and Sanitation Regulatory Board (WASREB). There are no challenges regarding disbursement of funds to national-level institutions. 7. In anticipation of receiving the funds, the participating counties and their WSPs have completed most of their preparatory activities—including establishment of Project Coordination Units (PCUs), opening of project accounts, and preparation of procurement plans. Adequate funds have been allocated in the MoWS FY20 budget for both the national and county-level implementing agencies (IAs) benefiting from Components 1 and 2. However, no funds were allocated for Component 3 in FY20 budget, as the county and WSP agreements are yet to be approved and signed, though this is expected to be completed soon. In addition, the IAs have made good progress towards building a pipeline of implementable activities and efforts are being made to expedite implementation. The coastal WSPs have prepared detailed designs, bidding documents and safeguards documents for short- and medium-term water distribution contracts amounting to about US$100 million, which combined with other activities would exceed their current allocation. The World Bank Water and Sanitation Development Project (P156634) Procurement of contracts amounting to about US$53 million under Component 1 and 2 commenced in October 2019 and the contracts are expected to be awarded in the first quarter of FY21. It is also expected that by end of February 2020, all the IAs will have awarded contracts for consulting firms to undertake design review and supervision of the immediate works contracts, and to prepare detailed designs for any additional identified medium and long-term interventions. Overall, the team expects that contracts worth about US$60 million will be committed by end of FY20, with total disbursement estimated to be about US$31 million by June 2020. However, this estimate assumes that funds are transferred to counties immediately to allow them to proceed with the procurement and signing of contracts. Implementation is expected to accelerate in FY21, with a total estimate of US$215 million committed contracts at the end of the FY21. 8. To ensure that the IAs can implement their activities quickly, the PCU members of each IA have received significant capacity building and training in financial management, procurement, and safeguard management. To assist IAs in addressing any issues that arise during implementation, the MoWS is procuring the services of a consulting firm that will support IAs with specialists in engineering, safeguards management, procurement, financial management, monitoring and evaluation and performance assessment. In addition, the safeguards specialists who are part of the supervision consultancy firms that each IA is hiring will provide additional support on safeguards management. 9. The project has no overdue audits. There have been no significant issues with compliance with Environmental and Social Safeguards. Environmental and Social Impact Assessments (ESIAs) and Resettlement Action Plans (RAPs) for all proposed works contracts have been prepared and either have been or are in the process of review and clearance by the Bank. Some works contracts do not require RAPs, but screening reports were reviewed and cleared by the Bank. The CWSB has made good progress with construction works for the Baricho bulk water system but progress on output and outcome indicators will only be evident once works are completed and the WSPs start receiving additional water from the system. B. Rationale for Restructuring 10. With only four percent of funds disbursed and 35 months remaining until project close, the scope to turnaround the project and achieve original project objectives is rapidly narrowing. The next 3-4 months will be critical to (i) confirm if institutional bottlenecks, including those related to flow of funds to counties, have been finally addressed; (ii) assess the performance of counties and WSPs; (iii) determine which activities can still be implemented under existing project timeframe. A first restructuring is proposed, to make some adjustments to the institutional arrangements which are intended to enhance and accelerate implementation, as well as to adjust the results framework to more closely align with the investment plans and expected timeframe for achieving results. The former entails changes that would, inter alia, speed up decision-making, bring in the required technical expertise from various institutions, and streamline operational procedures. These and other changes are detailed in the section below. The proposed changes would constitute the first phase of project restructuring to unlock implementation bottlenecks and increase the level of IDA commitments to about US$60 million by end June 2020. A detailed assessment of project design and implementation will be conducted during the mid-term review (MTR) scheduled for end of May 2020 and would inform a second phase restructuring. Project activities that are not committed by MTR and/or those that cannot be completed within the remaining project period would be dropped from the project, and the corresponding costs would be considered for cancellation from the IDA credit in a second phase of restructuring after the MTR. II. DESCRIPTION OF PROPOSED CHANGES 11. The proposed Level 2 restructuring includes (a) changes to institutional arrangements to: reflect adjustments in the composition, roles, and leadership of the National Project Steering Committee (NPSC) and Technical Committee; add The World Bank Water and Sanitation Development Project (P156634) the Northern Water Works Development Agency (NWWDA) as an IA; increase the responsibilities of the MoWS to include hiring of consultancy firms to undertake detailed designs and construction supervision for works contracts that will be implemented by the WSPs under Component 3; and change the names of two of the IAs; (b) revisions to the results framework; (c) changes in Project component costs; (d) reallocation between disbursement categories; and (e) changes in the disbursement estimates to the end of the project life. A. Changes to institutional arrangements  Composition, roles, and leadership of the Steering Committee and Technical Committee. These changes have been requested by the new management at the MoWS, to align to the operation modalities under which the project is implemented. The NPSC. To provide effective oversight of project implementation and progress towards results, the NPSC will be chaired by the Principal Secretary of the MoWS. The composition of the NPSC will also be revised to accelerate the decision-making process. The detailed composition of the NPSC is presented in the Project Implementation Manual. Technical Committee. The Technical Committee will be chaired by the Water Secretary of the MoWS. The composition of the Technical Committee will be revised to bring on board the required technical expertise from various institutions. The detailed composition of the Technical Committee is presented in the Project Implementation Manual.  Addition of Northern Water Works Development Agency as an IA. The NWWDA will be included as a project IA. The NWWDA is the successor to the defunct Northern Water Service Board created by the Water Act, 2002. Through the Gazette Notice No. 28 of April 26, 2019, all the eight water services boards (WSBs) were renamed to water works development agencies (WWDAs) in line with the provisions of the Water Act 2016. The mandates of the WWDAs largely remain the same as those of WSBs. The introduction of the NWWDA as an IA is expected to enhance the implementation of Component 2, as NWWDA would provide technical support to Wajir and Garissa counties, and prepare designs for new investments. NWWDA will initially support the preparation of investments for long-term water supply to Wajir town. Based on the existing water supply masterplan for Wajir town, the proposed long-term water supply options are complex and would require solid technical expertise to manage. The NWWDA will specifically assist in carrying out detailed designs and preparing bidding documents for water works (source development, transmission, treatment and distribution) for Wajir town. The NWWDA will also support preparation and implementation of cross-county and countywide water and sanitation investments in selected northeastern counties, as well as provide on-demand technical support to these counties. The NWWDA will receive an initial allocation of US$5 million equivalent to support these activities. This change will result in a reduction in Category 2 by EURO 4,489,741 (US$5 million equivalent) and creation of a new Category 8 of a similar amount for the NWWDA. The MoWS will initiate the preparation of a subsidiary agreement to be signed between the NT and NWWDA to allow funds to flow to the NWWDA. There are no delays anticipated as a similar agreement exists for the CWSB under the Project. The NWWDA has capacity to provide the above-mentioned activities, according to an assessment carried out by the Bank’s safeguards, procurement, and financial management specialists. However, the capacity of the NWWDA to identify, understand and manage environment and social risks is assessed as low. Significant capacity building and resourcing is required to build and improve systems, procedures, organizational efficiency, The World Bank Water and Sanitation Development Project (P156634) budgeting and resourcing aspects of the organization to effectively manage and overcome E&S risks. Annex 2 provides more details of the assessments and an action plan with the key actions required to build capacity for financial management, procurement and safeguards to effectively carry out their new role.  Increase in responsibilities of the MoWS. Experience so far with completing the process of signing CPAs and WSP agreements for Components 1 and 2 show that this is a cumbersome and time-consuming process. The ten WSPs whose proposals were pre-selected by WASREB for potential financing under Component 3 are yet to sign WSP agreements that would allow budgeting and flow of funds. In addition, all the WSPs will be implementing a Bank-financed project for the first time, thus requiring substantial capacity building. These proposals fall under three windows: 1a: improving access to water supply; 1b: increasing access to sanitation services; and 2: reducing non-revenue water (NRW). With the increased scope, the MoWS will procure and manage a framework consultancy to prepare detailed designs and undertake supervision for the works contracts to be implemented by the WSPs selected under window 1a and 1b. Consolidating this activity into one consultancy—as opposed to eight separate contracts—would be more efficient and effective and at the same time allow time for the completion of the WSP agreements. The increased scope is within MoWS role under the project, as the Ministry was expected to finance studies identified during implementation. WASREB will support the preparatory work on the NRW window and provide technical assistance to selected WSPs under this window to prepare follow-up investments. This change will require an increase in the funds allocated to MoWS from US$3.3 million equivalent to US$8.8 million equivalent. The allocation under Category 4 will therefore reduce from Euro 32,975,000 to Euro 28,485,259 while Category 5 will increase from Euro 4,700,750 to Euro 9,190,491.  Change of names of two IAs. The name of the Ministry of Water and Sanitation has changed to Ministry of Water, Sanitation and Irrigation (MoWSI) as per the Executive Order No. 6 of 2019 dated August 22, 2019. The name of the Coast Water Services Board has changed to Coast Water Works Development Agency (CWWDA) as per the Gazette Notice No. 28 of April 26, 2019, and in line with the Water Act, 2016. B. Revisions to the results framework. The results indicators and targets have been revised to reflect what the project will achieve based on greater clarity on the investment plans of the northeastern counties. Specifically, one indicator, “Volume of biological oxygen demand pollution loads removed by treatment plants supported under the project,” has been dropped because the counties are not planning to invest in wastewater treatment plants under the project. Finally, the delays in project implementation have led to delays in achieving results, so all expected outputs (except for those under Component 3) and outcomes will now start in 2020 or 2021, instead of in 2018 and 2019. Details of the changes are presented in annex 1 and a more comprehensive review of the results will be undertaken during the mid-term review. C. Changes in Project component costs. Component 3 and 4 allocations will be changed to reflect the increased scope of the MoWS. Some US$5 million equivalent will be re-allocated from Component 3 to Component 4, to finance the PBF-related studies. This change will not result in reduced scope of Component 3, as MoWS will undertake these services on behalf of the WSPs. Table 2. Original and Proposed Project Costs and Financing Original Budget (US$ million) Revised Budget (US$ million) IDA IDA IDA- Components Regular IDA-SUF GoK Total Regular SUF GoK Total 1. Rehabilitation and expansion of urban water supply and sanitation services in the coastal region 160 16 176 160 16 176 The World Bank Water and Sanitation Development Project (P156634) 2. Expansion of water supply and sanitation services in marginalized northeastern counties 37 63 10 110 37 63 10 110 3. National performance-based financing 37 3.7 40.7 32 3.2 35.2 4. Project management 3 0.3 3.3 8 0.8 8.8 Total Project Cost 37 263 30 330 37 263 30 330 D. Reallocation between Disbursement Categories. Reallocation between disbursement categories was conducted to reflect the introduction of the NWWDA and the increased scope for the MoWS. Therefore, Categories 3, 4 and Category 5 are modified, and two new categories are introduced as indicated in Table 3. These changes are only institutional and will not result in reduced scope of the corresponding components. Table 3. Proposed changes in disbursement categories1 Category Original Amount of Revised Amount of Percentage of the Credit Allocated the Credit Allocated Expenditures to be (expressed in EUR) (expressed in EUR) Financed (inclusive of Taxes) (1) Goods, works, non- 112,800,000 112,800, 000 100 consulting services, consultants’ services, Training and Operating Costs for Part 1(a) of the Project (2) Goods, works, non- 37,800,000 37,800,000 100 consulting services, consultants’ services, Operating Costs and Training for Part 1(b) of the Project (3) Goods, works, non- 59,204,000 0 100 consulting services, consultants’ services, Training, Operating Costs and Recurrent Costs for Part 2 of the Project (4) Goods, works, non- 32,975,000 28,485,2592 100 consulting services, consultants’ services, Operating Costs and Training for Part 3(a) of the Project 1 1 USD = 0.90 Euro as of May 30, 2019 (when NT’s request was received) 2 Category 4 is linked to Component 3 (Part 3a). US$5 million equivalent (Euro 4,489,741) is subtracted from the current allocation. The World Bank Water and Sanitation Development Project (P156634) (5) Goods, non-consulting 4,700,750 9,190,4913 100 services, consultants’ services, Training and Operating Costs for Parts 3(b) and 4 of the Project (6) Front-end Fee 621,000 620,2504 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 3.01 (a) of the General Conditions (7) Goods, works, non- - 54,714,2595 100 consulting services, consultants’ services, training, operating costs and recurrent costs for Part 2(a) of the Project (8) Goods, works, non- - 4,489,7416 100 consulting services, consultants’ services, Operating Costs and Training for Part 2(b) of the Project TOTAL AMOUNT 248,100,000 248,100,000 E. Revisions to the disbursement estimates. The annual disbursement estimates were revised to accommodate the delay in project implementation. The revised annual disbursement estimates are provided in the Detailed Changes section. 3 Category 5 is linked to Component 3 (Part 3b) and Component 4 (Part 4). US$5 million equivalent (Euro 4,489,741) is added to the current allocation to cater for increased scope for the MoWS. 4 The original figure of the front-end fee had been rounded up. Exact figure is added. 5 This is a new category linked to Component 2 Part 2(a). US$5 million equivalent (Euro 4,489,741) is subtracted from the original allocation under Category 3. 6 This is a new category linked to Component 2 Part 2(b) for the NWWDA. The World Bank Water and Sanitation Development Project (P156634) I. SUMMARY OF CHANGES Changed Not Changed Implementing Agency ✔ Results Framework ✔ Components and Cost ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Institutional Arrangements ✔ DDO Status ✔ Project's Development Objectives ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank Water and Sanitation Development Project (P156634) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_IA_TABLE IMPLEMENTING AGENCY Implementing Agency Name Type Action Water Services Regulatory Board Implementing No Change Agency Mombasa Water and Sanitation Services Implementing No Change Company Agency Tavevo Water and Sewerage Company Ltd Implementing No Change Agency Kilifi - Mariakani Water and Sewerage Implementing No Change Company Ltd Agency Malindi Water and Sewerage Company Ltd Implementing No Change Agency Kwale Water and Sewerage Company Ltd. Implementing No Change Agency Mavoko Water & Sewarage Co. Ltd Implementing No Change Agency Eldoret Water & Sanitation Co. Ltd Implementing No Change Agency Garissa Water and Saniation Company Implementing No Change Agency Wajir Water and Sewerage Company Implementing No Change Agency Northern Water Works Development Implementing New Agency Agency Coast Water Works Development Agency Implementing New Agency Ministry of Water, Sanitation and Irrigation Implementing New Agency OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Rehabilitation Component 1: Rehabilitation and and expansion of urban water expansion of urban water supply supply and sanitation services and sanitation services in the 176.00 No Change 176.00 in the coastal region (US$176 coastal region (US$176 of which of which IDA-SUF US$160 IDA-SUF US$160 million). million). The World Bank Water and Sanitation Development Project (P156634) Component 2: Expansion of Component 2: Expansion of water supply and sanitation water supply and sanitation services in underserved services in underserved 110.00 No Change 110.00 northeastern counties of Kenya northeastern counties of Kenya (US$110 of which IDA US$100 (US$110 of which IDA US$100 million). million). Component 3: National Component 3: National performance-based financing performance-based financing 40.70 Revised 35.20 (PBF) (US$40.7 of which IDA-SUF (PBF) (US$40.7 of which IDA- US$37 million). SUF US$37 million). Component 4: Project Component 4: Project management (US$3.3 million management (US$3.3 million of 3.30 Revised 8.80 of which IDA-SUF US$3 which IDA-SUF US$3 million). million). TOTAL 330.00 330.00 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-60300-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: Gds, Wks,NCS, CS,Trg, OC Part 1(a) 112,800,000.00 0.00 112,800,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Gds, Wks,NCS, CS,Trg, OC Part 1(b) 37,800,000.00 5,219,230.65 37,800,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Gds, Wks,NCS, CS,Trg, OC, RC Part 2 59,204,000.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: Gds, Wks,NCS, CS,Trg, OC Part 3(a) 32,975,000.00 0.00 28,485,259.00 100.00 100.00 The World Bank Water and Sanitation Development Project (P156634) iLap Category Sequence No: 5 Current Expenditure Category: Gds, NCS, CS,Trg, OC Part 3(b), 4 4,700,750.00 24,016.00 9,190,491.00 100.00 100.00 iLap Category Sequence No: 7 Current Expenditure Category: Gds, Wks,NCS, CS,Trg, OC, RC Part 2(a) 0.00 0.00 54,714,259.00 100 iLap Category Sequence No: 8 Current Expenditure Category: Gds, Wks,NCS, CS,Trg, OC Part 2(b) 0.00 0.00 4,489,741.00 100 Total 247,479,750.00 5,243,246.65 247,479,750.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2017 0.00 0.00 2018 20,000,000.00 0.00 2019 45,000,000.00 10,000,000.00 2020 65,000,000.00 20,000,000.00 2021 85,000,000.00 100,000,000.00 2022 75,000,000.00 110,000,000.00 2023 10,000,000.00 60,000,000.00 . The World Bank Water and Sanitation Development Project (P156634) . Results framework COUNTRY: Kenya Water and Sanitation Development Project Project Development Objectives(s) The Project Development Objective (PDO) is to improve water supply and sanitation services in select coastal and northeastern regions in Kenya. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 To improve water supply and sanitation services in select coastal and northeastern regions in Kenya. People in urban areas provided with access to Improved Water Sources 0.00 0.00 0.00 0.00 0.00 60,000.00 90,000.00 90,000.00 under the project (Number) Action: This indicator has been Revised People provided with access to improved sanitation services under 0.00 0.00 0.00 0.00 5,000.00 30,000.00 50,000.00 50,000.00 the project urban. (Number) Action: This indicator has been Revised The World Bank Water and Sanitation Development Project (P156634) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 People benefiting under the project from a connection to the sewage system or from improved 0.00 0.00 0.00 0.00 0.00 330,000.00 415,000.00 415,000.00 septic sludge manage- ment (number). (Number) Action: This indicator has been Revised People with existing connections benefiting from more hours per 0.00 0.00 0.00 0.00 200,000.00 1,500,000.00 2,100,000.00 2,100,000.00 week of water services. (Number) Action: This indicator has been Revised Direct project 0.00 0.00 0.00 0.00 205,000.00 1,830,000.00 2,200,000.00 2,200,000.00 beneficiaries (Number) Action: This indicator has been Revised Female beneficiaries 0.00 0.00 50.00 50.00 50.00 50.00 50.00 50.00 (Percentage) PDO Table SPACE The World Bank Water and Sanitation Development Project (P156634) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Component 1: Rehabilitation and expansion of urban water supply and sanitation services in the coastal region (US$176 of which IDA-SUF US$160 million). Piped household water connections that are benefiting from 0.00 0.00 0.00 0.00 0.00 50,000.00 60,000.00 60,000.00 rehabilitation works undertaken under the project. (Number) Action: This indicator has been Revised New piped household water connections under 0.00 0.00 0.00 0.00 0.00 10,000.00 13,000.00 13,000.00 the project. (Number) Action: This indicator has been Revised Water delivered by WSPs to customers (as 39.30 39.30 39.30 39.30 39.30 50.00 51.60 51.60 reflected in water bills). (Cubic meters/year) Action: This indicator has been Revised People provided with access to improved shared sanitation 0.00 0.00 0.00 0.00 2,500.00 7,200.00 7,200.00 7,200.00 facilities under the project. (Number) The World Bank Water and Sanitation Development Project (P156634) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Action: This indicator has been Revised Quantity of septic sludge treated in facilities 0.00 0.00 0.00 0.00 0.00 12,500.00 14,500.00 14,500.00 supported under the project. (Tones/year) Action: This indicator has been Revised Volume of biological oxygen demand pollution loads removed by 0.00 0.00 0.00 0.00 0.00 900.00 2,100.00 3,100.00 treatment plants supported under the project. (Tones/year) Action: This indicator has been Revised Hours of service per week provided by coastal 15.00 15.00 15.00 15.00 15.00 16.00 16.00 16.00 WSPs benefiting from the project. (Hours) Action: This indicator has been Revised Non-revenue water (% of water that a service provider supplies to its 50.00 50.00 50.00 50.00 45.00 40.00 35.00 35.00 distribution system that is not reflected in revenues). (Percentage) The World Bank Water and Sanitation Development Project (P156634) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Action: This indicator has been Revised Operations and maintenance costs of coastal WSPs benefiting 100.00 100.00 100.00 100.00 100.00 110.00 120.00 120.00 from the project recovered from customers. (Percentage) Action: This indicator has been Revised Component 2: Expansion of water supply and sanitation services in underserved northeastern counties of Kenya (US$110 of which IDA US$100 million). New piped household water connections that are resulting from the 0.00 0.00 0.00 0.00 0.00 1,250.00 2,500.00 2,500.00 project intervention (Number) Action: This indicator has been Revised Improved community water points constructed 0.00 0.00 0.00 0.00 5.00 12.00 12.00 12.00 or rehabilitated under the project (Number) Action: This indicator has been Revised New water supplied to 0.00 0.00 0.00 0.00 0.00 3,000.00 3,000.00 3,000.00 northeastern WSPs under The World Bank Water and Sanitation Development Project (P156634) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 the project (m3/day). (Number) Action: This indicator has been Revised Quantity of septic sludge treated in facilities 0.00 0.00 0.00 0.00 0.00 1,500.00 2,200.00 2,200.00 supported under the project. (Tones/year) Action: This indicator has been Revised Volume of biological oxygen demand pollution loads removed by 0.00 0.00 0.00 0.00 0.00 1,100.00 1,200.00 1,200.00 treatment plants supported under the project. (Tones/year) Action: This indicator has been Marked for Deletion Gender action plans developed and under 0.00 0.00 0.00 0.00 0.00 2.00 3.00 3.00 implementation. (Number) Action: This indicator has been Revised Component 3: National performance-based financing (PBF) (US$40.7 of which IDA-SUF US$37 million). The World Bank Water and Sanitation Development Project (P156634) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Guidelines for results- based financing adopted No Yes Yes Yes Yes Yes Yes Yes (Yes/No) Action: This indicator has been Revised Results-based financing mechanism established No No Yes Yes Yes Yes Yes Yes and operational. (Yes/No) Action: This indicator has been Revised Complaints handling system (Maji Voice)estab-lished in 0.00 0.00 0.00 0.00 0.00 1.00 2.00 2.00 WSPs supported under the project. (Number) Action: This indicator has been Revised IO Table SPACE . The World Bank Water and Sanitation Development Project (P156634) Annex 2: Summary of Capacity Assessments of the NWWDA 1. The World Bank’s financial management, procurement, and safeguards teams conducted capacity assessments of the NWWDA, which is to become a project IA. A summary of each assessment is below. Financial management (FM) 2. The objective of the FM assessment was to determine whether the NWWDA financial arrangements (a) are capable of correctly and completely recording all transactions and balances relating to the project; (b) facilitate the preparation of regular, accurate, reliable, and timely financial statements; (c) safeguard the project’s entity assets; and (d) are subject to auditing arrangements acceptable to the World Bank. The assessment complied with the Financial Management Manual for World Bank-Financed Investment Operations that became effective on March 1, 2010 (retrofitted on February 4, 2015). The assessment covered the six FM elements of budgeting, funds flows, accounting, internal controls, financial reporting, and auditing. The fiduciary risk is assessed as Substantial. 3. The key risk factors relate to:  The organization not having previously implemented and IDA-funded project directly  Consecutive qualified audit reports with issues such as flouting procurement procedures; internal control weakness on fuel consumption, payroll controls  Provision of inadequate budget that the portfolio is experiencing. 4. Subject to the successful implementation of the FM action plan summarized below and implementation and operation of the agreed mitigating measures, the proposed FM arrangements are considered adequate to support project implementation. The FM team conducts at least two supervisions per year and monitor implementation of agreed actions. Procurement 5. A procurement capacity assessment of the NWWDA was carried out. The assessment reviewed the organizational structure for implementing the project, functions, staff skills and experiences, adequacy for implementing the project, and the interaction between the project’s staff responsible for the procurement and the relevant government agencies. Since its establishment, NWWDA has implemented a number of investment projects financed by the Government of Kenya and several Development Partners including the European Union, the Africa Development Bank (AfDB), the Arab Bank for Economic Development in Africa (BADEA)/OPEC, UNICEF (WASH Program) and indirectly, the World Bank [Kenya Water and Sanitation Service Improvement Project (WaSSIP)]. Under these projects, NWWDA implemented goods, works, non- consultancy services and consulting services contracts. Currently NWWDA is implementing a second AfDB project in Marsabit and Mandera. The procurement staff jointly with technical experts of the technical department lead the procurement process administration and contract management functions. 6. A random check of actual procurement process timelines of two prior review contracts (a works contract and a consultancy service contract) in the procurement plan under the on-going AfDB-funded project revealed that the NWWDA is likely to be capable of carrying out the procurement process of the works contracts in a timely manner but needs strengthening in the preparation of requests for proposals and evaluation procedures. 7. The conclusions of the procurement capacity assessment analysis are the following: The World Bank Water and Sanitation Development Project (P156634)  The capability of NWWDA to implement Bank-funded procurement activities is adequate as regards institutional structures, staffing, regulatory framework, experience in international procurement practices; and  There are potential risks that, if not mitigated, may negatively affect the ability of NWWDA to carry out procurement processes or manage implementation of contracts efficiently and economically. The risks may arise from or associated with:  Limited experience of the procurement staff in the application of the Bank’s Procurement Guidelines of January 2011 revised July 2014 and their lack of exposure to the Procurement Regulations for IPF of July 2016 revised November 2017 and August 2018 or use of STEP;  Delays of payments to suppliers, contractors or consultants resulting from delays in the processing of direct payments and/or inadequate budgetary allocations by the National Treasury;  Prolongation of completion time of contracts and/or increase of costs of contracts as result of slowing down of contract execution pace by contractors or consultants and/or payments of interest charges to contractors or consultants against delayed payments; and  NWWDA’s liability to penalization (by auditors) for insufficient/incomplete procurement records due to deficiencies in the filing system of procurement documents. Safeguards 8. The safeguards team conducted a task mapping and capacity assessment exercise to identify the key tasks required to avoid, mitigate, or manage significant potential environment and social (E&S) risks and impacts and to assess NWWDA’s capacity to execute these tasks. 9. Project tasks related to the identification and management of Environmental and Social risks expected to be executed by the NWWDA can be broadly classified into three:  Designing, implementing and monitoring environmental, social, health and safety (ESHS) measures and quality standards to ensure project ESHS compliance;  Implementation of construction works including recruitment and management of contractor workforce; and  Developing and implementing stakeholder engagement mechanisms including the establishment of effective grievance redress mechanisms. 10. Overall, the capacity of the NWWDA to identify, understand and manage environment and social risks is assessed as low. Significant capacity building and resourcing is required to build and improve systems, procedures, organizational efficiency, budgeting and resourcing aspects of the organization to effectively manage and overcome E&S risks. The action plan below presents the key actions required to build capacity. Capacity Development Action Plan Action Timeline Responsibility Financial Management 1. Provide budget for the NWWDA activities in printed Immediately after incorporation NT and MoWS estimates and/ or authority to incur expenditure of NWWDA as an implementing pending ratifications through supplementary budget. agency. The World Bank Water and Sanitation Development Project (P156634) Action Timeline Responsibility 2. Ensure the position of Finance and Administration To be filled-in by the time the NWWDA Manager is filled to enhance financial management institution is incorporated as a management and internal checks within finance department. WSDP IA 3. Fast-track the process of acquisition of the March 31, 2020 NWWDA integrated accounting system. management 4. The NWWDA Internal Auditor to incorporate audit of Immediately after incorporation NWWDA Internal the project in the Annual Work plan and carry out of NWWDA as a WSDP IA Auditor and risk- based internal audit of the project. The Audit MoWS Head of will be expected to be carried out at least twice a Internal Audit year. MoWS Head of Internal Audit to provide guidance to NWWDA Internal Auditor and support in carrying out joint internal audits based on MoWSI Internal Audit Work Plan for the project. 5. The Audit Committee should ensure there are On quarterly basis NWWDA Audit regular quarterly audit committee meeting as Committee required to ensure that there is appropriate oversight on financial matters for the organization. The Audit Committee should also follow up on prior issues raised to ensure they have been well addressed. 6. Open an NWWDA WSDP dedicated project account Immediately after incorporation NWWDA in accordance with the NT regulations and guidance. of NWWDA as an IA. 7. MoWSI PCU to provide and guide NWWDA on the Immediately after incorporation MoWS PCU and required financial reporting template for the project. of NWWDA as an IA and on NWWDA continuous basis. NWWDA to ensure that accurate financial reports are submitted to MoWSI PCU within the required timelines. Procurement 8. Organize a two-day training for the staff of the One month after signing of the Bank Task Team Procurement and Technical Departments on the Subsidiary Agreement Procurement Regulations, related Standard Procurement Documents and STEP 9. (a) In consultation with the Bank’s FMS, establish Upon incorporation of NWWDA as Bank Task the gravity and frequency of delays in the an IA Team/NWWDA/ payment process of direct payments. If the risk MoWS/ NT is confirmed, ensure that realistic timelines are set and agreed upon by NWWDA, MoWS and NT for their respective inputs in processing of direct payments; (b) Ensure that budgetary allocations are aligned to NWWDA workplans; The World Bank Water and Sanitation Development Project (P156634) Action Timeline Responsibility (c) Train the NWWDA Accountants in the processing of direct payment. 10. Filing: December 31, 2019 NWWDA (a) Establish an adequate space for keeping procurement records; (b) Create an individual file for each contract and ensure each file contains complete records. Bulky procurement documents, e.g. bidding documents and BOQs, bids submitted by bidders can be kept in clearly coded box files 11. Carry out procurement implementation supervision At t least twice a year Bank Task Team missions on NWWDA Environment and Social Safeguards 12. 1.a. Have qualified technical staff to manage environmental and social (E&S) risks:  Environmental safeguards officer  Environment Health and Safety (EHS) officers  Social safeguards officer (and Additional social specialists and community liaison officers, as needed). 1.b. Environmental and social staff need to be fully Three months after signing of the facilitated with logistical support commensurate with Project Agreement work load anticipated and geographical area of NWWDA coverage, in order to perform their duties successfully. 1.c. Define clear reporting lines for E&S staff, including possible re-organization of the organizational hierarchy to have safeguards representation in planning, budgeting and decision- making or/and management meetings. 1.d. Provide training for E&S staff in areas of Continuous identified safeguards need and improve opportunities for professional development, such as on-the-job coaching, hands-on experience in specialized fields, support participation in professional associations. 13. Develop clear operating procedures leading to a Prior to commencement of any NWWDA functional Environmental and Social Management works contract System (ESMS), to be applied to all operations supported by the agency, including, inter alia:  EHS standard operating procedures  Stakeholder engagement protocols  Labor management procedures The World Bank Water and Sanitation Development Project (P156634) Action Timeline Responsibility  Monitoring of grievance redressal mechanisms for communities  Monitoring of Grievance redressal mechanisms for project workers  Code of conduct for project workers  Bids and RFPs templates embedded with E&S requirements  E&S audit guidelines  ESMP checklists  E&S monitoring protocols. 14. Develop public awareness and community outreach 6 months after signing of the NWWDA programs, such as preparation of public service Subsidiary Agreement announcements, websites, brochures, and other supporting documents. This should focus on:  Stakeholder engagement protocols  Grievance redress frameworks for communities  Community roles in operations and maintenance.