FOR OFFICIAL USE ONLY Report No: PAD2620 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 82.9 MILLION (US$115.0 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR THE MOZAMBIQUE URBAN SANITATION PROJECT May 9, 2019 Water Global Practice Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2019) New Mozambique Currency Unit = Metical (MZN) 62.1 MZN = US$1 US$1 = SDR 0.72033135 FISCAL YEAR January 1 - December 31 Regional Vice President: Hafez M. H. Ghanem Country Director: Mark R. Lundell Senior Global Practice Director: Jennifer J. Sara Practice Manager: Catherine Signe Tovey Task Team Leaders: Shelley Mcmillan, Odete Duarte Muximpua ABBREVIATIONS AND ACRONYMS AIAS Administration of Water and Sanitation Infrastructure (Administração de Infraestruturas de Água e Saneamento) ARA Regional Water Administration AURA Water Regulatory Authority (Autoridade Reguladora de Água) AWP Annual Work Plan BM Cantral Bank of Mozambique (Banco de Moçambique) CERC Contingent Emergency Response Component CO2 Carbon Dioxide CPF Country Partnership Framework CQS Consultants Qualifications-based Selection CRA Water and Sanitation Regulatory Council (Conselho de Regulação de Água) CUT Single Treasury Account (Conta Unica do Tesouro) BOD Biological Oxygen Demand DA Designated Account DAF Department of Administration and Finance (Departamento de Administração e Finanças) DMF Delegated Management Framework DNAAS National Directorate for Water Supply and Sanitation (Direcção Nacional de Abastecimento de Água e Saneamento) DNCP National Directorate of Public Accounting (Direcção Nacional de Contabilidade Pública) DNO National Directorate of Budget (Direcção Nacional de Orçamento) DUAT Land Use Right (Direito de Uso e Aproveitamento de Terra) EEPLAN Engineering, Environment and Planning Study EHSG Environmental, Health and Safety Guidelines ENASU National Urban Water and Sanitation Strategy (Estratégia Nacional de Agua e Saneamento Urbano) ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan ETNS National Sanitation Task Force (Equipa Técnica Nacional de Saneamento) FIPAG Fund for Investment Ownership and Water Supply Assets (Fundo de Investimento de Infraestructura e Patrimônio de Abastecimento de Água) FM Financial Management FSM Fecal Sludge Management FSTP Fecal Sludge Treatment Plant FY Fiscal Year GBV Gender-based Violence GDP Gross Domestic Product GHG Greenhouse Gas GoM Government of Mozambique GRM Grievance Redress Mechanism HH Households IDA International Development Association IFAC International Federation of Accountants IFR Interim Financial Report IGF General Finance Inspection (Inspecção Geral de Finanças) IGMoPHRH General Auditor at the Ministry of Public Works, Housing and Water Resources (Inspeção Geral do MOPHRH) IPF Investment Project Financing IPSAS International Public-Sector Accounting Standards IRM Immediate Response Mechanism ISA International Standards on Auditing LCS Least-cost Selection LG Local Government M&E Monitoring and Evaluation MAF Manual of Financial Administration (Manual de Administração Financeira) MCC Millennium Challenge Cooperation MEF Ministry of Economy and Finance (Ministério de Economia e Finanças) MHM Menstrual Hygiene Management MINEDH Ministry of Education and Human Development (Ministério da Educação e Desenvolvimento Humano) MISAU Ministry of Health (Ministério da Saúde) MITADER Ministry of Land, Environment and Rural Development (Ministério da Terra, Ambiente e Desenvolvimento Rural) MOPHRH Ministry of Public Works, Housing and Water Resources (Ministério das Obras Públicas, Habitação e Recursos Hídricos) MPSP Maputo Peri-urban Sanitation Project MWPD Mozambique Water, Sanitation and Hygiene Poverty Diagnostic MZN New Mozambique Metical NPV Net Present Value OSS On-site Sanitation PAPs Project Affected Persons PDO Project Development Objective PFS Project Financial Statements PIM Project Implementation Manual PIS National Integrated Sanitation Program (Programa Integrado de Saneamento) PIU Project Implementation Unit PPSD Project Procurement Strategy for Development PPZ Partial Protection Zone QCBS Quality and Cost-Based Selection RAP Resettlement Action Plan RF Results Framework RPF Resettlement Policy Framework SDG Sustainable Development Goal SDR Special Drawing Rights SINAS National Water and Sanitation Information System (Sistema Informação Nacional de Água e Saneamento) SISTAFE State Financial Administrative System (Sistema de Administração Financeira do Estado) SoP Series of Projects SSIP Small-scale Independent Providers TA Administrative Tribunal (Tribunal Administrativo) ToR Terms of Reference UGEA Procurement Management Unit (Unidade de Gestão de Aquisiçoes) UNICEF United Nations International Children’s Emergency Fund US$ United States Dollar USSI Urban Sanitation Status Index WASH Water, Sanitation and Hygiene WBG World Bank Group WHO World Health Organization WSP Water and Sanitation Program WWTP Wastewater Treatment Plant The World Bank Mozambique Urban Sanitation Project (P161777) TABLE OF CONTENTS DATASHEET .................................................................................. Error! Bookmark not defined. I. STRATEGIC CONTEXT ...................................................................................................... 7 A. Country Context................................................................................................................................ 7 B. Situations of Urgent Need of Assistance or Capacity Constraints .................................................... 8 C. Sectoral and Institutional Context .................................................................................................. 10 D. Relevance to Higher Level Objectives ............................................................................................ 12 II. PROJECT DESCRIPTION.................................................................................................. 13 A. Project Development Objective ..................................................................................................... 14 B. Project Components ....................................................................................................................... 14 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 20 A. Institutional and Implementation Arrangements .......................................................................... 20 B. Results Monitoring and Evaluation Arrangements......................................................................... 21 C. Sustainability................................................................................................................................... 22 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 22 A. Technical, Economic and Financial Analysis ................................................................................... 22 B. Fiduciary.......................................................................................................................................... 25 C. Safeguards ...................................................................................................................................... 27 V. KEY RISKS ..................................................................................................................... 33 VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 35 ANNEX 1: Implementation Arrangements and Support Plan .......................................... 41 ANNEX 2: Detailed Project Design ................................................................................. 46 ANNEX 3: Economic and Financial Analysis .................................................................... 65 ANNEX 4: Fiduciary Management .................................................................................. 73 ANNEX 5: Safeguards Action Plan for Updating the ESIA for the Infulene Wastewater Treatment Plant............................................................................................................ 84 ANNEX 6: Project Readiness and Sequencing ................................................................. 86 ANNEX 6: City Profiles and Maps ................................................................................... 87 DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Mozambique Mozambique Urban Sanitation Project Project ID Financing Instrument Environmental Assessment Category Investment Project P161777 A-Full Assessment Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [✓] Contingent Emergency Response Component (CERC) [✓] Series of Projects (SOP) [✓] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [✓] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 22-May-2019 30-Sep-2024 Bank/IFC Collaboration No Proposed Development Objective(s) To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities. Components Component Name Cost (US$, millions) Priority Sewerage Investments in Maputo, Quelimane and Tete 56.50 Page 1 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Onsite Sanitation Investments for Quelimane and Tete 32.50 Municipal Sanitation Services Improvements 11.00 Technical Assistance and Project Management Support 15.00 Contigent Emergency Response 0.00 Organizations Borrower: Ministry of Economy and Finance Implementing Agency: National Directorate of Water Supply and Sanitation (DNAAS) Administração de Infraestruturas de Água e Saneamento (AIAS) PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 115.00 Total Financing 115.00 of which IBRD/IDA 115.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 115.00 IDA Grant 115.00 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount National PBA 0.00 115.00 0.00 115.00 Total 0.00 115.00 0.00 115.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025 Page 2 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Annual 0.00 7.20 13.87 23.92 32.37 31.70 5.94 Cumulative 0.00 7.20 21.07 44.99 77.36 109.06 115.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Water Governance, Health, Nutrition & Population Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Substantial 2. Macroeconomic ⚫ Substantial 3. Sector Strategies and Policies ⚫ Substantial 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ High 8. Stakeholders ⚫ Moderate Page 3 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 9. Other 10. Overall ⚫ Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Sections and Description Financing Agreement. Schedule 2, Section I. A. 1. The DNAAS shall: (a) establish, and thereafter, maintain, at all times throughout Project implementation, a Project implementing unit within DNAAS (DNAAS PIU), and no later than three (3) months after the Effective Date, appoint within DNAAS PIU, a team comprised of a full-time Project coordinator, a procurement specialist, a sanitation engineer, a financial management specialist, a social and environmental safeguards specialist, a monitoring and evaluation specialist, and such other technical, safeguards and fiduciary specialists as may be agreed with the Page 4 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Association, all under terms of reference, and with qualifications and experience satisfactory to the Association; and (b) ensure that throughout Project implementation, the DNAAS PIU has adequate resources and staffing to carry out its responsibilities under the Project, all as further detailed in the Project Implementation Manual. The DNAAS shall be responsible for the overall Project coordination and the day-to-day management and implementation of Parts 2, 3 and 4(a), (b) and (c) of the Project, including its technical, fiduciary, safeguards, monitoring and evaluation, supervision and reporting aspects. Sections and Description Financing Agreement. Schedule 2, Section I. A. 2 The Recipient shall cause AIAS to: (a) establish, and thereafter, maintain, at all times throughout Project implementation, a Project implementing unit within AIAS (AIAS PIU), and no later than three (3) months after the Effective Date, appoint within the AIAS PIU, a team comprised of Project manager, a sewerage engineer, a procurement specialist, a financial management specialist, an environmental safeguards specialist and a social safeguards specialist, and a project assistant and such other technical, safeguards and fiduciary specialists as may be agreed with the Association, all under terms of reference, and with qualifications and experience satisfactory to the Association; and (b) ensure that throughout Project implementation, the AIAS PIU has adequate resources and staffing to carry out its responsibilities under the Project, all as further detailed in the Project Implementation Manual. The AIAS shall be responsible for the overall day-to-day management and implementation of Parts 1 and 4(d) of the Project, including its technical, fiduciary, safeguards, monitoring and evaluation, supervision and reporting aspects. Sections and Description Financing Agreement. Schedule 2, Section I. A.4. For purposes of Part 3 of the Project, the Recipient shall, through DNAAS, not later than three (3) months from the Effective Date, appoint, in accordance with the Procurement Regulations, and, thereafter, maintain an independent verification agent, under terms of reference and with qualifications and experience acceptable to the Association. Sections and Description Financing Agreement. Schedule 2, Section I. F.11. The Recipient shall ensure that: (i) prior to bidding, the feasibility stage ESIA for the Maputo wastewater treatment plant is updated, in a manner satisfactory to the Association; (ii) prior to commencement of civil works, this ESIA is finalized based on the final detailed design, in a manner satisfactory to the Association; (iii) prior to bidding, an industrial waste and sludge management plan for Maputo is finalized, in a manner satisfactory to the Association; (iv) prior to bidding, a socio-economic assessment of farmers cultivating land around the Maputo wastewater treatment plant is carried out, in a manner satisfactory to the Association; and (iv) prior to the commencement of civil works, a relocation site assessment for the farmers cultivating land around the Maputo wastewater treatment plant is carried out, in a manner satisfactory to the Association, to confirm the adequacy of the resettlement site or identify another suitable site. Conditions Type Description Effectiveness The Project Implementation Manual shall have been adopted by the Recipient (through DNAAS) and AIAS, in form and substance satisfactory to the Association. Page 5 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Type Description Disbursement Financing Agreement: Schedule 2, Section III. B. 1(b): No withdrawals shall be made under Category (1), unless and until: (i) a Subsidiary Agreement has been executed between the Recipient, through MEF, and AIAS, in form and substance satisfactory to the Association, and in accordance with Section I.B. of Schedule 2 to the Financing Agreement; and (ii) evidence, in form and substance satisfactory to the Association, is provided to the Association that adequate measures have been adopted by the Recipient to ensure that the rights of people located within the partial protection zone are not adversely affected by the application of the Recipient’s Land Law to water conduits and installations being supported under Parts 1 of the Project. Type Description Disbursement Financing Agreement: Schedule 2, Section III. B. 1(c): No withdrawals shall be made under Category 3 (Performance-based Grants under Part 3 of the Project), unless and until: (i) a Performance-based Grant Agreement has been executed between the Recipient, through DNAAS, and each Beneficiary City, in form and substance satisfactory to the Association, and in accordance with Section I.C. of Schedule 2 to the Financing Agreement; and (ii) an independent verification agent has been hired, in accordance with Section I.A.4. of Schedule 2 to the Financing Agreement. Page 6 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) I. STRATEGIC CONTEXT A. Country Context 1. Mozambique remains one of the poorest countries in the world. Mozambique ranks 180 out of 189 countries in the 2017 Human Development Index. Of a total population of approximately 29 million (2017), nearly 40 percent (11.3 million) are living in poverty1. This contrasts with Mozambique’s rapid economic growth over the past two decades. The economy is dominated by an agricultural sector that accounts for 25 percent of Mozambique’s gross domestic product (GDP), and employs about 75 percent of the population, including more than 90 percent of rural residents. The extractive sector has been a driver of the recent improvement in growth, maintaining double-digit output growth in 2016. This trend continued in early 2017 with a 41 percent expansion in output, mostly driven by mineral exports. In addition, the distribution of poverty is uneven across the country, with rural provinces in the center and the north accounting for a disproportionate share of the poor (about 70 percent). The three poorest provinces - Zambezia, Niassa and Nampula – are all located in the Northern region and are rocked by civil disturbances. Mozambique’s ability to boost growth and reduce poverty depends on the working age population being healthy and productive and having access to jobs in the formal and informal sector. 2. Mozambique’s macroeconomic stability has been compromised by an untenable debt situation after a prolonged period of sustained growth. After registering seven percent of GDP growth on average since 2011, Mozambique’s economic performance experienced a sharp downturn in 2016, triggered by falling commodity prices, adverse climate conditions, a tense political environment, and the discovery of US$1.4 billion in previously undisclosed public debt (equal to about 10 percent of GDP). The Government of Mozambique (GoM) responded to the economic slowdown and debt accumulation with a revised budget, restructured spending program, and overtures to creditors to begin restructuring talks. This is accompanied by a tight fiscal context, with a limit on non-concessional borrowing, and with both credit and investment levels continuing at low levels. Therefore, improving the efficiency and impact of existing social spending has become even more of an imperative. 3. Mozambique’s rapidly growing population, together with its high youth dependency ratio, will pose increasing pressure on public service delivery and infrastructure. Accessibility to basic services is already low: only one in three households has access to safe water, one in ten to sanitation, and one in four to electricity. The country’s fertility rate is estimated at 5.9 children per woman, and children aged 0 -14 represent more than 45 percent of the population in 2015. Rapid population growth will continue to put pressure on existing infrastructure, requiring higher rates of investment to enhance capacity and efficiency of service delivery to sustain growth in the medium term. 4. Poor women and children suffer disproportionately from inadequate access to safe water and sanitation. Exposure to pathogens as a result of inadequate access to safe water and sanitation cause regular cholera outbreaks (on average 7,500 cases per year), endemic diarrheal disease (on average 715,000 reported cases per year) and widespread childhood stunting (42 percent in children under five), according to the Mozambique Water, Sanitation and Hygiene Poverty Diagnostic (MWPD, 2017). The World Health Organization (WHO) estimates that 17 percent of under-five deaths in Mozambique (10,700 children per year) are the result of diarrheal diseases, resulting in very high child mortality (108 per 1,000 live births). Approximately 90 percent of these are caused by poor water, sanitation and hygiene (WASH) services and the provinces with the highest disease risk values are Cabo Delgado, Tete and Zambezia (MWPD, 2017). The latter two also have the highest 1 National Institute of Statistics (2015), Final Report of the Family Budget Survey. Page 7 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) rates of stunting. An estimated 14 percent of newborns begin life with low birth weight, increasing their risk of infant mortality, delayed cognitive and motor development, and stunting. 5. Poor sanitation is also one of the key factors limiting school attendance and retention of female students, which in turn limits livelihood opportunities. According to the WHO one in ten schoolgirls in Africa miss classes or drop out completely due to menstruation. In Mozambique, the upper primary school completion rate is very low, especially in rural areas where completion rates are about 14 percent for males and 8 percent for females. A supportive school-based menstrual hygiene program that includes access to proper menstruation protection and sanitation facilities could help address completion rates for girls. Early marriage also poses a serious problem for girls in Mozambique, with 60 percent of girls out of school being married by 18 years of age. 6. Urbanization in Mozambique results in increased demand for capital intensive urban infrastructure and management of urban services. About nine million people (over 30 percent of Mozambique’s population) live in urban areas2. Of these, about 20 percent live in greater Maputo and about 43 percent in intermediate cities which play an increasingly important role as economic growth poles and as destinations for migration from rural areas. The urban population is growing at an annual rate of 3.8 percent and is expected to account for half the country’s total population by 2025. There are approximately 18 medium-sized cities intermediate cities with populations between 100,000 and 500,000. None of these cities presently have sanitation coverage that exceeds 50 percent of the population or have any sanitation treatment facilities. To meet the demands of ongoing urbanization, the country will require major investments, estimated at US$2.0 billion for the urban sanitation sector (National Urban Water and Sanitation Strategy, 2011), if it expects to reach the Sustainable Development Goal (SDG) target of 100 percent access to safely managed sanitation by 2030. 7. Mozambique is expected to face some of the most extreme climate change effects in all of Sub-Saharan Africa, including increased urban vulnerability to flooding and erosion. Globally, Mozambique ranks 18th in terms of risks of humanitarian crisis and disasters3, which affects the country’s social and economic development. Climate change and extreme weather-related shocks pose a significant cross-cutting risk to growth and poverty reduction for Mozambique’s urban population, especially in coastal areas and along flood prone rivers, where most of the major cities are located. Some recent examples of climate change-related events that have affected the country are: (a) The Cyclone Kenneth which hit the Northern Mozambique Province of Cabo-Delgado on April 25, 2019; (b) The Cyclone Idai which hit the Central Region of Mozambique and neighboring countries Zimbabwe and Malawi between March 3 and 17, 2019; (c) prolonged (2014-present) drought with lower than normal rainfall and reduced water availability for southern Mozambique; (d) increase in temperature punctuated by heat waves involving temperatures above 46oC in various locations across the country; and (e) increased severity and frequency of heavy rains and related floods across the country. Adding to this challenge, informal settlements, where over 80 percent of the urban population reside, are particularly vulnerable to flooding and erosion. Without investments in flood resilient sanitation infrastructure, and efforts aimed at expanding and improving sanitation services, Mozambique’s cities will face increasing risks and set-backs in reducing high-mortality due to waterborne diseases. B. Situations of Urgent Need of Assistance or Capacity Constraints 8. From March 3 to 17, 2019, Mozambique was hard-hit by Cyclone Idai with heavy rains, winds and flooding in the Central and Northern regions of the country, more specifically in the Buzi, Pungue, Zambezi, and Licungo 2 Estimates for 2015 from National Institute of Statistics (INE) and United Nations (UN) (2014). 3 INFORM Global Risk Index Results 2018. Page 8 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) River basins. This disaster has had severe economic and social impacts in the affected areas, resulting in an increase in the poorest people’s vulnerability, and severely damaging the social and production infrastructure. As of April 25, 2019, over 1.5 million people were directly affected and 603 killed, while 240,000 houses were either partially or totally destroyed. 9. The impacts of the cyclone and floods where such that on March 19, 2019 the GoM declared a national emergency, triggering major emergency response interventions. The GoM also requested the World Bank to assist in addressing the urgent rehabilitation, reconstruction, and preservation of damaged infrastructure. On March 27, 2019, the initial report from a rapid post disaster damage assessment estimated damages worth around US$773 million, or 6.3 percent of GDP. Based on modelled damages, infrastructure sectors were the hardest hit. The damage negatively impacted the population’s livelihood, housing, social infrastructure and overall agriculture production in addition to public infrastructure, including key national roads, water supply, sanitation and drainage, irrigation infrastructure, and energy transmission grids. Table 1 - Estimate of Capital Damages by Sector (in US$ millions)4 Modelled Reported & Modelled Residential Non-Residential Total Infrastructure Agriculture Buildings Buildings US$178 US$149 US$188 US$141-$258 US$656-US$773 10. This devastating event seriously affected five of Mozambique’s eleven provinces (Sofala, Zambezia, Manica, Nampula and Tete), exacerbating an already precarious situation. With about 18.1 million total inhabitants, these three provinces account for 63 percent of the country’s population. They also host the poorest populations in the country, with high incidences of poverty in Zambezia and Nampula. Four of the project target cities (Beira, Nampula, Quelimane and Tete) are among the affected urban settlements and are at high risk of cholera and acute diarrhea outbreak, due to poor sanitation which is exacerbated by the current floods and damaged sanitation facilities. The poor residents of the peri-urban areas are the most affected. As of April 10, 2019, over 4,000 cholera cases were diagnosed. Thus, urgent construction of household and communal sanitation systems is required to prevent further deterioration of public health and loss of life. 11. The World Bank is supporting the GoM in addressing the most urgent needs through the Water and Institutional Support Project II (P149377) restoring water supply access in the critical areas. The WASH cluster led by National Directorate of Water Supply and Sanitation (Direcção Nacional de Abastecimento de Água e Saneamento, DNAAS) with support from United Nations International Children’s Emergency Fund (UNICEF) is providing support with household water treatment, vaccination and sanitation and hygiene promotion in the affected areas. However, the scale of destruction and reconstruction needs far outweighs the resources that are currently available, particularly with respect to household sanitation systems. The proposed project would provide urgent support to Government efforts in improving public health and facilitate the process of restoring basic productive capacities and public services through the rehabilitation of critical sanitation infrastructure and services. 4 The estimates reflect only the cost of replacement and do not include the cost of build back better. Page 9 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) C. Sectoral and Institutional Context 12. Cyclone Idai has exacerbated the country’s highly inequitable and low access to water and sanitation. Half of the population has access to improved water supply, and in rural areas, most people (63 percent) still rely on unimproved sources and practice open defecation (52 percent)5. Though significant progress has been made in improving water supply services in the larger cities, the poorest people still face several challenges in accessing sanitation and water supply services. In some of the regional capital cities, such as Quelimane and Tete, more than 20 percent of the population rely on open defecation. These cities are also among the most affected by recurrent cholera outbreaks. Among urban households in the bottom 40 percent of wealth quintiles, access to sanitation is estimated at nine percent in 2015, similar to the eight percent access by the bottom 40 percent of rural populations (MWPD, 2017). 13. Backbone sanitation infrastructure is largely non-existent. There have been no major investments in sanitation in Mozambique since independence, apart from the National Improved Latrines Program and the expansion of the Beira sewerage systems. Maputo has benefited from pilot interventions, including the Maputo Peri-urban Sanitation Project (P132551), which developed Fecal Sludge Management (FSM) services that are now being rolled out at the city level, with private sector support. Yet in all cities, safely managed sanitation services are limited, with untreated raw sewage (often mixed with rainwater runoff) being discharged into the sea or nearby rivers. To further complicate the situation, networked sanitation systems have extremely limited coverage, generally reaching less than 10 percent of the municipal population, while the majority rely on on-site sanitation systems. In the near term, the small sewerage networks cannot feasibly be expanded to meet the demand for household sanitation in populous peri-urban neighborhoods, given the limited availability of resources, inadequate water supply coverage, as well as socio-cultural aspects which require extensive behavior change interventions. Thus, any urban sanitation initiative that aims to significantly expand coverage will require a significant focus on “localized solutions,” i.e. on-site domestic latrines and small septic tanks, along with associated services, as well as innovative solutions to safely managed sanitation systems which reflect local environmental and socioeconomic conditions. To date, on-site sanitation services, including FSM, has been considered a household responsibility provided by a mostly unregulated domestic private sector. On-site sanitation interventions will be particularly critical in supporting the emergency response activities in vulnerable and cyclone-affected neighbourhoods. 14. Sanitation is under the authority of the Ministry of Public Works, Housing, and Water Resources (MOPHRH). The DNAAS is the lead policy agency for both urban and rural water supply and sanitation; and investment planning and implementation through the Provincial and District Governments6. Under a Delegated Management Framework (DMF), the Administration of Water and Sanitation Infrastructure (Administração de Infraestruturas de Água e Saneamento, AIAS) is the national agency responsible for managing investments in water supply for small towns, and sewerage and drainage infrastructure in all urban settlements in Mozambique7; the Water Supply Infrastructure and Asset Investment Agency (Fundo de Investimento de Infraestructura e Patrimônio de Abastecimento de Água, FIPAG) is responsible for water supply in large urban centers8; and the Water Regulatory Authority (Autoridade Reguladora de Água, AURA) is responsible for guaranteeing the balance 5 WHO/UNICEF (2015) Joint Monitoring Programme for Water Supply and Sanitation (JMP), “Progress on Drinking Water and Sanitation–2015 Update. 6 Boletim da república (2015) Resolução 19/2015 de 17 de Julho, Maputo, Moçambique. 7 Boletim da República (2009) Decreto 19/2009 de 13 de Maio, Maputo, Moçambique. 8 Boletim da República (1998) Decreto 74/98 de 23 de Dezembro, Maputo, Moçambique. Page 10 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) of interests between the stakeholders involved, from the asset manager to service providers and consumers. 9 AURA is therefore charged with overseeing and regulating all entities (public and private) that provide urban water and sanitation services. Annex 1 further details the institutions involved in the water and sanitation sector. 15. Among the key sector challenges is the lack of clarity on roles and responsibilities for sanitation, especially at the central government level. In particular, the roles for DNAAS and AIAS are not clear as both can plan and manage investments for sanitation. Under the DMF, FIPAG which is a corporate entity, has the mandate to mobilize financing; develop critical water supply infrastructure for selected urban centers; and delegate to private entities to operate and maintain the systems. FIPAG is currently undertaking reforms to reestablish the DMF with support from the World Bank under the Water and Institutional Support Project II (P149377). Unlike water supply in large urban centers, the framework for urban sanitation is less clear and more complex. AIAS has not been established as a corporate entity and therefore does not have the financial autonomy required to establish a revenue stream and recover its investments. In addition, asset ownership for sanitation infrastructure remains with the municipalities, which is aligned with the Constitutional Amendment of May 2018 and the key sector policies and strategies, including the National Urban Water and Sanitation Strategy, (Estratégia Nacional de Agua e Saneamento Urbano, ENASU) (2011-2025)10, which charges the municipal councils with instituting a comprehensive approach to managing all elements of the sanitation service chain in urbanized and non-urbanized areas. 16. Sanitation service provision is a municipal responsibility as defined in the 1997 Local Government (LG) framework laws and associated regulations. Municipalities are responsible for both sanitary sewerage and storm water drainage as well as solid waste management. Municipalities are also responsible for regulation and enforcement of domestic and private sector land use, as well as environmental management of both solid and liquid waste and associated sanitation facilities. Furthermore, municipal councils play an important role collaborating with local public health authorities in sanitary education and hygiene promotion. To date, the focus of municipal sanitation efforts has been on solid waste management and the maintenance of small mixed rainwater/sewerage networks located in downtown areas of major cities. Municipalities lack the human and financial resources to implement their sanitation mandate. 17. Financing arrangements for urban sanitation are underdeveloped. Despite Government recognition of sector needs, the financing framework is yet to be established. Very little is known about affordability, reliability, or efficiency of services in urban areas since sanitation systems are still in their infancy. To date only two municipalities, Beira and Quelimane11 have established a revenue stream for sanitation and signed regulatory framework agreements with AURA. A financial model for sanitation covering the entire service chain for both onsite and reticulated systems is under development by AURA and will inform tariff setting in the next tariff cycle for the sector, planned for 2020. However, municipalities will be required to develop by-laws to allow sanitation fees to be charged and collected. A dedicated asset manager responsible for capital investment planning and finance mobilization will also be needed at the municipal level. 9 Boletim da República (2018) Decreto 08/2019 de 18 de Fevereiro, Maputo, Mozambique. Former Water Regulatory Council (Conselho de Regulação de Água). 10 Ministério das Obras Públicas e Habitação (2012), Estratégia Nacional de Água e Saneamento Urbano (2012-2025), Maputo, Moçambique. 11 A similar agreement is currently under discussion by AURA with the Maputo Municipal Council. Page 11 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 18. The sector’s medium-term investment plan is packaged in what is called the Integrated Sanitation Program, (Programa Integrado de Saneamento 2014 - 2015, PIS) approved in 2014. The Program consists of a series of investments and policy reforms designed to address the immediate and medium-term sanitation investment needs and support a long-term solution to universal sanitation access in both urban and rural areas – with the former based on the city-wide inclusive sanitation approach. The sector plans to strengthen the institutional framework and increase the capacity to plan for, and implement, integrated sanitation service improvements which would enable infrastructure investment planning and service delivery in at least 12 urban centers – enough to meet projected 2025 demand. Beyond that, new investments will be required to expand service provision to all urban centers and reduce the impacts of poor sanitation on public health and environment. LG legislation and sectoral regulations will need to be established to allow for sanitation fees collection at the municipal level to recover operation and maintenance costs. Municipal level financing and capacity development support will be needed at the national level. 19. To support PIS implementation the GoM has requested the World Bank to finance priority sanitation investments in five cities. In addition, GoM would like the World Bank to support technical assistance activities designed to (i) enhance National Government’s capacity to plan future investments and prepare priority investment packages for the PIS; and (ii) enhance the capacity of the municipal councils to deliver improved sanitation services. The World Bank will thus play a catalytic role through the proposed Mozambique Urban Sanitation Project - the first in a series of projects (SoP) envisaged under the Plan. The proposed project will support investments in three priority cities (Maputo, Quelimane and Tete), and finance institutional capacity building for the sanitation units in Beira and Nampula. In the wake of Cyclone Idai, the proposed project is an integral part of the Government’s emergency response, providing urgent and comprehensive support to affected populations in Quelimane and Tete, with a focus on restoring and rehabilitating critical sanitation infrastructure and services, including household sanitation facilities, sewers and drainage canals. D. Relevance to Higher Level Objectives 20. The project will contribute directly to the Country Partnership Framework’s (CPF, FY17 - 21)12 overall objective of supporting more inclusive growth. The CPF recognizes the risks to human development when access to essential basic services is neither equitable nor sustainable. Part of the CPF’s Focus Area 2, Investing in Human Capital, explicitly prioritizes reducing the incidence of water and sanitation-related diseases by providing improved access to water and sanitation services to an additional 1.1 million people living in peri-urban areas and small towns (Objective 7). The project supports this Objective with investments that increase access to safely- managed urban sanitation services thus reducing the prevalence of unhygienic conditions that contribute to high rates of child stunting, trigger perennial cholera epidemics and chronic diarrhea outbreaks, and high child mortality. Furthermore, through the focus on pro-poor investments and policy reform, the project will ensure more equitable provision of sanitation services and more inclusive urban development. Finally, the Contingent Emergency Response Component (CERC) addresses cross-cutting CPF issues resulting from Mozambique’s very high vulnerability to impacts of climate change and natural disasters, as evidenced by Cyclone Idai. 21. The project is aligned with the Government’s five-year plan (2015 – 2019) and sector strategies. Sanitation is a key priority in the current Government five-year plan, driven by the multisectoral efforts to improve 12 Report No. 104733-MZ, 2017. Page 12 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) public health in the country. The key principles outlined in the National Sanitation Declaration (2014), and investments outlined in the approved PIS, include institutional development actions and priority infrastructure investments for both rural and urban areas. As noted above, the project would also help address the immediate and acute public health risks stemming from cyclone-damaged sanitation facilities and on-going floods. 22. The project contributes to the World Bank Group (WBG) twin goals of ending extreme poverty and promoting shared prosperity. The project’s objective of providing access to safely managed sanitation in peri- urban areas will improve the general health conditions, environmental pollution and quality of life among the poorest urban residents. The project is expected to contribute to reduction in stunting in children under five, child mortality, and help stem the outbreak of cholera and diarrheal disease inadequate and damaged sanitation. Further, the project will enable women and girls to manage sanitation and hygiene needs with dignity. Special attention will be given to the needs of women and girls in ‘high use’ settings such as schools and markets. II. PROJECT DESCRIPTION 23. The project is the first in a ‘Series of Projects’ (SoP) aimed at supporting the implementation of the National Urban Water and Sanitation Strategy (ENASU) and the PIS. Given the ambitious nature of the PIS, a long-term partnership is required between the GoM and the World Bank to help the GoM achieve its goals. This will be operationalized through a SoP which signals the commitment of both parties whilst facilitating an iterative approach that will allow tailoring the requirements and offerings as the SoP is implemented. 24. The project (SoP Project One) establishes the foundation of the SoP by clarifying and improving the overarching policy, institutional and management frameworks while at the same time increasing access to, and capacity to provide, safely managed sanitation services in selected cities. The project also addresses the urgent needs stemming from Cyclone Idai’s damage to sanitation infrastructure and disruption of services while at the same time, ensuring longer-term resilience to future climate change induced floods and droughts. The project is fully financed through an IDA grant under Investment Project Financing (IPF) in the amount of US$115 million. Government contributions will be mainly in-kind contributions for operating costs at both national and municipal level. Table 2 shows a summary of the project components and costs. Table 2: Project Costs and Financing Components Estimated Cost IDA grant (US$ million) (US$ million) 1 Priority Sewerage Investments for Maputo, Quelimane and Tete 56.5 56.5 2 Onsite Sanitation Investments for Quelimane and Tete 32.5 32.5 3 Municipal Sanitation Services Improvements 11.0 11.0 4 Technical Assistance and Project Management Support 15.0 15.0 5 Contingency and Emergency Response 0 0 Total 115.0 115.0 25. SoP Projects Two and Three. Project Two (2024-2028) would expand the service provision models developed in the Project One to other municipalities. Project Two would coincide with the end of the current ENASU and would support the definition of the next national strategy and identification of priority areas. Project Three (2029-2033) would consolidate the gains achieved under the previous projects, expand coverage to the Page 13 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) remaining 27-30 cities with the aim of achieving universal access and consolidate reforms for sustainability. The financing envelope for the SoP is estimated to be US$315 million. A. Project Development Objective PDO Statement 26. Program-level Development Objective. To increase access to safely managed sanitation services in selected urban areas of Mozambique. 27. Project-level Development Objective. To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities. Project Development Objective (PDO) Level Indicators a. The following PDO results indicators will be used to measure achievement of the PDO: (i) Number of people provided with access to safely managed sanitation13 services under the project (disaggregated by poorest quintile of population and women) (ii) Number of cities with an operational sanitation entity compliant with the Government’s regulatory framework14 (iii) Number of municipal sanitation bylaws approved and published B. Project Components 28. The project consists of five components which are described briefly below. Detailed descriptions and costs are provided in Annex 2. 29. Component 1: Priority Sewerage Investments in Maputo, Quelimane and Tete (US$56.5 million equivalent). This component will finance sewerage investments in Maputo, Quelimane and Tete including: a. Priority sewerage works for Maputo, including the (i) rehabilitation and expansion of the Infulene Wastewater Treatment Plant (WWTP); (ii) rehabilitation and upgrade of 8.5 km of sewers; (iii) rehabilitation and upgrade of two pumping stations; and (iv) upgrading of 12,800 existing sewer connections. b. Priority sewerage works for Quelimane, including the (i) rehabilitation and expansion of 29 km of sewers; (ii) construction of a WWTP; (iii) upgrading of approximately 2,000 existing connections; (iv) construction of three pilot condominial sewer systems to serve about 600 new connections; and (v) rehabilitation of about 10 km of small to medium scale drains to channel excess storm water and water-logged areas, and reduce the risk of urban floods. c. Priority sewerage works for Tete, including the (i) rehabilitation and expansion of 20 km of sewers; (ii) construction of a WWTP; (iii) upgrading of approximately 3,300 existing connections; (iv) construction of three pilot condominial sewer systems to serve about 600 new connections; and (v) rehabilitation 13 Safely managed sanitation is defined by the WHO as the use of an improved sanitation facility which is not shared with other households, and where excreta is safely disposed in situ and/or transported and treated off‐site. Improved sanitation facilities include flush/pour flush toilets to piped sewer, septic tank or pit latrine; and composting toilet or pit latrine with slab. 14 The regulatory framework is defined by AURA and signed with the Municipal Council. It enables the city to collect a sanitation fee through the water bill. The units should have evidence of funds transferred and ringfenced to sanitation services, for at least 12 months. Page 14 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) of about 8 km of small to medium scale drains to channel excess storm water and water-logged areas, and reduce the risk of urban floods. 30. The proposed interventions on sewerage improvements, including the drainage investments will rehabilitate infrastructure affected by the recent flooding and reduce the probability of sanitation infrastructure becoming overwhelmed by floods, thereby lowering the risk of contamination of water bodies after floods and the number of service interruptions during and after extreme weather events. Priority will be given to the restoration and reconstruction of the areas affected by the Cyclone Idai in the cities of Quelimane and Tete. Under this component, the project will also finance the implementation of the required safeguards’ instruments for sewerage investments. 31. Component 2: On-site Sanitation Investments for Quelimane and Tete (US$32.5 million equivalent). This component will finance priority on-site sanitation at the household level, and the construction of public sanitation facilities, in Quelimane and Tete including: a. On-site Sanitation investments in Quelimane, including the (i) sanitation marketing and hygiene promotion to influence sanitation behaviors; (ii) support to the construction and upgrade of 11,000 household on-site sanitation systems; (iii) construction of 65 public sanitation systems in schools and markets, including dedicated facilities for menstrual hygiene management; (iv) construction of two FSTPs; and (v) support to private sector on FSM business development. b. On-site Sanitation investments in Tete, including the (i) sanitation marketing and hygiene promotion to influence sanitation behaviors; (ii) support to the construction and upgrade of 9,200 household on- site sanitation systems; (iii) construction of 13 public sanitation systems in schools and markets, including dedicated facilities for menstrual hygiene management; (iv) construction of two FSTPs; and (v) support to private sector on FSM business development. 32. The activities under this component will promote personal hygiene and healthy sanitation behavior and reduce the environmental impact of human waste—by reducing the volume of untreated fecal sludge, and potential contamination of water bodies during floods. Improved hygiene behavior will also enable households to better manage their sanitation conditions during droughts with limited availability of water, thus contributing to higher resilience of the beneficiaries to these extreme events. Under this component, the project will also support the emergency response activities in the poor and vulnerable neighborhoods of Quelimane and Tete, through the reconstruction support program for household and public sanitation facilities destroyed during the Cyclone Idai. 33. Component 3: Municipal Sanitation Services Improvements (US$11.0 million equivalent). This component will provide performance-based grants to finance service improvement activities in the cities of Maputo, Beira, Nampula, Tete and Quelimane. The grants will be linked to achievement of a minimum set of indicators (institutional, operational and financial) on a performance scorecard agreed between each participating municipality and DNAAS. The grant will consist of two parts: (i) a fixed part linked to achievement of certain institutional prerequisites (such as establishment of a ring-fenced municipal sanitation department, approval of the sanitation service improvement plan and introduction of a sanitation fee) during the first two years of the project, and (ii) a variable part linked to actual sanitation revenues collected by the municipality throughout the project period. Municipalities will utilize the grants to finance equipment and logistical support, and other assets and tools needed for effective sanitation service provision. It is expected that these funds will be used to improve maintenance and operations of the sanitation infrastructure, thus increasing its climate resilience and lowering the probability of service interruptions even in the face of extreme weather events. The grant will also contribute Page 15 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) to, on a declining basis, financing gaps between the cost of delivering sanitation services and the sanitation revenues collected. 34. Component 4: Technical Assistance and Project Management Support (US$15.0 million equivalent). This component will finance technical assistance to support national institutional strengthening and project management. Key activities for institutional strengthening include: (i) the review and harmonization of the legal and institutional framework, including the review of the Water Law and Water Policy to clarify roles and responsibilities between the central agencies and the municipal entities for sanitation investment planning, implementation, and service delivery; (ii) regulatory tools for urban sanitation service delivery; (iii) key preparatory studies for the next generation of sanitation investments; and (iv) development of institutional and financing arrangements for sanitation at the municipal level. The project will also finance staff training for the key institutions involved on sanitation planning at the national level. 35. Project management support comprises technical assistance and incremental operating costs to ensure fiduciary compliance including financial management (FM), procurement and environment and social safeguards, monitoring and evaluation (M&E). This component will support necessary equipment (e.g. computers, software and other goods), capacity building (training), and incremental staff to allow the project implementing unit to carry out their responsibilities. 36. Component 5: Contingency and Emergency Response (US$0.0). This component will provide immediate response to an Eligible Crisis or Emergency, as needed. This would finance emergency works in the case of another disaster event by including a "zero-dollar" CERC. This would help recover damage to infrastructure, ensure business continuity, and enable early rehabilitation. In parallel, following an adverse event that causes a major disaster, the GoM may request the World Bank to channel resources from this component into an Immediate Response Mechanism (IRM). The IRM would enable the use of up to 5 percent of uncommitted funds from the overall IDA portfolio to respond to emergencies. This IRM has already been established for Mozambique and is now operational. Specific details around this component (including activation criteria, eligible expenditures, and specific implementation arrangements as well as required staffing for the Coordinating Authority) are defined in greater detail in the IRM Operations Manual approved in April 2016. C. Project Beneficiaries 37. Approximately 197,200 people will benefit directly from safely managed sanitation services in Maputo, Quelimane and Tete. For the sewerage interventions, the project will benefit (i) 90,500 people from the rehabilitation, upgrade and expansion of the existing sewerage network and sewer connections and (ii) 6,000 people from installation of new connections using the condominial sewers approach. For on-site sanitation, the project will benefit about 100,700 households from interventions involving the construction of new toilet facilities and fecal sludge management services. The on-site sanitation interventions will target poor households living in the peri-urban areas of Tete and Quelimane, particularly in neighborhoods most affected by Cyclone Idai, where open defecation had been widely practiced due to their inability to pay for improved sanitation services. Additional benefits from the project include access to improved sanitation facilities in public places such as bus stations, markets and schools with emphasis on improving Menstrual Hygiene Management (MHM) for women and young girls. 38. About 230 municipal staff in all the five cities will benefit from project interventions, by enhancing their skills through specialized training for sanitation. Moreover, the project will support local private entrepreneurs Page 16 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) working on fecal sludge management services with business development and operational training on on-site sanitation services. D. Results Chain 39. The two outcomes expected are: (i) increased access to safely managed sanitation in the cities of Maputo, Tete and Quelimane and (ii) stronger municipal institutions in the cities of Maputo, Beira, Nampula, Tete and Quelimane. 40. To increase access to safely managed sanitation services the project will invest in the upgrading of sewerage connections and construction of new on-site sanitation systems, rehabilitation and/or construction of WWTPs, FSTPs and drainage network. Additionally, support will be provided under the project to promote better sanitation and hygiene and uptake of the improved sanitation systems. 41. To strengthen municipal institutions, the project will invest in developing the facilitative capacity of the central institutions responsible for policy development and promotion of investment for sanitation services; and the operational capacity of municipal councils for day-to-day management of sanitation services. The former will include the revision and harmonization of the existing legal, regulatory and policy frameworks to clarify mandates for delivery of safely managed sanitations services. The cities will benefit from project financed start-up equipment and specialized technical assistance and training to ensure the establishment of adequate administrative and financial systems for sanitation service delivery at municipal level, as well as operational capacity to deliver safely managed sanitation services. Training will also be carried out to ensure that the appropriate capacity is built for efficient planning, delivery and monitoring of sanitation services in accordance with the institutional mandates and agreed performance standards. Figure 1 depicts the full results chain that underpins the Theory of change for the project. Page 17 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Figure 1. Proposed Theory of Change for the Mozambique Urban Sanitation Project Outcomes - Level2 Increased access • Households adopting improved to safely managed sanitation behaviors sanitation services • Households serviced by safely managed onsite systems and services • Pupils serviced by improved sanitation systems and MHM facilities in schools • Sludge treated and reused Strengthen service delivery capacity at the municipal level Page 18 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) E. Rationale for World Bank Involvement and Role of Partners 42. The World Bank has been a long-standing and valued partner in the Mozambique water sector, supporting institutional and sector reforms and investments to improve water availability, access and quality of water supply services. Most of the World Bank support was focused on water supply improvements in large urban centers which have significantly increased access and quality of services. At the same time, the World Bank through its Water and Sanitation Program (WSP), supported a series of reforms and pilot interventions to improve urban sanitation services including in the District of Nhlamankulo in Maputo city though the Maputo Peri-urban Sanitation Project (MPSP - P132551). This demonstrated that it is possible to address urban sanitation challenges through an integrated approach, combining various solutions and partners. The World Bank is well-placed to support the Government drawing on its global experience in the application of its city-wide inclusive sanitation approach and particularly its experience in similar projects in Ghana, Malawi and Zambia. 43. Participation of the World Bank is expected to facilitate and complement additional support from other development partners. The Government of India and the Government of Korea are currently assessing the proposals submitted by the Government for the remaining cities under the PIS. The UNICEF is investing in WASH in both Quelimane and Tete, and the project will build on these interventions to sustain the proposed investments which regards to hygiene promotion and behavior change. In addition, several partners such as The European Union, The German Development Bank, (Kreditanstalt Für Wiederaufbau, KfW), The Italian Cooperation, United Kingdom AID, The United States Agency for International Development (USAID), are all intervening at a limited scale across the country. Most of them focus on the WASH agenda which is fully complementary to the activities supported under this project. F. Lessons Learned and Reflected in the Project Design 44. The project design draws on lessons from previous projects in Mozambique, as well as from global trends and experience in tackling urban sanitation in developing countries. The key lessons learned reflected in the project design are summarized below: 45. Urban sanitation is best tackled through a comprehensive city‐wide approach. Considering the nature of the cities, where most of the people rely on onsite system, the project design must treat the sanitation challenge in its entirety to be impactful. As such, the project covers improving wastewater collection and treatment, related drainage improvements, as well as on‐site sanitation and FSM service improvements. The project also prioritizes capacity building for the institutions involved in service delivery to enhance their ability to provide safely managed sanitation services. 46. Infrastructure investments alone may not be translated into safely managed services. It is common to find sewers and treatment plants which have failed due to lack of ownership by municipal governments and inadequate operations and maintenance; or toilets which are abandoned for lack of FSM services. The project puts emphasis on capacity building for the municipalities to ensure (i) they have adequate resources (human and financial) to manage both the on- and off-site services and (ii) they are deeply involved in planning and implementation of the project investments. 47. The process to identify households and get community buy-in for on-site sanitation takes a long time. The project design allows for adequate time to identify suitable project beneficiaries and gain community buy-in and trust prior to project commencing/implementation. Technical assistance to develop a social and commercial marketing strategy tailored to influence sanitation behaviors and create demand for various sanitation products Page 19 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) and services (i.e. improved toilets, emptying services, sewer connections) is underway. In addition, the project will support advocacy efforts through the National Sanitation Task Force (Equipa Técnica Nacional de Saneamento, ETNS) to mobilize political support at both central and municipal level. 48. Affordability remains a challenge for safely-managed sanitation services and financial support is required for household on-site sanitation facilities. Experience from the National Latrine Program (PLM) and other attempts to increase sanitation coverage have shown that sanitation marketing and promotion alone have not resulted in significant reduction in the use of unimproved sanitation facilities. A key bottleneck is the low affordability and the need for some form of subsidy or financial support for the poor households in the peri-urban areas. This is particularly important for households currently relying on open defecation in Quelimane and Tete. The project design includes a support mechanism for the construction of household sanitation facilities, studies to assess households’ willingness/ability to pay, and formative research for sanitation marketing. 49. Sanitation service providers struggle to be financially self-sufficient. Constraints on affordability and willingness to pay for sanitation services often make it difficult to recover operating costs through sanitation tariffs alone. The project includes a detailed financing study for each city to consider the need for possible general subsidies to the service providers and/or targeted subsidies to low income households. 50. Domestic private sector can play an important role in urban sanitation service provision. In most cities in Mozambique, private sector participation is limited to informal and unregulated toilet construction and tank emptying. Under the MPSP private operators, trained and equipped to provide improved FSM services, have now expanded services in other peri-urban areas using own financial resources. In Blantyre, the City Council with support from WASTE, developed partnership models for the private sector which has significantly improved the quality of services and satisfaction of users. In Lusaka, the utility is entering into partnership with local emptiers to expand services into the peri-urban areas. The project will build on these experiences to structure partnerships options for private sector participation, including toilet construction, FSM services, management of FSTPs and public sanitation facilities. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 51. The project will be implemented by the MOPHRH through DNAAS and AIAS. DNAAS will be the agency responsible for overall project coordination, planning and monitoring. It will also lead the implementation of the institutional and service development activities under the project, including capacity building for the city councils – Component 3 and provide implementation support for onsite sanitation services – Component 2, including the procurement, FM and safeguards for the sanitation marketing program, toilet construction support program and FSM business development. DNAAS will also be responsible for Sub-components 4.1, 4.2 and 4.4, and coordinate the project support to the Cyclone Idai affected areas. AIAS will be responsible for the implementation of the sewerage investments – Component 1, including Sub-component 4.4, related to M&E, procurement, financial management, and environment and social safeguards implementation. The proposed project implementation arrangements result from extensive consultation with the sector agencies, institutional assessments and analytical work to define the most efficient project delivery framework. Further legal and institutional assessments will be carried out under the project to assist in defining the most adequate institutional framework for sustaining sanitation services at the national level. Page 20 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 52. DNAAS has established a Project Implementation Unit (PIU) for this project, with administrative reporting to the National Director and technical reporting to the Department of Sanitation. The World Bank has carried out an assessment of the capacity of this PIU and concluded that it meets the basic requirements for implementing the project. The PIU team at DNAAS includes a project coordinator, a procurement specialist and a FM specialist. However, the PIU lacks capacity in some key areas such as environmental and social safeguards and M&E. DNAAS has agreed to strengthen the PIU with the recruitment of additional staff, in order to mitigate the capacity risks to the project. These are an onsite sanitation engineer, an environmental and social safeguards specialist, an M&E specialist and one project assistant. Other specialists could be considered as needed. 53. A new PIU will be established at AIAS to manage Component 1, and will be composed of a project manager, a sewerage engineer, procurement specialist from procurement management unit (Unidade de Gestão de Aquisiçoes, UGEA), a FM specialist, two safeguards specialists (environmental and social), and a project assistant. Other specialists could be considered as needed. The project implementing entities will also work closely with the technical teams at AURA and FIPAG and receive advice from the ETNS. 54. At the Municipal level, technical teams will be established within the sanitation units with a minimum of five staff to support project implementation. The technical teams for Maputo, Quelimane and Tete will include at least a city project coordinator and sewerage engineer, an onsite sanitation engineer, a safeguards specialist, a community development specialist which will also support M&E at municipal level. For Beira and Nampula, a city project coordinator will be appointed and will work in close collaboration with the sanitation units of those cities. These technical teams will work closely with DNAAS and be responsible for day-to-day M&E. They will also participate in the technical development, review and evaluation of relevant activities. 55. A set of four agreements will guide project implementation: the World Bank will sign a financing agreement with the Ministry of Economy and Finance (MEF) as the Recipient of the IDA credit/grant. MEF will, in turn, sign a subsidiary financing agreement with AIAS, with terms and conditions acceptable to the World Bank. The World Bank will also sign a project agreement with AIAS. DNAAS will sign performance agreements with each of the municipalities of Maputo, Quelimane, Tete, Nampula and Beira, with terms acceptable to the World Bank. All project operational modalities will be detailed in a Project Implementation Manual (PIM) to be prepared prior to project effectiveness. Further details are provided in Annex 1. B. Results Monitoring and Evaluation Arrangements 56. Project progress will be monitored using the existing National Water and Sanitation Information System (Sistema Informação Nacional de Água e Saneamento, SINAS). Some enhancements will be made to ensure all relevant project information is collected and cities are adequately resourced to use the system. SINAS is a web- based data reporting tool which includes the collection, analysis and reporting for the sector specific indicators. The project results framework (RF) described in Section VI forms the basis for tracking progress in meeting the project’s development objectives. All teams involved in the implementation of the project will participate in the process of data collection, compilation, analysis, and use. 57. DNAAS will have overall responsibility to report to the World Bank on the RF on a semi-annual basis. An M&E specialist will be recruited in the PIU for tracking progress on PDO and intermediate results indicators. The PIU will prepare semi-annual progress reports acceptable to the World Bank. Both AIAS and the municipalities will provide data to DNAAS for the activities they are responsible to implement. The project will fund necessary equipment, capacity building, and incremental staff to strengthen results and process monitoring at the project level. Page 21 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 58. At the end of the project, an impact evaluation will be conducted as part of the overall M&E for the project and to inform subsequent phases of the SoP. Baseline and end of project beneficiary surveys will be undertaken. C. Sustainability 59. The project is consistent with the GoM strategies for urban sanitation and the Government is fully committed to the sustainability of the project outcomes. The project is aligned with the Government’s five-year plan, ENASU and PIS, as well as municipal five-year plans. The Government is committed to gradually build the capacity of municipalities and other local authorities to increase sanitation access, and therefore reduce the public health burden of poor sanitation. This is reflected in the ENASU and the recent approval of the sanitation tariff for Maputo and reinstatement of sanitation tariff for Quelimane. 60. The project design incorporates features to enhance project sustainability, including (i) the review of the legal and regulatory framework to improve the enabling environment for service delivery; (ii) prioritization of municipal capacity building as a stand-alone component to ensure municipalities will be equipped and trained to operate the systems delivered under the project; and (iii) the project will invest in sanitation marketing and use demand driven approaches to ensure that households acquire the knowledge required for them to use and maintain their facilities adequately. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis 61. Investments have been prioritized based on development impact and the emergency response needs. The project design is based on the Urban Sanitation Status Index (USSI) household surveys and technical studies financed by the Millennium Challenge Cooperation (MCC, 2012) for Quelimane, the Engineering, Environment and Planning Study (EEPLAN, 2016) for Tete and the Master Plan for Sanitation and Drainage in the Maputo Metropolitan Area (2016). The approach taken was to identify viable and impactful investments in sewerage and on‐site sanitation tailored to the needs and conditions in each of the cities. For onsite sanitation, the focus is on reducing open defecation and providing improved sanitation to approximately 22 percent in Quelimane (with a population close to 250,000) and 20 percent in Tete (with a population of 230,000). Priority will be given to the neighborhoods which have been heavily hit by the Cyclone Idai. Beneficiaries will be targeted through a combination of sanitation marketing and partial support for construction of improved sanitation facilities. Site specific sanitation technologies will be introduced (e.g. flush/pour flush toilets connected septic tank or pit latrine; composing toilet or improved pit latrine with slab) tailored to the location conditions and user preferences15. The technical assistance for the sanitation marketing and design of the onsite sanitation is being done under the preparation advance to improve implementation readiness since lessons learned from other projects show that the time to agree on these aspects is very lengthy. Sewers and wastewater treatment investments are primarily determined based on volume and composition of the existing sewage. Pre‐feasibility level cost estimates are available and have been checked by the World Bank team. Contingencies were built into the estimated costs of the investments to account for price, inflation and other external factors which may affect the project implementation. In addition, contingencies for risks associated with environmental and social 15 A recent study found that these facilities cost between 30 and 55 per person in Sub-Saharan Africa. See: Daudey, L. 2017. The cost of urban sanitation solutions: a literature review. Journal of Water and Health. IWA Publishing . Page 22 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) safeguards, have been factored into the project design. Feasibility studies and detailed design of the investments will be undertaken during the first year of project implementation and works tendered in the second year. 62. The design of the municipal capacity building activities is based on detailed assessments in Tete, Quelimane and Maputo. This has resulted in the design of a set of interventions to build the required capacity at municipal level to operate the infrastructure financed by the project. Generally, the cities do not have qualified personnel for sewerage operations and they lack basic equipment and systems to manage the services. Furthermore, there is currently no reliable data source on levels of services nor the costs of sanitation services. Private sector participation is not organized nor regulated. The project will therefore provide technical assistance, training and finance equipment and systems to establish the sanitation units responsible for service delivery. This support will be extended to Beira (which has recently completed large investments in drainage infrastructure) and Nampula (which is planned for the next phase of the SoP). 63. The project is expected to result in increased access to safely-managed sanitation services for about 197,200 people in Maputo, Quelimane and Tete. The economic analysis is based on the project costs and the benefits which include: (i) avoided direct health expenditure from sanitation-related diseases and time gains; (ii) indirect benefits from income gained due to avoided days lost from work due to disability from sickness16; (iii) benefits from the value difference between unimproved to enhanced sanitation facilities to households; (iv) household value generated from wastewater connections; and (v) avoided environmental damages associated with discharges of wastewater. 64. Results of the economic analysis show that the project is economically justified with an economic rate of return (ERR) estimated at 14.4 percent and a net present value (NPV) of US$18.7 million17. The economic efficiency was also estimated for each city, adjusting the parameters according to the interventions delivered. Maputo showed the highest ERR of all cities (18 percent), mostly due to environmental benefits, and an NPV of US$5.9 million. Quelimane showed an ERR of 12.5 percent with a higher NPV of US$10.0 million. Tete showed an ERR of 12.8 percent with benefits accruing of an NPV of US$2.7 million. The summary results for the three cities are presented in Table 3 below. Adding the Disability-Adjusted Life Years (DALY) health benefits from sanitation improvements, the project ERR jumps to 27.3 percentage; and with NPV of US$15.7 million. Sensitivity analyses show that the project benefits are robust, but cost overruns will reduce the overall economic efficiency of the project (see Annex 3 for more details). Table 3: Economic Analysis Results Quelimane Tete Maputo Project total ERR, % 12.5 12.8 18.0 14.4 NPV, US$ million 10.0 2.7 5.9 18.7 16 The health data relied on incidence rates per city recorded by the Ministry of Health, and with the basic avoided economic cost of treatment information using the Disability-Adjusted Life-Years (DALY) accounting for the burden of disease. Three clusters of diseases were used prevalent to the area of influence of the project (diarrheas and etheric diseases, malaria and vector diseases, and cholera and infectious outbreak diseases. 17 Including benefits (i); (iii); (iv); and (v). Page 23 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 65. The financial analysis was based on a cash needs approach excluding depreciation and debt service costs. A sanitation surcharge on water bills provides the revenue to cover sanitation operation and maintenance costs. The surcharge was taken as 15 percent which is the amount currently applied in Beira and Quelimane and approved by the regulator (AURA). Households (HH) that consume less than 5m3/month would be exempt. This level of surcharge would ensure that Maputo and Tete sanitation entities cover their operating costs for the next 10 years. Quelimane, constrained by low water coverage levels, will have a cumulative deficit of US$1.76 million by the end of the project (year 6) – or 13 percent of the cumulative municipal budget of US$13.5 million over the same period. 66. Average monthly household water and sanitation costs are estimated to vary between 2.1 - 4.7 percent of average household income. This is lower than the 5 percent rule of thumb used by practitioners as an upper limit of affordability. However, this is not the case for low income HH, with water and sanitation costs varying between 14 to 19 percent of their average income. This is mitigated by their likely lower than average water consumption and the fact that some 45 percent of HH (which is likely to include low income HH) are exempt from paying the surcharge because of their low water consumption. The sanitation costs alone comprise about 1 percent of average HH income in all the three cities. 67. During project implementation the financial analysis will be refined to determine how to cover deficits and address affordability issues. There are a number of opportunities to cover deficits including the introduction of a higher surcharge for customers with a sewer connection, expanding the revenue base, particularly in Quelimane, to include HH without water connections, or through the provision of a general subsidy to the sanitation entity. Tackling the affordability issue will require consideration of targeted subsidies for low income households, possibly using the Government’s own safety net program under the National Institute of Social Action, “Instituto Nacional de Segurança Social” (INAS), or some other measure which reflects HH ability to pay. Whether a general or a targeted subsidy, there will be a need to design a well-defined and transparent transfer arrangement whether from central to LG, from LG to sanitation entity, or from government to household. 68. The net emissions of the project are estimated at 558 tCO2-eq over the 30-year life of the project, while the gross emissions are estimated to be 199,059 tCO2-eq. On average, the project generates estimated net emissions of 18 tCO2-eq annually. The wastewater collection and treatment activities in Maputo under Sub- component 1.1 would see estimated net emissions of -56,040 tCO2-eq due to improved collection and treatment leading to a net reduction in methane emissions. The wastewater collection and treatment activities in Quelimane under Sub-component 1.2 would see estimated net emissions of 9,311 tCO2-eq. The wastewater collection and treatment activities in Tete under Sub-component 1.3 would see estimated net emissions of 3,747 tCO2-eq. (Sub-components 1.2 and 1.3 are only net emissive due to a highly conservative baseline of open defecation, which the project will likely end.) The septage/fecal sludge collection and treatment activities in Quelimane under Sub-component 2.1 have estimated net emissions of 23,884 tCO2-eq. The septage/fecal sludge collection and treatment activities in Tete under Sub-component 2.2 have estimated net emissions of 20,066 tCO2-eq. Using treated sludge as a fertilizer replacement under Component 2 sees estimated net emissions of - 410 tCO2-eq. The use of methane capture at the treatment sites under Sub-components 1.1, 1.3, 2.1, and 2.2 all helped limit the amount of methane emitted through anaerobic treatment. 69. Climate risks and co-benefits have been considered in the project design. According to the Global Climate Risk Index (2017), Mozambique was the world’s most climate change-affected country in 2015. Climate risks that are relevant to the project include extreme temperatures and precipitation which could lead to increased disease outbreaks and damage to sanitation infrastructure. Heavy rain can cause septic tanks or storage pits to overflow, causing health risks by flushing pathogens and pollutants to the surface and into contact with the population. Page 24 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Heavy rainfall could also lead to standing water in low-lying areas and changes in flow and composition of wastewater. Flood resilient materials/design for sewers, septic tanks and other relevant infrastructure will be promoted under the project along with operational health and safety plans for the infrastructure. The project will also invest in localized canals to improve drainage in selected flood prone areas. It is expected that better wastewater and drainage infrastructure will reduce the volume of contaminated water and the chance of malfunctioning sewers and onsite sanitation facilities during extreme weather events, thereby mitigating the impact of floods. These measures coupled with the related institutional capacity strengthening will build resilience to climate risks which would provide climate co-benefits in the future. B. Fiduciary (i) Financial Management 70. A Financial Management (FM) assessment was conducted at DNAAS, AIAS and Municipalities, and FM arrangements were found to be adequate. The assessment was conducted by the World Bank in accordance with the Policy and Directive for IPF and the World Bank Guidance on Financial Management Manual for World Bank IPF Operations issued on February 28, 2017. The risk rating was assessed as substantial due to country risk, capacity issues in country and the number of the entities involved in the implementation of the project. 71. The project funds, expenditures, and resources will be accounted for using the automated accounting software and the basis of accounting will be cash basis. Disbursement under the project will be in accordance with Disbursement Guidelines for IPF. Disbursement of IDA funds will be done on a transactions basis i.e. statements of expenditure (accounts). However, payments under contracts (goods, works, non-consulting services and consulting services) procured/selected through international (open or limited) competition or Direct Selection will be made through direct payment method of disbursement, unless the Special Commitment disbursement method is used. In addition, under advance disbursement method, two US$ DAs will be established at the Central Bank of Mozambique (Banco de Moçambique, BM) for the project implementation agencies, DNAAS and AIAS, into which the funds of the IDA Grant will be received. The reimbursement method of disbursement will also be available for the project. DNAAS and AIAS will prepare quarterly unaudited interim financial reports (IFRs) and provide such reports to the World Bank within 45 days of the end of the calendar semester to which they relate. The project financial statements will be audited by the Administrative Tribunal (Tribunal Administrativo, TA) in accordance with International Standards on Auditing (ISA) as issued by the International Auditing and Assurance Standards Board (IAASB) within the International Federation of Accountants (IFAC). The Borrower shall furnish to the World Bank, within six (6) months after closing of the first fiscal year of the project implementation, the first audited financial statements covering the amounts disbursed under the project. 72. The five municipal councils (Maputo, Quelimane, Nampula, Beira and Tete) benefiting from the performance-based grants have limited FM capacity. An assessment was carried out in all the municipalities and covered planning and budgeting, accounting, internal controls, funds flow, financial reporting and auditing. The assessment took into consideration the current municipal law, their relationship with the TA, local inspectorates and General Finance Inspection (Inspecção Geral de Finanças, IGF). The municipalities rely mainly on fiscal transfers from the central Government in addition to their own resources. The accounting transactions of municipalities are largely done manually using spreadsheets. 73. Funds transferred from DNAAS to the Municipalities for service improvements under Component 3, will be liquidated quarterly. The liquidation report will be supported by appropriate documentation including bank Page 25 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) reconciliations documenting actual costs incurred on eligible expenditures under the performance-based grants. Each municipality will open a separate local currency bank account and subject to the internal control policies, procedures and audits in compliance with policies of Law 9/2002 and World Bank-financed operations. Should the municipal councils spend any funds on ineligible expenditure, they will not be able to access additional funds under the project until all funds for ineligible expenditure are reimbursed and clearance given by IDA to reinstate the flow of funds. Details of the FM assessment and agreed actions are summarized in Annex 4. 74. To further strengthen the FM arrangements for the project, the following measures have been agreed: (i) Both DNAAS’ and AIAS’ PIU will have dedicated FM staff who will be responsible for project accounting and reporting, and will be trained in FM and disbursement arrangements for World Bank funded projects; (ii) DNAAS and the municipalities will acquire and install an accounting software to be used for transaction processing and reporting; (iii) the PIUs will be required to submit unaudited interim financial reports which will be reviewed and validated by the World Bank on semi-annual basis; (iv) the project will be visited at least twice a year for implementation support that will include a review of FM activities; (v) the project’s financial statements will be audited annually and the audit report will be submitted to the World Bank no later than six months after the end of each financial year; and (vi) the activities to be financed under the grant will be agreed in advance on an annual basis. This will be in form of annual work plans and associated budgets. In addition, FM coaching and training will be provided to the municipalities. (ii) Procurement 75. Procurement arrangements and capacity. The proposed procurement activities for the project will be managed independently by the two agencies of the MOPHRH: DNAAS for Components 2, 3 and Sub-component 4.1, 4.2, and 4.3; and AIAS for the Component 1 and Sub-component 4.4. While DNAAS is a relatively young institution with limited experience with World Bank funded operations, they possess relevant experience from other financiers such as the African Development Bank. Furthermore, during the preparation of this project DNAAS managed the Project Preparation Advance (PPA), which provided an opportunity for DNAAS to be exposed to current World Bank fiduciary requirements. AIAS has satisfactory experience with the World Bank with the implementation of two operations at present. Thus, the proposed project procurement activities will be managed by AIAS procurement unit, the UGEA. AIAS has had strong reliance of external funded personnel, which are likely to be retained to support the AIAS UGEA in the implementation of the Sanitation project. While AIAS will be responsible for the implementation of Component 1 activities, the overall responsibility for the project will remain with DNAAS. 76. Procedures: Procurement for the proposed operation will be carried out in accordance with the ‘World Bank Procurement Regulations for Borrowers under IPF’, dated July 1, 2016, revised August 2018, and the provisions stipulated in the Financing Agreement. Furthermore, the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, dated October 15, 2006, and revised in January 2011 and July 2016, will apply. Procurement activities related to emergency response will follow the provision designed under the IRM for Mozambique, which provides the applicable approaches and thresholds, in case of emergency. 77. Mitigating Measures for DNAAS and AIAS will include: (i) recruitment of a procurement specialist for the PIU at DNAAS; (ii) provision of support to AIAS procurement unit by the Technical Assistance involved with the implementation of the on-going Cities and Climate Changes project (P123201); (iii) ensuring that all major works and technical assistance activities have contract management plans. Page 26 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 78. Project Procurement Strategy for Development (PPSD) Summary. DNAAS has prepared the PPSD for the project, with the support from the World Bank. The PPSD was approved by the World Bank on February 12, 2019. While there are some contracts of large value, their processing is not complex in relation to the experience available within DNAAS and AIAS, nor do they require the adoption of innovative or complex approaches beyond the available capacity. Nevertheless, contract management is an area that will require a special attention. 79. Country procedures for payments abroad may also affect the performance of the procurement function of the project. In addition, the fulfillment of the requirements of the Attorney General’s office and the Administrative Tribunal may lead to delays for contract signing, after the completion of the evaluation process and of the contract award. It is instrumental that the time required for the processing by the Administrative Tribunal is carefully taken into consideration in the activities planning process. Furthermore, when a contract is entered into with a foreign Supplier/Contractor/Consultant, there is a need of a clearance from the MEF and the BM, before payments abroad can be authorized. 80. The overall procurement risk associated with the project is rated High. C. Safeguards (i) Environmental Safeguards 81. The project interventions are expected to generate positive environmental impacts. Through the construction of sanitation and drainage infrastructure (including sewerage networks, WWTPs, on-site facilities), the project investments are expected to reduce the environmental pollution from wastewater and the incidence of diseases. Currently, existing sewers and sewage treatment plants are dilapidated due to lack of maintenance, resulting in environmental pollution that may lead to public health risks, as most of the sewage ends up in the environment without treatment. These public health risks have been compounded by the recent cyclone induced flooding in several of the project cities. Open defecation is widespread among the peri-urban poor (22 percent in Quelimane and 20 percent in Tete), which increases the risk of contamination and pollution of the water courses. The positive impact will be achieved through the adoption of improved and sustainable toilet systems’ designs that improve access to sanitation, facilitate hygienic FSM, and limit ground water pollution by ensuring separation of fecal waste and urine from grey water. The project is expected to result in reduced public health risks and environmental pollution due to poor sanitation, particularly in the areas affected by the Cyclone Idai. Further, to maximize environmental benefits from improved sanitation infrastructure, the project will also help strengthen the capacity of the municipalities to provide and promote safely managed sanitation services. 82. The project is classified as category “A” as it is likely to generate significant negative environmental and social impacts and risks. The project activities will largely contribute to positive outcomes such as reduction in the prevalence of unhygienic environmental conditions in urban neighborhoods that have negative impacts on public health. Project activities are also expected to contribute to positive outcomes such as reduction in the prevalence of unhygienic environmental conditions in urban neighborhoods that have negative impacts on public health including creation of employment opportunities during construction works. Likely negative impacts will occur during construction and operation. While most of the direct impacts will be site-specific some negative impacts can be also expanded to the indirect area of influence and in the auxiliary facilities which will require due safeguards consideration. 83. During construction, likely adverse impacts will largely be associated with civil works and will include: (i) Soil degradation: emanating from destruction of the superficial layers of the soil in the preparation of the Page 27 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) construction site, spillage of pollutants, soil compaction resulting from the installation and operation of the construction site, and circulation of trucks and heavy machinery; (ii) Potential contamination and interference with the hydrological systems: that could lead to changes in surface and groundwater flows by changing the infiltration / flow binomial, creating a barrier effect to natural drainage; (iii) Alteration of surface and groundwater quality or even impermeabilization of recharge areas of aquifers; (iv) Potential production of large quantities of fecal sludge due to removal of existing sludge to clean anaerobic lagoons, large quantities of soils from digging of trenches to install the sewer pipelines and drainage canals; and (v) Potential health and safety risks that could result from dust emissions, odor, contamination of potential intruders during construction period. In addition, the expansion and construction of treatment plants may result in a potential loss of agricultural plots and sources of livelihoods. 84. During the operational phase, the principal environmental risks are largely related to the effects from effluent discharges or incorrect practices in the management of the sewer system and WWTP. Preliminary assessment on the likely impacts of the effluent discharges into the receiving waters indicates long-term improvement in the water quality of the effluent discharged into the receiving waters. However, the increase in load and volume of wastewater and sludge discharge may result in surface and groundwater contamination, interference with the hydrological systems including change in flow regime and surface and groundwater quality, soil contamination due to potential production of large quantities of fecal sludge during removal of accumulated sludge to clean the anaerobic lagoons and production of sludge from waste water treatment processes. Other potential negative impacts during operation include potential public nuisance due to presence of odors, sludge and wastewater handling that could endanger the health of WWTP workers and farmers operating in the vicinity of the plant. In addition, the proposed rehabilitation of the Maputo WWTP is expected to limit the access for industrial waste disposal, which can result in illegal dumping elsewhere if remedial actions are not put in place. Incremental wastewater to be collected will be treated in the rehabilitated and new treatment plants to comply with the national wastewater discharge standards before discharging into the receiving waters. However, there might be some legacy issues related to existing contamination of the soil, ground and surface water, as well as public health risks associated with the current state of abandonment of the Maputo WWTP, with uncontrolled wastewater discharge, including industrial wastewater. The legacy risks will be further analyzed during implementation, as part of the detailed environmental assessment for the Maputo WWTP and mitigation measures will be added as part of project activities. 85. Although some adverse environmental and social impacts are foreseen as a result of the project investments, mainly under Components 1 and 2, a number of positive impacts are also expected and outweigh the negative ones. The project will have significant benefits, particularly with regards to the improvement of health and wellbeing, in both the short- and long-term, by stemming the current outbreak of cholera, diarrheal disease, and other water-borne illnesses that have a long-term impact on the reduction of child mortality and stunting. The introduction of complementary health and hygiene awareness campaigns targeted at women and children, including components on malaria, HIV-AIDS, and other diarrheal diseases will improve the benefits of the project. Construction works (e.g. excavations for pipelines) will present employment opportunities to local people (including women) and generate direct income benefits to local households. 86. To mitigate the anticipated adverse environmental impacts the Borrower prepared an Environmental and Social Management Framework (ESMF). The proposed activities under Component 1 and 2 (priority sewerage investments and onsite sanitation investments) are expected to generate adverse environmental and social impacts, albeit manageable with the application of adequate mitigation measures. Consequently, OP 4.01 was triggered. An ESMF was prepared predicated on the fact that the specific project design details as well as the exact locations for the WWTP in Quelimane and Tete cities are not yet known. The ESMF provides guidance Page 28 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) and procedures for the environmental and social impact assessment, review, approval and implementation of the subproject’s activities. The ESMF also specifies appropriate roles and responsibilities and outlines the necessary reporting procedures, including managing and monitoring environmental and social impacts related to the project investments as well as, institutional arrangements with roles and responsibilities for all implementing agencies, capacity building strategy and budget to ensure the successful management of the anticipated impacts. 87. Simultaneously, a draft feasibility-stage Environmental and Social Impact Assessment (ESIA) has been prepared for the rehabilitation of the Infulene WWTP. The draft ESIA was carried out to determine the environmental and socio-economic implications of the proposed interventions for the rehabilitation of the Infulene WWTP in compliance with the provisions of the applicable Mozambican regulations, the World Bank Safeguards Policies, the WBG General Environmental, Health and Safety Guidelines (EHSG) for Waste Management Facilities, and the EHSG for Construction Materials Extraction. However, additional data collection is required to complete the ESIA risk assessment and mitigation measures, in accordance with OP 4.01 (Environmental Assessment). The ESIA is expected to be finalized during project implementation pursuant to the safeguards deferral provisions of paragraph 12 of the IPF Policy applied by authority of the Regional Vice President (RVP) in response to the emergency situation and aggravation of capacity constraints in Mozambique caused by Cyclone Idai. Partial safeguards deferral was authorized to expedite project processing and support the emergency recovery efforts in the Cyclone Idai affected areas. For the four largest cities affected by the cyclone (Quelimane, Tete, Beira, and Nampula), project preparation is advanced, including in terms of preparation of the required safeguards instruments, per World Bank policy. Additional data includes groundwater and surface water quality assessment, sludge and soil analysis in both the wet and dry seasons, air quality measurements and an assessment of the sludge disposal site. An Environmental and Social Action Plan (ESAP) has been prepared for the update of the ESIA/ESMP during project implementation, prior to commencement of any works. The Action Plan is presented in Annex 5. 88. The draft ESIA includes a set of recommendations to be considered in the detailed designs in order to enhance the positive impacts of the project and reduce the risks of negative impacts. The ESIA also covers the impact assessment and mitigation measures for the proposed relocation site for agriculture plots and includes detailed OP 4.09 (Pest Management) provisions to address impacts related with potential increase in the use of pesticides and agrochemicals in the hosting area. The ESIA will be updated during the first months of project implementation to incorporate the additional data. 89. The draft ESIA contains a draft Environmental and Social Management Plan (ESMP). In order to effectively manage the expected environmental impacts, DNAAS together with Maputo City Council (CMM) has prepared a draft ESMP to monitor and mitigate the potential impacts that will arise from the implementation of the project. This ESMP will be updated together with the ESIA updates, to inform the environmental and social viable options to be included in the bidding documents for the detailed designs and contractor’s contract. The ESMP also contains relevant provisions to address, among others, adverse environmental impacts issues related with labor influx, community health and safety, as well as code of conduct for contractors’ and supervising engineers’ workers. The project supervising consultant will monitor the works contractor’s environmental and social performance and ESMP implementation whilst the PIU at AIAS will oversee the overall implementation of the ESMP. The final ESMP to be prepared as part of final ESIA will be more specific and include practical ways of monitoring of illegal dumping as well as penalties and enforcement. Both the ESMF and ESIA/ESMP include provisions to address OP 4.04 (Natural Habitats), OP 4.09 (Pest Management) and OP 4.11 (Physical Cultural Resources) requirements. Page 29 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 90. Preparation of the ESMF and the draft ESIA included extensive consultations with all relevant stakeholders including civil society organizations, project beneficiaries and key government agencies among others. Two rounds of consultations have been carried out in all project cities: first, to share the initial findings, structure and approach detailed in the draft ESMF as well as receive feedback and then second, to present the final ESMF and preliminary ESIA findings. The final draft of the ESMF has been disclosed in-country (March 15, 2019) and on the World Bank’s website (March 20, 2019). 91. Capacity for safeguards compliance will be strengthened at DNAAS, AIAS and Municipalities. A detailed capacity building strategy was prepared and included in the ESMF which suggests hiring one safeguards specialist for the PIU at DNAAS, one environmental and one social safeguards specialist for the PIU at AIAS and a dedicated safeguards officer for each technical team in the municipal councils. These specialists will ensure overall day-to- day safeguards management and that project activities are in compliance with World Bank safeguards policies and applicable Mozambican laws. All subsequent ESMPs will be bound to the works contracts and will include capacity building requirements and budgets for implementing the ESMPs. (ii) Social Safeguards 92. Some of the project interventions will result in unintended negative social impacts to be mitigated through application of World Bank social safeguard instruments. The project therefore triggers the World Bank safeguard policy on involuntary resettlement (OP/BP 4.12) as land acquisition will be required for new infrastructure related to sanitation. In dense urban and semi-urban areas, this is expected to lead to involuntary resettlement as well as impacts on livelihoods. While the exact impacts are unknown at this stage, except for those related to the Infulene WWTP, the disturbances will result in land acquisition, loss/damage of property; damages to road pavements and driveways; damages to building structures, obstruction to passage; disruption to business activities and loss of income. The rehabilitation of the Infulene WWTP will also involve livelihood impacts on 89 households. While there is no physical relocation of people involved in this intervention, the livelihood impacts are faced by mostly poor and female headed households. A Resettlement Action Plan (RAP) has been prepared acceptable to the World Bank and in accordance with Mozambican legislation. Public consultations on the RAP were held on October 5, 2018 and appropriate grievance‐handling procedures and arrangements for monitoring RAP implementation are in place. The RAP was publicly disclosed in‐country (April 9, 2019) and on the World Bank’s website (April 10, 2019). 93. A relocation site for agricultural plots has been identified and screened in the RAP for 89 households facing livelihood impacts. During implementation, a detailed technical assessment of the site will be conducted to present options for site improvement that are (i) technically viable; (ii) cost effective; and (iii) sustainable to ensure that farmers are no worse off and, ideally, better-off, than before. The site assessment will be approved by independent experts before work on site improvement can take place. If the assessment does not find the identified site to be appropriate for agriculture, the Government will be responsible for finding another suitable site and undertaking a thorough site assessment prior to relocating farmers. A Livelihood Restoration Plan has also been prepared for project affected persons (PAPs) which will be updated during implementation to ensure that all indirectly affected farmers are also included in it where feasible. 94. For the infrastructure not yet fully identified and whose locations are unknown at this stage, a Resettlement Policy Framework (RPF) acceptable to the World Bank has been prepared and once known, the infrastructure investments will be screened as per the provisions of the RPF and appropriate subsequent mitigation measures and instruments formulated and implemented as needed. The RPF was publicly disclosed in‐country (March 15, 2019) and on the World Bank’s website on March 20, 2019. The implementation of the Page 30 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) RPF and RAPs will be financed through the project. The World Bank has exceptionally agreed to use IDA resources to finance the land acquisition and cash compensation associated with the implementation of the RAPs in the amount of US$800,000. 95. The Mozambican Land Law18 establishes a Partial Protection Zone (PPZ) of 100 meters (50 meters on each side), of every water conduit, in which land use is subject to special permits, and Land Use Right (Direito de Uso e Aproveitamento de Terra, DUAT) cannot be obtained. However, the outer 25 meters on either side are not needed for safety or technical reasons. The Law does not differentiate the type and source of water, and whether this is applicable to wastewater. Reducing the right of way would reduce impacts on PAPs and also be consistent with current practices in Mozambique. For the existing infrastructure, these may already have PPZ and project activities to upgrade/rehabilitate are not expected to create additional PPZ, as is the case for the Infulene WWTP. For the new public infrastructure to be built under the project which can potentially create a new PPZ, DNAAS and AIAS need to put in place adequate measures to ensure that the rights of people located within the PPZ are not adversely affected by the application of the Land Law to water conduits and installations being supported by the project, in line with OP 4.12. 96. The project aims to address certain gender and social inclusion gaps. Based on the findings of the sector gender and social inclusion strategy, women and girls disproportionally lack access to sanitation services, and this is critical for young girls who do not have access to adequate MHM facilities at home or school. Data collected by the Ministry of Education and Human Development (Ministério da Educação e Desenvolvimento Humano, MINEDH) shows that of the 143 schools (with 80,300 girls enrolled in 2018) in Tete and Quelimane, about half do not have adequate sanitation facilities. Most of the toilet facilities lack proper maintenance and are not conducive of improved MHM. The situation is worst in Quelimane, where only 34 percent of the schools have a functioning toilet. The project will address some of these gender gaps through the construction of 68 schools’ sanitation systems, of which eight are in Tete and 60 in Quelimane. The project will also support MHM activities through the sanitation marketing campaigns, targeting all the schools at the city level. In addition, the project will support the design of school sanitation management schemes in collaboration with the Education authorities and local private sector. An intermediate result indicator has been included in the project results framework to monitor the success of these actions. This is the number of girls benefiting from improved school sanitation systems, including MHM facilities. Other project interventions which are gender enablers will be the provision of job opportunities for women and youth, both at the PIU level and supporting services; and training opportunities for female staff at the municipal level. 97. The contextual risk for Gender-Based Violence (GBV) in Mozambique is high, similarly to other sub- Saharan countries. According to the latest Demographic and Health Survey (DHS), more than one in three women (37.2 percent) have experienced physical or sexual violence at some point in their lifetime, with higher rates (42.8 percent) found among young women aged 20-24 in Mozambique (DHS, 2011). Taking into consideration the contextual issues, the GBV risk assessment tool was applied to the project to identify necessary mitigation measures that need to be included per the World Bank’s Good Practice Note (GPN). The project is rated low with a score of 11.5. The GBV risks and identification measures have been included in the ESMF including the need for capacity building activities of PIUs and code of conduct for contractors. Additional GBV activities as outlined in the GPN will be integrated during project implementation, including integration of GBV risks in safeguards instruments, adding GBV sensitive approaches to grievance redress mechanisms (GRM) and defining GBV requirements in the bidding documents. 18 Boletim da República (1997) Lei Nr. 19/97 de 1 de Outubro, Maputo, Moçambique. Page 31 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 98. Mechanisms for beneficiary feedback will be supported under the project. The project will promote meaningful two-way interaction between the implementing agencies and the beneficiaries. The project will proactively share information, create awareness, elicit feedback from key stakeholders before, during and after implementation. First, to ensure that investments and other activities financed through the project are implemented in consultation with key stakeholders; and second, to ensure that service providers are held accountable to customers. For the investments, consultations during preparation and implementation are carried out through stakeholders’ workshops, sensitization meetings, local media, community representatives, and public gatherings to ensure that voices of the most vulnerable population groups are taken into consideration. Grievance handling procedures are in place for managing grievances related to environmental and social safeguards and these procedures are fully detailed in the ESMF, RPF, draft ESIA and RAP. 99. The implementing agencies do not currently collect any information on citizen satisfaction related to sanitation. Therefore, as part of the institutional strengthening, a system for customer feedback will be developed for the municipal councils. This system will support disaggregation of data to establish if the services meet the different needs of men and women. (iii) Other Safeguards 100. The project triggers the World Bank policy relating to Projects on International Waterways (OP 7.50). This OP/BP is triggered because wastewater effluent from Tete would flow into tributaries connected to the Zambezi river basin system. Planned sanitation investments under the project are expected to improve the quality of effluent and reduce the overall pollution load in the Zambezi river. In addition, Mozambique is the most downstream riparian so the project will not adversely affect the quality of water flowing to the other riparians (Angola, Botswana, Malawi, Namibia, Tanzania, Zambia, and Zimbabwe). GoM requested the World Bank to notify the other riparian states as required under OP 7.50 and no objections were received before the submission date of February 15, 2019. (iv) Grievance Redress Mechanisms 101. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level GRM or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 102. GRM has been developed to cover any complaint that could arise from the RAP implementation at Infulene Treatment Plant as well as during construction and operation. For sites that have not yet been defined (Quelimane and Tete), a GRM was also set up as part of the RPF/ ESMF to allow affected persons to submit project related Grievances during preparation, construction and operation. Page 32 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) V. KEY RISKS . 103. The overall risk of the project is substantial. Political and governance risks, macroeconomic, institutional capacity for implementation and sustainability, sector strategies and policies risks, as well as fiduciary risks are rated as substantial; while technical design of project or program and stakeholders’ risks are rated as moderate. Environmental and social risks are rated high, because of potential surface and groundwater quality deterioration caused by sewage and fecal sludge discharge. 104. Political and governance risk is rated substantial. Whilst there is recognition by GoM of the need to find solutions to the sanitation challenges there are risks that could come from disagreements at the central and municipal levels. None of the implementing agencies have financial and decision-making autonomy; and political interests can impede decision‐making when it comes to large capital projects and difficult sector reforms. Furthermore, there is potential for political and public resistance to tariff introduction for sanitation. These risks will, to some extent, be mitigated by building broad support for the sector reforms (including the review and update of the relevant legal and strategy documents) whilst institutional strengthening will support improved governance. 105. Macroeconomic risk is rated substantial. The increase in debt levels, the depreciation of the new Mozambique metical, and external shocks (such as commodity price), have heightened Mozambique’s macroeconomic vulnerability and exposure to fiscal risk. All agencies dependent on state budget are cash constrained and are struggling to meet payment obligations with no new sources of working capital. There is limited capacity from the Government to financially bridge or remedy these issues in the short-term. This situation warrants a financing strategy/plan for sanitation services. This risk will be mitigated through the inclusion of price contingencies in the project activities and the technical assistance including the financial model developed under the project which aims at (a) establishing the cost of sanitation services to be gradually recognized through the tariff; (b) establishing a tariff methodology; (c) analyzing the options for a financial strengthening plan at central and municipal levels; and (d) policy dialogue with the Ministry of Finance for implementation of the plan. 106. Sector strategies and policy risks are rated as substantial. There are multiple sector policies and strategies which are generally consistent with the country’s development strategy but with many overlaps and inconsistences. Furthermore, a lack of adequate tariff regulation, cost recovery, sector planning, and funding of critical investments have prevented GoM to expand access to customers. The project design therefore includes technical assistance to establish appropriate tariffs and cost recovery mechanisms for sanitation service. 107. Institutional capacity for implementation and sustainability risk is substantial. All implementing agencies have limited experience in implementing complex infrastructure projects involving multiple stakeholders and in working effectively together. In addition, the legal and institutional complexities related to sanitation service provision pose risks to the sustainability of the project outcomes. The municipal sanitation departments currently operate a relatively small sewerage and drainage network. Under the project, the wastewater collection network is expected to increase, and new technologies introduced. Service delivery to non-sewered areas will be expanded significantly, where latrines, small septic tanks, and FSM services are needed. This presents a major institutional and financing challenges, since it requires a change of strategic orientation as well as different financial, technical and organizational capacities both at central and LG level. Proposed mitigation measures include: (i) the PIUs at DNAAS and AIAS will be strengthened through the recruitment of individual consultants to cover all relevant technical and fiduciary aspects of implementation; (ii) agreement with municipal councils to Page 33 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) prioritize sanitation expenses in the municipal budget and ring-fence revenues from sanitation tariffs; (iii) project allocation of resources for key operation and maintenance costs until tariffs are adequate and collection stabilized; and (iv) development of innovative financing mechanisms for household connection/access to improved sanitation facilities. 108. Fiduciary risks are substantial. DNAAS, AIAS and Municipalities FM and procurement arrangements have been assessed for the project and deemed substantial risk based on their overall limited capacity for implementing a project of this nature. Further details are provided in Section IV B and Annex 4. 109. Environmental and social risks are high. Although the project is expected to have positive socioeconomic impacts, it is expected that some of the project interventions may result in unintended adverse social and environmental impacts, which are assessed as high. In addition, the limited institutional capacity and weak enforcement capacity for environmental regulations pose a risk to the project sustainability. The project risk for GBV is rated low with a score of 11.5. Environmental and social risks will be mitigated through application of standard World Bank safeguard instruments (ESMF, RPF, ESIA/ESMP and RAP). Safeguards expertise will be recruited to the PIU to strengthen capacity for monitoring safeguards implementation. All contracts will include the cost of implementing ESMPs. Page 34 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) VI. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Mozambique Mozambique Urban Sanitation Project Project Development Objectives(s) To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities. Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 To increase access to safely managed sanitation services in selected cities People provided with access to safely managed 0.00 73,572.00 197,193.00 sanitation (Number) Of which 50% are women (Number) 0.00 40,000.00 98,597.00 Of which 40% are from the poorest quintiles of 0.00 29,429.00 78,878.00 the population (Number) To strengthen service delivery capacity at the municipal level Cities with an operational sanitation entity compliant with Government regulatory 2.00 5.00 5.00 framework (Number) Municipal bylaws approved and published 2.00 5.00 5.00 (Number) PDO Table SPACE Page 35 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Priority Sewerage Investments for Maputo, Quelimane and Tete Sewer connections receiving safely managed 0.00 8,000.00 19,296.00 sanitation services (Number) Of which new connections (Number) 0.00 0.00 1,200.00 BoD5 removed from wastewater (Tones/year) 0.00 1,720.00 2,576.00 Length of sewers laid (Kilometers) 0.00 45.00 65.00 Onsite Sanitation Investments for Quelimane and Tete Household sanitation facilities receiving safely 0.00 6,715.00 20,143.00 managed sanitation services (Number) BoD5 removed from septage and fecal sludge (Tones/year) 0.00 265.00 886.00 Girls provided with access to improved school sanitation facilities and MHM education programs 0.00 56,684.00 88,426.00 (Number) People reached by sanitation marketing campaign to promote on-site sanitation financed under the 0.00 79,916.00 133,193.00 project (Number) Public sanitation facilities constructed (schools/markets) (Number) 0.00 60.00 78.00 Municipal Sanitation Services Improvements User fees deposited in sanitation entity bank account (Amount(USD)) 0.00 1,067,000.00 3,200,000.00 Sanitation performance improvement plans prepared by sanitation entity and approved by 0.00 5.00 5.00 council (Number) Customer satisfaction index for sanitation services (Percentage) 0.00 60.00 80.00 Page 36 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Technical Assistance and Project Management Support City Wide inclusive sanitation plans prepared 0.00 1.00 2.00 (Number) Draft Water and Sanitation Law submitted to Parliament (Yes/No) No No Yes IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Safely managed sanitation is defined by the World Health Organization (WHO) as the use of an improved sanitation facility which is not shared with other SINAS and households, and where DNAAS and People provided with access to safely semi-annual project Project reports excreta is safely disposed in municipalities managed sanitation reports situ and/or transported and treated off‐site. Improved sanitation facilities include flush/pour flush toilets to piped sewer, septic tank or pit latrine; and composting toilet or pit latrine with slab. Page 37 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Of which 50% are women Of which 40% are from the poorest quintiles of the population An operational sanitation entity must have a Cities with an operational sanitation Project regulatory framework semi-annual entity compliant with Government reports signed between CRA and the regulatory framework municipality, and an established revenue stream. National Gaz ette, Project DNAAS Municipal bylaws approved and published reports ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Project Semi- Sewer connections receiving safely reports, DNAAS, Municipalities annual managed sanitation services SINAS semi- Project DNAAS, Municipalities Of which new connections annual reports semi- Project DNAAS, Municipalities BoD5 removed from wastewater annual reports semi- Project DNAAS, Municipalities Length of sewers laid annual reports Page 38 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Household sanitation Project facilities receiving safely semi- Household sanitation facilities receiving reports, DNAAS, Municipalities managed sanitation services annual safely managed sanitation services SINAS as a result of the project interventions BoD5 removed from septage and fecal sludge semi- Project BoD5 removed from septage and fecal DNAAS, Municipalities though the project financed annual reports sludge fecal sludge treatment plants Project reports, Ministry of Girls provided with access to improved semi- Education DNAAS school sanitation facilities and MHM annual and Human education programs Development reports People reached by sanitation marketing semi- Project DNAAS, Municipalities campaign to promote on-site sanitation annual reports financed under the project semi- Project Public sanitation facilities constructed DNAAS, Municipalities annual reports (schools/markets) independent verification User fees deposited in sanitation entity annual reports, DNAAS, Municipalities bank account project reports Page 39 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Sanitation performance improvement project annual DNAAS, municipalities plans prepared by sanitation entity and reports approved by council Independent This indicator measures the verification City Councils, percentage of surveyed Customer satisfaction index for sanitation Annually report, Independent verification customer/citizen that are services project consultant satisfied with the sanitation reports services. project City Wide inclusive sanitation plans annual DNAAS reports prepared project Draft Water and Sanitation Law submitted annual DNAAS reports to Parliament ME IO Table SPACE Page 40 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: Mozambique Mozambique Urban Sanitation Project A. Implementation Arrangements 1. The project will be implemented by the MOPHRH through DNAAS and AIAS. DNAAS will be the agency responsible for overall project coordination, planning and monitoring. It will also lead the implementation of the institutional and service development activities under the project, including capacity building for the city councils – Component 3 and provide implementation support for onsite sanitation services – Component 2, including activities in Component 4, related to institutional development, M&E, procurement, FM, and environment and social safeguards for the sanitation marketing program, toilet construction support program and FSM business development. AIAS will be responsible for the implementation of the sewerage investments – Component 1, including the related procurement, FM and safeguards implementation, as well as Sub-component 4.4. 2. DNAAS has, the institutional mandate of proposing and ensuring the implementation of policies, strategies, norms, regulations and technical specifications for water supply and sanitation, as well as the promotion of investments for construction, maintenance and expansion of water supply and sanitation infrastructure (Resolution nº 19/2015, of July 17, 2015). DNAAS has established a PIU for this project, with administrative reporting to the National Director and technical reporting to the Department of Sanitation (Figure 1.1.1). AIAS has the mandate for managing public wastewater and drainage systems as part of the Delegated Management Framework approved through the Decree nº18/2009, of May 7, 2009 and the following Decree nº 19/2009, of May 13, 2009. Therefore, AIAS will establish a PIU that will be responsible for the implementation of the sewerage investments under the project. The PIU at AIAS will be host by the Control, Operations and Technical Assistance Department (DCOAT). 3. The World Bank has carried out an assessment of the capacity of AIAS and DNAAS and concluded that it meets the basic requirements for implementing the project of this scale. DNAAS has established a PIU for this project, including a project coordinator, a procurement specialist and a FM specialist. However, the PIU lacks capacity in some key areas such as environmental and social safeguards and M&E. DNAAS has agreed to strengthen the PIU with the recruitment of additional staff, in order to mitigate the capacity risks to the project. These are an onsite sanitation engineer, an environmental and social safeguards specialist, an M&E specialist and one project assistant. Other specialists could be considered as needed. A new PIU will be established at AIAS to manage Component 1, and will be composed of a project manager, a sewerage engineer, a procurement specialist, a FM specialist, two safeguards specialists (environmental and social), and a project assistant. Other specialists could be considered as needed. 4. The ETNS including all relevant ministries will provide overall project oversight for enhanced coordination and collaboration. The successful implementation of the project hinges on effective coordination, and collaboration among all implementing agencies, other relevant agencies, within MOPHRH, such as AURA, FIPAG and AIAS; as well as other sectors, which are affected by or influence the success of any sanitation intervention. The ETNS was established in 2014 during the preparation of the first National Sanitation Conference, and it has since led all the major sector discussions and activities, including the development of the PIS, the preparation of the five-year government plan on sanitation related activities, and monitoring of sanitation activities at the national level. The ETNS is composed of the national Directorate of Water Supply and Sanitation at MOPHRH, the National Directorate of Municipal Development in the Ministry of State Administration and Public Function, the National Directorate of Page 41 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Public Health at the Ministry of Health (MISAU), the National Directorate of Environment at the Ministry of Land, Environment and Rural Development and the National Directorate of Nutrition and School Health at MINEDH, and the agency leading the donors group for the water supply and sanitation subsector. Other government agencies and sector partners may be invited on a needs basis. 5. The ETNS will specifically provide oversight and guidance to the implementation of the national TA activities aiming at strengthening the capacity of the central institutions. Key tasks of the ETNS are to facilitate the review and update of the legal framework and support the implementation of the PIS activities related to improved coordination and advocacy for sanitation investments at both national and provincial level. The ETNS will also review the annual work plans, budget and project implementation progress; and provide guidance to the PIU on possible solutions to any bottlenecks affecting project implementation. The ETNS will meet every six months, preferably in November and May. The November meeting will review progress against the annual workplan and endorse the annual workplan and budget for the year n+1; while the May meeting will review progress against the annual workplan and recommend adjustments as needed. The PIU at DNAAS will serve as the secretariat for the ETNS and prepare the meetings and ensure the implementation of the recommendations. 6. The municipal councils in Maputo, Beira, Nampula, Quelimane and Tete. The municipal legislation (Law nº 2/97, of February 18, 1997) states that the provision of basic sanitation is the mandate of municipal councils, while the Law nº 11/97, of May 31, 1997 (revised by the Law nº1/2008, of January 16, 2008), further stipulates that public investment for construction of wastewater systems and solid waste management is also within the remit of municipal councils. However, municipal councils currently lack the human and financial means to fully execute their mandates, so the project will strengthen capacities at the municipal councils through provision of goods, equipment and training. In addition, technical teams will be established in each of the three municipal councils who will actively participate in the implementation of all relevant project activities under Components 1, 2 and 3 as well as day-to- day monitoring and supervision. The technical teams in Maputo, Quelimane and Tete will include at least a city project coordinator and sewerage engineer, an onsite sanitation engineer, a safeguards specialist, a community development specialist which will also support M&E at municipal level. For Beira and Nampula, a city project coordinator will be appointed and will work in close collaboration with the sanitation units of those cities. 7. The project will be governed by a set of four agreements: The World Bank will sign a financing agreement with the MEF as the recipient of the IDA grant. MEF will, in turn, sign a subsidiary financing agreement with AIAS, with terms and conditions acceptable to the World Bank. The World Bank will also sign a project agreement with AIAS. DNAAS will sign performance agreements with each of the municipalities of Maputo, Quelimane, Tete, Nampula and Beira, with terms acceptable to the World Bank. All project operational modalities will be detailed in a PIM to be prepared and adopted prior to project effectiveness. Page 42 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Figure 1.1: Project Implementation Arrangements B. Implementation Support Plan 8. Enhanced implementation support by the World Bank will be carried out especially during the first year of project implementation. Semi-annual full implementation support missions along with quarterly technical missions will be held to focus on the following areas: (a) Strategic support. Implementation support missions will meet with the project implementing agencies and other relevant stakeholders to (i) review progress on the project’s activities; (ii) discuss strategic alignment of the project’s different activities, especially at the planning level, between the relevant stakeholders; and (iii) evaluate progress on cross-cutting issues such as M&E, training, communication, knowledge exchange, innovation, dissemination of project results and experiences, and coordination between the relevant stakeholders. (b) Technical support. Implementation support will concentrate on ensuring the technical quality of procurement documents, ToRs, construction plans, and products delivered by consultants. During construction and commissioning, technical supervision will be provided to ensure that contractual obligations are met. Regular site visits will be carried out during project implementation and will involve technical specialists as needed. Page 43 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) (c) Fiduciary support. Periodic procurement and FM support will be carried out by the World Bank semi- annually or annually to (i) perform desk reviews of project interim financial reports and audit reports, following up on any issues raised by auditors, as appropriate; (ii) assess the performance of control systems and arrangements; (iii) update the FM rating in the FM Implementation Support and Status Report as needed; (iv) provide training and guidance on carrying out procurement processes in compliance with the Procurement and Anticorruption Guidelines and the PIM; (v) review procurement documents and provide timely feedback to the PIU; (vi) carry out the post review of procurement actions; and (vii) help monitor project progress against the Procurement Plan. (d) Safeguards support. The close collaboration and implementation support that started in preparation is expected to continue throughout project implementation, including at least semi-annual missions. This is especially important to ensure that the development of appropriate site-specific ESIAs, ESMPs, and RAPs and their implementation along with effective mitigation measures for any negative impacts. The World Bank safeguard specialists will also ensure appropriate measures are in place for the GRMs and to handle GBV. Table 1.1: Implementation Support Resource Estimates Resource Estimates Time Focus Skills Needed (Staff Weeks per year) First 12 Project rollout, management, and implementation Task team leads 6 months support coordination Refine sub-component activities and ensure quality Task team leads/technical specialists 3 of detailed designs especially for on-site sanitation (OSS)/FSM Environmental and social safeguards, including risk Environment and social safeguards 4 mitigation measures specialists Technical and procurement review of ToRs and Task team leads, technical specialists, 4 bidding document procurement specialists Develop ToRs for capacity-building and institutional Task team leads/technical specialists 3 strengthening activities Fiduciary arrangements and FM systems FM specialist 3 Promoting gender and social inclusion and MFD in Task team leads/technical specialists 3 the project Operational support Operations officer 6 12 to 60 Procurement review and feedback of bidding Procurement specialist 6 months documents and consultant contracts Technical review of ToRs, technical reports, and Task team leads, technical specialists 6 bidding documents Non-lending TA, capacity and institutional Task team leads, technical specialists 4 strengthening efforts FM supervision FM specialist 3 Environmental and social safeguards Environment and social safeguards 4 specialists Implementation support including contract Task team leads, technical specialists 8 management, disbursement tracking, M&E, coordination among implementing agencies Operational support, M&E, Impact Evaluation, Technical specialists, IE team, 6 lessons learned, progress and final reporting. operations officer Page 44 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table1.2: Skill Mix Requirements Skill Needs for Implementation Support Location Task team leader, Sr. WSS specialist Region based WSS specialist, OSS/FSM Region based Sanitary Engineer Region based Institutional specialist Headquarters based Lawyer Region based FM specialist Country based Procurement specialist Country based Social specialist Country based Environmental specialist Country based Disbursement officer Region based Page 45 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 2: Detailed Project Design COUNTRY: Mozambique Mozambique Urban Sanitation Project Introduction 1. The project is aligned with the City-wide Inclusive Sanitation approach. Technical solutions will consider the full sanitation service chain, that is, household containment, collection, conveyance, treatment, and safe disposal. Sanitation assessments using the USSI were conducted during project preparation in Quelimane and Tete, which determined the current status of services in those cities. The approach focuses on (a) embedding sanitation within the framework of broader urban governance and municipal services provision; (b) establishing clear roles and responsibilities, with accountability and transparency, and robust service delivery management; (c) delivering ‘safe management’ through the sanitation chain—for both on-site sanitation and sewers—to ensure separation of fecal contamination from people across the whole city; (d) outcomes rather than technologies—allowing for diversity of solutions and approaches; (e) basing decisions on secure operational budgets being available (always planning for O&M); (f) facilitating progressive realization, building on what is already in place; and (g) committing resources to training sector leaders and technicians of the future to solve complex problems rather than deliver fixed solutions. The scope of the Project design is described in the following paragraphs. 2. Key Sanitation Challenges in Maputo, Quelimane and Tete. Citywide sanitation assessments were recently conducted in Quelimane and Tete. For containment, it is estimated that only 4 percent of the residents in the two cities are connected to sewers, while the majority rely on on-site sanitation systems (75 percent), and the remaining 21 percent practice open defecation. The latter is more predominant in the peri-urban areas, where the poor live. In both cities, only a small portion of the fecal waste is adequately collected and disposed of in a safe and environmentally acceptable way, including the fecal flows from water closets, which are not treated (Figure 2.1). In Maputo, close to 90 percent of the residents rely on on-site systems and only 9 percent are connected to sewers. The city has benefited from various initiatives aiming at improving access to improved toilets and FSM services that collect and transport sludge from the peri-urban areas to the Infulene Waste Water treatment plant. However, less than 3 percent of the fecal waste generated in the city is actually treated. 3. City councils are responsible for operating and maintaining the sewers and promoting good hygiene and sanitation practices. The nature and composition of the units responsible for services varies between the cities. In Quelimane, the municipality has established a municipal sanitation company that has been operating for more than a decade. In Tete and Maputo, the responsibilities fall within a sanitation department. In all the three cities, the units cover solid waste management, wastewater management and drainage. However, their primary focus is solid waste management, and very limited drainage and sewerage maintenance. Although the overall responsibility for sanitation service delivery falls within the mandate of the municipalities, there are multiple stakeholders involved, including other central and provincial government entities such as the departments of health and education, small-scale private sector, and the customers themselves. 4. The national policies and strategies on water and sanitation, implicitly assign responsibility for urban sanitation outside sewered areas to individual households, on the assumption that (self-built) latrines can resolve the problem. However, urban sanitation services do not end at containment, but comprise a whole chain from containment, to emptying, collection, treatment, and final disposal which require a city-wide approach. Currently, the service delivery gap for both latrine construction and FSM services is covered by local private and informal Page 46 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) sectors, providing mostly unimproved services. Apart from Maputo, which has a well-established FSM supply chain, there are very limited services in the other three cities, despite the high demand for emptying services. Only two formal vacuum tank operators were identified in Quelimane and Tete, one in each city, primarily servicing septic tanks across the city. The pit latrines are served by the informal methods which are unhygienic and harmful to the environment. These methods are widely employed by informal emptiers in peri-urban areas. (b) Quelimane (a) Maputo (c) Tete Figure 2.1: Fecal Waste Flows for the Project Cities Component 1: Priority Sewerage Investments in Maputo, Quelimane and Tete (US$56.5 million equivalent from IDA Grant) 5. This component will be implemented by AIAS and will finance the construction, rehabilitation and expansion of sewerage and onsite sanitation infrastructure in the cities of Maputo, Quelimane and Tete benefiting approximately 19,300 households with connections to the sewer network. For Maputo, the project will finance the rehabilitation of approximately 8.5 km of sewerage network and upgrade 12,800 household’s connections to the sewers; and rehabilitation and upgrading of the existing Infulene WWTP. For Quelimane, this component will finance the construction of approximately 29 km of sewers, connecting approximately 2,000 households; and construction of a new waste water treatment plant. In Tete, the project will finance the construction of 20 km of Page 47 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) sewers, connecting 3,300 households; and construction of a new waste water treatment plant. Under this component, the project will also finance three condominial systems comprising 200 connections each, in Quelimane and Tete. This component will also finance the resettlement expenses, engineering design studies and supervision costs, including land acquisition and cash compensation. The cost of these interventions is estimated at US$56.5 million, including the costs of implementing the safeguards instruments. These estimates are based on the feasibility and pre-feasibility assessments carried out in all the four cities. 6. The proposed interventions on sewerage improvements, including the drainage investments will reduce the probability of sanitation infrastructure becoming overwhelmed by floods, thereby lowering the risk of contamination of water bodies after floods and the number of service interruptions during and after extreme weather events. Priority will be given to the restoration and reconstruction of the areas affected by the Cyclone Idai in the cities of Quelimane and Tete. Sub-component 1.1 Priority sewerage works for Maputo (US$23.0 million) 7. The sub-component will finance priority sewerage investments for Maputo city, including the rehabilitation of the Infulene WWTP, critical sewer sections and two pumping stations. 8. Rehabilitation and expansion of Infulene Treatment Plant. Maputo has both wastewater and storm water drainage networks, divided in two main system – System I, which covers the city center and old part of the city, is a combined sewer system with about 70 km and discharges into the Maputo Bay. System II constructed during the 80s is designed as a separate system and covers about 12.6 km of sewers and serves about 50,700 inhabitants and is connected to the Infulene WWTP. Currently, a significant fraction of the city wastewater that was originally designed to be channeled to Infulene is being directly discharged into Maputo Bay, without treatment; and only a small part of the sewage is actually transported to the WWTP, which has been in operation since 1987. The plant was initially designed to serve 90,000 people (555 L/s), and so far, has not reached its operational capacity (the average estimated inflow varies between 50 L/s and 90 L/s, which represent 15 to 20 percent of the design peak flow). The plant also receives sludge from septic tanks and latrines which are discharged into the two anaerobic ponds from vacuum trucks and sludge tanks. Water quality assessments show that the final outflow quality doesn’t comply with the requirements in National legislation, namely for Total Suspended Solids (TSS) (< 60 mg/L) and Chemical Oxygen Demand (COD) (or Biological Oxygen Demand (BOD)) (< 150 mg/L), nor in terms of water quality for agricultural use (< 102 CF/100 mL). 9. The critical challenge of the Infulene plant has to do with sludge accumulation and adequate disposal, particularly sludge from anaerobic ponds. Both anaerobic ponds are presently filled with sludge and partly covered by plants of the Phragmites australis family (reed). Both facultative ponds are covered by Eichhornia Crassipes (water hyacinth), an infesting macrophyte plant of the de Pontederiaceae family (Figure 2. 2.2). The project will thus prioritize the rehabilitation and desludging of the existing ponds, and construction of a sedimentation tank and drying beds to improve the operation of the plant to its design capacity (average 11,115 m3/d including wastewater and fecal sludge) and increase BOD removal efficiency to 70 percent; construction of additional anaerobic and maturation ponds. Additional works will include: installation of a perimeter fence around the treatment plant; inlet works including a small pumping station, flow measurement equipment installation and construction of the operations building for the treatment plant, including equipping a monitoring laboratory. Figure presents the schematic representation of the proposed interventions at Infulene. Instead of a second set of facultative ponds (expansion – item 6), the project will finance maturation ponds, to further improve the effluent quality. Innovative solutions for fecal sludge management will be explored during implementation, including options for fecal sludge and septage re-use for bio-fuel production or fertilizer. Page 48 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Figure 2. 2: Status of the Infulene Treatment Plant with High Levels of Sludge Accumulation Figure 2.3: Proposed Interventions at the Infulene Treatment Plant. 10. Rehabilitation of the sewerage network and pumping stations. The project will finance the rehabilitation and upgrading of sewers in priority areas under the System II. The city has two types of systems, the combined sewers – System I, were originally designed to discharge into the Bay, and the separate sewers – System II that are Page 49 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) connected to the Infulene Treatment Plant. However, part of System II is also discharging wastewater into the Bay, through some weirs and streams, due to the inoperability of Sommershield and Polana Cimento pumping stations (EE2 and EE1, respectively). This is one of the most critical issues in terms of the city’s wastewater drainage. 11. Specific project interventions on the sewerage network include the rehabilitation of the two pumping stations, rehabilitation of critical sections of the raising mains and gravity main along the Joaquim Chissano Avenue, resulting in service upgrade for approximately 12,800 households’ connections to System II, as well the implementation of safeguards instruments, including land acquisition and cash compensation. The detailed list of investments for Maputo is presented on Table 2.. Table 2.1: Priority Sewerage Interventions for Maputo Estimated cost Description Unit Qty (US$ million) Rehabilitation and upgrading of the Infulene WWTP Offices and other facilities no 1 0.55 Preliminary treatment, including new settling ponds no 2 0.30 Rehabilitation of existing ponds (2 anaerobic and 2 facultative) no 4 3.30 Construction of the new ponds (2 anaerobic and 2 maturation) no 4 5.40 Construction of the fecal sludge treatment facility no 1 4.10 Pumping stations (sludge and sewage) no 2 0.50 Electromechanical equipment 0.15 Other costs (fencing, power connections, landscape) 0.25 sub-total 14.55 Sewers rehabilitation and upgrade Trunk sewers and main sewers between 500 to 1100mm km 8.5 0.94 Pumping stations (up to 350l/s) no 2 0.90 Rehabilitation of manholes no 280 0.28 Connections upgrade no 12,800 0.40 Other costs (road crossing, water and electricity lines) 0.2 sub-total 2.72 Implementation of RAP and ESMP, including technical assistance 1.73 Total 18.99 Contingencies (15%) 1.90 Engineering design and supervision 2.11 Total Cost Estimate for Sub-component 1.1 23.00 Sub-component 1.2 Priority sewerage works for Quelimane (US$16.5 million) 12. The project will finance the upgrade of the existing sewerage system, including 2 km of sewer mains and 29 km of sewer collectors, that will benefit approximately 2,000 households. The system will also include a new Page 50 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) WWTP with trickling filters, due to limited availability of space for the construction of ponds. The treatment plant is expected to remove approximately 130 tons of BOD per year and will included an operations building with an equipped monitoring laboratory. In addition, the project will finance three pilot condominial systems with 200 connections each, including a decentralized treatment unit. The details of the proposed investments are presented in Table 2.. These options will be further analyzed in the feasibility assessments and engineering designs to be carried out in the first year of project implementation. 13. The project will also finance the rehabilitation of secondary and tertiary canals for storm water drainage in some of the critical peri-urban areas of the city. Under the MCC project which was concluded in 2015, storm water drains were rehabilitated in the cement city, and the main canals across the city. However, most of the secondary and tertiary canals that drain water to the main canals were not intervened, and the surrounding areas are periodically flooded, limiting the mobility of the residents and posing public health risks due to stagnant waters. The project will therefore invest in the rehabilitation and upgrading of secondary and tertiary canals, aiming at improving the resilient of the sanitation infrastructure and services, and ensure that the systems function even in extreme climate change events. Moreover, the project will finance the implementation of safeguards instruments, including land acquisition and cash compensation. Table 2.2: Priority Sewerage and Drainage Works for Quelimane Cost (US$ million) Description Unit Qty Sewer connections (upgrade of existing connections) un 1,959 0.69 Sewer collectors (160mm to 200mm) km 27.00 4.05 Trunk sewers and sewer mains (up to 500 mm) km 2.10 0.63 Pumping stations (up to 30 l/s) un 2 0.60 WWTP-trickling filter un 1 2.55 Drainage works km 10.00 1.50 Condominial sewers (200 connections and decentralized treatment) un 3 1.5 Safeguards implementation, including technical assistance 1.18 Sub-total 12.69 Contingencies (20%) 2.54 Engineering design and supervision, and technical assistance for safeguards 1.27 16.50 Total Quelimane Sub-component 1.3 Priority sewerage works for Tete (US$17.0 million) 14. Construction of sewerage and drainage works in Tete. The project will finance the rehabilitation and expansion of the existing sewerage system, including 6 km of sewer mains and 14 km of sewer collectors, that will benefit approximately 3,300 households residing in the cement city of Tete. The system will also include a pond WWTP with an operational building with an equipped laboratory. The treatment plant is expected to remove approximately 250 tons of BOD per year. The project will also finance three pilot condominial system with 200 connections, each, including a decentralized treatment unit; and priority drainage works in critical areas, aiming at improving the resilient of the sanitation infrastructure and services to floods, and ensure that the systems function even in extreme weather events. The project will also finance the implementation of safeguards instruments, including land acquisition and cash compensation. The details of the proposed investments are Page 51 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) presented in Table 2.. These options will be further analyzed in the feasibility assessments and engineering designs to be carried out in the first year of project implementation. Table 2.3: Priority Sewerage and Drainage Works for Tete Description Unit Qty Cost (US$ million) Sewer connections (upgrade of existing connections) un 3,337 1.10 Sewer collectors (160mm to 200mm) km 21.40 3.21 Trunk sewers and sewer mains (up to 500 mm) km 6.00 1.80 Pumping stations (up to 30 l/s) un 1 0.30 Pumping stations (up to 60 l/s) un 1 0.50 WWTP-lagoon system un 1 2.46 Drainage works km 8.20 1.22 Condominial sewers (200 connections and decentralized treatment) un 3 1.5 Safeguards implementation, including technical assistance 0.99 Sub-total 13.08 Contingencies (20%) 2.62 Engineering design and supervision 1.30 Total Tete 17.00 Component 2: Onsite Sanitation Investments for Quelimane and Tete (US$32.5 million equivalent from IDA Grant) 15. Open defecation is widespread in Quelimane and Tete. In Quelimane, 22 percent of the residents do not have a toilet and practice open defecation, primarily along the mangrove areas in the outskirts of the city. In Tete, 20 percent of the residents do not have a toilet, most of which are concentrated in the Degue neighborhood and defecate along the Zambezi river. Since the closure of the Improved Latrines Program in early 2000s, households have difficulties accessing on-site sanitation services for construction and maintenance of their toilets, particularly the venerable and female headed households. Local artisans, most of which are poorly trained and not regulated are currently providing these services in the peri-urban areas. The city councils with support from the National Government, some international and local NGOs, have implemented a number of sanitation promotion programs. However, past efforts did not result in significant increase in coverage for safely managed sanitation systems, due to limited financial capacity of the poor households, and limited supply capacity. The project will therefore invest on five complementary activities to increase the uptake and use of safely managed sanitation systems: (i) extensive sanitation marketing and hygiene promotion to influence sanitation behaviors, including menstrual hygiene management; (ii) support to construction of onsite sanitation facilities for the poor and vulnerable households in the city; (iii) construction and improvement of the management of public sanitation systems in schools and markets, including MHM facilities for women and girls; (iv) construction of FSTPs; and (v) business development support for private operators on FSM. 16. The activities under this component will promote personal hygiene and healthy sanitation behavior and reduce the environmental impact of human waste—by reducing the volume of untreated fecal sludge, and potential contamination of water bodies during floods. Improve hygiene behavior will also enable households to better manage their sanitation conditions during the droughts with limited availability of water, thus contributing to higher resilience of the beneficiaries to these extreme events. Under this component, the Project will also Page 52 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) support the emergency response activities in the poor and vulnerable neighborhoods of Quelimane and Tete, though the reconstruction support program for household and public sanitation facilities destroyed during the Cyclone Idai. Municipalities will be supported by DNAAS in the implementation of this component. 17. Sanitation marketing and hygiene promotion. The project will finance a sanitation marketing and hygiene promotion activities to influence sanitation behaviors and create demand for safely managed sanitation services (sewer connections and improved onsite sanitation facilities). An experienced consultancy firm will be engaged to develop a sanitation marketing strategy for the two cities and provide overall support to the city councils in implementing the strategy. The campaign will apply the latest social and commercial marketing practices, as well as cutting edge behavior science to influence sanitation behaviors and create demand for the sanitation products and services that will be developed under the project. The sanitation marketing activities will be implemented across the project cities, with tailored messages and marketing activities to support adoption of services in the specific areas of interventions. A special focus will be given to MHM and related activities targeting young school girls. The campaign will involve mass media, direct contact, as well as product demonstrations and possibly working with locally present CBOs/NGOs. The sanitation marketing campaign will be complemented by the development and enforcement of sanitation bylaws in all the three cities. 18. Support to construction of improved OSS facilities for vulnerable households. The city-wide assessments suggest affordability as a key barrier preventing households from investing on sanitation in Quelimane and Tete; and therefore, relying on open defecation as the solution for their excreta management. Given the public health benefits of improving sanitation, the project will finance a partial, targeted subsidy to support construction of OSS facilities for poor and vulnerable households. The households will be targeted using existing official social safety net mechanisms. Among the vulnerable, female headed household will be prioritized. The project is expected to partially finance the construction of approximately 20,100 household OSS systems. Priority target areas will be those with high incidence of open defecation, identified through the city-wide assessment. 19. Proposed technical solutions include: (i) pour flush toilet connect to septic tanks; and (ii) ventilated improved latrines. The choice between the two solutions will depend on site conditions, affordability and user preferences. Further, the systems will include design features to facilitate MHM for women and girls. The project will also support households currently using unimproved toilets that are willing to upgrade their toilets or construct new facilities. The cost of the toilets will be shared between the city council (through the project) and the targeted households. The exact distribution of costs between the city council and the household will be determined during implementation based on the type of facility and affordability. Construction will be implemented through an output-based contract with either a contractor or a community-based enterprise, with demand risk sharing between the city council and the contractor. Demand creation will also benefit from extensive support from the marketing activities under the project, which will include household mobilization and technical assistance, materials and training to the contractors. In addition, the city council will make use of its existing community management structures to support the marketing effort and household mobilization. 20. Public toilets in schools and markets. The project will finance construction of 78 public sanitation facilities, of which 68 for schools’ sanitation and 10 for markets. Standard designs that include hand-washing facilities and ensure easy accessibility for people with disabilities will be used and MHM facilities for women and girls. For schools and to ensure maximum health impact, hygiene promotion activities will be carried out through the marketing firm financed under the project, including training for teachers and pupils. The firm will also develop marketing activities and products for MHM targeting all the schools in both cities. The market sanitation facilities will be developed in partnership with local private operators and explore innovative solutions for sludge and organic solid waste treatment and reuse. The city councils will engage small-scale private operators and sanitation Page 53 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) entrepreneurs through public private partnership contracts who will run the market sanitation facilities as businesses and keep them maintained. 21. Construction of FSTPs. Four new FSTPs will be constructed in the two cities to improved FSM and promote sludge re-use. Two in Quelimane and two in Tete. The FSTPs will be developed in partnership with private operators or NGOs and will include sludge reuse. The developer, with support from the project will explore the potential re-use market (agriculture, biogas, biofuel, etc) and design the FSTP to respond to the market demand for bio-products. 22. FSM business development. The project will finance FSM business development support to the domestic private sector in Quelimane and Tete. With the objective of (i) improving the quality of services at an affordable and predictable price; (ii) enhance accountability and service monitoring; (iii) to maximize incentives for expansion of emptying services in currently unserved areas; and (iv) to test new and innovative partnerships with the private sector, which could be leveraged in other cities. The project will finance TA aiming at assessing the market conditions and identify the potential gaps; design partnership models between city councils and domestic private sector, and a mechanism to incentivize service expansion in unserved areas, including financial and regulatory incentives to the private operators. In addition, the project will finance the development of call centers and other IT platforms to facilitate FSM service delivery. Sub-component 2.1 Onsite sanitation investments for Quelimane (US$18.00 million) 23. In Quelimane, the project will finance: (i) sanitation marketing and hygiene promotion to influence sanitation behaviors; (ii) support to the construction and upgrade of 11,000 household on-site sanitation systems; (iii) construction of 65 public sanitation facilities in schools and markets; (iv) construction of two FSTPs; and (v) support to private sector on FSM business development. The details of the proposed onsite sanitation investments in Quelimane are presented in Table2.. Table2.4: Onsite Sanitation Investments in Quelimane Description Unit Qty Cost (US$ million) Toilet construction support for household sanitation no 10,957 6.94 Construction of fecal sludge treatment and reuse plants no 2 3.35 Construction of public toilets no 65 0.85 Safeguards implementation, including technical assistance 0.56 Sub-total 11.69 Contingencies (20%) 2.34 Sanitation marketing (including menstrual hygiene management) 1.26 FSM business development (technical assistance and equipment to support private operators) 1.68 Engineering design and supervision 1.03 Total Quelimane 18.00 Sub-component 2.2 Onsite sanitation investments for Tete (US$14.5 million) 24. In Tete, the project will finance: (i) sanitation marketing and hygiene promotion to influence sanitation behaviors; (ii) support to the construction and upgrade of 9,200 household on-site sanitation systems, (iii) construction of 13 public sanitation facilities in schools and markets; (iv) construction of two FSTPs; (v) support to Page 54 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) private sector on FSM business development. The details of the proposed onsite sanitation investments in Tete are presented in Table 2.5. Table 2.5: Onsite Sanitation Investments in Tete Description Unit Qty Cost (US$ million) Toilet construction support for household sanitation no 9,186 5.82 Construction of fecal sludge treatment and reuse plants no 2 2.98 Construction of public toilets no 13 0.17 Safeguards implementation, including TA 0.45 Sub-total 9.42 Contingencies (20%) 1.88 Sanitation marketing (including menstrual hygiene management) 0.82 FSM business development (TA and equipment for supporting private operators) 1.64 Engineering design and supervision 0.74 Total Tete 14.50 Component 3: Municipal Sanitation Services Improvements (US$11 million equivalent from IDA Grant). 25. This sub-component will provide performance-based grants to participating municipalities to finance sanitation service improvement activities. The grants will be linked to achievement of a minimum set of indicators (institutional, operational and financial) under a performance agreement signed between each participating municipality and DNAAS. Municipalities will utilize the grants to finance equipment and logistical support, and other assets and tools needed for effective sanitation service provision. The grant will also contribute to, on a declining basis, financing gaps between the cost of delivering sanitation services and the sanitation revenues collected. It is expected that these funds will be used to improve maintenance and operations of the sanitation infrastructure, thus increasing its climate resilience and lowering the probability of service interruptions even in the face of extreme weather events. The grant will also contribute to, on a declining basis, financing gaps between the cost of delivering sanitation services (excluding capital costs covered under Components 1 and 2) and the sanitation revenues collected. 26. Key service delivery challenges at municipal level. The ENASU charges the Municipal Councils with instituting a comprehensive approach to managing all elements of the sanitation service chain, in both urbanized and non- urbanized areas. To deliver on this, the strategy encourages the building of sanitation management capacity in cities and towns, adopting different solutions depending on their size, creating Autonomous Municipal Sanitation Services where deemed appropriate. Various sources of capital and recurrent funding are proposed, including a Sanitation Fee, in principle added to the water bill, to finance the operation and maintenance of the public sanitation services, in accordance with the standard and quality of services provided and the degree of autonomy of the responsible entity. 27. Of the five municipal councils proposed for service improvement support, Beira, Nampula and Quelimane have established municipally owned enterprises. In Tete and Maputo, a sanitation department is responsible for service provision. Apart from Maputo and Beira, the sanitation units cover a number of services, including solid waste management, waste water management and drainage. However, their primary focus is solid waste management, and very limited drainage and sewerage maintenance. Outside the sewered areas the responsibilities for services is left to the individual households, serviced by local private and informal sectors, Page 55 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) providing mostly unimproved services. Generally, the cities have limited technical capacity and lack the necessary resources, tools and assets to perform their functions effectively and efficiently. They do not have qualified personnel for sewerage operations; they lack basic equipment and logistical support to manage the services. There are many unfilled technical positions, as the cities is not able to offer competitive salaries and career opportunities. 28. The city councils face severe funding constraints, some of which can be attributed to the councils’ expenditure pattern characterized by high proportion of pay-roll related costs compared to available own-source revenues. In addition, a high proportion of staff are not active, despite being part of the wage bill. Apart from Beira and Quelimane, none of the other municipalities has established a specific revenue stream for sanitation services, and most of the expenses are financed through the municipal budget. A very small portion of the revenue comes from septic tank emptying and cleaning fees. Sewerage connections to the underutilized networks are done sporadically with very limited contribution to the overall municipal revenues. Thus, the cities’ focus is on limiting their costs through minimum sewer cleaning and unblocking, and some sanitation and hygiene promotion activities during emergency response to epidemics. 29. Performance-based grant scheme. Municipalities are struggling to provide sanitation services. There are three prominent and interrelated barriers to improving sanitation services: (i) fiscal constraints that limit the level of services that municipalities can afford to provide; (ii) low willingness to pay amongst beneficiaries due to the poor quality of services; and (iii) institutional capacity constraints as described above. A performance-based grant scheme is proposed to address these barriers concurrently. A key assumption underpinning this proposal is that performance-based grants can help (i) overcome bureaucratic inertia at the municipal level leading to action on long standing institutional issues; and (ii) improve service quality which will increase willingness to pay and enable municipalities to gradually recover a greater proportion of the cost of delivering services through sanitation fees. Among other interventions in the project, the performance-based grant scheme will provide financing to enable municipalities deliver service improvements early in the project, which will increase their ability to gradually collect higher sanitation revenues from beneficiaries. 30. The proposed performance-based grant consists of two parts: (i) a fixed part linked to achievement of certain institutional prerequisites (such as establishment of a ring-fenced municipal sanitation department, approval of the sanitation service improvement plan and sanitation fee) during the first two years of the project, and (ii) a variable part linked to actual sanitation revenues collected by the municipality throughout the project period. The fixed part of the grant will be provided only during the first two years of the project and will not be available thereafter. The amount for each municipality has been determined using a simple rule of thumb – i.e. 50 percent of the cost of service in each of the first two years or the estimated cost of the start-up equipment and other assets required by the municipality in each of the first two years, whichever is higher. 31. The variable part of the grant will be based on analysis of the cost structure of sanitation services in each municipality; revenue generation potential and existing or future municipal government contributions to the sanitation services sub-sector. The variable grant will be provided to municipalities based on verified sanitation revenues collected through sanitation surcharges, provided sanitation services meet minimum performance criteria. The variable grant amount for each municipality will be based on agreed multiples (hereafter referred to as ‘Annual Grant Multiplier or AGM’) of verified sanitation revenues collected. The performance agreement will specify AGMs for each year within the project period. Municipalities will only be eligible for a maximum variable grant amount in any given year regardless of the amount of sanitation revenues collected. 32. This two-part design will enable service quality improvements to occur rapidly whilst the process of increasing sanitation revenue can occur gradually. The design of the performance-based grant assumes a municipal Page 56 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) government contribution equivalent to the envisaged cost-recovery gap in the year after the project closes or the existing municipal expenditure on sanitation services (if known)19. This amount is assumed to be made available from the third year of the project and will remain approximately constant (in real terms) throughout the life of the project such that a consistent fiscal space for sanitation services will develop within each municipality’s budget. Gradual increases in sanitation revenue will enable municipalities to cover an increasing portion of the costs of services using sanitation revenues. Table 2.6 shows the grant estimates for the initial pipeline of municipalities (Tete, Quelimane, Nampula and Maputo). These estimates will be further refined prior to signing of the performance agreements with each municipality. Grant estimates for the Municipality of Beira will be determined during project implementation, following a detailed financial assessment. Table 2.6 Performance-Based Grant Estimates for Tete, Quelimane and Maputo Parameter Y1 Y2 Y3 Y4 Y5 Y6 Y7 Tete Cost recovery from revenues (%) 37% 41% 40% 34% 36% 54% 55% Municipality contribution (%) 0% 0% 41% 29% 29% 41% 45% Annual Grant Multiplier 0.00 0.20 0.50 1.1 1.00 0.10 0.00 Cost of Services (US$ millions) 0.69 0.67 0.73 1.03 1.05 0.73 0.76 Paid for by… Municipality Contribution20 0.00 0.00 0.30 0.30 0.30 0.30 0.35 Verified Sanitation Revenues (R) 0.26 0.27 0.29 0.35 0.37 0.39 0.42 Fixed Performance-Based Grant (A) 0.45 0.33 Variable Performance-Based Grant (B) 0.00 0.06 0.14 0.38 0.37 0.03 0.00 Total Grant (A+B) 0.45 0.40 0.14 0.38 0.37 0.03 0.00 Cumulative Grant Amount (US$ 0.45 0.85 0.99 1.36 1.74 1.77 millions) Queliman Cost recovery from revenues (%) 12% 13% 13% 14% 12% 18% 18% e Municipality contribution (%) 0% 0% 50% 45% 38% 66% 82% Annual Grant Multiplier 2.1 2.7 3.0 3.0 4.1 0.9 0.0 Cost of Services (US$ Millions) 0.73 0.71 0.80 0.89 1.06 0.76 0.79 Paid for by… Municipality Contribution21 0.00 0.00 0.40 0.40 0.40 0.5 0.65 Verified Sanitation Revenues (R) 0.09 0.10 0.10 0.12 0.13 0.14 0.14 Fixed Performance-Based Grant (A) 0.45 0.36 Variable Performance-Based Grant (B) 0.19 0.26 0.30 0.37 0.53 0.12 0.00 Total Grant (A+B) 0.64 0.62 0.30 0.37 0.53 0.12 0.00 Cumulative Grant Amount (US$ millions) 0.64 1.26 1.56 1.92 2.45 2.57 Maputo Cost recovery from revenues (%) 106% 142% 79% 74% 47% 53% 53% 19 Most of the municipalities do not maintain separate accounts for sanitation services. Therefore, it is difficult to ascertain with reasonable accuracy the existing municipal expenditure on sanitation services. 20 This contribution represents about 16 percent of the annual budget for Tete Municipality. 21 This amount represents about 18 percent of the annual budget for Quelimane municipality. Page 57 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Municipality contribution (%) 0% 0% 95% 72% 44% 47% 47% Annual Grant Multiplier 0.00 0.00 0.00 0.00 0.19 0.01 0.00 Cost of Services US$ millions) 1.40 1.10 2.09 2.78 4.56 4.30 4.51 Paid for by...... Municipality Contribution22 0.00 0.00 2.00 2.00 2.00 2.00 2.10 Verified Sanitation Revenues (R) 1.49 1.57 1.66 2.05 2.16 2.28 2.41 Fixed Performance-Based Grant (A) 0.81 0.55 Variable Performance-Based Grant (B) 0.00 0.00 0.00 0.00 0.40 0.02 0.00 Total Grant (A+B) 0.81 0.55 0.00 0.00 0.40 0.02 0.00 Cumulative Grant Amount (US$ 0.81 1.36 1.36 1.36 1.76 1.77 millions) Cost recovery from sanitation revenues 30% 41% 38% 34% 39% 67% 67% (%) Municipality contribution (%) 0% 0% 33% 23% 25% 41% 33% Annual Grant Multiplier (M) 0.0 0.2 0.8 1.3 0.9 0.0 0.0 Cost of Services (millions) 1.07 0.81 0.92 1.28 1.19 0.73 0.76 Paid for by… Nampula Municipality Contribution (negotiable) 0 0 0.3 0.3 0.3 0.3 0.25 Verified Sanitation Revenues (R) 0.32 0.33 0.35 0.43 0.46 0.48 0.51 Performance-Based Grant (fixed)- A 0.81 0.41 Performance-Based Grant (variable)-B 0.00 0.07 0.27 0.54 0.43 0.00 0.00 Total Grant (A+B) 0.81 0.48 0.27 0.54 0.43 0.00 0.00 Cumulative Grant Amount 0.81 1.29 1.55 2.09 2.52 2.52 - 33. Performance scorecard. Central to the performance-based grant scheme is a performance scorecard which will be developed and agreed with each participating municipality. The scorecard consists of three categories of indicators: (i) institutional prerequisites necessary for sustainable service provision; (ii) service performance indicators; and (iii) financial performance indicators. The first category includes a set of institutional actions which municipalities need to undertake within the first two years of the project to strengthen the institutional framework for service provision. The second and third categories include indicators to track service provision performance. Table 2. shows the proposed performance indicators and proposed weighting system. 34. Considering the lack of a structured system for collection and monitoring of operational and financial data on sanitation services in the municipalities, the baseline data on service and financial performance indicators will only be available after the second year of the project when the monitoring system has been put in place. DNAAS will agree on performance targets with each municipality and renegotiate (to be included in the performance agreement), considering each municipality’s starting point. 22 This amount represents about six percent of the annual budget for Maputo municipality. Page 58 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table 2.7: Performance Scorecard Indicator Weight (Year 1-3) Weight (Year 4-6) A Institutional prerequisites 100% 20% 1 Ring-fenced municipal sanitation 0% department/entity established and adequately 30% staffed 2 Five- year sanitation service improvement plan 0% 10% (SSIP) approved 3 Sanitation surcharge approved 30% 0% 4 Sanitation bylaw passed by council and gazette 20% 0% 5 Service monitoring system established and 20% 10% operational B Service performance 0% 60% 6 Proportion (%) of households connected to the 0% 10% sewer network 7 Proportion (%) of households using a safely 0% 10% managed onsite sanitation facility (with access to FSM services) 8 Response time to address sewer blockages 0% 15% 9 Tons of BoD removed by the WWTP 0% 10% 10 Customer satisfaction with sanitation services 0% 15% C Financial performance 0% 20% 11 Operating cost coverage23 (%) 0% 20% 35. Verification mechanism. The performance-based grant will be subject to two separate independent verifications: (i) technical verification to confirm achievement of indicators on the performance scorecard; and (iii) financial verification to confirm the level of sanitation revenues collected (the basis for calculation of the variable portion of the grant), based on a validation of the sanitation surcharge revenues deposited in the municipality’s account for sanitation services. Acceptable technical verification will trigger financial verification. Acceptable financial verification will trigger the transfer of the variable portion of the grant to the municipality’s sanitation account. 36. Table 2. shows the proposed minimum performance requirements on the scorecard. If technical verification confirms achievement of the minimum performance score in the verification period, financial verification will determine the grant to be provided to the municipality – which includes a fixed portion (applicable to year 1 and 2 only) and a variable part (applicable throughout the project period) based on an agreed multiple of the verified sanitation revenues in the year. Municipalities will only be permitted to fail technical verification on three occasions. In the unlikely event that they fail on all three occasions, their participation in the scheme will be reconsidered. 23 Cost coverage from a combination of sanitation revenues, performance-based grants and municipal contribution. This indicator will help to track municipal contributions. Page 59 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table 2.8: Minimum passing scores on the scorecard Indicator category Minimum score in year 1-3 Minimum score in year 4-6 Institutional prerequisites 80 out of 100 20 out of 20 Service performance n/a 30 out of 60 Financial performance n/a 10 out of 20 Total minimum compliance requirement 80 out of 100 60 out of 100 Component 4: Technical Assistance and Project Management Support (US$15 million equivalent from IDA Grant). Sub-component 4.1 Technical Assistance for National Institutional strengthening (US$4.1 million) 37. Key Institutional Challenges. The responsibility for urban sanitation investment planning and implementation is fragmented across different institutions within the Ministry of Public Works, Housing and Water Resources (MOPHRH). Although the Government is giving higher attention to urban sanitation, following approval of the National Urban Water and Sanitation Strategy (ENASU) in 2011, attempts to date to improve the situation have been frustrated by the need to involve and effectively coordinate the institutions with mandate for sanitation planning. In addition to the sector specific challenges, there are a number of uncoordinated sanitation interventions led by other ministries, such as education, health and environment, as well as international and national NGOs which have been supporting hygiene and sanitation promotion activities across the country. The Government believes the benefits of such interventions could be maximized, if synergies are built among the different stakeholders. 38. In 2014, the Government adopted the PIS which was included in the Government’s five-year plan (2015-2019). A notable feature of the PIS is its focus on inter-institutional collaboration—across sectors, across levels of government, and across public-private boundaries—in achieving sanitation policy objectives. Another priority of the PIS is to harmonize the national policies and strategies, and support capacity development al the provincial and municipal level. The project will therefore finance TA to support the studies and respective policy instruments, as well as related implementation tools to clarify roles and responsibilities, and improve coordination among the different institutions involved in sanitation planning and service delivery. Key activities for institutional strengthening at the national level include: (i) the review and harmonization of the legal and institutional framework, including the review of the Water Law and Water Policy to clarify roles and responsibilities between the central agencies and the municipal entities for sanitation investment planning, and service delivery; (ii) development of regulatory tools for urban sanitation service delivery, including performance-based financing arrangements between central and municipal authorities; (iii) preparatory studies for the next generation of sanitation investments; and (iv) staff training for key institutions involved in sanitation policy and planning at the national level. Sub-component 4.2 Technical Assistance for Municipalities (US$4.0 million) 39. This sub-component will finance technical assistance activities to support municipalities in achieving their obligations under the performance agreement, as well as incremental project management costs for PIUs at the municipal level for all the five cities benefiting from Component 3. TA activities to be supported will include: (i) studies and change management support for establishment of ring-fenced municipal sanitation departments/entities; (ii) drafting of sanitation bylaws; (iii) preparation of sanitation service improvement plans; (iv) development of financing arrangements, including necessary studies to establish sanitation surcharges; (v) Page 60 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) establishment of a service monitoring system covering critical aspects of sanitation service provision, including technical, customer service, financial, and environmental aspects; (vi) on-demand technical support on operational and maintenance aspects; and (vii) incremental project management costs for municipalities. These funds will be managed centrally by DNAAS. Sub-component 4.3 Project management support for DNAAS (US$3.5 million) 40. DNAAS has limited technical capacity and experience in preparing and managing complex investment projects and will therefore require technical assistance. The project will therefore finance technical assistance and incremental operating costs to ensure fiduciary compliance including FM, procurement and environment and social safeguards, project coordination, M&E. This component will support necessary equipment (e.g. computers, software and other goods), capacity building (training), and incremental staff to equip the project implementing unit at DNAAS to carry out their responsibilities and ensure adequate results M&E. These funds will be managed by DNAAS. Sub-component 4.4 Project management support for AIAS (US$3.4 million) 41. This sub-component will be managed by AIAS and will finance technical assistance and incremental operating costs to ensure fiduciary compliance including FM, procurement and environment and social safeguards, for activities related to project Component 1. This sub-component will finance equipment, training and incremental staff to equip the project implementing unit at AIAS to carry out their responsibilities. Component 5: Contingency and Emergency Response (US$0.0). 42. This component will provide immediate response to an Eligible Crisis or Emergency, as needed. This would finance emergency works in the case of another disaster event by including a "zero-dollar" CERC. This would help recover damage to infrastructure, ensure business continuity, and enable early rehabilitation. In parallel, following an adverse event that causes a major disaster, the GoM may request the World Bank to channel resources from this component into an IRM. The IRM would enable the use of up to 5 percent of uncommitted funds from the overall IDA portfolio to respond to emergencies. This IRM has already been established for Mozambique and is now operational. Specific details around this component (including activation criteria, eligible expenditures, and specific implementation arrangements as well as required staffing for the Coordinating Authority) are defined in greater detail in the IRM Operations Manual approved in April 2016. 43. A breakdown of project costs is provided in Table 2. below. Table 2.9: Detailed Cost Estimates Estimated costs (US$ Project Components and Activities million) Component 1 - Priority Sewerage Investments in Maputo, Quelimane and Tete Sub-component 1.1: Priority Sewerage Works for Maputo Rehabilitation and upgrading of the Infulene WWTP Offices and other facilities 0.55 Preliminary treatment, including new settling ponds 0.30 Rehabilitation of existing ponds (2 anaerobic and 2 facultative) 3.30 Construction of the new ponds (2 anaerobic and 2 maturation) 5.40 Construction of the fecal sludge treatment facility 4.10 Page 61 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Pumping stations (sludge and sewage) 0.50 Electromechanical equipment 0.15 Other costs (fencing, power connections, landscape) 0.25 sub-total 14.55 Sewers rehabilitation and upgrade Trunk sewers and main sewers between 500 to 1100mm 0.94 Pumping stations (up to 350l/s) 0.90 Rehabilitation of manholes 0.28 Connections upgrade 0.40 Other costs (road crossing, water and electricity lines) 0.20 sub-total 2.72 Implementation of RAP and ESMP, including technical 1.73 Total 18.99 Contingencies (15%) 1.90 Engineering design and supervision 2.11 Total Sub-component 1.1 23.00 Sub-component 1.2: Priority Sewerage Works for Quelimane Sewer connections (upgrade of existing connections) 0.69 Sewer collectors (160mm to 200mm) 4.05 Trunk sewers and sewer mains (up to 500 mm) 0.63 Pumping stations (up to 30 l/s) 0.60 WWTP-trickling filter 2.55 Drainage works 1.50 Condominial sewers (200 connections and decentralized treatment) 1.50 Safeguards implementation, including technical 1.18 Sub-total 12.69 Contingencies (20%) 2.54 Engineering design and supervision, and technical assistance for safeguards 1.27 Total Sub-component 1.2 16.50 Sub-component 1.3: Priority Sewerage Works for Tete Sewer connections (upgrade of existing connections) 1.10 Sewer collectors (160mm to 200mm) 3.21 Trunk sewers and sewer mains (up to 500 mm) 1.80 Pumping stations (up to 30 l/s) 0.30 Pumping stations (up to 60 l/s) 0.50 WWTP-lagoon system 2.46 Drainage works 1.22 Condominial sewers (200 connections and decentralized treatment) 1.50 Safeguards implementation, including technical assistance 0.99 Sub-total 13.08 Contingencies (20%) 2.62 Page 62 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Engineering design and supervision 1.30 Total Sub-component 1.3 17.00 Total Cost Estimate for Sub-component 1.1 56.50 Component 2: Onsite sanitation investments in Quelimane and Tete Sub-component 2.1: Onsite sanitation investments for Quelimane Toilet construction support for household sanitation 6.94 Construction of fecal sludge treatment and reuse plants 3.35 Construction of public toilets 0.85 Safeguards implementation, including technical assistance 0.56 Sub-total 11.69 Contingencies (20%) 2.34 Sanitation marketing (including menstrual hygiene management) 1.26 FSM business development (TA and equipment for supporting private operators) 1.68 Engineering design and supervision 1.03 Total Sub-component 2.1 18.00 Sub-component 2.2: Onsite sanitation investments for Tete Toilet construction support for household sanitation 5.82 Construction of fecal sludge treatment and reuse plants 2.98 Construction of public toilets 0.17 Safeguards implementation, including technical assistance 0.45 Sub-total 9.42 Contingencies (20%) 1.88 Sanitation marketing (including menstrual hygiene management) 0.82 FSM business development (technical assistance and equipment for supporting private operators) 1.64 Engineering design and supervision 0.74 Total Sub-component 2.2 14.50 Total Component 2 32.50 Component 3: Municipal Sanitation Services Improvements Performance based grants to Maputo, Beira, Nampula, Quelimane and Tete 11.00 Total Component 3 11.00 Component 4: Technical Assistance and Project Management Support Sub-component 4.1 Technical Assistance for National Institutional strengthening Updating the Water Law and Water Policy 1.90 Support to the Implementation of the National Sanitation Plan 0.30 Feasibility assessments and city-wide inclusive sanitation plans for 2 cities 1.50 Training for national staff 0.40 Total 4.10 Sub-component 4.2: Technical Assistance for Municipalities Support to establishment of ring-fenced municipal sanitation departments/entities 0.60 Page 63 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Drafting of sanitation bylaws 0.30 Preparation of sanitation service improvement plans 0.25 Development of financing arrangements (establishment of sanitation surcharge) 0.25 Establishment of a service monitoring system 0.50 On-demand technical support on operational and maintenance aspects. 0.25 Technical and project management support for municipalities 1.85 Total 4.00 Sub-component 4.3: Project management support for DNAAS Project Coordination and administrative support 0.45 Technical and engineering support 0.36 Technical assistance on procurement 0.3 Technical assistance on FM 0.3 Technical Assistance on M&E 0.40 Technical assistance on safeguards (social and environmental) 0.30 Incremental operating costs for project management 1.39 Total 3.50 Sub-component 4.4: Project management support for AIAS Project management 0.39 Technical and engineering support 0.39 Technical assistance on procurement 0.3 Technical assistance on FM 0.3 Technical assistance on safeguards (social and environmental) 0.42 Incremental operating costs for project management 1.60 Total 3.40 Total costs for Component 4 15.00 Total costs (all components) 115.00 Page 64 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 3: Economic and Financial Analysis COUNTRY: Mozambique Mozambique Urban Sanitation Project A. Economic Analyses 1. The project is expected to result in increased access to safely-managed sanitation services for about 197,000 people in Maputo, Quelimane and Tete. The economic analysis is based on the estimated costs and the benefits which include: (i) avoided direct health expenditure and time gains from sanitation-related diseases; (ii) indirect benefits from income gained due to avoided days lost from work due to disability from sickness24; (iii) benefits from the value difference between unimproved to enhanced sanitation facilities to households; (iv) household value generated from wastewater connections; and (v) avoided environmental damages associated with discharges of wastewater. 2. The approach taken was to identify viable and impactful investments in sewerage and on‐site sanitation tailored to the needs and conditions in each of the cities, encompassing Sub-components 1.1, 1.2 and 1.3, as well as Sub-components 2.1, 2.2 of the project. The economic analysis was undertaken at the subproject level as per World Bank guidelines. The economic analysis followed a conventional approach where the incremental benefits are accounted where appropriate for each of the sub-components. It compares “with” and “without” project situation, where the “with project” situation was defined as the proposed project with its associated targets and the “without project” considers a status quo situation defined with current levels of efficiency and operations of the infrastructures, reservoir capacity and sanitation services. The activities were appraised measuring the flows of costs and benefits for the lifetime of the subprojects, estimated at 30 years with 5 years of implementation of works, and a discount rate of 10 percent. Costs and benefits were expressed in constant prices of 2018. The estimate did not include all the capacity building activities as these activities are qualitative in nature with difficulty to associate monetization parameters. 3. For Sub-component 1.1. (priority sewerage for Maputo) Maputo will add around 12,800 household connections (close to 64,000 people) to sewer’s rehabilitated/upgraded networks at a cost of US$23 million, through priority sewerage investments for Maputo city, including the rehabilitation of the Infulene WWTP, interconnector sewer sections and two pumping stations. These investments also include rehabilitation of existing and new anaerobic ponds, construction of pumping stations and fecal sludge facilities, sewer’s rehabilitations and upgrades, resettlements and contingency costs. The Infulene WWTP will average 11,115 m3/day (including both wastewater and fecal sludge) and increase BOD removal efficiency to close to 70 percent. The targets for water quality parameters of the Infulene plant are to comply with national standards for TSS (< 60 mg/L) and BOD (< 150 mg/L), and in terms of water quality for agricultural use (< 102 CF/100 mL). 4. For Sub-component 1.2 and 1.3 (priority sewerage for Quelimane and Tete, respectively) with a total cost of US$32.5 million that includes sewer collectors, pumping stations, drainage works and trunk sewers, and condominal connections. A total of 32,500 people, representing 6,500 households will benefit from the sewer interventions, including rehabilitations and expansion for 5,300 connections and 1,200 new connections through condominial sewers. The pumping stations in Quelimane and Tete will have a capacity between 30 to 60 liters per 24 The health data relied on incidence rates per city recorded by the Ministry of Health, and with the basic avoided economic cost of treatment information using the Disability-Adjusted Life-Years (DALY) accounting for the burden of disease. Three clusters of diseases were used prevalent to the area of influence of the project (diarrheas and etheric diseases, malaria and vector diseases, and cholera and infectious outbreak diseases. Page 65 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) second. The systems will also include WWTPs with trickling filters. The treatment plant is expected to remove approximately 130,200 kg of BOD per year, impacting soil quality of 2000 ha. The average value land per hectare is US$120. 5. On-site sanitation solutions for Quelimane and Tete (Sub-components 2.1 and 2.2, respectively) reach US$32.5 million, with a focus on reducing open defecation and providing improved sanitation to approximately 20,100 households. Site specific sanitation technologies will be introduced (e.g. flush/pour flush toilets connected septic tank or pit latrine; composing toilet or improved pit latrine with slab) tailored to the location conditions and user preferences25. Additional works for sanitation in the cities part of the project will produce indirect economic and environmental impacts. Site specific sanitation technologies will be introduced (e.g. flush/pour flush toilets connected septic tank or pit latrine; composing toilet or improved pit latrine with slab) tailored to the location conditions and user preferences26. Additional works for sanitation in the cities part of the project will produce indirect economic and environmental impacts. Tete and Quelimane will construct FSTPs at a cost of US$32.5 million. 6. The economic benefits will be driven by the avoided cost of health due to lack of fecal sludge treatment (associated diseases of cholera, nematode infections, intestinal diseases, ascaris and diarrheas). Moreover, some indirect benefits estimated are based on increased values from potential re-use market (agriculture, biogas, biofuel, etc) and market demand for bio-products from FSM. The estimated indirect benefit of fertilizer production will be 5000 kg per year, valued at US$37.59 --US$51.15 per 50-kg bag of fertilizer27. Table 3.1: Distribution of Investment costs per Sub-component Analyzed Estimated costs Subproject (US$ million) Component 1 - Sewerage Investments in Maputo, Quelimane and Tete 56.50 Sub-component 1.1 Priority Sewerage Works for Maputo 23.00 Sub-component 1.2 Priority Sewerage Works for Quelimane 16.50 Sub-component 1.3 Priority Sewerage Works for Tete 17.00 Component 2 - Onsite sanitation improvements in Quelimane and Tete 32.50 Sub-component 2.1 Onsite sanitation investments for Quelimane 18.0 Sub-component 2.1 Onsite sanitation investments for Tete 14.5 Economic analysis assumptions and parameters 7. With and without scenarios. The net benefit of the project was estimated as the incremental benefit of two scenarios: with and without project situations. The with project situation includes the proposed investment program under Components 1 and 2 and associated number of connections to wastewater network, constructed latrines and WWTPs. The without project situation assumed the investments were not done and therefore the 25 A recent study found that these facilities cost between 30 and 55 per person in Sub-Saharan Africa. See: Daudey, L. 2017. The cost of urban sanitation solutions: a literature review. Journal of Water and Health. IWA Publishing . 26 A recent study found that these facilities cost between 30 and 55 per person in Sub-Saharan Africa. See: Daudey, L. 2017. The cost of urban sanitation solutions: a literature review. Journal of Water and Health. IWA Publishing . 27 Based on Mozambique’s Fertilizer Assessment. IFDC-AFAP.(2013) http://soybeaninnovationlab.illinois.edu/sites/soybeaninnovationlab.illinois.edu/files/Mozambique-Fertilizer-Assessment.pdf Page 66 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) proposed expansion in the number of connections will not happen in the absence of available government funding. 8. The average minimum wage was used to monetize daily values28. These figures are monetized using the average minimum wage for the country29. Other indirect benefits estimated prorated the avoidance of US$80 million total costs in Mozambique due to premature death for sanitation-borne diseases30, affecting 14,400 Mozambicans, including 10,700 children under 5. The population affected in the three cities (Maputo, Tete, Quelimane) was used to prorate these figures. For direct and indirect costs, the analysis relies on national data to estimate direct costs (minimum expenditure required to provide a basic level of sanitation service ranges from US$7 for a basic pit latrine to US$36 for a VIP latrine), with a cost of emptying latrines of US$50 per facility31. 9. The value of improved sanitation sources gained by households is based on the new sewer lines delivered by the project, specific internal connection branch, connecting the existing sanitation installations and the new sewers collection point. The wastewater rate assumed is 35 percent of a total of 225,000 m3 of sewerage flows and with a fixed cost of US$135 per connection32 and a unit cost of US$2.25 per m3 with an average wastewater bill of US$23.9 per household per year. The fixed cost of emptying septic tanks and pit latrines are US$24,000 and US$9,000, respectively, with variable costs on average between US$30 and US$50 per facility. Table 3.2: Main Parameters Used in the Economic Analysis Discount rate 10% Reduction in morbidity after investment completes 15% Increase of the value of the housing with toilet US$1,500 Increase of the value of the housing connected to a sewer US$1,500 Urban population growth 2018-2025 3% Urban population growth 2026-2039 1.5% People per household 5.1 28 In addition, health benefits are estimated based on the reduction in Years of Life Lost (YLL) per sanitation-borne disease, based on the country’s burden of disease tables, using the following parameters: Malaria (4,454 YLL), Acute Respiratory Infections (2,844 YLL), Diarrheal Disease (2,554 YLL). 29 The average minimum wage of primary and secondary sectors taken for the analysis, reaching 4,150 (meticais) at an exchange rate of 57.9 (2017) is close to US$71.6 per person per month. Based on Labour Consultative Commission (CCT) and Central Bank of Mozambique. 30 In Sub-Saharan Africa, the cost of basic water and sanitation produces an estimated US$510 per Healthy Life Year gained. When a cost per Healthy Life Year gained is below three times the GDP per capita of a country, the intervention is deemed by the WHO as a cost-effective use of health budgets. For Mozambique that cost is US$485 per HLYG per person. 31 The indirect costs of accessing unsafe sanitation services (US$6 per person in Mozambique) that will progressively be reduced as access to sanitation is completed through the project 32 Based on McGinnis et al. (2017) A Systematic Review: Costing and Financing of WASH. International Journal of Environmental Research and Public Health. Vol 14. Page 67 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table 3.3: Health Data of the Cities Included in the Project Quelimane Tete Maputo Death cases of malaria per year 280 214 81 Death cases of infectious diarrhea 80 92 38 Death cases of Cholera 20 22 1 Morbidity per year - malaria 962,793 367,535 48,887 Morbidity per year infectious diarrhea 82,527 103,931 45,345 Morbidity per year cholera 2,615 3,386 1330 Table 3.4: Other Environmental Sanitation Parameters Quelimane and Tete Volume of septage sludge production (from latrines), m3 98,112 3 Volume of sludge production from sewerage connections, m 40,150 Dry substances from septage, tons 2,943 Dry substances from wastewater treatment process, tons 281 Volatile content, tons 2,418 % fecal sludge going anaerobic - if put onto sludge carts 17% Carbon eq, tons a year 4,838 Maputo Volume of septage sludge production (from latrines), m3 365,000 3 Volume of sludge production from sewerage connections, m 182,500 Dry substances from septage, tons 10,950 Dry substances from wastewater treatment process, tons 1,278 Volatile content, tons 9,171 % fecal sludge going anaerobic - if put onto sludge carts 17% Carbon eq, tons a year 18,347 Results 10. Results of the economic analysis show that the project is economically justified with an ERR estimated at 14.35 percent and a NPV of US$18.7 million33. The economic efficiency was also estimated for each city, adjusting the parameters according to the interventions delivered. Maputo showed the highest ERR of all cities (18 percent), mostly due to environmental benefits, and an NPV of US$5.9 million. Quelimane showed an ERR of only 12.5 percent with a higher NPV of US$10 million. Tete showed an ERR of 12.8 percent with benefits accruing of an NPV of US$2.7 million. The summary results for the three cities are presented in 3.5 below. Adding the Disability-Adjusted Life Years (DALY) health benefits from sanitation improvements the project ERR jumps to 27.3 33 Including benefits (i); (iii); (iv); and (v). Page 68 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) percentage; and with NPV of US$15.7 million. Sensitivity analyses show that the project benefits are robust, but cost overruns will reduce the overall economic efficiency of the project. Table 3.5: Economic Analysis Results Quelimane Tete Maputo Project total ERR, % 12.5 12.8 18.0 14.4 NPV, US$ 10 2.7 5.9 18.7 million 11. Sensitivity analyses show that the project benefits are robust, but cost overruns will reduce the overall economic efficiency of the project. The cost overruns will need to increase on average 16.3 percent for the entire lifetime of the project to reach an NPV equal to zero. This will imply a combination between investment cost increases and operations and maintenance costs. With regards to benefits, the project will drop its NPV to zero if benefits are reduced 23 percent during the lifetime of the project. Specifically, a combination of a decline in health benefits by 30 percent and a reduction of the benefits associated with WWTP in Maputo by half would reduce to zero the NPV value of the project. In addition, the sensitivity analysis conducted the estimation of the NPV of the project using a 6 percent discount rate, which is the minimum rate recommended by the World Bank guideline. With a 6 percent discount rate, the NPVs increase for all cities as shown in the table below. Table 3.6: Changes in NPV Using Different Discount Rates (6 and 10 percent) Quelimane Tete Maputo NPV (US Million, 10% discount) US$10.0 US$2.7 US$5.9 NPV (US Million, 6% discount) US$17.3 US$4.4 US$12.3 Percent change of NPV between discount rates used 72% 62% 107% 12. The economic analysis also included an estimation of the changes in the NPV and the ERR of the project based on the greenhouse gas (GHG) emissions, valued with the social price of carbon. The social price of carbon is based on baseline values of US$40 US$/tCO2e (minimum value) and US$80 US$/tCO2e (maximum value) in 2020, assuming a rate of increase in the shadow price of 2.26 percent annually for the lifetime of the project. Using the discount rate of 10 percent, the project has a net emission of 558 tCO2-eq over the 30-year life of the project, with Maputo being the only city with net GHG reductions of -56,040 tCO2-eq, due to improved collection and treatment. Conversely Tete and Quelimane are both increasing net GHG emissions by 3,747 and 9,311 tCO2- eq, respectively, for the lifetime of the project. The NPV under the low social price of carbon is reduced from US$18.7 to US$17.4 million. With the high value of the shadow price of carbon the NPV of the project is reduced further to US$15.9 million, and with the average price of carbon the NPV of the project is estimated at US$16.8 million. The ERRs reduce to 12.5 percent with the high shadow price of carbon, and to 13.5 percent with the low shadow price of carbon. B. Financial analysis Methodology 13. The financial analysis uses the cash needs approach to assess whether sanitation revenues are sufficient to cover operational costs excluding depreciation, debt servicing and minor periodic purchases such as computers (which will be financed by the municipality or out of any surplus). Page 69 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 14. Operating cost estimates for on- and off-site sanitation services have been prepared for each town including a) general management and administration; b) direct staff for off-site sanitation; c) energy; d) operations; e) maintenance; f) services; g) materials; and h) oversight of private tanker operators. 15. Revenues are based on a sanitation surcharge on all water customers (with water consumption above 5 m3 per month) in line with the ENASU. The base case assumes a surcharge of 15 percent. The surcharge is uniform irrespective of the type of sanitation service provided. This is a conservative approach and provides flexibility for councils to consider higher charges to the limited number of sewered customers. Households with on-site systems will also pay for septic tanks/dry latrines emptying which is included in the computation of the average monthly bills. Collected revenues are reduced by an eight percent fee to FIPAG for billing and collection services, and a two percent fee paid to AURA. 16. The sanitation surcharge is levied from Year 1 of the project even though facilities will only be fully operational in Year 6 and salary costs are assumed to build up over that period. Year 6 of the project, when all costs are fully incurred, is taken as a reference for analysis. Cumulative cost recovery projections to year 10 allow early year surpluses to finance later year deficits. Results of financial analysis 17. The results of the base case analysis are summarized in the Table 3.7 below: Table 3.7: Summary of Cost Recovery in Project Cities Parameter Maputo Quelimane Tete Sanitation Operating Cost/ Water Revenue (Year 6) 4.5% 34% 14.4% Base Case - Sanitation revenue as % of water revenue (Year 6) – 9.7% 10.9% 12.0% 15 percent surcharge for customers over 5 m3 per month Base Case – Cost Recovery in Year 6 (operating costs without 217% 31.9% 83.4% depreciation or debt service) Base Case - Subsidy needed in base case to meet cumulative Nil 1.76 Nil operating costs in first six years (Million US$) Base Case - Cumulative operating cost recovery (Sanitation 268% 37.3% 96.8% revenue over ten years/Operating costs over ten years) 18. With a 15 percent sanitation surcharge the operating costs are recovered on an on-going basis (year 6) only in Maputo. In Tete the cost coverage is 83 percent whilst in Quelimane the recovery stands at just 31 percent. On a cumulative basis both Maputo and Tete cover their operating costs over ten years whilst Quelimane shows a deficit of 63 percent. The reason for the weak performance of Quelimane is the low level of water supply coverage (22 percent) - compared to Maputo (53 percent) and Tete (66 percent) – given that sanitation revenues are derived only from customers with a piped water supply. 19. The annual deficit in year 6 is presented in Table 3.8 below and compared to the annual budget of each city. Page 70 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table 3.8: Comparison of Sanitation Unit Costs with City Budgets Parameter Maputo Quelimane Tete Base Case – Cost Recovery in Year 6 (operating costs without 217% 31.9% 83.4% depreciation or debt service) Base Case - Operating costs in Year 6 (Mn MT) 114.8 Mn 48.8 Mn 47.1 Mn Base Case – Operating deficit in Year 6 (Mn MT) Zero 32.2 6.6 Annual City Budget (Mn MT) 2,001 134.7 117.1 Deficit as % of city budget 0 24% 6% Affordability 20. Average monthly HH water and sanitation off- and on-site costs (the latter including payment for private septic tank/latrine emptying every three years) are presented below. The more expensive on-site option is compared with average HH income, and average HH income for the bottom 40 percent. Tariffs range from 2.1-4.7 percent of average HH income which is below the practitioners’ rule of thumb that water and sanitation costs combined should not exceed 5 percent of HH income. Sanitation costs on their own amount to 0.7 – 1.8 percent of average HH income. For lower income HH the tariff levels are even higher as a percentage of HH income. Table 3.9: Affordability Assessments in Project Cities Monthly total cost for off-site customer (Water + Sanitation 675.4 MT 492 MT 625.6 MT surcharge) in Year 1 Monthly total cost for on-site customer (Water + sanitation 735 MT 550 MT 756.6 MT surcharge + effective emptying cost per month) in Year 1 Affordability for average HH (monthly on-site/ HH income) 2.17 4.73 4.68 Affordability for bottom 40% HH (monthly on-site/HH income) 0.67 1.35 1.83 21. The situation for low income HH will, in some cases, be alleviated where a) they consume less water than average and b) they may be exempt from paying the sanitation surcharge with water consumption below 5m3/month. For HH that consume 6 m3/month the combined water and sanitation cost amounts 300MT/month or 2.4 percent of average HH income, and 10 percent of bottom 40 percent average HH income. In addition, around 45 percent (Quelimane/Maputo) of households use less than 5 m3/month and will be exempt from paying the sanitation surcharge – although they will have to pay for tanker emptying at a cost of between 58-131 MT/month or 2 to 4.5 percent of bottom 40 percent average HH income. 22. The financial analysis has highlighted a range of challenges in providing sanitation services in the project cities. This is either because of a) high cost/low affordability of monthly household water and sanitation costs even for average income households and even more so for bottom 40 percent households and/or b) the likely need for government to provide subsidies to fund operating deficits in general or provide targeted subsidies to low income households. Sensitivity Analysis 23. To achieve cost recovery in Year 6, Maputo needs only a 6 percent sanitation surcharge, while Tete needs 17.5 percent, marginally above the base case assumption of 15 percent. Quelimane needs a surcharge of 44 percent due to its low water coverage. Page 71 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table 3.10: Estimated Surcharge required for Cost Recovery in year 6 Parameter Maputo Quelimane Tete Surcharge required to achieve operating cost recovery of 6.9% 47% 18% 100% in Year 6 (for the year alone, not cumulative) with exemption to customers above 5 m3 per month consumption 24. Quelimane households using less than 10 m3/m are currently exempt from the sanitation surcharge. If that criteria were applied across all three cities the cost recovery situation would deteriorate significantly requiring a further increase in the surcharge and reducing affordability. Table 3.11: Estimated Surcharge Required for Cost Recovery in Year 6 if HH using less than 10m3/m are exempted Parameter Maputo Quelimane Tete Cost recovery in year 6 if customers with water consumption 216% 28% 86% up to 10 m3 per month are exempted Conclusions 25. Over a 10-year period both Maputo and Tete can recover their sanitation costs through a 15 percent surcharge on the water bill. In Quelimane an on-going deficit of 32million MT/year would arise on project completion - around 24 percent of the annual city budget. In the period post project both Tete and Quelimane will face on- going deficits requiring increases in the sanitation surcharge to 18 percent and 47 percent respectively if the deficit is to be eliminated. 26. Affordability is a critical issue because combined water and sanitation fees exceed 5 percent of HH income – which is considered the upper limit of affordability by practitioners. The Government is therefore likely to be called upon to provide either general subsidies to the sanitation entity, targeted subsidies to low income HH, or both. 27. During project implementation, the financial analysis will be refined to determine how to cover deficits and address affordability issues. There are a number of opportunities to cover deficits including the introduction of a higher surcharge for customers with a sewer connection, expanding the revenue base, particularly in Quelimane, to include HH without water connections, or through the provision of a general subsidy to the sanitation entity. Tackling the affordability issue will require consideration of targeted subsidies for low income households, possibly using the Government’s own safety net program (INAS), or some other measure which reflects HH ability to pay. Whether a general or a targeted subsidy there will be a need to design a well-defined and transparent transfer arrangement whether from central to LG, from LG to sanitation entity, or from government to household. . Page 72 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 4: Fiduciary Management COUNTRY: Mozambique Mozambique Urban Sanitation Project A. Financial Management 1. A FM Assessment was carried out in September 2018 to evaluate the adequacy of the proposed project FM arrangements. The objective of the Assessment was to determine whether the proposed implementing agency, the Ministry of Public Works, Housing, and Water Resources (MoPHRH) through Direcção Nacional de Abastecimento de Água e Saneamento (DNAAS), Administração de Infraestruras de Água e Saneamento (AIAS) and Municipalities (Maputo, Beira, Nampula, Quelimane and Tete) have acceptable FM arrangements to provide reasonable assurance that: (a) project funds will be used for the intended purposes in an efficient and economical way; (b) financial reports will be prepared accurately, reliably, and on time; and (c) project assets will be safeguarded. 2. The Assessment was carried out in accordance with the Directives and Policy for IPF and the World Bank Guidance on FM in World Bank IPF Operations issued on February 28, 2017. The overall FM was assessed to be adequate, and the risk rating was assessed as Substantial due to country risk, capacity issues in the country, decentralized project and the number of the entities involved in the implementation of the project. Some mitigation measures are proposed accordingly. 3. The assessment revealed that there are adequate FM arrangements for DNAAS, AIAS and Municipalities (Maputo, Beira, Nampula, Quelimane and Tete). AIAS has experience in managing World Bank-financed operations, and AIAS is currently managing the Climate Change Project (P123201) for which the most recent FM performance rating for ISR was Satisfactory and the FM risk was Moderate. Audit reports have been received on time with Unqualified opinions. DNAAS as implementing agency and Municipalities, have limited experience in implementing World Bank-financed operations. Such lack of experience requires the strengthening of finance personnel, training, and fiduciary arrangements to ensure that all the entities involved become familiar with IDA procedures. The overall FM was assessed to be adequate, and the risk rating was assessed as Substantial. Project Implementation Arrangements 4. DNAAS- will be responsible for the overall coordination of the project including planning and monitoring. It will be also lead the implementation of the institutional and service development activities under the project, including capacity building for the municipalities. While the Municipalities will work closely with DNAAS on day-to- day activities which are related to monitoring and coordination of activities on the ground. AIAS (autonomous institution under MoPHRH) will be responsible for the implementation of the Component 1 of the project, including the related procurement, FM and safeguards implementation. Summary of the FM Assessment of Municipal Councils 5. An assessment of the municipalities (Maputo, Beira, Nampula, Quelimane and Tete) also took place and revealed limited capacity to managing World Bank-financed operations. The assessment covered planning and budgeting, accounting, internal controls, funds flow, financial reporting and auditing. The assessment took into consideration the current municipal law, their relationship with the TA, local inspectorates and IGF. Page 73 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 6. The municipal assembly play a role in the approval of their annual municipal budgets. The Municipal budgets have to be approved by December 15 each year. Activities to be financed from Grants will be incorporated into each municipality budget. 7. The accounting transactions of municipalities are largely done manual using spreadsheets. Competencies and skills at municipal level are still weak. Each municipality will be responsible to maintain appropriate internal control, including compliance with policies of Law 9/2002 and World Bank-financed operations. 8. The municipalities rely mainly on fiscal transfers from the central Government in addition to their own resources. For the current Grants, a separate bank account will be opened and subject to the internal control policies, procedures and audits in compliance with applicable rules. In addition, all municipalities will be required to report on the use of Grants’ funds to DNAAS on a monthly basis for DNAAS’s to consolidate the data at report to the World Bank on a semi-annual basis. Risk Assessment and Mitigation Measures 9. The table below summarizes the risks identified, the risk rating and mitigating measures. Table 4.1: Risk Assessment and Mitigation Measures Condition of Residual Residual Negotiations, Risk Mitigating Measures Incorporated Risk Risk Risk Board or into Project Design Rating Rating Effectiveness (Y/N) Inherent Risks Country Level: Major weaknesses exist in the The GoM is committed to implement FM environment (staffing, H further reforms of the country’s PFMs S No operating system, reporting), with support from the World Bank and resulting primarily from low other development partners. capacity and weak internal controls and auditing, which may impact negatively the implementation of this proposed project expenditures. Entity Level: DNAAS and AIAS FM capacity will be DNAAS, AIAS and decentralized strengthen with the appointment of municipalities have limited S qualified FM staff S No experience in implementing World Bank-financed The PIU FM capacity will be re-assessed operations. The overall throughout project implementation to competencies and capacity at keep the residual risk at an acceptable municipalities are weak. level. Project Level: Clearly defined FM procedures and funds Project design relatively flows, accountability and reporting will S Y complex, as this involves S be documented in the PIM, including the activities in one entity and municipalities implementation municipalities. arrangements. The project will be Page 74 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Condition of Residual Residual Negotiations, Risk Mitigating Measures Incorporated Risk Risk Risk Board or into Project Design Rating Rating Effectiveness (Y/N) periodically supervised by the World Bank FMS as well as government institutions. Overall inherent risks H S Control risks: Budgeting: The budget preparation, execution, and DNAAS and AIAS may not be monitoring will be documented in the able to produce realistic and PIM. The budget preparation will involve comprehensive budget as the all the participating entities at project is decentralized. Weak municipalities level, AIAS and DNAAS will budget monitoring system S coordinate the process. DNAAS and AIAS No which can lead budgetary will produce periodic financial reports S overrun. comparing planned and actual project expenditures. The budget preparation, execution and monitoring procedures will be documented in the PIM. Accounting: International Public-Sector Accounting Project funds, expenditures, and Standards (IPSAS) – Cash Basis and will be resources may not be properly complemented by an automated recorded and handled in accounting software to account for accordance with the acceptable project funds and production of financial accounting standards. S reports. No S The overall weak capacity in the DNAAS and AIAS will recruit a project country makes difficult to finance manager who will be responsible recruit qualified FM staff in for the World Bank-financed operations. project Internal Control: The project will follow the procedures Non-compliance with key documented in the Manual of Financial project internal control Administration (Manual de Administração procedures due to weak internal Financeira, MAF), which has been control environment and S designed to mitigate internal control risk, oversight mechanisms in the and those to be documented in the PIM. No country. In addition, the IGF and The oversight bodies IGF and MOPHRH’s S Inspeção Geral do MOPHRH Internal Audit may review the operations may not be able to cover the of this proposed project. In addition, the operations of the project due to regular supervision will be carried out by capacity constraints. the World Bank. Funds Flow: The disbursement arrangements will be Delays in funds flow may affect documented in the PIM. Sub-accounts at implementation of the project municipalities will be opened and No at local level. maintained to facilitate financing of activities at municipalities levels. DNAAS M and AIAS team will provide support and M Page 75 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Condition of Residual Residual Negotiations, Risk Mitigating Measures Incorporated Risk Risk Risk Board or into Project Design Rating Rating Effectiveness (Y/N) coaching to the finance staff at these five municipalities. The World Bank team will provide support to DNAAS and AIAS through the implementation. Financial Reporting: The implementing agency may Qualified and experienced FM staff will not able to produce the be appointed. unaudited financial statements Reporting arrangements will be M No in a timely manner as required developed in the PIM. M to monitor and effectively Training will be provided by the World manage the project. Bank and comments will be provided to improve quality of the IFR and financial statements. Auditing: Use of IGF staff to conduct audits in each Audit report of the project may respective municipality and not be submitted on time due coordinate/share audit plans/reports with to the delay and Tribunal Administrativo to avoid recommendations on the duplication of efforts. Management Letter not implemented properly. Qualified FM staff will be recruited, and S No accounting system will be operational and financial statement will be produced M timely. Close monitoring will be done with the Administrative Tribunal to have the audit completed before the deadline. Overall control risk: S S Overall risk rating: S S H – High S – Substantial M – Moderate L - Low 10. The overall FM risk rating for the project is assessed as Substantial due to country risk, capacity issue in the Country, decentralized project, and many entities involved in the project implementation. Page 76 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) FM action plan. 11. To mitigate FM risks, the following measures should be taken: Table 4.3 FM Action Plan No. Action Responsibility Completion date 1 Develop the PIM including FM procedures DNAAS/AIAS Prior to effectiveness 3 Appointment of the FM specialists with DNAAS/AIAS Within three months after acceptable experience and skills effectiveness Budgeting 12. Budget preparation will follow national procedures and those to be documented in the PIM. The project budget will be captured by DNAAS and the preparation of Annual Works Plans (AWPs) and budgets will involve all project beneficiaries. DNAAS will be the entity to consolidate the AWPs and Budgets which will be prepared by the entities involved in the project at central (AIAS) and provincial levels (Municipalities). The procedures manual will need to detail the procedures for the timely reporting on the budget execution. 13. In accordance with all project beneficiaries, AWPs and budgets will be prepared following the budget preparation cycle of the GoM. The project budget will be registered with the MEF through National Directorate of Budget (Direcção Nacional de Orçamento, DNO) and National Public Accounting Directorate (Direcção Nacional de Contabilidade Pública, DNCP) to allow the use of the country FM systems. The AWPs will need to be approved by DNAAS and subsequently by IDA no later than November 30, each year. Budget execution will be monitored through the DNAAS and AIAS accounting system after effectiveness. 14. Under Component 3, funds will be transferred to the municipalities in local currency from the DNAAS Designated Account (DA) to a separate bank account held by the municipalities involved in the project, which will solely receive funds from the project. Grant payments will be made once the eligibility criteria for grant is meet, quarterly financial reports will document actual costs incurred on eligible expenditures for goods, works, and services financed through performance-based grants. Staffing 15. The DNAAS and AIAS will be responsible for fiduciary aspects of the project. The PIUs at DNAAS and AIAS will include a full time FM specialist with acceptable skills to handle FM and disbursements matter of the World Bank- financed operations and supported by one project Accounting Assistants for day-to-day activities. The FM team will work closely with the Department of Administration and Finance, (Departamento de Administração e Finanças, DAFs) at DNAAS and AIAS, allowing for institutional capacity building and ensuring that know-how and knowledge is transferred to DNAAS and municipalities. 16. The municipalities will make use of the personnel with the DAF to handle the FM responsibilities. The World Bank will provide the necessary training in FM and disbursements for World Bank-financed operations to the personnel and also hand-holding during the initial stages of the project. Internal control 17. Internal controls and accounting procedures will similarly be based on the national procedures, defined on the MAF and PIM. DNAAS also has their own internal control oversight unit, the Inspeção Geral do MoPHRH (IG- MOPHRH), which will be responsible for conducting independent, objective internal control/inspections and share the respective result with the World Bank at least twice per year. At municipalities, the DAFs will ensure compliance Page 77 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) with internal control systems. In addition, the MEF may request the Auditor General, IGF which has the overall responsibility for the internal controls and oversight of the Internal Control Units, “Orgãos de Controlo Interno” (OCIs) of the Government and municipalities to carry out a control at least on a yearly basis. In addition, alternatives measures such as regular supervision should be also carried out by the World Bank. Internal control arrangements will be documented in the FM procedures manual. Accounting system 18. DNAAS and AIAS are already connected to the government’s IFMIS e-SISTAFE34 and Single Treasury Account, “Conta Unica do Tesouro” (CUT). Both entities will request a waiver from the MEF not to make use of the IFMIS to ensure there are no delays or any other issues which may affect the timely implementation of the project. This procedure is in line with the fact that transactions on the IFMIS can only take place to beneficiaries with bank accounts, and there will be several transactions to be made through the bank account. After effectiveness DNAAS will procure a computerized accounting software that enables key controls and produce timely and reliable financial information. 19. Both DNAAS and AIAS will prepare and consolidate the project report. The preparation of the accounting information for the implementing entity will be on a cash basis in accordance with Mozambique Government requirements, which are in alignment with the IPSAS. In addition, activities from the municipalities will be recorded through their own mechanisms such as excel spreadsheets. All municipalities will be required to report on the use of Grant funds to DNAAS quarterly for DNAAS’s consolidation and reporting to the World Bank on a semi-annual basis. Reporting 20. The project implementing entity will prepare semi-annual simplified unaudited IFRs in form and content satisfactory to the World Bank, which will be submitted to the World Bank within 45 days of the end of each calendar to which they relate. At the end of each fiscal year, DNAAS will also produce annual project financial statements (PFS) in accordance Financial Reporting under Cash Basis of Accounting. In addition, the PFS’s components will be outlined in the terms of reference (ToR) for audit of this proposed project. Funds Flow 21. The Disbursement under the project will be in accordance with Disbursement Guidelines for IPF. However, payments under contracts (goods, works, non-consulting services and consulting services) procured/selected through international (open or limited) competition or Direct Selection will be made through direct payment method of disbursement, unless the Special Commitment disbursement method is used. Under advance disbursement method, there will be two DAs in US$ at the Banco de Moçambique, independently managed by each of the two implementing agencies (DNAAS and AIAS) to receive funds from IDA. In addition, it will be needed to open five municipalities sub-accounts in local currency with commercial banks under terms and conditions acceptable to IDA. From the DAs, the PIUs at DNAAS and AIAS will make payments for consultants and suppliers of goods and services. From the DA, DNAAS will also transfer funds from DA to five (5) sub-accounts at the municipalities, in local currency, to facilitate payments of local eligible project expenditures. The Figure 4.1 below depicts the funds flow mechanism for the proposed project. 34 State Financial Administrative System (Sistema de Administração Financeira do Estado) Page 78 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Disbursement arrangements 22. Disbursements of IDA will be done on a Transaction-Basis. An initial advance will be made into the Designated Accounts upon the effectiveness of the Financing Agreement, based on the DA ceiling and at the request of DNAAS and AIAS. The advances will be based on the estimated cash requirements to meet the project expenditure for the first four months. 23. The reimbursement disbursement method will also available to project. The World Bank will issue the “Disbursement Letter and Financial Information Letter” which will specify the additional instructions for withdrawal of the proceeds of the IPF. The payments for eligible expenditures project at decentralized level will made from sub- accounts to be opened and maintained in five municipalities. Figure 4.1: Funds Flow Mechanism Page 79 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Table 4.3: Eligible Expenditure Category Amount of the Grant Percentage of Expenditures to be Allocated (expressed Financed in SDR) (inclusive of Taxes) (1) Goods, works, non-consulting services, consulting services, 41,880,000 100% Training and Incremental Operating Costs for Parts 1 and 4(d) of the Project (2) Goods, works, non-consulting services, consulting services, 31,060,000 100% Training and Incremental Operating Costs for Part 2, 4(a), 4(b) and 4(c) of the Project (3) Performance-based Grants under Part 3 of the Project 7,930,000 100% (4) Emergency Expenditures under Part 5 of the Project 0 100% (5) Land Expenditures for Part 1 of the Project 580,000 100% (6) Refund of Preparation Advance 1,450,000 Amount payable pursuant to Section 2.07 (a) of the General Conditions TOTAL AMOUNT 82,900,000 External Auditing 24. The Tribunal Administrativo-TA (the country’s supreme audit institution) is mandated to audit all government funds, including donors-financed projects. As such, the project financial statements will be audited by the TA in accordance with International Standards on Auditing as issued by the International Auditing and Assurance Standards Board (IAASB) within IFAC. The audit report together with the Management Letter will be submitted to the World Bank not later than six (6) months after the end of each fiscal year, that is June 30 th of each following year. 25. A single audit opinion will be issued and will cover all project receipts and payments, and DAs. Audit report will be publicly disclosed by IDA in accordance with the World Bank’s disclosure policy. Effectiveness condition 26. The development and adoption of the PIM including FM procedures. Dated covenants 27. The following FM action is dated covenants: appointment of the project FM specialists with acceptable skills and experience to handle project FM within three months after the project effective date. Implementation support plan 28. Based on the current overall FM risk of this operation, the project will be supervised twice a year. In addition to desk-based reviews, the FM will perform field visit to ensure that Project’s FM arrangements operate as intended. Page 80 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) B. Procurement 29. Applicable procedures. Procurement for the project will be carried out in accordance with the ‘World Bank Procurement Regulations for Borrowers under IPF’, dated July 1, 2016, revised August 2018, and the provisions stipulated in the Financing Agreement. Further, the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, dated October 15, 2006, and revised in January 2011 and July 2016, will apply. 30. Procurement strategy. A PPSD was developed during preparation to inform the applicable procurement arrangements during implementation of the project. The PPSD was reviewed and approved by the World Bank on February 12, 2019. While there are some contracts of large value, their processing is not complex in relation to the experience available within AIAS, nor they require the adoption of innovative or complex approaches beyond the available capacity. Regarding the capacity at DNAAS, the implementation unit will be strengthened with additional technical assistance in procurement to ensure that implementation meet the required standards. For both AIAS and DNAAS, contract management is an area that will require a special attention and adequate capacity will need to be established. 31. Procurement arrangements. Activities to be procured under the project are generally not complex, despite the existence of some activity of considerable high value, are within the available and envisaged capacity management of AIAS and DNAAS. The Implementing Agencies will be supported by the World Bank office in Mozambique, as needed. DNAAS has been establishing the capacity throughout the project preparation, with the recruitment of key support for those areas and specialties not available at DNAAS, while AIAS has experience with the World Bank with the implementation of two World Bank funder operations at present. The implementation of the project at AIAS will have the support from the technical assistance under the current Bank funded projects. 32. Procedures for selection of consultants. Quality and Cost-Based Selection (QCBS) will be the main method for the selection of firms for assignments such as (i) legal and institutional framework for urban sanitation; (ii) regulatory framework and development of tariff and billing systems; (iii) revenue collection and transfer mechanisms; (iv) design and supervision of rehabilitation of WWTPs; and (v) design and supervision of new WWTPs and of sludge treatment plants, among others. Occasionally, consulting services may be procured through Consultants Qualifications-based Selection (CQS) and Least-cost Selection (LCS) procedures, whenever its complexity justify the adoption of such methods in accordance with the PPSD. 33. Procedures for Procurement of Works. Works, including (i) construction of sanitation infrastructure in Tete and Quelimane; (ii) rehabilitation and upgrade of Infulene WWTP in Maputo; will be procured through international competition, with the adoption of the World Bank’s Procurement Regulations, to ensure adequate competition and value for money, in accordance with the PPSD. Other works contracts, including works related to the sewerage networks will be procured through Open Competitive Procedure, the Request for Bids (RFB), consistent with the Mozambique Procurement Regulation (Decree 5/2016 of March 8, 2016) and limited to the local market. 34. Procurement Implementation Manual: A project Procurement Manual has been prepared to provide guidance for both DNAAS and AIAS through the implementation of the project and it summarizes the main procurement aspects applicable to the project. The Manual will be updated from time to time to incorporate lessons throughout the implementation. 35. The Procurement Plan will be individualized by each of the two implementation agencies, DNAAS and AIAS. Each agency will manage its own activities separately, according to project design and will manage them through Page 81 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) the World Bank’s Systematic Tracking of Exchanges in Procurement (STEP), with direct submission and individualized responses from the World Bank. 36. Contract management capability. Major contracts will be awarded by DNAAS and AIAS. Each of these agencies will remain responsible for the compliance to the agreed procurement procedures and processes and shall monitor the contractual performance including contract management issues, if any, throughout the implementation and ensure that capacity in contract management is created early in the project life, before major contracts are implemented. 37. Contract management capability. The major contracts will be awarded by DNAAS and AIAS. Each of these agencies will remain responsible for the compliance to the agreed procurement procedures and processes and shall monitor the contractual performance including contract management issues, if any, throughout the implementation. 38. Review by the World Bank of procurement decisions. Table 4.4: indicates the initial values for prior review by the World Bank. All activities estimated to cost below these amounts shall be treated as post review and will be reviewed by the World Bank during the implementation support missions under post procurement review exercises. Direct contracting/single source selection will be subject to prior review only for contracts estimated to cost more than the amounts indicated in the Table 4.4: The World Bank may, from time to time, review the amounts, based on the performance of the implementing agencies. Table 4.4: Prior Review Thresholds Prior Review (US$) Procurement Type DNAAS/AIAS Works and Supply and Installation 5,000,000 Goods and Non-Consulting Services 1,500,000 Consultants (Firms) 500,000 Individual consultants 200,000 39. Assessment of National Procedures. The Mozambique Procurement Regulation, the Decree 5/2016 of March 8, has been assessed as required under the World Bank’s Procurement Framework. The assessment indicated that the country’s Regulations are generally consistent with international best practice for the following reasons: (a) there is adequate advertising in national media; (b) the procurement is generally open to eligible firms from any country; (c) contracts documents have an appropriate allocation of responsibilities, risks, and liabilities; (d) there is publication of contract award information in local newspapers of wide circulation; (e) the national regulations do not preclude the World Bank from its rights to review procurement documentation and activities under the financing; (f) there is an acceptable complaints mechanism; and (g) maintenance of records of the procurement process. 40. However, the request for bids/request for proposals document shall require that bidders/proposers submitting bids/proposals present a signed acceptance at the time of bidding, to be incorporated in any resulting contracts, confirming application of, and compliance with, the World Bank’s Anti-Corruption Guidelines, including without limitation the World Bank’s right to sanction and the World Bank’s inspection and audit rights. Page 82 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) 41. With the incorporation of the above provision, the Mozambique Procurement Regulation will be acceptable to be used under those procurements not subject to the World Bank’s prior review, as per the thresholds indicated in 4.4 or any updates indicated by the World Bank in the Procurement Plan. Page 83 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 5: Safeguards Action Plan for Updating the ESIA for the Infulene Wastewater Treatment Plant Note: Each Action will be evaluated on meeting requirements of Mozambican law and World Bank Safeguard Policies and the WBG General EHSG for Waste Management Facilities, the EHSG for Construction Materials Extraction and will need to be addressed in the project ESIA and ESMP, which should contain adequate implementation, monitoring and reporting arrangements, including key performance indicators. Actions Milestone Responsibility Comments 1. Updated environmental and social documents Prior to bidding National Actions require World Bank Develop final ESIA and ESMP to incorporate the [Expected by Directorate of N/O and Ministry of additional data to be collected for sludge, surface and October 31, 2019] Water Supply and Environment, Land and Rural groundwater, air emissions and reflect the evolving Sanitation Development (MITADER) project design. Incorporate the results of the (DNAAS) environmental license. compliance assessment of the hazardous waste landfill, if sludge analysis indicates the need for a Updated ESMP should be part landfill. The revised ESMP will incorporate specific of the Bidding Documents as management and monitoring plans. per procurement standards to enhance Environmental Social Health and Safety (ESHS), including detailed Health & Safety Plan consistent with OHSAS 18001:2007 or ISO 45001. The Financing Agreement covenants: - prior to bidding, the feasibility stage ESIA for the Maputo wastewater treatment plant is updated, in a manner satisfactory to the Association; - prior to commencement of civil works, this ESIA is finalized based on the final detailed design, in a manner satisfactory to the Association. 2. Industrial Wastewater and Sludge Management Prior to bidding Maputo City Actions require World Bank Plan: [Expected by Council, DNAAS, N/O. Develop and finalize an Industrial Wastewater and October 31, 2019] MITADER and Sludge Management Plan in a manner satisfactory to Matola City Five months results of sludge the World Bank. Council analyses (dry season) should be reflected in the updated ESIA. An internationally accredited laboratory should be used. The Industrial Wastewater and Sludge Management Plan should be part of the updated ESMP and incorporated in the Bidding Documents. 3. Surface and Ground Water Monitoring Plan To implement DNAAS and Actions require World Bank Implement a Surface and Ground Water Monitoring over 5 months Regional Water N/O. Plan that includes, seasonal flow measurements in (April to Administration – the Infulene River and install piezometers to monitor September 2019) South (ARA-Sul) An internationally accredited groundwater pollution. laboratory should be used. Page 84 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Note: Each Action will be evaluated on meeting requirements of Mozambican law and World Bank Safeguard Policies and the WBG General EHSG for Waste Management Facilities, the EHSG for Construction Materials Extraction and will need to be addressed in the project ESIA and ESMP, which should contain adequate implementation, monitoring and reporting arrangements, including key performance indicators. Actions Milestone Responsibility Comments Five months results (dry season) should be reflected in the updated ESIA. Results should be incorporated in the updated ESIA/ESMP and mitigation measures/actions reflected in the Bidding Documents. 4. Monitoring of air emissions To implement DNAAS Five months results (dry Conduct air quality measurements for both dry and over 5 months season) should be reflected in rainy season. (April to the updated ESIA September 2019) Results should be incorporated in the updated ESIA/ESMP and mitigation measures/actions reflected in the Bidding Documents. Page 85 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 6: Project Readiness and Sequencing COUNTRY: Mozambique Mozambique Urban Sanitation Project 1. The main project readiness criteria for the project is for at least 20 percent of the planned investments to be ready for tender by effectiveness, ESIA for the Maputo WWTP to be finalized and disclosed. 2. Approximately activities totaling up to US$23 million will be ready with procurement packages for implementation in year 1. 3. Below is the list of actions to be completed for implementation readiness. Table 6.1: Action Plan for Project Readiness SN Actions Status To be Completed by 1. Prioritize the identified activities for the first 12 months completed 2. Disclose safeguards instruments in-country and through WB’s ESMF and RPF ESIA to be completed external website disclosed, during implementation – October 2019 3 Fully functional PIUs and technical teams set up Ongoing June 2019 Component 1 Component 1.1 4. Bidding documents for the design and build for Under September 30, 2019 rehabilitation of Infulene Treatment Plant preparation Component 1.2 5. ToR for feasibility studies for Quelimane Under review by April 30, 2019 the World Bank Component 1.2 6 ToR for feasibility studies for Tete Under review by April 30, 2019 the World Bank Component 2 7 ToR for the on-site sanitation marketing Completed 8 ToR for the design and supervision of OSS Under review by April 30, 2019 the World Bank Component 3 9 Draft performance Agreement between DNAAS and Ongoing May 30, 2019 Municipalities Component 4 10 Hire the additional PIU staff Ongoing May 30, 2019 11 Appoint technical team at municipal level Not yet started June 30, 2019 Page 86 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) ANNEX 6: City Profiles and Maps COUNTRY: Mozambique Mozambique Urban Sanitation Project Page 87 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Page 88 of 89 The World Bank Mozambique Urban Sanitation Project (P161777) Page 89 of 89