Document of The World Bank FOR OFFICIAL USE ONLY Report No: 48515-GZ PROJECT APPRAISAL DOCUMENT ON A PROPOSED TRUST FUND GRANT IN THE AMOUNT OF US$10 MILLION TO THE PALESTINE LIBERATION ORGANIZATION FOR BENEFIT OF PALESTINIAN AUTHORITY FOR SUPPORT TO A MUNICIPAL DEVELOPMENT PROGRAM ­ Phase 1 IN WEST BANK AND GAZA August 13, 2009 Sustainable Development Department Middle East and North 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 May 7, 2009) Currency Unit = NIS (New Israeli Sheqalim) NIS 4.13 = US$1 US$0.241 = NIS 1.0 FISCAL YEAR July 1 ­ June 30 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement APLA Association for Palestinian Local Authorities CFAA Country Fiduciary Accountability Assessment CHF Cooperative Housing Foundation CPAR Country Procurement Assessment Report CPIP Country Procurement Issues Paper CQS Consultants' Qualifications Selection DA Designated Account DA Development Assessment DPG Development Policy Grant EIA Environmental Impact Assessment EMP Environmental Management Plan EMSRPII Second Emergency Municipal Services Rehabilitation Project ENPV Economic Net Profit Value EQA Environment Quality Authority EUR Euro FAD Finance and Administration Department FAM Finance and Administration Manager FIRR Financial Internal Rate of Return FM Financial Management FMS Financial Management System FNPV Financial Net Project Value FP Funding Partners FS Financial Statement FY Financial Year GAM Grant Allocation Mechanism GBP Pound Sterling GDP Growth Domestic Product GIA Grant Implementation Agreement GOI Government of Israel GTZ German Technical Cooperation FOR OFFICIAL USE ONLY IBRD International Bank for Reconstruction and Development IC International Consultant ICR Implementation Completion Report ICB International Competitive Bidding IDA International Development Agency IFRs Interim Financial Reports IEC Israeli Electric Company IT Information Technology JD Jordanian Dinar JSC Joint Services Council KFW German Bank for Development LCS Least Cost Selection LDP Local Development Project LDR Local Development Reform LGP Local Governance Program LGUs Local Government Units LGCBP Local Government Capacity Building Project LTCs Local Technical Consultants M Moderate MDLF Municipal Development and Lending Fund MDP Municipal Development Program MIDP Municipal Infrastructure Development Project MIS Management Information System M&E Monitoring and Evaluation MM Mitigating Measures MoF Ministry of Finance MoLG Ministry of Local Government MONE Ministry of National Economy MOPAD Ministry of Planning & Administrative Development MTR Mid Term Review MOU Memorandum of Understanding MTDP Mid-Term Development Plan NCB National Competitive Bidding NGO Non Governmental Organization NIS New Israeli Shekel NPV Net Project Value OECD-DAC Organization for Economic Cooperation and Development (Development Assistance Committee) O&M Operations and Maintenance OM Operational Manual PA Palestinian Authority PAD Project Appraisal Document PARCS Palestinians-American Recreation and Conservations Services PCA Procurement Capacity Assessment PCBS Palestinian Central Bureau of Statistics PCN Project Concept Note PDO Project Development Objectives PFM Public Financial Management This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. PGMIS Project Grant Management Information System PIC Project Information Center PIU Project Implementation Unit PLO Palestinian Liberation Organization PM Procurement Manual PMA Palestinian Monetary Association PNGOIII Palestinian NGO Project ­ III PP Procurement Plan PRDP Palestinian Reform and Development Plan QBS Quality Based Selection QCBS Quality and Cost Based Selection RVP Regional Vice President S Satisfactory SDP Strategic Development Plan SDIP Strategic Development and Investment Planning SIAP Sustainable Infrastructure Action Plan SMDM Support to Municipal Development and Management SSS Single Source Selection SWAp Sector Wide Approach TBD To Be Determined TFGA Trust Fund Grant Agreement TFGWB Trust Fund for Gaza and West Bank TOR Terms of Reference US$ United States Dollar UNDB UN Development Business UNDP United Nations Development Program VAT Value Added Tax WA Withdrawal Applications WBG West Bank and Gaza Vice President: Shamshad Akhtar Country Director: A. David Craig Sector Director Laszlo Lovei Sector Manager: Anna Bjerde Task Team Leader: Meskerem Brhane WEST BANK AND GAZA Municipal Development Program Table of Contents I. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 A. Country and sector issues................................................................................................ 1 B. Rationale for Bank involvement ..................................................................................... 3 C. Higher level objectives to which the project contributes ................................................ 4 II. PROJECT DESCRIPTION ................................................................................................. 4 A. Financing instrument ...................................................................................................... 4 B. Program objective and Phases ........................................................................................ 4 C. Project development objective and key indicators.......................................................... 5 D. Project components ......................................................................................................... 5 E. Lessons learned and reflected in the project design........................................................ 9 F. Alternatives considered and reasons for rejection ........................................................ 10 III. IMPLEMENTATION .................................................................................................... 11 A. Partnership arrangements .............................................................................................. 11 B. Institutional and implementation arrangements ............................................................ 11 C. Monitoring and evaluation of outcomes/results............................................................ 12 D. Sustainability................................................................................................................. 13 E. Critical risks and possible controversial aspects ........................................................... 13 F. Loan/credit conditions and covenants ........................................................................... 14 IV. APPRAISAL SUMMARY ............................................................................................. 15 A. Economic and financial analyses .................................................................................. 15 B. Technical ....................................................................................................................... 15 C. Fiduciary ....................................................................................................................... 16 D. Social............................................................................................................................. 17 E. Environment.................................................................................................................. 18 F. Safeguard policies ......................................................................................................... 19 G. Policy Exceptions and Readiness.................................................................................. 20 Annex 1: Country and Sector or Program Background ............................................................ 21 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies...................... 29 Annex 3: Results Framework and Monitoring.......................................................................... 30 Annex 4: Detailed Project Description ..................................................................................... 46 Annex 5: Project Costs.............................................................................................................. 60 Annex 6: Implementation Arrangements .................................................................................. 62 Annex 7: Financial Management and Disbursement Arrangements ........................................ 67 Annex 8: Procurement Arrangements ....................................................................................... 81 Annex 9: Economic and Financial Analysis ............................................................................. 91 Annex 10: Safeguard Policy Issues......................................................................................... 105 Annex 11: Project Preparation and Supervision ..................................................................... 112 Annex 12: Documents in the Project File ............................................................................... 113 Annex 13: Statement of Loans and Credits ............................................................................ 115 Annex 14: Country at a Glance ............................................................................................... 116 Annex 15: Social Issues .......................................................................................................... 118 Annex 16: Maps ...................................................................................................................... 132 WEST BANK AND GAZA MUNICIPAL DEVELOPMENT PROGRAM PROJECT APPRAISAL DOCUMENT MIDDLE EAST AND NORTH AFRICA MNSSD Date: August 13, 2009 Team Leader: Meskerem Brhane Country Director: A. David Craig Sectors: Sub-national government Sector Manager/Director: Anna M. Bjerde administration (35%);Power (23%);Roads and highways (18%);General public administration sector (12%);Other social services (12%) Themes: Access to urban services and housing (25%);Other social protection and risk management (25%);Municipal finance (24%);Social safety nets (13%);Pollution management and environmental health (13%) Project ID: P111741 Environmental category: Partial Assessment Lending Instrument: Specific Investment Joint IFC: Grant Joint Level: Project Financing Data [ ] Loan [ ] Credit [ X ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Not Applicable Total Bank financing (US$m.): 10.00 Proposed terms: Not Applicable Financing Plan (US$m) Source Local Foreign Total Borrower 0.00 0.00 0.00 Special Financing 10.00 0.00 10.00 Total: 10.00 0.00 10.00 Recipient: Palestine Liberation Organization (PLO) for the benefit of the Palestinian Authority (PA) West Bank and Gaza Responsible Agency: Municipal Development and Lending Fund (MDLF) Al Bireh, Al Rashmawi Building, 3rd floor West Bank and Gaza Tel: (970-2) 296-6610, 295-0684 Fax: (970-2) 295-0685 abednofal@mf-palestine.org Estimated disbursements (Bank FY/US$m) FY 10 11 12 13 Annual 1.50 4.50 2.20 1.80 Cumulative 1.50 6.00 8.20 10.00 Project implementation period: Start October 29, 2009 End: October 25, 2012 Expected effectiveness date: October 22, 2009 Expected closing date: April 30, 2013 Does the project depart from the CAS in content or other significant respects? [ ]Yes [X] No Ref. PAD I.C. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. [ ]Yes [X] No Have these been approved by Bank management? []Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated "substantial" or "high"? [X]Yes [ ] No Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [X]Yes [ ] No Ref. PAD IV.G. Project development objective Ref. PAD II.C., Technical Annex 3 The objective of Phase I of the MDP is to improve municipal management practices for better transparency. Project description [one-sentence summary of each component] Ref. PAD II.D., Technical Annex 4 1. Provide grant allocations to municipalities for capital investments and service provision. 2. Support municipal innovations and efficiency by promoting amalgamation, energy savings and responsiveness to citizens. 3. Provide capacity building to municipalities and MDLF. 4. Program management, including monitoring and evaluation, audits and technical assistance to municipalities in implementing sub-projects. Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10 Environmental Assessment OP/BP 4.01. Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: None. Loan/credit effectiveness: (a) The Trust Fund Grant Agreement between the Bank and the PLO has been executed. (b) The Subsidiary Agreement between the PLO and the PA has been executed. (c) The On-granting Agreement between the PA and MDLF has been executed. ii (d) The Project Agreement between the Bank and the MDLF has been executed. (e) The Legal Opinions related to the Trust Fund Grant Agreement, Project Agreement, Subsidiary and On-Granting agreements have been signed. (f) Operations Manual (including the Procurement and Financial Management sections) has been finalized. (g) Hiring of the internal auditor. Covenants applicable to project implementation: (a) Implementation of the project according to the criteria and procedures set forth in the Operations Manual, the Grant Allocation Manual and the Environmental Management Plan. (b) Award of sub-grants under grant implementation agreements with the respective municipalities, in form and substance satisfactory to the Bank. (c) No approval of investments or sub-projects that would be classified as Category A projects or would trigger OP 4.12. iii I. STRATEGIC CONTEXT AND RATIONALE A. COUNTRY AND SECTOR ISSUES Country Issues 1. The economic climate in the West Bank and Gaza (WBG) has changed dramatically since the second intifada in 2000, from one driven by investment and private sector led growth, to one sustained mainly by government spending and significant inflows of donor aid, due to continuing restrictions on movement and access by the Government of Israel (GOI). Moreover, the political process has continued to stagnate and there has been little visible progress for a long term peace settlement. As the economy continues to deteriorate with low investment, its productive base is hollowing out and per capita GDP is declining (by a cumulative 13 percent between 2000 and 2008). Between 1994 to 1999, before the second Intifada, the WBG economy was growing on average at about 6 percent per year. Had this growth trend continued, GDP per capita would be nearly 85 percent higher than it is currently. 2. Labor force participation rates are low and dropping. Unemployment in the West Bank, as reported by the Palestinian Central Bureau of Statistics (PCBS), rose from 17.7 percent in 2007 to 20.7 percent in the third quarter of 2008. Unemployment in Gaza, however, increased from 29.7 percent to nearly 41.9 percent. Although data on poverty are limited, there are clear indications that overall poverty in both the West Bank and Gaza has risen since 2000. PCBS reports that poverty rates increased in Gaza from 47.9 percent in 2006 to 51.8 percent in 2007. 3. The Palestinian territories of the West Bank (population 2.35 million) and Gaza (population 1.5 million) have been effectively split since June 2007.1 In early 2006, a Hamas- led government won the elections through what is widely regarded as a fair and transparent process. In response, many donors withdrew their assistance to the Palestinian Authority (PA), while the GOI intensified its economic and security restrictions. In June 2007, Hamas took control of Gaza by force, and President Abbas dissolved the Hamas-led government. A caretaker government of technocrats was sworn in until new presidential and parliamentary elections will be held. The caretaker government, headquartered in Ramallah, runs the West Bank and continues to provide basic services in Gaza through PA civil servants who report to and are paid by the caretaker government. The international community has restored its full cooperation with the PA in Ramallah. The continued deterioration in operational conditions in Gaza is also leading to a widening political, social and economic gap between the West Bank and Gaza. 4. Following these political developments, Gaza has been isolated by a strict closure policy by the GOI, crippling the local economy and leading to a deterioration of public infrastructure. Under the closure, only basic foodstuffs and other necessities are allowed to enter Gaza and there are no exports. The lack of spare parts and materials necessary for maintenance of infrastructure has severely impacted its quality and ability to deliver basic services. This deterioration has been exacerbated by the GOI's large scale military operation in Gaza between December 2008 and January 2009, that resulted in a large loss of life and over US$ 1.3 billion in total damages, according to the Palestinian National Early Recovery and Reconstruction Plan. Key Sector Issues 5. The key issue facing Palestinian local governments is ensuring adequate municipal service provision to citizens in the face of an eroding revenue base and a crippling financial and economic crisis. 1 Population figures are based on the latest census (2007) conducted by the Palestinian Bureau of Central Statistics. Figures for Gaza are based on the earlier census figures (of 1997). 1 6. The Palestinian population is largely urban and relies on municipalities for the provision of basic services. Seventy four percent of the Palestinian population, according to the 2007 population census of the PCBS, is urban, living in a total of 132 municipalities, with 25 municipalities in Gaza and 107 municipalities in the West Bank. Municipalities predate the establishment of the PA and have historically been responsible for the provision of a variety of infrastructure and services: electricity and water, solid waste management, roads, parks and recreation, slaughter houses, markets, building schools and health clinics. 7. Municipal revenues have steadily declined since 2000. Prior to the year 2000, 90 percent of municipal budgets were derived from local revenue collection. In contrast, over the past 8 years, municipal budgets have declined by an average of 31 percent due to the ongoing conflict and contraction in the economy. Incursions have led to sizable losses in municipal assets, which in turn have negatively affected service delivery. Nevertheless, low levels of municipal revenue generation have also been exacerbated by poor municipal management practices. There is a growing culture of non-payment for services provided by municipalities. For instance, at least 20 percent of non-payments in electricity services are due to free-riders.2 Furthermore, municipalities lack up-to-date current databases of service users and property owners, which has become an additional factor contributing to the decline in municipal revenues. 8. West Bank municipalities that provide electricity services are experiencing a dramatic decline in revenues. Some municipalities in the West Bank are accumulating large amounts of arrears due to nonpayment of electricity bills to the Israeli Electric Company (IEC). These arrears have a fiscal impact on the PA since the unpaid amount is directly deducted from the PA tax revenues and recorded as net lending. It is estimated that Local Government Units (LGUs) have accumulated close to US$ 400 million dollars in arrears between the years 2000 and 2008.3 To address the challenge of net-lending and improve the quality of utility service provision, the PA is establishing utilities in the West Bank to which electricity services will be transferred. This will worsen the financial situation of those municipalities who are currently collecting more electricity revenues than they are spending in delivering this service. 9. Border closures of the past year have led to a near collapse of municipal services in Gaza. Essential, systematic, and routine maintenance of existing infrastructure has not been possible in Gaza, and investment in new municipal assets is on hold. The impoverishment of the population and the near absence of private sector activities have meant that municipalities are unable to collect taxes and fees for service provision. Municipalities have been unable to pay staff salaries: most report 4-6 months in arrears in salary payments, non-payment of their contributions for employee health insurance and pension fees over the past two years, accumulating debts to suppliers, and mounting unpaid electricity bills. This situation has now been severely exacerbated by the large scale military operation launched by the GOI between December 2008 and January 2009, where the damage in municipal assets is estimated at approximately US$50 million.4 10. The deterioration of municipal finances in both the West Bank and Gaza is resulting in a deterioration of service coverage and quality. Substantial improvements are needed across all areas of service provision. About one fourth of the existing water network needs maintenance. Less than half of the total road network is paved. About half the equipment needed for solid waste collection is available.5 2 Municipal Electricity Arrears Study, Municipal Development and Lending Fund, January 2009 3 Municipal Electricity Arrears Study, Municipal Development and Lending Fund, January 2009 4 Gaza Municipal Damage Assessment, Municipal Development and Lending Fund, February 2009. 5 Municipal Finance Study, World Bank, June 2009. 2 11. Despite these constraints and continued emergency and conflict, the PA, with substantial support from the international community, has moved ahead with creating the institutional structures required to provide needed services to the Palestinian people. It has articulated a national development agenda in its Palestinian Reform and Development Plan, 2008-2010 (PRDP) in December 2007. The PRDP recognizes that for local governments to provide effective services for their citizens, they need to be better managed and more accountable. It, therefore, highlights the need to build the operational, administrative and financial management capacity of local governments. It calls for new legislation to clarify and regulate the relationship between central and local governments and to establish a policy framework which promotes fiscal autonomy and discipline at the local level. The Ministry of Local Government (MoLG) is taking the lead on policy formulation and oversight of the local government sector, while the Municipal Development and Lending Fund (MDLF) is charged with implementing PA policies. The PA has made significant strides in reforming systems for municipal financial management and accounting practices which will enable them to better manage and account for their tight budgets. Building on these gains, Phase 1 of the proposed Municipal Development Program, over the long-term, will be contributing to building better managed and more accountable local governments that are able to provide improved services to their citizens through a stronger social contract. B. RATIONALE FOR BANK INVOLVEMENT 12. With its long history of support to Palestinian local governance, the Bank has the convening power, to effectively integrate and coordinate donor and PA interventions to support local government development. The Bank is the Technical Advisor for the Sector Working Group on Municipal Development and Local Governance (co-Chaired by Denmark and MoLG), the local aid coordination structure that convenes key donors and relevant PA counterparts. Under the Emergency Municipal Services Rehabilitation Project (EMSRP) II ­ a project financed by the Bank, Netherlands, Sweden, KfW ­ a Donor Consultation Forum was established to ensure coordination among all stakeholders where the Bank has taken a leading role. The Bank is therefore, in a unique position to facilitate donor harmonization and aid revitalization, issues identified in the PRDP as priorities. 13. The Bank's main focus in the West Bank and Gaza is to assist the Palestinians in their aspirations for institutional sustainability and future statehood. Recognizing that this is a longer-term institution building agenda, despite a highly volatile environment, the Bank has sustained its engagement in West Bank and Gaza. The Bank's support, since its initial engagement has focused on central and local level institutions. Its portfolio of operations, includes a mix of complementary approaches of central level support to line ministries and local level service provision through local governments and NGOs as these are building blocks of effective states. Drawing on its global experience with local government development, the Bank has supported a series of operations which have contributed to local government development. In partnership with key donors (KfW, AfD, Netherlands, Sweden, Denmark), the Bank supported the establishment of the MDLF in 2005, the implementing agency for the proposed operation. The PRDP singled out the MDLF as its preferred institution to support the implementation of municipal reforms to improve fiscal autonomy, and enhance their financial, managerial, operational, administrative and technical capacity. As such, the Bank is in a unique position to assist the PA in implementing its Municipal Development Program (MDP) for improving municipal performance. 3 C. HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES 14. The proposed program contributes to the Bank's Interim Strategy for West Bank and Gaza (FY08-FY10) as well as its Sustainable Infrastructure Action Plan FY08-FY10 (SIAP). The interim strategy stipulates explicitly that the assistance program, both financial and policy- oriented, is to support the PA's PRDP through the following four pillars: support to (i) governance and fiscal reform (ii) human development in health, education, and social safety nets, (iii) economic and private sector development, and (iv) public infrastructure development. The design of this operation is expected to directly contribute towards the first and fourth pillars. Furthermore, one of the four key themes in the SIAP that the MDP also addresses is encouraging a strong governance framework for infrastructure services, leveraging additional financing, harmonized aid resources for infrastructure, and adopting sector wide approaches. 15. The MDP contributes to the implementation of the reform agenda highlighted in the PRDP ­ improved local governance and accountability. Improved local governance is expected to lead to better service provision to citizens. Furthermore, it contributes to state-building as it lays the foundations for more sustainable local governments, making them less aid dependent. 16. The MDP lays the groundwork for a future Sector Wide Approach, building on a legacy of effective coordination among the Financing Partners. Although a considerable amount of donor resources have been invested to support local government development, these have been uncoordinated and scattered (see Annex 2 for a list of donor programs). A recent review of the implementation of the Reform Action Plan by UNDP on behalf of the MoLG has revealed a multitude of initiatives attempting to accomplish the same objectives with limited impact to cohesively impact local government development. Donor coordination among partners working with MDLF marks a significant departure from the past. The MDP builds on this legacy of coordination and in its first phase, tests tools for donor harmonization such as commonly used performance based grant allocation formula, fiduciary systems and agreed criteria for sub-project selection. This will contribute towards a sector wide approach in the future, as the MoLG develops a clear strategy and vision for supporting municipal development through its Policy/Strategy Unit that is currently being established. In the meantime, the MDP will enable the harmonization of donor support for municipal development, thereby laying the groundwork for a sector wide approach to be able to emerge in the future. II. PROJECT DESCRIPTION A. FINANCING INSTRUMENT 17. The proposed grant instrument for the MDP is a Specific Investment Grant from the Trust Fund for Gaza and the West Bank (TFGWB). This is the instrument that is preferred by the PA, given the prevailing volatile and unpredictable climate in WBG. Under different circumstances, an Adaptable Program Grant may have been an appropriate instrument, as the MDP marks the first phase of subsequent phases envisaged to support implementation of the PA's municipal development program. B. PROGRAM OBJECTIVE AND PHASES 18. The MDLF has developed the MDP to operationalize the PRDP's goals for promoting local development. The MDP contributes to the larger PRDP goal of strengthening local governments by enhancing their efficiency and effectiveness and by moving them towards fiscal stability. The MDP is a multi-phase national program which provides municipalities with a 4 combination of technical assistance and annual performance based grants for sub-projects that improve service delivery. The formula for performance grants is designed to create incentives for municipalities to progress towards creditworthiness. The MDP has a three-stage hierarchy of objectives, as described below: (a) Sector-Level objective: Drawing on the MDLF's institutional mandate and vision, over the long-term the MDP contributes to strengthening municipal governance to enable municipalities to become creditworthy and thereby access resources from the market for investments that will enhance service delivery. At present, no municipalities are creditworthy. (b) Program-Level objective: Drawing on the PRDP, over the medium-term, subsequent phases of the MDP will be designed to support municipalities in providing better coverage and improved quality of services. (c) Objective of the First Phase of the MDP: Over the short-term, the MDP ­ Phase I, will support municipalities in improving their management/governance practices. 19. The proposed operation constitutes Phase I of the MDP (2009 to 2012) and is a building block for the program's medium and long-term objectives as described above. (See Annex 3 for a detailed hierarchy of objectives relating to the MDP). The MDP - Phase I is expected to reach all 132 municipalities given that the MDLF has already demonstrated that it can successfully support all of them. Each phase of the MDP is expected to last about 3 years with an approximate budget of US$60 to US$100 million and will include a mix of investment grants and technical assistance. Phase I will test the tools to improve municipal performance, enable donor harmonization, and draw lessons for future phases. At the end of Phase I, the Grant Allocation Mechanism will be refined based on the lessons of the first three years of the program. Subsequent phases of the MDP will continue to focus on improving the management capacity of municipalities as demonstrated by their ability to graduate to higher categories of the performance ranking system and will also focus on improving the quality of municipal service provision and revenue generation. C. PROJECT DEVELOPMENT OBJECTIVE AND KEY INDICATORS 20. The objective of Phase I of the MDP is to improve municipal management practices for better transparency. This is the necessary condition for improving service delivery in subsequent phases. The key performance indicators are as follows: At the end of Phase I, (a) Percentage of municipalities that graduate up the performance category in which they are currently classified. (b) Percentage of municipalities that apply at least 2 public disclosure methods (publicly available SDIPs, Annual External Audits, project related data, municipal budgets and performance rankings). D. PROJECT COMPONENTS 21. The MDP has 4 Windows through which funds will be dispersed in its first Phase (2009- 2012). In addition to the Bank, six other donors have committed to financing the program (AFD, Denmark, KfW, GTZ, Netherlands and Sweden). The funding amount reflected below is only for commitments made in 2009 but donors are expected to put additional funds in the second and third years of MDP Phase 1, totaling over US$100 million by the end of the first Phase. 5 Total Financing by Windows Program TFGWB Grant Amount (US$ m) (US$ m) Window 1 Municipal Grants for Capital Investments 46.16 7.6 Window 2 Support to Municipal Innovations and 3.7 0.7 Efficiency Window 3 Capacity Building 5.43 0.6 Window 4 Program Management (including Monitoring 6.64 1.1 and Evaluation, Audits, Technical Assistance to municipalities) Program Total 61.93 10 Window 1: Municipal Grants for Capital Investment (Total US$ 46.16 million of which US$7.6 million will be under TFGWB financing) 22. Window 1 allocates grants to municipalities for capital investments or operating expenditures for service provision, per their mandate defined in the Local Councils Law No. 1 of 1997 and sectors described as eligible in the Operations Manual. It will cover the costs of goods, works and services. It addresses two key constraints for municipalities as described in section A.1 above: severe municipal deficits, and poor municipal management. Phase 1 of the MDP will provide eligible municipalities with performance based grants for investments in service delivery, using an allocation formula designed to incentivize better management practices. The formula allocates resources to municipalities in an equitable, efficient, and accountable way, based on three weighted criteria that determine the distribution of the funds available through MDP Phase 1: population (40%), needs (20%), and performance (40%). During Phase 1, municipalities are ranked for the first two years and from then on an annual basis, from levels 1 to 6, using 12 key indicators of good municipal management, and will receive higher or lower allocations based on their rank (further details on the formula are in Annex 4). Eligible sectors per the Local Councils Law No. 1 of 1997 are as follows: (i) water and waste water services if provided by the municipality for the purposes of ensuring continuous supply; (ii) solid waste management; (iii) roads; (iv) public facilities (v) street lighting and (vi) electricity services not provided by a utility. The interventions could include rehabilitation, reconstruction, construction, or the supply of equipment and spare parts to sustain municipal service provision. 23. Taking note of the special circumstances of municipalities in Gaza, and the continued closure regime, Gaza municipalities may use their allocations for recurrent expenditures (excluding salaries of municipal employees) as direct inputs for sustaining essential municipal services. Examples of eligible expenses include maintaining public health services such as cost of cleaning and maintaining public land, facilities and assets, water purification and pest control; cost of solid waste collection and disposal; cost of maintaining and operating municipal service vehicles, road maintenance, electricity, and water supply and wastewater services etc). This can also include fees for temporary workers. A full list of eligible expenditures is included in Annex 4. Once the closure is lifted and the Bank and the MDLF agree that the situation has improved, no further recurrent expenditures will be permitted.6 6 Gaza municipalities will continue to receive assistance for recurrent expenditures through the Additional Financing for Emergency Municipal Services Rehabilitation Project II which was approved by the World Bank Board on May 28, 2009. In addition, a co-financing agreement with Sweden has been finalized and an additional one with Sweden is being finalized. The total EMSRPII funds to support Gaza municipalities as part of early recovery following the recent military operations are expected to be US$11 million for a period of 2 to 3 years. 6 Window 2: Support to Municipal Innovations and Efficiency (Total US$3.7m of which US$ 0.7 million under TFGWB financing) 24. This Window promotes learning and innovation to promote municipal development, including implementation of MoLG policy decisions. The Window will cover the costs of goods, works, training and services. The two main areas of intervention envisaged are: (a) strengthening amalgamation of local governments and (b) piloting innovations that promote municipal revenue generation or cost savings. (a) Strengthening newly amalgamated local governments (US$2.8 million, entirely financed by Denmark). This activity will promote the amalgamation of local governments and fund the expansion of their services, including some small scale infrastructure and capacity building. This activity is entirely funded by the Government of Denmark, building on lessons learned of an ongoing operation in Jenin governorate. Under the MDP Phase 1, additional new areas in the West Bank may be included, subject to the MoLG policy for municipal development. All activities of this sub-window should be outside the scope of Windows 1 and 3. (b) Piloting Innovations to improve municipal revenue, responsiveness and efficiency (Total of US$0.9 million of which US$0.7 million in financing from TFGWB): This activity will support studies, consultations, and implementation / testing of innovative approaches to enhance municipal revenue generation, responsiveness, efficiency or cost savings. The three main areas of support envisaged are: (i) promoting energy efficiency to reduce municipal expenditures through an energy audit and some investments to increase efficient use of energy in municipal service delivery in 3 to 4 large municipalities likely to most benefit from energy savings. (The total budget is estimated at US$0.7). (ii) One-stop-shops: "One-stop shops" (OSS) or customer-service-centers to promote municipal transparency, accountability, citizen-responsiveness and public participation efforts in management and service delivery in 3 municipalities in Gaza. The One-stop-shops will be centers where citizens may obtain information about all the services provided by the municipality and how to obtain these services. They will also enable citizens to provide feedback on municipal services so that municipal leaders may improve the ways in which services are provided and make decisions that are citizen responsive. (The total budget is US$200,000) Window 3: Capacity Building for municipalities and the MDLF (US$5.43 in total of which US$0.6 million to be financed by TFGWB). For Municipalities (US$5.23 million total of which US$0.55 financing under TFGWB) 25. This window will support municipalities to graduate to higher performance categories in the performance ranking system in which they are currently classified. It will cover the costs of goods, works and services. Building on the Local Government Capacity Building Project (LGCBP) that is currently being implemented by the MDLF, administered by the Bank and financed by Denmark, MDP will provide technical assistance to municipalities to improve their (i) financial management, including revenue enhancement for municipal service delivery, (ii) planning capacities, with a specific focus on community participation, and (iii) technical capabilities, in particular for operations and maintenance. The technical assistance packages described below are demand driven and training targets are determined by the number of municipalities within each rank. 7 (a) Improved Financial Management (US$3.7 million). Support will be provided for: (i) the roll out of the financial management manual which includes the basic use of the new chart of accounts, to a minimum 50 municipalities not yet targeted by LGCBP; (ii) asset registration and valuation support to a minimum of 30 municipalities; (iii) roll out of the municipal budgeting procedures, developed under the LGCBP to a minimum of 20 municipalities; (iv) promotion of municipal external audits; (v) office and IT equipment based on MDLF's assessment of the municipal financial departments, already carried out under the LGCBP, for a minimum of 30 municipalities; and (vi) the roll out of an Integrated Financial Management Information System for a minimum of 20 municipalities that are currently not covered under the LGCBP. (b) Strategic Development and Investment Plans (SDIP) (US$1.26 million): This activity will support a minimum of 40 municipalities to develop simple strategic development and investment plans with the participation of communities and relevant stakeholders. The methodology for the development of these plans will draw upon (i) the manual and procedures being tested by the SDIP working group led by the MoLG with members from MDLF, MoP, and municipalities, being supported by GTZ and cleared by MoLG, as well as (ii) lessons learned from the MDLF pilot project in the Jenin area under Danish financing. (c) Technical Assistance to Municipalities for overall improved management, especially for operations and maintenance (O&M) plans and procurement (US$0.27 million) . This will include (i) the development of O&M guidelines and a procedural manual and (ii) piloting use of the manual in 5 municipalities. For MDLF (Total of US$0.2m of which US$0.05 million in financing from TFGWB) 26. This activity will strengthen the MDLF's capacity to implement the MDP, ensuring that it continues to use innovative approaches that build on international best practices and will cover the costs of goods, works and services. It will provide support for human resource development and institutional building based on the MDLF's Medium Term Strategic Plan and its Human Resources Development Plan. The specific activities will be based on an annually approved detailed plan of activities approved by the Financing Partners and drawing on the Strategic and Human Resources Development plan. Window 4: MDP Management (Total of US$ 6.64 million of which US$ 1.1 million financing from TFGWB). It will cover the costs of goods and services. 27. MDLF Management Fee (Total of US$ 4.34 million in financing of which US$ 0.7 million is from TFGWB financing). All Financing Partners will pay a 7 percent administration fee on their grants to MDLF. This was estimated on the basis of a fully costed budget for the implementation of MDP Phase 1, taking into account its fixed and variable costs, including staff, equipment and operating costs. This administrative fee was reviewed by the Financing Partners and assessed to be adequate. The financial audit assignment will be covered by the MDLF's management fees. 28. Monitoring and Evaluation: (Total of US$ 0.2 million in financing of which US$ 0.05 million is from TFGWB financing). This activity will cover the costs of institutional compliance audit fees, a municipal infrastructure survey at the end of Phase 1, client and citizen satisfaction assessments and technical audit fees. 8 29. Outreach and Communications: (Total of US$ 0.3 million in financing of which US$ 0.15 million is from the TFGWB financing). This activity will support the design and implementation of a communication and outreach program around the MDP, especially on the Grant Allocation Mechanism to ensure that both municipal leaders and citizens have a full understanding of it. The goal is to ensure transparency so that citizens understand where their municipality is ranked and hold leaders accountable so as to graduate to higher performance ranks. 30. Local Technical Consultants (LTC): (Total of US$ 1.8 million of which US$ 0.2 million from TFGWB financing). LTCs will support those municipalities which require additional assistance in identifying sub-projects, preparing application forms, bidding documents, supervising the contractors, progress reporting, and so forth. The LTCs are supplemental to the guidance that MDLF gives to municipalities. E. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN 31. This operation draws on several lessons from international experience in implementing municipal development projects. These are: a) Clear implementation arrangements and well defined contractual distribution of roles are essential for a successful municipal development program (such as municipal compacts and conventions to foster participatory processes and facilitate speedy implementation). These have been successfully applied in the Tunisia Municipal Development Program and Jordan's Regional and Local Development Project. The proposed operation includes such arrangements. b) Link investment grants to measurable performance standards while emphasizing capacity building aspects. This approach has been shown to improve local government accountability, transparency and service delivery.7 c) Well designed programming tools and clear rules of the game, allow for successful program implementation, even if the program targets a large number of municipalities. Urban projects have often shied away from working with a large number of municipalities because of the risk of spreading too thin and the complexity of supervision. This operation is designed to ensure that all 132 municipalities adhere to the discipline and rules-based approach made explicit in the Grant Allocation Mechanism. d) Keep the program simple in terms of design, scope and institutional arrangements and set modest goals that can be achieved within existing constraints. In conflict environments, keep program design flexible to allow it to adapt to changing circumstances. e) Institution building is a slow and long process and it is therefore important for donors to stay the course. 32. This operation also builds on the lessons learned from the Bank's two previous operations in the West Bank and Gaza (Emergency Municipal Services Rehabilitation Project, EMSRP I and the follow-on EMSRPII). First, experience with both projects highlighted the need to improve municipal performance and establish an institutionalized mechanism for central- local transfers that is based on equity and accountability. Experience under EMSRPII demonstrated that performance related incentives work: they required municipalities to comply 7 Kusek, Jody Zall and Rist, Ray C. Ten Steps to a Results-Based Monitoring and Evaluation System: A Handbook for Development Practitioners. The World Bank: Washington D.C., 2004. Nayyar-Stone Ritu, et al. Developing a Performance Management System for Local Governments: An Operational Guideline, Prepared for The World Bank & UN_HABITAT. June 2002. 9 with the law by submitting their planned and executed budgets to the MoLG. At the start of EMSRP only 24 municipalities submitted their budgets, now, under EMSRPII, this has become a routine practice with 100% compliance. F. ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION In designing the MDP, several alternatives were considered. 33. Should the program development objective be the provision of service delivery? While service delivery constitutes a core element of the program8 and over 80 % of the resources will finance these improvements, given the levels of financial deficits of municipalities, poor planning practices, lack of attention to maintenance and operations, it has been agreed with the PA and among donors that improving the management practices of municipalities is the key necessary pre-condition for improving the financial sustainability of services and enhancing service delivery, and hence the objective of the first phase of the MDP. 34. Should the program focus on generalized support to local governments, including village councils? Lessons learned under the EMSRP which supported over 400 Local Government Units in Palestine clearly showed that the program scope and geographic coverage was too broad, limiting its impact. In addition to the thin geographic spread, support to village councils would require the design of a different type of intervention based on a different set of program objectives, thereby violating the key lesson from global experience of "keeping it simple." Village Councils cannot be expected to provide the same types of services as municipalities due to their small size and lack of economies of scale9. The core part of the program, provision of performance based incentive grants, cannot be applied to village councils as they do not have the same management capacities as municipalities. Rather, different instruments for support to village councils are available. The MoLG has a number of operations such as the Bank financed Village and Neighborhood Development Project, the EC and MoF financed program targeting villages affected by the Separation Barrier, as well as AfD financed support to villages through PECDAR etc. 35. Should donors adopt a Sector Wide Approach, given the strong enthusiasm by all partners for harmonization? Although the key elements of a successful Sector Wide Approach (SWAp), such as harmonized instruments, donor agreement and a strong national institution are all in place, sectoral policies are not well formulated and effective country systems are not yet in place (e.g., procurement law is still in draft form). Nevertheless, Phase 1 is a fully harmonized program where donors will apply systems already developed (and in use) by the MDLF, thereby limiting earmarking and laying the foundations for a SWAp to be implemented under Phase 2. For the time being, parallel financing provides the program with a degree of flexibility that allows the program to continue even if there are delays in the contributions of a Financing Partner and allows new donors to come in when they are ready. 8 Eligible municipal sub-projects must be for service provision. 9 There are over 200 village councils in Palestine, each with a population of less than 3,000. When one takes into consideration the large population of children and youth (80%) the potentially productive population (therefore theoretical tax base) of a village council is less than 600 people. Clearly, such a unit cannot be assigned the task of service provision due to the low levels of economies of scale. 10 III. IMPLEMENTATION A. PARTNERSHIP ARRANGEMENTS 36. The MDP Phase 1 is to be supported by a partnership that includes Denmark, Germany (GTZ and KFW), France (AfD), Sweden and the Netherlands. The design of the MDP was a fully collaborative effort among all partners: several joint missions were carried out in order to agree on core design elements such as the Grant Allocation Mechanism, Monitoring and Evaluation, and the main program windows. Some donors took the lead in providing assistance to the MDLF in design aspects, depending on their area of expertise and interest: for example, GTZ took the lead in the design of the Capacity Building and the Monitoring and Evaluation aspects, Denmark in the institutional assessment, KfW in technical aspects. 37. In a Memorandum of Understanding to be signed among all Financing Partners all donors agreed to harmonize implementation systems, and adopt a programmatic approach, laying the foundations for a possible SWAp under Phase 2. Some Financing Partners (Denmark and Sweden) will put their funds through a Trust Fund Agreement to be administered by the Bank. Others (e.g., Netherlands, Germany) will have parallel financing. The PA has also committed to making a 10 percent contribution of total donor financing and this will also be done through parallel financing. B. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 38. The MDLF will be responsible for the management of the MDP, including making all payments to contractors and suppliers on behalf of municipalities since no funds will be transferred to municipalities. Established in 2005, by a Ministerial Decree, the MDLF has the legal mandate to provide direct development assistance to municipalities through transparent, rules-based and efficient financing. As indicated in the PRDP, the MDLF is also the PA's preferred mechanism for channeling reform and development assistance to local governments. The MDLF has successfully demonstrated its capacity to effectively administer donor funded programs since its establishment in 2005. Examples of these projects are, the World Bank's Emergency Municipal Services Rehabilitation Project (EMSRP), the EMSRP 2, the Local Government Capacity Building Project, in addition to projects financed by Germany, France, Sweden and the Netherlands. The MDP will build on the MDLF's experience and become its overarching program. 39. MDLF's Capacity: MDLF has the appropriate organizational structure in place. It has filled some of the key positions that were vacant at preappraisal (e.g., General Director, Procurement Specialist, Public Relations Officer, and Capacity Building Manager). Recruitment of an Internal Auditor is well underway. The MDLF finances its staff and administration costs through a 7 percent Management Fee that is applied to donor funds. All MDLF staff are funded out of the Fee. In addition to its headquarters in Al Bireh, MDLF also has a branch office in Gaza and has demonstrated its ability to operate there effectively. 40. Flow of Funds & Legal Relationships. The Recipient of the grant is the Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority (PA) as with nearly all cases of assistance provided to the Palestinian people under the Trust Fund for Gaza and the West Bank (TFGWB). A Subsidiary Agreement between the PLO and PA designates the PA as recipient of the grant and an On-Granting Agreement between the PA and MDLF designates the MDLF as the implementing agency. The Bank and the MDLF will also sign a Project Agreement. MDLF would then implement the program in accordance with, the legal agreements and the Operations Manual. The Ministry of Finance (MoF) would open the Designated Account 11 on behalf of the MDLF, under the Single Treasury Account. The MDLF would be responsible for managing the account but the Ministry of Finance is responsible for requesting replenishments from the World Bank. Other Financing Partners may have different arrangements for submitting withdrawal applications. 41. MDLF Board of Directors: MDLF's Board of Directors (the "Board") is the policy and strategy-setting authority responsible for monitoring the direction and performance of the Fund. The Board Chairman is the Minister of Local Government and its 11 members consist of representatives of Public Sector entities (MoP, MoF, MoPWH, and Ministry of National Economy), civil society (Engineers Association, Banking Association, Association of Palestinian Local Authorities, women's association) and 2 mayors. Since the Board members represent the key stakeholders in the local government sector, its role is to promote effective communication and coordination. 42. Municipalities are responsible for sub-project implementation: the 132 local government units classified as municipalities by the MoLG ­ provided that they fulfill the eligibility criteria for the program ­ will be responsible for implementing sub-projects that they identify through a participatory public consultation process. Municipalities are responsible for all contracting once the MDLF has approved the sub-projects. They will also submit invoices to the MDLF who will be responsible for making direct payments to contractors and suppliers, including for recurrent expenditures in Gaza. 43. Ministry of Local Government: The Ministry of Local Government is charged with policy making and regulating the operations of local governments. To strengthen this function the MoLG is currently reviewing and updating the 2004 Diagnostic Report and Reform Action Plan of 2004. Furthermore, it is also establishing a Policy/Strategy Unit which several donors (CHF, Bank, Denmark and Sweden) have already expressed a willingness to support. C. MONITORING AND EVALUATION OF OUTCOMES/RESULTS 44. Use of Outcome Data: Systematic feedback on changes in the management and performance of municipalities and on service delivery improvements as a result of MDP interventions is essential for: (i) enabling appropriate decisions about whether and how to adjust the design of interventions or implementation arrangements, and for (ii) distilling lessons from implementation to enable the PA to formulate and redesign its policies and procedures for regulating local governments so that they can improve living conditions. 45. M&E of MDP: MDLF is strengthening its existing M&E system to be more results- focused, with clearer linkages to the MDLF's strategic plan and the sector-level PRDP objective for local governance and transparency. It is also developing overall outcome indicators (of which the results framework is a part), covering key interventions. MDLF introduce indicators for enhanced citizen participation to strengthen the social contract between municipalities and their constituencies. 46. Baseline Data and performance measurements under MDP: Baseline data for the MDP are collected from different sources, including executed municipal budgets submitted to MoLG, a municipal infrastructure survey carried out by PCBS, the Grant Allocation Mechanism and related baselines on municipal rankings, and the client and citizen satisfaction assessments. Additional external reviews and assessments will be carried out to track progress. (See Annex 3 for details). 47. Progress Reporting: The MDLF will prepare the following key reports: (i) a short Semi- Annual Progress Report covering the first semester of each year and which includes a performance based action plan for the following semester; (ii) a Cumulative Annual Progress 12 Report (and work plan for the following semester); (iii) Interim Financial Reports and annual external audits (including an institutional compliance audit to assess MDLF's adherence to its own internal procedures); and (iii) an Implementation Completion Report at the end of Phase 1. See Annex 3 for details. D. SUSTAINABILITY 48. The program supports municipalities in improving their performance, through a combination of incentives (financing of capital expenditures) and with hands-on Technical Assistance for capacity building. Municipalities will improve their ability to plan, manage and generate revenues so that they can continue to provide quality service to their citizens thereby working towards sustainability. Over the longer-term some municipalities may even achieve creditworthiness so that they are able to borrow from the financial markets for local investment. E. CRITICAL RISKS AND POSSIBLE CONTROVERSIAL ASPECTS Risk Level Mitigation Measure Program Objective and Strategic Level Unstable political and security situation H Flexibility in design and periodic country hinders achievement of PDO. portfolio reviews will improve program resilience or allow for restructuring. The operational conditions in Gaza H Program design is sufficiently flexible and continue to deteriorate with the responsive to accommodate distinctions between social/economic gap between the west Gaza and the West Bank, and changing Bank and Gaza increasing. conditions on the ground. It is possible that Gaza municipalities will receive more support to cover operational costs to cover their deteriorating financial conditions and the fact they are losing their main source of cash flow (water service provision to the Coastal Municipalities Water Utility). Some donors might decide to make M There is strong commitment among all significant changes mid-course on Financing Partners to support the program design and disbursement issues. as all have been involved in program design and each donors concerns were addressed at the time of MDP design. Continued dialogue and multi-donor supervision. Change in government leads to change in H The program is designed to respond to priorities and affects strategic choices. municipal needs with ownership of sub-projects at the local level. Identification and implementation of sub-projects will take place at the municipal level. This will help mitigate the risk of lack of commitment at the local level despite government changes. Implementation Level Disagreement among Financing Partners L Several joint missions were carried out by the on a harmonized approach. Financing Partners, most recently in April/May 2009 where all technical details were discussed and agreed upon. Joint Annual Supervision missions have been agreed upon. Full volume of funds pledged by the M All Financing Partners have a long history of Financing Partners does not materialize or close collaboration and all have played a major 13 Risk Level Mitigation Measure is delayed. role in the establishment of the MDLF and therefore have a longstanding commitment to it. Commitments are expected to be confirmed by September to allow for municipalities to use their allocations in the budget planning process. However, a risk remains that the funds may not be immediately available, disturbing the planning process for MDLF. Since the sub- projects are demand driven and limited by available budget from the program, the municipalities will be able to adjust their applications accordingly. Tightened internal and external closures H Alternatives for providing decentralized/remote prevent access/flow of goods, services, and support system to beneficiary municipalities will people to/from beneficiary communities. be considered. MDLF already has a very effective office in Gaza. Bank supervision has been decentralized to Country Office level. Implementation delays as indicated in the M A performance based semi-annual and annual low disbursement on the PHRD grant for work plan will be submitted for monitoring. The the preparation of the MDP. delays were raised with PA officials (MDLF/MoLG/MoF) during appraisal, and actions are being taken. The annual compliance audits (as part of the financial audits) by an independent auditor will also evaluate performance of the MDLF as an institution. Municipal elections might be held in M Expedite implementation on municipal level January 2010 which could lead to by determining programs in advance. delays due to preoccupation of present MDLF will carry out extra coordination by council with the elections and incoming MDLF. Work closely with city engineers one needing orientation. who will not be affected by the elections. The siege on Gaza will pose a substantial H Limited success has been achieved due to risk on implementing any mutual accusations of not respecting the terms construction/development/rehabilitation of the agreement. Financing Partners have project which requires building materials. managed to forge a mechanism to allow some materials for critical projects in Gaza. This mechanism will be used for this program. Activities in Gaza will focus on projects that use locally available materials and financing operating expenditures if the siege continues. First time report based replenishment is M Ex post audit measures (quarterly review of being used. IFRs and annual audits) by external auditor. Lack if Internal Audit Function at the M MDLF is in the process of recruiting an internal MDLF auditor which is an effectiveness condition. Overall Risk Rating H The risk ratings above factor in the mitigation measures. H: High M: Moderate L: Low F. LOAN/CREDIT CONDITIONS AND COVENANTS 49. Under the MDP, retroactive financing of up to US$ 200,000 will be permitted for activities under Window 4, management costs. In particular, the MDLF may need to recruit the 14 LTCs prior to grant signing so that they may begin working with municipalities immediately ensuring that sub-projects are ready when the financing becomes available. Payments may be made for expenditures incurred after August 15, 2009. There are no conditions for Board presentation. The following is a condition for effectiveness: (a) The Subsidiary Agreement between the PLO and the PA has been executed. (b) The On-granting Agreement between the PA and MDLF has been executed. (c) The Trust Fund Grant Agreement between the Bank and the PLO and the Project Agreement between the Bank and the MDLF have been executed. (d) The Legal Opinions related to the Trust Fund Grant Agreement, Project Agreement, Subsidiary and On-Granting agreements have been signed. (e) Operations Manual (including the Procurement and Financial Management sections) has been finalized. (f) The hiring of the internal auditor. 50. Covenants applicable to project implementation: (a) Implementation of the project according to the criteria and procedures set forth in the Operations Manual, the Grant Allocation Manual and the Environmental Management Plan (b) Award of sub-grants under grant implementation agreements with the respective municipalities, in form and substance satisfactory to the Bank. (c) No approval of investments or sub-projects that would be classified as Category A projects or would trigger OP 4.12. 51. There are no cross-conditionality or cross-effectiveness conditions because the Bank contributions can stand alone. The bulk of the Bank's contribution, as that of other donors, is under Window 1 where sub-projects are identified on a demand basis and according to available resources. Therefore, municipalities will be able to tailor their activities to resources available from the Bank should other donor funds not materialize. IV. APPRAISAL SUMMARY A. ECONOMIC AND FINANCIAL ANALYSES 52. The program will finance municipal infrastructure as described in Annex 4. At this stage, sub-projects to be financed are unknown as they are demand driven. Thus, it is not possible to identify economic benefits of the project as a whole. Instead, a methodology has been elaborated and agreed to be used for the economic and financial cost-benefit of sub-project investments. MDP Phase 1 will test the application of this methodology and will refine it. The methodology for cost-benefit analysis of sub-projects is presented in Annex 9. B. TECHNICAL 53. The MDP will finance well-defined, technically sound and cost-effective sub-projects. Sub-projects will be selected on the basis of a municipality's Strategic Development and Investment Plan (SDIP), when such a plan is available, and community consultations, when 15 SDIP is not available. All sub-projects have to meet the eligibility criteria set out in the Operations Manual (OM) and the legal agreements. While municipalities are responsible for the technical design, when necessary they will be assisted by the LTCs to ensure sound quality standards. The MDP will improve the quality of sub-projects by: (a) Ensuring that all works conform to national technical norms and standards for each type of sub-project; (b) Enforcing these norms and standards through technical design and community- responsive, effective procurement procedures, systematic program supervision of the contractor by municipalities using qualified specialists (and LTCs when these are not available); (c) Ensuring the involvement of technical experts in the design and supervision of works; (d) Capacity building for appropriate municipal staff in relevant areas of quality enhancement; and (e) Conducting technical audits, which in addition to verifying technical soundness and compliance with safeguards, also looks at the quality and usability of a sample of sub- projects. C. FIDUCIARY Financial Management 54. The CFAA has concluded that the risk level in the Palestinian Financial Management system is still significant. A key factor in the current rating is the lack of a properly functioning external audit institution. The overall risk from a financial management perspective for the MDP is high. Nevertheless, various measures to mitigate the risks to an acceptable and manageable level have been agreed. The financial management arrangements for the MDP are designed to ensure that funds are used for the purposes intended, and timely information is produced for Program management and PA oversight, and to facilitate compliance with the Bank's fiduciary requirements. 55. The MDLF will have overall responsibility for the management of the Grant resources and for implementing the FM arrangements. It will maintain the program consolidated budget, accounting, reporting, and auditing. 56. Flow of Funds: World Bank contribution to the MDP will be financed by a Grant from the TFGWB. The Bank will be financing its share of the MDP through parallel financing to be disbursed through a Designated Account (DA) opened by MOF and operated / managed by the MDLF. 57. Interim Financial Reports (IFRs) and Audits: The quarterly IFRs will be subject to quarterly reviews by an external auditor to certify the physical achievements and the corresponding resources used. Replenishment of the DA will follow Report Based Disbursement method as documented in the IFRs. The quarterly IFRs will be annexed to the Withdrawal Applications submitted to the Bank for replenishment. 58. The consolidated financial statements of the MDP will be audited on an annual basis. The auditors will be expected to express a single opinion on the audited program consolidated financial statements including the DA statement. In addition, the auditor will be expected to express a special opinion on the Bank's contribution to the Program, regarding the degree of compliance with Bank procedures. The audit reports will be submitted to the World Bank and all Financing Partners within six months after the end of each fiscal year 16 59. The following will need to be completed by effectiveness: · Finalized Financial Manual of Procedures acceptable to the Bank. · Hiring of an Internal Auditor. Procurement 60. The Bank Country Procurement Issues Paper prepared in mid-2008 confirmed the 2004 Country Procurement Assessment Report (CPAR) findings with regard to the existing legal framework for public procurement: the conditions are not yet in place for using country procurement systems. The new procurement law has not yet been enacted. The overall procurement risk in WBG remains high. However, the Procurement Capacity Assessment for the MDLF and a sample of the participating municipalities, carried out as part of program preparation, determined that the overall risk is moderate. 61. Procurement of goods , works and consultants under the program components to be funded out of the TFGWB by IDA as administrator of the TFGWB will be carried out in accordance with the `Guidelines On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants' known as the `2006 Anti-Corruption Guidelines', and the `Guidelines: Procurement under IBRD Loans and IDA Credits' published by the Bank in May 2004 and revised in October 2006 and the `Guidelines: Selection and Employment of Consultants by World Bank Borrowers,' dated May 2004 and revised October 2006, and the accompanying standard bidding documents for any new procurement", the Grant Agreement and the procurement section of OM. 62. Procurement of goods, works and consultants to be funded under parallel co-financing by the other donors are expected to follow the procedures agreed on in separate financing agreements signed between PA and each of these donors. These procedures would be spelled out in the OM and it is expected that all donors will use the MDP procurement manual which is based on World Bank guidelines. 63. The MDLF will be responsible for oversight and monitoring of the implementation of program procurement and would ensure that procurement under the program is carried out in accordance with the TFGA, the procurement plan and manual. Procurement activities at the central level under Windows 2, 3 and 4 will be directly carried out by MDLF, while all procurement under demand-driven sub-projects (Window 1 and part of Window 2) will be implemented by municipalities with the assistance and oversight of the MDLF or/and Local Technical Consults (LTCs) as required in accordance with the Bank's guidelines and the OM. 64. The Procurement Capacity Assessment for the MDLF and a sample of the participating municipalities evaluated the capacity of the municipalities and the MDLF to implement procurement under international as well as World Bank procurement guidelines, evaluated procurement risks, and made recommendations on mitigation measures for efficient procurement under the MDP. It found the overall risk to be moderate and that there is a need for strengthening the procurement capacity of the MDLF and the participating municipalities through technical assistance, training and supervision in order to meet the implementation requirements under the MDP. The procurement risks and corrective measures are presented in Annex 8. D. SOCIAL 65. As part of preparation of the MDP, the MDLF, World Bank and GTZ carried out assessments and consultations in 10 municipalities between January 2008 and March 2009, in order to understand the level of community participation in municipal management, service 17 delivery and decision-making, including in the design of strategic development and investment plans and municipal budgets. In addition, MDLF's current practices for ensuring community participation and assessing social impacts as part of sub-project appraisal were reviewed. Lessons learned from community participation in MDLF's ongoing projects, such as the Local Development Project in the Jenin area, funded by Denmark, were also reviewed. The findings of these assessments have informed the design of the MDP for better municipal service delivery and transparency to citizens. 66. Municipalities remain an important reference point for citizens, along with family networks, civic associations and religious or political organizations. Due to the restrictions on movement and access, Palestinians are continually forced to find local solutions to improve their livelihoods, often through their municipalities. The assessments highlighted the need to enhance the accountability of municipalities' towards their constituencies, and of citizens towards municipalities. At present, municipalities and citizens are not fully aware of their respective responsibilities and rights. Citizens' understanding of, and trust in municipal governance­among other factors results in low willingness to pay taxes and user charges for municipal services used. Findings show that citizens are likely to re-elect municipal leaders who give them the opportunity to voice and address their concerns, and allow citizens to participate in municipal decision-making. Accordingly, enhanced community involvement and contribution would be in the interest of municipal leaders. The challenge in WBG is now to address the fact that public participation is ad-hoc and unsystematic, and to overcome the weak social contract between municipalities and citizens. The development of the SDIP framework by MoLG which will be implemented as a policy is a first step towards addressing this challenge. 67. In the first phase, the MDP will adopt the following strategy to address the accountability gap and weak social contract by promoting enhanced community participation in key areas of municipal decision-making. Specific activities are described in detail in Annex 15 and include: (a) Piloting the concept of "citizen-service-centers" or "One-Stop Shops (OSS)" in three municipalities in Gaza (illustrated also under Window 2c ­ Innovation). (b) Development of a communication strategy and campaign (illustrated also under Window 4 - Program Management). (c) Client and citizen satisfaction assessments (supported under Window 4: Program Management). (d) MDLF's promotion of public participation through technical assistance for and supervision of municipalities' preparation and implementation of sub-projects and Strategic Development and Investment Plans (SDIP) (supported under Window 1: Capital Investments, Window 2: Innovation and Window 3: Capacity building). E. ENVIRONMENT 68. The sub-projects to be funded in this program include development and rehabilitation of municipal infrastructure including (but not restricted to) roads, parks, electricity services not provided by a utility and street lighting, and improvement, rehabilitation and maintenance of existing water systems (water wells, water networks, wastewater and sanitation). In Gaza, it also covers incremental costs for service delivery and rehabilitation but not salaries of municipal employees. The expected environmental and social impacts of these sub-projects are expected to be positive; however, some minor temporary negative impacts are expected during the construction phases which are easily mitigated through the Environmental Management Plan (EMP) prepared by MDLF. This program is classified as category `B" and any sub-project that is found to be category "A" during the screening process will not be funded through this program. 18 The screening criteria which also include a negative list of interventions that are ineligible under this Program are laid out in the EMP and Operations Manual. Furthermore, the size of funds that will be allocated to different municipalities will limit the scope of sub-projects. It is unlikely that there will be sub-projects that require a full-fledged EIA or that might cause significant negative impacts to groundwater, soil or air. The MDLF will ensure that approved sub-projects are in compliance with the MDP's subproject screening criteria and its environmental specialist, in cooperation with municipal engineers, will monitor the implementation of the EMP. If necessary, the LTCs may also provide technical assistance to some municipalities in implementation of the EMP. A training program on the EMP is planned for relevant MDLF and municipal staff in order to ensure their capacity in environmental monitoring. F. SAFEGUARD POLICIES 69. Operational policy OP 4.01 and OP 4.09 are triggered and an environmental assessment of the program is required. The MDLF has prepared an environmental assessment and environmental management framework suitable for the implementation of the MDP that was found to be acceptable by the Bank. Updates of the EIA/EMP can be made from time to time, with the approval of the Bank, in order to reflect better evolving conditions on the ground. The EA includes a detailed assessment of the regulatory and institutional framework and capacity of MDLF, environmental assessment of possible impacts and mitigation measures, an environmental management plan, monitoring plan with clear indicators and mechanisms for implementation and reporting. It also describes the training and capacity building required for effective environmental safeguards at the municipal level. In the preparation of the EMP, the MDLF also consulted with other Financing Partners supporting the MDP and it was agreed that the World Bank's safeguards policies will apply to the Program as a whole. The EMP was disclosed in-country in English on May 31, 2009. The client has translated and disclosed the EMP in Arabic on May 25, 2009. The EMP may be updated from time to time with approval from the Bank to respond to program needs as they arise. 70. The sub-projects and investments to be funded under this program are not expected to trigger other Bank safeguards policies. The infrastructure rehabilitation and extensions are expected to use existing municipal property and existing rights-of-way of roads. Secondly, any sub-projects that have a potential to trigger OP 4.11 on physical cultural resources will be excluded. The EMP includes a protocol and budget line for any accidental findings of physical cultural resources during implementation. The Operations Manual includes a screening process to ensure that those sub-projects and investments that might trigger either OP 4.11 or OP 4.12, or would be categorized as Category A projects, are excluded. The MDLF is responsible for ensuring that the municipalities adhere to these safeguards policies. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X ] [] Natural Habitats (OP/BP 4.04) [] [ X] Pest Management (OP 4.09) [ X] [] Physical Cultural Resources (OP/BP 4.11) [] [X ] Involuntary Resettlement (OP/BP 4.12) [] [ X] Indigenous Peoples (OP/BP 4.10) [] [X ] Forests (OP/BP 4.36) [] [X ] Safety of Dams (OP/BP 4.37) [] [ X] Projects in Disputed Areas (OP/BP 7.60) [] [ X] Projects on International Waterways (OP/BP 7.50) [] [X ] 19 G. POLICY EXCEPTIONS AND READINESS 71. The program will not require any exceptions from Bank policies and will meet the Regional criteria for readiness for implementation: results assessment and fiduciary arrangements (procurement and FM) are in place; the MDLF has been appropriately staffed; and all disclosure requirements have been met. 20 ANNEX 1: COUNTRY AND SECTOR OR PROGRAM BACKGROUND WEST BANK AND GAZA: Municipal Development Program Country Context 1. Despite enormous challenges, the Palestinian Authority (PA) continues to make strides towards creating the structure of a future Palestinian State. However, during the past several years the political process has stagnated and there has been little visible progress towards a long term peace settlement. As a consequence, the economy has continued to deteriorate with low investment, the productive base is hollowing out and per capita GDP is declining. GDP levels are only maintained through massive inflows of foreign aid that has propped up consumption and government spending. As the economy stagnates and the population grows, per capita GDP continues to fall: real per capita GDP is now more than 30 percent below its height in 1999. The lack of economic growth is clearly due to the political and security environment. From 1994 until 1999, before the second Intifada, the WBG economy was growing on average at about 6 percent per year. If this trend had continued, GDP per capita would be nearly 85 percent higher than it is currently. 2. Labor force participation rates are low and dropping. Unemployment in the West Bank rose from 17.7 percent in 2007 to 20.7 percent in the third quarter of 2008, while Palestinian Central Bureau of Statistics reports that unemployment in Gaza increased from 29.7 percent to nearly 41.9 percent. These figures do not give an accurate picture of the full impact of the economic crisis, because they do not take into account underemployed workers such as the large number who have turned to unpaid family labor or seasonal agriculture. The figures also do not include the many discouraged workers who have left the labor force. 3. The Palestinian territories of the West Bank (population 2.35 million) and Gaza (population 1.5 million) have been split since June 2007. In early 2006, a Hamas-led government won elections in what is widely regarded as a fair and transparent process. In response, many donors withdrew their assistance to the PA, while Israel cut off the transfer of tax clearance revenues it collects on behalf of the PA. In June 2007, Hamas took control of Gaza by force and President Abbas dissolved the Hamas-led government and swore in an emergency government of technocrats, which has since become a caretaker government until new presidential and parliamentary elections are held. The international community rallied around the new Caretaker Government and restarted their programs of financial and technical support. The Government of Israel (GOI) released tax clearance revenues, which it still continues, and maintains some economic relations. Gaza, under the control of a Hamas administration, has been completely isolated by a strict closure policy applied by the GOI. A truce declared between Hamas and the GOI in the summer of 2008 was not maintained and the GOI launched a large scale military operation in Gaza between December of 2008 and January 2009 that resulted in a large loss of life and enormous property damage, estimated at over US$ 1.3 billion. 4. The continuing closure of Gaza by the Government of Israel is crippling the local economy and is leading to a deterioration of public infrastructure. Under the closures, only basic foodstuffs and other necessities are allowed to enter and there are no exports. The lack of spare parts and materials necessary for maintenance is leading to a severe deterioration in public infrastructure and quality of services, further hindering efforts to rebuild after the December 2008 invasion. Hamas remains in firm control of Gaza, but most basic services continue to be delivered by civil servants that are paid by and report to the PA in Ramallah. At the local level, 21 services continue to be provided by municipalities (solid waste collection, water and sanitation10, street maintenance, public libraries, slaughter houses etc) and voluntary non-governmental organizations (covering a range of social and economic services), under difficult conditions. Private sector activity in Gaza has collapsed and the population subsists on emergency donor aid. 5. As a result of the closures, poverty continues to increase in Gaza. The official poverty rate rose from 47.9 percent in 2006 to 51.8 percent in 2007. There are no figures available for 2008, but given the recent military operations and continued closures the poverty figures have certainly continued to rise. In contrast, in the West Bank, poverty slightly declined, falling from 22 percent in 2006 to about 19.1 percent in 2007. The percentage of Gazans in Deep Poverty increased from 33.2 percent in 2006 to 35 percent in 2007. These rates reflect actual consumption. If remittances and food aid are excluded and poverty is based only on household income, the poverty rate in Gaza and the West Bank would soar to 79.4 percent and 45.7 percent respectively and the Deep Poverty rates would increase to 34.1 percent and 69.9 percent respectively.11 This illustrates the high levels of aid dependency in the WBG, especially when taking into account the fact that the majority of the income of government employees is financed with foreign aid. 6. The restrictions on movement and access in the West Bank imposed by GOI, coupled with settlement expansion, continue to erode social capital, cripple economic development and severely limit access to services. Checkpoints and obstacles, justified by Israeli authorities since the beginning of the second intifada (September 2000) as a temporary military response to violent confrontations and attacks on Israeli civilians, are evolving into a more permanent system of control that is steadily reducing the space available for Palestinian growth.12 Palestinian population centers are fragmented into a multitude of enclaves, with a regime of movement restrictions between them. Close to 60 percent of the land in the West Bank is under full Israeli control. Therefore, neither the PA nor local governments have any control over natural resources and agricultural lands in these areas. Local Governments in these areas are also unable to assume their governance/service delivery functions. Recurrent destruction of trees, private homes, and public infrastructure, as well as settlers' encroachments on private land, also create a permanent state of insecurity that deters Palestinian investment or public service provision in these areas. Land use and planning regulations in effect in these areas tend to limit development within the confines of existing villages, with too little suitable space for demographic growth, causing irrational land use and unsound environmental management. 7. In addition, construction of the Separation Barrier by the GOI in the West Bank will isolate approximately 13% of the West Bank from the rest of the Palestinian territories creating a considerable challenge for local governance. The Separation Barrier has deprived many communities access to resources vital for their survival such as water, farm land, cultural assets and has caused damage to public infrastructure (roads, water pipes, sanitation lines etc), representing a significant financial and operational loss for already distressed and overstretched local government units. The Separation Barrier has created an insurmountable development challenge for LGUs as they are unable to prepare comprehensive strategic plans for regional 10 Water and sanitation services are currently being restructured under the Coastal Municipalities Water Utility where municipalities are members of the Board and therefore play an important decision making role. 11 PCBS: Poverty and Living Conditions in the Palestinian Territory, 2007 12 World Bank, 2007, Movement and Access Restrictions in the West Bank: Uncertainty and Inefficiency in the Palestinian Economy; World Bank, 2007 Potential Alternatives for Palestinian Trade: Developing the Rafah Trade Corridor; and World Bank, 2008a, Economic Effects of Restricted Access to Land in the West Bank; World Bank, 2009. Assessment of Restrictions of Palestinian Water Sector Development (Report No. 47657-GZ), MNSSD. 22 development. LGUs in these areas have had to shift their attention from development to mitigating and resisting construction of the Separation Barrier. It has also diverted a certain amount of attention of the international community which has committed resources to projects specifically aimed at mitigating the impact of the wall in affected communities, which was identified as a priority in the in the PNA's overall development strategy, the Palestinian Reform and Development Plan 2008-2011 (PRDP) Key Sector Issues 8. Municipalities have long played a critical role in local service delivery. Seventy four percent of the Palestinian population is urban, living in 132 municipalities, many of which predate the establishment of the PA. In Gaza, all of the population is urban, living in 25 municipalities. Under Jordanian and Egyptian rule, central government exercised tight administrative and financial control over LGUs, allowing municipalities and village councils to only provide very basic services to the population. Their role was that of maintenance rather than development. The Israeli occupation authorities issued a series of military orders, which changed the function of LGUs, limiting them to the provision of minimal basic services. Palestinian local affairs continued to be controlled by the Israeli military through its Civil Administration units until the establishment of the Palestinian Authority (PA) in 1994. From 1995 onwards, with the Palestinian Authority in place, municipalities come under the mandate of the MoLG. However, as one of the oldest forms of governance institutions, they remain the main reference point for citizens. The Local Councils Law No. 1 of 1997 mandates them to provide some 27 different services typically performed by local governments around the world. Chart 1 below illustrates the core services provided by municipalities. 23 Chart 1: Percent of Municipalities Providing a Service 120.0% 100.0% 96.2% 90.9% 85.6% 81.8% 82.6% 81.1% 80.0% 72.0% 62.1% 60.0% 53.0% 53.8% 42.4% 43.9% 43.2% 43.2% 40.0% 36.4% 34.1% 34.8% 36.4% 34.8% 28.0% 21.2% 17.4% 15.9% 15.2% 15.2% 20.0% 9.8% 6.1% 0.0% 9. There is wide variability in the capacity and performance levels of municipalities. As one of the oldest forms of governance institutions in the West Bank and Gaza, municipalities remain the main reference point for citizens. Due to the restrictions on movement and access, Palestinians are continually forced to find local solutions, often through their municipalities. Citizens who have the opportunity to voice their concerns and see them addressed, and who can participate in municipal decision-making are likely to re-elect municipal leaders who provide them with such public participation opportunities. It is in the interest of municipal leaders to provide services through local level community mobilization and contribution. However, although public consultation has a tradition in Palestine, it has become ad-hoc and unsystematic and the social contract between municipalities and citizens has been challenged in recent years. The number of municipalities in the West Bank/Gaza jumped from 30 to 132, village councils from 109 to 251 following the establishment of the PA in 1994. This increase was primarily the result of political factors rather than considerations of economic and service delivery needs. Municipalities are now classified into four main categories (A through D), depending on population size and when they were established. This categorization system, however, does not signify any functional distinctions or capacities across municipalities. Currently, the local government system consists of the following units: 24 Category Number Criteria Class A municipality 14 Governorate centers Class B municipality 25 Established before 1994 Class C municipality 41 Established after 1994, with a population of more than 15,000 Class D municipality 52 Established after 1994, with a population of between 5,000 and 15,000 Village councils 238 Population of less than 3,000 Project committees 127 Very small communities TOTAL 497 Class A and B municipalities have extensive experience in local administration since they have been operating prior to 1967. For the most part, these municipalities had historically performed well in terms of service provision and financing of their own operations. The experience of class C and D municipalities, established after 1994, has been mixed, some performing well but others rather poorly. 10. Municipalities have difficulty in recovering their service costs. As levels of unemployment and poverty have risen, many Palestinians are unable to pay for municipal services. In addition, unwillingness to pay has also increased due to consumers' low satisfaction with municipal service provision and a rising free- rider problem. Even once well performing municipalities are now unable to raise enough revenues to provide adequate services and recover their costs. In part, this is Municipal Finance in West Bank and Gaza, World Bank, June 2009 explained by the relatively small size of municipalities which prevents them from achieving economies of scale, making their services more costly. For instance, 20 percent of municipalities have populations of less than five thousand, while more than half the Palestinian population lives in towns of less than 50,000 inhabitants. In contrast, only 4 municipalities have a population of over a 100,000 which account for 30 percent of the total Palestinian population (Table 1). Low revenue base also creates a challenge in coverage and quality of services provided. For instance, in water supply about one forth of the existing network needs maintenance. In municipal roads, less than half of the network is paved. In solid waste collection, municipalities, have less than half of the equipment that they actually need. 25 Table 1 Classification of Municipalities by Population Size Population Number of Percent Percent Municipalities % Population 1,000 to 5,00013 27 20.5 3.7 5,001 to 10,000 57 43.2 16.3 10,001 to 25,000 27 20.5 17.1 25,001 to 50,000 12 9.1 16.7 50,001 to 75,000 4 3.0 9.8 75,001 to 100,000 1 0.7 3.3 100,001 and over 4 3.0 33.1 Total 132 100.0 100.0 11. Improved municipal service provision and sustainability of these services is dependent upon sound municipal finance (including principles of planning, budgeting) and transparency. Empirical analysis conducted by the MDLF as part of the Electricity Arrears Study found municipalities with fixed operating budgets perform better (at least in financial terms) than those with flexible budgetary limits. In other words, the municipalities providing electricity services tended to have larger budget deficits than those which did not provide this service: in Fiscal Year 2007, the average budget deficit for the 51 municipalities providing electricity distribution was about 47 percent, while for those who do not it was only about 2 percent. Soft budgetary constraints typically lead to low cost recovery in service provision. In contrast, hard budgetary constraints promote more efficient local revenue collection. In order to ensure sustainability of municipal services it is therefore critical to ensure that municipalities are able to manage their scare resources effectively, while at the same time providing them with incentives that allow them to make capital investments. 12. A large part of municipal budgets are spent on operating costs, with limited resources for development investments. Nearly 90 percent of the own municipal budgetary resources are allocated to the operating budget, which makes budgetary allocations for municipal development such as economic and social infrastructure fairly limited (11.63%). By international standards this constitutes an insufficient allocation for local public services. In the Palestinian context, this gap is covered by the donor community. Hence the need for encouraging some level of local contribution towards the capital/development budget. 13 Although in principle LGUs classified as municipalities should have a population of 5,000, in practice there are several municipalities with a population well below this figure. 26 Chart 2: Operating and Capital Expenditures in Municipal Budgets, FY 2007 and 200814 Current & Capital Expenditures FY 2007 (132 Municipalities) Current & Capital Expenditures FY 2008 (Responses of 94 Municipalities) Capital 13.49% Capital 10.79% Current Current 86.51% 89.21% 13. The PA's Palestinian Reform and Development Plan (PRDP) of 2007, highlights the following key policy issues for the local governance sector: bringing government closer to the people by ensuring that local governments are both empowered and accountable. The strategic objective is to improve the efficiency and effectiveness of local government by building the operational, administrative and financial management capacity of local governments. Transparency and fiscal reform at the local level are critical for this endeavor. The PRDP also calls for new legislation to clarify and regulate the relationship between central and local government, to establish a policy framework which promotes fiscal autonomy and discipline at the local level. The MoLG with support from key donors is taking the lead on these policy oriented initiatives. 14. The detailed reform agenda for the local government sector described above is inspired by the MoLG's Local Government Diagnostic Report prepared with UNDP support in 2004, followed by the Local Government Action Plan of 2005. The Diagnostic Report presented a comprehensive approach to reform covering all aspects of the local government system, focusing on three broad thematic areas: (a) Improvements to the Local Councils Law No. 1 of 1997 to clarify the functions and powers of local governments, define the criteria for allocating resources to them, define a unified planning law; (b) Improvements in public administration, particularly in planning and delivery of infrastructure and utility service. Core areas were improving quality and efficiency of service delivery by reducing number of local government units to achieve economies of scale (many LGUs are too small and lack an adequate resource base to deliver services effectively); (c) Improvements of fiscal and financial management (identified as an urgent problem), lack of a unified budgeting system and accounting standards. 14 Preliminary Findings from the World Bank Study on Municipal Finance, June 2009. 27 15. Although progress on implementing the reforms has been uneven, donors, including the Bank have used the Diagnostic Report as a guide for their interventions. (a) Reform of the Legal Framework on local governance: The attempts at reforming the legal framework have been marked by trend towards some centralization, rather than to promote greater decentralization as had been the core recommendation of the Diagnostic Report. Legal reforms have also been stalled by the current political climate: the present Palestinian Legislative Council has not met or passed any laws since one third of its members are in Israeli jails and the political divide between the West Bank and Gaza has made it impossible to have a unified legal system. As a result, the limited legislative changes that have occurred have been made by Presidential Decree; (b) Improvements in public administration: Several donors have financed initiatives on strategic planning but these efforts remain scattered and uncoordinated. The current initiative by the MoLG to set standards through the SDIP and testing it in 4 pilot municipalities is bringing order into planning practices. Work on physical planning is on-going (setting standards and a manual on physical planning that would be used by LGUs); many pilots on amalgamating local government units and best practice models are currently being developed; (c) Fiscal and financial management: reforms in this sector have been the most effective and far reaching. Instruments for improving municipal accounting standards have been put in place: (i) a standardized budget system using accrual based accounting system was approved by the MoLG in 2007 (ii) a Unified Chart of Accounts and related coding system has been adopted and is being used by all municipalities to report on their planned and executed budgets of 2008 (ii) an Integrated Financial Management Information System has been developed, based on the new budget formats, has been piloted in 8 municipalities and is being rolled out to 34, with possibility of a further 43 joining the ranks (iii) a fixed asset registration system has been adopted by the MoLG and piloted in 8 municipalities (iv) an asset valuation methodology has also been adopted by the MoLG and piloted in 8 municipalities. 16. The proposed MDP will build on the achievements of the successful reforms in fiscal and financial management as well as public administration described above. It will use the MDLF as the program implementing entity since it is described in the PRDP as the PA's preferred mechanism for translating its policies into implementation on the ground. The proposed MDP makes performance based financial allocations to municipalities to provide incentives for better municipal management so that they can provide better services to citizens. It will also provide technical assistance to municipalities to enable them to improve their management capacity. 28 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies WEST BANK AND GAZA: Municipal Development Program Donor Implementing Estimated Programs Agency amount (Million US $) USAID CHF 20.000 Emergency Job program (EJP)) CHF 3.900 Palestinians-American Recreation and Conservations Services (PARCS) CHF 21.000 Local Development Reform (LDR)- Tawasol Islamic MoLG 2.000 Emergency support for the Palestinian communities affected by the Development Wall( BADEA2) Bank MoLG 4.000 Emergency support for the municipal services in West Bank & Gaza (BADEA3) MoLG 10.000 Municipal Infrastructure support.(BADEA5) MoLG 4.000 Municipal Infrastructure support ( BADEA7). France(AFD) MDLF 16.000 Municipal Development Program Belgium MoLG 8.800 Municipal Infrastructure and Building Capacity(LICP)) for Tulkarem Governorate, Salfeet and north west Jerusalem villages MoLG 2.100 Municipal Infrastructure and Building Capacity(LICP)) for Tulkarem Governorate Denmark MoLG 12.500 Support to Municipal Development and Management in Gaza Middle Area, Phase 2 Expansion and phase 3 (SMDM 2 exp. & SMDM 3) MDLF 2.531 Local Development Program (LDP) MDLF 1.330 Physical and Social infrastructure in Jenin District Nablus 0.352 Public Park in Nablus Denmark/WB MDLF 9.900 Local Government Capacity Building Program Germany UNDP 18.200 Job creation program, Phase VI UNDP 11.200 Job creation program, Phase VII MDLF 20.100 Municipal Development Program MoLG, MDLF, 4.7 Local Governance and Civil Society Development Programme (LGP) APLA World Bank MoLG 10.000 Village and Neighborhood Development Program MDLF 10.000 Emergency Municipal Support Rehabilitation Program 2(EMSRP2) Hebron JSC 12.000 Southern West Bank Solid Waste Management Project Jenin JSC 9.5 Solid Waste and Environmental Management Project Italy MoLG 0.420 Program to support the affected villages by the Wall Anabta JSC 1,678,636.36 Solid Waste Management System for Anabta (Italian Co-financing) MDLF 35.000 (Frozen) Emergency support for municipal services through the MDLF. EC MoLG 19.700 Infrastructure Facility Program Japan. UNDP 0.500 Support the reform of the local government and the property tax institution MoLG 0.722 Reform support for the local government in Palestine. MoLG 0.730 Building capacity for the elected Mayors and local councils members Netherlands UNDP 0.137 Support the peace initiative in the local Government MDLF 6.170 Emergency Municipal Support Rehabilitation Program 2(EMSRP2) Ireland MoLG 1.913 Community development based on planning and participation. Sweden/World MDLF 5.000 Emergency Municipal Services Rehabilitation Program 2(EMSRP2) Bank UNDP UNDP 0.150 Program to enhance transparency and integrity in the local government UNDP Capacity building for APLA MOF MoLG 19.653 Support the LGUs affected by the Wall Total funding to LGU 300.208 29 ANNEX 3: RESULTS FRAMEWORK AND MONITORING WEST BANK AND GAZA: Municipal Development Program Results Framework 1. The table below summarizes the Sector and Program level objectives to which MDP contributes. Through its different phases, MDP contributes towards the implementation of the local government reform agenda highlighted in the PRDP. This includes improved local governance and accountability, strengthened local governments by enhancing their efficiency and effectiveness and by moving them towards fiscal stability. MDP also attempts to lay the groundwork for a future Sector Wide Approach, building on a legacy of effective coordination among the MDLF's Financing Partners. Measuring the sector-level indicators presented in the below table is beyond the control or mandate of the MDLF, and therefore MDLF will not be responsible for monitoring the sector-level objectives and their indicators. However, as explained in the PAD, and summarized in this Annex, it is expected for the MDP, in its implementation over continuous phases and its relevance, to contribute to achieving the below higher sector-level and program-level objectives. Table 1-A Sector and Program Level Objectives that MDP will contribute to Sector Related Objective Sector Level Indicators Use of Outcome Information PRDP Objective 1: Bringing Strengthened social contract With the absence of a formal Government closer to the people between local governments and local government sector policy at by ensuring that local their citizens through citizen appraisal, the outcome indicators government is both empowered participation in local will monitor the extent to which and accountable. development planning. MDP outcomes will contribute to the sector-level objectives of the PRDP Objective 2: PRDP for empowered and Strengthening local government, Indicators of fiscal autonomy, accountable local government enhancing efficiency and operational, administrative, units. effectiveness of local financial capacity and discipline government, and moving local at the local government level governments towards fiscal stability. PRDP Objective 3: Harmonized Systematized mechanism for To advocate for donor donor approach to local donor support to the local harmonization which is essential government assistance. government sector is established for a future sector-wide approach to municipal development in WBG. Overall Program Related Overall Program Level Use of Outcome Information Objective Indicators To improve the quality and At the end of each program Monitor the extent to which the coverage of municipal service phase, municipalities are rated MDP contributes to improving delivery satisfactorily on the quality and the quality and coverage of coverage of service delivery by municipal service delivery citizens, through citizen through the adoption and use of satisfaction surveys. improved management practices. Percentage of coverage of 30 municipal services (households, neighborhoods) through MDP- financed investments as shown in the MDLF municipal infrastructure database. 2. MDLF, in its implementation of MDP-Phase 1, will monitor and update the MDP Development Objective and it indicators, as summarized in the table below: MDP-Phase 1 Project MDP-Phase 1 Project Outcome Use of Project Outcome Development Objective Indicators Information To improve municipal · The percentage of · To publish ranking of management practices for better municipalities that municipal performance. transparency. graduate up the performance category in · To assist the MDLF in which they are currently being responsive to its classified, by the end of clients, and citizens. phase 1; · To assist municipalities · Percentage of enhance their municipalities that transparency measures. apply at least two public disclosure methods (publicly available SDIPs, Annual External Audits, project related data, municipal budgets and performance rankings) by the end of Phase 1. Intermediate Outcomes Intermediate Outcome Use of Intermediate Outcome Indicators Monitoring Window 1: Municipal Grants for · Percentage of Capital Investment investments financed that · To monitor the were identified in the responsiveness of municipal Strategic municipalities to Development and performance based Investment Plans incentives as tools to (SDIPs); support municipal capital investments; · Percentage of investments financed · To monitor the extent to under MDP Phase 1 that which the MDP support are operational and in allows municipalities to adequate state of sustain basic level of usability according to municipal services; Technical Audits; · To encourage 31 municipalities to implement investments in accordance with participatory strategic planning, to better serve their citizens. · To assist the MDLF in being responsive to its clients, and citizens. Window 2: Support to Municipal · The number of municipal · Contribute data and Innovation and Efficiency amalgamation initiatives lessons learned to the initiated, by the end of MoLG, for better phase 1; analysis and policy formulation for · The number of Energy- municipal and local Efficient projects for government enhancing municipal development; revenues that are implemented; · To enhance the responsiveness of · Pilots of one-stop-shops municipalities to citizens implemented in at least 3 which addresses municipalities in Gaza; transparency of local governments Window 3: Capacity Building · The percentage of · To monitor the municipalities that effectiveness of the graduate up the Grant Allocation performance category in Mechanism and its which they are currently implementation; classified, by the end of phase 1; · Monitor the applicability · Procedures for of integrating systematic Operations and operations and Maintenance are maintenance procedures established and piloted in in municipal strategic at least 5 municipalities; planning; Window 4:Program · MDLF's satisfactory · To monitor the ability of Management performance as measured the MDLF to implement by meeting targets it the MDP and draw defines in the Annual lessons for subsequent Work Plan; phases. 32 Arrangements for results monitoring Data Collection and Reporting Project Outcome Indicators Baseline 15 Frequency and Data Collection Responsibility for YR1 YR2 YR3 Reports Instruments Data Collection Project Development Objective Indicators: Consolidated Manual for the 0 graduation Semiannual and Grant Allocation annual Progress Mechanism · The percentage of (baselines on 5% 15% 25% Reports MDLF municipalities that number of Questionnaires graduate up the municipalities (7 (20 (33 Published annual collected External performance for each municipalities) municipalities) municipalities) municipal rankings periodically from consultancies/audits category in which performance municipalities level ranking they are currently Annual Review of are available) classified, by the end GAM Rankings Submitted annual of phase 1; municipal budgets · Percentage of municipalities that apply at least two public disclosure methods (publicly available SDIPs, Consolidated Annual External Semiannual and MDLF MDLF supervision annual Progress Audits, project 50% (Satisfactory 0 10% 30% Reports LTCs related data, and above) Verification by LTCs municipal budgets LTC quarterly and performance reports rankings) by the end of Phase 1. 15 Yearly targets are cumulative (including their respective baselines). 33 Intermediate Outcome Indicators Baseline Frequency and Data Collection Responsibility for YR1 YR2 YR3 Reports Instruments Data Collection Window 1: Municipal Grants for Capital Investment Municipal Application forms Zero (no) Consolidated · Percentage of linkage MDLF Semi-annual and Municipal investments financed annual Reports Strategic that were identified Baseline for 100% 100% 100% Development and in the municipal municipalities LTC Quarterly Investment Plans with SDIPs at LTCs Strategic Reports appraisal is Development and MDLF reporting 12 Investment Plans (SDPs); · Percentage of Selection of investments financed sample of under phase 1 that completed Technical Audits are operational and infrastructure MDLF investments in adequate state of annually MDLF - outsourcing usability according MDP of external to the Technical 0 - 80% 80% Implementation Verification of assessment Audits Completion Report LTCs LTC Quarterly Qualitative and LTCs Reports quantitative surveys in municipalities 34 Window 2: Support to MDLF Municipal Innovations and Consolidated Efficiency semiannual and Site Visits annual progress · The number of reports MDLF Verification from municipal MDLF World Bank and amalgamation 4 - - 6 Donor Joint initiatives initiated, Joint annual Supervision World by the end of phase reviews mission reports Bank/Financing 116 Partners · The number of MDLF Site visits to pilot energy-efficient pilot Consolidated municipalities projects for semiannual and MDLF annual progress enhancing municipal MDLF verification reports revenues that are None - - 2 implemented World Bank and World Bank and World Donor Joint Donor Joint Bank/Financing Supervision Supervision Partners missions mission reports · Pilots of one-stop- MDLF Site visits to pilot MDLF shops implemented Consolidated municipalities in 3 municipalities in Guidelines for semiannual and 0 External establishing annual progress Gaza municipalities consultancies and operating reports have one- 1 3 World Bank and one-stop- stop-shops in Donor Joint shops World Bank and Gaza Supervision World prepared Donor Joint missions Bank/Financing Supervision Partners mission reports 16 As the Bank is not financing this activity, it is not responsible for the outcome of this indicator but it is reflected here as it constitutes an indicator for the program and all partners agree to monitor the full program jointly. 35 Window 3: Capacity Building for municipalities 0 graduation Consolidated Semiannual and Manual for the (baselines on annual Progress Grant Allocation · The percentage of number of 5% 15% 25% Reports Mechanism municipalities that MDLF municipalities graduate up the consultancies and for each (7 (20 (33 Published annual performance audits performance municipalities) municipalities) municipalities) municipal rankings Submitted annual category in which level ranking municipal budgets they are currently are Annual Review of classified, by the end available)) TM Rankings of phase 1 · Procedures for Operations and Maintenance are Operations and MDLF MDLF verification established and Maintenance Consolidated MDLF Operations Operations procedures are Semiannual and piloted in at least 5 and and piloted in at least annual reports External municipalities; Maintenance Maintenance Operations World Bank and 5 municipalities consultancies planning is procedures are and Donor Joint and relevant World Bank and ad-hoc and established Maintenance Supervision training is Joint Donor not linked to procedures are missions completed Supervision World municipal approved mission reports Bank/Financing budgets Partners Window 4: MDP Annual Joint Management Donor supervision MDLF - external mission Reports Joint Donor consultancy MDLF's satisfactory Satisfactory Satisfactory Satisfactory Supervision performance as measured by Financial and Missions Donors meeting targets it defines in Institutional the Annual Work Plan Compliance Audit 36 Arrangements for Results Monitoring M&E Objectives in the Context of MDP ­ From PDO to the Sector-level 3. Monitoring and Evaluation is a powerful public management tool which could be used to improve the way governments and organizations achieve results that would eventually lead to positive outcomes on the livelihoods of citizens. On the national sector and program levels, the PRDP re-emphasizes the commitment of the PA to "bringing government closer to the people by ensuring that local government is both empowered and accountable". It also highlights the need to build the operational, administrative and financial management capacity of local governments in order to achieve the above. It calls for new legislation to clarify and regulate the relationship between central and local governments and to establish a policy framework which promotes fiscal autonomy and discipline at the local level. The MoLG is taking the lead on policy formulation and oversight of the local government sector, while the PRDP has singled out the MDLF to take the lead in implementing development-linked assistance to municipalities, and supporting the implementation of essential administrative and financial management reforms designed by the PA for local governments. Accordingly, MDLF will implement the MDP ­ as a first phase of a long term program ­ by focusing mainly on improving the administrative, financial management and governance capacity of municipalities while addressing the problem of municipal service delivery through financing of infrastructure investments. At subsequent phases, improvement in municipal performance is anticipated to contribute to building more accountable local governments so that they may provide better services to citizens, thereby creating the enabling environment for improved livelihoods. As described earlier in this annex and the Results Frameworks tables 1-A and 1-B, the MDP, in its phase 1 fits within a hierarchy of objectives for a longer term program which aims to address the sector-level objectives for local government. Use of Outcome Information 4. Adequate and systematic feedback on changes in the performance of municipalities and on municipal service delivery as a result of MDP interventions is essential, for enabling appropriate decisions about whether and how to adjust the designs of local government interventions or implementation arrangements. Feedback on municipal performance also feeds lessons learned from actual implementation on the ground for the PA to formulate and redesign its policies and procedures for governing interventions in the local government sector in a manner that would eventually lead to positive outcomes on the livelihoods of citizens. 5. The continuous process of providing feedback to improve interventions and redesigning policies and interventions based on the learning through feedback provision, require appropriate communication channels: In order for MDLF to operationalize its mandate in supporting municipalities, it is imperative for it to develop and refine its interventions in close coordination with the MoLG - the key PA institution responsible for policy formulation and defining performance measurements for local governments. By implementing a results-based M&E system as described in this Annex (Also see box 1), the learning from the MDLF interventions and its work with municipalities could support the MoLG with feedback on a regular basis. The MoLG can, then, use this feedback to formulate and redesign the policy framework which 37 promotes fiscal autonomy and discipline at the local level, and the strategies to improve effectiveness, transparency and efficiency of municipal services, functions, and operations. The MOP - as the lead PA institution in local development coordination - is also in the process of pooling and operationalizing efforts to monitor the PRDP indicators on the national level, which include those indicators for the local government sector. Feedback from MDLF is also anticipated to function for the MOP (see illustrative diagram below). 38 39 6. To foster this coordination it is important to enhance a knowledge-sharing and feedback system between the MDLF on the one hand, and the MoLG, MOP and other stakeholders on the other hand. The MDP, in its implementation will try to foster this coordination through carrying out of the joint donor-PA annual reviews. Another existing venue for this exchange is the MDLF Board which is headed by the Minister of Local Government and includes representatives of key PA institutions and other stakeholders. M&E System and Functions at the MDLF 7. The current M&E arrangement and database at the MDLF uses simple spreadsheets (such as EXCEL sheets) and is based on inputs from the MDLF on-going operations, and data that is collected periodically and aggregated from the municipalities through Grant application forms. The reporting on indicators is heavily focused on outputs of municipal services, which are categorized under the main municipal services' sectors (such was solid waste collection, water and wastewater services, electricity services attached to municipalities, etc). The existing M&E arrangements have been heavily manual, time-consuming, and insufficient for meeting the increasing workload of MDLF and the size of its on-going operations. Constraints on availability and reliability of data collection and aggregation using the current arrangements have also impacted MDLF's ability to evaluate the impact of investment outputs (Kilometers of roads expanded, tons of solid waste collected, etc.) on municipal service delivery or whether and how MDLF interventions have led to improved conditions and livelihoods for citizens. In addition, data and baselines provided by municipalities were not always reliable, and MDLF often times found itself reverting to time-consuming and costly data verification efforts. Improved M&E System and efforts to meet the MDLF Mandate in which MDP is imbedded: 8. MIS-Based Monitoring and Evaluation System: MDLF intends to strengthen its existing M&E system by establishing a clearer link between its inputs, outputs, Strategic Plan, and the higher national-level PRDP objectives to which the MDP should contribute. As a first step to achieve this, MDLF is rethinking its M&E objectives, arrangements, and use of outcomes and information by, enter-alia, automating its data entry and aggregation of data for use and through the design of an overall M&E manual for its operation. MDLF is in the process of developing overall indicators relating to its key interventions to enable it to monitor and evaluate its own performance as it carries out its mandate to enable it to redesign its interventions in a way that is most responsive to its clients. Standardizing indicators will also enable MDLF to fit its financing and donor support into its streamlined interventions. MDLF is installing a Project Grant Management Information System (PGMIS)17, which will be operational by October 2009. The PGMIS is a Management Information System (MIS) software designed to automate project cycle management and administration of funds. The PGMIS will enable aggregation and production of results in table formats, which is anticipated to save time on manual work. MDLF staff are being trained to operate and input data into the PGMIS, which will eventually replace the existing 17 PGMIS is being installed under support from the Bank-Administered Danish Trust Fund for the Local Government Capacity Building Project (TF054519). Installation and testing of the PGMIS, in addition to training to MDLF staff on use, operation, data input and data extraction from the PGMIS will be completed by July 2009. 40 excel sheets (although EXCEL sheets may still be used in an interim period as an auxiliary arrangement). At an advanced stage, PGMIS could provide for password-protected web access for municipalities, MOP, MoLG, and other stakeholders, as needed, to access and input data directly. The Financial Management System (FMS) used by MDLF to track and monitor financial performance of its projects (budgeting and cost centers, monitoring disbursements, and producing financial monitoring reports) is PGMIS-compatible and could be merged with the PGMIS at later stages to produce comprehensive data on financial information and how it links to key performance measurements and administration of funds. The results framework of the MDP will be inputted into the PGMIS. The PGMIS is designed in a flexible way that also allows for periodical adjustments of indicators and reporting. 9. Monitoring and Evaluation efforts at the MDLF will be complemented with emphasis on enhancing the capacities of municipalities to understand the need to monitor and evaluate their interventions, how they could assist in monitoring and evaluation efforts and use transparency measurements to redesign their strategic development planning and services to become demand- driven. The MDP will, therefore, support relevant training such as participatory development planning. 10. Monitoring and Evaluation Manual: Supported by GTZ (German Technical Cooperation), and based on the MDLF Strategic Plan, the MDLF is redesigning and consolidating the scope of its M&E to adequately capture its key interventions. The primary objective of the Consultant's work is to complement the installation of the PGMIS by introducing an overall results-based monitoring system, moving away from the current output- based system of monitoring and reporting. Under this consultancy, an overall M&E manual for MDLF is being drafted on the basis of the universal OECD M&E terminology. The M&E Manual is expected to categorize the key MDLF intervention areas and proposes performance measurements for MDLF and its clients. This overall M&E framework will be complemented by external surveys and assessments (assessments relevant to MDP are summarized later in the Annex and elaborated under Annex 15) which could include gender and community-inclusion indicators. 11. The summary of aggregated indicators in the M&E system and Manual are a collective effort which take into consideration the number of assessments and baseline studies prepared and largely disseminated in the course of preparing the MDP. The final version of the MDLF M&E manual will also propose data sources, data collection and aggregation strategies and tools, in addition to forms and templates to be used by MDLF and municipalities. The MDP logical framework and arrangements for results monitoring are consistent with and constitute a key element of the overall M&E manual. The Primary MDLF staff with M&E functions and responsibilities: 12. It is key to understand M&E as a collective effort rather than the limited task of the M&E officer. Accordingly, MDLF staff are expected to participate with varying extents in the monitoring and evaluation of the MDP, involving mainly, but not limited to the following: a) The existing M&E Officer will lead the responsibility and efforts for aggregating and synthesizing data on the program's outcome indicators and reporting on outcomes, based 41 on the agreed results-based M&E framework and the arrangements for results monitoring listed in this Annex. The M&E Officer is hosted under the MDLF Strategic Planning and External Relations Department and guided by its Manager; b) The M&E Officer will be supported by the existing IT/MIS Specialist (for support in electronic data handling). The MDLF engineers are also expected to play a role in exchange of data and information between municipalities and the MDLF; c) In addition, the Capacity Building Manager and Municipal Finance Officer will ensure that data on the performance-based grant allocation mechanism and the Capacity Development activities are monitored appropriately. Having the in-house staffing capacity for the overall management and coordination of the capacity building, administration and control of the various packages under Window 3 and tracking of performance indicators of the Grant Allocation Mechanism is critical; d) M&E efforts will be complemented by staff of the Financial Management Department who are responsible for monitoring the financial aspects and disbursements on MDLF operations, and producing financial reports; e) In the case of some municipalities, the Local Technical Consultants (LTCs) may perform monitoring and evaluation tasks particularly relating to the activities supported under Window 1, such as supervising of infrastructure works, procurement of equipment, contracting, managing and supervising consultancy services and technical assistance, and documentation and reporting on progress of the Grant Implementation Agreement, including on Monitoring of the terms and deliverables specified in the GIAs and on subproject implementation in compliance with safeguards policies. LTCs will prepare quarterly progress reports and submit to MDLF to report on their activities and findings. Baseline Data and Performance Measurements under the MDP: 13. Grant Allocation Mechanism: The Grant Allocation Mechanism (GAM) proposed for the MDP includes the indicators and baseline data18 to rank the 132 municipalities in accordance with their performance in three key areas (financial management, budgeting, and development planning). The GAM established a system of 6 ranking categories and 12 variables within this ranking system to determine the current rank of each municipality. For the purpose of the MDP phase 1, on the outcome level, the indicators addressed through the GAM will be linked to targets to be met under MDP19. MDLF will track the number of municipalities that would graduate one level (or more) up this 6-level ranking by the end of phase 1 by monitoring the number of municipalities that meet the financial performance indicators checklist. An implementation manual for the Grant Allocation Mechanism has been developed which defines the processes and procedures to implement the GAM. As part of this objective, the manual also 18 A baseline study for the municipal financial performance ranking system and implementation manual for the Grant Allocation System was developed by the MDLF. 19 For full details see Draft Implementation Concept: Capacity Building Under MDP Window 3, Frank Samol, Consultant ­ GTZ-LGP, Municipal Development and Lending Fund, 2009. 42 develops the forms, guidelines, checklists and the corresponding charts that illustrate the administrative flow the MDLF will track the financial performance indicators identified in the Grant Allocation system, which will be entered into the PGMIS. 14. Municipal Infrastructure Database: In April 2009, the MDLF outsourced a municipal infrastructure survey to the Palestinian Central Bureau of Statistics (PCBS). The aim of the survey is to provide the MDLF with a database of municipal infrastructure baselines for the 132 municipalities in WBG. The infrastructure sectors to be surveyed to determine the baselines correspond to the list of eligible sectors included in the MDP, namely (i) Water and waste water services if provided by the municipalities; (ii) Solid Waste Management; (iii) Roads; (iv) Public Facilities and (v) and Electricity Services attached to municipalities. The database will also be shared with the MoLG, and municipalities. This PCBS survey is an attempt to resolve the problem of non-reliability of the infrastructure data provided directly by municipalities. The results of the survey will be provided in the form of a database which can be uploaded into the PGMIS. The survey will be repeated at the end of MDP Phase 1 to track the improvements and/or increases in municipal infrastructure as a result of investments supported under Window 1. The repeated survey will be carried out by PCBS and would provide the baselines on municipal infrastructure for a new phase of MDP. After the completion of MDP phase 1, such surveys are anticipated to be carried out systematically by the PCBS. 15. Strategic Development and Investment Plans: Currently only 12 municipalities have prepared participatory SDIPs which were developed based on a relatively rigorous and systematic process, and meet acceptable standards. MDP will support a minimum of 40 municipalities to develop simple SDIPs with participation of communities and relevant stakeholders. SDIPs will provide baseline information to contribute to the implementation of activities under Window 1 (such as information about the proposed infrastructure investments, operation and maintenance plans, demographic and socioeconomic data, etc). 16. Measures of Transparency and Public Participation: As part of the MDP preparation, analyses and consultations were carried out to gain insight into the level of community participation in key municipal decision-making (such as in the design of strategic development plans and preparation and disclosure of municipal budgets), and to suggest improvements which the MDP would support in order to promote citizen participation. Although public consultation has a tradition in WBG, it has become often ad-hoc, unsystematic, and lacking a consistent framework or legal basis. This challenges the social contract between municipalities and citizens and undermines the PRDP objective of bringing government closer to people.20 Therefore, MDP will adopt some arrangements to address the transparency of local governments by improving their communications and outreach capacity and promoting new one-stop-shops in three municipalities in Gaza through which municipalities will better inform their citizens. The MDP will support community participation by ensuring that municipalities design and implement citizen-responsive sub-projects as well as municipal and citizen satisfaction assessments to measure perception of performance of the MDLF and municipalities. These assessments will enable municipalities and the MDLF to identify areas for improvement in service delivery (Client and Citizen Satisfaction Assessments are discussed further under "Other Assessments and External Audits"). 20 Measures of social accountability and public disclosure are further elaborated under Annex 15. 43 MDLF Reporting 17. The MDLF will update the MDP results framework, including the intermediate outcome indicators on an annual basis and will report on indicators and implementation progress, as follows: a) Progress Reports: The MDLF will report on progress in implementation of MDP every six calendar months. The MDLF will submit Semiannual Progress Reports covering the first six calendar months and including a performance based action plan for the following semester, within 45 days of the end of this preceding period, i.e. by Mid August. At the end of each calendar year, the MDLF will report on MDP implementation on a cumulative basis as part of the MDLF's overall Cumulative Annual Progress Report21. Annual Progress Reports (and annual work plan for the following semester) will be submitted within 60 days of the end of the calendar year, i.e. by end of February. Progress Reports will include updates on the MDP outcome indicators, and an Annual work plan for the following 12 months. In addition, external audits on institutional compliance will assess MDLF's adherence to its own internal procedures. b) The Mid Term Review for the MDP is planned for May 2011. Accordingly, the Annual Progress Report which MDLF will submit in February 2011 will serve as the Mid-term Progress Report, and will include specific reporting requirements for the purpose of the MTR, such as trends towards achieving the PDO from MDP start until mid-term, lessons stocktaking of lessons learned, and recommendations for the way forward with MDP implementation. c) Financial Reporting: Preparing activity budgets, monthly DA/Das, reconciliation statements, and periodic Withdrawal Schedules, quarterly consolidated Interim Financial Reports (IFR), and annual consolidated program financial statements.22 d) At the end of MDP phase 1, the MDLF will submit an Implementation Completion Report (ICR) within 6 months of the Closing Date. Other Assessments and External Audits 18. Procurement Audits: The Bank would carry out its own procurement post-reviews as a standard procedure using its procurement staff. All donors would receive post-review reports, and any donor may decide to send additional missions to the field for further reviews or investigations, the results of which would be shared among all participating donors. Post-reviews for activities financed and supervised by other donors will be carried out by an independent consultant following the same methodology as the Bank, thereby ensuring all activities receive the same type of treatment. 21 In order to streamline and simplify reporting obligations, the MDLF has been preparing Cumulative Annual Progress Reports, in accordance with an outline agreed with its donors and to provide an overall outlook on the progress of implementation all of its implemented projects, including projects funded by the World Bank. The MDLF will continue submitting Cumulative Progress Reports during MDP implementation. 22 Financial reports and financial reporting requirements are elaborated under Annex 7. 44 19. Financial and Institutional Compliance Audits: Under one audit assignment by an independent, private and qualified auditor acceptable to the Donors the following activities will be carried out, (a) Quarterly reviews of Interim Financial Reports (IFRs): before submission of the IFRs. (b) Annual Audits: Program Consolidated Financial Statements. (c) Institutional Compliance Audit: Will be part of the Annual Audits under (b), above. The TOR of the Annual Audits will specify tasks for auditing the MDLF's own compliance with its internal procedures and management practices. The audited Program Consolidated Financial Statements accompanied with auditors' management letter will be submitted to the Bank and all Donors within six months after the end of MDLF's fiscal year, which follows the calendar year. 20. Technical Audits: An external Technical Audit of sample investments financed under Window 1 will be carried out by a specialized private consultant, on an annual basis and at the end of Phase 1. The Audits will review a sample of completed infrastructure investments for technical quality and structural soundness, and compliance of implemented investments with technical specifications, including compliance with safeguard measurements in the Environmental Management Plan (EMP) for MDP. The Audits will also include time-based analysis for selected projects to assess whether they are being used for their intended purposes and have achieved their objectives. Such assessment will be carried out through an external consultancy based on agreed TOR. 21. Joint World Bank-Donor Technical Supervision and Review Missions: The World Bank and participating donors will undertake semi-annual supervision missions to review progress in implementation of the MDP, including progress in the achievement of the PDO and indicators.. The MTR for the MDP will be carried out in May 2011. The MDLF second Annual Progress Report, which will be due by the end of February 2011, as well as other assessments and audits, will serve as critical inputs for the MTR. The World Bank Task Team remains committed to work closely with MDLF in between formal supervision missions. Client and Citizen Satisfaction Assessments 22. Two assessments will be conducted - one at MDP start, and one at the end of MDP Phase 1 - to set a baseline for the MDLF and Municipalities performance satisfaction, and to measure changes in satisfaction, impacts and performance against the baseline at the end of MDP Phase 1. Each assessment consists of a MDLF client satisfaction survey with municipalities, and a municipal satisfaction survey with citizens. This activity aims to assist MDLF with MDP management and supervision. This assessment will be carried out by an independent consultant. After the completion of MDP phase 1, such assessments are anticipated to become systematic during subsequent phases of MDP. (refer to the ToR in Annex 15). Organizational Learning 23. The overall M&E Manual for MDLF should provide guidance on maintaining the M&E function at the MDLF and municipality levels (forms, tables, outlines for progress reporting, assessment tools). Application and use of the M&E system will be strengthened through training and external consultancies. Systematic review of the M&E system throughout the MDP phase 1 will enhance organizational effectiveness for the MDLF and will enable MDLF to constantly provide the MoLG and other stakeholders with recommendations for policy and decision making on the sectoral level, and donors with recommendations for harmonized interventions. 45 ANNEX 4: DETAILED PROJECT DESCRIPTION WEST BANK AND GAZA: Municipal Development Program Overview of the Municipal Development Program (MDP) 1. To support the PRDP's goals for development at the local level, the PA has developed the MDP. The program is designed to address the core issues in municipal service delivery discussed in Annex 1: poor management practices that compound an already severe budgetary crisis (lack of local budgets for capital investments and low revenue generation). The MDP's Window 1 provides grant allocations to all 132 municipalities for needed capital investments in service delivery, but also rewards those municipalities that have better management practices through its performance based grant allocation formula (discussed in greater detail further in this Annex). Recognizing that municipalities would need technical assistance to improve their performance, under Window 3, the MDP offers a demand driven and customized capacity building program. In Window 2, it tests innovative approaches that promote efficiency and revenue generation from which successful lessons will be drawn and disseminated. The chart below summarizes the 4 Windows of the MDP. MDP Windows Window 1 Window 2 Window 3 Window 4 Municipal Grants for Support to Municipal Capacity Building MDP Management Capital Investments Innovation and Efficiency MDLF staff capacity Support to Amalgamation For Municipalities MDLF Management Fee development Innovations to improve Improving Financial Monitoring and municipal revenues Management Evaluation Strengthening Strategic Communications and Planning Outreach Planning for Operations Local Technical and Maintenance Consultants 46 Financing of the above Windows is summarized in the table below. Windows Total Financing by Program TFGWB Grant Amount (US$ m) (US$ m) Window 1 Municipal Grants for Capital Investments 46.16 7.6 Window 2 Support to Municipal Innovations and 3.7 0.7 Efficiency Strengthening newly amalgamated Local 2.8 - Governments Testing Innovations for improved municipal 0.9 0.7 revenue generation Window 3 Capacity Building 5.43 0.6 For Municipalities 5.23 .55 For MDLF 0.2 .05 Window 4 Program Management 6.64 1.1 MDLF Management Fee (7%) 4.34 0.7 Local Technical Consultants 1.8 .2 Monitoring and Evaluation 0.2 0.05 Outreach and communications 0.3 .15 Program Total 61.93 10 Window 1: Municipal Grants for Capital Investment and Operations (Total funding US$46.16 million; financing from TFWBG US$7.6 million) 2. Window 1 allocates grants to municipalities for capital investments or operating expenditures for service provision, per their mandate defined in the Local Councils Law No 1 of 1997 and sectors described as eligible in the Operations Manual. It addresses two key constraints in the municipal sector already discussed: severe municipal deficits, especially for service provision and poor management practices. The Phase 1 of the MDP will provide eligible municipalities with performance based grants for investments in service delivery, using an allocation formula designed to incentivize better management practices. The formula allocates resources to municipalities in an equitable, efficient, and accountable way, based on three weighted criteria that determine the distribution of the funds available through MDP Phase 1: population (40%), needs (20%), and performance (40%). During Phase 1, municipalities are ranked for the first two years and then on an annual basis, from levels 1 to 6, using 12 key indicators of good municipal management, and will receive higher or lower allocations based on their rank (further details on the formula are in Annex 4). The grant allocations will be based on investments or activities that are within the legal mandate of municipalities as per the Local Councils Law No. 1 of 1997 or revision thereof and eligible areas of expenditures identified in the Project Operation Manual. Eligible sectors which constitute core areas of municipal services per the law are as follows: (i) Water and waste water services if provided by the municipalities for the purposes of ensuring continuous supply; (ii) Solid Waste Management; (iii) Roads and sidewalks; (iv) Public Facilities (v) Street Lighting and (vi) 47 Electricity Services not provided by a commercial utility. As described in the Operations Manual, municipalities will have to demonstrate that they have coordinated with relevant national bodies, such as the Palestinian Energy Authority and Palestinian Water Authority when new services are being established to ensure that there is no duplication of investments and that these are consistent with national strategies and plans. Examples of interventions are presented but not restricted to those below: a. Water and wastewater services: Maintenance and rehabilitation of existing municipal water and sewerage networks, wells and reservoirs; rehabilitation of networks; repair and maintenance of equipment, such as pumps, generators, vacuum tanks, and vehicles; purchase of spare parts (based on an existing maintenance plan); the minor extensions of existing networks and purchase of new equipment and vehicles only for projects that are part of the priorities of a municipal development plan. b. Solid Waste Management: Solid waste containers, tools, trucks and compactors (only if landfill operated by the municipality or a Joint Service Council), spare parts for solid waste trucks, equipment and materials based on a solid waste management concept. c. Road rehabilitation and maintenance services: Goods and works for maintenance, construction and rehabilitation of existing internal roads, bridges and tunnels, traffic management (such as traffic signs and signals), road line demarcations, safety rails, street lighting, sidewalks. Road maintenance tools and equipment. Some construction of new roads may also be permitted. d. Public facilities: Rehabilitation, construction and equipment of public places, such as parks, kindergartens, youth centers, cultural centers, public markets infrastructure, slaughter houses, bus stations, sports fields. Public lavatories, museums, fire fighting. e. Electricity (for urgently needed maintenance only) until services are devolved to utilities. 3. As long as the closure on Gaza is maintained, the MDP will adopt a degree of flexibility by allowing for the payment of recurrent expenditures (but not municipal staff salaries) as direct inputs for sustaining essential municipal services in Gaza on the basis of short-term plans. The eligible expenditures may include expenditures covering the cost of cleaning and maintaining public land, facilities, and assets; water purification and pest control; water and electricity utilities related to the provision of municipal services; fuel to run electric generators and water and wastewater pumps; collecting and dumping solid waste in legally permissible areas; carrying out laboratory tests; the cost of maintaining and operating municipal service vehicles; road maintenance; maintaining electromechanical and IT equipment; carrying out advertisements under the Procurement Plan or the Procurement Guidelines, regarding the procurement of goods and works; office supplies; public awareness related to increasing municipal revenues; the cost of 48 communications; renting service vehicles; equipment spare parts; vehicle insurance; and salaries of contractual staff /workers, but excluding salaries of officials of municipal civil servants. Payments will be made to suppliers by the MDLF against invoices in accordance with the Financial Management Manual. These types of expenditures were eligible under the Emergency Municipal Services Project II and proved a successful in ensuring a minimal level of municipal service for Gaza's population. 4. Project Cycle: The MDLF is responsible for informing municipalities about the MDP, its activities, eligibility criteria and the potential amount of funds for which they qualify. Once a municipality has been determined eligible for MDP participation, it prepares its applications for the Municipal Assistance Program (MAP), consisting of one or more sub-projects based on community consultations. A draft checklist guiding municipalities on how to effectively carry out community consultations was reviewed during appraisal. Those municipalities that have already prepared a participatory SDIP must ensure that sub-projects submitted for MDP financing must be part of the SDIP. The MDLF is responsible for appraising the applications using eligibility criteria described in the Operations Manual. Sub-projects would be reviewed to determine their technical soundness, cost estimates and potential economic benefit, their environmental and social impacts and compliance with safeguard policies. A simplified approach for conducting a basic economic analysis has been developed for the MDP, where municipalities will be responsible for carrying them out. The objective of the economic review is to ensure that municipalities are proposing cost effective activities appropriate for the problem they are trying to address. Those with low levels of capacity will be assisted by regionally based Local Technical Consultants. The finalized MAP identifying the approved list of sub-projects is shared with donors for information. 5. Municipalities must also include their operations and maintenance plans for the specific investment as part of the application form. The Operations Manual presents the standard application forms, revised and updated from EMSRPII. The municipalities are responsible for the technical designs (e.g., engineering designs) but have the option of calling on the LTCs for review as needed. Once the Municipal Assistance Programs have been approved by the MDLF, a Grant Implementation Agreement is signed with the MDLF which describes the duties and responsibilities of each party, operations and maintenance, cost-sharing plan (percentage financed by each donor and contribution from municipality, if any) and timeframe of completion of each sub-project. Municipalities will also be responsible for all procurement aspects, including the preparation of simplified procurement plans for each sub-project to enable them to effectively plan and carry out all contracting, provide credible cost estimates and realistic time-frame for sub- project completion. The standard GIA is included in the Operations Manual. The MDLF is ultimately responsible for supervising the investments made by the municipalities. It is responsible for carrying out periodic technical audits of sub-projects. 6. Performance Based Grants: The Grant Allocation Mechanism rewards municipalities that perform better (it does not penalize those that are comparatively poor performers) since allocations are based on population (40%), needs (20%), and performance (40%). However, consistent with the requirements of EMSRPII, grant allocations are conditioned on submission of a prior year approved and executed budget, 49 a budget plan for the current fiscal year and a statement of year-end financial accounts that conform to the Unified Chart of Accounts. This last measure has already had notable impact on improving municipal budgeting and financial reporting. The pool of funds available for grant making in the first year is approximately US$44 million but is likely to increase in subsequent years. Confirmation of donor commitments will also enable the MDLF to determine the exact allocation for each municipality during the first year. The MDLF will revise the ranking of each of the municipalities following the second year of the MDP and from then on, on an annual basis. In order to ensure transparency of the ranking process and also promote a wider understanding of the Grant Allocation Mechanism, MDLF may include some representatives of municipalities to participate in the exercise or contract an independent consultant to carry out this task. 7. The implementation of the Grant Allocation Mechanism is described in a detailed "Grant Allocation Manual" (itself referred to in the Operations Manual) which defines the forms, guidelines, checklists and the corresponding charts that illustrate the administrative flow. It defines each indicator, how it is to be measured, and together how they are used for ranking municipal performance. It then simulates how the formula is to be applied and provides the database and baseline for Phase I, ranking all 132 municipalities according to their performance. 8. On the basis of the Grant Allocation Mechanism, the majority of Palestinian municipalities fall under the medium scale of performance. The formula has six ranks (1 is highest 6th is lowest): there are no municipalities at the lowest rank (6) and none at the top (1st and 2nd). The vast majority of municipalities (68 percent) are in the middle at rank 4, and only 11 percent are at level 3, the comparatively best performers. Not surprisingly, on average, municipalities in Gaza rank worse on the performance criteria than those in the West Bank. (See Chart 3 below for the rankings). It is, however, not impossible for them to improve their performance with MDP support under Window 3, to illustrate, Gaza municipality is among the top performers in Palestine. 9. The grant allocations to municipalities are made on the basis of the following criteria: (A) Population (40%): this is the per capita allocation of the municipality. (B) Needs (20%): Needs have been defined as those reported to MDLF by the municipalities for the next three years (2008 to 2010) and included in the PRDP. These needs correlate with population and given that population is a good indicator for needs, in essence, criteria A and B measure the same indicator. (C) Performance (40%): This is based on key indicators critical for effective financial management. 10. Chart 1 illustrates the 6 levels of performance (1 highest to 5th, worst) and the conditions required for each rank used to allocate 40 percent of the Window 1 funds. 50 CHART 1 MUNICIPAL RANKING ON THE BASIS OF PERFORMANCE Rank Indicators of Performance Criteria Number of Municipalities 1-A 1. Current Account Surplus (for 2 consecutive years) 0 2. Unqualified External Audit 3. Integrated Financial Management System 2-B 4. Operational Account Surplus (in 2007); 0 5. Fixed Assets Register; 6. Maintenance Plan in place 3-C 7. Municipal Development/Investment Plan 16 8. Financial Accounting Policies & Procedures in place 9. External Audit 4-D 10. Capital Budget (approved and executed, properly 90 submitted to MoLG) 5-E 11. Recurrent Budget (approved and properly 26 submitted to MoLG) 6-F 12. No Budgetary Information 0 The definitions for each of the indicators are provided below. (i) Unqualified External Audit: Refers to whether an audit of the municipal financial statements and related financial processes has been conducted in the previous fiscal year and is totally satisfactory. (ii) Surplus or Deficit: A surplus or a deficit must be calculated as the difference between the Total Operating Revenues minus Total Operating Expenditures, adjusted by bills unpaid for the corresponding fiscal year. (iii)Maintenance Plan: Currently there is no definition of what constitutes a maintenance plan. As such, this criterion will not be used for the first year of the application of the ranking. However, its application may be considered for the fiscal year following the definition, and dissemination, across all municipalities, of the minimum elements that a maintenance plan should include. (iv) Minimum Maintenance Expenditures: One issue across Palestinian municipalities in the operation of their local infrastructure projects is its relative low level of maintenance. (v) Fixed Assets Register: Registration of municipal physical assets is part of the requirements of the MoLG norms and procedures. Only the physical registration needs to be verified. (vi) Municipal Development and Investment Plan: The existence of a municipal development plan. 51 (vii) Use of a Financial Management Information System (viii) External Audit: As stated under numeral 1 above, this indicator refers to whether an audit of the municipal financial statements and related financial processes has been conducted in the previous fiscal year. (ix) Actual Development Budget: It refers to whether or not the particular municipality has submitted the Executed Development Budget to MoLG. Municipalities are expected to submit their actual/executed budgets to MoLG on a yearly basis. (x) Approved Development Budget: It refers to whether or not the particular municipality has submitted the Approved Development Budget to MoLG. It must be noted that once each municipal council has approved the budget, it is then submitted for MoLG's approval. Municipalities are expected to submit their actual/executed development (capital) budgets to MoLG on a yearly basis. (xi) Actual Operational Budget: It refers to whether or not the particular municipality has submitted the Actual Operational Budget to MoLG. Municipalities are expected to submit their executed operational budgets to MoLG on a yearly basis. (xii) Approved Operational Budget: It refers to whether or not the particular municipality has submitted the municipal council Approved Operational Budget to MoLG. Municipalities are expected to submit their operational budgets for MoLG's approval on a yearly basis. 11. The above performance criteria begin with the most basic elements and proceed to the most sophisticated. Chart 2 below illustrates how each of the indicators above are measured, what evidence is used and how the data are collected. 52 CHART 2 Ranking Criteria: Information Source, Verifiable Indicators And Basic Conditions RANKING INFORMATION VERIFIABLE CONDITIONAL TO: CRITERIA SOURCE INDICATOR 1. Unqualified External Municipality Copy of actual Must have been done Audit Document and date. before Dec. `08 2. Operational surplus or Actual Copy of the actual Must refer to FY '07. deficit Operational budget Budgets 3. Maintenance Plan Municipality Approval date, Must have been Total Cost and sectors approved for FY 08. covered. 4. Actual Maintenance Municipal Total executed Must have been Expenditure Budget Operating budget. No approved for FY 08 less than 10% of and actually executed Operating Budget. 5. Fixed Assets Register Municipality Summary of inventory Must have been and completion date completed before Dec. 08 6. Development and Municipality Summary of plan, Must have been Investment Plan completion date, and approved for FY 08. evidence of implementation progress. 7. MoLG Budgetary Norms MoLG Evidence of compliance As approved for FY and Procedures. with such norms and '08. Specify which are procedures the current budgetary norms and procedures 8. Financial Accounting Municipality Evidence of compliance Must have been Procedures Manual with Manual adopted Before `08 9. External Audit Municipality Copy of actual Must have been done Document and date. before Dec. '08. 10. Actual Development Municipality Availability of the Must have been Budget actual figures. approved for FY '07. 11. Approved Develop Municipality Availability of the Must have been Budget. approved figures. approved for FY '08. 12. Actual Operating Municipal Availability of the Must have been Budgets Budget actual figures. executed for FY '07. 13. Approved Operating Municipal Availability of the Must have been Budgets Budget approved figures. approved for FY '08. 12. Chart 3 below presents municipalities according to their rank based on budget data of 2007 and will be used in determining the allocations for the first year of the MDP. 53 CHART 3 MUNICIPAL RANKING Rank West Bank Gaza No. of Mun. Name No. of Mun. % No. of Mun. % A None None 0% None 0% B None None 0% None 0% 14 Mun. Jammaein, Meithalun Qabalan, Beta, Salfit, Taffuh, 2 Mun. C 16 Beitunia, Se'ier, Beit Sahur, 13% Gaza, Rafah 8% Ramallah, Al Bireh, Qalqilia, Nablus , Hebron 75 Mun. Atara, Sabastya, Zeita, Deir Istia, Deir Ballut, Bruqin, Kefel Hares, Az Zababedah, Qarawat Bani Hassan, Beit Sureik, Kufor Tholoth, Baqa Al Sharqeyya, Al Mazra'a Ash Sharqeyya, Birzeit, Kufor Al Deek, Al Zawyeh, Beit Leed, Deir Debwan Janata, West Bani Zeid, Howwara, 15 Mun. Seelet Ad Daher, As Sawahreh Ash Sharqiyya, Hableh, Silwad, Allar, Azzaytuna, Za'tara, Kufor Ra'ie, Al Masdar, Um Al Naser, Qatanna, Aqqaba, Bal'aa, Kharas Al Zahra, Al Fokhari, D 90 Bedu, Al Ittihad, Anabta, Aseera 70% Abasan Al Jadeeda, Al 60% Ash Shamaliyya, Azzun, Bedia, Naser, Al Moghraqa, Beit Awwa, Aqraba, Deir Al Khaza'aa, Al Maghazi, Ghosoun, Qaffin, Jaba'a, Ash Deir Al Balah, Abasan Al Shoyukh, Atteel, Seelet Al Kabira, Al Zawayda, Bani Hartheyya, A l Khader, Arraba, Sheila, Al Braij, iShokeh Beit Foreek, , Al Ubeidiyya, Abu Dees, Tammun , Beit Ula, Beit Fajjar, Beit Jala, Surif, Beit Ummar, Ya'bad, Tarqumia, Tubas, Al Yamun, Al Eizariyya, Jericho, Idna, Qabatya, AL Samu'e , Bani N'eim, Halhul, Bethlehem, Dura, AdDaheriyya, Jenin, Yatta, Tulkarem 18 Mun. 8 Mun. Al Tayybeh, Al Newe'emeh, Jayyus, Abwein, Turmosayya, Beit Wadi Gaza, Wadi Al Anan, Kafr Al Labad, Al Oja, Salqa, Al Qarara, Beit E 26 Ne'lin, Bir Nabala, East Bani Zeid, 17% Hanun, Beit Lahia, An 32% Sinjel, Borqin, Beit Liqia, Taqu'a, Nseirat, Jabalia, Khan Ad Doha, Anata, Al Ram Yunis F None None 0% None 0% Total 132 107 100% 25 100% 54 Window 2: Support to Municipal Innovations and Efficiency (US$ 3.7m program costs, US 0.7m, TFGWB financing) 13. Strengthening newly amalgamated local governments (US$2.8 million). This subcomponent will build on and expand the activities of the Danish funded Local Development Project (LDP) in the Jenin area, possibly to other governorates in the West Bank. Considering that Phase I of the MDP is a building block for a SWAp in future phases, the activities are included here as a subcomponent supporting the overall strategic and administrative framework of the program. The subcomponent will support: a. Activities that will make new municipalities eligible to access Window 1. The activities would include capacity building activities and some municipal services identified through community participation (including small infrastructure such as local roads, community centers etc); and b. Activities to municipalities amalgamated with neighbouring village councils. The activities could include expanded municipal services and facilities for the enlarged municipality. 14. All activities of this subcomponent should be outside the scope of Window 1 and 3. Considering that this window is designed for learning from new approaches, the above funding and scope of activities is sufficient. 15. Piloting innovations to improve municipal revenue (US$ 0.9 m total program costs, US$0.7m TFGWB financing): This subcomponent will support studies, consultations, and implementation / testing of innovative approaches to enhance municipal revenue generation or cost savings, through the financing of goods ,works, training and services. It will have three main activities: a. Promoting Energy Efficiency to reduce municipal expenditures: MDLF will invite eligible municipalities to express their interest in receiving support for improving their energy efficiency and select 3 to 4 municipalities. The financial allocation per municipality will be up to US$ 700,000. The allocation will finance an energy audit and part of the investments recommended to promote efficient use of energy in municipal service delivery. All payments to suppliers will be made by the MDLF but procurement maybe handled by municipalities. Eligible municipalities are ranked D and above. The selection criteria of the municipality to benefit from this activity will include the following: energy costs of delivering municipal services (in absolute terms), services provided by the municipality (with higher points for municipalities delivering waste water treatment, slaughterhouses, public markets), and assessment of the municipal engineers' capacity to implement the activity. b. One-stop-shops: "One-stop shops" (OSS) or customer-service-centers are designed to promote municipalities' transparency, accountability, citizen- responsiveness and public participation efforts in their management and 55 service delivery service provision in 3 municipalities in Gaza (for a total budget of US$200,000). The activity will contribute to the MDP objectives of improving transparency by enabling municipalities to disclose standard information to citizens about their services and will also enable them to become more citizen-responsive by establishing a system by which they can receive direct feedback from the public. This will improve public participation and enable municipalities to make decisions that are citizen-responsive. The activity will build on lessons learned from GTZ's experience implementing such activities in the West Bank. Given the large population size of municipalities in Gaza, with requests for different types of municipal services, this activity will develop the municipality's ability to provide customer oriented services in an efficient manner. Eligibility of municipalities is outlined in the Operations Manual. Under subsequent phases of the MDP, this experience will be rolled out to other municipalities. Window 3: Capacity Building (US$5.43m total costs, US$0.6 million TFGWB financing) (i) For Municipalities (US$5.23 million total costs, US$0.55 TFGWB financing) 16. This Window supports municipalities to graduate to higher categories in the performance ranking system based on the Grant Allocation Mechanism. To this end, this Window will support municipalities (i) to improve their financial management, including revenue enhancement for municipal services provision (ii) planning capacities, with specific focus on community participation and (iii) technical capabilities, in particular on maintenance and operations. MDLF has developed a detailed concept for the capacity building window, which will guide the implementation of Window 3. 17. The Window also builds on the key lessons and achievements of the LGCBP (2004 to 2010) currently implemented by the MDLF, financed by Denmark and administered by the Bank (approximately $10 million). The LGCBP focuses on the following core areas: (i) improve the accounting, financial management and budgetary preparation and control capabilities of municipalities by designing a unified financial and accounting system; (ii) strengthen the capacity of municipalities to effectively guide, manage and monitor the development of urban areas and be responsive to the needs of citizens; and (iii) increase the capacity of MoLG to oversee and support a decentralized local government system. The MDP will therefore be scaling up some of the LGCBP's interventions. The window will primarily finance consultancy services, training and equipment. (a) Improved Financial Management (US$3.7 million). Support will be provided for: (i) the roll out of the financial management manual (including the basic use of the new chart of accounts) to a minimum of 50 municipalities not yet benefiting from the LGCBP which targets 43; (ii) asset registration and valuation to a minimum of 30 municipalities; (35 are covered by the LGCBP) and (iii) roll out of the municipal budgeting procedures, developed 56 under the LGCBP to a minimum of 20 municipalities, (iv) promotion of municipal external audits; (v) office and IT equipment based on the assessment of the municipal financial departments by MDLF, for a minimum of 30 municipalities; and (vi) the roll out of an Integrated Financial Management Information System for a minimum of 20 municipalities that are currently not covered under the LGCBP. (b) Strategic Development and Investment Plans (SDIP) (US$1.26 million): This subcomponent will support a minimum of 40 municipalities to develop strategic development and investment plans with participation of communities and relevant stakeholders. The development of the plans will build on (i) the manual and procedures being tested by the SDIP working group led by MoLG with members from MDLF, MoP, and municipalities and supported by GTZ and cleared by MoLG (ii) lessons learned from the MDLF pilot project in the Jenin area under Danish funding. (c) Technical Assistance to Municipalities for overall improved management, especially on operations and maintenance (O&M) plans and procurement (US$0.27 million). This will include (i) the development of O&M guidelines and procedural manual and (ii) piloting the manual in 5 municipalities. 18. A demand based technical assistance program: The Capacity Building Window23 is designed to meet the requirements for graduating up the performance system. The capacity building packages will be tailored for each of the graduation requirements, so that all interested municipalities have equal opportunity in increasing their performance and moving up to higher ranks. The system has been designed to ensure small, medium and large municipalities have equal opportunity in receiving assistance based on their institutional requirements. Figure 3 below illustrates the number of municipalities per rank that was used to compute the cost of offering the program to all municipalities. 23 Draft Implementation Concept: Capacity Building Under MDP Window 3, Frank Samol, Consultant, Municipal Development and Lending Fund, 2009. 57 Figure 3: Number of Municipalities in need of Support to comply with Performance Criteria24 19. MDLF will design an application form for the interested municipalities to submit their request for specific institutional capacity building packages. This form will be part of MDLF's communication campaign to promote the MDP and will be accessible to all the municipalities in both Gaza and the West Bank. (ii) For MDLF (US$0.2 total costs, US$0.05 TFGWB financing) 20. This sub-window will strengthen the MDLF's capacity to implement the MDP, ensuring that it continues to use innovative approaches that build on international best practices. It will provide support for human resource development and institution building based on the MDLF's Medium Term Strategic Plan and its Human Resources Development Plan. The specific activities that will be covered under this component will be part of an overall institutional learning plan that covers the 3 year life of the program, with a detailed annually prepared plan approved by the Financing Partners and drawing on the Strategic and Human Resource Development Plan. Much of the financing will be for consultancy services, training and equipment. Window Four ­ MDP Management Costs (US$6.64 million, US$1.1 million TFGWB financing) 21. MDLF Management Fee. (Total of US$ 4.34 million in financing of which US$ 0.7 million is from TFGWB financing). All Financing Partners will pay a 7 percent 24 Ibid 58 administration fee on their grants to MDLF. Covers costs to manage and oversee the implementation of the MDP (US$ 4.34 m total costs, US$ 0.7m of TFGWB). MDLF prepared a detailed budget to estimate the cost of managing the MDP Phase 1, taking into account its fixed and variable costs, including staff, equipment and operating costs. This administrative fee was reviewed by the Financing Partners and assessed to be adequate. The financial audit assignment will be covered by the MDLF's management fees. 22. Monitoring and Evaluation (US$0.2 million total costs, US 0.05 million TFGWB financing): This subcomponent will cover the costs of institutional compliance audit fees, a municipal infrastructure survey at the end of Phase 1, client and citizen satisfaction assessments and technical audit fees. 23. Communications and Outreach (US$0.3 million total costs, TFGWB US$ 0.15) This subcomponent will also finance the outreach and communications campaign for promoting the Grant Allocation Mechanism to both municipalities and citizens. Although the MDLF has carried out consultations on the Grant Allocation Mechanism, a much wider information dissemination campaign is required to ensure that both municipal leaders and citizens alike understand it. The MDLF will prepare a communications plan around the Grant Allocation Mechanism which will include radio spots, simplified brochures and flash cards that communicates the objective of the system, how it is measured and how it is applied in very simple everyday language. The goal is to ensure transparency and that citizens understand where their municipality is ranked and hold leaders accountable so as to graduate to higher performance ranks. 24. Local Technical Consultants to assist municipalities in implementing the MDP (US$1.8 million, US$0.2 million TFGWB financing): Some municipalities may require technical assistance in implementing their Municipal Assistance Programs under Window 1 which will be provided by the Local Technical Consultants. The TA will cover the following types of activities, but not restricted and will cover the following types of activities (i) supporting municipalities as they complete their application forms that will contribute to developing their Municipal Assistance Programs and ensuring that operations and maintenance are planned for (ii) review technical design of works and managing and supervising contracting, and (iii) procurement of works, goods and services, including preparation of bidding documents and (iv) reporting on progress. 59 ANNEX 5: PROJECT COSTS WEST BANK AND GAZA: Municipal Development Program Table 1: Detailed Project Costs by Activity Other Total WB Donors + PA Sub-total Window 1 46.16 7.6 38.56 i) Strengthening newly amalgamated Local 2.8 2.8 Governments ii) Testing Innovations for improved 0.9 0.7 0.2 municipal revenue ii. a- One Stop Shop 0.2 0 0.2 ii. b-Energy Efficiency 0.7 .7 0 Sub-Total Window 2 3.7 0.7 3.0 i) for Municipalities 5.23 0.55 4.68 a- Improved Financial Management 3.70 b- Strategic Development and Investment 1.26 Plans (SDIPs) c- Technical skills 0.27 ii) for MDLF 0.20 0.05 0.15 Sub-Total Window 3 5.43 0.6 4.83 i) MDLF management fee (7%) 4.34 0.7 3.64 ii) Technical supervision and assistance 1.8 0.2 1.60 (LTCs) iii) Monitoring and evaluation 0.2 0.05 0.15 v) outreach and communication campaign for 0.3 0.15 0.15 promoting grant allocation systems Sub-Total Window 4 6.64 1.1 5.54 Total Project Costs 61.93 10.0 51.93 60 Table 2: Project costs by expenditure category and annual disbursements (Bank FY/US$m) Category Year 1 Year 2 Year 3 Year 4 Total Category 1: Municipal Grants 1.125 3.510 1.30 1.665 7.600 Category 2: Municipal Innovations 0.000 0.300 0.40 0.700 Category 3: Capacity Building 0.100 0.200 0.20 0.10 0.600 Category 4: MDP Management Management fee (7%) 0.150 0.315 0.20 0.035 0.700 Technical Supervision and Assistance (LTC) 0.050 0.100 0.05 0.200 Monitoring and Evaluation 0.025 0.025 0.00 0.050 Outreach and communication campaign 0.050 0.050 0.05 0.150 Subtotals 1.500 4.500 2.200 1.800 10.000 The Country Financing Parameters, approved in 2005, allow for the payment of VAT and other reasonable taxes under the Grant. 61 ANNEX 6: IMPLEMENTATION ARRANGEMENTS WEST BANK AND GAZA: Municipal Development Program Overview 1. The MDP will be implemented by the MDLF in close partnership with municipalities. The MDLF receives guidance from the MoLG in prioritizing specific policies that should be translated into implementation on the ground and shares lessons with the MoLG on the experiences of policy implementation for their evaluation and refinement by the PA. Its close coordination with the MoLG also ensures that its programs are supporting the implementation of national priorities. 2. Flow of Funds and Legal Relationships: The Recipient of the grant is the Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority (PA) as with nearly all cases of assistance provided to the Palestinian people under the Trust Fund for Gaza and the West Bank (TFGWB). A Subsidiary Agreement between the PLO and PA designates the PA as recipient of the grant and an On-Granting Agreement between the PA and MDLF designates the MDLF as the implementing agency. The Bank and the MDLF will also sign a Project Agreement. MDLF would then implement the program in accordance with, the legal agreements and the Operations Manual. The Ministry of Finance (MoF) would open the Designated Account on behalf of the MDLF, under the Single Treasury Account. The MDLF would be responsible for managing the account but the Ministry of Finance is responsible for requesting replenishments from the World Bank. Other Financing Partners may have different arrangements for submitting withdrawal applications. 3. Program Implementation: The MDLF applies the Grant Allocation Mechanism to determine the financial allocations of each of the municipalities. Its Board reviews the allocations, verifying that the guidelines were properly applied, approves them and subsequently informs municipalities of their funding amounts. Municipalities are responsible for consulting with their communities to establish a priority list of sub- projects that fit the eligibility criteria and submitting an application form for appraisal by the MDLF. The applications are reviewed by area engineers, social and environmental specialists with inputs from their supervisors (including field appraisals as required), and their Manager to ensure appropriate documentation/verification and screening for impacts and safeguards policies. A technical committee headed by the Director of Operations, does a final review to check for compliance with the MDLF's guidelines and provides its approval which is then communicated to municipalities. Institutional Issues 4. Legal Status of MDLF: An independent semi-governmental organization, MDLF was established in October 2005, by a Ministerial Decree, with the the legal mandate to provide direct development assistance to municipalities by providing them with transparent, rules-based and efficient financing and for implementing national policies in the local government sector as articulated by the MoLG. It is presently governed under the provisions of a Ministerial Council Decree of August 2007. A draft MDLF Law, 62 which gives the institution a clearer legal status, has been prepared and it is anticipated that it will be submitted for approval by the Cabinet. The current legal status of the MDLF is sufficient for it to implement the MDP. 5. MDLF Capacity and procedures: MDLF's capacity lies in its long experience in project implementation and its evolution from a Project Implementation Unit (PIU) into an independent institution. Under EMSRPI, the separate steering committees and PIUs established by different donors to implement local government projects were gradually brought under the "Joint Project Coordination unit" and the joint project steering committee evolved into the MDLF Board. With the establishment of the MDLF in 2005, several donors (World Bank, KfW, AfD, Sweden, Denmark, GTZ, Netherlands) began coordinating their efforts and using the same institutional systems (financial management, procurement, fund allocation criteria, joint progress reports etc). It has, therefore, developed robust implementation and monitoring procedures (for example, use of Bank procurement guidelines) and has effectively demonstrated that it has the capacity to implement donor funded programs. It has managed and disbursed over US$ 130 million of donor funds since its establishment. 6. Organizational Structure and Staffing: The organizational structure of the MDLF has been appraised and found to be appropriate for the implementation of the MDP. (See Attachment 1 for the organigram). It has attracted and retained well qualified staff. Recently, it successfully filled key positions that were vacant at pre-appraisal (General Director, Capacity Building Manager, Procurement Specialist and Public Relations Officer) and is adequately staffed for the purposes of the implementation of the MDP. The process of recruiting a Municipal Finance Specialist is well advanced and is expected to be completed by August 30, 2009. In addition to its headquarters in Al Bireh, MDLF also has a branch office in Gaza and has demonstrated its ability to operate there effectively. 7. Board Governance: The MDLF has a Board of Directors, chaired by the Minister of Local Government, with 11 positions specified in its by-laws representing the following: Ministries of Finance, National Economy, Local Government, Planning, Public Works; engineers association, banking association, 2 mayors, civil society, Association of Palestinian Local Authorities. Three Board positions that had long been vacant (representatives of civil society organizations and local authorities) have now been filled. a. Role of the Board. The standard role of a Board is policy and approval of budgets, work plans and progress reports. The Board now deals with some management issues that should be left to the General Director. The Chairman signs all checks of MDLF, which can lead to delay in activities and to mixing of governance and implementation roles and responsibilities. Under the MDP, check signing would be the responsibility of the General Director. b. Board Manual. The Board has recently approved the preparation of a Board Manual to clarify the segregation of duties between Board and staff. 63 c. Donor Consultation Forum. Building on the experiences of EMSRPII, a Donor Consultation Forum will be held to promote a more systematic dialogue between the Board members and Financing Partners. Municipalities 8. Municipalities are responsible for sub-project design and implementation. The 132 qualifying local government units classified as municipalities by the MoLG will be responsible for designing and implementing sub-projects that they identify through a participatory public consultation process. Municipalities are responsible for all contracting but the MDLF will be responsible for making payments to contractors and suppliers. Municipalities which lack the capacity to prepare their own sub-project application, tendering documents etc, may be entitled to receive assistance from the Local Technical Consultants. These municipalities will also receive assistance from LTCs in screening for environmental and social impacts, safeguard policies, procurement and supervision of works. Ministry of Local Government 9. To strengthen its policy making function, the MoLG is currently reviewing the implementation of its 2004 Diagnostic Report and Reform Action Plan of 2004, with a view of updating it and clearly articulating its future vision and strategy for the sector. It is also in discussions with several donors (CHF, Denmark, Sweden and the Bank) who have expressed an interest in supporting it in establishing a policy/strategy unit. Terms of Reference for the Unit have been prepared and are being discussed within the Ministry. The Strategy Unit will provide important policy guidance to local governments that will support the implementation of the MDP. Below is a summary of some of the policy actions that will be tackled by the Policy Unit, drawing on the reform actions of Palestinian Reform and Development Plan for guidance: (i) Improved fiscal autonomy and discipline of local governments (ii) Empowered and accountable local government that is responsive to citizens (iii) Reduced net lending (iv) Strengthened operational, administrative, and financial management capacity of local governments 10. The actions below (and the work of the Strategy Unit) will be presented by the MoLG as a policy note. Improved fiscal autonomy and discipline of local governments: To this end, the MoLG will: · Strengthen its own capacity in reviewing and approving municipal budgets (as approved budgets are a key element of the Grant Allocation Mechanism) · revise laws that allow municipalities to raise taxes or allow other entities to raise them on their behalf · review current system of property tax collection and develop policies, guidelines, and action plans for municipalities to improve their revenue base 64 · establish benchmarks for municipal management (e.g., revenue versus wage bill ratios etc) Empowered and accountable local government that is responsive to citizens: To realize this objective, · the MoLG will gradually introduce external audits of municipal accounts, as a measure of both fiscal discipline and transparency; · the Ministry of Finance will require public disclosure of all funds being transferred to municipalities from public sources, the basis and purpose of these allocations; · the MoLG will develop guidelines for public consultation for the development of strategic plans at the municipal level; · the MoLG will prepare guidelines for disclosure of key municipal decisions (including sources and use of funds) to the public. Reduced net lending: With the transfer electricity service provision from municipalities to utility companies, together with the MoF, the MoLG will · Prepare appropriate legal and regulatory frameworks that clearly delineate the role of municipalities in the corporatization of electricity and water services. 11. Strengthened operational, administrative, and financial management capacity of local governments: To this end, the MDLF has already begun implementation of the MDP which has developed a resource allocation formula. Embedded in this formula are incentives for municipalities to improve their operational, administrative, and financial performance. In addition the MDP in parallel to applying these incentives, provides support for capacity building in specific areas. 65 66 ANNEX 7: FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS WEST BANK AND GAZA: Municipal Development Program GENERAL Introduction 1. As a part of program preparation, an assessment of the capacity of the Municipal Development and Lending Fund (MDLF) was carried out to determine whether it is adequate to implement the FM requirements of the Program. The assessment reviewed the organizational structure and capacity of the Finance Department at the MDLF which will be entrusted with the implementation of the Program. Furthermore, the assessment evaluated the risks associated with the use of report based disbursement and to what extent such disbursement methods can be well managed by the MDLF. The assessment concluded that there is adequate capacity at MDLF but further strengthening in specific areas of Financial Management is necessary. Recommendations and action plan, the FM risks and mitigating measures have been identified and are presented in this annex. 2. The objective of using the program context is to have all donors harmonize the financial management requirements through using common financial management arrangements for the whole Program. Such harmonized approach will reduce transaction cost and processing time for MDLF. Objective of the program financial management systems 3. The objective of using the program context is to have all donors harmonize the financial management requirements through using common financial management arrangements for the whole Program. Such harmonized approach will reduce transaction cost and processing time for MDLF. 4. Fiduciary arrangements are intended to provide reasonable assurance that the program's resources, including World Bank funds, are used for their intended purposes; better contribute to the development of sustainable capacity in financial management; and significantly reduce the costs to the implementer of meeting the diverse requirements of donors. The arrangements facilitate Donors' participation by ensuring that sound systems are established for effective management and transparency--systems that (a) track and account for the use of all program resources; (b) establish acceptable financial management regulations and procedures; (c) put in place acceptable internal control arrangements, including internal auditing; and (d) have effective external auditing arrangements. Implementing Agency 5. The proposed MDP Program will be implemented by MDLF. The MDLF works in close collaboration with the Ministry of Local Government (MoLG). The MDLF has harmonized donor assistance, managing over US$100 million in funds over the last 4 67 years targeted to the development of the municipal sector. MDLF is currently managing Bank financed/administered projects EMSRPII and LGCBP as well as projects financed by other Donors. 6. As the MDLF will have overall responsibility for implementing program FM arrangements, it will maintain the program consolidated budget, accounting, reporting, and auditing records. The MDLF will have overall responsibility for the management of the Grant resources. Specifically, it will be responsible for: (a) Preparing activity budgets, monthly DA reconciliation statements, and periodic IFRs Withdrawal Schedules, quarterly consolidated Interim Financial Reports (IFR), and annual consolidated program financial statements; and (b) Ensuring that the program FM arrangements are acceptable to the PA and all the contributing Donors to the Program. 7. Towards that end, MDLF is equipped with a computerized FM and reporting system in line with the program scale and nature. The system allows for the recording and reporting of transactions in a timely manner by source of funding, location, components, activities and expenditure categories and subcategories. The computerized system (Oracle based accounting system) includes, inter-alia, general accounting, budgeting, cost centers, asset management, WA disbursement monitoring, is able to generated IFRs and the program annual financial statements). 8. To ensure a sound management of the program resources, the MDLF, is currently revising its Financial Manual of Procedures covering all administrative, financial and accounting, budgetary and human resources procedures relevant to the program. The Draft Financial Manual of Procedures was submitted to the Bank before negotiations. RISK ASSESSMENT Inherent Risks 9. The Country Financial Accountability Assessment (CFAA) conducted during 2004 concludes that the PA has made considerable progress between 2002 and 2004 towards the implementation of a Public Financial Management (PFM) system which provides adequate financial control and transparency. There has been little improvement since 2004 on the quality of the PFM. Furthermore from January 2006 and the establishment of the caretaker government in June 2007, the budget was not issued fully in compliance with the Basic Law and the annual account were not prepared. 10. The CFAA has concluded that the risk level in the Palestinian PFM system is still Significant. A key factor in the current rating is the lack of a properly functioning external audit institution. Control Risks 11. The overall Program risk from a financial management perspective is High. Nevertheless, various measures to mitigate the risks have been agreed. The financial management arrangements for the Program are designed to ensure that funds are used for 68 the purpose intended, and timely information is produced for Program management and PA oversight, and facilitate compliance with Bank's fiduciary requirements. The schedule below sets out the risks and the mitigating measures to bring the risk to an acceptable and manageable level. Risk Assessment and Mitigating Measures Risk Risk Risk Before Mitigating Measures (MM) After MM MM Inherent Risks: Country level The CFAA report identified systemic areas Institutional capacity development that relate to capacity in budget preparation initiatives are taking place through and execution. MDP at MDLF as well as the S Municipalities. M The CFAA pointed the lack of a properly Private external auditor will be hired functioning external audit institution to perform reviews and annual audit (Governmental) for the Program FS. Program level Centralization of accounting, filing of original supporting documents and reporting through the MDLF. Direct payment from MDLF to suppliers and contractors on behalf of Municipalities. Advances will be paid to Financing of projects through Municipalities on one very limited Municipalities where FM capacity H case, where only to cover daily wage S improvement is required. fees under recurrent expenses of Municipalities in Gaza Disbursement will be based on the approved annual plans. Building capacity of Municipalities in FM. Part of MDP action plan in Capacity Building. First time implemented Program, and using Establishing an Internal audit report based replenishment. functions with qualified staff S Ex post audit measures (quarterly M Risk of ineligible expenditures and review of IFRs and annual audit) by misappropriations. external auditor Inherent Risk Before MM H Inherent Risk after MM M Control Risks: Staffing: 69 Risk Risk Risk Before Mitigating Measures (MM) After MM MM Lack of Internal Audit Function at the MDLF will reactivate the internal MDLF audit function and will hire an internal auditor. Insufficient FM staffing to follow up on S Municipalities FM Consultant will be M FM aspects of Municipalities and action hired at the MDLF to follow up on plan implementation follow up FM aspects of Municipalities Accounting and Reporting MDLF has already a well functioning computerized accounting system (Oracle based). The system is a database system that can produce segmental reporting ­ by donor, sub Inadequate accounting and reporting project, Municipality, and component system that can capture data for the whole and subcomponent. The chart of program activities, at main level and at accounts will be revisited to insure sub-project level. H applicability to the current program. M MDLF is currently working with MIS Financial Procedures Manual existing at provider to develop a Grant MDLF might be irrelevant to the Program Management Information System, FM requirements. which would be used as a Sub- projects management tool. MDLF will draft a Financial Manual of Procedures relevant to the Program Auditing The Program auditor's TORs and scope will explicitly include verification of daily workers fees under recurrent expenditures to Gaza Municipalities, the auditor will insure the eligibility daily workers payments according to the funding proposal and to the respective sub- projects The decentralized implementation of sub- agreements. Sample to be checked grants and the involvement of the S have to be representative of both west M Municipalities call for a special and bank and Gaza in respect to the tailored audit terms of reference. program allocation to these areas. The Program auditor's TORs will ensure incorporating field visits with clear mandates to verify physical progress. In this context, auditors should use relevant technical specialists as needed. Control Risk Before MM H Control Risk After MM M 70 Financial Management ­ FM Risks by component / activity and Mitigating Measures Program Component and/or Major associated FM risks Mitigating measures Total WB Activity Window 1 - Municipal Grants 46.16 7.6 Sub-projects Grants to total 132 · Criteria of funds allocation to · Funds allocations are done according to municipalities Municipalities ­ risk of non the approved transfer mechanism transparent allocation system system, which adopts clear and · Risk of Weak FM capacity at transparent criteria and formula for Municipalities Level to allocation. Grant Allocation implement sub-projects Mechanism approved by the MDLF · Risk of funds transferred to Board in July 2008 and is supported by ineligible beneficiaries a detailed implementation manual · Risk that fund are not used for · Accounting, recording and the intended purposes disbursement are kept at the MDLF · Risk of inadequate supervision level. No funds are channeled to from MDLF on projects Municipalities. · Risk of inaccurate recording · MDLF to have the required staff for program implementation · Local technical consultants will be hired to assist Municipalities in sub project implementation · Municipal Finance specialist will be hired to guide municipalities in their capacity building needs · Technical Auditor will be hired to perform operational and technical audit for the sub-project annually. · Financial Auditor TOR will specifically cover sample of such activity on annul basis Window 2 - Support to 3.7 0.7 · Risk of inadequate innovation · Hiring the adequate consultants and Municipal Innovations and targeting to municipalities conducting the needed studies with Efficiency clear findings and recommendations for Testing Innovations for · Risk of inadequate and non improvements improved municipal revenue transparent selection and award · The eligible municipalities are those Citizen Services Centers / One- system willing to apply and be selected based Stop-Shop (OSS) on certain criteria developed by the MDLF management, And will be done through a clear and transparent system, will be documented in the Operations manual Window 3 - Capacity Building 5.43 0.6 · Risk of not conducting the right · Hiring the qualified consultants and i) for Municipalities capacity assessment and trainers adequate for the purpose ii) for MDLF proposing inadequate needed recommendations Window 4 ­ Program 6.64 1.1 · Risk of not hiring the adequate · MDLF has the qualified staff needed Management consultants for project implementation and i) MDLF management fee (7%) · Risks of not meeting the supervision. It will recruit internal ii) Local technical consultants, development objectives auditor, municipal finance specialist, M&E, outreach and technical staff and consultants to 71 communication. further strengthen its capacity. · Preparation of the FM procedures manual adequate for the program needs and conducting the needed training to FM staff. · Installed adequate computerized accounting system that generates automatic IFRs, performance reports, and annual reports. Total Program Costs 61.93 10.0 72 FINANCIAL MANAGEMENT SYSTEM Flow of funds and financing arrangements 12. Parallel Financing by Financing Partners. Donors agreed that each Donor's contribution to the MDP program (including that of the Bank) will be through parallel financing towards the Program's activities. This means that each donor will disburse its funds through a separate Designated Account (DA) opened by the MOF (under the Central Treasury System) and operated (managed) by the MDLF. Funds are deposited into and disbursed from each DA and will be spent on specific activities (sub-components) that have been agreed with each donor. 13. Designated Account (DA). The MDLF will maintain World Bank related DA in Pound Sterling (GBP) to which the initial deposit and replenishments from Bank resources will be deposited and will be used in financing program components according to the annually approved budget. Other Donors' related separate DAs will be maintained in the Currencies specified by each Donor. 14. DAs bank account records will be reconciled with bank statements on a monthly basis by the MDLF. A copy of each bank reconciliation statement together with a copy of the relevant bank statement will be reviewed monthly by the Program Financial Officer who will investigate and resolve any identified differences. Detailed banking arrangements, including control procedures over all bank transactions (e.g., check signatories, transfers, etc.), will be documented in the Financial Manual of Procedures. 15. Disbursement Mechanism. The MDLF will vest the sole responsibility to disburse on behalf of the program to suppliers and contractors ­ either contracted by MDLF or by Municipalities. During Phase I, no sub funds will be transferred to the Municipalities, as MDLF will be paying directly to contractors and suppliers on behalf of Municipalities according to the approved Grant Implementation Agreement between MDLF and each Municipality. The MDLF will ensure the eligibility of the disbursements incurred by Municipalities, and issue its approval before payment. The original supporting documents (invoices, contracts, etc.) will be maintained centrally at the MDLF, while copies will be kept at each Municipality. Another mechanism for disbursement will be advances to Municipalities for the payments of the daily wages to daily workers in Gaza under the recurrent expenditures scheme to Gaza Municipalities. The payment for fees of daily workers will be authorized according to the approved program of funding for Gaza Municipalities under the recurrent expenditures funding scheme. MDLF will be responsible for reconciling these advance payments to Gaza Municipalities and obtaining the adequate supporting documents. The municipality's application to the MDLF (or the Municipal Assistance Program) detailing the sub-projects will include a list of the activities that will be financed under the project, including payments to daily workers. Daily workers will be contracted by the municipalities. Each worker will be required to complete and sign daily time sheets which will be approved by the respective supervisor at the municipality. Payments will be made by check (or bank payment orders), issued and signed by the authorized signatories at the municipality. Replenishment of the advances to cover the fees of daily workers will be conditioned upon receipt of all the original documentation described above from the concerned municipality. 73 These disbursement mechanisms will be explained in detail in the Financial Management Manual. This payment mechanism is already in use under EMSRPII and has worked well. 16. Financing for Window 1 ­ Municipalities sub-grants. In general, there will be no cost sharing between the Bank funds and any other donor's funds. MDLF will allocate the funds available from each donor (including the Bank funds) into the targeted Municipalities based on the Grant Allocation Mechanism. Through this allocation, the Bank will be financing 100% of a all the sub-grants. At the end of the program, any remaining unallocated funds from the Bank's total allocation of funds to municipalities might be co-shared with the allocations of other financiers. The Bank will be financing 100% of its respective share. The MDLF will prepare a sub-grants allocation sheet with all the municipalities' sub-grants to be financed, with the respective donor funds allocated to each list of Municipalities. The MDLF will submit this sheet to the Bank for prior review and no objection. This allocation sheet will be annexed to the IFR as well where co-shared financing does exist. 17. The following chart describes the funds flow for the program for Each Donor participating through Parallel financing i.e. World Bank: (each donor will have a different DA) 74 Each Donor (i.e. World Bank) Advance to Gaza Municipalities to cover recurrent expenditures for daily wages fees MDLF submits WA to Donor Suppliers & (Designated Contractors & with MOF's co- Account Managed signature (Direct Payment) on by MDLF behalf of Annex to Central Municipalities Treasury Account at the MOF MDLF Separate DA Contractors and Suppliers contracted by MDLF submit Payment requests to MDLF Municipalities submit Payment Legend requests to MDLF Full Arrows Movement of funds Municipalities submits reconciliation / supporting doc Dotted Arrows Request for fund transfer for advances paid by MDLF Budgeting and Disbursement Arrangements 18. Each year the MDLF will prepare a budgeted annual plan of activities, separately identifying activities to be financed by individual donors, including that of the World Bank and will submit it to the Financing Partners. Budget preparation will follow the procedures laid out in the MOP. 19. Towards the end of each fiscal year, the MDLF, in consultation with departmental heads, will prepare the cash budget for the coming year. The cash budget will include the figures for the year, analyzed by quarter. The cash budget for each quarter will reflect the detailed specifications for program activities, schedules (including procurement plan), and expenditure on quarterly program activities. The annual cash budget will be sent to the Bank at least two months before the beginning of the program fiscal year for review and approval. 20. The initial deposit into the DA will be based on a six month forecast prepared by the MDLF and submitted with the Withdrawal Application. There will be no ceiling to the DA. Subsequent disbursements into the DA will be based on the Quarterly Interim Financial Reports (IFRs) 75 (showing each donors part separately), and accompanied with Withdrawal Applications, reconciled bank statements and copies of bank statements. The IFRs will document the disbursed amounts for the quarter, the commitment for the coming quarter, and the next six months needs; according to which the replenishment and payment from the World Bank will be done. 21. Requests for disbursement will be presented on the basis of approved work plans and cash flow projections for expenditures as presented in the relevant IFR consistent with the cash flow forecasts presented under the Annual Work Plan and Procurement Plan. 22. Withdrawal Applications accompanied with quarterly IFRs will be prepared by the MDLF, signed by the MOF, and submitted to the Bank. The IFRs will be subject to quarterly review by an external auditor to certify the physical achievements and the corresponding resources used. These IFRs should be submitted to the Bank and other donors no later than 45 days from the end of the previous quarter. Disbursements by Component 23. The Program has four main components (windows) for a total estimated cost of US$61.93 million, of which US$10.0 million will be provided through an IBRD Grant. The Program will be funded through parallel financing from different donors as summarized below. Separate budget for each donor to be prepared and disbursements will be made accordingly. (Amounts in US$ million) Other Total WB Donors and PA Window 1 - Municipal grants 46.16 7.6 38.56 Window 2 - Support to Municipal Innovations an Efficiency 3.7 0.7 3.0 i) Strengthening newly amalgamated Local Governments 2.8 - 2.8 ii) Testing Innovations for improved municipal revenue 0.9 0.7 0.2 a- One Stop Shop 0.2 - 0.2 b- Energy Efficiency 0.7 0.7 0.0 - Window 3 - Capacity Building 5.43 0.60 4.83 i) for Municipalities 5.23 0.55 4.68 ii) for MDLF 0.20 0.05 0.15 Window 4 ­ Program Management 6.64 1.1 5.54 Total Program Costs 61.93 10.0 51.93 Fixed Assets and Contracts Registers 24. Fixed Assets Registers will be maintained, regularly updated and checked. Contracts Registers will also be maintained for all contracts. Detailed procedures for maintaining the Registers will be documented in the Financial Manual of Procedures. 76 FM Staffing 25. The Financial and Administration Department is responsible for the financial management, administrative support and supervision, and reporting for the Program as a whole. The Finance and Administration Department FAD is led by the Finance and Administration Manager (FAM), and under him are the Controller, two Senior Accountants (one in West Bank and the other in Gaza), two Accountants and one Administrative Assistant. Budget Analysis and Reporting function will be performed by the Controller. The current structure of the FAD is adequate for the Program. However, due to the capacity building needs for municipalities in Financial Management aspects, a Municipal Financial Management Specialist will be hired to assist MDLF in the following areas: (a) follow up on implementation of FM capacity building plan to municipalities, (b) Verify the performance ranking criteria and certify any change in ranking to municipalities with the review of all the supporting documentation to justify the change in ranking, and (c) coordinate and report on the municipalities progress in Financial Management capacity. MDLF has adequate FM staff. However, TORs will be revised to match the requirements of the Program. Revised TORs with detailed job descriptions applicable to the Program will be included in the revised Financial Manual of Procedures. Accounting and Reporting Systems 26. The MDLF has a computerized, Oracle based accounting system. IFRs are mainly generated from the system, while the variance analysis is done through excel. In addition, the MDLF maintains separate excel sheets ­ Disbursement Sheets ­ that list all the sub-projects payment schedule. This Plan enables MDLF to track all sub-projects, including the sub-projects of the grant recipient municipalities. Furthermore, MDLF is currently working with an MIS provider to develop a Grant Management Information System, which would be used as a Sub-projects management tool. This system will produce various types of reports including budget, actual figures for each sub-project and project, and variance analysis. The GMIS will be integrated with the current Oracle Accounting system. Financial Reporting and Monitoring 27. The MDLF will have overall responsibility for the financial management of the Program. Specifically, it will be responsible for (a) consolidating Program's financial data; (b) preparing activity budgets, monthly Designated Account (DA) reconciliation statement, and periodic IFR Withdrawal Schedules, quarterly Interim Financial Reports (IFRs), and annual program financial statements; and (c) ensuring that the program financial management arrangements are acceptable to the Palestinian Authority (PA) and the World Bank. IFR formats were finalized and agreed to during negotiations and are annexed to the negotiated Disbursement Letter. 28. The MDLF will produce quarterly and annual reports as outlined below and submit to the Bank for the purpose of monitoring program implementation. Quarterly Reviewed Interim Financial Reports: · Financial Reports include a statement showing for the period and cumulatively (program life or year to date) inflows and outflows by main expenditure classifications; related to Bank Grant, as well as other Donors; opening and closing cash balances of the Designated Account; and supporting schedules comparing actual 77 and planned expenditures with detailed deviation analysis between actual figures and budgeted ones. The reports will also include cash forecast for the following six months; · Physical Progress Reports which include narrative information and output indicators linking financial information with physical progress, and highlighting issues that require attention; · Designated Account statement and reconciliation showing deposits and replenishments received, payments, interest earned on the account and the balance at the end of the reporting period. · Contracts listing which will reflect all signed contacts, there value and how much have been disbursed under each as at the report date. Annual Program Financial Statements: · A Statement of Sources and Uses of funds (by Grant Category / by Activity showing Bank and Counterpart Funds separately); · A Statement of Cash Flow for Program Funds from all sources; · Statements reconciling the balances on the various bank accounts (including Bank Dedicated Account) to the bank balances shown on the Statement of Sources and Uses of funds; · IFRs Withdrawal Schedule - Bank Grant listing individual withdrawal applications relating to disbursements by the IFR Method, by reference number, date and amount · Balance Sheet showing Accumulated Funds of the Program, bank balances, other assets of the Program, and liabilities, if any; and, · The Notes to the Financial Statements for the significant accounting policies and all other relevant information. Financial Manual of Procedures 29. MDLF has an acceptable and well detailed manual of procedures for the current operations of MDLF. However, MDLF is currently revising the Financial Manual of Procedures, a section in the overall MDP Operations Manual, to accommodate the requirements of the Program. Through the Japanese PHRD Grant financing for preparation, MDLF has already recruited an FM consulting firm (PWC) which is reassessing and revising the MDLF's Financial Manual of Procedures to comply with the Program requirements. The Draft Financial Manual of Procedures was received prior to negotiations and the final version that is acceptable to the Bank is a condition for effectiveness. Internal Audit 30. MDLF lacks an effective Internal Audit function. The Internal Audit Function should be activated by hiring an internal auditor. MDLF is in the process of recruiting an Internal Auditor which is a condition for effectiveness. The detailed guidelines and procedures of the internal audit function will be documented in the revised Financial Manual of Procedures. 31. The roles and responsibilities of the internal auditor would include: 78 · Examine and evaluate the adequacy and effectiveness of other controls throughout the organization · Independent appraisals of the financial, operational, and control activities in the Program · Report on the adequacy of internal controls, the accuracy and propriety of transactions, the extent to which assets are accounted for and safeguarded, and the level of compliance with financial procedures and government and Donors laws and regulations. · Internal auditor should liaise with all operational departments and insure compliance with MDLF operations manual. · Perform ex-post reviews on sample IFRs to ensure accuracy, reasonability and maintenance of full supporting documentations. · Internal auditor findings, recommendations and follow up actions should be reported to the MDLF's Board, preferably quarterly. The Internal audit reports should be available for all donors to review during the supervision missions. External Audit 32. Quarterly reviews of IFRs: will be conducted by independent private and qualified auditors acceptable to the Donors before submission of the IFR. Quarterly reviews for the IFRs will be part and parcel of the scope of the annual audit. Annual Audit: Program Consolidated Financial Statements will be audited on an annual basis by a private external auditor acceptable to all Donors. The auditors will be expected to express a single opinion on the audited program consolidated financial statements and the DA statement. In addition, the auditor will be expected to express a special opinion on the Bank's contribution to the Program, regarding the degree of compliance with Bank procedures. TOR for the auditor was communicated and agreed on with all Donors during appraisal, a copy of which will be documented in the Financial Manual of Procedures. The audited Program Consolidated Financial Statements accompanied with auditors' management letter will be submitted to the Bank and all Donors within six months after the end of the fiscal year. The external audit report should encompass all activities under the program grant agreements, be in accordance with the Bank's auditing requirements and be conducted according to International Standards on Auditing. Format and list of required Program Financial Statements. The Program auditor's TORs will ensure incorporating field visits with clear mandates to verify physical progress. In this context, auditors should use relevant technical specialists as needed. Furthermore, the TORs and scope for the audit will explicitly include verification of fees for daily workers under the recurrent expenditures to municipalities in Gaza. The auditor will ensure the eligibility of daily workers for payments according to the funding proposal and the Grant Implementation Agreements signed with the concerned municipalities. The audit will include a representative sample of sub-projects in both the West Bank and Gaza. The external review and audit fees will be financed out of the MDLF management fees. The institutional compliance audit will be financed from the M&E budget. Report Due Date Responsibility Sent to: Scope IFRs 45 days from end of each quarter External Auditor Bank Review FS 6 months from end of fiscal year External Auditor Bank Audit Corruption 33. Fraud and corruption may affect the Program resources. The above fiduciary arrangements including the capacity of the MDLF, reporting and audit arrangements will reasonably tackle the 79 risk of corruption from a technical perspective through the fiduciary arrangements but may not be effective in case of collusion. Commitment of Financing Partners - MOU 34. The donors' commitment to timely provision of the funds is crucial for this Program. Therefore an agreement was reached among partners and documented in an MOU: · Agreement with Financing Partners on implementation arrangements to be incorporated into the program documents · Financing Partners will commit to timely financing of the annual plan of the program according to their agreed activities. · Financing Partners (including the Bank) will conduct joint supervision missions at least twice annually. · Appointment of the external auditors under the program will follow the existing process in World Bank projects, according to Audit TOR acceptable by all Donors. · Financing Partners (including the Bank) will review the annual audit reports under the program before acceptance of the audit results. Supervision 35. Joint Supervision by the Financing Partners will be conducted twice a year. Financial supervision activities will include inter-alia, review of quarterly IFRs, review of annual audited financial statements and management letters as well as timely follow up on issues raised by the auditor, visits to MDLF / Municipalities and a sample of eligible program activities to assess progress. Each mission will cover a review of FM practices, procurement methods, payment procedures and documentation. Financial Management Action Plan Action to be taken By whom By when Hiring ofInternal Auditor MDLF By effectiveness Final Financial Manual of Procedures MDLF / FM By effectiveness reflecting all the requirements of the Consultant Program and acceptable to the Bank. 80 ANNEX 8: PROCUREMENT ARRANGEMENTS WEST BANK AND GAZA: Municipal Development Program A. General A-1 Country Procurement System 1. The Public Procurement system in WBG is currently regulated by two separate laws: Procurement Law No. (9) of 1998 (or General Supplies Law) and Law No. (6) of 1999 on Public Works Tenders. The first law governs procurement of goods and services, while the second one regulates procurement of construction. The General Supplies Law was supplemented by detailed regulations, while there are no such regulations under the Public Works Law. The Country Procurement Assessment Report (CPAR) of 2004 analyzed these legal frameworks and assessed the related institutional and organizational aspects. In addition to incompleteness of the two laws, the main gaps indentified in the current procurement system include (i) lack of a single agency or central authority to lay down uniform and consistent policy, rules and procedures in public procurement, and ensure efficient oversight and clear and enforceable sanctions and enforcement mechanisms; (ii) absence of acceptable procedures for pre-qualification or systematic post-qualification of contractors; (iii) absence of specific rules governing the procurement of consulting services; (iv) lack of national standard bidding documents ; (v) lack of user manuals and guidelines, including national procurement manuals to be followed by the ministries; (vi) absence of rules and procedures providing access to the proper authority for bidders who want to lodge complaints, request reviews of procurement decisions and seek relief, at any point during the procurement process; (vii) lack of rules and procedures on dispute resolutions; and lack of specific provisions on fraud and corruption in public procurement in WB&G. 2. The Bank has carried out in mid-2008 a Country Procurement Issues Paper (CPIP) to assess the current state of the procurement system of the public sector in West Bank and Gaza (WBG). It focused on the improvements since the CPAR of 2004 and the progress in the procurement reform as an important initiative to improve the performance and efficiency of the public procurement in the WBG. The OECD-DAC methodology was used and provided a suitable source of guidance for the CPIP work. The assessment confirmed the 2004 CPAR findings with regard to the existing legal framework for public procurement as being both incomplete and insufficiently robust to provide for a clear, rules-based environment for conducting public procurement. The action plan for the procurement reform recommended by 2004 CPAR was not fully implemented. Within the general framework of the PRDP, the PA confirmed its commitment to move forward with the recommended reform in order to make public procurement more efficient and transparent. A revised draft of the procurement law has been commented on by the Bank and MoF is taking the necessary steps to enact the new law. The other reform activities are reflected in the procurement section of the Policy Matrix of the second Bank's Development Policy Grant (DPG II) for WBG. In the coming two years the PA will move to enact the supporting regulations for the new law, establish a independent Public Procurement Authority, initiate national standard bidding documents, institutes a training program across the government and take other steps necessary to make the law effective. 81 3. As per CPAR recommendations, the following provisions applicable to NCB will be included in the Grant Agreement: i. Government-owned enterprises in the West Bank and Gaza shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the Palestinian Authority. ii. Foreign bidders shall be eligible to participate under the same conditions as local bidders. In particular, no preference over foreign bidders shall be granted to local bidders in bid evaluation. iii. Invitations to bid shall be advertised on at least two (2) consecutive days in a local newspaper of wide circulation, and prospective bidders shall be allowed a minimum of thirty (30) days between the date on which the notification appears for the first time and the deadline for bid submission. With the specific approval of the Bank, this minimum period of 30 days may be reduced to a minimum period of 10 days in the case of emergency operations. iv. Qualification criteria shall be clearly specified in the bidding documents, and all criteria so specified, and only criteria so specified, shall be used to determine whether a bidder is qualified. Bids of bidders not meeting such criteria shall be rejected as non-qualified. The fact that a bidder meets or surpasses the specified qualification criteria shall not be taken into account in the evaluation of such bidder's bid. v. Evaluation criteria shall be clearly specified in the bidding documents, and all evaluation criteria other than price shall be quantified in monetary terms. All evaluation criteria so specified, and only criteria so specified, shall be used in bid evaluation. Merit points shall not be used in bid evaluation. vi. If classification of contractors is required, contractors that have not yet been classified but meet the required qualifications shall be enabled to obtain the necessary classification during the bidding procedure. Any contractor that has been classified in a class higher than the lowest class shall not be restricted to bidding in his own class but shall be eligible also to bid in any lower class. vii. Bids shall be submitted in sealed envelopes and shall be accepted whether mailed or hand-carried. viii. Bids shall be opened in the presence of bidders who wish to attend, and immediately after the deadline for bid submission. Said deadline, and the place of bid opening, shall be announced in the invitation to bid. The name of each bidder, and the amount of his bid, shall be read aloud and recorded when opened in the minutes of bid opening. The minutes of bid opening shall be signed by the members of the bid opening committee immediately after bid opening. ix. Bids received after the deadline for bid submission shall be returned to the bidders unopened. x. A bid containing material deviations from or reservations to the terms, conditions and specifications of the bidding documents shall be rejected as not substantially responsive. A bidder shall not be permitted to withdraw material deviations or reservations once bids have been opened. 82 xi. The bid evaluation shall be carried out in strict adherence to the criteria specified in the bidding documents, and the contract shall be awarded to the qualified bidder offering the lowest evaluated and substantially responsive bid. xii. A bidder shall not be required, as a condition for award, to undertake obligations not specified in the bidding documents or otherwise to modify his bid as originally submitted. xiii. There shall be no post-bidding negotiations with the lowest or any other bidder. xiv. Until standard bidding documents acceptable to the Bank have been introduced by the Recipient, the standard bidding documents of the Bank shall be used. 4. Together with the lack of progress in the implementation of the procurement reform and the continuing erosion of procurement capacity in line ministries, the conditions are not yet in place for using the country procurement systems and the overall procurement risk in the West Bank and Gaza remains high. A-2 Use of Bank Guidelines 5. Procurement of goods , works and consultants under the program components to be funded out of the TFGWB by IDA as administrator of the TFGWB will be carried out in accordance with the `Guidelines On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants' known as the `2006 Anti-Corruption Guidelines', and the `Guidelines: Procurement under IBRD Loans and IDA Credits' published by the Bank in May 2004 and revised in October 2006 and the `Guidelines: Selection and Employment of Consultants by World Bank Borrowers,' dated May 2004 and revised October 2006, and the accompanying standard bidding documents for any new procurement", the Grant Agreement and the procurement section of OM. 6. Procurement of goods, works and consultants to be funded under parallel co-financing by the other donors are expected to follow the procedures agreed on in separate financing agreements signed between PA and each of these donors. These procedures would be spelled out in the OM and it is expected that all donors will use the MDP procurement manual which is based on World Bank guidelines. 7. The general description of various items under different expenditure categories is described below. For each contract to be financed by the Grant from the TFGWB, the different procurement and consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank project team in the Recipient's Procurement Plan (PP). The PP will be updated at least annually or as required to reflect the actual program implementation needs and improvements in institutional capacity. For demand- driven activities under window 1 and the demand driven part under the innovation grant (window 2), a simplified procurement plan of the sub-project will form part of the sub-project Grant Implementation Agreement (GIA). 8. Procurement of Works: Works procured under this program would be limited to those included in demand-driven sub-projects financed under Window 1 and would follow the procurement arrangements set forth in the Procurement Section of the OM. 9. Procurement of Goods: Goods to be procured under the program at the central level would include goods under window 3 such as office equipment and furniture. Goods to be 83 procured at the municipalities' level are limited to those included in demand-driven sub-projects financed under Window 1 and 2 and would follow the procurement arrangements set forth in the Procurement Section of the OM. These are further described under paragraph 9 below. The Bank's Standard Bidding Documents and Standard Bid Evaluation forms for procurement of goods and works will be used. Goods contracts estimated to cost more than US$ 500,000 will be procured through International Competitive Bidding (ICB). For estimated contract values of more than US$ 100,000 but less than or equal to US $ 500,000 National Competitive Bidding (NCB) method would be used. Goods contracts estimated to cost less than or equal to US$100,000 will be procured using Shopping procedures and would require soliciting, receiving and evaluating competitive quotations from at least three qualified suppliers. The award would be made to the supplier with the lowest evaluated responsive price quotation for the required goods, provided it has demonstrated capacity to execute the contract successfully. In situations and circumstances that are in compliance with the provisions of paragraph 3.6 of the Guidelines for Procurement, goods would be procured through Direct Contracting with Bank prior review. 10. Procurement under demand­driven sub-projects: Under Window 1, the program will finance demand-driven sub-projects in WBG, for a total of US$ 7.6 million equivalent. Also there will be demand driven procurement under the innovation grant window 2 and also window 3. There will be an open menu for activities eligible for financing under demand-driven sub- projects with a negative list. The open menu would include reconstruction, rehabilitation and maintenance of municipal infrastructure and facilities and the supply of equipment to sustain municipal service provision including equipment such as solid waste collection containers, vehicle spare parts, fuel necessary for sustaining essential municipal services in Gaza, construction materials such as cement, reinforcing steel rods, base course, asphalting materials, tiles and other material, water and sewage pipes and fittings, electricity cables and transformers, street lighting poles and electrical bulbs. The innovation sub grant would involve goods such as tools, service vehicles, office equipment, furniture and apparatus that would be needed for the innovative activities. Due to their demand-driven nature, the types of activities to be financed under sub-projects and their procurement details would depend on the needs and priorities identified by the municipalities. Therefore, it is not possible to determine the exact mix of goods, works and services to be procured under the sub-projects. . The procurement of Goods, works and services for the demand driven activities under Window 1 and 2 shall be carried out in accordance with the provisions of paragraph 3.17 of the Guidelines "Community Participation25 in Procurement" and in accordance with simplified procurement procedures specified in the program OM approved by the Bank. 11. Selection of consultants: Consultancy services would include selection of the LTCs, and consulting services under Windows 2, 3 and 4. The LTCs will be selected on a competitive basis by MDLF at the central level. The draft TORs were prepared by the MDLF and submitted for review by the Bank during appraisal. The selection process would be initiated by MDLF before effectiveness in order to ensure an early involvement of the TLCs in the start up of program implementation. 25 For the purposes of the MDP, the Bank's technical term "Community Participation in Procurement" refers to demand driven sub-projects where municipalities are responsible for the procurement process (not community groups). 84 12. Contracts for consultancy services will be procured through Quality and Cost Based Selection (QCBS) or Quality Based Selection (QBS). For services costing less than US$200,000, the selection method would be Consultants' Qualifications (CQS) Qualifications in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines. 13. Financial and technical audits estimated to cost less than the equivalent of US$100,000 may be procured under Least Cost Selection (LCS) in accordance with the provisions of 3.1 and 3.6 of the Consultant Guidelines. 14. Consultant for services meeting the requirements of section V of the Consultant Guidelines may be selected under the provisions for the Selection of Individual Consultants, i.e., in essence through the comparison of the curriculum vitae of at least 3 qualified individuals. 15. Single Source Selection (SSS) may be used exceptionally in accordance with paragraph 3.9 to 3.12 of the Consultant Guidelines when hiring consultants through competitive process is not practicable and upon Bank's concurrence of the decision on the SSS method. 16. Shortlists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines, provided that a sufficient number of qualified individuals or firms (at least three) are available at competitive costs. 17. Training and workshops: These will be carried out on the basis of annual approved programs. The programs will identify the general framework of training and similar activities for the year, including the nature and objectives of training and workshops, institutions where training/workshops would be conducted, cost estimates and contents of the course, the number of participants, cost estimates, and the translation of the knowledge gained in the actual implementation of program components. 18. Prequalification: there is no planned prequalification of contractors and suppliers. B. Assessment of the agency's capacity to implement procurement 19. The responsibility for overall oversight and monitoring on the implementation of program procurement will rest with MDLF which would ensure that procurement under the program is carried out in accordance with the Grant Agreement, the procurement plan (PP) and the program OM. Procurement activities at the central level under Windows 2, 3 and 4 will be carried out by MDLF while all sub-projects procurement will be implemented by participating Municipalities. 20. A Procurement Capacity Assessment (PCA) for the MDLF and a sample of the participating municipalities was carried out as part of program preparation. The assessment evaluated the institutional capacity of the municipalities and the MDLF to implement procurement particularly under international procurement as well as World Bank procurement. Furthermore, the assessment evaluated procurement risks and made recommendations on mitigation measures for efficient procurement under the MDP. The assessment determined that the overall risk is moderate and the capacity of the participating municipalities as well as the 85 MDLF needs to be strengthened through support in terms of technical assistance, training and supervision in order to meet the implementation requirements under the MDP. The corrective measures include: a. MDLF and the municipalities' procurement staff will receive additional training on Bank's Guidelines, standard bidding documents, cost estimates and contract management. The training will be provided under the program and will be arranged immediately after effectiveness b. Recruitment of a qualified procurement specialist to help in planning and processing all procurement in Gaza. He/she will be also in charge to oversee and monitor the LTCs and ensure that they are carrying out the fiduciary oversight according to the agreed-upon procurement arrangements and procedures. c. Recruitment of consulting firms (LTCs) to oversee and provide assistance and oversight to participating municipalities including the implementation of sub- projects procurement. The LTCs will be responsible for ensuring that procurement carried out by participating municipalities follows the Bank's guidelines and the agreed procurement arrangements detailed in the PM. The MDLF will oversee and monitor the LTCs and ensure that they are carrying out the fiduciary oversight according to the agreed-upon procurement arrangements and procedures. The selection process of LTCs will be initiated by the MDLF before effectiveness in order to ensure an early involvement of these consultants in the start up of program implementation. d. Preparation of Manual of Procurement Procedures (PM) as part of the OM detailing the procedural requirements that MDLF and the municipalities must follow to handle sub-projects procurement under the different windows. e. training program on the program PM for the MDLF staff and all the municipalities who will be involved in the implementation of the sub-projects ; and f. Bank's quality control on procurement matters during supervision to ensure the efficiency of procurement decisions for procurement under the different windows including the quality of procurement control and oversight under demand-driven sub-projects. 21. The overall program risk for procurement is Moderate. C. Procurement Implementation arrangements 22. The responsibility for overall oversight and monitoring on the implementation of the program procurement will rest with MDLF, which would act as the Bank's main counterpart for all procurement aspects of the program and would ensure that procurement under the program is carried out in accordance with the Grant Agreement, the PP and the program OM. The procurement responsibilities for each component under the proposed program are clarified below: 86 Procurement Responsibilities under Window 1: Implementation of sub-projects using a demand- driven approach 23. Procurement activities under demand-driven sub-projects will be implemented by participating municipalities with the assistance of LTCs to be recruited by MDLF through a competitive process. The LTCs would work at the municipalities' level to strengthen their technical and fiduciary skills and assist them to implement local demand-driven activities including procurement. MDLF, through its procurement staff, will oversee and monitor the LTCs' work and ensure that they are carrying out the fiduciary oversight according to agreed- upon procedures. 24. Upon approval of sub-projects under the Municipal Assistance Programs, MDLF will sign a Grant Implementation Agreement (GIA) with each beneficiary municipality specifying the different arrangements including procurement for the implementation of sub-project. The execution of the procurement process will be the direct responsibility of the municipality which will be in charge of: (a) Advertising specific notices; (b) Preparing TORs and bidding documents; (c) Selecting contractors, suppliers and service providers; and (d) Awarding and signing contracts with the successful service providers, contractors and suppliers. 25. For those contracts subject to prior review, Municipalities would request a "no objection" through MDLF on the relevant procurement decisions. Municipalities will be responsible for maintaining adequate filing of the sub-project's procurement documents as described in the Procurement Section of the OM. 26. The LTCs will assist municipalities in the entire procurement process including: (a) Review of design, cost estimate, specifications; (b) Preparation of bidding documents; (c) Invitation to bid, (d) Bid opening and evaluation; (e) Award of contracts; and (f) Contract management and inspection of goods and works. 27. The LTCs will be responsible for ensuring that sub-projects contracting carried out by participating municipalities follows the Bank's guidelines and the agreed procurement arrangements detailed in the Procurement Section of the OM. The responsibilities would include: (a) Providing training for participating municipalities to ensure the good understanding of the program cycle, the sub-projects' procurement and PP process by all parties; (b) assisting the different levels at each step of the procurement process, such as: planning procurement activities, preparing bidding documents, launching the procurement processes, evaluating bids, awarding and managing contracts, and maintaining adequate filing of the program's procurement documents; (c) Assisting in dealing with complaints and litigations; (d) Assisting in assessing work done by service providers; and 87 (d) reporting to MDLF on the review of the procurement process at municipalities and advising on timely corrective measures, if any, to be taken to avoid flawed procurement decisions. Procurement responsibilities under Windows 2, 3 and 4: 28. Procurement of goods and services under Windows 2, 3 and 4 will be executed directly by the MDLF at the central level. Procurement of goods for the demand driven activities under window 2 and 3 would be carried out by the municipalities, and would follow the same procedure as for activities under Window 1 mentioned above. Managing the procurement activities to be implemented under these three windows will include inter-alia: (a) Preparing the initial PP for each window; (b) Preparing all bidding documents, requests for proposals, evaluation of bids and proposals and contracts award and management. 29. The Procurement Section of the OM will document the procurement processing and approval procedures for each implementing entity in the program and circumscribing in detail, roles and responsibilities of all parties. It will also define the procedural requirements that municipalities must follow to handle procurement and would include simplified forms for bidding documents, bid evaluation and forms of contract to be used. A draft version of the Procurement Section has been prepared by procurement consultant contracted by the MDLF and was discussed during appraisal. The final version acceptable to the World Bank and will be completed by effectiveness. D. Procurement Plan (PP) 30. MDLF prepared a draft PP at appraisal comprising of the procurement activities for the first 18 months for Windows 2, 3 and 4 that are not of a demand-driven nature. The PP was agreed on during negotiations. It will be also available in the project database and on the World Bank's external website. In agreement with the World Bank, the PP will be updated annually or as required to reflect actual program implementation needs and the improvement in institutional capacity. 31. The PP at the municipality level will be included in the proposal from the municipality if the proposed sub-project includes a procurement activity. This will be reviewed by the LTCs during the preparation and verification of proposals and discussed and agreed upon before a sub- project implementation agreement is signed. E. Frequency of Procurement Supervision 32. The Bank will carry out supervision missions to conduct post review of contracts which are not subject to the above prior review requirements. At least two supervision missions will be conducted per year to visit the field and to carry out a post review of procurement actions. The procurement post reviews should cover at least 10 percent of contracts subject to post review. Feedback sessions could be done with LTCs and participating municipalities in order to share post review findings and appropriate solutions. 33. The Table below summarises the thresholds for procurement and prior review. 88 Table 1: Thresholds for Procurement Methods and Prior Review Expenditure Contract Procurement Contracts Subject to Category Value Method Prior Review (US$) Threshold (US$) Demand Driven Sub- As defined Community As defined in the OM projects under in the OM procurement windows 1, 2 and 3 procedure detailed in the OM 2. Goods > 500,000 ICB All contracts >100,000 NCB First contract and irrespective of the value <= 500,000 <= 100,000 Shopping First contract irrespective of the value No threshold Direct contracting All contracts 3. Consulting Services No threshold QCBS/QBS First contract for each Firms of these two methods irrespective of the value and thereafter all contracts > 200,000 <=200,000 CQS First contract irrespective of the value <= 100,000 LCS First contract irrespective of the value Individuals No threshold SSS All contracts No threshold IC Contracts above US$100,000 No threshold SSS All contracts F. Advertisement 34. The General Procurement Notice shall be published in the online edition of dgMarket and Development Business upon Board presentation. Requests for Expression of Interest for consulting assignments with firms exceeding the value of US$200,000 shall be published in at least two national dailies of wide circulation and the on-line edition of dgMarket/UNDB. 89 G. Procurement Information and Documentation: Filing 35. Procurement information will be recorded and reported as follows: (a) complete procurement documentation for each contract, including bidding documents, advertisements, bids received, bid evaluations, letters of acceptance, contract agreements, securities, related correspondence, etc., will be maintained by the implementing entities in an orderly manner and made readily available for audit; (b) Contract award information will be promptly recorded and contract rosters as agreed will be maintained by MDLF and participating municipalities; (c) Comprehensive quarterly reports by MDLF, indicating: (i) Status of ongoing procurement, including a comparison of planned and actual dates of the procurement actions, including preparation of bidding documents, advertising, bidding, evaluation, contract award and completion time for each contract; and (ii) Updated PPs, including revised dates, where applicable, for the procurement actions. I. Fraud, Coercion and Corruption 36. All procuring entities as well as bidders and service providers, i.e. suppliers, contractors and consultants, shall observe the highest standard of ethics during the procurement and execution of contracts financed under the program in accordance with paragraphs 1.14 and 1.15 of the World Bank Procurement Guidelines and paragraphs 1.22 and 1.23 of the World Bank Consultant Guidelines and with the Anti-Corruption Guidelines. 90 ANNEX 9: ECONOMIC AND FINANCIAL ANALYSIS WEST BANK AND GAZA: Municipal Development Program Overview 1. The program proposes to finance municipal sub-projects through the Municipal Development and Lending Fund (MDLF). MDLF will allocate funds to municipalities to finance their priority investment projects according to the conditions and processes laid out in Annex 4. 2. In MDLF's past operations, sub-projects application forms only required rudimentary information in relation to the economic and financial analysis of the sub-projects financed by MDLF. Municipal priorities are defined through a public consultation process. As part of municipal projects' appraisal process, MDLF staff checked whether the public consultation was held, whether the proposed program corresponds to one of the priorities identified, and whether program costs fall into the municipal allocation. However, even if the public consultation process leads to identifying priority problems to be solved, the chosen program approach does not necessarily solve the problems in the most cost effective way. 3. The program attempts to introduce the economic and financial analysis in MDLF's sub- projects appraisal to enhance the awareness and knowledge of municipal staff and MDLF technical unit on cost effectiveness and cost efficiency of the sub-projects. 4. MDP Phase 1 will be a testing phase of the methodology developed to assess cost efficiency of the MDP sub-projects. The MDLF's technical unit and the Local Technical Consultants will be trained to evaluate the projects using the methodology presented below (including templates for calculating economic returns). The methodology and templates have been developed to cover a wide range of projects. Projects will not be rejected on the basis of their Financial Rate of Return, their Economic Rate of Return or other thresholds for basic economic indicators. As this is a testing phase, the methodology does not account for the benefits of all possible sub-projects. However, if economic indicators not positively conclusive, MDLF will indeed seek further information/clarification. If not convinced of the economic soundness of the project, it might advise on different technical alternatives or a different project altogether that is more likely to yield higher benefits for the community. 5. The methodology developed is a work in progress and will be enhanced during the first months of implementation to cover more projects and account for the difficulties encountered during implementation. The economic analysis will also be reviewed at mid-term. The Economic and Financial Analysis in the Sub-Projects approval process 6. The sub-projects approval process is shown in Figure 1. The application forms are being updated to include a basic economic cost to benefit assessment based on the simplified methodology laid out below. The assessment will be done by the municipalities and screened by MDLF technical staff. When the project is costly (over 500000 USD), the municipality will perform a full economic and financial analysis and submit it to the MDLF as part of the application. When the program aims at generating revenues for the municipality, such as 91 construction of a public market, the municipality will submit a full financial feasibility study, which includes a demonstration for market appetite for the created service and financial projections. 7. The economic and financial analysis that will be performed for the projects costing more than 500,000 USD could be based on the methodology described in the "Handbook for Economic Analysis". It will enumerate then as accurately as possible estimate the full financial and economic costs and benefits of the sub-project. It will also compare life time net costs for different options and techniques in order to opt for the least cost and the most effective option. 8. The financial feasibility analysis will appraise market demand for the projected service and its market price. Based on this, it will propose a project size, then estimate comprehensive financial costs of the program, including investment and life time operations and maintenance costs. Finally, it will compare these costs to the projected revenues. A Sensitivity analysis to the main variables will be conducted for sub-projects costing 500000 USD or more. 92 Figure 1 Sub-Projects Approval Process Informs municipalities about their allocation and the negative list MDLF Organizes the community participationworkshopand proposea list of pre- Municipality identified projects Might add projects to the list established by the municipality, and Community prioritizes the projects The project is not technically feasible or is too expensivefor the municipality Screens the projects according to the priorities established by community Municipal technical staff (with for technical feasibility and first cost estimation LTCs support if needed) The project is technically feasible and its cost is within the municipal allocation Fills the application form which includes an assessment of the economic Municipal technical staff (with benefits of the project, and screening for environmentaland social issues that might trigger WB safeguards LTCs support if needed) Studies the application and might MDLF Rejectthe projectif: it is on the negativelist, its impact on peopleor the environment are unacceptable, or unreasonable economically Request further details if: the costing is not convincing, cost to benefit indicator outside the range for similar projects, uncertain impact on people or the environment, or documents are missing Give pre-approval and requests detailed studies if: the project cost is higher than 500000 USD (economic and financial analysis), environmental impacts are providedfor in the EMP, or the project is income generating (financial viability study) Or approve the project if: the costing is reasonable and within the municipal allocation, economic benefits are satisfactory to MDLF, and the project has no harmful impact on people or the environment Simplified methodology for sub-projects Economic and Financial Screening 9. A three months process based on review of World Bank and external documentation, extensive brainstorming with MDLF technical unit, consultation with the Palestinian municipalities, and collaboration with World Bank senior colleagues, lead to the elaboration of this simplified methodology. The methodology promotes basic techniques to analyze the projects 93 qualitatively and then estimate basic indicators to monitor economic outcomes and cost effectiveness. 10. The methodology developed includes questionnaires to be attached to the application form and excel templates that deliver the basic indicators if nurtured with adequate data. The methodology proposes to compare sub-projects' costs to their benefits using simple indicators. It also proposes to assess sub-project effectiveness. Finally, when different alternatives are considered, it helps deciding for the least cost alternative. 11. The economic and financial analysis takes into account direct and indirect costs and benefits: financial, social, environmental, or health related. Most municipal projects are small investments leading to broad social, economic and environmental costs and benefits that can hardly, or at a high cost be determined and accounted for. That's why it is advised not to set a threshold for economic indicators (EIRR, cost to benefit ratio, etc.) below which projects will be rejected, but to use judgment and the basic indicators to assess whether the benefits of the project are high enough to justify the costs. Getting to know the investment 12. To carry out the analysis, municipal technical staff have to answer the following questions: a. What is the objective of the sub-project? What will the sub-project finance? b. What will happen if the sub-project is undertaken? What if not? c. What is the problem that the sub-project is trying to address? d. What other solutions can solve the problem? e. Are other technical alternatives envisaged? f. What are the investment costs of the sub-project? g. What is the average maintenance cost for the sub-project over its life expectancy? h. What is the life expectancy of the sub-project? i. What are the direct revenues of the sub-project? Does the sub-project result in savings? j. What are the other expected benefits? Do they have a monetary value? k. How many people directly benefit from the sub-project? Are there secondary beneficiaries? Assessing the sub-project's effectiveness 13. The municipality will assess whether there is a real need for the sub-project. To do so, it will first determine the needs for the sub-project generated service (hours of waste truck collection, public market, etc.) within the municipal boundaries. Then, it will estimate the level of existing service. Finally it will propose to fill in the gap without excess. Carrying out the financial analyses 14. Financial costs of the sub-project include: investment costs and operation and maintenance costs over the life cycle of the sub-project. Operation and maintenance costs should be estimated even if they will not be paid by the municipality. 94 · Not all municipal projects have direct financial benefits, but some of them do. When direct financial benefits such as a rent, or a user fee exist, they should be estimated, and then taking into account. Some projects also result in savings; these should be regarded as benefits, or revenues. · All costs and benefits do not incur at the same time. That's why delayed costs and benefits are discounted. The World Bank usually takes a 10% discount factor. · The present value of the net financial benefits of the sub-project (FNPV) is the sum of the discounted benefits and costs of the sub-project over its life period. · The Financial Internal Rate of Return (FIRR) is the discount factor that generates an FNPV equal to zero. The higher this value is, the better financially the project is. 15. When different alternatives are considered, FNPV and FIRR of each alternative will be estimated and compared to each other. The least cost method is the one resulting in a higher Net Present Value or a high Financial Internal Rate of Return. 16. If the sub-project aims at generating revenues, it should be further considered only if the FIRR is higher than 15%. Comparing economic costs to benefits 17. Some projects have indirect costs and benefits: those paid or saved by other stake holders. These are not taken into account in the financial analysis, and might include health costs or benefits that affect people living in the sub-project vicinity, or protection of the environment, or social effects. · At the preliminary screening stage, it is difficult and time consuming to account for all costs and benefits. However, it is easy to put a monetary value on some of these outcomes. When this is feasible, all costs and benefits of the sub-project, including direct and indirect ones should be estimated. · The present value of the net economic benefits of the sub-project (ENPV) is the sum of the discounted, direct and indirect benefits and costs of the sub-project over its life period. · The Economic Internal Rate of Return (EIRR) is the discount factor that generates an ENPV equal to zero. The higher this value is, the better economically the sub-project is. 18. When different alternatives are considered, ENPV and EIRR of each alternative will be estimated and compared to each other. The best economic option is the one resulting in a higher Net Present Value or a higher Economic Internal Rate of Return. 19. If the municipal engineer considers different solutions to the problem identified as a community priority or different technical options, the economic analysis should help choose the best alternative. This will be possible if the engineer gathers simple data for each alternative solution, enter them in the excel template provided and then push the "calculate FIRR" and 95 "calculate EIRR" buttons, register the FIRR or EIRR and compare the indicators between the different solutions considered. If there is no alternative, then he does the procedure only once. Monitoring Costs to Benefits indicator 20. Because not all the effects of the sub-project are easily integrated in the economic and financial analysis as described above, an additional indicator (the Net Cost per Beneficiary) will be used. It allows getting a sense of the benefits of the sub-project, if not a full description. This indicator is measured by dividing the net costs of the sub-project (costs ­ benefits) in present value terms into the number of beneficiaries. In sub-projects where there are direct and indirect beneficiaries, the number of indirect beneficiaries is attenuated. The attenuation factor reflects the benefits indirect beneficiaries derive from the sub-project compared to the benefits of the direct ones. 21. MDLF technical staff will compare the indicator for each proposed project to a database of the same indicator for similar projects. MDLF technical unit will request further information and details if the indicator does not fall within between the first and third quartiles. MDLF staff might approve the sub-project if they are fully convinced that it will benefit the population, or request a detailed analysis, or advise municipal staff on alternatives to enhance economic benefit of the sub-project. Illustrations Analysis 1: Roads' rehabilitation project - Rehabilitation of Qalqiliya internal roads The project 22. The primary objective of the project is to enhance pedestrian and motorized movement within the city, which, in its current state, is negatively affecting urban productivity. The project will finance rehabilitation of 5 street sections with a total length of 1.77 km, representing 4.4% of the total size of the streets in the municipality. The project is expected to enhance the quality of life in the neighborhood of the rehabilitated streets while decreasing travel time for road users, saving in vehicle maintenance, reducing traffic jams and accidents, and improving neighbors' health thanks to reduction of dust. If the project is not undertaken, in the long run serious degradation will occur to the roads proposed for rehabilitation affecting both local economic activities and the city's tax base. 23. The municipality is facing a reduced quality of movement within its vicinity, that's why it is undertaking this project. To address this issue in a sustainable manner, the municipality can routinely maintain its streets. Unfortunately, in the current economic situation, this is not usually done by Palestinian municipalities where revenues are volatile. 24. Only one technical option is currently envisaged for this kind of projects in West Bank. It is a standard technique, using base course and asphalt. Costs and Benefits The expected cost of the project is 208303.5 USD. 96 · Maintenance costs are estimated as percentage of the investment costs. 3% reflects the average maintenance costs over the life period of the project. · The project will not generate direct fees but indirect revenues to the municipalities through the increase in property value, and commercial activity. However, it is difficult to estimate these revenues. · This is a typical service project as it has broad benefits. Although some of these effects have a monetary value, it is hard to estimate it within the scope of a municipal project appraisal. In this case, it is not possible to carry out a full economic analysis. · The useful lifetime of the investment is expected to be 15 years. Results of the projection: Present value of costs of the project Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 2083 Investment 04 624 624 624 624 624 624 624 624 624 624 624 624 624 624 Maintenance 9 9 9 9 9 9 9 9 9 9 9 9 9 9 2083 568 516 469 426 388 352 320 291 265 240 219 199 181 164 Discounted 04 1 5 5 8 0 7 7 5 0 9 0 1 0 6 2543 NPV 39 Beneficiaries · The number of direct beneficiaries of the project is the sum of the direct beneficiaries of each of the rehabilitated sections. The latter is estimated using the following formula: Direct beneficiaries of the rehabilitated street = Municipal Population * % of rehabilitated street * amplification factor Where: - % of rehabilitated street is the length of the rehabilitated street compared to the total length of roads in the municipality. - The amplification factor translates the importance of the street. It is the highest of the following: o If the road is a city entrance: 1/(number of entrances of the city)/ (% of rehabilitated roads). Indeed, if the city has three entrances, approximately the rehabilitated street will benefit 1/3 of the population. o If the road is a main road: 50% of the number of secondary roads crossing it. Indeed, part of those who take the secondary road will also use the main road. o If the road is bordered by households: 1.15. Indeed, households living in the street as well as visitors (15%) will use the street. o If the street is bordered by three shops or more: 1.5. Indeed, we can estimate that some of the neighbors will do their shopping in the street. 97 o If the street borders a public facility (school, health center, police station, commercial mall, etc.): 2 o If the street borders two public facilities: 3 o If the street borders three or more public facilities: 4 25. The number of beneficiaries in the project under study could not be estimated using the above formula because of lack of adequate data. Indeed, data available shows that some of the five streets sections are bordered by public facilities and shops, and others are sections of main roads, but the information is not broken down on each street section. As an approximation, we may estimate that on average, the amplification factor is 3. Number of beneficiaries: 6072 Net cost (NPV) per beneficiary = 42 USD. Investment cost per beneficiary = 34 USD Conclusion 26. MDLF will store the data of the main cost / benefit ratios in tables. If the investment cost per beneficiary of the analyzed project is substantially different from the average of the stored values for similar projects (ie it is not between the first and third quartiles of the stored values' distribution), further explanations will be asked from the municipality, and if those are not satisfactory, a field visit could be conducted. Analysis 2: Joint Services Council (JSC) building in South East Nablus The project 27. The project aims at providing a building for the Joint Services Council for Howwara, Beita and three rural councils. The JSC used to rent a building in the city of Howwara. Constructing a new building aims more at giving a political signal than at lodging the JSC. Indeed, talks are that the municipalities and the rural councils are going to merge into one municipality. The project is constructing a building big enough to host all services of the projected new municipality, but while waiting for the merge to become effective, spare space will be rented for other administrative use. 28. The project will finance a three floors building of approximately 460 Sqm each. One floor will be solely used by the JSC while the two others will be shared by the ministry of interior, the ministry of public health, the ministry of social affairs, and the Palestinian Red Crescent. When the merge between municipalities and rural councils occur, the building will be solely used for the benefit of the new municipality. 29. If the project is not undertaken, the JSC will go on renting a building to lodge its activities. However, this does not give the same political signal. Direct costs and Benefits 98 · The investment cost is 320000 euros. · Annual maintenance costs are estimated at 1.5% of the investment costs. · The project will generate revenues through the rent of the spare space. The rent is 2000 Jordanian dinars per year for each of the four spaces. · The project will also save rent for the JSC. The rent of an equivalent space is 4000 JDs per year. · The life expectancy of the building is 50 years. present value of costs of the project (EUR) Years 1 2 3 4 5 6 ... Investment -320000 Maintenance -4800 -4800 -4800 -4800 -4800 ... Revenues 12600 12600 12600 12600 12600 ... Savings 4200 4200 4200 4200 4200 ... Discounted costs -320000 10909 9917 9016 8196 7451 ... NPV -201124 FIRR 2.76% 30. The net present value of the project is negative. Even if the project generates revenue and savings, these do not cover the costs of the project. The financial rate of return is also very small. However, this analysis does not take into account the political benefit or the diffused economic benefit. Indirect costs and benefits 31. The building is situated in an area between the two biggest municipalities (Howwara and Beita). The area is classified as a rural one in the urban plan, which means that construction is constrained and land price is low, at approximately 1 JD per square meter. The construction of the JSC building in this area will give a signal that the area will become part of the urban plan. Even if the area is not yet within the plan, and construction is still constrained, speculation will lead to a significant raise in price, up to 3 JDs in a 500 meters buffer around the building. 32. The presence of the administrative building in that area will create a new dynamic. So far, the area has a low activity, but when an important administrative building is established, a consequent number of citizens will visit the area. This will create a higher demand for transport and will generate better transport supply for the buildings' neighbors. As a consequence of the new dynamic, new shops will open to serve the higher number of visitors. This new dynamic is important and will benefit a number of people. However, it is difficult to put a monetary value on such benefit. 99 Economic analysis (Eur) Years 1 2 3 4 5 6 7 8 ... Investment -320000 ... Maintenance -4800 -4800 -4800 -4800 -4800 -4800 -4800 ... Revenues 12600 12600 12600 12600 12600 12600 12600 ... Savings 4200 4200 4200 4200 4200 4200 4200 ... increase in land value 221870 ... Discounted costs -98130 10909 9917 9016 8196 7451 6774 6158 ... NPV 20745 EIRR 12.2% 33. The economic net present value is positive, and the economic rate of return is 12%. Even if it was not possible to include all benefits to the society, the project appears as economically sound. Beneficiaries 34. The project will benefit the JSC and other administrations that will use it, and through them, it will benefit all the citizens of the served areas, which is a total number of 21000 inhabitants. However, since citizens don't visit the building often, the benefit they get from it will be attenuated using a 20% factor, reflecting the importance of the building for the citizens. 35. The building will also create permanent jobs at a supermarket that will directly benefit at least one person, better transport supply for all the neighbors (no more than 200 persons). These categories of beneficiaries are difficult to estimate accurately and their number can be neglected in comparison to the number of citizens benefiting from the project. Number of beneficiaries is 4200. Investment cost per beneficiary 76 EUR NPV per beneficiary 48 EUR Conclusion 36. The proposed project could not be financed if only justified on financial grounds, as revenues generating project. However, it yields many economic benefits, some of which are measurable and some aren't. The economic rate of return is 12%, which is acceptable. The project could eventually finance a smaller building, to cover only the immediate needs of the JSC, which would reduce costs. However, since it is expected that these needs will increase in the near future, it seems reasonable to finance a building able to host the future municipality's activities. 100 Analysis 3: Procurement of Solid Waste Containers for Azzuon municipality The project 37. The objective of the project is to enhance solid waste management within the municipality of Azzuon. The existent containers are not sufficient to cover the needs of the inhabitants and it is usual to see waste accumulated outside containers, thus creating health hazard for inhabitants and contaminating the soil and the underground water. The project proposes to procure 80 new containers with a capacity of 660 L each for the municipality that currently has 60 containers. 38. The municipality is faced with the problem of accumulated waste outside the designated containers. Is procuring new containers the best solution to the problem? On average, one person in West Bank produces 1 kg of waste per day. This will be amplified by 30% to reflect volatility in waste production. Waste compaction factor is 0.6 L/kg. Azzuon municipality is 8000 inhabitants' municipality. Waste is collected Thursdays, Saturdays and Tuesdays in the vicinity of the municipality. The longest period during which waste accumulates is 3 days. The total number of containers needed in the municipality is 79, which makes for an additional 20 containers and not 80. The project is not adequately designed to solve the problem faced by the municipality. 39. The reasons for the problem faced by the municipality are not clear. The municipal staff assumes that lack of containers is the problem. However, accumulation of waste in undesignated areas might be due to the way containers are geographically distributed, not taken into account density of the served neighborhoods, or too far from each other. A multiple range of solution can be envisaged to solve the problem efficiently. This ranges from purchasing smaller containers to densifying their presence in the municipality to adoption of a new collection system based on primary collection from the houses. There is no mention of these alternatives being envisaged in the project under consideration. This clearly demonstrates the interest of the economic and financial analysis. 40. For the purpose of the exercise, the analysis will be carried out further, assuming that the 80 containers proposed to be procured are needed in the municipality. Direct costs and benefits 41. The investment cost of the project is 21125 USD. 42. No maintenance and operation costs are estimated, the containers are however cleaned by the municipality and supposedly repaired when needed. Maintenance costs are estimated at 3% of the investment costs. 43. Procurement of new containers is a visible action for which citizens will be thankful to the municipality. This allows the municipality raising waste management fees to 12 NIS per household per month, from a non specified baseline. The raise is assumed to be 1.5 NIS. Enhancing solid waste management will create higher satisfaction level from the households, which reflects on the level of fees collected. It is assumed that 5% more citizens will pay their 101 waste management fees, raising the fee collection rate from an unknown level, assumed to be similar to other municipalities in West Bank (40%). Financial Analysis Year 1 2 3 4 5 investment costs -21125 maintenance costs -634 -634 -634 -634 Revenues 4800 4800 4800 4800 Discounted costs -21125 3788 3443 3130 2846 NPV -7919 FIRR <0% 44. The financial net present value of the investment is negative, and it would remain negative even if the discount factor was null. This does not imply that the project should not be financed. Indeed, such project, if there was a real need justifying it, yields benefits on human health, environment, particularly quality of soil, odors Indirect costs and benefits 45. If the project is successful, waste will not be spread across the municipality but contained in the new containers. The project will enhance the quality of life in the city. It will also improve the citizens' health, reduce nuisance from solid waste and positively impact the environment. These effects are important and increase the attractiveness of the city, but are hardly measurable. Beneficiaries 46. The project will benefit all the citizens of the municipality and particularly those living in areas under served by the existent containers. If we suppose, for the purpose of the exercise, that 8000 citizens need 140 containers to appropriately manage the generated waste, we can assume that one container serves 57 individuals. The 80 new containers will benefit 4571 individuals. 47. The investment cost per beneficiary is 4.6 USD. Conclusion 48. Even if spread waste nuisance was identified as a major problem after the public consultation, the proposed solution is not adequate to solve the problem. MDLF should advise the municipality on better ways to spend their allocation to increase the benefits for the citizens. 49. The financial rate of return of the project is negative. This does not imply that the project should not be financed. Indeed, such project, if there was a real need justifying it, yields benefits on human health, environment, including soil, aquifers and air, and the well being of the citizens. It is the municipality's role to provide these public goods even when they are not financially justifiable. 102 Analysis 4: Rehabilitation and Extension of Waste Water network The project 50. The project aims at enhancing quality of life in the municipality through the improvement in sewage collection infrastructure. The project will finance replacement of 790 meters of old pipes and construction of 755 meters of new ones, and thus connecting or enhancing the connection for 120 buildings. The life expectancy of the project is 30 years. 51. If the project is undertaken, households that are currently connected to defective pipes will enjoy better sewage system. Households that were not connected will be connected and will have a sewage collection system. If the project is not undertaken, some households will continue living with bad sewage system while others will have to deal with the septic tank. 52. Households within the municipality have to live with a defective sewage network, and other households are not even connected to a sewage system. To face this problem, the municipality might repair the network and connect non connected households, which it is proposing to do. It can also encourage households to have their own septic tank, which would be less costly for the municipality, but will generate higher operation cost for inhabitants in the future. This solution might also result in health and environmental hazard if households that are supposed to have an impermeable tank, equip their houses with a permeable one, so they don't have to pump them often. This leads sewage to infiltrate the soil and pollute ground water resources. 53. The needs in terms of rehabilitation and new connections exceed the amount of funding available. The way the balance between rehabilitation and new connection is done is not clear. Similarly, it is not possible to understand what drives the choice of the pipes' size. Direct costs and benefits 54. The costs of the investment are 110000 euros. 55. Maintenance costs are assumed to be 3% of the investment costs. 56. The newly connected households will pay 50 Jordanian Dinars for the connection in addition to 50% of the cost of linking them to the main network. The project is only financing the extension of the main network, but not the link between the network and the household, which will be partly financed by the municipality and partly by the households. It is assumed that the 50 JDs for connection fees are paid for the extension of the main network. The buildings are assumed to have 4 floors and eight households per building. Half of the connections are assumed to be for newly connected households, which makes 480 households. The revenues are then equal to 24000 JDs. 103 57. The Net Present Value of the benefits of the project is -103805 EUR. Indirect costs and benefits 58. The project will not only enhance the quality of life within the city while limiting odors, but it will also seriously and positively impact health conditions for households that were connected to a defective sewage network. The project will also allow improved protection of the environment while replacing permeable septic tanks with pipes. These outcomes are hardly measurable. Beneficiaries 59. The project will benefit the newly connected households: 480 households, which makes 3360 persons for an average of 7 persons per household. The project will also benefit the households that were connected to the defective network, which makes 3360 households. The total number of beneficiaries is 7056. NPV per beneficiary 15 EUR Investment cost per beneficiary 16 EUR Jobs created 60. The project will create 1000 man day of temporary work during construction phase. Conclusion 61. MDLF will maintain a data base of the main cost / benefit ratios. If the investment cost per beneficiary of the analyzed project is substantially different from the average of the stored values for similar projects (ie it is not between the first and third quartiles of the stored values' distribution), further explanations will be asked from the municipality, and if those are not satisfactory, a field visit could be conducted. 104 ANNEX 10: SAFEGUARD POLICY ISSUES WEST BANK AND GAZA: Municipal Development Program 1. The objective of the EMP is to cater to the environmental and social needs of the MDP in a simple, responsive and cost effective manner that will not unnecessarily overload or impede the program cycle. The EMP outlines the measures needed to address the issues identified in the EA, proposed monitoring activities that encompass all major impacts and identify how they will be integrated into program supervision. This EMP has been prepared based on analyzing/auditing a sample of sub-projects financed under EMSRPI and updated to cater for the experience MDLF has gained during the implementation of EMSRPII. The sample represents in general the types of sub-projects and sectors that MDP will finance and their anticipated impacts and identified mitigation measures. 2. To avoid adverse impacts on physical cultural resources that might result from the proposed investments/sub-projects, the MDLF will not finance any sub-project that might trigger those policies. However, the EMP includes a provision to deal with a chance find in any of the sub- projects implemented. MDLF will also not finance sub-projects including proposed investments which would cause any issues that could trigger OP 4.12 (involuntary resettlement, including for example, loss of livelihood or income). In addition, any sub-project with significant environmental impacts and classified as category "A" according to OP 4.01will not be funded through this Program. Table (1) presents the assessment of potential risks of projects in different sectors that are potentially funded through the MDP program. Table 1: Safeguard risks expected by the MDP investments High risk Low risk No risk MDP investments Education X · Construction of classrooms X · Teacher housing X · Fencing x · Provision of classroom furnishings x · School supplies and medical kits x · Laboratories X · Sports fields/recreation facilities x · Functional adult literacy activities Water Supply x · Water point rehabilitation X · Tertiary distribution piping X · Rehabilitation of wells and springs x · Spring protection x · Community reservoirs X · Drainage canals x · Water harvesting facility x · Water treatment plant (house and community units) 105 High risk Low risk No risk MDP investments X · Hand pumps and mechanized boreholes X · Gravity water schemes Sanitation and Waste Management X · Washing facilities X · Public toilets/ pit latrines x · Sewerage facilities and collection x · Sewage treatment units X · Soak pits and septic tanks x · Waste disposal facility x · Solid waste landfill x · Wastewater systems Health x · Construction of health centers x · Healthcare waste management x · Dispensaries x · Emergency rooms x · Maternity clinics x · Health control centers x · Laboratories Transportation, Communication and Energy X · Tertiary and secondary level roads x · Primary level culverts and bridges X · Footpaths X · Rural telephone X · Rural electrical distribution X · Retaining walls 3. The negative impacts of the proposed MDP projects can be minimized by addressing mitigation measures during construction and post-construction operation phases. Table 2 presents matrices detailing the environmental and social impacts typically associated with the type of projects, and lists the mitigation measures proposed to be implemented during and after the construction of the projects. 4. The EMP also includes specific guidelines as mitigation measures for safe handling of the pests and management for the insects and rodent control. These guidelines have been authorized by the Palestinian Ministry of Health. The EMP has also included some mitigation measures and management plan prepared by the Palestinian Energy Authority (PEA) that should be considered while using transformers that contain PCBs. 5. Environmental Screening would take place at an early stage of the MDP sub-project cycle and the screening and review process will be conducted by the Environmental Specialist at MDLF. A standard appraisal and mitigation matrix will be part of the specific specifications for the contractor, and will form the basis of regular monitoring. The EMP matrix consists of sectors, phase, and potential environmental impacts, if any, due to the program, mitigation measures, operation and supervision. 106 6. The Program will to be carried out with in accordance with the World Bank's safeguards rules and procedures. The MDLF will have the responsibility of reviewing and assessing the environmental feasibility of the proposed sub-projects. This will be carried out by the MDLF team who has prior experience from previous projects including EMSRP I and EMSRP II but will receive additional environment specific training during the life of the program. The MDLF team will also liaise with key stakeholders including EQA and the recipient municipalities. The team will also liaise with the appropriate officials from the Department of Antiquities at the Ministry of Tourism and Antiquities where needed. MDLF will ensure to conduct public consultation and those municipalities, NGO's, and any other public forums will observe a proper public participation process in the preparation phase of the sub-project/s to inform the public about any possible adverse environmental effect and to obtain their approval once the necessary mitigation measures have been considered. 7. An environmental audit of a sample of implemented sub-projects will be carried on an annual basis by specialized consulting firms recruited by the MDLF and financed by the program. This consultant will also assess the MDLF team capacity and performance and recommend areas that need further strengthening. 8. The cost associated with implementing the EMP (Table 3) and monitoring of environmental safeguards is accommodated by the program and estimated at US$249,900. The program will finance as part of the MDLF's management fee the remuneration of an environmental specialist as a member of its core team. While, the cost of related designs, clean up and disposal of construction debris and waste will be included in the sub-project contract financed by the Grant. This is estimated to cost on average around 3-5% of the municipal grants. The cost of supervision and monitoring the EMP as well as the proposed training programs addressed to municipal staff and eligible contractors will be part of the Terms of Reference of the Local Technical Consulting firms (LTC) to be contracted by the MDLF for the entire life of the MDP. The Terms of Reference of these firms will be developed by the MDLF and will be sent to MDP donors to obtain their approval. The LTC will report on semi-annual basis the compliance with the EMP and recommend actions for non-compliance cases. The costs associated with implementing post construction measures will be financed through the annual municipal budgets for operations and maintenance of assets and infrastructure. During the supervision missions, the donor's team will review at random a sample municipal budgets and confirm that such budget include specific line items for post program mitigation measures. Table 2: Environmental Impacts, mitigations, and monitoring plan. Sector Phase Impact Mitigation Measure Implementation Monitoring Road Sub- Constructi Dust generated by Monitor the excavations. Contractor MDLF/LTC Projects on construction activities. Applying (spraying) water where possible. Avoid work during windy days. Proper activity scheduling and Contractor MDLF/LTC working hours and days. Increasing the concentration Proper scheduling and working Contractor MDLF/LTC of pollutants and noise. hours and of any risky activities. Municipality 107 Sector Phase Impact Mitigation Measure Implementation Monitoring Increase the risk of accidents Traffic regulation signs and Contractor MDLF/LTC during construction. Traffic calming measures. Municipality Use signs to control speed limit. Contractor MDLF/LTC Municipality Provision of adequate notification Contractor MDLF/LTC procedures for any road closures Municipality Loss of aesthetic features Monitor the using of safety Contractor MDLF/LTC due to illegal dumps. measures. Dump at proper and approved Contractor MDLF/LTC sites. Potential accidental break of Survey of existing facilities Contractor MDLF/LTC other water lines and other during the design. utilities. The contractor consults relevant utilities, agencies or companies. Construction waste Proper plans for disposing off Contractor MDLF/LTC generated. construction waste including waste generated from used machinery (used oil) to be included in the contract documents. Due to obstruction, traffic Monitor the use of traffic signs, Contractor MDLF/LTC concentration will be safety measures and tools. transferred to other streets causing traffic congestions. Post- Long-term traffic increase. Traffic signs to reduce the traffic Contractor Municipality constructi (one-way sign) and traffic on calming signs. Increase the risk of Traffic regulation signs and traffic Contractor Municipality accidents. calming measures. MDLF/LTC Cumulative increase in dust Control the traffic speed. Contractor Municipality and gas emissions because of Maintain vegetation cover. more traffic movement. Regular checks of vehicle. Maintenance of new assets Prepare an annual maintenance Contractor Municipality (roads and associated plan as well as setting an wastewater and storm allocation for the necessary drainage networks) financial resources in the annual budget. School Constructi Dust generated by Monitor the excavations. Contractor MDLF/LTC and Health on construction activities. Applying (spraying) water where facilities possible.Avoid work during windy days. Sub- projects Increase the risk of Proper scheduling of any risky Contractor MDLF/LTC accidents. activities. Traffic signs to ensure proper Contractor MDLF/LTC routing and distribution of traffic. Construction waste Clear site management plans and Contractor MDLF/LTC generated and left in site. dumping at proper and approved sites Improper disposal of Ensure that the facilities are Contractor MDLF/LTC generated waste. connected to either wastewater network and if not available to a septic tank that is regularly maintained. 108 Sector Phase Impact Mitigation Measure Implementation Monitoring Post- Loss of aesthetic due to the Design of landscaping around the Contractor Municipality constructi increase in built-up areas. facility. on Noise around the facility by Traffic regulation signs and traffic Contractor Municipality traffic movement. calming measures. Improper disposal and pile Cleaning and removal of wastes Contractor Municipality up of construction wastes to landfills or designated areas. Inadequate functioning of Ensure systematic maintenance of Contractor Municipality the wastewater collection the network/septic tanks. system. Maintenan Constructi Increasing the concentration Proper scheduling and monitor of Contractor MDLF/LTC ce of on of pollutants, noise and odor. any risky activities. water, wastewate Dust generated by r, storm construction activities. drainage Disturb the features. networks Increase the risk of disease Monitor the using of safety Contractor MDLF/LTC measures and tools. Loss of aesthetic features Proper plans for disposing off Contractor MDLF/LTC due to illegal dumps. broken pipes, manholes and other waste to be included in the contract documents. Construction waste Clear site management plans and Contractor MDLF/LTC generated. dumping at proper and approved sites Post- Regular maintenance of Monitor the clogging or breakage Contractor municipality constructi networks in the network and respond on immediately to maintain it. Ensure that disposal of wastewater is done properly. Road Constructi Risks during maintenance Maintenance activities should be Contractor MDLF/LTC Lighting on activities (electric shocks, carried out in off-peak periods. and/or fallen objects, cutting wires). Furnishing Sub- projects Electricity cut off due to Follow safety measures and Contractor MDLF/LTC maintenance activities. conditions. Post- Electricity poles hinder the Relocate electricity poles. Contractor municipality constructi movement and traffic. on The cables, which are very close Contractor municipality to houses, should be replaced and insulated. Routine checks to installed poles. Municipality Municipality Maintenan Ensure the follow up of proper Municipal MDLF/LTC ce and procedure of disposal of Maintenance Replaceme transformers especially those with Department nt of PCBs content. Project a. the transformers should be Electric Negative impact on ground Implemen water. cased off tightly in a non Transform degradable plastic bags and tation ers land-filled in the approved locations by the municipality. b. Procurement of all new transformers should be non- 109 Sector Phase Impact Mitigation Measure Implementation Monitoring PCBs to the extent that the market provides alternatives at competitive cost. Use of Project Negative impacts on human Ensure that only WHO approved Municipality MDLF/LTC Pesticides Implemen health especially those with pesticides is used. tation Asthma or due to over dose application. Ensure that residents are alerted in Municipality MDLF/LTC advance on the location and timing of spaying the pesticides. Application should be carried out Municipality MDLF/LTC during low activity hours. Ensure that pesticides are Municipality MDLF/LTC packaged, labeled, handled, stored, disposed of, and applied according to standards acceptable to the Bank. 1 Uncovered Accidental Stop construction activities. Contractor MOTA & Historical excavation Immediately notify Ministry of MDLF/LTC and of cultural Tourism and Antiquities. Cultural heritage Heritage and Assets archaeologi cal assets. Table 3: EMP Cost Estimate: Activity Quantity Unit Rate in US$ By Whom Total in US$ 1) Environment Specialist at 36 1,800/month MDLF 64,800 MDLF (Will be part of the MDLF management fee) 2) Capacity Building and Training 10 3,000 LTC/MDLF 30,000 (workshops) 3) Environment Assessments for 20 5,000/assessment Municipalities 100,000 sub-projects where needed (local consultancy) 4) Random Environmental Audits 3 15,000/year LTC 45,000 through consulting firm 5) Miscellaneous 10,000 MDLF 10,000 Total 249,800 110 NOTE: The above budget is exclusively devoted to environmental monitoring. Items 1 and 5 will be part of the MDLF's budget while Items 2, 3 and 4 will be part of the TORs for the Local Technical Consulting firms (LTC) who will be contracted by the MDLF for the life of the program. Cost of design and implementation of mitigation measures will be financed from the grants issued to the municipalities and not from the above budget. It is estimated that such costs would be on average around 3-5% of the municipal grants. 111 ANNEX 11: PROJECT PREPARATION AND SUPERVISION WEST BANK AND GAZA: Municipal Development Program Planned Actual PCN review 10/06/2008 10/06/2008 Initial PID to PIC 10/10/2008 10/14/2008 Initial ISDS to PIC 10/14/2008 11/24/2008 Appraisal 06/22/2009 06/22/2009 Negotiations 07/21/2009 07/21/2009 Board/RVP approval 09/17/2009 Planned date of effectiveness 10/22/2009 Planned date of mid-term review 01/10/2011 Planned closing date 04/30/2013 Key institutions responsible for preparation of the program: · Municipal Development and Lending Fund Financing Partners AfD KfW Denmark Netherlands GTZ Sweden Bank staff and consultants who worked on the program included: Name Title Unit Meskerem Brhane Sr. Urban Development Specialist (TTL) MNSUR Lina Abdallah Operations Officer MNSUR Khalida Qutob Program Assistant MNC04 Sabine Beddies Sr. Social Scientist MNSSO Lamis Al Jounaidi Junior Professional Associate MNSTR Afaf Abbasi Procurement Specialist MNAPR Lina Tutunji Procurement Specialist MNAPR Ahmed Merzouk Sr. Procurement Specialist MNAPR Suhair Musa Financial Management Specialist MNAFM Deepali Tewari Sr. Municipal Development Specialist, MNSUR Mario Zelaya Municipal infrastructure, Consultant MNSSD Hernando Garzon Municipal Finance Consultant MNSSD Samira Hillis Operations Officer MNSSP Zeyad Abu-Hassanein Sr. Infrastructure Specialist MNSSD Bank funds expended to date on program preparation: 1. Bank resources: US $120,383.96 2. Trust funds: PHRD Grant, recipient executed, US$ 495,000 Estimated Approval and Supervision costs: 3. Remaining costs to approval: $52,616.04 4. Estimated annual supervision cost: US$85,000 112 ANNEX 12: DOCUMENTS IN THE PROJECT FILE WEST BANK AND GAZA: Municipal Development Program 1. Aide Memoire: Midterm Review Mission for EMSRPII, World Bank, March 10-19, 2008 2. Aide Memoire, Identification Mission for MDP, World Bank, July 14 - 24, 2008 3. Implementation Concept: Capacity Building Under MDP Window 3, Frank Samol, Consultant ­ GTZ-LGP, Municipal Development and Lending Fund, February 20, 2009 4. Electricity Arrears Study, MDLF, Hernando Garzon, January 2009 5. Environmental Management Plan for the Municipal Development Program, MDLF, May 10, 2009 6. Grant Allocation Mechanism And Ranking of Municipalities Based On Management Performance: Implementation Manual, Hernando Garzon, MDLF Consultant, February 2009 7. Gaza Early Recovery and Reconstruction Plan, Ministry of Planning, Palestinian National Authority, March 2nd, 2009 8. Gaza Municipal Damage Assessment Report, MDLF, February 2009 9. HR Development Plan and Strategic Plan, MDLF, 2008 10. Joint Pre-Appraisal Mission Aide Memoire, MDP, World Bank, October 13-24, 2008 11. Local Government Diagnostic Report, UNDP, 2004 12. Local Government Reform Action Plan, UNDP, 2005 13. Draft Memorandum of Understanding between the Financing Partners of the MDP and the PA, June 15, 2009 14. MDLF Decree, Decree No. 32/36/09, Council of Ministers, October 20, 2005 15. MDLF Decree, Council of Ministers, Palestinian National Authority, August 2007 16. MDLF Financial Management Capacity Assessment Report, World Bank, May 2009 17. MDLF Procurement Capacity Assessment, World Bank, May 2009 18. MDLF Training Needs Assessment and Plan, MDLF, September 2008 19. Municipal Finance Study ­ Preliminary Findings, World Bank, 2009 20. Palestinian Reform and Development Plan, 2008-2010, Ministry of Planning, Palestinian National Authority 21. Strategic Development and Investment Plan (SDIP) for Palestinian Local Government Units, Draft for discussion, Ministry of Local Government, Palestinian National Authority, March 2009 22. Update on Major Interventions in the Local Governance Sector since 2004, Horizon for Sustainable Development/UNDP, March 2009 23. West Bank Gaza: Intergovernmental Fiscal Relations and Municipal Finance Policy Note, World Bank, June 2006. 24. MDPOperations Manual (Technical, Procurement and Financial Management Aspects) 25. Environmental Management Plan (EMP) 26. Joint Technical Mission Aide Memoire 27. Guidelines on Community Consultation 28. Local Councils Law No. 1, 1997, Palestinian Authority 29. Movement and Access Restrictions in the West Bank: Uncertainty and Inefficiency in the Palestinian Economy; World Bank, 2007 30. Potential Alternatives for Palestinian Trade: Developing the Rafah Trade Corridor, World Bank, 2007 113 31. Socio-Political Structures, Development, and State-Building in West Bank and Gaza." Draft report. World Bank, 2006, 32. The Political Economy of Policy Reform ­Issues and Implications for Policy Dialogue and Development Operations (Report No. 44288-GLB), World Bank, SDV, 2008 33. Assessment of Restrictions of Palestinian Water Sector Development (Report No. (Report No. 47657-GZ), World Bank MNSSD, 20091. 34. Demographic and Socioeconomic Status of the Palestinian People at the end of 2006 Palestinian National Authority - Palestinian Central Bureau of Statistics 2006 35. Economic Effects of Restricted Access to Land in the West Bank; World Bank, 2008 114 ANNEX 13: STATEMENT OF LOANS AND CREDITS WEST BANK AND GAZA: Municipal Development Program Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd Total: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 WEST BANK AND GAZA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1994 APIB 0.00 1.87 0.00 0.00 0.00 1.87 0.00 0.00 1997 Arab Bank 0.00 0.00 0.03 0.00 0.00 0.00 0.03 0.00 1997 ComBank Palestin 0.00 0.00 0.01 0.00 0.00 0.00 0.01 0.00 1997 Jordan National 0.00 0.00 0.18 0.00 0.00 0.00 0.18 0.00 1997 PIEDCO 1.00 0.10 0.00 0.00 1.00 0.10 0.00 0.00 1999 PMHC 0.00 1.33 0.00 0.00 0.00 1.30 0.00 0.00 1998 PTF 0.00 8.05 0.00 0.00 0.00 0.00 0.00 0.00 1998 PTF-Mgt Co. 0.00 0.16 0.00 0.00 0.00 0.00 0.00 0.00 1999 PTIC 0.00 0.05 0.00 0.00 0.00 0.05 0.00 0.00 1997 SEF Arab Concret 0.80 0.00 0.00 0.00 0.80 0.00 0.00 0.00 1999 SEF JerichoMotel 1.10 0.00 0.00 0.00 1.10 0.00 0.00 0.00 Total portfolio: 2.90 11.56 0.22 0.00 2.90 3.32 0.22 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. Total pending commitment: 0.00 0.00 0.00 0.00 115 ANNEX 14: COUNTRY AT A GLANCE WEST BANK AND GAZA: Municipal Development Program We s t M . East Lo we r- P O V E R T Y a nd S O C IA L B a nk & N o rt h m iddle - D e v e lo pm e nt dia m o nd* & G a za A f ric a inc o m e 2007 P o pulatio n, mid-year (millio ns) 3.9 313 3,437 Life expectancy GNI per capita (A tlas metho d, US$ ) .. 2,794 1,887 GNI (A tlas metho d, US$ billio ns) .. 876 6,485 A v e ra ge a nnua l gro wt h, 2 0 0 1- 0 7 P o pulatio n (%) 3.7 1.8 1 .1 GNI Gro ss Labo r fo rce (%) 4.2 3.6 1.5 per primary M o s t re c e nt e s t im a t e ( la t e s t ye a r a v a ila ble , 2 0 0 1- 0 7 ) capita enro llment P o verty (% o f po pulatio n belo w natio nal po verty line) .. .. .. Urban po pulatio n (% o f to tal po pulatio n) 72 57 42 Life expectancy at birth (years) 73 70 69 Infant mo rtality (per 1,000 live births) 20 34 41 Child malnutritio n (% o f children under 5) .. .. 25 A ccess to impro ved water so urce A ccess to an impro ved water so urce (% o f po pulatio n) 89 89 88 Literacy (% o f po pulatio n age 1 5+) 92 73 89 Gro ss primary enro llment (% o f scho o l-age po pulatio n) 83 105 11 1 West B ank and Gaza M ale 82 108 121 Lo wer-middle-inco me gro up Female 83 103 109 KE Y E C O N O M IC R A T IO S a nd LO N G - T E R M T R E N D S 19 8 7 19 9 7 2006 2007 E c o no m ic ra t io s * GDP (US$ billio ns) .. 3.7 4.1 4.0 Gro ss capital fo rmatio n/GDP .. 35.4 26.9 22.7 Trade Expo rts o f go o ds and services/GDP .. 15.8 15.7 16.9 Gro ss do mestic savings/GDP .. -20.0 -27.1 -29.2 Gro ss natio nal savings/GDP .. 4.6 10.4 5.5 Current acco unt balance/GDP .. -30.8 -16.6 -17.2 Do mestic Capital Interest payments/GDP .. .. .. .. savings fo rmatio n To tal debt/GDP .. .. .. .. To tal debt service/expo rts .. .. .. .. P resent value o f debt/GDP .. .. .. .. P resent value o f debt/expo rts .. .. .. .. Indebtedness 19 8 7 - 9 7 19 9 7 - 0 7 2006 2007 2 0 0 7 - 11 (average annual gro wth) GDP .. -0.7 1.4 -2.5 .. West B ank and Gaza GDP per capita .. -4.5 -2.6 -4.9 .. Lo wer-middle-inco me gro up Expo rts o f go o ds and services .. -1.3 10.2 3.3 .. S T R UC T UR E o f t he E C O N O M Y 19 8 7 19 9 7 2006 2007 G ro wt h o f c a pit a l a nd G D P ( %) (% o f GDP ) 20 A griculture .. .. .. .. Industry .. .. .. .. 0 M anufacturing .. .. .. .. 02 03 04 05 06 07 - 20 Services .. .. .. .. - 40 Ho useho ld final co nsumptio n expenditure .. 98.1 95.0 96.1 - 60 General go v't final co nsumptio n expenditure .. 21.9 32.0 33.1 Impo rts o f go o ds and services .. 71.3 69.7 68.8 GCF GDP 19 8 7 - 9 7 19 9 7 - 0 7 2006 2007 G ro wt h o f e xpo rt s a nd im po rt s ( %) (average annual gro wth) A griculture .. .. .. .. 20 Industry .. .. .. .. 10 M anufacturing .. .. .. .. 0 Services .. .. .. .. - 10 02 03 04 05 06 07 Ho useho ld final co nsumptio n expenditure .. -1.1 -1.5 -2.1 -20 General go v't final co nsumptio n expenditure .. 3.3 0.9 0.4 -30 Gro ss capital fo rmatio n .. -5.4 3.7 -17.0 Exports Imports Impo rts o f go o ds and services .. -2.1 -0.1 -5.1 No te: 2007 data are preliminary estimates. This table was pro duced fro m the Develo pment Eco no mics LDB database. * The diamo nds sho w fo ur key indicato rs in the co untry (in bo ld) co mpared with its inco me-gro up average. If data are missing, the diamo nd will be inco mplete. 116 West Bank and Gaza P R IC E S a nd G O V E R N M E N T F IN A N C E 19 8 7 19 9 7 2006 2007 Inf la t io n ( %) D o m e s t ic pric e s 10 (% change) Co nsumer prices .. 10.3 1.7 2.0 5 Implicit GDP deflato r .. 5.6 -0.3 1.3 G o v e rnm e nt f ina nc e 0 (% o f GDP , includes current grants) 02 03 04 05 06 07 Current revenue .. 28.4 .. .. -5 Current budget balance .. 5.1 .. .. GDP def lator CPI Overall surplus/deficit .. -2.8 .. .. TRADE 19 8 7 19 9 7 2006 2007 E xpo rt a nd im po rt le v e ls ( US $ m ill.) (US$ millio ns) To tal expo rts (fo b) 385 617 .. .. 2,000 n.a. .. .. .. .. n.a. .. .. .. .. 1,500 M anufactures .. .. .. .. 1,000 To tal impo rts (cif) 1,051 2,869 .. .. Fo o d .. .. .. .. 500 Fuel and energy .. .. .. .. Capital go o ds .. .. .. .. 0 01 02 03 04 05 06 07 Expo rt price index (2000=100) .. 77 .. .. Impo rt price index (2000=100) .. 93 .. .. Exports Import s Terms o f trade (2000=1 00) .. 83 .. .. B A LA N C E o f P A Y M E N T S 19 8 7 19 9 7 2006 2007 C urre nt a c c o unt ba la nc e t o G D P ( %) (US$ millio ns) Expo rts o f go o ds and services .. 586 637 677 5 Impo rts o f go o ds and services .. 2,638 2,827 2,756 0 Reso urce balance .. -2,051 -2,191 -2,079 01 02 03 04 05 06 07 Net inco me .. 90 50 50 -5 Net current transfers .. .. .. .. -10 Current acco unt balance .. ,1 -1 39 -672 -689 -15 Financing items (net) .. ,1 1 39 .. .. Changes in net reserves .. 0 .. .. -20 M emo : Reserves including go ld (US$ millio ns) .. .. .. .. Co nversio n rate (DEC, lo cal/US$ ) .. 3.4 4.5 4.5 E X T E R N A L D E B T a nd R E S O UR C E F LO WS 19 8 7 19 9 7 2006 2007 (US$ millio ns) To tal debt o utstanding and disbursed .. .. .. .. IB RD .. .. .. .. IDA .. .. .. .. To tal debt service .. .. .. .. IB RD .. .. .. .. IDA .. .. .. .. Co mpo sitio n o f net reso urce flo ws Official grants .. .. .. .. Official credito rs .. .. .. .. P rivate credito rs .. .. .. .. Fo reign direct investment (net inflo ws) .. .. .. .. P o rtfo lio equity (net inflo ws) .. .. .. .. Wo rld B ank pro gram Co mmitments .. .. .. .. Disbursements .. .. .. .. P rincipal repayments .. .. .. .. Net flo ws .. .. .. .. Interest payments .. .. .. .. Net transfers .. .. .. .. No te: This table was pro duced fro m the Develo pment Eco no mics LDB database. 9/17/08 117 ANNEX 15: SOCIAL ISSUES WEST BANK AND GAZA: Municipal Development Program 1. The political situation in the West Bank and Gaza (WBG) is a key challenge and requires movement on the political front. However, certain issues can be addressed until such time that the political issues are resolved in final status negotiations. There is a narrow margin for improvement and a strong need to prioritize. However, inroads can be made for instance in strengthening the management of entities within the Palestinian Authority (PA) for better service delivery and accountability to citizens, institutional reform, and more strategic planning by PA entities and development partners to better address the development needs and improve livelihoods of the Palestinian people. 2. Intensified since the second Intifada in 2000, Israel's restrictions on movement and access (M&A) of people and goods - both within WBG and through Israel to the rest of the world - have had dramatic impacts on the Palestinian economy and livelihoods. The multi- faceted restriction system consists of physical impediments (roadblocks, barriers, etc.) as well as permit policies, administrative practices and informal governance processes. According to a series of World Bank reports on M&A restrictions26, these restrictions effectively limit the freedom of the Palestinian people to move within WBG, access resources (including land and water), and engage in sustainable economic and social life, for instance obtain work, invest in business or construction, and import, transfer or export goods, etc. The effects of these restrictions are far-reaching - they impair planned development, private sector initiatives and livelihoods across all sectors. 3. The November 2005 `Agreement on Movement and Access' recognizes that Israel has legitimate reasons to protect its citizens from violence. However, it also states that this could not occur against the backdrop of Palestinian economic hardship and collapse, and that the relationship between Palestinian economic growth and stability and Israeli security remain unarguable and of fundamental importance to both societies' well-being. Access is restricted for about 60% of the land of the West Bank and M&A restrictions have fragmented the territory into ever smaller and more disconnected cantons and reduced the development of water resources and services for Palestinian people below levels expected at the time of the Interim Agreement (Oslo II, 1995). For instance, water sector management and service delivery at the national and local level (via the Palestinian Water Authority, municipalities or utilities) is hampered by asymmetries in power relations, information and capacity between Palestinians and Israelis, the institutional weaknesses of the PA (for planning, implementation and management), and the shortfalls in aid effectiveness, as development partners (donors, NGOs) move uneasily between the political context and the development challenge, remaining frequently stuck in emergency mode rather than pursuit of strategic development goals. 26 World Bank, 2007, Movement and Access Restrictions in the West Bank: Uncertainty and Inefficiency in the Palestinian Economy; World Bank, 2007 Potential Alternatives for Palestinian Trade: Developing the Rafah Trade Corridor; and World Bank, 2008a, Economic Effects of Restricted Access to Land in the West Bank; World Bank, 2009. Assessment of Restrictions of Palestinian Water Sector Development (Report No. 47657-GZ), MNSSD. 118 4. Given the long history of Israeli occupation, M&A restrictions, and weak governance of the PA, many Palestinians came to rely heavily on key local structures to meet their economic and service needs, i.e. family networks, religious organizations and party political organizations. In an environment of a weakening social contract between Palestinian state institutions and citizens, these informal social institutions complement or often replace the formal state entities in performing important economic functions, e.g. channel non-state support, provide access to state resources, social validation and physical security, sharing of information, brokering transactions, mediating conflicts, and counterbalancing family vulnerabilities. According to a 2004 household survey by the Palestinian Central Bureau of Statistics (PCBS), social institutions (such as al- zakat, political parties, charitable institutions, relatives, neighbors) provided 55% of all transfers to households, compared to 33% provided by the PA, and 12% provided by UNRWA and Arab countries. In the absence of well functioning formal governance, family and clan networks remain strong, particularly on the West Bank. Political parties have also played an important role for supporting household and community welfare, particularly in the refugee camps27. 5. The need to provide social services is apparent. According to PCBS, the total number of poor people was 2.1 million in mid-2006, compared with 1.3 million at the end of 2005. The Gini coefficient increased by 73% between 2005 and mid 2006, having increased from 0.37 in 2005 to 0.64 at the end of the second quarter 2006. Income distribution reshaped in favor of rich households and at the expense of the middle class in 2006: while the share of income by the richest 10% of households increased by 24% during 2006, it declined by 12% for the middle class and did not change for the poorest 20% of households. Unemployment increased during the 3rd quarter 2006 to 24.2% and a rapid increase among youth (20-24 years) with 38.7% (32.3% in the West Bank and 53.7% in Gaza)28. 6. The situation in Gaza presents specific challenges on several fronts. At the national level, the political rift in governance between the West Bank and Gaza complicates national and uniform development interventions, while levels of poverty and prospects for improvements also vary considerably. In Gaza, needs have reached humanitarian crises levels given the deteriorating economic, political and security situation. The closures led to dramatic deterioration in water and electricity service provision. The December 2008/January 2009 Israeli military offensive caused destruction of public and private infrastructure, and the continued import restrictions on goods and materials threaten already fragile livelihoods. Examples from the water sector include: networks are severely damaged, worsening supply conditions and requiring substantial rehabilitation efforts; the utility revenue base has collapsed; and the collection rate has fallen to 20%. The continued closure, preventing the import of pipes and other materials needed to rehabilitate destroyed water supply and sanitation systems, worsens the negative impacts on water utilities, and on Gaza's population and their livelihoods29. This desperate situation presents specific challenges for public participation and the development of social contracts under formal governance structures. 27 World Bank 2006, Socio-Political Structures, Development, and State-Building in West Bank and Gaza." Draft report. World Bank, Washington, DC. 28 Palestinian National Authority - Palestinian Central Bureau of Statistics 2006, Demographic and Socioeconomic Status of the Palestinian People at the end of 2006 29 World Bank, 2009. Assessment of Restrictions of Palestinian Water Sector Development (Report No. (Report No. 47657-GZ), MNSSD. 119 7. In addition to their important welfare-type role in Palestine society, social institutions also act as `gatekeepers' between the Palestinian people and state entities and donors. They determine the extent to which Palestinians benefit or are excluded from access to resources, or participation in decision-making. The inherent power dynamics, however, often remain uncovered. Many donors focus their support on public sector institutions, overestimating the extent to which Palestinians consider them relevant or legitimate, and underestimating the roles of social institutions. 8. This rests on the assumption that Palestinians' needs will be served and livelihoods improved solely through formal institutions which have adequate technical and management capacities. In practice, however, formal institutions often lack capacities, and informal institutions fill the service delivery gap. For donors it is important to recognize the different roles of social institutions in the Palestinian society, and to design interventions with community participation in order to promote effective demand-driven and accountable municipal management and service delivery. For municipalities it is important to strengthen or restore the weak social contract in order to enhance their revenue generation. A second assumption is that livelihoods can be improved by development programs as long as they have technically feasible designs and efficient management. In practice, however, lack of attention to social and political acceptance and ownership cause many interventions to stall, stop or fail to provide intended benefits. To enhance development effectiveness, it is crucial to conduct sound analysis of different stakeholder perceptions, powerful interests, opposition and capture of benefits, and to translate this analysis into effective political economy and risks management. For WBG, the `power-based model' of social and institutional change could be useful to build `coalitions for change' with a formal and informal stakeholder groups in order to strengthen the social contract between state organizations and citizens.30 9. As part of the MDP preparation, assessments and consultations were conducted in 10 municipalities by the MDLF, World Bank and GTZ between January 2008 and March 2009 to understand the level of community participation in municipal management, service delivery and decision-making (including design of strategic development and investment plans and municipal budgets). The role of community participation and consideration of social impacts by the MDLF in its sub-project appraisal were also assessed. The aim of these assessments was to identify constraints, and to suggest improvements to which the MDP would contribute by way of improving municipal management practices for better service delivery and transparency. Lessons learned from community participation in different MDLF projects, including the Local Development Program (LDP) project in Jenin area, funded by Denmark, have also been drawn upon. 10. Findings show that municipalities are important public sector reference point for citizens along with family networks, religious or party political organizations. Due to the restrictions on movement and access, Palestinians are continually forced to find local solutions to improve their livelihoods, often through their municipalities. The assessments highlighted the need to enhance the accountability of municipalities' towards their constituencies, and of citizens towards municipalities. At present, municipalities and citizens are not fully aware of their respective 30 World Bank, 2008, The Political Economy of Policy Reform ­Issues and Implications for Policy Dialogue and Development Operations (Report No. 44288-GLB), SDV. 120 rights and responsibilities. Many municipalities lack economic efficiency, sound management, responsiveness to citizens, and efficient service provision, which contributes to weak enforcement of laws and regulation. Citizens' understanding of, and limited trust in municipal governance ­ among other factors ­results in low willingness to pay taxes and municipal service fees. Findings show that citizens are likely to re-elect municipal leaders who give them the opportunity to voice and address their concerns, and allow citizens to participate in municipal decision-making. Accordingly, enhanced community involvement and contribution would be in the interest of municipal leaders. The challenge in WBG is now to address the fact that public participation is ad-hoc and unsystematic, and to overcome the weak social contract between municipalities and citizens. The development of the Strategic Development and Investment Plans (SDIP framework) by MoLG which will be implemented as a policy is a first step towards addressing this challenge. 11. In the first phase, the MDP will adopt the following strategy to address the transparency gap and weak social contract31 by promoting enhanced community participation in key municipal decision-making. Specific activities for MDP phase 1 include: a. One-stop-shops: "One-stop shops" (OSS) or customer-service-centers are designed to promote municipalities' transparency, accountability, citizen- responsiveness and public participation efforts in their management and service delivery in 3 municipalities in Gaza (for a total budget of US$200,000). The activity will contribute to the MDP objectives of improving transparency by enabling municipalities to disclose standard information to citizens about their services and will also enable them to become more citizen-responsive by establishing a system by which they can receive direct feedback from the public. This will improve public participation and enable municipalities to make decisions that are citizen-responsive. The activity will build on lessons learned from GTZ's experience implementing such activities in the West Bank. Given the large population size of municipalities in Gaza, with requests for different types of municipal services, this activity will develop the municipality's ability to provide customer-oriented services in an efficient manner. Eligible municipalities, as outlined in the Operations Manual will have to apply to be selected, based on the following criteria: (i) large population size, (ii) availability of space at the municipal building and willingness of the municipal council to redesign it, if necessary, (iii) willingness of the municipality to accept change in administrative structure (iv) performance ranking and (v) high commitment by, and minimum capacity of Municipality, i.e. availability of staff to operate the OSS or ability to recruit qualified staff). The MDLF will appoint a qualified technical consultant who, under its supervision will be responsible for providing technical assistance to municipalities in designing and operating the OSS, based on the GTZ experience. Under subsequent phases of the MDP, this experience will be rolled out. b. Development of a communication strategy and campaign (supported under Window 4 - Program Management). This activity contributes to transparently 31 See also Figure 1 121 sharing information on, and effectively communicating the purpose and goal of the MDP and its associated Grant Allocation System, including the underlying (performance) criteria/classification system, to municipalities and citizens. For municipalities, this activity will show that MDP allocations are made based on financial performance of the municipalities, hence setting incentives to improve their current performance in financial management, and development of participatory SDIPs and Municipal Infrastructure Operation and Maintenance Plans. For citizens, this will enhance the transparency on municipal performance and rank, and awareness about the MDP objectives and the Grant Allocation System to enable them to hold their municipalities accountable for sub-optimal performance so as to move up to a higher rank. Specifically, the MDLF will prepare a communication strategy and campaign around the Grant Allocation System, the MDP, as well as performance, and other development issues and agenda that the MDLF aims to achieve through the MDP. This will be rolled out through different media instruments and tools including, but not limited to, radio spots, print media, workshops, site visits, one-stop-shops, and simplified brochures and posters that communicate the objective of the MDP and the Grant Allocation Mechanism, how it is measured and how it is applied in very simple everyday language. The communication campaign has three phases; first, at the launch of MDP, it will raise awareness about the MDP objectives and components, and the role of MDLF. Second, at MDP mid-term review, the campaign will communicate achievements, challenges and next steps, and thirdly at the end of MDP phase 1, the campaign will communicate the program's results and effectiveness, and prepare for MDP phase two. c. Two client and citizen satisfaction assessments (supported under Window 4: Program Management) to set a baseline for the MDLF and Municipalities performance satisfaction at the start of MDP, and to measure changes in satisfaction, impacts and awareness against the baseline at the end of MDP Phase one. Each assessment consists of a MDLF client satisfaction survey with municipalities, and the municipal satisfaction survey with citizen, using a unified and participatory approach for West Bank and Gaza. The client satisfaction assessment will address the interaction/communication of the MDLF with municipalities, the subproject cycle, and MDLF support to municipalities' design of SDIPs and municipal budgeting. The citizen satisfaction assessment will tackle municipalities' efficiency in service delivery, quality, efficiency and transparency of municipal management and accountability, and design of SDIPs and municipal budget disclosure. Using key-informant interviews, focus groups and household surveys, the assessments will examine stakeholder views, interests, and incentives, institutions, impacts, risks and opportunities, and provide recommendations to address the identified performance concerns (that are within the realm of the MDLF and municipalities). This activity aims to assist MDLF with MDP management and supervision and to guide the MDLF and the stakeholders in the design of the next phases of the MDP. The Terms of Reference (enclosed below) and conceptualization of the questionnaires were finalized during the Technical Evaluation Mission. 122 d. MDLF promotion of public participation in municipalities (supported under Window 1: Capital Investments, Window 2: Innovation and 3: Capacity building). This consists of MDLF technical assistance and supervision for municipalities during design and implementation of community-responsive sub-projects, and participatory SDIPs and municipal budgets by applying a "checklist for good practice of public participation" that is being developed by MoLG, MDLF and donors. As a means to systematize community participation, the checklist will be available for municipalities to use for sub-project design and for the MDLF to use for its screening and appraisal of sub-projects. Figure 1: MDP vision for a stronger social contract MDP for Better Accountability and Stronger Social Contract - Vision Realigning Incentives to recognize Rights and Responsibilities 1. Accountable municipal mgt and service provision 3. Enhanced revenue Municipalities Citizens 4. More generation; satisfaction, and Increased willingness to pay Incentives & taxes and fees ability to improve performance 2. Pay taxes and fees for (mgt, services) services received *** 123 Terms of Reference for Local Consultancy A. Emergency Municipal Services Rehabilitation Project II ­ Beneficiary Assessment B. Municipal Development Project ­ Client and Citizen Satisfaction Assessment 1. Background: The Palestine Liberation Organization, for the benefit of the Palestinian Authority (PA), has received a grant from the Policy and Human Resource Development (PHRD) Trust Fund funded by the Government of Japan and administered by the World Bank through the International Development Association (IDA). The PA is currently administering this grant through the Municipal Development and Lending Fund (MDLF). The objective of the PHRD Grant is to prepare for the Municipal Development Program (MDP) which has of its objectives to support the delivery of effective municipal services through demand-based infrastructure investments and capacity building for local governments. The Grant will support the MDLF activities to strengthen its institution through developing/upgrading the internal procedures and manuals, build the capacity of the MDLF staff, and lay the ground for smooth implementation of the MDP. 2. Context and Rational In West Bank Gaza, municipalities face two key challenges: (i) crippling financial crisis that is preventing them from making necessary capital investments and covering their operating costs and (ii) redefining their role in light of the consolidation of key services (water, sewage, electricity, solid waste, roads, and public facilities) and increasing need for demand-driven service provision. Close to 70 percent of the population of the West Bank (2million) and Gaza (1.5 million) is urban, living in 132 municipalities. Municipalities predate the establishment of the Palestinian Authority (PA) and have historically provided a variety of services such as electricity and water, solid waste management, roads, parks and recreation, slaughter houses, markets, building schools and health clinics. Prior to the year 2000, close to 90 percent of their budgets came from local revenue collection. In the last five years however, municipal budgets have declined substantially due to the ongoing conflict, Israeli-imposed movement and access restrictions, and contraction in the economy. The Palestinian Reform and Development Plan, 2008-2010 (PRDP) has set a national developmental agenda that (i) prioritizes an effective and accountable local government system by building the operational, administrative and financial management capacity of local governments; and (ii) calls for new legislation to clarify and regulate the relationship between central and local government, to establish a policy framework which promotes fiscal autonomy and discipline at the local level. The Ministry of Local Government (MoLG) with support of the Municipal Development and Lending Fund (MDLF) leads these initiatives. Significant progress has been made in reforming municipal financial management and accounting systems, and practices through e.g. a unified budgetary form approved by MoLG in compliance with the municipal Chart of Accounts. These practices will enable municipalities to better manage and account for their tight budgets. The Second Emergency Municipal Services Rehabilitation Projects (EMSRP II), which introduced key measures to enhance municipal performance: (i) to promote greater accountability and public disclosure, as well as local participation, and to (ii) establish an institutionalized mechanism for central- local resource transfers. With EMSRP II closing soon, donors and the MDLF aim to harmonize their support to municipalities through the new Municipal Development Program (MDP), which has a 124 population-and performance based formula for block grant allocations to address the emergency conditions. The focus of this consultancy is EMSRP II and MDP. Detailed information about these projects can be obtained from the MDLF. The following provides a brief about both programs: A. The second Emergency Municipal Services Rehabilitation Project (EMSRP II) objective is to (i) mitigate further deterioration in essential municipal service delivery via infrastructure rehabilitation and provision of non-wage budgetary support for direct service cost inputs; (ii) create temporary local job opportunities via labor-intensive employment generation schemes; and (iii) pilot innovative and initiatives to promote local government-NGO collaboration in response to urgent community needs and assist municipalities in recovering costs for the provision of services. With the EMASRPII closing shortly, a BENEFICIARY ASSESSMENT is needed to measure the impacts that EMSRP II had on its beneficiaries. B. The Municipal Development Program (MDP) objective -for its first three years (phase 1)- is to improve municipal management practices for better service delivery and transparency. Its key performance indicators are: (a) percentage of municipalities that graduate up the performance category in which they are currently classified, and (b) percentage of municipalities that apply at least 2 public disclosure methods (publicly available SDIPs, Annual External Audits, project related data, municipal budgets and performance rankings). With the MDP as a multi-donor program, the MDLF will support a more development-oriented cycle. As the EMSRP II reform work continues under the MDP and MDLF, one goal is to enhance public participation to promote more demand-driven, acceptable, and sustainable reform measures, better accountability, and strengthen social contract between municipalities and citizens. Under the MDP, a CLIENT AND CITIZEN SATISFACTION ASSESSMENT is needed to set a baseline for the satisfaction of municipalities with MDLF performance, and for the satisfaction of citizens with the performance of municipalities. This will help to (i) identify any reform constraints as perceived by citizen and municipalities', and (ii) develop mitigation measures to enhance public participation for a more demand-driven, acceptable, and sustainable reform measures and better accountability. The added-value of public participation is to enhance social accountability between service providers and consumers and to restore or strengthen the social contract between state institutions and citizens. Public participation allows for demand-driven design and implementation of municipal management and service provision that contributes to enhanced quality, effectiveness, and sustainability of e.g. sub-project design/implementation, design of strategic development and investment plans (SDIPs) and of municipal budgets (linked to SDIPs), establishment and effectiveness of municipal one-stop-shops/public relations units. 3. Objective of this assignment The objective of this consultancy is two folds: A. to conduct a Beneficiary Assessment to examine the effects of the outgoing EMSRPII on its beneficiaries by 1. Assessing the activities delivered vis-à-vis its intended objectives. 2. Assessing the perception of beneficiaries on these activities delivered vis-à-vis its intended objectives. 125 1. Assessing the relation with and performance of the Local Technical consultants hired by MDLF to support municipalities during the projects. 2. Comparing activities delivered vis-à-vis intended objectives and the original performance indicators.. 3. Producing lessons learnt and recommendations for future programs. B. To conduct a Client and Citizen Satisfaction assessment to set a baseline for the new MDP by combining two surveys: (1) a MDLF Client survey with municipalities, and a (2) a citizen satisfaction survey with municipalities, by 1. assessing the performance satisfaction of municipalities with the MDLF 2. assessing the performance satisfaction of citizens with municipalities 3. developing recommendations, based on the empirical findings, to address the identified performance concerns (with 1) and 2)) - that are within the realm of both entities, and 4. Producing lessons learnt. 4. Focus of work and methodology used: A. Focus of work for EMSRPII Beneficiary Assessment: The consultant will conduct the EMSRP II beneficiary assessment that examines (1) the nature and quality of activities delivered, as well as the respective perception of beneficiaries on these activities. 1. Stocktaking and assessment of the nature and quality of activities delivered vis-à-vis its intended objectives and indicators. · Provision of physical infrastructure, which includes the following priority areas: water and wastewater services, solid waste services, road rehabilitation and maintenance service, and electricity services. and public facilities · Employment generation projects - · Municipality-NGO specific activities (tailored to site) ­ (NGOs ­ LGUs collaboration) · Non-wage recurrent expenditures (budgetary support to municipalities). 2. Assessment of the perception of beneficiaries on the nature and quality of activities delivered vis-à-vis its intended activities · Provision of physical infrastructure, which includes the following priority areas: water and wastewater services, solid waste services, road rehabilitation and maintenance service, and electricity services and public facilities. · Employment generation projects - · Municipality-NGO specific activities (tailored to site) ­ (NGOs ­ LGUs collaboration) · Non-wage recurrent expenditures (budgetary support to municipalities). B: Focus of work for MDP Client and Citizen Satisfaction Assessment The consultant will conduct ONE satisfaction assessment that consists of TWO surveys, 1) MDLF client satisfaction survey conducted with municipalities and 2) citizen satisfaction survey regarding municipalities' performance conducted with citizens. B1). Client satisfaction survey to assess MDLF performance by municipalities 126 The consultant will conduct a MDLF client satisfaction survey with municipalities by collecting, analyzing, writing-up and disseminating secondary and primary data on MDLF performance on the following 3 aspects, i.e.: interaction/communication, the subproject cycle, support to the design of strategic development plans and municipal budgets: 1. Interaction and communication by MDLF and/or LTCs with municipalities · Overall procedures and working approach, e.g. complexity of procedures, · Level of quality and efficiency of MDLF support to municipalities throughout subproject cycle o financial allocations (timing of announcements vis-à-vis municipal budgeting) o communication of allocation figures, o viability of amounts to operationalize municipalities needs and projects. · Level of quality and efficiency of LTCs support to municipalities throughout subproject cycle · Responsiveness and accountability of the MDLF and LTCs towards municipalities' needs 2. Sub-project Cycle: MDLF performance/ support to municipalities during · Municipalities' Sub-project design o technical design o public consultations for subproject design o financial assessments and budgeting o Municipalities social assessment to identify and address impacts of sub-projects on people · MDLF Sub-project selection criteria and decision-making: o Sub-project selection criteria (technical soundness, costs estimates, economic benefits, environmental, social, and public participation) o Sub-project selection process and decision-making · Municipalities' Sub-project implementation: o Municipalities' procurement tendering process o MDLF Sub-project supervision ­ incl. administrative, financial management, etc. o MDLF community engagement and efforts to enhance communication/ public awareness raising efforts o MDLF monitoring, auditing, reporting on progress of sub-projects (M&E indicators, etc) · Sub-project closing (implementation completion): o Municipalities' writing of subproject closing documents o MDLF evaluation of sub-projects to generate lessons learnt o MDLF dissemination of lessons learnt via communication campaign, public awareness raising efforts 3. Support in designing of participatory Strategic Development and Investment Plans (SDIP) and participatory budgets: MDLF performance/ support to Municipalities · Municipalities' identification of strategic priorities · Municipalities' design of SDIP · Municipalities' Identification of budget priorities, itemization · Municipalities' Design of budgets and links to SDIPs to ensure public participation 127 B2. Citizen Satisfaction Survey to assess Municipal performance by citizens The consultant will conduct a citizen satisfaction survey with citizens by collecting, analyzing, writing-up and disseminating secondary and primary data on municipalities' performance on the following 3 aspects, i.e.: (1) Quality and efficiency of municipal service delivery, (2) quality and efficiency of municipal management, and accountability, and (3) design of strategic development plans and municipal budgets: Citizens will rate the performance of municipalities according to the following aspects: 1. Quality and efficiency of municipal service delivery, · Utilities (revenue generating, e.g. electricity, water, sewage, solid waste management, etc) · Other services (non-revenue generating, e.g. roads, street lighting, public parks) · Public participation on municipal service provision, and on the opportunity and entry point for public participation in the project cycle (nature and timing of public participation) · Accountability, transparency, and effectiveness of municipal governance (decision-making and management e.g. administration, financial, procurement, etc) · Communication campaigns, public awareness-raising measures on municipal service delivery 2. Quality and efficiency of municipal management, and accountability: · Public participation on municipal management (financial, planning, implementation, reporting, etc), and on the opportunity and entry point for public participation in the project cycle (nature and timing of public participation) (nature and timing of public participation) · Accountability, transparency, and effectiveness of municipal governance (decision-making and management e.g. administration, financial, procurement, etc) · One-stop shops/public relations units to promote citizen responsiveness, transparency and accountability in service provision · Communication campaigns, public awareness-raising measures on municipal management 3. Design of Strategic Development and Investment Plans (SDIP) and Municipal budgets · Opportunity for public participation at design stage (at which entry points) · Identification of communities' priorities through public participation · Public participation during design of budgets that are itemized and linked to respective SDIPs. · Implementation of SDIPs and municipal budgets with public participation 5. Methodology and Approach The evaluation approach will be based on a participatory method. Stakeholder participation is expected to be fundamental in the information collection, the development of findings, evaluation reporting, and results dissemination. Specifically, the consultant will finalize the fieldwork material, analyze data, write- up findings and develop recommendations and lessons learnt by 1. Assessing the different stakeholder views, interests, and incentives regarding MDLF and municipalities' performances 2. Assessing institutions, both formal rules and informal (practices that the MDLF and municipalities use to take their decisions for management and service delivery 3. Identifying impacts that these MDLF and municipal decisions have on municipalities and citizen satisfaction with services, infrastructure, community facilities, community partnership and involvement, as well as participation of citizen in planning, budgeting, identifying community needs and priorities, etc, as well as their coping strategies regarding a) prices/tariffs (incl. willingness and ability to pay service fees and taxes) 128 b) access to goods and services c) assets d) transfers and taxes e) employment (incl. public works-generated employment, etc), and 4. Assesses risks regarding MDLF and municipalities' performance as well as promotion of public participation; suggest adequate risk mitigating measures; and identify opportunities to enhance performance, impact, and public participation that may be implemented under the MDP. The target group of the EMSRP II Beneficiary Assessment are ESMRP II beneficiaries. The target group of the MDP Client and Citizen Satisfaction Assessment are municipalities and citizens. Both assessments will be useful for Palestinian municipalities, citizens, the MDLF, the PA, and donors. 6. Consultant responsibilities, tasks and scope of assignment The consultant will be responsible to deliver the EMSRP II Beneficiary Assessment and the MDP Client and Citizen Satisfaction Assessment. The consultant should perform the following five tasks and deliver respective outputs that include, but are not limited to: 1. Review of secondary material: This includes: the Draft MDP Project Appraisal Document (PAD); project documents of EMSRP I and II (incl. Technical Annex, Annual Implementation Plans, and Progress Reports of EMSRP II), the PSIA User's Guide, and TIPS (WB, 2003, 2005); Standard literature on satisfaction survey methodology (design, implementation, data processing, analysis, write-up). Output: understanding of EMSRP II context and of MDP context, of the research methodology and approach. The consultant is required to submit his proposed methodology, evaluation tools, sample size and selection, and a detailed work plan for the entire assignment within 10 days of signing the contract. 2. Finalization and Piloting of fieldwork material · Finalize the fieldwork material that comprises (i) quantitative household questionnaires and qualitative (ii) key-informant interview guides and (iii) focus group guides; · Test all material in pilot survey, and revise and finalize all fieldwork material. Output: piloted final household questionnaires, key-informant interview guides and focus group guides after 1 week of the MDLF approval of the methodology and work plan. 3. Conduct fieldwork: · Develop representative selection criteria and select 13 WBG municipalities, using the following criteria to capture the range of differences in municipalities' size (small, medium, large), economic development/ poverty levels (low, medium, high), current performance ranking, SDIPs (existent, non-existent), level of public participation in service provision and management (high, low), and geographical location in West Bank (North, middle, South) and Gaza. · Within each municipality, develop a sample frame and stratification for the citizen survey that captures the range of differences in poverty, gender, age, and experience with community participation. · Conduct the fieldwork, using the piloted and finalized household questionnaires, key-informant interviews and focus groups, i.e.: o A) EMSRPII Beneficiary Assessment: conduct quantitative household survey (total sample size 650 households, representative of municipality), interviews with municipal related staff, and focus groups with households that have directly benefited from EMSRPII activities · (The selected sample must be approved by the MDLF prior to the field work and should cover all components of EMSRPII, and be representative municipalities and sectors. 129 o B) MDP Client and Citizen Satisfaction Assessment: For the MDLF client survey with municipalities, conduct a series of key-informant interviews (with some quantitative assessments) with all relevant municipal stakeholders (including but not limited to mayors, relevant municipal departments (finance, infrastructure/utilities, one stop shops/public relation units, unit responsible for public participation, etc), public or private service providers (as relevant e.g. utility provision, civil society organizations, and donors (total sample: 200, i.e. 10 per municipality, plus donors). For the citizen satisfaction survey with citizens, conduct quantitative household surveys (total sample size about 600 households, representative of size of municipality), and focus groups spread across the municipality Outputs: EMSRPII-specific sample frame and stratification, MDP-specific sample frame and stratification; 13 field sites selected; all qualitative and quantitative fieldwork is completed. 4. Data processing and analysis: process and analyze all the quantitative and qualitative data collected, using standard data processing software (e.g. SPSS or equivalent). Output: all data is analyzed separately for EMSRP II and MDP. 5. Report writing: Produce TWO reports ­ one for EMSRPII, one for MDP, that both will be publicly disseminated, according to the following outline (can be amended): A. EMSRPII Beneficiary Assessment ­ Report 1 i. Introduction, overview of approach/methods, and rational, ii. stocktaking and assessment of the nature and quality of activities delivered vis-à-vis its intended objectives and performance indicators. iii. Assessment of the perception of beneficiaries on the nature and quality of activities delivered vis-à-vis its intended objectives. iv. comparison between (ii) and (iii) to identify EMSRPII effects on beneficiaries; and v. Lessons learnt regarding EMSRPII from a beneficiary perspective B. MDP Client and Citizen Satisfaction Survey ­ Report 2 i. Introduction, overview of approach/methods, and rational, ii. municipalities' satisfaction with MDLF performance: findings and recommendations for improvements; iii. citizen satisfaction with municipalities: findings and recommendations for improvements, iv. comparison between, and linking of (ii) and (iii) to identify similarities; and v. Lessons learnt and recommendations to enhance performance and public participation as input to the design of the MDP. 7. Consultant Qualifications: In order to achieve the objectives of the evaluation, the evaluation team should be an experienced professional firm and/or academics with the following skills: 6. A good knowledge of the local government sector and municipal development issues the socio- economic and political contexts of the oPt. 7. Ability to strategies for short and long term programmes. 8. Good experience with donors and international funded projects and evaluations. 9. Excellent experience in infrastructure projects. 10. A good understanding of municipalities' capacity and mandate. 11. Excellent background in community work and community participation. 130 12. Culturally sensitive. 13. Ability and willingness to work in both West Bank and Gaza. 14. Broad knowledge of program design, monitoring and evaluation. 15. Excellent communication skills and good command of English and Arabic; 16. Excellent writing skills. 8. Deliverables and timeline The consultant firm will deliver two reports ­ one beneficiary assessment of the EMSPR II, and one client and citizen satisfaction assessment of municipalities (with MDLF performance) and of citizens (with municipality performance). The assignment will be during July ­October 2009. 9. Level of effort and Payment Signing of Contract 10% Approval of proposed methodology and work plan 10% Approval of questionnaire and focus groups guide 10% Draft Report and Preliminary Analyses based on the Completion of fieldwork of MDP 20% Satisfaction Assessment (separate sample to EMSRPII) Draft Report and Preliminary Analyses based on the Completion of fieldwork of EMSRPII 20% Beneficiary Assessment (separate sample to MDP) Submission of final 2 Reports ­ one for MDP, one for EMSRPII 30% 10. Reporting and Management The Municipal Development and Lending Fund (MDLF) will be responsible for coordinating activities with the consultant, receiving and approving invoices for payments, and for acceptance of the deliverables. The project manager is Khaled Rajab, Strategic Planning and External Relations Manager. Address is: Al-Rishmawi Building, Al-Yasmin Street, Sateh Marhaba, Al-Bireh Palestinian Authority Tel: (02) 296-6610; Fax: (02) 295-0685 E-mail: info@mf-palestine.org 131 IBRD 33512R1 To 35°30'E 35°00'E Nazareth WEST BANK To Haifa AND GAZA SELECTED CITIES AND TOWNS 32°30'N 32°30'N RIVERS Yamoun Jenin MAIN ROADS Ya'bad Kaffeen RAILROAD Qabatia ARMISTICE DEMARCATION LINES, 1949 JENIN NO-MAN'S LAND AREAS, ARMISTICE DEMARCATION LINE, 1949 To Netanya TULKARM Anapta Tubas Tulkarm TUBAS JERUSALEM CITY LIMIT, UNILATERALLY Tammun EXPANDED BY ISRAEL JUNE 1967; THEN ANNEXED JULY 30, 1980 Mt. 'Eval (940 m) GOVERNORATE BOUNDARIES Nablus Qalqilyah ADMINISTRATIVE BOUNDARY QALQILYAH NABLUS To To Tel Aviv Um Qais INTERNATIONAL BOUNDARIES SALFIT 34°30'E Salfit West r This map was produced by the Map Design Unit of The World Bank. Jordan Rive The boundaries, colors, denominations and any other information To shown on this map do not imply, on the part of The World Bank Ramla JORDAN Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 32°00'N To Tel Aviv Bank To 32°00'N Tall Asur Amman (1,022 m) RAMALLAH JERICHO Ramallah To Amman Jericho Mediterranean JERUSALEM To Sea Amman JERUSALEM To Bethlehem Ashdod ISRAEL BETHLEHEM To Tel Aviv To Ashqelon Dead JABALYA Beit Lahia (1,020 m) Sea Hebron Gaza City Jabalya 31°30'N GAZA CITY HEBRON Gaza Nusejrat To Yattah DEIR EL BALAH El Bureij Beersheba Deir el Balah Zohar KHAN YUNIS To Khan Zofar Yunis To Beersheba Rafah RAFAH JORDAN Abu 'Awdah To (105 m) El Arish To WEST BANK Elat AND GAZA ARAB 0 5 10 15 Kilometers REP. OF EGYPT 0 5 10 15 Miles 31°00'N 31°00'N 34°30'E 35°00'E 35°30'E JUNE 2007