Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00006209 IMPLEMENTATION COMPLETION AND RESULTS REPORT Loan No. 8561 MK ON A LOAN IN THE AMOUNT OF EUR25 MILLION (US$28.038 MILLION EQUIVALENT) TO THE The Republic of North Macedonia FOR A Second Municipal Services Improvement Project JUNE 22, 2023 Urban, Resilience and Land Global Practice Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective Feb 2, 2023) Currency Unit = EUR EUR 1 = US$1.10 US$1 = EUR 0.91 FISCAL YEAR July 1 - June 30 Regional Vice President: Antonella Bassani Country Director: Xiaoqing Yu Regional Director: Sameh Naguib Wahba Tadros Practice Manager: Christoph Pusch Task Team Leader(s): Tatyana Shadrunova ICR Main Contributor: Marcel Ionescu-Heroiu ABBREVIATIONS AND ACRONYMS CE Citizen Engagement CERC Contingent Emergency Response Component CLR Completion and Learning Review Report CPF Country Partnership Framework CPS Country Partnership Strategy CSE Communal Services Enterprises EC European Commission FY Fiscal Year IBNet International Benchmarking Network for Water and Sanitation Utilities IBRD International Bank for Reconstruction and Development IRI Intermediate Result Indicators ISR Implementation Status Report M&E Monitoring and Evaluation MoF Ministry of Finance MSIP Municipal Services Improvement Project MSIP2 Second Municipal Services Improvement Project NMSMDP North Macedonia Sustainable Municipal Development Project O&M Operation and Maintenance OHM Occupational Health and Safety PAD Project Appraisal Document PDO Project Development Objective PMU Project Management Unit POM Project Operational Manual RAP Resettlement Action Plan RF Results Framework RFP Request for Proposal Subproject PAD Project Appraisal Document for subproject TA Technical Assistance ToC Theory of Change UA Urban Audit WB World Bank TABLE OF CONTENTS DATA SHEET ........................................................................................................................... I I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 1 A. CONTEXT AT APPRAISAL .........................................................................................................1 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................4 II. OUTCOME ...................................................................................................................... 5 A. RELEVANCE OF PDOs ..............................................................................................................5 B. ACHIEVEMENT OF PDOs (EFFICACY) ........................................................................................7 C. EFFICIENCY ........................................................................................................................... 14 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 15 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 15 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 17 A. KEY FACTORS DURING PREPARATION ................................................................................... 17 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 18 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 21 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 21 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 23 C. BANK PERFORMANCE ........................................................................................................... 24 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 25 V. LESSONS AND RECOMMENDATIONS ............................................................................. 26 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 28 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 38 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 40 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 41 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 48 ANNEX 6. SUPPORTING DOCUMENTS .................................................................................. 56 The World Bank Second Municipal Services Improvement Project (P154464) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P154464 Second Municipal Services Improvement Project Country Financing Instrument North Macedonia Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency The Republic of North Macedonia Project Management Unit at the Ministry of Finance Project Development Objective (PDO) Original PDO The Project Development Objective of MSIP2 Project (PDO) is to improve transparency, financial sustainability and inclusive delivery of targeted municipal services in the participating municipalities. i The World Bank Second Municipal Services Improvement Project (P154464) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 28,038,000 28,038,000 27,273,483 IBRD-85610 Total 28,038,000 28,038,000 27,273,483 Non-World Bank Financing 0 0 0 Borrower/Recipient 0 0 0 Total 0 0 0 Total Project Cost 28,038,000 28,038,000 27,273,483 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 11-Jan-2016 14-Jul-2016 16-Sep-2019 31-Mar-2021 31-Jan-2023 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 05-Aug-2020 6.67 Change in Results Framework Change in Loan Closing Date(s) 22-Aug-2022 24.51 Change in Loan Closing Date(s) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 25-Mar-2016 Satisfactory Satisfactory 0 ii The World Bank Second Municipal Services Improvement Project (P154464) 02 19-Oct-2016 Satisfactory Satisfactory 0 03 14-Apr-2017 Satisfactory Satisfactory 0 04 20-Oct-2017 Satisfactory Satisfactory .59 05 19-Apr-2018 Satisfactory Satisfactory .59 06 17-Oct-2018 Moderately Satisfactory Moderately Satisfactory .59 07 06-Apr-2019 Moderately Satisfactory Moderately Satisfactory 1.45 08 11-Oct-2019 Moderately Satisfactory Moderately Satisfactory 3.01 09 25-Nov-2019 Moderately Satisfactory Moderately Satisfactory 3.01 10 22-May-2020 Moderately Satisfactory Moderately Satisfactory 5.71 11 23-Nov-2020 Moderately Satisfactory Satisfactory 10.16 12 25-May-2021 Satisfactory Satisfactory 16.47 13 03-Dec-2021 Satisfactory Satisfactory 19.75 14 03-Jun-2022 Satisfactory Satisfactory 23.60 15 07-Dec-2022 Satisfactory Satisfactory 26.46 SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 6 Sub-National Government 6 Energy and Extractives 25 Other Energy and Extractives 25 Transportation 35 Urban Transport 35 iii The World Bank Second Municipal Services Improvement Project (P154464) Water, Sanitation and Waste Management 34 Other Water Supply, Sanitation and Waste 34 Management Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Urban and Rural Development 100 Urban Development 100 Urban Infrastructure and Service Delivery 40 Municipal Finance 60 ADM STAFF Role At Approval At ICR Regional Vice President: Cyril E Muller Antonella Bassani Country Director: Ellen A. Goldstein Xiaoqing Yu Director: Ede Jorge Ijjasz-Vasquez Sameh Naguib Wahba Tadros Practice Manager: David N. Sislen Christoph Pusch Task Team Leader(s): Toshiaki Keicho Tatyana Shadrunova ICR Contributing Author: Marcel Ionescu-Heroiu iv The World Bank Second Municipal Services Improvement Project (P154464) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. In 2015, the Republic of North Macedonia’s economic performance was strong, with GDP growth of 3.86 percent. By 2015, North Macedonia had made impressive progress in steadily recovering from the economic, political, and social fallout from the 2001 ethnic conflict and obtained European Union (EU) candidate status in 2005. The country had also been able to preserve macroeconomic stability during the global economic crisis. The economy grew by 3.5 percent and 3.86 percent in 2014 and 2015, respectively, demonstrating the highest growth among the six southeast European countries. 2. However, economic growth did not translate into tangible poverty reduction. While the poverty rate decreased from 26.8 percent in 2010 to 21.9 percent in 2015, the country still showed a substantial income inequality (with a Gini equal to 37) compared to its Western Balkan peers. Poverty reduction and improved welfare of the poorest 40 percent of the population registered relatively small gains by 2015. 3. The public service delivery gap persisted and was more significant among the bottom 40 percent and in rural areas. Households among the bottom 40 percent of the population tended to have more children, live in more rural settings, and have lower access to quality public services. Although, for example, access to piped water and a sewer network was generally high, with an average of 92 and 70 percent, respectively, the difference between the highest and lowest wealth quintiles was significant: 99 percent of the richer population had access to piped water versus 76 percent of the poorest quintile. This gap was even wider for access to public sewer systems, where 98 percent of the highest wealth quintile had access versus only 19 percent of the lowest wealth quintile. 5. Improving the living standards of the population required more effective and efficient public service delivery, and municipalities were playing a critical role in enhancing quality of life at the local level and facilitating local economic growth. The government started significant decentralization efforts in 2005 and brought delivery of many of the basic public services to the municipal level, requiring also better-performing municipalities. The number of municipalities was consolidated from 123 to 85 in 2005 and then further reduced to 81 in 2013 due to the changes in the Law on Territorial Organization. The changes led to the creation of larger municipalities with more rural areas included under their jurisdiction. In parallel, municipalities started receiving block grants from the central government to implement their new functions and then progressively assumed responsibilities for maintenance and improvement of municipal infrastructure such as water supply and wastewater treatment systems, solid waste management, local roads, street lighting, firefighting, preschool, primary and secondary schools, and urban amenities such as parks and local cultural institutions. 6. Municipal governments controlled over 7 percent of public spending at the time of the Project appraisal. During the decentralization process, regulations for local borrowing were established, and municipalities could borrow for capital investments. From 2009 to 2013, the share of own source of municipal revenues increased from 26 percent to 35 percent. Property tax collection increased almost five times, though its share of overall revenues was still modest. The biggest increase of own source of revenues came from land development fees, lighting fees, and other charges for the use of public space. 7. While municipal revenue had increased rapidly overall, as a result of the decentralization, this had not translated into higher levels of capital investments at the local level. Average municipal capital investments in the country were 1.4 percent of gross domestic product between 2008 and 2012, which was lower than comparative statistics from the EU-27 and new EU member states. Furthermore, communal services had suffered from delayed maintenance, rigid price control, 1 The World Bank Second Municipal Services Improvement Project (P154464) and poor financial management (FM). This led to a vicious cycle of deteriorating assets and lack of funding for new investments. 8. In its strategic programs, the government underscored the importance of investments in urban infrastructure and municipal services to support economic growth and employment. Through its Pre-Accession Economic Program 2014- 2016, the Government expressed a clear vision of development based on the goal of economic growth through improvements in business climate, infrastructure, and human capital. The Government economic program for 2014-2018 included the following pillars to achieve the government strategic priorities: Pillar 1: Improving the living standards of the citizens to be achieved, inter alia, through improving the road and utility infrastructure and better education services; Pillar 2: Infrastructure development, including construction of new national, regional and local roads and their rehabilitation, improved energy capacity, construction of water supply and wastewater systems; and Pillar 3: Protection of the most vulnerable. 9. The Bank-financed Municipal Services Improvement Project (MSIP, P096481, closed on September 30, 2020), which was on-going at the time of the Project appraisal, served as one of the government’s instruments to provide access to affordable investment funds to municipalities that could not yet afford to borrow from other sources. In this regard, the Second Municipal Services Improvement Project (MSIP2) represented the second phase of the MSIP with the aim to respond to the continued strong demand by the municipalities for local infrastructure finance and create incentives for the local governments to invest in infrastructure improvements in poorer and marginalized communities within their jurisdictions. No other comprehensive national programs were addressing the issue of improving municipal service delivery in North Macedonia’s municipalities when this Project was being designed. The MSIP experience also helped to bring in improvements in the design of MSIP2, such as a better calibration of the Results Framework based on actual results obtained through MSIP and a more rigorous selection of municipalities based on their capacity to borrow and cover subsequent operation and maintenance costs for the finalized investments. 10. MSIP2 was aligned with the World Bank’s engagement in the country and built on the Bank’s continuing dialogue and partnership with the government. By facilitating improvements in transparency, financial sustainability, and delivery of targeted municipal services, MSIP2 contributed to the two interrelated themes outlined in the World Bank-North Macedonia Country Partnership Strategy (CPS) for FY2015-2018, as follows: (a) growth and competitiveness and (b) skills development and inclusion. Furthermore, the CPS suggested that the Bank apply a social filter to its entire pipeline to help task teams in the country address obstacles that limit poverty reduction and shared prosperity for specific groups (e.g., women, minorities, vulnerable groups, Roma) and to design activities and policy reforms that promote a more inclusive and cohesive society. Given the service access inequality existent at the time, MSIP2 envisaged improving municipal services in poorer and marginalized communities through its poverty/social inclusion grant component and provided more public spending on infrastructure for this purpose. Theory of Change (Results Chain) 11. MSIP2 provided financing to the participating municipalities and their CSEs for improved and/or expanded municipal infrastructure so that it would contribute to improved transparency, financial sustainability and inclusive delivery of municipal services. MSIP2 did that by financing: i) sub-loans for infrastructure investments of high priority and clear impacts on welfare or efficiency, ii) poverty/social inclusion investment grants for participating municipalities to enhance inclusive service delivery by targeting poorer and marginalized communities for infrastructure improvements, iii) technical assistance (TA) to municipalities throughout the subproject cycle to help them to prepare their subproject proposals and conduct Urban Audit (UA) as a basis for identification of poorest communities to benefit from social inclusion grants and corresponding investments, and (iv) operating costs of the PMU. To participate in MSIP2 and get access to the sub-loans, municipalities had to have Ministry of Finance (MoF)’s approval to borrow and meet a set of basic transparency and accountability criteria contributing to the Project Development Objectives (PDO) achievement. Furthermore, to qualify 2 The World Bank Second Municipal Services Improvement Project (P154464) for the social inclusion grants, the municipalities were to (i) conduct their UAs and, in particular, the UA initial stage called “Urban mapping” that served as a basis for identification of grant beneficiaries and corresponding investments, while a full UA needed to be completed by the end of the grant-financed subprojects, and (ii) confirm the successful start of the civil works financed from their sub-loans. The Project also envisaged provision of TA at the national, PMU and municipal level to support Project implementation and the PDO achievement (see Figure 1). The ToC draws primarily on paragraphs 11-19 in the Project Appraisal Document (PAD). 12. The Project design assumed that municipalities would have sufficient borrowing capacity and would be interested in sub-loans and social inclusion grants. The sustainability of the Project objectives was based on the municipalities’ technical and financial capacity to ensure proper operating and maintenance of the Project-financed infrastructure to reap the benefits of the infrastructure investments and a willingness to continue applying transparency measures. Figure 1. MSIP2 Theory of Change Project Development Objectives (PDOs) 13. The objective of the Project is to improve transparency, financial sustainability, and inclusive delivery of targeted municipal services in the participating municipalities. Key Expected Outcomes and Outcome Indicators 14. The PDO was aligned to clear sectoral needs identified in the CPS and had three objectives: i) improved transparency of targeted municipal services in the participating municipalities, ii) improved financial sustainability of targeted municipal services in the participating municipalities, and iii) improved inclusive delivery of targeted municipal services in the participating municipalities. The Project design was demand-driven, and the municipalities had freedom to choose priority municipal services and corresponding municipal infrastructure they wanted to invest in through sub-loans and social inclusion grants. 15. The PDO-level results were measured through the following indicators, for the corresponding objectives (the indicators are rated separately in the Efficacy section): 3 The World Bank Second Municipal Services Improvement Project (P154464) Objective 1: Improve transparency of targeted municipal services in the participating municipalities (a) Number of participating municipalities (that is, municipalities which signed sub-loan agreements) that regularly published subproject progress information on their official websites or elsewhere—this indicator also was a citizen engagement indicator Objective 2: Improve financial sustainability of targeted municipal services in the participating municipalities (b) Percentage of completed subprojects that generated improved financial performance, including through increased revenue earnings or cost savings Objective 3: Improve inclusive delivery of targeted municipal services in the participating municipalities (c) Number of completed subprojects that focus on social inclusion (d) Number of direct project beneficiaries, with breakdown on percentage of female beneficiaries and percentage of vulnerable/marginalized people who benefited from the project intervention (with marginalized measured as the number of unemployed, social assistance receiving, or in other ways vulnerable population) Components 16. Component A: Municipal Investment (estimated allocation: EUR 18,500,000; final allocation: EUR 18,705,572) provided sub-loans to municipalities for investments in municipal infrastructure, including revenue-generating/cost-saving municipal infrastructure investments and other projects of high priority for the municipalities. 17. Component B: Poverty and Social Inclusion Investment Grants (estimated allocation: EUR 4,937,500; final allocation: EUR 4,429,646) provided investment grants to municipalities as an incentive for them to invest in infrastructure improvements in poorer and marginalized communities within their jurisdictions. 18. Component C: Project Management, Monitoring and Evaluation, and Capacity Building (estimated allocation: EUR 1,500,000; final allocation: EUR 830,000) was to support operational costs of the Project Management Unit (PMU), assist with project implementation and monitoring, and support the relevant ministries and other agencies both at the national and municipal levels to strengthen institutional and financial systems and practices for sustainable municipal service delivery, including TA and capacity building for capital investment planning, subproject preparation/implementation, and local capacity building for municipalities and the CSEs to improve service delivery; strengthening municipal financial management (FM) systems and practices, and national level institutional strengthening. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 20. The PDO remained unchanged during the Project. The outcome target values were increased throughout the Project implementation to match the project results achieved during the extended Project implementation period. Revised PDO Indicators 21. The composition and formulation of the four original PDO indicators remained unchanged. At the same time, the end dates and corresponding target values of the selected PDO and intermediate results indicators were updated to reflect the 18 month extension of the loan closing date through the Project restructuring in August 2020, including increased target values of indicators on the number of participating municipalities, number of completed sub-loan and grant financed subprojects, number of direct Project beneficiaries, number of jobs generated by the Project, and number of participants in the consultation activities during subprojects preparation. 4 The World Bank Second Municipal Services Improvement Project (P154464) Revised Components 22. There have been no changes on the three Project components from appraisal stage. However, there were two re- distributions of funds that remained uncommitted and saved under Components B and C to Component A. These re- distributions were processed per request of the Borrower in December 2020 and July 2022 to enlarge the portion of available funds under Component A and enable the Project to support a larger number of municipalities applying for sub- loans under the last (third) Call for Proposals, as well as cover the increased prices for the construction works observed in the region and the country in 2022, without compromising implementation of activities financed from other components. The re-distribution of funds between the Project components did not require the LA amendment1 and was formalized through the exchange of official letters between the Borrower and the Bank and the corresponding update of the Project Operation Manual (POM). Other Changes 23. The Project was restructured two times. Both restructurings were to process extension of the loan closing date. The PDO and associated outcomes and PDO indicators remained unchanged, while the target values of selected indicators were updated to capture the results to be achieved within the extended project implementation period (please also see paragraph 21 above). There was no change in the composition of the Project components and their names. The Project institutional and implementation arrangements, and the project’s environmental category also remained unchanged. The Project continued to follow the existing Project Operational Manual (POM). 24. The first restructuring took place in August 2020 and included the extension of the loan closing date by 18 months, from March 31, 2021 to September 30, 2022. The extension allowed the successful completion of the already approved subprojects and enabled the use of the Project funds that remained uncommitted to help local economies survive the COVID-19 shock through the continued provision of financing to municipal infrastructure projects and associated public works. It also allowed to compensate for the delays registered in the first two years of MSIP2 (see section “Key Factors during Implementation” for more details). The end dates and target values of the many Project indicators were increased to capture the MSIP2 results during the extended implementation period. 25. The second restructuring took place in August 2022 and extended the MSIP2 closing date for four months from September 30, 2022 to January 31, 2023. The extension allowed the Borrower to gain the needed time to secure the necessary MSIP2 budget limits for 2022 in full and to enable the execution of all remaining sub-loan and grant payments as planned, and, thus, ensure successful completion of all project activities and achievement of the PDO targets. Rationale for Changes and Their Implication on the Original Theory of Change 26. The above-described changes did not affect any core elements of the original Theory of Change, while they facilitated scaling up and finetuning a well-functioning MSIP2 model. The high interest in the Project, as evidenced by the high number of applications received, and the attainment of all targets set at appraisal and updated towards the increased target values following the extension of the loan closing date, indicate both sound Project design and implementation arrangements. II. OUTCOME A. RELEVANCE OF PDOs Relevance Rating: High 1 The initially estimated allocation of funds between the Project components was provided in the PAD and further indicated in the Project Operational Manual (POM). At the same time, the LA included only a description of the Project components (which remained unchanged) and did not specify distribution of funds between the Project components. Furthermore, all eligible expenditures under all Project components (including all goods, civil works, and consultancies, operation costs, etc.) were financed from the same disbursement Category (1). 5 The World Bank Second Municipal Services Improvement Project (P154464) 29. The PDO was highly relevant at the stage of the MSIP2 loan appraisal and remained fully in line with the current Country Partnership Framework (CPF FY19-FY23). The fourth objective of the CPF (FY19-23) pertains to the improvement of fiscal sustainability by strengthening fiscal and public financial management and is relevant to the MSIP2 objectives and activities that are contributing to improved transparency and financial sustainability as part of improved delivery of targeted municipal infrastructure services in participating municipalities. Additionally, the first objective of the current CPF aims at removing some of the bottlenecks that prevent the emergence of a dynamic and competitive private sector by improving connectivity and access to markets. MSIP2 contributed to achieving this CPF objective by improving the quality of local road infrastructure. Lastly, CPF Objective 5 focuses on Accelerating the Transition to a More Sustainable Energy Mix, including through the implementation of energy efficiency interventions. As part of activities financed under its sub- loan and social inclusion grant components, MSIP2 has supported energy efficiency interventions in public buildings and street light networks and has funded the acquisition of fuel efficient and electric vehicles. The above aspects and more general objectives of the enhanced quality of life and public services are reiterated in the country’s strategic documents and underscore MSIP2’s pertinence. 30. The Project remains relevant to the North Macedonia’s Government’s Work Program for 2020-2024 that has a continued focus on further fiscal decentralization and increased responsibility and transparency of municipal operations, and specifically calls for: i) enhancing the delivery and quality of communal services to citizens by investing in municipal infrastructure and equipment, ii) building municipal capacity in delivering communal services and implementing investments, iii) improving fiscal sustainability of municipalities, and iv) encouraging citizen engagement. 31. The Project is also relevant to North Macedonia’s priorities on the EU accession, as it complements the Government’s efforts to advance the EU accession agenda under Cluster 1 “Fundamentals of the Accession Process”, by contributing to improved physical capital and quality of infrastructure and the energy efficiency of municipal buildings and facilities. Furthermore, MSIP2-supported activities are linked to Chapter 27 (Environment and Climate Change) of Cluster 4 “Green Agenda and Sustainable Connectivity”, which, among other tasks, envisages strengthening water quality management, including efforts to reduce non-revenue water and better waste management. 32. The high MSIP2 relevance is also confirmed by a follow-up operation, the North Macedonia Sustainable Municipal Development Project (MSDP), for which preparation was recently launched. MSDP is built on the successful collaboration with the government and municipalities and results achieved under MSIP and MSIP2. It is aimed to further advance the municipal development agenda by taking a holistic approach to municipal service sustainability that takes into account both financial and environmental sustainability of services, while contributing to improved coverage and quality of municipal services and their enhanced resilience, promoting climate change mitigation and adaptation measures, as well as strengthening the country’s ability to respond to emergency crisis through inclusion of a Contingent Emergency Response Component (CERC). Assessment of Relevance of PDOs and Rating 33. Relevance of the PDO is rated High. MSIP2 was highly relevant at the appraisal and continued to be fully in line with the subsequent CPSs/CPF and the Government’s strategic priorities and associated programs. Well identified needs at appraisal translated in strong municipal demand during the Project implementation and sound Project design enabled the achievement and surpassing of the set targets. The PDO remained relevant throughout the MSIP2 lifetime and remains highly relevant after its closure, as indicated in the Government’s Work Program 2020-2024. The proposed follow-up lending operation - SDMP - builds on the MSIP2 experience and further underlines the relevance of the municipal service improvement agenda, with a focus on sustainable and green infrastructure and addressing the challenges of climate change. 6 The World Bank Second Municipal Services Improvement Project (P154464) B. ACHIEVEMENT OF PDOs (EFFICACY) Rating: Substantial 34. The objective of the Project is to improve transparency, financial sustainability, and inclusive delivery of targeted municipal services in the participating municipalities. It has three objectives, as follows: i) To improve transparency of targeted municipal services in the Participating municipalities ii) To improve financial sustainability of targeted municipal services in the Participating municipalities, and iii) To improve inclusive delivery of targeted municipal services in the Participating municipalities. To achieve these objectives, during 6.5 years of implementation, from the Declaration of Effectiveness on July 14, 2016 to the Project closure on January 31, 2023, MSIP2 financed 972 subprojects (54 sub-loans and 43 social inclusion grants) in 37 municipalities (almost half of all municipalities) across the entire country (see Figure 2). Despite the high transaction costs of working with a higher number of municipalities (rather than allocating funds for integrated investments to a smaller number of municipalities), it was considered that a wider geographic spread is more suitable for the scope of the Project, given the scale-up potential of many of the investments financed. Figure 2. Territorial distribution of projects under MSIP2 35. The table below provides a quick snapshot of the type of subprojects financed under MSIP2. EUR 990,478.71 of the initial budget, remained undisbursed after the Project closure, largely because several of the work contracts tendered under the third Call for Proposals, were awarded at lower costs than initial estimates. Table 1. Summary table with MSIP2 subproject 2Number of fully completed subprojects is counted 95 in the RF, since Negotino municipality implemented subproject financed from both subloan and grant funds, and municipality of Veles did not fully complete construction of a green market by the Project closure and is committed to finalize the remaining works from its own funds. 7 The World Bank Second Municipal Services Improvement Project (P154464) Assessment of Achievement of Each Objective/Outcome 36. MSIP2 was available to all North Macedonia’s municipalities, though they had to meet the Project prerequisites. Municipal investment sub-loans (Component A) were made available to all municipalities through the open Calls for Proposals (there were three Calls for Proposals announced during the Project lifetime). To qualify for investment funding under Component A, municipalities had to meet legal requirements for borrowing under the North Macedonia’s legislation, and basic transparency and accountability criteria. Furthermore, the proposed municipal subprojects had to meet the following criteria: the proposed subproject had to i) generate revenues and/or cost savings or to be of high priority for the municipality to deliver essential municipal services; ii) be approved by the municipal council; and iii) meet the standard Bank technical, financial, economic, social, and environmental criteria, as set out in the POM. Poverty/Social Inclusion Grants (Component B) for investments in infrastructure improvements in poorer and marginalized communities within municipal jurisdictions were accessible to all participating municipalities which accessed the sub-loans and successfully launched implementation of their sub-loan financed investments. Since municipal service delivery and quality of municipal services in poorer and marginalized communities in North Macedonia were significantly below the level registered for the general population, this grant component served as an incentive for the participating municipalities to undertake municipal service improvements in such underserved communities. To qualify to receive a poverty/social inclusion grant, municipalities had to present evidence that the grant-supported investments were targeted to the poorest settlement(s) under their jurisdiction. For that, the municipalities were to conduct the urban mapping (the first phase under the UA), with proper identification of vulnerable communities and settlements to be confirmed by an independent expert. The grant amount equaled 27 percent of the contracted cost under the corresponding investment sub-loan (i.e., of the value of the used sub-loan amount, whichever was lower). A grant agreement could be signed as soon as the contractor was hired to implement the sub-loan demonstrated 10 percent progress in the execution of the sub-loan-financed contract. Objective 1: to improve transparency of targeted municipal services in the Participating municipalities 37. Conditional provision of the Project-financed sub-loans encouraged municipalities to regularly publish subproject information, as well as information on local public service performance, disclose municipal budgets and audit results, collect and submit IBNET data, and maintain the citizen feedback mechanisms. In maintaining the transparency promoted by the preceding MSIP operation, MSIP2 had introduced and maintained a set of transparency and accountability criteria for any local administration that wanted to access a sub-loan or a social inclusion grant. Transparency promoted by the Project pertained to three key dimensions: IBNET data submission; disclosed annual budget and audit reports; and established and maintained a stakeholder feedback mechanism. The IBNET platform includes detailed data, updated to the year 2022, on the performance of local water and wastewater companies in North Macedonia, including benchmarkable information on tariffs, coverage rate, or share of non-revenue water. IBNET data were submitted and disclosed by 100 percent of MSIP2 municipalities on an annual basis. To ensure the quality and comprehensiveness of IBNET data, the PMU, as part of the Project-supported TA, hired a consultant who worked with the participating municipalities and helped the data to be entered correctly and accurately. Furthermore, while 100 percent of MSIP2 municipalities published and disclosed their annual budgets and audit reports, following this practice (initially introduced by MSIP and maintained by MSIP2) and the successful Project example, in 2017 the MoF initiated the legislation update, and now transparent publishing of the budget information is made mandatory for all municipalities in the country. The stakeholder feedback mechanisms have also been used to disseminate relevant information about the subprojects. Most municipalities provide subproject descriptions on the websites where they collect stakeholder feedback. Some of the municipalities, like Gazi Baba, for example, have started using this approach for all their development projects. 38. In addition to meeting clear transparency and accountability criteria, 100 percent of MSIP2 participating municipalities regularly published the subproject progress information on their official websites or elsewhere (e.g., the official Facebook page, the Facebook page of the mayor, local newspapers, regional radio stations), making the 8 The World Bank Second Municipal Services Improvement Project (P154464) subproject implementation pace and associated data transparent and available for all citizens, and enabling to get and take into account the corresponding feedback. All 37 participating municipalities have set up at least one citizen feed- back platform (the PMU has followed up on this issue with each municipality to make sure that such mechanisms are established and functional), and most have used more than one citizen feedback platform. For example, the Municipality of Valandovo used the city hall website, the city’s Facebook page, local newspapers, and regional radio stations to reach out to its citizens and has also won a national transparency award for the innovative and efficient ways it used citizen engagement mechanisms. For the UAs, the local population was engaged in the consultations that took place during the preparation of these documents. After their completion, the UAs were adopted by the Municipal Councils, which was an obligatory step in the procedure, and each municipality was recommended to publish the final UAs on their website. This recommendation was followed by several municipalities. The UA process has also helped to mobilize the local community and involve them in the design of the subprojects financed from social inclusion grants. The Municipality of Kavadarci, has used the feedback mechanism to adjust the technical solution for the modernization of streets in the Kiro Krstev community, to also introduce stormwater management systems, in areas where citizens indicated frequent floods during storms. The Municipality of Bogovine, which through MSIP2 subloan funds purchased different types of municipal vehicles (e.g. backhoe loader, crane mover, mini-excavator, dump truck, multifunctional vehicle for cleaning and winter maintenance, riding mower) for its local service company CSE Sharri, published regular posts on the CSE’s Facebook page (NPK Sharri Bogovine), informing the citizens how the purchased equipment is used and helping to improve living conditions for the municipal population. In larger cities, communication with the citizens through the municipal or mayor’s Facebook pages has proved to be the most efficient tool in collecting citizen feed-back. While it was expected that a total of 500,000 visits would be made to the web platforms where project-related information was posted, the total number of visits reached over 675,000. In smaller localities, word-of-mouth and inter-personal relationships (e.g., direct conversations with the mayor or local administration representatives) have been most efficient in spreading relevant information about projects. 37. Public consultations were also organized for all of the MSIP2-financed 97 subprojects, with wide participation. The initial target was to have at least 1,600 stakeholders participate in consultations, but the final number of participants was 2,468, of which 871 (35 percent) have been women. The Project also made a particular effort in prompting and encouraging women’s participation in the public consultations to make sure that their voices are heard and taken into account. The women’s participation has been encouraged through several different measures. For example, given the lower-than- expected turn-out of women in public consultations for the first two Calls for Proposals, the municipalities that applied under the third Call for Proposals were encouraged to specifically target and invite women to the public hearings. Furthermore, while conducting polls for citizen satisfaction, the municipalities were encouraged to actively encourage women to participate. The PMU also worked with the consultant in charge of the UA of poor/vulnerable areas, to identify and promote the ways to ensure the active consulting with women when determining the priority needs of these poorer and vulnerable communities. 38. The PMU also provided hands-on support to participating municipalities, to strengthen transparency. For example, direct assistance was offered with the collection and reporting of IBNET data; recommendations were given for the use of various stakeholder engagement mechanisms; support was offered with the dissemination of information on subprojects; and advisory aid was given with the preparation and implementation of consultation events. Objective 2: to improve financial sustainability of targeted municipal services in the Participating municipalities 39. The investments financed by the MSIP2 sub-loans had to generate revenues or save costs, hence they were contributing to municipalities improved financial sustainability. The Project surpassed the set PDO target of 90 percent of completed subprojects that generated improved financial performance, including through increased revenue earnings or cost savings. Since the borrowing capacity of most of the participating municipalities were limited and inevitably shaped 9 The World Bank Second Municipal Services Improvement Project (P154464) the value of sub-loans (average EUR 346,399, median EUR 347,635) and related investments, their impact on the overall financial condition of individual municipalities/CSEs was confined. Consequently, the Project-supported municipal subprojects aimed at specific investment-related cost savings or revenue generation and could not be expected to achieve more ambitious targets, for instance enabling cost recovery by a CSE or a significant improvement of the fiscal position of a municipality. Financial sustainability was assessed at the sub-loan level through subproject appraisal documents (subproject PADs), and all completed sub-loan-financed projects should generate savings/revenues if the parameters set in their subproject PADs are followed after the subproject implementation. All of the subproject PADs prepared for subloan- financed investments identify the proposed projects as generating savings/revenues, and then the PMU followed up with the participating municipalities to verify the expected financial sustainability results. 40. The PMU offered assistance with the preparation of loan subproject PADs to interested municipalities and also made sure that the resulting documents had a clear focus on the financial sustainability dimension. Most municipalities preferred to have the subproject PADs prepared by the consulting company hired by the PMU as part of the MSIP2 TA, and even those municipalities that preferred to prepare the subproject PADs internally have asked for a review from the consulting company to ensure that their subprojects would contribute to the improved financial sustainability of the municipal services. In the process of the elaboration of the subproject PADs, the PMU pro-actively proposed solutions that strengthened local financial sustainability. All subproject PADs were also reviewed by the Bank team on technical, financial, E&S aspects and the Bank comments were duly incorporated by municipalities with PMU support. 41. Since MSIP2 design put municipalities in the driving seat, allowing them to concentrate on their specific priorities and not pre-defining specific investments or sectors, different types of sub-loan financed subprojects generated gains or savings in different categories. For instance, investments in the rehabilitation and extension of the water and sewage networks helped CSEs to expand their customer base and generate additional recurrent revenues that can be used for further improvements of networks. In Strumica, the replacement and installation of ultrasonic water meters and remote reading equipment and the extension of the secondary distribution gas network led to reduction of non-revenue water to under 1 percent, increased revenues of "Strumica Gas" by more than 2 percent and increased total invoiced water by more than 10 percent. Rehabilitated roads enabled better access to opportunities and contributed to improved quality of life and better connectivity, and, in some cases, made the municipal areas which benefited from the Project-supported interventions more profitable for the private sector. For example, the rehabilitated road network in the city center of Kavadarci has led to an increase in local tax revenues of 2.5 percent from the businesses along these roads (i.e., around EUR 25,000 extra per year). Better quality roads also help with the provision of public transport services and lower the cost of maintaining the public transport fleet. The purchase of equipment has helped municipalities to internalize key public services, with benefits both with respect to cost savings, and more efficient service delivery (e.g., responding much faster to an emergency, such as the removal of a fallen tree that blocks an important local road). For example, in Bogovine, the purchase of a snowplow has helped save EUR 25,000 per season, as the municipality has internalized the cost associated with snow removal – particularly for the settlements that are higher up in the mountains. In Kumanovo, the acquisition of new public utility equipment, has led to increase in revenues for several CES’, including higher towing revenues for CSE “Kumanovo Parking’, higher revenues for CSE “Kumanovo Gas” (an estimated additional EUR 16,000) and higher revenues for CSE "Cistota i zelenilo" from waste collection and snow removal. 42. Post-implementation data indicates that most MSIP2 subprojects continue to maintain the achieved financial gains or savings with some exceptions when the municipalities still need to do more to continue maintenance of the envisaged financial results. The PMU prepared Monitoring and Evaluation reports for a selection of loan subprojects to determine the impact, current and future, of the finalized subprojects. By-and-large, the financial sustainability assessments from the sub- loan subproject PADs have been maintained post-implementation as well. Also, the subproject PADs prepared for each subproject proposed technical solutions that ensured financial gains or savings. In some cases, however, the technical 10 The World Bank Second Municipal Services Improvement Project (P154464) solutions from the subproject PADs have not been followed as proposed. For example, in Tetovo, the purchase of 5 public transport buses for the newly established local public transport company would have been operated in a financially sustainable manner, if the bus ticket price would have been set at an average of MKD 32 (EUR 1 = MKD 61.5). Due to social considerations, however, the bus ticket price has been set at MKD 20, which, coupled with the significant increase in fuel prices and regional energy crisis due to the Russia’s invasion of Ukraine, led to having around 40 percent of operating costs being covered from subsidies (an estimated EUR 300,000 for 2023). Nonetheless, the Municipality of Tetovo is committed to continue operating the new local public transport system, and it plans to consolidate the service by developing a bus depot and building bus stations along the urban routes serviced. Moreover, the 5 buses introduced help to abate around 351 tons of CO2 per year, valued at a total social cost of around EUR 65,000. 43. The MSIP2 participating municipalities also improved their financial sustainability thanks to access to affordable sub-loans (EUR 18.7 million) that came with competitive pricing, complemented by the availability of social inclusion grants (EUR 4.4 million). A comparison of interest rates of MSIP2 sub-loans to other available potential sources of financing from the North Macedonia National Development Bank and commercial banks indicates that MSIP2 financial conditions were more favorable and offered a stable and reliable source of municipal investment funding. MSIP2 funds were accessible to all municipalities, through three open Calls for Proposals organized over the 6.5 years of the Project implementation. The Borrower confirms that the participating municipalities are paying back the sub-loans on time and in accordance with the provisions of their sub-loan agreements. Social inclusion grants focused on the poorer municipal communities further improved this already advantageous offer. By virtue of MSIP2 flexible design, the participating municipalities could also combine MSIP2 financing with other funding sources, such as the municipal own funds or funds of other donors. 44. Besides injecting funding, MSIP2 also contributed to building the municipal capacity to plan their borrowings, match the borrowing limits with the municipal priorities and manage their investment subprojects, which contributed to their improved sustainability and better delivery of municipal services. By its design, the Project put municipalities in the driving seat and empowered them as decision makers which are accountable for their decisions. The municipalities ensured that they have the borrowing capacity to apply for MSIP2 funds, selected the types of municipal infrastructure investments that were of priority to the municipalities, demonstrated their borrowing capacity, led investment subprojects’ preparation (with help of PMU and mobilized consultancy through the MSIP2 TA), including subproject and technical solutions supported by financial and economic calculations, and were responsible for the arrangements for the subproject works supervision. These elements aimed at enhancing mid- and long-term sustainability of municipal functioning. In particular, the financial discipline and, thus, financial sustainability of participating municipalities, was strengthened by the pre-condition of having adequate borrowing capacity, as it forced municipalities to better prioritize interventions, and this prioritization process also required them to think about the potential of prioritized projects to generate savings or revenues3. The MoF assessed the borrowing capacity of each municipality that applied for MSIP2 financing, and the PMU only accepted applications from municipalities with adequate borrowing capacity. This helped avoid or minimize situations where operation and maintenance costs would not be properly covered following the Project completion. Borrowing capacity thresholds have also been used to prioritize interventions in individual municipalities. For example, the Municipality of Zelino was assessed to have a borrowing capacity of around MKD 42 million when it first expressed an interest in MSIP2, but borrowing capacity decreased to MKD 29 million by the time the Municipality of Zelino actually applied. Thus, the PMU instructed the municipality to identify, from the originally proposed six subprojects, a subset that would be within the municipality’s newly 3 Legislation indicates that in case of short-term borrowing, “the total debt of the municipality made on the basis of short-term borrowing and short-term borrowing from the Central Budget during the fiscal year may not exceed 30 percent of the realized total revenues of the current-operating budget of the municipality in the previous fiscal year”. For long-term borrowing, “the total annual repayment of the debt (principal, interest and other expenses) made on the basis of long-term borrowing and long-term borrowing from the Central Budget may not exceed 30 percent of the total revenues of the current operating budget of the municipality from the previous fiscal year. The total amount of outstanding long-term debt of the municipality including all guarantees may not exceed the total revenues of the current operational budget of the municipality in the previous year” 11 The World Bank Second Municipal Services Improvement Project (P154464) assessed borrowing capacity. The municipality of Zelino conducted a broad citizen consultation campaign to identify which of the originally proposed investments were more important to the community. Ultimately, one school rehabilitation and two critical road projects were selected. The school rehabilitation offered better studying conditions for 92 students, and the two roads helped improve the connectivity of two outlying villages within the municipality (Grupcin and Novo Selo). Objective 3: to improve inclusive delivery of targeted municipal services in the Participating municipalities 45. The improved inclusive delivery of targeted services in the participating municipalities/CSEs was achieved through Poverty and Social Inclusion grants that aimed to incentivize municipal investments in infrastructure improvements in poorer and marginalized communities. While the sub-loan-financed investments into municipal infrastructure, capacity building of municipal and CSEs staff and the use of the introduced stakeholder feedback mechanism, MSIP2 helped to improve municipal services delivery as a whole, the Project had an important focus aimed at improving inclusive delivery of municipal services, to enable poorer, vulnerable and marginalized communities to benefit from municipal investments and improve quality of life. Poverty/Social Inclusion Grants were awarded to the participating municipality after the confirmed start of the civil works contracts financed from their sub-loan, and after the urban mapping of the poorest settlement was confirmed by the independent expert for verification of poverty and social inclusion grants, hired by the PMU. The confirmed start of civil works contracts meant that the contracts for the sub-loan financed investment were signed and the contractor demonstrated at least 10 percent progress in their implementation. The urban mapping presented an initial stage of the UA process and was based on the UA principles4. It served as a basis for the participating municipalities to identify communities/settlements that would benefit from the grants, as well as list their priority investments. The grant amount to an individual municipality was 27 percent of the contracted amount for the sub-loan (i.e., of the value of the used sub-loan amount, whichever was lower). 46. All Intermediate Results associated with Municipal Investment Sub-loans, and improved delivery of municipal services, have been achieved. On the numbers of sub-loans signed, the initial target was 20, the revised target (in August 2020) was 29, and the final number is 37 (although only 36 have been successfully completed5). But it is not just number of sub-loans that have been over-delivered, but also actual outputs. The sub-loans delivered 8.8 km of rehabilitated/new storm water networks, 1,931 m2 of public buildings with energy efficiency improvement, 34 solid waste management vehicles, 145 new waste bins, 886 upgraded streetlights, 2,447 m2 of rehabilitated public spaces, 626 m of rehabilitated water supply and storm-water networks, 3,422 m of rehabilitated/new sewage networks, as well as 44.3 km of reconstructed or rehabilitated roads or streets. 47. With respect to the Intermediate Result focused on Piped household water connections that are benefiting from rehabilitation works undertaken by the project, the initial target of 600 was surpassed, with the final value being 2,650. Impact was significant in other sectors as well. Thus, the PMU estimates that rehabilitated/modernized local roads and streets within the sub-loan component have benefited 79,098 people, rehabilitated public buildings are benefiting 5,317 people, water supply investments enabled 45,590 people to benefit, new solid waste management vehicles directly benefit 204,358 people, modernized streetlights benefit 6,167 people, rehabilitated public spaces benefit 21,853 people, and rehabilitated/new sewage networks are benefiting 1,390 people. 48. Of the 37 municipalities that accessed sub-loans, 35 municipalities completed the prerequisites for accessing the social inclusion grants and implemented grant-financed investments. The initial target was to have 17 social inclusion 4 The purpose of the UA was to: i) identify a list of project needs at settlement level by using a participatory approach; ii) rank settlements in terms of project needs by using a fact based technique rather than perception; iii) identify “viable” projects given preparation for the project (basic projects documents, procurement plan, allocations in the development budget etc.); iv) identify projects from the “viable” projects that are part of the strategic documents. 5 The sub-loan subproject on the Green Market in Veles, could not be completed as planned, due to the dramatic increase in steel prices, needed for the construction of the structure. Nonetheless, the Municipality of Veles is committed to finalize the intervention from its own funds. 12 The World Bank Second Municipal Services Improvement Project (P154464) grant-financed subprojects signed, adjusted to 25 in August 2020, and with the end number being 436. There were over 55,000 project beneficiaries from marginalized communities – 12.98 percent of the total number of project beneficiaries, and over the target of 10 percent. 49. Direct interviews, organized during the February 2023 ICR Mission, indicate the Social Inclusion Grants have been highly appreciated – both by the local administrations and by the targeted community, as the grant-financed subprojects were identified with a close involvement and through attentive consultation with the benefiting communities. The municipalities appreciated the access to grants that helped address critical development issues in their poorer communities. The PMU worked closely with the municipalities to engage the target poorer and vulnerable communities in the identification of the potential grant-financed subprojects and to ensure that the focus of the proposed subprojects directly responds to the need of the poor/vulnerable communities. For example, in Valandovo, the consultations with citizens from three poor/vulnerable communities conducted by the local administration identified proper waste collection as a key issue. Consequently, the grant funds were used to purchase trash bins for individual households, as well as collective trash bins, that have been installed in these poorer communities and have generated high community satisfaction in the project results. In Kavadarci, a poor/vulnerable community, located on one of the hills surrounding the city, requested the introduction of a stormwater system to prevent the frequent floodings caused by heavy rains. Consequently, MSIP2 social inclusion grant financed this stormwater system, along with the extension of the water system and the rehabilitation of roads and side streets where stormwater and water systems were introduced. Another example relates to the Municipality of Delchevo where consultation with the people in its vulnerable settlements (Dramche, Iliovo, Vetren, Star Istevnik, Rzlovci, Stamer) indicated that one of their critical needs was adequate firefighting service. These communities are dispersed and in a mountainous forested area, with frequent summer wildfires that threatened the livelihoods and property of the people living there. Consequently, Delechevo used its social inclusion grant to purchase a firefighting vehicle allowing to quickly and efficiently respond to the wildfires that plague the vulnerable community areas in the summertime. Please see a list of grant-financed investments in Annex 6.1. 50. The impact of the Poverty/Social Inclusion Investment Grants has been substantial, despite the relatively small cost of financed subprojects. Thus, out of 43 subprojects financed from these grants, 13 focused on local roads and streets, 3 subprojects were focused on improvements of the water supply networks, 2 on water supply and storm water systems, 2 on energy efficiency in public buildings, 18 on acquisition of vehicles and equipment for solid waste management, public hygiene, and other utility vehicles and equipment, 1 on street lighting, 3 on the rehabilitation of public spaces, and 1 on the extension of the sewage network. With respect to performed works, MSIP2 grants financed 11.5 km of local roads and streets, 4.1 km of water supply networks, 1.3 km of water supply and storm water networks, 1,206 m2 of more energy efficient public buildings, 24 public service vehicles, 728 waste bins and containers, 90 modernized streetlights, 2,500 m2 of rehabilitated public spaces, and 3.2 km of new sewage lines. Overall, these grant-financed subprojects benefited a total of 73,195 people (17 percent of total MSIP2 beneficiaries) and contributed to improved delivery of municipal services for poorer and vulnerable communities and, as such, improved inclusive delivery of targeted municipal services. Justification of Overall Efficacy Rating 51. Overall efficacy of the Project is Substantial. The Project contributed to improving transparency, financing sustainability, and inclusive delivery of targeted services in the participating municipalities and their CSEs. The Project directly benefited 22 percent of the North Macedonia’s population and provided participating municipalities with affordable financing for some of their key priorities, while building their competences and capacities towards more transparent public service delivery, better citizen engagement, increasing public revenues and/or savings, and expanding improved municipal infrastructure and services, to the general population and to poorer and vulnerable communities. 6 Several municipalities accessed more than one social inclusion grant. 13 The World Bank Second Municipal Services Improvement Project (P154464) C. EFFICIENCY Rating: Substantial 52. MSIP2-financed investments brought positive financial and economic results for the participating municipalities. Through its two investment components (sub-loans and grants), the Project enabled municipalities’ investments in various sectors. Such investments already increased residents’ living standards and some of the investments’ economic benefits have already been generated while there are other economic benefits that are still expected to materialize in the years to come. For instance, improved urban infrastructure, such as public spaces and municipal roads, will lead to a reduction of vehicle operating costs, time savings, improved urban livability, increased safety of movement for residents, lowered price of consumer goods and enhanced accessibility of service. These investments will also contribute to mitigation of climate change, as they will lead to reduced CO2 emissions due to improved energy efficiency. Some of the undertaken subprojects that relate to public hygiene (e.g., solid waste management, water supply, sewerage), will yield health benefits from reduced mortality and morbidity, increased potable water supply and improved sewage collection and treatment. The investments in education such as construction of new primary schools or modernization of the existing school buildings not only made them more energy-efficient, but also generated various in-school and out-of-school benefits. In-school benefits include gains in the efficiency of the education system due to improved conditions for education for both kids and pedagogical staff. Out-of-school benefits include improvement of the income-earning skills of the students and externalities—benefits that accrue to society at large beyond the direct project beneficiaries. These investments also made the selected municipalities to become better places to live and more attractive places to invest. 53. MSIP2’s key financial and economic indicators, derived from analyses of the subproject sample, are positive. The analyses calculated Financial and Economic Net Present Value (FNPV, ENPV) as well as Financial and Economic Internal Rate of Return (FIRR, EIRR). The table below presents these key indicators extrapolated to the entire MSIP2. The detailed analysis is presented in Annex 4. Out of the selected samples, most of the subprojects generate good results and reflect MSIP2’s good design and implementation. Table 2. Financial and economic indicators for MSIP2 FNPV FIRR ENPV EIRR 1,371,766 5.61% 8,100,966 9.13% 54. The Project also performed well in terms of the implementation efficiency. For MSIP2, implementation/operational efficiency was substantial. While there was a need to process two extensions of the closing date, these extensions responded to delays caused by political instability, and they ultimately allowed to support more investments and trigger better results in target municipalities, including a higher number of poor/vulnerable people that benefited from the social inclusion grants. The target values of PDO and intermediate indicators were enhanced accordingly. Component costs have not varied much from estimates proposed at Appraisal, while the redistribution of uncommitted and saved funds from Component B and C to Component A (processed in 2020 and 2022) allowed to support a larger number of municipalities applying for sub-loans under the third Call for Proposals and cover the increased prices for the construction works observed in the region and the country in 2022, without compromising implementation of activities financed from other components. Disbursement reached 96 percent of the loan funds. A total of EUR 990,478.71 remained unused (primarily because the bids for some of the subprojects approved under the last Call for Proposals were lower than the estimates) and were returned by the Borrower to the loan account after the loan closure and completion of all payments. Administrative costs were well within expected costs, with Project Management costs being slightly lower that the estimates at Appraisal. There were no Additional Financings processed under MSIP2. There was only one change of TTL assignment during the Project preparation and implementation, and the same TTL handled the Project from MSIP2 effectiveness to project completion, and the core Bank team remained stable through the Project life. 14 The World Bank Second Municipal Services Improvement Project (P154464) Assessment of Efficiency and Rating 55. The Project’s efficiency is rated Substantial. The Project achieved good NPV and IRR values and has had a positive impact beyond what can be measured through an economic analysis. MSIP2 catalyzed EUR 24 million in investments, and achieved a 97.88 percent disbursement rate, while utilizing EUR 830,200 (or less than 3.3 percent of the loan funds) for the Project management, Capacity Building, Monitoring and Evaluation. EUR 990,478.71 that remained undisbursed after the Project closure, largely because several of the works’ contracts tendered under the third Call for Proposals, were awarded at lower costs than initial estimates, were returned to the loan account. The extension of the loan closing date not only compensated for the initial delays during the first two years of MSIP2 implementation (due to the postponed Loan Effectiveness and political crisis in the country during 2016-2017) but allowed to fully use available funds and support more municipalities and beneficiaries and, consequently, scale up the initially planned targets of PDO and intermediate results indicators, and surpass some of the Project outcomes and outputs. The Bank team and the PMU team have remained stable throughout the Project implementation, contributing to the Project implementation efficiency. D. JUSTIFICATION OF OVERALL OUTCOME RATING 56. The overall Outcome rating is Satisfactory. The Satisfactory rating is justified by the High relevance of the PDO, Substantial efficacy and Substantial efficiency. The MSIP2 objectives were highly relevant at the Project appraisal and closure, as confirmed by the MSIP2 strong alignment with the Government’s programs and subsequent CPS and CPF documents. MSIP2 achieved or exceeded the expected outcomes and delivered its three objectives of improved transparency, financial sustainability and inclusive delivery of targeted municipal services in the participating municipalities across the entire country. Attribution of these improvements to the Project activities is clear. Diversified investments financed by MSIP2 directly benefited 22 percent of the population of North Macedonia, with a concerted effort to mobilize women in the subprojects consultations, and with targeted support to poorer/vulnerable communities in the participating municipalities. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 57. Since the intended primary Project objective was to improve the transparency, financial sustainability and inclusive delivery of targeted municipal services in the participating municipalities, it was expected that the Project would benefit all municipal populations across the gender boundaries, and the direct and indirect beneficiaries of MSIP2 are balanced between women and men. Previous experience has shown that men would be more likely to participate in the consultation events, and this created a risk that the subproject-financed investments would reflect more men’s rather than women’s preferences. Consequently, the PMU made a dedicated effort to engage women in consultations, and this effort has paid off, with more women taking part in consultations. Institutional Strengthening 58. At the national level, MSIP2 continued to maintain the dialogue on reforming the national approach to municipal financing that was developed under MSIP, and the success of MSIP in strengthening institutional capacity has been cemented during MSIP2. Most importantly, the MSIP introduced the practice of regularly disclosing the budget and relevant financial documents for participating municipalities/CSEs. That practice was taken over in the implementation of MSIP2 and then gradually extended by the government to all municipalities/CSEs in North Macedonia, through the Law on Accounting for Budget and Budget Users that was introduced in 2017 and made publication of annual financial statements mandatory for all municipalities and budget users. Furthermore, the same data that were collected and reported as part of the IBNet benchmarking program and promoted by MSIP2 is now part of the national Energy Regulatory Commission’s (ERC) 15 The World Bank Second Municipal Services Improvement Project (P154464) questionnaire that is to be completed by every CSE as of 2019. Based on these data, the ERC determines the minimum prices for the CSE services, approves the utility services prices or recommends their correction. 59. MSIP2 also benefited from a strong and capable PMU within the MoF. The PMU was exemplary in performing all Project management tasks and delivered the Project quickly and efficiently, enabling it to achieve the PDO and meet or surpass all targets set at Appraisal. The PMU also played a key role in the successful preparation of the ongoing Bank- financed Energy Efficiency Project (P149990) and now performs the PMU functions for this operation. In July 2020 the PMU was also tasked by the government and the Bank to support the activation and implementation of US$44.8 million Contingent Emergency Response Component (CERC) under the North Macedonia Local Roads Connectivity Project (P170267), whereby key PMU staff took responsibility for the overall coordination of the CERC execution, including preparation of the corresponding Environment and Social Framework, CERC Annex to the POM, Emergency Actions Plan, and other CERC-related documents7. 60. At the municipal level, MSIP2 contributed to the overall strengthening of the capacity of municipal staff in project preparation, implementation and construction supervision through the provision of the corresponding TA and formal and on-the-job training. Support to municipalities was provided from start to finish. As a first step, the PMU organized workshops with municipalities in all eight statistical regions of North Macedonia. In the application phase, the PMU offered hands-on support with the preparation of the application package as part of all three Calls for Proposals, while also providing comments and suggestions on the technical documentation prepared by the municipalities. Selected municipalities received, subsequently, support with the preparation of eligibility criteria (e.g., adequate reporting of IBNET data) and organization of consultation events. Furthermore, the PMU, with support of the consulting company financed by MSIP2 TA, extended to municipalities the needed TA for preparation of quality subproject PADs. In most cases, municipalities took on the offer of the PMU for help with the preparation of the subproject PADs and expressed their satisfaction for the support received in a closing MSIP2 workshop8. All participating municipalities also received training on Bank Procurement guidelines and the Environmental and Social Safeguards framework. Continued support on the Bank procedures and supervision of construction contracts was also offered by the PMU on an ad-hoc basis, during MSIP2 implementation, in response to challenges that arose along the way. As part of TA extended under the social inclusion grants component, the Project provided support of experienced consultants who helped the municipalities with the quality preparation of the UAs, including urban mapping, as the first UA step, allowing for identification of the poor/vulnerable communities which would be targeted by the grants. In addition, the Project brought in a dedicated expert who helped to prepare the UAs and verify that the grant-financed subprojects proposed by the municipalities for the poor/ marginalized areas actually responded to the needs of people living there. In individual interviews with six MSIP2 beneficiary municipalities and as part of MSIP2 closing workshop the hands-on support provided by the PMU, along with measures to strengthen the capacity of local administrations, were overwhelmingly praised. Mobilizing Private Sector Financing 61. While private sector financing was not mobilized directly through MSIP2, it is likely that indirectly the Project has contributed or will contribute to the mobilization of private investments. In particular, investments in the rehabilitation/ modernization/construction of local roads and/or in utilities networks may help to make certain areas more attractive for private investors. Similarly, the introduction of wastewater treatment plants and sewage networks can reduce the contamination of agricultural products and lead to higher yields and capital for more investments in productive capacity. 7 The CERC activated under the North Macedonia Local Roads Connectivity Project (P170267) provided wage subsidies in the economic sectors most affected by the Covid-19 crisis. While the North Macedonia Government’s General Secretariat acted as an implementing agency for the CERC-supported activities, it did not have sufficient experience and capacity for dealing with the Bank-financed operations. To fill in this gap, the Secretariat team was supported by four key MSIP2 PMU staff: Financial Management Specialist, Procurement Specialist, Social Safeguards Specialists and MSIP2 PMU Lead Coordinator who were in charge of the overall coordination of the CERC execution. 8 Conducted on February 24, 2023, with all 37 participating municipalities invited and 28 municipalities present. 16 The World Bank Second Municipal Services Improvement Project (P154464) Investments that help improve the quality of life in a municipality (e.g., rehabilitation of a public space) can help improve the productivity of the people living there, with beneficial effects for the private companies that employ them. For example, the improvement of connective infrastructure in the Municipality of Kochani has improved access to the city’s industrial zone, with employment growing by 60 people, and tax revenues from the industrial area growing by 3.6 percent after the Project implementation. The local administration of Kavadarci indicated that the rehabilitation of several streets in the center of the city have helped attract more businesses to the area and have increased taxed revenues from the area by 2.5 percent. Poverty Reduction and Shared Prosperity 62. Poverty Reduction and Shared Prosperity were a clear focus of MSIP2 . MSIP2 design benefited from introduction of the Poverty/Social Inclusion Investment Grants component to provide the incentives for the municipalities to invest in improved municipal services for the poorer/vulnerable/marginalized communities. More than 425,000 people benefited directly from MSIP2, of which 12.98 percent were from poor/vulnerable communities (exceeding the target of 10 percent). The transparent sub-loan approval processes covered municipalities from all over the country, regardless of political affiliation or ethnic composition. Furthermore, the implementation of MSIP2-financed subprojects that were executed by the local construction companies generated 2,759 jobs linked to the MSIP2 investments. Other Unintended Outcomes and Impacts 63. Financed subprojects, including sub-loans and grants, also brought hard to quantify benefits for the environment, health, comfort, or safety. For example, the new wastewater treatment plant and sewage network in the settlement of Jurumleri, from the Gazi Baba municipality is expected to help to offset voluntary and involuntary sewage discharges in the Vardar River and in the ground, which regularly affected agricultural crops and created an environmental and health hazard. The rehabilitation of a local road in the Municipality of Chucher Sandevo has helped to improve traffic safety, enabled easier access of people to economic opportunities, and allowed faster access of firefighting vehicles and ambulances to several communities in the municipality. The acquisition of new and efficient municipal public services vehicles in the Municipality of Kumanovo (i.e., construction machine combines trench loader, equipment for removal and disposal of waste, equipment for winter maintenance of roads, vehicle for removal of illegally parked vehicles, equipment for construction and maintenance of the gas network) will help the local administration to provide key public services in a more cost effective and efficient way. For example, snow removal can be organized internally by Kumanovo CSE, based on weather conditions, rather than through cumbersome and potentially more expensive service contracts. The installation of LED lights in the Municipality of Krivogashtani has not only helped reduce energy and maintenance costs but enabled safer access to the residential buildings in the serviced area and improved quality of life for the people living in the respective communities. In Strumica, the Project-financed replacement and installation of household ultrasonic water meters with upgrade of the equipment for distant reading and integration of the water meters in the system for distant reading lowered operation and maintenance costs for the CES (e.g., by reducing the amount of un-accounted for water) and also improved comfort for citizens and overall accuracy of the system. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 64. The PDO was realistic and clear with well-structured components. The PDO remained unchanged during the Project lifetime and continued to be highly relevant to the development priorities at both the national and municipal levels throughout the MSIP2 implementation period and at the time of the operation closure. The components and activities were well aligned with the set objectives. Furthermore, the strong Project design meant that indicators and targets were well 17 The World Bank Second Municipal Services Improvement Project (P154464) chosen from the Appraisal stage, with target values of selected indicators appropriately increased in August 2020 (with the first restructuring) to capture the MSIP2 results during extended project implementation period. 65. The Project applied a demand-driven and municipality-based approach, building on the successful experience of the first MSIP. In addition to adding several features of the MSIP as eligibility criteria for accessing sub-loans under the MSIP2, Project design also included an enhanced focus on inclusive delivery of targeted municipal services through its poverty and social inclusion investment grants component, allowing citizens of poorer and vulnerable communities to benefit from the access to improved municipal infrastructure. MSIP2 design also ensured comprehensive citizen engagement measures and public consultations, so that the selection of subprojects responded to people’s needs and to enable citizens’ feedback to be collected and taken into account. In addition, requirements were introduced for the open and transparent publishing of information so that citizens and other stakeholders could voice concerns, identify potential problems, or propose improvements during project implementation. 66. The MSIP experience indicated a need for a stronger assessment of municipalities’ borrowing capacity to service the sub-loan, and to finance subsequent O&M costs. Thus, a more robust financial appraisal process was recommended to be adopted by the PMU and the MoF, which included a comprehensive financial analysis that went beyond the operating revenue analysis and the compliance check of loan size with the Law on Self-Financing of Local Governments. 67. The Project correctly put its focus on the municipal priorities and needs that had to be confirmed and discussed with the population of the participating municipalities. This focus allowed the Project to go through government change without the need to change its design and objectives. In particular, the PAD candidly indicated the risk of the possible government change, both at the national level and at the local level, and, indeed, the start of the Project coincided with the national Parliamentary elections in North Macedonia in 2016, leading to delays during the first years of the MSIP2 implementation and delayed MSIP2 effectiveness, due to a prolonged elections period without a functional Government. However, because the Project correctly focused on municipal needs, even the changed national and local governments (local elections were organized in 2017) continued to strongly support the Project and its objectives, and the majority of re- elected local authorities confirmed the subproject applications submitted by the predecessors. B. KEY FACTORS DURING IMPLEMENTATION Factors subject to the control of government and implementing agencies 68. The overlap of the start of the Project with the Parliamentary elections in North Macedonia in the beginning of 2016, led to a half a year delay in declaring the Project Effectiveness9 (see also paragraph 76 below). Parliamentary elections were conducted, following a period of political turmoil, on December 11, 2016. However, no political party or coalition was formed until mid-2017. Given the political deadlock in forming a new government and the fact that the national elections were to be followed by local/municipal level elections, there was an uncertainty on how the national and local governments would function and the risk that the proper functioning of local governments would be paralyzed for some time due to the absence of clarity on the date of the municipal elections, negatively impacting the preparation and implementation of the municipal subprojects. The local elections campaign was kicked off on September 25, 2017 and conducted in two rounds (the first one on October 15, 2017, and the second on October 29, 2017), overlapping with the phase of launching implementation of the sub-loan-financed subprojects under the 1st Call of Proposals and slowing down MSIP2 implementation pace, as there was a need to ensure that the newly elected mayors and municipal councils would support the subproject proposals submitted by the previous local administrations. MSIP2 PMU approached all 22 municipalities that responded to the 1st Call for Proposals with a request to confirm their intention to go ahead with their subprojects and got confirmation from 16 municipalities. While the fact that the vast majority of the new local administrations confirmed their 9The Bank MSIP2 loan approval notice underscored that the project is open to all municipalities regardless of political or ethnic affiliations and noted that in view of the upcoming elections in the country, the project would not be declared effective or disburse funds until after the elections. 18 The World Bank Second Municipal Services Improvement Project (P154464) commitment to MSIP2 and willingness to go ahead with the existing subprojects proves the high relevance of MSIP2 and its sound design, the delays in declaring the Project Effectiveness followed by the delays in starting the subprojects due to local elections were among the factors rationalizing 18 months extension of MSIP2 closing date processed in August 2020 to allow for the successful completion of the already approved subprojects. As mentioned above, this extension also enabled the use of the Project funds that remained uncommitted to help local economies survive the COVID-19 shock through the continued provision of financing to municipal infrastructure projects and associated public works. 69. The Project enjoyed strong Government support throughout its implementation. This support was one of the important factors enabling the Project to overlap initial implementation delays caused by the overlap of the MSIP2 start with prolonged parliamentary elections in 2016 followed by the local elections in 2017. With 6.5 years total implementation time from the Declaration of Effectiveness on July 14, 2016, MSIP2 is among the faster disbursing IPFs in the Bank. 70. As in the case of first MSIP, the PMU’s strong performance was essential to achieving the Project’s objectives. The PMU was responsible for the overall Project management, provided guidance and support with the project implementation to the municipalities and CSEs, and ensured that the Bank fiduciary (procurement and financial management) and safeguards guidelines were duly observed. It collected and monitored data on the Project progress, performance indicators and outcomes, as well as supported the municipalities (including via a hired external consultant company financed by Project) in preparing subproject applications (subproject PADs, bidding documents, procurement), and followed up with the municipalities and CSEs to ensure the quality of municipal supervision of the subproject implementation through regular visits to the subproject sites. In interactions with 28 of the 37 MSIP2 beneficiary municipalities as part of the MSIP2 closing workshop in February 2023, the competence and strong operational focus of the PMU was repeatedly mentioned by the municipalities as one of the major positive features of the Project. The PMU has also strongly promoted and ensured COVID- 19 protection measures at all sites during the COVID pandemic, following the guidance provided by the Bank, and allowing the Project to continue deliver, but with all needed staff safety and health protection measures put in place and with the contract implementation schedules adjusted accordingly (in particular, to capture the need for social distancing that call for work by smaller teams, to follow the declared lockdown periods, etc.) 71. The participating municipalities, as the sub-borrowers from the MoF, were responsible for preparing the subproject’s proposals and conducting the procurement, with support of the PMU, and were in charge of supervising the corresponding civil works. While the majority of the participating municipalities successfully implemented these tasks, there were cases of insufficient institutional and human capacities for managing public infrastructure investments (both in larger and smaller municipalities, but predominantly in smaller ones). There were also cases of insufficient technical capacity of some local contractors or sub-contractors that sometimes led to the necessity to extend the contract completion deadlines and fix deficiencies during the liability period. All these challenges were addressed by means of additional support provided by MSIP2 PMU’s engineering team through more frequent visits to the subproject sites, maintaining close contacts with municipal project managers and collaborating with them on a daily basis to enhance their understanding of the contracts’ provisions up to completion of the civil works and commencement of the subprojects. Factors subject to World Bank control 72. While the MSIP2 loan was approved by the Board on January 11, 2016, the Bank management informed the Borrower that, in view of the upcoming elections in the country, the Project would not be declared effective or disburse funds until after the elections. This decision to postpone effectiveness by several months was made by the Bank management to avoid implementation in an immediate pre-election environment in municipalities and was strongly encouraged by some shareholders. With changing electoral timing in the country, the Bank revised this decision and declared MSIP2 effectiveness in July 2016 to allow municipalities to implement basic infrastructure investments. The decision was taken with municipalities and their citizens in mind, since MSIP2 was to finance local level projects aimed at improving basic infrastructure, with an objective to enhance transparency, financial sustainability, and inclusive delivery of 19 The World Bank Second Municipal Services Improvement Project (P154464) targeted municipal services. Nevertheless, this half a year effectiveness postponement resulted in the situation when the active phase of implementation of the first cohort of sub-loan financed subprojects (submitted under the 1st Call for Proposals) overlapped with the start of the local elections, slowing down the MSIP2 implementation pace. In particular, it was deemed important to wait for the new local administrations to be elected and then confirm if they and the respective municipal councils still would support execution of investments proposed by their predecessors. 73. The Bank team was proactive and responsive to the emerging Project needs and coordinated well with the PMU and Project beneficiaries. The Bank’s supervision and reporting were adequate and provided space for flexibility when it was needed. This included, for instance: i) adjusting to a prolonged period of political turmoil, including advocating for declaring MSIP2 effectiveness and facilitating development of the action plan to accelerate MSIP2 implementation to put the project back on track; ii) successfully transitioning to a virtual work mode during COVID-19, while ensuring continued active interaction with the client and efficient project implementation support; iii) extending the closing date, to compensate for the delayed Project start and enable the full use of the Project funds, so that MSIP2 financing would be fully utilized to help local economies survive the COVID-19 shock through continued provision of financing to municipal infrastructure and associated public works (August 2020), and to gain the needed time for the Borrower to secure the necessary MSIP2 budget limits for 2022, to process all remaining sub-loan and grant payments and ensure successful completion of all project activities and achievement of the PDO targets (September 2022); iv) supporting the Borrower in timely processing of two re-distributions of funds (December 2020 and July 2022) from Components B and C to Component A, allowing for the enlarged portion of sub-loan financing in support to a larger number of municipalities under the 3rd Call for Proposals and helping to cover the increased prices for the construction works observed in the country in 2022, without compromising implementation of activities financed from other components. The Bank team has been commended by the MoF, PMU and the municipalities for its professional conduct, for efficient and open communication, and for the high capacity to efficiently address challenges that emerged along the way, expressed through official correspondence to the Bank, individual interviews with municipalities during the ICR mission and at the MSIP2 closing workshop in February 2023. 74. Capacity building activities were delivered to the Client’s satisfaction and allowed continuing dialogue on strategic aspects of the future financing of municipal infrastructure. Following the guidance of the Bank team, MSIP2 PMU undertook several TA activities for participating municipalities, including provision of trainings on Procurement and on Environmental and Social Safeguards, and undertaking a number of capacity building activities oriented towards the Project implementation, such as the PMU strengthening which in turn, supported municipalities, and hiring external consultants to support municipalities (IBNet, preparation of subproject PADs, preparation of UAs, etc.). The guidance and support by the Bank team for the implementation of these TA activities were instrumental in bolstering local and PMU capacity. Factors outside the control of the Government control and implementing agencies 75. In 2016-17, the Republic of North Macedonia experienced a period of political instability which delayed the start of MSIP2.10 During the two years of the political turbulence and electoral crisis, progress of some government programs, including the projects financed by the WBG, was slowed down or stalled. During the pre-election and election time, the law does not allow municipalities to incur new debt and, thus, do new borrowing, and the public administration cannot hire new staff. Without a functional Government in place, there was also reluctance from the Bank side to start the Project, as it was not clear if a potential new Government coalition had the same commitment to the Project. 76. COVID-19 pandemic led to a temporary slow-down of the Project implementation and the need to introduce mid- process adjustments. As was the case all over the world, COVID-19 pandemic slowed down implementation of the MSIP2- financed subprojects, with some subprojects even being partially stopped in observation of lockdown measures in the 10National parliamentary elections were postponed several times (elections were aborted twice – in April and June 2016 and were finally conducted on December 11, 2016) with a new coalition government established on June 1, 2017 only. 20 The World Bank Second Municipal Services Improvement Project (P154464) participating municipalities at different stages of the pandemic and due to interruptions in global supply-chains and limited or stopped domestic and international travelling. For example, the implementation of a relatively large contract on the construction of a wastewater treatment plant in the municipality of Gazi Baba had to be postponed, as the Bulgarian contractor that won the construction bid could not enter North Macedonia due to COVID-19 imposed border restrictions. Also, new Bank guidelines required the contractor to follow enhanced OHS measures adapted to the new COVID-19 realities. Adjusting to the new realities, the PMU engineers managed to stay in daily contact with the participating cities and contractors via phone, Skype, Viber, WhatsApp, and video-conferences to monitor the subproject implementation status and continued to ensure close supervision of the activities, while the field visits were also performed by the PMU as soon as the COVID-19 situation allowed for physical inspections. They also received and filed photos and videos documenting the contract implementation progress on a bi-weekly basis and using the Zoom platform for virtual meetings with the municipalities and contractors whenever it was impossible to visit the subproject site due to travel restrictions. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) Rating: Substantial M&E Design 77. The M&E design was aligned with the PDO. While the Bank guidelines at the Project appraisal did not require PADs to include a theory of change, the Project’s logic was well designed and led to achieving the envisaged objectives. Indicators and targets were well chosen. The experience and results of MSIP helped to better calibrate the RF for MSIP2. 78. The RF was substantially adequate at the appraisal stage and aimed at measuring the intended Project results associated with the PDO. There were no changes to the composition and formulation of the PDO and IRI indicators over the life of the Project, and all targets were met or surpassed. The PDO indicators related to transparency and inclusive delivery of municipal investments were well defined and clear, as well as the indicator on the number of direct project beneficiaries. The indicator on financial sustainability was formulated in a way that allowed monitoring the progress towards achieving the set target. Individual calculations of generated saving or increased revenues were monitored at the subproject level by the PMU, and then they were aggregated and reflected in the PDO indicator. MSIP2 also duly enhanced the Results Framework with appropriate indicators on Citizen Engagement and made sure that the appropriate indicators are gender-disaggregated. Provision of a single numerical target for all kinds and sizes of investments was not eligible under MSIP2 due to the framework nature of the project and, as such, was recognized as not feasible. Due to a large number and the diversity of the subprojects and municipalities, the ease of data gathering and assessment of subprojects’ results differed. For instance, for larger subprojects related to water supply, energy efficiency of public buildings, street lighting, or solid waste management, the calculations were relatively easy, since granular data was usually available and financial results could be documented. For example, the subproject in the Municipality of Krivogashtani envisaged replacement of 355 existing light bulbs and installation of 40 new light bulbs. According to the data provided by the municipality average electricity costs before the project was implemented (2018-2019) were in the amount of MKD 1,607,761 were consumed, and the costs after the project was finished (2020-2021) were in the average amount of MKD 1,195,565. From these results it is evident that the electricity costs drop by 25.6 percent in MKD, following project intervention. In the case of smaller subprojects oriented towards infrastructure rehabilitation - for instance, rehabilitation of a short road section in the middle of a municipality - the assessment of the associated financial gains was less straightforward, as distilling of the data needed for the assessment of the investment’s results could be difficult or unfeasible. For example, the road maintenance costs that were expected to decrease after the rehabilitation are often aggregated at a higher level and it’s difficult to assign them to a specific road section. As already discussed (see Efficacy section, Objective 2), economic gains of these investments could be significant, yet financial benefits, which are duly discussed in the subproject PADs, are not always 21 The World Bank Second Municipal Services Improvement Project (P154464) easy to calculate in practice, and may be influenced by outside factors. For example, the acquisition of 5 buses in Tetovo was assessed to be sustainable at a ticket price of MKD 32 and at estimated passenger numbers. In practice, however, the municipality chosen to set the ticket price at MKD 20 for social reasons so that the public transportation would be available to poorer citizens. As a result and since the gasoline prices have increased significantly after the Russia’s invasion of Ukraine, this particular subproject did not bring the expected financial results so far. 79. Since the Project was demand-oriented, no sectoral envelopes were earmarked. Consequently, no sectoral targets were embedded in the PDO indicators. Moreover, eligible municipalities were diverse (small and large, poor and more affluent, and had different borrowing capacity). Hence, proposing a standardized numerical target related to expected improvement of the fiscal situation in a given subproject type was not feasible. At the same time, based on the MSIP experience, and following consultations with the municipalities during project preparation, there were two types of sector- related indicators embedded in the Intermediate Result Indicators (IRIs) – namely an IRI on number of households with piped water connections that are benefiting from rehabilitation works undertaken by the project, and IRIs on km of rural and non-rural roads rehabilitated – as it was estimated, based on the MSIP experience, that there will be municipal demand for these types of investments. M&E Implementation 80. The PMU regularly and pro-actively gathered the Project related data from the municipalities which allowed proper monitoring of the Project’s progress. The financial management and safeguard-related data were of good quality and compiled and reported in regular intervals. While there were two types of sector-related IRIs, as explained above, the PMU was collecting data about other types of subprojects to capture the project value added and verify the achievement of the expected financial results (i.e., savings or increased revenues). These are presented in more detail in Annex 1, Section B. M&E Utilization 81. The MSIP2 M&E framework built on the lessons from MSIP, and the strong design at the Appraisal stage enabled successful project implementation, without major changes. The M&E framework was well designed to monitor achievement of targets and inform the decisions on introduction of the swift adjustments, when necessary. For example, the target values of most PDO and IRI indicators were increased as part of the Project restructuring to process extension of the MSIP2 closing date to appropriately capture the Project results during the extended implementation period. All increased target values were either met or surpassed. Also, as the monitoring of the indicator related to the number of women participating in public consultations revealed the modest progress toward the set target during first three years of the project implementation, it drew the Bank and PMU attention to this issue. The PMU reacted through an enhanced effort and promotion of women’s engagement in consultations. This effort, which also benefited from the guidance provided by the Bank Safeguards team, led to a significant improvement during the last years of the MSIP2, and the target value was successfully met. Justification of Overall Rating of Quality of M&E 82. The Overall M&E Rating is Substantial. The M&E framework was well designed, remained stable, and data was systematically collected. The RF was well developed, with no changes throughout project implementation, through timely revision of the target values following 18 months extension of the closing date, and with all targets met or surpassed. The nature of the Project design and a small scale of some investments posed challenges related to gathering data to measure financial sustainability while the Project found the way to overcome this challenge whereby the PMU monitored individual calculations of generated saving or increased revenues at the subproject level by the PMU, and then aggregated and reflected them in the PDO indicator. 22 The World Bank Second Municipal Services Improvement Project (P154464) B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 83. The Project-financed subprojects were in compliance with Bank’s environmental, social and fiduciary policies. At appraisal the Project was classified as Category B and analyses found that potential adverse environmental impacts of the project would be in most cases minor or negligible. The following WB safeguards related operational policies were triggered: OP/BP 4.01 on Environmental Assessment, OP/BP 4.12 Involuntary resettlement, and OP/BP 7.50 on Projects on International Waterways. The Environmental Assessment and Management Framework (EAMF) that was already in place for the MSIP was updated to serve for MSIP2 as well, including screening criteria and processes for land acquisition and environmental aspects. 84. Environment and social safeguards. All subprojects were environmentally compliant and produced no notable impact to the environment during the execution phase, or during the operation phase. The Environmental Safeguards rating was Satisfactory and had a low-risk rating for the Project duration. At Appraisal, Components A and B were not expected to generate any significant adverse environmental effects. Physical works were expected to be small-scale rehabilitation, for which EMPs were considered sufficient. A clear line of communication between the PMU and beneficiary municipalities on the status of environmental compliance of subprojects was established from early on, with municipalities regularly submitting environmental reports to the PMU and providing further clarifications upon request. Consequently, there were only minor issues that arose over the life of the Project, but all were properly addressed. For example, a subproject for the Municipality of Tetovo focused on road reconstruction that required the resettlement of people affected. The municipality started preparing a Resettlement Action Plan (RAP), but the subproject was eventually dropped as land ownership issues could not be solved. In Kochani, a subproject focused on the regulation of the Kochanska River (on a small portion of the river), ended up cutting down three times more trees than originally anticipated, and the municipality was asked to undertake compensatory planting, with the revegetation plan to be reviewed and agreed upon with the Ministry of Environmental Protection. Work on the subproject was not allowed to start until the revegetation plan was approved and responsibilities for its implementation assigned. COVID-19 pandemic required a number of mid-process adjustments. Following the Bank’s temporary guidelines on COVID-19 response that complement the Environmental and Social Framework, the PMU prepared and shared with the contractors and municipalities a Notification calling for additional protection measures to be taken by contractors and municipalities to ensure occupational health and safety (OHS) as well as environmental safety on civil works sites, and also steps to be taken to prevent the spread of COVID-19 in any cases of occurrence. These measures became an integral part of respective contracts between municipalities and contractors. 85. Fiduciary safeguards. The FM was consistently rated Satisfactory until Project closing. MSIP2 mirrored the existing FM and disbursement arrangements under the MSIP, and the internal controls framework instituted for the MSIP were considered reliable and were continued under MSIP2. As a condition for Loan Effectiveness, the FM section of the POM had to be completed, with arrangements applicable to the new project and with emphasis on the controls related to the sub- loans and grants component. MSIP2 was in compliance with the financial management covenants, namely, satisfactory financial management arrangements were in place, timely and accurate quarterly reports were submitted to the Bank, and satisfactory and timely submission of project and entity audit reports without any major weaknesses and deficiencies identified by the auditor in the management letters. There were no significant issues with the disbursement of loan/grant proceeds under the project during the implementation period, designated accounts were replenished in a timely manner and reconciliations provided accurately. There were no registered ineligible expenditures nor undocumented designated account balances present at the time of the loan closure. The audit report for 2021 was submitted to the Bank with two months delay due to longer selection process because of low rate of response from the audit firms to the RFP. The quarterly Interim un-audited Financial Reports for the third quarter of 2022 were submitted by the PMU on time, reviewed by the Bank, and found satisfactory. 23 The World Bank Second Municipal Services Improvement Project (P154464) 86. Procurement. The procurement was rated Satisfactory across the life of the Project. Procurement under MSIP2 was governed by the applicable Procurement and Consultant Guidelines as defined in the Loan Agreement, and by the specific arrangements as agreed in the procurement plan and in POM. There were no issues of concern reported with regard to the procurement procedures carried out during Project implementation. The PMU led the quality assurance and management of subproject procurement process carried out by the respective municipalities. The PMU played an important role in reviewing and assisting in improving technical designs prepared by the project participating municipalities and also provided extensive implementation support to the municipalities during the tender process and subprojects implementation. The procurement was consequently managed well and was carried out professionally and in line with the agreed procurement policies and procedures, and there were no major issues or delays. Complaints about the procurement process were rare, and in case there were any, they were promptly addressed by the PMU in consultation with the Bank. Given the nature of the Project, the municipalities were involved in the various stages of the procurement process. The Procurement Specialist organized regular workshops for the relevant staff of municipalities and provided hands-on support and guidance to strengthen their procurement capacity. On an annual basis, the Bank’s Procurement Specialist assigned to the project carried out post reviews of randomly selected contracts procured by the municipalities. In general, the findings of these post reviews were positive. All municipalities published the procurement notices for the tenders in two newspapers of wide circulation and on their website. In most of the cases, a reasonable competition was secured with three to five bids received, and in very few cases less than that. The qualification and evaluation criteria were reflected in the bidding documents and were clear and balanced for the scope and nature of the contracts. In general, the contracts were awarded to the lowest evaluated substantially responsive bidder, which was usually the bidder who submitted the bid with the lowest price. The contract award details were published on the relevant municipality’s website, or on other web platforms, such as the municipalities’ Facebook page. In all cases the documents, related to a specific procurement procedure reviewed, were available and duly filed, and it was easy to locate them (with very few exceptions). The overall implementation of contracts was timely and within the contract amount, with few exceptions where additional time was needed for completion of works, mostly due to bad weather conditions in the specific location. The works contracts’ implementation was monitored by independent technical supervision consultants and the engineers of the PMU. C. BANK PERFORMANCE Rating: Satisfactory Quality at Entry 87. The Project was well prepared at the appraisal. Not only was it well aligned with Government’s program and Bank’s strategic documents (strengthening fiscal and public financial management), but it also accurately identified municipal needs (diversified municipal demand) and put the municipalities in the driving seat, by ensuring that they engage and consult with their citizens. Moreover, the strong project design, with correctly identified objectives, enabled the Project to successfully overcome a prolonged period of national and local elections, while enjoying support and commitment from both national and local governments from the Project start to its closure. Thanks to a proper assessment of potential risks (for instance, assessing early on the capacity of a municipality to take on a sub-loan and cover subsequent O&M costs of finalized investments), suitable mitigation measures were put in place that allowed effective and efficient Project implementation. The demand-driven approach, sub-loans conditioned by a clear set of the eligibility criteria, and the social inclusion grants flexibly tied to accessing and starting the implementation of a sub-loan and focused on well identified and independently verified poor/vulnerable/marginalized communities, proved efficient in incentivizing the municipalities/CSEs to undertake actions that contributed to the PDO achievement. The RF allowed proper monitoring of the progress toward the PDO, with no changes to initially set indicators. 88. The Bank stressed from the start the need for strong PMU capacity with the PMU being equipped by a team of engineers and dedicated environmental and social safeguards specialists. This ensured a clear framework of subprojects 24 The World Bank Second Municipal Services Improvement Project (P154464) approval process through the POM to provide potential beneficiaries with stable and transparent conditions for investments from the very beginning and pushed for strong criteria for assessment of municipalities’ capacity to take on a sub-loan and maintain finalized investments. Quality of Supervision 89. The Bank’s supervision was effective during the Project and is rated Satisfactory. The supervision was oriented to achieving the PDO efficiently. The PDO was successfully achieved, and the Bank was pro-active in solving emerging issues, arranged for regular supervision missions, successfully adapted itself for provision of the continued guidance and implementation support during COVID-19 pandemic, and ensured needed composition and technical expertise of the Bank task team and candid communication with the Client. Thanks to a very good collaboration between the Bank team and the PMU, the latter’s high capacity and stability of the Bank’s team, any emerging operational issues and/or issues related to social, environmental, and fiduciary policies were quickly solved. This was complemented by skillful and knowledgeable task team leaders and technical expertise contributed by closely collaborating Global Practices within the Bank (Water, Urban, Social, Environment), and enabled providing timely and detailed advice needed to achieve the Project objectives. The permanent support from the country office and the Bank team’s local staff were also fundamental. Sustained supervision was also ensured during COVID-19, when physical visits to the subproject sites and in-person meetings with the Client and the Government were not possible, allowing the Project to navigate through the challenges posed by COVID-19. Justification of Overall Rating of Bank Performance 90. The overall rating of Bank performance is Satisfactory. The Project applied a successfully tested demand-driven and municipality-based approach that was proved by the first MSIP, while taking an enhanced focus on the poorer/vulnerable/marginalized communities through the social inclusion and poverty investments grant component. MSIP2 strategically and efficiently incorporated key lessons learned under MSIP that were translated into strong results framework, more extensive stakeholder engagement and closer attention to ensuring women’s engagement, and clear eligibility criteria for the interested municipalities. The Bank also provided the flexibility to extend the Project closing date to allow the maximum number of municipalities to benefit from the sub-loans and social inclusion grants and overcome the factors beyond the Borrower’s and Bank’s control (such as extended electoral cycles and COVID-19). D. RISK TO DEVELOPMENT OUTCOME 91. The sustainability of development outcomes (improved transparency, financial sustainability, and inclusive delivery of the targeted services in the participating municipalities) will depend on the municipalities’ ability to maintain the resu lts of investments financed under the Project and the promoted approaches. Important elements pertaining to the enhanced transparency are already embedded in the national regulatory framework which ensures their stability (see paragraph 39). Having learned from the MSIP, stronger financial assessment procedures were introduced for MSIP2, to ensure that participating municipalities have the financial capacity not only to repay the sub-loans, but also cover O&M costs for the finalized investments. The proper maintenance of infrastructure and equipment, as well as adequate tariffs (e.g., for water and wastewater, public transport, solid waste management, street lighting), are important elements for sustained financial sustainability and the long-term performance and quality delivery of the targeted services and will require dedicated human and financial resources. 92. The sustained capacity of municipalities/CSEs in preparing and implementing future investments in municipal infrastructure will depend on their ability to retain the municipal staff trained during the Project and who participated in preparation of the subproject applications and supervision of investment contracts. The available data suggests that municipal staff turnover is relatively high. Hence, proper onboarding of new employees and knowledge codification and dissemination by more experienced and knowledge municipal employees should be ensured. The availability of affordable financing sources for municipal investments and municipal financing mechanism that would go beyond the Bank project or 25 The World Bank Second Municipal Services Improvement Project (P154464) programs financed by other donors are also important. The Bank will continue the dialogue with the government through the North Macedonia Sustainable Municipal Development Project (NMSMDP, P174897) which will take a holistic approach to municipal service sustainability that envisages both financial and environmental sustainability of services, while contributing to improved coverage and quality of municipal services and their enhanced resilience, and introduction of climate change mitigation measures, when feasible. There is a continued demand from the municipalities for municipal financing, and all municipalities and local administration representatives interviewed for the preparation of this ICR and who participated in MSIP2 closing workshop expressed clear interest and eagerness to participate in a potential NMSMDP – also dubbed as MSIP3. V. LESSONS AND RECOMMENDATIONS Project Design 93. MSIP2 built on the strong foundation of the first MSIP, which not only permitted a successful project implementation and achievement of targets, but also allowed for a stronger design at Appraisal. Most significantly, the actual results under MSIP allowed the identification of more realistic indicators and targets for MSIP2. While there is always a room for further improvements, such as identifying a stronger indicator for the financial sustainability dimension, most development projects require a trade-off between aiming to achieve meaningful impact and having the proper tools to monitor that impact. Overall, MSIP2 is a testament to the power of repeater projects to compound the development impact registered under previous projects, while at the same time refining and improving project design based on lessons learned. 94. The demand-driven and municipality-based approach that was taken by MSIP2 can serve as a good example for how to structure a lending operation in the Urban sector. One feature of the Urban sector is that it is inherently eclectic, including not only a myriad of functions that are covered by local administration, but also a wide variety of mandates and responsibilities from country to country. In countries that are highly decentralized, local administrations tend to be strong and have wider mandates, while in more centralized countries, local administrations tend to be more reliant on the Central Government for investments and fiscal transfers. Similar to MSIP, MSIP2 did not provide or specify sectoral allocations from the start, but rather offered municipalities the flexibility to choose the type of investments that best suited their needs (this was overwhelmingly praised and appreciated by the municipalities). The common thread of the MSIP and MSIP2 was the sub-loan component, which gave local administrations access to sub-loans at better terms than they could obtain on the private market (and there are also limitations on local borrowing) and use these sub-loans to finance different type of municipal investments, depending on the priority of a particular municipality. Subproject PADs which were prepared for each municipal subproject helped to ensure alignment with the Project objectives and the Bank safeguards requirements. In addition to the sub-loan component, MSIP2 successfully introduced social inclusion grants window to intensify the municipal investments in poorer and vulnerable communities. MSIP accepted sub-loan applications from municipalities on a rolling basis, while MSIP2 sub-loans were made available to all municipalities through three Calls for Proposals. Both approaches proved to work well, although in the MSIP2 closing workshop, the municipalities that had participated both in MSIP and MSIP2 indicated their preference for the call-for-proposals mode. 95. MSIP2’s demand-oriented model proved to be successful, yet it also has limitations that need to be considered. The Project encouraged municipalities’ borrowing for improving their transparency, financial sustainability, and inclusive delivery of the targeted municipal services and achieved all envisaged objectives. Proper identification and confirmation of municipal demand at the appraisal stage was an important prerequisite to inform the Project design. However, due to the limited municipal borrowing capacity (as described in the Efficiency section), the average investment size was relatively small. Thus, careful management of the expectations in terms of the envisaged implementation results is essential for any projects applying a similar model. Furthermore, while the demand-driven design allows for flexibility and is highly appreciated by the municipalities, it limits the ability to specify targets of sector-specific indicators at the project preparation stage. Hence, 26 The World Bank Second Municipal Services Improvement Project (P154464) incorporating approaches for measuring specific sectoral targets over the project duration when more information about the character of municipal demand and implemented subprojects is available, and collecting other supporting evidence and data showcasing the project value added that might go beyond the RF, would help measure and report all project impact. 96. Grant windows could potentially be opened to municipalities with lower borrowing capacity and should not necessarily be linked to the sub-loans window. Making grants available only to municipalities that have accessed sub-loans, leaves poorer municipalities (albeit with large needs as well) outside the Project. While MSIP2 made effort to include poorer and vulnerable communities by requiring to focus grant-financed investments at their needs, it is advisable that similar project consider the option of making grants available also to municipalities with lower borrowing capacity, as long as some minimal criteria (e.g., capacity to cover subsequent operation and maintenance costs) are respected. 97. Spatial integration of local investments may be considered for future similar projects. While MSIP2 managed to achieve quite a lot with relatively limited funds channeled to each of individual participating municipalities, it is worth to consider the options to allocate funds to fewer municipalities – for example a group of municipalities, to support larger inter-municipal infrastructure investments and enabling subprojects to achieve even stronger overall impact. External Factors to be considered 98. Political instability is one of the most significant risks to achieving Project objectives. MSIP2 is a case in point, as the Project launch overlapped with (unplanned) Parliamentary election and an extended period of political instability and lack of clear leadership in the Central Government. The prolonged election period in the situation of political volatility led to the Bank decision to postpone MSIP2 effectiveness, which then subsequently prompted the extension of the Loan closing date. It is thus advisable for operations with a longer implementation period to carefully assess Political and Governance-related inherent and residual risks. As most lending projects face governmental changes, it is advisable to take the national and local election cycles into account, when known, to plan the project preparation schedule and the project launch. Sustainability 99. A strong Project Implementation entity/unit is critical to the success of a development project. MSIP2 is yet another example that a high-capacity PMU, with strong support from the Bank side, is essential to the success of a development Project. A strong PMU maintains good rapport and communication with end-beneficiaries, responds to issues that arise promptly, identifies the appropriate solutions for the issues that arise, and make necessary adjustments in a timely fashion, if the initial project design would need to be refined. An important lesson for other Bank projects is that it is worth the effort to ensure PMU capacity and identify strong people for staffing the PMU. As was the case for MSIP, MSIP2 benefited from an exemplary collaboration between the PMU and Bank team, and it was one of the critical factors for the successful implementation of the Project. Furthermore, the permanent support from the country office helped ensure smooth project execution and continued collaboration with the Government. 100. A combination of a strong PMU and the Bank implementation support ensured that the implementation delays caused by COVID-19 were minimal. Supervision was done virtually over the pandemic duration, and project implementation processes were adjusted to respond to the new realities. It is important for future operations to properly assess possible risks and include enough flexibility in project design to enable adequate responses to these risks, when they occur. 101. Capacity of municipalities and willingness to follow initial subproject design is critical to the overall impact. To get access to MSIP2 sub-loans and grants, municipalities readily agreed to the conditions required, including explaining how they would ensure the sustainability of investments in the subproject PADs. However, there were cases when, for example, the service delivery tariffs proposed in the subproject PADs to ensure the financial sustainability of the investments were lowered by municipalities after the investment was finalized, for social and/or political considerations. It would be advisable to stipulate the planned conditions after the subproject completion as part of the sub-loan or grant agreements, as they impose more obligations at municipalities as compared with the subproject PADs. . 27 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Improve transparency of targeted municipal services in the participating municipalities Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of participating Number 0.00 20.00 29.00 37.00 municipalities (i.e. the municipalities which signed 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 sub-loan agreements) that regularly publish sub-project progress information on their official websites or elsewhere Comments (achievements against targets): Target achieved and exceeded Objective/Outcome: Improve financial sustainability of targeted municipal services in the participating municipalities Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Percentage of completed Percentage 0.00 90.00 97.00 Page 28 The World Bank Second Municipal Services Improvement Project (P154464) subprojects that generated 31-Dec-2015 14-Jul-2016 31-Jan-2023 improved financial performance, including through increased revenue earnings or cost savings Comments (achievements against targets): Target achieved and exceeded Objective/Outcome: Improve inclusive delivery of targeted municipal services in the participating municipalities Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of the completed Number 0.00 17.00 25.00 43.00 sub-projects that focus on social inclusion 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 Comments (achievements against targets): Target achieved and exceeded Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0.00 100,000.00 120,000.00 425,589.00 31-Dec-2015 14-Jul-2016 05-Aug-2020 23-Nov-2022 Page 29 The World Bank Second Municipal Services Improvement Project (P154464) Female beneficiaries Percentage 0.00 50.00 50.88 Vulnerable/marginalized Percentage 0.00 10.00 12.98 people with marginalized measured as the number of unemployed, social assistance receiving or in other ways vulnerable population that benefits from the project intervention Comments (achievements against targets): Target achieved and exceeded A.2 Intermediate Results Indicators Component: Municipal Investments Sub-loans Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of sub-loans signed Number 0.00 20.00 29.00 38.00 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 Page 30 The World Bank Second Municipal Services Improvement Project (P154464) Comments (achievements against targets): Target achieved and exceeded Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of jobs generated, Number 0.00 1,500.00 1,800.00 2,759.00 measured as the number of employees of contractors 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 and engineering companies that perform works under the sub-projects Comments (achievements against targets): Target achieved Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of visits to websites Number 0.00 500,000.00 675,500.00 that publish sub-project progress information 31-Dec-2015 14-Jul-2016 31-Jan-2023 Comments (achievements against targets): Target achieved Page 31 The World Bank Second Municipal Services Improvement Project (P154464) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Piped household water Number 0.00 600.00 2,650.00 connections that are benefiting from 31-Dec-2015 14-Jul-2016 31-Jan-2023 rehabilitation works undertaken by the project Comments (achievements against targets): Target achieved and exceeded Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Roads rehabilitated, Rural Kilometers 0.00 30.00 24.40 31-Dec-2015 14-Jul-2016 31-Jan-2023 Comments (achievements against targets): Total number of roads rehabilitated has met set targets, but more non-rural roads and less rural roads have been rehabilitated, based on actual requests from the municipalities. Page 32 The World Bank Second Municipal Services Improvement Project (P154464) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Roads rehabilitated, Non- Kilometers 0.00 20.00 32.07 rural 31-Dec-2015 14-Jul-2016 31-Jan-2023 Comments (achievements against targets): Target achieved and exceeded Component: Poverty/Social Inclusion Investment Grants Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number poverty/social Number 0.00 17.00 25.00 40.00 inclusion investment grants signed 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 Comments (achievements against targets): Target achieved and exceeded Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 33 The World Bank Second Municipal Services Improvement Project (P154464) Number of sub-projects, Number 0.00 37.00 54.00 95.00 financed by sub-loans or grants, successfully 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 completed Comments (achievements against targets): Target achieved and exceeded Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of participants in Number 0.00 400.00 1,600.00 2,468.00 consultation activities during sub-projects preparation 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 Number of participants in Number 0.00 120.00 500.00 871.00 consultation activities during sub-projects 31-Dec-2015 14-Jul-2016 05-Aug-2020 31-Jan-2023 preparation - female Comments (achievements against targets): Target achieved Page 34 The World Bank Second Municipal Services Improvement Project (P154464) B. KEY OUTPUTS BY COMPONENT All three Objectives: To improve transparency, financial sustainability and inclusive delivery of targeted municipal services in the Participating municipalities 1. Number of participating municipalities (that is, the municipalities which signed sub-loan agreements) that regularly publish subproject progress information on their official websites or elsewhere. Outcome Indicators 2. Direct project beneficiaries. 3. Female beneficiaries. 1. Number of sub-loans signed. 2. Number of subprojects, financed by sub-loans or grants, successfully completed. 3. Piped household water connections that are benefiting from rehabilitation works Intermediate Results Indicators undertaken by the project 4. Roads rehabilitated, Rural 5. Roads rehabilitated, Non-rural • 37 participating municipalities, which met the eligibility criteria to access a sub-loan • 425,589 direct project beneficiaries, of which 50.88 percent were women, and 12.98 percent came from poor / vulnerable communities • 38 sub-loans signed, with the Municipality of Tetovo having signed two sub-loans • 95 subprojects successfully completed (Municipality of Negotino had one project financed Key Outputs by Component both from the sub-loan and a Social Inclusion Grant, and it is counted as one successfully (linked to the achievement of the completed subproject. Municipality of Veles committed to finish the project from its own Objective 1,2 and 3) funds) • 2,650 piped household water connections have benefitted from rehabilitation. • 24.4 km of rural roads have been rehabilitated. • 32.1 km of non-rural roads have been rehabilitated Page 35 The World Bank Second Municipal Services Improvement Project (P154464) In addition, the PMU has tracked a number of other project related indicators. Some of these include: • 8.9 km of new stormwater network. • 3,137 m2 of public buildings with energy efficiency improvements. • 58 new vehicles and equipment for solid waste management and public hygiene, and other utility vehicles and equipment. • 873 new waste bins and containers. • 976 rehabilitated street lights. • 4,947 m2 of rehabilitated public spaces. • 6.7 km of new or rehabilitated sewage network. Objective 1: To improve transparency of targeted municipal services in the participating municipalities 1. Number of participating municipalities (that is, the municipalities which signed sub-loan Outcome Indicators agreements) that regularly publish subproject progress information on their official websites or elsewhere. 1. Number of visits to websites that publish subproject progress information. Intermediate Results Indicators 2. Participants in consultation activities during subprojects preparation. 3. Participants in consultation activities during subprojects preparation – female. • 100 percent of participating municipalities that regularly publish subproject progress information on their official websites or elsewhere (e.g., Facebook page, local newspapers, Key Outputs by Component regional radio stations). (linked to the achievement of the • 675,500 visits to websites that public progress information. Objective 1) • 2,468 of participants in consultation activities during project preparation, of which 871 were female. Objective 2: To improve financial sustainability of targeted municipal services in participating municipalities 1. Percentage of completed subprojects that generated improved financial performance, Outcome Indicators including through increased revenue earnings or cost savings Page 36 The World Bank Second Municipal Services Improvement Project (P154464) 1. Number of jobs generated, measured as the number of employees of contractors and Intermediate Results Indicators engineering companies that perform works under the subprojects. Key Outputs by Component • 97 percent of participating municipalities achieved increased revenue earnings and/or cost (linked to the achievement of the savings in the completed subprojects. Objective 2) • 2,759 jobs generated through the implementation of the subprojects. Objective 3: To improve inclusive delivery of targeted municipal services in the participating municipalities 1. Vulnerable/marginalized people with marginalized measured as the number of unemployed, social assistance receiving, or in other ways vulnerable population that Outcome Indicators benefits from the project intervention. 2. Number of completed subprojects that focus on social inclusion. Intermediate Results Indicators 1. Number of poverty/social inclusion investment grants signed. • 55,241 people from poor / vulnerable communities that benefited from project Key Outputs by Component intervention. (linked to the achievement of the • 43 of completed subprojects that focus on social inclusion. Objective 3) • 40 social inclusion grants signed. Page 37 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Toshiaki Keicho Task Team Leader(s) Antonia G. Viyachka Procurement Specialist(s) Anneliese Viorela Voinea Financial Management Specialist Antonio Cristian D'Amelj Team Member Noriko Oe Team Member Luan Aliu Team Member Cesar Niculescu Social Specialist Bekim Imeri Social Specialist Jasna Mestnik Team Member Stjepan Gabric Team Member Rama Krishnan Venkateswaran Team Member Tatyana Shadrunova Team Member Kirsten Hommann Team Member Delphine Alberta Hamilton Team Member Supervision/ICR Tatyana Shadrunova Task Team Leader(s) Antonia G. Viyachka Procurement Specialist(s) Tural Jamalov Financial Management Specialist Orlin M. Dikov Team Member Rahmoune Essalhi Procurement Team Page 38 The World Bank Second Municipal Services Improvement Project (P154464) Gulana Enar Hajiyeva Environmental Specialist Anita Bozinovska Team Member Stjepan Gabric Team Member Bekim Imeri Social Specialist Luan Aliu Procurement Team Noriko Oe Team Member Larysa Hrebianchuk Team Member Grzegorz Aleksander Wolszczak Team Member Marina Mijatovic Team Member B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY15 9.273 48,729.89 FY16 31.297 160,404.07 Total 40.57 209,133.96 Supervision/ICR FY16 11.529 54,808.70 FY17 12.864 49,347.26 FY18 13.915 62,209.86 FY19 30.137 100,760.78 FY20 18.008 98,981.42 FY21 30.935 123,377.32 FY22 23.297 104,799.29 FY23 18.002 103,704.62 Total 158.69 697,989.25 Page 39 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Municipal Investments Sub- 19.86 21.25 106.94 loans Poverty/Social Inclusion 5.30 5.04 95.09 Investment Grants Project Management, Monitoring and Evaluation, 1.61 0.92 57.14 and Capacity Building Front end fee 0.07 100 Total 26.77 27.27 101.86 Page 40 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 4. EFFICIENCY ANALYSIS This annex provides an overview of the project activities and their respective Financial and Economic Costs and Benefits and discusses the methods used for analysis and the assumptions made. It also addresses the issue of data sufficiency and provides sensitivity analysis based on key variables and their results on the overall Financial and Economic efficiency. General Overview: Overall, EUR 23,135,217 was spent on sub-projects in 7 different categories. The breakdown of funds based on the Source of Funds is shown in the table below: Subproject budget Number of Source of Funds (EUR) subprojects Sub-loans 18,705,572 54 Grants 4,429,646 43 Total 23,135,217 97 Categories based on types of Subprojects is shown in the table below: Subproject budget Number of Category of subproject (EUR) subprojects Local road infrastructure 9,989,256 43 Street lighting 151,672 3 Sewage 1,708,716 3 Public space arrangement 1,489,949 6 Vehicles and equipment for solid waste management and 4,548,589 27 public hygiene and other utility vehicles and equipment Public buildings 529,592 4 Water supply and storm water 4,717,442 11 Total 23,135,217 97 The MSIP2-enabled subprojects are divided in seven thematic categories. The assignment of a subproject to a specific category indicates the general character of a given sub-projects, however, might not be indicative of the full-scale of works carried out. Many individual subprojects had various sub-components within them, for example, ’local road infrastructure’ subprojects could also include works related to water supply, street lighting, storm water, etc. Selecting the Sample of Subprojects to Analyze the overall impact of MSIP2: MSIP2-financed investments brought positive financial and economic results for the participating municipalities. Through its two investment components (sub-loans, and grants), the Project enabled municipalities’ investments in various sectors. Such investments already increased residents’ living standards and some of the investments’ economic benefits have already been generated and there are other economic benefits that are still expected to materialize in the years to come. For instance, improved urban infrastructure, such as improved public spaces and municipal roads, will lead to a reduction of vehicle operating costs, time savings, improved urban livability, increased safety of movement for Page 41 The World Bank Second Municipal Services Improvement Project (P154464) residents, lower price of consumer goods, and enhanced accessibility of service. These investments will also contribute to mitigation of climate change, as they will lead to reduced CO2 emissions due to improved energy efficiency. Some of the undertaken subprojects that relate to public hygiene (e.g., solid waste management, water supply, sewerage), will yield health benefits from reduced mortality and morbidity, increased potable water supply and improved sewage collection and treatment. The investments in education such as construction of new primary schools and kindergartens or modernization of the existing school and kindergarten buildings not only made them more energy-efficient, but also generate various in-school and out-of-school benefits. In-school benefits include gains in the efficiency of the education system due to improved conditions for education for both kids and pedagogical staff. Out-of-school benefits include improvement of the income-earning skills of the students and externalities—benefits that accrue to society at large beyond the direct project beneficiaries. These investments also made the selected municipalities to become better places to live and more attractive places to invest. In order to analyze the Financial and Economic impact of MSIP2, a sample of subprojects was selected, and financial and economic analyses were carried out. The selected sample and respective project costs are presented in Table 1. The sample selection was purposeful to reflect the five largest subproject categories. They were responsible for 92.90 percent of the MSIP’s total subproject budget and 90.72 percent of the total number of subprojects. Both large and smaller subprojects were selected to account for the MSIP diversity. The value of the subprojects selected for analyses represent 30.28 percent of the total subproject budget of MSIP (Table 2). The sample size constitutes 9.28 percent of the total number of subprojects. If only sub-loans are considered (which according to the Legal Agreements were supposed to be revenue-generating and/or cost-saving), these values are 37.45 percent of the total budget of sub-loan subprojects and 16.67 percent of a total number of sub-loan subprojects. The analysis results of the selected sample are extrapolated to the whole MSIP to assess the Project’s FNPV, FIRR, ENPV and EIRR. Table 1. Sub-project sample selected for the financial and economic analyses Subproject Municipality Subproject Name budget (in Subproject category EUR) Construction of storm water drainage along Kisela Voda 799,873 Water supply and storm water streets in the settlement of Przino Reconstruction of carriageway of streets Kavadarci 867,244 Local road infrastructure and boulevards in Kavadarci Construction of sewage network in the Gazi Baba 1,174,039 Sewage settlement of Jurumleri Reconstruction of part of the local road Chucher Sandevo named Aleksandar Urdarevski-Rudnici 748,243 Local road infrastructure Banjani (cubes) Construction of part of blvd. Vidoe Smilevski Tetovo 987,448 Local road infrastructure Bato – Tetovo Vehicles and equipment for solid waste Procurement of buses for public Tetovo 721,160 management and public hygiene and transportation other utility vehicles and equipment Asphalting of 6 streets in the town of Kocani Kochani 640,071 Local road infrastructure and 5 streets in rural areas Page 42 The World Bank Second Municipal Services Improvement Project (P154464) Procurement of vehicles and equipment for Vehicles and equipment for solid waste Kumanovo public utility enterprises in Municipality of 959,668 management and public hygiene and Kumanovo other utility vehicles and equipment Construction of primary school in v. Cerovo, Zelino 108,297 Public buildings Zelino Total 7,006,043 Table 2. Number and value of subprojects per sub-project category in MSIP and the selected sample Number Budget of Share of sample’s Budget of MSIP2 Number of of MSIP2 sample sub- subproject budget Subproject category subprojects (in sample Sub- projects (in per sub-project EUR) subprojects projects EUR) category Local road infrastructure 43 4 9,989,256 3,243,006 32.46% Street lighting 3 - 151,672 - 0.00% Sewage 3 1 1,708,716 1,174,039 68.71% Public space arrangement 6 - 1,489,949 - 0.00% Vehicles and equipment for solid waste management and 27 2 public hygiene and other utility vehicles and equipment 4,548,589 1,680,828 36.95% Public buildings 4 1 529,592 108,297 20.45% Water supply and storm water 11 1 4,717,442 799,873 16.96% Total 23,135,217 97 9 7,006,043 30.28% Financial Analysis After the selection of the subprojects, the following steps were taken for conducting Financial Analysis: 1. Development of the financial models (assumptions of which are partly based on PADs and data is taken from relevant municipalities and PMU) from the viewpoint of the specific municipalities. 2. Identification of incremental benefits and costs for the whole-time horizons of the specific projects (i.e., the additional benefits and costs that were and will be derived while comparing the “With Project (WP)” and “Without Project (WOP)” scenarios. Page 43 The World Bank Second Municipal Services Improvement Project (P154464) 3. As per relevant and most recent guidelines11, a 5 percent discount rate was used on the Net Cash Flows derived from the model (the same discount rate was used during specific subproject appraisals in PADs because the interest rate on the loan was also 5 percent). 4. Calculation of 12 the Financial Net Present Value (FNPV) and Financial Internal Rate of Return (FIRR) of the project based on the Net Cash Flows with the relevant time horizons. Generally speaking, a project is considered profitable and justified if the sum of expected incremental benefits is larger than the sum of all costs accrued in project implementation. This can be assessed through profitability indicators. • The net present value (NPV) indicator, defined as the sum that results when the expected costs of the investment are deducted from the discounted value of the expected benefits (revenues), is calculated through the following formula: • The internal rate of return (IRR) indicator is defined as the discount rate (r*) that produces a zero NPV. This represents the maximum interest rate that a project could face and still not waste resources. This is called the internal rate of return (IRR). It is calculated through: Based on the analysis performed, the relevant indicators of the selected projects are presented in the Table 3: Table 3. Financial and economic indicators of the selected sub-projects Subproject Municipal Subproject name budget (in FNPV FIRR ENPV EIRR ity EUR) Construction of storm water drainage Kisela along streets in the settlement of N/A N/A Voda 799,873 Przino 191,276 7.30% Reconstruction of carriageway of Kavadarci streets and boulevards in Kavadarci 867,244 805,807 11.20% 1,188,758 16.20% Construction of sewage network in Gazi Baba the settlement of Jurumleri 1,174,039 (668,407) -0.87% 36,864 0.32% Reconstruction of part of the local Chucher road named Aleksandar Urdarevski- Sandevo 748,243 (106,755) Rudnici Banjani (cubes) 3.62% 133,070 6.72% 11 Per the most recent guidelines, a 5 percent discount rate is recommended for project evaluation. Technical Note on Discounting Costs and Benefits in Economic Analysis of World Bank Projects. 12 All the calculations were made in North Macedonia Denar (MKD) and converted into EURs using the exchange rate of 61.62. Page 44 The World Bank Second Municipal Services Improvement Project (P154464) Construction of part of blvd. Vidoe Tetovo Smilevski Bato - Tetovo 987,448 456,001 8.30% 724,440 11.47% Procurement of buses for public Tetovo transportation 721,160 124,939 7.74% 586,701 11.71% Asphalting of 6 streets in the town of Kochani Kocani and 5 streets in rural areas 640,071 (19,654) 4.76% 175,328 7.60% Procurement of vehicles and equipment for public utility Kumanov enterprises in Municipality of 959,668 138,898 o Kumanovo 7.35% 134,480 7.71% Construction of primary school in v. Zelino Cerovo, Zelino 108,297 30,270 6.36% 68,689 8.79% Total 7,006,043 Once the results from the representative sample were calculated, the extrapolation method was used to attribute the results of the sample to the population, i.e., the whole MSIP2 program. Thus, the results are as follows: Indicator Results FNPV 1,371,766 FIRR 5.61% It is also important to see what would happen to the FNPV and FIRR if the Net Benefits calculated for the projects were decreased or increased in the range of 15 percent. These results are shown in the table below: Decrease in Net Benefits by -15% -10% -5% 0% FNPV (1,904,653) (812,513) 279,626 1,371,766 FIRR 4.12% 4.63% 5.13% 5.61% Increase in Net Benefits by 0% 5% 10% 15% FNPV 1,371,766 2,463,906 3,556,045 4,648,185 FIRR 5.61% 6.09% 6.55% 7.01% Economic Analysis After conducting Financial Analysis, the following steps were taken to continue with Economic Analysis, which requires the assessment of a project’s net impact on economic welfare: Page 45 The World Bank Second Municipal Services Improvement Project (P154464) 1. All market prices were converted into economic/shadow prices that better reflect the social opportunity cost of the good or a service, 2. Transfer payments (taxes) were removed, and the relevant externalities (positive and negative) were approximated, 3. A discount rate of 5 percent was applied (a conservative assumption was used as it is similar to the one applied in financial analysis). Overall, there is the general improvement of the social welfare (thus increased positive externalities and decreased economic opportunity cost of capital) 4. The Economic Net Present Value (ENPV) and Economic Internal Rate of Return (EIRR) was calculated based on the converted Net Cash Flows with the relevant time horizons. Exclusion of Taxes As of January 1st, 2023, a 10 percent flat tax rate is applicable on an individual's income from work, self-employment income, income from royalties and industrial property rights, income from sale of own agricultural products, rental income, income from capital, capital gains, and insurance income, as well as other taxable income not categorized separately in the legislation. Personal income tax (PIT), which is included in labor cost and comprises 10 percent has been deducted from the labor costs reflected in the financial costs. Value Added Tax (VAT) at the current rate of 18 percent was deducted from the operations and maintenance as well as capital costs used in the financial analyses. Also, a reduced rate of 5 percent applies to certain goods and services including drinking water from public supply systems and urban wastewater and drainage water for watering of agricultural land and services for the maintenance of public hygiene and waste disposal and this tax was also excluded while converting the financial cash flows. Excise duties are levied on most energy products with the exceptions of coal and natural gas. The excise duty rate for leaded petrol in North Macedonia was EUR 0.397 per litre and EUR 0.353 per litre on unleaded petrol. For diesel which is used as a motor fuel (and not for heating) the excise tax was EUR 0.246 per litre. It is assumed that about 70 percent of cars that are driven in North Macedonia are using unleaded petrol and the rest are using diesel (the other forms of fuel consumption in vehicles are neglected). Based on the average petroleum price of MKD 84.47 per litre, the excise tax represents about 22 percent of the gross price of fuel which is also excluded from economic cash flows (in addition to VAT mentioned above). Tariffs apply to imports from countries with which North Macedonia does not have a free-trade agreement (trade with EU does not have tariffs). The tariffs on key fuels and the proportion of imports in 2019 that have tariffs are depicted in the table below: Value of Imports (EUR Proportion of imports to Fuel Product Tariff million) which tariffs apply Diesel 0% 502 3% Petrol 20% 70 0% Coal, lignite, coke 0% 24 91% Natural gas 2% 71 97% Petroleum coke 0% 27 33% Peat 5% 2 0% Source: World Integrated Trade Solutions and World Bank calculations Conversion Factors Page 46 The World Bank Second Municipal Services Improvement Project (P154464) Identification and application of conversion factors required for the economic analysis were carried out in the following two stages: Total project costs were broken down into three components: Foreign Procurement; Local Procurement and Local Labor Force. It was assumed that 75 percent of the products were purchased internationally and locally (as the Standard Conversion Factor calculated was close to 1, foreign and local procurement were combined together). Also, 25 percent of construction cost was attributed to labor. Standard Conversion Factor (SCF) was calculated as 0.99 as North Macedonia has relatively little import or export taxes and the average difference between world and domestic prices is very small. The actual formula used was SCF = (M + X)/[(M + Tm) + (X – Tx)] where M is the total imports, X is the total exports, Tm is the import taxes and Tx is the export taxes. Shadow wage factor was calculated by the following formula: SW = W*(1-t)*(1-u), where: SW is the shadow wage, W is the market wage and t is the income taxation and u is the unemployment rate of the Country (or region). Thus, by plugging in personal tax rate of 10 percent and average unemployment rate of 24.82 percent for the period 2010-2021 the Conversion Factor was calculated as 0.68. As for Financial Analysis, once the results from the representative sample were calculated, the extrapolation method was used to attribute the results of the sample to the population, i.e., the whole MSIP program. Thus, the results are as follows: Indicator Results ENPV 8,100,966 EIRR 9.13% It is also important to see what would happen to the ENPV and EIRR if the Net Benefits calculated for the projects were decreased or increased in the range of 15 percent. The results of such a sensitivity analysis are presented in the tables below: Decrease in Net Benefits by -15% -10% -5% 0% ENPV 4,423,124 5,649,071 6,875,018 8,100,966 EIRR 7.33% 7.94% 8.54% 9.13% Increase in Net Benefits by 0% 5% 10% 15% ENPV 8,100,966 9,326,913 10,552,861 11,778,808 EIRR 9.13% 9.71% 10.29% 10.86% Page 47 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Page 48 The World Bank Second Municipal Services Improvement Project (P154464) Page 49 The World Bank Second Municipal Services Improvement Project (P154464) IMPLEMENTATION COMPLETION REPORT Second Municipal Services Improvement Project – MSIP2 (Loan No. 8561 MK) Republic of North Macedonia 1. Introduction In order to help local governments in the process of fiscal decentralization to overcome the gap in the provision of funds for financing more costly infrastructure investments, the Government of the Republic of North Macedonia provided financial support to municipalities through the Second Municipal Services Improvement Project. The Loan Agreement for the Second Municipal Services Improvement Project (MSIP2) was signed on January 14, 2016 between the Republic of Macedonia and World Bank. The project was in the amount of EUR 25 million and became effective July 15, 2016. The MSIP2 project development objective was to improve transparency, financial sustainability and inclusive delivery of targeted municipal services in the participating municipalities. The project aimed to achieve this objective by enabling investments into municipal services and infrastructure and in support of institutions responsible for delivering these services, such as municipalities and their communal service enterprises (CSEs). During the project implementation, several revisions of the legal documents took place aimed to reallocate funds between categories, to extend the project closing date and to partially cancel the uncommitted loan funds. All these changes did not affect the overall project objective and it remained unchanged. The Project was restructured two times, in order to extend the loan closing date. The PDO and associated outcomes and PDO indicators remained unchanged, while the target values of selected indicators were updated to capture the results to be achieved within the extended project implementation period. Since vast majority of project activities were completed by January 2023, the Ministry of Finance refunded the undisbursed funds from the Designated account in North Macedonia in the amount of EUR 454,950.46. In addition to this, the amount of EUR 535,528.25 remains as uncommitted loan funds. The whole process for cancellation of undisbursed and uncommitted loan funds in the total amount of EUR 990,478.71 will be completed by end of June 2023. Project Objective and Financing The Second MSIP project development objective was to improve transparency, financial sustainability and inclusive delivery of targeted municipal services in participating municipalities. The Project aimed to achieve this objective by enabling investments into municipal services and infrastructure and in support of institutions responsible for delivering these services, such as municipalities and their communal service enterprises (CSEs), such as water supply, solid waste management, energy efficiency improvement of municipal buildings, local roads, street lighting, stormwater drainage, rehabilitation, reconstruction and construction of schools, kindergartens, sewerage and other services under municipal provision. Second MSIP financed investments in basic local infrastructure and municipal services, provided technical assistance to municipalities and CSEs. Through the Poverty/Social Inclusion Investment Grant component, the Second MSIP supported pro-poor investments in marginalized neighborhoods and therefore directly benefit poorer households in need of better public services. The activities financed within this Project highly contributed to achieving the PDO, demonstrated through the full achievement of set core or intermediate project indicators. Page 50 The World Bank Second Municipal Services Improvement Project (P154464) This also resulted in high percent of disbursement of Project funds i.e., 96 percent of the loan funds as presented below: Table 1: Disbursement and Allocation of Second MSIP funds by sources of funds and components 2. Project Components Component A (Municipal Investments) –The component provided loans to municipalities that were eligible to borrow. Investments financed under this component were mainly for revenue-generating public services and other investment projects of high priority to municipalities and with cost saving potential. Sub-projects included the following: (i) Construction, reconstruction and rehabilitation of local roads and streets (ii) Solid waste management (iii) Water and sanitation services; (iv) Other revenue-generating or cost-saving investments. Component A Results: A total of 38 sub-loan agreements for 54 sub-projects were signed with 3713 municipalities. The total value of disbursed funds from this component amounted to EUR 18,705,572. The largest share of sub-projects i.e., 30 included construction, reconstruction, or rehabilitation of the local road infrastructure in the country. By disbursing EUR 8.5 million, these sub-projects allowed for a total length of 44.3 km of local road infrastructure improved for the benefit of 79,098 inhabitants in 19 municipalities. Water supply investments have been implemented in 2 municipalities amounting to a total value of EUR 1.9 million. These sub-projects included construction of one water treatment plant and installation of 6950 water meters which provided benefits for 45,590 people in these 2 municipalities. Three sub-projects that included construction and reconstruction of storm water networks were implemented totaling the amount of EUR 1.7 million. This resulted in 8,886 meters of reconstructed, rehabilitated or constructed storm water networks in the 2 municipalities where these sub-projects were implemented with 16,645 people who benefited from these sub-projects. Apart from this, one more sub- project included reconstruction of both water supply and storm water network in 1 municipality with a 13 The Municipality of Tetovo had 2 signed sub-loan agreements for two different sub-projects Page 51 The World Bank Second Municipal Services Improvement Project (P154464) disbursed amount of EUR 424,400 and 8,000 inhabitants that have benefited from the 626 meters of reconstructed network. 2 sub-projects were implemented in 2 municipalities that included reconstruction of one municipal building and one multi-purpose center with 1,931m2 of reconstructed/constructed surface area that provided better conditions for 5,317 people from those settlements with a value of EUR 324,984. Within the Second MSIP project 8 municipalities implemented 9 sub-projects that included procurement of 34 communal vehicles, as well as other equipment in the total amount of EUR 3,1 million. This included procurement of waste collection vehicles, backhoe loaders, tractors, trucks, mowers and other related equipment as well as 145 waste bins and containers providing improved municipal services for 204,358 project beneficiaries. 2 sub-projects referred to improvement of street lighting in 2 municipalities. These investments were in the amount of EUR 128,957 and within these sub-projects 886 old lights were replaced with energy efficient lights or new bulbs were installed, thus improving the conditions for 6,167 inhabitants. 3 sub-projects were related to arrangement of public spaces that included regulation of 2 riverbeds with a length of approximately 1 km as well as construction of a green market in the town of Veles with surface area of which was not completed within the Project deadline and the municipality committed to finish this sub-project from its own funds. The amount totaled to approximately EUR 1 million with 21,853 people that have benefited directly or indirectly from these interventions. Two municipalities implemented 2 sub-projects that included construction or reconstruction of sewage systems with a length of approximately 3.4 km of network providing benefits for 1,390 people with disbursed amount of EUR 1.4 million. Table 2: Sub-projects under component A Performed works No. of sub- Loan amount No. of No. of Type of sub-project (meters, m2, no. of projects paid in EUR municipalities beneficiaries vehicles, no. of lights) Local roads and streets (m) 30 8,509,065.77 44,397 19 79,098 Water supply (m) 2 1,991,545.00 0 2 45,590 Storm water (m) 3 1,706,212.00 8,886 2 16,645 Water supply and storm water (m) 1 424,400.00 626 1 8,000 EE of public buildings (m2) 2 324,984.74 1,931 2 5,317 Vehicles and equipment for solid waste management and public hygiene and other utility vehicles and equipment (no.) 9 3,125,977.04 34 8 204,358 Street lighting (no.) 2 128,957.13 886 2 6,167 Public space arrangement (m2) 3 1,083,992.00 2,447 3 21,853 Sewerage network 2 1,410,438.00 3422 2 1,390 Total 54 18,705,572 Component B (Poverty/Social Inclusion Investment Grants) – This component provided grants to municipalities as an incentive for them to invest in infrastructure improvements in poorer and marginalized communities within their jurisdictions in accordance with the results from the conducted Urban Audit. Component B Results: A total of 40 grant agreements for 43 sub-projects were signed with 35 municipalities. Some municipalities had more than one sub-project financed under this component such as the municipalities of Tetovo, Page 52 The World Bank Second Municipal Services Improvement Project (P154464) Delchevo, Kisela Voda, Kavadarci etc. The total amount of disbursed funds from this component amounted to EUR 4,429,645. The largest share of sub-projects – 18 referred to purchase of 24 communal vehicles as well as other equipment in the total amount of EUR 1,4 million in 15 municipalities. This included procurement of waste collection vehicles, backhoe loaders, tractors, trucks, firefighting vehicle and other related equipment. In addition to this, 728 waste bins and containers were procured which provided improved municipal services for a total of 50,679 project beneficiaries. 13 sub-projects included construction, reconstruction or rehabilitation of local roads and streets. By disbursing EUR 1.48 million, these subprojects allowed for a total length of 11.5 km of local road infrastructure improved for the benefit of 10,454 inhabitants in 11 municipalities. Water supply investments have been implemented in 3 municipalities implementing 3 sub- projects for extension or reconstruction of water supply network with a length of 4.1 km, disbursing a total value of EUR 316,325. As a result of these sub-projects, 314 local inhabitants benefited from improved permanent access to quality potable water and better living conditions. In addition to this, 2 municipalities implemented sub-projects that had storm water and water supply networks reconstructed with 1.26 km of network improved. The total amount of disbursed amount was EUR 278,960 providing benefits for additional 3,500 people. 2 municipalities have benefited from investment in school buildings totaling the amount of EUR 204,607. This resulted in 1,206m2 of newly constructed or renovated surface area of schools with 208 local inhabitants that now have improved educational conditions. With reference to street lighting, 90 LED lights were installed in one municipality with a disbursed amount of EUR 22,716 and 1,400 project beneficiaries. 3 sub-projects were related to construction or reconstruction of recreational areas, including placement of benches and other equipment covering a total surface area of 2,500m2. These sub-projects also included reconstruction of 2 riverbeds with a length of 652 meters. The investments in these 3 municipalities amounted to EUR 405,957 with 6,295 people who benefited directly or indirectly from all these interventions. In addition to this, 1 sub-project included construction of sewage network in 1 municipality resulting in 3,291m of operational sewage network. This sub-project was in the amount of EUR 298,278 and 345 people have benefited from this investment. Table 3: Sub-projects under Component B Performed works No. of sub- Grant amount (meters, m2, no. of No. of No. of Type of sub-project projects paid in EUR vehicles, no. of municipalities beneficiaries lights) Local roads and streets (m) 13 1,480,189.72 11,552 11 10,454 Water supply (m) 3 316,325.00 4,157 3 314 Storm water (m) 0 0.00 0 0 0 Water supply and storm water (m) 2 278,960.45 1,269 2 3,500 EE of public buildings (m2) 2 204,607.00 1,206 2 208 Vehicles and equipment for solid waste management and public hygiene and other utility vehicles and equipment (no.) 18 1,422,612.42 24 15 50,679 Street lighting (no.) 1 22,716.00 90 1 1,400 Public space arrangement (m2) 3 405,957.00 2,500 3 6,295 Sewerage network 1 298,278.00 3,291 1 345 Total 43 4,429,645 Page 53 The World Bank Second Municipal Services Improvement Project (P154464) Component C (Project Management, Monitoring and Evaluation, and Capacity Building): This component supported the operational costs of the PMU and assisted with project implementation and monitoring. At the same time, additional support was provided through this component to participating municipalities in the form of technical assistance by hiring external consultants to support municipalities in the preparation of Project Appraisal Documents, IBNet data collection, preparation of the Urban Audits, etc. as well as capacity building support. 3. World Bank Cooperation The project results are due to great cooperation between the Bank team, PMU and MoF. The Bank was proactive and responsive to the emerging Project needs. Bank’s supervision and reporting were adequate and provided space for flexibility when needed. This included (i) providing timely technical advice from the World Bank experts to overcome construction and safeguard related issues; (ii) quick and timely responses on the ground, by conducting field visits when needed; (iii) continuous guidance at all stages of project implementation; (iv) shifting resources from one to another component or approving additional financing sources in order to meet municipal demands, v) extending the Project closing date when needed in order to allow successful completion of all planned MSIP2 activities,. The World Bank Team showed effective, expert and expeditive support and monitoring of the project. 4. PMU Performance The Project Management Unit was already established within the Ministry of Finance in the time of Project preparation and was fully functional during the entire Project period, which is one of the advantages in both project preparation and implementation. The PMU contributed to the overall strengthening of the capacity of municipal staff in sub-project preparation, implementation and construction supervision through provision of corresponding TA, and formal and on-the-job trainings. The PMU day-to-day ad hoc support and guidance to municipalities in all sub-project phases was crucial for successful implementation of all Project related activities, achieving the desired PDOs and reaching 96 percent disbursement of Project funds. 5. Lessons learned: i. The capacity at local level for identification, prioritization, preparation and supervision of the implementation of projects is limited. Therefor supporting municipalities in strengthening these capacities is more than needed; ii. Including the Poverty/Social Grant Component and the Urban Audit as basis for approving these grant funds showed great influence in achieving three things (i) motivate municipality to consider less developed areas for investment (ii) prepare a real map of the needs and problems of all the settlements and (iii) increase the citizens participation in the projects prioritizing process. iii. It is crucial to have a well functional PIU with qualified staff which will support municipalities and relevant national institutions in overall project implementation activities, as well as supportive and qualified Bank Team. iv. Participation in the MSIP2 Project allowed eligible municipalities to strengthen their capacities in citizen engagement in line with the international practices. However, due to limited institutional capacity at local level, guidelines from PMU was necessary through the entire process and contributed to the success of the project, enabling inclusion of the citizens in all stages of the sub-projects. v. In general, the quality of the construction works was satisfactory. However, some low performed construction works were noticed due to the low capacity of engaged local contractors and Page 54 The World Bank Second Municipal Services Improvement Project (P154464) subcontractors. Furthermore, there were cases of insufficient quality of the embedded materials and lack of responsibility among the key staff in the contractors’ companies and municipal supervising engineers. Therefore, stricter quality selection criteria should be introduced during the procurement procedure, with additional penalty measures on time management and performed quality of works considered for being introduced in the contracts and extension of the warranty period applied. vi. There have been several remarks regarding the quality of implemented construction activities which is largely due to the lack or insufficient supervision of the construction works on site, since most of the municipalities were using yearly supervision contracts for all the ongoing municipal projects. This could be improved if the municipality engages a supervision company to be in charge of this particular subproject or if a supervising company is engaged through the Project at the central level to carry out technical supervision of all contracts under all subprojects. Page 55 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 6. SUPPORTING DOCUMENTS 1. 1. MSIP2 Project Appraisal Document, 2015] 2. 2. MSIP2 Project Operational Manual 2021 3. 3. MSIP2 Project Restructuring Paper 1, August 2020 4. 4. MSIP2 Project Restructuring Paper 2, August 2022 5. 5. Country Partnership Strategy FY15-18 6. 6. Country Partnership Framework FY19-23 7. 7. Disclosable Implementation Status and Results Reports, 2016-2023 8. 8. Work Program on the Government of the Republic of North Macedonia in the period 2020-2024 Page 56 The World Bank Second Municipal Services Improvement Project (P154464) ANNEX 6.1. List of MSIP2 sub-loans and grants No. of direct Population in No. Municipality PROJECT name Amount (in EUR) Project type Per Summary Table beneficiaries municipality SUB-LOANS Local roads and Local road 1 Centar Zupa Construction of a local road from Elevci to Dolgas 315,405 383 streets infrastructure 3,720 Reconstruction of local roads in the settlements of Grupcin Local roads and Local road 2 Zelino and Novo Selo and reconstruction of the elementary 498,080 4,151 streets infrastructure 18,988 school in the settlement of Palatica Construction of street 1 with urban arrangement in v. Local roads and Local road 3 Studenichani 276,882 2,000 Studenichani streets infrastructure 21,970 Construction of storm water drainage along streets in the 799,873 Storm water Storm water settlement of Przino usage of remaining funds 1: Construction of storm water drainage along streets in the settlement of Cvetan Dimov 642,439 Storm water Storm water and reconstruction of Milan Mijalkovikj street in Przino 16,000 4 Kisela Voda usage of remaining funds 2: Reconstruction of carriageway and sidewalks of streets: Zelengora, 61,965 Local roads and Local road Kochanska, Polog, Pando Kljasev, Karadzica, Kara Trifun, 183,690 streets infrastructure Malina Pop Ivanova, Peju Javorov, Przhino and Stremeshevo usage of remaining funds 3: Reconstruction of streets Local roads and Local road 36,208 Blagoja Gojan and Meglenska in Przino streets infrastructure Reconstruction of carriageway of streets and boulevards in Local roads and Local road 867,244 10,000 Kavadarci streets infrastructure 5 Kavadarci usage of remaining funds: Reconstruction of the local road Local roads and Local road 35,733 176,179 283 Ladno Dolche-Krnjevo streets infrastructure Reconstruction and asphalting of streets in the town of Local roads and Local road 6 Resen 481,942 8,748 Resen (11 Oktomvri, 29 Noemvri, Tashe Miloshevski) streets infrastructure 14,373 Installation of LED lights for street lighting in the 7 Krivogashtani 43,471 Street lighting Street lighting 5,167 Municipality of Krivogashtani 5,167 Page 57 The World Bank Second Municipal Services Improvement Project (P154464) Construction of sewage network in the settlement of 8 Gazi Baba 1,174,039 Sewage Sewage 300 Jurumleri 69,626 Extension of a dining room in the kindergarten 7 Septemvri, Construction of part of a village street no. 1 in v. Robovo, Construction of part of a village street no. 2 in Local roads and Local road 9 Pehchevo 96,108 923 v. Robovo, Construction of part of a village street no. 1 in streets infrastructure 3,983 v. Umlena, Construction of part of a village street no. 2 in v. Umlena Construction of water treatment plants in villages 10 Vrapchishte 498,721 Water supply Water supply 10,279 Negotino and Dobri Dol 19,842 Improvement of public municipal services in the Municipality of Delchevo (Reconstruction of street Marshal Local roads and Local road 439,645 1,131 Tito and Vera Jocik and Construction of street no. 7 streets infrastructure 11 Delchevo settlement SRC Delchevo) 13,585 usage of remaining funds: Construction of part of street 3 Local roads and Local road 85,814 211 of the Central city area in Delchevo streets infrastructure Regulation of minor river bed of Kriva Reka and Public space Public space 12 Kriva Palanka 361,138 18,059 landscaping of major river bed - first phase arrangement arrangement 18,059 Chucher Reconstruction of part of the local road named Aleksandar Local roads and Local road 13 748,243 969 Sandevo Urdarevski-Rudnici Banjani (cubes) streets infrastructure 9,200 Local roads and Local road Construction of part of blvd. Vidoe Smilevski Bato - Tetovo 987,448 streets infrastructure Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of buses for public transportation 721,160 and public and public hygiene hygiene and and other utility other utility vehicles and 14 Tetovo 52,915 vehicles and equipment 84,770 equipment Vehicles and Vehicles and equipment for equipment for solid solid waste waste management usage of remaining funds: Procurement of waste 461,396 management and public hygiene collection vehicles and semi underground containers and public and other utility hygiene and vehicles and other utility equipment Page 58 The World Bank Second Municipal Services Improvement Project (P154464) vehicles and equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Improvement of public municipal services in the 15 Bogovinje 276,444 and public and public hygiene 22,906 Municipality of Bogovinje 22,906 hygiene and and other utility other utility vehicles and vehicles and equipment equipment Asphalting of 6 streets in the town of Kocani and 5 streets Local roads and Local road 640,071 1,430 in rural areas streets infrastructure 16 Kochani usage of remaining funds: Construction of street Jordan Local roads and Local road 31,602 67,638 6,000 Zafirov and reconstruction of part of Roza Petrova street streets infrastructure Public space Public space 17 Lipkovo Regulation of part of Mateacka river 226,436 3,394 arrangement arrangement 22,308 Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management 18 Novaci Purchasing of 3 communal vehicles 276,329 and public and public hygiene 2,648 2,648 hygiene and and other utility other utility vehicles and vehicles and equipment equipment Reconstruction of streets "3", "4" and "5" in village Local roads and Local road Crniliste and Reconstruction of existing river bed of river 329,231 streets infrastructure Crnilishka Reka including sidewalks usage of remaining funds 1: Reconstruction of branch of Local roads and Local road 21,476 street 3 streets infrastructure 19 Dolneni Vehicles and Vehicles and 13,126 equipment for equipment for solid 13,126 solid waste waste management usage of remaining funds 2: Procurement of communal 19,226 management and public hygiene vehicle and public and other utility hygiene and vehicles and other utility equipment Page 59 The World Bank Second Municipal Services Improvement Project (P154464) vehicles and equipment Mavrovo Local roads and Local road 20 Rehabilitation of a local road in village Skudrinje 213,249 2,119 Rostushe streets infrastructure 5,042 EE of public buildings (schools, Adaptation and upward extension of the municipal houses of 21 Saraj 217,602 Public buildings 34 building culture, 38,399 kindergartens, municipal buildings) Replacement and installation of ultrasonic water meters 22 Strumica and remote reading equipment and extension of 1,492,824 Water supply Water supply 35,311 49,995 secondary distribution gas pipe network in Strumica Installation of LED lights in the municipal settlements and 23 Konche solar lights for street and park lighting in the Municipality 85,486 Street lighting Street lighting 1,000 2,725 of Konche EE of public buildings (schools, houses of 24 Mogila Construction of a multi- purpose facility in village Mogila 107,383 Public buildings 5,283 culture, 5,283 kindergartens, municipal buildings) Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of vehicles and equipment for public utility 25 Kumanovo 959,668 and public and public hygiene enterprises in Municipality of Kumanovo hygiene and and other utility other utility vehicles and vehicles and equipment equipment Page 60 The World Bank Second Municipal Services Improvement Project (P154464) Local roads and Local road Reconstruction of a local road v.Zelenikovo - v.Strahojadica 179,555 710 streets infrastructure 26 Zelenikovo 3,361 usage of remaining funds: Reconstruction od part of street Local roads and Local road 18,332 160 10 branch 1 in v. Zelenikovo streets infrastructure 27 Sopishte Construction of sewage in v.Rakotinci 236,399 Sewage Sewage 490 6,713 Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of mechanization for communal service 28 Valandovo 46,178 and public and public hygiene 10,508 improvement 10,508 hygiene and and other utility other utility vehicles and vehicles and equipment equipment Reconstruction and construction of various streets in the Local roads and Local road 412,471 1,280 urban area in Gjorce Petrov streets infrastructure 29 Gjorche Petrov 44,844 usage of remaining funds: Construction of storm water 263,900 Storm water Storm water 645 along Radushka street Reconstruction of streets in the settlements of Karpos 1 Local roads and Local road 202,158 3,800 and Karpos 2 streets infrastructure 30 Karposh 63,760 usage of remaining funds: Reconstruction of Varshavska Local roads and Local road 69,227 800 street streets infrastructure Construction of various streets in the municipality of Sveti Local roads and Local road 350,675 600 Nikole streets infrastructure usage of remaining funds 1: Construction of streets in Local roads and Local road 31 Sveti Nikole 305,774 60 Lozov Rasadnik streets infrastructure 15,320 usage of remaining funds 2: Reconstruction of street Local roads and Local road 45,741 Pirinska streets infrastructure Page 61 The World Bank Second Municipal Services Improvement Project (P154464) Water supply Construction of a water supply system, sewage and storm Water supply and 32 Chair 424,400 and storm water systems on various streets storm water water Local roads and Local road Reconstruction of 8 streets in Negotino 308,384 2,000 streets infrastructure 33 Negotino 18,194 usage of remaining funds: Construction of street in v. Local roads and Local road 15,862 150 Kurija streets infrastructure Construction-asphalting of 7 streets in the Municipality of Local roads and Local road 105,709 310 Cheshinovo Obleshevo streets infrastructure Cheshinovo 34 Obleshevo 5,471 usage of remaining funds: Construction of additional 3 Local roads and Local road 30,624 55 streets streets infrastructure Public space Public space 35 Veles Construction of a green market 496,418 arrangement arrangement Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management 36 Brvenica Procurement of a new combined machine-backhoe loader 81,646 and public and public hygiene 6,000 13,645 hygiene and and other utility other utility vehicles and vehicles and equipment equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Strengthening of the technical capacity of the Communal 37 Debar 283,930 and public and public hygiene Service Enterprise Standard Debar hygiene and and other utility other utility vehicles and vehicles and equipment equipment Page 62 The World Bank Second Municipal Services Improvement Project (P154464) GRANTS Construction of local road from Centar Zupa to village Crno Local roads and Local road 1 Centar Zupa 83,872 60 3720 Boci streets infrastructure EE of public buildings (schools, houses of 2 Zelino Construction of primary school in v. Cerovo, Zelino 108,297 Public buildings 92 18988 culture, kindergartens, municipal buildings) Local roads and Local road Reconstruction of Street no. 1 in v. Crn Vrv 57,353 streets infrastructure 3 Studenichani 500 21970 usage of remaining funds: Reconstruction of additional Local roads and Local road 13,879 212 m of Street 1 in v. Crni Vrv streets infrastructure Grant 1: Reconstruction and rehabilitation of the Local roads and Local road 208,424 2802 carriageway along street "1" in settlement Usje streets infrastructure 4 Kisela Voda Grant 2: Reconstruction of existing street network - Local roads and Local road 161,033 638 carriageway along Serdarot Street in locality Potstanica streets infrastructure 61,659.00 Grant 1:Reconstruction of water supply system, separation Water supply Water supply and of storm water network and asphalting of Klinska Street 131,703 and storm storm water and part of Metodija Dzunkov Dzikot Street water usage of remaining funds1: Construction of new access streets, extension of storm water and water supply line 500 and carriageway along Branch 1-1, reconstruction of Local roads and Local road 5 Kavadarci Branch 2-2, construction of sidewalks on parts of Klinska 91,633 35733 streets infrastructure street main Branch 1 and additional connecting elements for water supply manholes and additional drainage gratings Grant 2: Reconstruction of part of water supply line in village Sopot, asphalting of part of Marshal Tito Street and 51,417 Water supply Water supply 212 rearrangement of interlock tiles on Ilindenska Street Page 63 The World Bank Second Municipal Services Improvement Project (P154464) EE of public buildings (schools, Reconstruction of the primary school "Mite Bogoevski" in houses of 6 Resen settlement Bolno and adaptation of the primary school 96,310 Public buildings 116 14373 culture, "Mite Bogoevski" in settlement Jankovec kindergartens, municipal buildings) Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of waste containers for the settlements 8,881 and public and public hygiene Korenica, Godivle, Podvis and Borotino hygiene and and other utility other utility vehicles and vehicles and equipment equipment 7 Krivogashtani 1102 5167 Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management usage of remaining funds: Procurement of waste 3,535 and public and public hygiene containers for the settlement of Vogani hygiene and and other utility other utility vehicles and vehicles and equipment equipment Construction of secondary sewerage network with WWTP 8 Gazi Baba 298,278 Sewage Sewage 345 69626 in settlement Smilkovci Construction of local street no. 3 and branch of local street Local roads and Local road 9 Pehchevo 25,852 794 3983 no.2 in v.Crnik streets infrastructure Construction of local road for v. Gradec, settlement Local roads and Local road 10 Vrapchishte 135,057 300 19842 Shabanaga streets infrastructure Vehicles and Vehicles and equipment for equipment for solid 11 Delchevo Grant 1: Procurement of a firefighting vehicle 117,537 5350 13585 solid waste waste management management and public hygiene Page 64 The World Bank Second Municipal Services Improvement Project (P154464) and public and other utility hygiene and vehicles and other utility equipment vehicles and equipment Grant 2: Procurement and installation of LED lights 22,716 Street lighting Street lighting 1400 Regulation of part of minor river bed of Kriva river - third Public space Public space 12 Kriva Palanka 98,204 phase arrangement arrangement Chucher Reconstruction of a part of street "1" in village Chucher Local roads and Local road 13 156,658 450 9200 Sandevo Sandevo streets infrastructure Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Grant 1: Procurement of special communal vehicles and 430,850 and public and public hygiene 7381 7381 containers hygiene and and other utility other utility vehicles and vehicles and equipment equipment 14 Tetovo Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Grant 2: Procurement of a waste collection truck and 100,999 and public and public hygiene containers hygiene and and other utility other utility vehicles and vehicles and equipment equipment Public space Public space 15 Kochani Regulation of a part of river Kochanska Reka 173,136 5200 31602 arrangement arrangement Local roads and Local road 16 Lipkovo Reconstruction of local roads v. Vishtica and v. Nikushtak 61,275 2900 22308 streets infrastructure Page 65 The World Bank Second Municipal Services Improvement Project (P154464) Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of special vehicle for waste transport, 17 Novaci 75,136 and public and public hygiene 510 18194 containers and bins hygiene and and other utility other utility vehicles and vehicles and equipment equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of a combined backhoe loader and mini 18 Dolneni 78,621 and public and public hygiene 13805 13805 backhoe for settlements Vranche, Strovija and Rilevo hygiene and and other utility other utility vehicles and vehicles and equipment equipment Mavrovo Local roads and Local road 19 Construction of local road from v. Prisojnica to v. Adzievci 50,564 920 5042 Rostushe streets infrastructure Construction of service street in area Sofilar, Construction of service street in area Sofilar CP 6778 and Construction Local roads and Local road 20 Strumica 374,186 440 49995 of sewage collectors F2, F6 and F3 in urban block 40,41/2 streets infrastructure and 42 in area Sofilar Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of vehicle for collection and transport of 21 Konche 20,556 and public and public hygiene 1400 2725 solid waste hygiene and and other utility other utility vehicles and vehicles and equipment equipment Vehicles and Vehicles and equipment for equipment for solid Procurement of waste collection vehicle with 5.5m3 22 Mogila 29,100 solid waste waste management 2300 5283 capacity management and public hygiene and public and other utility Page 66 The World Bank Second Municipal Services Improvement Project (P154464) hygiene and vehicles and other utility equipment vehicles and equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of a vehicle and equipment for collection and 23 Kumanovo 274,633 and public and public hygiene transport of solid waste in the Municipality of Kumanovo hygiene and and other utility other utility vehicles and vehicles and equipment equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management 24 Zelenikovo Procurement of a waste collection vehicle 39,326 and public and public hygiene 470 3361 hygiene and and other utility other utility vehicles and vehicles and equipment equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Grant 1: Procurement of a waste collection vehicle 60,450 and public and public hygiene 881 6713 hygiene and and other utility other utility vehicles and vehicles and equipment 25 Sopishte equipment Vehicles and Vehicles and equipment for equipment for solid solid waste waste management Grant 2: Procurement of plastic bins for settlement of 3,463 management and public hygiene Rakotinci and public and other utility hygiene and vehicles and other utility equipment Page 67 The World Bank Second Municipal Services Improvement Project (P154464) vehicles and equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management 26 Valandovo Procurement of plastic bins, containers and baskets 12,323 and public and public hygiene 769 10508 hygiene and and other utility other utility vehicles and vehicles and equipment equipment Landscaping of locality Krst and procurement of a vehicle Public space Public space 27 Gjorche Petrov 134,617 for winter maintenance of streets arrangement arrangement Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management 28 Karposh Procurement of a backhoe loader 53,595 and public and public hygiene 8602 63760 hygiene and and other utility other utility vehicles and vehicles and equipment equipment 29 Sveti Nikole Water supply in v. Orel 92,631 Water supply Water supply Water supply Reconstruction of water supply and storm water along Water supply and 30 Chair 147,257 and storm streets in settlement Saat Kula storm water water Local roads and Local road 31 Negotino Construction of streets in village Kurija 60,404 150 18194 streets infrastructure Vehicles and Vehicles and equipment for equipment for solid solid waste waste management Cheshinovo 32 Procurement of a waste collection vehicle 27,774 management and public hygiene 1109 5471 Obleshevo and public and other utility hygiene and vehicles and other utility equipment Page 68 The World Bank Second Municipal Services Improvement Project (P154464) vehicles and equipment Construction of water supply in v. Sopot and procurement 33 Veles 172,277 Water supply Water supply 70 48463 of off-road vehicle Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of a communal vehicle for maintenance of 34 Brvenica 22,395 and public and public hygiene 800 13645 public hygiene hygiene and and other utility other utility vehicles and vehicles and equipment equipment Vehicles and equipment for Vehicles and solid waste equipment for solid management waste management Procurement of a special vehicle for the collection and 35 Debar 63,438 and public and public hygiene transport of solid municipal waste for rural areas hygiene and and other utility other utility vehicles and vehicles and equipment equipment Page 69