FOR OFFICIAL USE ONLY Report No: RES54479 INTERNATIONAL DEVELOPMENT ASSOCIATION RESTRUCTURING PAPER ON A PROPOSED PROGRAM RESTRUCTURING OF PUNJAB CITIES PROGRAM APPROVED ON MAY 25, 2018 TO THE ISLAMIC REPUBLIC OF PAKISTAN Urban, Resilience and Land Global Practice South Asia Region Regional Vice President: Martin Raiser Country Director: Najy Benhassine Regional Director: John A. Roome Acting Practice Manager: Abhas K. Jha Task Team Leader(s): Shahnaz Arshad The World Bank Punjab Cities Program (P156972) ABBREVIATIONS AND ACRONYMS APA Annual Performance Assessment CFMS Computerized Financial Management System CM Chief Minister CTS Complaint Tracking System DLI Disbursement-Linked Indicator DLR Disbursement-Linked Result EPA Environment Protection Authority ESMF Environmental and Social Management Framework ESSA Environment and Social Systems Assessment FD Finance Department FY Fiscal Year GoPunjab Government of Punjab IDA International Development Association IDAMP Integrated Development and Asset Management Planning IPF Investment Project Financing LG Local Government LG&CDD Local Government and Community Development Department LGB Local Government Board MAC Minimum Access Conditions MC Municipal Committee M&E Monitoring and Evaluation O&M Operation and Maintenance OSR Own-Source Revenue P&DD Planning and Development Department PAP Program Action Plan PBG Performance-Based Grant PCP Punjab Cities Program PCGIP Punjab Cities Governance Improvement Project PDO Program Development Objective PFC Provincial Finance Commission PforR Program-for Results PKR Pakistan Rupee PLGA Punjab Local Government Act PM Performance Measure PMDFC Punjab Municipal Development Funds Company PMS Performance Management System PMSIP Punjab Municipal Services Improvement Project The World Bank Punjab Cities Program (P156972) POM Program Operations Manual PPP Public-Private Partnership PPRA Punjab Procurement Regulatory Authority PSC Program Steering Committee SOP Standard Operating Procedure SORT Systemic Operation Risk-rating Tool US$ United States Dollar The World Bank Punjab Cities Program (P156972) DATA SHEET (Punjab Cities Program - P156972) BASIC DATA Project ID Financing Instrument IPF Component P156972 Program-for-Results Financing Yes Original Environmental Assessment Category (IPF Current Environmental Assessment Category (IPF Component) Component) Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 25-May-2018 30-Sep-2023 Organizations Borrower Responsible Agency Economic Affairs Division Program Development Objective(s) The objective of the Operation is to strengthen the performance of participating urban local governments in urban management and service delivery. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Approval Effectiveness Closing Ln/Cr/TF Signing Date Commitment Disbursed Undisbursed Date Date Date 25-May- IDA-62430 29-May-2018 29-May-2018 30-Sep-2023 200.00 111.95 78.21 2018 Policy Waiver(s) Does the Program require any waivers of Bank policies applicable to Program-for-Results operations? No Page 1 of 15 The World Bank Punjab Cities Program (P156972) I. PROGRAM STATUS AND RATIONALE FOR RESTRUCTURING A. Program Status 1. The IDA Credit of SDR137.6 million (US$200 million equivalent) for the Punjab Cities Program (PCP) was approved on May 25, 2018 and was declared effective on May 29, 2018; the current closing date of the Credit is September 30, 2023. The Credit finances a hybrid of Investment Project Financing (IPF) and Program-for-Results (PforR) instruments. The PforR window of US$180 million provides Performance-Based Grants (PBGs) based on the achievement of two Disbursement Linked Indicators to the participating Municipal Committees (MCs, urban local governments) for the sustainable delivery of infrastructure and services. The IPF window of US$20 million finances a range of institutional strengthening and capacity development interventions at the MC and provincial government levels, as well as supports the Annual Performance Assessments (APAs) to verify the achievement of results against laid down verification protocols. 2. Program Overview. The Program Development Objective (PDO) is to strengthen the performance of participating urban local governments in urban management and service delivery. At the time of the Program Mid-Term Review (MTR) in December 2022, the likelihood of achieving the PDO was rated Satisfactory, while Implementation Progress was rated Moderately Satisfactory. Program implementation was substantially delayed at the outset because of the 18-month delay in obtaining internal Government approvals for the IPF Window. Despite this, the Program achieved Disbursement-Linked Results (DLRs) for three successive years. In FY21, PCP exceeded the projected results and received a higher than anticipated disbursement from the Credit. 3. During FY22, progress slowed due to several challenges at the MC, PMDFC, and provincial levels. The May – June 2022 Annual Performance Assessment (APA) found that the Minimum Access Conditions (MACs, DLI-1), which had been achieved in the first year, were no longer met. In addition, none of the MCs were able to get the requisite score of 60 percent against the Performance Measures (PMs, DLI-2). While US$106.10 million of the PforR funds have been disbursed, only US$16.45 million has been utilized by the MCs and approximately US$22 million has been committed. Under the IPF Window, US$5.85 million has been disbursed, while US$4.17 million has been spent. Support available for the MCs and PMDFC is being utilized, but most of the technical assistance initiatives available for the Local Government and Community Development Department (LG&CDD) and the Local Government Board (LGB) have not yet commenced due to frequent changes in the LG&CDD leadership. 4. Disbursement Linked Indicators. DLI-1: Minimum Access Conditions (MACs) aim at ensuring that technical, fiduciary, environmental, and social risks are maintained at an acceptable level in Program MCs. MACs were achieved in the first year, and MACs on Procurement, Environment and Social Management, and Transparency and Accountability continue to be met. However, two of the MACs were not met in FY21. In the case of Investment Planning and Budgeting, not all MCs were able to contribute 20 percent co-financing for PBGs due to changes in the LG system. The MAC on Financial Management and Audit was not met due to the centralization of all LG expenditures to the district level over January-June 2022 and expenditures in the Computerized Financial Management System (CFMS) not being kept up to date. (CFMS data have since been updated by all MCs). 5. DLI-2: Performance Measures (PMs) build on the foundations laid by the MACs to achieve incremental targets, and further enhance the performance of PCP MCs. Progress on investment planning and budgeting, own source revenues, fiduciary aspects, and environment and social systems is generally satisfactory. The development of three-year rolling Integrated Development and Asset Management Plans (IDAMPs) is however substantially delayed. Sub-projects for new investments in municipal infrastructure and services are currently in detailed engineering design and/or approval stages and are likely to commence implementation in early 2023. Therefore, the Program design requirement that at least 80 percent of the PBGs be spent on non-moveable infrastructure assets has not been met since the second year of Program implementation. 6. IPF Window: Technical Assistance and Institutional Strengthening. Initiatives to support MCs to achieve DLIs and PMDFC to manage and implement PCP are largely on track. Digital systems, processes, and procedures operationalized in the MCs are being upgraded, and MC officials have been provided hands-on and classroom trainings. However, work on some critical The World Bank Punjab Cities Program (P156972) initiatives designed to strengthen LG&CDD and LGB are commencing only now, including a Performance Management System (PMS) dashboard in the LG&CDD which provides a platform to track MC performance; and a PBG unit in the Finance Department (FD). 7. Environmental and Social Systems (ESS) of the Program is rated Satisfactory, and the ESS risk is rated Substantial. Annual targets set for the incremental application of environmental and social screening (including gender considerations, assessment, and mitigation processes for all infrastructure investments) are being met, and eligible investments are screened for potential environmental and social safeguard impacts. Environmental and Social Assessments, management plans, and instruments are being prepared. However, since investment sub-projects are only now commencing implementation, adherence to them is yet to be assessed. 8. Citizen Engagement. Information on the Program is available to citizens on each MC’s website. MCs are responding to citizens’ requests per Right-to-Information Act. The computerized Complaint Tracking System (CTS) is fully functional and is currently being upgraded into a Grievance Redress Mechanism for the MCs. 9. Fiduciary Systems. Fiduciary systems of the Program are rated Moderately Satisfactory, and the Fiduciary risk is rated Substantial. 10. Procurement. Standard Operating Procedures have been developed based on the Punjab Procurement Regulatory Authority (PPRA) Rules and have been endorsed by PPRA. MCs are preparing procurement plans in line with PPRA Rules. Tenders are advertised and bid documents are being drawn up accordingly. Tenders have been evaluated as per criteria in the bid documents and contract awards are disclosed to the public on the PPRA and MC websites. Procurement Grievance Redressal Committees have been notified. There have been no complaints recorded on the last round of procurements. 11. Financial Management. MCs have a functional CFMS, and the cash book and the classified abstract are being generated from it. The CFMS based contingency check register and establishment check register are being updated. CFMS generated bank reconciliation statements are being shared for record. There is no overdue Program audit report, and the audit reports have no unresolved audit qualifications. Partner MCs have submitted annual financial statements to the satisfaction of the auditors, and these have no adverse or disclaimed audit opinions. 12. Program Action Plan (PAP). All actions per the PAP are being taken as per the timelines. PMDFC has conducted periodic workshops to sensitize Program MCs on MACs, PMs, and PBGs. PBG disbursements were made three years in a row, but there was no disbursement in FY21 as none of the DLRs were met. MCs have been reporting on the utilization of grant funds through agreed bi-annual and annual reporting processes. LG&CDD had procured an APA firm in the previous years and has initiated the process of procuring one for this fiscal year to ensure adherence to the annual PBG disbursement cycle. Potential environmental and social impacts of infrastructure projects are being identified and mitigated by the design consultants and are being monitored by the MCs and PMDFC. The Chief Minister’s Office has recently issued a notification to minimize staff turnover in the PCP MCs. A draft Communication Strategy has been developed. B. Rationale for Restructuring 13. As indicated earlier, Program implementation slowed in FY22. GoPunjab and PMDFC have recently taken numerous corrective actions, and program implementation has begun to get back on track and gain momentum. These include: (i) the notification to restrict turnover in key MC staff; (ii) lifting the ban on recruitment of locally hired staff; (iii) accelerating engineering designs and approvals of sub-projects; (iv) hiring of an experienced Managing Director, PMDFC; and (v) taking steps to establish a PBG Mechanism in FD and a Performance Management Dashboard in the LG&CDD. During the MTR mission, actions have been agreed to accelerate implementation and deliver results on the ground. The Secretary, LG&CDD is providing active support in removing bottlenecks at the provincial and MC levels. The World Bank Punjab Cities Program (P156972) 14. The restructuring is proposed to extend the closing date of the Credit per the Economic Affairs Division, Government of Pakistan’s request letter dated January 3, 2023. The Program design remains relevant, despite the challenges and resultant delays encountered so far. PCP can achieve its PDO subject to a time extension, a dedicated leadership, focused attention on resolving bottlenecks, and strict adherence to the timelines agreed by PMDFC and GoPunjab during the MTR. The extended time will ensure: (i) achievement of all DLRs; (ii) disbursement of all PforR funds; (iii) embedding the processes and systems in the MCs for long-term benefits; and (iv) ensuring sustainability of the results achieved through oversight mechanisms established in LG&CDD and FD. II. DESCRIPTION OF PROPOSED CHANGES 15. It is proposed to extend the closing date of the Credit for the Program by eighteen months, from the current closing date of September 30, 2023 to March 31, 2025. No other changes are proposed. This is the first extension of the closing date for the Program Credit. III. SUMMARY OF CHANGES Changed Not Changed Change in Loan Closing Date(s) ✔ Change in Implementation Schedule ✔ Change in Implementing Agency ✔ Change in Program's Development Objectives ✔ Change in Program Scope ✔ Change in Results Framework ✔ Change in Cancellations Proposed ✔ Reallocation between and/or Change in DLI ✔ Change in IPF Component ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change in EA category (IPF Component) ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ The World Bank Punjab Cities Program (P156972) Change in Technical Method ✔ Change in Fiduciary ✔ Change in Environmental and Social Aspects ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/TF Status Closing Date Closing(s) Date Closing Date for Withdrawal Applications IDA-62430 Effective 30-Sep-2023 31-Mar-2025 30-Sep-2025 . The World Bank Punjab Cities Program (P156972) ANNEX 1: RESULTS FRAMEWORK . . Results framework Program Development Objectives(s) The objective of the Operation is to strengthen the performance of participating urban local governments in urban management and service delivery. Program Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target PDO Indicator 1 Score in the APA for achievement of institutional performance 0.00 60.00 measures, averaged across all MCs that qualify. (Number) PDO Indicator 2 People living in targeted cities benefiting from municipal service delivery infrastructure created or rehabilitated under the 0.00 1,000,000.00 Program. (Number) PDO Indicator 2.a. Of which female (Supplemental) (Percentage) 0.00 50.00 PDO Table SPACE Page 6 of 15 The World Bank Punjab Cities Program (P156972) Intermediate Results Indicators by Result Areas RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target IR Indicator 1.1 MCs with the full set of enhanced e-governance systems 8.00 16.00 operationalized. (Number) IR Indicator 1.1.a. Performance Management System 8.00 16.00 (Supplemental) (Number) IR Indicator 1.1.b. Computerized Financial Management System 8.00 16.00 (Supplemental) (Number) IR Indicator 1.1.c. Complaint Tracking System (Supplemental) 8.00 16.00 (Number) IR Indicator 1.2 MCs with Infrastructure Maps updated under the Program. 0.00 10.00 (Number) IR Indicator 1.3 MCs with IDAMPs developed and adopted, ensuring consultation 0.00 5.00 with women groups. (Number) IR Indicator 1.4 MCs with timely audits conducted of annual financial statements 0.00 16.00 and no adverse or disclaimed audit opinion. (Number) IR Indicator 1.5 MCs with at least 10% increase in OSRs. (Number) 0.00 5.00 IR Indicator 1.6 Annual performance assessment of Program MCs conducted on No APAs conducted APAs conducted per annual schedule. time. (Text) Page 7 of 15 The World Bank Punjab Cities Program (P156972) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target IR Indicator 2.1 Percentage of local infrastructure targets as set out in the annual work plans delivered by MCs utilizing Program funds. 0.00 80.00 (Percentage) IR Indicator 2.2 Percentage of infrastructure contracts with gender responsive 0.00 80.00 working conditions (Percentage) IR Indicator 2.3 MCs that execute at least 80 percent of their annual O&M 0.00 10.00 budget. (Number) IO Table SPACE Disbursement Linked Indicators Matrix DLI IN01233845 ACTION DLI 1 MCs have achieved MACs Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process Yes Text 45.00 22.22 Period Value Allocated Amount (USD) Formula Baseline 0.00 USD 625,000 multiplied by the number Assessment of reduced MACs X MCs have complied with Reduced MACs 10.00 of MCs attaining the Re Page 8 of 15 The World Bank Punjab Cities Program (P156972) USD 625,000 multiplied by the number First APA X MCs have complied with MACs 10.00 of MCs attaining the MA USD 625,000 multiplied by the number Second APA X MCs have complied with MACs 10.00 of MCs attaining the MA USD 625,000 multiplied by the number Third APA X MCs have complied with MACs 10.00 of MCs attaining the MA USD 312,500 multiplied by the number Fourth APA X MCs have complied with MACs 5.00 of MCs attaining the MA DLI IN01233846 ACTION DLI 2 MCs have achieved PMs as scored in the APA Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process Yes Number 135.00 0.00 Period Value Allocated Amount (USD) Formula Baseline 0.00 Assessment of reduced MACs 0.00 0.00 The target disbursement amount for First APA 40.00 35.00 the Average Score of 40 p The target disbursement amount for Second APA 50.00 40.00 the Average Score of 50 p The target disbursement amount for Third APA 60.00 45.00 the Average Score of 60 p The target disbursement amount for Fourth APA 70.00 15.00 the Average Score of 70 p Page 9 of 15 The World Bank Punjab Cities Program (P156972) Note to Task Teams: End of system generated content, document is editable from here. Please delete this note when finalizing the document. Page 10 of 15 The World Bank Punjab Cities Program (P156972) ANNEX 2: PROGRAM ACTION PLAN Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. Please delete this note when finalizing the document. . . PAP_NOT_CHANGE_TBL Action Description Source DLI# Responsibility Timing Completion Measurement 1. PMDFC will conduct LG&CDD & PMDFC have workshops to organized multiple workshops sensitize and with the new MC Administrators inform all Program to bring them on board. A MCs about PCP, Program Launch event was also MACs, PMs, PBGs, held in early-October 2019 with and the IPF participation from all MCs, as well Window. Technical LG&CDD/PMDFC Due Date 19-Jun-2019 as GoPunjab leadership. 2. MCs will fully operationalize systems developed under The Annual Performance PMSIP. No Assessment of Year-4 DLRs during disbursement will May-June 2022 revealed that be made to any these systems are fully defaulting MC operational except for the against the computerized FMS, which was not achievement of up to date. This has since been reduced MACs. Technical DLI 1 MCs Recurrent Yearly updated. 3. FD will ensure that PBG disbursements to MCs are fully integrated into the provincial budget and released to cities within 30 days of disbursement by The third tranche of Program the Bank. Failing funds was released to the cities this, further by FD in two instalments in Program September and December 2021. disbursements will Finance There was no disbursement of be suspended. Fiduciary Systems Department Recurrent Yearly funds in Year-4. 4. MCs will report on grant funds utilization through required biannual and annual LG&CDD and Requisite evidence on the use of reporting Finance funds has been shared by all 16 processes, using Fiduciary Systems Department Recurrent Semi-Annually Program MCs. Page 11 of 15 The World Bank Punjab Cities Program (P156972) customized Chart of Accounts for new conditional grants in budget, and expenditure recording second year onwards 5. The APA will report on implementation status and compliance with environmental and social management and LG&CDD and APA The APA cycle completed in June investments. Other Firm Recurrent Yearly 2022 reported on these areas. 6. LG&CDD will procure an independent private firm for APA (annually or on multiyear contract), and ensure adherence to PBG disbursement The hiring process of APA firm for cycle. Technical LG&CDD Recurrent Yearly this year is ongoing. 7. MCs will seek guidance on environmental and social management system as described in the POM, which is consistent with MCs are constantly in contact provincial systems Environmental and Social LG&CDD and with PMDFC on Environment and and principles. Systems PMDFC Recurrent Continuous Social requirements. 8. Appointment of Environmental Specialists and Social Development Specialists for Environmental Specialists and each PMDFC team Social Development Specialists (Lahore-based have been hired for each PMDFC team plus three Environmental and Social team (the Lahore-based team regional teams). Systems PMDFC Recurrent Continuous plus the three regional teams). 9. Technical staff in MCs trained on PMDFC has organized training O&M Manuals as LG&CDD and workshops on O&M Manuals for part of Technical PMDFC Recurrent Continuous Technical staff of all 16 MCs. Page 12 of 15 The World Bank Punjab Cities Program (P156972) sensitization conducted by the LG&CDD/ PMDFC. Vacancies have been filled. 10. LG&CDD/LGB Officials continue to be will appoint reappointed against provincially qualified officials appointed positions in the 16 to fill vacancies in Program MCs, as postings and provincially transfers occur. Four positions are appointed MC currently vacant, which GoPunjab positions. Technical LGB and LG&CDD Recurrent Continuous has committed to fill immediately. 11. Tenure of provincially appointed officials GoPunjab inducted LG staff will be maintained through the Punjab Public Service by LG&CDD/LGB Commission, some of which have for at least 3 been appointed in the 16 years, except for Program MCs. Additional staff exceptional cases. Technical LGB and LG&CDD Recurrent Continuous hiring is ongoing. 12. DG District Audit, Punjab will ensure that audits of financial statements of the 16 MCs are conducted, and reports shared with the Bank not later than October 30 each year. A private Audit firm DG District may be used in Audit/Private the initial years. Fiduciary Systems Firm Recurrent Yearly The audit is ongoing. 13. MCs will maintain focal persons for finance, planning, internal audit, accounting, procurement, and complaint handling throughout Requisite focal persons have been implementation. Technical MCs Recurrent Continuous appointed in all 16 MCs. 14. MCs will provide bi-annual and annual Requisite evidence on financial reports on and Program implementation, financial and safeguard management, Program grievance redress, and other implementation, relevant information has been safeguard Technical MCs and PMDFC Recurrent Semi-Annually shared by all 16 Program MCs. Page 13 of 15 The World Bank Punjab Cities Program (P156972) management, grievance redress, and other relevant information. 15. MCs will appoint focal persons for Environment and Social Environmental and Social Requisite focal persons have been Management. Systems MCs Recurrent Continuous appointed. 16. MCs will adopt and implement the updated Environmental and Social The Environment and Social Management Management Framework has Framework Environmental and Social been updated and is being (ESMF). Systems PMDFC and MCs Recurrent Continuous implemented. 17. MCs will update and implement the following already developed under PMSIP: (a) Communication Strategy (b) Public A Communication Strategy and a Consultation Public Consultation Framework Framework Environmental and Social has been developed for all 16 Systems PMDFC and MCs Recurrent Continuous Program MCs. 18. MCs will develop, notify, and implement SOPs for Physical Cultural SOPs for Physical Resources and Environment, Cultural Resources Health, and Safety (EHS) have and Health, been developed for Construction Safety, and Environmental and Social Workers (including Women) in Environment. Systems PMDFC and MCs Recurrent Continuous English and translated in Urdu. 19. MCs will improve enforcement of labour and This will become applicable once gender-related Environmental and Social capital investments begin to be laws. Systems PMDFC and MCs Recurrent Continuous implemented. 20. MCs will ensure generation and monitoring of This will become applicable on environmental Environmental and Social implementation of capital data, and Systems PMDFC and MCs Recurrent Continuous investments. Page 14 of 15 The World Bank Punjab Cities Program (P156972) coordination with relevant agencies. Some Institutional Strengthening (IS) initiatives have been undertaken like design & operationalization of PCP Monitoring Dashboard; staffing analyses for LG&CDD; and 21. Institutional notification of working groups. strengthening of Others are being reviewed and LG&CDD/LGB Technical PMDFC Recurrent Continuous prioritized. . Note to Task Teams: End of system generated content, document is editable from here. Please delete this note when finalizing the document Page 15 of 15