DOCUMENT OF The World Bank FOR OFFICIAL USE ONLY Report No. 32425-NG INTERNATIONALDEVELOPMENT ASSOCIATION PROPOSEDPROJECTRESTRUCTURING AND AMENDMENT OFTHE CREDIT AGREEMENTS FORTHE PRIVATIZATION SUPPORT PROJECT(Cr. 3520-UNI) AND COMMUNITY BASEDURBANDEVELOPMENT PROJECT(Cr. 3654-UNI) INTHE CONTEXT OFTHE PORTFOLIORESTRUCTURINGAND INALIGNMENT WITH THE COUNTRYPARTNERSHIPSTRATEGY FOR THEFEDERAL REPUBLIC OF NIGERIA June2,2005 Country Department 12 Africa Region This document has a restricteddistribution and may be used by recipients only inthe performance of their official duties. Its contents may not otherwise be disclosed without WorldBank authorization. CURRENCY EQUIVALENTS NigerianNaira (N) US$1.oo Currency Unit 137Ns 1Naira 0.0073US$ FISCALYEAR January 1-December 3 1 ABBREVIATIONS BPE Bureau o f Public Enterprises CBPRP Community BasedPoverty Reduction Project CBUDP Community BasedUrbanDevelopment Project CDD Community DrivenDevelopment CFP Country FinancingParameters CPS Country Partnership Strategy CREST Commercial Reorientationo f the Electricity Sector Toollut DBU DistributionBusiness Units D C A Development Credit Agreement DO Development Objective FCT Federal Capital Territory FGN Federal Government o fNigeria FMHUD FederalMinistryo f Housingand UrbanDevelopment FPCU Federal Project Coordination Unit IDA International Development Association IP Implementation Progress IPP IndependentPower Producers LAMATA Lagos MetropolitanArea Transport Authority LASTMA Lagos State Traffic Management Authority LEEMP Local Empowerment and Environmental ManagementProject LG Local Governments LSWC Lagos State Water Corporation LUTP Lagos UrbanTransport Project M-Tel NigerianMobile Telecommunications Limited NCB National Competitive Bidding NCC National Communications Commission NEEDS NationalEconomic Empowerment and Development Strategy NEPA NationalElectric Power Authority NITEL NigerianTelecommunication Limited NPC NationalPlanning Commission PE Public Enterprises PSC Project Steering Committee PSP Privatization Support Project SEEDS State Economic Empowerment and Development Strategy SPT State Program Teams UBE Universal Basic Education Vice President: Gobind Nankani Country Director: Hafez Ghanem Task Team Leader: Irene Xenakis TABLEOFCONTENTS I. INTRODUCTION 1 11. BACKGROUNDAND COUNTRY CONTEXT 1 111. NIGERIA'S PORTFOLIO 2 IV. SUMMARY OF PROPOSEDPROJECTAMENDMENTS 4 V. PROPOSEDPROJECT RESTRUCTURINGSEEKINGBOARDAPPROVAL 5 A. PrivatizationSupport Project 5 B. Community BasedUrbanDevelopment Project 7 VI. SUMMARY OFRESTRUCTUREDPROJECTSAPPROVED BY REGION 9 A. Universal Basic Education Project 9 B. HN/AIDS ProgramDevelopment Project 11 C. Transmission Development Project 12 D. SecondHealthSystems Development Project 13 E. Lagos UrbanTransport Project 15 F. Community BasedPovertyReductionProject 17 ANNEXES Annex 1: PrivatizationSupport Project Recommended Amendments Annex 2: Community BasedUrbanDevelopment Project Recommended Amendments INTERNATIONAL DEVELOPMENT ASSOCIATION ProposedProjectRestructuringandAmendmentto the CreditAgreements for the PrivatizationSupport Project(Cr. 3520-UNI) and CommunityBasedUrbanDevelopmentProject(Cr. 3654-UNI) inthe Context of PortfolioRestructuringand in Alignment with the CountryPartnershipStrategyfor the Federal Republicof Nigeria I. INTRODUCTION 1. This memorandum seeks the approval o f the Executive Directors to amend the Development Credit Agreements (DCA) for the following projects: Privatization Support (Cr. 3520-UNI) and Community Based Urban Development (Cr.3654-UNI). Amendments to six other projects (see Table 1) have also been approved by the Region, per OP13.05. These amendments, and the on-going harmonization o f projects that use the Community Driven Development (CDD) approach, constitute a major restructuring o f the Nigeria portfolio. The main purpose o f the portfolio restructuring i s to improve the performance o f problem projects and other priority operations in alignment with the Country Partnership Strategy (CPS) for Nigeria and the National Economic Empowerment and Development Strategy (NEEDS) - Nigeria's strategy for growth and poverty reduction. The CPS proposes specific activities to support the Federal Government and selected well-performing states (lead states), and targeted MDG-related action elsewhere. A results framework has been prepared to support the program towards three strategic objectives (improved service delivery for human development, improved environment and services for non-oil growth and enhanced transparency and accountability for better governance) and to reflect donor coordinationinthe country. 2. The World Bank (Bank) lending portfolio in Nigeria is relatively young, includes significant IDA commitments available to support the attainment o f the CPS results, and has the potential to do so effectively. At the outset of the CPS implementation, it i s imperativeto ensure that the existing projects are well positioned, have made necessary adjustments inthe context o f the CPS, and have resolved implementationissues and constraints. rr. BACKGROUND COUNTRY CONTEXT AND 3. President Obasanjo was elected to a second term inApril 2003 further consolidatingthe transition from militaryto democratic rule that beganin 1999. A new reform oriented economic team was appointed by President Obasanjo in June 2003 who are implementingpolicies to: (i) strengthen governance and fight corruption; (ii)grow the private sector; and (iii)empower people and improve social service delivery. Over the past two years, Nigeria has made good progress in implementing key elements o f the reform program particularly in macroeconomic management and the fight against corruption. The next two years leading up to the national elections scheduled for 2007 provide an unprecedented opportunity for Nigeria's development. 4. The CPS has been prepared to assist Nigeria in the implementation of the NEEDS program (and at the state level, SEEDS) to boost growth and to help achieve the MDGs. The CPS will be implemented over the period FY06-09, and one o f its key objectives will be to support the reform efforts and help ensure that they are sustainable over the mediumterm. The CPS i s based on the four principles of: (i)realism about opportunities and scope for change; (ii) responsiveness and Government ownership; (iii)selectivity for impact; and (iv) balancing a 1 longer-term transformational agenda with the need for more direct, shorter-term impacts. The early results o f the CPS are likely to be achieved mainly through the existing portfolio. 111. NIGERIA'S PORTFOLIO 5. Notwithstanding the challenges, the young Nigeria portfolio presents opportunities. The Nigeria portfolio consists o f sixteen projects with a total net IDA commitment o f about US$1.48 billion. Of this amount, about US$258 million has been disbursed as o f May 3, 2005 (of which more than half inFY05) and about US$1.40 billion i s undisbursed. The average age o f the Nigeria portfolio i s 2.6 years. The disbursement ratio in FY04 increased to about 13 % from about 3.5 % inFY03 and i s estimated to be about 15% inFY05. Fiduciary compliance in FY04 was 100%. About 31 percent o f the net commitments are in the social sectors, 37% percent in infrastructure (including mining), 11 percent in the rural sector, 11 percent in economic policy, and 10percent inprivate sector development. About 42% o f the commitments are at-risk1 including six actual problem projects (Universal Basic Education, HIV/AIDS, Second Health Systems Development, Local Empowerment and Environmental Management (LEEMP), Community Based Urban Development, and Lagos Urban Transport) and one potential problem project (the Micro, Small and Medium Enterprises Project) with three risk flags o f which two flags are country related (Country Environment and Record) and one i s for late effectiveness. This portfolio restructuring includes all actual problem projects except for the LEEMPwhich is beingrestructured under the harmonization o fthe CDD projects. 6. Key factors that significantly affect the portfolio performance include: the country's FederaVmulti-State structure, status o f institutionalcapacity and systems, the size o f the country, and socio-economic disparities. Among the issues that have hampered Nigeria's project implementation since re-engagement with the country in 1999, the most frequently cited implementation impediments include: (i)complex project design, project management, and implementationprocedures; (ii) effectiveness delays due to insufficient implementation readiness andunderestimated implementationcapacity; (iii) inadequateAate counterpart funding; (iv) weak results management due to often inadequate monitoring and evaluation systems and capacity; (vi) political interference, incentives issues, and rigidities in applying performance-based principles (including implications for less well performing states). Several projects seem to overlap (e.g.. in states, similar activities, approach-CDD) and, thus, provide opportunities for harmonization, consolidation, more efficient implementation, and lower transaction costs. 7. The improvement of the Nigeria portfolio performance evidenced by visible results i s a top priority of both the Federal Government of Nigeria (FGN) and the Bank. To this ARPP FY04Portfolio Definitions: Commitments ut risk: Commitments at risko f not meeting their development objectives. Includes commitments associated with both actual and potentialproblem projects. Actual Problem Projects Projects for wluch ImplementationProgress is rated unsatisfactory and/or the Development Objectives are rated as not likely to be achieved. Potential Problem Projects: Projects which are rated satisfactory on IP and DObut have other risk factors historically associated withunsatisfactory outcomes. Specifically, potential problemprojects are identified as projects exhibiting three or more o fthe projects at risk "flags". 2 end, they have: undertaken rigorous joint analysis and monitoring; conducted two portfolio reviews in June and December 2004; set strategic priorities for the sustained portfolio performance improvement; and are following on the implementation o f agreed time-bound actions. Key among these actions are the portfolio restructuring, harmonization o f the CDD projects, and resolution o f systemic issues through the following immediate steps: (i)new operations will strive for design simplification and flexibility and implementation readiness (a readiness guide i s now usedduring preparation to ensure that the project i s reasonably ready for implementation and to reduce effectiveness delays); (ii) country financing parameters (CFP) have been approved to help harmonize and rationalize the financing o f the totality o f the country program, especially when counterpart financing issues are acute while potentialrewards are high, e.g. social sector and CDD projects may be financed up to loo%, when appropriate, including selected on-going projects for disbursements going forward; (iii) more flexible and simplified Bank procedures are being introduced including disbursement simplification, increased procurement thresholds for prior reviews, and harmonized implementation arrangements; (iv) project monitoring and evaluation systems are being strengthened; (v) capacity building and scaling up good practices are enhanced; and (vi) projects will continue to be reworked in alignment with the CPS, as needed. 8. There is needfor enhancedpartnerships,mutualaccountability and harmonization. The above steps notwithstanding, both the Federal Government and the Bank recognize the magnitude o f the challenges and the need for a renewedbusiness model o f enhanced partnership that i s based on mutual trust and accountability for results. The CPS and the on-going portfolio are the main and mutually reinforcing instruments for such partnership. The CPS also provides the basis for project and donor harmonization. A t the project level, harmonization and gradual consolidation o f the five CDD operations inthe Nigeria portfolio has been initated. InFY06, an evaluation will be undertaken o f these projects (Community Based Poverty Reduction, Community Based Urban Development, Local Empowerment and Environmental Management, Fadama I1 and HIV/AIDS). At the donor level, the CPS provides a solid basis for Wher harmonizing donor activities which i s based on the strong country-led framework o f the NEEDS and SEEDS. 9. Short and medium-termprospects for portfolio improvements- realistic optimism and vigilance. As a result of the last two portfolio reviews (June and December 2004) and the consultations duringthe CPS preparation, there are now encouraging signals that the portfolio i s beingrepositioned in the context of the NEEDS. The portfolio restructuring and improvement measures (along with continued vigilance and support) are expected to trigger: (i) incremental improvements in the short term (e.g. faster implementation pace, increased disbursements, better M&E ,especially inthe performance o f well positioned states and federal units); and (ii) visible and sustained gains in the medium term (e.g. intermediate resultdquick wins, harmonization, program cohesion at Federal and State level, and further streamlining o f the existing projects). As the restructured projects are relatively young and have only disbursed a small percentage o f net commitments, they stand a good chance to use effectively the undisbursedcredit balance. As a result, the project outcomes o fthe closingprojects as evaluated by OED also have a good chance to gradually improve and, thus, reverse Nigeria's country record on outcomes inthe near future. Decentralizationand staff organization around the CPS, as well as the DFIDBank partnership, are essential factors for significantly improved portfolio performance. 3 Iv. SUMMARY OFPROPOSEDPROJECTAMENDMENTS 10. Table 1 summarizes the key changes to the eight priority projects. Considering advice from the AFR Legal Department, the Region determined that the changes concerning the Privatization Support Project and the Community Based Urban Development Project are significant and warrant Board approval on a non-objectionbasis; and that the restructuring o f the other six projects fell within the authority o f the RVP or CD. To expedite implementation o fthe restructured projects, relevant amendments were approved as they were completed. Section V in this document includes the amendments that require Board approval. Summaries on restructured projects approved bythe Region are included for information inSection VI. Unless explicitly noted in the amendments, revisions to the K p I s and/or targets are reflected in the respective Project ImplementationManuals (PIMs). All together, the eight restructured projects represent about 54% o f the current net commitments, and the upcoming harmonization o f the CDD projects an additional 11%. Table 1:Summary of Portfolio Restructuring Highlights by Project * 3 eaJ Y h Y VJ W v1 - h 5; 83 s8:.ps: Q E a 2: .I 8 .f 4 apk Y 8 a.2 8as g 8 L Y E e r $ 5 &g VJ L -r:Y cd V J Q ) c, .= ,o m l 2 a u o 0 0 Revisions 6E 2 $ 6 #" z 3 u.9u a O Q k &$ 68* 4 4 1. Privatization No Yes Yes Yes No Yes Yes No Board SupportProject 2. Community Yes Yes Yes Yes Yes Yes Yes No Board BasedUrban I I I I I I I I I Development MENDMENTS APPROVEDITOBE APPROVEDBY THEREGION (SECTION VI) Development 3. Community No Yes No Yes Yes No Yes No CD BasedPoverty Reduction 4 v. PROPOSEDPROJECT RESTRUCTURINGFOR BOARD APPROVAL 11. A. Privatization Support Proiect (PSP) (Cr. 3520-UNI) SDR 90.2 million JUS114.29 million equivalent): The project was approved by the Board on June 14, 2001 and became effective on November 21,2001. The project's closing date i s June 30,2006. 12. The project's development objectives are: (1) to support transparent and effective implementation o f the FGN's privatization program, as a basis for fostering accelerated economic growth, through expanded private investment and improved efficiency in the productive sectors, and in infrastructure; and (2) to create an enabling environment for private sector participation and competition in infrastructure services, notably in telecommunications andelectric power. 13. Status: About US$32.02 million o fproject funds have beendisbursed as o fMay 3, 2005. The project's implementation performance is rated moderately satisfactory. The project has uneven implementation performance and mixed achievements o f different components. The proposed restructuring aims to: (i)scale up the telecommunications sector reform component; (ii)consolidatetheemergencyrecoveryoftheLagosStateWater Corporation(LSWC) and supporting additional civil works that are key to increase access and the quality o f services at LSWC and other urban water utilities; (iii) retrofit IDA'Sprivatization support to improve the program's effectiveness through specific benchmarks to track performance and results; and (iv) streamline the project's support to the electric power sector reform component and provide selected technical assistanceto promote public-private partnerships ingas power development. (a) The Telecommunications Sector Reform component has been highly satisfactory as a result of important and positive developments in the sector over the last four years and the sound management o f this component by the National Communications Commission (NCC). During the second half o f implementation, the project will continue to help implement relevant provisions o f the Telecommunications Bill, strengthen the regulatory framework and NCC's institutional capacities, modernize the frequency management system, advise on options for the fbture privatization o f Nigerian Telecommunication Limited (NITEL) and Nigerian Mobile Telecommunications Limited(M-Tel), and carry out pilot projects on ruralhiversa1access. The proposed re-allocation o f the Credit would increase the project's financing o f this component by about US$9.6 million to US$26.56 million to cover the additional expenses for rural access programs (US$7.2 million), radio spectrum monitoring and management support (US$0.4 million), regulatory work and technical assistance (US$ 1.2 million), market studies and management information systems (US$0.8 million). (b) The implementation of the Privatization Program component by the Bureau o f Public Enterprises (BPE) has achieved significant progress over the last year and i s now rated satisfactory. In July 2004, a Bank mission reviewed with BPE Management the status of performance benchmarks, and noted that BPE has achieved strong progress towards meeting the key criteria for HighCase Scenario o f IDA'Ssupport to the privatizationprogram. To date, BPE has divested over 33 Public Enterprises (PES), which generated about NGN 44 billion o f revenues to the Treasury and time-bound action plans are in place to complete eight pending transactions up to financial closure in the short run, and about 30 other longer-term operations during the remainder o f the project. BPE has also produced a draft national transport policy, a principal pillar o f which i s the transformation o f the sector into one that is private sector driven. Inthisregard, a draft sector regulatory frameworkhasbeenprepared. Inaddition, underits high- case scenario, BPE has on-going detailed work programs for divesting the railways, concessioning the airport management, restructuring the postal services, and privatizing the telecommunications company. Overall BPE i s expected to prepare and execute divesture transactions for about 71 enterprises under the PSP. This, however, i s about 30 percent less than the number targeted at the outset of the project. It is now proposed to include activities for establishing a transport sector regulator and the promotion o f further private sector participation inthe road andrelated infrastructure development, rehabilitationandmaintenance. Onthe basis o f the revised work programs and procurement plans, US$40.65 will be allocated for BPE's activities. This however represents a reduction o f about US$20.44 million from initial allocations inthe ProjectAppraisal Document. (c) The Urban Water Sector Restructuring component has also been rated satisfactory. Although the L SW C has continued to accumulate operational deficits, it has drastically reduced its losses by over 77 percent annually since 2001, compared to initial projections at project appraisal. Its emergency rehabilitationplanhas helpedprevent a system failure and maintain the viability o f the company. The LSWC i s on track to achieve its key operational and commercial performance targets agreed upon under the project. In this context, implementation o f LSWC's emergency rehabilitation plan will be consolidated during the remainder o f the PSP implementationperiod. The proposed reallocation o f the Credit would increase IDA funding o f this component by about US$3.6 million to US$15.22 million in order to provide adequate financing for critical spare parts required for emergency repairs and maintenance (US$2.5 million), to cover additional expenses for stakeholder and customer communications (US$O.9 million) and for training and capacity building (US$0.2 million). It i s also proposed to add a category o f civil works to the Credit Agreement for urban water supply infrastructure, engineering and construction supervision which would build upon the progress achieved under the project with LSWC and other urban water utilities contemplating significant PSP involvement. The main objective o f this component, estimated at US$30 million, i s to support critical investmentsneeded to sustain adequate access and quality o f services untilmore suitable and durable solutions are implemented with private sector participation. Its implementation will be closely coordinated with other related operations, notably the forthcoming Second National UrbanWater ReformProject. 14. However, the above achievements have been offset by the unsatisfactory performance o f theElectric Power Sector Reform component which was dueto delays inthe adoption ofthe new Electric Power Sector Reform Bill upon which the whole sector reform and project's activities largely depended. The Bill has now been enacted into law which i s three years later than expected at the outset o f the project. Some progress has been made in carrying out National Electric Power Authority (NEPA) restructuring, expanding its electric power capacities, and strengthening its commercial operations but substantive improvements across the sector are required for the enabling policy, legal and regulatory framework to be spelled out inthe new bill. InlightoftheimplementationdelaysintheElectricPowerSectorReformcomponent, agreement was reached with the Government to restructure and focus the BPE component on key activities estimated at US$l1.45 million, necessary for consistent progress on sector policy reforms. These activities consist o f advisory services for NEPA unbundling, corporate restructuring and blueprint implementation (US$2.85 million); legal work stream, labor relations, financial, technical assistance, and communication strategy for setting up the new business units (US$0.45 6 million); hands-on assistance to the newly-established system operator (US$3.0 million); capacity building o f the electricity regulatory agency (US$3S O million); and other related studies and TA, rural energy policy work, and training o f a manger o f the new companies (US$1.65 million). Moreover, and in order to accelerate the pace, it was agreed to move the activities o f a more technical nature to be implemented by NEPA through the Project Management Unit established for the Transmission Development Project. These activities are estimated at US$3.65 million and include: implementation o f the business plan for the new transmission system company (US1.4 million); MIS and software systems for Transysco and the 11Distribution Companies (US$1.O million); transmission pricing study (US$0.25 million); and load Demand and Forecast Study (US$l.O million). The amendment provides for the NEPA-PMU to be established as the executing agency under the PSP and to have a separate Special Account to implementthese activities. 15. Government Request: The Government has requested IDA to amend the DCA inorder to reallocate the proceeds o f the Credit. In addition, the FGNhas requested IDA to add a sub- component to the PSP to provide technical assistance for a feasibility study o f a gas pipeline and independent power production project. This project aims to: (a) attract private sector investors to undertake the gas transmission infrastructure critical for Independent Power Producers (IPPs) to invest in power generation; (b) survey and identify potential sites for IPPs in the central and northern parts of the country; and (c) produce minimum standard o f the basic requirements for foreign participation in the PP's to guide prospective investors, noting that these activities fit withinthe overallPSP's development objectives. Accordingly, an amount o f US$lO millionwill be allocated for the technical assistance and advisory services to launch the sequence o f studies and preparatory work required for this project. The FGN has also requested the inclusion of additional procurement methods for consultant services, through least cost selection and consultant qualification, to enable the implementing agencies to more appropriately procure consultant services, particularly to carry out the project environmental and financial audits and other specialized technical work. A request has also beenmade for the inclusion o f procurement methods for civil works to enable the executing agencies to carry out the proposedwater supply infrastructure, engineering and construction supervision and to improve quality and access of these basic services. 16. Recommended Amendments. The amendments for which Board approval is sought include: (i)Article IGeneral Conditions; Definitions; (ii)Article I11Execution o f the Project; (iii)Schedule1WithdrawaloftheProceedsoftheCredit;(iv)AnnexAtoSchedule1Operation of Special Account When Withdrawals Are Not Made On The Basis o f Project Management Reports; (v) Schedule 2 Description o f the Project; and (vi) Schedule 3 Procurement and Consultants' Services. The recommended amendments are inAnnex 1. 17. B. Community Based Urban Development Proiect (CBUDP) (Cr. 3654-UNI) SDR 88.1 million (US$110 million equivalent): The project was approved by the Board on June 6, 2002 and declared effective on June 23,2003. The project i s scheduled to close on June 30,2009. 18. The Project Development Objectives are: (i)to establish partnerships between communities and their Local Governments (LGs) so that subproject proposals are developed jointly by them; (ii)to deliver basic municipal services inpoor urban settlements; and (iii)to demonstrate viable approaches to infrastructure development and service delivery that enable 7 LGsto move away from a culture o ftotal financial dependency for infrastructure investment and even recurrent expenditures for infrastructure operation andmaintenance. 19. Status: The CBUDP is designedto be implementedintwo phases. InPhase I, one city each in seven states - Uyo inAkwa %om, Bauchi City inBauchi, Abakaliki inEbonyi, Benin in Edo, Hadejia in Jigawa, Karu in Nasarawa, and Abeokuta in Ogunin Ogun would start implementing their subproject packages prepared before project appraisal from pre-allocated h d s as soon as the project became effective. Using the unallocated pool o f funds of the UpgradingFund, inPhase I1six additional cities from six additional states would join the project at effectiveness and prepare and implement their first subproject package (Abia, Adamawa, Kaduna, Ondo, Rivers and Sokoto). Only one state in the Phase 11, Ondo, has accessed the project and consultants for detailed engineering are expected to be mobilized by June 2005. It was envisaged that Phase Iwould have beencompleted by now and the seven cities inthe seven states would have finished implementingtheir first subproject packages and started accessing the UpgradingFundto prepare the second round o f sub-project packages. It was also expected that six additional cities in six states would have accessed the Upgrading Fund for preparation o f their first subproject packages and would be about to start implementation. Thirteen cities were to have been accessing funds from the UpgradingFundbynow however this i s not the case. 20. As o f May 3, 2005, the project has disbursed US$8.90 million. Both the project's DO and IP are rated unsatisfactory. 21. There are several factors that have led to the project's restructuring and to addressing the bottlenecks that have impeded project performance. First, only eight cities have demonstrated demand and accessed the project. More resources are available for the participating cities because the number has declined from thirteen to eight cities, and the appreciation o f the SDR has been substantial. This amounts to an additional US$23 million o f the IDA Credit. To disburse more funds from a project with fewer cities, requires substantial modification to the project's design to ensure the project i s completed within three and a half years. Second, political interference has caused substantial delays, both during the bid evaluation process, and, in some cases, even after awards had been cleared by IDA. The latter has resulted indelayed signing o f cleared contracts, insome cases, delays o f as much as six to eight months. The project will not disburse unless there is a major change in implementation arrangements. Third, the Federal Project Coordination Unit (FPCU) has not been functional, and there i s no entity coordinating, monitoring, or providing support to the State Project Implementation Units to proactively mitigate against implementation delays. Fourth, the 20 percent counterpart fund requirement in CBUDP i s high, given the low per capita GDP o f Nigeria. Finally, the lack o f incentives for performance has affected PIU staff morale, worsened by the delays in implementation, andthe consequent slow results on the ground. 22. Government request: The Government has requested: (i) a reduction in counterpart fund contributions; (ii)100 percent financing o f goods, training, and operating costs; (iii) modification o f eligibility criteria for subprojects to finance more trunk infrastructureinaddition to upgrading activities in new communities and additional works and goods procurement in communities where implementation i s under way, especially with respect to sanitation; (iv) focusing project activities from unallocated funds in those cities that are already actively participating in the project to ensure impact o f investments and scaling-up o f upgrading; (v) broadening the scope o f training and capacity building activities to include overseas trips that 8 contribute to relevant exposure; (vi) performance bonus packages for performing staff; (vii) re- defining the FPCU to be under the Federal Ministry of Housing and Urban Development (FMHUD);and (viii) allocationoffundsto support theFPCU. I23. Theproposedproject restructuring involves the following actions: (i) Onlyeightcitieswillparticipateintheproject. (ii) Theproject'sdevelopmentobjectiveswillbemodifiedfromthreetoonetomake it easier to monitor the achievement of development objectives. (iii)The project's design and eligibility criteria for subproject packages will be modified to enable financing o f larger subproject packages, including trunk infrastructure to increase access to urban services. Subprojects will be packaged to reduce the number o f contracts for contract management purposes. Based on these modifications, disbursementsare expected to peak in2006 and 2007. (iv) The integrity of the bid evaluation process will be strengthened in two ways. First, design engineering consulting firms will provide bid evaluation services to the PIUS,changing the past practice o f the PIUs undertakingthe bid evaluation themselves, leaving the process open to interference. Second, the role o f the Project Steering Committee (PSC) consisting o f the political leadership in each state, will be re-defined. PSC's will review performance o f PIUs through post-review o f the activities, and not, as i s currently the case, o fprior review. This has led to enormous interference inthe day to day operations o f the PIUS. (v) The Ministry to which the FPCU reported to in 2002, has changed from the Federal Ministry o f Works and Housing to the Federal Ministry o f Housing and Urban Development. This change will be reflected in the DCA. Technical Assistance will be provided to the FPCU to ensure that systematic project coordination and monitoring, preparation o f consolidated reports from states, andproactive support to states to mitigate against implementation delays, is in place as soon as possible. Monthly operating support will also beprovidedto the FPCU. (vi) The counterpart fund contribution from states will bereduced to only a 5 percent requirement for local costs o f civil works, with IDA financing 100 percent of foreign costs and 95 percent o f local costs o f civil works. IDA will finance 100 percent o f all other costs. 24. Recommended Amendments. The amendments for which Board approval is sought include: (i)Article IGeneral Conditions; Definitions; (ii)Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii)Annex A to Schedule 1 Operation o f Special Accounts When Withdrawals Are Not Made On the Basis o f Financial Monitoring Reports; (iv) Schedule 2 Description o f the Project; and (v) Schedule 4 Implementation Program. The recommended amendments are inAnnex 2. VI. SUMMARY OF RESTRUCTUREDPROJECTSAPPROVED/TO BEAPPROVED BYTHE REGION I25. The following amendments have been, or will shortly be approved bythe Region: 26. A. UniversalBasic Education Project (Cr. 3711-UNI) SDR 76.3 (US$101 million): The project was approved by the Board on September 12, 2002, and declared effective on 9 November 10, 2003. A disbursement condition on the Federal component was met on M a y 20, 2004. The project's closingdate i s June 30,2008. 27. The Project Development Objective is to support the implementation o f the Government o f Nigeria's universal basic education (UBE) program. The specific objective o f the Bank's support i s to increase the capacity o f states and local governments to manage and implement the UBE program effectively and efficiently. The goals are to assist states and local governments to establish and manage schools with local participation and to build capacity in critical skills such as budgeting, participatory planning, financial management, procurement, and project implementation. 28. Status: Total disbursements are US$7.30 million as o f May 3, 2005. The project has two main components. The first component, the State Programs for the Implementation o f Universal Basic Education, provides resources to each o f the 16 participating states in the amount o f up to US$5 million. The second component, the Federal Program Management and Monitoring, Policy Development and Systems Support, provides resources to the Federal MinistryofEducationandselectedfederal agenciesinthe amount ofUS$21million. Therehave beeninitial delays inproject implementationat boththe state and federal levels due to the lack o f counterpart funds being deposited for the project. Weak implementation capacity has also hindered project performance. Although efforts over the past four months have been made by both the states and federal governments to improve project perfonnance, implementation progress remains unsatisfactory. It i s expected that the proposed restructuring will assist the government to improveproject performance. 29. Government Request: The government has requested the following amendments to the DCA: (i) allocation o f US$2 million out o f each participating State's Credit o f US$5 million for the self-help project; (ii) inclusion o f the Federal Capital Territory as an additional participating entity in the project; and (iii)adjustments o f the Special Account thresholds to accommodate the new changes. The government also submitted a detailed draft restructuring proposedbythe Federal Ministry o fEducation. 30. Themain amendmentsto the DCA are: (i) Addition of the Federal Capital Territory (FCT). The government has requested the inclusion o f the FCT to receive project finds. The FCT has a credible education sector plan, and i s committed to an accelerated implementation schedule. (ii)Reallocation of Project Funds. Currently the project has allocated SDR13.7 million for self-help sub-projects and the government has requested that this be increased to SDR 22.2 million. This will permit more schools to participate in the project and assist communitiesto access sufficient resources by increasingthe amount o f school grants from N450,000 to N900,OOO. This reallocationo fproject funds will require a transfer from Civil Works and Goods to the sub-projects category. (iii) IncreasedSizeof SpecialAccounts. Withimplementationaccelerating,thesizeof the Special Accounts is insufficient to accommodate the demand for accelerated 10 disbursements. To alleviate liquidity problems, the govemment has requested that the State Special Account be increased from US$250,000 to US$500,000 and the Federal Special Account be increased from US$1 millionto US$2 million. 31. Two other key changes to the DCA based on the restructuring proposal sent by the Federal Ministry of Educationare: (i) Counterpart Funds. Currently counterpart funds are required to finance 20 percent o f works, 10 percent o f locally procured goods, 10 percent o f consultant services and 50 percent o f incremental operating costs. The govemment has requested that 100 percent o f all expenditure items be financed out o f the proceeds o f the Credit and that counterpart funds are no longer required for this project. The non-availability o f counterpart funds, together with weak project implementation capacity were the main reasons for the extremely long delays in project effectiveness and implementation. Inline with the new Country Financing Parameters (CFP) for Nigeria, which provides the flexibility to finance project costs up to 100 percent, especially in the social sectors to facilitate project implementation and promote achievement o f development objectives, it i s proposed that up to 100 percent o f project costs are financed out o f the Credit. This will remove the need for counterpart funds and enhance flexibility to accelerate project implementation to achieve the project's development objective on time. (ii) State Resource Allocation. The`govemment has requested that total credit for each participating state be adjusted from a minimum o f US$5 million to US$2 million. This allocation must be utilized before December 31, 2005. Each state then has the potential to access additional pooled resources, above US$2 million, basedon their improvedproject performance. 32. Recommended Amendments. The amendments approved by the Country Director include: (i)Article IGeneral Conditions; Definitions; (ii)Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii)Annex A to Schedule 1 Operation o f Special Accounts When Withdrawals Are Not Made On The Basis o f Financial Monitoring Reports; (iv) Schedule 2 Description o f the Project; (v) Schedule 3 Procurement and Consultants' Services; (vi) Schedule 4 Implementation Program; (v) Schedule 5 Terms and Conditions o f Subsidiary Credit Agreements With ParticipatingStates RequiredPursuantto Section 3.10 (c) o fthis Agreement. 33. B. HIV/AIDS Program Development Proiect (Cr. 3556-UNI) SDR 71 million (US$90.3 million equivalent): The project was approved by the Board on July 6, 2001 and became effective on April 26, 2002. The project's closing date i s June 30,2006. The project fits within the Multi-Country HIV/AIDSProgramfor the Africa Region. 34. The Project Development Objective i s to assist Nigeria to reduce the spread and mitigate the impact o fHIV infectionby strengthening its multi-sectoral response to the epidemic. This is done through the implementation of a comprehensive program that includes the creation o f an enabling environment for a large scale response, and laying the foundation for scaling up HIV/AIDSprevention, care, andtreatment services at the federal, state, andlocallevels. 11 35. Status: Around US$26.15 million has been disbursed as of May 3, 2005. The project has been listed as a problem project for almost two years. A restructuring mission was undertaken in September 2004. It identified a number o f activities to improve project performance, some o f which involve changes to the DCA. However, no changes to the project development objective are needed. 36. Government Request: The Government has requested that the credit is offered to all states o f the Federation. The current DCA lists 16 states as potentially eligible to receiveproject funds and it is proposed that all states o f the federation that meet the eligibility criteria be allowed to receive funds. The Government has also requested that resources be reallocated among the states (some unallocated hnds have been earmarked to be allocated to high performing entities during implementation). At the time o f project preparation, anti-retrovial drugs were not affordable. This has now changed and the Government has requested that anti- retroviral drugs (ARVs) be added as an eligible item o f expenditure. It i s proposed that the project establish ARV programs in interested and eligible states. Currently, funds going to the line ministries through the National Program Team and the State Program Teams (SPT) are reimbursable only when the expenses are incurred and accounted for. This practice has created a liquidityproblem, particularlyfor the SPTs. The Government ofNigeriahas requestedthat these expenses be treated as grants which would allow the special accounts to be replenished as soon as funds were passedto the line ministries thus avoiding the liquidityproblem. This government request was not considered feasible by the Bank's Legal and Disbursement units so, to address the liquidityproblem, special account amounts are beingincreased. 37. Recommended Amendments. The amendments approved by the Country Director include: (i)Article 1General Conditions; Definitions; (ii)Table in Schedule 1Withdrawal of the Proceeds of the Credit; (iii)Annex A to Schedule 1 Operation of Special Accounts When Withdrawals Are Not Made On the Basis o f Project Management Reports; and (iv) Schedule 2 Description o fthe Project. 38. C. Transmission DeveloDment Project (Cr. 3559-UNI) SDR78.60 (USSlOO million equivalent): The project was approved by the Board on July 31, 2001 and declared effective on May 31,2002. The project i s scheduled to close on December 31,2006. 39. The Project Development Objective is to support the Federal Government o f Nigeria's overall program o f power sector reform and privatization by addressing the requirementso f the transmission and dispatch sub-sectors, specifically through: (i)facilitating NEPA unbundling; (ii) establishing a transparently-regulated, financially viable, commercially- operated Transmission and System Operation Company (TransysCo) with private participation; (iii)removingtransmissionnetworkandsystemoperationconstraintsonprovisionofreliable power supply; and (iv) facilitating development o f an efficient wholesale power market to improve the long-termperformance o fthe power sector. 40. Status: About US$29.67 millionhas been disbursed as of May 3, 2005. Both the DO and JP are rated as satisfactory. 41. Government Request: The Government requested the Bank to set aside US$15 million under the Project to finance pressing distribution efficiency improvement measures. Recognizing that "adequate and reliable power to consumers" cannot be delivered without such 12 improvements inthe efficiency o f the power supply and commercial services, the Bank agreed to the Government's request. At the time o f project preparation and approval, the distribution sub- sector had not been included for funding. There have been however several positive developments in the distribution sub-sector in the last 12 months that have provided an opportunity for rapid and sustainable change. Reforms have gained momentum with NEPA's unbundling its distribution business into 11distribution business units (DBUs) as o f January 1, 2004. The DBUs have commenced operations as profit centers with a substantial devolution of authority and responsibility. A new Electric Power Sector Reform Law has been enacted, which will enable theDBUsto betransformed into companies and seek private participation. The Bank has helped NEPA to evolve the Commercial Reorientation o f the Electricity Sector Toolkit (CREST) approach to achieve quick distribution efficiency impacts. CREST is a set o f initiatives that target loss reductions, energy accounting, commercial improvements and customer service enhancements. CREST pilots have been successfully implemented in 8 o f the 11DBUs, andhave yielded dramatic improvements including loss reductions that are eligible for carbon finance. The US$15 million component will finance the scale up o f the CREST initiatives to all the Distribution Business Units/Companies. 42. Recommended Amendments. The amendments approved by the Regional Vice President include: (i)Table inSchedule 1Withdrawal ofthe Proceeds ofthe Credit; (ii) Schedule 2 Description o f the Project; and (iii)performance indicators o f the annex to the Supplemental Letter dated August 23,2001. 43. D. Second Health Systems Development Proiect (Cr. 3653-UNI) SDR101.8 million (US$127 million equivalent: The project was approved by the Board on June 6, 2002 andbecame effectiveon May 23,2003. Theproject closing date is July 1,2007. 44. The ProjectDevelopmentObjective is to assist the Nigerianhealthauthorities intheir efforts to redress the serious deterioration inthe delivery o f basic health care services following decades o f neglect and build institutional capacities, paving the way for a more sustained development o f the Nigerian health care system. More specifically, the project would: (i) strengthencapacities for system management at the state level and encourage an environment o f broad based consultation; (ii)support improvements in the delivery o f primary health care services with a particular focus on maternal and child health and reproductive health services; and (iii)assistthe FederalGovernment to strengthenits policy formulation andfurther develop a system to monitor the health sector Performance. 45. Status: The project has disbursed US$27.67 million as o f May 3, 2005. The DO is rated unsatisfactory and the IP i s rated satisfactory. Initial delays in project implementation at both the Federal and States levels were primarily due to weak implementation capacity and the lack o f the timely provision of counterpart funds. The project's implementation progress remains slow. However, there have been improvements over the last year at both the Federaland State levels reflected by increased disbursements. It i s expected that the proposed restructuring will assist the government to accelerateproject performance. 46. GovernmentRequest: Themain amendmentsto the DCA include: (i)Additionof KanoState. The project currently consists o f 35 states plus the FCT. The DCA lists 36 states that are eligible to receive project funds. The Government has 13 requested the inclusion o f Kano State which i s acceptable, given that Kano State i s hlly committed to improvingthe delivery o fhealthservices. (ii)Reallocationof ProjectFunds. TheGovernmenthasrequestedthatprojectfundsbe reallocated from the less performing states to the better performing states. This will permit competition among states. There will be two unallocated "pools" o f b d s - one for the Federal Ministry o f Health and one for the states. The state pool will provide additional funding for states that exhaust their allocated resources. (iii)ExpenditureCategories. Currentlytheprojecthas4expenditurecategoriesforthe federal and state. The Government has requested that there be two major disbursement categories which will alleviate the problems o f reallocation between categories for each o f the 36 states. This will allow for more flexibility in funding o f the priority activities which differ from state to state. For simplification purposes, goods, works, services and training are combined into one category. (iv) Counterpart Funds. Currently counterpart funds are required to finance 20 percent o f works, o f locally procured goods, o f consultant services and incremental operating costs. The Government has requested that 100 percent o f all expenditure items be financed out o f the proceeds o f the Credit and that counterpart funds no longer be required for this project. The non-availability o f counterpart funds, together with weak project implementation capacity, were major reasons for the extremely long delays in project effectiveness and implementation. In line with the new CFP for Nigeria, which provides the flexibility to finance project costs up to 100 percent, especially inthe social sectors to facilitate project implementation and promote achievement o f development objectives, it proposes that up to 100 percent o f project costs are financed out o f the Credit. This will enhance flexibility to accelerateproject implementation and achieve the project's development objective on time. 47. Inadditionto themainamendments,the detailed draftrestructuringproposalattached to the Borrower's request included a list o f other proposed amendments to the DCA. Two further keychangesare: (i) Inclusion of SecondaryHealthCare. ThisamendmentwillenableboththeStates and Federal Ministry o f Health to carry out the Federal Government's Presidential Initiative in Accelerating the Health MDGs. The Government has requested that the amount for eachparticipating state be adjusted from a minimumo fUS$5 millionto US$2 million. This allocation must be utilized before December 31, 2005. Each state then has the potential to access additionalpooledresources, above US$2 million amount, based on their improvedproject performance. (ii) Creation of a New Project Activity for Vaccines. To accelerate the implementation o f Nigeria's health MDG program, the Federal Government has requested an additional project activity for the procurement o f vaccines for childhood preventable diseases. 48. Recommended Amendments. The amendments to be approved by the Country Director include: (i)Article IGeneral Conditions; Definitions; (ii)Article I11Execution o f the Project; (iii)Article V EffectiveDate; Termination; (iv) Schedule 1 Withdrawal o f the 14 Proceeds o f the Credit; (v) Section 2 Description o f the Project (vi) Schedule 5 Terms and Conditions o f the Subsidiary Agreements with Participating States RequiredPursuant to Section 3.01 (c) o f this Agreement. 49. E. Lagos Urban Transport Project (LUTP) (Cr. 3720-UNI) SDR 75.5 million @JS$lOOmillion equivalent): The project supports the transport sector policy and strategy o f the Lagos State Government and was approved by the Board on November 21, 2002 and declared effective on October 30,2003. The project i s scheduled to close on June 30,2008. 50. The ProjectDevelopmentObjective i s to sustainably improve the capacity to manage the transport sector in the Lagos Metropolitan Area and enhance the efficiency o f the public transport network, such that it contributes measurably to poverty reduction. 51. Status: As of May 3, 2005, LUTP has disbursedUS$20.0 million. The DO is rated moderately unsatisfactory and the IP i s rated moderatelyunsatisfactory. Both the DO and Ipare expected to be rated satisfactory as a result o f the project's restructuring. Lagos Metropolitan Area Transport Authority (LAMATA) focused initially in the project's implementation on works for the maintenance and rehabilitation o f the roads o f the Declared Network, and the agency has been able to show a significant improvement in the quality o f the planning, procurement and works compared to the prevalent practice. During the 14 month period since project effectiveness, the project has committed US$29.5 million almost entirely on the road maintenance activity and capacity building. In2004, the Federal Ministry o f Works decided to carry out itself, using federal budget resources, the necessary rehabilitation and maintenance o f the federal roads in Lagos State instead o f authorizing LAMATA to undertake this work as was originally planned. The Federal roads represent approximately half the size o f the Declared Road Network (343 km out o f a total length o f 635 km), the state roads covers 275 km and the local roads 15 km. 52. Inaddition, the roadmaintenance works done in2004 resulted in a muchhigher cost than originallyplannedduringthe project's preparation. The price o f hel, for example, that is a major cost element o f the inputs doubled during this period. This led to a significant increase in the unit costs for physical works which i s expected to be the case for similar works to be carried out in the remaining period o f project implementation. Also, due to the heavy traffic volume, more roads thanpreviously envisaged are due for overlay or rehabilitation. 53. N o direct transfer has yet beenmade from the user charges to the Transport Fund, but the study o f the Motor Vehicle Administration i s being procured and will be the first step in definingthe mechanism for the transfer. 54. The Lagos State Government has reaffirmed its intention to implement the public transport regulatory reform. A draft bus franchise regulation has beenprepared and i s expected to be signed by the Governor o f Lagos State in June 2005. Two pilot bus franchises are being prepared, one by LAMATA under the project, and one by the State Ministry o f Transport. These franchise projects are expected to be under the same franchise regulation. 55. Disbursement has been very limited so far with regard to the studies and technical assistance project activities. As stated previously, LAMATA initially focused on getting the road works started. I t has progressively recruited quality staff on technical assistance and it i s 15 now in a position to address more effectively these components. But this has translated into a late start for public transport activities, for the preparation o f the next phases, and for the capacity buildingo f other related State agencies. 56. Government Request: The Government has requested IDA to remove from the project's activities the recurrent and periodic maintenance as well as rehabilitation works o f the federal roads and federal bridges included in the Declared Road Networks, and to increase the amount o f periodic maintenance and rehabilitation works on State and Local Government roads inthe sameDeclared RoadNetwork, including drainage works. Theidentifiedoverlayworks for this additional package show economic rates ofreturninthe rangeo f20 to 30%. Ofthese roads, nine are likely to require displacement. Inmost cases, the displacement will be temporary and no permanent structures will needto be replaced or compensated. 57. During project preparation, 38 junctions had been identified for treatment and improvement. After review, the treatment o f 70junctions i s beingproposed excluding junctions on federal roads. In several cases, the treatment o f these junctions will require more complex work than anticipated as it is necessary to improve the turning movements. While the specific junctions to be included are subject to change at least six o f them involve some resettlement. The degree o f displacement and resettlement ranges from the temporary relocation o f traders while works are performed, or the rearrangement o f occupants to permit better pedestrian flow, to permanent removalto new locations. 58. The Government has requested IDA to finance the implementation of the bus pilot operation when it i s ready. The Pilot BusFranchise Project is being studied on the corridor Iyan- Ipaja to Ikotun, which differs from the one originally envisaged. The more moderate volume on this route is expected to be amenable to the limitedsize ofthe operation, while serving a rapidly growing area. There will be resettlement issues at junctions, termini and for a depot yet to be identified. Themajor displacement that canbe anticipated is likeIyto be vendors andtraders, but some land acquisition could be necessary for the terminal and the depot. The financial mechanism to finance the franchise operation i s yet to be defined. The credit will finance the feasibility study and the design o f the Pilot Bus Franchise Project. Provided the design o f the project is satisfactory to IDA, the credit will also finance the infrastructure works, the construction supervision and the technical assistance to the implementation, while the resettlement andthe franchise operation will be financed by the Transport Fund. 59. The Extended Resettlement Policy Framework is being completed and Resettlement Action Plans will be prepared and implemented accordingly as required for the road works or other project facilities. 60. The Government also requested to allow for the financing o f capacity building activities inthe Lagos State Traffic Enforcement Authority (LASTMA). LASTMA i s the traffic enforcement arm o f Lagos State in parallel with the Nigerian Traffic Police which i s a federal agency. LASTMA i s expected to have the main responsibility for traffic enforcement and road safety inLagos. 61. The covenant mentioned in section 2.05 (a) o f the Project Agreement requires.that Lagos State contribute no less than the equivalent o f US$7 million each fiscal year, commencing in2003 (i.e. US$35,000,000 for the total duration ofthe project) into the Transport Fundwhich 16 would fund the maintenance o f the roads that are the responsibility o f LAMATA. During the project's appraisal, it was envisaged that the project would begin early in January 2003. However, the project became effective only on October 3lS`, 2003 for reasons largely independentfrom Lagos State, and implementationdid not beginbefore November 2003. For that reason, the Government requested to reschedule the related obligation o f Lagos State and to begin in 2004, including this year the amounts contributed since project effectiveness (i.e. in November-December 2003). 62. The Government has requested the cancellation o f section 2.05 (b) o f the Project Agreement with Lagos State. This covenant specifies the amounts to be directly transferred from user charges to be deposited inthe Transport Fundstarting from 2003. The covenant's objective i s to measure the progress o f the financial sustainability o f the management o f the transport sector by LAMATA; the quicker the annual direct transfers from user charges reach the amount o f US$7,000,000 equivalent (which i s the estimated needed amount for the road maintenance), the quicker LAMATA's activity i s financially sustainable. It i s expected that these transfers will progressively replace the US$7,000,000 that Lagos State contributes annually to the Transport Fund. To fulfill this obligation, the Government will first carry out a set of studies (the first one is presently procured and concems the organization o f the MVA) and will hold consultations with the civil society and interested parties. Therefore, Lagos State Government will start later than expected to transfer money from user charges, but will then catch up with the delay. The mechanism for transferring US$7,000,000 from user charges to the Transport Fund will be in place before the end o f the project and will remain a project performance indicator. 63. The Government also requested to delete the performance indicator on the number o f traffic accidents related to pedestrians as the statistical data are not accurate enough to be relevant to the assessment o f the project's performance. As part o f the capacity building component, the project will develop a strategy for improving the collection and analysis o f traffic accident data. The performance indicators for intermediate outcomes have also been revisedto better take into account the expected outputs oftheproject. 64. RecommendedAmendments. The amendmentsto be approvedbythe Regional Vice President include: (i)Article I,General Conditions; Definitions; (ii)table in Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii)Schedule 2 Description o f the Project; (iv) Project Agreement Section 2.05; and (v) revised performance indicators to be included in the Project ImplementationManual. 65. F. CommunitvBasedPovertyReductionProject(CBPRP) (Cr. 3447-UNI) SDR 47 million (US$60 millionequivalent): The project was approved by the Board on December 20, 2000 and declared effective on September 28, 2001. The project i s scheduled to close on February 28,2006. 66. The Project Development Objective i s to improve access o f the poor to social and economic infrastructure and increase the availability and management o f development resources at the community level. 67. Status: CBPRP is a poverty-focused project that has established independent social fund agencies in the six states of Abia, Cross River, Ekiti, Kebbi, Kogi and Yobe in the first phase. An additional six states will be included in the second phase, two states (Kwara and 17 Ebonyi) are to be funded by the World Bank and the other four states by the African Development Bank. Although project implementation was initially slow, project performance has been satisfactory over the last two years. Over 1200 microprojects have been approved in more than 1000 communities in the six states that are currently disbursing. A s o f M a y 3, 2005 about US$38.79 million has been disbursed. A mid-term review mission in October 2004 identified activities that needed to improve and further accelerate project performance. Some of these activities require changes to the DCA. There are, however, no changes to the project's development objective. 68. GovernmentRequest: The mainamendments to the D C A include: (9 Addition of Two States: The Government has requested the addition o f Ebonyi and Kwara to receive project h d s in the second phase as soon as they meet the eligibility criteria. (ii) Reallocation of Project Resources to States and the National Planning Commission (NPC): The Government has requested that the credit be reallocated based on performance and revised disbursement projections, and the addition of new states. Schedule 1of the D C A will be revised to reflect these changes. (iii) Disbursement from the NPC to Key Agencies to be Treated as Special Allocations. Currently h d s going to the Federal Office o f Statistics, Ministry of Women Affairs and other units inthe National Planning Commission for project related activities through the NPC are reimbursable only when the expenses are incurred and accounted for. This has created a liquidityproblem for the NPC. The special account limito fthe NPC andstate agencies will beincreasedto relieve the liquidityproblem. 69. Recommended Amendments: The amendments to be approved by the Country Director include: (i) Preamble o f the Agreement; (ii)Article IGeneral Conditions; Definitions; (iii)Schedule 1 Withdrawal o f the Proceeds o f the Credit; and (iv) Schedule 5 Special Accounts. 18 Annex 1 PrivatizationSupport ProjectRecommendedAmendments To respond to Government's request, it i s recommended that the Development Credit Agreement (DCA) dated August 23,2001 between the Federal Republic o f Nigeria (the Borrower) and IDA beamendedas follows: (i) A new paragraph 1.02 (n) is added to the Agreement to read as follows, and successive paragraphs are re-lettered correspondingly: (n) "NEPA" means "National Electric Power Authority," established and operating pursuant to the National Electric Power Authority Act 1972 (Act No. 24) o f the Borrower, as amended to the date o fthis Agreement; (ii) Section 3.01(a) i s amended to read as follows: 3.01(a) The Borrower declares its commitment to the objectives o f the Project as set forth inSchedule 2 to this Agreement and, to this end: (i) carry out PartsA, B (l), shall B (2), B (4), C (l),C (3) through (6) of the Project through BPE; Parts B (3), B (5) and B and (6) o f the Project through NCC; Part C (2) ofthe Project through NERC; and Part C(7) of the Project through NEPA, all with due diligence and efficiency and in conformity with appropriate administrative, financial, andmanagement practices. 19 (iii)Paragraph 1 of Part A o f Schedule 1 to the Agreement i s deleted and replaced by new Paragraph 1. Amount o f the Credit Allocated (Expressed % of inSDREquivalent) Expenditures Category to be Financed Supplyand Installation: (a) Underpart B(6) 13,694,000 lOQ% of foreign expenditures; o f the project 100%of local (ex-factory cost); and (b) Underpart D(2) 5,231,000 40% oflocal expenditures for Ofthe project other itemsprocured locally. Goods 90% (a) Underpart C(2) 499,000 o f the project (b)Under partD 1,874,000 o fthe project 20 Amount of the Credit Allocated (Expressed % of inSDREcluivalent) Expenditures Category to be Financed Consultants' Services: 100% 32,618,000 (b) Underparts B(3), 2,077,000 B(5), andB(6) o fthe project (c) Underpart C(2) 665,000 of the project (d) Underpart D 2,734,000 ofthe project (d) Underpart C(7) 2,390,000 o fthe project Training and Study Tours 100% (a) Under parts A, B(l), 3,075,000 B(21, B(4), CU), C(3)-(7) ofthe project (b)Underparts B(3), 997,000 B(5), andB(6) of the project 21 Amount of the Credit % of Allocated (Expressed Expenditures inSDREquivalent) to be Financed Category Incrementaloperating costs, (a) Underpart A 2,327,000 80% in2001 of the project 70% in2002 60% in2003 50% in2004 40% in2005 andthereafter 90% in2001-3 (b) Underpart C(2) 499,000 70% in2004 of the project andthereafter Refunding ofproject 1,580,000 Amount due pursuantto preparationadvance Section2.02 (b) ofthis Agreement Unallocated 266,000 Civil Works under Part 19,674,000 90% D(3) of the Proiect TOTAL 90,200,000 Paragraph 2(c) o f Part A o f Schedule 1to the Agreement is amended to read as follows: (c) the term "Incremental Operating Costs" means the incremental operating costs arising under Parts A and C 2) o f the Project on account o f maintenance o f equipment and vehicles, fuel, office supplies, utilities, bank charges and advertising expenditures, consumables, travel per diem and allowances, travel and accommodation, office rental, but excluding salaries o f civil servants. A new sub-paragraph (f) is added to paragraph 3 in Part A o f Schedule 1 to the Agreement to read as follows: (0 under Category 3(e) until: (i) has adopted the Financial ProceduresManual NEPA and its respective Project Implementation Manual, each in form and substance satisfactory to the Association and has appointed external auditors for the Project in accordance with Section I1o f Schedule 3; and A new sub-paragraph (g) is added to paragraph 3 in Part A o f Schedule 1 to the Agreement to read as follows: 22 (8) under Category 8 until an Environment and Social Management Framework and a Resettlement Policy Framework, satisfactory to the Association, has been adopted by the State in which such works are to be carried out, and such State has agreed to carry out such civil works in accordance with the Environment and Social Management Framework and the ResettlementPolicy Framework so adopted. (vii) Paragraph 1o fPart B o f Schedule 1to the Agreement is amended to read as follows: 1. The Borrower shall cause five separate special deposit accounts to be opened and maintained in U S Dollars: the BPE Special Account, the NCC Special Account, the NERC Special Account, the LSWC Special Account, and the NEPA Special Account ina commercial bank on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure and attachment. (viii) A new Paragraph (a)(v) is added to Annex A to Schedule 1to the Agreement to read as follows: (v) inrespect ofthe NEPA Special Account, an amount equivalent to $200,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuantto paragraph2 ofthis Annex. (ix) Part A.l o f Schedule 2 to the Agreement i s amended to read as follows: 1. The carrying out o f the Privatization Program through the preparation and execution of divestituretransactions for about 70 Public Enterprises. (x) Part C.2 and Part C.6 o f Schedule 2 to the Agreement are deleted and replaced by new Part C.2 andPart C.6 set forth below: 2. Establishment o f the NERC as an autonomous regulatory agency, preparation o f implementing rules and regulations, and support for commencement o f operation by NERC; and institutional support for setting up implementation arrangements for the gas pipeline andindependentpower productionpreparatory work. 6. Strengthening power generation by contracting out existing and new plants to private operators under "Rehabilitate-Operate-Transfer", emergency power program and similar arrangements, based upon competitive bidding, and carrying out a feasibility study o f a gas pipeline and independent power production project, through provision o f advisory andconsultingservices." (xi) A new Paragraph C.7 is added to Part C o f Schedule 2 to the Agreement to read as follows: 7. Development o f business plan for electric power transmission system company, management information system and sofhvare systems for transmission and distribution companies; and carrying out o f a transmission pricing study and a load demand and forecast study, through the provision o f advisory and consulting services. 23 (xii) Part D o f Schedule 2 to the Agreement i s deleted and replaced by new Part D set forth below: Part D: Lagos and other Urban Water Private Sector Participation 1. Private sector participation in the operation o f LSWC and other public water utilities, including strategic review o f the policies and regulatory framework for the urban water sector, due diligence, financial and legal restructuring, public relations programs, asset valuation o f LSWC and other utilities, and carrying out a labor program, through provision o f advisory andconsulting services. 2. Acquisition, installation and operation o f equipment for repair of essential plant, and provision o f essential services, to enable continued production o f potable water, including improvement o fthe customer database, billing and collections. 3. Civil works to rehabilitate treatment plant pumping stations, water storage facilities and distribution networks o f LSWC and other urban water utilities contemplating significant private sector participation. (xiii) Part C.l of Section Io f Schedule 3 to the Agreement is amended to read as follows: 1. LimitedInternationalBidding Works estimated to cost less than $100,000 equivalent per contract, up to an aggregate amount not to exceed $4.0 million equivalent, and goods, which the Association agrees can only bepurchased from a limited number o f suppliers, regardless o f the cost thereof, may beprocured under contracts awarded inaccordance with the provisions o f paragraph 3.2 o f the Guidelines. (xiv) A new Part C.5 is added to Section Io f Schedule 3 to the Agreement to readas follows: 5. Force Account Works which meet the requirements of paragraph 3.8 o f the Guidelines, and costing $50,000 equivalent or less inthe aggregate, may, with the Association's prior agreement, be carried out by force account inaccordance with the provisions of said paragraph o fthe Guidelines. (xv> New Part C.5 andPart C.6 are added to Section I1o f Schedule 3 to the Agreement to read as follows: 5. Least-cost Selection Services for assignments which the Association agrees meet the requirements o f paragraph 3.6 o f the Consultant Guidelines may be procured under contracts awarded on 24 the basis o f Least-cost Selection in accordancewith the provisions ofparagraphs 3.1 and 3.6 o fthe Consultant Guidelines." 6. Selection Based on Consultants' Qualifications. Services estimated to cost less than $100,000 equivalent per contract may be procured under contracts awarded inaccordancewith the provisions o fparagraphs 3.1, 3.7 and 3.8 o fthe Consultant Guidelines. (xvi) A new Section 111.is addedto Schedule 3 to the Agreement to read as follows: Section 111.Civil Works 1. Civil works contracts estimated at U S $33.0 million (of which IDA would finance go%), to rehabilitate treatment plant pumping stations, water storage facilities and distribution networks will be undertaken by the project. To the extent practicable, civil works contracts shall be grouped in bid packages to take advantage o f bulk purchase. Therefore, all civil works contract estimated to cost the equivalent o f U S $1,000,000 per bid package, shall be procured using International Competitive Bidding (ICB) procedures. Each civil works contract package estimated to cost less than US$l,OOO,OOO equivalent may be procured using National Competitive Bidding procedure (NCB) acceptable to IDA. However, since there i s no National SBD acceptable to IDA for now inNigeria, IDA SBD for procurement o fworks (Smaller Contract) will be adaptedbythe project. 2. Minor civil works contracts, estimated to cost less than $100,000 equivalent which are labor intensive, spreadover time andwhich do not lend themselves to grouping and therefore are unlikely to attract foreign bidders shall be procured using shopping procedures. These works contracts would be awarded on the basis o f quotations obtained from three qualified domestic contractors invited inwriting to bid. The invitation shall, among other things, include a detailed description o f the works, including basic specifications, relevant drawings and bill o f quantities where applicable, the required completion date and a basic form o f agreement acceptable to the Bank. A sufficient bid submission periodwould be allowed andbidswould be opened inpublic. The award will be made to the lowest evaluated responsive bidder who has appropriate experience and resourcesto successfully complete the contract. 3. Incases wherethe quantity ofwork cannot bedefinedinadvance, is too small and scattered to attract private contractors and under emergency situations, when work must be carried out without disrupting ongoing operations, and is estimated to cost less than $50,000 equivalent, force account procedures can beused. 25 Annex 2 CommunityBasedUrbanDevelopmentProjectRecommendedAmendments To respond to the Government's request, it is recommended that the Development Credit Agreement (DCA) dated June 2, 2002 between the Federal Republic o f Nigeria and IDA be amended as follows: Section 1.02 (0 i s amended to read as follows, and all references to "FMWH' are changed to "FMHUD": "FMHUD" meanstheBorrower's FederalMinistryofHousingandUrbanDevelopment; Section 1.02 (m) i s amendedto read as follows: "Participating State" means Akwa-Ibom, Bauchi, Ebonyi, Edo, Jigawa, Nasarawa, Ogun, andOndo State. Section 1.02 (r) i s amendedto read as follows: "PSC" means a Project Steering Committee established by a Participating State to provide overall policy guidance for urban development at the State level, andpost-review performance o f the PIUs with respect to timely implementation o f project activities and bi-annual monitoring o f the budgeted expenditures in accordance with annual activity plans. Section 1.02 (t) i s amendedto readas follows: "Subproject" means a Subproject to be carried out in a Participating State under Part C o f the Project, which satisfies the revised eligibility criteria in the Project ImplementationManual" The first paragraph o f Schedule 2 to the Agreement is amendedto read as follows: "The objective o f the Project i s to assist the Borrower to increase access to basic urban services inselectedcities." 26 (vi) The table set forth in paragraph A.l o f Schedule 1to the Credit Agreement i s amended to read as follows: Category Amount of the Credit % of Expenditures to be Allocated (Expressed in SDR Finance Equivalent) (1) Civil works: 100%of foreign expenditures (a) Federal 0 and 95% o f local expenditures (b) AkwaIbom 3,320,000 (c) Bauchi 3,510,000 (d) Ebonyi 3,520,000 (e) Edo 3,060,000 (9 Jigawa 1,960,000 (8) Nassarawa 2,730,000 (h) own 2,850,000 (2) Goods: 100% (a) Federal 50,000 (b) AkwaIbom 30,000 (c) Bauchi 30,000 (d) Ebonyi 30,000 (e) Edo 150,000 (9 Jigawa 160,000 (g) Nassarawa 750,000 330,000 (i) All Participating (h) own 4,000,000 States (3) Training and Consultant 100% Services: (a) Federal 320,000 (b) Akwa Ibom 690,000 (c) Bauchi 690,000 (d) Ebonyi 690,000 (e) Edo 640,000 (9Jigawa 610,000 (8) Nassarawa 710,000 680,000 0)(i) Participating States (h)Ondo o w 500,000 Other 0 :4) Subprojects 52,754,260 100%of foreign expenditures and 95% o f local expenditures 27 (5) Incremental Operating 100% costs: (a) Federal 130,000 (b) Akwa Ibom 130,000 (c) Bauchi 130,000 (d) Ebonyi 130,000 (e) Edo 130,000 (0Jigawa 130,000 (g) Nassarawa 130,000 (h)ogun 130,000 (i)OtherParticipatingStates 0 (j) Ondo 100,000 (6) Refundingof 1,195,740 Amount due pursuant to Project Preparation Advance Section 2.02 (b) of this (7) Unallocated Total (vii) Paragraph2(c) o f Schedule 1to the Agreement i s amended to read as follows: "The term `Incremental Operating Costs' means the incremental operating costs arising under the Project on account o f maintenance o f vehicles, hel, equipment, office supplies, utilities, consumables, travel per diem and allowances, travel and accommodation, advertising expenditures, bank charges, excluding salaries o f civil servants." (viii) The authorized allocation o f the Federal Special Account set forth in sub-paragraph 1(a)(i) o fAnnex A to Schedule 1is increased from $20,000 to $50,000. (ix) The objective o f the Project set forth inSchedule 2 is amendedto read as follows: "The objective o f the Project is to assist the Borrower to increase access to basic urban services ineight cities." (x) Part B o f Schedule 2 to the Agreement is amended to read as follows: "1. Carrying out an information communication campaign to inform communities in which the Project is to be carried out in accordance with revised eligibility criteria for infrastructure improvements. 2. Implementation o f priority subprojects for infrastructure improvement in eight cities in Participating States that meet the technical and revised eligibility criteria as set forth inthe Project Implementation Manual." (xi) Part C o f Schedule 2 to the Agreement i s amended to read as follows: 28 "1. Provisiono f training to the staff o f LGs, ParticipatingStates, PIU, CTC members, the FPCU, as well as to contractors and consultants, in procurement, financial management, administration, contract management, organizational management, change management and leadership training, technical capacity, participatory and community based development, and monitoring and evaluation." (xii) PartDo fSchedule 2 to the Agreement is amendedto readas follows: "Part D: ImplementationSupport, Operation, MonitoringandEvaluation Provision o f assistance to: (i) the Participating States for the establishment o f PIUS;and (ii)theFederalCoordinationUnitundertheFMHUDforcoordinationoftheProject, consolidation o f financial and technical progress reports, technical audits, monitoring, andfacilitating an extemalimpact evaluation under the Project." (xiii) Paragraph 1o f Schedule 4 to the Agreement i s amendedto read as follows: "1. The Borrower shall maintain the FPCU in FMHUD, consisting o f three representatives from the FMHUD. The representatives shall be assigned to the FPCUfor the duration o fProject implementation and shall not be reassigned without prior notice to the Association. Additional staffmaybe assignedto the FPCUas the need arises." 29