Document of The World Bank FOR OFFICIAL USE ONLY Report No: 73655 v1 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PUNJAB MUNICIPAL SERVICES IMPROVEMENT PROJECT LOAN NO.7380-PAK ORIGINAL LOAN AMOUNT: US$ 50 M APPROVAL DATE: 01 JUNE 2006 TO THE ISLAMIC REPUBLIC OF PAKISTAN 09 NOVEMBER 2012 URBAN AND WATER UNIT SUSTAINABLE DEVELOPMENT UNIT SOUTH ASIA REGION This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Regional Vice President: Isabel M. Guerrero Country Director: Rachid Benmessaoud Sector Manager: Ming Zhang Task Team Leader: Shahnaz Arshad ii PAKISTAN PUNJAB MUNICIPAL SERVICES IMPROVEMENT PROJECT P083929 CONTENTS Page A. SUMMARY ........................................................................................................................... 1 B. PROJECT STATUS .............................................................................................................. 1 C. PROPOSED CHANGES ...................................................................................................... 3 iii PAKISTAN PUNJAB MUNICIPAL SERVICES IMPROVEMENT PROJECT P083929 RESTRUCTURING PAPER A. SUMMARY 1. It is proposed that the closing date for the Pakistan: Punjab Municipal Services Improvement Project (PMSIP, LN 7380-PAK, P083929) be extended from the current closing date of November 30, 2012 to November 30, 2013. There are no other proposed changes to the project. This is the second extension of the project (previously extended by 23 months) and constitutes a level two restructuring for approval by the RVP, since this proposed extension exceeds a two year extension from the original project closing date of December 31, 2010. Consistent with paragraph 3 of OP 13.30 on extension of closing date, the project objectives continue to be achievable, the performance of the project implementing agency is satisfactory, and an action plan to complete the project has been discussed with the Bank. 2. The project is making steady progress. PMSIP was approved on June 1, 2006 and became effective on June 13, 2006. Its latest ISR rating was satisfactory. The pace of implementation of subprojects in the second and third cycles has significantly improved owing to improved contract management practices introduced in PMDFC and the partner TMAs, which is further evidenced by the increasing volume of disbursements over the last eighteen months. Of the $50 million IBRD loan, $46.25 million has been disbursed as of October 4, 2012. The project does not have any outstanding audits or audit-related issues. 3. The Government of Pakistan has requested the extension so that ongoing physical works can be completed and institutional reforms embedded in systems. B. PROJECT STATUS 4. The Project is showing impressive results and progressing satisfactorily towards achieving its Development Objective which is to improve the viability and effectiveness of urban services provided by the participating Tehsil Municipal Administrations (TMAs - local governments), and to make such improvements sustainable and replicable in other TMAs through the creation of a performance-based management framework at both TMA and provincial levels. Sustained impact is expected from the continuation of the project, as a culture of performance management at the municipal level, and that of performance oversight at the provincial level, takes root. Moreover, a robust local government capacity building vehicle has been established in the form of the Punjab Municipal Development Fund Company (PMDFC), the project implementing agency. 5. The Institutional Development (ID) sub-component (capacity grants) has made substantial gains in improving the capacity of TMAs to fulfill their mandates. ID initiatives have been successfully scaled up after the first restructuring to all the 105 1 TMAs across Punjab from the original 37 TMAs. This has resulted in the introduction of systems for improved governance, accountability, and transparency in LGs such as performance management, complaint tracking, computerized financial management, GIS- based spatial planning, participatory investment planning, contract management, and operations and maintenance (O&M) of infrastructure in TMAs across Punjab. 6. The Infrastructure Development investment sub-component (development grants) has enabled TMAs to invest in enhanced municipal service delivery in a managed and sustainable manner. Subprojects include rehabilitation, improvement, and coverage expansion in water supply, sewerage, roads and streets, and solid waste management, as well as provision of equipment for O&M of municipal infrastructure and services. A total of 42 infrastructure development sub-projects were commenced by various TMAs under PMSIP, out of which 30 sub-projects have been physically completed and the rest are nearing completion. The pace of implementation of these subprojects in the second and third cycles has significantly improved owing to improved contract management practices introduced in PMDFC and the partner TMAs. 7. The Cultural Heritage sub-component supporting the Walled City of Lahore has made good progress towards: (a) undertaking studies to recommend rationalization of institutional mandates for management of heritage assets; (b) making appropriate amendments to the existing legislative frameworks; and (c) preparing a pilot project, which includes the creation of a Heritage Trail, to showcase methods and benefits of conservation of cultural assets and their productive (re)use. The Walled City of Lahore Act has been promulgated after due process through the Punjab Cabinet and Assembly, and the Walled City Authority has been notified. This is a major achievement, as the Act establishes the regulative mechanisms for conserving and restoring the historic core of Lahore including the periphery of the Walled City, and also helps resolve conflicts in the multiple laws that have earlier governed interventions in the Walled City. Earlier delays in contracting have been resolved and works are currently underway following the award earlier this year. 8. Total project disbursement as of October 4, 2012 totaled $46.25 million of the $50 million IBRD loan. There has been a significant increase in the volume of disbursements over the last eighteen months, with $16.7 million disbursed in FY12 and $6.4 million in FY13 to-date. The recent pace of disbursement, and the award earlier this year of the Walled City of Lahore contract, strongly suggests that the remaining funds (less than US$ 3.75 million) will be duly disbursed over the proposed 12 month extension period. 9. A comparative analysis of typical sub-project delays between 2006-08 and 2009- 11 indicates a very significant improvement in sub-project performance vis-à-vis timeliness of physical completion of subproject works. The average delay per subproject of more than a 100% of the original contract durations, which remained a key cause of low disbursements over the 2006-08 period, was halved to 45% for subprojects completed over the 2009-11 period. Post 2011, the average delay has been further reduced to around 30% for ongoing subprojects. This reduction in average implementation delays constitutes a significant achievement by PMDFC, its partner TMAs, contractors, and supervision consultants. 2 C. PROPOSED CHANGES 10. The Borrower has requested the Bank to extend the project closing date by one year to allow some of the ongoing project activities to be completed in an orderly fashion, as well as to help deepen and provide continuity of support to the institutional reform systems and business processes introduced through PMSIP. As such, it is proposed that a level two restructuring of the Pakistan: Punjab Municipal Services Improvement Project (PMSIP, LN 7380-PAK, P083929) be undertaken to extend its closing date from November 30, 2012 to November 30, 2013. This constitutes the second extension of the project which was previously extended from the original closing date of December 31, 2010 to the current closing date of November 30, 2012. The proposed new extension to November 30, 2013 would bring the cumulative period of extensions of this project in excess of two years, thereby requiring RVP approval. 11. The extension is necessary to: a) Ensure that implementation of the pilot project in the Walled City of Lahore is completed. While the main physical works contract was awarded earlier this year, the contract is large and complex with an estimated value of around Rs. 800 million (around US$ 8.5 million), and the available period is inadequate for completion of works. The component needs to be fully completed to deliver on the objective of showcasing appropriate methods and benefits of conservation of cultural assets and their productive reuse for initiatives in a historic urban core. This in turn will enhance the likelihood of province-wide scaling up of the cultural assets restoration approach pioneered by the project. This engagement is also expected to lead to the deepening of the heritage management reform and urban regeneration outcomes expected from these interventions in the medium to long term. b) Enable PMDFC to more gainfully and sustainably institutionalize the reform initiatives under the project’s Institutional Development (ID) sub-component. While the entire package of ID interventions has been delivered in the targeted 105 Tehsil Municipal Administrations (TMAs) across Punjab, their sustainability and institutionalization at the TMA level requires continued close support and careful nurturing for them to be fully internalized and sustainable. c) Complete establishment of a system of vertical linkages between TMA-level reforms and the provincial Local Government and Community Development Department (LG&CDD). This will enable LG&CDD, as the parent department of all LGs, to systematically oversee and monitor the continued implementation of the reform agenda and the coverage and quality of municipal services in all project TMAs. d) Ensure that the entire set of infrastructure investments under the project is fully operational and providing the envisaged service benefits to the citizens. Moreover, the capacity development of the respective TMAs to manage the newly created assets, and implement the improved O&M procedures introduced through PMSIP will be important to optimize, and sustain the benefits from these investments. 3 e) Consolidate the lessons learnt during PMSIP implementation, through consultations with provincial stakeholders and beneficiary LGs. This process will also help inform the Bank’s future support to PMSIP. 12. The completion of the ongoing activities described above is necessary for the full achievement of the project development objectives. The following Key Performance Indicators are linked to these activities: a) Evidence, via reports from independent technical and social audit teams, of improved effectiveness and financial and technical viability of urban services provided by participating TMAs b) Evidence of rising levels of satisfaction among key stakeholder groups with respect to services targeted under the project and improvement in selected service delivery indicators c) Evidence of Government of Punjab's improved capacity to monitor TMA performance d) Evidence of Government of Punjab's improved capacity to manage cultural heritage assets 4