The World Bank GZ-Third Municipal Development Project (P159258) FOR OFFICIAL USE ONLY REPORT NO.: RES41086 INTERNATIONAL DEVELOPMENT ASSOCIATION RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF GZ-THIRD MUNICIPAL DEVELOPMENT PROJECT APPROVED ON JULY 21, 2017 TO PALESTINE LIBERATION ORGANIZATION (FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY) URBAN, RESILIENCE AND LAND MIDDLE EAST AND NORTH AFRICA Regional Vice President: Ferid Belhaj Country Director: Kanthan Shankar Regional Director: Ayat Soliman Practice Manager: Jaafar Sadok Friaa Task Team Leader: Christopher T. Pablo The World Bank GZ-Third Municipal Development Project (P159258) ABBREVIATIONS AND ACRONYMS AF Additional Financing CD Country Director CERC Contingent Emergency Response Component DP Development Partner ESMP Environmental and Social Management Plan FM Financial Management MDLF Municipal Development and Lending Fund MDP-3 Third Municipal Development Project MoF Ministry of Finance MoLG Ministry of Local Government O&M Operation and Maintenance RF Results Framework TFGWB Trust Fund for Gaza and West Bank PA Palestinian Authority PDO Project Development Objective POM Project Operation Manual PID-MDTF Partnership for Infrastructure and Development- Multi-donor Trust Fund PMO Prime Minister’s Office WB&G West Bank and Gaza The World Bank GZ-Third Municipal Development Project (P159258) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ..................................................................................................v A. Introduction .................................................................................................................................................................................v B. Original Grant...........................................................................................................................................................................v C. Status of implementation of the original Program .................................................................................................................vi D. Rationale for requesting Project Restructuring .....................................................................................................................vii The World Bank GZ-Third Municipal Development Project (P159258) BASIC DATA Product Information Project ID Financing Instrument P159258 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 21-Jul-2017 28-Feb-2022 Organizations Borrower Responsible Agency Palestine Liberation Organization (For The Benefit of the Municipal Development Lending Fund (MDLF) Palestinian Authority) Project Development Objective (PDO) Original PDO The project development objective (PDO) is to enhance the institutional capacity of municipalities in the West Bank and Gaza for more accountable and sustainable service delivery. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A8699 23-May-2019 17-Jun-2019 02-Sep-2019 28-Feb-2022 10.00 3.87 6.13 TF-B0101 23-May-2019 17-Jun-2019 02-Sep-2019 28-Feb-2022 5.00 0 5.00 TF-A6154 27-Nov-2017 27-Nov-2017 21-Dec-2017 28-Feb-2022 20.00 11.04 8.96 TF-A4800 21-Jul-2017 18-Sep-2017 14-Dec-2017 28-Feb-2022 16.00 8.00 8.00 The World Bank GZ-Third Municipal Development Project (P159258) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. This document seeks the approval of the Country Director (CD) for a level 2 restructuring of the Third Municipal Development Project (MPD-3, the Project). The restructuring was requested by the Palestinian Authority (PA), through the Ministry of Finance (MoF) and the Municipal Development and Lending Fund (MDLF), as the Executing Agency of the Project. The proposed changes include an adjustment of the scope of Component 1 “Municipal performance and service delivery” and the addition of a Contingent Emergency Response Component “CERC” to allow for rapid access to Bank financing to respond to imminent crises or emergencies throughout the lifetime of the Project. B. Project Background 2. The Project was approved by the World Bank Board on July 21, 2017 and became effective on December 14, 2017 with original financing amounting to US$16 million from the Trust Fund for Gaza and West Bank (TFGWB). Co-financing equivalent to US$20 million was provided through the World Bank-administered Partnership for Infrastructure and Development Multi-donor Trust Fund (PID-MDTF) and was declared effective on December 21, 2017. An additional financing (AF) in the amount of (US$15 million: US$5 million, PID-MDTF and US$10 million TFGWB) was approved on May 23, 2019 and declared effective on September 2, 2019. The AF finances the scaling-up of project support to Gaza municipalities to enable them to expand local services provision though labor-intensive operation and maintenance (O&M) and municipal infrastructure development activities. The AF also intends to close the financing gap to complete original project activities under Component 1 and 2 in the second cycle of the project. The AF required level 2 restructuring of the Project to revise the Results Framework (RF) and drop a withdrawal condition from the legal agreement. Three (3) new indicators were added to the RF to capture the benefits from the additional activities to be implemented through the AF. Development Partners (DPs)1 are also providing parallel financing in the total amount of US$64.69 million equivalent. The PA contributes counterpart funding of no less than 10% of the total amount committed by the DPs. The Project’s original closing date is February 28, 2022. 3. The Project Development Objective (PDO) is to enhance the institutional capacity of municipalities in the West Bank and Gaza (WB&G) for more accountable and sustainable service delivery. The participants of the Project are all 148 municipalities in WB&G. The beneficiaries are the population in all the municipalities estimated at 3,611,6492 representing 75 percent of the total population of WB&G. The project finances the following components: 1 Kreditanstalt für Wiederaufbau (KfW), Deutsche Gesellschaft für Internationale Zusammenarbeit (GiZ), Swiss Agency for Development and Cooperation (SDC), Agence Française de Développement (AfD), Danish Representative Office (DRO), the European Union (EU) and the Government of Netherlands. 2 Based on Palestinian Central Bureau of Statistics predicted populations for 2016. The World Bank GZ-Third Municipal Development Project (P159258) (a) Component 1: Municipal performance and service delivery allocates performance-based grants for capital investments and operating expenditures through a transfer formula based on population, needs and municipal performance. Component cost is US$13.31 million from TFGWB and US$19.09 million from PID-MDTF. (b) Component 2: Capacity development to municipalities and Palestinian institutions supports municipalities to graduate to a higher performance category and supports building the capacity of national level institutions namely, the Municipal Development and Lending Fund (MDLF) and the Ministry of Local Government (MOLG). Component cost is US$0.53 million from TFGWB and US$2.73 million from PID-MDTF. (c) Component 3: Municipal partnership projects provides technical assistance to municipalities to engage more effectively with the private sector and develop joint and innovative investments for municipal service delivery and local economic development. Component cost is US$0.93 million from TFGWB. (d) Component 4: Project implementation support and management costs provides monitoring and evaluation, outreach and communication, mobilization of local technical consultants for the engineering supervision of Component 1, and MDLF management cost. Component cost is US$2.03 million from TFGWB and US$3.18 million from PID-MDTF. (e) Component 5: Emergency Labor-intensive Gaza Municipal Services finances the costs associated with the scaling- up of support to Gaza municipalities to enable them to expand local services provision through labor-intensive Operation and Maintenance and municipal infrastructure development activities. Component cost is US$9.20 million from TFGWB. C. Implementation Status 4. The project’s implementation progress and progress towards achieving the PDO have both been consistently rated as ‘Satisfactory’. The Project´s disbursement rate as of April 11 is 45% (US$22.91 million). Procurement and Financial Management (FM) ratings are Satisfactory while ratings for Environmental and Social Safeguards are Moderately Satisfactory. OP 4.01 (Environmental Assessment), OP 4.09 (Pest Management) and OP 4.12 (Involuntary Resettlement) were triggered. 5. All subprojects currently under implementation have complied with Category B requirements. The implementation of World Bank safeguards requirements is progressing well. The subproject level screening mechanism, Environmental and Social Management Plan (ESMP) formulation, implementation, supervision, and reporting procedures are satisfactory, with quarterly progress reports being submitted in a timely manner. The legal covenants, most of which are recurrent, are continuously being monitored and complied with. 6. The Project remains highly relevant to the development priorities of the PA. It is well-aligned with the World Bank Group FY18-21 Assistance Strategy for WB&G. The PA remains committed to the implementation of MDP-3 and has released part of its counterpart funding for the first cycle of the project. MDLF continues to demonstrate good capacity in implementing the project. The activities supported by MDP-3 are generally on track and are implemented in accordance with project rules. Participating municipalities also show strong interest and commitment to the project. While equity financing is not a requirement under the Project, some municipalities have provided sizeable contribution to augment the project’s grant allocation for capital investment subprojects under the first cycle. 7. The Project continues to be on track in meeting its PDO. At Mid-term, the Project achieved or exceeded majority of the mid-term targets for the original PDO and Intermediate Outcome Indicators. There is no progress reported yet for The World Bank GZ-Third Municipal Development Project (P159258) the new Intermediate Outcome Indicators, which were added through AF/Restructuring in September 2019. However, the implementation of activities is on track. The 25 Gaza municipalities are already in the advanced preparation phase. The municipalities have already prepared O&M plans and have identified 270 O&M subprojects for implementation. Likewise, the municipalities have selected 170 development subprojects from their Strategic Development and Investment Plan. These subprojects are expected to generate 5,000 jobs based on the computed labor inputs. MDLF is appraising 52% of the total number of subprojects. D. Rationale for requesting Project Restructuring 8. WB&G has been severely affected by the outbreak of the coronavirus disease (COVID-19) that has been spreading rapidly across the world since December 20193. As of April 11, 2020, WBG had 2684 confirmed cases and 2 confirmed deaths from COVID-19. The PA has quickly responded to the outbreak of COVID-19 by declaring a State of Emergency on March 5, 2020 to contain and suppress the spread of the virus. The PA launched robust national containment measures supported by a communication campaign to encourage its citizens to protect themselves and follow government guidance. Strict suppression measures in the West Bank were announced on March 22, preventing movement between governorates, closing all non-essential facilities and asking citizens to stay at their homes for 14 days. 9. A national Emergency Response Plan has been prepared by the PA to respond efficiently and accountably to the COVID-19 crisis. The Prime Minister, with authority from the President, established an Emergency Command Center at the Prime Minister’s Office (PMO). The Emergency Command Center is supported with inter-ministerial and multilateral emergency committees and regional committees. Local government units (i.e., municipalities and village councils) are playing a crucial role by responding to the increasing demand for services at the local level such as sterilization and cleaning of cities and towns, collection of solid waste and providing relief assistance. However, given the scarce resources and weaker economic activity as a result of the restrictions on movement, municipalities have been challenged to finance these emerging needs. 10. To help rapidly respond to the COVID-19 pandemic and its local level impacts, a formal letter from the MoF was sent to the Bank on April 2, 2020 requesting to restructure the Project. Its objective would be to allow all municipalities to finance part of the costs of municipal activities to respond to the pandemic, sustain the provision of critical services and provide relief to vulnerable communities during the crisis. II. DESCRIPTION OF PROPOSED CHANGES 11. In response to the Borrower’s request for emergency support to respond to the COVID-19 pandemic emergency at the local level and based on consultations with the PMO, MoLG, MDLF and MoF, it was agreed to introduce the below changes to MDP-3: (a) Expand the scope of component 1, “Municipal performance and service delivery,” by allowing West Bank municipalities5 to use 20 percent of their project grants for recurrent expenditures under the second grant cycle of the Project. Moreover, the list of recurrent expenditures outlined in the Project’s Grant Agreement will be expanded to cover equipment and supplies to combat the spread of the virus. These changes will require an 3 The World Health Organization declared coronavirus a pandemic on March 11, 2020. 4 World Bank COVID-19 Daily Monitoring Report, April 3, 2020. 5 The current project design allows Gaza municipalities to use 20 percent of their grant allocations from the project for recurrent expenditurs. The World Bank GZ-Third Municipal Development Project (P159258) amendment of the Project’s legal agreements. The Project Operational Manual (POM) will be revised to reflect the list of eligible expenditures. The fiduciary arrangements will remain the same. MDLF, as the Implementing Agency of the Project, will need to submit a revised budget. The Project remains to be classified as category (B) as there will be no triggering of new safeguards policies. All activities will be carried out in accordance to environmental and social management plans (ESMP) with the necessary mitigation measures to ensure safety of personnel and communities, and to avoid COVID-19 infection or transmission. The ESMPs will cover Occupational Health and Safety Plans in accordance to relevant World Health Organization guidelines. (b) Adding a CERC with zero cost to support the response to imminent crisis and emergencies. A CERC component will include: i) a new component; ii) new implementation arrangements; iii) a new disbursement category; iv) a disbursement condition on the new disbursement category; and v) new definitions in the appendix of the TFGWB Grant Agreement. (c) Change Disbursement Estimates. To account for delays in implementation that are caused by restrictions declared under the State of Emergency, the team has revised the disbursement projections for FY20 onwards. 12. There is no need to change the PDO since the proposed changes are aligned with the current PDO to enhance the institutional capacity of municipalities in WB&Gfor more accountable and sustainable service delivery. No other changes will be introduced. 13. Due to system glitch at the time of submitting the package, the table on Components and Cost in subsection IV (Detailed changes) under section III (Summary of Changes) is missing data. The table below was manually added to provide the full data. Current Cost Action Proposed Component Proposed Cost Current Component Name (US$) Name (US$M) Municipal Performance No Municipal Performance 32,404,255.00 32,404,255.00 and Service Delivery Change and Service Delivery No Capacity Development 3,263,830.00 Capacity Development 3,263,830.00 Change Municipal Partnership No Municipal Partnership 930,000.00 930,000.00 Projects Change Projects Project Implementation No Project Implementation Support and Management 5,201,915.00 Change Support and 5,201,915.00 Cost Management Cost Emergency Labor-intensive 9,200,000. No Emergency Labor- 9,200,000. Gaza Municipal Services Change intensive Gaza Municipal Services The World Bank GZ-Third Municipal Development Project (P159258) Current Cost Action Proposed Component Proposed Cost Current Component Name (US$) Name (US$M) New Contingency 0 Emergency Response Component (CERC) Total 51,000,000 51,000,000 III. SUMMARY OF CHANGES I. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Disbursement Estimates ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ The World Bank GZ-Third Municipal Development Project (P159258) Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Municipal Performance and Municipal Performance and 0.00 No Change 0.00 Service Delivery Service Delivery Capacity Development 0.00 No Change Capacity Development 0.00 Municipal Partnership Projects 0.00 No Change Municipal Partnership Projects 0.00 Project Implementation Support Project Implementation 0.00 No Change 0.00 and Management Cost Support and Management Cost Emergency Labor-intensive Gaza Emergency Labor-intensive 0.00 No Change 0.00 Municipal Services Gaza Municipal Services Contingency Emergency 0.00 New 0.00 Response Component (CERC) TOTAL 0.00 0.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2018 10,000,000.00 10,000,000.00 2019 9,000,000.00 9,000,000.00 2020 15,000,000.00 10,000,000.00 2021 15,000,000.00 20,000,000.00 The World Bank GZ-Third Municipal Development Project (P159258) 2022 2,000,000.00 2,000,000.00 2023 0.00 0.00 .