PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA605 Public Disclosure Copy Project Name Local Governance and Service Delivery Program (P127079) Region AFRICA Country South Sudan Sector(s) Sub-national government administration (60%), Rural and Inter-Urban Roads and Highways (10%), Health (10%), General education sector (10%), General water, sanitation and flood protection sector (10%) Lending Instrument Specific Investment Loan Project ID P127079 Borrower(s) Republic of South Sudan Implementing Agency Ministry of Finance and Economic Planning Environmental Category B-Partial Assessment Date PID Prepared 19-Dec-2012 Estimated Date of Appraisal Completion 13-Dec-2012 Estimated Date of Board Approval 28-Feb-2013 Decision November 26, 2012 I. Project Context Country Context The newly independent Republic of South Sudan (RSS) faces profound development challenges. Emerging from more than two decades of civil war, RSS now embarks on the challenging task of nation building while battling entrenched poverty and some of the worst socio-economic conditions in the world. Coverage of basic infrastructure in South Sudan is grossly inadequate, and extending service coverage is complicated by a highly dispersed, low density population. Decades of conflict and marginalization have prevented any significant investment in infrastructure in South Sudan. South Sudan is highly dependent on oil revenues, yet most households rely on agriculture and livestock for their livelihoods. Prior to the suspension of oil production, oil revenues accounted for almost 98 percent of public revenues (NBS, 2010), the bulk of the country’s foreign currency earnings and 71 percent of Gross Domestic Product (GDP) in 2010 (NBS, 2011). The country’s extreme dependence on oil revenues increases its vulnerability to oil price shocks and disruptions in oil production. Agriculture and pastoralism account for about 15 percent of GDP, Public Disclosure Copy on which almost 80 percent of South Sudanese households depend for their main source of livelihood (NBS, 2010). Moreover, food insecurity persists and South Sudan is a net importer of food despite being endowed with abundant fertile arable land. South Sudan also faces persistent internal conflicts and complex socio-political dynamics which pose challenges for stabilization and development. Locally originating conflicts arising from competition over and/or uneven allocation of resources, often play into a history of marginalization and perceived dominance by core elites, and that are often seen in ethnic terms. These tensions manifest in border disputes, violent cattle rustling, conflicts among pastoralist groups, and between pastoralists and agriculturists, and have been transformed by the effects of civil war and the diffusion of modern arms into communities. Other conflict stresses at the local level include the changing structures of authority with unclear roles and responsibilities, rapidly changing relationships and realignments along a range of vectors including ethnicity, wealth, age, education, and a widespread perception of patronage and impunity fuelling distrust in government. The continued large-scale movement of returnees from Sudan and other countries of asylum, together with the incomplete demobilization and reintegration of various military and paramilitary units, present further challenges. In particular, the reestablishment of livelihoods is a slow and fragile process, and a high proportion of returnees suffer significant food insecurity (WFP, 2010). The Government of the Republic of South Sudan (GRSS) is under significant pressure to meet citizen expectations of an ‘independence dividend’ by delivering tangible results that can improve welfare, build citizen confidence and strengthen state legitimacy—and this must be achieved in the context of weak public sector capacity and governance. The success of nation-building measures will depend on delivering results that extend to all citizens, regardless of their location, political affiliations or ethnic identities and which include minority groups, returnees, youth, and women. During the Comprehensive Peace Agreement period, efforts were focused largely on humanitarian approaches to expanding services via Non-Governmental Organization (NGO) providers; weak government capacity and financial management systems have continued to inhibit donors from providing direct support to government for basic services. The country’s core administrative structures and mechanisms for resource allocation and management are extremely weak and fragile, especially at sub-national levels. These capacity constraints combined with the uncertainty around future public revenues are a significant impediment to providing services quickly and at scale through government systems. However, experience shows that post-conflict countries with the weakest institutions are the most vulnerable to resumed violence and instability, and are least able to respond to internal and external conflict stresses (World Bank, 2011). Therefore efforts to deliver tangible improvements in services needs to be consistent with simultaneous efforts to improve governance and build institutions capable of responding to citizen needs. II. Sectoral and Institutional Context Forty years of conflict in South Sudan have weakened the historical remnants of the local government system and undermined reliable local service delivery mechanisms. Nevertheless South Sudan has already made significant progress in defining the legal and policy framework for decentralization and establishing basic local government structures and planning systems. The Transitional Constitution (2011) sets out the basic principles of decentralization and the Local Government Act (LGA, 2009) provides for the devolution of functions to the ten states, 79 counties and their sub-structures at payam (sub-county) and boma (village/village cluster) levels. These measures, though not fully defined, give counties wide ranging responsibilities for local planning and primary service delivery. County capacity is highly variable and generally weak, especially in rural areas. County Councils, which are defined by the LGA as statutory local governments, remain subordinated and highly dependent in their relation to Public Disclosure Copy state governments. Since there have been no local elections, and indeed no legislation exists to proceed with these, County Commissioners who exercise political authority are appointed by State Governors and senior county administrative officials are assigned to counties by State Ministries of Local Government and of Finance. There are no elected Legislative Councils to which county authorities are held accountable. Fiscal resources and budgetary discretion are also concentrated at the state level; in many cases even County Development Grants (CDGs) allocated in the national budget (US$23.6 million in the FY2012/13 budget) are managed by states “on behalf� of county authorities. While the LGA gives revenue raising powers to states and local governments, there are no supporting regulations on local government revenue instruments, and at county level, there have been limited efforts to identify and establish local revenue instruments and weak capacity for revenue mobilization and administration. Parallel financing instruments persist, weakening the planning, oversight and coordination of local public expenditures by counties. The overall policy framework for local governance continues to evolve as GRSS pursues policy and fiscal measures to underscore its commitment to strengthening local service delivery. Four key initiatives are relevant in this respect: (a) A detailed decentralization policy is being prepared under the leadership of the Office of the President. This will further clarify the detailed functional and fiscal assignments of each level of government and seek to resolve ambiguities around the role of the states with respect to local government. (b) Service Delivery Frameworks for key local services are being prepared by GRSS. These will clarify the institutional and financing frameworks for specific local services, focusing initially on health, education and water sectors, and incorporate a ‘transition plan’ to address weaknesses in systems, capacities, incentives and accountability that impede service delivery. While these policies will further define and clarify the policy framework for local governance and service delivery, they will not materially change the core responsibilities of county governments to engage communities, undertake a local planning process and deliver basic public infrastructure and services, and the consequent necessity to improve institutional and governance capacities in these areas. (c) A Local Services Support Aid Instrument (LSSAI) is being developed to provide a mechanism for development partners to support the delivery of local services and community-driven development through the intergovernmental fiscal transfer system. The intention is to address “a long-lasting problem by moving away from the costly and unsustainable systems used today, in which aid is managed by donors directly or transferred to NGOs which manage funds and deliver services; towards putting the mandated government structures and systems at the center of service delivery, gradually building stronger [government] institutions and service delivery systems� (MoFEP, 2011). In addition to windows for providing recurrent budget resources for provision of primary health and education services, LSSAI includes a window for community-driven infrastructure that would complement the existing CDG. The proposed project will support this third window of LSSAI. (d) Existing resource allocations to counties are being protected in the FY2012/13 austerity budget. Government has demonstrated its commitment to the preservation of the county transfer program by limiting austerity cuts to 30 percent, compared to 39 percent for the general Public Disclosure Copy block grant to states and 75 percent across other capital programs. There is a lack of sufficient financing for local public infrastructure and a lack of suitable incentives for state and county governments to use available resources to improve services. County governments budgeted to spend approximately US$125.5 million in 2011, which amounted to nine percent of self-financed direct government expenditure, but only around US$16.78 per capita. Nearly half of this budgeted expenditure was for salaries (49.9 percent), with the remainder for capital items (38.4 percent) and very limited allocations towards operations (9.4 percent). In aggregate, approximately 20 percent of this was financed by own revenues available to counties, particularly a local customs duty on goods entering their jurisdictions. No counties reported any capital expenditure in excess of budgeted receipts from the CDG, suggesting that own revenues are largely financing operating and salary costs and that existing scope for discretionary expenditures is extremely restricted. These observations suggest that despite the significant policy uncertainties facing counties a significant financing gap exists. Incentives and capacities of counties need to be strengthened to ensure that planning and governance processes promote responsiveness to community priorities. III. Project Development Objectives To Improve local governance and service delivery in participating counties in South Sudan. IV. Project Description Component Name Component 1: Block grants to counties for payam development Component 2: Community engagement Component 3: Institutional Strengthening Component 4: Project Management Support V. Financing (in USD Million) For Loans/Credits/Others Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) 50.00 DENMARK, Govt. of 14.00 NETHERLANDS, Govt. of THE (Except for MOFA/Min of Dev. Coop 8.00 NORWAY, Gov. of (except for Ministry of Foreign Affairs) 20.00 SWEDEN Swedish Intl. Dev. Cooperation Agency (SIDA) 7.50 Total 99.50 Public Disclosure Copy VI. Implementation LGSD will be implemented on behalf of GRSS by the Ministry of Finance and Economic Planning (MoFEP) in collaboration with the Local Government Board (LGB). In keeping with their institutional mandates, MoFEP will have responsibility for resource management and reporting and LGB for the technical content of support to county governments and for the monitoring of county performance, with the exception of decentralized public financial management procedures for which MoFEP will retain responsibility. At the national level, LGSD will be overseen by two bodies chaired by MoFEP: a Project Steering Committee to provide policy and strategic guidance, oversight, accountability and coordination and a Project Management Committee to propose policy and strategic options to the Steering Committee for approval and to provide, operational, and technical guidance, oversight, accountability and coordination to project managers and project implementers. At state level, LGSD will be overseen by a State Project Management Committee chaired by SMoLG which will ensure integration of project plans and activities with state government programs and plans and ensure accountability and compliance of county officials and state staff for project implementation and procedures for the use of project resources. Additionally, LGSD will be integrated into the government’s LSSAI coordination mechanisms through the high level Quarterly Government-Donor Forum and at the operational level via the LSSAI Technical Task Force. Overall project management arrangements comprise the central PMU and state PCSOs. Each will be staffed by contracted personnel, will draft and implement approved project plans in coordination with central and state ministries, and will manage project resources. The grants component (Component 1) will be implemented by the PMU in close collaboration with MoFEP, and within the budget framework and procedures of GRSS. The community engagement component (Component 2) will be implemented by NGOs or similar agencies contracted by the PMU, including a CA to oversee participatory methodologies and FPs in each state to undertake field operations for community mobilization and organization supporting local planning and accountability. The institutional strengthening component (Component 3) will support the contracting, guidance and supervision of trainers/technical advisors who will work with state ministries and the PCSOs to provide training and on-the-job mentoring for county officials, with operational resources provided by the PCSOs. Component 4 will provide the human, logistical, and financial resources for project management, monitoring, and accountability at central and state levels, and to meet specific technical assistance needs identified during implementation. Responsibility to implement the project’s grievance mechanisms will be a core PMU/PCSO function with contributions from the CA and FPs. VII. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Public Disclosure Copy Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ VIII.Contact point World Bank Contact: Zara Inga Sarzin Title: Senior Urban Development Specialist Tel: 458-9464 Email: zsarzin@worldbank.org Borrower/Client/Recipient Name: Republic of South Sudan Contact: Title: Tel: Email: Implementing Agencies Name: Ministry of Finance and Economic Planning Contact: Moses Mabior Deu Title: Director of Aid Coordination Tel: 249955239239 Email: Public Disclosure Copy IX. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Public Disclosure Copy