$ Report No: RES00255 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Mozambique Urban Development and Decentralization Project APPROVED ON 26-Jun-2020 TO Republic of Mozambique Urban, Resilience and Land Eastern And Southern Africa Regional Vice President: Victoria Kwakwa Regional Director: Wendy Hughes Country Director: Zviripayi Idah Pswarayi Riddihough Practice Manager: Catalina Marulanda Task Team Leader(s): Gayatri Singh, Ana Cristina Hirata Barros, Nicholas James Callender The World Bank Mozambique Urban Development and Decentralization Project (P163989) ABBREVIATIONS AND ACRONYMS APA Annual Performance Assessments IDA International Development Association IFR Interim Financial Report FM Financial Management MAEFP Ministry of State Administration and Public Service (Ministério da. Administração Estatal e Função Pública) MEF Ministry of Economy and Finance (Ministério da Economia e Finanças) MOPHRH Ministry of Public Works, Housing and Water Resources (Ministério de Obras Públicas, Habitação e Recursos Hidricos) MTA Ministry of Land and Environment (Ministerio de Terra e Ambiente) MTR Mid Term Review M&E Monitoring and Evaluation PAD Project Appraisal Document PDO Project Development Objective SWM Solid Waste Management TA Technical Assistance The World Bank Mozambique Urban Development and Decentralization Project (P163989) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name Mozambique Urban Development and Decentralization P163989 Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Mozambique Approval Date Current Closing Date 26-Jun-2020 31-Dec-2025 Original EA Category Partial Assessment (B) (PAD Approval Package-26 Jun 2020) Organizations Borrower Responsible Agency Ministry of Public Works, Housing and Water Resources, Republic of Mozambique Ministry of State Administration and Public Service @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective To strengthen institutional performance and deliver improved infrastructure and services in participating local entities. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 i The World Bank Mozambique Urban Development and Decentralization Project (P163989) IDA 117.00 60.97 54.06 52.11 Grants -- -- -- 0 Policy Waivers Does this restructuring trigger the need for any policy waiver(s)? No @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate ii The World Bank Mozambique Urban Development and Decentralization Project (P163989) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................2 III. PROPOSED CHANGES ................................................................................................................................................5 IV. DETAILED CHANGE(S) ...............................................................................................................................................5 The World Bank Mozambique Urban Development and Decentralization Project (P163989) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Maputo Urban Development and Decentralization Project was signed on July 27, 2020, and became effective on October 8, 2020. The Project Development Objective is to strengthen institutional performance and deliver improved infrastructure and services in participating local entities. The project includes four components, namely: Component 1: Urban Infrastructure and Municipal Services (US$92 million), Component 2: Decentralization Policy Reform and Institutional Strengthening (US$ 20 million), Component 3: Project Management (US$ 5 million) and Component 4: Contingent Emergency Response (US$ 0 million). 2. To date, the progress in achieving the PDO and overall implementation progress is assessed as moderately satisfactory, reflecting a significant increase in project disbursement amounting to US$ 57.84 million (51%), only slightly below the originally planned amount (US$ 59.0 million). The project shows significant progress in financial execution totaling US$ 39.5 million (34%), with 43% of project funds already committed (ongoing and signed contracts). The project has already exceeded the final target for one of the two PDO indicators (beneficiaries from improved local infrastructure and basic services), resulting from the completion of 62 infrastructure works by the 22 municipalities. Additionally, 890 technicians and municipal leaders have been trained in financial management, monitoring, procurement, safeguards, and urban management procedures and 13 technical methodological handbooks have been prepared for infrastructure and service provision, territorial planning, and land management which are being used by all 22 municipalities. As evidenced through the MTR, strong commitment, and collaboration among government ministries (MAEFP, MOPHRH, MTA, and MEF) have contributed to the project's success, with notable improvements in ownership and coordination. 3. The Project’s Financial Management and Procurement performance is assessed as Satisfactory, with Social and Environmental Safeguards assessed as Moderately Satisfactory. Timely FM reports are being received and there are no pending Interim Financial Reports (IFRs) or audit reports for the project. Despite earlier challenges and delays in hiring of key technical assistance support, the procurement performance was assessed as Satisfactory. E&S was assessed as MS due to ongoing challenges in municipal project performance and reporting delays and the need to recruit a social specialist at the PIU level. 4. As a result of the Mid-Term Review, technical adjustments were made to (i) the municipality performance grant cycles under component 1A, (ii) the indicators and methodology of the Annual Performance Assessment upon which release of performance grants are based; and (iii) more closely integrating MAEFP to Component 1 responsibilities alongside MOPHRH. As these were technical level changes, the agreements and substance of the adjustment are captured in the Mid-Term Review Aide Memoire and reflected in the Project Operations Manual. B. Rationale for Restructuring 5. The midterm review (MTR) carried out in June 2024 reconfirmed the relevance and importance of the project in strengthening the municipalities' capacity to provide infrastructure and services and identified the need for a simple restructuring. Through the MTR, and the first half of implementation, it is evident that Municipalities have improved skills in project management, financial control, and community engagement. The Annual Performance Assessments (APA) have further incentivized service delivery orientation, enabling municipalities to monitor their investments' impacts and their own progress on planning and urban management. The MTR Page 1 The World Bank Mozambique Urban Development and Decentralization Project (P163989) assessment concluded that efforts should focus on design adjustments and technical assistance to enhance capacity development, accelerate execution, and expedite the launch of all ready projects across municipalities, following the completion of the APA 4 cycle. 6. Three areas were identified for formal adjustment, meriting a Project restructuring to strengthen and enhance the final implementation period: (a) changes to the Results Framework indicators and targets; (b) reallocation of funds between components; (c) reallocation across categories. Each of these areas is discussed in detail in the section below. This restructuring does not involve any changes to the closing date, PDO or implementation arrangements. 7. The Ministry of Finance, MAEFP and MOPHRH have agreed with and confirmed this restructuring, during the Project’s Mid-Term Review, and without stating any objection within the agreed timeframe as per the Management Letter issued on August 15, 2024. II. DESCRIPTION OF PROPOSED CHANGES A. Reallocation across Project Components & Disbursement Categories. 8. Following the Mid-Term Review adjustments in component allocations were agreed. These changes include the following, with the adjustments reflected in Table 1 below: • Increase in the value of subcomponent 1C by 12 million – reallocated funds to this Component come from a reduction of the TA-based Component 2 and Component 1B (discussed below). Of the originally budgeted US$9 million under Component 1C, US$9.8 million has been executed at the time of MTR, exceeding the original budget. This excess was permitted during previous missions to strengthen MOPHRH's capacity for monitoring, controlling, and managing works. To date, this component has supported key initiatives, including: (i) developing 13 technical guidelines for urban planning and land management used by 22 municipalities; (ii) creating 22 diagnostics to guide project investments; and (iii) enhancing municipal capacity by hiring 60 technicians and training 820 leaders in areas like planning, budgeting, and GBV. • Additionally, $1.5 million was allocated for the development of the National Urban Policy, which was approved in April 2024, with its operationalization plan currently underway. These funds supported the development, consultation, and approval of the country's first National Urban Policy, along with its implementation roadmap. The additional funding will also ensure strong supervision of municipal works, capacity-building for civil works at the municipal level and cover the costs of resident technicians for 22 municipalities, as well as environmental and social staff for these and 12 new municipalities. It also includes training programs for municipalities related to the Annual Performance Assessment in areas such as procurement, finance, planning, monitoring, and contract management. • Most importantly, additional technical assistance (TA) funds under 1C will finance much-needed capacity- building for MOPHRH, which manages 79% of the funds but initially lacked support for supervising the financing model and quality of works in 22 municipalities, many in remote locations. The mission confirmed that MOPHRH has established a well-functioning coordination group across the Road, Water, and Housing sectors at both Director and technical staff levels. Strengthening national capacity is critical to sustaining the municipal performance-based grants financing model introduced by the project, a novel approach for Mozambique’s national government. Page 2 The World Bank Mozambique Urban Development and Decentralization Project (P163989) • Reduction in subcomponent 1B by 9 million – The execution rate of this sub-component at MTR was low, with only 1% of the component executed. It is expected that this sub-component will utilize US$ 21 million by the end of the project, with 6 activities selected to advance to pre-feasibility studies and infrastructure projects. The MTR also confirmed the possibility to leverage other potential eligible investments, in coordination with EFI, that will be explored for financing under this component. The cost reduction reflects the required funds for completion of the activities within the timeframe remaining under the Project. • Reduction in Component 2 by 3 million – As agreed in prior missions and reconfirmed during the MTR, this component will prioritize financing activities that are relevant to the current context, such as supporting the implementation of Financial and Fiscal Decentralization and strengthening the financial management and other transversal skills of participating municipalities. Some activities, like Municipal e-SISTAFE and municipal PEFAs, progressed without PDUL funding. It was therefore agreed in previous missions to transfer US$3.0 million from Component 2 to Sub-component 1C – Technical Assistance in Urban Management, to support the Urban Policy, assist 12 new municipalities, and provide capacity-building support—which are priorities for the national government and for supporting ongoing decentralization and sustainable urbanization in the country. Table 1 - Summary of Revised Component Allocations Component Original Restructured Component 1: Urban Infrastructure and Municipal Services 92.0 95.0 Subcomponent 1.A: Municipal Performance Grants 53.0 53.0 Subcomponent 1.B: Maximizing Finance for Urban Development 30.0 21.0 Subcomponent 1.C: Urban Management Technical Assistance 9.0 21.0 Component 2: Decentralization Policy Reforms and Institutional 20.0 17.0 Strengthening Subcomponent 2.A: Support to the Overall Leadership of the 6.0 6.0 Decentralization Reform Process Subcomponent 2.B: Institutional Strengthening of Subnational Entities in 14.0 11.0 Public Sector and Financial Management Component 3: Project Management 5.0 5.0 Component 4: Contingent Emergency Response 0.0 0.0 TOTAL in US$M 117.0 117.0 9. As a result of the above Component changes, reallocations amongst the disbursement categories have been adjusted, as indicated in Section IV. Detailed Changes, Reallocation between disbursement categories. Changes have been made to Category 1 (Goods, Works, Non-Consulting Services, Consulting Services and Operational Costs under the Project) and Category 3 (Maximizing Finance for Development). The categories for Performance Grants, Refund of the Project Preparation Advance and Emergency Expenditures remain the same. B. Adjustments to the Results Framework. 10. No changes have been made to PDO level indicators or targets. Adjustments are proposed to the intermediate indicators of the Project to better reflect infrastructure investments and master planning selected by municipalities as guided by the Annual Performance Assessment (Component 1), introduce new indicators to Page 3 The World Bank Mozambique Urban Development and Decentralization Project (P163989) capture the outputs of Technical Assistance support under 1C and include revised indicators in Component 2, based on scope changes and technical assistance approaches to support the Government’s decentralization reform agenda. Full details on targets and indicators can be found in the Results Matrix at the end of the paper. 11. New intermediate indicators have been introduced to better capture the incremental ongoing progress where municipalities are currently directing their performance grant resources as guided by the APA and capture the outcomes from the enhanced technical assistance support under Components 1C and 2. These indicators include: • ‘Number of people provided with safely managed water’ (New Corporate Scorecard Indicator – disaggregated by Female and Youth) - this indicator captures investments made by the municipalities through the performance grants. • ‘Number of people with access to public lighting’ – this indicator captures investments made by the municipalities through the performance grants. • ‘Registration of taxpayers and property for tax purposes (database) operational in participating municipalities’ - This indicator is linked to Technical Assistance under Component 2, the upgrading of municipal tax units and the revision and strengthening of taxpayer registration, tax collection, enforcement procedures and internal regulation. • ‘National Urban Policy Approved and Operationalized’ – this indicator measures both the approval of the Urban Policy and the development of its roadmap for implementation. • ‘Number of municipal staff trained through the Project’ – this indicator will measure the numbers of staff supported through the two Technical Assistance programs for Urban Management and Human Resources and Public Finances. • ‘Number of Territorial or Sector Plans prepared by the municipalities’ – This indicator measures the number of urban and territorial plans, water/sanitation plans, and/or drainage plans, being prepared by the municipalities under the project. 12. Indicators marked for deletion include: • ‘Increased financial sustainability of SWM (% of operational costs covered by SWM tariff) across all municipalities that qualified for MPG’ and ‘Increase in coverage (% of population) using improved municipal sanitation services’: While incentivizing municipalities to improve tax collection remains critical, SWM tariff collection and its management presumes capacity of the municipalities in well-established waste collection and ability to dispose of the waste in an environmentally safe manner in order to justify SWM tax. Most municipalities in Mozambique still lack this capacity as well as clear Solid Waste Management Plans and equipment. Given the gap in the ability of municipalities to fulfill these basic conditions, this MTR deemed this indicator overly ambitious. Additionally, within the menu of options available for the performance-based grants, the participating municipalities have prioritized other areas of focus in service delivery through investments, captured in adjusted indicators under the project. • ‘Number municipalities with a new city-wide territorial plan (PEUM or PGU) prepared and approved by municipal council’: This indicator has been expanded on, in the above new indicator outlined in the section above (Number of Territorial or Sector Plans prepared by the municipalities) to capture both territorial and sector plans. Page 4 The World Bank Mozambique Urban Development and Decentralization Project (P163989) • ‘FMIS operational in participating municipalities’ – this indicator has been removed to reflect agreements from previous missions with activities on the FMIS advancing outside of PDUL. It has been replaced by ‘Registration of taxpayers and property for tax purposes (database) operational in participating municipalities.’ • ‘Municipalities meeting the annual own revenue collection’s targets (Number)’ - This indicator was dropped due to the significant delays in hiring the Component 2 TA and agreed during prior missions. Without any meaningful interventions to strengthen tax administration, the team had no reason to expect improvements before 2025, when the municipal tax units are expected start to achieve higher levels of performance. Between 2020 and 2022, own revenue collection remained largely unchanged in the municipalities covered by PDUL. @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Results Yes Reallocations Yes Components Yes Loan Closing Date Extension No Development Objective No Loan Cancellations No Safeguard Policies Triggered No Financial Management No ISDS No Procurement No MFD/PCE No Institutional Arrangement No Risks No Implementation Schedule No Legal Covenants No Conditions No Implementation Modalities No Disbursements Estimates No Disbursements Arrangements No DDO No Clients No Appraisal Summary No @#&OPS~Doctype~OPS^dynamics@restrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) COMPONENTS Page 5 The World Bank Mozambique Urban Development and Decentralization Project (P163989) Current Current Proposed Proposed Cost Action Component Name Cost (USD) Component Name (USD) Component 1. Urban Component 1. Urban Infrastructure and Municipal 92,000,000.00 Revised Infrastructure and Municipal 95,000,000.00 Services Services Component 2. Component 2. Decentralization Policy Decentralization Policy 20,000,000.00 Revised 17,000,000.00 Reforms and Institutional Reforms and Institutional Strengthening Strengthening Component 3. Project Component 3. Project 5,000,000.00 Revised 5,000,000.00 Management Management Component 4: Contigency Component 4: Contigency 0.00 No Change 0.00 Emergency Response Emergency Response TOTAL 117,000,000.00 117,000,000.00 COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? LOANS Reallocations IDA-D6490-001 Cancellations (if any): New Allocation: Currency: XDR 0.00 0.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GD,WK,NCS,CS&OC 21,480,000.00 14,439,260.05 28,110,000.00 100.00 100.00 Project; 2 Performance Grants 38,060,000.00 3,404,752.42 38,060,000.00 100.00 100.00 prt 1bi Project; 3 MFUD Grants prt 1bi 21,960,000.00 0.00 15,330,000.00 100.00 100.00 Project; Page 6 The World Bank Mozambique Urban Development and Decentralization Project (P163989) 4 Refund of the 4,200,000.00 2,516,148.66 4,200,000.00 0.00 0.00 Preparation Advance; 5 Emergency 0.00 0.00 0.00 0.00 100.00 Expenditures prt 4 Projec; Total 85,700,000.00 85,700,000.00 Page 7 The World Bank Mozambique Urban Development and Decentralization Project (P163989) RESULTS COUNTRY: Mozambique Mozambique Urban Development and Decentralization Project @#&OPS~Doctype~OPS^dynamics@restrannexpolicyandresult#doctemplate PDO Indicators by PDO Outcomes To strengthen institutional performance and deliver improved infrastructure and services. Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year Number of direct beneficiaries with 0.00 Dec/2019 799,612 30-May-2024 799,612 30-May-2024 676,569.00 Dec/2024 improved basic infrastructure and services under the project. (Number) Of which 50% are women 0.00 Jul/2020 411,893 30-May-2024 411,893 30-May-2024 338,285.00 Dec/2025 (Number) Increased score in the APA averaged 0.00 Dec/2019 41.00 18-Dec-2023 41.00 18-Dec-2023 60.00 Dec/2023 across all participating municipalities that qualify for the MPG (Percentage) Intermediate Results Indicators by Components Component 1. Urban Infrastructure and Municipal Services Revised Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year 0.00 Dec/2019 4,124 30-May-2024 4,124 30-May-2024 300,000.00 Dec/2024 Page 8 The World Bank Mozambique Urban Development and Decentralization Project (P163989) People provided with improved Comments on achieving targets Number of direct beneficiaries from improved local roads financed under the Project access to local roads (Number) 0.00 Jul/2020 2,474 30-May-2024 2,474 30-May-2024 150,000.00 Dec/2025 Of which 50% are women (Number) Comments on achieving targets Breakdown of direct beneficiaries from roads improvements to measure women beneficiaries % of Maximizing Finance for Urban 0.00 Jul/2020 0.00 18-Dec-2023 0.00 18-Dec-2023 100.00 Dec/2025 Development leveraged by private Comments on achieving targets Relative amount of private investments unlocked or mobilized to the total funds from the investments (Percentage) Maximizing Finance for Urban Development subcomponent 1B. Number of municipalities with 1 or 0.00 Jul/2020 3 30-May-2024 3 30-May-2024 12.00 Dec/2025 more infrastructure sector plans Comments on achieving targets Municipal Sector Plan (mobility, SWM, water and sanitation, markets, flood and erosion control) prepared and approved (Number) Number of municipalities with 50% or 0.00 Jul/2020 0.00 18-Dec-2023 0.00 18-Dec-2023 12.00 Dec/2025 more of all land files registered in a land management information system (Number) Number of Municipalities with 75% 0.00 Jul/2020 22.00 30-May-2024 22.00 30-May-2024 12.00 Dec/2025 or more progress in the Comments on achieving targets Number of municipalities that have implemented 75 percent or more of the priority actions defined in their implementation of the Covid-19 Municipal Action Plan for Covid19 Response Action Plans (Number) New People provided with safely 0 Jul/2020 12,813 30-Jul-2024 15,195 30-Jul-2024 20,000 Dec/2025 managed water (Number of people) Comments on achieving targets The direct beneficiaries of water supply infrastructure are all people in urban areas who have access to an CRI improved water source New People provided with 0 Jul/2020 6,400 30-Jul-2024 6,400 30-Jul-2024 7,500 Dec/2025 safely managed water - Female (Number of people) CRI New People provided with 0 Jul/2020 0 30-Jul-2024 0 30-Jul-2024 3,000 Dec/2025 safely managed water - Youth (Number of people) CRI New Number of people with access to 0.00 Jul/2020 685,390 30-Jul-2024 777,797 30-Jul-2024 850,000 Dec/2025 public lighting as a result of the project (Number) Page 9 The World Bank Mozambique Urban Development and Decentralization Project (P163989) No Jul/2020 Yes 31-Dec-2025 Yes Dec/2025 NewNational Urban Policy approved Comments on achieving targets Approval of the Policy, development of its operational roadmap and advancement of technical activities to and operationalized (Yes/No) enable the policy 0 Jul/2020 3,300 31-Dec-2025 3,300 Dec/2025 New Number of municipal staff trained Comments on achieving targets Number of staff trained through the urban management technical assistance program and human resources and through the Project (Number) governance TA program New Number of Territorial or Sector 0 Jul/2020 16 31-Dec-2025 16 Dec/2025 Plans prepared by the municipalities Comments on achieving targets Plans prepared by municipalities (including but not limited to PEUs, PGU, PPU, PP, water/sanitation plans, (Number) PGIRSU, Risk Plans, Urban Mobility Plans) Component 2. Decentralization Policy Reforms and Institutional Strengthening Revised Indicator Name Baseline Actual (Previous) Actual (Current) Closing Period Result Month/Year Result Date Result Date Result Month/Year NewRegistration of taxpayers and 0.00 Jul/2020 0.00 30-Jul-2024 0.00 30-Jul-2024 12 Dec/2025 property for tax purposes (database) operational in participating municipalities (Number) Increased % of external audit 0.00 Dec/2019 47 30-May-2024 47 30-May-2024 75.00 Dec/2024 recommendations implemented as Comments on achieving targets External audit reports an average across all municipalities (Percentage) Reformed system for No Dec/2019 No 30-May-2024 No 30-May-2024 Yes Jun/2024 Intergovernmental fiscal transfers Comments on achieving targets Policy document/legislation approved and publically disclosed (Yes/No) 0.00 Jan/2020 6 30-May-2024 6 30-May-2024 12.00 Dec/2024 Performance evaluation of municipal staff undertaken (Number) Comments on achieving targets Number of municipalities that evaluate the performance of their staff Page 10 The World Bank Mozambique Urban Development and Decentralization Project (P163989) Page 11