FOR OFFICIAL USE ONLY Report No: PAD3360 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF EUR134.8 MILLION (US$150.0 MILLION EQUIVALENT) TO THE REPUBLIC OF KENYA FOR A SECOND KENYA INFORMAL SETTLEMENTS IMPROVEMENT PROJECT July 16, 2020 Urban, Resilience And Land Global Practice Africa 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. The World Bank CURRENCY EQUIVALENTS (Exchange Rate Effective May 31, 2020) Currency Unit = Kenya Shilling (KES) KES 106.8 = US$1 US$1= EUR 0.898 FISCAL YEAR July 1 - June 30 Regional Vice President: Hafez M. H. Ghanem Acting Country Director: Camille Lampart Nuamah Regional Director: Mark Lundell Practice Manager: Meskerem Brhane Task Team Leaders: Sheila W. Kamunyori, Abebaw Alemayehu Page 1 of 69 The World Bank TABLE OF CONTENTS DATASHEET ........................................................................................................................... 3 I. STRATEGIC CONTEXT .................................................................................................... 11 A. Country Context.............................................................................................................................. 11 B. Sectoral and Institutional Context .................................................................................................. 11 C. Relevance to Higher Level Objectives............................................................................................. 17 II. PROJECT DESCRIPTION.................................................................................................. 19 A. Project Development Objective ..................................................................................................... 19 B. Project Components ....................................................................................................................... 19 C. Project Beneficiaries ....................................................................................................................... 26 D. Results Chain .................................................................................................................................. 30 E. Rationale for Bank Involvement and Role of Partners ................................................................... 30 F. Lessons Learned and Reflected in the Project Design .................................................................... 31 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 32 A. Institutional and Implementation Arrangements .......................................................................... 32 B. Results Monitoring and Evaluation Arrangements......................................................................... 33 C. Sustainability................................................................................................................................... 34 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 34 A. Technical, Economic and Financial Analysis ................................................................................... 34 B. Fiduciary.......................................................................................................................................... 35 C. Safeguards ...................................................................................................................................... 42 V. KEY RISKS ..................................................................................................................... 44 VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 47 ANNEX 1: Implementation Arrangements and Support Plan .......................................... 55 ANNEX 2: Eligibility Criteria ........................................................................................... 62 ANNEX 3: Economic Analysis of Interventions ............................................................... 63 ANNEX 4: Urban Projects in Kenya supported by the World Bank (2010-present) .......... 65 ANNEX 5: Detailed Financial Management (FM) Arrangements ..................................... 66 Page 2 of 69 The World Bank DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Kenya Second Kenya Informal Settlements Improvement Project Project ID Financing Instrument Environmental Assessment Category Investment Project P167814 B-Partial Assessment Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Performance-Based Conditions (PBCs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) [ ] Hands-on Enhanced Implementation Support (HEIS) Expected Approval Date Expected Closing Date 06-Aug-2020 31-Jul-2025 Bank/IFC Collaboration No Proposed Development Objective(s) To improve access to basic services and tenure security of residents in participating urban informal settlements and strengthen institutional capacity for slum upgrading in Kenya. Page 3 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Components Component Name Cost (US$, millions) Integrated settlement upgrading 120.00 Socio-economic inclusion planning 10.00 Institutional capacity development for slum upgrading 15.00 Program management and coordination 5.00 Organizations Borrower: Republic of Kenya Implementing Agency: State Department of Housing and Urban Development PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 165.00 Total Financing 165.00 of which IBRD/IDA 150.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 150.00 IDA Credit 150.00 Non-World Bank Group Financing Counterpart Funding 15.00 Borrower/Recipient 15.00 Page 4 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount Kenya 150.00 0.00 0.00 150.00 National PBA 150.00 0.00 0.00 150.00 Total 150.00 0.00 0.00 150.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2020 2021 2022 2023 2024 2025 2026 Annual 3.20 15.92 26.23 30.16 31.43 33.28 9.77 Cumulative 3.20 19.12 45.35 75.51 106.95 140.23 150.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Urban, Resilience and Land Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance  Substantial 2. Macroeconomic  High 3. Sector Strategies and Policies  Moderate 4. Technical Design of Project or Program  Moderate 5. Institutional Capacity for Implementation and Sustainability  Moderate 6. Fiduciary  High 7. Environment and Social  Substantial Page 5 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 8. Stakeholders  Moderate 9. Other  Low 10. Overall  Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ 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 ✔ Legal Covenants Sections and Description Schedule 2 Section 1.A.3(i).:The Recipient shall within thirty (30) days after the Effective Date cause each of the Participating Counties to establish and, thereafter maintain throughout Project implementation, a dedicated County Project Coordination Team (CPCT) satisfactory to the Association with adequate resources and facilitation, key staff holding such qualifications and under terms of reference acceptable to the Association, such staff to Page 6 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) include a project coordinator, a financial management specialist, a procurement specialist, a monitoring and evaluation specialist, technical specialists in planning, surveying, engineering and community development, communication specialist, social safeguards specialists, and environmental safeguards specialists and any other technical and fiduciary specialists as may have been agreed with the Association and as further detailed in the POM. Sections and Description Schedule 2 Section 1.A.4(i): The Recipient shall within thirty (30) days after the Effective Date establish and maintain throughout Project implementation a Project Steering Committee (“PSC”) to provide overall strategic guidance and Project supervision. Sections and Description Schedule 2 Section 1.C.1(i): Within sixty (60) days of the Effective Date, prepare a communications strategy detailing issues identified that might affect project implementation, considering all stakeholders in the public and private sectors, beneficiary communities, civil society, and the media so as to ensure consistency of messages to targeted audiences; Conditions Type Description Effectiveness Article IV 4.01.(a): The Recipient shall have prepared and adopted a Project Operations Manual (“POM”), as referred to in Section I.B.1(ii) of Schedule 2 to the Financing Agreement in form and substance satisfactory to the Association; and Type Description Effectiveness Article IV 4.01.(b): The Participation Agreements as referred to in Section I.D of Schedule 2 to the Financing Agreement shall have been executed between the Recipient and each of the Participating Counties in form and substance satisfactory to the Association Type Description Disbursement For payments made prior to the Signature Date, except that withdrawals up to an aggregate amount not to exceed Euros twenty six million nine hundred sixty thousand (€26,960,000) may be made for payments made prior to this date but on or after January 1, 2020, for Eligible Expenditures; or Type Description Disbursement Under Category 1 unless the Recipient has complied to the satisfaction of the Association with the County Readiness Criteria and the relevant settlement criteria under the Eligibility Criteria; or Type Description Disbursement Under Category 2 unless the Recipient has, (a) complied to the satisfaction of the Association with the County Readiness Criteria and the Eligibility Criteria, and (b) ensured the hiring of an independent fiduciary agent holding such qualifications and under terms of reference Page 7 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) acceptable to the Association; or Type Description Disbursement Under Category 4 unless the Recipient has, (a) adopted the LICW Eligibility Criteria Manual, in form and substance acceptable to the Association, and (b) furnished reports, from the independent verification agents retained under Part E.4, Section I, Schedule 2 to this Agreement, such reports to be satisfactory to the Association, verifying that the LICW were carried out in accordance with the criteria, procedures and arrangements stipulated in the LICW Eligibility Criteria Manual. Page 8 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) ABBREVIATIONS AND ACRONYMS CARA County Allocation of Revenue Act CoC Code of Conduct CoG Council of Governors COVID-19 Coronavirus Disease CPCT County Project Coordination Team CPS Country Partnership Strategy CRF County Revenue Fund CSO Civil Society Organization DA Designated Account DORA Division of Revenue Allocation EHSG Environment Health and Safety Guidelines ESF Environment and Social Framework ESIA Environment and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environment and Social Management Plan FM Financial Management FMIS Financial Management Information System GBV Gender-Based Violence GDP Gross Domestic Product GoK Government of Kenya GRC Grievance Redress Committee GRM Grievance Redress Mechanism GRS Grievance Redress System IFA Independent Fiduciary Agent IFR Interim Unaudited Financial Report IMF International Monetary Fund IPF Investment Project Financing IRR Internal Rate of Return ISP Implementation Support Plan KENSUP Kenya Slum Upgrading Program KISIP Kenya Informal Settlements Improvement Project LICW Labor Intensive Community Works M&E Monitoring and Evaluation MTIHUD Ministry of Transport, Infrastructure, Housing and Urban Development NPCT National Project Coordination Team OHS Occupational Health and Safety O&M Operations and Maintenance OP Operational Policy Page 9 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) PA Project Account PAD Project Appraisal Document PCT Project Coordination Team PAP Project Affected Persons PDO Project Development Objective PFM Public Financial Management POM Project Operations Manual PP Procurement Plan PPP Public Private Partnership PPSD Project Procurement Strategy for Development RAP Resettlement Action Plan RPF Resettlement Policy Framework SDHUD State Department of Housing and Urban Development SEA Sexual Exploitation and Abuse SEC Settlement Executive Committee SEF Stakeholder Engagement Framework SEP Stakeholder Engagement Plan SoE Statement of Expenditures SORT Systematic Operations Risk Rating Tool STEP Systematic Tracking of Exchanges in Procurement TA Technical Assistance TOR Terms of Reference VMGF Vulnerable and Marginalized Groups Framework WASH Water, Sanitation and Hygiene Page 10 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) I. STRATEGIC CONTEXT A. Country Context 1. Before the Coronavirus Disease 2019 (COVID-19) pandemic, Kenya had achieved strong economic growth contributing to expansion in its income per capita over the last five years. The economy expanded at an annual average of 5.7 percent over the period 2013-18. Growth in real Gross Domestic Product (GDP) was broad based, coming from agricultural output, which accounted for about 1 percentage point of the average growth, industry (1.2 percentage points), and the services sector which accounted for the remaining 3.5 percentage points. More importantly, growth translated into improved livelihoods as reflected by the increase in per capita income from US$ 1,130 in 2013 to US$ 1,750 in 2019. 1 This increase placed Kenya within the low middle-income group of countries. 2. This robust growth was translated into a reduction in the poverty incidence rate, whether measured by the national or international poverty line. The proportion of the population living beneath the national poverty line fell from 46.8 percent in 2005-06 to 36.1 percent in 2015-16.2 Similarly, poverty under the international poverty line of US$ 1.90 a day declined from 43.6 percent in 2005-06 to 35.6 percent in 2015-16. At this level, poverty in Kenya was below the average in sub-Saharan Africa and was amongst the lowest in the East African Community. However, when considering Kenya’s lower middle-income class status, poverty was relatively high, approximately twice as high as the average for this group. In addition, the country’s elasticity of poverty reduction to economic growth at 0.57, was below that of peer countries such as Tanzania, Ghana and Uganda, indicating that growth could be made more inclusive. 3. The COVID-19 global pandemic will have a large negative impact on the Kenyan economy, reversing many of the positive gains made over the last five years. Even before being affected by the novel coronavirus, Kenya’s economy had decelerated, growing by 5.4 percent in 2019 (from 6.0 percent in 2018), due primarily to drought conditions. The COVID-19 shock is expected to further reduce growth in 2020, especially for quarter 2 and three. The World Bank’s GDP growth projection for 2020 is for a range of scenarios between positive 1.5 percent and a contraction of 1 percent, rebounding to about 5.6 percent over the medium term, assuming that investor and consumer confidence will be restored soon after the COVID-19 pandemic is contained. The health system is facing an unprecedented challenge to contain the spread of COVID-19 and care for the infected. In addition, measures taken to slow down the rate of infection, including home confinement, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings and conferences, and a nightly curfew, are expected to affect both production and consumption across the economy. B. Sectoral and Institutional Context 4. Kenya is rapidly urbanizing, with the urban population growing at about 4.3 percent a year. In 2019, about 27 percent of Kenyans lived in urban areas3. Kenya’s five largest urban areas (Nairobi, Mombasa, Kisumu, Nakuru, and Eldoret) account for approximately 34 percent of the urban population. By 2050, about half of the population will be living in cities. Urbanization if well managed presents a key opportunity to change the structure and location of economic activity from a basis in rural agriculture to more diversified and larger urban industrial and service sectors. But growth will be weaker if unprepared migrants are forced to leave rural areas for the cities because of rapidly growing rural population density and scarcity of agricultural land. 1 GNI per capita, Atlas method (current US$), World Development Indicators, The World Bank. 2 Kenya National Bureau of Statistics. 3 World Bank staff estimates based on the United Nations Population Division's World Urbanization Prospects: 2018 Revision. Page 11 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 5. Kenya’s urbanization is taking place within a major shift toward political, fiscal, and administrative devolution . Devolution through the 2010 Constitution provides for two autonomous but interdependent levels of government: one national and 47 county governments with mainly elected assemblies, elected governors, and governor-appointed cabinet members ratified by the assembly. The Constitution eliminated the previous third tier of public administration, the urban and rural local authorities, and transferred their revenues and functions to the county governments. Thus, all urban centers are now under the management of county governments with varying capacity to manage Kenya’s urban areas. With a guaranteed unconditional transfer of national revenue, called the ‘equitable share,’ the county governments are expected to address local needs for devolved services, including urban infrastructure and services. The national Government is expected to focus on national issues such as foreign affairs, national public works, policymaking (such as housing policy), development of national-level strategies, and guidance and capacity support of subnational governments. 6. As Kenya urbanizes, an increasing share of Kenya’s poor live in urban areas, up from 14 percent in 2005-06 to 23 percent in 2015-16. Moreover, the proportion of the urban population living in poverty with inadequate living conditions has remained unchanged over the past decade. While the proportion of people living in urban centers with access to improved sanitation facilities and electricity increased in all parts of the country during the past decade, the share of those with improved access to water dropped in some places, indicating that urbanization outpaced infrastructure provision there. Moreover, the gap in access to basic services between the poor and non-poor remains wide. High food and formal housing costs in urban areas squeeze the budgets of the poor. The poor spend over 50 percent of their budgets on food, leaving little for all other needs, including housing, education, transportation, and health care. Unemployment rates dramatically dropped in urban areas, in tandem with increasing labor force participation rates. However, a large fraction of the urban poor, women, and the youth are unemployed, or working in informal jobs with no security. In Nairobi, for example, more than 20 percent of the poor are unemployed. 7. Urban Kenya is unequal, and the expanding urban population is being absorbed in informal settlements with poor living conditions, poor infrastructure, and high poverty rates. Rapid urbanization, poor management, and absence of planning has left Kenya’s urban areas with huge backlogs in critical infrastructure. Majority of Kenya’s urban households live in housing that would be defined as a slum under the Sustainable Development Goals. Because formal housing supply is not keeping pace with the growing urban population, informal housing has become the only housing choice for most urban Kenyans. They suffer from over-crowding, poor quality of dwelling, sporadic access to services, and environmental degradation. Many residents of informal settlements also live far from jobs, which limits their opportunities for employment. Poverty—both in monetary and non-monetary dimensions—is still concentrated in informal settlements. Not only is the full potential of productive and inclusive cities not being realized, the glaring inequality causes its own problems and tensions, one manifestation of which is urban violence and insecurity. 8. Gender gaps are constraining Kenya’s productive potential. Only 12 percent of women aged 20-49 years report owning any land on their own, compared with 39 percent of men4 and Kenya is among the few African countries with gender inequality in formal inheritance rights, for example, the Law of Succession Act. There is also a wide gender pay gap in Kenya: female workers earn 44−54 percent less than men, even when age, educa on, the nature of work, and working hours are statistically controlled5. The difference in income between men and women is even bigger in urban areas than at the national level. Women in urban areas are also less likely to participate in labor markets where job accessibility is low, and a 1.0 percentage point increase in the share of accessible jobs by foot and by minibus in 30 4 World Bank. 2018. Kenya Poverty and Gender Assessment 2015/16 - A Decade of Progress and the Challenges Ahead. © World Bank. 5 ibid. Page 12 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) minutes is associated with a 0.84 and 0.59 percent point higher chance of women joining the labor force6. Differences between men and women’s ability to make decisions about one’s own life and act on them to achieve desired outcomes, are also a cause of constraints on women’s physical mobility which curb their labor market opportunities and life choices. They not only directly affect women’s preferences for seeking employment outside the home, but also limit women’s access to education, markets, banks and social networks and thus affect labor market behavior indirectly 7. Women in Nairobi’s informal settlements are less likely to travel outside their settlements for work, and if they do, they are less likely to use motorized transport8. 9. The COVID-19 pandemic is an additional vulnerability which will disproportionately impact the poorest and most vulnerable groups in Kenya. As of July 14, 2020, Kenya had 10,791 confirmed cases, with 202 deaths9. The worst hit by the effects of the pandemic include those living in informal settlements who depend on daily earnings from production/manufacturing plants, construction sites and the public transport sector. They do not have resources to cope with the lockdowns and quarantines needed to contain the spread of the pandemic. In urban areas, many depend on self-employment and informal daily wages and they have limited, or no, coverage of pension and unemployment insurance schemes. Protecting earnings and reaching them through transfers is also considerably more challenging due to unclear physical addresses and inadequate updated household welfare registers. Kenya is in an advantaged position, however, because it has social protection and social assistance programs that can be easily scaled up to extend coverage. However, with the high degree of informal self-employment and informal jobs, residents of informal settlements are even more economically vulnerable during and after the pandemic. During the pandemic, their daily revenues and wages used for immediate daily sustenance is lost due to closure of worksites, businesses and restricted movements and gathering, and after the pandemic, most of their employment will take time to recover. 10. Overcrowded living conditions (both within slums and within households), limited access to basic services particularly water, sanitation and health services, and reliance on crowded transport services put slum residents at very high risk in the COVID-19 pandemic . With no cure or vaccination currently available, managing contagion is the main strategy in the fight against COVID-19 in the short term and will be required in a swift and proactive way. This strategy focuses on water, sanitation and hygiene (WASH) strategies, social distancing, and potentially severe restrictions on the movement of people. These measures are, however, particularly difficult in slums where most of the urban poor live and work. The population density and space constraints make physical distancing and self-quarantine nearly impossible and increases the likelihood that the infection will spread faster in these settlements. An outbreak of COVID- 19 in informal settlements could have devastating effects. After the COVID-19 pandemic, there will be the need to implement interventions that could deal with any future outbreaks of a similar nature. 11. To directly tackle the problem of poor living conditions in slums more broadly, the Government of Kenya (GoK) initiated the Kenya Slum Upgrading Program (KENSUP) in 2005. The program aims to improve living conditions in informal settlements in Kenya by 2025 and includes participatory planning and development, strengthening of tenure security for residents, and provision of housing and infrastructure services. A key focus of the program is regularization of tenure to enhance tenure security to alleviate poverty. Tenure regularization legalizes interests in land which lack legal status, such as in informal settlements. The National Land Policy 2009 recognizes the need for tenure security for all 6 ibid. 7ibid. 8Salon, Deborah, and Sumila Gulyani. 2010. “Mobility, Poverty and Gender: Travel ‘Choices’ of Informal settlement Residents in Nairobi, Kenya.” Transport Reviews 30 (5): 641–57. 9GoK Ministry of Health website, Accessed July 15, 2020: https://www.health.go.ke/ Page 13 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Kenyans, including residents of informal settlements. Box 1. The National Hygiene Program 12. 12. In response to the pandemic, the GoK has acknowledged the urgency of preparing for and mitigating the On April 29, 2020, the Government of Kenya effects of COVID-19 in informal settlements. The GoK has launched a high-priority National Hygiene Program implemented short-term measures to mitigate the effects of known as ‘Kazi Mtaani’ to cushion urban informal the pandemic in informal settlements and has expanded their settlement residents against the socio-economic budget for social safety net programs in anticipation of an impact of the COVID-19 pandemic. The program of increased need. Campaigns to raise awareness in informal labor-intensive works, e.g. street and drainage settlements are ongoing through community health workers cleaning, garbage collection and fumigation, is and through media such as radios. Medium-term measures are creating employment and daily wages for low- under development to address the impacts such as job losses, income, workers in informal settlements while loss of income generation activities and to improve water and improving urban infrastructure and service sanitation facilities in informal settlements. delivery. KISIP1 helped to finance Phase 1 of this program in May 2020 creating 26,148 jobs in 27 13. 13. The first phase of the Kenya Informal Settlements settlements across the 8 counties most severely hit Improvement Project (KISIP1; P113542; US$100m; approved by the movement restrictions. KISIP2 will closely March 24, 2011) built on KENSUP. KISIP1 financed tenure collaborate with the Government to support Phase regularization to improve tenure security and financed 2 which aims to reach up to 200,000 youth across infrastructure upgrading to improve access to basic services. all 47 counties. KISIP1 regularized 80 settlements providing tenure security to approximately 125,000 persons. The project also provided an integrated infrastructure package in 36 informal settlements in 11 urban centers, benefiting 1.2 million people. Investments were made primarily in roads, drainage, walkways, high- mast security lights, water and sanitation systems. While progress has been good under KISIP1, this coverage represents only a small fraction of the total households in informal settlements in Kenya today. 14. Building on KISIP1, the Second Kenya Informal Settlements Improvement Project (KISIP2) will provide interventions similar to KISIP1 which also put in place mitigation measures for COVID-19. The proposed Project will support the interventions that have been successful under KISIP1 (closed November 30, 2019): infrastructure upgrading and tenure regularization. Infrastructure upgraded under the proposed Project will improve and expand access to services and build community resilience. Upgraded roads improve connectivity linking informal settlements to other areas of socio-economic opportunities. In the short run the works related to upgrading roads will provide an important source of employment opportunities for unskilled, informal and vulnerable workers disproportionately affected by the economic impact of COVID-19. Rehabilitated water and sanitation systems expand access to clean and safe water, as well as hygiene. Street lighting improves human security and economic activities in settlements through reduced crime. Upgraded drainage networks and landslide protection structures are both essential in advancing the resilience of communities in instances of disasters. Regularization also enhances the tenure security of informal settlement residents and benefits include increased property values, access to credit for the titleholder which can then be used for productive uses, increased tax revenues for the local administration and access to urban infrastructure services. 15. KISIP2 will also introduce new interventions to deepen its overall impact . The Project aims to strengthen the national and county institutions to support scaling up of slum upgrading. It will help the Government to strengthen the national slum upgrading policy and program and will increase the institutional capacity of counties to upgrade and prevent slums. Unlike KISIP1 which was designed before devolution which took place after the 2013 General Elections, Page 14 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) counties are explicitly involved in project implementation in KISIP2. The Project will also enhance socio-economic inclusion and help to counter the immediate economic impact of COVID-19 by urgently linking vulnerable people (women, elderly, orphans, disabled, and others) of informal settlements to government programs aimed at reducing poverty and vulnerability, and to link at-risk youth, those who have a high probability of engaging in crime, to programs focused on building skills and creating opportunities for employment and self-employment. Socio-economic inclusion planning will be integrated into the settlements receiving infrastructure to provide both socio-economic and infrastructure benefits to the same community. KISIP2 will also increase focus on resilience to natural hazards, crime and violence prevention and closing the gender gap across its interventions. 16. KISIP2 will also use differentiated approaches to tenure regularization. Experiences from KISIP1 indicate clearly that a one-size-fits all approach to tenure regularization is challenging as settlements have different characteristics. The approach for very high-density urban settlements (such as those found in Nairobi) was determined as first providing the minimum tenure security to the whole settlement, upgrading existing infrastructure to an intermediate or full urbanization level (roads, paths, water/sanitation, waste collection, etc.), and support to existing community actions (e.g. collective savings, income generation, community-led crime and violence prevention, etc.). Low-density peri-urban informal settlements (such as those found in smaller secondary cities) should maximize the use of land, can move directly to individual titling, and improve infrastructure incrementally (basic to intermediate urbanization level). A third approach is also needed which combines the two previous approaches for settlements that are medium density (for example the KISIP1 settlements in Eldoret and Nakuru). 17. KISIP2 will support the GoK’s affordable housing priority, one of “Big Four” priorities articulated in the Third Medium Term Plan (MTPIII)10. Cross-country experience shows that strengthening security of tenure and investing in infrastructure in informal settlements induces significant private investment in housing and businesses. Indeed, many of the informal settlements that have benefited from upgrading under KISIP1, have experienced an investment boom, with new multi-story buildings replacing poorly constructed informal housing units. 18. The proposed Project complements the World Bank’s existing operations to tackle COVID-19 effects and any other similar pandemic in the future. The Kenya Devolution Support Program (KDSP; P149129; US$200 million) and the Kenya Urban Support Program (KUSP; P156777; US$300 million) are working with county governments to strengthen their capacity to respond to the pandemic in the short and medium term and are coordinating with the Transforming Health Systems for Universal Care (P152394; US$150 million) and Kenya COVID-19 Emergency Response Project (P173820; US$50 million) which provide technical and material support on health measures. The Kenya Water and Sanitation Development Project (KWSDP; P156634); US$300 million) is redirecting resources toward support cash- strapped water utilities to maintain services. KISIP2 will complement these projects with settlement-level responses by supporting community participatory structures with planning and mobilization, county governments to undertake emergency (and longer term) measures to improve informal settlement environments, utilities to rapidly scale up water and sanitation in settlements, and by creating short term employment generation in some of the most hard hit communities in Kenya. This upgrading will counter some of the conditions that exacerbate the effects of the pandemic, such as inadequate infrastructure for basic services. Further, KISIP2 will build the institutional capacity development for slum upgrading which will ensure GoK’s responses to pandemics and crisis will integrate informal settlements and their constraints and needs. 10Government of Kenya, Third Medium Term Plan 2018–2022, Transforming Lives: Advancing socio-economic development through the “Big Four” (2018). The other priorities of the Big Four Agenda are universal health coverage; enhanced manufacturing; and food security and nutrition. Page 15 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 19. The proposed Project also complements existing and past urban operations in Kenya which address the urban infrastructure deficit and urban institutional challenges. As a result of inadequate attention to urban issues in the past, Kenya has a huge backlog of needs to improve the overall functioning of cities and to upgrade living conditions in informal settlements. Since 2010, the GoK has been addressing the needs through World Bank-financed projects, each addressing different elements of urban development. The first project was the Kenya Municipal Program (KMP; P066488; US$100 million; approved in May 2010 and closed in May 2016), which laid the foundation for the future urban program in Kenya. This program focused on strengthening the essential institutions of urban management in 15 of Kenya‘s largest cities, while also financing investments in city-wide infrastructure. The KMP also supported consultations on a key piece of legislation, the Urban Areas and Cities Act (2011), which prescribes the institutional arrangements for the establishment and management of urban areas in the devolution context, and on the 2016 National Urban Development Policy (NUDP), a policy framework that articulates how the GoK intends to tackle urban challenges to enable meeting of the Vision 2030 goals of the country. KUSP was designed as the follow-on project from KMP using the NUDP as its backbone. To tackle metropolitan-level challenges, the Nairobi Metropolitan Services Improvement Project (NAMSIP; P107314; US$300 million; approved in May 2012) finances large-scale planning and investments in infrastructure and service delivery in Kenya‘s largest and economically most important urban conurbation, which accounts for some 8 percent of the country‘s population and some 50 percent of its GDP. Lastly, the first Kenya Informal Settlement Improvement Project (KISIP; P113542; US$100 million) focused on neighborhood-level urban issues and financed strengthening of tenure security, participatory planning, and settlement infrastructure. While KISIP1 reached over 1.3 million people, this number constitutes approximately one-fifth of all people living in informal settlements. The proposed Project has emerged in this context of continuing demand for basic services in informal settlements in urban areas (Annex 4). 20. This proposed Project also complements demand-side and supply-side operations to improve housing affordability. The Affordable Housing Finance Project (P165034; US$250 million), financed by the World Bank, aims to expand affordable housing finance via the provision of long-term funding through the Kenya Mortgage Refinance Company (KMRC) which the Project will help establish. The Project is also providing technical assistance to strengthen property registration and improve access and use of land for housing. The International Finance Corporation (IFC) interventions are also ongoing with a focus on expanding developer finance. Climate Change Vulnerability Context 21. Extreme climatic events have long posed a significant risk to Kenya and contribute to increasing levels of vulnerability of the poor. Of concern are floods and droughts, with major droughts occurring about every 10 years, and moderate droughts or floods every three to four years11. While usually more localized, floods have led to the greatest loss of human lives12. Droughts have affected the most people and had the greatest economic impact – on average, a 0.6 percentage point decline in GDP growth is observed in Kenya in years of poor rains13. The 2008-11 drought is estimated to have cost Kenya US$12.1 billion, including US$805.6 million for the destruction of physical and durable assets, and US$11.3 billion for losses in the flows of the economy across all sectors14. To respond to disasters, the GoK has in the past relied on ad-hoc donor support. Between 2002 and 2012, international donors have provided on average US$276 million per year to Kenya in humanitarian assistance. 22. Global climate change is projected to alter Kenya’s mean annual climatic conditions as well as its pattern of 11 AEA Group (2008). Final report. Kenya: Climate screening and information exchange (ED 05603, Issue 2). 12 UNDP. Kenya natural disaster profile. Enhanced Security Unit. 13 World Bank Group. Kenya Economic Update. October 2016, Edition No. 14. 14 Kenya Post Disaster Needs Assessment 2008/11 Drought Page 16 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) climate extremes. Global temperatures are expected to continue to rise in all seasons, with models suggesting that warming of about 1o C will occur by the 2020’s, and 4o C by 210015. Warming will vary from region to region within Kenya. Greater uncertainty persists regarding how precipitation patterns might be altered by Climate Change (CC). Analysis by the Intergovernmental Panel on Climate Change (IPCC) using global circulation models projects that East Africa will likely become wetter, particularly during the rainy seasons16. Greater rainfall has been observed during the short rains of October to December, and the long rains of March to April are increasingly unreliable in locations such as Eastern Province17. 23. Economic losses triggered by disasters in Kenya can hamper poverty reduction efforts and threaten advances in shared prosperity. An increasing share of Kenya’s poor live in urban areas, up from 14 percent in 2005-06 to 23 percent in 2015-16. Historical factors underpinning land ownership have led to urban land market distortions and, today, these markets are having difficulty supporting sustainable urbanization. In addition, there is low technical capacity to enforce and to build resilient infrastructure. Evidence of this is the proliferation of sub-standard buildings with poor services and insufficient infrastructure, with the collapse of more than 87 buildings in the last 20 years18. Equally important is the exposure of urban areas to moderate seismic risk, due to the East African Rift running through west Kenya and fault lines that are present south of Mombasa. The interventions in this project are aimed at reducing vulnerability in poor urban settlements to disaster and climate risks and to catalyze economic growth, improving the livelihoods of the most vulnerable. This will support the sustainability of development programs and the Government’s efforts to reduce extreme poverty and boost shared prosperity. C. Relevance to Higher Level Objectives 24. The proposed operation supports the objectives of two of three priority areas of the World Bank Group Country Partnership Strategy (CPS) for Kenya (FY14–18; P161914)19, extended under the Performance and Learning Review (PLR) of the CPS; P161914)20 to FY20, and further under the World Bank Group COVID-19 Crisis Response Approach Paper (‘Approach Paper’)21. The CPS for Kenya (87024-KE) has three strategic results areas: (a) competitiveness and sustainability—growth to eradicate poverty, (b) protection and potential— human resource development for shared prosperity, and (c) consistency and equity—delivering a devolution dividend. The proposed operation supports the first two strategic results areas. It contributes to priority area 1 by supporting participatory planning of informal settlements, and financing settlement infrastructure and services. It supports priority 2 by assisting people, especially women, to gain access to water and sanitation services, by helping at-risk youth gain access to skills and job opportunities, and by strengthening poor and vulnerable residents’ access to Kenya’s social safety net resources. The proposed operation will also contribute to the CPS goals related to climate change, disaster risk management, and sustainability by supporting construction and maintenance of drainage systems and other urban infrastructure. 15 UNDP (2012): Climate Risks, Vulnerability and Governance in Kenya: A review. 16 Boko, M et al (2007). Climate change: Impacts, adaptation and vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. 17 Awuor, C. (2009). Increasing drought in arid and semi-arid Kenya. In J. Ensor & R. Berger (Eds.), Understanding climate change adaptation: Lessons from community-based approaches 18 Between 1986-2018 according to the Kenya National Construction Authority 19 Country Partnership Strategy for the Republic of Kenya for the Period FY2014-2018. Report No. 87024-KE 20 Performance and Learning Review of the Country Partnership Strategy for the Republic of Kenya for the Period FY14-FY18. Report No. 113547-KE 21 The new Kenya CPF FY21-26 is under preparation but, as directed in the Approach Paper, its finalization has been deferred until it becomes possible to articulate, in consultation with the government, a WBG program that is appropriate to the changed circumstances. Page 17 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 25. The World Bank country program in Kenya is currently being adjusted in line with the selective WBG crisis response outlined in the Approach Paper. In the Relief stage of the response, early support from triggering a CERC under the Transforming Health Systems for Universal Care (P152394) and the new Kenya COVID-19 Emergency Response Project (P173820) as well as re-channeling Program for Results disbursements in two projects working at the county level were instrumental in strengthening health preparedness nationwide and supporting sensitizations, communication and tracing efforts. This preparedness has paid off as Kenya has only recently begun to see a rapid rise in infections and health services continue to be available. To address the heavy social, economic and fiscal impact from the early preventative measures, the Bank has responded by increasing programmed budget support, together with the International Monetary Fund and African Development Bank, by refocusing community-level, youth and micro-enterprise project support toward vulnerable populations, and by programming resources for the delivery of education programs to vulnerable students during school closures. 26. In the Restructuring phase, the country program has first focused on reallocating resources within financial sector, water sector and agriculture projects to provide a mix of financing for formal and informal enterprises, emergency interventions and operating costs for struggling Water Service Providers mainly serving low income and informal settlements, and expand programs with rural community and farm producer organizations to maintain food security and minimize value chain disruptions, respectively. In addition, the World Bank is preparing to maintain a program of development policy and performance-based financing to mitigate fiscal shortfalls while deepening reforms toward long- term fiscal consolidation, improvements in Kenya’s business climate, and financial recovery in the energy sector. The Resilient Recovery phase of the country program response, while still under preparation, already includes support for accelerating digital innovations in public service delivery, strengthening resilient community development practices in marginalized areas, and effective governance at the country and local levels. 27. The proposed Project aligns with the World Bank Group COVID-19 Crisis Response Approach Paper. The Project contributes to Pillar 2 – Protecting Poor and Vulnerable People – by increasing access to employment for unskilled, informal and vulnerable workers through jobs created from the Project’s construction works and other labor-intensive activities. The income generated through these jobs will help to counter the immediate economic impact of COVID-19, thus supporting informal settlement residents through the relief and restructuring stages outlined in the Approach Paper. The Project also contributes to Pillar 4 – Strengthening Policies, Institutions and Investments for Rebuilding Better – by strengthening community-level institutions, increasing capacity for community participatory planning and mobilization, working with county governments to undertake emergency (and longer term) measures to improve informal settlement environments, and improving living conditions by enhancing tenure and upgrading urban infrastructure. These measures enhance the physical, social and economic resilience of communities and county governments both of whom are first responders in the COVID-19 and other similar pandemics. 28. KISIP2 contributes to the World Bank’s twin goals of ending extreme poverty and boosting shared prosperity, by helping to improve living conditions and strengthen security of tenure in informal urban settlements . The proposed Project will directly improve living conditions in informal settlements, which will improve the mobility and access to jobs and urban services of the residents. The support of the Project to help at-risk youth improve their skills and find jobs or start businesses will also help in reducing poverty. In addition, improving living conditions will contribute to better public health, which in turn will improve productivity and thus incomes of residents. KISIP2 will also directly reduce poverty by providing land titles to settlement residents—valuable assets—and by linking poor and vulnerable people to the government’s safety net program. These interventions will also directly reduce the gap between rich and poor. The extent to which well-functioning and productive urban centers will boost national, as opposed to only urban income, shared prosperity will depend on whether fast-growing urban centers can pull in surrounding rural areas through strengthened Page 18 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) rural-urban linkages and increased labor mobility. 29. Infrastructure investments constructed under KISIP2 will consider the vulnerability to climate change and incorporate changing climatic conditions in their planning, design, construction and operation . While climate resilience may not be taking center stage in the Project, it is intended that the neighborhood infrastructure constructed under this Project will be designed with climate resilience in mind. Building resilience to climate change and disaster risk is a vital step in the fight against poverty and for sustainable development. Infrastructure networks will be affected by the physical impacts of climate variability and change but will also play an essential role in building resilience to those impacts. KISIP2 will also work with existing Bank technical assistance which aims to strengthen the frameworks for managing climate risks at the subnational level, in particular the technical assistance under the Devolution and Locally-Led Climate Change Adaptation and Disaster Risk Management Project (final report: December 2019), a sub-component of the World Bank’s Kenya Accountable Devolution Program (KADP; P150611), which aims to build capacity of county governments in Kenya to integrate climate risk management into their development plans and program. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 30. To improve access to basic services and tenure security of residents in participating urban informal settlements and strengthen institutional capacity for slum upgrading in Kenya. PDO Level Indicators  People provided with improved urban living conditions under the project, by gender  People benefiting from enhanced security of tenure under the project, by gender  Number of counties where next generation of County Integrated Development Plans (CIDPs) include slum upgrading strategies developed under the project B. Project Components Table 1: Summary of components and amounts Component Sub-component Amount (US$ million) Component 1: Integrated Settlement Upgrading 1.1. Tenure regularization 30 1.2. Infrastructure upgrading 90 Component 2: Socio-economic inclusion planning 10 Component 3: Institutional capacity development for 15 slum upgrading Component 4: Project Management and Coordination 5 Component 1: Integrated settlement upgrading (US$120 million equivalent) 31. KISIP2 has built on the lessons learned from KISIP1 and has combined tenure regularization and infrastructure Page 19 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) into one integrated upgrading approach. This approach aims at saving both money and time, ensuring better coordination between the two interventions in a settlement and deepening the Project’s overall impact on the participating communities by supporting tenure regularization and infrastructure upgrading in the same communities. Thus, two main interventions have been identified under this component: (i) tenure regularization; and (ii) infrastructure upgrading. Settlements will benefit from one or both interventions depending on the initial condition of the settlement. Sub-component 1.1: Tenure regularization (US$30 million equivalent) 32. This sub-component will finance the set of activities required to regularize tenure for people living on uncontested public lands. In Kenya, the regularization process is (i) development of a local physical and land use development plan for the settlement which lays out land parcels and infrastructure (roads, drainage, walkways, etc.); (ii) surveying with physical placement of beacons (pegging) to demarcate the parcels as per the plan; (iii) preparation and issuance of letters of allotment based on the survey plan; and finally (iv) issuance of titles. As with KISIP1, titles will be granted to the heads of households including female-headed households. As part of the plan preparation, a census and socio-economic survey will be done which will provide the foundation of the socio-economic inclusion activities under Component 2. Climate resilient principles will be followed in the planning exercise as informal settlements are sometimes in low-lying, environmentally sensitive areas. The planning process will identify these sensitive areas and residents living in these areas will be resettled. As the infrastructure (drainage, etc.) can be designed only after tenure regularization is completed, regularization is important to realize climate resilience within the settlement. 33. The sub-component will follow the experience of KISIP1 to minimize displacement of residents in planning . Based on the KISIP1 experience, the GoK is now following an ‘adoptive’ planning 22 approach which utilizes flexible standards to minimize displacement of residents in informal settlements. Under KISIP1, adoptive planning has reduced displacement by up to 85 percent in some settlements, compared with what would have occurred had the normal standards been applied. It is expected that use of the adoptive approach in KISIP2 will result in minimal displacement. 34. This sub-component will put in place mitigation measures for COVID-19 and other pandemics . Tenure regularization of a settlement has been shown to increase confidence in building better-serviced, less-crowded, more permanent housing stock in the settlement. Planning of informal settlements provides circulation networks within the settlements that are important as evacuation routes in case of emergencies. Planning also provides open spaces thus increasing physical distances between blocks of structures. All these outcomes are key in mitigating the spread of COVID- 19. Further, tenure regularization improves revenues for the local governments as land records are generated from regularization against which the county governments can charge property taxes. 35. The component will assess the feasibility of providing direct tenure security to tenants given the high number of tenants versus structure owners in some urban informal settlements . The experience from a community-upgrading project in the highly densified Huruma settlement in Nairobi will provide a starting point. Here, tenure regularization has been conceptualized as a continuum, starting from administrative recognition (in this case, a Memorandum of 22‘Adoptive’ planning is a term developed by the GoK in response to the KISIP1 experience where the extent of displacement from using standard planning standards were found to be extensive. Adoptive planning is an approach that provides flexibility to react to the prevailing situation in the affected settlement and emphasizes parcel boundaries and road widths that adhere as much as possible to the existing situation on the ground. For example, in standard planning regulations, a road size would be planned to a width of 9m. Application of these standard regulations in informal settlements would lead to massive impacts and displacements and prohibitive compensation and replacement costs. Adoptive planning introduces flexible standards including one-way roads of, for example, 4m to provide for adequate accessibility while reducing the impacts. These one-way roads allow access to emergency and other vehicles, while also minimizing the displacement that would occur if roads of the standard width were constructed. Page 20 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Understanding (MoU) between the communities and the City Council at that time) to legal titling. The simple recognition of the informal settlement by relevant authorities reduced the fear of eviction which provided confidence for the communities to organize themselves, establish collective savings, and invest in more permanent housing. This Project also incorporated both the structure owners and tenants. A study will be done by the Project’s Mid-term Review to determine the impact of slum upgrading on tenants in both KISIP1 and non-KISIP1 settlements and will be gender disaggregated. Under KISIP1, renters were included as beneficiaries of the infrastructure upgrading and KISIP2 will continue to do so. 36. The component will also build a strong knowledge base on experiences to enhance tenure security for informal settlements on private land. The focus in KISIP1 was on settlements on public land but many poor settlements in Kenya are on private land. While the KISIP2 cannot intervene directly on private land, KISIP2 will focus on building a knowledge base of mechanisms piloted by NGOs and understand the impact of these mechanisms on tenure security for informal settlement residents, with a focus on women. For example, Nairobi City County together with Akiba Mashinani are piloting a legal approach to providing tenure security to residents of Mukuru kwa Njenga, a large slum in Nairobi that sits on private land. There are also a few examples in the Coast region in Kenya. The component will share this knowledge with counties to assist them in preparing their county strategies (Component 3). Component 1.2: Infrastructure Upgrading (US$90 million equivalent) 37. This sub-component will finance feasibility studies, detailed engineering designs, bidding documents and works that have been prioritized by settlement residents. Site-specific Resettlement Action Plans (RAPs) and Environmental and Social Impact Assessments (ESIAs) that arise from these designs will be developed at this stage. 38. The sub-component will support the same types of investments as in KISIP1 settlements and there is a pipeline of ready investments from KISIP1. The investment menu will continue to include roads, bicycle paths, pedestrian walkways, street and security lighting, vending platforms, solid waste collection and settlement sorting, storm water drainage, water and sanitation systems, public parks, and green spaces. The menu will also include investments related to prevention of crime and violence, including but not limited to community centers. Like the first phase of KISIP, the second phase will support an integrated package of investments to comprehensively upgrade settlements. KISIP1 has financed the preparation of detailed designs and bidding documents for upgrading plans for a number of settlements. These settlements will be subjected to the eligibility criteria and those that qualify will ensure that KISIP2 is able to commence works quickly. 39. In KISIP2, the infrastructure investments will mitigate both the physical and economic impacts of COVID-19 . KISIP2 infrastructure investments are expected to produce short-term employment for both skilled and unskilled workers in the informal settlements. While construction of asphalt roads will engage some workers, the construction of drains, pedestrian walkways and footpaths will be more labor-intensive. This is because both skilled and unskilled labor is required for earthworks/excavations, concrete and masonry works in drains, walkways, and footpaths, as well as preparation of foundation and placing of precast concrete pavers for footpaths and walkways. In addition, KISIP2 will support county governments and utilities who are under pressure to rapidly scale up affordable provision of water and safe sanitation in settlements and to undertake other emergency measures to improve informal settlement environments to combat COVID-19 pandemic through such activities as street/access paths cleaning, fumigation and disinfection, bush clearing, solid waste collection and management and drainage cleaning and unclogging. KISIP1 supported water and sanitation efforts working with the water companies and the counties, and KISIP2 will continue to do so to respond to the pandemic. Working with other water projects, KISIP2 will be able to upgrade multiple informal Page 21 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) settlements. In the long term, KISIP2 infrastructure investments will help mitigate any future outbreaks of a similar nature by improving access (easing crowding), water and sanitation services in informal settlements. 40. The infrastructure will also contribute to climate resilience. Under KISIP1, 83 percent of the financing for infrastructure went to roads and drainage (all roads had drainage on either one side or both sides of the road); 11 percent financed water supply and sanitation and 6 percent went to floodlights. While it was initially expected that KISIP2 funds will be similarly allocated, the urgency of addressing COVID-19 and need to counter similar pandemics in future may influence the allocation and distribution of funds across the different infrastructure. Nevertheless, KISIP2 will continue to focus on infrastructure that supports climate resilience. Additionally, counties that benefitted from high-mast lighting have requested for energy efficient options in KISIP2 as the cost of keeping the lights on has been high 23. KISIP2 will be implementing energy efficient options in lighting. 41. The sub-component will have substantial climate change adaptation and mitigation co-benefits . All settlement roads will be designed and constructed to take into account changing climate conditions, thus ensuring connectivity and enabling communities to recover more rapidly to disruptions caused by climatic conditions. In the dry seasons, the paved surface will also reduce dust and its consequences on the settlement population. Many informal settlements are susceptible to flooding during the two annual rainy seasons (March-May and October-November) as they are often situated in low-lying areas. Rainfall is expected to increase in frequency and intensity due to climate change, thus the improved drainage infrastructure will also provide climate change adaptation benefits. Pedestrian footpaths will provide climate change mitigation co-benefits as they will promote a modal switch to alternative transportation and will enable pedestrian mobility, resulting in reduction of emissions from vehicular traffic. Water supply and sanitation infrastructure will mitigate the expected impact of increasing frequency of droughts. Finally, the Project will also include energy- efficient street lighting, which has significant climate mitigation co-benefits. Counties have been requesting this switch to energy-efficient sources of electricity. 42. Eligibility. Criteria to determine eligible settlements under this component have been developed to ensure that the work has a high impact (see Annex 2). The criteria are developed to ensure that the Project has maximum impact for the targeted beneficiaries. Counties with eligible settlements will be expected to demonstrate county readiness (see Annex 2). 43. Given the anticipated scale of the unmet need and possible oversubscription, KISIP2 is developing a formula to allocate infrastructure funds to eligible settlements. The key principle of the formula is that the chosen infrastructure investments are economically justifiable. Key variables of this formula are the cost per capita or per hectare, settlement population (from 2019 National Census), poverty index, and other data that contribute to justifying the economic viability and ensuring maximum impact on targeted beneficiaries. The formula will be included in the Project Operations Manual (POM) once finalized. Preparation and adoption of a POM is an effectiveness condition. 44. The cost of the investment per capita and per hectare for infrastructure varies from settlement to settlement . The KISIP1 averages conceal a wide variation in unit cost24. Initial analysis indicate that population density plays a major 23 In Mombasa, each mast is costing approximately KES 13,000-15,000 (US$130-150) per month. Nakuru spends approximately KES 18 million (US$ 180,000) per month on all its street lighting. 24 The cost per capita for infrastructure ranges from a low figure of US$35/capita for Nairobi to maximum of US$600/capita for Machakos. The cost of the investment per hectare varies from settlement to settlement depending on the size of the settlement. The lowest cost per hectare was for Eldoret (US$11,100/ha), and the highest (US$772,472.31/ha) for Embu. The cost per density ranges from US$400/people/ha for Embu) to US$153,000/people/ha (Eldoret2). Page 22 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) role in the cost/capita in a settlement. Deeper analysis on the underlying causes for the variation for cost/ha is underway. This analysis will be utilized to further develop the formula to allocate funds to eligible settlements. The formula will ensure that the funds are used to provide maximum impact to beneficiaries. Component 2: Socio-economic inclusion planning (US$10 million equivalent) 45. This component will finance community development plans to enhance social and economic resilience given the anticipated effects of COVID-19 and the high risk that informal settlements face to other shocks and stressors, including climate extremes, crime and violence, etc. Residents of informal settlements are forced to manage a wide variety of risks daily. Community development plans will be therefore developed using participatory approaches to engage residents in assessing and addressing multiple risks, including the anticipated impacts of COVID-19. Communities will be engaged to identify their socio-economic needs, both past and those resulting from the pandemic and then address how best their present needs can be met as well as ensure that they are better prepared to respond and recover from future disease outbreaks or other shocks. The census and socio-economic survey done during planning in Component 1 will provide the foundation of the community development plans under this component. To address the urgency of COVID-19 impacts, the community development plans are expected to prioritize on increasing access to opportunities (e.g. job skills training and employment) using labor-intensive activities deployed to mitigate the impacts of COVID-19 and other hazard events. The Project will collaborate with the World Bank-supported Transforming Health Systems (P152394) and COVID-19 Emergency Response Project (P173820), and KADP (P150611) to provide technical and institutional support for short term COVID-19 measures identified in the community development plans. The Project will also collaborate with the Financing Locally-Led Climate Action Program (P173065)25 to leverage the participatory methods being developed under the program to assess climate and disaster risk and facilitate partnerships between communities and local authorities to address risk. Where identified as priorities through the community development plans, investment in social infrastructure such as community centers, sites for programs on youth skills development and conflict mediation, and daycare centers could be financed under sub-component 1.2. 46. This component will finance community capacity building and awareness raising for COVID-19 and other Project interventions. The Settlement Executive Committees (SECs) and the Grievance Redress Committees (GRCs) at settlement level have proven to be fundamental institutions in the implementation of KISIP1. Most recently these committees have been critical in mobilizing communities around COVID-19 prevention and containment measures, supported by co- financing from Agence Francaise du Developpement (AFD; French Development Agency). Beyond SECs and GRCs, community capacity building will focus on COVID-19 behavioral communication, climate and disaster risk reduction and preparedness, planning literacy, county-community engagement and solid waste management. Providing hard infrastructure is not sufficient if it is not combined with awareness raising of the importance of maintaining the infrastructure. Hence, a comprehensive approach to awareness raising and communication will be applied for sustainability and realization of the benefits envisaged from the investment. The engagement of communities through informal planning studios is also envisaged to improve community understanding on aspects of planning. The component will also focus on strengthening mechanisms of engagement between communities and counties. 47. Select civil society organizations (CSOs) will also be used to support the design and implementation of the community development plans. CSOs with a track record in socio-economic interventions targeting women, elders, orphans, people with disabilities, and at-risk youth will participate in this component. Among others, the roles of these 25The Financing Locally-Led Climate Action Program, currently under preparation, aims to strengthen local resilience in a participatory manner, by building capacity of county governments to plan, coordinate, implement, and monitor resilience investments in partnership with communities. Page 23 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) CSOs would be facilitating the development of community development plans, supporting the implementation of identified socio-economic activities, and piloting any innovative community economic activities. A flexible approach will be adopted where the activities will be continually monitored to ensure they are benefiting the community; and will be dropped and others tried should it be determined not to be effective. Capacity building of county community and social development officers will be done to strengthen their ability to work with the Project on the activities under this component. 48. The component will identify beneficiaries who fit the eligibility criteria of government programs but are excluded because they have limited participation in development activities due to inadequate political representation and/or limited awareness of the existence of these programs .26 Poor access to information, lack of exposure and low literacy levels contributed to the marginalization of women in the National Safety Net Programs 27 and this poor access is exacerbated in informal settlements due to the marginalized nature of the settlements. Government programs try to ensure that their eligibility criteria include gender and disability considerations and the component will follow the same criteria to identify potential beneficiaries. Collecting data to determine eligibility criteria for these projects would form a core part of the community census/enumeration questionnaire. In targeted informal settlements, KISIP2 will identify young eligible people and link them to Kenya Youth Employment Opportunities Program (KYEOP; P151831) and other projects such as the GoK-financed Youth Enterprise Development Fund. The youth identified would either: (a) qualify for training and work experience in the formal and informal sector; (b) require startup financing; managerial and entrepreneurial skills; business-start up grants, business development services, and exposure and networks for starting and growing a business. The component will also identify households in target informal settlements that qualify for social safety net programs to: (a) receive the nutrition-sensitive cash transfer; (b) be registered in National Safety Net Programs of the country and KISIP2 will work with the Kenya Social and Economic Inclusion Project (P164654). 49. This component will monitor the employment of local labor. A key impact of COVID-19 on informal settlements is job losses as many residents engage in informal work which have no social security. KISIP2 will focus on ensuring that the construction works and other labor-related activities continue to create jobs in the informal settlements. In KISIP1, contractors employed local labor from within the settlement for unskilled tasks and this practice will continue in KISIP2. Other labor-intensive activities include street and drainage cleaning, solid waste management, fumigation and disinfection, etc. Vulnerable and unskilled members of the community will be prioritized under this arrangement. This serves to provide income for households, transfer of skills and help the local community in understanding operation and maintenance of upgraded infrastructure. In addition, women earn relatively well with construction jobs compared to jobs in the service sector but only a tiny share of women work in construction28. In KISIP1, unskilled laborers included both men and women and, in some settlements, there were more women than men employed. 50. The component will also finance a community-based solid waste management (SWM) mechanism . Based on the KISIP1 experience, SWM requires a concerted focus when upgrading settlements. The community-based SWM mechanism will focus on raising community awareness on settlement-level SWM practices, the refuse collection obligations of communities and the income-generating potential of SWM. Previous experience indicates that a key part of the SWM solution will be youth groups leading the collection within settlements as a revenue generating activity. Supporting SWM has both climate adaptation and mitigation co-benefits. Further, capacity development will primarily 26 Some alignment of the KISIP census and socio-economic survey instruments to the programs’ Harmonized Targeting Methodology (HTM) tool is envisioned, followed by registration of beneficiaries identified by KISIP2 in the safety nets’ Single National Registry. 27 Social Assessment for the Kenya Social and Economic Inclusion Project (KSEIP), June 2018 28 World Bank. 2018. Kenya Poverty and Gender Assessment 2015/16 - A Decade of Progress and the Challenges Ahead. © World Bank. Page 24 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) focus on organizing communities in drainage stretches committees, community-led collection and management of waste and the Operations & Maintenance (O&M) of drainage infrastructure. 51. The component will also support participatory crime and violence mapping. This mapping will be done to identify hotspots so that investments made in infrastructure can make hotspots safer, such as in energy efficient lighting, gates, rehabilitation of public spaces, and others following the principals of crime prevention through environmental design (CPTED). In KISIP1, a pilot on crime and violence prevention was conducted which applied the CPTED methodology to conduct a participatory mapping of safety and security in Kayole Soweto. There is strong demand from the client for scaling up the experiences from the Kayole Soweto pilot, and on World Bank experience in other countries, and integrating into the infrastructure intervention in KISIP2 settlements. In informal settlements, women depend more on small-scale trading than men to generate income, yet insecurity when trading outside daylight hours limits their ability to generate revenue. They also find the settlements more unsafe than men and plan their routes from one point to another to avoid areas they perceived as unsafe. They enhance their safety by walking along routes that have streetlights and these alternative routes are generally more expensive and take more time, restricting women’s mobility and thus their access to jobs and services. The mapping exercise will incorporate women and other marginalized groups to ensure that their perspectives are incorporated. Component 3: Institutional capacity development for slum upgrading (US$15 million equivalent) 52. The component will finance institutional and policy development at national and county levels . The starting point for the Project is the assessment of the National Slum Upgrading and Prevention Policy (2016) with the aim to support its implementation. The component will also finance the development of national and county-specific slum upgrading and prevention strategies. The strategies will identify measures to ensure that climate resilience principles are followed, such as ensuring that people living in environmentally hazardous areas are relocated. These county-specific strategies will go into the CIDPs as an annex in order to attract county funding. Other interventions such as developing financing mechanisms for slum upgrading at county level, and developing strategies to plan for urban growth, prevent crime and violence and to ensure adoptive planning in informal settlements will also be supported. Informal settlement growth will be addressed in strategies developed under this component. 53. The component will develop a capacity building plan for national and county levels to implement the Policy and to develop understanding of slum upgrading processes. The capacity building in this component will, firstly, enhance understanding of the national policy. Second, it will enhance county capacity to improve their capacity to lead the implementation of slum upgrading. The capacity building will allow the upgrading process to be embedded into county systems in order to help counties in O&M and general informal settlement management and upgrading. A key focus will be building the capacity towards climate resilient planning when upgrading settlements. Capacity building activities for each level of government will be developed in the plan. 54. The component will also support technical assistance, training, workshops and learning events, experience sharing and peer-learning activities with other counties, and other capacity building activities aimed at enhancing the ability of national, county, and community teams to exercise their roles and responsibilities in slum upgrading. Safeguards, fiduciary and contract management capacity building/support will also be provided. Component 4: Program management and coordination (US$5 million equivalent) 55. This component will finance activities of the National Project Coordination Team (NPCT) and the County Project Page 25 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Coordination Teams (CPCTs) related to national and county-level project management and coordination, including planning, surveying, engineering, fiduciary (financial management and procurement), safeguards compliance and monitoring, monitoring and evaluation (M&E), and communication and community development. 56. The communication strategy in KISIP1 will be enhanced to meet the needs of KISIP2 in this component . Communications expertise from the onset is needed to facilitate internal and external information flow; communicate objectives and achievements, inspire behavioral change, ensure adherence of World Bank’s Policy of Access to Information and feedback gathering. The Project will build on and enhance the existing KISIP1 communications strategy within sixty days of effectiveness. This comprehensive communications strategy is designed to address all important issues identified that might affect project implementation, considering all stakeholders in the public and private sectors, beneficiary communities, civil society, and the media to ensure consistency of messages to targeted audiences. Capacity building will be provided to strengthen communications capacity of both levels of government to carry out their communications responsibilities. C. Project Beneficiaries 57. The primary beneficiaries of KISIP2 will be the residents of the participating informal settlements . In the short run, some residents, in particular vulnerable and unskilled members of the community, will have access to employment created from construction works and other labor-related activities that should help to mitigate the economic impacts of COVID-19 measures in these settlements. In addition, residents will benefit from community planning activities that raise awareness and address COVID-19 related issues in these settlements. Ultimately, all the residents will have better access to basic infrastructure and services across a range of sub-sectors, including local roads, water and sanitation, storm water drainage (and reduction of flooding), waste management (increased collection), and street lighting. They will also have improved tenure security provided through titling. In addition, residents will indirectly benefit from the institutional development activities aimed to strengthen the capacity of the county to implement slum upgrading interventions. Estimated number of beneficiaries in KISIP2 is 1.7 million. Gender 58. Gender gaps in access to productive resources is constraining Kenya’s productive potential. Only 12 percent of women aged 20-49 years report owning any land on their own, compared with 39 percent of men 29 and Kenya is among the few African countries with gender inequality in formal inheritance rights, for example, the Law of Succession Act. Poor access to information, lack of exposure and low literacy levels contributed to the marginalization of women in the National Safety Net Programs30 and this poor access is exacerbated in informal settlements due to the marginalized nature of the settlements. The predominance of male headed households (78 percent) versus female headed (19.7 percent) households in informal settlements make men to a large extent the decision makers in the settlements 31 which reduces women's access to and control of resources. Also, in informal settlements, women depend more on small-scale trading than men to generate income32 yet poor/unavailable vending spaces and insecurity when trading outside daylight hours limit their ability to generate revenue. They also find the settlements more unsafe than men and plan their routes 29 World Bank. 2018. Kenya Poverty and Gender Assessment 2015/16 - A Decade of Progress and the Challenges Ahead. © World Bank. 30 KSEIP, June 2018 31 Gender Analysis for KISIP in Nairobi, Mombasa, Eldoret and Kitui. The analysis was conducted through Sida financing in 12 KISIP1 settlements (KCC Village, Kayole Soweto, Ziwa la Ngombe, Mkomani, Jomvu Kuu, Jomvu Mikanjuni, Huruma, Kamukunji, Munyaka, Mosquito, Mjini and Kunda Kindu). 32 46 percent of women in the 12 settlements depend on small scale trading compared with 21 percent of men. Page 26 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) from one point to another to avoid areas they perceived as unsafe33. They enhance their safety by walking along routes that had streetlights and these alternative routes are generally more expensive and take more time, restricting women’s mobility and thus their access to jobs and services. The role of fetching water is disproportionally assigned to females which means less time for females than men to engage in productive activities34. 59. KISIP2 will deepen the efforts made under KISIP1 to ensure that women benefit fully from the proposed Project . Under KISIP1, SECs have to comprise at least one-third female and this requirement will continue in KISIP2. Female representation in the SEC ensures that women can influence decisions made by the SEC on behalf of the settlement, such as during planning and the choice and location of infrastructure investments, and that women benefit from the tenure regularization (females who are heads of households are entitled to an individual household title or, in the case of a community title, be formally recognized as a member of the community). 60. KISIP2 will ensure female-headed households are granted titles and will encourage married couples to include the names of both spouses on land ownership documents. The National Land Policy 2009 recognizes that women and other vulnerable groups have been denied access to land rights as a result of discriminatory laws, customs and practices. In KISIP1, 28 percent of the titles granted under the Project were in the name of females and this will be used as the baseline for KISIP2. In addition, in KISIP1, a number of titles are being granted in the name of both spouses and while not in the Results Framework, number of joint titles will also be monitored to determine the extent to which gender is mainstreamed in titling under KISIP2. Awareness creation and sensitization during community meetings will be mechanisms through which to increase the numbers of titles granted to women. 61. Activities in the socio-economic inclusion planning component aim to link informal settlement residents with government safety nets to reduce poverty and vulnerability in the settlements . Participating in the NSNP has been reported to enable women to increase control of household budgets, participate in income-generating activities, have reduced the likelihood of young women becoming pregnant and improved mental health outcomes, such as lower rates of depression, greater belief in self-agency and self-efficacy, and more positive views of the future. KISIP2 will contribute through Component 2 by targeting women in informal settlements to raise their awareness of and enrolment into the NSNP. 62. Women will also benefit from infrastructure under KISIP2. The high-mast security lights will improve safety in the settlement and allow women greater flexibility in their movements in the settlement. The security lights also allow small scale traders, who are predominantly women, to work for longer hours and increase their revenue as they are assured of improved security. Vending platforms are an option in the menu of investments. Women are expected to benefit disproportionately from the water and sanitation facilities. Upgrading of day care centers where available will allow women to participate in the labor market as the absence of safe and reliable day care centers often inhibits many women to seek job opportunities. KISIP2 will prioritize the rehabilitation of such centers at community centers which serves to develop human capital and promote female labor market participation in informal settlements. In KISIP1, works contractors employed unskilled labor from within the settlements and laborers included both men and women, and in some areas, there were more women than men employed. This practice is expected to continue in KISIP2. Some infrastructure indicators have been included in the Results Framework, like number of new street or security lights, water 33Participating crime and violence mapping exercise conducted in Kayole Soweto informal settlement in 2016 34Gender Analysis for KISIP in Nairobi, Mombasa, Eldoret and Kitui. The analysis was conducted through Sida financing in 12 KISIP1 settlements (KCC Village, Kayole Soweto, Ziwa la Ngombe, Mkomani, Jomvu Kuu, Jomvu Mikanjuni, Huruma, Kamukunji, Munyaka, Mosquito, Mjini and Kunda Kindu). Page 27 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) and sanitation connections. 63. The following results indicators of the Project will monitor outcomes from actions identified to address the gender gap:  Proportion of SEC members that are female  Proportion of titles granted under the project with women recognized as an owner or co-owner  Number of women linked to social safety net programs through the project Citizen Engagement 64. Community institutions will continue to play a key role in the Project, particularly in coordinating the COVID-19 responsive activities in their communities. Lessons from the Ebola outbreak in Liberia highlighted the importance of such community engagement in the prevention, response, treatment and aftermath of the epidemic. As with KISIP1, the SECs and the Grievance Redress Committees (GRCs) will participate centrally in the Project. SECs will continue to serve as a bridging mechanism between communities, county and national governments which is particularly important for the quick responses required for effective COVID-19 measures. SECs will play roles such as mobilizing the communities to participate in project activities, acting as the communication channel to and from communities and county governments, sensitizing the community on KISIP2, supporting the implementation of RAPs and mobilizing people to address common issues such as SWM. SECs will play a key role in implementing an SWM mechanism agreed by the community to prevent clogging of storm drains with solid waste and will also act as a watchdog against the abuse of existing and installed community infrastructure. GRCs will continue to address conflicts and grievances that arise during the KISIP2 interventions. Engagement of project beneficiaries and affected persons will be mainly through small targeted meetings and focus-group discussions (FGDs) conducted as appropriate taking precautions to safeguard staff and community safety. These will be vital for both information dissemination and feedback collection and where required will be gender and age disaggregated. Where meetings are not possible or permitted due to COVID-19 restrictions, traditional channels of communications such as community radios, calls to community representatives and public announcements will be used for rapid information dissemination with the GRM being closely monitored for queries, comments, complaints and grievances. The predominance of male headed households (78 percent) versus female headed (19.7 percent) households in informal settlements make men to a large extent the decision makers in the settlements 35 which reduces women's access to and control of resources. In KISIP1, the SEC was one-third female and this requirement will continue in KISIP2. 65. KISIP2 will continue the highly participatory approach to planning followed under KISIP1. Under KISIP1, the SECs provide a highly effective means through which different interest groups within the settlements are represented. A beneficiary assessment of KISIP1 completed in June 2018 found that community involvement in decision-making was much more effective than in many government-led projects and that residents were satisfied with their involvement. Moreover, residents generally agreed that activity identification was very inclusive, and involved the entire community. In addition, residents of the settlements undergoing tenure regularization were satisfied with the consultation process undertaken in developing their local physical and land use development plans and the resultant maps. As with KISIP1, the SECs will mobilize the communities to work with consultants on planning. 66. The following results indicators will monitor citizen engagement in the Project:  Percentage of registered grievances resolved with three months of registration 35Gender Analysis for KISIP in Nairobi, Mombasa, Eldoret and Kitui. The analysis was conducted through Sida financing in 12 KISIP1 settlements (KCC Village, Kayole Soweto, Ziwa la Ngombe, Mkomani, Jomvu Kuu, Jomvu Mikanjuni, Huruma, Kamukunji, Munyaka, Mosquito, Mjini and Kunda Kindu). Page 28 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814)  Proportion of SEC members that are female Page 29 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) D. Results Chain Activities Outputs Outcomes PDO Regularizing tenure in Local physical and land informal settlements use development plans, formal land cadaster and Increase in number of titles people living in improved living conditions Upgrading local infrastructure for New/rehabilitated local basic services infrastructure and services To improve access to basic services and tenure security Linking vulnerable of residents in participating populations to social Increase in number of urban informal settlements people living with enhanced and to strengthen safety nets tenure security institutional capacity for Increase in number of slum upgrading in Kenya people with access to Linking youth to safety nets income-generating opportunities Improved institutional capacity in slum upgrading TA/capacity building New/improved county to strengthen and national slum national and county upgrading strategies and slum upgrading institutions capacity E. Rationale for Bank Involvement and Role of Partners 67. The World Bank is uniquely placed to support Kenya’s efforts to mitigate the impacts of COVID-19 and other pandemics and to enhance access to basic services and tenure security in informal settlements in Kenya. First, it has developed considerable knowledge of what works in informal settlements and what does not through its support for KISIP1. Second, the World Bank has significant experience in supporting project implementing teams to identify opportunities for maximization of project benefits through robust stakeholder engagement processes, that have been known to prioritize community-led investments with outcomes such as increased protection and empowerment of women, at-risk youth and vulnerable populations. Third, the World Bank is assisting these same county governments with specific COVID-19 health response measures through the Transforming Health Systems (P152394) and COVID-19 Emergency Response Project(P173820), and with short term urban planning responses through the KUSP (P156777). Synergies between these separate programs at the county level and coordination with national government is supported by work with the Council of Governors under the KDSP (P149129) and the KADP (P150611). Fourth, the World Bank has global experience on crime and violence prevention through urban development projects. Fifth, the World Bank can bring major donors as co-financiers to the project. KISIP1 had the support of both the Swedish International Development Cooperation Agency (Sida) and the AFD. The World Bank held discussions with AFD and their interest in co-financing KISIP2 has been confirmed. Finally, the World Bank brings considerable resources to the effort, which when combined with those of other development partners, have the potential of making a big difference in improving the quality of lives of residents of informal settlements. Recognizing these strengths, the Government is improving informal settlements in Page 30 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Kenya with the support of the World Bank. F. Lessons Learned and Reflected in the Project Design 68. In the early years, KISIP1 had severe delays in implementation and disbursements which were identified in the Mid-Term Review (MTR). The MTR findings identified the challenges that led to the delays to include: (i) the time taken to build the implementation capacity of the PCT; (ii) the long lead time in infrastructure works due to prior processes such as conducting socio-economic surveys, and preparing settlement upgrading plans, feasibility studies and detailed designs; (iii) procurement delays arising from weak capacity in the implementing agency; and (iv) the 2013 elections and ministerial restructuring, and the introduction of devolution structures (counties) based on the 2010 Constitution. Under KISIP2, these risks are mitigated as (i) the KISIP1 PCT will continue implementation of KISIP2 ensuring sufficient implementation capacity from project effectiveness; (ii) a ready pipeline of investments has been prepared under KISIP1; (iii) capacity building activities will be conducted in the first year of implementation and throughout the project period which will focus on fiduciary capacity development, particularly at the county level; (iv) once effective, KISIP2 will develop workplans and disbursement projections that take into consideration any disruptions from the 2021 election period. Counties will benefit from capacity building under KISIP2 as well KUSP and KDSP. 69. Flexibility of planning standards is key. In many instances in KISIP1, the morphology of the informal settlements did not allow for plans to conform to planning standards without significant displacement. From this finding, flexible planning standards had to be adopted to minimize displacement and resettlement and to maintain the existing social fabric. This flexible planning has been called adoptive planning by the Government of Kenya and will be maintained in KISIP2. In addition, an indicator of county readiness for KISIP2 will be the willingness of a county to declare a settlement a Special Planning Area should flexible standards need to be applied. 70. An integrated approach to informal upgrading is fundamental . Under KISIP1, some activities were duplicated in components 2 and 3 for the different interventions and there was duplication of activities in the same settlement. Based on this lesson, the planning for tenure regularization and for infrastructure in KISIP2 will be collapsed into one integrated planning approach, aimed at saving both money and time and ensuring better coordination between the two interventions. The integrated approach in KISIP2 will also include activities to link vulnerable people (elderly, orphans, disabled, and others) of informal settlements to government programs aimed at reducing poverty and vulnerability, and to link at-risk youth to programs focused on building skills and creating opportunities for employment and self- employment. Finally, KISIP2 will include activities to reduce crime and violence. Thus, participating settlements will benefit from tenure regularization, investment in infrastructure and services, and activities to promote social development and reduce crime and violence. The lessons from Brazil’s Bahia Poor Urban Areas Integrated Development Project (P081436; 2005-2013) and the Recife Urban Upgrading Project (P049265; 2003-2011) indicate that informal upgrading is not only about the physical transformation of human settlements through infrastructure improvements; it is also about investment in social aspects of the community. 71. Financial sustainability and capacity matters for scaling-up slum-up grading . The KISIP intervention thus far represents only a small fraction of the total households in informal settlements in Kenya today. There are currently between 330–367 informal settlements in the 15 urban areas alone where KISIP1 worked and this number is growing steadily. Focus on financial capacity to continue upgrading is the main way to which governments (national and local) can continue upgrading as an everyday routine. The Harare Slum Upgrading Program pioneered the Harare Slum Upgrading Finance Facility co-financed by the City of Harare, slum dwellers, Government of Zimbabwe and a non- government organization. The finance facility is the main vehicle for scaling up slum upgrading city-wide after the Page 31 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) completion of a slum upgrading program. KISIP2 will document experiences of developing financing mechanisms at subnational level for consideration for counties developing the county slum upgrading and prevention strategies. 72. Post-project maintenance of infrastructure is vital and must be addressed prior to the intervention . Infrastructure upgraded requires O&M. Many upgrading projects however suffer from non-maintenance of infrastructure after the completion of the project. It is therefore essential to provide joint mechanisms between communities and government institutions for carrying out O&M functions. KISIP2 will prioritize setting county and community level structures responsible for O&M. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 73. The Project will be implemented through institutional arrangements at the national level and county level. The division of responsibilities between the national and county levels is laid out in the 2010 constitution which stipulates that the national and county governments should conduct their affairs in consultation and with coordination. It confers the higher authority to formulate national policies on the national government, while the implementation of the policy as well as of core urban planning and development functions are devolved to the sub-national level. The lead implementor for each activity is assigned according to the legal and policy framework of the country, beginning with the Constitutional mandates of county and national governments. Annex 1 provides a breakdown of the lead implementor by activity with the associated legal and policy underpinnings. Counties have specific mandates relevant to the Project’s objectives and activities, such as basic services delivery and planning. National-level roles and responsibilities 74. The State Department of Housing and Urban Development (SDHUD) will have the overall Project implementation responsibility. SDHUD has established the NPCT which is a continuation of the KISIP1 PCT and is composed of a Project Coordinator, a Financial Management Specialist, a Procurement Specialist, a M&E Specialist, technical specialists in planning, surveying, engineering, and community development, Communication Specialist, Social Safeguards Specialists, and Environmental Safeguards Specialists. 75. The NPCT will provide technical assistance to counties to perform in accordance with the World Bank policies and guidelines and will lead the coordination, capacity building and backstopping of the interventions. While planning and infrastructure provision are county functions, the consultancies for tenure regularization, preparation of detailed engineering designs and supervision of works will cut across multiple counties and therefore will be procured and coordinated by the NPCT and implemented jointly with the CPCTs. This approach will ensure efficiency gains and economies of scale in consultancies. Activities in components 2 and 3 will also be procured and coordinated by the NPCT and implemented jointly with counties. Implementation of Component 4 activities will be shared between NPCT and CPCT. The NPCT will consolidate the planning and budgeting of funds by counties and will trigger disbursement of funds to the eligible county governments once conditions have been met. Further, the NPCT will be responsible for compiling interim financial reports and quarterly progress reports, based on inputs from the counties. The NPCT will liaise closely with the Council of Governors (CoG) in order to ensure effective coordination and communications with county governments. The NPCT will also need to coordinate with Water Works Development Agencies and water utilities who play a role in implementation of water and sanitation subprojects. Page 32 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) County-level roles and responsibilities 76. Counties will sign a county participation agreement to participate in the Project. As part of the agreement, each participating county is required to establish a CPCT, reporting to the CEC in charge of urban. This team will comprise of a Coordinator, a Financial Management Specialist, a Procurement Specialist, a M&E Specialist, technical specialists in planning, surveying, engineering, and community development, Social Safeguards Specialists, and Environmental Safeguards Specialists. The team should consist of full-time focal persons from the relevant departments. Counties that have participated in KISIP1 also have county project coordinators, which are likely to form the core of strengthened teams for implementation of KISIP2. However, counties will also have substantially increased responsibilities under the proposed Project, and many are likely to need technical assistance and advise to perform in accordance with the World Bank policies and guidelines, which will be provided by NPCT. 77. The CPCT will be responsible for day-to-day coordination of the county-level project activities, working closely with relevant offices of the county to implement county-level activities supported by the Project. Infrastructure works will be procured and implemented by the CPCTs with technical assistance and quality assurance provided by the NPCT. The CPCT will implement the environmental and social safeguards instruments, and be responsible for monitoring, reporting and disseminating information about the Project (including contract awards, physical and financial progress of works contracts, and so on). The period between Board approval and project effectiveness will be used to start building the capacity of the counties in procurement, financial management (FM), Safeguards and induction into slum upgrading approaches and lessons learnt in KISIP1. The CPCT will coordinate regularly with the NPCT in project implementation. 78. A Project Steering Committee (PSC) will be established to provide overall strategic guidance and project supervision. As a dated covenant of the Project, the PSC will be established within 30 days after project effectiveness and will be chaired by the Principal Secretary (PS) of Housing and Urban Development, and it will comprise PS of the National Treasury and Chair of the Urban Committee in the Council of Governors. The Steering Committee will meet at least bi-annually and will be responsible for reviewing the workplans from the counties and reviewing whether settlements and counties have met the required criteria to become eligible for KISIP2 financing. The KISIP2 Project Coordinator will act as the Secretariat to the Steering Committee. B. Results Monitoring and Evaluation Arrangements 79. The M&E system will follow a results-based management approach to ensure accountability of the use of project funds, provide a means to analyze project implementation to ensure that it aligned with outcomes, and outline flow of data and information between governance levels (national and county). Many of the indicators have been selected because they proved both measurable and useful in monitoring progress under KISIP1. Additional indicators aimed at capturing the project’s focus in promoting gender equality, improving operations and maintenance, and ensuring that a grievance redress system is operating effectively have been added. 80. The M&E function of the NPCT will have the coordinating role in M&E of the Project and provide overall oversight as well as implementation support. The NPCT will include a dedicated national-level M&E specialist and each of the participating CPCT will include an M&E specialist who will be responsible for data collection and presentation to the NPCT, and for feeding into the M&E system at the Project level. Each county will prepare quarterly M&E reports and submit to the NPCT which in turn will include updates of national level activities and prepare a comprehensive M&E report. As in KISIP1, the NPCT will submit the quarterly reports to the World Bank within 45 days of the end of each fiscal year. M&E capacity building will be provided to strengthen capacity of both levels of government to carry out their M&E Page 33 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) responsibilities. C. Sustainability 81. Sustainability is a key consideration in the Project. A lesson from KISIP1 is that particular attention needs to be paid to post-project O&M of the infrastructure that has been constructed. Community-based initiatives on solid waste management will also be developed in the Project to reduce the dumping of waste into the drains, which has been observed under KISIP1. Institutional strengthening will emphasize the ability of counties to maintain the infrastructure, implement the local physical and land use development plans and identify financing mechanisms to maintain the slum upgrading process. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis 82. The economic analysis conducted as part of the project preparation process suggests that the proposed interventions under Component 1.2 are economically feasible. The net present value of the investment in urban roads and drainage systems (US$70.1 million) is estimated at US$158.7 million and the internal rate of return is estimated at 44 percent. The net present value of the investment in water and sanitation services (US$9.9 million) this intervention was estimated at US$11.2 million and the internal rate of return was estimated at 21 percent. The net present value of the investment in floodlights (US$5.4 million) was estimated at US$40.8 million and the internal rate of return is estimated at 56 percent. 83. The sensitivity analysis performed indicates that the economic rate of return for interventions under Sub- component 1.2 remain significant even when considering potential downside adjustments to the assumptions made as presented in Table 3.1. Table 1: Sensitivity Analysis Roads and Drainage WASH Flood lights NPV (US$) IRR NPV (US$) IRR NPV (US$) IRR Costs increase by 10 percent 152.9 41.4% 10.1 18.7% 40.2 53.0% Benefits reduce by 10 percent 137.0 41.2% 9.0 18.4% 36.1 52.6% Benefits lag by 2 years 97.0 30.1% 6.2 13.3% 29.9 36.4% Source: World Bank staff estimates 84. The interventions identified under the Project bear positive externalities on the overall population through numerous direct and indirect benefits being engendered. The direct benefits of this Project include the value of reduced road accidents, value of time saved commuting, value related to the promotion of economic growth in the region through enhanced trade, increased efficiency, and higher productivity, value of time saved accessing water supply, value of human lives saved and value of improved to ability to conduct business over longer working hours. The indirect benefits of this Project are improved health outcomes across all segments of the population and, most notably, among youth, female and elderly population, providing more affordable access to potable water and sanitation services. See Annex 3 for Page 34 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) complete analysis. B. Fiduciary (i) Financial Management 85. The SDHUD is assessed as having adequate FM capacity. However, the overall project fiduciary capacity is assessed as inadequate on account of material weaknesses in devolved PFM arrangements, which have material fiduciary weaknesses. The SDHUD will also be implementing a new high-risk activity under Labor Intensive Community Works (LICW) for which adequate capacity is yet to be developed. 86. Overall Project Fiduciary Responsibility: The overall fiduciary responsibility for the projects including for contracts and other activities implemented by counties is vested in the SDHUD. The SDHUD will be responsible for preparing and submitting applications to the World Bank for withdrawal of funds, preparing and submitting consolidated quarterly interim unaudited financial reports (IFR) and consolidated annual audited project financial statements and following up and addressing audit and accountability issues 87. Devolved Activities under Sub-component 1.2: Integrated Settlements Upgrading . This component will not be able to leverage on the strong FM capacity developed under KISIP1 whereby such activities were implemented by the SDHUD. The FM capacity for such activities at county level are at development stage. Existing World Bank financed projects under devolved sector have been experiencing disbursement and accountability challenges through the Public Financial Management (PFM) country systems36 which include: delays in budget allocation and/or insufficient budget allocation; lack of matching of budget activities to cash flow requirements; lack of in-country flexibility to grant in-year authority-to-spend under Division of Revenue Act (DORA) and County Allocation of Revenue Act (CARA); disbursement delays relating to opening of Special Purpose Accounts (SPAs) and flow of funds from therein; accountability challenges including risk of diversion of project funds at CRF level; weak internal audit control environment; inadequate scope of Office of the Auditor General (OAG) external audit and annual audit report qualifications; financial reporting gaps including late submission of interim financial reports and incomplete/inaccurate/unreliable financial reports; and governance and anti-corruption (GAC) risks including suspected fraud and corruption issues. The above challenges have been identified in the KUSP, which is a devolved project under SDHUD. The National Treasury, line ministries and county governments have been putting measures to address the challenges in the funds flow arrangements. These include tracking of transfers to SPAs, continuous training of county executive committee members in charge of finances at county levels as well as issuing guidelines on accountability. 88. Strengthening of County FM Capacity: In order to manage the above risks and minimize their adverse effects on overall project fiduciary controls, the following arrangements will be put into place by SDHUD for each participating county: 1. Project funds will be used to provide technical assistance (TA) in the form of Independent Fiduciary Agency (IFA) who will provide support throughout project implementation in the following areas: continuous assessment of the accounting and internal control environment at county level for early identification and reporting of fiduciary risks for prompt remedial action; monitoring of county fiduciary performance and 36Based on the PFM Act (2012), intergovernmental fiscal funds from national to county governments are first appropriated using the Division of Revenue Act (DORA) and County Allocation of Revenue Act (CARA), then funds are transferred to county-specific County Revenue Funds (CRFs). Page 35 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) reporting on any cases of noncompliance with recommendations of actions to be taken; providing technical assistance and capacity building training to counties; and providing support in the strengthening of the county internal audit function. The IFA will provide regular support in following up and resolving challenges related to budget and work planning, disbursement, accounting, internal control, financial reporting and audit issues. The IFA will be hired on the basis of Terms of Reference (TOR) cleared by the World Bank. 2. Setting up and operationalizing of project-specific Single Fiduciary Management Unit (SFMU) (as part of county readiness criteria) within the relevant county treasury, supervised by senior county treasury official at the level of chief accountant, to be responsible for project fiduciary activities in support of the CPCT. The operationalization of the SFMU will include deployment or designation of key fiduciary staff thereto including project accountant, finance/budget officer, internal auditor and procurement officer on the basis of TOR and resume cleared by the World Bank. For counties with staffing limitations, project funds may be used to pay the SFMU staff on request by government and by prior issuance of letter of no-objection from the Bank for a limited period until county governments are able to assign county treasury staff to the unit. 3. Basket funding arrangement under CARA. For budget purposes, allocation of funds to be done on basket funding approach without rigid prior allocation of specific annual sums to any one county. This will ensure flexibility in disbursement of funds to individual counties on the basis of approved work-plan and procurement plan, and with consideration of the rate of absorption and accountability by each county for previous advances. It will also ensure that disbursement of funds to those counties that have fully complied with World Bank fiduciary requirements is not hindered by the need to disburse to any noncompliant county. This will ensure flexibility for the funds in the Designated Account (DA) relating to counties only to those counties that are fully compliant with World Bank fiduciary requirements. 89. The hiring of an IFA on the basis of TOR approved by the World Bank and the setting up and operationalization of the SFMU in participating counties as part of County Readiness Criteria in a manner acceptable to the World Bank are conditions precedent to disbursement of funds under Sub-component 1.2. 90. Use of Direct Payment and Special Commitment Disbursement Method: In order to manage the disbursement and accountability risk for large contracts, there will be needed to apply efficiencies and flexibilities that are provided under the World Bank Disbursement Guidelines and are applicable for all World Bank-financed projects. In this regard, for contracts of US$0.3 million (KES300 million equivalent) and above, SDHUD may consider the use of direct payment method of disbursement. This will reduce delays in payment of large contracts and minimize county-level cash-handling risks through the CRF. The threshold for direct payment has been put initially at US$200,000 equivalent and may be reviewed as necessary. For contracts that require importation of goods and where a special commitment, via for instance letter of credit (LC) is required, SDHUD may also use the Special Commitment method. In addition, all consultancy contracts will be procured by SDHUD and those that meet the direct payment threshold may be settled via the direct payment disbursement method. The SDHUD will therefore ensure to provide sufficient budget under the A-in-A budget classification to cover direct payment.37 91. Identified Risks of Component 2: These will be implemented and paid for by the SDHUD. LICW arrangements tend to have high fiduciary and Governance and Corruption (GAC) risks as well as the risk of political and elite capture. The World Bank has had past experience with this type of operation under the Kenya Youth Empowerment Project (KYEP/ Kazi 37The A-in-A is the budget classification in Kenya for funds that are not managed on-budget through the government exchequer such as direct payment to vendors. Page 36 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) kwa vijana; P111546) and the LICW component proved to be difficult to implement due to operational and fiduciary challenges including cases of suspected fraud and corruption with respect to recruitment of beneficiaries and payments. The component was terminated prematurely, and the credit cancelled. The GoK has built on the lessons learnt under the KYEP in the design and implementation of this component by preparing a LICW manual and making provisions for an IFA which increase key fiduciary checks that were missing in KYEP. These measures support stringent procedures and controls over identification and selection of beneficiaries, quantification of the work to be done and the payment procedures. 92. LICW operations tend to have operational and fiduciary risks at all levels including identification, targeting and selection of beneficiaries, selection, quantification and costing of the work to be done, verification and certification of work done and matching this to payment to the right beneficiaries of the right amounts at the right time, the payment method to be adopted (cash payment not recommended due to the risk) etc. Furthermore, some of the work-for-pay activities tend to be transient in nature and therefore impossible to verify at the time of payment or reimbursement by the World Bank (e.g. cleaning of streets, slashing grass, fumigation etc.). Hence SDHUD needs to put in place a robust and reliable system to provide evidence to the Bank of implementation of the due diligence and compliance thereto. 93. The SDHUD will develop and implement LICW Eligibility Criteria Guidelines Manual, which will define the operational and fiduciary mechanisms for these activities. The development and implementation of the Eligibility Criteria Guidelines Manual in form and content satisfactory to the World Bank is a condition precedent to disbursement for LICW activities (Category 4 in the Financing Agreement). The Manual will be prior reviewed and approved by the World Bank before it becomes effective. The Manual should be cleared by the National Treasury and approved in writing by the Principal Secretary (SDHUD). The Manual will form the basis of confirmation eligibility of activities before any payment in Category 4 can be made out of IDA funds. This includes reimbursement to be made under retroactive financing. These Guidelines will also form the basis for the FM review and audit of these activities for confirmation of accountability and eligibility. Any payments made which are not compliant with the provisions of the Manual or the Financial Covenants shall be deemed to be ineligible. The Guidelines should include the following at a minimum: 1. Criteria for identification and quantification of the work to be done, where, by whom and timelines and proper baseline; 2. Parameters for quantification and costing of clearly defined outputs/deliverables per activity; 3. Criteria for identification, targeting and selection of beneficiaries/youths and method of maintenance of beneficiary details and payment for future audit; 4. Procedures for independent verification, certification and recording of work done and linkage of the work done to the actual beneficiaries that did the work. This can be done by one of CSO’s hired under the project or by the IFA as per the capacity requirements; 5. Complaints handling and public reporting mechanism as well as other social accountability structures; 6. Payment procedures and controls for prompt payment to the right beneficiaries and to provide evidence that the funds being used for intended purposes in an efficient and effective manner; 7. Procedures for monitoring, evaluation and supervision of the work done before payment is made to provide effective feedback system of dealing with any weakness as they arise. 94. Retroactive Financing: Retroactive financing may be provided up to an aggregate amount not to exceed EURO 26,960,000 and for eligible expenditures incurred on or after January 1, 2020 until the Signature Date (provided that this period does not exceed 12 months) subject to these expenditures not have been paid out of AFD or other donor funds or funds from another World Bank financed project (and otherwise don’t constitute double-dipping), and that the activity and payment comply with the World Bank FM and procurement rules. The payments should be compliant with the Project Financing Agreement and have been made in accordance with the POM and Eligibility Criteria Manual (LICW activities) Page 37 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) approved by the World Bank and that the activities financed by retroactive financing are related to the development objectives and included in the Project description. 95. Identified Risks of Sub-component 1.1, and components 3 and 4: These activities will be managed by the SDHUD. The major risks are budget and funds flow-related challenges including insufficient budget allocation due to budget ceiling constraints, delays in accessing IFMIS in the first and fourth quarters, delays in moving funds from the DA to the project account (PA). Other risks include internal control risks relating to soft expenditures such as staff allowances and operating costs, procurement risks related to consultancies and contract management issues. 96. Mitigation Measures: There will be need for the NPCT to work closely with the Chief Finance Officer (CFO), Principal Accounts Controller (PAC) and the head of internal audit unit of the Ministry of Transport, Infrastructure, Housing and Urban Development (MTIHUD) in preparation of the annual work plan and budget and in the disbursement and accountability of funds. The NPCT is also in the process of developing an FM procedures manual which will provide a fiduciary framework for the project activities at national and county level as part of the POM . The SDHUD will provide regular capacity building training for the finance and accounting staff in MTIHUD that support project activities using project funds. Disbursement and Audit 97. The Project will adopt the Statement of Expenditure (SOE) method of disbursement with documentation of expenditures done on monthly basis. The project will open 3 segregated DA’s: DA-A for NPCT activities (sub-components 1.1, 1.2 (i), components 3 and 4); DA-B for devolved county activities under component 1.2 and DA-C for LICW activities under Component 2. In line with World Bank rules, the World Bank may withhold replenishment to any DA in the event of material fiduciary lapses in the accounting of funds under the relevant DA, until the accountability issue is resolved. The NPCT and the participating counties will receive initial advance based on six months projection. The replenishment of funds to the NPCT or any of the participating county will be done on the basis of rate of spending, projected spending to next six months on rolling basis and accountability of the previous advances. No disbursement shall be made to the NPCT or any of the participating counties where there are outstanding accountability and/or audit issues including unreliable or late IFR’s, ineligible expenditures or noncompliance with project fiduciary requirements, until the relevant anomaly is addressed to the satisfaction of the World Bank. The NPCT will also be required to prepare and submit to the World Bank consolidated quarterly IFRs (within 45 days after the end of each quarter). In order to facilitate this process, the participating counties will be required to prepare and submit to the NPCT, within 30 days after the end of each calendar quarter, IFRs in the prescribe format. The IFR will be accompanied by SOE for the quarter, copies of the SPA accounts bank statements and any other information that the NPCT and the World Bank may deem necessary. The NPCT will also prepare annual project-specific audited financial statements and management letter (six months after the end of the year). The annual audit will be conducted by the OAG on the basis of audit TOR’s cleared by the World Bank and the scope of audit will cover all project activities at national and county level including any donor and government counterpart funds provided to co-finance the project activities. Details of disbursement and audit procedures including the formats and audit TOR will be included as part of the FM procedures manual. 98. The MTIHUD’s internal audit unit working with the county internal audit function will be required to conduct and submit to the World Bank annual risk-based fiduciary review report covering project transactions at national and county level for the period January to December. The internal audit report incorporating management comments and a time-bound action plan will be submitted to the World Bank not later than April 30 of every year. The incremental costs of the audit will be paid out of project funds on the basis of work-plan prior reviewed and approved by the World Bank. Page 38 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Project funds may also be used to hire additional project internal auditors to ensure adequate capacity for the audit of the project. 99. FM Condition: The submission to the World Bank of annual risk-based fiduciary review report by April 30 of every year, conducted by the MTIHUD and county internal auditors on the basis of audit TOR approved by the World Bank, with the scope and methodology acceptable to the World Bank will be a dated covenant. 100. The conclusion of the assessment is that the Financial Management arrangements have an initial overall FM risk rating of High and residual rating of Substantial after putting in place the mitigation measures, which satisfies the World Bank’s minimum requirements under the World Bank Directive Investment Project Financing, and is therefore adequate to provide, with reasonable assurance, accurate and timely information on the status of the Project required as by the World Bank. (ii) Procurement 101. The Project will be implemented following the World Bank’s Procurement Regulations for Investment Project Financing (IPF) Borrowers dated July 2016 and revised in November 2017 and August 2018 . The project will also be subject to the World Bank’s Anti-Corruption Guidelines, dated July 1, 2016. 102. Project Procurement Strategy for Development. The Project Procurement Strategy for Development (PPSD) was prepared to formulate the best procuring approach/solution that will also form the basis for the preparation of the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. As a strategy to ensure efficiency gains in bulk procurement of consultancies across counties, the NPCT will procure and implement activities under Sub-component 1.1 of the Project with strong involvement of the counties. For Sub-component 1.2 activities, participating counties will procure and implement works while national will procure the consultancies for detailed designs and supervision. Components 3 and 4 will have some procurement undertaken at both county and national level. 103. The Systematic Tracking of Exchanges in Procurement (STEP). The Project will use STEP in the implementation of the Project. This is a planning and tracking system, which would provide data on procurement activities, establish benchmarks, monitor delays and measure procurement performance. 104. Procurement Profile. The envisaged procurement activities are not complex; however, a high number of small- value activities at decentralized level can pose a challenge due to capacity constraints and the need for close project supervision, monitoring and hands-on support. The procurement profile is mainly construction of roads, drains, water supply and sanitation interventions, and supply and installation of high mast lamps in the identified informal settlements. Also, the project requires consultancies for preparation of the integrated settlement report/plan and for supervision. The project requires additional consultancies based on the specific requirements in each intervention. 105. Labor-intensive public works. The project will also support the use of labor-intensive approaches in undertaking of infrastructure investments and related emergency maintenance and/or improvements of the environment and living conditions in the informal settlements with the aim of providing short-term employment to skilled and unskilled workers from informal settlements. The workers will be selected based on criteria specified in the POM. Procurement of materials, tools, and personal protective equipment that may be necessary for the implementation of such activities will be procured using simplified administrative procedures acceptable to the Bank. Where equipment for the works are Page 39 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) provided by the implementing entities, the project will only finance limited running costs only, such as fuel, oils, lubricants, and attendants’ allowances but excluding spare parts. 106. Project related Procurement Risks. As the informal settlements are spread across all 47 counties, project’s supervision by both the project functionaries and Bank’s team may pose a challenge to access and ensure effective supervision in all counties. Challenging counties will be identified upfront, categorized and appropriate procurement approaches will be developed and tailored to suit those considered sensitive. 107. Procurement risk assessment. A World Bank procurement assessment of the national project implementing agency was conducted in September 2019. At the national level, the project will be carried by the NPCT housed at the SDHUD, which is a continuation of the KISIP1 implementation team. The NPCT is fully staffed and comprises of a Project Coordinator, a Financial Management Specialist, a Procurement Specialist, a M&E Specialist, technical specialists in planning, community development and infrastructure, Communication Specialist, Social Safeguards Specialists, and Environmental Safeguards Specialists. The staff have the requisite qualifications and experience in the implementation of Bank financed operations including the use of STEP. However, further training and capacity building on the Bank Regulations for IPF Borrowers will be necessary to update the NPTC on the new features and flexibilities of the Regulations that would be useful in the design and implementation of the project. 108. Procurement capacity assessment of the SDHUD considered the severe delays experienced in the early stages of implementation of the project, and the subsequent challenges of prolonged implementation of works and infrastructure consultancy related contracts, most of them experiencing large costs and time overruns. The assessment revealed that the delays were as a result of weak coordination of the initial project implementation and planning, inadequate works’ designs and weak contract management function, and poor monitoring and supervision of consultants. For effective implementation of works contracts where consultants are employed, it is the responsibility of the Client to monitor the progress of work and the timely completion of deliverables, the staff-months and money expended on time-based assignments, and further assess any proposed changes to the contract scope if deemed necessary. It is also desirable that a Project Manager with adequate technical qualifications, managerial experience and power of authority is designated especially in situations involving large and complex assignments, or where many contracts that are spread geographically and implemented at the same time require close supervision, monitoring and reporting. The assessment further revealed systemic and institutional constraints brought about by inadequate procurement capacity within the NPCT and its interface with the SDHUD procurement function. There is therefore the need to strengthen the procurement function at the NPTC and its interface with the SDHUD procurement function for a seamless and efficient processing of procurement activities and subsequent superintendence of contracts. 109. The Procurement Regulations for IPF Borrowers provides that when approaching the national market, the country’s own procurement procedures may be used if deemed acceptable to the World Bank. Considering the applicable method thresholds for Bank financed operations for the country, it follows that considerable number of procurement activities especially those to be carried out at the county level will follow national procurement procedures with limited Bank procurement oversight. It is therefore imperative that appropriate systems, processes, oversight and complaints handling mechanisms, and staff capacity are put in place for enhanced procurement performance. That said however, the delay in the issuance of attendant Regulations to guide the implementation of the PPAD Act 2015 (still awaiting Parliamentary approval), lack of updated national standard bidding documents, and the lack of adequate procurement oversight by the Regulatory Authority may affect the pace and quality of implementation of the Project . 110. Whereas consultant services selection for the design and supervision of works contracts will be undertaken at the Page 40 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) national level, the implementation of the respective work’s contracts will take place at the county level. This may however pose a challenge in that the contractual responsibilities are shared between the national and county government and as such, the need to clearly define the rights and obligations of both parties in the implementation and completion of works contracts. 111. Procurement capacity assessment for the participating counties will be undertaken when the counties are identified and appropriate mitigation measures commensurate with the level of risks identified will be put in place. However, for purposes of procurement planning, the counties will be required to submit their initial procurement plans to the Bank through the NPCT and once approved in principle, upload the activities into STEP for World Bank’s review, no objection and disclosure. 112. Based on the above findings, and the drawing from lessons learnt in the implementation of KISIP1, the procurement risk rating is assessed as Substantial. The proposed risks mitigation measures include the following: a. Operating costs budget is to be financed through government counterpart funds; b. Variations for Works and consultant services contracts exceeding 15 percent of the contract value and arising from design deficiencies are to be financed from government counterpart funds; c. Contract Management Plans (CMP) are to be developed for all relatively high value contracts with Key Performance Indictors (KPI) identified and appropriate technical and financial resources deployed. Contracts requiring CMP will be stipulated in the Procurement Plan; d. A Project Manager with adequate technical qualifications, managerial experience and delegated authority is to be hired by project effectiveness with the overall project contract management responsibility; e. An additional procurement officer with the requisite qualifications and experience in the national and World Bank procurement procedures is to be deployed and/or engagement to strengthen the interface between the NPCT and the SDHUD procurement function for the seamless and efficient processing of procurement decisions, and the tracking and monitoring of contracts implementation. f. For works contracts, the use of Bidding Documents with the requisite provisions for mitigating risks associated with ESHS including Gender-Based Violence (GBV) and Sexual Exploitation and Abuse (SEA) for contracts following national procurement procedures; g. Following the Executive Order No.2 of June 2018, all procurement entities are required to use the IFMIS based e-procurement platform for procurement processing. Whereas use of electronic procurement through the IFMIS platform will increase transparency and accountability and further enhance efficiency, procurement under the Project will continue to be carried out under paper-based system and the tracked and monitored through STEP. Once the e-procurement function is fully operational and tested, the government may request the World Bank to conduct an assessment for use in World Bank financed operations. h. Training and capacity building on the World Bank’s Procurement Regulations will be conducted before contract effectiveness; i. In the absence of updated national Standard Procurement Documents (SPDs), the World Bank’s SPDs and Request for Proposal (RFP) documents will be used for contract following national market approach; and j. The POM is to clearly stipulate the rights and obligations of the national and county governments in the implementation and completion of works contracts where contractual obligations are shared. 113. Further, and as a result of fiduciary issues observed in a past project related to this operation, the following additional mitigation measures will also be undertaken during project implementation; (a) enhanced due diligence on Page 41 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) bidders to ensure that they meet the qualification requirements set out in the bidding documents and that they have the requisite capacity to undertake the works if awarded the contract; (b) use of independent Fiduciary Agency hired under the project to carry out annual risk-based procurement processing and performance review and advice on potential risks and appropriate mitigation measures; (c) continue providing training and capacity building and related implementation support on integrity related risks so as to strengthen institutional arrangements and minimize risks associated with fraud and corruption; and (d) reaching out for advisory support to governance specialists as and when needed. 114. Retroactive financing. This will be permitted for eligible expenditures incurred under the Project and obtained using procurement procedures that are consistent with Sections I, II and III of the World Bank’s Procurement Regulations and the Financing Agreement and are only permitted if within the limitations specified in the Loan Agreement. All such contracts and/or expenditures shall be subject to the Association’s review . 115. Fiduciary oversight by the World Bank: The World Bank shall prior review contracts as per prior review thresholds set in the PPSD/PP. All contracts not covered under prior review by the World Bank shall be subject to post review during implementation support missions and/or special post review missions, including missions by consultants or third-party institutions hired or appointed by the World Bank. However, the World Bank may conduct at any time, Independent Procurement Reviews of all the contracts financed under the credit and/or grant if it determines the need for such a review based on the assessment of risk. 116. Contract management. High risk and high value procurements will be identified for increased contract management support and indicated in the procurement plan. The ministry will develop KPI for such identified contracts and the KPIs would be monitored during actual execution of contracts. World Bank will provide additional due diligence and independent review of the contract performance of such identified procurements. A fully staffed NPCT of the ministry will be responsible for overall project/contract management. 117. Frequency of procurement supervision: Two half-yearly missions are envisaged for procurement support and supervision of the proposed Project. C. Safeguards 118. KISIP2 will support investments in infrastructure and services in urban informal settlements . Proposed Project activities are consistent with activities implemented under KISIP1, comprising of subprojects that have potentially moderate environmental and social risks. Potential impacts are expected to be site-specific, largely reversible, and readily addressed through mitigation measures. Overall, the project will continue the framework approach to safeguards instruments since the exact locations and site-specific details of activities and scope of works will not be identified at the time of appraisal. Investments will be mainly neighborhood-level, and either new construction and/or rehabilitation 38. Investments will be bound by each settlement footprint and settlements not conforming to adoptive planning to minimize displacement will not be selected. 119. Borrower safeguards capacity. The last three Implementation Status Reports (ISRs) prior to the final ISR for KISIP1 had safeguards rated as Moderately Unsatisfactory due to: a) the incomplete setting up of grievance redress committees and grievance redress system in some settlements under the planning component; b) substantial delays in RAP preparation and submission for the sub-projects due to insufficient capacity at the PCT; and c) deficiencies in 38In KISIP1, the average length of roads/drainages done in a settlement was 9km, average length of water pipes in a settlement was 6km; and average length of sewer pipes settlement was 6km. Page 42 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) implementation of settlement-level Environmental and Social Management Plans (ESMPs), including Occupational Health and Safety (OHS) issues. These issues have since improved and the rating was upgraded in the final ISR. In KISIP2, attention will continue to be paid to the capacity needs of the borrower to manage E&S risks and impacts. The project will be implemented by the KISIP1 Project Coordination Team (NPCT) that has over the years developed a good level of awareness and improved capacity to address Environmental and Social (E&S) risks. In addition, task mapping and capacity assessment of those responsible for implementation of safeguards in both the NPCT and the participating Counties will be conducted. The findings will inform measures to strengthen staffing and safeguards capacity. Specific implementation modalities and institutional arrangements for KISIP2 have been agreed and detailed in the POM. (i) Environmental Safeguards 120. The World Bank environmental and social due diligence confirmed the project classification as environmental Category B. The Bank’s environmental safeguard policies triggered by the project include Environmental Assessment (Operational Policy 4.01; OP 4.01) and Physical Cultural Resources (OP 4.11). An Environmental and Social Management Framework (ESMF) was prepared and publicly disclosed in-country and on the World Bank’s website on November 28, 2019. The ESMF incorporates not only requirements for KISIP2 activities (screening, Environmental and Social Impact Assessment (ESIA)/ESMP TORs, capacity building, etc.), but also lessons learned from KISIP1 safeguards implementation, including (a) presentation of specific responsibilities of the contractors, resident engineers; (b) reporting tools for incidents and accidents; (c) environment, health and safety checklists; (d) robust three-tiered grievance redress mechanism structures; (e) screening for environmentally fragile areas; (f) gender-based violence prevention provisions among others; (g) while maintaining the quality and meeting project objectives, adjusting the standards in engineering and planning to minimize displacement; (h) focusing on NPCT and county teams capacity to manage environmental and social requirements. The ESMF also provides guidelines for the development of site-specific ESIAs and ESMPs that will include mitigation measures to address the potential environmental and social impacts of sub-projects, once the activities, location and scope are identified. 121. Project investments shall be designed to avoid locations which are prone to natural disasters or cause adverse impact on natural environment and human health; and to incorporate such vulnerabilities into the design. Design solutions (with corresponding budget provisions) include (a) set up and management of riparian zones, where applicable; (b) establishment of waste management arrangements to support sustainability of project infrastructure; and (c) provisions for safety of the project activities during construction and operation. Following disclosure of the ESMF prior to project appraisal, the NPCT will develop an ESIA, ESMP and RAP for each of the investments once the designs are prepared, based on the investment safeguards screening. The counties will implement these Safeguard instruments. Developing ESIAs, ESMPs and RAPs will be based on the readiness of the designs for each investment and the capacity to manage programmatic ESIAs at County level considered in conjunction with capacity to monitor contractors’ ownership of the site-specific ESMPs. (ii) Social Safeguards 122. The World Bank’s social safeguards policies triggered by the project include: Indigenous Peoples (OP 4.10) and Involuntary Resettlement (OP 4.12). Since the exact location of most works are not identified at this stage, social safeguards instruments under preparation to meet the requirements of the triggered policies include Vulnerable and Marginalized Group Framework (VMGF) which was disclosed on November 21, 2019 and the Resettlement Policy Framework (RPF) disclosed November 28, 2019. A Stakeholders Engagement Framework was prepared and was disclosed on November 16, 2019 (in-country) and November 27, 2019 (World Bank’s website). Following disclosure of the RPF Page 43 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) and VMGF prior to project appraisal, the NPCT will develop the safeguard instruments for each of the investments once the designs or plans are prepared, based on the safeguards screening. Counties will implement these instruments. 123. As a valuable lesson from KISIP1, only projects with minimal displacements through adoptive planning will be undertaken. Although the investments that will be funded by KISIP2 are unlikely to have adverse environmental impacts, the risks of displacement in densely populated informal settlements are high and will be closely monitored to ensure all project induced negative impacts are avoided, mitigated and offset. (iii) Other Safeguards 124. The impact of labor influx and increasing risks of GBV including sexual exploitation and abuse (SEA) is assessed as low to medium, based on the predominantly urban sites, proposed scope of works, and relatively high absorption capacity. Whereas the GBV Guidance Note risk rating tool identified the risk of SEA for the project as ‘low risk’, the risk of SEA being aggravated by higher expandable incomes in informal settlements cannot be ignored. Activities to mitigate these risks include (a) contractor’s contractual obligations to prepare and enforce code of conduct for workers addressing their conduct in the workplace and vis-a-vis the community; (b) strengthening two separate Grievance Redress Mechanisms to effectively handle SEA and SH complaints respectively, (c) capacity building of KISIP NPCT on SEA; and (d) an enhanced monitoring mechanism. 125. Risk of economic displacement of waste pickers is low as care will be taken to retain them in the proposed in- site small scale solid waste management interventions . Economic displacement of waste pickers is therefore unanticipated although the project will enlist the help of an expert on waste pickers to ensure that this does not happen. (iv) Grievance Redress Mechanisms 126. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or to escalate the issue to the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non- compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. V. KEY RISKS 127. The overall risk rating for the Project is substantial. a. Political and governance risks are substantial. The country’s political environment has stabilized following a prolonged election period and heightened political tensions. However, challenges associated with ongoing devolution process and tension between national and county governments relating to devolved sectors (including fisheries) have a substantial probability of adversely affecting the Project’s Project Development Objective (PDO). Challenges associated with the transfer of responsibility, decision-making, resources and Page 44 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) revenue generation from the national to the local level of public authority that is autonomous and independent, has affected efficient and effective service delivery at the local level. To mitigate this potential risk, the Project design ensures that county government representation is included at national-level decision- making, and in the project implementation. County governors and assembly members will also need time to familiarize themselves with county systems and the project. The Project will provide the fora for this learning to take place. b. Macroeconomic risk is rated high. While Kenya’s macroeconomic outlook remains resilient, fiscal risks pose concerns. Further, the COVID-19 pandemic is expected to have adverse impacts on Kenya’s growth and exert fiscal pressures, as Kenya ramps up healthcare and other expenditures to mitigate the spread of the virus. This shock occurs at a time of limited fiscal space for additional discretionary expenditures. Official data show that the fiscal deficit expanded to 8.3 percent of GDP in FY2019/20 (up from 7.7 percent in FY2018/19), and nominal public debt increased to 62.4 percent in December 2019. The latest World Bank-International Monetary Fund Debt Sustainability Analysis (2020) has raised the risk of external debt distress from moderate to high on account of rising debt service obligations. Although the Government remains focused on maintaining fiscal sustainability and reducing debt-to -GDP to about 50 percent over the medium term, the COVID-19 shock makes these targets substantially challenging to achieve. Mitigation measures includes improved World Bank-portfolio wide planning for counterpart funds. c. Fiduciary risk is rated as high due to the inexperience of county administrations with implementation of World Bank-supported projects, disbursement and accountability challenges when using country systems for Public Finance Management and the inclusion of LICW activities. Experience demonstrates that many counties will initially need technical assistance to implement projects efficiently and in compliance with World Bank policies. LICW arrangements tend to have high fiduciary and Governance and Corruption (GAC) risks as well as the risk of political and elite capture. To mitigate these risks, the Project will provide capacity building, particularly at the beginning of the Project. Project funds will be used to hire an Independent Fiduciary Agency (IFA) which will provide the TA and monitor fiduciary aspects at the county level. The counties will set up and operationalize project-specific Single Fiduciary Management Unit (SFMU) as part of county readiness criteria. The Project has also developed and will implement LICW Eligibility Criteria Guidelines Manual to guide identification, targeting and selection of beneficiaries, selection, quantification and costing of the work to be done, verification and certification of work done and matching this to payment to the right beneficiaries of the right amounts at the right time, the payment method to be adopted (cash payment not recommended due to the risk), etc. d. Environmental and social risks are assessed as substantial. The initial safeguards capacity of the KISIP1 project team led to delays in Project implementation, the incomplete setting up of grievance redress committees and grievance redress system in some settlements under the planning component; substantial delays in RAP preparation and submission for the sub-projects due to insufficient capacity at the PCT; and deficiencies in implementation of settlement-level Environmental and Social Management Plans (ESMPs), including Occupational Health and Safety (OHS) issues. These capacity deficits in safeguards were largely addressed in KISIP1 through increased Borrower capacity and will be further avoided by a task mapping and capacity assessment of those responsible for implementation of different safeguards tasks including community engagements. The KISIP1 Safeguards capacity will be maintained into KISIP2. Page 45 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) . Page 46 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) VI. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Kenya Second Kenya Informal Settlements Improvement Project Project Development Objectives(s) To improve access to basic services and tenure security of residents in participating urban informal settlements and strengthen institutional capacity for slum upgrading in Kenya. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name PBC Baseline Intermediate Targets End Target 1 To improve access to basic services and tenure security of residents People benefitting from enhanced security of 0.00 200,000.00 500,000.00 tenure under the project, by gender (Number) People provided with improved urban living 0.00 500,000.00 1,200,000.00 conditions under the project, by gender (Number) To strengthen institutional capacity for slum upgrading in Kenya Number of counties where next generation of County Integrated Development Plans (CIDPs) 0.00 10.00 20.00 include slum upgrading strategies developed under the project (Number) PDO Table SPACE Page 47 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Integrated settlement upgrading Survey plans completed and approved under the 0.00 40.00 100.00 project (Number) Proportion of titles granted under the project with women recognized as an owner or co-owner 0.00 30.00 40.00 (Percentage) New street/security lights constructed under the 0.00 90.00 200.00 project (Number) Roads improved under the project (Kilometers) 0.00 50.00 100.00 Stormwater drains constructed under the project 0.00 50.00 100.00 (Kilometers) New sewerage connections resulting from the 0.00 2,200.00 6,000.00 project (Number) New household water connections resulting from the project (Number) 0.00 2,500.00 6,000.00 Footpaths constructed under the project 0.00 20.00 50.00 (Kilometers) Socio-economic inclusion planning Number of vulnerable people linked to social 0.00 3,000.00 10,000.00 safety net programs (Number) Number of socio-economic inclusion plans 0.00 10.00 20.00 prepared (Number) Number of women linked to social safety net 0.00 2,500.00 6,500.00 programs through the project (Number) Institutional capacity development for slum upgrading Percentage of registered grievances resolved with 0.00 90.00 90.00 three months of registration (Percentage) Page 48 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Number of counties where 4% or more of O&M annual budget is utilized on informal settlements 0.00 7.00 20.00 (Number) Proportion of SEC members that are female (Percentage) 0.00 30.00 50.00 Number of county strategies prepared (Number) 0.00 9.00 20.00 Updating and adoption of the national slum No Yes Yes upgrading strategy (Yes/No) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Number of direct and indirect beneficiaries from completion of the planning Review of quarterly and surveying process. Quarterly progress reports and People benefitting from enhanced Bi-annual progress verification during NPCT, CPCT security of tenure under the project, by The proportion of reports implementation gender beneficiaries that are female support missions will be calculated as a percentage. People provided with improved urban Number of direct Quarterly Review of quarterly Bi-annual NPCT, CPCT living conditions under the project, by beneficiaries from improved progress progress reports and gender infrastructure financed reports verification during Page 49 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) under the Project implementation support missions The proportion of beneficiaries that are female will be calculated as a percentage. Review of quarterly Number of counties where next Measures whether counties Quarterly progress reports and generation of County Integrated have mainstreamed slum Bi-annual Progress verification during NPCT, CPCT Development Plans (CIDPs) include slum upgrading strategies into Report implementation upgrading strategies developed under the their institutional setup support missions project ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Review of quarterly Measures the definitive progress reports; Quarterly milestone of the tenure consultancy reports; Survey plans completed and approved Bi-Annual Progress NPCT, CPCT regularization process that verification during under the project Report confirms as providing tenure implementation security support missions Measures the proportion of Review of quarterly beneficiaries that are female Quarterly progress reports; Proportion of titles granted under the in this final milestone of the Bi-Annual Progress consultancy reports; NPCT, CPCT project with women recognized as an tenure regularization Report verification during owner or co-owner process that confirms as implementation providing tenure security support missions Page 50 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Measures cumulative Project number of all newly quarterly constructed and/or progress Review of engineering New street/security lights constructed rehabilitated street or Quarterly reports, supervision reports and NPCT, CPCT under the project security lighting in Supervision contractor reports participating settlements engineers thereby improving security reports in the settlement. Project Measures cumulative length quarterly of all newly constructed progress Review of engineering and/or rehabilitated roads Quarterly reports, supervision reports and NPCT, CPCT Roads improved under the project in participating settlements Supervision contractor reports thereby improving urban engineers mobility. reports Project Measures cumulative length quarterly of all newly constructed progress Review of engineering Stormwater drains constructed under the and/or stormwater drains in Quarterly reports, supervision reports and NPCT, CPCT project participating settlements Supervision contractor reports thereby improving urban engineers mobility. reports Measures cumulative Project number of all newly quarterly Review of engineering New sewerage connections resulting from constructed and/or Quarterly progress supervision reports and NPCT, CPCT the project rehabilitated sewer reports, contractor reports connections in participating Supervision settlements thereby engineers Page 51 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) improving access to reports sanitation. Project Measures cumulative quarterly number of all newly progress Review of engineering New household water connections constructed and/or water Quarterly reports, supervision reports and NPCT, CPCT resulting from the project connections in participating Supervision contractor reports settlements thereby engineers improving access to water. reports Measures cumulative length Quarterly of all newly constructed reports, Review of engineering pedestrian walkways in Quarterly engineering supervision reports and NPCT, CPCT Footpaths constructed under the project participating settlements, supervision contractors reports thereby improving mobility reports of pedestrians. Review of quarterly Quarterly progress reports and Measures the increase in Number of vulnerable people linked to Quarterly progress verification with the NPCT, CPCT access to safety nets under social safety net programs reports Social Safety Nets the project Program Measures the number of Quarterly plans prepared at Review of quarterly Number of socio-economic inclusion plans Quarterly progress NPCT, CPCT settlement level to improve progress reports prepared reports the social-economic condition of residents Number of women linked to social safety net programs through the project Percentage of registered grievances Measures the grievance Quarterly Review of quarterly Quarterly NPCT, CPCT resolved with three months of redress mechanism progress progress reports registration established by the project reports Page 52 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) and the extent to which grievanes are resolved Measures the budget from the county utilized on O&M Quarterly Review of quarterly Number of counties where 4% or more of of KISIP1 and KISIP2 project Annual reports and verification NPCT, CPCT O&M annual budget is utilized on subprojects after reports/Annu of data by the NPCT informal settlements completion and handover of al reports the subproject by the contractor. The Settlement Executive Committee (SEC) is elected in each settlement by the Project settlement residents to Review of quarterly quarterly Proportion of SEC members that are represent their interests in Annual reports and verification NPCT, CPCT progress female the project. They act as the of data by the NPCT reports intermediary between the project and the community. At least one-third of SEC members have to be female Measures the extent to which counties are adopting and customizing the Project Review of quarterly national slum upgrading and quarterly Annual reports and verification NPCT, CPCT Number of county strategies prepared prevention strategy as a first progress of data by the NPCT step towards having county- reports specific approaches towards slum upgrading and reduction. Measures whether the Updating and adoption of the national national slum upgrading slum upgrading strategy strategy has been reviewed and adopted by national Page 53 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) government ME IO Table SPACE Page 54 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) ANNEX 1: Implementation Arrangements and Support Plan Table 1.1. Institutional and Implementation Arrangements Component Activity Lead Implementation Legal and policy underpinnings for Implementor Partners assigning responsibilities Component 1 - 1.1. Tenure Regularization Integrated Planning  County  Constitution Settlement (including RAP  Physical and Land Use Act, 2019 Upgrading preparation)  Community  Constitution  County Government Act 2012  County Public Participation Guidelines  NLC  Constitution  National Land Commission Act,2012 Title Survey  National/  Constitution County  Survey Act Cap 299  County  Community  Constitution  County Government Act 2012  County Public Participation Guidelines  MLPP  Land Act  Land Registration Act Preparation of  National  Land Act and Land registration act Lease or Title 2012  NLC  Constitution  National Land Commission Act,2012  County  Land Act and Land registration act 2012  Constitution  National Land Commission Act,2012  Community  Constitution  County Government Act 2012  National Land Commission Act,2012  County Public Participation Guidelines  MLPP  Land Act and Land Registration Act 2012 Implementing  County  World Bank Policy  EMCA Page 55 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Component Activity Lead Implementation Legal and policy underpinnings for Implementor Partners assigning responsibilities Resettlement  National  Treasury Circular on Guideline for Action Plans, the Management of ESIA Intergovernmental Fiscal Transfers in Kenya  EMCA  World Bank  World Bank Policy  Community  County Public Participation Guidelines  County Government Act 2012 1.2. Infrastructure Upgrading Detailed Eng.  National  Constitution Designs and  Treasury Circular on Guideline for Bidding the Management of Documents Intergovernmental Fiscal Transfers (including ESIA, in Kenya RAP  County  Constitution preparation)  World Bank  World Bank Policy (5 % of Infrastructure  Community  County Public Participation Cost to be Guidelines retained at  County Government Act 2012 National) Procurement of  County  Constitution Works  Treasury Circular on Guideline for the management of Intergovernmental Fiscal Transfers in Kenya  National  Constitution  World Bank  World Bank Policy Contract  County  Constitution Management  Treasury Circular on Guideline for the management of Intergovernmental Fiscal Transfers in Kenya  National  World Bank  World Bank Policies  Community  County Public Participation Guidelines  County Government Act 2012 Page 56 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Component Activity Lead Implementation Legal and policy underpinnings for Implementor Partners assigning responsibilities Technical  National  Treasury Circular on Guideline for Assistance and the Management of Quality Intergovernmental Fiscal Transfers Assurance (5 % in Kenya of Infrastructure Cost to be retained at National) Linking  National - Constitution Component 2 – Vulnerable  County  Constitution Socio- population to  Community  County Public Participation Economic social safety Guidelines Inclusion Nets Planning  County Government Act 2012 Linking at risk  National  Constitution youth to job  County  Constitution opportunities  Community  Constitution  County Public Participation Guidelines  County Government Act 2012  Constitution Crime and  National  Constitution Violence  County  Constitution Prevention  Community  County Public Participation Guidelines  County Government Act 2012 Studies on the  National - Constitution socio-economic  County  Constitution needs of the  Community - County Public Participation population Guidelines - County Government Act 2012 Component 3 – Assist in  National  Constitution Institutional preparing Slum  County  National Slum Upgrading and Capacity Upgrading Prevention Policy Development Strategy  World Bank  World Bank Policy for Slum  Community  County Public Participation Upgrading Guidelines  County Government Act 2012 Page 57 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Component Activity Lead Implementation Legal and policy underpinnings for Implementor Partners assigning responsibilities Capacity  National  Constitution Building  Treasury Circular on Guideline for the management of Intergovernmental Fiscal Transfers in Kenya  County   World Bank  World Bank Policies and Guidelines  Community  County Public Participation Guidelines  County Government Act 2012 Component 4 – Program Management Program Social and  County  EMCA 2015 Management Environmental  National  EMCA 2015 and Safeguards Coordination  World Bank  World Bank Policy  Community  County Public Participation Guidelines  County Government Act 2012 Monitoring and  National  Treasury Circular on Guideline for Evaluation the management of Intergovernmental Fiscal Transfers in Kenya  County   World Bank  World Bank Policies and Guidelines  Community  County Public Participation Guidelines Communication  National  Treasury Circular on Guideline for and the management of Documentation Intergovernmental Fiscal Transfers in Kenya  County   World Bank  World Bank Policies and Guidelines  Community  County Public Participation Guidelines Community  County  Constitution Engagement  Community  County Public Participation Guidelines Page 58 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) Component Activity Lead Implementation Legal and policy underpinnings for Implementor Partners assigning responsibilities  County Government Act 2012 Procurement  National  Public Procurement and Disposal  County Act  World Bank  World Bank Policies and Guidelines Financial  National  PFM Act Management  World Bank  World Bank Policies and Guidelines  County  County Government Public Finance Management Act 2013 Implementation Arrangements by Component 1. For Component 1 consultancies, to ensure efficiency gains and economies of scale, the consultancies for tenure regularization, preparation of detailed engineering designs and relevant Safeguard instruments, and supervision of works will cut across multiple counties and therefore will be procured and coordinated by the NPCT and implemented jointly with the CPCTs. While planning and infrastructure provision are county functions, the NPCT will provide technical assistance, quality assurance, capacity building and technical backstopping to counties to perform in accordance with the Bank policies and guidelines. The CPCT will be responsible for day-to-day coordination of the activities related to tenure regularization and preparation of detailed engineering designs, working closely with relevant offices of the county to implement these activities. For consultancies, funds will flow from the Treasury Designated Account to the Ministry account similar to KISIP1. 2. Infrastructure works will be procured and implemented by the CPCTs with technical assistance and quality assurance provided by the NPCT. Supervising consultants procured by the NPCT will report to the CPCT. The CPCT will implement the environmental and social safeguards instruments, and be responsible for monitoring, reporting and disseminating information about the Project (including contract awards, physical and financial progress of works contracts, and so on). The CPCT will coordinate regularly with the NPCT in works implementation and provide the information necessary for the NPCT to compile quarterly progress reports. Funds for works will flow from the Treasury DA directly to the county SPAs. 3. Under Component 2, the activities will be procured and coordinated by the NPCT and implemented jointly with counties. The CPCT will be responsible for day-to-day coordination of these activities together with the county social and community development officers while the NPCT will provide technical assistance, capacity building and technical backstopping to counties for these activities. Funds will flow from the Treasury DA to the Ministry account similar to KISIP1. 4. Activities in Component 3 will be procured and implemented by the NPCT. The NPCT will lead the implementation and will provide technical assistance and capacity building to counties. Funds will flow from the Treasury DA to the Ministry account similar to KISIP1. Page 59 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 5. Implementation of component 4 activities will be shared between NPCT and CPCT depending on the activity required to ensure good project management and coordination. Figure 1.1. Implementation and Reporting Organogram Ministry of Transport, Infrastructure, Housing and Urban Development NATIONAL LEVEL State Department of Housing and Urban Development (SDHUD) National Project Coordination Team KISIP2 Project Steering (NPCT) Committee COUNTY LEVEL County Project Coordination Team (CPCT) (for each participating county) Implementation Support Plan 6. The Implementation Support Plan is based on the implementation support guidelines for Investment Project Financing operations, adapted to the design and risk profile of KISIP. The GoK is responsible for the Project overall implementation, including its technical aspects. The World Bank will commit significant resources to support program implementation to enable: (a) regular review of implementation progress; (b) provide support on resolving emerging Project implementation issues and on building institutional capacity; (c) monitor the adequacy of systems, performance and compliance with legal agreements; and (d) support the government in monitoring and managing project risks. 7. The overall risk rating for the project is substantial. The Project design will help minimize the challenges and risks during implementation. However, successful implementation of KISIP2 will require close collaboration and coordination between the SDHUD, other line agencies and the beneficiary County Governments. The role of the NPCT to regularly liaise with the secretariat of the CoG and will be extremely critical to ensure project success by providing timely backstopping to county governments. For the program to work, CPCTs will need to be strengthened significantly especially in the initial years of the operation. Intensive training and capacity support from SDHUD will be important to nurture the CPCTs. The SDHUD will develop and roll out key training on overall operation through workshops, development of a user-friendly program operation manual, dissemination of relevant guiding manuals, and responding to specific county demands for technical support. Page 60 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 8. The World Bank will complement the efforts by SDHUD with regular implementation support missions, technical assistance activities at the national and county level, facilitating close synergies during implementation with the other World Bank financed projects and coordination with other development partners on Kenya’s overall urban program. The World Bank will also closely work with other task teams in the World Bank on areas to improve integration and synergies in implementation of projects and programs. The World Bank will also closely work with SDHUD to ensure that the NPCT is staffed with full-time staff covering the key areas of the operation. Corrective measures will be implemented at midterm to address emerging issues that the operation may have not addressed during preparation. 9. Strategy and approach to implementation support to KISIP2 includes a number of measures aimed at ensuring implementation proceeds as expected:  First, the World Bank will maintain a sizeable KISIP2 core team in the country office in order to facilitate overall implementation and timely communication with the client, and various stakeholders involved in the implementation phase. This core team will consist of expertise in engineering, contract management, and tenure regularization, the three areas noted as essential through lessons learnt in KISIP1;  Second, the World Bank will conduct routine implementation supervision missions and additional technical assistance. The missions will be carried out jointly with development partners and will include the World Bank’s financial management, safeguards specialists, procurement staff and other specialists as required. A number of technical and fiduciary specialists are based in the region/country office and this will allow timely follow-up on specific issues and/or areas of concern if needed;  The first implementation support mission will take place after the Operation becomes effective to provide direct and timely feedback on quality of implementation to SDHUD, CoG and counties.  The task team will work closely with the National Treasury and SDHUD on inclusion of KISIP in the national budget. Ensuring that the program resources reach the urban areas will require that the NPCT and the counties coordinate their budgets closely. The task team will also work closely with the CoG, County Governments and county assembles to ensure the funds are used for the intended purposes. As part of regular program reporting arrangements, SDHUD will put in place a monitoring mechanism that allows for timely feedback on program implementation. Page 61 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) ANNEX 2: Eligibility Criteria Box 2.1: Eligibility Criteria for Component 1 Settlement criteria • Located on public land or land that is regularized through a GoK program (including KISIP). Infrastructure activities to be on land where the regularization process is already complete until survey stage. • No court case or other legal encumbrances on part or all of the land on which the settlement sits • Community readiness ensuring that the voice of women is clearly noted (e.g. a community meeting, signing of a community participation agreement) • Population density no less than 30 people/ha • Settlement lies within a 10km radius of the nearest city, municipality or town • Structures are: (i) temporary or semi-permanent; (ii) single-storey; (iii) distance between structures not more than 50m • Settlement morphology allows for adoptive planning with minimal displacement. Physical upgrading of the settlement should not entail large-scale displacement (and, thereby, relocation) of residents Additional criteria for infrastructure upgrading • Evidence of regularization up to surveying stage through an approved Local Physical and Land Use Development Plan and approved survey plan • Evidence of settlement readiness for infrastructure upgrading, such as availability of detailed designs, bidding documents, ESIAS, and RAPs. • Proximity to trunk infrastructure (cost of connecting to trunk is not more than 15 percent of total infrastructure cost; settlement should be no greater than 0.6km away from trunk) • Infrastructure has been designed and will be built and operated in a way that anticipates, prepares for and adapts to changing climate conditions • County has provided an O&M plan to maintain the infrastructure to be upgraded • KISIP1 infrastructure is well maintained (where applicable) Box 2.2: County Readiness Criteria • Appointment of relevant staff to support implementation and form the CPCT • Setting up and operationalizing of project specific SFMU • Participation39 in KUSP after Year 1 of KUSP (not relevant for Nairobi and Mombasa) • Commitment to: • cover the costs of RAP implementation • cover costs of environmental mitigation measures • meet budgetary requirements for O&M • develop slum upgrading strategy for inclusion in their CIDPs • resettle residents in environmentally fragile/hazardous areas • designate Special Planning Areas as needed • Submission of a signed Participation Agreement by specified cutoff date. The Agreement will have incorporated all commitments above. 39 Counties will need to pass the criteria for eligibility for Year 2 of KUSP Page 62 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) ANNEX 3: Economic Analysis of Interventions 1. The economic analysis on KISIP1 interventions conducted as part of the KISIP2 project preparation process suggests that the proposed interventions under Sub-component 1.2 are economically feasible. The following assumptions were made as part of the economic analysis: 1. Valuation of costs and benefits: based on market and shadow prices; 2. Appraisal period: a 20-year appraisal period is selected; 3. Discount rate: a 12 percent discount rate is applied on investment in urban roads and drainage systems, and a 6 percent discount rate is applied on investment in water and sanitation services, and in floodlights; 4. Standard Conversion Factor (SCF): a SCF of 0.85 is applied to the capital expenditure on roads and drainage systems to account for market price imperfections; and 5. Annual operations and maintenance cost: equivalent to 3 percent of capital expenditures. 2. Investment in urban roads and drainage systems (US$70.1 million): This intervention consists in the construction of 98.2 km of settlement access roads and 84.5 km of footpaths, and 107.5 km of drainage canals. Beneficiaries from these interventions are estimated at 1 million individuals40. The benefits derived from this intervention consist of: (i) travel time savings; (ii) travel cost savings; (iii) reductions in vehicle operating costs; (iv) enhanced access to jobs, markets, health facilities schools, and other services at lower cost than otherwise available (reflected in enhanced land values); (v) reduced number of days of work lost due to flooding; (vi) reduced property damage (buildings, roads, furniture, appliances, household goods); (vii) increased property values; (viii) lives saved due to reduced road accidents; and (ix) reduced costs of illness associated with exposure to polluted and stagnant water. The net present value of this intervention was estimated at US$158.7 million and the internal rate of return is estimated at 44 percent. 3. Investment in water and sanitation services (US$9.9 million): The intervention is comprised of the construction of 63.0 km of sewer pipeline and 4,788 sewer connections, and 110 km of water pipeline and 7,306 water connections, as well as 21 ablution blocks. Beneficiaries from this investment are estimated at 162,000 individuals. Benefits include: (i) value of improved health outcomes; (ii) value of saved lives; and (iii) value of time saved accessing water supply. The net present value of this intervention was estimated at US$11.2 million and the internal rate of return was estimated at 21 percent. 4. Investment in floodlights (US$5.4 million): The intervention consists of 134 30-meter-high mast security lighting. This investment is expected to benefit an estimated 743,653 individuals. Benefits of street lighting include: (i) increased perception of safety; (ii) reduced road accidents; and (iii) and increased ability to do business after dark. People interviewed for the beneficiary analysis of KISIP1 noted that they felt a greater sense of security at night and were now walking along streets with lights, rather than taking motorized transport to their destinations. Some participants pointed out that accidents between vehicles and between vehicles and pedestrians had declined. Some mentioned that business hours had expanded and that the appearance and livability of the urban center had improved. The net present value of this intervention was estimated at US$40.8 million and the internal rate of return is estimated at 56 percent. 5. The sensitivity analysis performed indicates that the economic rate of return for interventions under Sub- component 1.2 remain significant even when considering potential downside adjustments to the assumptions made as 40 Based on data collection from informal settlements as part of KISIP1. Page 63 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) presented in Table 3.1. Table 3.1. Sensitivity Analysis Roads and Drainage WASH Flood lights NPV (US$) IRR NPV (US$) IRR NPV (US$) IRR Costs increase by 10 percent 152.9 41.4% 10.1 18.7% 40.2 53.0% Benefits reduce by 10 percent 137.0 41.2% 9.0 18.4% 36.1 52.6% Benefits lag by 2 years 97.0 30.1% 6.2 13.3% 29.9 36.4% Source: Based of World Bank staff estimates. 6. The interventions identified under the Project bear positive externalities on the overall population through numerous direct and indirect benefits being engendered. The direct benefits of this Project include the value of reduced road accidents, value of time saved commuting, value related to the promotion of economic growth in the region through enhanced trade, increased efficiency, and higher productivity, value of time saved accessing water supply, value of human lives saved and value of improved to ability to conduct business over longer working hours. The indirect benefits of this Project are improved health outcomes across all segments of the population and, most notably, among youth, female and elderly population, providing more affordable access to potable water and sanitation services. Page 64 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) ANNEX 4: Urban Projects in Kenya supported by the World Bank (2010-present) Project Name IDA Project Period Scope and beneficiaries Amount, US$ million Kenya Municipal Program 100 July 2010-May 2017 Urban-level planning and infrastructure in 15 urban areas; 2.1 million beneficiaries Kenya Informal 100 July 2011-November Settlement-level planning, tenure security Settlements Improvement 2019 and infrastructure upgrading in 15 urban Project areas; 1.3 million beneficiaries Nairobi Metropolitan 300 May 2012-March 2020 Metro-level planning and infrastructure in Services Improvement Nairobi County and 4 surrounding Counties; Project 3.2 million beneficiaries Kenya Devolution Support 200 March 2016- County-level capacity building of institutions Program December 2020 to improve delivery of devolved services; 45 beneficiary counties Kenya Urban Support 300 July 2017-July 2023 Urban-level capacity building and Program infrastructure; 45 beneficiary counties Second Kenya Informal 150 August 2020 -May Settlement-level planning, tenure security Settlements Improvement 2025 and infrastructure upgrading; county-level Project capacity building for slum upgrading; 47 counties, 1.7 million beneficiaries TOTAL AMOUNT 1,150 Page 65 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) ANNEX 5: Detailed Financial Management (FM) Arrangements 1. The World Bank conducted a FM assessment of the SDHUD under the MTIHUD in April 2020. The MTIHUD has experience in the management of Bank-financed projects, having been the implementing ministry for the KISIP-1 Project. The MTIHUD is also implementing the KUSP as well as the NAMSIP. The objective of the assessment was to determine whether the implementing agency maintain adequate financial management arrangements capable of ensuring that: a) Project funds and resources will be used for the purposes intended in an efficient and economical manner; b) The Project’s financial reports will be prepared in an accurate, reliable and in a timely manner; and c) The Project’s and other resources assets will be safeguarded. The FM assessment was carried out in accordance with the World Bank Directive: Financial Management Manual for World Bank Investment Project Financing Operations effective from March 1, 2010; and the World Bank Guidance: Financial Management in World Bank Investment Project Financing Operations Issued and Effective February 24, 2015. Budgeting 2. The Project will prepare annual work plan to facilitate the budget process. The counties will submit their annual work plans to the ministry consolidation and submission to the World Bank for prior approval. Any activities not included in the prior approved annual work plans will be deemed to be ineligible for financing out of IDA funds. The NPCT will prepare subprojects to match the work-plans and budget to the disbursement requirements. There will be a single-line source code IDA budget for component 1 for devolved activities and another under the Ministry for components 2, 3 and 4. There are material in-country budget challenges at national level which include inadequate IDA budget allocation, delays in capturing project activities in supplementary budget, delays in reclassification of the budget, insufficient and late release of counterpart funds, and slow exchequer releases for IDA and counterpart funds, especially during the first quarter of every year, which affects project implementation and overall absorption rate of funds. For counties, the challenges are even more acute with 4 level budget process through DORA, CARA, county assembly finance bills and national Finance Act (as compared to just one level at ministerial level). disbursement delays and risk of diversion of funds at CRF level. Accounting arrangements 3. The GoK uses IFMIS software but the project management module has not been activated. Hence IFMIS is capable of handling budget and payments but cannot generate project financial reports. Nevertheless, the NPCT under KISIP-1 has been maintaining Project cashbooks and other accounting records manually and generating financial reports manually. This is deemed to be adequate. There is a qualified and experienced project accountant at the ministry level who was handling KISIP1. However, FM capacity at county level is weak. The accountabilities arrangements at the counties are not adequate, as there are significant delays in submission of accountabilities on use of World Bank financed project activities. The current arrangements need to be improved and one such approach, will be that each county receiving funds will be required to put in place SFMU, being a separate unit set up under the county treasury, with accounting, finance, procurement and internal audit staff, under the supervision of a senior official of the county treasury, and dedicated to handling of project fiduciary activities. This Unit when fully functional will provide overall fiduciary support to all projects being implemented at the county level. Internal controls Page 66 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) 4. The Ministry Internal Audit Department has adequate capacity but lack sufficient budget to conduct on-site internal audit review of the Project. They also require capacity building training on World Bank FM procedures. It is also necessary to strengthen the capacity of the county internal audit function to enable them to provide oversight on Project activities at the CPTC level. The Project activities will include capacity building training for the internal audit function at both the MTIHUD and County levels. Once this is done, the internal audit units will conduct risk-based fiduciary reviews of project funds annually. The incremental cost of the annual internal audit will be financed out of IDA funds based on an audit work-plan cleared in advance by the World Bank. The ministry will develop and implement an FM procedures manual as part of the POM, detailing the internal control framework at both national and county level. Financial Reporting 5. The financial reporting to the World Bank will be done by the NPCT which will consolidate reports received from the counties. The NPCT will send to the Bank consolidated quarterly IFRs and annual audited financial statements. IFRs will be submitted to the Bank within 45 days after the end of each calendar quarter. The IFR will be supported by copies of the DA, PA and SPA bank statements covering the whole quarter and SOE. The annual project-specific financial statements will be submitted to the OAG within three months after the end of the financial year. Risks of late submission and quality challenges in financial reporting has been identified especially for the devolved activities. TA will be provided under the project to ensure that there is sufficient capacity for financial reporting for counties. The setting up and operationalization of the SFMU at county level will enhance the financial reporting capacity. Funds flow arrangements 6. There have been material in-country funds flow challenges which include delays in moving funds from the DA in the National Treasury (NT) to the PA through the ministry development account at national level. For counties, the delays relate to moving funds from the DA (after being appropriated in DORA and CARA and getting approval of the Controller of Budget and Senate) through the County Revenue Fund (CRF) to the county special purpose account (SPA). 7. Broadly, the project will have 3 eligible categories being: works, goods and consultancies for counties under component 1; institutional capacity building and project management under component 3 and 4; and LICW activities under component 2. The disbursement methods include direct payment method, reimbursement, advance and special commitment. These will be defined in the disbursement and financial information letter. 8. The project will open 3 DAs in USD or other strong foreign currency: DA-A will be for the national level activities undertaken by the ministry under components 3 and 4. DA-B will be county level activities under component 1 while DA- C will be for LICW activities. The ministry will also open a PA in local currency from which funds from DA-A will be deposited. The PA will be opened in a commercial bank acceptable to the World Bank and will be used for payment of all transactions relating to the national level component. For the devolved component, each county will open a project specific SPA from which all project payments will be made. The SPA will be opened in a commercial bank acceptable to the World Bank. The DA, PA and SPA bank accounts will be segregated to be used exclusively for IDA funds and eligible activities. Separate bank accounts will be opened for any government counterpart funds, which may be required for activities that cannot be financed under the Bank financed project. Figure 5.1 Funds Flow and Implementation Arrangement Chart Page 67 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) IDA Credit Account (US$) DA-B (USD)- NT (CBK) DA-A (USD)- NT (CBK) Direct Component 1 DA-C (USD)- NT (CBK) Components 3 and 4 Payments Component 2 Exchequer Account - NT Ministry Development (CBK) Ministry Development Account-CBK Account-CBK CRF Account (CBK) PA PA County SPA Commercial (NPCT) (NPCT) banks Eligible project activities including goods, works, consultancies, LICW, operating costs etc. Audit arrangements 9. The audit will be conducted by the SAI, the OAG. The OAG will conduct the audit at both the NPTC and the CPTC and the audit will include on-site audit visit to verify investments financed at county level. The audited project financial statements accompanied with the management letter will be submitted to the World Bank within six months after the end of the financial year. The audit will be conducted on the basis of audit TOR cleared by the World Bank. Table 5.1. FM Action Plan Action By whom Due date 1. Development of FM Procedures Manual SDHUD 31 July 2020 2. Handholding support to counties consisting of: Hire of SDHUD / counties Disbursement APA to support and follow up on FM issues; hire of condition county project accountants and internal auditors as part of the setting up of Single Fiduciary Management Unit within county treasury. 3 Development of Eligibility Criteria Guidelines Manual SDHUD Disbursement for LICW activities condition 4 Conducting annual risk-based fiduciary review by SDHUD /counties FM condition Page 68 of 69 The World Bank Second Kenya Informal Settlements Improvement Project (P167814) internal auditors Implementation Support Plan 10. Based on the risk assessment of the project, the World Bank FM supervision review will be conducted at least once every year. The mission’s objectives will include ensuring that strong financial management systems are maintained for the project throughout its life. Reviews will be carried out regularly to ensure that expenditures incurred by the project remain eligible for IDA funding. Table 5.2. Implementation Support Activity Frequency Desk reviews Interim financial reports review Quarterly Audit report review Annually Review of other relevant information such as internal audit Annually reports. On site Visits Review of overall operation of the FM system Annually during implementation Support missions Monitoring of actions taken on audit reports, auditors’ Continuous management letters, internal audit and other reports In depth transaction reviews As required Page 69 of 69