Nicaragua - Municipal Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7499 PROJECT COMPLETION REPORT MUNICIPAL DEVELOPMENT PROJECT (Loan 2086-NI) NICARAGUA November 9, 1988 Latin America and Caribbean Regional Department This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (At times of appraisal and used in this Report unless otherwise stated.) Currency Unit = Nicaragua cordoba, C$ C$ 10.00 = US$1.00 C$ 1.00 = US$0.10 WEIGHTS AND MEASURES Metric System 1 quintal (a) = 100 pounds (lb) 22.046 q = 1 metric ton (m ton) 1 manzana = 0.7 hectare (ha) LIST OF ABBREVIATIONS IBAM - Brazilian Institute of Municipal Administration INAP - Nicaraguan Institute for Public Administration INETER - Nicaraguan Institute for Land Use Studies JRM - Managua Municipal Reconstruction Board MINVAH - Ministry of Housing and Human Settlements SAMU - Secretariat of Municipal Affairs REPUBLIC OF NICARAGUA FISCAL YEAR January 1 - December 31  FOR OMCL1L UEJ ONdLy THE WORLD BANK Washington, DC 20433 U.S A. Office of Direct-CGeeneral Opetations Evaluation November 9, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND ThE PRESIDENT SUBJECT: Project Completion Report on Nicaragua - Municipal Development Project (Loan 2086-NI) Attached, for information, is a copy of a report entitled "Project Completion Report on Nicaragua Municipal Development Project (Loan 2086-NI)' prepared by the Latin America and Caribbean Regional Department. Further evaluation of this project by the Operations Evaluation Department has not been made. '~~~~~~~~~~ Yves Rovani Attachment 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  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT NICA2AGUA MUNICIPAL DEVELOPMENT PROJECT (LOAN 2086-NI) TABLE OF CONTENTS Page No. PREFACE AND SUMMARY ......................................... i BASIC DATA SHEET .......... .................................. iii HIGHLIGHTS .................................................. iv I. PROJECT PREPARATION AND APPRAISAL ..... ................ 1 1.1 Project Preparation e .................... . 1 1.2 Project Appraisal .............. 1 II. PROJECT IMPLEMENTATION, EFFECTIVENESS ..... ............ 2 2.1 Board Approval and Effectiveness ................. 2 2.2 Implementation ........ ........................... 2 2.3 Cost, Procurement and Disbursement ......... 3 2.4 Quality of the Work Completed ..... ............... 4 2.5 Additional Benefits .............................. 4 III. ORGANIZATION PERFORMANCE .............................. 5 3.1 Institutional Development ..... ............. . 5 3.2 Bank Group Performance ...... .............. . 5 IV. FINANCIAL hSPECTS ..................................... 6 4.1 Compliance with Covenants ........................ 6 4.2 Cost Recovery .................................... 6 4.3 Economic Rate of Return .......................... 7 V. LESSONS TO BE,LEARNED ................................. 7 ATTACHMENT I: Comments from the Borrower ..... .............. 9 ANNEXES Annex I: Table 1: Summary of Project Costs .... ........... 10 Graph 1 .......................................... 11 Graph 2 ....................... ................... 12 Annex II: Photographic Documentation of Parts (A and B) .... 13 MAPS IBRD 15636R IBRD 15697R 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.  (M) PROJECT' COMPLETION REPORT NICARAGUA MUNICIPAL DEVELOPMENT PROJECT (LOAN 2086-NI) Preface and SummaEy 1. Encouraged by the early success of the Urban Reconstruction Pro- ject (Credit 965-NI, approved in December 1979) and the National Decentral- ization policy (which funneled new urban investment to the secondary cit- ies), in July 1980 the Government of Nicaragua requested Bank assistance to improve and expand its municipal development program. During the first year of the reconstruction Credit (1980) most of the Government resources were allocated to rebuilding the six provincial towns that were heavily damaged in the civil war, while little or no improvement was made in the low-income "barrios" of Managua and the smaller towns throughout the country. 2. Urban problems in Managua were significant. After the war in July 1979, the population of Managua continued to grow at over 7% per year while the secondary cities and provincial towns grew at less than 4%. By 1980, Managua had expanded in all directions from the lakeshore, with over 650,000 inhabitants -- representing 50% of the national urban population. It will remain in the foreseeable future the major center of population. Immigration to Managua was estimated at 30,000 per year. At the western edge of the city, a new settlement, Ciudad Sandino with over 50,000 popula- tion, emerged in the end of 1980. These expansion areas, lacking basic infrastructure, added to the existing low-income "barrios", presented enor- mous problems for the city. Lacking in storm drainage, street paving, w'l.kways and street lighting, it was virtually impossible to travel through half of the city during a rainy storm. Residents in these "barrios" had to take off shoes before leaving their dwellings to walk long distances to the paved road and bus service. During the dry season, the "barrios" were con- verted to dust bowls. Both situations affected the health and welfare of the workers and their families. The sanitary sewer networks, built in 1930, cover less than 40% of the built-up area; there are no sewage treat- ment plants. Tne sewer outfalls discharge raw sewage into Lake Managua and industrial liquid wastes add chemical pollution. 3. In the secondary cities and provincial towns, the situation was worse; they not only lacked basic infrastructure, but also basic community facilities, e.g. markets, slaughter houses, bus stations and administrative buildings. There was an urgent need for a program of municipal development on a national level that would provide basic infrastructure and community facilities as well as improved municipal management. Loan 2086-NI was to be focussed on the upgrading of low-income "barrios", housing over one- third of the population of Managua; in addition the government requested financing for a smaller program of improvements to the municipal services and facilities in a network of smaller towns throughout the country.  (ii) 4. In accordance with the revised procedures for project performance audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED) but the Project was not audited by OED staff. 5. Following standard procedures, OED sent copies of the draft report to the Government for comments. The comments which were received have been taken into account in preparing the final report and are reproduced as an Attachment.  (ill) PROJECT COMPLETION REPORT NICARAGUA MUNICIPAL DEVELOPMENT PROJECT (LOAN 2098-NI) BASIC DATA SHEET Key Project Data Actual or Item Appraisal Estimate Current Estimate - Total Project Cost (US$ millions) 22.8 23.0 Underrun or Overrun () - - - - - Loan Amount (USS millions) 18 0 16.0 Disbursed - - 18.0 Cancelled - 0.0 1/ - Oute Physical Components Complete 12/84 12/84 - Proportion Completed by above Date 100 100 - Proportion of Time Overrun (X) - -0 - Financial Performance - -1 - Institutional Performance - - 1 Other Project Data Actual or item Original Plan Estimate Actual - First Mentioned in Files or Timetable -- 7/80 - Government Application -- 7/80 - Negotiations 9/08/81 9/08/81 - Board Approval 1/12/82 1/12/82 - Loan Agreement Date 2/04/82 2/04/82 - Effectiveness Date 3/12/82 3/12/82 - Closing Dato 12/31/84 12/31/81 - Borrower Republic of Nicaragua - Executing Agencies SAMU, MINVAH A JRM - Fiscal Year of Borrower December 31 Cumulative Estimated and Actual Disbursement 1982 1983 1984 - Estimated (USS million) 8.2 12.3 18.0 - Actual (US3 million) 3.4 12.3 16.0 - Percentage of Estimated 35.0 100.0 100.0 Mission Data No. of No. of Man/ Date of Performance Mission Month/Yr Weeks Persons Weeks Report Rating - Identification 9/80 2 3 6 11/06/80 - - Pre-appraisal 11/80 1.3 3 4 12/29/80 - - Appraisal 2/81 3 4 12 03/17/81 - - Post-appraisal 10/81 1 3 3 10/23/81 - - Supervision 1 6/82 1 2 2 07/30/82 2 2 12/82 1 2 2 12/29/82 2 3 4/83 0.6 1 0.5 06/27/83 1 4 9/83 1 2 2 10/20/83 1 S 6/84 0.6 1 0.6 06/29/84 1 6 9/84 0.6 2 1 10/06/84 1 TOTAL: 11.8 33 1/ A small amount-less than 82000 was finally cancelled in Uay, 1987. 2/ Better than estimated during appraisal.  (iv) PROJECT COMPLETION REPORT NICARAGUA MUNICIPAL DEVELOPMENT PROJECT (LOAN 2086-NI) Highlights 1. In Part A of the project, 26 low-income "barrios" in Managua were upgraded with improvements in grading, drainage, street paving and walkways, street lighting and landscaping (para. 9). In acordance with the appraisal, these improvements covered one-third of the city. With 44 km of paving completed, including curbs and gutters, buses were able to enter the "barrios" on paved streets for the first time. In addition, macro-drainage improvements were completed on the six major storm drainage basins, as planned during the appraisal. By September 1983, the periodic flooding of the low-lying areas was eliminated (para. 9). In Part B, the Secretariat of Municipal Affairs (SAMTJ), with technical support from the Ministry of Housing & Human Resources (MINVAH), completed the appraisal development program of 31 components consisting of municipal markets, slaughterhouses, bus terminals, municipal offices, storm drains and paving in 15 municipalities (para. 10). Most of the municipalities are located on the western or Pacific side of the country, with two on the eastern or Caribbean side. This part was substantially completed in 3.0 years as scheduled. In July 1982, a new component was added to this Part, consisiting of repairs and reconstruction of 5 bridges damaged by the floods. The works were completed in twelve months. Under Part C (municipal management), technical assistance was provided in municipal budgeting, financing, cost controls, as well as the introduction of effective mechanisms to set and collect property taxes. Part of the training was provided through formal courses for 900 municipal administrators in the Government Training Center followed by on-the-job training (para. 11). Through careful management and programming, the annual training quotas were exceeded by 25 percent. Foreign experts made valuable contributions in the course work (para. 18). 2. The PCR is based on information in the President's Report and the review of the Bank's files including project supervision reports. Additional information was obtained by a supervision mission which visited Nicaragua April 21-28, 1984. Since the two parts were implemented by different government entities, a joint evaluation report of the project was not prepared. However, JRM prepared the documentation for Part A Barrio Upgrading and MINVAH for Part B Municipal Development. In preparing the PCR, each entity assisted, to the extent possible, in the data collection and discussion with the municipalities. This report represents a desk review of available documents for the project completion as of April 19, 1987. As of this date, the project objectives were fully met.  PROJECT COMPLETION REPORT NICARAGUA MUNICIPAL DEVELOPMENT PROJECT (LOAN 2086-NI) I. PROJECT PREPARATION AND APPRAISAL 1.1 Project Preparation 1.1.1 In July 1980, SAMU and JRM presented to a Bank supervision mission of the Urban Reconstruction Project (Credit 965-NI) a proposal for upgrading low-income "barrios" with community facilities and improved municipal management. Managua, as well as a network of secondary and provincial towns were to be the beneficiaries of the program'. The proposal was organized into two lending operations. JRM proposed upgrading one- third of the city, accompanied by macro-drainage components, as one operation, while SAMU piLposad a municipal improvements program for the network of secondary cities and towns. In December 1980, a mission pre- appraised the first operation with JRM. The Mayor and the JRM staff had worked closely with the "barrio" leaders in evaluating the conditions of over half of the city and selected 26 "barriosn. The site planning and design proposals were of a high quality and had the full support of the residents. The 15 priority municipalities, selected by SAMU, formed part of the national regional development strategy. They also met the criteria for growth potential and the need to efficiently serve existing industrial activities. The municipal improvements proposed by SAMU were based on proven prototype designs. The earlier conceptual development plans (Planes Orientadores) prepared for the secondary cities during the initial reconstruction phase were developed further into land use and transportation plans. These provided the planning rationale for locating the proposed community facilities. 1.2 Project Appraisal 1.2.1 In February 1981, the Bank sent the appraisal mission with the primary objective of combining the two proposals into one lending operation, focussing on the the Managua upgrading components, while reducing the components of the improvements program for the 15 towns. By May 1981, the project was defined to: (a) provide basic infrastructure to 26 low-income "barrios" in Managua, the lack of which had negatively affected production and distribution of goods and services as well as the general welfare of these "barrios"; (b) st-engthen the capability of the municipal institutions to plan and execute urban public works. During the post-appraisal mission of October 1981, with the worsening of economic conditions, the Government issued Decree No. 814 which integrated JRM's budget with the national budget. This decree appeared to substantially curtail the financial autonomy of JRM, significantly affecting the project. Assurances were given by the Government that JRM's financial autonomy would be affected only in the sense that expenditures  for capital improvements and projections of future revenues would be reviewed. This would allow the Ministry of Finance to monitor more closely the municipal budget. Based on the above, the Board approved on January 12, 1982, a loan of US$16 million for the total project cost of US$22.8 million. During the year of preparation, JRM's staff demonstrated their efficiency in preparing final designs, specifications, details, quantities and cost estimates of the 26 'barrios', as well as the micro drainage structures. II. PROJECT IMPLEMENTATION, EFFECTIVENESS 2.1 Board Approval and Effectiveness 2.1.1 The loan was signed on February 5, '982 and became effective on March 12 when all conditions including preparation of a revised land-use and zoning plan, were fulfilled. MINVAH, charged with the preparation of land-use planning satisfactorily completed the Plan Regulator (Land-Use Plan) for Managua by March 1982. A most important feature of the Plan was the redensification study, which proposed a desirable population ceiling, with residential neighborhoods of an optimal size for efficient use of installed infrastructure and efficient linkages between housing and employment. By July, progress was satisfactory for Part A Barrio Upgrading, with completion scheduled for December 1983. However, in May, serious floods damaged six bridges in the cities of Leon and Chinandega. At the request of the Government, the Bank agreed to expand and transfer US$4.0 million from the unallocated category to a Special Account established solely to finance this new component. The July 1982 supervision mission reviewed the proposed repairs and reconstruction of three bridges in Leon that serve one-third of the city and three bridges in Chinandega where one-quarter of the population was cut-off from the center. The estimated base cost was US$3.7 million with a construction schedule of nine months. They were completed in twelve months with additional foreign assistance, (Annex 2 Photograph 7). 2.2 Implementation 2.2.1 Even though the project suffered from shortages in equipment and delays in the supply of paving blocks, all 26 "barrios' were virtually completed on schedule by June 1984, including landscaping (Annex 1 Graph 1). The latter was undertaken through community participation in each of the "barrios' with great enthusiasm. Small trees were given to each "barrio" to be planted by community associations along all the streets and walkways. Individual households added shrubs and ground cover in their front yards, which helped transform the appearance of their 'barrios'. Over 44 km of secondary streets were graded and paved including curbs and gutters. Pre-cast "adoquin" blocks were laid by hand, using contract labor based on competitive unit prices. (Annex 2 Photographs 1 & 2 and Annex 3 Map 1.) Walkways and street lighting provided efficient pedestrian circulation throughout the 26 'barrios'. Over 250,000 persons, who before the project lived on dusty lanes during the dry season or in ankle deep mud during the rainy season, were directly benefitted. The macro-drainage, completed in September 1983, has successfully eliminated the periodic flooding of the major traffic arteries and adjacent residences along the edge of the lake. (Annex 4 Photographs 3 & 4 and Annex 3 Map 1.)  - 3 - 2.2.2 In Part B, the technical. assistance from the MINVAH staff, especially in the preparation of prototyr- and final designs as well as supervision, evolved into an effective op,...ation. However, several components were delayed for administrative reasons. In July 1983, SAMU was placed under the Secretariat of General Coordination for Urban and Political Development, rermioved from operations and development. It was clear that the most appropriate way to complete this subproject was to transfer the implementation responsibilities to a special unit in MINVAH. This change was formalized soon thereafter. The lack of counterpart funds for equipment and finishes for a few of the markets and slaughterhouses delayed their inaugutrations. For the remaining markets and bus terminal, pre-cast concrete structural columns and beams were used to speed up the construction. By December 1984 all the components were complete and operating (Annex 2 Photograph 6 and Annex 3 Map 2). 2.2.3 In Part C, the Government Central Training Facility was used to train the MINVAH staff as well as the JRM units. The Nicaraguan Institute for Public Administration (INAP) with assistance from the Brazilian Institute of Municipal Administration (IBAM), trained 900 low-level managers and skilled operators, as of December 1984. Thirty-one courses were provided ranging from public health and hygiene, park maintenance/gardening, automechanics maintenance, computer programming, systems analysis, program evaluation and statistics. The recording and audio visual equipment for the center was financed by the project. During the completion of the project INAP prepared an evaluation report of the current training program, to guide future staff training programs schedule for 1985 and 1986. 2.3 Cost, Procurement and Disbursement 2.3.1 At the completion of the project in September 1984, the cost was Cordobas C. 297.0 million. During the implementation period 1982-84, the value of the Cordoba dropped from US$1:10 to 1:15.9, as a result the total project cost was US$23.0, compared to the SAR estimate of US$22.8 (Annex 1 Table 1). While there was virtually no increase in the US dollar value, the cost in Cordobas increased 30.3?, due to inflation. The price increase occurred mainly in construction materials for Parts A and B. For Part A, Barrio Upgrading, the final cost was US$17.5 million (Annex 1, Graph 1). For Part B, MuniLipal Infrastructure Improvements, the final cost was US$3.1 million and for Part C it was US$0.3 million. 2.3.2 Procurement was in accordance with the provisions of the Loan Agreement and Bank guidelines. The purchase of cement and paving blocks was made through local competitive bidding procedures and bid evaluations were satisfactory. Over 30 suppliers and local contractors were used. Documented force account expenditures were carefully prepared and post audited by JRM's internal auditors. In accordance with the loan agreement, external auditors prepared acceptable annual audits for the three years of implementation. The daily output of the force account teams were analyzed for their efficiency using unit prices which were compared with the daily market prices.  - 4 - 2.3.3 Disbursements were made against civil works as well as construction materials and some training equipment. Through the use of the special account and SOE's. JRM was reimbursed on a monthly basis. By the end of 1984, the loan was disbursed except for a very small amount that was finally cancelled in May, 1987. This successful rate of implementation was due mainly to the excellent organization of the JRM implementation unit that was geared to carry out well-designed components with uniform design and specification criteria. Furthermore, the construction components were scaled to the implementation capability of each group or local municipality. 2.4 Quality of the Work Completed 2.4.1 The quality of the completed civil works in Part A, Barrio Upgrading, was outstanding due In part to the pride that each cadre of the work force took in the details and finishes, but also to the active participation of the direct beneficiaries in overseeing the opera'ion. The macro drainage works were undertaken mainly by hand labor because all available large drag lines and bulldozers were sent to the frontier to construct roads. For Part B, even though the local supervision was inadequ~.e, due to the shortage of staff, the quality of the market building, community facilities, as well as drainage works, was satisfactory. 2.5 Additional Benefits 2.5.1 In Part A, the paved and landscaped streets and walkways of the "barrios" provided efficient access for solid waste collection as well as public transportation mentioned above. With clean and well-maintained streets, the house owners were motivated to improve and expand their dwellings--vertically as well as horizontally. From available information and visual inspection, it appears that for every C 1,000 spent on municipal improvements, about C. 2,600 of private improvements in the housing stock was generated during the project implementation. Individual dwellings were expanded horizontally and in some cases vertically to accommodate their extended families or to rent. This has resulted in substantial redensification by about 25Z. The civil works of Part A, representing 85% of the total project costs, employed 2,650 workers during the peak period through March 1983. By September, the number was reduced to 1,600; the others were shifted over to other JRM projects or to municipal maintenance. The urban planning of Managua including the redensification and restructuring the city, to improve the internal efficiency, drew support from the Governments of Cuba and the Netherlands, who sent planning teams from the Cities of Havana and Amsterdam to assist in establishing the methodological approaches and technique for evaluating alternatives. In addition, the Technical University of Delft provided technical assistance for improving other low-income "barrios" and help prepare a development plan for the downtown area. JRM plans to upgrade 30 more "barrios" over the medium term--through 1995; however, with the limited financial resources, the local residents will have to make a substantial .ontribution through sweat equity.  2.5.2 In Part B, with the construction of markets, slaughter houses, office buildings and maintenance shops, the municipalities were required to set up management and administrative units for financial controls and cost recovery. These in turn evolved into the overall financial planning offices of the smaller municipalities where they did not exist before the project. III. ORGANIZATION PERFORMANCE 3.1 Institutional Development 3.1.1 A major objective of the project was to strengthen the capabilities of the municipal institution to plan and execute public works. In Part A, JRM (autonomous municipality governed by a five member board) within one year, became a powerful and dynamic institution; more efficient management and computerized cost controls were introduced during the second year to make the project implementation more efficient. One of the first training courses was set up for field level supervision staff--civil engineers, bookkeepers, supply and stockroom clerks--before they went into the field. Refresher courses were given later. With computers, the daily output in terms of direct costs of labor and materials were continually analyzed along with indirect costs. The Planning and Implementation Division of the Municipal Operations Department of JRM carefully distributed the daily workload to maintain a highly productive st.ff. Starting with eight "barrios", more were added as the trained work force and supervision became available. Marked improvement in the productivity was noted by the Bank supervision missions as their managers became more experienced. 3.1.2 In Part B, with the transfer to the Secretariat of General Coordination for Urban and Political Development, SAMU focused on the decentralization of the development programs in the geographic and functional regions plus two territories on the Atlantic coast. MINVAH aggresively responded to the responsibilities of implementing this sub- project. Many of SAMU's field and operational staff transferred to the MINVAH project implementation unit to continue their work. At the conclusion of the project, this unit continues to provide technical assistance in developing additional municipal improvements in the regions. By the end of the project, most of the staff was regionalized leaving a core group to coordinate and enhance the urban development policies. 3.2 Bank Group Performance 3.2.1 The Bank Group responded to the Government's request for assistance in July 1980 and by December 1980 pre-appraised the JRM operation. The appraisal mission of February 1981 consolidated the JRM and SAMU projects into one operation. A post-appraisal mission in October 1981 resolved the issue of JRM's financial autonomy which was threatened by the Government's decree to integrate JRM's budget with the National budget. The Board approved the project on January 12, 1982 and the loan became effective March 12, 1982. Two supervision missions were undertaken yearly in 1982, 1983 and 1984. For the first two missions 80Z of the effort was  - 6 - concentrated on technical assistance during the final design stages mainly with SAMU. The ir,tensive supervision during the first year helped the early completion of the project. Considerable effort was made to improve cost controls and monitoring of each component. Suggestions by the missions were quickly adopted in the field within a fine spirit of cooperation from the beneficiaries to the project managers. IV. FINANCIAL ASPECTS 4.1 Compliance with Covenants 4.1.1 During the appraisal an early agreement was reached with JRM on the guidelines for financial reporting and controls including systems of internal and external financial controls as well as systems of budgeting and budgeting controls. With its newly acquired computer capability, JRM had.these systems operating by the end of the first year. By December 1983, JRM presented its three-year Capital Investment Plan which was updated annually in accordance with the Loan Covenants. The rates of municipal taxes and fees were also reviewed annually to ensure adequate revenues. By July 1984, JRM had completed a study on how the private construction industry of Nicaragua could increase their participation in municipal improvements programs. With this study, JRM and SAMU/MINVAF complied with all the covenants. 4.1.2 In Part A, the JRM financial performance improved dramatically due mainly to improved tax enforcement and increasingly effective cost control. JRM ended CY83 with a significant surplus on their overall operation- -exceeding the SAR projection by 24Z. The tax on the sale of goods and services, regulated by a schedule (Plan de Arbitrios) was revised in 1980 and aggresively enforced. The collection system by the same token is functioning satisfactorily. Current expenditures were equally satisfactory--lower than the SAR estimate. With this performance, JRM had no difficulty in providing counterpart funding and discharging its debt repayment liabilities. 4.2 Cost Recovery 4.2.1 For Part A, the cost recovery was initiated in late 1983 in the completed "barrios", through a 15? surcharge on the monthly electricity bills. An additional surcharge was added to cover the cost of garbage collection. JRM receives a single monthly payment from the electrical corporation, eliminating problems of collection. The Instituto NicaragUense de Estudios Territoriales (INETER) in collaboration with the Direcci6n de Estadisticas de Asentamientos Humanos studied methods of front-foot assessment by pro-rating land values in relation to the distance from paved streets. JRM is applying a graduated tax designed to recover all their capital investments within ten years. These studies were expanded beyond the project boundries to cover eventually the entire city in the preparation of a new cadastral.  4.2.2 For Part B, the muni-ipalities are able to repay the SAMU loans directly from the revenue earnings of the markets, slaughterhouses and bus terminals. For the other infrastructure works, the costs will be recovered through general municipal revenues. All repayments of the SAMU line of credit are deposited into the Municipal Development Fund which is administered by the National Development Bank (Banco Nacional de Desarrollo). This fund continues to be used to finance new municipal development projects. 4.3 Economic Rate of Return 4.3.1 In the SAR report, an economic rate of return of about 17Z was calculated for Part A on the basis of the increase in thLe imputed rental value of existing housing units that woula likely result from the proposed investment. While the majority of the dwellings in these "barrios" were owner-occupied and increased in value, there were a significant number of dwellings for rent that benefitted from the project. The last supervision mission, September 19, 1984, was unable to collect sufficient data; however, taking into account the improvements to individual dwellings, the ERR based on the increase in land values exceeds the appraisal estimate by 50J. This is comparable to the experience in other urban upgrading projects. For Part B, the large number and variety of relatively small components to be financed through the SAMU line of credit made calculations for an o,rerall economic rate of return difficult. In both Parts A & B, important benefits, such as in health, were not quantified. V. T.ESSONS TO BE LEARNED 5.1 This project complemented the Emergency Plan Urban Reconstruction project (Credit 965-NI) that preceded it. In particular, the paving of roads allowed the buses procured under the first project to extend service while reducing wear and tear on the units. The net effect was synergistic: economic benefits accrued to both projects. 5.2 Lessons from this experience show that when urban upgrading projects are well designed, with appropriate technology, in scale with financial constraints, and implemented by a well organized and trained project management team, the results are positive. If, in addition, the project really addresses the felt needs of the people, and therefore effective community participation can be organized, the benefits to the poor are enhanced and the overall economic impact of the project is greater. In Managua, the "barrios" had less than 9,500 population (1,750 dwellings) so that participation by the residents in the site planning, including adjustments to their lot lines was easily achieved, thereby eliminating delays over street closings, etc.. Their cooperation facilitated the final clean up and landscaping. JRlI used the special account of three-months expenditures as a revolving working fund. The processing of reimbursement applications was reduced to ten working days; as a result, there were no delays due to lack of counterpart funds.  - 8 - 5.3 In Part B, the municipal development program for 15 mu- 4p;1lities was a success because the components were smal' and scaled to the functional needs of the town. The larger the community facility the greater are the problems which is a truism. The large market of Chinandega in particular had problems starting with site selection which was predicted. Nevertheless, future municipal development programs should continue to finance such projects, but with the understanding that there will be delays. The smaller components used prototype designs that were easily implemented.  ATTACHMENT I -9- COMMENTS FROM THE BORROWER (WORKING TRANSLATION) Managua, July 6, 1988 Mr. Alexander Nowicki Chief, Policy-Based Lending Energy, Industry and Public Utilities Division Operations Evaluation Department Dear Sir: We would like to thank you for your letter including the draft (PCR) report on the Municipal Development Project (Loan No. 2086-NI) which was made available to our institution in 1982. We would like to express our thanks to your organization for proffering the precious collaboration and the support which enabled us to provide, through this loan, basic infrastructure to the lowest-income neighborhoods thereby integrating them into the overall development of the city. We fully agree on both the terms of the report and the data it includes. We hope for a possibility to participate in future Municipal Development Projects, all the more so as our municipal development process focuses on the participation of the local population as a key feature for the implementation of works. Fraternally, Francisco Sanchez Deputy Minister Municipality of Managua  - 10 - - 10 - Annex I Table 1 NICARAGUA - LOAN 2086-NI MUNICIPAL DEVELOPMENT PROJECT Summary of Project Costs (in Million) Appraisal Estimate Actual Cost C$ US$ EU C$ US$ Part A - JRM Managua (187.7) (18.8) (253.1) (19.6)1/ -- Barrio Upgrading 156.9 15.7 226.2 17.5 -- Major Storm Drainage 30.8 3.1 26.9 2.1 Part B - Municipal Improvements 30.0 3.2 40.0 3.1 Part C - Municipal Management and Training 10.3 0.8 3.9 0.3 TOTAL 228.0 22.8 297.0 23.0 1/ The US$ equivalents are based on the actual exchange rates: 1982 1:11.2; 1983 1:12.4; and 1984 1:15.9.  - 11 - ANNEX 1 NICARAGUA cRAPH 1 MUNICIPAL DEVELOPMENT PROJECT Part A-Managua Infrastructure Upgrading Schedule of Implementation (In C $ '000) Total CoSts ._______________________________ *SAR Final - Estimate 8184 1981 1982 _ 9813 1984 COMPONENTS 4 1 2 3 4 1 2 4 3 4 1 2 NEIGHBORHOOD IMPROVEMENTS-BARRiOS _ _ 1. Venezuela (Meneses) 5.894 13.369 3_ 7 2122 8,869nssu 4800 2. Monsenor Lezcano (II Etopa) 10.068 10,714 _4.531 3 (5.537) 4300 3. San Cristobal 2.513 4.406 _llU uis ij U6 s uUllll 4.406 3.453) 1154) 610 \ 3796 4. Waspon 4.604 - s u S Santa Rosa 11.489 11.323 l8 ~ ~ ~ ~ IEII,I i,1.137 6. Tenderl Y Bo Paralsito 3,598 4.728 3598 4,668 7 Nicoroo 6 .366 6,798 o60 _ i , N 8Costa Rica (Blcandon) 7.155 9.516 m . 78 IN 1,1sloo 790 3.895 453 9. San Judas Y So El Pilar 12.278 18.4.34 1.405 o Ilt l 10 San Jose Oriental 6.082 9.060 90 1.41'3) 8.150 n uussUss it Cuba (Gadah MarIa) 17.080 24.600 - 6) ~19.6801 4.920llaiglgii 12. 8erta Calderon-Andres Castro 8,241 11.750 (5.521) (2 720) 8225 3525 13. El Horizonte (Patta) 3.928 4.419 (3.928) 3,714 s8,225 14 Riguero Sur (Revoluclon) 3.350 - /705 (3.350 15 Santa Elena-Fatima 3.912 10,995 3751u 1 is s4 w l 6 16. Domitla Lugo (Santa Clra) S.416 8.930 3411 '8.589 5. i 834516 17. Adel Darce (La Fuente) 9.159 16.495 429 i I i I I I I I (. (8.574 18. Reptos Schick 1, 2. 3. 4 8.574 10.368 LOST 6801S IhlIlslllnl _ 19. Seminaro-Mlraflores 7,774 10.499 IM 637 (541) (7.230) 20. Silva-San Luls T3.340 1,495 775 sl21