Uganda - First Urban Project

Docwment of The World Bank FOR OFFICIAL USE ONELY Report No. P-5354-UG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 20.7 MILLION TO THE GOVERNMENT OF UGANDA FOR A FIRST URBAN PROJECT DECEMBER 3, 1990 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.  CURRENCY EQUIVALENT (May 1, 1990) Currency Unit = Uganda Shilling (U Sh) USS 1.00 - U Sh 400 U Sh 1.00 = US$0.0025 SDR 1.00 = US$1.38 FISCAL YEAR Government, NWSC July 1 to June 30 KCC October 1 to September 30 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ERP - Economic Recovery Program GOU - Government of the Republic of Uganda GTZ = Gesellschaft fuer Technische Zusammenarbeit ICB International Competitive Bidding IPA Institute of Public Administration KCC Kampala City Council LCB = Local Competitive Bidding LGRC - Local Government Resource Center MLG - Ministry of Local Government MOHUD - Ministry of Housing and Urban Development MPED - Ministry of Planning and Economic Development NDF Nordic Development Fund MWMD = Ministry of Water and Mineral Development PAPSCA - Program to Alleviate Poverty and the Social Costs of Adjustment PCU - Project Coordination Unit PPD - Physical Planning Department WDD Water Development Department  FOR OMCIAL USE ONLY UGANDA FIRST URBAN PROJECT Credit and Proiect Summary Borrower: Government of Uganda Implementing Agencies Kampala City Council (KCC) and Beneficiaries: Ministry of Local Government (MLG) Physical Planning Department (PPD) of Ministry of Housing & Urban Development Institute of Public Administration (IPA) Credit Amount: SDR 20.7 million (US$28.7 million) Terms: Standard, with 40 years maturity On-lending Terms: Govermnent to provide to KCC out of the proceeds: i) US$4.5 million in the form of a grant and ii) US$21.2 million in the form of a loan at 22 interest rate to be repaid over 25 years, including five years grace. Financing Plan: Local Foreign Total (US$ millions) IDA 2.6 26.1 28.7 Other donors 1.2 4.0 5.2 Government 4.6 0.0 4.6 Total 8.4 30.1 38.5 Economic Rate of Return: 242 Staff Appraisal Report: Report No. 8921-UG dated December 3, 1990 Map: IBRD No. 22472 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.  MENORAMDUM AND RECOSMEND&TION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDA FOR A FIRST URBAN PROJECT 1. The following report on a proposed credit to Uganda for SDR 20.7 million (US$28.7 million equivalent) is submitted for approval. The proposed Credit would be on standard IDA terms with forty years maturity and help finance a First Urban Project. The Project would be cofinanced by the Nordic Development Fund (NDF) for US$4.6 million equivalent and by the Gesellschaft fur Technische Zusammenarbeit (GTZ) for US$0.6 million equivalent. 2. Background. Uganda is well-endowed with human and natural resources, but its economy has been devastated by nearly two decades of political instability, economic mismanagement, and internal discord. The establishment of a stable government by the National Resistance Movement in 1986 has been accompanied by the restoration of peace and security, the re- establishment of political institutions that reflect the plural character of Ugandan society and the creation of a measure of discipline in the public service. Since 1987 the Government has adopted a multi-phased economic adjustment program aimed at stabilizing its domestic and external imbalances through greater financial and monetary discipline, and promoting growth through greater dependence on market forces. Measures have been taken to liberalize trade, to establish a more realistic exchange rate policy, and to encourage strong private sector participation. 3. This improved policy framework needs to be complemented by improvements to social and infrastructure services in an effort to improve living conditions for the population as a whole and alleviate urban poverty in particular if the adjustment and reform program is to retain public support. Improved maintenance of streets and drains, upgrading of urban markets, and the strengthening of solid waste management in Kampala (pop. 700,000) would direct benefits to the urban poor, especially those involved in informal sector activities, including a large proportion of women and children. In addition, in order to ensure the sustainability of physical rehabilitation efforts, measures are needed to improve planning for the urban sector and its management including the generation of revenue by the local authorities concerned, selectiveiy increasing employee compensation to improve staff retention rates, and the provision of staff training. 4. Rationale for IDA Involvement: IDA's country assistance strategy for Uganda supports the Government's economic recovery by helping to restore productive capacity while steering the economy towards sustainable long-term growth. The three main elements of this strategy are: i) the restoration of macro-economic stability; ii) the rehabilitation of physical infrastructure ; and iii) institutional capacity building and human resources development to address longer-term development objectives. 5. The restoration of macro-economic stability, expedited by the IDA- financed Economic Recovery Program (ERP), will be to the benefit of the majority of Ugandans in the medium term. However, the short-run impact of the ERP means that the needs of some of the worst victims of the period of  civil unrest and economic decline will not be met. These groups include the urban poor living in dangerously unhealthy slum areas of Kampala. The proposed Project, therefore, has as one of its objectives, the alleviation of poverty in Kampala and would complement the recently approved Project for the Alleviation of Poverty and the Social Costs of Adjustment (PAPSCA). 6. Existing IDA credits are assisting in the rehabilitation of essential infrastructure, viz., Highways III and IV, Railways I, Water Supply I and II, and Telecommunications TI. Operations under consideration include Power III, additional transport sector rehabilitation and a water supply project for small towns. The proposed Project would be the third in a series dealing with the rehabilitation of local authority infrastructure but with emphasis on services other than water supply. The Project includes components with significant impact on improving living conditions. 7. The Project would support Uganda's aim to invest in- human capital development by financing the institutional strengthening of government bodies at both central and local levels. Such capacity building is necessary if local authorities are to resume the provision of social and infrastructure services with minimal dependence on central government resources, both financial and human. 8. The Project would also act as a catalyst in attracting other donor support for the urban sector as demonstrated by the participation of The Nordic Development Fund (NDF) and Gesellschaft fuer Technische Zusammenarbeit (GTZ) as co-financiers of the proposed project. 9. Proiect Obiectives: The Project would include the following objectives: i) improving living conditions and alleviating poverty in Kampala by restoring key infrastructure services and related maintenance activities; ii) improving urban financial management by strengthening the revenue base of Kampala City Council (KCC) and promoting sound urban cost recovery policies; and iii) strengthening institutional capacity of the Ministry of Local Government (MLG) to assist local authorities to increase their revenue base and strengthen financial management, and KCC to maintain urban services and manage urban land development. The proposed Project would support the Government's efforts to decentralize responsibility for the planning, design and management of urban services to local authorities while assisting with reconstruction of the country after a period of political instability, social strife and physical destruction. 10. Proiect Descriptions The Project includes support for: (i) the rehabilitation of urban markets, streets and drains, refuse collection and disposal, and selected office and workshop accommodation in Kampala; (ii) the servicing of land for residential development; iii) the preparation of up-to-date topographical mapping and a strategic urban development plan for Kampala; and iv) technical assistance and training for KCC, MLG and PPD staff. A breakdown of costs and the financing plan is shown in Schedule A. Amounts and methods of procurement and of disbursements and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Uganda are  - 3- given in Schedules C and D respectively. A map and the Staff Appraisal Report No. 8921-UG dated December 3, 1990 are also attached. 11. Agreed Actions: Prior to negotiations Government had ti) declared Kawaala as a planning area under the Town and Country Planning Act (1964); (ii) confirmed the availability of land to be acquired for the Project; and (iii) prepared a draft plan for involuntary resettlement and compensation for bona fide occupants in Kawaala and the urban markets identified for upgrading. By negotiations KCC had demonstrated its commitment to strengthening the revenue base of the city by carrying out a specific action plan covering improved property valuation and rating, billing and collection including issuance of demand notes based on provisional rating of 68,000 properties, and the collection of U Sh 130 million. 12. During negotiations agreement was reached with the Government with respect to the following issues: ti) a timetable for settlement of arrears in rates owed to KCC on all properties owned by public sector entities; (ii) KCC's authority to increase in a timely manner user charges and fees for municipal services to cover the real cost of providing the services; (iii) improvement in KCC's revenue collection efficiency, measured as a percent of total outstanding revenue receivable -- from 27 percent in FY1990 to 87 percent in FY1994 and thereafter; (iv) limitations to KCC's use of bank overdraft facilities; (v) adoption of an urban environmental policy with special attention to solid waste management by April 30, 1992 and increase in refuse delivered to municipal landfill areas from 7,000 m3 to 16,00 m3 by December 1993; (vi) submission to IDA of annual road maintenance programs by June 30 of 1991, 1992 and 1993 for review and privatization of vehicle repair; and (vii) beneficiary selection criteria for allocating housing plots in Kawaala. The following condition of disbursement will apply to the two project components requiring acquisition of land (development at Kawaala and urban markets) -- that GOU submit evidence of both KCC's leasehold title to land required for carrying out the two project components and a resettlement and compensation program satisfactory to IDA. 13. Conditions of Effectiveness: During negotiations agreement was reached regarding the following conditions of effectiveness; (i) the subsidiary loan agreement between the Government and KCC will have been entered into; (ii) conditions of effectiveness of co-financed grants and loans will have been fulfilled; and (iii) the municipal engineer for PCU and the municipal financial management specialist for KCC will be in post. 14. Benefits: The Project would have significant positive social, institutional and environmental benefits, as one in a series of operations to alleviate poverty and the social costs of adjustment. The upgrading of major markets will improve environmental and health conditions affecting the handling of most of the food consumed in Kampala as well as re- establish the city's authority over this important revenue source. The urban poor would benefit in the form of healthier food and less illness- related work interruption. The consistent maintenance of roads, drains and  - 4-. footpaths will ease motorized, non-motorized and pedestrian traffic, in particular along major public transport routes and access roads to previously neglected lower income, high density areas of the city. Improved solid waste collection and disposal will ameliorate environmental conditions in the city. The development of a pilot sites and services area, a new approach to housing delivery in Uganda, will help reduce the housing shortage for middle income groups who would be provided with the opportunity to build moderately priced houses and, in the process, create opportunities for low-income rental accommodation within the scheme. The development will also increase KCC's experience in managing land development projects and establish a replicable model for future development of residential areas in Kampala and other towns. Market improvement, road maintenance and the servicing of residential land will also create employment, particularly for the informal sector. 15. Improvements in financial and administrative management combined with the mobilization of higher revenues would enable KCC to provide a higher level of services without causing a financial burden on the central government. By FY1993, KCC's revamped property tax system should generate an increase of more than ten times in real terms the amount of rates actually collected in 1989. Administration and management of KCC finances would have improved owing to staff upgrading by means of a twinning arrangement with an overseas local authority and a Ugandan-based training resource center for local government to be established under the Project. This combined approach would also be used to strengthen the financial management of other towns and the monitoring and support capabilities of the Ministry of Local Government, thus setting the stage for possible future improvements in other urban areas. 16. Risks: The main risks affecting the Project concern the effectiveness of the two key implementing agencies, KCC and MLG, given that they are emerging from a long period of institutional deterioration. KCC is facing a shortage of qualified staff and political constraints to rapid increases in municipal taxes, rates and charges. The Ministry suffers from low salary levels and overall central government budgetary constraints. However, KCC has already made dramatic progress in the past year in recruiting qualified staff and increasing revenue. The proposed components of technical assistance and training in this project, together with macro- economic measures designed to continue overall economic recovery supported by IDA restructuring operations, are expected to mitigate these risks. 17. Recommendation: I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credit. Barber B. Conable President Attachments December 3, 1990  SCE EDTE A UGANDA First Urban Proiect Estimated Costs and Financing Plan Estimated Costs: Local Foreign Total -------US$ million------ Infrastructure Rehabilitation 4.1 12.4 16.5 Urban Mapping and Planning 0.2 2.3 2.5 Kawaala Sites and Services 1.0 3.2 4.2 Technical Assistance and Training (KCC) 0.4 3.0 3.4 Technical Assistance and Training (MLG) 0.7 0.8 1.5 Project Preparation (including follow-up project) 0.1 2.1 2.2 Total Base Costs 6.5 23.8 30.3 Physical Contingencies 0.7 2.2 2.9 Price Contingencies 1.2 4.1 5.3 Total Project Costs 8.4 30.1 38.5 Financing Plan: IDA 2.6 26.1 28.7 NDY 1.1 3.5 4.6 GTZ 0.1 0.5 0.6 GovernmentlKCC 4.6 0.0 4.6 Total Proiect Costs 8.4 30.1 38.5 .  -6- SCHEDULO B UGANDA, First Urban Proiect Procurement Methods and Disbursements Tabl. 4.1 Sory of Pr- urm matheds 1/ Procufaft t lco LCI IS Gaa. 2/ C lOfna 4/ Totl -(Usll WI on) -- Civil Ilorke 14CC 16.00 0.U 1.114 (1.60) (0.2) (1.908) NA 0.86 O.U 0.211) (0.25) toed Maloteftnc./llialing matri.le KCC 07.6 0.07 (0.6F) (0.6?) Vehile, qlup %t, Tool. 4CC 7.8U 0.10 t.5U (7.86) (0.16) (7.56) LA 0.4 0G." 0.47 (0.48) (0.04) (0.47) Conasltant Servil,. TA, Tralaing 'CC 8.58 1.56 7.09 (8.58) (t.58) NA 5/ 1.81 1.10 2.48 (1.38) (1. U) 30 0.8 0.08 (0o.0) (0.03) PFf 0.60 0.60 er_*h In S/ Lande o.eeato 8/" 14CC 0.00 0.06 To-tl b_ 26.81 0.67 0.86 6.6? 5.26 86.50 A21.60) (0.62) (0.86) (6.79) (210 1/ Pigr* ito brakat. are the rpAla,e will finaeaW by IDA. 1/ Stetuuba,butaf .eaal_tan .d landw .e.pa tat b<i... 8/ Land af laaala* comn1 *and_ eIiosa aoN. Disbursements Category Amount (US$ million) Percentage Civil works 14.21 75X total expenditure Materials supply 0.67 1001 total expenditure Vehicles, equipment and tools 8.03 1002 total expenditure Consultant services Technical assistance 4.86 1002 total expenditure Training 0.93 1002 total expenditure Total 28.70 Estimated Disbursements: Bank FY 91 92 93 94 95 96 97 98+ Annual 1.8 2.9 4.8 6.7 6.5 4.3 1.2 0.5 Cumulative 1.8 4.; 9.5 16.2 22.7 27.0 28.2 28.7  -7- SCDSDULE C UGANDA First Urban Project Supplementary Prolect Data Section I: Timetable of Key Events (a) Time taken by Borrower to prepare: Two years (b) Project prepared by: KCC and MLG with assistance from consultants (c) First IDA mission: September 1987 (d) Appraisal mission departure: April 1990 (e) Negotiations: October 1990 (f) Planned date of effectiveness: April 1991 (g) List of relevant PCRs and PPARs: None  STATUS OF BANK GROUP OPERATIONS IN UGANDA Schedule D Page 1 of 2 A. STATEMENT OF SANK LOANS AND IDA CREDIT (as of September 80, 1990) ----1SS6lMillon- Amount(Lees Cancel lat1ons) Loan or Flscal Undto- Crodit No. Year Borrower Purpose Bank IDA bureed One (1) loan and elghteen (18) fully disbursed, 8.40 S89.16 Of which SECALo, SALs and Program Loans/Credit. */ Cr. 1841-1 1989 Uganda Econoolc Recovery Credit 0.00 1.70 Cr. 1252-0 1982 Uganda Reconstruction Credit II 0.00 70.00 Cr. 1474-0 1984 Uganda Reconstruction III 0.00 60.00 Cr. 0340 b/ 1988 Uganda Economic Recovery Credit/SAF 24.00 0.03 Cr.1248 1982 Uganda IDF I 36.00 4.97 Cr.1828 1983 Uganda Agricultural Rehabilitation 70.00 9.60 Cr.1434 1984 Uganda S eond Technical Assistance 16.00 1.89 Cr.1445 1904 Uganda Third Highway S6000 23.72 Cr.16S9 1086 Uanda Agriecultural Development 10.00 7.11 Cr.1660 1985 Uganda Second Power 28.80 26.07 Cr.1561 198S Uganda Petroleum Exploration Promotion 5.10 5.48 Cr.1803 1987 Uganda Fourth Highway 18.00 6.18 Cr.1824 1988 Uganda - Forestry Rehabilitation 13.00 9.08 Cr.1844-0 b/ 1988 Uganda Economic Recovery Credit/SAF 85.00 1.92 Cr.1869 1988 Ugapnd South West Ag. Rehb. 10.00 10.05 Cr.1893 1988 Ugandb Sugar Rehabllitatlon 24.90 22.88 Cr.1984 1988 Uganda Health Rec. 42.50 85.80 Cr.1961 1988 Ugands Toeh. Aset. III 18.00 18.35 Cr.1844-2 b/ 19809 Uganda Coon. Recovery Credit 25.00 2.14 Cr.1962 1989 Uganda Public Enterprises 15.00 11.77 Cr.1965 1989 Uganda Education IV 22.00 10.90 Cr.1986 1989 Usanda Railways I 7.00 8.54 Cr.1991 c/ 1989 Uganda Telecom II 82.30 42.09 Cr.0341 b/ 1990 Uganda Economic Recovery Credit 12.80 1.08 Cr.1844-3 b/ 1990 Uganda Economic Recovery Credit 1.50 0.20 Cr.2087 b/ 1990 Ugand Eeonomic Reovery Credit 12S.00 61.58 Cr.2088 1990 Uganda Poverty A Sos. Cost 28.00 27.60 Cr.2124 1990 Uganda Water Supply II 60.00 62.75 Cr.2176 e/ 1991 Uganda Livestock 21.00 22.40 Total 8.40 1297.76 427.47 of whicb repaid 8.40 24.78 Total held by Sank I IDA 0.00 1272.97 zinua= TOTAL Undisbursed 427.47 */ Approved after FY60 b/ SAL, SECAL or Program Loan/Credit c/ ot yet effective ugledl.wkl 11.9.90  Schodule D Page 2 of 2 B. STATEMET OF IFC INVESTMENTS Di UADA (as of September 80, 1990) Amount in USs MillIon Fiscal Yer ObiIgor Type of Business Loan Equity Total 1065 Vulco Text?l s., Ltd. Text? le 2.79 0.71 3.60 1972 Tourism Promotion. Services Tourism 1.11 - 1.11 19U4 Toro and Mltyana Tea Co., Ltd. Food and Food (TAMtCO) Processing 1.62 - 1.62 1984 Sugar Corporation of Uganda Food and Food Processing 8.00 - 8.00 1985 Uganda Tea Corporation Ltd. Food and Food Procesaing 2.81 - 2.81 1986 Dovelopment Finance Company Development Finance - 0.38 0.88 of Ubnn ----- ----- ----- Total gross comitments 16.38 1.09 17.42 Lse: Repayments, cancellations, exchange adJ ustments, termination and *sl-e 4.51 0.72 5.23 Total Comitmet m mow held by IFC: 11.82 0.87 12.19 Total undisbureed (including 0.00 0.00 0.00 partlelpant.' portion) Source: IFC Clebursomente Section ugtdl .wkl 11.9.90  IBRD 22472 'gRiOUT! _ - r, vc ) Tn OPAI A 9 --- .;*.aC ETHIOPIA U A D 7 UGANDA CAR~ , />, t>F*S_e-<__CITY OF KAMPALA Z A I E f E, / ES N VA " * - - r _ r Z A IRE K.A%MA V * r, S .\ N /.... * '- ' 'j TANZANIA _ \ / R.~/ Kowomp 1 KIre- -~~