Colombia - Municipal Development Project

Document of The World Bank FOR OFFICIAL USE ONLY ,-AJ 336C Report No. 9232-CO STAFF APPRAISAL REPORT COLOMBIA MUNICIPAL DEVELOPMENT PROJECT MAY 9, 1991 Department III Infrastructure and Energy Operation Division Latin America and the Caribbean Region This document has a restricted distibution and may be used by recipients only In the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Peso Colombiano (Col$) US$1.00 = Coi$569 ColS1.00 = US$0.00176 As of January 1, 1991 PRINCIPAL ABBREVIATIONS AMD ACRONYMS USED BCH Banco Central Hipotecario (Central Mortgage Bank) CORPES Consejos RegioAales de Planificaci6n (Regional Planning Councils) DNP Departamento Nacional de Planeaci6n (National Planning Department) DTF Deposito a Termino Fijo (Average Interest Rate on Short-Term Deposits) ESAP Escuela Superior de Administracion Publica (National Public Administration School) FINDETER Financiera de Desarrollo Territorial S.A. (National Municipal Development Financial Intermediary) FFDU Fondo Financiero de Desarrollo Urbano (former National Urban Development Fund) IDB Inter-American Development Bank IGAC Instituto Geografico Agustin Codazzi (National Geographic Institute and Cadaster Office) ODP oficina Departamental de Planeacion (Departmental Planning Office) SENA Servicio National de Aprendizaje (National Apprenticeship Service) MDP Programa de Desarrollo Territorial (Municipal Development Program) UNDP United Nations Development Programme FISCAL YEAR January 1 to December 31  FOR OFICIAL USE ONLY MUNICIPAL DEVELOPMENT 2ROJECT Table of Contents Pase No. I. LOAN AND PROJECT SUMMARY . . . . . . . . . . . . . . . . . . . 1 II. THE SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. Status of Municipal Servies .9..... . . . . . . . 3 B. Sector Organization ............... 3 C. Municipal Finance . . . . . . . 5 D. Summary of Issues . . . . . . . . . . . . . 6 E. Prospects for Reform e.............. .. .. 7 F. Bank Role and Strategy in the Sector . . . . . . . . . . . 8 III. FINDETER - THE APEX AGENCY . . . . . . . . . . . . . . . . . . 9 A. Background . . . . . . . . . . . . . . . . . . . . . . . . 9 B. Organization and Management of FINDETER . . . . . . . . . 9 C. Financial Structure and Policy . . . . . . . ... . . . . . 10 D. First-tier Intermediation . . . . . . . . . . . . . . . . 11 E. Financial Analysis of FINDETER . . . . . . . . . . . . . . 11 IV. THE PROJECT . . . . . . . . . . . . . .. . . ... . . . 12 a. Origin . . . o. .. ...o. . .... o.. . . . . . 12 B. Objectives . . . . . . . . . . .. . . . . . . . . . . . 12 C. Ratinale for Bank Involvement . . . . . . . . . . . . . . 12 D. Description . . . . . . . . . . . . . . . . . . . . . . 13 E. Project Costs and Financing . . . . . . . . . . . . . . 15 F. Operation of the Line of Credit ............ 16 G. Implementation of Training. * .. . .... 19 H. Monitoring, Reports, Audits and Annual Reviews . . . . . . 20 I. Procurement . . . . . . . . . . . . . . . . . . . . . 20 J. Disbursements . . . . . . . . . . . . . . . . . . . . . 22 K. Benefits . . . . . . . . . . . . . . . . . . . . . . . . 22 L. Environmental Aspects .. . . . . . ..* 23 M. Risks and Safeguardes a .............. 23 V. AGREEMENTS AND RECOMMENDATIONS ......... ....... 24 This report is based on the findings of a post-appraisal mission which visited Colombia in October 1990. Mission members included Messrs. Vincent Gouarne (Urban Planner), Eleoterio Codato (Municipal Engineer) and Julio Linares (Senior Financial Analyst). Earlier inputs are credited to Messrs/Mme Walter Stottmann (Principal Sanitary Engineer), Katrina Sharkey (Training Specialist), Theo Bogaerts (Cadaster Specialist), Hernando Garzon (Intergovernmental Finance Specialist) and Stuart Whitehead (Senior Financial Analyst). Fear !:eview was provided by Messrs. Roberto Chavez (Senior Urban Planner) and Thomas Zearley (Senior Financial Analyst). Me. Silvia Delgado assisted in producing the report. Mr. Graham Smith is the managing Division Chief and Mr. Ping-Cheung Loh the Department Director for the operation. Thisdocument has arestricted distribution and may be used by rec; tents only in the performance| of their official duties. ts contents may not otherwise be disclosed without World Bank authorization.  MMLE OF CONTENT8 (cont'd) TEXT $ABma PMe No. IV.1 - Summary of Costs ..............a.......... is IV.2 - Financing Plan . . . . . . . . . . . . . . . . . . . . . . 16 IV.3 - Procurement Arrangements . ............... 21 1. Municipal Finance . . . . . . . . 26 2. Sector Lending by FFDU . . . . . . . . . . . . . . . . . . . . 30 3. organization Chart of FINDETER . . . . . . . . . . . . . . . 34 4. Institutional Development of FINDETER . . . . . . . . . . . . 35 5. FINDETER's Onlending Terms and Policies . . . . . . . . . . . 37 6. Financial Analysis . . . . . . . . . . . . . . . . . . . . . . 38 7. Training and Institutional Support . . . . . . . . . . . . . 44 8. Cadasters . . . . . . . . . . . . & . .. . . . 49 9. Eligibility Criteria for On-lending . . . . . . . . 55 10. Documentation for Bank Review of Subprojects . . . . . . . . . 62 11. Conditions to be Included in Subproject Agreements . . . . . 63 12. Project investment Schedule .e........... . .65 13. Allocation of Loan Proceeds . . . * # *. . . .66 14. Estimated Schedule of Disbursements . . . . . . . . . . . . . 67 15. Monitoring Indicators ............... . . . 68 16. Selected Documents on Project File . . . . . . . . . . . . . 69 MAP No. IBRD 18370R  COLOMBIA MEUR:CAL DEVELOPMENTL2ZQ I. LOAN AND PROJNCT SUMnARY Borro,wer: Republic of Colombia Loan Amounts US$60 Million Termvt Repayment in 17 years, including five years of grace, with interest at the Bank's standard variable rate. Executina Financiera de Desarrol'lo Territorial (FINDETER) Aoengiess National Planning Department (DNP) National Geographic Institute (IGAC) CQ-financina: Inter-American Development Bank (IDB) US$44 million Proiect In support of its decentralization policy the Government has launched pscrip.tiont the v-'icipal Development Program (NDP), which aims at improving munic.pal services and strengthening municipal institutions. The MDP includes (a) the implementation through the Financiera de Desarrollo Territorial (FINDETER) of a new sector lending policy based on more stringent criteria of financial and institutional project feasibility; (b) actions to strengthen regional agencies who help local governments formulate their investment and institutional development programs; (e) training of sector personnel; and (d) actions to enhance municipal revenues including the property tax. The Project would support the MDP through the following components: (A) a line of credit administered by FINDETER to finance about 300 subprojects to improve urban infrastructure and strengthen beneficiary local governments; (B) a program to strengthen FINDUTER and devetlop it. lending pipeline; (C) the development of sector training agencies and the delivery of a training program to sector staff; and (D) a program to update cadasters nationwidw. Benefits: The project would help provide improved municipal services to over 5 million people, most of them poor. It would have a positive economic effect on a large number of cities and on their hinterlands by addressing infrastructure bottlenecks, and would bring benefits by promoting the execution of more cost-effective investments, better maintenance of capital assets, and a higher self-reliance by local governments on local resource mobilization. A positive environmental impact wou'd be achieved through the implementation of sound solid waste disposal in participating municipalities. Risks: Reforming the local government sector will require a sustained effort in the years ahead. Risks include the possibility of (i) insufficient capacities and cumbersome procurement processes at the local level resulting in slow implementation or low quality of subprojectsl (ii) political pressures undermining the conditionality of FINDETER lending; (iii) the high turnover of municipal mayors and staff disrupting the continuity of investment planning and institutional development at the local level; and (iv) a limited ability of sector institutions to discharge their responsibilities  - 2 - in the implementation of the Government's 'Aunicipal Development Program. The project Includes measures to address these risks. While the project would help build up subproject preparation capabilities, the scale of the proposed line of credit does not entail a substantial increase in sector investment. To ensure adherence to on-lending condLtionality, th.e Bank or IDS in turn would review the larger subprojects prior to approval by FINDETER, and all subprojects prior to approving disbursements. An annual review of project and sector issues would lead to timely plans of action to remedy identiZied shortcomings. Project agencies would be strengthened as part of the project and would commit themselves to achieve monitorable targets. Summary of Costs ----US$ million 1/---- FQrelan Logal Total of total IbMunicipal Projects 72.0 86i.2 158.2 mI Infrastructure Investments 68.2 79.8 148.0 79% Institutional Development 2.5 2.5 5.0 3% Studies & Designs 1.3 3.9 5.2 3% Instit. Dev. FINDETER 1.6 2.4 4.0 _ 2A Training 3.8 6.1 10.0 5A Cadaster 11.9 4.1 .0.1L Q 9 Total Project Cost 89.4 98.8 188.2 I= 1/ Includes taxes estimated at about US$10 million. 2/ Each component is a program of a pre-set amount, which allows for price inflation based on Bank projections as of November 1990. Physical contingencies do not apply. Financina Plan % of USS millllon Total Sub-borrowers 47.5 25.2% CORPES 0.7 0.4% Financial Intermed. 16.6 8.8% FINDETER 14.1 7.5% National Government 5.3 2.8% IDB 44.0 23.4% IBRD 60.0 31.9% Total Financing 188.2 100.0a Estimated Disbursements Bank FY 92 93 94 95 96 97 ------------------US$ million